Q4 2019 Earnings Call
[music].
Good morning, and welcome to the Voya financial fourth quarter 2019 earnings Conference call. All participants will be in listen only mode. She didn't need assistance. Please signal conference specialist by pressing star followed by the zero.
After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press star too.
Participants are limited to one question and one follow up. Please note. This event is being recorded.
Now I'd like to turn the conference over to Michael Cats, Senior Vice President of Investor Relations. Please go ahead.
Thank you and good morning, welcome to Voya Financial's fourth quarter and full year 2019 earnings Conference call. We appreciate all of you have joined US for this call.
As a reminder, materials for today's call are available on our web site at investors, Dod Voya dot com or via the webcast.
Turning to slide to some of the comments made during this conference call may contain forward looking statements within the meaning of federal Securities Law I refer you to this slide for more information.
We will also be referring today to certain non-GAAP financial measures GAAP reconciliations are available in our press release and financial supplement found on our website investors Dot Voya dotcom.
Joining me on the call our Rod Martin Voya financials, Chairman and Chief Executive Officer, as well as Mike Smith Boy as Chief Financial Officer. After their prepared remarks, we will take your questions.
Thank you and recession, we have also invited the heads of our businesses, specifically, Charlie Nelson retirement, Christine hurt sellers investment management, and Rob group employee benefits with that let's turn to slide three as I would like to turn the call over to Rod.
Good morning.
Let's begin on slide four with some key themes.
2019 was a strong as successful year for Voya.
Our shareholders and our customers on a normalized basis, our full year EPS was $4 a 22 cents.
Representing an 18% increase in adjusted operating earnings per share compared with 2018.
This earnings growth was driven by the significant progress we've made in reducing costs.
And in returning capital to shareholders. It also reflects the sale of our individual life business.
Which we announced in December but.
The led transaction accelerates our plans to generate free cash flow from the business reduces risks.
As marks the completion of a fundamental restructuring of voice.
The transaction will remove five regulated insurance companies.
A broker dealer and 15 administrative systems.
Creating significant opportunities for voice to become even more efficient.
Looking ahead, we expect normalized adjusted earnings per share to reach a quarterly run rate of $1.80 to $1.90 by the end of 2021.
Representing a 10% plus growth from the 2018 basis that included life earnings.
We remain committed to growing normalized adjusted operating EPS by at least 10% in both 2020 and 2021, while generating a strong return on equity.
We have purposefully evolved to become a company with a clear focus of strategy.
Centered on high growth high return capital light businesses.
There are three reasons why we're confident in our continued EPS growth potential and the power of our core businesses.
First.
We are delivering cost savings we remain on track to achieve the run rate cost savings of at least $250 million by the end of 2020.
As of the fourth quarter, we successfully eliminated all of the stranded costs associated with our 2018 annuities transactions.
We will bring the same focus in addressing stranded costs related to the life sale.
Second.
We're generating high free cash flows and returning capital to shareholders, we had approximately $896 million of excess capital as of December 30 Onest.
With our plans to repurchase at least a billion dollars of our shares in 2020.
We're on track to have returned approximately $7 billion of capital in seven years.
Third we.
We're delivering on organic growth with our three core businesses, we're seeing strong demand for our capabilities given the compelling value proposition that we provide for our workplace and institutional clients.
Our confidence in the future stems from our ability to turn market activity.
Into results.
We saw a positive flows in 2019 for retirement and investment management as well as significant enforce premium growth in employee benefits.
Looking ahead, we continue to see strong pipelines.
This continues to give us confidence in our ability to achieve further organic growth in 2020.
And 2021.
Turning to slide five.
Boy this culture and character of our brand continue to earn external recognition.
I'd like to highlight a few honors that were recently announced.
Last month, we were named one of Fortune's world's most admired companies within their securities and asset management category.
Just last week, we were recognized on Barron's list of the 2020 hundreds most sustainable companies.
We ranked third overall and for the second year in a row, we were the highest ranked financial services company.
Additionally, during the quarter. We were included in the Bloomberg gender equality index as well as the 2020 corporate equality index.
Across our businesses customers are increasingly citing the character of our brand and our culture is key factors in their decision to select Voya.
It's having an impact on our business performance and our pipelines.
With that let me ask Mike to provide more details on our performance.
And results.
Thank you Rod.
Before we get to the numbers I will talk through the most significant changes in the presentation of our financial results due to the sale of our individual life business.
All earnings from our individual life business and the other legacy blocks included in the transaction are now reported outside of adjusted operating earnings both for historical period and for future periods until close. These results are included however in GAAP net income.
The transaction results in GAAP book value adjustments that we will recognize in stages between fourth quarter 2019 and close.
Consistent with our communication when we announced the sale in the fourth quarter of 2019, we recognized a GAAP book value reduction of 1.1 billion.
This represents the estimated loss on sale from the portion of the transaction that is structured as a sale of legal entities.
