Voya Financial Inc

NYSE:VOYA

Earnings Call Transcript 2021-Q4

[Operator]

Good morning and welcome to the Voya Financial Fourth Quarter and full-year 2021 earnings conference. All participants will be in listen-only mode. [Operator Instructions]. After today's presents, there will be an opportunity to ask questions [Operator Instructions] Participants are limited to one question and one follow-up. Please note that this event is being recorded. I would now like to turn the conference over to Michael Katz, EVP, Finance, Strategy and Investor Relations. Thank you. Please go ahead.

[Michael Katz]

Thank you. And good morning. Welcome to Voya Financial's Fourth Quarter and Full-year 2021 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 the 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; Rodney Martin, our Chairman and Chief Executive Officer, as well as Mike Smith, our Vice Chairman and CFO. 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, Web Solutions, Christine Hurtsellers, Investment Management, and Robert 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. In 2021, we delivered strong results including organic growth across our businesses, margin expansion, and significant excess capital generation. For the full year, we achieved record adjusted operating earnings of $1.3 billion. We achieved this record not long since we divested our life and annuities businesses. This is a clear demonstration of how our health, wealth and investment solutions focus is driving further profitable growth for Voya. For the fourth quarter, adjusted operating earnings were a $1.90 per diluted share.

Underlining our performance was both strong alternative investment income, as well as continued organic growth in our businesses. Notably, all of our businesses exceeded or achieved the high-end of our organic growth targets for 2021. For Wealth Solutions, full-year 2021 full service recurring deposits reached $12.1 billion, up 9% compared with the prior-year period. And we generated positive full service net flows of $576 million in 2021. In Investment Management, we generated $7.8 billion of net inflows during 2021, representing more than 4% organic growth. And then the fourth quarter, we achieved record net inflows of $9 billion, which includes significant inflows from several large mandates.

In Health Solutions, in-force premiums grew 10% compared with the prior year period, which reflects growth across all product lines. Beyond the organic growth that we delivered, we continue to demonstrate the power of Voya's high free cash flow businesses. This drives a free cash flow yield, which is one of the highest in the industry. In 2021, we generated $1 billion of excess capitalorganically. This enabled us to build on our capital return track record, deploying a record of $1.7 billion of excess capital this year. And with the continued benefit of our high free cash flow businesses,

We concluded the year with approximately $1.5 billion of excess capital. Since our IPO, we've returned approximately $8 billion to shareholders through both share repurchases and dividends. As we move forward, we will continue to be disciplined and balanced with our use of capital. We've delivered another year of strong organic growth, record excess capital generation and deployment, and significant EPS growth. These themes will remain our focus as we advance our strategy and the three-year growth plan that we shared with you at Investor Day. As I shared in November, our strategy puts the needs of employers, employees, and intermediaries at the center of all that we do. We help employers optimize their benefit spend.

We enable employees to make the right financial decisions. And we provide investment capabilities to meet the long-term needs of institutions and retirement plan participants. By bringing our innovative thinking, resources and tools to customers, we can help them achieve better outcomes. In short, our strategy and focus will help drive our growth plans and create further value for all of our stakeholders. Turning to Slide 5, our focus on values and culture continue to differentiate Voya. Most recently, we were honored to earn the following recognitions, The Bloomberg Gender Equality Index for the seventh consecutive year, The Dow Jones Sustainable Index for the sixth consecutive year, and is one of only eight companies included in the North American diversified financial services category.

A 2021 best place to work in money management by pensions and investments for the seventh consecutive year. And once again, earning recognition on the human rights campaigns 2022 corporate equality index, with a perfect score for the 17th consecutive year. 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, Vice Chairman and Chief Financial Officer]

Thank you, Rod. Let me begin by saying, I am proud of all that our team has accomplished in 2021. We delivered a record year of adjusted operating earnings and generated a significant amount of excess capital. We shared our outlook for Voya at our 2021 Investor Day, and the exciting opportunities we have to accelerate growth for our business. We are confident as we look forward to continued success in 2022. Turning to Slide 7. Adjusted operating earnings were $1.90 per share in the fourth quarter of 2021, which included first, $0.55 of net alternative and prepayment investment income above long-term expectations. Second, $0.22 of COVID related impacts. And third, $0.05 of other notable items, primarily net performance fees below expectations. Fourth-quarter results contributed to a record 2021 adjusted operating earnings of $8.37 per share. On an ex-notables basis, we delivered adjusted operating earnings of $6.04 per share, broadly in line with our full-year guidance given at Investor Day.

Full-year results reflect strong alternative investment income performance and strong underlying core results across all businesses. Fourth quarter net income available to common shareholders of $403 million led to full-year net income of $2.1 billion. With that, let's turn to our segment results beginning on Slide 8. Wealth Solutions delivered $241 million of adjusted operating earnings in the fourth quarter, contributing to record full-year earnings of $1.1 billion. Fourth-quarter adjusted operating earnings included alternative income that was $82 million above our long-term expectations.

