Q1 2022 Voya Financial Inc Earnings Call
Good morning, and welcome to the Voya financial first quarter 2022 earnings Conference call.
All participants will be on a listen only mode should you need assistance. Please signal a conference specialist by pressing star zero on your telephone keypad.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press star two participants will be limited to one question and one follow up. Please note. This event is being recorded I would now like to turn the conference over to Michael.
Executive Vice President Finance strategy and Investor Relations. Thank you. Please go ahead.
Thank you and good morning, welcome to Voya financials first quarter 2022 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 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 I refer you to this slide for more information.
We will also be referring today to certain non-GAAP financial measures GAAP reconciliations are available in our press release and financial supplement found on our website investors Dot Voya 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 have.
Ola Valley, well solutions, Christine hurt sellers investment management, and Rob Group Health solutions with that.
Let's turn to slide three.
I would like to turn the call.
Over to Rod.
Good morning, let's begin on slide four with some key themes.
Overall, we delivered solid results during the first quarter. This.
This included strong adjusted operating EPS.
Organic growth across our businesses.
As well as disciplined and opportunistic capital management. These results were achieved despite the macroeconomic challenges during the quarter.
Our performance speaks to strong client demand as well as being proactive in both capital and expense management as a result, we generated first quarter adjusted operating EPS of $1.47.
Excluding notable items EPS grew 15% year over year.
A key driver of our results was the commercial momentum we demonstrated across our businesses.
In wealth solutions full service recurring deposits.
12 months grew 11, 2% compared with the prior year period.
During the first quarter.
We generated positive full service net flows of $446 million.
And this reflects the strong organic growth as well as lower participants and plan surrenders.
In health solutions annualized in force premiums grew nine 7% compared with the prior year period.
This was driven by growth across all product lines, including a 22% increase in our voluntary results.
In investment management, we generated $1 $3 billion of net flows during the first quarter driven in part by several new private credit mandates.
Net flows over the last 12 months were $9 5 billion, which represents organic growth of four 5%.
As we shared at Investor day, we are generating organic growth the products and the solutions that we provide today, while also making investments that will enable us to do even more for our customers going forward.
For example in March we announced the launch of my Health and wealth. This is a new integrated and holistic benefit selection experience that offers personalized digital guidance specifically it helps employees.
Optimize their spending across retirement health insurance benefits and emergency savings. This is just one.
Example of how we're taking a customer centric approach to helping our clients with their health wealth and investment needs.
In addition to our commercial growth, we are continuing to benefit from our high free cash flow businesses during the quarter, we deployed more than $700 million of excess capital.
Given the decline in the equity markets during the quarter.
Opportunistically repurchased $500 million of our shares the.
The remainder.
Of our capital deployment.
During the quarter consisted of approximately $200 million of debt extinguishment.
And $20 million in common stock dividends.
As of March 31.
We had approximately $900 million of excess capital.
We've also recently received an additional share repurchase authorization of $500 million from our board.
Moving forward, we will continue to be disciplined.
And balanced with the use of our capital, including investing in our businesses to support our growth plans and meet our client needs.
Despite inflationary pressures equity market volatility and rising interest rates voya remains well positioned.
And this is due to the purposeful decisions that we took to derisk lawyer and to create a simpler company.
We have a clear strategy.
Strong businesses with significant scale and multiple levers to achieve the growth plans that we shared at Investor day.
We will continue to execute as we did in the first quarter on all components of our plans net revenue growth margin expansion and disciplined capital management.
Doing so.
You see a path to achieve double digit adjusted operating EPS growth.
In 2022.
And while macro conditions will affect this result, we will be steadfast and adapting and Piddly spa.
Specifically, we will continue to demonstrate our experienced strong operators and expense managers.
<unk> seen this management team demonstrate in the past during challenging market conditions, we will be proactive in controlling what we can control.
And we will continue to balance both short and long term needs of our stakeholders, while positioning <unk>.
For future long term success.
Turning to slide five our focus on.
One of our values and culture continue to differentiate voya.
Recently Voya was named as one of the world's most ethical companies for the ninth consecutive year.
We were one of only a 136 companies to earn this recognition.
And one of only six companies in the financial services category.
And our commitment to.
Sustainability earned Voya inclusion in S&P's global sustainability yearbook.
We also came together in April for boys.
Celebrate diversity month.
This coincided.
With our continued partnership with the CEO action.
For diversity and inclusion focus.
On a day of understanding.
The actions of our people.
And our company reflect the strength of our culture and how that carries through and all that we do.
With that let me ask Mike to provide more details on our performance and results.
Thank you Rod.
We delivered a strong quarter commercially and financially even with the backdrop of geopolitical conflict inflation and rising interest rates.
