Genworth Financial Inc (GNW) 2024 Q4 法說會逐字稿

Good morning ladies and gentlemen, and welcome to Genworth Financial's fourth quarter 2024 earnings conference call. My name is Katie and I will be your coordinator today. (Operator Instructions)

I would now like to turn the presentation over to Brian Johnson, senior Vice President of financial planning and analysis. Please go ahead.

Thank you and good morning. Welcome to Genworth's 4th quarter, 2024 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 Thomas J. McInerney, President and Chief Executive Officer, and Jerome T. Upton, Chief Financial Officer. Following our prepared remarks, we will open up the call for a question and answer period.

In addition to our speakers, Jamala Arland, President and CEO of our US life insurance business, Kelly Saltzgaber, Chief Investment Officer, and Samir Shah, CEO of CareScout Services, will 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 10k 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 in accordance with SEC rules.

Also, references to statutory results are estimates due to the timing of the filings of the statutory statements.

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

Thank you, Brian. Good morning, everyone, and thank you for joining General's earnings call for the 4th quarter.

Before I address our 4th quarter and full year earnings performance, I'd like to reflect on our achievements in the past year. In 2024, we commemorated the 20th anniversary of January's initial public offering.

It was an opportunity to celebrate our team members who work each day to help families navigate the aging journey with confidence along with the contributions of our subsidiary and act as they help more Americans achieve their dream of home ownership.

Looking back at John's beginnings and the challenges we faced, I'm very proud of the progress we've made and the momentum we're building as we look ahead.

You can see the momentum in the milestones we achieved in 2024. It was the 12th year of a multi-year rate action plan, or MYRAP, which is helping us maintain the self-sustainability of our legacy [LTC] book of business.

Approved enforced rate actions under the MYRAP have contributed a total of $31.2 billion in NPV to our legacy business since 2012. We've achieved 87% of the MYRAP total projected value as of December 31, reducing our future reliance on rate increases.

We continued our impressive debt reduction journey in 2024 as well, ending the year with $790 million in holding company debt, down from $4.2 billion at the beginning of 2013 and from $856 million at the end of 2023.

As of February 14, Jew has spent a total of $565 million on our share repurchase program since our initial authorization in May 2022. Since then, we have reduced our outstanding shares by 18% from approximately $511 million to 419 million shares.

2024 was also a year of progress in the buildup of CareScout, which will drive our long-term growth.

After introducing the Care Scout Quality Network in February, we achieved our goal of covering 2/3 of the age 65 plus census population in the US, well ahead of schedule, reaching 86% coverage as of December 31.

The network is now available in all 50 states. We have seen a rapid increase in providers joining the network from 93 at the end of 2023 to now nearly 500 providers. I am confident that Care Scout Services will be a significant source of LTC claim savings and revenue for Genworth over time.

As Brian noted, Samir Shah, CEO of CareScout Services, will be available for the Q&A portion of today's call. For those who don't know him, Samir joined Care Scout in the second half of 2023, bringing a wealth of experience from financial services and strategy consulting roles at Goldman Sachs, JP Morgan, and McKinsey.

I will discuss Carecout Services and Careco Insurance developments in more detail later in my remarks.

I'd like to briefly discuss Genworth's financial performance for the 4th quarter and full year. For the 4th quarter, Genworth reported a net loss of $1 million. Adjusted operating income was $15 million led by the next strong performance, which contributed $137 million to adjusted operating income. For the full year. That income was $299 million or $0.68 per share with adjusted operating income of $273 million.

These results were also led by NAC, which had another outstanding year, contributing a record $585 million to adjusted operating income with their leading position in the market and strong credit performance driving lower losses.

We had a total estimated pre-tax statutory loss for our US life insurance companies of $33 million for the fourth quarter driven primarily by assumption updates which Jerome will discuss in more detail. For the full year. We generated strong statutory pre-tax income of $378 million. This included a $355 million benefit from legal settlements which are now materially complete.

Our liquidity position remains strong. We entered the 4th quarter with holding company cash and liquid assets of $294 million which includes approximately $186 million in cash set aside for future obligations.

In the 4th quarter we made considerable progress against our three strategic priorities. Our first priority is to create shareholder value through our approximately 81% ownership stake in enact.

