VOYA FINANCIAL, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollar amounts in millions, unless otherwise stated)
For the purposes of the discussion in this Quarterly Report on Form 10-Q, the
term
"Company," "we," "our," and "us" refer to
subsidiaries.
The following discussion and analysis presents a review of our consolidated
results of operations for the three months ended
financial condition as of
be read in its entirety and in conjunction with the Condensed Consolidated
Financial Statements and related notes contained in Part I, Item 1. of this
Quarterly Report on Form 10-Q, as well as "Management's Discussion and Analysis
of Financial Condition and Results of Operations" section contained in our
Annual Report on Form 10-K for the year ended
Report on Form 10-K").
In addition to historical data, this discussion contains forward-looking
statements about our business, operations and financial performance based on
current expectations that involve risks, uncertainties and assumptions. Actual
results may differ materially from those discussed in the forward-looking
statements as a result of various factors. See the Note Concerning
Forward-Looking Statements.
Overview
We provide our principal products and services through three segments: Wealth
Solutions, Investment Management and
activities not directly related to our segments and certain run-off activities
that are not meaningful to our business strategy.
On
channel of
("Cetera"), one of the nation's largest networks of independently managed
broker-dealers. In connection with this transaction, we transferred more than
800 independent financial professionals serving retail customers with
approximately
approximately 500 field and phone-based financial professionals who support our
Wealth Solutions business.
Discontinued Operations
The Individual Life Transaction
On
Transaction Agreement (the "Resolution MTA") entered into on
with
Life US"), pursuant to which Resolution Life US acquired Security Life of
Company
determined that the entities disposed of met the criteria to be classified as
discontinued operations and that the sale represented a strategic shift that had
a major effect on the Company's operations. Income (loss) from discontinued
operations, net of tax, in the first quarter of 2021 included a reduction to
loss on sale, net of tax of
information related to this transaction, refer to the Discontinued Operations
Note to the Consolidated Financial Statements included in Part II, Item 8 of the
Annual Report on form 10-K.
Trends and Uncertainties
We describe known material trends and uncertainties that might affect our
business in our Annual Report on Form 10-K for the year ended
2021
Condition and Results of Operations - Trends and Uncertainties", and in other
sections of that document, including "Risk Factors". In addition, we describe
below in this Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") more recently developing known trends and
uncertainties that we believe may materially affect our future liquidity,
financial condition or results of operations. All statements in this section,
other than statements of historical fact, are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. For
a discussion of factors that could cause actual results, performance, or events
to differ from those discussed in any forward-looking statement, including in a
material manner, see "Note Concerning Forward-Looking Statements" in this
Quarterly Report on Form 10-Q.
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Table of Contents COVID-19 and its Effect on the Global Economy
COVID-19, the disease caused by the novel coronavirus, has had a significant
adverse effect on the global economy since March of 2020. Even though the pace
of vaccinations has increased in many countries, including
the disease continues to spread throughout the world. The persistence of new
infections, including the introduction of new variants, has slowed the
re-opening of the
largely been lifted, economic activity has been slow to recover. In addition,
while the ability to impose federal vaccine mandates have been curtailed by the
mandates that would require at least a portion of our
vaccinated, which could potentially impact our work force. Longer-term, the
economic outlook is uncertain, but may depend in significant part on progress
with respect to effective therapies to treat COVID-19 or the approval of
additional vaccines and the pace at which they are administered globally.
Effect on
Because both public health and economic circumstances are changing so rapidly at
present, it is impossible to predict how COVID-19 will affect
future financial condition. Absent a further significant and prolonged market
shock, however, we do not anticipate a material effect on our balance sheet,
statutory capital, or liquidity. Our capital levels remain strong and
significantly above our targets. As of
RBC ratio, with adjustments for certain intercompany transactions, was 453%,
above our 375% target.
During the three months ended
approximately
shares on a share repurchase agreement entered into with a third-party financial
institution that will settle no later than the end of the second quarter 2022.
We do not anticipate any reduction in our common shareholder dividend and
continue to monitor the dividends-paying capacity of our insurance subsidiaries.
We have distributed
Effect on
Predicting with accuracy the consequences of COVID-19 on our results of
operations is impossible. To date, the most significant effects of adverse
economic conditions have been on our fee-based income, with net investment
income experiencing milder effects. Underwriting income, principally affected by
increases to mortality and morbidity due to the disease, has also been
negatively affected.
