Good morning, and welcome to Voya Financial's Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the call over to Mike Katz, Executive Vice President of Finance. Please go ahead.

Thank you, and good morning. Welcome to Voya Financial's second 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 during 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 Christine Hurtsellers, 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.

Good morning. Voya Financial has delivered strong second quarter results as we continue to drive earnings and sales momentum across our businesses, prudently manage expenses and generate high free cash flow. We are well on track to achieve our 12% to 17% EPS CAGR target over the three-year Investor Day period ending in December 2024. We're focused on executing our plan, driving organic growth and integrating our new businesses, which are delivering valuable revenue diversification and attractive opportunities for future growth. We head into the second half of 2023, focused on our customers and confident in our ability to generate profitable growth. Our confidence is driven by the proven resilience of our businesses and the strong track record that we have built by consistently delivering results across a wide range of economic conditions. Let's move to Slide 4 with some key themes. For the second quarter, we delivered adjusted operating EPS of $2.21, which is 30% higher year-over-year. Our results reflect the strength of Voya's diversified business model, continued sales momentum and disciplined expense management. For Wealth Solutions, full service net flows were $400 million, with growth in recurring deposits helping to offset elevated participant surrenders while record keeping delivered a strong quarter with net inflows exceeding $3.5 billion. Health Solutions delivered another outstanding quarter, driven by strength in stop loss, annualized in-force premiums and fees grew 22% year-over-year. In Investment Management, net outflows reflected the difficult market backdrop, especially among institutional clients, while continued strength in international retail helped to offset some of this effect. We generated approximately $200 million of capital this quarter, and our free cash flow conversion rate remained above 90%. Because of our confidence in our continued ability to consistently generate strong free cash flows, we are doubling our common stock dividend this quarter to $0.40, or approximately 2% yield. We've also resumed share repurchases, deploying $162 million this quarter as part of our consistent emphasis on returning capital to shareholders in a disciplined manner. Our board has provided a further $500 million repurchase authorization to facilitate our continued execution on this approach. In a few moments, Don will share more on our results and performance. Our strong results this quarter demonstrate the value of the diversified business model we have built during the past several years. Slide 5 shows how our revenues are balanced among underwriting, spread and fee-based sources with our fee revenues further diversified across markets. This diversification, coupled with our continued focus on expense management, has allowed us to achieve consistently strong operating performance, even as business and macroeconomic conditions have changed quarter-to-quarter.

Thank you, Heather. Now let's turn to our results on Slide 9. We delivered $2.21 of adjusted operating EPS in the second quarter, which was 30% higher year-over-year. The Health Solutions business led our exceptional growth with another strong quarter of favorable net underwriting. While second quarter GAAP net income was $154 million, we generated approximately $200 million of excess capital in the quarter. This was because a majority of the differences between after-tax adjusted operating earnings and net income were non-cash in nature. Turning to Wealth Solutions. We're focused on improving financial outcomes for our customers and clients, consistent with our purpose, vision and values. This is supporting our ability to generate positive net cash flows and grow assets over the long-term. Specifically, we have generated over $9 billion of full-service net inflows over the past five years, including over $400 million in the second quarter. Full service recurring deposits grew 9.5% on a trailing 12-month basis, supported by favorable case retention. We continue to expect deposit growth to exceed 10% for the full year. In recordkeeping, we generated over $3.5 billion of net inflows in the second quarter, which includes a large case funding. Turning to Slide 11. Wealth Solutions generated $174 million of adjusted operating earnings in the quarter. Net revenues excluding notables grew 1.5% on a trailing 12-month basis due to higher spread-based revenues. Given the rapid rise in interest rates, we experienced elevated spread income last year and the first part of this year. This quarter some of that benefit is normalizing due to policyholder behavior in response to the current yield environment, less variable to fixed transfers and higher crediting rates. Higher credited rates represent our actions to pass on the benefits of higher rates to our policyholders. Looking ahead, we expect overall net revenues to increase given growth in fee-based revenues heading into the second half of the year, and we remain focused on the overall profitability of our book. As planned, administrative expenses were $23 million lower than first quarter, and our adjusted operating margin remains in our target range, demonstrating our ability to manage spend while investing in our business. Our Wealth Solutions business has a strong and diverse unfunded pipeline. This diversification gives us confidence in continuing to grow the business while delivering on our financial targets. Turning to Health Solutions, in the second quarter, annualized in-force premiums and fees were 16% higher year-over-year, excluding Benefitfocus, well above our long-term target of 7% to 10%. We saw growth across all product lines supported by strong sales and favorable retention. Our aggregate loss ratio was 64% on a trailing 12-month basis driven by very favorable net underwriting experience in Stop Loss. Within Group Life, we experienced loss ratios above our 77% to 80% targeted range due to greater severity; however, claims frequency was in line with our expectations. Looking ahead, we expect full year total aggregate loss ratios to be below 70% to 73%. And due to the favorability in Stop Loss during the first half of the year. Turning to Slide 13, we had a record earnings quarter in Health Solutions with adjusted operating earnings, excluding notables of $124 million. Net revenue growth ex notables was 43% on a trailing 12-month basis, reflecting core business growth. Adjusted operating margin ex notables was 35.8% on a trailing 12-month basis, benefiting from the strong underwriting performance. Looking ahead, we expect full year margins to be at the high end of our 27% to 33% target range.

