Voya Financial Inc

NYSE:VOYA

Earnings Call Transcript 2021-Q3

[Operator]

Good morning and welcome to the Voya Financial's Third Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Michael Katz, Executive Vice President, Finance Strategy and Investor Relations. Please go ahead.

[Michael Katz]

Thank you and good morning. Welcome to Voya Financial's third 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 CEO]

Good morning.

Let's begin on Slide 4 with our key themes. We delivered strong results during the third quarter with record adjusted operating EPS for our second consecutive quarter. This was driven by strong alternative income and solid performance across our businesses. We continue to see strong demand for our solutions.

This has translated to top line growth in our businesses in the third quarter, which based on our expectations will extend into the fourth quarter as well. In Wealth Solutions, full service recurring deposits for the trailing 12 months grew 8.7% compared with the prior year period and we generated positive full service net inflows of $355 million.

This reflects continued sales growth and strong retention in several markets. In Investment Management, we generated solid fixed income inflows in the third quarter. Already in the fourth quarter over $7 billion of new mandates have funded. This demonstrates the continue to appeal of our investment strategies. As a result, we expect annual net flows to be at the high end of our 1% to 3% organic growth target for 2021.

In Health Solutions, annualized in-force premiums grew approximately 11% compared with the prior year period. This was driven by growth across all product lines and reflects the continued demand for our Protection Solutions among both employers and employees. We have executed a number of initiatives to effectively manage and deploy capital. On share repurchases, we are currently executing additional buybacks and now expect to repurchase at least $1.1 billion of common stock for the full year 2021.

On a more long-term forward looking note, we also recently received an additional $500 million share repurchase authorization from the Board. In addition, last week we announced a more than 20% increase in our dividend to $0.20 per share. Given the strong performance of Voya common stock, this enables us to maintain a dividend yield of over 1% and is yet another demonstration of our confidence in our businesses. Collectively, we expect that our capital actions this year, will result in us having returned almost $8 billion of capital through both dividends and buybacks since our IPO.

Finally, as we announced last week we will extinguish approximately $400 million of senior debt by the end of November. Looking ahead, we remain well positioned to execute on our strategic priorities with approximately $1.5 billion of excess capital. The results that are noted on this slide reflect our ability to continue to drive organic growth across our businesses. we are leveraging our scale, our significant distribution relationships and our capabilities to deliver greater outcomes for clients.

We're also demonstrating the value of our high free cash flow businesses, which have enabled us to deliver greater shareholder value. We have a clear focus on the workplace and institutions at the time of growing demand for our capabilities. And we're further centering ourselves around the needs of our clients.

As a result, we're better positioned than ever to drive top and bottom line growth. The combination of client demand, Voya's leading market positions and our clear focus will enable us to deliver further profitable growth and shareholder value. We look forward to sharing more details on our strategy and outlook at Investor Day on November 15.

Turning to Slide 5, during October, which is National Disability Employment Awareness month, we partnered with the CEO Commission for Disability Employment, Disability IN and The Valuable 500 to highlight the need to increase and improve the employment of people with disabilities and special needs. As a testament of our leadership and success in the industry, we were recently named Retirement Leader of the Year at Fund Intelligence, mutual fund industry and ETF awards.

Our work to advance our culture was further validated by our recent recognition as a Great Place to Work for the sixth consecutive year, which aligns with the positive feedback that we've heard from our people throughout the year. And Savoy Magazine recently recognized two Voya's Board members Yvette Butler and Aylwin Lewis on its 2021 Most Influential Black Corporate Directors list in the publications fall issue.

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

[Michael Smith, Vice Chairman and CFO]

Thank you, Rod.

During the third quarter financial results on Slide 7, we delivered another record quarter of earnings with $2.57 of after-tax adjusted operating earnings per share. This reflected strong underlying business results and $1.17 of prepayment and alternative income above our long-term expectations.

There were a few notable items in third quarter EPS. We saw $0.05 of favorable DAC/VOBA and other intangibles unlocking, primarily related to our annual assumption updates. This minimal impact was a result of our derisking actions over the last few years. We expect the annual assumption process will continue to be less meaningful going forward.

