Good morning. Welcome to Voya Financial's Fourth Quarter 2024 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Mei Ni Chu, Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining us this morning for Voya Financial's Fourth Quarter 2024 Earnings Conference Call. As a reminder, materials for today's call are available on our website at investors.voya.com. We will begin with prepared remarks by Heather Lavallee, our Chief Executive Officer; and Mike Katz, our Chief Financial Officer. Following their remarks, we will take your questions. I'm also joined on this call by Don Templin, former Chief Financial Officer and Strategic Adviser to Voya; and the heads of our businesses, specifically Jay Kaduson, CEO of Workplace Solutions; and Matt Toms, CEO of Investment Management. Turning to our earnings presentation materials that are available on our website. On Slide 2, some of the comments during today's discussion may contain forward-looking statements and 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 Investor Relations website. And now I will turn the call over to Heather.

Thank you, Mei Ni. Good morning, and thank you for joining us today. Before we turn to our key themes, I'm happy to welcome Jay Kaduson as our new CEO of Workplace Solutions. Jay brings deep industry experience and a track record of driving growth and innovation. He's been a valued partner to Voya for many years and will be a tremendous asset in helping us grow our health and wealth businesses from our already strong foundation while advancing our Workplace strategy. I also want to take a moment to welcome Mike Katz in his new role as Chief Financial Officer and recognize Don Templin's significant contributions over the past two years. We are thankful for Don's guidance and insight. Now let's turn to our key themes on Slide 4. In 2024, we delivered strong earnings and growth in Wealth Solutions and Investment Management and an outcome in Health Solutions consistent with the update we provided in December. We maintained our focus on careful stewardship of capital, remained disciplined on expenses, and continued to execute on our strategy, including through accretive investments in our future growth. In Health Solutions, our Stop Loss results for the fourth quarter are in line with the expectations we shared in our December announcement. We have taken corrective actions within our Stop Loss business, including meaningful rate increases and strengthened underwriting risk selection, and we expect a materially improved net underwriting result in 2025. We're confident that our reserves will adequately cover future claims based on our January experience. In Wealth Solutions and Investment Management, we delivered strong revenue growth, margin expansion, and commercial momentum in the fourth quarter and full year 2024. Earnings for Wealth Solutions were up 30% year-over-year, with revenue growth and adjusted operating margin exceeding our 2024 full year targets. Wealth Solutions generated $2 billion of defined contribution net flows in 2024, demonstrating continued commercial momentum. Voya Investment Management's diversified and globally distributed investment strategies delivered strong results in 2024. Earnings were up 20% year-over-year, and we achieved an organic growth rate above 4% for the year, comfortably beating our target. With four consecutive quarters of positive net flows, 2024 also stands as Voya Investment Management's best year in terms of net flows. With respect to capital management, we delivered on our plan to return $800 million of excess capital to shareholders in 2024 through share repurchase and dividends. We will maintain a strategic approach to capital management, and expect to significantly increase our excess capital generation in both 2025 and 2026. We closed the OneAmerica transaction on January 2 and are making good progress on the integration. This strategic move adds $60 billion in assets and accretive scale to our full-service business, along with nearly $4 billion of spread-based assets under management. Share buybacks will be weighted toward the second half of the year, but we continue to invest in growth initiatives that create long-term shareholder value. Turning to Slide 5, our top priority in the near term continues to be significant improvement in our Stop Loss margins. Margin improvement will be driven in part by increased pricing and improved risk selection actions we've already taken on our January 2025 block. These actions will also be applied to the upcoming non-January renewal season. Second, we are focused on the successful integration of OneAmerica. We have received very positive feedback from customers and advisers since we announced this transaction. Our focus is now on ensuring a smooth transition, managing customer retention, and continuing to successfully onboard OneAmerica's talented team. We're excited about the growth opportunities available through new distribution partnerships and a broader set of capabilities, and we continue to expect $200 million in revenue and $75 million in incremental operating earnings from OneAmerica in 2025. Third, we're focused on driving continued commercial momentum across all our core businesses. Our ability to generate and deploy excess capital in 2025 will be driven by our targeted investments in growth and proven ability to leverage our competitive advantages across all three of our businesses. Turning to Slide 6, for the past two years, I have been talking about our opportunity to drive profitable growth across our core businesses through investments that expand our revenues and earnings and create long-term shareholder value. We expect capital usage during the first half of this year to be focused on prudent investments that enhance our offerings for our customers or growing revenues and earnings. Our largest investment will be in Health Solutions, focusing on enhancing our capabilities in leave management and disability administration. As leave administration has become more complex, excellence in leave management has become a key differentiator and an important driver in purchasing decisions for Group Life, disability, and supplemental products. Today, employers are interested in bundling solutions from a single vendor. Currently, 72% of our leave management customers also purchased supplemental health from Voya, up from approximately 20% in 2019. We expect our strategic investments in Health Solutions, primarily leave management, will significantly increase our competitiveness in bundled Health Solutions; improved win rates and client retention will reinforce our top three position in the supplemental health market. In a few moments, Mike will discuss our broader approach to capital allocation in 2025. Let's turn to Slide 7 for an overview on the Sconset Re investment. In December, we closed on our anchor equity investment in Sconset Re, a Bermuda sidecar formed to reinsure annuities issued by Allianz Life. Our stake in Sconset Re will yield an attractive investment return for Voya. It also provides several other valuable strategic benefits. It allows us to participate in the substantial growth of the annuities market, while providing Voya Investment Management with a prominent asset management role in a rapidly growing segment of the insurance industry. Sconset strengthens Voya's industry-leading position in the insurance asset management market, highlighting our proven track record in private fixed income. It also deepens our important strategic relationship with Allianz, providing another scalable avenue for growth within this partnership. These strategic investments represent financially attractive opportunities to execute on our strategy and grow our business over the long term. With that, Mike will now provide more details on our performance and results.

