10-Q 1 q22018voyafinancial10-q.htm 10-Q Document


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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
——————————————————————
FORM 10-Q
(Mark One)
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018

OR
o
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)
Securities registered pursuant to Section 12(b) of the Act:


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   x     No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).   Yes   x     No   o


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. (Check one):
Large accelerated filer    ý
Accelerated filer    o
Non-accelerated filer     o
Smaller reporting company     o
(Do not check if a smaller reporting company)
Emerging growth company     o
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. o

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

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 July 27, 2018, 160,570,829 shares of Common Stock, $0.01 par value, were outstanding.
 

 
1
 



Voya Financial, Inc.
Form 10-Q for the period ended June 30, 2018

INDEX
 
 
PAGE
PART I.
FINANCIAL INFORMATION (UNAUDITED)
 
 
 
 
Item 1.
Financial Statements:
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 
 
 
 
 


 
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 Venerable (as defined below), 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" and "Business-Closed Blocks-CBVA" in the Annual Report on Form 10-K for the year ended December 31, 2017 (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, 2018 (Unaudited) and December 31, 2017
(In millions, except share and per share data)
 
June 30,
2018
 
December 31,
2017
Assets:
 
 
 
Investments:
 
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost of $44,386 as of 2018 and $44,366 as of 2017)
$
46,104

 
$
48,329

Fixed maturities, at fair value using the fair value option
2,983

 
3,018

Equity securities, at fair value (cost of $320 as of 2018 and $353 as of 2017)
385

 
380

Short-term investments
102

 
471

Mortgage loans on real estate, net of valuation allowance of $2 as of 2018 and $3 as of 2017
8,904

 
8,686

Policy loans
1,849

 
1,888

Limited partnerships/corporations
1,070

 
784

Derivatives
376

 
397

Other investments
90

 
47

Securities pledged (amortized cost of $1,882 as of 2018 and $1,823 as of 2017)
1,994

 
2,087

Total investments
63,857

 
66,087

Cash and cash equivalents
1,534

 
1,218

Short-term investments under securities loan agreements, including collateral delivered
1,679

 
1,626

Accrued investment income
674

 
667

Premium receivable and reinsurance recoverable
7,617

 
7,632

Deferred policy acquisition costs and Value of business acquired
4,008

 
3,374

Current income taxes
23

 
4

Deferred income taxes
1,266

 
781

Other assets
1,152

 
1,310

Assets related to consolidated investment entities:
 
 
 
Limited partnerships/corporations, at fair value
1,731

 
1,795

Cash and cash equivalents
86

 
217

Corporate loans, at fair value using the fair value option
458

 
1,089

Other assets
13

 
75

Assets held in separate accounts
78,642

 
77,605

Assets held for sale

 
59,052

Total assets
$
162,740

 
$
222,532





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


Voya Financial, Inc.
Condensed Consolidated Balance Sheets
June 30, 2018 (Unaudited) and December 31, 2017
(In millions, except share and per share data)

 
June 30,
2018
 
December 31,
2017
Liabilities and Shareholders' Equity:
 
 
 
Future policy benefits
$
15,191

 
$
15,647

Contract owner account balances
50,789

 
50,158

Payables under securities loan agreement, including collateral held
1,957

 
1,866

Short-term debt
1

 
337

Long-term debt
3,458

 
3,123

Derivatives
117

 
149

Pension and other postretirement provisions
527

 
550

Other liabilities
1,695

 
2,076

Liabilities related to consolidated investment entities:
 
 
 
Collateralized loan obligations notes, at fair value using the fair value option
491

 
1,047

Other liabilities
630

 
658

Liabilities related to separate accounts
78,642

 
77,605

Liabilities held for sale

 
58,277

Total liabilities
153,498

 
211,493

 
 
 
 
Commitments and Contingencies (Note 13)


 


 
 
 
 
Shareholders' equity:
 
 
 
Common stock ($0.01 par value per share; 900,000,000 shares authorized; 272,008,619 and 270,078,294 shares issued as of 2018 and 2017, respectively; 162,027,329 and 171,982,673 shares outstanding as of 2018 and 2017, respectively)
3

 
3

Treasury stock (at cost; 109,981,290 and 98,095,621 shares as of 2018 and 2017, respectively)
(4,442
)
 
(3,827
)
Additional paid-in capital
23,951

 
23,821

Accumulated other comprehensive income (loss)
943

 
2,731

Retained earnings (deficit):
 
 
 
Appropriated-consolidated investment entities

 

Unappropriated
(11,995
)
 
(12,719
)
Total Voya Financial, Inc. shareholders' equity
8,460

 
10,009

Noncontrolling interest
782

 
1,030

Total shareholders' equity
9,242

 
11,039

Total liabilities and shareholders' equity
$
162,740

 
$
222,532


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, 2018 and 2017 (Unaudited)
(In millions, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Net investment income
$
813

 
$
832

 
$
1,636

 
$
1,675

Fee income
660

 
639

 
1,336

 
1,276

Premiums
533

 
526

 
1,072

 
1,073

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

 
(1
)
 
(14
)
 
(2
)
Less: Portion of other-than-temporary impairments recognized in Other comprehensive income (loss)
1

 

 
1

 
1

Net other-than-temporary impairments recognized in earnings
(1
)
 
(1
)
 
(15
)
 
