Q3 2022 Voya Financial Inc Earnings and to Acquire Benefitfocus Inc Call
Good morning, and welcome to Voya Financial's third quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Anyone should require operator assistance during this conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I will now turn the conference over to our host Mike Katz Executive Vice President of Finance. Thank you you may begin.
Thank you and good morning, welcome to Voya Financial's third 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 thoughtful way of 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.
Joining me on the call are Rod Martin <unk>, our chairman and Chief Executive Officer, Heather Law Valley, Our President and Chief Executive Officer elect and Mike Smith, Our Chief Financial Officer. After their prepared remarks, we will take your questions for the Q&A session. We have also invited our vice chair and Chief growth Officer Charlie.
As well as the heads of our businesses, specifically Kristine hurts sellers investment management, and Rob Group Health solutions with that let's turn to slide three.
I'll turn the call over to Rod.
Good morning.
Let's begin on slide four with some key themes.
We delivered exceptional results during the third quarter, particularly given the challenging macroeconomic environment.
We grew adjusted operating EPS, excluding notables by approximately 28% year over year to $2 19.
This strong performance reflects our continued execution of the organic growth margin and capital components of our EPS growth points.
As a result, we now believe we will achieve our original 12% to 17% EPS target for 2022, despite the macroeconomic challenges we've experienced this year.
Our confidence in achieving this target is driven by several factors the diversity of our revenue streams and the markets, we serve including the positive impact of interest rates on our wealth business.
The continued decline of Covid related claims.
The benefits, we have already realized on the Gi transaction, including revenue on assets on boarded during the third quarter.
And the removal of all stranded costs associated with our prior divestitures.
We achieved ahead of schedule.
Looking more closely at our performance this quarter and over the trailing 12 months all of our businesses achieved organic growth in line with our annual targets.
During the third quarter, we generated positive full service net flows of $555 million in wealth solutions contributing to net flows of $1 $1 billion over the trailing 12 months.
Full service recurring deposits grew 10, 4% compared with the prior year period to $13 billion.
In health solutions annualized in force premiums grew nine 7% compared with the prior year period to $2 8 billion.
This was driven by growth across all of our product lines, including a 22% increase in our voluntary product line.
In investment management net flows over the last 12 months were nearly $10 billion.
And this represents strong organic growth and the initial benefits of our transaction with Ali on Gi.
We concluded the third quarter with approximately $700 million of excess capital.
In the third quarter, we deployed $172 million.
To extinguish debt and paid common stock dividends.
This brings our total excess capital deployed over the trailing 12 months ended September 30 to approximately $1 $9 billion.
Finally, we announced our acquisition of benefit focus yesterday.
This transaction represents an immediate and long term growth opportunity for boy are we.
We believe this acquisition is both highly strategic and financially compelling.
It accelerates a key priority of our strategy that enables the capability to further integrate our health and wealth solutions.
Leading to improved outcomes for our customers intermediaries and our shareholders.
This transaction is also highly strategic and an attractive form of capital deployment, given the immediate cash accretion and the long term revenue growth opportunities it brings while accelerating our strategy.
We continue to build on our track record of delivering strong value and returns for our shareholders.
In a moment I will share more details on how this strategic acquisition accelerates, our health and wealth strategy.
Turning to slide five.
Our focus on brand and culture continue to differentiate voya.
During October lawyer supported a number of events as part of the National disability employment awareness one we.
We teamed up with disability in for our third annual virtual concert to highlight the need to increase and improve the employment of people with.
With disabilities and special needs.
And in September we held our annual employee giving campaign more than 80% of our employees engaged in activities during the month the highest participation rate in <unk> history.
And our people donated at a rate that was three times, giving rate of the average company.
Our work to advance our culture was further validated by our re certification as a great place to work for the seventh consecutive year.
And we earned a similar honor from fortunate.
These recognitions and the actions of our people and our company continue to reflect the strength of our culture and how that carries through and all that we do.
With our strong history of effectively executing on our plans and controlling what we can control regardless of the macroeconomic environment. We remain confident in the plans we shared with you at Investor Day.
With that let me ask Heather to share more details on our exciting acquisition of benefit focus as well as additional details on how we're executing on our strategy Heather.
Thank you, Brian as Rob shared our execution of the strategy that we shared with you at Investor Day continues to result in strong outcomes across our businesses and exceptional financial results in.
In addition to organic growth, we continue to demonstrate the successful outcomes of the investments we have made in our business as well as the additive growth potential inorganic opportunities that we have been able to pursue.
Let's move to slide seven to begin with our new inorganic opportunity that we announced yesterday.
The definitive agreement to acquire benefit focus.
This acquisition is an exciting opportunity to accelerate <unk> strategy, and health and wealth solutions, adding broad based benefits administration capabilities extend our reach across workplace benefits and savings.
At the same time benefit focus presents a strong foundation for our customer centric growth.
