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VOYA RETIREMENT INSURANCE & ANNUITY CO – 10-Q – Management's Narrative Analysis of the Results of Operations and Financial Condition (Dollar amounts in millions, unless otherwise stated)
For the purposes of the discussion in this Quarterly Report on Form 10-Q, the term "VRIAC" refers toVoya Retirement Insurance and Annuity Company , and the terms "Company," "we," "our," "us" refer toVoya Retirement Insurance and Annuity Company and its subsidiaries. We are a direct, wholly owned subsidiary ofVoya Holdings Inc. , which is a direct, wholly owned subsidiary of Voya Financial, Inc. The following discussion and analysis presents a review of our results of operations for the three and six months endedJune 30, 2022 and 2021 and financial condition as ofJune 30, 2022 andDecember 31, 2021 . 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 Narrative Analysis of the Results of Operations and Financial Condition" 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 Note Concerning Forward-Looking Statements. Overview VRIAC is a stock life insurance company domiciled in theState of Connecticut . VRIAC and its wholly owned subsidiaries (collectively, the "Company") provide financial products and services inthe United States . VRIAC is authorized to conduct its insurance business in all states and in theDistrict of Columbia ,Guam ,Puerto Rico and theVirgin Islands . OnJanuary 4, 2021 , VRIAC's ultimate parent, Voya Financial, completed a series of transactions pursuant to a Master Transaction Agreement (the "Resolution MTA") entered into onDecember 18, 2019 withResolution Life U.S. Holdings Inc. , aDelaware corporation ("Resolution Life US"), pursuant to whichResolution Life US acquired all of the shares of the capital stock ofSecurity Life of Denver Company ("SLD") andSecurity Life of Denver International Limited ("SLDI"), including the capital stock of several subsidiaries of SLD and SLDI. Concurrently with the sale, SLD entered into reinsurance agreements withReliaStar Life Insurance Company ("RLI"),ReliaStar Life Insurance Company of New York ("RLNY"), and VRIAC, each of which is a direct or indirect wholly owned subsidiary of Voya Financial. The reinsurance agreements along with the sale of the legal entities noted above (referred to as the "Individual Life Transaction") resulted in the disposition of substantially all of Voya Financial's life insurance and legacy non-retirement annuity businesses and related assets. See the Reinsurance Note in Part II, Item 8. of our Annual Report on Form 10-K for more information regarding the Individual Life Transaction. Effective as ofMarch 1, 2021 ,Voya Retirement Insurance and Annuity Company acquired 49.9% of the issued and outstanding common stock ofVoya Special Investments, Inc. from Voya Financial, Inc. The investment has been accounted for as an equity method investment and recognized within Other investments in the Condensed Consolidated Balance Sheets. Also, effective as ofMarch 1, 2021 , the Company acquired$80 million of SLD issued surplus notes and$73 million of Resolution (Life U.S. Intermediate Holdings Ltd. ) issued preferred shares from affiliated entities, which were received in connection with the Individual Life Transaction. OnJune 9, 2021 , Voya Financial completed the sale of the independent financial planning channel ofVoya Financial Advisors ("VFA") toCetera Financial Group, Inc , ("Cetera"), one of the nation's largest networks of independently managed broker-dealers. VFA is one of the channels through which VRIAC distributes its products. In connection with this transaction, VFA transferred more than 800 independent financial professionals serving retail customers with approximately$38 billion in assets under advisement to Cetera, while retaining approximately 500 field and phone-based financial professionals who support our business. 53 -------------------------------------------------------------------------------- Table of Contents Impact of New Accounting Pronouncements For information regarding the impact of new accounting pronouncements, see the Business, Basis of Presentation and Significant Accounting Policies Note in our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.
Critical Accounting Judgments and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted inthe United States ("U.S. GAAP") requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Critical estimates and assumptions are evaluated on an on-going basis based on historical developments, market conditions, industry trends and other information that is reasonable under the circumstances. There can be no assurance that actual results will conform to estimates and assumptions and that reported results of operations will not be materially affected by the need to make future accounting adjustments to reflect changes in these estimates and assumptions from time to time. The inputs into our estimates and assumptions consider the economic implications of COVID-19 on our critical and significant accounting estimates. Those estimates are inherently subject to change and actual results could differ from those estimates, and the differences may be material to the accompanying Condensed Consolidated Financial Statements. We have identified the following accounting judgments and estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability: •Reserves for future policy benefits; •Deferred policy acquisition costs ("DAC") and value of business acquired ("VOBA"); •Valuation of investments and derivatives; •Impairments; •Income taxes; and •Contingencies. In developing these accounting estimates, we make subjective and complex judgments that are inherently uncertain and subject to material changes as facts and circumstances develop. Although variability is inherent in these estimates, we believe the amounts provided are appropriate based on the facts available upon preparation of the Condensed Consolidated Financial Statements.
