Voya 2014 Annual Report Download - page 263

Voya Financial, Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
estimate of fair value is the price that would be received to sell an asset or transfer a liability (“exit price”) in an
orderly transaction between market participants in the principal market, or the most advantageous market in the
absence of a principal market, for that asset or liability. The Company uses a number of valuation sources to
determine the fair values of its financial assets and liabilities, including quoted market prices, third-party
commercial pricing services, third-party brokers, industry-standard, vendor-provided software that models the
value based on market observable inputs and other internal modeling techniques based on projected cash flows.
Investments
The accounting policies for the Company’s principal investments are as follows:
Fixed Maturities and Equity Securities: The Company’s fixed maturities and equity securities are currently
designated as available-for-sale, except those accounted for using the fair value option (“FVO”). Available-for-
sale securities are reported at fair value and unrealized capital gains (losses) on these securities are recorded
directly in Accumulated other comprehensive income (loss) (“AOCI”) and presented net of related changes in
DAC/VOBA and other intangibles and Deferred income taxes. In addition, certain fixed maturities have
embedded derivatives, which are reported with the host contract on the Consolidated Balance Sheets.
The Company has elected the FVO for certain of its fixed maturities to better match the measurement of assets
and liabilities in the Consolidated Statements of Operations. Certain collateralized mortgage obligations
(“CMOs”), primarily interest-only and principal-only strips, are accounted for as hybrid instruments and valued
at fair value with changes in the fair value recorded in Other net realized capital gains (losses) in the
Consolidated Statements of Operations.
Purchases and sales of fixed maturities and equity securities, excluding private placements, are recorded on the
trade date. Purchases and sales of private placements and mortgage loans are recorded on the closing date.
Investment gains and losses on sales of securities are generally determined on a first-in-first-out (“FIFO”) basis.
Interest income on fixed maturities is recorded when earned using an effective yield method, giving effect to
amortization of premiums and accretion of discounts. Dividends on equity securities are recorded when declared.
Such dividends and interest income are recorded in Net investment income in the Consolidated Statements of
Operations.
Included within fixed maturities are loan-backed securities, including residential mortgage-backed securities
(“RMBS”), commercial mortgage-backed securities (“CMBS”) and asset-backed securities (“ABS”).
Amortization of the premium or discount from the purchase of these securities considers the estimated timing and
amount of prepayments of the underlying loans. Actual prepayment experience is periodically reviewed and
effective yields are recalculated when differences arise between the prepayments originally anticipated and the
actual prepayments received and currently anticipated. Prepayment assumptions for single-class and multi-class
mortgage-backed securities (“MBS”) and ABS are estimated by management using inputs obtained from third-
party specialists, including broker-dealers, and based on management’s knowledge of the current market. For
prepayment-sensitive securities such as interest-only and principal-only strips, inverse floaters and credit-
sensitive MBS and ABS securities, which represent beneficial interests in securitized financial assets that are not
of high credit quality or that have been credit impaired, the effective yield is recalculated on a prospective basis.
For all other MBS and ABS, the effective yield is recalculated on a retrospective basis.
Short-term Investments: Short-term investments include investments with remaining maturities of one year or
less, but greater than three months, at the time of purchase. These investments are stated at fair value.
240