At close we will recognize a further adjustment to GAAP book value associated with a portion of the transaction that involves the sale through reinsurance. Our current estimate is that we would expect to realize a partially offsetting book value gain such that the total reduction in GAAP book value due to the transaction.
Would be in the range of 250 million to 750 million.
The transaction will also have an effect on the manner in which we report expenses associated with the businesses we have sold.
Although earnings from these businesses are classified as non operating GAAP held for sale accounting requires us to include associated indirect expenses as stranded costs in operating earnings.
Because we continue to receive earnings from these businesses until the transaction closes we will normalize for these costs. When we report normalized adjusted operating earnings until close.
After close we will include the remaining stranded costs in our normalized adjusted operating earnings net of the transition service fee revenue, we will earn from the buyer and the realized cost savings we achieved [noise].
With that explanation, let's turn to our financial results on slide seven.
We delivered normalized after tax adjusted operating earnings of $1.19 cents per share in the fourth quarter of 2019. This normalized amount excludes six cents of unfavorable DAC voba and other intangibles unlocking.
12 cents, a prepayment and alternative income above our long term expectations and 18 cents of stranded costs associated with the businesses we have sold.
On a reported basis adjusted operating earnings were one dollar and seven cents per share for the quarter.
Fourth quarter GAAP net income was affected by four significant items.
First and most significant was the reduction in GAAP book value that I discussed a moment ago.
Second as I also mentioned individual life earnings were included in GAAP net income life earnings were adversely affected by unfavorable severity driven mortality experience in the fourth quarter.
Third our annual end of year after tax pension remeasurement, primarily reflecting the impact on asset levels from higher equity markets as well as the impact on future liabilities from lower interest rates in 2019.
In 2020, we expect our annualized net pension cost to be 20 million lower than prior year.
In a change from prior practice beginning in 2020, we will report pension cost in operating earnings of our corporate segment.
The intent of this changes to remove pension related earnings volatility from the business segments.
In 2019 in prior years, we allocated pension costs to the business segments.
Fourth and finally net income for the fourth quarter of 2019 was positively affected by $250 million tax valuation allowance release.
Moving to slide eight.
Retirement delivered 172 million of adjusted operating earnings in the fourth quarter contributing to full year earnings of 618 million, excluding unlocking retirements trailing 12 month return on capital was 13.2% for 2019 compared with 14.1% in 2018.
Okay.
Full year adjusted operating earnings excluding unlocking were lower than 2018.
Full service and record keeping fee income was higher driven by net inflows and favorable equity markets. This was partially offset by lower investment spread reflecting the impact of the low interest rate environment.
Our administrative expenses were higher reflecting higher pension costs incurred legal accruals and expense accrual true up and upfront volume related investment costs.
As you know interest rates have dropped significantly since we gave our retirement earnings growth guidance at our 2018 Investor day.
If current interest rate levels hold and considering the ship to pension costs to corporate we now expect our adjusted operating earnings CAGR for retirement from 2018 through 2021 to be in the range of 1% to 4%.
This compares with the original target of 4% to 7%.
Importantly, our target for overall boy EPS of $1.80 to $1.90 by the end of 2021 remains in place. This represents over 10% growth from the 2018 base that included life earnings.
Looking ahead, we expect first quarter administrative expenses in retirement to be 205 to 215 million largely consistent with fourth quarter 2019.
Seasonality compared to fourth quarter, 2019 retirement expenses will be largely offset by the recognition of cost savings in our segment results. This is a change from 2019 as stranded costs from the annuities transaction have now been eliminated.
We expect full year 2020 administrative expenses for retirement to be in the range of 800 to 820 million.
This is lower than prior year levels, as we expect cost savings to more than offset volume related spend.
Retirement generated 267 million of positive full service net flows in the quarter contributing to full year net inflows of 2.1 billion.
This was driven by strong flows in full service corporate markets.
Full year full service recurring deposits grew by 10.7%.
We continue to expect recurring deposit growth to be between 10% to 12% in 2020 in 2021.
We had a strong fourth quarter of record keeping net flows of over 12 billion.
This was lower than our expectation of 20 billion due to known plan terminations that had been expected to occur in the first quarter of 2020, but were accelerated into the fourth quarter 2019.
We now expect an incremental 26 billion of record keeping net flows in 2020 largely in the second half.
This represents the balance of the previously mentioned 38 billion of record keeping net flows to emerge by the end of 2020.
We feel very good about our commercial pipeline of full service and record keeping net flows and remain confident that we will continue to win in the marketplace.
On slide nine investment management delivered $59 million of adjusted operating earnings in the fourth quarter and 180 million for the full year full year earnings were 10 million lower than 2018 as favorable investment capital results did not repeat.
In the fourth quarter, we realized exceptional performance fees related to our mortgage investment fund. These fees reflect the excellent investment returns that we delivered to our clients.