The above critical accounting estimates are described in the Business, Basis of
Presentation and Significant Accounting Policies Note in our Consolidated
Financial Statements in Part II, Item 8. of our Annual Report on Form 10-K .
Assumptions and Periodic Review
Changes in assumptions can have a significant impact on DAC and VOBA balances, amortization rates, reserve levels and results of operations. Assumptions are management's best estimates of future outcome. We periodically review these assumptions against actual experience and, based on additional information that becomes available, update our assumptions. Deviation of emerging experience from our assumptions could have a significant effect on our DAC and VOBA, reserves and the related results of operations.
Income Taxes
See the Income Taxes Note to our Condensed Consolidated Financial Statements in
Part I, Item 1. of this Quarterly Report on Form 10-Q for more information on
income taxes.
Recent Developments
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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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 are increasing in many countries, including the United States ,
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 U.S. economy and, even in regions where restrictions have
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
U.S. Supreme Court , we continue to be subject to various state and local vaccine
mandates that would require at least a portion of our U.S. employees to be
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 VRIAC - Financial Condition, Capital and Liquidity
Because both public health and economic circumstances are changing so rapidly at present, it is impossible to predict how COVID-19 will affect VRIAC's future financial condition. Absent a further significant and prolonged market shock, however, we do not anticipate a material effect on our balance sheet or liquidity. Our capital levels remain strong and significantly above our targets.
Effect on VRIAC - Results of Operations
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.
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 our products.
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Results of Operations
Six Months Ended
($ in millions) Three Months Ended June 30, June 30,
2022 2021 Change 2022 2021 Change
Revenues:
Net investment income $ 420 $ 482 $ (62) $ 869 $ 971 $ (102)
Fee income 246 271 (25) 509 530 (21)
Premiums 3 6 (3) 11 (2,441) 2,452
Broker-dealer commission revenue 1 - 1 1 1 -
Total net gains (losses) (136) (35) (101) (318) 405 (723)
Other revenue 17 10 7 28 17 11
Total revenues 551 734 (183) 1,100 (517) 1,617
Benefits and expenses:
Interest credited and other benefits to
contract owners/policyholders 196 176 20 393 (1,880) 2,273
Operating expenses 303 307 (4) 599 592 7
Broker-dealer commission expense 1 - 1 1 1 -
Net amortization of Deferred policy
acquisition costs and Value of business
acquired 37 29 8 68 78 (10)
Total benefits and expenses 537 512 25 1,061 (1,209) 2,270
Income (loss) before income taxes 14 222 (208) 39 692 (653)
Income tax expense (benefit) (8) 36 (44) (15) 123 (138)
Net income (loss) $ 22 $ 186 $ (164) $ 54 $ 569 $ (515)
Three Months Ended
Revenues
Net investment income decreased by
primarily due to:
•lower alternative investment and prepayment fee income in the current period
primarily driven by the impact of equity market performance.
Fee income decreased by
due to:
•a decrease in separate account and institutional/mutual fund assets under
management driven by equity market performance.
Total net gains (losses) increased by
a loss of
•unfavorable changes in other investments driven by the sale of the Company's stake inVA Capital in the prior period; •unfavorable changes in equity securities, available-for-sale driven by market value movements; and •higher gains on mortgage loans in the prior period driven by a reduction in CECL allowance. The increase was partially offset by: •favorable changes in derivatives -Voya Investment Management (VIM) (including embedded derivatives) and Non-VIM product embedded derivatives due to interest rate movements; and •favorable changes in fixed maturities, using the fair value option due to interest rate movements and spread changes. 56
-------------------------------------------------------------------------------- Table of Contents Other revenue increased by$7 million from$10 million to$17 million primarily due to: •an increase in income resulting from market value adjustments on fixed funds related to plan surrenders; and •an increase in VIPS (Voya Institutional Plan Services ) related miscellaneous income. Benefits and Expenses
Interest credited and other benefits to contract owners/policyholders increased
by
•an increase in treasury rates which has led to higher credited rates.
Net amortization of DAC and VOBA increased by
million
•unfavorable unlocking in the current period compared to favorable unlocking in
the prior period due to separate account performance.
The increase was partially offset by:
•DAC/VOBA balance within the Annuities business being written down to zero in the prior period as the block did not pass Loss Recognition Testing (LRT); and •lower amortization due to lower gross profits.
Income tax expense (benefit) changed by
million
•a decrease in income before income taxes.
Six Months Ended
Revenues
Net investment income decreased by
million
•lower alternative investment and prepayment fee income in the current period
primarily driven by the impact of equity market performance.
Premiums increased by
primarily due to:
•the close of the Individual Life Transaction in the prior period, at which
point the Pension Risk Transfer (PRT) and annuity business was ceded to
Resolution.
