Genworth Financial Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

Key Takeaways

  • Genworth reported strong Q1 2023 results under the new LDTI accounting standard, with Enact delivering $143 million of adjusted operating income on $250 billion of insurance in force and Genworth’s U.S. Life companies generating $192 million of statutory pretax net income (including $138 million from LTC).
  • Enact achieved a major milestone when the GSEs removed PMIERs capital restrictions on March 1, and received upgrades from Fitch, S&P and Moody’s; Genworth has now received $405 million of capital from Enact since its IPO, including $37 million in Q1.
  • The multi-year LTC rate action plan advanced with approvals on $50 million of new premium (approximately $300 million in NPV) in Q1; Genworth expects about $250 million of total rate approvals in 2023, bringing cumulative NPV approvals to $23.8 billion since 2012.
  • Genworth accelerated capital returns, repurchasing $68 million of shares in Q1 and an additional $50 million in April (totaling $180 million since last May), while holding company cash stood at $233 million and holding company debt was reduced to $876 million.
  • In March Genworth launched CareScout’s initial digital platform and preferred home-care network in Texas, aiming for $1 billion–$1.5 billion in NPV LTC claims cost savings through 10–20% fee discounts and a nationwide roll-out.
AI Generated. May Contain Errors.
Earnings Conference Call
Genworth Financial Q1 2023
00:00 / 00:00

There are 5 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Genworth Financial's First Quarter 2023 Earnings Call. My name is Jess, and I will be your coordinator today. 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. As a reminder, the conference is being recorded for replay purposes.

Operator

Also, we ask that you refrain from using cell phones, speakerphones or headsets during the Q and A portion of today's call. I would now like to turn the presentation over to Sarah Cruz, Director of Investor Relations. Please go ahead.

Speaker 1

Thank you, and good morning. Welcome to Genworth's Q1 2023 earnings call. The slide presentation that accompanies this call is available in the Investor Relations section of the Genworth website, investor. Genworth.com. Our earnings release and financial supplement can also be found there, and we encourage you to review these materials.

Speaker 1

Speaking 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 Hendergast, President of our U. S. Life Insurance Business and Kelly Staltsgeber, and Chief Investment Officer will also be available to take your questions.

Speaker 1

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 risk factors of our most recent annual report on Form 10 ks 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, non GAAP measures have been reconciled to GAAP where required and according to the SEC rules.

Speaker 1

Also references to statutory results or estimates due to the timing of the filing and the statutory statements. And now, I'll turn the call over to our President and CEO, Tom McInerney.

Speaker 2

Thank you, Sarah. Good morning, everyone, and thank you for joining our 1st quarter earnings call. I want to welcome Jerome and Kelly to the first call in their official capacity, so Jerome as Chief Financial Officer and Kelly as Chief Investment Officer. Genworth reported strong Q1 results, reflecting a successful start to the year despite a challenging economic environment marked by persistent inflation, high interest rates and volatility in the banking sector. As a reminder, this is the Q1 we are reporting results under the new GAAP accounting standard for long duration targeted improvements or LDTI with the Q1 of 2022 recast for comparability.

Speaker 2

As we've been saying for some time, the new accounting standard will result in more volatility in and our quarterly GAAP results going forward as we will be required to remeasure many aspects of our long tailed insurance liabilities on a quarterly basis. LDTI requires the insurer to evaluate assumptions regularly and treats unprofitable block cohorts differently than profitable cohorts. Macroeconomic variables like quarterly interest rates or quarterly cost inflation and actual experience will vary significantly over the 30, 40 year duration of LTC liabilities. Therefore, volatility quarter to quarter should be expected. Over the long run, U.

Speaker 2

S. GAAP and statutory accounting results will ultimately be substantially similar. While we continue to report Genworth's results in compliance with our GAAP reporting requirements. We manage the U. S.

Speaker 2

Life companies on a statutory accounting basis because that is how the state insurance departments regulate Genworth and the life insurance industry. Jerome will discuss the LDTI accounting standard and its impact on our GAAP results in more detail. Results in the Q1 were led by an act, which reported adjusted operating income of $143,000,000 and ended the quarter with $250,000,000,000 of insurance in force. At Aptiny, Genworth achieved a significant milestone on March 1st when the government sponsored enterprises or GSEs removed the PMIERs capital restrictions on EnAct. This was an important development for EnAct and for Genworth as EnAct is no longer subject to more stringent capital requirements than its peers, putting it on a more level playing field with competitors.

