Voya Financial - Earnings Call - Q4 2024

Executive Summary

• Q4 adjusted operating EPS was $1.40 (vs. $1.63 in Q4’23) on $2.01B total revenue, as strong Wealth Solutions and Investment Management were outweighed by elevated Health Solutions loss ratios; adjusted EPS ex-notables was $1.50.
• Management expects a material improvement in Stop Loss profitability in 2025 driven by a 21% net effective rate increase on January renewals and tightened risk selection, targeting a 5–15% improvement in the January 2025 cohort’s loss ratio.
• 2025 setup: ~$750M excess capital generation before growth investments, buybacks weighted to 2H, with “mid-$8s” implied EPS before ~$50M of 2025 growth investments (slightly below $8 after) and ROE guided to 12–13% with a path back to 14–16% long-term.
• OneAmerica retirement business closed Jan 2, 2025; reaffirmed ~$200M revenue and ~$75M operating earnings benefit in 2025; expect flows volatility and ~90% retention embedded in plan.
• Potential stock catalysts: Stop Loss margin recovery cadence, execution on OneAmerica integration/retention, sustained IM net flows vs. known divested outflows, and capital deployment pacing (2H-weighted buybacks).

What Went Well and What Went Wrong

• What Went Well

  • Wealth Solutions: Revenue growth and margin expansion above targets; FY adjusted operating earnings rose to $820M (+30% Y/Y) and TTM adjusted operating margin reached 39.9% (41.4% ex-notables).
  • Investment Management: Four consecutive quarters of net inflows and FY organic growth of 4.4%; Q4 pretax AOEBIT $66M (ex-Allianz NCI), with sustained fee yield strength and margin expansion ahead of plan.
  • Capital & Strategy: Returned $800M to shareholders in 2024; invested in Sconset Re to extend leadership in third-party insurance asset management; closed OneAmerica, adding scale and capabilities.
  • Quote: “We delivered strong revenue growth, margin expansion and commercial momentum in our Wealth Solutions and Investment Management businesses” – CEO Heather Lavallee.

• What Went Wrong

  • Health Solutions (Stop Loss): Q4 pretax AOEBIT loss of $(102)M; Stop Loss loss ratio spiked to 115.4% (Q3: 93.4%; Q2: 83.2%) due to underpricing and higher claim frequency/severity.
  • Consolidated EPS impact: Q4 adjusted operating EPS declined to $1.40 (vs. $1.63 in Q4’23) despite strong fee businesses; net income fell to $93M (vs. $118M in Q4’23).
  • Outlook headwinds: 2025 prepayment income guided ~$25M lower Y/Y; Wealth margins expected to moderate from 2024 highs amid lower spread income and investment in growth/implementation.

Transcript

Operator (participant)

Morning. Welcome to Voya Financial's fourth quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star two. Participants are limited to one question and one follow-up. 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.

Mei Ni Chu (Head of Investor Relations)

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 advisor 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 two, 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.

Heather Lavallee (CEO)

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 four.

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 2nd 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 towards the second half of the year, but we continue to invest in growth initiatives that create long-term shareholder value. Turning to slide five, 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 advisors 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 six. 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 proven investments that enhance our offerings for our customers while growing revenues and earnings. Our largest investment will be in Health Solutions, focused 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 purchase 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 seven 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 Re 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. Mike.

Mike Katz (CFO)

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 nine. 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 31st. 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 and 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%-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 four times 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 by 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 manage 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 $12.31 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 in 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 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 towards 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. I'll now turn it over to the operator for your questions.

Operator (participant)

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using speakerphone, please pick up your handset before pressing the keys.

To withdraw your question, please press star two. As a reminder, participants are limited to one question and one follow-up question. Our first question is from Elyse Greenspan with Wells Fargo. Please proceed.

Elyse Greenspan (Managing Director and Senior Equity Research Analyst)

Hi, thanks. Good morning. I wanted to start with the ROE guide, right? You guys set that at 12%-13% for this year. It had been 14%-16%, right, with the outlook presentation last year. So I guess, you know, the moving pieces to me, right, seem like the weaker stop-loss results, the investment in Leave Management. You also are bringing on OneAmerica. And then, you know, you guys, you know, Mike, you did say, you know, within your prepared remarks that you expect lower prepayment income in 2025. Not sure if I'm missing anything else there that brings the ROE down.