For the full year, we drove strong fee revenue growth from institutional net inflows, which also produced higher AUM.
Retail fee revenue was higher in the second half of 2019 helped by improved retail flows in continuing favorable equity markets.
Our fourth quarter, adjusted operating margin, including investment capital improved to 29.9%.
The operating margin was 26.6% on a trailing 12 month basis.
Turning to flows are diverse platform of investment capabilities and continued exceptional fixed income investment performance drove solid net inflows in 2019.
This included 520 million of institutional net inflows in the fourth quarter.
For the full year, we had almost 3 billion of institutional net inflows representing organic growth of over 3%.
We expanded our suite of specialty investment capabilities in 2019, including launching our first commercial mortgage loan debt fund in the fourth quarter.
In 2020, we expect to add more specialty products, including infrastructure debt funds and private equity.
Retail flows improved in the second half of 2019.
The improvement was driven by momentum in our core fixed income strategies, including our strategic income opportunity fund.
This fund was added to several broker dealer platforms, helping to expand the fund from 1 billion at the start of 2019 to nearly 3 billion by year end.
Our securitize credit fund AUM reached 1 billion early this year a positive milestone for future success.
Looking ahead, we expect first quarter to include the sale of our sub advised real estate funds.
The managed assets, leaving investment management through this sale are approximately 1 billion, which will be reflected as other in our asset roll forward.
The associated lost revenue is approximately two to 3 million.
We remain committed to achieving a 30% to 32% operating margin by the end of 2021, despite a reduction of assets under management upon close of the life transaction.
Our continued strong investment performance is driving our robust 2020 commercial pipeline. This gives us confidence in our cheating our organic net flows growth target of 2% to 4%.
Turning to slide 10.
2019 was another record earnings year for employee benefits delivering 55 million of adjusted operating earnings in the fourth quarter and full year earnings of 199 million excluding unlocking.
Full year return on capital improved to 31% up from 28.2% in 2018.
Adjusted operating earnings grew over 20% in 2019 supported by 10% growth in total enforce premiums, which surpassed $2 billion for the first time during the year.
We saw strong growth in inforce premiums across all product lines over the year.
Voluntary grew 25%, reflecting our success in growing market share in an expanding market.
The continued growth in high deductible health plans remains a significant tailwind for the business. We expect this product line. The remain a strong growth driver as we continue to leverage our expertise and distribution relationships.
Stop loss grew 7%, while improving margins, we maintained our pricing discipline through the January sales and renewal season, we saw a rational competition on both new and renewal opportunities leading to our continued confidence in stop loss results in 2020.
Additionally group life and disability grew 8%.
We had an outstanding underwriting year with a total aggregate loss ratio of 70.2% for the full year 230 basis points lower than 2018.
Group life loss ratios were below our target range of 77% to 80%.
We expect experienced to normalize to within our target range. In 2020. We also remind you that we typically experienced seasonally higher group loss ratios in the first quarter.
Loss ratios for stop loss were within our expected target range of 77% to 80% we remain confident that experience will be within expectations.
Voluntary experience was favorable.
Previously we have communicated in aggregate loss ratio target range of 71% to 74%.
Driven by the rapid growth in voluntary which has a lower loss ratio than our other product lines. We now expect an improved aggregate loss ratio target range of 70% to 73%.
Given the exceptional growth in 2019, and our expectations for 2020 and 2021, we are raising employee benefits adjusted operating earnings CAGR target from 7% to 10% to 11% to 14%.
On slide 11, we provide items to consider for the first quarter of 2020.
In the first quarter share repurchases will have a positive impact on EPS. We also do not anticipate the retirement legal accrual to recur in the first quarter.
There are three offsetting items to consider.
First admin expenses are expected to be seasonally higher primarily due to payroll taxes that restart with the calendar year, though normal seasonality will be partially offset by cost savings.
Second favorable fourth quarter employee benefits loss ratios are expected to normalize to the midpoint of our updated aggregate loss ratio range of 70% to 73% and third strong fourth quarter investment management performance fees are not expected to repeat in the first quarter as discussed earlier.
While we have provided some items to consider there will of course be other factors that affect first quarter results, including share repurchases business growth and market impacts.
Turning to slide 12, we continue to have a strong capital position.
Our estimated RBC ratio was 489% at the end of 2019 above our target of 400% and excess capital was $896 million.
Our excess capital increased significantly from the third quarter as a result of strong earnings completion of the previously announced reserve financing transaction and some one time capital optimization initiatives.
Our debt to capital ratio was slightly higher than our 30% target due to the reduction in book value related to the individual life sale.
In December we entered into a 200 million dollar ANSR of which $160 million was completed in the quarter full year share repurchases were $1.1 billion.
Our remaining share repurchase authorization stands at 650 million.
We expect to deploy at least another $1 billion into share repurchases Ratably in 2020.
Upon completion, we will have returned over $7 billion to our shareholders over seven years.
