Voya Prunes Annuity Guarantee Risk

Voya Financial has been offering some holders of its old variable annuities incentives to give up their contracts, and it may make similar offers in the future.

Michael Smith, the New York-based company’s chief financial officer, talked about the offers Wednesday, during a conference call the company held with securities analysts.

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About 13,000 contract holders, or one-quarter of contract holders who received the offers, surrendered their contracts, and that helped reduce Voya’s exposure to annuity guarantee risk by about $300 million, Smith said.

“It was a meaningful reduction in the net amount of risk,” Smith said. “We are very pleased with the take-up rate, and we look forward to seeing what other opportunities we can take.”

Voya held the conference call to talk about its first-quarter earnings.

The company reported a $143 million net loss for the first quarter on $2.2 billion in revenue, compared with $192 million in income on $3 billion in revenue for the first quarter of 2016.

Closed Block Variable Annuity Unit

Years ago, when interest rates were higher, Voya wrote retail variable annuities with high guaranteed minimum income benefits. In 2009, the company stopped selling retail variable annuity products with substantial guarantees. The company put the high-guarantee contracts it had written in run-off mode, in the closed block variable annuity unit.

Voya has been using derivatives to run the closed block variable annuity unit. When the company gave some holders of closed-block annuities incentives to surrender their policies, the surrenders led to a $387 million drop in the fair market value of the derivatives associated with the policies.

The first-quarter net loss was mainly the result of the drop in the fair market value of the derivatives, Voya says.

Voya also reported operating earnings figures that exclude the effects of the $387 million change in derivatives value and other unusual gains and charges.

Operating income increased to $157 million in the latest quarter, from $115 million in the first quarter of 2016.

Continuing Operations

The Voya unit that sells the company’s new annuities increased its operating earnings to $64 million in the first quarter, from $51 million in the year-earlier quarter.

Carolyn Johnson (Photo: Voya)

Individual life operating earnings fell to $32 million, from $41 million.

Companywide sales commission payments increased to $249 million, from $245 million.