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 and nine months ended
2021 and financial condition as of
This item should 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,
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.
On
Combination Agreement dated
Management LLC
("Voya IM"), Allianz SE, a stock corporation organized and existing under the
laws of the
indirect subsidiary of Allianz ("AGI
formed
parties combined Voya IM with assets and teams comprising specified transferred
strategies managed by AGI
international scale and distribution of our investment products and provides
diverse investment strategies that meet the needs of a larger more global client
base. In connection with the acquisition, we have incurred
transaction and integration expenses in the current quarter and expect to incur
additional integration expenses in future periods. These expenses include
consulting, legal and business integration expenses and are recorded in
Operating expenses in our Condensed Consolidated Statements of Operations in the
period they are incurred, but excluded from Adjusted operating earnings before
income taxes. These expenses are classified as a component of Other adjustments
to Income (loss) from continuing operations before income taxes and consequently
are not included in the adjusted operating results of the Company's segments.
For further details, refer to the Business, Basis of Presentation and
Significant Accounting Policies Note to the Condensed Consolidated Financial
Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.
On
("VIMAA"), one of our indirect subsidiaries, acquired all of the issued and
outstanding equity interests of
partnership, a private credit asset manager dedicated to the
pursuant to a sales and purchase agreement ("SPA") entered into on
2022
executed for cash consideration and will expand VIMAA's private and leveraged
credit business and is subject to conditions as defined in the SPA.
On
formed
entered into an agreement and plan of merger (the "Merger Agreement") with
Benefitfocus, Inc. ("BNFT"), a
Sub will merge with and into BNFT (the "Merger"), with BNFT surviving such
Merger as our wholly owned subsidiary. The transaction is expected to close in
the first quarter of 2023, subject to terms and customary closing conditions as
set in the Merger agreement. For further details, refer to
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the Business, Basis of Presentation and Significant Accounting Policies Note to
the Condensed Consolidated Financial Statements in Part I, Item 1. of this
Quarterly Report on Form 10-Q.
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, for the nine months ended
reduction to loss on sale, net of tax of
more 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.
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
vaccinations are widely available in many countries, including
States
new infections, including the introduction of new variants, has impacted the
re-opening of the
largely been lifted, economic activity has been slow to recover. 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
combined RBC ratio, with adjustments for certain intercompany transactions, was
447%, above our 375% target.
During the nine months ended
approximately
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.
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Table of Contents 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.
In
increased mortality claims on group life policies. We have not seen a
significant increase in medical stop loss claims.
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.
Investment Management
The lingering effects of COVID-19 combined with geopolitical uncertainty are
driving higher inflation resulting in equity market volatility and higher
interest rates. In
in both equity and fixed income assets with a corresponding reduction of
fee-based margin. While investment capital has been revaluated higher over the
last year, lingering economic uncertainty resulted in investment capital results
declining in the third quarter . The higher outflows seen with our retail
business at the outset of the pandemic subsided in the prior year however retail
outflows have increased in recent quarters 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.
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
prior years during the prolonged low interest rate environment, the yield we
earned on new investments has been lower than the yields earned 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
higher than the prevailing portfolio yield. However, heightened market
volatility implies greater uncertainly around the path of interest rates and the
outlook for new money investments going forward. New purchase yields at current
market levels would be higher than the yield of maturing assets. In addition,
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.
•We actively manage our investment portfolio and offer competitive product rates
in the market. 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 will positively
impact earnings if the average interest rate we pay on our products does not
rise correspondingly. Similarly, we expect policyholders may be less likely to
hold policies (higher lapses) with existing guarantees as interest rates rise.
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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
relating 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 that 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 and completed the removal of Stranded Costs
during the third quarter of 2022. Some transformation initiatives related to
TSAs will continue beyond the third quarter of 2022, however, they are not
expected to result in any net Stranded Costs. Refer to Restructuring in the
section below for more information on this program.
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 third quarter of 2022, of
million
incurred for the nine months ended
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 greenhouse gas emissions, the reduction of energy use, and
the purchase of renewable energy certificates and offsets to compensate for
energy consumption.
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Table of Contents 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 and our CEO-Elect, 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.
AUM and AUA
The following table presents AUM and AUA as of the dates indicated:
As of September 30, ($ in millions) 2022 2021 AUM and AUA: Wealth Solutions$ 450,718 $ 524,466 Health Solutions 1,952 1,941 Investment Management 369,210 313,399 Eliminations/Other (110,958) (122,282) Total AUM and AUA(1)$ 710,922 $ 717,524 AUM 426,206 387,044 AUA 284,716 330,480 Total AUM and AUA(1)$ 710,922 $ 717,524
(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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ALIGNMENT HEALTHCARE, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations.
CORVEL CORP – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
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