Then would the expectation be that you would get back to that target range of 14 to 16 in 2026 when stop-loss gets back to target results?

Mike Katz (CFO)

Hey, Elyse, it's Mike. Thanks for the question. And maybe I'll step back a bit, but I think you've got the majority of the pieces here. We did not give a specific EPS guide, but we did give a sense through the free cash flow generation to really think about where EPS might land in 2025. I would think about our 90% free cash flow generation as grossing up that $750 to get at an EPS of approximately in the mid-eights, mid-eight dollars. If you do that net of growth investments at $50 million, we talked about that's primarily on leave, you're going to get slightly less than $8.

As it relates to the ROE piece, I know we have a guide at 12%-13%. I would think about 2025 as on the high end of that range, and if we adjusted for the growth investments, we'd be above that 13%. Now, Elyse, maybe to your variances, I think you'd name them, but let me just hit all of them to make sure we're complete with the answer, so first, you mentioned the leave investments. I just did as well. I would also note in Health Solutions, we are on a journey on enhancing value to our customers around voluntary products that does affect the loss ratios in 2025. Second, within Wealth, we do have additional spend that's aimed at implementing over $20 billion of new plans. Outside of OneAmerica, we're also expecting fee income to increase and that to be offset by lower spread income.

The third piece is share repurchases. We do give a sense of that, so I think you have that piece, Elyse. And then finally, as you mentioned on prepayments, we're guiding to that being down year over year, approximately $25 million. I would highlight this is really not economic. It's just the timing of investment income where prepayments accelerate that versus over time.

Elyse Greenspan (Managing Director and Senior Equity Research Analyst)

Okay, thanks. And then on buyback, you know, 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, you know, 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%-16% next year?

Mike Katz (CFO)

Yeah, Elyse, thanks for coming back to the ROE piece. So, as I mentioned earlier, if you adjust for the lead 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 2025, but also 2026. So, absolutely, the journey is to get back to that long-term 14%-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, you know, they come when they come. We're going to be opportunistic on them, but I think, you know, 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.

Heather Lavallee (CEO)

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.

Operator (participant)

Our next question is from Tom Gallagher with Evercore ISI. Please proceed.

Tom Gallagher (Senior Managing Director and Senior Equity Analyst)

Good morning. First question is the $50 million strategic spend on Leave Management and disability admin. Will any of that recur into 2026, or can we zero that out?

Mike Katz (CFO)

Hey, 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 break-even in 2026 and then generating positive earnings in 2027 and beyond. So I think you're thinking about it, right, Tom? But obviously, you know, as we get deeper in the year, we'll talk more and more about 2026.

Tom Gallagher (Senior Managing Director and Senior Equity Analyst)

That's helpful.

And then just want to ask about the stop-loss expectation that, yeah, obviously a very wide range of 80%-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? Thanks.

Mike Katz (CFO)

Sure, Tom, it's Mike. Yeah, I'm going to hit the rate increase just briefly before I get to your question on risk selection, which is important. 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 2024 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 a 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, you know, 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, you know, 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%-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, you know, 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.

Heather Lavallee (CEO)

And Tom, the only build I would have to Mike's very, you know, detailed response is that you can imagine we are also looking very closely at the completion of the non-January 2024 book of business with the same sense of scrutiny. And what we're seeing right now is it's following very similar trends into prior years.

And so the actions we took last year to increase pricing, we think has held as well, but we're going to continue to stay very close to it. Our next question is from Ryan Krueger with KBW. Please proceed. Hey, thanks. Good morning. 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. Yeah, Ryan and Heather, thanks. I'll take your question. So, you know, as you think about, I'll do the quick look back on 2024 before getting to the look on 2025. So you think about what we delivered in 2024.

Really the main theme is that the fundamentals of our Wealth business are strong. The $2 billion in the full-year DC flows, the 98.5% plan retention that Mike mentioned, you know, a little bit more specificity is in 2024. Our full service sales were up 17% year over year for 2023. So just thinking about that momentum. As we take a look into 2025, what we see right now is if we do that same comparison of full service known sales for 2025 versus at the same time for 2024, they're up 30%. So an important metric. Mike referenced the $20 billion of plans and implementation. And just for clarity, those are plans that won that will be funded within 2025, some of which have already funded. To your point on OneAmerica, just as a reminder, the assumption on retention was 90%.

