雅虎香港財經 Voya Financial, Inc. (NYSE:VOYA) Q4 2023 Earnings Call Transcript
Voya Financial, Inc. (NYSE:VOYA) Q4 2023 Earnings Call Transcript February 7, 2024
Voya Financial, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. Welcome to Voya Financial's Fourth Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the call over to Mike Katz, EVP of Finance. Please go ahead.
Michael Katz: Thank you, and good morning. Welcome to Voya Financial's Fourth Quarter 2023 Earnings Conference Call. We appreciate all of you who have joined us this morning. As a reminder, materials for today's call are available on our website at investors.voya.com. Turning to Slide 2. Some of the comments made on the call may contain forward-looking statements or 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 website. Now joining me on the call are Heather Lavallee, our Chief Executive Officer; and Don Templin, our Chief Financial Officer. After their prepared remarks, we will take your questions.
For the Q&A session, we have also invited the heads of our businesses, specifically, Matt Toms, Investment Management; and Rob Grubka, Workplace Solutions. With that, let's turn to Slide 3 as I would like to turn the call over to Heather.
Heather Lavallee: Thanks, Mike. Before we turn to our key themes, I'd like to take a moment to recognize Rod Martin, who will begin his retirement at the end of the month. I speak for everyone at Voya when I say we are all thankful for Rod's vision, optimism, and wisdom over the past 13 years and we wish him the very best as he transitions to retirement. I'd also like to acknowledge Christine Hurtsellers, who after more than seven years leading Voya Investment Management announced her retirement several weeks ago. Christine has been a transformational leader for Voya IM as it has undergone profound changes in its business, becoming a diversified international asset manager it is today. As she hands the reins over, I couldn't be more confident in Matt Toms and the team's ability to continue to deliver exceptional client service and superior investment performance for our customers.
Now let's turn to Slide 4 with some key themes. Our results for the fourth quarter and for full year demonstrate execution in the face of challenging headwinds, disciplined in managing expenses, and the benefit of Voya's diversified capital-light business mix. For 2023, we generated $7.02 per share of adjusted operating earnings including $1.63 in the fourth quarter. These results reflected a record year in Health Solutions. Although the fourth quarter was affected by elevated voluntary claims, our aggregate loss ratio remained well within expectations. Strong earnings in Health helped offset lower earnings in Wealth Solutions, which primarily related to alternative results well below our long-term expectations. Fourth quarter results were also affected by flows and investment management that were weaker than anticipated as broader industry headwinds continued.
Looking ahead into 2024, we are reaffirming our EPS CAGR target of 12% to 17% for the three year period ending in 2024. We intend to remain vigilant on spend, protecting margins in Workplace Solutions and expanding them in Investment Management. Our longer term outlook is for annual EPS growth that exceeds 10% beginning in 2025. Our ability to deliver profitable growth is driven by our compelling strategic positioning and capital-light businesses, our track record for generating and deploying excess capital to maximize shareholder returns, and our focus on providing outstanding experience for our customers. As we head into the balance of 2024, our commercial momentum is strong with robust pipelines in Wealth and Investment Management, and the record-setting start to the year in Health.
In Wealth Solutions, the pipeline includes $15 billion of plans and implementation for 2024, diversified across all markets. In Health Solutions, annualized in-force premiums and fees grew 20% in 2023 and we expect growth of at least 15% in 2024. And in Investment Management, we have a robust unfunded pipeline of over $10 billion for 2024. Strong investment performance, will allow us to capitalize on cash moving off the sidelines as macro conditions normalize. Turning to capital. In 2023, we generated $800 million of excess capital and ended the year with excess capital of approximately $400 million. We expect to generate at least $800 million of excess capital in 2024 and to deploy it through share repurchases and dividends. Don will cover our financial results in more detail shortly.
Turning to Slide 5. Voya's scale and reach across workplace benefits and savings distinguishes Voya in the marketplace and provides a compelling value proposition for our customers. Our strategy enables us to land new customers and increase retention. It provides us with an expanded solutions set to grow business with our customers and create new revenue opportunities, and it allows us to deepen our relationships with employers and employees as we provide tools and guidance to maximize the value of benefits and optimized savings. With the distribution reach, few can match our workplace solutions businesses operate across virtually every market and industry. Our compelling solutions set is driving new sales. Within Wealth Solutions, for example, we are adding managed accounts and non-qualified plans to our recordkeeping customers.
