Q1 2021 Voya Financial Inc Earnings Call
[music].
Good morning, and welcome to the Voya financial first quarter 2021 earnings Conference call.
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I would now like to turn the conference over to Michael Katz Executive Vice President Finance strategy and Investor Relations. Please go ahead.
Thank you and good morning, welcome the Voya Financial's first quarter 2021 earnings conference call. We appreciate all of you who have joined US for this call.
As a reminder, materials for today's call are available on our website at investors day, Voya dot com or via the webcast.
Turning to slide two 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 COVID-19.
I refer you to the 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 dot com.
Joining me on the call are Rod Martin <unk>, our chairman and Chief Executive Officer, as well as Mike Smith, Our Vice Chairman and Chief Financial Officer.
After their prepared remarks, we will take your questions.
For the Q&A session. We have also invited our vice chairman and Chief growth Officer, Charlie Nelson as well as the heads of our businesses specifically, how the law Valley, well solutions Kristine Hurts sellers investment management, and Rob Group Health solutions with that let's turn the 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.
Our results for the first quarter demonstrate that we continue to operate from a position of strength.
Were they specific and clear strategy centered on health wealth and investment solutions Voya has tremendous opportunities to expand in growth.
Our businesses give us both the scale.
And the insight to help employers and their employees manage the variety of health and wealth needs.
And we're seeing an increasing demand for what we offer.
The pandemic has led to individuals', becoming even more focused on their health and wealth needs as a result.
Employees are increasingly looking to their employer for support.
And the employers.
We're very much focused on this recent research by the employee benefit Research Institute indicates the employers overwhelmingly either have a strategy.
Our developer you want to improve their employees financial will be.
We believe that Voya is well positioned to deliver on the men, which will enable us to provide even greater value for all of our stakeholders.
Turning to our results for the quarter, we delivered significant adjusted operating earnings per share growth.
In addition to strong investment income and the execution of our share repurchase plans of our EPS growth reflects continued momentum across our businesses.
In wealth solutions full service recurring deposits grew more than five per cent compared with the trailing 12 months.
This was driven completely by organic growth.
We generated over $850 million in full service net flows in.
And record keeping flows were also strong at $3 5 billion.
Collectively this reflects our strong results in both retention and the onboarding of new clients.
In investment management, we saw continued institutional inflows and interest in the number of our fixed income strategies.
While we experienced net outflows during the quarter, we expect to achieve our 2% to 4% net flow organic growth target for 2021 due to a strong unfunded pipeline.
The health solutions annualized in force premiums grew nearly 9% year over year.
The strong increase reflects the growth across all product groups.
But particularly in our voluntary business.
During the first quarter, we announced a new operating model to advance our growth plans and ensure a customer centric focus on health wealth and the investment solutions. We're excited about the opportunities to meet the increasing needs of employers and their employees.
We're focused on how we can expand the solution set that we offer to drive a more coordinated and integrated experience through the workplace.
Our acquisition of benefit strategies, which we announced yesterday. The good example of focusing on increasing our capabilities and reach in the workplace.
Specifically this acquisition will accelerate our expansion in the health savings.
And spending accounts markets, we look forward to continuing to update you during the year on our plans and at Investor Day later this year.
When we will provide details on the next phase of our growth strategy.
Finally, our balance sheet and capital position remains strong we continued to return capital to our shareholders by repurchasing $235 million of common stock during the quarter.
As of March 31, we have return $7 billion of capital to shareholders through both share buybacks and dividends since our IPO.
As previously shared we expect to repurchase $1 billion of our shares during 2021.
And we had approximately $1 $6 billion of excess capital as of March 31.
Moving forward, we will continue to demonstrate the responsible stewardship of capital that has been a hallmark of voya as a public company.
We have also further strengthened our board I'm pleased to share.
That we have welcomed the butler as a new independent director.
The event brings to our board of over 25 years of experience in financial services, where she has distinguished herself as the strategy.
And the leader in providing wealth advisory banking and financial planning solutions.
We're delighted to have you bet you're with us.
And at the same time I want to acknowledge Lynn Becker, who stepped down from the board last month.
Lynn served on our board since 2014, and this provides valuable contributions the voya success.
On a personal note I am very grateful for her guidance.
And her perspective.
Turning to slide five.
We continue to earn further accolades for Voya has strong culture and commitment to ethical business practices during the quarter.
Voya was named one of the world's most ethical companies for the eighth consecutive year.
We were one of only a 135 companies to earn this recognition and one of only six in the financial services category.
This honor and others like it reflect our culture and the character of our brand.
And these include being ranked fifth overall on balance 2000, 2100, most sustainable companies list and earning the number one ranking in the financial services category for the third.
<unk> year.
And earning inclusion unfortunate list of the 2021 best workplaces in financial services and insurance.
Yeah.
Our management team is extremely proud of our employees in all day have contributed for.
For our clients and customers during the past year despite.
Despite all of this occurred.
People have been steadfast in adapting and pivoting to ensure that voya can be there for our customers when they need us the most with that let me ask Mike Smith to provide more details on our performance and results.
Thank you Rod before we turn to the numbers I want to Echo Rob's comments about our employees.