(3
)
Other net realized capital gains (losses)
(119
)
 
(24
)
 
(286
)
 
(108
)
Total net realized capital gains (losses)
(120
)
 
(25
)
 
(301
)
 
(111
)
Other revenue
101

 
90

 
200

 
179

Income (loss) related to consolidated investment entities:
 
 
 
 
 
 
 
Net investment income
126

 
129

 
137

 
156

Total revenues
2,113

 
2,191

 
4,080

 
4,248

Benefits and expenses:
 
 
 
 
 
 
 
Policyholder benefits
706

 
733

 
1,414

 
1,483

Interest credited to contract owner account balances
382

 
403

 
764

 
802

Operating expenses
645

 
630

 
1,345

 
1,298

Net amortization of Deferred policy acquisition costs and Value of business acquired
74

 
195

 
174

 
259

Interest expense
46

 
45

 
95

 
91

Operating expenses related to consolidated investment entities:
 
 
 
 
 
 
 
Interest expense
16

 
27

 
22

 
44

Other expense
3

 
3

 
4

 
3

Total benefits and expenses
1,872

 
2,036

 
3,818

 
3,980

Income (loss) from continuing operations before income taxes
241

 
155

 
262

 
268

Income tax expense (benefit)
45

 

 
49

 
93

Income (loss) from continuing operations
196

 
155

 
213

 
175

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

 
64

 
457

 
(98
)
Net income (loss)
224

 
219

 
670

 
77

Less: Net income (loss) attributable to noncontrolling interest
58

 
52

 
58

 
53

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

 
$
167

 
$
612

 
$
24

 
 
 
 
 
 
 
 
Net income (loss) per common share:
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Income (loss) from continuing operations available to Voya Financial, Inc.'s common shareholders
$
0.83

 
$
0.56

 
$
0.91

 
$
0.65

Income (loss) available to Voya Financial, Inc.'s common shareholders
$
1.00

 
$
0.90

 
$
3.60

 
$
0.13

 
 
 
 
 
 
 
 
Diluted
 
 
 
 
 
 
 
Income (loss) from continuing operations available to Voya Financial, Inc.'s common shareholders
$
0.80

 
$
0.55

 
$
0.88

 
$
0.63

Income (loss) available to Voya Financial, Inc.'s common shareholders
$
0.96

 
$
0.89

 
$
3.48

 
$
0.12

 
 
 
 
 
 
 
 
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, 2018 and 2017 (Unaudited)
(In millions)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
224

 
$
219

 
$
670

 
$
77

Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
Unrealized gains (losses) on securities
(867
)
 
762

 
(2,390
)
 
1,047

Other-than-temporary impairments
10

 
1

 
30

 
12

Pension and other postretirement benefits liability
(3
)
 
(4
)
 
(6
)
 
(7
)
Other comprehensive income (loss), before tax
(860
)
 
759

 
(2,366
)
 
1,052

Income tax expense (benefit) related to items of other comprehensive income (loss)
(292
)
 
265

 
(606
)
 
367

Other comprehensive income (loss), after tax
(568
)
 
494

 
(1,760
)
 
685

Comprehensive income (loss)
(344
)
 
713

 
(1,090
)
 
762

Less: Comprehensive income (loss) attributable to noncontrolling interest
58

 
52

 
58

 
53

Comprehensive income (loss) attributable to Voya Financial, Inc.'s common shareholders
$
(402
)
 
$
661

 
$
(1,148
)
 
$
709


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 Six Months Ended June 30, 2018 (Unaudited)
(In millions)
 
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
)
Common stock issuance

 

 
1

 

 

 

 
1

 

 
1

Common stock acquired - Share repurchase

 
(600
)
 
100

 

 

 

 
(500
)
 

 
(500
)
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.
 
 
 
 
8
 


Voya Financial, Inc.
 Condensed Consolidated Statements of Changes in Shareholders' Equity
For the Six Months Ended June 30, 2017 (Unaudited)
(In millions)
 
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, 2017 - As previously filed
$
3

 
$
(2,796
)
 
$
23,609

 
$
1,921

 
$

 
$
(9,742
)
 
$
12,995

 
$
973

 
$
13,968

Cumulative effect of changes in accounting:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Adjustment for adoption of ASU 2016-09

 

 

 

 

 
15

 
15

 

 
15

Balance as of January 1, 2017 - As adjusted
3

 
(2,796
)
 
23,609

 
1,921

 

 
(9,727
)
 
13,010

 
973

 
13,983

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 

 

 

 
24

 
24

 
53

 
77

Other comprehensive income (loss), after tax

 

 

 
685

 

 

 
685

 

 
685

Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
709

 
53

 
762

Common stock issuance

 

 
1

 

 

 

 
1

 

 
1

Common stock acquired - Share repurchase

 
(623
)
 
200

 

 

 

 
(423
)
 

 
(423
)
Dividends on common stock

 

 
(4
)
 

 

 

 
(4
)
 

 
(4
)
Share-based compensation

 
(7
)
 
66

 

 

 

 
59

 

 
59

Contributions from (Distributions to) noncontrolling interest, net

 

 

 

 

 

 

 
(86
)
 
(86
)
Balance as of June 30, 2017
$
3

 
$
(3,426
)
 
$
23,872

 
$
2,606

 
$

 
$
(9,703
)
 
