May 3, 2017
Executives
Darin Arita - SVP, IR Rod Martin - Chairman and CEO Alain Karaoglan - COO Michael Smith - CFO Charles Nelson - CEO of Retirement Carolyn Johnson - CEO of Annuities and Individual Life
Analysts
Seth Weiss - Bank of America Erik Bass - Autonomous Research Ryan Krueger - KBW Tom Gallagher - Evercore ISI John Nadel - Credit Suisse Yaron Kinar - Deutsche Bank Suneet Kamath - Citi John Barnidge - Sandler O' Neill Sean Dargan - Wells Fargo Securities Humphrey Lee - Dowling & Partners
Operator
Good morning and welcome to the Voya Financial First Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode.
[Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note today's event is being recorded.
I would now like to turn the conference over to Darin Arita, Senior Vice President of Investor Relations. Please go ahead.
Darin Arita
Thank you, Rocco, and good morning everyone. Welcome to Voya Financial’s first quarter 2017 conference call.
A slide presentation for this call is available on our website at investors.voya.com or via the webcast. Turning to Slide 2; on today’s call, we will be making forward-looking statements.
Except with respect to historical information, statements made in this conference call constitute forward-looking statements within the meaning of federal securities laws, including statements relating to trends in the Company’s operations and financial results, and the business and their products of the Company and its subsidiary. Voya Financial’s actual results may differ materially from the results anticipated in the forward-looking statements as a result of risks and uncertainties, including those from time-to-time in Voya Financial’s filings with the U.S.
Securities and Exchange Commission. Slide 2 also notes that the call today includes non-GAAP financial measures.
In particular, all references on this call to ROE, return on equity; ROC, return on capital; or other measures containing those terms are to ongoing business adjusted operating return on equity or return on capital as applicable, which are each non-GAAP financial measures. An explanation of how we calculate these and other non-GAAP financial measures and reconciliation to the most directly comparable GAAP measures can be found in the press release and quarterly investors supplement available on our website at investors.voya.com.
Joining me this morning on the call are Rod Martin, Voya Financial’s Chairman and Chief Executive Officer; Alain Karaoglan, Voya Financial’s Chief Operating Officer; and Mike Smith, Voya Financial’s Chief Financial Officer. After their prepared remarks, we will take your questions.
Also here with us today to participate in the Q&A session are other senior members of management; Charlie Nelson, Chief Executive Officer of Retirement; and Carolyn Johnson, Chief Executive Officer of Annuities and Individual Life. With that, let’s go to Slide 3 and I will turn the call over to Rod.
Rod Martin
Good morning, let's begin on Slide 4 with some key things. 2017 is off to a very good start as demonstrated by our ROI reaching a record 13.2% the trailing 12 months ended March 31.
During the quarter, we continue to generate profitable growth. Retirement and Investment Management source net flows were positive.
Annuities produced positive net flows in our more profitable fixed index and investment only products, and we grew in-force premiums in our Employee Benefits. We're benefiting from expanded distribution, a strong product portfolio and increased distribution productivity.
Our returns also reflect our improved capital efficiency and prepayments and alternative investment income above our long-term expectations. We’re continuing our efforts to simplify Voya and as we announced in November achieve at least a $100 million in cost savings through 2018.
Turning to our balance sheet, we concluded the quarter with $949 million of excess capital. This was after repurchasing $247 million of our common stock and funding a $150 million discounted share repurchase agreement during the first quarter.
The most recent agreement closed early during the second quarter. Following all of this repurchase activity, we have $436 million remaining of our share repurchase authorization and we plan to utilize this over the rest of the year.
With respect to our closed locked variable in Annuities segment, we continued to reduce risk and accelerate the run off of the block. Total net out flows in the quarter were $2 billion and this concluded a 1.2 billion related to our GMIB-enhanced surrender value offer.
Our hedge program also continues to effectively protect CBVA capital. Importantly, we reduced our exposure to interest rate risk by adjusting our hedge program following the rise in interest rates last November.
Moving to Slide 5, we reported operating earnings per diluted share of $0.81 for the first quarter. This includes $0.04 per share of positive DAC/VOBA unlocking.
It also reflects $0.03 per share a prepayment fees and alternative income above our long-term expectations. There were also some favorable investment income items that offset unfavorable mortality and individual and group life.
Overall, we're pleased with our performance which included growth across our businesses. We're generating improved financial results.
Our capital position remains strong and we're confident we can achieve our 2018 financial targets and continue to create greater value for both our customers and our shareholders. I will now turn it over to Alain who will give you more details on our progress.
Alain Karaoglan
Good morning, let's go to Slide 7. For the trailing 12 month ended March 31, our return on equity and return on capital increased to 13.2% and 10.8% respectively.
