Voya Financial Inc

NYSE:VOYA

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, and welcome to the Voya Financial First Quarter 2022 Earnings Conference Call. [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. Thank you. Please go ahead.

[Michael Katz, EVP & Chief Strategy, Planning & IR Officer]

Thank you, and good morning. Welcome to Voya Financial's First Quarter 2022 Earnings Conference Call. We appreciate all of you who have joined us for this call. As a reminder, material 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. 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 supplement 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.

[Rodney Martin, Chairman & CEO]

Good morning. Let's begin on Slide 4 with some key themes. Overall, we delivered solid results during the first quarter. This included strong adjusted operating EPS, organic growth across our businesses as well as disciplined and opportunistic capital management. These results were achieved despite the macroeconomic challenges during the quarter.

Our performance speaks to strong client demand as well as being proactive in both capital and expense management. As a result, we generated first quarter adjusted operating EPS of $1.47. Excluding notable items, EPS grew 15% year-over-year. A key driver of our results was the commercial momentum that we demonstrated across our businesses.

In Wealth Solutions, Full Service recurring deposits for the trailing 12 months grew 11.2% compared with the prior year period. During the first quarter, we generated positive Full Service net flows of $446 million. And this reflects the strong organic growth as well as lower participant and planned surrenders. In Health Solutions, annualized in-force premiums grew 9.7% compared with the prior year period. This was driven by growth across all product lines, including a 22% increase in our Voluntary results.

In Investment Management, we generated $1.3 billion of net flows during the first quarter, driven in part by several new private credit mandates. Net flows over the last 12 months were $9.5 billion, which represents organic growth of 4.5%. As we shared at Investor Day, we are generating organic growth with the products and solutions that we provide today while also making investments that will enable us to do even more for our customers going forward.

For example, in March, we announced the launch of myHealth&Wealth. This is a new integrated and holistic benefit selection experience that offers personalized and digital guidance. Specifically, it helps employees optimize their spending across retirement, health insurance benefits and emergency savings. This is just one example of how we're taking a customer-centric approach to helping our clients with their health, wealth and investment needs.

In addition to our commercial growth, we are continuing to benefit from our high free cash flow businesses. During the quarter, we deployed more than $700 million of excess capital. Given the decline in the equity markets during the quarter, we opportunistically repurchased $500 million of our shares. The remainder of our capital deployment during the quarter consisted of approximately $200 million of debt extinguishment and $20 million in common stock dividends.

As of March 31, we had approximately $900 million of excess capital. We've also recently received an additional share repurchase authorization of $500 million from our Board. Moving forward, we will continue to be disciplined and balanced with the use of our capital, including investing in our businesses to support our growth plans and meet our client needs.

Despite inflationary pressures, equity market volatility and rising interest rates, Voya remains well positioned. And this is due to the purposeful decisions that we took to derisk Voya and to create a simpler company. We have a clear strategy, strong businesses with significant scale and multiple levers to achieve the growth plans that we shared at Investor Day.

We will continue to execute as we did in the first quarter on all components of our plans, net revenue growth, margin expansion and disciplined capital management. By doing so, we see a path to achieve double-digit adjusted operating EPS growth in 2022. And while macro conditions will affect this result, we will be steadfast in adapting and pivoting. Specifically, we will continue to demonstrate our experience as strong operators and expense managers.

As you've seen this management team demonstrate in the past during challenging market conditions, we will be proactive in controlling what we can control, and we'll continue to balance both short and long-term needs of our stakeholders while positioning Voya for future long-term success.

Turning to Slide 5. Our focus on our values and culture continue to differentiate Voya. Recently, Voya was named as one of the world's most ethical companies for the ninth consecutive year. We were one of only 136 companies to earn this recognition and one of only 6 companies in the financial services category. And our commitment to sustainability earned Voya inclusion in S&P's Global Sustainability Yearbook.

We also came together in April for Voya's Celebrate Diversity Month. This coincided with our continued partnership with the CEO Action for diversity and inclusion focus on a Day of Understanding. The actions of our people and our company reflect the strength of our culture and how that carries through in all that we do.

With that, let me ask Mike to provide more details on our performance and results.

[Michael Smith]

Thank you, Rod. We delivered a strong quarter commercially and financially, even with the backdrop of geopolitical conflict, inflation and rising interest rates. We have demonstrated our ability to manage well through such challenges and have a strong track record of effectively employing the multiple levers we have at our disposal to drive growth.

As Rod said, our priorities remain clear and unchanged, growing revenue, maintaining or improving margin and disciplined capital management. During the quarter, we showed progress on all of these. In particular, we demonstrated our commitment to managing capital effectively and opportunistically by deploying $500 million towards share repurchases and complemented with nearly $200 million of debt extinguishment.

Additionally, we have taken actions to manage spend highlighted by real estate actions enabled by our hybrid approach to the workplace. We will continue to actively manage expenses with an eye to both our top and bottom line. As Rod mentioned, we have demonstrated our experience as strong operators and expense managers. As such and despite the headwinds from the macro environment, we continue to see a path to achieve double-digit adjusted operating EPS growth in 2022.