Total net gains (losses) changed by
a loss of
•higher gains on fixed maturities, including securities pledged, in the prior period due to reinsurance agreements related to the Life Transaction and higher CECL allowance for certain fixed maturity securities; •unfavorable changes in fixed maturities, using the fair value option due to interest rate movements and spread changes; •unfavorable changes in equity securities, available-for-sale driven by market value movements; •unfavorable changes in the fair value of embedded derivatives on product guarantees excluding performance risk as a result of interest rate movements; •higher gains on mortgage loans in the prior period driven by the sale of loans from reinsurance portfolios to Resolution upon the close of the transaction and a decline in CECL allowance; and •unfavorable changes in other investments driven by the sale of the Company's stake inVA Capital in the prior period.
The increase was partially offset by:
•favorable changes in derivatives - VIM (including embedded derivatives) due to
interest rate changes.
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Benefits and Expense
Interest credited and other benefits to contract owners/policyholders increased
by
•the ceding of the PRT and annuity business to Resolution as part of the Life
Transaction in the prior period.
The increase was partially offset by:
•a decrease in PRT reserves which were updated to reflect a change in yield assumptions related to liabilities in the current period that did not occur in the prior period.
Income tax expense (benefit) changed by
million
•a decrease in income before income taxes.
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Investments
See Management's Narrative Analysis of the Results of Operations and Financial
Condition in Part II, Item. 7. of our Annual Report on Form 10-K for
information on our investment strategy.
See the Investments Note to our Condensed Consolidated Financial Statements in
Part I, Item 1. of this Quarterly Report on Form 10-Q for more information on
investments.
Portfolio Composition
The following table presents the investment portfolio as of the dates indicated:
June 30, 2022 December 31, 2021
Carrying % of Carrying % of
($ in millions) Value Total Value Total
Fixed maturities, available-for-sale, excluding
securities pledged $ 21,239 72.7 % $ 24,360 75.6 %
Fixed maturities, at fair value option 1,248 4.3 % 1,253 3.9 %
Equity securities, at fair value 144 0.5 % 141 0.4 %
Mortgage loans on real estate 4,164 14.3 % 4,222 13.1 %
Policy loans 163 0.6 % 171 0.5 %
Limited partnerships/corporations 1,051 3.6 % 980 3.0 %
Derivatives 240 0.8 % 149 0.5 %
Securities pledged 799 2.7 % 799 2.5 %
Other investments 142 0.5 % 143 0.5 %
Total investments $ 29,190 100.0 % $ 32,218 100.0 %
Fixed Maturities
The following tables present total fixed maturities, including securities
pledged, by market sector as of the dates indicated:
June 30, 2022
Amortized % of Fair % of
($ in millions) Cost Total Value Total
Fixed maturities:
U.S. Treasuries $ 559 2.2 % $ 595 2.6 %
U.S. Government agencies and authorities 20 0.1 % 18 0.1 %
State, municipalities, and political
subdivisions 708 2.8 % 665 2.9 %
U.S. corporate public securities 7,337 29.5 % 6,684 28.5 %
U.S. corporate private securities 3,743 15.0 % 3,536 15.2 %
Foreign corporate public securities and
foreign governments(1) 2,372 9.5 % 2,135 9.2 %
Foreign corporate private securities(1) 2,692 10.8 % 2,554 11.0 %
Residential mortgage-backed securities 3,154 12.7 % 3,086 13.2 %
Commercial mortgage-backed securities 2,937 11.8 % 2,743 11.8 %
Other asset-backed securities 1,359 5.6 % 1,270 5.5 %
Total fixed maturities, including
securities pledged $ 24,881 100.0 % $ 23,286 100.0 %
(1) Primarily
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December 31, 2021
Amortized % of Fair % of
($ in millions) Cost Total Value Total
Fixed maturities:
U.S. Treasuries $ 554 2.3 % $ 691 2.6 %
U.S. Government agencies and authorities 20 0.1 % 20 0.1 %
State, municipalities, and political
subdivisions 716 2.9 % 803 3.0 %
U.S. corporate public securities 7,314 30.1 % 8,269 31.4 %
U.S. corporate private securities 3,620 14.9 % 3,939 14.9 %
Foreign corporate public securities and
foreign governments(1) 2,352 9.7 % 2,591 9.8 %
Foreign corporate private securities(1) 2,563 10.5 % 2,703 10.2 %
Residential mortgage-backed securities 3,081 12.7 % 3,164 12.0 %
Commercial mortgage-backed securities 2,766 11.4 % 2,881 10.9 %
Other asset-backed securities 1,341 5.4 % 1,351 5.1 %
Total fixed maturities, including
securities pledged $ 24,327 100.0 % $ 26,412 100.0 %
(1) Primarily
As of
including securities pledged, is between 7.0 and 7.5 years.