Wealth Solutions
In Wealth Solutions, the effects of COVID-19 have become less distinguishable as
other geopolitical developments have driven uncertainty in the macroeconomic
environment. Ongoing equity market volatility and declines drive variability in
AUM levels and associated fee-based margin. Higher interest rate levels have
provided and may continue to provide some offsetting revenue lift on our general
account fixed products. On a prospective basis, general economic uncertainty due
to COVID-19, combined with other factors and events, could serve to negatively
impact sales and flows into Wealth Solutions products.
Investment Management
The lingering effects of COVID-19 are driving higher inflation that, combined
with geopolitical uncertainty, resulted in equity market volatility and higher
interest rates seen in the first quarter. In
resulted in lower AUM levels in both equity and fixed income assets with a
corresponding reduction of fee-based margin. Investment capital has been
revaluated higher over the last year, however lingering economic uncertainty
could result in investment capital results declining materially. We had seen
higher outflows with our retail business at the outset of the pandemic that
subsided in the prior year however retail outflows increased in the first
quarter due to market impacts. The pandemic has made generating new business
leads more challenging, resulting in a reduction in sales meetings and
activities that could drive a lower level of sales activity during the year. If
the pandemic persists and the economy fails to grow, or declines from current
levels, asset values could be negatively impacted resulting in lower management
fee revenue and/or investment capital returns.
In
increased mortality claims on group life policies. We have not seen a
significant increase in medical stop loss claims.
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Table of Contents
We expect mortality claims in group life to be elevated in 2022 due to COVID-19
related deaths, with the magnitude of such claims dependent on mortality rates
from the disease. We currently estimate that, for every 10,000 incremental
deaths in
million
expectation.
Interest Rate Environment
We believe the interest rate environment will continue to influence our business
and financial performance in the future for several reasons, including the
following:
•Our general account investment portfolio, which was approximately
as of
near term and absent further material change in yields available on fixed income
investments, we expect the yield we earn on new investments will be lower than
the yields we earn on maturing investments, which were generally purchased in
environments where interest rates were higher than current levels. We currently
anticipate that proceeds that are reinvested in fixed income investments during
2022 will earn an average yield below the prevailing portfolio yield. If
interest rates were to rise, we expect the yield on our new money investments
would also rise and gradually converge toward the yield of those maturing
assets. In addition, while less material to financial results than new money
investment rates, movements in prevailing interest rates also influence the
prices of fixed income investments that we sell on the secondary market rather
than holding until maturity or repayment, with rising interest rates generally
leading to lower prices in the secondary market, and falling interest rates
generally leading to higher prices.
•Several of our products pay guaranteed minimum rates such as fixed accounts and
a portion of the stable value accounts included within defined contribution
retirement plans. We are required to pay these guaranteed minimum rates even if
earnings on our investment portfolio decline, with the resulting investment
margin compression negatively impacting earnings. In addition, we expect more
policyholders to hold policies (lower lapses) with comparatively high guaranteed
rates longer in a low interest rate environment. Conversely, a rise in average
yield on our investment portfolio would positively impact earnings if the
average interest rate we pay on our products does not rise correspondingly.
Similarly, we expect policyholders would be less likely to hold policies (higher
lapses) with existing guarantees as interest rates rise.
For additional information on the impact of the continued low interest rate
environment, see Risk Factors - The level of interest rates may adversely affect
our profitability, particularly in the event of a continuation of the current
low interest rate environment or a period of rapidly increasing interest rates
in Part I, Item 1A. of our Annual Report on Form 10-K . Also, for additional
information on our sensitivity to interest rates, see Quantitative and
Qualitative Disclosures About Market Risk in Part II, Item 7A. of our Annual
Report on Form 10-K .
