Earnings Call Transcript - VOYA Q1 2024

Operator, Operator

Good morning. Welcome to Voya Financial's First Quarter 2024 Earnings Conference Call. 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.

Michael Katz, Executive Vice President of Finance

Thank you, and good morning. Welcome to Voya Financial's First Quarter 2024 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, Matt Toms, Investment Management, and Rob Grubka, Workplace Solutions. With that, let's turn to Slide 3 as I would like to turn the call over to Heather.

Heather Lavallee, CEO

Good morning, and thank you for joining us today. As you can see from our first quarter highlights on Slide 4, we delivered on our financial targets. Adjusted operating EPS was $1.77, up 23% year-over-year, and we remain on track to deliver our full year 2024 EPS target of $8.25 to $8.45. We generated excess capital of approximately $200 million and returned more than that amount to shareholders in the form of share repurchases and dividends. Our Board has approved an additional $500 million share repurchase authorization that will allow us to execute on our capital return plan. That capital plan includes a generation and return to our shareholders of $800 million of excess capital in 2024. Strong sales momentum and positive flows this quarter have us well on track to achieve our commercial and revenue targets for 2024. We are maintaining strong discipline on spend to enhance margins while preserving the investments that will sustain our long-term growth. And we continue to deliver an attractive return on equity, reflecting the achievement of our earnings targets and the capital efficiency of our businesses. Turning to Slide 5, we are executing our strategy with competitive advantages that establish our clear right to win. As one of the few players in the market with leading positions in both retirement and group benefits, we have a distinct ability to succeed with our workplace benefits and savings strategy. We have scale and credibility across markets, tax codes and employer sizes. We've distribution through virtually every intermediary channel, providing a diversified platform to grow revenues and add participants, and we have a leading brand in the marketplace with a reputation for putting the customer first and for a culture of service. I will mention just a few examples of how our workplace strategy is landing new clients, expanding our revenue base and deepening our relationships with customers. In retirement, we've evolved the way we approach the mid-market for customers who had different needs and expectations from those in smaller and larger market segments. Our efforts are yielding results with mid-market sales up almost 300% over the same time last year. In stop-loss, we've added new quoting capabilities and expanded our distribution reach to smaller employers, who are increasingly self-funding their medical plans. This has contributed to the 17% growth of in-force premiums and fees we've achieved in Health Solutions as compared to last year. And we're deepening our relationships with our participants, creating new opportunities to drive revenues from a rapidly increasing participant base. As we surpassed 7 million participant accounts on our retirement platform, we are strengthening our field-based retail advisory team to capture a greater share of economics out of plan. We're also growing our managed account business with managed account revenues up 27% in the first quarter of 2024. Our workplace strategy is building deeper relationships with our customers and creating new sources of growth for our business. Moving to Slide 6. In Investment Management, our competitive advantage begins with a well-established foundation in institutional fixed income and leading market positions in third-party insurance asset management and income solutions. Our strength in private assets and our global distribution reach create expansion opportunities that build upon this platform for growth, with scaled presence in international markets, our investment strategies meet the increasing demand for U.S. denominated assets. With strong investment performance and an established market presence, we are well positioned to capture flows as asset rotations increase. We are seeing meaningful flows begin to emerge with $1.3 billion of insurance channel net flows in the first quarter. In private and alternatives, we're executing our expansion strategy with three private fund launches planned this year. We've also strengthened our distribution team with further private markets expertise to help us meet new client demand. And our growth in international markets continues with international retail flows of $1.3 billion for the quarter. Turning to Slide 7, Voya's purpose and vision continue to drive positive outcomes for our clients, our colleagues, and the communities in which we live and work. For our customers, we continue to roll out our myVoyage guidance tool to help employees choose the right benefits and savings options to meet their personal circumstances and improve their financial outcomes. Customers who use myVoyage are 50% more likely to choose a less expensive health plan option and 50% more likely to elect to save funds in a health savings account, while increasing their retirement savings rates. For our communities, we are working to advance financial literacy among young people. Through a partnership with a Council for Economic Education, we are sponsoring a national personal finance challenge and continue to support advocacy for positive legislative change in this area. With respect to our colleagues, I'd like to highlight a recent achievement that involved almost 2,000 Voya employees, those who work at Voya India. In April, we completed the final step in our operational separation from our joint venture partner, creating powerful new opportunities for greater innovation and collaboration among our teams. With that, Don will now provide more details on our performance and results. Don?

