ThZeal - The Zeal

vriac-20200630

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

——————————————————————

FORM 10-Q


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

For the quarterly period ended June 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 033-23376

VOYA RETIREMENT INSURANCE & ANNUITY CO

(Exact name of registrant as specified in its charter)


Connecticut			71-0294708
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)


One Orange Way
Windsor	Connecticut	06095-4774
(Address of principal executive offices)			(Zip Code)

(860) 580-4646

(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(b) of the Act:

None

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. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ý Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

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

☐

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of August 12, 2020, 55,000 shares of Common Stock, $50 par value were outstanding, all of which were directly owned by Voya Holdings Inc.

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


			1

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Form 10-Q for the period ended June 30, 2020

INDEX


		PAGE
PART I.	FINANCIAL INFORMATION (UNAUDITED)


Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Income	7
	Condensed Consolidated Statements of Changes in Shareholder's Equity	8
	Condensed Consolidated Statements of Cash Flows	10
	Notes to Condensed Consolidated Financial Statements:	10
	1. Business, Basis of Presentation and Significant Accounting Policies	11
	2. Investments	20
	3. Derivative Financial Instruments	35
	4. Fair Value Measurements	42
	5. Deferred Policy Acquisition Costs and Value of Business Acquired	53
	6. Accumulated Other Comprehensive Income (Loss)	54
	7. Income Taxes	59
	8. Financing Agreements	60
	9. Commitments and Contingencies	61
	10. Related Party Transactions	63

Item 2.	Management's Narrative Analysis of the Results of Operations and Financial Condition	64

Item 4.	Controls and Procedures	84


PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	86

Item 1A.	Risk Factors	86



Item 6.	Exhibits	87

Exhibit Index		88

Signature		89


			2

Table of Contents

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

NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including "Risk Factors" and "Management’s Narrative Analysis of the Results of Operations and Financial Condition" contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements relating to future developments in our business or expectations for our future financial performance and any statement not involving a historical fact. Forward-looking statements use words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. Actual results, performance or events may differ materially from those projected in any forward-looking statement due to, among other things, (i) general economic conditions, particularly economic conditions in our core markets, (ii) performance of financial markets, including emerging markets, (iii) the frequency and severity of insured loss events, (iv) the effects of natural or man-made disasters, including pandemic events and specifically the current COVID-19 pandemic event, (v) mortality and morbidity levels, (vi) persistency and lapse levels, (vii) interest rates, (viii) currency exchange rates, (ix) general competitive factors, (x) changes in laws and regulations, including those relating to insurance regulatory reform initiatives applicable to captive reinsurance entities and those made pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act or the U.S. Department of Labor's final rules and exemptions pertaining to the fiduciary status of providers of investment advice; and (xi) changes in the policies of governments and/or regulatory authorities; and (xii) our parent company, Voya Financial, Inc.'s ability to successfully manage the separation of the fixed and variable annuities business that it sold to VA Capital LLC on June 1, 2018, including the transition services on the expected timeline and economic terms or at all, (xiii) our parent company Voya Financial Inc.'s ability to successfully complete the Individual Life Transaction (as defined below) on the expected economic terms or at all. Factors that may cause actual results to differ from those in any forward-looking statement also include those described under "Risk Factors" and "Management’s Narrative Analysis of the Results of Operations and Financial Condition" in the Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 033-23376) (the "Annual Report on Form 10-K"), and "Risk Factors" in this Quarterly Report on Form 10-Q.

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


			3

Table of Contents

PART I. FINANCIAL INFORMATION (UNAUDITED)

Item 1. Financial Statements

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Condensed Consolidated Balance Sheets

June 30, 2020 (Unaudited) and December 31, 2019

(In millions, except share and per share data)


	June 30, 2020		December 31, 2019
Assets
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost of $23,613 as of 2020 and $23,107 as of 2019; allowance for credit losses of $5 as of 2020)	$	26,156	$	25,153
Fixed maturities, at fair value using the fair value option	1,788		1,479
Equity securities, at fair value (cost of $113 as of 2020 and $73 as of 2019)	110		80

Mortgage loans on real estate, net of valuation allowance of $0 as of 2019	4,731		4,664
Less: Allowance for credit losses	55		—
Mortgage loans on real estate, net	4,676		4,664

Policy loans	195		205
Limited partnerships/corporations	753		738
Derivatives	677		224
Securities pledged (amortized cost of $556 as of 2020 and $749 as of 2019)	648		828

Other investments	44		43
Total investments	35,047		33,414
Cash and cash equivalents	364		512
Short-term investments under securities loan agreements, including collateral delivered	1,225		917
Accrued investment income	300		293


Premiums receivable and reinsurance recoverable	1,267		1,304
Less: Allowance for credit losses	2		—
Premiums receivable and reinsurance recoverable, net	1,265		1,304
Deferred policy acquisition costs, Value of business acquired and Sales inducements to contract owners	407		608

Short-term loan to affiliate	254		69
Current income tax recoverable	6		9

Due from affiliates	81		67
Property and equipment	59		60
Other assets	223		255
Assets held in separate accounts	75,740		78,713
Total assets	$	114,971	$	116,221

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

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Condensed Consolidated Balance Sheets

June 30, 2020 (Unaudited) and December 31, 2019

(In millions, except share and per share data)


	June 30, 2020		December 31, 2019
Liabilities and Shareholder's Equity
Future policy benefits and contract owner account balances	$	31,958	$	31,142
Payable for securities purchased	103		5
Payables under securities loan agreements, including collateral held	1,164		865



Due to affiliates	80		95
Derivatives	736		285

Deferred income taxes	383		304
Other liabilities	296		369
Liabilities related to separate accounts	75,740		78,713
Total liabilities	110,460		111,778

Commitments and Contingencies (Note 9)

Shareholder's equity:
Common stock (100,000 shares authorized, 55,000 issued and outstanding as of 2020 and 2019; $50 par value per share)	3		3
Additional paid-in capital	2,873		2,873
Accumulated other comprehensive income (loss)	1,535		1,292
Retained earnings (deficit)	100		275
Total shareholder's equity	4,511		4,443
Total liabilities and shareholder's equity	$	114,971	$	116,221

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

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)

(In millions)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
			(As Adjusted)				(As Adjusted)
Revenues:
Net investment income	$	385	$	428	$	824	$	822
Fee income	202		217		424		422
Premiums	7		10		12		19
Broker-dealer commission revenue	—		—		1		1
Net realized capital gains (losses):
Total impairments	(24)		(1)		(31)		(21)


Other net realized capital gains (losses)	(5)		(1)		(90)		(5)
Total net realized capital gains (losses)	(29)		(2)		(121)		(26)
Other revenue	—		3		(1)		9
Total revenues	565		656		1,139		1,247
Benefits and expenses:
Interest credited and other benefits to contract owners/policyholders	213		269		422		524
Operating expenses	243		253		541		538
Broker-dealer commission expense	—		—		1		1
Net amortization of Deferred policy acquisition costs and Value of business acquired	6		3		43		9


Total benefits and expenses	462		525		1,007		1,072
Income (loss) before income taxes	103		131		132		175
Income tax expense (benefit)	10		16		5		15
Net income (loss)	$	93	$	115	$	127	$	160

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

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Condensed Consolidated Statements of Comprehensive Income

For the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)

(In millions)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net income (loss)	$	93	$	115	$	127	$	160
Other comprehensive income (loss), before tax:
Unrealized gains (losses) on securities	1,269		498		309		1,131
Impairments	—		1		—		1
Pension and other postretirement benefits liability	(1)		(1)		(1)		(1)
Other comprehensive income (loss), before tax	1,268		498		308		1,131
Income tax expense (benefit) related to items of other comprehensive income (loss)	266		105		65		236
Other comprehensive income (loss), after tax	1,002		393		243		895
Comprehensive income (loss)	$	1,095	$	508	$	370	$	1,055

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

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Condensed Consolidated Statements of Changes in Shareholder’s Equity

For the Three Months Ended June 30, 2020 and 2019 (Unaudited)

(In millions)


	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Deficit)		Total Shareholder's Equity
Balance as of April 1, 2020	$	3	$	2,873	$	533	$	301	3,710




Adjustment for adoption of ASU 2016-13	—		—		—		—		—

Comprehensive income (loss):
Net income (loss)	—		—		—		93		93
Other comprehensive income (loss), after tax	—		—		1,002		—		1,002
Total comprehensive income (loss)									1,095
Dividends paid and distributions of capital	—		—		—		(294)		(294)



Balance as of June 30, 2020	$	3	$	2,873	$	1,535	$	100	4,511







Balance as of April 1, 2019 - As adjusted	$	3	$	2,816	$	747	$	416	$	3,982
Comprehensive income (loss):
Net income (loss)	—		—		—		115		115
Other comprehensive income (loss), after tax	—		—		393		—		393
Total comprehensive income (loss)									508
Dividends paid and distributions of capital	—		—		—		(396)		(396)


Balance as of June 30, 2019	$	3	$	2,816	$	1,140	$	135	4,094

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

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Condensed Consolidated Statements of Changes in Shareholder’s Equity

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

(In millions)



	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Deficit)		Total Shareholder's Equity
Balance as of January 1, 2020	$	3	$	2,873	$	1,292	$	275	4,443



Adjustment for adoption of ASU 2016-13	—		—		—		(8)		(8)

Comprehensive income (loss):
Net income (loss)	—		—		—		127		127
Other comprehensive income (loss), after tax	—		—		243		—		243
Total comprehensive income (loss)									370
Dividends paid and distributions of capital	—		—		—		(294)		(294)



Balance as of June 30, 2020	$	3	$	2,873	$	1,535	$	100	4,511


Balance as of January 1, 2019 (As adjusted)	$	3	$	2,816	$	108	$	508	3,435



Adjustment for adoption of ASU 2018-02	—		—		137		(137)		—

Comprehensive income (loss):
Net income (loss)	—		—		—		160		160
Other comprehensive income (loss), after tax	—		—		895		—		895
Total comprehensive income (loss)									1,055
Dividends paid and distributions of capital	—		—		—		(396)		(396)


Balance as of June 30, 2019	$	3	$	2,816	$	1,140	$	135	4,094

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

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2020 and 2019 (Unaudited)

(In millions)


	Six Months Ended June 30,
	2020		2019
Net cash provided by operating activities	$	528	$	659
Cash Flows from Investing Activities:
Proceeds from the sale, maturity, disposal or redemption of:
Fixed maturities	1,691		2,285
Equity securities	1		—
Mortgage loans on real estate	202		387
Limited partnerships/corporations	30		31
Acquisition of:
Fixed maturities	(2,241)		(2,324)
Equity securities	(30)		—
Mortgage loans on real estate	(269)		(215)
Limited partnerships/corporations	(89)		(81)
Derivatives, net	118		84
Policy loans, net	10		3

Short-term loan to affiliate, net	(185)		—
Collateral received (delivered), net	(10)		(155)
Other investments, net	1		(3)
Net cash (used in) provided by investing activities	(771)		12
Cash Flows from Financing Activities:
Deposits received for investment contracts	2,591		1,611
Maturities and withdrawals from investment contracts	(2,255)		(2,014)

Settlements on deposit contracts	(1)		(2)

Proceeds from loans with affiliates	54		46


Dividends paid and distributions of capital	(294)		(396)

Net cash provided by (used in) financing activities	95		(755)
Net decrease in cash and cash equivalents	(148)		(84)
Cash and cash equivalents, beginning of period	512		371
Cash and cash equivalents, end of period	$	364	$	287

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

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

1. Business, Basis of Presentation and Significant Accounting Policies

Business

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

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

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

Effective December 31, 2019, VRIAC’s sole shareholder, Voya Holdings, Inc., transferred ownership of Voya Institutional Plan Services, LLC (“VIPS”) and Voya Retirement Advisors, LLC (“VRA”) to VRIAC for no cash consideration. VIPS and VRA provide retirement recordkeeping and investment advisory services, respectively, and the transfer was made to more closely align recordkeeping and related activities of VRIAC’s retirement business. It also had the effect of reducing VRIAC's tax liability. This transaction was accounted for under the accounting guidance for transactions under common control which requires that financial statements reflect the transferred business for all prior periods as if the transfer occurred as of the beginning of the first period presented. As such, the Consolidated Financial Statements for the prior periods presented have been restated to reflect the transfer of VIPS and VRA to VRIAC. The related impact to the previously reported Net income (loss) for the six months ended June 30, 2019 was a decrease in net income of $34. In addition to these non-insurance subsidiaries, VRIAC also has the wholly-owned non-insurance subsidiary, Voya Financial Partners, LLC ("VFP").

On December 18, 2019, VRIAC’s ultimate parent, Voya Financial, entered into a Master Transaction Agreement (the “Resolution MTA”) with Resolution Life U.S. Holdings Inc. (“Resolution Life US”), pursuant to which Resolution Life US will acquire Security Life of Denver Insurance Company (“SLD”), Security Life of Denver International Limited (“SLDI”) and Roaring River II, Inc. ("RRII") including several subsidiaries of SLD. The transaction is expected to close by September 30, 2020 and is subject to conditions specified in the Resolution MTA, including the receipt of required regulatory approvals.

Concurrently with the sale, SLD will enter into reinsurance agreements with ReliaStar Life Insurance Company ("RLI"), ReliaStar Life Insurance Company of New York (“RLNY”), and VRIAC, each of which is a direct or indirect wholly owned subsidiary of Voya Financial. Pursuant to these agreements, RLI and VRIAC will reinsure to SLD a 100% quota share, and RLNY will reinsure to SLD a 75% quota share, of their respective individual life insurance and annuities businesses. RLI, RLNY, and VRIAC will remain subsidiaries of Voya Financial. Voya Financial currently expects that these reinsurance transactions will be carried out on a coinsurance basis, with SLD’s reinsurance obligations collateralized in one of three ways: (1) invested assets placed in a comfort trust; (2) funds withheld basis with invested assets remaining on the respective subsidiaries of the Company; or (3) some combination of these two collateralization structures. The reinsurance agreements along with the sale of the legal entities noted above (referred to as the "Individual Life Transaction") will result in the disposition of substantially all of Voya Financial's life insurance and legacy non-retirement annuity businesses and related assets. Pursuant to the Individual Life Transaction, VRIAC's reserves related to legacy non-retirement annuity business as well as pension risk transfer products will be ceded to SLD and related assets will be transferred.

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


			11

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

the membership interests of DSL, the Company's former broker-dealer subsidiary. Following the closing of the 2018 Transaction, VRIAC acquired a 9.99% equity interest in VA Capital.

The Company offers qualified and nonqualified annuity contracts that include a variety of funding and payout options for individuals and employer-sponsored retirement plans qualified under Internal Revenue Code Sections 401, 403, 408, 457 and 501, as well as nonqualified deferred compensation plans and related services. The Company's products are offered primarily to public and private school systems, higher education institutions, hospitals and healthcare facilities, not-for-profit organizations, state and local governments, small to mid-sized corporations and individuals. The Company also provides stable value investment options, including separate account guaranteed investment contracts (e.g., GICs) and synthetic GICs, to institutional clients. Pension risk transfer group annuity solutions were previously offered to institutional plan sponsors who needed to transfer their defined benefit plan obligations to the Company. The Company discontinued sales of these solutions in late 2016 to better align business activities to the Company's priorities. This business will be transferred as part of the Individual Life Transaction described above. The Company's products are generally distributed through independent brokers and advisors, third-party administrators, consultants, and representatives associated with Voya Financial's broker-dealer and investment advisor, Voya Financial Advisors, Inc. ("VFA").

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

The Company has one operating segment.

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and are unaudited. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. The inputs into the Company's estimates and assumptions consider the economic implications of COVID-19 on the Company's critical and significant accounting estimates. Those estimates are inherently subject to change and actual results could differ from those estimates, and the differences may be material to the Condensed Consolidated Financial Statements.

The Condensed Consolidated Financial Statements include the accounts of VRIAC and its wholly owned subsidiaries VFP, VIPS and VRA. Intercompany transactions and balances have been eliminated.

The accompanying Condensed Consolidated Financial Statements reflect adjustments (including normal, recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 2020, its results of operations, comprehensive income and changes in shareholder's equity for the three and six months ended June 30, 2020 and 2019, and its statements of cash flows for the six months ended June 30, 2020 and 2019, in conformity with U.S. GAAP. Interim results are not necessarily indicative of full year performance.

The December 31, 2019 Consolidated Balance Sheet is from the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K, filed with the SEC. Therefore, these unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company's Annual Report on Form 10-K.


			12

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Subsequent Events

The Company has evaluated subsequent events through the issuance date of the Condensed Consolidated financial statements including the implications of the COVID-19 pandemic. The Company is not aware of any material matters that could impact the Company's financial position, results of operations or cash flows or for which a disclosure is required.

Significant Accounting Policies

Effective January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13 "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, as amended" ("ASU 2016-13"). The Company adopted ASU 2016-13 using the modified retrospective method for financial assets measured at amortized cost and the prospective method for available-for-sale debt securities as required by ASU 2016-13. As a result, the Company had changes to the following significant accounting policies:

•Investments: Mortgage Loans on Real Estate,

•Impairments, and

•Reinsurance.

Comparative information has not been adjusted and continues to be reported under previously applicable U.S. GAAP. The Company’s accounting policies amended by the adoption of ASU 2016-13 are as follows:

Investments

Mortgage Loans on Real Estate: The Company's mortgage loans on real estate are all commercial mortgage loans, which are reported at amortized cost, net of the allowance for credit losses. Amortized cost is the principal balance outstanding, net of deferred loan fees and costs. Accrued interest receivable is reported in Accrued investment income on the Condensed Consolidated Balance Sheets.

Mortgage loans are evaluated by the Company's investment professionals, including an appraisal of loan-specific performance, property characteristics and market trends. Loan performance is continuously monitored on a loan-specific basis throughout the year. The Company's review includes submitted appraisals, operating statements, rent revenues and annual inspection reports, among other items. This review evaluates whether the properties are performing at a consistent and acceptable level to secure the debt.

Management estimates the credit loss allowance balance using a factor-based method of probability of default and loss given default which incorporates relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Included in the factor-based method are the consideration of debt type, capital market factors, and market vacancy rates, and loan-specific risk characteristics such as debt service coverage ratios (“DSCR”), loan-to-value (“LTV”), collateral size, seniority of the loan, segmentation, and property types.

The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The change in the allowance for credit losses is recorded in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations. Loans are written off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously written-off and expected to be written-off.

Mortgages are rated for the purpose of quantifying the level of risk. Those loans with higher risk are placed on a watch list and are closely monitored for collateral deficiency or other credit events that may lead to a potential loss of principal or interest. The Company defines delinquent mortgage loans consistent with industry practice as 60 days past due.

Commercial mortgage loans are placed on non-accrual status when 90 days in arrears if the Company has concerns regarding the collectability of future payments, or if a loan has matured without being paid off or extended. Factors considered may include conversations with the borrower, loss of major tenant, bankruptcy of borrower or major tenant, decreased property cash flow, number of days past due, or various other circumstances. Based on an assessment as to the collectability of the principal, a


			13

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

determination is made either to apply against the book value or apply according to the contractual terms of the loan. Funds recovered in excess of book value would then be applied to recover expenses, credit loss allowance, and then interest. Accrual of interest resumes after factors resulting in doubts about collectability have improved.

For those mortgages that are determined to require foreclosure, expected credit losses are based on the fair value of the underlying collateral, net of estimated costs to obtain and sell at the point of foreclosure. Property obtained from foreclosed mortgage loans is recorded in Other investments on the Condensed Consolidated Balance Sheets.

Impairments

The Company evaluates its available-for-sale investments quarterly to determine whether a decline in fair value below the amortized cost basis has resulted from credit loss or other factors. This evaluation process entails considerable judgment and estimation. Factors considered in this analysis include, but are not limited to, 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. A 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.

