Companies: 10,652     total market cap: $140.563 T
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Voya Financial
VOYA
#2575
Rank
$7.09 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$74.51
Share price
0.55%
Change (1 day)
1.32%
Change (1 year)
๐Ÿ’ณ Financial services
Categories
  1. Voya Financial
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2019 Q2

Voya Financial - 10-Q quarterly report FY2019 Q2


Text size:
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
——————————————————————
FORM 10-Q
(Mark One)
 
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019

OR
☐
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)
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.01 par value
VOYA
New York Stock Exchange
Depositary Shares, each representing a 1/40th
VOYAPrB
New York Stock Exchange
interest in a share of 5.35% Fixed-Rate Reset Non-Cumulative Preferred Stock, Series B, $0.01 par value

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    ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  ☒ Yes    ☐ No

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.
Large accelerated filer
☒
Accelerated filer    
☐
Non-accelerated filer     
☐
Smaller reporting company     
☐
 
 
Emerging growth company     
☐
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.
☐

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.             ☐ Yes    ☐ No

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 August 2, 2019, 140,359,868 shares of Common Stock, $0.01 par value, were outstanding.
 

 
1
 

Voya Financial, Inc.
Form 10-Q for the period ended June 30, 2019

INDEX
 
 
PAGE
PART I.
FINANCIAL INFORMATION (UNAUDITED)
 
 
 
 
Item 1.
Financial Statements:
 
 
Condensed Consolidated Balance Sheets
4
 
Condensed Consolidated Statements of Operations
6
 
Condensed Consolidated Statements of Comprehensive Income
7
 
Condensed Consolidated Statements of Changes in Shareholders' Equity
8
 
Condensed Consolidated Statements of Cash Flows
12
 
Notes to Condensed Consolidated Financial Statements:
13
 
1. Business, Basis of Presentation and Significant Accounting Policies
13
 
2. Discontinued Operations
20
 
3. Investments (excluding Consolidated Investment Entities)
21
 
4. Derivative Financial Instruments
35
 
5. Fair Value Measurements (excluding Consolidated Investment Entities)
41
 
6. Deferred Policy Acquisition Costs and Value of Business Acquired
52
 
7. Share-based Incentive Compensation Plans
53
 
8. Shareholders' Equity
55
 
9. Earnings per Common Share
58
 
10. Accumulated Other Comprehensive Income (Loss)
59
 
11. Income Taxes
63
 
12. Financing Agreements
64
 
13. Commitments and Contingencies
65
 
14. Consolidated Investment Entities
68
 
15. Restructuring
74
 
16. Segments
76
 
17. Condensed Consolidating Financial Information
81
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
96
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
141
 
 
 
Item 4.
Controls and Procedures
141
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
142
 
 
 
Item 1A.
Risk Factors
142
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
142
 
 
 
Item 6.
Exhibits
142
 
 
 
Exhibit Index
 
143
 
 
 
Signature
 
144


 
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 manage the separation of the fixed and variable annuities businesses that we sold to VA Capital Company LLC on June 1, 2018, including the transition services on the expected timeline and economic terms. 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" in the Annual Report on Form 10-K for the year ended December 31, 2018 (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
June 30, 2019 (Unaudited) and December 31, 2018
(In millions, except share and per share data)
 
June 30,
2019
 
December 31,
2018
Assets:
 
 
 
Investments:
 
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost of $44,806 as of 2019 and $45,241 as of 2018)
$
49,150

 
$
46,298

Fixed maturities, at fair value using the fair value option
3,358

 
2,956

Equity securities, at fair value (cost of $335 as of 2019 and $255 as of 2018)
367

 
273

Short-term investments
154

 
168

Mortgage loans on real estate, net of valuation allowance of $1 as of 2019 and $2 as of 2018
8,418

 
8,676

Policy loans
1,797

 
1,833

Limited partnerships/corporations
1,325

 
1,158

Derivatives
440

 
247

Other investments
96

 
90

Securities pledged (amortized cost of $1,739 as of 2019 and $1,824 as of 2018)
1,945

 
1,867

Total investments
67,050

 
63,566

Cash and cash equivalents
1,482

 
1,538

Short-term investments under securities loan agreements, including collateral delivered
1,929

 
1,684

Accrued investment income
662

 
650

Premium receivable and reinsurance recoverable
6,640

 
6,860

Deferred policy acquisition costs and Value of business acquired
3,246

 
4,116

Current income taxes
226

 
237

Deferred income taxes
576

 
1,157

Other assets
1,425

 
1,336

Assets related to consolidated investment entities:
 
 
 
Limited partnerships/corporations, at fair value
1,429

 
1,421

Cash and cash equivalents
59

 
331

Corporate loans, at fair value using the fair value option
512

 
542

Other assets
11

 
16

Assets held in separate accounts
79,915

 
71,228

Total assets
$
165,162

 
$
154,682





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

Voya Financial, Inc.
Condensed Consolidated Balance Sheets
June 30, 2019 (Unaudited) and December 31, 2018
(In millions, except share and per share data)

 
June 30,
2019
 
December 31,
2018
Liabilities and Shareholders' Equity:
 
 
 
Future policy benefits
$
14,841

 
$
14,488

Contract owner account balances
50,580

 
51,001

Payables under securities loan and repurchase agreements, including collateral held
1,972

 
1,821

Short-term debt
97

 
1

Long-term debt
3,041

 
3,136

Derivatives
432

 
139

Pension and other postretirement provisions
445

 
551

Other liabilities
2,106

 
2,148

Liabilities related to consolidated investment entities:
 
 
 
Collateralized loan obligations notes, at fair value using the fair value option
432

 
540

Other liabilities
562

 
688

Liabilities related to separate accounts
79,915

 
71,228

Total liabilities
154,423

 
145,741

 
 
 
 
Commitments and Contingencies (Note 13)


 


 
 
 
 
Shareholders' equity:
 
 
 
Preferred stock ($0.01 par value per share; $625 and $325 aggregate liquidation preference as of 2019 and 2018, respectively)
—

 
—

Common stock ($0.01 par value per share; 900,000,000 shares authorized; 275,273,194 and 272,431,745 shares issued as of 2019 and 2018, respectively; 140,329,307 and 150,978,184 shares outstanding as of 2019 and 2018, respectively)
3

 
3

Treasury stock (at cost; 134,943,887 and 121,453,561 shares as of 2019 and 2018, respectively)
(5,663
)
 
(4,981
)
Additional paid-in capital
24,642

 
24,316

Accumulated other comprehensive income (loss)
2,867

 
607

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

 
—

Unappropriated
(11,785
)
 
(11,732
)
Total Voya Financial, Inc. shareholders' equity
10,064

 
8,213

Noncontrolling interest
675

 
728

Total shareholders' equity
10,739

 
8,941

Total liabilities and shareholders' equity
$
165,162

 
$
154,682


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 and Six Months Ended June 30, 2019 and 2018 (Unaudited)
(In millions, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Net investment income
$
880

 
$
813

 
$
1,695

 
$
1,636

Fee income
662

 
660

 
1,327

 
1,336

Premiums
585

 
533

 
1,167

 
1,072

Net realized capital gains (losses):
 
 
 
 
 
 
 
Total other-than-temporary impairments
(3
)
 
—

 
(36
)
 
(14
)
Less: Portion of other-than-temporary impairments recognized in Other comprehensive income (loss)
—

 
1

 
—

 
1

Net other-than-temporary impairments recognized in earnings
(3
)
 
(1
)
 
(36
)
 
(15
)
Other net realized capital gains (losses)
53

 
(119
)
 
103

 
(286
)
Total net realized capital gains (losses)
50

 
(120
)
 
67

 
(301
)
Other revenue
102

 
101

 
215

 
200

Income (loss) related to consolidated investment entities:
 
 
 
 
 
 
 
Net investment income
67

 
126

 
72

 
137

Total revenues
2,346

 
2,113

 
4,543

 
4,080

Benefits and expenses:
 
 
 
 
 
 
 
Policyholder benefits
852

 
706

 
1,667

 
1,414

Interest credited to contract owner account balances
380

 
382

 
751

 
764

Operating expenses
687

 
645

 
1,389

 
1,345

Net amortization of Deferred policy acquisition costs and Value of business acquired
67

 
74

 
152

 
174

Interest expense
42

 
46

 
84

 
95

Operating expenses related to consolidated investment entities:
 
 
 
 
 
 
 
Interest expense
16

 
16

 
21

 
22

Other expense
4

 
3

 
4

 
4

Total benefits and expenses
2,048

 
1,872

 
4,068

 
3,818

Income (loss) from continuing operations before income taxes
298

 
241

 
475

 
262

Income tax expense (benefit)
44

 
45

 
69

 
49

Income (loss) from continuing operations
254

 
196

 
406

 
213

Income (loss) from discontinued operations, net of tax
(3
)
 
28

 
(82
)
 
457

Net income (loss)
251

 
224

 
324

 
670

Less: Net income (loss) attributable to noncontrolling interest
25

 
58

 
24

 
58

Net income (loss) available to Voya Financial, Inc.
226

 
166

 
300

 
612

Less: Preferred stock dividends
—

 
—

 
10

 
—

Net income (loss) available to Voya Financial, Inc.'s common shareholders
$
226

 
$
166

 
$
290

 
$
612

 

 

 
 
 
 
Net income (loss) per common share:
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Income (loss) from continuing operations available to Voya Financial, Inc.'s common shareholders
$
1.59

 
$
0.83

 
$
2.56

 
$
0.91

Income (loss) available to Voya Financial, Inc.'s common shareholders
$
1.57

 
$
1.00

 
$
1.99

 
$
3.60

 
 
 
 
 
 
 
 
Diluted
 
 
 
 
 
 
 
Income (loss) from continuing operations available to Voya Financial, Inc.'s common shareholders
$
1.53

 
$
0.80

 
$
2.47

 
$
0.88

Income (loss) available to Voya Financial, Inc.'s common shareholders
$
1.51

 
$
0.96

 
$
1.93

 
$
3.48

 
 
 
 
 
 
 
 
Cash dividends declared per share of common stock
$
0.01

 
$
0.01

 
$
0.02

 
$
0.02


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 and Six Months Ended June 30, 2019 and 2018 (Unaudited)
(In millions)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
251

 
$
224

 
$
324

 
$
670

Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on securities
1,141

 
(867
)
 
2,425

 
(2,390
)
Other-than-temporary impairments
1

 
10

 
2

 
30

Pension and other postretirement benefits liability
(1
)
 
(3
)
 
(2
)
 
(6
)
Other comprehensive income (loss), before tax
1,141

 
(860
)
 
2,425

 
(2,366
)
Income tax expense (benefit) related to items of other comprehensive income (loss)
240

 
(292
)
 
508

 
(606
)
Other comprehensive income (loss), after tax
901

 
(568
)
 
1,917

 
(1,760
)
Comprehensive income (loss)
1,152

 
(344
)
 
2,241

 
(1,090
)
Less: Comprehensive income (loss) attributable to noncontrolling interest
25

 
58

 
24

 
58

Comprehensive income (loss) attributable to Voya Financial, Inc.
$
1,127

 
$
(402
)
 
$
2,217

 
$
(1,148
)

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 June 30, 2019 (Unaudited)
(In millions)
 
Preferred Stock
 
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 April 1, 2019
$
—

 
$
3

 
$
(5,203
)
 
$
24,310

 
$
1,966

 
$
—

 
$
(12,011
)
 
$
9,065

 
$
741

 
$
9,806

 Adoption of ASU 2018-02
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
—

 
226

 
226

 
25

 
251

Other comprehensive income (loss), after tax
—

 
—

 
—

 
—

 
901

 
—

 
—

 
901

 
—

 
901

Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,127

 
25

 
1,152

Preferred stock issuance
—

 
—

 
—

 
293

 
—

 
—

 
—

 
293

 
—

 
293

Common stock issuance
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Common stock acquired - Share repurchase
—

 
—

 
(446
)
 
10

 
—

 
—

 
—

 
(436
)
 
—

 
(436
)
Dividends on preferred stock
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Dividends on common stock
—

 
—

 
—

 
(2
)
 
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Share-based compensation
—

 
—

 
(14
)
 
31

 
—

 
—

 
—

 
17

 
—

 
17

Contributions from (Distributions to) noncontrolling interest, net
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(91
)
 
(91
)
Balance as of June 30, 2019
$
—

 
$
3

 
$
(5,663
)
 
$
24,642

 
$
2,867

 
$
—

 
$
(11,785
)
 
$
10,064

 
$
675

 
$
10,739


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 Six Months Ended June 30, 2019 (Unaudited)
(In millions)
 
Preferred Stock
 
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, 2019
$
—

 
$
3

 
$
(4,981
)
 
$
24,316

 
$
607

 
$
—

 
$
(11,732
)
 
$
8,213

 
$
728

 
$
8,941

 Adoption of ASU 2018-02
—

 
—

 
—

 
—

 
343

 
—

 
(343
)
 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
—

 
300

 
300

 
24

 
324

Other comprehensive income (loss), after tax
—

 
—

 
—

 
—

 
1,917

 
—

 
—

 
1,917

 
—

 
1,917

Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,217

 
24

 
2,241

Preferred stock issuance
—

 
—

 
—

 
293

 
—

 
—

 
—

 
293

 
—

 
293

Common stock issuance
—

 
—

 
—

 
2

 
—

 
—

 
—

 
2

 
—

 
2

Common stock acquired - Share repurchase
—

 
—

 
(646
)
 
(40
)
 
—

 
—

 
—

 
(686
)
 
—

 
(686
)
Dividends on preferred stock
—

 
—

 
—

 
—

 
—

 
—

 
(10
)
 
(10
)
 
—

 
(10
)
Dividends on common stock
—

 
—

 
—

 
(3
)
 
—

 
—

 
—

 
(3
)
 
—

 
(3
)
Share-based compensation
—

 
—

 
(36
)
 
74

 
—

 
—

 
—

 
38

 
—

 
38

Contributions from (Distributions to) noncontrolling interest, net
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(77
)
 
(77
)
Balance as of June 30, 2019
$
—

 
$
3

 
$
(5,663
)
 
$
24,642

 
$
2,867

 
$
—

 
$
(11,785
)
 
$
10,064

 
$
675


$
10,739















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

Voya Financial, Inc.
Condensed Consolidated Statements of Changes in Shareholders' Equity
For the Three Months Ended June 30, 2018 (Unaudited)
(In millions)
 
Preferred Stock
 
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 April 1, 2018
$
—

 
$
3

 
$
(3,936
)
 
$
23,961

 
$
1,511

 
$
—

 
$
(12,161
)
 
$
9,378

 
$
1,031

 
$
10,409

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

 
—

 
—

 
—

 
—

 
—

 
166

 
166

 
58

 
224

Reversal of Other Comprehensive Income (Loss) due to Sale of Annuity and CBVA
—

 
—

 
—

 
—

 
(79
)
 
—

 
—

 
(79
)
 
—

 
(79
)
Other comprehensive income (loss), after tax
—

 
—

 
—

 
—

 
(489
)
 
—

 
—

 
(489
)
 
—

 
(489
)
Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(402
)
 
58

 
(344
)
Effect of transaction for entities under common control
—

 
—

 
—

 
(31
)
 
—

 
—

 
—

 
(31
)
 
—

 
(31
)
Net consolidations (deconsolidations) of consolidated investment entities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(33
)
 
(33
)
Preferred stock issuance
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Common stock issuance
—

 
—

 
—

 
(1
)
 
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Common stock acquired - Share repurchase
—

 
—

 
(500
)
 
—

 
—

 
—

 
—

 
(500
)
 
—

 
(500
)
Dividends on preferred stock
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Dividends on common stock
—

 
—

 
—

 
(1
)
 
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Share-based compensation
—

 
—

 
(6
)
 
23

 
—

 
—

 
—

 
17

 
—

 
17

Contributions from (Distributions to) noncontrolling interest, net
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(274
)
 
(274
)
Balance as of June 30, 2018
$
—

 
$
3

 
$
(4,442
)
 
$
23,951

 
$
943

 
$
—

 
$
(11,995
)
 
$
8,460

 
$
782

 
$
9,242



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

Voya Financial, Inc.
 Condensed Consolidated Statements of Changes in Shareholders' Equity
For the Six Months Ended June 30, 2018 (Unaudited)
(In millions)
 
Preferred Stock
 
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)
—

 
—

 
—

 
—

 
—

 
—

 
612

 
612

 
58

 
670

Reversal of Other Comprehensive Income (Loss) due to Sale of Annuity and CBVA
—

 
—

 
—

 
—

 
(79
)
 
—

 
—

 
(79
)
 
—

 
(79
)
Other comprehensive income (loss), after tax
—

 
—

 
—

 
—

 
(1,681
)
 
—

 
—

 
(1,681
)
 
—

 
(1,681
)
Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,148
)
 
58

 
(1,090
)
Effect of transaction for entities under common control
—

 
—

 
—

 
(31
)
 
—

 
—

 
—

 
(31
)
 
—

 
(31
)
Net consolidations (deconsolidations) of consolidated investment entities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(33
)
 
(33
)
Preferred stock issuance
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Common stock issuance
—

 
—

 
—

 
1

 
—

 
—

 
—

 
1

 
—

 
1

Common stock acquired - Share repurchase
—

 
—

 
(600
)
 
100

 
—

 
—

 
—

 
(500
)
 
—

 
(500
)
Dividends on preferred stock
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Dividends on common stock
—

 
—

 
—

 
(3
)
 
—

 
—

 
—

 
(3
)
 
—

 
(3
)
Share-based compensation
—

 
—

 
(15
)
 
63

 
—

 
—

 
—

 
48

 
—

 
48

Contributions from (Distributions to) noncontrolling interest, net
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(273
)
 
(273
)
Balance as of June 30, 2018
$
—

 
$
3

 
$
(4,442
)
 
$
23,951

 
$
943

 
$
—

 
$
(11,995
)
 
$
8,460

 
$
782

 
$
9,242


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
11
 

Voya Financial, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
(In millions)
 
Six Months Ended June 30,
 
2019
 
2018
Cash Flows from Operating Activities:
 
 
 
Net cash provided by (used in) operating activities - continuing operations
$
549

 
$
(408
)
Net cash provided by operating activities - discontinued operations
—

 
1,462

Net cash provided by operating activities
549

 
1,054

Cash Flows from Investing Activities:
 
 
 
Proceeds from the sale, maturity, disposal or redemption of:
 
 
 
Fixed maturities
4,463

 
4,577

Equity securities
15

 
20

Mortgage loans on real estate
608

 
471

Limited partnerships/corporations
115

 
152

Acquisition of:
 
 
 
Fixed maturities
(4,125
)
 
(4,881
)
Equity securities
(23
)
 
(20
)
Mortgage loans on real estate
(357
)
 
(574
)
Limited partnerships/corporations
(221
)
 
(158
)
Short-term investments, net
14

 
403

Derivatives, net
62

 
35

Sales from consolidated investment entities
329

 
602

Purchases within consolidated investment entities
(572
)
 
(607
)
Collateral (delivered) received, net
(95
)
 
38

Other, net
(12
)
 
(5
)
Net cash (used in) provided by investing activities - discontinued operations
(128
)
 
34

Net cash provided by investing activities
73

 
87

Cash Flows from Financing Activities:
 
 
 
Deposits received for investment contracts
2,855

 
3,083

Maturities and withdrawals from investment contracts
(3,285
)
 
(2,716
)
Settlements on deposit contracts
(6
)
 
—

Proceeds from issuance of debt with maturities of more than three months
—

 
350

Repayment of debt with maturities of more than three months
—

 
(350
)
Debt issuance costs
—

 
(6
)
Borrowings of consolidated investment entities
304

 
469

Repayments of borrowings of consolidated investment entities
(407
)
 
(461
)
Contributions from (distributions to) participants in consolidated investment entities, net
282

 
34

Proceeds from issuance of common stock, net
2

 
1

Proceeds from issuance of preferred stock, net
293

 
—

Share-based compensation
(17
)
 
(15
)
Common stock acquired - Share repurchase
(686
)
 
(500
)
Dividends paid on common stock
(3
)
 
(3
)
Dividends paid on preferred stock
(10
)
 
—

Net cash used in financing activities - discontinued operations
—

 
(1,209
)
Net cash used in financing activities
(678
)
 
(1,323
)
Net decrease in cash and cash equivalents
(56
)
 
(182
)
Cash and cash equivalents, beginning of period
1,538

 
1,716

Cash and cash equivalents, end of period
$
1,482

 
$
1,534

Non-cash investing and financing activities:
 
 
 
Initial recognition of operating leases upon adoption of ASU 2016-02
$
146

 
$
—

Leased assets in exchange for finance lease liabilities
68

 
—


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 
 
12
 

Table of Contents
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, investment management services, mutual funds, group insurance and supplemental health products.

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 activities not directly related to its segments, results of the Retained Business (defined in the Discontinued Operations Note to these Condensed Consolidated Financial Statements) and certain run-off activities that are not meaningful to the Company's business strategy. See the Segments Note to these Condensed Consolidated Financial Statements.

After conducting a strategic review of the Individual Life business, in October 2018, the Company announced that it would retain the in-force block of individual life policies and cease new individual life insurance sales, effective December 31, 2018. Applications for individual life insurance policies were accepted through the end of 2018, resulting in some placement of policies in early 2019. The Company will continue to manage its existing in-force Individual Life business as a separate segment, with results included in the Company's Adjusted operating earnings before income taxes.

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 June 30, 2019, its results of operations, comprehensive income and changes in shareholders' equity for the three and six months ended June 30, 2019 and 2018, and its statements of cash flows for the six months ended June 30, 2019 and 2018, in conformity with U.S. GAAP. Interim results are not necessarily indicative of full year performance.

The December 31, 2018 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.




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

Adoption of New Pronouncements

The following table provides a description of the Company's adoption of new Accounting Standard Updates ("ASUs") issued by the Financial Accounting Standards Board ("FASB") and the impact of the adoption on the Company's financial statements.
Standard
Description of Requirements
Effective Date and Method of Adoption
Effect on the Financial Statements or Other Significant Matters
ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
This standard, issued in February 2018, permits a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for stranded tax effects resulting from the 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.
January 1, 2019, with the change reported in the period of adoption.
The impact to the January 1, 2019 Condensed Consolidated Balance Sheet was an increase to AOCI of $343, with a corresponding decrease to Retained earnings. The ASU did not have a material impact on the Company's results of operations, cash flows, or disclosures.


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

Standard
Description of Requirements
Effective Date and Method of Adoption
Effect on the Financial Statements or Other Significant Matters
ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities
This standard, issued in August 2017, 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, and
• Eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness, and modifies required disclosures.

In October 2018, the FASB issued an amendment which expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting.
January 1, 2019, using the modified retrospective method, with the exception of the presentation and disclosure requirements which were adopted prospectively.
The adoption had no effect on the Company's financial condition, results of operations, or cash flows. The adoption resulted in a change to the Company's significant accounting policy with respect to Derivatives, as follows:

Fair Value Hedge: For derivative instruments that are designated and qualify as a fair value hedge, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in the same line item in the Condensed Consolidated Statements of Operations as impacted by the hedged item.

Cash Flow Hedge: For derivative instruments that are designated and qualify as a cash flow hedge, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is reported as a component of AOCI. Those amounts are subsequently reclassified to earnings when the hedged item affects earnings, and are reported in the same line item in the Condensed Consolidated Statements of Operations as impacted by the hedged item.

Other required disclosure changes have been included in Note 4, Derivative Financial Instruments.


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

Standard
Description of Requirements
Effective Date and Method of Adoption
Effect on the Financial Statements or Other Significant Matters
ASU 2016-02, Leases
This standard, issued in February 2016, 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. In addition, the FASB issued various amendments during 2018 to clarify and simplify the provisions and implementation guidance of ASU 2016-02.
January 1, 2019 using the modified retrospective method.


Adoption of the ASU resulted in the establishment of a $146 lease liability for operating leases and a corresponding right-of-use asset, which are included in Other liabilities and Other assets, respectively. The Company elected the practical expedients at transition. The ASU did not impact the Company's Shareholders’ equity or results of operations, and did not materially impact cash flows or disclosures.


Future Adoption of Accounting Pronouncements
Long-Duration Contracts
In August 2018, the FASB issued ASU 2018-12, "Financial Services - Insurance (Topic 944) Targeted Improvements to the Accounting for Long-Duration Contracts" ("ASU 2018-12"), which changes the measurement and disclosures of insurance liabilities and deferred acquisition costs ("DAC") for long-duration contracts issued by insurers. The provisions of ASU 2018-12 are effective for fiscal years beginning after December 15, 2020, including interim periods, with early adoption permitted. On July 17, 2019, the FASB decided to issue an exposure draft proposing the extension of the effective date of ASU 2018-12 for public business entities that are required to file with the SEC by one year, to fiscal years beginning after December 15, 2021. This exposure draft is expected to be issued during the third quarter of 2019 and will have a 30 day comment period. The Company is currently in the process of evaluating the provisions of ASU 2018-12. While it is not possible to estimate the expected impact of adoption at this time, the Company believes there is a reasonable possibility that implementation of ASU 2018-12 may result in a significant impact on Shareholders’ equity and future earnings patterns.

In addition to requiring significantly expanded interim and annual disclosures regarding long-duration insurance contract assets and liabilities, ASU 2018-12's provisions include modifications to the accounting for such contracts in the following areas:

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

ASU 2018-12 Subject Area
Description of Requirements
Transition Provisions
Effect on the Financial Statements or Other Significant Matters
Assumptions used to measure the liability for future policy benefits for nonparticipating traditional and limited payment insurance contracts


Requires insurers to review and, if necessary, update cash flow assumptions at least annually.

The effect of updating cash flow assumptions will be measured on a retrospective catch-up basis and presented in the Statement of Operations in the period in which the update is made.
The rate used to discount the liability for future policy benefits will be required to be updated quarterly, with related changes in the liability recorded in AOCI. The discount rate will be based on an upper-medium grade fixed-income corporate instrument yield reflecting the duration characteristics of the relevant liabilities.

Initial adoption is required to be reported using either a full retrospective or modified retrospective approach. Under either method, upon adoption the liability for future policy benefits will be remeasured using current discount rates as of the beginning of the earliest period presented with the impact recorded as a cumulative effect adjustment to AOCI.

The application of periodic assumption updates for nonparticipating traditional and limited payment insurance contracts is significantly different from the current accounting approach for such liabilities, which is based on assumptions that are locked in at contract inception unless a premium deficiency occurs. Under the current accounting guidance, the liability discount rate is based on expected yields on the underlying investment portfolio held by the insurer.
The implications of these requirements, including transition options, and related potential financial statement impacts are currently being evaluated.
Measurement of market risk benefits


Creates a new category of benefit features called market risk benefits, defined as features that protect contract holders from capital market risk and expose the insurers to that risk. Market risk benefits will be required to be measured at fair value, with changes in fair value recognized in the Statement of Operations, except for changes in fair value attributable to changes in the instrument-specific credit risk, which will be recorded in AOCI.

Full retrospective application is required. Upon adoption, any difference between the fair value and pre-adoption carrying value of market risk benefits not currently measured at fair value will be recorded to retained earnings. In addition, the cumulative effect of changes in instrument-specific credit risk will be reclassified from retained earnings to AOCI.
Under the current accounting guidance, certain features that are expected to meet the definition of market risk benefits are accounted for as either insurance liabilities (for example, GMDB and GMIB) or embedded derivatives (for example, GMWBL and GMWB).
The implications of these requirements and related potential financial statement impacts are currently being evaluated.


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

ASU 2018-12 Subject Area
Description of Requirements
Transition Provisions
Effect on the Financial Statements or Other Significant Matters
Amortization of DAC and other balances


Requires DAC (and other balances that refer to the DAC model, such as deferred sales inducement costs and unearned revenue liabilities) for all long-duration contracts to be measured on a constant level basis over the expected life of the contract.

Initial adoption is required to be reported using either a full retrospective or modified retrospective approach. The method of transition applied for DAC and other balances must be consistent with the transition method selected for future policy benefit liabilities, as described above.

This approach is intended to approximate straight-line amortization and cannot be based on revenue or profits as it is under the current accounting model. Related amounts in AOCI will be eliminated upon adoption. ASU 2018-12 did not change the existing accounting guidance related to value of business acquired ("VOBA") and net cost of reinsurance, which allows, but does not require, insurers to amortize such balances on a basis consistent with DAC.

The implications of these requirements, including transition options, and related potential financial statement impacts are currently being evaluated.













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

The following table provides a description of future adoptions of other new accounting standards that may have an impact on the Company's financial statements when adopted:
Standard
Description of Requirements

Effective date and transition provisions
Effect on the financial statements or other significant matters
ASU 2019-04, Codification Improvements to Financial Instruments
This standard, issued in April 2019, represents changes to clarify, correct errors in, and improve the financial instruments guidance in the following areas:
• Topic 326, Financial Instruments-Credit Losses,
• Topic 815, Derivatives and Hedging, and
• Topic 825, Financial Instruments.
Generally January 1, 2020, including interim periods, with early adoption permitted. The effective dates and transition methods vary by provision.

The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2019-04.

ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
This standard, issued in August 2018, requires a customer in a hosting arrangement that is a service contract to follow the guidance for internal-use software projects to determine which implementation costs to capitalize as an asset. Capitalized implementation costs are required to be expensed over the term of the hosting arrangement. In addition, a customer is required to apply the impairment and abandonment guidance for long-lived assets to the capitalized implementation costs. Balances related to capitalized implementation costs must be presented in the same financial statement line items as other hosting arrangement balances, and additional disclosures are required.
January 1, 2020 with early adoption permitted. Initial adoption of ASU 2018-15 may be reported either on a prospective or retrospective basis.
The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2018-15.
ASU 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans
This standard, issued in August 2018, eliminates certain disclosure requirements that are no longer considered cost beneficial and requires new disclosures that are considered relevant.
January 1, 2021 with early adoption permitted. Initial adoption of ASU 2018-14 is required to be reported on a retrospective basis for all periods presented.
The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2018-14.
ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement
This standard, issued in August 2018, simplifies certain disclosure requirements for fair value measurement.
January 1, 2020, including interim periods, with early adoption permitted. The transition method varies by provision.
The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2018-13.
ASU 2016-13, Measurement of Credit Losses on Financial Instruments
This standard, issued in June 2016:
• Introduces a new current expected credit loss ("CECL") model to measure impairment on certain types of financial instruments,
• Requires an entity to estimate lifetime expected credit losses, under the new CECL model, based on relevant information about historical events, current conditions, and reasonable and supportable forecasts,
• 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.

In addition, the FASB issued various amendments during 2018 and 2019 to clarify the provisions of ASU 2016-13.
January 1, 2020, including interim periods, with early adoption permitted. 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.


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

2.    Discontinued Operations

On June 1, 2018, the Company consummated a series of transactions (collectively, the "2018 Transaction") pursuant to a Master Transaction Agreement dated December 20, 2017 (the "MTA") with VA Capital Company LLC ("VA Capital") and Athene Holding Ltd. ("Athene"). As part of the 2018 Transaction, Venerable Holdings, Inc. ("Venerable"), a wholly owned subsidiary of VA Capital, acquired two of the Company's subsidiaries, Voya Insurance and Annuity Company ("VIAC") and Directed Services, LLC ("DSL"), and VIAC and other Voya subsidiaries reinsured to Athene substantially all of their fixed and fixed indexed annuities business. In connection with the 2018 Transaction, VIAC and another Voya subsidiary engaged in a series of reinsurance arrangements pursuant to which Voya and its subsidiaries other than VIAC retained VIAC’s businesses other than variable annuities and fixed and fixed indexed annuities. Pursuant to the terms of the 2018 Transaction, the Company has retained a small number of CBVA and Annuities policies that are not included in the disposed businesses described above as "Retained Business."

During the second quarter of 2019, the Company settled the outstanding purchase price true-up amounts with VA Capital. The Company does not anticipate further material charges in connection with the 2018 Transaction. Income(loss) from discontinued operations, net of tax for the six months ended June 30, 2019 includes a $82 charge related to the purchase price true-up settlement in connection with the 2018 Transaction.

The following table summarizes the components of Income (loss) from discontinued operations, net of tax for the six months ended June 30, 2019 and 2018:
 
Six Months Ended June 30,
 
2019
 
2018
Revenues:
 
 
 
Net investment income
$
—

 
$
510

Fee income
—

 
295

Premiums
—

 
(50
)
Total net realized capital gains (losses)
—

 
(345
)
Other revenue
—

 
10

Total revenues
—

 
420

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

 
442

Operating expenses
—

 
(14
)
Net amortization of Deferred policy acquisition costs and Value of business acquired
—

 
49

Interest expense
—

 
10

Total benefits and expenses
—

 
487

Income (loss) from discontinued operations before income taxes
—

 
(67
)
Income tax expense (benefit)
—

 
(19
)
Adjustment to loss on sale, net of tax
(82
)
 
505

Income (loss) from discontinued operations, net of tax
$
(82
)
 
$
457




 
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Table of Contents
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

Available-for-sale and fair value option ("FVO") fixed maturities were as follows as of June 30, 2019:
 
Amortized Cost
 
Gross Unrealized Capital Gains
 
Gross Unrealized Capital Losses
 
Embedded Derivatives(2)
 
Fair Value
 
OTTI(3)(4)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
1,666

 
$
500

 
$
—

 
$
—

 
$
2,166

 
$
—

U.S. Government agencies and authorities
197

 
52

 
—

 
—

 
249

 
—

State, municipalities and political subdivisions
1,642

 
114

 
2

 
—

 
1,754

 
—

U.S. corporate public securities
18,170

 
2,307

 
67

 
—

 
20,410

 
—

U.S. corporate private securities
6,292

 
444

 
38

 
—

 
6,698

 
—

Foreign corporate public securities and foreign governments(1)
5,320

 
521

 
31

 
—

 
5,810

 
—

Foreign corporate private securities(1)
5,027

 
250

 
15

 
—

 
5,262

 
—

Residential mortgage-backed securities
5,282

 
285

 
20

 
29

 
5,576

 
10

Commercial mortgage-backed securities
3,892

 
203

 
5

 
—

 
4,090

 
—

Other asset-backed securities
2,415

 
46

 
23

 
—

 
2,438

 
2

Total fixed maturities, including securities pledged
49,903

 
4,722

 
201

 
29

 
54,453

 
12

Less: Securities pledged
1,739

 
219

 
13

 
—

 
1,945

 
—

Total fixed maturities
$
48,164

 
$
4,503

 
$
188

 
$
29

 
$
52,508

 
$
12

(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 $411 of net unrealized gains on impaired available-for-sale securities.



 
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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 were as follows as of December 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
$
1,937

 
$
360

 
$
2

 
$
—

 
$
2,295

 
$
—

U.S. Government agencies and authorities
204

 
38

 
—

 
—

 
242

 
—

State, municipalities and political subdivisions
1,652

 
29

 
22

 
—

 
1,659

 
—

U.S. corporate public securities
19,210

 
1,053

 
415

 
—

 
19,848

 
—

U.S. corporate private securities
6,264

 
138

 
170

 
—

 
6,232

 
—

Foreign corporate public securities and foreign governments(1)
5,429

 
193

 
167

 
—

 
5,455

 
—

Foreign corporate private securities(1)
5,176

 
70

 
152

 
—

 
5,094

 
—

Residential mortgage-backed securities
4,616

 
214

 
53

 
26

 
4,803

 
11

Commercial mortgage-backed securities
3,438

 
33

 
55

 
—

 
3,416

 
—

Other asset-backed securities
2,095

 
30

 
48

 
—

 
2,077

 
2

Total fixed maturities, including securities pledged
50,021

 
2,158

 
1,084

 
26

 
51,121

 
13

Less: Securities pledged
1,824

 
107

 
64

 
—

 
1,867

 
—

Total fixed maturities
$
48,197

 
$
2,051

 
$
1,020

 
$
26

 
$
49,254

 
$
13

(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 $300 of net unrealized gains on impaired available-for-sale securities.

The amortized cost and fair value of fixed maturities, including securities pledged, as of June 30, 2019, 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
$
1,265

 
$
1,277

After one year through five years
6,452

 
6,697

After five years through ten years
9,227

 
9,800

After ten years
21,370

 
24,575

Mortgage-backed securities
9,174

 
9,666

Other asset-backed securities
2,415

 
2,438

Fixed maturities, including securities pledged
$
49,903

 
$
54,453



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.

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


As of June 30, 2019 and December 31, 2018, 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
June 30, 2019
 
 
 
 
 
 
 
Communications
$
2,456

 
$
368

 
$
1

 
$
2,823

Financial
5,184

 
614

 
6

 
5,792

Industrial and other companies
14,889

 
1,312

 
57

 
16,144

Energy
3,764

 
457

 
52

 
4,169

Utilities
6,270

 
575

 
23

 
6,822

Transportation
1,394

 
133

 
4

 
1,523

Total
$
33,957

 
$
3,459

 
$
143

 
$
37,273

 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
Communications
$
2,554

 
$
162

 
$
35

 
$
2,681

Financial
5,200

 
293

 
90

 
5,403

Industrial and other companies
15,591

 
487

 
422

 
15,656

Energy
4,034

 
194

 
143

 
4,085

Utilities
6,560

 
253

 
158

 
6,655

Transportation
1,281

 
47

 
32

 
1,296

Total
$
35,220

 
$
1,436

 
$
880

 
$
35,776



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 June 30, 2019 and December 31, 2018, approximately 40.3% and 41.6%, 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.


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

Repurchase Agreements

As of June 30, 2019 and December 31, 2018, the Company did not have any securities pledged in dollar rolls or reverse repurchase agreements. As of June 30, 2019, the carrying value of securities pledged and obligation to repay loans related to repurchase agreement transaction was $67, respectively, and included in Securities pledged and Payables under securities loan and repurchase agreements, including collateral held, respectively, on the Condensed Consolidated Balance Sheets. As of December 31, 2018, the carrying value of securities pledged and obligation to repay loans related to repurchase agreement transaction was $45 and $46, respectively. Securities pledged related to repurchase agreements are comprised of other asset-backed securities.

Securities Lending

The Company engages in securities lending whereby the 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 June 30, 2019 and December 31, 2018, the fair value of loaned securities was $1,707 and $1,635, 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 June 30, 2019 and December 31, 2018, cash collateral retained by the lending agent and invested in short-term liquid assets on the Company's behalf was $1,525 and $1,581, respectively, and is recorded in Short-term investments under securities loan agreements, including collateral delivered on the Condensed Consolidated Balance Sheets. As of June 30, 2019 and December 31, 2018, liabilities to return collateral of $1,525 and $1,581, respectively, are included in Payables under securities loan and repurchase agreements, including collateral held on the Condensed Consolidated Balance Sheets.

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 June 30, 2019 and December 31, 2018, the fair value of securities retained as collateral by the lending agent on the Company’s behalf was $238 and $111, respectively.

The following table presents borrowings under securities lending transactions by asset class pledged as of the dates indicated:
 
June 30, 2019 (1)(2)
 
December 31, 2018 (1)(2)
U.S. Treasuries
$
403

 
$
337

U.S. Government agencies and authorities
43

 
7

U.S. corporate public securities
860

 
992

Equity Securities
—

 
1

Short-term investments
61

 
—

Foreign corporate public securities and foreign governments
396

 
355

Payables under securities loan agreements
$
1,763

 
$
1,692

(1)As of June 30, 2019 and December 31, 2018, borrowings under securities lending transactions include cash collateral of $1,525 and $1,581, respectively.
(2)As of June 30, 2019 and December 31, 2018, borrowings under securities lending transactions include non-cash collateral of $238 and $111, 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.


 
24
 

Table of Contents
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 June 30, 2019:
 
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
 
U.S. Treasuries
$
—

 
$
—

 
$
54

 
$
—

*
$
54

 
$
—

*
State, municipalities and political subdivisions
7

 
—

*
49

 
2

 
56

 
2

 
U.S. corporate public securities
320

 
5

 
926

 
62

 
1,246

 
67

 
U.S. corporate private securities
273

 
5

 
496

 
33

 
769

 
38

 
Foreign corporate public securities and foreign governments
96

 
2

 
348

 
29

 
444

 
31

 
Foreign corporate private securities
86

 
1

 
491

 
14

 
577

 
15

 
Residential mortgage-backed
644

 
11

 
372

 
9

 
1,016

 
20

 
Commercial mortgage-backed
192

 
1

 
122

 
4

 
314

 
5

 
Other asset-backed
712

 
10

 
524

 
13

 
1,236

 
23

 
Total
$
2,330

 
$
35

 
$
3,382

 
$
166

 
$
5,712

 
$
201

 
Total number of securities in an unrealized loss position
342

 
 
 
542

 
 
 
884

 
 
 
*Less than $1.



