[Call Starts Abruptly] Quarter 2025 Earnings Conference Call. My name is Danielle, and I'll be your coordinator today. At this time, all participants are in a listen-only mode. [Operator Instructions]. As a reminder, the conference is being recorded for replay purposes. Also, we ask you refrain from using cell phones, speakerphones or headsets during the Q&A portion of today's call. I would now like to turn the conference over to Christine Jewell, Head of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to Genworth's first quarter 2025 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 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 Arland, President and CEO of our U.S. Life insurance business, Kelly Saltzgaber, Chief Investment Officer; and Samir Shah, CEO of CareScout Services, 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'll turn the call over to our President and CEO, Tom McInerney.

Thank you, Christine. Good morning, everyone, and thank you for joining January's earnings call for the first quarter. Before I dive into our first quarter performance, I want to give a special welcome to Christine Jewell, who recently took over as Genworth's Head of Investor Relations. Christine has been at Genworth since 2009, most recently serving as Senior Director of Financial Planning and Analysis for our U.S. Life insurance companies. We are excited to have Christine in this new role. I would like to thank Brian Johnson for serving in this position for the past several quarters. Brian will be focusing on his existing roles as Vice President of Financial Planning and Analysis of Genworth and as Finance Leader of CareScout Services. I'm also pleased to welcome Morris Taylor to Genworth, who joined us on April 7 as our new Senior Vice President and Chief Information Officer. With his proven experience executing long-term visions for large technology organizations, Morris will lead our efforts to deliver a technology-enabled and human-centred experience for our customers, an important component of our CareScout growth strategy. Turning to our first quarter results, Demorest reported net income of $54 million or $0.13 per share. First quarter adjusted operating income was $51 million led by Enact, which had another excellent quarter and contributed $137 million in adjusted operating income to Genworth. The total estimated pre-tax statutory loss for our U.S. Life insurance companies was 1 million driven by losses in life and annuities, which were mostly offset by long-term care insurance. Jerome will discuss the financial results in more detail. Our liquidity remains strong, with Genworth ending the first quarter with cash and liquid assets of $211 million. We continue to execute well against Genworth's three strategic priorities. First, we increased shareholder value through Enact growing market…

Thank you, Tom, and good morning, everyone. In the first quarter, we continued to build on our solid foundation and financial flexibility and deliver on our strategic priorities. Enact once again drove operating performance and continues to operate from a strong capital and liquidity position. We also continued to advance our multi-year rate action plan, made significant progress expanding CareScout and return capital to shareholders through our share repurchase program. I'll start with an overview of our financial performance and drivers, then provide an update on our investment portfolio and holding company liquidity before we open the call for Q&A. As shown on Slide 7, first quarter adjusted operating income was $51 million, driven by Enact. Our Long-Term Care Insurance segment reported an adjusted operating loss of $30 million, driven by lower limited partnership income and the anticipated decline in premiums from the impact of benefit reduction elections. This was partially offset by a liability remeasurement gain related to the actual variances from expected experience or A to E, primarily driven by seasonally high in mortality. As we said last quarter, since the implementation of LDTI in 2023, we have seen an average quarterly loss from the A to E of about $65 million and continue to expect that we could see losses at this average level throughout 2025. As a reminder, quarterly fluctuations in U.S. GAAP results do not impact our cash flows, economic value or how we're managing the business. Life and Annuities reported an adjusted operating loss of $33 million in the first quarter. This included an adjusted operating loss of $44 million in life insurance, reflecting the unfavorable impacts of seasonally high mortality, partially offset by adjusted operating income of $11 million from annuities. In Corporate and Other, we reported a $23 million loss for the…

[Operator Instructions]. And we'll take our first question from the line of Ryan Krueger with KBW. Please go ahead.

Good morning. Tom, I know you said you are going to talk about the litigation, but my question is more around the change in the agreement with AXA. I guess, I just want to make sure I understand it. It sounds like you are agreeing to cover up to $80 million of losses if they occur in the trial, but then you will receive a greater amount of proceeds if they win? Or can you give any -- is that correct? Or if not, can you clarify?

