Company Quick10K Filing
Quick10K
Voya Retirement Insurance & Annuity
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
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ATEA Astea
VRIAC 2018-09-30
Part I. Financial Information (Unaudited)
Item 1. Financial Statements
Item 2. Management's Narrative Analysis of The Results of Operations and Financial Condition
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 vriac2018q310-qex311.htm
EX-31.2 vriac2018q310-qex312.htm
EX-32.1 vriac2018q310-qex321.htm
EX-32.2 vriac2018q310-qex322.htm

Voya Retirement Insurance & Annuity Earnings 2018-09-30

VRIAC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 vriac2018q310-qreport.htm 10-Q Document
voyrfinrgbgrdpos1567a06.jpg
 
 
 
 
 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
——————————————————————
FORM 10-Q
(Mark One)
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                         to                         

Commission File Number: 033-23376

Voya Retirement Insurance and Annuity Company

(Exact name of registrant as specified in its charter)
Connecticut
71-0294708
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
One Orange Way
 
Windsor, Connecticut
06095-4774
(Address of principal executive offices)
(Zip Code)
(860) 580-4646
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.       Yes     ý       No    o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes   ý     No   o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer    o
Non-accelerated filer x
Smaller reporting company     o
(Do not check if a smaller reporting company)
Emerging growth company     o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No ý

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of November 14, 2018, 55,000 shares of Common Stock, $50 par value were outstanding, all of which were directly owned by Voya Holdings Inc.

NOTE:  WHEREAS VOYA RETIREMENT INSURANCE AND ANNUITY COMPANY MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q, THIS FORM IS BEING FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
 
 
 
 
 

 
1
 


Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Form 10-Q for the period ended September 30, 2018



 
2
 


As used in this Quarterly Report on Form 10-Q, "VRIAC" refers to Voya Retirement Insurance and Annuity Company and the "Company," "we," "our" and "us" refer to VRIAC and its wholly owned subsidiaries.

NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including "Risk Factors" and "Management’s Narrative Analysis of the Results of Operations and Financial Condition" contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements relating to future developments in our business or expectations for our future financial performance and any statement not involving a historical fact. Forward-looking statements use words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. Actual results, performance or events may differ materially from those projected in any forward-looking statement due to, among other things, (i) general economic conditions, particularly economic conditions in our core markets, (ii) performance of financial markets, including emerging markets, (iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels, (v) persistency and lapse levels, (vi) interest rates, (vii) currency exchange rates, (viii) general competitive factors, (ix) changes in laws and regulations, including those relating to insurance regulatory reform initiatives applicable to captive reinsurance entities and those made pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act or the U.S. Department of Labor's final rules and exemptions pertaining to the fiduciary status of providers of investment advice; and (x) changes in the policies of governments and/or regulatory authorities; and (xi) our parent company, Voya Financial, Inc.'s ability to successfully manage the separation of Venerable (as defined below), including the transition services on the expected timeline and economic terms. Factors that may cause actual results to differ from those in any forward-looking statement also include those described under "Risk Factors" and "Management’s Narrative Analysis of the Results of Operations and Financial Condition" in the Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 033-23376) (the "Annual Report on Form 10-K") and "Risk Factors," in this Quarterly Report on Form 10-Q.

The risks included here are not exhaustive. Current reports on Form 8-K and other documents filed with the Securities and Exchange Commission ("SEC") include additional factors that could affect our businesses and financial performance. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.

 
3
 



PART I.    FINANCIAL INFORMATION (UNAUDITED)

Item 1.     Financial Statements
Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Condensed Consolidated Balance Sheets
September 30, 2018 (Unaudited) and December 31, 2017
(In millions, except share and per share data)

 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
Investments:
 
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost of $22,313 as of 2018 and $21,774 as of 2017)
$
22,586

 
$
23,141

Fixed maturities, at fair value using the fair value option
1,090

 
941

Equity securities, at fair value (cost of $48 as of 2018 and $45 as of 2017)
62

 
60

Short-term investments

 
25

Mortgage loans on real estate, net of valuation allowance of $1 as of 2018 and 2017
5,016

 
4,910

Policy loans
212

 
214

Limited partnerships/corporations
570

 
411

Derivatives
192

 
136

Securities pledged (amortized cost of $938 as of 2018 and $864 as of 2017)
985

 
960

Other investments
39

 

Total investments
30,752

 
30,798

Cash and cash equivalents
217

 
288

Short-term investments under securities loan agreements, including collateral delivered
801

 
765

Accrued investment income
333

 
304

Premiums receivable and reinsurance recoverable
1,423

 
1,496

Deferred policy acquisition costs, Value of business acquired and Sales inducements to contract owners
1,077

 
766

Notes receivable from affiliate

 
175

Short-term loan to affiliate

 
80

Due from affiliates
55

 
60

Property and equipment
63

 
64

Other assets
172

 
140

Assets held in separate accounts
76,398

 
73,036

Total assets
$
111,291

 
$
107,972



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
4
 



Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Condensed Consolidated Balance Sheets
September 30, 2018 (Unaudited) and December 31, 2017
(In millions, except share and per share data)

 
September 30,
2018
 
December 31,
2017
Liabilities and Shareholder's Equity
 
 
 
Future policy benefits and contract owner account balances
$
30,149

 
$
29,669

Payable for securities purchased
88

 
79

Payables under securities loan agreements, including collateral held
935

 
845

Short-term debt
1

 

Long-term debt
4

 
5

Due to affiliates
56

 
61

Derivatives
85

 
85

Current income tax payable to Parent
2

 
23

Deferred income taxes
58

 
187

Other liabilities
248

 
401

Liabilities related to separate accounts
76,398

 
73,036

Total liabilities
108,024

 
104,391

 
 
 
 
Commitments and Contingencies (Note 9)


 


 
 
 
 
Shareholder's equity:
 
 
 
Common stock (100,000 shares authorized, 55,000 issued and outstanding as of 2018 and 2017; $50 par value per share)
3

 
3

Additional paid-in capital
2,728

 
2,730

Accumulated other comprehensive income (loss)
201

 
818

Retained earnings (deficit)
335

 
30

Total shareholder's equity
3,267

 
3,581

Total liabilities and shareholder's equity
$
111,291

 
$
107,972




The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
5
 


Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)
(In millions)


Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017
Revenues:
 
 
 
 
 
 
 
Net investment income
$
425


$
379


$
1,204


$
1,136

Fee income
177


170


526


537

Premiums
13


11


35


35

Broker-dealer commission revenue
1


42


69


128

Net realized capital gains (losses):