Importantly, we were attracted to the significant transformation that benefit focus has executed and we believe that as part of Voya. It we'll be able to leverage our scale technology digital capabilities and operational expertise.
This will add further value to benefit focus and ultimately <unk> clients as well.
Spent meaningful time with Matt 11, who joined benefit focus as CEO last year and the experienced team that he has assembled.
We've been impressed by their exceptional talent strong capabilities and extensive reach across the benefits industry.
We believe this transaction will expand our ability to deliver innovative solutions for employers and health plans and help improve the financial physical and emotional well being of their employees and members.
Finally, and just as important the transaction will be immediately cash accretive relative to buybacks, even before future revenue synergies.
Turning to slide eight I'd like to share more about how this transaction supports and accelerates our strategy, while also driving revenue growth.
At our Investor Day last year, we shared our revenue growth levers with you.
Benefit focus will play a valuable and important role.
First we will continue to deepen relationships, both with our employer clients and intermediary partners.
We will do so by helping to make the connections across workplace savings and benefits. So that our customers can optimize their benefits spend and generate positive outcomes for their employees.
In doing so we will remain committed to an open architecture product agnostic approach.
Second we are growing and will grow our customer base, we have demonstrated our ability to drive organic growth at voya through client retention and adding new customers and expanding the solutions, we provide existing customers.
With benefit focus our reach will be even broader to continue this momentum.
Benefited focused service, the leading brokerage and consulting firms and the health and benefits industry.
More than 25 million lives on its platform.
Combined with our workplace customers boiler will serve approximately 38 million individuals are roughly one in 10 Americans following the completion of this acquisition.
Our intermediary partners play a valuable and important role in helping customers achieve their workplace savings and benefits coal ash.
And they will play a key role in both expanding our capabilities to more clients as well as being able to bring new clients to voya.
And finally, we will continue to expand our offerings by meeting the growing demand for comprehensive benefits and savings solutions at the workplace.
A key aspect is the innovative solutions, we are introducing which will enable us to further grow our revenue streams and expand into adjacencies.
This includes our new digital capabilities, such as our <unk> mobile app that improve experiences and lead to better outcomes.
In a moment I'll give you. An example of how our work here is leasing leading to positive results for our clients and for <unk>.
In summary, Ben.
Benefit focus represents a compelling and exciting inorganic growth opportunity that aligns with our strategy.
It will enable us to deepen and expand relationships with our customers and.
And deliver greater value for all of our stakeholders, including clients intermediaries and shareholders.
Let's move to slide nine.
In addition to the future opportunities gained by the benefit focus transaction, we continue to see strong commercial success in our wealth and health businesses.
This includes the launch of new solutions like the <unk> App.
The App is a first of its kind a personalized financial guidance experience that provides easy access to workplace benefits savings and personal accounts in one application.
It represents the next evolution of our growth strategy, leveraging our leading data and digital capabilities, along with our expertise across health wealth and investment solutions.
In early stages, we are seeing existing clients that are attracted to our new digital solutions. For example, serco and bass pro shops are to existing large market clients, who chose to add one of our latest digital solutions to support their combined nearly 36000 employees.
Both of these wins are a testament to our team's strong client engagement and there are just a few examples of how we are bringing our strategy to life.
The growth and importance of connecting workplace benefits and savings is undeniable and it provides numerous opportunities to drive revenue growth for us.
Moving forward, we will continue to purposely expand our offerings, where additional solutions can advance our customers' overall experience and ultimately help create greater financial outcomes across health and wealth at the workplace and beyond.
Turning to slide 10, we also continued to make great progress in investment management due to our existing capabilities and the added momentum of the <unk> Gi transaction.
After completing the transaction in July we are already seeing the benefits of this acquisition <unk>.
Including the emerging value from our new strategic distribution partnership with Ali <unk> Gi.
This partnership along with the retention of 95% of the assets associated with the business will enable us to add value to both our customers and our shareholders.
For example, we continue to estimate cash accretion to the company's adjusted operating EPS, it's 6% to 8% for 2023.
We are excited about new opportunities, resulting from this transaction, including significant scale and diversified revenues for our asset management business and.
And global distribution with a leading international partner for our existing asset management expertise and strategies.
Overall, we are executing on the strategy that we have shared with all of you.
We are delivering great outcomes for all of our stakeholders and we are excited about the additive benefits that both Ali owns Gi and benefit focused transactions will bring to all of our stakeholders with that let me turn it over to Mike to provide you with more details on our financial performance and results.
Thank you Heather.
Let's turn to our results on slide 12.
In the third quarter, we delivered very strong results with adjusted operating earnings of $2 30 per share.
This includes three notable items.
First 70 cents of net alternative income below long term expectations.
Second 37 tenths of favorable DAC unlocking related to our annual assumption review.
Third 44 cents, a favorable noncash reserve release in health solutions also driven by our assumption review.
Excluding these items, we grew adjusted operating earnings per share by 28% year over year to $2 19.
Broke reflected higher net investment spread revenue in wealth.
