Voya 2014 Annual Report Download - page 316

Voya Financial, Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
For the years ended December 31, 2014 and 2013, the transfers in and out of Level 3 for fixed maturities and
equity securities, as well as separate accounts, were due to the variation in inputs relied upon for valuation each
quarter. Securities that are primarily valued using independent broker quotes when prices are not available from
one of the commercial pricing services are reflected as transfers into Level 3. When securities are valued using
more widely available information, the securities are transferred out of Level 3 and into Level 1 or 2, as
appropriate.
Significant Unobservable Inputs
Quantitative information about the significant unobservable inputs used in the Company’s Level 3 fair value
measurements of its annuity product guarantees is presented in the following sections and table.
The Company’s Level 3 fair value measurements of its fixed maturities, equity securities available-for-sale and
equity and credit derivative contracts are primarily based on broker quotes for which the quantitative detail of the
unobservable inputs is neither provided nor reasonably corroborated, thus negating the ability to perform a
sensitivity analysis. The Company performs a review of broker quotes by performing a monthly price variance
comparison and back tests broker quotes to recent trade prices.
Significant unobservable inputs used in the fair value measurements of GMABs, GMWBs and GMWBLs include
long-term equity and interest rate implied volatility, correlations between the rate of return on policyholder funds
and between interest rates and equity returns, nonperformance risk, mortality and policyholder behavior
assumptions, such as benefit utilization, lapses and partial withdrawals. Such inputs are monitored quarterly.
Significant unobservable inputs used in the fair value measurements of FIAs include nonperformance risk and
policyholder behavior assumptions, such as lapses and partial withdrawals. Such inputs are monitored quarterly.
The significant unobservable inputs used in the fair value measurement of the Stabilizer embedded derivatives
and MCG derivative are interest rate implied volatility, nonperformance risk, lapses and policyholder deposits.
Such inputs are monitored quarterly.
Following is a description of selected inputs:
Equity/Interest Rate Volatility: A term-structure model is used to approximate implied volatility for the
equity indices and swap rates for GMAB, GMWB and GMWBL fair value measurements and swap rates for
the Stabilizer and MCG fair value measurements. Where no implied volatility is readily available in the
market, an alternative approach is applied based on historical volatility.
Correlations: Integrated interest rate and equity scenarios are used in GMAB, GMWB and GMWBL fair
value measurements to better reflect market interest rates and interest rate volatility correlations between
equity and fixed income fund groups and between equity fund groups and interest rates. The correlations are
based on historical fund returns and swap rates from external sources.
Nonperformance Risk: For the estimate of the fair value of embedded derivatives associated with the
Company’s product guarantees, the Company uses a blend of observable, similarly rated peer holding
company credit default swap spreads, adjusted to reflect the credit quality of the individual insurance
subsidiary that issued the guarantee as well as an adjustment to reflect the priority of policyholder claims.
Actuarial Assumptions: Management regularly reviews actuarial assumptions, which are based on the
Company’s experience and periodically reviewed against industry standards. Industry standards and
Company experience may be limited on certain products.
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