Q1 2020 Earnings Call

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Good morning, welcome to the Voya Financial's first quarter 2020 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star followed key excuse me pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask question.

Asked the question you May Press Star then one on your Touchtone phone to withdraw your question Press Star too.

I spent a limit it to one question and one follow up. Please note. This event is being recorded I would now let's turn the conference over to Michael catch the senior Vice President of Investor Relations. Please go ahead.

Thank you and good morning, welcome to Voya Financial's first quarter 2020 earnings conference call.

We appreciate all of you who have joined US for this call as a reminder, materials for today's call or available on our web site at investors Dot border 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. This includes potential impacts related to cope with 19.

Refer you to the slide for more information.

We want to 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 stuck with dot com.

Joining me on the call or Rod Martin Voya financials, Chairman and Chief Executive Officer, as well as Mike Smith, who is chief financial Officer.

After their prepared remarks, we will take your questions.

For the acuity session. We have also invited the heads of her businesses, specifically, Charlie Nelson retirement, Kristine hurt sellers investment management, 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 <unk>.

Well once the many challenges related to cope with 19.

Oh boy or incredibly grateful to all who are working on the front lines to address this global been Doug.

As we navigate this crisis the safety of our employees their families and our customers remains our top priority.

I am extremely proud of our 6000 employees and the dedication and commitment that they have shown for our advisors and customers.

We have quickly pivoted to having more than 95% of more employees working remotely.

And we're seeing great Brazilians among our teams.

This would not have been possible without the significant dedication of our employees to support that we.

We have in his several benefits, including fully covering cobot 19 medical testing.

Providing care coordinators to assist employers who are carrying for someone with cope with Nike.

When we do return to our offices, we will do so bought pulling.

And gradually and we will continue to make decisions.

Based on the best interest of our people.

We're also taking actions to address our customer needs. As we showed last month. We were the first major retirement plan for bother to waive fees in response to the carriers that.

Oh for customers and all Americans manage through this difficult time.

We did this just four days after the economic relief package was implemented.

Specifically, we are crediting hardship distribution and loan initiation fees associated with cobot 19 related distributions in total we expect to credit back approximately $10 million to $20 million, who are participants through September 32000.

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We are proud to serve many customers and clients who are directly serving others. During this time and we're incredibly grateful to all or working on the front lines.

We're also supporting our broader communities, including but not limited to providing all Americans with free online resources and hold access to our financial advisors.

And through our partnership with the Medicare's, we're supporting the shipment of more than 23 pounds of personal protective equipment to partners across the United States.

Oh Good night team has of course had important effect on our business.

And Mike will update you shortly on the impact to our financial results and outlook.

While this situation will continue to evolve we are confident in our voices position.

The team that we had to navigate through it we will get through this together.

Let's move to slide five and our key themes.

We entered the first quarter it a position of strength as a result of the purposeful strategic decisions, we've made to simplify our company and streamline our business.

On a normalized basis, our first quarter, if U.S. was $1.10, representing a 26% increasing adjusted operating earnings per share year over year.

Our earnings growth was driven by success in our employee benefits business and our consistent return of capital to our shareholders.

We saw strong results during the quarter, including March and we continue to see demand for our products and services given the compelling value proposition that we provide for workplace and institutional clients.

In retirement full service recurring deposits increased 10.6% compared to the trailing 12 months ended March 30, Onest 2090.

And investment management, we generated $2.2 billion in positive net flows.

And in employee benefits, we saw another quarter of record earnings.

Additionally, in force premiums grew 5% year over year.

We continue to deliver on the cost savings that we previously announced we remain on track to achieve run rate cost savings of at least $250 million by the end of 2020.

We also remain on track to complete the sale of our individual life and legacy annuity businesses.

We continue to make great progress with resolution like and all regulators and expect to close the sale by September 32020.

Finally, our balance sheet and capital position remains strong.

We had approximately $612 million of excess capital as of March 31st we accelerated return of capital to our shareholders by repurchasing $406 million of our common stock during the first quarter.

In total we repurchased $1.3 billion of shares during the past 12 months, we also maintained or dividend at 15 cents a share for the second quarter.

Moving forward, we will continue to display prudent capital management.

During the past year end of quarter, we have demonstrated our ability to increase Cps and improved value for all of our stakeholders.

And we will continue to execute on what we can control. This includes achieving our targeted cost savings completing the individual lifes sale and maintaining our proactive dialogue and engagement with clients.

These actions.

Combined with our strong balance sheet and lower risk business profile position us well for these uncertain times.

Turning to slide six.

During the quarter.

Boy It was named as one of the world's most ethical companies for the seventh consecutive year.

Oil was one of 132 companies to be recognized and one of only five companies in the financial services category.

This older and others like it reflects our culture and the character of our brand.

I am confident that boy it will stand apart in our industry both for our commitment to doing the right thing and because of our strong business profile.

The proactive attitude and commitment of our management team remains as fully in force as it has been in the past.

With that let me ask Mike to provide more details on our performance and results.

Thank you Rob.

Before we get to the numbers I want to Echo what Rob mentioned earlier about our recent efforts here of oil.

I'm very proud of how our employees have adapted to this new environment and continue to serve our advisors and customers.

Because of these successful efforts, we remain confident in our ability to withstand this challenge.

Now, let's turn to our financial results on slide eight.

We delivered normalized after tax adjusted operating earnings of one dollar and 10 cents per share in the first quarter 2020.

This excludes four cents, a prepayment and alternative income above our long term expectations. This relates to favorable fourth quarter equity market performance.

Nine cents of unfavorable DAC voba and other intangibles unlocking and 21 cents of stranded costs associated with individual life and other close blocks.