Strong underwriting results in health and earnings and investment management from the close of the Ali on the Gi transaction.
Third quarter GAAP net income was $193 million.
Wrong operating earnings were modestly offset by Allianz Gi transaction costs.
Net losses, driven by increases in rates and spreads and modest losses related to the businesses we have exited.
We are very pleased with our third quarter results, which exemplify how our diverse revenue streams and complementary businesses enabled us to effectively navigate through the rapidly changing economic landscape.
Moving to slide 13 <unk>.
While solutions delivered strong results for the quarter, demonstrating the strength of our diversified business mix and revenue sources.
Third quarter adjusted operating earnings were $168 million.
This included $70 million of alternative income below our long term expectations and $50 million of favorable DAC unlocking.
Adjusted operating earnings excluding notables were higher than the prior year period, despite unfavorable equity market.
Net revenues ex notables grew over 4% on a trailing 12 month basis.
Our spread based revenues benefited from higher interest rates, which more than offset the impact of equity markets on our fee based margin.
We expect fourth quarter spread income to be between second and third quarter levels as third quarter favorability in yield and credit and credited interest is not expected to repeat.
Third quarter adjusted operating margin was 36, 4% on a trailing 12 month basis. This was above our target range of 34% to 36% demonstrating our ability to manage spend through challenging macro cycles.
Turning to deposits and flows.
Full service recurring deposits grew by approximately 10% on a trailing 12 month basis with expectation for full year deposit growth of 10% to 12%.
We continue to see favorable year over year trends the number of employees deferring has increased 5% while.
While average participant deferrals have increased 4%.
As employment trends remained healthy the number of employees receiving an employer match has increased 8%.
Full service net inflows were $555 million this quarter, reflecting strong planned sales and favorable retention.
This builds upon the strong second quarter flows generated and full service.
Record keeping net inflows were $2 billion due to a new large case and favorable participant withdrawals.
Looking ahead, we expect a favorable trend in full service net cash flows to continue and we have a significant pipeline coming in 2023.
Our wealth solutions business is well diversified across markets supported by a strong national distribution footprint.
While we consider this along with our leading brand differentiated value proposition, we are well positioned for long term success.
Turning to slide 14 health solutions third quarter, adjusted operating earnings were $149 million, which included $7 million unfavorable alternative income.
Favorable reserve release of $59 million.
Given the noncash nature and size of the reserve release, we are treating this as a notable item this quarter.
Excluding these items adjusted operating earnings grew 29% year over year to $97 million with solid revenue growth and margins within our 27% to 33% target range.
Third quarter revenues grew 14% year over year on a trailing 12 month basis, reflecting favorable net underwriting results and premium growth across all product lines.
Annualized in force premiums grew nine 7% year over year. This was at the top end of our 7% to 10% target range driven by growth in both stop loss and voluntary.
Total aggregate loss ratios were 71% on a trailing 12 month basis, excluding the impact of this quarters favorable reserve release. So it is not.
Not to distort the results.
In the quarter, we experienced favorable performance in each of our product lines.
Looking ahead, we are seeing early indications for a strong renewal and sales season.
More broadly we remain confident in our ability to grow our book, while maintaining pricing discipline and expect our health and wealth strategy that continue resonating with the market.
Moving to slide 15 investment management delivered adjusted operating earnings of $51 million in the third quarter were $38 million net of all <unk> interests, excluding unfavorable net investment capital returns below our long term expectations adjusted operating earnings were $54 million net of <unk>.
<unk> interest.
Net revenues grew 1% ex notables helped by revenues from Allianz Gi assets on boarded in the quarter. This was partly offset by macro impact on fees.
Third quarter adjusted operating margin was 26% on a trailing 12 month basis lower than the prior year period due to unfavorable equity markets, partially offset by Allianz Gi.
We expect our growth in private and alternative assets growth in retail assets and continued expense discipline to be accretive to our overall operating margin.
To help better quantify the impact of macro changes. We now include investment management specific sensitivities to equity markets and interest rates in the appendix.
We saw some stabilization in the near term fixed income performance relative to the second quarter.
Importantly, our long term investment performance remained strong at 90% and 100% of our fixed income funds outperformed on a five and 10 year basis, respectively.
Turning to flows against the challenging market backdrop with equity markets and fixed income markets down materially our net outflows were $960 million in the quarter.
However year to date net inflows remain over $900 million.
And institutional insurance channel demand for private credit and alternative fund closings in the quarter was offset by domestic outflows largely from core fixed income strategies.
Retail flows saw positive contribution from the Allianz Gi income and growth fund and our retail private equity fund.
This was offset by outflows from core fixed income.
Looking ahead, we expect overall full year 2022 organic growth rate to be roughly zero. So we remain confident in our 2% to 4% organic growth expectation in future years.
Additionally, we do not expect to realized performance fees in the fourth quarter related to our mortgage derivative strategy.
The strategy has performed exceptionally well over the long term and we expect to return to performance fees in the future.
