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Voya Financial Inc
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Good morning, and welcome to the Voya Financial First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Michael Katz, Executive Vice President, Finance, Strategy and Investor Relations. Please go ahead.
Thank you, and good morning. Welcome to Voya Financial's first quarter 2021 earnings conference call. We appreciate all of you who have joined us for this call. As a reminder, materials for today's call are available on our website at investors.voya.com or via the webcast.
Turning to Slide 2. Some of the comments made during this conference call may contain forward-looking statements within the meaning of federal securities law. This includes potential impacts related to COVID-19. I refer you to this slide for more information. We will also be referring today to certain non-GAAP financial measures. GAAP reconciliations are available in our press release and financial supplements found on our website, investors.voya.com.
Joining me on the call are Rod Martin, our Chairman and Chief Executive Officer; as well as Mike Smith, our Vice Chairman and Chief Financial Officer. After their prepared remarks, we will take your questions. For that Q&A session, we have also invited our Vice Chairman and Chief Growth Officer, Charlie Nelson; as well as the heads of our businesses, specifically, Heather Lavallee, Wealth Solutions; Christine Hurtsellers, Investment Management; and Rob Grubka, Health Solutions.
With that, let's turn to Slide 3 as I would like to turn the call over to Rod.
Good morning. Let's begin on Slide 4 with some key themes. Our results for the first quarter demonstrate that we continue to operate from a position of strength with a specific and clear strategy set on health, wealth and investment solutions. Voya has tremendous opportunities to expand and grow. Our businesses give us both the scale and the insight to help employers and their employees manage a variety of health and wealth needs, and we are seeing an increasing demand for what we offer.
The pandemic has led to individuals becoming even more focused on their health and wealth needs. As a result, employees are increasingly looking to their employer for support, and employers are very much focused on this. Recent research by the Employee Benefit Research Institute indicates that employers overwhelmingly either have a strategy or are developing one to improve their employees’ financial well-being. We believe that Voya is well positioned to deliver on this demand, which will enable us to provide even greater value for all of our stakeholders.
Turning to our results for the quarter. We delivered significant adjusted operating earnings per share growth. In addition, to strong investment income and the execution of our share repurchase plans, our EPS growth reflects continued momentum across our businesses. In Wealth Solutions full service recurring deposits grew more than 5% compared with the trailing 12 months. This was driven completely by organic growth. We generated over $850 million in full service net flows and recordkeeping flows were also strong at $3.5 billion. Collectively, this reflects our strong results in both retention and the onboarding of new clients.
In Investment Management, we saw continued institutional inflows and interest in a number of our fixed income strategies. While we experienced net outflows during the quarter, we expect to achieve our 2% to 4% net flow organic growth targets for 2021, due to a strong unfunded pipeline.
In Health Solutions, annualized in-force premiums grew nearly 9% year-over-year. This strong increase reflects the growth across all product lines, but particularly in our Voluntary business. During the first quarter, we announced a new operating model to advance our growth plans and ensure a customer-centric focus on health, wealth and investment solutions. We are excited about the opportunities to meet the increasing needs of employers and their employees. We are focused on how we can expand the solution set that we offer to drive a more coordinated and integrated experience through the workplace.
Our acquisition of Benefit Strategies, which we announced yesterday is a good example of focusing on increasing our capabilities and reach in the workplace. Specifically, this acquisition will accelerate our expansion in the health savings and spending accounts markets. We look forward to continuing to update you during the year on our plans and at Investor Day later this year when we will provide details on the next phase of our growth strategy.
Finally, our balance sheet and capital position remains strong. We continue to return capital to our shareholders by repurchasing $235 million of common stock during the quarter. As of March 31, we have returned $7 billion of capital to shareholders through both share buybacks and dividends since our IPO. As previously here, we expect to repurchase $1 billion of our shares during 2021 and we had approximately $1.6 billion of excess capital as of March 31.
Moving forward, we will continue to demonstrate the responsible stewardship of capital that has been a hallmark of Voya as a public company. We have also further strengthened our Board. I'm pleased to share that we have welcomed, Yvette Butler as a new Independent Director. Yvette brings to our Board over 25 years of experience in financial services, where she has distinguished herself as a strategist and the leader in providing wealth advisory, banking and financial planning solutions. We are delighted to have Yvette join us.
And at the same time, I want to acknowledge Lynne Biggar, who stepped down from the Board last month. Lynne served on our Board since 2014, and has provided valuable contributions to Voya's success. On a personal note, I am very grateful for her guidance and her perspective.
Turning to Slide 5. We continue to earn further accolades for Voya's strong culture and commitment to ethical business practices during the quarter. Voya was named one of the World's Most Ethical Companies for the 8th consecutive year. We were one of only a 135 companies to earn this recognition, and one of only six in the financial services category. This honor and others like it to reflect our culture and the character of our brand. And these include being ranked 5th overall on Barron's 2021 100 Most Sustainable Companies list and earning the number one ranking in the financial services category for the 3rd consecutive year and earning inclusion on Fortune's lists of the 2021 Best Workplaces in Financial Services & Insurance.