Full-year adjusted operating earnings, excluding notable items, grew 22% year-over-year, driven by 13% net revenue growth and operating margins of 35.5%. Full-year net revenues reflect higher fee income from business growth, favorable equity markets, and net investment spread experience. Full year administrative expenses were higher year-over-year in line with our expectations. Looking ahead, we expect first quarter administrative expenses to be consistent, with fourth quarter levels despite seasonality. Turning to deposits and flows. 2021 full service recurring deposits showed continued strong momentum, exceeding $12 billion in total, which is 9% growth year-over-year, and above our targeted 6% to 8% range.

The growth was driven by higher employer and employee contributions, primarily in corporate markets. For full-year 2022, we expect to return to 10% to 12% growth in recurring deposits. For the full year, Web Solutions generated both service net inflows of $576 million while record keeping and stable value saw net outflows of $6.7 billion and $2.1 billion respectively. 2021 net flows faced headwinds from higher dollar amounts of participants surrenders due to higher equity market levels. Also, in the fourth quarter, stable value sales slowed, which mirrored industry outflows from capital preservation options.

We are pleased with the volume of RFC activity in full-service, record keeping, and stable value. Our pipeline of plans and implementation is leading to an expectation of $300 million to $600 million of positive full service net flows in the first quarter of 2022. We are encouraged by the market interest in our Integrated Health and Wealth Benefit Solutions designed to optimize financial outcomes for our participants. Our new plan activity and our differentiated value proposition give us confidence in our ability to grow revenues while maintaining operating margins. On slide 9, Investment Management delivered $59 million of adjusted operating earnings in the fourth quarter of 2021.

This contributed to full-year adjusted operating earnings of $239 million, exceeding our 2020 results of $197 million due to strong investment capital results. Fourth quarter adjusted operating earnings included $12 million of investment capital returns above expectations, offset by lower-than-expected performance fees on our mortgage derivative strategy. Full-year net revenues, excluding notables, grew 11% year-over-year, primarily reflecting fees generated on higher retail AUM, and strong fourth quarter fees generated from several private equity fund closings.

These closings boosted the share of revenues from our privates and alternative platform to roughly 50% in the quarter. Higher 2021 administrative expenses year-over-year, were mostly driven by higher variable compensation. Our adjusted operating margin, excluding notables was 25.7% for the year. As we shared at Investor Day, we expect to continue to grow our margin by 1% a year with a target of at least 27% by the end of 2022. Turning to flows, we generated a record $9 billion of net inflows in the fourth quarter. This contributed to full-year net flows of $7.8 billion, which represented 4.2% organic growth in the year and exceeded the high end of our 1% to 3% growth expectation.

We achieved strong net flows across our Institutional U.S. and insurance channels with continued demand for investment-grade credit, private credit, and commercial mortgages. We also saw strong private equity closings and issued two additional CLOs in the fourth quarter. We are seeing a strong start to 2022, supported by a robust unfunded pipeline that gives us confidence in our 2022 organic growth target of 2% to 4%. Our longer-term fixed income performance remains strong. 79% of our fixed income funds outperformed the benchmark on a three-year basis, while 92% and 98% did so on a five and 10 year basis. Looking ahead, we are excited by the continued strength across our diversified investment strategies and distribution channels benefiting from excellent fixed income platform investment performance. We have a strong unfunded institutional pipeline to start 2022 with notable contributions from private and alternative strategies.

Turning to Slide 10. Health Solutions delivered $33 million of adjusted operating earnings in the fourth quarter. Full-year adjusted operating earnings were $204 million, in line with our 2020 results. The fourth quarter earnings results included $9 million of alternative income above expectations, and $34 million of COVID-related impacts. Full-year 2021 COVID-related impacts were $112 million, which drove total aggregate loss ratios towards the high-end of our 70% to 73% target range.

Age mix has driven our recent experience above the high-end of our COVID sensitivity range, such that we now expect a $2 to $3 million impact per 10 thousand U.S. deaths. Full-year adjusted operating earnings, excluding notable items, grew 14% year-over-year, driven by 13% net revenue growth and stable operating margins. Higher full-year net revenue excluding notables, primarily reflects growth in stop loss and voluntary, as well as the contribution from our recent benefit strategies acquisition. Full-year annualized in-force premiums grew 10% year-over-year at the high end of our target range. As we maintain pricing discipline, and protect margin in 2022, we expect the annualized in-force premium growth towards the lower end of 7% to 10%. Higher 2021 administrative expenses year-over-year were mostly driven by volume-related costs, timing, and certain non-recurring expenses.

Looking to first quarter, we expect expenses to be consistent with fourth quarter levels, despite seasonality. While expenses were higher in 2021, our adjusted operating margins excluding notables remains stable at 33% on a trailing 12-months basis at the high end of our Investor Day target of 27% to 33%. Going forward, we expect to drive strong net revenue growth while maintaining operating margins. Our health and wealth strategy continues to resonate with the market, and we remain confident in the strength of our distribution channels, customer solutions, and differentiated customer experience. Turning to slide 11, our strong capital generation helped to support our record capital deployment in 2021 of $1.7 billion. This included $80 million of common stock dividends and $1.1 billion of share repurchases in the year, of which $310 million was repurchased in the quarter.

