Q3 2025 Genworth Financial Inc Earnings Call
Speaker #4: Good morning , ladies and gentlemen . And welcome to Genworth Financial . S third Quarter 2020 Earnings Conference . Call . My name is Lisa , and I'll be your coordinator today .
Speaker #4: At this time , all participants are in a listen only mode . We will facilitate a question and answer session towards the end of this conference call .
Speaker #4: 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 .
Speaker #4: I would now like to turn the presentation over to Christine Jewell Head of Investor Relations . Please go ahead .
Speaker #5: Thank you and good morning . Welcome to Third Quarter 2020 Earnings Call . The slide presentation that accompanies this call is available on the Investor Relations section of the website .
Speaker #5: Investor . 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 .
Speaker #5: Following our prepared remarks , we will open the call up for question and answer period . In addition to our speakers , Jamal , our president and CEO of our U.S.
Speaker #5: Life insurance business , Greg Karawan , general Counsel , Kelly Salzgeber , Chief Investment Officer . And Samir Shah , CEO of Care Scout Services , will also be available to take your questions during the call this morning .
Speaker #5: 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 .
Speaker #5: 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 investor materials .
Speaker #5: 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 statements .
Speaker #5: And now I'll turn the call over to our president and CEO , Tom McInerney .
Speaker #6: Thank you . Christine , and thank you for taking the time to join our third quarter earnings call this morning . Jen , with reported solid net income of $116 million with adjusted operating income of 17 million , or $0.04 per share this quarter's results were driven again by strong performance from an Act or mortgage insurance subsidiary , which contributed 134 million to generous adjusted operating income .
Speaker #6: Our estimated pre-tax statutory income for our US life insurance companies was approximately 68 million on a year to date basis through the end of the third quarter , including the net favorable impacts to annuities from equity markets and interest rate movements .
Speaker #6: Jan was the end of the quarter with a healthy liquidity position , holding 254 million of cash and liquid assets . Genworth continues to execute against our three strategic priorities .
Speaker #6: First , we continue to create value for shareholders through enact growing market value and capital returns . Earn through our approximately 81% ownership stake in the company and remains a key source of cash to Genworth .
Speaker #6: Fueling our share repurchases and growth investments in Care Scout in the third quarter , we received 110 million of capital returns from an Act bringing us to a total of 1.2 billion received from an Act .
Speaker #6: Since its IPO in 2021 , an act announced yesterday that it now expects to return approximately 500 million of capital to shareholders . This year , highlighting the continued strong performance of its business supported by these strong cash flows , we continue to execute our own share repurchase strategy through the third quarter and September 18th , we announced a new 350 million repurchase authorization , underscoring the board's confidence in our strategy in financial condition .
Speaker #6: We've made strong progress returning capital through share repurchases at prices that , in our view , represent a discount to intrinsic value . Turning to our second strategic priority , we made additional progress in our self-sustaining and customer centric LTC life and annuity Legacy businesses in the third quarter , secured 44 million of gross Incremental premium approvals with an average premium increase of 63% , our multiyear rate action plan has achieved 31.8 billion in net present value since it began in 2012 , driven primarily by benefit reductions and premium increases .
Speaker #6: The mihrab continues to be our most effective lever for stabilizing our legacy books of business . As we've said recently , we continue to expect approvals to be smaller this year versus last year .
Speaker #6: In alignment with our plans . Finally , we continue to drive future growth through Care Scout . There . Scout has made several important announcements in recent weeks as we execute on our strategy to build a comprehensive aging care platform that helps people understand , find , and fund the quality long term care they need and care .
Speaker #6: Scout services will maintaining a rapid pace of network expansion . The Scout Quality network now includes over 700 providers with more than 950 locations nationwide covering over 95% of the US population aged 65 and older .
Speaker #6: This quarter , we continue to add providers in high demand markets and areas where we can further strengthen the network . Each provider meets .
Speaker #6: Care Scout's rigorous credentialing standards , ensuring quality and consistency for consumers who rely on our services . Scout services achieved another strong quarter of matches between LTC policyholders and Cxn home care providers now achieve more than 2500 matches year to date through October across 48 states , exceeding our original match goal for the year .
Speaker #6: We now expect to finish 2025 with over 3000 matches . The Scout Quality Network has expanded access to consumers in all 50 states .