We have many stakeholders of voya, including our clients and our shareholders, but it is our employees that have enabled us to execute everything you've seen from voya over the past year.
From completing the sale of our individual life business to responding to our customers when they needed us most of our employees have gone above and beyond while also managing health and work life balance challenges for this we are all very grateful for their support.
This quarter, we have changed the focus of our earnings discussion from normalized to adjusted operating earnings in doing so we hope to simplify the earnings presentation for investors.
It is also consistent with our evolution toward being a less complicated company, especially with the life transaction now behind us.
In order to assist with trend analysis, we will of course call out notable items.
The one time adjustments.
Turning to slide seven.
We delivered the after tax adjusted operating earnings of $1 70 per share in the first quarter of 2021. This includes the following items first 66 cents of prepayment and alternative income above our long term expectations alternative income was boosted by favorable fourth quarter equity markets.
First quarter equity market strength is likely a positive for second quarter alternative performance. So roughly a quarter of our holdings are in sectors that were relatively flat in the first quarter.
The second 17 of unfavorable COVID-19 related claims impacting health solutions and third <unk> <unk> of unfavorable other notable items in the quarter.
With the life transaction now successfully behind US we are focused on and confident in our ability to eliminate stranded costs by the end of 2020 to GAAP.
GAAP net income was more than 1 billion for the first quarter of 2021. This was largely driven by a significant gain from the reinsurance component of the individual life transaction booked at close this gain reduce the ultimate GAAP loss on sale for the overall transaction to $633 million.
The low end of the guidance $600 million to $800 million range.
Moving to slide eight well.
While solutions delivered $255 million of adjusted operating earnings in the first quarter significantly higher than $124 million in the first quarter of 2020.
The year over year increase was largely driven by favorable alternative income, which was $81 million above our long term expectations and $74 million higher than the first quarter of 2020 as well as the favorable DAC unlock relative to last year.
The investment spread continued to benefit from the volume of transfers into our fixed account in 2020.
In addition, we benefited from crediting rate actions that became effective this year seasonally lower crediting days and income generated from discounted bonds that were called in the quarter.
Equity markets, along with consistently strong full service and recordkeeping net inflows all combined to drive higher asset levels, which provided a tailwind for our fee based business.
Our administrative expenses were favorable compared to a year ago, reflecting our expense discipline and continued drive towards lower unit costs.
Turning to deposits and flows full service recurring deposits grew five 1% to over $11 billion on a trailing 12 month basis, we expect the employer match and participants of referral trends to continue improving throughout the year such that full year recurring deposit growth will be 6% to 8% as previously.
Guidance we.
We generated over $850 million of positive full service net flows and more than 2 billion over the last 12 months.
Keeping net flows were $3 5 billion in the first quarter largely driven by a large client win.
The stable value saw a modest net outflows of 156 million following a record year for net inflows in 2020.
Looking ahead, we expect full service net flows remain positive and record keeping flow some moderate slightly in the second quarter.
We have a robust pipeline are strong and growing distribution and we continue to invest in our customer focused solutions through the workplace, our diversified revenue streams from our top tier presence across all markets will contribute to our ability to achieve long term growth.
On slide nine.
The investment management delivered $52 million of adjusted operating earnings this is higher than $40 million in the first quarter of 2020, primarily driven by investment capital results, which were higher year over year and significantly above our long term target.
We generated greater fee revenues from higher average asset levels and success of client wins. This was partly offset by waived fees on certain short term money market products due to the current level of short term rates more materially external client revenue yield is down in the quarter due to the life transact.
<unk>, which produce an expected movement of assets from the general accounts to institutional.
Administrative expenses were higher year over year, largely due to variable compensation associated with strong investment capital results from the quarter and continued investments in the business.
Our adjusted operating margin, including investment capital improved 200 basis points to 28, 8% benefiting from strong investment capital results.
Turning to flows overall net outflows were roughly $400 million in the quarter, primarily driven by the timing of expected redemptions and is in line with the guidance we shared in the prior quarter.
In institutional we saw strong demand in private credit and commercial mortgage loans across domestic channels, including insurance.
This was offset by outflows from longer duration investments by international clients as the U S rates rose sharply in the first quarter, having said that we are seeing indications that trend is stabilizing.
Additionally, we saw some short term liquidity outflows related to client hedging activity.
We are now separating these flows in our investor supplement to better represent the true growth of our business. This categorization change had an immaterial impact on historical organic growth and our outlook for 2021.
Retail flows continued to improve sequentially. However remained negative this quarter.
Our fixed income performance remained strong 94% of our fixed income funds outperformed the benchmark on a three year basis and over 95% did so on a five and 10 year basis.
Looking ahead, we expect the return to positive net flows in the second quarter and to achieve full year organic growth of 2% to 4% driven by a strong unfunded pipeline of client wins.
We have of diverse platform to meet client needs across market cycles, our strong long term investment performance strength of distribution channels and diversity and solutions, providing differentiated returns continues to drive long term optimism in our pipeline.
Turning to slide 10.
Health solutions delivered adjusted operating earnings of $37 million in the first quarter compared to $61 million in the first quarter of 2020.
We incurred $29 million of COVID-19 related claims driving most of the variance.
