Voya Financial, Inc. announced last week that it is divesting substantially all of its Closed Block Variable Annuity (CBVA) segment and its individual fixed and fixed indexed annuity business through an agreement with a consortium of investors led by affiliates of Apollo Global Management, LLC, Crestview Partners and Reverence Capital Partners.
In addition to significantly reducing market and insurance risk (the CBVA business was seen as one of Voya’s riskiest components), the agreement will enable Voya to focus on its higher-growth, higher-return, capital-light Retirement, Investment Management and Employee Benefits businesses.
“Through this transaction, we are further demonstrating our commitment to delivering shareholder value by eliminating the risk associated with the CBVA segment and securing significant value for our Annuities business,” said Rodney O. Martin, Jr., chairman and chief executive officer, Voya Financial, Inc. “Since we became a standalone company in 2013, we have focused on growing our capital-light businesses — specifically, Retirement, Investment Management and Employee Benefits. This transaction accelerates that focus and positions Voya to expand its leadership position as one of the foremost retirement, asset management and employee benefits companies in the United States.”
Martin added that the increased focus on these core businesses will allow Voya to be able to work even more closely with its distribution partners and help its customers get ready to retire better. “We are also committed to ensuring a seamless transition for our annuity customers, who will continue to benefit from the features of the products,” Martin said.
In the transaction, Voya will divest Voya Insurance and Annuity Company (VIAC), the insurance subsidiary that has primarily issued Voya’s variable, fixed and fixed indexed annuities. VIAC will be acquired by Venerable Holdings, Inc., a newly formed investment vehicle owned by a consortium of investors led by Apollo, Crestview and Reverence. Athene Holding, Ltd. (NYSE: ATH), and Voya also will participate in this consortium, with Voya having a 9.9% equity stake in Venerable.
Following its acquisition of VIAC, Venerable will hold substantially all of the variable annuities in Voya’s CBVA segment with account value of approximately $35 billion based on June 30, 2017, balances. Concurrent with the sale of VIAC, Voya will sell via reinsurance to Athene its individual fixed and fixed indexed annuity policies with approximately $19 billion of account value as of June 30, 2017, representing the significant majority of Voya’s fixed and fixed indexed annuities in force. Voya intends to cease manufacturing non-retirement-focused individual annuities after the transaction closes.
Based on the terms of the agreement, Voya estimates that the transaction will result in approximately $1.1 billion of value, which includes the benefit of a $400 million ceding commission paid by Athene for Voya’s fixed and fixed indexed annuities business. Giving effect to certain assets that are not liquid today as well as expected transaction, restructuring, and other costs, Voya expects immediately deployable capital in excess of $500 million, which is subject to change until closing. Voya intends to utilize the deployable capital for additional share repurchases beyond its $1 billion existing authorization. Voya also expects to benefit from the above-mentioned assets that are not liquid today — and that are not included in excess capital — over time.
Voya does not expect that the transaction will have a significant impact on the net present value of its deferred tax assets.
Martin added, “We have a clearly defined roadmap to grow our bottom-line results following the transaction, and we expect to increase Voya’s quarterly operating earnings per share to between $1.10 and $1.20 within 12 months of the transaction closing. To achieve this, we will execute on growth initiatives in Retirement, Investment Management and Employee Benefits. Moreover, in addition to our existing cost-savings initiatives, we will undertake further efforts to reduce expenses associated with the businesses involved in this transaction, and in corporate and shared services functions. The cumulative effect of these efforts will be to realize $110 to $130 million in cost savings in the 12 months following the close of the transaction. We also will continue with our share-repurchase plans, including our intent to repurchase $1 billion of our common stock by June 30, 2018.”
To achieve its new, targeted annual run-rate cost savings, Voya will incur certain restructuring expenses. These expenses, which will be classified as non-operating items, are not reflected in the company’s run-rate cost savings estimates for 2018.
“Since the end of 2012, we have significantly improved our financial performance and returned more than $3.4 billion in excess capital to our shareholders. We have also built a strong culture, where employees are committed to helping both our customers and our communities around the country. At the same time, we have greatly increased Voya’s brand awareness — going from virtually no recognition to becoming one of the most recognized brand names associated with retirement. This is the right time to move forward with a more focused and higher-growth business mix, and we are well positioned to build upon the value we have already created as we continue to improve returns and generate additional value for our shareholders, customers, employees and distribution partners,” added Martin.
As part of the agreement, Voya Investment Management (IM) will serve as the preferred asset management partner for Venerable. Voya IM will — for a minimum of five years following the closing of the transaction — manage approximately $10 billion of general account assets under management (AUM). Voya IM also will continue to manage the funds platform associated with the variable annuities, representing approximately $22 billion of AUM as of Sept. 30, 2017. Voya IM will be the preferred asset manager for future blocks acquired by Venerable. This arrangement aligns with Voya IM’s focus on providing long-term, risk-adjusted returns as well as its expertise in serving the needs of insurance companies.
The transaction, which has been unanimously approved by Voya’s board of directors, is expected to close in Q2 or Q3 2018, subject to customary closing conditions, including regulatory approvals.
After completing the transaction, Voya expects annual free cash flow of between $600 and $700 million and anticipates that approximately 80% of its operating earnings would be generated from its Retirement, Investment Management and Employee Benefits businesses. As a result of its planned exit from the individual annuities business, Voya intends to conduct a strategic review of its Individual Life business during the first half of 2018.
This was very interesting to see. Hopefully, it means that Athene is here to stay and wants to expand their footprint.
ING/Voya has not promised much in their annuity block over the past 5 years. Id imagine its fairly profitable. And they have a very large base of advisers to market to, and a lot of selling agreements with B/Ds and other institutions.
Seems like a smart move for Athene.
But what is Voya now? Just focused on life/benefits/investments? Seems like a major pivot for Voya. Of course, the whole name change was a major pivot as well.
Voya wants to be asset manager, they want the 401k/qualified money business. They could not do that with a FIA and VA business, it draws DOL and lawyers peek. They want to admin the 401k business but when the employee leaves they want the admin( which is VOA) to notify Voya and Voya can turn around and sell this lead to its own financial advisors. You could not do this with a FIA and VA business also on their books. But now assets will stay with Voya whether under the 401k or with their so called independent VOYA advisor. TIAA Cref and Fidelity do something similar. Their lawyers have been trying to work around privacy issues so I am sure they recommended getting rid of this block of business to appease some regulators. Smart move for VOYA, also they are selling near the peak of market in my opinion. If the stock market crashed and annuities become popular again or DOL fiduciary is shelved for good, they can always re-start this business.