When assessing the Company's intent to sell a security, or if it is more likely than not it will be required to sell a security before recovery of its amortized cost basis, management evaluates 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. When the Company has determined it has the intent to sell, or if it is more likely than not that the Company will be required to sell a security before recovery of its amortized cost basis, and the fair value has declined below amortized cost ("intent impairment"), the individual security is written down from amortized cost to fair value, and a corresponding charge is recorded in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations as Impairments.

For available-for-sale securities that do not meet the intent impairment criteria but the Company has determined that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss allowance is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in Other comprehensive income (loss).

The Company uses the following methodology and significant inputs in determining whether a credit loss exists:

•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, the Company applies the same considerations utilized in its 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 the Company's best estimates of likely scenario-based outcomes, after giving consideration to a variety of variables that 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 ratios; 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, the Company considers the estimated fair value as the


			14

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

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, the Company considers in the determination of recovery value the same considerations utilized in its overall impairment evaluation process, which incorporates available information and the Company's 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.

•The Company performs 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.

Changes in the allowance for credit losses are recorded in Net realized capital gains (losses) as Impairments in the Condensed Consolidated Statements of Operations. Losses are charged against the allowance when the Company believes the uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available-for-sale securities is excluded from the estimate of credit losses.

Reinsurance

The Company utilizes reinsurance agreements in most aspects of its insurance business to reduce its exposure to large losses. Such reinsurance permits recovery of a portion of losses from reinsurers, although it does not discharge the primary liability of the Company as direct insurer of the risks reinsured.

Accounting for reinsurance requires use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance. The Company also evaluates the financial strength of potential reinsurers and continually monitors the financial condition of reinsurers.

Reinsurance recoverable balances are reported net of the allowance for credit losses in the Company’s Condensed Consolidated Balance Sheets. Management estimates the credit loss allowance balance using a factor-based method of probability of default and loss given default which incorporates relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Included in the factor-based method are the consideration of capital market factors, counterparty financial information and ratings, and reinsurance agreement-specific risk characteristics such as collateral type, collateral size, and covenant strength.

The allowance for credit losses is a valuation account that is deducted from the reinsurance recoverable balance to present the net amount expected to be collected on the reinsurance recoverable. The change in the allowance for credit losses is recorded in Policyholder benefits in the Condensed Consolidated Statements of Operations.


			15

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Adoption of New Pronouncements

The following table provides a description of the Company's adoption of new Accounting Standard Updates ("ASUs") issued by the Financial Accounting Standards Board ("FASB") and the impact of the adoption on the Company's financial statements.


Standard	Description of Requirements	Effective date and Method of Adoption	Effect on the Financial Statements or Other Significant Matters
ASU 2018-15, Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract	This standard, issued in August 2018, requires a customer in a hosting arrangement that is a service contract to follow the guidance for internal-use software projects to determine which implementation costs to capitalize as an asset. Capitalized implementation costs are required to be expensed over the term of the hosting arrangement. In addition, a customer is required to apply the impairment and abandonment guidance for long-lived assets to the capitalized implementation costs. Balances related to capitalized implementation costs must be presented in the same financial statement line items as other hosting arrangement balances, and additional disclosures are required.	January 1, 2020 using the prospective method.	Adoption of the ASU did not have a material impact on the Company's financial condition, results of operations, or cash flows.
ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement	This standard, issued in August 2018, simplifies certain disclosure requirements for fair value measurement.	January 1, 2020 using the transition method prescribed for each applicable provision.	Adoption of this ASU had no effect on the Company's financial condition, results of operations, or cash flows. The adoption resulted in various disclosure changes that have been included in Note 5, Fair Value Measurements.
ASU 2016-13, Measurement of Credit Losses on Financial Instruments	This standard, issued in June 2016: • Introduces a new current expected credit loss ("CECL") model to measure impairment on certain types of financial instruments, • Requires an entity to estimate lifetime expected credit losses, under the new CECL model, based on relevant information about historical events, current conditions, and reasonable and supportable forecasts, • Modifies the impairment model for available-for-sale debt securities, and • Provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. In addition, the FASB issued various amendments during 2018, 2019, and 2020 to clarify the provisions of ASU 2016-13.	January 1, 2020, using the modified retrospective method for financial assets measured at amortized cost and the prospective method for available-for-sale debt securities.	The Company recorded a $8 decrease, net of tax, to Unappropriated retained earnings as of January 1, 2020 for the cumulative effect of adopting ASU 2016-13. The transition adjustment includes recognition of an allowance for credit losses of $12 related to mortgage loans, net of the effect of DAC/VOBA and other intangibles of $2 and deferred income taxes of $2. The provisions that required prospective adoption had no effect on the Company's financial condition, results of operations, or cash flows. In addition, disclosures have been updated to reflect accounting policy changes made as a result of the implementation of ASU 2016-13. (See the Significant Accounting Policies section.) Comparative information has not been adjusted and continues to be reported under previously applicable U.S. GAAP.


			16

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Future Adoption of Accounting Pronouncements

Long-Duration Contracts

In August 2018, the FASB issued ASU 2018-12, "Financial Services - Insurance (Topic 944) Targeted Improvements to the Accounting for Long-Duration Contracts" ("ASU 2018-12"), which changes the measurement and disclosures of insurance liabilities and deferred acquisition costs ("DAC") for long-duration contracts issued by insurers. In October, 2019, the FASB voted to amend the effective date of ASU 2018-12 for public business entities that are required to file with the SEC to fiscal years beginning after December 15, 2021, including interim periods, with early adoption permitted. On July 9, 2020, the FASB issued an exposure draft proposing to defer the effective date of ASU 2018-12 by one year for all insurance entities and to provide transition relief to facilitate early application of ASU 2018-12. This exposure draft has a 45 day comment period ending on August 24, 2020. The Company is currently in the process of evaluating the provisions of ASU 2018-12. While it is not possible to estimate the expected impact of adoption at this time, the Company believes there is a reasonable possibility that implementation of ASU 2018-12 may result in a significant impact on Shareholders’ equity and future earnings patterns.

In addition to requiring significantly expanded interim and annual disclosures regarding long-duration insurance contract assets and liabilities, ASU 2018-12's provisions include modifications to the accounting for such contracts in the following areas:


ASU 2018-12 Subject Area	Description of Requirements	Transition Provisions	Effect on the Financial Statements or Other Significant Matters
Assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited payment insurance contracts	Requires insurers to review and, if necessary, update cash flow assumptions at least annually. The effect of updating cash flow assumptions will be measured on a retrospective catch-up basis and presented in the Statement of Operations in the period in which the update is made. The rate used to discount the liability for future policy benefits will be required to be updated quarterly, with related changes in the liability recorded in AOCI. The discount rate will be based on an upper-medium grade fixed-income corporate instrument yield reflecting the duration characteristics of the relevant liabilities.	Initial adoption is required to be reported using either a full retrospective or modified retrospective approach. Under either method, upon adoption the liability for future policy benefits will be remeasured using current discount rates as of the beginning of the earliest period presented with the impact recorded as a cumulative effect adjustment to AOCI.	The application of periodic assumption updates for nonparticipating traditional and limited payment insurance contracts is significantly different from the current accounting approach for such liabilities, which is based on assumptions that are locked in at contract inception unless a premium deficiency occurs. Under the current accounting guidance, the liability discount rate is based on expected yields on the underlying investment portfolio held by the insurer. The implications of these requirements, including transition options, and related potential financial statement impacts are currently being evaluated.


			17

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)


ASU 2018-12 Subject Area	Description of Requirements	Transition Provisions	Effect on the Financial Statements or Other Significant Matters
Measurement of market risk benefits	Creates a new category of benefit features called market risk benefits, defined as features that protect contract holders from capital market risk and expose the insurers to that risk. Market risk benefits will be required to be measured at fair value, with changes in fair value recognized in the Statement of Operations, except for changes in fair value attributable to changes in the instrument-specific credit risk, which will be recorded in AOCI.	Full retrospective application is required. Upon adoption, any difference between the fair value and pre-adoption carrying value of market risk benefits not currently measured at fair value will be recorded to retained earnings. In addition, the cumulative effect of changes in instrument-specific credit risk will be reclassified from retained earnings to AOCI.	Under the current accounting guidance, certain features that are expected to meet the definition of market risk benefits are accounted for as either insurance liabilities or embedded derivatives. The implications of these requirements and related potential financial statement impacts are currently being evaluated.
Amortization of DAC and other balances	Requires DAC (and other balances that refer to the DAC model, such as deferred sales inducement costs and unearned revenue liabilities) for all long-duration contracts to be measured on a constant level basis over the expected life of the contract.	Initial adoption is required to be reported using either a full retrospective or modified retrospective approach. The method of transition applied for DAC and other balances must be consistent with the transition method selected for future policy benefit liabilities, as described above.	This approach is intended to approximate straight-line amortization and cannot be based on revenue or profits as it is under the current accounting model. Related amounts in AOCI will be eliminated upon adoption. ASU 2018-12 did not change the existing accounting guidance related to value of business acquired ("VOBA") and net cost of reinsurance, which allows, but does not require, insurers to amortize such balances on a basis consistent with DAC. The implications of these requirements, including transition options, and related potential financial statement impacts are currently being evaluated.


			18

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The following table provides a description of future adoptions of other new accounting standards that may have an impact on the Company's financial statements when adopted:


Standard	Description of Requirements	Effective date and transition provisions	Effect on the financial statements or other significant matters
ASU 2020-04, Reference Rate Reform	This standard, issued in March 2020, provides temporary optional expedients and exceptions for applying U.S. GAAP principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.	The amendments are effective as of March 12, 2020, the issuance date of the ASU. An entity may elect to apply the amendments prospectively through December 31, 2022.	The Company expects that it will elect to apply some of the expedients and exceptions provided in ASU 2020-04; however, the Company is still evaluating the guidance, and therefore, the impact of the adoption of ASU 2020-04 on the Company’s financial condition and results of operations has not yet been determined.
ASU 2019-12, Simplifying the Accounting for Income Taxes	This standard, issued in December 2019, simplifies the accounting for income taxes by eliminating certain exceptions to the general principles and simplifying several aspects of ASC 740, Income taxes, including requirements related to the following: • The intraperiod tax allocation exception to the incremental approach, • The tax basis step-up in goodwill obtained in a transaction that is not a business combination, • Hybrid tax regimes, • Ownership changes in investments - changes from a subsidiary to an equity method investment, • Separate financial statements of entities not subject to tax, • Interim-period accounting for enacted changes in tax law, and • The year-to-date loss limitation in interim-period tax accounting.	January 1, 2021 with early adoption permitted. Early adoption in an interim period must reflect any adjustments as of the beginning of the annual period. Initial adoption of ASU 2019-12 is required to be reported on a prospective basis, except for certain provisions that are required to be applied retrospectively or modified retrospectively.	The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2019-12.
ASU 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans	This standard, issued in August 2018, eliminates certain disclosure requirements that are no longer considered cost beneficial and requires new disclosures that are considered relevant.	December 31, 2020 with early adoption permitted. Initial adoption of ASU 2018-14 is required to be reported on a retrospective basis for all periods presented.	The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2018-14.


			19

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

2. Investments

Fixed Maturities

Available-for-sale and fair value option ("FVO") fixed maturities were as follows as of June 30, 2020:


	Amortized Cost		Gross Unrealized Capital Gains		Gross Unrealized Capital Losses		Embedded Derivatives⁽²⁾		Fair Value		Allowance for credit losses
Fixed maturities:
U.S. Treasuries	$	537	$	213	$	—	$	—	$	750	$	—
U.S. Government agencies and authorities	18		1		—		—		19		—
State, municipalities and political subdivisions	734		106		—		—		840		—
U.S. corporate public securities	6,941		1,227		38		—		8,130		—
U.S. corporate private securities	3,774		458		31		—		4,201		—
Foreign corporate public securities and foreign governments⁽¹⁾	2,412		311		11		—		2,712		—
Foreign corporate private securities⁽¹⁾	3,078		224		29		—		3,272		1




Residential mortgage-backed securities	4,320		188		36		15		4,486		1
Commercial mortgage-backed securities	2,650		178		116		—		2,712		—
Other asset-backed securities	1,493		18		38		—		1,470		3

Total fixed maturities, including securities pledged	25,957		2,924		299		15		28,592		5
Less: Securities pledged	556		98		6		—		648		—
Total fixed maturities	$	25,401	$	2,826	$	293	$	15	$	27,944	$	5

⁽¹⁾ Primarily U.S. dollar denominated.

⁽²⁾Embedded derivatives within fixed maturity securities are reported with the host investment. The changes in fair value of embedded derivatives are reported in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.


			20

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Available-for-sale and FVO fixed maturities were as follows as of December 31, 2019:


	Amortized Cost		Gross Unrealized Capital Gains		Gross Unrealized Capital Losses		Embedded Derivatives⁽²⁾		Fair Value		OTTI⁽³⁾⁽⁴⁾
Fixed maturities:
U.S. Treasuries	$	565	$	129	$	3	$	—	$	691	$	—
U.S. Government agencies and authorities	19		—		—		—		19		—
State, municipalities and political subdivisions	747		68		—		—		815		—
U.S. corporate public securities	7,103		941		13		—		8,031		—
U.S. corporate private securities	3,776		306		16		—		4,066		—
Foreign corporate public securities and foreign governments⁽¹⁾	2,417		265		3		—		2,679		—
Foreign corporate private securities⁽¹⁾	3,171		205		1		—		3,375		—




Residential mortgage-backed securities	3,685		125		11		11		3,810		2
Commercial mortgage-backed securities	2,381		122		3		—		2,500		—
Other asset-backed securities	1,472		15		13		—		1,474		1

Total fixed maturities, including securities pledged	25,336		2,176		63		11		27,460		3
Less: Securities pledged	749		85		6		—		828		—
Total fixed maturities	$	24,587	$	2,091	$	57	$	11	$	26,632	$	3

⁽¹⁾ Primarily U.S. dollar denominated.

⁽³⁾ Represents OTTI reported as a component of Other comprehensive income (loss).

⁽⁴⁾ Amount excludes $137 of net unrealized gains on impaired available-for-sale securities.

The amortized cost and fair value of fixed maturities, including securities pledged, as of June 30, 2020, are shown below by contractual maturity. Actual maturities may differ from contractual maturities as securities may be restructured, called or prepaid. Mortgage-backed securities ("MBS") and Other asset-backed securities ("ABS") are shown separately because they are not due at a single maturity date.


	Amortized Cost		Fair Value
Due to mature:
One year or less	$	824	$	832
After one year through five years	3,324		3,501
After five years through ten years	5,528		6,080
After ten years	7,818		9,511
Mortgage-backed securities	6,970		7,198
Other asset-backed securities	1,493		1,470
Fixed maturities, including securities pledged	$	25,957	$	28,592

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


			21

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

As of June 30, 2020 and December 31, 2019, the Company did not have any investments in a single issuer, other than obligations of the U.S. Government and government agencies, with a carrying value in excess of 10% of the Company's Total shareholder's equity.

The following tables present the composition of the U.S. and foreign corporate securities within the fixed maturity portfolio by industry category as of the dates indicated:


	Amortized Cost		Gross Unrealized Capital Gains		Gross Unrealized Capital Losses		Fair Value
June 30, 2020
Communications	$	983	$	201	$	1	$	1,183
Financial	2,560		389		7		2,942
Industrial and other companies	6,956		896		35		7,817
Energy	1,562		178		41		1,699
Utilities	2,968		433		2		3,399
Transportation	852		80		19		913
Total	$	15,881	$	2,177	$	105	$	17,953

December 31, 2019
Communications	$	1,002	$	156	$	—	$	1,158
Financial	2,650		302		—		2,952
Industrial and other companies	7,053		667		11		7,709
Energy	1,675		185		18		1,842
Utilities	2,913		294		1		3,206
Transportation	856		78		2		932
Total	$	16,149	$	1,682	$	32	$	17,799

The Company has elected the FVO for certain of its fixed maturities to better match the measurement of assets and liabilities in the Condensed Consolidated Statements of Operations. Certain collateralized mortgage obligations ("CMOs"), primarily interest-only and principal-only strips, are accounted for as hybrid instruments and reported at fair value with changes in the fair value recorded in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.

The Company invests in various categories of CMOs, including CMOs that are not agency-backed, that are subject to different degrees of risk from changes in interest rates and defaults. The principal risks inherent in holding CMOs are prepayment and extension risks related to significant decreases and increases in interest rates resulting in the prepayment of principal from the underlying mortgages, either earlier or later than originally anticipated. As of June 30, 2020 and December 31, 2019, approximately 48.3% and 48.4%, respectively, of the Company’s CMO holdings, were invested in the above mentioned types of CMOs such as interest-only or principal-only strips, that are subject to more prepayment and extension risk than traditional CMOs.

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


			22

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Repurchase Agreements

As of June 30, 2020 and December 31, 2019, the Company did not have any securities pledged in dollar rolls, repurchase agreement transactions or reverse repurchase agreements.

Securities Lending

The Company engages in securities lending whereby the initial collateral is required at a rate of 102% of the market value of the loaned securities. The lending agent retains the collateral and invests it in high quality liquid assets on behalf of the Company. The market value of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the market value of the loaned securities fluctuates. The lending agent indemnifies the Company against losses resulting from the failure of a counterparty to return securities pledged where collateral is insufficient to cover the loss. As of June 30, 2020 and December 31, 2019, the fair value of loaned securities was $549 and $715, respectively, and is included in Securities pledged on the Condensed Consolidated Balance Sheets.

If cash is received as collateral, the lending agent retains the cash collateral and invests it in short-term liquid assets on behalf of the Company. As of June 30, 2020 and December 31, 2019, cash collateral retained by the lending agent and invested in short-term liquid assets on the Company's behalf was $489 and $650, respectively, and is recorded in Short-term investments under securities loan agreements, including collateral delivered on the Condensed Consolidated Balance Sheets. As of June 30, 2020 and December 31, 2019, liabilities to return collateral of $489 and $650, respectively, are included in Payables under securities loan agreements, including collateral held, on the Condensed Consolidated Balance Sheets.

The Company accepts non-cash collateral in the form of securities. The securities retained as collateral by the lending agent may not be sold or re-pledged, except in the event of default, and are not reflected on the Company’s Condensed Consolidated Balance Sheets. This collateral generally consists of U.S. Treasury, U.S. Government agency securities and MBS pools. As of June 30, 2020 and December 31, 2019, the fair value of securities retained as collateral by the lending agent on the Company’s behalf was $79 and $91, respectively.

The following table presents borrowings under securities lending transactions by asset class pledged as of the dates indicated:


	June 30, 2020 ⁽¹⁾⁽²⁾		December 31, 2019 ⁽¹⁾⁽²⁾
U.S. Treasuries	$	101	$	109
U.S. Government agencies and authorities	4		—
U.S. corporate public securities	272		447

Foreign corporate public securities and foreign governments	190		185
Equity Securities	1		—
Payables under securities loan agreements	$	568	$	741

⁽¹⁾As of June 30, 2020 and December 31, 2019, borrowings under securities lending transactions include cash collateral of $489 and $650, respectively.

⁽²⁾As of June 30, 2020 and December 31, 2019, borrowings under securities lending transactions include non-cash collateral of $79 and $91, respectively.

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


			23

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Variable Interest Entities ("VIEs")

The Company holds certain VIEs for investment purposes. VIEs may be in the form of private placement securities, structured securities, securitization transactions or limited partnerships. The Company has reviewed each of its holdings and determined that consolidation of these investments in the Company’s financial statements is not required, as the Company is not the primary beneficiary, because the Company does not have both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation or right to potentially significant losses or benefits, for any of its investments in VIEs. The Company did not provide any non-contractual financial support and its carrying value represents the Company’s exposure to loss. The carrying value of the investments in VIEs was $752 and $738 as of June 30, 2020 and December 31, 2019, respectively; these investments are included in Limited partnerships/corporations on the Condensed Consolidated Balance Sheets. Income and losses recognized on these investments are reported in Net investment income in the Condensed Consolidated Statements of Operations.

