Voya 2014 Annual Report Download - page 311

Voya Financial, Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
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.
All prices and broker quotes obtained go through the review process described above including valuations for
which only one broker quote is obtained. After review, for those instruments where the price is determined to be
appropriate, the unadjusted price provided is used for financial statement valuation. If it is determined that the
price is questionable, another price may be requested from a different vendor. The internal valuation committee
then reviews all prices for the instrument again, along with information from the review, to determine which
price best represents “exit price” for the instrument.
Fair values of privately placed bonds are determined primarily using a matrix-based pricing model and are
generally classified as Level 2 assets. The model considers the current level of risk-free interest rates, current
corporate spreads, the credit quality of the issuer and cash flow characteristics of the security. Also considered
are factors such as the net worth of the borrower, the value of collateral, the capital structure of the borrower, the
presence of guarantees and the Company’s evaluation of the borrower’s ability to compete in its relevant market.
Using this data, the model generates estimated market values, which the Company considers reflective of the fair
value of each privately placed bond.
Equity securities, available-for-sale: Fair values of publicly traded equity securities are based upon quoted
market price and are classified as Level 1 assets. Other equity securities, typically private equities or equity
securities not traded on an exchange, are valued by other sources such as analytics or brokers and are classified
as Level 2 or Level 3 assets.
Derivatives: Derivatives are carried at fair value, which is determined using the Company’s derivative
accounting system in conjunction with observable key financial data from third-party sources, such as yield
curves, exchange rates, S&P 500 Index prices, London Interbank Offered Rates (“LIBOR”) and Overnight Index
Swap (“OIS”) rates. In June 2012, the Company began using OIS rather than LIBOR for valuations of
collateralized interest rate derivatives, which are obtained from third-party sources. For those derivatives that are
unable to be valued by the accounting system, the Company typically utilizes values established by third-party
brokers. Counterparty credit risk is considered and incorporated in the Company’s valuation process through
counterparty credit rating requirements and monitoring of overall exposure. It is the Company’s policy to transact
only with investment grade counterparties with a credit rating of A- or better. The Company’s nonperformance
risk is also considered and incorporated in the Company’s valuation process. Valuations for the Company’s
futures and interest rate forward contracts are based on unadjusted quoted prices from an active exchange and,
therefore, are classified as Level 1. The Company also has certain credit default swaps and options that are priced
using models that primarily use market observable inputs, but contain inputs that are not observable to market
participants, which have been classified as Level 3. The remaining derivative instruments, including those priced
by third party vendors, are valued based on market observable inputs and are classified as Level 2.
Cash and cash equivalents, Short-term investments and Short-term investments under securities loan agreement:
The carrying amounts for cash reflect the assets’ fair values. The fair values for cash equivalents and most short-
term investments are determined based on quoted market prices. These assets are classified as Level 1. Other
short-term investments are valued and classified in the fair value hierarchy consistent with the policies described
herein, depending on investment type.
Assets held in separate accounts: Assets held in separate accounts are reported at the quoted fair values of the
underlying investments in the separate accounts. The underlying investments include mutual funds, short-term
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