Genworth Financial Q2 2025 Earnings Report

Genworth Financial EPS Results

• Actual EPS: $0.16
• Consensus EPS: $0.05
• Beat/Miss: Beat by +$0.11
• One Year Ago EPS: N/A

Genworth Financial Revenue Results

• Actual Revenue: $1.80 billion
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Genworth Financial Announcement Details

• Quarter: Q2 2025
• Date: 7/30/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 31, 2025
• Conference Call Time: 9:00AM ET

Genworth Financial (NYSE:GNW), together with its subsidiaries, provides mortgage and long-term care insurance products in the United States and internationally. It operates in three segments: Enact, Long-Term Care Insurance, and Life and Annuities. The Enact segment offers private mortgage insurance products primarily insuring prime-based, individually underwritten residential mortgage loans; and pool mortgage insurance products. The Long-Term Care Insurance segment offers long-term care insurance products that are intended to protect against the significant and escalating costs of long-term care services provided in the insured's home, assisted living, and nursing facilities. The Life and Annuities segment provides protection and retirement income products, that includes traditional and non-traditional life insurance, such as term, universal and term universal life insurance, corporate-owned life insurance, and funding agreements; fixed annuities; and variable annuities. It distributes its products through sales force, in-house sales representatives, and digital marketing programs. The company was founded in 1871 and is headquartered in Richmond, Virginia.

Genworth Financial Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Enact's strong performance drove $141 million of adjusted operating income in Q2, and Enact now expects to return approximately $400 million of capital to shareholders in 2025 while Genworth repurchased $630 million of shares at an average price of $5.80.
• Positive Sentiment: Rate actions bolster LTC sustainability as Genworth secured $41 million of gross incremental premium approvals in Q2 with an average increase of 36%, bringing cumulative net present value to $31.6 billion under its multiyear rate action program.
• Positive Sentiment: CareScout expansion now covers all 50 states with nearly 650 providers, launched $250 care plans, and has matched nearly 1,400 policyholders YTD, raising its full-year estimate to 2,850 matches.
• Positive Sentiment: Favorable litigation outcome as the UK High Court awarded £680 million (~$911 million) in the AXA-Santander payment protection insurance case, from which Genworth expects to recover about $750 million pending appeal resolution.
• Negative Sentiment: LTC segment loss reported a $37 million adjusted operating loss in Q2, driven by a $42 million unfavorable experience variance, and Genworth anticipates average quarterly LTC losses of about $65 million through 2025.

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to Genworth Financial's second quarter twenty twenty five earnings conference call. My name is Terren, 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 Christine Jewell, Head of Investor Relations. Please go ahead.

[Christine Jewell, Head - Investor Relations at Genworth Financial]

Thank you, and good morning. Welcome to Genworth's second quarter twenty twenty five earnings call. The slide presentation that accompanies this call is available on 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. Speaking today will be Tom McInerney, President and Chief Executive Officer and Jerome Upton, Chief Financial Officer.

[Christine Jewell, Head - Investor Relations at Genworth Financial]

Following our prepared remarks, we will open the call up for a question and answer period. In addition to our speakers, Jamala Arlen, President and CEO of our US Life Insurance business Greg Carrawan, General Counsel Kelly Saltsgeber, Chief Investment Officer and Sameer Shah, CEO of CareScout Services, will also be available to take your questions. During the call this morning, we may make various forward looking statements. Our actual results may differ materially from such statements. We advise you to read the cautionary notes regarding forward looking statements in our earnings release and related presentation as well as the risk factors of our most recent annual report on Form 10 k as filed with the SEC.

[Christine Jewell, Head - Investor Relations at Genworth Financial]

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 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. And now I'll turn the call over to our President and CEO, Tom McInerney.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

Thank you, Christine, and thank you to everyone on the line for taking the time to join Genworth's second quarter earnings call. Genworth had a solid second quarter as we continue to advance our long term strategic priorities. Genworth reported net income of $51,000,000 in the quarter. Adjusted operating income was $68,000,000 or $0.16 per share, driven in large part by another strong quarter from ENAP, which contributed $141,000,000 to our adjusted operating income. Total estimated pretax statutory income for our U.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