Our results reflect the execution of our plans to grow earnings and improve capital efficiency. Our return on equity for the trailing 12 months also benefited from 49 basis points of prepayments and alternative investment income above our long-term expectations.
We are pleased with the strong business performance we delivered during the first quarter. We continue to execute on our growth initiatives on our strategic investment program and our simplification and cost savings efforts to achieve our 2018 financial targets.
On Slide 8, we provide an update on our progress towards achieving our 2017 growth initiatives. In Retirement, we continued our growth momentum in the first quarter compared with the soft first quarter 2016 small mid corporate deposit grew by 46% to reach a new record as our investments in distribution are enabling us to identify more opportunities and new sales particularly in the mid corporate market.
In Tax exempts, deposits grew 40% and reflect a large full service mandate that funded during the first quarter. In Investment Management, we grew institutional sales as investment performance remained strong across our diverse range of fixed income and equity solutions.
Within retail intermediary demand was strong or Voya managed funds, but was offset by a decline in sales of funds managed by third parties. Affiliated source sales growth was helped by continued selection of our target date fund offerings reflecting the collaboration between Investment Management and Retirement.
In Annuities, fix index annuity sales was solid during the quarter, but as we expected they were lowered compare to the first quarter of 2016, reflecting uncertainty over the Department of Labor Fiduciary Rule. Sales of investment only products were up 24% due in part to higher asset levels or rollovers compared with the first quarter of 2016.
In Employee Benefits, in-force premiums were up 11%, excluding the impact of rate increases in-force premiums were up single-digits. Looking more closely at each of our businesses, let's begin with Retirement on slide 9.
Retirements return on capital for the trailing 12 months ended March 31, was 9.3% up from 8.8%. The increase was driven by higher fee-based income and prepayment fees and alternative investment income above our long-term expectations.
With broader broker dealer relationships as well as expanded sales and service teams; we have increased proposal volume, we have improved sales force productivity and increase sales. For the trailing 12 months ended March 31, compared with the prior 12 month period, small mid corporate new plan sales have increased 24%, as we now have more advisers sending our plans as well as more advisers returning to us to generate additional sales to more clients.
We are seeing more advisers attracted to our retirement solutions which are driving improved retirement outcomes for plans sponsors and for plan participants. Retirements also continue to collaborate with Investment Management to illustrate the compelling value proposition and competitive advantage Voya can bring to its customers.
As a result, 46% of the assets invested in target day funds in new small mid corporate plan sold by retirement during the 12 month ended March 31, where invested in Voya target day funds compared with approximately 5% in the prior period. We also are benefiting from our scale in the market place as well as our focus on simplification.
For example, first quarter 2017 average participants increased approximately by 5% and unit cost decrease approximately 4% compared with the first quarter of 2016. Moving to Slide 10.
In Investment Management, the operating margin was 29.3%, up from 26.9% in 2016. The increase reflects improved investment capital results.
Our strong investment performance drove our Investment Management source sale of $3.8 billion this quarter and has contributed robust pipeline activity. During the first quarter, sales activity was notable in fixed income particularly our senior bank loan offerings.
We also had strong sales in a broad range of public equity strategy and in private equity. We continue to win new mandates with insurance companies during the quarter by offering our specialty solutions and many of these mandates will fund this year.
We are continuing to focus on ways we can expand client solutions and recently launched two retail versions of the high dividend low volatility equity strategies. These funds which a line with our approach to active asset management are designed to deliver higher dividend income along with greater risk adjusted returns and lower levels of volatility than the overall market.
These new funds help round out our income oriented solutions products. In addition, the number of consultant by ratings and recommended products increased across our investment platforms during the first quarter.
Moving to Slide 11, the return on capital for Annuities for the 12 month period ended March 31, was 10.6%, up from 9.8%. Like Retirement, Annuities benefited from prepayment fees and alternative investment income above our long-term expectations.
The 24% year-over-year increase in deposits for investment only products was a very strong result for this quarter and we're pleased with our level of fixed index Annuities sales. We're also continuing to advance our growth strategy in Annuities with an expanded range of products across a wider group of distributors.
During the first quarter, we launched our Voya journey fixed index annuity which has an innovative design that allows customers to enjoy the full growth potential of the index without fear of losing their original premium. This product was primarily designed for the bank and broker dealer channels and while it's early we're seeing positive reactions from distributors.
At the same time, we continue to provide new digital tools to our distributors to support sale and service. Turning to Slide 12, Individual Life's return on capital for the 12 months ended March 31, was 6.6%.
This was unchanged from 2016 and reflects unfavorable mortality in the first quarter. During the first quarter, we took future actions to reduce capital usage and this will provide approximately 20 basis points of additional return on capital improvement for Individual Life by the end of 2017.
Combined with our other actions to improve capital efficiency, we’re well positioned to achieve our 2018 return on capital targets for Individual Life. At the same time, we are advancing Individual Life strategic focus on index life products, which provide higher returns and are less capital intensive, compared with the first quarter of 2016, total index life sales increased 20% to $21 million.
