Voya Financial, Inc.

Good morning and welcome to the Voya Financial first quarter 2022 earnings conference call. All participants will be on a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star two. Participants will be limited to one question and one follow-up. Please note this event is being recorded. I would now like to turn the conference over to Michael Kass, Executive Vice President, Finance, Strategy, and Investor Relations. Thank you. Please go ahead.

Thank you, and good morning. Welcome to Voya Financial's first quarter 2022 earnings conference call. We appreciate all of you who have joined us for this call. As a reminder, material for today's call are available on our website at investors.voya.com or via the webcast. Turning to slide two, some of the comments made during this conference call may contain forward-looking statements within the meaning of federal securities law. I refer you to this slide for more information. We will also be referring today to certain non-GAAP financial measures. Gap reconciliations are available in our press release and financial supplement found on our website, investors.boya.com. Joining me on the call are Rod Martin, our Chairman and Chief Executive Officer, as well as Mike Smith, our Vice Chairman and Chief Financial Officer. After their prepared remarks, we will take your questions. For that Q&A session, we have also invited our Vice Chairman and Chief Growth Officer, Charlie Nelson. as well as the heads of our businesses, specifically Heather LaVallee, Wealth Solutions, Christine Hertzellers, Investment Management, and Rob Grupka, Health Solutions. With that, let's turn to slide three, as I would like to turn the call over to Rod.

Good morning. Let's begin on slide four with some key themes. Overall, we delivered solid results during the first quarter. This included strong adjusted operating EPS, organic growth across our businesses, as well as disciplined and opportunistic capital management. These results were achieved despite the macroeconomic challenges during the quarter. Our performance speaks to strong client demand as well as being proactive in both capital and expense management. As a result, we generated first quarter adjusted operating EPS of $1.47. Excluding notable items, EPS grew 15% year over year. A key driver of our results was the commercial momentum that we demonstrated across our businesses. In wealth solutions, full service recurring deposits for the trailing 12 months grew 11.2% compared with the prior year period. During the first quarter, we generated positive full-service net flows of $446 million. And this reflects the strong organic growth as well as lower participant and plan surrenders. In health solutions, annualized in-force premiums grew 9.7% compared with the prior year period. This was driven by growth across all product lines, including a 22% increase in our voluntary results. In investment management, we generated $1.3 billion of net flows during the first quarter, driven in part by several new private credit mandates. Net flows over the last 12 months were $9.5 billion, which represents organic growth of 4.5%. As we shared at Investor Day, we are generating organic growth the products and solutions that we provide today while also making investments that will enable us to do even more for our customers going forward. For example, in March, we announced the launch of My Health and Wealth. This is a new integrated and holistic benefit selection experience that offers personalized and digital guidance. Specifically, it helps employees optimize their spending, across retirement, health insurance benefits, and emergency savings. This is just one example of how we're taking a customer-centric approach to helping our clients with their health, wealth, and investment needs. In addition to our commercial growth, we are continuing to benefit from our high free cash flow businesses. During the quarter, we deployed more than $700 million of excess capital. Given the decline in the equity markets during the quarter, we opportunistically repurchased $500 million of our shares. The remainder of our capital deployment during the quarter consisted of approximately $200 million of debt extinguishment and $20 million in common stock dividends. As of March 31st, we had approximately $900 million of excess capital. We've also recently received an additional share repurchase authorization of $500 million from our board. Moving forward, we will continue to be disciplined and balanced with the use of our capital, including investing in our businesses to support our growth plans and meet our client needs. Despite Inflationary pressures, equity market volatility, and rising interest rates, Voya remains well positioned. And this is due to the purposeful decisions that we took to de-risk Voya and to create a simpler company. We have a clear strategy, strong businesses with significant scale, and multiple levers to achieve the growth plans that we shared at Investor Day. We will continue to execute as we did in the first quarter, on all components of our plans, net revenue growth, margin expansion, and disciplined capital management. By doing so, we see a path to achieve double-digit adjusted operating EPS growth in 2022. And while macro conditions will affect this result, we will be steadfast in adapting and pivoting. Specifically, we will continue to demonstrate our experience as strong operators and expense managers. As you've seen this management team demonstrate in the past, during challenging market conditions, we will be proactive in controlling what we can control. And we'll continue to balance both short and long-term needs of our stakeholders while positioning WUYA for future long-term success. Turning to slide five, our focus on our values and culture continue to differentiate Voya. Recently, Voya was named as one of the world's most ethical companies for the ninth consecutive year. We were one of only 136 companies to earn this recognition and one of only six companies in the financial services category. And our commitment to sustainability earned Voya Inclusion in S&P's Global Sustainability Yearbook. We also came together in April for Voya's Celebrate Diversity Month. This coincided with our continued partnership with the CEO Action for Diversity and Inclusion focus on a day of understanding the actions of our people and our company reflect the strength of our culture and how that carries through in all that we do. With that, let me ask Mike to provide more details on our performance and results.

