Q3 2024 Voya Financial Inc Earnings Call
Good morning, welcome to Voya Financials 3rd Quarter 2024 earnings conference call.
Speaker Change: All participants will be in the Listen Only mode. Should you need assistance, please signal a conference specialist by pressing the Star key followed by zero.
Speaker Change: after today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then the one on your touch tone phone. To withdraw your question, please press star too.
Speaker Change: Part 2 stands are limited to one question and one follow-up. Please note this event is being recorded. I would now like to turn the conference over to May, May, too. Head of Investor Relations. Please go ahead.
May: Thank you and good morning. We appreciate you joining us this morning for Voya Financials 3rd quarter, 2024 Oden's Conference Call. As a reminder, materials for today's call are available on our website at invests.voya.com.
John Meon, I'll call this morning our Heather Lavallee, our Chief Executive Officer and John Templin, our Chief Financial Officer. Following their remarks, we will take you questions.
Speaker Change: For the Q&A session, we will also be joined by incoming CFO Mike Katz, and the Head to our businesses, specifically Rob Grupka, CEO of Workplace Solutions, and Matt Tom's CEO of Investment Management.
Speaker Change: Turning to our earnings presentation materials that are available on our website.
Speaker Change: On slide two, some of the comments during today's discussion may contain forward-looking statements and refer to certain non-gap financial measures within the meaning of federal security's law.
Speaker Change: got for consultations are available in our press release and financial supplement found in our investor relations website. And now I will turn the call over to Heather.
Heather Lavallee: Thank you, Minnie. Good morning and thank you for joining us today.
Heather Lavallee: Turning to Flight 4 for our key theme for the corner.
Heather Lavallee: First, we delivered strong business results in wealth solutions and investment management this quarter.
Speaker Change: This is the outcome of actions with implemented throughout the year to drive stronger than expected revenue and margin improvement.
Heather Lavallee: Second.
Heather Lavallee: and Heather Stoploss results led to a disappointing result in health solutions.
We are actively repricing the stop loss business to materially improve margins next year.
Heather Lavallee: Third, we are on track to close our acquisition of one America's full service retirement business on January 1st.
This is an outstanding transaction for Voia, both in terms of strategic fit and financial attractiveness.
Finally, we continue to deliver strong free cash flows.
Heather Lavallee: We remain on track to return $800 million in excess capital to shareholders in 2024, and are well positioned to significantly improve excess capital generation in 2025.
Heather Lavallee: Turning to third quarter results on slide five.
Speaker Change: We reported a just-it-operating EPS of $1.90.
Speaker Change: Our EPS is 9% higher compared to the third quarter of 2023. Supported by almost 20% growth in wealth solutions and more than 10% growth in investment management earnings.
Speaker Change: Strength and wealth and investment management was offset by adverse stop loss results in the quarter. In retrospect, we underpriced our 2024 book, which is resulted in the elevated loss ratios we are experiencing this year.
Speaker Change: We are taking decisive actions to address weakness in the business.
Speaker Change: will provide more details in a few moments.
Speaker Change: In well solutions, revenue growth and adjusted operating margin are on pace to be above our 2024 target.
Speaker Change: Underline commercial momentum across key full service segments continue to build in the quarter.
Speaker Change: and the High News level we've delivered since 4th quarter 2022.
Speaker Change: reported outflows were largely driven by higher average account values that have resulted from the recent run-up in equity markets.
Speaker Change: In the mid-market, this year's known fails are already significantly higher than total sales in 2023.
Speaker Change: and we continue to maintain market-leading positions in the government markets, I participants and assets.
Speaker Change: The Voyen Investment Management delivered a third consecutive quarter, positive net flows, exceeding our organic growth targets for the year.
Speaker Change: Our continuing strength and institutional fixed income and further expansion within the third party insurance channel have been key drivers of net inflows in 2024.
Speaker Change: and our growth in retail markets can keep used to build. If that inflows across both domestic and international channels.
Speaker Change: In both wealth and investment management, we have grown margins year over years.
Speaker Change: I shown on the slide, this quarter's disappointing health results takes us off course from achieving a full year EPS target.
Speaker Change: Despite the diversity, positive results and our other businesses keep us on track to return 800 million to shareholders this year.
Speaker Change: Turning to slide 6, our top priority in the immediate term is to significantly improve stop loss margins.
Speaker Change: We are prioritizing higher margins over premium growth for the 2025 book.
Speaker Change: We are executing on substantial rating creases across both renewals and new business.
Speaker Change: will provide more specific details in his remarks.
Speaker Change: We're also focused on integrating the One America Business.
Speaker Change: who remain on track to close on January 1st.
Speaker Change: Our execution on these two key priorities, combined with our continued emphasis on profitable growth, will allow us to generate even higher levels of access capital in 2025.
Speaker Change: and we continue to execute on the investments that will drive our future growth.
Speaker Change: As our retirement participant base continues to expand, we are extending our presence and reach in the workplace and growing out-of-plan assets and revenues.