Looking through the near term macro headwinds, we remain bullish on our long term prospects.
Expanding our global reach and strategic partnerships have a strong unfunded pipeline with notable contributions from private and alternative strategies and we continued to deliver excellent long term fixed income investment performance.
Turning to slide 16.
Our ending excess capital position was 700 million largely in line with second quarter, as we generated and deployed approximately $170 million of capital in the quarter.
Including third quarter, we have deployed $1 9 billion of capital over the past 12 months are.
Our financial leverage ratio ended the quarter at 37, 4%.
As it relates to the benefit focus the transaction will be leverage neutral as we will not take on any debt as part of the transaction.
As noted earlier, we view the acquisition of benefit focus as an attractive form of capital deployment that will add revenue and enhance our earnings growth prospects. It is immediately cash accretive to voya as operating earnings.
Looking ahead, we expect to return to share repurchase activity and debt extinguishment in the middle of 2023 supported by a robust capital generation.
Overall, our balance sheet and capital position remains strong and we are confident that our well diversified investment portfolio will continue to deliver attractive risk and capital adjusted returns through the business cycle.
As you likely know this is my 24th analyst call in the last as CFO of oil.
It has been an honor and a privilege to have played a part in making <unk> the leading transformation story in our industry over the last 10 years.
And I could not be more bullish on the prospects for Heather and the entire voya team as they move forward.
Summarizing the quarter.
We are pleased with another quarter of stronger, which demonstrated our continued positive commercial momentum and the benefit of our diversified business mix and revenue sources.
We are excited about our progress to activate our health and wealth strategy through the acquisition of benefit focus.
And we continue to be disciplined around our capital with an eye toward delivering shareholder value.
With that I will turn the call back to the operator, so that we can take your questions.
Thank you.
And ladies and gentlemen at this time, we will conduct a question and answer session.
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Our first question comes from.
<unk> Kamath with Jefferies. Please state your question.
Thanks, everyone. Good morning, Mike that's great working with you best of luck in the future.
I wanted to start with benefit focus if you could just curious what's the sort of earnings baseline, we should be thinking about sort of out of the gate and then if you could talk about any numbers around near term expense synergies as well as.
Opportunities on the revenue side.
So we saw each other well.
So that will take this good morning, and thank you so much for the question and I'll start by saying, we couldnt be more excited about the opportunity to bring benefit focus as capabilities into the broad solutions that <unk> offers and before I address your question I thought it might be helpful. Just to give a little bit more of the strategic rationale of why.
Our benefits administration capability is important to Valero and when you think about the employer clients that we serve at the workplace.
We have already offered very broad solution. So if you think in the retirement space. We have the record keeping capabilities. We have the user experience the guidance engines and then the breadth of investment solutions that we offer both within our asset management company as well as partner asset management companies and when you think of.
Our health solutions, we've got a breadth of voluntary solutions that we offer for employers to help us protection needs, but we did not have the benefits administration or the front end user experience and so what this capability does is it allows us to have both fat that benefits administration capability on the health side to connect.
With all of the different partners to health providers, the benefit providers, while leveraging our my voyage front end user experience to really connect what has typically been very unconnected. So.
I wanted to start with that just to make sure that we've got a good grounding in the strategic rationale now to get to your question specifically around the run rate and why is this accretive immediately is when you think about benefit focus there are publicly traded organization you can see that they've got a revenue run rate of about 200.
$60 million on an annual basis, that's recurring revenue.
And we're able to take advantage of immediate expense synergies from corporate expenses. So you think about the elimination of public company expenses as well as taking advantage of our tax asset and all of this is a for any revenue synergies that we see on the horizon and it's before synergies.
We see and in our ability to help benefit focus accelerate their growth plan and improve their margin by leveraging our technology, our digital and our operational experience. So let me pause.
Probably true a lot actually let me just see if I answered your question.
You did and that was helpful. I guess I just want to be clear that we have a good like launching point in terms of the earnings base that we should be assuming again I hear the 250 revenue and some benefits I'm just wondering if we can get a little bit more clarity just so we're all starting at the right point.
Yes, I'll say, we're going to come back with more specifics.
As you can see benefit focus is is a public company today and their information is clear. We have included some information in our presentation around the current margin. Their current revenue. So you can expect that we're going to come back with you with a bit more specifics on the accretion as we get closer to close.
Okay, that's great.
And then I guess for Mike I think you've covered it a little bit in your prepared remarks, but it looked like even on a normalized basis a lot of the segment results were quite strong. So I was just hoping you could kind of just walk through.
Maybe what you think at the segment level is sort of sustainable kind of going forward again, I think you hit on some of this but just want to make sure I have all the pieces. Thanks.
Sure.
Look I think let's do them each in turn we will start with wealth.
<unk>.
The strong performance in the quarter was largely driven by by investment spread.
We gave a sense that the fourth quarter, you should see a little bit of a pullback there all else equal to a level that will be between second and third quarter.
