Q4 2024 Voya Financial Inc Earnings Call
Good morning, welcome to Voya financials fourth quarter 'twenty 'twenty four earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star two participants are limited to one question and one follow up. Please note. This event is being recorded I would now like to turn the.
Speaker Change: The conference over to mainly to head of Investor Relations. Please go ahead.
Speaker Change: Good morning, and thank you for joining us this morning for Voya Financial's fourth quarter 2024 earnings conference call.
Speaker Change: As a reminder, materials for today's call are available on our website at investors Voya dotcom.
Hezbollah Bali: We will begin with prepared remarks by Hezbollah Bali.
Mike: Chief Executive Officer, and Mike <unk>, our Chief Financial Officer.
Hezbollah Bali: All of them their remarks, we will take your questions.
Speaker Change: I'm also joined on this call by Don Templin, former Chief Financial Officer, and strategic advisor to Voya.
Speaker Change: And it has felt businesses, specifically J K Addison CEO of workplace solutions not problems 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-GAAP financial measures within the meaning of federal Securities law.
Speaker Change: GAAP reconciliations are available in all culturally and financial supplement found on our Investor Relations website, and now I will turn the call over to Heather.
Heather: Thank you Manny good morning, and thank you for joining us today.
Speaker Change: Before we turn to our key themes I'm happy to welcome Jay <unk> as our new CEO of workplace solutions.
Speaker Change: Jay brings deep industry experience and a track record of driving growth and innovation.
Speaker Change: He's been a valued partner to voya for many years and it will be a tremendous asset in helping us grow our health and wealth businesses from our already strong foundation for advancing our workplace strategy.
Speaker Change: I also wanted to take a moment to welcome Mike Katz and his new role as Chief Financial Officer, and recognize Don Templin significant contributions over the past few years we.
Speaker Change: We are thankful for downs guidance and insight.
Speaker Change: Now, let's turn to our key themes on slide four.
Speaker Change: In 2024, we delivered strong earnings and growth and wealth solutions and investment management and an outcome in health solutions consistent with the update we provided in December.
Speaker Change: We maintained our focus on careful stewardship of capital.
Speaker Change: <unk> discipline on expenses and continue to execute on our strategy, including through accretive investments in our future growth.
Speaker Change: In health solutions, our stop loss results for the fourth quarter is in line with the expectations. We shared in our December announcement.
Speaker Change: We have taken corrective actions within our stop loss business.
Speaker Change: Including meaningful rate increases and strengthened underwriting risk selection and we expect material improved net underwriting result in 2025.
Speaker Change: We're confident that our reserves will adequately cover future claims based on our January experience.
Speaker Change: And wealth solutions and investment management, we delivered strong revenue growth margin expansion and commercial momentum in the fourth quarter and full year 2024.
Speaker Change: Earnings for wealth solutions were up 30% year over year with revenue growth and adjusted operating margin exceeding our 2020 for full year targets.
Speaker Change: Well solutions generated $2 billion of defined contribution net flows in 2024, demonstrating continued commercial momentum.
Speaker Change: Voya investment management diversified and globally distributed investment strategies delivered strong results in 2024.
Speaker Change: Earnings were up 20% year over year, and we achieved an organic growth rate of 4% for the year comfortably, beating our target.
Speaker Change: With four consecutive quarters of positive net flows 'twenty 'twenty four also stands as Voya investment management, the best year in terms of net flows.
With respect to capital management, we delivered on our plan to return $800 million of excess capital to shareholders in 2024 through share repurchase and dividends.
Speaker Change: We will maintain a strategic approach to capital management and expect to significantly increase our excess capital generation in both 2025 and 2026.
Speaker Change: We closed the one America transaction on January 2nd.
Speaker Change: They're making good progress on the integration.
Speaker Change: This strategic move at $60 billion in assets and accretive scale to a full service business.
Speaker Change: Along with nearly $4 billion of spread based assets under management.
Speaker Change: Share buybacks will be weighted towards the second half of the year, but we continue to invest in growth initiatives that create long term shareholder value.
Speaker Change: Turning to slide five.
Speaker Change: Our top priority in the near term continues to be significant improvement in our stop loss margins.
Speaker Change: Margin improvement will be driven in part by increased pricing and improved risk selection actions, we've already taken on our January 2025 block.
Speaker Change: These actions will also be applied to the upcoming non January renewal season.
Speaker Change: Second we are focused on the successful integration of Wynn America.
Speaker Change: We have received very positive feedback from customers and advisors since we announced this transaction.
Speaker Change: Our focus is now on ensuring a smooth transition managing customer retention and continuing to successfully onboard one Americas talented team.
Speaker Change: We're excited about the growth opportunities available through new distribution partnerships and a broader set of capabilities and.
Speaker Change: And we continue to expect $200 million in revenue and $75 million in incremental operating earnings from one America in 2025.
Speaker Change: Third we're focused on driving continued commercial momentum across all our core businesses.
Our ability to generate and deploy excess capital in 2025 will be driven by our targeted investments in growth and proven ability to leverage our competitive advantages across all three of our businesses.
Speaker Change: Turning to slide six.
Speaker Change: For the past two years I have been talking about our opportunity to drive profitable growth across our core businesses through investments that expand our revenues and earnings and create long term shareholder value.
Speaker Change: We expect capital usage during the first half of this year to be focused on prudent investments that enhance our offerings for our customers, while growing revenues and earnings.
Speaker Change: Our largest investment will be in health solutions focus on enhancing our capabilities and leave management and disability administration.
Speaker Change: As we've administration has become more complex excellence and leave management has become a key differentiator.
