Q2 2021 Voya Financial Inc Earnings Call
[music].
Good morning, and welcome to the Voya financial second quarter 2021 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May press star.
And then 1 on your Touchtone phone to withdraw your question. Please press the pound key.
Participants are limited to 1 question and 1 follow up. Please note. This event is being recorded.
I would now like to turn the conference over to Michael Katz, EVP Finance strategy and Investor Relations. Please go ahead, thank you and good morning.
On the Voya Financial's second quarter 2021 earnings Conference call. We appreciate all of you sort of joined us for the skull.
As a reminder, materials for today's call are available on our website at investors day at Voya Dot com or via the webcast turning.
Turning to slide 2.
Some of the comments made during this conference call may contain forward looking statements within the meaning of federal Securities Law I refer you to this slide for more information.
We will also be referring today to certain non-GAAP financial measures GAAP reconciliations are available in our press release and financial supplement found on our website investors Voya Dot com.
Joining me on the call are Rod Martin Chairman and Chief Executive Officer.
As well as Mike Smith.
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.
The La Valley, well solutions, Christine hurt sellers investment management, and Rob Group Health solutions with that let's turn to slide 3 as I would like to turn the call.
Over to Rod.
Good morning.
Let's begin on slide 4 with some key themes.
We delivered strong results during the second quarter with record adjusted operating earnings per share.
This was driven by strong investment income and solid performance across our businesses.
Our clear and focused strategy is enabling us to drive greater outcomes for our workplace and institutional clients and this was demonstrated by the results we delivered.
In wealth solutions full service recurring deposits for the trailing 12 months grew approximately 7% compared with the prior year period.
We generated $238 million.
Full service net flows.
This was driven by growth in both of our corporate and tax exempt markets.
In the investment management, we generated 249.
Millions of dollars of net flows during the second quarter.
This was driven by a return to institutional inflows and continued funding of new mandates, particularly in fixed income strategies.
In health solutions annualized in force premiums grew nearly 10% year over year. This significant increase reflects growth across all of our product lines.
In addition to exceptional earnings growth, we continued to demonstrate our focus on being good stewards of shareholder capital.
We repurchased over $500 million of shares in the second quarter, leading to $753 million of shares repurchased during the first half of this year.
And we had approximately $1.5 billion.
Of excess capital as of June 30.
We expect to repurchase at least of $1 billion of our shares during 2021.
So we're well positioned to continue to build upon the more than $7.5 billion of capital that we've returned to shareholders through both share buybacks and dividends since our IPO.
This quarter. We also continued to advance our focus on the workplace and institutions on June 9 we completed the sale of the independent financial planning channel of Voya financial advisors.
And on July 1 we completed our acquisition of benefit strategies, a leading third party administrator of health account solutions.
This strategic acquisition will expand our capability to meet the evolving needs of our workplace and institutional clients.
Okay.
Through our purposeful actions, we've position voya to meet the complex and the increasing needs of our clients.
Our unique digital capabilities insights and focus on point of need will enable us to create greater value for all of our customers and have positioned us to generate further earnings per share growth.
Voya has a clear focus and unique solutions that will enable us to take advantage of the opportunities before us.
We look forward to sharing more detail about the next phase of our growth strategy at our Investor day in November.
Turning to slide 5.
As an original signatory of the CEO action for diversity and inclusion.
The recently held a day of understand.
The annual initiative encourages organizations the dedicated day 2 of hosting conversations that advanced diversity equity and inclusion.
And in May we once again celebrated voya as National day of service and this new hybrid format.
Voya employees volunteered approximately 10000 hours to numerous nonprofits across the country.
As highlighted in a recent Forbes article Voya as 2021 inclusive advertising campaign, which features a family of special needs has contributed to new brand highs. This includes total brand awareness.
Ethics Trust and interest in doing business.
This campaign is a continuation of our longstanding commitment to people with disability Special news, which helped enable voya to earn recognition as a best place to work for disability inclusion for the fourth consecutive year.
<unk> earned a score of 100% of the 2021 disability equality index.
The actions taken by our people and our company reflect our culture and carried through all of that we do in our communities and for our customers.