Prepayment and alternative income exceeded our long term target by $6 million and was more favorable than first quarter of 2020 by $5 million.
Annualized in force premiums grew eight 6% year over year supported by growth in all product lines highlighted by double digit growth in voluntary and 9% growth in stop loss. Following our successful January sales and renewal season.
The total aggregate loss ratio was 71, 8% on a trailing 12 month basis within our targeted range of $70 to 73% group.
Group life loss ratios were elevated in the quarter due to COVID-19 claims.
Loss ratios for stop loss and voluntary were in line with our expectations.
As Rod mentioned, we are excited by our recently announced acquisition of benefit strategies. This acquisition accelerates our presence in the fast growing HSA market that we entered in 2019.
As we look out to the rest of the year, we remain optimistic that as COVID-19 eases throughout the year earnings growth should rebound given the solid underlying commercial growth momentum across our entire book of business.
On slide 11, we provide EPS items to consider for the second quarter of 2021.
Second quarter will benefit from several seasonal first quarter items not repeating at the same levels, including administrative expenses group life loss ratios and preferred stock dividends.
In the second quarter. We also expect an earnings benefit from lower variable compensation and investment management associated with investment capital results.
And less severe COVID-19 related claims relative to first quarter levels, considering claim submission lags, we expect $20 million of COVID-19 related claims impact in the second quarter and $10 million in the second half of this year based on a full year assumption of 300000 total U S. COVID-19.
Related deaths.
Offsetting these items is the call bond investment gain in wealth solutions not expected to recur.
We also experienced outsized alternative income in first quarter of above our long term expectations of 9%.
While 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 market impacts business growth and the potential for additional COVID-19 impacts.
Slide 12.
Our robust capital position allowed us to continue our strong track record of returning capital to shareholders.
This quarter, we returned $255 million to shareholders, including $20 million in common stock dividends and $235 million and share repurchases. The latter of which comprised $30 million of shares related to an ASR agreement that was entered into in the fourth quarter of 2020.
$200 million of shares delivered as part of a new $250 million ASR agreement, we entered into during the first quarter and $5 million of shares repurchased through open market transactions the.
The total amount of capital returned to shareholders since our IPO is $7 billion.
Predominantly through share repurchase.
We continue to expect to deploy approximately $1 billion of capital towards share repurchases over the course of 2021 and of ratable manner, while continuing to balance of investing in our business for the long term.
Our financial leverage ratio was above our 30% target largely due to the impacts from the life clothes and lower OCI due to the move in interest rates at the end of the quarter.
This does not change our plan to retire $600 million to $800 million of debt. This year of which we retired $75 million in the quarter.
We ended the quarter with strong excess capital of $1 6 billion. We continue to expect at least $300 million of additional excess capital upon the completed sale of our independent financial planning channel.
In summary, we are pleased to have closed the life insurance transaction, a huge step in our transition to a capital light business and two of shared our new operating model.
We believe our strong workplace and institutional franchises are poised for long term success.
We generate high free cash flow and have a significant excess capital position as well as an increasingly valuable deferred tax asset should higher corporate tax rates become law.
We will continue to act as good stewards of capital as we look to deploy proceeds in the best interest of shareholders.
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.
The ask a question you May press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the star keys.
The withdraw your question. Please press star followed by the number too.
As a reminder, participants are limited to one question and one follow up.
Our first question comes from Elyse Greenspan with Wells Fargo. Please state your question.
Hi, Thanks. Good morning, My first question on cash.
On the capital side of things you guys.
We confirm the $1 billion of buyback for this year I was just hoping we could get more color on how to think about just timing I think you said.
It will still be ratably throughout the year, but given that there is more certainty on the economy and coming out of Colgate will you, perhaps on the pull forward some of the buyback non.
Given.
At the worst is behind us.
Good morning, I'll begin as usual, Mike and I will.
We will toggle back and forth.
Yeah.
Your assumption is correct.
Your understanding is correct, we have committed to $1 billion of buyback this year.
Mike just shared.
With that we.
That's on top of the 7 billion that we've already done historically since the IPO. We're also retiring debt that you've heard Mike talk about.
Between 6% and $800 million and we will.
Probably be in the middle of that range and if you look at how we've done this historically of lease we've done it ratably and that has served us well and so that philosophy and approach is how we're approaching it.
We will always make some judgments based on market conditions, but thats generally been the approach and Michael Please feel free to add.
I think you covered it really well rod I would just kind of reemphasize. The point of we'll look for opportunities as the stock trades up and down of general market trades up or down to lean in or or lean back with the open market purchases where that makes sense, but.
The the Ratably part of lease just to be clear it was less about COVID-19 and uncertainty and more of just the application of the discipline that we've shown consistently I think as Rod said, it's served us well and we expect it to continue to serve us well.
Okay.
Okay, Great and then my second question on you guys announced the deal benefit strategies yesterday.
And I guess you guys did disclose the payment of it sounds like it's more of a bolt on deal flow as we think about it.
M&A.
Would it be more of the kind of similar of bolt ons or could you just kind of give us an update as you guys think about the.
Potential additional M&A transaction.
Thank you for mentioning that we are very excited and I'll have Rob come in just the moment about benefit strategies.