Given the surge in U.S. COVID-related deaths in the third quarter, we experienced $0.14 of unfavorable COVID-related claims impacting health solutions and we also saw several other smaller items that totaled a net unfavorable $0.18. This included a legal accrual and Wealth Solutions and incentive compensation related to the strong alternative performance for the year.

Third quarter GAAP net income of $142 million reflects strong underlying operating results and alternative income. This was negatively affected by $121 million after tax impact from the assumption update on our recently reinsured Life business. Importantly, this reduction in the reinsurance related GAAP intangible had no cash impact to Voya.

Moving to Slide 8, we generated another quarter of record results in Wealth Solutions with adjusted operating earnings of $319 million in the third quarter. This is meaningfully higher year-over-year due to favorable alternative and prepayment income and continued strength in underlying business results.

Spread revenues improved year-over-year due to higher surplus income as well as lower credited interest due to rate actions taken earlier in the year. This was partly offset by lower investment income, driven by the ongoing rate environment. Fee-based revenue meaningfully increased year-over-year driven by full service client net flows over the period and by favorable equity markets.

In the quarter, we realized a full quarter impact of fee-based revenue from our Independent Financial Planning Channel Sale. The earnings impact of this was in line with our annual pre-tax guidance of $20 million to $30 million. Stranded cost from this transaction are included in the wealth Solutions results and will be eliminated by the end of 2022. Administrative expenses excluding notables were in line year-over-year.

Looking ahead, we expect fourth quarter expenses to be moderately higher than third quarter due to the timing of certain expenses such as advertising. This quarter we have begun to share the operating margins for our Health and Wealth businesses. For Wealth our margin was over 36% on a trailing 12-month basis excluding notables. Please refer to our Investor Supplement for more detail on how we calculate this metric.

Turning to deposits and flows, full service recurring deposits grew to $11.8 billion on a trailing 12-month basis. As employee and employer contributions continue to strengthen in Corporate Markets, we now expect full year 2021 recurring deposit growth to be at the high end of our 6% to 8% guidance.

We generated $355 million of positive full service net flows, bringing our total full service net flows year-to-date to $1.5 billion. Meanwhile, record keeping and stable value realized net outflows of $1.8 billion and $719 million respectively in the quarter. Looking to fourth quarter, we anticipate some full service and record keeping net outflows, but expect to end the year with between $500 million to $1 billion in positive full service net flows with good momentum going into 2022.

As we noted on last quarter's call, higher equity markets had the effect of increasing the dollar amount of participants surrenders, even as the number of surrenders remains in line with our expectations.

While higher equity markets are a headwind for net flows, market level supported record results for the quarter and over $1 billion of earnings over the last 12 months. Overall, we have a robust pipeline across all market segments, a strong distribution team and a competitive suite of workplace solutions, giving us confidence in our ability to achieve profitable growth going forward.

On Slide 9, Investment Management delivered $63 million of adjusted operating earnings, higher than the third quarter of 2020 of $47 million. The year-over-year improvement was driven by favorable investment capital and growth in fee income. Revenues were higher year-over-year due to growth in both institutional and retail client assets.

Administrative expenses were modestly higher than third quarter 2020 largely due to variable compensation linked with fee income growth and strong investment capital results in the quarter. Our trailing 12-month operating margin improved year-over-year to 33.1% including investment capital and 26.1% on an ex-notables basis.

Turning to flows, overall third quarter net outflows of $1.1 billion reflected an insurance client outflow that we signaled last quarter. This masked the strength and institutional flows, which included two CLO closings, including one European CLO as well as multiple private credit mandates. While we had retail net outflows in the quarter, we have made several enhancements to our equity platform in an effort to improve our position, heading into 2022. Our fixed income performance also remained strong with over 90% of our fixed income funds outperforming their benchmarks on a three, five and 10-year basis.

