VOYA FINANCIAL, INC. 2026 Q2 Earnings Call

Thank you for joining our second quarter earnings conference call. We will begin with prepared remarks by Heather Lavallee, our Chief Executive Officer, and Michael Katz, our Chief Financial Officer. Following their prepared remarks, we will take your questions. Also joining the call are Jay Kaduson, CEO of Workplace Solutions, and Matt Toms, our CEO of Investment Management. As a reminder, materials for today's call are available on our website at investors.voya.com. As noted on slide two of our analyst presentation, some of the comments during today's discussion may contain forward-looking statements and refer to certain non-GAAP financial measures within the meaning of federal securities law. GAAP reconciliations are available in our press release and financial supplement found on our investor relations website. Now, I will turn the call over to Heather.

Thank you, Manie. Good morning. Thank you for joining us today. Let's turn to slide four. Our businesses performed well in the second quarter. Strong underlying results were affected by lower alternative investment performance and by severance costs we incurred to reduce our expense base. For the quarter, we delivered adjusted operating earnings of $1.51 per share, generated approximately $150 million of excess capital, and returned approximately $200 million to shareholders through repurchases and dividends. As Mike will cover in more detail, fundamental performance trends and the immediate payback from these expense actions gives us a clear line of sight to increase earnings and cash generation in the second half. Our performance this quarter highlighted continued execution of our strategic priorities. We delivered strong commercial results in Retirement and Investment Management.

We're stabilizing and growing margins in Employee Benefits. We are expanding wealth management capabilities to drive future revenue growth. Turning to our business results. In Retirement, we generated over $8 billion of defined contribution net inflows in the quarter, supported by continued high client retention and large plan implementations in government and corporate markets. In government markets, where Voya leads the industry, we've added more than $30 billion in assets and approximately one million participants in the past 18 months through organic growth. We're also driving strong full-service growth in key segments with emerging market sales up over 30% year-over-year. We completed the final phase of our OneAmerica integration during the quarter, marking the conclusion of a highly successful acquisition and integration effort that has significantly exceeded the financial goals we set.

We continue to build momentum in Wealth Management with year-over-year revenue growth of approximately 12%. Our Retirement franchise now exceeds 10 million participant accounts, and Wealth Management allows us to deepen those participant relationships and serve customers in a more comprehensive way. Our results this quarter demonstrate Voya's leadership position in the Retirement market. Our business is delivering consistent flows, high client retention, and significant growth in participant accounts. Our presence across markets and expansive distribution footprint provides a durable foundation for sustainable growth. As we further develop our Wealth Management capabilities, we are building a platform that can serve an expanding customer base with the solutions they need for a confident financial future. In Investment Management, we generated positive net flows for both the quarter and the year, supported by client demand across a broad range of investment strategies and distribution channels.

We expanded our product offerings during the quarter, including the launch of two multi-manager collective investment trusts that enhance the private and alternative asset solutions we bring to Retirement plan clients. Our investment performance remains a clear strength, with 83% of assets outperforming peers or benchmarks over three years and 85% outperforming over 10 years. The strong outcomes we deliver for clients are driving continued commercial success and strengthen the role Investment Management plays in Voya's broader Workplace and Wealth Management strategy. In Employee Benefits, we continue to improve and strengthen the business. In stop loss, we have stabilized loss ratios and margins across the entire book while maintaining the strength of our reserves. Early 2026 experience reinforces our confidence that the actions we've taken will continue to drive higher margins and restore the business to its historical earnings power.

Across the portfolio, disciplined pricing, underwriting, and risk selection are improving margins and allowing us to focus on business that meets our return expectations. I'll now turn it over to Mike to walk through the financials in more detail.

Mike? Thank you, Heather. Turning to slide six.