We will continue to execute on the growth, margin and capital components of our plans and we'll balance near-term results with opportunities for longer-term growth across all of our businesses. With that, let's turn to our financial results on Slide 7.

We reported adjusted operating earnings of $1.47 per share in the first quarter of 2022. This includes 3 notable items: First, $0.40 of net alternative and prepayment investment income above long-term expectations. Second, $0.24 of COVID impacts; and third, $0.11 of unfavorable DAC unlocking related to the movement in the equity markets during the first quarter. Excluding these items, our adjusted operating earnings per share grew 15% year-over-year, in line with our target EPS growth range of 12% to 17%.

First quarter GAAP net income was $27 million, which included investment losses associated with higher rates and wider spreads along with impairments, primarily related to exposures in Russia. It also includes losses in businesses we have exited that do not impact our capital generation.

Moving to Slide 8. Wealth Solutions delivered strong earnings and operating margin in the first quarter despite the macro headwinds. That translated into $205 million of adjusted operating earnings, including $52 million of alternative income above our long-term expectations and $16 million of unfavorable DAC unlocking. Year-over-year net revenue growth, excluding notable items, was 11.5% on a trailing 12-month basis, reflecting our continued commercial momentum supported by our diversified revenue mix. While we grow revenue, we also continue to be disciplined around spend as evidenced by our adjusted operating margin of 35.5%.

Turning to deposits and flows. Full Service recurring deposits grew by over 11%, driven by higher employer and employee contributions across corporate and tax event market. In addition to growth and contributions, we continue to grow our participant base, giving us confidence in our 10% to 12% target for 2022. We generated full-service net inflows of $446 million for the quarter, within our previously guided range of $300 million to $600 million.

Looking ahead, we are encouraged by expected Full Service net flows supported by favorable plan and participant trends and our robust pipeline. This quarter, we also saw a return to positive net flows and stable value with $1.4 billion of net inflows, driven by strong sales and participant rebalancing. Record-keeping outflows of $893 million were primarily driven by one large case surrender.

Despite this, we expect positive flows and net participant growth in record keeping for the full year. Our healthy sales pipeline and competitive suite of workplace solutions gives us confidence in our commercial momentum while our diversified business mix with substantial fee and spread-based revenue continues to help us navigate the macro environment.

Turning to Slide 9. Health Solutions continued to generate growth in revenue and premiums in the first quarter driven by ongoing momentum in voluntary. On a trailing 12-month basis, net Revenue, excluding notables, grew 14.1% year-over-year driven by strong growth in Voluntary. The business delivered $22 million of adjusted operating earnings in the first quarter, including $5 million in alternative income above long-term expectations.

Our health solutions expenses tracked higher relative to first quarter 2021, primarily driven by business-related growth and the acquisition of Benefit Strategies.

Importantly, we maintained margins within our targeted 27% to 33% range with an adjusted operating margin, excluding notable items, of approximately 31%. In addition, first quarter annualized in-force premiums grew 9.7% year-over-year, supported by strong voluntary retention. We had previously guided to full year premium growth being at the lower end of our 7% to 10% target range as we continue to be disciplined on underwriting to protect margin. However, better-than-expected voluntary retention has modestly improved our outlook for the year, and we now expect to be closer to the midpoint of the range.

This quarter, we experienced higher-than-expected non-COVID mortality causing Group Life loss ratios to be elevated on an ex-COVID basis. Despite the elevated mortality and significant impacts from COVID to our Group Life block our total aggregate loss ratio on a trailing 12-month basis was still within our target range at approximately 73%. COVID-related claims were $35 million in the first quarter, in line with our expectation of $2 million to $3 million per 10,000 incremental deaths.

Elevated group life loss ratios were partially offset by strong performance in Stop Loss and Voluntary has both continued to deliver strong margins. Our mix of solutions has allowed us to perform well and deliver strong operating results despite adverse COVID impacts. It is this track record that gives us confidence in our ability to manage through cycles and utilize the levers within our control to maintain margin while we continue to grow revenue.

Moving to Slide 10. Investment Management continues to deliver strong revenue growth, reflecting growth in our private and alternative strategies, which will lead to higher margins over time. On ex notables basis, trailing 12 months net revenue grew 10.4% year-over-year, reflecting continued strength in private strategies.

Adjusted operating earnings were $39 million. This includes $2 million in net investment capital results above long-term expectations. Adjusted operating margin, excluding notables, was 25.9% supported by expense management actions that we took to offset impacts from the macro environment.

Going forward, we will continue to drive expense efficiencies and prioritize margin expansion. That said, we will balance near-term margin expansion with our commitment to investing in the business for growth as we have capabilities that are driving profitable new money flow, particularly in the fast-growing alternative space. In the first quarter, we generated net inflows of $1.3 billion with strong institutional net flows driven by private and alternative fund closings. This contributed a 4.5% organic growth over the past 12 months.