Speaker 2

We also were very pleased that Fitch, S and P and Moody's each upgraded ANAC's ratings this year. Enact continues to be a significant driver of value to Genworth. Since Enact's IPO, Genworth has received approximately $405,000,000 and capital from EnAct, including $37,000,000 in the Q1. Turning to our Life businesses. 1st quarter statutory pre tax net income for our life insurance companies was $192,000,000 reflecting very strong results for LTC Insurance.

Speaker 2

Statutory pretax income for the LTC legacy business was $138,000,000 driven predominantly by LTC premium And then, I'll turn it over to Jeff. Thank you, Jeff. Thank you, Jeff. Thank you, Jeff. Thank you, Jeff.

Speaker 2

Thank you, Jeff. Thank you, Jeff. Thank you, Jeff. Good morning, everyone. Good morning, everyone.

Speaker 2

Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone.

Speaker 2

Good morning, everyone. These results are highlighted on Page 17 of our investor presentation. The U. S. Life Businesses complete statutory results will be available when we file our quarterly statutory statements later this month.

Speaker 2

In this economic environment, it's important to note that Genworth has a very strong investment portfolio, and we are well positioned with respect to the recent turmoil across several regional and local banks. We had no exposure to Silicon Valley Bank or Signature Bank and we have relatively modest exposure to First Republic Bank debt, which Jerome will cover in more detail. Genworth avoided the asset liability challenges that impacted some of the regional banks in the U. S. After the 10 year treasury rate fell below 1% in March of 2020.

Speaker 2

Genworth's Asset Liability Investment Committees approved shortening the duration of our general account assets and unwinding some of the hedges put on to protect against a further fall in long term interest rates. The respective committees approved the repositioning of the portfolios and derivatives Because we believe the very easy monetary policy of the Fed over the last decade and the 1,000,000,000,000 of dollars of increased fiscal spending undertaken because of the COVID-nineteen pandemic would likely lead to substantial increase in inflation. Given the increase in long term yields driven by higher inflation and the significant increase in Fed policy rates, the Asset Liability Investment Committees acted quickly to prove a gradual increase in the duration of the general account assets over time and the replacement of some of the derivatives that protect against falling interest rates in the future. I would note that because of the large legacy LTC business, Genworth gains from a long term interest a long term increase in interest rates, that needs to protect the LTC liabilities from a significant decrease in long term interest rates in the future. Further, The Investments Group has a very conservative underwriting strategy regarding our $10,000,000,000 commercial real estate portfolio.

Speaker 2

As a general rule, Genworth is not a major investor in mortgages that finance large commercial office buildings with a single tenant in downtown locations. Our commercial mortgages are well diversified with smaller loan sizes per deal and we require principal amortization on most commercial mortgages. Turning to our strategic priorities, we advanced our strategy to drive shareholder value significantly over the past several years, culminating in several major achievements in 2022. We reached our long term holding company debt target of under $1,000,000,000 enhanced the value of EnAct, received multiple upgrades from the rating agencies, achieved $549,000,000 in annual LTC premium increase approvals, which was a record and began returning capital to shareholders for the first time in 13 years. As a result of our successful execution of our priorities, shareholders were rewarded with strong share price performance over the past year despite the volatile macroeconomic backdrop.

Speaker 2

Building on this progress and the transformative improvement in Genworth's financial position Over the past few years, we are refocusing our priorities in 3 areas. First, we will continue to improve the financial condition of our legacy LTC business. We do this primarily through our multiyear rate action plan, the most effective tool we have to bring our legacy LTC insurance portfolio to economic breakeven on a go forward basis. We achieved a total of $50,000,000 in premium rate increase approvals in the Q1, bringing our cumulative progress to approximately $23,800,000,000 in approvals on a net present value basis since 2012. We expect our total premium rate increase approvals to be closer to $250,000,000 this year, which is lower than last year's record amount of $549,000,000 We're pleased with the start we've had to the year for this critical work.

