Q2 2022 Voya Financial Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to Voyager <unk> second quarter 2022 conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance. During this conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I'll now turn the conference over to our host Hema and Goober Senior Vice President head of Investor Relations. Thank you you may begin.
Thank you and good morning, welcome to Voya financials second quarter 2022 earnings Conference call. We appreciate all of you have joined US for this call as a reminder, materials for today's call and available on our website at investors <unk> 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.
Were you to this slide for more information 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, and then the valley.
Our president and Chief Executive Officer elect and 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 vice chairman and Chief growth Officer, Charlie Nelson.
The heads of our businesses, specifically, Christine <unk> investment management, and Rob Group Health solutions with that let's turn to slide three as I turn the call over to Rod.
Good morning, let's begin on slide four with some key themes.
Our results during the second quarter reflect the continued execution of our strategy and long term growth plans. This resulted in a number of positive outcomes, including strong adjusted operating EPS.
Continued momentum across our businesses.
As well as disciplined and opportunistic capital deployment.
As a result, we generated second quarter adjusted operating EPS of $1 67.
<unk> notable items EPS grew 18% year over year, we're pleased with the strong year over year growth.
This is a result of the diligent execution of our plans.
Relationships with our distribution partners and a shared focus on client needs. Our client centric focus can be seen in organic growth across our businesses.
In wealth solutions full service recurring deposits for the trailing 12 months grew 11, 2% compared with the prior year period.
During the second quarter, we generated positive full service net flows of $1 billion.
In health solutions annualized in force premiums grew nine 3% compared with the prior year period.
This was driven by growth across all product lines, including a 24% increase in voluntary.
In investment management, we generated $559 million of positive net flows during the second quarter.
Net flows over the last 12 months were nearly $10 billion, which represent organic growth of four 6%.
Boy, it's meeting the complex and increasing needs of our clients as they face challenges and changes in the macroeconomic environment.
Despite inflationary pressures and volatility in both the equity and interest rate markets Voya remains well positioned.
At a time when many are seeking help to navigate challenging economic times, both at home and in the workplace, our digital capabilities insights and focus on client needs enabled voya to remain a trusted partner to our customers.
This along with our continued focus and commitment to execution has us well positioned to generate double digit EPS growth in 2022.
In addition to our commercial growth we're excited about the additives inorganic growth that will result from our recently completed transaction with Allianz Gi.
This transaction is a great inorganic opportunity.
That will complement the already strong organic growth plans that we shared with all of you.
Specifically.
It adds significant scale and diversified revenues to our asset management business, combining new investment capabilities with a major expansion of our international and domestic retail reach.
It also provides global distribution for our existing asset management expertise of strategies with a leading international partner.
Along with our continued investments in technologies and capabilities that will meet the broad health wealth and investment needs of our clients. This transaction enables us to drive even greater positive outcomes for our customers our employees and our shareholders.
It will also provide financial benefits for voya, including immediate cash accretion to the company's adjusted operating EPS.
Estimated at 6% to 8% for 2023.
And it required no external financing or use of lawyers excess capital fully aligning with our company's future flexibility and opportunities as we continue to remain focused on our long term growth and EPS plants, notably.
This transaction was completed in just two short months.
This is a terrific example of the hard work and dedication of our people.
Thank you to everyone across Voya for your continued hard work and support.
In addition to the revenue and EPS growth, we continued to demonstrate our focus on being good stewards of shareholder capital during the second quarter, we deployed approximately $300 million in excess capital through a combination of share repurchases.
That redemption and common stock dividends. This now brings our total excess capital deployed for the first half of 2022 to approximately $1 billion.
Over the trailing 12 months, we've deployed $1 7 billion.
And concluded the quarter with approximately $700 million of excess capital.
Moving forward, we will continue to be both disciplined and opportunistic with capital deployment.
Turning to slide five our.
Our focus on our brand and culture continue to differentiate voya.
We have once again earned several recognitions for our strong culture and commitment to clients recently Voya earned recognition as the best place to work for disability inclusion for the fifth consecutive year.
Boy earned a score of 100% on the 2022 disability equality index and in May we.
We once again celebrated boyers national days of service.
Employees volunteered more than 10000 hours to numerous nonprofits across the country.
Voya has been recognized as a top five retirement plan provider in the first ever National Association of planned advisers adviser Choice Awards.
And our company earned Dell bars, ESG retirement planning certification along with a five star rating for the second year in a row.
The actions of our people and our company reflect the strength of our culture and.
And how that carries through and all that we do.
Turning to slide six.
We announced last month, our leadership succession plan with Heather Lavalle, becoming our president envoy as next CEO .
As President Heather has joined our board and is now overseeing all of our businesses. She has distinguished herself as an extraordinary executive focused on growth innovation and our culture working closely with me and our board and our entire management team as it was played a vital role in shaping and driving voice entered.
Price growth strategy and is well prepared elitist continued execution and evolution going forward.