But in terms of our consideration we've talked about considering opportunities.
We will help accelerate growth in the workplace by integrating.
By increasing integrating outcomes across the health and wealth.
The.
The focus with employees and employers from an engagement and the data integration and the technology perspective. So.
Alicia.
Extremely difficult to comment.
About size because of these opportunities emerge as the emerge but this is a good example.
Of adding to our business that we started organically and the.
And I think.
Enabling us to accelerate the significantly, but let me add rod ESCO rod the jump in and just describe this a little more fully rod yeah sure. Thank you rod. Thanks for the question lease yes, no. We're certainly excited about it from a strategic standpoint, I think it's probably super self evident as to why we got excited about this particular opportunity.
<unk> and <unk>.
The speak of them more particularly.
<unk> been in this business for a long time.
Their east Coast based company. So there is a.
Broad mix of solutions that they they cover and service and administer <unk>.
HSA is certainly sort of the headline story, because we see it is such a great connector between our health and wealth businesses and trying to really bring together for consumers.
More integrated decision framework, an opportunity to provide guidance and think about even servicing the business and of.
A more holistic way.
So there is certainly that element of things.
As a reminder.
Talked about this actually back at Investor Day in 2018 and over the last couple of years of certainly learned a lot as we've entered that marketplace.
We're excited about what we've learned again of just reinforced the connectivity.
The receptivity in the market to bring them together the wealth story as well as the HSA of notional accounts story.
And connected all the way through and then obviously, it's an opportunity for our investment management team.
To play a role in the solution as well. So we're really excited about the cultural fit the consumer fit in the capability of say bring we actually partnered with benefit strategies last year and a more meaningful way.
So we got to sort of test ride with each other a little bit and just founded of really good match culturally and from an execution and delivering for our customer perspective.
Couldn't be more excited about it.
Yeah.
Okay. Thanks for the color.
Thank you.
Our next question comes from Nigel Dally with Morgan Stanley. Please state your question.
Great. Thanks, and good morning, everyone. Just wanted to circle back to capital management I understand that you could lead nano route depending on market conditions, which makes a lot of sense, but as you also mentioned it does seem that the uncertainty, but the guys. The pandemic the economy of dissipated your current capital position of that remains.
Very strong free cash flow is amongst the basically in the industry and you also have the deal in the third quarter, but just from a free up some additional capital say.
If things go right is the potential upside to the amount or should we or should I be taking from my comments said that $1 billion that you talked about we should view as being largely sort of insight at this point.
Yes.
Start with the again, Mike and I will.
Toggle back and forth.
Just maybe as of.
We believe the share repurchases.
Or and have been a core part of the Voya story.
In addition of that we're carefully looking as we've discussed where opportunities to accelerate our worksite strategy.
The strategies as an example of that we're also retiring as we've come in at about just a moment ago $6 million to $800 million of debt.
And as a reminder of number of these transactions close later this year. So we will.
And have been opportunistic historically.
The guidance that we've given for 2021.
Is fully based on book organic growth.
And what we have in place now with that Mike.
Yeah, Nigel I think the only thing I'd say is the you Shouldnt view of the $1 billion of ceiling I think they're to the extent that opportunities present themselves and it makes sense for us to do I think we could lean in and.
We've I think we've said from the beginning of at least $1 billion.
We will see how the balance of the year unfolds, we will need to close the the financial planning channel transaction, then we will see how the balance of 2021 emerges but.
To Rod point.
Focusing on delivering shareholder value and being conscious of that has been I think a hallmark of this management team and I don't think that's in any way changing here.
Yes.
Okay. That's great appreciate the color the cause and just one out of the one on investment management.
You commented that you have a strong the unfunded pipeline of mandates.
Color as to where that's likely to be coming in as we kind of looking at that in the second quarter of just too tough to judge.
Christine.
Nigel I would say.
Not to go as far as say too tough to judge, but as you know just quarter to quarter. You know some of these mandates from the pipeline, but not all are a bit lumpy, so, but so saying that you know looking out at the full year and what we do see is the.
You see very strong unfunded wins as well as progressing two finals from semi finals. So feeling really positive about it you know, it's like but what's driving some of this well. This is right now our unfunded wins or 10 strategy. So it's diverse diversified client type two.
A lot of the demand as is the first some of our traditional private assets like private credit as an example, also commercial real estate that was held up a bit in terms of where the market was pricing and really the ability to underwrite properties last year. So that in COVID-19. So that headwind is.
Starting to dissipate and we'll be turning into a tailwind. So overall what are we what are we seeing you know we're still we're very confident in forecasting that 2% to 4% beginning of the AUM growth, it's diversified and as you say nigel could be lumpy quarter to quarter, but overall of the long run.
<unk> trajectory is very strong and as you know we've delivered.
Five consecutive years of positive net cash flows and so we're well on track for having the our six year of positive cash flows.
That's great. Thanks, a lot.
Our next question comes from Josh Shanker with Bank of America. Please state your question.
Yeah.
Yes. Thank you very much I wonder if you can talk a little bit of them get the.
The question a lot, but I can tell you that from my perspective the.
The fee margin on record keeping business has shrunk more quickly than I thought it would I know you've had some big wins in those wins might be coming at a lower negotiated rate than all of the legacy portfolio, but can we talk about the true.
