Genworth Financial Inc

Good morning, ladies and gentlemen, and welcome to Genworth Financial's fourth quarter 2022 earnings conference call. My name is Jim, and I will be your coordinator today. At this time, all participants are in a listen-only mode, and 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 fourth 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.genref.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 Hennigus, 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 the SEC rules. Also, references to statutory results are estimated due to the timing of the filing of the statutory statements. And now, I'll turn the call over to our President and CEO, Tom McInerney.

Thank you very much, Sarah. Good morning, everyone, and thank you for joining our fourth quarter earnings call. Before I review our strong fourth quarter and full year 2022 results, I want to acknowledge our outstanding progress against our strategic priorities throughout the year. I'm incredibly proud of these accomplishments, particularly achieving our debt target, meeting the conditions to remove the government-sponsored enterprises or GSC restrictions that were placed on an act, returning capital to shareholders for the first time in over 13 years, and receiving multiple ratings upgrades. These achievements have improved Genworth's financial strength and allowed us to enter 2023 with a greater level of flexibility to invest in growth and continue returning capital to our shareholders. To speak to each of these achievements a bit further, in May of last year, the Genworth Board authorized a new share repurchase program of up to $350 million. This was an important milestone reflecting our improved financial position, the Board's confidence in our strategy and our future, and our commitment to our strategic priorities. Since the authorization, we've repurchased 64 million worth of outstanding shares at an average price less than $4 per share. We were careful to restrict the level of repurchases in 2022 until we reduced the debt to $900 million and satisfied the conditions to remove the GSC capital restrictions. Having now accomplished both objectives, we plan to pick up the pace of share repurchases subject to market conditions and Genworth share price. Throughout 2022, the holding company received credit ratings upgrades from each of the three major rating agencies, reflecting a substantial improvement in our credit profile. In September, Genworth achieved a critical milestone when we paid off our remaining senior notes due in 2024, marking the achievement of our long-term holding company debt target of a billion or less. Genworth ended 2022 with holding company debt under $900 million, reflecting over $3 billion of debt retired since 2013. We believe this is a sustainable level of debt for the company to carry going forward with manageable interest expense obligations of approximately $60 million per year. However, we're open to further debt reduction if we have extra cash and attractive terms for further debt retirement. By reaching our holding company debt target, we were positioned from a capital perspective to meet the financial conditions for removing restrictions placed on an act by the GSEs. We believe we fully met Genworth's holding company financial conditions in both the third and fourth quarters of 2022, which should result in GSEs lifting restrictions on an act in the first quarter of this year. We are working with the GSEs and expect confirmation shortly. This is an important, positive development for an act and for Genworth, as an act will no longer be subject to more stringent capital requirements than its peers once these restrictions are removed putting a knack on a more level playing field with competitors. The successful execution of these four actions is a testament to our commitment to driving value for our shareholders, and we were rewarded with strong share price performance over 2022, despite the volatile macroeconomic environment. Turning to financial results, Genwick delivered excellent results in 2022 and finished the year strong. For the full year, net income was $609 million, and adjusted operating income was $633 million, or $1.24 per diluted share, well above market expectations. These outstanding results were led by an act which had a very strong operating performance and ended the year with record insurance in force. In the fourth quarter, amidst the ongoing challenging backdrop, Genworth generated excellent results. That income was $175 million, and adjusted operating income was $167 million, or 33 cents, per diluted share. Since an Act's IPO, Genworth has received approximately $370 million in capital from an Act, including $168 million in the fourth quarter. Cash flows from an Act have enabled us to achieve the key milestones I mentioned before and will continue to benefit shareholders by fueling our share repurchase program and long-term growth strategy. While our fourth quarter statutory processes are still underway, We expect U.S. LIFE statutory after-tax net income for the full year to be approximately $275 million, reflecting continued positive results for LTC, including pre-tax statutory income for the LTC legacy business of approximately $255 million in 2022. We expect GLIC's statutory capital and surplus to increase from $2.9 billion at the end of 2021 to approximately $3 billion at year-end 2022. GLIC's estimated RBC ratio at year-end 2022 is currently projected to be approximately 290% in line with the prior year RBC ratio of 289%. Our final statutory results will be available with our year-end statutory filings later this month. According to our legacy LTC portfolio, we continue the strong momentum in our Multi-Year Rate Action Plan, or MIRAP, the most effective tool we have to bring our legacy LTC portfolio to economic break-even on a go-forward basis. We achieved a total of $549 million in annual premium rate increase approvals in 2022. Of that amount, we are awaiting the final disposition of a small number of the approvals as we work through implementation mechanics. With the addition of these 2022 approvals, our cumulative progress is approximately $23.5 billion in approvals on a net present value basis in approvals on a net present value basis since 2012. We also continue to make progress against our strategy to drive future growth through our new less capital intensive senior care services business, which will launch under the CareScout brand. CareScout's leadership team is now fully in place and executing on a multi-phase to go to market strategy that is expected to ultimately include four new senior care focused business lines. The first area of focus is the fee-based services business, which will provide care navigation support and advice to existing LTC policyholders and new customers. We expect to launch a pilot in the first half of 2023 in the Southwest with Genoa's existing LTC policyholders. The services business will include a digital platform where those in need of long-term care can search for and compare local care options bolstered by a preferred network of quality senior care providers. We are in the process of vetting and recruiting network partners in order to offer attractive pricing on high-quality care that will benefit both new and existing customers. The services business is designed to reduce claim costs on our legacy LTC book, as well as drive new revenue for Genworth. Second, we are investing in CareScout's existing clinical assessments business where we see attractive opportunities for growth. CareScout has a network of clinicians nationwide and is a leader in conducting clinical assessments for other insurance companies, healthcare organizations, and consumers. The third area of focus in our growth strategy is transforming the insurance and other product options available to fund long-term care. This is a key part of developing a truly comprehensive approach to addressing the complexities of the aging journey. Offering new and more innovative insurance and other funding options for long-term care is dependent on achieving an A-minus or better rating. We are still working on options to reduce the capital required to fund these products through innovative reinsurance arrangements, and as a result, implementation of these new LTC funding products will likely occur in 2024 or later. Finally, as we've said in the past, we see attractive longer-term growth opportunities to offer senior care services and funding solutions in international markets. After building the business successfully in the U.S., we will look to eventually capitalize on opportunities in other markets with similar aging demographic challenges. The current timing for CareScout's international expansion is planned for 2025 or later. We are investing prudently to scale the CareScout services business and leveraging our differentiated capabilities and experience. including 40-plus years of experience and expertise in the LTC insurance business, data on 330,000 LTC claims paid to date to legacy LTC policyholders, existing relationships with a network of care assessment professionals who are mostly registered nurses, and existing relationships with providers and caregivers throughout the U.S. We invested approximately $20 million in CareScout in 2022 to develop our care services business and clinical assessments capabilities, and we intend to make an additional investment of approximately $30 million in 2023. As we move forward, Genworth will maintain a disciplined capital allocation strategy, balancing investments and growth with share repurchases. Before I close, I want to acknowledge Dan Sheehan and his extraordinary contributions and accomplishments at both GE Capital and Genworth over the last 25 years. Dan has been an excellent investment leader for Genworth for decades. Under his leadership, the investment group has delivered outstanding results for many years. Over the last two years as CFO, he has helped lead Genworth through a very successful transition. Above all, Dan has been a good friend and colleague of mine since I joined Genworth, and I wish him all the best. With that, I'll turn it over to Dan. Thank you, Tom, and good morning, everyone.