Speaker 2

2nd, we continue to allocate excess cash from EnAct to drive Genworth's long term shareholder value. Cash flows from EnAct have enabled us to key milestones to date and will continue to benefit shareholders by fueling our share repurchase program and long term growth strategy in CareScout. We repurchased $64,000,000 worth of shares in 2022. As we committed to investors earlier this year, We picked up the pace of repurchases with an additional $68,000,000 in the Q1 and we repurchased another $50,000,000 in the month of April. This brings the cumulative total to approximately $180,000,000 worth of shares repurchased at an average price under $5 per share since the program's exception last May.

Speaker 2

There is approximately $170,000,000 outstanding under the current repurchase authorization. We also continue to opportunistically repurchase 2,030 4 debt as part of our balanced capital allocation strategy and we made some repurchases in the Q1. As of today's date, holding company debt stands at $876,000,000 with an annual debt service expected to be approximately $60,000,000 for 2023. There are covenants in our underlying debt instruments that restrict our ability to repurchase any of the subordinated floating rate debt. However, we will continue to consider swapping a portion of this floating rate debt into fixed debt depending on market conditions in the future.

Speaker 2

Our 3rd priority is to leverage Genworth's substantial LTC expertise to develop innovative aging care services and solutions under the CareScout brand. We have planned for several phases of new products and services over the next 3 to 5 years. We launched the initial phase of CareScout Services in March. This business includes a digital platform where those in need of long term care can search for caregiving services, compare local care options and match with a quality care provider through a preferred network of high quality senior care providers that we are building in this first phase of the CareScout strategic plan. In addition to what we believe will be broad appeal of the digital platform and preferred network offerings to consumers, employers and other LTC insurers, The discounts available through the network have the potential to generate very significant reductions on our legacy Genworth LTC claims cost.

Speaker 2

Our preliminary projections indicate future cost savings in the $1,000,000,000 to $1,500,000,000 range on a net present value basis, Depending on how quickly the preferred network is available nationwide, how many Genworth LTC policyholders choose a preferred provider within the network and the level of discounts we are able to achieve. We launched the CareScout Services preferred provider network in Texas, Given the size of the market and the significant number of Genworth policyholders in Texas, we are in the process of beta testing the digital platform with caregivers and care experts. We are currently in discussions with dozens of home care providers in Texas to join the Quality Care Network. 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's existing 1,100,000 policyholders. Caraustl's extensive market research indicated that home care providers should be willing to offer Genworth policyholders and other CareScout customers fee discounts between 10% 20%, and our discussions to date confirm we can achieve this range of discounts for the quality network.

Speaker 2

CareScout Services is currently focusing on home care providers, because around 65% of Genworth policyholders While the initial focus of the quality care provider network will be our Genworth LTC policyholders in Texas. A number of the home care providers are talking that we are talking to We have a national or large regional operations covering a majority or in some cases all of the states. As a result, We believe we can significantly accelerate our efforts to build a national quality home provider network, while we allow a high quality experience and discounted fees from our existing Genworth policyholders and provide the scope of CareScout services to many more new consumer markets. Working from a significantly improved financial foundation, these three priorities will guide our decision making moving forward as we seek to maximize Genworth's long term value to shareholders. As always, we will maintain a disciplined capital allocation strategy, and the balance sheet.

Speaker 2

Looking ahead, I'm very pleased with the continued strength in our operating results and our strategic progress. We have a much stronger balance sheet and ample liquidity, providing significant flexibility as we navigate 2023. And with that, I'll turn the call over to Jerome.

Speaker 3

Thank you, Tom, and good morning, everyone. I'm pleased to join my first earnings call as CFO of Genworth. I look forward to building on the great progress Genworth has made and continuing to work alongside Tom and the team to achieve our goals and deliver value to our shareholders. Before discussing the results, I will highlight changes to our segment reporting and provide an update on our adoption of the new GAAP accounting standard, long duration targeted improvements or LDTI. Effective January 1, we changed our operating segments to better align with how we currently manage the business.

