Good morning, ladies and gentlemen, and welcome to Genworth Financial's Second Quarter 2022 Earnings Conference Call. My name is Katie, and I will be your coordinator today. [Operator Instructions] As a reminder, the conference is being recorded for replay purposes. [Operator Instructions] I would now like to turn the presentation over to Sarah Crews, Director of Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Genworth's Second Quarter 2022 Earnings Call. Today, you will hear from our President and Chief Executive Officer, Tom McInerney; followed by Dan Sheehan, our Chief Financial Officer and Chief Investment Officer. 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. Following our prepared remarks, we will open the call up for a question-and-answer period. In addition to our speakers, Brian Haendiges, President of our U.S. Life Insurance segment; and Jerome Upton, Deputy Chief Financial Officer and Controller, 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. This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. In our financial supplement, earnings release and 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 filing of the statutory statements. And now I'll turn the call over to our President and CEO, Tom McInerney.

Thank you, Sarah. Good morning, everyone, and thank you for joining our second quarter earnings call. Genworth delivered strong performance in the second quarter, making continued progress against our strategy to strengthen our financial foundation and create value for our shareholders. Our strategy is designed to deliver long-term growth while also protecting shareholder value in downside scenarios, which is especially important in today's difficult market environment. This challenging macroeconomic backdrop is driven by a confluence of competing factors, including high inflation, rising interest rates, new COVID-19 variants, equity market volatility and a tight labor market, the combination of which has created economic uncertainty. While we should not compare this period to other market downturns, I believe that the expected sharp increase in interest rates by the Federal Reserve to mitigate historic levels of inflation will likely adversely impact the economy in the near to medium term and continue to create market volatility. From where we stand today, however, I believe Genworth is well positioned to weather this volatility and economic uncertainty because of strong levels of capital in our businesses, a conservatively positioned investment portfolio, a very low debt-to-capital ratio and modest annual debt service obligations. Our execution against our strategic priorities reinforces that positioning as we continue to deliver strong performance from our Enact subsidiary, reduce holding company debt and return value to shareholders in the form of share buybacks. First, let me review our second quarter results at a high level. U.S. GAAP net income was $181 million for the second quarter, while adjusted operating income was $176 million or $0.34 per share. These results were led by Enact, which reported $167 million in adjusted operating income. U.S. Life reported adjusted operating income of $21 million for the quarter, driven by LTC insurance and fixed annuities, partially offset…

Thank you, Tom, and good morning, everyone. In the second quarter, we generated strong operating results and continued to enhance our financial position amid a challenging market backdrop. We're especially pleased with the strong earnings and cash flow delivered by Enact, the return of capital to shareholders and the continued deleveraging of our balance sheet. As Tom mentioned, in the second quarter, we repurchased $48 million of our 2024 debt maturity, leaving a balance of $152 million which we plan to call later this month, enabling us to have it fully retired by the end of the third quarter. At that time, we will have $900 million of debt outstanding, achieving our strategic priority of less than $1 billion of debt. Moody's Investors Service recently recognized our enhanced financial strength with a 2-notch upgrade to BA2, reflecting our improved liquidity position and financial flexibility. We're pleased that our ratings continue to reflect the substantial progress we've made, which in turn have had favorable impacts to Genworth and Enact. We will continue to work with the rating agencies to ensure their views reflect our enhanced credit profile through ratings improvements. In terms of returning capital to shareholders, we've repurchased $30 million of Genworth stock to date, representing approximately 8 million shares at an average price of approximately $3.80 per share. There's approximately $320 million remaining on our authorization. Once we reach our debt target and begin to accumulate excess cash, we'll be in a position to increase the pace of our share repurchase program. Now I'll turn to a detailed discussion of the second quarter results, beginning on Slide 5. Second quarter net income was $181 million and adjusted operating income was $176 million or $0.34 per diluted share. In the prior quarter, we had net income of $149 million and…

[Operator Instructions] We'll take a question from Ryan Krueger with KBW.

My first question is on the intercompany tax attribute. Was your comment that the tax attributes will be exhausted at the end of this year and you would not expect a further benefit in 2023? Or would you expect some further benefit in 2023 before they're exhausted?

Thanks for the question, and we'll give that one to Dan.

Thanks, Tom. I guess the way I would say it today is that there's still a lot of uncertainty in the economic environment. We will use the majority of the remaining tax attributes in 2022 and ultimately exhaust them at some point in 2023. And that could be midyear, it could be a little earlier or a little later just depending on the subsidiary results.