And I think that continues to be sustainable as long as the macro environment continues to support that.
Our reinvestment rate is now.
It's hard to believe uneven saying this is now substantially higher than our portfolio yield it's been probably 10 years since that that was true.
So that should continue to be a good tailwind obviously equity markets will have a role to play in that as well, but I think we've demonstrated consistently year in and year out and ability to manage to.
Consistent margin in the current margins very solid.
On the health side, what we saw was.
You take out the noise from that reserve release still really strong underwriting results and I think a return to normalcy for the life business.
The group life block.
Very good voluntary.
The results I think you could see a little pullback on that in the fourth quarter theirs and we've called this out before there is a normal seasonality.
You see in voluntary business in the fourth quarter as people are reminded through the enrollment process that they have these benefits.
And then southwest continues to be very strong.
And we're very pleased with the results across the board so, particularly in the group life business that we've been through a couple of tough quarters ex Covid, we viewed that as noise and I think this quarter supports that thesis.
In investment management continued expense discipline in the face of really adverse.
Market conditions, I think is the watchword, there plus the benefit of.
The growth that we're going to see from the <unk> relationship and the new.
Not only investment capabilities, but also new distribution horizons for us to explore so I think all of that goes to I think a very sustainable and I think a very.
Strong picture for <unk> going forward.
Thank you and our next question comes from will <unk> with Raymond James Please state your question.
Hi, Good morning, just following up on <unk> question could you help us quantify some of the expense synergies.
Seem like they could be pretty material.
Given I think the company has public company costs and other things.
Hey, Good morning. This is Heather I'll take the question. So if you think about it benefit focus as a small cap company. So.
We're able to achieve relatively small amount of expense synergies and have an immediate cash accretion. So we'll come back with with with more specifics, but really just think about it in terms of the elimination of public company expenses and a couple of other items that will be we'll be focused on in there, but it is a smaller.
And a small amount of expense synergies it does have a meaningful impact on the accretion.
Okay. Thank you second question could you please walk us through.
What we should expect regarding the excess capital position after the deal closes in <unk>.
Thank you.
Sure well could you just repeat that it was a little garbled I didn't quite catch up but it had to do our excess capital.
Yes, if you could just walk us through the expected excess capital position after the deal closes in <unk> 'twenty three so okay.
I'll give you like the things to think about I don't know that we're going to project what excess capital is going to be in the second quarter of 'twenty three because theres a lot of ground to cover.
The way to think about this is the transaction will close in.
First quarter.
Or is it expected to close first quarter 'twenty three.
We ended the third quarter with about $700 million of excess capital the transaction will consume call at 550 ish.
Million of that but in the meantime, we will have generated capital from earnings.
In the fourth quarter, and then again in the first quarter.
So depending on what we ultimately see in those quarters, you should still at the end of the first quarter being in a position where there is.
Meaningful excess capital above and beyond the 375% RBC level. So.
Time will tell I think we continue to feel pretty pretty optimistic about the credit environment over the near term longer term a lot yet to be written but thats the way to think about it we're not.
Money that we've talked about the cash too.
To cover the transaction, that's six months off essentially at least four or five months.
Well, let's have one more point I would add to it is that you can expect that our strategy around capital deployment and being disciplined with capital is going to remain going into 'twenty. Three we're going to continue to be good stewards of shareholder capital as we as we always have been and will continue that into 'twenty three.
Yes.
Thank you.
Our next question comes from Erik Bass with Autonomous Research. Please state your question.
Hi, Thank you.
Looks like benefit focus expect relatively flat revenues in 2020 versus 2021. So just hoping you could talk about what's been weighing on growth recently and what gives you confidence that disconnect celebrate going forward.
Hey, good morning, Eric It's Heather again, I'm happy to take your question. So.
First let me start with what gives us confidence going forward is benefit focus has a new a new management team that very very seasoned with a combined over 300 years experience in the benefit administration.
<unk>.
And they've got a very clear, but achievable path forward to drive revenue growth.
As well as a clear path around the roadmap to enhanced capability now when you look at why have they have been largely flat revenues over the past few years.
They had some they had some some stumbling blocks.
And that we're really not attributed to this new management team and that's what gives us tremendous confidence is with Matt and with his team and one of the other items that I would point to is one of the things that both benefit focus and Voya are absolutely committed to is in an immediate and intermediary centric folk.
Yes.
In our business the brokers consultants advisors are the ones that are really.
Making recommendations.
Around Ben admin product placement to retirement, and we're committed to an open architecture and product agnostic approach in terms of this partnership. So we do feel very very confident with the achievable plan going forward.
Thank you and maybe a follow up.
Do you think about the financial benefits over time is it going to come mostly from growing their revenue based on the existing products or is it ultimately also going to be revenue synergies and distribution opportunities for.
Boy, a produce products as well.
Yes, let me start I'm going to ask Charlie to add in some commentary around around the growth potential. So when when we did our valuation of the property benefit focus we were we were basing all of that the valuation on their current plan on really just the ability for.