Our management team is extremely proud of our employees and all they have contributed for our clients and customers during the past year. Despite all this occurred, our people have been steadfast in adapting and pivoting to ensure that Voya can be there for our customers when they need us the most.
With that, let me ask Mike Smith to provide more details on our performance and results.
Thank you, Rod. Before we turn to the numbers, I want to echo Rod's comments about our employees. We have many stakeholders of Voya, including our clients and our shareholders, but it is our employees that have enabled us to execute everything you've seen from Voya over the past year. From completing the sale of our Individual Life business to responding to our customers when they needed us most, our employees have gone above and beyond while also managing health and work-life balance challenges. For this, we are all very grateful for their support.
This quarter, we have changed the focus of our earnings discussion from normalized to adjusted operating earnings. In doing so, we hope to simplify the earnings presentation for investors. This is also consistent with our evolution toward being a less complicated company, especially with a Life Transaction now behind us. In order to assist with trend analysis, we will, of course, call out notable items and any one-time adjustments.
Turning to Slide 7. We delivered after-tax adjusted operating earnings of $1.70 per share in the first quarter of 2021. This includes the following items. First, $0.66 of prepayment and alternative income above our long-term expectations. Alternative income was boosted by favorable fourth quarter equity markets. First quarter equity market strength is likely a positive for second quarter alternative performance, so roughly a quarter of our holdings are in sectors that were relatively flat in the first quarter. Second, $0.17 of unfavorable COVID-19-related claims impacting Health Solutions, and third, $0.03 of unfavorable other notable items in the quarter.
With the Life Transaction now successfully behind us, we are focused on and confident in our ability to eliminate stranded costs by the end of 2022. GAAP net income was more than $1 billion for the first quarter of 2021. This was largely driven by a significant gain from the reinsurance component of the Individual Life Transaction booked at close. This gain reduced the ultimate GAAP loss on sale for the overall transaction to $633 million at the low-end of the guidance $600 million to $800 million range.
Moving to Slide 8. Wealth Solutions delivered $255 million of adjusted operating earnings in the first quarter, significantly higher than $124 million in the first quarter of 2020. The year-over-year increase was largely driven by favorable alternative income, which was $81 million above our long-term expectations and $74 million higher than the first quarter of 2020, as well as a favorable DAC unlock relative to last year.
Investment spread continued to benefit from the volume of transfers into our fixed account in 2020. In addition, we benefited from crediting rate actions that became effective this year, seasonally lower crediting days and income generated from discounted bonds that were called in the quarter. Equity markets along with consistently strong full service and recordkeeping net inflows, all combined to drive higher asset levels, which provided a tailwind for our fee-based business. Our administrative expenses were favorable compared to a year-ago, reflecting our expense discipline and continued drive toward lower unit costs.
Turning to deposits and flows. Full Service recurring deposits grew 5.1% to over $11 billion on a trailing 12-month basis. We expect employer match and participant deferral trends to continue improving throughout the year such that full-year recurring deposit growth will be 6% to 8% as previously guided. We generated over $850 million of positive full service net flows and more than $2 billion over the last 12 months. Recordkeeping net flows were $3.5 billion in the first quarter, largely driven by a large client win. Stable value saw modest net outflows of $156 million following a record year for net inflows in 2020.
Looking ahead, we expect full service net flows to remain positive and recordkeeping flows to moderate slightly in the second quarter. We have a robust pipeline, a strong and growing distribution, and we continue to invest in our customer-focused solutions through the workplace. Our diversified revenue streams from our top-tier presence across all markets will contribute to our ability to achieve long-term growth.
On Slide 9. Investment Management delivered $52 million of adjusted operating earnings. This is higher than $40 million in the first quarter of 2020, primarily driven by investment capital results, which were higher year-over-year and significantly above our long-term target. We generated greater fee revenues from higher average asset levels and successive client wins. This was partly offset by waived fees on certain short-term money market products due to the current level of short-term rates. More materially, external client revenue yield is down in the quarter due to the Life Transaction, which produced an expected movement of assets from the general account to institutional.
Administrative expenses were higher year-over-year, largely due to variable compensation associated with strong investment capital results in the quarter and continued investments in the business. Our adjusted operating margin, including investment capital improved 200 basis points to 28.8%, benefiting from strong investment capital results.
Turning to flows. Overall net outflows were roughly $400 million in the quarter, primarily driven by the timing of expected redemptions and is in line with the guidance we shared in the prior quarter. In Institutional, we saw strong demand in private credit and commercial mortgage loans across domestic channels, including insurance. This was offset by outflows from longer duration investments by international clients as U.S. rates rose sharply in the first quarter. Having said that, we are seeing indications that trend is stabilizing.
Additionally, we saw some short-term liquidity outflows related to client hedging activity. We are now separating these flows in our investor supplement to better represent the true growth of our business. This categorization change had an immaterial impact on historical organic growth and our outlook for 2021. Retail flows continued to improve sequentially, however, remain negative this quarter. Our fixed income performance remains strong. 94% of our fixed income funds outperformed the benchmark on a three-year basis and over 95% did so on a five and 10 years basis.