At the same time I'm delighted to have the opportunity to continue as executive chairman through early 2024.
It's been an honor and a privilege serving as Williams CEO and I'm, both excited and optimistic about our company's growth opportunities and prospects with that let me ask Heather to say a few words Heather.
Thank you Rod.
It's on the performance of the Great team, we have at Voya. Our company is well positioned for continued growth across each of our businesses as we deliver greater value for all of our stakeholders.
We will do so through purposeful steps to continue to provide solutions that meet the growing needs of our clients and customers.
The corporate responsibility that we demonstrate the positive impact that we make in the communities in which we live and work.
During my 14 years at Voya.
The opportunity to lead our health solutions business as well as our wealth solutions business and to work closely with our investment management team and enterprise leaders in shaping and driving <unk> growth strategy.
Rod has clearly set the bar high for what success looks like at Voya and our management team looks forward to building on <unk> strong momentum.
We remain committed to our strategy and the three year growth plan that we shared with you at Investor Day last year.
This includes delivering organic growth.
Disciplined and opportunistic excess capital deployment.
And strong EPS growth.
Our strategy puts the needs of employers employees and intermediaries at the center of all that we do.
We help employers optimize their workplace benefits and savings.
We partner with intermediaries to work together to enable employees to make the right financial decisions.
And we provide investment capabilities that meet the long term needs of investors and retirement plan participants.
I look forward to working closely with all of our talented people actually execute the strategy. We have shared advance our growth plans and deliver greater outcomes for all of our stakeholders with that let me turn it over to Mike to provide you more details on our financial performance and results.
Thank you Heather.
<unk> team is excited to see you stepping into your new role and is confident Voya will continue to see great success under your leadership.
Let's turn to our results on slide eight.
Despite the ongoing macro headwinds facing our industry. We delivered strong results this quarter with adjusted operating earnings of $1 67 per share. This.
This includes two notable items first.
<unk> of net alternative and prepayment investment income below long term expectations.
<unk> <unk> of unfavorable DAC unlocking.
Excluding these notable items, we grew our adjusted operating earnings per share by 18% year over year, despite the equity market headwinds.
This result reflects the diversification of our revenue sources, coupled with disciplined expense and capital management.
We remain confident in achieving double digit EPS growth in 2022 before the accretive impacts from Allianz Gi.
Second quarter GAAP net income of $64 million reflects strong operating earnings offset by an impairment on owned real estate investment losses associated with higher rates and wider spreads and the legal accrual related to the businesses we have exited.
Roughly half of the differences between GAAP net income and adjusted operating earnings impacted capital generation for the quarter.
Moving to slide nine wells.
<unk> solutions continues to deliver strong earnings and operating margin given its diversified revenue streams.
Our second quarter, the business generated adjusted operating earnings of $186 million.
Second quarter adjusted operating margin was at the top end of our target range of 34% to 36%.
Net revenue excluding notable items has grown nearly 8% over the last 12 months our spread based income is benefiting from the higher rate environment, largely offsetting the impact of equity markets on fee based income.
Third quarter spread income is expected to be slightly above Q1 levels given investment income one timers in the second quarter and higher credited interest next quarter.
The continued earnings strength of this business highlights the benefit of our diversified revenue mix as well as our proven ability to effectively manage spend.
Turning to deposits and flows full service recurring deposits grew by over 11% on a trailing 12 month basis as we continue to see favorable trends in employee and employer contributions across both corporate and tax exempt markets.
To the extent that inflation continues to drive higher wages, we should expect to see a benefit to recurring deposits given deferral rates off of higher salaries.
Second quarter full service net inflows were strong at $1 billion, driven by solid new plant sales and strong plan retention well above historical averages.
This quarter, we generated positive net flows in both record keeping and stable value.
With $224 million and $549 million of net inflows respectively.
Looking ahead, while we expect some moderation in flows relative to second quarter levels for the rest of the year. We are very pleased by the overall picture, which reflects continued strong planned sales and the likely return of planned retention to historical levels.
Our wealth solutions business is well diversified across plan sizes industries and tax codes with a strong national distribution footprint.
When we consider this along with our leading brands and differentiated value proposition. We are confident we can continue to successfully navigate the current environment, while positioning us for long term success.
Turning to slide 10.
During the second quarter Health solutions once again saw meaningful growth in revenue with net revenue, excluding notables growing nearly 13% year over year on a trailing 12 month basis.
In addition, we continued to deliver annualized in force premium growth at the top end of our 7% to 10% target range with second quarter in force premiums nine 3% higher than the prior year quarter.
Our continued momentum reflects growth across all product lines.
Adjusted operating earnings were $47 million for second quarter as strong revenue growth was partially offset by higher expenses related to the growth of the business.
Margins remained within our targeted 27% to 33% range.
Our total aggregate loss ratio was at the top end of our target range driven by a higher group life loss ratio.