Speaker 3

The operating segments are Enact Mortgage Insurance, Long Term Care Insurance and Life and Annuities. In addition, we have corporate and other, which primarily includes our holding company debt, public company operating expenses and CareScout. Regarding LVTI, it is important to remember that this new GAAP accounting standard only applies to our Long Term Care Insurance and life and annuities segments. It does not impact EnAct or Corporate and Other. This accounting change is non economic and does not impact our cash flows, strategy, statutory accounting or capital levels or any of our capital management activities.

Speaker 3

With the adoption of LDTI, we have recast financial results for the Long Term Care Insurance and Life and Annuities segments for the Q1 of 2022, as well as the 2022 balance sheet and reported the Q1 of 2023 under the new guidance. We are targeting to provide recasted financials for the remaining quarters of 2022 by the time of our 2nd quarter earnings announcement in early August. Turning to the quarter, I want to address the recent banking turmoil As Tom mentioned, Genworth has no exposure to Silicon Valley Bank or Signature Bank. We have overall limited exposure to regional banks and are comfortable with our positions. We did, however, hold a small position in First republic through the Q1, mainly in their debt with $12,000,000 of net exposure on a GAAP basis.

Speaker 3

We subsequently sold down the majority of our holdings and expect to record a loss in the 2nd quarter. In addition, we have very limited bond exposure to Credit Suisse, which is expected to be acquired by UBS. And more importantly, we had no exposure to Credit Suisse's riskier additional Tier 1 bonds. We are paying close attention to pressures and concerns in the market and our investment portfolio remains well positioned to manage through the current economic uncertainty. We proactively manage our holdings and the higher interest rate environment allows us to invest at attractive new money rates, which will benefit the portfolio over time.

Speaker 3

As a reminder, the majority of our assets are in investment grade fixed maturities that we generally buy and hold to report the U. S. Life insurance company's liabilities. Because the liabilities are very long duration, especially for long term care insurance, we have limited liquidity risk. We are closely monitoring our commercial real estate exposure, which is shown on Slide 8 and is approximately 16% of our total portfolio.

Speaker 3

The commercial real estate portfolio was concentrated in higher quality investment grade assets and has modest office exposure of less than 20% on a weighted average basis. We believe our commercial real estate portfolio is well positioned amidst volatility and we remain proactive in managing office exposure and finding yield enhancing opportunities across all asset classes. Now I will turn to our Q1 financial results and holding company capital and liquidity position. For the Q1, we reported $62,000,000 of net income or $0.12 per diluted share and $84,000,000 of adjusted operating income or $0.17 per diluted share. Results were led by Enac's very strong performance of $143,000,000 in adjusted operating income to Genworth, driven by favorable loss performance.

Speaker 3

Turning to Slide 9. Enac's primary insurance in force increased 9% year over year to $253,000,000,000 driven by new insurance written or NIW and continued high persistency of 85%. We continue to see lower primary NIW year over year, driven by lower mortgage originations in the increased interest rate environment. As the Enac team has highlighted, while there are pressures in the housing and mortgage origination market, Enac continues to write profitable new business, The reserve release primarily reflects favorable cures on COVID-nineteen delinquencies. Prior year results included a $50,000,000 pre tax reserve release, also due largely to cures on COVID-nineteen delinquencies.

Speaker 3

The estimated PMIER sufficiency ratio of 164% where approximately $2,100,000,000 above requirements remain strong and relatively flat versus the prior quarter. Enact's quarterly dividend payment of $0.14 per share generated proceeds of $19,000,000 to Genworth. We're pleased with their announcement to raise the quarterly dividend to $0.16 per share payable in June. Based on Enac's expectation to return $250,000,000 of capital to its shareholders this year, in line with their returns last year. We We anticipate receiving approximately $200,000,000 from EnAct in 2023 based on our 81.6 percent ownership.

Speaker 3

This is expected to come through a combination of its quarterly dividends, share repurchase program and a special dividend. Slide 11 lays out an overview of the new GAAP accounting changes for our LTC and Life and Annuity segments. In summary, our assumptions are now based on best estimates at a cohort level versus original locked in pricing assumptions and will be updated at least annually. Market risk benefits related to our annuities products will be mark to market. Finally, we are required to discount our liability for future policy benefits at a single A corporate bond rate with changes recorded through accumulated other comprehensive income or AOCI.