Finally, we paid a fourth quarter common stock dividend of 15 cents per share representing an annual yield of approximately 1%.
The dividend reflects our confidence in our ability to generate sustainable free cash flow and augment our extensive capital returned to shareholders through buybacks.
Turning to slide 13.
Our deferred tax assets remain a key source of value.
The individual life sale had a minimal impact on our net DTA position.
The net present value of the deferred tax assets is 1.2 billion as of December 30, Onest and nearly $9 per share.
Separately, we expect our effective tax rate to fall in a range of 15% to 18%. This.
This is lower than the previous 16 to 19 range, reflecting a largely unchanged dividend received deduction applied to lower pretax earnings projected post sale of the individual life business.
More broadly we now expect to use 40% to 50% of our DTA within the next five years and we also expect to pay essentially no net cash taxes for the next five to seven years.
In summary.
Our value enhancing individual life sale completes the fundamental restructuring of oil we have purposely evolved to enable a clear focus on our high growth high return capital light businesses.
We expect to achieve quarterly EPS of $1.80 to $1.90 by the end of 2021.
This represents 10% plus growth from the 2018 based that included life earnings.
Post close our long term earnings growth trajectory is expected to improve and our free cash flow conversion should be at the high end of our 85% to 95% guidance and our strong capital position and balance sheet puts us on a clear trajectory to returned at least $7 billion to shareholders.
By the end of 2020.
With that I will turn the call back to the operator, so that we can take your questions.
Thank you we will now begin the question and answer session to ask a question. Please press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the star keys to withdraw your question. Please press star channels. As a reminder, participants are limited to one question and one follow up.
Our first question is coming from Ryan Krueger of KBW. Please go ahead.
Hi, Thanks, good morning.
To provide some perspective on how quickly you expect like stranded cost to dissipate following the close of the sale.
Hey, Ryan this is Mike I'll take that.
At close the first thing to keep in mind is that we'll have transition service fees to offset a meaningful portion of what we've identified right now is stranded costs. So so right out of the gate, you'll see a change there and what we report.
We have.
We have some work to do get to determine the exact pacing by which we're going to remove the stranded costs, but I think it will maybe the best way to think about as there will be fully addressed by the time, we exit 2021.
The exact pace and timing of that is to be determined I would.
Look we just announced that we've completely eliminated the stranded costs from the annuity transaction.
We've got the right kind of discipline in place to do it.
As Rod said in his comments this significantly simplifies our organization, we remove five legal entities, we remove a number of administrative systems.
It will I think it's not going to be easy, but we are experienced and ready and we'll be able to address that fully.
Thanks, and then on investment management institutional rate came down from one quarter can you provide more details on that as well as your expectations for fee rate in investment manager sale broadly for.
Okay.
The standard Sydney Good morning, Ryan Yes.
I think about the the fee rate on the institutional assets instantly the basis points indices that we learn is one health indicator of the business that we track, but also as as we think about a basis point also down equal margin. So what do I mean by that is certainly some of the large.
Sure scale mandates that we win tend to be lower fees for the size that we're very disciplined in thinking about the margin because this can be quite accretive because we haven't very scalable business, notably in fixed income, but let me just pivot very quickly to the fourth quarter for you and talk a lot.
Little bit about how we see 2020 unfolding so.
In the fourth quarter, we did have a larger deviation of the basis points earns between inflows versus outflows. So outflows were 10 basis points approximately higher than inflows and that was largely driven by a redemption in what we call see MLB offer an insurance company that was.
It's related to a change in ownership and so you saw the very strong performances in the leveraged version of that mortgage investment hedge fund. So it's a capacity constrained asset and so that's sort of a onetime thing.
And we should be able to replace those assets over time. So so that was a lot of but what's driving the fourth quarter now how are we looking at that what we can see right now and in 2020.
We are launching a couple of higher margin products in 2020 examples would be in for debt infrastructure debt fund as well as kimono 10.
We're going to be back in the market and you might see a first close there is as early as June is 2020, but certainly in the back half of the year and again those are higher basis points, but one thing that we're seeing now we have a very strong pipeline in 2020, and we do have some unfunded and some finals ensign pretty more.
Gail product. So you may see that basis point dynamic you know persists through the first half of 2020, however, that's going to be associated with commensurate volume and we'll be very margin accretive. So again, we're on pace to hit our investment at Investor day target margin and 30% to 32%.
As a very strong pipeline and confident.
That we're going to continue that that strong organic growth of 2% to 4%.
Thank you.
Thank you. My next question is coming from Humphrey Lee of Dowling and partners. Please go ahead.
Good morning, and thank you for taking my questions just to stay on investment management looking back of the past couple of corners, you have the benefit from the sub advisor replacement in your flows.
Even though I know these replacement can be episodic I was just wondering can you give a sense in terms of the portion of the sub advised us that could be in play, meaning you you'd have comparable products with performance in line with count the existing sub advised product.
