Voya 2014 Annual Report Download - page 310

Voya Financial, Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
transaction between market participants on the measurement date. The exit price and the transaction (or entry)
price will be the same at initial recognition in many circumstances. However, in certain cases, the transaction
price may not represent fair value. The fair value of a liability is based on the amount that would be paid to
transfer a liability to a third party with an equal credit standing. Fair value is required to be a market-based
measurement that is determined based on a hypothetical transaction at the measurement date, from a market
participant’s perspective. The Company considers three broad valuation techniques when a quoted price is
unavailable: (i) the market approach, (ii) the income approach and (iii) the cost approach. The Company
determines the most appropriate valuation technique to use, given the instrument being measured and the
availability of sufficient inputs. The Company prioritizes the inputs to fair valuation techniques and allows for
the use of unobservable inputs to the extent that observable inputs are not available.
The Company utilizes a number of valuation methodologies to determine the fair values of its financial assets
and liabilities in conformity with the concepts of “exit price” and the fair value hierarchy as prescribed in ASC
Topic 820. Valuations are obtained from third-party commercial pricing services, brokers and industry-standard,
vendor-provided software that models the value based on market observable inputs. The valuations obtained from
third-party commercial pricing services are non-binding. The Company reviews the assumptions and inputs used
by third-party commercial pricing services for each reporting period in order to determine an appropriate fair
value hierarchy level. The documentation and analysis obtained from third-party commercial pricing services are
reviewed by the Company, including in-depth validation procedures confirming the observability of inputs. The
valuations are reviewed and validated monthly through the internal valuation committee price variance review,
comparisons to internal pricing models, back testing to recent trades or monitoring of trading volumes.
The following valuation methods and assumptions were used by the Company in estimating the reported values
for the investments and derivatives described below:
Fixed maturities: The fair values for the actively traded marketable bonds are determined based upon the quoted
market prices and are classified as Level 1 assets. Assets in this category would primarily include certain U.S.
Treasury securities. The fair values for marketable bonds without an active market are obtained through several
commercial pricing services, which provide the estimated fair values and are classified as Level 2 assets. These
services incorporate a variety of market observable information in their valuation techniques, including
benchmark yields, broker-dealer quotes, credit quality, issuer spreads, bids, offers and other reference data. This
category includes U.S. and foreign corporate bonds, ABS, U.S. agency and government guaranteed securities,
CMBS and RMBS, including certain CMO assets.
Generally, the Company does not obtain more than one vendor price from pricing services per instrument. The
Company uses a hierarchy process in which prices are obtained from a primary vendor and, if that vendor is
unable to provide the price, the next vendor in the hierarchy is contacted until a price is obtained or it is
determined that a price cannot be obtained from a commercial pricing service. When a price cannot be obtained
from a commercial pricing service, independent broker quotes are solicited. Securities priced using independent
broker quotes are classified as Level 3.
Broker quotes and prices obtained from pricing services are reviewed and validated through an internal valuation
committee price variance review, comparisons to internal pricing models, back testing to recent trades or
monitoring of trading volumes. As of December 31, 2014, $1.5 billion and $59.7 billion of a total fair value of
$74.7 billion in fixed maturities, including securities pledged, were valued using unadjusted broker quotes and
unadjusted prices obtained from pricing services, respectively, and verified through the review process. The
remaining balance in fixed maturities consisted primarily of privately placed bonds valued using a matrix-based
pricing. As of December 31, 2013, $541.2 and $58.3 billion of a total fair value of $72.7 billion in fixed
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