Voya Financial Inc

NYSE:VOYA

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, and welcome to the Voya Financial Second Quarter 2021 Earnings Conference Call. All participants will be in 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, EVP Finance, Strategy and Investor Relations. Please go ahead.

[Michael Katz]

Thank you, and good morning. Welcome to Voya Financial's second 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. 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 and Chief Executive Officer]

Good morning. Let's begin on Slide 4 with some key themes. We delivered strong results during the second quarter with record adjusted operating earnings per share. This was driven by strong investment income and solid performance across our businesses. Our clear and focused strategy is enabling us to drive greater outcomes for our workplace and institutional clients and this was demonstrated by the results we delivered.

In Wealth Solutions, full service recurring deposits for the trailing 12 months grew approximately 7% compared with the prior year period. We generated $238 million in full-service net flows. This was driven by growth in both our corporate and tax-exempt markets.

In Investment Management, we generated $249 million of net flows during the second quarter. This was driven by a return to institutional inflows and continuing of new mandates particularly in fixed income strategies. In Health Solutions, annualized in-force premiums grew nearly 10% year-over-year. This significant increase reflects growth across all of our product lines.

In addition to exceptional earnings growth, we continue to demonstrate our focus on being good stewards of shareholder capital. We repurchased over $500 million of shares in the second quarter, leading to $753 million of shares repurchased during the first half of this year. And we had approximately $1.5 billion of excess capital as of June 30. We expect to repurchase at least $1 billion of our shares during 2021. And we're well positioned to continue to build upon the more than $7.5 billion of capital that we've returned to shareholders through both share buybacks and dividends since our IPO.

This quarter, we also continued to advance our focus on the workplace and institutions. On June 9, we completed the sale of the Independent Financial Planning Channel of Voya Financial Advisors. And on July 1, we completed our acquisition of Benefit Strategies, a leading third-party administrator of health account solutions. This strategic acquisition will expand our capabilities to meet the evolving needs of our workplace and institutional clients.

Through our purposeful actions, we've positioned Voya to meet the context and increasing needs of our clients. Our unique digital capabilities, insights and focus on client needs will enable us to create greater value for all of our customers and have positioned us to generate further earnings per share growth.

Voya has a clear focus and unique solutions that will enable us to take advantage of the opportunities before us. We look forward to sharing more detail about the next phase of our growth strategy at our Investor Day in November.

Turning to Slide 5. As an original signatory, of the CEO Action for Diversity and Inclusion, Voya recently held a Day of Understanding. This annual initiative encourages organizations to dedicate a day to hosting conversations that advance diversity, equity and inclusion. And in May, we once again celebrated Voya's National Day of Service in its new hybrid format.

Voya employees volunteered approximately 10,000 hours to numerous nonprofits across the country. As highlighted in a recent Forbes article, Voya's 2021 inclusive advertising campaign, which features a family with special needs has contributed to new brand highs. This includes total brand awareness, ethics, trust and interest in doing business. This campaign is a continuation of our long-standing commitment to people with disability and special needs, which helped enable Voya to earn recognition as a best place to work for disability inclusion for the fourth consecutive year.

Voya earned a score of 100% on the 2021 Disability Equality Index. The actions taken by our people and our company reflect our culture and carry through all that we do in our communities and for our customers. We will continue to focus on the needs of all Americans in our businesses, our company and in defining the character of our brand.

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

[Michael Smith, Vice Chairman and Chief Financial Officer]

Thank you, Rod. Turning to our financial results on Slide 7. We delivered record after-tax adjusted operating earnings per share of $2.20 in the second quarter of 2021, which included 4 notable items: first, $0.77 of prepayment and alternative income above our long-term expectations, mostly linked to first quarter equity market strength; second, $0.11 of favorable DAC/VOBA and other intangibles unlocking from equity markets in the quarter; third, $0.08 of unfavorable COVID-19 related claims impacting health solutions; and fourth, $0.11 of other items, which is primarily driven by incentive compensation related to the strong performance in the quarter.

Second quarter GAAP net income of $459 million reflects several favorable items, including strong underlying operating results and alternative income, gains from the sale of our Independent Financial Planning Channel and the sale of our equity investment in Venerable. These favorable items were partly offset by CMOB mark-to-market and restructuring costs.