Moving to Slide 13, the return on capital for Employee Benefits for the 12 months ended March 31, was 31.6% reflecting a higher loss ratio for stop loss. We will remain disciplined with our underwriting and we will continue to take pricing actions including on renewals to achieve our 2018 return on capital target for Employee Benefits.
Voluntary sales were up over 50% in the first quarter of 2017, reflecting improved participation and a more than 40% increase in enrollment rates compared to the same period in 2016. In summary, 2017 is off to a good start.
Our commitment to execution will enable us to drive greater value to our customers, to our distributors and to our shareholders. Now, I will turn it over to Mike to go over our financial results.
Mike.
Michael Smith
Our first quarter results showed continued progress towards our 2018 targets with strong net flows in Retirement and Investment Management. The quarter included favorable investment income item that offset unfavorable Individual Life mortality and the seasonally higher loss ratio for Group Life.
The recent adjustments to our hedging program and significant take-up rate on our enhanced surrender offer reduced our Closed Block Variable Annuity exposure. Our updated CDVA cash flow results were in line with our expectations.
Finally, we return capital to shareholders while maintaining a strong capital position. On Slide 15, we modified the format to focus on potential adjustments to our first quarter results and key considerations for subsequent quarters.
We wanted to help with modeling our financial results by consolidating information on to one page. Our expectations for 2017 and 2018 results have not changed from those we shared last quarter.
On the slide, we have highlighted the items effecting the investment spread as alternative investment income was stronger than expected in the first quarter. We also benefited from other favorable variances including an equity security distribution and security settlements.
These items help to offset softer underwriting income in Individual Life due to higher term life severity. Looking ahead to second quarter 2017, we expect a sequential decline in the underlying investment spread for our retirement segment, primarily reflecting the impact of low new money rates.
For Individual Life, our normalized full year expectation in 2017 for underwriting gains net of DAC and intangible amortization would be $200 million. The normalize projection excludes 14 million in net unfavorable mortality we experienced in the first quarter and any favorable or unfavorable variances in mortality we might experience through the remainder of 2017.
On an annual basis, a one standard deviation variance in mortality experience would affect net underwriting gains in Individual Life by approximately 20 million in either direction. To further help explain our seasonality, expected underwriting gains typically are lower in the second quarter and third quarters and higher in first and fourth quarters due to the timing of premiums on our term blocks.
In the second quarter, we expect 20 million to 30 million of investments spend related to our $350 million strategic investment program, and we also expect a sequential decline in seasonal expenses. Finally, we forecast GAAP capital for ongoing businesses to be in the high $7 billion to low $8 billion range by the end of 2018.
The change from prior expectations is largely attributable to stopping sales of pension risk transfer and term life. We are primarily focused on improving our ROE via higher earnings and increased capital efficiencies.
As a result, the year-end GAAP capital expectation could continue to change. Turning to Slide 16.
Positive Retirement net flows were supported by our record quarterly corporate markets net inflows that benefited from strong transfer in recurring deposits and lower than expected surrenders. While the departure of the tax exempt markets merger related case discussed on our fourth quarter earnings call did occur.
That outflow was partially offset by a sizable new tax exempt markets client win. Turning to Slide 17.
Investment Management source net inflows were nearly $600 million during the quarter. These results were driven by continued client demand across our broad range of our products and solutions, including various fixed income and equity mandates as well as private equity fund closings.
Variable Annuity net outflows for the funds managed by Investment Management were $1.4 billion, which included $788 million related to the GMIB enhanced surrender offer. As shown on Slide 18, our fixed indexed Annuities produced positive net flows as the interest rate environment remained favorable.
Our investment-only products also continued their streak of positive flows. Moving to Slide 19.
The loss ratio for Group Life was consistent with historically observed seasonality and we expect subsequent quarters in 2017 to show significant improvement, consistent with 2016. The loss ratio for Stop Loss improved from 4Q '16 and was modestly above our annual target range of 77% to 80%.
On Slide 20, we've made several changes to this quarter's presentation to better portray how currently manage our Closed Block Variable Annuity hedge program. While our hedge program protects both regulatory and rating agency capital, currently the primary target is the rating agency CTE 95 level.
Since our IPO, the rating agency requirement has generally been higher than the regulatory requirement. During the first quarter, the hedges continue to offset the changes in rating agency requirements as shown by the bar graph.
We are showing the past five quarters to indicate the range of hedge performance for both the interest and equity hedge programs. If we were to go to back to 2015, the net impact by quarter was similar for our experience in 2016.
We ended the first quarter with estimated available resources of 4.1 billion, which meets both rating agency and regulatory requirements. Starting with this quarter, we will disclose available resources as measured on a book value basis.
