Genworth Financial Inc

Good morning, ladies and gentlemen, and welcome to Genworth Financial's second quarter 2022 earnings conference call. My name is Katie, and I will be your coordinator today. At this time, all participants are in a listen-only mode. We will facilitate a question and answer session toward the end of this conference call. As a reminder, the conference is being recorded for replay purposes. Also, we ask you refrain from using cell phones, speaker phones, or headsets during the Q&A portion of today's call. I would now like to turn the presentation over to Sarah Cruz, Director of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, and welcome to Genworth's second quarter 2022 earnings call. Today, you will hear from our President and Chief Executive Officer, Tom McInerney, followed by Dan Sheehan, our Chief Financial Officer and Chief Investment Officer. The slide presentation that accompanies this call is available in the investor relations section of the Genworth website, investor.genworth.com. Our earnings release and financial supplement can also be found there, and we encourage you to review these materials. Following our prepared remarks, we will open the call up for a question and answer period. In addition to our speakers, Brian Hendegas, President of our US Life Insurance segment, and Jerome Upton, Deputy Chief Financial Officer and Controller, will also be available to take your questions. During the call this morning, we may make various forward-looking statements. Our actual results may differ materially from such statements. We advise you to read the cautionary notes regarding forward-looking statements in our earnings release and related presentations, as well as the risk factors of our most recent annual report on Form 10-K as filed with the SEPA. This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. In our financial supplement, earnings release, and investor materials, non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules. Also, references to statutory results are estimates due to the timing of the filing of the statutory statement. And now, I'll turn the call over to our President and CEO, Tom McInerney.

Thank you, Sarah. Good morning, everyone, and thank you for joining our second quarter earnings call. Genworth delivered strong performance in the second quarter, making continued progress against our strategy to strengthen our financial foundation and create value for our shareholders. Our strategy is designed to deliver long-term growth while also protecting shareholder value in downside scenarios, which is especially important in today's difficult market environment. This challenging macroeconomic backdrop is driven by a confluence of competing factors, including high inflation, rising interest rates, new COVID-19 variants, equity market volatility, and a tight labor market, the combination of which has created economic uncertainty. While we should not compare this period to other market downturns, I believe that the expected sharp increase in interest rates by the Federal Reserve to mitigate historic levels of inflation will likely adversely impact the economy in the near to medium term, and continue to create market volatility. From where we stand today, however, I believe Genworth is well positioned to weather this volatility and economic uncertainty because of strong levels of capital in our businesses, a conservatively positioned investment portfolio, a very low debt-to-capital ratio, and modest annual debt service obligations. Our execution against our strategic priorities reinforces that positioning as we continue to deliver strong performance from our in-act subsidiary, reduce holding company debt, and return value to shareholders in the form of share buybacks. First, let me review our second quarter results at a high level. U.S. GAAP net income was $181 million for the second quarter, while adjusted operating income was $176 million, or 34 cents per share. These results were led by an act which reported $167 million in adjusted operating income. U.S. Life reported adjusted operating income of $21 million for the quarter, driven by LTC insurance and fixed annuities, partially offset by losses in life insurance. Turning to statutory results in Gemworth Life Insurance Company, or GLIC, we had an estimated pre-tax statutory loss of approximately $60 million. The loss is primarily driven by equity market volatility, which required us to adjust reserves and capital in our closed-block variable annuity business. Our estimated RBC ratio was 290% as of quarter end, Our final statutory results will be available with our second quarter statutory filings later this month. NAC's continued strong operating performance in a slowing housing market has delivered shareholder returns, including stock price appreciation and dividends, of over 19% since the IPO in September of 2021 through Friday's close, despite meaningful bunker volatility during that time. Since the IPO, Genworth has received $182 million in dividends from NAC, including $19 million in the quarter. General shareholders benefit from our ownership of NAC through its quarterly and special dividends, which have enabled us to execute against our strategic priorities, including debt reduction, share buybacks, and the continued development of our long-term growth strategy through global care solutions. In addition, the market value of NAC has increased over the last several months, and NAC has traded in line with comparable peers. Enact has continued to deliver strong performance as a result of its differentiated strategy, balance sheet strength, outstanding management team, and ability to mitigate risk while building a high-quality book of insurance and force. Enact's standalone book value, excluding AOCI, has increased from $3.9 billion at the end of the second quarter of 2021 to $4.4 billion at the end of the second quarter of 2022. The business continues to operate from a position of strength writing meaningful levels of NAW and benefiting from higher persistency. The company has had strong loss performance, which has allowed it to release excess reserves in the first and second quarters. Enact also continues to maintain a strong balance sheet and