Looking ahead, we expect to return to positive net flows in the second quarter and to achieve full-year organic growth of 2% to 4% driven by a strong unfunded pipeline of client wins. We have a diverse platform to meet client needs across market cycles. Our strong long-term investment performance, strength of distribution channels and diversity and solutions providing differentiated returns continues to drive long-term optimism in our pipeline.
Turning to Slide 10. Health Solutions delivered adjusted operating earnings of $37 million in the first quarter compared to $61 million in the first quarter of 2020. We incurred $29 million of COVID-related claims driving most of the variants. Repayment and alternative income exceeded our long-term target by $6 million and was more favorable than first quarter of 2020 by $5 million.
Annualized in-force premiums grew 8.6% year-over-year supported by growth in all product lines, highlighted by double-digit growth in voluntary and 9% growth in stop-loss following a successful January sales and renewal season. The total aggregate loss ratio was 71.8% on a trailing 12-month basis within our targeted range of 70% to 73%. Group Life loss ratios were elevated in the quarter due to COVID claims. Loss ratios for stop-loss and voluntary were in line with our expectations.
As Rod mentioned, we are excited by our recently announced acquisition of Benefit Strategies. This acquisition accelerates our presence in the fast-growing HSA market that we entered in 2019. As we look out to the rest of the year, we remain optimistic that as COVID eases throughout the year, earnings growth should rebound given solid underlying commercial growth momentum across our entire book of business.
On Slide 11. We provide EPS items to consider for the second quarter of 2021. Second quarter will benefit from several seasonal first quarter items not repeating at the same levels, including administrative expenses, Group Life loss ratios, and preferred stock dividends. In the second quarter, we also expect an earnings benefit from lower variable compensation and investment management associated with investment capital results and less severe COVID-related claims relative to first quarter levels.
Considering claim submission lags, we expect $20 million of COVID-related claims impact in the second quarter and $10 million in the second half of this year, based on a full-year assumption of 300,000 total U.S. COVID-related deaths. Offsetting these items is the call bond investment gain in Wealth Solutions not expected to recur. We also experienced outsized alternative income in first quarter above our long-term expectations of 9%. While we have provided some items to consider, there will, of course, be other factors that affect second quarter results, including changes in our average share count, market impacts, business growth and the potential for additional COVID-19 impacts.
Slide 12. Our robust capital position allowed us to continue our strong track record of returning capital to shareholders. This quarter, we returned $255 million to shareholders, including $20 million in common stock dividends and $235 million in share repurchases, the latter of which comprised $30 million of shares related to an ASR agreement that was entered into in the fourth quarter of 2020, $200 million of shares delivered as part of a new $250 million ASR agreement we entered into during the first quarter, and $5 million of shares repurchased through open market transactions. The total amount of capital returned to shareholders since our IPO is $7 billion, predominantly through shares repurchased.
We continue to expect to deploy approximately $1 billion of capital towards share repurchases over the course of 2021 in a ratable manner, while continuing to balance investing in our business for the long-term. Our financial leverage ratio was above our 30% target, largely due to the impacts from the life-close and lower AOCI due to the move in interest rates at the end of the quarter. This does not change our plan to retire $600 million to $800 million of debt this year of which we retired $75 million in the quarter.
We ended the quarter with strong excess capital of $1.6 billion. We continue to expect at least $300 million of additional excess capital upon the completed sale of our Independent Financial Planning channel.
In summary, we are pleased to have close the Life Insurance transaction, a huge step in our transition to our capital-light business and do have shared our new operating model. We believe our strong workplace and institutional franchises are poised for long-term success. We generated high free cash flow and have a significant excess capital position as well as an increasingly valuable deferred tax asset should higher corporate tax rates become law. We will continue to act as good stewards of capital as we look to deploy proceeds in the best interest of shareholders.
With that, I will turn the call back to the operator, so that we can take your questions.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Elyse Greenspan with Wells Fargo. Please state your question.
Hi. Thanks. Good morning. My first question just on the capital side of things. You guys reconfirmed a $1 billion of buybacks for this year. I was just hoping we could get more color on how to think about just timing. I think you said, it will still be ratably throughout the year, but given that there is more certainty on the economy and coming out of COVID where you perhaps look to pull forward some of the buybacks given that the worst get behind us.
Elyse, good morning. I'll begin, and as usual, Mike and I will toggle back and forth. And your assumption is correct or your understanding is correct. We have committed to a $1 billion of buyback this year. As Mike just shared, with that, we – that's on top of the $7 billion that we've already done historically since the IPO. We're also retiring debt that you've heard Mike talk about between $600 million and $800 million and we'll probably be in the middle of that range. And if you look at how we've done this historically, Elyse, we've done it ratably and that has served us well. And so that philosophy and approach is how we're approaching it. And we'll always make some judgments based on market conditions, but that's generally been the approach. And Michael, please feel free to add.