Moving to Slide 8. Wealth Solutions delivered record adjusted operating earnings of $295 million in the second quarter. This was materially higher than $37 million in the second quarter of 2020, largely driven by a recovery in alternative income. Alternative and prepayment income was $96 million above our long-term expectations. While we also experienced a favorable DAC unlock in the quarter due to strong equity markets.

Underlying core business results were also solid this quarter. Investments had continued to benefit from the crediting rate actions taken earlier this year and higher surplus income. Fee-based revenues benefited from business growth and from higher asset levels that were helped by favorable equity markets. Partially offsetting this was the loss of revenue from the sale of our Independent Financial Planning Channel. Looking ahead, we expect the sale to reduce pretax adjusted operating earnings by $10 million to $15 million in the second half of 2021.

Administrative expenses were also favorable year-over-year, due to a prior year legal accrual, not repeating and our continued focus on expense discipline.

Turning to deposits and flows. Full Service recurring deposits grew 6.7% to over $11 billion on a trailing 12-month basis, led by rising employee and employer contributions. We continue to expect full year 2021 recurring deposit growth in the range of 6% to 8%. We generated $238 million of positive full-service net flows contributing to $2.3 billion of inflows over the last 12 months.

We experienced modest recordkeeping and stable value net outflows of $755 million and $502 million in the second quarter, respectively.

Looking ahead, we anticipate record keeping net outflows in the second half of 2021 due to the termination of 1 large case client and higher participant surrenders as a result of elevated equity market. Higher equity markets meaningfully improve earnings but they also increase the size of full service and record-keeping participants surrenders. While the number of participants surrenders are on plan, the equity effect on participant surrenders will be a headwind for both record-keeping and Full Service net flows.

Despite this headwind, we still expect overall full year full-service net flows to remain positive. We remain bullish on the growth outlook for 2022 due to our robust pipeline, strong RFP activity and favorable client retention trends.

On Slide 9. Investment Management delivered $66 million of adjusted operating earnings, higher than the second quarter of 2020 by $46 million. The year-over-year improvement included significantly favorable investment capital results, which in this quarter were $20 million above our long-term target.

Revenues were higher year-over-year due to growth in both institutional and retail client assets. Administrative expenses were elevated relative to second quarter 2020, largely due to variable compensation associated with strong investment capital results in the quarter. Our adjusted operating margin, including notables, was 34% in the quarter.

Turning to flows. We saw a return to positive overall net inflows were $249 million in the quarter. This mostly reflected institutional demand, which was partially offset by modest retail net outflows. We saw fixed income demand from U.S. institutional clients in investment-grade credit and long-duration solutions. And we continue to see a demand for private credit and commercial mortgage loans from our insurance channel clients. Our domestic strength was partially offset by some weakness in international flows this quarter. Retail flows improved sequentially, however, remained slightly negative this quarter.

Looking ahead, we expect overall net outflows in the third quarter, driven by a $3 billion client outflow related to a divestiture by an insurance client. As a result, we are lowering our full year 2021 organic growth expectations to 1% to 3%.

Notwithstanding this, we are still seeing great demand for our solutions across a diverse set of strategies. Encouragingly, this includes demand for higher-margin products that are strengthening our revenue yield profile. For these reasons, we believe our long-term growth outlook remains positive, driven by 3 key strengths: first, our continued exceptional investment performance, demonstrated by 89% of our fixed income funds outperforming their 3-, 5- and 10-year benchmarks in the second quarter; second, the strength of our distribution channels and a significant unfunded pipeline; and third, the diversity in our solutions providing clients with a differentiated value proposition.

Turning to Slide 10. Health Solutions delivered a record earnings quarter with adjusted operating earnings of $63 million in the second quarter, despite the impact of excess group life claims related to COVID. This result compares favorably to $36 million in the second quarter of 2020.

Similar to the other businesses, Health Solutions benefited from strong alternative and prepayment income, which exceeded our long-term target by $11 million. Underlying business performance was exceptional. Annualized in-force premiums grew 9.8% year-over-year. We experienced growth across all product lines, including double-digit growth in Voluntary and Stop Loss. The total aggregate loss ratio was 71.6% on a trailing 12-month basis within our targeted range of 70% to 73%. We continue to see favorable voluntary loss ratios in the second quarter.