Speaker Change: And an important driver in purchasing decisions for group life disability and supplemental products.
Speaker Change: Today employers are interested in bundling solutions from a single vendor.
Speaker Change: Currently 72% of our leave management customer also purchased supplemental health from boil up from approximately 20% in 2019.
Speaker Change: We expect our strategic investments in health solutions, primarily leave management will significantly increase our competitiveness in bundled health solutions.
Speaker Change: Improved win rates and client retention will reinforce our top three position in the supplemental health market.
Speaker Change: In a few moments, Mike will discuss our broader approach to capital allocation in 2025.
Speaker Change: Let's turn to slide seven for an overview on the constant reinvestment.
Speaker Change: In December we closed on our anchor equity investment ensconced at Reed.
Speaker Change: Immuno sidecar form to reinsure annuities issued by audience life.
Speaker Change: Our stake in concert re will yield an attractive investment return for Voya.
Speaker Change: It also provides several other valuable strategic benefits.
Speaker Change: It allows us to participate in the substantial growth of the annuities market.
Speaker Change: While providing voya investment management with a prominent asset management role and a rapidly growing segment of the insurance industry.
Speaker Change: Got it strengthens boy is industry, leading position in the insurance asset management market, highlighting our proven track record in private fixed income.
Speaker Change: It also deepens our important strategic relationship with all else, providing another scalable Avenue for growth within this partnership.
Speaker Change: Yeah.
Speaker Change: These strategic investments represent financially attractive opportunities to execute on our strategy and grow our business over the long term.
Speaker Change: Mike will now provide more details on our performance and results Mike.
Mike Katz: Thank you Heather.
Mike Katz: Before turning to our results I would also like to thank Don Templin for his strong leadership and the impact. He has made that voya as our next CFO I look forward to building upon this success.
Mike Katz: Now, let's turn to our financial results on slide nine.
Mike Katz: We reported a $1 40 of adjusted operating earnings per share in the fourth quarter.
Mike Katz: This contributed to the 725 delivered for the full year.
Mike Katz: Our full year results include alternatives and prepayment income that were 53 cents lower long term expectations.
Mike Katz: Turning to the income returns were approximately 7% improving both sequentially and year over year.
Mike Katz: Prepayment income remains below long term expectations due to the higher interest rate environment.
Mike Katz: We expect lower prepayment income to persist in 2025 and have updated our guidance accordingly.
Mike Katz: Our results were impacted by higher loss ratios and health solutions, which offset the strong results and wealth solutions and investment management throughout 2024.
Mike Katz: Both of these segments exceeded net revenue and margin targets driven by higher fee based revenues and cost discipline.
Mike Katz: Free cash flow conversion was approximately 90% in 2024.
Mike Katz: We expect this to continue and for capital generation to increase in both 2025 and 2026 I will cover this in more detail shortly.
Mike Katz: With that let me turn to our segment results.
Mike Katz: Turning to health solutions on slide 10.
Mike Katz: In December we shared unfavorable experience for the January 2020 for stop loss business.
Mike Katz: Since then claims have stabilized we have set the loss ratio for the January 2024 cohort at 95% and estimate that this cohort is approximately 70% complete.
Mike Katz: As of December 31st.
Mike Katz: Note that the reported fourth quarter loss ratio is above 95% due to the year to date true up.
Mike Katz: We have included details on our loss ratios by cohort in our Investor supplement to make this more clear.
Mike Katz: Experienced in January gives us further confidence that our reserves will be sufficient to cover future claims.
Mike Katz: Looking into 2025, the underwriting and pricing actions taken in the second half of 2024 were consistent with our plan to prioritize margin over premium growth.
Mike Katz: I would call out two key actions taken.
Mike Katz: First we achieved a net effective rate increase of 21% for the January 2025 cohort.
Mike Katz: This is an average which includes much higher rate increases on underperforming cases.
Mike Katz: Second <unk>.
Mike Katz: We strengthen our underwriting process to improve risk selection. Our focus was on ensuring we were appropriately pricing known claims on both renewals and new business.
Mike Katz: As a result of these actions we expect to improve the loss ratio for the January 2025 cohort by 5% to 15%.
Mike Katz: Turning to slide 11, adjusted operating earnings were $40 million for the year.
Mike Katz: Net revenues and adjusted operating margin to reflect the unfavorable claims experience in stop loss, which we expect to improve this year.
Mike Katz: Within voluntary claims were above what we expected in the fourth quarter driven by higher utilization.
Mike Katz: Looking ahead, we expect voluntary loss ratios will continue to increase in 2025, which is consistent with our long term plan to drive enhanced value for our customers.
Mike Katz: Overall, we expect net revenues and margins to improve meaningfully in 2025, driven by actions taken to improve stop loss.
Mike Katz: Margin expansion will continue into 2026 as we plan for a two step process for stop loss and are investing in new lead management capabilities in 2025.
Mike Katz: Turning to wealth solutions commercial success continued in 2024 as we generated nearly 2 billion of total defined contribution net flows in the year.
Mike Katz: In the fourth quarter, we successfully funded two large recordkeeping plans.
Mike Katz: Full service sales were strong in 2024, driven by mid market sales, which grew four times that of the prior year.
Mike Katz: While strong equity markets are positive for well solutions. It does have a counterintuitive effect on net flows higher equity markets increase the average account values of surrenders, which impacted net flows in 2024.
Mike Katz: Spite strong sales and retention overall.
Mike Katz: Overall defined contribution retention was 98, 5% up 60 basis points year over year.
Mike Katz: Looking into 2025, we expect a solid year commercially with over 20 billion of wins in our pipeline.
Mike Katz: Turning to slide 13.
