Rising claims force Voya Financial to recalibrate stop loss policies

Voya Financial has reported an anticipated rise in the loss ratio for its Stop Loss business, projecting a range of 90% to 105% for the January 2024 policy year, up from its earlier estimate of 86%. This adjustment, disclosed in a company filing, is attributed to a surge in claims frequency, including a notable increase in cancer diagnoses among younger individuals. As of November 30, 2024, the claims experience for the year reached approximately 60% completion, offering a more comprehensive view than the previous estimate based on 33% completion at the end of September.

The New York-based insurance company revealed that its January 2024 Stop Loss policies were priced lower than ideal due to favourable experiences in earlier years. This underpricing, combined with a rise in claim frequency, has strained margins. However, Voya Financial plans to address these challenges by implementing higher premium rate adjustments for 2025 renewals, prioritising profitability over growth in its in-force premium base. Premium rates are expected to increase by 20% to 24%, particularly targeting underperforming policies.

Despite these efforts, Voya Financial foresees that its Stop Loss loss ratios will remain above the long-term target of 77% to 80% in 2025. The company is focused on enhancing risk selection and re-pricing policies annually to manage liabilities more effectively. This strategic approach includes a projected 10% to 20% reduction in annualised in-force premiums for January 2025 compared to the previous year, reflecting a cautious stance towards maintaining a balanced risk portfolio.

In addition to addressing operational challenges, Voya Financial reaffirmed its commitment to shareholder returns, confirming plans to return $800 million in capital during 2024. The company also indicated that excess capital usage in early 2025 would prioritise acquisitions, notably the purchase of OneAmerica.

Industry observers have noted that the higher claims frequency in 2024 presents a significant challenge for Voya Financial’s Stop Loss business. The anticipated improvement in loss ratios by 2025 hinges on the effectiveness of its premium rate adjustments and the continued focus on risk management.

Voya Financial’s leadership remains optimistic that these measures will restore profitability in the long term, despite immediate headwinds. Analysts will closely monitor the impact of premium rate adjustments and claims developments on the company’s financial performance in the coming quarters.

The sharp rise in loss ratios underscores the volatility of the Stop Loss segment, especially in light of fluctuating claims trends. Voya Financial’s focus on premium rate adjustments for 2025 reflects a pragmatic shift towards stabilising its loss ratio while maintaining competitiveness. However, achieving a balance between profitability and retaining policyholders will be critical as the company navigates this challenging landscape.