Also reflected in the total aggregate loss ratio is $73 million of COVID-related claims over the last 12 months, of which, $13 million were incurred in the second quarter of 2021. We attributed an additional $15 million of previously reported claims to COVID following the receipt of updated cause of death information, $5 million of which impacted the first quarter of 2021. Please note that this does not change previously reported financial results.

We continue to expect a pretax COVID earnings impact of roughly $10 million for the remainder of the year and overall impact of the pandemic to be within our expected range of $1 million to $2 million per 10,000 U.S. death. This quarter, we closed on our acquisition of Benefit Strategies, which accelerates our presence in the fast-growing HSA market and expands on a range of solutions offered through the workplace.

We expect future earnings momentum to be supported by reduced COVID-related headwinds and a strong pipeline of 2022 activity.

Turning to Slide 11. In the third quarter, we showed the effect of alternative income returning to our long-term expectation of 9% annual growth and the favorable second quarter DAC unlock, not repeating. We pay a seasonally higher preferred stock dividend in the third quarter and will realize a full quarter's impact of the sale of our independent financial planning channel. We also expect Health Solutions voluntary loss ratios to normalize. Specific to Wealth Solutions, we foresee continued headwinds from lower interest rates. Favorable third quarter EPS items include an improvement in group life underwriting due to lower COVID-related claims. We also expect lower incentive compensation in the third quarter.

Third quarter EPS also includes a $0.09 per share benefit from the late June ASR program. Potential market impacts affecting third quarter outlook are not included on this page. There are, of course, other factors that could affect third quarter results, including potential share repurchases over and above the second quarter ASR, warrant dilution, business growth and additional unexpected COVID-19 impacts.

While we typically do not guide on excess prepayment and alternative income, there may be upside to third quarter adjusted operating earnings following strong equity market performance in the second quarter.

Turning to Slide 12. Year-to-date, we have returned almost $800 million to shareholders and more than $7.5 billion of capital to shareholders since we have been a public company through dividends and share repurchases. In the second quarter, we repurchased $518 million in shares through a combination of ASRs and open market repurchases. This quarter's repurchase activity puts us well on track to reach at least $1 billion of repurchases in 2021.

Our ending excess capital position was $1.5 billion, which included the majority of the proceeds from the sale of our Independent Financial Planning Channel. Our estimated RBC ratio is 545%, while our financial leverage ratio was 30.2%. Our leverage ratio is lower than last quarter, reflecting strong earnings, gain on sale impacts and increases in AOCI and non-controlling interests driven by financial markets.

Finally, with respect to our COVID-related capital impacts, year-to-date, we have incurred roughly $20 million of net negative ratings migration and credit impairments, including a net positive impact in the second quarter. Due to improving macro conditions, our previously shared stress scenarios no longer apply. That said, we could see up to a gross $100 million of credit-related impacts in the second half of 2021 in the unlikely event, there is a significant shock from COVID-related impacts.

In summary, we are pleased with our record second quarter earnings results and the performance of our underlying businesses. We believe our highly regarded workplace and institutional franchises are poised for long-term success, and we generate high free cash flow and have a significant excess capital position. 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.

[Operator]

[Operator Instructions]. Our first question comes from Jimmy Bhullar with JPMorgan.

[Jimmy Bhullar, JPMorgan]

So I had a question primarily on the asset management business? And if you can sort of give us a little bit more insight into the $3 billion mandate that you're losing, what it actually is in terms of asset class? And then the fees and/or the margins on that business, just so we get a better sense of the impact on revenues? And then relatedly, what gives you the confidence that you will actually have positive flows for the year? And how should we think about like what's driving that?

[Rodney Martin, Chairman and Chief Executive Officer]

Jimmy, thank you. Christine?

[Christine Hurtsellers, Chief Executive Officer of Investment Management]

Yes. Thank you, Jimmy. So first, let's start with the $3 billion outflow. It was as a result of a client that sold the business, so not at all related to invest performance. And so how to think about what that mandate was? It was core public fixed income. And so when you think about mandate, that we manage just given the size of the relationship with our clients as well as it being public fixed income, it's on the lower side of what we typically do in terms of base points as far as how to think about that.

