Executive Summary / Key Takeaways

• Voya Financial is strategically transforming into a capital-light, high free cash flow business focused on workplace solutions (Wealth and Health) and Investment Management, shedding legacy, capital-intensive blocks.
• Recent performance, particularly in Q1 2025, highlights strong commercial momentum and earnings growth in Wealth Solutions and Investment Management, driven by organic growth, favorable market impacts, and the accretive OneAmerica acquisition.
• The Health Solutions segment is actively addressing elevated Stop Loss loss ratios through aggressive repricing and enhanced underwriting, targeting a material improvement in underwriting results in 2025 and a return to target margins in 2026.
• Voya is making targeted investments in technology and capabilities, such as Retail Wealth Management and Leave Management, to enhance its competitive position, drive bundling, and capture future growth opportunities.
• The company maintains a strong balance sheet and is committed to increasing excess capital generation significantly in 2025 and 2026, balancing capital return to shareholders with strategic growth investments.

A Strategic Pivot Towards the Workplace

Voya Financial, Inc. (VOYA) is a financial services organization strategically reshaping itself to capitalize on the evolving needs of the U.S. workplace. The company has deliberately moved away from capital-intensive legacy insurance businesses, notably divesting substantial portions of its variable annuity, life insurance, and non-retirement annuity blocks around 2018. This historical pivot has paved the way for a focused model centered on capital-light operations designed for high free cash flow generation and accelerated profitable revenue growth.

Voya operates primarily through its Workplace Solutions business, encompassing Wealth Solutions and Health Solutions, and its Investment Management segment. This structure positions Voya to offer a comprehensive suite of retirement, investment, and employee benefits solutions to employers and their employees. In a competitive landscape featuring diversified financial giants like MetLife (MET), Prudential Financial (PRU), Principal Financial Group (PFG), and Lincoln National Corporation (LNC), Voya carves out its niche by emphasizing an integrated approach to financial wellness and leveraging technology to enhance client and participant experience. While larger players like MET and PRU benefit from global scale and broader product suites, Voya focuses on deepening relationships within the U.S. workplace, particularly in the mid-market and tax-exempt segments, where it holds leading positions.

A key differentiator for Voya lies in its investment in technology. The company utilizes advanced platforms for retirement plan administration and benefits enrollment (including Benefitfocus), aiming to streamline processes and improve user experience. While specific quantitative metrics comparing Voya's core platform technology directly against all competitors were not detailed, the company highlights its focus on enhancing digital tools for participants and advisers. For instance, the Benefitfocus platform, acquired to bolster Health Solutions, is described as market-leading for benefits enrollment and administration, contributing to increased HSA sales and improved Net Promoter Scores (up 26 points year-over-year in Q2 2024). This technological foundation is critical for driving efficiency, supporting the bundling of solutions, and providing a competitive moat in a market increasingly demanding seamless digital interaction. Voya continues to invest in technology, including enhancements for its Retail Wealth Management advisers and building out new Leave Management capabilities, signaling a commitment to leveraging innovation for future growth and competitive advantage.

Performance Reflecting Strategic Focus and Market Dynamics

Voya's recent financial performance underscores the impact of its strategic transformation and its ability to navigate market conditions, albeit with some segment-specific challenges. For the three months ended March 31, 2025, total revenues decreased by $82 million year-over-year to $1,969 million. This decline was primarily influenced by lower premiums in Health Solutions and reduced income from consolidated investment entities, partially offset by growth in net investment income and fee income. Total benefits and expenses saw a more modest increase of $32 million, reaching $1,796 million.

The Wealth Solutions segment continues to be a significant driver of performance. In Q1 2025, Adjusted Operating Revenues grew by 11.0% to $798 million, leading to an 11.3% increase in Adjusted Operating Earnings before Income Taxes to $207 million. This growth was fueled by the successful acquisition and onboarding of OneAmerica Financial's retirement business, which added over $60 billion in assets and contributed to higher fee-based revenues. Favorable average equity markets and strong defined contribution net flows of $29.4 billion in the quarter (including OneAmerica) further bolstered results. Management noted that while spread-based assets saw some moderation, the overall performance was strong, reflecting effective yield management and commercial momentum, particularly in emerging and mid-market full-service segments and large recordkeeping wins. The outlook for Wealth Solutions remains solid, supported by a pipeline of over $20 billion in wins expected to fund in 2025.

The Investment Management segment also demonstrated robust commercial momentum. While Adjusted Operating Earnings before Income Taxes (excluding noncontrolling interest) saw a slight decrease to $41 million in Q1 2025, Adjusted Operating Revenues grew by 3.8% to $243 million. The segment generated strong net inflows of $7.31 billion in the quarter, significantly outpacing its long-term organic growth target of over 2%. This performance was broad-based, spanning institutional (driven by private equity, core fixed income, private credit, and CLO launches) and retail channels (both domestic and international). Management highlighted the segment's competitive track record and focus on delivering for clients. The investment in Sconset Re is expected to further enhance the segment's position in insurance asset management and contribute to AUM growth over time.

