Voya Financial, Inc. quarterly report, Q3 FY2022

Voya Financial, Inc. — Q3 2022 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results are presented under U.S. GAAP. Voya provides retirement and investment management services, group insurance, and supplemental health products through Wealth Solutions, Health Solutions, and Investment Management.

Financial performance

Metric	Q3 2022	Q3 2021	Nine months 2022	Nine months 2021
Total revenue	$1.338bn	$2.009bn	$4.371bn	$2.555bn
Continuing-operations pretax income	$101m	$411m	$345m	$2.477bn
Continuing-operations net income	$69m	$371m	$296m	$2.373bn
Net income attributable to common shareholders	$193m	$142m	$284m	$1.687bn
Diluted EPS	$1.82	$1.15	$2.55	$13.19
Operating cash flow, continuing operations	Not presented quarterly	Not presented quarterly	$1.133bn	$102m

Q3 adjusted operating earnings before tax were $299m, compared with $388m a year earlier. By segment, Q3 adjusted pretax earnings were Wealth Solutions $168m (down from $319m), Health Solutions $149m (up from $71m), Investment Management $38m attributable to Voya (down from $63m), and Corporate loss of $56m (improved from $65m). Nine-month adjusted operating earnings before tax were $730m versus $1.014bn.

Q3 revenue declined $671m year over year, reflecting lower investment income, Wealth Solutions fee income, and results from consolidated investment entities. Net investment income fell to $522m from $731m, principally on lower alternative-investment and prepayment-fee income. Health Solutions benefited from business growth and lower COVID-related claims, while its Q3 results also included favorable annual assumption updates. Voya reported no consolidated margin figure in the supplied filing text.

Financial position, liquidity, and capital

• Total assets were $144.0bn at September 30, 2022, versus $171.3bn at year-end 2021; assets held in separate accounts declined to $76.0bn from $100.4bn.
• Total shareholders’ equity was $5.7bn, down from $9.8bn. AOCI shifted from $2.1bn of income to a $2.0bn loss, including a $4.086bn after-tax nine-month OCI loss, largely reflecting higher interest rates and wider credit spreads.
• Fixed maturities, including pledged securities, had fair value of $31.0bn versus $37.3bn at year-end. Gross unrealized losses rose to $3.848bn from $149m; management attributed the increase primarily to higher rates and said it did not intend, and was not more likely than not required, to sell the securities before recovery.
• Cash and cash equivalents were $840m on the balance sheet. Consolidated cash flow statement cash, including $95m held in investment entities, was $935m at period-end. Parent-company cash was $196m. Nine-month operating cash flow was $1.133bn; investing activities used $1.946bn and financing activities provided $175m.
• Short-term debt was $141m and long-term debt $2.094bn. Financial leverage was 37.4%, up from 27.6% at year-end, mainly due to lower adjusted capitalization from AOCI losses and share repurchases, partly offset by debt reduction. The company reported compliance with debt covenants and no borrowings or letters of credit outstanding under its $500m senior unsecured facility.
• Estimated combined RBC ratio was 447%, above the company’s 375% target. Estimated excess capital was approximately $0.7bn. Voya reported $750m of common-share repurchases in the first nine months and $1.2bn distributed from insurance subsidiaries in 2022.

Changes, transactions, and unusual items

• Comparisons with 2021 are materially affected by the January 2021 Individual Life transaction and related reinsurance, as well as the 2021 sale of the independent financial planning channel. Prior-year premiums, benefits, gains, and other revenue include transaction-related effects; the nine-month reported revenue increase should not be read as underlying growth.
• On July 25, 2022, Voya combined Voya IM with specified Allianz Global Investors U.S. businesses. Voya holds a 76% economic stake and operational control; Allianz holds 24%. Q3 included $37m of transaction and integration expenses, excluded from adjusted segment earnings, and management expected further integration expenses.
• Q3 annual assumption updates added $114m to adjusted pretax earnings: $48m favorable DAC/VOBA unlocking in Wealth Solutions and $66m favorable Health Solutions reserve impact. These items are sensitive to assumptions and may not recur.
• A $32m office-building impairment was recorded in Q2 2022. The company also reported $21m of investment impairments for the first nine months.
• After quarter-end, Voya acquired Czech Asset Management on November 1, 2022. Also on November 1, it agreed to acquire Benefitfocus for approximately $570m in cash, including its debt and preferred shares; closing was expected in Q1 2023, subject to customary conditions.
• The company expects $15m–$25m of additional restructuring expenses beyond Q3 2022, in addition to $22m incurred in the first nine months of 2022. Management said removal of stranded costs was completed in Q3, with some TSA transformation work continuing without expected net stranded costs.

Outlook and principal risks

• The filing provides no specific consolidated earnings or revenue guidance. Management said reinvestment yields in 2022 were expected to exceed the existing portfolio yield, while emphasizing uncertainty from market volatility and the future rate path. Higher rates may support investment income but have reduced bond fair values and equity through AOCI.
• Management cited equity-market volatility, lower asset values and fee-based income, alternative-investment return variability, interest-rate and spread movements, mortality and morbidity, and policyholder behavior as factors that could affect results. It estimated long-term returns of 9.0% on certain alternative investments.
• Voya expects elevated 2022 group-life mortality claims related to COVID-19; it estimated $2m–$3m of additional claims for each 10,000 incremental U.S. deaths. Health results also depend on claims experience and assumption updates.
• Reinsurance recoverables were $13.6bn net. Voya remains exposed if reinsurers, including Resolution Life US, fail to perform; collateral is held in trust, but the filing cautions it may not be sufficient in a default scenario.
• Management estimated aggregate reasonably possible litigation losses above accrued amounts of up to approximately $25m. A putative class action involving universal-life cost-of-insurance rates received class certification in March 2022; Voya disputes the allegations. The company also disclosed a 401(k) fiduciary-duty class action and other matters.
• Approximately $129m of previously accrued carried interest could be fully or partially reversed if relevant fund performance hurdles are not maintained.
• The Inflation Reduction Act’s 15% corporate alternative minimum tax may apply from 2023; Voya said applicability remained uncertain. It expected the 1% stock-repurchase excise tax but did not expect a material financial-statement impact.

Important facts for investors to verify

• Underlying segment trends using adjusted operating measures, particularly Wealth Solutions’ lower earnings and Health Solutions’ reliance on favorable reserve updates.
• The effect of interest rates and credit spreads on AOCI, statutory capital, leverage, and any need to sell fixed maturities; confirm the $3.848bn unrealized-loss position and management’s hold-to-recovery assessment.
• Cash and capital available at the parent and insurance subsidiaries, dividend restrictions, and sustainability of repurchases and distributions.
• Integration costs, expected benefits, and execution risks from the Allianz combination, Czech Asset Management acquisition, and proposed Benefitfocus acquisition.
• Developments in reinsurance recoverability, litigation, carried-interest reversal exposure, and the company’s implementation of the long-duration insurance accounting standard effective in 2023.
• The filing corrected a prior cash-flow presentation error for 2021; management stated it had no effect on net income, equity, balance-sheet cash, regulatory capital, or liquidity measures and was not material.