We will continue to focus on the needs of all Americans in our businesses our company and then the finding of the character of our brand with that let me ask Mike Smiths to provide more details on our performance and results.
Thank you Rod.
Turning to our financial results on slide 7.
We delivered record after tax adjusted operating earnings per share of $2.20.
In the second quarter of 2021, which included 4 notable items.
77 tenths of prepayment and alternative income above our long term expectations, mostly linked to the first quarter equity market strength.
Second <unk> 11 of favorable DAC, <unk> and other intangibles of unlocking from equity markets in the quarter.
Third 8 tenths of unfavorable COVID-19 related claims impacting health solutions and force 11 of other items, which is primarily driven by incentive compensation related to the strong performance in the quarter.
Second quarter GAAP net income of $459 million reflects several favorable items, including strong underlying operating results in the alternative income gains from the sale of our independent financial planning channel and the sale of our equity investment in Venerable.
These favorable items were partly offset by CMO mark to market and restructuring costs.
Moving to slide 8.
Al solutions delivered record adjusted operating earnings of $295 million in the second quarter.
This was materially higher than $37 million in the second quarter of 2020.
Largely driven by a recovery in the alternative income.
Alternatives on prepayment income with $96 million above our long term expectations. While we also experienced a favorable DAC unlocking in the quarter due to strong equity markets.
Underlying core business results were also solid this quarter <unk>.
Investment spread continued to benefit from the crediting rate actions taken earlier this year and higher surplus income.
Fee based revenues benefit from business growth and from higher asset levels that were helped by favorable equity markets.
Offsetting this was the loss of revenue from the sale of our independent financial planning channel.
Looking ahead, we expect the sale to reduce pre tax adjusted operating earnings by $10 million to $15 million in the second half of 2021.
Administrative expenses were also favorable year over year due to a prior year legal accrual not repeating and our continued focus on expense discipline.
Turning to deposits inflows full service recurring deposits grew 6.7% to over 11 billion on the trailing 12 month basis led by rising employee and employer contributions.
The continued to expect full year 2021 recurring deposit growth in the range of 6% to 8%.
We generated $238 million of positive full service net flows contributing $2.3 billion of inflows over the last 12 months.
We experienced modest record keeping that stable value net outflows of $755 million and $502 million in the second quarter respectively.
Looking ahead, we anticipate recordkeeping net outflows in the second half of 2021 due to the termination of 1 large case client and higher participants surrenders as a result of elevated equity market.
Higher equity markets meaningfully improve earnings, but they also increase the size of full service and recordkeeping participants surrenders.
The number of participants surrenders are on plan the equity effect on participants surrenders will be a headwind for both record keeping and full service net flows.
Despite this headwind we still expect overall full year of full service net flows to remain positive.
We remain bullish on the growth outlook for 2022 due to our robust pipeline.
RFP activity and favorable client retention trends.
On slide 9 investment management delivered $66 million of adjusted operating earnings higher than the second quarter of 2020 by 46 million the.
The year over year improvement included significantly favorable investment capital results, which in this quarter were $20 million above our long term target.
Revenues were higher year over year due to growth in both institutional and retail client assets.
Administrative expenses were elevated relative to the second quarter 2020, largely due to variable compensation associated with strong investment capital results in the quarter.
Our adjusted operating margin, including notables was 34% in the quarter.
Turning to flows we saw a return to positive overall net inflows with $249 million in the quarter.
This is mostly reflect the institutional demand, which was partially offset by modest retail net outflows.
We saw fixed income demand from U S institutional clients in investment grade credit and long duration solutions and we continue to see of demand for private credit and commercial mortgage loans from our insurance channel clients.
Our domestic strength was partially offset by some weakness in international flows this quarter.
The retail flows improved sequentially, however remains slightly negative this quarter.
Looking ahead, we expect overall net outflows in the third quarter, driven by a $3 billion client outflow related to a divestiture by an insurance clients.
As a result, we are lowering our full year 2021 organic growth expectation to 1% to 3%.
Notwithstanding this we're still seeing great demand for our solutions across a diverse set of strategies. Encouragingly. This includes demand for higher margin products that are strengthening our revenue yield profile.