We also extinguished approximately $0.5 billion of debt in the year, helping to reduce our financial leverage ratio to below our 30% threshold. Our full-year organic capital generation of approximately $1 billion demonstrates the high free cash flow generation of our businesses. This capital generation contributed to our $1.5 billion of excess capital at year-end 2021, despite record deployment. Our 90% to 100% free cash flow conversion also leads to a high free cash flow yield, which currently stands at 13.2%, one of the highest in the industry. Going forward, capital deployment will continue to be a strong contributor to our 12% to 17% annual EPS growth target as we shared at Investor Day. In summary, we are incredibly pleased with our year of record earnings, strong performance from the underlying businesses, and how the collection of our health, wealth, and investment management businesses continue to execute on our strategy. We remain confident in the plan we laid out at Investor Day last year, and we will continue to be balanced and disciplined as we look to deploy capital 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]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. As a reminder, participants are limited to one question and one follow-up. [Operator Instructions]. Our first question is coming from Nigel Dally of Morgan Stanley. Please go ahead.

[Nigel Dally, Morgan Stanley]

Great. Thanks. I wanted to start on capital, a number of questions. First, cash flow generation looked very robust this quarter, anything specific to this quarter behind that. Second, your excess capital level looks -- continues to be very strong. What are your plans for putting that to work. It seems like your capital management were recently -- it's been funded through free cash flow, leaving net excess capital buffer unchanged. And then third, any thoughts on perhaps altering the mix of capital management between buybacks and dividends. Thanks.

[Rodney Martin, Chairman and Chief Executive Officer]

Nigel, good morning, I'll let Mike begin.

[Michael Smith, Vice Chairman and Chief Financial Officer]

Thank, Nigel. Good to talk to you this morning and appreciate the questions. So first, in terms of cash flow generation in the quarter, I'd point to several things. Alternative performance was robust. I think that certainly contributed to the absolute level of cash flow generation. There were also some additional trailing cash flow contributions from the two most recent transactions, the sale of the financial planning channel with Cetera as well as the life transaction with Resolution, both of those contributed relatively small but still in the scheme of things meaningful contributions there. And there was a little bit of an effect of us reducing the RBC level from 400 to 375. That was -- while it was done to offset the impact of the new C1 factors, it was the going down in 25% increments let us to have a small benefit there. So that all add it up to a very robust generation of free cash flow that completely offset the repurchases.

We're pleased with that, and point 2 as well, just overall for the year. Well, while any given quarter, it's going to be potentially fluctuate the year was pretty much right at the high end of our range in terms of overall organic capital generation and cash flow conversion. So very -- very pleased we're able to do that. In terms of plans in 2022, I think we laid it out in Investor Day that we expect capital management to continue to be a very important part of our EPS growth. We shared that we thought the leg of the stool -- that leg of the stool, I should say it was 7% to 9% of our growth with the balance coming from revenue growth and margin expansion at 4-6 and 1-2 respectively, adding up to the 12% to 17% EPS growth that we expected. So we'll be operating within that framework over the course of 2022. We'll continue to take the same basic philosophy of being a measured approach, consistent buyers looking to lean in

where opportunities arise and lean back when we think the stock is not where we want to be purchasing and trading high. So -- and then just last on capital mix or capital deployment mix and the question of dividends. That's a question we ask investors regularly and get lots of feedback, and we'll continue to ask that question. And I think the way we think of it is, when you look at the cash flow yield on our stock at over 13% right now. Well, while I think we have a lot of confidence in our ability to generate ongoing cash, and appreciate the point that increasing our dividend from where it is now, which is slightly over 1% yield, would be a great way to signal that. We look at that share price and we just -- it's hard to pass up the opportunity from a shareholder perspective to deploy capital that way. So again, open and not -- we're not opposed in any way to increasing the dividend philosophically. It's just a relative value of question, and we think share repurchases are pretty clearly a really good use of capital for us right now.

[Nigel Dally, Morgan Stanley]

That's great. Thanks, Mike.

[Operator]

Thank you. Our next question is coming from Suneet Kamath of Jefferies. Please go ahead.

[Suneet Kamath, Jefferies]

Thanks. Good morning. Wanted to start on the financial leverage ratio. You guys include AOCI in your calculation and that's -- I'm not sure that most other companies do that. And with LDTI coming, there's clearly a potential for AOCI to swing around. So just wondering if that's a Voya decision to include it, or is that something that the rating agencies have you looking at, or -- and is there any potential change in the way you are calculating this based on some impacts from LDTI? Thanks.