We are encouraged by the strength of our robust unfunded pipeline, with the majority of flows consisting of higher-yielding private and alternative strategies. We remain confident in achieving 2% to 4% organic growth in 2022. Investment performance remains strong across a broad array of fixed income strategies, with 95% of our fixed income funds outperforming on a 5- and 10-year basis.

The modest decline in performance on a 3-year basis was driven by a multi-sector strategy that modestly trails peer median. Of note, this strategy continues to outperform the respective benchmark in this competitive asset class. Looking ahead, we remain confident in our ability to manage expenses and expand margin supported by continued revenue growth across our diversified business mix.

Turning to Slide 11. As capital management remains a key lever of EPS growth, we leveraged market conditions and our strong excess capital position to deploy $713 million in the first quarter. We have deployed $2 billion over the past 12 months. reflecting our commitment to driving shareholder value and achieving our targets.

In the quarter, we deployed $500 million of excess capital towards share repurchases. This includes a $275 million ASR we entered in mid-March. The Board also provided authorization for an additional $500 million of share repurchase, increasing our total existing share repurchase authorization to $521 million.

Beyond share repurchases, first quarter capital deployment also included $192 million for debt extinguishment and $21 million for common dividends. Additionally, we deployed approximately $35 million of capital in Investment Management, largely to help further our growth plans within the private and alternative space.

We expect to deploy approximately $60 million of additional capital for Investment Management over the remainder of 2022. Our investment capital assumes a 9% long-term rate of return. Debt extinguishment was approximately 40% of share repurchase activity in the quarter. We will continue to balance debt extinguishment with share repurchase activity to achieve acceptable levels of financial leverage considering the current rate environment.

We ended the quarter with $900 million in excess capital, reflecting our strong starting position and the strong free cash flow conversion driven by our diverse business mix.

In summary, we delivered another strong quarter of EPS expansion, and we have multiple levers within our control to continue that growth, supported by our history of being effective operators. Our workplace and institutional businesses continue to perform well in challenging times, and we expect to see further positive commercial momentum through 2022.

We have a strong excess capital position and will continue to deploy that capital in the best interest of shareholders.

With that, I'll turn the call back to the operator so that we can take your questions.

[Operator]

[Operator Instructions]. Our first question today is coming from Erik Bass of Autonomous Research.

[Erik Bass, Autonomous Research]

In Wealth Solutions, can you talk about the outlook for spreads given the rise in interest rates year-to-date. If rates remain here, are we at a point where new money yields are above roll-off rates and spread compression would either start to abate or potentially even reverse?

[Rodney Martin, Chairman & CEO]

Erik, it's Rod. Heather, why don't you jump in?

[Heather Lavallee, CEO, Wealth Solutions]

Thank you, Rod, and thank you for the question. So as we think about our interest spread and our spread-based revenues, I'll first kind of point to the diversification of our business, which allows us to kind of balance the macro environment questions -- the macro environment situation. But to get specific to your question, within the quarter, we did see lower credited interest.

We had 2 fewer days in the quarter, and we also saw higher transfers from variable to fixed. We do think that for the full year that we're going to see some nice tailwinds within our spread income but we're going to continue to be very balanced in how we're managing our investment income portfolio as well as the crediting rates that we're offering in the marketplace.

So long and short, to answer your question, I think that this is something that spread income is -- we're seeing an improvements. We're seeing a tightening between portfolio yields and new money rates, and I think that it's going to create a tailwind for 2022.

[Erik Bass, Autonomous Research]

And then maybe if I could move to Investment Management. Can you give us a sense of how much higher expenses were in the first quarter than you would expect going forward now that you have some seasonally higher costs. And then it sounds like you are still confident that even with the market headwinds year-to-date that you'll be able to improve margins in 2022. Did I hear that right?

[Rodney Martin, Chairman & CEO]

Mike, do you want to start?

[Michael Smith]

Yes. Sure. And let's talk about the expenses first, we [indiscernible] first quarter in the range of $25 million to $30 million so, [indiscernible] I think, again, in terms of margins, we feel good about the margins that we have in Health and Wealth and feel like there is a [indiscernible] over time, there will be a little [indiscernible] and then on the Investment Management, certainly, there's headwinds coming from the impacts of the markets on both the equity and fixed income side, but still feel like there is ample opportunity for us over the 3-year period to get to our target of 29%.

[Operator]

The next question is coming from Elyse Greenspan of Wells Fargo.

[Elyse Greenspan, Wells Fargo Securities]

My first question is just, I guess, on the cadence and pace of buybacks. I think you guys mentioned you took advantage of just where your stock was trading and pulled forward some buyback expected later in the year to Q1. So can you just give us a sense of how we should think about the cadence of potential repurchase activity over the balance of the year?

[Rodney Martin, Chairman & CEO]

Mike?

[Michael Smith]

Thank you, Elyse, for the question. So I think what we did this quarter was entirely consistent with what the philosophy that we've operated with for years now. [indiscernible] consistent with what we've signaled, which is we'll be consistent buyers of the shares as long as we're in an excess capital position and where it makes sense to do so.

