Voya 2014 Annual Report Download - page 378

Voya Financial, Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
funds, is generally presumed to control the limited partnerships unless the limited partners have the substantive
ability to remove the general partner without cause based upon a simple majority vote, or can otherwise dissolve
the partnership, or have substantive participating rights over decision-making of the partnerships.
On June 4, 2012, certain insurance subsidiaries of the Company entered into an agreement to sell certain general
account private equity limited partnership investment interest holdings with a carrying value of $812.2 as of
March 31, 2012 included in Assets related to consolidated investment entities to a group of private equity funds
that are managed by Pomona Management LLC, also a subsidiary of the Company. The transaction resulted in a
net pre-tax loss of $91.9 in the second quarter of 2012. The transaction closed in two tranches. The first tranche
closed on June 29, 2012, and the second tranche closed on October 29, 2012. No additional loss was incurred on
the second tranche since the fair value of the alternative investments was reduced to the agreed upon sales price
as of June 30, 2012.
As of December 31, 2014 and 2013, the Company consolidated 35 funds which were structured as partnerships.
Collateral Support for Reinsurance Contracts
Beginning in December 2009, the Company entered into various guarantee agreements involving Karson Capital
Limited (“Karson”). Karson is an unaffiliated company that provides collateral alternatives to letters of credit for
reinsurance transactions. Karson established the KCL Master Trust (“Master Trust” or “Borrower”), which is a
Delaware statutory series trust. The Master Trust enters into securities lending agreements as borrower with
various unaffiliated banks (“Securities Lenders”) as lenders. Fair value of the loaned securities was $750.0 and
$1.5 billion as of December 31, 2014 and 2013, respectively.
Collateral notes backed by the borrowed securities, with a face value of $750.0 and $1.5 billion as of
December 31, 2014 and 2013, respectively were issued by the Master Trust and placed in reinsurance trusts
established for the benefit of the Company’s insurance subsidiaries, which are eliminated in the Company’s
Consolidated Financial Statements.
The Company has provided certain guarantees of the Borrower’s performance obligations to the Securities
Lenders as collateral for the Borrower’s obligations under the securities lending agreements. Additional collateral
in the form of liquidity obligations have been provided by banks for $750.0 and $1.5 billion for the years ended
December 31, 2014 and 2013, respectively.
The Master Trust sponsored by Karson has minimal equity, and therefore falls under the VIE model. The
Company holds variable interests in this VIE relating to the guarantees of the obligations under the securities
lending agreements. The Company considered its implicit and explicit financial responsibility to ensure that the
Master Trust operates as designed and, thus, determined that the Company has the implied power to direct the
activities that most significantly impact the Master Trust’s economic performance under the VIE model. The
Company also determined it has the obligation to absorb losses under the securities lending guarantees. Based on
these conclusions, the Company determined it is the primary beneficiary under the VIE model and should
consolidate the Master Trust.
Following the Company’s review of the Master Trust assets, liabilities, revenues and expenses, a determination
was made that although the VIE is subject to consolidation, the securities lending arrangements were not subject
to consolidation since the Borrower is not required to recognize borrowed securities on its balance sheet. The
obligation to return borrowed securities is only recorded if the securities are sold by the borrower; otherwise, the
borrowed securities are disclosed in the financial statements. The Master Trust reported no other assets,
liabilities, revenues or expenses.
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