We have demonstrated our ability to manage well through such challenges and have a strong track record of effectively employing the multiple levers we have at our disposal to drive growth.
As Rob said, our priorities remain clear and unchanged growing revenue, maintaining or improving margin and disciplined capital management.
During the quarter, we showed progress on all of these in particular, we demonstrated our commitment to managing capital effectively and opportunistically buy deploying $500 million towards share repurchases complemented with nearly $200 million of debt extinguishment.
Additionally, we have taken actions to manage spend highlighted by real estate actions enabled by our hybrid approach to the workplace.
We will continue to actively manage expenses with an eye to both our top and bottom line.
As Rod mentioned, we have demonstrated our experience is strong operators and expense managers.
As such and despite the headwinds in the macro environment, we continue to see a path to achieve double digit adjusted operating EPS growth in 2022.
We will continue to execute on the growth margin and capital components of our plans and we will balance near term results with opportunities for longer term growth across all of our businesses.
With that let's turn to our financial results on slide seven.
We reported adjusted operating earnings of $1 47 per share in the first quarter of 2022.
This includes three notable items first 40 of net alternatives and prepayment investment income above long term expectations second.
Second 24 cents of Covid impacts and third <unk> 11 of unfavorable DAC unlocking related to the movement in the equity markets during the first quarter.
Excluding these items, our adjusted operating earnings per share grew 15% year over year.
In line with our target EPS growth range of 12% to 17%.
First quarter GAAP net income was 27 million, which included investment losses associated with higher rates and wider spreads along with impairments primarily related to exposures in Russia.
It also includes losses and businesses, we have exited that do not impact our capital generation.
Moving to slide eight well solutions delivered strong earnings and operating margin in the first quarter. Despite the macro headwinds that translated into $205 million of adjusted operating earnings, including $52 million of alternative income above our long term expectations and $16 million of unfair.
<unk> back on market.
Year over year net revenue growth. Excluding notable items was 11, 5% on a trailing 12 month basis, reflecting our continued commercial momentum supported by our diversified revenue mix.
While we grow revenue. We also continue to be disciplined around spend as evidenced by our adjusted operating margin of 35, 5%.
Turning to deposits inflows plus.
Full service recurring deposits grew by over 11% driven by higher employer and employee contributions across corporate and tax exempt market.
In addition to growth in contributions we continue to grow our participant base, giving us confidence in our 10% to 12% target for 2022.
We generated full service net inflows of $446 million for the quarter within our previously guided range of $300 million to $600 million.
Looking ahead, we are encouraged by expected full service net flows supported by favorable plan and participant trends and our robust pipeline.
This quarter. We also saw a return to positive net flows and stable value with $1 4 billion of net inflows driven by strong sales and participant rebalancing.
Recordkeeping outflows of $893 million were primarily driven by one large case surrender.
Despite this we expect positive flows and net participant growth and record keeping for the full year.
Our healthy sales pipeline and competitive suite of workplace solutions gives us confidence in our commercial momentum, while our diversified business mix with substantial fee and spread based revenue continues to help us navigate the macro environment.
Turning to slide nine.
Health solutions continued to generate growth and revenue and premiums in the first quarter driven by ongoing momentum in voluntary.
On a trailing 12 month basis net revenue, excluding notables grew 14, 1% year over year driven by strong growth in voluntary.
The business delivered $22 million of adjusted operating earnings in the first quarter, including $5 million and alternative income above long term expectations.
Our health solutions expenses tracked higher relative to first quarter 2021, primarily driven by business related growth and the acquisition of benefit strategies.
Importantly, we maintained margins within our targeted 27% to 33% range with an adjusted operating margin excluding notable items of approximately 31%.
In addition, first quarter annualized in force premiums grew nine 7% year over year supported by strong voluntary retention.
We had previously guided to full year premium growth being at the lower end of our 7% to 10% target range as we continue to be disciplined on underwriting to protect margin. However, better than expected voluntary retention has modestly improved our outlook for the year and we now expect to be closer to the midpoint of the range.
This quarter, we experienced higher than expected non COVID-19 mortality, causing group life loss ratios to be elevated on an ex COVID-19 basis.
Despite the elevated mortality and significant impacts from Covid to our group life block our total aggregate loss ratio on a trailing 12 month basis.
Well within our target range at approximately 73%.
Covid related claims were $35 million in the first quarter in line with our expectation of $2 million to $3 million per 10000 incremental deaths.
Elevated group life loss ratios were partially offset by strong performance in stop loss and voluntary as both continued to deliver strong margins.
Our mix of solutions has allowed us to perform well and deliver strong operating results. Despite adverse COVID-19 impacts. It is this track record that gives us confidence in our ability to manage through cycles and utilize the levers within our control to maintain margin, while we continue to grow revenue.