We'll look for opportunities to lean in where market conditions create those kind of opportunities. We believe we saw that in the first quarter and so we did -- we also -- and we signaled that we had repurchased $200 million of -- or extinguished, I should say, $200 million of debt, and that's to manage the leverage ratio.

As we go forward, we'll continue to manage all of those things. We'll look for opportunities to continue to buy back shares, we'll manage our leverage ratios alongside that, and we'll be paying attention to the macro conditions. But this is all done with a larger framework of ensuring that we're doing all we can to help achieve the EPS targets that we've set, right? So all of that comes into play as we're making those choices.

I would point out that the ASR that we entered in mid-March will not end until mid-June. And so we'll assess that -- we'll assess at that time what the opportunities are, but that's a relatively narrow window for us to engage in the second quarter. But the philosophy we've used consistently over the last several years and including the last 12 months where we repurchased $2 billion. We put $2 billion of capital to work. That continues to be in place.

[Elyse Greenspan, Wells Fargo Securities]

Okay. And then my follow-up is on -- is within group. The Life loss ratio, excluding COVID, was elevated in the quarter. I think you guys called out some elevated non-COVID mortality. Can you give us a sense of how large that was in the quarter? And then how should we think about that non-COVID mortality piece trending from here?

[Rodney Martin, Chairman & CEO]

Rob?

[Robert Grubka, CEO, Health Solutions]

Yes. Great. Thanks, Elyse. Yes, as Mike said, we called out the $35 million of COVID and then that certainly still left us some gap to explain, as you're asking for. And I'd really break it down into a couple of pieces. One, we talked historically about seasonality in the first quarter of life mortality just tends to be a bit hotter, and that's not unusual.

What was a little bit different, and I'll size it for you from a reporting perspective, we did see some time lag in deaths that were -- occurred in fourth quarter, but we don't get all the paperwork until first quarter. That expanded a little bit more than we would normally expect it to be.

But when you bring the lag and seasonality together, you're talking about roughly $18 million of impact in the quarter. As I think about it, I kind of split it 50-50 of lag and seasonality. As we think about the go-forward view, this is really the first quarter where non-COVID mortality is sort of reared up to certainly to this extent. So we felt up to this point, the last couple of years, we were actually running a bit better than you would have expected on the mortality side, again, with COVID set aside.

So as we think about it, this is one quarter different than the last couple of years. We'll just continue to monitor it. I would say, in the data and what we saw, there was nothing that was jumping out and causing sort of a new level of concern or a different point of view as we move forward.

We'll just continue to monitor it. And I think importantly, as our results have held up through COVID into this point in time, the diversity of our block of business and the different places that we play in tend to work in different ways that help us from a diversity standpoint, and we still feel really good about the long-term view around margin and growth in the business.

[Operator]

The next question is coming from Jimmy Bhullar of JPMorgan.

[Jamminder Bhullar, JPMorgan Chase & Co.]

I think Mike Smith, your voice is going in and out. So might be an issue with your mic on your end. So I just thought I'd point that out. But in terms of my question, obviously, with the rates going up, that's a positive for the business overall. But how do you think about the impact of interest rates going up on fixed income assets on the asset management side and with the decline in assets, how much of an impact do you expect on fee income in the near term in that business?

[Rodney Martin, Chairman & CEO]

Mike?

[Michael Smith]

Sure. And Jimmy, thanks for letting us know about the microphone situation. I hope this is better. So the way to think about fee income impact for the movements to date is in the neighborhood of 5% to 10% pretax per year.

Obviously, we'll have to see where rates settle. The market has priced in, I think, some substantial Fed increases. I think those are likely to occur. But where we go from here, we'll have to wait and see. It's worth noting, as you're thinking about the quarter that this was a pretty extraordinary set of circumstances in the marketplace, right?

You'd have to go back to when I was in high school, '98 [indiscernible] quarter where interest rates moved this much. And so I think that's created a degree of change that we've managed through quite effectively. But I think as you try to put the quarter into perspective, it's important to keep in mind how sudden and significant those movements were.

[Jamminder Bhullar, JPMorgan Chase & Co.]

Okay. And still the same issue with the sound, but we can make out what you're saying. It's fading a lot. But either way. The other question that I just -- I had was on your views on alternative investment income. And obviously, it was good this quarter. I think that's mostly because of the lag effect of the market. But how do you think about alt investment income in the near term? And like is looking at the equity market a good indicator of how it will be for the next couple of quarters?

[Michael Smith]

Jimmy, thanks again for the question. And I've moved to new mic. So we're dusting off the conference room.

[Jamminder Bhullar, JPMorgan Chase & Co.]

This is good, very good, yes.

[Michael Smith]

Great. And it worked fine and sound check, I promise. So in terms of hard to say, ultimately, where alternatives are going to come out, there is a degree of correlation between the performance of our portfolio, which is a mix of limited partnerships and private equity, real estate and so on. But it's not perfect correlation, right?

