Voya Financial, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Business Results: Strong results in Wealth Solutions and Investment Management were offset by adverse Stop Loss results in Health.
• Acquisition: On track to close acquisition of OneAmerica's full service retirement business on January 1, which is strategically and financially attractive.
• Free Cash Flows: On track to return $800 million in excess capital to shareholders in 2024. Well-positioned to significantly improve excess capital generation in 2025.
• Wealth Solutions: Underlying commercial momentum building, full-service sales up 25% year-over-year (highest since fourth quarter 2022). Retail client assets growing.
• Investment Management: $3.8 billion net inflows in Q3, exceeding organic growth target. Leading positions in institutional fixed income and third-party insurance asset management driving growth.
• Health Solutions: Prioritizing margin over in-force premium growth, actively repricing Stop Loss business for 2025 to improve margins.

Segment Performance

• Wealth Solutions: Revenue growth and adjusted operating margin are on pace to exceed 2024 targets. Third quarter adjusted operating earnings were $211 million, 18% higher year-over-year. Fee-based revenues grew from an expanded participant base, and retail client assets were up 20% year-over-year to $31 billion. Revenue contribution is significant, with strong growth in full-service sales (up 25% year-over-year) and mid-market sales.
• Investment Management: Delivered third consecutive quarter of positive net flows, exceeding organic growth target. Year-to-date net inflows were over $9 billion, driven by strength in institutional fixed income and third-party insurance asset management. Third quarter adjusted operating earnings were $55 million, up from $49 million in the prior year quarter. Net revenues increased due to strong commercial momentum and favorable equity markets.
• Health Solutions: Adverse Stop Loss results led to disappointing performance. The January 2024 book was underpriced, causing elevated loss ratios. Higher frequency of claims across most plain categories contributed to increased loss ratios. The company is actively repricing the Stop Loss business to improve margins.

Guidance

• Capital Return: On track to return $800 million in excess capital to shareholders in 2024.
• Stop Loss Margins: Prioritizing higher margins over premium growth for the 2025 book, actively pursuing higher rate increases. Confident in material improvement in cash generation in 2025.
• OneAmerica Acquisition: Expected to contribute at least $75 million of pretax operating earnings in the first year.
• Future Growth: Well-positioned to significantly improve excess capital generation in 2025 through Stop Loss repricing, OneAmerica acquisition, and profitable growth across businesses.

Risks

• Stop Loss Underpricing: Underpricing the 2024 book led to elevated loss ratios.
• Competitive Environment: Adverse Stop Loss results affected by competitive pricing dynamics.
• Claims Trends: Higher frequency and cost of claims across most plain categories driving increased loss ratios in Health Solutions.

Question and Answer

• Q: Provide color on underlying claim trends and loss inflation built into the 80% loss pick for 2024?

A: Heather Lavallee discussed elevated claims across categories, factoring medical trends 8%-9% into pricing, targeting higher rate increases for the 2025 book.

• Q: Change in thinking regarding retention or higher lapses for OneAmerica?

A: Mike Katz said expect lower persistency for OneAmerica business, around 90% embedded in $75 million earnings, with technology transition to help persistency.

• Q: Update on Investment Management distribution expansion from Allianz partnership?

A: Matt Toms discussed strong flow picture, international retail channel strength, preeminent income and growth franchise resonating.

• Q: Cadence of margin improvement in Stop Loss?

A: Michael Katz said expect landing in the 86% ZIP code with rating increases, confidence in improving underwriting margin to get loss ratios back to target.

• Q: Flow picture for OneAmerica?

A: Rob Grubka talked about OneAmerica's higher than Voya plan retention loss, focus on service delivery and distribution, new relationships to drive top-line sales.