Speaker Change: We tell Clionass that's we're up over 20% year over year as we continue to invest in this model and build our team.
Speaker Change: And as we told you last quarter, we are making strategic investments in leave management that will enhance our competitive position in group life and voluntary. We are on track to launch our new solution early next year.
Speaker Change: Turning to Flight 7.
Speaker Change: In September, we announced our acquisition of one America's retirement business.
Speaker Change: The transaction is both strategically important and financially accretive.
Speaker Change: The acquisition has meaningful scale to our retirement platform, a broader set of strategic capabilities and new opportunities for distribution partnerships.
Speaker Change: The transaction will deliver at least 75 million of pretext operating earnings, and over 200 million of net revenue in the first year.
Speaker Change: What America's significant presence in the emerging and mid-market segments advances our strategy to increase market care and grow our full service retirement business.
Speaker Change: Further defining our position as a leading retirement provider across all market segments in tax code.
Speaker Change: We're thrilled to welcome the talented team from one American to Bola.
Speaker Change: Turning to flight 8.
Speaker Change: The termed actions we are taking to execute on our key priorities will expand free cash flows in 2025 beyond the levels we're delivering this year.
Speaker Change: The expect that stop-lost repricing.
Speaker Change: the One America Acquisition and continued profitable growth across our businesses will significantly increase our excess capital generation in 2025. With that, Don will now provide more details on performance and results. Done?
Don: Thank you, Heather. Let's turn to our results on slide 10.
Don: We delivered a dollar 90 of adjusted operating earnings per share in the third quarter, 9% higher than the prior year.
Don: This includes the effective alternative and pre-payment income, which was 22 cents below our long-term expectations.
Don: Although these returns are below our long-term target, our high-quality portfolio of alternative investments continues to deliver positive returns.
Speaker Change: Fee revenues increased year over year and wealth and investment management. This is a result of continuing commercial momentum and strong equity markets.
Speaker Change: Improve margins in the wealth, reflect the actions we've taken to enhance spreading and come.
Speaker Change: This has helped to support approximately $200 million of capital generation in the quarter despite unfavorable stop loss of capital.
Speaker Change: [inaudible]
Speaker Change: experience in health.
Speaker Change: Third quarter gap net income was below adjusted operating earnings due primarily to non-cash items.
Speaker Change: Moving to health on slide 11.
Speaker Change: Given our key near-term priority to significantly improve margins and stop loss, I want to start by addressing our health results.
Speaker Change: As Heather discussed, the January 2024 business was executed at rates that were too low.
Speaker Change: The very favorable performance of the 2022 business influenced the underwriting for both the 2023 and 2024 blocks of business.
Speaker Change: This resulted in expected loss ratios at the high end of our target range in 2023 and above our targets in 2024.
Speaker Change: Higher frequency across most plane categories is driving the increase in expected loss ratio for the 2024 block.
Speaker Change: While disappointing, experiencing the elevated claim trends now has enabled us to adjust pricing on the January 2025 business we are currently underwriting.
Speaker Change: Turning to slide 12.
Speaker Change: We are prioritizing margin over enforced premium growth and are actively pursuing higher rate increases for the January 2025 book.
Speaker Change: We were able to achieve significantly higher rates for the non-January 2024 business. This gives us confidence in doing the same for the January 2025 business.
Speaker Change: Prioritizing margins over growth in the non-January 2024 business resulted in our non-January premium declining by 2 percent.
Speaker Change: We are targeting average rate increases of 100% or two times prior year levels for the January 2025 renewals.
Speaker Change: This includes a focus on retaining cases that are performing well while ensuring we improve margins on underperforming blocks.
Speaker Change: We have also increased our targets on new business pricing, prioritizing margin over enforced premium growth.
Speaker Change: Because we are prioritizing higher rates, we do expect lower sales and enforced premium year-over-year for the January 2025 book.
Speaker Change: We will share more on our fourth quarter call on how sales and renewals finish up.
Speaker Change: We are confident that our pricing and underwriting actions will significantly improve net underwriting results next year.
Speaker Change: Turning to slide 13.
Speaker Change: Adjusted operating earnings and health were $23 million in the third quarter.
Speaker Change: Results are lower primarily due to unfavorable loss ratio developments in stopped loss.
Speaker Change: The unfavorable stop-loss results have also impacted adjusted operating margin.
Speaker Change: While we are not satisfied with our results, we are confident the actions we are taking will meaningfully improve profitability in 2025.
Speaker Change: Thanks for tuning in. We'll see you next time.
Speaker Change: Turning to Wealth on slide 14.
Speaker Change: We continue to deliver value by driving improved outcomes for our growing number of customers.
Speaker Change: We have expanded our participant base at an approximately 6% CAGR since 2019.
Speaker Change: We have over 7 million participants today, and we expect this to grow by over 15% in 2025.
Speaker Change: That is before factoring in One America, which will add material scale to our full-service business.
Speaker Change: Our third quarter results include net outflows of $222 million and $224 million in full service and record keeping, respectively.
Speaker Change: However, strong equity markets continue to impact average participant surrender values.