Donald Templin, CFO

Thank you, Heather. Now let's turn to our results on Slide 9. We delivered $1.77 of adjusted operating earnings per share in the first quarter compared with $1.44 a year ago. Our first quarter results reflect the benefit of diverse revenue sources and strong expense discipline. Fee revenues were higher across all businesses, which more than offset lower underwriting income and health as loss ratios normalize from exceptionally favorable levels. First quarter GAAP net income was $234 million. Net income exceeded adjusted operating earnings in the quarter due to the impact of several non-cash items including a $38 million tax benefit. Robust cash generation and a strong capital position supported the return of capital to shareholders. Excess capital generation for the quarter was approximately $200 million, consistent with our track record of generating capital above our 90% target. We remain on track to deliver $8.25 to $8.45 of adjusted operating EPS in 2024. And we also remain on track to generate and return $800 million of excess capital to shareholders. Turning to Wealth Solutions on Slide 10. We continue to improve outcomes and deliver value for our customers, consistent with our vision and values. This is supporting our ability to consistently grow assets and our participant base. Full Service net inflows were $22 million in the first quarter, a significant improvement quarter-over-quarter. We expect momentum to build in the second half of the year, resulting in full service net inflows of over $1 billion for 2024. In recordkeeping, net outflows were $312 million in the quarter, following a year in which net inflows were over $7 billion. Larger plan activity can drive variability in quarterly net cash flows. Our full year outlook is over $3 billion in record-keeping net inflows. Moving to Slide 11. Wealth Solutions generated $186 million of adjusted operating earnings in the first quarter, a more than 40% increase year-over-year. Higher fee-based revenues and alternative investment income more than offset lower spread-based revenues and our continued focus on expense discipline, balanced with investing in the business, resulted in administrative expenses over $17 million or 7% lower than the prior year quarter. Looking ahead, we expect full year net revenues in 2024 excluding notables to be 1% to 2% higher than 2023 while we took actions in the first quarter to enhance portfolio yields and improve interest income on cash balances. Second quarter spread income is expected to be between $220 million and $230 million as spread-based assets continue to trend lower. We also introduced new money products that we expect will increase inflows into the general account and stable value products over time. Turning to Slide 12 on Health Solutions. We continued to grow our core business, expand into adjacent markets, and drive greater adoption and utilization of our solutions within the workplace. Growth in the first quarter was driven by a record sales season and favorable retention across all product lines. Annualized in-force premiums and fees grew 17% to $3.9 billion, well above our target. Premium growth was largely driven by stop loss, where we improved capabilities to quote new plans as well as enhanced our distribution down market. In the first quarter, our total aggregate loss ratio was 74%. In stop loss, results reflect updated experience for our 2023 block, which is nearing completion, and is expected to finish at the high end of our 77% to 80% target loss ratio range. Looking forward, updated results from our 2023 block and pricing metrics related to the strong in-force premium growth suggest it's prudent to expect we will finish the year at the high end of our 69% to 72% aggregate loss ratio range. Moving to Slide 13. Health Solutions adjusted operating earnings of $59 million reflects strong book growth offset by loss ratios normalizing from historically favorable levels in 2023. Net revenue growth year-over-year reflects strong sales, favorable retention, and diversification into fee-based revenue. The adjusted operating margin excluding notables was 25.4% on a trailing 12-month basis, and we expect it to be at the lower end of the 24% to 30% target range for the full year. This reflects both our full year underwriting expectations as well as continued discipline in managing expenses while investing in growth. Growth examples include investing in lead management. This capability is of increasing importance to employers and often influences decisions to bundle supplemental life and disability products. Additionally, we are continuing to enhance key capabilities within Benefits Administration to support growth in 2025 and beyond. Moving to Investment Management on Slide 14. With the international transition now behind us, we are seeing the results of investment management's reach as a diversified global investment manager with an enhanced platform of investment solutions emerging. The diversity of our business across client type, client region, and asset class provides multiple paths to scale and grow. Our leading positions in institutional fixed income and third-party insurance asset management serve as competitive advantages, which will support continued client and asset growth. We generated positive net inflows of $574 million in the first quarter. The first quarter included approximately $2 billion of flows generated in U.S. and international intermediary channels, reflecting demand for income and growth solutions, our retail private equity fund, and core fixed income. In Institutional, the industry headwinds in CLOs and softer demand for fundamental and thematic equities were partly offset by strong demand for core fixed income in the insurance channel. Overall, we expect our positive net flows momentum to build throughout the year driven by strengthening investment performance, improving client sentiment across domestic insurance and retail channels, and increasing demand in the Asia Pacific region for U.S. dollar-denominated solutions. Turning to Slide 15. Investment Management delivered adjusted operating earnings of $42 million in the first quarter net of AllianzGI's non-controlling interest. Higher net revenue year-over-year reflects strong sales in intermediary and insurance markets and benefits from favorable equity markets. Adjusted operating margin excluding notables improved meaningfully to 26.1%. The improvement reflects higher net revenue and the result of significant expense actions in 2023 and continued discipline this year. We are encouraged by the momentum early in the year, and we expect our diverse pipeline will support continued growth inflows and a return to 2% organic growth. Turning to Slide 16. Our strong capital generation differentiates us from peers. We continue to build on our track record of generating excess capital above 90% of earnings while still investing for growth. In the first quarter, we generated approximately $200 million of excess capital and returned over $200 million to shareholders, including $172 million via share repurchases. We remain on track to generate over $800 million of excess capital in 2024, and longer term, we expect excess capital generation will grow in line with business growth. Turning to Slide 17. We are focused on executing our strategy and meeting our financial targets for 2024. We continue to generate excess capital in line with our 90%-plus free cash conversion, supported by our diverse and capital-light businesses. We expect to return over $800 million to shareholders in the form of share repurchases and dividends. First quarter earnings put us on track to meet our full year adjusted operating EPS target of $8.25 to $8.45. And the significant improvement in first quarter net flows supports the momentum we expect through the balance of the year. With that, I will turn the call back to the operator so that we can take your questions.