Mike Katz: Well solutions, we generated net revenue and margins above the high end of our guidance adjusted operating earnings were $820 million for the full year.
Mike Katz: Earnings were up 30% year over year as we increased net revenues while controlling spend.
Mike Katz: Higher fee based revenues were driven from added participant accounts and favorable equity markets.
Mike Katz: Spread based revenues outperformed expectations as we mitigated impacts from lower spread base assets by management actions on yield.
Mike Katz: In 2025, we expect added revenues and earnings from one America inline with expectations tip.
Mike Katz: Typical of acquisitions, we do expect some volatility with net flows however that is fully reflected in our earnings guidance.
Mike Katz: This transaction is now closed and we're off to a great start with the integration.
Mike Katz: Feedback continues to be very positive from both new clients and distribution partners.
Mike Katz: Additionally, we expect margins to moderate from high levels in 2024, due to lower spread income and growth investments.
Mike Katz: We expect spread income to be lower given lower spread asset balances and we expect higher spend as we implement over 20 billion of defined contribution wins and targeted investments to strengthen our retail wealth management offering.
Mike Katz: Turning to investment management on slide 14.
Mike Katz: 2024 has been a pivotal year for Voya investment management as we executed on our plan to expand margins and drive organic growth.
Total net inflows for the quarter were $3 4 billion contributing to a total of $12 5 billion for 2024.
Mike Katz: And institutional our leading market position in insurance asset management continues to be a competitive advantage.
Mike Katz: <unk> demand was strong across multi sector private credit and investment grade credit strategies.
Mike Katz: We now partner with over 70 external insurance clients and manage nearly $60 billion of assets, including our expanded relationship with Allianz and establishing stops at Reed.
Mike Katz: Retail net flows drove over half of the positive cash flows in 2024 across both our U S intermediary and international retail channels.
Mike Katz: With respect to fees yields on external client assets expanded in 2024 counter to industry trends and we expect these levels to be sustainable.
Mike Katz: Turning to slide 15.
Mike Katz: In investment management, we grew net revenues and operating margins above the high end of our guidance and 2024.
Mike Katz: Adjusted operating earnings were $66 million in the fourth quarter, which contributed to full year 2020 for earnings growth of 20% full.
Full year results included strong performance fees and continued expense discipline supporting margin expansion ahead of plan.
Mike Katz: We continued to deliver excellent long term investment performance, which builds on our track record and provides momentum heading into 2025.
Mike Katz: This includes public and private fixed income solutions, where we have a strong heritage and are delivering differentiated outcomes for clients globally.
Mike Katz: Looking ahead to 2025, we expect adjusted operating margins in 2025 to be consistent with 2024, as we balanced cost discipline with targeted investments in private capabilities and U S intermediary distribution.
Mike Katz: Turning to slide 16, our excess capital balanced at 12, 31 was approximately 200 million net of our upcoming debt maturity and.
Mike Katz: In the fourth quarter, we completed our <unk>, one share repurchase program and the remainder of the ASR started in the third quarter.
Mike Katz: This fulfilled our commitment to return approximately $800 million of capital to shareholders in 2024.
Mike Katz: Our year end excess capital also includes the capital deployed for our partnership with Allianz Ensconced at Ri.
Mike Katz: This year, our approach to capital will be more balanced between capital return and growth investments.
Mike Katz: Scott said re one America and lead management are all growth investments that we expect returns well above our cost of capital.
Mike Katz: As a reminder, we will retire the debt maturing in first quarter with the proceeds of our recent debt issuance.
Mike Katz: We continue to view share repurchases and common stock dividends as an important components of our capital management plan.
Mike Katz: Share repurchases are expected to be weighted towards the second half of the year given our focus on growth investments in the first half.
Mike Katz: Turning to our excess capital outlook on slide 17.
Mike Katz: We expect to deliver improved excess capital generation in 2025 as highlighted on our third quarter call. This will be driven by stop loss repricing, One America acquisition and continued profitable growth across our businesses.
Mike Katz: We expect these actions will increase our excess capital generation by approximately $100 million in 2025.
Mike Katz: In 2026, we expect a further increase in our excess capital generation as we restore stop loss back to target margins and benefit from continued profitable growth across our businesses.
Mike Katz: Turning to our outlook on slide 18.
Mike Katz: As highlighted in our previous slides, we expect to generate approximately $750 million of excess capital in 2025 before growth investments.
Mike Katz: No we are guiding to a normalization of both incentive compensation and performance fees, which were both favorable in 2024.
Mike Katz: Finally, we expect to return approximately half the capital we are generating this year as we balance growth investments with share repurchases and dividends.
Mike Katz: Before turning to your questions I would like to reiterate our key near term priorities first.
Mike Katz: Improving loss ratios in stop loss.
Mike Katz: Second successfully integrating one America and third continuing to execute on the commercial momentum in each of our businesses.
Mike Katz: These priorities will drive improvement in capital generation in 2025 and 2026.
Mike Katz: I'll now turn it over to the operator for your questions.
Mike Katz: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Mike Katz: You are using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press star two as a reminder, participants are limited to one question and one follow up question.
Speaker Change: Our first question is from Elyse Greenspan with Wells Fargo. Please proceed.
Elyse Greenspan: Hi, Thanks, good morning.
Elyse Greenspan: I wanted to start with the ROE Guide right you guys set that at 12%, 13% for this year. It had been 14 to 16 right with the outlook presentation last year. So I guess, the moving pieces to me why it seemed like the weaker start box results. The investment in lead management. You also are bringing on one America.
Elyse Greenspan: <unk> and.