Speaker Change: Importantly, we continue to drive underlying sales momentum.
Speaker Change: Third quarter full service sales were the highest we've delivered in several years.
Speaker Change: We generated four times more mid-market sales than in 2023, and we maintained our leading position in the government market.
Speaker Change: Plan retention also remains high at approximately 98%.
Speaker Change: In record keeping, third quarter net flows were impacted by one large plan that delayed its decision.
Speaker Change: Looking ahead, we have visibility on several large plan fundings expected to take place in the fourth quarter, which will drive positive net flows for 2024.
Speaker Change: We continue to invest in our retail wealth management business, which serves the needs of both in-plan and out-of-plan customers.
Speaker Change: This has supported growth in retail client assets, which is up 20% year-over-year to $31 billion.
Speaker Change: Moving to slide 15.
Speaker Change: Wealth Solutions earnings continue to track ahead of our 2024 targets, reflecting faster net revenue growth and strong adjusted operating margin.
Speaker Change: Third quarter adjusted operating earnings of $211 million are 18% higher than a year ago.
Speaker Change: Fee-based revenues continue to grow from our expanded participant base.
Speaker Change: A focus on enhancing yield on the general account and cash balances has led to spread revenues ahead of our expectations.
Speaker Change: Also helping spread revenues is the greater adoption of target date fund solutions featuring Voya as the core fixed income offering.
Speaker Change: Continued commercial momentum and actions to improve margins positions us to finish the year well above targets.
Speaker Change: and our workplace strategy creates future opportunity for profitable growth.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: Moving to investment management on slide 16.
Speaker Change: We have executed a turnaround in investment management with a focus on delivering exceptional solutions.
Speaker Change: Our clients have responded with greater demand, as evidenced by our year-to-date net inflows of over $9 billion.
Speaker Change: This well exceeds our 2% organic growth expectation for the year.
Speaker Change: The third quarter included $3.8 billion of net inflows, representing the third consecutive quarter of positive net flows.
Speaker Change: Our leading positions in institutional fixed income and third-party insurance asset management, as well as our global distribution reach, continue to serve as a competitive advantage.
Speaker Change: in institutional.
Speaker Change: Positive net cash flows of $1.8 billion were driven by strong demand for core fixed income.
Speaker Change: We continue to grow our preeminent insurance asset management business.
Speaker Change: As a result, we now partner with over 70 clients globally and manage over $57 billion of AUM for third-party clients.
Speaker Change: In retail, positive net cash flows of $2.1 billion were driven by significantly improved business momentum in U.S. intermediary and continued inflows in our international business.
Speaker Change: Turning to slide 17.
Speaker Change: We are delivering strong investment management results today with more runway for growth.
Speaker Change: Adjusted operating earnings were $55 million in the third quarter compared to $49 million in the prior year quarter.
Speaker Change: Third quarter net revenues were up year over year.
Speaker Change: Higher institutional and retail revenues were driven by strong commercial momentum in U.S. and international markets, coupled with favorable equity markets.
Speaker Change: adjusted operating margin improved to approximately 27% on strong business momentum and expense disciplined.
Speaker Change: Looking ahead, we continue to leverage our leading positions in institutional fixed income and third-party insurance asset management to support further client and asset growth.
Speaker Change: Turning to slide 18.
Speaker Change: Our capital generation continues to differentiate us from peers.
Speaker Change: Total capital return in the quarter was $193 million.
Speaker Change: We repurchased $149 million of shares, including $80 million as part of a $100 million accelerated share repurchase program executed in September.
Speaker Change: We also entered into a 10B51 program that ensures we deliver on our capital return target of $800 million this year.
Speaker Change: Additionally, our board increased the share repurchase authorization by $500 million, positioning us well for continued capital return in 2025.
Speaker Change: In the third quarter, we issued $400 million of senior debt at a 5% coupon rate and were upgraded by Fitch.
Speaker Change: We believe these outcomes speak to our prudently positioned balance sheet and strong cash generation.
Speaker Change: Thank you.
Speaker Change: We expect to retire the debt maturing in early 2025 with the proceeds of the recent debt issuance.
Speaker Change: On a pro-forma basis, the leverage ratio is 28%, well within our target range.
Speaker Change: We have deployed the proceeds from the debt offering across short-term, high-quality liquid investments.
Speaker Change: This will largely offset the incremental interest payments between now and the debt refinancing in the first quarter of 2025.
Speaker Change: Turning to slide 19.
Speaker Change: Let me remind you of the key themes Heather shared earlier.
Speaker Change: Strong business results in wealth and investment management are driving revenue and margin improvement ahead of targets.
Speaker Change: Repricing actions and stop-loss are expected to meaningfully improve net underwriting results.
Speaker Change: The addition of One America should contribute at least $75 million of adjusted pre-tax operating earnings next year.
Speaker Change: and we are well positioned to significantly improve capital generation in 2025.
Speaker Change: With that, I will turn the call back to the operator to take your questions.
Speaker Change: Thank you.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up the handset before pressing the keys.