Got it. And then on the AXA-Santander lawsuit, can you just remind us how the actual sharing of the recovery works? Is there a specific percentage of a recovery that you would receive? Or can you give any more color there?

I think, Ryan, I really can't add much to that other than what I said in my remarks. To the extent that AXA prevails in the litigation given that we've reimbursed AXA for a significant amount of losses they had, we would expect significant recoveries. But exactly how that will play out, it's to be determined as we go through the litigation process -- or AXA and Santander goes through the litigation process.

Got it. And then last question was on Global Care Solutions. I guess can you give us any sense like how you're thinking about the potential financial impact of this and over what time frame you may start to generate income from this new business?

Ryan, good question. So I would say, first of all, it's a capital-light business. We're not -- it doesn't -- we don't need ratings. We don't need to put in capital to cover risk-bearing like we have with the legacy business. And so I think it's -- the -- it's going to be based on a digital technology platform. And what we're basically going to be doing in this first phase is we will -- we have a nurse network, about 35,000 nurses, so in -- whether it's a Genworth policyholder or someone with no existing relationship with Genworth, we'll assess the disability recommended care plan. And then we are going to negotiate and develop a preferred provider network based on quality and discounts. And so we would then expect to, once we come up with a care plan with our new client, refer them into the preferred network. They'll get a discount and the revenue profit margins for us will be based on -- the client will pay Genworth a fee for assessing the claim, coming up with a care plan and getting them placed in a high-quality provider wherever they're located. So the profit margins will come from the client with an all-in. The client will pay less than they would if they did this all on their own. So we do all the work for them, get them placed and we earn a fee on that. It's hard to predict. As I said, it's not a lot of capital other than to cover working capital costs, the cost of the employees that we'll be hiring, IT engineers to develop the software. So those will be the expenses. And then we do expect the -- it's about 50 million of the baby boomers will ultimately need care. And they're going to need advice and services. It's a very fragmented market today. There's -- there are some fintech companies that are doing similar things to us, but most of them are one-stop shops, and we think we can provide the total service for an all-in cost to the client less than they could do on their own. So yes, as we grow the business, there's a lot of leverage, and it should be a fairly high return business given that it doesn't require a lot of capital.

We'll take our next question from Geoffrey Dunn with Dowling & Partners.

I just wanted to revisit the prospect for share repurchase and your assessment of intrinsic value. When you're looking at the intrinsic value of GNW, is that the cash flows and balance sheet, excluding the Life platform? Are you factoring any value to the legacy Life platform that you currently have?

Yes. I think what we've been saying, Geoff, for many years is when we look at intrinsic value, we look at the value of Enact, and we assume the intrinsic value over the housing cycle. And so generally, our view is Enact in the MI has traded at 1x book or better. So that's how we value Enact. And then for now, we're putting 0 value in for the Life Companies. I do think we could find down the road for legacy business, there's life and annuity business clearly has some capital associated with that, that has some value. And then obviously, we're not assuming any value yet for our new business, but we think that ultimately it could have value. And then -- so it's really the intrinsic value of Enact as we see it, as I described, 0 for the Life Companies and then the net cash, net debt, and net corporate position.

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

Thank you very much, Katie, and thanks to all of you for joining the call today. I would say we're proud and encouraged by our progress to date with the business in 2022 despite all the challenges in the macro economy. We also think we're doing well on our strategy to create long term care value, reducing the debt, buying back shares, returning capital to shareholders. We look forward to updating you in the future as we achieve new milestones. And we do expect to have an investor update probably in the February, March, April time frame on the Global Care Solutions. We would hope by then to have launched the business in at least some test markets, some pilots, and we'll have more definitive to say on the business and what the business model and the financial model in terms of how we'll earn profits over time with that. So we're excited about that. We've got a good team. I mentioned Tim Peck who -- Dr. Tim Peck who we hired this year, in this quarter. And he's working with Joost Heideman and we're building a team. I think they're -- we're up to employee #4, so we're making progress and look forward to that. But thanks to Ryan and Geoff for their questions. And thank you all for your interest and support of Genworth, and we'll see you next quarter. So with that, Katie, I'll turn it back over to you.

Thank you. Ladies and gentlemen, this concludes Genworth Financial's Second Quarter Conference Call. Thank you for your participation. At this time, the call will end.