Elyse Greenspan: And then you know you Guy you know Mike you did say.
Elyse Greenspan: Now within your prepared remarks that you expect lower prepayment income and twenty-five not sure if I'm missing anything else there that brings the ROE down and then what the expectation be that you would get back to that target range of 14 to 16 and 26, one stop loss gets back to target results.
Elyse Greenspan: Hey, Elyse, it's Mike Thanks for the question and maybe I'll step back a bit but I think you've got the majority of the pieces here.
Elyse Greenspan: Did not give a specific EPS guide, but we did give a sense through the free cash flow generation to really think about where EPS might land in 2025, I would think about our 90% free cash flow generation is for pushing up that 750 to get at a EPS of approximately.
Elyse Greenspan: And the mid eights.
Elyse Greenspan: $8.
Elyse Greenspan: You do that net of growth investments at $50 million, we talked about that's primarily on leave youre going to get slightly less than $8.
Elyse Greenspan: As it relates to the ROE V piece and I know, we have a guide of 12% to 13% I would think about 2025 is on the high end of that range and if we adjusted for the growth investments we'd be above that 13% now at least maybe two to your variances I think you'd name them, but let me just hit all of them to make sure we're complete with the <unk>.
Elyse Greenspan: Answer. So first you mentioned the leave in the investments I just did as well I would also note and health solutions. We are on a journey on enhancing value to our customers around voluntary products that does affect the loss ratios in 2025 second within wealth. We are we do have.
Elyse Greenspan: Additional spend that's aimed at implementing over $20 billion of new plans.
Elyse Greenspan: Outside of what America, we're also expecting fee income to increase in that to be offset by lower spread income.
Elyse Greenspan: Third piece of share repurchases, we do give a sense of that so I think you have that piece of leased and then finally as you mentioned on prepayments were guiding to that being down year over year approximately $25 million I would highlight this is really not economic it's just the timing of investment income where prepayments accelerate that.
Elyse Greenspan: Versus overtime.
Elyse Greenspan: Okay. Thanks.
Elyse Greenspan: And then on buyback.
Elyse Greenspan: Given that it's more second half weighted.
Elyse Greenspan: Can you is the expectation that you just are going to buyback a very minimal amount of your shares in the first half of the year and then Mike just on that second piece of my last question would you expect.
Elyse Greenspan: But I guess I know you are not laying out 26, right now, but would you expect kind of to go back to that 14% to 16% next year.
Speaker Change: Yeah, Elyse, thanks for coming back to the ROE V. P. So as I mentioned earlier, if you adjust for the leave investment you'd be north of 13%. The other pieces, we're trying to anchor to this free cash flow generation as we shared in the material, we're not only expecting a meaningful increase in free cash flow generation in <unk>.
Speaker Change: 25, but also 2026, so absolutely the journey is to get back to that long term, 14% to 16%.
Speaker Change: As it relates to just share repurchases I would think of them primarily focused in the second half. It was for the reasons Heather mentioned on some really important key growth investments. The one America piece, the <unk> piece and the leave management piece I, just mentioned I would though point your attention to how we thought about capital.
You look at 2024, we returned over 100% of free cash flow through share repurchases and dividends, we mentioned approximately 50% this year, but over that two year period of time, we're talking about approximately $1 $2 billion of return of capital growth investments they come when they.
Speaker Change: Come we're going to be opportunistic on them, but I think you know our commitment to our shareholders is that we're going to do that when we see long term shareholder value and we see it with all three of those pieces and when they saw just reiterate my final point is that we're committed to returning capital to shareholders and as we've been talking about it for a couple of years, we want to continue to be balanced and driving.
Speaker Change: Value in the business to the commercial momentum in being opportunistic with investments, whether they be organically or being opportunistic around inorganic.
Speaker Change: Our next question is from Tom Gallagher with Evercore ISI. Please proceed.
Tom Gallagher: Good morning, first question is the $50 million strategic spend on lead management and disability admin will any of that recur into 'twenty six or can we see or that out.
Mike Katz: Hey, Tom It's Mike I would think of it primarily impacting 2025 and part of that is that we're expecting not only revenue from the leave administration, but also from short term disability that will be assuming in 2026. So we see this as kind of more of a breakeven.
Mike Katz: In 2026, and then generating positive earnings in 2027 and beyond so I think youre thinking about it right Tom but obviously you know as we get deeper in the year, we'll talk more and more about 2026.
Tom Gallagher: That's helpful and then.
Speaker Change: Just wanted to ask about the stop loss expectation that obviously, a very wide range of 80 to 90.
Speaker Change: And it looks like the majority of the improvement from the 95 level is risk selection not not on actually rate versus trend.
Speaker Change:
Speaker Change: Just just considering it looks like you had an unfortunate around risk selection that led you into this situation.
Speaker Change: What gives you confidence that you figured out the underwriting side in a better way or what are the lessons learned thanks.
Speaker Change: Tom It's Mike Yeah, I'm going to hit the rate increase just briefly before I get to your question on risk selection, which is important and I think you've properly glean that we view that as the bigger piece of the improvement in 2025. So first on the rate increase we did achieve a 21% average net effective <unk>.
Speaker Change: <unk> for the January 2025 business I would view that as an average so when we look at some of the underperforming blocks. The increase was much higher than 21% and we've addressed kind of that higher frequency of claims that we've talked about in our pricing.
Speaker Change: On the risk selection is it really is a key focus on known claims so think about when we see claims in the prior calendar year and making a prediction on how we think that's going to emerge in the following calendar year and as we looked at known claims in 2023 that was a key driver of the higher loss ratio within January.
