Business context and reporting period
Voya Financial, Inc. is a U.S.-focused financial services company operating through Wealth Solutions, Health Solutions and Investment Management. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023; dollar amounts below are in millions unless stated otherwise.
Results include Benefitfocus, acquired January 24, 2023, in Health Solutions, and the AllianzGI business, combined with Voya Investment Management in July 2022. Voya owns a 76% economic interest in that business; Allianz holds 24%.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $1,871 | $1,524 | $3,706 | $3,030 |
| Income before tax | $263 | $152 | $404 | $274 |
| Net income | $235 | $143 | $364 | $254 |
| Net income available to common shareholders | $154 | $64 | $223 | $118 |
| Diluted EPS | $1.41 | $0.57 | $2.03 | $1.03 |
Q2 revenue included net investment income of $545 (down $36 year over year), fee income of $474 (up $61), premiums of $677 (up $80), net losses of $56 (versus losses of $226), and consolidated investment entity income of $145. Operating expenses rose to $770 from $605. The effective tax rate was 10.6% for Q2 and 9.9% for the six-month period.
Management’s non-GAAP adjusted operating earnings before tax were $294 for Q2 versus $228 a year earlier, and $486 for the first half versus $448. These measures exclude or adjust for items including investment gains and losses, exited businesses, noncontrolling interests and other specified items; they are not GAAP income.
Segment performance
| Adjusted operating earnings before tax | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Wealth Solutions | $174 | $197 | $306 | $425 |
| Health Solutions | $124 | $50 | $218 | $72 |
| Investment Management, including Allianz noncontrolling interest | $63 | $40 | $105 | $79 |
| Corporate | $(54) | $(60) | $(123) | $(128) |
Adjusted operating margins were 36.1% for Wealth Solutions, 36.2% for Health Solutions and 27.9% for Investment Management in Q2. Wealth Solutions earnings declined on higher expenses and lower alternative investment income. Health Solutions improved on business growth, lower benefit costs and Benefitfocus revenue. Investment Management benefited from AllianzGI and market performance, but reported net outflows.
Financial position, cash flow and capital
- Total assets were $154.6 billion at June 30, 2023, versus $146.6 billion at year-end 2022. Separate account assets and matching liabilities were $88.9 billion, up from $80.2 billion.
- Total shareholders’ equity was $5.36 billion, including Voya-attributable equity of $3.70 billion; accumulated other comprehensive loss was $2.79 billion. Unrealized losses on fixed maturities were $3.20 billion, which management attributed principally to interest rates and said it did not intend, nor was it more likely, to be required, to sell before recovery.
- Six-month operating cash flow was $871, compared with $715 in 2022. Investing activities provided $1,269, while financing activities used $1,798. Cash and cash equivalents, including cash in consolidated investment entities, ended the period at $1,349 versus $1,007 at year-end.
- Long-term debt was $2,095 and short-term debt $143 at June 30. Debt carrying amounts were broadly stable year over year. Voya issued $400 of 3.976% senior notes and redeemed $393 of 5.65% junior subordinated notes, recording a $5 extinguishment loss; the company reported compliance with debt covenants.
- Management estimated excess capital at approximately $0.5 billion and a combined RBC ratio of 405%. Financial leverage excluding AOCI was 29.2%, down from 29.5% at year-end. A $500 million revolving credit facility was undrawn; total credit-facility capacity was $700 million, with $163 million utilized as collateral.
- Voya repurchased 2.3 million shares for $162 during the first half and paid $41 in common dividends. After quarter-end, the board authorized an additional $500 million of repurchases, bringing authorization to $609 million, and declared a $0.40-per-share third-quarter dividend.
Material changes, outlook and risks
- Growth and mix: First-half revenue rose $676 year over year, but much of the change reflects acquisitions and improved investment-related marks. Fee income benefited from AllianzGI; premiums and other revenue benefited from Health Solutions growth and Benefitfocus. Net investment income fell $121, primarily on lower alternative investment and prepayment-fee income.
- Acquisition costs: Benefitfocus consideration was $595 in the purchase accounting disclosure; the MD&A reports approximately $570 cash paid at closing including closing costs. The company recorded $27 of Benefitfocus integration expense in the first half and expects further costs. AllianzGI integration expense was $38 in the first half, with additional costs expected. Benefitfocus added $319 of goodwill and $275 of intangible assets; estimated amortization for acquired intangibles is about $29 annually for five years.
- Management outlook: No specific numerical earnings or revenue guidance is provided in the supplied filing text. Management describes a path to adjusted operating EPS growth through revenue growth, margin expansion and capital discipline. It expects near-term reinvestment yields to exceed yields on maturing assets, while warning that market volatility makes interest-rate outcomes uncertain. Management estimates a 9.0% long-term return on certain alternative investments; actual results may be volatile.
- Interest rates and markets: Rate changes affect fixed-income valuations, reinvestment yields, product crediting costs, policyholder lapses and derivative values. Equity markets affect fee income and alternative investment valuations. A 100-basis-point rate shock and a 10% equity-market shock are disclosed as illustrative sensitivities, not forecasts.
- Insurance, credit and operational risks: Results depend on mortality, morbidity, persistency, claims and reserve assumptions; reinsurance recoverables also expose Voya to counterparty risk. The filing cites regulatory and litigation uncertainty, ratings sensitivity, restrictions on insurance-subsidiary dividends, acquisition integration and potential market volatility.
- Contingencies and unusual items: Voya accrued $39 for a proposed cost-of-insurance litigation settlement, subject to final court approval; settlement terms also include seven years of restrictions on rate increases for class policies. The company estimated up to approximately $25 of reasonably possible litigation and regulatory losses above amounts accrued. About $131 of previously accrued carried interest could be reversed, in whole or part, if fund performance hurdles are not maintained. Office lease impairments were $14 for the first half. The Health Solutions trailing-twelve-month loss ratio of 63.9% excludes a favorable $57 reserve impact from the annual assumption review.
- Subsequent event: On August 1, 2023, Voya acquired the remaining interest in VFISLK for approximately $50 upfront; the fair value allocation and financial impact were not yet determined.
Most important facts for investors to verify
- How much of Health Solutions’ earnings improvement is sustainable, including the impact of Benefitfocus, business growth, loss ratios and the $57 favorable reserve item.
- Whether Wealth Solutions’ lower adjusted earnings and Investment Management’s reported net outflows persist, and how acquisition-related growth translates into margins and cash flow.
- The sensitivity of earnings, capital and liquidity to interest rates, equity markets, credit spreads, unrealized investment losses and policyholder behavior.
- The final cost and approval status of the $39 settlement, developments in other litigation, and potential carried-interest reversals.
- Integration costs and realized benefits from Benefitfocus, AllianzGI and the VFISLK acquisition, including the final purchase accounting for VFISLK.
- Capital availability and deployment: subsidiary dividend restrictions, RBC and excess-capital estimates, share repurchases, dividends and debt refinancing needs.