Total other-than-temporary impairments
(6
)



(15
)


Less: Portion of other-than-temporary impairments recognized in Other comprehensive income (loss)




1



Net other-than-temporary impairments recognized in earnings
(6
)



(16
)


Other net realized capital gains (losses)
(38
)

(42
)

(198
)

(145
)
Total net realized capital gains (losses)
(44
)

(42
)

(214
)

(145
)
Other revenue
6


(1
)

8


1

Total revenues
578


559


1,628


1,692

Benefits and expenses:











Interest credited and other benefits to contract owners/policyholders
227


240


625


720

Operating expenses
183


194


469


605

Broker-dealer commission expense
1


42


69


128

Net amortization of Deferred policy acquisition costs and Value of business acquired
(28
)

84


54


220

Total benefits and expenses
383


560


1,217


1,673

Income (loss) before income taxes
195


(1
)

411


19

Income tax expense (benefit)
34


(13
)

64


(21
)
Net income (loss)
$
161


$
12


$
347


$
40



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
6
 


Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Condensed Consolidated Statements of Comprehensive Income
For the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)
(In millions)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
161

 
$
12

 
$
347

 
$
40

Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
Unrealized gains/losses on securities
(83
)
 
70

 
(783
)
 
354

Other-than-temporary impairments
1

 

 
8

 
2

Pension and other postretirement benefits liability
(1
)
 
(1
)
 
(2
)
 
(2
)
Other comprehensive income (loss), before tax
(83
)
 
69

 
(777
)
 
354

Income tax expense (benefit) related to items of other comprehensive income (loss)
(24
)
 
24

 
(172
)
 
123

Other comprehensive income (loss), after tax
(59
)
 
45

 
(605
)
 
231

Comprehensive income (loss)
$
102

 
$
57

 
$
(258
)
 
$
271



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
7
 



Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Condensed Consolidated Statements of Changes in Shareholder’s Equity
For the Nine Months Ended September 30, 2018 and 2017 (Unaudited)
(In millions)

 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings (Deficit)
 
Total Shareholder's Equity
Balance as of January 1, 2018
$
3

 
$
2,730

 
$
818

 
$
30

 
$
3,581

Cumulative effect of changes in accounting:
 
 
 
 
 
 
 
 
 
Adjustment for adoption of ASU 2014-09

 

 

 
72

 
72

Adjustment for adoption of ASU 2016-01

 

 
(12
)
 
12

 

Balance as of January 1, 2018 - As adjusted
3

 
2,730

 
806

 
114

 
3,653

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 

 
347

 
347

Other comprehensive income (loss), after tax

 

 
(605
)
 

 
(605
)
Total comprehensive income (loss)
 
 
 
 
 
 
 
 
(258
)
Dividends paid and distributions of capital

 

 

 
(126
)
 
(126
)
Employee related benefits

 
(2
)
 

 

 
(2
)
Balance as of September 30, 2018
$
3

 
$
2,728

 
$
201

 
$
335

 
$
3,267

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2017
$
3

 
$
2,994

 
$
560

 
$
(180
)
 
$
3,377

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 

 
40

 
40

Other comprehensive income (loss), after tax

 

 
231

 

 
231

Total comprehensive income (loss)
 
 
 
 
 
 
 
 
271

Dividends paid and distributions of capital

 
(261
)
 

 

 
(261
)
Employee related benefits

 
1

 

 

 
1

Balance as of September 30, 2017
$
3

 
$
2,734

 
$
791

 
$
(140
)
 
$
3,388




The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
8
 


Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2018 and 2017 (Unaudited)
(In millions)

 
Nine Months Ended September 30,
 
2018
 
2017
Net cash provided by operating activities
$
944

 
$
678

Cash Flows from Investing Activities:
 
 
 
Proceeds from the sale, maturity, disposal or redemption of:
 
 
 
Fixed maturities
2,976

 
3,293

Equity securities

 

Mortgage loans on real estate
429

 
351

Limited partnerships/corporations
63

 
59

Acquisition of:
 
 
 
Fixed maturities
(3,881
)
 
(3,261
)
Equity securities
(3
)
 
(2
)
Mortgage loans on real estate
(535
)
 
(964
)
Limited partnerships/corporations
(209
)
 
(87
)
Derivatives, net
(10
)
 
200

Policy loans, net
2

 
5

Short-term investments, net
25

 
29

Short-term loan to affiliate, net
80

 

Collateral received (delivered), net
54

 
(185
)
Other investments, net
(41
)
 

Net cash used in investing activities
(1,050
)
 
(562
)
Cash Flows from Financing Activities:
 
 
 
Deposits received for investment contracts
2,560

 
1,911

Maturities and withdrawals from investment contracts
(2,379
)
 
(1,979
)
Settlements on deposit contracts
(20
)
 
(49
)
Dividends paid and distributions of capital
(126
)
 
(261
)
Net cash provided by (used in) financing activities
35

 
(378
)
Net decrease in cash and cash equivalents
(71
)
 
(262
)
Cash and cash equivalents, beginning of period
288

 
561

Cash and cash equivalents, end of period
$
217

 
$
299



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
9
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

 
1.    Business, Basis of Presentation and Significant Accounting Policies

Business

Voya Retirement Insurance and Annuity Company ("VRIAC") is a stock life insurance company domiciled in the State of Connecticut. VRIAC and its wholly owned subsidiaries (collectively, the "Company") provide financial products and services in the United States. VRIAC is authorized to conduct its insurance business in all states and in the District of Columbia and in Guam, Puerto Rico and the Virgin Islands.

Prior to May 2013, Voya Financial, Inc. ("Voya Financial"), together with its subsidiaries, including the Company was an indirect, wholly-owned subsidiary of ING Groep N.V. ("ING Group" or "ING"), a global financial services holding company based in The Netherlands. In May 2013, Voya Financial, Inc., completed its initial public offering of common stock, including the issuance and sale of common stock by Voya Financial, Inc. and the sale of shares of common stock owned indirectly by ING Group. Between October 2013 and March 2015, ING Group completed the sale of its remaining shares of common stock of Voya Financial, Inc. in a series of registered public offerings.

VRIAC is a direct, wholly owned subsidiary of Voya Holdings Inc. ("Parent"), which is a direct, wholly owned subsidiary of Voya Financial, Inc.

As of June 1, 2018, Directed Services LLC ("DSL") was divested pursuant to the transaction described below. Subsequent to the transaction, VRIAC has one wholly owned non-insurance subsidiary, Voya Financial Partners, LLC ("VFP").

