Voya Financial, Inc. (VOYA) Earnings Call Transcript & Summary

Yes. The fees are higher. And we like to say there's a little bit more of a moat around the fee castle because it isn't as easy to replicate what we have to offer. So we are -- we do see fee pressure or it's very competitive on more of the liquid strategies that we manage. However, we -- when you think notably about fixed income, we have well over 100 investors. And we can drop large fixed income mandates with very healthy margins at competitive rates. So we can go up against the giants, win and it's still very accretive to our ongoing operating margin. And as we set forth in Investor Day, our operating margin goal is to be between 30% to 32% by the end of 2020. So we're confident we're on that journey.

'21.

'21. Did I say '20?

Yes.

Sorry, '21.

'21? Okay.

And not a Freudian Slip, not a Freudian slip.

No? Okay. I'm thinking '20.

Christine, maybe you could just add on the financial institution capabilities that we've done and the progress you've made there, too.

Yes. Thanks, Rod. Yes, another thing, within the United States, as all of you know, the institutional pile of cash is shrinking. As defined benefit plans are closed, it's going more into DC. And DC markets are defined contributions. A lot of it is passive and passive target date funds. So where we are playing institutionally, what's different is insurance outsourcing. Insurance asset management is a strong organic growth pocket within the United States as well as globally. And coming out of our roots, when you think about when you manage insurance assets, they're very complicated. And I often define -- serving an insurance mandate is like running -- Rubik's cube. You know those old, little things where you twist it, it's white and then it's green and you get all twisted around it. Well, when you're an insurance company, you've got stacked capital, you've got gap issues, you've got encumbered. And you have to manage turnover, credit risk, on and on and on and on. But because we've lived and breathed it and delivered real value as part of Voya for the Voya general account and Voya capital for shareholders, our value proposition really resonates with insurance companies. So we have grown that business. We started a dedicated distribution insurance team a little over 5 years ago. And we've grown that business from 8 clients to 40. And it's continuing to grow. And the nice thing, too, with insurance companies is once you get into the tent, so, say, you sell them commercial real estate, we also have the beauty they come back and then they say, "Oh, okay, I want to hear more about Pomona." So the cross-sell opportunities there are strong as well.

Okay. And then just lastly, I want to round out that 30% to 32% margin that you just touched on in 2021. I mean is that something -- given the higher fees in some of these businesses, is that something you think you could see several years out being a company to kind of maintain margins instead of feel the heat over like a 5 to 10 years -- maybe not 10. 5 years out?

Yes. And 30%, 32% isn't a stopping spot. It's just the spot on the journey and the destination of our company. So we continued to grow organically. We continued to figure out what sort of differentiated capabilities are naturally for us to add. So I'll give you an example of one that we did is we have a Private Credit team that has always done infrastructure debt. And we've been managing Private Credit with a wonderful team for over 30 years as part of our company. And we found a team that specialized in renewable infrastructure private debt. And it's ESG and green and some of these things resonate more and more with clients. So we did an organic lift-out. We added the team, and we're now in the process of launching an infrastructure debt fund. An example we haven't decided to do but a possibility is we don't manage municipals. And yet in a world of higher taxes and just given our fulsome fixed income capabilities, that's a natural spot for us to do. So going back, is the margin sustainable? And do we have opportunities? Absolutely. How we strategically think about the business is where is it very logical either organically or possibly inorganically to step out and to continue to leverage that brand, which does bring with it higher margins and higher fees.

Great. Shifting over to Employee Benefits, Rod. So what drove that recently announced, this was on the 4Q earnings call, earnings CAGR guidance of 11% to 14% over 2018 to '21 period? And that's up from the previously guided 7% to 10%.

Frankly, the outcomes. So if you think about it, we have a fundamental Group Life and LTD offering. We'll remind all that are listening that on the long-term disability offering, we have always reinsured 100% of that liability. So you have to have a group and LTD offering. It's kind of a fundamental tenet. We assume the risk on the Group Life. We reinsure 100% of the risk on the LTD. What we have focused on over the last 5 or 6 years, and we really come from being a non-top 10 player to a significant player in the voluntary space. And what's driven this? There's been 2 things. A couple of things that we've done as a company to solve some pain points. And what's driving the opportunity? Last year on the voluntary space, half of the new cover that we added was brand-new coverage in the marketplace. And the reason that's happening is with the advent of high-deductible health care, many employees, perhaps many of you, have chosen a higher deductible plan and it creates gaps that voluntary products in part help offset. And there's been an interesting alignment, over the last 4 or 5 years since this has been happening, of employer, employee and consultant/adviser understanding what these are and adoption of this. And we see this, Andrew, in not just the small/mid space but the Fortune 100 space. We added a Fortune 50 company last year who've never had any of this coverage previously. And we had a lot of adoption of this in the small/mid space. And part of the pain point that we figured out over time to solve, and it is not as if we're the only company trying to pursue this, is making it easy at the enrollment part. You might imagine in all of the companies we do business with, but particularly many of the small/mid, payroll and the differences in how they do payroll are massive. And our ability to take data in, my simple word analogy is we take it in a shoebox and we deliver back a package they're looking for. And we've been able to solve that in a way that this doesn't become a problem for the employer, it becomes part of the solution. And that cover has been growing very rapidly and we see that continuing. And we've had some really good experience with Stop Loss. I mean we measure that by loss ratio, as you know. We've had a couple of periods of time that gets repriced annually that we got modestly out of our loss ratio range. We're able to reprice and get it back in. Our focus is on profit, not top line sales, driven by the loss ratio. The combination of those things, we're bullish about it. We raised the guidance. And we think that's an interesting trend, different than perhaps many in the market and part of what reinforces our comfort and our confidence in the aggregate 10-plus percent EPS growth rate.