Speaker 3

This will create volatility in our reserves and AOCI on a quarterly basis. Additionally, each quarter, we are required to measure our actual experience versus our best estimate assumptions at a policy cohort level, And these differences will flow through the income statement. Policy cohorts are based on the original contract issue date. When evaluating our actual experience versus our best estimate assumptions, we will take into account the policy cohort's net premium ratio. Our blocks with a net premium ratio below 100% have profits or margin, so we expect more modest earnings impacts from these cohorts on a quarterly basis as we evaluate actual experience.

Speaker 3

For the unprofitable policy cohorts, which we think about as having no margin, The net premium ratio is capped at 100%, and the full impact of the actual to expected differences will hit the bottom line. This is particularly true for our older LTC policy cohorts that make up roughly half of our LTC block. The impacts to these unprofitable cohorts may be a material driver of our GAAP earnings story going forward. As Tom mentioned, The expected quarterly volatility going forward, particularly in LTC GAAP results, reinforces why we have encouraged investors to also review Our statutory disclosures. Now let's turn to our Q1 Long Term Care Insurance GAAP results.

Speaker 3

Our LTC business reported an adjusted operating loss of $37,000,000 compared to adjusted operating income of $27,000,000 in the prior year. Current quarter GAAP results reflect an unfavorable assumption update for timing delays related to the implementation of certain in force rate actions or IFAs. This was partially offset by favorable actual experience versus our expectations under current best estimate assumptions, principally in the unprofitable cohorts, although less so than the prior year. This experience included higher than expected new claims and benefit utilization compared to the prior year. Terminations were elevated in the current quarter compared to expectations, partly due to seasonally high mortality in the Q1 of the year, although lower than the prior year.

Speaker 3

Per Slide 12, premiums were up versus the prior year from increased premium rates from implemented IFAs, which offset block runoff and the impact of policies reaching a paid up status. Net investment income was up versus the prior year from limited partnerships, Conference. As indicated, we have continued to provide more statutory disclosures in our quarterly materials as this is our focus for managing the business and is the focus of our regulators and rating agencies. As shown on Slide 13, in the current quarter, Statutory pretax earnings from LTC are estimated to be $138,000,000 driven by $357,000,000 of earnings from our IFAs. Statutory income provides more visibility into the positive impact the IFAs have on our business, which is a vital piece of our strategy and the key initiative to stabilize our LTC block and bring it to breakeven.

Speaker 3

It is noteworthy that under LDTI accounting, Our best estimate assumptions now include expectations related to IFAs and legal settlements impacts in our reserves. However, LDTI did not change how we report IFA premiums or expenses related to IFAs and settlements. Going forward, on a GAAP basis, we'll only see an earnings impact when our best estimate liability assumptions are updated or if there are differences in the actual to expected experience. While we can't predict the future, we generally expect our quarterly LTC GAAP earnings to be significantly less than our statutory earnings as a result of how IFA benefit reductions and reserve releases flow through earnings. We continue to make progress this quarter on our multi year rate action plan, Achieving an incremental net present value of $300,000,000 on $50,000,000 of gross premiums approved as shown on Slide 14.

Speaker 3

IFA filings are generally lower in the Q1 of each year as we complete our year end processes and planning for the upcoming year, But the team completed 29 new state filing submissions in the Q1 of this year on nearly $250,000,000 of in force premium. 2022 was a record year for us in terms of our multi year rate action plan performance, and we have a good start to 2023. Our cumulative net present value of achieved IFAs is now $23,800,000,000 up from $23,500,000,000 at the Q4 of 2022. Over time, more policyholders have chosen to reduce their LTC benefits, which in turn allows us to reduce our tail risk on these policies. Per Slide 15, the cumulative policyholder response to premium rate actions through the Q1 shows 46.4% TC legal settlement related to PCS-one and 2 policies, which began on August 1 and covers approximately 15% of our LTC block.

Speaker 3

As a reminder, policyholders have a 90 day election period, so we would expect to see financial impacts from the settlement into the Q4 of this year. The 3rd LTC legal settlement related to our large Choice 2 policy block has been approved by the court and the appeals process is complete. We are pleased to have begun implementation earlier this week with the first mailings of settlement election letters going out to policyholders. This settlement represents 35% of our LTC block as Choice 2 is our largest block of business. Overall, the settlements are favorable to both the policyholders and to Genworth.

