Our businesses have three main sources of earnings:

Investment Spread and Other Investment Income
  1. Difference between (a) net investment income and net realized investment gains (losses) associated with swap settlements and accrued interest and (b) interest credited to policyholder reserves; and
  2. Investment income on capital supporting the business.
Fee Based Margin Primarily of fees earned on AUM, AUA and transaction based recordkeeping fees.
Net Underwriting Gain (Loss) and Other Revenue Difference between (a) premiums or fees charged for insurance risks and (b) incurred benefits.

These sources of earnings are netted against operating expenses and acquisition costs.

Sources of earnings by segment

RETIREMENT:

  1. Fee based sources of income (primary source): earned from asset and participant-based advisory and recordkeeping fees.
  2. Investment spread and other investment income (secondary source, but still significant): reflecting the (1) difference between (a) investment income earned and (b) interest credited to plan participants who direct assets into the fixed option or plan sponsors that use our stable value products; and (2) investment income on capital supporting the business.

INVESTMENT MANAGEMENT:

  1. Fee based sources of income (primary source): earned from management fees collected on the assets we manage, and in some cases performance fees.
  2. Investment spread and other investment income (small source): reflecting the income earned on seed capital investments.

ANNUITIES:

  1. Investment spread and other investment income (primary source): reflecting the (1) difference between (a) investment income earned and (b) interest credited to policyholders related to fixed indexed annuities or multi-year guarantee annuities; and (2) investment income on capital supporting the business.
  2. Fee based sources of income (secondary source, but expected to grow): earned from asset-based fees from our mutual fund custodial products.

INDIVIDUAL LIFE:

  1. Net underwriting gain (loss) and other sources of income (primary source): reflecting the difference between (a) premiums and mortality charges collected and (b) benefits and expenses paid.
  2. Investment spread and other investment income (secondary source): reflecting the (1) difference between (a) investment income earned and (b) interest credited to policyholders related to universal life and indexed universal life products; and (2) investment income on capital supporting the business.
  3. Fee based sources of income (small source): earned from separate account assets related to variable universal life.

EMPLOYEE BENEFITS:

  1. Net underwriting gain (loss) and other sources of income (primary source): reflecting the difference between (a) premiums and mortality/morbidity charges collected and (b) benefits and expenses paid.
  2. Investment spread and other investment income (secondary source): reflecting the investment income earned on (a) premium dollars we invest and (b) capital supporting the business.

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Darin Arita
Senior Vice President, Investor Relations
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