Voya 2014 Annual Report Download - page 90

order to improve our profitability. Many of our competitors are large and well-established and some have greater
market share or breadth of distribution, offer a broader range of products, services or features, assume a greater
level of risk, or have higher claims-paying or credit ratings than we do.
In recent years, there has been substantial consolidation among companies in the financial services industry
resulting in increased competition from large, well-capitalized financial services firms. Future economic turmoil
may accelerate additional consolidation activity. Many of our competitors also have been able to increase their
distribution systems through mergers or contractual arrangements. Furthermore, larger competitors may have
lower operating costs and have an ability to absorb greater risk, while maintaining financial strength ratings,
allowing them to price products more competitively. These competitive pressures could result in increased
pressure on the pricing of certain of our products and services, and could harm our ability to maintain or increase
profitability. In addition, if our financial strength and credit ratings are lower than our competitors, we may
experience increased surrenders and/or a significant decline in sales. The competitive landscape in which we
operate may be further affected by the government sponsored programs in the United States and similar
governmental actions outside of the United States in response to the dislocations in financial markets.
Competitors that receive governmental financing, guarantees or other assistance, or that are not subject to the
same regulatory constraints, may have or obtain pricing or other competitive advantages. Due to the competitive
nature of the financial services industry, there can be no assurance that we will continue to effectively compete
within the industry or that competition will not have a material adverse impact on our business, results of
operations and financial condition.
Our risk management policies and procedures, including hedging programs, may prove inadequate for the
risks we face, which could negatively affect our business or result in losses.
We have developed risk management policies and procedures, including hedging programs that utilize
derivative financial instruments, and expect to continue to do so in the future. Nonetheless, our policies and
procedures to identify, monitor and manage risks may not be fully effective, particularly during extremely
turbulent times. Many of our methods of managing risk and exposures are based upon observed historical market
behavior or statistics based on historical models. As a result, these methods may not predict future exposures,
which could be significantly greater than historical measures indicate. Other risk management methods depend
on the evaluation of information regarding markets, customers, catastrophe occurrence or other matters that is
publicly available or otherwise accessible to us. This information may not always be accurate, complete, up-to-
date or properly evaluated. Management of operational, legal and regulatory risks requires, among other things,
policies and procedures to record and verify large numbers of transactions and events. These policies and
procedures may not be fully effective.
We employ various strategies, including hedging and reinsurance, with the objective of mitigating risks
inherent in our business and operations. These risks include current or future changes in the fair value of our
assets and liabilities, current or future changes in cash flows, the effect of interest rates, equity markets and credit
spread changes, the occurrence of credit defaults, currency fluctuations and changes in mortality and longevity.
We seek to control these risks by, among other things, entering into reinsurance contracts and derivative
instruments, such as swaps, options, futures and forward contracts. See “—Reinsurance subjects us to the credit
risk of reinsurers and may not be available, affordable or adequate to protect us against losses” for a description
of risks associated with our use of reinsurance. Developing an effective strategy for dealing with these risks is
complex, and no strategy can completely insulate us from such risks. Our hedging strategies also rely on
assumptions and projections regarding our assets, liabilities, general market factors, and the creditworthiness of
our counterparties that may prove to be incorrect or prove to be inadequate. Accordingly, our hedging activities
may not have the desired beneficial impact on our results of operations or financial condition. Hedging strategies
involve transaction costs and other costs, and if we terminate a hedging arrangement, we may also be required to
pay additional costs, such as transaction fees or breakage costs. We may incur losses on transactions after taking
into account our hedging strategies. In particular, certain of our hedging strategies focus on the protection of
regulatory and rating agency capital, rather than U.S. GAAP earnings. Because our regulatory capital and rating
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