We believe book value more consistently aligns with CTE 95 and statutory accounting then from market value, which we have disclosed in prior quarters. For purposes of comparison, the market value of our available resources was slightly higher than book value.
During the first quarter, net outflows in the Closed Block were $2 billion included in this figure is 1.2 billion of net outflows from our enhanced surrender offer that Rod mentioned earlier. The surrender offer had a take-up rate of approximately 25%, and we expect an additional $100 million of surrender offer related outflow in the second quarter.
We are very pleased with the take-up rate and the interest that policyholders showed in this opportunity. We are considering additional offers to other GMIB policyholders to offer more options to our customers and to continue accelerating the runoff.
On Slide 21, you can see how our targeted GMIB offers combined with a natural runoff have led to a significant decrease in the size of the block. Since our IPO, the living benefits policy count has declined by over a third.
Over that same four year period, the living benefits account value has also fallen to 24 billion, which includes approximately 6 billion of net market appreciation. On Slide 22, we show the results of our annual update or projected cash flows on the Closed Block.
The value shown reflects changes to our hedge program and a change in our long-term interest rate assumption. Compared to a year ago, the range of the results is tighter.
Higher values for scenario one show how the additional hedging program adjustments provide additional protection in a sharply depressed interest rate and equity market scenario. The reduction in the long-term interest rate assumption, which was part of our 2016 annual assumption review, lowered the values for scenarios two, three, and four.
We do not plan to regularly update the 1% flat interest rate scenario that we showed in our second quarter 2016 earnings call, but the result of that scenario similarly improved with a net present value of positive 200 million, representing an improvement of approximately 1 billion. On the far right, we added another view to value the cash flow scenarios a static 3.75% discount rate.
That rate is consistent with our long-term statutory interest rate assumption and roughly consistent with our portfolio yield on asset supporting block. Slide 23 puts the four deterministic 50-year cash flow scenarios in perspective, as we have done previously.
Compared to the sarcastic distribution from a year ago, there are fewer negative outcomes and the spread of results is tighter. The adjustments to our hedging program, the lowering of our long-term interest rate assumption and the shrinkage of the block are the main drivers behind the year-over-year change in results.
Deterministic scenario 1 is an outlier and remains on the far left of the graph. There are only 3 stochastic scenarios worse than scenario one.
On Slide 24, you can see that our regulatory and financial leverage ratios are strong and remain better than our targets. The RBC ratio increased to 526% at the end of March, mainly driven by statutory net income.
On the right side of the slide, our debt-to-capital ratio was relatively unchanged at 24.5% at the end of the first quarter, even after factoring in the capital already committed to share repurchases. On Slide 25, our excess capital which consists of estimated statutory surplus and holding company liquidity above targets was $949 million at the end of the first quarter.
Additionally, we repurchased 90 million of debt in the quarter. We had 436 million available for share repurchases at the end of March after funding a 150 million discounted share repurchase program in the first quarter.
The transaction closed in the second quarter. Since our IPO, we have returned $3.2 billion of capital to shareholders.
In summary, we continue to progress towards our 2018 ROE goal. We have strong balance sheet and we continue to return capital to shareholders.
And we made significant progress in de-risking our Closed Block Variable Annuity exposure. With that, I'll turn the call back to operator so we can take your questions.
Operator
[Operator Instructions] Today's first question comes from Seth Weiss of Bank of America. Please go ahead.
Seth Weiss
Mike, question for you on the updated capital levels for the ongoing business expected to be in the high 7 to low 8 range. I believe the previous expectation was around $8.7 billion when you gave us a couple of quarters ago.
I know you mentioned this is largely a function of lower term life and I believe pension risk transfer sales. But on an EPS basis, if we take kind of the midpoint of your ROE guidance, this is an insignificant change in terms of earnings and I get $0.50 a share out in 2018.
So I'm just trying to put in context a bit understand the change here in guidance?
Michael Smith
So, Seth, you got the numbers straight in terms of our capital expectation. And as I said, the original estimate was a projection based on a number of assumptions, including relatively capital intensive businesses, particularly the PRT that in term life that you mentioned.
So, I think from our standpoint, this is a better representation of where we think we are ultimately going to. We remain confident in achieving our targets, in terms of the ROE goal, which as I said what we're primarily focused on and that is to reiterate that 13.5 to 14.5 in 2018.
And so, I think ultimately the math is the math, but our focus is on ROE and driving the ROE improvements story that we started back at the IPO.
Operator
And our next question today comes from Erik Bass of Autonomous Research. Please go ahead.
Erik Bass
I had a question on CBVA and given the success of the enhanced surrender value program and the other initiatives that you've undertaken coupled with the improvement in the stressed cash flow scenarios. Do you have any more clarity on when you may be able to start withdrawing capital from the block?
