Voya Financial, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; financial statements are unaudited. Voya provides retirement and wealth services, employee benefits and insurance, and investment management, primarily in the U.S. Its operating segments are Wealth Solutions, Health Solutions and Investment Management.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $1.823bn | $1.345bn | $5.529bn | $4.375bn |
| Income before tax | $172m | $71m | $576m | $345m |
| Net income available to common shareholders | $248m | $166m | $471m | $284m |
| Diluted EPS | $2.29 | $1.57 | $4.31 | $2.55 |
| Operating cash flow | Not separately presented for quarter | Not separately presented for quarter | $1.274bn | $1.133bn |
Q3 revenue rose 36% year over year and common-shareholder net income rose 49%. For the first nine months, revenue rose 26% and common-shareholder net income rose 66%. The filing attributes much of the revenue increase to acquisitions, higher premiums and fees, and improved investment-entity results; reported results also reflect market-sensitive gains and losses.
Q3 adjusted operating earnings before tax, after Allianz’s noncontrolling share, were $229m versus $254m. Segment adjusted operating margins were 37.6% for Wealth Solutions, 20.0% for Health Solutions and 27.0% for Investment Management, compared with 30.2%, 49.8% and 26.3%, respectively, in Q3 2022.
- Balance sheet at September 30: Total assets were $149.3bn, including $85.5bn in separate-account assets; total shareholders’ equity was $4.8bn. AOCI was a loss of $3.5bn, versus a loss of $3.1bn at year-end 2022.
- Cash and debt: Cash and cash equivalents were $829m, down from $919m at December 31, 2022. Long-term debt was $2.095bn and short-term debt $2m. The company reported compliance with debt covenants.
- Cash flows, nine months: Operating activities provided $1.274bn; investing activities provided $1.699bn; financing activities used $3.063bn. Ending cash including cash in consolidated investment entities was $917m.
- Capital and liquidity: Management estimated excess capital of approximately $0.4bn and an adjusted combined RBC ratio of 403%. Parent-company cash was $230m. Credit facilities totaled $700m, of which $688m was unused.
Material changes and notable items
- Benefitfocus was acquired in January 2023; its results are included in Health Solutions. The filing reports $32m of acquisition integration expenses for the first nine months and expects further integration expenses.
- In August, Voya acquired the remaining interest in Voya India. The transaction generated a $45m revaluation gain and added $102m of goodwill.
- Q3 net losses improved to $7m from $125m a year earlier; the nine-month net loss was $79m versus $639m. The improvement chiefly reflected fair-value movements, the Voya India gain and results from reinsured businesses. Q3 still included unfavorable derivative valuation changes and higher impairments.
- Net income included a $92m tax benefit related to capital losses of a divested business under the Resolution Life agreement. The reported effective tax rates were a benefit of 43.0% for Q3 and 5.9% for the first nine months.
- Voya adopted the long-duration insurance accounting standard ASU 2018-12 effective January 1, 2023; comparative information was restated. The filing reports a $158m increase in equity at the January 1, 2021 transition date.
- The company issued $400m of 3.976% senior notes and used proceeds from the exchanged Treasury securities to redeem its 5.65% junior subordinated notes due 2053. It repurchased $216m of common stock during the first nine months and paid $83m of common dividends.
Outlook, risks and contingencies
The filing provides no specific consolidated earnings or EPS guidance. Management says higher interest rates may improve reinvestment yields over time, but can also increase credited rates and contribute to outflows from certain products. Management describes a path to adjusted operating EPS growth through revenue growth, margin expansion and capital discipline. It expects a 9.0% long-term return on specified alternative investments, while noting those returns are volatile.
- Q3 annual assumption updates were $67m unfavorable overall, including an $8m unfavorable effect on adjusted operating earnings; the Health Solutions impact was primarily associated with unfavorable mortality experience. The comparable 2022 update benefited adjusted operating earnings by about $66m.
- Interest rates, equity markets, credit conditions, policyholder mortality and persistency, and investment performance can affect results, reserves and asset values. The company reported $4.0bn of gross unrealized losses on fixed maturities; it attributed these primarily to interest rates and said it did not intend, and was not more likely than not required, to sell the affected securities before recovery.
- Reinsurance recoverables were $11.8bn. Voya remains responsible to policyholders if reinsurers fail to perform. The company also reported $38m of matured commercial mortgage loans not paid off or extended, with a 100% LTV ratio; all $38m of past-due commercial mortgage loans were 30–59 days past due.
- Management estimated reasonably possible litigation and regulatory losses, in excess of accruals, of up to approximately $25m. A $39m settlement payment was funded in the Advance Trust matter; final court approval was scheduled for November 16, 2023. Voya is also cooperating with an SEC industry-wide inquiry into business-related electronic communications recordkeeping.
- Approximately $129m of previously accrued carried interest could be partially or fully reversed if investment return hurdles are not maintained. Voya said it was not expected to be subject to the corporate alternative minimum tax in 2023, but its 2024 status remained uncertain.
Important facts for investors to verify
- How much of reported earnings growth is attributable to recurring segment performance versus tax benefits, acquisition effects, assumption updates and fair-value movements.
- Whether Health Solutions loss experience and margins improve after the unfavorable Q3 assumption update, and how Benefitfocus integration costs and contribution develop.
- Wealth Solutions flows and fee margins, including elevated investment-only Stable Value outflows; Investment Management’s institutional net outflows were $10.1bn for the first nine months.
- The sensitivity of capital, liquidity and earnings to interest rates, credit losses, unrealized fixed-income losses and policyholder behavior.
- Developments in reinsurance collectability, the matured mortgage loans, litigation and regulatory matters, carried-interest exposure, and the company’s 2024 tax treatment.