Operator, Operator

Our first question is from Mike Ward with Citigroup.

Michael Ward, Analyst

I was wondering if you could comment on the strong sales growth we saw in Health? It seemed like it was up 50% excluding Benefitfocus.

Rob Grubka, Head of Workplace Solutions

Yes, sure, Mike. So we clearly had a really strong year to start. And then as you do the comparable to last year, I'd say we felt like we were a little bit light. So the year-over-year percentage is impressive, nonetheless. But look, I think it's really a testament to the work the team does from an execution standpoint across all of our products. I think the distribution depth and breadth has just continued to build. I would also say as we think about bringing Benefitfocus into the mix, that's only gotten better. Our relevance at the workplace, our relevance with distribution partners has only increased. The touches have only increased, and I think ability to bring credibility to everything we're doing across the workplace. We're in as good a position as anybody to take advantage of what we think is a really unique opportunity to solve problems in a different way. But look, we obviously, you do the step back and you want to make sure it was a disciplined growth. I'm sure we'll talk more about that as we go, but we feel good about how we started the year, and we'll continue to be disciplined as we think about moving forward.

Heather Lavallee, CEO

And Mike, this is Heather, if I can just build a finer point on the Stop Loss sales, and very strong growth. Two key points there is that we had expanded down market. And so we saw that contributing to the very favorable Stop Loss sales. And we've also done some things to leverage AI and machine learning to be able to expand our quoting capabilities. Historically, we typically would have to decline about 50% of the business that came in, and through this new capability, it's allowed us to be able to bid on a larger percentage of opportunities, which has contributed to the favorable sales.

