Voya Financial, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
Voya provides retirement and wealth, investment management, and group insurance and supplemental health services. During the quarter, it completed the sale of substantially all of its Individual Life and legacy non-Wealth annuity businesses to Resolution Life US, effective January 4, 2021. Results for businesses sold are presented as discontinued operations; reinsured business and related transaction effects also materially distort continuing-operations GAAP results. The company renamed its Retirement and Employee Benefits segments Wealth Solutions and Health Solutions, respectively.
Voya agreed to sell its independent financial planning channel to Cetera, transferring approximately 900 financial professionals and about $40 billion in assets; closing was expected in Q2 or Q3 2021, subject to conditions including regulatory approval.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total GAAP revenue | $(1,957) | $1,685 |
| Continuing-operations pretax income | $1,038 | $44 |
| Continuing-operations net income | $1,086 | $50 |
| Net income (loss) available to common shareholders | $1,086 | $(100) |
| Basic EPS | $8.85 | $(0.76) |
| Adjusted operating earnings before tax | $273 | $134 |
| Adjusted operating revenues | $1,595 | $1,397 |
The GAAP revenue and earnings comparisons are not representative of a straightforward change in underlying operations. Q1 2021 included negative net premiums of $4,987 million and negative policyholder benefits of $4,434 million, largely reflecting reinsurance ceded in the Individual Life transaction; those entries substantially offset. Net realized capital gains were $1,742 million, versus a $233 million loss in Q1 2020, principally reflecting gains on assets transferred to a reinsurance trust and favorable derivative and mortgage allowance movements. Results also included $539 million of DAC/VOBA amortization, including transaction-related loss recognition.
Adjusted operating earnings by segment were: Wealth Solutions $255 million (up from $124 million); Investment Management $52 million (up from $40 million); Health Solutions $37 million (down from $61 million); and Corporate loss of $71 million (versus a $91 million loss). Health Solutions faced higher claims, including COVID-19-related group life claims, despite growth in premiums and business.
- Cash flow: Net cash used in operating activities was $936 million, compared with $76 million used in Q1 2020; continuing-operations operating cash use was $697 million. Cash and cash equivalents for continuing operations were $1.17 billion at quarter-end.
- Balance sheet and liquidity: Total assets were $162.9 billion and total shareholders’ equity was $9.0 billion at March 31, 2021, compared with $180.5 billion and $11.2 billion at December 31, 2020. The balance-sheet change principally reflects completion of the divestiture and related reclassification/removal of held-for-sale assets and liabilities.
- Debt: Long-term debt was $2.969 billion, down from $3.044 billion at year-end. Voya repurchased senior notes and recorded a $10 million extinguishment loss. It reported compliance with debt covenants and no borrowings or letters of credit outstanding under its $500 million committed revolving facility.
- Capital and shareholder returns: Pro forma estimated combined RBC ratio was 603%, above Voya’s 400% target. Estimated excess capital was approximately $1.6 billion. Q1 common-share repurchases were $255 million and common dividends paid were $20 million; the company said it increased its common dividend by 10% in January.
- Comprehensive income: Comprehensive loss was $1.888 billion, driven by $2.988 billion of after-tax other comprehensive loss, including unrealized investment losses and transaction-related AOCI effects.
Material changes, outlook and risks
- The Resolution Life sale’s estimated loss on sale was $1.452 billion net of tax at March 31, 2021, following a $14 million favorable Q1 adjustment. The purchase price remains subject to a post-close true-up expected in the second half of 2021; future changes could affect earnings. Voya also deferred $100 million of cash proceeds for up to 42 months and received equity interests and surplus notes as part of the consideration.
- Reinsurance does not extinguish Voya’s primary obligations to policyholders. The reinsurance recoverable was $13.884 billion before the associated premium balance and allowance; obligations to SLD are collateralized, but Voya cautioned that collateral might not be sufficient in a reinsurer default or loss of reinsurance credit.
- Voya expected further restructuring costs of $100 million to $175 million related to the divestitures, in addition to $78 million incurred in 2020 and $11 million in Q1 2021. The company is pursuing cost reductions to address stranded expenses.
- Management said COVID-19 effects remain uncertain. It expected elevated 2021 group life mortality claims; its estimate was a $1 million to $2 million decline in Health Solutions operating earnings for every 10,000 incremental U.S. COVID-19 deaths. Lower reinvestment yields and guaranteed crediting rates may pressure spread income; higher rates may reduce fixed-income asset values.
- Commercial mortgage exposure remained affected by COVID-19, with continued hotel-sector distress. Approximately 8% of outstanding commercial mortgage principal had received payment forbearance. The quarter-end allowance for commercial mortgage credit losses was $58 million, down from $89 million at year-end.
- Pending litigation and regulatory matters included an estimated aggregate reasonably possible loss of up to approximately $25 million in excess of accrued amounts; the company noted that some matters cannot yet be estimated. Approximately $89 million of previously accrued carried interest could be reversed if fund performance hurdles are not maintained.
- Management stated that capital and liquidity remained strong and did not anticipate a material COVID-19 impact absent a further significant, prolonged market shock. These are forward-looking statements, not guarantees; results remain exposed to markets, interest rates, credit, mortality and morbidity, persistency, regulation, and execution of the divestitures and transition arrangements.
Important facts for investors to verify
- Final Resolution Life purchase-price true-up, deferred proceeds, and any resulting change to the estimated sale loss.
- Whether reinsurance collateral and SLD’s ability to perform remain adequate for Voya’s retained policyholder obligations.
- Underlying segment trends excluding transaction-related gains, reinsurance effects, DAC/VOBA loss recognition, and other adjustments; in particular, Health Solutions claims and Investment Management flows.
- Actual restructuring costs, stranded-cost reductions, and Cetera transaction timing and completion.
- Capital, liquidity, and dividend capacity at the insurance subsidiaries, including the effect of market stress, credit losses, and regulatory limits on distributions.