Voya Financial(VOYA) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION (UNAUDITED) Item 1. Financial Statements This section presents Voya Financial, Inc's unaudited condensed consolidated financial statements and detailed notes Condensed Consolidated Balance Sheets The company's total assets and shareholders' equity decreased significantly from December 2020 to March 2021 | Metric | March 31, 2021 (Millions) | December 31, 2020 (Millions) | | :-------------------------- | :-------------------------- | :--------------------------- | | Total Assets | $162,861 | $180,518 | | Total Liabilities | $153,862 | $169,340 | | Total Shareholders' Equity | $8,999 | $11,178 | Condensed Consolidated Statements of Operations The company reported a significant net income of $1.1 billion in Q1 2021, a major turnaround from a net loss in the prior-year period | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :------------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total Revenues | $(1,957) | $1,685 | | Total Benefits and Expenses | $(2,995) | $1,641 | | Income (loss) from continuing operations before income taxes | $1,038 | $44 | | Income (loss) from discontinued operations, net of tax | $14 | $(130) | | Net Income (loss) | $1,100 | $(80) | | Net income (loss) available to Voya Financial, Inc.'s common shareholders | $1,086 | $(100) | | Basic EPS (Continuing Operations) | $8.74 | $0.23 | | Diluted EPS (Continuing Operations) | $8.19 | $0.22 | Condensed Consolidated Statements of Comprehensive Income The company reported a comprehensive loss of $1,888 million for Q1 2021, driven by significant unrealized losses on securities | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income (loss) | $1,100 | $(80) | | Other comprehensive income (loss), before tax | $(3,490) | $(1,885) | | Other comprehensive income (loss), after tax | $(2,988) | $(1,490) | | Comprehensive income (loss) | $(1,888) | $(1,570) | Condensed Consolidated Statements of Changes in Shareholders' Equity Total shareholders' equity declined to $9.0 billion, primarily due to a comprehensive loss and share repurchases | Metric | January 1, 2021 (Millions) | March 31, 2021 (Millions) | | :---------------------------------------------------------------- | :------------------------- | :------------------------ | | Total Voya Financial, Inc. shareholders' equity | $10,110 | $7,931 | | Total shareholders' equity | $11,178 | $8,999 | | Net income (loss) | $1,100 | $1,100 | | Reversal of Other Comprehensive Income (Loss) due to Individual Life Transaction | $(913) | $(913) | | Other comprehensive income (loss), after tax | $(2,075) | $(2,075) | | Common stock acquired - Share repurchase | $(255) | $(255) | Condensed Consolidated Statements of Cash Flows The company experienced a net decrease in cash and cash equivalents of $534 million in Q1 2021 | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :------------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash used in operating activities | $(936) | $(76) | | Net cash provided by (used in) investing activities | $670 | $(811) | | Net cash (used in) provided by financing activities | $(268) | $727 | | Net decrease in cash and cash equivalents | $(534) | $(160) | | Cash and cash equivalents, end of period | $1,388 | $1,312 | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures for the financial statements, covering accounting policies and segment reporting 1. Business, Basis of Presentation and Significant Accounting Policies Voya Financial offers retirement, investment management, and health products, recently reorganizing its segments - Voya Financial, Inc. provides retirement services, investment management, mutual funds, group insurance, and supplemental health products in the U.S[34] - The company renamed its Retirement and Employee Benefits segments to Wealth Solutions and Health Solutions, respectively, and continues to operate through Wealth Solutions, Investment Management, and Health Solutions segments[35] - On January 4, 2021, the company completed the Individual Life Transaction, divesting substantially all of its life insurance and legacy non-Wealth Solutions annuity businesses to Resolution Life US[36][37] - The company expects to transfer approximately 900 independent financial professionals and $40 billion in assets to Cetera Financial Group, Inc. in Q2 or Q3 2021, while retaining 600 field and phone-based professionals for its Wealth Solutions business[38] - Adoption of ASU 2019-12 (Simplifying the Accounting for Income Taxes) on January 1, 2021, had no impact on the company's financial condition, results of operations, or cash flows[44] - The company is evaluating ASU 2020-04 (Reference Rate Reform) and ASU 2018-12 (Targeted Improvements to the Accounting for Long-Duration Contracts), with ASU 2018-12 potentially having a significant impact on Shareholders' equity and future earnings patterns[45] 2. Discontinued Operations Voya completed the Individual Life Transaction, resulting