Looking ahead, we expect to reach the high end of our full-year 2021 overall organic growth rate of 1% to 3%. We have confidence in this outcome given the already $7 billion of funded mandates in October. These are large scale mandates that we expect will be margin accretive. Additionally, we do not expect to realize performance fees in the fourth quarter related to our mortgage derivative strategy. That said, this strategy has performed exceptionally well over the long term and expect to return to performance fees in 2022.

Clients value this strategy as it produces alpha uncorrelated to global credit risk and equity markets. Going forward, we continue to see great demand for our solutions across a diverse set of strategies. This includes demand for higher margin products including our growing private and alternatives franchise. We are confident in our outlook given the excellent public and private asset performance, our broad range of solutions and our strong distribution team.

Turning to Slide 10, Health Solutions delivered another record quarter of adjusted operating earnings at $71 million. This result compares favorably to $56 million in the third quarter of 2020, similar to the other businesses, Health Solutions also benefited from strong alternative and prepayment income. Underlying business performance was strong, despite the impact of excess group life claims related to COVID.

Similar to Wealth Solutions and Investment Management, we are introducing operating margins metrics for health. Our Health Solutions margin was over 33% on a trailing 12-month basis, excluding COVID claims and other notables.

Given our recent favorable claims experience, excluding notables we would expect margins to normalize to closer to 30% once the pandemic subsides. Annualized in-force premiums grew close to 11% year-over-year. We experienced growth across all product lines with continued strong growth in voluntary and Stop Loss.

The total aggregate loss ratio, including the impact of COVID was 71.6% on a trailing 12-month basis within our targeted range of 70% to 73%. Excluding notables and the impact of COVID, we would be below that range. Our total aggregate loss ratio included $85 million of COVID-related claims over the last 12 months. We incurred $22 million in the third quarter of 2021. The impact in the quarter was on the high side of our guidance as deaths were more common in younger working ages, that had been seen in past quarters.

We expect this age shift will persist going forward. As a result, we expect to be at the higher end of our estimated $1 million to $2 million in claims for 10,000 U.S. COVID death in coming quarters. Looking ahead, we have a healthy pipeline powered by our expansive distribution and early indications are for continued strong topline growth as we approach the January 1 renewal and sales season. Before we turn to

Slide 11, given the actions we have taken the simplify our company and in an effort to focus investors on our longer-term goals, we will no longer be providing our quarterly EPS walk slide. That said we will continue to periodically communicate guidance with respect to developments in our business and financial outlook as circumstances dictate. Please see Slide 15 of the appendix for more detailed commentary on the fourth quarter.

Now turning to Slide 11 on shareholder return, by year-end including dividends, we expect that our capital actions will result in us having returned almost $8 billion of capital to shareholders since we have been a public company. Year-to-date we have returned approximately $900 million to shareholders in the form of share repurchases. This includes the completion of our June ASR as well as October repurchase activity.

By year-end, we expect to repurchase at least $1.1 billion of shares. Additionally, in order to keep pace with our strong stock performance, we increased our dividend by over 20%, thereby maintaining our dividend yield of over 1%. We also recently called for redemption nearly $400 million of debt. This will reduce both our leverage and future interest expense. Our financial leverage ratio is now at 27.5% below our 30% target.

Finally, given our strong excess capital and RBC ratio, we announced that our Board has approved a new $500 million share repurchase authorization. While our excess capital reflects an RBC target of 400%, we intend to lower our target to 375%, effective with the end of 2021. This change coincides with the effective date of new higher RBC C1 factors and will have minimal impact on excess capital.

In summary, we are pleased with another quarter of record earnings and a strong underlying performance of our businesses. We believe our highly regarded workplace and institutional franchises powered by our expansive distribution are poised for long-term success and we will continue to generate high free cash flow adding to our significant excess capital position. We look forward to sharing more on our long-term strategy and financial outlook in a few days at our Investor Day on November 15.

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

[Operator]

[Operator Instructions] Our first question today is from Nigel Dally of Morgan Stanley. Please proceed with your question.

[Nigel Dally, Morgan Stanley]

I had a question on capital management. You've been at the $1.5 billion or above in terms of excess capital every quarter this year. In the past, I think you've been very good steward to capital, but more recently, it seems like you're holding back in returning that capital to shareholders. So why that rollout - I know you're planning to ramp it up somewhere in the fourth quarter, but it still seems like you could be a lot more aggressive to just trying to understand the rationale there?