Since IPO, Gemworth has received $903 million in capital returns, including $289 million in 2024. These cash flows enabled the strong execution of our share repurchase program in 2024, during which we bought back $186 million worth of shares.

We also used cash flows from an app to fuel the expansion of the Care Quality Network. And X value continues to grow with a total shareholder return or TSR since its IPO of approximately 100% as of February 14th and approximately 15% in 2024.

Our second strategic priority is to maintain our self-sustaining customer centric legacy LTC life and annuity businesses primarily through the continued success of our MYRAP. In the 4th quarter, we achieved $40 million in gross incremental premium approvals with an average percentage increase of 23%.

That brings our total enforced rate action approvals in 2024 to $343 million. With an average percentage increase of 39% overall, the NPV of our myRAP increased by $3.2 billion in 2024.

Now for our third priority driving future growth with CareScout with innovative consumer-focused aging care services and funding solutions. As I mentioned, the CareScout Quality Network now includes nearly 500 home care providers, all of whom underwent a rigorous credentialing process to qualify for the network and are committed to providing person-centric care to our customers.

We ended the year with approximately 900 matches between generous LTC policyholders on claim and Care Scout quality network providers. Half of the 900 matches came in the 4th quarter, and we are accelerating matches and had 180 matches in January of 2025.

As we expand the network coverage and build awareness of the network earlier in the care planning process. We anticipate a greater portion of our LTC claimants who choose providers from our network which we expect to drive $1billion to $1.5 billion in claim savings over time.

As a reminder, the initial build of the network still only includes home care providers and is only accessible to general LTC policyholders.

This year, while continuing to grow our home care provider network, we are extending the CareScout Quality network to other insurance companies and closed LTC blocks and plan to add assisted living communities and large metropolitan areas to the network along with other care types over time.

Ultimately, the goal is to make the network available to 70 million aging individuals in the US who can leverage that access to optimized quality care, affordable pricing, and personalized service. CareScout services will grow revenues by receiving fees on matches based on the net savings to the person on claim with the interests of providers, Carescout and claimants all aligned.

Moving forward, expanding the network to other LTC insurers also presents an attractive opportunity to build on our existing CareScout assessments offerings. This service has completed more than 1 million assessments over the past two decades for Gener and other insurance companies, along with healthcare organizations and consumers.

This network of nurses and other clinicians in all 50 states have deep expertise in assessing individuals' health status for claims, adjudications, and other purposes.

Moving to Care Insurance, we continue to work towards rolling out innovative solutions to meet the growing demand for aging care funding.

In the 4th quarter, we completed initial product filings for the Interstate Insurance Compact and nine additional jurisdictions for upcoming individual LTC insurance products, and we plan to launch CareScout's first new insurance product later this year.

It's important to note that this new product is priced for mid-teen returns using conservative assumptions and coverage limits to reduce the need for future premium increases. It also will include access to our CareScout Quality Network, a competitive differentiator which will help policyholders maximize their claims dollars.

Backed by generous industry leading expertise and extensive claims experience, Caresco is uniquely positioned to deliver both customer value and long term shareholder returns to funding solutions. We plan to invest $75 million of capital in the new Careco Insurance Company later in 2025 to meet the regulatory requirements of the new startup insurer.

Importantly, We have reached agreement on the material terms of a reinsurance arrangement with an A plus rated US-based reinsurer to help manage risk and capital efficiency for this initial product, and currently we are working to finalize the remaining open items.

It will take time to scale the business, our investments in CareScout will drive sustainable future growth for G and are aligned with our overarching priority to maximize long-term value for shareholders.

I'm very pleased with progress against our three strategic priorities in the 4th quarter and throughout 2024, and I'm excited to continue advancing these initiatives in 2025. With that, I'll turn the call over to Jerome for a more detailed discussion of our financial results.

Thank you, Tom, and good morning everyone. I'm pleased with the ongoing strong performance and value creation delivered by MAC. The progress on our multi-year rate action plan, or MYRAP, continued build out of our CareScout business, as well as the effectiveness of our share repurchase program and debt optimization in 2024.

I'll first discuss our fourth quarter and full year results in more detail, followed by the results of our annual US Life assumption reviews.

Then I will provide an update on our investment portfolio and holding company liquidity before we open the call for Q&A.