Securitizations

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


			24

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Allowance for credit losses

The following table presents a rollforward of the allowance for credit losses on available-for-sale fixed maturity securities for the period presented:


	Six Months Ended June 30, 2020
	Residential mortgage-backed securities		Commercial mortgage-backed securities		Foreign corporate private securities		Other asset-backed securities		Total
Balance as of January 1, 2020	$	—	$	—	$	—	$	—	$	—
Credit losses on securities for which credit losses were not previously recorded	1		—		1		3		5
Initial allowance for credit losses recognized on financial assets accounted for as PCD	—		—		—		—		—
Reductions for securities sold during the period	—		—		—		—		—
Reductions for intent to sell or more likely than not will be required to sell securities prior to recovery of amortized cost	—		—		—		—		—
Increase (decrease) on securities with allowance recorded in previous period	—		—		—		—		—
Write-offs	—		—		—		—		—
Recoveries of amounts previously written off	—		—		—		—		—
Balance at June 30, 2020	$	1	$	—	$	1	$	3	$	5


			25

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Unrealized Capital Losses

The following table presents available-for-sale fixed maturities, including securities pledged, for which an allowance for credit losses has not been recorded by market sector and duration as of the date indicated:


	Twelve Months or Less Below Amortized Cost									More Than Twelve Months Below Amortized Cost						Total
June 30, 2020	Fair Value		Unrealized Capital Losses		Number of securities	Fair Value		Unrealized Capital Losses		Number of securities	Fair Value		Unrealized Capital Losses		Number of securities
U.S. Treasuries	$	—	$	—	—	$	—	$	—	—	$	—	$	—	—

State, municipalities and political subdivisions	21		—		10	—		—		—	21		—		10
U.S. corporate public securities	478		29		90	41		9		12	519		38		102
U.S. corporate private securities	297		10		31	79		21		9	376		31		40
Foreign corporate public securities and foreign governments	135		8		38	17		3		6	152		11		44
Foreign corporate private securities	314		28		31	46		1		6	360		29		37
Residential mortgage-backed	711		28		142	135		8		54	846		36		196
Commercial mortgage-backed	1,119		115		224	9		1		1	1,128		116		225
Other asset-backed	764		21		183	278		17		102	1,042		38		285
Total	$	3,839	$	239	749	$	605	$	60	190	$	4,444	$	299	939

The Company concluded that an allowance for credit losses was unnecessary for these securities because the unrealized losses are not credit related.


			26

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Unrealized capital losses (including noncredit impairments), along with the fair value of fixed maturity securities, including securities pledged, by market sector and duration were as follows as of December 31, 2019:


	Twelve Months or Less Below Amortized Cost						More Than Twelve Months Below Amortized Cost							Total
	Fair Value		Unrealized Capital Losses		Fair Value		Unrealized Capital Losses			Fair Value		Unrealized Capital Losses
U.S. Treasuries	$	68	$	3	$	12	$	—	*	$	80	$	3

State, municipalities and political subdivisions	21		—		—		—			21		—
U.S. corporate public securities	97		3		131		10			228		13
U.S. corporate private securities	75		—		134		16			209		16
Foreign corporate public securities and foreign governments	6		—		53		3			59		3
Foreign corporate private securities	21		—		56		1			77		1
Residential mortgage-backed	535		6		139		5			674		11
Commercial mortgage-backed	331		3		18		—			349		3
Other asset-backed	217		2		500		11			717		13
Total	$	1,389	$	17	$	1,043	$	46		$	2,432	$	63
Total number of securities in an unrealized loss position	289						278							567

*Less than $1.

Based on the Company's quarterly evaluation of its securities in a unrealized loss position, described below, the Company concluded that these securities were not impaired as of June 30, 2020. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases. See the Business, Basis of Presentation and Significant Accounting Policies Note to these Consolidated Financial Statements for the policy used to evaluate whether the investments are impaired.

Gross unrealized capital losses on fixed maturities, including securities pledged, increased $236 from $63 to $299 for the six months ended June 30, 2020. The increase in gross unrealized capital losses was primarily due to non-credit related market factors.

At June 30, 2020, $6 of the total $299 of gross unrealized losses were from 2 available-for-sale fixed maturity securities with an unrealized loss position of 20% or more of amortized cost for 12 months or greater.

Evaluating Securities for Impairments

The Company performs a regular evaluation, on a security-by-security basis, of its available-for-sale securities holdings, including fixed maturity securities in accordance with its impairment policy in order to evaluate whether such investments are impaired.


			27

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The following tables identify the Company's impairments included in the Condensed Consolidated Statements of Operations, excluding impairments included in Other comprehensive income (loss) by type for the periods indicated:


	Three Months Ended June 30,
	2020						2019
	Impairment		No. of Securities	Impairment			No. of Securities

State, municipalities, and political subdivisions	$	—	5	$	—		—
U.S. corporate public securities	5		36	—			—
U.S. corporate private securities	—		1	—			—
Foreign corporate public securities and foreign governments⁽¹⁾	1		20	1			1
Foreign corporate private securities⁽¹⁾	—		7	—			—
Residential mortgage-backed	1		27	—		*	7
Commercial mortgage-backed	16		94	—			—
Other asset-backed	1		60	—		*	1
Limited partnerships	—		—	—			—


Total	$	24	250	$	1		9
Credit Impairments	$	—		$	—
Intent Impairments	$	24		$	1
⁽¹⁾ Primarily U.S. dollar denominated.
*Less than $1.
	Six Months Ended June 30,
	2020						2019
	Impairment		No. of Securities	Impairment			No. of Securities

State, municipalities, and political subdivisions	$	—	5	$	—		—
U.S. corporate public securities	11		38	—			—
U.S. corporate private securities	—		1	—			—
Foreign corporate public securities and foreign governments⁽¹⁾	1		20	1			1
Foreign corporate private securities⁽¹⁾	—		7	18			3
Residential mortgage-backed	2		32	—		*	13
Commercial mortgage-backed	16		95	—			—
Other asset-backed	1		60	—		*	3
Limited partnerships	—		—	—			—


Total	$	31	258	$	19		20
Credit Impairments	$	—		$	18
Intent Impairments	$	31		$	1
⁽¹⁾ Primarily U.S. dollar denominated.
*Less than $1.

The Company may sell securities during the period in which fair value has declined below amortized cost for fixed maturities. In certain situations, new factors, including changes in the business environment, can change the Company’s previous intent to continue holding a security. Accordingly, these factors may lead the Company to record additional intent related capital losses.


			28

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

For the three months ended June 30, 2020 intent impairments in the amount of $$24 were recorded on assets designated to be included in the reinsurance agreement associated with the Individual Life Transaction.

Troubled Debt Restructuring

The Company invests in high quality, well performing portfolios of commercial mortgage loans and private placements. Under certain circumstances, modifications are granted to these contracts. Each modification is evaluated as to whether a troubled debt restructuring has occurred. A modification is a troubled debt restructuring when the borrower is in financial difficulty and the creditor makes concessions. Generally, the types of concessions may include reducing the face amount or maturity amount of the debt as originally stated, reducing the contractual interest rate, extending the maturity date at an interest rate lower than current market interest rates and/or reducing accrued interest. The Company considers the amount, timing and extent of the concession granted in determining any impairment or changes in the specific credit allowance recorded in connection with the troubled debt restructuring. A credit allowance may have been recorded prior to the quarter when the loan is modified in a troubled debt restructuring. Accordingly, the carrying value (net of the allowance) before and after modification through a troubled debt restructuring may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment. For the three and six months ended June 30, 2020, the Company did not have any new commercial mortgage loan or private placement troubled debt restructuring. For the three and six months ended June 30, 2019, the Company did not have any new commercial mortgage loan and had one new private placement troubled debt restructuring with a pre-modification cost basis of $74 and post-modification carrying value of $57.

For the three and six months ended June 30, 2020 and June 30, 2019, the Company did not have any commercial mortgage loans or private placements modified in a troubled debt restructuring with a subsequent payment default.

Mortgage Loans on Real Estate

The Company diversifies its commercial mortgage loan portfolio by geographic region and property type to reduce concentration risk. The Company manages risk when originating commercial mortgage loans by generally lending only up to 75% of the estimated fair value of the underlying real estate. Subsequently, the Company continuously evaluates mortgage loans based on relevant current information including a review of loan-specific performance, property characteristics and market trends. Loan performance is monitored on a loan specific basis through the review of submitted appraisals, operating statements, rent revenues and annual inspection reports, among other items. This review ensures properties are performing at a consistent and acceptable level to secure the debt. The components to evaluate debt service coverage are received and reviewed at least annually to determine the level of risk.

Loan-to-value ("LTV") and debt service coverage ("DSC") ratios are measures commonly used to assess the risk and quality of 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. A LTV ratio in excess of 100% indicates the unpaid loan amount exceeds 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 to its debt service payments. A DSC ratio of less than 1.0 indicates that a property’s operations do not generate sufficient income to cover debt payments. These ratios are utilized as part of the review process described above.


			29

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The following tables present commercial mortgage loans by year of origination and LTV ratio as of the dates indicated. The information is updated as of June 30, 2020 and December 31, 2019, respectively.


	As of June 30, 2020
	Loan-to-Value Ratios
Year of Origination	0% - 50%		>50% - 60%		>60% - 70%		>70% - 80%		>80% and above		Total
2020	$	98	$	131	$	28	$	—	$	—	$	257
2019	253		158		87		15		—		513
2018	115		100		90		—		—		305
2017	518		360		17		—		—		895
2016	397		285		6		—		—		688
2015	393		90		—		—		—		483
2014 and prior	1,222		344		24		—		—		1,590
Total	$	2,996	$	1,468	$	252	$	15	$	—	$	4,731


	As of December 31, 2019
	Loan-to-Value Ratios
Year of Origination	0% - 50%		>50% - 60%		>60% - 70%		>70% - 80%		>80% and above		Total
2020	$	—	$	—	$	—	$	—	$	—	$	—
2019	85		96		145		170		26		522
2018	4		88		110		133		14		349
2017	101		244		566		13		10		934
2016	46		150		470		31		—		697
2015	10		343		168		8		—		529
2014 and prior	134		252		1,093		154		—		1,633
Total	$	380	$	1,173	$	2,552	$	509	$	50	$	4,664


			30

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The following tables present commercial mortgage loans by year of origination and DSC ratio as of the dates indicated. The information is updated as of June 30, 2020 and December 31, 2019, respectively.


	As of June 30, 2020
	Debt Service Coverage Ratios
Year of Origination	>1.5x		>1.25x - 1.5x		>1.0x - 1.25x		<1.0x		Commercial mortgage loans secured by land or construction loans		Total
2020	$	217	$	30	$	10	$	—	$	—	$	257
2019	393		78		42		—		—		513
2018	194		17		63		31		—		305
2017	466		222		140		67		—		895
2016	603		62		23		—		—		688
2015	451		30		2		—		—		483
2014 and prior	1,335		135		74		46		—		1,590
Total	$	3,659	$	574	$	354	$	144	$	—	$	4,731


	As of December 31, 2019
	Debt Service Coverage Ratios
Year of Origination	>1.5x		>1.25x - 1.5x		>1.0x - 1.25x		<1.0x		Commercial mortgage loans secured by land or construction loans		Total
2020	$	—	$	—	$	—	$	—	$	—	$	—
2019	353		127		42		—		—		522
2018	236		3		60		50		—		349
2017	481		238		133		82		—		934
2016	615		59		23		—		—		697
2015	492		32		—		5		—		529
2014 and prior	1,358		128		88		59		—		1,633
Total	$	3,535	$	587	$	346	$	196	$	—	$	4,664


			31

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The following tables present the commercial mortgage loans by year of origination and U.S. region as of the dates indicated. The information is updated as of June 30, 2020 and December 31, 2019, respectively.


	As of June 30, 2020
	U.S. Region
Year of Origination	Pacific		South Atlantic		Middle Atlantic		West South Central		Mountain		East North Central		New England		West North Central		East South Central		Total
2020	$	56	$	121	$	17	$	23	$	14	$	8	$	—	$	—	$	18	$	257
2019	64		129		11		156		54		44		18		11		26		513
2018	49		112		59		35		26		11		—		13		—		305
2017	101		98		362		150		76		60		5		43		—		895
2016	157		131		183		32		73		77		8		21		6		688
2015	111		135		101		31		42		48		10		5		—		483
2014 and prior	431		308		244		116		166		137		41		117		30		1590
Total	$	969	$	1,034	$	977	$	543	$	451	$	385	$	82	$	210	$	80	$	4,731


	As of December 31, 2019
	U.S. Region
Year of Origination	Pacific		South Atlantic		Middle Atlantic		West South Central		Mountain		East North Central		New England		West North Central		East South Central		Total
2020	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2019	63		127		26		155		53		43		18		11		26		522
2018	50		132		60		43		26		11		—		12		15		349
2017	103		99		396		151		77		60		5		43		—		934
2016	158		132		187		32		75		77		9		21		6		697
2015	125		160		103		34		43		50		10		4		—		529
2014 and prior	445		316		247		122		168		142		42		121		30		1633
Total	$	944	$	966	$	1,019	$	537	$	442	$	383	$	84	$	212	$	77	$	4,664


			32

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The following tables present the commercial mortgage loans by year of origination and property type as of the dates indicated. The information is updated as of June 30, 2020 and December 31, 2019, respectively.


	As of June 30, 2020
	Property Type
Year of Origination	Retail		Industrial		Apartments		Office		Hotel/Motel		Other		Mixed Use		Total
2020	$	44	$	8	$	98	$	107	$	—	$	—	$	—	$	257
2019	33		89		290		81		20		—		—		513
2018	50		79		137		17		4		18		—		305
2017	102		427		217		145		4		—		—		895
2016	130		249		146		144		8		7		4		688
2015	122		182		67		51		19		42		—		483
2014 and prior	711		133		289		223		67		127		40		1590
Total	$	1,192	$	1,167	$	1,244	$	768	$	122	$	194	$	44	$	4,731


	As of December 31, 2019
	Property Type
Year of Origination	Retail		Industrial		Apartments		Office		Hotel/Motel		Other		Mixed Use		Total
2020	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2019	33		90		299		81		19		—		—		522
2018	52		91		152		32		4		18		—		349
2017	104		461		218		147		4		—		—		934
2016	131		254		147		146		8		7		4		697
2015	148		185		69		62		23		42		—		529
2014 and prior	730		135		300		229		69		130		40		1633
Total	$	1,198	$	1,216	$	1,185	$	697	$	127	$	197	$	44	$	4,664

The following table summarizes the activity in the allowance for losses for commercial mortgage loans for the periods indicated:


	June 30, 2020
Allowance for credit losses, balance at January 1	$	12
Credit losses on mortgage loans for which credit losses were not previously recorded	3
Initial allowance for credit losses recognized on financial assets accounted for as PCD	—
Increase (decrease) on mortgage loans with allowance recorded in previous period	40
Provision for expected credit losses	55
Writeoffs	—
Recoveries of amounts previously written off	—

Allowance for credit losses, end of period	$	55

COVID-19 is driving the allowance increase for the Commercial Mortgage Loan portfolio. The pandemic first manifested in the economy in March resulting in travel reduction, restaurant closures and work from home situations for most companies. Updated information on the macroeconomic impact of COVID-19 includes higher probability of default and loss given default


			33

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

in the portfolio. As a result of updated model scenarios, the Company observed consistent increases across property types such as apartments, office and retail, but a much larger spike in the hotel sector.

To provide temporary financial assistance to our commercial mortgage loans borrowers adversely effected by COVID-19 related stress, the Company has provided payment forbearance to approximately 7% of the outstanding principal amount of our commercial mortgage loans. Deferred payment amounts are expected to be repaid across the 12 months following the end of the agreed upon forbearance period. No modifications to any commercial mortgage loans have been made as of the issuance date of this filing.

The following table presents past due commercial mortgage loans as of the dates indicated:


	June 30, 2020		December 31, 2019
Delinquency:
Current	$	4,726	$	4,664
30-59 days past due	—		—
60-89 days past due	—		—
Greater than 90 days past due	5		—
Total	$	4,731	$	4,664

Commercial mortgage loans are placed on non-accrual status when 90 days in arrears if the Company has concerns regarding the collectability of future payments, or if a loan has matured without being paid off or extended. As of June 30, 2020, the Company had one commercial mortgage loans in non-accrual status. As of December 31, 2019, the Company had no commercial mortgage loans in non-accrual status. There was no interest income recognized on loans in non-accrual status for the six months ended June 30, 2020 and at December 31, 2019.

As of June 30, 2020 and December 31, 2019, the Company had no commercial mortgage loans that were over 90 days or more past due but are not on non-accrual status. The Company had no commercial mortgage loans on non-accrual status for which there is no related allowance for credit losses as of June 30, 2020.

Net Investment Income

The following table summarizes Net investment income for the periods indicated:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Fixed maturities	$	398	$	354	$	771	$	706
Equity securities	2		1		4		3
Mortgage loans on real estate	50		55		100		109
Policy loans	4		2		6		4
Short-term investments and cash equivalents	—		1		1		2
Other	(51)		32		(21)		33
Gross investment income	403		445		861		857
Less: Investment expenses	18		17		37		35
Net investment income	$	385	$	428	$	824	$	822

As of June 30, 2020 and December 31, 2019, the Company had $12 and $0, respectively, of investments in fixed maturities that did not produce net investment income. Fixed maturities are moved to a non-accrual status when the investment defaults.


			34

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Interest income on fixed maturities is recorded when earned using an effective yield method, giving effect to amortization of premiums and accretion of discounts. Such interest income is recorded in Net investment income in the Condensed Consolidated Statements of Operations.

Net Realized Capital Gains (Losses)

Net realized capital gains (losses) comprise the difference between the amortized cost of investments and proceeds from sale and redemption, as well as losses incurred due to the credit-related and intent-related impairment of investments. Realized investment gains and losses are also primarily generated from changes in fair value of embedded derivatives within products and fixed maturities, changes in fair value of fixed maturities recorded at FVO and changes in fair value including accruals on derivative instruments, except for effective cash flow hedges. Net realized capital gains (losses) also include changes in fair value of equity securities. The cost of the investments on disposal is generally determined based on first-in-first-out ("FIFO") methodology.

Net realized capital gains (losses) were as follows for the periods indicated:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Fixed maturities, available-for-sale, including securities pledged	$	(3)	$	3	$	(21)	$	(13)
Fixed maturities, at fair value option	(39)		53		16		77
Equity securities	6		3		1		4
Derivatives	6		(50)		52		(82)
Embedded derivatives - fixed maturities	—		1		4		2
Guaranteed benefit derivatives	39		(13)		(130)		(13)
Other investments	(38)		1		(43)		(1)
Net realized capital gains (losses)	$	(29)	$	(2)	$	(121)	$	(26)

For the three and six months ended June 30, 2020, the change in fair value of equity securities still held as of June 30, 2020 was $6 and $1, respectively. For the three and six months ended June 30, 2019, the change in fair value of equity securities still held as of June 30, 2019 was $3 and $4, respectively.

Proceeds from the sale of fixed maturities, available-for-sale, and equity securities and the related gross realized gains and losses, before tax, were as follows for the periods indicated:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Proceeds on sales	$	583	$	352	$	860	$	1,575
Gross gains	56		7		61		19
Gross losses	39		3		52		14

3. Derivative Financial Instruments

The Company enters into the following types of derivatives:

Interest rate caps: The Company uses interest rate cap contracts to hedge the interest rate exposure arising from duration mismatches between assets and liabilities. Interest rate caps are also used to hedge interest rate exposure if rates rise above a specified level. Such increases in rates will require the Company to incur additional expenses. The future payout from the interest rate caps fund this increased exposure. The Company pays an upfront premium to purchase these caps. The Company utilizes these contracts in non-qualifying hedging relationships.


			35

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Interest rate swaps: Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and/or liabilities. Interest rate swaps are also used to hedge the interest rate risk associated with the value of assets it owns or in an anticipation of acquiring them. Using interest rate swaps, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest payments, calculated by reference to an agreed upon notional principal amount. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made to/from the counterparty at each due date. The Company utilizes these contracts in qualifying hedging relationships as well as non-qualifying hedging relationships.