Michael Ward, Analyst

And then maybe on the outlook for flows and I guess more towards investment management, but retail, fairly solid. Curious if maybe in 2Q to date, you're seeing any indication that some of the institutional players might be looking to, I don't know, put some excess cash to work that could be maybe bolstering the outlook for inflows?

Michael Katz, Executive Vice President of Finance

Mike, thanks for the question. Certainly encouraged by the turn inflows in the first quarter. We talked about an inflection point at the end of last year, and we've seen that inflection point in inflows. And as you referenced, strong internationally and in the retail markets domestically, we are seeing with the market environment. Let me just categorize the market environment a bit. The lower rate volatility, even at a higher rate, that lower volatility and the narrative around how persistent is growth as opposed to has the Fed already killed growth. That's an environment where institutions are more likely to act. So when we look at our investment performance, which continues to be strong and we look at say, pipeline, which we referenced last quarter, again, still in place that $10 billion-plus pipeline. We are quite confident on that organic growth rate of 2% plus. And we have seen, as we move into the second quarter, institutional activity improve. And we've used the word build in the past, and that visibility into 2Q builds your confidence around achieving a 2% plus growth rate.

Heather Lavallee, CEO

Maybe two builds for me for Matt's comment is to emphasize the point that the transition year is behind us. We recognize we still have work to do, but we do feel very good about the full year outlook. And secondly is that if you look at the strong results we delivered in the quarter and the visibility we have into 2Q, we did that during a very successful leadership transition within asset management with both Matt and Eric, and that speaks to really strong client confidence.

Operator, Operator

Our next question is from Ryan Krueger with KBW.

Ryan Krueger, Analyst

I had a follow-up on Stop Loss. I guess, first, can you provide some additional detail on what you think is driving the higher Stop Loss claims? And then just as a follow-up to the very strong sales, to what extent are you concerned that you may have underestimated the medical trend in your 2024 Stop Loss pricing?

Rob Grubka, Head of Workplace Solutions

Yes, I will begin with the first question. In the first quarter, the loss ratio was influenced by the more comprehensive nature of the 2023 cohort of business. Last year, we focused on and discussed the 2022 block of business, which performed exceptionally well. The beginning of the year showed strong results, which continued into the second quarter, affecting our reported figures. The 2022 block operated at a low 70% loss ratio. As we analyze the 2023 block and its impact, we find ourselves at the higher end of the expected range. To address the second part of your question, we believe it is wise to position ourselves at the higher end of this range, though we will monitor it closely on a quarterly basis and share the most accurate insights regarding the underwriting margin, which we will incorporate into our modeling considerations to clarify any uncertainties. When comparing our current position to a year ago, we see two business cohorts that are much more closely aligned in terms of loss ratio expectations. Looking ahead to 2024, we are just beginning the process, particularly as we enter the third and fourth quarters, where we have more data to inform our reserving strategies. This will allow us to assess the credibility of our reserving practices as the year progresses. In the meantime, we observe trends such as renewal lapse rates and the guidance we provided on renewal targets. Additionally, new business pricing has shown win rates that are consistent with previous years, slightly better than last year but in line with earlier performance. With that, I will pause and await further questions.

Heather Lavallee, CEO

Yes. I think just the one thing I would build to emphasize the examples that Rob was highlighting is we have a disciplined approach to how we price this business over the long term. And as you saw in the materials, we also have a very strong track record of growing this business while effectively managing the loss ratios over a long period of time, and we plan to continue to do that in the '24 book and going forward.

Ryan Krueger, Analyst

Shifting to wealth. Are you still seeing the same type of trends on somewhat elevated participant withdrawals? And then if so, are there any actions you're trying to take to retain more of those assets within Voya?