[Rodney Martin, Chairman and Chief Executive Officer]

Suneet

[Michael Smith, Vice Chairman and Chief Financial Officer]

Thank you, Suneet. Yep, and at least in my end you broke up, but I think I heard -- I got the gist. So the -- let's start with just the leverage ratio and how we manage it. We have a target of 30%. We try to aim for something a little bit below that to allow for some volatility in the AOCI. And that -- that's part of the process that we go through. We chose this particular formulation because it's what one of the rating agencies focuses on. Each agency has its own particular approach to leverage ratios. They also they look at a lot of other things. I think the leverage ratio gets a lot of airtime and a lot of attention, but they're also looking at cash coverage, other forms of leverage and so on. So it's just a -- it's a shorthand way for us to show where we are in terms of our debt equity structure. LDTI absolutely will have an impact here. And so we're starting to think about what that might look like. And will we make changes that we are going to have to take our lead to some extent from when -- from the agencies as well.

Because I think it's important that we remain if not exactly identical, at least in sync with how they are thinking about leverage. So a lot to come over the course of the next several quarters. I don't think in the end though it's going to change the level of debt that we carry. We may measure it differently, we may have a different set of metrics around it, but I don't think we're going to have to do any dramatic capital actions. As I mentioned in a prior quarter, at this point, we don't see LDTI having a terribly meaningful impact to our book of business, but it's still early days, we're still doing a lot out of work and not in a position to share that, those numbers today.

[Suneet Kamath, Jefferies]

Got it. And then just switching gears to retirement. Can you talk about any leverage to rising short-term rates? I seem to recall, at some point in the past when rates are rising, you had a floating rate portfolio that had started to kick off some additional investment income, just wondering where we stand with that and if you have any sensitivities that you could provide.

[Rodney Martin, Chairman and Chief Executive Officer]

Mike, you want to start, and perhaps --

[Michael Smith, Vice Chairman and Chief Financial Officer]

Yeah, I'll go with that. Sure. [Indiscernible], your memory is correct. There was a floating rate coil, but that was primarily part of the Financial Planning Channel. So most of that, at least as it relates to Wealth, is gone. We do have some floating rate exposure. It's in the neighborhood of $2 billion in gross assets. So there will be some benefit as rates -- as [Indiscernible] the short-end rates go up. Broadly speaking, our interest rate guidance remains where we've been, which is a 100 basis point increase for a year will generate $20 million to $30 million of additional income, and a decrease would be a $10 million to $20 million drop. A 100 basis point decrease will be a $10 million to $20 million drop. As rates go up, you should think of that lower range, the decline range, that'll start to creep up. And we'll update that as events unfold, but we're probably closer to the high-end than the low-end given where rates have gone over the last month or two. And that's for the whole business, by the way. That's mainly retirement, but that is for the all of Voya.

[Operator]

Thank you. Our next question is coming from Mike Zirinski of Wolfe Research. Please go ahead.

[Mike Zirinski, Wolfe Research]

Hey, great. Good morning. Let me follow up on, Mike, your comments on the uses of capital and the free cash flow yield you cited. You said the 13%, which I thought was a trailing figure when we looked at the deck, and which was propped up by better than expected alternative returns. But just trying to make sure. And if I look conscientious on a forward basis, I think the expectation for things to normalize. So just curious, are you guys -- if there's a read-through saying you think on a forward basis your free cash flow yield could remain around 13%.

[Michael Smith, Vice Chairman and Chief Financial Officer]

Look, I think, yeah. So Mike, thanks for the question. So yeah, the 13 is I think the trailing, but going forward, I still think we're very attractive looking on a free cash flow yield basis. So that will continue to be our -- one of the measures we look at as we're considering the relative mix of capital use. But as I said, that's something we're open to talking with investors about and gathering opinions, and we could potentially adjusted accordingly in the future. That's not a plan at this point, but we're open and nimble and willing to consider different approaches.

[Mike Zirinski, Wolfe Research]

Okay. Understood. And my follow-up would just be any update on the CO search in terms of timing.

[Rodney Martin, Chairman and Chief Executive Officer]

Hi, it's Rod. As we've communicated previously, my employment agreement is through the end of the year. That is when I do intend to retire. We are working through this in a very thoughtful and purposeful way, and I've communicated previously that it is our intention to have no surprises for the investor community as we do this, but we've got lots of runway through the course of this year before that's announced, and that we will keep you all posted.

[Operator]

Thank you. Our next question is coming from Tom Gallagher of Evercore. Please go ahead.

[Tom Gallagher]

Good morning. I think in some of the past calls, you all have been talking more about M&A as a possibility, balancing that against buybacks as -- for use of capital. Just given where your stock is trading, other opportunities that might be in the market. Can you talk about your updated thoughts on M&A, and whether or not that can include a somewhat larger size deals because I think the deals you've announced so far have been have been pretty small.

[Rodney Martin, Chairman and Chief Executive Officer]

Mike, would you like to begin and I'll follow?

[Michael Smith, Vice Chairman and Chief Financial Officer]

Sure, thank you, Tom, for the question. So in short, let's say nothing has really changed in our -- from what we said back in November in terms of our view on M&A. So we think there are potential opportunities that would enable us to accelerate growth particularly in the benefits space as well as we talked about privates and potentially alternatives and the investment management space, things that would enable us to be closer to customers, have better data capabilities. We're also I think open to scale opportunities where those might make sense. So what we did say too was that for smaller deals, the time frame for accretion might be stretched out a bit from our 24-month window, and that's accretive relative to share buyback. So larger deals, we've not nor will we set a limit in terms of what we're thinking other than kind of the practical limits that you all can imagine. But we're open to whatever would make the most sense for shareholders, that's the opportunities set that's in front of us. So I think the stance here is one of how can we continue to drive revenue growth while preserving or increasing margin. And those are the kind of deals that we're going to be looking for.