$
13,352

 
$
940

 
$
14,292


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


Voya Financial, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2018 and 2017 (Unaudited)
(In millions)
 
Six Months Ended June 30,
 
2018
 
2017
Cash Flows from Operating Activities:
 
 
 
Net cash (used in) provided by operating activities - continuing operations
$
(408
)
 
$
86

Net cash provided by operating activities - discontinued operations
1,462

 
470

Net cash provided by operating activities
1,054

 
556

Cash Flows from Investing Activities:
 
 
 
Proceeds from the sale, maturity, disposal or redemption of:
 
 
 
Fixed maturities
4,577

 
4,013

Equity securities
20

 
16

Mortgage loans on real estate
471

 
487

Limited partnerships/corporations
152

 
124

Acquisition of:
 
 
 
Fixed maturities
(4,881
)
 
(3,953
)
Equity securities
(20
)
 
(27
)
Mortgage loans on real estate
(574
)
 
(1,132
)
Limited partnerships/corporations
(158
)
 
(179
)
Short-term investments, net
403

 
12

Derivatives, net
35

 
163

Sales from consolidated investment entities
602

 
1,214

Purchases within consolidated investment entities
(607
)
 
(1,389
)
Collateral received (delivered), net
38

 
(126
)
Other, net
(5
)
 
35

Net cash provided by investing activities - discontinued operations
34

 
40

Net cash provided by (used in) investing activities
87

 
(702
)
Cash Flows from Financing Activities:
 
 
 
Deposits received for investment contracts
3,083

 
2,395

Maturities and withdrawals from investment contracts
(2,716
)
 
(2,827
)
Proceeds from issuance of debt with maturities of more than three months
350

 

Repayment of debt with maturities of more than three months
(350
)
 
(91
)
Debt issuance costs
(6
)
 

Borrowings of consolidated investment entities
469

 
738

Repayments of borrowings of consolidated investment entities
(461
)
 
(725
)
Contributions from (distributions to) participants in consolidated investment entities, net
34

 
656

Proceeds from issuance of common stock, net
1

 
1

Share-based compensation
(15
)
 
(7
)
Common stock acquired - Share repurchase
(500
)
 
(423
)
Dividends paid
(3
)
 
(4
)
Net cash (used in) provided by financing activities - discontinued operations
(1,209
)
 
89

Net cash used in financing activities
(1,323
)
 
(198
)
Net decrease in cash and cash equivalents
(182
)
 
(344
)
Cash and cash equivalents, beginning of period
1,716

 
2,911

Cash and cash equivalents, end of period
1,534

 
2,567

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

 
1,039

Cash and cash equivalents of continuing operations, end of period
$
1,534

 
$
1,528


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



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, annuities, investment management services, mutual funds, life insurance, group insurance and supplemental health products.

On June 1, 2018, the Company consummated a series of transactions (collectively, the "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 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"). The Transaction resulted in the disposition of substantially all of the Company's Closed Block Variable Annuity ("CBVA") and Annuities businesses. The assets and liabilities related to the businesses sold were classified as held for sale in the Condensed Consolidated Balance Sheet as of December 31, 2017. The results of operations and cash flows of the businesses sold were classified as discontinued operations in the accompanying Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Cash Flows, respectively and are reported separately for all periods presented. See the Discontinued Operations Note to these Condensed Consolidated Financial Statements.

As a result of the Transaction, the Company no longer considers its CBVA and Annuities businesses as reportable segments. Additionally, the Company evaluated its segment presentation and determined that the retained CBVA and Annuities policies that are not included in the disposed businesses described above ("Retained Business") are insignificant. As such, the Company reported the results of the Retained Business in Corporate.

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 the financial data not directly related to its segments, and other business activities that do not have an ongoing meaningful impact to the Company's results. See the Segments Note to these Condensed Consolidated Financial Statements.

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, 2018, its results of operations and comprehensive income for the three and six months ended June 30, 2018 and 2017, and its changes in shareholders' equity and statements of cash flows for the six months ended June 30, 2018 and 2017, in conformity with U.S. GAAP. Interim results are not necessarily indicative of full year performance.

 
11
 



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

The December 31, 2017 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.

Significant Accounting Policies

Investments

Effective January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2016-01 "Financial Instruments-Overall (ASC Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01") (See the Adoption of New Pronouncements section below). As a result, the Company measures its equity securities at fair value and recognizes any changes in fair value in net income. Prior to adoption, equity securities were designated as available-for-sale and reported at fair value with unrealized capital gains (losses) recorded in Accumulated other comprehensive income (loss) ("AOCI").

Recognition of Revenue

As of January 1, 2018, the Company changed its method for recognizing costs to obtain and fulfill certain financial services contracts upon the adoption of ASU 2014-09, "Revenue from Contracts with Customers (ASC Topic 606)" ("ASU 2014-09"). (See the Adoption of New Pronouncements section below.)

Financial services revenue is disaggregated by type of service in the following tables. For the three months ended June 30, 2018, such revenue represents approximately 27.0% of total Retirement revenue, all of Investment Management revenue, and 23.1% of Corporate revenue. For the six months ended June 30, 2018, such revenue represents approximately 28.1% of total Retirement revenue, all of Investment Management revenue, and 30.0% of Corporate revenue. Such revenue is immaterial for Employee Benefits and Individual Life. For the three and six months ended June 30, 2018, a portion of the revenue recognized in the current period from distribution services is related to performance obligations satisfied in previous periods.
 
