Voya Financial, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. Unaudited results cover the three and six months ended June 30, 2022. Voya operates Wealth Solutions, Health Solutions and Investment Management, with certain activities in Corporate. Comparisons with 2021 are affected by the January 2021 sale and reinsurance of substantially all Individual Life and legacy non-Wealth annuity businesses, and the June 2021 sale of its independent financial planning channel.
Financial performance and position
- Q2 revenue and earnings: Total revenue was $1.519 billion, down $984 million year over year. Continuing-operations pretax income was $153 million versus $1.028 billion; net income was $143 million versus $910 million. Net income available to common shareholders was $64 million ($0.62 basic and $0.57 diluted per share), compared with $459 million ($3.81 basic and $3.53 diluted).
- First-half results: Revenue was $3.033 billion versus $546 million; continuing-operations pretax income was $244 million versus $2.066 billion. Net income available to common shareholders was $91 million versus $1.545 billion. These headline revenue and earnings comparisons are substantially distorted by the prior-year Individual Life transaction and related reinsurance accounting.
- Management’s segment measure: Adjusted operating earnings before tax were $223 million for Q2 versus $353 million, and $431 million for the first half versus $626 million. Q2 segment amounts were Wealth Solutions $186 million (prior year $295 million), Health Solutions $47 million ($63 million), Investment Management $40 million ($66 million), and Corporate loss of $49 million (loss of $71 million).
- Revenue and expense drivers: Q2 net investment income fell $75 million to $581 million and fee income fell $25 million to $411 million; premiums rose $79 million to $595 million, mainly from Health Solutions growth. Operating expenses declined $101 million to $605 million, partly reflecting the financial-planning-channel sale and lower restructuring and stranded costs. Q2 net investment losses were $227 million, including unfavorable fair-value movements amid rising rates.
- Cash flow: First-half operating cash flow from continuing operations was $715 million, versus cash used of $75 million in 2021. Investing activities used $1.574 billion and financing activities provided $325 million. Consolidated cash and cash equivalents, including cash in consolidated investment entities, ended at $1.039 billion, down from $1.573 billion at year-end 2021.
- Balance sheet and debt: At June 30, total assets were $147.520 billion, total shareholders’ equity $6.213 billion, and Voya parent shareholders’ equity $4.516 billion. Long-term debt was $2.385 billion, down from $2.595 billion at year-end; the company repurchased $214 million par value of junior subordinated notes. It reported compliance with debt covenants and no borrowings or letters of credit outstanding under its $500 million senior unsecured credit facility.
- Capital and liquidity: Estimated combined insurance-subsidiary RBC ratio was 426%, above the 375% target; estimated excess capital was approximately $0.7 billion. The parent received $1.176 billion of subsidiary dividends and returns of capital in the first half and ended with $206 million cash. Voya repurchased approximately $700 million of common shares and paid $41 million in common dividends during the period.
- Market-value effects: AOCI shifted from positive $2.100 billion at year-end 2021 to negative $963 million at June 30, 2022, primarily reflecting higher interest rates and credit spreads. Gross unrealized losses on fixed maturities rose to $2.450 billion from $149 million; management attributed the increase primarily to rates and moderately wider spreads and said it did not intend, nor expect to be required, to sell the affected securities before recovery of amortized cost.
Changes, outlook, risks and unusual items
- Wealth Solutions adjusted operating earnings declined on lower alternative-investment income, lower fee revenue and unfavorable DAC unlocking; higher investment margin and lower expenses partially offset the decline. Health Solutions earnings fell with higher group-life claims and growth-related costs, despite premium growth. Investment Management earnings declined on lower investment-capital returns and higher expenses.
- Management said higher interest rates may support investment yields over time, but rising rates and market volatility can reduce asset values, produce investment losses and affect customer flows, product behavior and earnings. Equity-market weakness also weighs on assets under management and fee income. Management expects group-life mortality claims to remain elevated in 2022 due to COVID-19; it estimated $2 million to $3 million of additional claims for each 10,000 incremental U.S. COVID-19 deaths.
- No full-year earnings or revenue guidance is stated in the provided filing text. Management reported strong capital and did not anticipate a material balance-sheet, statutory-capital or liquidity impact from COVID-19 absent another significant, prolonged market shock.
- Transactions after quarter-end: On July 25, 2022, Voya combined Voya Investment Management with specified Allianz Global Investors U.S. teams and strategies. Voya holds a 76% economic stake and operational control; Allianz holds 24%. The fair value and equity effects were still being determined, so the filing gives no clear financial impact estimate. On August 1, Voya agreed to acquire Czech Asset Management, with a cash transaction expected to close in Q4 2022, subject to conditions.
- Unusual charges and commitments: Voya recorded a $32 million office-building impairment in Q2 and $19 million of restructuring expense in the first half. It expects another $20 million to $40 million of restructuring expenses beyond Q2, in addition to amounts already incurred. First-half off-balance-sheet commitments included $200 million to acquire mortgage loans and $1.094 billion for limited partnerships and private-placement investments.
- Contingencies and other risks: Management estimated reasonably possible litigation and regulatory losses in excess of accruals of up to approximately $25 million; some matters could not be estimated. A putative universal-life cost-of-insurance class action was certified in March 2022; Voya disputes the claims. Approximately $136 million of previously accrued carried interest could be reversed if fund performance hurdles are not maintained. Voya also identified reinsurer-performance risk related to Resolution Life, though the obligations are collateralized.
- The company disclosed a prior-period cash-flow presentation error, corrected in the comparative 2021 statement. It said the error did not affect net income, equity, balance-sheet cash, regulatory capital or liquidity measures and was not material. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Review adjusted operating earnings and segment trends alongside GAAP results, accounting for the significant 2021 divestiture and reinsurance comparability effects.
- Monitor the effect of interest rates, spreads and equity markets on investment marks, AOCI, DAC unlocking, assets under management, flows and insurance capital.
- Track RBC capital, subsidiary dividend capacity and parent liquidity after substantial share repurchases and insurance-subsidiary distributions.
- Follow the integration, costs and realized benefits of the Allianz combination, and the closing and financial effects of the Czech Asset Management acquisition.
- Assess developments in litigation, reinsurance recoverables, carried-interest reversals, restructuring spending and the company’s investment commitments.