Our second quarter group life loss ratio was elevated on an ex COVID-19 basis as we saw elevated non COVID-19 claims. This was primarily due to a higher prevalence of large claims.
Taking a step back and looking at the entirety of the pandemic non COVID-19 mortality has been in line with our pricing expectations.
The start of the pandemic overall, we remain confident in our pricing levels and will continue to be disciplined in our pricing decisions.
Due to the sharp decline in U S. Covid related deaths Covid claims were not material during the quarter and thus were not viewed as a notable item.
Paid claims for the quarter were in line with expectations.
Loss ratios on voluntary and stop loss were favorable and in line, respectively, demonstrating the value of diversification within the health business.
Looking ahead, we remain confident in our ability to grow revenue and maintain margin supported by diversified revenue and earnings streams pricing discipline and expense management.
Moving to slide 11 investment management continues to grow AUM in privates and alternatives, improving our revenue yield and supporting our path to margin expansion.
We expect the transformative <unk> acquisition, which we closed last week to be an additional engine driving future growth in our investment management business through the new strategies. We've added the diversification of our revenues across international markets and in retail and the global distribution capacity, we can now access for <unk>.
Boy I am products.
More on Allianz Gi in a moment, but returning to the quarter's results I am trailing 12 months net revenue grew over 7% year over year on an ex notables basis with the strengthened privates I just mentioned is helping to offset equity and fixed income market volatility.
Second quarter adjusted operating earnings were $40 million.
This reflects continued action from management to drive expense efficiencies and translates to a trailing 12 months adjusted operating margin of 25% excluding notables.
Turning to flows we generated another quarter of net inflows at $559 million driven by continued strength in institutional net flows as a result of private and alternative fund closings.
This quarter's flows contributed to nearly $10 billion in net flows over the last 12 months, representing a four 6% organic growth over that time.
Looking ahead, while we see some near term headwinds as we transition from existing international distribution channels to our New Orleans GI partnership we remain quite bullish about our prospects.
Investment performance remains strong across a broad array of fixed income strategies with 89% of our fixed income funds outperforming on a five and 10 year basis.
Before we turn to capital I did want to give a brief update on our transaction with Allianz Gi.
We are very pleased to share that we have received consents and approvals for the transaction with respect that 95% of in scope client assets.
As a result, we have acquired approximately $93 billion of assets under management through the transaction with most of the decline in AUM compared to the original $120 billion in scope, reflecting adverse market conditions over the second quarter.
In addition, as we have previously described we are protected against any AUM outflows for the balance of 2022 through the first quarter of 2023.
We have also refreshed our projection of operating margin for the entire iam business to reflect macro pressures through the end of June .
We now expect margins to be in the range of 29% to 31% in 2023 and grow to between 30% and 32% by 2024.
For Voya financial on a consolidated basis continue to expect immediate 6% to 8% cash EPS accretion with GAAP accretion more to the lower end of that range.
Lower GAAP accretion relative to cash is due to five to 10 million of annual amortization of an intangible emerging from the transaction.
Yesterday's announcement about our acquisition of Czech asset management is yet. Another example of an accretive inorganic opportunity. So we've been able to execute on to help drive future growth and Voya I am.
Chuck is a boutique private credit manager focused on middle market direct lending with several billion in committed capital and private funds.
We view this as another example of executing on our Investor day strategy to grow the contribution of private and alternative assets to revenue growth and margin expansion.
We expect to close the acquisition of Czech asset management in the fourth quarter.
While our iam business like other asset managers continues to see impacts from equity and fixed income market volatility. We are energized by the benefits of increased scale revenue diversification international distribution and margin support that the Allianz Gi transaction will deliver.
This increased strength.
Complement continued growth in private and alternatives and effective expense management as primary drivers of future financial performance.
Turning to slide 12, with the challenges in the equity market capital management continues to be a key lever and ensuring we hit our EPS growth targets.
Through the first half of the year, we have deployed approximately $1 billion of capital through share repurchases debt extinguishment and dividends. This contributed to the $1 7 billion of capital we've deployed over the past 12 months.
In late June we entered into a $250 million ASR, which we will complete and third quarter.
In addition to the share repurchases, we extinguished $22 million of debt and paid $20 million in common dividends.
The second quarter financial leverage ratio was 36, 9%, reflecting a decrease in <unk> due to an increase in rates and wider spreads.
Despite this impact of prolonged steady path of higher rates will continue to help short run earnings with building long run benefits, which is a clear credit positive for Voya.
Moving forward, we will continue to balance debt extinguishment with share repurchase activity to achieve acceptable levels of financial leverage consistent with our targeted credit and financial strength ratings overall.
Overall, our balance sheet and capital position remains strong.
We have a well diversified portfolio built to deliver attractive risk and capital adjusted returns through the business cycle.
Our ending excess capital position was approximately $700 million, reflecting capital generation of approximately $100 million during the quarter with some offset due to the onetime net income impacts I mentioned earlier.
