Document


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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
——————————————————————
FORM 10-Q
(Mark One)
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                           to                           

Commission File Number: 001-35897______________________________________

Voya Financial, Inc.
(Exact name of registrant as specified in its charter)
Delaware
52-1222820
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
230 Park Avenue
 
New York, New York
10169
(Address of principal executive offices)
(Zip Code)
(212) 309-8200

(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.        Yes   x     No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes   x     No   o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer    ý
Accelerated filer    o
Non-accelerated filer     o
Smaller reporting company     o
(Do not check if a smaller reporting company)
Emerging growth company     o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No ý

APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of April 27, 2018, 168,814,615 shares of Common Stock, $0.01 par value, were outstanding.
 

 
1
 


Voya Financial, Inc.
Form 10-Q for the period ended March 31, 2018

INDEX
 
 
PAGE
PART I.
FINANCIAL INFORMATION (UNAUDITED)
 
 
 
 
Item 1.
Financial Statements:
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
 
 
 
Item 2.
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
 
 
 
Item 6.
Exhibits
 
 
 
 
 
 
 
 


 
2
 


For the purposes of the discussion in this Quarterly Report on Form 10-Q, the term Voya Financial, Inc. refers to Voya Financial, Inc. and the terms "Company," "we," "our," and "us" refer to Voya Financial, Inc. and its subsidiaries.

NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including "Risk Factors," and "Management’s Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements relating to future developments in our business or expectations for our future financial performance and any statement not involving a historical fact. Forward-looking statements use words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. Actual results, performance or events may differ materially from those projected in any forward-looking statement due to, among other things, (i) general economic conditions, particularly economic conditions in our core markets, (ii) performance of financial markets, including emerging markets, (iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels, (v) persistency and lapse levels, (vi) interest rates, (vii) currency exchange rates, (viii) general competitive factors, (ix) changes in laws and regulations, (x) changes in the policies of governments and/or regulatory authorities, and (xi) our ability to successfully complete the Transaction (as defined below) on the expected economic terms or at all. Factors that may cause actual results to differ from those in any forward-looking statement also include those described under "Risk Factors," "Management’s Discussion and Analysis of Financial Condition and Results of Operations-Trends and Uncertainties" and "Business-Closed Blocks-CBVA" in the Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 001-35897) (the "Annual Report on Form 10-K").
The risks included here are not exhaustive. Current reports on Form 8-K and other documents filed with the Securities and Exchange Commission ("SEC") include additional factors that could affect our businesses and financial performance. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.



 
3
 


PART I.        FINANCIAL INFORMATION

Item 1.        Financial Statements
Voya Financial, Inc.
Condensed Consolidated Balance Sheets
March 31, 2018 (Unaudited) and December 31, 2017
(In millions, except share and per share data)
 
March 31,
2018
 
December 31,
2017
Assets:
 
 
 
Investments:
 
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost of $44,718 as of 2018 and $44,366 as of 2017)
$
47,274

 
$
48,329

Fixed maturities, at fair value using the fair value option
2,903

 
3,018

Equity securities, at fair value (cost of $349 as of 2018 and $353 as of 2017)
382

 
380

Short-term investments
193

 
471

Mortgage loans on real estate, net of valuation allowance of $2 as of 2018 and $3 as of 2017
8,837

 
8,686

Policy loans
1,863

 
1,888

Limited partnerships/corporations
820

 
784

Derivatives
390

 
397

Other investments
77

 
47

Securities pledged (amortized cost of $1,724 as of 2018 and $1,823 as of 2017)
1,869

 
2,087

Total investments
64,608

 
66,087

Cash and cash equivalents
1,411

 
1,218

Short-term investments under securities loan agreements, including collateral delivered
1,479

 
1,626

Accrued investment income
691

 
667

Premium receivable and reinsurance recoverable
7,601

 
7,632

Deferred policy acquisition costs and Value of business acquired
3,769

 
3,374

Current income taxes
28

 
4

Deferred income taxes
1,022

 
781

Other assets
1,360

 
1,310

Assets related to consolidated investment entities:
 
 
 
Limited partnerships/corporations, at fair value
1,796

 
1,795

Cash and cash equivalents
186

 
217

Corporate loans, at fair value using the fair value option
769

 
1,089

Other assets
75

 
75

Assets held in separate accounts
77,949

 
77,605

Assets held for sale
57,080

 
59,052

Total assets
$
219,824

 
$
222,532





The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
4
 

Voya Financial, Inc.
Condensed Consolidated Balance Sheets
March 31, 2018 (Unaudited) and December 31, 2017
(In millions, except share and per share data)

 
March 31,
2018
 
December 31,
2017
Liabilities and Shareholders' Equity:
 
 
 
Future policy benefits
$
15,379

 
$
15,647

Contract owner account balances
50,353

 
50,158

Payables under securities loan agreement, including collateral held
1,719

 
1,866

Short-term debt
—

 
337

Long-term debt
3,458

 
3,123

Derivatives
168

 
149

Pension and other postretirement provisions
540

 
550

Other liabilities
2,044

 
2,076

Liabilities related to consolidated investment entities:
 
 
 
Collateralized loan obligations notes, at fair value using the fair value option
679

 
1,047

Other liabilities
668

 
658

Liabilities related to separate accounts
77,949

 
77,605

Liabilities held for sale
56,458

 
58,277

Total liabilities
209,415

 
211,493

 
 
 
 
Commitments and Contingencies (Note 13)


 


 
 
 
 
Shareholders' equity:
 
 
 
Common stock ($0.01 par value per share; 900,000,000 shares authorized; 271,775,835 and 270,078,294 shares issued as of 2018 and 2017, respectively; 171,555,213 and 171,982,673 shares outstanding as of 2018 and 2017, respectively)
3

 
3

Treasury stock (at cost; 100,220,622 and 98,095,621 shares as of 2018 and 2017, respectively)
(3,936
)
 
(3,827
)
Additional paid-in capital
23,961

 
23,821

Accumulated other comprehensive income (loss)
1,511

 
2,731

Retained earnings (deficit):
 
 
 
Appropriated-consolidated investment entities
—

 
—

Unappropriated
(12,161
)
 
(12,719
)
Total Voya Financial, Inc. shareholders' equity
9,378

 
10,009

Noncontrolling interest
1,031

 
1,030

Total shareholders' equity
10,409

 
11,039

Total liabilities and shareholders' equity
$
219,824

 
$
222,532


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
5
 

Voya Financial, Inc.
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2018 and 2017 (Unaudited)
(In millions, except per share data)
 
Three Months Ended March 31,
 
2018
 
2017
Revenues:
 
 
 
Net investment income
$
823

 
$
843

Fee income
676

 
637

Premiums
539

 
547

Net realized capital gains (losses):
 
 
 
Total other-than-temporary impairments
(14
)
 
(1
)
Less: Portion of other-than-temporary impairments recognized in Other comprehensive income (loss)
—

 
1

Net other-than-temporary impairments recognized in earnings
(14
)
 
(2
)
Other net realized capital gains (losses)
(167
)
 
