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4-Traders Homepage  >  Equities  >  Nyse  >  Voya Financial Inc    VOYA

Delayed Quote. Delayed  - 05/06 10:00:59 pm
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05/04 VOYA FINANCIAL : misses Street 1Q forecasts
04/29VOYA FINANCIAL : quaterly earnings release
02/24 VOYA FINANCIAL : Chairman and CEO Joins 30% Club
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VOYA FINANCIAL : Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollar amounts in millions, unless otherwise stated) (form 10-Q)

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05/05/2016 | 10:21pm CEST

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 months ended March 31, 2016 and 2015 and financial condition as of March 31, 2016 and December 31, 2015. 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 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, 2015 ("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. Investors are directed to consider the risks and uncertainties discussed in Part II, Item 1A. of this Form 10-Q, as well as in other documents we have filed with the Securities and Exchange Commission ("SEC").

Overview

We provide our principal products and services in two ongoing businesses ("Ongoing Business")-Retirement and Investment Solutions; and Insurance Solutions-and reported our results for the ongoing businesses through five ongoing operating segments.

The Retirement and Investment Solutions business provides its products and services through three segments: Retirement, Annuities and Investment Management. The Insurance Solutions business provides its products and services through two segments: Individual Life and Employee Benefits. In addition to our Ongoing Business, we also have a Corporate and two Closed Block reporting segments: Closed Block Variable Annuity ("CBVA") and Closed Block Other.

Certain reclassifications have been made to prior year financial information to conform to the current year classifications.

Trends and Uncertainties

Throughout this MD&A, we discuss a number of trends and uncertainties that we believe may materially affect our future liquidity, financial condition or results of operations. Where these trends or uncertainties are specific to a particular aspect of our business, we often include such a discussion under the relevant caption of this MD&A, as part of our broader analysis of that area of our business. In addition, the following factors represent some of the key general trends and uncertainties that have influenced the development of our business and our historical financial performance and that we believe will continue to influence our business and financial performance in the future.

Market Conditions

While extraordinary monetary accommodation has suppressed volatility in rate, credit and domestic equity markets for an extended period, the start of the normalization process of monetary policy has resulted in an increase in volatility, exacerbated by heightened concern around the health of economic activity in China and, by extension, global economic conditions. This concern has been particularly acute in commodity-related sectors of the markets as investors adjust their expectations for companies in the energy and metals sectors in light of the rapid and steep decline in commodity prices. In the short- to medium-term, the potential for increased volatility, coupled with prevailing low interest rates, can pressure sales and reduce demand as consumers hesitate to make financial decisions. In addition, this environment could make it difficult to manufacture products that are consistently both attractive to customers and profitable. Financial performance can be adversely affected by market volatility as fees driven by assets under management ("AUM") fluctuate, hedging costs increase and revenue declines due to reduced sales and increased outflows. In the long-term, however, we believe the financial crisis of 2008-2009 ("financial crisis") and resultant lingering uncertainty will motivate individuals to seek solutions combining elements of capital preservation, income and growth. Thus, as a company with strong retirement, investment management and insurance capabilities, we believe the current market conditions noted above may ultimately enhance the attractiveness of our broad portfolio of products and services. We will need to continue to monitor the behavior of our customers and other factors, including mortality rates, morbidity rates, annuitization rates and lapse rates, which adjust in response to changes in market conditions in order to ensure that our products and services remain attractive as well as profitable. For additional information on our sensitivity to equity market prices, see Quantitative and Qualitative Disclosures About Market Risk in Part I, Item 3. of this quarterly report on Form 10-Q.

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Interest Rate Environment

After moving modestly higher in 2015, interest rates declined in the first quarter of 2016 and remain at levels that are low by historical standards. The flattening of the yield curve that resulted from the beginning of the normalization of monetary policy in 2015 persisted into 2016 despite no additional increases in the Federal Funds rate in the first quarter. The timing and impact of any further increases in the Federal Funds rate are uncertain and dependent on the Federal Reserve Board's assessment of economic growth, continued development in labor markets, the outlook for inflation and other risks that will impact the level and volatility of rates.

The continued low interest rate environment has affected and may continue to affect the demand for our products in various ways. While interest rates remain low, we may experience lower sales and reduced demand as it is more difficult to manufacture products that are consistently both attractive to customers and profitable. Our financial performance may also be adversely affected by the current low interest rate environment. The interest rate environment has historically influenced our business and financial performance, and we believe it will continue to do so in the future for several reasons, including the following:

•      Our general account investment portfolio, which was approximately $91.0
       billion as of March 31, 2016, consists predominantly of fixed income
       investments and currently has an average yield of approximately 5.0%. In
       the near term and absent further material change in yields available on
       fixed income investments, we expect the yield we earn on new investments
       will be lower than the yields we earn 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 in the remainder of 2016 will earn an average
       yield in the range of 3.75% to 4.25%. If interest rates were to rise, we
       expect the yield on our new money investments would also rise and
       gradually converge toward the yield of those maturing assets. In addition,
       while less material to financial results than new money investment rates,
       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.



