GENWORTH FINANCIAL INC Q3 FY2024 earnings call

Strategic Progress

• Continued execution against strategy driving long-term growth and shareholder value.
• Enact's strong performance with $148 million in adjusted operating income, 10% YOY increase, and $819 million in capital contributed to Genworth since IPO.
• U.S. life insurance segment's operational strength and capital levels, with MYRAP securing $124 million in gross premium approvals, cumulative $30 billion NPV since 2012.
• CareScout quality network scaling rapidly with 422 home care providers, aiming for 85% geographic coverage of aged 65+ by year-end, plans to add assisted living and direct-to-consumer offerings in 2025.

Financials

• Statutory pre-tax loss of $18 million in U.S. life insurance due to unfavorable mortality, higher claims, and lower legal settlement benefits.
• Liquidity position remains strong with cash and liquid assets of $369 million inclusive of advanced cash payments.

Genworth reported net income of $85 million or $0.19 per share and adjusted operating income of $48 million, $0.11 per share. Enact contributed $148 million to adjusted operating income. The U.S. life insurance segment had a statutory pre-tax loss of $18 million due to unfavorable mortality, higher new claims, and lower legal settlement benefits. Life and annuities had adjusted operating losses, and corporate and other had a loss driven by interest expense and CareScout investments. Enact's adjusted operating income was $148 million, a 10% year-over-year increase, with primary insurance in force growing 2% YOY to $268 billion.

Forward-Looking Statements

• Expect continued GAAP earnings volatility in LTC as short-term results deviate from long-term assumptions.
• Total capital returns from Enact expected to be in the upper end of $245M-$285M guidance range for full year.
• Plan to allocate $160M-$180M to share repurchases in 2024, with final amount depending on share price and market conditions.
• Expect statutory cash flow testing for life insurance companies to show GLIC margins remain positive.

• Actual results may differ materially from forward-looking statements.
• Statutory results are estimates due to timing of statutory statement filings.
• GAAP earnings volatility in LTC due to actual vs. expected experience and seasonal mortality trends.
• Interest rate risk and potential negative impacts from assumption updates in fourth quarter assumption review.

Q: Hey good morning. My first one is on the AXA Santander lawsuit. I think the case is still set for March of next year, but if there is a positive ruling for you guys there, could you just comment on the potential use of proceeds?

A: Well, Brett, thank you very much for the question. So, yes, the trial data is still set for March 2025, it is possible there could be a settlement before them, but that's the March date. To the extent that we win that case, and we've been saying for a long time, we think we like our side of -- or the access side of that lawsuit. And I think the focus for any proceeds would be to continue to do what we've been doing, return capital to shareholder through the share repurchase program. I think you'd see us step up that in the play. We'll continue where there's good opportunities, a good pricing to buy back the debt. And then obviously, we want to continue to invest in CareScout services business, which, as both Jerome and I talked about, is doing very well, gaining very good momentum and then also investing in the new CareScout Insurance business when we launched the first product sometime next year. Jerome, I don't know if you want to add anything to that?

Q: Okay, great. Thanks. And then for my follow-up, I was just hoping you guys could give a little more color on how the CareScout revenue model will work beyond potential savings on LTC claims?

A: Yes. So basically, maybe just to try to make it simple, Brett, it's a good question. But as I said in my remarks, the annual cost for Home Care is about $75,000 a year. So, let's say, roughly a little over 6,000 a month. And our we're doing very well on the discounts, I think 90% are in the 20% range. So, if you just say the savings through the discount on the good policy so $1000 a month, $250 of that goes to CareScout services because they've built and maintained the network and then $750 of the $1,000 a month savings is retained by terms of lower claim costs. So, that's the basic model.

Q: Hello. Good morning. Thank you for taking the time. I've got two questions on CareScout. The first one is maybe more of a clarifying question. And that's -- how do you define coverage percentage in your presentation material? Is that as straightforward as you have just at least one care provider in the ZIP code where age 65 plus are located? And then separately, before I hop back into the queue, how do either the insurer or the policyholder become aware that there are services available to them at potentially lower prices, especially with regards to non-general policyholders?

A: Those are great questions, Josh. And so the first one, in terms of CareScout, we look at the coverage by ZIP Code. And so depending -- obviously, you would expect in those ZIP codes in bigger cities, there will be several providers in the network in that area. As you get to the more rural areas, I mentioned we were in 49 states. The one state we're not fully in yet is Wyoming. Obviously, it's a more rural state. . So, there obviously are ZIP codes that are -- where they're less populated and therefore, there are less 65-plus year-olds less Genworth policyholders. So on those ZIP codes, it would probably more typical that you might only have one, maybe two providers. So, that's basically how it works. And the second part of the question was touch points with insurers and policyholder. Yes. So touch points with insurance and policyholders. For our policyholders, we obviously communicate with them regularly, and we have been since we started the journey with CareScout services have been telling them about the network. When someone files a claim, obviously, we work to assess the claim determine if coverage applies. And then through that process, which takes on average 20 to 30 days. We'll talk about who are the providers in the network the discounts they provide, and that's out done. The last several months were with the click policyholders. We've been doing more than 100 per month of masses between the policyholder going on claim in the network. For the direct-to-consumer, from a broader perspective, we'll be marketing that this network is available in these states. Most of the providers are below the median cost of care in the state or the ZIP code and we credential for quality on 20 different dimensions. So, I think our whole value proposition there is we're taking all of the time and effort to find a provider away from the person needing care or typically their family. And at the same time, whatever the rate would be per hour for Home Care. Again, generally, we're getting significant discounts, 20% is sort of been where we've been out for most of the policyholders. Obviously, for the direct-to-consumer, where they don't have insurance, the savings are very significant since they're paying. So, we're very optimistic going forward. We got to first complete the network. We said by the end of the year, we want to be at 85% coverage. That's -- for practical purposes, that's pretty full coverage. There are always going to be, whether it's Wyoming or Montana, Idaho, other states like that, where we'll take time to fill in the gaps. So we think at 85%. That will be pretty much effective nationwide coverage -- and once we have that, we'll then begin to accelerate our marketing plans to let consumers in general know that the network is available.

Q: Good morning. I'd also like to focus on CareScout for a moment from understanding better how the entity impacts the parent company as opposed to what's going on in the ring-fenced insurance entities. I assume all the expenses of CareScout and the parent company level and trying to understand currently but the offsetting revenue might be? And kind of what the P&L looks like, if you will, on a standalone basis?

A: So, Jerome, do you want to want to talk about that?

A: So, Doug, thanks for your question. I would start out by saying, and Tom highlighted in his prepared remarks, that we are investing $35 million in the CareScout services business. That is all contained in the corporate and other segment at this point in time. So that you will see coming through. And that's why we've highlighted the $35 million for you, so you can understand the investment we're making. We are going after a very large market, as Tom highlighted. So we're optimistic about what we're doing there. So expenses are in corporate and other. On the revenue side, CareScout services when they are saving our GLIC policyholders money because the providers are signing up for 90% or signing up for like a 20% discount. CareScout Services would get 25% of that, and that would come in the corporate and other as well. So it's mostly contained in the corporate and other segment.

Q: Hey guys. Thank you again for taking another one for me. In your prepared remarks on the fourth quarter LTC reserve review, -- you may note that you expect GLIC reserve margin to remain positive. Can you please remind us either where that margin is currently or where it was the last time you provided an update?

A: Yes. Thank you for your question, Joshua. When we did our cash flow testing, our statutory review of margin at year-end 2023. We were in the $0.5 billion to $1 billion range of that margin, and we do expect to maintain our statutory margin for GLIC in that same range this year.