So you compare that to the 98.5% of our book of business. So that will create a little bit of noise as we go throughout the year in terms of flows, but it's very much embedded into our guidance and our financials. And so at the end of the day, we do feel strong in terms of the fundamentals that we see heading into 2025 across Wealth.

Great, thanks. 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?

Mike Katz (CFO)

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

I think you said you were through 70% of the claims at the end of December. And I was wondering when you add in January, how much does that increase that to?

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

Operator (participant)

Our next question is from Alex Scott with Barclays. Please proceed.

Alex Scott (Insurance Research Analyst)

Hey, good morning. I wanted to sort of probe a little bit more on some of the things that are one-time in nature in 2025. And I guess in particular, Health Solutions and just the need to invest in the business. You know, is there some level of ongoing investment, you know, whether it's leave or, you know, just other capabilities that you'll continue to build out that we need to just think about a higher run rate of expenses?

You know, I'm just asking because my concern is there's a lot of things that, you know, seem like they whipped back in 2026 and, you know, could make people pretty optimistic on the growth you'll get going from 2025 to 2026. I just want to make sure I'm not missing things about ongoing investment and health. Then maybe if you could also comment on Wealth Solutions on just the investment to be able to bring on, you know, assets and so forth.

Heather Lavallee (CEO)

Alex, maybe I'll start from a strategic standpoint, and then I'll toss it to Mike on the financials. One of the reasons we wanted to specifically call out the investment and Leave Management is we think it's important from a transparency perspective to give investors a view of where we're investing. I'll hit on the strategic importance of this capability.

You know, we have seen a significant trend in group insurance where customer experience really matters. It's no longer just about having the right price or provisions within your insurance products. So investing in leave and the fact that employers, this is really one of the primary decisions they're making around group insurance. Very often the bundle is going with who wins on leave. That's really evidenced by some of the stats we shared in the presentation that today we think about it, 100% of our leave cases actually have life and disability, and 72% of our leave cases have supplemental. We see a significant opportunity. We've been a fast grower in supplemental. That's one where we see an opportunity to continue to grow there. That's a key component of our workplace.

And maybe very briefly on Wealth, and Jay will provide more in the coming years just as we think about our strategy. But in Wealth, we've talked a lot about making investments in retail wealth management and that our clients at the end of the day very often don't have access to a financial advisor. And so they look to what's offered through the workplace and also needing broader advisory capabilities and really out-of-plan capabilities. So there we're investing in the number of advisors. We're also investing in technology capabilities to make our advisors more productive and the onboarding experience more seamless for clients that ultimately we think is going to drive growth. But Mike.

Mike Katz (CFO)

Yeah, no, look, Alex, the only build I have with Heather on health is just kind of reiterate what I shared with Tom just a moment ago in that the question around how do we think about leave next year. Yes, a portion of those expenses will exist next year, but the offset on the revenue side as we get paid for the leave administration as well as onboard short-term disability. And so that's a key piece to think about. But on the Wealth side, I think just, you know, everything Heather said, the only thing I would say on a kind of more of a technical note is that as we give the modeling considerations for Wealth, we did include commissions and the intangible effect in the guide that we haven't done that before. And the reason was the OneAmerica piece.

OneAmerica is obviously having an effect on expenses in 2025, and you have your normal seasonal effect across all the segments.

Alex Scott (Insurance Research Analyst)

Got it. 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, you know, it looks a little over $200 million of pre-tax earnings. You know, I think about a year ago, I think the normalized number after all was, you know, around $200 million. So, you know, seemingly not a whole lot of growth there. And I get there's some weight that's maybe a little unique to 2025. But, you know, 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, you know, 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.

Mike Katz (CFO)

Yeah, 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 plans 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. I think one of the offsets is those expenses I just mentioned. And you'll also see a bit of an offset with respect to spread income where spread balances were down year over year.

Alex Scott (Insurance Research Analyst)

Got it. Thank you.

Operator (participant)

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

Joel Hurwitz (Equity Research)

Hey, good morning. 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?

Heather Lavallee (CEO)

Yeah, thanks for the question, Joel. I mean, I see a couple of things, right? You think about voluntary. So it's unique in the group insurance space where typically you're going to have participation rates that are in the high teens, low 20s. So think, you know, somewhere 18%-20%. So when we talk about wanting to drive increased client value, frankly, we want our customers to utilize these very important products.

