Q2 2023 Genworth Financial Inc Earnings Call
Yeah.
Good morning, ladies and gentlemen, and welcome to Genworth Financial's second quarter 2023 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 cruise director of Investor Relations. Please go ahead.
Good morning, welcome to Genworth second quarter 2023 earnings call a slide presentation that accompanies this call is available in the Investor Relations section of the Genworth website investor Dot Genworth Dot Com. Our earnings release can also be found there and we encourage you to review these materials.
Our quarterly financial supplement with updated information for prior periods will be made available at a later date.
<unk> today will be Tom Mcinerney, President and Chief Executive Officer, and Jerome Upton Chief Financial Officer. Following our prepared remarks, we will open the call up for a question and answer period.
In addition to our speakers Brian had a guest president of our U S life insurance Baseball and Kelly felt gaber Chief investment Officer 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 in our most recent annual report on Form 10-K as filed with the <unk>.
S E T.
This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors in our investor materials non-GAAP measures have been reconciled to GAAP where required in accordance with FCC rules also references to statutory results are estimates due to the timing of the filing of the statutory scheme.
You bet.
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 continues to make progress against our three strategic priorities in the second quarter as we navigated a challenging economic environment.
Notably I'm pleased our board authorized an additional 350 million in share repurchases significantly expanding our existing program.
Free cash flow to the holding company remains strong driven by an extra turn of capital and tax payments in 2023 from an act in the U S life insurance companies.
We continue to view returns to shareholders as an attractive use of our capital in the current environment and this is reflected in our stock price, which has increased by over 60% because of the market close on Friday August 4th since announcing our original share repurchase authorization in may of 2022.
We have 86 million remaining on the original share repurchase authority and this new authorization reflects our strong free cash flow and capital structure as well as the board's ongoing confidence in our strategy and future.
We apologize for the delay in releasing Genworth second quarter earnings.
Jim will adopt the new long duration targeted improvements or L. D. T O GAAP accounting guidance in the first quarter of this year for our U S life insurance businesses, we have since determined that how we account for the three long term care insurance or LTC legal settlements under L. D T I should be changed.
Genworth is now estimating the cost and expenses associated with these settlements similarly to how we estimate the reserve releases for benefit reductions any differences between actual experience and our best estimate assumptions will be reported in future quarters as previously.
We disclosed the legal settlements are expected to have a net favorable impact to genworth.
Cause of the significant reduction in tail risk the cumulative economic value in total LTC settlement expenses will not change and what we based on policyholder reduced benefit elections over the implementation of the settlements.
However, under the change, we're making Genworth will make initial best estimate assumptions for reduced benefits and expenses under the legal settlements to the extent actual settlement results different from best estimates the differences will be recorded in subsequent quarters until the settlement implementations are completed.
The prior two settlements choice one M. P. C S. One and two we have updated our financial statements using the same methodology.
Your own will cover the accounting treatment of our LTC illegal sediments and enforce rate actions in more detail, but it's important to remember that U S. GAAP accounting is non economic and has no impact on cash flows capital levels statutory results or how we manage the business.
Turning to the second quarter result, Genworth reported net income of $137 million and adjusted operating income of 85 million or 18 cents per diluted share and act again had a very strong quarter with net income of $137 million and adjusted operating income of $146 million insurance in force at the end of the quarter.
<unk> was 258 billion, we are pleased with <unk> continued strong performance.
In addition, enact increased its quarterly dividend payment to 16 cents per share authorized a new share repurchase program of 100 million and increased the total expected capital return in 2023 by 50 million to $300 million Genworth received 54 million of capital returns from enact in the second quarter.
<unk> X I P. O Genworth has received approximately 465 million of capital returns from an act, enabling us to fund our strategic initiatives, including share repurchases. We expect our 81, 6% ownership of <unk> to remain the primary source of free cash flow moving forward.
<unk> business reported an adjusted operating loss of $43 million in the second quarter, primarily driven by our liability remeasurement loss of $61 million from higher new claims as the LTC blocks age and seasonally lower claim terminations.
