UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

——————————————————————

FORM 10-K



(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2015~~2016



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: ~~333-196392,~~ ~~333~~001-~~203647, 333-203648, 333-203649, 333-203650, 333-203651~~32625

Voya Insurance and Annuity Company

(Exact name of registrant as specified in its charter)



Iowa	41-0991508
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
1475 Dunwoody Drive
West Chester, Pennsylvania	19380-1478
(Address of principal executive offices)	(Zip Code)

(610) 425-3400

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

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 (1) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 ý (Do not check if a smaller reporting company)	Smaller reporting company 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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates: N/A

As of March 1413, ~~2016~~2017, 250,000 shares of Common Stock, $10 par value, were outstanding, all of which were directly owned by Voya Holdings Inc.

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

Voya Insurance and Annuity Company

(A wholly owned subsidiary of Voya Holdings Inc.)

Form 10-K for the period ended December 31, ~~2015~~2016

TABLE OF CONTENTS
		PAGE
PART I
Item 1.	Business**	4
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments***	43
Item 2.	Properties**	43
Item 3.	Legal Proceedings	43
Item 4.	Mine Safety Disclosures	43
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	44
Item 6.	Selected Financial Data*	44
Item 7.	Management's Narrative Analysis of the Results of Operations and Financial Condition**	45
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	7879
Item 8.	Financial Statements and Supplementary Data	88
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	~~169~~170
Item 9A.	Controls and Procedures	~~169~~170
Item 9B.	Other Information	170
PART III
Item 10.	Directors, Executive Officers and Corporate Governance*	171
Item 11.	Executive Compensation*	171
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*	171
Item 13.	Certain Relationships, Related Transactions and Director Independence*	171
Item 14.	Principal Accounting Fees and Services	171
PART IV
Item 15.	Exhibits, Financial Statement Schedules	173
	Index to Consolidated Financial Statement Schedules	174
	Index to Financial Statement Schedules	174
	Signatures	178
	Exhibit Index	179
*	Item omitted pursuant to General Instruction I(2) of Form 10-K, except as to Part III, Item 10 with respect to compliance with Sections 406 and 407 of the Sarbanes-Oxley Act of 2002.
**	Item prepared in accordance with General Instruction I(2) of Form 10-K.
***	Item omitted as registrant is neither an accelerated filer nor a well-known seasoned issuer.



	2

As used in this Annual Report on Form 10-K, "VIAC," the "Company," "we," "our" and "us" refer to Voya Insurance and Annuity Company.

NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, including "Risk Factors," "Management's Narrative Analysis of the Results of Operations and Financial Condition," and "Business" 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 proposed rules and exemptions pertaining to the fiduciary status of providers of investment advice; (x) changes in the policies of governments and/or regulatory authorities; and (xi) other factors described in the section "Item 1A. Risk Factors."

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

Item 1. Business

(Dollar amounts in millions, unless otherwise stated)

Organization of Business

Voya Insurance and Annuity Company ("VIAC" or "the Company") is a stock life insurance company domiciled in the State of Iowa and provides financial products and services in the United States. VIAC is authorized to conduct its insurance business in all states, except New York and in the District of Columbia.

Prior to May 2013, Voya Financial, Inc., 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~~, with American Depository Shares listed on the New York Stock Exchange~~. In ~~2009,~~May ~~ING Group announced the anticipated separation of its global banking and insurance businesses~~2013, ~~including the divestiture of~~ Voya Financial, Inc., ~~together~~completed ~~with~~ its ~~subsidiaries,~~initial ~~including~~public ~~the~~offering ~~Company. On~~of ~~April~~common 11stock, ~~2013,~~including ~~Voya~~the ~~Financial,~~issuance ~~Inc.~~and ~~announced~~sale ~~plans~~of ~~to rebrand as Voya Financial. On May 2, 2013, the~~ common stock ofby Voya Financial, Inc. ~~began~~and ~~trading~~the onsale ~~the~~of ~~New~~shares ~~York~~of ~~Stock~~common ~~Exchange~~stock ~~under~~owned ~~the~~indirectly ~~symbol~~by ~~"VOYA~~ING Group.~~" On~~ ~~May 7,~~Between October 2013 and ~~May~~March 312015, ~~2013,~~ING ~~Voya~~Group ~~Financial,~~completed ~~Inc.~~the ~~completed~~sale of its ~~initial~~remaining ~~public~~shares ~~offering~~ of common stock, ~~including~~of ~~the issuance and sale by~~ Voya Financial, Inc. ofin ~~30,769,230~~a ~~shares~~series of ~~common~~registered ~~stock~~public ~~and the sale by ING Insurance International B~~offerings.~~V. ("~~ ING ~~International"), an indirect wholly owned subsidiary of ING~~ Group ~~and~~continues ~~previously~~to ~~the~~hold ~~sole~~certain ~~stockholder~~warrants ofto ~~Voya~~purchase ~~Financial,~~up ~~Inc.,~~to ~~of 44~~26,~~201~~050,~~773~~846 shares of ~~outstanding common stock of~~ Voya Financial, Inc. ~~(collectively,~~common ~~the~~stock ~~"IPO"). On~~at ~~September 30,~~an ~~2013,~~exercise ~~ING~~price ~~International transferred all~~ of ~~its shares of Voya Financial~~$48.75, ~~Inc.~~in ~~common~~each ~~stock~~case subject to ~~ING Group~~adjustments.

On October 29, 2013, ING Group completed a sale of 37,950,000 shares of common stock of Voya Financial, Inc. in a registered public offering ("Secondary Offering"), reducing ING Group's ownership of Voya Financial, Inc. to 57%.

Throughout 2014, ING Group completed the sale of an aggregate of 82,783,006 shares of common stock of Voya Financial, Inc. in a series of three registered public offerings. Also during 2014, pursuant to the terms of share repurchase agreements between ING Group and Voya Financial, Inc., Voya Financial, Inc. acquired 19,447,847 shares of its common stock from ING Group. As of the end of 2014, ING Group's ownership of Voya Financial, Inc. had been reduced to approximately 19%.

In March of 2015, ING Group completed a sale of 32,018,100 shares of common stock of Voya Financial, Inc. in a registered public offering. Concurrently with this offering, pursuant to the terms of a share repurchase agreement between ING Group and Voya Financial, Inc., Voya Financial, Inc. acquired 13,599,274 shares of its common stock from ING Group.

As a result of these transactions, ING Group satisfied the provisions of its agreement with the European Union regarding the divestment of its U.S. insurance and investment operations, which required ING Group to divest 100% of its ownership interest in Voya Financial, Inc. together with its subsidiaries, including the Company by the end of 2016. ING Group continues to hold warrants to purchase up to 26,050,846 shares of Voya Financial, Inc. common stock at an exercise price of $48.75, in each case subject to adjustments.

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

Description of Business

We currently offer various insurance products, including fixed and indexed annuities, investment-only products and payout annuities for pre-retirement wealth accumulation and postretirement income management. Our annuity products are distributed by national and regional brokerage and securities firms, independent broker-dealers, banks, life insurance companies with captive agency sales forces, independent insurance agents, independent marketing organizations and affiliated broker-dealers. Our primary annuity customers are individual consumers. We stopped actively writing new retail variable annuity products with substantial guarantee features in early 2010, as part of a global business strategy and risk reduction plan. New amounts will continue to be deposited in VIAC variable annuities as add-on premiums to existing contracts.

WeIn ~~have~~2009, ~~historically~~we ~~issued~~made a strategic decision to run-off over time the assets and liabilities related to guaranteed investment contracts and funding agreements ~~(collectively~~previously ~~referred~~issued to ~~as "GICs"), primarily to~~ institutional investors and corporate benefit plans. InAs ~~2009~~such, weno ~~made~~guaranteed ainvestment ~~strategic~~contracts ~~decision~~were tooutstanding ~~run-off~~during ~~the~~2016 ~~assets~~ and ~~liabilities~~2015. inAdditionally, all of the ~~GIC~~previously ~~business~~issued ~~over~~funding ~~time. New~~agreements ~~GIC~~will ~~contracts~~mature ~~may~~or be ~~issued~~terminated onby athe ~~limited~~end ~~basis~~of 2017. We may issue new funding agreements to ~~replace~~support ~~maturing~~liquidity ~~contracts.~~in the future.

See "-Reserves for Future Policy Benefits and Separate Accounts" below for a discussion of our reserves by product type.

We have one operating segment, which offers the products described below.

Products and Services

Products currently offered by us ~~include~~are ~~fixed and indexed annuities, and payout annuities,~~ designed to address customer needs for tax-advantaged savings, retirement needs and wealth-protection concerns, as well as ~~GICs~~funding agreements. As mentioned above, the Company stopped actively writing new retail variable annuity products with substantial guarantee features in early 2010. However, because the existing contracts remain in effect, they are described below.

Fixed Annuities: The fixed annuities offered by us are general account products and include single premium immediate, multi-year guaranteed, annual reset and fixed indexed annuities ("FIA"). Under fixed annuity contracts, the principal amount is guaranteed and, for a specified time period, we credit interest to the contract owner accounts at a fixed interest rate. Interest on FIAs is credited based on allocations selected by a customer in one or more of the strategies we offer and upon policy parameters that we set. The FIA strategies include a fixed interest rate option, as well as several options based upon performance of various external financial market indices. Such indices may include equity indices, such as the Standard & Poor's 500 Index ("S&P 500"), or an interest rate benchmark, such as the change in London Interbank Offered Rates ("LIBOR"). For accounting purposes, the index return component of an FIA is considered an embedded derivative. See further discussion under "-Reserves for Future Policy Benefits and Separate Accounts" below. We bear the investment risk on fixed annuities, because, while we credit contract owner accounts with a stated interest rate, we cannot be certain the investment income earned on the general account assets will exceed that rate.



	4

Some FIAs contain guaranteed withdrawal benefit features at an additional cost. These living benefits guarantee a minimum annual withdrawal amount for life. The amount of the guaranteed annual withdrawal may vary by age at first withdrawal.

Our major source of income from fixed annuities is the spread between the investment income earned on the underlying general account assets and the interest rate credited to contract owner accounts.

~~Guaranteed Investments Contracts and~~ Funding Agreements: We also have ~~GICs~~funding agreements issued to ~~the stable value market and other~~ institutional customers. We profit from ~~the~~this ~~GIC~~ business by earning income in excess of the amount credited to the customer accounts, less the cost of administering the product. We bear the investment risk because, while we credit customer accounts with an interest rate based on a predetermined index, plus a spread or a fixed rate, we cannot be certain the investment income earned on the general account investments, less expenses will exceed that rate. Funding agreements may also be used to support liquidity.

Variable Annuities: While we stopped actively writing new retail variable annuity products with substantial guarantee features in early 2010, our existing variable annuities are investment vehicles in which contract owner deposits are recorded and primarily maintained in separate accounts established by us and registered with the SEC as a unit investment trust. Unlike fixed annuities, variable annuity contract owners bear the risk of investment gains and losses associated with the selected investment allocation. We, however, issued certain guaranteed death and living benefits (described below) under which we bear specific risks associated with these products.

Separate account assets and liabilities generally represent funds maintained to meet specific investment objectives of contract owners. In general, investment income and investment gains and losses accrue directly to the separate accounts. The assets of the separate account are legally segregated and are not subject to claims that arise out of any of ~~the~~ our other business.

Separate account assets supporting variable options under variable annuity contracts are invested, as designated by the contract owner or participant under a contract, in shares of sub-accounts managed by our affiliates or in other selected sub-accounts not managed by our affiliates. Variable annuity deposits are allocated to various sub-accounts established within the separate account. Each sub-account represents a different investment option into which the contract owner may allocate deposits. The account value of a variable annuity contract is equal to the aggregate value of the sub-accounts selected by the contract owner, including the value allocated to any fixed account, less fees and expenses. We offer investment options for our variable annuities covering a wide range of investment styles, including large, mid and small cap equity funds, as well as fixed income alternatives. Many of the variable annuity contracts issued by us are combination contracts, offering both variable and fixed options under which some or all of the deposits may be allocated by the contract owner to a fixed account.

Minimum Guarantees: Variable annuity contracts containing minimum guaranteed death and living benefits expose us to equity risk. A decrease in the equity markets may cause a decrease in the account values, thereby increasing the possibility that we may be required to pay amounts to contract owners due to guaranteed death and living benefits. An increase in the value of the equity markets may increase account values for these contracts, thereby decreasing our risk associated with guaranteed death and living benefits.

5We stopped actively writing new retail variable annuity products with substantial guarantee features in early 2010. However, our existing variable annuity block of business contains certain guaranteed death and living benefits made available to contract owners as described in Quantitative and Qualitative Disclosures About Market Risk in Part II, Item 7A. of this Annual Report on Form 10-K.

markets may increase account values for these contracts, thereby decreasing our risk associated with guaranteed death and living benefits.

We stopped actively writing new retail variable annuity products with substantial guarantee features in early 2010. However, our existing variable annuity block of business contains certain guaranteed death and living benefits made available to contract owners as described in "Item 7A. Quantitative and Qualitative Disclosures About Market Risk."

Other Insurance Products

Historically, we provided interest-sensitive, traditional life insurance and health insurance products. All health insurance has been ceded to other insurers and new policies are no longer written. We ceased the issuance of life insurance policies in 2001, and all life insurance business is currently in run-off. A certain portion of the assets held in the general account ~~are~~is dedicated to funding this block of business.

Fees and Margins

Insurance and expense charges, investment management fees, service fees and other fees earned by us vary by product and depend on, among other factors, the funding option selected by the customer under the product. For annuity products where assets are allocated to variable funding options through a separate account, we may charge the separate account asset-based insurance and expense fees.



	5

In addition, where the customer selects a variable funding option, we may receive compensation from the fund's adviser, administrator, or other affiliated entity, for the performance of certain administrative, recordkeeping or other services. This compensation, which may be deducted from fund assets, may include a share of the management fee, service fees, 12b-1 distribution fees or other revenues based on a percentage of average net assets held in the fund by us. For funds managed by an affiliate, additional compensation may be received in the form of intercompany payments from the fund's investment advisor or the investment advisor's parent in order to allocate revenue and profits across the organization.

For fixed funding options, we earn a margin that is based on the difference between income earned on the investments supporting the liability and interest credited to customers.

We may also receive other fees or charges depending on the nature of the products.

Strategy, Method of Distribution and Principal Markets

We believe longer life expectancies, an aging population and growing concern over the stability and availability of the Social Security system have made retirement planning a priority for many Americans. The target market for our annuity products is primarily individuals.

The principal distribution channels of our fixed annuities, ~~include~~fixed ~~national~~index annuities, and ~~regional~~investment-only ~~brokerages~~products ~~and~~include ~~securities~~independent ~~firms~~broker-dealers, independent marketing organizations, affiliated broker-dealers, ~~banks,~~captive ~~life~~ insurance companies ~~with~~and ~~captive~~banks. Products ~~agency~~are ~~sales~~represented ~~forces,~~by ~~independent~~advisors ~~insurance~~and agents, ~~independent~~that ~~marketing~~would ~~organizations~~affiliate ~~and~~with ~~affiliated~~one ~~broker-dealers~~of the above channels.

Our investment-only products' ~~are~~new ~~distributed nationally, primarily through relationships with independent brokers, financial planners and agents. New~~ sales are obtained from either a "rollover" from an existing retirement account, a 1035-exchange or funded through non-qualified after-tax dollars.

Indexed annuities are marketed primarily based on underlying guarantee features coupled with consumer-friendly product designs offering the potential for equity market upside. We also offer fixed annuities offering a guaranteed interest rate or annuity payment suitable for clients seeking a stable return.

We stopped actively writing new retail variable annuity products with substantial guarantee features in early 2010, as part of a business strategy and risk reduction plan. Some new amounts will continue to be deposited on VIAC variable annuities as add-on deposits to existing contracts.

~~GICs~~Funding agreements are issued ~~primarily~~ to institutional investors ~~and corporate benefit plans~~ through direct sales by home office personnel ~~or through specialty insurance brokers~~. In 2009, we made a strategic decision to run-off over-time the assets and liabilities inrelated to the ~~GIC~~guaranteed ~~business~~investment ~~over~~contracts ~~time~~and funding agreements previously issued. ~~New~~There ~~GIC~~are no guaranteed investment contracts ~~may~~remaining and no new guaranteed investment contracts will be issued. All onof athe ~~limited~~previously ~~basis~~issued tofunding ~~replace~~agreements ~~maturing~~will ~~contracts~~mature or be terminated by the end of 2017. New funding agreements may be issued to support liquidity.

6Since December 2013, we have been engaged in a strategic relationship with The Allstate Corporation ("Allstate") under which Allstate offers a full suite of our fixed annuity product offerings to Allstate customers. In addition, during 2015, we engaged in a strategic relationship with Farmers Financial Solutions, a part of the Farmers Insurance Group of Companies, under which we are the exclusive provider of indexed annuity products to Farmers customers.

Since December 2013, we have been engaged in a strategic alliance with The Allstate Corporation ("Allstate") under which Allstate offers a full suite of our fixed annuity product offerings to Allstate customers. In addition, during 2015, we engaged in a strategic alliance with Farmers Financial Solutions, a part of the Farmers Insurance Group of Companies, under which we will be the exclusive provider of indexed annuity products to Farmers customers.

Assets Under Management

A substantial portion of our fees, other charges and margins, are based on assets under management ("AUM"). AUM represents on-balance sheet assets supporting customer account values/liabilities and surplus. Customer account values reflect the amount of policyholder equity that has accumulated within annuity, ~~GIC~~funding agreement and other insurance products. AUM includes general account assets in which we bear the investment risk and separate account assets in which the contract owner bears the investment risk. AUM-based revenues increase or decrease with a rise or fall in the amount of AUM, whether caused by changes in capital markets or by net flows.

AUM is principally affected by net deposits (i.e., annuity premiums and GIC deposits, less surrenders) and investment performance (i.e., interest credited to contract owner accounts for assets that earn a fixed return or market performance for assets that earn a variable return). The general and separate account AUM were as follows as of the dates indicated:6

	December 31,
	2015		2014
Variable annuities	$	36,415.8	$	40,787.9
Fixed annuities	18,132.2		17,306.7
Guaranteed investment contracts and funding agreements	950.4		961.3
Other insurance products	970.1		1,028.5
Total	$	56,468.5	$	60,084.4

AUM is principally affected by net deposits (i.e., annuity premiums and funding agreement deposits, less surrenders) and investment performance (i.e., interest credited to contract owner accounts for assets that earn a fixed return or market performance for assets that earn a variable return). The general and separate account AUM were as follows as of the dates indicated:



	December 31,
	2016		2015
Variable annuities	$	35,719.8	$	36,415.8
Fixed annuities	18,349.1		18,132.2
Funding agreements	200.1		950.4
Other products	1,193.3		970.1
Total	$	55,462.3	$	56,468.5

Competition

The competitive annuity market ~~remains~~faces ~~intense~~competition ~~and~~from isbanks, ~~dominated~~mutual byfund acompanies ~~number~~and oftraditional ~~large, highly-rated~~ insurance ~~companies~~carriers. Increasing competition within the retirement savings business ~~from traditional insurance carriers, as well as banks and mutual fund companies,~~ offers consumers many choices. Our annuity products compete in the annuity market principally on the basis of investment performance, product design, brand recognition, financial strength ratings, distribution capabilities, levels of charges and credited rates, reputation and customer service.

Investment-only products compete with brokerage accounts and other financial service and asset allocation offerings.

We compete in the GIC market primarily on the basis of our capital markets, product structuring and risk management expertise, as well as its brand recognition and financial strength ratings. Other competitors in this market include other life insurance companies, as well as banks and other financial institutions.

Reserves for Future Policy Benefits and Separate Accounts

We establish and carry actuarially-determined reserves that are calculated to meet our future obligations. Reserves also include estimates of unpaid claims as well as claims that we believe have been incurred but have not yet been reported as of the balance sheet date. The principal assumptions used to establish liabilities for future policy benefits are based upon Company experience and periodically reviewed against industry standards. These assumptions include mortality, morbidity, policy lapse, contract renewal, payment of subsequent premiums or deposits by the contract owner, retirement, investment returns, inflation, benefit utilization and expenses. Changes in, or deviations from, the assumptions used can significantly affect our reserve levels and related results of operations.

Reserves for traditional life insurance contracts (term insurance, participating and non-participating whole life insurance and traditional group life insurance) and accident and health insurance represent the present value of future benefits to be paid to or on behalf of contract owners and related expenses, less the present value of future net premiums. Assumptions as to interest rates, mortality, expenses and persistency are based on our estimates of anticipated experience at the period the policy is sold or acquired, including a provision for adverse deviation. Interest rates used to calculate the present value of these reserves ranged from 2.3% to 7.2%.

including a provision for adverse deviation. Interest rates used to calculate the present value of these reserves ranged from 2.3% to 7.2%.

Reserves for payout contracts with life contingencies are equal to the present value of expected future payments. Assumptions as to interest rates, mortality and expenses are based on our estimates of experience at the period the policy is sold or acquired, including a provision for adverse deviation. Such assumptions generally vary by annuity plan type, year of issue and policy duration. Interest rates used to calculate the present value of future benefits ranged from 1.0% to 7.5%.

~~Reserves~~The ~~for~~aggregate ~~FIAs~~initial ~~are~~liability ~~computed~~for inreserves ~~accordance~~related ~~with~~to ~~the~~FIAs requirements of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 944, "Financial Services - Insurance," Topic 815, "Derivatives and Hedging" and Topic 820, "Fair Value Measurements and Disclosures." Accordingly, the aggregate initial liability is equal to the deposit received plus a bonus, if applicable, and is split into a host component and an embedded derivative component. Thereafter, the host liability accumulates at a set interest rate and the embedded derivative liability is recognized at fair value, with the change in fair value recorded in Other net realized capital gains (losses) in the Statements of Operations.

Reserves for universal life products are equal to cumulative deposits, less withdrawals and charges, plus credited interest thereon.

~~Under~~The ~~the requirements of ASC Topic 944, the~~ Company calculates additional reserve liabilities for certain variable annuity guaranteed benefits, FIA withdrawal benefits and universal life products with certain patterns of cost of insurance charges and certain other fees. The additional reserve for such products recognizes the portion of contract assessments received in early years used to compensate the insurer for services provided in later years.

We calculate a benefit ratio for each block of business that meets the requirements for additional reserves as outlined in ASC Topic 944 and calculate an additional reserve by accumulating amounts equal to the benefit ratio multiplied by the assessments for each period, reduced by excess benefits during the period. The additional reserve is accumulated at interest rates consistent with the deferred policy acquisition costs model for the period. The calculated reserve includes a provision for universal life contracts with patterns of cost of insurance charges that produce expected gains from the insurance benefit function followed by losses from that function in later years.7

~~Guaranteed~~We ~~minimum~~calculate ~~accumulation~~a ~~benefits~~benefit ~~("GMAB"),~~ratio ~~guaranteed~~for ~~minimum~~each ~~withdrawal~~block ~~benefits~~of ~~("GMWB")~~business ~~without~~that ~~life~~meets ~~contingent~~the ~~payouts~~requirements ~~and~~for ~~guaranteed~~additional ~~minimum~~reserves ~~withdrawal~~and ~~benefits~~calculate ~~for~~an ~~life~~additional ~~("GMWBL")~~reserve ~~are~~by ~~considered~~accumulating amounts equal to bethe ~~embedded~~benefit ~~derivatives~~ratio ~~under~~multiplied ~~ASC~~by ~~Topic~~the ~~815~~assessments ~~and~~for ~~Topic~~each ~~820~~period, reduced by excess benefits during the period. The additional ~~reserves~~reserve ~~for~~is ~~these~~accumulated ~~guarantees~~at ~~are~~interest ~~recognized~~rates atconsistent ~~fair~~with ~~value,~~the ~~with~~deferred policy acquisition costs model for the ~~change~~period. The incalculated ~~fair~~reserve ~~value~~includes ~~recorded~~a inprovision ~~Other~~for ~~net~~universal ~~realized~~life ~~capital~~contracts with patterns of cost of insurance charges that produce expected gains (from the insurance benefit function followed by losses) infrom ~~the~~that ~~Statements~~function ofin ~~Operations~~later years.

~~Reserves~~Guaranteed ~~for~~minimum ~~GICs~~accumulation ~~are~~benefits ~~calculated~~("GMAB"), ~~using~~guaranteed ~~the~~minimum ~~amount~~withdrawal ~~deposited~~benefits ~~with~~("GMWB") ~~us,~~without ~~less~~life ~~withdrawals,~~contingent ~~plus~~payouts ~~interest~~and ~~accrued~~guaranteed tominimum ~~the~~withdrawal ~~ending~~benefits ~~valuation~~for ~~date~~life ("GMWBL") are considered to be embedded derivatives. ~~Interest~~The onadditional ~~these~~reserves ~~contracts~~for isthese ~~accrued~~guarantees byare arecognized ~~predetermined~~at ~~index~~fair value, ~~plus~~with athe ~~spread~~change orin afair ~~fixed~~value ~~rate,~~recorded ~~established~~in atOther ~~the~~net ~~issue~~realized ~~date~~capital ofgains (losses) in the ~~contract~~Statements of Operations.

Reserves for funding agreements are calculated using the amount deposited with us, less withdrawals, plus interest accrued to the ending valuation date. Interest on these contracts is accrued by a predetermined index, plus a spread or a fixed rate, established at the issue date of the contract.

Our life and annuity insurance reserves (general and separate account) and deposit-type funds were comprised of each type of the following products as of the dates indicated:

	December 31,
	2015				2014
	2016				2015
	Reserves		% of Total		Reserves		% of Total
Variable annuity	$	4039,~~353~~265.94	6665.06	%	$	4340,~~902~~353.49	6766.90	%
Fixed annuity	18,~~117~~745.87		2931.73	%	18,~~111~~117.58		2829.07	%
GICs	1,048.2		1.7	%	1,036.5		1.6	%
Funding agreements	347.1		0.6	%	1,048.2		1.7	%
Other insurance products	1,585.4		2.6	%	1,642.3		2.5	%
Other products	1,517.1		2.5	%	1,585.4		2.6	%
Total	$	6159,~~105~~875.3	100.0	%	$	6461,~~692~~105.73	100.0	%

Reinsurance Arrangements

We utilize indemnity reinsurance agreements to reduce our exposure to losses from our annuity and life insurance businesses. Reinsurance permits recovery of a portion of losses from reinsurers, although it does not discharge our primary liability as the direct insurer of the risks. Reinsurance treaties are structured as monthly or yearly renewable term, coinsurance, or modified coinsurance. The Company also evaluates the financial strength of potential reinsurers and continually monitors the financial condition of reinsurers.

As of December 31, 2016, we have a significant concentration of ceded reinsurance with our affiliates, Security Life of Denver Insurance Company ("SLD") and Roaring River II, Inc. ("RRII"), a subsidiary of Security Life of Denver International Limited ("SLDI"), primarily related to funding agreements and universal life policies with respect to SLD and variable annuities with respect to RRII. The outstanding reinsurance recoverable balances may fluctuate from period to period.

One of the main risks reinsured by us is the guaranteed minimum death benefits ("GMDB") on our variable annuity policies issued prior to January 1, 2000. For contracts issued on or after January 1, 2000, we hedge our exposure due to these products. Other reinsurance contracts coinsure life, accident and health and annuity businesses. We continually monitor and evaluate the financial strength and credit ratings of our reinsurers. Only those reinsurance recoverable balances deemed probable of recovery are reflected as assets on our Balance Sheets.

Prior to July 1, 2016, we had an amended and restated automatic reinsurance agreement with SLDI, on a combined coinsurance and coinsurance funds withheld basis, covering 100% of the benefits guaranteed under specific variable annuity guaranteed living benefit riders attached to certain variable annuity contracts issued by us on or after January 1, 2000.

Effective July 1, 2016, SLDI acquired RRII, a Missouri life reinsurance captive, from its affiliate, ReliaStar Life Insurance Company, and also effective July 1, 2016, RRII redomesticated from the State of Missouri to the State of Arizona. Effective July 1, 2016, we, SLDI and RRII entered into release, consent and novation agreements pursuant to which RRII assumed the variable annuity guaranteed living benefits previously reinsured to SLDI under the automatic reinsurance agreement.



	8

coinsurance. The Company also evaluates the financial strength of potential reinsurers and continually monitors the financial condition of reinsurers.

As of December 31, 2015, we have a significant concentration of ceded reinsurance with our affiliates, Security Life of Denver Insurance Company ("SLD") and Security Life of Denver International Limited ("SLDI") primarily related to GICs and universal life policies with respect to SLD and variable annuities with respect to SLDI. The outstanding reinsurance recoverable balances may fluctuate from period to period. SLDI redomesticated from the Cayman Islands to the State of Arizona, effective December 20, 2013. SLDI was approved as an Arizona-domiciled captive reinsurer by the Arizona Department of Insurance.

One of the main risks reinsured by us is the guaranteed minimum death benefits ("GMDB") on our variable annuity policies issued prior to January 1, 2000. For contracts issued after December 31, 1999, we hedge our exposure due to these products. Other reinsurance contracts coinsure life, accident and health and annuity businesses. We continually monitor and evaluate the financial strength and credit ratings of our reinsurers. Only those reinsurance recoverable balances deemed probable of recovery are reflected as assets on our Balance Sheets.

We entered into an automatic reinsurance agreement on June 30, 2008 with SLDI. Under the terms of the agreement, we ceded to SLDI 100% of the benefits guaranteed under specific variable annuity guaranteed living benefit riders attached to certain variable annuity contracts issued by us on or after January 1, 2000. Effective July 1, 2009, we and SLDI entered into an amended and restated reinsurance agreement to change the reinsurance basis of the existing automatic reinsurance agreement dated June 30, 2008 between us and SLDI from coinsurance to a combined coinsurance and coinsurance funds withheld basis. Effective October 1, 2011, we and SLDI entered into an amended and restated automatic reinsurance agreement of the existing 2009 amended and restated automatic reinsurance agreement in order to provide more flexibility to the Company and SLDI with respect to the collateralization of the reserves related to the variable annuity guaranteed living benefits reinsured under the agreement.

Effective May 1, 2005, we entered into a coinsurance agreement with our affiliate, SLD. Under the terms of the agreement, SLD assumed and accepted the responsibility for paying, when due, 100% of the liabilities arising under the multi-year guaranteed fixed annuity contracts issued by us between January 1, 2001 and December 31, 2003. In addition, we assigned SLD all future premiums received by us attributable to the ceding contracts. The coinsurance agreement was accounted for using the deposit method. On September 25, 2015, we recaptured, via a commutation agreement, the multi-year guaranteed fixed annuity contracts ceded under the coinsurance agreement.

We also currently reinsure risks ceded by our affiliates, ReliaStar Life Insurance Company ("RLI") and SLD, on life insurance policies through a coinsurance funds withheld agreement, a quota share retrocession agreement and stop-loss agreements.

See ~~"Item~~Liquidity 7.and ~~Management's~~Capital ~~Narrative~~Resources-Reinsurance ~~Analysis~~Agreements ofin ~~the~~Part ~~Results~~II, ofItem ~~Operations~~7. ~~and~~of ~~Financial~~this ~~Condition-Liquidity~~Annual ~~and~~Report ~~Capital~~on ~~Resources~~Form 10-~~Reinsurance~~K ~~Agreements"~~ for further discussion of our reinsurance arrangements.

Investment Overview and Strategy

Our investment strategy seeks to achieve sustainable risk-adjusted returns by focusing on principal preservation, disciplined matching of asset characteristics with liability requirements and the diversification of risks. Investment activities are undertaken according to investment policy statements that contain internally established guidelines and risk tolerances and in all cases are required to comply with applicable laws and insurance regulations. Risk tolerances are established for credit risk, credit spread risk, market risk, liquidity risk and concentration risk across issuers, sectors and asset types that seek to mitigate the impact of cash flow variability arising from these risks.

Investments are managed by Voya Investment Management LLC, our affiliate, pursuant to an investment advisory agreement. Portfolios are established for groups of products with similar liability characteristics within us. Our investment portfolio consists largely of high quality fixed maturity securities and short-term investments, investments in commercial mortgage loans, limited partnerships and other instruments, including a small amount of equity holdings. Fixed maturity securities include publicly issued corporate bonds, government bonds, privately placed notes and bonds, mortgage-backed securities and asset-backed securities. We use derivatives for hedging purposes and to replicate exposure to other assets as a more efficient means of assuming credit exposure similar to bonds of the underlying issuer(s).

Employees and Other Shared Services

We had ~~479~~470 employees as of December 31, ~~2015~~2016, primarily focused on managing new business processing, customer service and product management for us and certain of our affiliates, as well as providing product development and distribution, actuarial and finance services to us and certain of our affiliates. We also utilize services provided by Voya Services Company and other affiliates. These services include underwriting, risk management, human resources, investment management, information technology, legal and compliance services, as well as other new business processing, product distribution, marketing, customer service, product management, actuarial and finance related services. The affiliated companies are reimbursed for our use of various services and facilities under a variety of intercompany agreements.

finance services to us and certain of our affiliates. We also utilize services provided by Voya Services Company and other affiliates. These services include underwriting, risk management, human resources, investment management, information technology, legal and compliance services, as well as other new business processing, product distribution, marketing, customer service, product management, actuarial and finance related services. The affiliated companies are reimbursed for our use of various services and facilities under a variety of intercompany agreements.

On June 2, 2014, our affiliate, Voya Services Company entered into an agreement to outsource the actuarial valuation, modeling and hedging functions for our retail variable annuity products for which we ceased sales in 2010 to Milliman, Inc. ("Milliman"). Under this agreement, Milliman performs the calculation of financial reporting and risk metrics, along with the analytics used to determine hedge positions. We will continue to oversee and manage our existing block of variable annuity business and retain full accountability for assumptions and methodologies, as well as the setting of hedge objectives and the execution of hedge positions. This agreement will allow us to create a more variable cost structure for the block of variable annuity business.

REGULATION

Our operations and businesses are subject to a significant number of Federal and state laws, regulations, administrative determinations and similar legal constraints. Such laws and regulations are generally designed to protect our policyholders, contract owners and other customers and not our stockholders. Many of the laws and regulations to which we are subject are regularly re-examined and existing or future laws and regulations may become more restrictive or otherwise adversely affect our operations.

Following is a description of certain legal and regulatory frameworks to which we are or may be subject.

Insurance Regulation

Our operations are subject to comprehensive regulation and supervision under U.S. state and federal laws. Each U.S. state, the District of Columbia and U.S. territories and possessions have insurance laws that apply to companies licensed to carry on an insurance business in the jurisdiction. We are subject to the insurance laws of the State of Iowa, where we are domiciled and other jurisdictions in which we transact business. The primary regulator of our insurance operations is the Division of Insurance for the State of Iowa.



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State insurance regulators have broad administrative powers with respect to all aspects of the insurance business including: licensing to transact business, licensing agents, admittance of assets to statutory surplus, regulating premium rates for certain insurance products, approving policy forms, regulating unfair trade and claims practices, establishing reserve requirements and solvency standards, establishing credit for reinsurance requirements, fixing maximum interest rates on life insurance policy loans and minimum accumulation or surrender values and other matters. State insurance laws and regulations include numerous provisions governing the marketplace conduct of insurers, including provisions governing the form and content of disclosures to consumers, product illustrations, advertising, product replacement, suitability, sales and underwriting practices, complaint handling and claims handling. State regulators enforce these provisions through periodic market conduct examinations. State insurance laws and regulations regulating affiliate transactions, the payment of dividends, and change of control transactions are discussed in greater detail below.

State insurance laws and regulations require us to file financial statements with state insurance regulators everywhere we are licensed and our operations and accounts are subject to examination by those regulators at any time. We prepare statutory financial statements in accordance with accounting practices and procedures prescribed or permitted by these regulators. The National Association of Insurance Commissioners (the “NAIC”) has approved a series of uniform statutory accounting principles ("SAP") that have been adopted, in some cases with minor modifications, by all state insurance regulators.

As a basis of accounting, SAP was developed to monitor and regulate the solvency of insurance companies. In developing SAP, insurance regulators were primarily concerned with assuring an insurer’s ability to pay all its current and future obligations to policyholders. As a result, statutory accounting focuses on conservatively valuing the assets and liabilities of insurers, generally in accordance with standards specified by the insurer’s domiciliary state. The values for assets, liabilities and equity reflected in financial statements prepared in accordance with U.S. GAAP are usually different from those reflected in financial statements prepared under SAP.

State insurance regulators conduct periodic financial examinations of the books, records, accounts and business practices of insurers domiciled in their states, generally every three to five years. Financial examinations are generally carried out in cooperation with the insurance regulators of other states under guidelines promulgated by the NAIC. State and federal insurance and securities regulatory authorities and other state law enforcement agencies and attorneys general also from time to time make inquiries and conduct examinations or investigations regarding the compliance by our company, as well as other companies in our industry, with, among other things, insurance laws and securities laws.

State insurance regulators, the NAIC and other regulatory bodies are also investigating the use of affiliated captive reinsurers or off-shore entities to reinsure insurance risks and the NAIC has made recent advances in captive reform. In June 2014, the NAIC adopted a new regulatory framework for captives assuming business governed by Regulations XXX or AXXX, called the "Rector framework". In December 2014, the NAIC adopted Actuarial Guideline 48 (“AG48”) which established a new regulatory requirement applicable to XXX and AG38 reserves ceded to reinsurers, including affiliated reinsurers, as the first step in implementing the Rector framework. As adopted, AG48 limits the type of assets that may be used as collateral to cover the XXX and AG38 statutory reserves and is applied prospectively to existing reinsurance transactions that reinsure policies issued on or after January 1, 2015 and new reinsurance transactions entered into on or after January 1, 2015. The purpose of AG48 was to implement the substantive requirements of the Rector Framework, effective January 1, 2015, pending development and adoption by the states of the new term and Universal Life Insurance Reserve Financing Model Regulation (the "XXX/AXXX Regulation"). The NAIC charged multiple working groups with the responsibility to prepare the XXX/AXXX Regulation and in December 2016, the NAIC adopted the XXX/AXXX Regulation and amended AG48 to align its provisions with the XXX/AXXX Regulation. In 2014, the NAIC also considered a proposal to require states to apply NAIC accreditation standards, applicable to traditional insurers, to captive reinsurers. In 2015, the NAIC adopted such a proposal, in the form of a revised preamble to the NAIC accreditation standards (the "Standard"), with an effective date of January 1, 2016 for application of the Standard to captives that assume XXX or AXXX business. Under the Standard, a state will be deemed in compliance as it relates to XXX or AXXX captives if the applicable reinsurance transaction satisfies AG 48. In addition, the Standard applies prospectively, so that XXX or AXXX captives will not be subject to the Standard if reinsured policies were issued prior to January 1, 2015 and ceded so that they were part of a reinsurance arrangement as of December 31, 2014. The NAIC left for future action application of the Standard to captives that assume variable annuity business. As drafted, it appears that the Standard would apply to our affiliated Arizona captives, SLDI and its wholly owned subsidiary RRII.



	10

~~conduct~~annuity ~~examinations~~business. orThe ~~investigations~~VA ~~regarding~~Framework for Change contemplates a holistic set of reforms that would improve the ~~compliance~~current reserve and capital framework and address root cause issues that result in the use of captive arrangements but would not mandate recapture by ~~our~~insurers ~~company~~of VA cessions to captives. In November 2015, asthe ~~well~~VAIWG asengaged ~~other~~Oliver ~~companies~~Wyman ("OW") to conduct a quantitative impact study involving industry participants including the Company, of various reforms outlined in ~~our~~the VA Framework for Change (the "QIS"). OW completed the QIS in July of 2016 and reported its initial findings to the VAIWG in late August. The OW report proposed certain revisions to the current VA reserve and capital framework and recommended a second quantitative impact study be conducted so that testing can inform the proper calibration for certain conceptual and/or preliminary parameters set out in the OW proposal. Following a public comment period in the fourth quarter of 2016 and several meetings on the OW proposal, the VAIWG determined that a second quantitative impact study (the "QIS2") involving industry participants, ~~with~~including us, ~~among~~will ~~other~~be ~~things~~conducted by OW. The QIS 2 began in February 2017 and is expected to be completed by September 2017, ~~insurance~~with ~~laws~~NAIC deliberations on QIS2 results during the fourth quarter of 2017. Although the QIS timetable indicates the VAIWG expects to complete work in 2017, timing for implementation of changes to the current VA reserve and ~~securities~~capital ~~laws~~framework remains uncertain.

~~State~~We ~~insurance~~cannot ~~regulators,~~predict ~~the~~what ~~NAIC~~revisions, ~~and~~if ~~other~~any, ~~regulatory~~would ~~bodies~~be ~~are~~made ~~also~~to ~~investigating~~ the ~~use~~XXX/AXXX ofRegulation ~~affiliated captive reinsurers~~ or ~~off-shore entities to reinsure insurance risks and~~ the ~~NAIC~~Standard ~~has~~for ~~made~~application ~~recent~~to ~~advances~~captives inthat ~~captive~~assume ~~reform.~~XXX Inor ~~June~~AXXX ~~2014~~business, ~~the~~as ~~NAIC~~states ~~adopted~~consider atheir ~~new~~adoption ~~regulatory~~or ~~framework~~undertake ~~for~~their ~~captives assuming business governed by Regulations XXX or AXXX~~implementation, ~~called~~to the ~~"Rector~~VA ~~framework". In~~Framework ~~December~~for ~~2014,~~Change ~~the~~proposal ~~NAIC~~as ~~adopted Actuarial Guideline 48 (“AG48”) which established~~ a ~~new~~result ~~regulatory~~of QIS2 ~~requirement applicable to XXX~~ and ~~AG38~~ongoing ~~reserves~~NAIC ~~ceded to reinsurers~~deliberations, ~~including~~or ~~affiliated~~to ~~reinsurers, as~~ the ~~first~~Standard, ~~step~~if inadopted ~~implementing~~for ~~the~~variable ~~Rector~~annuity ~~framework~~captives. It Asis ~~adopted,~~also ~~AG48~~unclear ~~limits~~whether ~~the~~these ~~type~~or ofother ~~assets~~proposals ~~that~~will ~~may~~ be ~~used~~adopted asby ~~collateral to cover~~ the ~~XXX~~NAIC, ~~and~~or ~~AG38~~what ~~statutory~~additional ~~reserves~~actions and isregulatory ~~applied~~changes ~~prospectively~~will toresult ~~existing~~from ~~reinsurance~~the ~~transactions~~continued ~~that~~captives ~~reinsure~~scrutiny ~~policies~~and ~~issued~~reform onefforts orby ~~after~~the ~~January~~NAIC ~~1, 2015~~ and ~~new~~other ~~reinsurance~~regulatory ~~transactions entered into on or after January 1, 2015~~bodies. ~~The~~We ~~NAIC~~utilize ~~has~~affiliated ~~charged~~captive ~~multiple~~insurers ~~working groups with the responsibility~~ to ~~prepare~~satisfy ~~regulations~~certain ~~that~~statutory ~~would~~reserve ~~codify~~requirements ~~the~~related ~~Rector~~to ~~framework~~certain ~~and~~of ~~that~~our ~~work~~variable ~~continues~~annuity ~~at the NAIC~~contracts. InIf ~~2014,~~state ~~the~~insurance ~~NAIC~~regulators ~~also~~determine ~~considered a proposal~~ to ~~require~~restrict ~~states~~our touse ~~apply~~of ~~NAIC~~affiliated ~~accreditation standards, applicable to traditional insurers, to~~ captive reinsurers~~. In 2015~~, ~~the~~it ~~NAIC~~could ~~adopted~~require ~~such~~us ~~a proposal, in the form of a revised preamble~~ to ~~the~~increase ~~NAIC~~statutory ~~accreditation standards (the "Standard")~~reserves, ~~with~~incur anhigher ~~effective~~operating ~~date of January 1, 2016 for application of the Standard to captives that assume XXX~~ or ~~AXXX~~tax ~~business.~~costs ~~Under the Standard, a state will be deemed in compliance as it relates to XXX~~ or ~~AXXX~~reduce ~~captives if the applicable reinsurance transaction satisfies AG 48~~sales. InSee ~~addition,~~"Item ~~the~~1A. ~~Standard~~Risk ~~applies~~Factors ~~prospectively,~~- soRisks ~~that~~Related ~~XXX or AXXX captives will not be subject~~ to ~~the~~Regulation ~~Standard~~- ifOur ~~reinsured~~businesses ~~policies~~are ~~were~~heavily ~~issued prior to January 1~~regulated, ~~2015~~ and ~~ceded~~changes soin ~~that~~regulation ~~they~~in ~~were part of a reinsurance arrangement as of December 31, 2014. The NAIC left for future action application of~~ the ~~Standard~~United ~~to captives that assume variable annuity business. As drafted~~States, itenforcement ~~appears~~actions ~~that~~and ~~the~~regulatory ~~Standard~~investigations ~~would~~may ~~apply~~reduce ~~to our affiliate, Security Life of Denver International Limited, an Arizona captive~~profitability".

During 2015, The NAIC Financial Conditions (E) Committee (the "E Committee") established the Variable Annuities Issues (E) Working Group ("VAIWG") to oversee the NAIC's efforts to study and address, as appropriate, regulatory issues resulting in variable annuity captive reinsurance transactions. The VAIWG retained Oliver Wyman to study the industry's use of variable annuity captive reinsurance and to develop a set of recommended changes to address the issues involving variable annuity captives. In September 2015, Oliver Wyman issued an initial report, which was adopted by the VAIWG, outlining its preliminary findings and making recommendations for enhancements to the variable annuity statutory framework. In November 2015, upon recommendation of the VAIWG, the E Committee adopted a Variable Annuities Framework for Change (the "VA Framework for Change") which recommends charges for NAIC working groups to adjust the variable annuity statutory framework applicable to all insurers that have written or are writing variable annuity business. The VA Framework for Change contemplates a holistic set of reforms that would improve the current reserve and capital framework and address root cause issues that result in the use of captive arrangements. Although the VA Framework for Change recommends an effective date of January 1, 2017, the timing of these proposals remains uncertain. In November 2015, the NAIC also approved funding for a quantitative impact study, to be conducted by Oliver Wyman and involving industry participants including us, of various reforms outlined in the VA Framework for Change (the "QIS Study").