 
25
 

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

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 December 31, 2018:
 
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
U.S. Treasuries
$
24

 
$
—

*
$
94

 
$
2

 
$
118

 
$
2

State, municipalities and political subdivisions
523

 
10

 
241

 
12

 
764

 
22

U.S. corporate public securities
6,544

 
305

 
972

 
110

 
7,516

 
415

U.S. corporate private securities
2,348

 
68

 
888

 
102

 
3,236

 
170

Foreign corporate public securities and foreign governments
2,379

 
119

 
314

 
48

 
2,693

 
167

Foreign corporate private securities
2,130

 
113

 
403

 
39

 
2,533

 
152

Residential mortgage-backed
897

 
18

 
602

 
35

 
1,499

 
53

Commercial mortgage-backed
1,555

 
33

 
550

 
22

 
2,105

 
55

Other asset-backed
1,436

 
46

 
98

 
2

 
1,534

 
48

Total
$
17,836

 
$
712

 
$
4,162

 
$
372

 
$
21,998

 
$
1,084

Total number of securities in an unrealized loss position
2,338

 
 
 
751

 
 
 
3,089

 
 

*Less than $1.

Based on the Company's quarterly evaluation of its securities in a unrealized loss position, described below, the Company concluded that these securities were not other-than-temporarily impaired as of June 30, 2019. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.
On a quarterly basis, the Company evaluates its available-for-sale investment portfolio to determine whether there has been an other-than-temporary decline in fair value below the amortized cost basis. All available-for-sale securities with fair values less than amortized cost are included in the Company’s evaluation. Generally, for non-structured securities, management considers the estimated fair value as the recovery value when available information does not indicate that another value is more appropriate. When information is identified that indicates a recovery value other than estimated fair value, management considers in the determination of recovery value the same consideration utilized in its overall impairment evaluation process, which incorporates available information and the company’s best estimate of scenario based outcomes regarding the specific security and issuer. The Company also considers quality and amount of any credit enhancement; the security's position within the capital structure of the issuer; fundamentals of the industry and geographic area in which the security issuer operates; and the overall macroeconomic conditions. For structured securities, such as non-agency RMBS, CMBS, and ABS, the Company evaluates other-than-temporary impairments based on actual and projected cash flows, after considering the quality and updated loan-to-value ratios, reflecting current home prices of the underlying collateral, forecasted loss severity, the payment priority in the tranche and any credit enhancement within the structure. In assessing credit impairment, the Company performs discounted cash flow analysis comparing the current amortized cost of a security to the present value of the expected future cash flows, including estimated defaults, and prepayments. The discount rate is generally the effective interest rate of the fixed maturity prior to the impairment.

See the Business, Basis of Presentation and Significant Accounting Policies Note to our Consolidated Financial Statements in Part II, Item 8. in our Annual Report on Form 10-K for the policy used to evaluate whether the investments are other-than-temporarily impaired.


 
26
 

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

Gross unrealized capital losses on fixed maturities, including securities pledged, decreased $883 from $1,084 to $201 for the six months ended June 30, 2019. The decrease in gross unrealized capital losses was primarily due to declining interest rates.

At June 30, 2019, $39 of the total $201 of gross unrealized losses were from 13 available-for-sale fixed maturity securities with an unrealized loss position of 20% or more of amortized cost for 12 months or greater.

Evaluating Securities for Other-Than-Temporary Impairments

The Company performs a regular evaluation, on a security-by-security basis, of its available-for-sale securities holdings, including fixed maturity securities, in accordance with its impairment policy in order to evaluate whether such investments are other-than-temporarily impaired.

The following table identifies the Company's impairments included in the Condensed Consolidated Statements of Operations, excluding impairments included in Other comprehensive income (loss) by type for the periods indicated:
 
Three Months Ended June 30,
 
2019
 
2018
 
Impairment
 
No. of
Securities
 
Impairment
 
No. of
Securities
Foreign corporate public securities and foreign governments(1)
$
3

 
1

 
$
—

 
—

Foreign corporate private securities(1)
—

 
—

 
—

 
—

Residential mortgage-backed
—

*
13

 
1

 
18

Other asset-backed
—

*
1

 
—

 
—

Total
$
3

 
15

 
$
1

 
18

Credit Impairments
$
—

 
 
 
$
1

 
 
Intent Impairments
$
3

 
 
 
$
—

 
 
(1) Primarily U.S. dollar denominated.

 
 
 
 
 
 
 
*Less than $1
 
Six Months Ended June 30,
 
2019
 
2018
 
Impairment
 
No. of
Securities
 
Impairment
 
No. of
Securities
Foreign corporate public securities and foreign governments(1)
$
3

 
1

 
$
—

 
—

Foreign corporate private securities(1)
30

 
3

 
14

 
1

Residential mortgage-backed
—

*
24

 
1

 
25

Other asset-backed
1

 
3

 
—

 
—

Total
$
34

 
31

 
$
15

 
26

Credit Impairments
$
31

 
 
 
$
15

 
 
Intent Impairments
$
3

 
 
 
$
—

 
 
(1) Primarily U.S. dollar denominated.
 
 
 
 
 
 
 
*Less than $1


The Company may sell securities during the period in which fair value has declined below amortized cost for fixed maturities. In certain situations, new factors, including changes in the business environment, can change the Company’s previous intent to continue holding a security. Accordingly, these factors may lead the Company to record additional intent related capital losses.


 
27
 

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

The following table presents the amount of credit impairments on fixed maturities for which a portion of the OTTI loss was recognized in Other comprehensive income (loss) and the corresponding changes in such amounts for the periods indicated:
 
Three Months Ended June 30,
 
2019
 
2018
Balance at April 1
$
19

 
$
24

Additional credit impairments:
 
 
 
On securities previously impaired
—

 
—

Reductions:
 
 
 
Increase in cash flows
—

 
—

Securities sold, matured, prepaid or paid down
—

 
2

Balance at June 30
$
19

 
$
22

 
 
 
 
 
Six Months Ended June 30,
 
2019
 
2018
Balance at January 1
$
22

 
$
40

Additional credit impairments:
 
 
 
On securities previously impaired
—

 
—

Reductions:
 
 
 
Increase in cash flows
1

 
—

Securities sold, matured, prepaid or paid down
2

 
18

Balance at June 30
$
19

 
$
22



Troubled Debt Restructuring

The Company invests in high quality, well performing portfolios of commercial mortgage loans and private placements. Under certain circumstances, modifications are granted to these contracts. Each modification is evaluated as to whether a troubled debt restructuring has occurred. A modification is a troubled debt restructuring when the borrower is in financial difficulty and the creditor makes concessions. Generally, the types of concessions may include reducing the face amount or maturity amount of the debt as originally stated, reducing the contractual interest rate, extending the maturity date at an interest rate lower than current market interest rates and/or reducing accrued interest. The Company considers the amount, timing and extent of the concession granted in determining any impairment or changes in the specific valuation allowance recorded in connection with the troubled debt restructuring. A valuation allowance may have been recorded prior to the quarter when the loan is modified in a troubled debt restructuring. Accordingly, the carrying value (net of the specific valuation allowance) before and after modification through a troubled debt restructuring may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment. For the three and six months ended June 30, 2019, the Company did not have any new commercial mortgage loan troubled debt restructuring. For the three months ended June 30, 2019, the Company did not have any new private placement troubled debt restructuring. For the six months ended June 30, 2019, the Company had one new private placement troubled debt restructuring with a pre-modification cost basis of $124 and post-modification carrying value of $93. For the three and six months ended June 30, 2018, the Company did not have any new commercial mortgage loan or private placement troubled debt restructuring.

For the three and six months ended June 30, 2019 and June 30, 2018, respectively, the Company did not have any commercial mortgage loans or private placements modified in a troubled debt restructuring with a subsequent payment default.

Mortgage Loans on Real Estate
 
The Company diversifies its commercial mortgage loan portfolio by geographic region and property type to reduce concentration risk. The Company manages risk when originating commercial mortgage loans by generally lending only up to 75% of the estimated fair value of the underlying real estate. Subsequently, the Company continuously evaluates mortgage loans based on relevant

 
28
 

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

current information including a review of loan-specific credit quality, property characteristics and market trends. Loan performance is monitored on a loan specific basis through the review of submitted appraisals, operating statements, rent revenues and annual inspection reports, among other items. This review ensures properties are performing at a consistent and acceptable level to secure the debt. The components to evaluate debt service coverage are received and reviewed at least annually to determine the level of risk.

The following table summarizes the Company's investment in mortgage loans as of the dates indicated:
 
June 30, 2019
 
December 31, 2018
 
Impaired
 
Non Impaired
 
Total
 
Impaired
 
Non Impaired
 
Total
Commercial mortgage loans
$
4

 
$
8,415

 
$
8,419

 
$
4

 
$
8,674

 
$
8,678

Collective valuation allowance for losses
N/A

 
(1
)
 
(1
)
 
N/A

 
(2
)
 
(2
)
Total net commercial mortgage loans
$
4

 
$
8,414

 
$
8,418

 
$
4

 
$
8,672

 
$
8,676


N/A - Not Applicable

There were no impairments on the mortgage loan portfolio for the three months ended June 30, 2019. There was one impairment of $2 on the mortgage loan portfolio for the six months ended June 30, 2019. There were no impairments on the mortgage loan portfolio for the three and six months ended June 30, 2018.

The following table summarizes the activity in the allowance for losses for commercial mortgage loans for the periods indicated:
 
June 30, 2019
 
December 31, 2018
Collective valuation allowance for losses, balance at January 1
$
2

 
$
3

Addition to (reduction of) allowance for losses
(1
)
 
(1
)
Collective valuation allowance for losses, end of period
$
1

 
$
2



The carrying values and unpaid principal balances of impaired mortgage loans were as follows as of the dates indicated:
 
June 30, 2019
 
December 31, 2018
Impaired loans, gross
$
4

 
$
4

Less: Allowances for losses on impaired loans
—

 
—

Impaired loans, net
$
4

 
$
4

Unpaid principal balance of impaired loans
$
5

 
$
5



As of June 30, 2019 and December 31, 2018, the Company did not have any impaired loans with allowances for losses.

Commercial loans are placed on non-accrual status when 90 days in arrears if the Company has concerns regarding the collectability of future payments, or if a loan has matured without being paid off or extended.

As of June 30, 2019 and December 31, 2018, the Company had no loans greater than 60 days in arrears and there were no mortgage loans in the Company's portfolio in process of foreclosure. The Company foreclosed on one loan during the six months ended June 30, 2019 with a carrying value of $5.

 
29
 

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

The following table presents information on the average investment during the period in impaired loans and interest income recognized on impaired and troubled debt restructured loans for the periods indicated:
 
Three Months Ended June 30,
 
2019
 
2018
Impaired loans, average investment during the period (amortized cost) (1)
$
6

 
$
4

Interest income recognized on impaired loans, on an accrual basis (1)
—

 
—

Interest income recognized on impaired loans, on a cash basis (1)
—

 
—

Interest income recognized on troubled debt restructured loans, on an accrual basis
—

 
—

(1) Includes amounts for Troubled debt restructured loans.
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
2019
 
2018
Impaired loans, average investment during the period (amortized cost) (1)
$
8

 
$
4

Interest income recognized on impaired loans, on an accrual basis (1)
—

 
—

Interest income recognized on impaired loans, on a cash basis (1)
—

 
—

Interest income recognized on troubled debt restructured loans, on an accrual basis
—

 
—


(1) Includes amounts for Troubled debt restructured loans.

Loan-to-value ("LTV") and debt service coverage ("DSC") ratios are measures commonly used to assess the risk and quality of mortgage loans. The LTV ratio, calculated at time of origination, is expressed as a percentage of the amount of the loan relative to the value of the underlying property. A LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the underlying collateral. The DSC ratio, based upon the most recently received financial statements, is expressed as a percentage of the amount of a property’s net income to its debt service payments. A DSC ratio of less than 1.0 indicates that a property’s operations do not generate sufficient income to cover debt payments. These ratios are utilized as part of the review process described above.


 
30
 

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

The following table presents the LTV and DSC ratios as of the dates indicated:
 
 
 
 
Recorded Investment
 
 
 
 
Debt Service Coverage Ratios
 
 
 
 
> 1.5x
 
>1.25x - 1.5x
 
>1.0x - 1.25x
 
< 1.0x
 
Commercial mortgage loans secured by land or construction loans
 
Total
 
% of Total
June 30, 2019(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-Value Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0%
-
50%
$
714

 
$
42

 
$
11

 
$
2

 
$
—

 
$
769

 
9.1
%
>
50%
-
60%
1,830

 
63

 
74

 
4

 
—

 
1,971

 
23.4
%
>
60%
-
70%
3,581

 
459

 
601

 
179

 
49

 
4,869

 
57.8
%
>
70%
-
80%
320

 
249

 
87

 
70

 
12

 
738

 
8.8
%
>
80%
and above
15

 
48

 
1

 
8

 
—

 
72

 
0.9
%
Total
$
6,460

 
$
861

 
$
774

 
$
263

 
$
61

 
$
8,419

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded Investment
 
 
 
 
Debt Service Coverage Ratios
 
 
 
 
> 1.5x
 
>1.25x - 1.5x
 
>1.0x - 1.25x
 
< 1.0x
 
Commercial mortgage loans secured by land or construction loans
 
Total
 
% of Total
December 31, 2018(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-Value Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0%
-
50%
$
724

 
$
53

 
$
25

 
$
2

 
$
—

 
$
804

 
9.3
%
>
50%
-
60%
1,889

 
61

 
51

 
6

 
—

 
2,007

 
23.1
%
>
60%
-
70%
3,767

 
520

 
716

 
63

 
39

 
5,105

 
58.8
%
>
70%
-
80%
402

 
160

 
102

 
24

 
6

 
694

 
8.0
%
>
80%
and above
18

 
7

 
11

 
8

 
24

 
68

 
0.8
%
Total
$
6,800

 
$
801

 
$
905

 
$
103

 
$
69

 
$
8,678

 
100.0
%
(1)Balances do not include collective valuation allowance for losses.

 
 
 
 
 
 
 
 



 
31
 

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

Properties collateralizing mortgage loans are geographically dispersed throughout the United States, as well as diversified by property type, as reflected in the following tables as of the dates indicated:
 
June 30, 2019
 
December 31, 2018
 
Gross Carrying Value
 
% of
Total
 
Gross Carrying Value
 
% of
Total
Commercial Mortgage Loans by U.S. Region:
 
 
 
 
 
 
 
Pacific
$
2,127

 
25.3
%
 
$
2,078

 
23.8
%
South Atlantic
1,698

 
20.1
%
 
1,771

 
20.4
%
Middle Atlantic
1,508

 
17.9
%
 
1,525

 
17.6
%
West South Central
914

 
10.9
%
 
952

 
11.0
%
Mountain
869

 
10.3
%
 
892

 
10.3
%
East North Central
721

 
8.6
%
 
833

 
9.6
%
New England
163

 
1.9
%
 
154

 
1.8
%
West North Central
342

 
4.1
%
 
390

 
4.5
%
East South Central
77

 
0.9
%
 
83

 
1.0
%
Total Commercial mortgage loans
$
8,419

 
100.0
%
 
$
8,678

 
100.0
%

 
June 30, 2019
 
December 31, 2018
 
Gross Carrying Value
 
% of
Total
 
Gross Carrying Value
 
% of
Total
Commercial Mortgage Loans by Property Type:
 
 
 
 
 
 
 
Retail
$
2,426

 
28.8
%
 
$
2,482

 
28.6
%
Industrial
2,001

 
23.8
%
 
2,074

 
23.9
%
Apartments
2,073

 
24.6
%
 
2,110

 
24.3
%
Office
1,197

 
14.2
%
 
1,316

 
15.2
%
Hotel/Motel
244

 
2.9
%
 
210

 
2.4
%
Other
404

 
4.8
%
 
411

 
4.7
%
Mixed Use
74

 
0.9
%
 
75

 
0.9
%
Total Commercial mortgage loans
$
8,419

 
100.0
%
 
$
8,678

 
100.0
%





 
32
 

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

Net Investment Income

The following table summarizes Net investment income for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Fixed maturities
$
690

 
$
685

 
$
1,375

 
$
1,348

Equity securities
3

 
3

 
7

 
6

Mortgage loans on real estate
98

 
99

 
194

 
196

Policy loans
24

 
26

 
47

 
51

Short-term investments and cash equivalents
3

 
5

 
7

 
9

Other
84

 
11

 
108

 
60

Gross investment income
902

 
829

 
1,738

 
1,670

Less: investment expenses
22

 
16

 
43

 
34

Net investment income
$
880

 
$
813

 
$
1,695

 
$
1,636



As of June 30, 2019 and December 31, 2018, the Company had $2 and $5, respectively, of investments in fixed maturities that did not produce net investment income. Fixed maturities are moved to a non-accrual status when the investment defaults.

Interest income on fixed maturities is recorded when earned using an effective yield method, giving effect to amortization of premiums and accretion of discounts. Such interest income is recorded in Net investment income in the Condensed Consolidated Statements of Operations.

Net Realized Capital Gains (Losses)

Net realized capital gains (losses) comprise the difference between the amortized cost of investments and proceeds from sale and redemption, as well as losses incurred due to the credit-related and intent-related other-than-temporary impairment of investments. Realized investment gains and losses are also primarily generated from changes in fair value of embedded derivatives within products and fixed maturities, changes in fair value of fixed maturities recorded at FVO and changes in fair value including accruals on derivative instruments, except for effective cash flow hedges. Net realized capital gains (losses) also include changes in fair value of equity securities. The cost of the investments on disposal is generally determined based on first-in-first-out ("FIFO") methodology.


 
33
 

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

Net realized capital gains (losses) were as follows for the periods indicated:
 
Three Months Ended June 30,
 
2019
 
2018
Fixed maturities, available-for-sale, including securities pledged
$
11

 
$
—

Fixed maturities, at fair value option
121

 
(143
)
Equity securities
8

 
1

Derivatives
(67
)
 
15

Embedded derivatives - fixed maturities
2

 
(5
)
Guaranteed benefit derivatives
(26
)
 
15

Other investments
1

 
(3
)
Net realized capital gains (losses)
$
50

 
$
(120
)
 
 
 
 
 
Six Months Ended June 30,
 
2019
 
2018
Fixed maturities, available-for-sale, including securities pledged
$
(6
)
 
$
(40
)
Fixed maturities, at fair value option
206

 
(333
)
Equity securities
15

 
(2
)
Derivatives
(66
)
 
32

Embedded derivatives - fixed maturities
3

 
(12
)
Guaranteed benefit derivatives
(84
)
 
43

Other investments
(1
)
 
11

Net realized capital gains (losses)
$
67

 
$
(301
)


For the three and six months ended June 30, 2019, the change in the fair value of equity securities still held as of June 30, 2019 was $8 and $15, respectively. For the three and six months ended June 30, 2018, the change in the fair value of equity securities still held as of June 30, 2018 was $1 and $(2), respectively.

Proceeds from the sale of fixed maturities, available-for-sale, and equity securities and the related gross realized gains and losses, before tax, were as follows for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Proceeds on sales
$
1,342

 
$
2,222

 
$
3,198

 
$
3,802

Gross gains
25

 
21

 
60

 
32

Gross losses
8

 
31

 
38

 
57




 
34
 

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

4.    Derivative Financial Instruments

The Company enters into the following types of derivatives:

Interest rate caps and floors: The Company uses interest rate cap contracts to hedge the interest rate exposure arising from duration mismatches between assets and liabilities. Interest rate caps are also used to hedge interest rate exposure if rates rise above a specified level. The Company uses interest rate floor contracts to hedge interest rate exposure if rates decrease below a specified level. The Company pays an upfront premium to purchase these caps and floors. The Company utilizes these contracts in non-qualifying hedging relationships.

Interest rate swaps: Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and/or liabilities. Interest rate swaps are also used to hedge the interest rate risk associated with the value of assets it owns or in an anticipation of acquiring them. Using interest rate swaps, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest payments, calculated by reference to an agreed upon notional principal amount. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made to/from the counterparty at each due date. The Company utilizes these contracts in qualifying hedging relationships as well as non-qualifying hedging relationships.

Foreign exchange swaps: The Company uses foreign exchange or currency swaps to reduce the risk of change in the value, yield or cash flows associated with certain foreign denominated invested assets. Foreign exchange swaps represent contracts that require the exchange of foreign currency cash flows against U.S. dollar cash flows at regular periods, typically quarterly or semi-annually. The Company utilizes these contracts in qualifying hedging relationships as well as non-qualifying hedging relationships.

Credit default swaps: Credit default swaps are used to reduce credit loss exposure with respect to certain assets that the Company owns or to assume credit exposure on certain assets that the Company does not own. Payments are made to, or received from, the counterparty at specified intervals. In the event of a default on the underlying credit exposure, the Company will either receive a payment (purchased credit protection) or will be required to make a payment (sold credit protection) equal to the par minus recovery value of the swap contract. The Company utilizes these contracts in non-qualifying hedging relationships.

Total return swaps: The Company uses total return swaps as a hedge against a decrease in variable annuity account values, which are invested in certain indices. Using total return swaps, the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of assets or a market index and the London Interbank Offered Rates ( LIBOR) rate, calculated by reference to an agreed upon notional principal amount. No cash is exchanged at the onset of the contracts. Cash is paid and received over the life of the contract based upon the terms of the swaps. The Company utilizes these contracts in non-qualifying hedging relationships.
 
Currency forwards: The Company utilizes currency forward contracts to hedge currency exposure related to its invested assets. The Company utilizes these contracts in non-qualifying hedging relationships.

Forwards: The Company uses forward contracts to hedge certain invested assets against movement in interest rates, particularly mortgage rates. The Company uses To Be Announced mortgage-backed securities as an economic hedge against rate movements. The Company utilizes forward contracts in non-qualifying hedging relationships.

Futures: Futures contracts are used to hedge against a decrease in certain equity indices. Such decreases may correlate to a decrease in variable annuity account values which would increase the possibility of the Company incurring an expense for guaranteed benefits in excess of account values. The Company also uses interest rate futures contracts to hedge its exposure to market risks due to changes in interest rates. The Company enters into exchange traded futures with regulated futures commissions that are members of the exchange. The Company also posts initial and variation margins, with the exchange, on a daily basis. The Company utilizes exchange-traded futures in non-qualifying hedging relationships. The Company may also use futures contracts as a hedge against an increase in certain equity indices.


 
35
 

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

Swaptions: A swaption is an option to enter into a swap with a forward starting effective date. The Company uses swaptions to hedge the interest rate exposure associated with the minimum crediting rate and book value guarantees embedded in the retirement products that the Company offers. Increases in interest rates will generate losses on assets that are backing such liabilities. In certain instances, the Company locks in the economic impact of existing purchased swaptions by entering into offsetting written swaptions. The Company pays a premium when it purchases the swaption. The Company utilizes these contracts in non-qualifying hedging relationships.

Options: The Company uses equity options to hedge against an increase in various equity indices. Such increases may result in increased payments to the holders of the FIA and IUL contracts. The Company pays an upfront premium to purchase these options. The Company utilizes these options in non-qualifying hedging relationships.

Currency Options:  The Company uses currency option contracts to hedge currency exposure related to its invested assets. The Company utilizes these contracts in non-qualifying hedging relationships.

Managed custody guarantees ("MCGs"): The Company issues certain credited rate guarantees on variable fixed income portfolios that represent stand-alone derivatives. The market value is partially determined by, among other things, levels of or changes in interest rates, prepayment rates and credit ratings/spreads.

Embedded derivatives: The Company also invests in certain fixed maturity instruments and has issued certain products that contain embedded derivatives for which market value is at least partially determined by, among other things, levels of or changes in domestic and/or foreign interest rates (short-term or long-term), exchange rates, prepayment rates, equity rates or credit ratings/spreads. In addition, the Company has entered into coinsurance with funds withheld arrangements, which contain embedded derivatives.

The Company's use of derivatives is limited mainly to economic hedging to reduce the Company's exposure to cash flow variability of assets and liabilities, interest rate risk, credit risk, exchange rate risk and equity market risk. It is the Company's policy not to offset amounts recognized for derivative instruments and amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement, which provides the Company with the legal right of offset. However, in accordance with the Chicago Mercantile Exchange ("CME") rules related to the variation margin payments, the Company is required to adjust the derivative balances with the variation margin payments related to its cleared derivatives executed through CME.


 
36
 

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

The notional amounts and fair values of derivatives were as follows as of the dates indicated:
 
June 30, 2019
 
December 31, 2018
 
Notional
Amount
 
Asset
Fair
Value
 
Liability
Fair
Value
 
Notional
Amount
 
Asset
Fair
Value
 
Liability
Fair
Value
Derivatives: Qualifying for hedge accounting(1)
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
32

 
$
—

 
$
—

 
$
44

 
$
—

 
$
—

Foreign exchange contracts
778

 
20

 
17

 
744

 
14

 
23

Derivatives: Non-qualifying for hedge accounting(1)
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
23,835

 
231

 
396

 
24,085

 
140

 
109

Foreign exchange contracts
114

 
—

 
—

 
30

 
—

 
—

Equity contracts
1,883

 
189

 
17

 
1,756

 
93

 
4

Credit contracts
225

 
—

 
2

 
281

 
—

 
3

Embedded derivatives and Managed custody guarantees:
 
 
 
 
 
 
 
 
 
 
 
Within fixed maturity investments
N/A

 
29

 
—

 
N/A

 
26

 
—

Within products
N/A

 
—

 
217

 
N/A

 
—

 
126

Within reinsurance agreements
N/A

 
—

 
129

 
N/A

 
—

 
21

Total
 
 
$
469

 
$
778

 
 
 
$
273

 
$
286

(1) Open derivative contracts are reported as Derivatives assets or liabilities on the Condensed Consolidated Balance Sheets at fair value.
N/A - Not Applicable
 
 
 
 
 
 
 
 
 
 
 
 
Based on the notional amounts, a substantial portion of the Company’s derivative positions was not designated or did not qualify for hedge accounting as part of a hedging relationship as of June 30, 2019 and December 31, 2018. The Company utilizes derivative contracts mainly to hedge exposure to variability in cash flows, interest rate risk, credit risk, foreign exchange risk and equity market risk. The majority of derivatives used by the Company are designated as product hedges, which hedge the exposure arising from insurance liabilities or guarantees embedded in the contracts the Company offers through various product lines. These derivatives do not qualify for hedge accounting as they do not meet the criteria of being "highly effective" as outlined in ASC Topic 815, but do provide an economic hedge, which is in line with the Company’s risk management objectives. The Company also uses derivatives contracts to hedge its exposure to various risks associated with the investment portfolio. The Company does not seek hedge accounting treatment for certain of these derivatives as they generally do not qualify for hedge accounting due to the criteria required under the portfolio hedging rules outlined in ASC Topic 815. The Company also uses credit default swaps coupled with other investments in order to produce the investment characteristics of otherwise permissible investments that do not qualify as effective accounting hedges under ASC Topic 815.


 
37
 

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

Although the Company has not elected to net its derivative exposures, the notional amounts and fair values of Over-The-Counter ("OTC") and cleared derivatives excluding exchange traded contracts are presented in the tables below as of the dates indicated:
 
June 30, 2019
 
Notional Amount
 
Asset Fair Value
 
Liability Fair Value
Credit contracts
$
225

 
$
—

 
$
2

Equity contracts
1,769

 
189

 
16

Foreign exchange contracts
892

 
20

 
17

Interest rate contracts
21,958

 
230

 
396

 
 
 
439

 
431

Counterparty netting(1)
 
 
(244
)
 
(244
)
Cash collateral netting(1)
 
 
(170
)
 
(183
)
Securities collateral netting(1)
 
 
(14
)
 
(1
)
Net receivables/payables
 
 
$
11

 
$
3

(1) Represents the netting of receivable balances with payable balances, net of collateral, for the same counterparty under eligible netting agreements.
 
 
 
 
 
 
 
December 31, 2018
 
Notional Amount
 
Asset Fair Value
 
Liability Fair Value
Credit contracts
$
281

 
$
—

 
$
3

Equity contracts
1,616

 
93

 
3

Foreign exchange contracts
774

 
14

 
23

Interest rate contracts
21,575

 
140

 
109

 
 
 
247

 
138

Counterparty netting(1)
 
 
(113
)
 
(113
)
Cash collateral netting(1)
 
 
(112
)
 
(9
)
Securities collateral netting(1)
 
 
(11
)
 
(15
)
Net receivables/payables
 
 
$
11

 
$
1

(1) Represents the netting of receivable balances with payable balances, net of collateral, for the same counterparty under eligible netting agreements.
 
 
 
 
 
 

Collateral

Under the terms of the OTC Derivative International Swaps and Derivatives Association, Inc. ("ISDA") agreements, the Company may receive from, or deliver to, counterparties collateral to assure that terms of the ISDA agreements will be met with regard to the Credit Support Annex ("CSA"). The terms of the CSA call for the Company to pay interest on any cash received equal to the Federal Funds rate. To the extent cash collateral is received and delivered, it is included in Payables under securities loan and repurchase agreements, including collateral held and Short-term investments under securities loan agreements, including collateral delivered, respectively, on the Condensed Consolidated Balance Sheets and is reinvested in short-term investments. Collateral held is used in accordance with the CSA to satisfy any obligations. Investment grade bonds owned by the Company are the source of noncash collateral posted, which is reported in Securities pledged on the Condensed Consolidated Balance Sheets. As of June 30, 2019, the Company held $154 and pledged $163 of net cash collateral related to OTC derivative contracts and cleared derivative contracts, respectively. As of December 31, 2018, the Company held $91 and $16 of net cash collateral related to OTC derivative contracts and cleared derivative contracts, respectively. In addition, as of June 30, 2019, the Company delivered $171 of securities and held $14 of securities as collateral. As of December 31, 2018, the Company delivered $187 of securities and held $11 of securities as collateral.



 
38
 

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

The location and effect of derivatives qualifying for hedge accounting on the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income are as follows for the periods indicated:
 
Interest Rate Contracts
 
Foreign Exchange Contracts
Derivatives: Qualifying for hedge accounting
 
 
 
Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Net investment income
 
Net investment income
Three Months Ended June 30, 2019
 
 
 
Amount of Gain or (Loss) Recognized in Other Comprehensive Income
$
1

 
$
20

Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income
—

 
3

Six Months Ended June 30, 2019
 
 
 
Amount of Gain or (Loss) Recognized in Other Comprehensive Income
2

 
10

Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income
—

 
6


The location and amount of gain (loss) recognized in the Condensed Consolidated Statements of Operations for derivatives qualifying for hedge accounting are as follows for the periods indicated:
 
Three Months Ended June 30, 2019
 
Net Investment Income
 
Other net realized capital gains/(losses)
Total amounts of line items presented in the statement of operations in which the effects of cash flow hedges are recorded
$
880

 
$
53

Derivatives: Qualifying for hedge accounting
 
 
 
Cash flow hedges:
 
 
 
Foreign exchange contracts:
 
 
 
Gain (loss) reclassified from accumulated other comprehensive income into income
3

 
—

 
 
 
 
 
Six Months Ended June 30, 2019
 
Net Investment Income
 
Other net realized capital gains/(losses)
Total amounts of line items presented in the statement of operations in which the effects of cash flow hedges are recorded
$
1,695

 
$
103

Derivatives: Qualifying for hedge accounting
 
 
 
Cash flow hedges:
 
 
 
Foreign exchange contracts:
 
 
 
Gain (loss) reclassified from accumulated other comprehensive income into income
6

 
—







 
39
 

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

The location and effect of derivatives not designated as hedging instruments on the Condensed Consolidated Statements of Operations are as follows for the period indicated:
 
Location of Gain or (Loss) Recognized in Income on Derivative
 
Three Months Ended June 30,
 
 
2019
 
2018
Derivatives: Non-qualifying for hedge accounting
 
 
 
 
 
Interest rate contracts
Other net realized capital gains (losses)
 
$
(79
)
 
$
12

Foreign exchange contracts
Other net realized capital gains (losses)
 
2

 
5

Equity contracts
Other net realized capital gains (losses)
 
10

 
(5
)
Credit contracts
Other net realized capital gains (losses)
 
—

 
1

Embedded derivatives and Managed custody guarantees:
 
 
 
 
 
Within fixed maturity investments
Other net realized capital gains (losses)
 
2

 
(5
)
Within products
Other net realized capital gains (losses)
 
(26
)
 
15

Within reinsurance agreements
Policyholder benefits
 
(63
)
 
33

Total
 
 
$
(154
)
 
$
56

 
 
 
 
 
 
 
Location of Gain or (Loss) Recognized in Income on Derivative
 
Six Months Ended June 30,
 
 
2019
 
2018
Derivatives: Non-qualifying for hedge accounting
 
 
 
 
 
Interest rate contracts
Other net realized capital gains (losses)
 
$
(131
)
 
$
33

Foreign exchange contracts
Other net realized capital gains (losses)
 
4

 
3

Equity contracts
Other net realized capital gains (losses)
 
57

 
(9
)
Credit contracts
Other net realized capital gains (losses)
 
4

 
1

Embedded derivatives and Managed custody guarantees:
 
 
 
 
 
Within fixed maturity investments
Other net realized capital gains (losses)
 
3

 
(12
)
Within products
Other net realized capital gains (losses)
 
(84
)
 
43

Within reinsurance agreements
Policyholder benefits
 
(122
)
 
88

Total
 
 
$
(269
)
 
$
147


 
 
 
 
 
 
 
 
 
 
 


 
40
 

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

5.    Fair Value Measurements (excluding Consolidated Investment Entities)

Fair Value Measurement

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of June 30, 2019:
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Fixed maturities, including securities pledged:
 
 
 
 
 
 
 
U.S. Treasuries
$
1,568

 
$
598

 
$
—

 
$
2,166

U.S. Government agencies and authorities
—

 
249

 
—

 
249

State, municipalities and political subdivisions
—

 
1,754

 
—

 
1,754

U.S. corporate public securities
—

 
20,311

 
99

 
20,410

U.S. corporate private securities
—

 
5,116

 
1,582

 
6,698

Foreign corporate public securities and foreign governments(1)
—

 
5,802

 
8

 
5,810

Foreign corporate private securities(1)
—

 
4,892

 
370

 
5,262

Residential mortgage-backed securities
—

 
5,547

 
29

 
5,576

Commercial mortgage-backed securities
—

 
4,090

 
—

 
4,090

Other asset-backed securities
—

 
2,338

 
100

 
2,438

Total fixed maturities, including securities pledged
1,568

 
50,697

 
2,188

 
54,453

Equity securities
175

 
—

 
192

 
367

Derivatives:
 
 
 
 
 
 
 
Interest rate contracts
2

 
229

 
—

 
231

Foreign exchange contracts
—

 
20

 
—

 
20

Equity contracts
—

 
40

 
149

 
189

Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements
3,533

 
32

 
—

 
3,565

Assets held in separate accounts
73,844

 
5,969

 
102

 
79,915

Total assets
$
79,122

 
$
56,987

 
$
2,631

 
$
138,740

Percentage of Level to total
57
%
 
41
%
 
2
%
 
100
%
Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
Guaranteed benefit derivatives:
 
 
 
 
 
 
 
IUL
$
—

 
$
—

 
$
160

 
$
160

Other(2)
—

 
—

 
57

 
57

Other derivatives:
 
 
 
 
 
 
 
Interest rate contracts
—

 
396

 
—

 
396

Foreign exchange contracts
—

 
17

 
—

 
17

Equity contracts
1

 
16

 
—

 
17

Credit contracts
—

 
2

 
—

 
2

Embedded derivative on reinsurance
—

 
129

 
—

 
129

Total liabilities
$
1

 
$
560

 
$
217

 
$
778

(1) Primarily U.S. dollar denominated.
(2)Includes Guaranteed minimum withdrawal benefits with life payouts ("GMWBL"), Guaranteed minimum withdrawal benefits ("GMWB"), Fixed Indexed Annuities ("FIA"), Stabilizer and MCGs.

 
41
 

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

 
 
 
 
 
 
 
 
The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2018:
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Fixed maturities, including securities pledged:
 
 
 
 
 
 
 
U.S. Treasuries
$
1,753

 
$
542

 
$
—

 
$
2,295

U.S. Government agencies and authorities
—

 
242

 
—

 
242

State, municipalities and political subdivisions
—

 
1,659

 
—

 
1,659

U.S. corporate public securities
—

 
19,804

 
44

 
19,848

U.S. corporate private securities
—

 
4,839

 
1,393

 
6,232

Foreign corporate public securities and foreign governments(1)
—

 
5,444

 
11

 
5,455

Foreign corporate private securities(1)
—

 
4,843

 
251

 
5,094

Residential mortgage-backed securities
—

 
4,775

 
28

 
4,803

Commercial mortgage-backed securities
—

 
3,402

 
14

 
3,416

Other asset-backed securities
—

 
1,939

 
138

 
2,077

Total fixed maturities, including securities pledged
1,753

 
47,489

 
1,879

 
51,121

Equity securities
144

 
—

 
129

 
273

Derivatives:
 
 
 
 
 
 
 
Interest rate contracts
—

 
140

 
—

 
140

Foreign exchange contracts
—

 
14

 
—

 
14

Equity contracts
—

 
10

 
83

 
93

Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements
3,362

 
28

 
—

 
3,390

Assets held in separate accounts
65,361

 
5,805

 
62

 
71,228

Total assets
$
70,620

 
$
53,486

 
$
2,153

 
$
126,259

Percentage of Level to total
56
%
 
42
%
 
2
%
 
100
%
Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
Guaranteed benefit derivatives:
 
 
 
 
 
 
 
IUL
$
—

 
$
—

 
$
82

 
$
82

Other(2)
—

 
—

 
44

 
44

Other derivatives:
 
 
 
 
 
 
 
Interest rate contracts
—

 
109

 
—

 
109

Foreign exchange contracts
—

 
23

 
—

 
23

Equity contracts
1

 
3

 
—

 
4

Credit contracts
—

 
3

 
—

 
3

Embedded derivative on reinsurance
—

 
21

 
—

 
21

Total liabilities
$
1

 
$
159

 
$
126

 
$
286

(1)Primarily U.S. dollar denominated.
(2)Includes GMWBL, GMWB, FIA, Stabilizer and MCGs.

 
42
 

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


Valuation of Financial Assets and Liabilities at Fair Value

Certain assets and liabilities are measured at estimated fair value on the Company’s Condensed Consolidated Balance Sheets. The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The exit price and the transaction (or entry) price will be the same at initial recognition in many circumstances. However, in certain cases, the transaction price may not represent fair value. The fair value of a liability is based on the amount that would be paid to transfer a liability to a third-party with an equal credit standing. Fair value is required to be a market-based measurement that is determined based on a hypothetical transaction at the measurement date, from a market participant’s perspective. The Company considers three broad valuation approaches when a quoted price is unavailable: (i) the market approach, (ii) the income approach and (iii) the cost approach. The Company determines the most appropriate valuation technique to use, given the instrument being measured and the availability of sufficient inputs. The Company prioritizes the inputs to fair valuation approaches and allows for the use of unobservable inputs to the extent that observable inputs are not available.

The Company utilizes a number of valuation methodologies to determine the fair values of its financial assets and liabilities in conformity with the concepts of exit price and the fair value hierarchy as prescribed in ASC Topic 820. Valuations are obtained from third-party commercial pricing services, brokers and industry-standard, vendor-provided software that models the value based on market observable inputs. The valuations obtained from third-party commercial pricing services are non-binding. The Company reviews the assumptions and inputs used by third-party commercial pricing services for each reporting period in order to determine an appropriate fair value hierarchy level. The documentation and analysis obtained from third-party commercial pricing services are reviewed by the Company, including in-depth validation procedures confirming the observability of inputs. The valuations are reviewed and validated monthly through the internal valuation committee price variance review, comparisons to internal pricing models, back testing to recent trades or monitoring of trading volumes.

The valuation approaches and key inputs for each category of assets or liabilities that are classified within Level 2 and Level 3 of the fair value hierarchy are presented below.

For fixed maturities classified as Level 2 assets, fair values are determined using a matrix-based market approach, based on prices obtained from third-party commercial pricing services and the Company’s matrix and analytics-based pricing models, which in each case incorporate a variety of market observable information as valuation inputs. The market observable inputs used for these fair value measurements, by fixed maturity asset class, are as follows:

U.S. Treasuries: Fair value is determined using third-party commercial pricing services, with the primary inputs being stripped interest and principal U.S. Treasury yield curves that represent a U.S. Treasury zero-coupon curve.

U.S. government agencies and authorities, State, municipalities and political subdivisions: Fair value is determined using third-party commercial pricing services, with the primary inputs being U.S. Treasury yield curves, trades of comparable securities, credit spreads off benchmark yields and issuer ratings.

U.S. corporate public securities, Foreign corporate public securities and foreign governments: Fair value is determined using third-party commercial pricing services, with the primary inputs being benchmark yields, trades of comparable securities, issuer ratings, bids and credit spreads off benchmark yields.

U.S. corporate private securities and Foreign corporate private securities: Fair values are determined using a matrix and analytics-based pricing model. The model incorporates the current level of risk-free interest rates, current corporate credit spreads, credit quality of the issuer and cash flow characteristics of the security. The model also considers a liquidity spread, the value of any collateral, the capital structure of the issuer, the presence of guarantees, and prices and quotes for comparably rated publicly traded securities.

RMBS, CMBS and ABS: Fair value is determined using third-party commercial pricing services, with the primary inputs being credit spreads off benchmark yields, prepayment speed assumptions, current and forecasted loss severity, debt service coverage ratios, collateral type, payment priority within tranche and the vintage of the loans underlying the security.


