Voya Financial, Inc.

Good morning. Welcome to Voya Financial's fourth quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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 are 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 Mei-Ni Chu, Head of Investorations. Please go ahead.

Good morning, and thank you for joining us this morning for Voya Financial's fourth quarter 2024 earnings conference call. As a reminder, materials for today's call are available on our website at investors.voya.com. We will begin with prepared remarks by Heather Lavallee, our Chief Executive Officer, and Mike Katz, our Chief Financial Officer. Following their remarks, we will take your questions. I am also joined on this call by Don Templin, former Chief Financial Officer and Strategic Advisor to Voya, and the heads of our businesses, specifically Jay Katuson, CEO of Workplace Solutions, and Matt Toms, CEO of Investment Management. Turning to our earnings presentation materials that are available on our website. On slide two, some of the comments during today's discussion may contain forward-looking statements and refer to certain non-GAAP financial measures within the meaning of federal securities law. GAAP reconciliations are available in our press release and financial supplement found on our investor relations website. And now, I will turn the call over to Heather.

Thank you, Minnie. Good morning and thank you for joining us today. Before we turn to our key themes, I'm happy to welcome Jay Katieson as our new CEO of Workplace Solutions. Jay brings deep industry experience and a track record of driving growth and innovation. He's been a valued partner to Voya for many years and will be a tremendous asset in helping us grow our health and wealth businesses from our already strong foundation while advancing our workplace strategy. I also want to take a moment to welcome Mike Katz in his new role as Chief Financial Officer and recognize Don Templin's significant contributions over the past two years. We are thankful for Don's guidance and insight. Now let's turn to our key themes on slide four. In 2024, we delivered strong earnings and growth in wealth solutions and investment management and an outcome in health solutions consistent with the update we provided in December. We maintained our focus on careful stewardship of capital, remained disciplined on expenses, and continued to execute on our strategy, including through accretive investments in our future growth. In health solutions, our stop loss results for the fourth quarter is in line with the expectations we shared in our December announcement. We have taken corrective actions within our stop loss business, including meaningful rate increases and strengthened underwriting risk selection and we expect a material improved net underwriting result in 2025. We're confident that our reserves will adequately cover future claims based on our January experience. In wealth solutions and investment management, we delivered strong revenue growth, margin expansion, and commercial momentum in the fourth quarter and full year 2024. Earnings for wealth solutions were up 30% year over year, with revenue growth and adjusted operating margin exceeding our 2024 full-year targets. Wealth Solutions generated $2 billion of defined contribution net flows in 2024, demonstrating continued commercial momentum. FOIA Investment Management's diversified and globally distributed investment strategies delivered strong results in 2024. Earnings were up 20% year over year, and we achieved an organic growth rate above 4% for the year, comfortably beating our target. With four consecutive quarters of positive net flows, 2024 also stands as Voya Investment Management's best year in terms of net flows. With respect to capital management, we delivered on our plan to return $800 million of excess capital to shareholders in 2024 through share repurchase and dividends, We will maintain a strategic approach to capital management and expect to significantly increase our excess capital generation in both 2025 and 2026. We closed the One America transaction on January 2nd and are making good progress on the integration. This strategic move adds $60 billion in assets in a creative scale to our full-service business, along with nearly $4 billion of spread-based assets under management, Share buybacks will be weighted towards the second half of the year, but we continue to invest in growth initiatives that create long-term shareholder value. Turning to slide five, our top priority in the near term continues to be significant improvement in our stop-loss margins. Margin improvement will be driven in part by increased pricing and improved risk selection actions we've already taken on our January 2025 block. These actions will also be applied to the upcoming non-January renewal season. Second, we are focused on the successful integration of One America. We have received very positive feedback from customers and advisors since we announced this transaction. Our focus is now on ensuring a smooth transition, managing customer retention, and continuing to successfully onboard One America's talented team We're excited about the growth opportunities available through new distribution partnerships and a broader set of capabilities. And we continue to expect $200 million in revenue and $75 million in incremental operating earnings from One America in 2025. Third, we're focused on driving continued commercial momentum across all our core businesses. Our ability to generate and deploy excess capital in 2025 will be driven by our targeted investments in growth and proven ability to leverage our competitive advantages across all three of our businesses. Turning to slide six. For the past two years, I have been talking about our opportunity to drive profitable growth across our core businesses through investments that expand our revenues and earnings and create long-term shareholder value. We expect capital usage during the first half of this year to be focused on prudent investments that enhance our offerings for our customers of growing revenues and earnings. Our largest investment will be in health solutions focused on enhancing our capabilities in leave management and disability administration. As leave administration has become more complex, excellence in leave management has become a key differentiator and an important driver in purchasing decisions for group life, disability and supplemental products. Today, employers are interested in bundling solutions from a single vendor. Currently, 72% of our leave management customers also purchase supplemental health from Boya, up from approximately 20% in 2019. We expect our strategic investments in health solutions, primarily leave management, will significantly increase our competitiveness in bundled health solutions Improved win rates and client retention will reinforce our top three position in the supplemental health market. In a few moments, Mike will discuss our broader approach to capital allocation in 2025. Let's turn to slide seven for an overview on the Sconset Re investment. In December, we closed on our anchor equity investment in Sconset Re, a Bermuda sidecar form to reinsure annuities issued by Allianz Life. Our stake in Sconset RE will yield an attractive investment return for Voya. It also provides several other valuable strategic benefits. It allows us to participate in the substantial growth of the annuities market while providing Voya investment management with a prominent asset management role in a rapidly growing segment of the insurance industry. Sconset strengthens Voya's industry-leading position in the insurance asset management market highlighting our proven track record in private fixed income. It also deepens our important strategic relationship with Allianz, providing another scalable avenue for growth within this partnership. These strategic investments represent financially attractive opportunities to execute on our strategy and grow our business over the long term. With that, Mike will now provide more details on our performance and results. Mike?

