A.M. Best has revised the outlook to positive from stable and affirmed the issuer credit ratings (ICR) of “a” of the key life insurance entities of Voya Financial, Inc. (Voya) (headquartered in New York, NY) [NYSE:VOYA]. At the same time, A.M. Best has affirmed with a stable outlook the financial strength rating (FSR) of A (Excellent) of the life subsidiaries of Voya. Concurrently, A.M. Best has revised the outlook to positive from stable and affirmed the ICR of “bbb” of Voya as well as the ratings on Voya’s outstanding debt. (Please see below for a detailed listing of the companies and debt ratings.) The rating actions reflect the favorable trends in Voya’s statutory and GAAP operating earnings, sound risk-adjusted capitalization and renewed focus on its retirement and employee benefits businesses. In addition, A.M. Best acknowledges the organization’s success in executing the initial public offering in May 2013 and subsequent public offerings that have reduced ING Group’s ownership of Voya to approximately 43%. While some execution risks remain surrounding the completion of the process of becoming independent and rebranding to Voya, A.M. Best believes this risk has somewhat diminished as demonstrated by recent successful debt issuances totaling approximately $3 billion and favorable demand for its public shares. With the proceeds from the longer-term debt issuances, Voya has been able to eliminate its short-term debt while reducing overall financial leverage to approximately 20% with interest coverage improving to approximately 5 times. A.M. Best notes that Voya currently maintains a favorable debt maturity profile with no debt maturing before 2018. Additionally, Voya’s ratings reflect the group’s established positions within the U.S. retirement, investment management and life insurance markets. Overall, A.M. Best believes Voya has improved its risk profile as the company has reduced some of its exposure to higher-risk assets in its general account, discontinued sales of variable annuities and certain capital-intensive life insurance products as well as continued to focus on enhancing risk management practices. Furthermore, the net amount at risk for its closed block of variable annuities (CBVA) has improved considerably over the past several quarters, driven primarily by favorable market conditions.
Partially offsetting these positive factors is the impact on earnings of Voya’s CBVA segment and susceptibility of future earnings to spread compression and fluctuations in the equity markets. A.M. Best notes that Voya has managed interest spreads by actively reducing crediting rates in recent periods. However, A.M. Best believes the company may be challenged to maintain current spreads over the near to medium term as approximately 80% of interest-sensitive account values are at guaranteed minimum interest rates. Moreover, while A.M. Best acknowledges that Voya’s hedging program protects statutory capital primarily against fluctuations in the financial markets, the company has taken material statutory charges in recent periods due to revisions to policyholder behavior assumptions on its CBVAs. As uncertainty remains whether current assumptions will be in line with policyholder experience, Voya is susceptible to additional and potentially significant charges in the near to medium term. Voya recently announced that it has retained the expertise of an outside actuarial firm to perform actuarial valuation, modeling and hedging functions for its CBVA segment, which A.M. Best views favorably.Finally, Voya’s operating companies utilize significant levels of reinsurance – both affiliated and unaffiliated – as a capital management and risk mitigation tool for its term and universal life insurance business. As such, the group’s regulatory risk-adjusted capitalization and statutory earnings benefit from the use of captives to fund Regulation XXX and Guideline AXXX reserves. A.M. Best expects statutory capital and earnings growth of Voya’s insurance operating companies to continue despite dividend payments to the holding company for debt servicing and share repurchase. Factors that may lead to future positive rating actions for Voya include sustained favorable operating results across its core business lines without material drag from the legacy variable annuity business as well as maintenance of strong levels of risk-adjusted capital. Factors that could lead to future negative rating actions include significant operating losses or reserve increases in the variable annuity block, notable spread compression in interest-sensitive lines and/or a material reduction in risk-adjusted capitalization.
The FSR of A (Excellent) and ICRs of “a” have been affirmed for the following life insurance subsidiaries of Voya Financial, Inc.:
- ING Life Insurance and Annuity Company
- ING USA Annuity and Life Insurance Company
- ReliaStar Life Insurance Company
- ReliaStar Life Insurance Company of New York
- Security Life of Denver Insurance Company