Voya Financial Shares Decline Following Weak Q4 Forecast

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Voya Financial Shares Decline Following Weak Q4 Forecast

Voya Financial (NYSE:VOYA) shares experienced a significant drop of up to 8.6% on Tuesday. This marked the largest intraday decline since February and came after the insurance company issued a pre-announcement of weaker-than-expected performance for the fourth quarter. Voya Financial specifically indicated that the Stop Loss policy year loss ratio would likely range between 90% and 105%, which is below the previously estimated 86%.

In response to this update, Evercore ISI analyst Thomas Gallagher revised the price target for Voya Financial from $94.00 to $89.00 while maintaining an Outperform rating. Gallagher highlighted the negative update concerning the company’s medical stop loss business, which is expected to lead to significant losses in the fourth quarter. The update also suggests that Voya Financial might not reach its target margin range by 2025, potentially delaying it until 2027.

Gallagher added, "They've indicated that for the 2024 accident year, they are now expecting a loss ratio of around 98%, compared to the previous expectation of 86%, which is well above the targeted pricing range of 77-80%." The analyst also noted that Rob Grubka, who heads the health and benefits business, is expected to depart by the end of 2024, and further information about his successor is being sought.

Jefferies analysts also commented on the situation, stating that the primary reason for the decline is the high frequency of demand continuing until November 2024, particularly the increase in cancer diagnoses among younger demographics.

Additionally, Keefe, Bruyette & Woods analyst Ryan Krueger lowered the price target for Voya Financial from $95.00 to $92.00 while maintaining an Outperform rating. Krueger referenced the negative stop-loss update and Grubka’s announcement of his departure at year-end. He pointed out the worsening of stop-loss claims until November and mentioned that he had revised EPS estimates for the upcoming years, slightly lowering the price target based on a 2026 EPS estimate of 8.5 times.

The anticipated challenges related to Voya Financial's Stop Loss policy indicate a potential delay in achieving financial targets; the expected midpoint loss ratio for the 2024 accident year is significantly higher than initially anticipated. The company also expects a decrease in stop-loss premium revenue for 2025 and an improvement in the loss ratio, yet it is still projected to remain above the target range.