Rob Grubka, Head of Workplace Solutions

Yes, sure. So from a participant behavior perspective, I think consistent to how we guided at the end of last year, how we have seen things play out at the start of this year. Our views really come to light when you think about both net flow perspective and the guidance that we're giving you there, that's incorporated. And then also from a general account perspective and guiding you on the spread income, that's the most meaningful area to look for outcomes or the impact of that. As we think about what we're trying to do, again, last quarter, we talked about new product introductions. So both general account and stable value product introductions are going to be happening or are happening. Those will build and help over time as we think about the decision and the actions that a consumer is taking, obviously, it's a complex point in time when they're making those choices and decisions. We want to be there to provide thoughtful education guidance and potentially advice depending on who they're working with, within the Voya team. And again, I'll turn it over to Heather here to talk a little bit about retail and what we're doing and how we're thinking about that moving forward.

Heather Lavallee, CEO

Yes. I want to emphasize that we have a robust retail wealth management business. We offer various methods to provide education and advice to our participants. Our approach considers the overall needs of participants, and we have a wide range of solutions to support them both within and outside of their plans. This is an area where we are continuing to invest in our growth to better meet our customers' needs outside of their plans, aligning with our goal to assist our clients through retirement. Therefore, I encourage you to stay tuned for updates on how we are enhancing our out-of-plan services while maintaining strong in-plan support.

Operator, Operator

Our next question is from Wesley Carmichael with Autonomous Research.

Wesley Carmichael, Analyst

I had a question about Stop Loss. I think you mentioned the ability to serve smaller employers. I'm curious if you believe that segment contributes positively to margins. Do you price those based on a lower loss ratio, or is it similar to other segments?

Rob Grubka, Head of Workplace Solutions

No, I think about them being similar. At the end of the day, as we think about this is just an important opportunity to continue to expand from a capability standpoint. We've got the foundation. We did do some deliberate things from just an underwriting talent experience perspective in that space. You get into lower deductible levels. And so you get into a different set of drivers of claims and claim severity. But we wanted to make sure we had the right people in play. And so this is really a build of the capability over really 3 to 4 years, and we're starting to see the benefits of that come in and start to be a more material piece of the overall sales story, which I would think of as roughly 10% of the sales for Stop Loss coming from that expansion. We think that will continue to build over time. But I would not think about it as something that's going to drive our margin in a material way to be anything different than what we've historically experienced.

Wesley Carmichael, Analyst

And then on Investment Management, I think you pointed last quarter to the $10 billion pipeline. I think you highlighted that that pipeline remains in place and I heard your comments, Matt. But just thinking about if Fed cuts could move out to 2025, do you think the funding in some of that pipeline moves towards the back half of '24 or even later? Just curious to hear your perspective there.

Matthew Toms, Head of Investment Management

Yes. Thanks, Wes. On the institutional side, again, we're seeing more of a build. The relative stability or the lowering of volatility is the important thing. And if the Fed is staying still for an extended period, while it may disappoint the market over a short-term horizon, that stability builds confidence and movement within the institutional asset base. We've already seen that on the retail base, both domestically and internationally. And we've seen that on the insurance side, which is a preeminent business of ours that really paused through last year that created a headwind has accelerated this year, and we're seeing that expand into the pension space, where there's a lot of industry articles around increased allocations to fixed income. We are seeing client engagement increase there. Again, we've got strong products, and strong performance. That's really the next inflection point for us to see in our business. And again, the second quarter outlook for that is strong. But again, as we step back, it's really the breadth of products and distribution channels; they're all starting to improve. As we look to the second half, hard to know from a forecast, there's an election, and the Fed has activity to undertake. We have announcements today. But just I would want to really highlight the point, stability at a high level of rates is not harmful to client activity. It's volatility, and that's been declining.

Operator, Operator

Our next question is from Tom Gallagher with Evercore ISI.

Thomas Gallagher, Analyst

First question, just a follow-up on medical Stop Loss. Rob, what did you do with pricing in that business for this past year renewal heading into '24? Did you get rate over and above what you normally get? Or was it just in line? And what are your plans? I assume we're entering into getting close to where you're thinking about pricing and the renewal season for this year. Just given your current experience, would you expect to push through more rate than usual?