The estimated LTC statutory pretax loss was $70 million, primarily driven by higher new claims given the aging of the block and seasonally lower claim terminations, partially offset by a net benefit related to the P. C. S. One and two settlement total pretax statutory income for the U S life ensure.
<unk> companies is estimated to be $63 million in the second quarter life insurance pretax statutory income is estimated at 26 million driven by lower mortality and annuities pretax statutory income is estimated to be 107 million, primarily driven by variable annuities as a result of favorable equity markets.
And higher interest rates.
If an annuity statutory income in noncore statutory income in the second quarter more than offset the LTC statutory loss in the quarter.
We have pointed out over the last several quarters that investors should evaluate LTC results under both U S GAAP and U S. Statutory accounting do you have a more complete understanding of LTC results.
As Jerome will explain in more detail L. D. G I treats unprofitable cap cohorts differently and unprofitable uncapped cohorts.
L. D. G I requires us to re measure LTC liabilities, each quarter and compare actual performance against best estimate assumptions.
And unprofitable cap LTC cohorts any liability remeasurement as recorded in the quarter.
So for example, a true up for actual to expected reserve releases for benefit reduction differences in the settlement impact in these cohorts will impact the P&L that quarter.
We're profitable uncapped LTC cohorts.
Liability remeasurement or other differences from best estimate assumptions, primarily impacts the net premium ratio, reducing the quarterly P&L impact compared to the same impact on unprofitable cap cohorts under statutory accounting and similar to pre L. D. T. I GAAP accounting all LTC cohorts are treated civilly.
Our results were capped and uncapped cohorts can offset each other during the quarter. Therefore, because of the disparate treatment between statutory and GAAP regarding capped and uncapped cohorts.
Quarterly LTC statutory results should generally be less volatile than U S. GAAP results under L. D T O.
As we've said before the U S. GAAP results were generous LTC and life and annuities businesses do not have any impact on free cash flow to the holding company free cash flow to the holding company is primarily driven by an axe excess cash and to a lesser extent by future tax payments from an act and U S ally if the holding company has tax.
Credits available.
Statutory earnings are similar to tax earnings and taxes paid to the holding company can be significantly different than the U S GAAP tax rate.
<unk> statutory results for our U S life insurance companies will be available when we file our quarterly statutory statements later this month.
Also in the quarter, we received confirmation that the trial date and access case against ended there regarding the payment protection insurance with selling case is set for March 2025.
As a reminder to investors.
There's not a party to the case, but if axes successful in pursuing its claims we all share in the recoveries axa receives from send and here.
We continue to monitor the proceedings closely.
We'll update investors if any material developments.
Turning to our three strategic priorities, we continue to improve the financial condition of our legacy LTC business, primarily through our multi year rate action plan or my Rab. The most effective tool we have to bring our legacy LTC insurance portfolio two academic breakeven on a go forward basis.
We achieved a total of 94 million of gross incremental premium approved in the second quarter building upon a $50 million of premium proved in the first quarter.
This brings our cumulative progress to approximately $24 4 billion and approvals on a net present value basis since 2012, we.
We are very pleased with our progress in the first half of the year and now expect our total grossing incremental premium improved for the full year to be approximately $275 million this year up from previous expectations of $250 million.
I also want to mention the report issued by the New York State Department of financial services in early June on the long term care insurance market.
The report includes important commentary on the overall state of the LTC industry acknowledges the need for LTC premium rate action approvals and New York LTC policies and provides a balanced view of the way forward and sustaining this important insurance market we.
We appreciate the continued partnership with insurance regulators on efforts to stabilize the L. T C industry through premium rate increase approvals and to ensure long term policyholder commitments are able to be honored.
Turning to the next strategic priority, we continue to leverage downward substantial LTC expertise to develop innovative agent care services and solutions and the new care skilled services business.
We continue to execute on our growth initiatives around care skilled services to meet the large and growing demand for senior care that is not adequately addressed in the market today.
We have planned for several phases of new services and products over the next several years.
Our first phase includes the Buildout of our care scale quality network of senior care providers with an initial launch in Texas.