Thank you, Heather. Before turning to our results, I would also like to thank Don Templin for his strong leadership and the impact he has made at Voya. As our next CFO, I look forward to building upon his success. Now, let's turn to our financial results on slide nine. We reported $1.40 of adjusted operating earnings per share in the fourth quarter. This contributed to the $7.25 delivered for the full year. Our full-year results include alternative and prepayment income that were 53 cents below our long-term expectations. Alternative income returns were approximately 7%, improving both sequentially and year-over-year. Prepayment income remains below long-term expectations due to the higher interest rate environment. We expect lower prepayment income to persist in 2025 and have updated our guidance accordingly. Our results were impacted by higher loss ratios and health solutions, which offset the strong results in wealth solutions and investment management throughout 2024. Both these segments exceeded net revenue and margin targets, driven by higher fee-based revenues and cost discipline. Free cash flow conversion was approximately 90% in 2024, We expect this to continue and for capital generation to increase in both 2025 and 2026. I will cover this in more detail shortly. With that, let me turn to our segment results. Turning to health solutions on slide 10. In December, we shared unfavorable experience for the January 2024 stop-loss business. Since then, claims have stabilized. We have set the loss ratio for the January 2024 cohort at 95% and estimate that this cohort is approximately 70% complete as of December 31st. Note that the reported fourth quarter loss ratio is above 95% due to the year-to-date TRUA. We have included details on our loss ratios by cohort in our investor supplement to make this more clear. Experience in January gives us further confidence that our reserves will be sufficient to cover future claims. Looking into 2025, the underwriting and pricing actions taken in the second half of 2024 were consistent with our plan to prioritize margin over premium growth. I would call out two key actions taken. First, we achieved a net effective rate increase of 21% for the January 2025 cohort. This is an average which includes much higher rate increases on underperforming cases. Second, we strengthened our underwriting process to improve risk selection. Our focus was on ensuring we were appropriately pricing known claims on both renewals and new business. As a result of these actions, we expect to improve the loss ratio for the January 2025 cohort by 5 to 15%. Turning to slide 11, adjusted operating earnings were $40 million for the year. Net revenues and adjusted operating margins reflect the unfavorable claims experience in stop loss, which we expect to improve this year. With involuntary, claims were above what we expected in the fourth quarter, driven by higher utilization. Looking ahead, we expect voluntary loss ratios will continue to increase in 2025, which is consistent with our long-term plan to drive enhanced value for our customers. Overall, we expect net revenues and margins to improve meaningfully in 2025, driven by actions taken to improve stop loss. Margin expansion will continue into 2026 as we plan for a two-step process for stop-loss and are investing in new lead management capabilities in 2025. Turning to Well Solutions. Commercial success continued in 2024 as we generated nearly $2 billion of total defined contribution net flows in the year. In the fourth quarter, we successfully funded two large record-keeping plans. Full-service sales were strong in 2024, driven by mid-market sales, which grew four times that of the prior year. While strong equity markets are positive for Wealth Solutions, it does have a counterintuitive effect on net flows. Higher equity markets increase the average account values of surrenders, which impacted net flows in 2024, despite strong sales and retention. Overall defined contribution retention was 98.5%, up 60 basis points year over year. Looking into 2025, we expect a solid year commercially with over 20 billion of wins in our pipeline. Turning to slide 13. In Well Solutions, we generated net revenue and margins above the high end of our guidance. Adjusted operating earnings were 820 million for the full year. Earnings were up 30% year-over-year as we increased net revenues while controlling spend. Higher fee-based revenues were driven from added participant accounts and favorable equity markets. Spread-based revenues outperformed expectations as we mitigated impacts from lower spread-based assets by management actions on yield. In 2025, we expect added revenues and earnings from One America in line with expectations typical of acquisitions we do expect some volatility with net flows however that is fully reflected in our earnings guidance this transaction is now closed and we are off to a great start with the integration feedback