<unk>, what we should expect going forward and as you do put on new wins the.
Margins on those wins relative to the legacy margin of the portfolio.
Absolutely.
Heather.
Yeah, Josh. Thank you so much I. Appreciate the question first I'll say first we did have some one time annual fees in the fourth quarter that did not repeat in the first quarter, which really drove the appearance of some the accelerated fee compression between the quarters.
We are very much focused in on a positive and profitable sales growth and while we do anticipate some revenue pressure really across the industry. We're very much focused on growth in our full service specifically within our mid market space, where we have expanded distribution.
And what we see the areas, we may sell a larger plans with the lower average fee.
But higher total net revenues and very very much in line with our expectations.
The second factor I'd point to is we continue to be very focused on driving operational efficiencies and enhancements to our client experience that are helping to bring down expenses and helping to offset revenue pressure and the final item I'd really point you to is we're focused on driving alternative sources of revenue by expanding and enhancing our per.
Dietary solutions that are really resonating in the market. So.
While we do recognize that there are revenue pressures, we are very confident in our ability to hit our eight to 12 per cent earnings growth that we forecasted for the year.
And the.
Timing of the win that you had in the quarter Tibet show up towards the end of the quarter skewing the average balances as opposed to the beginning of imbalances.
Yeah.
Well I will say I'm.
Sure.
Let me, let me address it that's the way it was kind of talking about the the flows in the quarter. We had very very strong flows across the whole service and recordkeeping.
You know totaling $4 4 billion and all organic growth so very very pleased of what.
What I would comment on in terms of of net flows is we did see a greater acceleration of funded wins coming in in the quarter. So you know I think a little bit less driving anything youre seeing in terms of the average fee revenue, but again I'm going to I'm going to point to the fact of it.
The very very strong flows in the quarter.
And really driving our strong commercial momentum that we're anticipating throughout the year.
With a record keeping as you know it can be a little bit lumpy, where we're building off of a extremely strong 2020.
So as I as I look forward into 2021 we expect flows to moderate a little bit seek.
We see continued strong revenue from our diversified portfolio and a strong commercial momentum throughout the year.
Thank you.
Our next question comes from Tom Gallagher with Evercore ISI. Please state your question.
Good morning, Rod I I heard your comment before about.
And.
Reaction to M&A that.
It depends on opportunities that emerge, but just wanted to ask you about.
Sort of Directionally, where your head's at with the types of deals you would consider because.
As you guys probably heard Prudential.
May be considering divesting their full service retirement business.
And I'm not asking you specifically about credential, but with Voya consider a larger scale integration of oriented deal in that space.
Or where is it really more bolt on smaller size deals that we should be thinking about.
With you now.
More consideration for not wanting to take on too much execution risk here.
Thank you.
Two comments.
We have scale.
In that space with our 6 million plus participants and it's been growing nicely.
I think youre aware.
Sure.
The second piece of what we've really tried to signal is.
Okay.
The focus of <unk>.
Accelerating growth in the workplace.
Net of the strategies is an example of that but by increasing.
The the outcomes across the health and wealth.
The employee and employer engagement.
The data integration and technology, that's where our focus is.
Sort of the pandemic.
The the world in our view has really changed the you'll you'll hear us and particularly Charlie with this focus on growth talking about connected connecting the unconnected.
There is more and more.
Employees are looking to the employer.
For help and support in this area.
We see that as our primary focus.
I think benefit strategies is a good example of that.
The.
And again, it's hard to comment beyond that because.
It's hypothetical, but Mike feel free to add.
Yes, just maybe near Tom is.
As Rod said, we have scale and retirement.
Scale will always be important in retirement and so those we.
Talked consistently about looking at bolt ons of retirement of bringing on additional scale, where it makes sense, but that'll be very much a numbers game and as you pointed out of the execution risk assessment game I think we're as Rod also said very excited about the opportunities to broaden our capabilities.
In the realm of integrating the experience for employers and employees and so that's also going to be a continued focus.
Okay.
Maybe that's helpful. One other comment.
If you go back to what we've done with our voluntary benefit business net was.
Nascent and grown organically and over the last eight or 10 years, all organically, we've gone from really being a non significant player to being.
Sure.
The fourth or fifth in the marketplace.
And.
That experience.
And confidence about how the team has done that.
Has bolstered our confidence and focus on what are the other adjacencies that we can do.
True something like benefit strategies that can further expand our capabilities and respond to what we're hearing from employers and employees that they are looking for and I'm, sorry, I interrupted you.
No. That's that's really helpful. Appreciate the color from both of you the.
Jeff just one follow up Mike if I could on the.
The sharp drop in crediting rates and the wealth solutions business.
Clearly it looks like that was that was a pretty favorable earnings driver in the quarter can you expand a bit on what happened there.
And whether or not.
There is more flexibility on the crediting rate side going forward or was this kind of a big lever that was pulled.
And what it means for future margins. Thanks.
Tom I think I'll actually bumped that one over to Heather I think she is in a better position to give you the color on that.
Thanks, Mike Yeah happy to do so.
First as Mike had mentioned we had a notable in the quarter that will not repeat in terms of this.