S. Life insurance companies was $81,000,000 driven primarily by the net favorable impacts to annuities from equity market and interest rate movement in the quarter. Doron will discuss this and other financial results in more detail later in the call. Our liquidity position remains strong as we ended the quarter with cash and liquid assets of $248,000,000 During the quarter, we continue to execute and drive progress against our three strategic priorities. First, ENAC remains a key source of cash flow and continues to generate strong value for Genworth shareholders as its market value increases.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

As you may have seen, ENAC announced yesterday that it now expects to return approximately 400,000,000 of capital to shareholders this year, underscoring its continued operational strength and robust financial performance. Since enacts IPO in 2021, our stake in enact has provided Genworth with over 1,000,000,000 in capital returns supporting our ability to buy back shares. Since our current buyback program's initial authorization, we have repurchased a total of $630,000,000 worth of shares at an average price of $5.80 as of July 30. Turning to our next strategic priority, we continue to maintain our self sustaining customer centric LTC life and annuity legacy businesses. We've done this primarily by executing on our multiyear rate action program or MIREP, which has proven to be our most effective lever for maintaining self sustainability.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

We secured 41,000,000 of gross incremental premium approvals in the second quarter with an average premium increase of 36%. This brings us to a cumulative total of approximately 31,600,000,000.0 in net present value achieved. As discussed on last quarter's call, we continue to anticipate lower approvals this year compared to 2024 in line with our long term plans for the program. Our third and final strategic priority is driving long term growth through CareScout. CareScout is designed to create value for Genworth in three ways, delivering savings to our US life insurance companies, providing new sources of revenue, and growing Genworth's valuation over the long term.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

On the services side, we expanded our product offerings with the launch of care plans as we work to help people understand and find the long term care services they need. For about $250, you can initiate a care plan from carescout.com that begins with a virtual care evaluation conducted by a CareScout licensed nurse. Families then receive a detailed plan that suggests appropriate care strategies and local resources tailored to the individual's physical, cognitive, social, and environmental needs. For the millions of caregivers who may be overwhelmed by the urgency or complexity of their loved one's care needs, a care plan can be a helpful resource in understanding the level and type of care need along with options to meet those needs. Turning to the CareScout quality network, we recently expanded network access to consumers in all 50 states.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

Anyone searching for home care can now access the network through carescout.com where you can filter for location and specific care needs to connect with quality providers. Providers cover the cost of the network by paying fees associated with successful care placements. In addition to helping families navigate the aging journey, the new care plans offering and the expansion of the network will contribute to fee based revenue growth in line with our strategy of diversifying earnings and scaling our capital light services business. We also continue to work with insurance carriers with closed LTC blocks to leverage the network as an enhancement to their customer experience and claims management strategy. We have ongoing pilots with two carriers, and we are engaged in constructive discussions with several others about tapping into the network, potentially making this channel a significant source of future revenues.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

The network continues to grow, now comprising nearly 650 home care providers, approximately 90% of whom have agreed to rates below the median cost of care and their respective ZIP codes. We also expect to add assisted living communities to the network in the coming months, expanding the care settings available through the network. The network now covers greater than 90% of the 65 census population in The US and continued strong interest among care providers indicates that we have a significant runway ahead of us in growing and sustaining the network. We achieved nearly 1,400 successful matches so far this year between Genworth LTC policyholders and CareScout quality network providers as of the end of the second quarter. We have raised our full year estimate to 2,850 matches.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

As the network and CareScout brand awareness grow, we predict that a larger portion of Genworth's LTC claimants will choose care options within network providers, helping them maximize each benefit dollar and enabling Genworth to realize an estimated 1 to 1 and a half billion in claim savings over time. Shifting to CareScout Insurance, we expect to reenter the market with our inaugural low risk standalone LTC insurance product later this year. This product offers a compelling customer value proposition as the cost of care continues to rise and will be priced considerably to reduce risk, deliver attractive returns, and help mitigate the need for future rate increases. The new product has already secured approvals in 29 jurisdictions, and we are targeting approvals in 30 to 35 states ahead of our launch. Additionally, we submitted a worksite version of the product to the interstate insurance compact, enabling distribution through employers and association channels.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