Rod Martin
Thank you, Erik. The short answer is that we continue to work on driving the business down and we made, as you said, significant progress.
In terms of future guidance on capital, I think we'll do that at an appropriate time. But at this point, we're still in the five year period that we started at IPO.
Where we don't expect within five years that I think I've said this before that didn't mean in year six that was when it was going to start. I would point out that at the time of the IPO interest we had a certain expectation about interest rates.
Interest rates have performed meaningfully below that and so that's put some pressure on the expectations that we had at IPO. But we’re very pleased with the results of our offer.
We're going to -- as I mentioned, we’re going to look at other opportunities to do that. We offered half of the block the first time through.
We got a 25% take-up rate. I think there are ample opportunities for us to continue to accelerate that runoff.
Seth Weiss
Got it. I appreciate the comments.
And then quickly if you could talk about the pricing and loss cost environment in medical stop loss where the loss ratio has now been over 80% for two consecutive quarters. What gives you the confidence that this will improve and get back to the 77% to 80% range for the remainder of the year?
Alain Karaoglan
Erik, hi, it's Alain. Yes, the first quarter loss ratio was elevated on the stop loss business.
As you know, the stop loss business in 2014 and 2015 went through a period were claims were quite favorable. And claims have accelerated in 2016 and 2017 -- in 2015 and 2016.
It used to be in the very low digits in the prior -- it increased around 7% range. We’re actively performing analysis on our book of business to allow more precision in the renewals and in where we need to take actions going forward.
We're quite confident in our ability to achieve our 2018 targets in terms of loss ratio. Now should the trends in claims that you've seen in the last two quarters and stop loss continue in 2017, you should expect to be at the higher end of our targeted loss ratio range or slightly above that for 2017.
But looking at the book of business and as you know, this is a one year book of business renewal, you're able to take actions quite significantly to adjust the ratio. And as you know, we are willing to give up premium in order to improve underwriting results, and we will do that if we need to.
Operator
And our next question comes from Ryan Krueger of KBW. Please go ahead.
Ryan Krueger
I had a couple of expense questions. First, could you quantify the amount of what you consider to be seasonally high 1Q expenses that would come down going forward?
Michael Smith
Sure, Ryan. This is Mike.
The seasonal expenses we guided to in the fourth quarter was $25 million, we expect that to reverse.
Ryan Krueger
And then secondly, how should we think about the pace of the $50 million cost save guidance for 2017? And was there any material impact from the cost saves that were included in the 1Q results?
Michael Smith
We're on track to achieve the 50 to 60, and I think there will be impact throughout the year. I think it will build overtime.
And we’re also I think very confident on achieving our 2018 goals that we’ve set out of over 100 million or more. So, on track and it'll grow gradually over the course of the year.
Operator
And our next question comes from Tom Gallagher of Evercore ISI. Please go ahead.
Tom Gallagher
First just a modeling considerations question, I just want to make sure I have this right. On Slide 15, you have this other favorable variances and two net investment income and those are all adding up to about $21 million and its footnote saying equity security distribution and security settlements.
Should we expect 21 million less of pretax earnings heading into 2Q? I mean I know there is a lot of other adjustments to be made here including mortality and some of the other issues, but if I just isolated to that one issue.
Should I not expect that -- should we assume on a normalized basis that goes to close to zero or should some level of that related net investment income expected to recur?
Michael Smith
Tom, this is Mike. So first thing to make sure you catch these are pre-DAC numbers too.
So you need to make DAC adjustment in terms of the overall where appropriate. But, I think you generally got it right.
These are items that are unusual flows to us that come through investment income. That is not to say they not occur in the future, but we don't expect them to be a -- there is not expected to be steady stream of them.
They tend to be lumpy and we want to flag it as something, particular, in the environment we are in, where there is the new money rates are putting some pressure on spread. We want to make sure we clear what was going on.
As you correctly observed, there are other unfavorable items, particularly mortality in Individual Life and seasonal mortality bump in Group Life that need to be adjusted the other way. It so happens that they basically washed out in the quarter the way we're thinking of them.
Thomas Gallagher
Got it. And Mike, the DAC offset to those, would it be, can it takes something like 50% for DAC amortization or would it not be that high?
Michael Smith
It's quite a bit smaller than that. I think you should be thinking in the low double-digit kind of rate, if any.
Thomas Gallagher
Got it. And then just also just on thinking about seasonality, I know the medical stop loss leave last year so over than thousand point improvement in loss ratio, if I looked at from 1Q to 2Q.
And I know you guys have already given out your full guidance, so I assume it's going to be that that pronounced. But would you see -- even with trend you're seeing, would you still expect to see a material improvement and the loss ratio adjustment from a seasonal standpoint in stop loss in 2Q versus 1Q?
Michael Smith
Tom, we typically don't think of stop losses having a seasonally component. I think it will potentially change overtime, as experienced from the block continues to emerge.
