Voya 2014 Annual Report Download - page 233

The financial turmoil in Europe continues to be a potential threat to global capital markets and remains a
challenge to global financial stability. Additionally, the possibility of capital market volatility spreading through
a highly integrated and interdependent banking system remains. Despite signs of continuous improvement in the
region, it is our view that the risk among European sovereigns and financial institutions still warrants scrutiny, in
addition to our customary surveillance and risk monitoring, given how highly correlated these sectors of the
region have become.
The United States and European Union have recently imposed sanctions against select Russian businesses in
response to the ongoing conflict in eastern Ukraine. We remain comfortable with our aggregate Russian exposure
given its relatively small allocation in our total investment portfolio.
We quantify and allocate our exposure to the region, as described in the table below, by attempting to
identify all aspects of the region or country risk to which we are exposed. Among the factors we consider are the
nationality of the issuer, the nationality of the issuer’s ultimate parent, the corporate and economic relationship
between the issuer and its parent, as well as the political, legal and economic environment in which each
functions. By undertaking this assessment, we believe that we develop a more accurate assessment of the actual
geographic risk, with a more integrated understanding of all contributing factors to the full risk profile of the
issuer.
In the normal course of our ongoing risk and portfolio management process, we closely monitor compliance
with a credit limit hierarchy designed to minimize overly concentrated risk exposures by geography, sector and
issuer. This framework takes into account various factors such as internal and external ratings, capital efficiency
and liquidity and is overseen by a combination of Investment and Corporate Risk Management, as well as
insurance portfolio managers focused specifically on managing the investment risk embedded in our portfolio.
As of December 31, 2014, we had $755.3 million of exposure to peripheral Europe, which consisted of a
broadly diversified portfolio of credit-related investments primarily in the industrial and utility sectors. We did
not have any fixed maturities or equity securities exposure to European sovereigns based in peripheral Europe.
Peripheral European exposure included non-sovereign exposure in Ireland of $234.5 million, Italy of $293.6
million, Portugal of $10.3 million, and Spain of $216.9 million. We did not have any exposure to Greece. As of
December 31, 2014, we did not have any exposure to derivative assets within the financial institutions based in
peripheral Europe. For purposes of calculating the derivative assets exposure, we have aggregated exposure to
single name and portfolio product CDS, as well as all non-CDS derivative exposure for which it either has
counterparty or direct credit exposure to a company whose country of risk is in scope.
Among the remaining $8,123.2 million of total non-peripheral European exposure, we had a portfolio of
credit-related assets similarly diversified by country and sector across developed and developing Europe. As of
December 31, 2014 our sovereign exposure was $235.4 million, which consisted of fixed maturities. We also had
$1,094.8 million in net exposure to non-peripheral financial institutions with a concentration in Switzerland of
$223.0 million and the United Kingdom of $300.2 million. The balance of $6,793.0 million was invested across
non-peripheral, non-financial institutions.
In addition to aggregate concentration to the Netherlands of $1,171.2 million and the United Kingdom of
$3,299.6 million, we had significant non-peripheral European total country exposures in Belgium of $354.7
million, France of $696.2 million, Germany of $714.2 million and Switzerland of $900.0 million. We place
additional scrutiny on our financial exposure in the United Kingdom, France and Switzerland given our concern
for the potential for volatility to spread through the European banking system. We believe the primary risk results
from market value fluctuations resulting from spread volatility and the secondary risk is default risk, should the
European crisis worsen or fail to be resolved.
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