Our initial capital investment in Insurance this year represents the majority of the funding we expect to allocate to this business over the next three years due in part to the delayed timing of the expected funding of CareScout Insurance and resulting decrease in investment income earned in the entity in 2025, we are modestly increasing our expected 2025 investment from 75,000,000 to 85,000,000 to meet the regulatory requirements to maintain sufficient capital to cover losses by a multiple of five as we establish CareScout Insurance. Future capital contributions may vary based on sales level and mix in addition to investment performance and operating expenses. Last week, we shared that the UK High Court has issued a favorable judgment in the Axis Santander litigation, finding Santander liable for losses resulting from the misselling of payment protection insurance. We are pleased with the court's judgment, which validates our long standing belief that Santander bears responsibility for these legacy liabilities. The court awarded AXA damages, interest, cost, and expenses of approximately £680,000,000 or $911,000,000 using a £1 to a dollar 34 exchange rate.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

While the trial court denied Santander's initial request for permission to appeal, the court's judgment is still subject to Santander seeking permission to appeal from the appellate court. If the judgment is paid in full and any appeals are favorably resolved, Genworth would expect to recover at that time approximately $750,000,000. These proceeds have not been factored into our capital allocation plans. Once received, we plan to deploy them in line with our stated capital allocation priorities, investing in growth through CareScout, returning cash to shareholders through our buyback program, and opportunistically paying down debt. Before I turn it over to Jerome, I'd like to briefly address recent policy developments affecting The US long term care landscape, such as the Medicaid changes included in the recently passed tax and budget legislation.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

Medicaid remains the payer of last resort as well as the primary payer for long term care services in The US. I believe the rising cost of LTC services for baby boomers, particularly the 95% who lack private LTC insurance coverage, and the pressures on families and Medicaid financial resources will make the discounts provided by CareScout's quality network even more valuable in the future. The number of 80 year old baby boomers is expected to double by 2045. Ninety percent of seniors today have a strong preference for at home care, while about thirty percent of seniors report difficulties with activities of daily living. As detailed in our latest cost of care report, home care costs have surpassed $77,000 per year on average, and costs have increased significantly in the last few years.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

As the long term care funding crisis comes into greater focus, we are encouraged to see momentum in congress towards identifying innovative, sustainable solutions like the WISH Act, a bipartisan bill cosponsored by representatives of New York and John Molinaire of Michigan. The WISH Act would establish a public private framework to provide financial support for individuals requiring long term care while also encouraging broader access to private insurance products. We believe private market solutions like those offered by CareScout represent a critical step forward. A combination of modern LTC insurance and services products, improved access to quality care, and practical care navigation can significantly mitigate the growing strain on public programs like Medicaid. In closing, we are very encouraged by the steady progress we've made across January's three strategic priorities and by the financial strength and operational performance we continue to see at EnACT.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

We remain confident in our ability to execute and sustain this momentum through the remainder of 2025. With that, I'll hand it over to Jerome for more in-depth review of our financial performance.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

Thank you, Tom, and good morning, everyone. We continue to build on our solid foundation, enhance financial flexibility, and deliver on our strategic priorities. Enact once again drove robust operating performance and continues to maintain a strong capital and liquidity position. We also advanced our multiyear rate action plan, made significant progress building CareScout and continued to return capital to shareholders. I'll start with an overview of our financial performance and drivers, then provide an update on our investment portfolio and holding company liquidity before we open the call for Q and A.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

As shown on Slide seven, second quarter adjusted operating income was $68,000,000 driven by an act. Our long term care insurance segment reported an adjusted operating loss of 37,000,000, driven by a remeasurement loss primarily related to unfavorable actual variances from expected experience or A to E. The unfavorable A to E of $42,000,000 was driven by lower terminations and higher benefit utilization, partially offset by the recapture of a block of LTC policies previously assumed by Genworth, resulting in a pretax gain of $26,000,000 in the quarter. As we have previously noted, in 2023 and 2024, we saw an average quarterly loss from the A to E of about $65,000,000 in LTC. While the favorable seasonal impact from mortality we observed in the first quarter subsided as anticipated, we continue to expect that we could see losses at this average level throughout 2025.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

As a reminder, quarterly fluctuations in US GAAP results do not impact our cash flows, economic value, or how we manage the business. Life and Annuities reported an adjusted operating loss of $7,000,000 in the second quarter. This included an adjusted operating loss of $20,000,000 in life insurance, which improved versus the prior quarter due to lower mortality, partially offset by adjusted operating income of 13,000,000 from annuities. In corporate and other, we reported a $29,000,000 loss for the second quarter, which was higher than the prior year loss of 10,000,000, primarily driven by favorable tax timing in the 2024. Now taking a closer look at Enact's second quarter performance on Slide eight.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

