Voya 2014 Annual Report Download - page 323

Voya Financial, Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
The following valuation methods and assumptions were used by the Company in estimating the fair value of the
following financial instruments, which are not carried at fair value on the Consolidated Balance Sheets:
Mortgage loans on real estate: The fair values for mortgage loans on real estate are estimated on a monthly basis
using discounted cash flow analyses and rates currently being offered in the marketplace for similar loans to
borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the
calculations. Mortgage loans on real estate are classified as Level 3.
Policy loans: The fair value of policy loans approximates the carrying value of the loans. Policy loans are
collateralized by the cash surrender value of the associated insurance contracts and are classified as Level 2.
Limited partnerships/corporations: The fair value for these investments, primarily private equity funds of funds
and hedge funds, is based on actual or estimated Net Asset Value (“NAV”) information, as provided by the
investee and are classified as Level 3.
Other investments: FHLB stock is carried at cost and periodically evaluated for impairment based on ultimate
recovery of par value and is classified as Level 1.
Investment contract liabilities:
Funding agreements without a fixed maturity and deferred annuities: Fair value is estimated as the mean
present value of stochastically modeled cash flows associated with the contract liabilities taking into account
assumptions about contract holder behavior. The stochastic valuation scenario set is consistent with current
market parameters and discount is taken using stochastically evolving risk-free rates in the scenarios plus an
adjustment for nonperformance risk. Margins for non-financial risks associated with the contract liabilities
are also included. These liabilities are classified as Level 3.
Funding agreements with fixed maturities and guaranteed investment contracts: Fair value is estimated by
discounting cash flows, including associated expenses for maintaining the contracts, at rates, that are risk-
free rates plus an adjustment for nonperformance risk. These liabilities are classified as Level 2.
Supplementary contracts and immediate annuities: Fair value is estimated as the mean present value of the
single deterministically modeled cash flows associated with the contract liabilities discounted using
stochastically evolving short risk-free rates in the scenarios plus an adjustment for nonperformance risk. The
valuation is consistent with current market parameters. Margins for non-financial risks associated with the
contract liabilities are also included. These liabilities are classified as Level 3.
Long-term debt: Estimated fair value of the Company’s long-term debt is based upon discounted future cash
flows using a discount rate approximating the current market rate, incorporating nonperformance risk. Long-term
debt is classified as Level 2.
Fair value estimates are made at a specific point in time, based on available market information and judgments
about various financial instruments, such as estimates of timing and amounts of future cash flows. Such estimates
do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire
holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized
capital gains (losses). In many cases, the fair value estimates cannot be substantiated by comparison to
independent markets, nor can the disclosed value be realized in immediate settlement of the instruments. In
evaluating the Company’s management of interest rate, price and liquidity risks, the fair values of all assets and
liabilities should be taken into consideration, not only those presented above.
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