continues to be very positive from both new clients and distribution partners additionally we expect margins to moderate from high levels in 2024 due to lower spread income and growth investments. We expect spread income to be lower given lower spread asset balances, and we expect higher spend as we implement over $20 billion of defined contribution wins and targeted investments to strengthen our retail wealth management offering. Turning to investment management on slide 14, 2024 has been a pivotal year for Voya Investment Management as we executed on our plan to expand margins and drive organic growth. Total net inflows for the quarter were 3.4 billion, contributing to a total of 12.5 billion for 2024. In institutional, our leading market position in insurance asset management continues to be a competitive advantage. Insurance demand was strong across multi-sector private credit and investment grade credit strategies. We now partner with over 70 external insurance clients and manage nearly 60 billion of assets, including our expanded relationship with Allianz in establishing Sconset Re. Retail net flows drove over half of the positive cash flows in 2024 across both our U.S. intermediary and international retail channels. With respect to fees, yields on external client assets expanded in 2024, counter to industry trends, and we expect these levels to be sustainable. Turning to slide 15. In investment management, we grew net revenues and operating margins above the high end of our guidance in 2024. Adjusted operating earnings were 66 million in the fourth quarter, which contributed to full-year 2024 earnings growth of 20%. Full-year results included strong performance fees and continued expense discipline supporting margin expansion ahead of plan. We continue to deliver excellent long-term investment performance, which builds on our track record and provides momentum heading into 2025. This includes public and private fixed income solutions where we have a strong heritage and are delivering differentiated outcomes for clients globally. Looking ahead to 2025, we expect adjusted operating margins in 2025 to be consistent with 2024 as we balance cost discipline with targeted investments and private capabilities and U.S. intermediary distribution. Turning to slide 16, our excess capital balance at 1231 was approximately $200 million net of our upcoming debt maturity. In the fourth quarter, we completed our 10b51 share repurchase program and the remainder of the ASR started in the third quarter. This fulfilled our commitment to return approximately $800 million of capital to shareholders in 2024. Our year-end excess capital also includes the capital deployed for our partnership with Allianz in Skonset Re. This year, our approach to capital will be more balanced between capital return and growth investments. Skonset RE, One America, and Lead Management are all growth investments that we expect returns well above our cost of capital. As a reminder, we will retire the debt maturing in first quarter with the proceeds of our recent debt issuance. We continue to view share repurchases and common stock dividends as important components of our capital management plan. Share repurchases are expected to be weighted towards the second half of the year, given our focus on growth investments in the first half. Turning to our excess capital outlook on slide 17. We expect to deliver improved excess capital generation in 2025, as highlighted on our third quarter call. This will be driven by stop loss repricing, the One America acquisition, and continued profitable growth across our businesses. We expect these actions will increase our excess capital generation by approximately 100 million in 2025. In 2026, we expect a further increase in our excess capital generation as we restore stop loss back to target margins and benefit from continued profitable growth across our businesses. Turning to our outlook on slide 18. As highlighted in our previous slides, we expect to generate approximately $750 million of excess capital in 2025 before growth investments. Note, we are guiding to a normalization of both incentive compensation and performance fees, which were both favorable in 2024. Finally, we expect to return approximately half the capital we are generating this year as we balance growth investments with share repurchases and dividends. Before turning to your questions, I would like to reiterate our key near-term priorities. First, improving loss ratios and stop loss. successfully integrating One America, and third, continuing to execute on the commercial momentum in each of our businesses. These priorities will drive improvement in capital generation in 2025 and 2026. I'll now turn it over to the operator for 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 are using 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 question. Our first question is from Elise Greenspan with Wells Fargo. Please proceed.

