OREANDA-NEWS. Fitch Ratings has affirmed Voya Financial, Inc.'s (Voya) Issuer Default Rating (IDR) at 'BBB+', senior debt rating at 'BBB', and junior subordinated debt rating at 'BB+'. The Insurer Financial Strength (IFS) ratings of the U.S. operating entities have also been affirmed at 'A'. A complete list of ratings follows at the end of this release. The Rating Outlook for all ratings is Stable.

The affirmation reflects Voya's balance sheet strength and improved debt servicing capacity. 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. Offsetting these positives are the challenges related to the run-off of Voya's $42 billion closed-block VA book.

KEY RATING DRIVERS

During the first half of 2015, Voya reported pre-tax operating income of $552 million and an operating return on equity (ROE) of 7.3%. Operating income was down by approximately $7 million from the prior year due to lower alternative investment income, the impact of the continued low interest rate environment on reinvestment rates and higher operating expenses as a result of the company's strategic investment program. Voya announced earlier this year that the company will be making incremental investments of $350 million over the next four years designed to increase growth and reduce costs.

While Voya expects operating income to improve, operating ROE will continue to be impacted by the significant amount of capital supporting the closed block VA and individual life business. Fitch expects a sustained low interest rate environment will create headwinds and could impact Voya's ability to meaningfully improve earnings.

GAAP adjusted operating earnings-based interest coverage was 7.4x in the first half of 2015, down slightly from 7.9x in 2014 but in line with Fitch's median ratio guideline of 7x for an 'A' rated company. Based on estimated ordinary statutory dividend capacity of $1 billion in 2015, Fitch estimates Voya's statutory interest coverage will be approximately 6x in 2015, up from 4.5x in 2014. This is in excess of Fitch's median ratio guideline of 3x for an 'A' rated company.

At June 30, 2015, financial leverage was 21.4%, below management's stated long-term target of 25% and below Fitch's median guideline of 28% for Voya's current rating. Fitch believes the quality of the company's common equity is better than peer averages, with minimal exposure to goodwill and other intangibles.

Fitch considers Voya's aggregate capitalization, including captives, to be strong for the current rating level. The consolidated risk-based capital (RBC) ratio for the company's U.S. insurance subsidiaries was 482% at June 30, 2015. Fitch expects reported RBC to remain in the 425%-450% range over the intermediate term driven by improved statutory operating performance offset by distributions to the holding company. Fitch views Voya's share repurchase program as a more prudent use of excess capital than acquisitions or rapid growth. Fitch's expectation is that share repurchase will be funded through operating earnings and will not result in a material increase in financial leverage or deterioration in subsidiary capitalization.

Fitch's key rating concerns include the challenges related to the run-off of Voya's $42 billion 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 June 30, 2015, Voya had $4.8 billion in reserves and capital supporting the closed-block VA book.

The ratings also recognize the company's reliance on the capital markets for excess reserve financing. Voya's total financing and commitments (TFC) ratio of 0.7x is driven by funding for XXX and AXXX reserve financing, and to a much lesser extent, securities lending agreements. In 2014, Voya completed a reinsurance transaction with Reinsurance Group of America, Inc. that improved the TFC ratio since Voya was able to unwind one of its captives and the associated redundant reserve financing.

RATING SENSITIVITIES

The key rating triggers that could result in an upgrade include:
--Continued growth in operating profitability which leads to an improvement in operating ROE to over 11%;
--Sustained maintenance of GAAP adjusted operating earnings-based interest coverage of more than 10x;
--Private sale of closed-block book at good value with boost to capitalization and reduction in volatility and risk;
--Reported RBC above 450%, and financial leverage below 20%;

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 which leads to GAAP adjusted operating earnings-based interest coverage below 6x;
--Material reserve charges required in its insurance/variable annuity books.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings with a Stable Outlook:

Voya Financial, Inc.
--Long-term IDR at 'BBB+';
--5.5% senior notes due July 15, 2022 at 'BBB';
--2.9% senior notes due Feb. 15, 2018 at 'BBB';
--5.7% senior notes due July 15, 2043 at 'BBB';
--5.65% fixed-to-floating junior subordinated notes due May 15, 2053 at 'BB+'.

Voya Retirement Insurance and Annuity Company
Voya Insurance and Annuity Company
ReliaStar Life Insurance Company
ReliaStar Life Insurance Company of New York
Security Life of Denver Insurance Company
--IFS at 'A'.

Equitable of Iowa Companies, Inc.
--Long-term IDR at 'BBB+'.

Equitable of Iowa Companies Capital Trust II
--8.424% Trust Preferred Stock at 'BB+'.

Peachtree Corners Funding Trust
--$500 million of 3.976% pre-capitalized trust securities due 2025 at 'BBB'.