Enact delivered $141,000,000 in adjusted operating income, up slightly versus the prior quarter, but down versus the prior year, reflecting a lower reserve release. Primary insurance in force grew 1% year over year to 270,000,000,000, supported by new insurance written and continued elevated persistency. As shown on Slide nine, Enact's favorable $48,000,000 pretax reserve release drove a loss ratio of 10%. Enact's estimated PMIER sufficiency ratio remained strong at 165% or approximately $2,000,000,000 above requirements. Genworth share of an ax book value, including AOCI, has increased to $4,200,000,000 at the end of the second quarter, up from $4,100,000,000 at year end twenty twenty four.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

Continues to deliver significant capital returns to Genworth, including $94,000,000 returned in the second quarter. Looking ahead, continues to operate with solid business fundamentals and a strong balance sheet and is well positioned to navigate the uncertainties in the macroeconomic environment. As Tom mentioned, Enact now expects to return a total of approximately 400,000,000 to its shareholders in 2025. Based on our approximate 81% ownership position, we now expect to receive around 325,000,000 from EnACT for the full year. Turning to long term care insurance on slide 10.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

We continue to proactively manage LTC risk and maintain self sustainability in the legacy U. S. Life insurance companies. Our multiyear rate action plan or MYRAP remains our most effective tool for reducing tail risk in LTC. As of the end of the second quarter, we have achieved approximately $31,600,000,000 of in force rate actions on a net present value basis.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

As part of the MyRAP, 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. About 60% of our 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 02/2014. In addition to the MyRAP and other benefit reduction strategies, we're reducing risk in innovative ways, including through the CareScout Quality Network and our live well, age well intervention program, which deliver value for policyholders while also driving claim savings over time. As we have 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.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

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. Slide 11 shows statutory pretax results for The US life insurance companies with income of 81,000,000 for the quarter. The LTC loss of $26,000,000 reflected the anticipated decline from seasonally high mortality in the first quarter. Earnings from in force rate actions of $342,000,000 were down from 445,000,000 in the prior year as the prior year included a significant benefit from the implementation of the LTC legal settlements, which are now complete.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

Life insurance reported income of 18,000,000, driven by favorable seasonal impacts versus the prior quarter, and our annuity products reported income of 89,000,000, reflecting the net favorable impact of equity market and interest rate movements in the quarter. The consolidated risk based capital ratio for Genworth Life Insurance Company or GLIC is estimated to be 304% at the June, consistent with the March, reflecting strong statutory earnings offset by higher required capital from continued investment in the limited partnership portfolio. Glick's consolidated balance sheet remains sound with capital and surplus of $3,600,000,000 as of the June. Our final statutory results will be available on our investor website with our second quarter filings later this month. Moving to our investment portfolio, which is summarized on Slide 12, we remain confident in our positioning and believe we have the right strategy to remain resilient and navigate periods of market volatility.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

Majority of our assets are in investment grade fixed maturities along with an allocation to alternatives. Collectively, we continue to invest in these assets on behalf of our life insurance companies at yields of approximately 7%. Our net investment income for the quarter reflects both improved distributions and valuations from our alternatives portfolio, which is composed mainly of diversified private equity investments and has targeted returns of approximately 12%. As a reminder, the alternative asset program has a potential to experience uneven performance from quarter to quarter based on market volatility, but we are focused on investing for the long term where we are confident that our track record of robust returns will prevail. We remain committed to growing our alternative assets within regulatory limitations as it is a natural fit with long tail liabilities.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

Next, turning to the holding company on Slide 13. We received $94,000,000 in capital from EnAct and ended the quarter with $248,000,000 of cash and liquid assets or $120,000,000 net of advanced cash payments from our subsidiaries for future obligations of approximately $128,000,000 This includes the remainder of our initial capital investment of 85,000,000 into the new CareScout Insurance Company this year. We exclude these advanced cash payments when evaluating holding company liquidity for the purpose of capital allocation and calculating the buffer to our debt service target. Turning to capital on Slide 14, we also expect to invest approximately 45,000,000 to $50,000,000 in CareScout services in 2025 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.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

Moving to shareholder returns, we repurchased 30,000,000 of shares in the second quarter at an average price of $7.01 per share and another 10,000,000 in July. For the full year 2025, we now expect to allocate between 100,000,000 to 150,000,000 to share repurchases, which excludes any potential proceeds from the successful resolution of the AXA litigation matter. This range may vary depending on business performance, market conditions, holding company cash, and our share price. We're very pleased with the value we've created for shareholders through our share repurchase program. Our holding company debt stands at 790,000,000, and we have financial flexibility given the strength of our balance sheet and sustainable cash flows from an act.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