Rob Grubka, Head of Workplace Solutions

Yes, the key part of that question is the more than usual. As we completed the renewal cycle, it aligned with our target to provide clarity on that aspect. Additionally, our retention met expectations, and in a typical year, we're looking at losing about 20% of the book as a benchmark, with some fluctuations. There's always some tension in the renewal process, which is expected. So, I would say those two factors played out closely to what we anticipated. Looking to the future, I am always considering ways to increase rates, particularly given the ongoing inflationary trends in the business. The risks we face are related to leverage trends, which may be even higher than traditional medical trends. As Heather and I mentioned regarding our processes, we will follow the same rigorous approach every year, ensuring tight alignment with the team and clarity in execution. Expect consistent efforts, but don't anticipate dramatic shifts. This is a market that continues to grow, and we have a strong track record and confidence in the team and our processes.

Heather Lavallee, CEO

And maybe, Tom just one clarification, build for me on Rob's comment is, first, when we're setting the pricing, we look back over a 3-year period. We're not just looking at the prior year claims experience, which we know can be a little bit volatile, but to go back. And I know, Tom, you know this is why do we like this product so much is that there's built-in protections in this product. The fact that we have the ability to annually reprice it, and the fact that we use reinsurance to protect against large claims Stop Loss creates really nice growth opportunities and diversification. And I think over the long term, has demonstrated really strong contribution to shareholder value, and we expect that to continue going forward.

Thomas Gallagher, Analyst

My follow-up is regarding the wealth pipeline and how we should relate it to your flow guidance. I believe the figure of $15 billion is what you've mentioned. I'm unsure if that amount is divided between recordkeeping and full service within the $15 billion pipeline. Could you assist us in breaking down the $15 billion into $1 billion for full service and $3 billion for recordkeeping? Additionally, how should we approach the overall deposits and persistency, and what is the overall net effect?

Rob Grubka, Head of Workplace Solutions

Yes. No, great question, Tom. I'll try to maybe just reiterate some things but also hopefully make sure it's crystal clear. From a flow perspective, we've again talked about the $1 billion for full service, $3 billion for record keeping. We implemented, obviously, part of that $15 million in the first quarter. So you sort of see the net result and impact of that just in the ending point for the quarter. As we think about activity moving forward, we've tried to provide the guidance around general account, which is obviously a piece of the full service story more in particular, and so I feel like we've given the pieces and parts, you've got also the spread guide on what we think next quarter will look like. So I think we've tried to make as much visible as we possibly can. But the high level of fundamentals on new business activity, I feel good about that. As we foreshadowed in Don's comments, the second half of the year is where you'll really see the net flow emerge and as you know, in the larger end of the market, you get things swinging from quarter-to-quarter a little bit, but we feel really good about, again, that guide for the full year.

Heather Lavallee, CEO

And I would keep in mind, when you think about well beyond the flow story is really the strong organic growth story. You saw in this quarter, we gave you the participant growth. So we've continued to drive participants. We've driven plan counts, we've driven asset growth. We've done all of it organically, and it really also goes back to the revenue diversification of this business. We've been able to navigate very different macro environments over a long period of time. And finally, as the free cash flow contribution from this business is significant towards that $800 million of capital we expect to generate in the year.

Operator, Operator

Our next question is from Wilma Burdis with Raymond James.

Wilma Jackson Burdis, Analyst

Most of my questions have been answered, but just one quick one. Could you please discuss the upcoming $400 million debt maturity in February 2025? We understand you have $400 million of excess capital, which can help address this. But could you walk us how you would think about the potential financial impacts of refinancing versus paying down?

Donald Templin, CFO

Sure, Wilma. As you have rightly noted, we have approximately $400 million of debt maturing in the early part of 2025. We are currently evaluating how we'll handle that maturity, but I guess I might offer up, we have considerable optionality and flexibility to manage that situation. Our balance sheet is well positioned. Our leverage ratio is 28%. And as you know, our target is 25% to 30%. So we're comfortably in that range. And as you also noted, we are consistently generating capital and have $400 million of excess capital. So we've not yet made a decision on how we're going to move forward, but I think we have a lot of good flexibility there. We expect to have more certainty around that plan in the next coming quarters and would communicate it to you at that time. But I think that we sit from a position of strength right now and feel good that we will be able to make a decision around that debt that isn't forced on us, that we get to choose the pathway.

