Voya Financial, Inc. — Q2 2021 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2021. Dollar amounts are in millions unless noted. Unaudited results reflect a major business portfolio change: Voya completed the sale of substantially all its Individual Life and legacy non-Wealth Solutions annuity businesses to Resolution Life on January 4, 2021. It also sold its independent financial planning channel to Cetera on June 9, 2021.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenues | $2,503 | $1,669 | $546 | $3,354 |
| Continuing operations pretax income (loss) | $1,028 | $(42) | $2,066 | $2 |
| Net income (loss) | $910 | $(141) | $2,010 | $(221) |
| Net income (loss) attributable to Voya common shareholders | $459 | $(66) | $1,545 | $(166) |
| Adjusted operating earnings before tax | $353 | $17 | $626 | $151 |
| Net cash from (used in) operating activities | Not presented by quarter | $(189) | $432 |
Q2 adjusted operating earnings by segment were Wealth Solutions $295 (prior-year $37), Investment Management $66 ($20), Health Solutions $63 ($36), and Corporate loss of $71 (loss of $75). These are non-GAAP management measures and should not be treated as substitutes for GAAP results.
- Revenue and earnings quality: Q2 included a $279 pretax gain from the Cetera sale, recorded in other revenue and excluded from adjusted operating earnings. Consolidated results also include gains and losses from investments and consolidated investment entities.
- Six-month comparability: GAAP revenue and benefits/expenses are heavily affected by the Individual Life reinsurance and divestment transactions. Six-month premiums were negative $4,471, with corresponding offsets in policyholder benefits; reported totals are not directly comparable to 2020. The six-month $1,705 net realized capital gain included substantial gains on assets transferred to a reinsurance trust.
- Cash flow: Six-month operating cash flow was a use of $189, including $61 provided by continuing operations and $250 used by discontinued operations. Cash and cash equivalents of continuing operations were $1,765 at quarter-end.
Financial position, debt and capital
- Total assets were $168,194 and total shareholders’ equity $9,775 at June 30, 2021, versus $180,518 and $11,178 at December 31, 2020. The balance-sheet comparison reflects the completed sale and removal of assets and liabilities previously held for sale.
- Long-term debt was $2,969; short-term debt was $1. Voya repurchased $76 of debt principal during the first half, recording a $10 loss on extinguishment. It reported compliance with debt covenants and no borrowings or letters of credit under its $500 committed revolving facility.
- Management estimated pro forma combined risk-based capital at 544%, above its 400% target, and excess capital at approximately $1.5 billion. Holding-company cash was $755 at quarter-end. These measures are management estimates and capital remains subject to regulatory and business constraints.
- Voya repurchased $753 of common shares at cost in the first half and paid $40 in common dividends. The board authorized an additional $1 billion of repurchases in January 2021; the authorization is not a commitment to buy shares.
- AOCI declined to $2,431 from $4,898 at year-end, largely reflecting six-month unrealized investment losses and transaction-related adjustments.
Material developments, outlook and risks
- The Individual Life transaction remains subject to a purchase-price true-up expected in the second half of 2021. Voya reported an estimated after-tax sale loss of $1,458 at June 30, subject to adjustment. A $100 cash amount was deferred for up to 42 months and is subject to financial contingencies; management said the transaction’s contribution to excess capital could vary by about $100 over 2021–2025.
- Voya expects a further $60–$135 of restructuring expenses related to the divestitures, in addition to $78 incurred during 2020 and $52 in the first half of 2021. It is addressing stranded costs through cost reductions.
- Management provided no specific consolidated earnings guidance in the supplied filing text. It stated that absent a further significant and prolonged market shock, it did not anticipate a material COVID-19 effect on balance sheet, statutory capital or liquidity. It expects elevated group-life mortality claims in 2021; each 10,000 incremental U.S. COVID-19 deaths was estimated to reduce Health Solutions operating earnings by approximately $1–$2.
- Management highlighted low interest rates as a pressure on reinvestment yields and spread income, and noted exposure to equity markets, credit conditions, mortality and morbidity, persistency, regulation, and COVID-19 variants. It also cautioned that prolonged economic weakness could reduce asset values, fee income and investment returns.
- Voya remains primarily liable to policyholders despite reinsurance of $11.4 billion in liabilities; the reinsurance recoverable is collateralized, but collateral may not fully protect against counterparty default or loss of reinsurance credit. SLD became the company’s largest reinsurer.
- Other items to monitor include reasonably possible litigation and regulatory losses of up to approximately $25 in excess of accruals; approximately $113 of previously accrued private-equity carried interest that could be reversed if performance hurdles are not maintained; and the potential significant equity and future-earnings effects of adopting long-duration insurance accounting changes.
Most important facts for investors to verify
- Final Resolution Life purchase-price true-up, sale-loss adjustment, and the timing and availability of related proceeds and capital.
- Underlying segment earnings excluding the Cetera gain, investment-market effects, reinsurance transaction effects and other items excluded from adjusted operating earnings.
- COVID-19-related group-life claims, Health Solutions loss ratios, and the impact of continuing low interest rates on investment spreads and earnings.
- Whether Voya can reduce stranded costs as planned while maintaining liquidity, capital above targets, and shareholder distributions.
- Developments in SLD reinsurance recoverability, litigation and regulatory matters, carried-interest reversals, and long-duration contract accounting implementation.