We cannot predict what revisions, if any, would be made to the Rector framework or the Standard for application to captives that assume XXX or AXXX business, as multiple NAIC working groups undertake their implementation, to the VA Framework for Change proposal as a result of the QIS Study and ongoing NAIC deliberations, or to the Standard, if adopted for variable annuity captives. It is also unclear whether these or other proposals will be adopted by the NAIC, or what additional actions and regulatory changes will result from the continued captives scrutiny and reform efforts by the NAIC and other regulatory bodies. We utilize affiliated captive insurers to satisfy certain statutory reserve requirements related to certain of our variable annuity contracts. If state insurance regulators determine to restrict our use of affiliated captive reinsurers, it could require us to increase statutory reserves, incur higher operating or tax costs or reduce sales. See "Item 1A. Risk Factors - Risks Related to Regulation - Our businesses are heavily regulated, and changes in regulation in the United States, enforcement actions and regulatory investigations may reduce profitability".

Insurance Holding Company Regulation

Because we are part of an affiliated group of companies, we are subject to the insurance holding company law of the State of Iowa, our state of domicile. State insurance holding company law generally requires each insurance company directly or indirectly owned by the holding company to register with the insurance regulator in the insurance company’s state of domicile and to furnish annually financial and other information about the operations of companies within the holding company system. Generally, all transactions affecting the insurers in the holding company system must be fair and reasonable and, if material, require prior notice and approval or non-disapproval by the state’s insurance regulator.

Change of Control. State insurance holding company regulations, including those of Iowa, generally provide that no person, corporation or other entity may acquire control of an insurance company, or a controlling interest in any parent company of an insurance company, without the prior approval of such insurance company’s domiciliary state insurance regulator. Under Iowa law, any person acquiring, directly or indirectly, 10% or more of the voting securities of an insurance company is presumed to have acquired “control” of the company. This statutory presumption of control may be rebutted by a showing that control does not exist in fact. Our Iowa insurance regulators, however, may find that “control” exists in circumstances in which a person owns or controls less than 10% of voting securities.

To obtain approval of any change in control, any proposed acquirer must file with the Iowa Division of Insurance an application disclosing, among other information, its background, financial condition, the financial condition of its affiliates, the source and amount of funds by which it will effect the acquisition, the criteria used in determining the nature and amount of consideration to be paid for the acquisition, proposed changes in the management and operations of the insurance company and other related matters.

Any purchaser of shares of common stock representing 10% or more of the voting power of our capital stock or that of Voya Financial, Inc. will be presumed to have acquired control of our Company unless, following application by that purchaser with the Iowa Division of Insurance, the Insurance Commissioner determines otherwise.

NAIC Amendments. In 2010, the NAIC adopted significant changes to the insurance holding company model act and regulations (the “NAIC Amendments”). The NAIC Amendments include a requirement that an insurance holding company system’s ultimate controlling person submit annually to its lead state insurance regulator an “enterprise risk report” that identifies activities, circumstances or events involving one or more affiliates of an insurer that, if not remedied properly, are likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole. The NAIC Amendments also include a provision requiring a controlling person to submit prior notice to its domiciliary insurance regulator of a divestiture of control. The NAIC Amendments must be adopted by the individual state legislatures and insurance regulators in order to be effective. Iowa adopted its version of the NAIC Amendments.

In addition, the NAIC has proposed a “Solvency Modernization Initiative” which focuses on: (1) capital requirements; (2) corporate governance and risk management; (3) group supervision; (4) statutory accounting and financial reporting; and (5) reinsurance. This initiative has resulted in the adoption by the NAIC in September 2012 of the Risk Management and Own Risk and Solvency Assessment Model Act ("ORSA"), which has been enacted by the Iowa legislature. ORSA requires that insurers maintain a risk management framework and conduct an internal own risk and solvency assessment of the insurer's material risks in normal and stressed environments. The assessment must be documented in a confidential annual summary report, a copy of which must be made available to regulators as required or upon request. In 2015, Voya Financial, Inc. prepared and submitted the first ORSA summary report on behalf of the consolidated enterprise to the Connecticut Insurance Department, the lead insurance regulator of Voya Financial, Inc.'s consolidated enterprise. This initiative also resulted in the adoption by the NAIC in August 2014 of the Corporate Governance Annual Filing Model Act, which requires insurers to make an annual confidential filing regarding their corporate governance policies. This new model has been enacted by the Iowa legislature. 11

In addition, the NAIC has proposed a “Solvency Modernization Initiative” which focuses on: (1) capital requirements; (2) corporate governance and risk management; (3) group supervision; (4) statutory accounting and financial reporting; and (5) reinsurance. This initiative has resulted in the adoption by the NAIC in September 2012 of the Risk Management and Own Risk and Solvency Assessment Model Act ("ORSA"), which has been enacted by the Iowa legislature. ORSA requires that insurers maintain a risk management framework and conduct an internal own risk and solvency assessment of the insurer's material risks in normal and stressed environments. The assessment must be documented in a confidential annual summary report, a copy of which must be made available to regulators as required or upon request. In accordance with statutory requirements, Voya Financial, Inc. has prepared and submitted ORSA summary reports since 2015 on behalf of the consolidated enterprise to the Connecticut Insurance Department, the lead insurance regulator of Voya Financial, Inc.'s consolidated enterprise. This initiative also resulted in the adoption by the NAIC in August 2014 of the Corporate Governance Annual Filing Model Act, which requires insurers to make an annual confidential filing regarding their corporate governance policies. This new model has been enacted by the Iowa legislature and Voya Financial, Inc. submitted its first filing on behalf of the consolidated enterprise to the Connecticut Insurance Department in 2016.

Dividend Payment Restrictions. The insurance law of an insurance company’s state of domicile imposes certain restrictions on a domiciliary insurance company’s ability to pay dividends to its parent. These restrictions are based in part on the prior year’s statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior approval. Dividends in larger amounts, or extraordinary dividends, are subject to approval by the insurance commissioner of the state of domicile of the insurance subsidiary proposing to pay the dividend. In addition, under Iowa insurance law, no dividend or other distribution exceeding an amount equal to an insurance company's earned surplus may be paid without the domiciliary insurance regulator's prior approval.

Financial Regulation

Policy and Contract Reserve Sufficiency Analysis. Under the laws and regulations of Iowa, we are required to conduct annual analyses of the sufficiency of our life and annuity statutory reserves. Other jurisdictions in which we are licensed may have certain reserve requirements that differ from our state of domicile. In each case, a qualified actuary must submit an opinion that states that the aggregate statutory reserves, when considered in light of the assets held with respect to such reserves, are sufficient to meet the insurer’s contractual obligations and related expenses. If such an opinion cannot be rendered, the affected insurer must set up additional statutory reserves by moving funds from available statutory surplus. We submit these opinions annually to applicable insurance regulatory authorities.

Recent actions by the NAIC. ~~The~~In recent years the NAIC has ~~begun~~ undertaken a process ofto ~~redefining~~redefine the reserve methodology for certain of our insurance liabilities under a framework known as Principles-Based Reserving (“PBR”). Under PBR, an insurer’s reserves are still required to be conservative, since a primary focus of SAP is the protection of policyholders, however, greater credence is given to the insurer’s realized past experience and anticipated future experience as well as to current economic conditions. An important part of the PBR framework was the adoption of AG43 as of December 31, 2009 for variable annuity guaranteed benefits.

to be conservative, since a primary focus of SAP is the protection of policyholders, however, greater credence is given to the insurer’s realized past experience and anticipated future experience as well as to current economic conditions. An important part of the PBR framework was the adoption of AG43 as of December 31, 2009 for variable annuity guaranteed benefits.

Surplus and Capital Requirements. Insurance regulators have the discretionary authority, in connection with the ongoing licensing of insurance companies, to limit or prohibit the ability of an insurer to issue new policies if, in the regulators’ judgment, the insurer is not maintaining a minimum amount of surplus or is in hazardous financial condition. Insurance regulators may also limit the ability of an insurer to issue new life insurance policies and annuity contracts above an amount based upon the face amount and premiums of policies of a similar type issued in the prior year. We do not currently believe that the current or anticipated levels of our statutory surplus present a material risk that any such regulator would limit the amount of new policies that we may issue.

Risk-Based Capital. The NAIC has adopted risk-based capital ("RBC") requirements for life, health and property and casualty insurance companies. The requirements provide a method for analyzing the minimum amount of adjusted capital (statutory capital and surplus plus other adjustments) appropriate for an insurance company to support its overall business operations, taking into account the risk characteristics of the company’s assets, liabilities and certain off-balance sheet items. State insurance regulators use the RBC requirements as an early warning tool to identify possibly inadequately capitalized insurers. An insurance company found to have insufficient statutory capital based on its RBC ratio may be subject to varying levels of additional regulatory oversight depending on the level of capital inadequacy. As of December 31, ~~2015~~2016, our RBC exceeded statutory minimum RBC levels that would require any regulatory or corrective action.

The NAIC is currently working with the American Academy of Actuaries as they consider possible updates to the asset ~~risk~~ factors ~~applied~~that are used to calculate the RBC requirements for the investment portfolio assets. The NAIC review may lead to an expansion in the number of NAIC asset class categories for factor-based ~~charges~~RBC requirements and the adoption of new factors, which could increase capital requirements on some securities and decrease capital requirements on others. We cannot predict what, if any, changes may result from this review or their potential impact on our RBC ratios. We will continue to monitor developments in this area.



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increase capital requirements on some securities and decrease capital requirements on others. We cannot predict what, if any, changes may result from this review or their potential impact on our RBC ratios. We will continue to monitor developments in this area.

IRIS Tests. The NAIC has developed a set of financial relationships or tests known as the Insurance Regulatory Information System (“IRIS”) to assist state regulators in monitoring the financial condition of U.S. insurance companies and identifying companies requiring special attention or action. For IRIS ratio purposes, we submit data to the NAIC on an annual basis. The NAIC analyzes this data using prescribed financial data ratios. A ratio falling outside the prescribed “usual range” is not considered a failing result. Rather, unusual values are viewed as part of the regulatory early monitoring system. In many cases, it is not unusual for financially sound companies to have one or more ratios that fall outside the usual range.

Regulators typically investigate or monitor an insurance company if its IRIS ratios fall outside the prescribed usual range for four or more of the ratios, but each state has the right to inquire about any ratios falling outside the usual range. The inquiries made by state insurance regulators into an insurance company’s IRIS ratios can take various forms.

Management does not anticipate regulatory action as a result of the ~~2015~~2016 IRIS ratio results. In all instances in prior years, regulators have been satisfied upon follow-up that no regulatory action was required. It is possible that similar results may not occur in the future.

Insurance Guaranty Associations. Each state has insurance guaranty association laws that require insurance companies doing business in the state to participate in various types of guaranty associations or other similar arrangements. The laws are designed to protect policyholders from losses under insurance policies issued by insurance companies that become impaired or insolvent. Typically, these associations levy assessments, up to prescribed limits, on member insurers on the basis of the member insurer’s proportionate share of the business in the relevant jurisdiction in the lines of business in which the impaired or insolvent insurer is engaged. Some jurisdictions permit member insurers to recover assessments that they paid through full or partial premium tax offsets, usually over a period of years.

We accrue the cost of future guaranty fund assessments based on estimates of insurance company insolvencies provided by the National Organization of Life and Health Insurance Guaranty Associations and the amount of premiums written in each state. We have estimated this undiscounted liability to be $10.29 million and $1.62 million as of December 31, ~~2015~~2016 and ~~2014~~2015, respectively. We have also recorded an asset of $1.73 million and $21.37 million as of December 31, ~~2015~~2016 and ~~2014~~2015, respectively, for future credits to premium taxes ~~for assessments already paid~~. We estimate our liabilities for future assessments under state insurance guaranty association laws. We believe the reserves established are adequate for future assessments relating to insurance companies that are currently subject to insolvency proceedings.

Marketing and Sales

State insurance regulators ~~are~~have ~~becoming~~become more active in adopting and enforcing suitability standards with respect to sales of fixed, indexed and variable annuities. In particular, the NAIC has adopted a revised Suitability in Annuity Transactions Model Regulation (“SAT”), which will, if enacted by the states, place new responsibilities upon issuing insurance companies with respect to the suitability of annuity sales, including responsibilities for training agents. ~~Several~~Many states have already ~~enacted~~taken ~~laws~~action to adopt provisions based on the SAT.

Cybersecurity Regulatory Activity

The NAIC, other state and federal regulatory bodies and self-regulatory organizations like FINRA are focused on cybersecurity standards for the financial services industry and have issued guidance regarding cybersecurity standards and protocols. During 2017, we expect cybersecurity risk management, prioritization and reporting to continue to be an area of significant regulatory focus by such regulatory bodies and self-regulatory organizations.

Federal Initiatives Affecting Insurance Operations

The U.S. federal government generally does not directly regulate the insurance business. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") established the Federal Stability Oversight Council (“FSOC”), which is authorized to designate non-bank financial companies as systemically significant and accordingly subject such companies to regulation and supervision by the Board of Governors of the Federal Reserve System ( the "Federal Reserve") if the FSOC determines that material financial distress at the company or the scope of the company's activities could pose a threat to the financial ~~stability of the U.S. See "--Financial Reform Legislation and Initiatives -- Dodd-Frank Wall Street Reform and Consumer Protection Act" below.~~

The Dodd-Frank Act also established FIO within the United States Department of the Treasury (“Treasury Department”). While not having a general supervisory or regulatory authority over the business of insurance, the director of this office performs various functions with respect to insurance, including serving as a non-voting member of the FSOC, making recommendations to the FSOC regarding insurers to be designated for more stringent regulation as a nonbank financial entity supervised by the Federal Reserve and representing the U.S. in the negotiation of international insurance agreements with foreign insurance regulators. The Dodd-Frank Act also required the director of FIO to conduct a study on how to modernize and improve the system of insurance regulation in the United States. The director issued that report in December 2013, recommending increased federal involvement in certain areas of insurance regulation to improve uniformity, and setting out recommendations in areas of near-term reform for the states, including capital and marketplace oversight. The report also recommended that states develop a uniform and transparent solvency oversight regime for the transfer of risk to reinsurance captives, and adopt a uniform capital requirement for reinsurance captives, including a prohibition on transactions that do not constitute legitimate risk transfer. FIO has an ongoing charge to monitor all aspects of the insurance industry and will monitor state regulatory developments, including those called for in its modernization report and present options for federal involvement if deemed necessary.13

stability of the U.S. See "--Financial Reform Legislation and Initiatives -- Dodd-Frank Wall Street Reform and Consumer Protection Act" below.

The Dodd-Frank Act also established FIO within the United States Department of the Treasury (“Treasury Department”). While not having a general supervisory or regulatory authority over the business of insurance, the director of this office performs various functions with respect to insurance, including serving as a non-voting member of the FSOC, making recommendations to the FSOC regarding insurers to be designated for more stringent regulation as a nonbank financial entity supervised by the Federal Reserve and representing the U.S. in the negotiation of international insurance agreements with foreign insurance regulators. The Dodd-Frank Act also required the director of FIO to conduct a study on how to modernize and improve the system of insurance regulation in the United States and that report was issued in December 2013. FIO has an ongoing charge to monitor all aspects of the insurance industry and state insurance regulatory developments, including those called for in its modernization report and present options for federal involvement if deemed necessary. There is substantial uncertainty as to whether aspects of the Dodd-Frank Act or regulatory bodies established thereunder will be impacted by regulatory or legislative changes made by the Trump administration or Congress.

Federal legislation and administrative policies in several areas can significantly and adversely affect insurance companies. These areas include federal health care regulation, pension regulation, financial services regulation, federal tax laws relating to life insurance companies and their products and the USA PATRIOT Act of 2001 (the “Patriot Act”) requiring, among other things, the establishment of anti-money laundering monitoring programs.

InWhile ~~this~~too ~~regard~~early to meaningfully assess the prospects of specific federal measures, ~~from~~and ~~time~~their application to ~~time~~us, the interplay between the federal ~~measures~~legislative ~~are~~agenda ~~proposed~~advanced ~~which~~by Congressional Republicans and that of the Trump administration may significantly affect the insurance business, including measures that would ~~limit antitrust immunity,~~ change the tax treatment of insurance products relative to other financial products, simplify tax-advantaged or tax-exempt savings and retirement vehicles, restructure the corporate income tax provisions, or modify or eliminate the estate tax ~~as well as proposals related to an optional federal charter for insurance companies~~. ~~In addition, various forms of direct federal regulation of insurance have been proposed in recent years.~~

Regulation of Annuity Products

Our annuity products are subject to federal and state tax, securities, fiduciary, insurance and other laws and regulations. The SEC, the Financial Industry Regulatory Authority ("FINRA"), state securities commissions, state insurance departments and the Department of Labor (“DOL”) and the Treasury Department are the principal regulators that regulate these products. The Dodd-Frank Act may also impact our annuity operations. See “Financial Reform Legislation and Initiatives-Dodd-Frank Wall Street Reform and Consumer Protection Act” below.

We sell variable annuities that are registered with the SEC as securities under the Securities Act of 1933, as amended (the “Securities Act”) and are subject to regulation by the SEC and FINRA. In addition, certain fixed and indexed annuities we may offer are registered as securities under the Securities Act. The variable annuity products are issued through separate accounts and some of the separate accounts are registered as investment companies under the Investment Company Act of 1940 (the “Investment Company Act”), and are regulated by state law. Each separate account is generally divided into sub-accounts, each of which invests in an underlying mutual fund which is itself a registered investment company under the Investment Company Act. Such mutual funds, and in certain states, our variable annuity products, are subject to filing and other requirements under state securities laws. Federal and state securities laws and regulations are primarily intended to protect investors and generally grant broad rulemaking and enforcement powers to regulatory agencies. Federal and state securities regulatory authorities and FINRA from time to time make inquiries and conduct examinations regarding compliance by us and our affiliates with securities and other laws and regulations.

and state securities laws and regulations are primarily intended to protect investors and generally grant broad rulemaking and enforcement powers to regulatory agencies. Federal and state securities regulatory authorities and FINRA from time to time make inquiries and conduct examinations regarding compliance by us and our affiliates with securities and other laws and regulations.

Distribution of our annuity products registered as securities are affected by laws and regulations applicable to broker-dealers. Pursuant to the Dodd-Frank Act, the SEC is authorized to establish a standard of conduct applicable to brokers and dealers whereby they would be required to act in the best interest of the customer without regard to the financial or other interest of the broker or dealer when providing personalized investment advice to retail and other customers. A January 2011 SEC study acknowledges that the offering of proprietary products would not be a per se violation of any such standard of care and that broker-dealers selling proprietary or a limited range of products could be permitted to make certain disclosures about their limited product offerings and obtain customer consents or acknowledgments. The SEC has not yet decided whether to propose rules creating a uniform standard of conduct applicable to broker-dealers and investment advisers.

In April ~~2015~~2016, the Department of Labor (“DOL”) ~~published~~issued a ~~proposed~~final rule that ~~would~~will broaden the definition of “fiduciary” ~~under~~for ~~the~~purposes ~~Employee~~of Employment Retirement Income Security Act ~~of 1974, as amended~~ (“ERISA”) and ~~for~~the ~~other~~Internal ~~purposes.~~Revenue ~~The~~Code, ~~proposal~~as ~~was~~it ~~subject~~applies to ~~public comment and we submitted~~ a ~~comment~~person ~~letter~~or toentity ~~the~~providing ~~DOL~~investment onadvice ~~July~~with ~~16,~~respect ~~2015,~~to ~~expressing~~ERISA ~~our~~plans ~~views~~or onIRAs. ~~the~~The ~~proposed~~ rule ~~and~~expands ~~participated in a DOL hearing concerning~~ the ~~proposal~~circumstances onin ~~August~~which ~~11,~~providers ~~2015. The DOL's final version~~ of ~~the~~investment ~~proposed~~advice ~~rule~~to isERISA ~~currently~~plan ~~under~~sponsors ~~review~~and byplan ~~the~~participants, ~~President's Office of Management~~ and ~~Budget.~~IRA Weinvestors, ~~currently~~are ~~expect~~deemed ~~a final rule~~ to beact ~~published~~in ~~sometime~~a ~~during~~fiduciary ~~the~~capacity. The ~~first~~rule ~~half~~requires ~~of 2016.~~

As proposed, the rule would expand the circumstances in which providers of investment advice to small plan sponsors, plan participants and beneficiaries, and IRA investors are deemed to act in a fiduciary capacity. The rule would require such providers to act in their clients’ “best interests”, not influenced by any conflicts of interest, including due to the direct or indirect receipt of compensation. The DOL concurrently proposed a “best interest contract exemption” intended to enable continuation of certain existing industry practices relating to receipt of commissions and other compensation, but the exemption includes conditions and requirements that may make it costly or difficult to rely upon in practice. Although the final outcome of the DOL rulemaking remains uncertain, the proposed rule, if adopted in its current form, would substantially change the legal framework within which we and our affiliates provide certain of our products and services. While these changes, as proposed, would restrict certain advisory practices and compensation arrangements that are common in our industry, we believe our experience providing retirement and investment products and services in a fiduciary environment positions us well to remain competitive as the industry adjusts to any final rulemaking from the DOL. 14

~~The~~such ~~SEC~~providers ~~also~~to ~~has~~act ~~indicated~~in ~~that~~their itclients’ ~~may~~“best ~~propose~~interests”, ~~rules~~not ~~creating~~influenced aby ~~uniform~~any ~~standard~~conflicts of ~~conduct~~interest, ~~applicable~~including due to ~~broker-dealers~~the ~~and~~direct or indirect receipt of compensation that varies based on the fiduciary’s investment ~~advisers~~recommendation. The rule is scheduled to take effect on April 10, ~~which~~2017, ifbut, ~~adopted~~as ~~may~~described ~~affect~~below, it is currently uncertain whether the ~~distribution~~rule ofwill ~~our~~be ~~products~~delayed, amended or repealed. If ~~Should~~and when the ~~SEC~~rule ~~rules~~takes effect, ifcertain ~~adopted~~business activities in which we currently engage, ~~not~~such ~~align~~as ~~with~~IRA ~~any~~rollovers ~~finalized~~and ~~DOL~~other ~~regulations~~IRA ~~related~~sales, will become subject to ~~conflicts~~a ofheightened ~~interest~~fiduciary instandard. ~~the~~Where ~~provision~~VIAC ofis ~~investment~~deemed ~~advice~~to act in a fiduciary capacity, ~~the~~we ~~distribution~~will ofin certain cases need to either modify our ~~products~~sale ~~could~~and becompensation ~~further~~practices ~~complicated~~or find an applicable exemption.

The DOL concurrently adopted a “best interest contract exemption” (“BIC”) intended to enable continuation of certain existing industry practices relating to receipt of commissions and other compensation. We expect this exemption to go into effect only if the rule does. While this exemption would enable us and our distributors to continue many historical practices - subject, among other things, to a heightened best interests standard and a requirement that compensation be “reasonable” - there are practical difficulties with relying on the exemption that we believe will limit its utility in certain markets, particularly the retail annuities market, where many of our current distributors are not able to rely on exemption because they do not do business through regulated financial institutions. While it is too early to predict what impact this would have on our annuities and other businesses, we may experience a material decline in sales of products that can only be practicably sold in reliance on the BIC, such as variable annuities and fixed indexed annuities.

In addition, the rule may make it easier for the DOL in enforcement actions, and for plaintiffs’ attorneys in litigation to attempt to extend fiduciary status to, or to claim fiduciary or contractual breach by, advisors who would not be deemed fiduciaries under current regulations. Compliance with the proposed rule could also increase our overall operational costs for providing some of the services we currently provide.

President Trump issued a directive in February 2017 requiring the DOL to take certain actions with respect to the rule, which may result in its revision or a delay in its implementation beyond its April 10, 2017 first applicability date. On March 2, 2017 the DOL published in the Federal Register (i) a proposal to delay applicability of the rule for 60 days beyond April 10, 2017, which is subject to a 15-day notice-and-comment period, and (ii) a request for comments on whether and how the rule should be modified in furtherance of the presidential directive, which is subject to a 45-day notice and comment period. It is unclear whether the DOL will delay applicability of the rule after the close of the 15-day comment period, and whether, or to what extent, the DOL will revise the rule after the close of the 45-day comment period. On March 10, 2017, the DOL announced a temporary policy to not enforce compliance with the rule for a transition period while the DOL considers the proposed delay described above. This policy does not, however, extend to the enforcement of the rule with respect to IRAs or private rights of action, and therefore appears to provide incomplete relief in the event a delay is not finalized prior to April 10, 2017.

Financial Reform Legislation and Initiatives

Dodd-Frank Wall Street Reform and Consumer Protection Act

On July 21, 2010, President Obama signed into law the Dodd-Frank Act, which effects comprehensive changes to the regulation of financial services in the United States. The Dodd-Frank Act directs existing and newly-created government agencies and bodies to perform studies and promulgate a multitude of regulations implementing the law, a process that ishas ~~underway~~substantially ~~and~~advanced but is ~~expected~~not toyet ~~continue over the next few years~~complete. While some studies have already been completed and the rule-making process is well underway, there continues to be ~~significant~~ uncertainty regarding the results of ongoing studies and the ultimate requirements of ~~those~~ regulations that have not yet been adopted. WeAlthough the new presidential administration has indicated a desire to revise or reverse some of its provisions, the fate of these proposals is unclear, and we cannot predict with certainty how the Dodd-Frank Act ~~and~~will ~~such~~continue ~~regulations~~to ~~will~~ affect the financial markets generally, or impact our business, ratings, results of operations, cash flows or financial condition.

The Dodd-Frank Act created a new agency, the FSOC, which is authorized to subject nonbank financial companies to the supervision of the Federal Reserve if the FSOC determines that, among other matters, material financial distress at the company or the scope of the company’s activities could pose risks to the financial stability of the United States. If we or Voya Financial, Inc. were designated by the FSOC as a systemically significant nonbank financial company subject to supervision by the Federal Reserve, we would become subject to a comprehensive system of prudential regulation, including minimum capital requirements, liquidity standards, credit exposure requirements, overall risk management requirements, management interlock prohibitions, a requirement to maintain a plan for rapid and orderly dissolution in the event of severe financial distress, stress testing, and additional fees and assessments and restrictions on proprietary trading and certain investments. The exact scope and consequences of these standards and requirements are subject to ongoing rulemaking activity by various federal banking regulators and therefore are currently unclear. However, this comprehensive system of prudential regulation, if applied to Voya Financial, Inc. or us, would significantly impact the manner in which we operate and could materially and adversely impact the profitability of one or more of our business lines or the level of capital required to support our activities. In designating non-bank financial companies for heightened prudential



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~~unclear. However, this comprehensive system of prudential~~ regulation, if applied to Voya Financial, Inc. or us, would significantly impact the manner in which we operate and could materially and adversely impact the profitability of one or more of our business lines or the level of capital required to support our activities. In designating non-bank financial companies for heightened prudential regulation by the Federal Reserve, the FSOC considers, among other matters, the scope, size and potential impact of their activities on the financial stability of the United States.

In addition, the Dodd-Frank Act contains numerous other provisions, some of which may have an impact on us. These include:

•

The FSOC may recommend that state insurance regulators or other regulators apply new or heightened standards and safeguards for activities or practices we and other insurers or other financial services companies engage in if the FSOC determines that those activities or practices could create or increase the risk that significant liquidity, credit or other problems spread among financial companies. We cannot predict whether any such recommendations will be made or their effect on our business, results of operations, cash flows or financial condition.

• The Dodd-Frank Act creates a new framework for regulating over-the-counter (“OTC”) derivatives, which may increase the costs of hedging and other permitted derivatives trading activity undertaken by us. Under the new regulatory regime and subject to certain exceptions, certain standardized OTC interest rate and credit derivatives must now be cleared through a centralized clearinghouse and executed on a centralized exchange or execution facility, and the CFTC and the SEC may designate additional types of OTC derivatives for mandatory clearing and trade execution requirements in the future. In addition to mandatory central clearing and trade execution of certain OTC derivatives, market participants like us are or will be (directly or indirectly) subject to regulatory requirements which may include reporting and recordkeeping, and capital and margin requirements. ~~The~~Specifically, in October 2015, federal banking regulators issued final rules establishing minimum margin requirements for non-centrally cleared derivatives with swaps entities that they prudentially regulate, which includes many of the swap dealers that transact derivatives with us. Similarly, in December 2015, the CFTC issued final rules establishing nearly identical margin requirements with swap dealers that are not otherwise subject to regulation by the federal banking regulators, which includes many non-bank swap dealers that transact derivatives with us. Both the CFTC and prudential regulator margin rules require the exchange of initial and variation margin for non-centrally cleared derivatives with certain types of counterparties, including financial end users like us. In addition to initial margin on centrally cleared swaps required under Dodd-Frank since 2013, the margin rules for OTC swaps will require posting of initial margin for most non-centrally cleared derivatives transacted by us commencing in 2020 as well as variation margin commencing in 2017. As a result of the transition to central clearing and the new regulatory regime governing OTC derivatives (especially margin requirements for non-centrally cleared derivatives), ~~presents~~we will be required to hold more cash and highly liquid securities resulting in lower yields. In addition, increased capital charges imposed by regulators on non-cash collateral held by bank counterparties and central clearinghouses is expected to result in higher hedging costs, causing a reduction in income from investments. These developments present potentially significant business, liquidity and operational risk for us which could materially and adversely impact both the cost and our ability to effectively hedge various risks, including equity, interest rate, currency and duration risks within many of our insurance and annuity products and investment portfolios. In addition, inconsistencies between the Dodd-Frank Act regime and parallel regimes in other jurisdictions, such as the EU, may further increase costs of hedging or inhibit our ability to access market liquidity in those other jurisdictions.


•	The Dodd-Frank Act established FIO within the Treasury Department to be headed by a director appointed by the Secretary of the Treasury. See “Insurance Regulation-Federal Initiatives Affecting Insurance Operations” above.


•	The Dodd-Frank Act includes various securities law reforms that may affect our business practices and the liabilities and/or exposures associated therewith. See “Regulation of Annuity Products” above.

Until final regulations are promulgated pursuant to the Dodd-Frank Act, the full impact of the Dodd-Frank Act on our businesses, products, results of operation and financial condition will remain unclear. Additionally, there is substantial uncertainty as to whether aspects of the Dodd-Frank Act or regulatory bodies established thereunder will be impacted by regulatory or legislative changes made by the Trump administration or Congress.

Other Laws and Regulations

USA Patriot Act

The Patriot Act contains anti-money laundering and financial transparency laws applicable to broker-dealers and other financial services companies, including insurance companies. The Patriot Act seeks to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. Anti-money laundering laws outside of the United States contain provisions that may be different, conflicting or more rigorous. Internal practices, procedures and controls are required to meet the increased obligations of financial institutions to identify their customers, watch ~~for and report suspicious transactions, respond to requests for information by regulatory authorities and law enforcement agencies and share information with other financial institutions.~~



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for and report suspicious transactions, respond to requests for information by regulatory authorities and law enforcement agencies and share information with other financial institutions.

We are also required to follow certain economic and trade sanctions programs administered by the Office of Foreign Asset Control that prohibit or restrict transactions with suspected countries, their governments and, in certain circumstances, their nationals. We are also subject to regulations governing bribery and other anti-corruption measures.

Privacy Laws and Regulation

U.S. federal and state laws and regulations require financial institutions, including insurance companies, to protect the security and confidentiality of personal information and to notify consumers about their policies and practices relating to their collection and disclosure of consumer information and the protection of the security and confidentiality of that information. The disclosure and security of protected health information is also governed by federal and state laws. In particular, regulations promulgated by the U.S. Department of Health and Human Services regulate the disclosure and use of protected health information by health insurers and others (including life insurers), the physical and procedural safeguards employed to protect the security of that information and the electronic transmission of such information. Federal and state laws require notice to affected individuals, law enforcement, regulators and others if there is a breach of the security of certain personal information, including social security numbers, and require holders of certain personal information to protect the security of the data. Federal regulations require financial institutions to implement effective programs to detect, prevent and mitigate identity theft. Federal and state laws and regulations regulate the ability of financial institutions to make telemarketing calls and to send unsolicited e-mail or fax messages to consumers and customers. Federal laws and regulations also regulate the permissible uses of certain types of personal information, including consumer report information. Federal and state governments and regulatory bodies may consider additional or more detailed regulation regarding these subjects.

and disclosure of consumer information and the protection of the security and confidentiality of that information. The disclosure and security of protected health information is also governed by federal and state laws. In particular, regulations promulgated by the U.S. Department of Health and Human Services regulate the disclosure and use of protected health information by health insurers and others (including life insurers), the physical and procedural safeguards employed to protect the security of that information and the electronic transmission of such information. Federal and state laws require notice to affected individuals, law enforcement, regulators and others if there is a breach of the security of certain personal information, including social security numbers, and require holders of certain personal information to protect the security of the data. Federal regulations require financial institutions to implement effective programs to detect, prevent and mitigate identity theft. Federal and state laws and regulations regulate the ability of financial institutions to make telemarketing calls and to send unsolicited e-mail or fax messages to consumers and customers. Federal laws and regulations also regulate the permissible uses of certain types of personal information, including consumer report information. Federal and state governments and regulatory bodies may consider additional or more detailed regulation regarding these subjects.

Environmental Considerations

Our ownership and operation of real property and properties within our commercial mortgage loan portfolio is subject to federal, state and local environmental laws and regulations. Risks of hidden environmental liabilities and the costs of any required clean-up are inherent in owning and operating real property. Under the laws of certain states, contamination of a property may give rise to a lien on the property to secure recovery of the costs of clean-up, which could adversely affect the valuation of, and increase the liabilities associated with, the commercial mortgage loans we hold. In several states, this lien has priority over the lien of an existing mortgage against such property. In addition, we may be liable, in certain circumstances, as an “owner” or “operator,” for costs of cleaning-up releases or threatened releases of hazardous substances at a property mortgaged to us under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and the laws of certain states. Application of various other federal and state environmental laws could also result in the imposition of liability on us for costs associated with environmental hazards.

We routinely conduct environmental assessments prior to closing any new commercial mortgage loans or to taking title to real estate. Although unexpected environmental liabilities can always arise, we seek to minimize this risk by undertaking these environmental assessments and complying with our internal environmental policies and procedures.

U.S. Supreme Court Decision Regarding Same-Sex Marriage

On June 26, 2015, the United States Supreme Court held in Obergefell v. Hodges that same-sex couples have a constitutional right to marry, and accordingly, marriages between same-sex couples may now be celebrated, and will now be recognized in all 50 states. We expect this decision to result in changes to the administration of retirement and other benefit plans in various U.S. states, although we cannot predict with certainty how these changes will affect our business. In particular, it is possible that changes to our tax reporting and withholding systems will be required in order to comply with applicable state tax regulations.



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Item 1A. Risk Factors

(Dollar amounts in millions, unless otherwise stated)

We face a variety of risks that are substantial and inherent in our business, including market, liquidity, credit, operational, legal, regulatory and reputational risks. The following are some of the more important factors that could affect our business.

Risks Related to Our Business - General

Continued difficult conditions in the global capital markets and the economy generally have affected and may continue to affect our business, results of operations and financial condition.

Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. Slowing growth rates globally and the uncertain consequences of changing monetary policies among the world's large central banks could create economic disruption, decrease asset prices, increase market volatility and potentially affect the availability and cost of credit.

Although we carry out business almost exclusively in the United States, we are affected by both domestic and international macroeconomic developments. In the short and medium term, the U.S. market faces difficulties that include persistent weakness in economic growth, volatility in asset prices and questions surrounding the ~~program~~monetary ~~announced~~policy being pursued by the Federal Open Market Committee ("FOMC") of the Federal Reserve, towhich has gradually ~~tighten~~begun ~~monetary~~to ~~policy~~tighten. In the longer term, concerns persist around the long-term sustainability of the nation’s debt profile, especially given expectations regarding future entitlement spending and persistent budget deficits, the effect on the financial system of the significant regulatory changes enacted in the aftermath of the 2008-09 financial crisis, and the consequences of ~~increasing~~potentially ~~Federal~~significant ~~legislative~~changes ~~gridlock~~to Federal legislation, in particular onwith respect to tax and fiscal policy.

~~Internationally,~~In ~~slowing levels of growth in developing markets, in~~ particular ~~in China~~, ~~could have significant adverse consequences for~~ the ~~level~~results of ~~global~~the ~~economic~~November ~~activity,~~2016 ~~and on commodity and other asset markets~~U.S. Inpresidential ~~turn, falling commodity~~ and ~~energy~~congressional ~~prices~~elections ~~can~~could give rise to significant ~~dislocations~~changes in ~~global~~U.S. ~~credit~~economic and ~~currency~~foreign ~~markets~~policy, asincluding ~~the~~with ~~consequences~~respect ofto ~~lower prices~~trade, ~~revenues and asset prices are felt by borrowers and exporters~~immigration, and inmilitary ~~turn creditors and investors. In addition~~engagements, ~~the~~any ~~Chinese~~or ~~market~~all ~~faces~~of ~~concerns~~which ~~surrounding~~could ~~the~~have ~~stability~~a ofmaterial ~~its~~impact ~~credit,~~on ~~equity~~global ~~and~~financial ~~real estate~~ markets, and ~~any~~economic ~~crisis in these markets could have global consequences~~conditions.

~~In Europe~~Internationally, ~~although~~slowing ~~acute~~levels ~~concerns regarding the economic and fiscal viability~~ of ~~countries~~growth ~~such~~in asdeveloping ~~Greece~~markets, ~~have~~in toparticular ~~some~~in ~~extent abated~~China, ~~long-term~~could ~~structural~~have ~~headwinds~~significant ~~remain~~adverse inconsequences for the ~~Eurozone’s~~level ~~move~~of ~~towards~~global ~~a closer currency, fiscal,~~ economic ~~and monetary union~~activity, and ~~significant~~on ~~concerns~~commodity ~~persist regarding the sovereign debt of Greece~~ and ~~certain~~ other ~~Eurozone~~asset ~~countries~~markets. InTo ~~recent~~the ~~times,~~extent ~~political~~this ~~events~~results ~~have~~in ~~increasingly~~falling ~~threatened~~commodity ~~the~~and ~~cohesiveness~~energy ~~of the European Union~~prices, ~~and~~significant ~~may~~dislocations ~~ultimately result~~ in ~~the~~global ~~cessation~~credit ~~or rollback of the political~~ and ~~economic~~currency ~~integration~~markets ofmay ~~Europe~~occur, ~~that~~as ~~has occurred over~~ the ~~past~~consequences ~~several~~of ~~decades.~~lower ~~In particular~~prices, ~~the~~revenues ~~United~~and ~~Kingdom~~asset isprices ~~expected~~are tofelt ~~hold a referendum~~ by ~~2017~~borrowers onand ~~its future role within Europe~~exporters, ~~the outcome of which could have substantial adverse consequences for the U.K.~~ and ~~European economies. The financial and political turmoil~~ in ~~Europe~~turn ~~continues~~creditors ~~to be a long-term threat to global capital markets~~ and ~~remains a challenge to global financial stability~~investors. IfIn ~~countries~~addition, ~~such~~the asChinese ~~Greece,~~market ~~require~~faces ~~additional~~concerns ~~financial~~surrounding ~~support~~the orstability ifof ~~their~~its ~~sovereign~~ credit ~~ratings decline further~~, ~~yields~~equity ~~on such sovereign debt may increase, the cost of borrowing may increase~~ and ~~the~~real ~~availability~~estate ~~of credit may become more limited. Additionally~~markets, ~~the possibility of capital market volatility spreading through a highly integrated~~ and ~~interdependent banking system remains elevated. In the event of~~ any ~~default~~crisis orin ~~similar~~these ~~event~~markets ~~with~~could ~~respect~~have toglobal ~~a sovereign issuer, some financial institutions may suffer significant losses for which they would require additional capital, which may not be available~~consequences.

In ~~2015~~Europe, concerns regarding the ~~FOMC~~economic ~~began~~and tofiscal ~~tighten~~viability ~~U.S.~~of ~~monetary~~countries ~~policy~~such as itGreece ~~seeks~~continue to ~~gradually~~contribute ~~reverse~~to ~~programs~~long-term ~~and~~structural ~~policies~~headwinds ~~that~~in ~~have~~the Eurozone, inand ~~recent~~significant ~~years,~~concerns ~~fostered~~persist aregarding ~~historically~~the ~~low~~sovereign ~~interest~~debt ~~rate~~of ~~environment~~Greece and certain other Eurozone countries. ~~The~~In ~~effect~~recent times, political events have increasingly threatened the cohesiveness of ~~this~~the ~~effort~~European Union, and ~~the~~are ~~novel~~likely ~~mechanism~~to ~~through~~result ~~which~~in the ~~FOMC~~cessation isor ~~implementing~~rollback ~~it,~~of ~~remains~~the ~~uncertain,~~political and ~~could~~economic ~~include~~integration ~~increased~~of ~~volatility~~Europe inthat ~~debt,~~has ~~equity,~~occurred ~~currency~~over ~~and~~the ~~commodity~~past ~~markets~~several decades. AsIn particular, the ~~FOMC~~results ~~moves~~of ~~towards~~the ~~normalizing~~"Brexit" ~~monetary~~referendum ~~policy~~held ~~and~~by ~~moving~~the ~~short-term~~United ~~interest~~Kingdom ~~rates~~in ~~off~~2016 ofand ~~their~~the ~~lower~~U.K. ~~bound,~~government’s ~~the~~declared ~~central~~intention ~~bank~~to ~~may~~withdraw ~~adversely~~from ~~affect~~the ~~prospects~~EU ~~for~~could ~~continued~~have ~~economic~~substantial ~~recovery~~adverse ~~with~~consequences ~~little~~for ~~headroom~~the ~~for~~U.K. ~~incremental~~and ~~monetary~~European ~~accommodation~~economies. ~~Any~~The ~~increase~~financial and political turmoil in ~~interest~~Europe ~~rates~~continues ~~resulting~~to ~~from~~be ~~the~~a ~~FOMC's~~long-term ~~monetary~~threat ~~policy~~to ~~would~~global ~~generally~~capital ~~result~~markets inand ~~declining~~remains ~~values~~a ~~for~~challenge ~~fixed~~to ~~income~~global ~~investments,~~financial ~~including~~stability. ~~those~~If wecountries, ~~hold~~such inas ~~our~~Greece, ~~investment~~require ~~portfolio.~~additional Afinancial ~~failure~~support toor ~~successfully~~if ~~implement~~their asovereign ~~tightening~~credit ~~policy~~ratings decline further, yields on ~~the~~such ~~other~~sovereign ~~hand~~debt may increase, ~~could~~the ~~lead~~cost toof aborrowing ~~continued~~may ~~persistence~~increase ofand ~~low~~the ~~interest~~availability ~~rates~~of ~~and~~credit anmay ~~associated~~become ~~adverse~~more ~~effect~~limited. onAdditionally, ~~certain~~the possibility of ~~our~~capital ~~long-dated~~market ~~liabilities~~volatility ~~and~~spreading ~~the~~through ~~reserves~~a wehighly ~~are~~integrated ~~required~~and tointerdependent ~~hold~~banking ~~against~~system ~~them~~remains elevated. ~~Our~~In ~~results~~the event of ~~operations,~~any ~~investment~~default ~~portfolio~~or ~~and~~similar ~~AUM~~event ~~are~~with ~~exposed~~respect to ~~these~~a ~~risks~~sovereign ~~and~~issuer, some financial institutions may besuffer ~~adversely~~significant ~~affected~~losses asfor awhich ~~result.~~they would require additional capital, which may not be available.

~~More~~In ~~generally~~2015, the ~~international~~FOMC ~~system~~began ~~has~~to tighten U.S. monetary policy as it seeks to gradually reverse programs and policies that have, in recent years, ~~faced~~fostered ~~heightened~~a ~~geopolitical~~historically ~~risk,~~low ~~most~~interest ~~notably~~rate inenvironment. ~~Eastern~~The ~~Europe~~effect of this effort, and the ~~Middle~~novel ~~East~~mechanism through which the FOMC is implementing it, ~~but~~remains ~~also~~uncertain, and could include increased volatility in ~~Africa~~debt, equity, currency and ~~Southeast~~commodity ~~Asia,~~markets. As the FOMC moves towards normalizing monetary policy and ~~events~~moving inshort-term ~~any~~interest ~~one~~rates off of ~~these~~their ~~regions~~lower ~~could~~bound, ~~give~~the ~~rise~~central tobank anmay adversely affect prospects for continued economic recovery with little headroom for incremental monetary accommodation. Any increase in ~~market~~interest ~~volatility~~rates orresulting afrom ~~decrease~~the FOMC's monetary policy would generally result in ~~global~~declining ~~economic~~values ~~output~~for fixed income investments, including those we hold in our investment portfolio. A failure to successfully implement a tightening policy, on the other hand, could lead to a continued persistence of low interest rates and an associated adverse effect on



	18

certain of our long-dated liabilities and the reserves we are required to hold against them. Our results of operations, investment portfolio and AUM are exposed to these risks and may be adversely affected as a result.

More generally, the international system has in recent years faced heightened geopolitical risk, most notably in Eastern Europe and the Middle East, but also in Africa and Southeast Asia, and events in any one of these regions could give rise to an increase in market volatility or a decrease in global economic output.

Even in the absence of a market downturn, our annuity, retirement and investment products, as well as our investment returns and our access to and cost of financing, are sensitive to equity, fixed income, real estate and other market fluctuations and general economic and political conditions. These fluctuations and conditions could materially and adversely affect our results of operations, financial condition and liquidity, including in the following respects:

•

We provide a number of annuity, retirement and investment products that expose us to risks associated with fluctuations in interest rates, market indices, securities prices, default rates, the value of real estate assets, currency exchange rates and credit spreads. The profitability of many of our annuity, retirement and investment products depends in part on the value of the general accounts and separate accounts supporting them, which may fluctuate substantially depending on the foregoing conditions.


•	Volatility or downturns in the equity markets can cause a reduction in fee income on annuity products. Because these products generate fees related primarily to the value of AUM, a decline in the equity markets could reduce our revenues.