Going forward, we remain confident in our projected 90% to 100% free cash flow conversion, giving us continued flexibility as we look for opportunities to invest in the growth of our businesses.
In summary.
We are pleased with another quarter of strong earnings and positive commercial momentum as we make further progress in support of our long term plan to drive organic growth.
We continue to manage our capital the same way, we always have with an eye towards delivering shareholder value.
And we are encouraged that the Allianz Gi transaction will accelerate the organic growth our team is already driving.
Reaffirming our confidence as we look to the rest of 2022 and beyond.
With that I will turn the call back to the operator, so that we can take your questions.
Okay.
Thank you.
And ladies and gentlemen at this time, we will be conducting a question and answer session.
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Our first question comes from Ryan Krueger with <unk> BW. Please state your question.
Hi, Thanks. Good morning. My first question was could you comment a little bit more on your flow expectation and investment management.
I guess in the second half of the year and how to think about potential potential disruption, but then within.
Then the shift in the international distribution.
Yes.
Ryan Good morning, it's Rod Christine you want to start.
Certainly thank you.
So how to think about the second half of the year flows.
I would say you know what.
We see the pipeline that we have in our core business as the.
Opportunities in unfunded wins continues to be strong and as you know certainly it's been a challenging environment year to date for asset managers generally and yet.
Continued to deliver positive net cash flow, including this quarter. So very excited about that looking forward and how to think about hei and its impossible headwind.
Headwinds to actually I was I would say really isn't the international business that we currently have so so as you know we have the long standing distribution partner and an IP, which is now part of.
<unk>, Sam and it's it's natural as far as you know.
New opportunity introductions and things that they normally do it has slowed down so think about this says.
Bit of a ramp right, where we have somewhat of an off ramp with our existing distribution partnership and it certainly is very strong on ramp with hei. So how to think about this.
The second half of the year that part of our business a little a little less.
Certain if you will than what we normally have but what we see going forward and we're so excited so think about this is a point in time, but when we look at Agi, we've already had conversations amongst distribution and product of what use its platform to launch at the beginning of the year, we're doing training on our products.
And so when you think about them.
Just their brand their global reach.
We have 500 salespeople they are number one in Taiwan, So number three in Japan, so really for minimum market share in many many countries. So again, we're super excited about the the growth possibilities and what we're gonna be able to do on a strategic basis with their partnership.
And quick follow up could you help us think about the pro forma fee rate in investment management relative to the roughly 25 basis points had been historically.
Sure. So so on a pro forma basis with.
The new teams and the assets coming over think about it with that measurement is not changing dramatically because essentially the calculation is revenues divided by a U N and as part of that partnership with.
<unk> global investors, we do have a revenue share on some of the existing products that are coming over so so how to think about the revenue yield or the margin expansion going forward. You know I would say number one the strategy is sort of the teams and the assets that they acquire when you look at sort of the fund level basis.
Our higher than the existing basis points of assets under management. So way to think about it is as we're already introducing them to our institution institutional our consultant relations.
Relationships here in North America, you know, we're already in conversation about new capabilities of mutual funds to launch that our intermediary distribution can really get behind so when you think about it in that way the basis points of those assets are higher so that coupled with our focus and strength in private asset class.
Which tend to garner higher fees.
Think about this Ryan on a path to expand the basis points of assets under management.
One of the key things, we're focusing on top line growth as well.
Expense management, so a lot of ways a lot of energy behind the margin expansion that we're going to deliver in the months and quarters to come.
Thank you. Our next question comes from Tom Gallagher with Evercore ISI. Please go ahead.
Thanks.
First question is just can you talk about the sustainability of the earnings run rate in wealth, whether there were any one time benefits to baseline net investment income and if so how much would you expect that to fade as we roll into <unk>.
<unk> and beyond.
Sure Tom Heather Heather will begin.
Hey, good morning, Tom and thank you for the question. So as you heard Mike talk about in his comments we.
We do expect there were some onetime not onetime items in the investment income in the quarter that we don't expect to repeat in the third quarter.
However, when you when you look at the trend in investment spread revenue over the last several quarters, we have absolutely benefited from the higher.
The increase in rates and we expect that will continue going forward and one of the other items that you saw in the second quarter.
And that we often see in volatile markets is that we did see an increase in transfers from variable to fixed from our participants and that is something that also had.
Some positive in revenue that we would expect to continue because you're just basically seeing higher general account asset base. So.
Going forward, we expect that we're going to continue to see some tailwind from the rise in rates and the other thing that I would point out Tom is avoided.
And particularly within wealth solutions, where really the beneficiaries of diversification around business mix as well as different choices of revenues, so and here we've seen some nice growth in the spread income.
We have also diversification in terms of key participant transaction based revenue.
And.
To your point about sustainability. We've also demonstrated that we're very good operators in terms of expense management to be able to maintain our operating margin of 34% to 36%. So all totaled we think that while there are just one time items. One time items here, we expect a strong momentum in revenue going forward.
