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

Ryan, this is -- falls in the category of something Mike used earlier, done -- well thought, number one. I mean, it is a constant battle to make the judgments of where you need to invest, how much you need to invest. Somebody comes ahead with a tool or a program or we do and then and they catch up. And so this is just -- it's a constant piece. I feel good about where we are. I think it's been really tested for us and for other companies through COVID. That said, we can't be passive about this. And we're going to continue to need to invest in the business. And part of what Mike Smith, Mike Katz and I have communicated is we're trying to have that revealed in the P&Ls of the business so people fully understand, and it's very transparent what we are investing and what the impact of that is in the businesses. I do think, and I suspect we'll come to this in one of your questions here, but if I can just jump to COVID for a moment. The COVID has caused all companies to really test their business resilient plans, and we were no different. You put a lot of energy into those things, you test them, but it's one thing to test them in a theoretical environment or a test environment. It's another thing to send 6,000 people home on a Friday and hope like hell, everything comes online on Monday morning. And fortunately for Voya and many other companies, it did. And I think one of the things we're learning is life has changed. And I think its -- life has permanently changed. And part of what we're trying to do more than 20% of our workforce, pre-COVID, was virtual, something we call Virtually Orange. And I suspect that percentage is going to go up appreciably in terms of what some of our employees may choose to do. I think some may choose a hybrid model where they come back to work, meaning work in the office for a day a week or a day every other week or 2 days every other week or some example like that. And some can't wait to get back just because that's part of the oxygen they need and they want the interaction, and we're going to try to accommodate that. What Mike and I are really leading into is, I think this is a moment to really redefine the nimbleness of a company and the ability to the extent we can accommodate this of our 6,000 employees on which model do they want to operate in. And frankly, it's opened our eyes to our primary locations, as you know, are Windsor, Minneapolis, Atlanta and Phoenix, and we've got some other smaller locations, but there's a whole lot of talent that may not choose to want to live in any one of those places. And I think our ability to operate in the way we've been operating for the last 4, 5 months is really opening our eyes to being able to attract talent to fuel the growth that we're anticipating as we move forward. So we're fundamentally a B2B company. We're not in the retail business anymore. And we've found the way and have continued to grow and have recurring deposit growth and net flow growth in an outsized way during this period of time, which we're pretty proud of, and I'm bullish about what the opportunities are going to present ourselves. So we're going to reveal some of this as the year unfolds and as our thinking evolves. But I think you'll hear much more about this in '21 and beyond in terms of how Voya is thinking about changing its operating model perspective.

Yes. And in terms of our customer-facing technology, Ryan, I'd just kind of point to a couple of proofs in the pudding kind of points. I mean, we've had positive net flows into the retirement business and the small to mid-corporate space for something like 26 or 27 quarters in a row, right? I mean, you don't win business, you don't gain share without having a very solid technology capability in that space. We're also winning very large recordkeeping clients. I mean, we're bringing on, we believe, a net 350,000 new participants into the recordkeeping space, which is over 10% of the current record-keeping business. So that is also intensely competitive from a technology standpoint. And then finally, the growth we've seen in Voluntary over the last 4 or 5 years, growing at 20% plus, consistently, has been driven by a technology capability that we've built to be flexible to work with a wide variety of benefits administrative -- benefits administrative platforms as well as with the employers directly to be flexible in how we ingest the data and turn it into a solid offering for the plan and for their participants. So those are all areas that I think we've demonstrated a strong capability. But as Rod said, it will never be done, and we'll continue to invest in it. But we feel like we're in a good position right now.

This is a fairly broad question, but can you discuss how COVID is affecting the near-term growth outlook for each of your 3 key businesses?

We -- I'm happy to start. And again, we'll jump back and forth. We've talked about, and compared and used, for example, Ryan, RFP activity. So the request for proposal activity in '20 is down from our record-high of '19 and more at '18 levels. And the point I'd make about that is '18 was one of our very best years. So the RFP activity is down, our recurring deposits and -- in both our retirement business and our -- are up, and so we've been very fortunate. But it -- to say that we haven't been impacted by COVID would be a misstatement. And we don't -- Mike and I, in no way, intend to try to communicate that. So we've had -- first of all, we had to learn how to be adaptable and learn some of the best practices of how to do virtual meetings in terms of openings, case development, business maintenance and persistency maintenance, which went -- by the way, the persistency has improved in this period of time, and then closing. And we are figuring that out as we've gone through this. But we feel really quite good. The last 4 months of the year, in our business, we're in the B2B kind of business, generally are some of our best months from a momentum that carries over into the year, and we're optimistic about that. But this is a -- stay tuned, and we'll see how it plays out. But right now, we feel very, very bullish about what we're seeing, relative to the marketplace. And remember, the marketplace is -- there's a lot of questions in the marketplace. Mike?