•

A change in market conditions, including prolonged periods of high or low inflation or interest rates, could cause a change in consumer sentiment and adversely affect sales and could cause the actual persistency of these products to vary from their anticipated persistency (the probability that a product will remain in force from one period to the next) and adversely affect profitability. Changing economic conditions or adverse public perception of financial institutions can influence customer behavior, which can result in, among other things, an increase or decrease in claims, lapses, withdrawals, deposits or surrenders in certain products, any of which could adversely affect profitability.

•

An equity market decline, decreases in prevailing interest rates or a prolonged period of low interest rates could result in the value of guaranteed minimum benefits contained in certain of our life insurance, annuity and retirement products being higher than current account values or higher than anticipated in our pricing assumptions, requiring us to materially increase reserves for such products, and may result in a decrease in customer lapses, thereby increasing the cost to us. In addition, such a scenario could lead to increased amortization and/or unfavorable unlocking of our deferred acquisition costs ("DAC") and value of business acquired ("VOBA").

•

We have significant investment and derivative portfolios that include, among other investments, corporate securities, asset-backed securities ("ABS"), equities and commercial mortgages. Economic conditions as well as adverse capital market and credit conditions, interest rate changes, changes in mortgage prepayment behavior or declines in the value of underlying collateral will impact the credit quality, liquidity and value of our investment and derivative portfolios, potentially resulting in higher capital charges and unrealized or realized losses and decreased investment income. The value of our investments and derivative portfolios may also be impacted by reductions in price transparency, changes in the assumptions or methodology we use to estimate fair value and changes in investor confidence or preferences, which could potentially result in higher realized or unrealized losses and have a material adverse effect on our results of operations or financial condition. Market volatility may also make it difficult to value certain of our securities if trading becomes less frequent.


•	Market conditions determine the availability and cost of the reinsurance protection we purchase and may result in additional expenses for reinsurance or an inability to obtain sufficient reinsurance on acceptable terms, which could adversely affect the profitability of future business and the availability of capital to support new sales.

•

Hedging instruments we use to manage product and other risks might not perform as intended or expected, which could result in higher realized losses and unanticipated cash needs to collateralize or settle such transactions. Adverse market conditions can limit the availability and increase the costs of hedging instruments, and such costs may not be recovered in the pricing of the underlying products being hedged. In addition, hedging counterparties may fail to perform their obligations resulting in unhedged exposures and losses on positions that are not collateralized.


•	Regardless of market conditions, certain investments we hold, including privately placed fixed income investments, investments in private equity funds and commercial mortgages, are relatively illiquid. If we need to sell these investments, we may have difficulty selling them in a timely manner or at a price equal to what we could otherwise realize by holding the investment to maturity.


•	We are exposed to interest rate and equity risk based upon the discount rate and expected long-term rate of return assumptions associated with our pension and other retirement benefit obligations. Sustained declines in long-term interest rates or equity returns could have a negative effect on the funded status of these plans and/or increase our future funding costs.

• Fluctuations in our operating results and realized and unrealized gains and losses on our investment and derivative portfolio may impact our tax profile, our ability to optimally utilize tax attributes and our deferred income tax assets. See "Our ability to use beneficial U.S. tax attributes is subject to limitations."

• A default by any financial institution or by a sovereign could lead to additional defaults by other market participants. The failure of a sufficiently large and influential institution could disrupt securities markets or clearance and settlement systems and lead to a chain of defaults, because the commercial and financial soundness of many financial institutions may be



	19

~~closely~~• ~~related~~Fluctuations asin aour ~~result~~operating ofresults ~~credit, trading, clearing or other relationships. Even the perceived lack of creditworthiness of a counterparty may lead to market-wide liquidity problems~~ and ~~losses~~realized ~~or defaults by us or by other institutions. This risk is sometimes referred to as "systemic risk"~~ and ~~may~~unrealized ~~adversely~~gains ~~affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms~~ and ~~exchanges~~losses ~~with which we interact~~ on ~~a daily basis. Systemic risk could have a material adverse effect on~~ our ~~ability~~investment toand ~~raise~~derivative ~~new~~portfolio ~~funding~~may ~~and~~impact on our ~~business,~~tax ~~results of operations~~profile, ~~financial~~our ~~condition,~~ability liquidity and/or business prospects. In addition, such a failure could impact future product sales as a potential result of reduced confidence in the financial services industry. Regulatory changes implemented to ~~address~~optimally ~~systemic~~utilize ~~risk~~tax ~~could~~attributes ~~also cause market participants to curtail their participation in certain market activities, which could decrease market liquidity~~ and ~~increase~~our ~~trading~~deferred ~~and~~income ~~other~~tax ~~costs~~assets.

•

A default by any financial institution or by a sovereign could lead to additional defaults by other market participants. The failure of a sufficiently large and influential institution could disrupt securities markets or clearance and settlement systems and lead to a chain of defaults, because the commercial and financial soundness of many financial institutions may be closely related as a result of credit, trading, clearing or other relationships. Even the perceived lack of creditworthiness of a counterparty may lead to market-wide liquidity problems and losses or defaults by us or by other institutions. This risk is sometimes referred to as "systemic risk" and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with which we interact on a daily basis. Systemic risk could have a material adverse effect on our ability to raise new funding and on our business, results of operations, financial condition, liquidity and/or business prospects. In addition, such a failure could impact future product sales as a potential result of reduced confidence in the financial services industry. Regulatory changes implemented to address systemic risk could also cause market participants to curtail their participation in certain market activities, which could decrease market liquidity and increase trading and other costs.


•	Widening credit spreads, if not offset by equal or greater declines in the risk-free interest rate, would also cause the total interest rate payable on newly issued securities to increase, and thus would have the same effect as an increase in underlying interest rates with respect to the valuation of our current portfolio.

To the extent that any of the foregoing risks were to emerge in a manner that adversely affected general economic conditions, financial markets, or the markets for our products and services, our financial condition, liquidity, and results of operations could be materially adversely affected.

Adverse capital and credit market conditions may impact our ability to access liquidity and capital, as well as the cost of credit and capital.

Adverse capital market conditions may affect the availability and cost of borrowed funds, thereby impacting our ability to support or grow our businesses. We need liquidity to pay our operating expenses, interest on our debt and dividends to our parent, to maintain our securities lending activities and to replace certain maturing liabilities. Without sufficient liquidity, we will be forced to curtail our operations and our business will suffer. Our principal sources of liquidity are insurance premiums and fees, annuity deposits and cash flow from investments and assets.

In the event current resources do not satisfy our needs, we may have to seek additional financing. The availability of additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the volume of trading activities, the overall availability of credit to the financial services industry and our credit ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of our long- or short-term financial prospects. Similarly, our access to funds may be limited if regulatory authorities or rating agencies take negative actions against us. If our internal sources of liquidity prove to be insufficient, there is a risk that we may not be able to successfully obtain additional financing on favorable terms, or at all. Any actions we might take to access financing may cause rating agencies to reevaluate our ratings.

Disruptions, uncertainty or volatility in the capital and credit markets, ~~such as that experienced over the past few years,~~ may also limit our access to capital. Such market conditions may in the future limit our ability to raise additional capital to support business growth, or to counter-balance the consequences of losses or increased regulatory reserves and rating agency capital requirements. This would have the potential to decrease both our profitability and our financial flexibility. Our results of operations, financial condition, liquidity, statutory capital and rating agency capital position could be materially and adversely affected by disruptions in the financial markets.

The level of interest rates may adversely affect our profitability, particularly in the event of a continuation of the current low interest rate environment or a period of rapidly increasing interest rates.

~~Interest~~During periods of declining interest rates ~~have~~or ~~remained~~a atprolonged ~~historical~~period ~~lows~~of ~~for~~low aninterest ~~extended~~rates, ~~period~~life insurance and, ~~although~~annuity ~~the~~products ~~Federal~~may ~~Reserve~~be ~~has~~relatively ~~recently~~more ~~moved~~attractive to ~~marginally~~consumers ~~increase~~due ~~short-term~~to ~~interest~~minimum ~~rates~~guarantees that are frequently mandated by regulators, ~~medium-~~resulting in increased premium payments on products with flexible premium features and ~~long~~a higher percentage of insurance and annuity contracts remaining in force from year-~~term~~to-year than we anticipated in our pricing, potentially resulting in greater claims costs than we expected and asset/liability cash flow mismatches. A decrease in interest rates ~~have~~or ~~remained~~a atprolonged ~~historically~~period of low ~~levels.~~interest Inrates ~~addition,~~may ~~central~~also ~~banks~~require additional provisions for guarantees included in ~~Europe~~life insurance and ~~Japan~~annuity ~~have~~contracts, ~~recently~~as ~~pursued~~the ~~largely~~guarantees ~~unprecedented~~become ~~negative~~more valuable to policyholders. During a period of decreasing interest ~~rate~~rates ~~policies~~or a prolonged period of low interest rates, our investment earnings may decrease because the ~~consequences~~interest earnings on our recently purchased fixed income investments will likely have declined in parallel with market interest rates. In addition, a prolonged low interest rate period may result in higher costs for certain derivative instruments that may be used to hedge certain of ~~which~~our ~~are~~product ~~uncertain~~risks. RMBS and callable fixed income securities in our investment

During periods of declining interest rates or a prolonged period of low interest rates, life insurance and annuity products may be relatively more attractive to consumers due to minimum guarantees that are frequently mandated by regulators, resulting in increased premium payments on products with flexible premium features and a higher percentage of insurance and annuity contracts remaining in force from year-to-year than we anticipated in our pricing, potentially resulting in greater claims costs than we expected and asset/liability cash flow mismatches. A decrease in interest rates or a prolonged period of low interest rates may also require additional provisions for guarantees included in life insurance and annuity contracts, as the guarantees become more valuable to policyholders. During a period of decreasing interest rates or a prolonged period of low interest rates, our investment earnings may decrease because the interest earnings on our recently purchased fixed income investments will likely have declined in parallel with market interest rates. In addition, a prolonged low interest rate period may result in higher costs for certain derivative instruments that may be used to hedge certain of our product risks. RMBS and callable fixed income securities in our investment portfolios will be more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates. Consequently, we may be required to reinvest the proceeds in securities bearing lower interest rates. Accordingly, during periods of declining interest rates, our profitability may suffer as the result of a decrease in the spread between interest rates credited to policyholders and



	20

portfolios will be more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates. Consequently, we may be required to reinvest the proceeds in securities bearing lower interest rates. Accordingly, during periods of declining interest rates, our profitability may suffer as the result of a decrease in the spread between interest rates credited to policyholders and contract owners and returns on our investment portfolios. An extended period of declining or prolonged low interest rates or a prolonged period of low interest rates may also cause us to change our long-term view of the interest rates that we can earn on our investments. Such a change in our view would cause us to change the long-term interest rate that we assume in our calculation of insurance assets and liabilities under U.S. GAAP. We ~~This~~most recently made such a downward revision in the third quarter of 2016. Any future revision would result in increased reserves, accelerated amortization of DAC and other unfavorable consequences., which would be incremental to those consequences recorded in connection with the most recent revision. In addition, certain statutory capital and reserve requirements are based on formulas or models that consider interest rates, and an extended period of low interest rates may increase the statutory capital we are required to hold and the amount of assets we must maintain to support statutory reserves.

We believe a continuation of the current low interest rate environment would also negatively affect our financial performance. In addition, we expect that a continuation of the current low interest rate environment would reduce our Company's risk-based capital ratio in an amount that could be material.

Conversely, in periods of rapidly increasing interest rates, policy loans, and withdrawals from, and/or surrenders of, life insurance and annuity contracts and certain ~~guaranteed~~funding ~~investment~~agreements ~~contracts~~ may increase as policyholders choose to seek higher investment returns. Obtaining cash to satisfy these obligations may require us to liquidate fixed income investments at a time when market prices for those assets are depressed because of increases in interest rates. This may result in realized investment losses. Regardless of whether we realize an investment loss, such cash payments would result in a decrease in total invested assets and may decrease our net income and capitalization levels. Premature withdrawals may also cause us to accelerate amortization of DAC, which would also reduce our net income. An increase in market interest rates could also have a material adverse effect on the value of our investment portfolio by, for example, decreasing the estimated fair values of the fixed income securities within our investment portfolio. An increase in market interest rates could also create a significant collateral posting requirement associated with our interest rate hedge programs and Federal Home Loan Bank ("FHLB") funding agreements, which could materially and adversely affect liquidity. In addition, an increase in market interest rates could require us to pay higher interest rates on debt securities we may issue in the financial markets from time to time to finance our operations, which would increase our interest expenses and reduce our results of operations. An increase in interest rates could result in decreased fee income associated with a decline in the value of variable annuity account balances invested in fixed income funds, which also might affect the value of the underlying guarantees within these variable annuities. Lastly, certain statutory reserve requirements are based on formulas or models that consider forward interest rates and an increase in forward interest rates may increase the statutory reserves we are required to hold thereby reducing statutory capital.

Changes in prevailing interest rates may negatively affect our business including the level of net interest margin we earn. In a period of changing interest rates, interest expense may increase and interest credited to policyholders may change at different rates than the interest earned on assets. Accordingly, changes in interest rates could decrease net interest margin. Changes in interest rates may negatively affect the value of our assets and our ability to realize gains or avoid losses from the sale of those assets, all of which also ultimately affect earnings. In addition, our insurance and annuity products and certain of our retirement and investment products are sensitive to inflation rate fluctuations. A sustained increase in the inflation rate in our principal markets may also negatively affect our business, financial condition and results of operation. For example, a sustained increase in the inflation rate may result in an increase in nominal market interest rates. A failure to accurately anticipate higher inflation and factor it into our product pricing assumptions may result in mispricing of our products, which could materially and adversely impact our results of operations.

A downgrade or a potential downgrade in our financial strength or credit ratings could result in a loss of business and adversely affect our results of operations and financial condition.

Ratings are important to our business. Credit ratings represent the opinions of rating agencies regarding an entity's ability to repay its indebtedness. Our credit ratings are important to our ability to raise capital through the issuance of debt and to the cost of such financing. Financial strength ratings, which are sometimes referred to as "claims-paying" ratings, represent the opinions of rating agencies regarding the financial ability of an insurance company to meet its obligations under an insurance policy. Financial strength ratings are important factors affecting public confidence in insurers. Our financial strength ratings are important to our ability to sell our products and services to our customers. Ratings are not recommendations to buy our securities. Each of the rating agencies reviews its ratings periodically, and our current ratings may not be maintained in the future.

Our ratings could be downgraded at any time and without notice by any rating agency. For a description of material rating actions that have occurred from the end of 2014 through the date of this Annual Report on Form 10-K, see "Item 7. Management's Narrative Analysis of the Results of Operations and Financial Condition-Liquidity and Capital Resources-Ratings."



	21

byOur ~~current customers seeking companies with higher financial strength~~ ratings~~. This~~ could ~~lead~~be todowngraded aat ~~decrease~~any intime ~~AUM~~ and ~~result~~without innotice ~~lower~~by ~~fee~~any ~~income. Furthermore,~~rating ~~sales of assets to meet customer withdrawal demands could also result in losses, depending on market conditions~~agency. InFor ~~addition,~~ a ~~downgrade~~description inof ~~either~~material ~~our~~rating ~~financial~~actions ~~strength~~that orhave ~~credit~~occurred ~~ratings~~from ~~could potentially, among other things, increase our borrowing costs and make it more difficult to access financing; adversely affect~~ the ~~availability~~end of ~~LOCs~~2015 ~~and~~through ~~other financial guarantees; result in additional collateral requirements, or other required payments or termination rights under derivative contracts or other agreements; and/or impair, or cause~~ the ~~termination~~date of, ~~our~~this ~~relationships~~Annual ~~with~~Report ~~creditors,~~on ~~broker~~Form 10-~~dealers~~K, ~~distributors,~~see ~~reinsurers~~"Item ~~or trading counterparties, which could potentially negatively affect our profitability, liquidity and/or capital~~7. InManagement's ~~addition,~~Narrative weAnalysis ~~use assumptions~~ of ~~market participants in estimating~~ the ~~fair~~Results ~~value~~ of ~~our~~Operations ~~liabilities,~~and including insurance liabilities that are classified as embedded derivatives under U.S. GAAP. These assumptions include our nonperformance risk (i.e., the risk that the obligations will not be fulfilled). Therefore, changes in our credit or financial strength ratings or the credit or financial strength ratings of Voya Financial, ~~Inc.~~Condition-Liquidity ~~may~~and ~~affect~~Capital ~~the fair value of our liabilities~~Resources-Ratings."

A downgrade of our financial strength rating could affect our competitive position by making it more difficult for us to market our products as potential customers may select companies with higher financial strength ratings and by leading to increased withdrawals by current customers seeking companies with higher financial strength ratings. This could lead to a decrease in AUM and result in lower fee income. Furthermore, sales of assets to meet customer withdrawal demands could also result in losses, depending on market conditions. In addition, a downgrade in either our financial strength or credit ratings could potentially, among other things, increase our borrowing costs and make it more difficult to access financing; adversely affect the availability of LOCs and other financial guarantees; result in additional collateral requirements, or other required payments or termination rights under derivative contracts or other agreements; and/or impair, or cause the termination of, our relationships with creditors, broker-dealers, distributors, reinsurers or trading counterparties, which could potentially negatively affect our profitability, liquidity and/or capital. In addition, we use assumptions of market participants in estimating the fair value of our liabilities, including insurance liabilities that are classified as embedded derivatives under U.S. GAAP. These assumptions include our nonperformance risk (i.e., the risk that the obligations will not be fulfilled). Therefore, changes in our credit or financial strength ratings or the credit or financial strength ratings of Voya Financial, Inc. may affect the fair value of our liabilities.

As rating agencies continue to evaluate the financial services industry, it is possible that rating agencies will heighten the level of scrutiny that they apply to financial institutions, increase the frequency and scope of their credit reviews, request additional information from the companies that they rate and potentially adjust upward the capital and other requirements employed in the rating agency models for maintenance of certain ratings levels. It is possible that the outcome of any such review of us would have additional adverse ratings consequences, which could have a material adverse effect on our results of operations, financial condition and liquidity. We may need to take actions in response to changing standards or capital requirements set by any of the rating agencies which could cause our business and operations to suffer. We cannot predict what additional actions rating agencies may take, or what actions we may take in response to the actions of rating agencies.

Because we operate in highly competitive markets, we may not be able to increase or maintain our market share, which may have an adverse effect on our results of operations and financial condition.

In each of our businesses we face intense competition, including from domestic and foreign insurance companies, broker-dealers, financial advisors, asset managers and diversified financial institutions, banks, technology companies and start-up financial services providers, both for the ultimate customers for our products and for distribution through independent distribution channels. We compete based on a number of factors including brand recognition, reputation, quality of service, quality of investment advice, investment performance of our products, product features, scope of distribution, price, perceived financial strength and credit ratings, scale and level of customer service. A decline in our competitive position as to one or more of these factors could adversely affect our profitability. In addition, we may in the future sacrifice our competitive or market position in 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. Furthermore, the preferences of the end consumers for our products and services may shift, including as a result of technological innovations affecting the marketplaces in which we operate. To the extent our competitors are more successful than we are at adopting new technology and adapting to the changing preferences of the marketplace, our competitiveness may decline.

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, acquisitions, partnerships or other 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 or regulatory changes in the United States and similar governmental actions outside of the United States. 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 hedge programs, may prove inadequate for the risks we face, which could negatively affect our business and financial condition or result in losses.

We have developed risk management policies and procedures, including hedge 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



	22

~~predict~~Our ~~future exposures, which could be significantly greater than historical measures indicate. Other~~ risk management ~~methods~~policies ~~depend~~and onprocedures, ~~the~~including ~~evaluation~~hedge ~~of information regarding markets~~programs, ~~customers, catastrophe occurrence or other matters that is publicly available or otherwise accessible to us. This information~~ may ~~not~~prove ~~always~~inadequate befor ~~accurate,~~the ~~complete, up-to-date or properly evaluated. Management of operational, legal and regulatory~~ risks ~~requires,~~we ~~among other things~~face, ~~policies~~which ~~and~~could ~~procedures~~negatively toaffect ~~record~~our ~~and~~business ~~verify large numbers of transactions~~ and ~~events.~~financial ~~These~~condition ~~policies~~or ~~and~~result ~~procedures~~in ~~may not be fully effective~~losses.

~~Recently~~We have developed risk management policies and procedures, ~~central~~including ~~monetary~~hedge ~~authorities~~programs inthat ~~Japan~~utilize derivative financial instruments, and ~~Europe~~expect ~~have~~to ~~adopted~~continue ~~negative~~to ~~interest~~do ~~rate~~so in the future. Nonetheless, our policies and procedures to identify, monitor and ~~the~~manage ~~FOMC~~risks ~~has~~may not ~~ruled~~be ~~out~~fully ~~the~~effective, ~~possibility~~particularly ~~that~~during itextremely ~~may~~turbulent intimes. ~~the~~Many ~~future~~of ~~adopt~~our ~~such~~methods ~~policies~~of inmanaging ~~the~~risk ~~United~~and ~~States~~exposures are based upon observed historical market behavior or statistics based on historical models. ~~Because~~As ofa ~~the~~result, ~~novelty~~these ~~that~~methods ~~negative~~may ~~interest~~not ~~rates~~predict ~~would~~future ~~present~~exposures, itwhich iscould ~~possible~~be ~~that~~significantly ~~such~~greater ~~rates~~than ~~would~~historical ~~adversely~~measures ~~affect~~indicate. Other risk management methods depend on the ~~functionality~~evaluation of ~~our~~information ~~actuarial~~regarding markets, ~~risk~~customers, ~~and~~catastrophe occurrence or other ~~models~~matters that is publicly available or otherwise accessible to us. This ~~could~~information ~~lead~~may not always be accurate, complete, up-to-date ~~disruptions~~or inproperly ~~our~~evaluated. ~~hedging~~Management of operational, legal and ~~other~~regulatory ~~risk~~risks ~~management~~requires, ~~programs~~among other things, orpolicies ~~have~~and ~~other~~procedures ~~unforeseen~~to ~~consequences~~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 agency capital react differently to market movements than our Variable Annuity Guarantee Hedge Program target, we have executed a capital hedge overlay ("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~~program ~~may~~tends to 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 affiliates or employees of our vendors could result in violations of law by us, 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 broker-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



	23

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 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, FHLB funding 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.

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, results of operations and financial condition.

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 asset-backed securities, 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 our RBC ratio (as a result of a reduction in statutory surplus and/or increase in RBC requirements) 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.

From time to time we invest our capital to seed a particular investment strategy or investment portfolio. We may also co-invest in funds or take an equity ownership interest in certain structured finance/investment vehicles that are managed by our affiliates. In some cases, these interests may be leveraged by third-party debt financing. Any decrease in the value of such investments could negatively affect our revenues and income or subject us to losses.



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Some of our investments are relatively illiquid and in some cases are in asset classes that have been experiencing significant market valuation fluctuations.

We hold certain assets that may lack liquidity, such as privately placed fixed income securities, commercial mortgage loans, policy loans and limited partnership interests. These asset classes represented 2833.81% of the carrying value of our total cash and invested assets as of December 31, ~~2015~~2016. If we require significant amounts of cash on short notice in excess of normal cash requirements or are required to post or return collateral in connection with our investment portfolio, derivatives transactions or securities lending activities, we may have difficulty selling these investments in a timely manner, be forced to sell them for less than we otherwise would have been able to realize, or both.

The reported values of our relatively illiquid types of investments do not necessarily reflect the current market price for the asset. If we were forced to sell certain of our assets in the current market, there can be no assurance that we would be able to sell them for the prices at which we have recorded them and we might be forced to sell them at significantly lower prices.

We invest a portion of our invested assets in investment funds, many of which make private equity investments. The amount and timing of income from such investment funds tends to be uneven as a result of the performance of the underlying investments, including private equity investments. The timing of distributions from the funds, which depends on particular events relating to the underlying investments, as well as the funds' schedules for making distributions and their needs for cash, can be difficult to predict. As a result, the amount of income that we record from these investments can vary substantially from quarter to quarter. Recent equity and credit market volatility may reduce investment income for these types of investments.

Defaults or delinquencies in our commercial mortgage loan portfolio may adversely affect our profitability and financial condition.

The commercial mortgage loans we hold face both default and delinquency risk. We establish loan specific estimated impairments at the balance sheet date. These impairments are based on the excess carrying value of the loan over the present value of expected future cash flows discounted at the loan's original effective interest rate, the estimated fair value of the loan's collateral if the loan is in the process of foreclosure or otherwise collateral dependent, or the loan's observable market price. We also establish valuation allowances for loan losses when, based on past experience, it is probable that a credit event has occurred and the amount of the loss can be reasonably estimated. These valuation allowances are based on loan risk characteristics, historical default rates and loss severities, real estate market fundamentals and outlook as well as other relevant factors. The performance of our commercial mortgage loan investments may fluctuate in the future. In addition, legislative proposals that would allow or require modifications to the terms of commercial mortgage loans could be enacted. We cannot predict whether these proposals will be adopted, or what impact, if any, such laws, if enacted, could have on our business or investments. An increase in the delinquency and default rate of our commercial mortgage loan portfolio could adversely impact our results of operations and financial condition.

Further, any geographic or sector concentration of our commercial mortgage loans may have adverse effects on our investment portfolios and consequently on our results of operations or financial condition. While we generally seek to mitigate the risk of sector concentration by having a broadly diversified portfolio, events or developments that have a negative effect on any particular geographic region or sector may have a greater adverse effect on the investment portfolios to the extent that the portfolios are concentrated, which could affect our results of operations and financial condition.

In addition, liability under environmental protection laws resulting from our commercial mortgage loan portfolio and real estate investments could affect our results of operations or financial condition. Under the laws of several states, contamination of a property may give rise to a lien on the property to secure recovery of the costs of cleanup. In some states, such a lien has priority over the lien of an existing mortgage against the property, which would impair our ability to foreclose on that property should the related loan be in default. In addition, under the laws of some states and under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, we may be liable for costs of addressing releases or threatened releases of hazardous substances that require remedy at a property securing a mortgage loan held by us, regardless of whether or not the environmental damage or threat was caused by the obligor, which could harm our results of operations and financial condition. We also may face this liability after foreclosing on a property securing a mortgage loan held by us.

Our operations are complex and a failure to properly perform services could have an adverse effect on our revenues and income.

Our operations include annuity contract administration, portfolio management, shareholder services, contract and sales and servicing, underwriting, distribution, and other services. In order to be competitive, we must properly perform our administrative and related responsibilities, including recordkeeping and accounting, regulatory compliance, security pricing, corporate actions,



	25

compliance with investment restrictions, daily net asset value computations, account reconciliations and required distributions. If we fail to properly perform and monitor our operations, our business could suffer and our revenues and income could be adversely affected.

Our products and services are complex and are frequently sold through intermediaries, and a failure to properly perform services or the misrepresentation of our products or services could have an adverse effect on our revenues, income and financial condition.

Many of our products and services are complex and are frequently sold through intermediaries. In particular, we are reliant on intermediaries to describe and explain our products to potential customers. The intentional or unintentional misrepresentation of our products and services in advertising materials or other external communications, or inappropriate activities by our personnel or an intermediary, could adversely affect our reputation and business prospects, as well as lead to potential regulatory actions or litigation.

The valuation of many of our financial instruments includes methodologies, estimations and assumptions that are subject to differing interpretations and could result in changes to investment valuations that may materially and adversely affect our results of operations and financial condition.

The following financial instruments are carried at fair value in our financial statements: fixed income securities, equity securities, derivatives, embedded derivatives and separate account assets. We have categorized these instruments into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3), while quoted prices in markets that are not active or valuation techniques requiring inputs that are observable for substantially the full term of the asset or liability are Level 2.

Factors considered in estimating fair values of securities, and derivatives and embedded derivatives related to our securities include coupon rate, maturity, principal paydown including prepayments, estimated duration, call provisions, sinking fund requirements, credit rating, industry sector of the issuer and quoted market prices of comparable securities. Factors considered in estimating the fair values of embedded derivatives and derivatives related to product guarantees and index-crediting features (collectively, "guaranteed benefit derivatives") include risk-free interest rates, long-term equity implied volatility, interest rate implied volatility, correlations among mutual funds associated with variable annuity contracts, correlations between interest rates and equity funds and actuarial assumptions such as mortality rates, lapse rates and benefit utilization, as well as the amount and timing of policyholder deposits and partial withdrawals. The impact of our risk of nonperformance is also reflected in the estimated fair value of guaranteed benefit derivatives. In many situations, inputs used to measure the fair value of an asset or liability may fall into different levels of the fair value hierarchy. In these situations, we will determine the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value.

The determinations of fair values are made at a specific point in time, based on available market information and judgments about financial instruments, including estimates of the timing and amounts of expected future cash flows and the credit standing of the issuer or counterparty. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts.

During periods of market disruption, including periods of rapidly changing credit spreads or illiquidity, it has been and will likely continue to be difficult to value certain of our securities, such as certain mortgage-backed securities, if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were in active markets with significant observable data that could become illiquid in a difficult financial environment. In such cases, more securities may fall to Level 3 and thus require more subjectivity and management judgment in determining fair value. As such, valuations may include inputs and assumptions that are less observable or require greater estimation, thereby resulting in values that may differ materially from the value at which the investments may be ultimately sold. Further, rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within the financial statements, and the period-to-period changes in value could vary significantly. Decreases in value could have a material adverse effect on our results of operations and financial condition.

The determination of the amount of allowances and impairments taken on our investments is subjective and could materially and adversely impact our results of operations or financial condition. Gross unrealized losses may be realized or result in future impairments, resulting in a reduction in our net income (loss).



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We evaluate investment securities held by us for impairment on a quarterly basis. This review is subjective and requires a high degree of judgment. For fixed income securities held, an impairment loss is recognized if the fair value of the debt security is less than the carrying value and we no longer have the intent to hold the debt security; if it is more likely than not that we will be required to sell the debt security before recovery of the amortized cost basis; or if a credit loss has occurred.

When we do not intend to sell a security in an unrealized loss position, potential credit related other-than-temporary impairments ("OTTI") are considered using a variety of factors, including the length of time and extent to which the fair value has been less than cost, adverse conditions specifically related to the industry, geographic area in which the issuer conducts business, financial condition of the issuer or underlying collateral of a security, payment structure of the security, changes in credit rating of the security by the rating agencies, volatility of the fair value changes and other events that adversely affect the issuer. In addition, we take into account relevant broad market and economic data in making impairment decisions.

As part of the impairment review process, we utilize a variety of assumptions and estimates to make a judgment on how fixed income securities will perform in the future. It is possible that securities in our fixed income portfolio will perform worse than our expectations. There is an ongoing risk that further declines in fair value may occur and additional OTTI may be recorded in future periods, which could materially and adversely affect our results of operations and financial condition. Furthermore, historical trends may not be indicative of future impairments or allowances.

Fixed income and equity securities classified as available-for-sale are reported at their estimated fair value. Unrealized gains or losses on available-for-sale securities are recognized as a component of other comprehensive income (loss) and are therefore excluded from net income (loss). The accumulated change in estimated fair value of these available-for-sale securities is recognized in net income (loss) when the gain or loss is realized upon the sale of the security or in the event that the decline in estimated fair value is determined to be other-than-temporary and an impairment charge to earnings is taken. Such realized losses or impairments may have a material adverse effect on our net income (loss) in a particular quarterly or annual period.

Our participation in a securities lending program and a repurchase program subjects us to potential liquidity and other risks.

We engage in a securities lending program whereby certain securities, are loaned to other institutions for short periods of time. Initial collateral, primarily cash, is required at 102% of the market value of the loaned securities. The lending agent retains the cash collateral and invests it in liquid assets on our behalf. 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 loan security fluctuates.

We also participate in a repurchase agreement program for our general account whereby we sell fixed income securities to a third-party, primarily major brokerage firms or commercial banks, with a concurrent agreement to repurchase those same securities at a determined future date. During the term of the repurchase agreements, cash or other types of permitted collateral provided to us is sufficient to allow us to fund substantially all of the cost of purchasing replacement assets in the event of counterparty default (i.e., the sold securities are not returned to us on the scheduled repurchase date). Cash proceeds received by us under the repurchase program are typically invested in fixed income securities but may in certain circumstances be available to us for liquidity or other purposes prior to the scheduled repurchase date. The repurchase of securities or our inability to enter into new repurchase agreements would reduce the amount of such cash collateral available to us. Market conditions on or after the repurchase date may limit our ability to enter into new agreements at a time when we need access to additional cash collateral for investment or liquidity purposes.

For both securities lending and repurchase transactions, in some cases, the maturity of the securities held as invested collateral (i.e., securities that we have purchased with cash collateral received) may exceed the term of the related securities on loan and the estimated fair value may fall below the amount of cash received as collateral and invested. If we are required to return significant amounts of cash collateral on short notice and we are forced to sell securities to meet the return obligation, we may have difficulty selling such collateral that is invested in securities in a timely manner, be forced to sell securities in a volatile or illiquid market for less than we otherwise would have been able to realize under normal market conditions, or both. In addition, under adverse capital market and economic conditions, liquidity may broadly deteriorate, which would further restrict our ability to sell securities. If we decrease the amount of our securities lending and repurchase activities over time, the amount of net investment income generated by these activities will also likely decline. See "Item 7. Management's Narrative Analysis of the Results of Operations and Financial Condition-Liquidity and Capital Resources-Securities Lending."

Differences between actual claims experience and reserving assumptions may adversely affect our results of operations or financial condition.



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~~which~~Differences ~~are~~between inherently uncertain and involve the exercise of significant judgment, including assumptions as to the levels and/or timing of receipt or payment of premiums, benefits, claims, expenses, interest credits, investment results (including equity market returns), retirement, mortality, morbidity and persistency. We periodically review the adequacy of reserves and the underlying assumptions. We cannot, however, determine with precision the amounts that we will pay for, or the timing of payment of, actual ~~benefits,~~ claims ~~and expenses or whether the assets supporting our policy liabilities, together with future premiums, will grow to the level assumed prior to payment of benefits or claims. If actual~~ experience ~~differs~~and ~~significantly~~reserving ~~from~~ assumptions ~~or estimates, reserves~~ may not be adequate. If we conclude that our reserves, together with future premiums, are insufficient to cover future policy benefits and claims, we would be required to increase our reserves and incur income statement charges for the period in which we make the determination, which could materially and adversely affect our results of operations ~~and~~or financial condition.

We establish and hold reserves to pay future policy benefits and claims. Our reserves do not represent an exact calculation of liability, but rather are actuarial or statistical estimates based on data and models that include many assumptions and projections, which are inherently uncertain and involve the exercise of significant judgment, including assumptions as to the levels and/or timing of receipt or payment of premiums, benefits, claims, expenses, interest credits, investment results (including equity market returns), retirement, mortality, morbidity and persistency. We periodically review the adequacy of reserves and the underlying assumptions. We cannot, however, determine with precision the amounts that we will pay for, or the timing of payment of, actual benefits, claims and expenses or whether the assets supporting our policy liabilities, together with future premiums, will grow to the level assumed prior to payment of benefits or claims. If actual experience differs significantly from assumptions or estimates, reserves may not be adequate. If we conclude that our reserves, together with future premiums, are insufficient to cover future policy benefits and claims, we would be required to increase our reserves and incur income statement charges for the period in which we make the determination, which could materially and adversely affect our results of operations and financial condition.

We may face significant losses if mortality rates, morbidity rates, persistency rates or other underwriting assumptions differ significantly from our pricing expectations.

We set prices for many of our annuity products based upon expected claims and payment patterns, using assumptions for mortality rates or likelihood of death and morbidity rates, or likelihood of sickness, of our policyholders. In addition to the potential effect of natural or man-made disasters, significant changes in mortality or morbidity could emerge gradually over time due to changes in the natural environment, the health habits of the insured population, technologies and treatments for disease or disability, the economic environment, or other factors. The long-term profitability of our annuity products depends upon how our actual mortality rates, and to a lesser extent actual morbidity rates, compare to our pricing assumptions. In addition, prolonged or severe adverse mortality or morbidity experience could result in increased reinsurance costs, and ultimately, reinsurers might not offer coverage at all. If we are unable to maintain our current level of reinsurance or purchase new reinsurance protection in amounts that we consider sufficient, we would have to accept an increase in our net risk exposures, revise our pricing to reflect higher reinsurance premiums, or otherwise modify our product offering.

Pricing of our 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 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.



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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.

We may be required to accelerate the amortization of DAC, deferred sales inducements (“DSI”) and/or VOBA, any of which could adversely affect our results of operations or financial condition.

DAC represents policy acquisition costs that have been capitalized. DSI represents benefits paid to contract owners for a specified period that are incremental to the amounts we credit on similar contracts without sales inducements and are higher than the contract's expected ongoing crediting rates for periods after the inducement. VOBA represents outstanding value of in-force business acquired. Capitalized costs associated with DAC, DSI and VOBA are amortized in proportion to actual and estimated gross profits or gross premiums depending on the type of contract. On an ongoing basis, we test the DAC, DSI and VOBA recorded on our balance sheets to determine if these amounts are recoverable under current assumptions. In addition, we regularly review the estimates and assumptions underlying DAC, DSI and VOBA. The projection of estimated gross profits or gross premiums requires the use of certain assumptions, principally related to separate account fund returns in excess of amounts credited to policyholders, policyholder behavior such as surrender, lapse and annuitization rates, interest margin, expense margin, mortality, future impairments and hedging costs. Estimating future gross profits or gross premiums is a complex process requiring considerable judgment and the forecasting of events well into the future. If these assumptions prove to be inaccurate, if an estimation technique used to estimate future gross profits or gross premiums is changed, or if significant or sustained equity market declines occur and/or persist, we could be required to accelerate the amortization of DAC, DSI and VOBA, which would result in a charge to earnings. Such adjustments could have a material adverse effect on our results of operations and financial condition.

Reinsurance subjects us to the credit risk of reinsurers and may not be available, affordable or adequate to protect us against losses.

We cede life insurance policies and annuity contracts or certain risks related to life insurance policies and annuity contracts to other insurance companies using various forms of reinsurance including coinsurance, modified coinsurance, funds withheld, monthly renewable term and yearly renewable term. However, we remain liable to the underlying policyholders, even if the reinsurer defaults on its obligations with respect to the ceded business. If a reinsurer fails to meet its obligations under the reinsurance contract, we will be forced to bear the entire liability for claims on the reinsured policies. In addition, a reinsurer insolvency may cause us to lose our reserve credits on the ceded business, in which case we would be required to establish additional statutory reserves.

In addition, if a reinsurer does not have accredited reinsurer status or if a currently accredited reinsurer loses that status, in any state where we are licensed to do business, we are not entitled to take credit for reinsurance in that state if the reinsurer does not post sufficient qualifying collateral (either qualifying assets in a qualifying trust or qualifying LOCs). In this event, we would be required to establish additional statutory reserves. Similarly, the credit for reinsurance taken by us under reinsurance agreements with affiliated and unaffiliated non-accredited reinsurers is, under certain conditions, dependent upon the non-accredited reinsurer's ability to obtain and provide sufficient qualifying assets in a qualifying trust or qualifying LOCs issued by qualifying lending banks. In order to control expenses associated with LOCs, some of our affiliated reinsurers have established and will continue to pursue alternative sources for qualifying reinsurance collateral. If these steps are unsuccessful, or if unaffiliated non-accredited reinsurers that have reinsured business with us are unsuccessful in obtaining sources of qualifying reinsurance collateral, we might not be able to obtain full statutory reserve credit. Loss of reserve credit would require us to establish additional statutory reserves and would result in a decrease in the level of our capital, which could have a material adverse effect on our profitability, results of operations and financial condition.

Our reinsurance recoverable balances are periodically assessed for uncollectability and there were no significant allowances for uncollectible reinsurance as of December 31, ~~2015~~2016 and December 31, ~~2014~~2015. The collectability of reinsurance recoverables is subject to uncertainty arising from a number of factors, including whether the insured losses meet the qualifying conditions of the reinsurance contract, whether reinsurers or their affiliates have the financial capacity and willingness to make payments under the terms of the reinsurance contract, and the degree to which our reinsurance balances are secured by sufficient qualifying assets in qualifying trusts or qualifying LOCs issued by qualifying lender banks. Although a substantial portion of our reinsurance exposure is secured by assets held in trusts or LOCs, the inability to collect a material recovery from a reinsurer could have a material adverse effect on our profitability, results of operations and financial condition.

The premium rates and other fees that we charge are based, in part, on the assumption that reinsurance will be available at a certain cost. Some of our reinsurance contracts contain provisions that limit the reinsurer’s ability to increase rates on in-force business; however, some do not. If a reinsurer raises the rates that it charges on a block of in-force business, in some instances, we will not be able to pass the increased costs onto our customers and our profitability will be negatively impacted. Additionally, such a rate increase could result in our recapturing of the business, which may result in a need to maintain additional reserves, reduce reinsurance receivables and expose us to greater risks. While in prior years, we faced rate increase actions on in-force business, our management of those actions resulted in no material effect on our results of operations or financial condition. However, there can be no assurance



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however, some do not. If a reinsurer raises the rates that it charges on a block of in-force business, in some instances, we will not be able to pass the increased costs onto our customers and our profitability will be negatively impacted. Additionally, such a rate increase could result in our recapturing of the business, which may result in a need to maintain additional reserves, reduce reinsurance receivables and expose us to greater risks. While in prior years, we faced rate increase actions on in-force business, our management of those actions has not had a material effect on our results of operations or financial condition. However, there can be no assurance that the outcome of future rate increase actions would similarly result in no material effect. In addition, if reinsurers raise the rates that they charge on new business, we may be forced to raise our premiums, which could have a negative impact on our competitive position.

We reinsure most of our living benefit guarantee riders to ~~SLDI~~RRII, an affiliated reinsurer, to mitigate the risk produced by such benefits. The reinsurance agreement covers all of the guaranteed minimum income benefits ("GMIB"), as well as the GMWBs with lifetime guarantees. The GMABs and the GMWBs without lifetime guarantees are not covered by this reinsurance.

A decrease in our RBC ratio (as a result of a reduction in statutory surplus and/or increase in RBC requirements) 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.

The NAIC has established regulations that provide minimum capitalization requirements based on RBC formulas for insurance companies. The RBC formula for life insurance companies establishes capital requirements relating to asset, insurance, interest rate and business risks, including equity, interest rate and expense recovery risks associated with variable annuities and group annuities that contain guaranteed minimum death and living benefits. We are subject to RBC standards and/or other minimum statutory capital and surplus requirements imposed under the laws of Iowa, our state of domicile. (For additional discussion of possible updates to how the NAIC calculates RBC ratios, see “Item 1. Business-Regulation-Insurance Regulation-Financial Regulation-Risk -Based Capital.”)

In any particular year, statutory surplus amounts and RBC ratios may increase or decrease depending on a variety of factors, including the amount of statutory income or losses (which are sensitive to equity market and credit market conditions), the amount of additional capital we must hold to support business growth, changes in equity market levels, the value and credit ratings of certain fixed-income and equity securities in our investment portfolio, the value of certain derivative instruments that do not receive hedge accounting and changes in interest rates, as well as changes to the RBC formulas and the interpretation of the NAIC's instructions with respect to RBC calculation methodologies. Many of these factors are outside of our control. Our financial strength and credit ratings are significantly influenced by statutory surplus amounts and RBC ratios. In addition, rating agencies may implement changes to their own internal models, which differ from the RBC capital model that have the effect of increasing or decreasing the amount of statutory capital we should hold relative to the rating agencies' expectations. In extreme scenarios of equity market declines, sustained periods of low interest rates, rapidly rising interest rates or credit spread widening, the amount of additional statutory reserves that we are required to hold for certain types of ~~GICs~~funding agreements and variable annuity guarantees may increase at a greater than linear rate. This increase in reserves would decrease the statutory surplus available for use in calculating the subsidiary's RBC ratios. To the extent that our RBC ratios are deemed to be insufficient, we may seek to take actions either to increase our capitalization or to reduce our capitalization requirements. If we were unable to accomplish such actions, the rating agencies may view this as a reason for a ratings downgrade.

Our failure to meet RBC requirements or minimum capital and surplus requirements could subject us to further examination or corrective action imposed by insurance regulators, including limitations on our ability to write additional business, supervision by regulators or seizure or liquidation. Any corrective action imposed could have a material adverse effect on our business, results of operations and financial condition. A decline in RBC ratios limits our ability to make dividends or distributions to our Parent, could result in a loss of customers or new business, and could be a factor in causing ratings agencies to downgrade our financial strength ratings, each of which could have a material adverse effect on our business, results of operations and financial condition.

A significant portion of our institutional funding originates from a Federal Home Loan Bank, which subjects us to liquidity risks associated with sourcing a large concentration of our funding from one counterparty.

A significant portion of our institutional funding originates from the Federal Home Loan Bank of Des Moines ("FHLB"). We have issued non-putable funding agreements in exchange for eligible collateral in the form of cash, mortgage-backed securities and U.S. Treasury securities. Should the FHLB choose to change its definition of eligible collateral, or if the market value of the pledged collateral decreases in value due to changes in interest rates or credit ratings, we may be required to post additional amounts of collateral in the form of cash or other eligible collateral. Additionally, we may be required to find other sources to replace this funding if we lose access to FHLB funding. This could occur if our creditworthiness falls below either of the FHLB's requirements ~~or if legislative or other political actions cause changes to the FHLBs' mandate or to the eligibility of life insurance companies to be members of the FHLB system.~~



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or if legislative or other political actions cause changes to the FHLBs' mandate or to the eligibility of life insurance companies to be members of the FHLB system.

Any failure to protect the confidentiality of customer information could adversely affect our reputation and have a material adverse effect on our business, financial condition and results of operation.