in an estimated net loss on sale of $1,452 million - On January 4, 2021, Voya sold five legal subsidiaries (SLD, SLDI, RRII, MUL, VAE) and their Individual Life and fixed/variable annuities businesses to Resolution Life US[46][47] - The purchase price included cash, an approximately $225 million interest in RLGH, and $123 million in surplus notes, with $100 million cash proceeds deferred for up to 42 months[49] - The company recorded an estimated loss on sale, net of tax, of $1,466 million as of December 31, 2020, to write down the carrying value of businesses held for sale to estimated fair value[52] - Income (loss) from discontinued operations, net of tax, for Q1 2021 includes an estimated reduction of $14 million to the loss on sale, resulting in an estimated loss of $1,452 million as of March 31, 2021[52] - The transaction resulted in a reversal of $913 million of Additional other comprehensive income, net of tax, and a loss recognition of $523 million[53] | Category | Amount (Millions) | | :-------------------------------------------------- | :---------------- | | Total assets held for sale (Dec 31, 2020) | $20,703 | | Total liabilities held for sale (Dec 31, 2020) | $18,615 | | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | | Total revenues | $0 | $322 | | Total benefits and expenses | $0 | $278 | | Income (loss) from discontinued operations before income taxes | $0 | $44 | | Adjustment to loss on sale, net of tax | $14 | $(165) | | Income (loss) from discontinued operations, net of tax | $14 | $(130) | - Concurrently with the sale, Voya's subsidiaries ceded $11.4 billion of policyholder liabilities under reinsurance agreements to SLD, resulting in $10.4 billion reinsurance recoverable and $1.9 billion pre-tax realized gains from asset transfers[58] - The company established $1.3 billion of pre-tax deferred intangibles and a $1.7 billion pre-tax deposit asset related to the divested businesses[59] 3. Investments (excluding Consolidated Investment Entities) The company's total fixed maturities decreased to $37.0 billion, with an increase in gross unrealized capital losses | Category | March 31, 2021 (Millions) | December 31, 2020 (Millions) | | :--------------------------------------- | :-------------------------- | :--------------------------- | | Total fixed maturities, including securities pledged (Fair Value) | $36,994 | $47,029 | - Gross unrealized capital losses on fixed maturities increased by $138 million, from $139 million to $277 million, for the three months ended March 31, 2021, primarily due to non-credit related market factors[80] | Metric | January 1, 2021 (Millions) | March 31, 2021 (Millions) | | :---------------------------------------------------------------- | :------------------------- | :------------------------ | | Allowance for credit losses on available-for-sale fixed maturity securities | $26 | $18 | - The commercial mortgage loan portfolio allowance decreased by $31 million during Q1 2021, but distress in the hotel sector persists[98] - The company had one new commercial mortgage loan troubled debt restructuring in Q1 2021 with a pre and post modification carrying value of $5 million[84] | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :----------------------- | :--------------------------------------- | :--------------------------------------- | | Net investment income | $714 | $698 | | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net realized capital gains (losses) | $1,742 | $(233) | 4. Derivative Financial Instruments The company uses various derivatives for hedging market risks, with total derivative assets of $220 million - The company primarily uses interest rate swaps, foreign exchange swaps, total return swaps, and futures to reduce market risks from changes in interest rates, foreign currency, and equity indices[108][109][110][111] - A substantial portion of the company's derivative positions do not qualify for hedge accounting but provide an economic hedge aligned with risk management objectives[114] | Category | Asset Fair Value (Millions) | Liability Fair Value (Millions) | | :--------------------------------------- | :-------------------------- | :---------------------------- | | Derivatives: Qualifying for hedge accounting | $26 | $43 | | Derivatives: Non-qualifying for hedge accounting | $194 | $471 | | Total | $220 | $514 | - As of March 31, 2021, the company held $3 million and pledged $32 million of net cash collateral related to OTC and cleared derivative contracts, respectively[117] | Location of Gain or (Loss) | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Other net realized capital gains (losses) | $68 | $(187) | | Policyholder benefits | $52 | $65 | | Total | $114 | $(148) | 5. Fair Value Measurements (excluding Consolidated Investment Entities) As of March 31, 2021, 68% of assets measured at fair value were classified as Level 1 | Level | Total Assets (Millions) | Percentage of Total | | :---- | :---------------------- | :------------------ | | Level 1 | $89,740 | 68% | | Level 2 | $40,500 | 30% | | Level 3 | $2,641 | 2% | | Total | $132,881 | 100% | | Level | Total Liabilities (Millions) | Percentage of Total | | :---- | :------------------------- | :------------------ | | Level 1 | $18 | 3% | | Level 2 | $367 | 71% | | Level 3 | $129 | 25% | | Total | $514 | 100% | - The company uses third-party commercial pricing services, brokers, and internal models, incorporating market observable inputs for Level 2 and unobservable inputs for Level 3 valuations[124][125] - The fair value of guaranteed benefit derivatives includes an adjustment for nonperformance risk, reflecting the credit quality of the issuing insurance subsidiary[138][139] - Transfers in and out of Level 3 for fixed maturities are due to variations in valuation inputs each quarter[146] 6. Deferred Policy Acquisition Costs and Value of Business Acquired The total balance of DAC and VOBA increased to $1,592 million at March 31, 2021 | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :---------------------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Balance as of January 1 | $1,510 | $2,226 | | Deferrals of commissions and expenses | $25 | $26 | | Net amortization included in Condensed Consolidated Statements of Operations | $(539) | $(76) | | Change due to unrealized capital gains/(losses) on available-for-sale securities | $596 | $424 | | Balance as of March 31 | $1,592 | $2,603 | - Net amortization of DAC/VOBA increased significantly in Q1 2021 due to amortization and loss recognition from realized gains on asset transfers for reinsurance agreements[150] - During 2021, the company recognized loss recognition of $301 million for DAC and $1 million for VOBA[150] 7. Share-based Incentive Compensation Plans The company incurred $37 million in total share-based compensation expense for Q1 2021 | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :----------------------------- | :--------------------------------------- | :--------------------------------------- | | Restricted Stock Unit (RSU) awards | $18 | $18 | | Performance Stock Unit (PSU) awards | $19 | $18 | | Stock options | $0 | $2 | | Total share-based compensation expense | $37 | $38 | | Award Type | Number of Awards (Millions) | Weighted Average Grant Date Fair Value | | :----------------- | :-------------------------- | :------------------------------------- | | RSU Awards | 1.3 | $57.10 | | PSU Awards | 2.1 | $54.07 | - As of March 31, 2021, 2.4 million stock options were outstanding with a weighted average exercise price of $42.71[156] 8. Shareholders' Equity The Board authorized an additional $1 billion for share repurchases, expiring March 31, 2022 | Metric | March 31, 2021 (Millions) | December 31, 2020 (Millions) | | :----------------------- | :-------------------------- | :--------------------------- | | Outstanding Common Shares | 121.2 | 124.2 | | Year | Dividends Declared Per Share | | :--- | :--------------------------- | | 2021 | $0.165 | | 2020 | $0.15 | - On January 28, 2021, the Board authorized an additional $1 billion for common stock repurchases, expiring March 31, 2022[159][310] - The company repurchased $235 million of common shares in Q1 2021, compared to $406 million in Q1 2020[313] - As of March 31, 2021, 26.05 million warrants to purchase common stock were outstanding, with an adjusted exercise price of $47.84 per share[161] - As of March 31, 2021, 625,000 preferred shares were issued and outstanding across Series A and Series B[162] 9. Earnings per Common Share Net income available to common shareholders was $1,086 million for Q1 2021, a significant improvement from a loss in Q1 2020 | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :--------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Income (loss) from continuing operations | $1,086 | $50 | | Income (loss) from discontinued operations, net of tax | $14 | $(130) | | Net income (loss) available to common shareholders | $1,086 | $(100) | | Metric | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :------------------------------------------------------------------- | :---------------------------- | :---------------------------- | | Basic EPS (Continuing Operations) | $8.74 | $0.23 | | Basic EPS (Total) | $8.85 | $(0.76) | | Diluted EPS (Continuing Operations) | $8.19 | $0.22 | | Diluted EPS (Total) | $8.29 | $(0.73) | | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :------- | :--------------------------------------- | :--------------------------------------- | | Basic | 122.7 | 130.9 | | Diluted | 130.9 | 137.4 | 10. Accumulated Other Comprehensive Income (Loss) AOCI decreased to $1,910 million at March 31, 2021, with a change in AOCI for Q1 2021 of $(2,988) million | Metric | March 31, 2021 (Millions) | March 31, 2020 (Millions) | | :---------------------------------------------------------------- | :-------------------------- | :-------------------------- | | Fixed maturities, net of impairment | $2,928 | $2,819 | | Derivatives | $62 | $235 | | DAC/VOBA adjustment on available-for-sale securities | $(728) | $(906) | | Net unrealized capital gains (losses) | $1,906 | $1,835 | | AOCI | $1,910 | $1,841 | | Category | Before-Tax Amount (Millions) | Income Tax (Millions) | After-Tax Amount (Millions) | | :---------------------------------------------------------------- | :--------------------------- | :-------------------- | :-------------------------- | | Change in unrealized gains (losses) on available-for-sale securities | $(3,475) | $499 | $(2,976) | | Change in unrealized gains (losses) on derivatives | $(15) | $3 | $(12) | | Change in Accumulated other comprehensive income (loss) | $(3,490) | $502 | $(2,988) | 11. Income Taxes The company's effective tax rate for Q1 2021 was (4.6)%, differing from the statutory rate of 21% - The effective tax rate for Q1 2021 was (4.6)%, compared to (13.6)% for Q1 2020, primarily due to the release of a stranded tax benefit in OCI from the Individual Life Transaction and the DRD[170][171] - The company participated in the IRS Compliance Assurance Process (CAP) for tax years 2019-2021[172] 12. Financing Agreements Total long-term debt decreased to $2,969 million as of March 31, 2021 | Metric | March 31, 2021 (Millions) | December 31, 2020 (Millions) | | :----------------------- | :-------------------------- | :--------------------------- | | Total Long-term Debt | $2,969 | $3,044 | - During Q1 2021, the company repurchased $23 million of 3.125% Senior Notes and $53 million of 3.65% Senior Notes, resulting in a $10 million loss on debt extinguishment[177] - The company maintains a $500 million senior unsecured credit facility, expiring November 1, 2024, with no outstanding borrowings as of March 31, 2021[178] - The company was in compliance with its debt covenants as of March 31, 2021[175] 13. Commitments and Contingencies The company had off-balance sheet commitments of $879 million for limited partnerships and private placement investments - Off-balance sheet commitments as of March 31, 2021, included $63 million for mortgage loans and $879 million for limited partnerships and private placement investments[180] | Metric | March 31, 2021 (Millions) | December 31, 2020 (Millions) | | :----------------------- | :-------------------------- | :--------------------------- | | Total restricted assets | $2,646 | $1,951 | - The company estimates the aggregate range of reasonably possible losses from litigation and regulatory matters, in excess of accrued amounts, to be up to approximately $25 million as of March 31, 2021[189] - Approximately $89 million of previously accrued carried interest is subject to full or partial reversal in future periods if cumulative fund performance hurdles are not maintained[195] 14. Consolidated and Nonconsolidated Investment Entities The company consolidates certain investment entities where it is the primary beneficiary or has controlling voting rights - The company consolidates 5 CLOs and 12 limited partnerships as of March 31, 2021, where it is the primary beneficiary or has controlling financial interest[199][201] - Direct equity and debt investments in consolidated investment entities amounted to approximately $247 million as of March 31, 2021[197] - The company held $403 million ownership interests in unconsolidated CLOs and $1,487 million in unconsolidated limited partnerships as of March 31, 2021, representing its maximum exposure to loss[228][229] - The company elected the Fair Value Option (FVO) for financial assets and liabilities held by CLOs upon consolidation to align accounting with economic realities[203] | Asset Category | Total (Millions) | | :------------------------------------------------ | :--------------- | | Cash and cash equivalents | $146 | | Corporate loans, at fair value using the fair value option | $870 | | Limited partnerships/corporations, at fair value | $1,724 | | Total assets, at fair value | $2,740 | 15. Restructuring The company is undertaking restructuring efforts to reduce stranded expenses following recent divestitures - The company is undertaking restructuring efforts to reduce stranded expenses associated with its divested Individual Life business and independent financial planning channel[232] - The company anticipates incurring an additional $100-$175 million in restructuring expenses beyond Q1 2021[232] | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | Cumulative Amounts Incurred to Date (Millions) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------------- | | Total restructuring expenses | $11 | $19 | $396 | 16. Segments Voya Financial operates through three segments: Wealth Solutions, Investment Management, and Health Solutions - The company's principal products and services are provided through three segments: Wealth Solutions, Investment Management, and Health Solutions[236] - Adjusted operating earnings before income taxes and Adjusted operating revenues are key measures used by management to evaluate segment