Q1 2024 Genworth Financial Inc Earnings Call
Please standby.
Cynthia: Good morning, ladies and gentlemen, and welcome to Genworth Financial's first quarter 'twenty 'twenty four earnings Conference call. My name is Cynthia 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 <unk>.
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.
Sarah: Thank you and good morning, welcome to Genworth first quarter 'twenty 'twenty four earnings call.
Sarah: The slide presentation that accompanies this call is available on the Investor Relations section of the Genworth website and best for Dot Genworth Dot com.
Sarah: Our earnings release and financial supplement can also be found there and we encourage you to review these materials.
Speaking today will be Tom Mcinerney, President and Chief Executive Officer, and Jerome Upton Chief Financial Officer.
Sarah: Following our prepared remarks, we will open the call up for a question and answer period.
Speaker Change: In addition to our speakers Jamal of Ireland, President and CEO of our U S life insurance business and Kelly talked gave our Chief investment Officer will also be available to take your questions.
Speaker Change: During the call. This morning, we may make various forward looking statements. Our actual results may differ materially from such statements.
Speaker Change: 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 S E T.
Speaker Change: 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 the ethnic evil.
Speaker Change: Also references to statutory results are estimates due to the timing of the filing of the statutory statements.
Speaker Change: And now I'll turn the call over to our President and CEO Tom Mcinerney.
Thomas Joseph McInerney: Thank you very much Sarah and good morning, everyone and thank you for joining our first quarter earnings call.
Thomas Joseph McInerney: Genworth continue to make strong progress in the first quarter against our strategic priorities to drive long term growth and shareholder value.
Thomas Joseph McInerney: In the first quarter Genworth reported net income of 139 million or <unk> 31 per share and adjusted operating income of $85 million or <unk> 19 per share.
Thomas Joseph McInerney: Were led again by ANAC, which had a very strong quarter with adjusted operating income of $135 million to Genworth.
Thomas Joseph McInerney: And that could also announced a $250 million expansion of its share repurchase program and an increase in its ordinary dividend to <unk> 18, and a half cents per share up from 16 cents per share.
Thomas Joseph McInerney: We are very pleased with an axe continued strong operating performance capital levels and shareholder distributions.
Thomas Joseph McInerney: Since <unk> IPO Genworth has received approximately 675 million in capital from a nap, including 61 million in the first quarter.
Thomas Joseph McInerney: We are very pleased with our approximately 81% ownership stake and then act.
Thomas Joseph McInerney: As it continues to generate significant earnings and is a key source of cash flows helping fuel our share repurchase program opportunity opportunistic debt reduction and our growth investments and Kerr Scott.
Thomas Joseph McInerney: Our LTC segment reported adjusted operating income of $3 million in the quarter driven by seasonally higher claim terminations. Meanwhile, our life and annuity segment reported an adjusted operating loss of $15 million driven by losses in life insurance Jerome will cover the performance of these segments in more detail later.
Jerome Thomas Upton: On a statutory accounting basis, the U S life insurance companies had a very strong quarter with pretax income estimated at $258 million driven primarily by benefits from LTC enforce rate actions, including the impact of legal settlements.
Jerome Thomas Upton: Complete statutory results for our U S life insurance companies will be available when we file our first quarter statutory statements later this month.
Thomas Joseph McInerney: Turning to our three strategic priorities, we continue to further strengthen the financial and operating capabilities of our legacy LTC insurance business. We're achieving this primarily through our multiyear rate action plan or my route. The most effective tool we have to bring our legacy LTC insurance portfolio to break breakeven on a go forward.
Thomas Joseph McInerney: <unk> and ensure the continued self sustainability of the life insurance companies.
Thomas Joseph McInerney: We achieved a total of $41 million of gross incremental premium approved through March with an average percentage premium increase of 25%.
Thomas Joseph McInerney: This brings our cumulative progress to approximately 28 billion approvals on a net present value basis since 2012.