Thank you, Rod. We delivered a strong quarter commercially and financially, even with the backdrop of geopolitical conflict, inflation, and rising interest rates. We have demonstrated our ability to manage well through such challenges and have a strong track record of effectively employing the multiple levers we have at our disposal to drive growth. As Rod said, our priorities remain clear and unchanged, growing revenue, maintaining or improving margin, and disciplined capital management. During the quarter, we showed progress on all of these. In particular, we demonstrated our commitment to managing capital effectively and opportunistically by deploying $500 million towards share repurchases, complemented with nearly $200 million of debt extinguishment. Additionally, we have taken actions to manage spend, highlighted by real estate actions enabled by our hybrid approach to the workplace. We will continue to actively manage expenses with an eye to both our top and bottom line. As Rod mentioned, we have demonstrated our experience as strong operators and expense managers. As such, and despite the headwinds from the macro environment, we continue to see a path to achieve double-digit adjusted operating EPS growth in 2022. We will continue to execute on the growth, margin, and capital components of our plans and will balance near-term results with opportunities for longer-term growth across all of our businesses. With that, let's turn to our financial results on slide seven. We reported adjusted operating earnings of $1.47 per share in the first quarter of 2022. This includes three notable items. First, $0.40 of net alternative and prepayment investment income above long-term expectations. Second, $0.24 of COVID impacts. And third, $0.11 of unfavorable DAC unlocking related to the movement in the equity markets during the first quarter. Excluding these items, our adjusted operating earnings per share grew 15% year over year, in line with our target EPS growth range of 12% to 17%. First quarter GAAP net income was $27 million, which included investment losses associated with higher rates and wider spreads, along with impairments primarily related to exposures in Russia. It also includes losses in businesses we have exited that do not impact our capital generation. Moving to slide eight, Wealth Solutions delivered strong earnings and operating margin in the first quarter, despite the macro headwinds. That translated into $205 million of adjusted operating earnings, including $52 million of alternative income above our long-term expectations, and $16 million of unfavorable DAC unlockings. Year-over-year net revenue growth, excluding notable items, was 11.5% on a trailing 12-month basis, reflecting our continued commercial momentum supported by our diversified revenue mix. While we grow revenue, we also continue to be disciplined around spend, as evidenced by our adjusted operating margin of 35.5%. Turning to deposits and flows. Full-service recurring deposits grew by over 11%, driven by higher employer and employee contributions across corporate and tax-exempt markets. In addition to growth in contributions, we continue to grow our participant base, giving us confidence in our 10% to 12% target for 2022. We generated full service net inflows of $446 million for the quarter, within our previously guided range of $300 to $600 million. Looking ahead, we are encouraged by expected full service net flows supported by favorable plan and participant trends and our robust pipeline. This quarter, we also saw a return to positive net flows and stable value with 1.4 billion of net inflows driven by strong sales and participant rebalancing. Record keeping outflows of 893 million were primarily driven by one large case surrender. Despite this, we expect positive flows and net participant growth in recordkeeping for the full year. Our healthy sales pipeline and competitive suite of workplace solutions gives us confidence in our commercial momentum, while our diversified business mix with substantial fee and spread-based revenue continues to help us navigate the macro environment. Turning to slide nine. Health Solutions continued to generate growth in revenue and premiums in the first quarter, driven by ongoing momentum and voluntary. On a trailing 12-month basis, net revenue excluding notables grew 14.1% year-over-year, driven by strong growth and voluntary. The business delivered $22 million of adjusted operating earnings in the first quarter, including $5 million in alternative income above long-term expectations. Our health solutions expenses tracked higher relative to first quarter 2021, primarily driven by business-related growth and the acquisition of benefit strategies. Importantly, we maintained margins within our targeted 27 to 33% range with an adjusted operating margin, excluding notable items, of approximately 31%. In addition, first quarter annualized in-force premiums grew 9.7% year over year. supported by strong voluntary retention. We had previously guided to full-year premium growth being at the lower end of our 7% to 10% target range, as we continue to be disciplined on underwriting to protect margin. However, better than expected voluntary retention has modestly improved our outlook for the year, and we now expect to be closer to the midpoint of the range. This quarter, we experienced higher than expected non-COVID mortality, causing group life loss ratios to be elevated on an ex-COVID basis. Despite the elevated mortality and significant impacts from COVID to our group life block, our total aggregate loss ratio on a trailing 12-month basis was still within our target range at approximately 73%. COVID-related claims were $35 million in the first quarter. in line with our expectation of two to three million dollars per 10 000 incremental deaths elevated group life loss ratios were partially offset by strong performance and stop loss and voluntary as both continue to deliver strong margins our mix of solutions has allowed us to perform well and deliver strong operating results despite adverse covet impacts it is this track record that gives us confidence in our ability to manage their cycles and utilize the levers within our control to maintain margin while we continue to grow revenue. Moving to slide 10, investment management continues to deliver strong revenue growth, reflecting growth in our private and alternative strategies, which will lead to higher margins over time. On an ex-notables basis, trailing 12 months net revenue grew 10.4% year over year, reflecting continued strength in private strategies. Adjusted operating earnings were $39 million. This includes $2 million in net investment capital results above long-term expectations. Adjusted operating margin, excluding notables, was 25.9%, supported by expense management actions that we took to offset impacts from the macro environment. Going forward, we will continue to drive expense efficiencies and prioritize margin expansions. That said, we will balance near-term margin expansion with our commitment to investing in the business for growth, as we have capabilities that are driving profitable new money flow, particularly in the fast-growing alternative space. In the first quarter, we generated net inflows of $1.3 billion, with strong institutional net flows driven by private and alternative fund closings. This contributed to 4.5% organic growth over the past 12 months. We are encouraged by the strength of our robust unfunded pipeline with the majority of flows consisting of higher yielding private and alternative strategies. We remain confident in achieving two to 4% organic growth in 2022. Investment performance remains strong across a broad array of fixed income strategies with 95% of our fixed income funds outperforming on a five and 10 year basis. The modest decline in performance on a three-year basis was driven by a multi-sector strategy that modestly trails peer median. Of note, this strategy continues to outperform the respective benchmark in this competitive asset class. Looking ahead, we remain confident in our ability to manage expenses and expand margin supported by continued revenue growth across our diversified business mix. Turning to slide 11. As capital management remains a key lever of EPS growth, we leverage market conditions and our strong excess capital position to deploy $713 million in the first quarter. We have deployed $2 billion over the past 12 months, reflecting our commitment to driving shareholder value and achieving our targets. In the quarter, we deployed $500 million of excess capital towards share repurchases. This includes a $275 million ASR we entered in mid-March. The Board also provided authorization for an additional $500 million of share repurchase, increasing our total existing share repurchase authorization to $521 million. Beyond share repurchases, first quarter capital deployment also included $192 million for debt extinguishment and $21 million for common dividends. Additionally, we deployed approximately $35 million of capital in investment management, largely to help further our growth plans within the private and alternative space. We expect to deploy approximately $60 million of additional capital for investment management over the remainder of 2022. Our investment capital assumes a 9% long-term rate of return. Debt extinguishment was approximately 40% of share repurchase activity in the quarters. we will continue to balance debt extinguishment with share repurchase activity to achieve acceptable levels of financial leverage considering the current rate environment. We ended the quarter with $900 million in excess capital, reflecting our strong starting position and the strong free cash flow conversion driven by our diverse business mix. In summary, We delivered another strong quarter of EPS expansion, and we have multiple levers within our control to continue that growth, supported by our history of being effective operators. Our workplace and institutional businesses continue to perform well in challenging times, and we expect to see further positive commercial momentum through 2022. We have a strong excess capital position and will continue to deploy that capital in the best interests of shareholders. With that, I'll turn the call back to the operator so that we can take your questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star 2. As a reminder, participants are limited to one question and one follow-up. Our first question today is coming from Eric Bass of Autonomous Research. Please go ahead.