We continue to maintain a disciplined capital structure with a cash interest coverage ratio of approximately six. As Tom mentioned, we are pleased with the court's judgment in the AXA Santander litigation. If the judgment is paid in full and any appeals are favorably resolved, Genworth would expect to recover at that time approximately 750,000,000 subject to movements in foreign exchange rates. We do not expect to pay taxes on this recovery. These proceeds have not been factored into our capital allocation plans, but our capital allocation priorities remain unchanged.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

We will continue to invest in long term growth through CareScout, return cash to shareholders through our share repurchase program when our share price trades below intrinsic value, and opportunistically retired debt. In closing, we're delivering on our strategic priorities while proactively managing our liabilities and risk. The multiyear 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 CareScout while returning meaningful value to shareholders through share repurchases and opportunistic debt retirement. Now let's open up the line for questions.

[Operator]

Ladies and gentlemen, we will now begin the q and a portion of the call. As a reminder, please refrain from using cell phones, speaker phones, or headsets. Press 1 to ask a question. If at any time your question has already been answered or you would like to withdraw your question, please press 2 to be removed from the queue. Please press 1 now.

[Operator]

We'll take our first question from Ryan Krueger with KBW. Your line is now open.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hey. Thanks. Good morning. Had some questions on the lawsuit. The first one was on the appeal, at the appellate court.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

Can you give us any color on the process there? Do you have any sense of when a decision either way could be made?

[Thomas McInerney, President, CEO & Director at Genworth Financial]

Good question, Ryan. Obviously, a lot of shareholders are interested in that. I've asked Greg Caruana, our general counsel, to be here. He was in London throughout the court trial and has a, obviously, a good understanding of the process. So I just asked Greg to, give you and the other investors and people on the call, an update on what what the process is from here going forward.

[Gregg Karawan, EVP & General Counsel at Genworth Financial]

Thanks, Tom, and thanks for the question, Ryan. So unlike in The United States where most of people will be familiar with, there is no appeal as of right in The United Kingdom. Instead, permission needs to be sought and granted. Permission could be sought directly from the trial court or from the appellate court. As Tom mentioned in his prepared remarks, Santander already sought permission from the trial judge, and that was denied.

[Gregg Karawan, EVP & General Counsel at Genworth Financial]

Santander now has until August 15 to seek permission from the appellate court. Once that permission is requested, the appellate court would likely take about two to three months, to decide whether to grant permission. If permission's denied, case is pretty much over. If permission is granted, it could take anywhere from twelve to eighteen months inclusive of the time the two to three months for the request for permission, for the appeal to be decided.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

Thanks. One quick follow-up on that. So I guess if if they did, grant permission to appeal in twelve to eighteen months, would the the payment not not occur until till after that twelve to eighteen month process and everything was decided, or would it, because I recall going back to the Genworth Act of the case that I thought I thought you actually had to pay them prior to, you know, the appeal being decided.

[Gregg Karawan, EVP & General Counsel at Genworth Financial]

Yes. That's right. And the the there is no stay of the judgment. The the court's order requiring payment by August 15 is still in place. It's not been adjusted.

[Gregg Karawan, EVP & General Counsel at Genworth Financial]

There is no automatic stay, and no stay has been sought. So as of today, payment is still required by August 15.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. Great. Thank you. And then related follow-up was just on the use of proceeds. I heard heard your comments on potential uses.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

I guess another possibility sounds like this isn't your plan, but I just wanted to to check on it. I guess another possibility would be if you pay down Genworth's debt and you and you spin off an act, and then that would result in, you know, an elimination probably of of the discount your stock trades at relative to the implied sum of the parts value. So just wanted some updated thoughts on that. Is that being considered at all, or do you do you feel like there's reasons not to to pursue, that path?