As a reminder, we will continue to normalize for these costs until the transaction closes which is expected by September thirtyth of this year.

On a reported basis adjusted operating earnings were 83 cents per share for the quarter.

Our first quarter GAAP net loss was affected by two items. The first item related to hedging results for our stable value block in retirement.

Our stable value hedges are constructed to balance protection of GAAP net income with preservation of statutory capital for these products GAAP income is much more sensitive to interest rate and credit spread movements.

Moving rates in credit spreads during the quarter generated a GAAP loss. However results had a favorable impact on statutory income, which increased our excess capital.

The second item is related to our regular quarterly update to the estimated loss on sale associated with our individual life transaction.

We refined our allocation of proceeds between the legal entities to be sold and the reinsured portion.

We continue to expect a significant gain from the reinsurance component when it is booked at close and that the ultimate GAAP loss on sale for the overall transaction will be in a range of 250 to 750 million.

Under today's rate and spread environment, we expect to be on the lower end of that range.

Importantly, our expected proceeds at closing have not changed.

As a reminder, and consistent with prior periods GAAP net income includes individual life earnings as a discontinued operation individual life experience and favorable mortality this quarter driven by frequency and severity.

We had a strong first quarter 2020 operating results driven by favorable employee benefits results and the consistent use of excess capital to repurchase shares.

Moving to slide nine retirement delivered 140 million of adjusted operating earnings in the first quarter, excluding unlocking and trailing 12 month return on capital was 13.6%.

In the quarter, we had 16 million the unfavorable DAC unlocking largely reflecting lower equity markets at the end of the corridor.

First quarter adjusted operating earnings excluding unlocking were higher year over year.

Higher fee income reflects the impact on full service am from higher average equity markets year over year and ongoing success with winning new clients, including record keeping.

Offsetting higher fee income was lower investment margin, which was affected by lower interest rates.

Administrative expenses were higher due to a reallocation of certain expenses from corporate to retirement and higher volume related costs related to announced plan wins.

We previously guided administrative expense for the first quarter and full year 2020 to be in the range of 205 to 215 million and 800 to 820 million respectively.

Well first quarter expenses and that above our expected range, we expect to be at the upper end of our full year guidance.

Turning deposits inflows first quarter full service recurring deposits grew by 10.6% on a trailing 12 month basis.

Retirement generated positive full service net flows across both corporate and tax exempt markets totaling 329 million for the quarter.

Over the last 12 months, we have generated a 1.8 billion a full service net inflows.

Looking to the second quarter, we expect a tax exempt client outflow of approximately 700 million.

However, the majority of assets and this plan are in higher guaranteed interest rate accounts.

First quarter stable value net inflows were a record 2.6 billion largely driven by sales of new stable value mandates supported by participants increasing allocations of products that help preserve the value of their retirement savings.

We recorded 1.5 billion of record keeping net inflows in the quarter, representing part of the 26 billion. We had anticipated for 2020 as we guided to on our fourth quarter call.

However, we now expect this to be approximately 20 billion due to the impact of equity market declines on asset values recordkeeping fees are mostly driven by the number of plan participants which remains largely unchanged.

We entered the quarter with strong commercial momentum, which is continuing in the second quarter, where we expect more than 3 billion. A full service deposits, we have confidence that our diversified retirement business is well positioned to weather the current environment and is poised for long term success.

On Slide 10 investment management delivered 40 million of adjusted operating earnings in the first quarter. This was higher than first quarter 2019, due to more favorable investment capital results and increased fee revenue from higher average asset levels and continued client wins.

This was partially offset by higher expenses in the quarter first quarter 2019 benefited from a legal expense recovery that did not repeat in 2020.

Our first quarter adjusted operating margin was 23.9% including investment capital.

On a trailing 12 month basis this margin was 26.8%.

We continue to target a long run operating margin of 30% to 32%, although current macro conditions may make it difficult to achieve this target range by the end of 2021.

Turning to flows overall net inflows were 2.2 billion in the first quarter with inflows seen across strategies and distribution channels.

Our first quarter net flows included more than 3 billion of institutional net inflows in the quarter, where our organic growth was 5.3% on a trailing 12 month basis. This was primarily driven by fixed income mandates within our growing insurance and international channels. We also.

Close on our third Europeans yellow and saw a sizable stable value inflows.

Our retail net outflows were 900 million in the quarter.

Momentum in retail flows seen in the second half of 2019 carried into the start of this year January and February flows total of one of the strongest starts to year we've seen.

However, similar to industry trends outflows in March more than offset this as investors sought liquidity and safety from the volatile markets.

Our fixed income performance was tested by the dislocations, we experienced in credit markets. During the first quarter. However, our longer run performance remains strong 80% of our fixed income fund outperformed the benchmark on a five year basis, and 98% did so on a 10 year basis.

We remain confident in our ability to generate strong investment performance.

And we are encouraged by our commercial momentum in several areas. For example, we will benefit from a new 6 billion dollar insurance mandate that funded in April.

We recently launched our 10th private equity fund Pomona 10 for which we expect the first commitments to occur in the second half of 2020 as originally planned.

We expect kimono tend to be our largest capital raise so far at approximately 2 billion.

Also in the second half of the year the launch of our infrastructure debt fund will further diversify our private specialty investment capabilities.

We expect demand for these capabilities to increase as investors seek yield in a low interest rate environment.

We believe our diverse platform of investment capabilities and distribution channels as well as our track record in managing specialty strategies are differentiating factors for our investment management business that will drive our long term success.

Turning to slide 11 first quarter was another record for employee benefits delivering 61 million of adjusted operating earnings excluding unlocking.

This represents more than 60% growth over first quarter 2019 results, while return on capital expanded to 34.1% up from 28%.