Moving to slide 10 investment management continues to deliver strong revenue growth, reflecting growth in our private and alternative strategies, which will lead to higher margins over time.
On an ex notables basis trailing 12 months net revenue grew 10, 4% year over year, reflecting continued strength in private strategies.
Adjusted operating earnings were $39 million. This includes $2 million and net investment capital results above long term expectations.
Adjusted operating margin, excluding notables was 25, 9% supported by expense management actions that we took to offset impacts from the macro environment.
Going forward, we will continue to drive expense efficiencies and prioritize margin expansion.
That said, we will balance near term margin expansion with our commitment to investing in the business for growth as we have capabilities that are driving profitable new money flow, particularly in the fast growing alternative space.
In the first quarter, we generated net inflows of $1 3 billion with strong institutional net flows driven by private and alternative fund closings.
This contributed to four 5% organic growth over the past 12 months.
We are encouraged by the strength of our robust unfunded pipeline with the majority of flows consisting of higher yielding private and alternative strategies.
We remain confident in achieving 2% to 4% organic growth in 2022.
Investment performance remains strong across a broad array of fixed income strategies with 95% of our fixed income funds outperforming on a five and 10 year basis.
The modest decline in performance on a three year basis was driven by a multi sector strategy that modestly trails peer median of note. This strategy continues to outperform their respective benchmark and this competitive asset class.
Looking ahead, we remain confident in our ability to manage expenses and expand margin supported by continued revenue growth across our diversified business mix.
Turning to slide 11.
As capital management remains a key lever of EPS growth, we leveraged market conditions, and our strong excess capital position to deploy $713 million in the first quarter.
We have deployed $2 billion over the past 12 months, reflecting our commitment to driving shareholder value and achieving our targets.
In the quarter, we deployed $500 million of excess capital towards share repurchases. This includes a $275 million ASR, we entered in mid March.
The board also provided authorization for an additional $500 million of share repurchase increasing our total existing share repurchase authorization to $521 million.
Beyond share repurchases first quarter capital deployment also included $192 million for debt extinguishment and $21 million for common dividends.
Additionally, we deployed approximately $35 million of capital in investment management largely to help further our growth plans within the private and alternative space.
We expect to deploy approximately $60 million of additional capital for investment management over the remainder of 2022.
Our investment capital assumes a 9% long term rate of return.
Debt extinguishment was approximately 40% of share repurchase activity in the quarter, we will continue to balance debt extinguishment with share repurchase activity to achieve acceptable levels of financial leverage considering the current rate environment.
We ended the quarter with $900 million in excess capital, reflecting our strong starting position and the strong free cash flow conversion driven by our diverse business mix.
In summary, we delivered another strong quarter of EPS expansion and we have multiple levers within our control to continue that growth supported by our history of being effective operators.
Our workplace and institutional businesses continued to perform well in challenging times and we expect to see further positive commercial momentum through 2022.
We have a strong excess capital position and we will continue to deploy that capital 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.
Ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press star two.
As a reminder, participants are limited to one question and one follow up.
Our first question today is coming from Erik bass of Autonomous Research. Please go ahead.
Hi, Thank you and wealth solutions can you talk about the outlook for spread given the rise in interest rates year to date rates remain here are we at a point, where new money yields are about roll off rates.
Spread compression would either start to abate or potentially even reverse.
Eric Good morning, it's rod.
Why don't you jump in.
Thank you Rob and thank you for the question so as we think about our.
Our interest spread in our spread based revenues, our first kind of point to the diversification of our business, which allows us to kind of balanced macro environment questions and the macro environment situation, but.
To get specific to your question within the quarter, we did see lower credited interest we had two fewer days in the quarter and we also saw higher transfer is from variable to fixed.
Do think that for the full year that.
We're going to see some nice tail winds within our spread income.
But we're going to continue to be very balanced in how we're managing our investment income portfolio as well as the crediting rates that we're offering in the marketplace.
Long and short to answer your question I think that this is something that spread income is we're seeing an improvement we're.
We're seeing a tightening between portfolio yields and new money rates and I think that it's going to create a tailwind for 2022.
Okay.
Thank you.
And then maybe if I could move to investment management can you give us a sense of how much higher expenses were in the first quarter than you would expect going forward because it gets to the seasonally higher costs and.
And then it sounds like you are still confident that even with the market headwinds year to date that you'll be able to improve margins in 2022 today near that rate.
Mike do you want to start yes sure.
Talking about the expenses first.
Yeah.
First quarter of in the range of $25 million to $30 million.
I think again in terms of margin.
Good about the margins that we have in health and wealth and feel like there is.
Over time there'll be a little.
And then on the investment and investment management.
Headwinds coming from the.
The impacts of the markets on both the equity and fixed income side, but still feel like there is ample opportunity for us over the three year period to get to our target of 2019.