Thank you, Heather. Before turning to our results, I would also like to thank Don Templin for his strong leadership and the impact he has made at Voya. As our next CFO, I look forward to building upon his success. Now let's turn to our financial results on Slide 9. We reported $1.40 of adjusted operating earnings per share in the fourth quarter. This contributed to the $7.25 delivered for the full year. Our full year results include alternative and prepayment income that were $0.53 below our long-term expectations. Alternative income returns were approximately 7%, improving both sequentially and year-over-year. Prepayment income remains below long-term expectations due to the higher interest rate environment. We expect lower prepayment income to persist in 2025 and have updated our guidance accordingly. Our results were impacted by higher loss ratios in Health Solutions, which offset the strong results in Wealth Solutions and Investment Management throughout 2024. Both these segments exceeded net revenue and margin targets, driven by higher fee-based revenues and cost discipline. Free cash flow conversion was approximately 90% in 2024. We expect this to continue, and for capital generation to increase in both 2025 and 2026. I will cover this in more detail shortly. With that, let me turn to our segment results. Turning to Health Solutions on Slide 10. In December, we shared unfavorable experience for the January 2024 Stop Loss business. Since then, claims have stabilized. We have set the loss ratio for the January 2024 cohort at 95%, and estimate that this cohort is approximately 70% complete as of December 31. Note that the reported fourth quarter loss ratio is above 95% due to the year-to-date true-up. We have included details on our loss ratios by cohort in our investor supplement to make this more clear. Experience in January gives us further confidence that our reserves will be sufficient to cover future claims. Looking into 2025, the underwriting and pricing actions taken in the second half of 2024 were consistent with our plan to prioritize margin over premium growth. I would call out two key actions taken. First, we achieved a net effective rate increase of 21% for the January 2025 cohort. This is an average, which includes much higher rate increases on underperforming cases. Second, we strengthened our underwriting process to improve risk selection. Our focus was on ensuring we were appropriately pricing known claims on both renewals and new business. As a result of these actions, we expect to improve the loss ratio for the January 2025 cohort by 5% to 15%. Turning to Slide 11, adjusted operating earnings were $40 million for the year. Net revenues and adjusted operating margins reflect the unfavorable claims experience in Stop Loss, which we expect to improve this year. Within voluntary, claims were above what we expected in the fourth quarter driven by higher utilization. Looking ahead, we expect voluntary loss ratios will continue to increase in 2025, which is consistent with our long-term plan to drive enhanced value for our customers. Overall, we expect net revenues and margins to improve meaningfully in 2025, driven by actions taken to improve Stop Loss. Margin expansion will continue into 2026 as we plan for a two-step process for Stop Loss, and are investing in new leave management capabilities in 2025. Turning to Wealth Solutions, commercial success continued in 2024 as we generated nearly $2 billion of total defined contribution net flows in the year. In the fourth quarter, we successfully funded two large recordkeeping plans. Full-service sales were strong in 2024, driven by mid-market sales, which grew 4x that of the prior year. While strong equity markets are positive for Wealth Solutions, it does have a counterintuitive effect on net flows. Higher equity markets increased the average account values of surrenders, which impacted net flows in 2024 despite strong sales and retention. Overall, defined contribution retention was 98.5%, up 60 basis points year-over-year. Looking into 2025, we expect a solid year commercially, with over $20 billion of wins in our pipeline. Turning to Slide 13, in Wealth Solutions, we generated net revenue and margins above the high end of our guidance. Adjusted operating earnings were $820 million for the full year. Earnings were up 30% year-over-year as we increased net revenues while controlling spend. Higher fee-based revenues were driven from added participant accounts and favorable equity markets. Spread-based revenues outperformed expectations as we mitigated impacts from lower spread-based assets through management actions on yield. In 2025, we expect added revenues and earnings from OneAmerica in line with expectations. Typical of acquisitions, we do expect some volatility with net flows. However, that is fully reflected in our earnings guidance. This transaction is now closed, and we are off to a great start with the integration. Feedback continues to be very positive from both new clients and distribution partners. Additionally, we expect margins to moderate from high levels in 2024 due to lower spread income and growth investments. We expect spread income to be lower given lower spread asset balances and we expect higher spend as we implement over $20 billion of defined contribution wins and targeted investments to strengthen our retail Wealth Management offering. Turning to Investment Management on Slide 14. 