Within Health Solutions, we are increasingly selling voluntary benefits alongside Group Life & Disability. We spent much of 2023 integrating Benefitfocus, which provides us with an important new workplace capability and opportunity to drive expansion. We recently concluded our first open enrollment season with Benefitfocus customers and the results have been a resounding success. Benefitfocus' Net Promoter Score considered the gold standard for measuring customer experience and loyalty, rose an unprecedented 40 points in 2023 over the prior year. We had 100% of customer service standards over the open enrollment season. Those statistics reflect a lead performance among benefits administration providers. They will drive improved customer retention, a significantly larger base of referenceable clients, and ultimately greater revenues and earnings.
We deepen our customer relationships when we help employers optimize the benefits spend and employees build a more secure financial future. Our ability to connect workplace benefits and workplace savings drives better outcomes for our participants and their employers. Our market-leading benefits enrollment guidance and our MyVoyage integrated benefits and savings app are just two examples of our ability to drive better financial outcomes for employers and employees alike. Turning to Slide 6. We've transformed our Investment Management business into a diversified international asset manager with a broad array of investment strategies across institutional and retail markets. Voya IM enters 2024 positioned for long-term sustainable growth with strong fundamentals, diversification across markets, a well-established presence in attractive asset classes, and a robust sales pipeline.
Success begins with strong investment performance. More than three quarters of our AUM is in strategies that exceed the benchmark or peer median on a five or 10-year basis, and our performance in 2023 was exceptional. This positions us well to capture flows in 2024 as cash comes off the sidelines. We possess critical investment capabilities in high-growth strategies. A private and alternative business continues to expand with our strengths in private fixed-income and private-equity secondaries increasingly supported by additional strategies, including infrastructure debt and renewables. And we continue to be a leader in the insurance channel with a top 10 market position in North America and top three in private fixed-income strategies. Our distribution reach extends to more than 20 international markets including high-growth Asia-Pacific markets with robust demand for US credit and US dollar-denominated assets.
In 2023, our retail net flows in these markets were almost $4 billion with opportunity for further expansion as we add new strategies and markets to this channel. International markets have also catalyzed a turnaround in our retail franchise, further diversifying our business, and creating opportunities to drive higher-fee business. Turning to Slide 7. Voya's purpose and vision continue to drive positive outcomes for our clients, our colleagues, and the communities in which we live and work. Our customers remain at the center of all that we do. We are committed to continuously improving our customer experience through enhanced digital tools, research, and education. And we continue to win recognition for our strong culture and support of communities.
With that, Don will now provide more detail on our performance and results. Don?
Donald Templin: Thank you, Heather. Now let's turn to our financial results on Slide 9. For the quarter, we delivered $1.63 of adjusted operating earnings per share. This included $0.34 of alternative and prepayment income, below our long-term expectations. It also included higher-than-anticipated loss ratios in voluntary and $0.15 of favorable compensation accrual adjustments in Corporate. Full year adjusted operating earnings per share excluding the impact of alternative and prepayment income increased 7%. This reflects record earnings in Health Solutions and net revenue growth in all of our businesses. Cash generation for the quarter and year were approximately $200 million and $800 million respectively. And we expect to generate over $800 million of capital in 2024.
This will build on our consistent track record of generating cash above our 90% target. While we faced headwinds in part of our business, our financial results in the fourth quarter and for the full year demonstrate the benefits of our diverse revenue streams and the significant cash we can generate from our capital-light businesses. We continue to be disciplined with spend as we integrate new capabilities and invest for growth. Turning to Wealth Solutions. This year demonstrated again the benefit of our diversified revenue sources, which supported strong capital generation. We continue to execute on our workplace benefits and savings strategy with a relentless focus on our customers. We ended the year with $544 billion of total client assets.
This includes $185 billion full-service AUM that benefited from recurring deposits approaching $15 billion annually. For the full year 2023, we have full service net outflows of $2.9 billion, which included an expected large planned surrender in the fourth quarter. In Recordkeeping, we generated over $7 billion of flows in 2023. Looking forward, commercial momentum is robust. We have a $15 billion pipeline of plans that are won and in implementation. We expect approximately $5 billion of the pipeline to be implemented in the first half of the year with the remaining $10 billion to fund in the second half. Turning to Slide 11. Wealth Solutions generated $187 million of adjusted operating earnings in the fourth quarter and $742 million for the full ear.
Net revenues were higher year-over-year, driven by fee-based revenues. We expanded our participant base, generated recordkeeping net inflows, and benefited from favorable equity markets. Spread-based revenues were broadly consistent year-over-year. Higher crediting rates and lower spread-based assets offset improved net investment yields. We expect spread-based assets to trend lower in 2024. Fee-based revenues should favorably offset spread income trends, such that overall net revenues will be 1% to 2% higher year-over-year. This is supported by our strong pipeline. Finally, we continue to be disciplined with our spend and have taken actions to maintain healthy margins while still investing in growth and delivering for our customers. Turning to Health Solutions.