Okay.
I'm free Christine will take that also sure Humphrey as he said really to sub advisory replacements are episodic.
Our our related to strong performance on investment management products that we had but really it's in the mutual fund board that overseas the full variables portfolio product that outlets for these opportunities and that recommends where they think there are underperforming managers.
At that needs to be replaced so so that being said again its episodic when you think about.
Our growth in we're relying on our organic institutional and retail flows to hit that 2% to 4% margin up so not relying on sub advisory replacements in our pipeline or or let we see so again, it's really the organic growth that we have notably another point liver.
Getting really strong momentum. That's also will go back to building our basis points is really on retail and so if you take a take a look at the trajectory of our retail flows Institute.
The investment management retail flows very strong for the second half of the year and we see a good strong start to the first half of the are there.
Thank you for the color and then shifting gear back to the the strength of costs and I. Appreciate the Mike's comment about how the TSC and the assays will come in immediately after the deal close to provide some level of offsets, but I was wondering if you'd be able to size the than on the the impact from the team sales.
Anthony that that would kick in.
Umbria, it's too early for us to be able to do that we actually are still in the midst of negotiating exactly what the scope and breadth of those services will be and consequently, we don't have any ability to talk about.
The level.
So for the thing I would add.
Having just completed in fact, we did it a quarter early the venerable transaction in terms of the TSA piece.
We have a absolutely terrific blueprint and a team that just did a very complicated transaction.
That is transitioning to this that finishes again the transformation.
Of Voya. So we will report as we did with the Venerable transaction.
As we go further in these discussions we're targeting a third quarter close.
Very encouraged about.
The partner and the cooperation and the early stages, but as Mike said, it's simply too early at this point.
Got it.
I appreciate the color and I don't disagree with you about your ability to execute in terms of eliminate the strong stranded costs. So collect thanks. Thank you.
Thank you. My next question is coming from Tom Gallagher of Evercore ISI. Please go ahead.
Good morning, just just a quick one on the dollar 80 to $1.90 guide for Q 21 can you quantify the level of performance fees in asset management that are embedded in that estimate.
Whether it's in an average of what you've been getting or high <unk>, how should we think about that.
Hey, Tom This is Mike I'll start I look I think it's still a little early for us to be giving that kind of specific guidance I think it'll it'll be a meaningful part of the the growth picture that we report for I am.
The those that growth was something that we anticipated at Investor day.
And so it's been part of the story all along.
And part of what fuels, our overall expectation of the CAGR of 5% to 8% that we talked about from 2018 to 2021.
I think the ramp that we're looking at to go from our current earnings level to the dollar 80 to $1.90.
Is going to be fueled by that as well as growth in retirement, we've talked about the flows there the continued growth and employee benefits.
Oh charged by our cost saves and by the share repurchases that will come from the capital management that we've got coming so there'll be a number of factors driving the growth to get us to that dollar 80 to $1.90. Some I would just add to what Mike said.
As you heard on the call just now we guided up.
In employee benefits, we've guided up when we announced the life transaction, our OE, including the DTA.
And we release more capital earlier as a result of the transaction or will be upon closing than we anticipated. So.
I'm really excited about the physician this puts voya in.
At this point in our ability to execute this over the over the 2020 and 2021 year and again as you heard and frankly, just summarized the dollar 80 to $1.90 includes.
The baseline that started with the life insurance business. So the 10 plus percent earnings growth.
Yeah.
Thats gone away. This growth is inclusive of that over this this glide path in 20, and 21 again that were highly confident in our ability to execute on.
Thanks, Thanks for that Rod I guess the.
Just just as a follow up I just wanted to it and I asked that specific question because I know it was a good quarter for performance fees.
This past quarter. So I wanted to see are you, assuming you're going to build on that or or that it's something more more normal just from a.
On a higher level standpoint, Tom I I may have I may not have quite fully gotten the just to your question. We don't build in any meaningful performance fees. There so to the extent that we have.
Strong performance like we had last year.
Then that would be gravy that would be in addition to what we're talking about.
Got it yeah that I just wanted to make sure that okay. That's okay. That's helpful. And then just a quick follow up EQT, Mike I heard your comment on excess capital.
Yeah that that came in a surprisingly strong.
The and you had mentioned I think it was who's a 200 million was freed up from the securitization or the life block.
And then the you also mentioned some capital optimization strategies can you elaborate a bit more on what went on there.
Yeah, I think the way to think about the growth was there was.
Just a little more than 200 million from the reserve financing.
There was roughly a 100 million anon nonlife dividends that drove that that's not that's not counted in excess capital until we actually dividended up from the non life companies. There was a meaningful portion that was just ongoing earnings and then the balance was a couple of initiatives.
I think the way to think about that is anytime you're doing a transaction it generates the creative juices and ways to think about structuring your organization, how you can stack entities.
