Voya 2014 Annual Report Download - page 40

exempt plan sponsors, our small and mid-corporate market plan sponsors and other qualified plan segments in
healthcare, higher education and K-12 education.
Underwriting and Pricing
We price our institutional and individual retirement products based on long-term assumptions that include
investment returns, mortality, persistency and operating costs. We establish target returns for each product based
upon these factors and the expected amount of regulatory and rating agency capital that we must hold to support
these contracts over their projected lifetime. We monitor and manage pricing and sales mix to achieve target
returns. It may take new business several years before it is profitable, depending on the nature and life of the
product, and is subject to variability as actual results may differ from pricing assumptions. We seek to mitigate
investment risk by actively managing market and credit risks associated with investments and through asset/
liability matching portfolio management.
Annuities
The Annuities segment provides fixed and indexed annuities, tax-qualified mutual fund custodial products
and payout annuities for pre-retirement wealth accumulation and postretirement income management, sold
through multiple channels. Revenues are generated from fees and from margins based on the difference between
income earned on the investments supporting the liability and interest credited to customers. Our Annuities
segment generated operating earnings before income taxes of $262.0 million for the year ended December 31,
2014.
We intend to achieve our risk-adjusted return objectives in Annuities through a disciplined approach,
balancing profitability with growth, with a focus on preserving margins and the avoidance of expansion in low
interest rate environments. As a result, we expect to opportunistically grow our FIA business when margins are
attractive and to reduce growth but maintain distribution access when margins are less attractive. Our mutual
fund custodial products business is not sensitive to interest rate conditions and, as such, is focused on growth.
While we still offer traditional fixed annuities, we are prepared to allow the business to decline in volume due to
low margins and less attractive returns. We intend to meet our risk management objectives by continuing to
hedge market risks associated with the crediting strategies selected by clients on many of our FIA contracts. See
“Item 7A. Quantitative and Qualitative Disclosures About Market Risk—Risk Management.”
Products and Services
Our Annuities segment product offerings include immediate and deferred fixed annuities designed to
address customer needs for tax-advantaged savings and retirement income and their wealth-protection concerns.
New sales comprise primarily FIAs and tax-qualified mutual fund custodial accounts.
FIAs. FIAs are marketed principally based on underlying interest-crediting guarantee features coupled with
the potential for increased returns based on the performance of market indices. For an FIA, the principal amount
of the annuity is guaranteed to be no less than a minimum value based on non-forfeiture regulations that vary by
state. Interest on FIAs is credited based on allocations selected by a customer in one or more of the strategies we
offer and upon policy parameters that we set. The strategies include a fixed interest rate option, as well as several
options based upon performance of various external financial market indices. Such indices may include equity
indices, such as Standard & Poor’s 500 Index (the “S&P 500”), or an interest rate benchmark, such as the change
in London Interbank Offered Rates (“LIBOR”). The parameters (such as “caps,” “participation rates,” and
“spreads”) are periodically declared by us for both initial and following periods. Our existing FIAs contain death
benefits as required by non-forfeiture regulations. Some FIAs allow the purchase of optional guaranteed
withdrawal benefit riders at an additional cost. These living benefits guarantee a minimum annual withdrawal
amount for life. The amount of the guaranteed annual withdrawal may vary by age at first withdrawal. We have
used multiple designs with varying parameters over time and all form designs and parameters make up the
existing block of in-force policies.
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