That gives us a large LTC insurance market and Genworth has approximately 43000 policyholders there.
We are pleased to say that we have carescout quality network coverage for approximately 50% of the age 65, plus Texas population with providers that have met our quality Credentialing standards and agreed to negotiate a discounted rates.
We are in discussions with dozens of other home care providers in the state who joined the Kerr Scott quality network and have strong momentum to expand our network throughout Texas and nationwide.
The other large LTC markets, Arizona, and Florida are likely to be included in care Scouts next areas of focus.
We are very pleased that each of these providers understands carescout services value proposition around patient centered quality care and the potential access to Genworth 1 million policyholders as well as potential access to other insurers LTC policyholders.
At the same time, we made significant progress in developing a new digital technology platform.
Platform will facilitate timely matches of Genworth policyholders are new carescout customers with quality care providers in our network.
With a discounted rates negotiated genworth policyholders will be able to extend their available benefits and genworth will realize claims savings over time driving further risk mitigation for the legacy LTC block.
As we build out our care skilled services business, we will continue to leverage existing relationships with thousands of care providers.
Spirits were processing over 360000 LTC claims.
Significant proprietary claim data gathered from LTC policyholders over four decades, and the strong team we have to lead these efforts.
Over time with national coverage and the Kerr Scott quality network, we will expand our customer base beyond Genworth policyholders to include other LTC insurance carriers policyholders and then eventually go direct to consumers.
Moving onto our third strategic priority, we significantly increased the pace of share repurchases in the second quarter.
We repurchased $112 million worth of shares at an average price of $5 45 per share.
And repurchase another $20 million in the month of July .
This brings the cumulative total to approximately $264 million worth of shares repurchased since the program's inception in may 2022.
Including the expansion of the program, we announced on July 31st we now have approximately $436 million of outstanding repurchase authority.
We continue to allocate excess cash from an act to drive Genworth long term shareholder value cash flows from an act have fueled our share repurchase program and enabled us to invest in our long term growth strategy and carescout when.
When we think about capital allocation. It is important to remember our commitment to managing the U S life insurance companies on a standalone basis.
They operate as a closed system leveraging existing reserves and capital earned premiums as well as future new premiums under the L. T C multi year rate action plan to cover liabilities, we have no plans to put additional capital into the U S life insurance companies and given the long tail of our long term care insurance policy.
CS with P claim years still over a decade away. We also do not expect to extract capital from the U S life companies.
While we believe there's tremendous value in the intellectual property data and experience we've amassed from the LTC business.
View of Genworth enterprise value and future potential are rooted in our 81, 6% ownership stake in enact and our plans to develop carescout into a comprehensive set of products and services to address the complex challenges of aging and senior care.
In closing I am very pleased with an axe performance and our strong execution against our three strategic priorities during the first half of the year.
We are working from our significantly improved financial foundation with a high quality holding company balance sheet and strong free cash flow primarily from an act.
With that I'll turn the call over to Jerome.
Thank you Tom and good morning, everyone. Today, I will highlight our financial performance and key drivers by segment as well as provide an update on our strong liquidity and capital positions.
We are pleased with the progress on our multiyear rate action plan strong cash position at the holding company and the value generated for shareholders through our share buyback program.
For the quarter, we reported a 137 million of net income or <unk> 29 cents per diluted share.
And 85 million of adjusted operating income or <unk> 18 cents per diluted share.
Results were driven by an axe very strong performance of 146 million and adjusted operating income to Genworth driven.
Driven by favorable loss performance.
While our GAAP results were impacted by L. T. C losses. It is important to note that L. T. Six GAAP performance does not alter genworth economics or cash flows.
We view the U S life insurance companies is having no impact on our enterprise value and.
And we expect shareholder value to continue to be driven by enact strong performance and our investments in future growth through care Scout.
Before I review results I would like to supplement Tom's comments regarding the change we have made to our accounting related to the unique L. T C legal settlements.
Under L. D. T. I there is no specific guidance for these unusual legal settlements or how to treat cash payments to policyholders in connection with these legal settlements known as settlement payments.