Thank you. The next question is coming from Elyse Greenspan of Wells Fargo. Please go ahead.
Thanks, Good morning.
My first question is just I guess on the cadence and pace of buybacks. I think you guys mentioned you took advantage of.
The way our staff with training and pulled forward some buyback effective later in the year in Q1. So can you just give us a sense of how we should think about the cadence of that.
Potential repurchase activity over the balance of the year.
Mike.
Thank you Elyse for the question. So I think what we did this this quarter was entirely consistent with the philosophy that we've operated with for years now.
Listen with what we signaled which is will be consistent buyers of the shares so long as we're in an excess capital position, where it makes sense to do so.
We'll look for opportunities to lean in where market.
Market conditions create those kind of opportunities we believe we saw that in the.
First quarter.
Yeah.
We also.
We signaled that we had repurchased $200 million of extinguished I should say $200 million of debt and thats to manage the leverage ratio.
As we go forward, we'll continue to manage all of those things we will look for opportunities to continue to buy back shares we will manage our leverage ratios alongside that and we will be paying attention to the macro conditions, but this is all done with a larger framework of of ensuring that we're doing all we can to help.
The EPS targets that we've set.
So all of that comes into play as we're making those choices I would point out that the ASR that we entered in mid March will not end until mid June and so we'll assess that.
We'll assess at that time.
What the opportunities are but that's a relatively narrow window for us to engage in the second quarter.
But the philosophy, we've used consistently over the last several years, including the last 12 months, where we repurchased.
$2 billion, we put $2 billion of capital to work.
That continues to be in place.
Okay. Thanks, and then my follow up is on.
So with that and Graham.
Life loss ratio, excluding Covid was elevated in the quarter I think you guys called out some elevated non Colgate mortality can you give us a sense of how large that was in the quarter and then how should we think about that non core related mortality.
Trending from here.
Rob.
Yes, great. Thanks Elyse.
As Mike said, we called out the $35 million of Covid.
And then.
Certainly still left us some some some gap to explain as you're asking for and I would really break it down into a couple of pieces.
One we talked historically about seasonality in the first quarter.
Life mortality just tends to be a bit hotter and that's not unusual what was a little bit different and I'll size. It for you from a.
A reporting perspective, we did see some time lag.
And that's it.
<unk> in the fourth quarter, but we don't get all the paperwork until first quarter that expanded a little bit more than we would normally expect it to be but when you bring excuse me the lag in seasonality together, you're talking about roughly $18 million of impact in the quarter.
If I think about it I kind of split it 50 50 of Laggan seasonality as we think about the go forward view.
This is really the first quarter were non COVID-19 mortality is sort of reredos certainly to this extent.
So we felt up to this point in the last couple of years, we were actually running a bit better than you would've expected on the mortality side again with Covid set aside so as we think about it. This is one quarter different than the last couple of years, we'll just continue to monitor it I would say in the data and what we saw.
There was nothing that was jumping out and causing sort of a new level of concern or a different point of view as we move forward just continue to monitor it and I think importantly.
As our results have held up through Covid and to this point in time.
Diversity of our block of business in the different places that we play in tend to tend to work in different ways that help us from a diversity standpoint, and we still feel really good about the long term view around margin and growth in the business.
Yes.
The next question is coming from Jimmy <unk> of Jpmorgan. Please go ahead.
Hi, Good morning, I think Mike Smith your voices.
Going in and out so it might be an issue with you Mike.
On your end, so just thought I'd point that out but.
In terms of my question, obviously with the rates going up that's a positive for the business overall, but how do you think about the impact of interest rates going up on fixed income assets on the asset management side and the decline in assets.
How much of an impact do you expect on the fee income.
The near term in that business.
Sure Jimmy Thanks for letting us know about the.
Microphone situation I hope this is better.
So the way to think about fee income impact.
The movements to date is in the neighborhood of five to 10 pre tax per year.
Yes.
Obviously, we'll have to see where rates settle.
<unk> has priced in and I think some substantial fed increases I think those are likely to occur, but where we go from here.
We'll have to wait and see.
It's worth, noting as youre thinking about the quarter.
Was pretty extraordinary.
Set of circumstances in the marketplace.
Have to go back to when I was in high school.
Quarter, where interest rates have moved.
As much and so.
I think thats created.
Degree of change that we've managed to quite effectively.
But I think as you try to put the quarter into perspective, it's important to keep in mind, how sudden and significant those.
Those movements work.
Okay.
And this is still the same issue with the sound, but we can that we can make make out what you're saying.
It's trading a lot, but either way. The other question that I just I had was on your views on alternative investment income and obviously it was good.
This quarter I think that's mostly because of the lag effect of the market, but how do you think about all the investment income.
