Voya 2014 Annual Report Download - page 237

Our Risk Committee discusses and approves all risk policies and reviews and approves risks associated with
our activities. This includes volatility (affecting earnings and value), exposure (required capital and market risk)
and insurance risks. Each business has a Committee that reviews business specific risks and is governed by the
Risk Committee.
We have implemented several limit structures to manage risk. Examples include, but are not limited to, the
following:
• At-risk limits on sensitivities of earnings and regulatory capital;
• Duration and convexity mismatch limits;
• Credit risk limits;
• Liquidity limits;
• Mortality concentration limits;
• Catastrophe and mortality exposure retention limits for our insurance risk; and
• Investment and derivative guidelines.
We manage our risk appetite based on several key risk metrics, including:
• At-risk metrics on sensitivities of earnings and regulatory capital
• Stress scenario results: forecasted results under stress events covering the impact of changes in interest
rates, equity markets, mortality rates, credit default and spread levels, and combined impacts
• Economic capital: the amount of capital required to cover extreme scenarios
The risk metrics described above constitute our risk framework.
We are also subject to cash flow stress testing pursuant to regulatory requirements. This analysis measures
the effect of changes in interest rate assumptions on asset and liability cash flows. The analysis includes the
effects of:
• the timing and amount of redemptions and prepayments in our asset portfolio;
• our derivative portfolio;
• death benefits and other claims payable under the terms of our insurance products;
• lapses and surrenders in our insurance products;
• minimum interest guarantees in our insurance products; and
• book value guarantees in our insurance products.
We evaluate any shortfalls that our cash flow testing reveals and if needed increase statutory reserves or
adjust portfolio management strategies.
Derivatives are financial instruments whose values are derived from interest rates, foreign currency
exchange rates, financial indices, or other prices of securities or commodities. Derivatives include swaps, futures,
options and forward contracts. Under U.S. insurance statutes, our insurance subsidiaries may use derivatives to
hedge market values or cash flows of assets or liabilities; to replicate cash market instruments; and for certain
limited income generating activities. Our insurance subsidiaries are generally prohibited from using derivatives
for speculative purposes. References below to hedging and hedge programs refer to our process of reducing
exposure to various risks. This does not mean that the process necessarily results in hedge accounting treatment
for the respective derivative instruments. To qualify for hedge accounting treatment, a derivative must be highly
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