On June 1, 2018, VRIAC's ultimate parent, Voya Financial, consummated a series of transactions (collectively, the "Transaction'') pursuant to a Master Transaction Agreement dated December 20, 2017 (the "MTA") with VA Capital Company LLC ("VA Capital") and Athene Holding Ltd. ("Athene"). As part of the Transaction, VA Capital's wholly owned subsidiary Venerable Holdings Inc. ("Venerable") acquired certain of Voya Financial's assets, including all of the shares of capital stock of Voya Insurance and Annuity Company ("VIAC"), the Company's Iowa-domiciled insurance affiliate, as well as the membership interests of DSL, the Company's broker-dealer subsidiary. Following the closing of the Transaction, VRIAC acquired a 9.99% equity interest in VA Capital.

The Company offers qualified and nonqualified annuity contracts that include a variety of funding and payout options for individuals and employer-sponsored retirement plans qualified under Internal Revenue Code Sections 401, 403, 408, 457 and 501, as well as nonqualified deferred compensation plans and related services. The Company's products are offered primarily to employer-sponsored groups in the health care, government and education markets (collectively "tax exempt markets"), small to mid-sized corporations and individuals. The Company also provides stable value investment options, including separate account guaranteed investment contracts (e.g., GICs) and synthetic GICs, to institutional clients. Pension risk transfer group annuity solutions were previously offered to institutional plan sponsors who needed to transfer their defined benefit plan obligations to the Company. The Company discontinued sales of these solutions in late 2016 to better align business activities to the Company's priorities. The Company's products are generally distributed through pension professionals, independent agents and brokers, third-party administrators, banks, consultants, dedicated financial guidance, planning and advisory representatives associated with Voya Financial, Inc.'s retail broker-dealer, Voya Financial Advisors, Inc. ("Voya Financial Advisors").

Products offered by the Company include deferred and immediate (i.e., payout) annuity contracts. Company products also include programs offered to qualified plans and nonqualified deferred compensation plans that package administrative and record-keeping services, participant education, and retirement readiness planning tools along with a variety of investment options, including proprietary and non-proprietary mutual funds and variable and fixed investment options. In addition, the Company offers wrapper agreements entered into with retirement plans, which contain certain benefit responsive guarantees (i.e., guarantees of principal and previously accrued interest for benefits paid under the terms of the plan) with respect to portfolios of plan-owned assets not invested with the Company. Stable value products are also provided to institutional plan sponsors where the Company may or may not be providing other employer sponsored products and services.

The Company has one operating segment.


 
10
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and are unaudited. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates.

The Condensed Consolidated Financial Statements include the accounts of VRIAC and its wholly owned subsidiaries VFP and DSL. Intercompany transactions and balances have been eliminated. As of June 1, 2018, DSL was divested pursuant to the Transaction.

The accompanying Condensed Consolidated Financial Statements reflect adjustments (including normal, recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 2018, its results of operations and comprehensive income for the three and nine months ended September 30, 2018 and 2017, and its changes in shareholder's equity and statements of cash flows for the nine months ended September 30, 2018 and 2017, in conformity with U.S. GAAP. Interim results are not necessarily indicative of full year performance. The December 31, 2017 Consolidated Balance Sheet is from the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K, filed with the SEC. Therefore, these unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company's Annual Report on Form 10-K.

Significant Accounting Policies

Investments

Effective January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2016-01 "Financial Instruments-Overall (ASC Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01") (See the Adoption of New Pronouncements section below). As a result, the Company measures its equity securities at fair value and recognizes any changes in fair value in net income. Prior to adoption, equity securities were designated as available-for-sale and reported at fair value with unrealized capital gains (losses) recorded in Accumulated other comprehensive income (loss) ("AOCI").

Recognition of Revenue

As of January 1, 2018, the Company changed its method for recognizing costs to obtain and fulfill certain financial services contracts upon the adoption of ASU 2014-09, "Revenue from Contracts with Customers (ASC Topic 606)" ("ASU 2014-09"). (See the Adoption of New Pronouncements section below.)

Financial services revenue is disaggregated by type of service in the following table and represents approximately 8.8% and 11.6% of total revenue for the three and nine months ended September 30, 2018, respectively. For the three and nine months ended September 30, 2018, a portion of the revenue recognized in the current period from distribution services is related to performance obligations satisfied in previous periods.
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
Service Line
 
 
 
Recordkeeping & administration
$
29

 
$
86

Distribution & shareholder servicing
22

 
103

Total financial services revenue
$
51

 
$
189


Receivables of $52 are included in Other assets on the Condensed Consolidated Balance Sheet as of September 30, 2018.


 
11
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Financial Services Revenue
Revenue for various financial services is measured based on consideration specified in a contract with a customer and excludes any amounts collected on behalf of third parties. For recordkeeping and administration services, the Company recognizes revenue as services are provided, generally over time. In addition, the Company may arrange for sub-advisory services for a customer under certain contracts. Revenue is recognized when the Company has satisfied a performance obligation by transferring control of a service to a customer. Contract terms are typically less than one year, and consideration is generally variable and due as services are rendered.

For distribution and shareholder servicing revenue, the Company provides distribution services at a point in time and shareholder services over time. Such revenue is recognized when the Company has satisfied a performance obligation and related consideration is received. Contract terms are less than one year, and consideration is variable. For distribution services, revenue may be recognized in periods subsequent to when the Company has satisfied a performance obligation, as a component of related consideration is constrained under certain contracts.

For a description of principal activities from which the Company generates revenue, see the Business section above for further information.

Revenue for various financial services is recorded in Fee income or Other revenue in the Condensed Consolidated Statements of Operations.

Contract Costs
Contract cost assets represent costs incurred to obtain or fulfill a contract that are expected to be recovered and, thus, have been capitalized and are subject to amortization. Capitalized contract costs include incremental costs of obtaining a contract and fulfillment costs that relate directly to a contract and generate or enhance resources of the Company that are used to satisfy performance obligations.

The Company defers (1) incremental commissions and variable compensation paid to the Company's direct sales force, consultant channel, and intermediary partners, as a result of obtaining certain financial services contracts and (2) account set-up expenses on certain recordkeeping contracts. The Company expenses as incurred deferrable contract costs for which the amortization period would be one year or less (based on the U.S. GAAP practical expedient) and other contract-related costs. The Company periodically reviews contract cost assets for impairment. Capitalized contract costs are included in Other assets on the Condensed Consolidated Balance Sheets, and costs expensed as incurred are included in Operating expenses in the Condensed Consolidated Statements of Operations.