For these reasons, we believe our long term growth outlook remains positive driven by 3 key strengths first our continued exceptional investment performance demonstrated by 89% of our fixed income funds outperforming their 3.5 and 10 year benchmarks in the second quarter.
Second the strength of our distribution channels and a significant unfunded pipeline and third the diversity in our solutions, providing clients with a differentiated value proposition.
Turning to slide 10.
Health solutions delivered a record earnings quarter with adjusted operating earnings of $63 million in the second quarter. Despite.
Despite the impact of excess group life claims related to Covid.
This result compares favorably to $36 million in the second quarter of 2020.
Similar to the other businesses health solutions benefited from strong alternative in prepayment income, which exceeded our long term target by $11 million.
Underlying business performance was exceptional annualized in force premiums grew 9.8% year over year, we experienced growth across all product lines, including double digit growth in voluntary and stop loss.
The total aggregate loss ratio was 71, 6% on a trailing 12 month basis within our targeted range of 70% to 73%.
We continued to see favorable voluntary loss ratios in the second quarter.
Also reflected in the total aggregate loss ratio is $73 million of Covid related claims over the last 12 months of which $13 million were incurred in the second quarter of 2021.
We attributed an additional $15 million of previously reported claims the COVID-19 following the receipt of updated cause of death of information.
$5 million of which impacted the first quarter of 2021.
Please note that this does not change previously reported financial results.
We continue to expect a pretax <unk> earnings impact of roughly $10 million per the remainder of the year and overall impact of the pandemic to be within our expected range of 1 to 2 million per 10000 U S debt.
This quarter, we closed on our acquisition of benefit strategies, which accelerates our presence in the fast growing HSA market and expands on our range of solutions offered through the workplace.
We expect future earnings momentum to be supported by reduced COVID-19 related headwinds and a strong pipeline of 2022 activity.
Turning to slide 11.
In the third quarter, we show the effect of alternative income returning to our long term expectation of 9% annual growth and the favorable second quarter debt unlocked not repeating.
We pay of seasonally higher preferred stock dividend in the third quarter, and we will realize a full quarter's impact of the sale of our independent financial planning channel.
We also expect health solutions voluntary loss ratios to normalize.
Specific to well solutions, we foresee continued headwinds from lower interest rates.
Favorable third quarter EPS items include an improvement in group life underwriting due to lower Covid related claims. We also expect lower incentive compensation in the third quarter.
Third quarter EPS also includes a <unk> <unk> per share benefit from the late June ASR program.
Potential market impacts affecting third quarter outlook are not included on this page.
There are of course other factors that could affect third quarter results, including potential share repurchases over and above the second quarter ASR warrant dilution business growth and additional unexpected COVID-19 impacts.
While we typically do not guide on excess prepayment and alternative income.
There may be upside to third quarter adjusted operating earnings following strong equity market performance in.
In the second quarter.
Turning to slide 12.
Year to date, we have returned almost $800 million to shareholders and more than 7.5 billion of capital to shareholders. Since we have been of public company through dividends and share repurchases.
In the second quarter, we repurchased $518 million of shares through a combination of ASR and open market repurchases.
This quarter's repurchase activity puts us well on track to reach at least $1 billion of repurchases in 2021.
Our ending excess capital position was $1.5 billion, which included the majority of the proceeds from the sale of our independent financial planning channel.
Our estimated RBC ratio of 545%.
All of our financial leverage ratio was 32% or.
Our leverage ratio was lower than last quarter, reflecting strong earnings gain on sale impacts and increases in <unk> and non controlling interest driven by financial markets.
Finally, with respect to our Covid related capital impacts year to date, we have incurred roughly $20 million of net negative ratings migration and credit impairments, including a net positive impact in the second quarter.
Due to improving macro conditions, our previously shared stress scenarios no longer apply that said, we could see up to a growth $100 million of credit related impact in the second half of 2021 in the unlikely event. There is a significant shock from COVID-19 related impacts.
In summary, we are pleased with our record second quarter earnings results and the performance of our underlying businesses. We believe our highly regarded workplace and institutional franchises are poised for long term success.
And we generate high free cash flow and have a significant excess capital position.
We will continue to act as good stewards of capital as we look toward 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.
We will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press star 2.