Thanks Heather.
Just.
And anything you can give us more specifically are we looking at.
10, or $15 million step down in baseline NII.
You were able to just quantify the level of the favorability.
Yes, Tom I'll take that thanks for the question.
If you think of it in terms of <unk> spread being a little bit higher than the <unk> investment spread I think that'll be the best way to get at it.
Credited rate credited interest will be a little higher next quarter.
For because of a conditions and be the length of the quarter.
And as I said.
As <unk> was saying there were a couple of onetime items in the in.
In the investment yield that will not repeat or we don't expect them to repeat.
Thank you. Our next question comes from John Barnidge with Piper Sandler. Please state your question.
Thank you very much for the opportunity my question's on withdrawal activity and behavior.
Given the market volatility I was somewhat surprised that wealth solutions didn't really see an increase withdrawal activity is one of these things that given that the market volatility has been driven by inflationary concerns.
Fully seasoned senior institutional business partners.
We continue to try and save more.
Yes, John Happy to say they are happy to take your question. So.
So there are a couple of factors that that are really driving participant behavior, and we see that showing up in terms of.
Flows as well as recurring deposit so if I kind of take a take a macro step and look at participant behavior. I mentioned first the fact that in the market volatility we saw greater transfers from variable to fixed so there's a little bit of that.
Flight to conservative investment.
But in terms of participant behavior.
We are seeing the benefits of both inflation and higher wage growth within the wealth solutions business and what do I mean by that is specifically.
We saw higher employer contributions that is something that a trend. We have continued as we're seeing the war on talent continue and we also saw increased savings rates from our participants both in terms of.
Their actual contribution rates and then the increase in the number of net participants savings.
So absolutely.
We're seeing some positive behaviors there.
One of the other things that you mentioned about withdrawals and we have not necessarily seen an increase in withdrawals withdrawal activity from participants if anything participants are really staying the course.
And generating good savings behavior. So so all totaled we have not seen any type of a negative impact on participant behavior within the wealth solutions business, but really just benefiting from some of those tail winds in the macro market I mentioned.
John I'm going to ask Charlie to just add a little more dimension to that also thank you Heather.
Yeah, Thanks, Rod and Heather we've been very pleased with our growth office sales and retention effort in the in the wealth area in particular.
Value prop is very strong and resonating and the brand is strong and how we see the brand resonating in the market is in our stronger retention numbers. We've had very very strong sales return of a retention of our business in the wealth side.
The other side of that though certainly market churn is down in other words churn being with employers are are they changing from provider to provider be but that's where I see our brand resonating and being strong because in difficult times as we saw even in Covid. Our brand ranked strong and helped in a lot of ways.
As we go through Recessionary times, I think our brand will be a key part to help our retention as well as our sales and we're seeing that right now year to date, our our planned sales are up.
Quite significantly year to date year over year, but they've been even down what's the market the equity markets impacted that and we see very strong RFP activity and that makes us feel good about the latter part of this year and going into next year because in particular, we've got double digit percentage of new plans.
Over plans in the process of implementation, which will help us go through the third and fourth quarter now I would note that the market equity market activity is going to mute some of that but we also think that that'll be some fuel for future growth as the equity markets rebound in the future. So we feel good about.
Both the activity our retention in the market as we drive towards strong revenue growth and achieving our target margins within the in particular the wealth business.
Thank you very much.
Best of luck in the quarter.
Thank you Joe.
Our next question comes from Alex Scott with Goldman Sachs. Please state your question.
Hi, Good morning, first one I had is on expenses.
<unk> had some in the in the remarks already but I just wanted to see if there was any additional commentary specifically for wealth solutions that you can provide I mean.
Given the combination of top line pressure from.
AUM and inflationary pressure on expenses.
I was expecting that to sort of similar to a lot of the asset managers who've seen that there'd be a little more margin pressure could.
Could you just give us color around like some of the things you're doing to mitigate it where there any one time items in the quarter.
Anything else we should note.
Sure Alex it's Heather Thank you for the question so.
Second quarter expenses in wealth, we're favorable to first quarter really due to some payroll seasonality and there were some favorable timing benefits in the quarter, but.
But we don't necessarily expect to continue going forward. However.
We have often pointed to in a macro environment. We continue to be good operators and very disciplined in our expense management, which you should expect to see us continue going into the second half of the year, we continue to be very balanced in both investing in our businesses to support growth.
In terms of technology to drive innovation and really support some of that that brand and the differentiation of the value proposition that Charlie talked about as well as investing in our people to make sure that we are providing the service levels and the commitments that we that we make to our to our customers so for us it.
Really is focusing in on.
Doing what is needed to make sure we maintain the operating margin margin guidance of 34% to 36% and we will continue to be good stewards of expense management going forward.
Got it. Thank you and second question I had is on the stop loss business within health solutions.
