Good morning, ladies and gentlemen. Welcome to the Genworth Financial's Fourth Quarter 2023 Earnings Conference Call. My name is Jenni, 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. As a reminder, the conference is being recorded for replay purposes. [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, sir.

Thank you, and good morning. Welcome to Genworth's Fourth Quarter 2023 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 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. 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 U.S. Life Insurance business and Kelly Saltzgaper, Chief Investment Officer, 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 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'll turn the call over to our President and CEO, Tom McInerney.

Thank you very much, Brian. Good morning, everyone, and thank you for joining our fourth quarter earnings call. Before I get to the quarter, I want to welcome Jamala Arlan to her first earnings call in her official capacity as the new President and CEO of our U.S. Life Insurance business. Jamala has been with Genworth for 18 years. She's one of the top actuaries in the LTC insurance industry and she's been an integral leader in both the development and execution of our multiyear rate action plan. I'm very excited to work with her in her new and broader role. I also want to thank Brian Haendiges for his tremendous contributions and accomplishments at Genworth. As you know, Brian recently retired. In 2023, Genworth made outstanding progress against our 3 strategic priorities which enabled us to return significant value to our shareholders. Before I discuss these accomplishments, I'll quickly review our financial performance. For the full year, net income was $76 million or $0.16 per diluted share, and adjusted operating income was $41 million or $0.09 per diluted share. These results were led by Enact, which had an outstanding year delivering adjusted operating income of $552 million for Genworth and continues to execute on its strategy, maintaining a strong balance sheet and high-quality books of insurance in force. And that also expanded its platform in 2023 with the launch of an [indiscernible] to pursue opportunities in the mortgage insurance market. In the fourth quarter, Genworth reported a net loss of $212 million or $0.40 per diluted share and an adjusted operating loss of $230 million or $0.51 per diluted share. These results were driven by losses in both life and annuities and in LTC, primarily due to the impact of our annual assumption reviews as well as quarterly actual…

Thank you, Tom, and good morning, everyone. We completed our annual LTC and life insurance assumption reviews in the fourth quarter under the new U.S. GAAP accounting standard, LDTI. While our U.S. GAAP earnings were pressured by these assumption updates, I'm very pleased with Genworth's strategic progress in 2023, the ongoing value creation delivered by Enact and our strong momentum on LTC in-force rate actions, which helped drive positive statutory income in our U.S. life companies for the year. I'll discuss Genworth's results and drivers in more detail including Enact's performance and the results of our assumption reviews. Then I'll provide an update on our investment portfolio and capital position before we open the call for Q&A. Tom covered our consolidated financial results, so I'll start with Enact's performance on Slide 6. Enact delivered very strong fourth quarter and full year results, including high-quality growth in its insured portfolio, increasing investment income and strong profitability. Enact's adjusted operating income of $129 million was up 8% versus the prior year. Primary insurance in-force increased 6% year-over-year to a record $263 billion, driven by new insurance written and continued elevated persistency. Genworth share of Enact's book value including AOCI has increased from $3.4 billion at the end of 2022 to $3.8 billion at the end of 2023, while at the same time, Enact has delivered significant dividends to Genworth. The business continues to operate from a position of strength and has had strong loss performance, which has allowed it to release excess reserves. As shown on Slide 7, Enact had a favorable $53 million reserve release in the fourth quarter, which drove a loss ratio of 10%. The reserve release primarily reflects favorable cure performance on 2022 and earlier delinquencies. Both Enact's prior quarter and prior year results included favorable net reserve…

[Operator Instructions] Our first question is going to come from Ryan Krueger from KBW.

I had a few questions on long-term care. The first one was on CareScout. I believe you said you expected $1 billion to $1.5 billion of present value of claim savings related to CareScout over time. I guess, first, I just wanted to understand, did you already assume that in your reserve projections, or is that something that you would view as a possibility that you haven't reflected yet?