As a reminder, participants are limited to 1 question and 1 follow up.
Our first question comes from Jimmy Buhler with J P. Morgan. Please proceed.
Hi, Good morning, So I had a question primarily on the asset management business and if you can sort of give us a little bit more insight into the 3 billion mandate that you're losing.
What it actually is in terms of asset class and then.
The fees on <unk> the margins on debt business.
Just so we get a better sense of the Hum.
Of the impact on revenues and then Relatedly.
What gives you the confidence that you will actually have positive flows for the year.
And then how should we think about like what's driving that.
Jimmy Thank you good morning Christine.
Yeah. Thank you Jimmy.
The first let's start with the 3 billion outflow. It was is the result of the client that sold the business. So not at all related to investment performance and so.
How to think about what that mandate was it was core public fixed income and so when you think about mandates that we manage just given the size of the relationship with our client as well as it being public fixed income it's on the lower side of what we typically do in terms of basis points.
Alright, as how to think about that now moving on to your question about you know on.
The context of that outside of what gives us the confidence that you know because we're we just pivoted our guidance down from 2 to 4 to 1 the street so very strong.
And we expect to have our sixth straight year of positive net cash flow of sourced from our distribution teams. So so why is that what do we see a we see a really robust pipeline.
It's not just 1 huge mandate that were expecting to find that rather it's a quite diversified both on client type.
As well as strategy and and I would say Jimmy you know 1 thing to that debt. We've we've seen this year.
It's really changing that's gone from a bit of the headwind if you will and converting our flows into the wind was commercial real estate you know due to COVID-19.
We have strong demand for that asset class and it was just hard to get out but as we've seen the economy reopen capital getting exchanged you know that's really starting to pick up for us. So so from a lot of lenses as we look at it you know we're confident that we're gonna have a strong.
Major of the year.
Okay, then if I could just ask 1 more on buybacks I think you mentioned that you intend to do at least of $1 billion.
I just wanted to and you've been doing a lot more than that obviously.
Through the first half if you prorate that Soc is the is the billions of sort of a minimum number that you intend to do or.
And what's the likelihood of upside the that assuming the results are fairly stable and credit side.
Jimmy its rod what we've said is we will do at least of $1 billion and as you will point out the return.
And almost $800 million to shareholders in the first half of this year.
And this.
As you're well familiar if you look at.
The at least the billion dollars in a single year basis, that's over 10% well over 10% of on market cap.
So we've got a lot of confidence in the momentum that we have.
We've got a lot of work.
We're very proud of the track record that we've that's delivered back to me the 7.5 plus billion zone.
<unk>.
We feel good about where we are in the year end.
What we will deliver for the second half of the year.
Thank you. Our next question comes from John Barnidge with Piper Sandler. Please proceed with your question.
Oh.
During Q2 'twenty 1 of high closed the first new infrastructure fund on project financing.
The space can you talk about the fees.
Relative to the overall fixed income business.
And how big of a business opportunity of this could be thank you.
Christine.
Sure John Thanks for the question. So yes, you're absolutely right. We did do our first close of the of really differentiated product, which is an infra debt fun, but focused on renewable energy. So think of the nexus of infrastructure and ESG all in 1 product offering. So we're very excited about the potential for the <unk>.
On the value of its gonna give clients. So we did our first close.
We are working on the second close in the third quarter.
And again, you know really excited longer run about what we're going to be able to do with this particular offering and I would say you know not to get specifically into the fees themselves, but know that this is a differentiated private credit structure.
So it's gonna have meaningfully higher fees than your normal sixth income mandate and again, just just 1 other thought about.
What's going to drive growth that the it makes US excited is we're working on actually creating a fund that would be more capital efficient for our insurance clients. So again just another reason to think why this is gonna be a the a real winner for us in the long run.
Great.
Axes, traditionally 15% to 18% it's been above that in the first half of the year.
The likely this dynamic should probably persist assuming VII in the near term and favorable. Thank you for the answers.
Hey, John Thanks for the question.
In any quarter, where were the alternative income or other factors drive the outer.
Sized the earnings result.
That's going to drive a higher tax rate and potentially as we've seen in the last couple of quarters.