Now moving on to your question about -- in the context of that outflow, what gives us the confidence because we're -- we just pivoted our guidance down from 2 to 4 to 1 to 3. So very strong. And we expect to have our sixth straight year of positive net cash flow sourced from our distribution team. So why is that? What do we see?

We see a really robust pipeline. It's not just 1 huge mandate that we're expecting to fund. But rather, it's quite diversified, both on client type as well as strategy. And I would say, Jimmy, one thing too, that we've seen this year that is really changing, that's gone from a bit of a headwind, if you will, in converting our flows into win was commercial real estate due to COVID. We have strong demand for that asset class, and it was just hard to get out. But as we've seen the economy reopen, capital getting exchanged, that's really starting to pick up for us. So from a lot of lenses as we look at it, we're confident that we're going to have a strong remainder of the year.

[Jimmy Bhullar, JPMorgan]

Okay. Then if I could just ask one more on buybacks. I think you mentioned that you intend to do at least $1 billion. I just wanted to -- and you've been doing a lot more than that, obviously, through the first half if you prorate that. So is the $1 billion sort of a minimum number that you intend to do? Or -- and what's the likelihood of upside to that assuming your results are fairly stable and credit line?

[Rodney Martin, Chairman and Chief Executive Officer]

Jimmy, it's Rod. What we've said is we will do at least $1 billion. And as you well point out, we've returned almost $800 million to shareholders in the first half of this year. And as you're well familiar, if you look at the -- at least $1 billion in a single year basis, that's over 10%, well over 10% of our market cap. So we've got a lot of confidence in the momentum that we have. We've got a lot of -- we're very proud of the track record that we've -- that's delivered back to me to $7.5-plus billion. And we feel good about where we are in the year and what we'll deliver for the second half of the year.

[Operator]

Our next question comes from John Barnidge with Piper Sandler.

[John Barnidge, Piper Sandler]

During 2Q '21, IM closed its first new infrastructure fund on project financing the renewable space. Can you talk about fees for this relative to the overall fixed income business? And how big of a business opportunity this could be?

[Rodney Martin, Chairman and Chief Executive Officer]

Christine?

[Christine Hurtsellers, Chief Executive Officer of Investment Management]

Sure, John. Thanks for the question. So yes, you're absolutely right. We did do our first close of a really differentiated product, which is an infra debt fund that's focused on renewable energy. So I think the next of infrastructure and ESG all-in-one product offering. So we're very excited about the potential for the fund and the value it's going to give clients. So we did our first close. We're working on a second close in the third quarter.

And again, really excited longer run about what we're going to be able to do with this particular offering. And I would say not to get specifically into the fees themselves, but know that this is a differentiated private credit structure. So it's going to have meaningfully higher fees than your normal fixed income mandate.

And again, just 1 other thought about what's going to drive growth that makes us excited, is we're working on actually creating a fund that will be more capital efficient for our insurance clients. So again, just another reason to think why this is going to be a real winner for us in the long run.

[John Barnidge, Piper Sandler]

Great. [Technical Difficulty] traditionally 15% to 18%., it's been above that in the first half of the year. Does it seem likely this dynamic should probably persist, assuming VII in the near term is favorable?

[Rodney Martin, Chairman and Chief Executive Officer]

Mike?

[Michael Smith, Vice Chairman and Chief Financial Officer]

John, thanks for the question. In any quarter where the alternative income or other factors drive outsized earnings result that's going to drive a higher tax rate. And potentially, as we've seen in the last couple of quarters because the alternatives have performed so well, even a little of our range of 15% to 18%. I don't think -- we clearly don't expect that to be a persistent effect. But as long as the alternative performance continues to be strong, that will drive that result.

[Operator]

Our next question comes from Erik Bass with Autonomous Research.

[Erik Bass, Autonomous Research]

I was hoping you could talk a bit about the outlook for retirement, recurring deposits and the trends you're seeing in a participant and employer level? And is there any potential for upside to your outlook given the economic recovery we're seeing?

[Rodney Martin, Chairman and Chief Executive Officer]

Heather?