In the near term and like US is looking at the equity market a good indicator of how it will be for the next couple of quarters.
Jimmy Thanks, again for the question and I've moved to new Mike. So we're dusting.
Yes, New York Great.
And it worked fine and sound check I promise.
So in terms of.
Hard to say ultimately where alternatives are going to come out.
There is a degree of correlation between the performance of our portfolio, which is a mix of limited partnerships in private equity real estate and so on.
But it's not perfect correlation right and so if I were to venture a range.
We're kind of thinking about here would be plus or minus 3% centered on zero that's.
That's what we've got in our heads for the quarterly return right and that would annualize to.
Minus 12 to plus 12, right. So we don't expect a significant decline at this point, but we don't have.
Really any information from the underlying funds to be able to point to to substantiate that that's based on historical influence is probably the way to think about that.
Yes.
The next question coming from Alex Scott of Goldman Sachs. Please go ahead.
Hi.
Follow up.
Just on the impact of net investment or sorry, the impact of higher interest rates on net investment income.
Any way you could provide a little more detail just on the amount of floating rate assets. You have I think there is also a portfolio that when rates are going down I think I'd heard maybe it was <unk>.
Mortgage securitization and so forth that I think had some impact in the past I mean do you still have balances that are going to benefit more directly from short term rates going up.
Thanks, Alex I think the guidance that we've given in terms of the impact of changes in rates.
<unk> still holds I think the.
<unk>.
Current thinking is that for another 100 basis point increase it's still at 20% to $30 million benefit more likely to be towards the lower end of that range I think as we've assessed the impact on fixed income assets and still a decrease of 100 basis points as in the 10 to 20 range.
And in terms of floating assets.
The only maybe the one thing to point out as some of the sensitivity is gone because of the sale of our financial planning channel, which did have some some direct relationship in the sweep account mechanics that went on there, but yes. The floating rate assets are not a not a substantial portion of the impact.
But whatever we do have is baked into those sensitivities.
Got it thank you and a follow up on investment management.
Can you talk about rising rates and if that has any impact one way or the other on just the pipeline for net flows.
I heard that you reiterated your.
Your organic growth guidance, so it sounds like all that still intact, but I'm just interested if rates as a headwind and if it is whatever where do some of these things in privates and all that youre doing that are that are sort of offsetting that.
Christine.
Sure. Thanks, Thanks, Alex, yes, as far as raising rising rates and impact on Florida momentum.
As Mike alluded to in his.
The opening comments the pipeline continues to be very strong and we reaffirm our 2% to 4% organic growth range.
This year. So why is it so sean and how could rates, possibly affect it a lot of the interest really is in private markets.
When you when you think about just private markets being U.
Really unique sourcing for clients that they can't get access to as well as they tend to provide higher spread and returns to public markets. So really.
Just see increased interest actually in that no dissipation as well as you know we have strategies, particularly commercial real estate.
That are LIBOR based or floating as well as absolute return strategy. So overall, we're not seeing an impact in terms of rates.
I would say it has been impacted.
Is it a little bit on the retail flow side. When you think about retail fixed income assets and just as Mike said just.
Really outsized percentage decline in fixed income assets overall in the market. So <unk> seen impact there, but overall and one other thing I would point out Alex that's interesting is with the sell off in rates.
We actually are starting to see a pickup in some of the U S credit strategies sure, namely out of Europe .
To be more attractive so overall diverse pipeline going to hit our organic growth targets. Continuing just just one other thing too going going back a little bit to Eric's question earlier on.
Very focused on profitable growth.
Driven by organic strength as well as expense discipline granted the first quarter, we do see seasonality in comp and other things typically always comes in that a little hot but that's absolutely a lever that we pull and as you would expect with the macro environment, we are continuing to be disciplined pulling.
Pulling back on some of our expense.
We were going to do but being very mindful again is this organic growth strategic asset manager investing in the business launching funds. So overall very confident we are managing through the volatility.
And driving towards our 29% margin target and continuing to be very focused on improving the profitability of the business.
Thank you. The next question is coming from John Barnidge of Piper Sandler. Please go ahead.
Thank you very much my question you called out.
Peripheral eastern European countries that was $53 million or <unk> 22 in the presentation.
No what was that balance at 421 please.
Alright.
Hi, John .
Really isn't any different than <unk> 'twenty one.
That is primarily exposures in Turkey and Kazakhstan.
And it's worth pointing out that the marks that we're seeing today on those assets are basically right on top of book. So we're not seeing any deterioration in that part of the portfolio and nor do I expect there to be but obviously time will tell events.
Unfolding rapidly and potentially unpredictably and so we're monitoring carefully.
Thank you very much and then my follow up question <unk>.
Clearly a good guy with.
On.