Accounting change we made for GAAP does not alter the favorable economics of our legal settlements to L. T. C. It's simply impacts the timing and classification of our recognition of the settlement payments.
We made this change to align estimates of settlement payments to policyholders with the related estimates of policyholder benefit reductions to ensure that both are recorded in the same financial reporting period.
Prior periods for L. T C. GAAP results have been adjusted for this change.
There are no changes to statutory accounting for these settlements.
Now turning to an actual results on slide six primary insurance in force increased 9% year over year to 258 billion driven by new insurance written and continued elevated persistency.
Enact is well positioned to continue to drive growth with a well performing portfolio and strong capital position and will continue to create long term shareholder value.
Slide seven shows an act at a favorable $63 million reserve release, which drove a loss ratio of negative 2%.
The reserve release, primarily reflects favorable cures on 'twenty 'twenty through first half 2022, delinquencies, including COVID-19 related delinquencies.
Both enact prior quarter and prior year results included favorable reserve releases, as well 70 million and $96 million respectively.
Primarily from cures on COVID-19 delinquencies.
<unk> estimated P. Meyer sufficiency ratio remains strong at 162% or approximately 2 billion above P Myers requirements.
As a result of its continued strong performance and confidence in its outlook enact increased its quarterly dividend payment last quarter from 14 to 16 cents per share.
Which generated proceeds of $21 million to Genworth in June .
And that now expects to return $300 million of capital to its shareholders. This year and authorized a new share repurchase program of $100 million.
Based on our 81, 6% ownership of an act, we anticipate receiving approximately $245 million for the full year through a combination of its quarterly dividends share repurchase program and a special dividend.
Year to date through the end of July we have received $96 million in capital returns from an act.
Going forward returns of capital from an act will continue to enable genworth to generate excess cash flow for capital deployment.
Turning to long term care insurance slide eight highlights our strategic focus for LTC and the progress on our multiyear rate action plan to protect our claims paying ability and build resiliency for the U S life insurance companies to be managed on a standalone basis.
We have a very successful track record of working with state insurance regulators to achieve premium rate increases as demonstrated over the last 11 years.
The second quarter, we have achieved in force rate actions of 24.4 billion on a net present value basis since 2012.
We feel confident in our continued ability to execute on our multiyear rate action plan and favorable reduced benefit impacts from recent legal settlements have accelerated this progress and further reduce the tail risk on the block to.
To date, we've seen a policyholder response rate of 47, 5% to reduce benefit which significantly reduces risk on these policies as the block ages and new claim counts continue to increase.
Long term care insurance GAAP results are covered on slides five nine and 10.
As we've mentioned we are focused on cash flows and achieving economic breakeven for L. T C.
Under L. D T I accounting, we expect ongoing volatility and our L. T C quarterly GAAP results as we re measure our actual experience versus our best estimate assumptions, which are now recorded at a granular policy cohort level.
However, these results do not impact our cash flows economic value or change how we're managing the business.
As shown on slide five our L. T. C segment reported an adjusted operating loss of 43 million for the second quarter.
Compared to adjusted operating income of $23 million in the prior quarter and adjusted operating income of $17 million in the prior year.
Turning to slide nine the second quarter loss was primarily due to a liability remeasurement loss of $61 million.
Principally on our unprofitable or cap cohorts.
The liability Remeasurement loss was driven by an $85 million difference in our actual to expected experience from lower terminations and higher claims.
Partially offset by a favorable 24 million cash flow assumption update related to the timing and amount of anticipated in force rate actions.
Referring to slides nine and 10 the L. T C liability remeasurement under GAAP accounting is relative to our $41 6 billion liability for future policy benefits.
Quarterly actual to expected variations on such a large reserve balance and appear to have a significant impact, but do not change cash flows the long term economics or reserve adequacy of the LTC business.
Going forward quarterly volatility on the GAAP income statement will be driven by two primary factors.
First as noted on slide 10 under L. D. T. I accounting, we are now required to re measure the liability at a more granular cohort level based on policy issue year.