Speaker Change: To withdraw your question, please press star 2. As a reminder, participants are limited to one question and one follow-up question.
Speaker Change: Our first question is from Ryan Krueger with KBW. Please proceed.
Ryan Krueger: Hey, thanks. Good morning. My first one was on stop-loss. I was hoping you could provide more color on the underlying claim trends that you're seeing and what type of loss inflation have you built into the 80% loss pick for 2024?
Ryan Krueger: Hey Ryan, it's Heather. Let me start. At first, as we said on the call, we're disappointed with our stop-loss results. They've really masked what is a tremendous performance in our wealth and our investment management business as well as our capital return story for the year.
Speaker Change: But to get specific to your question, as we think about how claims have emerged throughout the year, if we take you back to the second quarter.
Speaker Change: We had projected a loss ratio between 80% to 83% at that time, and that was really factoring in our actuarial pricing assumptions, the completion on the 23 book of business, and paid claims on the 24 book at that time, which were only 12% complete.
Speaker Change: If I take you through what do we know at the end of the third quarter, the claims at this point are about a third of the way complete and we saw elevated claims across all different all claim categories and that's what really drove the reserve assumption.
Speaker Change: When we think about what we're doing about it, as you heard Don talk about, and I talked about it as well, is we're actively repricing the book of business.
Speaker Change: I would think about medical trends as first dollar medical trend is somewhere between eight and nine percent which is factored into our pricing
Speaker Change: There's a leveraging effect on top of that that is, as we've talked about, we are going for significantly higher rate increases on both renewals and new business.
Speaker Change: really favoring margin over premium growth and at the end of the day we're confident in our ability to drive a significant improvement and underwriting margin on the block.
Ryan Krueger: Do you think the loss ratio will likely still be above your 77-80% target in 2025, or are you optimistic you could get back to the target with the pricing action?
Ryan Krueger: Yeah, Ryan, hey, this is Mike. Thanks for your question. So we're absolutely targeting the 77% to 80% as what we're going for in this pricing season.
Ryan Krueger: Heather just mentioned we're targeting an over two times rate increase on the renewals and obviously much higher on new business. Maybe just a few things to think about as you try to get your head around 2025. As Don mentioned in his comments,
Speaker Change: When you look at the non-January business, we were able to get a 75% higher rate increase on that particular block. That resulted in an enforced premium reduction of approximately 2%. Now I don't want...
Speaker Change: listeners to conflate what we're shooting for on non-January and the January 2025. We got what we were aiming for as it relates to non-January. The non-January book which is different.
Speaker Change: You can also go back to 2017 into 2018, which was another example where we needed to go out and get rate, and we were able to do that. That resulted in an enforced premium reduction of approximately 5%. Now, that's specific to the January business. It was roughly flat for the full year, 2017 into 2018.
Speaker Change: A little bit different this time is that then it was a bit more of a Voya issue versus an industry issue.
Speaker Change: So, just stepping back, I think it's very reasonable to think that premium will likely be down.
Speaker Change: and Stop Loss for 2025. As Heather just mentioned, we fully understand that the margin is what drives the bottom line results and that's why we're super focused on that and why we're confident in the material improvement in cash generation next year.
Speaker Change: Our next question is from Wes Carmichael with Autonomous Research. Please proceed.
Wes Carmichael: Hey, good morning. I had a question on One America. It looks like your financial targets remain unchanged versus the announcement, but I believe part of that book was up for renewal recently. I just wanted to understand if there's any change in your thinking regarding retention or shock lapse on that business.
Wes Carmichael: Good morning, Wes. It's Mike. Thanks for the question. Yes, $75 million is unchanged. It does affect for higher lapses. So, you know, we typically will see, and Don mentioned this in his remarks, that we're retaining approximately 98% of the plans in wealth, which is a very strong result. We do expect lower persistency for the One America business. I would think approximately around 90% is what's embedded in that $75 million. I might remind, though, that, you know, as we talked about in the announcement, that the technology that we're moving this business on, so the technology One America has is the same technology we have. And so that should help in the transition. That should help.
Wes Carmichael: in the persistency. And then finally, you know, as we've structured this deal with with an earn out.
Wes Carmichael: and that earn out protects.
Wes Carmichael: from a retention perspective as well. So to the extent that
Wes Carmichael: Retention is lighter than what we might have hoped for. The $160 million earn out would do the same. And so we feel like we've got the right protections. We like how we're transitioning the business onto similar technology. And we believe we've got the right lapse assumption baked into the $75 million. Yeah, and Wes, if I can just add, it's Heather. On the One America, we're super excited about this from a strategic perspective. And one of the things we really liked about the One America book of business is they have very, very high service levels.
Wes Carmichael: to welcome the One America clients and welcome the talented One America team in DeVoya in January.
Speaker Change: Okay, thank you. My second question was on the EPS guidance. I think the updated guide implies roughly $8 per share of operating earnings in 2024. Is there any insight you can share with us into how we should think about that for the next few years? I think your prior three-year CAGR for EPS was 12 to 17 percent. So any help with how we should think about the baseline and growth rate going forward?