The health solutions business now at the midpoint of that 7% to 10% versus the low end previously can you maybe talk about that better than expected retention no renewal season is important for that thanks.
Rob.
Yeah sure. Thanks, John .
Yes so.
What we've talked about it.
The <unk> call was really based on driven by what we were seeing within the stop loss business. As you said and Mike said voluntary ended up doing better than expected and so theres a couple of elements to that.
Obviously, we've been going through like all workplace benefit companies are doing.
A lot of remote enrollment activity going on.
You're always sort of hope for the best but fear for the worst and we ended up seeing that come in better. So I think from a just enrollment participation perspective, there was a benefit there and then certainly from a group decisions that were made.
By the employer and broker consultants involved in those decisions.
We just saw better retention at the group level the case level than we would have anticipated.
That's driven by just excellent service experience that we're providing.
Business, where there's still a lot of variability on what good looks like from from us or our competitors and so I think we've been winning more of those games and listen and feel really good about just the quality of the portfolio that we've built obviously dramatically over the last handful of years with.
Plus 20% growth.
Given where we're at and the size of that business now.
Certainly something that I am proud of and the work that the team's done around it but.
Got to keep working at it and keep getting better at it as we move forward, we love the diversification within our book of business as we alluded to on stop loss, a little bit tighter environment, but we're going to make good balanced pricing decisions around that business.
And no one in the year in 12 months, we're going to we're going to get another shot at continuing to grow the business a little bit faster, but we want to be again disciplined on the price.
We feel good about the overall that story within the book growing at the rate were growing at close to 10% not an easy thing to do especially in this sort of COVID-19 environment than what we've been going through.
<unk>.
The next question.
Credit Suisse. Please go ahead.
Hey, Thank you can you hear me.
Andrew Yes.
Okay, great Okay, because it was the operational savings.
So.
Back on the excess capital question.
You're sitting on $9 billion.
Certainly you had a very robust.
Capital management.
I guess the question is does that signal that M&A has decreased as the priority and secondly, along those lines.
Sitting on <unk> 9 billion of excess capital is that something you want to get down to zero.
Over what frame.
Andrew I'll begin, Mike and I as usual, we will toggle back and forth.
I think the key theme I'd like to leave you and the listeners with us.
Northstar is and has been EPS growth.
And we've talked about that organically, we've talked about that and expanding our product solutions that we've talked about that in consideration of adding.
Capabilities.
Or data.
Or expanding international distribution.
Or potentially scale place, but the driving factor in all of that Decisioning is the north star of EPS growth and I think the quarter represents a really good example, as you just pointed out and are deploying that capital and using the levers.
To accomplish what we said, we really accomplished at Investor day, but with that Michael I'll list a few Ed.
Yeah. The only thing I would add Rod is just look we view the excess capital as excess and it is available to be deployed.
I think as a practical matter the.
The timing is such that.
Will we ever get to zero to depend on how the macro events unfold. It will depend on how the credit performance credit performance underlying portfolios and so on but we've operated with.
A balance I think throughout my tenure as CFO , that's ranged from the low hundreds to $1 5 billion right and so I think we do view all of that is excess say, we're often asked is that is there a cushion youre targeting and.
And the answer is no.
We view it as available to be deployed in the right situations, we will do so.
To underscore that as Mike talked about a moment ago.
<unk> $2 billion of capital over the last 12 months.
<unk> generated organically a $1 billion of capital in 2020.
So I think it's a really good example of.
What we're saying and frankly, the essence of your question.
And just a quick follow on to that are you seeing M&A opportunities that could be EPS accretive out there is there much much out there that youre seeing.
Yeah.
Andrew we're not going to speculate on.
We've talked about what we might consider but certainly arent going to speculate on.
On a given property or discussion other than to say we are.
100% focused on growing our EPS as our North star.
Thank you. The next question is coming from Tom Gallagher of Evercore. Please go ahead.
Good morning, I'm FERC first question is Mike you had mentioned you deployed $135 million of capital into the investment management business this quarter.
And you expect to do another $60 million for the balance of the year can you just specifically talk about what that's being invested in.
And is that seed capital fund launches or something else.
Tom Thanks for the question and I'll start, but then I'll hand, it to Christine who can really give a lot more color about what it is we're specifically focused on but it was $35 million of seed capital in the quarter. You may have misspoke I think you said 135, but and then thank you for the for the balance of the year.
We expect to get to about 100 in total inclusive of the 35.
So that is indeed seed capital.
It is capital that we will.
Ultimately earn a return from and we expect that to be an attractive return.
We expect our customers to repo and attractive return and it reflects just the opportunities that we see for growth in some of the new capabilities that we're anxious to bring to the market and I think Christine can take it from there so christine.
Yeah. Thanks, Thanks, Mike So just to provide a little bit more color.