As of September 30, 2018, contract cost assets were $92. Capitalized contract costs are amortized on a straight-line basis over the estimated lives of the contracts, which typically range from 5 to 15 years. This method is consistent with the transfer of services to which the assets relate. For the three and nine months ended September 30, 2018, amortization expenses of $5 and $14, respectively, were recorded in Operating expenses in the Condensed Consolidated Statements of Operations. There was no impairment loss in relation to the contract costs capitalized.

Adoption of New Pronouncements

Derecognition of Nonfinancial Assets
In February 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-05, "Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (ASC Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance & Accounting for Partial Sales of Nonfinancial Assets" ("ASU 2017-05"), which requires entities to apply certain recognition and measurement principles in ASU 2014-09, "Revenue from Contracts with Customers (ASC Topic 606)" (see Revenue from Contracts with Customers below) when they derecognize nonfinancial assets and in substance nonfinancial assets through sale or transfer, and the counterparty is not a customer.

The provisions of ASU 2017-05 were adopted January 1, 2018 using the modified retrospective approach. The adoption had no effect on the Company’s financial condition, results of operations, or cash flows.


 
12
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (ASC Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), which addresses diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on eight specific cash flow issues.

The provisions of ASU 2016-15 were adopted on January 1, 2018 using the retrospective approach. The adoption had no effect on the Company’s financial condition, results of operations, or cash flows.

Share-Based Compensation
In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation (ASC Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), which simplifies the accounting for share-based payment award transactions with respect to:

The income tax consequences of awards,
The impact of forfeitures on the recognition of expense for awards,
Classification of awards as either equity or liabilities, and
Classification on the statement of cash flows.

The provisions of ASU 2016-09 were adopted by the Company on January 1, 2017 using the transition method prescribed for each applicable provision:

On a prospective basis, all excess tax benefits and tax deficiencies related to share-based compensation will be reported in Net income (loss), rather than Additional paid-in capital.  Prior year excess tax benefits will remain in Additional paid-in capital. 
The Company elected to retrospectively adopt the requirement to present cash inflows related to excess tax benefits as operating activities. For the nine months ended September 30, 2017, the Company had no excess tax benefits. 

The adoption of the remaining provisions of ASU 2016-09 had no effect on the Company's financial condition, results of operations, or cash flows.

Financial Instruments - Recognition and Measurement
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall (ASC Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"), which requires:

Equity investments (except those consolidated or accounted for under the equity method) to be measured at fair value with changes in fair value recognized in net income.
Elimination of the disclosure of methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost.
The use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
Separate presentation in other comprehensive income of the portion of the total change in fair value of a liability resulting from a change in own credit risk if the liability is measured at fair value under the fair value option.
Separate presentation on the balance sheet or financial statement notes of financial assets and financial liabilities by measurement category and form of financial asset.

The Company adopted the provisions of ASU 2016-01 on January 1, 2018 using a modified retrospective approach, except for certain provisions that were required to be applied prospectively. The impact to the January 1, 2018 Condensed Consolidated Balance Sheets was a $12 increase, net of tax, to Retained earnings (deficit) with a corresponding decrease of $12, net of tax, to AOCI to recognize the unrealized gain associated with Equity securities. The provisions that required prospective adoption had no effect on the Company's financial condition, results of operations, or cash flows. Under previous guidance, prior to January 1, 2018, Equity securities were classified as available for sale with changes in fair value recognized in Other comprehensive income (loss).

Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange

 
13
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

for those goods or services. Revenue is recognized when, or as, the entity satisfies a performance obligation under the contract. ASU 2014-09 also updated the accounting for certain costs associated with obtaining and fulfilling contracts with customers and requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In addition, the FASB issued various amendments during 2016 to clarify the provisions and implementation guidance of ASU 2014-09. Revenue recognition for insurance contracts and financial instruments is explicitly scoped out of the guidance.

The Company adopted the provisions of ASU 2014-09 on January 1, 2018, using the modified retrospective approach. The adoption had no impact on revenue recognition. However, the adoption resulted in a $90 increase in Other assets to capitalize costs to obtain and fulfill certain financial services contracts. This adjustment was offset by a related $18 decrease in Deferred income taxes, resulting in a net $72 increase to Retained earnings (deficit) on the Condensed Consolidated Balance Sheet as of January 1, 2018. In addition, disclosures have been updated to reflect accounting policy changes made as a result of the implementation of ASU 2014-09. (See the Significant Accounting Policies section above.)

Comparative information has not been adjusted and continues to be reported under previous revenue recognition guidance. As of September 30, 2018 the adoption of ASU 2014-09 resulted in a $92 increase in Other assets, offset by a related $19 decrease in Deferred income taxes, resulting in a net $73 increase to Retained earnings (deficit) on the Condensed Consolidated Balance Sheet. For the three and nine months ended September 30, 2018, the adoption resulted in an increase of $1 and $2, respectively, in Operating expenses on the Condensed Consolidated Statement of Operations. For the nine months ended September 30, 2018, adopting the provisions of ASU 2014-09 had no impact on Net cash provided by operating activities.

Future Adoption of Accounting Pronouncements

Cloud Computing Arrangements
In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (ASC Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" ("ASU 2018-15"), which requires a customer in a hosting arrangement that is a service contract to follow the guidance for internal-use software projects to determine which implementation costs to capitalize as an asset. Capitalized implementation costs are required to be expensed over the term of the hosting arrangement. In addition, a customer is required to apply the impairment and abandonment guidance for long-lived assets to the capitalized implementation costs. Balances related to capitalized implementation costs must be presented in the same financial statement line items as other hosting arrangement balances, and additional disclosures are required.

The provisions of ASU 2018-15 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Initial adoption of ASU 2018-15 is required to be reported on a prospective or retrospective basis. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2018-15.

Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"), which simplifies certain disclosure requirements for fair value measurement.

The provisions of ASU 2018-13 are effective for fiscal years beginning after December 15, 2019, including interim periods, with early adoption permitted. The transition method varies by provision. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2018-13.