Three Months Ended June 30, 2018
 
Reportable Segments
 
 
 
Retirement
 
Investment Management
 
Corporate
Service Line
 
 
 
 
 
Advisory
$
55

 
$
136

 
$

Asset management

 
43

 

Recordkeeping & administration
60

 
39

 
2

Distribution & shareholder servicing
71

 
45

 
7

Total financial services revenue
$
186

 
$
263

 
$
9


 
Six Months Ended June 30, 2018
 
Reportable Segments
 
 
 
Retirement
 
Investment Management
 
Corporate
Service Line
 
 
 
 
 
Advisory
$
110

 
$
277

 
$

Asset management

 
84

 

Recordkeeping & administration
122

 
82

 
4

Distribution & shareholder servicing
145

 
89

 
15

Total financial services revenue
$
377

 
$
532

 
$
19


 
12
 



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


Receivables of $205 are included in Other assets on the Condensed Consolidated Balance Sheets as of June 30, 2018.

Financial Services Revenue
Revenue for various financial services is measured based on consideration specified in a contract with a customer and excludes any amounts collected on behalf of third parties. For advisory, asset management, and recordkeeping and administration services, the Company recognizes revenue as services are provided, generally over time. In addition, the Company may arrange for sub-advisory services for a customer under certain contracts. Revenue is recognized when the Company has satisfied a performance obligation by transferring control of a service to a customer. Contract terms are typically less than one year, and consideration is generally variable and due as services are rendered.

For distribution and shareholder servicing revenue, the Company provides distribution services at a point in time and shareholder services over time. Such revenue is recognized when the Company has satisfied a performance obligation and related consideration is received. Contract terms are less than one year, and consideration is variable. For distribution services, revenue may be recognized in periods subsequent to when the Company has satisfied a performance obligation, as a component of related consideration is constrained under certain contracts.

For a description of principal activities by reportable segment from which the Company generates revenue, see the Segments Note in Part II, Item 8. of the Company's Annual Report on Form 10-K for further information.

Revenue for various financial services is recorded in Fee income or Other revenue in the Condensed Consolidated Statements of Operations.

Contract Costs
Contract cost assets represent costs incurred to obtain or fulfill a contract that are expected to be recovered and, thus, have been capitalized and are subject to amortization. Capitalized contract costs include incremental costs of obtaining a contract and fulfillment costs that relate directly to a contract and generate or enhance resources of the Company that are used to satisfy performance obligations.

The Company defers (1) incremental commissions and variable compensation paid to the Company's direct sales force, consultant channel, and intermediary partners, as a result of obtaining certain financial services contracts and (2) account set-up expenses on certain recordkeeping contracts. The Company expenses as incurred deferrable contract costs for which the amortization period would be one year or less (based on the U.S. GAAP practical expedient) and other contract-related costs. The Company periodically reviews contract cost assets for impairment. Capitalized contract costs are included in Other assets on the Condensed Consolidated Balance Sheets, and costs expensed as incurred are included in Operating expenses in the Condensed Consolidated Statements of Operations.

As of June 30, 2018, contract cost assets were $106. Capitalized contract costs are amortized on a straight-line basis over the estimated lives of the contracts, which typically range from 5 to 15 years. This method is consistent with the transfer of services to which the assets relate. For the three and six months ended June 30, 2018, amortization expenses of $6 and $12, respectively, were recorded in Operating expenses in the Condensed Consolidated Statements of Operations. There was no impairment loss in relation to the contract costs capitalized.

Adoption of New Pronouncements

Retirement Benefits
In March 2017, the FASB issued ASU 2017-07, "Compensation-Retirement Benefits (ASC Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" ("ASU 2017-07"), which requires employers to report the service cost component of net periodic pension cost and net periodic postretirement benefit cost in the same line item as other compensation costs arising from services rendered by employees during the period. Other components of net benefit costs are required to be presented in the statement of operations separately from service costs. In addition, only service costs are eligible for capitalization in assets, when applicable.


 
13
 



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

The provisions of ASU 2017-07 were adopted by the Company on January 1, 2018 retrospectively for the presentation of service costs and other components in the statement of operations, and prospectively for the capitalization of service costs in assets. The adoption had no effect on the Company's financial condition, results of operations, or cash flows.

Derecognition of Nonfinancial Assets
In February 2017, the FASB issued ASU 2017-05, "Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (ASC Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance & Accounting for Partial Sales of Nonfinancial Assets" ("ASU 2017-05"), which requires entities to apply certain recognition and measurement principles in ASU 2014-09, "Revenue from Contracts with Customers (ASC Topic 606)" (see Revenue from Contracts with Customers below) when they derecognize nonfinancial assets and in substance nonfinancial assets through sale or transfer, and the counterparty is not a customer.

The provisions of ASU 2017-05 were adopted on January 1, 2018 using the modified retrospective approach. The adoption had no effect on the Company's financial condition, results of operations, or cash flows.

Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (ASC Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), which addresses diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on eight specific cash flow issues.

