Voya 2014 Annual Report Download - page 49

Factors that could influence our ability to competitively price products while achieving targeted returns
include the cost and availability of statutory reserve financing required for certain term and universal life
insurance policies, internal capital funding requirements and an extended low interest rate environment.
Underwriting and Pricing
We set prices for many of our insurance products based upon expected mortality over the life of the product.
We base the pricing of our life insurance products in part upon expected persistency of these products, which is
the probability that a policy will remain in force from one period to the next. We base premiums and policy
charges for individual life insurance on expected death benefits, surrender benefits, expenses and required
reserves. We use assumptions for mortality, interest, expenses, policy persistency and premium payment pattern
in pricing policies. In addition, certain of our insurance products that include guaranteed returns or crediting rates
underwrite equity market or interest rate risks. We seek to maintain a spread between the return on our general
account invested assets and the interest we credit on our policyholder accounts. Our underwriting and risk
management functions adhere to prescribed underwriting guidelines, while maintaining a competitive suite of
products priced consistent with our mortality assessment. We generally manage mortality risks by enforcing
strict underwriting standards and maintaining sufficient scale so that the incidence of risk occurrence is likely to
match statistical modeling.
With respect to our universal life secondary guarantee business, we seek to mitigate risk by pricing
conservatively to recognize the interest rate risk and are willing to forgo sales in order to maintain our profit and
risk profile.
Reinsurance
In general, our reinsurance strategy is designed to limit our mortality risk and volatility. We partner with
highly rated, well regarded reinsurers and set up pools to share our excess mortality risk.
As of January 1, 2013, we revised the amount of risk we retain on a life for new business issued after
January 1, 2013. For term business, we continue to retain the first $3 million of risk and the excess risk is shared
among a pool of reinsurers. For most of our universal life product portfolio, we retain the first $5 million of risk
and reinsure 100% of the excess over $5 million among a pool of reinsurers. Our maximum overall retained risk
on any one life is $5 million.
Prior to January 1, 2013, for term business, we retained the first $3 million of risk and the excess risk was
shared among a pool of reinsurers. For most of our universal life product portfolio, we retained the first $5
million of risk and reinsured a portion of the excess over $5 million into a pool until we reached our limit of $10
million of risk. 100% of the excess over $10 million then went into the pool. Our maximum overall retained risk
on any one life was $10 million.
Currently, reinsurance for new business is on a monthly renewable term basis, which only transfers
mortality risk and limits our counterparty risk exposure. See “Item 7A. Quantitative and Qualitative Disclosures
About Market Risk—Risk Management”.
Employee Benefits
Our Employee Benefits segment provides group insurance products to mid-size and large corporate
employers and professional associations. In addition, our Employee Benefits segment serves the voluntary
worksite market by providing individual and payroll-deduction products to employees of our clients. Our
Employee Benefits segment is among the largest writers of stop loss coverage in the United States, currently
ranking sixth on a premium basis with approximately $680 million of in-force premiums. We also hold top 20
positions in the group life and Voluntary Benefits (“VB”) markets on a premium basis as of September 30, 2014.
As of December 31, 2014, Employee Benefits total in-force premiums were $1.4 billion.
26