[Heather Lavallee, Chief Executive Officer of Wealth Solutions]

Yes. Thank you, Erik. I mean we'll start by saying that right now, we're very much in line with our targets of the 6% to 8% recurring deposit growth on a trailing 12-month basis for the year. As you commented, we are seeing some nice double-digit growth in our employer contributions and employee contributions. And we still expect to see sequential improvement in recurring deposits throughout the year. We're also seeing an increase in participants contributing.

So overall, macroeconomics are definitely helping us to improve our recurring deposit view for the year. And really, what I would say is, for now, for us, it is just expecting that we are going to come in right on target and that we're benefiting from macroeconomic conditions driving our growth.

[Erik Bass, Autonomous Research]

Got it. And then there was recently another large consolidation transaction in the retirement market. So just wondering your views if the threshold for adequate scale is changing at all? And does this shift your views at all on M&A?

[Rodney Martin, Chairman and Chief Executive Officer]

Heather, do you want to begin on the scale piece first?

[Heather Lavallee, Chief Executive Officer of Wealth Solutions]

Yes, happy to. Yes. So for starters, we're top 5 to 5 defined contribution provider, and we're at scale to compete in all of the markets that we play in. And if you look at it, our organic growth rate over the past several years has outpaced the industry. Specifically, we have not needed inorganic growth to drive our success. And we're winning in the market and our competitive position is really resonating with clients and intermediaries.

And when you think about it, when the decision comes down to a small number of very fine companies, Voya stands out. We stand out around our unique culture, our purposeful innovation and our commitment to the retirement market, our competitive suite of workplace offerings across health, wealth and investment management that are improving customer outcomes. And the other thing that I would say around this is that when we see movement in the industry and, frankly, this type of consolidation, they create opportunities for us to win business.

We tend to see an increase in off-cycle RFP volumes during consolidation, and Voya has been actually a strong beneficiary of this type of activity in the past. And so bottom line is, we really like our position to win and grow organically in our target markets and are at scale to compete today.

[Operator]

Our next question comes from the line of Ryan Krueger with KBW.

[Ryan Krueger, KBW]

When you think about the $1.60 to $1.70 EPS range that you had guided for the fourth quarter of this year, can you just comment on if you feel like things -- everything that's happened this year if you're still on track to that?

[Rodney Martin, Chairman and Chief Executive Officer]

Sure, Ryan. Mike?

[Michael Smith, Vice Chairman and Chief Financial Officer]

Ryan, thanks for the question. So in short, if you continue to use the old definition of normalized earnings, which we've really gone away from, but just to keep it on an apples-to-apples basis. We would expect that we would be at the low end of that range in or around the bottom of the range. However, there's an important factor to consider, which is that includes the impact of incentive compensation this year that is really pretty much entirely driven by the outsized alternative performance. And that's one of the reasons I think that we've gone away from the normalized is it was very difficult to kind of fully extract the impacts of outsized alternative performance.

So if you do back that out, and I think it's a fair way to look at it, we'd actually be towards the top end of that range. And backing out is also important as you think about 2022 because the increased expense is a temporary phenomenon, and it goes away as incentive comp starts over beginning in 2022.

And the last thing is just to keep in mind is as you think about alternative income, and we tend to want to back it out, it's still pretty helpful in terms of the excess capital position. It's been a meaningful contributor to that $1.5 billion of excess and will enable us to to put it to work in ways that I think are very beneficial to shareholders.

So it's real money, but it's -- we single it out as it's not sustainable. But also the incentive comp effects are related to that, I think, especially this year. And so think of it as we'll be in a good position ex the incentive comp, I think we'd be near the top end of that range.

[Ryan Krueger, KBW]

That's really helpful. And just to make sure I have this right. So ongoing higher incentive comp in the back half of the year will run, I guess, it sounds like maybe in like mid- to high single-digit sense per quarter in the next couple of quarters before going back to normal in 2022?

[Michael Smith, Vice Chairman and Chief Financial Officer]

That is correct. Think of that as about -- depending on share count, $0.07 to $0.08.

[Operator]

Our next question comes from Humphrey Lee with Dowling & Partners.

[Humphrey Lee, Dowling & Partners]

My first question is related to the leverage ratio, which seems to have come down quite a bit given the sizable book value moves in the quarter. At this point, does it change your outlook for debt reduction for the back half of the year?