Does the alternatives have performed so well, even even a little above our range of 15 to 18 I don't think I don't we clearly don't expect that to be of persistence.
The effect, but.
So long as the alternative performance continues to be strong so that will what will drive that are the result.
Thank you. Our next question comes from Erik Bass with Autonomous Research. Please proceed with your question.
Hi, Thank you I was hoping you could talk a bit about the outlook for our retirement recurring deposits and the trends you're seeing at of participant in the employer level and then is there any potential for upside to your outlook given the economic recovery we are seeing.
The other.
Yeah. Thank you Eric I mean, we will start by saying that right now we're very much in line with our targets of the 6 to 8 per cent recurring deposit growth on a trailing 12 month basis for the year. As you commented we are seeing some nice double digit growth of in our employer contributions and employee contributions.
And we we still expect to see sequential improvement in recurring deposits throughout the year and we're also seeing an increase in participants contributing.
So overall, you know macroeconomics are definitely helping us to improve our recurring to potluck recurring deposits our view for the year.
What I would say is I'm afraid for for now for US. It is just that.
Expecting that we're gonna coming in right on right on target and we're benefiting from macro economic conditions.
In the driving our growth.
Got it. Thank you and then there was recently another large consolidation transaction in the retirement market. So just wondering your views of the threshold for adequate scale is changing at all and does the shift your views on them at all on M&A.
So there you want to begin on the scale piece of course, yeah happy to yeah. So you know for starters mm. We're top 5 to 5 defined contribution provider and we're at scale to compete in all of the markets that we play in and and if you look at it our organic growth rate over the past several years has outpaced the.
Tree, you know specifically, we have not needed inorganic growth to drive our.
Our success and we're winning in the market and our competitive positioning is really resonating with clients and intermediaries and when you think about it.
When the decision comes down to a small number of very fine companies, but the way. It stands at 1 of them we stand at around our unique culture, our purposeful innovation and our commitment to the retirement market of competitive suite of workplace offerings across health wealth and investment management that are improving customer outcomes and the <unk>.
Of the thing that I would say around this is that when we see a movement in the industry and frankly this type of consolidation they create opportunities for us to win business and we tend to see an increase in off cycle RFP volumes during consolidation in end of Voya has been actually of a.
The strong beneficiary of this type of of activity in the past and so bottom line is we really like our position to win and grow organically in our target markets and are at scale to compete today.
Thank you. Our next question comes from the line of Ryan Krueger with K B W. Please proceed with your question.
Thanks. Good morning, when you think about the dollar of 60 to $1.70, EPS range that you had guided here for the fourth quarter of this year.
Can you just comment on if you feel like think.
The everything that's happened this year the here, they're still on track of that.
Sure Ryan Michael.
Ryan Thanks for the question.
So in short if you continue to use the old definition of normalized earnings, which were which we've really gone away from but just to keep it on an apples to apples basis.
We would expect that we would be at the low end of that range.
On our around the bottom of the range. However, there is an important important factor to consider which is that includes the <unk> the impact of of incentive compensation.
This year that is really pretty much entirely driven by the the outsize of alternative performance on that.
That's 1 of the reasons I think the way we've gone away from the normalized is it was very difficult to kind of fully extract the the impacts of.
Outside of the alternative performance. So if you do back that out and I think it's a fair sort of way to look at it we would actually be towards the top end of that range.
The backing out is also important as you think about 2022 because the the.
The the increased expenses of temporary phenomenon when it goes away is incentive comp starts over the.
Beginning in 2022.
The last thing is just the keep in mind as you think about alternative income.
We tend to want to back it out it's it's still pretty helpful. In terms of the excess capital position. It has been a meaningful contributor to that $1.5 billion of ex us and will enable us to to put into the work in ways that I think of a very beneficial to shareholders. So it's real money.
But it's.
We we were singled out as it's not sustainable.
But also the incentive comp effects are of related to that I think, especially this year and so so think of it as we'll be on the good position ex the incentive comp I think we'd be near the top end of that range.
That's really helpful and just to make sure I have this right so ongoing higher incentive comp in the back half of the year will run.
Yes, it sounds like maybe.
And the like.
The mid to high single digit cents per quarter in the next couple of quarters before going back the normal index until the acquaint too.