Speaker 3

For us, The settlements help reduce the tail risk on our LTC block, which is important as we continue to see higher new claims as our Choice 1 and to policies, age. Turning to Slide 16, our Life and Annuity segment reported an adjusted operating loss of 4,000,000 driven by an adjusted operating loss in life insurance of $27,000,000 partially offset by adjusted operating income from fixed annuities of $14,000,000 and $9,000,000 from variable annuities. The primary driver of the loss in our life insurance product was unfavorable mortality experience. However, it was improved versus the prior year as the COVID-nineteen mortality we saw last year did not reoccur. The prior year also included a $25,000,000 pretax expense accrual related to a legal settlement for our universal life insurance products.

Speaker 3

Fixed annuities results reflected higher fixed payout annuity mortality and lower net spreads versus the prior year. Variable annuities had favorable impacts from the aging of the block compared to the prior year, partially offset by lower fee income from lower account value. As shown on Slide 17, we are estimating pre tax statutory income for our U. S. Life insurance companies to be $192,000,000 driven by LTC pretax earnings of $138,000,000 as I mentioned, predominantly driven by $357,000,000 of LTC IFAs and favorability in our variable annuities related to the net impact of improved equity market performance and lower interest rates.

Speaker 3

The consolidated risk based capital ratio for Genworth Life Insurance Company or GLIC is estimated at 2 95% at the end of March, up from 2 91% at the 4th quarter, reflect the strong statutory earnings in the current quarter. The consolidated balance sheet of GLIC remains sound with capital and surplus as of March 31st estimated at $3,200,000,000 compared to $3,100,000,000 as of year end. We are pleased with the continued growth of our capital and surplus and improvement in unassigned surplus, although still negative at this time. I'll reiterate that our plans for the U. S.

Speaker 3

Life insurance companies have not changed, and we do not expect to receive dividends from the business or to contribute capital into it. We will continue to manage the U. S. Life insurance companies on a standalone basis, focusing on stabilizing the LTC block and bringing it to breakeven. Our final statutory results will be available on our investor website with our Q1 statutory filings later this month.

Speaker 3

Rounding out GAAP results for the quarter, Corporate and Others' current quarter adjusted operating loss of $18,000,000 was higher compared to the prior year, driven by investment and future growth with CareScout and higher interest expense. Turning to the holding company on Slide 18. We ended the quarter with $233,000,000 of cash and liquid assets, above our cash target of 2 times annual debt service. We received $37,000,000 of capital from Enact and $48,000,000 from intercompany tax payments in the quarter. For the full year, we expect approximately $175,000,000 to $200,000,000 to the holding company in net intercompany tax payments.

Speaker 3

We repurchased $11,000,000 principal of our 6.5% coupon, 2,034 debt maturity during the current quarter. As we've said before, we'll look to opportunistically repurchase our 2,030 4 debt as we have free cash flows available and in consideration of our and other capital priorities. The larger outflows for the quarter related to our share repurchase program and the timing of our annual employee compensation payments, which are reimbursed by the subsidiary businesses. Given our significant debt reduction over the past few years, Our holding company financial position has significantly improved. We are now operating from a position of strength and have enhanced Our flexibility as a company.

Speaker 3

As we think about our capital allocation strategy going forward, we will be proactive in managing our free cash flows. We will continue to invest in our new CareScout growth initiatives, return capital to shareholders through our share repurchase program and opportunistically pay down debt. We had a strong start to the year reflected in the NAC's performance, our strong statutory earnings in our U. S. Life insurance companies and ratings upgrades from S and P and Moody's.

Speaker 3

We continue to execute on our strategic priorities and accelerated the pace of our share repurchase program,

Operator

We'll go first to Brett Ostercak with KBW. Your line is open, sir. Please go ahead.

Speaker 4

Hey, good morning. So I just wanted to get your guys' take on what you would think The GAAP operating long term care earnings can kind of be going forward, would you expect to be

Speaker 2

So Brett, good question. I would say, it's very hard to predict GAAP earnings under LDTI because There are these adjustments for when the actual to expected are different and there's a different treatment of the profitable cohorts versus the unprofitable. And we're roughly fifty-fifty between the 2. But Jerome, I'd turn it to you. You're the expert on LDTI, you and your team.