The couple of trends that I would think about is number one, when we see higher utilization, which means we see the claims experience ticking up. We know that our customers are then utilizing these products. What I would watch for and what we're focusing in on is how do we increase the utilization of these products? Today, we've got about, you know, high persistency in our voluntary business in the high 90s. But, you know, one stat I'd share with you is when we look at our open enrollment through Benefitfocus, where we're able to leverage guidance and the right education, we see supplemental participation rates that move from a traditional 20% up into the low 60s. That's the real key component is that these administrative capabilities, whether it be leave or whether it be ben admin, they drive higher participation rates.

And as you see higher participation rates, that's really because clients are seeing the value of the product. So that's really the way I would think about them versus necessarily competitive pressure on, you know, pricing and the loss ratio. It's really, this has been very thoughtful around making sure that clients are getting the utilization.

Joel Hurwitz (Equity Research)

Okay, that makes sense. And then just on leave and disability, I know historically you've reinsured the disability business that you've written, 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?

Heather Lavallee (CEO)

Yeah, I'd say we've had, you know, a long-standing relationship with a disability reinsurer that, you know, has frankly given us capital relief, and we don't have the tail liabilities of the long-term disability.

The strategic rationale for us to insource the 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, you know, I would say for us, we like the arrangement we have with the partnership. 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 in on in the near term.

Joel Hurwitz (Equity Research)

Okay, helpful. Thank you.

Operator (participant)

Our next question is from Wes Carmichael with Autonomous Research. Please proceed.

Wes Carmichael (Senior Analyst)

Hey, thanks for taking my question. 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?

Heather Lavallee (CEO)

Yeah, I mean a couple of things. And you know, I've certainly stayed close to this and spending time with some of the OneAmerica clients. I think maybe a couple of things, you know, I would refer to as pleasant surprises is the market and particularly the OneAmerica clients and the advisors 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 OneAmerica employees, very, very talented team. And I would say on the retentions 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 record-keeping 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.

Wes Carmichael (Senior Analyst)

Got it. Thanks. And then my follow-up is on capital deployment.

It seems like there needs to be maybe a little bit of a recovery through 2026. But if I think back over the last couple of years, I think you've been pretty active in M&A and maybe more than some would have expected. So just wondering if you're still expected to be expecting to be active on the M&A front going forward and where you might be interested.

Heather Lavallee (CEO)

Yeah, I mean, I think this is something that, you know, we've tried to talk about being both very disciplined with capital management as well as expenses and opportunistic. You know, 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, add spread-based assets, but also highly accretive.

We think Sconset Re, and I'm sure, you know, 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 a bit 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 inorganic build.

Yeah, 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, and where our leading insurance asset management capabilities play quite well, namely private assets, commercial mortgage loan, core fixed income, and infrastructure to 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-$2 billion range, targeted, strategic, and a nice return profile.

Operator (participant)

Our next question is from Jimmy Bhullar with J.P. Morgan. Please proceed.

Jimmy Bhullar (Equity Research Analyst)

Hi, I just had a question on your asset management business.

You noted positive flows the last couple of quarters, but the asset growth hasn't been commensurate with the flows, what the flows would suggest in market performance, partly because you've had a fairly high amount of outflows from divested businesses. Like I think it was around $2.7 billion this quarter, $7.9 billion the quarter before. Can you talk about how much, and that's obviously not in your flow number the way you present, but how much more, what does that relate to, how much more of that do you have that is potentially at risk? And just the economics of those assets, are those similar to the ongoing assets? Are they lower fee, higher fee?

Yeah, thanks, Jimmy. This is Matt. Thanks for the question. Yeah, so it is an important transition, right?

We talked about the growth of the business. We are extremely happy with the $12.5 billion flow you referenced in 2024, that organic growth rate of 4.4%, well above our 2% plus long-term average. Cutting against that, and we've been really upfront about this, is divested businesses. Some would go back now seven years. That is a known flow, very visible, enabled for us to manage in our platform costs around it. We've seen a flow in 2024. We have one more component of the remaining flow that we signaled in 2025. We see that coming in the second half. Those are, as you referenced, lower fee assets that we can also take costs around as we optimize the growth going forward. It's a 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.