Thomas Joseph McInerney: Our second strategic priority is developed innovative aging services and solutions through care scope.
Thomas Joseph McInerney: This is Frank here, Scott services is well positioned to drive future growth for Genworth as we continue to make significant progress on the first phase of our offering with a build out of our carrier scale quality network a network of long term care providers.
Frank: Curious got quality network is now available in over 30 states with more than 200 providers in the network. We continue to add providers to the network that meet our quality Credentialing standards.
Frank: Greta negotiated preferred rates by the end of the year. We anticipate we will have carrasquel quality network homecare coverage for two thirds or more of the age 65, plus census population in the U S.
Frank: The Coast Guard services business model is predicated on earning revenues generated from discounts on LTC claim savings with an initial focus on reducing claim cost and Genworth LTC policyholders claims.
Frank: Historically, genworth policyholders have chosen their care providers with little input from Genworth and more than a third have chosen providers charge I believe rates above the median cost of care in their respective zip codes.
Frank: Two key benefits of the cares got quality network are the higher quality of care and a lower hourly rates negotiated with the subset of providers that are admitted to the network.
Frank: Providers are willing to accept lower hourly rates in exchange for a potential access to Genworth 1 million LTC policyholders currently 85% to 90% of the providers approved for our network have agreed to hourly rates below the median cost of care for their respective Zip codes.
Frank: While genworth policyholders can choose a care provider outside of the carrier scale quality network, we assume they will choose providers in the network because they will allow their policy benefits to potentially last longer while receiving care from high quality person centered care providers.
Frank: Genworth life insurance company and curious Scott services have negotiated on an arm's length agreement that is triggered when a genworth policyholder chooses a carescout quality network provider.
Frank: Genworth of course benefits from 100% of the applicable.
Frank: Cost discount negotiated with the provider the life insurance company retained 75% of the value of the discount through lower claim costs, which we continue to forecast between 1 billion to $1 5 billion in savings over time on a net present value basis. The remaining 25% of the value of the discount is paid us a fee.
Frank: Carescout services for the use of their network.
Frank: As the number of matches between an individual's on claim at garrison Gulf quality network providers grows Carescout services revenues will increase.
Frank: With a network in place across the country by the end of the year, we expect here Scott revenues to grow as matches increase in 2025.
Frank: 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 directly to consumers.
Frank: As we have said before we believe our holistic approach to making aging more dignified connected and fulfilling includes offering insurance another funding solutions to help pay for long term care.
Frank: We continue to build the foundation for these offerings and Carescout and now expect to complete this foundational work by the end of the year with a goal of formerly offering our first insurance product in early 2025.
Frank: As we worked through designing and pricing our new LTC.
Frank: Insurance products and its related assumptions, we are leveraging our unparalleled experience in paying over 370000 LTC claims.
Frank: Moving to our third strategic priority capital management, we continue to allocate excess cash from an act to drive Genworth long term shareholder value in the first quarter, we made excellent progress continuing to execute our share repurchase program in total we have repurchased approximately $434 million a share.
Frank: Shares at an average price of 542 per share since the program's inception in May 2022.
Frank: Cash flows from an ACA have also enabled us to invest in long term growth and we continue to expect approximately $35 million of capital contributions to care skilled services. This year as we build out the Kerr Scott quality network.
Frank: We will continue to prudently scale and diversified care skilled services.
Frank: In a way that will leverage our intellectual property successfully drive claim savings in our legacy LTC block introduced new offerings to the market and drive long term growth.
Frank: Before I wrap up I wanted to take a moment to remind investors that the trial date and axis case against Sandoz there regarding the payment protection insurance selling case is still set for March of next year.
Frank: As we have said before Genworth is not a party to the case, but we previously owned the payment protection insurance business before selling it to Axa in 2015.
Frank: With Axa is successful in pursuing those claims we will share in recoveries actually receive from Santander here, we continue to monitor the proceedings closely and we'll update investors with any material developments.
