Voya Financial, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Voya provides retirement, investment management, group insurance and supplemental health products through Wealth Solutions, Investment Management and Health Solutions. The Individual Life business sale to Resolution Life and the 2021 sale of the independent financial planning channel materially changed the company’s business mix and make some year-over-year comparisons less representative.
Financial results and position
- GAAP results: Total revenue was $1.514 billion, versus a loss-presented revenue total of $(1.957) billion in Q1 2021. Net income was $84 million, including $43 million attributable to noncontrolling interests; net income available to common shareholders was $27 million, or $0.24 per diluted share.
- Operating measure: Adjusted operating earnings before income taxes were $209 million, down from $273 million. Adjusted operating revenues were $1.601 billion, versus $1.595 billion.
- Revenue and investment income: Net investment income declined to $630 million from $714 million; fee income declined to $433 million from $458 million. Net gains were a loss of $285 million, compared with a gain of $1.742 billion, reflecting market-related marks and the prior-year transaction-related gains. Net premiums were $613 million versus $(4.987) billion, principally because of prior-year reinsurance accounting and transaction effects.
- Segment earnings: Wealth Solutions earned $205 million before tax, down from $255 million; Investment Management earned $39 million, down from $52 million; Health Solutions earned $22 million, down from $37 million. Corporate’s adjusted loss narrowed to $58 million from $71 million.
- Health metrics: Health Solutions sales were $513 million versus $438 million, and annualized in-force premiums were $2.705 billion versus $2.466 billion. The trailing-twelve-month total loss ratio increased to 73.1% from 71.8%; the group life loss ratio was 116.4% versus 100.7%.
- Cash flow and liquidity: Operating cash flow was $419 million, compared with cash used of $936 million in Q1 2021. Cash and cash equivalents were $1.011 billion at quarter-end, down from $1.402 billion at year-end 2021. Management estimated excess capital at approximately $0.9 billion and the combined RBC ratio at 453%, above its 375% target.
- Debt and leverage: Long-term debt was $2.406 billion, down from $2.595 billion at year-end; Voya repurchased $192 million par value of junior subordinated notes. The financial leverage ratio rose to 31.9% from 27.6%, primarily due to lower adjusted capitalization. The company reported compliance with debt covenants and no borrowings under its $500 million revolving credit facility.
- Equity and market effects: Total shareholders’ equity fell to $7.704 billion from $9.821 billion, including a decline in accumulated other comprehensive income (AOCI) to $527 million from $2.100 billion. The company recorded $1.573 billion of after-tax other comprehensive loss, largely reflecting higher interest rates and lower fixed-income valuations.
Material changes and management commentary
- The dramatic year-over-year changes in reported premiums, benefits, revenue and gains largely reflect the 2021 Individual Life transaction and associated reinsurance accounting, including prior-year transaction-related gains and loss recognition. Management cautions that interim results are not necessarily indicative of full-year performance.
- Management attributed lower Wealth Solutions earnings to reduced alternative investment income, unfavorable DAC unlocking and expenses; lower Investment Management earnings to market-driven investment capital returns and higher expenses; and lower Health Solutions earnings to increased benefits and growth-related expenses.
- Management expects group life mortality claims to remain elevated in 2022 due to COVID-19. It estimates each additional 10,000 U.S. COVID-19 deaths could add $2 million to $3 million in claims.
- Management said rising rates may improve new-money yields and investment margins over time, but have already reduced fixed-income fair values and increased market volatility. It also noted that equity-market weakness may pressure asset-based fees and that investment returns and alternative investment income can be volatile. The filing provides no specific full-year earnings guidance.
- Voya repurchased approximately $445 million of common shares during the quarter and paid $21 million in common dividends. On April 28, 2022, the board authorized an additional $500 million of repurchases through June 30, 2023; the authorization does not obligate the company to buy shares.
Risks, contingencies and unusual items
- Rates and portfolio valuations: Gross unrealized losses on fixed maturities increased to $891 million from $149 million at year-end, primarily due to higher interest rates. The company said it did not intend, and was not more likely than not required, to sell the securities before recovery of amortized cost; it considered the unrealized losses without credit allowances to be interest-rate-related.
- Reinsurance: Net reinsurance recoverables were $13.266 billion. Voya remains exposed to reinsurer nonperformance; the filing identifies Resolution Life as its largest reinsurer and notes that collateral may not fully protect against a default or loss of reinsurance credit.
- Legal matters: Management estimated aggregate reasonably possible losses above recorded accruals of up to approximately $50 million, while noting that some matters cannot currently be estimated. A court certified a class and denied Voya’s summary-judgment motion in a cost-of-insurance case in March 2022. Voya denies the allegations and intends to defend the case. A separate putative class action alleges fiduciary-duty breaches involving the Voya 401(k) plan.
- Other items: The company reported $131 million of previously accrued carried interest that could be fully or partially reversed if fund performance hurdles are not maintained. It also expects $20 million to $60 million of additional restructuring costs beyond Q1 2022, following $91 million incurred in 2021 and $11 million in Q1 2022.
- Other key uncertainties identified include COVID-19 and mortality/morbidity experience, market and credit conditions, interest rates, persistency and lapses, competition, regulation, and completion of transition services related to divested businesses.
Important facts for investors to verify
- Reconcile GAAP earnings to adjusted operating earnings and assess the extent to which Q1 results reflect recurring segment performance versus market movements and divestiture/reinsurance effects.
- Monitor interest-rate and credit-spread movements, unrealized fixed-income losses, AOCI, and any resulting effects on statutory capital and liquidity.
- Track the combined RBC ratio, excess capital, holding-company liquidity and the capacity of insurance subsidiaries to pay dividends; subsidiary distributions are subject to regulatory restrictions.
- Review the settlement of the March share-repurchase agreement, use of the new authorization, and the effect of buybacks and dividends on leverage and capitalization.
- Follow reinsurance recoverable collectability, the identified litigation matters and the potential carried-interest reversals.