Wilma Jackson Burdis, Analyst

Just a quick follow-up, if I can. Would pausing share repurchases be on the table or no?

Donald Templin, CFO

We've committed this year to returning $800 million of capital to shareholders. And so that commitment in my view is steadfast.

Operator, Operator

Our next question is from Suneet Kamath with Jefferies.

Suneet Kamath, Analyst

I think on the fourth quarter call, you had talked about some additional expenses in wealth solutions. And it looked like the expense discipline this quarter kind of was pretty visible. So were you able to make those investments and just offset it with cost savings elsewhere? Or are those investments sort of still in front of us?

Heather Lavallee, CEO

Yes, thank you for the question, Suneet. It's Heather here. There are a few points to address. As you know, we have a solid history of managing expenses carefully, and we made significant expense reductions this quarter across our businesses while still managing to invest in growth. One way we achieved this was through Rob's efforts to combine teams in the workplace area, which has helped us save on expenses. Additionally, we are leveraging Voya India more effectively across our operations, which has proven to be very beneficial. I might turn it over to Don to provide further details on the expenses, but overall, this is a strong capability of ours that we plan to keep utilizing as needed.

Donald Templin, CFO

Yes. As Heather mentioned, this is a strong muscle for us. We did lean in, in 2024. And I would say that we have a track record of taking significant expenses out of the business but that doesn't keep us from continuously trying to reduce expenses and be very thoughtful and disciplined around that. I would put sort of the expense reductions in a few categories maybe. One is optimizing our operating model. So we think it's appropriate for us to look at our operating model; we have had some significant divestitures over the last several years. And so we are very focused on making sure that the back office and the systems that we have in place to support the new business as it's been repositioned is appropriate. The second area where we've been very focused is around driving expense synergies. So we obviously had the AllianzGI transaction and the Benefitfocus transaction and both the teams in IM and in Health are driving real meaningful reductions in expenses there. We're leveraging actions that we've taken in the past to drive incremental value. So Heather mentioned India, Voya India, we took full ownership of that, and we're seeing the real benefits of that. And then finally, maybe I'd mention that we have ongoing optimization of our real estate footprint, and that's also been benefiting us and then reflected in the reduction in expenses. And Heather, just to close your question I didn't answer upfront is we did make the appropriate investments as expected.

Suneet Kamath, Analyst

And then I guess on the wealth side, can you just unpack the participant withdrawals and kind of what's going on there? It seems like we've been talking about that for the past couple of quarters. Are these folks that are at retirement age that just kept the money in the 401(k) plan previously and now are moving it elsewhere? If we get some color on that? And then is there any meaningful difference in terms of these participant withdrawal trends between the 401(k) business as well as the tax-exempt business?

Rob Grubka, Head of Workplace Solutions

Yes, we've been discussing this for several quarters. We expect the full year to mirror the first quarter's performance. If we take a step back, we’ve been examining the situation for individuals across different age groups. Many of them may have separated from service and left money behind, which may be influencing their activities. Historically, we’ve noted the flow of funds is significantly impacted by annuity providers and advisers. There's also been an introduction of fixed-rate options that weren't previously available outside of insurance and banking products. Additionally, there's some pent-up demand, and as individuals age, they tend to adopt a more conservative approach to managing their finances. Heather and I have already touched on this, and we believe there's an opportunity for us to enhance our advice and education efforts to better support these retail decisions. We plan to keep evolving our product offerings and solutions while balancing our partnerships with both plan sponsors and distribution partners. It's a complex decision-making process with many stakeholders, and we believe we can improve our collaboration with them.

Heather Lavallee, CEO

And I would just point to within the quarter, just a reminder that when we see higher equity markets, you tend to see elevated participant surrenders just because their account values have grown, and the recurring deposits that come in just the ongoing contributions just can't necessarily offset that. So there certainly was some impact of that in the first quarter on participants taking withdrawals.