I think you covered it really well, Rod. I would just kind of reemphasize the point of we'll look for opportunities as the stock trades up and down or general market trades up or down to lean in or lean back with open market purchases where that makes sense. But the ratably part Elyse, just to be clear, it was less about COVID and uncertainty and more just the application of the discipline that we've shown consistently. I think as Rod said, it's served us well and we expect it to continue to serve us well.
Okay, great. And then my second question on – you guys announced a deal Benefit Strategies yesterday, and I just – you guys didn't disclose the payment. So it sounds like it's more of a bolt-on deal. So as we think about additional M&A, would it more be on kind of similar bolt-ons? Or could you just kind of give us an update as you guys think about potential additional M&A transactions?
Elyse, thank you for mentioning it. We are very excited, and I'll let Rob comment in just a moment about Benefit Strategies. But in terms of our consideration, we've talked about considering opportunities that will help accelerate growth in the workplace by integrating – by increasing integrating outcomes across the health and wealth, focus with employees and employers from an engagement in the data integration and technology perspective. So Elyse, it's extremely difficult to comment about size because these opportunities emerge as they emerge. But this is a good example of adding to a business that we started organically, and I think enabling us to accelerate this significantly. But let me ask Rob to jump in and just describe this a little more fully. Rob?
Yes. Sure. Thank you, Rod. Thanks for the question, Elyse. Yes. Now, we're certainly excited about it from a strategic standpoint. I think it's probably super self-evident as to why we got excited about this particular opportunity. And to speak of them more particularly, they've been in this business for a long time. They're East Coast-based company, so there's a broad mix of solutions that they cover and service and administer. HSA is certainly sort of the headline story because we see it as such a great connector between our health and wealth businesses and trying to really bring together for consumers a more integrated decision framework and opportunity to provide guidance and think about even servicing the business in a more holistic way.
So there's certainly that element of things is – as a reminder, we talked about this actually back at Investor Day in 2018, and over the last couple of years have certainly learned a lot as we've entered that marketplace. We're excited about what we've learned. Again, I just reinforce the connectivity and the receptivity in the market to bringing together the wealth story as well as the HSA and notional account story and connected all the way through. And then obviously it's an opportunity for our Investment Management team to play a role in this solution as well.
So we're really excited about the cultural fit, the consumer fit and the capabilities they bring. We actually partnered with Benefit Strategies last year in a more meaningful way. So we got to sort of test ride with each other a little bit and just found it a really good match culturally and from an execution and delivering from our customer perspective, couldn't be more excited about it.
Okay. Thanks for the color.
Thank you.
Our next question comes from Nigel Dally with Morgan Stanley. Please state your question.
Great. Thanks, and good morning, everyone. Just wanted to circle back to capital management, understand that you could lean in or depending on market conditions, which makes a lot of sense. But as you also mentioned, it does seem like the uncertainty with regards to the pandemic, the economy is dissipated, your current capital position remains very strong, your free cash flow is amongst the best in the industry, then you also have the deal in the third quarter, which is going to free up some additional capital. So if things go right, it's a potential upside to the amount? Or should I be taking from your comments that $1 billion that you talked about we should view as being largely [indiscernible] at this point?
Nigel, I'll start with – again, Mike and I will toggle back and forth. Just maybe as – we believe the share repurchases are and have been a core part of the Voya story. In addition to that, we're carefully looking as we've discussed our opportunities to accelerate our worksite strategy, Benefit Strategies as an example of that. We're also retiring as we commented about just a moment ago, $600 million to $800 million of debt. And as a reminder, a number of these transactions closed later this year. So we will and have been opportunistic historically, but the guidance that we've given for 2021 is fully based on both organic growth and what we have in place now. With that, Mike?
Yes. Nigel, I think the only thing I'd say is that you shouldn't view the $1 billion as a ceiling. I think there – to the extent that opportunities present themselves, and it makes sense for us to do. I think we could lean in. I think we've said from the beginning it was at least a $1 billion. We'll see how the balance of the year unfolds. We’ll need to close the Financial Planning Channel transaction, and we'll see how the balance of 2021 emerges. But to Rod’s point, focusing on delivering shareholder value and being conscious of that has been, I think, a hallmark of this management team, and I don't think that's in anyway changing here.
Okay. That's great. I appreciate the color. And just one other one on Investment Management. You commented you have a strong unfunded pipeline of mandates, any color as to [business likely becoming] are we kind of looking at that in the second quarter or just too tough to judge?
Christine?
Nigel, I would say, not to go as far as to say too tough to judge, but as you know, just quarter-to-quarter, some of these mandates in the pipeline not all are a bit lumpy. But so saying that, looking out at the full-year and what we do see is see very strong unfunded wins as well as progressing through finals and semi-finals, so feeling really positive about it. It's like, what's driving some of this. Well, listen, right now, our unfunded wins are 10 strategies. So it's diverse by client type too. A lot of the demand is for some of our traditional private assets, like private credit, as an example, also commercial real estate, that was held up a bit in terms of where the market was pricing and really the ability to underwrite properties last year.
So that in COVID, so that headwind is starting to dissipate and will be turning into a tailwind. So overall, what are we seeing? We're very confident forecasting that 2% to 4% beginning of AUM growth, it's diversified. And as you say, Nigel, could be lumpy quarter-to-quarter, but overall, the long run trajectory is very strong. And as you know, we've delivered five consecutive years of positive net cash flows, and so we're well on track for having our six-year of positive cash flows.