What we're about you know certainly going back to our privates in differentiated strategies that we continue to see very strong demand to expand our perimeter so to speak in some of the products and vehicles, we offer specifically.
We are in the process of working on a commercial real estate debt fund that is focused on impact investing so thank you.
ESG.
Commercial real estate and so just very compelling strategy appeals to many clients, including our robust insurance clients. So that's one example, another we are also in the process of launching in middle market, our opportunistic credit funds again, expanding our perimeter here in what we do and so overall.
It's so important our clients also love the fact, he left often here.
We eat our own cooking.
Just our alignment with client interests with our own capital.
It's just such an important.
Part of the trust that we have built with our client base and so again, we're really excited about the opportunities to continue to deploy capital and grow the franchise.
That's that's helpful. Thanks and.
My follow up is can you talk about some of these below the line charges that were taken this quarter.
I presume some of them were comparing your Russian or Ukraine.
Investments.
Maybe if you could quantify that and also if the markets remain under some pressure here would you still expect some level of losses to be taken or do you think would you expect those to.
To be much lower than for you to get closer to the 90% free cash flow conversion.
Sure happy to do so and maybe I'll frame. It just if we look at the three adjustments that we highlighted to operating income to get to net right.
And I'll frame that both kind of like what's in there from a GAAP standpoint, as well as which things are affecting our statutory capital position right. So first if you start with the net investment gains Youre right. There is an impairment in there related to several Russia underlying Russian related assets.
There is also another private credit just kind of normal course, nothing nothing extraordinary about that it's very much.
A singular event, it's not a not a representative of any other broader trend, that's a little bit less than half of that $69 million the balance is related to trading activity.
On our various hedging and also just underlying trading activity period.
Those are all from a capital standpoint.
Wading related stuff doesn't have a capital impact because of the INR effect right, so a little bit less than that less than half of that 69 affected capital.
The business has exited line is primarily adjustments related to the noncash non capital related almost exclusively there is a small tail legal reserve being put up related to our the financial planning channel, but thats like mid single digits. The balance of that is noncash and it is all related to <unk>.
GAAP accounting on the exited blocks full stop.
And then the other think of that as two components.
There are there was some and again given the extraordinary movement in interest rates there was about.
About half of that number was related to our stable value hedge.
That hedge is not designed to be perfect. That's designed to work reasonably well through most economic scenarios I would say even so the number here is not particularly consequential one way or the other and there have been gains in the past and there will be in the future.
Then there was also some restructuring cost which is something that will ultimately go away but.
Particularly it's just a tiny bit heavy in the quarter.
So in terms of going forward the way to think about this.
Tom is.
In most quarters the range of 90% to 100% should absorb most of that noise. If not all of it there will be quarters, where we were in this case for example, where a.
A lot of adjustments.
The same way.
This happened to go negative there'll be other quarters, where the adjustments to go positive.
So in those quarters, we might be somewhat above or below the range that we specified but over the long term, we do expect to be in the 90% to 100%.
But in any given quarter, there will be there could be noise and again, just harking back to the.
Extraordinary changes that we saw this quarter, it's not surprising that there is a little bit of excess noise in <unk> and.
And given the direction of rate changes, it's not surprising that it was negative.
Yeah.
Okay.
From Nigel Dally of Morgan Stanley . Please go ahead.
Great. Thanks. Good morning, So I had a question on your longer term EPS growth calls back at Investor Day, you laid out goals to grow the Aps in the range of 12% to 17% clearly since in equity markets a lot more challenging. So she can give you just with those goals are still achievable could you comment that you're still targeting double digit growth. This year. So does it mean double digit this.
Followed by 12% to 17% thereafter, just wanted some clarity there.
Good morning, Nigel Rod I'll start and Mike will jump in and as you just pointed out given the significant market movement.
12, plus percent will be difficult that said, we are in fact underscoring.
With some confidence double digit growth this year and I would remind all of our listeners that the three year plan as its three years its not quarter to quarter. It's over the three year period of time, but we want to be specific NR.
We do see a path to double digit growth based on the markets that we see today and and we feel very good about the commercial momentum that we've got across our businesses, but with that money.
Just to reemphasize certainly no change in our view for the long term I feel very good about our commercial prospects and how that will translate into EPS growth.
<unk>.
I don't reiterate the multiple levers and our willingness to pull them as demonstrated by the first quarter.
So.
Just maybe to give a little more color to the way we're thinking about this.
The headwinds from equity markets.
As we stand right now in this world.
Obviously, the past that we follow will be pretty important.
But the headwinds from from where market stood at the end of April is in the high single digit percentages right and so that is that is eroding our ability to get to the midpoint to get into the range.