The sale of called bonds, but we've taken very specific actions to address some of the interest rate pressures.
And let me point you to three specific actions first Mike talked about in his comments that we took some crediting rate actions last year and the beginning of this year of very much in line with the low interest rate environment that were reflected the.
Second our <unk> initiative from from several years ago has continued.
To help us on that front.
And then the third item is that we had significant transfers from variable to fixed in 2020.
Into lower crediting rate of product that that really also helped our spread income so.
We certainly recognize the fact that that the recent rate increases have been a bit of a tailwind for us we expect the level of low for long interest rate to continue.
We are always looking for opportunities to further mitigate the risk.
From a low interest rate environment, while honoring the commitments, we've made to participants and planned sponsors, but overall, we feel that our earnings are very well balanced between spread asset base and participant fees.
Confident with our ability to deliver on the earnings targets that we set forth for the year.
Thanks, Heather at any further flexibility in that and to continue to lower crediting.
Crediting rates.
Yeah I appreciate the question I mean, where we are always looking for opportunities I won't I wouldn't point you to any specific actions, but I will tell you that the teams are always looking at.
Certain blocks of business, we're looking at crediting rates and we want to make sure that we are.
Kind of balancing opportunities to derisking and with with commitments we've made the clients.
But being very good stewards of capital to shareholders. So again, it's something that I think we have a very solid track record over the past several years of of both the adjusting crediting rates and taking appropriate action and will continue to do that going forward.
Okay. Thanks.
Okay. Thanks, Eric.
Our next question comes from Andrew <unk> with Credit Suisse. Please state your question.
Hey, good morning, everyone I'm interested in.
<unk> solutions and the the.
Sales outlook.
As we as we as the.
As we look to the first quarter stop loss sales were up 23% year over year, but life sales were down 26% and we would've expected higher life sales just given the increased attention to that product area. So could you touch on both.
Alex lines and health solutions.
Rod do you want to begin.
I'd be happy to thanks, Andrew.
And as you know starts off obviously, a really strong start to the year.
On the life side, just connect that and then I'll circle back because I think the story across.
<unk> life and also voluntary is just worth reinforcing but.
On the life side on.
On the sales front.
Definitely down sharply again, I'd point back to mix of sales being the real driver there. So at the larger end of the market. We just saw less sort of things to take swings at and the activity was just flow during 2020 for the obvious reasons down to your longer term point of line.
Isn't recognition around life insurance and the needs of it all of the more apparent.
That's very true.
So I look at this as more <unk>.
Long term trend intact, if not increasing.
But at the same point, we just the 2020 noise from COVID-19 and what went to market was the real story there and then when you look at the in force book of business just to put of emphasis on it of our in force book of.
The life and disability grew at close to 4%. So you had on the one hand the drop in sales, but you also had an improvement in retention. So I think net net the story kind of connects from both perspectives and underlines the point of just.
Let's go into the market than you might have otherwise anticipated.
Stop loss again Thats the business, what we get swings at every year feel good about the discipline around that and then somewhat similar story on the supplemental health voluntary side of the house Ware.
We actually wrote a significant number of new groups over year over year. They just happened to be more middle market or smaller market than we've seen in prior years. So it was really a sales mix story on sort of National accounts 500 line 5000 lives and up.
Versus where we ended up right in the latter of business a lot of groups was more in the middle market. So as I alluded to it in some comments, we're seeing that activity open back up and this is sort of prime season for both voluntary and the life business.
And we're optimistic about the activity in the pipeline.
Very helpful. And then my second question is around the.
The wealth solutions unit and.
I saw it earlier last year I think.
You would put together multiple multi employer plans.
Tied to secure act.
And I'm wondering how that's going and then and then I see the secure act 2.0 legislation in the house.
I'm wondering what the addressable market there is so maybe.
A little bit about how you're proceeding with respect to the secure act how it's impacting sales and now this new legislation what that could do for you.
The other.
Yeah happy to address it.
So for starters and I think we've been very clear in our support of both the secure act of one point to point out and we think that.
Secure act is providing a tremendous opportunity for from more Americans to have greater access to retirement savings. So.
Very supportive and you know a couple of things that I would point to.
To your question is about multiple employer plans and I'll comment on even pulled employer plans. We believe that voya is very well positioned.
We have seen some some great success in.
In the adoption of pull the employer plans and.
Boy is absolutely well positioned.
The play successfully in that space and we're anticipating some growth in sales, particularly in our carpet and our corporate markets.
The pivot to your question on unsecured at two point out there.
We think that there there are a couple of components of specific to secure two two point now where our tax exempt business is going to be particularly well positioned to support it.
Specifically there are some opportunities that have been proposed that would expand the investment lineups for tax exempt clients, specifically, providing access to cit's collective investment trusts.
And then also opportunities with four of tax exempt plan sponsors to enter into multiple employer plans. So again all in all we're very well positioned.
Have pivoted from responded very quickly to the adoption of the secure act and we think that Voya is in an excellent position to help increase the savings rates for both participants as well as a growing plan sponsors as a result of secure act.
Thank you.
Thank you.
Our next question comes from Ryan Krueger with K BW. Please state your question.
Hi, good morning.