strong regulatory capital ratios and executed a $200 million revolving credit facility, providing additional financial flexibility going forward. Both Enact's and Genwer's ratings have steadily improved since the IPO, as a result of an act's strong operating performance in capital levels and the significant deleveraging actions taken by Genworth. These factors demonstrate our execution against our strategic priority to maximize the value of an act to Genworth shareholders. Genworth's deleveraging has improved our credit profile, and we continue to focus on reducing our debt and paying off the remaining 2024 debt by the end of the third quarter, which would bring Genworth's parent debt to $900 million. This would also bring our debt to capital ratio down to one of the lowest in the life insurance industry, which positions us well to weather the market uncertainty in the next 12 to 18 months. In the second quarter, we repurchased approximately $48 million of our 2024 debt, leaving approximately $152 million in principal outstanding. Given our holding company cash position, the quarterly dividend from an act, and the expectation of receiving a significant special dividend from an act later this year, We plan to retire the remainder of the 2024 debt in the third quarter of 2022. On July 21st, we received another ratings upgrade from Moody's, our fourth upgrade from the rating agencies since September, which reflects our much-improved financial and leverage position. Upon the retirement of our 2024 debt, our credit profile will be enhanced even further, and we believe we will be well-positioned for rating agencies to continue to reflect those improvements. As we announced last quarter, given our positive free cash flow outlook, balance sheet improvements, and continued strong operating performance, our board authorized a share repurchase program of up to $350 million. In the second quarter, we repurchased $15 million worth of outstanding shares, and subsequent to quarter end, we have completed an incremental $15 million. In total, we have repurchased over 7.9 million shares at an average price of approximately $380 per share. We remain opportunistic when it comes to buying back shares and believe it is a very effective tool to return value to shareholders in the near term. As previously mentioned, we expect the majority of our repurchase activity to occur after we retire the remaining 2024 DAP in the third quarter. Beyond repurchases, as we continue to build significant excess cash, the Board intends to consider paying a quarterly dividend to general shareholders in 2023. With respect to our potential longer-term cash flow, I wanted to provide an update regarding our settlement with AXA and potential recoveries in that case. Sendentere made a strikeout application in the UK court, which is similar to a motion dismissed in U.S. courts. The court recently ruled on that application, mostly in AXA's favor. This is an excellent development, allowing the case to move forward. Based on the court's schedule and the amount of time it has taken to get to this point, We believe that a trial in this case is not likely before the first quarter of 2024. We will continue to communicate with AXA, seeking to move the case ahead as quickly as possible. With respect to the potential of recoveries in the AXA matter, as we've said before, it is premature to predict the amount of potential recoveries. What I can say is that with interest, AXA is presently seeking an excess of $800 million from Santander based on the current complaint and that amount is likely to be updated at some point. If AXA prevails in its claims, Genworth has significant upside in recouping a significant portion of the approximately $830 million it has paid in its settlement with AXA. Longer term, we are focused on creating value through the development of a long-term care growth strategy to become a comprehensive provider of long-term care services and solutions. We continue to take a consumer-led approach to this new business, and are primarily exploring opportunities in long-term care services and care navigation. As we seek to quickly shift from strategy development to testing and implementation, we made a critical hire in a quarter. Dr. Tim Peck joined Global Care Solutions to lead our elderly care services business in the U.S. Tim is a tested entrepreneur in the elder care space and a Harvard-trained emergency medicine physician. He founded two technology-enabled care services businesses, Call9 and Curve Health. Call9 was a medical technology startup committed to redesigning healthcare for seniors by reducing unnecessary hospitalizations through human-centered design and scale. From there, Tim leveraged his learnings from Call9 to build his next business, Curve Health, which is a telemedicine and data high-growth startup connecting physicians to chronic care patients in long-term care and post-acute settings including in nursing homes, assisted living, and home care. I'm pleased to welcome Tim, who has hit the ground running with the Global Care Solutions team as he focuses on implementing our strategy, which will initially be focused on care service navigation in select test markets next year. Shifting gears, I want to briefly touch on our priority to further stabilize our legacy long-term care portfolio. through the continued execution of our Multi-Year Rate Action Plan, or MIREP. We have achieved 153 million in annual premium rate increase approvals year-to-date through the second quarter, bringing our cumulative progress against the MIREP program to 20.7 billion on a net present value basis since 2012. In closing, I am very pleased with our progress during the first half of the year I believe Genworth is well-positioned to weather whatever comes at us in the second half. Genworth has a very strong balance sheet, expectations of continued strong cash flow from an act, and improved ratings. Further, I look forward to continuing to develop our long-term growth strategy in long-term care as we seek to redefine the future of long-term care. With that, I'll turn the call over to Dan to provide more details on our second quarter results, our financial position, and our capital allocation strategy going forward.