Fixed Maturities Credit Quality - Ratings
For information regarding our fixed maturities credit quality ratings, see the
Management's Narrative Analysis of the Results of Operations and Financial
Condition in Part II, Item. 7. of our Annual Report on Form 10-K .
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The following tables present credit quality of fixed maturities, including
securities pledged, using NAIC designations as of the dates indicated:
($ in millions) June 30, 2022 NAIC Quality Designation 1 2 3 4 5 6 Total Fair Value U.S. Treasuries$ 595 $ - $ - $ - $ - $ - $ 595U.S. Government agencies and authorities 18 - - - - - 18 State, municipalities and political subdivisions 612 53 - - - - 665 U.S. corporate public securities 2,166 4,288 206 15 2 7 6,684U.S. corporate private securities 1,227 2,049 189 70 1 - 3,536 Foreign corporate public securities and foreign governments(1) 670 1,336 79 40 - 10 2,135 Foreign corporate private securities(1) 326 2,060 126 32 10 - 2,554 Residential mortgage-backed securities 2,918 118 12 22 6 10 3,086 Commercial mortgage-backed securities 2,299 380 49 14 1 - 2,743 Other asset-backed securities 1,037 221 2 5 5 - 1,270 Total fixed maturities$ 11,868 $ 10,505 $ 663 $ 198 $ 25 $ 27 $ 23,286 % of Fair Value 51.0% 45.1% 2.8% 0.9% 0.1% 0.1% 100.0%
(1) Primarily
($ in millions) December 31, 2021 NAIC Quality Designation 1 2 3 4 5 6 Total Fair Value U.S. Treasuries$ 691 $ - $ - $ - $ - $ - $ 691U.S. Government agencies and authorities 20 - - - - - 20 State, municipalities and political subdivisions 737 65 1 - - - 803 U.S. corporate public securities 2,697 5,285 239 41 7 - 8,269U.S. corporate private securities 1,315 2,300 243 79 2 - 3,939 Foreign corporate public securities and foreign governments(1) 789 1,689 106 7 - - 2,591 Foreign corporate private securities(1) 223 2,202 146 67 - 65 2,703 Residential mortgage-backed securities 3,116 22 - 1 10 15 3,164 Commercial mortgage-backed securities 2,488 332 54 7 - - 2,881 Other asset-backed securities 1,112 221 4 6 8 - 1,351 Total fixed maturities$ 13,188 $ 12,116 $ 793 $ 208 $ 27 $ 80 $ 26,412 % of Fair Value 49.9 % 45.9 % 3.0 % 0.8 % 0.1 % 0.3 % 100.0 % (1) PrimarilyU.S. dollar denominated. 61
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The following tables present credit quality of fixed maturities, including
securities pledged, using ARO ratings as of the dates
indicated:
($ in millions) June 30, 2022
Total Fair
ARO Quality Ratings AAA AA A BBB BB and Below Value
U.S. Treasuries $ 595 $ - $ - $ - $ - $ 595
U.S. Government agencies and
authorities 16 2 - - - 18
State, municipalities and
political subdivisions 47 394 172 52 - 665
U.S. corporate public
securities 23 368 1,944 4,075 274 6,684
U.S. corporate private
securities 29 107 1,036 2,143 221 3,536
Foreign corporate public
securities and foreign
governments(1) 8 142 598 1,246 141 2,135
Foreign corporate private
securities(1) - 30 254 2,139 131 2,554
Residential mortgage-backed
securities 2,051 413 215 196 211 3,086
Commercial mortgage-backed
securities 1,021 281 613 725 103 2,743
Other asset-backed securities 96 278 654 217 25 1,270
Total fixed maturities $ 3,886 $ 2,015 $ 5,486 $ 10,793 $ 1,106 $23,286
% of Fair Value 16.7 % 8.7 % 23.6 % 46.3 % 4.7 % 100.0 %
(1) Primarily
($ in millions) December 31, 2021
Total Fair
ARO Quality Ratings AAA AA A BBB BB and Below Value
U.S. Treasuries $ 691 $ - $ - $ - $ - $ 691
U.S. Government agencies and
authorities 18 - 2 - - 20
State, municipalities and
political subdivisions 47 465 225 65 1 803
U.S. corporate public
securities 46 483 2,429 5,047 264 8,269
U.S. corporate private
securities 32 68 1,147 2,447 245 3,939
Foreign corporate public
securities and foreign
governments(1) 8 176 716 1,562 129 2,591
Foreign corporate private
securities(1) - 29 198 2,266 210 2,703
Residential mortgage-backed
securities 2,089 214 159 222 480 3,164
Commercial mortgage-backed
securities 1,167 289 580 753 92 2,881
Other asset-backed securities 150 303 647 217 34 1,351
Total fixed maturities $ 4,248 $ 2,027 $ 6,103 $ 12,579 $ 1,455 $ 26,412
% of Fair Value 16.1 % 7.7 % 23.1 % 47.6 % 5.5 % 100.0 %
(1) Primarily
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Fixed maturities rated BB and below may have speculative characteristics and
changes in economic conditions or other circumstances that are more likely to
lead to a weakened capacity of the issuer to make principal and interest
payments than is the case with higher rated fixed maturities.