We are taking actions that will offset much of that but it's not going to be able to offset all of it will also get a little benefit think of this as low single digits from interest rates and so that's how we get to the double digits I think if we get a little bit of help from the equity markets over the balance of the year.
<unk> plus is still on the table, but we're going to need a little bit of help I think it's going to be difficult to otherwise.
That's very helpful. Thank you.
Thank you. The next question is coming from Josh Shanker with Bank of America. Please go ahead.
Yes. Thank you as we emerge from a COVID-19, obviously sales are doing really nicely in the health business I'm wondering if there are some strategies that you're using that youre.
Getting engagement with your counterparts, who are buying products from you.
Also when I look at the stop loss growth and the.
Voluntary and.
General group products. They are both growing and I think that's a different conversation with a different.
Part of.
The corporate structure when youre trying to sell those products. How are you doing so well and I guess, who are you taking share from.
Let me ask Rob to start with Charlie I would like to jump in on the heels of that also please rob.
Sure. Thanks, Josh.
As you point out we've kind of been firing on all cylinders from a growth perspective across what arguably is a pretty focus our products and solutions relative to the peers.
What I would tell you is we sort of Daisy chain activity really really well and so when you think about the sales cycle for stop loss being backend loaded, but turning into the conversations that become focused in our market middle and upper part of the marketplace National account season.
Across the life disability and leave management space as well as supplemental health.
And so there's just a nice cadence to what we're doing and we're building deep relationships because.
For the most part those conversations while there may be different parties involved there is a consistency within the benefit team and department on.
Who were engaging with and the account management side of it as we get into a group.
Even with stop loss after a couple of years close to 20%, 30%, we're able to penetrate and get other products in place and then with the life disability and leave management business.
More often than not you are selling that as a package.
And then as we've grown our capabilities in supplemental health and driven scale and credibility in market.
No.
It's not unusual for us to get all those things going and it doesn't all happen at the same time, but again, we sort of Daisy chain, our way into just broadening out the relationships and.
Feel really good about the momentum we've created but again it comes back to as I alluded to before like how are we executing once we're in it's one thing to win the business. It's another thing earn credibility and then grow the business from there, which gives us a ton of confidence and all create the handoff here for Charlie about not just within the <unk>.
<unk> business, but also how do we.
Average and bring together the health account solutions conversation with the wealth conversation in the retirement business.
I think those things we're set up really really nicely because we just execute well once we're in but Charlie I'll, let you let you add on.
Yes, thanks, Rob.
It's a great question, because certainly kind of yes.
If you take the end of the first quarter 331 and went back for the last two years, we've kind of been in a COVID-19 environment and and you kind of say Gee, we've got tremendous momentum during that Covid last two years, we've put on over $60 billion in business from sales in our retirement or.
Or in our wealth business employee benefits.
Think about that that most of those sales were really done without meeting the client in person shaken a hand letting them kick the tires so to speak that's been done virtually.
Why is that important I think that's important to keep in context, because it tells you how strong our brand is how strong our solutions are resonating in the market our distribution partnerships and footprint, how wide and bath that is.
And even equally importantly, how strong our team is and how they've worked through this our voices different in the market just as Rob had had articulated there.
Got really a focus at at kind of more holistic solution and certainly the labor market is a challenge and inflation is a challenge for employers. So we see them increasingly looking for things that we have employers wanted to get more out of their health and well benefits they want to manage their benefit costs.
On a more holistic way and an ability to be able to attract and retain talent. So with that that really pivots us I think to be really well positioned and where our focus is and the growth office with our sales and service team for helping well to focus on the growth and the sales momentum that we have and Thats really buoyed not just by the retention that you saw.
On voluntary, but we've had strong retention and our retirement as well.
That's been great second, it's really been on profitable revenue growth and in our businesses, both in health and wealth and in investments and the things that we've got there and I think that boys itself into and reflects in our strong margin and gives us confidence of where we think we're going to end up the year from a margin perspective by the solution mixes that are being <unk>.
Driven.
By buyer our approach in that value proposition I would just wrap with saying it.
It really is resonating in the market I think intermediaries and plan sponsors are increasingly seeing that boy. It helps you realize greater value and improved financial outcomes by helping get employers workplace savings and benefits in <unk> and we just see that continuing to resonate and being a different voice in the market.
Well I'll, let you go given that.
Alright, I'll ask more questions offline on this I appreciate all the answers.
Thank you.
Thank you at this time I would like to turn the floor back over to Rod Martin for closing comments.
Thank you our success continues to reflect the purposeful decisions.
We've made as a company as well as the commitment and dedication of our people. Despite the macro challenges both in the U S and globally Voya has a clear strategy high free cash flow businesses and multiple levers to achieve our growth plans. This in turn will enable us to deliver greater value.
All of our stakeholders, we look forward to updating you on our progress. Thank you and good day.
Okay.
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