Our businesses and relationships with customers are dependent upon our ability to maintain the confidentiality of our and our customers' trade secrets, personal information, and other confidential information (including customer transactional data and personal information about our customers, the employees and customers of our customers, and our own employees). We are also subject to numerous federal and state laws regarding the privacy and security of personal information, which laws vary significantly from jurisdiction to jurisdiction. Many of our employees and contractors and the representatives of our broker-dealer affiliates have access to and routinely process personal information in computerized, paper and other forms. We rely on various internal policies, procedures and controls to protect the confidentiality of personal information that is accessible to, or in the possession of, us, our employees, contractors and representatives. It is possible that an employee, contractor or representative could, intentionally or unintentionally, disclose or misappropriate personal information or other confidential information. If we fail to maintain adequate internal controls, including any failure to implement newly-required additional controls, or if our employees, contractors or representatives fail to comply with our policies and procedures, misappropriation or intentional or unintentional inappropriate disclosure or misuse of personal information or confidential customer information could occur. Such internal control inadequacies or non-compliance could materially damage our reputation, result in regulatory action or lead to civil or criminal penalties, which, in turn, could have a material adverse effect on our business, reputation, results of operations and financial condition. For additional risks related to our potential failure to protect confidential information, see “-Interruption or other operational failures in telecommunication, information technology, and other operational systems, including as a result of human error, could harm our business,” and "-A failure to maintain the security, integrity, confidentiality or privacy of our telecommunication, information technology or other operational systems, or the sensitive data residing on such systems, could harm our business.”

Interruption or other operational failures in telecommunication, information technology and other operational systems, including as a result of human error, could harm our business.

We are highly dependent on automated and information technology systems to record and process both our internal transactions and transactions involving our customers, as well as to calculate reserves, value invested assets and complete certain other components of our U.S. GAAP and statutory financial statements. We could experience a failure of one of these systems, our employees or agents could fail to monitor and implement enhancements or other modifications to a system in a timely and effective manner, or our employees or agents could fail to complete all necessary data reconciliation or other conversion controls when implementing a new software system or implementing modifications to an existing system. Despite the implementation of security and back-up measures, our information technology systems may remain vulnerable to disruptions. We may also be subject to disruptions of any of these systems arising from events that are wholly or partially beyond our control (for example, natural disasters, acts of terrorism, epidemics, computer viruses and electrical/telecommunications outages). All of these risks are also applicable where we rely on outside vendors to provide services to us and our customers and third party service providers, including those to whom we outsource certain of our functions. The failure of any one of these systems for any reason, or errors made by our employees or agents, could in each case cause significant interruptions to our operations, which could harm our reputation, adversely affect our internal control over financial reporting, or have a material adverse effect on our business, results of operations and financial condition.

~~Recently,~~Central ~~central~~ banks in Europe and Japan have in recent years begun to pursue negative interest rate policies, and the FOMC has not ruled out the possibility that the Federal Reserve would adopt a negative interest rate policy for the United States, at some point in the future, if circumstances so warranted. Because negative interest rates are largely unprecedented, there is uncertainty as to whether the technology used by financial institutions, including us, could operate correctly in such a scenario. Should negative interest rates emerge, our hardware or software, or the hardware or software used by our contractual counterparties and financial services providers, may not function as expected or at all. In such a case, our financial results and our operations could be adversely affected.

A failure to maintain the security, integrity, confidentiality or privacy of our telecommunication, information technology or

other operational systems, or the sensitive data residing on such systems, could harm our business.

We are highly dependent on automated telecommunications, information technology and other operational systems to record and process our internal transactions and transactions involving our customers. Despite the implementation of security and back-up measures, our information technology systems may be vulnerable to physical or electronic intrusions, viruses or other attacks, programming errors, and similar disruptions. Businesses in the United States and in other countries have increasingly become the targets of "cyberattacks", "hacking" or similar illegal or unauthorized intrusions into computer systems and networks. Such events are often highly publicized, result in the theft of significant amounts of information, and cause extensive damage to the reputation of the targeted business, in addition to leading to significant expenses associated with investigation, remediation and customer protection measures. Like others in our industry, we are subject to cyber incidents in the ordinary course of our business. Although



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programming errors, and similar disruptions. Businesses in the United States and in other countries have increasingly become the targets of "cyberattacks", "hacking" or similar illegal or unauthorized intrusions into computer systems and networks. Such events are often highly publicized, result in the theft of significant amounts of information, and cause extensive damage to the reputation of the targeted business, in addition to leading to significant expenses associated with investigation, remediation and customer protection measures. Like others in our industry, we are subject to cyber incidents in the ordinary course of our business. Although we seek to limit our vulnerability to such events through technological and other means, it is not possible to anticipate or prevent all potential forms of cyberattack or to guarantee our ability to fully defend against all such attacks. In addition, due to the sensitive nature of much of the financial and other personal information we maintain, we may be at particular risk for targeting.

We retain confidential information in our information technology systems, and we rely on industry standard commercial technologies to maintain the security of those systems. Anyone who is able to circumvent our security measures and penetrate our information technology systems could access, view, misappropriate, alter, or delete information in the systems, including personal information and proprietary business information. Information security risks also exist with respect to the use of portable electronic devices, such as laptops, which are particularly vulnerable to loss and theft. The laws of most states require that individuals be notified if a security breach compromises the security or confidentiality of their personal information. Any attack or other breach of the security of our information technology systems that compromises personal information or that otherwise results in unauthorized disclosure or use of personal information could damage our reputation in the marketplace, deter purchases of our products, subject us to heightened regulatory scrutiny, sanctions, significant civil and criminal liability or other adverse legal consequences and require us to incur significant technical, legal and other expenses.

Our third party service providers, including third parties to whom we outsource certain of our functions are also subject to the risks outlined above, any one of which could result in our incurring substantial costs and other negative consequences, including a material adverse effect on our business, results of operations and financial condition.

Changes in accounting standards could adversely impact our reported results of operations and our reported financial condition.

Our financial statements are subject to the application of U.S. GAAP, which is periodically revised or expanded. Accordingly, from time to time we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board ("FASB"). It is possible that future accounting standards we are required to adopt could change the current accounting treatment that we apply to our financial statements and that such changes could have a material adverse effect on our results of operations and financial condition.

FASB is working on several projects, which could result in significant changes in U.S. GAAP, including how we account for our life insurance contracts and financial instruments and how our financial statements are presented. The changes to U.S. GAAP could affect the way we account for and report significant areas of our business, could impose special demands on us in the areas of governance, employee training, internal controls and disclosure and will likely affect how we manage our business.

Under the tax sharing agreement, a change in control could affect availability of cash payments.

~~Effective~~Our ~~January 1, 2013, we entered into a~~ federal tax sharing agreement with Voya Financial, Inc. ~~which~~ provides that ~~for 2013 and subsequent years,~~ Voya Financial, Inc. will pay us for the tax benefits of ordinary and capital losses only in the event that the consolidated tax group actually uses the tax benefit of losses generated. Accordingly, in years we incur losses and the associated tax benefits cannot be used by the consolidated tax group we may establish tax valuation allowances, reduce statutory-based admitted assets and may no longer be entitled to receive net cash payments to/(from) Voya Financial, Inc. During the years ended December 31, ~~2015~~2016 and ~~2014~~2015, we have additional net cash payments to/(receipts) from Voya Financial, Inc. under the tax sharing agreement of $~~(93~~98.9)7 million and $44(93.39) million, respectively.

One such instance where the associated tax benefits may not be used by the consolidated tax group could occur if there is a change in control which would trigger the imposition of certain limitations pursuant to Section 382 and Section 383 of the U.S. Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). These sections operate as anti-abuse rules, the general purpose of which is to prevent trafficking in tax losses and credits, but which can apply without regard to whether a "loss trafficking" transaction occurs or is intended. These rules are triggered when an "ownership change" (generally defined as when the ownership of a company changes by more than 50% (measured by value) on a cumulative basis in any three year period) occurs ("Section 382 event").

During March 2014, ING Group divested a portion of its shareholding in Voya Financial, Inc., our indirect parent company, which caused Voya Financial, Inc. to experience a Section 382 event. Using an estimated Section 382 value of Voya Financial, Inc., our deferred tax asset, tax valuation allowance, admitted deferred tax asset and tax sharing agreement payments did not materially change as a result of the Section 382 event with respect to Voya Financial, Inc.

Although Voya Financial, Inc. entered into an Issue Resolution Agreement in this regard with the IRS in December, 2014, as with such an agreement, the matters addressed may be revisited by the IRS in connection with a tax audit or other examination or inquiry of Voya Financial, Inc.'s tax position. If the IRS were to revisit and successfully challenge the IRC Section 382 calculations of



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We may be required to reduce the carrying value of our deferred income tax asset or establish an additional valuation allowance against the deferred income tax asset if: (i) there are significant changes to federal tax policy or rates, (ii) our business does not generate sufficient taxable income; (iiiii) there is a significant decline in the fair market value of our investment portfolio; or (~~iii~~iv) our tax planning strategies are modified. ~~Increases~~Reductions in the carrying value of our deferred income tax asset or increases in the deferred tax valuation allowance could have a material adverse effect on our results of operations and financial condition.

Deferred income tax represents the tax effect of the differences between the book and tax basis of assets and liabilities. Deferred tax assets represent the tax benefit of future deductible temporary differences, operating loss carryforwards and tax credits carryforward. We periodically evaluate and test our ability to realize our deferred tax assets. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. In assessing the more likely than not criteria, we consider future taxable income as well as prudent tax planning strategies. Future facts, circumstances, tax law changes, including a reduction in federal corporate tax rates or the elimination of the dividends received deduction, and FASB developments may result in a reduction in the carrying value of our deferred income tax asset or an increase in the valuation allowance. An increase in the valuation allowance or a reduction in the carrying value of our deferred income tax asset could have a material adverse effect on our results of operations and financial condition.

As of December 31, ~~2015~~2016, we have recognized certain deferred tax assets based on tax planning related to unrealized gains on investment assets. To the extent these unrealized gains decrease, the tax benefit may be reduced by increasing the tax valuation allowance. For example, if interest rates increase, the amount of the unrealized gains will, most likely, decrease, with all other things constant. The decrease in the deferred tax asset may be recorded as a tax expense in tax on continuing operations based on the intra period tax allocation rules described in ASC Topic 740, "Income Taxes."

Our business may be negatively affected by adverse publicity or increased governmental and regulatory actions with respect to us, other well-known companies or the financial services industry in general.

Governmental scrutiny with respect to matters relating to compensation, compliance with regulatory and tax requirements and other business practices in the financial services industry has increased dramatically in the past several years and has resulted in more aggressive and intense regulatory supervision and the application and enforcement of more stringent standards. The financial crisis of 2008-09 and current political and public sentiment regarding financial institutions has resulted in a significant amount of adverse press coverage, as well as adverse statements or charges by regulators and elected officials. Press coverage and other public statements that assert some form of wrongdoing, regardless of the factual basis for the assertions being made, could result in some type of inquiry or investigation by regulators, legislators and/or law enforcement officials or in lawsuits. Responding to these inquiries, investigations and lawsuits, regardless of the ultimate outcome of the proceeding, is time-consuming and expensive and can divert the time and effort of our senior management from its business. Future legislation or regulation or governmental views on compensation may result in us altering compensation practices in ways that could adversely affect our ability to attract and retain talented employees. Adverse publicity, governmental scrutiny, pending or future investigations by regulators or law enforcement agencies and/or legal proceedings involving us or our affiliates could also have a negative impact on our reputation and on the morale and performance of employees, and on business retention and new sales, which could adversely affect our businesses and results of operations.

Litigation may adversely affect our profitability and financial condition.

We are, and may be in the future, subject to legal actions in the ordinary course of our business operations. Some of these legal proceedings may be brought on behalf of a class. Plaintiffs may seek large or indeterminate amounts of damage, including compensatory, liquidated, treble and/or punitive damages. Our reserves for litigation may prove to be inadequate. It is possible that our results of operations or cash flows in a particular quarterly or annual period could be materially affected by an ultimate unfavorable resolution of pending litigation depending, in part, upon the results of operations or cash flows for such period. Given the large or indeterminate amounts sometimes sought, and the inherent unpredictability of litigation, it is also possible that in certain cases an ultimate unfavorable resolution of one or more pending litigation matters could have a material adverse effect on our financial condition.

A loss of, or significant change in, key product distribution relationships could materially affect sales.



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~~stability~~A ~~and~~loss ~~financial strength ratings, and the marketing and services we provide to, and the strength~~ of ~~the relationships we maintain with~~, ~~individual distributors. An interruption~~ or significant change in, ~~certain~~ key ~~relationships~~product could materially affect our ability to market our products and could have a material adverse effect on our business, operating results and financial condition. Distributors may elect to alter, reduce or terminate their distribution relationships with us, including for such reasons as changes in our distribution strategy, adverse developments in our business, adverse rating agency actions or concerns about market-related risks. Alternatively, we may terminate one or more distribution agreements due to, for example, a loss of confidence in, or a change in control of, one of the distributors, which could ~~reduce~~materially affect sales.

We distribute certain products under agreements with affiliated distributors and other members of the financial services industry that are not affiliated with us. We compete with other financial institutions to attract and retain commercial relationships in each of these channels, and our success in competing for sales through these distribution intermediaries depends upon factors such as the amount of sales commissions and fees we pay, the breadth of our product offerings, the strength of our brand, our perceived stability and financial strength ratings, and the marketing and services we provide to, and the strength of the relationships we maintain with, individual distributors. An interruption or significant change in certain key relationships could materially affect our ability to market our products and could have a material adverse effect on our business, operating results and financial condition. Distributors may elect to alter, reduce or terminate their distribution relationships with us, including for such reasons as changes in our distribution strategy, adverse developments in our business, adverse rating agency actions or concerns about market-related risks. Alternatively, we may terminate one or more distribution agreements due to, for example, a loss of confidence in, or a change in control of, one of the distributors, which could reduce sales.

We are also at risk that key distribution partners may merge or change their business models in ways that affect how our products are sold, either in response to changing business priorities or as a result of shifts in regulatory supervision or potential changes in state and federal laws and regulations regarding standards of conduct applicable to distributors when providing investment advice to retail and other customers.

The occurrence of natural or man-made disasters may adversely affect our results of operations and financial condition.

We are exposed to various risks arising from natural disasters, including hurricanes, climate change, floods, earthquakes, tornadoes and pandemic disease, as well as man-made disasters and core infrastructure failures, including acts of terrorism, military actions, power grid and telephone/internet infrastructure failures, which may adversely affect AUM, results of operations and financial condition by causing, among other things:


•	losses in our investment portfolio due to significant volatility in global financial markets or the failure of counterparties to perform;


•	changes in the rate of mortality, claims, withdrawals, lapses and surrenders of existing policies and contracts, as well as sales of new policies and contracts; and


•	disruption of our normal business operations due to catastrophic property damage, loss of life, or disruption of public and private infrastructure, including communications and financial services.

There can be no assurance that our business continuation and crisis management plan or insurance coverages would be effective in mitigating any negative effects on operations or profitability in the event of a disaster, nor can we provide assurance that the business continuation and crisis management plans of the independent distributors and outside vendors on whom we rely for certain services and products would be effective in mitigating any negative effects on the provision of such services and products in the event of a disaster.

Claims resulting from a catastrophic event could also materially harm the financial condition of our reinsurers, which would increase the probability of default on reinsurance recoveries. Our ability to write new business could also be adversely affected.

In addition, the jurisdictions in which we are admitted to transact business require life insurers doing business within the jurisdiction to participate in guaranty associations, which raise funds to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers. It is possible that a catastrophic event could require extraordinary assessments on us, which may have a material adverse effect on our business, results of operations and financial condition.

The loss of key personnel could negatively affect our financial results and impair our ability to implement our business strategy.

Our success depends in large part on our ability to attract and retain key people. Intense competition exists for key employees with demonstrated ability, and we may be unable to hire or retain such employees. Our key employees include investment professionals, such as portfolio managers, sales and distribution professionals, actuarial and finance professionals and information technology professionals. While we do not believe that the departure of any particular individual would cause a material adverse effect on our operations, the unexpected loss of several of our senior management, portfolio managers or other key employees could have a material adverse effect on our operations due to the loss of their skills, knowledge of our business, and their years of industry experience as well as the potential difficulty of promptly finding qualified replacement employees. We also rely upon the knowledge and experience of employees involved in functions that require technical expertise in order to provide for sound operational controls for our overall enterprise, including the accurate and timely preparation of required regulatory filings and U.S. GAAP and statutory financial statements and operation of internal controls. A loss of such employees could adversely impact our ability to execute key operational functions and could adversely affect our operational controls, including internal controls over financial reporting.



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for our overall enterprise, including the accurate and timely preparation of required regulatory filings and U.S. GAAP and statutory financial statements and operation of internal controls. A loss of such employees could adversely impact our ability to execute key operational functions and could adversely affect our operational controls, including internal controls over financial reporting.

If we experience difficulties arising from outsourcing relationships, our ability to conduct business could be compromised, which may have an adverse effect on our business and results of operations.

As we continue to focus on reducing the expense necessary to support our operations, we have increasingly used outsourcing strategies for ~~certain~~a significant portion of our technology and business functions. If third-party providers experience disruptions or do not perform as anticipated, or we experience problems with a transition, we may experience operational difficulties, an inability to meet obligations, including, but not limited to, policyholder obligations, increased costs and a loss of business ~~that~~and such events may have a material adverse effect on our business and results of operations. For other risks associated with our outsourcing of certain functions, see “-Interruption or other operational failures in telecommunication, information technology and other operational systems, including as a result of human error, could harm our business,” and "-A failure to maintain the security, integrity, confidentiality or privacy of our telecommunication, information technology or other operational systems, or the sensitive data residing on such systems, could harm our business."

We may not be able to protect our intellectual property and may be subject to infringement claims.

We rely on a combination of contracts and copyright, trademark, patent and trade secret laws to protect our intellectual property. Although we endeavor to protect our rights, third parties may infringe upon or misappropriate our intellectual property. We may have to litigate to enforce and protect our copyrights, trademarks, patents and trade secrets or to determine their scope, validity or enforceability. This would represent a diversion of resources that may be significant and our efforts may not prove successful. The inability to secure or protect our intellectual property could have a material adverse effect on our business and our ability to compete.

We may also be subject to claims by third parties for (i) patent, trademark or copyright infringement, (ii) breach of contractual patent, trademark or copyright license rights, or (iii) misappropriation of trade secrets. Any such claims and any resulting litigation could result in significant expense and liability for damages. If we were found to have infringed or misappropriated a third-party patent or other intellectual property right, we could in some circumstances be enjoined from providing certain products or services to our customers or from utilizing and benefiting from certain methods, processes, technology copyrights, trademarks, trade secrets or licenses. Alternatively, we could be required to enter into costly licensing arrangements with third parties or implement a costly work around. Any of these scenarios could have a material adverse effect on our business and results of operations.

Risks Related to Our Closed Block of Variable Annuities

Although we no longer actively market retail variable annuities with substantial guarantee features, our business, results of operations, financial condition and liquidity will continue to be affected by our closed block of variable annuity products for the foreseeable future.

Our closed block of retail variable annuities were sold primarily from 2001 to early 2010 when the block entered run-off. These products offered long-term savings vehicles in which customers (policyholders) made deposits that were invested, largely at the customer's direction, in a variety of U.S. and international equity, fixed income, real estate and other investment options. In addition, these products provided customers with the option to purchase living benefit riders, including GMWBL, GMIB, GMAB and GMWB. All retail variable annuity products include ("GMDB"). In 2009, we decided to cease sales of retail variable annuity products with substantial guarantee features. In early 2010, we ceased all new sales of these products with substantial guarantees, although we continue to accept new deposits in accordance with, and subject to the limitations of, the provisions of existing contracts. In some cases, these additional deposits may increase the guarantee available to the policyholder.

Market movements and actuarial assumption changes (including, with respect to policyholder behavior and mortality) can result in material adverse impacts to our results of operations, financial condition and liquidity. Because policyholders have various contractual rights to defer withdrawals, annuitization and/or maturity of their contracts, the nature and period of contract maturity is subject to policyholder behavior and is therefore indeterminate. Future market movements and changes in actuarial assumptions can result in significant earnings and liquidity impacts, as well as increases in regulatory reserve and capital requirements for this closed block.

Our closed block of variable annuities is subject to market risks.

Our closed block of variable annuities is subject to a number of market risks, primarily associated with U.S. and other global equity market values and interest rates. For example, declining equity market values, increasing equity market volatility, declining interest rates or a prolonged period of low interest rates can result in an increase in the valuation of future policy benefits, reducing our net income. Declining market values for bonds and equities also reduce the account balances of our variable annuity contracts, and since we collect fees and risk charges based on these account balances, our net income may be further reduced.



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Our closed block of variable annuities is subject to market risks.

Our closed block of variable annuities is subject to a number of market risks, primarily associated with U.S. and other global equity market values and interest rates. For example, declining equity market values, increasing equity market volatility, declining interest rates or a prolonged period of low interest rates can result in an increase in the valuation of future policy benefits, reducing our net income or resulting in net losses. Declining market values for bonds and equities also reduce the account balances of our variable annuity contracts, and since we collect fees and risk charges based on these account balances, our net income may be further reduced.

Declining interest rates, a prolonged period of low interest rates, increased equity market volatility or declining equity market values may also subject us to increased hedging costs. Market events can cause an increase in the amount of statutory reserves that we are required to hold for variable annuity guarantees, lowering our statutory surplus. An increase in interest rates could result in decreased fee income associated with a decline in the value of variable annuity account balances invested in fixed income funds, which also might affect the value of the underlying guarantees within these variable annuities.

We hedge some, but not all, of the market risk to which our closed block of variable annuities is exposed. To the extent that market conditions develop for which we do not have adequate hedge protection, our results of operations and financial condition could be materially and adversely affected.

The performance of our closed block of variable annuity products depends on assumptions that may not be accurate.

Our in-force closed block of variable annuity products is subject to risks associated with the future behavior of policyholders and future claims payment patterns, using assumptions for mortality experience, lapse rates, GMIB annuitization rates and GMWBL withdrawal rates. We are required to make assumptions about these behaviors and patterns, which may not reflect the actual behaviors and patterns we experience in the future. It is possible that future assumption changes could produce reserve changes that could be material, before considering the impact of reinsurance with ~~SLDI~~RRII.

In particular, we have only minimal experience regarding the long-term implications of policyholder behavior for our GMIB products and as a result, future experience could lead to significant changes in our assumptions. Our GMIB contracts, most of which were issued during the period from 2004 to 2006, have a ten-year waiting period before annuitization is available. These contracts first ~~become~~became eligible to annuitize during the period from 2014 through 2016, but contain significant incentives to delay annuitization beyond the first eligibility date. In ~~addition,~~recent ~~during 2014 and 2015~~years, we have made ~~two~~several income enhancement offers to holders of particular series of GMIB contracts, under which policyholders were offered an incentive to annuitize prior to the end of the waiting period, and we have waived the remaining waiting period on these GMIB contracts. As a result, although we have increased experience on policyholder behavior for the first opportunity to annuitize, including from the acceptance rates of the income enhancement offers, we continue to have only a statistically small sample of experience used to set annuitization rates beyond the ~~first~~maximum ~~eligibility~~rollup ~~date~~period. Therefore, we anticipate that observable experience data will become statistically credible later in this decade, when a large volume of GMIB benefits begin to reach their maximum ~~benefit~~rollup period over the ~~four-year~~ period from 2019 to 2022.

Similarly, most of our GMWBL contracts ~~are~~were ~~still~~issued induring the ~~first~~period ~~seven~~from 2006 to ~~nine policy years~~2009, so our assumptions for withdrawal from contracts with GMWBL benefits may change as experience emerges. In addition, many of our GMWBL contracts contain significant incentives to delay withdrawal with the GMWBL benefits reaching their maximum rollup over the period from 2016 to 2019. Our experience for GMWBL contracts has recently become more credible, however it is possible that policyholders may choose to withdraw sooner or later than our current best estimate assumes. We expect customer decisions on withdrawal will be influenced by their financial plans and needs as well as by ~~interest rate and~~ market conditions over time and by the availability and features of competing products.

We also make estimates of expected lapse rates, which represent the probability that a policy will not remain in force from one period to the next, for our in-force closed block of variable annuity products. Lapse rates of our variable annuity contracts may be significantly impacted by the value of guaranteed minimum benefits relative to the value of the underlying separate accounts (account value or account balance). In general, policies with guarantees that are “in the money” are assumed to be less likely to lapse. Conversely, “out of the money” guarantees are assumed to be more likely to lapse as the policyholder has less incentive to retain the policy. Lapse rates could also be adversely affected generally by developments that affect customer perception of us.

Our variable annuity lapse rate experience has varied significantly over the period from 2006 to the present, reflecting among other factors, both pre-and post-financial crisis experience. Relative to our current expectations, actual lapse rates have generally demonstrated a declining trend over the period from 2006 to the present. We analyze actual experience over that entire period, as we believe that over the duration of the variable annuity policies we may experience the full range of policyholder behavior and market conditions. However, management’s current best estimate of variable annuity policyholder lapse behavior is weighted more heavily toward more recent experience, as the last three years of data have shown a more consistent trend of lapse behavior.



	36

market conditions. However, management’s current best estimate of variable annuity policyholder lapse behavior is weighted more heavily toward more recent experience, as the last three years of data have shown a more consistent trend of lapse behavior.

Actual lapse rates that are lower than our lapse rate assumptions could have an adverse effect on profitability in the later years of a block of business because the anticipated claims experience may be higher than expected in these later years, and, as discussed above, future reserve increases in connection with experience updates could be material and adverse to the results of operations or financial condition of the Company.

We make estimates regarding mortality, which refers to the ceasing of life contingent benefit payments due to the death of the annuitant. Mortality also refers to the incidence of death amongst policyholders triggering the payment of Guaranteed Minimum Death Benefits. We use a combination of actual and industry experience when setting our mortality assumptions.

36We review overall policyholder experience at least annually (including lapse, annuitization, withdrawal and mortality), and update these assumptions when deemed necessary based on additional information that becomes available. As customer experience continues to materialize, we may adjust our assumptions. The magnitude of any required changes could be material and adverse to the results of operations or financial condition of the Company if RRII, the reinsurer of our guaranteed living benefits, fails to meet its obligations under the reinsurance contract.

WeOur ~~review~~variable ~~overall~~annuity ~~policyholder~~hedge ~~experience~~program atmay ~~least~~not ~~annually~~be ~~(including~~effective ~~lapse, annuitization, withdrawal~~ and ~~mortality), and update these assumptions when deemed necessary based on additional information that becomes available. As customer experience continues to materialize, we~~ may ~~adjust our assumptions. The magnitude of any required changes could~~ be ~~material~~more ~~and~~costly ~~adverse~~than ~~to the results of operations or financial condition of the Company if SLDI, the reinsurer of our guaranteed living benefits, fails to meet its obligations under the reinsurance contract~~anticipated.

~~Our~~We ~~Variable~~periodically ~~Annuity~~re-evaluate ~~Hedge~~our ~~Program~~variable annuity hedge program to respond to changing market conditions and balance the trade-offs among several important factors, including regulatory reserves, rating agency capital, underlying economics, earnings and other factors. While our variable annuity hedge program is intended to balance numerous critical metrics, we are subject to the risk that our strategies and other management decisions may ~~not~~prove ineffective or that unexpected policyholder experience, alone or in combination with unfavorable market events, may produce losses or unanticipated cash needs beyond the scope of the risk management strategies employed. The variable annuity hedge program assumes that hedge positions can be ~~effective~~rebalanced during a market shock and that the performance of the derivative contracts reasonably matches the performance of the contract owners’ variable fund returns. In addition, our variable annuity hedge program does not hedge certain non-market risks inherent in this segment, including business, credit, insurance and operational risks; any of these risks could cause us to experience unanticipated losses or cash needs. For example, hedging counterparties may befail ~~more~~to ~~costly~~perform their obligations resulting in unhedged exposures and losses on positions that are not collateralized. Finally, the cost of the variable annuity hedge program itself may be greater than anticipated as adverse market conditions can limit the availability and increase the costs of the hedging instruments we employ, and such costs may not be recovered in the pricing of the underlying products being hedged. For example, the cost of hedging guaranteed minimum benefits increases as market volatilities increase and/or interest rates decrease, resulting in a reduction to net income.

We periodically re-evaluate our Variable Annuity Hedge Program to respond to changing market conditions and balance the trade-offs among several important factors, including regulatory reserves, rating agency capital, underlying economics, earnings and other factors. While our Variable Annuity Hedge Program is intended to balance numerous critical metrics, we are subject to the risk that our strategies and other management decisions may prove ineffective or that unexpected policyholder experience, alone or in combination with unfavorable market events, may produce losses or unanticipated cash needs beyond the scope of the risk management strategies employed. The Variable Annuity Hedge Program assumes that hedge positions can be rebalanced during a market shock and that the performance of the derivative contracts reasonably matches the performance of the contract owners’ variable fund returns. In addition, our Variable Annuity Hedge Program does not hedge certain non-market risks inherent in this segment, including business, credit, insurance and operational risks; any of these risks could cause us to experience unanticipated losses or cash needs. For example, hedging counterparties may fail to perform their obligations resulting in unhedged exposures and losses on positions that are not collateralized. Finally, the cost of the Variable Annuity Hedge Program itself may be greater than anticipated as adverse market conditions can limit the availability and increase the costs of the hedging instruments we employ, and such costs may not be recovered in the pricing of the underlying products being hedged. For example, the cost of hedging guaranteed minimum benefits increases as market volatilities increase and/or interest rates decrease, resulting in a reduction to net income.

Risks Related to Regulation

Our businesses and those of our affiliates are heavily regulated and changes in regulation or the application of regulation may reduce our profitability.

We are subject to detailed insurance, securities and other financial services laws and government regulation. In addition to the insurance, securities and other regulations and laws specific to the industries in which we operate, regulatory agencies have broad administrative power over many aspects of our business, which may include ethical issues, money laundering, privacy, recordkeeping and marketing and sales practices. Also, bank regulators and other supervisory authorities in the United States and elsewhere continue to scrutinize payment processing and other transactions under regulations governing such matters as money-laundering, prohibited transactions with countries subject to sanctions, and bribery or other anti-corruption measures. ~~The financial market dislocations we have experienced have produced, and are expected to continue to produce, extensive changes in existing laws and regulations applicable to our businesses.~~

Compliance with applicable laws and regulations is time consuming and personnel-intensive, and changes in laws and regulations may materially increase the cost of compliance and other expenses of doing business. There are a number of risks that may arise where applicable regulations may be unclear, subject to multiple interpretations or under development or where regulations may conflict with one another, where regulators revise their previous guidance or courts overturn previous rulings, which could result in our failure to meet applicable standards. Regulators and other authorities have the power to bring administrative or judicial proceedings against us, which could result, among other things, in suspension or revocation of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action which could materially harm our results of operations and financial condition. If we fail to address, or appear to fail to address, appropriately any of these matters, our reputation could be harmed and we could be subject to additional legal risk, which could increase the size and number of claims and damages asserted ~~against us or subject us to enforcement actions, fines and penalties. See "Item 1. Business - Regulation" for further discussion on the impact of regulations on our businesses.~~



	37

against us or subject us to enforcement actions, fines and penalties. See "Item 1. Business - Regulation" for further discussion on the impact of regulations on our businesses.

Our businesses are heavily regulated, and changes in regulation in the United States, enforcement actions and regulatory investigations may reduce profitability.

Our operations are subject to comprehensive regulation and supervision throughout the United States. State insurance laws regulate most aspects of our insurance business and we are regulated by the insurance department of our state of domicile, Iowa. The primary purpose of state regulation is to protect policyholders, and not necessarily to protect creditors and investors. See "Item 1. Business - Regulation-Insurance Regulation".

State insurance guaranty associations have the right to assess insurance companies doing business in their state in order to help pay the obligations of insolvent insurance companies to policyholders and claimants. Because the amount and timing of an assessment is beyond our control, liabilities we have currently established for these potential assessments may not be adequate.

State insurance regulators, the NAIC and other regulatory bodies regularly reexamine existing laws and regulations applicable to insurance companies and their products and their affiliated transactions. Changes in these laws and regulations, or in interpretations thereof, are often made for the benefit of the consumer at the expense of the insurer and could materially and adversely affect our business, results of operations or financial condition. We currently use our affiliated Arizona ~~domiciled~~ captive, ~~reinsurance~~RRII ~~company~~ to reinsure certain of our variable annuities. Uncertainties associated with continued use of our affiliated ~~captive~~Arizona ~~reinsurance~~ captive company are primarily related to potential regulatory changes. In June 2014, the NAIC adopted a new regulatory framework for captives assuming business governed by Regulators XXX or AXXX, called the "Rector framework". In December 2014, the NAIC adopted Actuarial Guideline 48 (“AG48”) which established a new regulatory requirement applicable to XXX and AG38 reserves ceded to reinsurers, including affiliated reinsurers, as the first step in implementing the Rector framework. As adopted, AG48 limits the type of assets that may be used as collateral to cover the XXX and AG38 statutory reserves and is applied prospectively to existing reinsurance transactions that reinsure policies issued on or after January 1, 2015 and new reinsurance transactions entered into on or after January 1, 2015. The ~~NAIC~~purpose ~~has~~of AG48 was to implement the substantive requirements of the Rector Framework, effective January 1, 2015, pending development and adoption by the states of the new XXX/AXXX Regulation. The NAIC charged multiple working groups with the responsibility to prepare ~~regulations~~the ~~that~~XXX/AXXX ~~would~~Regulation ~~codify~~and in December 2016, the ~~Rector~~NAIC ~~framework~~adopted the XXX/AXXX Regulation and ~~that~~amended ~~work~~AG48 ~~continues~~to atalign its provisions with the ~~NAIC.~~XXX/AXXX Regulation. In 2014, the NAIC also considered a proposal to require states to apply NAIC accreditation standards, applicable to traditional insurers, to captive reinsurers. In 2015, the NAIC adopted such a proposal, in the form of a revised preamble to the NAIC accreditation standards (the “Standard”), with an effective date of January 1, 2016 for application of the Standard to captives that assume XXX or AXXX business. Under the Standard, a state will be deemed in compliance as it relates to XXX or AXXX captives if the applicable reinsurance transaction satisfies ~~AG 48~~AG48. In addition, the Standard applies prospectively, so that XXX or AXXX captives will not be subject to the Standard if reinsured policies were issued prior to January 1, 2015 and ceded so that they were part of a reinsurance arrangement as of December 31, 2014. The NAIC left for future action application of the Standard to captives that assume variable annuity business. As drafted, it appears that the Standard would apply to our ~~affiliate,~~affiliated ~~Security Life of Denver International Limited, an~~ Arizona ~~captive~~captives.

During 2015, The NAIC Financial Conditions (E) Committee (the “E Committee”) established the Variable Annuities Issues (E) Working Group (“VAIWG”) to oversee the NAIC’s efforts to study and address, as appropriate, regulatory issues resulting in variable annuity captive reinsurance transactions. The VAIWG retained Oliver Wyman to study the industry’s use of variable annuity captive reinsurance and to develop a set of recommended changes to address the issues involving variable annuity captives. In September 2015, Oliver Wyman issued an initial report, which was adopted by the VAIWG, outlining its preliminary findings and making recommendations for enhancement to the variable annuity statutory framework. In November 2015, upon recommendation of the VAIWG, the E Committee adopted a Variable Annuities Framework for Change (the “VA Framework for Change”) which recommends charges for NAIC working groups to adjust the variable annuity statutory framework applicable to all insurers that have written or are writing variable annuity business. The VA Framework for Change contemplates a holistic set of reforms that would improve the current reserve and capital framework and address root cause issues that result in the use of captive arrangements but would not mandate recapture by insurers of VA cessions to captives. ~~Although~~In November 2015, VAIWG engaged Oliver Wyman ("OW") to conduct a quantitative impact study involving industry participants including the Company, of various reforms outlined in the VA Framework for Change ~~recommends~~(the an“QIS”). ~~effective~~OW ~~date~~completed the QIS in July of ~~January~~2016 1,and ~~2017,~~reported ~~the~~its ~~timing~~initial offindings ~~these~~to ~~proposals~~the ~~remains~~VAIWG ~~uncertain~~in late August. InThe ~~November~~OW ~~2015,~~report proposed certain revisions to the ~~NAIC~~current ~~also~~VA ~~approved~~reserve ~~funding~~and ~~for~~capital framework and recommended a second quantitative impact study, to be conducted byso ~~Oliver~~that ~~Wyman~~testing can inform the proper calibration for certain conceptual and/or preliminary parameters set out in the OW proposal. Following a fourth quarter 2016 public comment period and several meetings on the OW proposal, the VAIWG determined that a second quantitative impact study (the "QIS2") involving industry participants including us, ofwill ~~various~~be ~~reforms~~conducted ~~outlined~~by OW. The QIS2 began in February 2017 and is expected to be completed by September 2017, with NAIC deliberations on QIS2 results during the VAfourth ~~Framework~~quarter of 2017. Although the QIS2 timetable indicates the VAIWG expects to complete its work in 2017, timing for ~~Change~~implementation (of changes to the ~~“QIS~~current ~~Study”)~~VA reserve and capital framework remains uncertain.

We cannot predict what revisions, if any, would be made to the Rector framework or the Standard for application to captives that assume XXX or AXXX business, as multiple NAIC working groups undertake their implementation, to the VA Framework for Change proposal as a result of the QIS Study and ongoing NAIC deliberations, or to the Standard, if adopted for variable annuity captives. It is also unclear whether these or other proposals will be adopted by the NAIC, or what additional actions and regulatory changes will result from the continued captives scrutiny and reform efforts by the NAIC and other regulatory bodies. Any regulatory action that limits our ability to achieve desired benefits from the use of or materially increases our cost of using captive reinsurance companies, either retroactively or prospectively, including, if adopted as proposed, without grandfathering provisions for existing captive variable annuity reinsurance entities, the Standard, could have a material adverse effect on our financial condition or results of operations.

Insurance regulators have implemented, or begun to implement significant changes in the way in which insurers must determine statutory reserves and capital, particularly for products with contractual guarantees such as variable annuities and universal life policies, and are considering further potentially significant changes in these requirements.

In addition, state insurance regulators are becoming more active in adopting and enforcing suitability standards with respect to sales of fixed and indexed annuities. In particular, the NAIC has adopted a revised SAT, which will, if enacted by the states, place



	38

~~new~~We ~~responsibilities~~cannot ~~upon~~predict ~~issuing~~what ~~insurance~~revisions, ~~companies~~if ~~with~~any, ~~respect~~would be made to the ~~suitability~~XXX/AXXX Regulation or the Standard for application to captives that assume XXX or AXXX business, as states consider their adoption or undertake their implementation, to the VA Framework for Change proposal as a result of QIS2 and ongoing NAIC deliberations, or to the Standard, if adopted for variable annuity ~~sales~~captives. It is also unclear whether these or other proposals will be adopted by the NAIC, or what additional actions and regulatory changes will result from the continued captives scrutiny and reform efforts by the NAIC and other regulatory bodies. Any regulatory action that limits our ability to achieve desired benefits from the use of or materially increases our cost of using captive reinsurance companies, either retroactively or prospectively, including, ~~responsibilities~~if adopted as proposed, without grandfathering provisions for ~~training~~existing ~~agents.~~captive ~~Several~~variable ~~states~~annuity reinsurance entities, the Standard, could have ~~already~~a ~~enacted~~material ~~laws~~adverse ~~based~~effect on ~~the~~our ~~SAT~~financial condition or results of operations.

In addition, state insurance regulators have become more active in adopting and enforcing suitability standards with respect to sales of fixed and indexed annuities. In particular, the NAIC has adopted a revised SAT, which will, if enacted by the states, place new responsibilities upon issuing insurance companies with respect to the suitability of annuity sales, including responsibilities for training agents. Many states have already taken action to adopt provisions based on the SAT.

In addition to the foregoing risks, the financial services industry is the focus of increased regulatory scrutiny as various state and federal governmental agencies and self-regulatory organizations conduct inquiries and investigations into the products and practices of the financial services industries. For a description of certain regulatory inquiries affecting the Company, see the Litigation and Regulatory Matters section of the Commitments and Contingencies Note in our Financial Statements in Part II, Item 8. in this Annual Report on Form 10-K. It is possible that future regulatory inquiries or investigations involving the insurance industry generally, or the Company specifically, could materially and adversely affect our business, results of operations or financial condition.

In some cases, this regulatory scrutiny has led to legislation and regulation, or proposed legislation and regulation that could significantly affect the financial services industry, or has resulted in regulatory penalties, settlements and litigation. New laws, regulations and other regulatory actions aimed at the business practices under scrutiny could materially and adversely affect our business, results of operations or financial condition. The adoption of new laws and regulations, enforcement actions, or litigation, whether or not involving us, could influence the manner in which we distribute our products, result in negative coverage of the industry by the media, cause significant harm to our reputation and materially and adversely affect our business, results of operations or financial condition.

Our products are subject to extensive regulation and failure to meet any of the complex product requirements may reduce profitability.

Our annuity, retirement and investment products are subject to a complex and extensive array of state and federal tax, securities, insurance and employee benefit plan laws and regulations, which are administered and enforced by a number of different governmental and self-regulatory authorities, including state insurance regulators, state securities administrators, state banking authorities, the SEC, the Financial Industry Regulatory Authority ("FINRA"), the DOL, and the IRS.

For example, U.S. federal income tax law imposes requirements relating to insurance and annuity product design, administration and investments that are conditions for beneficial tax treatment of such products under the Internal Revenue Code. Additionally, state and federal securities and insurance laws impose requirements relating to insurance and annuity product design, offering and distribution and administration. Failure to administer product features in accordance with contract provisions or applicable law, or to meet any of these complex tax, securities, or insurance requirements could subject us to administrative penalties imposed by a particular governmental or self-regulatory authority, unanticipated costs associated with remedying such failure or other claims, harm to our reputation, interruption of our operations or adversely impact profitability.

The Dodd-Frank Act, its implementing regulations and other financial regulatory reform initiatives could have adverse consequences for the financial services industry, including us and/or materially affect our results of operations, financial condition or liquidity.

On July 21, 2010, the Dodd-Frank Act was signed into law. It effects comprehensive changes to the regulation of financial services in the United States. The Dodd-Frank Act directs existing and newly-created government agencies and bodies to perform studies and promulgate a multitude of regulations implementing the law, a process that ishas ~~underway~~substantially ~~and~~advanced isbut ~~expected to continue over the next few years. While some studies have already been completed and the rule-making process~~ is ~~well underway, there continues to be significant uncertainty regarding the results of ongoing studies and the ultimate requirements of regulations that have~~ not yet ~~been adopted~~complete. We cannot predict with certainty how the Dodd-Frank Act and such regulations will affect the financial markets generally, or impact our business, ratings, results of operations, financial condition or liquidity. The Dodd-Frank Act's potential effects could include:

• If designated by the FSOC as a nonbank financial company subject to supervision by the Federal Reserve, we would become subject to a comprehensive system of prudential regulation, including, among other matters, minimum capital requirements, liquidity standards, credit exposure requirements, overall risk management requirements, management interlock prohibitions, a requirement to maintain a plan for rapid and orderly dissolution in the event of severe financial distress, stress testing, additional fees and assessments and restrictions on proprietary trading and certain investments. The exact scope and consequences of these standards are subject to ongoing rulemaking activity by various federal banking regulators and therefore are currently unclear. However, this comprehensive system of prudential regulation, if applied to us, would significantly impact the manner in which we operate and could materially and adversely impact the profitability of one or more of our business lines or the level of capital required to support our activities. In designating non-bank



	39

~~financial~~While ~~companies~~some ~~for~~studies ~~heightened~~have ~~prudential~~already ~~regulation~~been bycompleted and the ~~Federal~~rule-making ~~Reserve~~process is well underway, there continues to be uncertainty regarding the ~~FSOC~~results ~~considers,~~of ~~among~~ongoing ~~other~~studies ~~matters,~~and ~~their~~the ~~scope~~ultimate requirements of regulations that have not yet been adopted. Although the new presidential administration has indicated a desire to revise or reverse some of its provisions, ~~size~~the fate of these proposals is unclear, and ~~potential~~we ~~impact~~cannot ofpredict ~~their~~with ~~activities~~certainty onhow the Dodd-Frank Act will continue to affect the financial ~~stability~~markets generally, or impact our business, ratings, results of ~~the~~operations, ~~United~~financial ~~States~~condition or liquidity. The Dodd-Frank Act's potential effects could include:

• ~~Title~~If ~~VII~~designated ofby the ~~Dodd-Frank~~FSOC ~~Act~~as ~~creates~~a nonbank financial company subject to supervision by the Federal Reserve, we would become subject to a ~~new~~comprehensive ~~framework~~system ~~for~~of prudential regulation, ofincluding, ~~the~~among ~~over-~~other matters, minimum capital requirements, liquidity standards, credit exposure requirements, overall risk management requirements, management interlock prohibitions, a requirement to maintain a plan for rapid and orderly dissolution in the~~-counter~~ ~~("OTC")~~event ~~derivatives~~of ~~markets.~~severe ~~New~~financial ~~margin~~distress, stress testing, additional fees and ~~capital~~assessments ~~requirements~~and restrictions on ~~market~~proprietary ~~participants~~trading ~~could~~and ~~substantially~~certain ~~increase~~investments. ~~the~~The ~~cost~~exact scope and consequences of ~~hedging~~these standards are subject to ongoing rulemaking activity by various federal banking regulators and ~~related~~therefore ~~operations~~are currently unclear. However, ~~affect~~this comprehensive system of prudential regulation, if applied to us, would significantly impact the manner in which we operate and could materially and adversely impact the profitability of one or more of our ~~products~~business lines or ~~their~~the ~~attractiveness~~level of capital required to support our ~~customers,~~activities. orIn ~~cause~~designating usnon-bank tofinancial ~~alter~~companies ~~our~~for ~~hedging~~heightened ~~strategy~~prudential orregulation ~~change~~by the ~~composition~~Federal Reserve, the FSOC considers, among other matters, their scope, size and potential impact of their activities on the ~~risks~~financial westability doof ~~not~~the ~~hedge~~United States.

