Voya Eying New Risk Reduction Opportunities

Executives with Voya Financial say they will explore new opportunities to reduce the company’s risk exposures to living benefits on a block of variable annuities.

About 13,000 policyholders, about 25 percent of all policyholders who received offers, agreed to surrender variable annuity contracts, the company said.

The surrender reduced the living benefit net amount of risk to the company by about $300 million, Voya said.

“We’re very pleased with the take-up, and look forward to seeing what other opportunities we can exercise on,” said Mike Smith, chief financial officer and executive vice president of Voya Financial, in a call with analysts last month.

Voya is looking to reduce exposures to generous guaranteed minimum income benefit (GMIB) riders sold to individual customers through early 2010 during an era of higher interest rates.

Pruning Exposure to Guarantees

Since the company’s initial public offering in 2013, Voya has reduced the number of variable annuity policies with living benefits in its closed block by 35 percent to 199,000 policies at the end of the first quarter.

Living benefits assets under management have also fallen to $24 billion at the end of the first quarter from $33 billion at the end of 2013, the company said.

Under the company’s “enhanced surrender value offer,” customers who surrendered policies received an “enhancement” to their surrender amount.

The surrender offer, which lasted for about two months, was the first such offer conducted by the company.

Voya previously conducted four “enhanced annuitization” offers, which enabled contract holders to receive additional guaranteed income if they chose to annuitize their variable annuity contracts.

“We continued to reduce risk and accelerate runoff of the block,” said Rodney O. Martin Jr., chairman and CEO of Voya Financial.

Voya Financial reported a first-quarter net loss of $143.5 million, after reporting a profit in the same period a year earlier.

The loss was due to changes in the fair value of derivatives connected to Voya’s closed block variable annuity segment, which is in run-off and not included in operating earnings, the company said.

Surrenders Enhance Whose Interests?

Enhancing contract values as a way to incentivize contractholders to turn in or surrender their variable annuities isn’t new, said Morningstar market analyst Kevin Loffredi.

And what benefits the insurance company may not necessarily benefit the variable annuity investor, said Loffredi, senior product manager for annuity solutions.

“We’ve seen a handful of companies do that over the years to reduce the risk the company has on its books, but many times it’s not in the best interest of the investor to do so,” he explained.

The variable annuity will pay out in the future, as it’s designed to do, but contract holders need to evaluate where they are in their financial lives today compared with where they were when they entered into the contract, he said.

Many times, the financial advisor who sold the original variable annuity is no longer around to advise a client as to whether it’s best to move ahead with surrender, leading to investor confusion over a thorny financial decision, he said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.