A cut gives you an opportunity to rethink some of your strategies.
Brought more broadly and how your funding benefits and so on so I think those are both onetime in nature.
But I think it's consistent with our ongoing focus on on optimizing capital I think we've we've consistently found over the years opportunities to to make the company more efficient that was I think been been shown very clearly in our growth in our OE over though over the last to sell.
One years, where were now reporting in our OE, including the DTA of north of 14%. So I think we feel good about that.
We will continue to look for future opportunities.
And I, while I don't have any on the front burner I can't say that there won't be some so we'll continue to try and harvest those as best we can.
Okay. Thanks.
Thank you. Our next question is coming from and you think our man of Credit Suisse. Please go ahead.
Hey, good morning, so following up on capital.
896 million in excess.
Check coming in third quarter, and 1.5 billion and the ability to return, 85% to 95% of free cash flow.
And talking about it still even plus.
Purchases this year, so could you give us sense.
What the plus part of the billion has potential to be.
Andrew I look I think we've got a track record that is.
Second to none in terms of our focus in delivering value to shareholders and our willingness to pull the trigger on share repurchases site.
They were incredibly enviable position right now we've got enormous flexibility.
We've got to a transaction in the balance sheet coming coming that we're going to need to get into the place that we want to be in so that we have a best possible.
It's possible position to go forward.
So I think the numbers you you shared our.
Absolutely right on right on the right on.
And so it creates a meaningful upside so we'll continue to use the same discipline. We have in the past I think we'll see how events unfold obviously there's.
There's a lot going on in the world right now and so we're going to we're going to be judicious and prudent but also very focused on delivering shareholder value.
And as you point out.
Upon closing the transaction is when those funds are available. So we've got to a couple of quarters to.
Observe exactly what Mike as just outlined and again I just.
Understood just state again 7 billion in seven years pretty significant number.
And I love the position that Voya isn't as big as the close of this transaction in the choices and options we have to continue invest in our business.
And to continue to return capital shareholders of in the best interest of the aggregate stakeholders.
Yeah.
Great and then shifting over to the employee benefits segment, so that had terrific.
It's ratio of 7.2, and Anthony you said on the call that you're going to take that benefit ratios guidance to an improvement to 70% to 73% now can you elaborated on the stop loss and how competition seems very rational going forward.
Could you talk.
About the group lights in disability area in terms of pricing and then also.
Voluntary benefits I mean, both of those areas to has been incredibly strong and I'm wondering how long it can pursuits.
Rob will take that Andrew.
Andrew Thanks, a question on that.
This is Mike underscored resetting the range from a aggregate view and as we think about that it's not only influenced by what we saw in stop loss, how we see the voluntary benefit business in that mix growing.
We've talked consistently about the life business.
As being a bit more sort of study and flat, but an important part of the business still.
I'd say overall from a pricing perspective, and just rationality in the marketplace.
It's disciplined.
We're not seeing dramatic sort of year over year shifts and competitive in us and while the you know the player may change here or there are new player emerge here or there those are dynamics that I think across all of way as businesses, where we're used to adapting to adjusting to in finding our way forward, but from a growth prospect.
Of stop loss, we did a lot of work to get the margin where it is today, we'll continue to be disciplined about stretch striking that balance from growth and margin as we move forward voluntary have certainly been performing very well.
Spec back to continue but potentially moderate and from a life perspective, certainly very happy where the results came in.
You can look back over the last couple of years, though quarter to quarter, you're just youre going to have noise, there and that'll be lumpy at times, but.
But we've done a lot of work on our renewal approach with the life business as well as the stop loss business and feel like we're really position well to maintain map margin and again ultimately feed into what might reset instead of talking about 7% to 10% growth over the Investor day Horizon here over the next couple of years, we're talking about.
Got 11 to 14 and all these products got to operate well to get there.
Thank you. Our next question is coming from Suneet Kamath of Citi. Please go ahead.
Thanks, Good morning.
On the cost savings I just wanted to make sure. We're tracking this correctly so you're on track to realize the at least the 250 million of run rate cost savings by the end of 20 <unk>.
And then you have the stranded overhead takeout assisting with the like deal are those two sort of distinct buckets of expenses or is there some overlap between the two.
Okay.
Sunita there is a degree of overlap to the extent, we're able to meaningfully outperformed the 250 plus right. So that will be part of the way we solve some of the stranded costs, but there will be additional savings that will need to generate beyond what we had contemplated from the original from the original guidance, we have not yet.
Quantified that we're as I said earlier, we have worked to do in terms of how we're going to go about that we have.
Sales and other things to work out that will affect our ability to remove those costs. So.
Stay tuned, but we'll we'll certainly give very clear guidance or the clear as clear as we can in terms of what our expectations are as those plans come together with city. This rod.
Well, we're really guiding to is the landing spot and and again Thats. The dollar 80 to $1.90 bps at the end of 21.
Good.