24 in that book of business to your question on addressing this first I just mentioned about the fact that we feel the 9% first dollar trend that's much much higher for stop loss when its leverage that that was adequately price for a second we were holding firm on request for data. So we wanted to see that most recent.
Speaker Change: Data before finalizing quotes and.
Speaker Change: And third as we talked about last year, if there's a strategy element of this as well and ensuring that the full team understood that the strategy was margin over premium growth and you saw that in our results. Finally, I've worked very closely with this pricing and underwriting team at the end of the year to make sure that we're very comfortable with what we've communicated.
Speaker Change: <unk> as far as the outcomes of this 5% to 15% I might just make one other comment Tom just because I know, there's probably a question on the 95%.
Speaker Change: We are very confident that the reserves that we established in the fourth quarter will be sufficient to cover future claims as you can imagine we've not only been looking at this internally, but we've had externalized on this as well and importantly, we're now in February So we've had a chance to see how the January data has emerged and thats just strengthen our confidence.
Speaker Change: That what we put up in the fourth quarter is going to be sufficient to cover future claims.
Speaker Change: The only build I would have to make a very detailed responses that you can imagine. We are also looking very closely at the completion of the non January 24 book of business with the same sense of scrutiny.
Speaker Change: And what we're seeing right now is it falling very similar trends in prior years and so the actions. We took last year to increase pricing. We think has has held as well, but what we're going to continue to stay very close to it.
Speaker Change: Yeah.
Speaker Change: Our next question is from Ryan Krueger with <unk>. Please proceed.
Speaker Change: Hey, Thanks, good morning.
Ryan Krueger: My first question was on.
Speaker Change: The wealth flows.
Speaker Change: Can you give any more perspective on how to think about this in 2025 and I think I guess in particular.
Speaker Change: I would assume there might be more than normal volatility from shock lapses related totaled one America. So just any any way to frame that.
Speaker Change: Yeah, Brian it's Heather Thanks, I'll take your question. So as you think about I'll do the quick look back on 24 before getting into the luck on 25. So you think about what we delivered in 'twenty four and really the main the main theme is that the fundamentals of our wealth business are strong.
Speaker Change: The 2 billion in the full year do you see flows the 98, 5% planned retention that Mike mentioned, you know a little bit more specificity as in 2020 for our full service sales were up 17% year over year for 23, So just thinking about that momentum as we take a look into 'twenty five what we see.
Right now is if we did that same comparison of full service known sales for 25 versus at the same time for 24, they're up 30% so an important metric.
Speaker Change: Mike referenced the $20 billion of plans and implementation and just for clarity. Those are plans that are ones that we are that will be funded within 25, some of which have already funded.
Speaker Change: To your point on one America, just as a reminder, the assumption on our retention was 90%. So you compare that to the 98, 5% of our book of business. So that will create a little bit of noise. As we go throughout the year in terms of flows but it is very much embedded into our guidance and our financials and yes at the end of the day, we do see.
Speaker Change: We do feel strong in terms of the fundamentals that we see heading into 'twenty five for cross sell.
Speaker Change: Great. Thanks, and then just a quick one on stop loss. When you include January what percentage of claims with that.
Speaker Change: Typically gets you to for the for the full year cohort.
Ryan Krueger: Ryan maybe not tracking with your question I'm going to ask it differently.
Ryan Krueger: And you said you were through 70% of the claims at the end of December and I was wondering when you add in January how much of that increase that too.
Ryan Krueger: Yes, no Q4, and Q1 is really important Brian with respect to just completion I you know I would think of US approximately another 5% to 10% complete after January that's the way I would think about it.
Speaker Change: Our next question is from Alex Scott with Barclays. Please proceed.
Alex Scott: Hey, good morning.
Speaker Change: I wanted to.
Alex Scott: Sort of probe a little bit more on.
Alex Scott: Some of the things that are onetime in nature in 'twenty, five and I guess in particular health solutions in and just the need to invest in the business.
Alex Scott: There is some level of ongoing investment whether it's levered you know.
Alex Scott: Just just other capabilities.
Alex Scott: We'll continue to build out do we need to just think about a higher run rate of expenses and you know I've.
Alex Scott: Just asking because my concern is is there's a lot of things.
Alex Scott: Seem like they went back in 2006 and.
Alex Scott: Good.
Alex Scott: You could make people pretty optimistic on the growth you'll get go from 25 to 26, but I just wanted to make sure I'm not missing things about ongoing investment.
Alex Scott: And then maybe if you could also common in wealth solutions on just the investment to be able to bring on assets and so forth.
Alex Scott: Alex maybe I'll start from a strategic standpoint, and then I'll toss it to Mike on the financials. So one of the reasons, we wanted to specifically call out the investment in lead management is we think it's important from a transparency perspective to give investors a view of where we're investing.
Alex Scott: I'll hit on the strategic importance of this capability.
Speaker Change: And we have seen a significant trend in group insurance, where customer experience really matter as it's no longer just about having the right price or provisions within your insurance products and so investing in leave and the fact that employers. This is really one of the primary decisions, they're making around group insurance and very often the bundle is going with who.
Alex Scott: Wins on leave and.
Alex Scott: And that's really evidenced by some of the stats we shared in the presentation that today, we think about it 100% of our leave cases actually has life and disability and 72% of our leaf cases had supplemental and.
Alex Scott: And we see a significant opportunity we'd been a fast grower and supplemental.
Alex Scott: And Thats, one where we see an opportunity to continue to grow there.
Alex Scott: There and that's a key component of our workplace and it would be very briefly on wealth and Jay will provide more in the coming years, just as we think about our strategy, but in wealth, we've talked a lot about taking.