 
43
 

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

Generally, the Company does not obtain more than one vendor price from pricing services per instrument. The Company uses a hierarchy process in which prices are obtained from a primary vendor and, if that vendor is unable to provide the price, the next vendor in the hierarchy is contacted until a price is obtained or it is determined that a price cannot be obtained from a commercial pricing service. When a price cannot be obtained from a commercial pricing service, independent broker quotes are solicited. Securities priced using independent broker quotes are classified as Level 3.

Broker quotes and prices obtained from pricing services are reviewed and validated through an internal valuation committee price variance review, comparisons to internal pricing models, back testing to recent trades or monitoring of trading volumes.

Fair values of privately placed bonds are determined primarily using a matrix-based pricing model and are generally classified as Level 2 assets. The model considers the current level of risk-free interest rates, current corporate spreads, the credit quality of the issuer and cash flow characteristics of the security. Also considered are factors such as the net worth of the borrower, the value of collateral, the capital structure of the borrower, the presence of guarantees and the Company’s evaluation of the borrower’s ability to compete in its relevant market. Using this data, the model generates estimated market values, which the Company considers reflective of the fair value of each privately placed bond.

Equity securities: Level 2 and Level 3 equity securities, typically private equities or equity securities not traded on an exchange, are valued by other sources such as analytics or brokers.

Derivatives: Derivatives are carried at fair value, which is determined using the Company’s derivative accounting system in conjunction with observable key financial data from third-party sources, such as yield curves, exchange rates, S&P 500 Index prices, LIBOR and Overnight Index Swap ("OIS") rates. The Company uses OIS for valuations of collateralized interest rate derivatives, which are obtained from third-party sources. For those derivatives that are unable to be valued by the accounting system, the Company typically utilizes values established by third-party brokers. Counterparty credit risk is considered and incorporated in the Company’s valuation process through counterparty credit rating requirements and monitoring of overall exposure. It is the Company’s policy to transact only with investment grade counterparties with a credit rating of A- or better. The Company’s nonperformance risk is also considered and incorporated in the Company’s valuation process. The Company also has certain credit default swaps and options that are priced by third party vendors or by using models that primarily use market observable inputs, but contain inputs that are not observable to market participants, which have been classified as Level 3. The remaining derivative instruments are valued based on market observable inputs and are classified as Level 2.

Guaranteed benefit derivatives: The Company records reserves for annuity contracts containing GMWBL and GMWB riders. The guarantee is an embedded derivative and is required to be accounted for separately from the host variable annuity contract. The fair value of the obligation is calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the anticipated life of the related contracts. The cash flow estimates are produced by using stochastic techniques under a variety of market return scenarios and other market implied assumptions. These derivatives are classified as Level 3 liabilities in the fair value hierarchy.

The index-crediting feature in the Company's FIA and IUL contracts is an embedded derivative that is required to be accounted for separately from the host contract. The fair value of the obligation is calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the anticipated life of the related contracts for FIAs and over the current indexed term for IULs. The cash flow estimates are produced by market implied assumptions. These derivatives are classified as Level 3 liabilities in the fair value hierarchy.

The Company records reserves for Stabilizer and MCG contracts containing guaranteed credited rates. The guarantee is treated as an embedded derivative or a stand-alone derivative (depending on the underlying product) and is required to be reported at fair value. The estimated fair value is determined based on the present value of projected future claims, minus the present value of future guaranteed premiums. At inception of the contract, the Company projects a guaranteed premium to be equal to the present value of the projected future claims. The income associated with the contracts is projected using relevant actuarial and capital market assumptions, including benefits and related contract charges, over the anticipated life of the related contracts. The cash flow estimates are produced by using stochastic techniques under a variety of risk neutral scenarios and other market implied assumptions. These derivatives are classified as Level 3 liabilities.


 
44
 

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

The discount rate used to determine the fair value of the Company's GMWBL, GMWB, FIA, IUL and Stabilizer embedded derivative liabilities and the stand-alone derivative for MCG includes an adjustment to reflect the risk that these obligations will not be fulfilled ("nonperformance risk"). The nonperformance risk adjustment incorporates a blend of observable, similarly rated peer holding company credit spreads, adjusted to reflect the credit quality of the individual insurance subsidiary that issued the guarantee, as well as an adjustment to reflect the non-default spreads and the priority and recovery rates of policyholder claims.

The Company's valuation actuaries are responsible for the policies and procedures for valuing the embedded derivatives, reflecting the capital markets and actuarial valuation inputs and nonperformance risk in the estimate of the fair value of the embedded derivatives. The actuarial and capital market assumptions for each liability are approved by each product's Chief Risk Officer ("CRO"), including an independent annual review by the CRO. Models used to value the embedded derivatives must comply with the Company's governance policies.

Quarterly, an attribution analysis is performed to quantify changes in fair value measurements and a sensitivity analysis is used to analyze the changes. The changes in fair value measurements are also compared to corresponding movements in the hedge target to assess the validity of the attributions. The results of the attribution analysis are reviewed by the valuation actuaries, responsible CFOs, Controllers, CROs and/or others as nominated by management.

Embedded derivatives on reinsurance: The carrying value of embedded derivatives is estimated based upon the change in the fair value of the assets supporting the funds withheld payable under reinsurance agreements. The fair value of the embedded derivative is based on market observable inputs and is classified as Level 2.

Transfers in and out of Level 1 and 2

There were no securities transferred between Level 1 and Level 2 for the three and six months ended June 30, 2019 and 2018. The Company's policy is to recognize transfers in and transfers out as of the beginning of the reporting period.

Level 3 Financial Instruments

The fair values of certain assets and liabilities are determined using prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (i.e., Level 3 as defined by ASC Topic 820), including but not limited to liquidity spreads for investments within markets deemed not currently active. These valuations, whether derived internally or obtained from a third-party, use critical assumptions that are not widely available to estimate market participant expectations in valuing the asset or liability. In addition, the Company has determined, for certain financial instruments, an active market is such a significant input to determine fair value that the presence of an inactive market may lead to classification in Level 3. In light of the methodologies employed to obtain the fair values of financial assets and liabilities classified as Level 3, additional information is presented below.

 
45
 

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

The following tables summarize the change in fair value of the Company’s Level 3 assets and liabilities and transfers in and out of Level 3 for the periods indicated:
 
Three Months Ended June 30, 2019
 
Fair Value as of April 1
 
Total
Realized/Unrealized
Gains (Losses)
Included in:
 
Purchases
 
Issuances
 
Sales
 

Settlements
 
Transfers
into
Level 3(3)
 
Transfers
out of
Level 3(3)
 
Fair Value as of June 30
 
Change In
Unrealized
Gains
(Losses)
Included in
Earnings(4)
 
 
Net
Income
 
OCI
 
 
 
 
 
 
 
 
Fixed maturities, including securities pledged:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate public securities
$
109

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(5
)
 
$
—

 
$
(5
)
 
$
99

 
$
—

U.S. corporate private securities
1,565

 
—

 
30

 
6

 
—

 
—

 
(9
)
 
—

 
(10
)
 
1,582

 
—

Foreign corporate public securities and foreign governments(1)
9

 
—

 
(1
)
 
—

 
—

 
—

 
—

 
—

 
—

 
8

 
—

Foreign corporate private securities(1)
266

 
—

 
8

 
96

 
—

 
—

 
—

 
—

 
—

 
370

 
—

Residential mortgage-backed securities
49

 
(2
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(18
)
 
29

 
(2
)
Commercial mortgage-backed securities
16

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(16
)
 
—

 
—

Other asset-backed securities
144

 
—

 
—

 
21

 
—

 
—

 
(1
)
 
—

 
(64
)
 
100

 
—

Total fixed maturities, including securities pledged
2,158

 
(2
)
 
37

 
123

 
—

 
—

 
(15
)
 
—

 
(113
)
 
2,188

 
(2
)
Equity securities
184

 
8

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
192

 
8

Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Guaranteed benefit derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IUL(2)
(146
)
 
(13
)
 
—

 
—

 
(15
)
 
—

 
14

 
—

 
—

 
(160
)
 
—

Other (2)(6)
(41
)
 
(13
)
 
—

 
—

 
(7
)
 
—

 
4

 
—

 
—

 
(57
)
 
—

Other derivatives, net
137

 
9

 
—

 
13

 
—

 
—

 
(10
)
 
—

 
—

 
149

 
12

Assets held in separate accounts(5)
67

 
2

 
—

 
33

 
—

 
—

 
—

 
—

 
—

 
102

 
—

(1) Primarily U.S. dollar denominated.
(2) All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by contract basis.
These amounts are included in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations.
(3) The Company's policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
(4) For financial instruments still held as of June 30, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(5) The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company.
(6) Includes GMWBL, GMWB, FIA, Stabilizer and MCGs.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
46
 

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

 
Six Months Ended June 30, 2019
 
Fair Value as of January 1
 
Total
Realized/Unrealized
Gains (Losses)
Included in:
 
Purchases
 
Issuances
 
Sales
 

Settlements
 
Transfers
into
Level 3(3)
 
Transfers
out of
Level 3(3)
 
Fair Value as of June 30
 
Change In
Unrealized
Gains
(Losses)
Included in
Earnings(4)
 
 
Net
Income
 
OCI
 
 
 
 
 
 
 
 
Fixed maturities, including securities pledged:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate public securities
$
44

 
$
—

 
$
2

 
$
—

 
$
—

 
$
—

 
$
(5
)
 
$
60

 
$
(2
)
 
$
99

 
$
—

U.S. corporate private securities
1,393

 
1

 
84

 
153

 
—

 
(13
)
 
(25
)
 
—

 
(11
)
 
1,582

 
—

Foreign corporate public securities and foreign governments(1)
11

 
—

 
(3
)
 
—

 
—

 
—

 
—

 
—

 
—

 
8

 
—

Foreign corporate private securities(1)
251

 
(29
)
 
47

 
194

 
—

 
(93
)
 
—

 
—

 
—

 
370

 
1

Residential mortgage-backed securities
28

 
(4
)
 
—

 
7

 
—

 
—

 
—

 
—

 
(2
)
 
29

 
(4
)
Commercial mortgage-backed securities
14

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(14
)
 
—

 
—

Other asset-backed securities
138

 
—

 
—

 
24

 
—

 
—

 
(2
)
 
—

 
(60
)
 
100

 
—

Total fixed maturities, including securities pledged
1,879

 
(32
)
 
130

 
378

 
—

 
(106
)
 
(32
)
 
60

 
(89
)
 
2,188

 
(3
)
Equity securities
129

 
14

 
—

 
49

 
—

 
—

 
—

 
—

 
—

 
192

 
14

Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Guaranteed benefit derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IUL(2)
(82
)
 
(76
)
 
—

 
—

 
(28
)
 
—

 
26

 
—

 
—

 
(160
)
 
—

Other (2)(6)
(44
)
 
(8
)
 
—

 
—

 
(7
)
 
—

 
2

 
—

 
—

 
(57
)
 
—

Other derivatives, net
83

 
61

 
—

 
23

 
—

 
—

 
(18
)
 
—

 
—

 
149

 
66

Assets held in separate accounts(5)
62

 
3

 
—

 
39

 
—

 
—

 
—

 
3

 
(5
)
 
102

 
—


(1) Primarily U.S. dollar denominated.
(2) All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by contract basis.
These amounts are included in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations.
(3) The Company's policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
(4) For financial instruments still held as of June 30, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(5) The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company.
(6) Includes GMWBL, GMWB, FIA, Stabilizer and MCGs.

 
47
 

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

 
Three Months Ended June 30, 2018
 
Fair Value as of April 1
 
Total
Realized/Unrealized
Gains (Losses)
Included in:
 
Purchases
 
Issuances
 
Sales
 

Settlements
 
Transfers
into
Level 3(3)
 
Transfers
out of
Level 3(3)
 
Fair Value as of June 30
 
Change In
Unrealized
Gains
(Losses)
Included in
Earnings(4)
 
 
Net
Income
 
OCI
 
 
 
 
 
 
 
 
Fixed maturities, including securities pledged:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate public securities
$
36

 
$
—

 
$
—

 
$
3

 
$
—

 
$
—

 
$
—

 
$
5

 
$
—

 
$
44

 
$
—

U.S. corporate private securities
1,148

 
7

 
(13
)
 
169

 
—

 
(8
)
 
(36
)
 
18

 
—

 
1,285

 
—

Foreign corporate public securities and foreign governments (1)
12

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
12

 
—

Foreign corporate private securities (1)
179

 
8

 
(5
)
 
122

 
—

 
(70
)
 
—

 
—

 
—

 
234

 
—

Residential mortgage-backed securities
98

 
(2
)
 
(1
)
 
11

 
—

 
(40
)
 
—

 
—

 
(23
)
 
43

 
(2
)
Commercial mortgage-backed securities
8

 
—

 
—

 
18

 
—

 
—

 
—

 
—

 
—

 
26

 
—

Other asset-backed securities
199

 
—

 
(2
)
 
71

 
—

 
—

 
(2
)
 
32

 
(134
)
 
164

 
—

Total fixed maturities, including securities pledged
1,680

 
13

 
(21
)
 
394

 
—

 
(118
)
 
(38
)
 
55

 
(157
)
 
1,808

 
(2
)
Equity securities
99

 
1

 
—

 
7

 
—

 
(2
)
 
—

 
—

 
—

 
105

 
1

Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Guaranteed benefit derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IUL(2)
(150
)
 
3

 
—

 
—

 
(14
)
 
—

 
19

 
—

 
—

 
(142
)
 
—

Other (2)(6)
(122
)
 
12

 
—

 
—

 
2

 
—

 
5

 
—

 
—

 
(103
)
 
—

Other derivatives, net
151

 
(6
)
 
—

 
10

 
—

 
—

 
(15
)
 
—

 
—

 
140

 
(11
)
Assets held in separate accounts(5)
11

 
—

 
—

 
27

 
—

 
—

 
—

 
—

 
—

 
38

 
—

(1) Primarily U.S. dollar denominated.
(2) All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by contract basis.
These amounts are included in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations.
(3) The Company's policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
(4) For financial instruments still held as of June 30, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(5) The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company.
(6) Includes GMWBL, GMWB, FIA, Stabilizer and MCGs.


 
48
 

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

 
Six Months Ended June 30, 2018
 
Fair Value as of January 1
 
Total
Realized/Unrealized
Gains (Losses)
Included in:
 
Purchases
 
Issuances
 
Sales
 

Settlements
 
Transfers
into
Level 3(3)
 
Transfers
out of
Level 3(3)
 
Fair Value as of June 30
 
Change In
Unrealized
Gains
(Losses)
Included in
Earnings(4)
 
 
Net
Income
 
OCI
 
 
 
 
 
 
 
 
Fixed maturities, including securities pledged:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate public securities
$
57

 
$
—

 
$
(1
)
 
$
9

 
$
—

 
$
(13
)
 
$
—

 
$
—

 
$
(8
)
 
$
44

 
$
—

U.S. corporate private securities
1,127

 
7

 
(39
)
 
200

 
—

 
(8
)
 
(42
)
 
40

 
—

 
1,285

 
—

Foreign corporate public securities and foreign governments(1)
11

 
—

 
1

 
—

 
—

 
—

 
—

 
—

 
—

 
12

 
—

Foreign corporate private securities(1)
169

 
(6
)
 
18

 
123

 
—

 
(70
)
 
—

 
—

 
—

 
234

 
(13
)
Residential mortgage-backed securities
42

 
(5
)
 
(1
)
 
12

 
—

 
—

 
—

 
—

 
(5
)
 
43

 
(5
)
Commercial mortgage-backed securities
17

 
—

 
—

 
26

 
—

 
—

 
—

 
—

 
(17
)
 
26

 
—

Other asset-backed securities
92

 
—

 
(3
)
 
89

 
—

 
—

 
(3
)
 
35

 
(46
)
 
164

 
—

Total fixed maturities, including securities pledged
1,515

 
(4
)
 
(25
)
 
459

 
—

 
(91
)
 
(45
)
 
75

 
(76
)
 
1,808

 
(18
)
Equity securities, available-for-sale
102

 
(2
)
 
—

 
7

 
—

 
(2
)
 
—

 
—

 
—

 
105

 
(2
)
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Guaranteed benefit derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IUL(2)
(159
)
 
7

 
—

 
—

 
(26
)
 
—

 
36

 
—

 
—

 
(142
)
 
—

Other (2)(6)
(147
)
 
36

 
—

 
—

 
—

 
—

 
8

 
—

 
—

 
(103
)
 
—

Other derivatives, net
159

 
(8
)
 
—

 
20

 
—

 
—

 
(31
)
 
—

 
—

 
140

 
(19
)
Assets held in separate accounts(5)
11

 
—

 
—

 
27

 
—

 
—

 
—

 
—

 
—

 
38

 
—

(1) Primarily U.S. dollar denominated.
(2) All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by contract basis.
These amounts are included in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations.
(3) The Company's policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
(4) For financial instruments still held as of June 30, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(5) The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on Net income (loss) for the Company.
(6) Includes GMWBL, GMWB, FIA, Stabilizer and MCGs.

 
49
 

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

For the three and six months ended June 30, 2019 and 2018, the transfers in and out of Level 3 for fixed maturities were due to the variation in inputs relied upon for valuation each quarter. Securities that are primarily valued using independent broker quotes when prices are not available from one of the commercial pricing services are reflected as transfers into Level 3. When securities are valued using more widely available information, the securities are transferred out of Level 3 and into Level 1 or 2, as appropriate.
 
Significant Unobservable Inputs

The Company's Level 3 fair value measurements of its fixed maturities, equity securities and equity and credit derivative contracts are primarily based on broker quotes for which the quantitative detail of the unobservable inputs is neither provided nor reasonably corroborated, thus negating the ability to perform a sensitivity analysis. The Company performs a review of broker quotes by performing a monthly price variance comparison and back tests broker quotes to recent trade prices.

Quantitative information about the significant unobservable inputs used in the Company's Level 3 fair value measurements of its guaranteed benefit derivatives is presented in the following sections and table.

Significant unobservable inputs used in the fair value measurements of IULs include nonperformance risk and policyholder behavior assumptions, such as lapses.

Following is a description of selected inputs:

Nonperformance Risk: For the estimate of the fair value of embedded derivatives associated with the Company's product guarantees, the Company uses a blend of observable, similarly rated peer holding company credit spreads, adjusted to reflect the credit quality of the individual insurance company subsidiary that issued the guarantee as well as an adjustment to reflect the non-default spreads and the priority and recovery rates of policyholder claims.

Actuarial Assumptions: Management regularly reviews actuarial assumptions, which are based on the Company's experience and periodically reviewed against industry standards. Industry standards and Company experience may be limited on certain products.

The following table presents the unobservable inputs for IUL as of the dates indicated:
 
 
Range(1)
 
 
 
June 30, 2019
 
December 31, 2018
 
Unobservable Input
 
 
 
 
 
Nonperformance risk
 
0.20% to 0.55%

 
0.38% to 0.84%

 
Actuarial Assumptions:
 
 
 
 
 
Lapses
 
2% to 10%

 
2% to 10%

  
Mortality
 
—

(2) 
—

(2) 
(1) 
Represents the range of reasonable assumptions that management has used in its fair value calculations.
(2) The mortality rate, along with the associated cost of insurance charges, are based on the 2001 Commissioner's Standard Ordinary table with mortality improvements.

Generally, the following will cause an increase (decrease) in the IUL embedded derivative fair value liabilities:

•
A decrease (increase) in nonperformance risk
•
A decrease (increase) in lapses

Other Financial Instruments

The following disclosures are made in accordance with the requirements of ASC Topic 825 which requires disclosure of fair value information about financial instruments, whether or not recognized at fair value on the Condensed Consolidated Balance Sheets.


 
50
 

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

ASC Topic 825 excludes certain financial instruments, including insurance contracts and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The carrying values and estimated fair values of the Company’s financial instruments as of the dates indicated:
 
June 30, 2019
 
December 31, 2018
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets:
 
 
 
 
 
 
 
Fixed maturities, including securities pledged
$
54,453

 
$
54,453

 
$
51,121

 
$
51,121

Equity securities
367

 
367

 
273

 
273

Mortgage loans on real estate
8,418

 
8,879

 
8,676

 
8,811

Policy loans
1,797

 
1,797

 
1,833

 
1,833

Cash, cash equivalents, short-term investments and short-term investments under securities loan agreements
3,565

 
3,565

 
3,390

 
3,390

Derivatives
440

 
440

 
247

 
247

Other investments
96

 
102

 
90

 
92

Assets held in separate accounts
79,915

 
79,915

 
71,228

 
71,228

Liabilities:
 
 
 
 
 
 
 
Investment contract liabilities:
 
 
 
 
 
 
 
Funding agreements without fixed maturities and deferred annuities(1)
33,713

 
39,692

 
34,053

 
37,052

Funding agreements with fixed maturities
1,389

 
1,384

 
1,209

 
1,197

Supplementary contracts, immediate annuities and other
936

 
967

 
976

 
960

Derivatives:
 
 
 
 
 
 
 
Guaranteed benefit derivatives:
 
 
 
 
 
 
 
IUL
160

 
160

 
82

 
82

Other (2)
57

 
57

 
44

 
44

Other derivatives
432

 
432

 
139

 
139

Short-term debt
97

 
107

 
1

 
1

Long-term debt
3,041

 
3,304

 
3,136

 
3,112

Embedded derivative on reinsurance
129

 
129

 
21

 
21

(1) Certain amounts included in Funding agreements without fixed maturities and deferred annuities are also reflected within the Guaranteed benefit derivatives section of the table above.
(2) Includes GMWBL, GMWB, FIA, Stabilizer and MCG.







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

The following table presents the classifications of financial instruments which are not carried at fair value on the Condensed Consolidated Balance Sheets:
Financial Instrument
Classification
Mortgage loans on real estate
Level 3
Policy loans
Level 2
Other investments
Level 2
Funding agreements without fixed maturities and deferred annuities
Level 3
Funding agreements with fixed maturities
Level 2
Supplementary contracts and immediate annuities
Level 3
Short-term debt and Long-term debt
Level 2


6.    Deferred Policy Acquisition Costs and Value of Business Acquired

The following tables present a rollforward of DAC and VOBA for the periods indicated:
 
2019
 
DAC
 
VOBA
 
Total
Balance as of January 1, 2019
$
3,298

 
$
818

 
$
4,116

Deferrals of commissions and expenses
126

 
4

 
130

Amortization:
 
 
 
 
 
Amortization, excluding unlocking
(239
)
 
(69
)
 
(308
)
Unlocking(1)
14

 
23

 
37

Interest accrued
91

 
28

(2) 
119

Net amortization included in Condensed Consolidated Statements of Operations
(134
)
 
(18
)
 
(152
)
Change due to unrealized capital gains/losses on available-for-sale securities
(582
)
 
(266
)
 
(848
)
Balance as of June 30, 2019
$
2,708

 
$
538

 
$
3,246

 
 
 
 
 
 
 
2018
 
DAC
 
VOBA
 
Total
Balance as of January 1, 2018
$
2,818

 
$
556

 
$
3,374

Deferrals of commissions and expenses
98

 
4

 
102

Amortization:
 
 
 
 
 
Amortization, excluding unlocking
(160
)
 
(44
)
 
(204
)
Unlocking(1)
(63
)
 
(27
)
 
(90
)
Interest accrued
91

 
29

(2) 
120

Net amortization included in Condensed Consolidated Statements of Operations
(132
)
 
(42
)
 
(174
)
Change due to unrealized capital gains/losses on available-for-sale securities
460

 
246

 
706

Balance as of June 30, 2018
$
3,244

 
$
764

 
$
4,008


(1) Includes the impacts of annual review of assumptions which typically occurs in the third quarter; and retrospective and prospective unlocking. Additionally, the 2018 amounts include unfavorable unlocking for DAC and VOBA of $25 and $18, respectively, associated with an update to assumptions related to customer consents of changes to guaranteed minimum interest rate provisions.
(2) Interest accrued at the following rates for VOBA: 2.7% to 7.4% during 2019 and 3.5% to 7.4% during 2018.


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

7.     Share-based Incentive Compensation Plans

The Company has provided equity-based compensation awards to its employees under the ING U.S., Inc. 2013 Omnibus Employee Incentive Plan (the "2013 Omnibus Plan") and the Voya Financial, Inc. 2014 Omnibus Employee Incentive Plan (the "2014 Omnibus Plan") (together, the "Omnibus Plans"). As of June 30, 2019, common stock reserved and available for issuance under the 2013 Omnibus Plan and the 2014 Omnibus Plan was 347,663 and 3,501,704 shares, respectively.

On March 27, 2019, the Company's Board of Directors adopted, subject to shareholder approval, the Voya Financial, Inc. 2019 Omnibus Employee Incentive Plan (the "2019 Omnibus Plan"). Shareholder approval for the 2019 Omnibus Plan was subsequently obtained at the Annual Meeting of Shareholders held on May 23, 2019. The 2019 Omnibus Plan provides for 11,700,000 shares of common stock to be available for issuance as equity-based compensation awards. As of the date of the filing of this Quarterly Report on Form 10-Q, no awards have been made under the 2019 Omnibus Plan.

The Company offers equity-based awards to Voya Financial, Inc. non-employee directors under the Voya Financial, Inc. 2013 Omnibus Non-Employee Director Incentive Plan ("Director Plan").

Compensation Cost

The following table summarizes share-based compensation expense, which includes expenses related to awards granted under the Omnibus Plans and Director Plan for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Restricted Stock Unit (RSU) awards
$
10

 
$
10

 
$
27

 
$
29

Performance Stock Unit (PSU) awards
8

 
9

 
25

 
27

Stock options
2

 
2

 
4

 
5

Total share-based compensation expense
20

 
21

 
56

 
61

Income tax benefit
19

 
9

 
20

 
15

After-tax share-based compensation expense
$
1

 
$
12

 
$
36

 
$
46



Awards Outstanding

The following table summarizes RSU and PSU awards activity under the Omnibus Plans and the Director Plan for the period indicated:
 
RSU Awards
 
PSU Awards
(awards in millions) 
Number of Awards
 
Weighted Average Grant Date Fair Value
 
Number of Awards
 
Weighted Average Grant Date Fair Value
Outstanding as of January 1, 2019
2.4

 
$
43.36

 
2.5

 
$
40.21

Adjustment for PSU performance factor
N/A

 
N/A

 
0.3

 
31.35

Granted
0.8

 
50.09

 
0.7

 
51.64

Vested
(1.1
)
 
40.20

 
(1.2
)
 
28.95

Forfeited
—

*
48.00

 
—

*
47.76

Outstanding as of June 30, 2019
2.1

 
$
47.76

 
2.3

 
$
48.86


* Less than 0.1.


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

The following table summarizes the number of options under the Omnibus Plans for the periods indicated:
 
Stock Options
(awards in millions) 
Number of Awards
 
Weighted Average Exercise Price
Outstanding as of January 1, 2019
2.6

 
$
37.60

Granted
1.0

 
50.03

Exercised
(0.5
)
 
37.60

Forfeited
—

 
—

Outstanding as of June 30, 2019
3.1

 
$
41.61

Vested, exercisable, as of June 30, 2019
2.1

 
$
37.60



In February 2019, the Company awarded contingent stock options under the 2014 Omnibus Plan with a per option grant date fair value of $13.78. These options are subject to vesting conditions based on the achievement of specified performance measures, and generally become exercisable one year following satisfaction of the relevant vesting condition. The options have a term of ten years from the grant date.


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

8.     Shareholders' Equity

Common Shares

The following table presents the rollforward of common shares used in calculating the weighted average shares utilized in the basic earnings per common share calculation for the periods indicated:
 
Common Shares
(shares in millions) 
Issued
 
Held in Treasury
 
Outstanding
Balance, January 1, 2018
270.0

 
98.0

 
172.0

Common shares issued
—

 
—

 
—

Common shares acquired - share repurchase
—

 
22.8

 
(22.8
)
Share-based compensation
2.4

 
0.6

 
1.8

Balance, December 31, 2018
272.4

 
121.4

 
151.0

Common shares issued
—

 
—

 
—

Common shares acquired - share repurchase
—

 
12.8

 
(12.8
)
Share-based compensation
2.8

 
0.7

 
2.1

Balance, June 30, 2019
275.2

 
134.9

 
140.3



Share Repurchase Program

From time to time, the Company's Board of Directors authorizes the Company to repurchase shares of its common stock. These authorizations permit stock repurchases up to a prescribed dollar amount and generally may be accomplished through various means, including, without limitation, open market transactions, privately negotiated transactions, forward, derivative, or accelerated repurchase, or automatic repurchase transactions, including 10b5-1 plans, or tender offers. Share repurchase authorizations typically expire if unused by a prescribed date.
On May 2, 2019, the Board of Directors provided share repurchase authorization, increasing the aggregate of the Company's common stock authorized for repurchase by $500. The current share repurchase authorization expires on June 30, 2020 (unless extended), and does not obligate the Company to purchase any shares. The authorization for the share repurchase program may be terminated, increased or decreased by the Board of Directors at any time.
On June 19, 2019, the Company entered into a share repurchase agreement with a third-party financial institution, pursuant to which the Company made an upfront payment of $200 and received initial delivery of 2,963,512 shares. This arrangement closed on August 6, 2019 and an additional 695,566 shares were delivered.
On April 9, 2019, the Company entered into a share repurchase agreement with a third-party financial institution, pursuant to which the Company made an upfront payment of $236 and received initial delivery of 3,593,453 shares. This arrangement closed on June 4, 2019 and an additional 879,199 shares were delivered.

On January 3, 2019, the Company entered into a share repurchase agreement with a third-party financial institution, pursuant to which the Company made an upfront payment of $250 and received initial delivery of 5,059,449 shares. This arrangement closed on April 4, 2019 and an additional 290,765 shares were delivered.


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

Warrants

On May 7, 2013, the Company issued to ING Group warrants to purchase up to 26,050,846 shares of the Company's common stock equal in the aggregate to 9.99% of the issued and outstanding shares of common stock at that date. The current exercise price of the warrants is $48.75 per share of common stock, subject to adjustments, including for stock dividends, cash dividends in excess of $0.01 per share a quarter, subdivisions, combinations, reclassifications and non-cash distributions. The warrants also provide for, upon the occurrence of certain change of control events affecting the Company, an increase in the number of shares to which a warrant holder will be entitled upon payment of the aggregate exercise price of the warrant. The warrants became exercisable to ING Group and its affiliates on January 1, 2017 and to all other holders starting on the first anniversary of the completion of the IPO (May 7, 2014). The warrants expire on the tenth anniversary of the completion of the IPO (May 7, 2023). The warrants are net share settled, which means that no cash will be payable by a warrant holder in respect of the exercise price of a warrant upon exercise, and are classified as permanent equity. They have been recorded at their fair value determined on the issuance date of May 7, 2013 in the amount of $94 as an addition and reduction to Additional-paid-in-capital. Warrant holders are not entitled to receive dividends. On March 12, 2018, ING Group sold its remaining interests in the warrants and no longer owns any warrants. As of June 30, 2019, no warrants have been exercised.

Preferred Stock

On June 11, 2019, the Company issued 300,000 shares of 5.35% Fixed-Rate Reset Non-Cumulative Preferred Stock, Series B ("the Series B preferred stock"), with a $0.01 par value per share and a liquidation preference of $1,000 per share, for aggregate net proceeds of $293. The Company deposited the Series B preferred stock under a deposit agreement with a depositary, which issued interests in fractional shares of the Series B preferred stock in the form of depositary shares ("Depositary Shares") evidenced by depositary receipts; each Depositary Share representing 1/40th interest in a share of the Series B preferred stock.
On September 12, 2018, the Company issued 325,000 shares of 6.125% Fixed-Rate Reset Non-Cumulative Preferred Stock, Series A ("the Series A preferred stock"), with a $0.01 par value per share and a liquidation preference of $1,000 per share, for aggregate net proceeds of $319.
The ability of the Company to declare or pay dividends on, or purchase, redeem or otherwise acquire, shares of its common stock will be substantially restricted in the event that the Company does not declare and pay (or set aside) dividends on the Series A and B preferred stock for the last preceding dividend period.
The Series A and Series B preferred stock are not subject to any mandatory redemption, sinking fund, retirement fund, purchase fund or similar provisions. The Company may, at its option, redeem the Series A preferred stock, (a) in whole but not in part, at any time, within 90 days after the occurrence of a "rating agency event," at a redemption price equal to $1,020 per share, plus an amount equal to any dividends per share of preferred stock that have accrued but not been declared and paid for the then-current dividend period to, but excluding, the redemption date and (b) (i) in whole but not in part, at any time within 90 days after the occurrence of a "regulatory capital event" or (ii) in whole or in part, from time to time, on September 15, 2023 or any subsequent "reset date," in each case, at a redemption price equal to $1,000 per share of preferred stock, plus an amount equal to any dividends per share of preferred stock that have accrued but not been declared and paid for the then-current dividend period to, but excluding, such redemption date. The Company may, at its option, redeem the Series B preferred stock, (a) in whole but not in part, at any time, within 90 days after the occurrence of a "rating agency event," at a redemption price equal to $1,020 per share (equivalent to $25.50 per Depositary Share), plus an amount equal to any accrued and unpaid dividends per share that have accrued but not been declared and paid for the then-current dividend period, but excluding, such redemption date and (b) (i) in whole but not in part , at any time, within 90 days after the occurrence of a "regulatory capital event," or (ii) in whole or in part, from time to time, on September 15, 2029 or any reset date, in each case, at a redemption price equal to $1,000 per share of the Series B preferred stock (equivalent to $25.00 per Depositary Share), plus an amount equal to any accrued and unpaid dividends per share that have accrued but not been declared and paid for the then-current dividend period to, but excluding, such redemption date.
A "rating agency event" means that any nationally recognized statistical rating organization that then publishes a rating for the Company amends, clarifies or changes the criteria it uses to assign equity credit to securities like the preferred stock, which results in the lowering of the equity credit assigned to the preferred stock, as applicable, or shortens the length of time that the preferred stock is assigned a particular level of equity credit.

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

A "regulatory capital event" means that the Company becomes subject to capital adequacy supervision by a capital regulator and the capital adequacy guidelines that apply to the Company as a result of being so subject set forth criteria pursuant to which the preferred stock would not qualify as capital under such capital adequacy guidelines, as the Company may determine at any time, in its sole discretion.
As of June 30, 2019 and December 31, 2018, there were 100,000,000 shares of preferred stock authorized. Preferred stock issued and outstanding are as follows:
 
June 30, 2019
 
December 31, 2018
Series
Issued
 
Outstanding
 
Issued
 
Outstanding
6.125% Non-cumulative Preferred Stock, Series A
325,000

 
325,000

 
325,000

 
325,000

5.35% Non-cumulative Preferred Stock, Series B
300,000

 
300,000

 
—

 
—

Total
625,000

 
625,000

 
325,000

 
325,000


As of June 30, 2019, there were no preferred stock dividends in arrears.

 
57
 

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

9.     Earnings per Common Share
The following table presents a reconciliation of Net income (loss) and shares used in calculating basic and diluted net income (loss) per common share for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions, except for per share data)
2019
 
2018
 
2019
 
2018
Earnings
 
 
 
 
 
 
 
Net income (loss) available to common shareholders:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
254

 
$
196

 
$
406

 
$
213

Less: Preferred stock dividends
—

 
—

 
10

 
—

Less: Net income (loss) attributable to noncontrolling interest
25

 
58

 
24

 
58

Income (loss) from continuing operations available to common shareholders
229

 
138

 
372

 
155

Income (loss) from discontinued operations, net of tax
(3
)
 
28

 
(82
)
 
457

Net income (loss) available to common shareholders
$
226

 
$
166

 
$
290

 
$
612

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
144.1

 
167.0

 
145.5

 
169.7

Dilutive Effects:
 
 
 
 
 
 
 
Warrants
2.3

 
1.5

 
1.2

 
1.5

RSU awards
1.2

 
1.4

 
1.3

 
1.7

PSU awards
1.6

 
2.1

 
2.0

 
1.9

Stock Options
0.7

 
0.8

 
0.6

 
0.8

Diluted
149.9

 
172.8

 
150.6

 
175.6

 
 
 
 
 
 
 
 
Basic(1)
 
 
 
 
 
 
 
Income (loss) from continuing operations available to Voya Financial, Inc.'s common shareholders
$
1.59

 
$
0.83

 
$
2.56

 
$
0.91

Income (loss) from discontinued operations, net of taxes available to Voya Financial, Inc.'s common shareholders
$
(0.02
)
 
$
0.17

 
$
(0.56
)
 
$
2.69

Income (loss) available to Voya Financial, Inc.'s common shareholders
$
1.57

 
$
1.00

 
$
1.99

 
$
3.60

Diluted(1)
 
 
 
 
 
 
 
Income (loss) from continuing operations available to Voya Financial, Inc.'s common shareholders
$
1.53

 
$
0.80

 
$
2.47

 
$
0.88

Income (loss) from discontinued operations, net of taxes available to Voya Financial, Inc.'s common shareholders
$
(0.02
)
 
$
0.16

 
$
(0.54
)
 
$
2.60

Income (loss) available to Voya Financial, Inc.'s common shareholders
$
1.51

 
$
0.96

 
$
1.93

 
$
3.48


(1) Basic and diluted earnings per share are calculated using unrounded, actual amounts. Therefore, the components of earnings per share may not sum to its corresponding total.


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

10.    Accumulated Other Comprehensive Income (Loss)

Shareholders' equity included the following components of Accumulated Other Comprehensive Income ("AOCI") as of the dates indicated:
 
June 30,
 
2019
 
2018
Fixed maturities, net of OTTI
$
4,521

 
$
1,805

Derivatives(1)
168

 
143

DAC/VOBA adjustment on available-for-sale securities
(1,228
)
 
(570
)
Premium deficiency reserve
(134
)
 
(128
)
Sales inducements and other intangibles adjustment on available-for-sale securities
(157
)
 
(88
)
Unrealized capital gains (losses), before tax
3,170

 
1,162

Deferred income tax asset (liability)
(312
)
 
(229
)
Net unrealized capital gains (losses)
2,858

 
933

Pension and other postretirement benefits liability, net of tax
9

 
10

AOCI
$
2,867

 
$
943


(1) Gains and losses reported in Accumulated Other Comprehensive Income (AOCI) from hedge transactions that resulted in the acquisition of an identified asset are reclassified into earnings in the same period or periods during which the asset acquired affects earnings. As of June 30, 2019 the portion of the AOCI that is expected to be reclassified into earnings within the next 12 months is $25.


























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

Changes in AOCI, including the reclassification adjustments recognized in the Condensed Consolidated Statements of Operations were as follows for the periods indicated:
 
Three Months Ended June 30, 2019
 
Before-Tax Amount
 
Income Tax
 
After-Tax Amount
Available-for-sale securities:
 
 
 
 
 
Fixed maturities
$
1,574

 
$
(332
)
 
$
1,242

Other
—

 
—

 
—

OTTI
1

 
—

 
1

Adjustments for amounts recognized in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations
(11
)
 
3

 
(8
)
DAC/VOBA
(350
)
 
73

 
(277
)
Premium deficiency reserve
(41
)
 
8

 
(33
)
Sales inducements
(45
)
 
10

 
(35
)
Change in unrealized gains/losses on available-for-sale securities
1,128

 
(238
)
 
890

 
 
 
 
 
 
Derivatives:
 
 
 
 
 
Derivatives
21

(1) 
(4
)
 
17

Adjustments related to effective cash flow hedges for amounts recognized in Net investment income in the Condensed Consolidated Statements of Operations
(7
)
 
2

 
(5
)
Change in unrealized gains/losses on derivatives
14

 
(2
)
 
12

 
 
 
 
 
 
Pension and other postretirement benefits liability:
 
 
 
 
 
Amortization of prior service cost recognized in Operating expenses in the Condensed Consolidated Statements of Operations
(1
)
 
—

 
(1
)
Change in pension and other postretirement benefits liability
(1
)
 
—

 
(1
)
Change in Accumulated other comprehensive income (loss)
$
1,141

 
$
(240
)
 
$
901

(1) See the Derivative Financial Instruments Note to these Condensed Consolidated Financial Statements for additional information.

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

 
Six Months Ended June 30, 2019
 
Before-Tax Amount
 
Income Tax
 
After-Tax Amount
Available-for-sale securities:
 
 
 
 
 
Fixed maturities
$
3,439

 
$
(722
)
 
$
2,717

Other
—

 
—

 
—

OTTI
2

 
—

 
2

Adjustments for amounts recognized in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations
6

 
(1
)
 
5

DAC/VOBA
(848
)
(1) 
178

 
(670
)
Premium deficiency reserve
(77
)
 
16

 
(61
)
Sales inducements
(93
)
 
20

 
(73
)
Change in unrealized gains/losses on available-for-sale securities
2,429

 
(509
)
 
1,920

 
 
 
 
 
 
Derivatives:
 
 
 
 
 
Derivatives
11

(2) 
(2
)
 
9

Adjustments related to effective cash flow hedges for amounts recognized in Net investment income in the Condensed Consolidated Statements of Operations
(13
)
 
3

 
(10
)
Change in unrealized gains/losses on derivatives
(2
)
 
1

 
(1
)
 
 
 
 
 
 
Pension and other postretirement benefits liability:
 
 
 
 
 
Amortization of prior service cost recognized in Operating expenses in the Condensed Consolidated Statements of Operations
(2
)
 
—

 
(2
)
Change in pension and other postretirement benefits liability
(2
)
 
—

 
(2
)
Change in Accumulated other comprehensive income (loss)
$
2,425

 
$
(508
)
 
$
1,917

(1) See the Deferred Policy Acquisition Costs and Value of Business Acquired Note to these Condensed Consolidated Financial Statements for additional information.
(2) See the Derivative Financial Instruments Note to these Condensed Consolidated Financial Statements for additional information.