Interesting. Rod, I started off by, when I introduced you, just highlighting the stock price appreciation of well over 100 -- it was over 180% about a week or so ago, but it's still above 170%. And that's phenomenal. It's unparalleled. And so your contract extends through 2021 with an option through 2022. How long would you like to remain with the company? We'd love to see another 175% [indiscernible] in the stock.

Well, everything that we've always talked about has been -- it's been a team sport. And so look, particularly when things are going well, you might get -- the light might shine on me a little bit more than it probably should. But we've built a tremendous team, and you're seeing Christine today and you've met Charlie previously and you certainly know Mike Smith and Mike Katz and [indiscernible] and others. And what I've committed to, Andrew, is through this plan cycle, so the '19, '20, '21 year, no change from the 2 previous plans. I mean I am as fully engaged in that as possible. We are and have been, and I really want to underscore have been, thoughtfully approaching, thinking about and working with our key leaders on succession. And I don't just mean succession at the CEO level, I'm talking about succession and development. And I want to use Christine as a quick example, and I'll get back to your point. Christine was one of our lead investors and has a phenomenal track record and transitioned to the CEO of our Investment Management business, is doing a terrific job. Well, we had ready-now candidate in that [indiscernible] to step in and we haven't missed a beat. And what we really want, and we want to demonstrate to those that own us currently or prospectively, is the depth of the team that we have in every dimension. So we are going to be far more purposeful, not just at having Christine and Charlie and Rob Grubka, our business leads, but frankly some of the men and women are really key on their teams, we're going to give much more exposure as we work on this. The answer to your question in terms of 2021. Naturally, we are dealing with, as a Board, succession. And I -- so I shared at a dinner last night, this is not going to be a 5:00 news conference that, with immediate effect, I just stepped down. We're going to reveal this in a very thoughtful way as we land that plane in introducing a broader team for the next generation. And the reason that option is there is the option has always been there. And so if the Board asked me to stay through '21 in a Chairman capacity or some kind of glide path as I retire...

'21 or '22?

Through '22, I'm sorry, through '22, that -- certainly, that would be open to consideration. I do think there's a time when the baton needs to be passed, not because I'm not excited about what we're doing, but just we need to create opportunities for not just my immediate direct reports but for their direct reports as this goes on. And we're very mindful of that as a Board. So I've been here 8.5 years. I'm having a ball. I'm proud as heck of the results, which have been a team effort. Our Board is proud of the results. And the most important thing right now that we're working on, we're closer to -- you might find this interesting. We're closer to our next Investor Day than we were to when we started the ideation for the 2019, '20 and '21 period. And we're working on that as we speak. You would expect us to be. So we're not revealing anything about that today. But we're working on what is where it looks like for the 3-year plan that follows. What are the investments that we need to make? How do things need to change, if any? Where do we need to add components of teams? And so forth. And what the Board has asked me to do, and you would expect this, is to be as engaged in that as I have been in the 3 previous iterations, Phase 1, Phase 2, Phase 3. And I am and we are, and this is something, as a senior leadership team, we talk about regularly both with the team and with our Board as we develop this over the next 1.5 years. So stay tuned. I am thrilled to be here. But there will be a natural moment, whether it's at the end of '21 or the end of '22, to pass the baton and move on.

Interesting. Rod, what are your thoughts on remaining an independent company?