So Ryan, great question, and it's the latter. So we assume the savings will be in that range, $1 billion to $1.5 billion. But we're just rolling out the network. We've had some matches probably about 30 so far since we're just starting. So as we get more information on how many are using the quality network versus another provider and how big the discounts are. Our goals are to be the discounts between 10% and 20%. So far, we're able to achieve discounts at the higher end of that range. So as we gain more experience at some point, we'll view it as statistically significant. And at that point, you'll see us assume that, and that would reduce the amount of premium increases that we need in the future by that amount. So to your question, it's what we project, but we haven't factored it into and assumed in our projections value of it, yes.

Understood. And then, secondly, I guess, I wanted to understand if you get to a point of economic breakeven on long-term care, obviously, you want to be in that place. But what are the broader implications for Genworth once you get that to that place?

Well, yes, great question. So it's about a long-term effort and I mean we're very pleased with the results of adding $28 billion to the economics of the business. We think by the end of 2026, that will be largely breakeven self-sustainability. And at that point, I would say, in most states, so let's say, 35, 40 states will be done with premium increases. As we've said before, over the quarters, Ryan, as you know, there are a number of states who are well below average. I do think in those states, even beyond 2026. We'll continue to pursue rate increases until we get those states to the average of all the states.

Thanks. And then just one last one. You've obviously made a lot of progress on achieving rate actions. But I think if you look back over time, either your loss recognition testing margin or your cash flow testing margin has remained about the same despite a very high level of achieved rate increases and benefit reductions, which implies a similar level of adverse reserve development from assumption updates over that same period. So I guess what gives you the confidence that this time, once you achieve these rate increases, you won't have further offsets from negative reserve adjustments?

Yes. Another great question, and there's a lot embedded in that. I would say that we've now paid 360,000 claims and $26 billion value of claims. And if you look at that one slide, it shows the claims we've actually paid in the last so many years. And every year, we look at the new claims get added to the total claims. And based on those, we determine whether there are any of our long-term assumptions that need be changed. So my view is we're getting near the end. I think if you look at that, there's another slide that shows what the net present value total that we're looking to achieve to get to that breakeven is $33.3 billion, and we've achieved $28 billion to date that 33.3 could go up potentially could go down over time. And so I think while there likely are some assumptions that will based on new claims, we might change. I think based on 10 or 11 years of looking at it, I think we're getting near the end. So I don't think there's a lot left. The other way we sort of look at things. We think we're 85% of the way to being at breakeven or sustainability.

Tom, could I just add one comment for Ryan to consider. And that is our block has gone through measurable settlement activity. And it provides risk resiliency to the block overall through the actions that have been taken, the selections that have been made by the policyholder. Should we see adverse development there, those reductions that have occurred through the settlement will add meaningful value to us and really cuts off tail risk for the block.

I agree with that. Good point. Is there anything you want to add?

Thank you for the introduction at the beginning, Tom, and thank you for the good questions, Ryan. I reiterate what Jerome added in terms of the resiliency of the benefit reductions in settlement, adding additional support as we think about how the development of adverse assumptions in the future. Thank you.

[Operator Instructions] Our next question is going to come from [Christopher Boldon] [ph], Private Investor.

Who did you ask to have a question?

Christopher, your line is open.

Oh, thank you. In listening to the call, you mentioned that the GLIC risk-based capital ratio was 303%. Could you give a risk-based capital ratio for GLIAC?

We did not but Jamala or Jerome, if we have that number, if you want to give it. Chris, we have not provided that number, but it's north of 400%, and it's gone up throughout the course of 2023. We've had particularly good results on the variable annuity block given the equity market conditions. So it's north of 400%.

And Jeff and Christopher, just to follow up on that. In Genworth Life Insurance and Annuity company or GLIAC, there's very little of any LTC policies. It's mostly a life and annuity company. So it's RBC is significantly better because it hasn't had the statutory losses of the past that we had in the LTC companies.

Chris, I want to add one thing. All of our statutory filings will be coming soon. So you will be able to access and see the metrics and specific detail.

Well, I have one more question. In view of GLIAC's strong risk-based capital ratio and I would say 400% could be characterized as strong. Why do you feel that A.M. Best is still only giving GLIAC a fair best rating?