Unrealized Capital Losses
Gross unrealized losses on fixed maturities, including securities pledged, increased$1,736 million from$111 million to$1,847 million for the six months endedJune 30, 2022 . The large increase in unrealized losses was driven primarily by materially higher interest rates across the curve and moderately wider credit spreads.
As of
with unrealized capital losses in excess of
As ofJune 30, 2022 , we had$1.4 billion of energy sector fixed maturity securities, constituting 5.8% of the total fixed maturities portfolio, with gross unrealized capital losses of$91 million , including no energy sector fixed maturity security with unrealized capital loss in excess of$10 million . As ofJune 30, 2022 , our fixed maturity exposure to the energy sector is comprised of 88.6% investment grade securities. As ofDecember 31, 2021 , we held$1.6 billion of energy sector fixed maturity securities, constituting 6.0% of the total fixed maturities portfolio, with gross unrealized capital losses of$14 million , including no energy sector fixed maturity security with unrealized capital loss in excess of$10 million . As ofDecember 31, 2021 , our fixed maturity exposure to the energy sector is comprised of 87.0% investment grade securities. See the Investments Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for further information on unrealized capital losses.
The following tables present our residential mortgage-backed securities as of
June 30, 2022
Gross Unrealized Gross Unrealized
($ in millions) Amortized Cost Capital Gains Capital Losses Embedded Derivatives Fair Value
Prime Agency $ 1,393 $ 20 $ 18 $ 1 $ 1,396
Prime Non-Agency 1,728 11 88 1 1,652
Alt-A 23 4 1 2 28
Sub-Prime(1) 23 1 - - 24
Total RMBS $ 3,167 $ 36 $ 107 $ 4 $ 3,100
(1) Includes subprime other asset backed securities.
December 31, 2021
Gross Unrealized Gross Unrealized
($ in millions) Amortized Cost Capital Gains Capital Losses Embedded Derivatives Fair Value
Prime Agency $ 1,501 $ 60 $ 5 $ 3 $ 1,559
Prime Non-Agency 1,543 31 14 1 1,561
Alt-A 27 5 1 3 34
Sub-Prime(1) 25 3 - - 28
Total RMBS $ 3,096 $ 99 $ 20 $ 7 $ 3,182
(1) Includes subprime other asset backed securities.
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-------------------------------------------------------------------------------- Table of ContentsCommercial Mortgage-backed Securities
The following tables present our commercial mortgage-backed securities as of
June 30, 2022
AAA AA A BBB BB and Below Total
($ in millions) Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
2015 and prior $ 589 $ 567 $ 107 $ 103 $ 135 $ 131 $ 89 $ 86 $ 65 $ 61 $ 985 $ 948
2016 23 21 16 16 25 24 24 21 - - 88 82
2017 53 47 16 15 50 46 37 34 22 21 178 163
2018 73 69 19 17 68 65 29 26 17 16 206 193
2019 134 133 31 29 104 97 200 176 6 5 475 440
2020 62 60 22 20 46 40 106 93 - - 236 213
2021 124 108 67 63 138 126 229 209 - - 558 506
2022 18 16 19 18 89 84 85 80 - - 211 198
Total CMBS $ 1,076 $ 1,021 $ 297 $ 281 $ 655 $ 613 $ 799 $ 725 $ 110 $ 103 $ 2,937 $ 2,743
December 31, 2021
AAA AA A BBB BB and Below Total
($ in millions) Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
2015 and prior $ 585
107$ 111 $ 129$ 133 $ 102$ 103 $ 64$ 62 $ 987$ 1,058 2016 23 25 16 17 22 23 24 24 - - 85 89 2017 53 58 18 18 46 47 35 36 22 23 174 182 2018 72 80 19 19 74 75 47 48 2 2 214 224 2019 146 163 31 31 112 114 198 199 6 5 493 512 2020 64 66 22 22 45 46 118 119 - - 249 253 2021 126 126 71 71 142 142 225 224 - - 564 563 Total CMBS$ 1,069 $ 1,167 $ 284$ 289 $ 570$ 580 $ 749$ 753 $ 94$ 92 $ 2,766 $ 2,881
As of
NAIC-1 and NAIC-2, respectively. As of
CMBS investments were designated as NAIC-1 and NAIC-2, respectively.