Just noticing that the growth is slowing down.
To a greater degree.
I know this can be a little cyclical too can you just describe what youre seeing thats, causing you to dial back there and.
If we should expect any.
Impact to earnings as we think through the next.
Couple of quarters.
Rob.
Yeah. Thanks, Alex So stop us sort of do a little bit of play back to last quarter, we talked about strong sales on the top line side of things a little bit different than <unk>.
Retention story across both our health and wealth business, where we've really benefited.
Of our product areas stop loss was a little bit different than the renewal season.
101, it was just a little bit more competitive than it had been the previous few years.
As we like to talk about being disciplined on pricing in that business you got to know when to walk away.
And so we didn't fight tooth and nail for everything that we were trying to renew.
But again as I think about the forward path from here from a growth perspective still a lot of confidence in what we're doing in that space.
Charlie was alluding to RFP activity I would say that story is the same in the health business in particular with stop loss, we feel good about what we're going to do with 71, which is obviously well talk about next quarter. So we've got good eyes on what that looks like and feel like.
We've got to get that growing as we think about moving forward, we had talked at investor day about stretching down market a bit.
Across the business.
We've been pretty consistent with our focus on middle market and up we see opportunity and just growth in the stop loss market that's unique to it.
A little bit different.
Smaller employers continue to seek out self funding of their health risk and so there's work underway in spend underway to invest in broadening our capabilities, there and again contribute to growth as we look forward, but again overall confidence in that space.
And a little bit episodic I would say on what we saw this last 101 cycle.
It's driving.
To your question.
Thank you.
Our next question comes from Nigel Kelly Deli with Morgan Stanley . Please state your question.
Alright. Thanks, Good morning, I wanted to ask a couple of questions about capital first.
First on financial leverage looks to be a little on the high side does that lead you to consider.
Essentially allocating more of your excess capital deployments to debt reduction going forward also you have been drawing down your excess capital should we expect further drawdown or does it perhaps make sense to hold onto a little higher given the uncertain environment.
Nigel Thanks for the question this is Mike.
Maybe it will start with just the leverage ratio and make sure. It's clear that the recent increase in the leverage ratio that we report.
Includes a OCI in the denominator and given the increase in rates and the widening of spreads that we saw effective at the end of the quarter.
That drove almost all of the increase in the leverage ratio.
The important thing to remember, though is that improved interest rates increased interest rates and wider spreads and we just talked about this earlier with the wealth business is unquestionably a long term positive from a credit perspective for oil.
So we entered the position or enter the quarter in a position of strength I mean, we've got solid excess capital, we've got an improving economic picture from an interest rate perspective, and so we.
We feel very good about where we are.
As it relates to capital management and allocation.
Nothing is changing.
<unk> of the change in the environment, we remain very focused on shareholder value and driving that.
We talk to both Rod and I mentioned the amount of share repurchase we've done over the last 12 months.
And the last.
For the balance of so far in 2022.
That continues to be a key focus of ours.
As we look at that.
Ahead, one of the things we've said consistently over the last couple of years now is that as we buy back shares we will have to attend to that and we will buy down debt and rough roughly proportionate to the share repurchase. So do you think of that is in the neighborhood of 30% So very tactically.
In the third quarter, given that we did $250 million in ASR at the end of <unk>, and we did $22 million of debt.
Englishman in <unk>.
We will likely lean in a bit on debt extinguishment in the third quarter just to catch up if you will so that won't be dollar for dollar or 30 for every dollar it'll be it'll be a little bit lumpy. There are tactical factors that affect when you can do debt repurchase and so on so.
That said, though no change in our posture, we're very focused on the use of share repurchase as a lever to improve EPS growth.
<unk> demonstrated that consistently.
Second quarter was another example of us leaning in when share price gave us an opportunity driven by the overall market conditions.
Thank you Scott.
It's rather just I'll just add one piece.
The combination of what Youre hearing from the team is.
Again, leading.
So our confidence in achieving the north star of 12% to 17% EPS growth rate, we signaled at the end of Q1 double digit growth, we're reaffirming that when you add the agi transaction to that.
We've got a great deal of confidence in spite of the market based on market conditions that we can see today.
<unk>.
We will be on a path and a track to accomplish that objective and I think when you step back and look at.
The marketplace and the levers and the controllable. So we have it's a very good outcome for our shareholders.
That's great. Thanks.
Our next question.
You did ask about sorry, you did ask about the excess in the buffer I apologize I need to come back to that.
No change there either.
We.
Continue to believe that excess is excess and so if there is a good use for it we will put it to use.
We remained pretty.
Sanguine.
<unk> and the credit position and we are seeing in the marketplace in our portfolio.
That would be the sort of bellwether to keep an eye on to the extent that view starts to change that would be a time to potentially pull.
Pull back, but we have we're not.
Seeing anything at this point that would cause us to do that sorry for them.
Thanks.
