Voya Financial Plans Sale Of Annuities Businesses
January 3, 2018 by Jadah Riley
Voya Financial Inc. has announced plans to divest from its Closed Block Variable Annuity (CBVA) division and its entire individual fixed and fixed indexed annuity businesses.
Voya’s planned divestiture follows similar moves by large life insurers, including MetLife and the Hartford. These firms all concluded that the costs and risks associated with providing certain guarantees in a world characterized by lower interest rates and increasing longevity world were too expensive to justify the prospect of modest returns.
A new entity, Venerable Holdings, will acquire Voya’s variable, index and indexed annuity insurance subsidiary, Voya Insurance and Annuity Company (VAIC). Venerable is an investment vehicle collectively owned by a group of investors led by affiliates of Apollo Global Management, Crestview Partners and Reverence Capital Partners.
Voya says the deal will substantially reduce its insurance and market risk while allowing it to focus on its high-performance businesses, including what the firm calls its “capital light” businesses—retirement, investment management and employee benefits companies, which it says yield higher returns.
“Through this transaction, we are further demonstrating our commitment to delivering shareholder value by eliminating the risk associated with the CBVA segment and securing significant value for our annuities business,” said Rodney O. Martin Jr., Voya’s chairman and chief executive officer, in a statement. “Since we became a stand-alone company in 2013, we have focused on growing our capital-light businesses.” He said the transaction accelerates that focus.
“With our increased focus on these core businesses,” he said, “we will be able to work even more closely with our distribution partners and help our customers get ready to retire better. We are also committed to ensuring a seamless transition for our annuity customers, who will continue to benefit from the features of the products.”
Voya will be left with a 9.9 percent stake in Venerable Holdings.
Based on balances from June 30, 2017, the total annuity accounts taken over by Venerable would be valued at approximately $35 billion. The firm will hold the entirety of Voya’s Closed Block Variable Annuity segment. Athene Holding will also participate in the consortium. Voya will sell via reinsurance to Athene its individual fixed and fixed indexed annuity policies, which had approximately $19 billion of account value as of June 30, 2017.
After the transaction closes, Voya will no longer produce non-retirement focused individual annuities.
The agreement is projected to result in $1.1 billion in added value, including $400 million in commissions from Athene for Voya’s fixed and fixed indexed annuity business. Voya is expecting $500 million in liquid capital after restructuring and various other transaction costs have been met, and plans to make additional share repurchases exceeding the original authorization of $1 billion. (Voya intends to repurchase $1 billion of common stock by June 30, 2018.)
Martin added, “we expect to increase Voya’s quarterly operating earnings per share to between $1.10 and $1.20 within 12 months of the transaction closing. To achieve this, we will execute on growth initiatives in retirement, investment management and employee benefits.
“Moreover,” he said, “in addition to our existing cost-savings initiatives, we will undertake further efforts to reduce expenses associated with the businesses involved in this transaction, and in corporate and shared services functions. The cumulative effect of these efforts will be to realize $110 million to $130 million in cost savings in the 12 months following the close of the transaction.”
Voya expects annual free cash flow between $600 million and $700 million after the deal goes through. It says approximately 80% of its operating earnings are anticipated to be generated from its retirement, investment management and employee benefits businesses.
He said that since the end of 2012, the firm has greatly increased its brand awareness, “going from virtually no recognition to becoming one of the most recognized brand names associated with retirement.”
The agreement details state that Voya Investment Management will be the preferred asset management team for Venerable, and will manage $10 billion in assets under management for no less than five years following the transaction. This includes the funds platform associated with variable annuities. The platform represented $22 billion in assets under management as of September 30, 2017, which will continue to be managed by Voya Investment Management.
The transaction is expected to close in the second or third quarter of 2018.
Despite Voya’s divestment from the annuities business, some businesses in the annuities segment will remain active. This includes $6 billion in investment-only products that will be held by Voya.