2024 has been a pivotal year for Voya Investment Management as we executed on our plan to expand margins and drive organic growth. Total net inflows for the quarter were $3.4 billion, contributing to a total of $12.5 billion for 2024. In Institutional, our leading market position in insurance asset management continues to be a competitive advantage. Insurance demand was strong across multi-sector, private credit, and investment-grade credit strategies. We now partner with over 70 external insurance clients and managed nearly $60 billion of assets, including our expanded relationship with Allianz in establishing Sconset Re. Retail net flows drove over half of the positive cash flows in 2024 across both our U.S. intermediary and international retail channels. With respect to fees, yields on external client assets expanded in 2024, counter to industry trends, and we expect these levels to be sustainable. Turning to Slide 15. In Investment Management, we grew net revenues and operating margins above the high end of our guidance in 2024. Adjusted operating earnings were $66 million in the fourth quarter, which contributed to full year 2024 earnings growth of 20%. Full year results included strong performance fees and continued expense discipline, supporting margin expansion ahead of plan. We continue to deliver excellent long-term investment performance, which builds on our track record and provides momentum heading into 2025. This includes public and private fixed income solutions, where we have a strong heritage, and are delivering differentiated outcomes for clients globally. Looking ahead to 2025, we expect adjusted operating margins in 2025 to be consistent with 2024 as we balance cost discipline with targeted investments in private capabilities and U.S. intermediary distribution. Turning to Slide 16, our excess capital balance at December 31 was approximately $200 million, net of our upcoming debt maturity. In the fourth quarter, we completed our 10b5-1 share repurchase program, and the remainder of the ASR started in the third quarter. This fulfilled our commitment to return approximately $800 million of capital to shareholders in 2024. Our year-end excess capital also includes the capital deployed for our partnership with Allianz and Sconset Re. This year, our approach to capital will be more balanced between capital return and growth investments. Sconset Re, OneAmerica, and leave management are all growth investments that we expect returns well above our cost of capital. As a reminder, we will retire the debt maturing in the first quarter, with the proceeds of our recent debt issuance. We continue to view share repurchases and common stock dividends as important components of our capital management plan. Share repurchases are expected to be weighted toward the second half of the year, given our focus on growth investments in the first half. Turning to our excess capital outlook on Slide 17, we expect to deliver improved excess capital generation in 2025 as highlighted on our third quarter call. This will be driven by Stop Loss repricing, the OneAmerica acquisition, and continued profitable growth across our businesses. We expect these actions will increase our excess capital generation by approximately $100 million in 2025. In 2026, we expect a further increase in our excess capital generation as we restore Stop Loss back to target margins and benefit from continued profitable growth across our businesses. Turning to our outlook on Slide 18, as highlighted in our previous slides, we expect to generate approximately $750 million of excess capital in 2025 before growth investments. Note, we are guiding to a normalization of both incentive compensation and performance fees, which were both favorable in 2024. Finally, we expect to return approximately half the capital we are generating this year as we balance growth investments with share repurchases and dividends. Before turning to your questions, I would like to reiterate our key near-term priorities. First, improving loss ratios and Stop Loss; second, successfully integrating OneAmerica; and third, continuing to execute on the commercial momentum in each of our businesses. These priorities will drive improvement in capital generation in 2025 and 2026.