Our next question comes from Elyse Greenspan with Wells Fargo. Please go ahead.
Hi, Thanks. Good morning. My first question you guys mentioned, some large losses impacting the group life loss ratio in house can you talk about how you think about your outlook for the elevated non COVID-19 claims for the remainder of the year and as you look forward to your annual assumption review do you expect any mortality.
Weighted impacts, Kevin onetime or ongoing impact on the health segment.
This is Rob I'll start and then Mike.
Like a jump in also.
Yeah. Thanks, Louise so as Mike alluded to severity was the driving explanation around the experience in the quarter I will say a bit more on that so within the business way, we sort of slice the data, which we've all gotten really good at across the industry over the last couple of years on life.
It really boiled down to severity and so think about claims in excess of 250000, which in the workplace market.
They are sizable.
On average you would think about something in the $40 to 50000 range as sort of being a typical average severity within the business.
And we saw about 30% more claims activity in that larger part of.
The spectrum of benefits and so as.
As we Peel that back and maybe that doesn't sound dramatic but it drives up the average sufficiently such that you saw the impact that we're getting there that was the predominant driver of the mess.
Think about things moving forward and we've tried to make it very clear that what we're thinking about from a.
A margin perspective, and where we expect loss ratios to end up from a trailing 12 month perspective for the year, we feel like we're going to still be within range. So we're confident on that based on what we know here today will obviously continue to monitor it closely and.
Be on top of the experience that we're seeing but we feel good about the margin that we're achieving as we look forward and have a lot of confidence in continuing to hit what we laid out at Investor day as well.
Rod and others have said the growth story is incredibly strong.
Given what we've been through the last couple of years and we continue to post it.
And then it's about the disciplined from a pricing perspective, which I feel really good about.
Thank you.
We're going to add on the on the second part of the question.
Could you repeat the second part of lease please sorry.
The second part was to US Tom as you guys look forward to the annual assumption review are you expecting any mortality than any of the impacts to have a one time and ongoing impact on the health segment.
No I mean, nothing material would come from that and even more broadly I think our assumption review process should be.
Just given the nature of the changes we've made to our business portfolio.
Certainly on the ongoing business, you should expect that to be pretty benign.
It won't be zero, but.
It's not going to be anything like some of the numbers that.
You can see with peers or with us way back in the past.
There could be some noise on the reinsured portion of the life business that we've exited but that's a noncash accounting kind of impact and nothing.
Should cause concern for investors.
Thanks, and then my follow up on Heather as you take the reins. In addition to executing on the three year plan can you just tell us what your largest strategic priorities are what you'd like to where you would like to focus your energy to drive change at Voya.
Good morning, Elyse, Thanks for the question and.
I'll give you.
And answer is.
Really.
No changes I've had the benefit as Raj mentioned of being part of this management team for 14 years.
To co create our Investor day strategy, we shared last fall.
Very very proud to lead a purpose driven organization like.
That is just we have so much talented.
And diverse leaders across our organization, who are aligned on the strategy we set out.
So really my priorities as we as we move forward our executing on our growth strategy that we shared at Investor day.
Continuing to be balanced and disciplined in how we manage capital.
Advancing our culture and continuing on the legacy that Rod has built over the last decade that our teams are unbelievably proud to showcase every day and that has become a differentiator for us not only in our businesses, but just in terms of how we show up in our communities.
And the last piece of lease is just that reminder, that EPS will continue to be the north star for us going forward.
Thank you. Our next question comes from Andrew <unk> with Credit Suisse. Please state your question.
Hey, good morning.
First on health solutions.
The administrative expenses look a little elevated in the last few quarters could you provide a little color on that and what we should think about going forward.
Yes sure. Thanks, Andrew so on the expense side.
We've obviously highlight the growth in the business, that's a big part of the driver.
Keep in mind also that the.
Benefit strategies acquisition.
<unk> 701, a year ago and so when you start looking at the numbers keep that in mind, that's a few million dollars.
From a quarterly perspective.
That will show up there and when you look at <unk>. It did what we guide the market towards from a perspective of coming down because of the seasonality of the numbers as we think about the next couple of quarters it'll be in and around where we're at today.
Obviously, just when we think about the targets that we set the margin expectations that we set we're firmly on track to deliver what we expected to that supports the guidance that we gave you from a margin standpoint.
So hopefully that's helpful to your question.
That's definitely very helpful and maybe Mike with.
You've closed out the.
The Allianz transaction.
Investment management any thoughts in the other business about activity.
There.
For M&A.
Let me jump in it's rod.
Hey, Brian by way of example, we announced.
It's a small transaction just yesterday.
Mike spoke about on the call.
And if I can just go back to kind of the broad guidance that we've given we're going to continue to.
First organically invest in our businesses as.
Mike and I and other and the business leaders have talked about.
And we remain open to things that would be additive from a capability.
Perspective.
From enhancing the with.