Speaker #6: And anyone searching for home care can visit care Scout.com to filter by location and care needs to connect with quality providers as scouts network expands and brand awareness grows , we expect increased utilization for consumers as well as a higher share of generous long term care claimants to choose providers .
Speaker #6: This will help policyholders stretch every benefit dollar further and generate claimed savings for Jen worth over time . We also continue to work with other insurance carriers , managing their closed LTC blocks .
Speaker #6: Two pilot programs are in progress , and we are in various stages of engagement with three other LTC insurers . We also took an important strategic step with the acquisition of Senior Lead , a leading platform with a large network of senior living communities that help families with care , planning and placement through its growing advisor network , the transaction has now closed and our focus is on integration to enhance and extend our value proposition to millions of aging consumers navigating aging and care decisions .
Speaker #6: As we expand the Care quality network to span across both home care and assisted living , we can help a growing number of older adults who can no longer live alone and are seeking assisted living options .
Speaker #6: The acquisition also accelerates our expansion into the direct consumer channel , allowing us to reach more aging adults and families beyond Gen was policyholder base , senior League attracts thousands of consumers every month who are exploring different aging care solutions , including senior living options based on their individual needs .
Speaker #6: We can now connect these consumers to the full range of care offerings, from personalized care plans to our national network of home care providers and assisted living communities.
Speaker #6: Over the years , senior has developed deep expertise in combining technology with a human touch to guide families through the aging journey . This approach aligns perfectly with Scout's mission to deliver high quality , personalized support to families navigating long term care decisions .
Speaker #6: We believe the strong strategic and cultural alignment positions , care scout for continued growth and leadership as we build the trusted aging care platform of the future .
Speaker #6: As a quality network expands to include assisted living communities , we will shift to a revenue model that is different from home care services .
Speaker #6: Unlike our ongoing discount structure for home care services . Care will earn a one time placement fee when a customer successfully moves into the contracted community .
Speaker #6: This model is in line with how the broader industry operates through this transition . Our consumer value proposition around quality , price and service remains in place .
Speaker #6: We anticipate having a diversified group of communities in the network along different price points to enable more choice for consumers as our care teams help aging consumers find the right community and the level of care for them , we look forward to helping families avoid unnecessary spend and enable more stable claim patterns for insurers .
Speaker #6: In parallel with expanding the network , we're scaling additional fee for service offerings that generate a growing stream of recurring revenue . Our new care plans , product launched in the second quarter , continues to gain momentum with consumers and B2B audiences for a fee of $250 , consumers receive a virtual evaluation with a licensed nurse and a personalized care plan outlining practical strategies and local resources to support their aging journey .
Speaker #6: We plan to launch an in-person evaluation option in the fourth quarter . Over time , we expect to expand both the range of services Care Scout offers and a number of customers .
Speaker #6: We serve . Turning to Scout insurance , we advance our strategy to roll out innovative funding solutions that address the rising need for long term care .
Speaker #6: On October 1st , we launched Care Assurance Care Scout's inaugural standalone LTC insurance product . This marks a foundational milestone for Care Scout's insurance business .
Speaker #6: With the product now approved in 37 states with additional approvals pending . The Scout Assurance product is easy to understand and features customizable levels of coverage , inflation protection , and individualized policyholder experiences .
Speaker #6: It also provides access to the care Scout Quality network for trusted sources of care . And blends coverage with personalized service , enabling policyholders to maximize the value of every benefit dollar .
Speaker #6: We have designed the product to reduce risk , provide attractive returns , and minimize the need for future premium increases . Looking ahead towards future offerings , our next product will be an hybrid LTC design that pairs a minimum LTC benefit with low cost equity funds for accumulation .
Speaker #6: We have designed the product to reduce risk , provide attractive returns , and minimize the need for future premium increases . Looking ahead towards future offerings , our next product will be an innovative group offerings to broaden distribution through employers and other partners , and we hope to bring these products to market in the near term .
Speaker #6: As we have said before , from a capital standpoint , our initial 2025 investment of 85 million represents the majority of our planned investment in insurance over the next few years , future capital contributions may vary based on sales level and mix .
Speaker #6: In addition to investment performance and operating expenses , from services to insurance , Scott is building a human centered , tech enabled platform designed to simplify and dignify the aging journey .