Speaker Change: Hey Wes, Mike again. Yeah absolutely I think you know right now it's a bit early on 25 Guide and Beyond. We're right in the middle of the planning season and working through that as we speak.
Speaker Change: But as we shared in the material, I think there's three important concepts that we want to make sure we get across. I think one, to your question on One America, that's going to add $75 million of earnings next year. The second piece is just the normal organic growth that we expect both from investment management and from Wealth Solutions.
Wes Carmichael: And then finally, the third piece with respect to health solutions and the work we're doing right now on repricing, which we expect to materially improve, not only just cash generation, but also earnings per share. So that those are the three main pieces that are going to affect how we think about 2025. But again, more to come as we get on to the Q4 call around specifics.
Speaker Change: Thank you.
Speaker Change: Our next question is from Alex Scott with Barclays. Please proceed.
Speaker Change: Hi everyone, this is Justin on for Alex.
Justin: as an addition, if you can sort of break out how we should think about that 3.2 organic split across U.S. and international if available. Thank you.
Speaker Change: Thanks Justin. This is Matt. I'll dive into that a bit. Very happy with the overall flow picture as you mentioned the 3.8 billion. I'll start there.
Speaker Change: And part of what's exciting about that is, A, the build over the year to 9.2 beyond our organic growth target of 2 percent. We're actually at a 3 percent-plus level there. But it's the breadth, and you alluded to this in the international channels, which we continue to see strength in the international retail channel. We have a preeminent income and growth franchise, as you know, and that continues to resonate.
Speaker Change: very strongly, both internationally, but also we look to monetize and grow that business in the U.S. So that's a key pillar of an international component.
Speaker Change: Globally, as well, fixed income, of course, there's demand for dollar-based fixed income. We have very strong fixed income capabilities, and that's kind of wave two from both public and private fixed income. So stay tuned for that. We're seeing that built in the second half of 2024.
Speaker Change: We think there's more to come in 2025 around that.
Speaker Change: More broadly on on flows though
Speaker Change: across channels, insurance and U.S. intermediary quite strong. That's what's driving that nine plus billion year to date. And from an investment platform standpoint, both fixed income, private assets, and multi-assets are driving that growth. And that's that breadth that's helping with, of course, the margin growth. So quite happy with the result.
Speaker Change: Thank you and if I can just ask a quick follow-up. I was wondering if you can sort of comment on the pipeline for net flows in the wealth solutions business as well, maybe across corporate tax exams and record-keeping.
Speaker Change: Yeah, sure. So in the wealth business, as we've guided here over the last couple quarters, you know, we're going to come in a little bit light because of what we've seen in the equity markets.
Speaker Change: As we think about the commercial momentum, though, what I'd really point you at is the 39% increase.
Wes Carmichael: As we've talked about for a couple quarters here, the growth of the mid-market has been really strong at 4X versus prior year, and we maintain a lot of momentum within the government space.
Wes Carmichael: and the other three billion guide that we've given previously. And as we look ahead, again, a really strong pipeline and expect to put on a really strong participant growth.
Wes Carmichael: as we look into 25. So I think on a flow perspective, the go forward view, we feel good about the things that we're seeing come into the system.
Speaker Change: And just to build on Rob's point for a second, if I can, you know, not only do we feel good about the commercial momentum that is building, but as you think about the very, very strong earnings and margin we're able to deliver this year, that's one we're just incredibly proud of the team.
Wes Carmichael: Thank you.
Speaker Change: Our next question is from Joel Hurwitz with Dahling and Partners. Please proceed.
Joel Hurwitz: Hey, good morning. First, just wanted to follow up on the Wealth Pipeline. Don, did I hear you say you expect 15% participant growth in Wealth next year, excluding One America? And if so, just how much of that is record-keeping versus full service?
Joel Hurwitz: Yeah, this is Rob. I'll chime in on that one. I won't split it out for you. Certainly, a meaningful part of it is recordkeeping, just given the size difference and how you would think about full service versus recordkeeping. But it's momentum in both segments. It's just representative of the different size of cases that come in. And we feel really good, obviously, as we think about the expense discipline that we've had.
Wes Carmichael: The ability to bring on
Wes Carmichael: and contain the participant growth that we've had over the last number of years being in that 6% range.
Wes Carmichael: as we think about, you know, how we position ourselves from a technology perspective.
Wes Carmichael: We've done a lot of work over the last few years to bring a scale and capability.
Wes Carmichael: not only helping us deal with organic growth but also integrate One America in a really thoughtful, disciplined way.
Wes Carmichael: And I would say a quick way. So the team's very focused on how we do that and manage expenses in a really disciplined way as we look forward. But the growth, I think, is something to be really proud of. We've got to execute against that, but we feel like we're really well-positioned to do that into the future.
Speaker Change: Got it. And then shifting to stop loss.