[Thomas McInerney, President, CEO & Director at Genworth Financial]

So so, Ryan, I I think for use of proceeds, Jerome and I are still looking at that. I think what you'll see is, as in the past, a significant amount of that will be used to for share buybacks. And then opportunities if there are any for further CareScout investments. Although we we don't see a significant faster investment in there unless there are inorganic small add on acquisition opportunities, which they come to us from time to time and then opportunistically repurchasing debt. But but I wanna remind it's a great question.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

We get it a lot. I wanna remind you and the market investors that just paying down the debt does not allow us to do the spin off. I laid out in the annual meeting because we have we get a lot of questions on this. The RemainCo, even if we limit used all the proceeds and ongoing proceeds from an app to eliminate the 790,000,000 debt, we still can't do the spin off. It's not viable because the Remain co, which would then be The US Life businesses, long term care, life and annuity, and the CareScout businesses, none of those have positive cash flow that can be paid to the holding company.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

And, therefore, we the spin is something we will look at, but what it will require would be that the CareScout businesses, achieve breakeven, and we've said we think that's around five years. And then once they're in a position to be a regular dividend payer, which we expect at some point, then the spin off option is viable.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. Great. No. That makes sense. Thank you.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

Yep.

[Operator]

As a reminder, if you would like to ask a question, you may press star one on your telephone keypad now. Again, that's star one to ask a question. Once again, that's star one if you would like to ask a question. We'll take our next question from Pete Enderlin with MAZ Partners. Please go ahead.

[Peter Enderlin, Portfolio Manager at MAZ Partners]

Good morning. Good morning. What about the possibility of, at some point, initiating a common stock dividend? I don't don't know if if there are any specific restrictions now, but those could go away if you get the amount from AXA.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

So, Pete, it's a good question.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

We get it quite a bit. I would say, we talk a lot to our shareholders. I would say at this point, the vast majority of shareholders, 80% or more, are encouraging us to use excess cash for buybacks versus debt repurchases unless there are good pricing in the markets for the debt. So we, yeah, we we continue to to look at other opportunities because shareholders prefer the repurchases versus instituting a regular dividend, which certainly is a possibility and option. At this point, we've decided not to look at a at a dividend, but it's but the the board and management look at that on an ongoing basis.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

So that could be a possibility at at some point.

[Peter Enderlin, Portfolio Manager at MAZ Partners]

Okay. Thanks a lot.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

Thank you, Pete.

[Operator]

For our next question, we'll return to Ryan Krueger with KBW.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

Thanks. Sorry, one more on the lawsuit. Is there any consideration or potential for a settlement that would just eliminate the the possibility of the of an appeal? And the the reason I ask is it it sounds like what could happen is you're you'll receive the 750,000,000 soon. But then if they were to to to grant Santander the right to appeal, you'd have you'd at least have a a risk of having to pay back proceeds, which I I would think would then make it more difficult to deploy all of them.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

So wanted to hear any any thoughts on if that is if there's any possibility there.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

So, Ryan, what I would say is, yeah, you you never know on settlement. I I would go back to what we've been saying for a number of years. You know, we've always thought that the liability for these misselling claims was on the bank, Santander, not on the insurance companies, which we owned and then AXA bought. So we always thought we had a strong case. I think the court decision is pretty clear that they agreed with that.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

So we're, yeah, we're open always open to talking. But because we feel very good about the prospects of prevailing, if there is if there is an appeal and it's and it's, granted, you know, I I think if, the only thing that, I I would consider would be some time value of money. I I will I want Greg to comment because with the payment being made, that actually doesn't come to us. It it's paid to act. But, Greg, you wanna just cover how the process works when the the payment is made Yeah.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

Even whether and then talk about then how that interacts with whether an appeal is granted or not by the appellate court. Sure.

[Gregg Karawan, EVP & General Counsel at Genworth Financial]

That's exactly right, Tom. As as both you and Jerome made, clear in your prepared remarks, you if act if Santander pays the judgment on August 15, that payment goes to AXA. But if the appeal process is still underway, that is a request for permission to appeal has been made or if it has been granted, AXA doesn't pay Genworth its share of the recovery until all appeals have been favorably resolved. So that is the process of how that's how that would work. As far as settlement, I agree with all of Tom's remarks.

[Gregg Karawan, EVP & General Counsel at Genworth Financial]

We feel optimistic about our ability to rebut any appeal that's made even if permission is granted.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. Thanks for that clarification. So you so you won't receive the proceeds on on August 15. The pro you'll receive the proceeds, you know, possibly a few months later if the request to appeal is is denied. But if not, it won't be until that process is completed.