Stranded Costs
As a result of the Individual Life Transaction, the historical revenues and
certain expenses of the divested businesses have been classified as discontinued
operations. Historical revenues and certain expenses of the businesses that have
been divested via reinsurance at closing of the Individual Life Transaction
(including an insignificant amount of Individual Life and non-Wealth Solutions
annuities that are not part of the transaction) are reported within continuing
operations, but are excluded from adjusted operating earnings as businesses
exited or to be exited through reinsurance or divestment. Expenses classified
within discontinued operations and businesses exited or to be exited through
reinsurance include only direct operating expenses incurred by these businesses
and then only to the extent that the nature of such expenses was such that we
ceased to incur such expenses upon the close of the Individual Life
Transaction. Certain other direct costs of these businesses, including those
which relate to activities for which we provide transitional services and for
which we are reimbursed under transition services agreements ("TSAs") are
reported within continuing operations along with the associated revenues from
the TSAs. Additionally, indirect costs, such as those related to corporate and
shared service functions that were previously allocated to the businesses sold
or divested via reinsurance, are reported within continuing operations. These
costs ("Stranded Costs") and the associated revenues from the TSAs are reported
within continuing operations in Corporate, since we do not believe they are
representative of the future run-rate of revenues and expenses of the continuing
operations of our business segments. We have implemented a cost reduction
strategy to address Stranded Costs. Refer to Restructuring in the section below
for more information on this program.
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Table of Contents Restructuring Organizational Restructuring
Pursuant to the Company executing the Resolution MTA and the Individual Life
Transaction, the Company sold five of its legal subsidiaries, SLD, SLDI, RRII,
MUL and VAE to Resolution Life US, which is an insurance holding company newly
formed by RLGH, a
an agreement with Cetera on
financial planning channel of VFA. Additionally, the Company transferred or
ceased usage of a substantial number of administrative systems and is
undertaking restructuring efforts to reduce stranded expenses associated with
its Individual Life business and independent financial planning channel as well
as its corporate and shared services functions. The Company anticipates
incurring additional restructuring expenses directly and indirectly related to
these dispositions beyond the first quarter of 2022, of
the
See the Restructuring Note in our Condensed Consolidated Financial Statements in
Part I, Item 1. of this Quarterly Report on Form 10-Q for information on the
restructuring activities related to the Individual Life Transaction.
Environmental, Social and Governance ("ESG")
We have a multi-faceted ESG strategy which encompasses corporate issuance and
governance, product and solution development, and ESG advocacy. We report
periodically on our ESG activities in accordance with
Initiative
Environmental
We work to minimize our environmental impact while engaging our various
stakeholders on climate-related topics. In particular, through the reduction of
waste consumption and GHG emissions, the reduction of energy use, and the
purchase of renewable energy certificates and offsets to compensate for energy
consumption.
Social
We focus on workplace diversity, talent development and retention, including
through fostering a safe and supportive workplace. We have prioritized
increasing our diverse representation across all employee levels, as well as
continuing to sustain the gender and racial parity of our workforce.
Governance
Our Board of directors consists of our Chairman and CEO, together with 9
independent directors, including a lead independent director, each of whom is
elected annually. Our Board also represents a diverse array of tenures,
experiences and backgrounds, including gender parity.
Our management team aligns its priorities with the long-term interests of our
shareholders through a requirement to own meaningful amounts of VOYA stock.
Operating Measures
In this MD&A, we discuss Adjusted operating earnings before income taxes and
Adjusted operating revenues, each of which is a measure used by management to
evaluate segment performance. For additional information on each measure, see
Segments Note in our Condensed Consolidated Financial Statements in Part I, Item
1. of this Quarterly Report on Form 10-Q.
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AUM and AUA
The following table presents AUM and AUA as of the dates indicated:
As of March 31, ($ in millions) 2022 2021 AUM and AUA: Wealth Solutions$ 514,972 $ 540,383 Investment Management 310,395 309,480 Health Solutions 1,903 1,834 Eliminations/Other (119,979) (122,409) Total AUM and AUA(1)$ 707,291 $ 729,288 AUM 385,054 373,353 AUA 322,237 355,934 Total AUM and AUA(1)$ 707,291 $ 729,288
(1) Includes AUM and AUA related to the divested businesses, for which a
substantial portion of the assets continue to be managed by our Investment
Management segment.
Terminology Definitions
Net gains (losses), net investment gains (losses) and related charges and
adjustments, and Net guaranteed benefit gains (losses) and related charges and
adjustments include changes in the fair value of derivatives. Increases in the
fair value of derivative assets or decreases in the fair value of derivative
liabilities result in "gains." Decreases in the fair value of derivative assets
or increases in the fair value of derivative liabilities result in "losses."
In addition, we have certain products that contain guarantees that are embedded
derivatives related to guaranteed benefits and index-crediting features, while
other products contain such guarantees that are considered derivatives
(collectively "guaranteed benefit derivatives").
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