For the purposes of the discussion in this Quarterly Report on Form 10-Q, the term Voya Financial, Inc. refers to Voya Financial, Inc. and the terms "Company," "we," "our," and "us" refer to Voya Financial, Inc. and its subsidiaries.

The following discussion and analysis presents a review of our consolidated results of operations for the three and six months ended June 30, 2022 and 2021 and financial condition as of June 30, 2022 and December 31, 2021. This item should be read in its entirety and in conjunction with the Condensed Consolidated Financial Statements and related notes contained in Part I, Item 1. of this Quarterly Report on Form 10-Q, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations" section contained in our Annual Report on Form 10-K for the year ended December 31, 2021 ("Annual Report on Form 10-K").

In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Actual results may differ materially from those discussed in the forward-looking statements as a result of various factors. See the Note Concerning Forward-Looking Statements.

Overview

We provide our principal products and services through three segments: Wealth Solutions, Health Solutions and Investment Management. Corporate includes activities not directly related to our segments and certain run-off activities that are not meaningful to our business strategy.

On June 9, 2021, we completed the sale of the independent financial planning channel of Voya Financial Advisors ("VFA") to Cetera Financial Group, Inc. ("Cetera"), one of the nation's largest networks of independently managed broker-dealers. In connection with this transaction, we transferred more than 800 independent financial professionals serving retail customers with approximately $38 billion in assets under advisement to Cetera, while retaining approximately 500 field and phone-based financial professionals who support our Wealth Solutions business.

On July 25, 2022, the Company completed a series of transactions pursuant to a Combination Agreement dated June 13, 2022 (the "Agreement") with Voya Investment Management LLC, a Delaware limited liability company and our indirect subsidiary ("Voya IM"), Allianz SE, a stock corporation organized and existing under the laws of the European Union and the Federal Republic of Germany ("Allianz"), Allianz Global Investors U.S. LLC, a Delaware limited liability company and an indirect subsidiary of Allianz ("AGI U.S."), and VIM Holdings LLC, a newly formed Delaware limited liability company ("Newco"), pursuant to which the parties combined Voya IM with assets and teams comprising specified transferred strategies managed by AGI U.S. For further details, refer to the Business, Basis of Presentation and Significant Accounting Policies Note to the Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.

On August 1, 2022, Voya Investment Management Alternative Assets, LLC ("VIMAA"), one of our indirect subsidiaries, entered into a sales and purchase agreement ("SPA") with Czech Management GP, LLC, a Delaware limited liability company, Czech Holdings, LLC, a Delaware limited liability company whereby VIMAA will acquire all of the issued and outstanding equity interests of Czech Asset Management, L.P., a Delaware limited partnership, a private credit asset manager dedicated to the U.S. middle market. The acquisition, which is expected to close for cash consideration in the fourth quarter of 2022, will expand VIMAA's private and leveraged credit business and is subject to conditions as defined in the SPA.

Discontinued Operations

The Individual Life Transaction

On January 4, 2021, we completed a series of transactions pursuant to a Master Transaction Agreement (the "Resolution MTA") entered into on December 18, 2019, with Resolution Life U.S. Holdings Inc., a Delaware corporation ("Resolution Life US"), pursuant to which Resolution Life US acquired Security Life of Denver Company ("SLD"), Security Life of Denver International Limited ("SLDI") and Roaring River II, Inc. ("RRII") including several subsidiaries of SLD. We determined that the entities disposed of met the criteria to be classified as discontinued operations and that the sale represented a strategic shift that had a major effect on the Company's operations. Income (loss) from discontinued operations, net of tax, for the six months ended June 30, 2021 included a reduction to loss on sale, net of tax of $8 associated with the transaction. For more information


                                           76

--------------------------------------------------------------------------------

Table of Contents related to this transaction, refer to the Discontinued Operations Note to the Consolidated Financial Statements included in Part II, Item 8 of the Annual Report on form 10-K.