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Other Asset-backed Securities
The following tables present our other asset-backed securities as of June 30,
2022 and December 31, 2021 :
June 30, 2022
AAA AA A BBB BB and Below Total
($ in millions) Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
Collateralized Obligation $ 50 $ 48 $ 233 $ 221 $ 617 $ 577 $ 72 $ 67 $ 15 $ 12 $ 987 $ 925
Auto-Loans - - 5 5 5 5 - - - - 10 10
Student Loans 12 12 53 51 1 - 2 1 - - 68 64
Credit Card loans - - - - 2 2 - - - - 2 2
Other Loans 38 35 1 1 78 70 161 149 - - 278 255
Total Other ABS(1) $ 100 $ 95 $ 292 $ 278 $ 703 $ 654 $ 235 $
217
(1) Excludes subprime other asset backed securities
December 31, 2021
AAA AA A BBB BB and Below Total
($ in millions) Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
Collateralized Obligation $ 100 $ 101 $ 233 $ 233 $ 568 $ 568 $ 71 $ 70 $ 19 $ 17 $ 991 $ 989
Auto-Loans - - 1 1 5 6 - - - - 6 7
Student Loans 12 12 66 68 6 6 2 2 - - 86 88
Credit Card loans - - - - 2 2 - - - - 2 2
Other Loans 35 37 1 1 63 64 141 145 - - 240 247
Total Other ABS(1) $ 147 $ 150 $ 301 $ 303 $ 644 $ 646 $ 214 $
217
(1) Excludes subprime other asset backed securities
As ofJune 30, 2022 , 81.7% and 17.4% of Other ABS investments were designated as NAIC-1 and NAIC-2, respectively. As ofDecember 31, 2021 , 82.2% and 16.4% of Other ABS investments were designated as NAIC-1 and NAIC-2, respectively.
Mortgage Loans on Real Estate
As ofJune 30, 2022 , our mortgage loans on real estate portfolio had a weighted average DSC of 2.0 times and a weighted average LTV ratio of 46.6%. As ofDecember 31, 2021 , our mortgage loans on real estate portfolio had a weighted average DSC of 2.0 times and a weighted average LTV ratio of 46.6%. See the Investments Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for further information on mortgage loans on real estate.
Impairments
We evaluate available-for-sale fixed maturities for impairment on a regular
basis. The assessment of whether impairments have occurred is based on a
case-by-case evaluation of the underlying reasons for the decline in estimated
fair value. See the Business, Basis of Presentation and Significant Accounting
Policies Note to our Consolidated Financial Statements in Part II, Item 8. of
our Annual Report on Form 10-K for the policy used to evaluate whether the
investments are impaired.
See the Investments Note to our Condensed Consolidated Financial Statements in
Part I, Item 1. of this Quarterly Report on Form 10-Q for further information on
impairments.
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-------------------------------------------------------------------------------- Table of Contents European Exposures We quantify and allocate our exposure to the region by attempting to identify aspects of the region or country risk to which we are exposed. Among the factors we consider are the nationality of the issuer, the nationality of the issuer's ultimate parent, the corporate and economic relationship between the issuer and its parent, as well as the political, legal and economic environment in which each functions. By undertaking this assessment, we believe that we develop a more accurate assessment of the actual geographic risk, with a more integrated understanding of contributing factors to the full risk profile of the issuer. In the normal course of our ongoing risk and portfolio management process, we closely monitor compliance with a credit limit hierarchy designed to minimize overly concentrated risk exposures by geography, sector and issuer. This framework takes into account various factors such as internal and external ratings, capital efficiency and liquidity and is overseen by a combination of Investment and Corporate Risk Management, as well as insurance portfolio managers focused specifically on managing the investment risk embedded in our portfolio. While economic conditions inEurope have broadly improved, geopolitical tensions emanating from theRussia -Ukraine conflict remain a notable tail risk. Despite signs of economic improvement in the region, we continue to closely monitor our exposure to the region. As ofJune 30, 2022 , the Company's total European exposure had an amortized cost and fair value of$2,391 million and$2,186 million , respectively. Some of the major country level exposures were in theUnited Kingdom of$1,040 million , inFrance of$179 million , inThe Netherlands of$195 million , inSwitzerland of$156 million , inGermany of$162 million , and inBelgium of$83 million . Our direct exposure inEastern Europe is comparatively small, with only$9 million of exposure inRussia and none inUkraine orBelarus .
Liquidity and Capital Resources
Liquidity refers to our ability to access sufficient sources of cash to meet the
requirements of our operating, investing and financing activities. Capital
refers to our long-term financial resources available to support business
operations and future growth. Our ability to generate and maintain sufficient
liquidity and capital depends on the profitability of the businesses, timing of
cash flows on investments and products, general economic conditions and access
to the capital markets and the other sources of liquidity and capital described
herein.
Liquidity Management
Our principal available sources of liquidity are product charges, investment
income, proceeds from maturity and sale of investments, proceeds from debt
issuance and borrowing facilities, repurchase agreements, contract deposits,
securities lending and capital contributions. Primary uses of these funds are
payments of commissions and operating expenses, interest credits, investment
purchases and contract maturities, withdrawals and surrenders and payment of
dividends.