And maybe just to put a little dimension around what we expect in retirement, and then I can talk about Investment Management and employee benefits. Just the recurring deposit growth that we had signaled for retirement, we were targeting 10% to 12% per year growth in recurring deposits. We're now seeing -- and this is still an early estimate, but we have signs that suggest that the recurring deposits in the second half of this year will be about the same as they were in the second half of 2019, and that's going to be a combination of plan, like -- slightly reduced plan growth, fewer participants and so on. So that will lead us to an overall growth in recurring deposits in 2020 of 3% to 6%. Still growth. The business is still growing, but not quite as robustly. And so I would view that as an easy way to try and gauge the impact of COVID on retirement. In Investment Management, we had a knockout first and second quarter from an institutional standpoint. We won a huge mandate with an insurance company where we've had a lot of success over the last several years. We do expect things to slow down a bit. What we're seeing is that RFP activity, just by virtue of the environment we're operating in, is slowing down somewhat, particularly if you don't have an existing relationship, where we see the folks that are looking to invest are somewhat less engaged in trying to find new relationships. They're pretty happy. If they have decent performance, it's probably a little bit less likely that they're going to go out and seek a new opportunity. So -- but we do think we have capabilities that play well in this space. We've got a really strong track record in fixed income and credit. We've got demonstrable capabilities to exceed benchmarks. Almost -- I think, it's -- 98% of our funds exceeded the benchmark for the last 5 and 10 years. So we think that's really strong. And then on the benefit side, look, I think we've held our own. Premiums have grown 5% year-over-year, which is actually pretty good, given everything that's happened these -- over the last few months. And I think the COVID claims have been far less significant and concerning than we might have originally thought. And so overall, we think employee benefits has held up really well. And particularly, I think that's because the -- our business is not the smaller -- in employee benefits, we are aimed at 1,000 employees and up by basically. We have some under that, but our primary focus is on larger employers, and they've been less subject to the effects of COVID in the small market.

You had -- following the announcement of the Individual Life transaction, you had provided 4Q 2021 EPS guidance, but you had pulled that due to COVID, given the uncertainty in the environment. When would you contemplate bringing back some form of forward-looking guidance?

It's a good question. I don't have a great answer. The answer is, when the environment becomes less uncertain. Look, I think, so far, things -- from a credit standpoint, we had dimensioned potential capital erosion from credit migration and defaults to be somewhere in the -- on a gross basis, $300 million to $600 million. We're certainly tracking more toward the low end of that, and we found management actions to help offset it. So the overall capital impact has been relatively benign to date, and we're pretty pleased with that. But there still remains significant uncertainty, right? I think the markets -- equity markets have recovered, and it's great to look at where we were a few days ago. And then suddenly, you see what happened just over the last week, right? I think there's still a lot of choppiness to go. I think the progress of the pandemic and the progress of vaccines and treatments is still a significant unknown, and how that's going to translate into the economy as well as what the response of government is going to be to the extent there is a significant reemergence of the virus in the fall as some are predicting. There have been some fairly dire forecasts of potential deaths by the end of the year that have recently come out, and I think those should give us pause. So all of those things kind of go into the level of uncertainty around the inputs that we use to drive those projections, right? And we're particularly focused on future equity growth, future interest rates, future commercial growth, all of those go into -- come into play. So we, certainly, we do the modeling. We have our own view of where things are going, given those assumptions. But I just think the level of uncertainty around some of those assumptions is enough that it probably isn't wise or necessarily beneficial for us to be sharing that publicly and saying that's where we think we're going to go because there's just too much that we -- it's a far greater-than-normal level of uncertainty. There's always uncertainty, but it's just as much as it's been in the last -- since the financial crisis, I'd say.

And Ryan, I don't think that's materially different than most other firms. Look, we've got a firm hand on the wheel. We are focused on controlling what we can control, and that has generally served us very well as we've gone through periods of time where there's been uncertainty. None of us have been through this kind of uncertainty. But many of us have been through others. And we will get through this. And we're very confident about managing what we, Voya can control, and that's both on the activity perspective, the new business and maintenance of business and relationship perspective as well as the expense side.

So Rod, last year, you extended your employment contract through the end of 2021. And certainly, no one wants you to retire. But was hoping you could discuss how you are thinking about succession planning for Voya at this point?