Operator, Operator

Our next question is from Nick with Wells Fargo.

Unknown Analyst, Analyst

On for Elyse. Most of our questions are answered, but just had a follow-up going back to Stop Loss. I think you guys said that 10% of new sales are coming from that lower market. Is there an overall target for that going forward or as a percent of the book? Or is that just kind of dynamic?

Rob Grubka, Head of Workplace Solutions

No. I would just say it's the current state. It's something we will continue to consider growing and making it a more significant part. However, in relation to an earlier question, I wouldn't expect that to affect business margins in a different way. So as you model, this isn't a variable that at this stage you need to worry about changing the dynamics within Stop Loss; it reflects the current state.

Unknown Analyst, Analyst

And I guess just as a follow-up on alts, is there, any sensor expectation for Q2? It seemed like you guys held up a little bit better than some peers this quarter?

Matthew Toms, Head of Investment Management

Yes, Nick, this is Matt. I'll take that. We were close to the long-term average in the first quarter, and we expressed confidence in the 9% range for the year. In this quarter's materials, we included additional information about our alternatives portfolio. You mentioned that we've been performing slightly better than many in the industry, which we believe is due to the quality of our portfolio. You'll see in the materials a significant emphasis on private equity, and within that, our commercial real estate exposure is relatively low at 3% of the alternatives book. We think this sets us apart from our peers. Historically, our returns have exceeded the 9% mark, and we maintained that level in Q1. Looking ahead, we have a positive outlook. While it's always challenging to predict exact valuations, we sense a slight tailwind as we move into Q2, but we remain comfortable with the 9% target for the entire year.

Operator, Operator

Our next question is from Kenneth Lee with RBC Capital Markets.

Kenneth Lee, Analyst

Just one on investment management. Revenue yields they were picking up pretty nicely the last couple of quarters last year, a slight decline this quarter. Wondering whether there was anything to call out in particular or whether it was just due to mix shift?

Matthew Toms, Head of Investment Management

Yes. Thanks, Ken. Let me provide some detail on that. It is really, as you point out, a mix shift. We've seen our revenue yield as a counter-industry trend. It's been increasing as you referred to, over recent quarters. We're projecting more stability as we look in the year forward. There's always different flows at different times. And if we think about Retail has helped support that over the last number of quarters. We think about the institutional and insurance channels growing, you can have some influence that will move that around. We do not view this as an inflection point or a change in the moving forward. Ultimately, that revenue yield is driving the margin improvement, as we mentioned. So both on the top line and on the expense base, we're happy with how that's playing through the overall business.

Kenneth Lee, Analyst

And just one more, if I may. In terms of the retail net inflows in the quarter within Investment Management, any way that you could help us size out the contribution from the AGI international distribution? And perhaps how we should think about any kind of forward trajectory in terms of the contribution to net flows over the near term?

Matthew Toms, Head of Investment Management

Yes, no, happy to provide that. It's balanced across the different products. The incoming growth and the AGI component is a strong contributor to that. I think the small majority of that. But really the story there is the breadth and what we've seen engagement in client activity more broadly. So we're still happy with the income and growth component, particularly in the Asian market. In the domestic market, we're seeing better engagement across fixed income, core fixed income that Don mentioned in his comments. Also in the multi-asset and the model business. We're seeing better uptake in our equity strategies, performance really haven't improved there in demand on the small cap side. So we're seeing that breadth improve. But again, balance more than historically when it was more international, the more of the domestic and international pairing together right now.

Operator, Operator

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

Heather Lavallee, CEO

Thank you. To summarize a few key messages, we delivered on our financial targets in the first quarter and remain on track to achieve our targeted full year results for 2024. Our commercial strength remains strong with robust pipelines across workplace solutions and investment management. We remain focused on strategic execution, expense discipline, and prudent capital management while continuing to invest in growth. Thank you, and we look forward to updating you on our progress.

Operator, Operator

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