Trends and Uncertainties

We describe known material trends and uncertainties that might affect our business in our Annual Report on Form 10-K for the year ended December 31, 2021, under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Trends and Uncertainties", and in other sections of that document, including "Risk Factors". In addition, we describe below in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") more recently developing known trends and uncertainties that we believe may materially affect our future liquidity, financial condition or results of operations. All statements in this section, other than statements of historical fact, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. For a discussion of factors that could cause actual results, performance, or events to differ from those discussed in any forward-looking statement, including in a material manner, see "Note Concerning Forward-Looking Statements" in this Quarterly Report on Form 10-Q.

COVID-19 and its Effect on the Global Economy

COVID-19, the disease caused by the novel coronavirus, has had a significant adverse effect on the global economy since March of 2020. Even though the pace of vaccinations has increased in many countries, including the United States, the disease continues to spread throughout the world. The persistence of new infections, including the introduction of new variants, has slowed the re-opening of the U.S. economy and, even in regions where restrictions have largely been lifted, economic activity has been slow to recover. In addition, while the ability to impose federal vaccine mandates have been curtailed by the U.S. Supreme Court, we continue to be subject to various state and local vaccine mandates that would require at least a portion of our U.S. employees to be vaccinated, which could potentially impact our work force. Longer-term, the economic outlook is uncertain, but may depend in significant part on progress with respect to effective therapies to treat COVID-19 or the approval of additional vaccines and the pace at which they are administered globally.

Effect on Voya Financial - Financial Condition, Capital and Liquidity

Because both public health and economic circumstances are changing so rapidly at present, it is impossible to predict how COVID-19 will affect Voya Financial's future financial condition. Absent a further significant and prolonged market shock, however, we do not anticipate a material effect on our balance sheet, statutory capital, or liquidity. Our capital levels remain strong and significantly above our targets. As of June 30, 2022, our estimated combined RBC ratio, with adjustments for certain intercompany transactions, was 426%, above our 375% target.

During the six months ended June 30, 2022, we completed repurchases of approximately $700 million of our common shares, including initial delivery of shares on a share repurchase agreement entered into with a third-party financial institution that will settle no later than the end of the third quarter 2022. We do not anticipate any reduction in our common shareholder dividend and continue to monitor the dividends-paying capacity of our insurance subsidiaries. We have distributed $1.2 billion in 2022 from our insurance subsidiaries.

Effect on Voya Financial - Results of Operations

Predicting with accuracy the consequences of COVID-19 on our results of operations is impossible. To date, the most significant effects of adverse economic conditions have been on our fee-based income, with net investment income experiencing milder effects. Underwriting income, principally affected by increases to mortality and morbidity due to the disease, has also been negatively affected.

Wealth Solutions

In Wealth Solutions, the effects of COVID-19 have become less distinguishable as other geopolitical developments have driven uncertainty in the macroeconomic environment. Ongoing equity market volatility and declines drive variability in AUM levels and associated fee-based margin. Higher interest rate levels have provided and may continue to provide some offsetting revenue lift on our general account fixed products. On a prospective basis, general economic uncertainty due to COVID-19, combined with other factors and events, could serve to negatively impact sales and flows into Wealth Solutions products.



                                           77

--------------------------------------------------------------------------------


  Table of Contents
Health Solutions

In Health Solutions, the effects from COVID-19 have been seen primarily in increased mortality claims on group life policies. We have not seen a significant increase in medical stop loss claims.

We expect mortality claims in group life to be elevated in 2022 due to COVID-19 related deaths, with the magnitude of such claims dependent on mortality rates from the disease. We currently estimate that, for every 10,000 incremental deaths in the United States due to COVID-19, we would see between $2 to $3 million of additional claims. Experience to date is consistent with this expectation.