[Gregg Karawan, EVP & General Counsel at Genworth Financial]

That's right. If for some reason Santander does not seek request, for permission to appeal, that would put an end to it. Or if they do, request permission, then two to three months. After that, if the request is denied, if it's granted, then somewhere twelve twelve to eighteen months, once the appeal is resolved and favorably decided.

[Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. Understood. Thanks. Thanks, Hans.

[Operator]

Our next question comes from Joshua Esterov with CreditSights. Your line is now open.

[Josh Esterov, Head of US Insurance Research at CreditSights]

Hello. Good morning. Thank you for taking my question. I appreciate the commentary on thinking about the deployment of the litigation proceeds, but does the receipt of funds perhaps give you an opportunity to maybe recalibrate where you want to be in certain categories, for example, like a target level of holdco liquidity or a target level of overall indebtedness? Just just wondering if if the if the actual receipt of funds makes you revisit any of these or any other items.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

Josh, good morning. This is Jerome. Thank you for the question. I would first highlight that, of course, when we get a a quantum of proceeds of this magnitude, we will be assessing all options and how we allocate that capital. I think Tom and I both highlighted we're gonna follow our normal capital allocation approach.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

We'll be looking at holding company cash, but I have to tell you we're very comfortable with where we are and the buffer that we hold, which is two times our debt service. And I would just also highlight to you, Josh, when you think about our leverage right now, excluding US Life, we're 20%, right around 20%. We have debt service of around $50,000,000 per year. We have six times interest coverage. So we're comfortable with where we are and the leverage.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

But back to your macro question, of course, we will evaluate everything. We're pleased with the outcome of the case, but we're comfortable with holding company cash. We're comfortable with our leverage. So, you know, we we will most likely continue to focus on share buybacks when our share price is trading at this level.

[Josh Esterov, Head of US Insurance Research at CreditSights]

Got it. Thank you very much.

[Operator]

We'll take our next question from Colin Devine with C. Devine and Associates. Please go ahead.

[Colin Devine, Principal at C. Devine & Associates]

Good morning, gentlemen. I had, two questions, and, none of them are on the Santander. I think we've we've gotten to the bottom of that. The first one, can you give us a little more color on the LTC recapture, the size of the policy and also clarify what's the $26,000,000 gain for your post tax? And then the second question relates to the new LTC products.

[Colin Devine, Principal at C. Devine & Associates]

Are they being written out of the legacy companies, I. E. GLIC, or are you gonna be offering those out of CareScout insurance? Thanks.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

So we'll let we'll let Jerome have the first one, and, Colin, I'll take the second one. And and nice to hear from you, Colin.

[Colin Devine, Principal at C. Devine & Associates]

Thanks, Tom. It's good to bother you, Tom.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

Colin, good morning, Jerome. Thank you for the question on the recapture. I would dimension this as, the business was ceded to us some time ago, and it ultimately became subject to arbitration, the ceding company had requested a return of assets and reserves that were simply, in our view, materially higher than what we believe to be fair, and therefore, it became subject to arbitration. The outcome of the arbitration was favorable to Genworth, and the arbiters agreed with our lower return of assets and reserves. And the settlement was final in May, giving rise to this onetime gain.

[Jerome Upton, Executive VP & CFO at Genworth Financial]

I will highlight, we paid roughly $24,000,000 and had $50,000,000 on the books for US GAAP. So that's how you get to the 26.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

So, Colin, any follow-up on that for Jerome? And if not, I'll take second the question.

[Colin Devine, Principal at C. Devine & Associates]

Sure, Tom. Okay. Can you just give us a sense of the size of the underlying liabilities related to that treaty and, if you're comfortable, who the arbitration was with on the other side?

[Jerome Upton, Executive VP & CFO at Genworth Financial]

The arbitration was with Blue Cross Blue Shield of Nebraska. It has been disclosed in our Okay. Publicly filed documents. And the quantum the quantum of the liability The reserves that we had on the books was roughly $50,000,000 for US GAAP.