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

 
Three Months Ended June 30, 2018
 
Before-Tax Amount
 
Income Tax
 
After-Tax Amount
Available-for-sale securities:
 
 
 
 
 
Fixed maturities
$
(1,412
)
 
$
458

 
$
(954
)
Other
32

 
(11
)
 
21

OTTI
10

 
(5
)
 
5

Adjustments for amounts recognized in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations
7

 
(2
)
 
5

DAC/VOBA
348

 
(99
)
 
249

Premium deficiency reserve
21

 
(4
)
 
17

Sales inducements
75

 
(30
)
 
45

Change in unrealized gains/losses on available-for-sale securities
(919
)
 
307

 
(612
)
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
Derivatives
69

(1) 
(17
)
 
52

Adjustments related to effective cash flow hedges for amounts recognized in Net investment income in the Condensed Consolidated Statements of Operations
(7
)
 
2

 
(5
)
Change in unrealized gains/losses on derivatives
62

 
(15
)
 
47

 
 
 
 
 
 
Pension and other postretirement benefits liability:
 
 
 
 
 
Amortization of prior service cost recognized in Operating expenses in the Condensed Consolidated Statements of Operations
(3
)
 
—

 
(3
)
Change in pension and other postretirement benefits liability
(3
)
 
—

 
(3
)
Change in Accumulated other comprehensive income (loss)
$
(860
)
 
$
292

 
$
(568
)

(1) See the Derivative Financial Instruments Note to these Condensed Consolidated Financial Statements for additional information.


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

 
Six Months Ended June 30, 2018
 
Before-Tax Amount
 
Income Tax
 
After-Tax Amount
Available-for-sale securities:
 
 
 
 
 
Fixed maturities
$
(3,624
)
 
$
920

 
$
(2,704
)
Other
18

 
(8
)
 
10

OTTI
30

 
(9
)
 
21

Adjustments for amounts recognized in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations
47

 
(10
)
 
37

DAC/VOBA
901

(1) 
(215
)
 
686

Premium deficiency reserve
62

 
(13
)
 
49

Sales inducements
190

 
(54
)
 
136

Change in unrealized gains/losses on available-for-sale securities
(2,376
)
 
611

 
(1,765
)
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
Derivatives
29

(2) 
(9
)
 
20

Adjustments related to effective cash flow hedges for amounts recognized in Net investment income in the Condensed Consolidated Statements of Operations
(13
)
 
3

 
(10
)
Change in unrealized gains/losses on derivatives
16

 
(6
)
 
10

 
 
 
 
 
 
Pension and other postretirement benefits liability:
 
 
 
 
 
Amortization of prior service cost recognized in Operating expenses in the Condensed Consolidated Statements of Operations
(6
)
 
1

 
(5
)
Change in pension and other postretirement benefits liability
(6
)
 
1

 
(5
)
Change in Accumulated other comprehensive income (loss)
$
(2,366
)
 
$
606

 
$
(1,760
)

(1) See the Deferred Policy Acquisition Costs and Value of Business Acquired Note to these Condensed Consolidated Financial Statements for additional information.
(2) See the Derivative Financial Instruments Note to these Condensed Consolidated Financial Statements for additional information.

11.    Income Taxes
 
 
 
 

The Company uses the estimated annual effective tax rate method in computing its interim tax provision. Certain items, including changes in the realizability of deferred tax assets and changes in liabilities for uncertain tax positions, are excluded from the estimated annual effective tax rate and the actual tax expense or benefit is reported in the period the related item is incurred.

The Company's effective tax rate for the three and six months ended June 30, 2019 was 15.0% and 14.4%, respectively. The effective tax rate for this period differed from the statutory rate of 21% primarily due to the effect of the dividends received deduction ("DRD") and noncontrolling interest.

The Company's effective tax rate for the three and six months ended June 30, 2018 was 18.7%. The effective tax rate differed from the statutory rate of 21% for the three and six months ended June 30, 2018 primarily due to the effect of the DRD and noncontrolling interest, partially offset by nondeductible executive compensation and alternative minimum tax ("AMT") sequestration.

Tax Regulatory Matters

For the tax years 2017 through 2019, the Company participates in the Internal Revenue Service ("IRS") Compliance Assurance Process ("CAP"), which is a continuous audit program provided by the IRS. During 2019, the IRS finalized the audit of the

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

Company for the period ended December 31, 2017. The Company is under examination for the period ended December 31, 2018. The Company expects the examination to be finalized within the next twelve months.

12.    Financing Agreements

Short-term and Long-term Debt

The following table summarizes the carrying value of the Company’s debt securities issued and outstanding as of June 30, 2019 and December 31, 2018:
 
Maturity
 
June 30, 2019
 
December 31, 2018
5.5% Senior Notes, due 2022
07/15/2022
 
$
96

 
$
96

3.125% Senior Notes, due 2024
07/15/2024
 
397

 
396

3.65% Senior Notes, due 2026
06/15/2026
 
496

 
496

5.7% Senior Notes, due 2043
07/15/2043
 
395

 
395

4.8% Senior Notes, due 2046
06/15/2046
 
297

 
297

4.7% Fixed-to-Floating Rate Junior Subordinated Notes, due 2048
01/23/2048
 
345

 
344

5.65% Fixed-to-Floating Rate Junior Subordinated Notes, due 2053
05/15/2053
 
739

 
739

7.25% Voya Holdings Inc. debentures, due 2023(1)
08/15/2023
 
139

 
138

7.63% Voya Holdings Inc. debentures, due 2026(1)
08/15/2026
 
138

 
138

6.97% Voya Holdings Inc. debentures, due 2036(1)
08/15/2036
 
79

 
79

8.42% Equitable of Iowa Companies Capital Trust II Notes, due 2027
04/01/2027
 
13

 
14

1.00% Windsor Property Loan
06/14/2027
 
4

 
5

Subtotal
 
 
3,138

 
3,137

Less: Current portion of long-term debt
 
 
97

 
1

Total
 
 
$
3,041

 
$
3,136

(1) Guaranteed by ING Group.

Loss on Debt Extinguishment

The Company did not incur a loss on debt extinguishment for the three and six months ended June 30, 2019. The Company did not incur a loss on debt extinguishment for the three months ended June 30, 2018. The Company incurred a loss on debt extinguishment of $3 for the six months ended June 30, 2018, which was recorded in Interest Expense in the Condensed Consolidated Statements of Operations.

Senior Notes

On June 12, 2019, the Company delivered to the holders of its 5.5% Senior Notes due 2022 (the "2022 Notes") a notice of redemption. The Company has elected to redeem all of the outstanding $97 aggregate principal amount of 2022 Notes, and the redemption occurred on July 12, 2019. In connection with this transaction, the Company expects to incur a loss on debt extinguishment of $9 for the three and nine months ended September 30, 2019, which will be recorded in Interest expense in the Condensed Consolidated Statements of Operations.

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


Aetna Notes

As of June 30, 2019, the outstanding principal amount of the Aetna Notes was $358, which is guaranteed by ING Group. During the six months ended June 30, 2019, the Company deposited $3 of collateral to a control account benefiting ING Group with a third-party collateral agent and provided a $63 letter of credit benefiting ING Group, thereby increasing the remaining collateral balance to $269. The collateral may be exchanged at any time upon the posting of any other form of acceptable collateral to the account.

Senior Unsecured Credit Facility Agreement

The Company is a party to a Second Amended and Restated Revolving Credit Agreement ("Second Amended and Restated Credit Agreement"), which has been amended from time to time, with a syndicate of banks, which currently expires on May 6, 2021 and requires the Company to maintain a minimum net worth of $6.6 billion. The minimum net worth amount may increase upon any future equity issuances by the Company. There is a $750 sublimit available for direct borrowings.

As of June 30, 2019, there were no amounts outstanding as revolving credit borrowings and no amounts of LOCs outstanding under the senior unsecured credit facility.
 
 
 
 
 
 
 
 
 
 
 
 

13.    Commitments and Contingencies

Commitments

Through the normal course of investment operations, the Company commits to either purchase or sell securities, mortgage loans, or money market instruments, at a specified future date and at a specified price or yield. The inability of counterparties to honor these commitments may result in either a higher or lower replacement cost. Also, there is likely to be a change in the value of the securities underlying the commitments.

As of June 30, 2019, the Company had off-balance sheet commitments to acquire mortgage loans of $43 and purchase limited partnerships and private placement investments of $1,177, of which $394 related to consolidated investment entities.

Restricted Assets

The Company is required to maintain assets on deposit with various regulatory authorities to support its insurance operations. The Company may also post collateral in connection with certain securities lending, repurchase agreements, funding agreements, credit facilities and derivative transactions. The components of the fair value of the restricted assets were as follows as of the dates indicated:
 
June 30, 2019
 
December 31, 2018
Fixed maturity collateral pledged to FHLB (1)
$
1,676

 
$
1,472

FHLB restricted stock(2)
78

 
75

Other fixed maturities-state deposits
139

 
129

Cash and cash equivalents
26

 
13

Securities pledged(3)
1,945

 
1,867

Total restricted assets
$
3,864

 
$
3,556

(1) Included in Fixed maturities, available for sale, at fair value on the Condensed Consolidated Balance Sheets.
(2) Included in Other investments on the Condensed Consolidated Balance Sheets.
(3) Includes the fair value of loaned securities of $1,707 and $1,635 as of June 30, 2019 and December 31, 2018, respectively. In addition, as of June 30, 2019 and December 31, 2018, the Company delivered securities as collateral of $238 and $232, respectively. Loaned securities and securities delivered as collateral are included in Securities pledged on the Condensed Consolidated Balance Sheets.


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

Federal Home Loan Bank Funding Agreements

The Company is a member of the FHLB of Des Moines, FHLB of Boston and the FHLB of Topeka and is required to pledge collateral to back funding agreements issued to the FHLB. As of June 30, 2019 and December 31, 2018, the Company had $1,389 and $1,209, respectively, in non-putable funding agreements, which are included in Contract owner account balances on the Condensed Consolidated Balance Sheets. As of June 30, 2019 and December 31, 2018, assets with a market value of approximately $1,676 and $1,472, respectively, collateralized the FHLB funding agreements. Assets pledged to the FHLB are included in Fixed maturities, available-for-sale, at fair value on the Condensed Consolidated Balance Sheets.

Litigation, Regulatory Matters and Loss Contingencies

Litigation, regulatory and other loss contingencies arise in connection with the Company's activities as a diversified financial services firm. The Company is a defendant in a number of litigation matters arising from the conduct of its business, both in the ordinary course and otherwise. In some of these matters, claimants seek to recover very large or indeterminate amounts, including compensatory, punitive, treble and exemplary damages. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages and other relief. Claimants are not always required to specify the monetary damages they seek or they may be required only to state an amount sufficient to meet a court's jurisdictional requirements. Moreover, some jurisdictions allow claimants to allege monetary damages that far exceed any reasonably possible verdict. The variability in pleading requirements and past experience demonstrates that the monetary and other relief that may be requested in a lawsuit or claim often bears little relevance to the merits or potential value of a claim. Litigation against the Company includes a variety of claims including negligence, breach of contract, fraud, violation of regulation or statute, breach of fiduciary duty, negligent misrepresentation, failure to supervise, elder abuse and other torts.

As with other financial services companies, the Company periodically receives informal and formal requests for information from various state and federal governmental agencies and self-regulatory organizations in connection with inquiries and investigations of the products and practices of the Company or the financial services industry. It is the practice of the Company to cooperate fully in these matters.

The outcome of a litigation or regulatory matter is difficult to predict and the amount or range of potential losses associated with these or other loss contingencies requires significant management judgment. It is not possible to predict the ultimate outcome or to provide reasonably possible losses or ranges of losses for all pending regulatory matters, litigation and other loss contingencies.

While it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's financial position, based on information currently known, management believes that neither the outcome of pending litigation and regulatory matters, nor potential liabilities associated with other loss contingencies, are likely to have such an effect. However, given the large and indeterminate amounts sought in certain litigation and the inherent unpredictability of all such matters, it is possible that an adverse outcome in certain of the Company's litigation or regulatory matters, or liabilities arising from other loss contingencies, could, from time to time, have a material adverse effect upon the Company's results of operations or cash flows in a particular quarterly or annual period.

For some matters, the Company is able to estimate a possible range of loss. For such matters in which a loss is probable, an accrual has been made. For matters where the Company, however, believes a loss is reasonably possible, but not probable, no accrual is required. For matters for which an accrual has been made, but there remains a reasonably possible range of loss in excess of the amounts accrued or for matters where no accrual is required, the Company develops an estimate of the unaccrued amounts of the reasonably possible range of losses. As of June 30, 2019, the Company estimates the aggregate range of reasonably possible losses, in excess of any amounts accrued for these matters as of such date, to be up to approximately $50.

For other matters, the Company is currently not able to estimate the reasonably possible loss or range of loss. The Company is often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from plaintiffs and other parties, investigation of factual allegations, rulings by a court on motions or appeals, analysis by experts and the progress of settlement discussions. On a quarterly and annual basis, the Company reviews relevant information with respect to litigation and regulatory contingencies and updates the Company's accruals, disclosures and reasonably possible losses or ranges of loss based on such reviews.

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


Litigation includes Goetz v. Voya Financial and Voya Retirement Insurance and Annuity Company (USDC District of Delaware, No. 1:17-cv-1289) (filed September 8, 2017), a putative class action in which plaintiff, a participant in a 401(k) plan, seeks to represent other participants in the plan as well as a class of similarly situated plans that "contract with [Voya] for recordkeeping and other services." Plaintiff alleges that "Voya" breached its fiduciary duty to the plan and other plan participants by charging unreasonable and excessive recordkeeping fees, and that "Voya" distributed materially false and misleading 404a-5 administrative and fund fee disclosures to conceal its excessive fees. The Company denies the allegations, which it believes are without merit, and intends to defend the case vigorously. Plaintiff filed an amended complaint on January 4, 2018, and the Company filed a motion to dismiss the amended complaint on February 8, 2018.

Litigation also includes Henkel of America v. ReliaStar Life Insurance Company (USDC District of Connecticut, No. 1:18-cv-00965) (filed June 8, 2018). Plaintiff alleges that ReliaStar breached the terms of a stop loss policy it issued to Plaintiff by refusing to reimburse Plaintiff for more than $47 in claims incurred by participants in prior years and submitted for coverage under the stop loss policy. Plaintiff alleges a breach of contract claim or, in the alternative, that the stop loss policy be declared to cover the submitted claims, and also asserts that ReliaStar engaged in unfair trade practices and unfair insurance practices in violation of state statutes, and did so willfully and intentionally to warrant an award of punitive damages under state law. The Company denies the allegations, which it believes are without merit, and intends to defend the case vigorously.
 
Finally, industry wide, life insurers continue to be exposed to class action litigation related to the cost of insurance rates and periodic deductions from cash value. Common allegations include that insurance companies have breached the terms of their universal life insurance policies by establishing or increasing the cost of insurance rates using cost factors not permitted by the contract, thereby unjustly enriching themselves. This litigation is generally known as cost of insurance litigation.

Cost of insurance litigation for the Company includes Cutler v. Voya Financial, Inc. and ReliaStar Life Insurance Company (USDC S.D. Florida, No. 1:18-cv-20723) (filed February 23, 2018), in which the plaintiff alleges that his insurance policy only permitted the Company to rely upon his expected future mortality experience to establish and increase his cost of insurance, but the Company instead relied upon other, non-disclosed factors to do so. Plaintiff alleges breach of contract, unjust enrichment, conversion and fraud claims against the Company. The Company denies the allegations in the complaint, believes the complaint to be without merit, and intends to defend the matter vigorously.

Cost of insurance litigation also includes Barnes v. Security Life of Denver (USDC District of Colorado, No. 1:18-cv-00718) (filed March 27, 2018), a putative class action in which the plaintiff alleges that his insurance policy only permitted the Company to rely upon his expected future mortality experience to establish and increase his cost of insurance, but the Company instead relied upon other, non-disclosed factors to do so. Plaintiff alleges breach of contract and conversion claims against the Company and also seeks declaratory relief. The Company denies the allegations in the complaint, believes the complaint to be without merit, and intends to defend the matter vigorously.

Cost of insurance litigation for the Company includes Advance Trust & Life Escrow Services, LTA v. Security Life of Denver (USDC District of Colorado, No. 1:18-cv-01897) (filed July 26, 2018), a putative class action in which Plaintiff alleges that two specific types of universal life insurance policies only permitted the Company to rely upon the policyholder’s expected future mortality experience to establish and increase the cost of insurance, but the Company instead relied upon other, non-disclosed factors not only in the administration of the policies over time, but also in the decision to increase insurance costs beginning in approximately October 2015. Plaintiff alleges a breach of contract and seeks class certification. The Company denies the allegations in the complaint, believes the complaint to be without merit, and intends to defend the lawsuit vigorously. On August 28, 2018, the Company filed its answer to the complaint with affirmative defenses.
  
On October 6, 2018, the Company received Advance Trust & Life Escrow Services, LTA v. ReliaStar Life Insurance Company (USDC District of Minnesota, No. 1:18-cv-02863) (filed October 5, 2018), a putative class action in which Plaintiff alleges that the Company’s universal life insurance policies only permitted the Company to rely upon the policyholders’ expected future mortality experience to establish the cost of insurance, and that as projected mortality experience improved, the policy language required the Company to decrease the cost of insurance. Plaintiff alleges that the Company did not decrease the cost of insurance as required, thereby breaching its contract with the policyholders, and seeks class certification. The Company denies the allegations in the complaint, believes the complaint to be without merit, and will defend the lawsuit vigorously.


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

Contingencies related to Performance-based Capital Allocations on Private Equity Funds

Certain performance-based capital allocations related to sponsored private equity funds ("carried interest") are not final until the conclusion of an investment term specified in the relevant asset management contract. As a result, such carried interest, if accrued or paid to the Company during such term, is subject to later adjustment based on subsequent fund performance. If the fund’s cumulative investment return falls below specified investment return hurdles, some or all of the previously accrued carried interest is reversed to the extent that the Company is no longer entitled to the performance-based capital allocation. Should the fund’s cumulative investment return subsequently increase above specified investment return hurdles in future periods, previous reversals could be fully or partially recovered.

As of June 30, 2019, approximately $77 of previously accrued carried interest would be subject to full or partial reversal in future periods if cumulative fund performance hurdles are not maintained throughout the remaining life of the affected funds.

14.     Consolidated Investment Entities

In the normal course of business, the Company provides investment management services to, invests in and has transactions with, various types of investment entities which may be considered VIEs or VOEs. The Company evaluates its involvement with each entity to determine whether consolidation is required.

The Company holds variable interests in certain investment entities in the form of debt or equity investments, as well as the right to receive management fees, performance fees, and carried interest. The Company consolidates certain entities under the VIE guidance when it is determined that the Company is the primary beneficiary. Alternatively, certain entities are consolidated under the VOE guidance when control is obtained through voting rights.

The Company has no right to the benefits from, nor does it bear the risks associated with consolidated investment entities beyond the Company’s direct equity and debt investments in and management fees generated from these entities. Such direct investments amounted to approximately $341 and $354 as of June 30, 2019 and December 31, 2018, respectively. If the Company were to liquidate, the assets held by consolidated investment entities would not be available to the general creditors of the Company as a result of the liquidation.

Consolidated VIEs and VOEs

Collateral Loan Obligations Entities ("CLOs")

The Company is involved in the design, creation, and the ongoing management of CLOs. These entities are created for the purpose of acquiring diversified portfolios of senior secured floating rate leveraged loans, and securitizing these assets by issuing multiple tranches of collateralized debt; thereby providing investors with a broad array of risk and return profiles. Also known as collateralized financing entities under Topic 810, CLOs are variable interest entities by definition.

In return for providing collateral management services, the Company earns investment management fees and contingent performance fees. In addition to earning fee income, the Company often holds an investment in certain of the CLOs it manages, generally within the unrated and most subordinated tranche of each CLO. The fee income earned and investments held are included in the Company's ongoing consolidation assessment for each CLO. The Company was the primary beneficiary of 4 and 2 CLOs as of June 30, 2019 and December 31, 2018, respectively.

Limited Partnerships

The Company invests in and manages various limited partnerships, including private equity funds and hedge funds. These entities have been evaluated by the Company and are determined to be VIEs due to the equity holders, as a group, lacking the characteristics of a controlling financial interest.  

In return for serving as the general partner of and providing investment management services to these entities, the Company earns management fees and carried interest in the normal course of business. Additionally, the Company often holds an investment in each limited partnership it manages, generally in the form of general partner and limited partner interests. The fee income, carried

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

interest, and investments held are included in the Company’s ongoing consolidation analysis for each limited partnership. The Company consolidated 12 funds, which were structured as partnerships, as of June 30, 2019 and December 31, 2018, respectively.

Registered Investment Companies

The Company consolidated one sponsored investment fund accounted for as a VOE as of June 30, 2019 and December 31, 2018, respectively, because it is the majority investor in the fund, and as such, has a controlling financial interest in the fund.

The following table summarizes the components of the consolidated investment entities as of the dates indicated:
 
June 30, 2019
 
December 31, 2018
Assets of Consolidated Investment Entities
 
 
 
VIEs
 
 
 
Cash and cash equivalents
$
59

 
$
331

Corporate loans, at fair value using the fair value option
512

 
542

Limited partnerships/corporations, at fair value
1,302

 
1,313

Other assets
10

 
15

Total VIE assets
1,883

 
2,201

VOEs
 
 
 
Limited partnerships/corporations, at fair value
127

 
108

Other assets
1

 
1

Total VOE assets
128

 
109

Total assets of consolidated investment entities
$
2,011

 
$
2,310

 
 
 
 
Liabilities of Consolidated Investment Entities
 
 
 
VIEs
 
 
 
CLO notes, at fair value using the fair value option
$
432

 
$
540

Other liabilities
561

 
681

Total VIE liabilities
993

 
1,221

VOEs
 
 
 
Other liabilities
1

 
7

Total VOE liabilities
1

 
7

Total liabilities of consolidated investment entities
$
994

 
$
1,228



Fair Value Measurement

Upon consolidation, the Company elected to apply the FVO for financial assets and financial liabilities held by CLOs and continued to measure these assets (primarily corporate loans) and liabilities (debt obligations issued by CLOs) at fair value in subsequent periods. The Company has elected the FVO to more closely align its accounting with the economics of its transactions and allows the Company to more effectively align changes in the fair value of CLO assets with a commensurate change in the fair value of CLO liabilities.

Investments held by consolidated private equity funds are measured and reported at fair value in the Company's Condensed Consolidated Financial Statements. Changes in the fair value of consolidated investment entities are recorded as a separate line item within Income (loss) related to consolidated investment entities in the Company's Condensed Consolidated Statements of Operations.


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

The methodology for measuring the fair value of financial assets and liabilities of consolidated investment entities, and the classification of these measurements in the fair value hierarchy is consistent with the methodology and classification applied by the Company to its investment portfolio.

As discussed in more detail below, the Company utilizes valuations obtained from third-party commercial pricing services, brokers and investment sponsors or third-party administrators that supply NAV (or its equivalent) per share used as a practical expedient. The valuations obtained from brokers and third-party commercial pricing services are non-binding. These valuations are reviewed on a monthly or quarterly basis depending on the entity and its underlying investments. Procedures include, but are not limited to, a review of underlying fund investor reports, review of top and worst performing funds requiring further scrutiny, review of variance from prior periods and review of variance from benchmarks, where applicable. In addition, the Company considers both macro and fund specific events that may impact the latest NAV supplied and determines if further adjustments of value should be made. Such changes, if any, are subject to senior management review.

When a price cannot be obtained from a commercial pricing service, independent broker quotes are solicited. Securities priced using independent broker quotes are classified as Level 3. Broker quotes and prices obtained from pricing services are reviewed and validated through an internal valuation committee price variance review, comparisons to internal pricing models, back testing to recent trades or monitoring of trading volumes.

Cash and Cash Equivalents

The carrying amounts for cash reflect the assets’ fair values. The fair value for cash equivalents is determined based on quoted market prices. These assets are classified as Level 1.

CLOs

Corporate loans: Corporate loan investments, which comprise the majority of consolidated CLO portfolio collateral, are senior secured corporate loans maturing at various dates between 2020 and 2026, paying interest at LIBOR, EURIBOR or PRIME plus a spread of up to 10.0%. As of June 30, 2019 and December 31, 2018, the unpaid principal balance exceeded the fair value of the corporate loans by approximately $10 and $13, respectively. Less than 1.0% of the collateral assets were in default as of June 30, 2019 and December 31, 2018, respectively.

The fair values for corporate loans are determined using independent commercial pricing services. Fair value measurement based on pricing services may be classified in Level 2 or Level 3 depending on the type, complexity, observability and liquidity of the asset being measured. The inputs used by independent commercial pricing services, such as benchmark yields and credit risk adjustments, are those that are derived principally from or corroborated by observable market data. Hence, the fair value measurement of corporate loans priced by independent pricing service providers is classified within Level 2 of the fair value hierarchy. In addition, there are assets held with CLO portfolios that represent senior level debt of other third party CLOs. These CLO investments are classified within Level 3 of the fair value hierarchy. See description of fair value process for CLO notes below.

CLO notes: The CLO notes are backed by a diversified loan portfolio consisting primarily of senior secured floating rate leveraged loans. Repayment risk is segmented into tranches with credit ratings of these tranches reflecting both the credit quality of underlying collateral as well as how much protection a given tranche is afforded by tranches that are subordinate to it. The most subordinated tranche bears the first loss and receives the residual payments, if any. The interest rates are generally variable rates based on LIBOR plus a pre-defined spread, which varies from 0.7% for the more senior tranches to 5.4% for the more subordinated tranches. CLO notes mature in 2026 and have a weighted average maturity of 7.1 years as of June 30, 2019. The investors in this debt are not affiliated with the Company and have no recourse to the general credit of the Company for this debt.

The fair values of the CLO notes are measured based on the fair value of the CLO's corporate loans, as the Company uses the measurement alternative available under ASU 2014-13 and determined that the inputs for measuring financial assets are more observable. The CLO notes are classified within Level 2 of the fair value hierarchy, consistent with the classification of the majority of the CLO financial assets.


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

The Company reviews the detailed prices including comparisons to prior periods for reasonableness. The Company utilizes a formal pricing challenge process to request a review of any price during which time the vendor examines its assumptions and relevant market inputs to determine if a price change is warranted.

The following narrative indicates the sensitivity of inputs:

•
Default Rate: An increase (decrease) in the expected default rate would likely increase (decrease) the discount margin (increase risk premium) used to value the CLO investments and CLO notes and, as a result, would potentially decrease the value of the CLO investments and CLO notes.
•
Recovery Rate: A decrease (increase) in the expected recovery of defaulted assets would potentially decrease (increase) the valuation of CLO investments and CLO notes.
•
Prepayment Rate: A decrease (increase) in the expected rate of collateral prepayments would potentially decrease (increase) the valuation of CLO investments and CLO notes as the expected weighted average life ("WAL") would increase (decrease).
•
Discount Margin (spread over LIBOR): An increase (decrease) in the discount margin used to value the CLO investments and CLO notes would decrease (increase) the value of the CLO investments and CLO notes.

Private Equity Funds

As prescribed in ASC Topic 820, the unit of account for these investments is the interest in the investee fund. The Company owns an undivided interest in the fund portfolio and does not have the ability to dispose of individual assets and liabilities in the fund portfolio. Rather, the Company would be required to redeem or dispose of its entire interest in the investee fund. There is no current active market for interests in underlying private equity funds.

Valuation is generally based on the valuations provided by the fund's general partner or investment manager. The valuations typically reflect the fair value of the Company's capital account balance of each fund investment, including unrealized capital gains (losses), as reported in the financial statements of the respective investee fund as of the respective year end or the latest available date. In circumstances where fair values are not provided, the Company seeks to determine the fair value of fund investments based upon other information provided by the fund's general partner or investment manager or from other sources.

The fair value of securities received in-kind from fund investments is determined based on the restrictions around the securities.

•
Unrestricted, publicly traded securities are valued at the closing public market price on the reporting date;
•
Restricted, publicly traded securities may be valued at a discount from the closing public market price on the reporting date, depending on the circumstances; and
•
Privately held securities are valued by the directors/general partner of the investee fund, based on a variety of factors, including the price of recent transactions in the company's securities and the company's earnings, revenue and book value.

In the case of direct investments or co-investments in private equity companies, the Company initially recognizes investments at cost and subsequently adjusts investments to fair value. On a quarterly basis, the Company reviews the general partner or lead investor's valuation of the investee company, taking into account other available information, such as indications of a market value through subsequent issues of capital or transactions between third parties, performance of the investee company during the period and public, comparable companies' analysis, where appropriate.

Investments in these funds typically may not be fully redeemed at NAV within 90 days because of inherent restriction on near term redemptions.

As of June 30, 2019 and December 31, 2018, certain private equity funds maintained term loans and revolving lines of credit of $819 and $753, respectively. The term loans renew every three years and the revolving lines of credit renew annually; all loans bear interest at LIBOR/EURIBOR plus 150 - 155 bps. The lines of credit are used for funding transactions before capital is called from investors, as well as for the financing of certain purchases. As of June 30, 2019 and December 31, 2018, outstanding borrowings amount to $480 and $584, respectively.


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

On February 1, 2018, Pomona Investment Fund entered into a three-year revolving credit agreement with Credit Suisse. The size of the facility as of June 30, 2019 is $25; the loan bears interest at LIBOR plus 325 bps and has a commitment fee of 160 bps. There was no outstanding borrowing as of June 30, 2019.
The borrowings are reflected in Liabilities related to consolidated investment entities - other liabilities on the Company's Condensed Consolidated Balance Sheets. The borrowings are carried at an amount equal to the unpaid principal balance.

The following table summarizes the fair value hierarchy levels of consolidated investment entities as of June 30, 2019:
 
Level 1
 
Level 2
 
Level 3
 
NAV
 
Total
Assets
 
 
 
 
 
 
 
 
 
VIEs
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
59

 
$
—

 
$
—

 
$
—

 
$
59

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

 
512

 
—

 
—

 
512

Limited partnerships/corporations, at fair value
—

 
—

 
—

 
1,302

 
1,302

VOEs
 
 
 
 
 
 
 
 
 
Limited partnerships/corporations, at fair value
—

 
—

 
—

 
127

 
127

Total assets, at fair value
$
59

 
$
512

 
$
—

 
$
1,429

 
$
2,000

Liabilities
 
 
 
 
 
 
 
 
 
VIEs
 
 
 
 
 
 
 
 
 
CLO notes, at fair value using the fair value option
$
—

 
$
432

 
$
—

 
$
—

 
$
432

Total liabilities, at fair value
$
—

 
$
432

 
$
—

 
$
—

 
$
432


The following table summarizes the fair value hierarchy levels of consolidated investment entities as of December 31, 2018:
 
Level 1
 
Level 2
 
Level 3
 
NAV
 
Total
Assets
 
 
 
 
 
 
 
 
 
VIEs
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
331

 
$
—

 
$
—

 
$
—

 
$
331

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

 
542

 
—

 
—

 
542

Limited partnerships/corporations, at fair value
—

 
—

 
—

 
1,313

 
1,313

VOEs
 
 
 
 
 
 
 
 
 
Limited partnerships/corporations, at fair value
—

 
—

 
—

 
108

 
108

Total assets, at fair value
$
331

 
$
542

 
$
—

 
$
1,421

 
$
2,294

Liabilities
 
 
 
 
 
 
 
 
 
VIEs
 
 
 
 
 
 
 
 
 
CLO notes, at fair value using the fair value option
$
—

 
$
540

 
$
—

 
$
—

 
$
540

Total liabilities, at fair value
$
—

 
$
540

 
$
—

 
$
—

 
$
540




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

Transfers of investments out of Level 3 and into Level 2 or Level 1, if any, are recorded as of the beginning of the period in which the transfer occurred. For the three and six months ended June 30, 2019 and 2018, there were no transfers in or out of Level 3 or transfers between Level 1 and Level 2.

Deconsolidation of Certain Investment Entities

There were no deconsolidations during the three and six months ended June 30, 2019. During the six months ended June 30, 2018, the Company determined it was no longer the primary beneficiary of one previously consolidated CLO due to a reduction in the Company’s investment in the CLO. This caused a reduction in the Company's obligation to absorb losses and right to receive benefits of the CLO that could potentially be significant to the CLO. As a result of this determination, the Company deconsolidated one and two investment entities, respectively, during the three and six months ended June 30, 2018.

Nonconsolidated VIEs

CLOs

In addition to the consolidated CLOs, the Company also holds variable interest in certain CLOs that are not consolidated as it has been determined that the Company is not the primary beneficiary. With these CLOs, the Company serves as the investment manager and receives investment management fees and contingent performance fees. Generally, the Company does not hold any interest in the nonconsolidated CLOs but if it does, such ownership has been deemed to be insignificant. The Company has not provided, and is not obligated to provide, any financial or other support to these entities.

The Company reviews its assumptions on a periodic basis to determine if conditions have changed such that the projection of these contingent fees becomes significant enough to reconsider the Company's consolidation status as variable interest holder. As of June 30, 2019 and December 31, 2018, the Company held $525 ownership interests, respectively, in unconsolidated CLOs.

Limited Partnerships

The Company manages or holds investments in certain private equity funds and hedge funds. With these entities, the Company serves as the investment manager and is entitled to receive at-market investment management fees and at-market contingent performance fees. The Company does not consolidate any of these investment funds for which it is not considered to be the primary beneficiary.

In addition, the Company does not consolidate the funds in which its involvement takes a form of a limited partner interest and is restricted to a role of a passive investor, as a limited partner's interest does not provide the Company with any substantive kick-out or participating rights, nor does it provide the Company with power to direct the activities of the fund.

The following table presents the carrying amounts of the variable interests in VIEs in which the Company concluded that it holds a variable interest, but is not the primary beneficiary as of the dates indicated. The Company determines its maximum exposure to loss to be: (i) the amount invested in the debt or equity of the VIE and (ii) other commitments and guarantees to the VIE.

Variable Interests on the Condensed Consolidated Balance Sheet
 
June 30, 2019
 
December 31, 2018
 
 Carrying Amount
 
Maximum exposure to loss
 
 Carrying Amount
 
Maximum exposure to loss
Fixed maturities, available for sale
$
525

 
$
525

 
$
523

 
$
523

Limited partnership/corporations
1,325

 
1,325

 
1,158

 
1,158



Securitizations

The Company invests in various tranches of securitization entities, including RMBS, CMBS and ABS. Through its investments, the Company is not obligated to provide any financial or other support to these entities. Each of the RMBS, CMBS and ABS

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

entities are thinly capitalized by design and considered VIEs. The Company's involvement with these entities is limited to that of a passive investor. The Company has no unilateral right to appoint or remove the servicer, special servicer or investment manager, which are generally viewed to have the power to direct the activities that most significantly impact the securitization entities' economic performance, in any of these entities, nor does the Company function in any of these roles. The Company, through its investments or other arrangements, does not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity. Therefore, the Company is not the primary beneficiary and does not consolidate any of the RMBS, CMBS and ABS entities in which it holds investments. These investments are accounted for as investments available-for-sale as described in the Fair Value Measurements (excluding Consolidated Investment Entities) Note to these Condensed Consolidated Financial Statements and unrealized capital gains (losses) on these securities are recorded directly in AOCI, except for certain RMBS which are accounted for under the FVO whose change in fair value is reflected in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations. The Company’s maximum exposure to loss on these structured investments is limited to the amount of its investment. Refer to the Investments (excluding Consolidated Investment Entities) Note to these Condensed Consolidated Financial Statements for details regarding the carrying amounts and classifications of these assets.

15.     Restructuring

Organizational Restructuring

As a result of the closing of the 2018 Transaction, the decision to cease new sales following the strategic review of the Company’s Individual Life business and the recently announced additional cost savings targets, the Company is undertaking further restructuring efforts to execute the 2018 Transaction, reduce stranded expenses, as well as improve operational efficiency, strengthen technology capabilities and centralize certain sales, operations and investment management activities ("Organizational Restructuring").

These activities have resulted in recognition of severance and organizational transition costs and are reflected in Operating expenses in the Condensed Consolidated Statements of Operations, but excluded from Adjusted operating earnings before income taxes. These expenses are classified as a component of Other adjustments to Income (loss) from continuing operations before income taxes and consequently are not included in the adjusted operating results of the Company's segments. For the three and six months ended June 30, 2019, the Company incurred Organizational Restructuring expenses of $55 and $138, respectively associated with continuing operations. For the three and six months ended June 30, 2018, the Company incurred Organizational Restructuring expenses of $7 and $12, respectively associated with continuing operations.

Restructuring expenses that were directly related to the preparation for and execution of the 2018 Transaction are included in Income (loss) from discontinued operations, net of tax, in the Condensed Consolidated Statements of Operations. For the three and six months ended June 30, 2019, the Company did not incur Organizational Restructuring expenses associated with discontinued operations as a result of the 2018 Transaction. For the three and six months ended June 30, 2018, the Company incurred Organizational Restructuring expenses as a result of the 2018 Transaction of $8 and $6, respectively, of severance and organizational transition costs, which are reflected in discontinued operations.

In addition to the restructuring costs incurred above, the anticipated reduction in employees from the execution of the initiatives described above triggered an immaterial curtailment loss and related re-measurement gain of the Company's qualified defined benefit pension plan for the six months ended June 30, 2019.


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

The summary below presents Organizational Restructuring expenses, pre-tax, by type of costs incurred, for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Cumulative Amounts Incurred to Date
 
2019
 
2018
 
2019
 
2018
 
Severance benefits
$
4

 
$
3

 
$
51

 
$
5

 
$
70

Organizational transition costs
51

 
12

 
87

 
13

 
127

Total restructuring expenses
$
55

 
$
15

 
$
138

 
$
18

 
$
197



Including the expense of $138 for the six months ended June 30, 2019, the aggregate amount of Organizational Restructuring expenses expected to be incurred is in the range of $200 to $300. The Company anticipates that these costs, which will include severance, organizational transition costs incurred to reorganize operations and other costs such as contract terminations and asset write-offs, will occur at least through the end of 2020.

The following table presents the accrued liability associated with Organizational Restructuring expenses as of June 30, 2019:
 
Severance Benefits
 
Organizational Transition Costs
 
Total
Accrued liability as of January 1, 2019
$
12

 
$
9

 
$
21

Provision
51

 
87

 
138

Payments
(12
)
 
(61
)
 
(73
)
Accrued liability as of June 30, 2019
$
51

 
$
35

 
$
86



2016 Restructuring

In 2016, the Company began implementing a series of initiatives designed to make it a simpler, more agile company able to deliver an enhanced customer experience ("2016 Restructuring"). These initiatives include an increasing emphasis on less capital-intensive products and the achievement of operational synergies.

Substantially all of the initiatives associated with the 2016 Restructuring program concluded at the end of 2018. However, the Company expects to incur approximately $10 to $20 of additional restructuring costs associated with the completion of the information technology transition agreement entered into during 2017.

Total 2016 Restructuring expenses are reflected in Operating expenses in the Condensed Consolidated Statements of Operations, but excluded from Adjusted operating earnings before income taxes. These expenses are classified as a component of Other adjustments to Income (loss) from continuing operations before income taxes and consequently are not included in the adjusted operating results of the Company's segments.


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

The summary below presents 2016 Restructuring expenses, pre-tax, by type of costs incurred, for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Cumulative Amounts Incurred to Date
 
2019
 
2018
 
2019
 
2018
 
Severance benefits
$
—

 
$
(2
)
 
$
—

 
$
4

 
$
69

Asset write-off costs
—

 
—

 
—

 
—

 
17

Transition costs
1

 
1

 
1

 
6

 
25

Other costs
2

 
4

 
5

 
7

 
41

Total restructuring expenses
$
3

 
$
3

 
$
6

 
$
17

 
$
152



The following table presents the accrued liability associated with 2016 Restructuring expenses as of June 30, 2019:
 
Severance Benefits
 
Transition Costs
 
Other Costs
 
Total
Accrued liability as of January 1, 2019
$
8

 
$
14

 
$
2

 
$
24

Provision
—

 
1

 
5

 
6

Payments
(2
)
 
(3
)
 
(6
)
 
(11
)
Accrued liability as of June 30, 2019
$
6

 
$
12

 
$
1

 
$
19



16.    Segments

The Company provides its principal products and services through four segments: Retirement, Investment Management, Employee Benefits, and Individual Life. Corporate includes activities not directly related to the segments, results of the Retained Business and certain insignificant run-off activities.