There are too complex transactions, we've just finished.
The venerable transaction in the assets USA, we're taking that blueprint, you're asking a precisely correct question on there will be cost associated with that we will see us a pace. We're really trying to do is give you the glide path to where we end in 21 and Thats back to the dollar NT dollar.
Were 90 with a life insurance out but off the base that included the life insurers.
And significantly simplified organization significantly reduced credit risk.
And none of the tail liabilities associated with those forward businesses.
Got it makes sense and then just going back to the retirement growth outlook.
Seems like maybe the disclosure changed a little bit versus last quarter I think maybe a change the time period from 2019 to 2021 to 2018 to 2020 ones I'm not sure if that had an impact but you also talked about moving the pension costs outside of retirement into corporate so I guess I'd I just wanted to.
Try to unpack that a little bit and just get a sense of is the lower growth rate that you're expecting from four to seven to 1.1 to four is that really just all interest rates or is there anything else going on in there that we need to understand.
But suneet at the short answer is it really is just the interest rate environment.
There've been some other gives and takes I think we've been happy with the level of underlying organic growth regenerating retirement.
But as we as we said in our disclosure of back last over the course of last year.
The the interest rate impact.
In 2019 of 100 basis point drop was about 2% of earnings for voice on total it's about the same impact for retirement, it's actually now a little bit more than 100 basis point drop.
From Investor day at least at last look and so so the idea here is to say if interest rates stay mainly where they are.
Then we'll have additional pressure that would take away four percents at the end of that period and you kind of look at the one before.
Going from four to seven.
Q1 to four is basically entirely in line with about a 4% drag and moving the pension costs look.
There is a shift of the baseline year at 2018 included some benefit from net pension costs that were not giving back now that.
It's the market conditions of change so we're keeping that in corporate to make it easier to understand the ongoing run rate of the various of the business segments.
But thats a little bit of of extra headwind in the growth to think about it's probably worth the percent of the CAGR.
And effects all of the business yes.
But refiners retirement, the lion's share to be sure and do you have a total pension costs that you expect for 2020, I think you said something about $20 million reduction, but with about a 20 million dollar improvement over last year and pension costs that will come through corporate.
Right and that the total pension costs do you have that number.
Its that then that's the net so that's basically the net pension costs, which is service costs.
And interest costs less the returns that come from the portfolio and and keep in mind that the way. The pension cost works is it's all marked to to the point in time as of 12, 30, 119, and so as as assets fluctuate.
Throughout the year it doesn't change right. So we happen to catch a pretty high mark whereas.
Last year, we cut a fairly low mark right.
Got it okay. Thanks.
Thank you. Our next question is coming from Erik bass of Autonomous Research. Please go ahead.
Hi, Thank you want to go back to the investment management business as it sounds like there'll be a few moving pieces in the earnings in 2020 with I think that real estate sale and then the lost at U.M. with the life sale.
Can you just help us think about the earnings power for the business in 2020, and then how the margin will ramp over time.
Hi, Eric I'll start and then I'll, let christine fill in but it's so the impact of the sale of the real estate is two to 3 million spread over the that's an annual impact so spread over the whole year I mean, that's pretty absorbable.
From a life.
Transaction standpoint that.
Let's say closes in the third quarter.
To some extent depend on when you first quarter.
But the amount of assets that are leaving initially is actually quite small we have not yet quantified.
The the earnings impact because we have a little bit more negotiation to do it will depend on which assets transfer.
The fee rates do vary depending on.
Which assets go go too.
Go to resolution and which ones, we keep and manage but.
You should think of it and it's certainly for the balance of 2020 it'll be in the single digit millions, it's not going to be a particularly large number partly.
If for no. Other reason that it's just going to be for no more than six months.
And it could be three four or five.
Got it so it's building to that 10 to 15 million overtime, but that's more of a drag in 2021, yeah that'll be that'll be that 2021 drag and we'll give more specificity as we as we narrowed down the the exact terms of which assets are moving.
Got it Okay, and then maybe for retirement.
You mentioned, obviously you had to large record keeping keeping when in the fourth quarter on and then a couple of losses can you just provide an update on competitive dynamics and it sounds like your outlook for flows is still pretty robust, but any additional color you can provide on the pipeline there.
Really.
Sure. Thank you.
We are on track for our net 38 billion and half million participants actually that we spoke about last year, we had a couple of known.
Terminations that were accelerated on a couple of M&A. So these work some clients that were acquired and they just merged their plan into their acquired one we actually have some M&A is where we actually are winning from our existing clients that will benefit us in the first half of 2020.
What we were trying to align to in terms of guidance for 2020 in record keeping is an additional or it is the 26 billion.
In net flows to be achieved in 2020, largely coming by the fourth quarter, it'll kind of emerged through the year, but largely in the fourth quarter and I would note that that will come with what we expect as well about 350000 additional participants which was on top of if you look at our total growth of full service and.