[Rodney Martin, Chairman and CEO]

Nigel, Good morning. Mike?

[Michael Smith, Vice Chairman and CFO]

Thank you. Rod and, excuse me, thank you Nigel, for the question. Maybe I'd start by trying to put the actions that we've taken in perspective and if you think about what we've done and what we will have done over the last six months of the year, you've got a $400 million ASR that completed in the middle of September. You've got $400 million of debt actions and you've got $100 million of share repurchases so far this quarter with at least another $200 million coming forward. So over the last six months of the year, we will put together - put to work, excuse me $1.1 billion at least of capital.

So I feel that's we feel really good about the pacing on that. We feel really good about our leverage and overall capital position and the flexibility it affords us. So I think we continue to think about what the right pacing is going forward, continue to monitor conditions. And over that period, you can expect nothing to be different from the way we've managed in the past. I think everything we've done this year has been consistent with the philosophy we've used over the last several years and I feel very comfortable with it.

[Operator]

The next question is from Tom Gallagher of Evercore ISI. Please proceed with your question.

[Tom Gallagher, Evercore ISI]

Good morning. Mike, just wanted to make sure and I realize you're not giving out the bridge anymore, but just wanted to make sure we're thinking about it correctly, there is a bunch of items that seem to be, I guess you could probably argue somewhat one timer in nature for Q4, can you give a level that if you did still provide leverage that you'd expect to be at?

[Michael Smith, Vice Chairman and CFO]

Tom, let me try to frame it up this way. Thanks for the question. So the guidance we had given in the past was that, we thought the fourth quarter would be in the high end of the $1.60 to $1.70 range, assuming normal alternatives or expected levels of alternative performance and excluding the impact of alternative performance thus far this year on incentive comp. That was where we were - that guidance really continues to hold with a couple of new things.

First is the performance fees that we talked about in Investment Management that are not expected to occur this year. But - and I think that may have been what you were alluding to, over time those have been really strong, but in this particular year, you should think of those as being close to zero. And then the other new thing will be COVID. I think when we gave the guidance at the end of last quarter, I think our expectation was the COVID in 4Q would be relatively small.

While we don't have a number and nor am I going to try and estimate what U.S. tests are, we didn't give the guidance of $1 million to $2 million in claims for every 10,000 U.S. deaths and we expect probably be at the high end of that, So you can plug in your best guess as to what COVID deaths will be for the U.S. in the quarter and translate that. But that should be the main adjustments. So if you put those two things in on top of the incentive comp that we talked about before, I think that should get in the neighborhood.

[Tom Gallagher, Evercore ISI]

And then Mike, just a follow-up on that, are you also solve the elevated expenses in your Wealth segment is sequentially something like a $0.15 to $0.16 headwind and is that something - so if I just compare to like what the $1.67 of core that would also be a reduction sequentially, and is that something we should be thinking about as normal spending in the business or would you view that as unusual, what is not likely be replicated in 4Q of next year?

[Michael Smith, Vice Chairman and CFO]

So we'll be able to talk maybe a little bit more about '22 guidance at Investor Day. But there are some timing things that I think are putting that a little bit above sort of a normal trendable, but we'll get more into where we expect to be in '22 and beyond in a couple of weeks.

[Operator]

The next question is from Andrew Kligerman of Credit Suisse. Please proceed with your question.

[Andrew Kligerman, Credit Suisse]

Coming to capital management question and again just respecting that your programs have been excellent over the years, it did seem odd that you only bought back $100 million in the third quarter and it's caused a number of people to question whether your stance on M&A has changed. I know you recently mentioned that there could be areas of interest, but it would be good to kind of hear you, just either restate or update us on your stance with regard to M&As?

[Rodney Martin, Chairman and CEO]

Andrew, good morning. It's Rod. Mike and I will toggle back and forth. Our position on M&A is the following. We've stated as you just summarize that, we've been - it might be very responsible with capital and we'll continue to do as we look at opportunities to further accelerate Voya's growth in our outlook.