[Rodney Martin, Chairman and Chief Executive Officer]

The only piece I'd add to what Mike said is, we're laser-focused on the 12% to 17% EPS growth. And all of that, that we presented at Investor Day, is organic. And those levers that Mike talked about earlier on the 4% to 6% contribution from revenue, or the 1% to 2% for margin expansion, or the 7% to 9% from capital management. Those are levers that have always been at our disposal, will continue to be, and we're going to continue to be absolutely focused on enabling that outcome.

[Tom Gallagher]

Got you. Thanks for that, guys. And then just my follow-up is the -- just a question on the elevated pension expense. What I say, I think there was some de -risking that caused that any actual pension contributions that we should be thinking about or now or no funding actually for this because I believe it was mentioned, it was non-cash. And if it is non-cash, and we're going to have higher pension expenses, should we assume your free cash flow conversion ratio actually gets a little better considering that that's going to hit GAAP earnings, but not cash flow?

[Rodney Martin, Chairman and Chief Executive Officer]

Mike, take it.

[Michael Smith, Vice Chairman and Chief Financial Officer]

Tom, thank you. So first correct, that it will not hit cash flow, and so or else equals at the margins. The GAAP earnings will be a little bit lower than they might have been when cash flow is unaffected. So yeah, the math would push you up a bit. I don't know if that is going to be all that discernible given the magnitude of the numbers. But what's happening more broadly here is every year we remark, if you will, the pension plan, that's just an accounting process that we go through where we evaluate the liability, we apply a current rate to it, it's something every company does. And then you may -- you adjust in one-timer adjustment of the liability to reflect current conditions, And then those affects your estimates of pension income to the -- on a GAAP basis, the earnings you get from the funds underlying the pension plan, and the expense. And so what has happened over the last few months is our pension committee, which is independent management by the way, made the decision to shift more of our assets into fixed income in recognition of the fact that we're in a very favorable funding spot.

So we're more fully immunized. There'll be less volatility in the underlying pension assets, which is great, given that we're very well-funded now. And so don't expect to see the kind of volatility that we might have seen in the past. But that also comes with the cost of having lower return expectations. And so that's -- the pension income will be lower this year. The pension expense is basically unchanged, it hasn't changed very much. I think it's a tiny increase. And so the net of those is that it's a smaller benefit because the income is actually on a GAAP basis exceeds the expense. As it relates to contributions, I don't think we've got the numbers that we'd be in a position this year. But any contributions this year, I would expect to be relatively small, and not going to have any meaningful impact to our ability to repurchases, pay dividends, or otherwise.

[Operator]

Thank you. Our next question is coming from Erik Bass of Autonomous Research. Please go ahead.

[Erik Bass, Autonomous Research]

Hi, thank you. Can you provide some more color on the expenses in fourth -- in 4Q, which I believe included some accelerated investments. And then given the upward pressure that we're seeing on wages, how are you thinking about the G&A expense outlook across your businesses in 2022.

[Rodney Martin, Chairman and Chief Executive Officer]

Mike, would you like to begin.

[Michael Smith, Vice Chairman and Chief Financial Officer]

Sure. I'll take a start and then others can join in. So fourth quarter was a couple of things. There was timing that we had signaled on extend like advertising, some IT spend around -- adding some capabilities just happen to be a little bit higher in the fourth quarter, plus a couple of other, not like -- not expected to recur accounting adjustments that were relatively small, but ended up as well. So overall, that drove us to the level of expenses where we're able to say that first quarter, which is normally a seasonally higher quarter, this year, will be about the same as fourth quarter. So -- but the investments are I think we're pleased to have had the chance to accelerate some of those capabilities and we'll go forward from there, it will help with the revenue growth. Overall, the wage conditions, we've made our best estimate that in terms of what we think that's going to -- the effect that it's going to have in '22, that was baked into our targets that we shared at November. I don't think our view has changed meaningfully since then, but it's obviously a pretty rapidly evolving situation.

And so we want to be -- we'll be very mindful of where we are relative to competitors for our most important asset, which is our talent. We're very focused on that. We have regular conversations about it at the most senior levels, so very focused on that. But think it's within our footprint, at least or our ability to manage going forward. I'd also point out and I think other companies have pointed this out too. Wage increases are, broadly speaking, a good thing for the businesses that we are in, particularly in the wealth business, in terms of contributions, as well as in the Group Life business, particularly in terms of benefit amounts and premiums they get paid. So, those things will be generally favorable for us. So the balance of interest, I think, is that some degree of wage inflation is probably a good thing for us, but throughout we'll be focused on the managing and delivering the margins that we've talked about and continuing to grow revenue. And those, I think, are going to be our primary guideposts as we go forward.