Hi, thanks. Good morning. I wanted to start with the ROE guide, right? You guys set that at 12% to 13% for this year. It had been 14% to 16%, right, with the outlook presentation last year. So I guess, you know, the moving pieces to me, right, seem like the weaker stop-loss results, the investment in leave management. You also are bringing on One America. And then, you know, you guys, you know, Mike, you did say – you know, within your prepared remarks that you expect lower prepayment income in 25. Not sure if I'm missing anything else there that brings the ROE down. And then would the expectation be that you would get back to that target range of 14 to 16 in 26 when stop loss gets back to target results?

Hey, Lisa, it's Mike. Thanks for the question. And maybe I'll step back a bit, but I think you've got the majority of the pieces here. We did not give a specific EPS guide, but we did give a sense through the free cash flow generation to really think about where EPS might land in 2025. I would think about our 90% free cash flow generation as grossing up that 750 to get at an EPS of approximately in the mid-8s, mid-$8s. If you do that net of growth investments, that $50 million we talked about that's primarily on leave, you're going to get slightly less than $8. As it relates to the ROE piece, I know we have a guy to 12% to 13%. I would think about 2025 as on the high end of that range. And if we adjusted for the growth investments, we'd be above that 13%. Now, at least maybe to your variances, I think you've named them, but let me just hit all of them to make sure we're complete with the answer. first you mentioned the leave investments i just did as well i would also note in health solutions we are on a journey on enhancing value to our customers around voluntary products that does affect the loss ratios in 2025. second within wealth we are we do have additional spend that's aimed at implementing over 20 billion of new plans Outside of One America, we're also expecting fee income to increase and that to be offset by lower spread income. The third piece is share repurchases. We do give a sense of that, so I think you have that piece, Elise. And then finally, as you mentioned on prepayments, we're guiding to that being down year over year, approximately $25 million. I would highlight this is really not economic. It's just the timing of investment income where prepayments accelerate that versus over time.

Okay, thanks. And then on buyback, you know, given that it's more second half weighted, is the expectation that you just are going to buy back a very minimal amount of your shares in the first half of the year? And then, Mike, just on that second piece of my last question, would you expect, you know, the, I guess, I know you're not laying out 26 RLE right now, but would you expect kind of to go back to that 14 to 16% next year?

Yeah, Elise, thanks for coming back to the ROEP. So as I mentioned earlier, if you adjust for the leave investment, you'd be north of 13%. The other piece is we're trying to anchor to this free cash flow generation as we shared in the material. We're not only expecting a meaningful increase in free cash flow generation in 2025, but also 2026. So absolutely the journey is to get back to that long-term 14% to 16%. As it relates to just share repurchases, I would think of them primarily focused in the second half. It was for the reasons Heather mentioned on some really important key growth investments, the One America piece, the Sconset piece, and the leave management piece I just mentioned. I would, though, point your attention to how we thought about capital. You look at 2024, we returned over 100% of free cash flow through share repurchases and dividends. We mentioned approximately 50% this year, but over that two-year period of time, we're talking about approximately $1.2 billion of return of capital. Growth investments, they come when they come. We're going to be opportunistic on them, but I think our commitment to our shareholders is that we're going to do that when we see long-term shareholder value and we see it with all three of those pieces.

Lisa, I'll just reiterate Mike's final point is that we're committed to returning capital to shareholders. As we've been talking about for a couple of years, we want to continue to be balanced in driving value in the business through the commercial momentum and being opportunistic with investments, whether they be organically or being opportunistic around inorganic.

Our next question is from Tom Gallagher with Evercore ISI. Please proceed.

Good morning. First question is the $50 million strategic spend on leave management and disability admin. Will any of that recur into 26 or can we zero that out?

Hey, Tom. It's Mike. I would think of it primarily impacting 2025. and part of that is that we're expecting not only revenue from the leave administration but also from short-term disability that we'll be assuming in 2026 so we see this as kind of more of a break even in 2026 and then generating positive earnings in 2027 and beyond so i think you're thinking about it right tom but obviously you know as we get deeper in the year we'll talk more and more about 2026. that that's helpful and then

Just want to ask about the stop loss expectation that obviously a very wide range of 80 to 90. And it looks like the majority of the improvement from the 95 level is risk selection, not on actually rate versus trend. Just considering it looks like you had an unforced error on risk selection that led you into this situation. What gives you confidence that you've figured out the underwriting side in a better way or what are the lessons learned? Thanks.

Tom, it's Mike. Yeah, I'm going to hit the rate increase just briefly before I get to your question on risk selection, which is important. And I think you properly gleaned that we view that as the bigger piece of the improvement in 2025. So first on the rate increase, we did achieve a 21% average net effective increase. for the January 2025 business. I would view that as an average. So when we look at some of the underperforming blocks, the increase is much higher than 21%. And we've addressed kind of that higher frequency of claims that we talked about in our pricing. On the risk selection, it really is a key focus on known claims. So think about when we see claims in the prior calendar year and making a prediction on how we think that's going to emerge in the following calendar year. And as we looked at known claims in 2023, that was a key driver of the higher loss ratio within January 24 in that book of business. To your question on addressing this, first, I just mentioned about the fact that we feel the 9% first dollar trend that's much, much higher for a stop loss when it's leveraged, that that was adequately priced for. Second, we were holding firm on requests for data. So we wanted to see the most recent data before finalizing quotes. And third, as we talked about last year, there's a strategy element of this as well in ensuring that the full team understood that the strategy was margin over premium growth, and you saw that in the results. Finally, I've worked very closely with this pricing and underwriting team at the end of the year to make sure that we're very comfortable with what we're communicating as far as the outcomes of this 5% to 15%. I might just make one other comment, Tom, just because I know there's probably a question on the 95%. We are very confident that the reserves that we established in the fourth quarter will be sufficient to cover future claims. As you can imagine, we've not only been looking at this internally, but we've had external eyes on this as well. And importantly, we're now in February, so we've had a chance to see how the January data has emerged, and that's just strengthened our confidence that what we put up in the fourth quarter is going to be sufficient to cover future claims.