Hoping you could discuss the divergence in recurring deposit growth that youre seeing in full service corporate which has recovered pretty strong compared to taxing them switch.
There'll be under some pressure.
The other.
Yeah. Thank you happy to happy to address your question.
First as Mike stated.
Stated in his comments, we're very confident of our ability to achieve the 6% to 8% recurring deposit growth for the year very much in line with 2020 and to get specific to your question around the divergence when we if I look back to 2020 of our tax exempt business did not was not as impacted by COVID-19 in terms of recur.
Deposits throughout the year.
So we you know we did not see the same kind of rapid decline as we saw in the corporate markets now on the flip side as we look into first quarter. Our corporate markets is seeing just a faster recovery from what we're seeing from the from the economy, specifically in terms of the employer contributions and play contribution so.
All in all I think what it really speaks to is a very balanced mix of our business across corporate and tax exempt that is both growing and seeing nice signs of recovery.
And again, I'll really point more towards that.
That full year forecast from the combined basis, which is what we're what we're really focusing in on but again I think we're very very well positioned across markets and we do expect to see some improvement in tax exempt recurring deposits as the year progresses.
That's helpful. Thank you.
Thank you. Our next question comes from Erik Bass with Autonomous Research. Please state your question.
Hi, Thank you.
On the wealth solutions can you just talk about the outlook for expenses for the share was there anything unusual in the admin expense. This quarter should we expect the kind of continued minimal year over year of growth.
Yeah, I'll jump in and and answer that question. So the.
The first start area. So as we as we look back to first quarter of 'twenty, We did have some one.
One time expenses, resulting as the results from from some large sales in 2020, particularly in our record keeping business and as we as we look forward and we continue to be very very disciplined with our focus on expense management.
We are proud of the fact, we've driven lower unit cost across your book of business, which continues to be of focus so what I'd say is really no notables.
We are as I kind of look at the different levers that we have the Paul focusing in on on not only expense management, but how we're driving operational efficiency, how we're driving improved client experience.
That help us to to manage expenses. So nothing notable you know.
For the year and again, just the something we will continue to be disciplined with throughout 2021.
Thank you and then I was hoping you could talk about your current distribution relationship with a net investment management and how that could be affected by their announced strategic review.
Especially Christine do you want to take that.
Sure thing Rod, Yes, Eric.
As you referenced and then has made an announcement about an an IP potentially being up for strategic review and as you pointed out they've kind of a long run strategic partner of ours.
How do we think about this is around a couple of of lenses and the number one.
Yeah.
We know.
No that the capabilities that they are distributing on our behalf like notably investment grade credit that's one of the best performing.
The investment grade credit see cabs in the world and so the quality of what we produce should continue and we would expect that strategic partner to continue because of those sites, we're adding real value, but you know.
How to think about it the way forward we have been.
Planting seeds as far as direct distribution offshore I mean, those markets are growing rapidly notably Asia.
We did add sales resources into EMEA last year.
And also when you think about APAC, we're going to add some resources in the fourth quarter and what we're seeing out of APAC, notably is the.
Because the lot of the larger clients.
Purchase investment data, we've actually won through direct origination just based on the quality of what we do some Asian clients and then finally, we continue to grow our product set in Asia. We worked hard to set up a as an example, a cayman fun for commercial real estate for a long.
Japanese insurance company, just due to some technicalities around the taxes, so continuing to be innovative continuing to be able to meet some of the more complex solutions needed out of the offshore clients and so again and then it's been of great strategic partner of but we're doing a lot of away from them.
The continued to grow our sort of our notable growing client interest off shore based on the state of yields globally.
Thank you and Jeb of rough breakdown of kind of what your international distribution is.
Sort of independent versus through that relationship.
Sure we have the.
It's a small team in EMEA that is that is direct we have some onshore resources that are fully dedicated to servicing and reaching out to us to Asia and we don't have any direct salespeople the time the ground in Asia yet.
We're in the planning process with the Mike Smith and team that we're expecting to add a small team.
There in the fourth quarter and really what we wanted to do with that team is ensure that are you know they are insurance focused as well because we just think globally, there's a real opportunity given the strength of our insurance asset management and the products that we have to really tap into the that.
Client base worldwide.
Thank you.
Thank you.
And ladies and gentlemen duties from time restraints. Please limit yourself to one question from this point forward. Our next question comes from Jeremy Campbell with Barclays. Please state your question.
Hey, thanks.
Mike and Rob I'm, just hoping you could help us think of of the sizing of benefit strategies I think the release said 370000 participant accounts across HSA HRA all of that other fun stuff I think the the national average balance per HSA is about 18000, obviously everything else was probably.
A bit lower so any high level color on accounts splits or totally on board of would be helpful. As well as any opportunity to convert some of these HSA assets into voya of strategies would be would be helpful as well.
Rob do you want to begin.
Yes, sure look where that kind of peel it all the way back of share.
You are trying to do which is understandable look I think as we close the transaction obviously once it's close we'll be able to talk differently about.
Just how to set expectations.
It is.
It's an appropriately sized deal is very strategic for us.
Again, I think alluded to this before.
Rest of the products I wouldn't hang up on sort of the AUM the story around it as much as the fee story and so certainly there is the side benefit of growing.