Speaker 2

And any further flavor for Brad? I do think it's a good question, but it's It's hard, I think, to give a good answer. I think maybe statutory, it will be a little bit more consistent. So Jerome, anything you want to add?

Speaker 3

So thank you, Tom, and good morning, Brett. Thank you for your question. I would say and agree with Tom's sentiment, it's we cannot provide guidance on this front. I will highlight to you that our earnings are going to be volatile. They're going to be driven by these cap cohorts that are roughly 50% of our book, they're unprofitable.

Speaker 3

And as AtoE's actual to expected come through, we're going to have to book that immediately in earnings. So

Operator

So it's going to create volatility.

Speaker 3

And the other thing that I will highlight is we're not going to see benefit reductions coming through the P and L. That's already incorporated into our accounting model, but you will see the settlement cost coming through. So as we roll out and continue with our PCS 1 and 2 and then ultimately roll out our Choice 2 legal settlement. You'll see the settlement costs come through, but not all of the in force rate actions particularly related to the benefit reduction. So, can't give you guidance.

Speaker 3

It's very hard to predict. I think The best we can do is what we shared in my prepared remarks is that U. S. GAAP is going to be significantly less in statutory, The profits from a statutory basis. And we're very pleased with the statutory earnings in long term care of 138,000,000

Speaker 4

Got it. Thanks. And then just as a follow-up, you guys meaningfully stepped up the pace of buybacks this year. How are you guys, I guess, thinking about sources of holding company cash balance going for the year? I know you guys talked about you expect $175,000,000 to $200,000,000 in intercompany tax payments and you have $170,000,000 left on the buyback authorization.

Speaker 4

I'm just wondering if like All that's going to go to the buyback, how much you guys are thinking about perhaps contributing to growth in CareScout as well? Thanks.

Speaker 2

Yes. So Brett, another great question and let me take that. So our sources of cash And Jerome covered these in his remarks. So, and EnAct confirmed on their call earlier this morning that they expect Total cash flow to shareholders to be $250,000,000 And so our share, 81 roughly 81.5 percent is $200,000,000 So that's for the year and we got some of that in the Q1. So, but $200,000,000 in total and then Jerome gave you guidance on the tax payments.

Speaker 2

And again, just to reemphasize why I think statutory earnings are much more important than GAAP earnings is statutory earnings are very close to tax earnings. And so we are expecting Based on the tax earnings in statutory tax earnings in EnAct and U. S. Life for tax payments going forward of he gave you the range, dollars 175,000,000 to $200,000,000 I think it was so think of that as $50,000,000 a quarter. So that's sort of the inflows.

Speaker 2

And then we the investment in 2023 in CareScout, and we told you this last quarter, is around $30,000,000 And then we told you that the interest expense this year will be about 60. So $90,000,000 between the interest payments and The CareScout investment and then the balance, existing cash plus the cash from EnAct, the tax payments, I think give us we assume a pretty significant amount of cash for the year. And I would expect that Well, the remaining $170,000,000 I wouldn't be surprised if we get pretty close to exhausting that by the end of this year. I mean, we'll see. Things can happen.

Speaker 2

And obviously, as we get closer to that point, our intention management's intention is to

Operator

And ladies and gentlemen, I will now turn the call back over to Mr. McInerney for closing comments.

Speaker 2

All right. I guess there were not a lot of questions to that. We do know there were some competing calls. So I do want to thank all of you for joining the call today. And Brett, thanks for your questions.

Speaker 2

I think they're very good ones. Yes, we're very pleased with where we are, good performance. We think The Q1 obviously EnAct had a strong quarter and because we managed the life company on statutory earnings at $192,000,000 pre tax Statutory income, we think we had a very good Q1 for the life companies. We're excited to execute on our plans, including in CaraScout for the rest of the year. I think we're well positioned to continue returning capital to shareholders and we talked with Brett about that.

Speaker 2

And while we're at the same time investing in sustainable long term

Operator

Thank you. Ladies and gentlemen, that will conclude today's earnings call. We appreciate your participation. You may disconnect at this time.

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