Hi, thank you. In wealth solutions, can you talk about the outlook for spread given the rise in interest rates year-to-date? If rates remain here, are we at a point where new money yields are above roll-off rates and spread compression would either start to abate or potentially even reverse?

Eric, good morning. It's Rod. Heather, why don't you jump in?

Thank you, Rod, and thank you for the question. So, you know, as we think about our interest spread and our spread-based revenues, I'll first kind of point to the diversification of our business, which allows us to kind of balance the macro environment questions, the macro environment situation. But, you know, to get specific to your question, within the quarter, we did see lower credited interest. We had, you know, two fewer days in the quarter, and we also saw higher transfers from variable to fixed. We do think that for the full year that we're going to see some nice tailwinds within our spread income, but we're going to continue to be very balanced in how we're managing our investment income portfolio as well as the crediting rates that we're offering in the marketplace. So long and short, to answer your question, I think that this is something that spread income is – we're seeing an improvement. We're seeing a tightening between – portfolio yields and new money rates. And I think that it's going to create a tailwind for 2022.

Thank you. And then if I could move to investment management, can you give us a sense of how much higher expenses were in the first quarter than you would expect going forward that it gets to seasonally higher costs? And then it sounds like you are still confident that even with the market headwinds year to date, that you'll be able to improve margins in 2022. Did I hear that right?

Mike, do you want to start?

Yeah, sure. And let's talk about the expenses first. You know, we first quarter of a range of $25 to $30 million. I think, again, in terms of margins, I feel good about the margins that we have in health and wealth and feel like there is over time there will be a little And then on the investment management, you know, certainly there are headwinds coming from the impacts of the markets on both the equity and fixed income side, but still feel like there is ample opportunity for us over the three-year period to get to our target of 29%.