Amongst the policy year cohorts, our LTC book is generally split evenly between cat cohorts, which are unprofitable blocks and have a net premium ratio capped at 100%.
An uncapped cohorts, which are the profitable blocks with positive margins and net premium ratios below 100%.
The policyholders and the profitable Uncap cohorts are generally younger still over a decade or more away from their peak claim years, and we have more premium runway on those policies with our multiyear rate action plan.
In contrast, the cat cohorts are older unprofitable blocks with higher claims and much shorter premium runways.
Prior to the implementation of L. D. T. I accounting, we did not have this cohort in concept. We would review the block in total so profitable and unprofitable policies were considered together, resulting in positive margin in the aggregate.
Now however, under L. D T I because the cat policy cohorts have no margin the actual to expected experience will be recognized immediately and hit the bottom line.
While the profitable uncapped cohorts have margin their earnings impact when we evaluate actual to expected experience will be more modest because their margin absorbs experience variations with a recalculation of the net premium ratio.
For us this new L. D T. I cohorts requirement is a significant change in the accounting given the dynamics of our legacy LTC block.
The second reason, we expect increase volatility in our L. T. C. GAAP results going forward is from the disparate impact of in force rate actions and legal settlements on the different cohorts under L. D T I accounting.
Reserves are under best estimate assumptions updated leased annually in the fourth quarter and now include an estimate for benefit reductions from in force rate actions and settlements, including an estimate for settlement payments.
The reserve releases from policyholder reduced benefit elections, and settlement payments will impact the income statement on a quarterly basis to the extent that actual experience differs from assumptions and it will be more pronounced for our unprofitable capped cohorts.
Previously under old GAAP reserve releases and settlement payments were recorded the income statement as policyholders made reduced benefit elections similar to statutory.
This is a fundamental change between old GAAP accounting and new L. DTI catheter counting.
While the reserving methodology has changed there was no change to how the company accounts for premiums related to enforce rate actions.
When looking at the impacts from in force rate actions on a GAAP basis, and Investor will not get the full picture of the favorable economics of the in force rate actions and settlements because the benefit reductions are included in best estimate assumptions.
In the fourth quarter of 2022, there was a material liability remeasurement gain for L. T C, which reflected a favorable cash flow assumption update of approximately 300 million largely from an update to our best estimate reserve assumptions for the inclusion of our second legal settlement, which impacted our P. C S. One and two policies.
The approximate 300 million gain is now inclusive of our estimate for P. C. S. One and two settlement payments of approximately $200 million based on the accounting change we highlighted whereas previously the settlement payments were recorded over time as incurred as.
As we've discussed the P. C S. One and two settlement represents approximately 15% of the overall L. P C block and impacts older unprofitable principally cap cohorts, which is why the expected net reserve reduction impacted the liability Remeasurement line and the income statement as.
As we look ahead, we will be updating our best estimate assumptions later this year for the third legal settlement on our choice two policies.
Choice two is one of our newer blocks with policies written between 2003 in 2011.
It accounts for over 35% of our total L. T C policies and approximately 90% of the block currently contains profitable uncap cohorts with margin.
The L D T I accounting impact for the choice to settlement will be very different than the impact we saw for the P. C. S. One and two settlements because the choice two block is mostly uncapped while P. C. S. One and two blocks were predominantly capped.
Therefore, while we expect the choice to settlement to resolve and a significant reduction in genworth LTC tail risk and to be a net positive for genworth over the long term.
We expect a very small income statement impact when we update our GAAP assumptions for the choice to settlement the benefit to Genworth will depend on the rate at which policyholders elect to reduce benefits.
And since these cohorts are mostly untapped the majority of the impact will be realized over the lifetime of the cohorts.
For these reasons, we encourage investors to review our statutory results, which we believe better represent the underlying performance of the U S life insurance companies and particularly L. T C.
As shown on slide 11 L. T C statutory pretax earnings of 67 million for the first half of the year are down significantly from the $265 million in the first half of 2022 driven by our second quarter estimated loss of $71 million from seasonally lower terminations and higher claims.