[Erik Bass, Autonomous Research]

Thank you. And then in the health business, it looks like the voluntary loss ratio was a bit higher this quarter than where it's been running. Can you just talk about what you're seeing in terms of claims experience and if this is starting to normalize.

[Rodney Martin, Chairman and Chief Executive Officer]

Rob.

[Robert Grubka, Chief Executive Officer, Health Solutions]

Yes. Thank you. I appreciate that, Erik. So I think look, the step back on quarter-to-quarter, there is always a bit of noise depending on the products. It ebbs and flows a little bit with seasonality voluntary. You get a little bit of that in fourth quarter with just enrollment activity and a reminder of I've got these benefits and so you see a little bit of that noise, but I would say that was pretty modest. And really, as you do the step back for the year, we've obviously had really strong growth in the supplemental health voluntary product line, 22% growth year-over-year.

And then in line with that if you look at the underwriting margin for the year it's growing at 23%. So I think we're really in line and feeling good about what we're seeing there. In the underlying dynamics there's no issue that we're concerned about as we move forward, that business has been running well for us. Time will tell, obviously COVID and the dynamics that you're alluding to is, are thing is going to change, is behavior going to change. We'll see those things and we'll react to those things, but as we look at the overall health of the business I'd say we're doing exceedingly well.

[Operator]

Thank you. Our next question is coming from Ryan Krueger of KBW. Please go ahead.

[Ryan Krueger, KBW]

Hi. Good morning. First question is just, can you just remind us what your current expectation is for first-quarter expense, seasonality?

[Rodney Martin, Chairman and Chief Executive Officer]

Mike?

[Michael Smith, Vice Chairman and Chief Financial Officer]

Ryan, the place to lay that would be somewhere around $25 million to $30 million just like it was last year. I think is a good place to start.

[Ryan Krueger, KBW]

Thanks. And then now that the mandates have funded, can you give an updated view of the Investment Management pipeline heading into 2022?

[Rodney Martin, Chairman and Chief Executive Officer]

Happily, Christine?

[Christine Hurtsellers, Chief Executive Officer, Investment Management]

Yeah. Sure thing, Ryan. So yes, we had a very successful quarter as you saw, our largest net inflows that we've had. And just thinking about the quarter in particular, what we think of this larger mandates, call that north of a billion. We had more than one fund. So that certainly contributed. But underneath, lot of diversity. So our private markets continued to advance, client demand remains strong. So when you look out, and we're looking at the pipeline and unfunded wins into '22, we see a lot of diversity there, a lot of strength and we're confident we're going to get into our 2% to 4% organic growth range or target that we put forward on Investor Day. So really excited about it. Again, we've got great products, the demand for differentiated asset classes, plus leveraging, our strong fixed income investment performance continues. So again that feeling good about the year.

[Ryan Krueger, KBW]

Great. Thank you.

[Operator]

Thank you. Our next question is coming from Alex Scott of Goldman Sachs. Please go ahead.

[Alex Scott, Goldman Sachs]

Hey, the first question I had was on Health Solutions. I know you guys gave a lot of guidance there so we have a good amount to work off of, but I just wanted to see if you could comment on the stop loss business and just how you view your competitive positioning there. That's a business that goes through cycles and I was just wondering how you view that market and price adequacy and so forth moving into 2022.

[Rodney Martin, Chairman and Chief Executive Officer]

Rob.

[Robert Grubka, Chief Executive Officer, Health Solutions]

Great, thanks, Alex. So Stop Loss as you alluded to, it goes through cycles. As you do the look back for what we've experienced within our book over the last couple of years, and I would say we were doing very well in this version of the cycle with loss ratios at the lower end of our guide around that 77% to 80%. We are in the 77% neighborhood. And so that's been great and it took a lot of work to get there. A couple years prior, we were working hard to improve underwriting margin in that business. I think as you've seen us operate over the last couple of years, last few years. It's been about striking that right balance of growth and disciplined underwriting. I think that is the story that will continue as we move forward. It's a business where if you lose a handle on the underwriting margin, you obviously can't grow fast enough to recover from that impact that it has on your book of business. And so we'll do what we continue to do, is focus on the right balance there as Mike alluded to, in our growth guidance to 7% to 10% range, we're expect them to be at the lower end of that.

A piece of that will be what we experienced in the renewal and new business cycle for one-on-one. So, on the new business side of things, we came in about where we expected, if not right on top of it. Renewal season was a little bit more challenging, but again, as I alluded to our book of business has been running very well. So we have plenty of competition on trying to retain good running cases. But importantly, knowing when not to chase the market. And that's just going to happen. That's the ebb and flow of that business. And so we'll be in a position to talk a lot more about what we saw, what we experienced once we talk about 1Q. But at this point, we're going to strike the balances as I alluded to, and that we've done over the last few years.

[Alex Scott, Goldman Sachs]

Got it. That was helpful. And then my follow-up question is just on LDTI. I know you're not ready to give impacts, sensitivities, and so forth. But I was wondering if maybe you could just note how much of the existing reserve balance is transitioning to this new accounting. So sort of how much of your existing reserves are [Indiscernible] today that we should think about potentially having an impact here.