And so if I were to venture a range that we're kind of thinking about here would be plus or minus 3% centered on 0. That's what we've got in our hedge for the quarterly return, right, and that would annualize to minus 12% to plus 12%, right? So we don't, though, expect a significant decline at this point, but we don't have really any information from the underlying funds to be able to point to, to substantiate that, that's based on historical inference is probably the way to think about that.

[Operator]

Next question is Coming from Alex Scott of Goldman Sachs.

[Alexander Scott, Goldman Sachs Group]

I had a follow-up just on the impact of net investment -- or sorry, the impact of higher interest rates on net investment income. Any way, you could provide a little more detail just on the amount of floating rate assets you have. I think there was also a portfolio that when rates are going down, I think I heard maybe it was mortgage securitizations and so forth that I think had some impact in the past. I mean do you still have balances that are going to benefit more directly from short-term rates going up?

[Michael Smith]

Thanks, Alex. I think the guidance that we've given in terms of the impact of changes in rates, it largely still holds. I think the current thinking is that for another 100 basis point increase, it's still a $20 million to $30 million benefit, more likely to be toward the lower end of that range. I think as we've assessed the impact on fixed income assets and still a decrease of 100 basis points is in the 10% to 20% range.

In terms of floating assets, the only -- maybe the one thing to point out is some of the sensitivity is gone because of the sale of our financial planning channel which did have some direct relationship in the sweep account mechanics that went on there. But the floating rate assets are not a substantial portion of the impact, but they are -- whatever we do have is baked into those sensitivities.

[Alexander Scott, Goldman Sachs Group]

Got it. And a follow-up on Investment Management. Can you talk about rising rates? And if that has any impact one way or the other on just the pipeline for net flows, I mean I heard that you reiterated your organic growth guide. So it sounds like all that's still intact, but I'm just interested if rates is a headwind. And if it is, what are some of the things in privates and alts that you're doing that are sort of offsetting that?

[Rodney Martin, Chairman & CEO]

Christine?

[Christine Hurtsellers, CEO, Voya Investment Management]

Sure. Thanks, Alex. As far as rising rates and impact on forward momentum. As Mike alluded to in his opening comments, the pipeline continues to be very strong, and we reaffirm our 2% to 4% organic growth range for this year. So why is it so strong? And how could rates possibly affect it? A lot of the interest really is in private markets. So when you think about just private markets being really unique sourcing for clients that they can't get access to as well as they tend to provide higher spread and returns to public markets.

And so really just see increased interest actually in that no dissipation as well as we have strategies, particularly commercial real estate that are LIBOR-based or floating as well as absolute return strategy. So overall, we're not seeing an impact in terms of rates. Where I would say it has impacted is a little bit on the retail flow side, when you think about retail fixed income assets. And just as Mike said, just really outsized percentage decline in fixed income assets overall in the market. So see an impact there.

But overall -- and one other thing I would point out, Alex, that's interesting is with the selloff in rates, we actually are starting to see a pickup in some of the U.S. credit strategies, offshore namely out of Europe. So it continues to be more attractive. So overall, see diverse pipeline going to hit our organic growth targets continuing just one other thing to going back a little bit to Erik's question earlier on, very focused on profitable growth, driven by organic strengths as well as expense discipline. Granted first quarter, we do see seasonality in comp and other things typically always comes in a little hot. But that's absolutely a lever that we pull.

And as you would expect, with the macro environment, we're continuing to be disciplined pulling back on some of our expense that we were going to do, but being very mindful, again, of this organic growth, we're a strategic asset manager investing in the business, launching funds. So overall, very confident we're managing through the volatility and driving towards our 29% margin target and continuing to be very focused on improving the profitability of the business.

[Operator]

The next question is coming from John Barnidge of Piper Sandler.

[John Barnidge, Piper Sandler & Co.]

My question, you called out peripheral Eastern European countries, that was $53 million in 1Q '22 in the presentation. Could you let us know what was that balance at 4Q '21, please?

[Rodney Martin, Chairman & CEO]

Mike?

[Michael Smith]

John, it really isn't any different in 4Q '21. That is primarily exposures in Turkey and Kazakhstan. And it's worth pointing out that the marks that we're seeing today on those assets are basically right on top of book. So we're not seeing any deterioration in that part of the portfolio nor do I expect there to be, but obviously, time will tell Events are unfolding rapidly and potentially and predictably. And so we're monitoring carefully.

[John Barnidge, Piper Sandler & Co.]

And then my follow-up question, clearly, a good guy with the Health Solutions business now at the midpoint of that 7% to 10% versus the low end previously. Can you maybe talk about that better-than-expected retention, no renewal season is important for that?

[Rodney Martin, Chairman & CEO]

You bet, Rob?

[Robert Grubka, CEO, Health Solutions]

Yes, sure. Thanks, John. Yes, so what we talked about at the 4Q call was really based on and driven by what we were seeing within the Stop Loss business, as you said and Mike said Voluntary ended up doing a bit better than expected. And so there's a couple of elements to that.