Them to achieve their very reasonable plan that they set out.
And it does not contemplate.
Any bit of help that voya can can aid in terms of accelerating the plan from some of the things we talked about of leveraging.
Our scale, our distribution footprint technology et cetera.
We are excited about the opportunities to drive additional revenue growth going forward again not in the accretion.
And and this is very much around.
I'm going to turn it to turn it to Charlie to add some additional thoughts.
Yes, thanks Heather.
Just wanted to take half a step back that you got to look at the Ben Admin market been administration is at the core of workplace benefits Decisioning and usage and if you think about what that is driving the core Ben admin capabilities are about benefits eligibility, who is eligible and unemployed or enrolled.
The people in the various benefits and as we talked about we know they typically have about 17 different benefits so someone's got to get them.
Who's eligible who is enrolled and then building all of the various benefit providers.
The benefit at the core benefit Administrated market is really growing market, it's got a large <unk>.
<unk> addressable market based on a national basis, and then there's ancillary solutions, whether its benefit guidance and navigation data insights claims.
Analytics recovery services, so just core within the Ben admin.
What benefit focus brings us.
<unk> capability.
Very excited about that and when you think about our business and revenue synergy I think as it's been clear in the communication so far.
Obviously that our value equation assumes no revenue synergies, but.
But we see tremendous opportunities in the future and we think those revenue synergies will emerge over time, and it's going to take a little time. Because we are also very excited about these because of the potential both for our benefit focus as well as buoy up and let me just give you a couple Heather mentioned my voyage, which is our guidance and holistic benefits.
Digital app capability that just one opportunity to kind of leverage across what we're doing with HSA and integrated workplace savings whether its 401K.
HSA emergency savings non qual and ability to be able to drive that over time that this will take time with benefit decisioning, but going back to the first part of your question around.
Kind of the pipeline and confidence in 'twenty three you've got to remember most benefits decisions have been made for 'twenty three as it relates to benefits administration, because theyre in the middle of benefits enrollment as well as health. So we got a pretty good line of sight, obviously into 'twenty, three and we really feel good about the future as well, especially when you think about these additional.
<unk>.
Thanks, Charlie and one final thing before we move to the next question is we've had a long relationship with benefit focus and you might ask Rob to add just some perspective, yes sure. Thanks Heather.
So as we've talked about in the past, but that admin space.
The companies that we partner with north of 92.
To put a number to dimensionalize that a little bit.
The benefit focus would be in our top 10 from a whether it's a group count perspective.
Total premium that runs through their platform for us. So they are a firm that we know really well.
You think about.
This market and the pace of it.
A little bit to the question on revenue and growth opportunity.
It takes a few swings.
<unk>.
That is done leveraging experience they've got great focus, which they've started to do and started we think turned the corner on the perception and reception that you've had on the market.
Have been very much focused on retraction and protect the book of business that they have and we see the green shoots that they're creating.
To drive that growth as we move forward, but it is a property we have.
Integrated and worked with for 10 years, and again have meaningful book of business with them.
That gives us really good insight before due diligence and it's.
<unk> gotten better as we've gone through that process.
A deeper view and how youre thinking about things and other kind of to execute better moving forward.
Thank you. Our next question comes from Ryan Krueger with <unk>. Please state your question.
Hi, Thanks, Good morning could you give us some perspective on the Agi specific flows and how they've trended since the transaction closed.
Christine.
We acquired from <unk> actually had positive net cash flows.
About a half a billion dollars.
Since we closed at the end of July So again, just a real testimony to a couple of things just the value and the strength that.
That the investors are delivering for clients and really the.
The strong client relationships that Ali Yonks global investors really springing to bear and so just to kind of take a step back as we talked about a little bit last quarter, I mean really remarkable we retained 95% of the assets.
Full regulatory approval and again when we were thinking originally in the deal modeling on this we were we were much more conservative in terms of what we thought outflows would be so and theyre actually inflows. So the point really is I mean, what makes me excited is we're going on offense with.
Spanning strategies.
Really leveraging that team much faster than we anticipated again, just given the strength of the client retention.
Great. Thanks and related question is just how to think about the.
The lead time to build up the pipeline as you.
As you sell products to their new non U S distribution.
Sure.
Currently we're already having some discussions and client opportunities in what we call sort of single managed accounts or SMA.
What we what we are working on as well is launching a number of use it.
Officer International platform and so we have a number of strategies in the queue.
How to think about that.
In terms of the timing.
To get a little bit more granular with you. There are two strategies that we'll be launching off of the new teams that we acquired so those will be a little faster in terms of.
Getting those launched because they were already in the pipeline for the Voya strategies.
That we will be distributing with them think of a time frame around mid 2023 to get all this structure together.
So how to think about it in terms of the transaction and the deal when we were modeling it sharing the 6% to 8% EPS accretion, we really werent.