As shown on slide 6, fourth quarter adjusted operating income was $15 million driven by an ACT.

Our long term care insurance segment reported an adjusted operating loss of $104 million driven by a liability remeasurement loss related to the actual variances from expected experience or A to E, as well as the net unfavorable impact of assumption updates.

To date, the volatility related to the A to E and assumption updates has been primarily from our unprofitable policy cohorts where the net premium ratio is capped at 100%.

Experience in the more profitable or uncapped cohorts primarily impacts the net premium ratio and therefore flows more gradually through the P&L over time.

As we move farther from the January 2021 transition date of the LDTI accounting standard for US GAAP, we may see increased volatility from the uncapped cohorts with more of the impact related to the A to E and assumption updates recognized immediately in the P&O.

Since the implementation of LDTI in 2023, we have seen an average quarterly loss from the A to E of about $65 million and expect we could continue to see losses at this level in 2025.

Life and annuities reported adjusted operating income of $5 million in the fourth quarter, including a net favorable impact from model and assumption updates.

In corporate and other, we reported a $23 million loss for the fourth quarter, down sequentially driven by lower operating expenses.

Turning to the full year results on slide 7, adjusted operating income for the full year 2024 was $273 million driven by an ACT.

The adjusted operating loss of $176 million in LTC was primarily driven by a re-measurement loss, including unfavorable A to E, partially offset by the impact of cash flow assumption updates which were driven by strong progress on enforced rate actions.

In life and annuities, the adjusted operating laws of $38 million for the year reflects the unfavorable impacts of block runoff partially offset by the net favorable impact of model and assumption updates.

Corporate and other reported a $98 million loss for the year, which was larger than the prior year driven primarily by investments in our CareScout business growth initiatives.

Now taking a closer look at [AA's] 4th quarter performance on slide 8.

An act delivered $137 million in adjusted operating income, a 6% year over year increase reflecting reserve releases driven by continued favorable cure performance and strong net investment income.

Primary insurance in For grew 2% year over year to a record $269 billion supported by new insurance written and continued elevated persistency.

As shown on slide 9, enacts favorable $56 million pre-tax reserve release drug a loss ratio of 10%.

X Pier sufficiency ratio remains strong at 167% or approximately $2.1 billion above requirements.

Gener's share of an export value, including AOCI has increased to $4.1 billion at year-end 2024, up from $3.8 billion at year end 2023, while at the same time ACT has delivered significant capital returns to Genworth.

Genworth received $84 million in capital returns from an act in the fourth quarter.

For the full year, and that generated a total of $289 million in proceeds to GenWorth exceeding our expectations.

As indicated on its earnings call, an act expects to return similar levels of capital to its shareholders in 2025 as it did in 2024.

Slide 10 highlights our progress on the MYRAP.

To date, over 58% of policyholders given the option have chosen to reduce benefits, significantly reducing tail risk on our legacy LTC block.

These benefit reductions have been accelerated by the 3 legal settlements we've implemented over the past 4 years covering 70% of our enforced policies.

These settlements are now materially complete, so we expect to see a slower pace of benefit reductions moving forward.

In addition to the MYRAP, we continue to execute on several innovative risk reduction strategies. This includes the CareScout Quality Network and our Live Well Age Well intervention program, which will deliver value for policyholders while driving meaningful claim savings over time.

Effective enforce management, which includes rate actions, operational excellence, and innovation, ensures that our legacy life insurance companies remain self-sustaining.

As always, we are committed to managing these businesses as a closed system, leveraging their existing reserves and capital to cover future claims.

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 at least a decade away, we do not expect capital returns from these companies.

Slide 11 shows the $3.2 billion growth in the NPV of rate actions achieved in 2024, $2.1 billion of which is attributed to our 2024 rate action approvals and settlement implementation.

The benefit reductions associated with these actions not only provide stability to our financials in the period implemented but also continue to provide risk resiliency going forward as the blocks reach peak claim years, helping to protect against potential deterioration in the future.

As such, the value of the benefit reductions connected with our previously achieved rate actions and settlements also increased by an additional $1.1 billion in 2024 from the impact of our assumption updates.