Just obviously, we've been going through like all workplace benefit. Companies are doing a lot of remote enrollment activity going on. And you always sort of hope for the best, but fear for the worst, and we ended up seeing that come in better. So I think from a just enrollment participation perspective, there was a benefit there. And then certainly, from a group decisions that were made by the employer and broker consultants involved in those decisions, we just saw better retention at the group level at the case level than we would have anticipated.

I think that's driven by just excellent service experience that we're providing. That's a business where there's still a lot of variability in what good looks like from us or competitors. And so I think we've been winning more of those games than losing and feel really good about just the quality of the portfolio that we've built, obviously, dramatically over the last handful of years with plus 20% growth given where we're at and the size of that business now, it's certainly something I'm proud of and the work that the team has done around it.

But we got to keep working at it and keep getting better at it as we move forward. We love the diversification within our book of business as we alluded to on Stop Loss, a little bit tighter environment, but we're going to make good balanced pricing decisions around that business.

And now in the year, in 12 months, we're going to get another shot at continuing to grow the business a little bit faster, but we want to be again, disciplined on the price. So we feel good about the overall net story within the book, growing at the rate we're growing at close to 10%. Not an easy thing to do, especially in the sort of COVID environment than what we've been going through.

[Operator]

The next question is coming from Andrew Kligerman of Crédit Suisse.

[Andrew Kligerman, Crédit Suisse]

Can you hear me?

[Rodney Martin, Chairman & CEO]

Clear, Andrew. Yes.

[Andrew Kligerman, Crédit Suisse]

Okay. Great. Okay. Because it was the operator who was fading. So back on the excess capital question, you're sitting on $0.9 billion. You've certainly had a very robust capital management. And I guess the question is, does that signal that M&A has decreased as a priority?

And secondly, along those lines, sitting on $0.9 billion of excess capital, is that something you want to get down to 0 and over what frame?

[Rodney Martin, Chairman & CEO]

Andrew, I'll begin. Mike and I, as usual, will toggle back and forth. I think the key theme I'd like to leave you and the listeners with is our North Star is and has been EPS growth. And we've talked about that organically. We've talked about that in expanding our product solutions, and we've talked about that in consideration of adding capabilities or data or expanding international distribution or potentially scale place.

But the driving factor in all of that decisioning is the North Star of EPS growth. And I think the quarter represents a really good example, as you just pointed out, in our deploying that capital and using the levers to accomplish what we said we would accomplish at Investor Day. But with that, Mike, I'll let you add.

[Michael Smith]

The only thing I'd add, Rod, is just, look, we view the excess capital as excess and it is available to be deployed. I think as a practical matter, the timing is such that will we ever get to 0 it will depend on how macro events unfold. It will depend on how the credit performance, the underlying portfolios and so on. But we've operated with a balance, I think throughout my tenure as CFO that's ranged from the low 100s to $1.5 billion, right?

And so I think we do view all of that as excess, right? We're often asked is there a cushion you're targeting? And the answer is no. We view it as available to be deployed and in the right situations, we will do so.

[Rodney Martin, Chairman & CEO]

And Andrew, to underscore that, as Mike talked about a moment ago, we deployed $2 billion of capital over the last 12 months and generated organically $1 billion of capital in 2021. So I think it's a really good example of what we're saying and frankly, the essence of your question.

[Andrew Kligerman, Crédit Suisse]

And just a quick follow-on to that part. Are you seeing M&A opportunities that could be EPS accretive out there? Is there much out there that you're seeing?

[Rodney Martin, Chairman & CEO]

Andrew, we're not going to speculate on. We've talked about what we might consider, but certainly aren't going to speculate on a given property or discussion other than to say we are 100% focused on growing our EPS as our North Star.

[Operator]

Thank you. The next question is coming from Tom Gallagher of Evercore.

[Thomas Gallagher, Evercore ISI]

First question is, Mike, you had mentioned you deployed $135 million of capital into the Investment Management business this quarter, and you expect to do another $60 million for the balance of the year. Can you just specifically talk about what that's being invested in? And is that seed capital fund launches or something else?

[Michael Smith]

Tom, thanks for the question. And I'll start, but then I'll hand it to Christine who can really give a lot more color about what it is we're specifically focused on. But it was $35 million of seed capital in the quarter. You may have misspoke, I think you said $135 million.

[Thomas Gallagher, Evercore ISI]

I did.

[Michael Smith]

For the balance of the year, we expect to get to about $100 million in total, inclusive of the $35 million. So that is indeed seed capital. It is capital that we will ultimately earn a return from, and we expect that to be an attractive return, just as we expect our customers to reap an attractive return. And it reflects just the opportunities that we see for growth and some of the new capabilities that we're anxious to bring to the market. And I think Christine can take it from there. So Christine?

[Christine Hurtsellers, CEO, Voya Investment Management]

Yes. Thanks, Mike. Yes. So just to provide a little bit more color, what we're about, certainly, going back to our privates and differentiated strategies. We continue to see very strong demand to expand our perimeter, so to speak, and some of the products and the vehicles we offer. So specifically, we are in the process of working on a commercial real estate debt fund that is focused on impact investing. So think ESG meets commercial real estate. And so just very compelling strategy, appeals to many clients, including our robust insurance clients.