Sounds great. Thanks a lot.
Our next question comes from Josh Shanker with Bank of America. Please state your question.
Yes. Thank you very much. I wonder if you could talk a little bit – I get the question a lot, but I can tell you that from my perspective, the fee margin on recordkeeping business has shrunk more quickly than I thought it would. I know you've had some big wins and those wins might be coming at a lower negotiated rate than the legacy portfolio. But can we talk about the trend? What we should expect going forward? And as you do put on new wins, the margins on those wins relative to the legacy margin of the portfolio?
Absolutely. Heather?
Yes. Josh, thank you so much. Appreciate the question. First, I'll say – first, we did have some one-time annual fees in the fourth quarter that did not repeat in the first quarter, which really drove the appearance of some accelerated fee compression between the quarters. We are very much focusing on positive and profitable sales growth. And while we do anticipate some revenue pressure really across the industry, we're very much focused on growth in our full service, specifically within our mid-market space where we have expanded distribution. And what we see there is we may sell a larger plans with a lower average fee, but higher total net revenues and very, very much in line with our expectations.
Second factor I point to is, we continue to be very focused on driving operational efficiencies and enhancements to our client experience that are helping to bring down expenses and helping to offset revenue pressure. And the final item I'd really point you to is, we're focused on driving alternative sources of revenue by expanding and enhancing our proprietary solutions that are really resonating in the market. So while we do recognize that there are revenue pressures, we are very confident in our ability to hit our 8% to 12% earnings growth that we forecasted for the year.
And the timing of the win that you had in the quarter, did that show up towards the end of the quarter skewing the average balances as opposed to the beginning and end balances?
Well, I will say – sure, let me address it this way, is kind of talking about the flows in the quarter. We had very, very strong flows across full service and recordkeeping, totaling $4.4 billion and all organic growth. So very, very pleased. What I would comment in terms of net flows is we did see a greater acceleration of funded wins coming in, in the quarter. So I think a little bit less driving anything you're seeing in terms of average fee revenue, but again, I'm going to point to the fact of very, very strong flows in the quarter and really driving our strong commercial momentum that we're anticipating throughout the year.
Within recordkeeping, as you know, it can be a little bit lumpy. We're building off of a extremely strong 2020, so as I look forward into 2021, we expect flows to moderate a little bit, see continued strong revenue from our diversified portfolio, and just strong commercial momentum throughout the year.
Thank you.
Our next question comes from Tom Gallagher with Evercore ISI. Please state your question.
Good morning. Rod, I heard your comment before about in reaction to M&A that it depends on opportunities that emerge, but just wanted to ask you about sort of directionally where your head's at with the types of deals you'd consider because as you guys probably heard Prudential maybe considering divesting their full service retirement business. And I'm not asking you specifically about Prudential, but would Voya consider a larger scale integration oriented deal in that space? Or is it really more bolt-ons smaller size deals that we should be thinking about with more consideration for not wanting to take on too much execution risk here?
Tom, thank you. Two comments. One, we have scale in that space with our 6 million plus participants and it's been growing nicely because I think you're aware. The second piece, what we've really tried to signal is the focus of, again, accelerating growth in the workplace. Benefit Strategies is an example of that, but by increasing the outcomes across health and wealth, the employee and employer engagement, data integration and technology, that's where our focus is.
Tom, through the pandemic, the world in our view has really changed. And you'll hear us and particularly Charlie with his focus on growth, talking about connecting the unconnected, there is more and more employees are looking to their employer for help and support in this area. And we see that as our primary focus. I think Benefit Strategies is a good example of that. And again, it's hard to comment beyond that because it's hypothetical. But Mike, feel free to add.
Yes. Just maybe Tom, as Rod said, we have scale in retirement. Scale will always be important in retirement. And so those – we've talked consistently about looking at bolt-ons and retirement and bringing on additional scale where it makes sense, but that'll be very much a numbers game and as you pointed out, an execution risk assessment game. I think we're – as Rod also said, very excited about the opportunities to broaden our capabilities in the realm of integrating the experience for employers and employees, so that's also going to be a continued focus.
Maybe one other comments, if you go back to what we've done with our Voluntary benefit business, I mean, that was nascent and grown organically, and over the last eight or 10 years, all organically. We've gone from really being a non-significant player to being fourth or fifth in the marketplace. And that experience and confidence about how the team has done that is bolstered our confidence and focus on what are the other adjacencies that we can do through something like Benefit Strategies that can further expand our capabilities and respond to what we're hearing from employers and employees that they're looking for. And I'm sorry, I interrupted you.
No. That's really helpful. Appreciate the color from both of you. Just one follow-up, Mike, if I could, on the sharp drop in crediting rates in the Wealth Solutions business. Clearly, it looks like that was a pretty favorable earnings driver in the quarter. Can you expand a bit on what happened there? And whether or not there's more flexibility on the crediting rate side going forward? Or was this kind of a big lever that was pulled and what it means for future margins? Thanks.