Thank you. The next question is coming from Elise Greenspan of Wells Fargo. Please go ahead.

Thanks. Good morning. My first question is just, I guess, on the cadence and pace of buybacks. I think you guys mentioned you took advantage of just where your stock was trading and pulled forward some buyback expected later in the year to Q1. So can you just give us a sense of how we should think about the cadence of potential repurchase activity over the balance of the year?

Mike?

Thank you, Elise, for the question. I think what we did this quarter was entirely consistent with the philosophy that we've operated with for years now, consistent with what we've signaled, which is we'll be consistent buyers of the shares so long as we're in an excess capital position and where it makes sense to do so. We'll look for opportunities to lean in where market conditions create those kind of opportunities. We believed we saw that in the first quarter, and so we did so. We also, you know, and we signaled that we had repurchased 200 million of, or extinguished, I should say, 200 million of debt, and that's to manage the leverage ratio. As we go forward, we'll continue to manage all of those things. We'll look for opportunities to continue to buy back shares. We'll manage our leverage ratio's alongside that, and we'll be paying attention to the macro conditions. But this is all done with a larger framework of ensuring that we're doing all we can to help achieve the EPS targets that we've set. So all of that comes into play as we're making those choices. I would point out that the ASR that we entered in mid-March will not end until mid-June, and so we'll assess at that time what the opportunities are, but that's a relatively narrow window for us to engage in the second quarter. But, you know, the philosophy we've used consistently over the last several years and including the last 12 months where we repurchased $2 billion, we put $2 billion of capital to work, that continues to be in place.

Okay, thanks. And then my follow-up is within group. The life-loss ratio, excluding COVID, was elevated in the quarter. I think you guys called out some elevated non-COVID mortality. Can you give us a sense of how large that was in the quarter? And then how should we think about that non-COVID mortality piece trending from here? Rob?

Yeah, great. Thanks, Elise. Yes, as Mike said, you know, we called out the 35 million of COVID and then that certainly still left us some gap to explain as you're asking for. And I'd really break it down into a couple pieces. One, we talked historically about seasonality in the first quarter of, you know, life mortality just tends to be a bit hotter, and that's not unusual. What was a little bit different, and I'll size it for you from a reporting perspective, we did see some time lag. in deaths that were, you know, occurred in fourth quarter, but we don't get all the paperwork until first quarter, that expanded a little bit more than we would normally expect it to be. But when you bring excuse me, the lag and seasonality together, you know, you're talking about roughly 18 million of impact in the quarter. As I think about it, I kind of split it 50-50 of lag and seasonality. As we think about the go forward view, you know, this is really the first quarter where Non-COVID mortality is sort of reared up certainly to this extent. So we felt, you know, up to this point, the last couple of years, we were actually running a bit better than you would have expected on the mortality side, again, with COVID set aside. So as we think about it, you know, this is one quarter different than the last couple of years. We'll just continue to monitor it, I would say, in the data and what we saw and There was nothing that was jumping out and causing sort of a new level of concern or different point of view as we move forward. We'll just continue to monitor it. And I think importantly, you know, as our results have held up, Through COVID into this point in time, the diversity of our block of business and the different places that we play in tend to work in different ways that help us from a diversity standpoint. And we still feel really good about the long-term view around margin and growth in the business.

Thank you. The next question is coming from Jimmy Buehler of JP Morgan. Please go ahead.

Hi, good morning. I think, Mike Smith, your voice is going in and out, so it might be an issue with your mic on your end. I just thought I'd point that out. But in terms of my question, obviously, with the rates going up, that's a positive for the business overall. But how do you think about the impact of interest rates going up on fixed income assets on the asset management side and with the decline in assets? how much of an impact do you expect on the fee income in the near term in that business? Mike?

Sure. Jimmy, thanks for letting us know about the microphone situation. I hope this is better. So the way to think about fee income impact for the movements to date is in the neighborhood of 5 to 10 pre-tax per year. Obviously, we'll have to see where rates settle. The market has priced in, I think, some substantial Fed increases. I think those are likely to occur, but where we go from here, we'll have to wait and see. It's worth noting, as you're thinking about the quarter, that this was a pretty extraordinary set of circumstances in the marketplace. You'd have to go back to when I was in high school, 1980 quarter where interest rates moved this much. I think that's created a degree of change that we've managed to quite effectively. But I think as you try to put the quarter into perspective, it's important to keep in mind how sudden and significant those movements were.

Okay. And this is still the same issue with the sound, but we can make out what you're saying. It's fading a lot, but either way. The other question that I had was on your views on alternative investment income. And obviously, it was good this quarter. I think that's mostly because of the lag effect of the market. But how do you think about alt investment income in the near term? And is looking at the equity market a good indicator of how it'll be for the next couple of quarters?