This is an evolving block where we have policies re-underwritten every year. And so as experience emerges on subsequent cohorts of business, you'll see some changes.
But there is not really is seasonal element of stop loss, if I understand your question correctly.
Thomas Gallagher
Yes. Now, that's helpful.
And then final question. Just thinking about -- I think the metric you put out on CBVA look pretty encouraging on reduction in risk and a better outcome on the worst case scenario in your stress scenario.
The one thing I wonder though is it some point to this be a gating item on capital return just from a debt to cap standpoint because looking at your leverage is now nearing 25%. And if you have say successful execution on some future buyout programs that result in gap losses, it could push our debt to capital for 25%.
Is that not an issue or is that an issue that could became a gating item?
Michael Smith
So, first, Tom, we are encouraged by the results that you're seeing and I'm glad that we’re seeing at that way as well. I think there is a lot to feel good here and we’ve made great progress.
And I think we have more opportunities to make further progress. In terms of debt to cap a couple of things to consider, first, we set this level at IPO and the 25% and I think we would be view as a conservative level in part inconsideration of the CBVA exposure.
Another thing to keep in mind is that we calculate that debt to capital ratio on a conservative basis, we don’t give equity credit for the subordinated debt. If you did that, the 24.5% become 23.1%.
We’re not going to change our presentation of that, but that’s just something for you to keep in mind. Third is that, there are -- this is one measure of our leverage.
There are lots of other measures that the rating agencies look at and that the market considers. And so, it certainly it’s a consideration.
We’ll continue to manage that accordingly, but it's not something we view as a near term issue.
Rod Martin
Tom, it's Rod. The only other thing I would add is consistent with what Mike said on the conservative nature of what he just discussed, recall that when we went public, we also for we think very good in valid reasons.
We’re very prudent in keeping 24 months liquidity to holding company, that is much higher than most of our competitors. We think it's been a -- it is served us well, but it's just another factor that I think you want to consider as you evaluate this available resources.
Operator
And our next question comes from John Nadel of Credit Suisse. Please go ahead.
John Nadel
So a couple of questions. On CBVA, your referenced taking some incremental interest rate protection actions back in later part of the fourth quarter.
And clearly, it seems like that in combination with a couple of other things here to enhance program et cetera is had a positive impact. How long is the duration of that incremental hedging that you put on, I mean should we think about that as a time specific.
We expect it to runoff at a point or should we expect that to be long-term in nature and its going to be an ongoing contributing factor to the favorable stress scenarios here?
Michael Smith
Good morning, John. Couple of things to keep in mind, yes, we added to our long tenured swap positions.
So, the tenure of those is relatively consistent with that which we have done in the past, which I think was in the roughly 18 years. Is that correct?
So, that I think is that position is now larger than it used to be. So to your point, there is more long duration protection.
In addition, you'll recall last summer and we’ve talked about a hedged to protect in the low for long scenario that was a one sided shorter duration hedge. We adjusted our hedge position to -- we basically liquidated that position and added more swaps in place of that.
So, we lengthened the protection that we had in that space as well too.
John Nadel
Excellent. And then the question on the housekeeping item on the 50 million to 60 million of expense saves for 2017.
Can you just remind us, is that a 50 million to 60 million save that we should view as the run rate by the time we get to the fourth quarter? Or is that 50 million to 60 million in absolute dollars in '17 versus '16?
Michael Smith
We've consistently said and to be clear it is in 2017, and the 100 plus is in 2018, not a run rate.
Operator
And our next question today comes from Yaron Kinar of Deutsche Bank. Please go ahead.
Yaron Kinar
Just want to go back to the enhanced surrender offering and its results. Can you maybe give us a little more color as to what the take-up rate there?
And then specifically, I'm guessing that you mostly targeted in the money policyholders. So, what kind of impact did that have on these scenarios, the cash flow scenarios that were offered on Slide 22?
Michael Smith
Yaron, so we offered this to a specific cohort of our GMIB, it's roughly half of the policyholders. We're not able to distinguish between the level of moneyness if we offer it to any policyholder who bought it with under that perspective than we have to offer to all.
The take-up rate was 25%. That as we said was -- it'd be ultimately $1.3 billion in take-up about 13,000 policyholders roughly speaking.
In terms of in the moneyness I guess the way to think about the block is that the vast majority of the GMIB is in the money as it is. And so, it was a pretty meaningful impact.
We didn't really spike it out in terms of the cash flow. So that's not really factored in, not really something that I can comment on.
What I can say is that it was a meaningful reduction in the net amount of risk did that to give some perspective. Buyout reduced the living benefit net amount risk by about 300 million.
So, that's a pretty substantial change from our perspective. So, we are very pleased with the take-up and look forward to seeing what other opportunities we can exercise on.
