Good morning, ladies and gentlemen, and welcome to Genworth Financial’s Third Quarter 2022 Earnings Conference Call. My name is Karen, and I will be your coordinator today. At this time, all participants are in 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. Also we ask that you refrain from using cellphones, speakerphones or headset during the Q&A portion of today’s call. 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 third 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 third quarter earnings call. Genworth delivered another quarter of solid operating performance, despite a challenging macroeconomic environment, reflecting good momentum in our businesses and continued progress against our strategy to deliver long-term growth and shareholder value. U.S. GAAP net income was $104 million for the third quarter, while adjusted operating income was $159 million or $0.31 per share. These results were again led by Enact, which reported $156 million in adjusted operating income to Genworth. U.S. Life reported adjusted operating income of $11 million, driven by LTC and fixed annuities, partially offset by losses in life insurance. Enact continues to deliver strong performance, driven by execution of its cycle tested growth and risk management strategy. Since the next IPO, Genworth has received approximately $200 million in dividends from Enact, including $19 million in the third quarter. As you know, our shareholders benefit from Genworth’s ownership of Enact through its significant free cash flow and resulting dividends, which have enabled us to advance our strategic priorities, including debt reduction, share buybacks and the continued development of our long-term growth strategy. Enact executed an additional excess of loss reinsurance transaction to strengthen its capital position in September. Enact strong capital levels, including PMIERs sufficiency of 174%, robust balance sheet and access to capital puts it in an excellent position with enhanced financial flexibility. We continue to expect a special dividend from Enact in the fourth quarter as Enact announced yesterday. U.S. Life companies had combined pre-tax statutory income of approximately $10 million in the third quarter, which has improved versus the prior quarter, driven by smaller equity market declines, which require us to increase statutory reserves and our closed block variable annuity business. Genworth Life Insurance Company or GLIC estimated…

Thank you, Tom, and good morning, everyone. In the third quarter, we further improved our financial strength delivering solid results while reducing debt. As a result, we’ve entered the fourth quarter with a greater level of flexibility, which enables us to advance our objectives to invest in growth and return capital to shareholders as we continue to navigate this economic environment. Starting with our strategic achievements, we completed the redemption of $152 million of our 2024 debt maturity, bringing our debt outstanding to $900 million and achieving our strategic priority of $1 billion or less. Our remaining debt is long dated with the next maturity not due until 2034. This achievement is an important milestone for Genworth and a testament to our disciplined capital planning and execution against our strategic priorities. It also strengthens our ability to drive value for shareholders and will enable us to increase the pace of share repurchases as we accumulate excess cash. Through the end of October, we’ve repurchased $59 million of Genworth stock, representing approximately 15 million shares at an average price of $3.89 per share. There’s approximately $291 million remaining on our authorization. As we’ve executed on our strategy, our team has delivered solid operating performance, which I’ll review at a high level, beginning on slide five. Third quarter net income was $104 million and adjusted operating income was $159 million or $0.31 per diluted share. This compares to the prior quarter’s net income of $181 million and adjusted operating income of $176 million or $0.34 per diluted share. Results in the current quarter were led by Enact with $156 million of adjusted operating income. Results from our U.S. Life Insurance and Runoff segments totaled $20 million of adjusted operating income. And Corporate and Other activities, which comprises our holding company debt service,…

Thank you. [Operator Instructions] We will take our first question from Ryan Krueger with KBW. Please go ahead.

Hey, good morning. I had a couple of questions on long-term care. My first one was you had mentioned seeing some higher claim severity as people start moving away from home care and back into higher cost facilities. I was curious, is this more -- is this just more similar to what pre-pandemic behavior was or can you give any perspective on how it looks more compared to the pre-pandemic levels?

Thanks, Ryan. I’ll ask Brian Haendiges to answer that one.

Yeah. Hi, Ryan. Thanks for asking. So, I would say, first, we don’t look at our assumptions or behavior in isolation. We look at everything in aggregate. And as Dan mentioned a few minutes ago, as we look at all those assumptions in concert, we feel like we are in pretty good shape and will not likely need a change. We still have to go through our process. It’s pretty robust. We have a lot of meetings during the course of the year to make sure that we understand the assumptions. But -- and we’ll come back in the fourth quarter and be clear, but it doesn’t look like we are likely to have any pressure at the end of the year. For severity, I think you are seeing a little bit of a return after the pandemic to other situations. So people had -- they were taking care of somebody in the house. They are not able to do it. They are moving back into facilities. So we are seeing a little bit of that. But we would view that as more temporary than longer term.

Got it. And then somewhat related question, can you just talk about how healthcare inflation is impacting long-term care experience and what you are seeing so far in terms of that impact on your claims?

Yeah. It’s a very similar answer there. Again, we look at everything in concert. We look at everything together. We feel like the assumptions are holding up pretty well. I think over the short-term, we have seen some inflation as the rest of the country has with everything. But when we look at inflation in particular, just as with all our assumptions, we look over the long-term, we’ve got obligations over the next 20 years, 30 years, 40 years, 50 years. So we have to look over that longer term. And over that long-term, we believe that, again, everything holds together nicely. And on top of that, there are offsets to inflation. So for example, when inflation is up, interest rates tend to be up and that’s a good guide that offsets the bad guide that comes with inflation.

Great. Thank you.

[Operator Instructions] We’ll take our next question from Tom Slattery with Morgan Stanley. Please go ahead.

Hi. Good morning and congratulations on all the progress that you’ve made in the past few years. I had a question on capital allocation. The interest payments on the $600 million floating rate bond that you have, have moved from last year about $12 million a year with rates rising, they are now up to close to $40 million a year. So it’s been a dramatic increase in the interest payments that you are obligated to make on that $600 million floating rate bond. So my question is, have you considered open market purchases of that bond since it’s trading at such a big discount and would open market purchases make sense to reduce that interest payment and improve the current earnings of the company? Thank you.