• ~~The~~Title VII of the Dodd-Frank Act ~~established~~creates ~~the~~a ~~FIO~~new ~~within~~framework ~~the~~for ~~Treasury~~regulation ~~Department.~~of ~~While~~the ~~not~~over-the-counter ~~having~~("OTC") aderivatives ~~general~~markets. ~~supervisory~~As ora ~~regulatory~~result ~~authority over the business~~ of ~~insurance,~~ the ~~director~~adoption of ~~this~~final ~~office~~rules ~~performs~~by ~~various~~federal ~~functions~~banking ~~with~~regulators ~~respect~~and tothe ~~insurance,~~CFTC ~~including participating~~ in ~~the~~2015 ~~FSOC's~~establishing ~~decisions~~margin ~~regarding~~requirements ~~insurers to be designated~~ for ~~stricter~~non-centrally ~~regulation~~cleared byderivatives, the ~~Federal~~amount ~~Reserve.~~of ~~The~~collateral ~~Dodd-Frank~~we ~~Act~~may ~~also~~be required ~~the~~to ~~director~~pledge ofin ~~FIO~~support toof ~~conduct~~such atransactions ~~study~~may onincrease ~~how~~under tocertain ~~modernize~~circumstances and ~~improve~~will ~~the~~increase ~~system~~as ofa ~~insurance~~result ~~regulation~~of in the ~~United~~requirement ~~States.~~to ~~The~~pledge ~~director~~initial ~~issued~~margin ~~that~~on ~~report~~non-centrally incleared ~~December~~derivatives ~~2013,~~commencing ~~recommending~~in ~~increased~~2020. ~~federal~~Notwithstanding ~~involvement~~the inbroad ~~certain~~categories ~~areas~~ of ~~insurance~~non-cash ~~regulation~~collateral topermitted ~~improve~~under ~~uniformity~~the rules, ~~and~~higher ~~setting~~capital ~~out~~charges ~~recommendations~~on ~~in areas of near~~non-~~term~~cash ~~reform~~collateral ~~for~~applicable ~~the~~to ~~states,~~our ~~including~~bank ~~prudential~~counterparties ~~and~~may ~~marketplace~~significantly ~~oversight.~~increase ~~The~~pricing ~~report~~of ~~also~~derivatives ~~recommended~~and ~~that~~restrict ~~states~~or ~~develop~~eliminate acertain ~~uniform~~types ~~and~~of ~~transparent~~eligible ~~solvency~~collateral ~~oversight~~that ~~regime~~we ~~for~~have ~~the~~available ~~transfer of risk~~ to ~~reinsurance captives~~pledge, ~~and~~which ~~adopt~~could asignificantly ~~uniform~~increase ~~capital~~our ~~requirement~~hedging ~~for reinsurance captives~~costs, ~~including~~adversely aaffect ~~prohibition~~the onliquidity ~~transactions~~and ~~that~~yield doof ~~not~~our ~~constitute~~investments, ~~legitimate~~affect ~~risk~~the ~~transfer.~~profitability ~~FIO~~of ~~has~~our anproducts ~~ongoing~~or ~~charge~~their attractiveness to ~~monitor~~our ~~all~~customers, ~~aspects~~or ofcause ~~the~~us ~~insurance~~to ~~industry~~alter ~~and~~our ~~will~~hedging ~~monitor~~strategy ~~state~~or ~~regulatory~~change ~~developments,~~the ~~including~~composition ~~those~~of ~~called~~the ~~for~~risks inwe ~~its~~do ~~report~~not ~~and present options for federal involvement if deemed necessary~~hedge.

•

The Dodd-Frank Act establishes the FIO within the Treasury Department. While not having a general supervisory or regulatory authority over the business of insurance, the director of this office performs various functions with respect to insurance, including participating in the FSOC's decisions regarding insurers to be designated for stricter regulation by the Federal Reserve. The Dodd-Frank Act also required the director of FIO to conduct a study on how to modernize and improve the system of insurance regulation in the United States and that report was issued in December 2013. FIO has an ongoing charge to monitor all aspects of the insurance industry and state regulatory developments, including those called for in its report and present options for federal involvement if deemed necessary.

The Dodd-Frank Act also includes various securities law reforms that may affect our business practices. See “Changes in U.S. federal and state securities laws and regulations may affect our operations and our profitability” below.

Although the full impact of the Dodd-Frank Act cannot be determined until the various studies mandated by the law are conducted and implementing regulations are adopted, many of the legislation's requirements could have profound and/or adverse consequences for the financial services industry, including for us. The Dodd-Frank Act could make it more expensive for us to conduct business, require us to make changes to our business model or satisfy increased capital requirements, subject us to greater regulatory scrutiny or to potential increases in whistleblower claims in light of the increased awards available to whistleblowers under the Act and have a material adverse effect on our results of operations or financial condition. Additionally, there is substantial uncertainty as to whether aspects of the Dodd-Frank Act or regulatory bodies established thereunder will be impacted by regulatory or legislative changes made by the Trump administration or Congress.

See "Item 1. Business - Regulation" for further discussion of the impact of the Dodd-Frank Act on our businesses.

Changes in U.S. federal and state securities laws and regulations may affect our operations and our profitability.

U.S. federal and state securities laws apply to sales of our variable annuity products (which are considered to be both insurance products and securities). In addition, certain fixed and indexed annuities we may offer may be registered as securities under the Securities Act. As a result, these products are subject to regulation by the SEC and FINRA. Our variable annuity products are issued through separate accounts and the separate accounts are registered as investment companies under the Investment Company Act. Distribution of our annuity products registered as securities is affected by laws and regulations applicable to broker-dealers.

Securities laws and regulations are primarily intended to ensure the integrity of the financial markets and to protect investors in the securities markets or investment advisory or brokerage clients. These laws and regulations generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the conduct of business for failure to comply with those laws and regulations. A number of changes have recently been proposed to the laws and regulations that govern the conduct of our registered insurance products business and our distributors that could have a material adverse effect on our results of operations and financial condition. For example, the Dodd-Frank Act authorizes the SEC to establish a standard of conduct applicable to brokers and dealers when providing personalized investment advice to retail customers. This standard of conduct would be to act in the best interest of the customer without regard to the financial or other interest of the broker or dealer providing the advice. The SEC has not yet decided whether to propose rules creating a uniform standard of conduct applicable to broker-dealers and investment advisers. Further, proposals have been made that the SEC establish a self-regulatory organization with respect to registered investment advisers, which could increase the level of regulatory oversight over them. Changes to these laws or regulations that restrict the conduct of our business could have an adverse effect on our results of operations and financial condition.



	40

issued through separate accounts and the separate accounts are registered as investment companies under the Investment Company Act. Distribution of our annuity products registered as securities is affected by laws and regulations applicable to broker-dealers.

Changes to federal regulations could adversely affect our distribution model by restricting our ability to provide customers with advice.

~~The~~In ~~prohibited~~April ~~transaction~~2016, ~~rules~~the Department of Labor ("DOL") issued a final rule that will broaden the definition of "fiduciary" for purposes of Employment Retirement Income Security Act ("ERISA") and the Internal Revenue Code, ~~generally~~as ~~restrict~~it applies to a person or entity providing investment advice with respect to ~~purchasers~~ERISA ofplans ~~individual~~or ~~retirement~~IRAs. ~~accounts~~The ~~and~~rule ~~individual~~expands ~~retirement~~the ~~annuities~~circumstances ifin ~~the~~which providers of investment ~~recommendation~~advice ~~results~~to inERISA ~~fees~~plan ~~paid~~sponsors toand ~~the~~plan ~~individual~~participants, ~~advisor~~and IRA investors, ~~his~~are ordeemed ~~her~~to ~~firm~~act orin ~~their~~a ~~affiliates~~fiduciary ~~that~~capacity. ~~vary~~The ~~according~~rule requires such providers to ~~the~~act ~~investment~~in ~~recommendation~~their ~~chosen.~~clients' In"best ~~March~~interests", ~~2010~~not influenced by any conflicts of interest, including due to the ~~DOL~~direct ~~issued~~or ~~proposed~~indirect ~~regulations~~receipt of compensation that ~~provide~~varies ~~limited~~based ~~relief~~on ~~from~~the ~~these~~fiduciary’s investment ~~advice restrictions~~recommendation. The ~~DOL~~rule ~~issued~~is ~~final~~scheduled ~~rules~~to intake ~~October~~effect ofon ~~2011~~April ~~and~~10, ~~did~~2017, ~~not~~but, ~~provide~~as ~~additional~~described ~~relief~~below, ~~regarding~~it ~~these~~is ~~restrictions.~~currently Asuncertain awhether ~~result,~~ the ~~ability~~rule ofwill ~~certain~~be ofdelayed, ~~our~~amended ~~investment~~or ~~advisory~~repealed. If ~~affiliates~~ and ~~their~~when ~~advisory~~the ~~representatives~~rule totakes ~~provide~~effect, ~~investment~~certain ~~advice~~business ~~with~~activities ~~respect~~in towhich ~~individual~~we ~~retirement~~currently ~~accounts~~engage, such as IRA rollovers and ~~individual~~other ~~retirement~~IRA ~~annuities~~sales, will ~~likely~~become besubject ~~significantly~~to ~~restricted~~a heightened fiduciary standard. ~~Also,~~Where ~~the~~VIAC ~~fee~~is ~~and~~deemed ~~revenue~~to ~~arrangements~~act ofin ~~certain~~a ~~advisory~~fiduciary ~~programs~~capacity, ~~may~~we bewill ~~required~~in tocertain becases ~~revenue~~need ~~neutral,~~to ~~resulting~~either inmodify ~~potential~~our ~~lost~~sales ~~revenues~~and ~~for~~compensation ~~these~~practices ~~investment~~or ~~advisers~~find ~~and~~an ~~their~~applicable ~~affiliates~~exemption.

~~Other~~The ~~proposed~~DOL ~~regulatory~~concurrently ~~initiatives~~adopted ~~applicable~~a to"best ~~individual~~interest ~~retirement~~contract ~~accounts~~exemption" ~~and~~(“BIC”) ~~individual~~intended ~~retirement~~to ~~annuities~~enable ~~may~~continuation ~~negatively~~of ~~impact~~certain ~~the~~existing ~~distribution~~industry ofpractices ~~our~~relating ~~products.~~to Inreceipt ~~particular,~~of incommissions ~~April~~and ~~2015~~other ~~the~~compensation. ~~DOL~~We ~~issued~~expect athis ~~proposed~~exemption ~~rule~~to ~~that~~go ~~would,~~into ifeffect ~~adopted~~only asif ~~proposed, broaden~~ the ~~definition~~rule ofdoes. While ~~"fiduciary"~~this ~~for~~exemption ~~purposes~~would ofenable ~~ERISA~~us and ~~the~~our ~~Internal~~distributors ~~Revenue~~to ~~Code,~~continue asmany ithistorical ~~applies~~practices to- asubject, ~~person~~among orother ~~entity~~things, ~~providing~~to ~~investment~~a ~~advice~~heightened ~~with~~best ~~respect~~interests tostandard ~~ERISA~~and ~~plans~~a orrequirement ~~individual~~that ~~retirement~~compensation ~~accounts~~be ~~and~~“reasonable” ~~individual~~- ~~retirement~~there ~~annuities.~~are Aspractical ~~proposed,~~difficulties ~~the~~with ~~rule~~relying ~~would~~on ~~expand~~ the ~~circumstances~~exemption inthat ~~which~~we ~~providers~~believe ofwill ~~investment~~limit ~~advice~~its toutility ~~small~~in ~~plan~~certain ~~sponsors~~markets, ~~plan~~particularly ~~participants~~the ~~and~~retail ~~beneficiaries~~annuities market, ~~and~~where ~~IRA~~many ~~investors~~of ~~are~~our ~~deemed~~current todistributors ~~act~~are innot aable ~~fiduciary~~to ~~capacity.~~rely ~~The~~on ~~rule~~the ~~would~~exemption ~~require~~because ~~such~~they ~~providers~~do tonot ~~act~~do inbusiness ~~their~~through ~~clients’~~regulated ~~“best~~financial ~~interests”,~~institutions. ~~not~~While ~~influenced~~it byis ~~any~~too ~~conflicts~~early ofto ~~interest,~~predict ~~including~~what ~~due~~impact tothis ~~the~~would ~~direct~~have oron ~~indirect~~our ~~receipt~~annuities ofand ~~compensation.~~other ~~Although~~businesses, ~~the~~we ~~DOL~~may ~~concurrently~~experience ~~proposed~~ a ~~“best~~material ~~interest~~decline ~~contract~~in ~~exemption”~~sales ~~intended to enable continuation~~ of ~~certain~~products ~~existing~~that ~~industry~~can ~~practices~~only ~~relating~~be topracticably ~~receipt~~sold ofin ~~commissions~~reliance ~~and~~on ~~other~~the ~~compensation~~BIC, ~~the~~such ~~exemption~~as ~~includes~~variable ~~conditions~~annuities and ~~requirements~~fixed ~~that~~indexed ~~may make it difficult to rely upon in practice~~annuities.

Although the final outcome of the DOL rulemaking remains uncertain, the proposed rule, if adopted in its current form, could lead to changes in how distributors of annuity products are compensated and could adversely affect sales of annuities to IRAs and other tax-qualified investors. In addition, the ~~proposed~~ rule may make it easier for the DOL in enforcement actions, and for plaintiffs’' attorneys in ~~ERISA~~ litigation, to attempt to extend fiduciary status to, or to claim fiduciary or contractual breach by, advisors who would not be deemed fiduciaries under current regulations. Compliance with the proposed rule could also increase our overall operational costs for providing some of the services we currently provide.

~~Changes~~President Trump issued a directive in ~~tax~~February ~~laws~~2017 ~~and~~requiring ~~interpretations~~the ofDOL ~~existing~~to ~~tax~~take ~~law~~certain ~~could~~actions ~~increase~~with ~~our~~respect ~~tax~~to ~~costs~~the rule, ~~impact~~which ~~our~~may ~~ability~~result in its revision or a delay in its implementation beyond its April 10, 2017 first applicability date. On March 2, 2017 the DOL published in the Federal Register (i) a proposal to ~~make~~delay ~~distributions~~applicability of the rule for 60 days beyond April 10, 2017, which is subject to ~~Voya~~a ~~Financial~~15-day notice-and-comment period, ~~Inc~~and (ii) a request for comments on whether and how the rule should be modified in furtherance of the presidential directive, which is subject to a 45-day notice and comment period. It is unclear whether the DOL will delay applicability of the rule after the close of the 15-day comment period, and whether, or ~~make~~to ~~our~~what ~~insurance~~extent, ~~annuity~~the ~~and~~DOL ~~investment~~will ~~products~~revise ~~less~~the ~~attractive~~rule after the close of the 45-day comment period. On March 10, 2017, the DOL announced a temporary policy to ~~customers~~not enforce compliance with the rule for a transition period while the DOL considers the proposed delay described above. This policy does not, however, extend to the enforcement of the rule with respect to IRAs or private rights of action, and therefore appears to provide incomplete relief in the event a delay is not finalized prior to April 10, 2017.

Changes in tax laws could increase our taxes and our effective tax rates. For example, as in prior years the Obama Administration recently re-proposed modifying the dividends received deduction for life insurance company separate accounts, and such a modification could significantly reduce or eliminate the dividends received deduction that we are able to claim for dividends received in separate accounts. As such, the dividend received deduction is a significant component of the difference between our actual tax expense and the expected tax expense determined using the federal statutory income tax rate of 35%. Also, interpretation and enforcement of existing tax law could change and could be applied to us as part of an IRS examination and increase our tax costs. In the course of such examinations, we have also entered into agreements with the IRS to resolve issues related to the application of the section 382 limitation and tax accounting matters such as: i) whether certain derivative transactions qualify for hedge treatment, ii) the proper treatment of valid tax hedge gains and losses and iii) “other than temporary impairment” losses. These agreements may be superseded by future enacted laws, regulations or public guidance that increases our taxes and our effective tax rates. Further, changes in tax rates could affect the amount of our deferred tax assets and deferred tax liabilities. One such change relates to the current debate over corporate tax reform and corporate tax rates. A reduction in the top federal tax rate would result in lower statutory deferred tax assets. Such a reduction in the statutory deferred tax asset may impact our ability to make distributions to Voya Financial, Inc.

Changes in tax laws could make some of our insurance, annuity and investment products less attractive to customers. Current U.S. federal income tax law permits tax-deferred accumulation of income earned under life insurance and annuity products, and permits exclusion from taxation of death benefits paid under life insurance contracts. Changes in tax laws that restrict these tax benefits could make some of our products less attractive to customers. Reductions in individual income tax rates or estate tax rates could also make some of our products less advantageous to customers. Changes in federal tax laws that reduce the amount an individual can contribute on a pre-tax basis to an employer-provided, tax-deferred product (either directly by reducing current limits or indirectly by changing the tax treatment of such contributions from exclusions to deductions) or changes that would limit an individual’s aggregate amount of tax-deferred savings could make our retirement products less attractive to consumers.



	41

~~Congress~~Changes ~~has signaled interest~~ in ~~possibly pursuing limited international~~ tax ~~reform. If~~laws ~~successful,~~and itinterpretations isof ~~unlikely~~existing ~~to result in reducing corporate~~ tax ~~rates~~law bycould ~~broadening~~increase ~~the~~our ~~taxable income base. Also viewed as unlikely is a reduction of~~ tax ~~preferences~~costs, ~~including~~impact ~~possibly the reduction or elimination of tax preferences associated with~~ our ~~industry. States~~ability ~~that stand~~ to ~~lose~~make ~~tax~~distributions ~~revenue of their own will exert pressure on the federal government not~~ to ~~enact~~Voya ~~additional~~Financial, ~~measures as part of comprehensive tax reform that would negatively impact them~~Inc. ~~Such~~ aor ~~situation~~make ~~may~~our ~~result~~insurance, inannuity ~~more~~and ~~pressure~~investment onproducts ~~raising~~less ~~revenue~~attractive ~~from~~to ~~tax preferences associated with our Company and products~~customers.

While too early to meaningfully assess the prospects of specific provisions and their application to us, the interplay between the legislative agenda advanced by Congressional Republicans and that of the new presidential administration will likely impact our taxes and possibly make some of our insurance, annuity and investment products less attractive to customers. Additionally, the House has signaled interest in pursuing international tax reform, including a "cash flow regime" of border adjustments aimed at incentivizing U.S. jobs and helping to pay for (along with broadening the taxable income base) reducing overall corporate tax rates. Also viewed as possible revenue raisers are certain proposals uniquely affecting the industry such as those dealing with our dividend received deduction, benefit reserve deduction, and acquisition cost deduction. Moreover, states that stand to lose tax revenue as a consequence of such federal reform will be under pressure to enact additional measures of their own which could result in raising revenue from us and possibly make our products less attractive to our customers.

Proposals uniquely affecting the industry include modifying the dividends received deduction for life insurance company separate accounts which could significantly reduce or eliminate the dividends received deduction that we are able to claim for dividends received in separate accounts. As such, the dividend received deduction is a significant component of the difference between our actual tax expense and the expected tax expense currently determined using the federal statutory income tax rate of 35%. Also, interpretation and enforcement of existing tax law could change and could be applied to us as part of an IRS examination and increase our tax costs. In the course of such examinations, we have entered into agreements with the IRS to resolve issues related to: (1) the application of the Section 382 limitation, (2) whether certain derivative transactions qualify for hedge treatment, (3) the proper treatment of valid tax hedge gains and losses and (4) “other than temporary impairment” losses. These agreements may be superseded by future enacted laws, regulations or public guidance that increase our taxes and our effective tax rates.

Further, changes in tax rates as a consequence of tax reform could affect the amount of our deferred tax assets and deferred tax liabilities. A reduction in the top federal tax rate would result in lower deferred tax liabilities. Moreover, a reduction in the statutory deferred tax asset may impact the ability of the affected insurance subsidiaries to make distributions to us and consequently could negatively impact our ability to pay dividends to our stockholders and to service our debt.

Current U.S. federal income tax law permits tax-deferred accumulation of income earned under life insurance and annuity products, and permits exclusion from taxation of death benefits paid under life insurance contracts. Changes in tax laws that restrict these tax benefits could make some of our products less attractive to customers. Reductions in individual income tax rates or estate tax rates could also make some of our products less advantageous to customers. Changes in federal tax laws that reduce the amount an individual can contribute on a pre-tax basis to an employer-provided, tax-deferred product (either directly by reducing current limits or indirectly by changing the tax treatment of such contributions from exclusions to deductions) or changes that would limit an individual’s aggregate amount of tax-deferred savings could make our retirement products less attractive to customers.



	42

Item 1B. Unresolved Staff Comments

Omitted as registrant is neither an accelerated filer nor a well-known seasoned issuer.

Item 2. Properties

Our principal office is located at 1475 Dunwoody Drive, West Chester, Pennsylvania, 19380-1478. Our annuity operations and customer service center are currently located at 909 Locust Street, Des Moines, Iowa 50309, and ~~the~~effective ~~GIC~~January 1, 2018 will be relocated to 699 Walnut Street, Des Moines, Iowa 50309. Our funding agreement business activities are located at 5780 Powers Ferry Road, N.W., Atlanta, Georgia 30327-4390. Our office space is leased or subleased by us or our other affiliates except for our location at 5780 Powers Ferry Road, N.W., Atlanta, Georgia.

Item 3. Legal Proceedings

See the Litigation and Regulatory Matters section of the Commitments and Contingencies Note in our Financial Statements in Part II, Item 8. in this Annual Report on Form 10-K for a description of our material legal proceedings.

Item 4. Mine Safety Disclosures

Not applicable.



	43

PART II


Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(Dollar amounts in millions, unless otherwise stated)

There is no public trading market for the common stock of VIAC. All of our outstanding common stock is owned by our parent, Voya Holdings Inc. ("Parent"), a direct, wholly owned subsidiary of Voya Financial, Inc.

Iowa insurance law imposes restrictions on an Iowa insurance company's ability to pay dividends to its parent. These restrictions are based in part on the prior year's statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior approval. Dividends in larger amounts, or extraordinary dividends, are subject to approval by the Iowa Insurance Commission.

Under Iowa law, an extraordinary dividend or distribution is defined as a dividend or distribution that, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (1) ten percent (10.0%) of our earned statutory surplus at the prior year end or (2) our prior year statutory net gain from operations. Iowa law also prohibits an Iowa insurer from declaring or paying a dividend except out of its earned surplus unless prior insurance regulatory approval is obtained.

During the year ended December 31, ~~2015~~2016, we declared an ordinary dividend to our Parent in the amount of $~~394~~373.0 million, which was paid to our Parent on ~~May~~June 2027, ~~2015~~2016. During the year ended December 31, ~~2014~~2015, we paid an ordinary dividend of $~~216~~394.0 million to our Parent.

During the year ended December 31, ~~2015~~2016, we ~~declared~~did not pay an extraordinary distribution into ~~the~~our ~~amount of $98~~Parent.0 ~~million,~~During ~~subject to receipt of approval by~~ the ~~Iowa~~year ~~Insurance~~ended ~~Division. The Iowa Insurance Division provided its approval on June 25~~December 31, 2015, ~~and~~ we paid ~~the~~an extraordinary distribution toin ~~our~~the ~~Parent~~amount onof ~~June~~$98.0 ~~26,~~million ~~2015~~to our Parent.

During the years ended December 31, ~~2015~~2016, and ~~2014~~2015, we did not receive any capital contributions from our Parent.

Item 6. Selected Financial Data

Omitted pursuant to General Instruction I(2)(a) of Form 10-K.



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Item 7. Management's Narrative Analysis of the Results of Operations and Financial Condition

(Dollar amounts in millions, unless otherwise stated)

For the purposes of the discussion in this Annual Report on Form 10-K, the terms "Company," "we," "our," "us" and "VIAC" refer to Voya Insurance and Annuity Company. We are a direct, wholly owned subsidiary of Voya Holdings Inc. ("Parent"), which is a direct, wholly owned subsidiary of Voya Financial, Inc.

The following discussion and analysis presents a review of our results of operations for the years ended December 31, ~~2015~~2016, ~~2014~~2015 and ~~2013~~2014 and financial condition as of December 31, ~~2015~~2016 and ~~2014~~2015. This item should be read in its entirety and in conjunction with the Financial Statements and related notes contained in Part II, Item 8. of this Annual Report on Form 10-K.

In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Actual results may differ materially from those discussed in the forward-looking statements as a result of various factors. See "Note Concerning Forward-Looking Statements."

~~Basis of Presentation~~Overview

VIAC is a stock life insurance company domiciled in the State of Iowa and provides financial products and services in the United States. VIAC is authorized to conduct its insurance business in all states, except New York, and in the District of Columbia.

Products currently offered by us include fixed and indexed annuities, investment-only and payout annuities, designed to address customer needs for tax-advantaged savings, retirement needs and wealth-protection concerns. We also offer ~~guaranteed investment contracts and~~ funding agreements ~~(collectively referred to as "GICs")~~. We stopped actively writing new retail variable annuity products with substantial guarantee features in early 2010.

We derive our revenue mainly from (a) investment income earned on investments primarily related to annuity products with fixed investment options and funding agreements, (b) Fee income generated from separate account assets supporting variable options under variable annuity contract investments, as designated by contract owners, (c) Premiums, (d) realized capital gains (losses) on investments and product guarantees and (e) certain other management fees included in Other revenue. Our Benefits and expenses primarily consist of (a) Interest credited and other benefits to contract owners/policyholders, (b) amortization of DAC and VOBA and (c) Operating expenses which consist of expenses related to the selling and servicing of the various products offered by us and other general business expenses.

We have one operating segment.

The focus in managing our closed block of variable annuity products continues to be on protecting regulatory and rating agency capital, and our hedging program is primarily designed to mitigate the impacts of market movements on capital resources, rather than mitigating earnings volatility. We seek opportunities to accelerate the run-off of the block, where possible. For example, in recent years we have made several income enhancement offers to holders of a particular series of GMIB contracts, under which policy holders were offered an incentive to annuitize prior to the end of the waiting period, and we have waived the remaining waiting period on these GMIB contracts. In addition, in the first quarter of 2017 we launched our first GMIB enhanced surrender value offer, which provides certain GMIB policyholders an option to surrender their contracts in exchange for an enhancement to their contract's surrender value.

Critical Accounting Judgments and Estimates

General

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities atas of the date of the ~~Financial~~financial ~~Statements~~statements and the reported amounts of revenues and expenses during the reporting period. Critical estimates and assumptions are evaluated on an on-going basis based on historical developments, market conditions, industry trends and other information that is reasonable under the circumstances. There can be no assurance that actual results will conform to estimates and assumptions and that reported results of operations will not be materially affected by the need to make future accounting adjustments to reflect changes in these estimates and assumptions from time to time.



	45

We have identified the following accounting judgments and estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability:

•Reserves for future policy benefits;


•	Deferred policy acquisition costs ("DAC"), value of business acquired ("VOBA") and deferred sales inducements ("DSI");

•Valuation of investments and derivatives;

•Impairments;

•Income taxes; and

•Contingencies.

In developing these accounting estimates, we make subjective and complex judgments that are inherently uncertain and subject to material changes as facts and circumstances develop. Although variability is inherent in these estimates, we believe the amounts provided are appropriate based on the facts available upon preparation of the Financial Statements.

The above critical accounting estimates are described in the Business, Basis of Presentation and Significant Accounting Policies Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K.

Reserves for Future Policy Benefits

The determination of future policy benefit reserves is dependent on actuarial assumptions. The principal assumptions used to establish liabilities for future policy benefits are based on our experience and periodically reviewed against industry standards. These assumptions include mortality, morbidity, policy lapse, contract renewal, payment of subsequent premiums or deposits by the contract owner, retirement, investment returns, inflation, benefit utilization and expenses. The assumptions used require considerable judgments. Changes in, or deviations from, the assumptions used can significantly affect our reserve levels and related results of operations.


•	Mortality is the incidence of death among policyholders triggering the payment of underlying insurance coverage by the insurer. In addition, mortality also refers to the ceasing of payments on life-contingent annuities due to the death of the annuitant. We utilize a combination of actual and industry experience when setting our mortality assumptions.

•

A lapse rate is the percentage of in-force policies surrendered by the policyholder or canceled by us due to non-payment of premiums. For certain of our variable products, the lapse rate assumption varies according to the current account value relative to guarantees associated with the product and applicable surrender charges. In general, policies with guarantees that are considered "in the money" (i.e., where the notional benefit amount is in excess of the account value) are assumed to be less likely to lapse or surrender. Conversely, "out of the money" guarantees may be assumed to be more likely to lapse or surrender as the policyholder has less incentive to retain the policy.

See the Guaranteed Benefit Features Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K for further information on our reserves for future policy benefits, contract owner account balances and product guarantees.

Insurance and Other Reserves

Although assumptions are "locked-in" upon the issuance of traditional life insurance contracts, certain accident and health insurance contracts and payout contracts with life contingencies, significant changes in experience or assumptions may require us to provide for expected future losses on a product by establishing premium deficiency reserves. Premium deficiency reserves are determined based on best estimate assumptions that exist at the time the premium deficiency reserve is established and do not include a provision for adverse deviation. During the ~~year~~years ended December 31, 2016 and 2015, we established premium deficiency reserves of $126.0 million before tax related to certain payout annuity contracts, which was recorded as an increase in Policyholder benefits and contract owner balances with a corresponding increase in Deposits and reinsurance recoverable, as the reserves are ceded to an affiliate on a 100% coinsurance and coinsurance funds withheld basis. The establishment of this premium deficiency reserve had no impact in the Statements of Operations for the year ended December 31, 2015.



	46

of $36.3 million and $126.0 million, respectively, before income taxes, related to certain payout annuity contracts. These premium deficiency reserves were recorded as increases in Future policy benefits and contract owner account balances with corresponding increases in Deposits, premiums receivable and reinsurance recoverable, as the reserves are ceded to an affiliate on a 100% coinsurance and coinsurance funds withheld basis. The establishment of these premium deficiency reserves had no impact in the Statements of Operations for the years ended December 31, 2016 and 2015. We did not establish any premium deficiency reserves during the year ended December 31, 2014.

Product Guarantees and Index-crediting Features

The assumptions used to establish the liabilities for our product guarantees require considerable judgment and are established as management's best estimate of future outcomes. We periodically review these assumptions and, if necessary, update them based on additional information that becomes available. Changes in, or deviations from, the assumptions used can significantly affect our reserve levels and related results of operations.

GMDB and GMIB: Reserves for annuity guaranteed minimum death benefits ("GMDB") and guaranteed minimum income benefits ("GMIB") are determined by estimating the value of expected benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. Expected experience is based on a range of scenarios. Assumptions used, such as the long-term equity market return, lapse rate and mortality, are consistent with assumptions used in estimating gross profits for the purpose of amortizing DAC. In addition, the reserve for the GMIB incorporates assumptions for the likelihood and timing of the potential annuitizations that may be elected by the contract owner. In general, we assume that GMIB annuitization rates will be higher for policies with more valuable ("in the money") guarantees.

46GMAB, GMWB, GMWBL and FIA: We also issue certain products that contain embedded derivatives that are measured at estimated fair value separately from the host contract. These embedded derivatives include annuity guaranteed minimum accumulation benefits ("GMAB"), guaranteed minimum withdrawal benefits without life contingencies ("GMWB"), guaranteed minimum withdrawal benefits with life payouts ("GMWBL") and fixed indexed annuities ("FIAs").

for the likelihood and timing of the potential annuitizations that may be elected by the contract owner. In general, we assume that GMIB annuitization rates will be higher for policies with more valuable ("in the money") guarantees.

GMAB, GMWB, GMWBL and FIA: We also issue certain products which contain embedded derivatives that are measured at estimated fair value separately from the host contract. These embedded derivatives include annuity guaranteed minimum accumulation benefits ("GMAB"), guaranteed minimum withdrawal benefits without life contingencies ("GMWB"), guaranteed minimum withdrawal benefits with life payouts ("GMWBL") and fixed indexed annuities ("FIAs").

At inception of the GMAB, GMWB and GMWBL contracts, we project a fee to be attributed to the embedded derivative portion of the guarantee equal to the present value of projected future guaranteed benefits. After inception, the estimated fair value of the GMAB, GMWB and GMWBL contracts is determined based on the present value of projected future guaranteed benefits, minus the present value of projected attributed fees. A risk neutral valuation methodology is used under which the cash flows from the guarantees are projected under multiple capital market scenarios using observable risk free rates. The projection of future guaranteed benefits and future attributed fees require the use of assumptions for capital markets (e.g., implied volatilities, correlation among indices, risk-free swap curve, etc.) and policyholder behavior (e.g., lapse, benefit utilization, mortality, etc.).

The estimated fair value of the embedded derivative in the FIA contracts is based on the present value of the excess of interest payments to the contract owners over the growth in the minimum guaranteed contract value. The excess interest payments are determined as the excess of projected index driven benefits over the projected guaranteed benefits. The projection horizon is over the anticipated life of the related contracts, which takes into account best estimate actuarial assumptions, such as partial withdrawals, full surrenders, deaths, annuitizations and maturities.

Certain FIA contracts contain guaranteed withdrawal benefit provisions. Reserves for these benefits are calculated by estimating the value of expected benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments.

The liabilities for the GMAB, GMWB, GMWBL and FIA embedded derivatives include a risk margin to capture uncertainties related to policyholder behavior assumptions. The margin represents additional compensation a market participant would require to assume these risks.

The discount rate used to determine the fair value of the liabilities for our GMAB, GMWB, GMWBL and FIA embedded derivatives includes an adjustment to reflect the risk that these obligations will not be fulfilled (“nonperformance risk”). Our nonperformance risk adjustment is based on a blend of observable, similarly rated peer holding company credit default swap ("CDS") spreads, adjusted to reflect the credit quality of VIAC, the issuer of the guarantee, as well as an adjustment to reflect the priority of policyholder claims.The impact of the nonperformance risk adjustment on the fair value of these liabilities was a reduction of approximately $791.0 million and $754.0 million as of December 31, 2015 and 2014, respectively, with the change primarily due to the increases in observable credit spreads and an increase in the associated reserves. 47

The discount rate used to determine the fair value of the liabilities for our GMAB, GMWB, GMWBL and FIA embedded derivatives includes an adjustment to reflect the risk that these obligations will not be fulfilled (“nonperformance risk”). Our nonperformance risk adjustment is based on a blend of observable, similarly rated peer holding company credit default swap ("CDS") spreads, adjusted to reflect the credit quality of VIAC, the issuer of the guarantee, as well as an adjustment to reflect the priority of policyholder claims. The table below presents the increase (decrease) to the fair value of these liabilities due to the nonperformance risk adjustment and the gain (loss) due to nonperformance risk as of and for the periods indicated:



($ in millions)
Nonperformance Risk Adjustment									Gain (Loss) due to Nonperformance Risk
As of December 31,									For the year ended December 31,
2016⁽¹⁾			2015⁽¹⁾			2014⁽¹⁾			2016		2015		2014
$	(933.3	)	$	(791.3	)	$	(754.5	)	$	142.0	$	36.8	$	382.6

⁽¹⁾ Represents reduction to liabilities.

The favorable change of $142.0 million from $791.3 million as of December 31, 2015 to $933.3 million as of December 31, 2016 is primarily due to favorable changes in observable credit spreads, partially offset by decreases in associated reserves due to model changes and changes in capital markets. The favorable change of $36.8 million from $754.5 million as of December 31, 2014 to $791.3 million as of December 31, 2015 is primarily due to the increases in observable credit spreads and an increase in the associated reserves. The favorable change of $382.6 million from $371.9 million as of January 1, 2014 to $754.5 million as of December 31, 2014 is primarily due to the increases in observable credit spreads and an increase in the associated reserves.

Assumptions and Periodic Review

We review overall policyholder experience at least annually (including lapse, annuitization, withdrawal and mortality) and update these assumptions when deemed necessary, based on additional information that becomes available. If policyholder experience is significantly different from that assumed, this could have a significant effect on our reserve levels and related results of operations.

See the Quantitative and Qualitative Disclosures About Market Risk Section in Part II, Item 7A. of this Annual Report on Form 10-K for additional information regarding the specific hedging strategies and reinsurance we utilize to mitigate risk for the product guarantees, as well as sensitivities of the embedded derivative liabilities to changes in certain capital markets assumptions.

Deferred Policy Acquisition Costs, Value of Business Acquired and Deferred Sales Inducements

DAC represents policy acquisition costs that have been capitalized and are subject to amortization and interest. VOBA represents the outstanding value of in-force business acquired and is subject to amortization and interest. DSI represents benefits paid to contract owners for a specified period that are incremental to the amounts we credit on similar contracts without sales inducements and are higher than the contract's expected ongoing crediting rates for periods after the inducement.

See the Deferred Policy Acquisition Costs and Value of Business Acquired Note and the Sales Inducements Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K for additional information on DAC, VOBA and ~~sales inducements~~DSI.

Amortization Methodologies

We amortize DAC and VOBA related to universal life ("UL") and variable universal life ("VUL") contracts and fixed and variable deferred annuity contracts over the estimated lives of the contracts in relation to the emergence of estimated gross profits. Assumptions as to mortality, persistency, interest crediting rates, fee income, returns associated with separate account performance, impact of hedge performance, expenses to administer the business and certain economic variables, such as inflation, are based on our experience and overall capital markets. At each valuation date, estimated gross profits are updated with actual gross profits, and the assumptions underlying future estimated gross profits are evaluated for continued reasonableness. Adjustments to estimated gross profits require that amortization rates be revised retroactively to the date of the contract issuance ("unlocking"). If the update of assumptions causes estimated gross profits to increase, DAC and VOBA amortization will decrease, resulting in a current period increase to earnings. The opposite result occurs when the assumption update causes estimated gross profits to decrease. We amortize DSI over the estimated lives of the related contracts using the same methodology and assumptions used to amortize DAC.

Recoverability testing is performed for current issue year products to determine if gross profits are sufficient to cover DAC, VOBA and DSI, estimated benefits and related expenses. In subsequent periods, we perform testing to assess the recoverability of DAC, VOBA and DSI on an annual basis, or more frequently if circumstances indicate a potential loss recognition issue exists. If DAC, ~~VOBA or DSI are not deemed recoverable from future gross profits, charges will be applied against the DAC, VOBA or DSI balances before an additional reserve is established.~~



	48

VOBA or DSI are not deemed recoverable from future gross profits, charges will be applied against the DAC, VOBA or DSI balances before an additional reserve is established.

During the year ended December 31, 2016, our reviews resulted in loss recognition of $170.0 million before income taxes, of which $137.7 million and $32.3 million was recorded to Net amortization of DAC and VOBA and Interest credited and other benefits to contract owners, respectively, in the Statements of Operations, with a corresponding decrease on the Balance Sheets to Deferred policy acquisition costs, Value of business acquired, and Sales inducements to contract owners.

During the year ended December 31, 2015, our reviews resulted in loss recognition of $342.0 million before income taxes, of which $276.9 million and $65.1 million was recorded to Net amortization of DAC and VOBA and Interest credited and other benefits to contract owners, respectively, in the Statements of Operations, with a corresponding decrease on the Balance Sheets to Deferred policy acquisition costs, Value of business acquired, and Sales inducements to contract owners.

InDuring ~~assessing loss recognition related to DAC, VOBA and DSI, we must select an approach for aggregating different blocks of business in~~ the ~~loss~~year ~~recognition~~ended ~~calculation. In the first quarter of 2013~~December 31, ~~we updated the aggregation approach used in assessment of such loss recognition. This change in estimate was due to certain organizational changes that commenced in the first quarter of 2013~~2014, ~~which~~our reviews resulted in ~~changes to how we manage the variable annuity business that is~~ no ~~longer actively marketed. As a result of this estimate change, we recognized~~ loss recognition ~~of $350~~.8 million before taxes during the first quarter of 2013. This amount was recorded in the Statements of Operations of $306.0 million to Net amortization of deferred policy acquisition costs and value of business acquired and $44.8 million to Interest credited and other benefits to contract owners/policyholders, with a corresponding decrease in the Balance Sheets to Deferred policy acquisition costs, Value of business acquired and Sales inducements to contract owners.

Assumptions and Periodic Review

Changes in assumptions can have a significant impact on DAC, VOBA, and DSI, amortization rates, reserve levels, and results of operations. Assumptions are management's best estimate of future outcome. We periodically review these assumptions against actual experience and, based on additional information that becomes available, update our assumptions. Deviation of emerging experience from our assumptions could have a significant effect on our DAC, VOBA and DSI, reserves, and the related results of operations.

• One significant assumption is the assumed return associated with the variable account performance, which has historically had a greater impact on variable annuity than VUL products. To reflect the volatility in the equity markets, this assumption involves a combination of near-term expectations and long-term assumptions regarding market performance. The overall return on the variable account is dependent on multiple factors, including the relative mix of the underlying sub-accounts among bond funds and equity funds, as well as equity sector weightings. ~~Our~~We ~~practice~~use a reversion to the mean approach, which assumes that ~~near-term~~the ~~and~~market ~~long-term~~returns ~~increases~~over orthe ~~decreases~~entire inmean ~~equity~~reversion ~~markets~~period ~~revert~~are toconsistent ~~the~~with a long-term ~~appreciation~~level inof equity ~~markets~~market ~~("reversion to the mean")~~appreciation. We monitor market events and only change the assumption when sustained deviations are expected. This methodology incorporates a 9% long-term equity return assumption, a 14% cap and a five-year look-forward period.


•	Another significant assumption used in the estimation of gross profits for certain products is mortality. We utilize a combination of actual and industry experience when setting our mortality assumptions, which are consistent with the assumptions used to calculate reserves for future policy benefits.


•	Assumptions related to interest rate spreads and credit losses also impact estimated gross profits for all applicable products with credited rates. These assumptions are based on the current investment portfolio yields and credit quality, estimated future crediting rates, capital markets, and estimates of future interest rates and defaults.

• Other significant assumptions include estimated policyholder behavior assumptions, such as surrender, lapse, and annuitization rates. We use a combination of actual and industry experience when setting and updating our policyholder behavior assumptions, and such assumptions require considerable judgment. Estimated gross profits for our variable annuity contracts are particularly sensitive to these assumptions.

behavior assumptions, and such assumptions require considerable judgment. Estimated gross profits for our variable annuity contracts are particularly sensitive to these assumptions.

We include the impact of the change in value of the embedded derivatives associated with the GMAB, GMWB, GMWBL and FIA contracts in gross profits for purposes of determining DAC amortization.

During the third quarter of 2015, 2014 and 2013, we conducted our annual review of assumptions, including projection model inputs. As a result of these reviews, we made a number of changes, which resulted in favorable (unfavorable) impacts on Income (loss) before income taxes of $(34.3) million, $231.7 million, and $(37.5) million in 2015, 2014, and 2013, respectively, of which $(83.0) million, $108.4 million, and $21.0 million, respectively, was related to DAC, VOBA and DSI unlocking. 49

During the third quarter of 2016, 2015 and 2014, we conducted our annual review of assumptions, including projection model inputs. As a result of these reviews, we made a number of changes, which resulted in favorable (unfavorable) impacts on Income (loss) before income taxes of $102.7 million, $(34.3) million, and $231.7 million in 2016, 2015, and 2014, respectively, of which $34.7 million, $(83.0) million, and $108.4 million, respectively, was related to DAC, VOBA and DSI unlocking.

Sensitivity

We perform sensitivity analyses to assess the impact that certain assumptions have on DAC, VOBA and DSI, as well as certain reserves. The following table presents the estimated instantaneous net impact to income before income taxes of various assumption changes on our DAC, VOBA and DSI balances and the impact on related reserves for future policy benefits and reinsurance. The effects ~~presented~~ are not representative of the aggregate impacts that could result if a combination of such changes to equity markets, interest rates and other assumptions occurred. (Assumptions regarding shifts in market factors may be overly simplistic and not indicative of actual market behavior in stress scenarios.)

($ in millions)	As of December 31, ~~2015~~2016
Decrease in long-term rate of return assumption by 100 basis points	$	(9.5	)
Decrease in long-term equity rate of return assumption by 100 basis points	$	54.4		(1)
A change to the long-term interest rate assumption of -50 basis points	(4102.9		)	(2)
A change to the long-term interest rate assumption of +50 basis points	(~~125~~53.96		)
An assumed increase in future mortality by 1%	(5.15		)
A one-time, 10% decrease in equity market values(1)	40.7

(1)~~Excludes~~Additionally ~~impact~~the ofassumption ~~derivative~~changes ~~results~~would ~~ceded~~result toin ~~Security~~loss ~~Life~~recognition of ~~Denver~~approximately ~~International~~$25 ~~Limited~~million ~~("SLDI")~~to ~~under~~$125 ~~the combined coinsurance and coinsurance funds withheld agreement as amended~~million.

⁽²⁾Additionally the assumption changes would result in loss recognition of approximately $75 million to $175 million.

Valuation of Investments and Derivatives

Our investment portfolio consists of public and private fixed maturity securities, commercial mortgage and other loans, equity securities, short-term investments, other invested assets and derivative financial instruments. ~~Fixed maturity and equity securities are primarily classified as available-for-sale and are carried at fair value.~~ We enter into interest rate, equity market, credit default and currency contracts, including swaps, futures, forwards, caps, floors and options, to reduce and manage various risks associated with changes in value, yield, price, cash flow or exchange rates of assets or liabilities held or intended to be held, or to assume or reduce credit exposure associated with a referenced asset, index or pool. We also utilize options and futures on equity indices to reduce and manage risks associated with our annuity products.

See the Investments Note and the Derivative Financial Instruments Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K for further information.

Investments

We measure the fair value of our financial assets and liabilities based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of an asset, or nonperformance risk, including our own credit risk. The estimate of fair value is the price that would be received to sell an asset or transfer a liability ("exit price") in an orderly transaction between market participants in the principal market, or the most advantageous market in the absence of a principal market, for that asset or liability. We use a number of valuation sources to determine the fair values of our financial assets and liabilities, including quoted market prices, third-party commercial pricing services, third-party brokers, industry-standard, vendor-provided software that models the value based on market observable inputs, and other internal modeling techniques based on projected cash flows.

We categorize our financial instruments into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

49When available, the estimated fair value of securities is based on quoted prices in active markets that are readily and regularly obtainable. When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies, including discounted cash flows, matrix pricing or other similar techniques. Inputs to these methodologies include, but are not limited to, market observable inputs such as benchmark yields, credit quality, issuer spreads, bids, offers and cash flow characteristics of the security. For privately placed bonds, we also consider such factors as the net worth

~~hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.~~50

~~When available, the estimated fair value~~ of ~~securities is based on quoted prices in active markets that are readily and regularly obtainable. When quoted prices in active markets are not available,~~ the determination of estimated fair value is based on market standard valuation methodologies, including discounted cash flows, matrix pricing or other similar techniques. Inputs to these methodologies include, but are not limited to, market observable inputs such as benchmark yields, credit quality, issuer spreads, bids, offers and cash flow characteristics of the security. For privately placed bonds, we also consider such factors as the net worth of the borrower, value of the collateral, the capital structure of the borrower, the presence of guarantees, and the borrower's ability to compete in its relevant market. Valuations are reviewed and validated monthly by an internal valuation committee using price variance reports, comparisons to internal pricing models, back testing of recent trades, and monitoring of trading volumes, as appropriate.