Our liquidity position is managed by maintaining adequate levels of liquid
assets, such as cash, cash equivalents and short-term investments. As part of
the liquidity management process, different scenarios are modeled to determine
whether existing assets are adequate to meet projected cash flows. Key variables
in the modeling process include interest rates, equity market movements,
quantity and type of interest and equity market hedges, anticipated contract
owner behavior, market value of the general account assets, variable separate
account performance and implications of rating agency actions.
The fixed account liabilities are supported by a general account portfolio,
principally composed of fixed rate investments with matching duration
characteristics that can generate predictable, steady rates of return. The
portfolio management strategy for the fixed account considers the assets
available-for-sale. This strategy enables us to respond to changes in market
interest rates, prepayment risk, relative values of asset sectors and individual
securities and loans, credit quality outlook and other relevant factors. The
objective of portfolio management is to maximize returns, taking into account
interest rate and credit risk, as well as other risks. Our asset/liability
management discipline includes strategies to minimize exposure to loss as
interest rates and economic and market conditions change. In executing this
strategy, we use derivative instruments to manage these risks. Our derivative
counterparties are of high credit quality.
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-------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Additional sources of liquidity include borrowing facilities to meet short-term cash requirements that arise in the ordinary course of business. We maintain the following agreements: •A reciprocal loan agreement with Voya Financial, an affiliate, whereby either party can borrow from the other up to 3.0% of VRIAC's statutory admitted assets as of the priorDecember 31 . As ofJune 30, 2022 , VRIAC had no outstanding receivables and VIPS had a$80 million outstanding payable. As ofDecember 31, 2021 , we had an outstanding receivable of$130 million and VIPS had a$19 million outstanding payable from/to Voya Financial under the reciprocal loan agreement. We and Voya Financial continue to maintain the reciprocal loan agreement and future borrowings by either party will be subjected to the reciprocal loan terms summarized above. Interest on any borrowing by either us or Voya Financial is charged at a rate based on the prevailing market rate for similar third-party borrowings or securities. •We hold approximately 47.6% of our assets in marketable securities. These assets include cash,U.S. Treasuries, Agencies, Corporate Bonds, ABS, CMBS and collateralized mortgage obligations ("CMO") and Equity securities. In the event of a temporary liquidity need, cash may be raised by entering into repurchase agreements, dollar rolls and/or security lending agreements by temporarily lending securities and receiving cash collateral. Under our Liquidity Plan, up to 12% of our general account statutory admitted assets may be allocated to repurchase, securities lending and dollar roll programs. At the time a temporary cash need arises, the actual percentage of admitted assets available for repurchase transactions will depend upon outstanding allocations to the three programs. As ofJune 30, 2022 , VRIAC had securities lending collateral assets of$619 million , which represents approximately 0.6% of its general account statutory admitted assets. As ofDecember 31, 2021 , VRIAC had securities lending collateral assets of$676 million , which represents approximately 0.5% of its general account statutory admitted assets.
Management believes that our sources of liquidity are adequate to meet our
short-term cash obligations.
Capital Contributions and Dividends
During the six months endedJune 30, 2022 , VRIAC did not receive any capital contribution from its Parent. During the six months endedJune 30, 2021 , VRIAC received$318 million capital contribution from its Parent, comprised of cash and non-cash assets. During the six months endedJune 30, 2022 , VRIAC paid an ordinary and extraordinary dividend to its Parent in the aggregate amount of$48 million and$809 million , respectively. During the six months endedJune 30, 2021 , VRIAC paid an ordinary and extraordinary dividends to its Parent in the aggregate amount of$78 million and$474 million , respectively.
Ratings
Our access to funding and our related cost of borrowing, collateral requirements
for derivative instruments and the attractiveness of certain of our products to
customers are affected by our credit ratings and insurance financial strength
ratings, which are periodically reviewed by the rating agencies. Financial
strength ratings and credit ratings are important factors affecting public
confidence in an insurer and its competitive position in marketing products.
Credit ratings are also important to our ability to raise capital through the
issuance of debt and for the cost of such financing.
A downgrade in our credit ratings or the credit or financial strength ratings of
our Parent or rated affiliates could have a material adverse effect on our
results of operations and financial condition. See Risk Factors- A downgrade or
a potential downgrade in our financial strength or credit ratings could result
in a loss of business and adversely affect our results of operations and
financial condition in Part I, Item 1A. of our Annual Report on Form 10-K
for additional information.
Financial strength ratings represent the opinions of rating agencies regarding
the financial ability of an insurance company to meet its obligations under an
insurance policy. Credit ratings represent the opinions of rating agencies
regarding an entity's ability to repay its indebtedness. These ratings are not a
recommendation to buy or hold any of our securities and they may be revised or
revoked at any time at the sole discretion of the rating organization.