Jimmy, thanks again for the question. And I've moved to new mics, so we're dusting off the conference room here in New York. Great. And it worked fine in Soundcheck, I promise. So in terms of, you know, hard to say ultimately where alternatives are going to come out, there is a degree of correlation between the performance of our portfolio, which is a mix of limited partnerships and private equity, real estate, and so on, But it's not perfect correlation, right? And so, you know, if I were to venture a range that we were kind of thinking about here would be plus or minus 3% centered on zero. You know, that's what we've got in our heads for the quarterly return, right? And that would annualize to minus 12 to plus 12, right? So we don't, though, expect a significant decline at this point, but we don't have really any information from, the underlying funds to be able to point to to substantiate that. That's based on historical inference is probably the way to think about that.

The next question is coming from Alex Scott of Goldman Sachs.

Please go ahead. Hi. I had a follow-up just on the impact of higher interest rates on net investment income. Anyway, you could provide a little more detail just on the amount of floating rate assets you have. I think there was also a portfolio that when rates were going down, I think got hurt. Maybe it was mortgage securitizations and so forth that I think had some impact in the past. I mean, do you still have balances that are going to benefit more directly from short-term rates going up?

Thanks, Alex. I think that, you know, the guidance that we've given in terms of the impact of changes in rates, you know, it largely still holds. I think the, you know, current thinking is that for another 100 basis point increase, you know, it's still a 20 to 30 million benefit, more likely to be toward the lower end of that range, I think, as we've assessed the impact on fixed income assets, and still a decrease of 100 basis points is in the 10 to 20 range. In terms of floating assets, maybe the one thing to point out is some of the sensitivity is gone because of the sale of our financial planning channel, which did have some direct relationship in the sweep account mechanics that went on there. But the floating rate assets are not a substantial portion of the impact, but whatever we do have is baked into those sensitivities.

Got it. Thank you. And follow up on investment management. Can you talk about rising rates and if that has any impact one way or the other on just the pipeline for net flows? I mean, I heard that you reiterated your organic growth guide so it sounds like all that's still intact but i'm just interested if rates is a headwind and if it is you know what are what are some of the things in in privates and alts that you're doing that are that are sort of offsetting that christine sure thanks thanks alex yeah it's as far as raising rising rates and impact on on forward momentum you know

As Mike alluded to in his opening comments, you know, the pipeline continues to be very strong, and we reaffirm our 2% to 4% organic growth range, you know, for this year. So, you know, why is it so strong, and how could rates possibly affect it? You know, a lot of the interest really is in private markets. So when you think about just, you know, private markets being – really unique sourcing for clients that they can't get access to, as well as they tend to provide higher spread and returns to public markets. And so really just the increased interest actually in that no dissipation, as well as we have strategies, particularly commercial real estate, that are LIBOR-based or floating, as well as absolute return strategies. So overall, you know, we're not seeing an impact in terms of rates. You know, where I would say it has impacted, you know, is a little bit on the retail flow side. When you think about retail fixed income assets and just, as Mike said, just a really outsized percentage decline of fixed income assets overall in the market. So see an impact there. But overall, and one other thing I would point out, Alex, that's interesting, is with the sell-off in rates, we actually are starting to see a pickup in some of the U.S. credit strategies, you know, offshore, namely out of Europe. So it continues to be more attractive. So overall, see diverse pipeline, going to hit our organic growth targets. Continuing, just one other thing, too. Going back a little bit to Eric's question earlier on, very focused on profitable growth, driven by organic strength, as well as expense discipline. Granted, first quarter, we do see seasonality and comp and other things typically always comes in a little hot, but that's absolutely a lever that we pull. As you would expect with the macro environment, we're continuing to be disciplined and pulling back on some of our expense, you know, that we were going to do, but being very mindful, again, of this organic growth. You know, we're a strategic asset manager, investing in the business, launching funds. So overall, very confident we're managing through the volatility and driving towards our 29% margin target and continuing to be very focused on improving the profitability of the business.

Thank you. The next question is coming from John Barnage of Piper Sandler. Please go ahead.

Thank you very much. My question, you called out peripheral Eastern European countries. That was 53 million in 1Q22 in the presentation. Could you let us know, what was that balance at 4Q21, please? Okay.

John, it really isn't any different in 4Q21. That is primarily, you know, exposures in Turkey and Kazakhstan. And it's worth pointing out that, you know, the marks that we're seeing today on those assets are basically right on top of books. So we're not seeing any deterioration in that part of the portfolio, nor do I expect there to be. But, you know, obviously time will tell. Events are unfolding rapidly and potentially unpredictably. And so we're monitoring carefully.