performance[237][241][243] | Segment | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :------------------ | :--------------------------------------- | :--------------------------------------- | | Wealth Solutions | $255 | $124 | | Investment Management | $52 | $40 | | Health Solutions | $37 | $61 | | Corporate | $(71) | $(91) | | Total | $273 | $134 | | Segment | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :------------------ | :--------------------------------------- | :--------------------------------------- | | Wealth Solutions | $782 | $677 | | Investment Management | $190 | $166 | | Health Solutions | $600 | $543 | | Corporate | $24 | $11 | | Total | $1,595 | $1,397 | | Segment | March 31, 2021 (Millions) | December 31, 2020 (Millions) | | :-------------------------- | :-------------------------- | :--------------------------- | | Wealth Solutions | $131,521 | $129,801 | | Investment Management | $981 | $1,027 | | Health Solutions | $3,019 | $2,917 | | Corporate | $24,824 | $23,535 | | Total assets, before consolidation | $160,345 | $157,280 | | Total assets | $162,861 | $180,518 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews Voya's consolidated results, segment performance, liquidity, and critical accounting estimates Overview Voya Financial has reorganized its segments into Wealth Solutions, Investment Management, and Health Solutions - The company's segments are now Wealth Solutions, Investment Management, and Health Solutions, with Corporate handling non-segment and run-off activities[249] Discontinued Operations Voya completed the Individual Life Transaction, resulting in an estimated net loss on sale of $1,452 million - On January 4, 2021, Voya completed the Individual Life Transaction, selling SLD, SLDI, and RRII, including several subsidiaries, to Resolution Life US[250] - The purchase price included cash, a $225 million interest in RLGH, and $123 million in surplus notes, with $100 million cash proceeds deferred[251][252] - The company recorded an estimated loss on sale, net of tax, of $1,466 million as of December 31, 2020, which was reduced by $14 million in Q1 2021, resulting in a $1,452 million estimated loss as of March 31, 2021[253] - The transaction led to a net aggregate reduction in Total shareholders' equity of $633 million (excluding AOCI) and $2.3 billion (including AOCI)[254] | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | | Total revenues | $0 | $322 | | Total benefits and expenses | $0 | $278 | | Income (loss) from discontinued operations before income taxes | $0 | $44 | | Adjustment to loss on sale, net of tax | $14 | $(165) | | Income (loss) from discontinued operations, net of tax | $14 | $(130) | Trends and Uncertainties The COVID-19 pandemic continues to create economic uncertainty, though the company's capital levels remain strong - COVID-19 has significantly impacted the global economy, with uncertain longer-term outlooks dependent on vaccine administration and effective therapies[258][259] - Voya's capital levels remain strong, with an estimated combined RBC ratio of 603% as of March 31, 2021, exceeding the 400% target[260] - The company restarted its share repurchase program in Q4 2020, repurchasing $355 million of common shares, and increased its common shareholder dividend by 10% in January 2021[261] - COVID-19's most significant effects on Voya's results have been on fee-based income, with milder effects on net investment income and negative impacts on underwriting income[262] - In Wealth Solutions, earnings are pressured by equity market volatility and lower interest rates[263] - Investment Management fee income was pressured by market disruption but has improved with macroeconomic recovery and positive net flows[264] - Health Solutions has seen increased mortality claims on group life policies due to COVID-19[265][266] - The low interest rate environment is expected to continue influencing profitability[267] - The company plans to address 'Stranded Costs' (indirect costs from divested businesses) through a cost reduction strategy[268] Results of Operations - Company Condensed Consolidated Voya reported a net income of $1.1 billion for Q1 2021, a significant improvement from a net loss in the prior-year period | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :------------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total Revenues | $(1,957) | $1,685 | | Total Benefits and Expenses | $(2,995) | $1,641 | | Income (loss) from continuing operations before income taxes | $1,038 | $44 | | Net Income (loss) | $1,100 | $(80) | | Net income (loss) available to our common shareholders | $1,086 | $(100) | | Metric | As of March 31, 2021 (Millions) | As of March 31, 2020 (Millions) | | :------------------ | :------------------------------ | :------------------------------ | | Total AUM and AUA | $729,288 | $537,815 | | AUM | $373,353 | $292,510 | | AUA | $355,934 | $245,305 | - Total revenues decreased by $3,642 million, primarily due to a $5,595 