I've tried to be unbelievably consistent almost to the word on this. We are -- we fought like heck to be a public company. We're proud as heck of the results that we've built as a team. And it has been a team sport. But I've always answered that externally and equally internally, and this is really the point I want to drive home, Voya is not for sale. And then my next sentence, because you're all really good at asking questions, is but what happens if someone knocks on the door and it's something that is shareholder-enhancing? Will the Board act in the appropriate way? And my comment, second sentence, always has been I am 100% confident the Board fully understands its responsibility and will always act in shareholders' best interest. And I think the evidence is $7 billion of shareholder return just in -- of share buybacks since we've been public. That said, they're really proud of what we've done. And we've gone from a company, candidly, that no one cared a heck of a lot about or if at all when we went public to one now that we're being talked about a lot. Kind of heard that the other night on the debate, I'm hearing my name mentioned frequently. Well, we're hearing Voya's name mentioned a bit frequently. And we can't help when comments are made. And candidly, I think they're going to be made more frequently, not less. And we deal with it. And how we're able to deal with it is we've been answering that same question internally the same way. So we're not saying one thing to one audience and something else internally. Our employees know we're answering in the same way and they've responded beautifully. And part of why they have is they've seen how we've acted and treated and the value that we've created and the culture that we've built in Voya. The 2 examples again, I give the most recent ones, is when we make a decision on CBVA, we stood up Venerable. And 300 employees that people have worked with for 10 or 15 years got terrific jobs that have a bright future. And people care about how they're treated. Same thing with Resolution. We did a transaction that we think is a fantastic transaction for our shareholders and 400 people, plus or minus, are going to have jobs and they're being stood up as an independent company. That matters to those 700 people, but it matters even more to the 6,000 people that we have left on how we have treated and have reacted in a way that's consistent with our values and our culture. Andrew, we just did in a press release 2 days ago, when we were recognized now for the seventh year, we've been eligible in the seventh consecutive year as one of the World's Most Ethical Companies. And there's only 128 or 122 globally and only 5 in our sector. That matters to our clients a lot. And the ESG thing matters to our clients.

And I want to -- maybe we can kind of close out on ESG because it's an area that investors seem to be taking increasingly more seriously. And I was just kind of paging through Barron's one weekend and there's Voya, #1 in financial services and way up at the top relative to any type of corporation. And last night, we were talking about how it's not only the right thing to do ethically, but it's affecting your business. And maybe you and Christine can kind of talk about how it might be affecting sales.

So let me start and I'll let Christine give you some real-life examples of how that's impacting both RFP activity and finals presentations and the kind of Q&A that we get. But again, one of the cool things about 8.5 years ago is we had the chance to start with a fresh whiteboard on what kind of company did we want to be. And we had an opportunity to build a new brand. We had an opportunity to define the culture that we wanted. An example of that, and I'll lead this back to the ESG, we said we wanted to get to parity on our Board, men and women, and we did that in 2.5 years. And then we wanted that to cascade through the organization. And that has happened. ING was a global company. And so Christine was not -- and others were not unfamiliar with ESG in Europe, in ESG in other parts of the world. In my former life at AIG, I certainly had that exposure. We could see this coming. And we spent a good bit of time thinking about how do we define our authentic self and what are the things that we need to do for this to happen. And we're proud of the Barron's thing. So 3 years ago, Barron's started this and we were 46th. Last year, we were sixth. This year, we're third. And the last 2 years, the highest ranked financial services company. That's not an accident. And it's having a huge impact. Very often when we're meeting with prospective, actually, investors but certainly people buying our products, they're saying, "You screen at the best or nearly the best of all of your competitors for this." And it is very much an active part of both the RFP process and their intentions. And with that, I'll hand it to Christine on how does it work in real life.

Yes. And so Andrew, we are seeing more and more clients asking us about this, not only in terms of the investment process but more broadly. And I think there's a term in asset management that you call green washing a little bit, like our asset managers giving lip service to ESG because it's a thing and maybe they're buying external data. And what -- how we compete for business and where it's really differentiated is pointing out to them that our -- ESG is not just environmental, which we're green and we've been awarded green, it's governance. It's doing the right thing. So we're really the embodiment as far as the overall culture of Voya. And in fact, I was at the finals yesterday for a mandate with a public fund, and they were very interested in this topic. And so what you can do as part of Voya is to say that you are one of the most ethical financial service companies in the world, 1 of 5. That resonates. But it's real and it's intentional, it's hard thought for the brand. We're very passionate about it. And so I find when I go in front of these things, I would say, "We have an authenticity around this as an asset manager you can match." Because we don't just talk about ESG, we are ESG. And so whether it's asked me questions, the Board sitting at the top, 50% of our Board members are women. And that sets the tone for the firm. So whether it's various kinds of diversity, doing the right thing, we're ahead of the pack on all those elements. So again, this is a tailwind. In addition to investments, in performance and in what we do, I think it's a tailwind for overall Voya in mattering to our clients and winning business.

The other element I'd add, look, we've had a very robust economy, which has been terrific and a very competitive employment market. This matters a ton to the men and women of this next generation. I mean we are literally having people join us and stay with us because there's a recognition of the authenticity compared to others that may be less so or not focused on it at all. And that's just -- it's another outcome. It wasn't something that was on the whiteboard when we started. But it is -- of that generation, in particular, this is just something that, of course, you would do this. And if you're not doing it, why the hell do I want to work for you?

Amazing, phenomenal company. And thank you both for coming out here and speaking with us.

Thank you.

We appreciate it. Thank you.