The remaining amount we currently have left to achieve is approximately $4.6 billion, which has decreased approximately $0.7 billion from this time last year. Our achieved value reflects progress of 87% to our latest estimate of $35.8 billion for the total NPV of premium increases and benefit reductions contemplated in our MYRAP.

This amount could increase over time with changes to liability assumptions. We will continue to work with state insurance regulators to strengthen our claims paying ability through premium rate actions while supporting customers with a wide range of benefit reduction options as demonstrated by our strong track record over the past 12 years.

Slide 12 shows the $343 million in IFA approvals on a gross incremental basis we secured in 2024, including $40 million in the fourth quarter.

We submitted $525 million of enforced premium filings in 2024, including $249 million in the fourth quarter.

The full year total is lower than prior years as large previous approvals and multi-year implementations push the need for additional filings into later years.

We also continue to see a significant benefit from the MYRAP in our statutory earnings as shown on slide 13, where enforced rate actions and legal settlements drove a $1.7 billion pre-tax benefit to LTC statutory income in 2024.

Next, turning to slide 14, we completed our annual assumption reviews in the fourth quarter.

Overall, the updates resulted in an unfavorable impact to adjusted operating income in LTC and life and annuities of $52 million which was better than we anticipated last quarter due to a more favorable impact from our update for future rate action approvals.

As part of this year's LTC assumption review, we updated assumptions to better align healthy life and near-term benefit utilization assumptions with recent trends, reflect recent favorable experience in the future IFA approval outlook, and reduce short-term incidents for incurred but not reported claims.

These changes resulted in a net unfavorable $20 million pre-tax adjustment for cash flow updates in the quarter under USA accounting. From a statutory accounting perspective, the assumption updates and cash flow testing resulted in a net $59 million increase in statutory reserves.

Slide 15 shows the impacts of the annual assumption review for the life and annuity products.

On a US GAAP basis, the net unfavorable $28 million pre-tax impact to life insurance reflected assumption updates to mortality for universal life contracts and interest rates.

Annuity assumption changes resulted in an unfavorable $18 million pre-tax adjustment primarily related to lapses.

On a statutory basis, updates in life were primarily driven by favorable changes to the prescribed assumptions for certain UL and term UL products with secondary guarantees, including interest rates and mortality improvement.

Statutory results for both the life and annuity products reflected an unfavorable impact from updated expense assumptions as a result of the declining number of policies in force.

Slide 16 shows a pre-tax statutory loss for the US life insurance companies of $33 million driven by the net unfavorable impact of assumption updates in the quarter and versus prior year and down from the prior quarter due to a smaller impact from LTC legal settlements.

On a full year basis, we had pre-tax income of $378 million including a $355 million benefit from the LTC legal settlements which are now materially complete.

The consolidated risk-based capital ratio for Genworth Life Insurance Company, or GLIC was 306% at the end of 2024 with Capital in surplus of $3.5 billion.

This was up from 303% at the end of 2023, reflecting the benefit from statutory earnings and the increased value of our limited partnership portfolio, as well as higher required capital as we continue to grow this program.

The cash flow testing margin in our life insurance companies remain positive at the end of the year, with GLIC margin landing within the $0.5 billion to $1 billion target range after the assumption updates.

Our final statutory results will be available on our industrial website with our annual filings later this month.

Turning to slide 17, our investment portfolio remains strong. The majority of our assets are in investment grade fixed maturities held to support our long duration liabilities.

New investments in our life insurance companies during the quarter and full year, including alternatives, achieved yields of approximately 6.7%. Our alternative assets program, which is largely focused in private equity investments and has targeted returns of approximately 12%, generated continued strong performance of approximately 9% for the year.

We continue to focus on growing our alternative assets program within regulatory limitations due to its robust track record of returns, diversification benefits, and natural fit with our long term liabilities.

Next, turning to the holding company on slide 18.

We received $84 million in capital from an act and ended the quarter with $294 million in cash and liquid assets. Included in our cash and liquid assets, we hold approximately $186 million of advanced cash payments from our subsidiaries for future obligations.

We do not consider this cash when evaluating holding company liquidity for the purposes of capital allocation or calculating the buffer to our debt service target.

Our top capital allocation priorities as shown on slide 19 are to invest in long term growth through CareScout, return cash to shareholders through our share repurchase program when our share price is below intrinsic value and opportunistically retired debt when attracted to us.