(84
)
Total net realized capital gains (losses)
(181
)
 
(86
)
Other revenue
99

 
89

Income (loss) related to consolidated investment entities:
 
 
 
Net investment income
11

 
27

Total revenues
1,967

 
2,057

Benefits and expenses:
 
 
 
Policyholder benefits
708

 
750

Interest credited to contract owner account balances
382

 
399

Operating expenses
700

 
668

Net amortization of Deferred policy acquisition costs and Value of business acquired
100

 
64

Interest expense
49

 
46

Operating expenses related to consolidated investment entities:
 
 
 
Interest expense
6

 
17

Other expense
1

 
—

Total benefits and expenses
1,946

 
1,944

Income (loss) from continuing operations before income taxes
21

 
113

Income tax expense (benefit)
4

 
93

Income (loss) from continuing operations
17

 
20

Income (loss) from discontinued operations, net of tax
429

 
(162
)
Net income (loss)
446

 
(142
)
Less: Net income (loss) attributable to noncontrolling interest
—

 
1

Net income (loss) available to Voya Financial, Inc.'s common shareholders
$
446

 
$
(143
)
 
 
 
 
Net income (loss) per common share:
 
 
 
Basic
 
 
 
Income (loss) from continuing operations available to Voya Financial, Inc.'s common shareholders
$
0.10

 
$
0.10

Income (loss) available to Voya Financial, Inc.'s common shareholders
$
2.59

 
$
(0.75
)
 
 
 
 
Diluted
 
 
 
Income (loss) from continuing operations available to Voya Financial, Inc.'s common shareholders
$
0.10

 
$
0.10

Income (loss) available to Voya Financial, Inc.'s common shareholders
$
2.50

 
$
(0.74
)
 
 
 
 
Cash dividends declared per share of common stock
$
0.01

 
$
0.01


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
6
 

Voya Financial, Inc.
Condensed Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 2018 and 2017 (Unaudited)
(In millions)

 
Three Months Ended March 31,
 
2018
 
2017
Net income (loss)
$
446

 
$
(142
)
Other comprehensive income (loss), before tax:
 
 
 
Unrealized gains (losses) on securities
(1,523
)
 
285

Other-than-temporary impairments
20

 
11

Pension and other postretirement benefits liability
(3
)
 
(3
)
Other comprehensive income (loss), before tax
(1,506
)
 
293

Income tax expense (benefit) related to items of other comprehensive income (loss)
(314
)
 
102

Other comprehensive income (loss), after tax
(1,192
)
 
191

Comprehensive income (loss)
(746
)
 
49

Less: Comprehensive income (loss) attributable to noncontrolling interest
—

 
1

Comprehensive income (loss) attributable to Voya Financial, Inc.'s common shareholders
$
(746
)
 
$
48


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
7
 

Voya Financial, Inc.
 Condensed Consolidated Statements of Changes in Shareholders' Equity
For the Three Months Ended March 31, 2018 (Unaudited)
(In millions)
 
Common
Stock
 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings (Deficit)
 
Total
Voya
Financial, Inc.
Shareholders'
Equity
 
Noncontrolling
Interest
 
Total
Shareholders'
Equity
 
Appropriated
 
Unappropriated
Balance as of January 1, 2018
$
3

 
$
(3,827
)
 
$
23,821

 
$
2,731

 
$
—

 
$
(12,719
)
 
$
10,009

 
$
1,030

 
$
11,039

Cumulative effect of changes in accounting:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Adjustment for adoption of ASU 2014-09
—

 
—

 
—

 
—

 
—

 
84

 
84

 
—

 
84

  Adjustment for adoption of ASU 2016-01
—

 
—

 
—

 
(28
)
 
—

 
28

 
—

 
—

 
—

Balance as of January 1, 2018 - As adjusted
3

 
(3,827
)
 
23,821

 
2,703

 
—

 
(12,607
)
 
10,093

 
1,030

 
11,123

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
—

 
—

 
—

 
—

 
—

 
446

 
446

 
—

 
446

Other comprehensive income (loss), after tax
—

 
—

 
—

 
(1,192
)
 
—

 
—

 
(1,192
)
 
—

 
(1,192
)
Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
(746
)
 
—

 
(746
)
Common stock issuance
—

 
—

 
2

 
—

 
—

 
—

 
2

 
—

 
2

Common stock acquired - Share repurchase
—

 
(100
)
 
100

 
—

 
—

 
—

 
—

 
—

 
—

Dividends on common stock
—

 
—

 
(2
)
 
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Share-based compensation
—

 
(9
)
 
40

 
—

 
—

 
—

 
31

 
—

 
31

Contributions from (Distributions to) noncontrolling interest, net
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1

 
1

Balance as of March 31, 2018
$
3

 
$
(3,936
)
 
$
23,961

 
$
1,511

 
$
—

 
$
(12,161
)
 
$
9,378

 
$
1,031


$
10,409



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
8
 

Voya Financial, Inc.
 Condensed Consolidated Statements of Changes in Shareholders' Equity
For the Three Months Ended March 31, 2017 (Unaudited)
(In millions)
 
Common
Stock
 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings (Deficit)
 
Total
Voya
Financial, Inc.
Shareholders'
Equity
 
Noncontrolling
Interest
 
Total
Shareholders'
Equity
Appropriated
 
Unappropriated
Balance as of January 1, 2017 - As previously filed
$
3

 
$
(2,796
)
 
$
23,609

 
$
1,921

 
$
—

 
$
(9,742
)
 
$
12,995

 
$
973

 
$
13,968

Cumulative effect of changes in accounting:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Adjustment for adoption of ASU 2016-09
—

 
—

 
—

 
—

 
—

 
15

 
15

 
—

 
15

Balance as of January 1, 2017 - As adjusted
3

 
(2,796
)
 
23,609

 
1,921

 
—

 
(9,727
)
 
13,010

 
973

 
13,983

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
—

 
—

 
—

 
—

 
—

 
(143
)
 
(143
)
 
1

 
(142
)
Other comprehensive income (loss), after tax
—

 
—

 
—

 
191

 
—

 
—

 
191

 
—

 
191

Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
48

 
1

 
49

Common stock issuance
—

 
—

 
1

 
—

 
—

 
—

 
1

 
—

 
1

Common stock acquired - Share repurchase
—

 
(247
)
 
50

 
—

 
—

 
—

 
(197
)
 
—

 
(197
)
Dividends on common stock
—

 
—

 
(2
)
 
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Share-based compensation
—

 
(7
)
 
39

 
—

 
—

 
—

 
32

 
—

 
32

Contributions from (Distributions to) noncontrolling interest, net
—

 
—

 
—

 
—

 
—

 
—

 
—

 
13

 
13

Balance as of March 31, 2017
$
3

 
$
(3,050
)
 
$
23,697

 
$
2,112

 
$
—

 
$
(9,870
)
 
$
12,892

 
$
987

 
$
13,879


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
9
 

Voya Financial, Inc.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2018 and 2017 (Unaudited)
(In millions)
 