Long-Duration Contracts
In August 2018, the FASB issued ASU 2018-12, "Financial Services - Insurance (Topic 944) Targeted Improvements to the Accounting for Long-Duration Contracts" ("ASU 2018-12"), which changes the measurement and disclosures of insurance liabilities and deferred acquisition costs for long-duration contracts issued by insurers, as follows:

Requires insurers to review and, if necessary, update cash flow assumptions at least annually when measuring the liability for future policy benefits for nonparticipating traditional and limited payment insurance contracts. The effect of updating cash flow assumptions will be measured on a retrospective catch-up basis and presented in the Statement of operations in the period in which the update is made. The rate used to discount the liability for future policy benefits will be required to be updated quarterly, with related changes in the liability recorded in Accumulated other comprehensive income. The

 
14
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

application of periodic assumption updates for nonparticipating traditional and limited payment insurance contracts is significantly different from the current accounting approach for such liabilities, which is based on assumptions that are locked in at contract inception unless a premium deficiency occurs. The discount rate will be based on an upper-medium grade fixed-income corporate instrument yield reflecting the duration characteristics of the relevant liabilities. Under the current accounting guidance, the liability discount rate is based on expected yields on the underlying investment portfolio held by the insurer.
Creates a new category of benefit features called market risk benefits, defined as features that protect contract holders from capital market risk and expose the insurers to that risk. Market risk benefits will be required to be measured at fair value, with changes in fair value recognized in the Statement of operations, except for changes in fair value attributable to changes in the instrument-specific credit risk, which will be recorded in Accumulated other comprehensive income. Under the current accounting guidance, certain features that are expected to meet the definition of market risk benefits are accounted for as either insurance liabilities or embedded derivatives.
Requires DAC (and other balances that refer to the DAC model, such as deferred sales inducement costs and unearned revenue liabilities) for all long-duration contracts to be measured on a basis that is constant relative to the value of insurance in force over the expected life of the contract. This approach is intended to approximate straight-line amortization and cannot be based on revenue or profits as it is under the current accounting model. ASU 2018-12 did not change the existing accounting guidance related to VOBA and net cost of reinsurance, which allows, but does not require, insurers to amortize such balances on a basis consistent with DAC.
Significantly expands interim and annual disclosures, including requirements for disaggregated rollforwards of the liability for future policy benefits, contract owner account balances, market risk benefits, and DAC, as well as qualitative and quantitative information about expected cash flows, estimates and assumptions.

The provisions of ASU 2018-12 are effective for fiscal years beginning after December 15, 2020, including interim periods, with early adoption permitted. Initial adoption of the changes to the liability for future policy benefits and deferred acquisition costs is required to be reported using either a retrospective or modified retrospective approach. For the changes to market risk benefits, retrospective application is required. The Company is currently in the process of evaluating the provisions of ASU 2018-12. While it is not possible to estimate the expected impact of adoption at this time, the Company believes there is a reasonable possibility that implementation of ASU 2018-12 may result in a significant impact on Shareholders’ equity and future earnings patterns.

Reclassification of Certain Tax Effects
In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (ASC Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted Tax Cuts and Jobs Act of 2017 ("Tax Reform"). Stranded tax effects arise because U.S. GAAP requires that the impact of a change in tax laws or rates on deferred tax liabilities and assets be reported in net income, even if related to items recognized within accumulated other comprehensive income. The amount of the reclassification would be based on the difference between the historical corporate income tax rate and the newly enacted 21% corporate income tax rate, applied to deferred tax liabilities and assets reported within accumulated other comprehensive income.
The provisions of ASU 2018-02 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. Initial adoption of ASU 2018-02 may be reported either in the period of adoption or on a retrospective basis in each period in which the effect of the change in the U.S. federal corporate income tax rate resulting from Tax Reform is recognized. The Company is currently evaluating the provisions of ASU 2018-02.
Derivatives & Hedging
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic ASC 815): Targeted Improvements to Accounting for Hedging Activities" ("ASU 2017-12"), which enables entities to better portray risk management activities in their financial statements, as follows:

Expands an entity's ability to hedge nonfinancial and financial risk components and reduces complexity in accounting for fair value hedges of interest rate risk,
Eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item,
Eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness, and
Modifies required disclosures.

 
15
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 


In addition, in October 2018 the FASB issued ASU 2018-16, "Derivatives and Hedging (Topic ASC 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes" ("ASU 2018-16"), which expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting. The provisions of ASU 2017-12 and ASU 2018-16 are effective for fiscal years beginning after December 15, 2018, including interim periods, with early adoption permitted. Initial adoption of ASU 2017-12 is required to be reported using a modified retrospective approach, with the exception of the presentation and disclosure requirements which are required to be applied prospectively. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2017-12 and ASU 2018-16.

Debt Securities
In March 2017, the FASB issued ASU 2017-08, "Receivables-Nonrefundable Fees and Other Costs (ASC Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities" ("ASU 2017-08"), which shortens the amortization period for certain callable debt securities held at a premium by requiring the premium to be amortized to the earliest call date.

The provisions of ASU 2017-08 are effective for fiscal years beginning after December 15, 2018, including interim periods, with early adoption permitted. Initial adoption of ASU 2017-08 is required to be reported using a modified retrospective approach. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2017-08.

Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), which:

Introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments,
Modifies the impairment model for available-for-sale debt securities, and
Provides a simplified accounting model for purchased financial assets with credit deterioration since their origination.

The provisions of ASU 2016-13 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. Initial adoption of ASU 2016-13 is required to be reported on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, except for certain provisions that are required to be applied prospectively. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2016-13.

Leases
In February 2016, the FASB issued ASU 2016-02, "Leases (ASC Topic 842)" ("ASU 2016-02"), which requires lessees to recognize a right-of-use asset and a lease liability for all leases with terms of more than 12 months. The lease liability will be measured as the present value of the lease payments, and the asset will be based on the liability. For income statement purposes, expense recognition will depend on the lessee's classification of the lease as either finance, with a front-loaded amortization expense pattern similar to current capital leases, or operating, with a straight-line expense pattern similar to current operating leases. Lessor accounting will be similar to the current model, and lessors will be required to classify leases as operating, direct financing, or sales-type.

ASU 2016-02 also replaces the sale-leaseback guidance to align with the new revenue recognition standard, addresses statement of operation and statement of cash flow classification, and requires additional disclosures for all leases. In addition, the FASB issued various amendments during 2018 to clarify and simplify the provisions and implementation guidance of ASU 2016-02.

The provisions of ASU 2016-02 are effective on a modified retrospective basis for fiscal years beginning after December 15, 2018, including interim periods, with early adoption permitted. In July 2018, the FASB issued an amendment that adds an optional transition method to apply the guidance on a modified retrospective basis at the adoption date, which is January 1, 2019. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2016-02.