Yes. Look, I would say we don't always agree with the rating agencies. I think GLIAC is a very strong company. I think any RBC ratio, really above 350 as usually deemed to be strong investment grade. But I think, Christopher, the rating agencies, so A.M. Best and probably S&P and Moody's because we've said that we're not going to put any more shareholder capital into the life companies, and that's all three that they're a closed system, they operate on their own. And therefore, we're relying on premium rate increases. I think the rating agencies have based a rating on that and so we're disappointed. We think they should be higher, but that's where they are. That's a good question.

[Operator Instructions] We're going to ask Arthur Tetyevsky from Cantor Fitzgerald.

My question refers to the bottom of Slide number 20 of your presentation. You talked about share repurchases as well as the repurchased $21 million of principal of 2034 and your 2066 final maturity subs. I'm wondering if you can share any plans to continue to repurchase both of these bonds going forward? And if you could also provide some detail in terms of the proportionality of that $21 million bought back, broken down between the 2034 and 2066 notes. Thank you so much.

Thanks, Arthur. I'll start out and then turn it over to Jerome, our CFO, to give you more details. But we negotiated in 2023, a very good adjustment to the bond offering, so prior to a consent from bondholders, we couldn't really repurchase the 2066, which have traded well below par in the last several years. So we agreed with them in exchange for repurchasing some of the 34s going forward for every dollar of 2034 debt that we repurchased, we can buy $2 of the 2066 debt and because both are traded below par, but particularly the 2066, we have been opportunistically repurchasing debt. Our priority is still to focus more on repurchasing shares because that's a better economic return for our stakeholders, shareholders, in particular, but we'll continue to do opportunistic debt. So we did a reasonable amount in '23. And Jerome, I'll ask Jerome to give you the specific numbers. But going forward, I think you can expect repurchases sort of in that range going forward. But Jerome, do you want to give an update on the specifics?

Yes, Arthur. Thank you for the question. We're pleased with the modification of the replacement capital covenant. And I would say in the $21 million that you highlight on Slide 20, the majority of that was a 2034 that was part of what we agreed to as part of the consent and there was a smaller piece of the 2066s. And I would just say, as you think about adding shareholder value. I agree with Tom, our focus is going to be on share buybacks. As you think about economic value. We just feel very good about where we're buying. I think you've seen the [ever-to-date] [ph] results on our share repurchase program, which is just a little above $5 million, and we're very pleased with that. So we'll continue to allocate and focus on share buybacks at pricing levels that we've highlighted. We'll continue to be opportunistic, but proportionately, we're in a good place from a leverage perspective. We're well below our target right now, and you'll see the preponderance of our capital allocation going to share buybacks.

Got it. Thank you very much for clarifying that. Much appreciated.

Thanks, Arthur. Thanks for your questions. So Jenni, back to you, I think it looks like that's all the questions we have, but if you can confirm that, and then I'll just wrap up.

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

Thank you very much, Jenni, and thanks to everybody on the call. Thanks to Ryan, Christopher and Arthur for your great questions. I think they are very good ones, and hopefully, we gave you good responses. But in closing, just to sum up, we're very pleased with Enact's strong performance. We're very pleased with the move forward we've made with our MYRAP getting to $28 billion of net present value achieved. We're pleased with the progress in CareScout, particularly with building the quality care network, up now to 125 providers that are credentialed, have been approved for quality and we're bending the cost curve by negotiating discounts. And no other LTC insurers have ever really tried to do that. So we're the first one. The health insurers have had a lot of success at that over time. So we're pleased with that. As I said, we hope by the end of the year to have 600 providers that are credentialed in our network. And if we get to that level, we'll have 2/3rds of our policyholders and 2/3rds of across the country of 65-year-olds covered by a quality care network provider or home care provider in their ZIP code. And then, finally, we'll continue to focus on share repurchases. As we said to Arthur opportunistically, we'll look to buy back a little bit of debt. But we've added value, hopefully, shareholders are pleased with the improvement in our share price over the last couple of years, and we look to continue to do that. And in the end, through CareScout, our goal is to long-term increase value by expanding our long-term care services and insurance business through CareScout and helping many more families navigate the very challenging aging journey that they face with confidence. So thank you, all, all of the investors and others for your interest in support of Genworth and your investment in our company, and we'll see you next quarter. And with that, Jenni will end the call.

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