Record keeping in 2019, we added nearly a half a million participants at 470000 net new participants in our retirement business. In 2019. So that was very strong growth we feel very good about our pipeline in both the record keeping in our full service business.
Both the corporate and tax exempt.
I think as I've said, we've got about 20% more plans in the process of implementation today than what we had on 930. So at the end of the last of third quarter. So really good continued momentum and look forward to kind of building on that in 2020.
Thank you and I guess, just one follow up on terms of our their costs associated with the Onboarding those assets coming in that will be sort of weighted more in the beginning of the year and then you'll obviously get the revenues as the assets come in.
So.
The cost Onboarding it does differ a bit between record keeping and the full service. So I would say generally there is implementation cost as we look at onboarding the larger plants, but that a lot of that work was underway in 2019, and I think that was some of the things that we got.
Good to last year, our investments in growth and the development in the Onboarding of our new business just that the growth that we had both in full service and record keeping in 2019.
With our continued momentum we would expect to continue to see that but I'd also note that our expenses in 2020 will be lower than in 2019 in that arrange that might guided to and that we expect to see continued unit cost improvements as we get the benefits of all of our excess.
In saves realized in retirement, so we're looking at really having our expenses actually be a contributor to our earnings growth in 2020.
Thank you.
Thank you were showing time for one last question today, our last question will be coming from Alex Scott of Goldman Sachs. Please go ahead.
Yeah first question I had was just on the passion and secure act and if there any initiatives you have underway, whether it's the multi employer pools or or anything else, we should consider and if there's any way had how we can think about a tailwind that that can provide too.
Flows.
Charlie.
Yes. Thank you.
Certainly that we're very pleased with the passage of the secure act I think it advances as we've said coverage.
The inclusion of lifetime income or annuities and retirement plans and certainly facilitates some additional savings.
I would note that the passage of the secure act a lot of those print provisions become effective over the next number of years. They weren't all effective on kind of the signing date, if you will and many of those provisions actually require individual plan sponsors ever in our employers to adopt them to take advantage of them.
Yes.
If you will thus I think we expect the impact to the business really to emerge over time.
So we are excited about the secure act.
Passage I it is going to help in advanced coverage you know that we are we have the capabilities and we have a number of multiple employer plans today.
And as I've mentioned in previous calls so we think we're well poised for that but we also are pleased that it does advance the coverage and focus on savings rates that will be helpful to us which are two central tenants I think of where boy is focused on.
Got it.
Just a follow up question that's unrelated.
I think around the time you did this CBVA transaction.
On the other side of it I think some of the assets that you ended up retaining.
There were part of the net investment income going forward, we're a little bit higher yielding.
And in that benefited the.
The overall yield you're.
Cheating yeah is that something that we should contemplate here with the resolution deal I mean.
Once you finalize the decisions around what assets are going there could we see.
Shifts here, there that that could benefit the yield or hurt the yield.
Anything to consider.
Yes. Thank you you certainly characterize the impact of the annuities transaction appropriately there there was a bit about a lift in yield for the ongoing businesses.
Oh post to post close and it was it was due to exactly that.
The residual assets that we kept.
Too early to say for the new for this transaction.
It's a different buyer with a different attitude toward.
These kind of things and so we'll we'll.
Well, certainly post to you and others as as the negotiations unfold, but I don't have.
As possible.
Too early to feel confident in any of that.
One thing I'd add is as you may recall, we are one of the preferred providers in.
In asset management for Venerable.
One of the reasons they had lots of ambitions to get off of the TSA as fast as they could is they have ambitions of adding other blocks of business and other books of business through their platform and in doing so we'll have an opportunity to participate in that growth.
So again stay tuned on that but we're excited about what that opportunity is and again as we've got to know each other more closely over the last few years I think they've come to appreciate the particular capabilities. The christine's teams has in how we're managing the assets that they've selected.
Got it thanks.
Thank you.
Gives me. This concludes our question and answer session I would like to turn the conference back over to Rod Martin for closing comments.
Thank you.
Our plans.
To continue to drive organic growth.
Effectively deploy capital and to achieve cost savings are delivering results in 2019, we demonstrated our ability to accomplish the targets that we have set well further transforming our company.
The sale of our individual life business accelerates, our plans to generate free cash flow from the business reduces risks and March the completion of a fundamental restructuring of oil.
We have a clear strategy with high growth high return capital light businesses.
Our focused and complimentary business mix service to expand our presence in the workplace and with institutional clients.
It's also creating a greater opportunity for investors, enabling us to continue growing EPS by at least 10% while doing so with high free cash flow conversion.
We're excited.
About 2020 and beyond we look forward to further updating you on our progress as we continue to drive greater value for all of our stakeholders and pursue or vision to be America's retirement company.
Thank you and good day.
Okay.
Thank you. The conference has concluded. Thank you for attending today's presentation you may now disconnect.
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