 
16
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

2.    Investments
   
Fixed Maturities and Equity Securities

Available-for-sale and fair value option ("FVO") fixed maturities were as follows as of September 30, 2018:
 
Amortized
Cost
 
Gross
Unrealized
Capital
Gains
 
Gross
Unrealized
Capital
Losses
 
Embedded Derivatives(2)
 
Fair
Value
 
OTTI(3)(4)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
451

 
$
69

 
$

 
$

 
$
520

 
$

U.S. Government agencies and authorities

 

 

 

 

 

State, municipalities and political subdivisions
752

 
13

 
14

 

 
751

 

U.S. corporate public securities
7,924

 
354

 
116

 

 
8,162

 

U.S. corporate private securities
3,757

 
86

 
96

 

 
3,747

 

Foreign corporate public securities and foreign governments(1)
2,555

 
83

 
51

 

 
2,587

 

Foreign corporate private securities(1)
3,193

 
52

 
74

 

 
3,171

 

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
1,930

 
42

 
38

 
4

 
1,938

 

Non-Agency
907

 
45

 
8

 
4

 
948

 
3

Total Residential mortgage-backed securities
2,837

 
87

 
46

 
8

 
2,886

 
3

Commercial mortgage-backed securities
1,731

 
9

 
42

 

 
1,698

 

Other asset-backed securities
1,141

 
5

 
7

 

 
1,139

 
2

Total fixed maturities, including securities pledged
24,341

 
758

 
446

 
8

 
24,661

 
5

Less: Securities pledged
938

 
62

 
15

 

 
985

 

Total fixed maturities
$
23,403

 
$
696

 
$
431

 
$
8

 
$
23,676

 
$
5

(1) Primarily U.S. dollar denominated.
(2) Embedded derivatives within fixed maturity securities are reported with the host investment. The changes in fair value of embedded derivatives are reported in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(3) Represents Other-than-Temporary-Impairments ("OTTI") reported as a component of Other comprehensive income (loss).
(4) Amount excludes $131 of net unrealized gains on impaired available-for-sale securities.


 
17
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Available-for-sale and FVO fixed maturities and equity securities were as follows as of December 31, 2017:
 
Amortized
Cost
 
Gross
Unrealized
Capital
Gains
 
Gross
Unrealized
Capital
Losses
 
Embedded Derivatives(2)
 
Fair
Value
 
OTTI(3)(4)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
547

 
$
109

 
$

 
$

 
$
656

 
$

U.S. Government agencies and authorities
3

 

 

 

 
3

 

State, municipalities and political subdivisions
842

 
40

 
4

 

 
878

 

U.S. corporate public securities
8,476

 
786

 
26

 

 
9,236

 

U.S. corporate private securities
3,387

 
148

 
38

 

 
3,497

 

Foreign corporate public securities and foreign governments(1)
2,594

 
192

 
9

 

 
2,777

 

Foreign corporate private securities(1)
3,105

 
155

 
45

 

 
3,215

 
7

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
1,878

 
65

 
17

 
6

 
1,932

 

Non-Agency
639

 
54

 
2

 
6

 
697

 
4

Total Residential mortgage-backed securities
2,517

 
119

 
19

 
12

 
2,629

 
4

Commercial mortgage-backed securities
1,437

 
39

 
6

 

 
1,470

 

Other asset-backed securities
671

 
11

 
1

 

 
681

 
2

Total fixed maturities, including securities pledged
23,579

 
1,599

 
148

 
12

 
25,042

 
13

Less: Securities pledged
864

 
104

 
8

 

 
960

 

Total fixed maturities
22,715

 
1,495

 
140

 
12

 
24,082

 
13

Equity securities
45

 
15

 

 

 
60

 

Total fixed maturities and equity securities investments
$
22,760

 
$
1,510

 
$
140

 
$
12

 
$
24,142

 
$
13

(1) Primarily U.S. dollar denominated.
(2) Embedded derivatives within fixed maturity securities are reported with the host investment. The changes in fair value of embedded derivatives are reported in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(3) Represents OTTI reported as a component of Other comprehensive income (loss).
(4) Amount excludes $190 of net unrealized gains on impaired available-for-sale securities.



 
18
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

The amortized cost and fair value of fixed maturities, including securities pledged, as of September 30, 2018, are shown below by contractual maturity. Actual maturities may differ from contractual maturities as securities may be restructured, called or prepaid. Mortgage-backed securities ("MBS") and Other asset-backed securities ("ABS") are shown separately because they are not due at a single maturity date.
 
Amortized
Cost
 
Fair
Value
Due to mature:
 
 
 
One year or less
$
541

 
$
547

After one year through five years
4,012

 
4,057

After five years through ten years
5,937

 
5,889

After ten years
8,142

 
8,445

Mortgage-backed securities
4,568

 
4,584

Other asset-backed securities
1,141

 
1,139

Fixed maturities, including securities pledged
$
24,341

 
$
24,661


The investment portfolio is monitored to maintain a diversified portfolio on an ongoing basis. Credit risk is mitigated by monitoring concentrations by issuer, sector and geographic stratification and limiting exposure to any one issuer. 

As of September 30, 2018 and December 31, 2017, the Company did not have any investments in a single issuer, other than obligations of the U.S. Government and government agencies, with a carrying value in excess of 10% of the Company's Total shareholder's equity.

The following tables present the composition of the U.S. and foreign corporate securities within the fixed maturity portfolio by industry category as of the dates indicated:
 
Amortized
Cost
 
Gross Unrealized Capital Gains
 
Gross Unrealized Capital Losses
 
Fair Value
September 30, 2018
 
 
 
 
 
 
 