Yaron Kinar
And then maybe one other one on Closed Block. On Slide 20, you talked about sufficient at CTE 95.
I just want to confirm that at the current levels, we are so or the Company still above that CTE 95 target and maybe also touched on the $50 million that I think were put into the block of assets that were put in to the block. Maybe you can talk about why that was necessary?
Michael Smith
Yaron, first, yes, we are still sufficient at CTE 95, and frankly, a relative position in terms of level of efficiency hasn't changed a whole lot over the last several quarters. It has been fairly steady.
The 50 million was really at a balancing that we go through between the entities, the writing entity, the IO company and our downstream captive. We periodically up to shift to the cash flows between the two entities just to keep things in balance as get to the easiest way to say it.
Yaron Kinar
Okay. And just to circle back a second, the sufficient at CTE 95 so is the Company now at CTE 95 because I thought a quarter two ago you were at closer to 98?
Michael Smith
Thank you. We also while we target CTE 95, we are sufficient at CTE 98.
Operator
And our next question comes from Suneet Kamath of Citi. Please go ahead.
Suneet Kamath
Thanks. I wanted to start with capital, if I could.
So, if I look at your excess capital position of 949 million and I think about your remaining buyback authorization of 436. It looks like there is still another $500 million difference between those two numbers.
So, I just wanted to confirm that you're still committed to returning that incremental excess capital to shareholders say over the next year or so?
Rod Martin
Suneet, this is Rod. I think you should look at the record of our past.
We’ve been very consistent with that approach. We’ve got in authorization.
We intend to utilize the authorization. That will evaluate both market conditions and where we are in the year.
We will go back to our Board and have an active conversation as we’ve done in many previous times and continue to return excess capital shareholders as we deem appropriate given the market conditions. As Mike pointed out, I think we’ve returned already 3.2 billion which we’re proud of, and we will continue to be active in that as well as judiciously managing the capital of the Close Block in similar amount.
Suneet Kamath
I understand, I mean the reason I ask the question is because I think in your definition of ROE your denominator excludes any excess capital over 425. So, I guess the reason I ask the question is I want to make sure that there is not like an additional cushion that you're holding in theory we should be adding back to that denominator when we calculate the ROE?
Rod Martin
You have it correct.
Suneet Kamath
Okay. And then my other question is just in terms of I think going back to Seth's question at the start of the call.
If we take your ROC guidance and then the new capital number for 2018 and sort of back into an imply EPS. It still seems like there is a pretty sizable difference between where you're run rating that right now and where that number is which is how we in excess of a dollar per quarter.
So, I just want to get a sense of as you think about modeling the company where -- when do you think we should start to see that inflection point i.e EPS run rating from around somewhere in the $0.70 to $0.80 to something north of a $1?
Michael Smith
So, Suneet I think I understand the point of the question. I think the improvement will continue to be seen gradually over the course of 2017 and probably more so in 2018 is the way I would think of it.
I think it's an accelerating curve. It's not a straight linear to the end point.
Suneet Kamath
And that acceleration would start probably second half of this year given…
Michael Smith
Yes. I think the way that -- Yes, I think the way to think about it Suneet is the cost saves will start to build.
The benefit of the growth we’re seeing will start to build. The efficiencies and other benefits that we’ve built should also continue to compound.
So think of it that way as it's something that will continue to build upon the success of the prior quarter and so on.
Operator
And our next question comes from John Barnidge of Sandler O' Neill. Please go ahead.
John Barnidge
As I think about divestment of the CBVA, I was curious about AUM of note from CBVA managed by Investment Management?
Michael Smith
Yes, I think the number is above 21 billion that's managed by Investment Management.
John Barnidge
Okay. And then with the sale -- potential sale rather, how should we think of expenses that in Investment Management because that presumably at certain level that are fixed?
Michael Smith
We are starting to get way ahead of ourselves in terms of sale, but let's think of -- just kind of think that through, right. The funds would continue to be managed, if we did the straight sale of the entity.
At least for some period of time, the funds will be continued to be managed by Voya, Investment Management. And then there may or may not be at transition of that management to some other player.
So, it's not a given that goes away in the case of a transaction like that. What might and it's also not even given the general account assets would move.
It would really depend on the nature of the transaction, the nature of the potential buyer. But, again, that's little ahead of where we are today and hard to speculate.
I just don't assume that has to go away.
John Barnidge
Okay. And then maybe one question on the DOL.
So the DOL rules delayed and at what point does uncertainty of as the rule happens or doesn't happen become more disruptive in some ways than implementation of the rule itself?
Rod Martin
It's Rod and I will hand it to Charlie. We can't predict what and how and in what form Washington is going to -- how this is going to emerge.
I think if you look at the results that Carolyn and team produced in the first quarter of this year, Annuities, but we have example. We've got a very good platform.