<unk> revenue expansion from Voya investment management strategies to be distributed globally. So again as we're looking at it.
Extraordinarily excited to have such a great partner in <unk> Gi and see really strong momentum in the quarters ahead.
Great. Thank you and good luck Mike.
Yes.
Our next question comes from Tom Gallagher with Evercore ISI. Please state your question.
Good morning, just.
Coming back to benefit focus just.
When we sort of step back and look at.
What's happening here.
Heather you mentioned there is a relatively new management team that came into my assume turn it around if you look at the stock chart here.
Hit a high of 60 got down to mid single digits and you have a new management team that's selling the company it doesn't I wouldn't say it inspires confidence that.
Things are going to really turnaround if they are selling here. So just curious.
What do you what do you think is going on here why why are they selling is there a much better opportunity that they couldnt have done on their own.
Combining with Voya and I guess, just a follow up question are you going to have to invest in this business at all.
Will there be capital contributions youre going to need to make that they couldn't have made on their own just a little bit of color for where it was where it's going and why we why we think it could actually improve and also are they are you walking up this new management team.
To make sure that you got continuity of people staying.
Yes. Thank you for the question, let me let me.
Break it down a little bit one at a time, so first starting with the new management team.
Yes, we would look to lock them up we think that they bring in important expertise in the space.
One of the things to your question around.
Why sell now with a brand new CEO and a brand new management team.
About <unk> 11 and was brought in he has got deep expertise in this space and he not only.
Brought on and built a management team that he built a management team that has worked for us for a number of years and so that's one of the aspects that gives us tremendous confidence when we sat down.
With him during due diligence.
They laid out we believe is a very clear achievable path and turnaround and turnaround strategy and so from.
The benefit is focused board of director perspective.
I think this is something that that created a good opportunity for their their board.
We're able to to gain unanimous approval from the benefit focus board.
As we talked about it as Rob mentioned, we have had a longer term relationship with benefit focus and we have a very like minded strategy on what we believe we can bring together.
With these businesses and the importance of making sure. We keep this in terms of that open architecture product agnostic approach and we're going to continue to work with our Ben Admin partners as they are going to continue to work with.
A variety of different.
Voluntary benefit providers and one of the other components.
We took into consideration as we thought about this is is there any type of execution execution risk and it's important to mention that.
There is no integration here this is really a lift and shift.
Of other business really being able to support them and I think your final question, if I, if I kind of tick through all of them is did we contemplate investments.
And that is one of the elements that we looked at as part of the due diligence and in the agreed upon price there is going to be some steady investment in just the way we invest in our businesses to drive growth.
Our focus right now is on bringing bringing on the benefit focus employees and delivering on the promises to the customers and helping them to continue to to expand their capabilities and and serve their clients are very very effectively. So let me just pause and I know there are a lot of <unk>.
To your question, Tom and see if I hit it.
Yeah. Thanks, Thanks, Carter I think if I think you've got all of them sorry for the multi parter.
Okay.
Just just one quick follow up the DTA utilization does that allow you to accelerate voya as tax asset or is there a tax asset being transferred in the transaction.
No.
<unk> is Tom so that'll be the way to think about it.
We have net operating losses will be able to have more income to offset against.
Thank you.
Our next question comes from Kenneth Lee with RBC capital markets. Please go ahead.
Hi, Good morning, Thanks for taking my question wondering if you could just.
Go into more details around the reserve release within the health solutions.
In the quarter. Thanks.
And this is Mike Thank you.
Yes, it relates specifically to one block of business, it's the waiver of premium business and just for those not familiar with the term.
Participants in group life plans, if they go on disability their premiums are waived until they return to active work.
And so we hold a reserve.
For those individuals there are a number of assumptions that are part of the reserve calculation.
That includes a return how quickly people return from disability as well as the mortality that they experience while off work and disabled. So we recently completed an experienced study it's not a particularly large block it took a while.
For us to accumulate enough data and what that showed us was that our previous.
The assumptions for this reserve were meaningfully conservative and so we updated those assumptions and the resulting reserve releases as what you see now and going forward. So.
We think this is a onetime issue that's why we called it a notable I don't think it has any particular large read through in the ongoing run rate either it's just a true up of a reserve that built up over a number of years and then lastly, just to reiterate I said this in my remarks.
While we're talking about it this is GAAP only it is not it does not affect our excess capital or in other words, it's noncash.
Got you very helpful. There.
And just one follow up.
You talked about spread based income within the wealth solutions business, but just wondering.
At a higher level.
Do you think about the potential benefit or sensitivity of earnings to the rising rates and wider spread environment. Thanks.
Well, it's the current environment as we've said a tailwind right.
And should continue to be.
We've given.
I think the sensitivities to earnings from changes in rates.
The experience we've seen thus far I think has been largely consistent with with that experience there is.
Enhanced.
Sensitivity information in this quarter's appendix, where we split out the sensitivity of wealth from the sensitivity of our investment management business. So.