Foreign exchange swaps: The Company uses foreign exchange or currency swaps to reduce the risk of change in the value, yield or cash flows associated with certain foreign denominated invested assets. Foreign exchange swaps represent contracts that require the exchange of foreign currency cash flows against U.S. dollar cash flows at regular periods, typically quarterly or semi-annually. The Company utilizes these contracts in qualifying hedging relationships as well as non-qualifying hedging relationships.

Credit default swaps: Credit default swaps are used to reduce credit loss exposure with respect to certain assets that the Company owns, or to assume credit exposure on certain assets that the Company does not own. Payments are made to, or received from, the counterparty at specified intervals. In the event of a default on the underlying credit exposure, the Company will either receive a payment (purchased credit protection) or will be required to make a payment (sold credit protection) equal to the par minus recovery value of the swap contract. The Company utilizes these contracts in non-qualifying hedging relationships.

Currency forwards: The Company utilizes currency forward contracts to hedge currency exposure related to invested assets. The Company utilizes these contracts in non-qualifying hedging relationships.

Forwards: The Company uses forward contracts to hedge certain invested assets against movement in interest rates, particularly mortgage rates. The Company uses To Be Announced mortgage-backed securities as an economic hedge against rate movements. The Company utilizes forward contracts in non-qualifying hedging relationships.

Futures: The Company uses interest rate futures contracts to hedge its exposure to market risks due to changes in interest rates. The Company enters into exchange traded futures with regulated futures commissions that are members of the exchange. The Company also posts initial and variation margins, with the exchange, on a daily basis. The Company utilizes exchange-traded futures in non-qualifying hedging relationships. The Company may also use futures contracts as a hedge against an increase in certain equity indices.

Swaptions: A swaption is an option to enter into a swap with a forward starting effective date. The Company uses swaptions to hedge the interest rate exposure associated with the minimum crediting rate and book value guarantees embedded in the retirement products that the Company offers. Increases in interest rates will generate losses on assets that are backing such liabilities. In certain instances, the Company locks in the economic impact of existing purchased swaptions by entering into offsetting written swaptions. The Company pays a premium when it purchases the swaption. The Company utilizes these contracts in non-qualifying hedging relationships.

Options: The Company uses equity options to hedge against an increase in various equity indices. Such increases may result in increased payments to the holders of the FIA contracts. The Company pays an upfront premium to purchase these options. The Company utilizes these options in non-qualifying hedging relationships.

Managed custody guarantees ("MCGs"): The Company issues certain credited rate guarantees on variable fixed income portfolios that represent stand-alone derivatives. The market value is partially determined by, among other things, levels of or changes in interest rates, prepayment rates and credit ratings/spreads.

Embedded derivatives: The Company also invests in certain fixed maturity instruments and has issued certain products that contain embedded derivatives for which market value is at least partially determined by, among other things, levels of or changes in domestic and/or foreign interest rates (short-term or long-term), exchange rates, prepayment rates, equity rates, or


			36

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

credit ratings/spreads. In addition, the Company has entered into coinsurance with funds withheld arrangements, which contain embedded derivatives.

The Company's use of derivatives is limited mainly to economic hedging to reduce the Company's exposure to cash flow variability of assets and liabilities, interest rate risk, credit risk, exchange rate risk and equity market risk. It is the Company's 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, which provides the Company with the legal right of offset. However, in accordance with the Chicago Mercantile Exchange ("CME") rules related to the variation margin payments, the Company is required to adjust the derivative balances with the variation margin payments related to its cleared derivatives executed through CME.

The notional amounts and fair values of derivatives were as follows as of the dates indicated:


	June 30, 2020										December 31, 2019
	Notional Amount		Asset Fair Value		Liability Fair Value		Notional Amount		Asset Fair Value		Liability Fair Value
Derivatives: Qualifying for hedge accounting⁽¹⁾
Cash flow hedges:
Interest rate contracts	$	23	$	—	$	—	$	23	$	—	$	—
Foreign exchange contracts	667		55		—		652		10		18
Derivatives: Non-qualifying for hedge accounting⁽¹⁾
Interest rate contracts	18,888		620		731		18,640		210		261
Foreign exchange contracts	81		—		1		54		—		1
Equity contracts	58		2		2		63		4		3
Credit contracts	197		—		2		182		—		2

Embedded derivatives and Managed custody guarantees:
Within fixed maturity investments	N/A		15		—		N/A		11		—
Within products	N/A		—		147		N/A		—		33
Within reinsurance agreements	N/A		—		—		N/A		—		23
Managed custody guarantees	N/A		—		17		N/A		—		—
Total			$	692	$	900			$	235	$	341

⁽¹⁾ Open derivative contracts are reported as Derivatives assets or liabilities on the Condensed Consolidated Balance Sheets at fair value.

N/A - Not Applicable

Based on the notional amounts, a substantial portion of the Company’s derivative positions was not designated or did not qualify for hedge accounting as part of a hedging relationship as of June 30, 2020 and December 31, 2019. The Company utilizes derivative contracts mainly to hedge exposure to variability in cash flows, interest rate risk, credit risk, foreign exchange risk and equity market risk. The majority of derivatives used by the Company are designated as product hedges, which hedge the exposure arising from insurance liabilities or guarantees embedded in the contracts the Company offers through various product lines. These derivatives do not qualify for hedge accounting as they do not meet the criteria of being "highly effective" as outlined in ASC Topic 815, but do provide an economic hedge, which is in line with the Company’s risk management objectives. The Company also uses derivatives contracts to hedge its exposure to various risks associated with the investment portfolio. The Company does not seek hedge accounting treatment for certain of these derivatives as they generally do not qualify for hedge accounting due to the criteria required under the portfolio hedging rules outlined in ASC Topic 815. The Company also uses credit default swaps coupled with other investments in order to produce the investment characteristics of otherwise permissible investments that do not qualify as effective accounting hedges under ASC Topic 815.


			37

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Although the Company has not elected to net its derivative exposures, the notional amounts and fair values of Over-The-Counter ("OTC") and cleared derivatives excluding exchange traded contracts are presented in the tables below as of the dates indicated:


	June 30, 2020
	Notional Amount		Asset Fair Value		Liability Fair Value
Credit contracts	$	197	$	—	$	2
Equity contracts	58		2		2
Foreign exchange contracts	748		55		1
Interest rate contracts	17,007		620		731
			677		736

Counterparty netting⁽¹⁾			(615)		(615)
Cash collateral netting⁽¹⁾			(58)		(121)
Securities collateral netting⁽¹⁾			(2)		—
Net receivables/payables			$	2	$	—

⁽¹⁾Represents the netting of receivable balances with payable balances, net of collateral, for the same counterparty under eligible netting agreements.


	December 31, 2019
	Notional Amount		Asset Fair Value		Liability Fair Value
Credit contracts	$	182	$	—	$	2
Equity contracts	63		4		3
Foreign exchange contracts	706		10		19
Interest rate contracts	17,621		210		261
			224		285

Counterparty netting⁽¹⁾			(217)		(217)
Cash collateral netting⁽¹⁾			(6)		(58)
Securities collateral netting⁽¹⁾			—		(5)
Net receivables/payables			$	1	$	5

⁽¹⁾Represents the netting of receivable balances with payable balances, net of collateral, for the same counterparty under eligible netting agreements.

Collateral

Under the terms of the OTC Derivative International Swaps and Derivatives Association, Inc. ("ISDA") agreements, the Company may receive from, or deliver to, counterparties, collateral to assure that terms of the ISDA agreements will be met with regard to the Credit Support Annex ("CSA"). The terms of the CSA call for the Company 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 Condensed Consolidated 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 the Company are the source of noncash collateral posted, which is reported in Securities pledged on the Condensed Consolidated Balance Sheets. As of June 30, 2020, the Company held $62 and pledged $121 of net cash collateral related to OTC derivative contracts and cleared derivative contracts, respectively. As of December 31, 2019, the Company held $7 and delivered $55 of net cash collateral related to OTC derivative contracts and cleared derivative contracts, respectively. In addition, as of June 30, 2020, the Company delivered $99 of securities and held $5 of securities as collateral. As of December 31, 2019, the Company delivered $113 of securities and held no securities as collateral.


			38

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The location and effect of derivatives qualifying for hedge accounting on the Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income are as follows for the periods indicated:


	Three Months Ended June 30,
	2020						2019
	Interest Rate Contracts		Foreign Exchange Contracts		Interest Rate Contracts		Foreign Exchange Contracts
Derivatives: Qualifying for hedge accounting
Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Net Investment Income		Net Investment Income		Net Investment Income		Net Investment Income
Amount of Gain or (Loss) Recognized in Other Comprehensive Income	$	1	$	(16)	$	1	$	16
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income	—		$	2	$	—	$	3

	Six Months Ended June 30,
	2020						2019
	Interest Rate Contracts		Foreign Exchange Contracts		Interest Rate Contracts		Foreign Exchange Contracts
Derivatives: Qualifying for hedge accounting
Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Net Investment Income		Net Investment Income		Net Investment Income		Net Investment Income
Amount of Gain or (Loss) Recognized in Other Comprehensive Income	$	2	$	61	$	2	$	8
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income	—		5		—		5

The location and amount of gain (loss) recognized in the Consolidated Statements of Operations for derivatives qualifying for hedge accounting are as follows for the periods indicated:


	Three Months Ended June 30,
	2020						2019
	Net Investment Income		Other net realized capital gains/(losses)		Net Investment Income		Other net realized capital gains/(losses)
Total amounts of line items presented in the statement of operations in which the effects of cash flow hedges are recorded	$	385	$	(5)	$	428	$	(1)
Derivatives: Qualifying for hedge accounting

Cash flow hedges:




Foreign exchange contracts:
Gain (loss) reclassified from accumulated other comprehensive income into income	2		—		3		—


			39

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)


	Six Months Ended June 30,
	2020						2019
	Net Investment Income		Other net realized capital gains/(losses)		Net Investment Income		Other net realized capital gains/(losses)
Total amounts of line items presented in the statement of operations in which the effects of cash flow hedges are recorded	$	824	$	(90)	$	822	$	(5)
Derivatives: Qualifying for hedge accounting

Cash flow hedges:




Foreign exchange contracts:
Gain (loss) reclassified from accumulated other comprehensive income into income	5		—		5		—

The location and effect of derivatives not designated as hedging instruments on the Condensed Consolidated Statements of Operations are as follows for the periods indicated:



	Location of Gain or (Loss) Recognized in Income on Derivative	Three Months Ended June 30,
				2020			2019
Derivatives: Non-qualifying for hedge accounting
Interest rate contracts	Other net realized capital gains (losses)	$	3		$	(50)
Foreign exchange contracts	Other net realized capital gains (losses)	$	—		$	1
Equity contracts	Other net realized capital gains (losses)	$	1		—
Credit contracts	Other net realized capital gains (losses)	$	2		—
Embedded derivatives and Managed custody guarantees:
Within fixed maturity investments	Other net realized capital gains (losses)	$	—		$	1
Within products	Other net realized capital gains (losses)	$	30		$	(13)
Within reinsurance agreements	Policyholder benefits	$	—		$	(39)
Managed custody guarantees	Other net realized capital gains (losses)	9			—
Total		$	45		$	(100)


			40

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)


	Location of Gain or (Loss) Recognized in Income on Derivative	Six Months Ended June 30,
				2020			2019
Derivatives: Non-qualifying for hedge accounting
Interest rate contracts	Other net realized capital gains (losses)	$	45		$	(86)
Foreign exchange contracts	Other net realized capital gains (losses)	4			2
Equity contracts	Other net realized capital gains (losses)	—			1
Credit contracts	Other net realized capital gains (losses)	3			1
Embedded derivatives and Managed custody guarantees:
Within fixed maturity investments	Other net realized capital gains (losses)	4			2
Within products	Other net realized capital gains (losses)	(113)			(13)
Within reinsurance agreements	Policyholder benefits	23			(77)
Managed custody guarantees	Other net realized capital gains (losses)	(17)			—
Total		$	(51)		$	(170)


			41

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

4. Fair Value Measurements

Fair Value Measurement

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of June 30, 2020:


	Level 1			Level 2			Level 3			Total
Assets:
Fixed maturities, including securities pledged:
U.S. Treasuries	$	571		$	179		$	—		$	750
U.S. Government agencies and authorities	—			19			—			19
State, municipalities and political subdivisions	—			840			—			840
U.S. corporate public securities	—			8,069			61			8,130
U.S. corporate private securities	—			3,236			965			4,201
Foreign corporate public securities and foreign governments⁽¹⁾	—			2,712			—			2,712
Foreign corporate private securities ⁽¹⁾	—			3,093			179			3,272
Residential mortgage-backed securities	—			4,456			30			4,486
Commercial mortgage-backed securities	—			2,712			—			2,712
Other asset-backed securities	—			1,419			51			1,470
Total fixed maturities, including securities pledged	571			26,735			1,286			28,592
Equity securities	16			—			94			110
Derivatives:
Interest rate contracts	7			613			—			620
Foreign exchange contracts	—			55			—			55
Equity contracts	—			2			—			2


Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements	1,589			—			—			1,589
Assets held in separate accounts	68,780			6,786			174			75,740
Total assets	$	70,963		$	34,191		$	1,554		$	106,708
Percentage of Level to Total	67		%	32		%	1		%	100		%
Liabilities:
Derivatives:
Guaranteed benefit derivatives:
FIA	$	—		$	—		$	10		$	10
Stabilizer and MCGs	—			—			154			154
Other derivatives:
Interest rate contracts	—			731			—			731
Foreign exchange contracts	—			1			—			1
Equity contracts	—			2			—			2
Credit contracts	—			2			—			2
Embedded derivative on reinsurance	—			—			—			—
Total liabilities	$	—		$	736		$	164		$	900

⁽¹⁾Primarily U.S. dollar denominated.


			42

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2019:


	Level 1			Level 2			Level 3			Total
Assets:
Fixed maturities, including securities pledged:
U.S. Treasuries	$	536		$	155		$	—		$	691
U.S. Government agencies and authorities	—			19			—			19
State, municipalities and political subdivisions	—			815			—			815
U.S. corporate public securities	—			7,984			47			8,031
U.S. corporate private securities	—			3,064			1,002			4,066
Foreign corporate public securities and foreign governments⁽¹⁾	—			2,679			—			2,679
Foreign corporate private securities ⁽¹⁾	—			3,185			190			3,375
Residential mortgage-backed securities	—			3,794			16			3,810
Commercial mortgage-backed securities	—			2,500			—			2,500
Other asset-backed securities	—			1,426			48			1,474
Total fixed maturities, including securities pledged	536			25,621			1,303			27,460
Equity securities, available-for-sale	17			—			63			80
Derivatives:
Interest rate contracts	1			209			—			210
Foreign exchange contracts	—			10			—			10
Equity contracts	—			4			—			4


Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements	1,429			—			—			1,429
Assets held in separate accounts	72,448			6,150			115			78,713
Total assets	$	74,431		$	31,994		$	1,481		$	107,906
Percentage of Level to total	69		%	30		%	1		%	100		%
Liabilities:
Derivatives:
Guaranteed benefit derivatives:
FIA	$	—		$	—		$	11		$	11
Stabilizer and MCGs	—			—			22			22
Other derivatives:
Interest rate contracts	—			261			—			261
Foreign exchange contracts	—			19			—			19
Equity contracts	—			3			—			3
Credit contracts	—			2			—			2
Embedded derivative on reinsurance	—			23			—			23
Total liabilities	$	—		$	308		$	33		$	341

⁽¹⁾Primarily U.S. dollar denominated.


			43

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Valuation of Financial Assets and Liabilities at Fair Value

Certain assets and liabilities are measured at estimated fair value on the Company's Condensed Consolidated Balance Sheets. The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The exit price and the transaction (or entry) price will be the same at initial recognition in many circumstances. However, in certain cases, the transaction price may not represent fair value. The fair value of a liability is based on the amount that would be paid to transfer a liability to a third-party with an equal credit standing. Fair value is required to be a market-based measurement that is determined based on a hypothetical transaction at the measurement date, from a market participant's perspective. The Company considers three broad valuation approaches when a quoted price is unavailable: (i) the market approach, (ii) the income approach and (iii) the cost approach. The Company determines the most appropriate valuation technique to use, given the instrument being measured and the availability of sufficient inputs. The Company prioritizes the inputs to fair valuation approaches and allows for the use of unobservable inputs to the extent that observable inputs are not available.

The Company utilizes a number of valuation methodologies to determine the fair values of its financial assets and liabilities in conformity with the concepts of exit price and the fair value hierarchy as prescribed in ASC Topic 820. Valuations are obtained from third-party commercial pricing services, brokers and industry-standard, vendor-provided software that models the value based on market observable inputs. The valuations obtained from third-party commercial pricing services are non-binding. The Company reviews the assumptions and inputs used by third-party commercial pricing services for each reporting period in order to determine an appropriate fair value hierarchy level. The documentation and analysis obtained from third-party commercial pricing services are reviewed by the Company, including in-depth validation procedures confirming the observability of inputs. The valuations are reviewed and validated monthly through the internal valuation committee price variance review, comparisons to internal pricing models, back testing to recent trades or monitoring of trading volumes.

The valuation approaches and key inputs for each category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy are presented below.

For fixed maturities classified as Level 2 assets, fair values are determined using a matrix-based market approach, based on prices obtained from third-party commercial pricing services and the Company’s matrix and analytics-based pricing models, which in each case incorporate a variety of market observable information as valuation inputs. The market observable inputs used for these fair value measurements, by fixed maturity asset class, are as follows:

U.S. Treasuries: Fair value is determined using third-party commercial pricing services, with the primary inputs being stripped interest and principal U.S. Treasury yield curves that represent a U.S. Treasury zero-coupon curve.

U.S. government agencies and authorities, State, municipalities and political subdivisions: Fair value is determined using third-party commercial pricing services, with the primary inputs being U.S. Treasury yield curves, trades of comparable securities, credit spreads off benchmark yields and issuer ratings.

U.S. corporate public securities, Foreign corporate public securities and foreign governments: Fair value is determined using third-party commercial pricing services, with the primary inputs being benchmark yields, trades of comparable securities, issuer ratings, bids and credit spreads off benchmark yields.

U.S. corporate private securities and Foreign corporate private securities: Fair values are determined using a matrix and analytics-based pricing model. The model incorporates the current level of risk-free interest rates, current corporate credit spreads, credit quality of the issuer and cash flow characteristics of the security. The model also considers a liquidity spread, the value of any collateral, the capital structure of the issuer, the presence of guarantees, and prices and quotes for comparably rated publicly traded securities.


			44

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

RMBS, CMBS and ABS: Fair value is determined using third-party commercial pricing services, with the primary inputs being credit spreads off benchmark yields, prepayment speed assumptions, current and forecasted loss severity, debt service coverage ratios, collateral type, payment priority within tranche and the vintage of the loans underlying the security.

Generally, the Company does not obtain more than one vendor price from pricing services per instrument. The Company uses a hierarchy process in which prices are obtained from a primary vendor and, if that vendor is unable to provide the price, the next vendor in the hierarchy is contacted until a price is obtained or it is determined that a price cannot be obtained from a commercial pricing service. When a price cannot be obtained from a commercial pricing service, independent broker quotes are solicited. Securities priced using independent broker quotes are classified as Level 3.

Fair values of privately placed bonds are determined primarily using a matrix-based pricing model and are generally classified as Level 2 assets. The model considers the current level of risk-free interest rates, current corporate spreads, the credit quality of the issuer and cash flow characteristics of the security. Also considered are factors such as the net worth of the borrower, the value of collateral, the capital structure of the borrower, the presence of guarantees and the Company's evaluation of the borrower's ability to compete in its relevant market. Using this data, the model generates estimated market values which the Company considers reflective of the fair value of each privately placed bond.