The provisions of ASU 2016-15 were adopted retrospectively on January 1, 2018 and resulted in the reclassification of the Company's cash payments for debt extinguishment costs from Cash Flows from Operating Activities to Cash Flows from Financing Activities in the Condensed Consolidated Statements of Cash Flows of $3 and $1 for the six months ended June 30, 2018 and 2017, respectively. The adoption of the remaining provisions of ASU 2016-05 had no effect on the Company's financial condition, results of operations, or cash flows.

Share-Based Compensation
In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation (ASC Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), which simplifies the accounting for share-based payment award transactions with respect to:

The income tax consequences of awards,
The impact of forfeitures on the recognition of expense for awards,
Classification of awards as either equity or liabilities, and
Classification on the statement of cash flows.

The provisions of ASU 2016-09 were adopted by the Company on January 1, 2017 using the transition method prescribed for each applicable provision:

On a prospective basis, all excess tax benefits and tax deficiencies related to share-based compensation will be reported in Net income (loss), rather than Additional paid-in capital.  Prior year excess tax benefits will remain in Additional paid-in capital. 
The provision that removed the requirement to delay recognition of excess tax benefits until they reduce taxes payable was required to be adopted on a modified retrospective basis. Upon adoption, this provision resulted in a $15 increase in Deferred income tax assets with a corresponding increase to Retained earnings on the Condensed Consolidated Balance Sheet as of January 1, 2017, to record previously unrecognized excess tax benefits.
The Company elected to retrospectively adopt the requirement to present cash inflows related to excess tax benefits as operating activities. For the six months ended June 30, 2017, the Company had no excess tax benefits. 
The Company also elected to continue its existing accounting policy of including estimated forfeitures in the calculation of share-based compensation expense.

The adoption of the remaining provisions of ASU 2016-09 had no effect on the Company's financial condition, results of operations, or cash flows.


 
14
 



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

Financial Instruments - Recognition and Measurement
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall (ASC Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"), which requires:

Equity investments (except those consolidated or accounted for under the equity method) to be measured at fair value with changes in fair value recognized in net income.
Elimination of the disclosure of methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost.
The use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
Separate presentation in other comprehensive income of the portion of the total change in fair value of a liability resulting from a change in own credit risk if the liability is measured at fair value under the fair value option.
Separate presentation on the balance sheet or financial statement notes of financial assets and financial liabilities by measurement category and form of financial asset.

The Company adopted the provisions of ASU 2016-01 on January 1, 2018 using a modified retrospective approach, except for certain provisions that were required to be applied prospectively. The impact to the January 1, 2018 Condensed Consolidated Balance Sheet was a $28 increase, net of tax, to Unappropriated retained earnings with a corresponding decrease of $28, net of tax, to Accumulated other comprehensive income to recognize the unrealized gain associated with Equity securities. The provisions that required prospective adoption had no effect on the Company's financial condition, results of operations, or cash flows. Under previous guidance, prior to January 1, 2018, Equity securities were classified as available for sale with changes in fair value recognized in Other comprehensive income.

Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognized when, or as, the entity satisfies a performance obligation under the contract. ASU 2014-09 also updated the accounting for certain costs associated with obtaining and fulfilling contracts with customers and requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In addition, the FASB issued various amendments during 2016 to clarify the provisions and implementation guidance of ASU 2014-09. Revenue recognition for insurance contracts and financial instruments is explicitly scoped out of the guidance.

The Company adopted the provisions of ASU 2014-09 on January 1, 2018, using the modified retrospective approach. The adoption had no impact on revenue recognition. However, the adoption resulted in a $106 increase in Other assets to capitalize costs to obtain and fulfill certain financial services contracts in the Retirement segment and Corporate. This adjustment was offset by a related $22 decrease in Deferred income taxes, resulting in a net $84 increase to Retained earnings (deficit) on the Condensed Consolidated Balance Sheet as of January 1, 2018. In addition, disclosures have been updated to reflect accounting policy changes made as a result of the implementation of ASU 2014-09. (See the Significant Accounting Policies section above.)

Comparative information has not been adjusted and continues to be reported under previous revenue recognition guidance. As of June 30, 2018 the adoption of ASU 2014-09 resulted in a $106 increase in Other assets, reduced by a related $22 decrease in Deferred income taxes, resulting in a net $84 increase to Retained earnings (deficit) on the Condensed Consolidated Balance Sheet. For the three and six months ended June 30, 2018, the adoption resulted in a $1 increase in Operating expenses on the Condensed Consolidated Statement of Operations. For the six months ended June 30, 2018, adopting the provisions of ASU 2014-09 had no impact on Net cash provided by operating activities.

Future Adoption of Accounting Pronouncements
Reclassification of Certain Tax Effects
In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (ASC Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted 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

 
15
 



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

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.

The provisions of ASU 2018-02 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. Initial adoption of ASU 2018-02 may be reported either in the period of adoption or on a retrospective basis in each period in which the effect of the change in the U.S. federal corporate income tax rate resulting from Tax Reform is recognized. The Company is currently evaluating the provisions of ASU 2018-02.

Derivatives & Hedging
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic ASC 815): Targeted Improvements to Accounting for Hedging Activities" ("ASU 2017-12"), which 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,
Eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness, and
Modifies required disclosures.

The provisions of ASU 2017-12 are effective for fiscal years beginning after December 15, 2018, including interim periods, with early adoption permitted. Initial adoption of ASU 2017-12 is required to be reported using a modified retrospective approach, with the exception of the presentation and disclosure requirements which are required to be applied prospectively. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2017-12.