First quarter results were driven by favorable underwriting results across all product lines. The total aggregate loss ratio was 69.1% and improvement of 320 basis points year over year.

This quarter's loss ratio result was favorable relative to our target range of 70% to 73%.

Annualized enforced premiums grew more than 5% over the same time period supported by strong growth in voluntary.

Stop loss enforce premium grew modestly as we maintain pricing discipline through the January sales and renewal season.

We're very pleased with employee benefits growth and financial results and we believe our long standing distribution partnerships and differentiated service capabilities will drive continued success in the long term.

On slide 12, we provide items to consider for the second quarter 2020.

In the second quarter, we expect seasonally higher first quarter administrative expenses to not repeat.

And preferred stock dividends to be lower.

Offsetting these favorable items are several factors, including first lower employee benefits results from loss ratios returning to our targeted range and an increase in claims and lower revenue due to covert 19.

Second lower spread revenues due to continued low interest rates.

Third a favorable investment income item that is not expected to recur in the second quarter.

Fourth lower sweep fee revenues in retirement this relates to brokerage accounts within our retail wealth management business that can earn short term interest rate linked fees on assets.

Fifth impact of fee revenues from lower average equity markets, assuming average to Q levels based on the actual trading in April and no market appreciation from the end of April.

Well, we have provided some items to consider there will of course, the other factors that affect second quarter results, including changes in our average share count business growth and the potential for additional Kobin 19 impacts that we have not specifically mentioned here.

Turning to slide 13, our earnings growth outlook as with others in the industry is affected by the uncertainties created by covert 19, such as the magnitude of claims changes to employment levels and the ultimate shade of a future economic recovery.

This uncertainty makes it very difficult to confidently provide medium and long term earnings growth guidance.

We will revisit our earnings growth guidance ranges, including our previously shared $1.80 cents to $1.90 cents EPS guidance for Fourq you 21.

As we gain improved visibility.

Well, we can say is that our previously shared earning sensitivities to equity markets and interest rates have largely held.

Regarding our equity markets sensitivity note that the four to 5 million pre tax impact applies to the change in daily average equity market levels.

As a consequence, the full effect of the decline in market seen in March will not be felt until the second quarter.

Based on the current rate environment, and consistent with our second quarter EPS walk, we expect lower spread income of approximately 4 million in the second quarter.

We also include a new interest rate sensitivity to adjust for the current rate environment.

This sensitivity applies to a parallel shift of interest rates and spreads where the impact is larger for the up rate shock given the impact on floating rate assets with floors.

Turning to business impacts from Cobot 19.

We expect a slowdown in sales across our three businesses as fewer opportunities will come to market. However, we should see some offset from higher retention.

Specific to retirement.

We expect to see pressure on recurring deposits due to lower contributions and reduced employer matching.

Within investment management net flows will be pressured to the extent investors continue to seek safety in cash and lower risk investments.

An employee benefits premiums will likely be reduced as a result of increased unemployment.

This effect is mitigated somewhat for 2020 by the fact that the majority of our enforce premium is driven by sales and renewals that become effective in January.

From a claims perspective, we estimate that 100000 cobot 19 related deaths in the U.S. would have an impact to employee benefits of approximately $25 million to $45 million.

This would primarily affect group life, although our estimate also reflects expected increased voluntary claims from cobot 19 related hospitalizations.

For individual life claims again, assuming 100000 overall U.S. cobot 19 related deaths, we expect an impact in the range of 10 to 30 million, though this would be seen only in net income with the rest of individual lifes financial results.

We will continue to assess our estimates of covert 19 impacts as data emerges surrounding the spread of the pandemic overall as well as the emergence of effective treatments and or vaccines.

Turning to slide 14, we provide more detail on our investment portfolio.

Our disciplined investment process is focused on balancing required capital and risk adjusted returns on investment team has decades of deep sector specific expertise.

Approximately 95% of our fixed maturity securities a rated any I see one or two.

On the left side of the slide we've provided a view of our portfolio as of the end the first quarter.

On the right side, we show a pro forma view after the life transaction closes.

Post close we maintain a highly rated fixed maturity portfolio with a reduced allocation to public corporates with corresponding increases in other asset classes.

We believe the pro forma portfolio present, a more balanced risk profile.

On slide 15, we've provided additional detail on securities held in our general account that may be particularly impacted by cobot 19 related stress.

With respect to the Coven 19 exposures approximately 12% of our investments are in the areas most directly impacted by the pandemic.

In the appendix we include more details on some of these exposures, but I wanted to highlight a few things.

First our energy holdings are 86% investment grade with two thirds of at private and over 40% in the less commodity price sensitive midstream sector.

Second.

Over 99% of our commercial mortgage loan or CML portfolio is rated cm, one or two.

The entire CML portfolio has a weighted average loan to value of 46%.

And debt service coverage ratio of 2.3 times, just 2% of the CML portfolio has exposure to hotels.

Third our C. L O exposure is 97% investment grade with an average credit enhancement of over 20%.

We've also provided the results of two stress test scenarios.

We view stress case, one as a moderate scenario and stress case too as a severe but not worst case scenario.

For the stress scenarios, we performed a detailed security by security analysis to determine the potential impact of ratings migration and credit impairments on required capital.

The analyses showed an impact to excess capital of 300 million and stress case, one and 600 million in stress case too.

Ratings migration accounts were over 75% of the capital impact in each case.

Stress case, one reflects downgrades of at least one any I see notch on more than 2 billion of the general account.

60% of the downgrades are to any I see three or below.

This level of downgrades represents nearly 70% of the historical peak downgrade experienced over the last two decades for an investment grade credit portfolio.