In my opinion, our track record is second to none in terms of the discipline we've had and that applies co-equally to how we approach M&A that has not changed. EPS will continue to be a very important metric for us as we look at and assess inorganic opportunities and we're going to - we continue to believe that share repurchase are a core part of our story and absent other actions to create shareholder value, you're going to see that - that philosophy and approach be very consistent. Mike?

[Michael Smith, Vice Chairman and CFO]

Thank you, Rod. Andrew, the only thing I'd add is just maybe to help people understand what actually occurred in the third quarter as it relates to repurchases. So the ASR that we entered $400 million ASR we entered in late second quarter was effectively all executed in the third quarter.

So that we - essentially the $400 million of shares were bought during the third quarter on an average price of a little over $63.5. So that had - that activity was certainly going on. And then with the activity that we had planned for the fourth quarter, I think that basically winds up being $700 million, more than half of the total share repurchases in the back half of the year. I feel good about the pacing and I think that's consistent with the way we've talked.

[Andrew Kligerman, Credit Suisse]

And then my follow up is around the Record Keeping business, after an extremely strong 2020. This year we've seen some net outflows, I think it was at $750 million in the second quarter, $1.7 billion this quarter and I'm wondering if you just could give a little color around the outlook for record keeping flows. And then just secondly a backdrop just the dynamics of that business, how competitive it is, what you're seeing out there?

[Rodney Martin, Chairman and CEO]

Sure, Heather?

[Heather Lavallee, CEO, Wealth Solutions]

Thank you, Rod, and thank you, Andrew. And if it's okay, I'm going to kind of broaden the question and talk a little bit about flows in general for both full service and record keeping to kind of give a little bit of dynamic on both. And I think it's important to recognize that as you look at our commercial momentum in both full service and record keeping, it's all been done organically.

So if I start with full service, we had $355 million in positive flows for the quarter, $1.5 billion year-to-date. That really reflects the strong sales and retention we've had across all markets, but really led by our corporate market. As we pivot and look into the fourth quarter, as Mike mentioned in his comments, we have talked about negative flows in full service in the quarter, driven by two factors: First is driven by slightly higher plans surrenders as a result of M&A activity as well as higher participant surrenders due to higher account balances from the equity market growth.

And as Mike mentioned in his comments, we have seen and we talked about this in the second quarter, we have seen the higher equity markets having --creating a headwind for net flows. But if I kind of finish on the full service side, we're expecting positive net flows for the full year between $500 million to $1 billion. And if we look over the past few years, generating upto $3.3 billion in positive flows for full service.

Now, Andrew, to get back to your question around record keeping flows, as we talked about in record keeping you tend to have much more lumpiness in terms of larger plan sizes. So while we do anticipate negative flows in the quarter, it's really driven by one plan surrender and we also similar to full service, we did see higher participant surrenders, due to the higher participant account balances from the equity market growth.

But record keeping flows can fluctuate in any given year really due to the timing of cases in and out, and as you referenced, we had really strong record keeping sales and flows in both 2019 and 2020. And so when I take a step back and I look at our record keeping, our fundamentals are really strong, building on $39 billion in positive flows we generated in the last two years, we've got a really robust pipeline. However, the sales cycle is longer from RFP through implementation.

So our pipeline has grown, we have several unfunded large plan wins over a variety of different industries that we expect to fund in 2022. So, bottom line is we feel really, really good about our sales team, our pipeline across both full service and record keeping and the competitive suite of products.

And I guess, I'll close Andrew by answering the second half of your question, which is just what's going on in the market dynamics of record keeping. It's a competitive sector, but we continue to be disciplined on where we can best target, where our solutions that are going to resonate with clients and we've often talked about then - when we're competing against very fine companies, you win on inches and it's very often our culture that is a driver for us in that segment. So we feel really good about where we're headed in 2022 and beyond.

[Operator]

The next question is from Elyse Greenspan of Wells Fargo. Please proceed with your question.