Tom, I think I'll actually bounce that one over to Heather. I think she's in a better position to give you the color on that.
Thanks, Mike. Yes, happy to do so. First, as Mike did mention, we had a notable in the quarter that will not repeat in terms of the sale of call bonds. But we've taken very specific action to address some of the interest rate pressures. And let me point you to three specific actions. First, Mike talked about in his comments that we took some crediting rate actions last year and in beginning of this year very much in line with a low interest rate environment that were reflected. Second, our GMIR initiative from several years ago has continued to help us on this front. And then the third item is that we had significant transfers from variable to fixed in 2020 into lower crediting rate product that really also helped our spread income.
So we certainly recognize the fact that recent rate increases have been a bit of a tailwind for us. We expect the low prolonged interest rate to continue. And we are always looking for opportunities to further mitigate the risk from our low interest rate environment, while honoring the commitments we've made to participants and plan sponsors. But overall, we feel that our earnings are very well balanced between spread asset base and participant fees, and very confident with our ability to deliver on the earnings targets that we set forth for the year.
Thanks, Heather. Any further flexibility in that and to continue to lower crediting rates?
Yes. Appreciate the question. I mean, we are always looking for opportunities. I won't point you to any specific actions. But I'll tell you that the teams are always looking at certain blocks of business. We're looking at crediting rates, and we want to make sure that we are kind of balancing opportunities to de-risk and with commitments we've made to clients, but being very good stewards of capital to shareholders. So again, it's something that I think we have a very solid track record over the past several years of both adjusting crediting rates and taking appropriate action, and we'll continue to do that going forward.
Okay. Thanks.
Thanks.
Thanks, Tom.
Our next question comes from Andrew Kligerman with Credit Suisse. Please state your question.
Hey. Good morning, everyone. I'm interested in Health Solutions and the sales outlook. As we look to the first quarter stop-loss sales were up 23% year-over-year, but Life sales were down 26% and we would have expected higher Life sales just given the increased attention to that product area. So could you touch on both product lines in Health Solutions?
Rob, do you want to begin?
I’d be happy too. Thanks, Andrew. As you know stop-loss obviously has really strong start to the year. On the Life side, just to connect that dot and then I'll circle back because I think the story across Life and also Voluntary is just worth reinforcing. But on the Life side, on the sales front, yes definitely down sharply. Again, I point back to mix of sales being the real driver there. So at the larger end of the market, we just saw less sort of things to take swings at. And the activity was just slow during 2020 for the obvious reasons.
Now to your longer term point of Life, while isn't recognition around Life Insurance and the needs of it, all the more apparent, I would say that's very true. So I look at this as more long-term trend intact if not increasing. But at the same point, the 2020 noise from COVID and what went to market was the real story there. And then when you look at the in-force book of business, just to put an emphasis on it, our in-force book of Life and Disability grew at close to 4%. So you had on the one hand, the drop in sales, but you also had an improvement in retention. So I think net-net the story kind of connects from both perspectives and underlies the point of just less going to market than you might have otherwise anticipated.
Stop-loss again, that's a business where we get swings at every year, feel good about the discipline around that. And then somewhat similar story on the supplemental health voluntary side of the house where we actually wrote a significant number of new groups over year-over-year, they just happen to be more in middle market or smaller market than we've seen in prior year. So it was really a sales mix story on sort of national account, 5,000 lives and up versus where we ended up writing a lot of business, a lot of groups was more in the middle market. So as I alluded to – comments, we're seeing that activity open back up and this is sort of a prime season for both Voluntary and the Life business, and we're optimistic about the activity in the pipeline.
Very helpful. And then my second question is around the Wealth Solutions unit. And I saw earlier last year, I think you would put together multiple multiemployer plans tied to SECURE Act. And I'm wondering how that's going? And then I see the SECURE Act 2.0 legislation in the House, and I'm wondering what the addressable market there is. So maybe a little bit about how you're proceeding with respect to the SECURE Act, how it's impacting sales and now this new legislation, what that could do for you?
Heather?
Yes. Happy to address it. So for starters, and I think we've been very clear in our support of both the SECURE Act 1.0 and 2.0, and we think that SECURE Act is providing a tremendous opportunity for more Americans to have greater access to retirement savings. So very, very supportive. And couple of things that I would point to. To your questions about multiple employer plans and I'll comment on even pooled employer plans. We believe that Voya is very well positioned. We have seen some great success in the adoption of pooled employer plans and Voya is absolutely well positioned to play successfully in that space. And we're anticipating some growth in sales, particularly in our corporate markets.
As I pivot to your question on SECURE Act 2.0, we think that there are a couple of components specific to SECURE 2.0 where our tax exempt business is going to be particularly well positioned to support it. Specifically there are some opportunities that have been proposed that would expand the investment lineups for tax exempt clients specifically providing access to CITs, collective investment trusts. And then also opportunities for tax exempt plan sponsors to enter into multiple employer plans. So again, all-in-all, we're very well positioned. We have pivoted and responded very quickly to the adoption of SECURE Act, and we think that Voya is in an excellent position to help increase the savings rates for both participants as well as growing plan sponsors as a result of SECURE Act.