Alex Scott: Taking making investments in retail wealth management and that our that our clients at the end of the day very often don't have access to a financial advisor and so they look to whats offered through the workplace and also needing broader advisory capabilities and really out of plan capabilities. So there we're investing in the number of advisors. We're also.
Alex Scott: Investing in technology capabilities to make our advisors more productive and the on boarding experience more seamless for clients that ultimately, we think it's going to drive growth, but yeah.
Speaker Change: Yeah, No look at its the only build I would have with Heather on health is just kind of reiterate what I shared with Tom just a moment ago and that the question around how do we think about leave next year.
Speaker Change: Yes, a portion of those expenses will exist next year, but the offset on the revenue side as we get paid for the leave administration as well as onboard short term disability and so that's a key piece to think about that on the wealth side. I think just you know everything Heather said, the only thing I would say on a kind of more of a technical note is.
Speaker Change: As we gave the modeling considerations for wealth. We did include commissions and the intangible effect and the Guy that we haven't done that before and the reason was the one America piece, one Americas, obviously, having an effect on expenses in 2025, and you have your normal normal seasonal effect across all the segments.
Speaker Change: Got it.
Speaker Change: Maybe a follow up actually related to the last piece there.
Speaker Change: Well I mean, if I look at the <unk> guide that you guys are pointing to.
Speaker Change: It looks a little over $200 million of pre tax earnings I think about a year ago I think the normalized number after all it's was around 200. So you have seemingly not a whole lot of growth there and I get there's some ways, it's maybe a little unique to 'twenty five but.
Speaker Change: You know when I think about one America and the contribution is it that it's not really contributing anything yet in <unk> to bottom line in a grades and throughout the year or.
Speaker Change: Is it in there I'm just trying to understand the 75 mill from one America and whether that began showing up more when we think about two Q3 Q.
Alex Scott: Yeah, Alex I think just that first quarter is Heather was talking about I mean, there is a large investment in wealth around that $20 billion plus of lands and implementation. So that's having an effect at the beginning of the year, obviously there'll be revenue to follow to your Big picture question continue to be fully on plan for that $75 million of earnings we're expecting to.
Alex Scott: Add within wealth I think one of the offsets as those expenses I just mentioned and you also see a bit of an offset with respect to spread income were spread spread balances were down year over year.
Speaker Change: Got it thank you.
Speaker Change: Our next question is from Joe or with with Dowling and partners. Please proceed.
Speaker Change: Hey, good morning can you just provide some more color on what youre doing in the voluntary business, that's driving the loss experience higher and is this in response to competition or do you think this is needed to.
Speaker Change: Improved persistency of the business or drive higher growth.
Speaker Change: Yeah. Thanks for the question.
Speaker Change: I'd say a couple of things right you think about voluntary so it's unique in the group insurance space, where typically you're going to have participation rates that are in the high teens low 20. So thank you know somewhere 18% to 20%. So when we talk about wanting to drive increased client value frankly, we want our customers to utilize these very important.
Speaker Change: And so a couple of trends that I would think about is is number one when we see higher utilization, which means we see the claims experience ticking up we know that our customers are then utilizing these products. So what I would what I would watch for and what we're focusing on.
Speaker Change: Is how do we increase the utilization of these products today, we've got about yeah, Hi, Hi, persistency in our voluntary business in the high nineties, but you know once that I'd share with you is when we look at our our open enrollment through benefits Circus, where we're able to leverage guidance in the right education we.
Speaker Change: C supplemental participation rates that moved from a traditional 20% up into the low sixties. So that's the real key component is that these administrative capabilities, whether it be leave for whether it be Ben admin, They drive higher participation rates and as you see higher participation rates, that's really because clients are seeing the value of.
Speaker Change: The products. So that's really the way I would think about them versus necessarily competitive pressure on pricing and the loss ratio. It's really this has been very thoughtful around making sure that clients are getting the utilization.
Speaker Change: Okay that makes that makes sense and then and then just on on leave and disability I know historically, you've reinsured the disability business that you've you've rope, but do you plan to start retaining all of that moving forward or is it just a.
Speaker Change: A portion of the short term disability that youll routine.
Speaker Change: Yeah, I'd say, we've had a longstanding relationship with a disability reinsure that and frankly, giving us capital relief and we don't have the tail liability as a long term disability.
Speaker Change: Strategic rationale for us to in source leave and frankly, the disability administration was to influence the customer experiences that leave an absence is increasingly complicated for employers as well as for employees do you think about somebody going out on maternity leave and they have to file three or four leads so our ability to <unk>.
Speaker Change: Fluids the client experience, we thought was most important. So this is one of the things that we will be taking in some of the short term disability over time, but I would say for us we like the arrangement we have with a partnership it allows us to grow in the space.
Speaker Change: Without necessarily taking on to tail risk and and that's why we're gonna be focusing in on in the near term.
Speaker Change: Okay helpful. Thank you.
Speaker Change: Our next question is from Wes Carmichael with Autonomous research. Please proceed.
Hey, Thanks for thanks for taking my question.
Speaker Change: So up on one America, you've provided some color there, but now that the acquisition is closed.
I know you reiterated the financial impacts and perhaps net flows will be a little bit more volatile, but anything that you thought it was surprising as you integrated that and maybe can you just talk about retention experience through renewals.
Speaker Change: Yes, and then a couple of things.
Speaker Change: Certainly stayed close to this and spending time with some of the one American clients I think maybe a couple of things.
I would refer to as pleasant surprises is.
Speaker Change: The market and particularly the one America clients and the advisors have been very very favorable in the announcement.