[Elyse Greenspan, Wells Fargo]

My first question is also on the capital side. I guess, given the [indiscernible] in debt pay down and where your leverage is, I'm assuming leverage actions are behind us? And then the second part of that question, you guys put in place a new buyback authorization with earnings that run through the end of next year. So should we think of that is putting in place your buyback plan for the next 14 months or so?

[Rodney Martin, Chairman and CEO]

Elyse, good morning. Mike?

[Michael Smith, Vice Chairman and CFO]

Thank you. Rod. And Elyse, good morning, thanks for the question. So first on debt activity, I think the call will get us as we've shown to a leverage ratio that we're comfortable with. We'll continue to manage that going forward as events unfold and as the book value of the company evolves, but I think to the extent you want to view it as done for now, I think the answer is nothing planned in the near term, but obviously, we'll continue to manage that. We do like having leverage ratio in the range that is at given the potential for some movement in the denominator with AOCI, so pretty comfortable there.

And then in terms of the authorization, you should think of this as a return to the practice of a couple of years ago from that we followed, which was a series of $0.5 billion authorizations. And so while the authorization extends through the balance of 2022, you shouldn't view that as tapping or being our expectation. I think we will continue to monitor our capital position as it unfolds and continue to pursue the discipline and approach that we've used for the last many years now.

So if we exhaust that authorization before the end of 2022, then we'll discuss with our Board whether another one makes sense and they've been very willing to grant those, that we've have had 13 authorization since becoming a public company and with this latest one over $8 billion worth of authorization. So I don't think, there is any hesitation there or any limitation to be thinking about.

[Operator]

The next question is from Erik Bass of Autonomous Research. Please proceed with your question.

[Erik Bass, Autonomous Research]

Can you talk more about the new adjusted margin metric that you provided for the Wealth Solutions business and how we should think about the right target level for this going forward? And is this going to be the key KPI that you managed to and it is the goal to continue expanding margins or to sustain them at this level?

[Rodney Martin, Chairman and CEO]

Heather or Mike, you want to jump in? Good morning.

[Heather Lavallee, CEO, Wealth Solutions]

Very good morning. Thank you for the question. So I'll start, we're certainly going to provide more detail on our Wealth Solutions operating margin at our upcoming Investor Day. But, we are focused as a simpler business we think operating margin is a good metric of performance. We're pleased with the operating margin. We generated this quarter and going forward, you're going to hear us talk about a focus on maintaining those strong margins going forward.

[Michael Smith, Vice Chairman and CFO]

And Eric, maybe just stepping back a little. We think this is a really powerful way to think about the prospects of the company, right. I think that we are simpler, we don't have nearly the complications that we certainly used to have and certainly simpler than many that are in our traditional peer group. And so, we think that we'll be able to not only help people who follow us closely understand better the underlying trends, but also investors that are may be new to the story.

And so - and talk about our company in a way that they're used to seeing in other industries, and so if we're able to talk about revenue growth, net revenue growth and then ultimately the margin we're going to earn on that and set appropriate expectations around all of those. We think that will make the story much easier to follow and so we're excited about being in this position and being able to talk about it this way.

[Erik Bass, Autonomous Research]

Thanks. And certainly I agree simpler is better and maybe on that note, LDTI accounting is certainly another topic that's coming up and I just hoping maybe you could talk about which of your business lines will be affected by different elements of the accounting change and maybe the potential impacts to AOCI in retained earnings, and is right to think of that since you've exited a lot of your insurance businesses that are less exposed than most in the industry?

[Michael Smith, Vice Chairman and CFO]

Erik, so we're still doing work and a lot of work underway to fully understand the implications. I think the - your read through kind of based on what one sees publicly about the kinds of products that are affected as you noted, we don't have most of that anymore.

So I think it's fair to say that the kinds of impacts will be probably on the smaller end, but I'm not in a position to give any kind of magnitude or direction, but relative to others in the industry, I think you should expect it to be fairly muted for us. And in terms of the business lines, I'm going - I'm going just to hold off, I'm trying to parse that out because it's fairly complicated. I think you probably need to see the whole story including the impacts on AOCI and some of the related areas there.