And, Tom, the only build I would have to Mike's very detailed response is that you can imagine we are also looking very closely at the completion of the non-January 24 book of business with the same sense of scrutiny. And what we're seeing right now is it's following very similar trends into prior years. And so the actions we took last year to increase pricing we think has held as well, but we're going to continue to stay very close to it.

Our next question is from Ryan Krueger with KBW. Please proceed.

Hey, thanks. Good morning. My first question was on the wealth flows. I guess, can you give any more perspective on how to think about this in 2025? I think, I guess in particular, I would assume there might be more than normal volatility from shock lapses related to One America. So just any way to frame that.

Yeah, Ryan, it's Heather. Thanks. I'll take your question. So as you think about, I'll do the quick look back on 24 before getting to the look on 25. So You think about what we delivered in 24 and really the main theme is that the fundamentals of our wealth business are strong. The $2 billion in the full year DC flows, the 98.5% plan retention that Mike mentioned. A little bit more specificity is in 2024, our full service sales were up 17% year over year for 23. So just thinking about that momentum. As we take a look into 25, what we see right now is if we do that same comparison of full service known sales for 25 versus at the same time for 24, they're up 30%, so an important metric. Mike referenced the $20 billion of plans and implementation, and just for clarity, those are plans that are one that will be funded within 25, some of which have already funded. To your point on One America, just as a reminder, the assumption on retention was 90%. So you compare that to the 98.5% of our book of business. So that will create a little bit of noise as we go throughout the year in terms of flows, but it's very much embedded into our guidance and our financials. And so at the end of the day, we do feel strong in terms of the fundamentals that we see heading into 25 across wealth.

Great, thanks. And then just a quick one on stop loss. When you include January, what percentage of claims would that typically get you to for the full year cohort?

Ryan, maybe not tracking with your question. Can you ask it differently?

I think you said you were through 70% of the claims at the end of December. And I was wondering when you add in January, how much does that increase that to?

Yeah, no. Q4 and Q1 is really important, Brian, with respect to just completion. I would think of us approximately another 5% to 10% complete after January. That's the way I would think about it.

Our next question is from Alex Scott with Barclays. Please proceed.

Hey, good morning. I wanted to sort of probe a little bit more on some of the things that are one time in nature in 25, and I guess in particular health solutions and just the need to invest in the business. You know, is there some level of ongoing investment, you know, whether it's leave or, you know, just other capabilities that you'll continue to build out that we need to just think about a higher run rate of expenses and I'm just asking because my concern is there's a lot of things that seem like they whip back in 26 and could make people pretty optimistic on the growth you'll get going from 25 to 26. But I just want to make sure I'm not missing things about ongoing investment and health. And then maybe if you could also comment on wealth solutions on just the investment to be able to bring on assets and so forth.

Alex, maybe I'll start from a strategic standpoint and then I'll toss it to Mike on the financials. So one of the reasons we wanted to specifically call out the investment and lead management is we think it's important from a transparency perspective to give investors a view of where we're investing. But I'll hit on the strategic importance of this capability. And we have seen a significant trend in group insurance where customer experience really matters. It's no longer just about having the right price or provisions within your insurance products. And so investing in leave and the fact that employers, this is really one of the primary decisions they're making around group insurance and very often the bundle is going with who wins on leave. And that's really evidenced by some of the stats we shared in the presentation that today we think about it 100% of our leave cases actually have life and disability and 72% of our leave cases have supplemental. and we see a significant opportunity. We've been a fast grower in supplemental, and that's one where we see an opportunity to continue to grow there, and that's a key component of our workplace. And maybe very briefly on wealth, and Jay will provide more in the coming years just as we think about our strategy, but in wealth, we've talked a lot about making investments in retail wealth management and that our clients at the end of the day very often don't have access to a financial advisor, and so they look to what's offered through the workplace and also needing broader advisory capabilities and really out-of-plan capabilities. So there we're investing in the number of advisors. We're also investing in technology capabilities to make our advisors more productive and the onboarding experience more seamless for clients that ultimately we think is going to drive growth. But Mike?

