Voya 2014 Annual Report Download - page 88

rates, our investment earnings may decrease because the interest earnings on our recently purchased fixed income
investments will likely have declined in parallel with market interest rates. In addition, a prolonged low interest
rate period may result in higher costs for certain derivative instruments that may be used to hedge certain of our
product risks. RMBS and callable fixed income securities in our investment portfolios will be more likely to be
prepaid or redeemed as borrowers seek to borrow at lower interest rates. Consequently, we may be required to
reinvest the proceeds in securities bearing lower interest rates. Accordingly, during periods of declining interest
rates, our profitability may suffer as the result of a decrease in the spread between interest rates credited to
policyholders and contract owners and returns on our investment portfolios. An extended period of declining or
prolonged low interest rates or a prolonged period of low interest rates may also cause us to change our long-
term view of the interest rates that we can earn on our investments. Such a change in our view would cause us to
change the long-term interest rate that we assume in our calculation of insurance assets and liabilities under U.S.
GAAP. This revision would result in increased reserves, accelerated amortization of DAC and other unfavorable
consequences. In addition, certain statutory capital and reserve requirements are based on formulas or models
that consider interest rates, and an extended period of low interest rates may increase the statutory capital we are
required to hold and the amount of assets we must maintain to support statutory reserves.
Interest rates remain low by historical standards. We believe a continuation of the current low interest rate
environment would also negatively affect our financial performance. In addition, we expect that a continuation of
the current low interest rate environment would reduce our total company estimated combined RBC ratio (which
includes the effect from the Closed Blocks) in an amount that could be material.
Conversely, in periods of rapidly increasing interest rates, policy loans, withdrawals from, and/or surrenders
of, life insurance and annuity contracts and certain GICs may increase as policyholders choose to seek higher
investment returns. Obtaining cash to satisfy these obligations may require us to liquidate fixed income
investments at a time when market prices for those assets are depressed because of increases in interest rates.
This may result in realized investment losses. Regardless of whether we realize an investment loss, such cash
payments would result in a decrease in total invested assets and may decrease our net income and capitalization
levels. Premature withdrawals may also cause us to accelerate amortization of DAC, which would also reduce
our net income. An increase in market interest rates could also have a material adverse effect on the value of our
investment portfolio by, for example, decreasing the estimated fair values of the fixed income securities within
our investment portfolio. An increase in market interest rates could also create a significant collateral posting
requirement associated with our interest rate hedge programs and Federal Home Loan Bank funding agreements,
which could materially and adversely affect liquidity. In addition, an increase in market interest rates could
require us to pay higher interest rates on debt securities we may issue in the financial markets from time to time
to finance our operations, which would increase our interest expenses and reduce our results of operations. An
increase in interest rates could result in decreased fee income associated with a decline in the value of variable
annuity account balances invested in fixed income funds, which also might affect the value of the underlying
guarantees within these variable annuities. Lastly, certain statutory reserve requirements are based on formulas or
models that consider forward interest rates and an increase in forward interest rates may increase the statutory
reserves we are required to hold thereby reducing statutory capital.
A downgrade or a potential downgrade in our financial strength or credit ratings could result in a loss of
business and adversely affect our results of operations and financial condition.
Ratings are important to our business. Credit ratings represent the opinions of rating agencies regarding an
entity’s ability to repay its indebtedness. Our credit ratings are important to our ability to raise capital through the
issuance of debt and to the cost of such financing. Financial strength ratings, which are sometimes referred to as
“claims-paying” ratings, represent the opinions of rating agencies regarding the financial ability of an insurance
company to meet its obligations under an insurance policy. Financial strength ratings are important factors
affecting public confidence in insurers, including our insurance company subsidiaries. The financial strength
ratings of our insurance subsidiaries are important to our ability to sell our products and services to our
customers. Ratings are not recommendations to buy our securities. Each of the rating agencies reviews its ratings
periodically, and our current ratings may not be maintained in the future.
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