Our first question is from Elyse Greenspan with Wells Fargo.

I wanted to begin with the ROE guidance. You mentioned it's at 12% to 13% for this year, compared to the 14% to 16% range from last year's outlook presentation. It seems to me that the factors influencing this include the weaker Stop Loss results and the investment in leave management. You're also bringing on OneAmerica. Additionally, Mike, you mentioned in your prepared remarks that you anticipate lower prepayment income in 2025. I'm not sure if there's anything else impacting the ROE decline. Do you expect to return to the target range of 14% to 16% in 2026 when Stop Loss performs at expected levels?

Thanks for your question, Elyse. I'll provide some context. While we haven't given a specific EPS guidance, we have indicated through our free cash flow generation where EPS may land in 2025. I anticipate that our 90% free cash flow will bring EPS close to the mid-$8 range. After accounting for growth investments, particularly the $50 million we discussed that is mainly related to leave, the EPS may come in slightly below $8. Regarding return on equity, we have guided for 12% to 13%, and I believe 2025 will be at the high end of that range. If we factor in growth investments, we could exceed 13%. To clarify your points, you mentioned investments in leave, which I've already covered. In Health Solutions, we are focused on improving value for our customers with voluntary products, which will impact loss ratios in 2025. In Wealth, we are planning additional spending to support over $20 billion in new plans. Besides OneAmerica, we also expect an increase in fee income, though this will be somewhat offset by lower spread income. As for share repurchases, we've provided some guidance there. Lastly, regarding prepayments, we're projecting they will decrease by about $25 million year-over-year, which is more about the timing of investment income than economic factors, as prepayments are accelerating relative to long-term expectations.

Okay. And then on buyback, given that it's more second-half weighted, is the expectation that you just are going to buy back a very minimal amount of your shares in the first half of the year? And then, Mike, just on that second piece of my last question, would you expect the, I guess, I know you're not laying out '26 ROE right now, but would you expect kind of to go back to that 14% to 16% next year?

Yes. Elyse, thanks for coming back to the ROE piece. So as I mentioned earlier, if you adjust for the leave investment, you'd be north of 13%. The other piece is we're trying to anchor to this free cash flow generation as we shared in the material. We're not only expecting a meaningful increase in free cash flow generation in '25, but also 2026. So absolutely, the journey is to get back to that long-term 14% to 16%. As it relates to just share repurchases, I would think of them primarily focused in the second half. It was for the reasons Heather mentioned on some really important key growth investments, the OneAmerica piece, the Sconset piece, and the leave management piece I just mentioned. I would though point your attention to how we thought about capital. You look at 2024, we returned over 100% of free cash flow through share repurchases and dividends. We mentioned approximately 50% this year. But over that two-year period of time, we're talking about approximately $1.2 billion of return of capital. Growth investments, they come when they come. We're going to be opportunistic on them, but I think our commitment to our shareholders is that we're going to do that when we see long-term shareholder value, and we see it with all three of those pieces.

And Elyse, I'll just reiterate Mike's final point is that we're committed to returning capital to shareholders. And as we've been talking about for a couple of years, we want to continue to be balanced in driving value in the business through the commercial momentum and being opportunistic with investments, whether they be organically or being opportunistic around inorganic.

Our next question is from Tom Gallagher with Evercore ISI.

First question is the $50 million strategic spend on leave management and disability admin. Will any of that recur into '26? Or can we zero that out?

Tom, it's Mike. I would think of it primarily impacting 2025, and part of that is that we're expecting not only revenue from the leave administration but also from short-term disability that we'll be assuming in 2026. So we see this as kind of more of a breakeven in 2026 and then generating positive earnings in 2027 and beyond. So I think you're thinking about it right, Tom. But obviously, as we get deeper in the year, we'll talk more and more about 2026.

That's helpful. And then I just want to ask about the Stop Loss expectation. Obviously, a very wide range of 80 to 90. And it looks like the majority of the improvement from the 95 level is risk selection, not on actually rate versus trend. Just considering, it looks like you had an unforced error on risk selection that led you into this situation. What gives you confidence that you figured out the underwriting side in a better way? Or what are the lessons learned?