Yeah, no, look, Alex, the only build I have with Heather on health is just kind of reiterate what I shared with Tom just a moment ago in that the question around how do we think about leave next year, yes, a portion of those expenses will exist next year, but the offset on the revenue side as we get paid for the leave administration as well as onboard short-term disability. And so that's a key piece to think about. But on the wealth side, I think just, you know, everything Heather said, The only thing I would say on a kind of more of a technical note is that as we give the modeling considerations for wealth, we did include commissions and the intangible effect in the guide. We haven't done that before, and the reason was the One America piece. One America is obviously having an effect on expenses in 2025, and you have your normal seasonal effect across all the segments.

Got it. Maybe a follow-up actually related to the last piece there. In wealth, I mean, if I look at the 1Q guide that you guys are pointing to, it looks a little over $200 million of pre-tax earnings. I think about a year ago, I think the normalized number after all was around $200 million. So seemingly not a whole lot of growth there. And I get there's some weight that's maybe a little unique to $25 million. But You know, when I think about One America and the contribution, is it that it's not really contributing anything yet in 1Q to bottom line and it grades in throughout the year? Or, you know, is it in there? I'm just trying to understand the 75 mil from One America and whether that begins showing up more when we think about 2Q, 3Q.

Yeah, Alex, I think just that first quarter, as Heather was talking about, I mean, there is a large investment in wealth around that $20 billion plus of plans and implementation. So that's having an effect at the beginning of the year. Obviously, there'll be revenue to follow. It's your big picture question. Continue to be fully on plan for that $75 million of earnings we're expecting to add within wealth. I think one of the offsets is those expenses I just mentioned. And you'll also see a bit of an offset with respect to spread income where spread balances were down year over year.

Got it. Thank you.

Our next question is from Joel Hurwitz with Dowling and Partners. Please proceed.

Hey, good morning. Can you just provide some more color on what you're doing in the voluntary business that's driving the loss experience higher? And is this in response to competition, or do you think this is needed to improve persistency of the business or drive higher growth?

Yeah, thanks for the question, Joel. I'd say a couple of things. You think about voluntary. So it's unique in the group insurance space where typically you're going to have participation rates that are in the high teens, low 20s. So think somewhere 18% to 20%. So when we talk about wanting to drive increased client value, frankly, we want our customers to utilize these very important products. And so the couple trends that I would think about is that Number one, when we see higher utilization, which means we see the claims experience ticking up, we know that our customers are then utilizing these products. So what I would watch for and what we're focusing in on is how do we increase the utilization of these products? Today we've got about high persistency in our voluntary business in the high 90s. But one stat I'd share with you is when we look at our open enrollment through BenefitFocus, where we're able to leverage guidance and the right education, we see supplemental participation rates that move from a traditional 20% up into the low 60s. So that's the real key component is that these administrative capabilities, whether it be Weave or whether it be BenAdmin, they drive higher participation rates. And as you see higher participation rates, that's really because clients are seeing the value of the product. So that's really the way I would think about them versus necessarily competitive pressure on pricing and the loss ratio. Really, this has been very thoughtful around making sure that clients are getting the utilization.

Okay, that makes sense. And then just on leave and disability, I know historically you've reinsured the disability business that you've wrote, but do you plan to start retaining all of that moving forward, or is it just a portion of the short-term disability that you'll retain?

I'd say we've had a long-standing relationship with a disability reinsurer that has frankly given us capital relief and we don't have the tail liabilities of a long-term disability. The strategic rationale for us to insource leave and frankly the disability administration was to influence the customer experiences that leave and absence is increasingly complicated for employers as well as for employees. You think about somebody going out on maternity leave and they have to file three or four leaves. So our ability to influence the client experience we thought was most important. So this is one of the things that we will be taking in some of the short-term disability over time, but I would say for us we like the arrangement we have with a partnership. It allows us to grow in the space without necessarily taking on the tail risk, and that's what we're going to be focusing on in the near term.

Okay, helpful. Thank you.

Our next question is from Wes Carmichael with Autonomous Research. Please proceed.

Hey, thanks for taking my question. A follow-up on One America, you provided some color there, but now that the acquisition is closed, I know you reiterated the financial impacts and perhaps net flows will be a little bit more volatile, but anything that you saw that was surprising as you integrated that? And maybe can you just talk about retention experience through renewals?

Yeah, I mean, a couple things, and I've certainly stayed close to this and spending time with some of the One America clients. I think maybe a couple things I would refer to as pleasant surprises is the market, and particularly the One America clients and the advisors have been very, very favorable in the announcement. They're excited to be part of Voya and to be able to take advantage of some of the new digital experiences that we can bring to them that we had already invested in. We are thrilled to welcome the One America employees, very, very talented team. And I would say on the retentions, at this point, nothing surprising. It's very much in line with a guide that we see. And so for us, this is just tracking very much as expected. And I think the other piece I would reiterate is because they're on the same record-keeping platform, our technology teams are very much ready to be able to do a smooth implementation over the time period that we've outlined. So nothing surprising, and we just continue to reiterate the $75 million of earnings accretion expected.