2023 was a record year for the Health Solutions business. We continue to grow our core business, expand into adjacent markets, and drive greater adoption and utilization of our solutions within the workplace. In 2023 annualized in-force premium and fee growth exceeded our 7% to 10% target, driven by strong sales and favorable retention across all product lines. In the fourth quarter, we experienced favorable loss ratios in Stop Loss due to continued favorability in our 2022 business and 2023 experience that remains consistent with our long-term expectations. We also experienced higher-than-anticipated seasonal claims activity in Voluntary. This was due to our continued efforts to further drive customer value and increased utilization of our products.
Overall, we met our pricing targets for our January first business and we affirm our 69% to 72% aggregate loss ratio guidance for the overall health book. Turning to Slide 13. Adjusted operating earnings of $341 million were a record, including $48 million generated in the fourth quarter. Net revenues grew nearly 36% year-over-year, reflecting strong sales, favorable retention and added fee-based revenues. Adjusted operating margins were approximately 28% for the year. As planned, our adjusted operating margins were lower year-over-year due to business mix. Our business now includes our strategic benefits administration capability that we added in 2023, which has a lower-margin profile consistent with benefits administration peers. As Heather mentioned, Benefitfocus recently completed a successful open enrollment and experienced significantly improved net promoter scores.
We expect overall 2024 adjusted operating margins to be in the range of 24% to 30%. And we expect margins to improve longer-term as we integrate new capabilities and continue to deliver on exceptional service. 2024 is off to a strong start. And our expectation is for a second consecutive year of annualized in-force premium growth of at least 15%. Turning to Slide 14. 2023 has been a transformational year for Investment Management. We strengthened our global distribution and enhanced our Investment Solutions. We continue to serve our clients with excellence in what was a challenging year for the industry. Full year net outflows represented organic attrition of 4.9%. Consistent with the broader industry, we experienced pressure on our Institutional business.
Importantly, approximately one-third of the net outflows in 2023 are one-time and are now behind us. Specific to the fourth quarter, net outflows of $5.4 billion were higher than our expectation due to the timing of two client mandates, which are now expected to fund in the first half of 2024. It was also impacted by year-end profit taking in Japan, following a strong year in global AI and tech. Looking forward, we expect to return to positive flows in 2024. Our confidence is driven by several factors including, first, we continue to build on our long-term track record of investment performance in 2023 which was strong across a broad array of asset classes. Notably, our leading one year performance in fixed income puts us in a position of strength to capture assets as clients rotate back into fixed income strategies.
Second, we are seeing client confidence start to return as market volatility has improved. This has led to an increase in insurance client commitments, including commercial real estate and private credit. And finally, our international retail distribution partnership continues to benefit from demand in the Asia-Pacific region for US dollar-denominated Solutions. Turning to Slide 15. Investment Management delivered adjusted operating earnings of $47 million in the fourth quarter and $180 million in full year 2023. Net revenues grew approximately 17% in full year 2023, driven by higher management fees from favorable equity markets and higher international retail AUM, partially offset by the impact of lower institutional assets. 2023 adjusted operating margin was 24.9% which was lower year-over-year.
We took significant expense actions in 2023 to adapt to changing environments, while we integrated new teams and created greater investment capacity. We are taking further expense actions in 2024 and continue to prioritize investment in growth initiatives. Looking ahead, our high probability pipeline remained steady from last quarter at $10 billion. This is diversified across all US channels including Institutional and Insurance, and includes unfunded client commitments expected to fund in 2024. And the $10 billion is nearly 70% higher compared to the same time last year. Turning to Slide 16. Our strong capital generation continues to differentiate us from peers. We generated approximately $800 million of excess capital in the year, including approximately $200 million in the fourth quarter.
And we expect to generate over $800 million of capital in 2024, which builds on our track record of generating free cash at over 90%. Our focus in 2024 will be on deploying capital to shareholders via share repurchases and dividends, given the actions taken to reduce debt in 2023. We will continue the practice of deploying in the current quarter that capital we generated in the prior quarter. And we expect to maintain our excess capital position until macro conditions become more constructive. Turning to Slide 17. In 2023, we focused on integrating key acquired capabilities and executing on our workplace strategy. We also managed our spend to create additional capacity to invest in areas with the greatest opportunity for net revenue and earnings growth in 2024 and beyond.
For 2024, we expect EPS to be in the range of $8.25 to $8.45. In 2025 and beyond, we expect EPS growth of 10% plus, consistent with our historical track record. This is supported by profitable revenue growth, improving operating margins, and strong capital return driven by our diversified and capital-light businesses, which continue to generate significant free cash flow. With that, let's turn to question and answers.
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