Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Voya Financial Inc (VOYA, Financial) achieved its financial targets for the second quarter and remains on track to meet its full-year EPS target of $8.25 to $8.45.
- The company demonstrated strong excess capital generation and high free cash flow conversion, allowing for an increase in dividends.
- Voya Financial Inc (VOYA) reported robust growth in fee-based revenues in Wealth and Investment Management, offsetting higher loss ratios in Health.
- The company saw positive net inflows of $4.8 billion in Investment Management, driven by strong demand for core fixed income and retail private equity funds.
- Voya Financial Inc (VOYA) continues to expand its reach with customers through Benefitfocus, which has become the largest channel for HSA sales and has shown significant improvement in Net Promoter Scores.
Negative Points
- Higher-than-target aggregate loss ratios in Health, particularly in Stop Loss, have been a headwind, with the total aggregate loss ratio at 72.9%, above the target range of 69% to 72%.
- The company expects higher loss ratios in Health to persist throughout the year, impacting underwriting performance.
- Full Service and recordkeeping net outflows were $597 million and $1 billion, respectively, in the second quarter.
- The transfer of $14 billion in assets under management to Venerable is expected to impact revenues, although it has been factored into current guidance.
- Participant surrenders in Wealth have been elevated, influenced by higher equity markets, which increase the average account values of each participant surrender.
Q & A Highlights
Q: Can you talk about the investment in lead management for Health that was called out, maybe the opportunity set and the path to delivery there?
A: Lead management is an area where we've had a partnership approach to the solution we provide. It's a real pain point for employers due to the high frequency of activity compared to short-term and long-term disability. We are building our own capability to be fully integrated into our platforms, enhancing communication and alignment with employees, managers, and HR teams. This investment is crucial for our workplace strategy and will be transitioned next year, with full implementation the following year.
Q: Can you comment on the pipeline and how you would expect Wealth flows to transpire in the third and fourth quarter?
A: We see strong insight and perspective on upcoming flows, reinforcing our guidance of $1 billion for Full Service and $3 billion for recordkeeping. RFP activity is up 7%, known sales are up 30%, and mid-market sales are 4x higher year-over-year. We expect positive net flows in Full Service for the second half of the year.
Q: Are you expecting a slowdown within net flows in the second half of the year within the 2% full-year Investment Management guide?
A: We are pleased with the $4.8 billion in net inflows for the quarter and $5.3 billion for the year. The 2% growth target is sustainable and reflects the breadth of our institutional and retail channels. We expect continued momentum in institutional fixed income and retail flows, supported by private fund launches in the second half of the year.
Q: What kind of rate increases are you planning on Stop Loss for 2025 renewals, and what would you expect that to do to top line growth?
A: We are targeting a similar overall rate increase as in 2017, which resulted in flat growth in Stop Loss. Given the size of our business, we expect to grow, but at a potentially lower rate than the 7% to 10% overall growth we've been reinforcing. Our priority is to achieve the target loss ratios.
Q: Can you provide more detail on the fee margin in the Health business and the impact of Benefitfocus?
A: The fee margin decline is due to seasonal services provided by Benefitfocus around Affordable Care Act and IRS reporting. Beyond fee revenues, Benefitfocus is a significant driver of HSA sales and sub-Health sales, enhancing participant engagement and driving broader strategic capabilities within Workplace Solutions.
Q: What are the cohorts by year driving the bad performance in medical Stop Loss?
A: The biggest driver of the unexpected performance is the 2023 cohort, which is running at the lower end of the 80% to 83% range. The 2024 cohort is still early, with only 20% of the experience emerged. We expect to see more clarity in the third and fourth quarters.
Q: Can you give us some sense of the fee rate on the $14 billion of venerable AUM expected to leave, and the pace of this transition?
A: The venerable assets are largely passive quant equity-related, with a fee rate meaningfully below our average. We anticipate half of the $14 billion AUM to transition in the second half of this year and the remainder in mid-2025. This transition has been fully embedded in our guidance.
Q: Can you talk about the decision to refinance the $400 million of debt maturing in early 2025 and its impact on earnings?
A: We plan to refinance the full $400 million due to our well-positioned balance sheet and leverage ratio comfortably within the 25% to 30% range. We see no barriers to refinancing and expect it to be beneficial for our 2025 earnings.
Q: Should we expect any tailwinds from the improvement in the Stop Loss business for 2025 EPS growth?
A: Yes, we expect to achieve our target loss ratio range of 77% to 80%, which will be beneficial for our 2025 EPS. Our team has a track record of managing this business and driving growth while maintaining loss ratios within the target range.
Q: Can you provide more color on the composition of the Investment Management inflows this quarter?
A: The $4.8 billion inflows were driven by strong demand for fixed income through insurance and pension channels, privates and alts businesses, and US retail business. We expect continued growth in these areas, supported by new fund launches and strong investment performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