Three Months Ended March 31,
 
2018
 
2017
Cash Flows from Operating Activities:
 
 
 
Net cash provided by (used in) operating activities - continuing operations
$
38

 
$
(208
)
Net cash provided by operating activities - discontinued operations
363

 
159

Net cash provided by (used in) operating activities
$
401

 
$
(49
)
Cash Flows from Investing Activities:
 
 
 
Proceeds from the sale, maturity, disposal or redemption of:
 
 
 
Fixed maturities
2,077

 
2,303

Equity securities
6

 
11

Mortgage loans on real estate
241

 
300

Limited partnerships/corporations
30

 
42

Acquisition of:
 
 
 
Fixed maturities
(2,254
)
 
(1,933
)
Equity securities
(12
)
 
(20
)
Mortgage loans on real estate
(391
)
 
(845
)
Limited partnerships/corporations
(54
)
 
(88
)
Short-term investments, net
278

 
(40
)
Derivatives, net
17

 
186

Sales from consolidated investment entities
88

 
613

Purchases within consolidated investment entities
(138
)
 
(384
)
Collateral (delivered) received, net
—

 
(135
)
Other, net
(17
)
 
20

Net cash provided by investing activities - discontinued operations
365

 
161

Net cash provided by investing activities
236

 
191

Cash Flows from Financing Activities:
 
 
 
Deposits received for investment contracts
1,415

 
1,192

Maturities and withdrawals from investment contracts
(1,360
)
 
(1,311
)
Proceeds from issuance of debt with maturities of more than three months
350

 
—

Repayment of debt with maturities of more than three months
(350
)
 
(91
)
Debt issuance costs
(6
)
 
—

Borrowings of consolidated investment entities
62

 
—

Contributions from (distributions to) participants in consolidated investment entities, net
(19
)
 
(130
)
Proceeds from issuance of common stock, net
2

 
1

Share-based compensation
(9
)
 
(7
)
Common stock acquired - Share repurchase
—

 
(190
)
Dividends paid
(2
)
 
(2
)
Net cash used in financing activities - discontinued operations
(480
)
 
(217
)
Net cash used in financing activities
(397
)
 
(755
)
Net increase (decrease) in cash and cash equivalents
240

 
(613
)
Cash and cash equivalents, beginning of period
1,716

 
2,911

Cash and cash equivalents, end of period
1,956

 
2,298

Less: Cash and cash equivalents of discontinued operations, end of period
545

 
932

Cash and cash equivalents of continuing operations, end of period
$
1,411

 
$
1,366


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
10
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 


1.    Business, Basis of Presentation and Significant Accounting Policies

Business    

Voya Financial, Inc. and its subsidiaries (collectively the "Company") is a financial services organization in the United States that offers a broad range of retirement services, annuities, investment management services, mutual funds, life insurance, group insurance and supplemental health products.

On December 20, 2017, the Company entered into a Master Transaction Agreement ("MTA") with VA Capital Company LLC ("VA Capital") and Athene Holding Ltd ("Athene"), pursuant to which Venerable Holdings, Inc. ("Venerable"), a wholly owned subsidiary of VA Capital, will acquire two of the Company's subsidiaries, Voya Insurance and Annuity Company ("VIAC") and Directed Services, LLC ("DSL"). This transaction is expected to close during the second or third quarter of 2018 and will result in the disposition of substantially all of the Company's Closed Block Variable Annuity ("CBVA") and Annuities businesses (collectively, the "Transaction"). The assets and liabilities related to the businesses to be sold have been classified as held for sale in the accompanying Condensed Consolidated Balance Sheets and as discontinued operations in the accompanying Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows and are reported separately for all periods presented. See the Business Held for Sale and Discontinued Operations Note to these Condensed Consolidated Financial Statements.

Pursuant to the Transaction, the Company no longer considers its CBVA and Annuities businesses as reportable segments. Additionally, the Company evaluated its segment presentation and determined that the retained CBVA and Annuities policies that are not included in the disposed businesses described above ("Retained Business") are insignificant. As such, the Company reported the results of the Retained Business in Corporate.

The Company provides its principal products and services through four segments: Retirement, Investment Management, Employee Benefits and Individual Life. In addition, the Company includes in Corporate the financial data not directly related to its segments, and other business activities that do not have an ongoing meaningful impact to the Company's results. See the Segments Note to these Condensed Consolidated Financial Statements.

Prior to May 2013, the Company was an indirect, wholly-owned subsidiary of ING Groep N.V. ("ING Group" or "ING"), a global financial services holding company based in The Netherlands. In May 2013, Voya Financial Inc. completed its initial public offering of common stock, including the issuance and sale of common stock by Voya Financial, Inc. and the sale of shares of common stock owned indirectly by ING Group. Between October 2013 and March 2015, ING Group completed the sale of its remaining shares of common stock of Voya Financial, Inc. in a series of registered public offerings.

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and are unaudited. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates.

The Condensed Consolidated Financial Statements include the accounts of Voya Financial, Inc. and its subsidiaries, as well as partnerships (voting interest entities ("VOEs")) in which the Company has control and variable interest entities ("VIEs") for which the Company is the primary beneficiary. See the Consolidated Investment Entities Note to these Condensed Consolidated Financial Statements. Intercompany transactions and balances have been eliminated.

The accompanying Condensed Consolidated Financial Statements reflect adjustments (including normal, recurring adjustments) necessary to present fairly the financial position of the Company as of March 31, 2018, and its results of operations, comprehensive income, changes in shareholders' equity and statements of cash flows for the three months ended March 31, 2018 and 2017, in conformity with U.S. GAAP. Interim results are not necessarily indicative of full year performance. The December 31, 2017

 
11
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Consolidated Balance Sheet is from the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K, filed with the SEC. Therefore, these unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company's Annual Report on Form 10-K.

Significant Accounting Policies

Investments

Effective January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2016-01 "Financial Instruments-Overall (ASC Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01") (See the Adoption of New Pronouncements section below). As a result, the Company measures its equity securities at fair value and recognizes any changes in fair value in net income. Prior to adoption, equity securities were designated as available-for-sale and reported at fair value with unrealized capital gains (losses) recorded in Accumulated other comprehensive income (loss) ("AOCI").

Recognition of Revenue

As of January 1, 2018, the Company changed its method for recognizing costs to obtain and fulfill certain financial services contracts upon the adoption of ASU 2014-09, "Revenue from Contracts with Customers (ASC Topic 606)" ("ASU 2014-09"). (See the Adoption of New Pronouncements section below.)

Financial services revenue is disaggregated by type of service in the following table. Such revenue represents approximately 29.2% of total Retirement revenue, all of Investment Management revenue, and all of Corporate revenue. Such revenue is immaterial for Employee Benefits and Individual Life. For the three months ended March 31, 2018, a portion of the revenue recognized in the current period from distribution services is related to performance obligations satisfied in previous periods.
 