Investment Management

The lingering effects of COVID-19 combined with geopolitical uncertainty are driving higher inflation resulting in equity market volatility and higher interest rates. In Investment Management, this has resulted in lower AUM levels in both equity and fixed income assets with a corresponding reduction of fee-based margin. While investment capital has been revaluated higher over the last year, lingering economic uncertainty could result in investment capital results declining materially. The higher outflows seen with our retail business at the outset of the pandemic subsided in the prior year however retail outflows have increased in recent quarters due to market impacts. The pandemic has made generating new business leads more challenging, resulting in a reduction in sales meetings and activities that could drive a lower level of sales activity during the year. If the pandemic persists and the economy fails to grow, or declines from current levels, asset values could be negatively impacted resulting in lower management fee revenue and/or investment capital returns.

Interest Rate Environment

We believe the interest rate environment will continue to influence our business and financial performance in the future for several reasons, including the following:

•Our general account investment portfolio, which was approximately $40.5 billion as of June 30, 2022, consists predominantly of fixed income investments. In prior years during the prolonged low interest rate environment, the yield we earned on new investments has been lower than the yields earned on maturing investments, which were generally purchased in environments where interest rates were higher than current levels. We currently anticipate that proceeds that are reinvested in fixed income investments during 2022 will earn an average yield near the prevailing portfolio yield. However, heightened market volatility implies greater uncertainly around the path of interest rates and the outlook for new money investments going forward. New purchase yields at current market levels would be near the yield of maturing assets. If interest rates were to continue to rise, we expect the yield on our new money investments would also rise and exceed the yield of maturing assets. In addition, movements in prevailing interest rates also influence the prices of fixed income investments that we sell on the secondary market rather than holding until maturity or repayment, with rising interest rates generally leading to lower prices in the secondary market, and falling interest rates generally leading to higher prices. •We actively manage our investment portfolio and offer competitive product rates in the market. Several of our products pay guaranteed minimum rates such as fixed accounts and a portion of the stable value accounts included within defined contribution retirement plans. We are required to pay these guaranteed minimum rates even if earnings on our investment portfolio decline, with the resulting investment margin compression negatively impacting earnings. In addition, we expect more policyholders to hold policies (lower lapses) with comparatively high guaranteed rates longer in a low interest rate environment. Conversely, a rise in average yield on our investment portfolio will positively impact earnings if the average interest rate we pay on our products does not rise correspondingly. Similarly, we expect policyholders may be less likely to hold policies (higher lapses) with existing guarantees as interest rates rise.

For additional information on the impact of the continued low interest rate environment, see Risk Factors - The level of interest rates may adversely affect our profitability, particularly in the event of a continuation of the current low interest rate environment or a period of rapidly increasing interest rates in Part I, Item 1A. of our Annual Report on Form 10-K . Also, for additional information on our sensitivity to interest rates, see Quantitative and Qualitative Disclosures About Market Risk in Part II, Item 7A. of our Annual Report on Form 10-K .



                                           78

--------------------------------------------------------------------------------


  Table of Contents
Stranded Costs

As a result of the Individual Life Transaction, the historical revenues and certain expenses of the divested businesses have been classified as discontinued operations. Historical revenues and certain expenses of the businesses that have been divested via reinsurance at closing of the Individual Life Transaction (including an insignificant amount of Individual Life and non-Wealth Solutions annuities that are not part of the transaction) are reported within continuing operations, but are excluded from adjusted operating earnings as businesses exited or to be exited through reinsurance or divestment. Expenses classified within discontinued operations and businesses exited or to be exited through reinsurance include only direct operating expenses incurred by these businesses and then only to the extent that the nature of such expenses was such that we ceased to incur such expenses upon the close of the Individual Life Transaction. Certain other direct costs of these businesses, including those which relate to activities for which we provide transitional services and for which we are reimbursed under transition services agreements ("TSAs") are reported within continuing operations along with the associated revenues from the TSAs. Additionally, indirect costs, such as those related to corporate and shared service functions that were previously allocated to the businesses sold or divested via reinsurance, are reported within continuing operations. These costs ("Stranded Costs") and the associated revenues from the TSAs are reported within continuing operations in Corporate, since we do not believe they are representative of the future run-rate of revenues and expenses of the continuing operations of our business segments. We have implemented a cost reduction strategy to address Stranded Costs. Refer to Restructuring in the section below for more information on this program.