Measurement

Adjusted operating earnings before income taxes is a measure used by management to evaluate segment performance. The Company believes that Adjusted operating earnings before income taxes provides a meaningful measure of its business and segment performances and enhances the understanding of the Company’s financial results by focusing on the operating performance and trends of the underlying business segments and excluding items that tend to be highly variable from period to period based on capital market conditions and/or other factors. The Company uses the same accounting policies and procedures to measure segment Adjusted operating earnings before income taxes as it does for the directly comparable U.S. GAAP measure Income (loss) from continuing operations before income taxes. Adjusted operating earnings before income taxes does not replace Income (loss) from continuing operations before income taxes as the U.S. GAAP measure of the Company’s consolidated results of operations. Therefore, the Company believes that it is useful to evaluate both Income (loss) from continuing operations before income taxes and Adjusted operating earnings before income taxes when reviewing the Company’s financial and operating performance. Each segment’s Adjusted operating earnings before income taxes is calculated by adjusting Income (loss) from continuing operations before income taxes for the following items:

•
Net investment gains (losses), net of related amortization of DAC, VOBA, sales inducements and unearned revenue, which are significantly influenced by economic and market conditions, including interest rates and credit spreads, and are not indicative of normal operations. Net investment gains (losses) include gains (losses) on the sale of securities, impairments, changes in the fair value of investments using the FVO unrelated to the implied loan-backed security income recognition for certain mortgage-backed obligations and changes in the fair value of derivative instruments, excluding realized gains (losses) associated with swap settlements and accrued interest;

•
Net guaranteed benefit hedging gains (losses), which are significantly influenced by economic and market conditions and are not indicative of normal operations, include changes in the fair value of derivatives related to guaranteed benefits, net of related reserve increases (decreases) and net of related amortization of DAC, VOBA and sales inducements, less

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

the estimated cost of these benefits. The estimated cost, which is reflected in operating results, reflects the expected cost of these benefits if markets perform in line with the Company's long-term expectations and includes the cost of hedging. Other derivative and reserve changes related to guaranteed benefits are excluded from adjusted operating earnings, including the impacts related to changes in the Company's nonperformance spread;

•
Income (loss) related to businesses exited through reinsurance or divestment that do not qualify as discontinued operations, which includes gains and (losses) associated with transactions to exit blocks of business (including net investment gains (losses) on securities sold and expenses directly related to these transactions) and residual run-off activity; these gains and (losses) are often related to infrequent events and do not reflect performance of operating segments. Excluding this activity better reveals trends in the Company's core business, which would be obscured by including the effects of business exited, and more closely aligns Adjusted operating earnings before income taxes with how the Company manages its segments;

•
Income (loss) attributable to noncontrolling interest, which represents the interest of shareholders, other than the Company, in consolidated entities. Income (loss) attributable to noncontrolling interest represents such shareholders' interests in the gains and (losses) of those entities, or the attribution of results from consolidated VIEs or VOEs to which the Company is not economically entitled;

•
Dividend payments made to preferred shareholders are included as reductions to reflect the Adjusted operating earnings that is available to common shareholders;

•
Income (loss) related to early extinguishment of debt, which includes losses incurred as a result of transactions where the Company repurchases outstanding principal amounts of debt; these losses are excluded from Adjusted operating earnings before income taxes since the outcome of decisions to restructure debt are not indicative of normal operations;

•
Impairment of goodwill, value of management contract rights and value of customer relationships acquired, which includes losses as a result of impairment analysis; these represent losses related to infrequent events and do not reflect normal, cash-settled expenses;

•
Immediate recognition of net actuarial gains (losses) related to the Company's pension and other postretirement benefit obligations and gains (losses) from plan amendments and curtailments, which includes actuarial gains and losses as a result of differences between actual and expected experience on pension plan assets or projected benefit obligation during a given period. The Company immediately recognizes actuarial gains and (losses) related to pension and other postretirement benefit obligations and gains and losses from plan adjustments and curtailments. These amounts do not reflect normal, cash-settled expenses and are not indicative of current Operating expense fundamentals; and

•
Other items not indicative of normal operations or performance of the Company's segments or related to events such as
capital or organizational restructurings undertaken to achieve long-term economic benefits, including certain costs related to debt and equity offerings and severance and other expenses associated with such activities. These items vary widely in timing, scope and frequency between periods as well as between companies to which the Company is compared. Accordingly, the Company adjusts for these items as management believes that these items distort the ability to make a meaningful evaluation of the current and future performance of the Company's segments.


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

The summary below reconciles Adjusted operating earnings before income taxes for the segments to Income (loss) from continuing operations before income taxes for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Income (loss) from continuing operations before income taxes
$
298

 
$
241

 
$
475

 
$
262

Less Adjustments:
 
 
 
 
 
 
 
Net investment gains (losses) and related charges and adjustments
55

 
(40
)
 
78

 
(101
)
Net guaranteed benefit hedging gains (losses) and related charges and adjustments
(9
)
 
2

 
(11
)
 
(12
)
Income (loss) related to businesses exited through reinsurance or divestment
2

 
(8
)
 
(19
)
 
(53
)
Income (loss) attributable to noncontrolling interest
25

 
58

 
24

 
58

Loss related to early extinguishment of debt
—

 
—

 
—

 
(3
)
Immediate recognition of net actuarial gains (losses) related to pension and other post-employment benefit obligations and gains (losses) from plan amendments and curtailments
—

 
—

 
66

 
—

Dividend payments made to preferred shareholders
—

 
—

 
10

 
—

Other adjustments
(53
)
 
(9
)
 
(145
)
 
(28
)
Total adjustments to income (loss) from continuing operations
$
20

 
$
3

 
$
3

 
$
(139
)
 
 
 
 
 
 
 
 
Adjusted operating earnings before income taxes by segment:
 
 
 
 
 
 
 
Retirement
$
180

 
$
169

 
$
309

 
$
278

Investment Management
41

 
52

 
75

 
113

Employee Benefits
49

 
35

 
87

 
67

Individual Life
47

 
41

 
95

 
58

Corporate
(39
)
 
(59
)
 
(94
)
 
(115
)
Total
$
278

 
$
238

 
$
472

 
$
401



Adjusted operating revenues is a measure of the Company's segment revenues. Each segment's Operating revenues are calculated by adjusting Total revenues to exclude the following items:

•
Net investment gains (losses) and related charges and adjustments, which are significantly influenced by economic and market conditions, including interest rates and credit spreads and are not indicative of normal operations. Net investment gains (losses) include gains (losses) on the sale of securities, impairments, changes in the fair value of investments using the FVO unrelated to the implied loan-backed security income recognition for certain mortgage-backed obligations and changes in the fair value of derivative instruments, excluding realized gains (losses) associated with swap settlements and accrued interest. These are net of related amortization of unearned revenue;


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

•
Gain (loss) on change in fair value of derivatives related to guaranteed benefits, which is significantly influenced by economic and market conditions and not indicative of normal operations, includes changes in the fair value of derivatives related to guaranteed benefits, less the estimated cost of these benefits. The estimated cost, which is reflected in Adjusted operating revenues, reflects the expected cost of these benefits if markets perform in line with the Company's long-term expectations and includes the cost of hedging. Other derivative and reserve changes related to guaranteed benefits are excluded from Adjusted operating revenues, including the impacts related to changes in the Company's nonperformance spread;

•
Revenues related to businesses exited through reinsurance or divestment that do not qualify as discontinued operations, which includes revenues associated with transactions to exit blocks of business (including net investment gains (losses) on securities sold related to these transactions) and residual run-off activity; these gains and (losses) are often related to infrequent events and do not reflect performance of operating segments. Excluding this activity better reveals trends in the Company's core business, which would be obscured by including the effects of business exited, and more closely aligns Operating revenues with how the Company manages its segments;

•
Revenues attributable to noncontrolling interest, which represents the interests of shareholders, other than the Company, in consolidated entities. Revenues attributable to noncontrolling interest represents such shareholders' interests in the gains and losses of those entities, or the attribution of results from consolidated VIEs or VOEs to which the Company is not economically entitled; and

•
Other adjustments to Total revenues primarily reflect fee income earned by the Company's broker-dealers for sales of non-proprietary products, which are reflected net of commission expense in the Company's segments’ operating revenues, other items where the income is passed on to third parties and the elimination of intercompany investment expenses included in Adjusted operating revenues.

The summary below reconciles Adjusted operating revenues for the segments to Total revenues for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Total revenues
$
2,346

 
$
2,113

 
$
4,543

 
$
4,080

 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
Net realized investment gains (losses) and related charges and adjustments
51

 
(49
)
 
61

 
(122
)
Gain (loss) on change in fair value of derivatives related to guaranteed benefits
(4
)
 
4

 
(7
)
 
(3
)
Revenues related to businesses exited through reinsurance or divestment
76

 
(18
)
 
152

 
(58
)
Revenues attributable to noncontrolling interest
44

 
76

 
48

 
82

Other adjustments
84

 
67

 
171

 
125

Total adjustments to revenues
251

 
80

 
425

 
24

 
 
 
 
 
 
 
 
Adjusted operating revenues by segment:
 
 
 
 
 
 
 
Retirement
688

 
670

 
1,336

 
1,332

Investment Management
163

 
171

 
311

 
356

Employee Benefits
515

 
460

 
1,023

 
913

Individual Life
643

 
641

 
1,269

 
1,272

Corporate
86

 
91

 
179

 
183

Total
$
2,095

 
$
2,033

 
$
4,118

 
$
4,056



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


Other Segment Information

The Investment Management segment revenues include the following intersegment revenues, primarily consisting of asset-based management and administration fees for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Investment Management intersegment revenues
$
30

 
$
39

 
$
60

 
$
82



The summary below presents Total assets for the Company’s segments as of the dates indicated:
 
June 30, 2019
 
December 31, 2018
Retirement
$
114,292

 
$
104,995

Investment Management
657

 
690

Employee Benefits
2,758

 
2,560

Individual Life
27,724

 
26,431

Corporate
18,062

 
18,051

Total assets, before consolidation(1)
163,493

 
152,727

Consolidation of investment entities
1,669

 
1,955

Total assets
$
165,162

 
$
154,682


(1) Total assets, before consolidation includes the Company's direct investments in CIEs prior to consolidation, which are accounted for using the equity method or fair value option.


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

17.    Condensed Consolidating Financial Information

The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X, Rule 3-10, "Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered" ("Rule 3-10"). The condensed consolidating financial information presents the financial position of Voya Financial, Inc. ("Parent Issuer"), Voya Holdings ("Subsidiary Guarantor") and all other subsidiaries ("Non-Guarantor Subsidiaries") of the Company as of June 30, 2019 and December 31, 2018, their results of operations and comprehensive income for the three and six months ended June 30, 2019 and 2018, and statements of cash flows for the six months ended June 30, 2019 and 2018.

The 5.5% senior notes due 2022, the 5.7% senior notes due 2043, the 3.65% senior notes due 2026, the 4.8% senior notes due 2046, the 3.125% senior notes due 2024 (collectively, the "Senior Notes"), the 5.65% fixed-to-floating rate junior subordinated notes due 2053 and the 4.7% fixed-to-floating junior subordinated notes due 2048 (collectively, the "Junior Subordinated Notes"), each issued by Parent Issuer, are fully and unconditionally guaranteed by Subsidiary Guarantor, a 100% owned subsidiary of Parent Issuer. No other subsidiary of Parent Issuer guarantees the Senior Notes or the Junior Subordinated Notes. Rule 3-10(h) provides that a guarantee is full and unconditional if, when the issuer of a guaranteed security has failed to make a scheduled payment, the guarantor is obligated to make the scheduled payment immediately and, if it does not, any holder of the guaranteed security may immediately bring suit directly against the guarantor for payment of amounts due and payable. In the event that Parent Issuer does not fulfill the guaranteed obligations, any holder of the Senior Notes or the Junior Subordinated Notes may immediately bring a claim against Subsidiary Guarantor for amounts due and payable.

The following condensed consolidating financial information is presented in conformance with the components of the Condensed Consolidated Financial Statements. Investments in subsidiaries are accounted for using the equity method for purposes of illustrating the consolidating presentation. Equity in the subsidiaries is therefore reflected in the Parent Issuer's and Subsidiary Guarantor's Investment in subsidiaries and Equity in earnings of subsidiaries. Non-Guarantor Subsidiaries represent all other subsidiaries on a combined basis. The consolidating adjustments presented herein eliminate investments in subsidiaries and intercompany balances and transactions.

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

Condensed Consolidating Balance Sheet
June 30, 2019
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Assets:
 
 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
 
 
Fixed maturities, available-for-sale, at fair value
$
—

 
$
—

 
$
49,165

 
$
(15
)
 
$
49,150

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

 
—

 
3,358

 
—

 
3,358

Equity securities, at fair value
124

 
—

 
243

 
—

 
367

Short-term investments
—

 
—

 
154

 
—

 
154

Mortgage loans on real estate, net of valuation allowance
—

 
—

 
8,418

 
—

 
8,418

Policy loans
—

 
—

 
1,797

 
—

 
1,797

Limited partnerships/corporations
—

 
—

 
1,325

 
—

 
1,325

Derivatives
51

 
—

 
490

 
(101
)
 
440

Investments in subsidiaries
11,455

 
7,988

 
—

 
(19,443
)
 
—

Other investments
—

 
—

 
96

 
—

 
96

Securities pledged
—

 
—

 
1,945

 
—

 
1,945

Total investments
11,630

 
7,988

 
66,991

 
(19,559
)
 
67,050

Cash and cash equivalents
452

 
—

 
1,030

 
—

 
1,482

Short-term investments under securities loan agreements, including collateral delivered
11

 
—

 
1,918

 
—

 
1,929

Accrued investment income
—

 
—

 
662

 
—

 
662

Premium receivable and reinsurance recoverable
—

 
—

 
6,640

 
—

 
6,640

Deferred policy acquisition costs and Value of business acquired
—

 
—

 
3,246

 
—

 
3,246

Current income taxes
(2
)
 
13

 
215

 
—

 
226

Deferred income taxes
561

 
24

 
(9
)
 
—

 
576

Loans to subsidiaries and affiliates
277

 
—

 
—

 
(277
)
 
—

Due from subsidiaries and affiliates
2

 
—

 
5

 
(7
)
 
—

Other assets
9

 
—

 
1,416

 
—

 
1,425

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

 
—

 
1,429

 
—

 
1,429

Cash and cash equivalents
—

 
—

 
59

 
—

 
59

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

 
—

 
512

 
—

 
512

Other assets
—

 
—

 
11

 
—

 
11

Assets held in separate accounts
—

 
—

 
79,915

 
—

 
79,915

Total assets
$
12,940

 
$
8,025

 
$
164,040

 
$
(19,843
)
 
$
165,162



 
82
 

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

Condensed Consolidating Balance Sheet (Continued)
June 30, 2019
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Liabilities and Shareholders' Equity:
 
 
 
 
 
 
 
 
 
Future policy benefits
$
—

 
$
—

 
$
14,841

 
$
—

 
$
14,841

Contract owner account balances
—

 
—

 
50,580

 
—

 
50,580

Payables under securities loan and repurchase agreements, including collateral held
—

 
—

 
1,972

 
—

 
1,972

Short-term debt
96

 
94

 
184

 
(277
)
 
97

Long-term debt
2,668

 
371

 
17

 
(15
)
 
3,041

Derivatives
51

 
—

 
482

 
(101
)
 
432

Pension and other postretirement provisions
—

 
—

 
445

 
—

 
445

Due to subsidiaries and affiliates
3

 
—

 
2

 
(5
)
 
—

Other liabilities
58

 
10

 
2,040

 
(2
)
 
2,106

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

 
—

 
432

 
—

 
432

Other liabilities
—

 
—

 
562

 
—

 
562

Liabilities related to separate accounts
—

 
—

 
79,915

 
—

 
79,915

Total liabilities
2,876

 
475

 
151,472

 
(400
)
 
154,423

Shareholders' equity:
 
 
 
 
 
 
 
 
 
Total Voya Financial, Inc. shareholders' equity
10,064

 
7,550

 
11,893

 
(19,443
)
 
10,064

Noncontrolling interest
—

 
—

 
675

 
—

 
675

Total shareholders' equity
10,064

 
7,550

 
12,568

 
(19,443
)
 
10,739

Total liabilities and shareholders' equity
$
12,940

 
$
8,025

 
$
164,040

 
$
(19,843
)
 
$
165,162


 
83
 

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

Condensed Consolidating Balance Sheet
December 31, 2018
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Assets:
 
 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
 
 
Fixed maturities, available-for-sale, at fair value
$
—

 
$
—

 
$
46,313

 
$
(15
)
 
$
46,298

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

 
—

 
2,956

 
—

 
2,956

Equity securities, at fair value
99

 
—

 
174

 
—

 
273

Short-term investments
—

 
—

 
168

 
—

 
168

Mortgage loans on real estate, net of valuation allowance
—

 
—

 
8,676

 
—

 
8,676

Policy loans
—

 
—

 
1,833

 
—

 
1,833

Limited partnerships/corporations
—

 
—

 
1,158

 
—

 
1,158

Derivatives
39

 
—

 
286

 
(78
)
 
247

Investments in subsidiaries
10,099

 
7,060

 
—

 
(17,159
)
 
—

Other investments
—

 
—

 
90

 
—

 
90

Securities pledged
—

 
—

 
1,867

 
—

 
1,867

Total investments
10,237

 
7,060

 
63,521

 
(17,252
)
 
63,566

Cash and cash equivalents
209

 
2

 
1,327

 
—

 
1,538

Short-term investments under securities loan agreements, including collateral delivered
11

 
—

 
1,673

 
—

 
1,684

Accrued investment income
—

 
—

 
650

 
—

 
650

Premium receivable and reinsurance recoverable
—

 
—

 
6,860

 
—

 
6,860

Deferred policy acquisition costs and Value of business acquired
—

 
—

 
4,116

 
—

 
4,116

Current income taxes
(37
)
 
26

 
248

 
—

 
237

Deferred income taxes
553

 
22

 
582

 
—

 
1,157

Loans to subsidiaries and affiliates
79

 
—

 
4

 
(83
)
 
—

Due from subsidiaries and affiliates
2

 
—

 
3

 
(5
)
 
—

Other assets
13

 
—

 
1,323

 
—

 
1,336

Assets related to consolidated investment entities:
 
 
 
 
 
 
 
 

Limited partnerships/corporations, at fair value
—

 
—

 
1,421

 
—

 
1,421

Cash and cash equivalents
—

 
—

 
331

 
—

 
331

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

 
—

 
542

 
—

 
542

Other assets
—

 
—

 
16

 
—

 
16

Assets held in separate accounts
—

 
—

 
71,228

 
—

 
71,228

Total assets
$
11,067

 
$
7,110

 
$
153,845

 
$
(17,340
)
 
$
154,682



 
84
 

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

Condensed Consolidating Balance Sheet (Continued)
December 31, 2018
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Liabilities and Shareholders' Equity:
 
 
 
 
 
 
 
 
 
Future policy benefits
$
—

 
$
—

 
$
14,488

 
$
—

 
$
14,488

Contract owner account balances
—

 
—

 
51,001

 
—

 
51,001

Payables under securities loan and repurchase agreements, including collateral held
—

 
—

 
1,821

 
—

 
1,821

Short-term debt
4

 
—

 
80

 
(83
)
 
1

Long-term debt
2,763

 
371

 
17

 
(15
)
 
3,136

Derivatives
39

 
—

 
178

 
(78
)
 
139

Pension and other postretirement provisions
—

 
—

 
551

 
—

 
551

Due to subsidiaries and affiliates
1

 
—

 
2

 
(3
)
 
—

Other liabilities
47

 
55

 
2,048

 
(2
)
 
2,148

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

 
—

 
540

 
—

 
540

Other liabilities
—

 
—

 
688

 
—

 
688

Liabilities related to separate accounts
—

 
—

 
71,228

 
—

 
71,228

Total liabilities
2,854

 
426

 
142,642

 
(181
)
 
145,741

Shareholders' equity:
 
 
 
 
 
 
 
 
 
Total Voya Financial, Inc. shareholders' equity
8,213

 
6,684

 
10,475

 
(17,159
)
 
8,213

Noncontrolling interest
—

 
—

 
728

 
—

 
728

Total shareholders' equity
8,213

 
6,684

 
11,203

 
(17,159
)
 
8,941

Total liabilities and shareholders' equity
$
11,067

 
$
7,110

 
$
153,845

 
$
(17,340
)
 
$
154,682








 
85
 

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

Condensed Consolidating Statement of Operations
For the Three Months Ended June 30, 2019
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Net investment income
$
8

 
$
—

 
$
876

 
$
(4
)
 
$
880

Fee income
—

 
—

 
662

 
—

 
662

Premiums
—

 
—

 
585

 
—

 
585

Net realized capital gains (losses):
 
 
 
 
 
 
 
 
 
Total other-than-temporary impairments
—

 
—

 
(3
)
 
—

 
(3
)
Less: Portion of other-than-temporary impairments recognized in Other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

Net other-than-temporary impairments recognized in earnings
—

 
—

 
(3
)
 
—

 
(3
)
Other net realized capital gains (losses)
—

 
—

 
53

 
—

 
53

Total net realized capital gains (losses)
—

 
—

 
50

 
—

 
50

Other revenue
—

 
—

 
102

 
—

 
102

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

 
—

 
67

 
—

 
67

Total revenues
8

 
—

 
2,342

 
(4
)
 
2,346

Benefits and expenses:
 
 
 
 
 
 
 
 
 
Policyholder benefits
—

 
—

 
852

 
—

 
852

Interest credited to contract owner account balances
—

 
—

 
380

 
—

 
380

Operating expenses
3

 
—

 
684

 
—

 
687

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

 
—

 
67

 
—

 
67

Interest expense
35

 
8

 
3

 
(4
)
 
42

Operating expenses related to consolidated investment entities:
 
 
 
 
 
 
 
 
 
Interest expense
—

 
—

 
16

 
—

 
16

Other expense
—

 
—

 
4

 
—

 
4

Total benefits and expenses
38

 
8

 
2,006

 
(4
)
 
2,048

Income (loss) from continuing operations before income taxes
(30
)
 
(8
)
 
336

 
—

 
298

Income tax expense (benefit)
(6
)
 
(1
)
 
51

 
—

 
44

Income (loss) from continuing operations
(24
)
 
(7
)
 
285

 
—

 
254

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

 
(3
)
 
—

 
—

 
(3
)
Net income (loss) before equity in earnings (losses) of unconsolidated affiliates
(24
)
 
(10
)
 
285

 
—

 
251

Equity in earnings (losses) of subsidiaries, net of tax
250

 
153

 
—

 
(403
)
 
—

Net income (loss)
226

 
143

 
285

 
(403
)
 
251

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

 
—

 
25

 
—

 
25

Net income (loss) available to Voya Financial, Inc.
226

 
143

 
260

 
(403
)
 
226

Less: Preferred stock dividends
—

 
—

 
—

 
—

 
—

Net income (loss) available to Voya Financial, Inc.'s common shareholders
$
226

 
$
143

 
$
260

 
$
(403
)
 
$
226


 
86
 

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

Condensed Consolidating Statement of Operations
For the Six Months Ended June 30, 2019
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Net investment income
$
23

 
$
—

 
$
1,679

 
$
(7
)
 
$
1,695

Fee income
—

 
—

 
1,327

 
—

 
1,327

Premiums
—

 
—

 
1,167

 
—

 
1,167

Net realized capital gains (losses):
 
 
 
 
 
 
 
 
 
Total other-than-temporary impairments
—

 
—

 
(36
)
 
—

 
(36
)
Less: Portion of other-than-temporary impairments recognized in Other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

Net other-than-temporary impairments recognized in earnings
—

 
—

 
(36
)
 
—

 
(36
)
Other net realized capital gains (losses)
—

 
—

 
103

 
—

 
103

Total net realized capital gains (losses)
—

 
—

 
67

 
—

 
67

Other revenue
—

 
—

 
215

 
—

 
215

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

 
—

 
72

 
—

 
72

Total revenues
23

 
—

 
4,527

 
(7
)
 
4,543

Benefits and expenses:
 
 
 
 
 
 
 
 
 
Policyholder benefits
—

 
—

 
1,667

 
—

 
1,667

Interest credited to contract owner account balances
—

 
—

 
751

 
—

 
751

Operating expenses
6

 
—

 
1,383

 
—

 
1,389

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

 
—

 
152

 
—

 
152

Interest expense
72

 
14

 
5

 
(7
)
 
84

Operating expenses related to consolidated investment entities:
 
 
 
 
 
 
 
 
 
Interest expense
—

 
—

 
21

 
—

 
21

Other expense
—

 
—

 
4

 
—

 
4

Total benefits and expenses
78

 
14

 
3,983

 
(7
)
 
4,068

Income (loss) from continuing operations before income taxes
(55
)
 
(14
)
 
544

 
—

 
475

Income tax expense (benefit)
(11
)
 
(2
)
 
82

 
—

 
69

Income (loss) from continuing operations
(44
)
 
(12
)
 
462

 
—

 
406

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

 
(82
)
 
—

 
—

 
(82
)
Net income (loss) before equity in earnings (losses) of unconsolidated affiliates
(44
)
 
(94
)
 
462

 
—

 
324

Equity in earnings (losses) of subsidiaries, net of tax
344

 
221

 
—

 
(565
)
 
—

Net income (loss)
300

 
127

 
462

 
(565
)
 
324

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

 
—

 
24

 
—

 
24

Net income (loss) available to Voya Financial, Inc.
300

 
127

 
438

 
(565
)
 
300

Less: Preferred stock dividends
10

 
—

 
—

 
—

 
10

Net income (loss) available to Voya Financial, Inc.'s common shareholders
$
290

 
$
127

 
$
438

 
$
(565
)
 
$
290



 
87
 

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

Condensed Consolidating Statement of Operations
For the Three Months Ended June 30, 2018
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Net investment income
$
5

 
$
1

 
$
810

 
$
(3
)
 
$
813

Fee income
—

 
—

 
660

 
—

 
660

Premiums
—

 
—

 
533

 
—

 
533

Net realized capital gains (losses):
 
 
 
 
 
 
 
 
 
Total other-than-temporary impairments
—

 
—

 
—

 
—

 
—

Less: Portion of other-than-temporary impairments recognized in Other comprehensive income (loss)
—

 
—

 
1

 
—

 
1

Net other-than-temporary impairments recognized in earnings
—

 
—

 
(1
)
 
—

 
(1
)
Other net realized capital gains (losses)
—

 
—

 
(119
)
 
—

 
(119
)
Total net realized capital gains (losses)
—

 
—

 
(120
)
 
—

 
(120
)
Other revenue
(5
)
 
—

 
106

 
—

 
101

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

 
—

 
126

 
—

 
126

Total revenues
—

 
1

 
2,115

 
(3
)
 
2,113

Benefits and expenses:
 
 
 
 
 
 
 
 
 
Policyholder benefits
—

 
—

 
706

 
—

 
706

Interest credited to contract owner account balances
—

 
—

 
382

 
—

 
382

Operating expenses
1

 
—

 
644

 
—

 
645

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

 
—

 
74

 
—

 
74

Interest expense
40

 
9

 
—

 
(3
)
 
46

Operating expenses related to consolidated investment entities:
 
 
 
 
 
 
 
 
 
Interest expense
—

 
—

 
16

 
—

 
16

Other expense
—

 
—

 
3

 
—

 
3

Total benefits and expenses
41

 
9

 
1,825

 
(3
)
 
1,872

Income (loss) from continuing operations before income taxes
(41
)
 
(8
)
 
290

 
—

 
241

Income tax expense (benefit)
(313
)
 
(2
)
 
351

 
9

 
45

Income (loss) from continuing operations
272

 
(6
)
 
(61
)
 
(9
)
 
196

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

 
—

 
28

 
—

 
28

Net income (loss) before equity in earnings (losses) of unconsolidated affiliates
272

 
(6
)
 
(33
)
 
(9
)
 
224

Equity in earnings (losses) of subsidiaries, net of tax
(106
)
 
269

 
—

 
(163
)
 
—

Net income (loss)
166

 
263

 
(33
)
 
(172
)
 
224

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

 
—

 
58

 
—

 
58

Net income (loss) available to Voya Financial, Inc.
166

 
263

 
(91
)
 
(172
)
 
166

Less: Preferred stock dividends
—

 
—

 
—

 
—

 
—

Net income (loss) available to Voya Financial, Inc.'s common shareholders
$
166

 
$
263

 
$
(91
)
 
$
(172
)
 
$
166



 
88
 

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

Condensed Consolidating Statement of Operations
For the Six Months Ended June 30, 2018
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Net investment income
$
7

 
$
1

 
$
1,635

 
$
(7
)
 
$
1,636

Fee income
—

 
—

 
1,336

 
—

 
1,336

Premiums
—

 
—

 
1,072

 
—

 
1,072

Net realized capital gains (losses):
 
 
 
 
 
 
 
 
 
Total other-than-temporary impairments
—

 
—

 
(14
)
 
—

 
(14
)
Less: Portion of other-than-temporary impairments recognized in Other comprehensive income (loss)
—

 
—

 
1

 
—

 
1

Net other-than-temporary impairments recognized in earnings
—

 
—

 
(15
)
 
—

 
(15
)
Other net realized capital gains (losses)
—

 
—

 
(286
)
 
—

 
(286
)
Total net realized capital gains (losses)
—

 
—

 
(301
)
 
—

 
(301
)
Other revenue
(5
)
 
—

 
205

 
—

 
200

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

 
—

 
137

 
—

 
137

Total revenues
2

 
1

 
4,084

 
(7
)
 
4,080

Benefits and expenses:
 
 
 
 
 
 
 
 
 
Policyholder benefits
—

 
—

 
1,414

 
—

 
1,414

Interest credited to contract owner account balances
—

 
—

 
764

 
—

 
764

Operating expenses
6

 
—

 
1,339

 
—

 
1,345

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

 
—

 
174

 
—

 
174

Interest expense
80

 
20

 
2

 
(7
)
 
95

Operating expenses related to consolidated investment entities:
 
 
 
 
 
 
 
 
 
Interest expense
—

 
—

 
22

 
—

 
22

Other expense
—

 
—

 
4

 
—

 
4

Total benefits and expenses
86

 
20

 
3,719

 
(7
)
 
3,818

Income (loss) from continuing operations before income taxes
(84
)
 
(19
)
 
365

 
—

 
262

Income tax expense (benefit)
(313
)
 
(5
)
 
367

 
—

 
49

Income (loss) from continuing operations
229

 
(14
)
 
(2
)
 
—

 
213

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

 
—

 
457

 
—

 
457

Net income (loss) before equity in earnings (losses) of unconsolidated affiliates
229

 
(14
)
 
455

 
—

 
670

Equity in earnings (losses) of subsidiaries, net of tax
383

 
1,087

 
—

 
(1,470
)
 
—

Net income (loss)
612

 
1,073

 
455

 
(1,470
)
 
670

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

 
—

 
58

 
—

 
58

Net income (loss) available to Voya Financial, Inc.
612

 
1,073

 
397

 
(1,470
)
 
612

Less: Preferred stock dividends
—

 
—

 
—

 
—

 
—

Net income (loss) available to Voya Financial, Inc.'s common shareholders
$
612

 
$
1,073

 
$
397

 
$
(1,470
)
 
$
612




 
89
 

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

Condensed Consolidating Statement of Comprehensive Income
For the Three Months Ended June 30, 2019
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Net income (loss)
$
226

 
$
143

 
$
285

 
$
(403
)
 
$
251

Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) on securities
1,141

 
874

 
1,142

 
(2,016
)
 
1,141

Other-than-temporary impairments
1

 
1

 
1

 
(2
)
 
1

Pension and other postretirement benefits liability
(1
)
 
(1
)
 
(1
)
 
2

 
(1
)
Other comprehensive income (loss), before tax
1,141

 
874

 
1,142

 
(2,016
)
 
1,141

Income tax expense (benefit) related to items of other comprehensive income (loss)
240

 
183

 
240

 
(423
)
 
240

Other comprehensive income (loss), after tax
901

 
691

 
902

 
(1,593
)
 
901

Comprehensive income (loss)
1,127

 
834

 
1,187

 
(1,996
)
 
1,152

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

 
—

 
25

 
—

 
25

Comprehensive income (loss) attributable to Voya Financial, Inc.
$
1,127

 
$
834

 
$
1,162

 
$
(1,996
)
 
$
1,127


Condensed Consolidating Statement of Comprehensive Income
For the Six Months Ended June 30, 2019
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Net income (loss)
$
300

 
$
127

 
$
462

 
$
(565
)
 
$
324

Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) on securities
2,425

 
1,910

 
2,426

 
(4,336
)
 
2,425

Other-than-temporary impairments
2

 
2

 
2

 
(4
)
 
2

Pension and other postretirement benefits liability
(2
)
 
(1
)
 
(2
)
 
3

 
(2
)
Other comprehensive income (loss), before tax
2,425

 
1,911

 
2,426

 
(4,337
)
 
2,425

Income tax expense (benefit) related to items of other comprehensive income (loss)
508

 
399

 
508

 
(907
)
 
508

Other comprehensive income (loss), after tax
1,917

 
1,512

 
1,918

 
(3,430
)
 
1,917

Comprehensive income (loss)
2,217

 
1,639

 
2,380

 
(3,995
)
 
2,241

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

 
—

 
24

 
—

 
24

Comprehensive income (loss) attributable to Voya Financial, Inc.
$
2,217

 
$
1,639

 
$
2,356

 
$
(3,995
)
 
$
2,217


 
90
 

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

Condensed Consolidating Statement of Comprehensive Income
For the Three Months Ended June 30, 2018
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Net income (loss)
$
166

 
$
263

 
$
(33
)
 
$
(172
)
 
$
224

Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) on securities
(867
)
 
(596
)
 
(867
)
 
1,463

 
(867
)
Other-than-temporary impairments
10

 
8

 
10

 
(18
)
 
10

Pension and other postretirement benefits liability
(3
)
 
(1
)
 
(3
)
 
4

 
(3
)
Other comprehensive income (loss), before tax
(860
)
 
(589
)
 
(860
)
 
1,449

 
(860
)
Income tax expense (benefit) related to items of other comprehensive income (loss)
(292
)
 
(123
)
 
(292
)
 
415

 
(292
)
Other comprehensive income (loss), after tax
(568
)
 
(466
)
 
(568
)
 
1,034

 
(568
)
Comprehensive income (loss)
(402
)
 
(203
)
 
(601
)
 
862

 
(344
)
Less: Comprehensive income (loss) attributable to noncontrolling interest
—

 
—

 
58

 
—

 
58

Comprehensive income (loss) attributable to Voya Financial, Inc.
$
(402
)
 
$
(203
)
 
$
(659
)
 
$
862

 
$
(402
)

Condensed Consolidating Statement of Comprehensive Income
For the Six Months Ended June 30, 2018
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Net income (loss)
$
612

 
$
1,073

 
$
455

 
$
(1,470
)
 
$
670

Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) on securities
(2,390
)
 
(1,759
)
 
(2,390
)
 
4,149

 
(2,390
)
Other-than-temporary impairments
30

 
28

 
30

 
(58
)
 
30

Pension and other postretirement benefits liability
(6
)
 
(2
)
 
(6
)
 
8

 
(6
)
Other comprehensive income (loss), before tax
(2,366
)
 
(1,733
)
 
(2,366
)
 
4,099

 
(2,366
)
Income tax expense (benefit) related to items of other comprehensive income (loss)
(606
)
 
(361
)
 
(606
)
 
967

 
(606
)
Other comprehensive income (loss), after tax
(1,760
)
 
(1,372
)
 
(1,760
)
 
3,132

 
(1,760
)
Comprehensive income (loss)
(1,148
)
 
(299
)
 
(1,305
)
 
1,662

 
(1,090
)
Less: Comprehensive income (loss) attributable to noncontrolling interest
—

 
—

 
58

 
—

 
58

Comprehensive income (loss) attributable to Voya Financial, Inc.
$
(1,148
)
 
$
(299
)
 
$
(1,363
)
 
$
1,662

 
$
(1,148
)


 
91
 

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

Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2019
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Net cash (used in) provided by operating activities
$
(83
)
 
$
435

 
$
632

 
$
(435
)
 
$
549

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
Proceeds from the sale, maturity, disposal or redemption of:
 
 
 
 
 
 
 
 
 
Fixed maturities
—

 
—

 
4,463

 
—

 
4,463

Equity securities
13

 
—

 
2

 
—

 
15

Mortgage loans on real estate
—

 
—

 
608

 
—

 
608

Limited partnerships/corporations
—

 
—

 
115

 
—

 
115

Acquisition of:
 
 
 
 
 
 
 
 
 
Fixed maturities
—

 
—

 
(4,125
)
 
—

 
(4,125
)
Equity securities
(21
)
 
—

 
(2
)
 
—

 
(23
)
Mortgage loans on real estate
—

 
—

 
(357
)
 
—

 
(357
)
Limited partnerships/corporations
—

 
—

 
(221
)
 
—

 
(221
)
Short-term investments, net
—

 
—

 
14

 
—

 
14

Derivatives, net
—

 
—

 
62

 
—

 
62

Sales from consolidated investments entities
—

 
—

 
329

 
—

 
329

Purchases within consolidated investment entities
—

 
—

 
(572
)
 
—

 
(572
)
Maturity (issuance) of short-term intercompany loans, net
(197
)
 
—

 
4

 
193

 
—

Return of capital contributions and dividends from subsidiaries
956

 
383

 
—

 
(1,339
)
 
—

Collateral received (delivered), net
—

 
—

 
(95
)
 
—

 
(95
)
Other, net
—

 
—

 
(12
)
 
—

 
(12
)
Net cash used in investing activities - discontinued operations
—

 
(128
)
 
—

 
—

 
(128
)
Net cash provided by (used in) investing activities
751

 
255

 
213

 
(1,146
)
 
73



 
92
 

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

Condensed Consolidating Statement of Cash Flows (Continued)
For the Six Months Ended June 30, 2019
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
Deposits received for investment contracts
—

 
—

 
2,855

 
—

 
2,855

Maturities and withdrawals from investment contracts
—

 
—

 
(3,285
)
 
—

 
(3,285
)
Settlements on deposit contracts
—

 
—

 
(6
)
 
—

 
(6
)
Net proceeds from (repayments of) short-term intercompany loans
(4
)
 
94

 
103

 
(193
)
 
—

Return of capital contributions and dividends to parent
—

 
(786
)
 
(988
)
 
1,774

 
—

Borrowings of consolidated investment entities
—

 
—

 
304

 
—

 
304

Repayments of borrowings of consolidated investment entities
—

 
—

 
(407
)
 
—

 
(407
)
Contributions from (distributions to) participants in consolidated investment entities
—

 
—

 
282

 
—

 
282

Proceeds from issuance of common stock, net
2

 
—

 
—

 
—

 
2

Proceeds from issuance of preferred stock, net
293

 
—

 
—

 
—

 
293

Share-based compensation
(17
)
 
—

 
—

 
—

 
(17
)
Common stock acquired - Share repurchase
(686
)
 
—

 
—

 
—

 
(686
)
Dividends paid on common stock
(3
)
 
—

 
—

 
—

 
(3
)
Dividends paid on preferred stock
(10
)
 
—

 
—

 
—

 
(10
)
Net cash (used in) provided by financing activities
(425
)
 
(692
)
 
(1,142
)
 
1,581

 
(678
)
Net increase (decrease) in cash and cash equivalents
243

 
(2
)
 
(297
)
 
—

 
(56
)
Cash and cash equivalents, beginning of period
209

 
2

 
1,327

 
—

 
1,538

Cash and cash equivalents, end of period
$
452

 
$
—

 
$
1,030

 
$
—

 
$
1,482



 
93
 

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

Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2018
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Net cash (used in) provided by operating activities
$
(81
)
 
$
298

 
$
1,152

 
$
(315
)
 
$
1,054

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
Proceeds from the sale, maturity, disposal or redemption of:
 
 
 
 
 
 
 
 
 
Fixed maturities
—

 
—

 
4,577

 
—

 
4,577

Equity securities
18

 
—

 
2

 
—

 
20

Mortgage loans on real estate
—

 
—

 
471

 
—

 
471

Limited partnerships/corporations
—

 
—

 
152

 
—

 
152

Acquisition of:
 
 
 
 
 
 
 
 
 
Fixed maturities
—

 
—

 
(4,881
)
 
—

 
(4,881
)
Equity securities
(18
)
 
—

 
(2
)
 
—

 
(20
)
Mortgage loans on real estate
—

 
—

 
(574
)
 
—

 
(574
)
Limited partnerships/corporations
—

 
—

 
(158
)
 
—

 
(158
)
Short-term investments, net
212

 
—

 
191

 
—

 
403

Derivatives, net
—

 
—

 
35

 
—

 
35

Sales from consolidated investments entities
—

 
—

 
602

 
—

 
602

Purchases within consolidated investment entities
—

 
—

 
(607
)
 
—

 
(607
)
Maturity (issuance) of short-term intercompany loans, net
11

 
—

 
418

 
(429
)
 
—

Return of capital contributions and dividends from subsidiaries
811

 
96

 
—

 
(907
)
 
—

Collateral received (delivered), net
—

 
—

 
38

 
—

 
38

Other, net
—

 
1

 
(6
)
 
—

 
(5
)
Net cash provided by (used in) investing activities - discontinued operations
—

 
331

 
(297
)
 
—

 
34

Net cash provided by (used in) investing activities
1,034

 
428

 
(39
)
 
(1,336
)
 
87



 
94
 

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

Condensed Consolidating Statement of Cash Flows (Continued)
For the Six Months Ended June 30, 2018
 
Parent Issuer
 
Subsidiary Guarantor
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
Deposits received for investment contracts
—

 
—

 
3,083

 
—

 
3,083

Maturities and withdrawals from investment contracts
—

 
—

 
(2,716
)
 
—

 
(2,716
)
Proceeds from issuance of debt with maturities of more than three months
350

 
—

 
—

 
—

 
350

Repayment of debt with maturities of more than three months
(337
)
 
(13
)
 
—

 
—

 
(350
)
Debt issuance costs
(6
)
 
—

 
—

 
—

 
(6
)
Net (repayments of) proceeds from short-term intercompany loans
(418
)
 
(68
)
 
57

 
429

 
—

Return of capital contributions and dividends to parent
—

 
(386
)
 
(836
)
 
1,222

 
—

Borrowings of consolidated investment entities
—

 
—

 
469

 
—

 
469

Repayments of borrowings of consolidated investment entities
—

 
—

 
(461
)
 
—

 
(461
)
Contributions from (distributions to) participants in consolidated investment entities, net
—

 
—

 
34

 
—

 
34

Proceeds from issuance of common stock, net
1

 
—

 
—

 
—

 
1

Share-based compensation
(15
)
 
—

 
—

 
—

 
(15
)
Common stock acquired - Share repurchase
(500
)
 
—

 
—

 
—

 
(500
)
Dividends paid on common stock
(3
)
 
—

 
—

 
—

 
(3
)
Net cash used in financing activities - discontinued operations
—

 
—

 
(1,209
)
 
—

 
(1,209
)
Net cash (used in) provided by financing activities
(928
)
 
(467
)
 
(1,579
)
 
1,651

 
(1,323
)
Net increase (decrease) in cash and cash equivalents
25

 
259

 
(466
)
 
—

 
(182
)
Cash and cash equivalents, beginning of period
244

 
1

 
1,471

 
—

 
1,716

Cash and cash equivalents, end of period
269

 
260

 
1,005

 
—

 
1,534

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

 
—

 
—

 
—

 
—

Cash and cash equivalents of continuing operations, end of period
$
269

 
$
260

 
$
1,005

 
$
—

 
$
1,534




 
95
 

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollar amounts in millions, unless otherwise stated)

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.

