Voya Financial, Inc. quarterly report, Q1 FY2023

Voya Financial, Inc. — Q1 2023 Form 10-Q

Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are with December 31, 2022. Amounts are in millions unless otherwise stated. Voya provides Wealth Solutions, Health Solutions and Investment Management services. Results include the January 2023 acquisition of Benefitfocus.

Financial performance

Metric	Q1 2023	Q1 2022	Change
Total revenue	$1,835	$1,506	+$329
Income before taxes	$141	$122	+$19
Net income	$129	$111	+$18
Net income available to common shareholders	$69	$54	+$15
Diluted EPS	$0.63	$0.46	+$0.17
Operating cash flow	$156	$362	-$206

Revenue growth reflected improved net gains (losses), higher premiums, fee income and other revenue. Net gains improved to a $16 loss from a $288 loss, principally due to fair-value changes and higher prior-year impairments; net investment income declined $85 to $545, mainly on lower alternative investment and prepayment fee income.
Operating expenses rose $204 to $836, reflecting Benefitfocus and AllianzGI costs, business growth, acquisition integration, pension costs and higher intangible amortization. Benefits and expenses overall increased $310 to $1,694.
Adjusted operating earnings before tax, Voya’s non-GAAP segment measure, were $192 versus $221. Wealth Solutions declined to $132 from $228; Health Solutions increased to $94 from $21; Investment Management earned $33 after Allianz’s $9 share; Corporate was a $68 loss.
Adjusted operating margins were 28.6% in Wealth Solutions (42.4% prior year), 30.7% in Health Solutions (12.7%) and 18.5% in Investment Management, including Allianz noncontrolling interest (21.9%). These are segment measures, not consolidated GAAP margins.

Financial position, debt and liquidity

Total assets were $151.2 billion, including $84.6 billion in separate-account assets; total shareholders’ equity was $5.5 billion. AOCI improved by $510 during the quarter, primarily from unrealized investment gains, but remained a $2.5 billion loss.
Cash and cash equivalents were $724, down from $919 at year-end; including cash in consolidated investment entities, cash was $824. Operating cash flow was $156. Investing cash flow was positive $472, including $534 of net cash used for business acquisitions; financing cash flow was negative $811, principally reflecting investment-contract withdrawals exceeding deposits.
Financial debt was $2.24 billion, including $143 of current maturities; long-term debt was $2.09 billion. Debt-to-capital was 36.1%, down from 40.0%; financial leverage excluding AOCI was unchanged at 29.5%. The company reported compliance with debt covenants.
Management estimated excess capital of approximately $0.5 billion and a combined RBC ratio of 426% at March 31. It cited a $200 million holding-company liquidity target. A $500 million revolving facility had no borrowings outstanding at quarter-end; a separate facility showed $163 million utilization related to Aetna Notes collateral.
Wealth Solutions client assets were $497.9 billion, down from $518.0 billion a year earlier. Total company AUM and AUA were $771.2 billion, up from $710.3 billion, with Investment Management growth including AllianzGI assets.

Material changes and unusual items

Benefitfocus was acquired on January 24 for total consideration of $595, including $583 cash paid in the purchase accounting disclosure; the MD&A reports approximately $570 cash paid at closing including closing costs. The filing reports $22 of Benefitfocus integration expenses in Q1 and expects further costs. Acquisition accounting added $319 of goodwill and $275 of intangible assets; estimated annual amortization of acquired intangibles is approximately $29 for the next five years.
Voya adopted the long-duration insurance accounting standard (ASU 2018-12) on January 1, 2023. The filing describes transition adjustments and revised measurement and disclosure requirements; comparative disclosures were restated where required.
Common dividends were $0.20 per share. No shares were repurchased under the public repurchase program during Q1; treasury-share increases reflected tax withholding and option exercise activity. The repurchase authorization was extended after quarter-end through September 30, 2023.
After quarter-end, Voya issued $400 of 3.976% senior notes due 2025 and planned to use proceeds from Treasury securities received in the transaction to redeem $393 of 5.65% junior subordinated notes due 2053 on May 15. Management estimated this refinancing would reduce annualized interest expense by approximately $19, based on March 31 rates.
After quarter-end, Voya also amended its revolving credit agreement, extending maturity to May 1, 2028 and replacing LIBOR-based terms with SOFR-based options.

Outlook, risks and contingencies

No formal earnings guidance is provided in the supplied filing text. Management expects near-term reinvestments to earn more than the existing portfolio yield, while noting heightened uncertainty around interest rates and new-money yields. Higher portfolio yields may support spreads if credited rates do not rise equally; rate changes also affect asset values, policyholder behavior and guaranteed-rate margins.
Management expects a 9.0% long-term return on certain alternative investments, whose quarterly results can be volatile. Lower alternative returns contributed to weaker Wealth Solutions results.
Key exposures include interest rates, equity markets, credit, mortality and morbidity, persistency and lapses, regulation, competition, and the ability to realize acquisition benefits. The company also identifies reinsurer collectability, investment valuation and reserve assumptions as significant judgments.
Gross unrealized losses on fixed maturities were $2.9 billion, down $543 from year-end, primarily as interest rates fell. Management attributed losses to interest rates, stated it did not intend to sell and did not expect to be required to sell before recovery; this assessment could change with circumstances.
The company disclosed litigation and regulatory matters. Management estimated reasonably possible losses above accruals of up to approximately $25; some matters could not be estimated. A class action involving Voya’s 401(k) plan and cost-of-insurance litigation are among the disclosed cases. Management said an adverse outcome could affect results or cash flows in a particular period.
Approximately $126 of previously accrued carried interest could be partly or fully reversed if relevant fund performance hurdles are not maintained. The company also noted uncertainty around application of the 15% corporate alternative minimum tax; it did not expect the stock-repurchase excise tax to have a material financial-statement impact.

Most important facts for investors to verify

Whether Health Solutions’ stronger earnings and loss ratios are sustainable, including the effect of the disclosed favorable $57 reserve impact on the Q1 loss-ratio presentation.
Drivers of Wealth Solutions’ earnings decline, including alternative returns, client-asset trends, net flows and fee rates.
Benefitfocus integration costs, realized operating contribution, acquisition accounting and the timing of expected synergies.
Cash generation and holding-company liquidity after acquisition spending, investment-contract withdrawals, debt refinancing and planned capital returns.
Interest-rate, credit and valuation exposure in the investment portfolio, including unrealized losses, commercial mortgage credit metrics and reinsurer recoverables.
Developments in material litigation, carried-interest reversals, the alternative minimum tax and regulatory capital requirements.