Frank: In closing I'm very pleased with our continued progress against our strategic priorities year to date, along with <unk> strong performance and with that I'll turn the call over to Jerome.
Jerome Thomas Upton: Thank you Tom and good morning, everyone.
Jerome Thomas Upton: I'm very pleased with the ongoing value creation delivered by an act and progress on our LTC in force rate actions as well as our capital optimization and continued improvement and financial flexibility.
Jerome Thomas Upton: I'll first discuss Genworth results and drivers in more detail then I'll provide an update on our investment portfolio and liquidity before we open the call for Q&A.
Jerome Thomas Upton: First slide five and as Tom mentioned first quarter adjusted operating income was $85 million driven primarily by an act.
Jerome Thomas Upton: Our long term care insurance segment reported adjusted operating income of $3 million, including a liability remeasurement gain from actual to expected experience, primarily driven by seasonally high mortality.
Jerome Thomas Upton: Looking ahead, despite the favorable seasonal impact in the first quarter due to short term deviations of actual results compared to long term assumptions. We continue to expect L. T C earnings pressure throughout the remainder of the year and expect our liability remeasurement loss from actual to expected experience for the full.
Jerome Thomas Upton: All year on a GAAP basis.
Jerome Thomas Upton: As a reminder, last year, we recorded a full year pretax actual to expected loss of $269 million with a quarterly average loss of about $65 million after experiencing positive first quarter results.
Jerome Thomas Upton: And as we have said before GAAP results continued to be volatile.
Jerome Thomas Upton: We believe statutory results better represent the underlying performance of the life companies, including the positive impacts, resulting from our in force rate actions.
Jerome Thomas Upton: The results from an act and L. T C were partially offset by adjusted operating losses of $15 million in life and annuities.
Jerome Thomas Upton: 38 million in corporate and other.
Jerome Thomas Upton: Life and annuities included an adjusted operating loss in life insurance of $33 million, reflecting the unfavorable impacts of seasonally high mortality as well as adjusted operating income of $11 million from fixed annuities and $7 million from variable annuities.
Jerome Thomas Upton: The loss in corporate and other was driven by unfavorable tax timing of $15 million that we expect to reverse by year end and higher expenses related to new growth initiatives with Carescout services.
Jerome Thomas Upton: Now taking a closer look at a nice performance on slide six and that delivered a very strong first quarter, including high quality growth in its insured portfolio and strong profitability.
Jerome Thomas Upton: <unk> adjusted operating income of $135 million to Genworth was down 6% versus the prior year as a result of a smaller reserve release in the quarter.
Jerome Thomas Upton: Primary insurance in force increased 4% year over year to 264 billion driven by new insurance written and continued elevated persistency.
Jerome Thomas Upton: Genworth share of an <unk> book value, including a OCI has increased to $3 8 billion at the end of the first quarter of 2024, while at the same time enact has delivered significant capital returns to Genworth.
Jerome Thomas Upton: As shown on slide seven and that got a favorable $54 million pre tax reserve release in the first quarter, which drove a loss ratio of 8%.
Jerome Thomas Upton: The reserve release, primarily reflects favorable cure performance from early 2023 and prior delinquencies.
Jerome Thomas Upton: Enact has a strong estimated pmiers sufficiency ratio of 163%.
Jerome Thomas Upton: Approximately $1 9 billion above pmiers requirements.
Jerome Thomas Upton: And that continues to deliver strong cash flows to genworth. The combination of our next quarterly dividend and its share repurchase program generated a total of $61 million in proceeds to genworth and the first quarter.
Jerome Thomas Upton: As enact announced yesterday it has increased its quarterly dividend and expanded its share repurchase program by $250 million and continues to expect to return a total of 300 million to its shareholders in 2024.
Jerome Thomas Upton: Just on our 81, 5% ownership position, we expect to receive $245 million from an act for the full year.