The valuation of financial assets and liabilities involves considerable judgment, is subject to considerable variability, is established using management's best estimate, and is revised as additional information becomes available. As such, changes in, or deviations from, the assumptions used in such valuations can significantly affect our results of operations. Financial markets are subject to significant movements in valuation and liquidity, which can impact our ability to liquidate and the selling price that can be realized for our securities.

Derivatives

Derivatives are carried at fair value, which is determined by using observable key financial data, such as yield curves, exchange rates, ~~Standard & Poor's 500 Index ("~~S&P 500") prices, London Interbank Offered Rates ("LIBOR") and Overnight Index Swap Rates ("OIS") or through values established by third-party sources, such as brokers. Valuations for our futures contracts are based on unadjusted quoted prices from an active exchange. Counterparty credit risk is considered and incorporated in our valuation process through counterparty credit rating requirements and monitoring of overall exposure. Our own credit risk is also considered and incorporated in our valuation process.

We have certain CDS and options that are priced using models that primarily use market observable inputs, but contain inputs that are not observable to market participants.

We also have investments in certain fixed maturities and have issued certain annuity products that contain embedded derivatives ~~whose~~for which fair value is at least partially determined by levels of or changes in domestic and/or foreign interest rates (short-term or long-term), exchange rates, prepayment rates, equity markets, or credit ratings/spreads. The fair values of these embedded derivatives are determined using prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. For additional information regarding the valuation of and significant assumptions associated with embedded derivatives associated with certain annuity contracts, see the "Reserves for Future Policy Benefits" section.

In addition, we have entered into coinsurance with funds withheld reinsurance arrangements that contain embedded derivatives. The fair value of the embedded derivatives is based on the change in the fair value of the underlying assets held in the trust using the valuation methods and assumptions described for our investments held.

The valuation of derivatives involves considerable judgment, is subject to considerable variability, is established using management's best estimate and is revised as additional information becomes available. As such, changes in, or deviations from, these assumptions used in such valuations can have a significant effect on our results of operations.

For additional information regarding the fair value of our investments and derivatives, see the Fair Value Measurements Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K.

Impairments

We evaluate our available-for-sale general account investments quarterly to determine whether there has been an other-than-temporary decline in fair value below the amortized cost basis. This evaluation process entails considerable judgment and estimation. Factors considered in this analysis include, but are not limited to, the length of time and the extent to which the fair value has been less than amortized cost, the issuer's financial condition and near-term prospects, future economic conditions and market forecasts, interest rate changes and changes in ratings of the security. An extended and severe unrealized loss position on a fixed maturity may not have any impact on: (a) the ability of the issuer to service all scheduled interest and principal payments and (b) the evaluation of recoverability of all contractual cash flows or the ability to recover an amount at least equal to its amortized cost based on the present value of the expected future cash flows to be collected. In contrast, for certain equity securities, we give greater weight and consideration to a decline in market value and the likelihood such market value decline will recover.

50When assessing our intent to sell a security, or if it is more likely than not we will be required to sell a security before recovery of its amortized cost basis, we evaluate facts and circumstances such as, but not limited to, decisions to rebalance the investment portfolio and sales of investments to meet cash flow or capital needs.

cost based on the present value of the expected future cash flows to be collected. In contrast, for certain equity securities, we give greater weight and consideration to a decline in market value and the likelihood such market value decline will recover.51

When assessing our intent to sell a security or if it is more likely than not we will be required to sell a security before recovery of its amortized cost basis, we evaluate facts and circumstances such as, but not limited to, decisions to rebalance the investment portfolio and sales of investments to meet cash flow or capital needs.

We use the following methodology and significant inputs to determine the amount of the OTTI credit loss:

• When determining collectability and the period over which the value is expected to recover for U.S. and foreign corporate securities, foreign government securities and state and political subdivision securities, we apply the same considerations utilized in our overall impairment evaluation process, which incorporates information regarding the specific security, the industry and geographic area in which the issuer operates and overall macroeconomic conditions. Projected future cash flows are estimated using assumptions derived from our best estimates of likely scenario-based outcomes, after giving consideration to a variety of variables that ~~include~~includes, but is not limited to: general payment terms of the security; the likelihood that the issuer can service the scheduled interest and principal payments; the quality and amount of any credit enhancements; the security's position within the capital structure of the issuer; possible corporate restructurings or asset sales by the issuer; and changes to the rating of the security or the issuer by rating agencies.

•

Additional considerations are made when assessing the unique features that apply to certain structured securities, such as subprime, Alt-A, non-agency RMBS, CMBS and ABS. These additional factors for structured securities include, but are not limited to: the quality of underlying collateral; expected prepayment speeds; loan-to-value ratio; debt service coverage ratios; current and forecasted loss severity; consideration of the payment terms of the underlying assets backing a particular security; and the payment priority within the tranche structure of the security.

•

When determining the amount of the credit loss for U.S. and foreign corporate securities, foreign government securities and state and political subdivision securities, we consider the estimated fair value as the recovery value when available information does not indicate that another value is more appropriate. When information is identified that indicates a recovery value other than estimated fair value, we consider in the determination of recovery value the same considerations utilized in its overall impairment evaluation process, which incorporates available information and our best estimate of scenario-based outcomes regarding the specific security and issuer; possible corporate restructurings or asset sales by the issuer; the quality and amount of any credit enhancements; the security's position within the capital structure of the issuer; fundamentals of the industry and geographic area in which the security issuer operates; and the overall macroeconomic conditions.


•	We perform a discounted cash flow analysis comparing the current amortized cost of a security to the present value of future cash flows expected to be received, including estimated defaults and prepayments. The discount rate is generally the effective interest rate of the fixed maturity prior to impairment.

Mortgage loans on real estate are all commercial mortgage loans. If a mortgage loan is determined to be impaired (i.e., when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to the lower of either the present value of expected cash flows from the loan, discounted at the loan's original purchase yield, or the fair value of the collateral. For those mortgages that are determined to require foreclosure, the carrying value is reduced to the fair value of the underlying collateral, net of estimated costs to obtain and sell at the point of foreclosure.

Impairment analysis of the investment portfolio involves considerable judgment, is subject to considerable variability, is established using management's best estimate and is revised as additional information becomes available. As such, changes in, or deviations from, the assumptions used in such analysis can have a significant effect on the results of operations.

For additional information regarding the evaluation process for impairments, see the Investments Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K.

Income Taxes

The results of our operations are included in the consolidated tax return of Voya Financial, Inc. Generally, our Financial Statements recognize the current and deferred income tax consequences that result from our activities during the current and preceding periods pursuant to the provisions of ~~Income~~ASC ~~Taxes (Accounting Standards Codification~~ Topic 740), "Income Taxes" as if we were a separate taxpayer rather than a member of Voya Financial, Inc.'s consolidated income tax return group, with the exception of any net operating loss carryforwards and capital loss carryforwards, which are recorded pursuant to the tax sharing agreement.

Under our tax sharing agreement, Voya Financial, Inc. will pay us for the tax benefits of ordinary and capital losses only in the event that the consolidated tax group actually uses the tax benefit of losses generated.



	52

Valuation Allowances

We use certain assumptions and estimates in determining the income taxes payable or refundable to/from Voya Financial, Inc. for the current year, the deferred income tax liabilities and assets for items recognized differently in our Financial Statements from amounts shown on our income tax returns and the federal income tax expense. Determining these amounts requires analysis and interpretation of current tax laws and regulations, including the loss limitation rules associated with change in control. We exercise considerable judgment in evaluating the amount and timing of recognition of the resulting income tax liabilities and assets. These judgments and estimates are reevaluated on a periodic basis. We will continue to evaluate as regulatory and business factors change.

Our deferred tax assets and liabilities resulting from temporary differences between financial reporting and tax basis of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse.

Deferred tax assets represent the tax benefit of future deductible temporary differences, net operating loss carryforwards, and tax credit carryforwards. We evaluate and test the recoverability of deferred tax assets. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Considerable judgment and the use of estimates are required in determining whether a valuation allowance is necessary and, if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, we consider many factors, including:


•	The nature, frequency and severity of book income or losses in recent years;


•	The nature and character of the deferred tax assets and liabilities;


•	The recent cumulative book income (loss) position after adjustment for permanent differences;


•	Taxable income in prior carryback years;


•	Projected future taxable income, exclusive of reversing temporary differences and carryforwards;


•	Projected future reversals of existing temporary differences;


•	The length of time carryforwards can be utilized;


•	Prudent and feasible tax planning strategies we would employ to avoid a tax benefit from expiring unused; and


•	Tax rules that would impact the utilization of the deferred tax assets.

As of December 31, ~~2015~~2016, we have recognized $~~161~~112.57 million of deferred tax assets based on tax planning strategies related to unrealized gains on investment assets. These tax planning strategies support the recognition of deferred tax assets, which have been provided on deductible temporary differences, and may be adversely impacted by decreases in unrealized gains.

We recorded the following valuation allowances ~~as of the dates indicated~~:

	December 31,
	As of December 31,
($ in millions)	~~2015~~2016			~~2014~~2015
Deferred tax assets	$	~~597~~733.45	(1)	$	~~549~~597.74	(2)

(1) Includes $~~590~~728.64 million and $65.81 million related to ordinary deferred tax assets and foreign tax credits, respectively.

(2) Includes $~~540~~590.6 million and $96.18 million related to ordinary deferred tax assets and foreign tax credits, respectively.

Tax Contingencies

In establishing unrecognized tax benefits, we determine whether a tax position is more likely than not to be sustained under examination by the appropriate taxing authority. We also consider positions that have been reviewed and agreed to as part of an examination by the appropriate taxing authority. Tax positions that do not meet the more likely than not standard are not recognized. Tax positions that meet this standard are recognized in our Financial Statements. We measure the tax position as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution with the taxing authority that has full knowledge of all relevant information.

Changes in Law

Certain changes or future events, such as changes in tax legislation, completion of tax audits, planning opportunities and expectations about future outcomes could have an impact on our estimates of valuation allowances, deferred taxes, tax provisions and effective tax rates.

For example, a reduction in the corporate tax rate would most likely result in a tax ~~expense~~benefit based on the fact that, as of December 31, ~~2015~~2016, we have a deferred tax ~~asset~~liability. Conversely, an increase in the corporate tax rate would most likely result in an additional tax ~~benefit~~expense.



	53

Contingencies

A loss contingency is an existing condition, situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur. Examples of loss contingencies include pending or threatened adverse litigation, threat of expropriation of assets and actual or possible claims and assessments. Amounts related to loss contingencies involve considerable judgments and are accrued if it is probable that a loss has been incurred and the amount can be reasonably estimated, based on our best estimate of the ultimate outcome. Reserves are established reflecting management's best estimate, reviewed on a quarterly basis and revised as additional information becomes available. When a loss contingency is reasonably possible, but not probable, disclosure is made of our best estimate of possible loss, or the range of possible loss, or a statement is made that such an estimate cannot be made.

We are involved in threatened or pending lawsuits/arbitrations arising from the normal conduct of business. Due to the climate in insurance and business litigation/arbitration, suits against us sometimes include claims for substantial compensatory, consequential or punitive damages and other types of relief. Moreover, certain claims are asserted as class actions, purporting to represent a group of similarly situated individuals. It is not always possible to accurately estimate the outcome of such lawsuits/arbitrations. Therefore, changes to such estimates could be material. As facts and circumstances change, our estimates are revised accordingly. Our reserves reflect management's best estimate of the ultimate resolution.

Impact of New Accounting Pronouncements

For information regarding the impact of new accounting pronouncements, see the Business, Basis of Presentation and Significant Accounting Policies Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K.



	54

Results of Operations

Overview



	Year Ended December 31,
($ in millions)	2016			2015			2014
Revenues:
Net investment income	$	1,362.5		$	1,305.5		$	1,264.7
Fee income	627.3			718.7			824.8
Premiums	496.5			505.8			537.8
Net realized capital losses:
Total other-than-temporary impairments	(8.5		)	(30.3		)	(6.0		)
Less: Portion of other-than-temporary impairments recognized in Other comprehensive income (loss)	1.5			2.5			(0.3		)
Net other-than-temporary impairments recognized in earnings	(10.0		)	(32.8		)	(5.7		)
Other net realized capital losses	(874.9		)	(98.8		)	(768.4		)
Total net realized capital losses	(884.9		)	(131.6		)	(774.1		)
Other revenue	16.9			19.7			29.8
Total revenues	1,618.3			2,418.1			1,883.0
Benefits and expenses:
Interest credited and other benefits to contract owners/policyholders	557.6			1,290.6			1,391.9
Operating expenses	463.0			486.2			489.6
Net amortization of deferred policy acquisition costs and value of business acquired	423.0			667.0			(116.0		)
Interest expense	28.3			28.2			28.2
Other expense	11.2			25.1			16.9
Total benefits and expenses	1,483.1			2,497.1			1,810.6
Income (loss) before income taxes	135.2			(79.0		)	72.4
Income tax expense (benefit)	115.9			(53.9		)	97.3
Net income (loss)	$	19.3		$	(25.1	)	$	(24.9	)

~~Products~~Year ~~currently~~Ended ~~offered by us include fixed and indexed annuities~~December 31, ~~designed~~2016 compared to ~~address~~Year ~~customer~~Ended ~~needs for tax-advantaged savings~~December 31, ~~retirement~~2015 ~~needs and wealth-protection concerns as well as GICs. We stopped actively writing new retail variable annuity products with substantial guarantee features in early 2010.~~

WeOur ~~derive~~Net ~~our~~income ~~revenue mainly from~~ (aloss) ~~investment~~ ~~income~~for ~~earned~~the onyear ~~investments~~ended ~~primarily related to annuity products with fixed investment options~~December 31, ~~GIC~~2016 ~~deposits~~changed ~~and~~$44.4 ~~funding~~million ~~agreements, (b) Fee income generated~~ from ~~separate~~a ~~account~~loss ~~assets~~of ~~supporting~~$25.1 ~~variable~~million ~~options~~to ~~under~~income ~~variable~~of annuity contract investments, as designated by contract owners, (c) Premiums, (d) realized capital gains (losses) on investments and product guarantees and (e) certain other management fees included in Other revenue$19. ~~Our~~3 ~~Benefits~~million ~~and~~due ~~expenses~~to ~~primarily~~lower ~~consist of (a)~~ Interest credited and other benefits to contract owners/policyholders, ~~(b)~~ Net amortization of DAC and VOBA, ~~and (c)~~ Operating expenses ~~which~~and ~~consist~~Other ofexpense ~~expenses~~as ~~related~~well toas ~~the~~higher ~~selling~~Net ~~and~~investment ~~servicing~~income, ofpartially ~~the~~offset ~~various~~by ~~products~~higher ~~offered~~Total bynet usrealized capital losses, an unfavorable change in Income tax expense (benefit) and ~~other~~lower ~~general~~Fee ~~business~~income ~~expenses~~and Premiums.

53Revenues

	Year Ended December 31,
($ in millions)	2015			2014			2013
Revenues:
Net investment income	$	1,305.5		$	1,264.7		$	1,267.2
Fee income	718.7			824.8			839.7
Premiums	505.8			537.8			436.3
Net realized capital gains (losses):
Total other-than-temporary impairments	(30.3		)	(6.0		)	(12.1		)
Less: Portion of other-than-temporary impairments recognized in Other comprehensive income (loss)	2.5			(0.3		)	(1.8		)
Net other-than-temporary impairments recognized in earnings	(32.8		)	(5.7		)	(10.3		)
Other net realized capital gains (losses)	(98.8		)	(768.4		)	(2,205.5		)
Total net realized capital gains (losses)	(131.6		)	(774.1		)	(2,215.8		)
Other revenue	19.7			29.8			29.8
Total revenues	2,418.1			1,883.0			357.2
Benefits and expenses:
Interest credited and other benefits to contract owners/policyholders	1,290.6			1,391.9			(1,855.4		)
Operating expenses	486.2			489.6			462.3
Net amortization of deferred policy acquisition costs and value of business acquired	667.0			(116.0		)	1,522.4
Interest expense	28.2			28.2			28.2
Other expense	25.1			16.9			31.1
Total benefits and expenses	2,497.1			1,810.6			188.6
Income (loss) before income taxes	(79.0		)	72.4			168.6
Income tax expense (benefit)	(53.9		)	97.3			185.5
Net income (loss)	$	(25.1	)	$	(24.9	)	$	(16.9	)

Total revenues decreased $799.8 million from $2,418.1 million to $1,618.3 million primarily due to higher Total net realized capital losses, lower Fee income and Premiums, partially offset by higher Net investment income.

Net investment income increased $57.0 million from $1,305.5 million to $1,362.5 million primarily due to growth in the general account assets driven by positive net flows, higher alternative investment income and higher prepayment fee income, partially offset by the impact of the continued low interest rate environment on reinvestment rates.

Fee income decreased $91.4 million from $718.7 million to $627.3 million primarily due to lower average separate account assets under management resulting from the continued runoff of our closed block of variable annuity business.

Premiums decreased $9.3 million from $505.8 million to $496.5 million primarily due to lower payout annuities with life contingencies, which corresponds to a decrease in Interest credited and other benefits to contract owners/policyholders.



	55

Total net realized capital losses increased $753.3 million from $131.6 million to $884.9 million primarily due to an unfavorable change in annuity hedging derivatives of $1,011.9 million, partially offset by a favorable change in the fair value of embedded derivatives on product guarantees of $228.4 million. Under the variable annuity and fixed indexed annuity hedge programs, changes in equity markets and interest rates during the current period resulted in net unfavorable changes in equity, interest and foreign exchange derivatives from a net loss of $72.9 million in the prior period to a net loss of $1,084.8 million in the current period. A portion of these derivative losses were ceded to an affiliate under the combined coinsurance and coinsurance funds withheld agreement (from a gain of $54.5 million in the prior period to a loss of $1,023.3 million in the current period), and an offset was recorded to Interest credited and other benefits to contract owners/policyholders. See the Related Party Transactions Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K for further information on the combined coinsurance and coinsurance funds withheld agreement. The favorable change in the fair value of embedded derivatives on product guarantees from a gain of $95.8 million to a gain of $324.2 million was primarily due to favorable impacts resulting from annual assumptions updates and nonperformance risk, partially offset by unfavorable changes in implied volatility and from equity market movements. See Critical Accounting Judgments and Estimates for further detail on nonperformance risk.

Benefits and Expenses

Total benefits and expenses decreased $1,014.0 million from $2,497.1 million to $1,483.1 million primarily due to lower Interest credited and other benefits to contract owners/policyholders, Net amortization of DAC and VOBA, Operating expenses and Other expense.

Interest credited and other benefits to contract owners/policyholders decreased $733.0 million from $1,290.6 million to $557.6 million primarily due to the change in the amount of equity and interest rate derivative gains transferred under the combined coinsurance and coinsurance funds withheld agreement with an affiliate (the corresponding offsetting amount is reported in Total net realized capital losses), lower unfavorable impacts due to the annual assumptions updates and lower loss recognition on sales inducements. These decreases were partially offset by the change in the embedded derivative on the coinsurance funds withheld arrangements resulting from interest rate movements and the acceleration of deferred interest costs associated with early terminations of FHLB funding agreements.

Operating expenses decreased $23.2 million from $486.2 million to $463.0 million primarily due to lower commission expense on lower average separate account assets under management and the continued runoff of our closed block of variable annuity business.

Net amortization of DAC and VOBA decreased $244.0 million from $667.0 million to $423.0 million primarily due to favorable impacts from the annual assumption updates due to lower loss recognition in the current period. See Critical Accounting Judgments and Estimates for further detail on loss recognition on DAC and VOBA.

Other expense decreased $13.9 million from $25.1 million to $11.2 million primarily due to lower amortization of deferred reinsurance losses resulting from prospective assumption changes, and expenses incurred in the prior period related to the multi-year guaranteed fixed annuity contracts coinsurance agreement that did not reoccur in the current period due to the recapture of this agreement in the third quarter of 2015. See the Related Party Transactions Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K for further detail on the recapture of the multi-year guaranteed fixed annuity contracts coinsurance agreement.

Income Taxes

Income tax expense (benefit) changed by $169.8 million from a benefit of $53.9 million to an expense of $115.9 million primarily due to a higher increase in the valuation allowance in the current period compared to the prior period, an increase in Income before income taxes and a decrease in the dividends received deduction.



	56

Year Ended December 31, 2015 compared to Year Ended December 31, 2014

Our Net income (loss) for the year ended December 31, 2015 reflected a slightly higher loss than the prior period due to unfavorable changes in Net amortization of DAC and VOBA and decreases in Fee income and Premiums, mostly offset by favorable changes in Total net realized capital gains (losses), Income tax expense (benefit), Interest credited and other benefits to contract owners/policyholders and an increase in Net investment income.

Revenues

Total revenues increased $535.1 million from $1,883.0 million to $2,418.1 million primarily due to favorable changes in Total net realized capital gains (losses) and an increase in Net investment income, partially offset by decreases in Fee income and Premiums.

Net investment income increased $40.8 million from $1,264.7 million to $1,305.5 million primarily due to growth in the general account assets and higher prepayment income, partially offset by lower alternative investment income and the impact of the continued low interest rate environment on reinvestment rates.

Fee income decreased $106.1 million from $824.8 million to $718.7 million primarily due to lower average separate account assets under management ~~("AUM")~~ resulting from the continued runoff of our closed block of variable annuity business.

Premiums decreased $32.0 million from $537.8 million to $505.8 million primarily due to lower payout annuities with life contingencies, which corresponds to a decrease in Interest credited and other benefits to contract owners/policyholders, partially offset by an increase in assumed premiums from an affiliate due to favorable persistency.

Total net realized capital losses decreased $642.5 million from $774.1 million to $131.6 million primarily due to favorable changes in the fair value of embedded derivatives on product guarantees, partially offset by unfavorable changes in annuity hedging and the fair value of fixed maturities using the fair value option. The favorable changes of $804.2 million in the fair value of embedded derivatives on variable annuity and fixed indexed annuity product guarantees (from a loss of $708.4 million in the prior period to a gain of $95.8 million in the current period) were due to favorable impacts resulting from interest rate movements and implied volatility, partially offset by unfavorable impacts resulting from equity market movements and nonperformance risk. Under the variable annuity and fixed indexed annuity hedge programs, changes in interest rates and equity markets during the year ended December 31, 2015 resulted in net unfavorable changes in equity, interest and foreign exchange derivatives of $69.2 million compared to prior period (losses of $72.9 million in the current period and losses of $3.7 million in the prior period). A portion of these derivative losses was ceded to SLDI under the combined coinsurance and coinsurance funds withheld agreement (gains of $54.5 million in the current period and losses of $50.0 million in the prior period) and an offset was recorded to Interest credited and other benefits to contract owners/policyholders. Unfavorable changes of $48.0 million in the fair value of fixed maturities using fair value option as a result of interest rate changes in the current period compared to the prior period also contributed to the change in Total net realized capital gains (losses).

Benefits and Expenses

Total benefits and expenses increased $686.5 million from $1,810.6 million to $2,497.1 million primarily due to unfavorable changes in Net amortization of DAC and VOBA, partially offset by favorable changes in Interest credited and other benefits to contract owners/policyholders.

Interest credited and other benefits to contract owners/policyholders decreased $101.3 million from $1,391.9 million to $1,290.6 million primarily due to net favorable changes in the embedded derivatives on the coinsurance funds withheld arrangements resulting from interest rate movements. This decrease was partially offset by the change in the amount of equity and interest rate derivative gains/losses transferred under the combined coinsurance and coinsurance funds withheld agreement with SLDI (the corresponding offsetting amount is reported in Total net realized capital gains (losses)), unfavorable impacts due to the annual assumptions review and loss recognition on sales inducements.

Net amortization of DAC and VOBA changed $783.0 million from a benefit of $116.0 million to an expense of $667.0 million primarily due to loss recognition on DAC and VOBA, unfavorable impacts due to the annual assumptions review in the current period compared to favorable unlocking in the prior period and higher amortization as a result of higher gross profits. See Critical Accounting Judgments and Estimates for further detail on loss recognition on DAC and VOBA.



	57

Income Taxes

Income tax expense (benefit) changed by $151.2 million from an expense of $97.3 million to a benefit of $53.9 million primarily due to a lower increase in the valuation allowance in the current period compared to the prior period, a decrease in income before income taxes, and an increase in the dividends received deduction.

Year Ended December 31, 2014 compared to Year Ended December 31, 2013

Our Net income (loss) for the year ended December 31, 2014 reflected a higher loss than 2013 primarily due to unfavorable changes in Interest credited and other benefits to contract owners/policyholders, an increase in Operating expenses and a decrease in Fee income, partially offset by favorable changes in Net amortization of DAC and VOBA, favorable changes in Total net realized capital gains (losses), an increase in Premiums, favorable changes in Income tax expense (benefit) and a decrease in Other expense.

Revenues

Total revenues increased $1,525.8 million from $357.2 million to $1,883.0 million primarily due to favorable changes in Total net realized capital gains (losses) and an increase in Premiums, partially offset by a decrease in Fee income.

Fee income decreased $14.9 million from $839.7 million to $824.8 million primarily due to lower average separate account AUM driven by the continued runoff of our variable annuity business.

Premiums increased $101.5 million from $436.3 million to $537.8 million primarily due to higher payout annuities with life contingencies, partially offset by lower assumed stop loss premiums due to the novation of a reinsurance agreement in the third quarter of 2013.

Total net realized capital gains (losses) changed $1,441.7 million from a loss of $2,215.8 million to a loss of $774.1 million due to favorable changes in annuity hedging derivatives, partially offset by unfavorable changes in the fair value of embedded derivatives on product guarantees. Under the variable annuity and fixed indexed annuity hedge programs, changes in equity and interest markets during the year ended December 31, 2014 resulted in favorable changes in equity, interest and foreign exchange derivatives of $3,067.4 million during 2014 (net losses of $3.7 million in 2014 compared to net losses of $3,071.1 million during 2013). A portion of these derivative losses were ceded to SLDI under the combined coinsurance and coinsurance funds withheld agreement (losses of $50.0 million for 2014 and losses of $2,991.4 million for 2013) and an offset was recorded to Interest credited and other benefits to contract owners/policyholders. Favorable net changes of $39.0 million in the fair value of fixed maturities using fair value option as a result of decreasing interest rates in 2014 compared to increasing interest rates in 2013 also contributed to the variance. Partially offsetting these variances were unfavorable net changes of $1,670.1 million in the fair value of embedded derivatives on variable annuity and fixed indexed annuity product guarantees (from a gain of $961.7 million for the year ended December 31, 2013 to a loss of $708.4 million for the year ended December 31, 2014) due to unfavorable impacts from interest rates, equity market movements and implied volatility, partially offset by the favorable impact from nonperformance risk and annual assumption changes.

Benefits and Expenses

Total benefits and expenses increased $1,622.0 million from $188.6 million to $1,810.6 million primarily due to unfavorable changes in Interest credited and other benefits to contract owners/policyholders and an increase in Operating expenses, partially offset by favorable changes in Net amortization of DAC and VOBA and a decrease in Other expense.

Interest credited and other benefits to contract owners/policyholders changed $3,247.3 million from a benefit of $1,855.4 million to an expense of $1,391.9 million primarily due to the change in the amount of equity and interest rate derivative losses transferred under the combined coinsurance and coinsurance funds withheld agreement with SLDI (the corresponding offsetting amount is reported in Total net realized capital gains (losses)), the change in the embedded derivative on the two coinsurance funds withheld arrangements and unfavorable guaranteed benefit reserve changes due to lower fund returns compared to 2013. These increases were partially offset by lower amortization of sales inducements as a result of lower gross profits in 2014.

Operating expenses increased $27.3 million from $462.3 million to $489.6 million as a result of several factors, primarily increased costs in 2014 related to rebranding, initial costs related to the outsourcing of the actuarial valuation, modeling and hedging functions for our retail variable annuity products in 2014 and higher expenses on non-qualified retirement plans related to the immediate recognition of actuarial losses in 2014 compared to actuarial gains in 2013, resulting from changes in assumptions primarily due to discount rates, mortality and actual versus expected results. In addition, higher commissions and higher administrative expenses contributed to the increase. These increases were partially offset by a favorable cost of reinsurance due to the novation of a reinsurance agreement in the first quarter of 2014.

Net amortization of DAC and VOBA changed $1,638.4 million from an expense of $1,522.4 million to a benefit of $116.0 million primarily due to lower amortization as a result of lower gross profits in 2014 compared to 2013 and $306.0 million of loss recognition on DAC and VOBA in 2013 that did not reoccur in 2014. Favorable DAC and VOBA unlocking resulting from prospective assumption changes also contributed to the decrease. Partially offsetting these variances was favorable DAC and VOBA unlocking in 2013 that did not repeat in 2014.

Other expense decreased $14.2 million from $31.1 million to $16.9 million primarily due to lower amortization on deferred reinsurance losses as a result of prospective assumption changes.

Income Taxes

Income tax expense (benefit) decreased $88.2 million from $185.5 million to $97.3 million primarily due to a lower increase in the valuation allowance and a decrease in income before taxes, partially offset by a decrease in the dividend received deduction.

Financial Condition

Investments

Investment Strategy

Our investment strategy seeks to achieve sustainable risk-adjusted returns by focusing on principal preservation, disciplined matching of asset characteristics with liability requirements and the diversification of risks. Investment activities are undertaken according to investment policy statements that contain internally established guidelines and risk tolerances and are required to comply with applicable laws and insurance regulations. Risk tolerances are established for credit risk, credit spread risk, market risk, liquidity risk and concentration risk across issuers, sectors and asset types that seek to mitigate the impact of cash flow variability arising from these risks.

according to investment policy statements that contain internally established guidelines and risk tolerances and are required to comply with applicable laws and insurance regulations. Risk tolerances are established for credit risk, credit spread risk, market risk, liquidity risk and concentration risk across issuers, sectors and asset types that seek to mitigate the impact of cash flow variability arising from these risks.

Segmented portfolios are established for groups of products with similar liability characteristics. Our investment portfolio consists largely of high quality fixed maturities and short-term investments, investments in commercial mortgage loans, alternative investments and other instruments, including a small amount of equity holdings. Fixed maturities include publicly issued corporate bonds, government bonds, privately placed notes and bonds, bonds issued by states and municipalities, Other asset-backed securities ("ABS"), and traditional Mortgage-backed securities ("MBS").

We use derivatives for hedging purposes to reduce our exposure to the cash flow variability of assets and liabilities, interest rate risk, credit risk and market risk. In addition, we use credit derivatives to replicate exposure to individual securities or pools of securities as a means of achieving credit exposure similar to bonds of the underlying issuer(s) more efficiently.

See the Investments Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K.

Portfolio Composition

The following table presents the investment portfolio as of the dates indicated:

	December 31, 2015				December 31, 2014
	December 31, 2016				December 31, 2015
($ in millions)	CarryingValue		% ofTotal		CarryingValue		% ofTotal
Fixed maturities, available-for-sale, excluding securities pledged	$	2221,~~458~~873.48	7675.96	%	$	22,~~169~~458.4	7876.9	%
Fixed maturities, at fair value using the fair value option	~~547~~647.45		12.92	%	~~480~~547.84		1.79	%
Equity securities, available-for-sale	1918.27		0.1	%	619.72		—0.1	%
Short-term investments(1)	~~1,069~~429.47		31.75	%	~~746~~1,069.84		23.7	%
Mortgage loans on real estate	3,~~310~~881.95		1113.34	%	23,~~854~~310.49		1011.23	%
Policy loans	7974.87		0.3	%	8779.48		0.3	%
Limited partnerships/corporations	~~186~~227.34		0.68	%	~~172~~186.93		0.6	%
Derivatives	~~799~~978.48		23.74	%	~~891~~799.4		3.2.7	%
Other investments	4818.6		0.21	%	4948.46		0.2	%
Securities pledged	~~672~~748.42		2.36	%	~~626~~672.84		2.23	%
Total investments	$	2928,~~191~~898.89	100.0	%	$	2829,~~086~~191.08	100.0	%

⁽¹⁾ Short-term investments include investments with remaining maturities of one year or less, but greater than 3 months, at the time of purchase.

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Fixed Maturities

Total fixed maturities by market sector, including securities pledged, were as presented below as of the dates indicated:

	December 31, 2016
($ in millions)	AmortizedCost		% ofTotal		Fair Value		% ofTotal
Fixed maturities:
U.S. Treasuries	$	946.4	4.2	%	$	982.9	4.2	%
U.S. Government agencies and authorities	29.4		0.1	%	33.0		0.1	%
State, municipalities and political subdivisions	500.1		2.2	%	497.4		2.1	%
U.S. corporate public securities	9,992.8		44.5	%	10,444.7		44.9	%
U.S. corporate private securities	2,753.6		12.2	%	2,777.6		12.0	%
Foreign corporate public securities and foreign governments(1)	2,620.2		11.7	%	2,689.1		11.6	%
Foreign corporate private securities(1)	2,734.6		12.2	%	2,815.4		12.1	%
Residential mortgage-backed securities	1,647.0		7.3	%	1,749.7		7.5	%
Commercial mortgage-backed securities	951.2		4.2	%	957.1		4.1	%
Other asset-backed securities	317.8		1.4	%	322.6		1.4	%
Total fixed maturities, including securities pledged	$	22,493.1	100.0	%	$	23,269.5	100.0	%
(1) Primarily U.S. dollar denominated.
	December 31, 2015
($ in millions)	AmortizedCost		% ofTotal		Fair Value		% ofTotal
Fixed maturities:
U.S. Treasuries	$	992.7	4.3	%	$	1,058.7	4.5	%
U.S. Government agencies and authorities	79.4		0.3	%	81.9		0.3	%
State, municipalities and political subdivisions	359.1		1.5	%	360.5		1.5	%
U.S. corporate public securities	10,718.9		46.1	%	10,871.9		45.9	%
U.S. corporate private securities	2,365.0		10.2	%	2,394.4		10.1	%
Foreign corporate public securities and foreign governments(1)	2,826.9		12.2	%	2,793.0		11.8	%
Foreign corporate private securities(1)	2,592.9		11.2	%	2,626.0		11.1	%
Residential mortgage-backed securities	1,746.8		7.5	%	1,885.1		8.0	%
Commercial mortgage-backed securities	1,311.0		5.6	%	1,343.4		5.7	%
Other asset-backed securities	257.6		1.1	%	263.3		1.1	%
Total fixed maturities, including securities pledged	$	23,250.3	100.0	%	$	23,678.2	100.0	%
(1) Primarily U.S. dollar denominated.
	December 31, 2014
($ in millions)	AmortizedCost		% ofTotal		Fair Value		% ofTotal
Fixed maturities:
U.S. Treasuries	$	843.0	3.9	%	$	926.1	4.0	%
U.S. Government agencies and authorities	78.9		0.4	%	83.4		0.3	%
State, municipalities and political subdivisions	155.4		0.7	%	164.4		0.7	%
U.S. corporate public securities	9,651.4		44.1	%	10,307.6		44.3	%
U.S. corporate private securities	2,026.9		9.3	%	2,140.8		9.2	%
Foreign corporate public securities and foreign governments(1)	2,716.9		12.4	%	2,825.1		12.2	%
Foreign corporate private securities(1)	2,683.6		12.3	%	2,850.7		12.2	%
Residential mortgage-backed securities	1,881.8		8.6	%	2,050.5		8.8	%
Commercial mortgage-backed securities	1,531.7		7.0	%	1,627.5		7.0	%
Other asset-backed securities	292.7		1.3	%	300.9		1.3	%
Total fixed maturities, including securities pledged	$	21,862.3	100.0	%	$	23,277.0	100.0	%
(1) Primarily U.S. dollar denominated.

As of December 31, ~~2015~~2016, the average duration of our fixed maturities portfolio, including securities pledged, is between 6.05 and 67.50 years.

Fixed Maturities Credit Quality - Ratings

The Securities Valuation Office ("SVO") of the NAIC evaluates the fixed maturity security investments of insurers for regulatory reporting and capital assessment purposes and assigns securities to one of six credit quality categories called "NAIC designations." An internally developed rating is used as permitted by the NAIC if no rating is available. These designations are generally similar to the credit quality designations of the NAIC acceptable rating organizations ("ARO") for marketable fixed maturity securities, called rating agency designations except for certain structured securities as described below. NAIC designations of "1," highest quality and "2," high quality, include fixed maturity securities generally considered investment grade by such rating organizations. NAIC designations 3 through 6 include fixed maturity securities generally considered below investment grade by such rating organizations.

5859

The NAIC designations for structured securities, including subprime and Alt-A RMBS, are based upon a comparison of the bond's amortized cost to the NAIC's loss expectation for each security. Securities where modeling results in no expected loss in each scenario are considered to have the highest designation of NAIC 1. A large percentage of our RMBS securities carry the NAIC 1 designation while the ARO rating indicates below investment grade. This is primarily due to the credit and intent impairments recorded by us that reduced the amortized cost on these securities to a level resulting in no expected loss in any scenario, which corresponds to the NAIC 1 designation. The methodology reduces regulatory reliance on rating agencies and allows for greater regulatory input into the assumptions used to estimate expected losses from such structured securities. In the tables below, we present the rating of structured securities based on ratings from the NAIC methodologies described above (which may not correspond to rating agency designations). NAIC designations (e.g., NAIC 1-6) are based on the NAIC methodologies.

As a result of time lags between the funding of investments, the finalization of legal documents and the completion of the SVO filing process, the fixed maturity portfolio generally includes securities that have not yet been rated by the SVO as of each balance sheet date, such as private placements. Pending receipt of SVO ratings, the categorization of these securities by NAIC designation is based on the expected ratings indicated by internal analysis.

Information about certain of our fixed maturity securities holdings by the NAIC designation is set forth in the following tables. Corresponding rating agency designation does not directly translate into NAIC designation, but represents our best estimate of comparable ratings from rating agencies, including Moody's, S&P and Fitch. If no rating is available from a rating agency, then an internally developed rating is used. As of December 31, ~~2015~~2016 and ~~2014~~2015, the weighted average NAIC quality rating of our fixed maturities portfolio was 1.5.

The fixed maturities in our portfolio are generally rated by external rating agencies and, if not externally rated, are rated by us on a basis similar to that used by the rating agencies. As of December 31, ~~2015~~2016 and ~~2014~~2015, the weighted average quality rating of our fixed maturities portfolio was A. Ratings are derived from three ARO ratings and are applied as follows, based on the number of agency ratings received:

• when three ratings are received then the middle rating is applied;

• when two ratings are received then the lower rating is applied;

• when a single rating is received, the ARO rating is applied; and

• when ratings are unavailable then an internal rating is applied.

The following tables present credit quality of fixed maturities, including securities pledged, using NAIC designations as of the dates indicated:

($ in millions)	December 31, 2015
NAIC Quality Designation	1			2			3			4			5			6			Total Fair Value
U.S. Treasuries	$	1,058.7		$	—		$	—		$	—		$	—		$	—		$	1,058.7
U.S. Government agencies and authorities	81.9			—			—			—			—			—			81.9
State, municipalities and political subdivisions	340.3			19.9			0.3			—			—			—			360.5
U.S. corporate public securities	5,854.3			4,568.0			346.1			93.9			—			9.6			10,871.9
U.S. corporate private securities	1,118.2			1,160.5			98.0			17.7			—			—			2,394.4
Foreign corporate public securities and foreign governments(1)	1,528.0			1,086.2			168.2			8.4			1.0			1.2			2,793.0
Foreign corporate private securities(1)	319.3			2,205.5			86.5			14.2			—			0.5			2,626.0
Residential mortgage-backed securities	1,812.3			7.0			3.8			15.8			18.0			28.2			1,885.1
Commercial mortgage-backed securities	1,339.7			—			1.1			2.6			—			—			1,343.4
Other asset-backed securities	237.1			8.3			5.4			11.3			1.2			—			263.3
Total fixed maturities	$	13,689.8		$	9,055.4		$	709.4		$	163.9		$	20.2		$	39.5		$	23,678.2
% of Fair Value	57.8		%	38.2		%	3.0		%	0.7		%	0.1		%	0.2		%	100.0		%
(1) Primarily U.S. dollar denominated.
($ in millions)	December 31, 2014
NAIC Quality Designation	1			2			3			4			5			6			Total Fair Value
U.S. Treasuries	$	926.1		$	—		$	—		$	—		$	—		$	—		$	926.1
U.S. Government agencies and authorities	83.4			—			—			—			—			—			83.4
State, municipalities and political subdivisions	161.4			3.0			—			—			—			—			164.4
U.S. corporate public securities	5,699.7			4,168.7			374.0			54.1			0.6			10.5			10,307.6
U.S. corporate private securities	792.7			1,259.1			83.9			5.1			—			—			2,140.8
Foreign corporate public securities and foreign governments(1)	1,471.8			1,212.5			135.0			5.8			—			—			2,825.1
Foreign corporate private securities(1)	357.3			2,403.5			78.7			8.7			—			2.5			2,850.7
Residential mortgage-backed securities	1,952.0			14.8			19.0			7.3			23.0			34.4			2,050.5
Commercial mortgage-backed securities	1,620.3			—			3.6			3.6			—			—			1,627.5
Other asset-backed securities	272.2			23.9			—			4.1			0.7			—			300.9
Total fixed maturities	$	13,336.9		$	9,085.5		$	694.2		$	88.7		$	24.3		$	47.4		$	23,277.0
% of Fair Value	57.3		%	39.0		%	3.0		%	0.4		%	0.1		%	0.2		%	100.0		%
(1) Primarily U.S. dollar denominated.



	60

The following tables present credit quality of fixed maturities, including securities pledged, using NAIC designations as of the dates indicated:



($ in millions)	December 31, 2016
NAIC Quality Designation	1			2			3			4			5			6			Total Fair Value
U.S. Treasuries	$	982.9		$	—		$	—		$	—		$	—		$	—		$	982.9
U.S. Government agencies and authorities	33.0			—			—			—			—			—			33.0
State, municipalities and political subdivisions	463.7			33.4			0.3			—			—			—			497.4
U.S. corporate public securities	5,683.5			4,375.9			311.4			53.4			12.5			8.0			10,444.7
U.S. corporate private securities	1,299.0			1,358.8			80.5			36.8			—			2.5			2,777.6
Foreign corporate public securities and foreign governments⁽¹⁾	1,438.7			1,049.6			179.8			18.3			2.3			0.4			2,689.1
Foreign corporate private securities⁽¹⁾	399.7			2,219.1			180.1			9.3			1.3			5.9			2,815.4
Residential mortgage-backed securities	1,690.6			9.7			6.0			7.4			14.9			21.1			1,749.7
Commercial mortgage-backed securities	956.2			—			—			0.9			—			—			957.1
Other asset-backed securities	269.4			36.3			12.8			0.6			—			3.5			322.6
Total fixed maturities	$	13,216.7		$	9,082.8		$	770.9		$	126.7		$	31.0		$	41.4		$	23,269.5
% of Fair Value	56.9		%	39.0		%	3.3		%	0.5		%	0.1		%	0.2		%	100.0		%
⁽¹⁾Primarily U.S. dollar denominated.

($ in millions)	December 31, 2015
NAIC Quality Designation	1			2			3			4			5			6			Total Fair Value
U.S. Treasuries	$	1,058.7		$	—		$	—		$	—		$	—		$	—		$	1,058.7
U.S. Government agencies and authorities	81.9			—			—			—			—			—			81.9
State, municipalities and political subdivisions	340.3			19.9			0.3			—			—			—			360.5
U.S. corporate public securities	5,854.3			4,568.0			346.1			93.9			—			9.6			10,871.9
U.S. corporate private securities	1,118.2			1,160.5			98.0			17.7			—			—			2,394.4
Foreign corporate public securities and foreign governments⁽¹⁾	1,528.0			1,086.2			168.2			8.4			1.0			1.2			2,793.0
Foreign corporate private securities⁽¹⁾	319.3			2,205.5			86.5			14.2			—			0.5			2,626.0
Residential mortgage-backed securities	1,812.3			7.0			3.8			15.8			18.0			28.2			1,885.1
Commercial mortgage-backed securities	1,339.7			—			1.1			2.6			—			—			1,343.4
Other asset-backed securities	237.1			8.3			5.4			11.3			1.2			—			263.3
Total fixed maturities	$	13,689.8		$	9,055.4		$	709.4		$	163.9		$	20.2		$	39.5		$	23,678.2
% of Fair Value	57.8		%	38.2		%	3.0		%	0.7		%	0.1		%	0.2		%	100.0		%
⁽¹⁾Primarily U.S. dollar denominated.