million decrease in premiums resulting from the Individual Life Transaction[275][276] - Net realized capital gains shifted from a loss of $233 million in 2020 to a gain of $1,742 million in 2021[276] - Total benefits and expenses decreased by $4,636 million, mainly due to a $5,072 million decrease in policyholder benefits related to the Individual Life Transaction[277] - Net amortization of DAC/VOBA increased by $463 million, primarily due to amortization and loss recognition from asset transfers[278] - Income tax benefit increased by $42 million, driven by the release of a stranded tax benefit in OCI[279] - Loss from discontinued operations improved by $144 million, primarily due to favorable adjustments to the Individual Life Transaction loss on sale[279] - Adjusted operating earnings before income taxes increased by $139 million, with significant contributions from Wealth Solutions and Investment Management[240] Results of Operations - Segment by Segment Wealth Solutions and Investment Management earnings increased, while Health Solutions earnings decreased Wealth Solutions Wealth Solutions' Adjusted operating earnings increased by $131 million to $255 million for Q1 2021 | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Adjusted operating earnings before income taxes | $255 | $124 | - Earnings increase was due to higher alternative asset income, higher fee revenue, favorable DAC unlocking, and lower credited interest[285] | Metric | As of March 31, 2021 (Millions) | As of March 31, 2020 (Millions) | | :------------------ | :------------------------------ | :------------------------------ | | Total AUM and AUA | $540,383 | $385,877 | | Total AUM | $194,209 | $145,762 | | AUA | $346,173 | $240,115 | | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :------- | :--------------------------------------- | :--------------------------------------- | | Net flows | $692 | $1,283 | Investment Management Investment Management's Adjusted operating earnings increased by $12 million to $52 million for Q1 2021 | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Adjusted operating earnings before income taxes | $52 | $40 | - Earnings increase was due to higher investment capital returns and higher fee revenue, partially offset by higher operating expenses[290] | Metric | As of March 31, 2021 (Millions) | As of March 31, 2020 (Millions) | | :------------------ | :------------------------------ | :------------------------------ | | Total AUM and AUA | $309,480 | $257,672 | | Total AUM | $248,550 | $210,703 | | AUA | $60,930 | $46,969 | | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :---------------- | :--------------------------------------- | :--------------------------------------- | | Institutional Net Flows | $(128) | $1,833 | | Retail Net Flows | $(252) | $(908) | | Divested businesses Net Flows | $(795) | $(702) | | Total Net Flows | $(1,175) | $223 | Health Solutions Health Solutions' Adjusted operating earnings decreased by $24 million to $37 million for Q1 2021 | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Adjusted operating earnings before income taxes | $37 | $61 | - Earnings decrease was due to higher benefits incurred (from business growth and COVID-19 impacts) and higher distribution expenses[293] | Metric | As of March 31, 2021 (Millions) | As of March 31, 2020 (Millions) | | :-------------------------- | :------------------------------ | :------------------------------ | | Total annualized in-force premiums | $2,466 | $2,271 | | Metric | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :------------------------ | :---------------------------- | :---------------------------- | | Group life (interest adjusted) | 100.7% | 78.1% | | Stop loss | 75.6% | 73.2% | | Total Loss Ratio (trailing 12 months) | 71.8% | 69.1% | Corporate Corporate's Adjusted operating loss improved by $20 million to a loss of $71 million for Q1 2021 | Metric | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Adjusted operating earnings before income taxes | $(71) | $(91) | - Improvement was due to revenue from transition services agreements and lower amortization of intangibles, partially offset by higher incentive compensation[298] Alternative Investment Income Alternative investment income for Q1 2021 showed significant increases compared to Q1 2020 | Segment | 3 Months Ended March 31, 2021 (Millions) | 3 Months Ended March 31, 2020 (Millions) | | :------------------ | :--------------------------------------- | :--------------------------------------- | | Wealth Solutions | $107 | $31 | | Investment Management | $28 | $3 | | Health Solutions | $8 | $3 | - The company expects to earn 9.0% on alternative investments over the long term[296] DAC/VOBA and Other Intangibles Unlocking DAC/VOBA unlocking resulted in a $2 million benefit to segment Adjusted operating earnings for Q1 2021 - DAC/VOBA and other intangibles unlocking resulted in a $2 million benefit to Adjusted operating earnings before income taxes for Q1 