Speaker #6: We will continue to grow organically and evaluate , select inorganic opportunities as we add care settings , products and customers . Next , I'll provide a quick update on the absolute litigation .
Speaker #6: As noted, last quarter, the UK High Court in July issued a favorable judgment holding Santander liable for losses related to the mis-selling of payment protection insurance.
Speaker #6: In October , Santander was granted permission to appeal the judgment . We continue to expect this process to take 12 to 18 months and remain confident in access position if the ruling is upheld , we expect to recover approximately 750 million , subject to exchange rates at that time and a recoveries are not included in our capital allocation plans .
Speaker #6: But if and when funds are received , we will look to deploy them in line with our priorities . Investing in Care Scout , returning capital to shareholders and reducing debt .
Speaker #6: Before I turn the call over to Jerome , I'd like to acknowledge the introduction of the supporting our Seniors Act bipartisan legislation authored by Senator Jacky Rosen of Nevada and Senator John Boozman of Arkansas .
Speaker #6: This measure would create a national advisory commission to assess and provide the Congress specific recommendations on how to improve long term care service delivery , affordability , and workforce adequacy .
Speaker #6: This legislation views long term care needs through a comprehensive lens , echoing the philosophy of Care Scout , which helps aging Americans at every step of the process to understand , find , and fund the long term care they need .
Speaker #6: I'm encouraged by policymakers increasing attention towards addressing the growing demand and costs for long term care in the United States . As a 70 million baby boomers age , and we will continue to work with congressional and other leaders to help advance responsible solutions that meet the moment .
Speaker #6: In closing , we're pleased with the strong progress we've made across Gen three strategic priorities supported by an act performance . We're confident in our ability to maintain this momentum and deliver on our objectives .
Speaker #6: Going forward . Thank you , Tom , and good morning , everyone . We continue to build on our solid foundation , enhance our financial flexibility and execute on our strategic priorities in Act once again delivered robust operating performance and maintain a strong capital and liquidity position .
Speaker #6: We also advanced our multiyear rate action plan , made significant progress advancing Care Scout and continued to return capital to shareholders . I'll start with an overview of our financial performance and drivers , followed by an update on our investment portfolio and holding company liquidity before we open the call for Q&A .
Speaker #6: As shown on slide nine , third quarter adjusted operating income was 17 million , driven by an act our long term care insurance segment reported an adjusted operating loss of 100 million , driven by a remeasurement loss primarily related to unfavorable actual variances from expected experience or A.D.
Speaker #6: . The unfavorable Ada of 107 million pre-tax was driven by lower terminations and higher benefit utilization , as we previously noted in 2023 and 2024 , we saw an average quarterly loss of approximately 65 million in LTC related to Ada .
Speaker #6: While results can vary quarter to quarter , we still expect full year performance , could track closely to that historical average . As a reminder , these GAAP fluctuations do not impact our cash flows .
Speaker #6: Economic value , or how we manage the business . Life and annuities reported adjusted operating income of 4 million in the third quarter .
Speaker #6: This included an adjusted operating loss of 15 million in life insurance , which improved versus the prior quarter , and prior year due to favorable mortality , offset by adjusted operating income of 19 million from annuities , corporate and other reported an adjusted operating loss of 21 million for the third quarter , including a 7 million valuation allowance reduction on certain deferred tax assets .
Speaker #6: Excluding this item , results were consistent with the prior quarter and prior year , reflecting continued investment in Care Scout and ongoing holding company debt service .
Speaker #6: Now , taking a closer look at an Acts third quarter performance on slide ten . An act delivered 134 million in adjusted operating income , down slightly versus the prior quarter and down 9% versus the prior year , reflecting a lower reserve release .
Speaker #6: Primary insurance and forest grew slightly year over year to 272 billion , supported by new insurance . Written and continued elevated persistency , as shown on slide 11 .
Speaker #6: In acts favorable , 45 million pre-tax reserve release drove a loss ratio of 15% in acts estimated PMR sufficiency ratio remains strong at 162% , or approximately 1.9 billion above requirements .
Speaker #6: Generous share of an Acts book value , including Aoci , has increased to 4.3 billion at the end of the third quarter , up from 4.1 billion at year end 2024 .