Communications
$
1,151

 
$
63

 
$
14

 
$
1,200

Financial
2,830

 
116

 
40

 
2,906

Industrial and other companies
7,643

 
198

 
154

 
7,687

Energy
1,867

 
85

 
47

 
1,905

Utilities
2,850

 
82

 
62

 
2,870

Transportation
744

 
20

 
14

 
750

Total
$
17,085

 
$
564

 
$
331

 
$
17,318

 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
Communications
$
1,145

 
$
114

 
$
1

 
$
1,258

Financial
2,750

 
185

 
4

 
2,931

Industrial and other companies
7,953

 
532

 
65

 
8,420

Energy
1,970

 
159

 
33

 
2,096

Utilities
2,725

 
216

 
11

 
2,930

Transportation
697

 
52

 
2

 
747

Total
$
17,240

 
$
1,258

 
$
116

 
$
18,382



 
19
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Fixed Maturities and Equity Securities:
The Company's fixed maturities are currently designated as available-for-sale, except those accounted for using the FVO. Prior to the adoption of ASU 2016-01 as of January 1, 2018, equity securities were also designated as available-for-sale. Available-for-sale securities are reported at fair value and unrealized capital gains (losses) on these securities are recorded directly in AOCI and presented net of related changes in Deferred policy acquisition costs ("DAC"), Value of business acquired ("VOBA") and Deferred income taxes. In addition, certain fixed maturities have embedded derivatives, which are reported with the host contract on the Condensed Consolidated Balance Sheets.
The Company has elected the FVO for certain of its fixed maturities to better match the measurement of assets and liabilities in the Condensed Consolidated Statements of Operations. Certain collateralized mortgage obligations ("CMOs"), primarily interest-only and principal-only strips, are accounted for as hybrid instruments and reported at fair value with changes in the fair value recorded in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
The Company invests in various categories of CMOs, including CMOs that are not agency-backed, that are subject to different degrees of risk from changes in interest rates and defaults. The principal risks inherent in holding CMOs are prepayment and extension risks related to significant decreases and increases in interest rates resulting in the prepayment of principal from the underlying mortgages, either earlier or later than originally anticipated. As of September 30, 2018 and December 31, 2017, approximately 52.3% and 52.1%, respectively, of the Company’s CMO holdings, were invested in the above mentioned types of CMOs such as interest-only or principal-only strips, that are subject to more prepayment and extension risk than traditional CMOs.

Public corporate fixed maturity securities are distinguished from private corporate fixed maturity securities based upon the manner in which they are transacted. Public corporate fixed maturity securities are issued initially through market intermediaries on a registered basis or pursuant to Rule 144A under the Securities Act of 1933 (the "Securities Act") and are traded on the secondary market through brokers acting as principal. Private corporate fixed maturity securities are originally issued by borrowers directly to investors pursuant to Section 4(a)(2) of the Securities Act, and are traded in the secondary market directly with counterparties, either without the participation of a broker or in agency transactions.
 
Repurchase Agreements

As of September 30, 2018 and December 31, 2017, the Company did not have any securities pledged in dollar rolls, repurchase agreement transactions or reverse repurchase agreements.

Securities Lending

The Company engages in securities lending whereby certain securities from its portfolio are loaned to other institutions, through a lending agent, for short periods of time. The Company has the right to approve any institution with whom the lending agent transacts on its behalf. Initial collateral is required at a rate of 102% of the market value of the loaned securities. The lending agent retains the collateral and invests it in high quality liquid assets on behalf of the Company. The market value of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the market value of the loaned securities fluctuates. The lending agent indemnifies the Company against losses resulting from the failure of a counterparty to return securities pledged where collateral is insufficient to cover the loss. As of September 30, 2018 and December 31, 2017, the fair value of loaned securities was $809 and $799, respectively, and is included in Securities pledged on the Condensed Consolidated Balance Sheets.

If cash is received as collateral, the lending agent retains the cash collateral and invests it in short-term liquid assets on behalf of the Company. As of September 30, 2018 and December 31, 2017, cash collateral retained by the lending agent and invested in short-term liquid assets on the Company's behalf was $774 and $744, respectively, and is recorded in Short-term investments under securities loan agreements, including collateral delivered on the Condensed Consolidated Balance Sheets. As of September 30, 2018 and December 31, 2017, liabilities to return collateral of $774 and $744, respectively, are included in Payables under securities loan agreements, including collateral held, on the Condensed Consolidated Balance Sheets.


 
20
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

The Company accepts non-cash collateral in the form of securities. The securities retained as collateral by the lending agent may not be sold or re-pledged, except in the event of default, and are not reflected on the Company’s Condensed Consolidated Balance Sheets. This collateral generally consists of U.S. Treasury, U.S. Government agency securities and MBS pools. As of September 30, 2018 and December 31, 2017, the fair value of securities retained as collateral by the lending agent on the Company’s behalf was $63 and $61, respectively.

The following table presents borrowings under securities lending transactions by class of collateral pledged for the dates indicated:
 
September 30, 2018 (1)(2)
 
December 31, 2017 (1)(2)
U.S. Treasuries
$
158

 
$
177

U.S. corporate public securities
492

 
460

Foreign corporate public securities and foreign governments
187

 
168

Payables under securities loan agreements
$
837

 
$
805

(1) As of September 30, 2018 and December 31, 2017, borrowings under securities lending transactions include cash collateral of $774 and $744, respectively.
(2) As of September 30, 2018 and December 31, 2017, borrowings under securities lending transactions include non-cash collateral of $63 and $61, respectively.

The Company's securities lending activities are conducted on an overnight basis, and all securities loaned can be recalled at any time. The Company does not offset assets and liabilities associated with its securities lending program.

Variable Interest Entities ("VIEs")

The Company holds certain VIEs for investment purposes. VIEs may be in the form of private placement securities, structured securities, securitization transactions or limited partnerships. The Company has reviewed each of its holdings and determined that consolidation of these investments in the Company’s financial statements is not required, as the Company is not the primary beneficiary, because the Company does not have both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation or right to potentially significant losses or benefits, for any of its investments in VIEs. The Company did not provide any non-contractual financial support and its carrying value represents the Company’s exposure to loss. The carrying value of the investments in VIEs was $570 and $411 as of September 30, 2018 and December 31, 2017, respectively; these investments are included in Limited partnerships/corporations on the Condensed Consolidated Balance Sheets. Income and losses recognized on these investments are reported in Net investment income in the Condensed Consolidated Statements of Operations.

Securitizations

The Company invests in various tranches of securitization entities, including Residential mortgage-backed securities ("RMBS"), Commercial mortgage-backed securities ("CMBS") and ABS. Through its investments, the Company is not obligated to provide any financial or other support to these entities. Each of the RMBS, CMBS and ABS entities are thinly capitalized by design and considered VIEs. The Company's involvement with these entities is limited to that of a passive investor. The Company has no unilateral right to appoint or remove the servicer, special servicer or investment manager, which are generally viewed to have the power to direct the activities that most significantly impact the securitization entities' economic performance, in any of these entities, nor does the Company function in any of these roles. The Company, through its investments or other arrangements, does not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity. Therefore, the Company is not the primary beneficiary and does not consolidate any of the RMBS, CMBS and ABS entities in which it holds investments. These investments are accounted for as investments available-for-sale as described in the Fair Value Measurements Note to these Condensed Consolidated Financial Statements and unrealized capital gains (losses) on these securities are recorded directly in AOCI, except for certain RMBS that are accounted for under the FVO, for which changes in fair value are reflected in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations. The Company’s maximum exposure to loss on these structured investments is limited to the amount of its investment.