The next question is from John Barnidge of Piper Sandler. Please proceed with your question.

[John Barnidge]

Yes. My question on Stop Loss sales, they've quite a period of growth and then decline year-over-year. Can you maybe talk about distribution there and expectations ahead?

[Rodney Martin, Chairman and CEO]

John, good morning. Rob?

[Robert Grubka, CEO, Health Solutions]

Yes. Thanks, John. Maybe I'll just do the step back first on sales and the book of business in general. And as we shared obviously the overall book is run at over close to 11% year-over-year. So the fundamentals within the book not only sales, but also retention across the business has been looking good and we're really pleased with how that's performed.

On Stop Loss, look that's a segment where we will write close to 80% of our business focused in on a one-to-one. As we started this year, we certainly started the year well. I think you could imagine within the underwriting shop that they get appropriately stingy with what we think we should be writing business at, when we started the year where we did.

So I wouldn't over read into it. It's - look, it's a business that's always going to be competitive as we think about things moving forward though we feel really good about where we sit in the position we're in. We've done a nice job doing both the top line growth as well as the margin improvement in that business over the last few years.

So at this stage, I wouldn't read into that. Again it's competitive, we are in the cycle now for one to one business, both renewal and new business that we're sort of hot and heavy in. But as we see that, we feel like we continue to be well positioned as we move forward in and get excited about the growth that we've had and the margin improvement that's come with it.

[John Barnidge]

Thank you very much for that. My second question, 4Q, '21 mandates really strong, can you talk about fee level or asset focus, maybe a bit more there? And then what that gives you in confidence in the pipeline to the quarter beyond that? Thank you.

[Rodney Martin, Chairman and CEO]

Christine, you want to...

[Christine Hurtsellers, CEO, Investment Management]

Thanks, good morning, John. Thank you, Rod. Good morning, John. It's Christine. Listen, as far as a little bit more color in terms of the strength of the 4Q pipeline, as you can see very strong October and our outlook is overall organic growth. We're pushing up to the top end of our 1% to 3% range for assets under management growth this year.

So very strong quarter. How to think about it? There were multiple strategies that have funded, but there were more than one on north of $1 billion. So what we've seen is a large multi-sector core fixed income mandate, a couple of credit mandates. And when you think about those, those do tend to be lower more aggressive basis points because of their public markets. So when you think about the quarter, when you see that measure, you will see it lower.

Note that this quarter though actually our basis points under management was higher. So again it all goes to a mix of business and it's going to vary quarter-to-quarter and also something to think about, particularly with our insurance clients as we typically will fund in liquid markets and then over time move those into higher margin, more differentiated product strategies.

So overall, that's what I see fundamentals of the business, very strong, given our investment performance. How does the pipeline look today? Still very strong, again driven by both investment performance and our differentiated product alignment, we have a number - number of strategies represented as well as over 40 different clients that are in our current unfunded wins. So we see good strong momentum as we move into the early part of next year.

[Operator]

[Operator Instructions] Our next question is from Humphrey Lee of Dowling & Partners. Please proceed with your question.

[Humphrey Lee, Dowling & Partners]

Good morning and thank you for taking my questions. My first question is related to the Stop Loss and Voluntary claims in the quarter, which continue to be favorable. Can you just talk about your claims experience throughout the quarter and how did they trend? And then kind of given some of the deferral of care, do you anticipate any pricing impact as you're going through your renewal cycle?

[Rodney Martin, Chairman and CEO]

Humphrey, Thank you. Rob? Good morning, by the way.

[Robert Grubka, CEO, Health Solutions]

All right. Good morning, Humphrey. Well, look, this is an environment we're trying to talk a lot about trends, a month-to-month or within a quarter, it feels a little bit dangerous. But let me take a shot at just again sort of the step back, as I alluded to the question prior Stop Loss of business, we've been doing a lot of work to just strike the right balance between growth and in margin pricing discipline that certainly played out this year. Is there some knock-on impact from delayed care and those sorts of things like it's impossible to say there is none. Is it dramatic? The one thing I would say for us that keeps it away from being dramatic is just where we play.