•      Certain of our products pay guaranteed minimum rates. For example, fixed
       accounts and a portion of the stable value accounts included within
       defined contribution retirement plans, universal life ("UL") policies and
       individual fixed annuities include guaranteed minimum credited rates. 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 would positively impact
       earnings if the average interest rate we pay on our products does not rise
       correspondingly. Similarly, we expect policyholders would be less likely
       to hold policies (higher lapses) with existing guarantees as interest
       rates rise.



•      Our CBVA segment provides certain guaranteed minimum benefits. A prolonged
       low interest rate environment may subject us to increased hedging costs or
       an increase in the amount of statutory reserves that our insurance
       subsidiaries are required to hold for these variable annuity guarantees,
       lowering their statutory surplus, which would adversely affect their
       ability to pay dividends to us. A prolonged low interest rate environment
       may also affect the perceived value of guaranteed minimum income benefits,
       which in turn may lead to a higher rate of annuitization of those products
       over time.


For additional information on our sensitivity to interest rates, see Quantitative and Qualitative Disclosures About Market Risk in Part I, Item 3. of this Quarterly Report on Form 10-Q.

The Impact of our CBVA Segment on U.S. GAAP Earnings

Our ongoing management of our CBVA segment is focused on protecting regulatory and rating agency capital through careful risk management and hedging. Because U.S. GAAP accounting differs from the methods used to determine regulatory and rating agency capital measures, our hedge programs may create earnings volatility in our financial statements.




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Seasonality and Other Matters

Our business results can vary from quarter to quarter as a result of seasonal factors. For all of our segments, the first quarter of each year typically has elevated operating expenses, reflecting higher payroll taxes and certain other expenses that tend to be concentrated in the first quarters. Additionally, alternative investment income tends to be lower in the first quarters. Other seasonal factors that affect the reporting segments making up our Ongoing Business include:

Retirement

•      The first quarters tend to have the highest level of recurring deposits in
       Corporate Markets, due to the increase in participant contributions from
       the receipt of annual bonus award payments or annual lump sum matches and
       profit sharing contributions made by many employers. Corporate Market
       withdrawals also tend to increase in the first quarters as departing
       sponsors change providers at the start of a new year.



•      In the third quarters, education tax-exempt markets typically have the
       lowest recurring deposits.



•      The fourth quarters tend to have the highest level of single/transfer
       deposits due to new Corporate Market plan sales as sponsors transfer from
       other providers when contracts expire at the fiscal or calendar year-end.
       Recurring deposits in the Corporate Market may be lower in the fourth
       quarters as higher paid participants scale back or halt their
       contributions upon reaching the annual maximums allowed for the year.
       Finally, Corporate Market withdrawals tend to increase in the fourth
       quarters, as in the first quarters, due to departing sponsors.


Investment Management

• The first quarters tend to have the lowest performance fees.



•      In the fourth quarters, performance fees are typically higher due to
       certain performance fees being associated with calendar-year performance
       against established benchmarks and hurdle rates.


Individual Life

•      The fourth quarters tend to have the highest levels of universal life
       insurance sales. This seasonal pattern is typical for the industry.


Employee Benefits

•      The first quarters tend to have the highest Group Life loss ratio. Sales
       for Group Life and Stop Loss also tend to be the highest in the first
       quarters, as most of our contracts have January start dates in alignment
       with the start of our clients' fiscal years.



•      The third quarters tend to have the second highest Group Life and Stop
       Loss sales, as a large number of our contracts have July start dates in
       alignment with the start of our clients' fiscal years.


In addition to these seasonal factors, our results are impacted by the annual review of assumptions related to future policy benefits and deferred policy acquisition costs ("DAC"), value of business acquired ("VOBA") (collectively, "DAC/VOBA") and other intangibles, which we generally complete in the third quarter of each year, and annual remeasurement related to our employee benefit plans, which we generally complete in the fourth quarter of each year.

Furthermore, Net investment income and net realized gains (losses), within our Investment Management segment, includes, for this and previous periods, performance fees related to sponsored private equity funds ("carried interest") that are subject to later adjustment based on subsequent fund performance, to the extent that cumulative rates of investment return fall below specified investment hurdles. For the three months ended March 31, 2016, our carried interest total net results were a loss of $15.8 million including the reversal of approximately $17.7 million in previously accrued carried interest related to a private equity fund which experienced significant declines in the market value of its investment portfolio. Should the market value of this portfolio increase in future periods, this reversal could be fully or partially recovered. As of March 31, 2016, approximately $41.9 million of previously accrued carried interest, of which $15.3 million is related to the private equity fund referenced above, would be subject to full or partial reversal in future periods if cumulative fund performance hurdles are not maintained throughout the remaining life of the affected funds. See Part I, Item 1A. - Risk Factors - of our Annual Report on Form 10-K for further information.

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Operating Measures

This MD&A includes a discussion of Operating earnings before income taxes and Operating revenues, each of which is a measure that is not determined in accordance with U.S. GAAP, because our management uses these measures to manage our businesses and allocate our resources. We generally use these measures to provide our investors with useful information regarding our financial performance.

We also discuss certain operating measures, described below, as well as Operating earnings before income taxes and Operating revenues, which provide useful information about our Ongoing Business and the operational factors underlying our financial performance. See the Segments Note to these Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for a description of the adjustments made to reconcile Income (loss) before income taxes to Total operating earnings before income taxes and the adjustments made to reconcile Total revenues to Total operating revenues.

© Edgar Online, source Glimpses

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