So that's 1 example. Another, we are also in the process of launching a middle market opportunistic credit funds, again, expanding our perimeter here in what we do. And so overall, why it's so important? Our clients also love the fact you often hear us say we eat our own cooking. Just our alignment with client interests with our own capital. It's just such an important part of the trust that we have built with our client base. And so again, we're really excited about the opportunities to continue to deploy capital and grow the franchise.

[Thomas Gallagher, Evercore ISI]

That's helpful. And my follow-up is, can you talk about some of these below-the-line charges that were taken this quarter, I presume some of them were impairing your Russian or Ukraine investments. Maybe if you could quantify that. And also, if the markets remain under some pressure here, would you still expect some level of losses to be taken? Or do you think would you expect those to be much lower and for you to get closer to the 90% free cash flow conversion.

[Michael Smith]

Sure. Happy to do so. And maybe I'll frame it. Just if we look at the 3 adjustments that we highlighted to operating income to get to net, right? And I'll frame that both in kind of like what's in there from a GAAP standpoint as well as which things are affecting our statutory capital position, right?

So first, if you start with the net investment gains, you're right, there is an impairment in there related to several underlying Russian-related assets. There is also another private credit, just kind of normal course, nothing extraordinary about that. It's very much a singular event. It's not a representative of any other broader trend. That's a little bit less than half of that $69 million. The balance is related to trading activity on various hedging and also just underlying trading activity period.

Those are all from a capital standpoint that -- the trading-related stuff doesn't have a capital impact because of the IMR effect, right? So a little bit less than it -- a little bit half of that $69 million affected capital. The businesses exited line is primarily adjustments related, they're noncash, noncapital related, almost exclusively. There is a small tail legal reserve being put up related to our -- the financial planning channel, but that's like mid-single digits. The balance of that is noncash, and it's all related to GAAP accounting on the exited blocks, full stop.

And then the other think of that as 2 components. There are -- there was some -- and again, given the extraordinary movement in interest rates, there was a -- about half of that number was related to a stable value hedge. That hedge is not designed to be perfect. It's designed to work reasonably well through most economic scenarios. I would say, even so, the number here is not particularly consequential one way or the other, and there have been gains in the past, and there will be in the future. And then there was also some restructuring costs, which is something that will ultimately go away, but it was particularly just a tiny bit heavy in the quarter.

So in terms of going forward, the way to think about this, Tom, is in most quarters, the range of 90% to 100% should absorb most of that noise, if not all of it. There will be quarters where we were -- in this case, for example, where a lot of adjustments went the same way and they happen to go negative. There will be other quarters where the adjustments could go positive. And so in those quarters, we might be somewhat above or below the range that we've specified. But over the long term, we do expect to be in the 90% to 100%.

But in any given quarter, there will be -- there could be noise. And again, just harking back to the extraordinary changes that we saw this quarter, it's not surprising that there's a little bit of excess noise. And given the direction of rate changes, it's not surprising that it was negative.

[Operator]

The next comes from Nigel Dally of Morgan Stanley.

[Nigel Dally, Morgan Stanley]

So I had a question on your longer-term EPS growth goals. Back at Investor Day, you laid out a goal to grow the EPS in the range of 12% to 17%. Clearly, since the equity markets are a lot more challenging. So I would be interested in your view as to whether those goals are still achievable. I heard your comment that you're still targeting double-digit growth this year. So does that mean double digit this year followed by 12% to 17% thereafter. Just wanted some clarity there.

[Rodney Martin, Chairman & CEO]

Nigel, it's Rod. I'll start, and Mike will jump in. And as you just pointed out, given the significant market movement, 12-plus percent will be difficult. That said, we are, in fact, underscoring with some confidence double-digit growth this year. And I'd remind all of our listeners that the 3-year plan is it's 3 years. It's not quarter-to-quarter, it's over the 3-year period of time. But we want to be specific and are. We do see a path to double-digit growth based on the markets that we see today, and we feel very good about the commercial momentum that we've got across our businesses. But with that, Mike?

[Michael Smith]

Yes. Just to reemphasize, certainly no change in our view for the long term. I feel very good about our commercial prospects and how that will translate into EPS growth. And I don't reiterate the multiple levers and our willingness to pull them as demonstrated by the first quarter. So just maybe to give a little more color to the way we're thinking about this. The headwinds from equity markets as we stand right now, and this -- obviously, the path that we follow will be pretty important.

But the headwinds from where market stood at the end of April is in the high single-digit percentages, right? And so that is eroding our ability to get to the midpoint -- to get into the range. We are taking actions that will offset much of that, but it's not going to be able to offset all of it, we'll also get a little benefit. Think of this as low-single digits from interest rates. And so that's how we get to the double digits. I think if we get a little bit of help from the equity markets over the balance of the year, 12 plus is still on the table, but we're going to need a little bit of help. I think it's going to be difficult otherwise.