Mike Katz (CFO)

And I would just emphasize, Jimmy, I think that, you know, 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.

Jimmy Bhullar (Equity Research Analyst)

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

Mike Katz (CFO)

That number is $6.8 billion is the current estimate in the second half of 2025.

Jimmy Bhullar (Equity Research Analyst)

And beyond that, the remaining vulnerable will be mostly gone?

Mike Katz (CFO)

That's correct.

Jimmy Bhullar (Equity Research Analyst)

Okay, thank you.

Operator (participant)

Our next question is from Wilma Burdis with Raymond James. Please proceed.

Wilma Burdis (Director and Senior Equity Analyst)

Okay, good morning.

Could you just go into a little bit more detail of what kinds of types of actions went into improving the risk selection on the stop-loss block?

Mike Katz (CFO)

Thanks. Hey, Wilma, I'd probably just reiterate kind of what I was sharing earlier around making sure that we feel very good about the pricing for every case that we're underwriting. Second, really making sure we have the most current data before finalizing quotes, and then just strategically and mindset-wise, ensuring that our underwriters and the entire team understood the strategy of focusing on margin versus premium growth, and premium was down 16%. That's a big number when you think about that relative to medical trend.

The other thing I'd say just to maybe on the question around how we think about stop-loss just really more broadly, you know, we're disappointed obviously in what happened in 2024, but I would just point to the annual renewable nature of stop-loss that's allowed us to get after the profitability quite quickly. Think about 5%-15%, low end of the range being close to that 77%-80%. We're still guiding to a two-step process here to get back to our target range. But that's a key reason why we like the product is our ability to get after margins quite quickly.

Wilma Burdis (Director and Senior Equity Analyst)

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

Heather Lavallee (CEO)

Yeah, well, I think that 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 if we didn't, we didn't necessarily renew 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 to Wilma is the importance of factoring in the higher frequency of claims that we saw in 2024 into the 2025 pricing.

We have assumed that the higher frequency of claims that we saw in 2024 will continue throughout. That's also factored into the pricing adjustments we made for the 2025 book.

Operator (participant)

Our next question is from Suneet Kamath with Jefferies. Please proceed.

Suneet Kamath (Senior Research Analyst)

Great, thanks. Good morning. I wanted to hit on the Wealth Solutions flows. I get the dynamic of markets higher and more money comes out. 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?

Heather Lavallee (CEO)

Yeah, I'll answer that. We did start to see some improvement in the Q4 in participant surrenders. We've still taken, you know, perhaps a cautious view heading into 2025 that participant surrenders would continue to be elevated just given a little bit of the uncertainty of the markets.

Yes, we did see an improvement when we started to see interest rates come down.

Suneet Kamath (Senior Research Analyst)

Got it. Okay. And then I guess sort of relatedly on Wealth, you know, one of the things that we're hearing from some other companies in the Wealth space is this whole concept of, you know, 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?

Heather Lavallee (CEO)

Yeah, thanks for the question. So, you know, there are a couple of things that we do today is we do actually have annuity provisions inside of our products. We also partner with different annuity providers through our broker-dealer.

But, and we have certain products within our own partnership within Matt's team, as well as other asset managers that have different income solutions. But this is one of the things I think you're certainly going to hear more from Jay in the coming quarters. Certainly, our investment in retail Wealth M

anagement is going to be an important component of that. And realizing, you know, what are some of the product enhancements or different partnership options we consider that allow us to address both in-plan and out-of-plan solutions as well as annuities. So I'd say this is a bit of a stay tuned. We see some opportunity here.

Our final question is from John Barnidge with Piper Sandler. Please proceed.

John Barnidge (Managing Director and Senior Research Analyst)

Good morning. Thank you for the opportunity. 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?

Hi, 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 size 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 whom don't, we can also look to leverage our own capability and to guide them down their own path and provide investment solutions alongside of that.

So I really think our leading position in the insurance industry market. It gives us both the right

Mike Katz (CFO)

And we think about equity markets broadening as opposed to being so narrow. That tends to take your return expectation higher towards that long-term average. So if we think about where we're starting, feels like we're in that possible range or zone. Now, longer term, we've well outkicked that 9%. But we think it's a fair assumption as we start the year, interest rates where they are, that we can be back on that long-term track.

Operator (participant)

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.

Heather Lavallee (CEO)

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 this 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.