Voya 2014 Annual Report Download - page 302

Voya Financial, Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
Credit default swaps: Credit default swaps are used to reduce credit loss exposure with respect to certain assets
that the Company owns, or to assume credit exposure on certain assets that the Company does not own.
Payments are made to, or received from, the counterparty at specified intervals. In the event of a default on the
underlying credit exposure, the Company will either receive a payment (purchased credit protection) or will be
required to make a payment (sold credit protection) equal to the par minus recovery value of the swap contract.
The Company utilizes these contracts in non-qualifying hedging relationships.
Total return swaps: The Company uses total return swaps as a hedge against a decrease in variable annuity
account values, which are invested in certain indices. Using total return swaps, the Company agrees with another
party to exchange, at specified intervals, the difference between the economic risk and reward of assets or a
market index and the LIBOR rate, calculated by reference to an agreed upon notional principal amount. No cash
is exchanged at the onset of the contracts. Cash is paid and received over the life of the contract based upon the
terms of the swaps. The Company utilizes these contracts in non-qualifying hedging relationships.
Currency forwards: The Company uses currency forward contracts to hedge policyholder liabilities associated
with the variable annuity contracts which are linked to foreign indices. The currency fluctuations may result in a
decrease in account values, which would increase the possibility of the Company incurring an expense for
guaranteed benefits in excess of account values. The Company utilizes these contracts in non-qualifying hedging
relationships.
Forwards: The Company uses forward contracts to hedge certain invested assets against movement in interest
rates, particularly mortgage rates. The Company uses To Be Announced mortgage-backed securities as an
economic hedge against rate movements. The Company utilizes forward contracts in non-qualifying hedging
relationships.
Futures: Futures contracts are used to hedge against a decrease in certain equity indices. Such decreases may
result in a decrease in variable annuity account values which would increase the possibility of the Company
incurring an expense for guaranteed benefits in excess of account values. The Company also uses futures
contracts as a hedge against an increase in certain equity indices. Such increases may result in increased
payments to the holders of the FIA contracts. The Company enters into exchange traded futures with regulated
futures commissions that are members of the exchange. The Company also posts initial and variation margins,
with the exchange, on a daily basis. The Company utilizes exchange-traded futures in non-qualifying hedging
relationships.
Swaptions: A swaption is an option to enter into a swap with a forward starting effective date. The Company uses
swaptions to hedge the interest rate exposure associated with the minimum crediting rate and book value
guarantees embedded in the retirement products that the Company offers. Increases in interest rates will generate
losses on assets that are backing such liabilities. In certain instances, the Company locks in the economic impact
of existing purchased swaptions by entering into offsetting written swaptions. Swaptions are also used to hedge
against an increase in the interest rate benchmarked crediting strategies within FIA contracts. Such increases may
result in increased payments to contract holders of FIA contracts and the interest rate swaptions offset this
increased exposure. The Company pays a premium when it purchases the swaption. The Company utilizes these
contracts in non-qualifying hedging relationships.
Options: The Company uses put options to manage the equity, interest rate and equity volatility risk of the
economic liabilities associated with certain variable annuity minimum guaranteed benefits. The Company also
uses call options to hedge against an increase in various equity indices. Such increases may result in increased
payments to the holders of the FIA contracts. The Company pays an upfront premium to purchase these options.
The Company utilizes these options in non-qualifying hedging relationships.
279