Got it. Thanks. And then my follow-up is on capital deployment. seems like there needs to be maybe a little bit of a recovery through 2026. But if I think back over the last couple of years, I think you've been pretty active in M&A and maybe more than some would have expected. So just wondering if you're still expected to be, expecting to be active on the M&A front going forward and where you might be interested.

Yeah, I mean, I think this is something that, you know, we've tried to talk about being both very disciplined with capital management as well as expenses and opportunistic. You know, we're very, very pleased with One America. We think it was not only highly strategic to allow us to scale in the full-service business, add spread-based assets, but also highly accretive. We think Sconset Re, and I'm sure, you know, Matt will have a couple points to add on that, is both strategic and opportunistic. So I would say it's something that we're going to pay attention to, and we're going to look for opportunities that we can both scale our businesses, that we can potentially add new capabilities And I think the final comment is we focus a lot on inorganic and build, but with Jay coming on board, I think you're going to expect us to focus a bit more on partnerships. Think a bit like what we've done with AGI, which we think are a great use of being capital efficient as well as opportunities to accelerate the growth more than can be done in a necessarily inorganic build.

Yeah, Wes, this is Matt. Just maybe quickly on Sconset, a great example of using capital wisely to further build upon the insurance acumen we have and build further in the sidecar market, which is attractive, fast-growing, and where our leading insurance asset management capabilities play quite well, namely private assets, commercial mortgage loan, core fixed income, and infrastructure to call a few out. A targeted investment builds upon that strategic relationship with Allianz. A capital return story that you'll see in our investment line item that's attractive as well as AUM that will build over the next few years to a billion to $2 billion range. Targeted, strategic, and a nice return profile.

Our next question is from Jimmy Bullar with J.P. Morgan. Please proceed.

Hi, I just had a question on your asset management business. You noted positive flows the last couple of quarters, but the asset growth hasn't been commensurate with the flows, what the flows would suggest in market performance, partly because you've had a fairly high amount of outflows from divested businesses. Like I think it was around two and a half, 2.7 billion this quarter, 7.9 billion the quarter before. um can you talk about how much and then that's obviously not in your flow number the way you present but how much more what does that relate to how much more of that do you have that is potentially at risk and just the economics of those assets are those those similar to um the ongoing assets are the lower fee higher fee

Thanks, Jamie. This is Matt. Thanks for the question. Yeah, so it is an important transition, right? So we talked about the growth of the business, extremely happy with the $12.5 billion flow you referenced in 24, that organic growth rate of 4.4%, well above our 2-plus percent long-term average. Cutting against that, and we've been really upfront about this, is divested businesses. Some would go back now seven years. That is a known flow. very visible and able for us to manage in our platform costs around it. So we've seen a flow in 2024. We have one more component of the venerable flow that we signaled in 2025. We see that coming in the second half. And those are, as you referenced, lower fee assets that we can also take costs around as we optimize the growth going forward. So it's a part of the investment strategy of broader Voya. These are great transactions for broader Voya to divest. The key message there, though, is the growth is outpacing that. At a higher revenue level, that higher revenue and higher fee rate is what's growing the revenue line item and the operating profit. And that is outpacing the outflows.

And I would just emphasize, Jimmy, I think that, you know, four consecutive quarters and really, really strong flows, record flows in the year and great momentum set up for 25. We feel very good about our asset management business.

And what's the amount of the venerable assets that you think will leave in 25?

That number is 6.8 billion is the current estimate in the second half of 2025.

And beyond that, the NNN Venerable will be mostly gone? That's correct. Okay. Thank you.

Our next question is from Wilma Burgess with Raymond James. Please proceed.

Okay, good morning. Could you just go into a little bit more detail of what types of actions went into improving the risk selection on the stock loss block? Thanks.

Hey, Wilma. I'd probably just reiterate kind of what I was sharing earlier around making sure that we feel very good about the pricing for every case that we're underwriting. Second, really making sure we have the most current data before finalizing quotes. And then just strategically and mindset-wise, ensuring that our underwriters and the entire team understood the strategy of focusing on margin versus premium growth. And premium was down 16%. That's a big number when you think about that relative to medical trend. The other thing I'd say just to maybe on the question around how we think about stop loss just really more broadly, you know, we're disappointed, obviously, in what happened in 2024. But I would just point to the annual renewable nature of stop loss that's allowed us to get after the profitability quite quickly. Think about 5% to 15%, low end of the range being close to that 77% to 80%. We're still guiding to a two-step process here to get back to our target range. But that's a key reason why we like the product is our ability to get after margins quite quickly.

