Voya Financial, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Business Model Strength: The business model proved strong in the first half of the year, with retirement and investment management delivering attractive returns, and Employee Benefits making progress on margin improvement. Voya operates from a position of strength with solid capital and liquidity.
• Key Milestones: Surpassed $1 trillion in total assets across Retirement and Investment Management businesses, and approached nearly 10 million participant accounts in retirement. Q2 generated $12 billion in total defined contribution net flows and $2 billion in net flows for Investment Management.
• Strategic Partnerships: Partnered with Blue Owl Capital for private market access, expanding retirement offerings. OneAmerica integration is on track to achieve full-year $75 million operating earnings target, and a new selling agreement with Edward Jones was announced.
• Employee Benefits Progress: In-sourcing lead management expanded capabilities to solve employer issues, with favorable claims experience in Group Life and voluntary, and focus on underwriting discipline to improve margins.

Segment Performance

• Retirement: Second quarter adjusted operating earnings were $235 million, with over $860 million in the last 12 months, a 10% increase year-over-year. Generated approximately $12 billion in total defined contribution net inflows in Q2. Year-to-date, overall assets increased by over $100 billion, including $40 billion in organic flows and $60 billion from OneAmerica integration. Revenue contribution from Retirement is significant due to its strong performance in net flows and asset growth.
• Investment Management: Adjusted operating earnings were $51 million in Q2, with $214 million over the last 12 months, a 2% increase year-over-year. Q2 net inflows were approximately $2 billion, contributing to year-to-date net flows of nearly $10 billion. Strong demand for public and private fixed income solutions drives its performance, with a notable revenue contribution from organic growth across institutional and retail channels.
• Employee Benefits: Adjusted operating earnings were $69 million in Q2, up 15% over the prior year quarter. The expected loss ratio for the January 2024 cohort was lowered to 91% due to claims experience, and the January 2025 stop-loss cohort held reserves at an 87% loss ratio. Favorable claims experience in Group Life and voluntary contributed to improved loss ratios, with a significant revenue contribution from margin improvement efforts.

Guidance

• Capital Generation: Generated approximately $400 million year-to-date above the 90% target, on pace to achieve over $700 million of excess capital for the full year. Resumed share repurchases targeting $200 million in the second half of 2025.
• OneAmerica Integration: On track to meet the full-year $75 million operating earnings target and deepening relationships with new customers.
• Employee Benefits Margin Focus: Continued discipline in underwriting and risk selection to improve margins, with attention to medical cost trends and claims experience for stop-loss business.

Risks

• Health Care Industry Uncertainty: Uncertainty in medical cost trends and claims experience poses challenges for the stop-loss business, with ongoing volatility in the health care arena.
• Regulatory and Market Volatility: Impact on investment products and pricing, particularly in private market access and retirement offerings, with regulatory developments and market volatility affecting product performance.

Question and Answer

• Q: On stop-loss business, color on why loss ratio was reduced for January 2024 cohort?

A: Michael Robert Katz stated it was due to claims experience in the quarter, reducing the IBNR from 93% to 91%.

• Q: On capital return and OneAmerica earnout, impact on 2026?

A: Michael Robert Katz said Voya is on track with the OneAmerica deal, 2025 is a balanced capital deployment example, and 2026 will have a balanced approach with higher cash flow generation.

• Q: On Blue Owl partnership and opportunity for retirement?

A: Jay Stuart Kaduson and Matthew Toms mentioned the partnership expands access to private investments, with development of CITs for adviser managed accounts and target date funds, focusing on risk-adjusted returns.

• Q: On voluntary benefits loss ratio and premium decline?

A: Michael Robert Katz said favorable claims experience in Q2, with top line trending well for 2025, and Jay Stuart Kaduson explained bundling leave solutions helps access more RFPs and drive member engagement.