Thank you very much. And then my follow-up question, clearly a good guy with the health solutions business now at the midpoint of that 7% to 10% versus the low end previously. Can you maybe talk about that better than expected retention? No renewal season is important for that. Thanks. You bet. Rob?

Yeah, sure. Thanks, John. Yeah. So, you know, what we talked about it that, you know, with the the fork you call was really based on and driven by what we were seeing within the stop loss businesses, as you said, and Mike said, voluntary ended up doing a bit better than expected. And so there's a couple elements to that. Just, you know, obviously we've been going through like all workplace benefit companies are doing, you know, a lot of remote enrollment activity going on. And, you know, you always sort of hope for the best, but fear for the worst. And we ended up seeing that come in better. So I think from a just enrollment participation perspective, there was a benefit there. And then certainly from group decisions that were made by the employer and broker consultants involved in those decisions, we just saw better retention at the group level, at the case level, than we would have anticipated. I think that's driven by just excellent service experience that we're providing. That's a a business where there's still a lot of variability in what good looks like from us or competitors. And so I think we've been winning more of those games than losing and feel really good about just the quality of the portfolio that we've built, obviously, dramatically over the last handful of years with Plus 20% growth, you know, given where we're at and the size of that business now, it's certainly something I'm proud of and the work that the team's done around it. But, you know, we've got to keep working at it and keep getting better at it as we move forward. We love the diversification within our book of business, as we alluded to on stop loss. you know, a little bit tighter environment, but we're going to make good balanced pricing decisions around that business. And, and knowing, you know, in a year and 12 months, we're going to, we're going to get another shot at continuing to grow the business a little bit faster, but we want to be again, disciplined on the price. So we feel good about the overall net story within the book growing at the rate we're growing at close to 10%, not an easy thing to do, especially in this sort of COVID environment that what we've been going, going through.

Okay, thank you. Can you hear me? Really, Andrew? Yes. Okay, great. Okay, because the operator was stating. So, back on the excess capital question, you're sitting on $0.9 billion. You certainly had a very robust capital management, and I I guess the question is, does that signal that M&A has decreased as a priority? And secondly, along those lines, sitting on $0.9 billion of excess capital, is that something you want to get down to zero? And over what frame?

Andrew, I'll begin. Mike and I, as usual, will toggle back and forth. I think the key theme I'd like to leave you and the listeners with is, Our North Star is and has been EPS growth, and we've talked about that organically. We've talked about that in expanding our product solutions, and we've talked about that in consideration of adding capabilities or data or expanding international distribution or potentially scale plays. The driving factor in all of that decisioning is the North Star of EPS growth. And I think the quarter represents a really good example, as you just pointed out, in our deploying that capital and using the levers to accomplish what we said we were going to accomplish at Investor Day. But with that, Mike, I'll let you add.

Yeah, the only thing I'd add, Rod, is just look, we view the excess capital as excess and it is available to be deployed. I think as a practical matter, you know, the timing is such that, you know, will we ever get to zero? It'll depend on how macro events unfold. It'll depend on how the credit performance, credit performance, underlying portfolios and so on. But we've operated with, you know, a balance, you know, I think throughout my tenure as CFO, that's ranged from the low hundreds to one and a half billion, right? And so, I think we do view all of that as excess. We're often asked, is there a cushion you're targeting? And the answer is no. We view it as available to be deployed, and in the right situations, we will do so.

And Andrew, to underscore that, as Mike talked about a moment ago, we deployed $2 billion of capital over the last 12 months and generated organically a billion of capital in 2021. So I think it's a really good example of what we're saying and, frankly, the essence of your question.

And just a quick follow-on to that part. Are you seeing M&A opportunities that could be EPS-accretive out there? Is there much out there that you're seeing?

Andrew, we're not going to speculate on – we've talked about what we might consider, but certainly aren't going to speculate on a given property or discussion – other than to say we are 100% focused on growing our EPS as our North Star.

Thank you. The next question is coming from Tom Gallagher of Evercore. Please go ahead.

Good morning. First question is, Mike, you had mentioned you deployed $135 million of capital into the investment management business this quarter. and you expect to do another $60 million for the balance of the year. Can you just specifically talk about what that's being invested in? And is that seed capital fund launches or something else?

Tom, thanks for the question. And I'll start, but then I'll hand it to Christine, who can really give a lot more color about what it is we're specifically focused on. But It was 35 million of seed capital in the quarter. You may have misspoke. I think you said 135. And then for the balance of the year, we expect to get to about 100 in total, inclusive of the 35. So that is indeed seed capital. It is capital that we will ultimately earn a return from, and we expect that to be an attractive return, just as we expect our customers to reap an attractive return And it reflects just the opportunities that we see for growth and some of the new capabilities that we're anxious to bring to the market. And I think Christine can take it from there. So, Christine?