The customer experience in the intermediary experience so that we go through but we're going to measure that against as we have for a decade.
The share repurchase.
And stewardship of the capital that we've done so.
The areas that we talked about at Investor day that we have.
We will continue to review.
Have not changed and the discipline and approach that we're going to take co equally.
It has not changed that said.
Yeah.
We're proud of what we just announced with audience and the contribution that thats going to make which gives us a very high level of confidence in the 12% to 17% EPS growth combination of organic and inorganic growth.
And I think it's demonstrating to the market that we have the ability to both source and execute on a timely basis, those tools and capabilities or properties that add value in pursuing again that outcome.
Thank you.
Our next question comes from.
Erik bass with Autonomous research. Please state your question.
Hi, Thank you I want to come back to the international sales opportunity and the Hei partnership that was just.
Hoping to see if there's any way to gauge how big this opportunity could be over time, and maybe it'd be helpful to think of it in context of how.
International sales have been historically and is it right to think the hei.
Didn't pipes being larger than what you had historically through EDA and IP.
I'm going to throw it to Christine Eric, but if we were on a zoom call you'll see a big smile on my face.
It's huge.
And we've.
We've got a significant footprint as pristine as talked about too.
Partnering with a partner that's fully aligned with both our and their ambitions, but Christy.
Yeah. Thank you Rob and thank you Eric for the question. So how does it how does.
So yeah. So let me just start with.
When when we're looking at projections and we're talking about margin expansion and everything you know what are those assumptions and what arent in those assumptions and that's where I get really really excited is.
What we basically were modeling you know continuing to distribute the hei U S teams that we've just added to voya.
And continuing to distribute those globally. So that was kind of the assumptions. So when you. When you start to think about what were some of the upside.
Certainly the upside.
Is is pretty tremendous Senate and a couple of key ways.
So when you think about their international distribution footprint right with just all the ounces overall relationship splits with.
Banks and intermediaries.
An incredible credibility and door opener.
For our product lineup and and one of the things that they're very excited about as well is that within North America. They didn't really have the scale. If you will of global fixed income that we delivered to them as long as some of our capabilities like private credit.
So think about the opportunities to really leverage that that.
Top global brand recognition and partner, both in Europe , and Asia with with credit with.
Some of the our equity strategies as well such as machine learning, which is has just tremendous performance. So overall I would say.
We couldn't be more excited we're in the background really working with them about prioritizing product launches starting to educate them in our strategies and one final thing that also is in the model per se is that.
We will be representing are distributing their allianz capital partner private strategies in North America in Canada. So they have some capabilities such as infrastructure debt that we think are really going to resonate with our insurance clients. So again, we just see a lot of opportunities here and so again.
As Rod said not only does rod Smith.
Smell in his face if you could see them hopefully you can hear the smile on my voice is just the energy of how we just truly could not have picked a better global partner to really accelerate our international growth.
Yes. Thank you that's really helpful color and then just one quick one maybe it could do you have any view on kind of what you would expect for alternatives returns in the second half of the year.
Thanks.
Eric Thanks for the question. So just as a refresher we were asked coming into less this quarter second quarter, what our expectations would be and we range bounded.
Range bound that is minus 3% to plus 3% and we came in roughly 2% give or take.
So so.
While I would not express enormous confidence in our ability to predict how alternatives will perform based on our best visibility today, we do think third quarter will be will be not as good a second.
We're currently bounding that at zero percent on the upper end to minus 6% on the lower end Thats. The total return in the quarter. It is not an annualized number or anything like that so think of that as anywhere from no gain on the alternatives, which would still be below our expectations.
Two potential loss of a $100 million on the alternatives now that all said, we put that into context right.
Think about that in the context of overall earnings and capital generation that would offset a lot of the earnings but not all all else being equal in terms of our expectations. So we would still be able to generate capital in the quarter barring some other event.
And we did add this in the back of the analyst presentation I'm sure you've noticed that just the historical perspective on our alternatives portfolio.
Since IPO, we've earned over 14% on the alternatives.
So while there is quarter to quarter volatility, we think our shareholders have been very well served.
And our policy holders and the customers to buy our ability to generate those kind of returns. So we're very pleased with the overall.
Im pleased with the tough quarter, but pleased with the overall investment we recognize that comes with it and we're happy with where we are.
Thank you that's all the time, we have for questions today, I'll turn the floor back to management for any closing remarks.
Thank you our success continues to reflect the purposeful decisions that we've made as a company.
As well as the commitment and dedication of our people as we look forward we remain confident in our long term strategy and we'll continue to execute on a number of organic capital and margin initiatives to achieve our plans.
At the same time.
We're excited about the additive inorganic growth that will result from our recently completed transaction with Allianz Gi This transaction fully aligns with our company's focus on growth and delivering greater value for all of our stakeholders. We look forward to updating you on our progress. Thank you and good day.
Thank you. This concludes today's conference all parties may disconnect have a great day.