	61

The following tables present credit quality of fixed maturities, including securities pledged, using ARO ratings as of the dates indicated:

($ in millions)	December 31, 2016
ARO Quality Ratings	AAA			AA			A			BBB			BB and Below			Total Fair Value
U.S. Treasuries	$	982.9		$	—		$	—		$	—		$	—		$	982.9
U.S. Government agencies and authorities	33.0			—			—			—			—			33.0
State, municipalities and political subdivisions	53.7			301.3			108.7			33.4			0.3			497.4
U.S. corporate public securities	202.0			852.0			4,629.6			4,360.1			401.0			10,444.7
U.S. corporate private securities	117.6			107.4			962.7			1,442.5			147.4			2,777.6
Foreign corporate public securities and foreign governments(1)	35.2			342.3			1,070.6			1,040.2			200.8			2,689.1
Foreign corporate private securities(1)	—			—			479.5			2,239.9			96.0			2,815.4
Residential mortgage-backed securities	1,426.3			1.7			2.1			21.2			298.4			1,749.7
Commercial mortgage-backed securities	687.5			—			131.3			20.0			118.3			957.1
Other asset-backed securities	167.4			29.0			29.2			53.8			43.2			322.6
Total fixed maturities	$	3,705.6		$	1,633.7		$	7,413.7		$	9,211.1		$	1,305.4		$	23,269.5
% of Fair Value	15.9		%	7.0		%	31.9		%	39.6		%	5.6		%	100.0		%
(1) Primarily U.S. dollar denominated.
($ in millions)	December 31, 2015
ARO Quality Ratings	AAA			AA			A			BBB			BB and Below			Total Fair Value
U.S. Treasuries	$	1,058.7		$	—		$	—		$	—		$	—		$	1,058.7
U.S. Government agencies and authorities	81.9			—			—			—			—			81.9
State, municipalities and political subdivisions	40.0			221.1			79.2			19.9			0.3			360.5
U.S. corporate public securities	224.4			775.3			4,834.3			4,568.0			469.9			10,871.9
U.S. corporate private securities	116.2			50.9			867.9			1,280.1			79.3			2,394.4
Foreign corporate public securities and foreign governments(1)	36.6			456.8			1,046.1			1,074.6			178.9			2,793.0
Foreign corporate private securities(1)	—			9.8			411.7			2,095.6			108.9			2,626.0
Residential mortgage-backed securities	1,604.1			6.6			2.9			17.9			253.6			1,885.1
Commercial mortgage-backed securities	853.0			148.8			99.3			52.0			190.3			1,343.4
Other asset-backed securities	115.6			6.5			18.3			23.0			99.9			263.3
Total fixed maturities	$	4,130.5		$	1,675.8		$	7,359.7		$	9,131.1		$	1,381.1		$	23,678.2
% of Fair Value	17.4		%	7.1		%	31.1		%	38.6		%	5.8		%	100.0		%
(1) Primarily U.S. dollar denominated.
($ in millions)	December 31, 2014
ARO Quality Ratings	AAA			AA			A			BBB			BB and Below			Total Fair Value
U.S. Treasuries	$	926.1		$	—		$	—		$	—		$	—		$	926.1
U.S. Government agencies and authorities	83.4			—			—			—			—			83.4
State, municipalities and political subdivisions	17.6			107.2			36.6			3.0			—			164.4
U.S. corporate public securities	177.2			723.7			4,778.0			4,168.7			460.0			10,307.6
U.S. corporate private securities	140.1			52.3			622.2			1,287.3			38.9			2,140.8
Foreign corporate public securities and foreign governments(1)	35.4			517.7			932.2			1,199.1			140.7			2,825.1
Foreign corporate private securities(1)	—			17.3			434.4			2,284.3			114.7			2,850.7
Residential mortgage-backed securities	1,689.8			9.6			7.0			33.3			310.8			2,050.5
Commercial mortgage-backed securities	889.9			282.1			198.8			38.6			218.1			1,627.5
Other asset-backed securities	140.5			4.4			25.3			15.0			115.7			300.9
Total fixed maturities	$	4,100.0		$	1,714.3		$	7,034.5		$	9,029.3		$	1,398.9		$	23,277.0
% of Fair Value	17.6		%	7.4		%	30.2		%	38.8		%	6.0		%	100.0		%
(1) Primarily U.S. dollar denominated.

Fixed maturities rated BB and below may have speculative characteristics and changes in economic conditions or other circumstances that are more likely to lead to a weakened capacity of the issuer to make principal and interest payments than is the case with higher rated fixed maturities.

6162

Unrealized Capital Losses

Gross unrealized capital losses on fixed maturities, including securities pledged, ~~increased~~decreased $~~377~~263.46 million from $93470.48 million to $~~470~~207.82 million for the year ended December 31, ~~2015~~2016. The ~~increase~~decrease in gross unrealized capital losses was primarily due to narrowing ~~rising interest rates and widening~~ credit spreads. Gross unrealized losses on fixed maturities, including securities pledged, ~~decreased~~increased $~~230~~377.04 million from $~~323~~93.4 million to $93470.48 million for the year ended December 31, ~~2014~~2015. The ~~decrease~~increase in gross unrealized capital losses was primarily due to ~~declining~~rising interest rates and widening credit spreads.

As of December 31, ~~2015~~2016 and ~~2014~~2015 , we did not have any fixed maturities with an unrealized capital loss in excess of $10.0 million.

As of December 31, ~~2015~~2016 and ~~2014~~2015, we had $21.29 billion and $2.52 billion, fair value of energy sector fixed maturity securities, constituting 98.31% and 109.73%, of total fixed maturities portfolio, with gross unrealized capital losses of $~~175~~20.95 million and $27175.59 million, respectively. See the Investments Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K for further information on unrealized capital losses.

Subprime and Alt-A Mortgage Exposure

Pre-2008 vintage subprime and Alt-A mortgage collateral continues to distance itself from the credit crisis and payment performance reflects a housing market firmly entrenched in recovery. While collateral losses continue to be realized, the ~~amounts~~pace and magnitude at which losses are being realized are steadily decreasing. Serious delinquencies and other measures of performance, like prepayments and loan defaults, have also displayed sustained periods of improvement. Reflecting these fundamental improvements, related bond prices and sector liquidity have increased substantially since the credit crisis. ~~Home~~ More broadly, home prices have moved steadily higher, further supporting bond payment performance. Year-over-year home price measures, while at a lower magnitude than experienced in ~~recent~~the years following the trough in home prices, appear to have stabilized at sustainable levels, when measured on a nationwide basis. This backdrop remains supportive of continued improvement in overall borrower payment behavior. Reflecting these fundamental improvements, related bond prices and sector liquidity have increased substantially since the credit crisis. In managing our risk exposure to subprime and Alt-A mortgages, we take into account collateral performance and structural characteristics associated with our various positions.

We do not originate or purchase subprime or Alt-A whole-loan mortgages. Subprime lending is the origination of loans to customers with weaker credit profiles. We define Alt-A mortgages to include the following: residential mortgage loans to customers who have strong credit profiles but lack some element(s), such as documentation to substantiate income; residential mortgage loans to borrowers that would otherwise be classified as prime but ~~whose~~for which loan structure provides repayment options to the borrower that increase the risk of default; and any securities backed by residential mortgage collateral not clearly identifiable as prime or subprime.

We have exposure to RMBS, CMBS and ABS. Our exposure to subprime mortgage-backed securities is primarily in the form of ABS structures collateralized by subprime residential mortgages and the majority of these holdings were included in Other ABS under "Fixed Maturities" above. As of December 31, ~~2015~~2016, the fair value, amortized cost, and gross unrealized losses related to our exposure to subprime mortgage-backed securities totaled $~~118~~56.95 million, $~~116~~53.37 million and $52.65 million, respectively, representing 0.52% of total fixed maturities, including securities pledged, based on fair value. As of December 31, ~~2014~~2015, the fair value, amortized cost, and gross unrealized losses related to our exposure to subprime mortgage-backed securities totaled $~~152~~118.69 million, $~~148~~116.53 million and $75.06 million, respectively, representing 0.75% of total fixed maturities, including securities pledged, based on fair value.

6263

The following table presents our exposure to subprime mortgage-backed securities by credit quality using NAIC designations, ARO ratings and vintage year as of the dates indicated:

	% of Total Subprime Mortgage-backed Securities
	NAIC Quality Designation			ARO Quality Ratings			Vintage
December 31, 2016
	1	94.7	%	AAA	1.1	%	2007	6.5	%
	2	—	%	AA	0.9	%	2006	2.4	%
	3	4.4	%	A	30.9	%	2005 and prior	91.1	%
	4	0.9	%	BBB	1.4	%		100.0	%
	5	—	%	BB and below	65.7	%
	6	—	%		100.0	%
		100.0	%
December 31, 2015
	1	89.5	%	AAA	—	%	2007	15.3	%
	2	3.8	%	AA	3.7	%	2006	2.0	%
	3	3.2	%	A	11.7	%	2005 and prior	82.7	%
	4	2.5	%	BBB	8.1	%		100.0	%
	5	1.0	%	BB and below	76.5	%
	6	—	%		100.0	%
		100.0	%
December 31, 2014
	1	82.8	%	AAA	—	%	2007	12.9	%
	2	14.0	%	AA	0.4	%	2006	6.9	%
	3	—	%	A	12.9	%	2005 and prior	80.2	%
	4	2.7	%	BBB	8.2	%		100.0	%
	5	0.5	%	BB and below	78.5	%
	6	—	%		100.0	%
		100.0	%

Our exposure to Alt-A mortgages is included in the "RMBS" line item in the "Fixed Maturities" table under "Fixed Maturities" above. As of December 31, ~~2015~~2016, the fair value, amortized cost and gross unrealized losses related to our exposure to Alt-A RMBS totaled $8757.09 million, $7650.02 million and $1.56 million, respectively, representing 0.42% of total fixed maturities, including securities pledged, based on fair value. As of December 31, ~~2014~~2015, the fair value, amortized cost, and gross unrealized losses related to our exposure to Alt-A RMBS totaled $~~104~~87.90 million, $9176.50 million and $1.5 million, respectively, representing 0.54% of total fixed maturities, including securities pledged, based on fair value.

The following table presents our exposure to Alt-A RMBS by credit quality using NAIC designations, ARO ratings and vintage year as of the dates indicated:

	% of Total Alt-A Mortgage-backed Securities
	NAIC Quality Designation			ARO Quality Ratings			Vintage
December 31, 2016
	1	93.4	%	AAA	0.1	%	2007	26.9	%
	2	0.3	%	AA	0.1	%	2006	26.0	%
	3	6.3	%	A	0.5	%	2005 and prior	47.1	%
	4	—	%	BBB	3.5	%		100.0	%
	5	—	%	BB and below	95.8	%
	6	—	%		100.0	%
		100.0	%
December 31, 2015
	1	97.2	%	AAA	—	%	2007	33.8	%
	2	1.4	%	AA	0.1%	%	2006	19.6	%
	3	1.0	%	A	0.5	%	2005 and prior	46.6	%
	4	—	%	BBB	2.9	%		100.0	%
	5	0.4	%	BB and below	96.5	%
	6	—	%		100.0	%
		100.0	%
December 31, 2014
	1	92.6	%	AAA	—		2007	32.3	%
	2	3.5	%	AA	—		2006	19.7	%
	3	3.5	%	A	0.4	%	2005 and prior	48.0	%
	4	0.4	%	BBB	3.2	%		100.0	%
	5	—	%	BB and below	96.4	%
	6	—	%		100.0	%
		100.0	%

6364

Commercial Mortgage-backed and Other Asset-backed Securities

CMBS investments represent pools of commercial mortgages that are broadly diversified across property types and geographical areas. Delinquency rates on commercial mortgages increased over the course of 2009 through mid-2012. Since then, the steep pace of increases observed in the early years following the credit crisis has ceased, and the percentage of delinquent loans declined through ~~2013~~February ~~and~~2016 ~~the majority of 2014. In 2015, this trend has generally continued~~ (although certain months did post marginal increases). Since then, ~~leaving~~the delinquency ~~measures~~rate athas ~~multi-year~~increased ~~lows~~slowly. Other performance metrics like vacancies, property values and rent levels have ~~also~~posted ~~continued~~sustained toimprovement ~~improve~~trends, although these metrics are not observed uniformly, differing by dimensions such as geographic location and property type. These improvements have been buoyed by some of the same macro-economic tailwinds alluded to in regards to our subprime and Alt-A mortgage exposure. InA ~~addition, a~~ robust environment for property refinancing ~~has~~was ~~continued~~particularly ~~to be~~ supportive of improving credit performance metrics throughout much of the ~~year~~post-credit crisis period. ~~The~~In ~~new~~the ~~issue~~first ~~market~~quarter ~~for~~of ~~CMBS~~2016, ~~has~~however, ~~been~~this avirtuous ~~meaningful~~lending ~~contributor~~cycle towas disrupted as the ~~refinance~~dislocation ~~environment.~~in ~~While~~corporate ~~spread~~credit ~~performance~~markets negatively impacted liquidity conditions in CMBS. As a result, the ~~second~~new issuance market for CMBS slowed considerably during the first half of ~~the~~this year. ~~ended~~This ~~December 31~~dynamic, ~~2015~~should isit ~~characterized~~resurface, asis ~~volatile,~~a itrisk ~~has~~for ~~steadily~~the ~~continued~~overall ~~its~~performance ~~recovery~~health ~~from~~of the ~~credit~~sectors ~~crisis~~and is being monitored closely for potential negative impacts. InSpread ~~terms~~performance ofin ~~aggregate~~the ~~primary~~first ~~issuance~~half ~~volume~~of 2016 was volatile, ~~2015~~although ~~represents~~signs ~~another~~of ~~new~~increased ~~post~~liquidity ~~crisis~~and ~~high~~more general stability in credit spreads was observed over the course of the third quarter and into year end.

For non-student loan consumer ABS, delinquency and loss rates have been maintained at levels considered low by historical standards and indicative of high credit quality. Relative strength in various credit metrics across multiple types of asset-backed loans have been observed on a sustained basis.

The following table presents our exposure to CMBS holdings by credit quality using NAIC designations, ARO ratings and vintage year as of the dates indicated:

	% of Total CMBS
	NAIC Quality Designation			ARO Quality Ratings			Vintage
December 31, 2016
	1	99.9	%	AAA	71.8	%	2016	9.9	%
	2	—	%	AA	—	%	2015	26.9	%
	3	—	%	A	13.7	%	2014	16.4	%
	4	0.1	%	BBB	2.1	%	2013	11.0	%
	5	—	%	BB and below	12.4	%	2012	0.9	%
	6	—	%		100.0	%	2011	1.2	%
		100.0	%				2010 and prior	33.7	%
								100.0	%
December 31, 2015
	1	99.7	%	AAA	63.5	%	2015	17.7	%
	2	—	%	AA	11.1	%	2014	16.3	%
	3	0.1	%	A	7.4	%	2013	7.3	%
	4	0.2	%	BBB	3.9	%	2012	0.4	%
	5	—	%	BB and below	14.1	%	2011	0.6	%
	6	—	%		100.0	%	2010	—	%
		100.0	%				2009 and prior	57.7	%
								100.0	%
December 31, 2014
	1	99.6	%	AAA	54.7	%	2014	10.5	%
	2	—	%	AA	17.3	%	2013	5.1	%
	3	0.2	%	A	12.2	%	2012	—	%
	4	0.2	%	BBB	2.4	%	2011	0.3	%
	5	—	%	BB and below	13.4	%	2010	—	%
	6	—	%		100.0	%	2009	—	%
		100.0	%				2008 and prior	84.1	%
								100.0	%

As of December 31, ~~2015~~2016, the fair value, ~~and~~ amortized cost and gross unrealized loss related to our exposure to Other ABS, excluding subprime exposure, totaled $~~147~~267.06 million,$265.1 million, and $~~142~~0.85 million, respectively. ~~There were no gross unrealized losses related to Other ABS.~~ As of December 31, ~~2014~~2015, the fair value and amortized cost ~~related~~of to our exposure to Other ABS, excluding subprime exposure, totaled $~~152~~147.50 million and $~~146~~142.38 million, respectively. There were no gross unrealized losses related to Other ABS.

As of December 31, ~~2015~~2016, Other ABS was broadly diversified both by type and issuer with credit card receivables ~~comprising 55.3% of total Other ABS, excluding subprime exposure. There were no automobile receivables~~ and nonconsolidated collateralized loan obligations ("CLOs") ~~related~~comprising ~~to Other ABS~~15. As3% ofand ~~December 31~~53.9%, ~~2014~~respectively, of total Other ABS, ~~was broadly~~excluding ~~diversified both by type and~~

6465

~~issuer~~subprime ~~with~~exposure. ~~credit~~There ~~card~~were no automobile receivables, ~~nonconsolidated~~related ~~CLOs~~to ~~and~~Other ~~automobile~~ABS. As ~~receivables~~of December 31, ~~comprising 54.8%~~2015, ~~2.6%~~Other ABS was broadly diversified both by type and 1issuer with credit card receivables comprising 55.23%, ~~respectively,~~ of total Other ABS, excluding subprime exposure. There were no automobile receivables and nonconsolidated collateralized loan obligations ("CLOs") related to Other ABS.

The following table presents our exposure to Other ABS holdings, excluding subprime exposure, by credit quality using NAIC designations, ARO ratings and vintage year as of the dates indicated:

	% of Total Other ABS
	NAIC Quality Designation			ARO Quality Ratings			Vintage
December 31, 2016
	1	81.3	%	AAA	62.3	%	2016	66.0	%
	2	13.5	%	AA	10.7	%	2015	3.7	%
	3	3.9	%	A	4.4	%	2014	—	%
	4	—	%	BBB	19.8	%	2013	—	%
	5	—	%	BB and below	2.8	%	2012	—	%
	6	1.3	%		100.0	%	2011	—	%
		100.0	%				2010 and prior	30.3	%
								100.0	%
December 31, 2015
	1	90.6	%	AAA	78.6	%	2015	7.7	%
	2	2.6	%	AA	1.4	%	2014	19.4	%
	3	1.1	%	A	3.0	%	2013	—	%
	4	5.7	%	BBB	9.1	%	2012	—	%
	5	—	%	BB and below	7.9	%	2011	—	%
	6	—	%		100.0	%	2010	1.8	%
		100.0	%				2009 and prior	71.1	%
								100.0	%
December 31, 2014
	1	98.4	%	AAA	92.2	%	2014	18.8	%
	2	1.6	%	AA	2.6	%	2013	—	%
	3	—	%	A	3.6	%	2012	1.0	%
	4	—	%	BBB	1.6	%	2011	—	%
	5	—	%	BB and below	—	%	2010	2.4	%
	6	—	%		100.0	%	2009	6.8	%
		100.0	%				2008 and prior	71.0	%
								100.0	%

Troubled Debt Restructuring

Although our portfolio of commercial mortgage loans and private placements is high quality, a small number of these contracts have been granted modifications, certain of which are considered to be troubled debt restructurings. See the Investments Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K for further information on troubled debt restructuring.

Mortgage Loans on Real Estate

We rate commercial mortgages to quantify the level of risk. We place those loans with higher risk on a watch list and closely monitor these loans for collateral deficiency or other credit events that may lead to a potential loss of principal and/or interest. If we determine the value of any mortgage loan to be OTTI (i.e., when it is probable that we will be unable to collect on amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to either the present value of expected cash flows from the loan, discounted at the loan's effective interest rate, or fair value of the collateral. For those mortgages that are determined to require foreclosure, the carrying value is reduced to the fair value of the underlying collateral, net of estimated costs to obtain and sell at the point of foreclosure. The carrying value of the impaired loans is reduced by establishing an other-than-temporary write-down recorded in Net realized capital gains (losses) in the Statements of Operations.

Loan-to-value ("LTV") and debt service coverage ("DSC") ratios are measures commonly used to assess the risk and quality of commercial mortgage loans. The LTV ratio, calculated at time of origination, is expressed as a percentage of the amount of the loan relative to the value of the underlying property. An LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the value of the underlying collateral. The DSC ratio, based upon the most recently received financial statements, is expressed as a percentage of the amount of a property's Net income (loss) to its debt service payments. A DSC ratio of less than 1.0 indicates that property's operations do not generate sufficient income to cover debt payments. These ratios are utilized as part of the review process described above.

65As of December 31, 2016 and 2015, our mortgage loans on real estate portfolio had a weighted average DSC of 2.2 times, and a weighted average LTV ratio of 61.1% and 60.4%, respectively. See the Investments Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K for further information on mortgage loans on real estate.

As of December 31, 2015 and 2014, our mortgage loans on real estate portfolio had a weighted average DSC of 2.2 and 2.0 times, and a weighted average LTV ratio of 60.4% and 60.5%, respectively. See the Investments Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K for further information on mortgage loans on real estate.66

	Recorded Investment
	Debt Service Coverage Ratios
($ in millions)	> 1.5x		>1.25x - 1.5x		>1.0x - 1.25x		< 1.0x		Commercial mortgage loans secured by land or construction loans		Total		% of Total
December 31, 2016
Loan-to-Value Ratios:
0% - 50%	$	390.5	$	29.8	$	5.0	$	3.4	$	—	$	428.7	11.1	%
>50% - 60%	846.8		93.5		32.6		27.4		10.5		1,010.8		26.0	%
>60% - 70%	1,597.7		225.1		235.0		41.5		4.8		2,104.1		54.2	%
>70% - 80%	178.6		90.5		34.7		2.2		28.7		334.7		8.6	%
>80% and above	—		—		0.9		2.7		0.6		4.2		0.1	%
Total	$	3,013.6	$	438.9	$	308.2	$	77.2	$	44.6	$	3,882.5	100.0	%
	Recorded Investment
	Debt Service Coverage Ratios
($ in millions)	> 1.5x		>1.25x - 1.5x		>1.0x - 1.25x		< 1.0x		Commercial mortgage loans secured by land or construction loans		Total		% of Total
December 31, 2015
Loan-to-Value Ratios:
0% - 50%	$	373.3	$	17.6	$	6.4	$	2.6	$	—	$	399.9	12.1	%
>50% - 60%	762.5		97.8		24.2		18.4		25.0		927.9		28.0	%
>60% - 70%	1,345.9		325.1		74.5		11.5		15.0		1,772.0		53.5	%
>70% - 80%	87.6		64.8		39.5		3.8		11.3		207.0		6.3	%
>80% and above	—		—		1.0		4.1		—		5.1		0.1	%
Total	$	2,569.3	$	505.3	$	145.6	$	40.4	$	51.3	$	3,311.9	100.0	%
	Recorded Investment
	Debt Service Coverage Ratios
($ in millions)	> 1.5x		>1.25x - 1.5x		>1.0x - 1.25x		< 1.0x		Commercial mortgage loans secured by land or construction loans		Total		% of Total
December 31, 2014
Loan-to-Value Ratios:
0% - 50%	$	317.7	$	38.4	$	3.8	$	7.3	$	—	$	367.2	12.9	%
>50% - 60%	517.9		56.8		57.0		42.5		—		674.2		23.6	%
>60% - 70%	1,221.3		231.2		197.3		17.4		3.8		1,671.0		58.5	%
>70% - 80%	28.9		70.9		23.3		13.3		—		136.4		4.8	%
>80% and above	—		—		1.0		5.4		—		6.4		0.2	%
Total	$	2,085.8	$	397.3	$	282.4	$	85.9	$	3.8	$	2,855.2	100.0	%

Other-Than-Temporary Impairments

We evaluate available-for-sale fixed maturities and equity securities for impairment on a regular basis. The assessment of whether impairments have occurred is based on a case-by-case evaluation of the underlying reasons for the decline in estimated fair value. See the Business, Basis of Presentation and Significant Accounting Policies Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K for the policy used to evaluate whether the investments are other-than-temporarily impaired.

For the year ended December 31, ~~2015~~2016, we recorded $75.3 million of credit related OTTI of which the primary contributor was $41.25 million of write-downs recorded in the Foreign ~~Government~~Private ~~and Public~~ sector. For the year ended December 31, ~~2015~~2016, we recorded $254.57 million of intent related OTTI, which were primarily related to the intent to sell positions in energy sector public corporate credits either because of a commitment to sell or an expectation that we may be required to sell as a result of our investment guidelines. See the Investments Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K for further information on OTTI.

European Exposures

We closely monitor our exposures to European sovereign debt in general, with a primary focus on the sovereign debt of Greece, Ireland, Italy, Portugal and Spain (which we refer to as "peripheral Europe"), as these countries have applied for support from the European Financial Stability Facility or received support from the European Central Bank via government bond purchases in the secondary market.



	67

The financial turmoil in Europe continues to be a potential threat to global capital markets and remains a challenge to global financial stability. Additionally, the possibility of capital market volatility spreading through a highly integrated and interdependent banking system remains. Despite signs of continuous improvement in the region, it is our view that the risk among European sovereigns and financial institutions still warrants scrutiny, in addition to our customary surveillance and risk monitoring, given how highly correlated these sectors of the region have become.

The United States and European Union continue to maintain sanctions against select Russian businesses in response to the ongoing conflict in eastern Ukraine. We remain comfortable with our aggregate Russian exposure of $5141.82 million, given its relatively small allocation in our total investment portfolio.

We quantify and allocate our exposure to the region, as described in the table below, by attempting to identify aspects of the region or country risk to which we are exposed. Among the factors we consider are the nationality of the issuer, the nationality of the issuer's ultimate parent, the corporate and economic relationship between the issuer and its parent, as well as the political, legal and economic environment in which each functions. By undertaking this assessment, we believe that we develop a more accurate assessment of the actual geographic risk, with a more integrated understanding of contributing factors to the full risk profile of the issuer.

In the normal course of our ongoing risk and portfolio management process, we closely monitor compliance with a credit limit hierarchy designed to minimize overly concentrated risk exposures by geography, sector and issuer. This framework takes into account various factors such as internal and external ratings, capital efficiency and liquidity and is overseen by a combination of Investment and Corporate Risk Management, as well as insurance portfolio managers focused specifically on managing the investment risk embedded in our portfolio.

AsThe offollowing ~~December 31,~~table ~~2015,~~presents weour ~~had~~European ~~$210.3 million of exposure to peripheral Europe~~exposures, ~~which~~for ~~consisted~~selected ofcountries a broadly diversified portfolio of credit-related investments primarily in the industrial and utility sectors. We did not have any fixed maturities or equity securities exposure to European sovereigns or financial institutions based inon ~~peripheral Europe. Peripheral European exposure included non-sovereign exposure in Ireland of $43.6 million~~risk, ~~Italy~~at offair ~~$91.8~~value ~~million~~ and ~~Spain~~amortized ofcost ~~$74.9~~as ~~million. We did not have any exposure to Greece or Portugal. As~~ of December 31, 2015, we did not have any exposure to derivative assets within the financial institutions based in peripheral Europe. For purposes of calculating the derivative assets exposure, we have aggregated exposure to single name and portfolio product CDS, as well as non-CDS derivative exposure for which it either has counterparty or direct credit exposure to a company whose country of risk is in scope.2016:

Among the remaining $2.9 billion of total non-peripheral European exposure, we had a portfolio of credit-related assets similarly diversified by country and sector across developed and developing Europe. As of December 31, 2015, our sovereign exposure was $75.2 million, which consisted of fixed maturities. We also had $440.0 million in net exposure to non-peripheral financial institutions with a concentration in France of $117.7 million, The Netherlands of $90.3 million, Switzerland of $91.5 million and the United Kingdom of $109.8 million. The balance of $2.3 billion was invested across non-peripheral, non-financial institutions.



Selected Countries Fixed Maturities and Equity Securities
($ in millions)	Sovereign		Financial Institutions		Non-Financial Institutions			Total (Fair Value)			Total (Amortized Cost)
Ireland	$	—	$	—	$	57.9	⁽¹⁾	$	57.9	⁽¹⁾	$	53.6
Italy	—		—		64.5			64.5			61.7
Spain	—		—		69.5			69.5			64.0
Total Peripheral Europe	$	—	$	—	$	191.9		$	191.9		$	179.3

~~In addition to aggregate concentration in the United Kingdom of $~~(1~~,080.7~~) ~~million,~~Includes ~~we had significant non-peripheral European total country exposures in The Netherlands of~~ $~~386~~0.64 million, inderivative ~~France of $390~~assets.9 million, in Germany of $266.8 million and in Switzerland of $315.1 million. We place additional scrutiny on our financial exposure in the United Kingdom, France, Switzerland and The Netherlands given our concern for the potential for volatility to spread through the European banking system. We believe the primary risk results from market value fluctuations resulting from spread volatility and the secondary risk is default risk, dependent upon the strength of the recovery of economic conditions in Europe.

67We did not have any exposure to Greece or Portugal. Among the remaining $2.8 billion of total non-peripheral European exposure, we had a portfolio of credit-related assets similarly diversified by country and sector across developed and developing Europe. As of December 31, 2016, our sovereign exposure was $79.5 million, which consisted of fixed maturities. We also had $441.6 million in net exposure to non-peripheral financial institutions with a concentration in France of $87.1 million, The Netherlands of $78.3 million, Switzerland of $117.2 million and the United Kingdom of $128.5 million. The balance of $2.2 billion was invested across non-peripheral, non-financial institutions.

In addition to aggregate concentration in the United Kingdom of $1,052.1 million, we had significant non-peripheral European total country exposures in The ~~following~~Netherlands ~~table~~of ~~represents~~$396.6 million, in France of $303.5 million, in Germany of $261.2 million and in Switzerland of $285.7 million. We place additional scrutiny on our financial exposure in the United Kingdom, France, Switzerland and The Netherlands given our concern for the potential for volatility to spread through the European ~~exposures~~banking atsystem. We ~~fair~~believe the primary risk results from market value fluctuations resulting from spread volatility and ~~amortized~~the ~~cost~~secondary asrisk ofis ~~December 31~~default risk, ~~2015~~dependent upon the strength of the recovery of economic conditions in Europe.

	Fixed Maturity and Equity Securities										Loan and Receivables Sovereign (AmortizedCost)		Derivative Assets											Net Non-U.S. Funded(1)
($ in millions)	Sovereign		Financial Institutions		Non-Financial Institutions		Total (Fair Value)		Total(Amortized Cost)					Sovereign		Financial Institutions		Non-Financial Institutions		Less: Margin & Collateral		Total, (Fair Value)
Ireland	$	—	$	—	$	43.2	$	43.2	$	39.7	$	—		$	—	$	—	$	0.4	$	—	$	0.4	$	43.6
Italy	—		—		91.8		91.8		90.0		—			—		—		—		—		—		91.8
Spain	—		—		74.9		74.9		68.2		—			—		—		—		—		—		74.9
Total Peripheral Europe	$	—	$	—	$	209.9	$	209.9	$	197.9	$	—		$	—	$	—	$	0.4	$	—	$	0.4	$	210.3
France	$	—	$	70.8	$	273.2	$	344.0	$	331.6	$	—		$	—	$	206.3	$	—	$	159.4	$	46.9	$	390.9
Germany	—		9.9		256.2		266.1		265.1		—			—		13.4		—		12.7		0.7		266.8
Netherlands	—		90.3		296.3		386.6		377.4		—			—		1.3		—		1.3		—		386.6
Norway	—		—		139.1		139.1		135.0		—			—		—		—		—		—		139.1
Switzerland	—		89.3		223.2		312.5		302.3		—			—		2.2		0.4		—		2.6		315.1
United Kingdom	—		79.5		970.9		1,050.4		1,039.8		—			—		250.6		—		220.3		30.3		1,080.7
Other non-peripheral(2)	75.2		20.1		177.9		273.2		264.6		—			—		—		—		—		—		273.2
Total Non-Peripheral Europe	75.2		359.9		2,336.8		2,771.9		2,715.8		—			—		473.8		0.4		393.7		80.5		2,852.4
Total	$	75.2	$	359.9	$	2,546.7	$	2,981.8	$	2,913.7	$	—		$	—	$	473.8	$	0.8	$	393.7	$	80.9	$	3,062.7

(1) Represents: (i) Fixed maturity and equity securities at fair value; and (ii) Derivative assets at fair value.

(2) Other non-peripheral countries include: Belgium, Croatia, Denmark, Finland, Kazakhstan, Latvia, Lithuania, Russian Federation, Slovakia, Sweden and Turkey.



	68

Liquidity and Capital Resources

Liquidity is our ability to generate sufficient cash flows to meet the cash requirements of operating, investing and financing activities. Capital refers to our long-term financial resources available to support the business operations and contribute to future growth. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of the businesses, timing of cash flows on investments and products, general economic conditions and access to the capital markets and the alternate sources of liquidity and capital described herein.

Liquidity Management

Our principal available sources of liquidity are annuity product charges, ~~GICs,~~ funding agreements and fixed annuity deposits, investment income, proceeds from the maturity and sale of investments, proceeds from debt issuance and borrowing facilities, repurchase agreements, securities lending, reinsurance and capital contributions. Primary uses of these funds are payments of commissions and operating expenses, interest and premium credits, payments under guaranteed death and living benefits, investment purchases, repayment of debt and contract maturities, withdrawals and surrenders and payment of dividends.

Our liquidity position is managed by maintaining adequate levels of liquid assets, such as cash, cash equivalents and short-term investments. As part of the liquidity management process, different scenarios are modeled to determine whether existing assets are adequate to meet projected cash flows. Key variables in the modeling process include interest rates, equity market movements, quantity and type of interest and equity market hedges, anticipated contract owner behavior, market value of the general account assets, variable separate account performance and implications of rating agency actions.

The fixed account liabilities are supported by a general account portfolio, principally composed of fixed rate investments with matching duration characteristics that can generate predictable, steady rates of return. The portfolio management strategy for the fixed account considers the assets available-for-sale. This strategy enables us to respond to changes in market interest rates, prepayment risk, relative values of asset sectors and individual securities and loans, credit quality outlook and other relevant factors. The objective of portfolio management is to maximize returns, taking into account interest rate and credit risk, as well as other risks. Our asset/liability management discipline includes strategies to minimize exposure to loss as interest rates and economic and market conditions change. In executing this strategy, we use derivative instruments to manage these risks. Our derivative counterparties are of high credit quality.

Liquidity and Capital Resources

Additional sources of liquidity include borrowing facilities to meet short-term cash requirements that arise in the ordinary course of business. We maintain the following agreements:

• A reciprocal loan agreement with Voya Financial, Inc., an affiliate, whereby either party can borrow from the other up to 3.0% of our statutory net admitted assets, excluding Separate Accounts, as of the preceding December 31. As of December 31, ~~2015~~2016 and ~~2014~~2015, we did not have any outstanding receivable/payable with Voya Financial, Inc. under the reciprocal loan agreement. We and Voya Financial, Inc. continue to maintain the reciprocal loan agreement and future borrowings by either party will be subject to the reciprocal loan terms summarized above. Effective January 2014, interest on any borrowing by either us or Voya Financial, Inc. is charged at a rate based on the prevailing market rate for similar third-party borrowings or securities.

• We hold approximately 5045.64% of our assets in marketable securities. These assets include cash, U.S. Treasuries, Agencies, Corporate Bonds, ABS, CMBS and collateralized mortgage obligations ("CMO") and Equity securities. In the event of a temporary liquidity need, cash may be raised by entering into repurchase agreements, dollar rolls and/or security lending agreements by temporarily lending securities and receiving cash collateral. Under our Liquidity Plan, up to 12% of our general account statutory admitted assets may be allocated to repurchase, dollar roll and securities lending programs. At the time a temporary cash need arises, the actual percentage of admitted assets available for repurchase transactions will depend upon outstanding allocations to the three programs. As of December 31, ~~2015~~2016 and ~~2014~~2015, we had securities lending obligations of $~~153~~111.60 million and $~~125~~153.46 million respectively, which, for both years, represents approximately 0.2% of our general account statutory admitted assets.

Management believes that our sources of liquidity are adequate to meet our short-term cash obligations.



	69

Capital Contributions and Dividends

During the years ended December 31, ~~2015~~2016 and ~~2014~~2015, we did not receive any capital contributions from our Parent.

During the year ended December 31, ~~2015~~2016, we declared an ordinary dividend to our parent in the amount of $~~394~~373.0 million, which was paid to our Parent on ~~May~~June 2027, ~~2015~~2016. During the year ended December 31, ~~2014~~2015, we paid an ordinary dividend in the amount of $~~216~~394.0 million to our Parent.

During the year ended December 31, 2015, we declared and paid an extraordinary distribution in the amount of $98.0 million, ~~subject~~ to ~~receipt of approval by the Iowa Insurance Division. The Iowa Insurance Division provided its approval on June 25, 2015, and we paid the extraordinary distribution to~~ our ~~Parent on June 26, 2015~~parent.

Collateral

Under the terms of our Over-The-Counter ("OTC") Derivative International Swaps and Derivatives Association, Inc. ("ISDA") agreements, we may receive from, or deliver to, counterparties collateral to assure that all terms of the ISDA agreements will be met with regard to the Credit Support Annex ("CSA"). The terms of the CSA call for us to pay interest on any cash received equal to the Federal Funds rate. To the extent cash collateral is received and delivered, it is included in Payables under securities loan agreements, including collateral held and Short-term investments under securities loan agreements, including collateral delivered, respectively, on the Balance Sheets and is reinvested in short-term investments. Collateral held is used in accordance with the CSA to satisfy any obligations. Investment grade bonds owned by us are the source of non-cash collateral posted, which is reported in Securities pledged on the Balance Sheets. As of December 31, ~~2015~~2016, we held $~~423~~654.08 million and $023.40 million of net cash collateral related to OTC derivative contracts and cleared derivative contracts, respectively. As of December 31, ~~2014~~2015, we held $~~268~~423.50 million ~~of net cash collateral~~ and ~~pledged~~ $50.84 million of net cash collateral related to OTC derivative contracts and cleared derivative contracts, respectively. In addition, as of December 31, ~~2015~~2016, we delivered $~~524~~477.53 million of securities and held $1252.91 million of securities as collateral. As of December 31, ~~2014~~2015, we delivered $~~505~~524.65 million of securities and held $~~130~~12.59 million of securities as collateral.

Reinsurance Agreements

Reinsurance Ceded

As of December 31, ~~2015~~2016 and ~~2014~~2015, total reserves ceded to affiliates were $56.08 billion and $35.70 billion, respectively. For the years ended December 31, ~~2015~~2016, ~~2014~~2015 and ~~2013~~2014, premiums ceded to affiliates were $~~404~~670.52 million, $~~502~~404.5 million and $~~112~~502.25 million, respectively.

Waiver of Premium — Coinsurance Funds Withheld

Effective October 1, 2010, we entered into a coinsurance funds withheld agreement with an affiliate, SLDI. Under the terms of the agreement, we ceded to SLDI 100% of the group life waiver of premium liability (except for groups covered under rate credit agreements) assumed from ReliaStar Life Insurance Company ("RLI"), an affiliate, related to the Group Annual Term Coinsurance Funds Withheld agreement between us and RLI described under "Reinsurance Assumed" below.

As of December 31, ~~2015~~2016 and ~~2014~~2015, the value of the funds withheld liability under this agreement was $~~170~~154.69 million and $~~180~~170.46 million, respectively, which is included in Funds held under reinsurance treaties with affiliates on the Balance Sheets. In addition, as of December 31, ~~2015~~2016 and ~~2014~~2015, we had an embedded derivative under this agreement with a value of $(52.61) million and $3(5.6) million, respectively, which is recorded in Funds held under reinsurance treaties with affiliates on the Balance Sheets. As of December 31, ~~2015~~2016 and ~~2014~~2015, reserves ceded under this agreement were $~~203~~183.69 million and $~~216~~203.76 million, respectively.

Guaranteed Living Benefit — Coinsurance and Coinsurance Funds Withheld

~~Effective~~Prior ~~June 30~~to July 1, ~~2008~~2016, we ~~entered~~had ~~into~~ an amended and restated automatic reinsurance agreement with an affiliate, SLDI, on a combined coinsurance and coinsurance funds withheld basis, covering 100% of the benefits guaranteed under specific variable annuity guaranteed living benefit riders attached to certain variable annuity contracts issued by us on or after January 1, 2000. Also, prior to July 1, 2016, we had a services agreement with SLDI, under which we provided certain actuarial risk modeling consulting services to SLDI with respect to hedge positions undertaken by SLDI in connection with the reinsurance agreement. Additionally, prior to July 1, 2016, we and SLDI had an asset management services agreement, under which SLDI served as asset manager for the funds withheld account. SLDI retained its affiliate, VIM, as Sub-advisor for the funds withheld account.

Also effective June 30, 2008, we entered into a services agreement with SLDI, under which we provide certain actuarial risk modeling consulting services to SLDI with respect to hedge positions undertaken by SLDI in connection with the reinsurance



	70

~~agreement~~Effective July 1, 2016, SLDI acquired Roaring River II, Inc. ~~For~~ ~~the~~("RRII"), ~~years~~a ~~ended~~Missouri ~~December 31~~life reinsurance captive, ~~2015~~from its affiliate, ~~2014~~RLI, and ~~2013~~also effective July 1, ~~revenue~~2016, ~~related~~RRII redomesticated from the State of Missouri to the ~~agreement~~State ~~was~~of ~~$10~~Arizona.9 ~~million~~Effective July 1, ~~$12.3~~2016, ~~million~~we, SLDI and ~~$12.3~~RRII ~~million~~entered into release, ~~respectively.~~consent and novation agreements pursuant to which RRII assumed the variable annuity guaranteed living benefits previously reinsured to SLDI under the automatic reinsurance agreement; the services agreement from SLDI under which the we provide certain actuarial risk modeling consulting services to SLDI with respect to hedge positions undertaken by SLDI in connection with the automatic reinsurance agreement; and SLDI's obligation to serve as asset manager for the funds withheld account under the asset management services agreement.

~~Effective~~For ~~July 1, 2009,~~ the ~~reinsurance~~years ~~agreement~~ended ~~was~~December ~~amended and restated to change the reinsurance basis from coinsurance to a combined coinsurance and coinsurance funds withheld basis. On July~~ 31, ~~2009~~2016, ~~SLDI transferred assets with a market value of $3.2 billion to us and we deposited those assets into a funds withheld trust account. As of December 31,~~ 2015 and 2014, ~~the~~revenue ~~assets~~related ~~on deposit in the trust account were $6.6 billion and $5.5 billion, respectively. We also established a corresponding funds withheld liability~~ to ~~SLDI, which is included in Funds held under reinsurance treaties with affiliates on~~ the ~~Balance~~aforementioned ~~Sheets. Funds~~services ~~held~~agreement ~~under~~was ~~reinsurance treaties with affiliates had a balance of~~ $69.6 ~~billion and $5.3 billion as of December 31~~million, ~~2015 and 2014, respectively. In addition, as of December 31, 2015 and 2014, we had an embedded derivative with a value of~~ $1510.89 million, and $~~207~~12.43 million, respectively~~, which is recorded in Funds held under reinsurance treaties with affiliates on the Balance Sheets~~.

~~Also~~The ~~effective~~impacts ~~July 1,~~of ~~2009,~~these weagreements ~~and~~on ~~SLDI~~the ~~entered~~Balance ~~into~~Sheets ~~an asset management services agreement, under which SLDI serves~~ as ~~asset~~of ~~manager for~~ the ~~funds~~dates ~~withheld~~indicated ~~account. SLDI~~are ~~has retained its affiliate, Voya Investment Management LLC~~ as ~~sub-advisor for the funds withheld account.~~follows:

Effective October 1, 2011, we and SLDI entered into an amended and restated automatic reinsurance agreement in order to provide more flexibility to us and SLDI with respect to the collateralization of the reserves related to the variable annuity guaranteed living benefits reinsured under the agreement. As of December 31, 2015 and 2014, reserves ceded by us under this agreement were $4.8 billion and $3.4 billion, respectively. In addition, a deferred loss in the amount of $283.3 million and $308.1 million as of December 31, 2015 and 2014, respectively, is included in Other assets on the Balance Sheets and is amortized over the period of benefit in Other expense in the Statements of Operations.



	December 31,
($ in millions)	2016		2015
Assets on deposit in trust	$	6,504.5	$	6,632.1
Funds withheld liability⁽¹⁾	6,356.8		6,616.3
Embedded derivative⁽¹⁾	147.6		15.8
Reserves ceded⁽²⁾	6,545.9		4,795.7
Deferred loss⁽³⁾	269.1		283.3

~~On May 8, 2013, following the Voya Financial, Inc. initial public offering~~ (~~"IPO"~~1), ~~Voya~~Included ~~Financial, Inc. made a capital contribution~~ in ~~the~~Funds ~~amount~~held ~~of $1.8 billion into SLDI, which SLDI deposited into the funds withheld trust account established to provide collateral for the variable annuity guaranteed living benefit riders ceded to SLDI~~ under ~~the amended and restated automatic~~ reinsurance ~~agreement. Upon~~treaties ~~deposit~~with ofaffiliates ~~such~~on ~~contributed capital into~~ the ~~funds~~Balance ~~withheld trust, we submitted to ING Bank N~~Sheets.V. ("ING Bank") $1.5 billion of contingent capital letters of credit ("LOC") issued by ING Bank under the $1.5 billion contingent capital LOC facility between ING Bank and SLDI, and the contingent capital LOCs were canceled and the facility was terminated.

⁽²⁾ Included in Deposits, premiums receivable and reinsurance recoverable on the Balance Sheets.

⁽³⁾ Included in Other assets on the Balance Sheets.

Multi-year Guaranteed Fixed Annuity - Coinsurance

Effective May 1, 2005, we entered into a coinsurance agreement with our affiliate, Security Life of Denver Insurance Company ("SLD"). Under the terms of the agreement, SLD assumed and accepted the responsibility for paying, when due, 100% of the liabilities arising under the multi-year guaranteed fixed annuity contracts issued by us between January 1, 2001 and December 31, 2003. In addition, we assigned SLD all future premiums received by us attributable to the ceding contracts.

Under the terms of the agreement, the Company ceded $2.5 billion in account balances and transferred a ceding commission and $2.7 billion in assets to SLD, resulting in a realized capital gain of $47.9 million to the Company, which reduced the ceding commission.

The coinsurance agreement was accounted for using the deposit method. As such, $2.7 billion of Deposit receivable from affiliate was established on the Balance Sheets. As ~~of December 31, 2014, the deposit receivable was $653.2 million.~~ On September 25, 2015, we recaptured, via a commutation agreement, the multi-year guaranteed fixed annuity contracts ceded under the coinsurance agreement. Under the terms of the agreement, which was effective July 1, 2015, the Company received net assets in the amount of $618.7 million in satisfaction of the deposit receivable balance and recognized a pre-tax loss of $4.2 million. We incurred amortization expense of the negative ceding commission of $3.2 million, and $6.6 million ~~and $4.8 million,~~ for the years ended December 31, 2015, ~~2014~~ and ~~2013~~2014, respectively, which is recorded in Other expense in the Statements of Operations.

Universal Life - Coinsurance

Effective January 1, 2000, we entered into a 100% coinsurance agreement with our affiliate, SLD, covering certain universal life policies which had been issued and in force as of, as well as any such policies issued after, the effective date of the agreement. As of December 31, ~~2015~~2016 and ~~2014~~2015, reserves ceded by us under this agreement were $2021.60 million and $20.06 million, respectively.

Guaranteed Investment Contract — Coinsurance

Effective August 20, 1999, we entered into a Facultative Coinsurance Agreement with an affiliate, SLD. Under the terms of the agreement, we facultatively cede, from time to time, certain ~~GICs~~guaranteed investment contracts and funding agreements to SLD on a 100% coinsurance basis. We utilize this reinsurance facility primarily for diversification and asset-liability management purposes in connection with this business. The coinsurance agreement is accounted for using the deposit method.