Yeah, thanks, Mike. Yeah, so just to provide a little bit more color, what we're about, you know, certainly going back to our privates and differentiated strategies, you know, we continue to see very strong demand to expand our perimeter, so to speak, and some of the products and the vehicles we offer. So, specifically... We are in the process of working on a commercial real estate debt fund that is focused on impact investing. So think ESG meets commercial real estate. And so just very compelling strategy appeals to many clients, including our robust insurance clients. So that's one example. Another, we are also in the process of launching a middle market opportunistic credit funds, again, expanding our perimeter here in what we do. And so overall, you know, why it's so important, you know, our clients also love the fact, you often hear us say, you know, we eat our own cooking. Just our alignment with client interests, with our own capital, it's just such an important part of the trust, you know, that we have built with our client base. And so, again, you know, we're really excited about the opportunities to continue to deploy capital and grow the franchise.

That's helpful. Thanks. And my follow-up is, can you talk about some of these below-the-line charges that were taken this quarter? I presume some of them were impairing your Russian or Ukraine investments, maybe, if you could quantify that. And also, if the markets remain under some pressure here, would you still expect some level of losses to be taken, or would you expect those to to be much lower and for you to get closer to the 90% free cash flow conversion?

Sure, happy to do so. And maybe I'll frame it, just if we look at the three adjustments that we highlighted to operating income to get to net, right? And I'll frame that both in a kind of like what's in there from a gap standpoint, as well as which things are affecting our statutory or capital position, right? So First, if you start with the net investment gains, you're right, there is an impairment in there related to several underlying Russian-related assets. There's also another private credit, just kind of normal course, nothing extraordinary about that. It's very much a singular event. It's not a representative of any other broader trend. That's a little bit less than half of that $69 million. The balance is related to trading activity. on various hedging and also just underlying trading activity period. Those are all from a capital standpoint that the trading related stuff doesn't have a capital impact because of the IMR effect, right? So a little bit less than half of that 69 affected capital. The businesses exited line is primarily adjustments related to their non-cash, non-capital related, almost exclusively. There is a small tail legal reserve being put up related to the financial planning channel, but that's like mid-single digits. The balance of that is non-cash, and it is all related to gap accounting on the exited blocks, full stop. And then the other, think of that as two components. There was some, and again, given the extraordinary movement in interest rates, there was about half of that number was related to a stable value hedge, That hedge is not designed to be perfect. It's designed to work reasonably well through most economic scenarios. I would say even so, the number here is not particularly consequential one way or the other. And there have been gains in the past and there will be in the future. And then there was also some restructuring costs, which is something that will ultimately go away, but was particularly just a tiny bit heavy in the quarter. So in terms of going forward, the way to think about this Tom, is in most quarters, you know, the range of 90 to 100 percent should absorb most of that noise, if not all of it. There will be quarters where we, you know, where in this case, for example, where a lot of adjustments went the same way and they happened to go negative, there will be other quarters where the adjustments could go positive. And so in those quarters, we might be a somewhat above or below the range that we've specified. But over the long term, we do expect to be in the 90% to 100%. But in any given quarter, there could be noise. And again, just to harken back to the extraordinary changes that we saw this quarter, it's not surprising that there's a little bit of excess noise. And given the direction of rate changes, it's not surprising that it was negative.

Thank you. The next question comes from Nigel Daly of Morgan Stanley. Please go ahead.

Great. Thanks. Good morning. So I had a question on your longer-term EPS growth goals. Back at Invest Today, you laid out goals to grow the EPS in the range of 12% to 17%. Clearly, since then, equity markets are a lot more challenging. So it would be interesting to hear your views as to whether those goals are still achievable. Heard your comment that you're still targeting double-digit growth this year. So does that mean double-digit this year followed by 12% to 17% thereafter? Just wanted some clarity there.

Good morning, Nigel. Rod, I'll start and Mike will jump in. And as you just pointed out, given the significant market movement, 12 plus percent will be difficult. That said, we are in fact underscoring with some confidence double digit growth this year. And I'd remind all of our listeners that we The three-year plan is three years. It's not quarter to quarter. It's over the three-year period of time. But we want to be specific and are. We do see a path to double-digit growth based on the markets that we see today. And we feel very good about the commercial momentum that we've got across our businesses. But with that, Mike?

Yeah, just to reemphasize, certainly no change in our view for the long term. I feel very good about our commercial prospects and how that will translate into EPS growth. And I don't reiterate the multiple levers and our willingness to pull them as demonstrated by the first quarter. So just maybe to give a little more color to the way we're thinking about this, the headwinds from equity markets as we stand right now. Obviously, the path that we follow will be pretty important. But the headwinds from where markets stood at the end of April is in the high single-digit percentages. And so that is eroding our ability to get into the range. We are taking actions that will offset much of that, but it's not going to be able to offset all of it. We'll also get a little benefit. Think of this as low single digits from interest rates. And so that's how we get to the double digits. I think if we get a little bit of help from the equity markets over the balance of the year, 12 plus is still on the table, but we're going to need a little bit of help. I think it's going to be difficult otherwise.