The following discussion and analysis presents a review of our consolidated results of operations for the three and six months ended June 30, 2019 and 2018 and financial condition as of June 30, 2019 and December 31, 2018. This item should be read in its entirety and in conjunction with the Condensed Consolidated Financial Statements and related notes contained in Part I, Item 1. of this Quarterly Report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in our Annual Report on Form 10-K for the year ended December 31, 2018 ("Annual Report on Form 10-K").

In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Actual results may differ materially from those discussed in the forward-looking statements as a result of various factors. See the Note Concerning Forward-Looking Statements. Investors are directed to consider the risks and uncertainties discussed in Part II, Item 1A. of this Quarterly Report on Form 10-Q, as well as in other documents we have filed with the Securities and Exchange Commission ("SEC").

Overview

We provide our principal products and services through four segments: Retirement, Investment Management, Employee Benefits and Individual Life. Corporate includes activities not directly related to our segments, results of the Retained Business and certain insignificant run-off activities that are not meaningful to our business strategy. See the Segments Note to our Consolidated Financial Statements in Part II, Item 8. of our Annual Report on Form 10-K for further information on our segments.

The following represents segment percentage contributions to total Adjusted operating revenues and Adjusted operating earnings before income taxes for the six months ended June 30, 2019:
 
June 30, 2019
percent of total
Adjusted Operating Revenues
 
Adjusted Operating Earnings before Income Taxes
Retirement
32.4
%
 
65.5
 %
Investment Management
7.6
%
 
15.9
 %
Employee Benefits
24.8
%
 
18.4
 %
Individual Life
30.8
%
 
20.1
 %
Corporate
4.4
%
 
(19.9
)%

Discontinued Operations

On June 1, 2018, we consummated a series of transactions (collectively, the "2018 Transaction") pursuant to a Master Transaction Agreement dated December 20, 2017 ("MTA") with VA Capital Company LLC ("VA Capital") and Athene Holding Ltd. ("Athene"). As part of the 2018 Transaction, Venerable Holdings, Inc. ("Venerable"), a wholly owned subsidiary of VA Capital, acquired two of our subsidiaries, Voya Insurance and Annuity Company ("VIAC") and Directed Services, LLC ("DSL"), and VIAC and other Voya subsidiaries reinsured to Athene substantially all of their fixed and fixed indexed annuities business. The 2018 Transaction resulted in the disposition of substantially all of our Closed Block Variable Annuity ("CBVA") and Annuities businesses. Pursuant to the terms of the 2018 Transaction, we have retained a small number of CBVA and Annuities policies that are not included in the disposed businesses described above as "Retained Business." Refer to the Discontinued Operations Note in our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for further details.

During the second quarter of 2019, we settled the outstanding purchase price true-up amounts with VA Capital. We do not anticipate further material charges in connection with the 2018 Transaction. Income (loss) from discontinued operations, net of tax for the six months ended June 30, 2019 includes a $82 charge related to the purchase price true-up settlement in connection with the 2018 Transaction.


 
96
 


The following table summarizes the components of Income (loss) from discontinued operations, net of tax for the six months ended June 30, 2019 and 2018:
 
Six Months Ended June 30,
 
2019
 
2018
Revenues:
 
 
 
Net investment income
$
—

 
$
510

Fee income
—

 
295

Premiums
—

 
(50
)
Total net realized capital gains (losses)
—

 
(345
)
Other revenue
—

 
10

Total revenues
—

 
420

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

 
442

Operating expenses
—

 
(14
)
Net amortization of Deferred policy acquisition costs and Value of business acquired
—

 
49

Interest expense
—

 
10

Total benefits and expenses
—

 
487

Income (loss) from discontinued operations before income taxes
—

 
(67
)
Income tax expense (benefit)
—

 
(19
)
Adjustment to loss on sale, net of tax
(82
)
 
505

Income (loss) from discontinued operations, net of tax
$
(82
)
 
$
457


Trends and Uncertainties
We describe known material trends and uncertainties that might affect our business in our Annual Report on Form 10-K for the year ended December 31, 2018, under the caption "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Trends and Uncertainties", and in other sections of that document, including "Risk Factors". In addition, we describe below in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") more recently developing known trends and uncertainties that we believe may materially affect our future liquidity, financial condition or results of operations.
Interest Rates
In the second quarter of 2019, interest rates declined significantly in a continuation of a trend that has persisted through much of the first half of 2019. Intermediate parts of the yield curve inverted - with some intermediate Treasury maturities offering lower yields than shorter-dated maturities - as the market began to price in lower future monetary policy rates. On July 31, 2019, the Federal Reserve did indeed lower its key policy rate by 25 basis points, the first Federal Funds rate cut since 2008. Lower rates and a flattening yield curve in the United States were consistent with trends in global markets, presumably reflecting expectations for lower global growth and subdued inflationary pressures.
The interest rate environment will continue to influence our business and financial performance for several reasons, including the following:
•
Our continuing business general account investment portfolio, which was approximately $65.3 billion as of June 30, 2019, consists predominantly of fixed income investments and had an annualized earned yield of approximately 5.4% in the second quarter of 2019, inclusive of alternative and prepayment income. In the near term and absent a material change in yields available on fixed income investments, we expect the yield we earn on new investments will be lower than the yields we earn on maturing investments, which were generally purchased in environments where interest rates were higher than current levels. While our continuing business general account investment portfolio is predominantly comprised of fixed rate investments acquired to back our fixed rate liabilities, our general account also includes a small amount of securities with an earned yield that fluctuates with changes in short-term interest rates.

 
97
 

•
Certain of our products pay guaranteed minimum rates - for example, fixed accounts and a portion of the stable value accounts included within defined contribution retirement plans and universal life ("UL") policies. We are required to pay these guaranteed minimum rates even if earnings on our investment portfolio decline, with the resulting investment margin compression negatively impacting earnings. In addition, we expect more policyholders to hold policies (lower lapses) with comparatively high guaranteed rates longer in a low interest rate environment.

Further changes in interest rates, whether positive or negative, would likely have modest effects on our future Adjusted operating earnings. For example, we estimate that a 100 basis point increase or decrease in rates from current levels over the next three years would generally increase or decrease our Adjusted operating earnings by approximately 2-4% in future periods, with the impacts increasing from the lower to the higher end of the range the longer the rate change persists.

Stranded Costs

As a result of the 2018 Transaction, certain costs that relate to activities for which we continue to provide transitional services for businesses sold and for which we are reimbursed under a transition services agreement ("TSA"), are reported within continuing operations along with the associated revenues from the TSAs. Additionally, indirect costs, such as those related to corporate and shared service functions that were previously allocated to the businesses sold, and other expenses that do not meet the foregoing criteria are reported within continuing operations. These costs reported within continuing operations ("Stranded Costs") are included in Adjusted operating earnings before income taxes and Income (loss) from continuing operations for all periods presented. Because we do not believe that TSA revenues and Stranded Costs are representative of the future run-rate of revenues and expenses of our continuing operations, they are recorded in Corporate. We plan to address the Stranded Costs through a cost reduction strategy. Refer to Restructuring in the section below for more information on this program.

Restructuring

Organizational Restructuring

As a result of the closing of the 2018 Transaction, we are undertaking further restructuring efforts to execute the transition and reduce stranded expenses associated with businesses sold, as well as our corporate and shared services functions ("Organizational Restructuring").

In October 2018, we announced our decision to cease new sales following the strategic review of our Individual Life business. See the Business, Basis of Presentation and Significant Accounting Policies Note in Part I, Item 1. of this Quarterly Report on Form 10-Q for additional information.

In November 2018, we announced that we are targeting an additional $100 million of cost savings by the end of 2020, which is in addition to savings previously announced of $110 to $130 million by the middle of 2019 and $20 million of expected savings from ceasing Individual Life sales referenced above. These savings initiatives will improve operational efficiency, strengthen technology capabilities and centralize certain sales, operations and investment management activities. The restructuring charges in connection with these initiatives are not reflected in our run-rate cost savings estimates.

The Organizational Restructuring initiatives described above have resulted in recognition of severance and organizational transition costs and are reflected in Operating expenses in the Condensed Consolidated Statements of Operations, but excluded from Adjusted operating earnings before income taxes. For the three and six months ended June 30, 2019, we incurred Organizational Restructuring expenses of $55 and $138 million, respectively, of severance and organizational transition costs associated with continuing operations. For the three and six months ended June 30, 2018, we incurred Organizational Restructuring expenses of $7 million and $12 million, respectively, of severance and organizational transition costs associated with continuing operations.

In addition to the restructuring costs incurred above, the anticipated reduction in employees from the execution of the initiatives described above triggered an immaterial curtailment loss and related re-measurement gain of our qualified defined benefit pension plan.

Including the expense of $138 million for the six months ended June 30, 2019, the aggregate amount of Organizational Restructuring expenses we expect to incur is in the range of $200 to $300 million. We anticipate that these costs, which will include severance, organizational transition costs incurred to reorganize operations and other costs such as contract terminations and asset write-offs, will occur at least through the end of 2020.


 
98
 

Restructuring expenses that were directly related to the preparation for and execution of the 2018 Transaction are included in Income (loss) from discontinued operations, net of tax, in the Condensed Consolidated Statements of Operations. For the three and six months ended June 30, 2019, we did not incur Organizational Restructuring expenses associated with discontinued operations as a result of the 2018 Transaction. For the three and six months ended June 30, 2018, we incurred Organizational Restructuring expenses as a result of the 2018 Transaction of $8 million and $6 million, respectively, of severance and organizational transition costs, which are reflected in discontinued operations.

2016 Restructuring

In 2016, we began implementing a series of initiatives designed to make us a simpler, more agile company able to deliver an enhanced customer experience ("2016 Restructuring"). These initiatives include an increasing emphasis on less capital-intensive products and the achievement of operational synergies.

Substantially all of the initiatives associated with the 2016 Restructuring program concluded at the end of 2018. However, we expect to incur approximately $10 to $20 million of additional restructuring costs associated with the completion of the information technology transition agreement entered into during 2017.

For the three and six months ended June 30, 2019, the total of all initiatives in the 2016 Restructuring program resulted in restructuring expenses of $3 million and $6 million, respectively, which are reflected in Operating expenses in the Condensed Consolidated Statements of Operations, but are excluded from Adjusted operating earnings before income taxes. For the three and six months ended June 30, 2018, these initiatives resulted in restructuring expenses of $3 million and $17 million, respectively, which are reflected in Operating expenses in the Condensed Consolidated Statements of Operations, but are excluded from Adjusted operating earnings before income taxes. These expenses are classified as a component of Other adjustments to Income (loss) from continuing operations before income taxes and consequently are not included in the adjusted operating results of our segments.

Operating Measures

This MD&A includes a discussion of Adjusted operating earnings before income taxes and Adjusted operating revenues, each of which is a measure used by management to evaluate segment performance. We believe that Adjusted operating earnings before income taxes provides a meaningful measure of our business performance and enhances the understanding of our financial results by focusing on the operating performance and trends of the underlying business segments and excluding items that tend to be highly variable from period to period based on capital market conditions or other factors. Adjusted operating earnings before income taxes does not replace Income (loss) from continuing operations before income taxes as the comparable U.S. GAAP measure of our consolidated results of operations. Therefore, we believe that it is useful to evaluate both Income (loss) from continuing operations before income taxes and Adjusted operating earnings before income taxes when reviewing our financial and operating performance. See the Segments Note in our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for a description of the adjustments made to reconcile Income (loss) before income taxes to Total adjusted operating earnings before income taxes and the adjustments made to reconcile Total revenues to Total adjusted operating revenues.


 
99
 

Results of Operations - Company Condensed Consolidated

The following table presents summary condensed consolidated financial information for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Net investment income
$
880

 
$
813

 
$
1,695

 
$
1,636

Fee income
662

 
660

 
1,327

 
1,336

Premiums
585

 
533

 
1,167

 
1,072

Net realized capital gains (losses)
50

 
(120
)
 
67

 
(301
)
Other revenue
102

 
101

 
215

 
200

Income related to consolidated investment entities
67

 
126

 
72

 
137

Total revenues
2,346

 
2,113

 
4,543

 
4,080

Benefits and expenses:
 
 
 
 
 
 
 
Interest credited and other benefits to contract owners/policyholders
1,232

 
1,088

 
2,418

 
2,178

Operating expenses
687

 
645

 
1,389

 
1,345

Net amortization of Deferred policy acquisition costs and Value of business acquired
67

 
74

 
152

 
174

Interest expense
42

 
46

 
84

 
95

Operating expenses related to consolidated investment entities
20

 
19

 
25

 
26

Total benefits and expenses
2,048

 
1,872

 
4,068

 
3,818

Income from continuing operations before income taxes
298

 
241

 
475

 
262

Income tax expense
44

 
45

 
69

 
49

Income from continuing operations
254

 
196

 
406

 
213

Income (loss) from discontinued operations, net of tax
(3
)
 
28

 
(82
)
 
457

Net Income
251

 
224

 
324

 
670

Less: Net income attributable to noncontrolling interest
25

 
58

 
24

 
58

Less: Preferred stock dividends
—

 
—

 
10

 
—

Net income (loss) available to our common shareholders
$
226


$
166

 
$
290

 
$
612


 
100
 


The following table presents information about our Operating expenses for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Operating expenses:
 
 
 
 
 
 
 
Commissions
$
183

 
$
164

 
$
378

 
$
337

General and administrative expenses:
 
 
 
 
 
 
 
Net actuarial (gains)/losses related to pension and other postretirement benefit obligations
—

 
—

 
(66
)
 
—

Restructuring expenses
58

 
10

 
144

 
29

Other general and administrative expenses
509

 
522

 
1,063

 
1,081

Total general and administrative expenses
567

 
532

 
1,141

 
1,110

Total operating expenses, before DAC/VOBA deferrals
750

 
696

 
1,519

 
1,447

DAC/VOBA deferrals
(63
)
 
(51
)
 
(130
)
 
(102
)
Total operating expenses
$
687

 
$
645

 
$
1,389

 
$
1,345


The following table presents AUM and AUA as of the dates indicated:
 
As of June 30,
($ in millions)
2019
 
2018
AUM and AUA:
 
 
 
Retirement(2)
$
401,756

 
$
420,882

Investment Management
264,324

 
256,530

Employee Benefits
1,842

 
1,821

Individual Life
15,590

 
15,673

Eliminations/Other
(123,321
)
 
(128,680
)
Total AUM and AUA(1)(2)
$
560,191

 
$
566,226

 
 
 
 
AUM
305,881

 
291,259

AUA(2)
254,310

 
274,967

Total AUM and AUA(1)(2)
$
560,191

 
$
566,226

(1) Includes AUM and AUA related to the businesses sold in the prior period, for which a substantial portion of the assets continue to be managed by our Investment Management segment.
(2) Retirement includes Assets Under Advisement, which are presented in AUA. For further detail, refer to the Retirement segment results section below. Prior period information have been revised to conform to current period presentation.

 
101
 

The following table presents a reconciliation of Income (loss) from continuing operations to Adjusted operating earnings before income taxes and the relative contributions of each segment to Adjusted operating earnings before income taxes for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Income from continuing operations before income taxes
$
298

 
$
241

 
$
475

 
$
262

Less Adjustments(1):
 
 
 
 
 
 
 
Net investment gains (losses) and related charges and adjustments
55

 
(40
)
 
78

 
(101
)
Net guaranteed benefit hedging gains (losses) and related charges and adjustments
(9
)
 
2

 
(11
)
 
(12
)
Loss related to businesses exited through reinsurance or divestment
2

 
(8
)
 
(19
)
 
(53
)
Income attributable to noncontrolling interest
25

 
58

 
24

 
58

Loss related to early extinguishment of debt
—

 
—

 
—

 
(3
)
Immediate recognition of net actuarial gains (losses) related to pension and other post-employment benefit obligations and gains (losses) from plan amendments and curtailments
—

 
—

 
66

 
—

Dividend payments made to preferred shareholders
—

 
—

 
10

 
—

Other adjustments
(53
)
 
(9
)
 
(145
)
 
(28
)
Total adjustments to income (loss) from continuing operations before income taxes
$
20

 
$
3

 
$
3

 
$
(139
)
 
 
 
 
 
 
 
 
Adjusted operating earnings before income taxes by segment:
 
 
 
 
 
 
 
Retirement
$
180

 
$
169

 
$
309

 
$
278

Investment Management
41

 
52

 
75

 
113

Employee Benefits
49

 
35

 
87

 
67

Individual Life
47

 
41

 
95

 
58

Corporate
(39
)
 
(59
)
 
(94
)
 
(115
)
Total adjusted operating earnings before income taxes
$
278

 
$
238

 
$
472

 
$
401

(1) Refer to the Segments Note to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a description of these items.


 
102
 

The following table presents a reconciliation of Total revenues to Adjusted operating revenues and the relative contributions of each segment to Adjusted operating revenues for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Total revenues
$
2,346

 
$
2,113

 
$
4,543

 
$
4,080

Adjustments(1):
 
 
 
 
 
 
 
Net realized investment gains (losses) and related charges and adjustments
51

 
(49
)
 
61

 
(122
)
Gain (loss) on change in fair value of derivatives related to guaranteed benefits
(4
)
 
4

 
(7
)
 
(3
)
Revenues related to businesses exited through reinsurance or divestment
76

 
(18
)
 
152

 
(58
)
Revenues attributable to noncontrolling interest
44

 
76

 
48

 
82

Other adjustments
84

 
67

 
171

 
125

Total adjustments to revenues
$
251

 
$
80

 
$
425

 
$
24

 
 
 
 
 
 
 
 
Adjusted operating revenues by segment:
 
 
 
 
 
 
 
Retirement
$
688

 
$
670

 
$
1,336

 
$
1,332

Investment Management
163

 
171

 
311

 
356

Employee Benefits
515

 
460

 
1,023

 
913

Individual Life
643

 
641

 
1,269

 
1,272

Corporate
86

 
91

 
179

 
183

Total adjusted operating revenues
$
2,095

 
$
2,033

 
$
4,118

 
$
4,056

(1) Refer to the Segments Note to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a description of these items.

The following tables describe the components of the reconciliation between Adjusted operating earnings before income taxes and Income (loss) from continuing operations before income taxes related to Net investment gains (losses) and related charges and adjustments and Net guaranteed benefits hedging gains (losses) and related charges and adjustments.

The following table presents the adjustment to Income (loss) from continuing operations before income taxes related to Total investment gains (losses) and the related Net amortization of DAC/VOBA and other intangibles for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Other-than-temporary impairments
$
(3
)
 
$
(1
)
 
$
(36
)
 
$
(15
)
CMO-B fair value adjustments(1)
32

 
(38
)
 
61

 
(76
)
Gains (losses) on the sale of securities
13

 
(7
)
 
24

 
(34
)
Other, including changes in the fair value of derivatives
9

 
(1
)
 
25

 
5

Total investment gains (losses)
51

 
(47
)
 
74

 
(120
)
Net amortization of DAC/VOBA and other intangibles on above
4

 
7

 
4

 
19

Net investment gains (losses)
$
55

 
$
(40
)
 
$
78

 
$
(101
)
(1) For a description of our CMO-B portfolio, see Investments - CMO-B Portfolio in Part I, Item 2. of this Quarterly report on Form 10-Q and Part II, Item 7. of our Annual Report on Form 10-K.

 
103
 


The following table presents the adjustment to Income (loss) from continuing operations before taxes related to Guaranteed benefit hedging gains (losses) net of DAC/VOBA and other intangibles amortization for the periods indicated.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Gain (loss), excluding nonperformance risk
$
(11
)
 
$
(1
)
 
$
(12
)
 
$
(11
)
Gain (loss) due to nonperformance risk
2

 
3

 
1

 
(1
)
Net gain (loss) prior to related amortization of DAC/VOBA and sales inducements
(9
)
 
2

 
(11
)
 
(12
)
Net amortization of DAC/VOBA and sales inducements
—

 
—

 
—

 
—

Net guaranteed benefit hedging gains (losses) and related charges and adjustments
$
(9
)
 
$
2

 
$
(11
)
 
$
(12
)

Terminology Definitions

Net realized capital gains (losses), net realized investment gains (losses) and related charges and adjustments, and Net guaranteed benefit hedging gains (losses) and related charges and adjustments include changes in the fair value of derivatives. Increases in the fair value of derivative assets or decreases in the fair value of derivative liabilities result in "gains." Decreases in the fair value of derivative assets or increases in the fair value of derivative liabilities result in "losses."

In addition, we have certain products that contain guarantees that are embedded derivatives related to guaranteed benefits and index-crediting features, while other products contain such guarantees that are considered derivatives (collectively "guaranteed benefit derivatives").

Consolidated - Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

Net Income (Loss)

Net investment income increased $67 million from $813 million to $880 million primarily due to:

•
higher alternative investment income in the current period primarily driven by the impact of equity market performance; and
•
higher prepayment fee income.

The increase was partially offset by:

•
the impact of the current interest rate environment on reinvestment rates.

Premiums increased $52 million from $533 million to $585 million primarily due to:

•
higher premiums driven by growth of the voluntary, stop loss and group life business in our Employee Benefits segment.

The increase was partially offset by:

•
a decline in term premiums in our Individual Life segment due to discontinued sales.

Net realized capital gains (losses) increased $170 million from a loss of $120 million to a gain of $50 million primarily due to:

•
Net realized investment gains as a result of favorable CMO-B fair value adjustments, Gains on the sale of securities and changes in the fair value of derivatives; and
•
favorable impact of market value changes associated with business reinsured, which are partially offset by a corresponding amount in Interest credited and other benefits to contract owners/policyholders;


 
104
 

The increase was partially offset by:

•
unfavorable change in the fair value of guaranteed benefit derivatives excluding nonperformance risk as a result of interest rate movements.

Other revenue increased $1 million from $101 million to $102 million primarily due to:

•
revenue resulting from transition services agreements.

The increase was partially offset by:

•
lower broker-dealer revenues in our Retirement segment.

Interest credited and other benefits to contract owners/policyholders increased $144 million from $1,088 million to $1,232 million primarily due to:

•
market value impacts and changes in the reinsurance deposit asset associated with business reinsured, which are partially offset by a corresponding amount in Net realized capital gains (losses);
•
growth on stop loss and voluntary partially offset by lower group life in our Employee Benefits segment;
•
reserve changes as a result of unfavorable net mortality in our Individual Life segment; and
•
favorable reserves in the prior period in our Retained Business driven by a reserve refinement for our Guaranteed Minimum Death Benefits ("GMDB") block.

Operating expenses increased $42 million from $645 million to $687 million primarily due to:

•
higher restructuring charges in the current period; and
•
an increase in growth based expenses in our Employee Benefits and Retirement segments. partially offset by lower expenses in our Individual Life segment.

The increase was partially offset by:

•
lower Stranded Costs; and
•
lower expenses in our Individual Life segment due to ceasing new business sales.

Net amortization of DAC/VOBA decreased $7 million from $74 million to $67 million primarily due to:

•
lower net unfavorable DAC/VOBA and other intangibles unlocking due to prospective assumption updates related to changes in reinsurance in the prior period, in our Individual Life segment; and
•
net favorable amortization on our business reinsured.

Income from continuing operations before income taxes increased $57 million from $241 million to a $298 million primarily due to:

•
Net investment gains and related charges and adjustments primarily due to equity market and interest rate movements, discussed below;
•
higher Adjusted operating earnings before income taxes, discussed below; and
•
Gain related to business exited through reinsurance or divestment, discussed below.

The increase was partially offset by:
 
•
unfavorable changes in Other adjustments due to higher restructuring charges in the current period;
•
lower Income attributable to noncontrolling interest; and
•
unfavorable changes in Net guaranteed benefit hedging gains (loss) and related charges and adjustments primarily due to changes in interest rates, discussed below.

Income tax expense decreased $1 million from $45 million to $44 million primarily due to:

•
alternative minimum tax ("AMT") sequestration in 2018 that did not recur in 2019; and

 
105
 

•
a change in the dividends received deduction ("DRD").

The decrease was partially offset by:

•
an increase in income before income taxes;
•
a change in noncontrolling interest; and
•
a change in the valuation allowance.

Income (loss) from discontinued operations, net of tax changed $31 million from a gain of $28 million to a loss of $3 million primarily due to:

•
Adjustment to loss on sale, net of tax excluding costs to sell made in the current period.

Adjusted operating Earnings before Income Taxes

Adjusted operating earnings before income taxes increased $40 million from $238 million to $278 million primarily due to:

•
higher premiums driven by growth of the stop loss, voluntary blocks and group life in our Employee Benefits segment;
•
an increase in alternative investment income and prepayment fee income;
•
lower net unfavorable DAC/VOBA and other intangibles unlocking due to prospective assumption updates related to changes in reinsurance in the prior period in our Individual Life segment; and
•
lower Stranded costs.

The increase was partially offset by:

•
lower underwriting gains, net of DAC/VOBA and other intangibles amortization, primarily driven by adverse net mortality due to higher severity on the combined interest and non-interest sensitive blocks in our Individual Life segment;
•
higher benefits incurred in stop loss and voluntary due to growth in business, partially offset by lower loss ratios in Group Life and Stop Loss in our Employee Benefits segments; and
•
higher expenses primarily resulting from business growth in our Retirement and Employee Benefits segments.

Adjustments from Income (Loss) from Continuing Operations before Income Taxes to Adjusted Operating Earnings (Loss) before Income Taxes

Net investment gains (losses) and related charges and adjustments changed $95 million from a loss of $40 million to a gain of $55 million due to:
 
•
favorable changes in CMO-B fair value adjustments as a result of equity market and interest rate movements;
•
gains on the sale of securities in the current period; and
•
favorable changes in the fair value of derivatives.

The increase was partially offset by:

•
favorable amortization of DAC/VOBA and sales inducements in the prior period.

Net guaranteed benefit hedging gains losses and related charges and adjustments decreased $11 million from a gain of $2 million to a loss of $9 million primarily due to:

•
unfavorable changes in fair value of guaranteed benefit derivatives excluding nonperformance risk as a result of changes in interest rates; and
•
lower gains due to nonperformance risk.

Income (loss) related to businesses exited through reinsurance or divestment increased $10 million from a loss of $8 million to a gain of $2 million primarily due to:

•
favorable market value changes in assets and liabilities associated with business reinsured.


 
106
 

Other adjustments to operating earnings changed $44 million from a loss of $9 million to a loss of $53 million primarily due to:
 
•
higher costs recorded in the current period related to restructuring. See the Restructuring Note in Part I, Item 1. of this Quarterly Report on Form 10-Q for further description.

Consolidated - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Net Income (Loss)

Net investment income increased $59 million from $1,636 million to $1,695 million primarily due to:

•
higher prepayment fee income.

This increase was partially offset by:

•
lower alternative investment income in the current period primarily driven by the impact of equity market performance.

Fee income decreased $9 million from $1,336 million to $1,327 million primarily due to:

•
lower management and administrative fees earned in our Investment Management segment due to lower average general account AUM driven by the impact of the 2018 Transaction

Premiums increased $95 million from $1,072 million to $1,167 million primarily due to:

•
higher premiums driven by growth of the stop loss, voluntary and group life business in our Employee Benefits segment.

The increase was partially offset by:

•
a decline in term premiums in our Individual Life segment due to discontinued sales.

Net realized capital gains (losses) increased $368 million from a loss of $301 million to a gain of $67 million primarily due to:

•
gains from market value changes associated with business reinsured, which are fully offset by a corresponding amount in Interest credited and other benefits to contract owners/policyholders; and
•
Net realized investment gains as a result of favorable CMO-B fair value adjustments, gains on the sale of securities and changes in the fair value of derivatives partially offset by higher impairments in the current period.

Other revenue increased $15 million from $200 million to $215 million primarily due to:

•
revenue resulting from transition services agreements.

The increase was partially offset by:

•
lower broker-dealer revenues in our Retirement segment.

Interest credited and other benefits to contract owners/policyholders increased $240 million from $2,178 million to $2,418 million primarily due to:

•
market value impacts and changes in the reinsurance deposit asset associated with business reinsured, which are partially offset by a corresponding amount in Net realized capital gains (losses);
•
growth on stop loss, voluntary and group life in our Employee Benefits segment;
•
favorable reserves in the prior period in our Retained Business driven by a reserve refinement for our Guaranteed Minimum Death Benefits ("GMDB") block.

The increase was partially offset by:

•
favorable reserve changes as a result of net mortality in our Individual Life segment.


 
107
 

Operating expenses increased $44 million from $1,345 million to $1,389 million primarily due to:

•
higher restructuring charges in the current period;
•
an increase in growth based expenses in our Retirement and Employee Benefit segments;
•
higher litigation reserves in our Retirement segment; and
•
higher broker-dealer expenses.

The increase was partially offset by:

•
net actuarial gain related to our pension and other postretirement benefit obligations;
•
higher litigation reserves related to a divested business in the prior period;
•
lower Stranded Costs;
•
lower expenses in our Individual Life segment due to ceasing new business sales; and
•
lower expenses related to net compensation adjustments.

Net amortization of DAC/VOBA decreased $22 million from $174 million to $152 million primarily due to:

•
unfavorable unlocking in the prior period driven by an update to the assumptions related to the GMIR initiatives in our Retirement segment. See DAC/VOBA and Other Intangibles Unlocking in Part I, Item 2. of this Quarterly Report on Form 10-Q for further information; and
•
higher unlocking in the prior period driven by unfavorable mortality partially offset by higher amortization in the current period on the interest sensitive block, in our Individual Life segment.
    
The decrease was partially offset by:
 
•
net unfavorable amortization on our business reinsured; and
•
favorable amortization in the prior period due to net investment losses.

Income from continuing operations before income taxes increased $213 million from $262 million to $475 million primarily due to:

•
higher Net investment losses and related charges and adjustments, discussed below;
•
higher Adjusted operating earnings before income taxes, discussed below; and
•
Immediate recognition of net actuarial gain related to pension plan adjustments and curtailments, discussed below;
•
Income on business exited through reinsurance or divestment, discussed below; and

The increase was partially offset by:

•
favorable changes in Other adjustments due to lower restructuring charges in the current period; and
•
lower Income (loss) attributable to noncontrolling interest.

Income tax expense increased $20 million from $49 million to $69 million primarily due to:

•
an increase in income before income taxes;
•
a change in noncontrolling interest; and
•
a change in the valuation allowance.

The increase was partially offset by:

•
a change in the DRD; and
•
AMT sequestration in 2018 that did not recur in 2019.

 
108
 


Income from discontinued operations, net of tax changed $539 million from a gain of $457 million to a loss of $82 million primarily due to:

•
Adjustment to loss on sale, net of tax excluding costs to sell made in the current period.

Adjusted operating Earnings before Income Taxes

Adjusted operating earnings before income taxes increased $71 million from $401 million to $472 million primarily due to:

•
higher premiums driven by growth of the stop loss, voluntary blocks and group life in our Employee Benefits segment;
•
lower net unfavorable DAC/VOBA and other intangibles unlocking due to prospective assumption updates related to changes in reinsurance in the prior period in our Individual Life segment;
•
unfavorable DAC/VOBA unlocking in the prior period driven by an update to the assumptions related the GMIR initiative in our Retirement segment;
•
lower Stranded costs.

The increase was partially offset by:

•
higher benefits incurred in stop loss, voluntary and group life due to growth in business, partially offset by lower loss ratios in Group Life and Stop Loss in our Employee Benefits segments;
•
higher expenses primarily resulting from business growth in our Retirement and Employee Benefits segments; and
•
lower adjusted operating earnings in our Investment Management segment due to lower average general account AUM driven by the impact of the 2018 Transaction.

Adjustments from Income (Loss) before Income Taxes to Operating Earnings (Loss) before Income Taxes

Net investment losses and related charges and adjustments increased $179 million from a loss of $101 million to a gain of $78 million primarily due to:

•
favorable changes in CMO-B fair value adjustments as a result of equity market and interest rate movements;
•
gains on the sale of securities in the current period; and
•
favorable changes in the fair value of derivatives.

The increase was partially offset by:

•
higher impairments in the current period; and
•
favorable amortization of DAC/VOBA and sales inducements in the prior period.

Net guaranteed benefit hedging gains and related charges and adjustments decreased $1 million from a loss of $12 million to a loss of $11 million primarily due to:

•
unfavorable changes in fair value of guaranteed benefit derivatives excluding nonperformance risk as a result of changes in interest rates.

The decrease was partially offset by:

•
gains due to nonperformance risk.

Loss related to businesses exited through reinsurance or divestment decreased $34 million from a loss of $53 million to a loss of $19 million primarily due to:

•
higher litigation reserves related to a divested business in the prior period.

The decrease was partially offset by:

•
higher unfavorable market value changes in assets and liabilities associated with business reinsured in the current period.


 
109
 

Immediate recognition of net actuarial gains related to pension and other postretirement benefit obligations and gains from plan adjustments and curtailments changed $66 million due to the remeasurement of the pension plan as a result of a curtailment.

Loss related to early extinguishment of debt decreased $3 million from $3 million to $0 million primarily due to:

•
Losses in connection with repurchased debt in the prior period. See Liquidity and Capital Resources - in Part I, Item 2. of this Quarterly Report on Form 10-Q for further description.

Other adjustments to operating earnings changed $117 million from a loss of $28 million to a loss of $145 million primarily due to:

•
higher costs recorded in the current period related to restructuring. See the Restructuring Note in Part I, Item 1. of this Quarterly Report on Form 10-Q for further description.


Results of Operations - Segment by Segment

Retirement

The following table presents Adjusted operating earnings before income taxes of our Retirement segment for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Adjusted operating revenues:
 
 
 
 
 
 
 
Net investment income and net realized gains (losses)
$
449

 
$
430

 
$
864

 
$
853

Fee income
211

 
210

 
410

 
422

Premiums
4

 
4

 
5

 
6

Other revenue
24

 
26

 
57

 
51

Total adjusted operating revenues
688

 
670

 
1,336

 
1,332

Operating benefits and expenses:
 
 
 
 
 
 
 
Interest credited and other benefits to contract owners/policyholders
238

 
239

 
469

 
476

Operating expenses
248

 
237

 
516

 
485

Net amortization of DAC/VOBA
22

 
25

 
42

 
93

Total operating benefits and expenses
508

 
501

 
1,027

 
1,054

Adjusted operating earnings before income taxes(1)
$
180

 
$
169

 
$
309

 
$
278

(1) See DAC/VOBA and Other Intangibles Unlocking in Part I, Item 2. of this Quarterly Report on Form 10-Q for further information.

 
110
 


Starting first quarter of 2019, Assets Under Advisement are presented in AUA, which includes recordkeeping, stable value investment-only wrap, brokerage and investment advisory assets. Prior period information have been revised to conform to current period presentation.

The following tables present AUM and AUA for our Retirement segment as of the dates indicated:
 
As of June 30,
($ in millions)
2019
 
2018
Corporate markets
$
67,748

 
$
61,888

Tax-exempt markets
65,978

 
62,814

Total full service plans
133,726

 
124,702

Stable value(1) and pension risk transfer
10,472

 
11,518

Retail wealth management
10,223

 
9,695

Total AUM
154,421

 
145,915

AUA
247,335

 
274,967

Total AUM and AUA
$
401,756

 
$
420,882

(1) Where Voya is the Investment Manager. Stable Value assets move from AUM to AUA when Voya no longer serves as Investment Manager but continues to provide a book value guarantee.

 
As of June 30,
($ in millions)
2019
 
2018
General Account
$
32,688

 
$
32,519

Separate Account
73,105

 
70,913

Mutual Fund/Institutional Funds
48,628

 
42,483

AUA
247,335

 
274,967

Total AUM and AUA
$
401,756

 
$
420,882


The following table presents a rollforward of AUM for our Retirement segment for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Balance as of beginning of period
$
150,415

 
$
143,716

 
$
139,133

 
$
138,191

Transfer / Adjustment (1)
—

 
196

 
—

 
6,212

Deposits
4,649

 
4,440

 
10,115

 
8,959

Surrenders, benefits and product charges
(4,870
)
 
(4,574
)
 
(10,243
)
 
(9,455
)
Net flows
(221
)
 
(134
)
 
(128
)
 
(496
)
Interest credited and investment performance
4,227

 
2,137

 
15,416

 
2,008

Balance as of end of period
$
154,421

 
$
145,915

 
$
154,421

 
$
145,915

(1) Reflects investment-only products which were transferred from Corporate effective January 1, 2018 and an adjustment in the three months ended June 30, 2018 to include certain Stable Value assets previously reported as AUA.

Retirement - Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

Adjusted operating earnings before income taxes increased $11 million from $169 million to $180 million primarily due to:

•
higher alternative asset income; and
•
higher prepayment income.


 
111
 

The increase was partially offset by:

•
higher expenses primarily resulting from business growth.

Retirement - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Adjusted operating earnings before income taxes increased $31 million from $278 million to $309 million primarily due to:

•
unfavorable DAC/VOBA unlocking in the prior period driven by an update to the assumptions related the GMIR initiative;
•
higher prepayment fee income; and
•
higher investment income margins.

The increase was partially offset by:

•
higher expenses primarily resulting from business growth; and
•
lower fee income due to margin rate compression and business mix.

Investment Management

The following table presents Adjusted operating earnings before income taxes of our Investment Management segment for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Adjusted operating revenues:
 
 
 
 
 
 
 
Net investment income and net realized gains (losses)
$
7

 
$
5

 
$
5

 
$
16

Fee income
152

 
161

 
297

 
326

Other revenue
4

 
5

 
9

 
14

Total adjusted operating revenues
163

 
171

 
311

 
356

Operating benefits and expenses:
 
 
 
 
 
 
 
Operating expenses
122

 
119

 
236

 
243

Total operating benefits and expenses
122

 
119

 
236

 
243

Adjusted operating earnings before income taxes
$
41

 
$
52

 
$
75

 
$
113


Our Investment Management segment operating revenues include the following intersegment revenues, primarily consisting of asset-based management and administration fees.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019

2018
 
2019

2018
Investment Management intersegment revenues
$
30

 
$
39

 
$
60

 
$
82


 
112
 


The following table presents AUM and AUA for our Investment Management segment as of the dates indicated:
 
As of June 30,
($ in millions)
2019
 
2018
Assets under Management
 
 
 
External clients:
 
 
 
Investment Management sourced
$
92,675

 
$
86,802

Affiliate sourced(1)
38,686

 
36,882

Variable annuities (2)
26,944

 
27,851

Total external clients
158,305

 
151,535

General account
55,921

 
55,617

Total AUM
214,226

 
207,152

Assets under Administration (3)
50,098

 
49,378

Total AUM and AUA
$
264,324

 
$
256,530

(1) Affiliate sourced AUM includes assets sourced by other segments and also reported as AUM or AUA by such other segments.
(2) Reflects AUM associated with the businesses divested as part of the 2018 Transaction.
(3) AUA includes assets sourced by other segments and also reported as AUA or AUM by such other segments.