Sure, Tom, it's Mike. I'm going to hit the rate increase just briefly before I get to your question on risk selection, which is important. And I think you properly gleaned that we view that as the bigger piece of the improvement in 2025. So first, on the rate increase, we did achieve a 21% average net effective increase for the January 2025 business. I would view that as an average. So when we look at some of the underperforming blocks, the increase was much higher than 21%, and we've addressed kind of that higher frequency of claims that we talked about in our pricing. On the risk selection, it really is a key focus on known claims. So think about when we see claims in the prior calendar year and making a prediction on how we think that's going to emerge in the following calendar year. And as we looked at known claims in 2023, that was a key driver of the higher loss ratio within January '24 in that book of business. To your question on addressing this, first, I just mentioned about the fact that we feel the 9% first dollar trend that's much, much higher for Stop Loss when it's leveraged, that, that was adequately priced for. Second, we were holding firm on requests for data. So we wanted to see the most recent data before finalizing quotes. And third, as we talked about last year, there's a strategy element of this as well and ensuring that the full team understood that the strategy was margin over premium growth, and you saw that in the results. Finally, I've worked very closely with this pricing and underwriting team at the end of the year to make sure that we're very comfortable with what we're communicating as far as the outcomes of this 5% to 15%. I might just make one other comment, Tom, just because I know there's probably a question on the 95%. We are very confident that the reserves that we established in the fourth quarter will be sufficient to cover future claims. As you can imagine, we've not only been looking at this internally, but we've had external eyes on this as well. And importantly, we're now in February. So we've had a chance to see how the January data has emerged, and that's just strengthened our confidence that what we put up in the fourth quarter is going to be sufficient to cover future claims.

And Tom, the only build I would have to Mike's very detailed response is that you can imagine, we are also looking very closely at the completion of the non-January '24 book of business with the same sense of scrutiny. And what we're seeing right now is it's following very similar trends in the prior years. And so the actions we took last year to increase pricing, we think, have held as well, but we're going to continue to stay very close to it.

Our next question is from Ryan Krueger with KBW.

My first question was on the wealth flows. I guess, can you give any more perspective on how to think about this in 2025? I think, I guess, in particular, I would assume there might be more than normal volatility from shock lapses related to OneAmerica. So just any way to frame that?

Thank you for your question, Ryan. I'll provide a brief overview of 2024 before discussing 2025. In 2024, we observed strong fundamentals in our wealth business, highlighted by two billion in full year DC flows and a planned retention rate of 98.5% that Mike mentioned. Specifically, our full-service sales increased by 17% year-over-year for 2023, indicating positive momentum. Looking ahead to 2025, when we compare full-service known sales for this year to the same period last year, we project an increase of 30%. Mike also noted the 20 billion of plans in implementation, which are scheduled to be funded within 2025, with some already in place. Regarding OneAmerica, please remember that our retention assumption was 90%, compared to the 98.5% of our overall business. This discrepancy may introduce some fluctuations in flows throughout the year, but it is well accounted for in our guidance and financial plans. Overall, we feel confident in the fundamentals as we head into 2025.

Great. And then just a quick one on Stop Loss. When you include January, what percentage of claims would that typically get you to for the full year cohort?

Ryan, maybe not tracking with your question. Can you ask it differently?

You said you were through 70% of the claims at the end of December, and I was wondering what you had in January, how much does that increase that too?

Yes. No, Q4 and Q1 is really important, Ryan, with respect to just completion. I would think of us approximately another 5% to 10% complete after January. That's the way I would think about it.

Our next question is from Alex Scott with Barclays.

I wanted to sort of probe a little bit more on some of the things that are onetime in nature in '25, and I guess, in particular, Health Solutions and just the need to invest in the business. Is there some level of ongoing investment, whether it's leave or just other capabilities that you'll continue to build out? Do we need to just think about a higher run rate of expenses? And I'm just asking because my concern is there's a lot of things that seem like they went back in '26 and could make people pretty optimistic on the growth you get going from '25 to '26. But I just want to make sure I'm not missing things about ongoing investment in Health. And then maybe if you could also comment on Wealth Solutions on just the investment to be able to bring on assets and so forth?

I'll begin from a strategic perspective and then Mike can address the financial aspects. One of the reasons we wanted to highlight our investment in leave management is to provide investors with a clear view of where we are allocating resources. This capability is strategically important, especially as we observe a significant trend in group insurance where customer experience is crucial. It's not merely about having competitive pricing or provisions within our insurance products. Investing in leave is a primary decision for employers when choosing group insurance, and frequently, the choice is tied to who excels in leave management. This is supported by the data we presented, which shows that 100% of our leave cases currently include life and disability coverage, while 72% involve supplemental coverage. We are seeing a substantial opportunity here, particularly as we have experienced strong growth in the supplemental sector and believe there is potential for continued growth. This is a vital part of our workplace strategy. On the topic of Wealth, Jay will provide more details in upcoming discussions as we refine our strategy. In Wealth, we have emphasized our commitment to investing in retail Wealth Management, acknowledging that many clients lack access to a financial adviser. Thus, they often rely on what is offered through their workplaces, and there is a need for broader advisory services and out-of-plan options. Therefore, we are focusing on increasing our number of advisers and enhancing our technology to boost adviser productivity and streamline the onboarding process for clients, which we believe will contribute to growth. Now, Mike?