Good questions, Tom. I will ask Dan to respond. There is a challenge with the 34 data and what the covenants are. But, Dan, if you want to just give some of the background on that.

Yeah. So, thanks, Tom. A couple of points I would make on that. First of all, it’s a very attractive long-term financing for us and has some equity benefit as well. But the rate on that is L plus 200, which will switch over to SOFR approximately plus 200. So, in the long run, our view on rates is that this is a temporary blip and that over the next 10 years, 20 years, 30 years, we’ll see rates normalize and that financing will continue to be very attractive to us. And even at current levels, it’s reasonable financing for us. So it’s not creating any type of strain. On top of that, the fact that we’ve eliminated frequently in the debt puts us in a position where that debt service even though it’s elevated versus the rate lows a few years ago is still well covered just by the Enact dividend. And so it creates no sense of urgency from our perspective. We think the level of debt that we have is the right level for the company today. But as you might expect, we are always looking at the debt that we have remaining and thinking about the ways to optimize that through time. So that’s something we’ll certainly consider. But near-term, our priority really was taking care of the near-term debt and taking care of the 2024s and getting all that behind us and we sit right now, I think, in a very comfortable place.

Dan, do you want to just comment on in order to repurchase the 2066s in the open market. We have a covenant…

Sure.

We have to redeem the 2034s first.

Yeah.

Just cover that.

Very practically speaking, I mean, first of all, as a rule, I mean, we generally wouldn’t be looking to replace the longest duration debt first. Most companies will chip away at the near-term securities. But in our particular case, we have covenants in the 2034 debt, which do not allow us to pay down the 2066 hybrid until we either retire the 2034s or reduce the outstanding balance below $100 million. So right now should we choose to, we would be restricted by that covenant. There are lots of ways to deal with that. But like I said, the next maturity we have is until 2034 and we’ve got a lot of time to sort that out.

Well, thank you very much. That’s a great explanation. I appreciate it.

Thank you, Tom.

[Operator Instructions] Ladies and gentlemen, as there are -- it looks like we’ve had one additional question queue up, just one moment. We’ll take our next question from Anthony Steinmetz with Shawnee Capital. Please go ahead.

Good morning. Can you hear me?

Yes.

Hello?

We can. Your line is open.

Okay. Great. Hey, good quarter. I just had a question about the long-term or the MYRAP goal, the $28.7 billion. Is that the correct number, is the $28.7 billion is the goal you guys are trying to hit?

Yeah. Anthony, that’s right. That’s the current estimate based on the review that we did at the end of 2021.

Okay. My question is, given the interest rate environment, how is that going to impact that estimate? And any color around how susceptible that is to change and what are some of the key factors and that would impact that number?

So, Anthony, good question. Part of the answer is, how long interest rates will stay up as they’ve, obviously, increased in the last 12 months or so. And as Brian said earlier, the assumption is really long-term assumptions, what do we think the interest rates will be over the next 20 years, 30 years, 40 years. So I think where we are today, we would -- we are not changing our long-term interest assumption, we’ll continue to follow it. Should the case B that interest rates stay higher for longer, there’s a significant benefit to us, because we’ve got overall about $32 billion of statutory reserves. And obviously, if you earn higher interest rates for the longer-term, that benefits the overall book of business and getting to breakeven sooner, so higher interest rates. If we assume for the long run, they’ll be higher, that obviously benefits and would reduce the gap that we have. We do have some disclosures in the 10-K and 10-Q around interest rates and what a long-term change would mean in terms of that net present value amount that we had -- we need.

Okay. Thanks for that. And just one follow-up, with regard to peak claim years, I think, it’s in the 10-K or my understanding, it’s around 2031, is that one peak claim years you guys estimate to be?

So, Anthony, I think, that’s right. And I would say our largest book, and Dan talked a little bit about Choice 2 in the settlement. The Choice 2 block is the largest over 300,000 policies. Their average age is 72 and while peak claim years are somewhere in the 83%, 85% range. So looking at that, it’s about another 10 years to 12 years for Choice 2 being our largest block that will obviously have an impact. The second largest block is Choice 1, the about 220,000 policies, I think. So those two together are half or more than half the book and the average age for the Choice 1 policyholders is 76. And so, again, 83, 85, so you are Seven years to 10 years away. And so that’s why we say, as those two blocks age, the other blocks will age, of course, but because those are the most significant, that puts us around 2030, 2032 as the peak claim years.

Okay. Thank you very much.

Thanks.

[Operator Instructions] Ladies and gentlemen, as there are no further questions, I will now turn the call back over to Mr. McInerney for closing comments.

Thank you very much, Karen, and thank you to all of you for joining the call today. We are very proud of the progress we’ve made on our long-term value creation strategy. We look forward to updating you as we achieve new milestones and bring new care solutions and services to market to fuel future growth for Genworth. In closing, I would be remiss not to mention that November is National Long Term Care Awareness Fund. This important observant serves to highlight the long-term care needs of Americans over the age of 65. As we begin the next chapter of our story with our new Global Care Solutions business, we are focused on learning from our experiences over the last 40-plus years and the data that comes with that to help people understand and plan for the care they want and may need. We look forward to continuing to empower our existing policyholders, but also new customers and their families to navigate the aging journey with confidence. Thank you for your questions. And with that, I’ll turn the call back over to Karen.

Ladies and gentlemen, this concludes Genworth Financial’s third quarter conference call. Thank you for your participation. At this time, the call will end. Have a great day.