So, as a reminder, in the larger end of the market, think about deductibles at an individual level of in that 200,000 to 300,000 range to just put some numbers to that and so that tends to insulate us as we think about it. And certainly, we've had some impact from COVID within the book, but at this point it's been on the edges and that drive in the numbers materially.

So we'll see how that plays out into the future. We feel good about just understanding our book and where claims trends are going and how we're thinking about renewal strategy as we go into this cycle for one-on-one. So I would just sort of the step back on Stop Loss again, where we play I think helps us insulate - stay insulated a bit from noise and we'll continue to monitor it closely.

As we think about Voluntary and obviously Mike hit the life story from a COVID perspective, but on the Voluntary side, this one if you go back to the start of the pandemic, we talked about in the accident product having just seeing a bit more dramatic dip in what was going on from a loss ratio perspective there and strong results. That's moderated and sort of come back to more normalish range.

When you think about critical illness and hospital Indemnity, obviously those are two areas that I just feel like through the pandemic, it maybe bounced around a little bit more than we would have expected, but net-net, the book of business is running well. We think about it in totality. And so it's a little bit hard to draw a conclusion on, okay, what did third quarter do and now what do we think about the future. I think as we talk about things at Investor Day, we still feel good and we'll talk more deeply about it.

But we still feel good about the underlying trends and the fundamentals within the business and what we're seeing from a claims trend perspective. But these - again these days have - had things move around a little bit differently than we would have might otherwise anticipated, but net-net, strong top line growth in this business, the margin story loss ratios are running right in the middle of our guided range, but it's been a little bit hard to crystal ball the future perfectly for all of us.

[Humphrey Lee, Dowling & Partners]

Appreciate the color. My second question is related to Investment Management. I think in your prepared remarks you talked about taking some actions on the retail side to improve the overall flows picture. Can you provide some examples on some of the actions that you've taken and how should we think about that retail of course will trend in the coming quarters?

[Rodney Martin, Chairman and CEO]

Christine?

[Christine Hurtsellers, CEO, Investment Management]

Certainly, Humphrey. So as far as retail flows go, some - what are some of the actions that we've taken, we've been focused on really strengthening our active equity platform. And so, when you think about some of the things that we've done, we acquired a machine learning equity team. So think AI-driven investment results and in fact we have a sizable unfunded win that we expect with that strategy to fund in the first quarter.

So that's certainly getting momentum and we've recently announced some additions to our team as well as the Co-CIO structure. So think about Vinny, who is overseeing [indiscernible] in the AI team combined with Mike Pytosh, who runs fundamental. So important, because this is going to continue to leverage multiple views in it's site, fundamental plus machine learning to really strengthen our performance on behalf of our clients.

So that is definitely a key area of focus. And then just, let me get back to kind of what do we see about flows going forward and what's driving flows? We have very strong investment performance, notably in fixed income. So we are continuing to see strong client demand in our Strategic Income Opportunities Fund.

So think about a fund that's going to appeal to people with inflationary concerns, which is becoming a broader part of the market conversation. As well as something really excited in terms of retail flows is we have a retail version of our secondaries Pomona business, it's called the Pomona Investment Fund and that is delivering extremely strong performance. It has existed for seven years.

So it's got a long track record top performing fund in its category and we're seeing real momentum, that fund cross - is crossing the that $0.5 billion mark, which you know is pretty important in terms of getting bigger allocations into the fund. And I would say a strategic focus up for us on retail continue to leverage our traditional asset classes, but also more and more focus on delivering private and alternative strategies to high net worth individuals to our retail distribution force.

[Operator]

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

[Rodney Martin, Chairman and 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, our products, solutions and technologies are increasingly being sought after by our customers. As businesses individuals throughout the U.S. continue to adapt to the significant changes that have been brought about by the pandemic, we believe that we're uniquely positioned to win. Specifically, we have the ability to deliver on increasing health, wealth, and investment needs among individuals, employers and institutions. And this will lead to even greater value for our shareholders.

We're excited about the opportunities before us, we look forward to updating you at our Investor Day on November 15. 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.