Equity securities: Level 2 and Level 3 equity securities, typically private equities or equity securities not traded on an exchange, are valued by other sources such as analytics or brokers.

Derivatives: Derivatives are carried at fair value, which is determined using the Company's derivative accounting system in conjunction with observable key financial data from third party sources, such as yield curves, exchange rates, S&P 500 Index prices, London Interbank Offered Rates ("LIBOR") and Overnight Index Swap ("OIS") rates. The Company uses OIS for valuations of collateralized interest rate derivatives, which are obtained from third-party sources. For those derivatives that are unable to be valued by the accounting system, the Company typically utilizes values established by third-party brokers. Counterparty credit risk is considered and incorporated in the Company's valuation process through counterparty credit rating requirements and monitoring of overall exposure. It is the Company's policy to transact only with investment grade counterparties with a credit rating of A- or better. The Company's nonperformance risk is also considered and incorporated in the Company's valuation process. The Company also has certain credit default swaps and options that are priced by third party vendors or by using models that primarily use market observable inputs, but contain inputs that are not observable to market participants, which have been classified as Level 3. The remaining derivative instruments are valued based on market observable inputs and are classified as Level 2.

Guaranteed benefit derivatives: The index-crediting feature in the Company's FIA contract is an embedded derivative that is required to be accounted for separately from the host contract. The fair value of the obligation is calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the anticipated life of the related contracts. The cash flow estimates are produced by market implied assumptions. These derivatives are classified as Level 3 liabilities in the fair value hierarchy.

The Company records reserves for Stabilizer and MCG contracts containing guaranteed credited rates. The guarantee is treated as an embedded derivative or a stand-alone derivative (depending on the underlying product) and is required to be reported at fair value. The estimated fair value is determined based on the present value of projected future claims, minus the present value of future guaranteed premiums. At inception of the contract, the Company projects a guaranteed premium to be equal to the present value of the projected future claims. The income associated with the contracts is projected using relevant actuarial and capital market assumptions, including benefits and related contract charges, over the anticipated life of the related contracts. The cash flow estimates are produced by using stochastic techniques under a variety of risk neutral scenarios and other market implied assumptions. These derivatives are classified as Level 3 liabilities.

The discount rate used to determine the fair value of the embedded derivatives and stand-alone derivative includes an adjustment for nonperformance risk. The nonperformance risk adjustment incorporates a blend of observable, similarly rated peer holding company credit spreads, adjusted to reflect the credit quality of the Company, as well as an adjustment to reflect the non-default spreads and the priority and recovery rates of policyholder claims.


			45

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Embedded derivatives on reinsurance: The carrying value of embedded derivatives is estimated based upon the change in the fair value of the assets supporting the funds withheld payable under reinsurance agreements. The fair value of the embedded derivatives is based on market observable inputs and is classified as Level 2.

Level 3 Financial Instruments

The fair values of certain assets and liabilities are determined using prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (i.e., Level 3 as defined by ASC Topic 820), including but not limited to liquidity spreads for investments within markets deemed not currently active. These valuations, whether derived internally or obtained from a third-party, use critical assumptions that are not widely available to estimate market participant expectations in valuing the asset or liability. In addition, the Company has determined, for certain financial instruments, an active market is such a significant input to determine fair value that the presence of an inactive market may lead to classification in Level 3. In light of the methodologies employed to obtain the fair values of financial assets and liabilities classified as Level 3, additional information is presented below.


			46

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The following tables summarize the change in fair value of the Company’s Level 3 assets and liabilities and transfers in and out of Level 3 for the periods indicated:


	Three Months Ended June 30, 2020
	Fair Value as of April 1		Total Realized/Unrealized Gains (Losses) Included in:								Purchases		Issuances		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3		Fair Value as of June 30		Change In Unrealized Gains (Losses) Included in Earnings⁽³⁾		Change in Unrealized Gains (Losses) Included in OCI⁽³⁾
					Net Income			OCI
Fixed maturities, including securities pledged:

U.S. Corporate public securities	$	44	$	—		$	—		$	—	$	—	$	—	$	—	$	17	$	—	$	61	$	—	$	—
U.S. Corporate private securities	891		—			57			20		—		(9)		(32)		67		(29)		965		—		57

Foreign corporate public securities and foreign governments⁽¹⁾	3		—			—			—		—		—		—		—		(3)		—		—		—
Foreign corporate private securities⁽¹⁾	159		—			17			—		—		—		(2)		5		—		179		—		17
Residential mortgage-backed securities	15		(1)			1			23		—		—		—		—		(8)		30		(1)		—

Other asset-backed securities	55		—			1			(4)		—		—		(1)		—		—		51		—		1
Total fixed maturities, including securities pledged	1,167		(1)			76			39		—		(9)		(35)		89		(40)		1,286		(1)		75
Equity securities	58		7			—			30		—		—		(1)		—		—		94		6		—
Derivatives:
Guaranteed benefit derivatives:
Stabilizer and MCGs⁽²⁾	(193)		40			—			—		(1)		—		—		—		—		(154)		—		—
FIA⁽²⁾	(9)		(1)			—			—		(1)		—		1		—		—		(10)		—		—


Assets held in separate accounts⁽⁴⁾	141		2			—			33		—		—		—		3		(5)		174		—		—
⁽¹⁾Primarily U.S. dollar denominated.
⁽²⁾All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis. These amounts are included in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.

⁽³⁾ For financial instruments still held as of June 30, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
⁽⁴⁾ The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company.


			47

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)


	Six Months Ended June 30, 2020
	Fair Value as of January 1		Total Realized/Unrealized Gains (Losses) Included in:								Purchases		Issuances		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3		Fair Value as of June 30		Change in Unrealized Gains (Losses) Included in Earnings⁽³⁾		Change in Unrealized Gains (Losses) Included in OCI⁽³⁾
					Net Income			OCI
Fixed maturities, including securities pledged:

U.S. Corporate public securities	$	47	$	—		$	(1)		$	—	$	—	$	—	$	(2)	$	17	$	—	$	61	$	—	$	(1)
U.S. Corporate private securities	1,002		1			7			46		—		(10)		(76)		64		(69)		965		—		7

Foreign corporate public securities and foreign governments⁽¹⁾	—		—			—			—		—		—		—		—		—		—		—		—
Foreign corporate private securities⁽¹⁾	190		(1)			(10)			2		—		(4)		(1)		3		—		179		—		(10)
Residential mortgage-backed securities	16		(1)			—			22		—		—		—		—		(7)		30		(1)		—

Other asset-backed securities	48		—			—			4		—		—		(1)		—		—		51		—		—
Total fixed maturities, including securities pledged	1,303		(1)			(4)			74		—		(14)		(80)		84		(76)		1,286		(1)		(4)
Equity securities	63		2			—			30		—		—		(1)		—		—		94		2		—
Derivatives:
Guaranteed benefit derivatives:
Stabilizer and MCGs⁽²⁾	(22)		(131)			—			—		(1)		—		—		—		—		(154)		—		—
FIA⁽²⁾	(11)		1			—			—		(1)		—		1		—		—		(10)		—		—

Assets held in separate accounts⁽⁴⁾	115		—			—			80		—		(1)		—		3		(23)		174		—		—
⁽¹⁾Primarily U.S. dollar denominated.
⁽²⁾All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis. These amounts are included in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
⁽³⁾ For financial instruments still held as of June 30, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations or Unrealized gains (losses) on securities in the Condensed Consolidated Statements of Comprehensive Income.
⁽⁴⁾ The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company.


			48

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The following tables summarize the change in fair value of the Company’s Level 3 assets and liabilities and transfers in and out of Level 3 for the periods indicated:


	Three Months Ended June 30, 2019
	Fair Value as of April 1		Total Realized/Unrealized Gains (Losses) Included in:								Purchases		Issuances		Sales		Settlements		Transfers into Level 3⁽³⁾		Transfers out of Level 3⁽³⁾		Fair Value as of June 30		Change In Unrealized Gains (Losses) Included in Earnings⁽⁴⁾
					Net Income			OCI
Fixed maturities, including securities pledged:

U.S. Corporate public securities	$	52	$	—		$	—		$	—	$	—	$	—	$	(5)	$	—	$	—	$	47	$	—
U.S. Corporate private securities	888		—			15			—		—		—		(2)		—		(8)		893		—


Foreign corporate private securities⁽¹⁾	122		—			3			49		—		—		—		—		—		174		—
Residential mortgage-backed securities	31		(1)			—			—		—		—		—		—		(14)		16		(1)
Commercial mortgage-backed securities	11		—			—			—		—		—		—		—		(11)		—		—
Other asset-backed securities	89		—			—			12		—		—		(1)		—		(40)		60		—
Total fixed maturities, including securities pledged	1,193		(1)			18			61		—		—		(8)		—		(73)		1,190		(1)
Equity securities, available-for-sale	80		3			—			—		—		—		—		—		—		83		3
Derivatives:
Guaranteed benefit derivatives:
Stabilizer and MCGs⁽²⁾	(4)		(15)			—			—		—		—		—		—		—		(19)		—
FIA⁽²⁾	(11)		2			—			—		(3)		—		1		—		—		(11)		—


Assets held in separate accounts⁽⁵⁾	67		2			—			33		—		—		—		—		—		102		—
⁽¹⁾Primarily U.S. dollar denominated.
⁽²⁾All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis. These amounts are included in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
⁽³⁾ The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
⁽⁴⁾ For financial instruments still held as of June 30, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
⁽⁵⁾ The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company.


			49

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)


	Six Months Ended June 30, 2019
	Fair Value as of January 1		Total Realized/Unrealized Gains (Losses) Included in:								Purchases		Issuances		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3		Fair Value as of June 30		Change in Unrealized Gains (Losses) Included in Earnings⁽³⁾
					Net Income			OCI
Fixed maturities, including securities pledged:


U.S. Corporate public securities	$	28	$	—		$	1		$	—	$	—	$	—	$	(5)	$	23	$	—	$	47	$	—
U.S. Corporate private securities	771		—			45			102		—		(6)		(9)		—		(10)		893		—

Foreign corporate private securities⁽¹⁾	124		(17)			26			97		—		(56)		—		—		—		174		—
Residential mortgage-backed securities	10		(2)			—			8		—		—		—		—		—		16		(2)
Commercial mortgage-backed securities	12		—			—			—		—		—		—		—		(12)		—		—
Other asset-backed securities	94		—			—			11		—		—		(1)		—		(44)		60		—
Total fixed maturities, including securities pledged	1,039		(19)			72			218		—		(62)		(15)		23		(66)		1,190		(2)
Equity securities, available-for-sale	50		4			—			29		—		—		—		—		—		83		4
Derivatives:
Guaranteed benefit derivatives:
Stabilizer and MCGs⁽²⁾	(4)		(14)			—			—		(1)		—		—		—		—		(19)		—
FIA⁽²⁾	(11)		1			—			—		(3)		—		2		—		—		(11)		—

Assets held in separate accounts⁽⁴⁾	61		3			—			39		—		—		—		3		(4)		102		—
⁽¹⁾Primarily U.S. dollar denominated.
⁽²⁾All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis. These amounts are included in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.

⁽³⁾ For financial instruments still held as of June 30, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
⁽⁴⁾ The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company.


			50

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

For the three and six months ended June 30, 2020 and 2019, the transfers in and out of Level 3 for fixed maturities and separate accounts were due to the variation in inputs relied upon for valuation each quarter. Securities that are primarily valued using independent broker quotes when prices are not available from one of the commercial pricing services are reflected as transfers into Level 3. When securities are valued using more widely available information, the securities are transferred out of Level 3 and into Level 1 or 2, as appropriate.

Significant Unobservable Inputs

The Company's Level 3 fair value measurements of its fixed maturities, equity securities and equity and credit derivative contracts are primarily based on broker quotes.

Other Financial Instruments

The following disclosures are made in accordance with the requirements of ASC Topic 825 which requires disclosure of fair value information about financial instruments, whether or not recognized at fair value on the Consolidated Balance Sheets.

ASC Topic 825 excludes certain financial instruments, including insurance contracts and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.


			51

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

The carrying values and estimated fair values of the Company’s financial instruments as of the dates indicated:


	June 30, 2020						December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturities, including securities pledged	$	28,592	$	28,592	$	27,460	$	27,460
Equity securities	110		110		80		80
Mortgage loans on real estate	4,731		4,909		4,664		4,912
Policy loans	195		195		205		205

Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements	1,589		1,589		1,429		1,429
Derivatives	677		677		224		224


Other Investments	44		44		43		43
Assets held in separate accounts	75,740		75,740		78,713		78,713
Liabilities:
Investment contract liabilities:
Funding agreements without fixed maturities and deferred annuities⁽¹⁾	27,093		35,545		26,337		32,697
Funding agreements with fixed maturities	836		833		877		876
Supplementary contracts, immediate annuities and other	295		375		312		384
Deposit liabilities	—		—		76		152
Derivatives:
Guaranteed benefit derivatives:
FIA	10		10		11		11
Stabilizer and MCGs	154		154		22		22
Other derivatives	736		736		285		285
Short-term debt⁽²⁾	55		55		1		1
Long-term debt⁽²⁾	3		3		4		4
Embedded derivatives on reinsurance	—		—		23		23

⁽¹⁾ Certain amounts included in Funding agreements without fixed maturities and deferred annuities are also reflected within the Guaranteed benefit derivatives section of the table above.

⁽²⁾ Included in Other Liabilities on the Consolidated Balance Sheets.

The following table presents the classification of financial instruments which are not carried at fair value on the Condensed Consolidated Balance Sheets:


Financial Instrument			Classification
Mortgage loans on real estate			Level 3
Policy loans			Level 2


Other investments			Level 2
Funding agreements without fixed maturities and deferred annuities			Level 3
Funding agreements with fixed maturities			Level 2
Supplementary contracts, immediate annuities and other			Level 3
Deposit liabilities			Level 3
Short-term debt and Long-term debt			Level 2


			52

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

5. Deferred Policy Acquisition Costs and Value of Business Acquired

The following tables present a rollforward of DAC and VOBA for the periods indicated:


	2020
	DAC		VOBA			Total
Balance as of January 1, 2020	$	288	$	305		$	593
Impact of ASU 2016-13	2		—			2
Deferrals of commissions and expenses	28		2			30
Amortization:
Amortization, excluding unlocking	(45)		(40)			(85)
Unlocking ⁽¹⁾	6		—			6
Interest accrued	18		18		⁽²⁾	36
Net amortization included in the Condensed Consolidated Statements of Operations	(21)		(22)			(43)
Change due to unrealized capital gains/losses on available-for-sale securities	(86)		(101)			(187)
Balance as of June 30, 2020	$	211	$	184		$	395


	2019
	DAC		VOBA			Total
Balance as of January 1, 2019	$	536	$	551		$	1,087
Deferrals of commissions and expenses	27		3			30
Amortization:
Amortization, excluding unlocking	(31)		(27)			(58)
Unlocking ⁽¹⁾	2		10			12
Interest accrued	18		19		⁽²⁾	37
Net amortization included in the Condensed Consolidated Statements of Operations	(11)		2			(9)
Change due to unrealized capital gains/losses on available-for-sale securities	(203)		(183)			(386)
Balance as of June 30, 2019	$	349	$	373		$	722

⁽¹⁾ Includes the impacts of annual review of assumptions which typically occurs in the third quarter; and retrospective and prospective unlocking.

⁽²⁾Interest accrued at the following rates for VOBA: 5.5% to 7.0% during 2020 and 2019.


			53

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

6. Accumulated Other Comprehensive Income (Loss)

Shareholder’s equity included the following components of AOCI as of the dates indicated:


	June 30,
	2020		2019
Fixed maturities, net of impairments	$	2,625	$	1,715

Derivatives⁽¹⁾	169		137
DAC/VOBA and Sales inducements adjustment on available-for-sale securities	(739)		(458)
Premium deficiency reserve adjustment	(278)		(118)

Unrealized capital gains (losses), before tax	1,777		1,276
Deferred income tax asset (liability)	(245)		(139)
Unrealized capital gains (losses), after tax	1,532		1,137
Pension and other postretirement benefits liability, net of tax	3		3
AOCI	$	1,535	$	1,140

⁽¹⁾ Gains and losses reported in Accumulated Other Comprehensive Income (AOCI) from hedge transactions that resulted in the acquisition of an identified asset are reclassified into earnings in the same period or periods during which the asset acquired affects earnings. As of June 30, 2020, the portion of the AOCI that is expected to be reclassified into earnings within the next twelve months is $22.


			54

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

Changes in AOCI, including the reclassification adjustments recognized in the Condensed Consolidated Statements of Operations were as follows for the periods indicated:



	Three Months Ended June 30, 2020
	Before-Tax Amount			Income Tax		After-Tax Amount
Available-for-sale securities:
Fixed maturities	$	2,001		$	(419)	$	1,582



Adjustments for amounts recognized in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations	1			—		1
DAC/VOBA and Sales inducements	(542)			113		(429)
Premium deficiency reserve adjustment	(170)			35		(135)
Change in unrealized gains/losses on available-for-sale securities	1,290			(271)		1,019

Derivatives:
Derivatives	(16)		⁽¹⁾	4		(12)
Adjustments related to effective cash flow hedges for amounts recognized in Net investment income in the Condensed Consolidated Statements of Operations	(5)			1		(4)
Change in unrealized gains/losses on derivatives	(21)			5		(16)

Pension and other postretirement benefits liability:
Amortization of prior service cost recognized in Operating expenses in the Condensed Consolidated Statements of Operations	—			—		—
Change in pension and other postretirement benefits liability	(1)			—		(1)
Change in Other comprehensive income (loss)	$	1,268		$	(266)	$	1,002

⁽¹⁾ See the Derivative Financial Instruments Note to these Condensed Consolidated Financial Statements for additional information.


			55

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)


	Six Months Ended June 30, 2020
	Before-Tax Amount			Income Tax		After-Tax Amount
Available-for-sale securities:
Fixed maturities	$	497		$	(104)	$	393



Adjustments for amounts recognized in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations	16			(3)		13
DAC/VOBA and Sales inducements	(187)		⁽¹⁾	39		(148)
Premium deficiency reserve adjustment	(69)			14		(55)
Change in unrealized gains/losses on available-for-sale securities	257			(54)		203

Derivatives:
Derivatives	63		⁽²⁾	(13)		50
Adjustments related to effective cash flow hedges for amounts recognized in Net investment income in the Condensed Consolidated Statements of Operations	(11)			2		(9)
Change in unrealized gains/losses on derivatives	52			(11)		41

Pension and other postretirement benefits liability:
Amortization of prior service cost recognized in Operating expenses in the Condensed Consolidated Statements of Operations	—			—		—
Change in pension and other postretirement benefits liability	(1)			—		(1)
Change in Other comprehensive income (loss)	$	308		$	(65)	$	243

(1) See the Deferred Policy Acquisition Costs and Value of Business Acquired Note to these Condensed Consolidated Financial Statements for additional information.

(2) See the Derivative Financial Instruments Note to these Condensed Consolidated Financial Statements for additional information.


			56

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)



	Three Months Ended June 30, 2019
	Before-Tax Amount			Income Tax		After-Tax Amount
Available-for-sale securities:
Fixed maturities	$	687		$	(145)	$	542


Impairments	1			—		1
Adjustments for amounts recognized in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations	(2)			—		(2)
DAC/VOBA and Sales inducements	(166)			35		(131)
Premium deficiency reserve adjustment	(32)			7		(25)
Change in unrealized gains/losses on available-for-sale securities	488			(103)		385

Derivatives:
Derivatives	17		⁽¹⁾	(4)		13
Adjustments related to effective cash flow hedges for amounts recognized in Net investment income in the Condensed Consolidated Statements of Operations	(6)			2		(4)
Change in unrealized gains/losses on derivatives	11			(2)		9

Pension and other postretirement benefits liability:
Amortization of prior service cost recognized in Operating expenses in the Condensed Consolidated Statements of Operations	(1)			—		(1)
Change in pension and other postretirement benefits liability	(1)			—		(1)
Change in Other comprehensive income (loss)	$	498		$	(105)	$	393

⁽¹⁾ See the Derivative Financial Instruments Note to these Condensed Consolidated Financial Statements for additional information.


