Voya 2014 Annual Report Download - page 92

the collateral we hold cannot be realized or is liquidated at prices not sufficient to recover the full amount of the
loan or derivative exposure that is due to us, which is most likely to occur during periods of illiquidity and
depressed asset valuations, such as those experienced during the financial crisis of 2008-09. The termination of
contracts and the foreclosure on collateral may subject us to claims for the improper exercise of rights under the
contracts. Bankruptcies, downgrades and disputes with counterparties as to the valuation of collateral tend to
increase in times of market stress and illiquidity.
Requirements to post collateral or make payments related to changes in market value of specified assets may
adversely affect liquidity.
The amount of collateral we may be required to post under short-term financing agreements and derivative
transactions may increase under certain circumstances. Pursuant to the terms of some transactions, we could be
required to make payment to our counterparties related to any change in the market value of the specified
collateral assets. Such requirements could have an adverse effect on liquidity. Furthermore, with respect to any
such payments, we may have unsecured risk to the counterparty as these amounts may not be required to be
segregated from the counterparty’s other funds, may not be held in a third-party custodial account and may not
be required to be paid to us by the counterparty until the termination of the transaction. Additionally, the
implementation of the Dodd-Frank Act and the resultant changes in collateral requirements may increase the
need for liquidity and eligible collateral assets in excess of what is already being held.
For a discussion on certain obligations we have with respect to the posting of collateral upon the occurrence
of certain events, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Potential Impact of a Ratings Downgrade.”
Our investment portfolio is subject to several risks that may diminish the value of our invested assets and the
investment returns credited to customers, which could reduce our sales, revenues, AUM and results of
operations.
Fixed income securities represent a significant portion of our investment portfolio. We are subject to the risk
that the issuers, or guarantors, of fixed income securities we own may default on principal and interest payments
they owe us. We are also subject to the risk that the underlying collateral within ABS, including mortgage-
backed securities, may default on principal and interest payments causing an adverse change in cash flows. The
occurrence of a major economic downturn, acts of corporate malfeasance, widening mortgage or credit spreads,
or other events that adversely affect the issuers, guarantors or underlying collateral of these securities could cause
the estimated fair value of our fixed income securities portfolio and our earnings to decline and the default rate of
the fixed income securities in our investment portfolio to increase. A ratings downgrade affecting issuers or
guarantors of securities in our investment portfolio, or similar trends that could worsen the credit quality of such
issuers, or guarantors could also have a similar effect. Similarly, a ratings downgrade affecting a security we hold
could indicate the credit quality of that security has deteriorated and could increase the capital we must hold to
support that security to maintain our RBC ratio. See “—A decrease in the RBC ratio (as a result of a reduction in
statutory surplus and/or increase in RBC requirements) of our insurance subsidiaries could result in increased
scrutiny by insurance regulators and rating agencies and have a material adverse effect on our business, results of
operations and financial condition.” We are also subject to the risk that cash flows resulting from the payments
on pools of mortgages that serve as collateral underlying the mortgage-backed securities we own may differ from
our expectations in timing or size. Cash flow variability arising from an unexpected acceleration in mortgage
prepayment behavior can be significant, and could cause a decline in the estimated fair value of certain “interest-
only” securities within our mortgage-backed securities portfolio. Any event reducing the estimated fair value of
these securities, other than on a temporary basis, could have a material adverse effect on our business, results of
operations and financial condition.
We derive operating revenues from providing investment management and related services. Our revenues
depend largely on the value and mix of AUM. Our investment management related revenues are derived
primarily from fees based on a percentage of the value of AUM. Any decrease in the value or amount of our
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