Speaker #6: This book value growth includes a significant capital returns to Genworth , including 110 million returned in the third quarter . Looking ahead , an act continues to operate with solid business fundamentals and a strong balance sheet , and Act has recently taken several actions to further enhance its capital and financial flexibility .
Speaker #6: During the quarter , an Act secured a new forward quota share reinsurance agreement covering the 2027 book year and executed a new 435,000,005 year revolving credit facility in October , an Act secured an excess of loss reinsurance agreement , also covering a portion of the 2027 book year .
Speaker #6: With these actions underscoring the business's commitment to continuing to build financial flexibility and Act remains well positioned to navigate the uncertainties and the macroeconomic environment .
Speaker #6: As Tom mentioned , an Act now expects to return a total of approximately 500 million to its shareholders in 2025 , based on our approximate 81% ownership position , we expect to receive around 405 million from an Act for the full year , up from our prior estimate of 325 million .
Speaker #6: Turning to long term care insurance starting on slide 12 , we continue to proactively manage LTC risk and maintain self-sustainability in the legacy US life insurance companies .
Speaker #6: Our multiyear rate action plan , or Mirap , continues to be our most effective tool for reducing tail risk in LTC . As of the end of the third quarter , we have achieved approximately 31.8 billion of In-force rate actions on a net present value basis .
Speaker #6: Rate increase approvals this year have been lower than recent years as expected , given large approvals in prior years , but we do anticipate higher approvals in the fourth quarter than we have received on a quarterly basis so far this year as part of the mihrab , we offer a suite of options to help policyholders manage premium increases while maintaining meaningful coverage and to enable us to reduce our exposure to certain higher cost benefit features , such as 5% compound benefit inflation options and large lifetime benefit amounts .
Speaker #6: About 61% of policyholders offered a benefit reduction have elected to do so , lowering our long term risk . These initiatives have helped reduce our exposure to individual LTC policies , with the 5% compound benefit inflation feature decreasing notably to approximately 36% , down from 57% in 2014 .
Speaker #6: In addition to the Mirap and other benefit reduction strategies , we're reducing risk in innovative ways , including through the Care Scout quality Network and our Live Well Age Well Intervention program , which deliver value for policyholders while also driving claim savings over time .
Speaker #6: As we've said before , we are committed to managing the US life insurance companies as a closed system , leveraging their existing reserves and capital to cover future claims .
Speaker #6: 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 over a decade away , we do not expect capital returns from these companies .
Speaker #6: Slide 13 shows statutory pre-tax results for the US life insurance companies , with a loss of 12 million for the quarter . The LTC loss of 75 million reflected new claims growth as the block ages and higher benefit utilization .
Speaker #6: Earnings from In-force rate actions of 337 million were up from 322 million in the prior year , excluding the impact of the legal settlements , reflecting continued strong progress on the Mirap .
Speaker #6: As a reminder , the prior year included an $88 million benefit from the implementation of the LTC legal settlements , which are now complete life insurance reported a loss of 2 million , including a benefit from favorable mortality in the quarter and our annuity products reported income of 65 million , reflecting the net favorable impact of equity market and interest rate movements in the quarter .
Speaker #6: The consolidated risk based capital ratio for Genworth Life Insurance Company or Galic , is estimated to be 303% at the end of September , down slightly since the end of June , as the statutory loss was offset by unrealized investment gains .
Speaker #6: Glyx consolidated balance sheet remains sound , with capital and surplus of 3.6 billion as of the end of September . Our final statutory results will be available on our investor website with our third quarter filings later this month .
Speaker #6: As we look ahead , I'd like to discuss our approach to this year's annual assumption review , which will be completed in the fourth quarter .
Speaker #6: While our review is still ongoing , we have been monitoring key trends and can provide some preliminary perspectives in LTC . Our review is primarily focused on short term trends and key assumptions such as benefit utilization incidents , terminations , and enforce rate actions which include benefit reduction initiatives .
Speaker #6: We face pressure from higher benefit utilization and cost of care inflation . We will evaluate this pressure relative to the tailwinds of additional premium rate increases and benefit reductions , as well as other initiatives which will reduce the overall impact in the aggregate for our life and annuity products .