Yes, certainly, Wes. So just to kind of put into context, certainly, challenging industry overall for institutional flows, and we’re not immune. But when you think specifically about sort of the near term and then longer run. Near term, we’ve made some very conscious strategic decisions. I mean you’ve heard us on previous quarters, talk a little bit about off-ramp versus on-ramp and that sort of thing. And so specifically, what are those? We did combine the fundamental equity teams of our acquired AGI business with our fundamental equity team really to have best-in-class and focused investors and strategy there. So that’s just a natural outcome as far as some synergies that can cause a little bit of client disruption, if you will, very conscious, remittable strong equity franchise going forward. But more importantly, we’ve also talked about the NNIP relationship. We did have some outflows related to that, and we do see a little bit of headwind as a result of that into the next quarter. So that’s sort of the frame. But again, what I want to remind you of, and I’ll throw this back to your observation and your question around the momentum in institutional flows. Conscious decisions by us to really fortify and strengthen our business. So what do I mean? Like that chart shows you the institutional flows over a period. But if you’ll recall, we delivered positive organic growth for seven straight years. And if you look at that chart, what’s changed? What’s changed is the international retail really helping to drive higher basis points, higher margin business. And so I’m super excited because the same company that delivered those institutional flows is only better today because we have the global distribution partnership and newly acquired capabilities. So, private markets, you hear us talk about that insurance asset management. And again, just really fortified retail to really have an opportunity to garner flows out of Asia, which is the fastest-growing region globally for asset management. Overall, I couldn’t be more excited. 2023 is complex. And a lot of that is just our conscious decision to strengthen and fortify our business. So what I see is, I see going into 2024 though, a lot of upside, definitely 2% to 4%, outpacing the organic growth of the industry and continuing to expand our operating margin.

Hey good morning. First question is on health and the results were really strong in the quarter, the stop loss, loss ratio, that's always fun to say, was really favorable. So, just wondering if there is any way you can help us with kind of the run rate earnings power in that? And maybe just how much that might contribute to overall EPS growth. I know you said you expected the kind of consolidated loss ratio to be below your target, but any help there would be great.

Yes, great. Good morning, Wes. I appreciate that you like to say stop loss, loss ratio, it’s always fun. Look, as we have talked about the last couple of quarters, 2022 experience is what’s driving this. So, as we think about one-year product, as a reminder, we are going to go through a renewal cycle here in the fall for the whole book. But what has happened in this year is that 2022 experience has continued to mature and ultimately run better than we would have anticipated. At time of pricing, you’re seeing the alignment of that actual experience and the reserving catch up to one another. And so as we think about the next couple of quarters, absent material change in the experience that we’ve seen, we would continue to expect to be at the lower end or under our 77% to 80% traditional guidance around stop loss. And so, then as we sort of toggle into next year after the renewal cycle, we’ll start the process over of exceeding how experience plays itself out. But again, over time, I still think that 77% to 80% is how we want to think about the business as we move forward. This is the block of business that over the last handful of years, obviously, we’ve grown from a top-line perspective. We’ve been doing that in a really disciplined way focused on not just growing as fast as we can but also balancing out the profitability growth. We’ve improved margins. So, I’d say top-line has been growing fast, we’ve been growing the bottom line margin even faster. But it’s a competitive space. Again, we’ll go through a renewal cycle and be able to talk more about that as we get into third and fourth quarter of what that looks like. But the fundamentals are really strong.

Yes, good morning Wes. We will let Rob start your question on stop loss, and then I’ll ask Don to speak to the impact on EPS. Rob?