Partially offset by continued favorable premium increases and benefit reductions from in force rate actions, including from the P. C. S. One and two legal settlement.
<unk> results provide more visibility into the positive economic impact the in force rate actions and legal settlements have on our business.
As a reminder, we had a number of favorable impacts in the prior quarter and prior year that did not reoccur at the same level.
Last quarter, we saw seasonally high LTC claim terminations.
In second quarter terminations were lower as expected in line with pre pandemic seasonal trends.
In the second quarter of 2022, we had higher terminations likely some continued impacts from COVID-19 and higher variable investment income.
As the implementation of choice to legal settlement ramps up in the second half of the year, we expect it to have positive impacts on our L. T C statutory results.
Slide 12 illustrates the trend we've been seeing that paid claims continue to increase as the blocks age and will continue to do so as peak claim years on our largest choice two block or over a decade away.
The average age on our choice two block is 73 as shown on slide 21.
Pete claimed here's occur when attained age is in the mid eighties. The average attained age for the two smallest and oldest blocks pre P. C. S and P. C S, one or 89 and 87, respectively.
Claims on those blocks will decrease but will be more than offset by increasing claims on our choice one and choice two blocks, which represent 58% of total L. T C enforce lives.
We saw reduced claims growth in 2020 through 2022 driven by the COVID-19 pandemic as terminations were high for both healthy and disabled lives and people appeared to have delayed seeking care and going on claim.
We will continue to monitor new claims growth and we have considered this trend and our plans to bring the L. T C block to breakeven.
To that end, we made further progress on our multiyear rate action plan this quarter achieved.
Achieving 94 million of gross premium approvals as shown on slide 13.
As I mentioned, our cumulative net present value of achieved in force rate actions is now $24 4 billion up 600 million from $23 8 billion at the end of the first quarter of 2023.
In addition to the multi year rate action plan now.
L. T C legal settlements had been greatly beneficial to both genworth and our policyholders.
Policyholders, many have elected to reduce their benefits, while maintaining meaningful coverage and in turn reduce or eliminate their premiums.
For Genworth benefit reductions allow us to release reserves and reduce our tail risk on these policies.
Slide 14 shows the increase year over year, we've seen in policyholder benefit reductions.
Turning to slide 15, our life and annuity segment reported adjusted operating income of $2 million driven by an adjusted operating loss in life insurance of $17 million.
Offset by adjusted operating income from fixed annuities, a $10 million and 9 million from variable annuities.
Life and annuities were also impacted by the seasonally low mortality this quarter.
In life insurance mortality was improved versus the prior quarter and prior year end results reflected lower DAC amortization expense due to lower lapses and block runoff.
Fixed annuities results were down versus the prior quarter and prior year from unfavorable fixed payout annuity mortality and lower net spreads.
Variable annuities were flat versus the prior quarter and up versus the prior year from favorable impacts from the aging of the block partially offset by lower fee income.
As shown on slide 16, we are estimating second quarter pretax statutory income for our U S life insurance companies in total.
To be $63 million.
Results were driven by strong variable annuity performance from net favorable equity markets and interest rate impacts.
And by life insurance earnings from seasonally low mortality, which were partially offset by the L. T C pretax loss of $71 million that I previously mentioned.
The consolidated risk based capital ratio for Genworth life Insurance company Arkalyk is estimated at 293% at the end of June down slightly from 295% in the first quarter as a result of higher required capital S. E. L. T C block ages.
Our final statutory results will be available on our investor website with our second quarter filings later this month.
We will continue to manage our U S life insurance companies on a standalone basis.
Our focus is on stabilizing that legacy L. T C block through our multi year rate action plan.
As it is our most effective tool for managing L. T CS risk.
We do not expect to receive dividends from the business or to contribute capital into it there.
Therefore, we think it would be reasonable for investors valuing genworth as a whole to ascribe no value to the U S life insurance companies other than the intellectual property, we are leveraging for our carescout initiatives.
We see tremendous value in enact as evidenced by their strong capital returns and in our ability to grow carescout overtime.