Jerome Thomas Upton: The next updated program enables genworth to potentially receive proceeds earlier in the year than previously anticipated, which would allow us to be more opportunistic with our own share repurchases throughout the year.
Jerome Thomas Upton: Turning to long term care insurance, starting on slide eight we are making strong progress on our strategy to achieve economic breakeven on a go forward basis and the legacy LTC business, we continued to significantly reduce tail risk through our multiyear rate action plan or my wrap and legal settlements.
Jerome Thomas Upton: As of the end of the first quarter, we have achieved in force rate actions worth approximately 28 billion on a net present value basis and has seen a cumulative policyholder response rate of 53% to reduce benefits.
Jerome Thomas Upton: Upon the completion later this year of the third and final legal settlement on our large choice two block approximately 70% of the LTC block will have been offered reduced benefit options under the settlements.
Jerome Thomas Upton: Slide nine shows more details on the in force rate action filings approved in recent periods as well as a positive trend we've seen in policyholder benefit reduction elections.
Jerome Thomas Upton: We continue to expect strong approvals for the full year.
Jerome Thomas Upton: As more policyholders elect to reduce their benefits as a part of the my wrap or the recent legal settlements, they're able to maintain meaningful coverage, while reducing genworth tail risk on these policies and further protecting our ability to pay claims over the long term.
Jerome Thomas Upton: As we said before we manage the U S life insurance companies on a standalone basis.
Jerome Thomas Upton: They operate as a closed system leveraging existing reserves and capital to cover future claims and other obligations.
Jerome Thomas Upton: We will not put capital into the legacy life insurance companies and given the long tail nature of our LTC insurance policies with peak claim years still well over a decade away. We also do not expect capital returns from this segment.
Jerome Thomas Upton: As shown on slide 10, we had total LTC statutory pretax income of 151 million, reflecting a significant benefit from in force rate actions and legal settlements of $462 million.
Jerome Thomas Upton: Slide 11 shows our very strong overall statutory pretax income for the U S life insurance companies of $258 million.
Jerome Thomas Upton: This was led by L. T C and the favorable impacts of in force rate actions and legal settlements as well as a $97 million benefit to variable annuities from equity market and interest rate movements in the quarter.
Jerome Thomas Upton: In addition, first quarter results reflect a net favorable impact of seasonally high mortality, which typically trends lower through the remainder of the year.
Jerome Thomas Upton: The consolidated risk based capital ratio for Genworth life insurance company or <unk> was 314% at the end of March compared to 303% at the end of last year driven by strong statutory earnings.
Jerome Thomas Upton: Alex consolidated balance sheet remains sound with capital and surplus as of the end of March of $3 5 billion.
Jerome Thomas Upton: Our final statutory results will be available on our investor website with our first quarter filings later this month.
Jerome Thomas Upton: Moving to our investment portfolio, which is summarized on slide 12, we remain confident in our positioning and believe we have the right strategy given the products in our portfolio and the long duration of our liabilities with very limited liquidity risk as a reminder, the majority of our assets are in investment grade fixed maturities.
Jerome Thomas Upton: And we generally buy and hold to support the U S life insurance company's liabilities with unrealized gains and losses impacting equity through changes in other comprehensive income.
Jerome Thomas Upton: The portfolio continues to benefit from the high interest rate environment, and we continue to monitor our commercial real estate exposure, which is approximately 16% of our total portfolio.
Jerome Thomas Upton: It has a manageable maturity schedule and is concentrated in higher quality investment grade assets with office exposure less than 20% of our real estate investments.
Jerome Thomas Upton: Next turning to the holding company on Slide 13, we received 61 million of capital from a nap during the first quarter, which included accelerated returns from its share repurchase program we.
Jerome Thomas Upton: We ended the quarter with $253 million of cash and liquid assets.
Jerome Thomas Upton: Outflows in the quarter included 78 million of other items largely related to annual employee benefit payments that are reimbursed by our subsidiaries throughout the year.
