Voya 2014 Annual Report Download - page 272

Voya Financial, Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
assumptions may require the Company to provide for expected future losses on a product by establishing
premium deficiency reserves. Premium deficiency reserves are determined based on best estimate assumptions
that exist at the time the premium deficiency reserve is established and do not include a provision for adverse
deviation.
Contract Owner Account Balances
Contract owner account balances relate to investment-type contracts and certain annuity product guarantees, as
follows:
• Account balances for guaranteed investment contracts and funding agreements with fixed maturities
(collectively referred to as “GICs”) are calculated using the amount deposited with the Company, less
withdrawals, plus interest accrued to the ending valuation date. Interest on these contracts is accrued by
a predetermined index, plus a spread or a fixed rate, established at the issue date of the contract.
• Account balances for universal life-type contracts, including VUL and indexed universal life contracts,
are equal to cumulative deposits, less charges, withdrawals and account values released upon death,
plus credited interest thereon.
• Account balances for fixed annuities and payout contracts without life contingencies are equal to
cumulative deposits, less charges and withdrawals, plus credited interest thereon. Credited interest rates
vary by product and ranged up to 8.0% for the years 2014, 2013 and 2012. Account balances for group
immediate annuities without life contingent payouts are equal to the discounted value of the payment at
the implied break-even rate.
• For fixed-indexed annuity contracts (“FIAs”), the aggregate initial liability is equal to the deposit
received, plus a bonus, if applicable, and is split into a host component and an embedded derivative
component. Thereafter, the host liability accumulates at a set interest rate, and the embedded derivative
liability is recognized at fair value.
Product Guarantees and Additional Reserves
The Company calculates additional reserve liabilities for certain universal life-type products, certain variable
annuity guaranteed benefits and variable funding products. The Company periodically evaluates its estimates and
adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or
other evidence suggests that earlier assumptions should be revised. Changes in, or deviations from, the
assumptions used can significantly affect the Company’s reserve levels and related results of operations.
Universal and Variable Life: Reserves for UL and VUL secondary guarantees and paid-up guarantees are
calculated by estimating the expected value of death benefits payable and recognizing those benefits ratably over
the accumulation period based on total expected assessments. The reserve for such products recognizes the
portion of contract assessments received in early years used to compensate the Company for benefits provided in
later years. Assumptions used, such as the interest rate, lapse rate and mortality, are consistent with assumptions
used in estimating gross profits for purposes of amortizing DAC. Reserves for UL and VUL secondary
guarantees and paid up guarantees are recorded in Future policy benefits on the Consolidated Balance Sheets.
The Company also calculates a benefit ratio for each block of business that meets the requirements for additional
reserves and calculates an additional reserve by accumulating amounts equal to the benefit ratio multiplied by the
assessments for each period, reduced by excess benefits during the period. The additional reserve is accumulated
at interest rates consistent with the DAC model for the period. The calculated reserve includes a provision for UL
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