Speaker Change: You continue to target a 77 to 80 percent loss ratio, but if I look at your premium rate filings
Speaker Change: They suggest commission expenses have been rising over the past several years, and margins at a 77 to 80 percent loss ratio look like they would be pretty thin and below peers. Just any color where targeted margins have trended over the past several years, and maybe some color on why that loss ratio target hasn't moved lower.
Speaker Change: Yeah, well, look, there's obviously a number of variables to take into consideration when I think about getting the margin commission and expense around the distribution of the products is an element.
Speaker Change: Obviously, we continue to, as we scale, do that efficiently, effectively from an overall expense perspective as well.
Speaker Change: That's a business where we've got scale, we take advantage of that scale and discipline around the expense.
Wes Carmichael: operational piece of it as well.
Wes Carmichael: Again, our view is the 77 to 80 is where we're going to strive to get to and expect to get to.
Wes Carmichael: So, you know, those are market dynamics that are always going on, the ebb and flow of distribution partners and what their expectations are. Those are things we've managed for a number of years, and frankly, we do it across all that Goya is doing. There's always an innovator involved.
Speaker Change: Our next question is from Tom Gallagher with Evercore ISI. Please proceed.
Tom Gallagher: Thanks. Just a few quick ones on stop-loss if I could. I guess the first one, will the competitive environment allow you to push through double the amount of rate while still having just
Speaker Change: single digit declines in top line. I think that was sort of what you all were implying based on the experience from the middle part of 24 and what you saw there. But I would say from what you're seeing in pricing,
Wes Carmichael: Yeah, certainly, Tom, you know, as we look at it, obviously, every year is a little bit unique. And this was certainly set up for a unique challenge, just given the severity of what we're seeing.
Wes Carmichael: It honestly helps when you think about the cases that are the worst performing, there's data as we talked about and just underscore it.
Wes Carmichael: The fact that things have turned quickly as we're sitting here today, we've got a lot of ability to build that into our pricing and the actions that were taken.
Wes Carmichael: doesn't make it easy, but it makes it really clear of why we're going after the rate we're going after and why it gives us confidence. As we also think about balance in the book of business, you know, things that are maybe running more poorly versus the things that are running within expectations.
Wes Carmichael: Obviously, there's a balance there, and I think, as Mike alluded to, the expectation on, you know, modest impact of the book of business is how we're seeing it and how we feel it given the market interactions we're having today.
Wes Carmichael: So simply put, Tom, we believe that we can execute on the meaningful increase in the stop-loss pricing very effectively.
Speaker Change: Gotcha, thanks for that. And then, how do we think about the cadence of the margin improvement in stop-loss? If 4Q is, let's call it 86%, and you execute as expected, are we going to see a...
Wes Carmichael: a gradual earn-in, and will it take a while to get to that?
Wes Carmichael: 77 to 80 pricing objective or target or is it possible you'll see that sooner you know in the first half of the year is it just maybe just talk about the earning element and how long it takes
Speaker Change: Hey, Tom, look, there's claims that are going to come in. So, you know, these are estimates, these are best estimates, but if we land in the 86% zip code and the rating increases that Don, Heather, and Rob have been talking about, we have a lot of confidence we would be back in that target. So now we need to get through the renewals, we need to get through the pricing, we need to see how that lands. I think to your question on...
Wes Carmichael: What happens to the premium, as Rob suggested, I think it's, we expect a modest decline, but we're about halfway through, so some more to come. But I think if it lands in that 86% zip code, then what we're targeting is a very rational place to land in calendar year 2025.
Speaker Change: Our next question is from Wilma Burgess with Raymond James. Please proceed.
Wilma Burgess: Hey, good morning. I think Tom just kind of asked my question, but I just wanted to clarify a little bit.
Wilma Burgess: When you guys talk about the 86% stop loss ratio, is that for policy or 2024? So does that kind of mean through the first half of 25 or how should we think about that? And then related to that question, if you could talk a little bit about.
Wes Carmichael: Yeah, hi Wilma, it's Mike again. So yeah, I think you're thinking about it right, just with respect to the premium piece. We try to give a bit of color on what happened on Jan and what happened back in 17 into 18 that gives us a confidence as well as just what's happening right now as we're moving through the pricing season. The other piece that we've done in the investor supplement is to give you a sense, not only what's happening with stop loss,
Wes Carmichael: in the particular quarter, but how do all the different cohorts come into play? So you'll be able to see for non-JAN and JAN, all three, 2022, 2023, 2024. And so when we're talking about the 86%
Wes Carmichael: That's on the January 24 business that now if you factor in non-Janet kind of gets you to a similar place But we're trying to be very specific about this January 2024 business, and why is that?
Wes Carmichael: That's the business we're actively repricing right now. We feel we got the success we needed on that non-Jan 23 coming into non-Jan 2024 and next up is that January 2025 business and right now
Wes Carmichael: We believe that we can get the rate increases that drive that meaningful improvement in cash generation next year, and that'll be off kind of the best pick of 86%, which we have for the January 2024 business right now.
Speaker Change: Okay, thank you. And then could you talk about the performance and the income and growth strategy and also maybe just discuss a little bit of what kind of impacts you might expect if AGI is acquired? Thanks.