The following table presents net flows for our Investment Management segment for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Net Flows:
 
 
 
 
 
 
 
Investment Management sourced
$
693

 
$
1,152

 
$
1,858

 
$
1,208

Affiliate sourced
(501
)
 
(409
)
 
(1,055
)
 
(916
)
Variable annuities (1)
(616
)
 
(627
)
 
(1,166
)
 
(1,341
)
Sub-advisor replacements (2)
897

 
—

 
897

 
—

Total
$
473

 
$
116

 
$
534

 
$
(1,049
)
(1) Reflects net flows associated with the businesses divested as part of the 2018 Transaction.
(2) Reflects net flows mainly associated with outside managed funds.

Investment Management - Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

Adjusted operating earnings before income taxes decreased $11 million from $52 million to $41 million primarily due to:

•
lower average general account AUM driven by the impact of the 2018 Transaction; and
•
higher operating expenses due primarily to higher non-volume expenses partially offset by lower volume related expenses.

The decrease was partially offset by:

•
higher investment capital returns.

Investment Management - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Adjusted operating earnings before income taxes decreased $38 million from $113 million to $75 million primarily due to:

•
lower average general account AUM driven by the impact of the 2018 Transaction;
•
lower investment capital returns;
•
a decrease in average Retail AUM driven by negative net flows resulting in lower management and administrative fees earned; and
•
lower Other revenue primarily due to higher performance and production fees earned in the prior period.


 
113
 

The decrease was partially offset by:

•
lower operating expenses.

Employee Benefits

The following table presents Adjusted operating earnings before income taxes of the Employee Benefits segment for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Adjusted operating revenues:
 
 
 
 
 
 
 
Net investment income and net realized gains (losses)
$
29

 
$
28

 
$
55

 
$
55

Fee income
16

 
15

 
32

 
31

Premiums
472

 
418

 
939

 
829

Other revenue
(2
)
 
(1
)
 
(3
)
 
(2
)
Total adjusted operating revenues
515

 
460

 
1,023

 
913

Operating benefits and expenses:
 
 
 
 
 
 
 
Interest credited and other benefits to contract owners/policyholders
361

 
335

 
725

 
661

Operating expenses
100

 
87

 
202

 
178

Net amortization of DAC/VOBA
5

 
3

 
9

 
7

Total operating benefits and expenses
466

 
425

 
936

 
846

Adjusted operating earnings before income taxes(1)
$
49

 
$
35

 
$
87

 
$
67

(1) See DAC/VOBA and Other Intangibles Unlocking in Part I, Item 2. of this Quarterly Report on Form 10-Q for further information.

The following table presents sales, gross premiums and in-force for our Employee Benefits segment for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Sales by Product Line:
 
 
 
 
 
 
 
Group life and Disability
$
13

 
$
12

 
$
117

 
$
72

Stop loss
9

 
15

 
245

 
194

Total group products
22

 
27

 
362

 
266

Voluntary products
31

 
10

 
100

 
75

Total sales by product line
$
53

 
$
37

 
$
462

 
$
341

 
 
 
 
 
 
 
 
Total gross premiums and deposits
$
532

 
$
469

 
$
1,053

 
$
931

 
 
 
 
 
 
 
 
Group life and Disability
$
715

 
$
664

 
$
715

 
$
664

Stop loss
1,045

 
938

 
1,045

 
938

Voluntary
392

 
312

 
392

 
312

Total annualized in-force premiums
$
2,152

 
$
1,914

 
$
2,152

 
$
1,914

 
 
 
 
 
 
 
 
Loss Ratios:
 
 
 
 
 
 
 
Group life (interest adjusted)
74.4
%
 
81.5
%
 
77.0
%
 
80.4
%
Stop loss
80.6
%
 
81.7
%
 
79.0
%
 
81.0
%
Total Loss Ratio(1)
71.6
%
 
72.6
%
 
71.6
%
 
72.6
%
(1) Total Loss Ration is presented on a trailing twelve month basis.

 
114
 

Employee Benefits - Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

Adjusted operating earnings before income taxes increased $14 million from $35 million to $49 million primarily due to:

•
higher premiums driven by growth of the stop loss, voluntary blocks and group life; and
•
favorable true-ups of $6 million, in the current period, related to certain reserves, commission accruals and deferrals.

The increase was partially offset by:

•
higher benefits incurred in stop loss and voluntary due to growth in business, partially offset by lower loss ratios in Group Life and Stop Loss; and
•
higher distribution expenses and commissions to support business growth.

Employee Benefits - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Adjusted Operating earnings before income taxes increased $20 million from $67 million to $87 million primarily due to:

•
higher premiums driven by growth of the stop loss, voluntary blocks and group life; and
•
favorable true-ups of $6 million, in the current period, related to certain reserves, commission accruals and deferrals.

The increase was partially offset by:

•
higher benefits incurred in stop loss, voluntary and group life due to growth in business, partially offset by lower loss ratios in Group Life and Stop Loss; and
•
higher distribution expenses and commissions to support business growth.


 
115
 

Individual Life

The following table presents Adjusted operating earnings before income taxes of our Individual Life segment for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Adjusted operating revenues:
 
 
 
 
 
 
 
Net investment income and net realized gains (losses)
$
240

 
$
225

 
$
455

 
$
443

Fee income
307

 
309

 
615

 
614

Premiums
94

 
103

 
192

 
208

Other revenue
2

 
4

 
7

 
7

Total adjusted operating revenues
643

 
641

 
1,269

 
1,272

Operating benefits and expenses:
 
 
 
 
 
 
 
Interest credited and other benefits to contract owners/policyholders
493

 
489

 
951

 
984

Operating expenses
60

 
66

 
131

 
140

Net amortization of DAC/VOBA
43

 
45

 
92

 
90

Total operating benefits and expenses
596

 
600

 
1,174

 
1,214

Adjusted operating earnings before income taxes(1)
$
47

 
$
41

 
$
95

 
$
58

(1) See DAC/VOBA and Other Intangibles Unlocking in Part I, Item 2. of this Quarterly Report on Form 10-Q for further information.

The following table presents gross premiums and in-force policy count for our Individual Life segment for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Total gross premiums (1)
$
429

 
$
444

 
$
888

 
$
893

End of period:
 
 
 
 
 
 
 
In-force face amount (1)
$
325,562

 
$
316,574

 
$
325,562

 
$
316,574

In-force policy count (1)
785,786

 
800,771

 
785,786

 
800,771

(1) Effective 2019, we have ceased sales of our Individual Life products.

Individual Life - Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

Adjusted operating earnings before income taxes increased $6 million from $41 million to $47 million primarily due to:

•
lower net unfavorable DAC/VOBA and other intangibles unlocking due to prospective assumption updates related to changes in reinsurance in the prior period;
•
higher net investment income primarily due to higher alternative investment income and prepayment fee income; and
•
lower operating expenses.

The increase was partially offset by:

•
lower underwriting gains, net of DAC/VOBA and other intangibles amortization, primarily driven by adverse net mortality due to higher severity on the combined interest and non-interest sensitive blocks.

Individual Life - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Adjusted operating earnings before income taxes increased $37 million from $58 million to $95 million primarily due to:

•
lower net unfavorable DAC/VOBA and other intangibles unlocking due to prospective assumption updates related to changes in reinsurance in the prior period;
•
higher net investment income primarily due to higher alternative investment income and prepayment fee income; and

 
116
 

•
lower operating expenses.

The increase was partially offset by:

•
lower underwriting gains, net of DAC/VOBA and other intangibles amortization, primarily driven by adverse net mortality in the non-interest sensitive block.

Corporate

The following table presents Adjusted operating earnings before income taxes of Corporate for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Adjusted operating revenues:
 
 
 
 
 
 
 
Net investment income and net realized gains (losses)
$
51

 
$
69

 
$
108

 
$
130

Fee income
10

 
10

 
20

 
21

Premiums
13

 
6

 
28

 
26

Other revenue
12

 
6

 
23

 
6

Total adjusted operating revenues
86

 
91

 
179

 
183

Operating benefits and expenses:
 
 
 
 
 
 
 
Interest credited and other benefits to contract owners/policyholders
48

 
39

 
103

 
95

Operating expenses
31

 
60

 
67

 
101

Net amortization of DAC/VOBA
2

 
3

 
4

 
5

Interest expense
44

 
48

 
99

 
97

Total operating benefits and expenses
125

 
150

 
273

 
298

Adjusted operating earnings before income taxes
$
(39
)
 
$
(59
)
 
$
(94
)
 
$
(115
)

The following table presents information about our Operating expenses of Corporate for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Amortization of intangibles
$
8

 
$
9

 
$
17

 
$
18

Other(1)
23

 
51

 
50

 
83

Total Operating expenses
$
31

 
$
60

 
$
67

 
$
101

(1) Includes expense from corporate operations, Retained Business and other closed blocks, and expense not allocated to our segments, including Stranded Costs.
 
Corporate - Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

Adjusted operating earnings before income taxes improved $20 million from a loss of $59 million to a loss of $39 million primarily related to:

•
lower Stranded Costs;
•
net compensation adjustments in the prior period not recurring in the current period;
•
lower interest expense as we converted debt to equity instruments during the fourth quarter of 2018; and
•
revenue resulting from transition services agreements.

This increase was partially offset by:

•
residual activity from Retained Business, which will have volatility due to the nature of the block.

 
117
 


Corporate - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Adjusted operating earnings before income taxes improved $21 million from a loss of $115 million to a loss of $94 million primarily due to:

•
lower Stranded Costs;
•
revenue resulting from transition services agreements;
•
lower net compensation adjustments in the current period; and
•
lower interest expense as we converted debt to equity instruments during the fourth quarter of 2018 partially offset by preferred stock dividend payments in the current year.

The increase was partially offset by:

•
residual activity from Retained Business, which will have volatility due to the nature of the block.

Alternative Investment Income

Investment income on certain alternative investments can be volatile due to changes in market conditions. The following table presents the amount of investment income (loss) on certain alternative investments that is included in segment Adjusted operating earnings before income taxes and the average level of assets in each segment, prior to intercompany eliminations, which excludes alternative investments and income that are a component of Assets held for sale and Income (loss) from discontinued operations, net of tax, respectively, and alternative investments and income in Corporate. These alternative investments are carried at fair value, which is estimated based on the net asset value ("NAV") of these funds.

While investment income on these assets can be volatile, based on current plans, we expect to earn 9.0% on these assets over the long term.

Alternative investment income for the three and six months ended June 30, 2019 and 2018, respectively, and the average assets of alternative investments as of the dates indicated were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Retirement:
 
 
 
 
 
 
 
Alternative investment income
$
33

 
$
20

 
$
32

 
$
38

Average alternative investment
722

 
558

 
714

 
547

Investment Management(1):
 
 
 
 
 
 
 
Alternative investment income
7

 
5

 
5

 
16

Average alternative investment
228

 
250

 
218

 
256

Employee Benefits:
 
 
 
 
 
 
 
Alternative investment income
4

 
2

 
4

 
4

Average alternative investment
84

 
53

 
83

 
52

Individual Life:
 
 
 
 
 
 
 
Alternative investment income
25

 
16

 
31

 
25

Average alternative investment
491

 
348

 
477

 
330

(1) Includes performance fees related to sponsored private equity funds (“carried interest”) that are subject to later reversal based on subsequent fund performance, to the extent that cumulative rates of investment return fall below specified investment hurdle rates. Should the market value of a portfolio increase in future periods, reversals of carried interest could be fully or partially recovered. No amounts for carried interest were reversed or recovered for the three and six months ended June 30, 2019 and 2018.


 
118
 

DAC/VOBA and Other Intangibles Unlocking

Changes in Adjusted operating earnings before income taxes and Net income (loss) are influenced by increases and decreases in amortization of DAC, VOBA, deferred sales inducements ("DSI") and unearned revenue ("URR"), collectively, "DAC/VOBA and other intangibles." For Individual Life, changes in Adjusted operating earnings before income taxes and Net income (loss) are also influenced by increases and decreases in amortization of net cost of reinsurance, as well as by changes in reserves associated with UL and variable universal life ("VUL") secondary guarantees and paid-up guarantees. Unlocking related to DAC, VOBA, DSI and URR, as well as amortization of net cost of reinsurance and reserve adjustments associated with UL and VUL secondary guarantees and paid-up guarantees are referred to as "DAC/VOBA and other intangibles unlocking." See the "Deferred Policy Acquisition Costs, Value of Business Acquired and Other Intangibles," "Reinsurance," and "Future Policy Benefits and Contract Owner Account Balances" sections in the Business, Basis of Presentation and Significant Accounting Policies Note in our Consolidated Financial Statements in Part II, Item 8. as well as the "DAC/VOBA and Other Intangibles Unlocking" section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7. of our Annual Report on Form 10-K for more information.

In 2017, we began soliciting customer consents to execute a change to reduce the guaranteed minimum interest rate ("GMIR initiative") applicable to future deposits and transfers into fixed investment options for certain retirement plan contracts with above-market GMIRs. This change reduces our interest rate exposure on new deposits, transfers and in certain plans existing fixed account assets and will favorably impact the DAC/VOBA amortization rate and Adjusted operating earnings over time. See Critical Accounting Judgments and Estimates in the Management's Discussion and Analysis section in Part I, Item 2. of this Quarterly Report on Form 10-Q for further information.

The following table presents the amount of DAC/VOBA and other intangibles unlocking that is included in segment Adjusted operating earnings before income taxes for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Retirement (1)
$
5

 
$
3

 
$
9

 
$
(38
)
Employee Benefits
—

 
—

 
—

 
(1
)
Individual Life
(6
)
 
(31
)
 
(9
)
 
(60
)
Corporate
—

 
—

 
—

 
—

Total DAC/VOBA and other intangibles unlocking
$
(1
)
 
$
(28
)
 
$
—

 
$
(99
)
(1) Includes unfavorable unlocking of $43 million in the three months ended March 31, 2018, associated with the assumption update related to the GMIR initiative.

Liquidity and Capital Resources
 
Liquidity refers to our ability to access sufficient sources of cash to meet the requirements of our operating, investing and financing activities. Capital refers to our long-term financial resources available to support business operations and future growth. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of the businesses, timing of cash flows on investments and products, general economic conditions and access to the capital markets and the other sources of liquidity and capital described herein.

Consolidated Sources and Uses of Liquidity and Capital

Our principal available sources of liquidity are product charges, investment income, proceeds from the maturity and sale of investments, proceeds from debt issuance and borrowing facilities, equity securities issuance, repurchase agreements, contract deposits and securities lending. Primary uses of these funds are payments of policyholder benefits, commissions and operating expenses, interest credits, share repurchases, investment purchases and contract maturities, withdrawals and surrenders.

Parent Company Sources and Uses of Liquidity

Voya Financial, Inc. is largely dependent on cash flows from its operating subsidiaries to meet its obligations. The principal sources of funds available to Voya Financial, Inc. include dividends and returns of capital from its operating subsidiaries, as well as cash and short-term investments, and proceeds from debt issuances, borrowing facilities and equity securities issuances. These sources of funds include the $750 million revolving credit sublimit of our Second Amended and Restated Credit Agreement and reciprocal borrowing facilities maintained with Voya Financial, Inc.'s subsidiaries as well as alternate sources of liquidity described below.

 
119
 


Voya Financial, Inc.'s primary sources and uses of cash for the periods indicated are presented in the following table:
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
Beginning cash and cash equivalents balance
$
209

 
$
244

Sources:
 
 
 
Proceeds from loans from subsidiaries, net of repayments
—

 
11

Dividends and returns of capital from subsidiaries
956

 
811

Amounts received from subsidiaries under tax sharing agreements, net
—

 
4

Refund of income taxes, net
16

 
—

Sale of short-term investments
—

 
212

Proceeds from 2048 Notes offering
—

 
350

Proceeds from issuance of preferred stock, net
293

 
—

Other, net
12

 
—

Total sources
1,277

 
1,388

Uses:
 
 
 
Payment of interest expense
69

 
74

Repayments of loans from subsidiaries, net of new issuances
4

 
418

New issuances of loans to subsidiaries, net of repayments
197

 
—

Amounts paid to subsidiaries under tax sharing agreements, net
48

 
—

Debt issuance costs
—

 
6

Common stock acquired - Share repurchase
686

 
500

Share-based compensation
17

 
15

Dividends paid on preferred stock
10

 
—

Dividends paid on common stock
3

 
3

Maturity of 2018 Notes
—

 
337

Other, net
—

 
10

Total uses
1,034

 
1,363

Net increase in cash and cash equivalents
243

 
25

Ending cash and cash equivalents balance
$
452

 
$
269


Share Repurchase Program and Dividends to Common Shareholders

On March 13, 2014, our Board of Directors authorized a share repurchase program, pursuant to which we may, from time to time, purchase shares of our common shares through various means, including, without limitation, open market transactions, privately negotiated transactions, forward, derivative, or accelerated repurchase, or automatic repurchase transactions, including 10b5-1 plans, or tender offers.

Since 2014, our Board of Directors has periodically renewed our authority to repurchase our shares. On May 2, 2019, our Board of Directors provided share repurchase authorization, increasing the aggregate of our common stock authorized for repurchase by $500 million. The additional share repurchase authorization expires on June 30, 2020 (unless extended). The authorization for the share repurchase program may be terminated, increased or decreased by the Board of Directors at any time. As of June 30, 2019, we were authorized to repurchase shares up to an aggregate purchase price of $300 million, after consideration of the upfront payment made upon entering into a share repurchase agreement on June 19, 2019, which is described below.

On January 3, 2019, we entered into a share repurchase agreement with a third-party financial institution, pursuant to which we made an upfront payment of $250 million and received initial delivery of 5,059,449 shares. This arrangement closed on April 4, 2019 and an additional 290,765 shares were delivered.


 
120
 

On April 9, 2019, we entered into a share repurchase agreement with a third-party financial institution, pursuant to which we made an upfront payment of $236 million and received initial delivery of 3,593,453 shares. This arrangement closed on June 4, 2019 and an additional 879,199 shares were delivered.

On June 19, 2019, we entered into a share repurchase agreement with a third-party financial institution, pursuant to which we made an upfront payment of $200 million and received initial delivery of 2,963,512 shares. This arrangement closed on August 6, 2019 and an additional 695,566 shares were delivered.

The following table summarizes our return of capital to common shareholders:
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
Dividends to shareholders
$
3

 
$
3

Repurchase of common shares
646

 
600

Total cash returned to shareholders
$
649

 
$
603


On August 1, 2019, our Board of Directors authorized a third-quarter 2019 common stock dividend of $0.15 per share.

Liquidity

We manage liquidity through access to substantial investment portfolios as well as a variety of other sources of liquidity including committed credit facilities, securities lending and repurchase agreements. Our asset-liability management ("ALM") process takes into account the expected maturity of investments and expected benefit payments as well as the specific nature and risk profile of the liabilities. As part of our liquidity management process, we model different scenarios to determine whether existing assets are adequate to meet projected cash flows.

Capitalization

The primary components of our capital structure consist of debt and equity securities. Our capital position is supported by cash flows within our operating subsidiaries, the availability of borrowed funds under liquidity facilities, and any additional capital we raise to invest in the growth of the business and for general corporate purposes. We manage our capital position based on a variety of factors including, but not limited to, our financial strength, the credit rating of Voya Financial, Inc. and of its insurance company subsidiaries and general macroeconomic conditions.

We had $97 million of short-term debt borrowings outstanding consisting entirely of the current portion of long-term debt as of June 30, 2019. The following table summarizes our borrowing activities for the six months ended June 30, 2019:
($ in millions)
Beginning Balance
 
Issuance
 
Maturities and Repurchases
 
Other Changes
 
Ending Balance
Long-Term Debt:
 
 
 
 
 
 
 
 
 
Debt securities
$
3,132

 
$
—

 
$
—

 
$
2

 
$
3,134

Windsor property loan
5

 
—

 
—

 
(1
)
 
4

Subtotal
3,137

 
—

 
—

 
1

 
3,138

Less: Current portion of long-term debt
1

 
—

 
—

 
96

 
97

Total long-term debt
$
3,136

 
$
—

 
$
—

 
$
(95
)
 
$
3,041



 
121
 

As of June 30, 2019, we were in compliance with our debt covenants.

Preferred Stock. On June 11, 2019, we issued 300,000 shares of 5.35% Fixed-Rate Reset Non-Cumulative Preferred Stock, Series B ("the Series B preferred stock), with a $0.01 par value per share and a liquidation preference of $1,000 per share, represented by 12,000,000 Depositary Shares each representing a 1/40th interest in a share of the Series B preferred stock, for aggregate net proceeds of $293 million.

We did not declare or pay dividends on the Series A or Series B preferred stock during the three months ended June 30, 2019. During the six months ended June 30, 2019, we declared and paid dividends of $10 million on the Series A preferred stock. As of June 30, 2019, there were no preferred stock dividends in arrears. See the Shareholders' Equity Note in Part I, Item 1. of this Quarterly Report on Form 10-Q for further information.

Senior Notes. As of June 30, 2019, Voya Financial, Inc. had five series of senior notes (collectively, the "Senior Notes") with aggregate outstanding principal amount of $1.7 billion. The Senior Notes are guaranteed by Voya Holdings. We are permitted to redeem all or any portion of the Senior Notes at any time at a redemption price equal to the principal amount redeemed, or, if greater, a "make-whole redemption price," plus, in each case accrued and unpaid interest.

On June 12, 2019, we delivered to the holders of our 5.5% Senior Notes due 2022 (the "2022 Notes") a notice of redemption. We have elected to redeem all of the outstanding $97 million aggregate principal amount of 2022 Notes, and the redemption occurred on July 12, 2019. In connection with this transaction, we expect to incur a loss on debt extinguishment of $9 million for the three and nine months ended September 30, 2019, which will be recorded in Interest expense in the Condensed Consolidated Statements of Operations.

Junior Subordinated Notes. As of June 30, 2019, Voya Financial, Inc. had two series of junior subordinated notes (collectively, the "Junior Subordinated Notes") with aggregate outstanding principal amount of $1.1 billion. The Junior Subordinated Notes are guaranteed on an unsecured, junior subordinated basis by Voya Holdings.

Aetna Notes. As of June 30, 2019, Voya Holdings was the obligor under three series of debentures (collectively, the "Aetna Notes") with aggregate outstanding principal amount of $358 million, which were issued by a predecessor of Voya Holdings and assumed in connection with our acquisition of Aetna’s life insurance and related businesses. In addition, Equitable of Iowa Capital Trust II, a limited purpose trust subsidiary, has outstanding $13 million principal amount of 8.42% Series B Capital Securities due April 1, 2027 (the "Equitable Notes"). ING Group, our previous corporate parent, guarantees the Aetna Notes. The Equitable Notes are guaranteed by Voya Financial, Inc.

As of June 30, 2019, the amount of collateral required to avoid the payment of a fee to ING Group was $258 million.

Senior Unsecured Credit Facility

We have a $1.0 billion senior unsecured credit facility which expires on May 6, 2021. The facility provides $1.0 billion of committed capacity for issuing letters of credit and also includes a revolving credit borrowing sublimit of $750 million. As of June 30, 2019, there were no amounts outstanding as revolving credit borrowings and no amounts of LOCs outstanding under the senior unsecured credit facility. Under the terms of the facility, Voya Financial, Inc. is required to maintain a minimum net worth of $6.6 billion, which may increase upon any future equity issuances by us.

Other Credit Facilities

We use credit facilities to provide collateral required primarily under our affiliated reinsurance transactions with captive insurance subsidiaries. We also issue guarantees and enter into financing arrangements in connection with these credit facilities. These arrangements are designed to facilitate the financing of statutory reserve requirements.


 
122
 

The following table summarizes our credit facilities as of June 30, 2019:
($ in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligor / Applicant
 
Business Supported
 
Secured / Unsecured
 
Committed / Uncommitted
 
Expiration
 
Capacity
 
Utilization
 
Unused Commitment
Voya Financial, Inc.
 
Other
 
Unsecured
 
Committed
 
05/06/2021
 
$
1,000

 
$
—

 
$
1,000

Voya Financial, Inc.
 
Other
 
Unsecured
 
Uncommitted
 
Various
 
1

 
1

 
—

Voya Financial, Inc.
 
Other
 
Secured
 
Uncommitted
 
Various
 
10

 
1

 
—

Voya Financial, Inc. /SLDI
 
Other
 
Unsecured
 
Uncommitted
 
N/A
 
300

 
—

 
—

Voya Financial, Inc. / SLDI
 
Retirement
 
Unsecured
 
Committed
 
03/20/2022
 
250

 
225

 
25

Voya Financial, Inc. / SLDI
 
Individual Life
 
Unsecured
 
Committed
 
12/31/2025
 
475

 
475

 
—

Voya Financial, Inc. / SLDI
 
Individual Life
 
Unsecured
 
Committed
 
07/01/2037
 
1,725

 
1,566

 
159

Voya Financial, Inc. /Roaring River LLC
 
Individual Life
 
Unsecured
 
Committed
 
10/01/2025
 
425

 
356

 
69

Voya Financial, Inc. /Roaring River IV, LLC
 
Individual Life
 
Unsecured
 
Committed
 
12/31/2028
 
565

 
312

 
253

Voya Financial, Inc.(1)
 
Individual Life
 
Unsecured
 
Committed
 
12/09/2023
 
300

 
182

 
118

Voya Financial, Inc.
 
Individual Life/Retirement/Other
 
Unsecured
 
Committed
 
02/11/2022
 
300

 
300

 
—

SLDI
 
Hannover Re(2)
 
Unsecured
 
Committed
 
10/29/2023
 
61

 
61

 
—

Voya Financial, Inc.
 
Hannover Re(2)
 
Unsecured
 
Uncommitted
 
04/27/2021
 
156

 
156

 
—

Total
 
 
 
 
 
 
 
 
 
$
5,568

 
$
3,635

 
$
1,624

N/A- Not Applicable
(1) Effective June 14, 2019, the commitment was increased from $195 million to $300 million and the maturity date was extended from 12/09/2021 to 12/09/2023.
(2) Individual Life Reinsurance business acquired by Hannover Re in 2009 via indemnity reinsurance.

Total fees associated with credit facilities were $8 million and $16 million for the three and six months ended June 30, 2019, respectively. Total fees associated with credit facilities were $8 million and $18 million for the three and six months ended June 30, 2018, respectively.

Voya Financial, Inc. Credit Support of Subsidiaries

In addition to our Senior Unsecured Credit Facility, Voya Financial, Inc. maintains credit facilities with third-party banks to support the reinsurance obligations of our captive reinsurance subsidiaries in which Voya Financial is either a primary obligor or provides a financial guarantee. As of June 30, 2019, such facilities provided for up to $4.5 billion of capacity, of which $3.6 billion was utilized.

We also provide credit support to our Roaring River IV, LLC ("Roaring River IV") captive reinsurance subsidiary through a surplus maintenance agreement with a third-party bank in connection with a financing arrangement involving $565 million of statutory reserves which matures December 31, 2028. The reimbursement agreement requires Voya Financial, Inc. to cause capital to be maintained in Roaring River IV Holding LLC, the intermediate holding company of Roaring River IV, and in Roaring River IV. These amounts will vary over time based on a percentage of Roaring River IV in force life insurance.

In addition, we provide guarantees to certain of our subsidiaries to support various business requirements:

•
Under the Buyer Facility Agreement put into place by Hannover Re, Voya Financial, Inc. and Security Life of Denver International Limited ("SLDI") have contingent reimbursement obligations and Voya Financial, Inc. has guarantee obligations, up to the full $2.9 billion principal amount of the note issued pursuant to the agreement, if Security Life of Denver Insurance Company ("SLD") or SLDI were to direct the sale or liquidation of the note other than as permitted by the Buyer Facility Agreement, or fail to return reinsurance collateral (including the note) upon termination of the Buyer Facility Agreement or as otherwise required by the Buyer Facility Agreement. In addition, Voya Financial, Inc. has agreed

 
123
 

to indemnify Hannover Re for any losses it incurs in the event that SLD or SLDI were to exercise offset rights unrelated to the Hannover Re block.

•
Voya Financial, Inc. has also entered into a corporate guarantee agreement with a third-party ceding insurer where it guarantees the reinsurance obligations of our subsidiary, SLD, assumed under a reinsurance agreement with the third-party cedent for the amount of the statutory reserves assumed by SLD. The current amount of reserves outstanding as of June 30, 2019 is $13 million.

•
Voya Financial, Inc. guarantees the obligations of Voya Holdings under the $13 million principal amount Equitable Notes maturing in 2027, and provides a back-to-back guarantee to ING Group in respect of its guarantee of $358 million combined principal amount of Aetna Notes. For more information see "Capitalization- Aetna Notes" above.

•
Voya Financial, Inc. and Voya Holdings provide a guarantee to certain Voya insurance subsidiaries of VIAC’s payment obligations to those subsidiaries under certain VIAC surplus notes held by those subsidiaries. The agreement provides for Voya and Voya Holdings to reimburse the applicable subsidiary to the extent that any interest on, principal of, or any redemption payment with respect to such surplus note is unpaid by VIAC on its scheduled date.

We did not recognize any asset or liability as of June 30, 2019 in relation to intercompany indemnifications, guarantees or support agreements. As of June 30, 2019, no circumstances existed in which we were required to currently perform under these arrangements.

Borrowings from Subsidiaries

We maintain revolving reciprocal loan agreements with a number of our life and non-life insurance subsidiaries that are used to fund short-term cash requirements that arise in the ordinary course of business. Under these agreements, either party may borrow up to the maximum allowable under the agreement for a term not more than 270 days. For life insurance subsidiaries, the amounts that either party may borrow from the other under the agreement vary and are between 2% and 5% of the insurance subsidiary's statutory net admitted assets (excluding separate accounts) as of the previous year end depending on the state of domicile. As of June 30, 2019, the aggregate amount that may be borrowed or lent under agreements with life insurance subsidiaries was $1.9 billion. For non-life insurance subsidiaries, the maximum allowable under the agreement is based on the assets of the subsidiaries and their particular cash requirements. As of June 30, 2019, Voya Financial, Inc. had no outstanding borrowings from subsidiaries and had loaned $277 million to its subsidiaries.

Ratings

Our access to funding and our related cost of borrowing, collateral requirements for derivative instruments and the attractiveness of certain of our products to customers are affected by our credit ratings and insurance financial strength ratings, which are periodically reviewed by the rating agencies. Financial strength ratings and credit ratings are important factors affecting public confidence in an insurer and its competitive position in marketing products. Credit ratings are also important to our ability to raise capital through the issuance of debt and for the cost of such financing.

A downgrade in our credit ratings or the credit or financial strength ratings of our rated subsidiaries could have a material adverse effect on our results of operations and financial condition. See Risk Factors- A downgrade or a potential downgrade in our financial strength or credit ratings could result in a loss of business and adversely affect our results of operations and financial condition in Part I, Item 1A. of our Annual Report on Form 10-K for additional information.

With respect to our reinsurance agreements, based on the amount of reinsurance outstanding as of June 30, 2019 and December 31, 2018, a two-notch downgrade of our insurance subsidiaries would have resulted in an estimated increase in our collateral requirements by approximately $13 million and $14 million, respectively. The nature of the collateral that we may be required to post is principally in the form of cash, highly rated securities or LOC.

Financial strength ratings represent the opinions of rating agencies regarding the financial ability of an insurance company to meet its obligations under an insurance policy. Credit ratings represent the opinions of rating agencies regarding an entity's ability to repay its indebtedness. These ratings are not a recommendation to buy or hold any of our securities and they may be revised or revoked at any time at the sole discretion of the rating organization.


 
124
 

The financial strength and credit ratings of Voya Financial, Inc. and its principal subsidiaries as of the date of this Quarterly Report on Form 10-Q are summarized in the following table.
 
 
Rating Agency
 
 
A.M. Best
 
Fitch, Inc.
 
Moody's Investors Service, Inc.
 
Standard & Poor's
 
 
("A.M. Best")(1)
 
("Fitch")(2)
 
("Moody's")(3)
 
("S&P")(4)
Long-term Issuer Credit Rating/Outlook:
 
 
 
 
 
 
 
 
Voya Financial, Inc.
 
withdrawn
 
BBB+/stable
 
Baa2/stable
 
BBB+/Stable
 
 
 
 
 
 
 
 
 
Financial Strength Rating/Outlook:
 
A/stable
 
A/stable
 
A2/stable
 
A+/Stable
Voya Retirement Insurance and Annuity Company
 
(5) 
 
 
 
 
 
 
Security Life of Denver Insurance Company
 
(5) 
 
 
 
 
 
 
ReliaStar Life Insurance Company
 
 
 
 
 
 
 
 
ReliaStar Life Insurance Company of New York
 
 
 
 
 
 
 
 
(1) A.M. Best's financial strength ratings for insurance companies range from "A++ (superior)" to "s (suspended)." Long-term credit ratings range from "aaa (exceptional)" to "s (suspended)."   
(2) Fitch's financial strength ratings for insurance companies range from "AAA (exceptionally strong)" to "C (distressed)." Long-term credit ratings range from "AAA (highest credit quality)," which denotes exceptionally strong capacity for timely payment of financial commitments, to "D (default)."
(3) Moody’s financial strength ratings for insurance companies range from "Aaa (exceptional)" to "C (lowest)." Numeric modifiers are used to refer to the ranking within the group- with 1 being the highest and 3 being the lowest. These modifiers are used to indicate relative strength within a category. Long-term credit ratings range from "Aaa (highest)" to "C (default)."
(4) S&P's financial strength ratings for insurance companies range from "AAA (extremely strong)" to "D (default)." Long-term credit ratings range from "AAA (extremely strong)" to "D (default)."
(5) Effective April 11, 2019, A.M. Best withdrew, at the Company’s request, its financial strength ratings with respect to Voya Retirement Insurance Annuity Company and Security Life of Denver Insurance Company.

Rating agencies use an "outlook" statement for both industry sectors and individual companies. For an industry sector, a stable outlook generally implies that over the next 12 to 18 months the rating agency expects ratings to remain unchanged among companies in the sector. For a particular company, an outlook generally indicates a medium- or long-term trend in credit fundamentals, which if continued, may lead to a rating change.

Ratings actions and outlook changes by A.M. Best, Fitch, Moody's and S&P from December 31, 2018 through June 30, 2019 and subsequently through the date of this Quarterly Report on Form 10-Q are as follows:

•
On March 11, 2019, Fitch affirmed the ratings of the holding company, Voya Financial, Inc. and revised its outlook on the ratings to Stable from Negative. At the same time, Fitch affirmed the financial strength ratings of Voya's life insurance subsidiaries and maintained its Stable outlook on these ratings.

•
On April 11, 2019, A.M. Best affirmed the financial strength rating of A of the life insurance entities of Voya Financial, Inc. Additionally, A.M. Best affirmed the long-term issuer credit rating of "bbb+" of Voya Financial, Inc. The outlook of these was assigned as Stable. Concurrently, A.M. Best withdrew the ratings of Voya, Voya Retirement Insurance Annuity Company and Security Life of Denver Insurance Company at our request to no longer participate in A.M. Best's rating process with respect to those entities.

•
On June 11, 2019, S&P upgraded the long-term issuer credit rating of Voya Financial, Inc. from BBB, Positive to BBB+, Stable and the financial strength rating of the insurance entities of Voya Financial, Inc. from A, Positive to A+, Stable.

Reinsurance

On November 19, 2008, an existing reinsurance agreement between Scottish Re (U.S.), Inc. ("SRUS") and Ballantyne Re, an Irish public limited company ("Ballantyne Re"), concerning a portion of the business that was originally ceded to Scottish Re as part of the 2004 Transaction, was novated with the result that SLD was substituted for SRUS as the ceding company to Ballantyne Re and made the sole beneficiary of the trust established by to support the reserve requirements of the ceded business. On April 12, 2019, SLD entered into a Lock-Up Support Agreement (the "Lock-Up Agreement") with Ballantyne Re, certain other companies, and holders of certain notes issued by Ballantyne Re in connection with the restructuring of Ballantyne Re. Under the terms of the Lock-Up Agreement, SLD agreed, subject to certain conditions, to enter into a novation and related agreements (the "Novation").

 
125
 

The Novation occurred on June 12, 2019 with the result that Swiss Re Life & Health America Inc. ("Swiss Re") was substituted for Ballantyne Re as the reinsurer effective April 1, 2019. As part of the Novation, Swiss Re established a new trust account with assets supporting its reinsurance obligation to SLD. At the time of closing, $582 million of trust assets on a market value basis supporting reserves of $572 million as of March 31, 2019 were funded into the new trust account. The Novation did not change SLD's reinsurance coverage related to the reinsured business.

Restrictions on Dividends and Returns of Capital from Subsidiaries

Our business is conducted through operating subsidiaries. U.S. insurance laws and regulations regulate the payment of dividends and other distributions by our U.S. insurance subsidiaries to their respective parents. These restrictions are based in part on the prior year's statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior approval. Dividends in larger amounts, or "extraordinary" dividends, are subjected to approval by the insurance commissioner of the state of domicile of the insurance subsidiary proposing to pay the dividend. In addition, under the insurance laws of our principal insurance subsidiaries domiciled in Connecticut and Minnesota (these insurance subsidiaries, together with our insurance subsidiary domiciled in Colorado are referred to collectively, as our "Principal Insurance Subsidiaries"), no dividend or other distribution exceeding an amount equal to an insurance company’s earned surplus may be paid without the domiciliary insurance regulator’s prior approval. Our Principal Insurance Subsidiary domiciled in Connecticut has ordinary dividend capacity for 2019. However, as a result of the extraordinary dividends it paid in 2015, 2016 and 2017, together with statutory losses incurred in connection with the recapture and cession to one of our Arizona captives of certain term life business in the fourth quarter of 2016, our Principal Insurance Subsidiary domiciled in Minnesota currently has negative earned surplus. In addition, primarily as a result of statutory losses incurred in connection with the retrocession of our Principal Insurance Subsidiary domiciled in Minnesota of certain life insurance business in the fourth quarter of 2018, our Principal Insurance Subsidiary domiciled in Colorado has a net loss from operations for the twelve-month period ending the preceding December 31. Therefore, neither our Minnesota nor Colorado Principal Insurance Subsidiaries have the capacity at this time to make ordinary dividend payments. Any extraordinary dividend payment would be subject to domiciliary insurance regulatory approval, which can be granted or withheld at the discretion of the regulator.

SLDI and RRII may not declare or pay dividends other than in accordance with their respective annual capital and dividend plans as approved by the Arizona Department of Insurance, which each include a minimum capital requirement.

We may receive dividends from or contribute capital to our wholly owned non-life insurance subsidiaries such as broker-dealers, investment management entities and intermediate holding companies.

Insurance Subsidiaries - Dividends, Returns of Capital, and Capital Contributions

The following table summarizes dividends by each of the Company's Principal Insurance Subsidiaries to its parent for the periods indicated:
 
Dividends Paid
 
Extraordinary Distributions Paid
 
Six Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Subsidiary Name (State of domicile):
 
 
 
 
 
 
 
Voya Retirement Insurance and Annuity Company ("VRIAC") (CT)
$
396

 
$
126

 
$
—

 
$
—

Security Life of Denver Insurance Company ("SLD") (CO)
—

 
—

 
—

 
—

ReliaStar Life Insurance Company ("RLI") (MN)
—

 
—

 
360

 
—


Other Subsidiaries - Dividends, Returns of Capital, and Capital Contributions

On March 26, 2019, RRII declared a dividend in the amount of $152 million payable to its parent, SLDI. On the same date, SLDI declared a dividend of $170 million payable to its parent, Voya Financial. Both of these dividends were paid on March 27, 2019.

Off-Balance Sheet Arrangements

We have obligations for the return of non-cash collateral under an amendment to our securities lending program. Non-cash collateral received in connection with the securities lending program may not be sold or re-pledged by our lending agent, except in the event

 
126
 

of default, and is not reflected on our Condensed Consolidated Balance Sheets. For information regarding obligations under this program, see the Investments (excluding Consolidated Investment Entities) Note in our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.

For changes in commitments related to the acquisition of mortgage loans and the purchase of limited partnerships and private placement investments related to consolidated investment entities, see the Commitments and Contingencies Note in our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.

Impact of New Accounting Pronouncements

For information regarding the impact of new accounting pronouncements, see the Business, Basis of Presentation and Significant Accounting Policies Note in our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.
Critical Accounting Judgments and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Critical estimates and assumptions are evaluated on an on-going basis based on historical developments, market conditions, industry trends and other information that is reasonable under the circumstances. There can be no assurance that actual results will conform to estimates and assumptions and that reported results of operations will not be materially affected by the need to make future accounting adjustments to reflect changes in these estimates and assumptions from time to time.

We have identified the following accounting judgments and estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability:

•
Reserves for future policy benefits;
•
DAC, VOBA and other intangibles (collectively, "DAC/VOBA and other intangibles");
•
Valuation of investments and derivatives;
•
Impairments;
•
Income taxes;
•
Contingencies; and
•
Employee benefit plans.

In developing these accounting estimates, we make subjective and complex judgments that are inherently uncertain and subject to material changes as facts and circumstances develop. Although variability is inherent in these estimates, we believe the amounts provided are appropriate based on the facts available upon preparation of the Condensed Consolidated Financial Statements.

The above critical accounting estimates are described in the Business, Basis of Presentation and Significant Accounting Policies Note in our Consolidated Financial Statements in Part II, Item 8. of our Annual Report on Form 10-K.