That is correct think of that as about the depending on share count 7 to 8 cents.
Thank you.
Yeah.
Thank you. Our next question comes from Humphrey Lee with Dowling and partners. Please proceed with your question.
Good morning, and thank you for taking my question.
My first question is related to the leverage ratio, which seems to be on 2 of come down quite a bit given the size of the book value moves in the quarter if the.
This point does it change the outlook for debt reduction for the back half of the year.
Hopefully thank you Mike.
Humphrey Thanks for the question.
So our outlook for the debt.
Repurchase has been consistently 6 to 800 related to the.
Goes back to <unk>.
When we first announced the life transaction 6 to $800 for debt pay down.
We made a down payment on that in the first quarter with the $75 million. So so for the balance I would expect given the favorable movement in leverage on that was driven by strong earnings.
Including the gain on the sale of the financial planning channel.
As well as the favorable movements in a OCI as of June 30, as well as the non controlling interest driven by equity market. So so so that I think gives us a little more flexibility it would probably push us toward the lower end of that range and maybe even below it.
So we'll see how events unfold in the coming weeks. Obviously you know we're in a very dynamic situation I think we still we feel good about where the economy is getting overall and get good about certainly the trajectory of voya out but we.
We'll be we'll be mindful of the environment.
Look to make probably of meaningful progress on the debt pay down in the in the third quarter.
If things are proceeding normally.
Yes.
To help so 1 of the health insurance has talked about rising medical costs in the envelope that is affecting their kind of earnings for the back half of the year and maybe into 2022 on our earnings call.
The topic of medical cost inflation is not new but given some of the broad of inflation concerns of what we're seeing how do you see the inflation affecting your stop loss business does it change your pricing strategy in the near term.
Rob.
Sure. Thanks, Humphrey so inflation.
Medical is not a new thing to your point.
And of different stage are of different cycle of of how it could impact cost around care and those things obviously in this business just the level set on on stop loss as a reminder.
The business that we're going to reprice every year.
As we look at the balance of our growth a big part of why the stop loss business has grown in the past is driven by exactly the dynamic around medical inflation. So there is an element of did you get your assumptions right for sure that we got to continue to pay attention to.
Again, just come back to the we get a re price and reassess things on an annual basis, which certainly reduces the risk and as you might think about it over a period of time.
And the other dynamic I'd just point to sometimes there's the pure medical inflation cost of debt.
Resources that go into another big driver that may be applied and here is just the cost of.
<unk> pharmaceuticals and the actual.
Sort of pipeline of drugs that have come in the market working fully paying attention to that but again you come back to the Samuel dynamics that spilled into how the products are are managed and run and we feel good about how we're positioned to respond to that.
We like others as you just pointed out and being close of tenant pay close attention to that as it evolves into the future though.
Yeah.
Thank you. Our next question comes from Andrew <unk> with Credit Suisse. Please proceed with your question.
Hey, good morning.
So just to follow up on the wealth solutions question about the competitive dynamics.
I think when when empower did the transaction with Prudential. They showed a slide I think they had.
141, 5 billion trillion and in the assets under administration and I think Voya is somewhere in the $500 million trillion billions of dollars range. So.
We think going forward.
Are there areas, where you might want to acquire that you might want to get bigger even with the bass.
GAAP drop that the that you do have scale and maybe just the same question in health solutions, we've seen peers do bolt ons.
Acquired there to maybe the the same exact question in the house solutions.
Yeah.
Andrew I'll start and throw it to the public.
We we've talked about previously when asked the question about what might we consider from an M&A perspective.
<unk>.
Looking at and evaluating heading of book of business.
And in a line of business that we're in so.
That is something that we certainly would consider as Heather pointed out we've got.
Over 6 million participants we've added 850000 in the worst 2 years.
And what are the great parts about the RFP process as Heather talked about is the market is very efficient and you you narrowed down to 2 very fine players and.
And then the choices made and increasingly we're finding the choices made.
With Voya.
Would we consider adding of book of business, we would but our plan.
True. This year has been as you know fully organic and we fully expect to meet or exceed that plant based just on the organic growth, but feel free to jump in yeah.