Dress case to reflects downgrades of at least one any IC notch on over 3.3 billion of the general account.

Nearly half of these downgrades are to any I C or below.

This level of downgrades is 15% higher than the historical peak downgrade experience in the last two decades for an investment grade credit portfolio.

Note that neither scenario incorporates possible benefits from any active management, we might undertake to mitigate these adverse effects.

Importantly, we believe the capital impacts from these stress scenarios are manageable, considering our current excess capital position future free cash flow and the expected proceeds from the close of the life insurance transaction.

Slide 16, we entered into the first quarter with a strong capital position and remain well positioned going forward.

Our estimated RBC ratio was 455% at the end of the first quarter.

Above our target of 400%.

And our excess capital was 612 million.

Our strong excess capital position enabled us to take advantage of the market dislocations in the quarter.

We completed over $400 million of share repurchases, taking advantage of our attractive valuation.

Given uncertainties with a broader credit environment, we paused share repurchases in March we continue to believe it is prudent to preserve some capital and we'll closely monitor developments through the second quarter.

We will continue to be good stewards of capital balancing opportunities to repurchase shares while maintaining a strong balance sheet.

That's a capital was 32.1% this is above our 30% target due to the greater estimated loss on sale this quarter.

However, the impact is temporary as it does not reflect the anticipated gain on reinsurance at transaction close or our planned utilization of a portion of the transaction proceeds to retire existing debt issuances.

We have no debt maturities upcoming in the next three years and have ample liquidity resources.

Finally, we have maintained our first quarter common stock dividend at 15 cents per share the dividend reflects confidence in our ability to generate sustainable free cash flow.

In summary.

We've been a market leader in serving all of our stakeholders. During this time and are proud of our employees for their resilience and adaptability.

While there will be cobot 19 related headwinds in meeting our growth targets, we believe our strong worksite and institutional franchises are poised to benefit over the long term.

We continue to have high confidence in our ability to close the individual life transaction by the end of the third quarter and.

And we have a strong excess capital position and we'll continue to exercise prudence and remain good stewards of capital.

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 you Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your hands suppression keys to withdraw your question. Please press Star Q as a reminder, participants I wanted to my question and one follow up.

Thank you. Our first question comes from Humphrey Lee with Dowling and partners. Please proceed with your question.

Good morning, and thanks for taking my question.

In terms of the business impacts that you cited in the time and pulling employee benefits on have you seen any kind of impact in terms of behavior change from plan sponsors all participants to date and then also how should we think about the premium growth awful employee benefits in the near term.

Hopefully good morning, as Rod I'll have Charlie starts and then handed the baton to to Rob on employee benefits Charlie.

Yeah, Good morning, Humphrey and thank you for the question.

In terms of behaviors, we've not seen significant a change in volumes year to date on hardships and loans in the month of April alone hardship. Some loans the volume the numbers are down pretty significantly, but the total asset number is up it is up and our record keeping.

Business, but basically flat in full service. So as you know on record keeping us more per participant. So the full service is the same and what do you might see there you know I think as you think about hardships along yeah, let's say, we saw a 25% increase in hardships and loan that would only equate to over what.

We previously you've seen about wanting a half percent, 1.6% in assets and so you got to kind of keep in perspective, it sounds like a big number hardships and long, but you know in terms of an impact on assets and interest in particular on full service assets, it's a much smaller percentage.

As you think about the yield the overall behavior, what we're seeing in the market. We have had as you saw a very strong first quarter in sales our recurring deposits in our net flows up 330, and the net flows on a record keeping and strong stable value fund sales as well, but when we look at April we have seen.

You don't fewer RF piece in the month of April versus April 2019, and those fewer our thieves are things that would materialize probably in the fourth quarter or first quarter of next year.

And yes, it's the same time, we've also been notified on more full service corporate wins in the month of April 2020 than we did in 2019 significantly more and so you know we look at these and these are wins that will likely fun more in the third or fourth quarter of this year. So we've seen him.

Employers and advisors. Please proceed with their RFP ease and making buying decisions and they were doing a lot of final, especially on patients bolt on our tax exempt in our corporate business through cinnamon and continuing to move forward with benefit design changes one of the more interesting ones in some ways you know Humphrey is if we.

Actually fall in the month of April 75% more startup for one case than we did last year in April so startup borrowing kb in an employer that never had a form 10-K before presumably smaller business. We saw 75% more in April than we did last year.

So I would say, though that we're not expecting our total deposit growth year over year to two to grow but we're also not seen any signs that it's kind of dry up either so that's I think you know the total deposit guide for the second quarter that Mike spoke about of roughly 3 billion plus for the second quarter in full service should be.

Fairly solid you know, we do expect the covance related business activities could be much less impactful I think in the 2020 earnings.

Versus the equity market and interest rate impacts. So you know I just wrap and say you know I think the brand is.

Shiny in Brighton were being recognized there's lots of market activity and you know, we're certainly believe that as benefits excuse me that will benefit us as advisors and employers.

I have a flight to quality I think they will certainly look you know in ER for certainty and their retirement provider and so uncertain times, so with that brought on maybe turn it back to you.

[noise], Rob, Yes, Hey, Humphrey this is Robert.

So on the first point from a employer standpoint.

Certainly part of.

What we've been watching closely is just the pace of things coming to market and then the peso decision, making and so at this point I think it sort of little early to declare too hard one way or another but sort of the initial things that we're seeing and it's been positive things are continuing to be decided upon.

As we think about not only sort of the sales that we already got in the door with a with a good one one activity as Mike It already alluded to.

We've continued to see decisions made throughout this time period and as we think about what we see in April we are actually sort of ahead of the pace of play that we would have expected.

Just given this environment and as a reminder, we focus in on that you know middle of the larger enter the marketplace and so.