Yes. I just want to reiterate what I shared with Tom earlier regarding our thoughts on leave for next year. A portion of those expenses will carry over into next year, but we expect to offset that with revenue from leave administration and short-term disability onboarding. That's an important aspect to consider. Regarding Wealth, I agree with everything Heather mentioned, but I’d like to add a technical note. In our modeling for Wealth, we included commissions and the intangible impact in our guidance, which we haven't done previously. This adjustment was made because of the effect OneAmerica is having on expenses for 2025, along with the usual seasonal variations across all segments.

Got it. And maybe a follow-up actually related to the last piece there. In Wealth, I mean, if I look at the 1Q guide that you guys are pointing to, it looks a little over $200 million of pretax earnings. I think about a year ago, I think the normalized number, after all, it was around $200 million. So seemingly not a whole lot of growth there. And I get there's some weight that's maybe a little unique to '25. But when I think about OneAmerica and the contribution, is it that it's not really contributing anything yet in 1Q to bottom line and it grades in throughout the year? Or is it in there? I'm just trying to understand the $75 million from OneAmerica and whether that begins showing up more when we think about 2Q, 3Q?

Yes, Alex, I think just that first quarter, as Heather was talking about, I mean, there is a large investment in Wealth around that $20 billion plus of lands and implementation. So that's having an effect at the beginning of the year. Obviously, there'll be revenue to follow. To your big picture question, continue to be fully on plan for that $75 million of earnings we're expecting to add within Wealth, and one of the offsets is those expenses I just mentioned. And you also see a bit of an offset with respect to spread income where spread balances were down year-over-year.

Our next question is from Joel Hurwitz with Dowling & Partners.

Can you just provide some more color on what you're doing in the voluntary business that's driving the loss experience higher? And is this in response to competition? Or do you think this is needed to improve persistency of the business or drive higher growth?

Thanks for the question, Joel. There are a few points I'd like to highlight. In the group insurance sector, voluntary participation rates typically fall in the range of 18% to 20%. We aim to enhance client value by encouraging our customers to make use of these essential products. One key trend to consider is that increased utilization, which correlates with a rise in claims experience, indicates our customers are taking advantage of these offerings. Our focus is on boosting the current utilization of these products. We currently maintain high persistency rates in our voluntary business, reaching into the high-90s. Furthermore, we've observed through our open enrollment with Benefitfocus, which allows us to provide guidance and the right education, that supplemental participation rates have increased from the traditional 20% to the low 60s. This is a crucial aspect because our administrative capabilities, whether related to leave or benefits administration, contribute to higher participation rates. As participation rates climb, it's clear that clients recognize the value of the products. Therefore, my perspective is centered on ensuring clients achieve better utilization rather than merely addressing competitive pressures on pricing and loss ratios.

Okay. That makes sense. And then just on leave and disability. Historically, you've reinsured the disability business that you wrote, but do you plan to start retaining all of that moving forward? Or is it just a portion of the short-term disability that you'll retain?

I'd say we've had a long-standing relationship with a disability reinsurer that has frankly given us capital release, and we don't have the tail liabilities of the long-term disability. The strategic rationale for us to in-source leave and, frankly, the disability administration, was to influence the customer experience is that leave and absence is increasingly complicated for employers as well as for employees. You think about somebody going out on maternity leave and they have to file three or four leaves. So our ability to influence the client experience we thought was most important. So this is one of the things that we will be taking in some of the short-term disability over time. But I would say, for us, we like the arrangement we have with the partnership that it allows us to grow in the space without necessarily taking on the tail risk, and that's where we're going to be focusing on in the near term.

Our next question is from Wes Carmichael with Autonomous Research.

A follow-up on OneAmerica. You provided some color there. But now that the acquisition is closed, I know you reiterated the financial impacts and perhaps net flows will be a little bit more volatile. But anything that you saw that was surprising as you integrated that? And maybe can you just talk about retention experience through renewals?