Three Months Ended March 31, 2018
 
Reportable Segments
 
 
 
Retirement
 
Investment Management
 
Corporate
Service Line
 
 
 
 
 
Advisory
$
55

 
$
141

 
$
—

Asset management
—

 
41

 
—

Recordkeeping & administration
62

 
43

 
2

Distribution & shareholder servicing
74

 
44

 
30

Total financial services revenue
$
191

 
$
269

 
$
32


Receivables of $211 are included in Other assets on the Condensed Consolidated Balance Sheets as of March 31, 2018.

Financial Services Revenue
Revenue for various financial services is measured based on consideration specified in a contract with a customer and excludes any amounts collected on behalf of third parties. For advisory, asset management, and recordkeeping and administration services, the Company recognizes revenue as services are provided, generally over time. In addition, the Company may arrange for sub-advisory services for a customer under certain contracts. Revenue is recognized when the Company has satisfied a performance obligation by transferring control of a service to a customer. Contract terms are typically less than one year, and consideration is generally variable and due as services are rendered.

For distribution and shareholder servicing revenue, the Company provides distribution services at a point in time and shareholder services over time. Such revenue is recognized when the Company has satisfied a performance obligation and related consideration is received. Contract terms are less than one year, and consideration is variable. For distribution services, revenue may be recognized in periods subsequent to when the Company has satisfied a performance obligation, as a component of related consideration is constrained under certain contracts.

 
12
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 


For a description of principal activities by reportable segment from which the Company generates revenue, see the Segments Note in Part II, Item 8. of the Company's Annual Report on Form 10-K for further information.

Revenue for various financial services is recorded in Fee income or Other revenue in the Condensed Consolidated Statements of Operations.

Contract Costs
Contract cost assets represent costs incurred to obtain or fulfill a contract that are expected to be recovered and, thus, have been capitalized and are subject to amortization. Capitalized contract costs include incremental costs of obtaining a contract and fulfillment costs that relate directly to a contract and generate or enhance resources of the Company that are used to satisfy performance obligations.

The Company defers (1) incremental commissions and variable compensation paid to the Company's direct sales force, consultant channel, and intermediary partners, as a result of obtaining certain financial services contracts and (2) account set-up expenses on certain recordkeeping contracts. The Company expenses as incurred deferrable contract costs for which the amortization period would be one year or less (based on the U.S. GAAP practical expedient) and other contract-related costs. The Company periodically reviews contract cost assets for impairment. Capitalized contract costs are included in Other assets on the Condensed Consolidated Balance Sheets, and costs expensed as incurred are included in Operating expenses in the Condensed Consolidated Statements of Operations.

As of March 31, 2018, contract cost assets were $106. Capitalized contract costs are amortized on a straight-line basis over the estimated lives of the contracts, which typically range from 5 to 15 years. This method is consistent with the transfer of services to which the assets relate. For the three months ended March 31, 2018, amortization expense of $6 was recorded in Operating expenses in the Condensed Consolidated Statements of Operations. There was no impairment loss in relation to the contract costs capitalized.

Adoption of New Pronouncements

Retirement Benefits
In March 2017, the FASB issued ASU 2017-07, "Compensation-Retirement Benefits (ASC Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" ("ASU 2017-07"), which requires employers to report the service cost component of net periodic pension cost and net periodic postretirement benefit cost in the same line item as other compensation costs arising from services rendered by employees during the period. Other components of net benefit costs are required to be presented in the statement of operations separately from service costs. In addition, only service costs are eligible for capitalization in assets, when applicable.

The provisions of ASU 2017-07 were adopted by the Company on January 1, 2018 retrospectively for the presentation of service costs and other components in the statement of operations, and prospectively for the capitalization of service costs in assets. The adoption had no effect on the Company's financial condition, results of operations, or cash flows.

Derecognition of Nonfinancial Assets
In February 2017, the FASB issued ASU 2017-05, "Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (ASC Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance & Accounting for Partial Sales of Nonfinancial Assets" ("ASU 2017-05"), which requires entities to apply certain recognition and measurement principles in ASU 2014-09, "Revenue from Contracts with Customers (ASC Topic 606)" (see Revenue from Contracts with Customers below) when they derecognize nonfinancial assets and in substance nonfinancial assets through sale or transfer, and the counterparty is not a customer.

The provisions of ASU 2017-05 were adopted on January 1, 2018 using the modified retrospective approach. The adoption had no effect on the Company's financial condition, results of operations, or cash flows.


 
13
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (ASC Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), which addresses diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on eight specific cash flow issues.

The provisions of ASU 2016-15 were adopted retrospectively on January 1, 2018 and resulted in the reclassification of the Company's cash payments for debt extinguishment costs from Cash Flows from Operating Activities to Cash Flows from Financing Activities in the Condensed Consolidated Statements of Cash Flows of $3 and $1 for the three months ended March 31, 2018 and 2017, respectively. The adoption of the remaining provisions of ASU 2016-05 had no effect on the Company's financial condition, results of operations, or cash flows.

Share-Based Compensation
In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation (ASC Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), which simplifies the accounting for share-based payment award transactions with respect to:

•
The income tax consequences of awards,
•
The impact of forfeitures on the recognition of expense for awards,
•
Classification of awards as either equity or liabilities, and
•
Classification on the statement of cash flows.

The provisions of ASU 2016-09 were adopted by the Company on January 1, 2017 using the transition method prescribed for each applicable provision:

•
On a prospective basis, all excess tax benefits and tax deficiencies related to share-based compensation will be reported in Net income (loss), rather than Additional paid-in capital.  Prior year excess tax benefits will remain in Additional paid-in capital. 
•
The provision that removed the requirement to delay recognition of excess tax benefits until they reduce taxes payable was required to be adopted on a modified retrospective basis. Upon adoption, this provision resulted in a $15 increase in Deferred income tax assets with a corresponding increase to Retained earnings on the Condensed Consolidated Balance Sheet as of January 1, 2017, to record previously unrecognized excess tax benefits.
•
The Company elected to retrospectively adopt the requirement to present cash inflows related to excess tax benefits as operating activities. For the three months ended March 31, 2017, the Company had no excess tax benefits. 
•
The Company also elected to continue its existing accounting policy of including estimated forfeitures in the calculation of share-based compensation expense.

The adoption of the remaining provisions of ASU 2016-09 had no effect on the Company's financial condition, results of operations, or cash flows.

Financial Instruments - Recognition and Measurement
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall (ASC Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"), which requires:

•
Equity investments (except those consolidated or accounted for under the equity method) to be measured at fair value with changes in fair value recognized in net income.
•
Elimination of the disclosure of methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost.
•
The use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
•
Separate presentation in other comprehensive income of the portion of the total change in fair value of a liability resulting from a change in own credit risk if the liability is measured at fair value under the fair value option.
•
Separate presentation on the balance sheet or financial statement notes of financial assets and financial liabilities by measurement category and form of financial asset.