2021, compared to a $(16) million charge in Q1 2020[301] - Unlocking adjustments are made retroactively based on updated assumptions for mortality, persistency, interest crediting rates, and separate account performance[300] Liquidity and Capital Resources Voya's excess capital as of March 31, 2021, was approximately $1.6 billion - Principal liquidity sources include product charges, investment income, proceeds from investment maturities/sales, debt issuance, and contract deposits[304] - The parent company's primary sources of funds are dividends and returns of capital from operating subsidiaries, which amounted to $385 million in Q1 2021[305][308] - Excess capital was approximately $1.6 billion as of March 31, 2021[306] - As of March 31, 2021, the company was authorized to repurchase shares up to an aggregate purchase price of $879 million[309] - The company repurchased $235 million of common shares in Q1 2021[313] - As of March 31, 2021, total long-term debt was $2,969 million[316] - The company has a $500 million senior unsecured credit facility, with no amounts outstanding as of March 31, 2021[317][319] - As of March 31, 2021, Voya Financial, Inc. had $170 million in outstanding borrowings from subsidiaries and had loaned $295 million to its subsidiaries[321] - The company's financial strength and credit ratings are important for funding access, borrowing costs, and competitive position[322] - Voya Retirement Insurance and Annuity Company (CT) paid $78 million in ordinary dividends to its parent in Q1 2021[331] Off-Balance Sheet Arrangements The company has obligations for the return of non-cash collateral under its securities lending program - The company has obligations for the return of non-cash collateral under its securities lending program, where non-cash collateral received cannot be sold or re-pledged except in default[332] - Commitments related to the acquisition of mortgage loans and the purchase of limited partnerships and private placement investments are detailed in the Commitments and Contingencies Note[333] Impact of New Accounting Pronouncements Information regarding new accounting pronouncements is provided in the Business and Accounting Policies Note - Information on new accounting pronouncements is available in the Business, Basis of Presentation and Significant Accounting Policies Note[334] Critical Accounting Judgments and Estimates The company's financial statements rely on critical accounting judgments and estimates subject to uncertainty - Critical accounting judgments and estimates include estimated loss on businesses held for sale, reserves for future policy benefits, DAC/VOBA, valuation of investments and derivatives, impairments, income taxes, contingencies, and employee benefit plans[336] - The estimated loss on sale for the Individual Life Transaction was $1,452 million (net of tax) as of March 31, 2021, subject to a true-up mechanism[339] - A review of DAC, VOBA, and other intangibles recoverability resulted in a write-down of $302 million for DAC/VOBA and establishment of $215 million in premium deficiency reserves[341] - The effective tax rate for Q1 2021 was (4.6)%, influenced by the release of a stranded tax benefit in OCI and the dividends received deduction[343] Investments (excluding Consolidated Investment Entities) The total investment portfolio decreased to $45.5 billion, primarily due to a reduction in fixed maturities | Metric | March 31, 2021 (Millions) | December 31, 2020 (Millions) | | :--------------------------------------- | :-------------------------- | :--------------------------- | | Total investments | $45,494 | $56,851 | | Fixed maturities, available-for-sale, excluding securities pledged | $33,355 | $43,569 | - As of March 31, 2021, the average duration of the fixed maturities portfolio was between 7.0 and 7.5 years[349] | NAIC Quality Designation | March 31, 2021 Fair Value (Millions) | % of Fair Value | | :----------------------- | :----------------------------------- | :-------------- | | 1 | $18,632 | 50.4% | | 2 | $16,325 | 44.0% | | 3 | $1,499 | 4.1% | | 4-6 | $538 | 1.5% | | Total | $36,994 | 100.0% | - As of March 31, 2021, the energy sector fixed maturity exposure was $2.2 billion (6.0% of total fixed maturities), with 80.6% investment grade[361] - Gross unrealized capital losses on fixed maturities increased by $138 million to $277 million for Q1 2021[358] - The CMO-B portfolio's market value declined in Q1 2021 due to asset transfers to reinsured blocks and lower valuations from higher rate levels[367] - As of March 31, 2021, 87.6% of CMBS and 86.4% of Other ABS investments were designated as NAIC-1[374][376] - As of March 31, 2021, the commercial mortgage loan portfolio had a weighted average DSC of 2.2x and LTV ratio of 45.7%[378] - Total European exposure as of March 31, 2021, had an amortized cost of $3,409 million and fair value of $3,673 million[385] Consolidated and Nonconsolidated Investment Entities The company utilizes various entities to