Rounding out GAAP results for the quarter corporate and others current quarter adjusted operating loss of $20 million was higher compared to the prior year driven by investment in future growth with care Scout.
Moving to our investment portfolio, we remain well positioned to manage through ongoing economic uncertainty we have not seen any notable deterioration in the macro environment since our last quarterly update however, given the heightened focus on investment holdings, especially in commercial real estate we continue.
Did you disclose our portfolio positions on slides 17, and 18 in our investor presentation.
With the regional bank pressures, we've rebalanced and optimize our holdings to exit higher risk regional banks and trim, our overall exposure.
We said last quarter that we had sold our position in first Republic bank and the corresponding 9 million pretax loss is reflected in our net investment gain number this quarter.
The portfolio continues to benefit from the high interest rate environment, which allows us to invest at attractive new money rates.
As a reminder, the majority of our assets are in investment grade fixed maturities that are listed as available for sale, but we generally buy and hold the bonds to support the U S life insurance company's liabilities.
Because the liabilities are very long duration, especially for L. T C. We have limited liquidity risk.
As seen on slide 18, our commercial real estate holdings continue to account for approximately 16% of our total portfolio and are concentrated in higher quality investment grade assets with modest office exposure of less than 20% on a weighted average basis.
Rod credit performance has been stable across the quarter and we remain confident in the quality of our commercial real estate portfolio and that it's well positioned amidst volatility.
Turning to the holding company on slide 19.
After repurchasing 112 million worth of shares in the quarter, we ended the period with $222 million of cash and liquid assets.
After reaching our holding company target last September we strive to maintain a debt to capital ratio of 25% or below which attributes no equity value to the U S life insurance companies.
As of the second quarter, our debt to capital ratio was 23%, which we view as optimal given our low debt service relative to our size.
We received 54 million of capital from an act and $63 million from intercompany tax payments in the quarter.
Year to date, we've received 111 million in tax payments and for the full year. We continue to expect a total of approximately 175 to 200 million.
There's approximately 75 million of remaining holding company deferred tax assets, mainly foreign tax credits that we expect to utilize this year dependant on the taxable income generated by our subsidiaries.
Once these tax assets are exhausted, we anticipate becoming a federal taxpayer.
Tom described our capital allocation strategy and I'll reiterate that our top priorities remain investing in long term growth through care scout and returning cash to shareholders through our expanded share repurchase program.
We're very pleased the board authorized the expansion of our share repurchase program by $350 million.
Through July we completed 75% of the initial 350 million program that began in May 2022, and we expect to complete the remaining amount by the end of this year the programs.
This expansion allows us to continue to return capital to shareholders as we head into 'twenty 'twenty four.
Through the first half of this year, we delivered on our strategic priorities to drive value for our shareholders, while proactively managing our liabilities and the risk in our legacy long term care insurance block.
The multi year rate action plan continues to be successful and with the additional benefit from the three legal settlements it enhances our ability to honor policyholder commitments and stabilize the legacy LTC block.
I'm excited about the future of Genworth as we utilize our deep knowledge in the senior care space to innovate new aging care services and solutions with care Scott.
<unk> remains very well positioned in the mortgage insurance market and their business performance and increased capital return guidance will enable us to continue to return capital to Genworth shareholders.
Now, let's open up the line for questions.
Okay.
Ladies and gentlemen, we will now begin the Q&A portion of the call. As a reminder, please refrain from using cell phones speaker phones or headsets.
Star one to ask a question.
If at any time. Your question has already been answered or you would like to withdraw. Your question. Please press star two to be removed from the queue.
Please press star one now.
Yeah.
Okay.
As a reminder, that star one if you would like to ask a question. We will take our first question from Joshua <unk> with credit site.
Go ahead.
Hey, good morning, Thank you for your time.
Two questions if I can on an L. D G I L T C.
First with regards to the intercompany tax sharing payments can you remind me whether genworth parents ability to bill its subsidiaries based on GAAP or statutory profitability and basically what I'm trying to get a sense of is is whether or not the quarterly volatility in GAAP LTC earnings from implementation of L. E T I might impact these intercompany tax payments.