 
14
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

The Company adopted the provisions of ASU 2016-01 on January 1, 2018 using a modified retrospective approach, except for certain provisions that are required to be applied prospectively. The impact to the January 1, 2018 Condensed Consolidated Balance Sheet was a $28 increase, net of tax, to Unappropriated retained earnings with a corresponding decrease of $28, net of tax, to Accumulated other comprehensive income to recognize the unrealized gain associated with Equity securities. The provisions that required prospective adoption had no effect on the Company's financial condition, results of operations, or cash flows. Under previous guidance, prior to January 1, 2018, Equity securities were classified as available for sale with changes in fair value recognized in Other comprehensive income.

Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognized when, or as, the entity satisfies a performance obligation under the contract. ASU 2014-09 also updated the accounting for certain costs associated with obtaining and fulfilling contracts with customers and requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In addition, the FASB issued various amendments during 2016 to clarify the provisions and implementation guidance of ASU 2014-09. Revenue recognition for insurance contracts and financial instruments is explicitly scoped out of the guidance.

The Company adopted the provisions of ASU 2014-09 on January 1, 2018, using the modified retrospective approach. The adoption had no impact on revenue recognition. However, the adoption resulted in a $106 increase in Other assets to capitalize costs to obtain and fulfill certain financial services contracts in the Retirement segment and Corporate. This adjustment was offset by a related $22 decrease in Deferred income taxes, resulting in a net $84 increase to Retained earnings (deficit) on the Condensed Consolidated Balance Sheet as of January 1, 2018. In addition, disclosures have been updated to reflect accounting policy changes made as a result of the implementation of ASU 2014-09. (See the Significant Accounting Policies section above.)

Comparative information has not been adjusted and continues to be reported under previous revenue recognition guidance. The following tables summarize the impacts of adopting the provisions of ASU 2014-09 for the three months ended March 31, 2018. For the three months ended March 31, 2018, adopting the provisions of ASU 2014-09 had no impact on Net cash provided by operating activities.
Condensed Consolidated Balance Sheet
March 31, 2018
 
As reported
 
Adjustments
 
Balance without adoption of ASU 2014-09
Assets:
 
 
 
 
 
Deferred income taxes
$
1,022

 
$
22

 
$
1,044

Other assets
1,360

 
(106
)
 
1,254

Total assets
$
219,824

 
$
(84
)
 
$
219,740

 
 
 
 
 
 
Liabilities and Shareholders' Equity:
 
 
 
 
 
Retained earnings (deficit):
 
 
 
 
 
Unappropriated
$
(12,161
)
 
$
(84
)
 
$
(12,245
)
Total shareholders' equity
$
10,409

 
$
(84
)
 
$
10,325

Total liabilities and shareholders' equity
$
219,824

 
$
(84
)
 
$
219,740



 
15
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Condensed Consolidated Statement of Operations
For the Three Months Ended March 31, 2018
 
As reported
 
Adjustments*
 
Balance without adoption of ASU 2014-09
Benefits and expenses:
 
 
 
 
 
Operating expenses
$
700

 
$
—

 
$
700

Total benefits and expenses
1,946

 
—

 
1,946

Income (loss) from continuing operations before income taxes
21

 
—

 
21

Income tax expense (benefit)
4

 
—

 
4

Income (loss) from continuing operations
17

 
—

 
17

Net income (loss)
446

 
—

 
446

Net income (loss) available to Voya Financial, Inc.'s common shareholders
$
446

 
$
—

 
$
446

*The impact to the Condensed Consolidated Statement of Operations for the three months ended March 31, 2018 was less than $1.
 
 
 
 
 
 
Future Adoption of Accounting Pronouncements
Reclassification of Certain Tax Effects
In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (ASC Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted Tax Cuts and Jobs Act of 2017 ("Tax Reform"). Stranded tax effects arise because U.S. GAAP requires that the impact of a change in tax laws or rates on deferred tax liabilities and assets be reported in net income, even if related to items recognized within accumulated other comprehensive income. The amount of the reclassification would be based on the difference between the historical corporate income tax rate and the newly enacted 21% corporate income tax rate, applied to deferred tax liabilities and assets reported within accumulated other comprehensive income.

The provisions of ASU 2018-02 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. Initial adoption of ASU 2018-02 may be reported either in the period of adoption or on a retrospective basis in each period in which the effect of the change in the U.S. federal corporate income tax rate resulting from Tax Reform is recognized. The Company is currently evaluating the provisions of ASU 2018-02.

Derivatives & Hedging
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic ASC 815): Targeted Improvements to Accounting for Hedging Activities" ("ASU 2017-12"), which enables entities to better portray risk management activities in their financial statements, as follows:

•
Expands an entity's ability to hedge nonfinancial and financial risk components and reduces complexity in accounting for fair value hedges of interest rate risk,
•
Eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item,
•
Eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness, and
•
Modifies required disclosures.

The provisions of ASU 2017-12 are effective for fiscal years beginning after December 15, 2018, including interim periods, with early adoption permitted. Initial adoption of ASU 2017-12 is required to be reported using a modified retrospective approach, with the exception of the presentation and disclosure requirements which are required to be applied prospectively. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2017-12.

 
16
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 


Debt Securities
In March 2017, the FASB issued ASU 2017-08, "Receivables-Nonrefundable Fees and Other Costs (ASC Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities" ("ASU 2017-08"), which shortens the amortization period for certain callable debt securities held at a premium by requiring the premium to be amortized to the earliest call date.

The provisions of ASU 2017-08 are effective for fiscal years beginning after December 15, 2018, including interim periods, with early adoption permitted. Initial adoption of ASU 2017-08 is required to be reported using a modified retrospective approach. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2017-08.

Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), which:

•
Introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments,
•
Modifies the impairment model for available-for-sale debt securities, and
•
Provides a simplified accounting model for purchased financial assets with credit deterioration since their origination.

The provisions of ASU 2016-13 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. Initial adoption of ASU 2016-13 is required to be reported on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, except for certain provisions that are required to be applied prospectively. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2016-13.

Leases
In February 2016, the FASB issued ASU 2016-02, "Leases (ASC Topic 842)" ("ASU 2016-02"), which requires lessees to recognize a right-of-use asset and a lease liability for all leases with terms of more than 12 months. The lease liability will be measured as the present value of the lease payments, and the asset will be based on the liability. For income statement purposes, expense recognition will depend on the lessee's classification of the lease as either finance, with a front-loaded amortization expense pattern similar to current capital leases, or operating, with a straight-line expense pattern similar to current operating leases. Lessor accounting will be similar to the current model, and lessors will be required to classify leases as operating, direct financing, or sales-type.

ASU 2016-02 also replaces the sale-leaseback guidance to align with the new revenue recognition standard, addresses statement of operation and statement of cash flow classification, and requires additional disclosures for all leases.

The provisions of ASU 2016-02 are effective on a modified retrospective basis for fiscal years beginning after December 15, 2018, including interim periods, with early adoption permitted. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2016-02.