I think some good momentum. There clearly is uncertainty the sooner that's resolved its better, but we will continue to be very agile as we move through this and we are -- I think appropriately managing our expenditures associated with that, as reflected in what has been revealed in our financials, and Charlie more specifically on DOL.
Charles Nelson
Thanks, Rod. In terms of disruption, I don't see quite as disruption because I think we're -- until there is a definitive change or modification, we are marching towards compliance.
We've long been an advocate for the role of the adviser and how they can help improve outcomes as well as advancing access to advice. So if you think about that, regardless of how the rule ultimately plays out, the delay as is or even gets canceled, our commitment is to continue to make a prudent investment to enhance our functionality and capabilities with our advisers to improve automation of compliance, documentation, fiduciary disclosures for advisers, administration of security transactions, of which, I think the results for our business and the client experience is really going to benefit our customers, the advisers as well as Voya long term.
Operator
And the next person comes from Sean Dargan of Wells Fargo Securities. Please go ahead.
Sean Dargan
If I could just come back to the CBVA extreme stress scenario, present value improving. To be clear the main driver of that is, the hedge modifications that you described to John Nedal and not the surrender value offers or market hedges?
Michael Smith
Yes. It is correct.
It is primarily driven by the hedging that we’ve added to the block.
Sean Dargan
Got it. Thanks.
And can you just remind us our NPR adjustments? Does that flow through statutory capital?
Michael Smith
Sean, that does not, that is a gap only construction. And as we’ve said, we view it as a non economic feature of some of these liabilities on a GAAP basis.
Sean Dargan
Great. Thanks.
Rod Martin
We’ll take one additional question.
Operator
Thank you, sir. And our -- the final question today comes from Humphrey Lee of Dowling & Partners.
Please go ahead.
Humphrey Lee
Just related to the CBVA accelerator surrender offer. Can you maybe talk about some of the feedback that you’ve got from clients in distributions?
And maybe what you can think about -- what your thoughts regarding in future rounds of enhanced offering? What you can do to even attract a high date operate?
Rod Martin
I'll begin, this is Rod. And then Mike certainly can jump in.
if you recall, we’ve had four previous offers at different incentives as an enhancement and we view this always as and continue to as a beta test to secure feedback from our customers and the distribution partners that are associated with that. This was the first buyout offer that we had done.
And part of feedback we’ve received in the previous offers where some were absolutely interested in the enhancement and some suggested, if the buyout offer was made and it was considered appropriate in their view that there would -- it would be welcome to all receive. And certainly, we are very pleased as Mike and Alain have talked about.
We are evaluating further offers. We'll follow the same path and process that we’ve done earlier.
And we are -- we will keep you posted as we through this. So, we will continue to be very thoughtful about approaching the customers in the same manner, same thorough process and we’re going to consider additional buyout offers in the context of 2017 and beyond.
Mike, can you think of us.
Michael Smith
I think the reaction was enthusiastic. I think the simplicity of the offer is something that appeals to customers and to distributors.
I think the only -- the one of the primary lessons is that we will and if we do a future offers, it's possible we'll lengthen the offer period just given the degree of reaction. It will make a more potentially even more successful, I think we’ll have to wait and see how the offer is ultimately received.
Not everybody is in the same position, not all parts of the block are the same. So, it's not necessarily true that the reactions on the other part would be the same as this, it might be better, it might not be a little bit lower.
But I think we’re really encouraged by the results and looking forward to the future opportunities.
Humphrey Lee
And then just as a follow-up. How should be think about the potential cost or at least for this round the cost to Voya in terms of this, this enhanced offering?
Michael Smith
We think of the cost in a purely statutory way, right. And I think that we would describe that and I think we described in the press release as modest impact to resources.
You can see that in the comparison of resources to reserves and how that really didn’t change. The relationship didn't really change quarter-over-quarter.
There was and I will take a minute just to explain the GAAP impact in that. The GAAP reserves are lower than the statutory reserves.
And so while the statutory impact, the amount that we pay relative to those reserves is relatively close. There is a further distance between what we're paying and the GAAP reserves.
And so we release meaningfully less than the actual amount we pay on a GAAP basis and that led to the GAAP loss. But we think of the cost purely in terms of statutory and we're very pleased with kind of way we were able to get a pretty significant take-up at a pretty modest price.
Operator
And thank you sir. This concludes our question-and-answer session.
I'd like to turn the conference back over to Rod Martin for any closing remarks.
Rod Martin
Rocco, thank you. We're pleased with the results we've achieved this quarter.
The year is off to a good start with strong performance across our businesses. We will continue to execute our plans and will remain confident in our ability to achieve our financial targets, provide valuable solutions to our customers and continue to deliver value for our shareholders.
Thank you and good day.
Operator
And thank you, sir. Today's conference has now concluded and we thank you all for attending today's presentation.
You may now disconnect.