Speaker #6: We are reviewing mortality lapse rates and the potential impacts of the recent changes in interest rates . In parallel with the assumption review , we are conducting statutory cash flow testing for our life insurance companies .
Speaker #6: While this process is not yet complete , our initial assessment indicates that margins should remain positive . We will discuss the results of our assumption reviews and statutory cash flow testing on our fourth quarter earnings call .
Speaker #6: Turning to slide 14 . We continue to see solid performance from our investment portfolio , where the majority of our assets are investment grade fixed maturities held to support our long duration liabilities , new cash flows invested in our life insurance companies during the quarter , including alternatives , achieved yields of approximately 6.8% .
Speaker #6: Our alternative assets program , which is largely focused in diversified private equity investments and has targeted returns of approximately 12% , continues to deliver strong results in the quarter , we saw strong mark to market increases on these assets , which was a key driver of our net income , representing a significant portion of our net investment gains in the quarter .
Speaker #6: We remain focused on growing this program prudently within regulatory limitations due to its robust track record of returns , diversification benefits and natural fit with long term liabilities .
Speaker #6: Next , turning to the holding company on slide 15 . We received 110 million in capital from an Act and contributed the remainder of our initial capital investment of 85 million into the new Care Scout Insurance Company .
Speaker #6: We ended the quarter with 254 million of cash and liquid assets . When evaluating holding company liquidity for the purpose of capital allocation and calculating the buffer to our debt service target , we exclude approximately 145 million cash held for future obligations , including advanced cash payments from our subsidiaries .
Speaker #6: Turning to capital on slide 16 , we continue to expect to invest approximately 45 to 50 million in Care Scout services in 2025 .
Speaker #6: As we continue to build out the platform , this investment will go towards adding new products and customers , establishing a strong foundation to scale the business .
Speaker #6: This total excludes our payment of approximately 15 million for our strategic acquisition of senior , which was funded from our existing holding company cash in the fourth quarter .
Speaker #6: Moving to shareholder returns . As Tom mentioned , we're very pleased that the board authorized a new share repurchase program of 350 million .
Speaker #6: We repurchased 76 million of shares in the third quarter at an average price of $8.44 per share , and another 29 million in October .
Speaker #6: For the full year 2025 , we now expect to allocate between 200 to 225 million to share repurchases . This range may vary depending on business performance , market conditions , holding company cash and our share price .
Speaker #6: We will continue to create value for shareholders through our share repurchase program . Our holding company debt stands at 790 million , and we have financial flexibility .
Speaker #6: Given the strength of our balance sheet and sustainable cash flows from an act, we maintain a disciplined capital structure with a cash interest coverage ratio of debt service of approximately seven times.
Speaker #6: As Tom discussed , Santander's request for an appeal in the Santander litigation has been granted if the appeal is favorably resolved . Jen , we're still expects to recover at that time , approximately 750 million , subject to movements in foreign exchange rates .
Speaker #6: We do not expect to pay taxes on this recovery . The new share repurchase authorization and updated share buyback guidance do not factor in any proceeds from the actual litigation .
Speaker #6: If received , such proceeds could support incremental shareholder returns . Our capital allocation priorities remain unchanged . We will continue to invest in long term growth through care Scout return cash to shareholders through our share repurchase program .
Speaker #6: When our share price trades below intrinsic value and opportunistically retire debt . In closing , we are delivering on our strategic priorities while proactively managing our liabilities and risk .
Speaker #6: The multi-year rate action plan and additional risk mitigation strategies are ensuring the self-sustainability of the legacy LTC block , and we will continue to focus on delivering sustainable , long term growth through Enact and Share , Scout while returning meaningful value to shareholders through share repurchases and opportunistic debt .
Speaker #6: Retirement . Now , let's open up the line for questions .
Speaker #4: If you have dialed in via the telephone and would like to ask a question , please signal by pressing star one on your telephone keypad .
Speaker #4: If you're using a speakerphone , please make sure your mute function is turned off to allow your signal to reach our equipment again , press star one to ask a question and we'll pause for just a moment to allow everyone the opportunity to signal for a question .
Speaker #4: And once again , ladies and gentlemen , if you would like to ask a question , please signal by pressing Star one on your telephone keypad .
Speaker #4: It appears there are no questions at this time . Ladies and gentlemen , I would now turn the call back over to Mr. McInerney for closing comments .