[Operator]

The next question is coming from Josh Shanker of Bank of America.

[Joshua Shanker, Bank of America Merrill Lynch]

As we emerge from COVID, obviously sales are doing really nicely in the Health business. I'm wondering if there are some strategies that you're using that you're getting engagement with your counterparts who are buying products from you. Also, when I look at the Stop Loss growth and the voluntary and general group products, they're both growing. And I think that's a different conversation with a different part of the corporate structure when you're trying to sell those products. How are you doing so well? And I guess, who are you taking share from?

[Rodney Martin, Chairman & CEO]

Let me ask Rob to start. But Charlie, I'd like you to jump in on the heels of that also, please. Rob?

[Robert Grubka, CEO, Health Solutions]

Yes, sure. Thanks, Josh. Yes, look, we've -- as you point out, we've kind of been firing on all cylinders from a growth perspective across what arguably is a pretty focused set of products and solutions relative to the peers. What I would tell you is, we sort of daisy chain activity really, really well. And so when you think about the sales cycle for Stop Loss being back-end loaded, but turning into the conversations that become focused in, in our market, middle and upper part of the marketplace, national account season across the life, disability, lead management space as well as supplemental health.

And so there's just a nice cadence to what we're doing, and we're building deep relationships because for the most part, those conversations, while there may be different parties involved, there's a consistency within the benefit team and department on who we're engaging with and the account management side of it.

As we get into a group, even with Stop Loss after a couple of years, close to 20%, 30%, we're able to penetrate and get other products in place. And then with the life disability lead management business, more often than not, you're selling that as a package. And then as we've grown our capabilities in supplemental health and driven scale and credibility in market, it's not unusual for us to get all those things going, and it doesn't all happen at the same time. But again, we sort of daisy chain our way into just broaden out the relationships and feel really good about the momentum we've created.

But again, it comes back to, as I alluded to before, like how are we executing once we're in. It's 1 thing to win the business. It's another thing to earn credibility and then grow the business from there, which gives us a ton of confidence and I'll create the handoff here for Charlie about not just within the health business, but also how do we leverage and bring together the health account solutions conversation with the wealth conversation and the retirement business, I think those things were set up really, really nicely because we just execute well once we're in. But Charlie, I'll let you add on.

[Charles Nelson, Chief Growth Officer & Vice Chairman]

Yes. Thanks, Rob. It's a great question because, certainly, kind of we -- if you take the end of the first quarter, 3/31 and went back for the last 2 years, we've kind of been in that COVID environment. And you kind of say, "Geez, we've got tremendous momentum." During that COVID the last 2 years, we put on over $60 billion in business from sales in our retirement or in our wealth business, employee benefits. And think about that, that most of those sales were really done without meeting the client in person, shaking a hand, letting them kick the tires, so to speak. It's been done virtually.

But why is that important? I think that's important to keep in context because it tells you how strong our brand is, how strong our solutions are resonating in the market. Our distribution partnerships and footprint, how wide and vast that is. And even equally importantly, how strong our team is and how they've worked through this. Our voice is different in the market.

Just as Rob had articulated there, we've got really a focus at kind of more holistic solution. And certainly, the labor market is a challenge and inflation is a challenge for employers. So we see them increasingly looking for things that we have. Employers want to get more out of their health and wealth benefits. They want to manage their benefit costs in a more holistic way and an ability to be able to attract and retain talent.

So with that, that really pivots us, I think, to be really well positioned. And where our focus is and the growth office with our sales and service teams for health and wealth, to focus on the growth and the sales momentum that we have, and that's really buoyed not just by the retention that you saw on voluntary but we've had strong retention in our retirement as well. And that's been great.

Second, it's really been on profitable revenue growth in our businesses, both in health and wealth and in investments and the things that we've got there. And I think that buoys itself and reflects in our strong margin and gives us confidence of where we think we're going to end up the year from a margin perspective by the solution mixes that are being driven by our approach.

And that value proposition, I would just wrap with saying is it really is resonating in the market. I think intermediaries and plan sponsors are increasingly seeing that Voya helps you realize greater value and improved financial outcomes by helping get employers workplace savings and benefits in sync and we just see that continuing to resonate in being a different voice in the market.

[Joshua Shanker, Bank of America Merrill Lynch]

Well, I'll let you go, given that it's up at the hour. I'll ask some more questions off-line on this, but I appreciate all the answers.

[Operator]

Thank you. At this time, I'd like to turn the floor back over to Rod Martin for closing comments.

[Rodney Martin, Chairman & CEO]

Thank you. Our success continues to reflect the purposeful decisions that we've made as a company as well as the commitment and dedication of our people. Despite the macro challenges, both in the U.S. and globally, Voya has a clear strategy, high free cash flow businesses and multiple levers to achieve our growth plans. This, in turn, will enable us to deliver greater value for all of our stakeholders. We look forward to updating you on our progress. Thank you, and good day.

[Operator]

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines and log off the webcast at this time, and enjoy the rest of your day.