 
17
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

2.    Business Held for Sale and Discontinued Operations

As noted in the Business, Basis of Presentation and Significant Accounting Policies Note, on December 20, 2017, the Company entered into the MTA with VA Capital and Athene (the "Buyers") pursuant to which Venerable will acquire two of the Company’s subsidiaries, VIAC and DSL. The Transaction is expected to close during the second or third quarter of 2018, subject to conditions specified in the MTA, including the receipt of required regulatory approvals, and other conditions. The Transaction will result in the disposition of substantially all of the Company’s CBVA and Annuities businesses.

The purchase price in the transaction will be equal to the difference between the Required Adjusted Book Value (as defined in the MTA) and the Statutory capital in VIAC at closing, after giving effect to certain restructuring and other pre-sale transactions, including the reinsurance of the fixed and fixed indexed annuity business of VIAC. The purchase price for DSL is expected to approximate its carrying value. After the closing, the Company, through its other insurance subsidiaries, will continue to own surplus notes issued by VIAC in an aggregate principal amount of $350 and will acquire a 9.99% equity interest in VA Capital. The receivable for the surplus notes and VIAC's corresponding liability are included in Other assets and Liabilities held for sale, respectively, on the Company's Condensed Consolidated Balance Sheets. In the summary of major categories of assets and liabilities held for sale below, VIAC's corresponding liability for the surplus notes is included in Notes payable.

Under the terms of the Transaction, VIAC will, prior to the closing of the transaction, undertake certain restructuring transactions with several current affiliates in order to transfer businesses and assets into and out of VIAC.

In connection with the closing, Voya Investment Management Co., LLC ("Voya IM") or its affiliated advisors, will enter into one or more agreements to perform asset management services for Venerable as part of the transaction. As part of the agreements, Voya IM will serve as the preferred asset management partner for Venerable. Under the agreements, subject to certain criteria, Voya IM will manage certain assets, including, for at least five years following the closing of the transaction, certain general account assets. The Company has also agreed to provide certain transitional services to Venerable for up to 24 months after the closing of the Transaction.

The MTA provides for a $105 reverse termination fee that would be payable by VA Capital to the Company if the MTA is terminated in certain circumstances.

The MTA contains limits on the amount of additional capital the Company could be required to contribute to meet any increases in the Required Adjusted Book Value and on the amount of capital in excess of such amount that VA Capital could be required to compensate the Company for if such excess capital were to become trapped in VIAC prior to Transaction closing, in each case subject to certain termination rights.

The Company has determined that the CBVA and Annuities businesses to be disposed of meet the criteria to be classified as held for sale and that the sale represents a strategic shift that will have a major effect on the Company’s operations.  Accordingly, the results of operations of the businesses to be sold have been presented as discontinued operations in the accompanying Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows, and the assets and liabilities of the businesses have been classified as held for sale and segregated for all periods presented in the Condensed Consolidated Balance Sheets. A business classified as held for sale is recorded at the lower of its carrying value or estimated fair value less cost to sell. If the carrying value exceeds its estimated fair value less cost to sell, a loss is recognized. Transactions between the businesses held for sale and businesses in continuing operations that are expected to continue to exist after the disposal are not eliminated to appropriately reflect the continuing operations and the assets, liabilities and results of the businesses held for sale.


 
18
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

The results of discontinued operations are reported in "Income (loss) from discontinued operations, net of tax" in the accompanying Condensed Consolidated Statements of Operations for all periods presented. As of December 31, 2017, the Company recorded an estimated loss on sale, net of tax of $2,423 which included estimated transactions costs of $31 as well as the loss of $692 of deferred tax assets to write down the assets of businesses held for sale to fair value less cost to sell as of December 31, 2017. In addition, the Company is required to remeasure the estimated fair value and loss on sale at the end of each quarter until closing of the Transaction. As such, Income (loss) from discontinued operations, net of tax, for the three months ended March 31, 2018 includes a favorable adjustment to the estimated loss on sale of $449, net of tax . The favorable adjustment to the estimated loss on sale for the three months ended March 31, 2018 includes additional estimated transaction costs of $6 as well as a benefit of $58 of deferred tax assets. The estimated transaction costs of $6 recorded in the three months ended March 31, 2018 and those recorded as of December 31, 2017 of $31 represent what the Company expects to incur through and upon closing of the Transaction. The estimated loss on sale, net of tax as of March 31, 2018 of $1,974, which includes the loss of $634 of deferred tax assets represents the excess of the estimated carrying value of the businesses held for sale over the estimated purchase price, which approximates fair value, less cost to sell.

The estimated purchase price and estimated carrying value of VIAC as of the future date of closing, and therefore the estimated loss on sale related to the Transaction are subject to adjustment in future quarters until closing, and may be influenced by, but not limited to the following factors:
•
Market fluctuations related to equity securities, interest rates, volatility, credit spreads and foreign exchange rates;
•
The performance of the businesses held for sale and the impact of interest and equity market changes on the Variable Annuity Hedge Program and any other hedging activity the Company may engage in within VIAC;
•
Changes in the terms of the Transaction, including as the result of subsequent negotiations or as necessary to obtain regulatory approval;
•
Other changes in the terms of the Transaction due to unanticipated developments; and
•
Changes in key customers and policyholder behavior as a result of the Transaction or other factors.

The Company is required to remeasure the estimated fair value and loss on sale at the end of each quarter until closing of the Transaction. Changes in the estimated loss on sale that occur prior to closing of the Transaction will be reported as an adjustment to Income (loss) from discontinued operations, net of tax, in future quarters prior to closing.


 
19
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

The following table summarizes the major categories of assets and liabilities classified as held for sale in the accompanying Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017:
 
March 31,
2018
 
December 31,
2017
Assets:
 
 
 
Investments:
 
 
 
Fixed maturities, available-for-sale, at fair value
$
20,750

 
$
21,904

Fixed maturities, at fair value using the fair value option
554

 
615

Short-term investments
287

 
352

Mortgage loans on real estate, net of valuation allowance
4,178

 
4,212

Derivatives
1,207

 
1,514

Other investments(1)
357

 
351

Securities pledged
831

 
861

Total investments
28,164

 
29,809

Cash and cash equivalents
545

 
498

Short-term investments under securities loan agreements, including collateral delivered
613

 
473

Deferred policy acquisition costs and Value of business acquired
917

 
805

Sales inducements
223

 
196

Deferred income taxes
442

 
404

Other assets(2)
455

 
396

Assets held in separate accounts
27,695

 
28,894

Write-down of businesses held for sale to fair value less cost to sell
(1,974
)
 
(2,423
)
Total assets held for sale
$
57,080

 
$
59,052

 
 
 
 
Liabilities:
 
 
 
Future policy benefits and contract owner account balances
$
26,645

 
$
27,065

Payables under securities loan agreement, including collateral held
1,040

 
1,152

Derivatives
707

 
782

Notes payable
350

 
350

Other liabilities
21

 
34

Liabilities related to separate accounts
27,695

 
28,894

Total liabilities held for sale
$
56,458

 
$
58,277

(1) Includes Other investments, Equity securities, Limited Partnerships/corporations and Policy loans.
(2) Includes Other assets, Accrued investment income, Premium receivable and reinsurance recoverable.
 