			57

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)


	Six Months Ended June 30, 2019
	Before-Tax Amount			Income Tax		After-Tax Amount
Available-for-sale securities:
Fixed maturities	$	1,574		$	(329)	$	1,245


Impairments	1			—		1
Adjustments for amounts recognized in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations	13			(3)		10
DAC/VOBA and Sales inducements	(386)		⁽¹⁾	81		(305)
Premium deficiency reserve adjustment	(67)			14		(53)
Change in unrealized gains/losses on available-for-sale securities	1,135			(237)		898

Derivatives:
Derivatives	9		⁽²⁾	(2)		7
Adjustments related to effective cash flow hedges for amounts recognized in Net investment income in the Condensed Consolidated Statements of Operations	(12)			3		(9)
Change in unrealized gains/losses on derivatives	(3)			1		(2)

Pension and other postretirement benefits liability:
Amortization of prior service cost recognized in Operating expenses in the Condensed Consolidated Statements of Operations	(1)			—		(1)
Change in pension and other postretirement benefits liability	(1)			—		(1)
Change in Other comprehensive income (loss)	$	1,131		$	(236)	$	895

⁽¹⁾See the Deferred Policy Acquisition Costs and Value of Business Acquired Note to these Condensed Consolidated Financial Statements for additional information.

⁽²⁾ See the Derivative Financial Instruments Note to these Condensed Consolidated Financial Statements for additional information.


			58

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

7. Income Taxes

The Company's effective tax rate for the three and six months ended June 30, 2020 was 9.7% and 3.8%, respectively. The effective tax rate differed from the statutory rate of 21% primarily due to the effect of the dividends received deduction ("DRD") and tax credits.

The Company's effective tax rate for the three and six months ended June 30, 2019 was 12.2% and 8.6%, respectively. The effective tax rate differed from the statutory rate of 21% primarily due to the effect of the DRD.

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act, which became effective on March 27, 2020, has not had any significant impact on corporate income tax.

Tax Sharing Agreement

The results of the Company's operations are included in the consolidated tax return of Voya Financial, Inc. Generally, the Company's consolidated financial statements recognize the current and deferred income tax consequences that result from the Company's activities during the current and preceding periods pursuant to the provisions of Income Taxes (ASC Topic 740) as if the Company 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. If the Company instead were to follow a separate taxpayer approach without any exceptions, there would be no impact to income tax expense (benefit) for the periods indicated above. Also, any current tax benefit related to the Company's tax attributes realized by virtue of its inclusion in the consolidated tax return of Voya Financial, Inc. would have been recorded directly to equity rather than income. Under the tax sharing agreement, Voya Financial, Inc. will pay the Company 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.

Tax Regulatory Matters

For the tax years 2018 through 2020, Voya Financial, Inc. participates in the Internal Revenue Service ("IRS") Compliance Assurance Process ("CAP"), which is a continuous audit program provided by the IRS. The IRS finalized the audit of Voya Financial, Inc. for the period ended December 31, 2018. For the periods ended December 31, 2019 and December 31, 2020, the IRS has determined that Voya Financial, Inc. would be in the Compliance Maintenance Bridge ("Bridge") phase of CAP. In the Bridge phase, the IRS does not intend to conduct any review or provide any letters of assurance for the tax year.


			59

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

8. Financing Agreements

Reciprocal Loan Agreement

The Company maintains a reciprocal loan agreement with Voya Financial, Inc., an affiliate, to facilitate the handling of unanticipated short-term cash requirements that arise in the ordinary course of business. Under this agreement, which became effective in June 2001 and expires on April 1, 2021, either party can borrow from the other up to 3.0% of the Company’s statutory admitted assets as of the preceding December 31. Effective January 2014, interest on any borrowing by either the Company or Voya Financial, Inc. is charged at a rate based on the prevailing market rate for similar third-party borrowings or securities.

Under this agreement, the Company incurred immaterial interest expense for the three and six months ended June 30, 2020. The Company earned $2 and $3 interest income for the three and six months ended June 30, 2020. The Company incurred immaterial interest expense and earned immaterial interest income for the three and six months ended June 30, 2019. As of June 30, 2020, VRIAC had an outstanding receivable of $254, and VIPS had an outstanding payable of $54. As of December 31, 2019, the Company had an outstanding receivable of $69 and no outstanding payable from/to Voya Financial, Inc. under the reciprocal loan agreement.


			60

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

9. Commitments and Contingencies

Commitments

Through the normal course of investment operations, the Company commits 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 June 30, 2020, the Company had off-balance sheet commitments to acquire mortgage loans of $55 and purchase limited partnerships and private placement investments of $519.

Restricted Assets

The Company is required to maintain assets on deposit with various regulatory authorities to support its insurance operations. The Company may also post collateral in connection with certain securities lending, repurchase agreements, funding agreements, letter of credit ("LOC") and derivative transactions as described further in this note. The components of the fair value of the restricted assets were as follows as of the dates indicated:


	June 30, 2020		December 31, 2019
Fixed maturity collateral pledged to FHLB⁽¹⁾	$	1,088	$	1,087
FHLB restricted stock⁽²⁾	44		44
Other fixed maturities-state deposits	14		14
Cash and cash equivalents	5		5
Securities pledged⁽³⁾	648		828
Total restricted assets	$	1,799	$	1,978

⁽¹⁾ Included in Fixed maturities, available for sale, at fair value on the Condensed Consolidated Balance Sheets.

⁽²⁾ Included in Other investments on the Condensed Consolidated Balance Sheets.

⁽³⁾ Includes the fair value of loaned securities of $549 and $715 as of June 30, 2020 and December 31, 2019, respectively. In addition, as of June 30, 2020 and December 31, 2019, the Company delivered securities as collateral of $99 and $113, respectively. Loaned securities and securities delivered as collateral are included in Securities pledged on the Condensed Consolidated Balance Sheets.

Federal Home Loan Bank Funding

On January 18, 2018, the Company became a member of the Federal Home Loan Bank of Boston ("FHLB"). The Company is required to pledge collateral to back funding agreements issued to the FHLB. As of June 30, 2020 and December 31, 2019, the Company had $835 and $877, respectively, in non-putable funding agreements, which are included in Future policy benefits and contract owner account balances on the Condensed Consolidated Balance Sheets. As of June 30, 2020 and December 31, 2019, assets with a market value of approximately $1,088 and $1,087, respectively, collateralized the FHLB funding agreements. Assets pledged to the FHLB are included in Fixed maturities, available-for-sale, at fair value on the Condensed Consolidated Balance Sheets.

Litigation, Regulatory Matters and Loss Contingencies

Litigation, regulatory and other loss contingencies arise in connection with the Company's activities as a diversified financial services firm. The Company is a defendant in a number of litigation matters arising from the conduct of its business, both in the ordinary course and otherwise. In some of these matters, claimants seek to recover very large or indeterminate amounts, including compensatory, punitive, treble and exemplary damages. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages and other relief. Claimants are not always required to specify the monetary damages they seek or they may be required only to state an amount sufficient to meet a court's jurisdictional requirements. Moreover, some jurisdictions allow claimants to allege monetary damages that far exceed any reasonably possible verdict. The variability in pleading requirements and past experience demonstrates that the monetary and other relief that may be requested in a lawsuit or claim often bears little relevance to the merits or potential value of a claim. Litigation against the Company includes a variety of claims including negligence, breach of contract, fraud, violation of regulation or statute, breach of fiduciary duty, negligent misrepresentation, failure to supervise, elder abuse and other torts.


			61

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

As with other financial services companies, the Company periodically receives informal and formal requests for information from various state and federal governmental agencies and self-regulatory organizations in connection with inquiries and investigations of the products and practices of the Company or the financial services industry. It is the practice of the Company to cooperate fully in these matters.

The outcome of a litigation or regulatory matter is difficult to predict and the amount or range of potential losses associated with these or other loss contingencies requires significant management judgment. It is not possible to predict the ultimate outcome or to provide reasonably possible losses or ranges of losses for all pending regulatory matters, litigation, and other loss contingencies.

While it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's financial position, based on information currently known, management believes that neither the outcome of pending litigation and regulatory matters, nor potential liabilities associated with other loss contingencies, are likely to have such an effect. However, given the large and indeterminate amounts sought in certain litigation and the inherent unpredictability of all such matters, it is possible that an adverse outcome in certain of the Company's litigation or regulatory matters, or liabilities arising from other loss contingencies, could, from time to time, have a material adverse effect upon the Company's results of operations or cash flows in a particular quarterly or annual period.

For some matters, the Company is able to estimate a possible range of loss. For such matters in which a loss is probable, an accrual has been made. For matters where the Company, however, believes a loss is reasonably possible, but not probable, no accrual is required. For matters for which an accrual has been made, but there remains a reasonably possible range of loss in excess of the amounts accrued or for matters where no accrual is required, the Company develops an estimate of the unaccrued amounts of the reasonably possible range of losses. As of June 30, 2020, the Company estimates the aggregate range of reasonably possible losses, in excess of any amounts accrued for these matters as of such date, is not material to the Company.

For other matters, the Company is currently not able to estimate the reasonably possible loss or range of loss. The Company is often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from plaintiffs and other parties, investigation of factual allegations, rulings by a court on motions or appeals, analysis by experts and the progress of settlement discussions. On a quarterly and annual basis, the Company reviews relevant information with respect to litigation and regulatory contingencies and updates the Company's accruals, disclosures and reasonably possible losses or ranges of loss based on such reviews.

Finally, industry wide, life insurers continue to be exposed to class action litigation related to the cost of insurance rates and periodic deductions from cash value. Common allegations include that insurance companies have breached the terms of their universal life insurance policies by establishing or increasing the cost of insurance rates using cost factors not permitted by the contract, thereby unjustly enriching themselves. This litigation is generally known as cost of insurance litigation.


			62

Table of Contents

Voya Retirement Insurance and Annuity Company and Subsidiary

(A wholly owned subsidiary of Voya Holdings Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(Dollar amounts in millions, unless otherwise stated)

10. Related Party Transactions

Operating Agreements

The Company has operating agreements whereby the Company provides or receives services from affiliated entities. For the three and six months ended June 30, 2020, revenues with affiliated entities related to these agreements were $19 and $42, respectively. For the three and six months ended 2019, revenues with affiliated entities related to these agreements were $22 and $44, respectively. For the three and six months ended June 30, 2020, expenses with affiliated entities related to the aforementioned operating agreements, as amended, were $139 and $293, respectively. For the three and six months ended 2019, expenses with affiliated entities related to the aforementioned operating agreements, as amended, were $169 and $315, respectively.

Reinsurance Agreements

Effective December 31, 2012, the Company entered into an automatic reinsurance agreement with its affiliate, SLDI, to manage the reserve and capital requirements in connection with a portion of its deferred annuities business. Under the terms of the agreement, the Company reinsured to SLDI, on an indemnity reinsurance basis, a quota share of its liabilities on certain contracts. On March 26, 2020, this agreement was recaptured and resulted in a loss of $20 that was recorded in the first quarter of 2020. As of December 31, 2019, the Company had deposit assets of approximately $36 and deposit liabilities of $76 related to this agreement.


			63

Table of Contents

Item 2. 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 Quarterly Report on Form 10-Q, the term "VRIAC" refers to Voya Retirement Insurance and Annuity Company, and the terms "Company," "we," "our," "us" refer to Voya Retirement Insurance and Annuity Company and its subsidiary. We are a direct, wholly owned subsidiary of Voya Holdings Inc., 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 three and six months ended June 30, 2020 and 2019 and financial condition as of June 30, 2020 and December 31, 2019. This item should be read in its entirety and in conjunction with the Condensed Consolidated Financial Statements and related notes contained in Part I., Item 1. of this Quarterly Report on Form 10-Q, as well as "Management's Narrative Analysis of the Results of Operations and Financial Condition" section contained in our Annual Report on Form 10-K for the year ended December 31, 2019 ("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."

Overview

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

Effective December 31, 2019, VRIAC’s sole shareholder, Voya Holdings, Inc., transferred ownership of Voya Institutional Plan Services, LLC (“VIPS”) and Voya Retirement Advisors, LLC (“VRA”) to VRIAC for no cash consideration. VIPS and VRA provide retirement recordkeeping and investment advisory services, respectively, and the transfer was made to more closely align recordkeeping and related activities of VRIAC’s retirement business. It also had the effect of reducing VRIAC's tax liability. This transaction was accounted for under the accounting guidance for transactions under common control which requires that financial statements reflect the transferred business for all prior periods as if the transfer occurred as of the beginning of the first period presented. As such, the Consolidated Financial Statements for the prior periods presented have been restated to reflect the transfer of VIPS and VRA to VRIAC. In addition to these non-insurance subsidiaries, VRIAC also has the wholly-owned non-insurance subsidiary, Voya Financial Partners, LLC ("VFP").

On December 18, 2019, VRIAC’s ultimate parent, Voya Financial Inc. ("Voya Financial"), entered into a Master Transaction Agreement (the “Resolution MTA”) with Resolution Life U.S. Holdings Inc. (“Resolution Life US”), pursuant to which Resolution Life US will acquire certain of Voya Financial's subsidiaries, including Security Life of Denver Insurance Company (“SLD”), Security Life of Denver International Limited (“SLDI”) and Roaring River II, Inc. ("RRII"). The transaction is expected to close by September 30, 2020 and is subject to conditions specified in the Resolution MTA, including the receipt of required regulatory approvals.

Concurrently with the sale, SLD will enter into reinsurance agreements with ReliaStar Life Insurance Company ("RLI"), ReliaStar Life Insurance Company of New York (“RLNY”), and VRIAC, each of which is a direct or indirect wholly owned subsidiary of Voya Financial. Pursuant to these agreements, RLI and VRIAC will reinsure to SLD a 100% quota share, and RLNY will reinsure to SLD a 75% quota share, of their respective in-scope individual life insurance and annuities businesses. RLI, RLNY, and VRIAC will remain subsidiaries of Voya Financial. Voya Financial currently expects that these reinsurance transactions will be carried out on a coinsurance basis, with SLD’s reinsurance obligations collateralized in one of three ways: (1) invested assets placed in a comfort trust; (2) funds withheld basis with invested assets remaining on the respective subsidiaries of the Company; or (3) some combination of these two collateralization structures. The reinsurance agreements along with the sale of the legal entities noted above (referred to as the "Individual Life Transaction") will result in the disposition of substantially all of Voya Financial's life insurance and legacy non-retirement annuity businesses and related assets. Pursuant to the Individual Life Transaction, VRIAC's reserves related to legacy non-retirement annuity business as well as pension risk transfer products will be ceded to SLD and related assets will be transferred. During the second quarter of 2020, we recorded $24 million in intent impairments based on assets we expect to transfer to the comfort trust upon closing. Based on values as of June 30, 2020, U.S. GAAP reserves to be ceded for VRIAC are expected to be approximately $3.5 billion and are subject to change until closing.


			64

Table of Contents

Furthermore, upon closing of the Individual Life Transaction, we expect to have deferred intangibles in the range of $200 million to $250 million net of tax, subject to changes due to many factors including interest rate movements, other investment valuation items, asset selections and changes to the structure of the reinsurance transactions, including an ultimate reinsurance structure that is not entirely on a coinsurance basis with a comfort trust. The deferred intangibles will consist of (1) existing DAC and VOBA balances for the portion of the transaction that involves a sale through reinsurance and (2) deferred COR (and to the extent policies do not meet risk transfer, a Deposit asset) to be established upon closing of the reinsurance transactions mentioned above. The aggregate deferred intangibles will be amortized as a charge to earnings over the life of the underlying policies.

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

Our Business

Our products include qualified and nonqualified annuity contracts that include a variety of funding and payout options for individuals and employer-sponsored retirement plans qualified under Internal Revenue Code Sections 401, 403, 408, 457 and 501, as well as nonqualified deferred compensation plans and related services. Our products are offered primarily to employer-sponsored groups in the health care, government and education markets (collectively "tax exempt markets"), small to mid-sized corporations and individuals. We also provide stable value investment options, including separate account guaranteed investment contracts (e.g. GICs) and synthetic GICs, to institutional clients. Our products are generally distributed through pension professionals, independent agents and brokers, third party administrators, banks, consultants, dedicated financial guidance, planning and advisory representatives associated with Voya Financial, Inc.'s retail broker-dealer, Voya Financial Advisors, Inc. ("VFA").

We derive our revenue mainly from (a) investment income earned on investments, (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 changes in fair value of embedded derivatives on product guarantees, and (e) Other revenue which includes certain other fees. Our Benefits and expenses primarily consist of (a) Interest credited and other benefits to contract owners/policyholders, (b) Operating expenses, which include expenses related to the selling and servicing of the various products offered by us and other general business expenses, and (c) amortization of DAC and VOBA. In addition, we collect broker-dealer commission revenues through VFP, which are, in turn, paid to broker-dealers and expensed.

We have one operating segment.

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 Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.

Critical Accounting Judgments and Estimates

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 as of the date of the financial 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.The inputs into our estimates and assumptions consider the economic implications of COVID-19 on our


			65

Table of Contents

critical and significant accounting estimates. Those estimates are inherently subject to change and actual results could differ from those estimates, and the differences may be material to the accompanying Condensed Consolidated Financial Statements.

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") and value of business acquired ("VOBA");

•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 Condensed Consolidated Financial Statements.

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

Assumptions and Periodic Review

Changes in assumptions can have a significant impact on DAC and VOBA balances, amortization rates, reserve levels and results of operations. Assumptions are management's best estimates 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 and VOBA, reserves and the related results of operations.

Impairments

Effective January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13 "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, as amended" ("ASU 2016-13"). The Company adopted ASU 2016-13 using the modified retrospective method for financial assets measured at amortized cost and the prospective method for available-for-sale debt securities as required by ASU 2016-13. As a result beginning January 1, 2020, the Company's accounting for impairments is as follows:

We evaluate our available-for-sale general account investments quarterly to determine whether there has been a 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. A severe unrealized loss position on a fixed maturity security 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.

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 in determining whether a credit loss exists:


			66

Table of Contents

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, which are reported at amortized cost, net of the allowance for credit losses. Management estimates the credit loss allowance balance using a factor-based method of probability of default and loss given default which incorporates relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Included in the factor-based method are the consideration of debt type, capital market factors, and market vacancy rates, and loan-specific risk characteristics such as debt service coverage ratios (“DSCR”), loan-to-value (“LTV”), collateral size, seniority of the loan, segmentation, and property types. The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. 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 Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.

Income Taxes

See the Income Taxes Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for more information on income taxes.

Recent Developments

All statements in this section, other than statements of historical fact, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. For a discussion of factors that could cause actual results, performance, or events to differ from those discussed in any forward-looking statement, including in a material manner, see “Note Concerning Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

COVID-19 and its Effect on the Global Economy

COVID-19, the disease caused by the novel coronavirus, has had a significant adverse effect on the global economy since March of 2020. Although the number of reported cases and deaths from COVID-19 has slowed in most parts of the world, the disease continues to spread widely in many U.S. states, among other regions. The persistence of new infections has slowed the reopening of the U.S. economy and, even in countries where restrictions have largely been lifted, economic activity has been slow to recover.


			67

Table of Contents

The effects of COVID-19 on the U.S. and global economies have been severe. Based on advance estimates, U.S. GDP declined by 33% in the second quarter of 2020, after a decline of 5% in the first quarter, while the U.S. unemployment rate is near historic highs. Longer-term, the economic outlook is uncertain, but will likely depend in significant part on progress with respect to effective therapies to treat COVID-19 or a vaccine, or on a marked change to public health policy.