Makes sense. So you were able to just, I guess, get rid of a lot of the poorly performing accounts. Is that how that worked?

Yeah, well, I think that's the right way to think about it. You've heard us talk about really the importance of renewing a healthy book of business. And so really what I would think about is we wanted to make sure we were renewing the strong performing cases. We renewed over 75% of those. When Mike talked about the underwriting discipline, it was really very much holding firm on underperformers and making sure we got the data, we got the rate increase we needed. And if we didn't, we didn't necessarily renew that book of business, and that's reflected in the block retention that we've talked about and the decline in the book of business. So that's absolutely right. Final piece I would mention to Wilma is the importance of factoring in the higher frequency of claims that we saw in 24 into the 25 pricing. So we have assumed that the higher frequency of claims that we saw in 24 will continue throughout, and that's also factored into the pricing adjustments we made for the 25 book.

Our next question is from Sunit Kamath with Jefferies. Please proceed.

Great. Thanks. Good morning. I wanted to hit on the wealth solutions flows. I get the dynamic of markets higher and more money comes out. But have you seen any big changes in the participant withdrawal rate if we look at what that was in, say, 2024 and compare that to historical? Any changes there?

Yeah, I'll answer that. We did start to see some improvement in the Q4 in participant surrenders. We've still taken, you know, perhaps a cautious view heading into 25. The participant surrenders would continue to be elevated just given a little bit of the uncertainty of the markets. But, yes, we did see an improvement when we started to see interest rates come down.

Got it. Okay. And then I guess sort of relatedly on wealth, you know, one of the things that we're hearing from some other companies in the wealth space is this whole concept of in-plan annuities within target date funds. And I was just curious, what is your strategy there? Do you think that's an opportunity and sort of what needs to happen for you to get that product on your platform?

Yeah, thanks for the question. So, you know, there are a couple things that we do today. We do actually have annuity provisions inside of our products. We also partner with different annuity providers through our broker-dealer. And we have certain products within our own partnership within Matt's team, as well as other asset managers that have different income solutions. But This is one of the things I think you're certainly going to hear more from Jay in the coming quarters. Certainly our investment in retail wealth management is going to be an important component of that and realizing, you know, what are some of the product enhancements or different partnership options we consider that allow us to address both in-plan and out-of-plan solutions as well as annuities. So I'd say this is a bit of a stay tuned. We see some opportunity here.

Our final question is from John Barnage with Piper Sandler. Please proceed.

Good morning. Thank you for the opportunity. My question is on Voya Investment Management and Wisconsin RE. Voya Investment Management previously has had a lot of success with insurance clients. Of the existing insurance clients, how many of them already don't have existing sidecars?

Hi, John. This is Matt. I don't know the exact number of that, but our insurance business, over 70 clients currently. We do work with a good number offshore as well as onshore and globally. I'd say the majority don't. We tend to be extremely competitive in the mid to smaller size insurance company market. We have some larger clients as well. Sidecars are part of the industry at this point. We think they'll continue to be a growing part of the industry. And that could broaden. So as we look across our client base, some of whom have their own exposure, some of whom don't, we can also look to leverage our own capability insight to guide them down their own path and provide investment solutions alongside of that. So I really think our leading position in the insurance industry market, it gives us both the right to win on an AUM basis, but also on an advising our client basis.

Thank you. And my follow up question. No variable investment income, one-quarter lag generally, and no annual marks can sometimes come in the first quarter.

A year ago, some companies had larger marks. Is there any visibility near-term into annual marks on funds as it relates to the first quarter? Thank you.

Thanks, Sean. This is Matt again. Always, as you referenced, difficult to predict financial markets, let alone private asset marks. The last And if you saw in 2024, and I think Mike laid this out well, a bit of a lag versus our 9% assumption. So we think about where interest rates are today, a little bit lower. And we think about equity markets broadening as opposed to being so narrow. That tends to take your return expectation higher towards that long-term average. So we think about where we're starting, we feel like we're in that possible range or zone. Now, longer term, we've well outkicked that 9%. But we think it's a fair assumption as we start the year illustrates where they are that we can be back on that long-term track.

This will conclude our question and answer session. I would now like to turn the conference call back over to Heather LaValley for any closing remarks.

To summarize a few key messages, in 2025, we remain focused on improving our stop-loss margins, ensuring a smooth One America integration, and driving continued commercial momentum. By maintaining this strategic focus, we will continue to grow excess capital and enhance shareholder value. Our customers remain at the center of all we do, and we are dedicated to continually enhancing their experience and outcomes. Thank you for joining us today, and we look forward to updating you on our progress throughout the year. Have a great day.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.