Speaker Change: Thanks, Wilma. I'll start on the incoming growth.
Speaker Change: and you'll notice in the performance materials provided, some change in the short-term performance there. I want to call out what drives that. So the income and growth strategy competes versus a peer group that is much less homogeneous than many other spaces. That's actually...
Speaker Change: part of its success. If you think about that strategy...
Wes Carmichael: This product will inherently have a lower equity beta during a rally like that we've seen.
Wes Carmichael: But it continues the product to have a very high distribution rate and this is the income generation is the key characteristic for the product.
Wes Carmichael: Longer term, of course, the product is performing extremely well with top decile performance relative to peers, so very happy about that. That continues.
Wes Carmichael: and that performance and that income generation is what resonates and what has helped to continue to build the flows in the product. For the earlier question, that is a key part of our success internationally.
Wes Carmichael: in partnership with AGI. To AGI more broadly, we appreciate the partnership we have with Allianz and Allianz GI both today and in the future. Just to be clear, these world-class investment solutions meet a very specific client need.
Wes Carmichael: and we both enjoyed that since the 2022 transaction. To put a finer point on it, income and growth is important as are thematic equities, but also a building array of fixed income products globally, both public and private.
Wes Carmichael: where we have a momentum today, but we really have excitement about the future path and we look forward to continuing that growth together.
Wes Carmichael: Thank you.
Speaker Change: Our next question is from Sunit Kamath with Jeffries. Please proceed.
Sunit Kamath: Thanks, good morning. Starting with the stop-loss, Mike, I think you had made a comment in one of your answers earlier thinking back to that 2017 and 18 experience and I think you
Sunit Kamath: referred to it as a sort of a Voya-specific issue that you were dealing with. Is what you're seeing now more of a similar sort of thing where it's Voya-specific, or do you think this is sort of an industry-wide issue? Because I think that would have implications for your ability to reprice but also grow the top line. Thanks.
Speaker Change: in that was our ability to get over a double increase on the book successfully in 2018. And that really gives us the confidence to be able to execute once again. And, you know, just maybe as a reminder to everybody, we've got a really long track record of effectively managing this book of business very profitably and well into the loss ratios.
Speaker Change: and the other targets that we've done for a long period of time.
Speaker Change: and specific to this year, you know, as we said, there's really two factors.
Sunit Kamath: First is the fact that we did underprice the 24 book of business, which we're actively working to correct
Sunit Kamath: The impacts of inflation do impact medical. Maybe the final point is...
Sunit Kamath: Back to a question Tom had is we are appropriately factoring that into our repricing efforts, which gives us that confidence to be able to improve the underwriting margin and ultimately get our loss ratios back within our target range, you know, hopefully within the 25 year.
Speaker Change: Got it. Okay. And then I just wanted to pivot to One America. Can you give us maybe a sense of how the flow picture has looked there, what it looks like today, and maybe what it's looked like over the past, you know, couple of years, just to get a sense of how the asset growth is, as where the asset growth has been coming from? Thanks.
Sunit Kamath: Yeah, sure. This is Rob. I can give you a little bit of color, and Mike alluded to it in one of his answers around One America. Look, they've had a
Speaker Change: higher than what Roy has experienced, you know, plan, retention, you know.
Speaker Change: loss, so think about in that.
Wes Carmichael: in a low 90% range.
Wes Carmichael: that's gone on for a few years. Part of what they've been focused in on is, you know, strengthening their service delivery.
Wes Carmichael: continuing to build on distribution relationships and partnerships that they've built over a number of years.
Wes Carmichael: But their flow story was a little bit more complicated given those, you know, planned retention rates.
Sunit Kamath: As we look ahead, importantly, you know, as we think about the future, they're bringing in a couple new relationships that we, you know, very much focused in on, you know, establishing our own relationship with those firms so that we can continue to drive.
Sunit Kamath: There's capabilities that they bring, like ESOP that we've alluded to a number of times, and there's additional capabilities we get into, you know, preparing for the close on 1-1. And then we've got a great team that's coming over and joining Voya. So we're excited about the plan and client management teams and those that deliver.
Sunit Kamath: service on a day-to-day basis. That's going to be a really important part of how we feather that into the broader commercial momentum that we've talked about on this call already within the core of the way of wealth business.
Speaker Change: Great, thanks.
Speaker Change: Our next question is from Nick Anito with Wells Fargo. Please proceed.
Nick Anito: Hey, good morning. Most of my questions were answered here, but I guess...
Nick Anito: Just another on stop-loss. Is there any...
Nick Anito: specific states or regions that you guys can call out that are running, I guess, hot or is it just
Speaker Change: Yeah, I'll...
Speaker Change: Again, but what we're doing with the data that we got, the experience that we got is factoring that in and being very targeted at a case level.
Speaker Change: on what we go after and how we think about driving a healthy mix of business. Again, as Don alluded to in his opening comments.