Yes. I mean a couple of things. And I've certainly stayed close to this and spending time with some of the OneAmerican clients. But I think maybe a couple of things I would refer to as pleasant surprises is the market, and particularly the OneAmerica clients, and the advisers have been very, very favorable in the announcement. They're excited to be part of Voya and to be able to take advantage of some of the new digital experiences that we can bring to them that we had already invested in. We are thrilled to welcome the OneAmerican employees, very, very talented team. And I would say on the retention, at this point, nothing surprising. It's very much in line with the guide that we see. And so for us, this is just tracking very much as expected. And I think the other piece I would reiterate is because they're on the same recordkeeping platform, our technology teams are very much ready to be able to do a smooth implementation over the time period that we've outlined. So nothing surprising, and we just continue to reiterate the $75 million of earnings accretion expected.

Got it. For my follow-up on capital deployment, it appears there may need to be a bit of recovery through 2026. Reflecting on the past couple of years, it seems you've been quite active in mergers and acquisitions, possibly more than some anticipated. I'm curious if you plan to remain active in M&A going forward and what areas might interest you.

Yes. I mean, I think this is something that we've tried to talk about being both very disciplined with capital management as well as expenses and opportunistic. We're very, very pleased with OneAmerica. We think it was not only highly strategic to allow us to scale in the full-service business at spread-based assets but also highly accretive. We think Sconset Re, and I'm sure Matt will have a couple of points to add on that, is both strategic and opportunistic. So I would say it's something that we're going to pay attention to, and we're going to look for opportunities that we can both scale our businesses that we can potentially add new capabilities. And I think the final comment is we focus a lot on inorganic and builds. But with Jay coming on board, I think you're going to expect us to focus a bit more on partnerships. Think of it like what we've done with AGI, which we think are a great use of being capital efficient as well as opportunities to accelerate the growth, more than can be done in a necessarily organic build.

Yes. Wes, this is Matt. Just maybe quickly on Sconset. A great example of using capital wisely to further build upon the insurance acumen we have and build further in the sidecar market, which is attractive, fast-growing, where our leading insurance asset management capabilities play quite well, namely, private assets, commercial mortgage loans, core fixed income, and infrastructure, call a few out. So a targeted investment built upon that strategic relationship with Allianz, a capital return story that you'll see in our investment line item that's attractive as well as AUM that will build over the next few years to $1 billion to $2 billion range targeted strategic and a nice return profile.

Our next question is from Jimmy Bhullar with JPMorgan.

I have a question regarding your asset management business. You mentioned positive flows over the last couple of quarters, but the growth in assets hasn't matched what those flows would indicate in terms of market performance. This is partly due to significant outflows from divested businesses, which I believe amounted to around $2 billion to $2.7 billion this quarter, and $7.9 billion the quarter prior. Can you discuss how much of this is not included in your flow numbers? How much more might be at risk? Additionally, how do the economics of these assets compare to the ongoing assets? Are they lower fee or higher fee?

Yes. Thanks, Jimmy. This is Matt. Thanks for the question. Yes. So it is an important transition, right? So we talked about the growth of the business, extremely happy with the $12.5 billion flow you referenced in '24, that organic growth rate of 4.4%, well above our 2-plus percent long-term average cutting against that, and we've been really upfront about this is divested businesses, some which go back now seven years. That is a known flow, very visible, enabling us to manage the platform costs around it. So we've seen a flow in 2024. We have one more component of the Venerable flow that we signaled in 2025. We see that coming in the second half. And those are, as you referenced, lower fee assets that we can also take costs around as we optimize the growth going forward. So it's part of the investment strategy of broader Voya. These are great transactions for broader Voya to divest. The key message there though is the growth is outpacing that at a higher revenue level, that higher revenue and higher fee rate is what's growing the revenue line item and the operating profit, and that is outpacing the outflows.

And I would just emphasize, Jimmy, I think that four consecutive quarters of really, really strong flows, record flows in the year and great momentum set up for '25. We feel very good about our asset management business.

And what's the amount of the Venerable assets that you think will leave in '25?

The current estimate for the second half of 2025 is $6.8 billion.

And beyond that, the NNN and Venerable will be mostly gone?

That's correct.

Our next question is from Wilma Burdis with Raymond James.

Could you just go into a little bit more detail of what types of actions went into improving the risk selection on the Stop Loss block?

Wilma, I would like to emphasize what I mentioned earlier about ensuring we are confident in the pricing for every case we underwrite. It is also crucial that we have the most up-to-date data before finalizing any quotes. Additionally, we need to make sure our underwriters and the entire team understand our focus on margin rather than premium growth, especially considering that premiums have declined by 16%. That’s a significant figure when looking at it in relation to medical trends. Regarding the Stop Loss situation more broadly, we are understandably disappointed with the results in 2024. However, the annual renewable aspect of Stop Loss has enabled us to address profitability fairly quickly. We anticipate being in the lower end of the 5% to 15% range, which aligns with our target of approximately 77% to 80%. We are still guiding a two-step approach to return to our target range, which is a key reason why we value this product: our capacity to enhance margins promptly.