Our ability to continue to both be interacting with brokers as well as the customer.

You know, we're not as reliant upon as some other firms might be on sort of the.

Face to face impact of that comes with their sales process again as Charlie said, we're we're all adapting to and finding new ways to stay in touch and stand today.

I would say sort of the initial pay supplied to this point, though has been a positive as we think about sales in second quarter I'd say, we're we're actually on pace to do a bit better than we did and prior year at this point and even in an area, where you think boys decisions what it really slowed down we're actually ahead of pace on.

Sort of one 121 decisions at this point. Thank you again, we've got a lot to unfold in front of us as the year evolves and the pandemic continues to run its course, but.

But sort of at this point in time as we sit here today feel pretty good about those things probably the biggest wild cards that we'll continue to monitor and stay close to his around just employee impacts on so you. Obviously, we're all hearing that plenty about furloughs and lay offs and how does that evolves through the book in the pace of that.

And then obviously you know how does that unwind itself and improve overtime will be an important part of what we monitor and assess as things move forward. That's a piece of the impact that Mike talked about talked about from from Covanta and so we'll see how that plays forward and and as Charlie said.

The value of what we do is probably never been more apparent and so we continue to be optimistic in sort of the the long term view. Obviously this is a big debit to work our way through but we're certainly continuing to work hard at it.

Appreciate the color on shifting gear. So Mike you mentioned that you have temporarily paulus buybacks in March.

Given the expected proceeds to come from Detroit, Indonesia life transaction.

Like I guess, what factors would you have to see before you start rich resuming buybacks.

Thanks summary.

Look I think the way to think about this is theres a lot of uncertainty in the credit environment and we shared the way we're thinking about the some of the potential impacts in the in the stress testing as you mentioned you will win the life transaction closes we should have significant capital that would be about.

Eligible.

To be potentially use for share repurchases will also continue to.

Generate cash flow of free cash flow in excess capital I think over the.

The period as we as we go forward. So we were thinking about the decisions. We have about the pause is we're going to continue to monitor the environment.

We'll have a natural opportunity to assess where we are around the end of the second quarter.

And then even more so a very very logical opportunity to think about it when the when the light transaction closes and I think given what we did in the first quarter ER with 400 million and related to the overall guidance that we had given as a an expectation of a billion plus.

I think so long as the stress test cases that we've got in our in our view as to defining what reasonable outcomes could be there's certainly a path to continue to a achieving that billion plus so it's really going to be the credit environment. How we're seeing how the economy is unfolding.

How the pandemic is continuing to either spread or be under a further control. Those are the kind of things will be thinking about but it's very much a pause and it's very much in line with the way that we have operated over the years. We've said consistently the way we approach capital management is through disk.

Upland consistent assessment of the environment some quarters, we lean in you saw us lean into the first quarter other quarters, because of the environment or where the stock prices or other factors, we will lean back and that's what we're doing now but its in no way.

A anything other than a a temporary consideration of the uncertainty we're facing.

And hopefully the only thing I'd add to what Mike said and I think you framed it beautifully is.

If you think about the purposeful decisions, we've made about our portfolio, we've been preparing the business and the balance sheet for this kind of flexibility our free cash flow 900 million of excess capital we brought into the year. The 600 million that we have today.

The proceeds from the life transaction, there's a lot of flexibility that we've got Tonight I'd point to the fact that we purchased since we've been a public company $6.4 billion of shares I think it's a very strong track record to.

Look forward to in terms of.

Our energy and thinking.

Thank you. Our next question comes from the line of John Barnidge with Sandler O'neil. Please proceed with your question.

Yes. Thanks, you said, 95% of your employees are working from home do you envision all 100% going back into an office going forward or could you see real estate savings emerging.

Yeah, good morning as Rod.

Couple of thesis one is that he is I know you're aware, but for the listeners.

Part of the legacy of the acquired companies that now make up boy, our geography footprint is in multiple locations. So by way of example.

We've got a substantial footprint in Windsor, which is largely our retirement business in Atlanta.

In Minneapolis, we're building up out of a very significant facility in Phoenix.

The call center in operations.

So we've got a we've gotta facility in.

Outside of Boston.

We will be returning to work on a very gradual basis based on facts and circumstances in those locations. The other thesis I'd add is 20% of our employs approximately 20% or employees today are what we call virtually orange said differently, what virtually orange employee.

These are people that permanently work from pool.

That on top of what we've been able to do I think this is a moment that we will in fact rethink.

How much of our workforce can and should work from home or might have a desire to work from home as we go back. So we haven't made any phone decisions, we want to offer that flexibility where it makes sense to do so and of course that downstream effective added it well could have some real estate pieces, but first and foremost.

As our employee safety and frankly, our customer facing safety as we do this but I do think given that we already had 20% working virtually orange, it's a moment that voya and probably many other companies are going to re look at what that future state. This business model will be and we in fact are doing that ourselves.

Great and then maybe my follow up question I apologize if you mentioned it but can you talk about the average age and employee benefits customers. Just I know you mentioned that and thanks to the answers Rob.

Yeah sure John you know again everybody's got sort of different business models, what we do within the employee benefit business here.

Is very much focused in on on working age population. So if you think about 30 to 65 year olds, that's kind of be 90% of our you know sort of enforced block that were reinsurance. So look it's going to be a young age I won't put an exact number on it but again that range of 30 to 65.

You think about when people are going to want insurance, you know when they're not going to maybe needed as they age in life. You know again, then obviously retirement and things that end. So the hard as a matter is that 36 do 30 65 year old age group as I said.

Thank you.

Thank you. Our next question comes from Nigel Dally with Morgan Stanley. Please proceed with your question.