AUM as we move forward in <unk>.
Continue to try to scale of the business, but it's really a fee oriented business and thats the best way to think about it.
And I would just say sort of stay tuned as we continue to refine.
Putting the foot of members and specificity too much of the.
The deal is closed.
Thank you.
Our next question comes from Humphrey Lee with Dowling and partners. Please state your question.
Good morning, and thank you for taking my question in investment management accounting for the the favorable investment capital return and the corresponding expenses the normalized earnings would be around kind of $34 million, which seemed low relative to where it has been running.
You talked about there was some reinvestment expenses going into the quarter. So just how to think about the the earnings power for investment management, where do you think it should be kind of.
Accounting for some of the of the variables in the quarter as well as the the individual life transaction.
Mike do you want to start.
Yeah, I'll take that hit the Humphrey. Thanks for the question and maybe just to cut to the chase on where we see the.
The investment management coming in second quarter, I think the number of moving parts in probably two months of try and cover in the time, we have but we see the second quarter being in the mid Forty's, that's going to be primarily driven by.
The variable comp adjustment that we flagged in the walk forward.
The reversion to more normal expenses from the from the first quarter typical seasonality as well as some fee income growth. So I think all of that together you know theres a couple of other smaller ins and outs, but I think of you can think of it. If you think of it in terms of mid <unk> I think that's a good place for it to be for Q2 and then incorporate.
The impact of the life transaction, which we've shared previously is a $10 million to $15 million annually.
Yes.
Thank you.
Our next question comes from SUNY come off with Citi. Please state your question.
Yeah. Thanks.
The the stop loss loss ratio in the quarter at $75 six was quite a bit lower than kind of where it's been running over the past.
Kind of three quarters.
Is there anything unusual going on in there or is that just normal volume.
Are you seeing people any impact from people sort of putting off medical treatments because of <unk>.
COVID-19 unwillingness to go the hospitals et cetera.
Rob.
Yes sure.
I think the quick answer on this is look at the.
It's a business that's all about managing volatility for employers and so sometimes we're going to see the good or where the bad of that volatility at different points in time I wouldn't.
I Wouldnt wrap it up and of seasonality comment I think it's just how the block is evolving.
And as we're writing new business, putting that on and then renew and new business.
You are just kind of see some inherent volatility there.
But nothing that we obviously don't focus on and manage through as time goes on so sort of the knock on question of delayed treatment and do we expect.
Different sort of severity or frequency of activity I think we're certainly like everybody in the industry is sort of watching for those those trends or those issues to emerge.
At this point, we haven't seen sort of a material deviation in the types of.
Sort of coverage that we provide is just as a reminder.
Our attachment points in the market, given where we play sort of that middle part of the marketplace.
Those are in and around 300000 dollar of deductibles. So it's going to take pretty severe events for us to cover as you get down market. Some players in the stop loss space Theyre going to see different sorts of activity different sorts of experience because they attach at lower deductibles. So there can be some give and take the cause.
Of that dynamic that I, just highlighted there, but we're certainly on top of it paying attention to it and we'll see how it evolves.
And then we get a reprice.
On the annual cycle and recover if we need to but at this point, we're feeling good about where we are setting.
Yes.
Thank you.
Our next question comes from John Barrett with Piper Sandler. Please state your question.
Thank you very much.
As we think about the health savings account initiative and push there in the lens of taxes, presumably going up can you talk about the opportunity to actually get maybe more.
<unk> of those accounts at like a fully funded level as opposed to where they traditionally maybe are.
And how the products across the suite at Voya.
It helps that thank you.
Yes.
I'll jump in.
From a funding level perspective, I think maybe you are.
Getting that.
Using them more of a savings of vehicle to vehicle versus spending.
Just sort of run with that assumption in case, you dropped off but.
Look over time, we certainly view the.
Flexibility the.
The customer value piece from the tax treatment.
As an area, where most consumers to the extent they can accumulate assets there.
Really great.
Probably underutilized way to save and accumulate funds Youll ensure people talk about and we talk about the cost of medical care. Once you reach retirement age and that.
It's in the.
200, $300000 range, it's not insignificant HSA certainly can play an important role in that I think for us.
Recognizing the individual situation understanding of what Theyre trying to accomplish what their needs are at any point in time, obviously, those things change over time as well and so I think this just puts us in the really good position to understand.
Someone's situation understand where they fit both from a retirement perspective as well as the savings for healthcare perspective, and provide really good guidance around that and support for them, making really good decision. So back to rod comment around data integration and taken a more holistic approach to the consumer.
Again, that's why we view this as such a strategic move.
Yeah.
Thank you for.
This concludes our question and answer session.
I would like to turn the call back over to Rod Martin for any closing remarks.
Thank you.
The purposeful decisions that we've made as the company has enabled us.
<unk> entered this period in a position of strength with our new operating model, our clear focus on the workplace of institutions and our expanding capabilities to deliver solutions that our clients and customers value voya.
It is well positioned for continued growth and success.
We're excited about the opportunities before us and we look forward to continuing to update you during the year and at our Investor Day later this year.
I Hope you and your families remain healthy and safe. Thank you and good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.