Voya 2014 Annual Report Download - page 91

agency capital react differently to market movements than our Variable Annuity Guarantee Hedge Program
target, we have executed a CHO program to generally target these differences. As U.S. GAAP accounting differs
from the methods used to determine regulatory reserves and rating agency capital requirements, our hedge
programs may create earnings volatility in our U.S. GAAP financial statements. Further, the nature, timing,
design or execution of our hedging transactions could actually increase our risks and losses. Our hedging
strategies and the derivatives that we use, or may use in the future, may not adequately mitigate or offset the
hedged risk and our hedging transactions may result in losses.
Past or future misconduct by our employees, agents, intermediaries, representatives of our broker-dealer
subsidiaries or employees of our vendors could result in violations of law by us or our subsidiaries, regulatory
sanctions and/or serious reputational or financial harm and the precautions we take to prevent and detect this
activity may not be effective in all cases. Although we employ controls and procedures designed to monitor
associates’ business decisions and to prevent us from taking excessive or inappropriate risks, associates may take
such risks regardless of such controls and procedures. Our compensation policies and practices are reviewed by
us as part of our overall risk management program, but it is possible that such compensation policies and
practices could inadvertently incentivize excessive or inappropriate risk taking. If our associates take excessive
or inappropriate risks, those risks could harm our reputation and have a material adverse effect on our results of
operations and financial condition
The inability of counterparties to meet their financial obligations could have an adverse effect on our results
of operations.
Third parties that owe us money, securities or other assets may not pay or perform under their obligations.
These parties include the issuers or guarantors of securities we hold, customers, reinsurers, trading
counterparties, securities lending and repurchase counterparties, counterparties under swaps, credit default and
other derivative contracts, clearing agents, exchanges, clearing houses and other financial intermediaries.
Defaults by one or more of these parties on their obligations to us due to bankruptcy, lack of liquidity, downturns
in the economy or real estate values, operational failure or other factors, or even rumors about potential defaults
by one or more of these parties, could have a material adverse effect on our results of operations, financial
condition and liquidity.
We routinely execute a high volume of transactions such as unsecured debt instruments, derivative
transactions and equity investments with counterparties and customers in the financial services industry,
including brokers and dealers, commercial and investment banks, mutual and hedge funds, institutional clients,
futures clearing merchants, swap dealers, insurance companies and other institutions, resulting in large periodic
settlement amounts which may result in our having significant credit exposure to one or more of such
counterparties or customers. Many of these transactions comprise derivative instruments with a number of
counterparties in order to hedge various risks, including equity and interest rate market risk features within many
of our insurance and annuity products. Our obligations under our products are not changed by our hedging
activities and we are liable for our obligations even if our derivative counterparties do not pay us. As a result, we
face concentration risk with respect to liabilities or amounts we expect to collect from specific counterparties and
customers. A default by, or even concerns about the creditworthiness of, one or more of these counterparties or
customers could have an adverse effect on our results of operations or liquidity. There is no assurance that losses
on, or impairments to the carrying value of, these assets due to counterparty credit risk would not materially and
adversely affect our business, results of operations or financial condition.
We are also subject to the risk that our rights against third parties may not be enforceable in all
circumstances. The deterioration or perceived deterioration in the credit quality of third parties whose securities
or obligations we hold could result in losses and/or adversely affect our ability to rehypothecate or otherwise use
those securities or obligations for liquidity purposes. While in many cases we are permitted to require additional
collateral from counterparties that experience financial difficulty, disputes may arise as to the amount of
collateral we are entitled to receive and the value of pledged assets. Our credit risk may also be exacerbated when
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