Good morning, ladies and gentlemen and welcome to Genworth Financial’s Second Quarter 2023 Earnings Conference Call. My name is Karen and I will be your coordinator today. [Operator Instructions] I would now like to turn the presentation over to Sarah Crews, Director of Investor Relations. Please go ahead.

Good morning. Welcome to Genworth’s second quarter 2023 earnings call. A slide presentation that accompanies this call is available on the Investor Relations section of the Genworth’s website, investor.genworth.com. Our earnings release can also be found there and we encourage you to review these materials. Our quarterly financial supplement with updated information for prior periods will be made available at a later date. Speaking today will be Tom McInerney, President and Chief Executive Officer; and Jerome Upton, Chief Financial Officer. Following our prepared remarks, we will open the call up for a question-and-answer period. In addition to our speakers, Brian Haendiges, President of our U.S. Life Insurance business and Kelly Saltzgaber, Chief Investment Officer, 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 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 will 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 continued to make progress against our three strategic priorities in the second quarter as we navigated a challenging economic environment. Most notably, I am pleased our Board authorized an additional $350 million in share repurchases, significantly expanding our existing program. Free cash flow to the holding company remains strong driven by Enact’s return of capital and tax payments in 2023 from Enact and the U.S. life insurance companies. We continue to view returns to shareholders as an attractive use of our capital in the current environment and this is reflected in our stock price, which has increased by over 60% as of the market close on Friday, August 4, since announcing our original share repurchase authorization in May of 2022. We have $86 million remaining on the original share repurchase authority and this new authorization reflects our strong free cash flow and capital structure as well as the Board’s ongoing confidence in our strategy and future. We apologize for the delay in releasing Genworth’s second quarter earnings. Genworth’s adopt the new long-duration target improvements or LDTI GAAP accounting guidance in the first quarter this year for our U.S. life insurance businesses. We have since determined that how we account for the three long-term care insurance, or LTC legal settlements under LDTI should be changed. Genworth is now estimating the cost and expenses associated with these settlements similarly to how we estimate the reserve releases from benefit reductions. Any differences between actual experience and our best estimate assumptions will be reported in future quarters. As previously disclosed, the legal settlements are expected to have a net favorable impact to Genworth because of the significant reduction in tail risk. The cumulative economic value and total…

Thank you, Tom, and good morning, everyone. Today, I will highlight our financial performance and key drivers by segment as well as provide an update on our strong liquidity and capital positions. We are pleased with the progress on our multiyear rate action plan, strong cash position at the holding company and the value generated for shareholders through our share buyback program. For the quarter, we reported $137 million of net income or $0.29 per diluted share and $85 million of adjusted operating income or $0.18 per diluted share. Results were driven by Enact’s very strong performance of $146 million in adjusted operating income to Genworth driven by favorable loss performance. While our GAAP results were impacted by LTC losses, it is important to note that LTC’s GAAP performance does not alter Genworth’s economics or cash flows. We view the U.S. life insurance companies as having no impact on our enterprise value, and we expect shareholder value to continue to be driven by Enact’s strong performance and our investments in future growth through CareScout. Before I review results, I would like to supplement Tom’s comments regarding the change we have made to our accounting related to the unique LTC legal settlements. Under LDTI, there is no specific guidance for these unusual legal settlements or how to treat cash payments to policyholders in connection with these legal settlements, known as settlement payments. The accounting change we made for GAAP does not alter the favorable economics of our legal settlements to LTC, it simply impacts the timing and classification of our recognition of the settlement payments. We made this change to align estimates of settlement payments to policyholders with the related estimates of policyholder benefit reductions to ensure that both are recorded in the same financial reporting period. Prior periods for LTC…

[Operator Instructions] We will take our first question from Joshua Esterov with CreditSights. Please go ahead.

Hey. Good morning. Thank you for your time. Maybe two questions, if I can, on LDTI and LTC. First, with regards to the intercompany tax-sharing payments, can you remind me whether Genworth’s parents’ ability to build its subsidiaries based on GAAP or statutory profitability? And basically, what I am trying to get a sense of is whether or not the quarterly volatility in GAAP LTC earnings from implementation of LDTI might impact these intercompany tax payments?

So, I will walk into – Jerome, I will take the first part of that and just say that it’s a good question. Our statutory results are much closer to tax results and therefore, looking at the ability to utilize those remaining tax credits, it’s more driven by – it’s taxable earnings, but it’s closer to statutory where GAAP is going to be quite different.

Got it. Thank you. And then second, with regards to LTC, how should we expect GAAP reserves to develop relative to statutory reserves under the LDTI regime? And I understand that LDTI doesn’t impact the statutory financials. But over time, should we expect GAAP reserves potentially to drift away from statutory reserves unless there is some kind of unlocking event?

So, Jerome, and do you want to take that?

Yes, Josh, I would just describe this as LDTI is totally different basis of accounting. So, GAAP is a totally different basis of accounting from stat and the reserves under U.S. GAAP are going to be on a best estimate basis, are going to be discounted at a locked-in rate and then further discounted and this is only – this only impacts the balance sheet, but they are further discounted based on the single A rate, and that really just impacts reserves on the balance sheet when you go to the single A rate. But you also have the locked-in rate. On the statutory side, you have a very prescriptive methodology that we use, particularly on the active life reserve. And so it would be very difficult for me to tell you that they are going to combine or go together versus drift apart. If I had to, I would just say that there will be demonstrative differences between the two, it would be very difficult to quantify for you. And you know from an LDTI perspective, I would just also highlight that I mean we have said that we really focus on statutory accounting. The LDTI income will be volatile because half of our block has cap cohorts, thus versus the other half with uncapped cohorts. And statutory accounting is really our focus because – it’s what we review with our regulators. It’s what we review with our rating agencies. And it’s been a consistent basis of accounting that highlights the progress we are making with the company on breakeven.

Thank you very much. Appreciate everyone’s time and color.

Thanks for your questions, Josh.

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

Thank you very much. In closing, I would just say that – as both Jerome and I have talked about, we believe it’s important for investors and analysts to evaluate LTC and life annuities under both U.S. GAAP and statutory accounting. U.S. GAAP results will generally be more volatile, as we have said, than statutory because of the disparate treatment of the different LTC cohorts that are roughly 50-50 between the older capped unprofitable and relatively newer uncapped and profitable blocks. But we also want to emphasize that because we look at USLI or the life companies as a closed system, they have little impact on holding company cash and capital other than the tax payments, assuming that we have tax credits to offset that. We value and have valued and have said to investors for a long time that we value the life company at zero at this point because we are not putting capital in or taking it out. And I was – the main effort is the focus on the multiyear rate action plan and to get the LTC business to breakeven. And we think that’s a few years out. And our focus is – the enterprise value is really more based on our 81.6% holdings in that. And we are very encouraged by the early days in CareScout. We talked about – Jerome talked about the great progress in Texas. We launched that earlier this year, and we have got about 50% of the stake covered in terms of – by our approved quality network covering about 50% of the 65-plus group. We are proud of the progress against our three strategic priorities, and I went through those – and obviously, we are very pleased with Enact’s continued strong results. We continue to allocate the excess cash from Enact which had another great quarter to drive long-term shareholder value, both investing in CareScout going forward as well as returning capital to shareholders through the share repurchase program that we are pleased that the Board authorized, significant increase of another $350 million. Thank you all for your interest and support of Genworth. We really appreciate it. We will see you next quarter. And with that, operator, I will turn it back over to 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.