In the quarter, adjusted operating earnings were $140 million, or $1.51 per diluted share. That result includes an approximate $0.90 per share impact from alternative investment performance below expectations, as well as severance actions. The alternative investment impact was driven primarily by macro market conditions affecting our private equity portfolio, which are reported on a one-quarter lag. Year-to-date returns remain positive, and we expect results to improve in the third quarter. On severance, we expect the resulting expense savings to fully offset the upfront costs by year-end. These actions improve efficiency, reduce ongoing expenses, and allow us to invest in long-term growth. While these items affected second quarter EPS, the underlying business trends remain strong. Continued commercial momentum in Retirement and Investment Management, along with improving margins and Employee Benefits, support our confidence in meaningfully higher earnings in the second half.

With that, let me turn to the segment results. Starting with Retirement on slide seven, adjusted operating earnings were $190 million in the quarter. Results were impacted by lower spread income, reflecting alternative investment performance below expectations. Excluding the alternative investment impact, core spread income remained resilient, supported by reinvestment at higher rates. On a trailing 12-month basis, adjusted operating earnings increased 6%. Fee-based revenue increased 10% year-over-year, now representing over 60% of revenue, and margins remained healthy at 38%. Defined contribution net flows were $8.1 billion in the quarter, supported by continued high client retention and large plan implementations in both government and corporate markets. Our platform now serves more than 10 million participant accounts, providing meaningful scale to drive future fee-based revenue growth. Stepping back, robust flows, high client retention, and growth in participant accounts reinforce the strength of our Retirement franchise.

Turning to Investment Management on slide eight. Adjusted operating earnings increased 12% year-over-year to $57 million, driven by higher advisory fees across institutional and retail channels. On a trailing 12-month basis, adjusted operating earnings increased 11%, reflecting both those higher advisory fees as well as disciplined expense management. Net inflows were $1.2 billion in the quarter and now $6.3 billion over the last 12 months. Looking ahead, we continue to see healthy client demand for our differentiated investment capabilities and robust investment performance. At the same time, the second half will include the wind down of a legacy relationship, which will modestly offset momentum in actively distributed products. Importantly, the revenue impacts from this are expected to be immaterial in 2026. Overall, Investment Management delivered solid earnings growth supported by positive flows, healthy client demand, and strong investment performance. Turning to Employee Benefits on slide nine.

Adjusted operating earnings were $22 million in the quarter and $122 million over the last 12 months. In the quarter, we released $8 million of reserves in stop loss while continuing to hold reserves at the high end of our best estimate range. Early claims experience on 2026 business is encouraging and is emerging favorably relative to both 2024 and 2025 business. We also continue to see favorable underwriting conditions as we complete the non-January 2026 selling season and begin pricing for January 2027. In Group Life, results continued to benefit from favorable mortality consistent with broader industry trends. This helped to offset higher voluntary loss ratios in the quarter, which were elevated in part due to non-recurring items.

For voluntary, while one-time items contributed to higher loss ratios in the quarter, the broader trend remains consistent with our expectations as expense actions are supporting our plan to maintain net margins. Stepping back, the underlying fundamentals across the portfolio remain strong, highlighted by the five-point improvement in aggregate loss ratios over the last 12 months. Our disciplined approach to risk selection, pricing, and expense management reinforces our ability to deliver further margin expansion and earnings growth in Employee Benefits. Turning to slide 10. We generated approximately $150 million of excess capital in the second quarter and $350 million year to date, with cash conversion above 100% in the quarter. We remain on track for 2026 cash generation to exceed 2025 levels, supported by strong cash conversion, the second half earnings outlook, and the expense actions we've discussed.

On capital deployment, we repurchased $150 million of shares in the second quarter and $300 million year to date. We ended the quarter with approximately $200 million of excess capital, preserving flexibility while continuing to return capital to shareholders. For the third quarter, we expect to deploy at least $100 million towards share repurchases, and the second half cash generation outlook gives us flexibility to deploy additional capital in the fourth. Return on equity was impacted by alternative investment and severance items, which is why we are explicitly calling them out rather than leaving investors to reconcile the effect on their own.