[Rodney Martin, Chairman and Chief Executive Officer]

Mike?

[Michael Smith, Vice Chairman and Chief Financial Officer]

Humphrey, thanks for the question. So our outlook for the debt repurchase has been consistently $600 million to $800 million related to the -- and this goes back to when we first announced the Life transaction, $600 million, $800 million of debt pay down. We made a down payment on that in the first quarter with a $75 million. So for the balance, I would expect given the favorable movement in leverage, and that was driven by strong earnings, including the gain on the sale of the financial planning channel. As well as favorable movements in AOCI as of June 30 as well as the non-controlling interest driven by equity markets.

So that, I think, gives us a little more flexibility. It would probably push us toward the lower end of that range and maybe even below it. So we'll see how events unfold in the coming weeks. Obviously, we're in a very dynamic situation. I think we still -- we feel good about where the economy is betting overall and about certainly the trajectory of Voya. But we'll be mindful of the environment and look to make probably a meaningful progress on the debt paydown in the third quarter if things are proceeding normally.

[Humphrey Lee, Dowling & Partners]

[Audio Gap] to health. So one of the health insurers has talked about rising medical costs in the outlook that is affecting their kind of earnings for the back half of the year and maybe into 2022 on their earnings call. I know the topic of medical cost inflation is not new. But given some of the broader inflation concerns that we're seeing, how do you see the inflation affecting your Stop Loss business? Does it change your pricing strategy in the near term?

[Rodney Martin, Chairman and Chief Executive Officer]

Rob?

[Robert Grubka, Chief Executive Officer of Health Solutions]

Sure. Thanks, Humphrey. So inflation in medical is not a new thing. To your point, is it in a different stage or a different cycle of how it could impact cost around care and those things. Obviously, in this business, just to level set on Stop Loss, as a reminder, it's a business that we're going to reprice every year. As we look at the balance of our growth, a big part of why the Stop Loss business has grown in the past is driven by exactly this dynamic around medical inflation. So there's an element of, did you get your assumptions right for sure, that we got to continue to pay attention to again, just come back to the -- we get a reprice and reassess things on an annual basis, which certainly reduces the risk as you might think about it over a period of time.

And the other dynamic I'd just point to, sometimes there's a pure medical inflation cost of just resources that go into it. Another big driver that may be applied in here is just the cost of pharmaceuticals and the actual sort of pipeline of drugs that are coming to get we're equally paying attention to that.

But again, you come back to this annual dynamic that's built into how the products are managed and run, and we feel good about how we're positioned to respond to that. We, like others, as you just pointed out, being close to pay close attention to that as it evolves into the future, though.

[Operator]

Our next question comes from Andrew Kligerman with Credit Suisse.

[Andrew Kligerman, Credit Suisse]

So just to follow up on the Wealth Solutions question about the competitive dynamics. I think when Empower did the transaction with Prudential, they showed a slide, I think they had $1.4 trillion, $1.5 trillion in assets under administration. And I think Voya is somewhere in the $500 billion range. So we think going forward, are there areas where you might want to acquire that you might want to get bigger even with the backdrop that you do have scale? And maybe just the same question in Health Solutions. We've seen peers do bolt-ons and acquire there too, maybe the same exact question in-house solutions?

[Rodney Martin, Chairman and Chief Executive Officer]

Andrew, I'll start. We've talked about previously when asked a question about what might we consider from an M&A perspective, looking at and evaluating adding a book of business in a line of business that we're in. So that is something that we certainly would consider. As Heather pointed out, we've got over 6 million participants. We've added 850,000 in the last 2 years. And one of the great parts about the RFP process, as Heather talked about, is the market is very efficient, and you're narrowed down to 2 very fine players. And then the choice is made. And increasingly, we're finding that choice is made with Voya. So would we consider adding a book of business? We would. But our plan through this year has been, as you know, fully organic, and we fully expect to meet or exceed that plan based just on the organic growth. But Heather, feel free to jump in.

