Genworth Financial Inc

Good morning, ladies and gentlemen, and welcome to Genworth Financial's third quarter 2022 earnings conference call. My name is Taryn, and I will be your coordinator today. At this time, all participants are in listen-only mode. We will facilitate a question and answer session towards the end of this conference call. As a reminder, the conference is being recorded for replay purposes. Also, we ask that 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 third 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 Henegas, President of our U.S. 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 presentation, as well as the risk factors of our most recent annual report on Form 10-K as filed with the SEC. 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 and the filing of the statutory statements. 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 third quarter earnings call. Denworth delivered another quarter of solid operating performance, despite a challenging macroeconomic environment reflecting good momentum in our businesses and continued progress against our strategy to deliver long-term growth and shareholder value. U.S. GAAP net income was $104 million for the third quarter, while adjusted operating income was $159 million, or $0.31 per share. These results were again led by an act, which reported 156 million in adjusted operating income to Genworth. US Life reported adjusted operating income of 11 million, driven by LTC and fixed annuities, partially offset by losses in life insurance. An act continues to deliver strong performance, driven by execution of its cycle tested growth and risk management strategy. Since an act's IPO, Genworth has received approximately $200 million in dividends from an act, including $19 million in the third quarter. As you know, our shareholders benefit from Genworth's ownership of an act through its significant free cash flow and resulting dividends, which have enabled us to advance our strategic priorities, including debt reduction, share buybacks, and a continued development of our long-term growth strategy. An act executed in additional access of loss reinsurance transactions to strengthen its capital position in September. An act's strong capital levels, including PMIR's sufficiency of 174 percent, robust balance sheet, and access to capital, puts it in an excellent position with enhanced financial flexibility. We continue to expect a special dividend from an act in the fourth quarter, as an act announced yesterday. U.S. life companies had combined pre-tax statutory income of approximately $10 million in the third quarter which is improved versus the prior quarter, driven by smaller equity market declines, which require us to increase statutory reserves in our closed-block variable annuity business. Genworth Life Insurance Company, or GLICS, estimated RBC ratio was approximately 285% as of quarter end. Our final statutory results will be available with the third quarter statutory filings later this month. On a U.S. GAAP basis, the life businesses and RONF together had adjusted operating income of $20 million in the third quarter. Effective January 1, 2023, we will implement LDTI long-duration targeted improvements, the new GAAP accounting standard impacting our U.S. life insurance companies. Our actuarial and controllership teams are focused on the implementation, and their progress remains on track. It is important to remember that the impact of LDTI is non-economic. It will have no impact on our cash flows, statutory accounting, capital position, capital returns, or business strategy for our U.S. life insurance companies. Dan will go into more detail regarding our current estimates for some of the expected initial impacts for our LTC business. Regarding longer-term cash flow, I want to provide an update around AXA's case against Sendentere and potential recoveries in the case. As a reminder to investors, Genworth is not a party to the case, but we will share in any recoveries from AXA from San Denter through a judgment or settlement. Based on developments to date, we anticipate that our trial will begin in 2024. However, we do not anticipate the trial date to be set until mid-2023. It is premature to accurately estimate the amount of potential recoveries. However, if AXA is successful in claims against Indentere, we are optimistic that we will be able to recover a significant portion of the approximately $830 million that Genworth has paid to AXA as part of our settlement agreement. As we look ahead to the fourth quarter and beyond, Genworth remains prepared to navigate ongoing economic uncertainty due to our well-positioned investment portfolio, very low debt-to-capital ratio, modest annual debt service obligations, and expected cash flows from an act. Our continuing execution against our strategic priorities reinforces that positioning. Genworth achieved a critical milestone in September when we paid off our remaining 2024 senior notes, marking the achievement of our long-term holding company debt target of $1 billion or less. Genworth's holding company debt is now $900 million. This important achievement results from over $3 billion of debt retired since I joined the company in 2013. I am incredibly proud of the work our entire Genworth team has done in achieving this goal, particularly given the challenges with Glick's legacy LTC business and the challenging pandemic and market backdrop in recent years. As a result of this multi-year effort, we have very manageable interest expense obligations moving forward, and our pro forma cash flow coverage inclusive of intercompany tax payments is approximately five times. Most importantly, a strong parent company balance sheet and significant free cash flow from an act will allow Genworth to step up capital return to shareholders going forward. Turning to our legacy LTC portfolio, we continue to execute against our multi-year rate action plan, or MIRAP, our most effective tool that we are deploying to bring our legacy LTC portfolio to economic break-even on a go-forward basis. We have achieved $200 million in annual premium rate increase approvals year to date through the third quarter. This brings our cumulative progress against the MIRAP program to $21 billion on a net present value basis since 2012. We continue to build a new entrepreneurial management team in our global care solutions business. New hires include a chief technology officer and the head of our preferred provider network. We are preparing to launch our new less capital intensive LTC service Navigation, and Vice Business in the first half of 2023. Initially, we will focus on the most attractive target markets and new digital technology enhancements. The new business will include a digital platform where those in need of long-term care can search for and compare their local care options bolstered by a preferred network of quality senior care providers offering more attractive pricing. We will continue to take a consumer-driven design approach refining the experience based on learnings as we expand the business going forward. Over time, we plan to expand this offering across the U.S. market to meet the long-term care navigation and advice needs of the more than 70 million baby boomers as they approach their peak LTC claim years. Our goal is to create a single, unified experience utilizing our 40-plus years of LTC insurance and claims-paying experience, along with the care navigation and health assessment capabilities from our CareScout subsidiary to address the needs of the aging, their families, and caretakers to enable a more dignified, connected, and fulfilling aging journey. This is important work for our customers, and I'm happy that we're able to leverage what we've learned over four decades of managing Genwer's LTC insurance business to help not only our policyholders, but all Americans who may need long-term care. We are pleased with the progress we continue to make, and look forward to sharing further updates in the near future. Turning to Genworth's capital allocation strategy, 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 May of this year. As of October 31, 2022, Genworth has repurchased $59 million worth of outstanding shares an average price slightly below 390 per share. As previously mentioned, beyond share repurchases, and as we work to build significant excess cash, the Board will evaluate and consider implementing a quarterly dividend to general shareholders. With that, I'll turn the call over to Dan.