Great. Thanks, and good morning, everyone. So I had a question on that leverage given we had a modest net income loss. This quarter and you mentioned the reinsurance gain is now likely be at the low end at the range is at Lucky that more of the 1.5 billion of deployable capital from life insurance. So we'll need to be applied to leverage reduction I'm guessing that's not going to be a big change, but just wanted to.

To clarify that with the and then second any waiting to the level of pressure on alternative investment income in the second quarter.

Mike.

Okay. So, let's I'll come back to the second wanted to get us some clarification, but unleveraged. So so let's let's just step back and make sure that we've communicated clearly what what is going to happen. So the loss on sale that we booked so far the estimated loss on sale, which relates to about half of the.

And was increased to a little bit less than 1.3 billion right and that's an increase of about 116 million from from where we were the fourth quarter.

We expect a significant gain at time of close as relates to the reinsured portion of the transaction that will be that we'll get the net GAAP impact to be 250 to 750 loss overall.

So and that under current.

Current spreads and rates, we expect to be at the lower end of that so that actually frees up more capital that reduces the impact to.

Let the impact to the GAAP book value excuse me and reduces the leverage that would come because the GAAP book value will be higher than it had originally been anticipated. So if things hold we'd actually have fractionally more available for potential share purchase share repurchase or other other purposes.

Then we would be doing less debt repurchase we had guided to somewhere I think in the in the last call. We had guided to debt repurchase between 600 800, I think we're definitely at the lower end of that range and could potentially even be below that range, depending on how things unfold.

Okay.

And so so we will naturally first of all at close with the impact of the reinsurance gain we will fall below our leverage target. So we will be likely in the 28 29 range again, assuming that the current conditions hold.

And then as we repurchased shares we would need to then lever down the debt to maintain that leverage.

And then Nigel just on the question on alternatives and rating agencies or you know could you just give me a little bit more on what you're looking for their I'll just say some of the other companies have provided an indication is the level of I lost which they expect in the second quarter. One there'll tenant investments just wondering whether you have all pockets to where that number.

Oh I can handle that.

I'm not at this point no I mean, I think you could probably look to the you know the the first quarter is probably not a first quarter of last year, I think I am I remembering that correctly, where that was a quarter lag off of the fourth quarter of 18, which was <unk>.

I think we all recall a fairly challenged quarter for alternative as an equity that's probably not far off but I. We don't have a number specifically when worked up a number specifically yet it's just too early.

Okay.

Many thanks I appreciate the color and I clearing up now I'm, what's happened with like we can become.

Thank you.

Thank you. My next question comes from the line any volume with Jpmorgan. Please proceed with your question.

Hi, Good morning, I just had a question first on the group benefits business and the medical stop loss. Your margins are pretty strong. So wondering what is maybe whether you. We had this is more of an aberration and just normal volatility land spend or just or something related to people's reluctance to go and seek medical care because.

The goal bid and everything else, that's going on so something that could potentially could stand in Tokyo itself.

Thank you Jimmy Rob Rob you want to take that yeah sure. Thanks, Yeah, Jimmy as we've looked at stop loss, even sort of call. It precautions that as we were finishing up 2019.

You know we felt good about what we were seeing in the underlying data and the claims activity and we've sort of been on this trend over frankly, a number of years of.

You know just working on the right balance of gross right balance with pricing and renewal activity and and trying to thread the needle there and in in a good away I think you've seen that really come home versus some you know sort of secondary or primary impact from from co bid and reluctance to go.

Now, let's talk a hospital when you think about our business as a reminder, we talk about middle and up market focus you can think about deductibles at an individual level between.

200 or 300000.

Sorta is the sort of the middle of the curve so to speak of where most of our exposure would set and so those are Oh boy I've got cancer I don't think I'm go into the hospital sorta moments. Its you know they've got something serious going on if they're in treatment.

On a program whatever the diagnosis may be.

Those are generally not gonna be voluntary sorts of decisions that people just sort of opt out of and I'll go later moments.

So look this is a real combination of I think just discipline around the business a continuing continuing the trend that we've seen in the results moving in the direction that we want them to now as we look as you play. This forward can there be some.

Knock on impacts or delay things on the edges again sure on the edges, but as Mike talked about sort of the range estimate around.

Second quarter as well as the longer term view of that.

You know broader range of Covidien pack, we don't really anticipate a lot of noise to any noise within stop loss again, just given where we fit in the market. The types of cases, we sell how we position our product I think it's going to be very modest to not at all.

Okay, and then just on the asset management business, you had pretty strong flows in the or international or institutional business, sorry, any comments on sort of what asset classes are driving that and how the pipeline in that business looks and whether that momentum so the sustained into tokyo's ball Christy.

Okay.

Certainly thank you Jamie yes, as far as see a the strong flows that we had in the first quarter really it was a from a variety of sources and and I think it that it just really speaks to one is a competitive advantages that we had its just the diversified client base and so.

Through the first quarter the insurance channel that we have is particularly strong we closed a European CE allow as well as had strong stable value flows is that as a few examples and so when you. When you look out into how does the pipeline look into the second quarter very strong.

Mike referenced in the beginning we funded approximately a 6 million dollar MLP sector insurance mandate in early April so those assets are already in the door and in that stunned and being invested.

As well as you know with.

Some of the crises come opportunity so to speak Jimmy and what I mean, as we have a very strong specialty fixed income franchise.

The strong securitized and so we are in the market with its how fun as an example.

And continued to see strong client demand for some of these specialty asset classes that we manage such as real estate just given the overall low rate environment that that quite frankly, given where interest rates are you know we're likely to be up for quite some time. So.