Thank you.
Thank you, Andrew.
Our next question comes from Ryan Krueger with KBW. Please state your question.
Hi. Good morning. I was hoping you could discuss the divergence in recurring deposit growth that you're seeing in full service corporate, which has recovered pretty strong compared to tax exempt, which seems to still be under some pressure?
Heather?
Yes. Thank you. Happy to address your question. First, as Mike stated in his comments, we're very confident in our ability to achieve the 68% recurring deposit growth for the year very much in line with 2020. And to get specific to your question around the divergence, if I look back to 2020, our tax exempt business was not as impacted by COVID in terms of recurring deposits throughout the year. So we did not see the same kind of rapid decline as we saw on the corporate markets.
Now on the flip side, as we look into first quarter, our corporate markets is seeing just a faster recovery from what we're seeing from the economy specifically in terms of employer contributions, employee contribution. So all-in-all, I think what it really speaks to is a very balanced mix of our business across corporate and tax exempt, that – it was both growing and seeing nice signs of recovery. And again, I'll really point more towards that full-year forecast on the combined basis, which is what we're really focusing in on. But again, I think we're very, very well positioned across markets, and we do expect to see some improvement in tax exempt, recurring deposits as the year progresses.
That's helpful. Thank you.
Thank you. Our next question comes from Erik Bass with Autonomous Research. Please state your question.
Hi. Thank you. To start on the Wealth Solutions. Can you just talk about the outlook for expenses for this year? And was there anything unusual in the admin expense this quarter? Or should we expect kind of continued minimal year-over-year growth?
Yes. I'll jump in and answer that question. So for starters, as we look back to first quarter of 2020, we did have some one-time expenses as a result from some large sales in 2020, particularly in our Recordkeeping business. And as we look going forward, we continue to be very, very disciplined with our focus on expense management. We are proud of the fact we've driven lower unit costs across our book of business, which continues to be a focus. So what I'd say is really no notables. As I kind of look at the different levers that we have to pull, focusing in on not only expense management, but how we're driving operational efficiency, how we're driving improved client experience that help us to manage expenses. So nothing notable for the year and again, just something we'll continue to be disciplined throughout 2021.
Thank you. And then I was hoping you could talk about your current distribution relationship with NN Investment Management and how that could be affected by their announced strategic review?
Christine, do you want to take that?
Sure. Thanks, Rod. Yes. Erik, as you referenced NN has made an announcement about NNIP potentially being up for strategic review. And as you point out, they've been a long run strategic partner of ours. How do we think about this around a couple of lenses? I mean, number one, we know that the capabilities that they distribute on our behalf, like notably investment-grade credit, that's one of the best performing investment-grade credit [CCAS] in the world. And so the quality of what we produce should continue and we would expect that strategic partner to continue because on those sides we're adding real value.
But how to think about it the way forward? We have been planting seeds as far as direct distribution offshore. I mean, those markets are growing rapidly, notably Asia. We did add sales resources into EMEA last year. And also when you think about APAC, we're going to add some resources in the fourth quarter. And what we're seeing out of APAC notably is because a lot of the larger clients purchase eVestment data, we've actually won through direct origination just based on the quality of what we do with some Asian clients.
And then finally, we continue to grow our product set in Asia. We worked hard to set up as an example, a Cayman Fund for commercial real estate for a large Japanese insurance company, just due to some technicalities around taxes. So continuing to be innovative, continuing to be able to meet some of the more complex solutions needed out of offshore clients. And so again – and then it’s been a great strategic partner, but we're doing a lot away from them to continue to grow our sort of our notable growing client insurance offshore based on the state of yields globally.
Thank you. And do you have a rough breakdown of kind of what your international distribution is that’s sort of independent versus through that relationship?
Sure. We have a small team in EMEA, that is direct. We have some onshore resources that are fully dedicated to servicing and reaching out to Asia. And we don't have any direct sales people boots on the ground in Asia yet. And we're in the planning process with Mike Smith and team, but we're expecting to add a small team there in the fourth quarter. And really what we want to do with that team is ensure that they are insurance-focused as well because we just think globally there is a real opportunity given the strength of our insurance asset management and the products that we have to really tap into that client base worldwide.
Thank you.
Thank you. [Operator Instructions] Our next question comes from Jeremy Campbell with Barclays. Please state your question.
Hey. Thanks. Mike and Rob, I'm just hoping you could help us think about the sizing in Benefit Strategies. I think the release said 370,000 participant accounts across HSA, HRA all that other fun stuff. I think that the national average balance for HSA is about 18,000. Obviously, everything else was probably quite a bit lower. So any high-level color on account splits or total AUM onboard would be helpful as well as any opportunity to convert some of these HSA assets into Voya strategies would be helpful as well.
Rob, do you want to begin?
