Voya Financial, Inc. — 2017 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2017; amounts are in U.S. dollars. Voya provides retirement, investment management, life insurance and employee benefits products, serving approximately 14.7 million customers. Results are presented across Retirement, Investment Management, Individual Life, Employee Benefits and Corporate.
In December 2017, Voya agreed to sell substantially all of its Closed Block Variable Annuity (CBVA) and fixed and fixed-indexed annuity businesses. Those operations were classified as held for sale and discontinued operations, with prior periods reclassified. The transaction had not closed when the report was filed.
Financial results and key metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Total revenue | $8.618 billion | $8.788 billion |
| Continuing pretax income | $528 million | $10 million |
| Continuing net income (loss) | $(212) million | $39 million |
| Discontinued-operations net income (loss) | $(2.580) billion | $(337) million |
| Net income (loss) attributable to common shareholders | $(2.992) billion | $(327) million |
| Operating cash flow, consolidated | $1.578 billion | $3.591 billion |
| Cash and cash equivalents, continuing operations, year-end | $1.218 billion | $2.096 billion |
| Long-term debt and current portion | $3.460 billion | $3.550 billion |
| Combined estimated RBC ratio | 476% | 493% |
| Total AUM and AUA, year-end | $554.5 billion | $484.4 billion |
Continuing-operations revenue was broadly stable: fee income rose $156 million, while premiums fell $674 million, primarily because pension risk-transfer sales ended in 2016. Net investment income declined $60 million. Continuing pretax income improved substantially from 2016, while the effective tax expense of $740 million included the impact of Tax Reform.
Management’s non-GAAP adjusted operating earnings before tax were $528 million, up from $329 million in 2016. Segment results were: Retirement $456 million (2016: $450 million); Investment Management $248 million ($171 million); Individual Life $92 million ($59 million); Employee Benefits $127 million ($126 million); and Corporate loss of $395 million ($477 million).
Cash flow from operating activities declined to $1.578 billion; investing activities used $2.428 billion and financing activities used $345 million. These consolidated cash-flow figures include discontinued operations. Year-end total shareholders’ equity was $11.039 billion, including $10.009 billion attributable to Voya Financial, Inc.
Material changes versus prior comparable period
- Common-shareholder net loss widened to $2.992 billion from $327 million, principally because of the $2.423 billion after-tax estimated loss on the sale of the annuity and CBVA businesses.
- Adjusted operating earnings before tax rose $199 million, supported by higher alternative investment income, improved fee-based margins and lower expenses; unfavorable DAC/VOBA assumption changes and the GMIR initiative offset some gains.
- Investment Management earnings increased $77 million, including recovery of previously reversed carried interest. Retirement earnings rose slightly, while Employee Benefits earnings were nearly flat.
- Tax Reform reduced the estimated net deferred tax asset by $679 million, substantially reflecting the federal corporate tax-rate reduction from 35% to 21%. Management said the lower rate was expected to benefit future continuing-operations taxes, but the final tax impact remained subject to clarification.
- Total AUM and AUA increased about 14%, reflecting market improvement and flows, while the reported total includes assets related to businesses held for sale.
Outlook, management commentary, risks and unusual items
- The sale to Venerable, backed by VA Capital and Athene, was expected to close in the second or third quarter of 2018, subject to regulatory approvals and other conditions. Voya expected to retain a 9.99% interest in VA Capital, certain investment-only annuity products and a small variable-annuity block. Voya’s investment-management affiliate was expected to manage certain buyer assets for at least five years.
- The estimated sale loss must be remeasured quarterly until closing and could change with markets, business performance, policyholder behavior, transaction terms and other factors. Voya could also incur additional restructuring costs; amounts were not clearly estimable in the filing.
- Management highlighted a low-rate environment and a flattening yield curve. The continuing general-account portfolio was approximately $64 billion, with a fourth-quarter annualized earned yield of about 5.2%; management expected 2018 reinvestment yields to be below the existing portfolio yield.
- Voya reported a 476% combined estimated RBC ratio, versus a 425% internal target. Tax Reform reduced capital, and management estimated a further 60–70 percentage-point reduction if the NAIC adjusted its RBC formula for lower corporate tax rates. RBC remained above regulatory action thresholds.
- Liquidity and holding-company cash depend substantially on distributions from subsidiaries. Insurance regulation restricts those distributions; the Minnesota-domiciled principal insurer had negative earned surplus and no ordinary dividend capacity at year-end. Voya reported $3.2 billion of credit-facility utilization and $3.4 billion of unused commitment in the disclosed facility table.
- Principal risks include failure or delay of the transaction, market and interest-rate movements, guarantee and hedging exposure, reserve and policyholder-behavior assumptions, credit and counterparty risk, regulatory change, rating actions, and limits on subsidiary dividends. Ratings agencies downgraded or placed VIAC ratings under review following the transaction announcement, affecting annuity distribution.
- Other notable items include $82 million of continuing-operations restructuring expense, $80 million of Strategic Investment Program expense, and a $220 million unfavorable Retirement DAC/VOBA unlocking associated with the guaranteed minimum interest-rate initiative. Management expected $60–$80 million of Strategic Investment Program expense in 2018. No consolidated earnings guidance was provided.
- The auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether the transaction closed on the expected terms and timing, and how the final purchase-price calculation and loss-on-sale remeasurement compare with the $2.423 billion estimate.
- How much of 2017’s adjusted operating earnings is repeatable after separating carried-interest recovery, assumption updates, GMIR unlocking and other unusual items.
- Continuing-business cash generation, liquidity, debt maturity/refinancing needs and the practical availability of dividends from regulated insurance subsidiaries.
- The effect of Tax Reform and any NAIC RBC changes on statutory capital, deferred tax assets and the reported 476% RBC ratio.
- Employee Benefits stop-loss experience: the reported 82.7% loss ratio included a favorable reserve refinement; excluding it, management reported 83.7%.