 
21
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Unrealized Capital Losses

Unrealized capital losses (including noncredit impairments), along with the fair value of fixed maturity securities, including securities pledged, by market sector and duration were as follows as of September 30, 2018:
 
Six Months or Less
Below Amortized Cost
 
More Than Six
Months and Twelve
Months or Less
Below Amortized Cost
 
More Than Twelve
Months Below
Amortized Cost
 
Total
 
 
Fair
Value
 
Unrealized
Capital Losses
 
Fair
Value
 
Unrealized
Capital Losses
 
Fair
Value
 
Unrealized
Capital Losses
 
Fair
Value
 
Unrealized
Capital Losses
 
U.S. Treasuries
$

 
$

 
$
2

 
$

*
$
13

 
$

*
$
15

 
$

*
State, municipalities and political subdivisions
217

 
4

 
111

 
4

 
80

 
6

 
408

 
14

 
U.S. corporate public securities
1,238

 
20

 
1,487

 
59

 
377

 
37

 
3,102

 
116

 
U.S. corporate private securities
597

 
6

 
821

 
27

 
569

 
63

 
1,987

 
96

 
Foreign corporate public securities and foreign governments
459

 
8

 
632

 
30

 
109

 
13

 
1,200

 
51

 
Foreign corporate private securities
757

 
33

 
576

 
24

 
173

 
17

 
1,506

 
74

 
Residential mortgage-backed
281

 
4

 
211

 
12

 
399

 
30

 
891

 
46

 
Commercial mortgage-backed
612

 
8

 
407

 
21

 
190

 
13

 
1,209

 
42

 
Other asset-backed
547

 
4

 
125

 
2

 
43

 
1

 
715

 
7

 
Total
$
4,708

 
$
87

 
$
4,372

 
$
179

 
$
1,953

 
$
180

 
$
11,033

 
$
446

 
*Less than $1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


















 
22
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Unrealized capital losses (including noncredit impairments), along with the fair value of fixed maturity securities, including securities pledged, by market sector and duration were as follows as of December 31, 2017:

 
Six Months or Less
Below Amortized Cost
 
More Than Six
Months and Twelve
Months or Less
Below Amortized Cost
 
More Than Twelve
Months Below
Amortized Cost
 
Total
 
 
Fair
Value
 
Unrealized
Capital Losses
 
Fair
Value
 
Unrealized
Capital Losses
 
Fair
Value
 
Unrealized
Capital Losses
 
Fair
Value
 
Unrealized
Capital Losses
 
U.S. Treasuries
$
18

 
$

*
$

 
$

 
$
12

 
$

*
$
30

 
$

*
State, municipalities and political subdivisions
34

 

 
1

 

 
91

 
4

 
126

 
4

 
U.S. corporate public securities
504

 
11

 

 

 
304

 
15

 
808

 
26

 
U.S. corporate private securities
226

 
2

 
46

 
2

 
499

 
34

 
771

 
38

 
Foreign corporate public securities and foreign governments
148

 
1

 
5

 

 
99

 
8

 
252

 
9

 
Foreign corporate private securities
135

 
38

 
13

 

 
161

 
7

 
309

 
45

 
Residential mortgage-backed
263

 
5

 
26

 
1

 
438

 
13

 
727

 
19

 
Commercial mortgage-backed
436

 
5

 
19

 

 
50

 
1

 
505

 
6

 
Other asset-backed
95

 
1

 
9

 

 
38

 

 
142

 
1

 
Total
$
1,859

 
$
63

 
$
119

 
$
3

 
$
1,692

 
$
82

 
$
3,670

 
$
148

 
*Less than $1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Of the unrealized capital losses aged more than twelve months, the average market value of the related fixed maturities was 91.5% and 95.4% of the average book value as of September 30, 2018 and December 31, 2017, respectively.


 
23
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged, for instances in which fair value declined below amortized cost by greater than or less than 20% for consecutive months as indicated in the tables below, were as follows as of the dates indicated:
 
Amortized Cost
 
Unrealized Capital Losses
 
Number of Securities
 
< 20%
 
> 20%
 
< 20%
 
> 20%
 
< 20%
 
> 20%
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Six months or less below amortized cost
$
4,762

 
$
75

 
$
71

 
$
24

 
918

 
15

More than six months and twelve months or less below amortized cost
4,548

 
15

 
178

 
4

 
921

 
1

More than twelve months below amortized cost
1,999

 
80

 
148

 
21

 
402

 
5

Total
$
11,309

 
$
170

 
$
397

 
$
49

 
2,241

 
21

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Six months or less below amortized cost
$
1,883

 
$
67

 
$
30

 
$
38

 
433

 
7

More than six months and twelve months or less below amortized cost
128

 
7

 
4

 
2

 
37

 
1

More than twelve months below amortized cost
1,661

 
72

 
53

 
21

 
335

 
7

Total
$
3,672

 
$
146

 
$
87

 
$
61

 
805

 
15



 
24
 

Voya Retirement Insurance and Annuity Company and Subsidiaries
(A wholly owned subsidiary of Voya Holdings Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged, by market sector for instances in which fair value declined below amortized cost by greater than or less than 20% were as follows as of the dates indicated:
 
Amortized Cost
 
Unrealized Capital Losses
 
Number of Securities
 
< 20%
 
> 20%
 
< 20%
 
> 20%
 
< 20%
 
> 20%
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
15

 
$

 
$

*
$

 
5

 

State, municipalities and political subdivisions
422

 

 
14

 

 
184

 

U.S. corporate public securities
3,197

 
21

 
111

 
5

 
655

 
2

U.S. corporate private securities
2,017

 
66

 
78

 
18

 
220

 
2

Foreign corporate public securities and foreign governments
1,238

 
13

 
48

 
3

 
267

 
3

Foreign corporate private securities
1,524

 
56

 
54

 
20

 
132

 
3

Residential mortgage-backed
924

 
13

 
43

 
3

 
368

 
10

Commercial mortgage-backed
1,251

 

 
42

 

 
238

 

Other asset-backed
721

 
1

 
7

 

 
172

 
1

Total
$
11,309

 
$
170

 
$
397

 
$
49

 
2,241

 
21

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
30

 
$

 
$

*
$

 
6

 

State, municipalities and political subdivisions
130

 

 
4

 

 
96

 

U.S. corporate public securities
828

 
6

 
24

 
2

 
167

 
2

U.S. corporate private securities
743

 
66

 
18

 
20

 
71

 
2

Foreign corporate public securities and foreign governments
254

 
7

 
7

 
2

 
61

 
1

Foreign corporate private securities
288

 
66

 
8

 
37

 
35

 
6

Residential mortgage-backed
746

 

 
19

 

 
194

 
3

Commercial mortgage-backed
511

 

 
6

 

 
131

 

Other asset-backed
142

 
1