Low rates isn't going to take away the need for income, it's only going to strengthen it. So overall, we see a lot of diversification strong second quarter and a good confidence for the remainder of the year.

Thank you. My next question comes from Alex Scott with Goldman Sachs. Please proceed with your question.

Hi, Good morning, first person I had its just on the commercial mortgage portfolio appreciated the additional disclosure in the in the presentation, but a you know I was just interested if you could.

Some color on what you're seeing so far in April in terms of like forbearance.

And when you back there and.

And maybe if you have any commentary on sort of any icees approach to allowing a little more leniency there.

Mike.

Thank you Alex So you know so far we've received forbearance requests on about 20% of the unpaid principal on a on the CML portfolio.

As you as you'd expect you know the hotels, which is a very small portion of our of our commercial mortgage but you know there that's been pretty much universal within that space and about half of our retail.

And as we've we've shared in the past it should just point out a lot of our retail exposure is more the grocery store centered.

Retail retail community.

Shopping centers that are or I think are actually going to continue to do reasonably well through.

Through this period, so of that 20% that a soft forbearance you know there have been of a few that Weve concluded art were the requests were withdrawn, but we're about halfway through that that we granted it we're working through the remainder of those requests.

So I think will the terms will be specific to each deal, but broadly speaking think of it as a three month forbearance with principal carried over to the unpaid balance.

In terms of any I see you, certainly well and a softening there or at least relaxation I think it's appropriate and welcome.

I don't have a whole lot of specific comments I think it's you know.

I think the the idea here is that this is a temporary phenomenon and that we will hopefully in relatively short order get back to a more normal level of of commerce that will enable these properties to continue to function, but overall, we're pretty pleased with our commercial mortgage portfolio. We think we've we've taken a it.

Really strong approached the underwriting and it shows up in some of those the the statistics about the portfolio that I mentioned, so we're working through it but but pretty comfortable where we are right now.

Got it and maybe a my second question on retirement, I guess, what I think about the last few years I think you guys had benefited a decent amount from just sort of consolidation.

Of the retirement industry among like the top players in some of the smaller players getting squeezed out.

I would just be interested to hear if you know if you think the current environment will accelerate that slow it down.

Just high level, what where you think it would due to consolidation.

Yeah. Thanks, Alex.

Yeah in short I think it is going to accelerate thanks.

You know when when we look at even just kind of the growth in sales that we've had as you pointed out we've we've done well and attracting wins from you know kind of call. It providers number 10 through 60, plus 60, plus record keepers, but we've done equally well and.

A winning that growth from a number of the top 10, a DC providers and in you know during this time, we certainly think that there is gonna be more of a flight to to kind of quality is both advisors and consultants and plan sponsors looked for <unk> for providers that can invest in the business and advice.

Since they're offering you may have noted during the quarter. During the there is there in this last quarter, we announce.

Our new student debt service men portal, a partnership with vault and recently announced a financial wellness collaboration with our employee benefits business. The my healthy money. So these are all kind of tools that we continue to invest in and it allows us to create greater depth.

Distance between the offerings of arc of our competitors I think it's going to be more challenging for those smaller ones and so we'll see overtime. How this develops but the early signs are quite good that.

These are always I said earlier I think a planned sponsors will look for certainty and their retirement private provider in uncertain times.

Got it thank you.

Okay.

Thank you. Our next question comes from the line up Tom Gallagher with Evercore. Please proceed with your question.

Hey.

Morning the.

Just a follow up question or two that commercial mortgage loan forbearance request in a 20% sounds like a big number.

In terms of the percent of the total portfolio how do you.

Your stress test how are you thinking about how that plays out in terms of losses delinquencies potential losses impairment on that and then I guess another investing question.

Pro forma the the life sale, you're showing 20% of your.

Portfolios going to be and private placements and how are you thinking about that portfolio broadly because I guess my concern is that that's.

Predominantly small to midsized businesses and while debt covenants may be good I would imagine that they that portfolio will fail worse broadly speaking, but anyway, if you could.

Take a shot at both of those tanks okay.

Yeah, why don't I start and then and then would Christine certainly you can add some color that's okay. So.

So Tom It you know.

In terms of the forbearance and.

Sort of granularity around that I I think the way to think about the stress cases.

Is that we went through each mortgage loan and assessed it relative to the place. It sets we could certainly considered the level of forbearance that either we knew about are likely to see or request. We were like you receive and then we factored that into the overall you know the potential for migraine.

And and or potential impairment so.

That was an explicit consideration in pulling together the stress tests. So I don't have specifics to give you in terms of exactly how many of those forbearance requests turned into each of those but it was an explicit consideration.

The overall approach to the stress test was truly CUSIP by CUSIP or investment by investment with our credit experts assessing given given the scenarios that we had put forth work where to go.

And how that how we thought that would ultimately unfold.

In terms of the overall portfolio on the other side and certainly Chris would certainly welcome Christine's view here, but.

I think we actually are pleased with with where we're going to be on the other side. It's not at all clear to me that and I don't have statistics that I can share, but there's been a lot of private issuance at a lot of levels and not just small to mid so I think we can certainly look to add some level of disclosure.

There, but again that was considered in the in the stress test analysis, we're pleased with the outcome of the new allocation and it takes us into direction that we were already trying to head, which was to reduce our exposure to public corporates.

And get a more balanced approach. So I think were actually pretty happy with with where that's coming out that Christine anything you want to add on a on the privates.

Yes, Mike I agree.

We're very happy being happy and confident with where we are and Tom when you think about private sent and you're spot on it. It's a didn't marketing that can mean other things to a lot of people, but our business model really isn't that middle market lending sort of Hassett, Billy and kind of top line revenue in below company well we do.