Yes. I think just from a sort of earnings power or an EPS perspective, you will recall at the end of the first quarter that we had guided to high single-digit EPS growth for the year. And recall that was off of 30% EPS growth in the prior year. We feel really confident about that being at the high end of that single-digit earnings growth range and in fact, I would say the strong results in health give us confidence that we’re probably pushing up into low double digits as opposed to the high single-digit range. So we have a lot of confidence. The business is executing really well. And then as you think about sort of our three-year guide for the EPS CAGR, we gave a range of 12% to 17% over a three-year period ending in 2024. The strong 2022 and the strong 2023 gives us a lot of confidence that we’ll also be at the high end of that range.

Thanks. Good morning. First, I just had a follow-up. Can you give any more color on how much NNIP impacted institutional outflows in the current quarter? And any more perspective on how to size how that could impact the third quarter?

Sure. Thank you, Ryan. So NNIP was part of the outflows in the second quarter and we’re looking at competitors on the institutional side. This seems to be an industry trend. But as far as NNIP specifically, it will continue to be a headwind to our flows into the third quarter. But again, what I am seeing, in addition to really just the foundation I talked about is in our core businesses, our pipeline and opportunities are actually growing. So we are seeing a shift in momentum. I mean, Ryan, clients were terrified of real estate, clients were sort of sitting in cash and really not sure what to do. We’re seeing a movement now into fixed income into credit. We’re starting to see more engagement and signs of life from our insurance clients that we have in terms of the commercial real estate, which quite frankly, was a bad word for insurance companies for a period of time. But I think that, again, clients are getting more confident about the macro environment starting to deploy capital. So overall, still have those NNIP headwinds, working really hard to overcome them, just seeing the growing momentum in the pipeline. And again, I see this as – just think about this as 2023. Just look at what this business has done in the past and it’s going to do in 2024. And I’m just very confident that we’re going to hit organic growth targets over the long run.

My question, you talked about a strong pipeline for Wealth Solutions ended 2024 and 2025. Where does that visibility come from? Because you talk about the right to win. Is it coming from previous retirement providers that customers anticipate are exiting due to lack of scale? Or is it related to the liability consolidation we're seeing in the industry?

Yes. Yes, great question, John. I mean, look, the visibility or opportunities, especially in that record keeping market, at the plan level, the complexity as you sit back and think about like, okay, large plans just a large plan, but likely it's plans of plans of plans. They've got a lot going on within their benefit environment. You think about whether it's a state-based plan and what they're trying to aggregate together, bring together and you can start to get a feel for like, okay, yes, there's complexity here because it's not just all one sort of flavor of vanilla. There's a little Baskin-Robbins mixed in this where there's a lot of different flavors of plans, and they're carrying a lot of history with them. And so that's a little bit of context on just like, okay, well, what brings these things to market is going to be like falling down on maintaining that and the continuity of the service. The experience, how do you integrate these things together depending on what any particular plan provider does, they may be doing things on their own from a digital perspective? And how do you integrate with those environments? So I won't belabor that, but you get the point that there's just a lot of complexity in them as they get bigger, and it's not just a one size fits all. And so you've got to have the capability to bring these things, integrate these things and do it in a way that is it consistent and feels cohesive to not only the employer, but ultimately, their employees who may have assets in more than one place as their careers have evolved and so on. So that's a little bit of like what brings it to market. And then there's an element of people need to make sure from a fiduciary duty perspective, they're doing their duty and they're going to go to market, test market and understand that they've got the pricing they think they should or not. So those are a couple of the bigger dynamics. But again, as you step back and we think about the look through and me talking about stuff that's 2025 and trust me, there's things that are probably 2026 in-house right now of thinking about those sorts of opportunities and then it's execution. And it takes a while with that level of complexity I just described to bring these things on board, make sure the integrations and things happen in the way that they need to and sort of there, you see and feel the complexity and then sometimes the timing uncertainty that comes with whether things are coming or going in the book, those are just dynamics that are evolving and how the teams are working to bring something on board and/or exit something. So those are things that we think we do well, whether they're coming or going because we want to earn the right to get a new opportunity in the future. So the teams drive incredibly hard to deliver on what we need to deliver on there. And again, I think we built a lot of credibility over the last several years and Heather was a big piece of that. Heather, do you want to add anything else there?

To summarize, we will continue to be relentless in executing on our plan, focused on revenue growth, margin expansion and prudent capital management. We remain confident in our growth objectives, including the three-year EPS CAGR target of 12% to 17% that we have reaffirmed today. Our confidence is driven by the proven benefits of our diversified business model and our track record of delivering results. We remain focused on delivering outstanding service, innovative solutions, and a market-leading experience for our customers with even more in store for the future. We look forward to updating you on our progress. Thank you for joining us today.

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