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Our financial strength rating as of the date of this Quarterly Report on Form
10-Q are summarized in the following table.
Rating Agency
Moody's Investors
Fitch, Inc. Service, Inc. Standard & Poor's
Company ("Fitch")(1) ("Moody's")(2) ("S&P")(3)
Voya Retirement Insurance and Annuity Company
Financial Strength Rating A A2 A+
(1) Fitch's financial strength rating for insurance companies range from "AAA
(exceptionally strong)" to "C (distressed). " Long-term credit ratings range
from
"AAA (highest credit quality)," which denotes exceptionally strong capacity for
timely payment of financial commitments, to "D (default)."
(2) Moody's financial strength ratings for insurance companies range from "Aaa
(exceptional)" to "C (lowest)." Numeric modifiers are used to refer to the
ranking within the group- with 1 being the highest and 3 being the lowest. These
modifiers are used to indicate relative strength within a category. Long-term
credit ratings range from "Aaa (highest)" to "C (default)."
(3) S&P's financial strength ratings for insurance companies range from "AAA
(extremely strong)" to "D (default)." Long-term credit ratings range from "AAA
(extremely strong)" to "D (default)."
Rating agencies use an "outlook" statement for both industry sectors and
individual companies. For an industry sector, a stable outlook generally implies
that over the next 12 to 18 months the rating agency expects ratings to remain
unchanged among companies in the sector. For a particular company, an outlook
generally indicates a medium or long-term trend in credit fundamentals, which if
continued, may lead to a rating change. In June 2021 , Moody's revised its
outlook for the U.S. life insurance sector from negative to stable. In December
2021 , Fitch revised its outlook for the U.S. life insurance sector from negative
to neutral.
Derivatives
Our use of derivatives is limited mainly to economic hedging to reduce our
exposure to cash flow variability of assets and liabilities, interest rate risk,
credit risk, exchange rate risk and market risk. It is our policy not to offset
amounts recognized for derivative instruments and amounts recognized for the
right to reclaim cash collateral or the obligation to return cash collateral
arising from derivative instruments executed with the same counterparty under a
master netting arrangement.
We enter into interest rate, equity market, credit default and currency
contracts, including swaps, futures, forwards, caps, floors and options, to
reduce and manage various risks associated with changes in value, yield, price,
cash flow, or exchange rates of assets or liabilities held or intended to be
held, or to assume or reduce credit exposure associated with a referenced asset,
index, or pool. We also utilize options and futures on equity indices to reduce
and manage risks associated with our annuity products. Derivative contracts are
reported as Derivatives assets or liabilities on the Condensed Consolidated
Balance Sheets at fair value. Changes in the fair value of derivatives are
recorded in Other net gains (losses) in the Condensed Consolidated Statements of
Operations.
We also have investments in certain fixed maturities and have issued certain
annuity products that contain embedded derivatives for which fair value is at
least partially determined by levels of or changes in domestic and/or foreign
interest rates (short-term or long-term), exchange rates, prepayment rates,
equity markets, or credit ratings/spreads. Embedded derivatives within fixed
maturities are included with the host contract on the Condensed Consolidated
Balance Sheets and changes in fair value of the embedded derivatives are
recorded in Other net gains (losses) in the Condensed Consolidated Statements of
Operations. Embedded derivatives within certain annuity products are included in
Future policy benefits and contract owner account balances on the Condensed
Consolidated Balance Sheets and changes in the fair value of the embedded
derivatives are recorded in Other net gains (losses) in the Condensed
Consolidated Statements of Operations.
In addition, we have entered into a reinsurance agreement, accounted for under
the deposit method, that contains an embedded derivative, the fair value of
which is based on the change in the fair value of the underlying assets held in
trust. The embedded derivatives within the reinsurance agreements are reported
in Other liabilities on the Condensed Consolidated Balance Sheets, and changes
in the fair value of the embedded derivative are recorded in Interest credited
and other benefit to contract owners/policyholders in the Condensed Consolidated
Statements of Operations.
Off-Balance Sheet Arrangements
We have obligations for the return of non-cash collateral under an amendment to
our securities lending program. Non-cash collateral received in connection with
the securities lending program may not be sold or re-pledged by our lending
agent, except
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in the event of default, and is not reflected on our Condensed Consolidated
Balance Sheets. For information regarding obligations under this program, see
the Investments Note in our Condensed Consolidated Financial Statements in Part
I, Item 1. of this Quarterly Report on Form 10-Q.
For changes in commitments related to the acquisition of mortgage loans and the
purchase of limited partnerships and private placement investments, see the
Commitments and Contingencies Note in our Condensed Consolidated Financial
Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.
Ohio National ratings affirmed by Fitch
PROGRESSIVE CARE INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
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