[Colin Devine, Principal at C. Devine & Associates]

Okay. Okay. Thank you. Sorry. I I didn't quite pick up that balance before. Okay. Thank you.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

Yep. Thank thank you, Colin, for the question. Turning to your second part on long term care. So just to remind you, we we view the Genworth legacy life operating companies to be stand alone, separate, self sustaining, and all of the new business that we're writing, the new long term care insurance business. So the first product, which I said has been approved for sale in 29 states, and we'd like to have 30 of the 35, and there's no magic number there before we launch.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

So that's a traditional long term care insurance product that we think is priced conservatively good returns for us. And with the fact that we will be reviewing the pricing assumptions against reality over time and seeking increases if we need to. Although on this this product is designed where we won't need an increase, but it's hard to be sure of that given that the duration of the liability is is thirty years. As I also said, we're now in the process. We filed with the insurance compact, which is 23, 24 states for a worksite version, of that of that product.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

And then we have, an annuity hybrid, new product design that we're working on. We expect that to come out, sometime in early next year, and then we'll expand offerings from there. All of those products will be I mean, we're funding this new insurance company, CareScout Insurance Company. It's domiciled in Virginia with 85,000,000, and that new company will be the issuer of all the new long term care insurance or funding solutions going forward.

[Colin Devine, Principal at C. Devine & Associates]

Tom, just to clarify that CareScout Insurance, that is the former Genworth Insurance company. Is that correct? We

[Thomas McInerney, President, CEO & Director at Genworth Financial]

well, we we the Genworth Insurance Company, we we did buy a a Shell company many years ago in North Carolina. We rebranded that CareScout.

[Colin Devine, Principal at C. Devine & Associates]

Yep.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

So going forward, the new services business and insurance business, we're branding CareScout, and then it was redomiciled to Virginia. So and that's CareScout Insurance Company.

[Colin Devine, Principal at C. Devine & Associates]

Thank you. And that is just to clarify, that is owned directly by the holding company.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

Correct. It's not it's not in the chain like this. It's not in the chain that owns the the gen the, like, the three Genworth Legacy Life companies.

[Colin Devine, Principal at C. Devine & Associates]

That's what I'm asking.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

Correct.

[Colin Devine, Principal at C. Devine & Associates]

That's that was my decision. Thank you very much. Appreciate it. Thanks.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

Thank you, Colin. Nice to hear from you.

[Colin Devine, Principal at C. Devine & Associates]

Yeah. Yep. Keep in touch.

[Operator]

Ladies and gentlemen, I will now turn the call back over to

[Thomas McInerney, President, CEO & Director at Genworth Financial]

you very much.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

And I wanna thank Ryan, Pete, Josh and Colin for their questions. I think they're very good questions, and, obviously, a lot of our shareholders, investors in the market are interested in that. So, you know, I think we're doing a, you know, a great job on our three strategic priorities. We're very pleased with the way the AXA litigation played out.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

I mean, we we we think the judge got it right. And going forward, we're very optimistic about the growth in CareScout, both on the services side with our CareScout quality network and the insurance side. We now have the benefit of, you know, the potential acts of proceeds when any any appeal is resolved. And plus as Rohit in the earlier call today, if any of you were on that before, enact that they have increased their capital return for all shareholders this year from $3.50 to 400,000,000. And so, you know, we we still have, you know, obviously, a a very strong cash free cash flow generator in Enact.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

So we feel we're in very good shape going forward, and we look forward to increase in return, obviously, with the significant new pro proceeds, significant more capital return through to shareholders, principally through the buybacks. We'll look at the debt opportunistically. But as Jerome said, you know, at 20%, if you take all the cap equity of the life companies out is, you know, we're still among the lowest lowest debt to capital in the industry. Very very low, 50,000,000 of of annual interest. So it it you know, we feel in a very, very good position.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

And for those of you who have followed us for a long time, I mean, I think we're stronger today than we've ever been, and we now have a significant improvement in the financial strength of the company. Obviously, those proceeds represent a big part of our existing market cap. I want to thank all of you for the call. I want to thank the four questionnaires. I think they were questions that we get a lot, and, look forward to updating you, next quarter.

[Thomas McInerney, President, CEO & Director at Genworth Financial]

Thank you very much. And with that, Terren, I'll I'll turn the call back to you.

[Operator]

Ladies and gentlemen, this concludes Genworth Financial's second quarter conference call. Thank you for your participation. At this time, the call will end.

Participants

Executives

• Christine Jewell, Head - Investor Relations
• Thomas McInerney, President, CEO & Director
• Jerome Upton, Executive VP & CFO
• Gregg Karawan, EVP & General Counsel

Analysts

• Ryan Krueger, Managing Director at Keefe, Bruyette & Woods (KBW)
• Peter Enderlin, Portfolio Manager at MAZ Partners
• Josh Esterov, Head of US Insurance Research at CreditSights
• Colin Devine, Principal at C. Devine & Associates