Voya 2014 Annual Report Download - page 56

Capital Management Considerations
The focus of the management of the CBVA segment is on regulatory reserve and capital requirements. As of
December 31, 2014, we held regulatory reserves, net of third-party reinsurance, of $4.0 billion supporting
variable annuities guarantees, which included $3.1 billion supporting living benefit guarantees.
Both market movements and changes in actuarial assumptions (including policyholder behavior and
mortality) can result in significant changes to the regulatory reserve and rating agency capital requirements of
this segment. The section below on “Variable Annuity Hedge Program and Reinsurance” describes the Variable
Annuity CHO program, which is designed to mitigate the effect of adverse equity market movements on our
regulatory capital and rating agency capital positions. Additionally, the section on “CBVA Risks and Risk
Management” discusses the risk of adverse developments in policyholder behavior and its potential impact on the
regulatory reserves and rating agency capital position.
We believe that our hedge program combined with our statutory reserves related to the variable annuity
block provide adequate resources to fund a wide range of, but not all, possible market scenarios as well as a
margin for adverse policyholder behavior.
Net Amount at Risk (“NAR”)
The NAR for GMDB, GMAB and GMWB is equal to the guaranteed value of these benefits in excess of the
account values in each case as of the date indicated. The NAR assumes utilization of benefits by all customers as
of the date indicated below.
The NAR for GMIB and GMWBL is equal to the excess of the present value of the minimum guaranteed
annuity payments available to the contract owner over the current account value. It assumes that all policyholders
exercise their benefit immediately, even if they have not yet attained the first exercise date shown in their
contracts, and that there are no future lapses. The NAR assumes utilization of benefits by all customers as of the
date indicated. This hypothetical immediate exercise of the benefit means that the customers give up any future
increase in the guaranteed benefit that might accrue if they were to delay exercise to a later date. The discount
rates used in the GMIB NAR methodology grade from current U.S. Treasury rates to long-term best estimates
over fifteen years. The GMWBL NAR methodology uses current swap rates. The discounting for GMWBL and
GMIB NAR was developed to be consistent with the methodology for the establishment of U.S. GAAP reserves.
For GMIB products, in general, the policyholder has the right to elect income payment, beginning (for
certain products) on the tenth anniversary year of product commencement, receive a lump sum payment of the
then current cash value, or remain in the variable sub-account. For GMIB products, if the policyholder makes the
election to annuitize, the policyholder is entitled to receive the guaranteed benefit amount over an annuitization
period. A small percentage of the products were first eligible to elect annuitizations beginning in 2010 and 2011.
The remainder of the products becomes eligible to elect annuitization from 2012 to 2020, with the majority of
first eligibility dates in the period from 2014 to 2016. Many of these contracts contain significant incentives to
delay annuitization past first eligibility.
Because policyholders have various contractual rights and significant incentives to defer their annuitization
election, the period over which annuitization election will take place is subject to policyholder behavior and
therefore indeterminate. In addition, upon annuitization, the contract holder surrenders access to the account
value and the account value is transferred to the Company’s general account where it is invested and the
additional investment proceeds are used towards payment of the guaranteed benefit payment.
Similarly, most of our GMWBL contracts are still in the first five to seven policy years, so our assumptions
for withdrawal from contracts with GMWBL benefits may change as experience emerges. In addition, like our
GMIB contracts, many of our GMWBL contracts contain significant incentives to delay withdrawal. We expect
customer decisions on annuitization and withdrawal will be influenced by customers’ financial plans and needs
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