Debt Securities
In March 2017, the FASB issued ASU 2017-08, "Receivables-Nonrefundable Fees and Other Costs (ASC Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities" ("ASU 2017-08"), which shortens the amortization period for certain callable debt securities held at a premium by requiring the premium to be amortized to the earliest call date.

The provisions of ASU 2017-08 are effective for fiscal years beginning after December 15, 2018, including interim periods, with early adoption permitted. Initial adoption of ASU 2017-08 is required to be reported using a modified retrospective approach. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2017-08.

Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), which:

Introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments,
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.

The provisions of ASU 2016-13 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. 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.

Leases
In February 2016, the FASB issued ASU 2016-02, "Leases (ASC Topic 842)" ("ASU 2016-02"), which 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

 
16
 



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

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.

The provisions of ASU 2016-02 are effective on a modified retrospective basis for fiscal years beginning after December 15, 2018, including interim periods, with early adoption permitted. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2016-02.





 
17
 



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

2.    Discontinued Operations

As noted in the Business, Basis of Presentation and Significant Accounting Policies Note, on June 1, 2018, the Company closed the Transaction with VA Capital and Athene (the "Buyers") pursuant to which Venerable acquired two of the Company’s subsidiaries, VIAC and DSL. The Transaction resulted in the disposition of substantially all of the Company’s CBVA and Annuities businesses.

The purchase price for VIAC was equal to the difference between the Required Adjusted Book Value (as defined in the MTA) and the Statutory capital in VIAC at closing, after giving effect to certain restructuring and other pre-sale transactions, including the reinsurance of the fixed and fixed indexed annuity business of VIAC to affiliates of Athene. Following the closing of the Transaction, the Company, through its other insurance subsidiaries, continues to own surplus notes issued by VIAC in an aggregate principal amount of $350 and acquired a 9.99% equity interest in VA Capital. The investment in surplus notes is reported in Fixed maturities, available-for-sale on the Company's Condensed Consolidated Balance Sheet as of June 30, 2018. VIAC's corresponding liability is included in Liabilities held for sale on the Company's Condensed Consolidated Balance Sheet as of December 31, 2017. In the summary of major categories of assets and liabilities related to discontinued operations as of December 31, 2017 presented below, VIAC's corresponding liability for the surplus notes is included in Notes payable.

Pursuant to the terms of the MTA and prior to the closing of the Transaction, VIAC undertook certain restructuring transactions with several affiliates in order to transfer businesses and assets into and out of VIAC from and to the Company's affiliates. Such transactions included, but were not limited to, the following reinsurance transactions:
VIAC recaptured the CBVA business previously assumed by Roaring River II, Inc., a subsidiary of the Company.
the Company, through its subsidiary ReliaStar Life Insurance Company ("RLI") ceded, under modified coinsurance agreements, fixed and fixed indexed annuity reserves of $451 to Athene Annuity & Life Assurance Company ("AADE") and Athene Life Re, Ltd. ("ALRe"). Under the terms of the agreements, AADE and ALRe contractually assumed from the Company the policyholder liabilities and obligations related to the policies, although the Company remains obligated to the policyholders. Upon the consummation of the agreements, the Company recognized no gain or loss in the Condensed Consolidated Statements of Operations.
the Company, through its subsidiary RLI, assumed, under coinsurance and modified coinsurance agreements, certain individual life and deferred annuity policies from VIAC. Upon the consummation of the agreements, the Company recognized no gain or loss in the Condensed Consolidated Statements of Operations. As of June 30, 2018, assumed reserves related to these agreements were $856.

In connection with the closing, Voya Investment Management Co., LLC ("Voya IM") or its affiliated advisors, entered into one or more agreements to perform asset management and ancillary services for Venerable as part of the transaction. As part of the agreements, Voya IM will serve as the preferred asset management partner for Venerable. Under the agreements, subject to certain criteria, Voya IM will manage and service certain assets, including, for at least five years following the closing of the transaction, certain general account assets. The Company and Voya IM also agreed to provide certain transitional services to Venerable following the closing of the Transaction. The length of each service varies depending on the type of service provided.


 
18
 



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

The Company has determined that the CBVA and Annuities businesses disposed of in the Transaction meet the criteria to be classified as discontinued operations and that the sale represents a strategic shift that has a major effect on the Company’s operations.  Accordingly, the results of operations of the businesses sold have been presented as discontinued operations in the accompanying Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows for all periods presented, and the assets and liabilities of the businesses sold were classified as held for sale in the Condensed Consolidated Balance Sheet as of December 31, 2017. If, immediately prior to the sale, the carrying value of the business classified as discontinued operations exceeds its estimated fair value less cost to sell, a loss is recognized.