In late March and early April 2020, in reaction to the rapidly developing economic turmoil, global financial markets experienced a period of extreme volatility. Equity markets dropped significantly from new highs set in February, although they largely recovered in the second quarter, although volatility remains high. Credit markets have also experienced a significant shock, with 10-year U.S. treasury yields declining approximately 100 bps between late February and early March. The 10-year yield currently sits near an all-time low at approximately 0.6%. Also since late February, shorter-dated treasury rates have approached zero, while the 30-year rate has traded at historic lows below 1.40%. Certain credit market sectors, such as energy, real estate, transportation, and retail, continue to be under considerable stress. Additionally, certain commodity markets, in particular for oil, experienced dramatic declines in prices in the first half of 2020, and have only partially recovered.

Effect on VRIAC - Financial Condition, Capital and Liquidity

Because both public health and economic circumstances are changing so rapidly at present, it is impossible to predict how COVID-19 will affect VRIAC’s future financial condition. Absent a further significant and prolonged market shock, however, we do not anticipate a material effect on our balance sheet or liquidity. Our capital levels remain strong and significantly above our targets.

Although several ratings agencies have changed their industry outlooks for U.S. life insurance companies, we have not had any change to our financial strength ratings.

Our dividends-paying capacity could decline if asset impairments significantly increase, or our asset portfolio experiences a material number of ratings downgrades and we are required to hold additional amounts of risk-based capital. If this effect is pronounced, as might be the case in an extended or particularly deep recession, the impact on our parent holding company liquidity could be significant. In such a case, Voya would need to consider additional steps to preserve liquidity at the holding company.

Effect on VRIAC - Results of Operations

Predicting with accuracy the consequences of COVID-19 on our results of operations is impossible. Based on current information, however, we believe that the most significant effects of adverse economic conditions will be on our fee-based income, with net investment income experiencing milder effects. Underwriting income, which will principally be affected by increases to mortality and morbidity due to the disease, could also face significant declines, particularly under severe epidemiological scenarios.

We believe the primary consequences of COVID-19 will result from changes in equity prices, interest rates and spreads, and increased market volatility. Our business will also be affected by reduced participant counts and AUM/AUA, due to:

•lower forecasted sales volumes, particularly in corporate markets, as companies delay new plan RFPs, offset in part by anticipated lower plan surrenders;

•a decline in deposits, as plan sponsors suspend or reduce matching contributions;

•furloughs and terminations of plan participants; and

•an increase in participant loans. hardship withdrawals, and qualifying CARES Act distributions and withdrawals, offset to some extent by a reduction in required minimum distributions.

The recently enacted federal CARES Act eliminates many disincentives for plan withdrawals and loans, although it has not yet resulted in any significant increase in withdrawals or loans among our plan participants. Although some CARES Act provisions automatically apply to participants and plans without further action, those provisions that significantly relax restrictions on loans and distributions must be affirmatively elected by plan sponsors. Based on our experience to date, we believe that a significant number of employers, particularly those who sponsor smaller plans, will decline to adopt these provisions.

Full-service corporate revenues will be affected more significantly by reduced AUM than by declines in participant counts, while the converse is true for recordkeeping.


			68

Table of Contents

In aggregate, we anticipate near-term pressure on net flows and earnings, with effects weighted more heavily towards our full-service corporate markets business and less on our recordkeeping business. Longer-term effects will depend significantly on equity market performance and prevailing interest rate levels, as well as the magnitude and duration of elevated unemployment levels. We believe that expense reductions and other management actions would be available to offset a portion of any impact.

Effects on fee income or net investment income could be material to our results, particularly if a recession were to be deeper or more prolonged than we currently anticipate, although we do not currently believe that such effects will materialize in the near term. And although longer-term effects are more difficult to judge should adverse economic conditions persist, we currently believe that sufficient management actions should be available, particularly with respect to expenses and capital management, to meaningfully offset the effect of such conditions in 2021.

Fee income is affected significantly by levels of AUM, which in turn depends on average daily equity market prices throughout the quarter. Although equity prices had declined materially by the end of the first quarter, and into early second quarter, equity prices have continued to largely recover from the lows experienced earlier this year. As expected, the effect on our fee income from the decline in equity prices was more pronounced in the second quarter. Despite the recent recovery in equity prices, volatility continues to play a large role in the markets and the ultimate impact on our fee income cannot be predicted.

Effect on Business Operations

The mandatory business shutdowns and stay-at-home orders implemented in most states have required us to make significant changes to the way in which we conduct day-to-day business. Although our business has been deemed an essential service in most or all jurisdictions in which we operate, the vast majority of our employees have been working from home since March 2020. Based on our experience to date, this transition has been very successful. In particular, our customer service and IT functions have exhibited a high degree of performance under these conditions. Although we have begun preparations for an eventual return to a traditional office-based workforce, it is currently unclear when or in what manner that may happen.

Despite this considerable success, like others in our industry we are experiencing some adverse effects from such a significant change to our business model. Sales visits, client presentations, and other direct customer contact opportunities have moved to virtual interactions, and many clients or potential clients have reduced their sales-related activity, which has affected sales pipelines and other revenue sources. Activities such as transaction processing and document handling, which generally require physical presence within our offices, have continued without incident, but are made more difficult with only skeleton staff available on-site.

The transition to work-from-home also increases vulnerabilities to cybersecurity threats and other fraudulent activities. Although we are remaining vigilant on this issue and have not experienced any significant incidents, we are expending a substantial amount of resources to defend against potential attacks,which may occur while in this state of heightened risk.

In addition, our business process and IT operations depend to a significant extent on outsourcing providers and a joint venture based in India, which is currently subject to a strict countrywide lockdown that requires the employees of these companies to work from home. Although our joint venture operations did not experience any notable disruptions from this transition, several outsourcing providers have experienced difficulty in moving their employee bases to a work-from-home arrangement. While these difficulties have not yet materially interfered with our business operations, there is a risk of future disruptions, particularly if the Indian lockdown persists for an extended period of time.


			69

Table of Contents

Results of Operations


_{($ in millions)}	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenues:
Net investment income	$	385	$	428	$	824	$	822
Fee income	202		217		424		422
Premiums	7		10		12		19
Broker-dealer commission revenue	—		—		1		1
Net realized capital gains (losses):
Total impairments	(24)		(1)		(31)		(21)


Other net realized capital gains (losses)	(5)		(1)		(90)		(5)
Total net realized capital gains (losses)	(29)		(2)		(121)		(26)
Other revenue	—		3		(1)		9
Total revenues	565		656		1,139		1,247
Benefits and expenses:
Interest credited and other benefits to contract owners/policyholders	213		269		422		524
Operating expenses	243		253		541		538
Broker-dealer commission expense	—		—		1		1
Net amortization of Deferred policy acquisition costs and Value of business acquired	6		3		43		9


Total benefits and expenses	462		525		1,007		1,072
Income (loss) before income taxes	103		131		132		175
Income tax expense (benefit)	10		16		5		15
Net income (loss)	$	93	$	115	$	127	$	160

Three Months Ended June 30, 2020 compared to Three Months Ended June 30, 2019

Revenues

Net investment income decreased by $43 million from $428 million to $385 million primarily due to:

• lower limited partnership income driven by private equity funds, due negative market environment

The decrease was partially offset by:

•higher income due to growth in general account assets in the current period.

Fee income decreased by $15 million from $217 million to $202 million primarily due to:

• a decrease in separate account performance

Total net realized capital losses increased by $27 million from $2 million to $29 million primarily due to:

•unfavorable changes in fixed maturities, using the fair value option due to interest rate movements and spread changes; and

•unfavorable changes in Other Investments related to the change in CECL allowance for commercial mortgage loans.

This increase was partially offset by:

•favorable changes in the fair values of derivatives due to interest rate movements; and


			70

Table of Contents

•favorable changes in the fair value of embedded derivatives on product guarantees as the result of interest rate movements and the impact of non-performance risk in the current period compared to the prior period.

Benefits and Expenses

Interest credited and other benefits to contract owners/policyholders decreased by $56 million from $269 million to $213 million primarily due to favorable changes in the fair value of embedded derivatives on reinsurance, as well as changes in interest and equity markets, mortality movements and decreases in immediate annuities with life contingencies reserves.

Income tax expense decreased by $6 million from $16 million to $10 million primarily due to:

•a decrease in income before income taxes; and

•an increase in tax credits.

The decrease was partially offset by:

•a decrease in the dividends received deduction ("DRD").

Net income decreased by $22 million from $115 million to $93 million primarily due to:

•lower Net investment income;

•higher Net realized capital losses; and

•lower Fee income.

The decrease was partially offset by:

•lower Interest credited and other benefits to contract owners/policyholders; and

•lower Income tax expense.

Six Months Ended June 30, 2020 compared to Six Months Ended June 30, 2019

Revenues

Total net realized capital losses increased by $95 million from $26 million to $121 million primarily due to:

•unfavorable changes in the fair value of embedded derivatives on product guarantees as a result of interest rate movements and the impact of non-performance risk in the current period compared to the prior period;

•unfavorable changes in fixed maturities, using the fair value option due to interest rate movements and spread changes; and

•unfavorable changes in Other Investments related to the change in CECL allowance for commercial mortgage loans.

The increase was partially offset by:

•favorable changes in the fair values of derivatives due to interest rate movements.

Benefits and Expenses

Interest credited and other benefits to contract owners/policyholders decreased by $102 million from $524 million to $422 million primarily due to favorable changes in the fair value of embedded derivatives on reinsurance, as well as changes in interest and equity markets and decreases in immediate annuities with life contingencies reserves.


			71

Table of Contents

Net amortization of DAC and VOBA increased by $34 million from $9 million to $43 million primarily due to:

•unfavorable unlocking in the current period compared to favorable unlocking in the prior period due to separate account performance;

•unfavorable unlocking in the current period due to conversions of variable investment options from variable annuity contracts to mutual funds custodial agreement; and

•higher amortization driven by the change in the embedded derivative associated with the recapture of a reinsurance agreement.

The increase was partially offset by:

•favorable unlocking in the current period driven by transfers from variable investment options to fixed investment options; and

•favorable unlocking in the current period due to interest rate related realized gains.

Income tax expense decreased by $10 million from $15 million to $5 million primarily due to:

•a decrease in income before income taxes; and

•an increase in tax credits.

The decrease was partially offset by:

•a decrease in the dividends received deduction ("DRD").

Net income decreased by $33 million from $160 million to $127 million primarily due to:

•higher Net realized capital losses; and

•higher Net amortization of DAC and VOBA.

The decrease was partially offset by:

•lower Interest credited and other benefits to contract owners/policyholders; and

•lower Income tax expense.


			72

Table of Contents

Financial Condition

Investments

See Management's Narrative Analysis of the Results of Operations and Financial Condition in Part II, Item. 7. of our Annual Report on Form 10-K for information on our investment strategy.

See the Investments Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for more information on investments.

Portfolio Composition

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


	June 30, 2020						December 31, 2019
($ in millions)	Carrying Value		% of Total		Carrying Value		% of Total
Fixed maturities, available-for-sale, excluding securities pledged	$	26,156	74.6	%	$	25,153	75.3	%
Fixed maturities, at fair value using the fair value option	1,788		5.1	%	1,479		4.4	%
Equity securities, at fair value	110		0.3	%	80		0.2	%
Short-term investments⁽¹⁾	—		—	%	—		—	%
Mortgage loans on real estate	4,676		13.3	%	4,664		14.0	%

Policy loans	195		0.6	%	205		0.6	%
Limited partnerships/corporations	753		2.2	%	738		2.2	%
Derivatives	677		1.9	%	224		0.7	%
Securities pledged	648		1.9	%	828		2.5	%
Other investments	44		0.1	%	43		0.1	%
Total investments	$	35,047	100.0	%	$	33,414	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.


			73

Table of Contents

Fixed Maturities

The following tables present total fixed maturities, including securities pledged, by market sector as of the dates indicated:


	June 30, 2020
($ in millions)	Amortized Cost		% of Total		Fair Value		% of Total
Fixed maturities:
U.S. Treasuries	$	537	2.1	%	$	750	2.6	%
U.S. Government agencies and authorities	18		0.1	%	19		0.1	%
State, municipalities, and political subdivisions	734		2.8	%	840		2.9	%
U.S. corporate public securities	6,941		26.6	%	8,130		28.4	%
U.S. corporate private securities	3,774		14.6	%	4,201		14.8	%
Foreign corporate public securities and foreign governments⁽¹⁾	2,412		9.3	%	2,712		9.5	%
Foreign corporate private securities⁽¹⁾	3,078		11.9	%	3,272		11.4	%
Residential mortgage-backed securities	4,320		16.6	%	4,486		15.7	%
Commercial mortgage-backed securities	2,650		10.2	%	2,712		9.5	%
Other asset-backed securities	1,493		5.8	%	1,470		5.1	%
Total fixed maturities, including securities pledged	$	25,957	100.0	%	$	28,592	100.0	%

⁽¹⁾ Primarily U.S. dollar denominated.


	December 31, 2019
($ in millions)	Amortized Cost		% of Total		Fair Value		% of Total
Fixed maturities:
U.S. Treasuries	$	565	2.2	%	$	691	2.5	%
U.S. Government agencies and authorities	19		0.1	%	19		0.1	%
State, municipalities, and political subdivisions	747		3.0	%	815		3.0	%
U.S. corporate public securities	7,103		28.0	%	8,031		29.2	%
U.S. corporate private securities	3,776		15.0	%	4,066		14.8	%
Foreign corporate public securities and foreign governments⁽¹⁾	2,417		9.5	%	2,679		9.8	%
Foreign corporate private securities⁽¹⁾	3,171		12.5	%	3,375		12.3	%
Residential mortgage-backed securities	3,685		14.5	%	3,810		13.9	%
Commercial mortgage-backed securities	2,381		9.4	%	2,500		9.0	%
Other asset-backed securities	1,472		5.8	%	1,474		5.4	%
Total fixed maturities, including securities pledged	$	25,336	100.0	%	$	27,460	100.0	%

⁽¹⁾ Primarily U.S. dollar denominated.

As of June 30, 2020, the average duration of our fixed maturities portfolio, including securities pledged, is between 6.5 and 7.0 years.

Fixed Maturities Credit Quality - Ratings

For information regarding our fixed maturities credit quality ratings, see the Management's Narrative Analysis of the Results of Operations and Financial Condition in Part II, Item. 7. of our Annual Report on Form 10-K.


			74

Table of Contents

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


($ in millions)	June 30, 2020
NAIC Quality Designation	1			2			3			4			5			6			Total Fair Value
U.S. Treasuries	$	750		$	—		$	—		$	—		$	—		$	—		$	750
U.S. Government agencies and authorities	19			—			—			—			—			—			19
State, municipalities and political subdivisions	781			59			—			—			—			—			840
U.S. corporate public securities	3,160			4,463			434			71			2			—			8,130
U.S. corporate private securities	1,409			2,491			179			113			9			—			4,201
Foreign corporate public securities and foreign governments⁽¹⁾	1,060			1,515			114			23			—			—			2,712
Foreign corporate private securities⁽¹⁾	298			2,751			130			91			—			2			3,272
Residential mortgage-backed securities	4,181			242			28			—			15			20			4,486
Commercial mortgage-backed securities	2,481			197			32			2			—			—			2,712
Other asset-backed securities	1,315			142			7			1			5			—			1,470
Total fixed maturities	$	15,454		$	11,860		$	924		$	301		$	31		$	22		$	28,592
% of Fair Value	54.0		%	41.5		%	3.2		%	1.1		%	0.1		%	0.1		%	100.0		%
⁽¹⁾ Primarily U.S. dollar denominated.

($ in millions)	December 31, 2019
NAIC Quality Designation	1			2			3			4			5			6			Total Fair Value
U.S. Treasuries	$	691		$	—		$	—		$	—		$	—		$	—		$	691
U.S. Government agencies and authorities	19			—			—			—			—			—			19
State, municipalities and political subdivisions	755			59			—			—			—			1			815
U.S. corporate public securities	3,330			4,175			445			69			12			—			8,031
U.S. corporate private securities	1,383			2,471			107			95			10			—			4,066
Foreign corporate public securities and foreign governments⁽¹⁾	1,089			1,482			92			16			—			—			2,679
Foreign corporate private securities⁽¹⁾	336			2,858			148			33			—			—			3,375
Residential mortgage-backed securities	3,677			96			3			—			12			22			3,810
Commercial mortgage-backed securities	2,242			196			47			9			6			—			2,500
Other asset-backed securities	1,318			135			11			1			9			—			1,474
Total fixed maturities	$	14,840		$	11,472		$	853		$	223		$	49		$	23		$	27,460
% of Fair Value	54.0		%	41.8		%	3.1		%	0.8		%	0.2		%	0.1		%	100.0		%
⁽¹⁾ Primarily U.S. dollar denominated.


			75

Table of Contents

The following tables present credit quality of fixed maturities, including securities pledged, using NAIC acceptable rating organizations ("ARO") ratings as of the dates indicated:


($ in millions)	June 30, 2020
ARO Quality Ratings	AAA			AA			A			BBB			BB and Below			Total Fair Value
U.S. Treasuries	$	750		$	—		$	—		$	—		$	—		$	750
U.S. Government agencies and authorities	19			—			—			—			—			19
State, municipalities and political subdivisions	55			525			201			58			1			840
U.S. corporate public securities	78			425			2,920			4,239			468			8,130
U.S. corporate private securities	66			98			1,358			2,496			183			4,201
Foreign corporate public securities and foreign governments⁽¹⁾	9			257			899			1,397			150			2,712
Foreign corporate private securities⁽¹⁾	—			—			396			2,699			177			3,272
Residential mortgage-backed securities	3,254			241			150			299			542			4,486
Commercial mortgage-backed securities	1,092			295			611			587			127			2,712
Other asset-backed securities	272			329			693			146			30			1,470
Total fixed maturities	$	5,595		$	2,170		$	7,228		$	11,921		$	1,678		$	28,592
% of Fair Value	19.6		%	7.6		%	25.3		%	41.7		%	5.8		%	100.0		%
⁽¹⁾ Primarily U.S. dollar denominated.

($ in millions)	December 31, 2019
ARO Quality Ratings	AAA			AA			A			BBB			BB and Below			Total Fair Value
U.S. Treasuries	$	691		$	—		$	—		$	—		$	—		$	691
U.S. Government agencies and authorities	19			—			—			—			—			19
State, municipalities and political subdivisions	55			502			198			59			1			815
U.S. corporate public securities	72			440			2,837			4,185			497			8,031
U.S. corporate private securities	89			120			1,280			2,371			206			4,066
Foreign corporate public securities and foreign governments⁽¹⁾	8			269			858			1,420			124			2,679
Foreign corporate private securities⁽¹⁾	—			—			429			2,820			126			3,375
Residential mortgage-backed securities	2,799			136			75			281			519			3,810
Commercial mortgage-backed securities	1,012			240			601			539			108			2,500
Other asset-backed securities	292			312			692			140			38			1,474
Total fixed maturities	$	5,037		$	2,019		$	6,970		$	11,815		$	1,619		$	27,460
% of Fair Value	18.3		%	7.4		%	25.4		%	43.0		%	5.9		%	100.0		%
⁽¹⁾ Primarily U.S. dollar denominated.


			76

Table of Contents

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.

Unrealized Capital Losses

Gross unrealized losses on fixed maturities, including securities pledged, increased $236 million from $63 million to $299 million for the six months ended June 30, 2020. As a result of the uncertainty related to the effect of the COVID-19 pandemic, spreads on all risk assets widened substantially through late March only to recover much of that weakness during the second quarter. Risk-free rates rallied on this uncertainty and remained at these low levels despite the stabilization in market conditions and sentiment. The combination of these two factors resulted in a $715 million reduction in the gross unrealized loss during the quarter.

As of June 30, 2020, we held one fixed maturity with unrealized capital loss in excess of $10 million. As of June 30, 2020, the unrealized capital loss on these fixed maturity securities equaled $14 million, or 4.6% of the total unrealized losses. As of December 31, 2019, we held no fixed maturity securities with unrealized capital loss in excess of $10 million.

