Voya 2014 Annual Report Download - page 232

Derivatives
We use derivatives for a variety of hedging purposes as further described below. We also have embedded
derivatives within fixed maturities instruments and certain annuity products with guarantees. See the Business,
Basis of Presentation and Significant Accounting Policies Note in our Consolidated Financial Statements in Part
II, Item 8. of this Annual Report on Form 10-K for further information.
Closed Block Variable Annuity Hedging
See Quantitative and Qualitative Disclosures About Market Risk in Part II, Item 7A. of this Annual Report
on Form 10-K for further information.
Invested Asset and Credit Hedging
Interest rate caps and interest rate swaps are used to manage the interest rate risk in our fixed maturities
portfolio. Interest rate swaps include forward starting swaps, which are used for anticipated purchases of fixed
maturities. They represent contracts that require the exchange of cash flows at regular interim periods, typically
monthly or quarterly.
Foreign exchange swaps are used to reduce the risk of a change in the value, yield or cash flow with respect
to invested assets. Foreign exchange swaps represent contracts that require the exchange of foreign currency cash
flows for U.S. dollar cash flows at regular interim periods, typically quarterly or semiannually.
Certain forwards are acquired to hedge certain CMO assets held by us against movements in interest rates,
particularly mortgage rates. On the settlement date, we will either receive a payment (interest rate decreases on
purchased forwards or interest rate rises on sold forwards) or will be required to make a payment (interest rate
rises on purchased forwards or interest rate decreases on sold forwards).
CDS are used to reduce the credit loss exposure with respect to certain assets that we own, or to assume
credit exposure on certain assets that we do not own. Payments are made to or received from the counterparty at
specified intervals and amounts for the purchase or sale of credit protection. In the event of a default on the
underlying credit exposure, we will either receive an additional payment (purchased credit protection) or will be
required to make an additional payment (sold credit protection) equal to par minus recovery value of the swap
contract.
Sale of Certain Alternative Investments
On June 4, 2012, certain insurance company subsidiaries of ours entered into an agreement to sell certain
general account private equity limited partnership investment interest holdings (“sale of certain alternative
investments”) with a carrying value of $812.2 million as of March 31, 2012 included in Assets related to
consolidated investment entities. These assets were sold to a group of private equity funds that are managed by
Pomona Management LLC, also a subsidiary of ours. The transaction resulted in a net pre-tax loss of
$91.9 million in the second quarter of 2012. The transaction closed in two tranches with the first tranche having
closed on June 29, 2012 and the second tranche closed on October 29, 2012. As of June 30, 2012, the fair value
of the alternative investments in the second tranche was reduced to $412.5 million, which represented the sale
price of the remaining alternative investments involved in this transaction. We sold these assets as part of our
periodic portfolio and capital management review.
European Exposures
We closely monitor our exposures to European sovereign debt in general, with a primary focus on the
sovereign debt of Greece, Ireland, Italy, Portugal and Spain (which we refer to as “peripheral Europe”), as these
countries have applied for support from the European Financial Stability Facility or received support from the
European Central Bank via government bond purchases in the secondary market.
209