The results of discontinued operations are reported in "Income (loss) from discontinued operations, net of tax" in the accompanying Condensed Consolidated Statements of Operations for all periods presented. As of December 31, 2017, the Company recorded an estimated loss on sale, net of tax of $2,423 which included estimated transactions costs of $31 as well as the loss of $692 of deferred tax assets to write down the assets of the businesses sold to fair value less cost to sell as of December 31, 2017. Income (loss) from discontinued operations, net of tax, for the six months ended June 30, 2018 includes a favorable adjustment to the estimated loss on sale of $505, net of tax. The loss on sale, net of tax as of June 30, 2018 of $1,918, which includes the loss of $460 of deferred tax assets, represents the excess of the carrying value, immediately prior to the sale, of the businesses classified as discontinued operations over the purchase price, which approximates fair value, less cost to sell. Additionally, in connection with the Transaction, the Company reversed $79 of other comprehensive income, net of tax that was previously recorded and related to the Annuity and CBVA businesses sold. The Buyers have the option to inquire or request changes to the closing Required Adjusted Book Value and/or Statutory capital of VIAC during a period of 180 days after the close of the Transaction. Based on the Company's receipt and review of any inquiries, the Company may determine that additional updates to the closing Required Adjusted Book Value and/or Statutory capital of VIAC are required which may cause changes to the purchase price for VIAC. Consequently, this may impact the final loss on sale related to the Transaction which will result in changes to be recorded in the Company's Condensed Consolidated Statements of Operations in future periods related to the loss on sale.


 
19
 



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

The following table summarizes the major categories of assets and liabilities classified as discontinued operations in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2017:
 
 
December 31,
2017
Assets:
 
 
Investments:
 
 
Fixed maturities, available-for-sale, at fair value
 
$
21,904

Fixed maturities, at fair value using the fair value option
 
615

Short-term investments
 
352

Mortgage loans on real estate, net of valuation allowance
 
4,212

Derivatives
 
1,514

Other investments(1)
 
351

Securities pledged
 
861

Total investments
 
29,809

Cash and cash equivalents
 
498

Short-term investments under securities loan agreements, including collateral delivered
 
473

Deferred policy acquisition costs and Value of business acquired
 
805

Sales inducements
 
196

Deferred income taxes
 
404

Other assets(2)
 
396

Assets held in separate accounts
 
28,894

Write-down of businesses held for sale to fair value less cost to sell
 
(2,423
)
Total assets held for sale
 
$
59,052

 
 
 
Liabilities:
 
 
Future policy benefits and contract owner account balances
 
$
27,065

Payables under securities loan agreement, including collateral held
 
1,152

Derivatives
 
782

Notes payable
 
350

Other liabilities
 
34

Liabilities related to separate accounts
 
28,894

Total liabilities held for sale
 
$
58,277

(1) Includes Other investments, Equity securities, Limited Partnerships/corporations and Policy loans.
(2) Includes Other assets, Accrued investment income, Premium receivable and reinsurance recoverable.
 











 
20
 



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


The following table summarizes the components of Income (loss) from discontinued operations, net of tax for the five months ended May 31, 2018 (the Transaction closed on June 1, 2018) and the six months ended June 30, 2017:
 
Five Months Ended May 31, 2018
 
Six Months Ended June 30, 2017
Revenues:
 
 
 
Net investment income
$
510

 
$
633

Fee income
295

 
412

Premiums
(50
)
 
96

Total net realized capital gains (losses)
(345
)
 
(588
)
Other revenue
10

 
11

Total revenues
420

 
564

Benefits and expenses:
 
 
 
Interest credited and other benefits to contract owners/policyholders
442

 
550

Operating expenses
(14
)
 
133

Net amortization of Deferred policy acquisition costs and Value of business acquired
49

 
68

Interest expense
10

 
10

Total benefits and expenses
487

 
761

Income (loss) from discontinued operations before income taxes
(67
)
 
(197
)
Income tax expense (benefit)
(19
)
 
(99
)
Adjustment to loss on sale, net of tax
505

 

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

 
$
(98
)


 
21
 



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 and Equity Securities

Available-for-sale and fair value option ("FVO") fixed maturities were as follows as of June 30, 2018:
 
Amortized Cost
 
Gross Unrealized Capital Gains
 
Gross Unrealized Capital Losses
 
Embedded Derivatives(2)
 
Fair Value
 
OTTI(3)(4)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
1,815

 
$
365

 
$
4

 
$

 
$
2,176

 
$

U.S. Government agencies and authorities
204

 
39

 

 

 
243

 

State, municipalities and political subdivisions
1,648

 
32

 
21

 

 
1,659

 

U.S. corporate public securities
19,541

 
1,297

 
261

 

 
20,577

 

U.S. corporate private securities
6,224

 
178

 
141

 

 
6,261

 

Foreign corporate public securities and foreign governments(1)
5,259

 
252

 
111

 

 
5,400

 

Foreign corporate private securities(1)
5,247

 
110

 
105

 

 
5,252

 

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
2,957

 
141

 
56

 
14

 
3,056

 

Non-Agency
1,539

 
96

 
10

 
11

 
1,636

 
13

Total Residential mortgage-backed securities
4,496

 
237

 
66

 
25

 
4,692

 
13

Commercial mortgage-backed securities
2,954

 
27

 
49

 

 
2,932

 

Other asset-backed securities
1,863

 
35

 
9

 

 
1,889

 
3

Total fixed maturities, including securities pledged
49,251

 
2,572

 
767

 
25

 
51,081

 
16

Less: Securities pledged
1,882

 
151

 
39

 

 
1,994

 

Total fixed maturities
$
47,369

 
$
2,421

 
$
728

 
$
25

 
$
49,087

 
$
16

(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 $335 of net unrealized gains on impaired available-for-sale securities.