[Heather Lavallee, Chief Executive Officer of Wealth Solutions]

I'll add a couple of points on to what you said, I agree 100% with what you said. But I think some of the other things that had been pointed out with the Prudential acquisition have been enhanced capabilities and particularly pointing to non-qual capability. And when we look at not only our scale, we also look at the robust solutions that we offer across the market segment. And we already have a very strong non-qual business. We have continued to enhance our offerings around financial wellness. I think about our partnership with our health business and the HSA product that Rob team has been growing as a wonderful complement and we're seeing a lot of really positive momentum.

So to me, it's not just around scale play. We have been taking appropriate action to bring down our expenses while continuing to invest in the business. We continue to enhance our platform, our participant, engagement, experience, our security protocols and all of the things that, frankly, are really taking precedent in the minds of our clients and intermediary partners. So while we wouldn't rule it out, again, our focus is very much around what are the capabilities that we need and to make sure we can compete at scale and at a competitive cost structure, and we think we're well positioned to do that.

[Robert Grubka, Chief Executive Officer of Health Solutions]

This is Rob. Maybe I'll just, Andrew, to your point on pivot into Health for sec. Just all great comments have been made. But in the health space, when you look back at us over the last few years. Obviously, we've done a tremendous job growing the top line. If you stack us up against a number of different competitors and you look at it in aggregate, you could argue we've been small. I think what I'd point out and push on is just where we choose to play this product solutions capability, the service and customer support that goes with it. We have no trouble competing. And again, you see the results this quarter, 10% top line growth, record bottom line numbers. I feel good about our position as we move forward from here as well.

And to Heather's comments, how do we bring capabilities to play, be really deliberate on what we do versus what we don't do and finding ways to differentiate ourselves and drive ultimately better outcomes. The work that's been going on will continue to go on, and we'll talk more about this at Investor Day, we see a lot of upside opportunity as we look into the future.

[Operator]

Our next question comes from Tom Gallagher with Evercore.

[Tom Gallagher, Evercore ISI]

Just a question on the stranded cost program. Where do you see it going? And are you still on track to have it largely completed by the end of this year? I guess if you look at corporate expenses for the 3Q bridge, they seem to be running high, but from what I'm hearing from you, it sounds like that's more comp accrual than stranded costs, is that fair?

[Rodney Martin, Chairman and Chief Executive Officer]

Mike?

[Michael Smith, Vice Chairman and Chief Financial Officer]

Tom, thanks for the question. So first, broadly speaking, the stranded cost program has 2 components, right? First, it's the the stranded costs, but there's also a transition service arrangement fees that are coming our way. And so what's coming through the corporate program or corporate line is the net of those things. We expect the standard cost to be taken care of by the end of next year.

Along the way, the TSAs will come down kind of alongside that, it won't necessarily be joined at the hip, but they'll generally be consistent with that. So by the end of '22, we expect to be fully neutralized. In terms of the corporate walk, think of it this way. You've got -- we came in at 71% loss for corporate in the second quarter. You've got a differential in incentive comp between second and third quarter of about $7 million. And then there's going to be a couple of other things, largely improvement in the net stranded costs that gets you to another 4. So that gets you to the $60 million. And then you add in the pref dividend and $70 million. And so then you've got -- that's why we're bracketing $65 million to $75 million as the expectation for corporate.

[Tom Gallagher, Evercore ISI]

Okay. And my follow-up is just a free cash flow conversion question. The 90% plus or I think it's 95% that you're guiding to. Just remind me how many years left at that level? How much of that is being driven by utilization of tax assets? And what happens when you're done fully depleting the NOLs? Where would you see that trending on the other side?

[Michael Smith, Vice Chairman and Chief Financial Officer]

Yes, it's a pretty straightforward answer, right? We expect the tax benefit to persist for at least 5 years and maybe a few years beyond that. So it's a little hard to say where we'll be when we get there. But that will really depend on how the business mix evolves from here. But in all of our businesses, I think we've got pretty high cash conversion. Ultimately, though, the way to think about this is the tax benefit and the corporate costs, including debt and so on are kind of netting out to be 0. So if and when, and at the time the tax benefit does fully get utilized, then you would see the corporate start to come in and reduce it a bit over time.

[Operator]

Our next question comes from the line of Elyse Greenspan with Wells Fargo.