Assumptions and Periodic Review

Changes in assumptions can have a significant impact on DAC/VOBA and other intangibles balances, amortization rates, reserve levels and results of operations. Assumptions are management's best estimates of future outcome. We periodically review these assumptions against actual experience and, based on additional information that becomes available, update our assumptions. Deviation of emerging experience from our assumptions could have a significant effect on our DAC/VOBA and other intangibles, reserves and the related results of operations.

In 2017, we began soliciting customer consents to execute a change to reduce the guaranteed minimum interest rate ("GMIR initiative") applicable to future deposits and transfers into fixed investment options for certain retirement plan contracts with above-market GMIRs. This change reduces our interest rate exposure on new deposits, transfers and, in certain plans, existing fixed account assets and will favorably impact the DAC/VOBA amortization rate and Adjusted operating earnings over time. There was no unlocking of DAC and VOBA related to GMIR initiative for the six months ended June 30, 2019. For the six months ended June 30, 2018, unfavorable unlocking of DAC and VOBA related to GMIR initiative was $43 million, which was included in Net amortization of DAC/VOBA in the Condensed Consolidated Financial Statements.


 
127
 

Sensitivity

We perform sensitivity analyses to assess the impact that certain assumptions have on DAC/VOBA and other intangibles, as well as certain reserves. As of June 30, 2019, there have been no material changes to the sensitivities disclosed in Critical Accounting Judgments and Estimates in Part II. Item 7. of our Annual Report on Form 10-K.
 
 
Income Taxes

We use the estimated annual effective tax rate method in computing our interim tax provision. Certain items, including changes in the realizability of deferred tax assets and changes in liabilities for uncertain tax positions, are excluded from the estimated annual effective tax rate and the actual tax expense or benefit is reported in the period the related item is incurred.

See the Income Taxes Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for more information.

Investments (excluding Consolidated Investment Entities)

Investments for our general account are managed by our wholly owned asset manager, Voya Investment Management LLC, pursuant to investment advisory agreements with affiliates. In addition, our internal treasury group manages our holding company liquidity investments, primarily money market funds.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7. of our Annual Report on Form 10-K for information on our investment strategy.

See the Investments (excluding Consolidated Investment Entities) Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for more information on investments.

Portfolio Composition

The following table presents the investment portfolio as of the dates indicated:
 
June 30, 2019
 
December 31, 2018
($ in millions)
Carrying
Value
 
% of Total
 
Carrying
Value
 
% of Total
Fixed maturities, available-for-sale, excluding securities pledged
$
49,150

 
73.3
%
 
$
46,298

 
72.9
%
Fixed maturities, at fair value using the fair value option
3,358

 
5.0
%
 
2,956

 
4.7
%
Equity securities, available-for-sale
367

 
0.5
%
 
273

 
0.4
%
Short-term investments(1)
154

 
0.2
%
 
168

 
0.3
%
Mortgage loans on real estate
8,418

 
12.6
%
 
8,676

 
13.6
%
Policy loans
1,797

 
2.7
%
 
1,833

 
2.9
%
Limited partnerships/corporations
1,325

 
2.0
%
 
1,158

 
1.8
%
Derivatives
440

 
0.7
%
 
247

 
0.4
%
Other investments
96

 
0.1
%
 
90

 
0.1
%
Securities pledged
1,945

 
2.9
%
 
1,867

 
2.9
%
Total investments
$
67,050

 
100.0
%
 
$
63,566

 
100.0
%
(1) Short-term investments include investments with remaining maturities of one year or less, but greater than 3 months, at the time of purchase.


 
128
 

Fixed Maturities

The following tables present total fixed maturities, including securities pledged, by market sector as of the dates indicated:
 
June 30, 2019
($ in millions)
Amortized Cost
 
% of Total
 
Fair Value
 
% of Total
Fixed maturities:
 
 
 
 
 
 
 
U.S. Treasuries
$
1,666

 
3.3
%
 
$
2,166

 
4.0
%
U.S. Government agencies and authorities
197

 
0.4
%
 
249

 
0.5
%
State, municipalities and political subdivisions
1,642

 
3.3
%
 
1,754

 
3.2
%
U.S. corporate public securities
18,170

 
36.4
%
 
20,410

 
37.4
%
U.S. corporate private securities
6,292

 
12.6
%
 
6,698

 
12.3
%
Foreign corporate public securities and foreign governments(1)
5,320

 
10.7
%
 
5,810

 
10.7
%
Foreign corporate private securities(1)
5,027

 
10.1
%
 
5,262

 
9.7
%
Residential mortgage-backed securities
5,282

 
10.6
%
 
5,576

 
10.2
%
Commercial mortgage-backed securities
3,892

 
7.8
%
 
4,090

 
7.5
%
Other asset-backed securities
2,415

 
4.8
%
 
2,438

 
4.5
%
Total fixed maturities, including securities pledged
$
49,903

 
100.0
%
 
$
54,453

 
100.0
%
(1) Primarily U.S. dollar denominated.

 
December 31, 2018
($ in millions)
Amortized Cost
 
% of Total
 
Fair Value
 
% of Total
Fixed maturities:
 
 
 
 
 
 
 
U.S. Treasuries
$
1,937

 
3.9
%
 
$
2,295

 
4.5
%
U.S. Government agencies and authorities
204

 
0.4
%
 
242

 
0.5
%
State, municipalities and political subdivisions
1,652

 
3.3
%
 
1,659

 
3.2
%
U.S. corporate public securities
19,210

 
38.4
%
 
19,848

 
38.7
%
U.S. corporate private securities
6,264

 
12.5
%
 
6,232

 
12.2
%
Foreign corporate public securities and foreign governments(1)
5,429

 
10.9
%
 
5,455

 
10.7
%
Foreign corporate private securities(1)
5,176

 
10.3
%
 
5,094

 
10.0
%
Residential mortgage-backed securities
4,616

 
9.2
%
 
4,803

 
9.4
%
Commercial mortgage-backed securities
3,438

 
6.9
%
 
3,416

 
6.7
%
Other asset-backed securities
2,095

 
4.2
%
 
2,077

 
4.1
%
Total fixed maturities, including securities pledged
$
50,021

 
100.0
%
 
$
51,121

 
100.0
%
(1)Primarily U.S. dollar denominated.

As of June 30, 2019, the average duration of our fixed maturities portfolio, including securities pledged, is between 7.5 and 8.0 years.

Fixed Maturities Credit Quality - Ratings

For information regarding our fixed maturities credit quality ratings, see the Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Consolidated Financial Statements in Part II, Item 7. of our Annual Report on Form 10-K.


 
129
 

The following tables present credit quality of fixed maturities, including securities pledged, using NAIC designations as of the dates indicated:
($ in millions)
June 30, 2019
NAIC Quality Designation
1
 
2
 
3
 
4
 
5
 
6
 
Total Fair Value
U.S. Treasuries
$
2,166

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
2,166

U.S. Government agencies and authorities
249

 
—

 
—

 
—

 
—

 
—

 
249

State, municipalities and political subdivisions
1,592

 
159

 
—

 
—

 
1

 
2

 
1,754

U.S. corporate public securities
9,643

 
9,778

 
798

 
179

 
12

 
—

 
20,410

U.S. corporate private securities
2,516

 
3,773

 
276

 
111

 
22

 
—

 
6,698

Foreign corporate public securities and foreign governments(1)
2,304

 
3,202

 
231

 
72

 
—

 
1

 
5,810

Foreign corporate private securities(1)
581

 
4,379

 
215

 
44

 
42

 
1

 
5,262

Residential mortgage-backed securities
5,380

 
96

 
34

 
4

 
30

 
32

 
5,576

Commercial mortgage-backed securities
3,951

 
139

 
—

 
—

 
—

 
—

 
4,090

Other asset-backed securities
2,128

 
222

 
23

 
4

 
59

 
2

 
2,438

Total fixed maturities
$
30,510

 
$
21,748

 
$
1,577

 
$
414

 
$
166

 
$
38

 
$
54,453

% of Fair Value
56.0
%
 
39.9
%
 
2.9
%
 
0.8
%
 
0.3
%
 
0.1
%
 
100.0
%
(1) Primarily U.S. dollar denominated.

 
130
 

($ in millions)
December 31, 2018
NAIC Quality Designation
1
 
2
 
3
 
4
 
5
 
6
 
Total Fair Value
U.S. Treasuries
$
2,295

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
2,295

U.S. Government agencies and authorities
242

 
—

 
—

 
—

 
—

 
—

 
242

State, municipalities and political subdivisions
1,524

 
133

 
—

 
—

 
—

 
2

 
1,659

U.S. corporate public securities
9,062

 
9,653

 
924

 
193

 
16

 
—

 
19,848

U.S. corporate private securities
2,510

 
3,376

 
149

 
175

 
19

 
3

 
6,232

Foreign corporate public securities and foreign governments(1)
2,265

 
2,804

 
331

 
52

 
1

 
2

 
5,455

Foreign corporate private securities(1)
693

 
3,984

 
301

 
73

 
42

 
1

 
5,094

Residential mortgage-backed securities
4,678

 
27

 
40

 
2

 
10

 
46

 
4,803

Commercial mortgage-backed securities
3,317

 
79

 
20

 
—

 
—

 
—

 
3,416

Other asset-backed securities
1,819

 
160

 
33

 
9

 
32

 
24

 
2,077

Total fixed maturities
$
28,405

 
$
20,216

 
$
1,798

 
$
504

 
$
120

 
$
78

 
$
51,121

% of Fair Value
55.6
%
 
39.5
%
 
3.5
%
 
1.0
%
 
0.2
%
 
0.2
%
 
100.0
%
(1)Primarily U.S. dollar denominated.


 
131
 

The following tables present credit quality of fixed maturities, including securities pledged, using NAIC acceptable rating organizations ("ARO") ratings as of the dates indicated:
($ in millions)
June 30, 2019
ARO Quality Ratings
AAA
 
AA
 
A
 
BBB
 
BB and Below
 
Total Fair Value
U.S. Treasuries
$
2,166

 
$
—

 
$
—

 
$
—

 
$
—

 
$
2,166

U.S. Government agencies and authorities
241

 
8

 
—

 
—

 
—

 
249

State, municipalities and political subdivisions
109

 
957

 
526

 
159

 
3

 
1,754

U.S. corporate public securities
224

 
1,287

 
8,113

 
9,791

 
995

 
20,410

U.S. corporate private securities
160

 
277

 
2,226

 
3,703

 
332

 
6,698

Foreign corporate public securities and foreign governments(1)
47

 
536

 
1,699

 
3,198

 
330

 
5,810

Foreign corporate private securities(1)
—

 
—

 
633

 
4,417

 
212

 
5,262

Residential mortgage-backed securities
3,912

 
124

 
124

 
525

 
891

 
5,576

Commercial mortgage-backed securities
2,064

 
359

 
855

 
654

 
158

 
4,090

Other asset-backed securities
832

 
277

 
879

 
227

 
223

 
2,438

Total fixed maturities
$
9,755

 
$
3,825

 
$
15,055

 
$
22,674

 
$
3,144

 
$
54,453

% of Fair Value
17.9
%
 
7.0
%
 
27.7
%
 
41.6
%
 
5.8
%
 
100.0
%
(1)Primarily U.S. dollar denominated.


 
132
 

($ in millions)
December 31, 2018
ARO Quality Ratings
AAA
 
AA
 
A
 
BBB
 
BB and Below
 
Total Fair Value
U.S. Treasuries
$
2,295

 
$
—

 
$
—

 
$
—

 
$
—

 
$
2,295

U.S. Government agencies and authorities
234

 
8

 
—

 
—

 
—

 
242

State, municipalities and political subdivisions
112

 
920

 
492

 
133

 
2

 
1,659

U.S. corporate public securities
220

 
1,118

 
7,684

 
9,739

 
1,087

 
19,848

U.S. corporate private securities
166

 
273

 
2,221

 
3,230

 
342

 
6,232

Foreign corporate public securities and foreign governments(1)
45

 
533

 
1,725

 
2,767

 
385

 
5,455

Foreign corporate private securities(1)
—

 
—

 
698

 
4,137

 
259

 
5,094

Residential mortgage-backed securities
3,394

 
74

 
64

 
188

 
1,083

 
4,803

Commercial mortgage-backed securities
1,822

 
390

 
596

 
447

 
161

 
3,416

Other asset-backed securities
824

 
210

 
633

 
185

 
225

 
2,077

Total fixed maturities
$
9,112

 
$
3,526

 
$
14,113

 
$
20,826

 
$
3,544

 
$
51,121

% of Fair Value
17.8
%
 
6.9
%
 
27.7
%
 
40.7
%
 
6.9
%
 
100.0
%
(1)Primarily U.S. dollar denominated.

Fixed maturities rated BB and below may have speculative characteristics and changes in economic conditions or other circumstances that are more likely to lead to a weakened capacity of the issuer to make principal and interest payments than is the case with higher rated fixed maturities.

Unrealized Capital Losses

Gross unrealized capital losses on fixed maturities, including securities pledged, decreased $883 million from $1,084 million to $201 million for the six months ended June 30, 2019. The decrease in gross unrealized capital losses was primarily due to declining interest rates and tightening credit spreads.

As of June 30, 2019 and December 31, 2018, we held one and three fixed maturities, respectively, with unrealized capital losses in excess of $10 million. As of June 30, 2019 and December 31, 2018, the unrealized capital losses on these fixed maturities equaled $16 million or 8.0% and $49 million or 4.5% of the total unrealized losses, respectively.

As of June 30, 2019, we held $4.2 billion of energy sector fixed maturity securities, constituting 7.7% of the total fixed maturities portfolio, with gross unrealized capital losses of $52 million, including one energy sector fixed maturity security with unrealized capital losses in excess of $10 million. The unrealized capital losses on this fixed maturity security equaled $16 million. As of June 30, 2019, our fixed maturity exposure to the energy sector is comprised of 93.0% investment grade securities.

As of December 31, 2018, we held $4.1 billion of energy sector fixed maturity securities, constituting 8.0% of the total fixed maturities portfolio, with gross unrealized capital losses of $143 million, including one energy sector fixed maturity security with unrealized capital losses in excess of $10 million. The unrealized capital losses on this fixed maturity security equaled $22 million. As of December 31, 2018, our fixed maturity exposure to the energy sector is comprised of 87.6% investment grade securities.


 
133
 

The following table presents the U.S. and foreign corporate securities within our energy holdings by sector as of the dates indicated:
($ in millions)
 
June 30, 2019
 
December 31, 2018
Sector Type
 
Amortized Cost
 
Fair Value
 
% Fair Value
 
Amortized Cost
 
Fair Value
 
% Fair Value
Midstream
 
$
1,491

 
$
1,683

 
40.4
%
 
$
1,545

 
$
1,596

 
39.0
%
Integrated Energy
 
662

 
753

 
18.1
%
 
817

 
837

 
20.5
%
Independent Energy
 
914

 
997

 
23.9
%
 
923

 
931

 
22.8
%
Oil Field Services
 
420

 
409

 
9.8
%
 
472

 
428

 
10.5
%
Refining
 
277

 
327

 
7.8
%
 
277

 
293

 
7.2
%
Total
 
$
3,764

 
$
4,169

 
100.0
%
 
$
4,034

 
$
4,085

 
100.0
%

See the Investments (excluding Consolidated Investment Entities) Note in our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for further information on unrealized capital losses.

CMO-B Portfolio

The following table presents fixed maturities balances held in the CMO-B portfolio by NAIC quality rating as of the dates indicated:
($ in millions)
 
June 30, 2019
 
December 31, 2018
NAIC Quality Designation
 
Amortized Cost
 
Fair Value
 
% Fair Value
 
Amortized Cost
 
Fair Value
 
% Fair Value
1
 
$
3,306

 
$
3,509

 
95.4
%
 
$
2,951

 
$
3,101

 
97.0
%
2
 
84

 
84

 
2.3
%
 
17

 
16

 
0.5
%
3
 
14

 
23

 
0.6
%
 
14

 
25

 
0.8
%
4
 
—

 
—

 
—
%
 
—

 
—

 
—
%
5
 
16

 
29

 
0.8
%
 
5

 
9

 
0.3
%
6
 
25

 
32

 
0.9
%
 
30

 
46

 
1.4
%
Total
 
$
3,445

 
$
3,677

 
100.0
%
 
$
3,017

 
$
3,197

 
100.0
%

For CMO securities where we elected the FVO, amortized cost represents the market values. For details on the NAIC designation methodology, see "Fixed Maturities Credit Quality-Ratings" in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7. of our Annual Report on Form 10-K.

The following table presents the notional amounts and fair values of interest rate derivatives used in our CMO-B portfolio as of the dates indicated:
 
June 30, 2019
 
December 31, 2018
($ in millions)
Notional
Amount  
 
Asset
Fair
Value  
 
Liability
Fair
Value  
 
Notional
Amount  
 
Asset
Fair
Value
 
Liability
Fair
Value  
Derivatives non-qualifying for hedge accounting:
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Contracts
$
14,899

 
$
62

 
$
236

 
$
15,081

 
$
32

 
$
80


The Company utilizes interest rate futures and interest rate swaps as a part of the CMO-B portfolio to hedge interest rate risk.


 
134
 

The following table presents our CMO-B fixed maturity securities balances and tranche type as of the dates indicated:
($ in millions)
 
June 30, 2019
 
December 31, 2018
Tranche Type
 
Amortized Cost
 
Fair Value
 
% Fair Value
 
Amortized Cost
 
Fair Value
 
% Fair Value
Inverse Floater
 
$
387

 
$
506

 
13.8
%
 
$
399

 
$
487

 
15.2
%
Interest Only (IO)
 
154

 
166

 
4.5
%
 
167

 
181

 
5.7
%
Inverse IO
 
1,550

 
1,635

 
44.4
%
 
1,335

 
1,393

 
43.5
%
Principal Only (PO)
 
249

 
254

 
6.9
%
 
249

 
252

 
7.9
%
Floater
 
15

 
15

 
0.4
%
 
16

 
16

 
0.5
%
Agency Credit Risk Transfer
 
1,088

 
1,098

 
29.9
%
 
849

 
865

 
27.1
%
Other
 
2

 
3

 
0.1
%
 
2

 
3

 
0.1
%
Total
 
$
3,445

 
$
3,677

 
100.0
%
 
$
3,017

 
$
3,197

 
100.0
%

During the six months ended June 30, 2019, the market value of our CMO-B portfolio increased primarily due to new purchase activity exceeding paydowns and maturities. Valuation of the securities within our CMO-B portfolio improved during the quarter benefited by mute prepayment risk resulting in continued positive relative performance for the strategy. Yields within the CMO-B portfolio continue to decline as higher yielding historical CMO-B assets paydown or mature and are replaced with lower yielding new assets.
 
The following table presents returns for our CMO-B portfolio for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Net investment income (loss)
$
111

 
$
118

 
$
220

 
$
232

Net realized capital gains (losses)(1)
(27
)
 
(92
)
 
(53
)
 
(186
)
Income (loss) from continuing operations before income taxes
$
84

 
$
26

 
$
167

 
$
46

(1)Net realized capital gains (losses) also include derivatives interest settlements, mark to market adjustments and realized gains (losses) on standalone derivatives contracts that are in the CMO-B portfolio.

In defining the Adjusted operating earnings before income taxes for our CMO-B portfolio, certain recharacterizations are recognized. The net coupon settlement on interest rate swaps hedging CMO-B securities that is included in Net realized capital gains (losses) is reflected as Adjusted operating earnings before income taxes in the table below. In addition, the premium amortization and change in fair value for securities designated under the FVO are included in Net realized capital gains (losses), whereas the coupon for these securities is included in Net investment income. In order to present the economics of these fair value securities in a similar manner to those of an available for sale security, the premium amortization is reclassified from Net realized capital gains (losses) to Adjusted operating earnings before income taxes.

After adjusting for the two items referenced immediately above, the following table presents a reconciliation of Income (loss) from continuing operations before income taxes from our CMO-B portfolio to Adjusted operating earnings before income taxes from our CMO-B portfolio for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Income (loss) from continuing operations before income taxes
$
84

 
$
26

 
$
167

 
$
46

Realized gains/(losses) including OTTI
—

 
(3
)
 
(1
)
 
(5
)
Fair value adjustments
(32
)
 
38

 
(61
)
 
76

Total adjustments to income (loss) from continuing operations
(32
)
 
35

 
(62
)
 
71

Adjusted operating earnings before income taxes
$
52

 
$
61

 
$
105

 
$
117



 
135
 

See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7. of our Annual Report on Form 10-K for information on our CMO-B portfolio.

Structured Securities

Residential mortgage-backed securities

The following tables present our residential mortgage-backed securities as of June 30, 2019 and December 31, 2018:
 
June 30, 2019
($ in millions)
Amortized Cost
 
Gross Unrealized Capital Gains
 
Gross Unrealized Capital Losses
 
Embedded Derivatives
 
Fair Value
Prime Agency
$
3,113

 
$
194

 
$
6

 
$
16

 
$
3,317

Prime Non-Agency
1,978

 
70

 
12

 
4

 
2,040

Alt-A
165

 
21

 
—

 
9

 
195

Sub-Prime(1)
140

 
26

 
1

 
—

 
165

Total RMBS
$
5,396

 
$
311

 
$
19

 
$
29

 
$
5,717

(1) Includes subprime other asset backed securities.
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
($ in millions)
Amortized Cost
 
Gross Unrealized Capital Gains
 
Gross Unrealized Capital Losses
 
Embedded Derivatives
 
Fair Value
Prime Agency
$
2,916

 
$
138

 
$
34

 
$
14

 
$
3,034

Prime Non-Agency
1,509

 
56

 
17

 
3

 
1,551

Alt-A
164

 
19

 
—

 
8

 
191

Sub-Prime(1)
151

 
26

 
1

 
—

 
176

Total RMBS
$
4,740

 
$
239

 
$
52

 
$
25

 
$
4,952

(1) Includes subprime other asset backed securities.
 
 
 
 
 
 
 
 
 

 
136
 

Commercial Mortgage-backed securities

The following tables present our commercial mortgage-backed securities as of June 30, 2019 and December 31, 2018:

 
June 30, 2019
($ in millions)
AAA
AA
A
BBB
BB and Below
Total
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
2013 and prior
$
398

$
429

$
32

$
33

$
90

$
92

$
127

$
135

$
4

$
5

$
651

$
694

2014
347

378

30

31

62

64

25

27

42

42

506

542

2015
328

341

151

156

104

108

129

134

38

39

750

778

2016
95

97

16

17

35

37

63

66

8

8

217

225

2017
275

280

77

78

137

142

56

58

39

42

584

600

2018
277

306

33

34

268

277

108

111

22

22

708

750

2019
214

233

10

10

131

135

121

123

—

—

476

501

Total CMBS
$
1,934

$
2,064

$
349

$
359

$
827

$
855

$
629

$
654

$
153

$
158

$
3,892

$
4,090

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
($ in millions)
AAA
AA
A
BBB
BB and Below
Total
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
2013 and prior
$
451

$
462

$
65

$
65

$
81

$
80

$
88

$
93

$
22

$
22

$
707

$
722

2014
368

373

40

39

43

42

29

29

37

37

517

520

2015
382

377

148

148

66

66

123

122

30

30

749

743

2016
119

114

18

18

38

37

53

52

8

7

236

228

2017
343

326

91

90

97

95

45

44

34

34

610

589

2018
171

170

30

30

278

276

109

107

31

31

619

614

2019
—

—

—

—

—

—

—

—

—

—

—

—

Total CMBS
$
1,834

$
1,822

$
392

$
390

$
603

$
596

$
447

$
447

$
162

$
161

$
3,438

$
3,416

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2019, 96.6% and 3.4% of CMBS investments were designated as NAIC-1 and NAIC-2, respectively. As of December 31, 2018, 97.1% and 2.3% of CMBS investments were designated as NAIC-1 and NAIC-2, respectively.



 
137
 

Other Asset-backed Securities

The following tables present our other asset-backed securities as of June 30, 2019 and December 31, 2018:
 
June 30, 2019
($ in millions)
AAA
AA
A
BBB
BB and Below
Total
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Collateralized Obligation
$
683

$
679

$
169

$
167

$
655

$
647

$
39

$
38

$
87

$
83

$
1,633

$
1,614

Auto-Loans
45

46

10

10

9

9

—

—

—

—

64

65

Student Loans
14

14

94

97

105

108

—

—

—

—

213

219

Credit Card loans
23

23

—

—

—

—

—

—

—

—

23

23

Other Loans
67

69

2

2

111

113

184

187

4

5

368

376

Total Other ABS(1)
$
832

$
831

$
275

$
276

$
880

$
877

$
223

$
225

$
91

$
88

$
2,301

$
2,297

(1) Excludes subprime other asset backed securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
($ in millions)
AAA
AA
A
BBB
BB and Below
Total
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Collateralized Obligation
$
708

$
699

$
119

$
116

$
444

$
425

$
29

$
27

$
83

$
75

$
1,383

$
1,342

Auto-Loans
22

21

10

10

9

9

—

—

—

—

41

40

Student Loans
14

14

80

81

99

98

—

—

—

—

193

193

Credit Card loans
21

21

—

—

—

—

—

—

—

—

21

21

Other Loans
68

68

2

2

99

99

160

158

5

5

334

332

Total Other ABS(1)
$
833

$
823

$
211

$
209

$
651

$
631

$
189

$
185

$
88

$
80

$
1,972

$
1,928

(1) Excludes subprime other asset backed securities.
 
 
 
 
 
 
 
 
 
 

As of June 30, 2019, 87.3% and 9.1% of Other ABS investments were designated as NAIC-1 and NAIC-2, respectively. As of December 31, 2018, 87.0% and 8.0% of Other ABS investments were designated as NAIC-1 and NAIC-2, respectively.

Mortgage Loans on Real Estate

We rate commercial mortgages to quantify the level of risk. We place those loans with higher risk on a watch list and closely monitor these loans for collateral deficiency or other credit events that may lead to a potential loss of principal and/or interest. If we determine the value of any mortgage loan to be OTTI (i.e., when it is probable that we will be unable to collect on amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to either the present value of expected cash flows from the loan, discounted at the loan's effective interest rate or fair value of the collateral. For those mortgages that are determined to require foreclosure, the carrying value is reduced to the fair value of the underlying collateral, net of estimated costs to obtain and sell at the point of foreclosure. The carrying value of the impaired loans is reduced by establishing an other-than-temporary write-down recorded in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.

Loan-to-value ("LTV") and debt service coverage ("DSC") ratios are measures commonly used to assess the risk and quality of commercial mortgage loans. The LTV ratio, calculated at time of origination, is expressed as a percentage of the amount of the loan relative to the value of the underlying property. An LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the value of the underlying collateral. The DSC ratio, based upon the most recently received financial statements, is expressed as a percentage of the amount of a property's Net income (loss) to its debt service payments. A DSC ratio of less than 1.0 indicates that property's operations do not generate sufficient income to cover debt payments. These ratios are utilized as part of the review process described above.

 
138
 


As of June 30, 2019, our mortgage loans on real estate portfolio had a weighted average DSC of 2.2 times and a weighted average LTV ratio of 61.6%. As of December 31, 2018, our mortgage loans on real estate portfolio had a weighted average DSC of 2.2 times, and a weighted average LTV ratio of 61.4%. See the Investments (excluding Consolidated Investment Entities) Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for further information on mortgage loans on real estate.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other-Than-Temporary Impairments

We evaluate available-for-sale fixed maturities for impairment on a regular basis. The assessment of whether impairments have occurred is based on a case-by-case evaluation of the underlying reasons for the decline in estimated fair value. See the Business, Basis of Presentation and Significant Accounting Policies Note to our Consolidated Financial Statements in Part II, Item 8. in our Annual Report on Form 10-K for the policy used to evaluate whether the investments are other-than-temporarily impaired.

See the Investments (excluding Consolidated Investment Entities) Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for further information on OTTI.

Derivatives
 
We use derivatives for a variety of hedging purposes. We also have embedded derivatives within fixed maturities instruments and certain product features. See the Business, Basis of Presentation and Significant Accounting Policies Note in our Consolidated Financial Statements in Part II, Item 8. of our Annual Report on Form 10-K for further information.

European Exposures

We quantify and allocate our exposure to the region by attempting to identify aspects of the region or country risk to which we are exposed. Among the factors we consider are the nationality of the issuer, the nationality of the issuer's ultimate parent, the corporate and economic relationship between the issuer and its parent, as well as the political, legal and economic environment in which each functions. By undertaking this assessment, we believe that we develop a more accurate assessment of the actual geographic risk, with a more integrated understanding of contributing factors to the full risk profile of the issuer.

In the normal course of our ongoing risk and portfolio management process, we closely monitor compliance with a credit limit hierarchy designed to minimize overly concentrated risk exposures by geography, sector and issuer. This framework takes into account various factors such as internal and external ratings, capital efficiency and liquidity and is overseen by a combination of Investment and Corporate Risk Management, as well as insurance portfolio managers focused specifically on managing the investment risk embedded in our portfolio.

While financial conditions in Europe have broadly improved, the possibility of capital market volatility spreading through a highly integrated and interdependent banking system remains. Despite signs of continuous improvement in the region, we continue to closely monitor our exposure to the region.

As of June 30, 2019, the Company's total European exposure had an amortized cost and fair value of $5,046 million and $5,415 million, respectively. European exposure with a primary focus on Greece, Ireland, Italy, Portugal and Spain (which we refer to as "peripheral Europe") amounts to $593 million, which includes non-financial institutions exposure in Ireland of $194 million, in Italy of $192 million, in Portugal of $10 million and in Spain of $131 million. We also had financial institutions exposure in Ireland of $26 million, in Italy of $9 million and in Spain of $31 million. We did not have any exposure to Greece.

Among the remaining $4,822 million of total non-peripheral European exposure, we had a portfolio of credit-related assets similarly diversified by country and sector across developed and developing Europe. As of June 30, 2019, our non-peripheral sovereign exposure was $187 million, which consisted of fixed maturities and derivative assets. We also had $783 million in net exposure to non-peripheral financial institutions, with a concentration in Switzerland of $170 million and the United Kingdom of $391 million. The balance of $3,852 million was invested across non-peripheral, non-financial institutions.

Some of the major country level exposures were in the United Kingdom of $2,363 million, in The Netherlands of $508 million, in Belgium of $288 million, in France of $388 million, in Germany of $277 million, in Switzerland of $378 million, and in Russia of $98 million. We believe the primary risk results from market value fluctuations resulting from spread volatility and the secondary risk is default risk, dependent upon the strength of continued recovery of economic conditions in Europe.


 
139
 

Consolidated Investment Entities

We provide investment management services to, and have transactions with, various collateralized loan obligations ("CLO entities"), private equity funds, hedge funds, registered investment companies, insurance entities, securitizations and other investment entities in the normal course of business. In certain instances, we serve as the investment manager, making day-to-day investment decisions concerning the assets of these entities. These entities are considered to be either variable interest entities ("VIEs") or voting interest entities ("VOEs"), and we evaluate our involvement with each entity to determine whether consolidation is required.

Certain investment entities are consolidated under consolidation guidance. We consolidate certain entities under the VIE guidance when it is determined that we are the primary beneficiary. We consolidate certain entities under the VOE guidance when we act as the controlling general partner and the limited partners have no substantive rights to impact ongoing governance and operating activities of the entity, or when we otherwise have control through voting rights. See Consolidation and Noncontrolling Interests in the Business, Basis of Presentation and Significant Accounting Policies Note to our Consolidated Financial Statements in Part II, Item 8. of our Annual Report on Form 10-K.

We have no right to the benefits from, nor do we bear the risks associated with these investments beyond our direct debt or equity investments in and management fees generated from these entities. Such direct investments amounted to approximately $341 million and $354 million as of June 30, 2019 and December 31, 2018, respectively. If we were to liquidate, the assets held by consolidated investment entities would not be available to our general creditors as a result of the liquidation.

Fair Value Measurement

Upon consolidation of CLO entities, we elected to apply the FVO for financial assets and financial liabilities held by these entities and have continued to measure these assets (primarily corporate loans) and liabilities (debt obligations issued by CLO entities) at fair value in subsequent periods. We have elected the FVO to more closely align the accounting with the economics of the transactions and allow us to more effectively reflect changes in the fair value of CLO assets with a commensurate change in the fair value of CLO liabilities.
    
Investments held by consolidated private equity funds and hedge funds are reported in our Condensed Consolidated Financial Statements. Changes in the fair value of consolidated investment entities are recorded as a separate line item within Income (loss) related to consolidated investment entities in our Condensed Consolidated Financial Statements.

The methodology for measuring the fair value and fair value hierarchy classification of financial assets and liabilities of consolidated investment entities is consistent with the methodology and fair value hierarchy rules that we apply to our investment portfolio. See Fair Value Measurement in the Business, Basis of Presentation and Significant Accounting Policies Note to our Consolidated Financial Statements in Part II, Item 8. of our Annual Report on Form 10-K.

Nonconsolidated VIEs

We also hold variable interest in certain CLO entities that we do not consolidate because we have determined that we are not the primary beneficiary. With these CLO entities, we serve as the investment manager and receive investment management fees and contingent performance fees. Generally, we do not hold any interest in the nonconsolidated CLO entities, but if we do, such ownership has been deemed to be insignificant. We have not provided and are not obligated to provide any financial or other support to these entities.

We manage or hold investments in certain private equity funds and hedge funds. With these entities, we serve as the investment manager and are entitled to receive investment management fees and contingent performance fees that are generally expected to be insignificant. Although we have the power to direct the activities that significantly impact the economic performance of the funds, we do not hold a significant variable interest in any of these funds and, as such, do not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity. Accordingly, we are not considered the primary beneficiary and did not consolidate any of these investment funds.

In addition, we do not consolidate funds in which our involvement takes the form of a limited partner interest and is restricted to a role of a passive investor, as a limited partner's interest does not provide us with any substantive kick-out or participating rights, which would overcome the presumption of control by the general partner. See the Consolidated Investment Entities Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for more information.


 
140
 

Securitizations

We invest in various tranches of securitization entities, including RMBS, CMBS and ABS. Through our investments, we are not obligated to provide any financial or other support to these entities. Each of the RMBS, CMBS and ABS entities are thinly capitalized by design and considered VIEs. Our involvement with these entities is limited to that of a passive investor. We have no unilateral right to appoint or remove the servicer, special servicer or investment manager, which are generally viewed to have the power to direct the activities that most significantly impact the securitization entities' economic performance, in any of these entities, nor do we function in any of these roles. We, through our investments or other arrangements, do not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity. Therefore, we are not the primary beneficiary and do not consolidate any of the RMBS, CMBS and ABS entities in which we hold investments. These investments are accounted for as investments available-for-sale as described in the Fair Value Measurements (excluding Consolidated Investment Entities) Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q and unrealized capital gains (losses) on these securities are recorded directly in AOCI, except for certain RMBS which are accounted for under the FVO whose change in fair value is reflected in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations. Our maximum exposure to loss on these structured investments is limited to the amount of our investment. Refer to the Investments (excluding Consolidated Investment Entities) Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q for details regarding the carrying amounts and classifications of these assets.

Legislative and Regulatory Developments

In April 2018, the SEC approved a new rule, Regulation Best Interest ("Regulation BI") and related forms and interpretations. Among other things, Regulation BI will apply a heightened "best interest" standard to broker-dealers and their associated persons, including our retail broker-dealer, Voya Financial Advisors, when they make securities investment recommendations to retail customers. Compliance with Regulation BI is required beginning June 30, 2020. We do not believe Regulation BI will have a material impact on us. We anticipate that the Department of Labor, and possibly other state and federal regulators, will follow with their own rules applicable to investment recommendations relating to other separate or overlapping investment products and accounts, such as insurance products and retirement accounts. If these additional rules are more onerous than Regulation BI, or are not coordinated with Regulation BI, the impact on us will be more substantial. Until we see the text of any such rule, it will be too early to assess that impact.

Item 3.        Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk that our consolidated financial position and results of operations will be affected by fluctuations in the value of financial instruments. We have significant holdings in financial instruments and are naturally exposed to a variety of market risks. The main market risks we are exposed to include interest rate risk, equity market price risk and credit risk. There have been no material changes in our exposure to these market risks since December 31, 2018. For further details on these market risks, see Quantitative and Qualitative Disclosures About Market Risk in Part II, Item 7A. in our Annual Report on Form 10-K.


Item 4.        Controls and Procedures

Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended ("Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's current disclosure controls and procedures are effective in ensuring that material information relating to the Company required to be disclosed in the Company's periodic SEC filings is made known to them in a timely manner.

Changes in Internal Control Over Financial Reporting

There were no changes to the Company's internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 
141
 

PART II.     OTHER INFORMATION

Item 1.        Legal Proceedings

See the Commitments and Contingencies Note in our Condensed Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.

Item 1A.    Risk Factors

For a discussion of the Company’s potential risks and uncertainties, please see Risk Factors in Part I, Item IA. of our Annual Report on Form 10-K for the year ended December 31, 2018 (the "Annual Report on Form 10-K") filed with the SEC. In addition, please see Management’s Discussion and Analysis of Financial Condition and Results of Operations-Trends and Uncertainties in Part I, Item 2. of this Quarterly Report on Form 10-Q.

Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer

The following table summarizes Voya Financial, Inc.’s repurchases of its common stock for the three months ended June 30, 2019:
Period
 
Total Number of Shares Purchased(1)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2)
 
 
 
 
 
 
 
 
(in millions) 
April 1, 2019 - April 30, 2019
 
3,932,959

 
$
52.33

(3)(4) 
3,884,218

 
$
47

May 1, 2019 - May 31, 2019
 
1,001,908

 
52.88

(4) 
879,199

 
500

June 1, 2019 - June 30, 2019
 
3,042,893

 
54.65

(5) 
2,963,512

 
340

Total
 
7,977,760

 
$
53.28

 
7,726,929

 
N/A

(1) In connection with the exercise or vesting of equity-based compensation awards, employees may remit to Voya Financial, Inc., or Voya Financial, Inc. may withhold into treasury stock, shares of common stock in respect to tax withholding obligations and option exercise cost associated with such exercise or vesting. For the three months ended June 30, 2019, there was an increase of 250,831 Treasury shares in connection with such withholding activities.
(2) On May 2, 2019, the Board of Directors provided share repurchase authorization, increasing the aggregate of our common stock authorized for repurchase by $500. The current share repurchase authorization expires on June 30, 2020 (unless extended), and does not obligate the Company to purchase any shares. The authorization for the share repurchase program may be terminated, increased or decreased by the Board of Directors at any time.
(3) On January 3, 2019, the Company entered into a share repurchase agreement with a third-party financial institution to repurchase $250 million of the Company's common stock. This arrangement closed on April 4, 2019, and additional 290,765 shares were delivered. The total number of shares repurchased under this share repurchase agreement was 5,350,214 at an average price per share upon settlement of $46.73.
(4) On April 9, 2019, the Company entered into a share repurchase agreement with a third-party financial institution to repurchase $236 million of the Company's common stock. This arrangement closed on June 4, 2019, and additional 879,199 shares were delivered. The total number of shares repurchased under this share repurchase agreement was 4,472,652 at an average price per share upon settlement of $52.77.
(5) On June 19, 2019, the Company entered into a share repurchase agreement with a third-party financial institution to repurchase $200 million of the Company's common stock. Pursuant to the agreement, the Company received initial delivery of 2,963,512 shares. This arrangement closed on August 6, 2019 and an additional 695,566 shares were delivered. The total number of shares repurchased under this share repurchase agreement was 3,659,078 at an average price per share upon settlement of $54.66.

Item 6.        Exhibits

See Exhibit Index on page 143 hereof.

 
142
 

Voya Financial, Inc.
Exhibit Index
Exhibit No.
 
Description of Exhibit
10.1+*
 
Voya Financial, Inc. 2019 Omnibus Employee Incentive Plan
31.1+
 
Rule 13a-14(a)/15d-14(a) Certification of Rodney O. Martin, Jr. Chief Executive Officer (included as Exhibit 31.1 to Form 10-Q)
31.2+
 
Rule 13a-14(a)/15d-14(a) Certification of Michael S. Smith, Chief Financial Officer (included as Exhibit 31.2 to Form 10-Q)
32.1+
 
Section 1350 Certification of Rodney O. Martin, Jr. Chief Executive Officer (included as Exhibit 32.1 to Form 10-Q)
32.2+
 
Section 1350 Certification of Michael S. Smith, Chief Financial Officer (included as Exhibit 32.2 to Form 10-Q)
101.INS
 
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH+
 
Inline XBRL Taxonomy Extension Schema
101.CAL+
 
Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF+
 
Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB+
 
Inline XBRL Taxonomy Extension Label Linkbase
101.PRE+
 
Inline XBRL Taxonomy Extension Presentation Linkbase
104
 
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

+ Filed herewith.
* This exhibit is a management contract or a compensatory plan or arrangement.

 
143
 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


August 8, 2019
Voya Financial, Inc.
(Date)
(Registrant)
 
 
 
 
 
 
 
By: /s/
Michael S. Smith
 
 
Michael S. Smith
 
 
Executive Vice President and
 
 
Chief Financial Officer
 
 
(Duly Authorized Officer and Principal Financial Officer)


 
144
 

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