Restructuring

Organizational Restructuring

Pursuant to the Company executing the Resolution MTA and the Individual Life Transaction, the Company sold five of its legal subsidiaries, SLD, SLDI, RRII, MUL and VAE to Resolution Life US, which is an insurance holding company newly formed by RLGH, a Bermuda-based limited partnership. The Company also executed an agreement with Cetera on June 9, 2021, where Cetera acquired the independent financial planning channel of VFA. Additionally, the Company transferred or ceased usage of a substantial number of administrative systems and is undertaking restructuring efforts to reduce stranded expenses associated with its Individual Life business and independent financial planning channel as well as its corporate and shared services functions. The Company anticipates incurring additional restructuring expenses directly and indirectly related to these dispositions beyond the second quarter of 2022, of $20 to $40 in addition to the $91 incurred during 2021 and $19 incurred for the six months ended June 30, 2022.

See the Restructuring Note in our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for information on the restructuring activities related to the Individual Life Transaction.

Environmental, Social and Governance ("ESG")

We have a multi-faceted ESG strategy which encompasses corporate issuance and governance, product and solution development, and ESG advocacy. We report periodically on our ESG activities in accordance with Global Reporting Initiative (GRI) Standards.

Environmental

We work to minimize our environmental impact while engaging our various stakeholders on climate-related topics. In particular, through the reduction of waste consumption and greenhouse gas emissions, the reduction of energy use, and the purchase of renewable energy certificates and offsets to compensate for energy consumption.

Social

We focus on workplace diversity, talent development and retention, including through fostering a safe and supportive workplace. We have prioritized increasing our diverse representation across all employee levels, as well as continuing to sustain the gender and racial parity of our workforce.



                                           79

--------------------------------------------------------------------------------


  Table of Contents
Governance
Our Board of directors consists of our Chairman and CEO and our CEO-Elect,
together with 9 independent directors, including a lead independent director,
each of whom is elected annually. Our Board also represents a diverse array of
tenures, experiences and backgrounds, including gender parity.

Our management team aligns its priorities with the long-term interests of our shareholders through a requirement to own meaningful amounts of VOYA stock.

Operating Measures

In this MD&A, we discuss Adjusted operating earnings before income taxes and Adjusted operating revenues, each of which is a measure used by management to evaluate segment performance. For additional information on each measure, see Segments Note in our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.

AUM and AUA

The following table presents AUM and AUA as of the dates indicated:


                               As of June 30,
($ in millions)             2022           2021
AUM and AUA:
Wealth Solutions         $ 466,139      $ 527,835
Health Solutions             1,996          1,905
Investment Management      289,710        315,331
Eliminations/Other        (113,475)      (123,906)
Total AUM and AUA(1)     $ 644,370      $ 721,165

AUM                        350,242        386,696
AUA                        294,129        334,469
Total AUM and AUA(1)     $ 644,370      $ 721,165

(1) Includes AUM and AUA related to the divested businesses, for which a substantial portion of the assets continue to be managed by our Investment Management segment.

Terminology Definitions

Net gains (losses), net investment gains (losses) and related charges and adjustments, and Net guaranteed benefit gains (losses) and related charges and adjustments include changes in the fair value of derivatives. Increases in the fair value of derivative assets or decreases in the fair value of derivative liabilities result in "gains." Decreases in the fair value of derivative assets or increases in the fair value of derivative liabilities result in "losses."

In addition, we have certain products that contain guarantees that are embedded derivatives related to guaranteed benefits and index-crediting features, while other products contain such guarantees that are considered derivatives (collectively "guaranteed benefit derivatives").



                                           80

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses