Voya Financial, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Dollar amounts are in millions unless otherwise stated. Voya provides retirement and investment management services, group insurance, and supplemental health products through Wealth Solutions, Investment Management, and Health Solutions.
Financial performance and position
- Third quarter: Revenue was $2,009, down 3% from $2,071 a year earlier. Income from continuing operations was $371 versus a $73 loss; net income attributable to Voya common shareholders was $142, or $1.24 per basic share, compared with a $333 loss, or $2.64 per share, in Q3 2020.
- First nine months: Revenue was $2,555 versus $5,425, while income from continuing operations was $2,373 versus a $71 loss. Common-shareholder net income was $1,687 versus a $499 loss. These comparisons are substantially affected by the Individual Life sale and related reinsurance accounting, including unusually large offsets between premiums and policyholder benefits; reported revenue and expenses are not directly comparable as indicators of underlying growth.
- Segment adjusted operating earnings before tax, Q3: Wealth Solutions $319 (prior year $25); Investment Management $63 ($47); Health Solutions $71 ($56); Corporate loss $65 (loss of $88). The company’s adjusted measure is non-GAAP and should be considered alongside GAAP results.
- Investment income and expenses: Q3 net investment income was $731 versus $800. Operating expenses were $642 versus $630. Nine-month net realized capital gains were $1,602, compared with a $304 loss, including gains associated with the Individual Life reinsurance asset transfer and other investment items.
- Cash flow: Continuing-operations operating cash flow was $182 for the first nine months, down from $1,042. Total operating cash flow, including discontinued operations, was a use of $68 versus a source of $788. Ending cash and cash equivalents attributable to continuing operations were $1,677.
- Balance sheet and debt: At September 30, total assets were $168.4 billion, total shareholders’ equity $10.0 billion, and long-term debt $2.97 billion. Cash and cash equivalents were $1.68 billion. Total assets were $180.5 billion at year-end 2020, including $20.7 billion classified as held for sale; excluding those held-for-sale assets, year-end assets were $159.8 billion.
- Capital and liquidity: Management estimated excess capital at approximately $1.9 billion and the combined insurance-company RBC ratio at 550%, above its then-current 400% target. The company reported compliance with debt covenants and no borrowings under its $500 million revolving credit facility.
Material changes and unusual items
- Voya completed the sale of substantially all of its Individual Life and legacy non-Wealth Solutions annuity businesses to Resolution Life on January 4, 2021. The transaction led to discontinued-operations presentation, significant reinsurance balances, and a reported final estimated after-tax sale loss of $1.459 billion. Voya’s insurance subsidiaries remain primarily liable to policyholders, with reinsurance recoverables secured by trust assets.
- In June 2021, Voya sold the independent financial planning channel of Voya Financial Advisors to Cetera, transferring more than 800 independent professionals and approximately $38 billion in assets under advisement. The sale generated a $275 pretax gain, recorded in other revenue for the nine-month period.
- Q3 annual assumption reviews produced a $10 favorable impact on adjusted operating earnings from continuing-operations unlocking. Separately, Voya recorded $136 of DAC/VOBA loss recognition and established $225 of premium deficiency reserves related to divested businesses; these were excluded from adjusted operating earnings.
- Other comprehensive income attributable to Voya declined $2.6 billion in the first nine months, largely reflecting lower unrealized investment gains and transaction-related AOCI effects. Share repurchases used $803 of cash in the period.
Outlook, risks and contingencies
- The filing provides no specific consolidated earnings guidance. Management said low interest rates may pressure spread income as reinvestment yields on new assets are expected to be below portfolio yields. It also identified equity markets, persistency, unemployment, mortality and morbidity, and investment performance as important drivers.
- COVID-19 continued to affect group-life mortality claims. Management expected elevated group-life claims in 2021 and estimated roughly $1–$2 million of additional claims for every 10,000 incremental U.S. deaths from COVID-19; recent experience had exceeded that range in the preceding two quarters.
- Voya anticipated an additional $50–$100 of restructuring costs related to the divestitures, beyond $76 incurred in the first nine months of 2021 and $78 in 2020. Management cited ongoing efforts to reduce stranded costs.
- After quarter-end, Voya gave notice to redeem all $377 principal amount of its 3.125% senior notes due 2024 and expected an approximately $25 loss on extinguishment in Q4 2021. The board also authorized an additional $500 of share repurchases on October 28; the authorization does not require purchases.
- Key risks include market and interest-rate movements, investment credit losses, reinsurance counterparty performance, regulatory constraints on subsidiary dividends, and litigation. Management estimated reasonably possible litigation and regulatory losses in excess of accruals of up to approximately $25, while noting some matters could not yet be estimated. Approximately $124 of previously accrued carried interest could be reversed if fund performance hurdles are not maintained.
Important facts for investors to verify
- Reconcile GAAP results with adjusted operating earnings and isolate one-time transaction, reinsurance, investment, and assumption-review effects.
- Review the collectability and collateral support of the $13.6 billion net reinsurance recoverable, including exposure to Resolution Life.
- Track the effect of interest rates, equity markets, COVID-related claims, and investment returns on segment earnings, capital, and liquidity.
- Monitor progress and realized savings from restructuring, including the expected remaining $50–$100 of costs.
- Confirm the redemption cost and funding of the 2024 notes, subsequent repurchases and dividends, and regulatory capacity for distributions from insurance subsidiaries.