[Rodney Martin, Chairman and Chief Executive Officer]

Mike.

[Michael Smith, Vice Chairman and Chief Financial Officer]

Alex, I don't know the number off the top of my head, but that's something we could maybe be prepared for in first quarter as we get along. It's a good question I think just to the point I made earlier though, it's going to be relatively small but it's not zero. There is some legacy -- there are some legacy contracts still around that aren't here, but it's not going to be a meaningful amount for us in my view, but we'll come back to you on that as we give a little more color in the coming quarters.

[Operator]

Thank you. Our next question is coming from Andrew Kligerman of Credit Suisse. Please go ahead.

[Andrew Kligerman, Credit Suisse]

Hey, good morning. Being on the Health Solutions area again, thoughts around the Group Life and disability and the ability to get rate and perhaps how much influence that might have on the 7% to 10% growth that you are looking at.

[Rodney Martin, Chairman and Chief Executive Officer]

Rob.

[Robert Grubka, Chief Executive Officer, Health Solutions]

Yes. Sure. Thanks, Andrew. It's interesting. You tend to think about life and disability as this old stodgy part of the market, and you got to do it. I'd say just a couple of things, and I'll get to your questions. The ability to deliver an integrated experience, the impact, especially post - COVID and during COVID here, as we said, lead management and the dynamics around the complexity of that element of a life disability package and what that means to decision-making and just overall satisfaction with an employer and their provider of coverage. So I would say there's always been just stinginess around rate in that market and what do you going to be willing to pay.

But I would say the decision-making criteria has gotten a bit different. How that plays out is we think about COVID mortality, and the impact and pressure that can have on pricing, how the market's going to calibrate to that, I think it's the story to be written. Obviously, there's an impact as the underwriters are looking at and making decisions about what they think, go-forward experiences in our business just as a reminder, most of the stuff that we do is going to be experienced rated for the most part. And so we're going to see what's gone on and make assessments and make good decisions as we move forward and we'll see what the market will bear, what I would just say is, that element of lead management and how that comes together is an incredibly important part of the decision-making that's

I think only gotten heightened of late. And then what we started to see more that we talked a little bit about on Investor Day is just, what's coming to market is not just life and disability. A lot of times and over 30% of the time closer to 40%, we're seeing business come to market now that's also got supplemental health as part of the conversation in the shopping that they're doing. And so I think the price element starts to maybe get diluted a little bit and hopefully that means there's upward movement as we talked about, Mike just said a second ago, wage inflation and wage growth those are the things that also help the business overall. So it's a little bit more complicated than it used to be, but let me just take a pause there and see if you want me to go deeper.

[Andrew Kligerman, Credit Suisse]

I think you said the book is yet to be written, but is there any movement at all on price.

[Robert Grubka, Chief Executive Officer, Health Solutions]

Well, again, I think it's hard to say at this point in time. And part of why I say that is like, look, we're getting international accounts season as we speak. Have we seen meaningful change in price, I would say the answer to that is no. But it's something that obviously we continue to assess and see where the market settles in. And then you throw in the factor as I was alluding to at the end there. I think there's other bigger elements that are going to drive decision-making, which in theory will allow for some price drift up. But again, I don't want to declare it just yet. I think there's a lot more complications around those decisions than there used to be.

[Andrew Kligerman, Credit Suisse]

Well, that was helpful And then my second question would be for Mike Smith around the earlier comment about capital and I'm just thinking to myself about share repurchases. And Mike, you talked about capital return to shareholders being 7% to 9% of the 12% to 17%. The other backdrop I'm thinking about is organic generation of close to $1 billion again this year, excess capital of 1.5. So I'm looking at $2.5 billion of potential redeployable capital. Last year you bought back over a billion in stock. That would create more than -- probably more than 10% EPS upside as eye ball the number. So the question is, would you be willing to go for a year of over a billion in buybacks or maybe well over a billion in repurchases if there is that opportunity to lean in?

[Michael Smith, Vice Chairman and Chief Financial Officer]

Andrew, thanks for the question. I think part of the reason that we're not giving specific numbers at this point is because we have I think an enormous amount of flexibility. And so I think we're open to whatever opportunities present themselves that make the most sense for shareholders at the time we're giving them. So I'm not going to maybe comment specifically on any given number other than that's going to be our focus, and has been our focus and we will continue to be our focus. Shareholder value.

[Rodney Martin, Chairman and Chief Executive Officer]

And to add just to modestly reinforced that, certainly at Investor Day and on this call we continue to point very clearly to the 12% to 17% EPS growth rate. And as you well pointed out, that is a lever that we can use, that we have used, and we will continue to be very open to using prospectively. So I think as you think about Voya after we completed the de -risking of far simpler company at a very attractive EPS growth rate, we will continue to lever in and exercise those tools fully to -- for shareholder outcome.