We plan to invest approximately $45 million to $50 million in CareScout services in 2025 as we continue to build out the CareScout offering. This investment will go towards adding new products, customers, and enablers as we scale the business.

Moving to shareholder returns, we repurchase $51 million of shares in the fourth quarter at an average price of $7.32 per share and another $20 million through February 14th.

For 2025, we expect to allocate between $100 million to $120 million t$o share repurchases. This range may vary depending on business performance, market conditions, and our share price.

We're very pleased with the value created for shareholders through our share repurchase program.

We also retired $31 million of principal debt in the fourth quarter for $27 million in cash.

We retired $66 million of principal debt in 2024 for $57 million in cash, bringing our holding company debt down to $790 million.

We are pleased with our financial flexibility given our liquidity level, sustainable cash flows from an act, and manageable debt level.

In closing, we are delivering on our strategic priorities while proactively managing our liabilities and risk. The multi-year rate action plan and additional risk mitigation strategies are ensuring the self-sustainability of the legacy LTC block.

And that continues to be a key driver of shareholder value as evidenced by its earnings performance, increasing book value, and strong capital returns.

Looking to the year ahead and beyond, we will continue to focus on delivering sustainable long-term growth through an ACT and CareScout while returning meaningful value to shareholders through share repurchases and opportunistic debt retirement.

Now let's open up the line for questions.

Thank you, ladies and gentlemen, (Operator Instructions)

We'll take our first question from Ryan Krueger with KBW.

Hey, thanks, good morning. My first question was on CareScout services. Can you give us a little more color on how you expect the revenue to emerge, I guess, do you expect to start generating revenues in 2025 and then maybe can you give us some thoughts on how that could ramp up over the next several years.

Ryan, I'll just start to say that we already have revenues in CareScout services because of the assessment business. We've, as I mentioned, we've been in that business for quite a while. The new revenues from the matches where we have a match between a general at this point a general policyholder.

Quality Network, our revenue from that is we share in part of the discount. Samir is here and I introduced him on the call and so Samir is running that business, so I'll ask Samir Shaw if he has any additional comments on that.

Hi Ryan, thank you for the question. Yes, as Tom shared, look, we're very energized and enthusiastic about the progress that we had with the network in 204, and we plan to grow our products and our customer base in 2025, as we've shared before, the way CareScout makes revenue from the CareScout Quality Network. It's straightforward.

We negotiate discounts with providers who join the network and then we share in that discounted rate reduction with the insurer and their policyholder. So as an example, if home care costs between $5000 and $6000 a month, a 20% discount for us would amount to $1000 in rate reduction and savings.

We keep $250 of that every month for building and maintaining the network, and we pass the rest of it to the insurer and their policyholder. We covered that over the length of the claim. Obviously the actual revenue differs based on the type of claim, the type of care, and the length of the claim that the person receives.

On that. Separate question. I do, I guess, actually two quick ones. One, do you have an update on the timing of the UK court case? I'll start with that first.

Yeah, so Ryan, great question. That's the court case between ASA and Sender which we will participate in that is scheduled for a few weeks from now in March, and I think you know it's always hard to predict how long it would go, but my understanding is a court case like this, if it ends up going to trial and there's no settlement would be about six weeks, but it starts in early March.

Great, thank you. And then will you fund the $75 million capital contribution into the new CareScout insurance entity from holding existing holding company resources?

Jerome. You want to add anything.

I would just say, Ryan, we have a strong base operating plan from a cash flow perspective, and that is included in that base plan.

And given what Tom highlighted about [AXA] and the fact that the court case is going to be started in early March and the timing and the dollar amount is unknown, that is not in our base plan, so we are funding our growth initiatives out of the holding company based plan.

Great thank you thank you.

Thanks Ryan.

As a reminder, one, if you would like to ask a question.

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

Thank you, Katie, and thanks to all of you for joining the call today.

To close, we're very proud of General strong operational and financial performance in 2024 and the growth in the CareScout businesses, and we'll continue to execute on our three key priorities.

I also want to thank all of you for your continued support and interest in general and with that Katie, I'll turn the call back over to you.

Thank you, ladies and gentlemen, this concludes Genworth Financial's forth quarter conference call.

Thank you for your participation. At this time, the call will end.