As of June 30, 2020, we had $1.7 billion of energy sector fixed maturity securities, constituting 5.9% of the total fixed maturities portfolio, with gross unrealized capital losses of $42 million, including one energy sector fixed maturity security with unrealized capital loss in excess of $10 million. The unrealized capital loss on this fixed maturity security equaled $14 million. As of June 30, 2020, our fixed maturity exposure to the energy sector is comprised of 87.8% investment grade securities.

As of December 31, 2019, we held $1.8 billion of energy sector fixed maturity securities, constituting 6.7% of the total fixed maturities portfolio, with gross unrealized capital losses of $18 million, including zero energy sector fixed maturity security with unrealized capital loss in excess of $10 million. The unrealized capital loss on this fixed maturity security equaled $0 million. As of December 31, 2019, our fixed maturity exposure to the energy sector is comprised of 90.5% investment grade securities.

See the Investments Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for further information on unrealized capital losses.

Residential Mortgage-Backed Securities

The following tables present our residential mortgage-backed securities as of June 30, 2020 and December 31, 2019:


	June 30, 2020
($ in millions)	Amortized Cost		Gross Unrealized Capital Gains		Gross Unrealized Capital Losses		Embedded Derivatives		Fair Value
Prime Agency	$	2,422	$	129	$	1	$	8	$	2,558
Prime Non-Agency	1,841		54		33		1		1,863
Alt-A	43		5		2		5		51
Sub-Prime⁽¹⁾	29		3		1		—		31
Total RMBS	$	4,335	$	191	$	37	$	14	$	4,503
⁽¹⁾ Includes subprime other asset backed securities.
	December 31, 2019
($ in millions)	Amortized Cost		Gross Unrealized Capital Gains		Gross Unrealized Capital Losses		Embedded Derivatives		Fair Value
Prime Agency	$	2,099	$	84	$	2	$	6	$	2,187
Prime Non-Agency	1,525		33		8		1		1,551
Alt-A	46		8		—		4		58
Sub-Prime⁽¹⁾	30		3		—		—		33
Total RMBS	$	3,700	$	128	$	10	$	11	$	3,829
⁽¹⁾ Includes subprime other asset backed securities.


			77

Table of Contents

Commercial Mortgage-backed Securities

The following tables present our commercial mortgage-backed securities as of June 30, 2020 and December 31, 2019:


	June 30, 2020
($ in millions)	AAA						AA						A						BBB						BB and Below	Total
			Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
2013 and prior	$	190	$	224	$	63	$	64	$	94	$	93	$	81	$	70	$	2	$	2	$	430	$	453
2014	255		302		28		29		31		30		14		12		27		26		355		399
2015	177		204		85		87		59		54		83		75		24		24		428		444
2016	27		32		17		18		24		22		40		35		—		—		108		107
2017	56		64		34		33		86		78		63		57		39		37		278		269
2018	81		94		26		24		151		143		82		79		11		12		351		352
2019	121		148		33		31		157		144		219		202		25		26		555		551
2020	24		24		9		9		51		47		61		57		—		—		145		137
Total CMBS	$	931	$	1,092	$	295	$	295	$	653	$	611	$	643	$	587	$	128	$	127	$	2,650	$	2,712

	December 31, 2019
($ in millions)	AAA						AA						A						BBB						BB and Below	Total
			Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
2013 and prior	$	193	$	212	$	35	$	36	$	50	$	51	$	94	$	99	$	2	$	3	$	374	$	401
2014	251		274		29		29		38		39		15		15		21		22		354		379
2015	188		199		77		80		50		51		84		88		19		19		418		437
2016	27		29		11		11		23		24		37		39		6		6		104		109
2017	72		75		34		34		98		102		44		45		32		34		280		290
2018	85		95		21		22		172		178		78		80		—		—		356		375
2019	114		128		27		28		156		157		174		173		24		23		495		509
Total CMBS	$	930	$	1,012	$	234	$	240	$	587	$	602	$	526	$	539	$	104	$	107	$	2,381	$	2,500

As of June 30, 2020, 91.5% and 7.2% of CMBS investments were designated as NAIC-1 and NAIC-2, respectively. As of December 31, 2018, 89.7% and 7.9% of CMBS investments were designated as NAIC-1 and NAIC-2, respectively.


			78

Table of Contents

Other Asset-backed Securities

The following tables present our other asset-backed securities as of June 30, 2020 and December 31, 2019:


	June 30, 2020
($ in millions)	AAA						AA						A						BBB						BB and Below	Total
			Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Collateralized Obligation	$	220	$	215	$	263	$	256	$	545	$	528	$	12	$	10	$	20	$	13	$	1,060	$	1,022
Auto-Loans	1		1		10		10		7		7		—		1		—		—		18		19
Student Loans	15		16		58		59		73		72		2		1		—		—		148		148

Other Loans	37		40		4		4		83		85		127		134		—		—		251		263
Total Other ABS⁽¹⁾	$	273	$	272	$	335	$	329	$	708	$	692	$	141	$	146	$	20	$	13	$	1,477	$	1,452
⁽¹⁾Excludes subprime other asset backed securities
	December 31, 2019
($ in millions)	AAA						AA						A						BBB						BB and Below	Total
			Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Collateralized Obligation	$	235	$	234	$	237	$	238	$	542	$	534	$	12	$	11	$	21	$	18	$	1,047	$	1,035
Auto-Loans	1		1		10		10		5		5		—		—		—		—		16		16
Student Loans	14		14		59		60		71		72		2		2		—		—		146		148

Other Loans	40		42		3		4		78		80		124		127		3		3		248		256
Total Other ABS⁽¹⁾	$	290	$	291	$	309	$	312	$	696	$	691	$	138	$	140	$	24	$	21	$	1,457	$	1,455
⁽¹⁾ Excludes subprime other asset backed securities

As of June 30, 2020, 89.3% and 9.8% of Other ABS investments were designated as NAIC-1 and NAIC-2, respectively. As of December 31, 2018, 89.3% and 9.3% of Other ABS investments were designated as NAIC-1 and NAIC-2, respectively.

Mortgage Loans on Real Estate

We rate all 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 other-than-temporarily impaired ("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 Condensed Consolidated Statements of Operations. As of 6/30/2020, there were two commercial mortgage loans totaling $10 for which repayment is expected to be provided substantially through the operation or sale of collateral and the borrower is experiencing financial difficulty. The collateral is Office and Retail space and the FV of the collateral exceeds the value of the loans.

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 a property's operations do not generate sufficient income to cover debt payments. These ratios are utilized as part of the review process described above.


			79

Table of Contents

As of June 30, 2020, our mortgage loans on real estate portfolio had a weighted average DSC of 2.2 times and a weighted average LTV ratio of 46.6%. As of December 31, 2019, our mortgage loans on real estate portfolio had a weighted average DSC of 2.2 times and a weighted average LTV ratio of 62.3%. COVID-19 is driving a CECL allowance increase for the Commercial Mortgage Loan portfolio. The pandemic first manifested in the economy in March resulting in travel reduction, restaurant closures and work from home situations for most companies. Updated information on the macroeconomic impact of COVID-19 includes higher probability of default and loss given default in the portfolio. As a result of updated model scenarios, we observed consistent increases across property types such as apartments, office and retail, but a much larger spike in the hotel sector.

See the Investments Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for further information on mortgage loans on real estate.

Impairments

We evaluate available-for-sale fixed maturities 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 to our Consolidated Financial Statements in Part II, Item 8. of our Annual Report on Form 10-K for the policy used to evaluate whether the investments are impaired.

See the Investments Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for further information on OTTI.

European Exposures

We quantify and allocate our exposure to the region 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.

As of June 30, 2020, the Company's total European exposure had an amortized cost and fair value of $2,696 million and $2,933 million, respectively. European exposure with a primary focus on Greece, Ireland, Italy, Portugal and Spain (which we refer to as "peripheral Europe") amounts to $308 million, which includes non-financial institutions exposure in Ireland of $80 million, in Italy of $109 million, and in Spain of $78 million. We also had financial institutions exposure in Ireland of $15 million, in Italy of $6 million and in Spain of $20 million. We did not have any exposure to Greece or Portugal.

Among the remaining $2,625 million 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 June 30, 2020, our non-peripheral sovereign exposure was $102 million, which consisted of fixed maturities. We also had $442 million in net exposure to non-peripheral financial institutions with a concentration in France of $74 million, The Netherlands of $51 million, Switzerland of $77 million and the United Kingdom of $213 million. The balance of $2,100 million was invested across non-peripheral, non-financial institutions.

Some of the major country level exposures were in the United Kingdom of $1,343 million, in The Netherlands of $245 million, in Belgium of $154 million, in France of $222 million, in Germany of $136 million, in Switzerland of $188 million and in Russia of $59 million. 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 continued recovery of economic conditions in Europe.


			80

Table of Contents

Legislative and Regulatory Developments

The CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which became law on March 27, 2020, provides a range of economic stimulus and relief for individuals and businesses. Among other provisions, the CARES Act created a new category of distribution from most retirement plans and IRAs, a “coronavirus related distribution”, or CRD. Retirement plan participants (subject to sponsor approval) and IRA owners who certify that they have been negatively impacted by COVID-19 may each, through the end of 2020, withdraw up to an aggregate of $100,000 penalty-free, and pay resulting income taxes over a 3-year period or re-contribute the withdrawn amount into a qualified plan or IRA during the same period. We do not believe the CARES Act will have a material effect on our financial condition or results of operations.

Department of Labor Proposed Rule Regarding Fiduciaries

On June 30, 2020, the Department of Labor (“DOL”) proposed a new prohibited transaction class exemption that would, if finalized, permit fiduciaries under the Employee Retirement Income Security Act (“ERISA”) to engage in certain transactions that would otherwise be prohibited (such as, depending on the circumstance, sales of proprietary investment products or commissioned sales to ERISA investors) as long as certain conditions are satisfied. The DOL’s proposal would more closely align ERISA’s fiduciary requirements to the SEC’s Regulation Best Interest, which became effective on June 30, 2020, in the context of retail sales transactions. It is too early to determine whether the DOL’s proposal will become finalized, or if so what changes may be made during the rulemaking process.


			81

Table of Contents

Liquidity and Capital Resources

Liquidity refers to our ability to access sufficient sources of cash to meet the requirements of our operating, investing and financing activities. Capital refers to our long-term financial resources available to support business operations and 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 other sources of liquidity and capital described herein.

Liquidity Management

Our principal available sources of liquidity are product charges, investment income, proceeds from maturity and sale of investments, proceeds from debt issuance and borrowing facilities, repurchase agreements, contract deposits, securities lending and capital contributions. Primary uses of these funds are payments of commissions and operating expenses, interest credits, investment purchases 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 VRIAC's statutory admitted assets as of the prior December 31. As of June 30, 2020, VRIAC had an outstanding receivable of $254 million, and VIPS had a $54 million outstanding payable. As of December 31, 2019, we had an outstanding receivable of $69 million and no outstanding payable from/to 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 subjected 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 53.1% 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, securities lending and dollar roll 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 June 30, 2020, VRIAC had securities lending collateral assets of $485 million, which represents approximately 0.4% of its general account statutory admitted assets. As of December 31, 2019, VRIAC had securities lending collateral assets of $650 million, which represents approximately 2.0% of its general account statutory admitted assets.

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


			82

Table of Contents

Capital Contributions and Dividends

During the six months ended June 30, 2020 and 2019, VRIAC did not receive any capital contributions from its Parent.

During the six months ended June 30, 2020, VRIAC paid an ordinary dividends to its Parent in the aggregate amount of $294 million. During the six months ended June 30, 2019, VRIAC paid an ordinary dividend in the amount of $396 million to its Parent.

On March 27, 2020, VFP paid a $20 million dividend to VRIAC, its Parent, and on June 15, 2020, VFP paid a $15 million dividend to VRIAC. During the six months ended June 30, 2019, VFP paid dividends of $40 million to VRIAC.

Ratings

Our access to funding and our related cost of borrowing, collateral requirements for derivative instruments 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. Credit ratings are also important to our ability to raise capital through the issuance of debt and for the cost of such financing.

A downgrade in our credit ratings or the credit or financial strength ratings of our Parent or rated affiliates could have a material adverse effect on our results of operations and financial condition. See Risk Factors- 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 in Part I, Item 1A. of our Annual Report on Form 10-K for additional information.

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 Quarterly Report on Form 10-Q are summarized in the following table.

Company

A.M. Best

Fitch

Moody's

S&P

Voya Retirement Insurance and Annuity Company

Financial Strength Rating

withdrawn

A
(3 of 9)

A2
(3 of 9)

A+
(3 of 9)

Rating Agency

Financial Strength Rating Scale

Fitch⁽¹⁾

"AAA" to "C"

Moody's⁽²⁾

"Aaa" to "C"

S&P⁽³⁾

"AAA" to "R"

⁽¹⁾ Fitch's financial strength ratings for insurance companies range from "AAA (exceptionally strong)" to "C (distressed)." Long-term credit ratings range from "AAA (highest credit quality)," which denotes exceptionally strong capacity for timely payment of financial commitments, to "D (default)."

⁽²⁾ Moody’s financial strength ratings for insurance companies range from "Aaa (exceptional)" to "C (lowest)." Numeric modifiers are used to refer to the ranking within the group- with 1 being the highest and 3 being the lowest. These modifiers are used to indicate relative strength within a category. Long-term credit ratings range from "Aaa (highest)" to "C (default)."

⁽³⁾S&P's financial strength ratings for insurance companies range from "AAA (extremely strong)" to "D (default)." Long-term credit ratings range from "AAA (extremely strong)" to "D (default)."

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. 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. On April 1, Moody’s changed its outlook for the US life insurance sector to negative from stable. In December 2019, Fitch revised its outlook on the life insurance sector to negative from stable. Subsequently, in March of 2020, Fitch revised its rating outlook for the U.S. life insurance sector to negative from stable.


			83

Table of Contents

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. Derivative contracts are reported as Derivatives assets or liabilities on the Condensed Consolidated Balance Sheets at fair value. Changes in the fair value of derivatives are recorded in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.

We also have investments in certain fixed maturities and have issued certain annuity products that contain embedded derivatives 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 Condensed Consolidated Balance Sheets and changes in fair value of the embedded derivatives are recorded in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations. Embedded derivatives within certain annuity products are included in Future policy benefits and contract owner account balances on the Condensed Consolidated Balance Sheets and changes in the fair value of the embedded derivatives are recorded in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.

In addition, we have entered into a reinsurance agreement, accounted for under the deposit method, that contains an embedded derivative, the fair value of which is based on the change in the fair value of the underlying assets held in trust. The embedded derivatives within the reinsurance agreements are reported in Other liabilities on the Condensed Consolidated Balance Sheets, and changes in the fair value of the embedded derivative are recorded in Interest credited and other benefit to contract owners/policyholders in the Condensed Consolidated Statements of Operations.

Off-Balance Sheet Arrangements

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 Condensed Consolidated Balance Sheets. For information regarding obligations under this program, see the Investments Note in our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.

For changes in commitments related to the acquisition of mortgage loans and the purchase of limited partnerships and private placement investments, see the Commitments and Contingencies Note in our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended ("Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's current disclosure controls and procedures are effective in ensuring that material information relating to the Company required to be disclosed in the Company's periodic SEC filings is made known to them in a timely manner.


			84

Table of Contents

Changes in Internal Control Over Financial Reporting

There were no changes to the Company's internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


			85

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See the Commitments and Contingencies Note in our Condensed Consolidated Financial Statements in Part I., Item 1. of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

For a discussion of the Company's potential risks or uncertainties, please see "Risk Factors" in Part I, Item 1A. in our Annual Report on Form 10-K for the year ended December 31, 2019 (the "Annual Report on Form 10-K") filed with the Securities and Exchange Commission . In addition, please see "Management’s Narrative Analysis of the Results of Operations and Financial Condition" Part I, Item 2. of this Quarterly Report on Form 10-Q.

The COVID-19 pandemic has had, and is likely to continue to have, adverse effects on our financial condition and results of operations.

Many businesses around the world, including ours, have been significantly affected by the global outbreak of COVID-19 disease. Since March 2020, when the disease first became widespread, global financial markets have experienced periods of extreme volatility. These market events, which include a significant drop in equity prices in the early spring followed by a recovery in the second quarter, declines in U.S. Treasury yields and distress in certain credit market sectors such as energy, real estate, transportation and retail, adversely affected our first and second quarter 2020 financial results and are likely to continue to have adverse effects on our business for the foreseeable future. These future adverse effects, which could be material, may include:

•Increased impairments or credit rating downgrades within our general account portfolio, which could consume our excess capital and reduce our dividend capacity. Although we currently believe that we have adequate liquidity for the foreseeable future, if our asset portfolio were to experience a material amount of impairments or ratings downgrades, Voya Financial might require us to maintain additional statutory capital and would need to consider additional steps to preserve liquidity at our holding company;

•Declines in fee revenues from lower AUM/AUA and plan participant counts, as a result of increased unemployment and furloughs, lower asset prices, suspensions or reductions in participant plan deposits or employer matching contributions, and an increase in plan loans and withdrawals;

•Decreased spread-based revenues due to lower interest rates;

•Material harm to the financial condition of our reinsurers, which would increase the probability of default on reinsurance recoveries; and

•Reduced sales levels due to decreased RFP activity or delayed decision making by our clients or prospective clients.

We have also faced, and are likely to continue to face, disruption of our normal business operations, including the ability to interact with existing or potential clients. While many states have lifted their most severe restrictions requiring mandatory business shutdowns and stay-at-home orders, the resurgence and persistence of new infections in many U.S. states has slowed the reopening of the U.S. economy and some U.S. states have or are considering the reimposition of shutdowns or stay-at-home orders in an attempt to slow the spread of infections. Although our business has been deemed an essential service in most or all jurisdictions in which we operate, the vast majority of our employees have been working from home since March 2020. While our work from home arrangements have not created any significant problems, if such problems were to arise in the future, such that significant portions of our workforce are unable to work remotely in an effective manner, the impact of COVID-19 on our business could be exacerbated.

In addition, our business process and IT operations depend to a significant extent on outsourcing providers and a joint venture based in India, which is currently reimposing lockdowns in several cities across India as they experience a resurgence of COVID-19 cases. Although our joint venture operations did not experience any notable disruptions from a transition to work-from-home, several of our outsourcing providers have experienced difficulty in moving their employee bases to a work-from-home arrangement. While these difficulties have not yet materially interfered with our business operations, there is a risk of future disruptions, particularly if the Indian lockdowns persist for an extended period of time.

The transition to work-from-home also increases vulnerabilities to cybersecurity threats and other fraudulent activities. Although we are remaining vigilant on this issue and have not experienced any significant incidents, we are expending a substantial amount of resources to defend against potential attacks, which may occur while in this state of heightened risk.


			86

The extent to which COVID-19 will continue to negatively affect our business operations, potentially in a material manner, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, macroeconomic conditions, the continued effectiveness of our business continuity plan (including work-from-home arrangements and staffing in operational facilities), the direct and indirect impact of the pandemic on our employees, clients, counterparties and service providers, as well as other market participants, and actions taken by governmental authorities and other third parties in response to the pandemic.

Item 6. Exhibits

See Exhibit Index on page 88 hereof.


			87

Table of Contents

Voya Retirement Insurance and Annuity Company ("VRIAC")

Exhibit Index

Exhibit
Number

Description of Exhibit

31.1+

Certificate of Francis G. O'Neill pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2+

Certificate of Charles P. Nelson pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1+

Certificate of Francis G. O'Neill pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2+

Certificate of Charles P. Nelson pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH+

Inline XBRL Taxonomy Extension Schema

101.CAL+

Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF+

Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB+

Inline XBRL Taxonomy Extension Label Linkbase

101.PRE+

Inline XBRL Taxonomy Extension Presentation Linkbase

104

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

+Filed herewith.


			88

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

August 13, 2020

Voya Retirement Insurance and Annuity Company

(Date)

(Registrant)

By:

/s/

Francis G. O'Neil

Francis G. O'Neill

Senior Vice President and

Chief Financial Officer

(Duly Authorized Officer and Principal Financial Officer)


			89