That's very helpful. Thank you.

Thank you. The next question is coming from Josh Shanker of Bank of America. Please go ahead.

Yeah, thank you. As we emerge from COVID, obviously sales are doing really nicely in the health business. I'm wondering if there's some strategies that you're using that you're getting engagement with your counterparts who are buying products from you. Also, when I look at the stop-loss growth and the voluntary and general group products, They're both growing, and I think that's a different conversation with a different part of the corporate structure when you're trying to sell those products. How are you doing so well, and I guess who are you taking share from?

We asked Rob to start, but Charlie, I'd like you to jump in on the heels of that also, please. Rob?

Yeah, sure. Thanks, Josh. Yeah, look, as you point out, we've kind of been firing on all cylinders from a growth perspective across what arguably is a pretty focused set of products and solutions relative to the peers. What I would tell you is we sort of daisy chain activity really, really well. And so when you think about the sales cycle for stop loss being back end loaded, but turning into the conversations that become focused in our market, middle and upper part of the marketplace, national account season, you know, across the life, disability, leave management space as well as supplemental health. And so there's just a nice cadence to what we're doing, and we're building deep relationships because, you know, for the most part, those conversations, while there may be different parties involved, there's a consistency within the benefit team and department on, you know, who we're engaging with and the account management side of it. As we get into a group, even with stop loss, after a couple years, close to 20%, 30%, we're able to penetrate and get other products in place. And then with the life, disability, leave management business, more often than not, you're selling that as a package. And then as we've grown our capabilities in supplemental health and driven scale and credibility in markets, You know, it's not unusual for us to get all those things going and it doesn't all happen at the same time. But again, we sort of daisy chain our way into just broadening out the relationships and, you know, feel really good about the momentum we've created. But again, it comes back to, as I alluded to before, like, how are we executing once we're in? It's one thing to win the business. It's another thing to earn credibility and then grow the business from there. which gives us a ton of confidence, and I'll create the handoff here for Charlie, about not just within the health business, but also how do we leverage and bring together the health account solutions conversation with the wealth conversation and the retirement business. I think those things were set up really, really nicely because we just execute well once we're in. But Charlie, I'll let you add on.

Yeah, thanks, Rob. You know, it's a great question because You know, certainly kind of, you know, if you take the end of the first quarter, 331, and went back for the last two years, you know, we've kind of been in that COVID environment. And you kind of say, geez, you know, we've got tremendous momentum. During that COVID last two years, We put on over $60 billion in business from sales in our retirement or in our wealth business, employee benefits. And think about that, that most of those sales were really done without meeting a client in person, shaking a hand, letting them kick the tires, so to speak. It's been done virtually. But, you know, why is that important? I think that's important to keep in context because it tells you how strong our brand is. how strong our solutions are resonating in the market, our distribution partnerships and footprint, how wide and vast that is, and even equally importantly, how strong our team is and how they've worked through this. Our voice is different in the market, just as Rob had articulated there. We've got really a focus at kind of more holistic solutions. And certainly the labor market is a challenge and inflation is a challenge for employers. So, you know, we see them increasingly looking for things that we have. Employers want to get more out of their health and wealth benefits. They want to manage their benefit costs, you know, in a more holistic way and an ability to be able to attract and retain talent. So with that, that really pivots us, I think, to be really well positioned and where our focus is in the growth office with our sales and service teams for health and wealth to focus on the growth and the sales momentum that we have And that's really buoyed not just by the retention that you saw on voluntary, but we've had strong retention in our retirement as well. And that's been great. Second, it's really been on profitable revenue growth in our businesses, both in health and wealth and in investments and the things that we've got there. And I think that buoys itself and reflects in our strong margin and gives us confidence of where we think we're going to end up the year from a margin perspective by the solution mixes that are being driven So by our approach. And that value proposition I would just wrap with saying is, you know, it really is resonating in the market. I think intermediaries and plan sponsors are increasingly seeing that BOYA helps you realize greater value and improve financial outcomes by helping get employers' workplace savings and benefits in sync. And we just see that continuing to resonate and being a different voice in the markets.

Well, I'll let you go, given that it's up at the hour. I'll ask some more questions offline on this, but I appreciate all the answers. Thank you.

Thank you. With this time, I'd like to turn the floor back over to Rod Martin for closing comments.

Thank you. Our success continues to reflect the purposeful decisions that we've made as a company, as well as the commitment and dedication of our people. Despite the macro challenges, both in the U.S. and globally, Voya has a clear strategy, high free cash flow businesses, and multiple levers to achieve our growth plans. This, in turn, will enable us to deliver greater value for all of our stakeholders. We look forward to updating you on our progress. Thank you, and good day.

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