[Elyse Greenspan, Wells Fargo]

My first question. So in response to an earlier question, you guys alluded to the fact that you could be at the low end or actually below the low end of that $600 million to $800 million debt paydown that you had targeted. So if you're ending up lower on that debt pay down, and how -- should we expect that then there could be incremental buybacks relative to the $1 billion plan for the year?

[Rodney Martin, Chairman and Chief Executive Officer]

Mike?

[Michael Smith, Vice Chairman and Chief Financial Officer]

Well, and again, Elyse, thanks for the question. Just to remind, it's at least $1 billion and we mean at least. So please don't view $1 billion as the -- it's kind of -- don't think of that as a ceiling. So certainly, as we think about the use of proceeds and our debt pay downs go down, then that would make more available for potential share repurchases. So it all hangs together. The exact timing of that and so on is certainly paying down less debt does create a bit more flexibility for us on the other side.

[Elyse Greenspan, Wells Fargo]

Okay. Great. And then in terms of Health Solutions, the margins there and the loss ratios have trended pretty well relative to your targets just when we neutralize for COVID. So anything kind of one-off that you've seen? Or should we just expect that things normalize kind of the ratios to stay within Group Life and Stop Loss kind of within the 77% 80% and then maybe just a little bit of reversion to more normal levels in Voluntary, like I think you pointed out?

[Rodney Martin, Chairman and Chief Executive Officer]

Rob?

[Robert Grubka, Chief Executive Officer of Health Solutions]

Yes, sure. Thanks, Elyse. Look, I think you summarized it pretty well for me. What we've seen, as you said, without COVID and doing those views, we think our guidance is still appropriate. Obviously, we'll see how the third and fourth quarter transpire relative to COVID, and we'll be able to be more specific about expectations moving forward from there. We highlighted the impact and the strong results from a loss ratio perspective around the voluntary block. If you peel that back just to call it out, it's not been said yet, but regardless of the product you looked at, we sort of saw that dynamic going on, we would expect that to revert as we put in the guide for 3Q. But we'll continue to monitor it closely. Stop Loss has really been middle of the fairway for us so far this year. Lots of experience to continue to emerge in the back half of the year. But again, based on what we're seeing at this point in time, we feel really good about the results that we're seeing and just the overall trend of the book is running where we had expected to, and we'll try hard to keep it in the middle of the fairway and make it easy for you.

[Operator]

Our next question comes from Mike Ward with UBS.

[Mike Ward, UBS]

I just had one question. I was wondering about the investment portfolio stress tests. And I don't think this is necessarily front and center of these days, thankfully. But 1 of your competitors actually with a very similar business mix as you guys this quarter, they lowered their credit loss expectations or their kind of stress case to basically 0 to actually maybe positive from upwards ratings migration a little bit. So I was wondering if there are certain asset classes or sectors where you still see actual credit ratings migration risk in your portfolio?

[Rodney Martin, Chairman and Chief Executive Officer]

Mike, do you want to start?

[Michael Smith, Vice Chairman and Chief Financial Officer]

Sure. Mike, thank you for the question. I think the way to think about the stress case is simply if things change from here in a meaningfully adverse way, I think we're just trying to sort of put an estimate of what it could mean. But I think as we look ahead, kind of in the most likely path, I don't think we're that far off from where what you described is. We don't see anything other than kind of normal levels of migration ahead. And there's always an undertone of that, but we also have ability to manage the portfolio and create offsets as we go forward.

So kind of our expectation is that it's not a capital impact. If we see a meaningful change in direction around economics potential shutdowns, lockdowns, economic activity reverses, then maybe you could see some additional pressure there. And we were just trying to ballpark it and think of the 100 relative to where we had been 6 months ago or a year ago, thinking it could be potentially much larger than that. So overall, we feel good about the portfolio. I don't think there's a read-through in allocations or anything of the sort that we would be a differentiator.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference call back over to Rod Martin for any closing remarks.

[Rodney Martin, Chairman and Chief Executive Officer]

Thank you. Our success reflects the purposeful decisions that we've made as a company as well as the continued resilience and agility of our people. With our strong capital and business performance and 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're excited about the opportunities before us, and we look forward to updating you at our Investor Day later this year. I hope you and your families remain healthy and safe. Thank you, and good day.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.