Well some of that in the portfolio a lot of the reasons that companies go to the private debt markets is is there offshore and they simply don't want to go through all of the filing so companies like BMW Mars Candy. It's just a few examples would sell again, we tend to be a little bit upped the food chain. If you will as far as the companies that we lend to us, but certainly you know.

And we can provide more disclosure potentially in and work with Mike on that.

Okay. Thanks appreciate it.

Thank you. My next question comes from Andrew quite women with Credit Suisse. Please proceed with your question.

Hey, good morning, So Oh, the first question I'd like to ask is around the divestiture on individual life phase we sit here and you know the talk on the call hits and focused on credit and potential for defaults and we'll interest rates affecting earnings and then.

And I think you cited in the individual it's 10 to 30 million.

Covidien 18 related impact on the mortality. So clearly is resolution looks at this transaction may not be as attractive.

As it wise.

Pardon me announcement, so what I'm, hoping for is a little little clarity around.

Why you're so confident it will close at September Thirtyth, maybe two or three reasons why it should close.

Good morning, as rod or anywhere else, Mike and I.

We'll go back and forth.

Part of the reason, we continue to convey our confidence is.

Is the active communication.

We're having with both resolution.

And with the regulators are resolution has been looking for boat.

Platform.

People book of business for a long period of time, we spent a considerable amount of time together in the in doing this we are exactly where we thought we would be or at this point in a in standing up this new company the regulators have been.

Absolutely.

Andrew Fabulous and they're working with us on a virtual basis and so all all signs are pointing to and on schedule a close at this point in time.

There's been a good active engagement and and we and Andrew. This is a model that that you all would be familiar with because we did something quite similar when we stood up venerable in the Apollo transaction and so that was just two years ago and fundamentally our team went from that project to this project would deal.

And with.

Very sophisticated group of investors in terms of both the equity commitments in debt debt commitments.

And we're seeing no signal or sign at all other than wanting to do this as fast as we can collectively and if you're thinking about from resolutions perspective, and I'm not speaking for them, but just my point of view in the dialogue with them. If we can stand up this company and moved through the regulatory approach.

Well on an unscheduled basis in a very complex environment, there's certainly intending to take this platform to to do other similar roll up types of transactions prospectively, and what better way to point to look what we got them collectively is standing up this company.

But Mike I'd ask you to jump in and out anything like is a leading this.

Yes, it just a couple of things I completely agree on on the especially on the regulator piece I think when when this.

The pandemic and the severity of it became more evident the people moved to home work I was concerned about our ability to make progress, but I've been.

Impressed by the continued pace it with.

Which the regulators are engaging in the so I I don't think there was any reason to think that that's going to cause a delay and then from the standpoint of adjusted the day to day interaction with the resolution team.

And the work that they are doing to prepare for separation.

There has been no slackening in any way of their engagement with the team I mean, they host town halls, they they're hiring people.

From outside to come in and take over roles that we we need to staff for the separated company. So there is every sign that there just is committed and I think for the reasons that Rob mentioned is it's really important to them strategically to take this step and.

I think there they are fully committed and then finally just look the terms of the agreement are such that.

It's really difficult for them not to close if we need all the closing conditions right. So I think we feel very good about the way the agreement was structured as well as all the signs we're seeing so far.

Thank you. My next question comes from Ryan Krueger with KBW. Please proceed with your question.

Hi, good morning on that the the co bid claims impact that you expect I know you gave the overall a potential amount.

I guess can I mentioned I missed the but can you clarify how much of that in the seemed to occur in your second quarter easier swap.

Mike.

Yeah.

Ryan Thanks for the questions. So so the way to understand the walk is as follows a you know about a third of the.

The change is from the normalization of the loss ratio on the normalization of results. The balance is a combination of claims effects and potential revenue impacts from.

Yeah, unemployment or other effects like that so like that I think theres a fair amount of uncertainty in those estimates both in terms of you can see from the width of the range. There's a lot of uncertainty there as well as the timing and particularly as it relates to timing you know what we're seeing so far.

Our is you know despite the you know that were.

Roughly what 70000 deaths a officially from co that we've only received in the group business.

In the need and a few dozen claims under a million dollars of claims as what we've seen so far and that's that's through I think yesterday right. That's not first quarter. That's what we've seen to date and so when you compare that to a base of ensured that CEO in the neighborhood of 3 million people that we should be seeing.

A lot more so reporting lag is one question that we just don't have good answers to second is how will the general population mortality translate to a uninsured population mortality and then even more so for group a working insured population and so we've we've taken a rough.

We estimate I think it's it's a fair approach to get us into the ballpark, but it's.

There's a great deal of uncertainty in terms of what exactly will happen in cold and so I do think there will be an impact in the second quarter. We will make you know some estimate on how to handle I began our incurred but not reported for the second quarter result, but I think they'll probably.

If fairly meaningful tail in the third quarter, we shouldn't think of this is just a second quarter event and then it depends on what happens after that in terms of the overall progression of the pandemic.

Got it that's helpful. Thank you.

Mhm.

Thank you. This concludes our question and answer session. So I'd like to hear floor back over to Rod Martin for any closing remarks.

Thank you.

The purpose will decisions that we've made as a company have enabled us to enter this period in a position of strength.

As we move through the remainder of the year, we fully recognize there will be a number of challenges that we will need to address I am confident in the talent that we Havent boy you to enable us to execute on our plans and adapt as needed to continue to serve our advisors and customers position Voya for.

Long term success I want to again express.

The heartfelt gratitude that all of US is where you have for the everyday heroes that are enabling our nation to navigate through these challenging times I hope that you and your family's remain healthy and safe. We look forward to updating you on our progress as we pursue our vision to be America's retirement company.

Thank you and good day.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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