Jerome Thomas Upton: Tom reviewed our capital allocation strategy and I'll reiterate that our top priorities shown on slide 14 are to invest in long term growth through Carescout returned cash to shareholders through our share repurchase program when our share price is below intrinsic value and opportunistically pay down debt when attractive to us.
Jerome Thomas Upton: We continued to return capital to shareholders via share repurchases in the first quarter repurchasing 63 million at an average price of $6 17 per share and another 12 million through April 30th.
Jerome Thomas Upton: We had 266 million remaining under our current authorization as of the end of April and continue to expect to allocate roughly a $125 million to $150 million to share repurchases in 2024.
Jerome Thomas Upton: We were able to execute repurchases and an accelerated pace in the first quarter due to cash received late in the fourth quarter from an act through the first quarter from that share repurchase program and due to our share price being below our intrinsic value.
Jerome Thomas Upton: Our expected range for the full year may vary depending on our share price and market conditions and as a reminder is lower than the amount we repurchased in 2023, given that we have fully utilized our holding company tax assets.
Jerome Thomas Upton: We're very pleased with the value created for shareholders through our share repurchase program.
Jerome Thomas Upton: We also repurchased $6 million of debt in the first quarter, reducing our total holding company debt to $850 million.
Jerome Thomas Upton: We maintain a debt to capital ratio below 25% attributing no equity value to LTC life and annuities.
Jerome Thomas Upton: We are very comfortable with our financial flexibility given our liquidity level sustainable cash flows from ANAC and manageable debt level.
Jerome Thomas Upton: In closing, we are delivering on our strategic priorities, while proactively managing our liabilities and risk the.
Jerome Thomas Upton: Our multiyear rate action plan and the additional benefit from the three L. T. C. Legal settlements are enhancing our ability to honor policyholder commitments and further stabilize the legacy L. P C block.
Jerome Thomas Upton: And act as a strong driver of shareholder value as evidenced by its stable earnings increasing book value and capital returns.
Jerome Thomas Upton: Looking ahead, we will continue to focus on delivering sustainable long term growth through an act and carescout, while returning meaningful value to shareholders through share repurchases and Opportunistically repurchasing holding company debt.
Jerome Thomas Upton: Now.
Speaker Change: Let's open up the line for questions.
Jerome Thomas Upton: Yeah.
Speaker Change: 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 press 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.
Speaker Change: Press Star one now.
Jerome Thomas Upton: We'll pause for a moment to assemble the queue.
Jerome Thomas Upton: Again, if you would like to ask a question at this time, Please press star one.
Jerome Thomas Upton: Yeah.
Jerome Thomas Upton: Again, if you would like to ask a question. Please press star one at this time.
Jerome Thomas Upton: Okay.
Thomas Joseph McInerney: It appears that our note there are no questions at this time, ladies and gentlemen, I will now turn the call back over to Mr. Mcinerney for closing comments.
Mcinerney: Thank you very much Cynthia what I'd like to do is just sum up and say, we're very pleased with the trajectory of Genworth ski value drivers along with another very strong quarter for an act and for the U S. Life companies are very strong statutory income in the quarter, a 258 million.
Speaker Change: I want to thank all of you for your interest and support of Genworth.
Speaker Change: I guess, we'll see you next in the upcoming shareholders' meeting, which is and later in May.
Jerome Thomas Upton: And then we will look forward to seeing you again next quarter and with that I'll turn the call back over to Cynthia.
Cynthia: Ladies and gentlemen, this concludes Genworth Financial's first quarter conference call. Thank you for your participation at this time the call will end.
Cynthia: Yeah.
Cynthia: [music].
Cynthia: Yeah.
Jerome Thomas Upton: Okay.
Jerome Thomas Upton: [music].
Jerome Thomas Upton: Okay.
Jerome Thomas Upton: [music].
Jerome Thomas Upton: Yeah.
Jerome Thomas Upton: Yeah.