I think theres, there should be fairly depending on where rates go from here.
I think there is.
A pretty clear understanding of how that's going to affect earnings.
In the Big picture.
Going forward and if I can just add one point to that too I think.
Continued revenue diversification that we have specific to our wealth benefit our wealth business continues to be a real strength for us as we've seen the ability to have spread income grow and offset.
The decline in equity markets, while maintaining a discipline.
Focus on expenses.
And the diversification of our mix of business. The fact that we're in multiple sectors with different dynamics inside the participant base in terms of combination of equity and.
And more of.
Spread based products continues to be a strength for us.
Thank you. Our next question comes from Alex Scott with Goldman Sachs. Please state your question.
Hi, first one I had is on health solutions.
Maybe you could comment a bit on the voluntary benefits and disability businesses.
Maybe just for the disclosures a little harder to see sort of the.
Underlying mechanics of what's going on there I mean, it appears growth has been pretty strong in.
The underwriting gains have been coming in better significantly better than we expected. So I just wanted to see towards degree you think that can continue.
What's the competitive environment looks like for pricing at year end and whether you can kind of continue to get the growth you've been seeing.
Yes, Thanks, Alex.
The first piece be in disability, and just remind you and everybody.
We reinsure that risk, so theres a little bit of.
Pluses and minus on how the reinsurance agreement works with our partner on that stuff, but it's really immaterial to the numbers that youre seeing there is a big driver as you said is the voluntary the supplemental health product set.
And so third quarter again, we alluded to this but third quarter has tended to be a little bit lighter from a claims activity perspective, when you go through open enrollment fourth quarter.
Bounces up from third and then a bit of consistency in the first quarter for sure second quarter is always when you watch to see how it plays out but as you do the step back and think about.
Nearly 12 months sort of views of the business.
We feel great about the top line growth, we've had tremendous growth there as we pointed out north of 20% year over year this year.
As a whole business, we've been growing close to 10% in the last four years.
And voluntary the supplemental health has been a big driver of that for sure as we think about performance of it it's a business where.
As we've grown as fast as we have over the last few years that book of business is continuing to mature at the same point, where write new business as we write new business. We've been obviously, we see our results and we know that it's been performing well. So we're doing things whether it be from a.
Rate revenue perspective, or it's just how do we enrich or better utilize the benefits with customers and so we have talked about this in the past medical claim integrations.
And the integration is an area, where we want to try to anticipate and do more for the customer before just sitting back and waiting on our claims submission to come in and so that's an area, where we think theres still a lot of upside opportunity to better penetrate our book of business with that service and those capabilities.
But again doing the step that tremendous growth, we're really confident in the path that we're on.
But do expect some some upward movement in loss ratio over time.
Environment competitive yes, everybody is talking about this is a space that should grow as high deductible health plans have grown and penetration across the market the need for a consumer perspective to deal with the claims that happen to help them make and think differently and bigger about the decisions from both.
Our savings and protection perspective. This is a big part of why we think our strategy is so needed right now not only because I think uniquely positioned to deliver it but also the customers are ready for a different experience from their benefit providers.
Got it thank you.
The next question I have is on the wealth solutions business.
Just wanted to see if you could provide any color on how your end shaping up.
Switching activity of different customers and if you are sort of more of a net beneficiary or or if that hurt us going into the end of the year or any kind of color you can give on the pipeline.
Yeah happy to do so they're all chime in so and as you saw in the quarter very strong flows with 555 million.
Brings us to $2 billion of full service flows year to date recurring deposits right within the wheelhouse. So what's driving it is we do have.
<unk> sales, but we had favorable plan and participant retention and really healthy pipeline and we're planning to another quarter of positive flows looking into the fourth quarter. So we feel very very good with the momentum in the full service business and if I turn quickly to record keeping.
<unk> talked about in the past that record keeping business, we have to take a longer term horizon, because theres much longer lead times. So again pleased with the $2 billion in flows that we had in the quarter for record keeping but if you look at over the last three years, we've generated $32 4 billion in net flows and record keeping.
And we have one of the healthiest pipelines, we've had in a number of years and significant number of of unfunded wins that will fund within 23, So still very very good about our commercial momentum across both full service and executing.
Yes.
Thank you and that's all the time, we have for questions today I'll now hand, the floor back to management for closing remarks.
Yeah.
Thank you.
Like to share a heartfelt. Thank you to Mike Smith for his significant leadership contributions to <unk>. During the past 13 years, Mike we are and I am deeply grateful for your service to Voya and we wish you and your family the very best.
Our success continues to reflect our clear strategy diverse businesses and focus on execution as well as the commitment and dedication of our people. We remain confident in our long term strategy. We will continue to execute on our organic growth capital and margin initiatives, we will continue to.
Take purposeful actions to advance our strategy and expand our ability to address the health wealth and investment needs of our customers. We look forward to updating you on our progress. Thank you and good day.
Thank you that concludes today's conference all parties may disconnect have a good day.