Speaker Change: They're excited to be part of Voya and to be able to take advantage of some of the new digital experiences that we can bring to them that we had already invested in and.
Speaker Change: We are thrilled to welcome the one American employees very very talented team and I would say on the retention at this point nothing surprising it's very much in line with a guide that we see and so so for US. This is just tracking very much as expected and I think the other the other piece I would reiterate is.
Speaker Change: Because they're on the same our recordkeeping platform. Our technology teams are very much ready to be able to do a smooth implementation over over the time period that we've outlined so nothing surprising and we just continue to reiterate the $75 million of earnings accretion expected.
Speaker Change: Got it thanks, and then my follow up on capital deployment.
Speaker Change: It seems like there needs to be maybe a little bit of a recovery through 2026, but if I think back over the last couple of years I think you've been pretty active in M&A and maybe more than some would have expected. So just wondering if you still expected to be expecting to be active on the M&A front going forward and where you might be interested.
Speaker Change: Yeah, I mean I think this is something that we've tried to talk about being both very disciplined with capital management as well as expenses and opportunistic.
Speaker Change: We're very very pleased with one America, we think it was not only highly strategic to allow us to scale in the full service business had spread based assets, but also highly accretive. We think is constant re and I'm sure. Matt will have a couple of points to add on that is both strategic and opportunistic so I would say.
Speaker Change: It's something that we're going to pay attention to and we're going to look for opportunities that we can both scale our businesses that we can potentially add new capabilities and I think the final comment is we focus a lot on inorganic and builds but with Jay coming on board I think you can expect us to focus a bit more on partnerships.
Speaker Change: Think a bit like what we've done with Agi, which we think are a great use of being capital efficient and as well as opportunities to accelerate the growth more than can be done in a necessarily an organic build.
Speaker Change: Yes. This is Matt just maybe quickly on askance at a great example of using capital wisely to further build upon the insurance.
Speaker Change: Acumen, we have until further in the sidecar, Mark which is attractive fast growing.
Speaker Change: We're a leading insurance asset management capabilities play quite well, namely private assets commercial mortgage loan core core fixed income and infrastructure to call a few out so a targeted investment and build upon the strategic relationship with Allianz.
Speaker Change: Capital return story that Youll see in our investment line item thats attractive as well as that.
Speaker Change: That will build over the next three years to $1 billion to $2 billion range targeted strategic and a nice return profile.
Speaker Change: Our next question is from Jimmy Buhler with J P. Morgan. Please proceed.
Jimmy Buhler: Hi, I just had a question on your asset management business. You noted positive flows the last couple of quarters.
Jimmy Buhler: But the asset growth hasn't been commensurate with the flows with the fluids would suggest in market performance, partly because you've had a fairly high amount of outflows from divested businesses like I think it was around two two and a half $2 7 billion. This quarter seven 9 billion in the quarter before.
Jimmy Buhler: Can you talk about how much and then that's obviously not in your flow number the way you present, but how much more what does that relate to how much more of that do you have that is potentially at risk and just the economics of those assets or those those similar to the.
Jimmy Buhler: The ongoing assets are the lower fee higher fee.
Jimmy Buhler:
Jimmy Buhler: Yeah. Thanks, Joe This is Matt. Thanks for the question, yes. So so it is an important transition right. So we talked about the growth of the business are extremely happy with the $12 5 billion dollar flow you referenced in 'twenty for that organic growth rate of four 4% well above our two plus percent long term average cutting against that and we've been really.
Jimmy Buhler: Uh huh.
Jimmy Buhler: Upfront about this is divested businesses somewhat to go back now seven years, but it's a known flow.
Jimmy Buhler: Very visible enable for us to manage in our platform.
Jimmy Buhler: Costs around it. So we think we've seen a flow in 2024, we have one more component of the venerable flow that we signaled in 2025, we see that coming in the second half.
Jimmy Buhler: And those are as you referenced lower fee assets that we can also take costs around as we optimize the growth going forward. So it's a part of it's a part of the investment strategy you brought a voya. These are great transactions for voter for you to divest.
Jimmy Buhler: The key message there, though is the growth is outpacing that at a higher revenue level that higher revenue and higher fee rate is what's growing the revenue line item and the operating profit and that is outpacing the outflows and I would just emphasize telling me I think that you know four consecutive quarters of really really strong flows record flows in the year and great momentum set up for 25.
Jimmy Buhler: We feel very good about our asset management business.
Speaker Change: And what's the amount of the venerable assets that do you think the leaf in 'twenty five.
Jimmy Buhler: Now that number is.
Jimmy Buhler: $6 8 billion as the current estimate in the second half of 2025.
Jimmy Buhler: And beyond that then venerable will be mostly gone.
That's correct.
Jimmy Buhler: Thank you.
Speaker Change: Our next question is from well my purchase with Raymond James. Please proceed.
Speaker Change: Okay. Good morning could you just go into a little bit more detail of what time those types of actions went into improving risk selection and so forth.
Speaker Change: Hey, well my I'd, probably just reiterate kind of what I was sharing earlier around making sure that we feel very good about the pricing for every case that we're underwriting second really making sure. We have the most current data before finalizing quotes and then just.
Speaker Change: <unk> and mindset wise, ensuring that our underwriters and the entire team understood. The strategy of focusing on margin versus premium growth and premium was down 16%. That's a big number when you think about that relative to medical trend.
Speaker Change: Other thing I would say just to maybe on the question around how do we think about.
Speaker Change: Stop loss, just really more broadly.
Speaker Change: We're disappointed obviously and what happened in 2024, but I would just point to the annual renewable nature of stop loss, that's allowed us to get after the profitability quite quickly think about 5% to 15% low end of the range being close to that 77% to 80%, we're still guiding to a two step process here to get back to.