achieve business objectives, evaluating each for consolidation - The company uses various entities (VIEs and VOEs) and evaluates each for consolidation based on its involvement[388] - Further information is provided in the Consolidated and Nonconsolidated Investment Entities Note to the Condensed Consolidated Financial Statements[389] Securitizations The company invests in various tranches of securitization entities as a passive investor - The company invests in RMBS, CMBS, and ABS entities as a passive investor, with no obligation to provide financial support[390] - These investments are accounted for as available-for-sale, with unrealized capital gains (losses) recorded directly in AOCI[230] Guarantors and Issuers of Guaranteed Securities Voya Financial, Inc. has issued $1.5 billion in Senior Notes and $1.1 billion in Junior Subordinated Notes - Voya Financial, Inc. has issued $1.5 billion in Senior Notes and $1.1 billion in Junior Subordinated Notes[391] - Voya Holdings, a wholly owned subsidiary, fully and unconditionally guarantees these Registered Notes[392] | Metric | As of March 31, 2021 (Millions) | | :-------------------------------- | :------------------------------ | | Total assets | $1,365 | | Total liabilities | $3,749 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to interest rate, equity market, and credit risks Market Risk Related to Interest Rates The company assesses interest rate risk using hypothetical 100 basis point parallel shifts in the yield curve - The company assesses interest rate exposures using hypothetical 100 basis point parallel shifts in the yield curve[396] | Financial Instrument | +100 Basis Points Yield Curve Shift (Millions) | -100 Basis Points Yield Curve Shift (Millions) | | :---------------------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Fixed maturity securities, including securities pledged | $(2,569) | $2,518 | | Funding agreements without fixed maturities and deferred annuities | $(3,498) | $4,197 | | Long-term debt | $(208) | $238 | Market Risk Related to Equity Market Prices The company assesses equity market price risk using hypothetical 10% increases or decreases in equity markets - The company assesses equity risk exposures using hypothetical 10% increases or decreases in all equity market benchmark levels[398] | Financial Instrument | +10% Equity Shock (Millions) | -10% Equity Shock (Millions) | | :-------------------------------- | :--------------------------- | :--------------------------- | | Equity securities, available-for-sale | $31 | $(31) | | Limited liability partnerships/corporations | $92 | $(92) | | Guaranteed benefit derivatives | $(11) | $11 | Market Risk Related to Credit Risk Following the Individual Life Transaction, SLD became the company's largest reinsurer - SLD became the company's largest reinsurer after the Individual Life Transaction, and while its obligations are collateralized, there's no assurance these assets would be sufficient in case of default[401] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures Disclosure Controls and Procedures As of March 31, 2021, management concluded that disclosure controls and procedures were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2021[403] Changes in Internal Control Over Financial Reporting There were no material changes to the company's internal control over financial reporting during Q1 2021 - No material changes to internal control over financial reporting occurred during Q1 2021[404] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company refers to the Commitments and Contingencies Note for information on legal proceedings - Legal proceedings information is detailed in the Commitments and Contingencies Note[405] Item 1A. Risk Factors The company refers to its Annual Report on Form 10-K for a discussion of potential risks and uncertainties - Risk factors are discussed in the Annual Report on Form 10-K and the MD&A section of this 10-Q[406] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Voya repurchased 5.0 million shares of its common stock at an average price of $56.35 per share | Metric | Total Number of Shares Purchased | Average Price Paid Per Share | Dollar Value of Shares Yet Be Purchased (Millions) | | :--------------------------------------- | :----------------------------- | :--------------------------- | :------------------------------------------------- | | Total | 5,046,182 | $56.35 | $879 | - The company entered into a $250 million share repurchase agreement on February 11, 2021, receiving initial delivery of 3,617,291 shares[407] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents - The exhibit index includes Rule 13a-14(a)/15d-14(a) and Section 1350 certifications, as well as XBRL taxonomy extension files and the cover page interactive data file[411] SIGNATURE The report was duly signed on May 10, 2021, by the Executive Vice President and Chief Financial Officer - The report was signed by Michael S. Smith, EVP and CFO, on May 10, 2021[414]