Voya 2014 Annual Report Download - page 99

Pricing of our insurance and annuity products is also based in part upon expected persistency of these
products, which is the probability that a policy will remain in force from one period to the next. Persistency of
our annuity products may be significantly and adversely impacted by the increasing value of guaranteed
minimum benefits contained in many of our variable annuity products due to poor equity market performance or
extended periods of low interest rates as well as other factors. The minimum interest rate guarantees in our fixed
annuities may also be more valuable in extended periods of low interest rates. Persistency could be adversely
affected generally by developments adversely affecting customer perception of us. Results may also vary based
on differences between actual and expected premium deposits and withdrawals for these products. Many of our
deferred annuity products also contain optional benefits that may be exercised at certain points within a contract.
We set prices for such products using assumptions for the rate of election of deferred annuity living benefits and
other optional benefits offered to our contract owners. The profitability of our deferred annuity products may be
less than expected, depending upon how actual contract owner decisions to elect or delay the utilization of such
benefits compare to our pricing assumptions. The development of a secondary market for life insurance,
including stranger-owned life insurance, life settlements or “viaticals” and investor-owned life insurance, and the
potential development of third-party investor strategies in the annuities business, could also adversely affect the
profitability of existing business and our pricing assumptions for new business. Actual persistency that is lower
than our persistency assumptions could have an adverse effect on profitability, especially in the early years of a
policy, primarily because we would be required to accelerate the amortization of expenses we defer in connection
with the acquisition of the policy. Actual persistency that is higher than our persistency assumptions could have
an adverse effect on profitability in the later years of a block of business because the anticipated claims
experience is higher in these later years. If actual persistency is significantly different from that assumed in our
current reserving assumptions, our reserves for future policy benefits may prove to be inadequate. Although
some of our products permit us to increase premiums or adjust other charges and credits during the life of the
policy, the adjustments permitted under the terms of the policies may not be sufficient to maintain profitability.
Many of our products, however, do not permit us to increase premiums or adjust charges and credits during the
life of the policy or during the initial guarantee term of the policy. Even if permitted under the policy, we may
not be able or willing to raise premiums or adjust other charges for regulatory or competitive reasons.
Pricing of our products is also based on long-term assumptions regarding interest rates, investment returns
and operating costs. Management establishes target returns for each product based upon these factors, the other
underwriting assumptions noted above and the average amount of regulatory and rating agency capital that we
must hold to support in-force contracts. We monitor and manage pricing and sales to achieve target returns.
Profitability from new business emerges over a period of years, depending on the nature and life of the product,
and is subject to variability as actual results may differ from pricing assumptions. Our profitability depends on
multiple factors, including the comparison of actual mortality, morbidity and persistency rates and policyholder
behavior to our assumptions; the adequacy of investment margins; our management of market and credit risks
associated with investments; our ability to maintain premiums and contract charges at a level adequate to cover
mortality, benefits and contract administration expenses; the adequacy of contract charges and availability of
revenue from providers of investment options offered in variable contracts to cover the cost of product features
and other expenses; and management of operating costs and expenses.
Unfavorable developments in interest rates, credit spreads and policyholder behavior can result in adverse
financial consequences related to our stable value products, and our hedge program and risk mitigation
features may not successfully offset these consequences.
We offer stable value products primarily as a fixed rate, liquid asset allocation option for employees of our
plan sponsor customers within the defined contribution funding plans offered by our Retirement business. These
products are designed to provide a guaranteed annual credited rate (currently between zero and three percent) on
the invested assets in addition to enabling participants the right to withdraw and transfer funds at book value.
The sensitivity of our statutory reserves and surplus established for the stable value products to changes in
interest rates, credit spreads and policyholder behavior will vary depending on the magnitude of these changes, as
well as on the book value of assets, the market value of assets, the guaranteed credited rates available to
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