Voya 2014 Annual Report Download - page 221

Fixed Maturities Credit Quality—Ratings
The Securities Valuation Office (“SVO”) of the NAIC evaluates the fixed maturity security investments of
insurers for regulatory reporting and capital assessment purposes and assigns securities to one of six credit
quality categories called “NAIC designations.” An internally developed rating is used as permitted by the NAIC
if no rating is available. These designations are generally similar to the credit quality designations of the NAIC
acceptable rating organizations (“ARO”) for marketable fixed maturity securities, called rating agency
designations except for certain structured securities as described below. NAIC designations of “1,” highest
quality and “2,” high quality, include fixed maturity securities generally considered investment grade by such
rating organizations. NAIC designations 3 through 6 include fixed maturity securities generally considered below
investment grade by such rating organizations.
The NAIC designations for structured securities, including subprime and Alt-A RMBS, are based upon a
comparison of the bond’s amortized cost to the NAIC’s loss expectation for each security. Securities where
modeling results in no expected loss in each scenario are considered to have the highest designation of NAIC 1.
A large percentage of our RMBS securities carry the NAIC 1 designation while the ARO rating indicates below
investment grade. This is primarily due to the credit and intent impairments recorded by us that reduced the
amortized cost on these securities to a level resulting in no expected loss in any scenario, which corresponds to
the NAIC 1 designation. The methodology reduces regulatory reliance on rating agencies and allows for greater
regulatory input into the assumptions used to estimate expected losses from such structured securities. In the
tables below, we present the rating of structured securities based on ratings from the NAIC methodologies
described above (which may not correspond to rating agency designations). NAIC designations (e.g., NAIC 1-6)
are based on the NAIC methodologies.
As a result of time lags between the funding of investments, the finalization of legal documents and the
completion of the SVO filing process, the fixed maturity portfolio generally includes securities, such as private
placements, that have not yet been rated by the SVO as of each balance sheet date. Pending receipt of SVO
ratings, the categorization of these securities by NAIC designation is based on the expected ratings indicated by
internal analysis.
Information about certain of our fixed maturity securities holdings by the NAIC designation is set forth in
the following tables. Corresponding rating agency designation does not directly translate into NAIC designation,
but represents our best estimate of comparable ratings from rating agencies, including Moody’s, S&P and Fitch.
If no rating is available from a rating agency, then an internally developed rating is used.
The fixed maturities in our portfolio are generally rated by external rating agencies and, if not externally
rated, are rated by us on a basis similar to that used by the rating agencies. As of December 31, 2014 and 2013,
the weighted average quality rating of our fixed maturities portfolio was A. Ratings are derived from three ARO
ratings and are applied as follows, based on the number of agency ratings received:
• when three ratings are received then the middle rating is applied;
• when two ratings are received then the lower rating is applied;
• when a single rating is received, the ARO rating is applied; and
• when ratings are unavailable then an internal rating is applied.
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