[Operator]

Thank you. Ladies and gentlemen, in the interest of time, we are asking the remaining analysts to please limit themselves to one question. Our next question is coming from John Barnidge of Piper Sandler. Please go ahead.

[John Barnidge, Piper Sandler]

Thank you very much. My question, in the Investor Day slides you talked about privates and alternatives, 3% to 4% versus organic from other markets. So you're clearly expecting more growth out of privates and alternatives. Now you're breaking out disclosure around that, around alts and private in fixed income, so thank you. You sit -- currently sit at 30%. Where do you aspirationally assume it grows to with that 2024 target of 5% to 7% per year. Thank you.

[Rodney Martin, Chairman and Chief Executive Officer]

Christine.

[Christine Hurtsellers, Chief Executive Officer, Investment Management]

Well, John, how we think about it as certainly we have forecast based on it is driving significant growth within Investment Management. We do have targets. Are we specifically saying we're going to be X percent of AUM at a certain point? No. And so how we think about it though, and what we see is it is higher margin products, as you said, it's about a third of our assets today. We had a strong quarter in private in 4Q. So again, it's going to contribute to our margin expansion. One of the things that I just love about asset management here at Voya, our unfilled story, is we could have such a good diverse product line, whether it's private asset classes, as you see, as well as public asset classes. So we're focused on ALSA (ph). We're focused on investing strategically in our private capabilities with fund launches that we have in the pipelines already this year, such as the commercial real estate impact fund. So think of the beauty of green or ESG coming to private markets with that. So again, we're investing in it. It's growing, but we have a broad book of business, and so we're really focused on delivering. Also, for clients, I could say have complex means that they're facing every day in this world in which we live, as well as really focusing on driving our operating margin expansion. And so again, when you see that it's going to be based on fundamental growth, clients demand as we go on our journey to continue to deliver for shareholders as well.

[Operator]

Thank you. Our next question is coming from Elise Kausen of Wells Fargo please go ahead.

[Elise Kausen, Wells Fargo]

Thanks. Good morning. My question is, just I was hoping to get some color if you guys have any line of sight into the reduced full-service fee pressure that you guys have guided to?

[Rodney Martin, Chairman and Chief Executive Officer]

Heather, would you like to begin?

[Heather Lavallee, Chief Executive Officer, Wealth Solutions]

Sure, thank you. And good morning, Elise. So a couple of things that I would point to you around the fee pressure and as was noted in the presentation. In the quarter we did see a little bit of movement in the full-service fees that were driven by onetime accounting items that we don't expect to repeat going forward. Though our guidance on fee pressure has remained unchanged since Investor Day. And we talked about it at Investor Day, that we expect our fee pressure to ease down from one basis point per quarter down a half a basis point. And really it's driven by three main fundamentals. Number one is we may -- we are focused on strong pricing discipline our existing book of business. Second is the focus on writing profitable new business. And then deepening our client relationships. And we've got a lot of paths to be able to diversify revenue through growth of managed accounts, and some of the enhancements we've made to our own target-date funds. And at the end of the day, we are very focused on driving the revenue growth of 2% to 4%, while maintaining the operating margins that we've done so since our IPO.

[Operator]

Thank you. Our final question today is coming from Josh Shanker of Bank of America. Please go ahead.

[Joshua Shanker]

This is just an easy one. On the VIII, I'm thinking about the private equity, what has been your long-term view of the return on that asset class, and how does that fester into your modeling for normalized earnings?

[Rodney Martin, Chairman and Chief Executive Officer]

Christine?

[Christine Hurtsellers, Chief Executive Officer, Investment Management]

Well, you maybe --

[Michael Smith, Vice Chairman and Chief Financial Officer]

Maybe I can take that, Rod?

[Christine Hurtsellers, Chief Executive Officer, Investment Management]

Yeah. Go ahead, Mike.

[Michael Smith, Vice Chairman and Chief Financial Officer]

So, thank you. So we assume 9% returns. That's our normalized amount. I think if you look back historically over the last several years, and certainly the [Indiscernible] pushed us meaningfully above that. But even excluding last year 2021, we've been a little above that. But I think 9% is a reasonable assumption going forward, and that's what we've built into our models. And when we say above expectations, that's what we're comparing it to.

[Operator]

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

[Rodney Martin, Chairman and Chief Executive Officer]

Thank you. Our success throughout 2021 reflects the purposeful decisions that we've made as a company, as well as the commitment and dedication of our people. Despite the challenges posed by the pandemic over the past few years, we've remained committed to our plans, to our communities, and to our employees. We've benefited from the diversification and strength of our businesses, and this has benefited all of our stakeholders. Now, as we look forward, we're excited about the opportunities before us as a leading health, wealth, and investment company. Our focus on driving net revenue growth along with our strong free cash flow and increasing margins will enable us to further -- drive further earnings per share growth. We look forward to updating you on our progress. I hope you and your family stay healthy and safe. Thank you, and good day.

[Operator]

Ladies and gentlemen, thank you for your interest and participation in today's Voya Financial conference. You may disconnect your lines and log off the webcast at this time, and enjoy the rest of your day.