Yes. Sure. Look, we're not going to peel it all the way back as you're trying to do, which is understandable. Look, I think as we close the transaction, obviously once it's closed, we'll be able to talk differently about just how to set expectations. It's an appropriately sized deal. It's very strategic for us. Again, I think alluded to this before, it's a breadth of products. I wouldn't hang up on sort of the AUM story around it as much as it's a fee story. And so certainly there's the side benefit of growing AUM as we move forward and continue to try to scale the business, but it's a really a fee oriented business and that's the best way to think about it. And I just say sort of stay tuned as we continue to refine, put numbers and specificity to it once the deal is closed.
Thank you. Our next question comes from Humphrey Lee with Dowling & Partners. Please state your question.
Good morning, and thank you for taking my question. In Investment Management, accounting for the favorable investment capital return and the corresponding expenses, the normalized earnings would be around kind of $34 million, which seemed low relative to where it has been running. I think you talked about there's some reinvestment expenses going into the quarter. So just how to think about the earnings power for Investment Management, and where do you think it should be kind of accounting for some of the variables in the quarter as well as the Individual Life Transaction?
Mike, do you want to start?
Yes. I'll take that. Humphrey, thanks for the question. And maybe just to cut to the chase on where we see VI – Voya Investment Management coming in, in second quarter, I think there are a number of moving parts and probably too much to try and cover in the time we have. But we see the second quarter being in the mid-40s. That’s going to be primarily driven by the variable comp adjustment that we flagged in the walk forward, a reversion to more normal expenses from the first quarter typical seasonality as well as some fee income growth. So I think all of that together, there's a couple other smaller ins and outs, but I think if you think of it – if you think of it in terms of mid-40s, I think that's a good place for you to be for 2Q. And that incorporates the impact of the Life Transaction, which we shared previously is $10 million to $15 million annually.
Thank you. Our next question comes from Suneet Kamath with Citi. Please state your question.
Thanks. The stop-loss loss ratio in the quarter at [75.6] was quite a bit lower than kind of where it's been running over the past kind of three quarters. Is there anything unusual going on in there? Is that just normal [indiscernible] are you seeing people – any impact from people sort of putting off medical treatments because of COVID and unwillingness to go to hospitals, et cetera?
Rob?
Yes. Sure. I think the quick answer on this is, look it's a business that's all about managing volatility for employers. And sometimes we're going to see the good or the bad of that volatility at different points in time. I wouldn't wrap it up in a seasonality comment. I think it's just how the block is evolving. And as we're writing new business, putting that on and then renew a new business, you're just going to see some inherent volatility there. But nothing that we – we obviously don't focus on and manage through as time goes on. So sort of the knock-on question of delayed treatment and do we expect different sort of severity or frequency of activity? I think we're certainly like everybody in the industry is sort of watching for those trends or those issues to emerge. At this point, we haven't seen sort of material deviation in the types of sort of coverage that we provide.
Just as a reminder, our attachment points in the market given where we play sort of that middle part of the marketplace, those are in and around $300,000 deductibles. So it's going to take pretty severe events for us to cover as you get down market. Some players in the stop-loss space are going to see different sorts of activity, different sorts of experience because they attach a lower deductibles. So there can be some give and take because of that dynamic that I just highlighted there. But we're certainly on top of it, paying attention to it and we'll see how it evolves. And then we get a re-price on the annual cycle and recover if we need to. But at this point, we're feeling good about where we're sitting.
Thank you. Our next question comes from John Barnidge with Piper Sandler. Please state your question.
Thank you very much. As we think about the Health Savings Account initiative and push there in the lens of taxes presumably going up. Can you talk about the opportunity to actually get maybe more of those accounts at like a fully funded level as opposed to where they traditionally maybe are, and how the products across the suite at Voya helps that? Thank you.
Rob?
Yes. I'll jump in. From a funding level perspective, I think maybe you're getting that, using them more as savings vehicle versus spending. I'll just sort of run with that assumption in case you dropped off. But look, over time, we certainly view the flexibility, the customer value piece from the tax treatment is an area where most consumers to the extent they can accumulate assets there. It's a really great, probably underutilized way to save and accumulate funds. You'll hear people talk about, and we talk about the cost of medical care once you reach retirement age and that's in the $200,000 to $300,000 range, it’s not insignificant. HSA certainly can play an important role in that.
I think for us, it's recognizing individual situation, understanding what they're trying to accomplish, what their needs are at any point in time. Obviously those things change over time as well. And so I think this just puts us in a really good position to understand someone's situation, understand where they sit both from retirement perspective as well as the savings for healthcare perspective and provide really good guidance around that and support for them making really good decisions. So back to Rod's comment around data integration and taking a more holistic approach to the consumer, again, that's why we view this as such a strategic move.
Thank you. This concludes our question-and-answer session. I would like to turn the call back over to Rod Martin for any closing remarks.
Thank you. The purposeful decisions that we've made as a company have enabled us to enter this period in a position of strength. With our new operating model, our clear focus on the workplace and institutions and our expanding capabilities to deliver solutions that our clients and customers value, Voya is well positioned for continued growth and success. We are excited about the opportunities before us and we look forward to continuing to update you during the year and at our Investor Day later this year. I hope you and your families remain healthy and safe. Thank you, and good day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.