Speaker #6: Thank you very much , Lisa . And I want to thank everybody for joining the call today and for your continued interest in Jen Wirth .
Speaker #6: And I'll turn the call back over to Lisa .
Speaker #4: And our first question comes from Pete Enderlin with Maz partners .
Speaker #7: Good morning . Can you hear me ? Hello .
Speaker #6: Yes , we can hear you . Can you hear us ?
Speaker #7: Yes . Okay . Well , first of all , congratulations on the the way you've continued to manage all the , the multiple complicated moving pieces of this whole strategic picture .
Speaker #7: But second , and this is kind of a hard question to answer . Ask and answer , I guess . But is there any meaningful way you can talk about the the ultimate strategic long term resolution of the LTC situation for the company ?
Speaker #7: I mean , you've done a lot to improve it itself , and also your approach to it with the new operations you're undertaking .
Speaker #7: But , you know , if you look at , I don't know , ten , 20 years , whatever , where does that thing end up in relation to Jen worth itself ?
Speaker #6: So Pete , that's a significant question . And I would say one , we continue to focus on making sure of the self of the legacy life companies .
Speaker #6: Right . And we're making significant progress with premium increases and benefit reductions . Second , you know , as one of the slides shows , there's 71 million Americans , 65 and older .
Speaker #6: There's 70 million baby boomers , 95% of whom do not have long term care insurance . So care services is really designed to work with them .
Speaker #6: You know , if if they do end up with long term care disabilities and the action is that two thirds of baby boomers , Americans , when they reach their 80s , will have need for long term care services , has well positioned to help them assess what their care needs are .
Speaker #6: Come up with care plans . And we've talked about the pricing on those . And then refer those who need care to either our home care quality network or or assisted living communities .
Speaker #6: And obviously the the senior acquisition really significantly expanded that network by about 3000 . So I think it's a huge market because of the aging baby boomers .
Speaker #6: And there are not a lot of players left today in the LTC space . So we think it's a big market . We're well positioned both on the service side , helping people decide how much care they need and where to get it , and then we offer discounts and incentives and then on the insurance side , we have our first product that we are launching now .
Speaker #6: And there's a number of products that will be developed and brought to the market starting in the first quarter . So we're very optimistic given the size of the market .
Speaker #6: Our 50 years of expertise in the market and the two Care Scout units that we're very well positioned to take advantage of a big and growing need for Americans .
Speaker #6: Meeting to figure out what care they need , find the care , and then have us provide funding solutions for that .
Speaker #7: Thanks . Is it too simplistic to say that the the legacy LTC business is basically going to be a run off and then the rest of it would be a standalone business that could eventually be literally separated from Genworth itself .
Speaker #6: So we're the new care Scout . Businesses are not connected to the the legacy Genworth Life companies , their own obviously by by the parent .
Speaker #6: And so yeah , I mean for the legacy business , it's a run up . It's a long run off because probably of the more million policyholders we have , individual and group that run off will be 30 years or more .
Speaker #6: But but all the care scout opportunities are in a separate business . That will be run , managed separately and to your point , Pete , it could will be able to stand on their own , separate and apart from the legacy LTC company .
Speaker #7: Okay , thanks for that perspective . Thanks a lot .
Speaker #6: Yep . Thanks , Pete . Thanks for your questions . .
Speaker #4: And once again , if you would like to ask a question , please signal by pressing star one on your telephone keypad . We'll take our next question from Ross Levine with Arbiter .
Speaker #8: Thanks , folks . I was my question is , at one point you were generating some statutory income out of the legacy life or long term care business .
Speaker #8: And it seems like that's flipped to slightly negative over the last several quarters . Could you just talk ? I know it's small numbers in the context of the whole , but could you just talk about what's driven the the transition to somewhat negative statutory earnings ?
Speaker #6: Sure . Jerome , you want to handle that . Good morning , Ross , and thank you for the question . I would just highlight from a statutory income perspective , the biggest driver right now of the pressure that we're feeling is long term care .
Speaker #6: And that's that's where the pressure is normally coming from . And the driver of that is basically we continue to see claims go up and we continue to see pressure from benefit utilization .
Speaker #6: And what we do with that is we take all of that and we prioritize that and put that in our multiyear rate action plan .