 
20
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

The following table summarizes the components of Income (loss) from discontinued operations, net of tax in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017:
 
Three Months Ended March 31,
 
2018
 
2017
Revenues:
 
 
 
Net investment income
$
305

 
$
318

Fee income
179

 
213

Premiums
44

 
44

Total net realized capital gains (losses)
(176
)
 
(420
)
Other revenue
6

 
6

Total revenues
358

 
161

Benefits and expenses:
 
 
 
Interest credited and other benefits to contract owners/policyholders
320

 
329

Operating expenses
54

 
71

Net amortization of Deferred policy acquisition costs and Value of business acquired
10

 
29

Interest expense
5

 
5

Total benefits and expenses
389

 
434

Income (loss) from discontinued operations before income taxes
(31
)
 
(273
)
Income tax expense (benefit)
(11
)
 
(111
)
Adjustment to loss on sale, net of tax
449

 
—

Income (loss) from discontinued operations, net of tax
$
429

 
$
(162
)

For additional information on certain assets, liabilities and other financial information related to businesses held for sale, see the Derivatives Note and the Fair Value Measurements (excluding Consolidated Investments Entities) Note to these Condensed Consolidated Financial Statements.


 
21
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

3.    Investments (excluding Consolidated Investment Entities)

Fixed Maturities and Equity Securities

Available-for-sale and fair value option ("FVO") fixed maturities were as follows as of March 31, 2018:
 
Amortized Cost
 
Gross Unrealized Capital Gains
 
Gross Unrealized Capital Losses
 
Embedded Derivatives(2)
 
Fair Value
 
OTTI(3)(4)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
1,875

 
$
392

 
$
3

 
$
—

 
$
2,264

 
$
—

U.S. Government agencies and authorities
214

 
44

 
—

 
—

 
258

 
—

State, municipalities and political subdivisions
1,791

 
43

 
19

 
—

 
1,815

 
—

U.S. corporate public securities
20,494

 
1,741

 
152

 
—

 
22,083

 
—

U.S. corporate private securities
5,633

 
144

 
112

 
—

 
5,665

 
—

Foreign corporate public securities and foreign governments(1)
5,357

 
339

 
60

 
—

 
5,636

 
—

Foreign corporate private securities(1)
5,114

 
163

 
73

 
—

 
5,204

 
—

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
2,992

 
150

 
53

 
17

 
3,106

 
—

Non-Agency
1,437

 
103

 
7

 
13

 
1,546

 
15

Total Residential mortgage-backed securities
4,429

 
253

 
60

 
30

 
4,652

 
15

Commercial mortgage-backed securities
2,874

 
35

 
38

 
—

 
2,871

 
—

Other asset-backed securities
1,564

 
39

 
5

 
—

 
1,598

 
3

Total fixed maturities, including securities pledged
49,345

 
3,193

 
522

 
30

 
52,046

 
18

Less: Securities pledged
1,724

 
177

 
32

 
—

 
1,869

 
—

Total fixed maturities
$
47,621

 
$
3,016

 
$
490

 
$
30

 
$
50,177

 
$
18

(1) Primarily U.S. dollar denominated.
(2) Embedded derivatives within fixed maturity securities are reported with the host investment. The changes in fair value of embedded derivatives are reported in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(3) Represents Other-than-Temporary-Impairments ("OTTI") reported as a component of Other comprehensive income (loss).
(4) Amount excludes $374 of net unrealized gains on impaired available-for-sale securities.



 
22
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Available-for-sale and FVO fixed maturities and equity securities were as follows as of December 31, 2017:
 
Amortized Cost
 
Gross Unrealized Capital Gains
 
Gross Unrealized Capital Losses
 
Embedded Derivatives(2)
 
Fair Value
 
OTTI(3)(4)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
2,047

 
$
477

 
$
2

 
$
—

 
$
2,522

 
$
—

U.S. Government agencies and authorities
223

 
52

 
—

 
—

 
275

 
—

State, municipalities and political subdivisions
1,856

 
68

 
11

 
—

 
1,913

 
—

U.S. corporate public securities
20,857

 
2,451

 
50

 
—

 
23,258

 
—

U.S. corporate private securities
5,628

 
255

 
50

 
—

 
5,833

 
—

Foreign corporate public securities and foreign governments(1)
5,241

 
493

 
18

 
—

 
5,716

 
—

Foreign corporate private securities(1)
4,974

 
251

 
64

 
—

 
5,161

 
10

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
2,990

 
164

 
30

 
21

 
3,145

 
—

Non-Agency
1,257

 
110

 
4

 
16

 
1,379

 
16

Total Residential mortgage-backed securities
4,247

 
274

 
34

 
37

 
4,524

 
16

Commercial mortgage-backed securities
2,646

 
69

 
11

 
—

 
2,704

 
—

Other asset-backed securities
1,488

 
43

 
3

 
—

 
1,528

 
3

Total fixed maturities, including securities pledged
49,207

 
4,433

 
243

 
37

 
53,434

 
29

Less: Securities pledged
1,823

 
284

 
20

 
—

 
2,087

 
—

Total fixed maturities
47,384

 
4,149

 
223

 
37

 
51,347

 
29

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stock
272

 
1

 
—

 
—

 
273

 
—

Preferred stock
81

 
26

 
—

 
—

 
107

 
—

Total equity securities
353

 
27

 
—

 
—

 
380

 
—

Total fixed maturities and equity securities investments
$
47,737

 
$
4,176

 
$
223

 
$
37

 
$
51,727

 
$
29

(1) Primarily U.S. dollar denominated.
(2) Embedded derivatives within fixed maturity securities are reported with the host investment. The changes in fair value of embedded derivatives are reported in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(3) Represents OTTI reported as a component of Other comprehensive income (loss).
(4) Amount excludes $441 of net unrealized gains on impaired available-for-sale securities.




 
23
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

The amortized cost and fair value of fixed maturities, including securities pledged, as of March 31, 2018, are shown below by contractual maturity. Actual maturities may differ from contractual maturities as securities may be restructured, called or prepaid. Mortgage-backed securities ("MBS") and Other asset-backed securities ("ABS") are shown separately because they are not due at a single maturity date.
 
Amortized
Cost
 
Fair
Value
Due to mature:
 
 
 
One year or less
$
1,050

 
$
1,061

After one year through five years
8,051

 
8,245

After five years through ten years
10,150

 
10,279

After ten years
21,227

 
23,340

Mortgage-backed securities
7,303

 
7,523

Other asset-backed securities
1,564

 
1,598

Fixed maturities, including securities pledged
$
49,345

 
$
52,046


The investment portfolio is monitored to maintain a diversified portfolio on an ongoing basis. Credit risk is mitigated by monitoring concentrations by issuer, sector and geographic stratification and limiting exposure to any one issuer.

As of March 31, 2018 and December 31, 2017, the Company did not have any investments in a single issuer, other than obligations of the U.S. Government and government agencies, with a carrying value in excess of 10% of the Company’s Total shareholders' equity.

The following tables present the composition of the U.S. and foreign corporate securities within the fixed maturity portfolio by industry category as of the dates indicated:
 
Amortized
Cost
 
Gross
Unrealized
Capital
Gains
 
Gross
Unrealized
Capital
Losses
 
Fair
Value
March 31, 2018
 
 
 
 
 
 
 
Communications
$
2,626

 
$
260

 
$
12

 
$
2,874

Financial
5,166

 
345

 
39

 
5,472

Industrial and other companies
16,233

 
915

 
185

 
16,963

Energy
4,209

 
344

 
63

 
4,490

Utilities
6,289

 
416

 
72

 
6,633

Transportation
1,306

 
82

 
16

 
1,372

Total
$
35,829

 
$
2,362

 
$
387

 
$
37,804

 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
Communications
$
2,587

 
$
341

 
$
4

 
$
2,924

Financial
5,094

 
487

 
5

 
5,576

Industrial and other companies
16,478

 
1,391

 
98

 
17,771

Energy
4,268

 
459

 
45

 
4,682

Utilities
6,243

 
607

 
22

 
6,828

Transportation
1,295

 
121

 
4

 
1,412

Total
$
35,965

 
$
3,406

 
$
178

 
$
39,193



 
24
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Fixed Maturities and Equity Securities

The Company's fixed maturities are currently designated as available-for-sale, except those accounted for using the FVO. Prior to the adoption of ASU 2016-01 as of January 1, 2018, equity securities were also designated as available-for-sale. Available-for-sale securities are reported at fair value and unrealized capital gains (losses) on these securities are recorded directly in AOCI and presented net of related changes in Deferred policy acquisition costs ("DAC"), Value of business acquired ("VOBA") and Deferred income taxes. In addition, certain fixed maturities have embedded derivatives, which are reported with the host contract on the Condensed Consolidated Balance Sheets.

The Company has elected the FVO for certain of its fixed maturities to better match the measurement of assets and liabilities in the Condensed Consolidated Statements of Operations. Certain collateralized mortgage obligations ("CMOs"), primarily interest-only and principal-only strips, are accounted for as hybrid instruments and reported at fair value with changes in the fair value recorded in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.

The Company invests in various categories of CMOs, including CMOs that are not agency-backed, that are subject to different degrees of risk from changes in interest rates and defaults. The principal risks inherent in holding CMOs are prepayment and extension risks related to significant decreases and increases in interest rates resulting in the prepayment of principal from the underlying mortgages, either earlier or later than originally anticipated. As of March 31, 2018 and December 31, 2017, approximately 41.1% and 43.2%, respectively, of the Company's CMO holdings, were invested in the above mentioned types of CMOs such as interest-only or principal-only strips, that are subject to more prepayment and extension risk than traditional CMOs.

Public corporate fixed maturity securities are distinguished from private corporate fixed maturity securities based upon the manner in which they are transacted. Public corporate fixed maturity securities are issued initially through market intermediaries on a registered basis or pursuant to Rule 144A under the Securities Act of 1933 (the "Securities Act") and are traded on the secondary market through brokers acting as principal. Private corporate fixed maturity securities are originally issued by borrowers directly to investors pursuant to Section 4(a)(2) of the Securities Act, and are traded in the secondary market directly with counterparties, either without the participation of a broker or in agency transactions.

Repurchase Agreements

As of March 31, 2018 and December 31, 2017, the Company did not have any securities pledged in dollar rolls, repurchase agreement transactions or reverse repurchase agreements.

Securities Lending

The Company engages in securities lending whereby certain securities from its portfolio are loaned to other institutions, through a lending agent, for short periods of time. The Company has the right to approve any institution with whom the lending agent transacts on its behalf. Initial collateral is required at a rate of 102% of the market value of the loaned securities. The lending agent retains the collateral and invests it in high quality liquid assets on behalf of the Company. The market value of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the market value of the loaned securities fluctuates. The lending agent indemnifies the Company against losses resulting from the failure of a counterparty to return securities pledged where collateral is insufficient to cover the loss. As of March 31, 2018 and December 31, 2017, the fair value of loaned securities was $1,592 and $1,854, respectively, and is included in Securities pledged on the Condensed Consolidated Balance Sheets.

If cash is received as collateral, the lending agent retains the cash collateral and invests it in short-term liquid assets on behalf of the Company. As of March 31, 2018 and December 31, 2017, cash collateral retained by the lending agent and invested in short-term liquid assets on the Company's behalf was $1,446 and $1,589, respectively, and is recorded in Short-term investments under securities loan agreements, including collateral delivered on the Condensed Consolidated Balance Sheets. As of March 31, 2018 and December 31, 2017, liabilities to return collateral of $1,446 and $1,589, respectively, are included in Payables under securities loan agreements, including collateral held on the Condensed Consolidated Balance Sheets.


 
25
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

The Company accepts non-cash collateral in the form of securities. The securities retained as collateral by the lending agent may not be sold or re-pledged, except in the event of default, and are not reflected on the Company’s Condensed Consolidated Balance Sheets. This collateral generally consists of U.S. Treasury, U.S. Government agency securities and MBS pools. As of March 31, 2018 and December 31, 2017, the fair value of securities retained as collateral by the lending agent on the Company’s behalf was $194 and $308, respectively.

The following table presents borrowings under securities lending transactions by class of collateral pledged for the dates indicated:
 
March 31, 2018 (1)(2)
 
December 31, 2017 (1)(2)
U.S. Treasuries
$
316

 
$
587

U.S. Government agencies and authorities
13

 
5

U.S. corporate public securities
942

 
967

Foreign corporate public securities and foreign governments
369

 
338

Payables under securities loan agreements
$
1,640

 
$
1,897

(1)As of March 31, 2018 and December 31, 2017, borrowings under securities lending transactions include cash collateral of $1,446 and $1,589, respectively.
(2)As of March 31, 2018 and December 31, 2017, borrowings under securities lending transactions include non-cash collateral of $194 and $308, respectively.

The Company's securities lending activities are conducted on an overnight basis, and all securities loaned can be recalled at any time. The Company does not offset assets and liabilities associated with its securities lending program.


 
26
 


Voya Financial, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

Unrealized Capital Losses

Unrealized capital losses (including noncredit impairments), along with the fair value of fixed maturity securities, including securities pledged, by market sector and duration were as follows as of March 31, 2018:
 
Six Months or Less
Below Amortized Cost
 
More Than Six
Months and Twelve Months or Less
Below Amortized Cost
 
More Than Twelve
Months Below
Amortized Cost
 
Total
 
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
U.S. Treasuries
$
96

 
$
2

 
$
7

 
$
—

 
$
47

 
$
1

 
$
150

 
$
3

State, municipalities and political subdivisions
406

 
5

 
83

 
2

 
218

 
12

 
707

 
19

U.S. corporate public securities
3,905

 
80

 
310

 
25

 
519

 
47

 
4,734

 
152

U.S. corporate private securities
1,457

 
28

 
219

 
12

 
684

 
72

 
2,360

 
112

Foreign corporate public securities and foreign governments
1,477

 
36

 
85

 
7