Speaker Change: But yes, the team's doing the peel back of the data and understanding the drivers and More of that will come obviously as we get further into the development in fourth and first quarter And I just want to underscore Rob's point just on a case-by-case
Speaker Change: basis, and so
Speaker Change: Although we'll look at things, you know, by state, region, et cetera, I mean, at the end of the day, the underwriters are looking at this for each individual case.
Speaker Change: Our next question is from Josh Schenker with Bank of America. Please proceed.
Josh Schenker: Yes, thank you for that question. Unfortunately, another stop-loss question. I just want to talk about your market share or your unit volume gains in 2024 given what you said was underpricing. Did it help you grow in 2024 as you took share from your competitors?
Speaker Change: So, that's an area that, obviously, we'd ask for a do-over on that. From a renewal perspective...
Speaker Change: Again, that's an area where given the sequence of experience that came in, in 22, being very, very strong.
Speaker Change: So those two things really contribute to when we talk about not getting the rate we need, those are the drivers. Did it drive more volume? Yes.
Speaker Change: As we sit here today, you know, taking advantage of, you know, the book size and scale, certainly we do, but at the same point, you know, we're leveraging the experience that we're seeing and what the claims are telling us to drive the actions that Mike, Heather, and I are alluding to here.
Speaker Change: So, not that we have this data in the supplement, but should we expect in 2025 new business generation is equivalent to 2023, or will it be lower as you engage in the repricing?
Speaker Change: Well, look, rather than try to bifurcate it, I'd really come back to Mike's comments and Heather and mine on the book growth and where we think the book will go.
Speaker Change: We just want to get the right rate, whether it's new business or renewal, and that's the focus, such that we're getting the right margin and meaningfully improving things in 2025.
Speaker Change: As a reminder, there's star one on your telephone keypad if you would like to ask a question.
Speaker Change: Our next question is from John Barnage with Piper Sandler. Please proceed.
John Barnage: Good morning. Thank you for the opportunity. My question is on the One America transaction. Can you talk about opportunity to cross-sell products across the franchise into that base and potential for investment portfolio repositioning? Thank you.
Speaker Change: So maybe I'll have Rob hit the cross sell piece but just with respect to the investment portfolio as we shared in the material earlier this year a very conservatively positioned portfolio and I think that does drive some opportunity for us John I think maybe the words I would share with you is over time you know obviously these are held to maturity assets and so we'll look for opportunity to reinvest that as those opportunities exist you can assume we're going to take advantage of that is that going to be a big driver for next year I don't think so but again over time will be helpful to us
Speaker Change: Yeah, and John, to your question around cross-sell, I'd really hone in on, you know, ESOP is an area where we've got a capability that we're bringing on board that's going to, I think, be meaningfully useful. And when we think about the Voya book of business and
Speaker Change: And so that would be probably the tip of the sphere. And, you know, don't forget, we've got, you know, another 800,000 participants that are going to be coming on board when we close this transaction. We've talked in the past.
Speaker Change: and we'll continue to talk about the investment and the focus on the retail wealth management business.
Speaker Change: and how we can, you know, engage with in a more consistent early way and an ongoing way with participants on how we advise, support, and guide them in, obviously, making really important decisions for their long-term, you know, financial wealth.
Speaker Change: And then my follow-up question is around...
Speaker Change: the margin over market share in health solutions and around sales. Is there a segment of the book that you're non-renewing and how do you view the opportunity to cross sell?
Speaker Change: and another open enrollment with benefit focus in the franchise. Thank you.
Speaker Change: Yeah, so you know really quickly on every year there's an element of not renewing some of that is
Speaker Change: because we give a rate that they just don't like. And, you know, sometimes some of them get more competitive. Whatever the reasons are, there's always in stop-loss, you know, think about a 25-ish percent impact to the cases of the book of business. That's just the ongoing nature of annual renewable product and, you know, competitive marketplace.
Speaker Change: So, as we sit here, again, I think the book of business view that we've given you is our best view of, you know, what the ultimate impact will be on that.
Speaker Change: As we think about, you know, benefit focus, it is great. I appreciate the question on that. They're going through open enrollment as we sit here today. They're doing an excellent job of positioning themselves for another great one-on-one enrollment cycle. So, really proud of the direction on service and execution, the building back of relationships we've talked about before with intermediaries is going in a really good way. We think all that over time leads to a business that we can materially grow over the next few years and drive revenue in the right direction. As we think about the execution...
Speaker Change: At this point in time, you know, the focus has been on them just running a successful enrollment. And then as we think about the future, our opportunities to continue to leverage not only what they do, but the other products in the portfolio. We look at that holistically across, and those opportunities are going to emerge as well.
Speaker Change: This concludes our question and answer session. I would now like to turn the conference call back over to Heather Lavallee for any closing remarks.
Heather Lavallee: Thank you. I'd like to thank everyone for joining us today and on the next quarter call we're going to continue to update you on our near-term priorities.
Speaker Change: around improving the stop-loss margin.
Speaker Change: closing the One America deal and continuing to drive the profitable growth we've been generating across our core businesses. Thank you for joining us and have a great day.
Speaker Change: Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.
Speaker Change: [music]