The Health Solutions segment faced headwinds, with Adjusted Operating Earnings before Income Taxes decreasing by 22.0% to $46 million in Q1 2025. This was primarily attributable to lower premiums, reflecting actions taken to improve the Stop Loss business, and higher operating expenses, partly due to investments in Short-Term Disability and Leave Management capabilities. The segment's Total Aggregate Loss Ratio was 72.0% in Q1 2025, with the Stop Loss loss ratio specifically at 75.0%. Management acknowledged that the 2024 Stop Loss book was underpriced, leading to elevated loss ratios. However, they emphasized decisive actions are being taken, including aggressive repricing for the 2025 book (targeting average rate increases of 100% or 2x prior year levels for renewals) and strengthening underwriting. While the estimated loss ratio for the January 2025 Stop Loss cohort is 87% (early in development), management is confident these actions will lead to a material improvement in net underwriting results in 2025 and a return to the target range of 77%-80% in 2026. The Voluntary business saw claims in line with expectations in Q1 2025, but reserves were prudently increased due to economic uncertainty and potential utilization impacts.

Financial Strength and Capital Deployment Strategy

Voya maintains a healthy balance sheet, a core tenet of its capital-light strategy. As of March 31, 2025, the estimated combined RBC ratio stood at a strong 385%. The company's Financial Leverage Ratio, excluding AOCI, decreased to 27.50% from 30.30% at year-end 2024, primarily due to the repayment of $400 million in senior notes in February 2025, funded by proceeds from a prior debt issuance. Holding company liquidity remained above the $200 million target, estimated at approximately $150 million in excess capital as of March 31, 2025 (above the target and RBC surplus).

Capital management is a key focus for Voya. The company has a track record of generating excess capital above its 90% target. Management expects a significant increase in excess capital generation in both 2025 and 2026, driven by the repricing of the Stop Loss business, the earnings accretion from the OneAmerica acquisition, and continued profitable growth across its core segments.

Voya's capital deployment strategy balances returning capital to shareholders with making strategic investments for future growth. In 2024, the company returned $800 million to shareholders through share repurchases and dividends. For 2025, Voya expects to return approximately half of the capital generated, with share buybacks weighted towards the second half of the year. The first half capital usage is focused on prudent growth investments, including the recently closed OneAmerica acquisition ($50 million cash paid at closing), the Sconset Re investment, and ongoing organic investments like the Leave Management capabilities in Health Solutions and enhancements in Retail Wealth Management. These investments are expected to yield attractive returns well above the cost of capital and are central to Voya's strategy of expanding its capabilities and market reach.

Risks and Outlook

While Voya's strategic direction and recent performance in key segments are encouraging, investors should be mindful of potential risks. Execution risk remains in the Health Solutions segment, particularly in successfully repricing the Stop Loss book and achieving the targeted margin improvement amidst a competitive market. The estimated 87% loss ratio for the January 2025 cohort is still early in its development, and actual experience could vary. The potential for increased Voluntary claims utilization due to economic uncertainty also bears watching.

Market volatility continues to pose a risk, impacting AUM/AUA balances in Wealth and Investment Management, as well as the performance of alternative investments, which were below long-term expectations in Q1 2025. While Voya's diversified portfolio and hedging strategies aim to mitigate these impacts, significant market downturns could pressure revenues and earnings. Litigation risks, such as the putative class action related to the Voya 401k Savings Plan, and regulatory changes, including the potential impact of the Corporate Alternative Minimum Tax (CAMT), also represent potential headwinds, although the estimated aggregate reasonably possible loss from litigation is currently limited.

Despite these risks, the outlook provided by management is one of continued profitable growth and increasing capital generation. The OneAmerica acquisition is expected to be accretive, adding $75 million in operating earnings in 2025. The repricing actions in Stop Loss are anticipated to drive meaningful improvement in Health segment profitability. Continued commercial momentum and investment performance in Wealth and Investment Management are expected to support organic growth. The strategic investments in technology and capabilities are designed to enhance Voya's competitive positioning and capture long-term growth opportunities in the workplace.

Conclusion

Voya Financial is executing a focused strategy to become a leading capital-light provider of workplace benefits and investment solutions. The company's history of shedding legacy businesses has positioned it for higher free cash flow generation, which is now being strategically deployed to enhance its core capabilities and pursue accretive growth opportunities like the OneAmerica acquisition and the Sconset Re investment.

While the Health Solutions segment faces a near-term challenge in restoring Stop Loss profitability, management is taking decisive actions with a clear plan and track record of success in addressing similar issues. The strength and momentum in the Wealth Solutions and Investment Management segments, coupled with targeted investments in technology and distribution, provide a solid foundation for future earnings and revenue growth. Voya's commitment to a strong balance sheet and increasing excess capital generation underscores its capacity to navigate potential market volatility and deliver value to shareholders through a balanced approach of capital return and strategic investment. The success of the Stop Loss turnaround and the realization of synergies and growth from recent acquisitions and organic investments will be key factors for investors to monitor as Voya continues its strategic evolution.