May 07, 2013 - 4:57pm EST by
2013 2014
Price: 21.66 EPS $0.00 $0.00
Shares Out. (in M): 261 P/E 0.0x 0.0x
Market Cap (in $M): 5,648 P/FCF 0.0x 0.0x
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0.0x 0.0x

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  • Spin-Off
  • Discount to book
  • Life Insurance
  • Asset Management
  • Improving ROIC


VOYA is the IPO/spin of the ING Bank’s U.S. operations in retirement products, annuities, and life insurance.  The stock is trading for 55% of book value (AOCI adjusted), and the IPO is part of a forced sale process initiated by the European Commission in which ING Group is divesting itself of non-essential businesses in order to repay the $10 billion Euros in state support it received.

VOYA needed to be 25% spun by the end of this calendar year, with an additional 25% next year and the remainder by the end of 2016.  While it is surprising to see a financial business spun out at such a low multiple to book value, ING still retains 75% ownership.  The pressures of meeting the various deadlines suggested that this offering was going to come no matter what.

The immediate valuation leaps out, and admittedly there are caveats involved, but the bullish case is that here is a business with 13 million customers, over $450 billion assets under management (AUM) or agency (AUA) that has embarked on a significant ROE improvement plan.  In their own words:

Significant ROE improvement plan

  • Detailed execution plan – over 30 initiatives across all of our business and functions focused on margin, growth, and capital
  • Steady increases – 100-110 bps of improvement per year towards our 2016 Ongoing Business ROE goal of 12-13%
  • Improvement already occurring – Ongoing Business ROE increased by 70 bps to 8.3% in 2012


If the company executes on this ROE improvement, then there is no way that a 12%+ ROE business of this size should trade anywhere near 50% of book.  Conservatively, it could be valued at 80% P/B, which along with retained earnings would more than double the stock from current levels in 2016.  A more heroic valuation a bit above book value makes it a triple on that same time frame.

What’s the catch?  Well, the caveat is that while the ongoing business is currently producing healthy ROE’s, there are some businesses in run-off that have lately dragged things down.



VOYA is the number two provider of defined contribution plans in the U.S. , a prominent investment manager, the fourth largest writer of term insurance, and has an extensive distribution network.  Their earnings drivers are investment spread and other investment income, fee based margins—primarily on fees earned on AUM, AUA and transaction based recordkeeping fees, and their net underwriting gain (loss). 

By segment, they have the retirement business, annuities, investment management, individual life insurance, and employee benefits.  Three of their businesses have had their portfolios placed in run-off, and they refer to these businesses as Closed Block Variable Annuity, Closed Block Institutional  Spread Products and Closed Block Other.

Their remaining principle operating businesses are referred to as Retirement Solutions, Investment Management and Insurance Solutions.  These will be broken out in more detail below.



Just prior to the IPO/Spin, VOYA released preliminary results for Q1.  Operating earnings for the ongoing business was expected to be between $270 million and $290 million.  Annualized operating ROC of the ongoing business is expected to be between 7.8% and 8.1%.  That compares with 7.2% for the year 2012.  They experienced positive net flows in both their retirement and investment management segment.  Total AUM and AUA increased to approximately $481 billion, composed of approximately $258 billion total AUM and approximately $223 billion total AUA.

However, their closed block variable annuity segment lost between $450 million and $495 million (including $90 to $120 of non-economic changes in nonperformance risk).



The IPO included not only the ING parent selling 25% of its holdings (37,500,000 shares), but also included a secondary component in which VOYA sold an additional 26,666,667 shares to raise an additional $500 million in proceeds.  (These numbers are before any green shoe exercise.)



Retirement Solutions: approximately $117 billion in AUM and $214 billion in AUA as of year-end 2012, provided to nearly 48,000 plan sponsors covering more than 5 million plan participants.  Of this $330 billion, $80 billion was full service retirement business, $222 billion was recordkeeping, and $26 billion was annuities.

Investment Management: $182 billion of AUM and $55 billion of AUA, delivering investment solutions and advisory services.  This is a highly scalable business model, and they were ranked number one among defined contribution investment managers in client loyalty and favorability in 2011 (they don’t mention how they did in 2012).  They have retail portfolio mutual fund assets totaling $22 billion, with 77% beating their five-year Morningstar category average.

Insurance Solutions: They are a top provider of life insurance in the U.S.—ranked fifth for term, seventeenth for universal, and fifth for medical stop loss coverage. 

Closed Block businesses: In 2009, they began running-off their retail variable annuity products and their institutional spread products portfolio.  Between the two, they have $11.4 billion in statutory reserves and /or amortized cost.  They are hedged in order to dynamically manage regulatory and rating agency capital requirements for adverse equity market movements, have considerably increased their statutory reserves since 2010, and have more closely aligned their policyholder behavior assumptions with experience.  

At year-end 2012, VOYA had total shareholder’s equity of $10.2 billion, excluding other comprehensive income/(loss) (“AOCI”) and noncontrolling interests.  In 2012, VOYA generated $606 million of income before income taxes, $473 million of net income available to VOYA’s common shareholder, and $918 million of operating earnings before income taxes.  At today’s close of $21.66, the current market cap is $5.65 billion. 



I’m probably losing a few of you with cut-and-paste info from the S-1, but it does make particular sense to emphasize what VOYA’s management is emphasizing as their business strategy, since ROE improvement will drive stock valuation:

“The immediate focus of our strategy is to improve the operating return on equity (“operating ROE”) of our ongoing business. We have identified more than thirty ROE-enhancing projects across our businesses and functions intended to improve operating ROE of our ongoing business to a goal in the range of 12% to 13% by 2016. The operating return on capital (“operating ROC”) of our ongoing business increased from 6.6% in 2011 to 7.2% in 2012, and is expected to increase to a goal in the range of 10% to 11% by 2016.” (Note that their website bullet points aim toward higher ROE’s—12% to 13%.)



ING Group submitted a restructuring plan in 2009 to the EC in order to receive approval for state aid from the Netherlands.  To receive approval for this state aid, ING Group was required to divest its insurance and investment management businesses, including VOYA.  The 2012 amended restructuring plan requires ING Group to divest at least 25% of VOYA by 12/31/2013, more than 50% by 12/31/2014, and 100% by 12/31/2016.



I wanted to get this idea out there because it is timely, has tremendous liquidity, and the valuation jumps out at me.  However, I’m wary of working further and having it posted on VIC before I can finish this narrative.  I’ll continue in the thread and hope to have the rest of the idea posted by the end of the day.

Essentially, at 8% and improving ROE’s priced near 50% Price/Book, this is worth digging for details.  The thread will include commentary about their so-called thirty initiatives to improve ROE, an explanation of AOCI adjusted book value, more detailed financials, and suggestions about the timing of index inclusion.  I appreciate your patience with my analysis and hope it is balanced by the notion of giving interested readers a head start on their own research.

I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.


Ongoing improvement to ROE.
Recognition of spin-off like dynamics of IPO.
Index inclusion.
Stabilization of run-off portfolio losses.
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