Yeah, Thanks, Rod I'll add a couple of points onto what she said agree 100% with what you said, but I think some of the other things that had been pointed out with the Prudential acquisition have been enhanced capabilities and in particularly pointing to a non qual capability and you know when we look at not only our scale. We also look at the ROE.
<unk> solutions that we offer across the market segment and we already have a very strong nonqualified business. We have continued to enhance our offerings around financial wellness am I think about our partnership with our health business and the HSA product.
Products that Rob's team has been has been growing as a wonderful complement and we're seeing a lot of really positive momentum. So to me. It's not just around scale play we have been taking appropriate action to bring down our expenses, while continuing to invest in the business.
We continue to enhance our.
Our platform our participant.
The engagement experience, our security protocols and all of the things that frankly are really take.
Taking precedent in the minds of our clients and Internet of intermediary partners. So while we wouldn't rule. It out again, our focus is very much around what are the capabilities that we need and to make sure. We can compete at scale and at a competitive cost structure and and we think we're well positioned to do that.
This is rod maybe I'll just standard of your point on pivoting the health for a SEC just on.
Great comments have been made but.
On the health space when you look back at us over the last few years, obviously, we've done a tremendous job of growing the top line.
If you stack us up against the number of different competitors and you look at it in aggregate you could argue we've been small.
What I'd point out on push on is just where we choose to play.
The product solutions capability of the service and customer support that goes with it.
We have no trouble competing.
And again when you see the results this quarter, 10% top line growth record bottom line numbers.
We feel good about our position as we move forward from here as well.
Heather's comments, how do we bring capabilities to play be really deliberate on what we do versus what we don't do and finding ways to differentiate ourselves and drive ultimately better outcomes.
The work that's been going on and will continue to go on and we'll talk more about this at Investor day.
We see a lot of upside opportunity as we look into the future.
Yes.
Awesome. Thank you.
Thank you.
Thank you. Our next question comes from Tom Gallagher with Evercore. Please proceed with your question.
Yeah.
Good morning of just a question on the stranded cost program.
Where where do you see of going and.
Are you still on track.
Habit largely completed by the end of this year I guess, if you look at corporate expenses.
For the 3 cube bridge, they seem to be running high but from what I'm hearing from you, which it sounds like that's more comp accrual then stranded costs is that fair.
<unk>.
Mike.
Thanks for the question.
So so first broadly speaking the.
The stranded cost program has 2 components. The first it's the the stranded costs, but there are there's also the transition service arrangements the fees that are coming our way and so so whats coming through the corporate program at the corporate line is the net of those things.
We expect the the stranded cost to be taken care of by the end of next year.
Along the way the TSA fees will come down kind of alongside that it won't necessarily be joined at the hip but they'll generally be consistent with that so by the end of 'twenty 2 we expect to be fully neutralized.
In terms of the corporate work.
Think of it this way you got.
We came in at 71 loss for corporate in the second quarter.
You've got the.
The differential on incentive comp between second and third quarter of about $7 million.
And then then theres going to be a couple of other things largely improvement in the net stranded cost that gets you to another force. So that gets you to the 60 and then you add in the press the dividend and 70 and so then you've got that's why we're bracketing 65 to 75 of the expectation for corporate.
Okay. Thanks, Mike.
And my follow up is just a free cash flow conversion question the.
Yeah on the 90% plus or a ticket to 95% that you're guiding to just remind remind me how many years left at that level.
How much of that is being driven by utilization of tax assets and what happens when you're done fully depleting the Nols what where.
Where would you see that trending on the other side.
Yeah, it's a pretty straightforward answer that we expect the tax benefits of persist for at least 5 years and maybe a few years beyond that so.
It's a little hard to say where we'll be.
When we get there but.
And that will really depend on how the business mix evolves from here, but in all of our business of everything we've got pretty high cash conversion ultimately, though.
The way to think about this as the tax benefit on the corporate.
Costs, including debt and so on are kind of netting out.
The b to B zero so.
If and when at the time the tax point of that does.
<unk> get utilized and then you would see the corporate start to come.
Come in and reduce it a bit.
Net overtime.
<unk>.
Thank you. Our next question comes from the line of Elyse Greenspan with Wells Fargo. Please proceed with your question.