Our senior management has established a current maximum of $4.0 billion for GIC reserves covered under this agreement. As of December 31, 2015 and 2014 the deposit receivable was $155.3 million and $153.5 million, respectively.71

Our senior management has established a current maximum of $4.0 billion for guaranteed investment contracts and funding agreements reserves covered under this agreement. As of December 31, 2016 and 2015 the deposit receivable was $157.8 million and $155.3 million, respectively.

Reinsurance Assumed

As of December 31, ~~2015~~2016 and ~~2014~~2015, total reserves assumed from affiliates were $~~438~~418.7 million and $~~439~~438.17 million, respectively. For the years ended December 31, ~~2015~~2016, ~~2014~~2015 and ~~2013~~2014, premiums assumed from affiliates were $~~428~~436.51 million, $~~407~~428.75 million and $~~454~~407.97 million, respectively.

Level Premium Term Life Insurance - Stop-loss

Effective January 1, 2012, we entered into a stop-loss agreement with RLI, which was amended and restated April 1, 2012, under which we agreed to indemnify RLI, and RLI agreed to reinsure with us, the aggregate mortality risk under the combined blocks of level premium term life insurance policies issued by RLI between January 1, 2009 and December 31, 2009 and also between January 1, 2012 and December 31, 2012. This coverage included certain level premium term life insurance policies assumed by RLI from RLNY under an Automatic Coinsurance Agreement effective March 1, 2008. Under the terms of the agreement, we will make benefit payments to RLI equal to the amount of claims in excess of the attachment point (equal to a percentage of net reinsurance premium) up to the maximum fully covered benefit. The stop-loss agreement is accounted for using the deposit method. A fee receivable from affiliate of $0.4 million as of December 31, ~~2015~~2016 and ~~2014~~2015 is included in Other liabilities on the Balance Sheets. The fee is accrued and subsequently settled in cash each quarterly accounting period.

Effective July 1, 2012, we entered into a stop-loss agreement with our affiliate, SLD, under which we agree to indemnify SLD, and SLD agrees to reinsure with us, aggregate mortality risk under certain level premium term life insurance policies assumed by SLD from RLI and written by either RLI or RLNY with issue dates between January 1, 2007 and March 31, 2008 and between January 1, 2010 and December 31, 2010. Under the terms of the agreement, we will make benefit payments to SLD equal to the amount of claims in excess of the attachment point (equal to a percentage of net reinsurance premium) up to the maximum fully covered benefit. The stop-loss agreement was accounted for using the deposit method and, effective October 1, 2014, the agreement was terminated.

Group Annual Term - Coinsurance Funds Withheld

Effective December 31, 2008, we entered into a coinsurance funds withheld agreement with RLI for an indefinite duration. Under the terms of the agreement, we assumed 100% quota share of RLI's net retained liability under certain Employee Benefits Group Annual Term policies, including disability waiver of premium.

The initial premium of $219.9 million was equal to the aggregate reserve assumed by us. Thereafter, premiums are equal to the total earned gross premiums collected by RLI from policyholders. RLI will retain all reinsurance premiums payable to us as funds withheld, as security for ceded liabilities and against which ceded losses will be offset. Monthly, we will receive or pay a net settlement. This agreement was amended and restated on October 1, 2010 to better reflect the current investment environment and to modify the treatment of claims under certain policies under which claims are not paid in the form of a single lump sum; the underlying terms described above remained unchanged. (Please see also description of "Waiver of Premium Coinsurance Funds Withheld" agreement between us and SLDI under "Reinsurance Ceded" above). As of December 31, ~~2015~~2016 and ~~2014~~2015, reserves assumed by us under this agreement were $~~438~~418.7 million and $~~439~~438.17 million, respectively.

As of December 31, ~~2015~~2016 and ~~2014~~2015, the value of the funds withheld by ceding companies under this agreement was $~~464~~437.84 million and $~~467~~464.38 million, respectively, which is included in ~~Deposit~~Deposits, premiums receivable and reinsurance recoverable on the Balance Sheets. In addition, as of December 31, ~~2015~~2016 and ~~2014~~2015, we had an embedded derivative under this agreement with a value of $(155.69) million and $9(15.6) million, respectively.

Separate Accounts

Separate account assets and liabilities generally represent funds maintained to meet specific investment objectives of contract owners or participants who bear the investment risk, subject, in limited cases, to certain minimum guaranteed rates. Investment income and investment gains and losses generally accrue directly to such contract owners. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company.

The Company reports separately, as assets and liabilities, investments held in ~~the~~ separate accounts and liabilities of separate accounts if:

accounts if:


•	Such separate accounts are legally recognized;


•	Assets supporting the contract liabilities are legally insulated from the Company's general account liabilities;



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•	Investments are directed by the contract owner or participant; and


•	All investment performance, net of contract fees and assessments, is passed through to the contract owner.

The Company reports separate account assets that meet the above criteria at fair value on the Balance Sheets based on the fair value of the underlying investments. Separate account liabilities equal separate account assets. Investment income and net realized and unrealized capital gains (losses) of the separate accounts, however, are not reflected in the Statements of Operations, and the Statements of Cash Flows do not reflect investment activity of the separate accounts.

FHLB

We are currently a member of the FHLB of Des Moines and are required to ~~maintain~~pledge a collateral ~~deposit~~ to back any funding agreements issued byto the FHLB. We have the ability to obtain funding from the FHLB based on a percentage of the value of our assets and subject to the availability of eligible collateral. The program capacity is limited to 20% of the total assets of our general and separate accounts. Furthermore, collateral is pledged based on the outstanding balances of the FHLB funding agreement. The amount varies based on type, rating and maturity of the collateral posted to the FHLB. Generally, mortgage securities, commercial real estate and U.S. treasury securities are pledged to the FHLB. Market value fluctuations resulting from changes in interest rates, spreads and other risk factors for each type of assets are monitored and additional collateral is either pledged or released as needed.

Our maximum borrowing capacity under this credit facility was $13.0 billion ~~and $13.4 billion~~ as of December 31, ~~2015~~2016 and ~~2014,~~2015 ~~respectively,~~ and does not have an expiration date as long as we maintain a satisfactory level of creditworthiness based on the FHLB credit assessment. As of December 31, ~~2015~~2016 and ~~2014~~2015, we had $~~950~~200.41 million and $950.14 million, respectively, in non-putable funding agreements, including accrued interest, issued to the FHLB. These non-putable funding agreements are included in Future policy benefits and contract owner account balances on the Balance Sheets. As of December 31, ~~2015~~2016 and ~~2014~~2015, ~~we had~~ assets with a market value of $1235.7 million and $1,096.0 ~~billion~~million, respectively, collateralized the funding agreements to the FHLB.

Ratings

Our access to funding and our related cost of borrowing, requirements for derivatives collateral posting and the attractiveness of certain of our products to customers are affected by our credit ratings and insurance financial strength ratings, which are periodically reviewed by the rating agencies. Financial strength ratings and credit ratings are important factors affecting public confidence in an insurer and its competitive position in marketing products. The credit ratings are also important for the ability to raise capital through the issuance of debt and for the cost of such financing.

A downgrade in our credit or financial strength ratings or the credit or financial strength ratings of our Parent or rated affiliates could potentially, among other things, limit our ability to market products, reduce our competitiveness, increase the number or value of policy surrenders and withdrawals, increase our borrowing costs and potentially make it more difficult to borrow funds, adversely affect the availability of financial guarantees or LOCs, cause additional collateral requirements or other required payments under certain agreements, allow counterparties to terminate derivative agreements and/or impair our relationships with creditors, distributors or trading counterparties thereby potentially negatively affecting our profitability, liquidity and/or capital. In addition, we consider nonperformance risk in determining the fair value of our liabilities. Therefore, changes in our credit or financial strength ratings or the credit or financial strength ratings of our Parent or rated affiliates may affect the fair value of our liabilities.



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Financial strength ratings represent the opinions of rating agencies regarding the financial ability of an insurance company to meet its obligations under an insurance policy. Credit ratings represent the opinions of rating agencies regarding an entity's ability to repay its indebtedness. These ratings are not a recommendation to buy or hold any of our securities and they may be revised or revoked at any time at the sole discretion of the rating organization.

Our financial strength and credit ratings as of the date of this Annual Report on Form 10-K are summarized in the following table. In parentheses, following the initial occurrence in the table of each rating, is an indication of that rating's relative rank within the agency's rating categories. That ranking refers only to the generic or major rating category and not to the modifiers appended to the rating by the rating agencies to denote relative position within such generic or major category. For each rating, the relative position of the rating within the relevant rating agency's ratings scale is presented, with "1" representing the highest rating in the scale.

Company	A.M. Best	Fitch	Moody's	S&P
Voya Insurance and Annuity Company
Financial Strength Rating	A(3 of 16)	A(3 of 9)	A2(3 of 9)	A(3 of 9)
Short-term Issuer Credit Rating	NR*	NR	WD**	WD

* "NR" indicates not rated.

** "WD" indicates withdrawn.



Rating Agency		Financial Strength Rating Scale
A.M. Best⁽¹⁾		"A++" to "S"
Fitch⁽²⁾		"AAA" to "C"
Moody's⁽³⁾		"Aaa" to "C"
S&P⁽⁴⁾		"AAA" to "R"

⁽¹⁾ A.M. Best’s financial strength rating is an independent opinion of an insurer's financial strength and ability to meet its ongoing insurance policy and contract obligations. It is based on a comprehensive quantitative and qualitative evaluation of a company's balance sheet strength, operating performance and business profile.

(2) Fitch’s financial strength ratings provide an assessment of the financial strength of an insurance organization. The National Insurer Financial Strength ("IFS") Rating is assigned to the insurance company's policyholder obligations, including assumed reinsurance obligations and contract holder obligations, such as ~~guaranteed~~funding ~~investment contracts~~agreements.

(3) Moody’s financial strength ratings are opinions of the ability of insurance companies to repay punctually senior policyholder claims and obligations. Moody's appends numerical modifiers 1, 2 and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. ~~Moody’s short-term credit ratings are opinions of the ability of issuers to honor short-term financial obligations.~~

(4) S&P’s insurer financial strength rating is a forward-looking opinion about the financial security characteristics of an insurance organization with respect to its ability to pay under its insurance policies and contracts in accordance with their terms. A "+" or "-" indicates relative strength within a category. An S&P credit rating is an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Short-term credit ratings reflect the obligor's creditworthiness over a short-term time horizon.

Our ratings by A.M. Best Company, Inc. ("A.M. Best"), Fitch, Moody's and S&P reflect a broader view of how the financial services industry is being challenged by the current economic environment, but also are based on the rating agencies' specific views of our financial strength. In making their ratings decisions, the agencies consider past and expected future capital and earnings, asset quality and risk, profitability and risk of existing liabilities and current products, market share and product distribution capabilities and direct or implied support from parent companies.

Rating agencies use an "outlook" statement for both industry sectors and individual companies. For an industry sector, a stable outlook generally implies that over the next 12 to 18 months the rating agency expects ratings to remain unchanged among companies in the sector. On November 15, 2016, Moody’s revised its outlook for the US life insurance industry to negative from stable. The outlook change reflects Moody's expectation for fundamental business conditions in the industry over the next 12 to 18 months including increasing pressures on life insurers' profits, due to low interest rates, coupled with key shifts in their regulatory and business environments. For a particular company, an outlook generally indicates a medium- or long-term trend in credit fundamentals, which if continued, may lead to a rating change.

Ratings actions affirmation and outlook changes by S&P, Moody's, Fitch and A.M. Best from December 31, ~~2014~~2015 through December 31, ~~2015~~2016 and subsequently through the date of this Annual Report on Form 10-K are as follows:

• On ~~September~~November 1517, ~~2015~~2016, ~~Fitch~~A.M. Best affirmed the financial strength rating of A of the key life insurance entities of Voya Financial, Inc.'s, ~~issuer~~including ~~credit~~us, ~~rating~~with ~~and~~a ~~debt~~Stable ~~ratings~~outlook. ~~The~~Concurrently, ~~financial~~A.M. ~~strength~~Best ~~ratings~~upgraded ofVoya’s ~~the~~Long-Term ~~key~~Issuer ~~operating~~Credit ~~subsidiaries,~~Rating ~~including~~to usbbb+ from bbb as well as its Senior Unsecured Debt rating. Voya Financial, ~~were~~Inc.’s junior subordinated debt rating was also ~~affirmed~~upgraded to bbb- from bb+. The ~~rating~~ outlook ~~for~~of ~~all~~these ~~ratings~~Credit isRatings were revised to Stable from Positive.



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• On ~~August~~September 1820, ~~2015~~2016, ~~A.M.~~Fitch ~~Best~~ affirmed ~~the ratings of~~ Voya Financial, Inc.'s ~~and~~long-term ~~its~~issuer ~~operating~~credit ~~subsidiaries~~rating, ~~including~~senior ~~us.~~debt ~~A.M.~~ratings ~~Best~~and ~~maintained~~junior ~~its~~subordinated ~~stable~~debt ~~outlook~~rating. onFitch also affirmed the financial strength ~~rating~~ratings of the ~~key~~U.S. ~~life~~operating ~~subsidiaries~~entities, including us. ~~A.M.~~The ~~Best~~rating ~~also maintained its positive~~ outlook onfor ~~the~~all ~~issuer credit rating of Voya Financial, Inc. as well as the~~ ratings onis ~~the outstanding debt of Voya Financial, Inc~~Stable.

• On ~~March~~June 1629, ~~2015~~2016, ~~Fitch~~S&P ~~raised~~affirmed ~~the issuer credit ratings on~~ Voya Financial, Inc.'s tolong-term ~~BBB+~~issuer ~~from~~credit ~~BBB.~~and ~~Fitch also raised the~~ senior ~~unsecured~~debt ~~credit~~ ratings ofat ~~Voya, Financial, Inc. to~~ "BBB" ~~from BBB-~~ and its junior subordinated debt ~~credit~~rating ~~ratings~~at to 'BB+ ~~from BB~~'. ~~Fitch~~The ~~raised the~~ financial strength ratings of the U.S. operating ~~subsidiaries~~entities, including us, towere Aalso ~~from~~affirmed at "A-". ~~All~~The ~~ratings~~rating ~~were~~outlook ~~assigned~~for aall ~~Stable~~ratings ~~outlook~~is Stable.

• On ~~March~~April 38, ~~2015~~2016, ~~Moody's~~Fitch ~~raised~~affirmed ~~the issuer credit ratings on~~ Voya ~~Financial, Inc. and Voya Holdings Inc. to Baa2 from Baa3. Moody~~'s ~~also~~long-term ~~raised~~issuer ~~the senior unsecured~~ credit ~~ratings~~rating ofat ~~Voya Financial~~'BBB+', ~~Inc.~~its tosenior ~~Baa2~~debt ~~from~~rating ~~Baa3~~at 'BBB' and its junior subordinated debt ~~credit~~rating ~~ratings~~at ~~to Baa3(hyb) from Ba1(hyb)~~'BB+'. ~~Moody's~~The ~~raised the~~ financial strength ratings of the U.S. operating ~~subsidiaries~~entities, including us, towere A2also ~~from~~affirmed A3at "A". ~~All~~The ~~ratings~~rating ~~were~~outlook ~~assigned~~for aall ~~Stable~~ratings ~~outlook~~is Stable.

• On February 17, 2015, S&P raised the issuer credit ratings on Voya Financial, Inc. and Voya Holdings Inc. to BBB from BBB-. S&P also raised the senior unsecured credit ratings of Voya Financial, Inc. to BBB from BBB- and its junior subordinated debt credit ratings to BB+ from BB. S&P raised the financial strength ratings of the operating subsidiaries, including us, to A from A-. All ratings were assigned a Stable outlook.

Other Insurance Products

Derivatives

Our use of derivatives is limited mainly to economic hedging to reduce our exposure to cash flow variability of assets and liabilities, interest rate risk, credit risk, exchange rate risk and market risk. It is our policy not to offset amounts recognized for derivative instruments and amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement.

We enter into interest rate, equity market, credit default and currency contracts, including swaps, futures, forwards, caps, floors and options, to reduce and manage various risks associated with changes in value, yield, price, cash flow, or exchange rates of assets or liabilities held or intended to be held, or to assume or reduce credit exposure associated with a referenced asset, index, or pool. We also utilize options and futures on equity indices to reduce and manage risks associated with our annuity products. Open derivative contracts are reported as Derivatives assets or liabilities on the Balance Sheets at fair value. Changes in the fair value of derivatives are recorded in Other net realized capital gains (losses) in the Statements of Operations.

We also have investments in certain fixed maturities and have issued certain annuity products that contain embedded derivatives ~~whose~~for which fair value is at least partially determined by levels of or changes in domestic and/or foreign interest rates (short-term or long-term), exchange rates, prepayment rates, equity markets, or credit ratings/spreads. Embedded derivatives within fixed maturities are included with the host contract on the Balance Sheets and changes in fair value of the embedded derivatives are recorded in Other net realized capital gains (losses) in the Statements of Operations. Embedded derivatives within certain annuity products are included in Future policy benefits and contract owner account balances on the Balance Sheets and changes in the fair value of the embedded derivatives are recorded in Other net realized capital gains (losses) in the Statements of Operations.

In addition, we have entered into coinsurance with funds withheld arrangements that contain embedded derivatives, the fair value of which is based on the change in the fair value of the underlying assets held in trust. Embedded derivatives within coinsurance with funds withheld arrangements are reported with the host contract in Deposits and reinsurance recoverable (assumed reinsurance) or Funds held under reinsurance treaties with affiliates (ceded reinsurance) on the Balance Sheets, and changes in the fair value of the embedded derivatives are recorded in Interest credited and other benefits to contract owners/policyholders in the Statements of Operations.

Deposits and Reinsurance Recoverable

We utilize reinsurance agreements to reduce our exposure to large losses in most aspects of our insurance business. Such reinsurance permits recovery of a portion of losses from reinsurers, although it does not discharge our primary liability as direct insurer of the risks reinsured. We evaluate the financial strength of potential reinsurers and continually monitor the financial condition of reinsurers. Only those reinsurance recoverable balances deemed probable of recovery are reflected as assets on our Balance Sheets.

risks reinsured. We evaluate the financial strength of potential reinsurers and continually monitor the financial condition of reinsurers. Only those reinsurance recoverable balances deemed probable of recovery are reflected as assets on our Balance Sheets.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Through the normal course of investment operations, we commit to either purchase or sell securities, mortgage loans, or money market instruments, at a specified future date and at a specified price or yield. The inability of counterparties to honor these commitments may result in either a higher or lower replacement cost. Also, there is likely to be a change in the value of the securities ~~underlying the commitments.~~

As of December 31, 2015 and 2014, the Company had off-balance sheet commitments to acquire mortgage loans of $323.6 and $156.6, respectively, and purchase limited partnerships and private placement investments of $285.9 and $57.5, respectively.75

underlying the commitments. As of December 31, 2016 and 2015, we had ~~certain~~off-balance ~~contractual~~sheet ~~obligations~~commitments ~~due~~to ~~over~~acquire amortgage ~~period~~loans of ~~time~~$261.3 asmillion ~~summarized~~and in$323.6 ~~the~~million, ~~following~~respectively, ~~table~~and purchase limited partnerships and private placement investments of $366.2 million and $285.9 million, respectively.

($ in millions)	Payments Due by Period
Contractual Obligations	Total		Less than1 Year		1-3 Years		3-5 Years		More than5 Years
Purchase obligations(1)	$	609.5	$	568.0	$	41.5	$	—	$	—
Reserves for insurance obligations(2)	33,375.3		3,283.9		5,862.4		5,424.4		18,804.6
Retirement and other plans(3)	22.3		1.8		4.1		4.6		11.8
Long-term debt(4)	956.4		28.3		56.3		56.4		815.4
Operating lease obligations(5)	12.3		7.0		5.3		—		—
Securities lending and repurchase agreements	153.6		153.6		—		—		—
Total(6)	$	35,129.4	$	4,042.6	$	5,969.6	$	5,485.4	$	19,631.8

We have obligations for the return of non-cash collateral under an amendment to our securities lending program. Non-cash collateral received in connection with the securities lending program may not be sold or re-pledged by our lending agent, except in the event of default, and is not reflected on our Balance Sheets. For information regarding obligations under this program, see the Investments Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K. As of December 31, 2016, the fair value of securities retained as collateral by the lending agent on our behalf was $168.2 million. As of December 31, 2015, the Company did not retain any securities as collateral.

As of December 31, 2016, we had certain contractual obligations due over a period of time as summarized in the following table.



($ in millions)	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Purchase obligations⁽¹⁾	$	627.5	$	569.7	$	40.3	$	17.5	$	—
Reserves for insurance obligations⁽²⁾	36,907.3		3,216.0		5,520.0		5,009.5		23,161.8
Retirement and other plans⁽³⁾	22.8		1.9		4.6		4.5		11.8
Long-term debt⁽⁴⁾	928.2		28.2		56.3		56.4		787.3
Operating lease obligations⁽⁵⁾	5.3		5.3		—		—		—
Securities lending and repurchase agreements⁽⁶⁾	279.2		279.2		—		—		—
Total⁽⁷⁾	$	38,770.3	$	4,100.3	$	5,621.2	$	5,087.9	$	23,960.9

⁽¹⁾Purchase obligations consist primarily of outstanding commitments under limited partnerships that may occur any time within the terms of the partnership and private loans. The exact timing, however, of funding these commitments related to partnerships and private loans cannot be estimated. Therefore, the total amount of the commitments related to partnerships and private loans is included in the category "Less than 1 Year."

⁽²⁾Reserves for insurance obligations consist of amounts required to meet our future obligations for future policy benefits and contract owner account balances. Amounts presented in the table represent estimated cash payments under such contracts, including significant assumptions related to the receipt of future premiums, mortality, morbidity, lapse, renewal, retirement, disability and annuitization comparable with actual experience. These assumptions also include market growth and interest crediting consistent with assumptions used in amortizing DAC. All estimated cash payments are undiscounted for the time value of money.

⁽³⁾Includes estimated benefit payments under our non-qualified pension plans, estimated benefit payments under our other postretirement benefit plans and estimated payments of deferred compensation based on participant elections and an average retirement age.

⁽⁴⁾Long-term debt, including interest, consists of the following:

• A surplus note in the principal amount of $35.0 million and the related interest payable with our affiliate, SLD. As of December 31, ~~2015~~2016, the outstanding principal, interest rate and maturity date, of the surplus note were $35.0 million, 7.98% and December 7, 2029, respectively.

• Surplus notes in the aggregate principal amount of $400.0 million and the related interest payable, with our affiliates, Voya Retirement Insurance and Annuity Company, RLI and SLDI. As of December 31, ~~2015~~2016, the aggregate amount of outstanding principal, interest rate and maturity date of these surplus notes were $400.0 million, 6.26% and December 29, 2034, respectively.

⁽⁵⁾Operating lease obligations relate to the rental of office space under various non-cancellable operating lease agreements, the longest term of which expires in 2017.

(6) ~~Unrecognized~~Payables ~~tax~~under ~~benefits~~securities ~~are~~loan ~~excluded~~agreements ~~from~~including collateral held represent the ~~table~~liability ~~due~~to return collateral received from counterparties under securities lending agreements. Securities lending agreements include provisions which permit us to ~~immateriality~~call back securities with minimal notice and accordingly, the payable is classified as having a term of less than 1 year. Additionally, Securities lending agreements include non-cash collateral of $168.2 million. See the Investments Note in our Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K for additional information concerning Securities lending agreements.

⁽⁷⁾Unrecognized tax benefits are excluded from the table due to immateriality.

Repurchase Agreements

We engage in dollar repurchase agreements with mortgage-backed securities ("dollar rolls") and repurchase agreements with other collateral types to increase our return on investments and improve liquidity. Such arrangements meet the requirements to be accounted for as financing arrangements. We enter into dollar ~~rolls~~roll transactions by selling existing mortgage-backed securities ("MBS") and concurrently entering into an agreement to repurchase similar securities within a short time frame at a lower price. Under repurchase agreements, we borrow cash from a counterparty at an agreed upon interest rate for an agreed upon time frame and pledge collateral in the form of securities. At the end of the agreement, the counterparty returns the collateral to us and we, in turn, repay the loan amount along with the additional agreed upon interest. We require that at all times during the term of the dollar ~~rolls~~roll and repurchase agreements, ~~that~~ cash or other collateral types obtained is sufficient to allow us to fund substantially all of the cost of purchasing replacement assets. Cash received is invested in ~~Short~~short-term investments, with the offsetting obligation to repay the loan included aswithin an Other ~~liability~~liabilities on the Balance Sheets. WeAs ~~also~~per ~~enter~~the ~~into~~terms ~~reverse~~of ~~repurchase~~the agreements., ~~These~~the ~~transactions~~market ~~involve~~value ~~a purchase~~ of ~~securities and an agreement to sell substantially~~ the ~~same securities as those purchased.~~



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~~The~~loaned ~~carrying value of the~~ securities ~~pledged~~is inmonitored ~~dollar~~with ~~rolls~~additional ~~and~~collateral ~~repurchase~~obtained ~~agreement~~or ~~transactions~~refunded ~~and~~as the ~~related~~market ~~repurchase~~value ~~obligation~~of ~~are included in Securities pledged and Short-term debt, respectively, on~~ the ~~Balance~~loaned ~~Sheets. As~~securities offluctuates ~~December 31,~~due ~~2015~~to ~~and~~changes ~~2014, we did not have any securities pledged~~ in ~~dollar~~interest ~~rolls~~rates, ~~repurchase~~spreads ~~agreement~~and ~~transactions~~other orrisk ~~reverse repurchase agreements~~factors.

The ~~primary~~carrying ~~risk~~value ~~associated~~of ~~with~~the ~~short-term~~securities ~~collateralized~~pledged ~~borrowings~~in isdollar ~~that~~rolls ~~the~~and ~~counterparty~~repurchase ~~will~~agreement betransactions ~~unable~~and tothe ~~perform~~related ~~under~~repurchase ~~the~~obligation ~~terms~~are ofincluded ~~the~~in ~~contract. Our~~Securities ~~exposure~~pledged isand ~~limited~~Short-term todebt, ~~the~~respectively, ~~excess~~on of the ~~net~~Balance ~~replacement~~Sheets. ~~cost~~As of ~~the~~December 31, ~~securities~~2016 ~~over~~and ~~the~~2015, ~~value~~we ofdid ~~the~~not ~~short-term~~have ~~investments. We~~any ~~believe~~securities ~~the~~pledged ~~counterparties~~in ~~to the~~ dollar rolls, ~~and~~or repurchase ~~agreements~~agreement ~~are financially responsible and that the counterparty risk is minimal~~transactions.

We also enter into reverse repurchase agreements. These transactions involve a purchase of securities and an agreement to sell substantially the same securities as those purchased. We require that, at all times during the term of the reverse repurchase agreements, cash or other collateral types provided is sufficient to allow the counterparty to fund substantially all of the cost of purchasing the replacement assets. As of December 31, 2016 and 2015, we did not have any securities pledged under reverse repurchase agreements.

The primary risk associated with short-term collateralized borrowings is that the counterparty will be unable to perform under the terms of the contract. Our exposure is limited to the excess of the net replacement cost of the securities over the value of the short-term investments. We believe the counterparties to the dollar rolls, repurchase and reverse repurchase agreements are financially responsible and that the counterparty risk is minimal.

Securities Lending

We engage in securities lending whereby certain securities from our portfolio are loaned to other institutions through a lending agent for short periods of time. We have the right to approve any institution with whom the lending agent transacts on our behalf. Initial collateral, ~~primarily cash,~~ is required at a rate of 102% of the market value of the loaned securities. The lending agent retains the ~~cash~~ collateral and invests it in ~~short-term~~high quality liquid assets on our behalf. 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 us against losses resulting from the failure of a counterparty to return securities pledged where collateral is insufficient to cover the loss. As of December 31, ~~2015~~2016 and ~~2014~~2015, the fair value of loaned securities was $~~147~~270.9 million and $~~121~~147.29 million, respectively, and is included in Securities pledged on the Balance Sheets. As of December 31, 2015 and 2014, collateral retained by the lending agent and invested in short-term liquid assets on our behalf was $153.6 million and $125.4 million, respectively, and is recorded in Short-term investments under securities loan agreements, including collateral delivered on the Balance Sheets. As of December 31, 2015 and 2014, liabilities to return collateral of $153.6 million and $125.4 million, respectively, were included in Payables under securities loan agreements, including collateral held, on the 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 us. As of December 31, 2016 and 2015, cash collateral retained by the lending agent and invested in short-term liquid assets on our behalf was $111.0 million and $153.6 million, respectively, and is recorded in Short-term investments under securities loan agreements, including collateral delivered on the Balance Sheets. As of December 31, 2016 and 2015, liabilities to return collateral of $111.0 million and $153.6 million, respectively, were included in Payables under securities loan agreements, including collateral held, on the Balance Sheets.

During the first quarter of 2016 under an amendment to the securities lending program, we began accepting 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 Balance Sheets. This collateral generally consists of U.S. Treasury, U.S. Government agency securities and MBS pools. As of December 31, 2016, the fair value of securities retained as collateral by the lending agent on our behalf was $168.2 million. As of December 31, 2015, we did not retain any securities as collateral.

Statutory Capital and Risk-Based Capital

Our primary regulator, the State of Iowa Insurance Division (the "Division") recognizes only statutory accounting practices prescribed or permitted by the State of Iowa for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under the Iowa Insurance Law. The NAIC Accounting Practices and Procedures Manual has been adopted as a component of prescribed or permitted practices by the State of Iowa.

We are subject to minimum RBC requirements established by the Division. The formulas for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of total adjusted capital ("TAC"), as defined by the NAIC, to authorized control level RBC, as defined by the NAIC. We exceeded the minimum RBC requirements that would require any regulatory or corrective action for all periods presented herein.

We are required to prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the Division. Such statutory accounting practices primarily differ from U.S. GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities and contract owner account balances using different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis. Certain assets that are not admitted under statutory accounting principles are charged directly to surplus. Depending on the regulations of the Division, the entire amount or a portion of an insurance company's asset balance can be non-admitted based on the specific rules regarding admissibility. The most significant non-admitted assets are typically deferred tax assets.

The sensitivity of our statutory reserves and surplus established for variable annuity contracts and guaranteed benefit riders to changes in the equity markets will vary depending on the magnitude of the decline. The sensitivity will be affected by the level of account values relative to the level of guaranteed amounts, product design and reinsurance. Statutory reserves for variable annuities depend upon the cumulative equity market impacts on the business in force and therefore result in non-linear relationships with respect to the level of equity market performance within any reporting period.

The statutory reserves and surplus for certain long-dated floating rate GICs are sensitive to changes in forward interest rates. The statutory reserves are based on the present value of the future contract payments, including interest credited, discounted at prescribed statutory rates. Increases in forward interest rates will increase the reserves and decreases in forward interest rates will decrease the reserves.



	77

~~and~~assumptions ~~financial~~as ~~strength~~well ~~ratings~~as ofvaluing ~~us. Declines~~investments inand ~~the~~certain ~~market~~assets ~~value~~and ofaccounting ~~our~~for ~~separate~~deferred ~~account~~taxes ~~assets~~on ~~can~~a ~~increase~~different ~~the~~basis. ~~reserves~~Certain ~~for~~assets ~~certain~~that ~~guaranteed~~are ~~benefits,~~not ~~even~~admitted ~~though~~under westatutory ~~reinsure~~accounting ~~many~~principles ofare ~~our~~charged ~~guaranteed~~directly ~~living~~to ~~benefits~~surplus. ~~Future~~ ~~declines~~Depending inon the ~~market~~regulations ~~values~~ of ~~our~~the ~~separate~~Division, ~~account~~the ~~assets~~entire ~~could~~amount ~~cause~~or ~~future~~a ~~reductions~~portion inof ~~our~~an ~~surplus,~~insurance ~~which~~company's ~~may~~asset ~~also~~balance ~~impact~~can ~~RBC~~be non-admitted based on the specific rules regarding admissibility. The most significant non-admitted assets are typically deferred tax assets.

~~Further,~~The sensitivity of our statutory ~~credit~~reserves and surplus established for ~~reinsurance~~variable ~~taken~~annuity ~~under~~contracts and guaranteed benefit riders to changes in the ~~reinsurance~~equity ~~agreement~~markets ~~with~~will ~~SLDI~~vary ~~covering~~depending ~~our~~on ~~guaranteed~~the ~~living~~magnitude ~~benefits~~of isthe ~~subject~~decline. toThe ~~uncertainty~~sensitivity ~~arising~~will ~~from~~be ~~SLDI's~~affected ~~ability~~by the level of account values relative to ~~provide~~the ~~letters~~level of ~~credit~~guaranteed ~~from~~amounts, ~~lending~~product ~~banks~~design ~~under~~and ~~adverse~~reinsurance. Statutory reserves for variable annuities depend upon the cumulative equity market ~~conditions. We~~impacts ~~are~~on ~~taking~~the ~~various~~business ~~steps~~in toforce ~~develop~~and ~~alternative~~therefore ~~sources~~result in non-linear relationships with respect to the level of ~~credit~~equity ~~for~~market ~~reinsurance~~performance ~~collateral~~within any reporting period.

The ~~Iowa~~statutory ~~Insurance~~reserves ~~Division~~and ~~recognizes~~surplus asfor ~~capital~~certain ~~and~~long-dated ~~surplus~~floating ~~those~~rate ~~amounts~~funding ~~determined~~agreements are sensitive to changes in ~~conformity~~forward ~~with~~interest rates. The statutory ~~accounting~~reserves ~~practices~~are ~~prescribed~~based oron ~~permitted~~the bypresent value of the ~~Division. Our~~future ~~statutory~~contract ~~capital~~payments, ~~and~~including ~~surplus~~interest ~~was~~credited, $2discounted at prescribed statutory rates.1 ~~billion~~Increases asin offorward ~~December 31,~~interest ~~2015~~rates will increase the reserves and ~~2014.~~decreases in forward interest rates will decrease the reserves.

RBC is also affected by the product mix of the in force book of business (i.e., the amount of business without guarantees is not subject to the same level of reserves as the business with guarantees). RBC is an important factor in the determination of the credit and financial strength ratings of us. Declines in the market value of our separate account assets can increase the reserves for certain guaranteed benefits, even though we reinsure many of our guaranteed living benefits. Future declines in the market values of our separate account assets could cause future reductions in our surplus, which may also impact RBC.

Further, our statutory credit for reinsurance taken under the reinsurance agreement with RRII covering our guaranteed living benefits is subject to uncertainty arising from RRII's access to letters of credit from lending banks under adverse market conditions.

The Iowa Insurance Division recognizes as capital and surplus those amounts determined in conformity with statutory accounting practices prescribed or permitted by the Division. Our statutory capital and surplus was $1.9 billion and $2.1 billion as of December 31, 2016 and 2015, respectively.

See also "Reinsurance Agreements" above and "Minimum Guarantees" in Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Contingencies

For information regarding other contingencies related to legal proceedings, regulatory matters and other contingencies involving us, see the Commitments and Contingencies Note in our Financial Statements in Part II, Item 8. in this Annual Report on Form 10-K.



	78

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

(Dollar amounts in millions, unless otherwise stated)

Market risk is the risk that our financial position and results of operations will be affected by fluctuations in the value of financial instruments. We have significant holdings in financial instruments and are naturally exposed to a variety of market risks. The main market risks we are exposed to include interest rate risk, equity market price risk and credit risk. We do not have material market risk exposure to "trading" activities in our Financial Statements.

Risk Management

As a financial services company offering immediate and deferred fixed annuities, and with existing blocks of ~~guaranteed~~funding ~~investment~~agreements ~~contracts~~, variable annuities and other income liabilities, taking measured risks is part of our business. As part of our effort to ensure measured risk taking, we have integrated risk management in our daily business activities and strategic planning.

We place a high priority on risk management and risk control. We have comprehensive risk management and control procedures in place, which are integrated with our affiliates. We have established an integrated risk management function together with our affiliates with responsibility for the formulation of our risk appetite, strategies, policies and limits. The risk management function is also responsible for monitoring our overall market risk exposures and provides review, oversight and support functions on risk-related issues.

Our risk appetite is aligned with how our business is managed and anticipates future regulatory developments. In particular, our risk appetite is aligned with regulatory capital requirements as well as metrics that are aligned with various ratings agency models.

Our risk governance and control systems enable us to identify, control, monitor and aggregate risks and provide assurance that risks are being measured, monitored and reported adequately and effectively. To promote measured risk taking, we have integrated risk management with our business activities and strategic planning.

We have implemented several limit structures to manage risk. Examples include, but are not limited to, the following:


•	At-risk limits on sensitivities of earnings and regulatory capital;


•	Duration and convexity mismatch limits;


•	Credit risk limits;

• Liquidity limits;

• Mortality concentration limits;


•	Catastrophe and mortality exposure retention limits for our insurance risk; and


•	Investment and derivative guidelines.

We are also subject to cash flow stress testing pursuant to regulatory requirements. This analysis measures the effect of changes in interest rate assumptions on asset and liability cash flows. The analysis includes the effects of:


•	the timing and amount of redemptions and prepayments in our asset portfolio;


•	our derivative portfolio;


•	death benefits and other claims payable under the terms of our insurance products;


•	lapses and surrenders in our insurance products;


•	minimum interest guarantees in our insurance products; and


•	book value guarantees in our insurance products.

We evaluate any shortfalls that our cash flow testing reveals and if needed increase statutory reserves or adjust portfolio management strategies.

Derivatives are financial instruments ~~whose~~for which values are derived from interest rates, foreign currency exchange rates, financial indices, or other prices of securities or commodities. Derivatives include swaps, futures, options and forward contracts. Under U.S. insurance statutes, we may use derivatives to hedge market values or cash flows of assets or liabilities; to replicate cash market instruments; and for certain limited income generating activities. We are generally prohibited from using derivatives for speculative purposes. References below to hedging and hedge programs refer to our process of reducing exposure to various risks. This does not mean that the process necessarily results in hedge accounting treatment for the respective derivative instruments. To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk of the hedged item and meet other specific requirements. Effectiveness of the hedge is assessed at inception and throughout the life of the hedging relationship. Even if a derivative qualifies for hedge accounting treatment, there may be an element of ineffectiveness of the hedge. The ineffective portion of a hedging relationship subject to hedge accounting is recognized in Net realized capital gains (losses) in the Statements of Operations.



	79

other specific requirements. Effectiveness of the hedge is assessed at inception and throughout the life of the hedging relationship. Even if a derivative qualifies for hedge accounting treatment, there may be an element of ineffectiveness of the hedge. The ineffective portion of a hedging relationship subject to hedge accounting is recognized in Net realized capital gains (losses) in the Statements of Operations.

Market Risk Related to Interest Rates

We define interest rate risk as the risk of an economic loss due to adverse changes in interest rates. This risk arises from our holdings in interest sensitive assets and liabilities, primarily as a result of investing life insurance premiums, fixed annuity and ~~guaranteed~~funding ~~investment~~agreement ~~contract~~ deposits received in interest-sensitive assets and carrying these funds as interest-sensitive liabilities. We are also subject to interest rate risk on our variable annuity business. A sustained decline in interest rates or a prolonged period of low interest rates may subject us to higher cost of guaranteed benefits and increased hedging costs. In a rising interest rate environment, we are exposed to the risk of disintermediation through a potential increase in book value withdrawals from certain annuity products. Conversely, a steady increase in interest rates would tend to improve financial results due to reduced hedging costs, lower costs of guaranteed benefits and improvement to fixed margins.

We use product design, pricing and asset /liability management ("ALM") strategies to reduce the adverse effects of interest rate movement. Product design and pricing strategies can include the use of surrender charges, withdrawal restrictions and the ability to reset credited interest rates. ALM strategies can include the use of derivatives and duration and convexity mismatch limits. See ~~"Item 1A.~~ Risk Factors-Risks Related to Our Business-General - The level of interest rates may adversely affect our profitability, particularly in the event of a continuation of the current low interest rate environment or a period of rapidly increasing interest rates in Part I, Item 1A." of this Annual Report on Form 10-K.

Derivatives strategies include the following:

• Interest Risk Related to Variable Annuity Guaranteed Living Benefits. For Variable Annuity contracts with Guaranteed Living benefits, the contract holder may elect to receive income benefits over the remainder of their lifetime. We use derivatives such as interest rate swaps toand ~~hedge~~interest arate ~~portion~~options ofto hedge the interest rate risk associated with this type of guarantee.


•	Other Market Value and Cash Flow Hedges. We also use derivatives in general to hedge present or future changes in cash flows or market value changes in our assets and liabilities. We use derivatives such as interest rate swaps to specifically hedge interest rate risks associated with certain asset classes in our portfolio.

We assess interest rate exposures for financial assets, liabilities and derivatives using hypothetical test scenarios that assume either increasing or decreasing 100 basis point parallel shifts in the yield curve, reflecting changes in either credit spreads or risk-free rates. The following tables summarize the net estimated potential change in fair value from hypothetical 100 basis point upward and downward shifts in interest rates as of December 31, 2015 and 2014. While the test scenarios are for illustrative purposes only and do not reflect our expectations regarding future interest rates or the performance of fixed-income markets, they are a near-term, reasonably possible hypothetical change that illustrates the potential impact of such events. These tests do not measure the 80

79We assess interest rate exposures for financial assets, liabilities and derivatives using hypothetical test scenarios that assume either increasing or decreasing 100 basis point parallel shifts in the yield curve. The following tables summarize the net estimated potential change in fair value from hypothetical 100 basis point upward and downward shifts in interest rates as of December 31, 2016 and 2015. In calculating these amounts, we exclude gains and losses on separate account fixed income securities related to products for which the investment risk is borne primarily by the separate account contract holder rather than by us. While the test scenarios are for illustrative purposes only and do not reflect our expectations regarding future interest rates or the performance of fixed-income markets, they are a near-term, reasonably possible hypothetical change that illustrates the potential impact of such events. These tests do not measure the change in value that could result from non-parallel shifts in the yield curve. As a result, the actual change in fair value from a 100 basis point change in interest rates could be different from that indicated by these calculations.

change in value that could result from non-parallel shifts in the yield curve. As a result, the actual change in fair value from a 100 basis point change in interest rates could be different from that indicated by these calculations.



	As of December 31, 2016
						Hypothetical Change in Fair Value⁽²⁾
($ in millions)	Notional		Fair Value⁽¹⁾			+ 100 Basis Points Yield Curve Shift			- 100 Basis Points Yield Curve Shift
Financial assets with interest rate risk:
Fixed maturities, including securities pledged	$	—	$	23,269.5		$	(1,519.7	)	$	1,665.7
Mortgage loans on real estate	—		3,940.3			(206.7		)	226.0
Derivatives:
Interest rate contracts	38,858.1		417.9			(640.4		)	866.7
Deposits from affiliates	—		158.0			(0.4		)	0.4
Embedded derivative on reinsurance	—		(5.9		)	(41.5		)	35.3
Financial liabilities with interest rate risk:
Investment contract liabilities:
Deferred annuities⁽³⁾	—		19,193.3			(1,440.9		)	1,780.6
Funding agreements with fixed maturities	—		355.0			(6.8		)	7.1
Supplementary contracts, immediate annuities and other	—		2,956.3			(203.2		)	227.5
Long-term debt	—		543.2			(57.5		)	66.8
Embedded derivative on reinsurance	—		145.5			(491.3		)	556.2
Guaranteed benefit derivatives⁽³⁾:
FIA	—		1,987.5			164.3			(177.5		)
GMAB/GMWB/GMWBL	—		1,512.5			(603.9		)	769.3

	As of December 31, 2015
						Hypothetical Change inFair Value(2)
($ in millions)	Notional		Fair Value(1)			+ 100 Basis Points Yield Curve Shift			- 100 Basis Points Yield Curve Shift
Financial assets with interest rate risk:
Fixed maturities, including securities pledged	$	—	$	23,678.2		$	(1,463.7	)	$	1,585.7
Mortgage loans on real estate	—		3,429.8			(179.8		)	196.2
Derivatives:
Interest rate swaps, caps, forwards	27,452.3		410.0			(527.6		)	677.1
Deposits from affiliates	—		156.3			(1.9		)	2.0
Embedded derivative on reinsurance	—		(15.6		)	(34.3		)	39.4
Financial liabilities with interest rate risk:
Investment contract liabilities:
Deferred annuities(3)	—		19,367.9			(1,409.6		)	1,748.6
Funding agreements with fixed maturities and guaranteed investment contracts	—		1,083.1			(32.9		)	34.3
Supplementary contracts, immediate annuities and other	—		1,955.3			(128.2		)	143.4
Long-term debt	—		524.7			(66.7		)	66.7
Embedded derivative on reinsurance	—		10.2			(436.7		)	494.2
Guaranteed benefit derivatives(3):
FIA(4)	—		1,779.1			142.7			(143.1		)
GMAB/GMWB/GMWBL	—		1,849.0			(703.8		)	903.6


⁽¹⁾	Separate account assets and liabilities which are interest sensitive are not included herein as any interest rate risk is borne by the holder of the separate account.


⁽²⁾	(Decreases) in assets or (decreases) in liabilities are presented in parentheses. Increases in assets or increases in liabilities are presented without parentheses.


⁽³⁾	Certain amounts included in the Deferred annuities line are also reflected within the Guaranteed benefit derivatives lines of the table above.

(4) As part of our annual unlocking of assumptions, the calculation of the FIA reserve was modified to more closely align projections of future option budgets with projected interest rates. As a result, the FIA reserve will react differently to changes in interest rates such that increases to the interest rates will lead to increases in reserves. 81



	As of December 31, 2015
					Hypothetical Change in Fair Value⁽²⁾
($ in millions)	Notional		Fair Value⁽¹⁾		+ 100 Basis Points Yield Curve Shift			- 100 Basis Points Yield Curve Shift
Financial assets with interest rate risk:
Fixed maturities, including securities pledged	$	—	$	23,678.2	$	(1,463.7	)	$	1,585.7
Mortgage loans on real estate	—		3,429.8		(179.8		)	196.2
Derivatives:
Interest rate contracts	27,452.3		410.0		(527.6		)	677.1
Deposits from affiliates	—		156.3		(1.9		)	2.0
Embedded derivative on reinsurance	—

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