 
22
 



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 and equity securities were as follows as of December 31, 2017:
 
Amortized Cost
 
Gross Unrealized Capital Gains
 
Gross Unrealized Capital Losses
 
Embedded Derivatives(2)
 
Fair Value
 
OTTI(3)(4)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
2,047

 
$
477

 
$
2

 
$

 
$
2,522

 
$

U.S. Government agencies and authorities
223

 
52

 

 

 
275

 

State, municipalities and political subdivisions
1,856

 
68

 
11

 

 
1,913

 

U.S. corporate public securities
20,857

 
2,451

 
50

 

 
23,258

 

U.S. corporate private securities
5,628

 
255

 
50

 

 
5,833

 

Foreign corporate public securities and foreign governments(1)
5,241

 
493

 
18

 

 
5,716

 

Foreign corporate private securities(1)
4,974

 
251

 
64

 

 
5,161

 
10

Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
2,990

 
164

 
30

 
21

 
3,145

 

Non-Agency
1,257

 
110

 
4

 
16

 
1,379

 
16

Total Residential mortgage-backed securities
4,247

 
274

 
34

 
37

 
4,524

 
16

Commercial mortgage-backed securities
2,646

 
69

 
11

 

 
2,704

 

Other asset-backed securities
1,488

 
43

 
3

 

 
1,528

 
3

Total fixed maturities, including securities pledged
49,207

 
4,433

 
243

 
37

 
53,434

 
29

Less: Securities pledged
1,823

 
284

 
20

 

 
2,087

 

Total fixed maturities
47,384

 
4,149

 
223

 
37

 
51,347

 
29

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stock
272

 
1

 

 

 
273

 

Preferred stock
81

 
26

 

 

 
107

 

Total equity securities
353

 
27

 

 

 
380

 

Total fixed maturities and equity securities investments
$
47,737

 
$
4,176

 
$
223

 
$
37

 
$
51,727

 
$
29

(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 $441 of net unrealized gains on impaired available-for-sale securities.




 
23
 



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

The amortized cost and fair value of fixed maturities, including securities pledged, as of June 30, 2018, 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
$
857

 
$
865

After one year through five years
7,695

 
7,817

After five years through ten years
9,953

 
9,943

After ten years
21,433

 
22,943

Mortgage-backed securities
7,450

 
7,624

Other asset-backed securities
1,863

 
1,889

Fixed maturities, including securities pledged
$
49,251

 
$
51,081


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.

As of June 30, 2018 and December 31, 2017, 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, 2018
 
 
 
 
 
 
 
Communications
$
2,601

 
$
180

 
$
29

 
$
2,752

Financial
5,327

 
346

 
72

 
5,601

Industrial and other companies
15,752

 
654

 
278

 
16,128

Energy
4,061

 
266

 
83

 
4,244

Utilities
6,383

 
317

 
110

 
6,590

Transportation
1,294

 
56

 
25

 
1,325

Total
$
35,418

 
$
1,819

 
$
597

 
$
36,640

 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
Communications
$
2,587

 
$
341

 
$
4

 
$
2,924

Financial
5,094

 
487

 
5

 
5,576

Industrial and other companies
16,478

 
1,391

 
98

 
17,771

Energy
4,268

 
459

 
45

 
4,682

Utilities
6,243

 
607

 
22

 
6,828

Transportation
1,295

 
121

 
4

 
1,412

Total
$
35,965

 
$
3,406

 
$
178

 
$
39,193



 
24
 



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

Fixed Maturities and Equity Securities

The Company's fixed maturities are currently designated as available-for-sale, except those accounted for using the FVO. Prior to the adoption of ASU 2016-01 as of January 1, 2018, equity securities were also designated as available-for-sale. Available-for-sale securities are reported at fair value and unrealized capital gains (losses) on these securities are recorded directly in AOCI and presented net of related changes in Deferred policy acquisition costs ("DAC"), Value of business acquired ("VOBA") and Deferred income taxes. In addition, certain fixed maturities have embedded derivatives, which are reported with the host contract on the Condensed Consolidated Balance Sheets.

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, 2018 and December 31, 2017, approximately 42.0% and 43.2%, 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.

Repurchase Agreements

As of June 30, 2018, the Company had immaterial securities pledged in repurchase agreement transactions and did not have any securities pledged in dollar rolls or reverse repurchase agreements. As of December 31, 2017, the Company did not have any such securities pledged.

Securities Lending

The Company engages in securities lending whereby certain securities from its portfolio are loaned to other institutions, through a lending agent, for short periods of time. The Company has the right to approve any institution with whom the lending agent transacts on its behalf. 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, 2018 and December 31, 2017, the fair value of loaned securities was $1,739 and $1,854, 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, 2018 and December 31, 2017, cash collateral retained by the lending agent and invested in short-term liquid assets on the Company's behalf was $1,649 and $1,589, 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, 2018 and December 31, 2017, liabilities to return collateral of $1,649 and $1,589, respectively, are included in Payables under securities loan agreements, including collateral held on the Condensed Consolidated Balance Sheets.


 
25
 



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

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, 2018 and December 31, 2017, the fair value of securities retained as collateral by the lending agent on the Company’s behalf was $151 and $308, respectively.

The following table presents borrowings under securities lending transactions by class of collateral pledged for the dates indicated:
 
June 30, 2018 (1)(2)
 
December 31, 2017 (1)(2)
U.S. Treasuries
$