Hi, Thanks, good morning.
My first question on so in response to out of your question you guys alluded to the fact that you could be at the low end.
Actually below the low end of that 600 to 800 million debt pay down that you had targeted growth.
You're ending up of lower on that debt pay down and.
And how come you know should we expect the then there could be incremental buybacks relative to the $1 billion plan for the year.
Right.
Well.
Hey, Lisa Thanks for the question.
The.
Just to remind you don't get the at least the 1 billion.
We mean at least.
So please don't view of 1 billion as the target.
Some of that so you don't think of that as a ceiling.
So so.
Certainly as we think about the use of proceeds.
And our debt Paydowns go down then that would make more available for potential share repurchases. So so it all it all hangs together.
The exact timing of that and so on is certainly paying down less debt.
Does does create a bit more flexibility for us on the on the other side.
Okay, Great and then on.
The <unk>.
Is there and the last thing things have trended pretty well relative to your target since 1 of them to life of Covid.
So anything kind of 1 off that you've seen or where should we just expect that things 1 of lie.
What kind of of the ratio.
Group life and stop loss kind of within the 77 day and then maybe just a little bit on what version of the more normal level of involuntary like I think you pointed out.
Rob Yes.
Yes sure Thanks Luis.
Look I think you.
You summarized it pretty well for me.
You know what we've seen as you said with without Covid and doing those views.
We think our guidance is still appropriate.
Obviously, we'll see how the third and fourth quarter transpire relative to the Covid and then we'll.
We'll be able to be more specific about expectations moving forward from there we highlighted the impact and the strong results from the loss ratio perspective around the voluntary block.
If you Peel that back just to call. It out it has not been set yet, but regardless of the product you look look that we sort of saw that dynamic going on we would expect that to revert as we put in the guide for <unk>.
But we'll continue to monitor it closely.
Stop loss has really been middle of the fairway for us so far this year.
Lots of experience to continue the emerge in the back half of the year, but again based on what we're seeing at this point in time, we feel really good about the results that we're seeing on.
Just the overall trend of the book is run on where we'd expect it to end.
We will try hard to keep it in the middle of the fair way of making it easy for you.
Thank you. Our next question comes from Mike Ward with UBS. Please proceed with your question.
Thanks, Good morning, guys I just had 1 question I was wondering about the investment portfolio of stress tests and.
I don't I don't think there's necessarily front and center of these days thankfully, but.
1 of your competitors actually with the with the very similar business mix. Since you guys. This quarter of they've lowered their credit loss expectations or are there kind of a stress case.
To basically zero to actually maybe positive from upwards rating's migration of a little bit.
So I was wondering if you know if there are certain asset classes or sectors, where you still see actual credit ratings migration risk on your portfolio.
Mike do you want to start sure.
Thank you for the question.
I think the way to think about the stress case is it simply if things change from here in and of meaningfully.
Adverse way I think we're just trying to sort of put a estimate of what it could mean, but I think as we look ahead kind.
And the most likely path, but I don't think we're that far off from where.
The.
What you've described is we don't see anything other than kind of normal levels of migration of the head.
And there's always there's always an undertone of that book, but we also have the ability to manage the portfolio.
The offsets as we go forward so kind.
Yeah.
Our expectation is that it's not a capital impact.
If we see a meaningful change in direction around the economics.
Potential shutdowns of Lockdowns, the economic activity reverses.
And then maybe you could see some additional pressure there and we were just trying to ballpark it and think of the 100 relative to where we had been you know 6 months ago or a year ago thinking of to be potentially much much larger than that so overall, we feel good about the portfolio I don't think theres, a read through and in the allocations or anything of the sort of it would be.
Be a differentiator.
<unk>.
Thanks, very much make sense mhm.
Yeah.
Thank you. This concludes our question and answer session I would like to turn the conference call back over to Rod Martin for any closing remarks.
Thank you.
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With our strong capital and business performance and our clear focus on the workplace of institutions and our expanding capabilities to deliver solutions that our clients and customers value Voya is well positioned for continued growth of success. We're excited about the opportunities before us and we look forward to updating you at our Investor Day later this year.
I'll go for you on 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.
Okay.
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Okay.
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