Speaker #6: And we've been executing very , very well against our multiyear rate action plan , which provides some offset . But there's no doubt there's pressure from the long term care perspective because of the claims .
Speaker #6: And those claims will continue to increase over the the next several years because we've got some large blocks that are maturing . That's the biggest driver .
Speaker #6: Number two: life has been pressured from a mortality perspective, and that pressure has continued to come through. That has been offset in part because of the strength in the equity markets.
Speaker #6: With our annuity programs . So we have annuities , which when the equity markets go up , we we get have some favorability that come through our statutory earnings .
Speaker #6: The one thing that I , I will and also the one thing that I would highlight is we had legal settlements coming through in the prior year , which tamped down the pressure that we felt in LTC .
Speaker #6: And now those legal settlements are complete . The one thing from a from a US life perspective , we focus on the mihrab .
Speaker #6: That business we have told our investors that we are not going to put money in the business . We're not going to take money out of the business .
Speaker #6: We're focused on closing that gap with a multiyear rate action plan, and we're telling our investors to value the business at zero.
Speaker #8: Yeah , understood . I guess to the extent that maybe a several quarters ago or a year or two ago , someone might have felt you were getting ahead of things in terms of being able to generate some statutory income via some of the modifications you were able to negotiate with your state regulators , like why ?
Speaker #8: What has caused us to sort of fall behind the curve again , if that makes any sense , or . Well .
Speaker #6: Well , so so Ross , you may there's a couple of things that I would highlight for you . Number one , several years ago , Covid was highly pressured situation overall , geographically in the population .
Speaker #6: But it created additional terminations or deaths that came through . And we saw some favorability or profitability that came through during Covid . That's that's number one .
Speaker #6: That that is behind us now . Number two , we had some settlements , some very large settlements that came through that also increased our our earnings or tamp down the pressure that we're feeling .
Speaker #6: And those are now gone . And we're seeing some of the larger books that we have and are in block . And our LTC enforce block coming through and claims are going up .
Speaker #6: The only thing I would add to that , the only thing I would add to that , Ross , is I do think you are going to see quarter to quarter variation .
Speaker #6: There will be some quarters where we'll have statutory earnings. Usually, the first quarter of the year is a good one. These claim terminations are higher than in other quarters.
Speaker #6: You know , it's always hard to predict when states , particularly large states , will grant premium increases . And so depending on the timing of that , it could impact quarter to quarter results in addition , we have a significant plan to continue to be successful in getting benefit reductions .
Speaker #6: I think what the slide show that we're at , 60 or 61% have taken a benefit reduction that also helps , I think , over the long run , the statutory income will I think of it as break even .
Speaker #6: They'll be quarters that will be positive . Quarters negative , but break even over time . And we we really do depend on the mihrab premium increases benefit reductions .
Speaker #6: I think over time we've done extremely well and certainly compared to others in the industry . But it is it is going to continue to be the case that from a statutory perspective , quarter to quarter , there'll be positive quarters or negative quarters .
Speaker #6: But overall , you know , it's from said we value the businesses , service . We think we'll be able to ultimately achieve through the mihrab .
Speaker #6: Enough premium increases benefit reductions to pay all the claims that we forecast going forward .
Speaker #8: Okay . So so if you achieve your ambition in terms of the mihrab , you would not expect to ultimately generate statutory income out of the legacy long term care block .
Speaker #6: I think we look at that as , you know , the premium increases and benefit reductions will allow us to be at break even going forward and be able to pay all the claims that we project .
Speaker #8: Fair enough . Thanks .
Speaker #6: Thank you . Ross .
Speaker #4: It appears that there are no questions at this time . Ladies and gentlemen , I will now turn the call back over to Mr. Mcenerney for closing comments .
Speaker #6: Thank you very much , Lisa , and thank you to Pete and Ross for those questions . I think there are very good questions and hopefully we address them well .
Speaker #6: Thank you to all of you joining the call today . We appreciate your interest and your ownership in the company and look forward to catching up with you .
Speaker #6: When we release the fourth quarter results in February . And with that , I'll turn the call back to you to close out the call .
Speaker #4: Ladies and gentlemen , this concludes the financials . Third quarter conference call . Thank you for your participation at this time . The call will end .