KEY RATING DRIVERS
Fitch considers the aggregate capitalization of Voya, including captives, to be strong for the current rating level. The estimated consolidated risk-based capital (RBC) ratio of the company's U.S. insurance subsidiaries was 501% at
Statutory dividend capacity has improved in 2014 after Voya transferred amounts out of paid-in capital into unassigned funds in 2013, thereby creating a positive earned surplus account and ordinary statutory dividend capacity. Fitch expects statutory interest coverage to be approximately 4.5x in 2014, up from 1.4x in 2013. This is in excess of Fitch's median ratio guideline for an 'A' rated company of 3x. During the second quarter of 2014, the insurance subsidiaries paid a
Voya's ratings also reflect the large scale and solid business profile in retirement and individual life markets, improved operating performance within its core businesses, and conservative investment portfolio.
Fitch's key rating concerns include the challenges related to the run-off of Voya's large closed-block VA book, particularly in a tail-risk scenario. Fitch notes as positive that the company has utilized dynamic and macro hedging to mitigate the statutory capital impact associated with changes in the equity markets and/or interest rates. However, policyholder behavior assumptions cannot be hedged and therefore remain a risk. At
The ratings also recognize the company's above-average reliance on the capital markets for excess reserve financing. Voya's total financing and commitments (TFC) ratio of 0.9x is high compared to other peers and is driven by funding for XXX and AXXX reserve financing, and to a much lesser extent, securities lending agreements. Voya's recently announced reinsurance transaction with Reinsurance Group of America, Inc. will improve the TFC ratio going forward since Voya will unwind one of its captives and the associated redundant reserve financing.
During the first half of 2014, Voya reported an ongoing business adjusted operating return on equity (ROE) of 10.9%, up from 10.3% in 2013 and 8.3% in 2012. Management remains committed to improving this metric to 12% - 13% by 2016. Fitch believes Voya's scalable business model is positioned well to participate in the long-term growth of the retirement savings market. However, Fitch acknowledges that is a highly competitive segment of the market.
ING Groep N.V. (ING Group) has reduced its stake in Voya to approximately 32% following the closing of its
The key rating triggers that could result in an upgrade include:
--Continued growth in operating profitability on both a GAAP and statutory basis;
--Sustained maintenance of GAAP adjusted operating earnings-based interest coverage of more than 8x and statutory interest coverage of more than 4x;
--Reported RBC above 450%, and financial leverage below 25%;
--Private sale of closed-block book at good value with boost to capitalization and reduction in volatility and risk.
The key rating triggers that could result in a downgrade include:
--A decline in reported RBC below 375%;
--Financial leverage exceeding 30%;
--Significant adverse operating results;
--Further material reserve charges required in its insurance/variable annuity books or a significant weakening of distribution channel or scale advantages.
Fitch has affirmed the following ratings with a Positive Outlook:
Voya Financial, Inc.
--Long-term IDR at 'BBB';
--5.5% senior notes due
--2.9% senior notes due
--5.7% senior notes due
--5.65% fixed-to-floating junior subordinated notes due
Voya Retirement Insurance and Annuity Company
ReliaStar Life Insurance Company of
Security Life of
--IFS at 'A-'.
--Long-term IDR at 'BBB'.
--8.424% Trust Preferred Stock at 'BB'.
Additional information is available at 'www.fitchratings.com'.
--'Insurance Rating Methodology' (
Insurance Rating Methodology -- Effective
Source: Fitch Ratings
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