Sure, Ryan. And thank you for the comment. We are very focused on that. Look, I am really, really proud of where we are. Succession is a main event in our company just given where I am in the journey. I've committed to stay through '21. There's an option on '22, as you're well aware. I -- we are working really hard, and I don't think COVID changes a lot of this, other than it just makes life complicated, but it doesn't. It's not complicated because of COVID. It's just another level of complexity that we are going to very thoughtfully signal succession. We've got some fantastic candidates. Mike is a really good example, but there are others in the company. And what I've committed to the Board, what I've committed to our shareholders is that we're going to do this in a thoughtful way and stay tuned. So there's no real new news here. Right now, it's through '21. The Board has the option, and it's no different than before, by the way. It's all the same words. I mean, if I'm asked to stay, I will stay, but will be staying to just -- I assure as we introduce the next 3-year plan, which Mike and I are as engaged in on that as we've been on any of the other 3 versions that we've done, the 2 prior and the one we're executing on right now, so that we've got both the right message, the right commitment and the right energy and the right capital behind the plan.

There -- we talked about consolidation and define contribution space, and there have been a number of individual business unit transactions within the life insurance industry, but there have been very limited whole company consolidation within the industry over the last decade, following the financial crisis. What's your perspective on what the key impediments to that has been for the industry? And do you expect consolidation to return at some point on a whole company basis?

I think it could. And again, look, it has -- there's 2 sides to that trade. It's -- I'll use Voya as an example, and as whoever the other company is. So if we were acquiring a company, what are their businesses? And are there parts of their business that you're interested in or not interested in? And -- or frankly, the reverse of that. I mean, we believe we've -- in Voya, we've exited the things that were either highly capital-intensive or we're simply not committed to, given our strategy. So there needs to be an alignment of strategy. Obviously, the economics need to make sense from an accretion perspective for shareholders over a reasonable period of time. But I think there well could be. And I think this environment is going to -- and some of what Voya has done and some of what other companies are doing in terms of coming to grips with, is it -- are you committed to that business or not? And if you're not, how does one exit that? And what's the market? And what's the period of time that takes? I mean, these things are -- they're not easy to -- both even the ideation part, let alone the execution part. But happily, we're behind all of that with the closure of the life business here in the fourth quarter. And so could it be done? I think it could be done. And I think, I suspect, particularly with COVID and some of the market issues, it likely will be over a period of time.

Yes. Ryan, I think the only thing I'd add is just, look, the interest rate environment has been probably less than conducive to convincing buyers that -- and/or sellers, that we can get to a price that makes sense for the longer-term value. And so I think a more constructive longer-term interest rate picture would certainly help push that along, especially for those that have -- that still have a lot of longer-term interest rate guarantees on their balance sheet or interest rate-dependent products. I think those are the things that are probably limiting some of the transactions. Now we were able to find a way with some pretty long-dated guarantees, right? So that can be done, but I think it's definitely an impediment.

My final question was on ESG, which has been a big priority for Voya. Can you touch on some of the key things that the company has been focused on in that regard?

Sure, Ryan. And I'm happy to start. And again, Mike will jump in. Look, this was partly because of my and Mike's international exposure, prior to even being at Voya. This was far more prevalent, relevant and current in other parts of the world before it became as centric as it's becoming here in the U.S. And we could see this coming. We needed to develop a point of view of this for Voya. And this isn't simply about conveniently checking a box. I mean, we really needed to decide what our posture and position was going to be, what did we need to change to, in fact, change that, and then how does that filter through all of our businesses. And as you know, we've been at this for some number of years now. And one of the things I'm particularly proud of from a firm perspective is 3 years ago, Barron's started rating and ranking the top 100 firms in the U.S. Three years ago, we were 46 out of the top 100. Last year, 6. This year, third. And for the last 2 years the highest-ranked financial services company. This is becoming increasingly important to investors, increasingly important to consultants and most importantly, increasingly important to customers. And you need to walk the walk. You can't simply just say the words and assume that, but we are doing this. I put it in the category of another way to compete where it isn't simply about, how do I lower my cost per participant by $0.50 or $1? It's -- can -- are you living this? Do the results bear out the differentiation, which, in our view, they do and will over time. And all of that's happened now. It's -- we're still in early stages. I think there's a lot more we can and are doing it, are doing with this. And Mike, I'll -- feel free to add some other dimension.

Just maybe a quick bit of color is simply, look, I think we inherited a lot of great things from ING, including a great team and the making of some really good businesses. But we also inherited fantastic governance processes, I think, a strong commitment to the environment and a strong commitment to community involvement with volunteer time and a very active employee, say, with significant participation in all of that. So that all goes to the culture, and I think it then flows through into a lot of the business activities that we follow. So really proud of the culture we've built and looking forward to continuing to take it to even the next level.

Great. Well, we are out of time, so we will wrap it up there. Thank you very much again, to both Rod and Mike and Voya for your attendance again, this year. And that, I think, wraps up the virtual fireside chats for today.

Thank you, Ryan.

Thanks, again.

Thanks, Ryan.