So oh.
Well what drove I'll take the first.
Part of that and just say that.
Good question.
Our statutory results are much closer to the attached results and therefore, what looking at that.
The ability to utilize that those remaining tax credits, it's more driven by taxable earnings, but it's closer to statutory where gap is going to be quite different.
Got it thank you.
And then secondly, with regards to LTC, how should we expect GAAP reserves to develop relative to statutory reserves under the L. D. G I regime, and I understand that all the Ti doesn't impact the statutory financials, but overtime.
Should we expect GAAP reserves essentially to drift away from statutory reserves unless there's some kind of a locking in that.
So Jerome or do you want to take that.
Yeah, Josh I would just describe this as.
Oh.
Well D. T. I is totally different basis of accounting. So GAAP is a totally different basis of accounting from stat and the reserves are under U S. GAAP are going to be on a best estimate basis are going to be discounted at a locked in rate and then further discounted.
And this is only this only impacts the balance sheet, but they're further discounted based on the single lay rate and that really just impacts reserves on the balance sheet. When you go to the single a rate, but you also have the locked in rate on a statutory side you had a very prescriptive methodology that we use particularly on the active life reserve.
And so it would be very difficult for me to tell you that there are going to combine or go together versus.
Drift apart if if if I had to I would just say that there will be demonstrative differences between the two would be very difficult to quantify for you and.
And you know from an L. D T. I perspective, I would just also highlight that I mean, we've we've said that we really focus on statutory accounting the L. D. T. I income will be volatile because half of our block has cap cohorts for us versus the other half with uncapped cohorts and statutory accounting is is really our focus because.
It's what we review with our regulators, it's what we review with our rating agencies and it's been a consistent basis of accounting that.
That highlights the progress, we're making with the company on breakeven.
Thank you very much appreciate everyone's time and color.
Thank you for your questions Josh.
As a reminder, if you would like to ask a question you May press Star one on your telephone keypad now again Thats Star one if you would like to ask a question.
Once again Thats Star one if you would like to ask a question.
One on your telephone keypad now.
Ladies and gentlemen, I will now turn the call back over to Mr. Mcinerney for closing comments.
Thank you very much.
In closing I would just say that you know as both Jerome and I have talked about what we believe it's important for investors and analysts to evaluate LTC and life and annuities under both U S GAAP and statutory accounting.
U S. GAAP results will generally grow more volatile as we've said the statutory because of the disparate treatment of the different LTC cohorts.
Roughly 50 50 between the older <unk>.
Unprofitable in the relatively new work.
On captain profitable blocks.
But we also want to emphasize that.
We look at U S ally.
The life companies as a closed system and they have little bit little impact on holding company cash.
Cash and capital other than the tax payments, assuming that you know we have tax.
Tax credits to offset that.
Value and have valued and have said to investors for a long time that we we value the life company at zero at this point, because we're not putting capital in or taking it out and I was you know.
The main effort there is to focus on the multi year rate action plan and get get.
The LTC business to break even but we think thats a few years out.
And our focus there.
The enterprise value is really more based on our 81, 6% all these out of that and we're very encouraged by the early days and Carescout.
We talked about Jerome talked about the great progress in Texas, We launched that earlier this year and we've got about 50% of the state covered in terms of buyer.
Approved.
Quality network covering about 50% of the 65 plus group.
We're proud of the progress against our three strategic priorities and I went through those.
So we're very pleased with <unk> continued strong results.
We continue to allocate the excess cash from that.
Which had another great quarter to drive long term shareholder value, both investing and Kerr Scott going forward as well as returning capital to shareholders.
Through the.
The share repurchase program that we're pleased that the board authorized.
Significant increase of another $350 million.
Thank you all for your interest and support John worked we really appreciate it we'll see you next quarter and with that operator, I'll turn it back over to you.
Ladies and gentlemen, this concludes Genworth Financial's second quarter conference call. Thank you for your participation at this time the call will end.
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