Speaker Change: Target range.
Speaker Change: But that's a key reason why we like the product is our ability to get after margins quite quickly.
Speaker Change: Makes sense.
Speaker Change: You were able to I guess get rid of lot of the poorly performing accounts as to how that.
Speaker Change: How that works.
Speaker Change: Yeah, well I think that's the right way to think about it you've heard us talk about really the importance of renewing.
Speaker Change: A healthy book of business and so really.
Speaker Change: Really what I would think about is is we wanted to make sure. We were renewing the strong performing cases, we renewed over 75% of those.
Speaker Change: When Mike talked about the underwriting discipline. It was really very much holding firm on Underperformers and making sure. We got the data we got the rate increase we need it and so it didn't we didn't necessarily renew that makes that debt.
Speaker Change: That book of business and that's reflected in in the block retention that we've talked about in the decline in the book of business. So that's absolutely right I think the final piece I would mention two wellness is the importance of factoring in the higher frequency of claims that we saw in 'twenty four into the twenty-five pricing. So we have assumed that.
The higher frequency of claims that we signed 24 will continue throughout and that's also factored into the pricing adjustments, we made them for the 25 Bucks.
Sydney Kamath: Our next question is from Sydney Kamath with Jefferies. Please proceed.
Sydney Kamath: Great. Thanks, good morning.
Sydney Kamath: I wanted to hit on the wealth solutions flows.
Sydney Kamath: The dynamic of market is higher than in more money comes out but have you seen any big changes in the participant withdrawal rate. If we look at what that was in say 2024 and compare that to historical.
Sydney Kamath: Any changes there.
Sydney Kamath: Yeah.
Sydney Kamath: Yeah, I'll answer that we did start to see some improvement in the Q4 in participants surrenders, we've still taken perhaps a cautious view heading into 'twenty five that participants surrenders would.
Sydney Kamath: Continue to be elevated just given just given a little bit of the uncertainty of the markets, but yes, we did see an improvement when we started to see interest rates come down.
Speaker Change: Got it Okay, and then I guess sort of Relatedly on wealth one of the things that we're hearing from some other companies in the wealth space is this whole concept of.
Speaker Change: In plan annuities within target date funds and I was just curious what is your strategy. There do you think that's an opportunity and sort of what needs to happen for you to.
Speaker Change: To get that product on your platform.
Speaker Change: Yeah. Thanks for the question. So yeah. There are a couple of things that we do today is we do actually have annuity provisions inside of our products. We also partner with different annuity providers through a broker dealer.
Speaker Change: But and we have certain.
Speaker Change: Products within our own partnership it then within matts team as well as other asset managers that have different income solutions, but this is one of the things I think there's certainly going to hear more from Jay in the coming quarters, certainly our investment in retail off management is going to be an important component of that and realizing you know what are some of.
Speaker Change: The product enhancements are drifting partnership options, we consider that allow us to address address both our implant and <unk> solutions as well as annuities. So I'd say this is a bit of a stay tuned we see some opportunity here.
Our final question is from John Barnidge with Piper Sandler. Please proceed.
John Barnidge: Good morning. Thank you for the opportunity. My question is on Voya investment management in Scotts agree.
Speaker Change: Boy investment management previously was had a lot of success with insurance clients.
Speaker Change: Of the existing insurance clients, how many of them already don't have existing side cars.
Speaker Change: Hi, John This is Matt I don't know the exact number of that but our insurance business over 70 clients. Currently we do work with a good number offshore as well as onshore in and globally.
Speaker Change: I'd say the majority don't we tend to be extremely competitive in the mid to smaller sized insurance company market, we have some larger clients as well.
Speaker Change: Cars are part of a part of the industry at this point, we think they'll continue to be a growing part of the industry.
The broadened so as we look across our client base.
Speaker Change: Some of whom have their own exposure some of them done and we can also look to deleverage our own capability and it's like the guide them down their own path and provide investment solutions alongside of that so I really like our leading position in the insurance industry market. It gives us both the right to win on an AUM basis, but also on an it advising a client basis.
Speaker Change: Thank you and my follow up question.
Speaker Change: No.
Speaker Change: Variable investment income one quarter lag generally no annual marks can sometimes come in the first quarter a year ago. Some companies had margin marks any visibility near term of Daniel marks on funds as it relates to the first quarter. Thank you.
Speaker Change: Yeah. Thanks, John This is Matt again.
Speaker Change: As you referenced difficult to predict financial markets, let alone private asset marks the last year and if you saw in 2024, and I think Mike laid this out well a bit of a lag versus a 9% assumption as we think about where interest rates are today.
Speaker Change: A little bit lower we think about equity markets broadening as opposed to being so narrow that tends to take your return expectation higher towards that long term average. So we think about where we're starting to feel like we're in that possible Rangers Oh now longer term, we will I'll kick that 9%, but we think it's a fair assumption as we start the year the interest.
Speaker Change: Where they are that we can be back on that long term contract.
Speaker Change: This will conclude our question and answer session I would now like to turn the conference call back over to Heather in the valley for any closing remarks.
Speaker Change: To summarize a few key messages in 2025, we remain focused on improving our stop loss margins, ensuring a smooth one America integration and driving continued commercial momentum.
Speaker Change: Maintaining our strategic focus we will continue to grow excess capital and enhance shareholder value.
Speaker Change: Our customers remain at the center of all we do and we are dedicated to continually enhancing their experience and outcomes. Thank you for joining us today and we look forward to updating you on our progress throughout the year have a great day.
Speaker Change: This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.
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