Makes sense. So you were able to just, I guess, get rid of a lot of the poorly performing accounts. Is that how that works?

Yes. Well, I think that's the right way to think about it. You've heard us talk about really the importance of renewing a healthy book of business. And so really, what I would think about is we wanted to make sure we were renewing the strong performing cases. We renewed over 75% of those. When Mike talked about the underwriting discipline, it was really very much holding firm on underperformers and making sure we got the data, we got the rate increase we needed and we didn't. We didn't necessarily renew that mix that book of business, and that's reflected in the block retention that we've talked about and the decline in the book of business. So that's absolutely right. I think the final piece I would mention too, Wilma, is the importance of factoring in the higher frequency of claims that we saw in '24 into the '25 pricing. So we have assumed that the higher frequency of claims that we saw in '24 will continue throughout, and that's also factored into the pricing adjustments we made for the '25 book.

Our next question is from Suneet Kamath with Jefferies.

I wanted to hit on the Wealth Solutions flows. I get the dynamic of markets higher and more money comes out. But have you seen any big changes in the participant withdrawal rate if we look at what that was in, say, 2024 and compare that to historical? Any changes there?

Yes, I'll answer that. We did start to see some improvement in the Q4 in participants surrenders. We've still taken perhaps a cautious you heading into '25, the participant surrenders would continue to be elevated just given a little bit of the uncertainty of the markets. But yes, we did see an improvement when we started to see interest rates come down.

Got it. Okay. And then, I guess, sort of relatedly on Wealth, one of the things that we're hearing from some other companies in the wealth space is, this whole concept of in-plan annuities within target date funds. And I was just curious, what is your strategy there? Do you think that's an opportunity? And sort of what needs to happen for you to get that product on your platform?

Thank you for the question. We currently include annuity provisions in our products and have partnerships with various annuity providers through our broker-dealer. Additionally, we have products in collaboration with Matt's team and other asset managers that offer diverse income solutions. You'll likely hear more from Jay about this in the upcoming quarters, as our investment in retail wealth management is a crucial part of our strategy. We're exploring product enhancements and partnership options that can help us cater to both in-plan and out-of-plan solutions, including annuities. So, we see opportunities here, and I encourage you to stay tuned.

Our final question is from John Barnidge with Piper Sandler.

My question is on Voya Investment Management and Sconset Re. Voya Investment Management previously has had a lot of success with insurance clients. Of the existing insurance clients, how many of them already don't have existing sidecars?

John, this is Matt. I don't know the exact number of that, but our insurance business, over 70 clients currently. We do work with a good number offshore as well as onshore and globally. I'd say the majority don't. We tend to be extremely competitive in the mid- to smaller-sized insurance company market. We have some larger clients as well. Sidecars are part of the industry at this point. We think they'll continue to be a growing part of the industry, and that could broaden. So as we look across our client base, some of whom have their own exposure, some of them don't. We can also look to leverage our own capability and like to guide them down their own path and provide investment solutions alongside of that. So really a leading position in the insurance industry market. It gives us both the right to win on an AUM basis but also on an advising our client basis.

And my follow-up question. No some variable investment income 1 quarter lag generally, and no annual marks can sometimes come in the first quarter a year ago, some companies had larger marks. Do you have any visibility near term into annual marks on funds as it relates for the first quarter?

Yes, thank you, John. This is Matt again. Predicting financial markets, particularly private asset markets, is always challenging. Over the last year, and looking ahead to 2024, there seems to be a slight lag compared to our 9% assumption, as Mike mentioned. Considering current interest rates are somewhat lower, and the equity markets are expanding rather than remaining narrow, this generally indicates a higher expected return towards the long-term average. We believe we are approaching that potential range now, and in the long run, we anticipate exceeding the 9% mark. However, we think it's reasonable to start the year with the expectation that we can align with that long-term target given the current interest rates.

This will conclude our question-and-answer session. I would now like to turn the conference call back over to Heather Lavallee for any closing remarks.

To summarize a few key messages, in 2025, we remain focused on improving our Stop Loss margins, ensuring a smooth OneAmerica integration, and driving continued commercial momentum. By maintaining the strategic focus, we will continue to grow excess capital and enhance shareholder value. Our customers remain at the center of all we do, and we are dedicated to continually enhancing their experience and outcomes. Thank you for joining us today, and we look forward to updating you on our progress throughout the year. Have a great day.

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