Yes. So, Ryan, thank you very much for the question. And it's a good question. And obviously, AXA is a very important case for us because of the potential for significant proceeds. So just to go back in big picture, AXA is claiming damages for approximately $700 million. And depending on what the judge decides, in addition to that amount or some amount, there are expenses and interest. So, look -- because we've reimbursed most access for most of that amount, to the extent that it goes to trial or there's a settlement, which may or may not occur. We weren't perfectly aligned because for AXA, around GBP80 million is what they would have on the recovery. And we obviously have much more than that. So, because they would be happy for a much lower ultimate amount, we wanted to -- as the trial was going on in March, we wanted to align their interests and our interests so that they have an interest in with us looking to get the most recovery and the highest settlement possible. So, our arrangement with them ensures that they have a similar incentive for us to get the maximum amount. And to do -- for them to be willing to do that, we had to, in effect, guarantee the amount that they have coming to them under a result where the bank has to pay something. And that -- we don't know what that amount will be. Again, as I did in my remarks, we have always thought AXA has a very strong case. And the precedent is, in most cases, the selling entity, in this case, the bank, were deemed to be or they pay for these mis-selling costs. So -- and just given the size, we wanted to make sure that AXA and Genworth were working together. And we're generally our interest were aligned.

Got it. That makes sense. And then I had a couple of questions on CareScout. One was just I know you're making a capital contribution to the new insurance entity this year to get it going, which I think you've already deducted from your holdco liquidity. Would you expect further capital contributions beyond this year to be needed for the insurance business? Or is it more just a start-up contribution?

So, Ryan, again, good question. So, under the statutory regulatory rules, when you start a new insurance company, CareScout Insurance, you have to put in an initial amount of capital well beyond what's needed by RBC ratios, et cetera. So, they'll -- and that's -- they want that because we project out as any start-up would do in the insurance space. What the first 5 years or so will be in a breakeven is around 5 years, it can be longer or shorter. And so, they want you to cover in the earlier -- and you know they're focused on statutory accounting that all the selling and commission expenses are expensed early on. So, there is a drag on statutory earnings early. And so basically, the $75 million would be the amount of capital need to cover any loss in the in the early years, annual loss by a factor of 5 times. So, I think the $75 million is significant capital. Now, as we sell insurance policies, we will incur those statutory expenses. And obviously, we have to have RBC capital supporting that. So, if you look out over 5 or 6 years, we will have to put in some more amount of capital, but it's not all that significant. The other lever we have is 100% of the liabilities will be reinsured to A+ rated reinsurer. And so that also dampens the -- because we get seating commissions from the reinsurer. So, it dampens the use of capital. We do anticipate that they'll retrocede back to us 40%, maybe 50% in the early years. So, we are able through how much we take back to control, how much additional cash capital we have to put in. So, the way I would look at it, Ryan, is it's a lot going in upfront because you have to cover the adverse scenario test of the regulators. And then going forward, based on our growth and how much we cover versus the reinsurer, will determine how much capital we need. So, I would say we're hoping that we are very successful in growing. And if we do, that will be some capital in the future over time, we think it's quite manageable. And certainly, not anywhere close to $75 million at one time. I think the additional capital amounts would be more in the $20 million, $25 million range over time, and we may do that a few times. So that's how it works. So, it's capital-intensive upfront because of the regulatory requirements.

Makes sense. And then just one more CareScout question, just 1 more on the CareScout quality network, maybe too early for this, but just I guess kind of wondering if you have like a rough time frame that you think that business, not the insurance business, but that business might get to a level that's closer to breakeven profitability?

Right. So, I'll let Samir Shah, who is the CEO of that business, talk about the profitability of the business and breakeven. But remember, given we now have 550 providers, and we have the 20% discounts, we're projecting for Genworth claim costs in the future that will save $1 billion to $1.5 billion. So, we don't really count that in the breakeven, but I would say for -- and we've been funding the expenses as we build up that business in the $35 million, $50 million range. But if you look at -- even if the breakeven is a way out, we've already, in effect, added value to the company in the $1 billion to $1.5 billion range because of the projections on how those discounts will lower our claim costs. But I think more important and more interesting, I'm sure, to you and other investors is the growth rate of the business and what our expectations are. So, I just ask Samir to comment on that.

Ryan, thank you for the question. As Tom alluded and as Jerome said before, given this is a new business, it will require some investments early on and take a couple of years to build out. But the early momentum has been really strong. The network is continuing to build that with great coverage, choice and efficiency with the rate reductions we're able to do. And as we onboard assisted living communities and roll out new products, we think it will make it a more holistic offering for aging consumers all over. The adoption we're seeing from clients beyond January into other insurance companies and the pipeline we're building, shows that the value proposition is not only clear, but it's necessary to solve what is becoming a bigger problem. And as you know, we've talked about 70 million direct-to-consumer clients. So, the opportunity for us becomes quite significant. In terms of value and impact of Genworth, I think we deliver impact in three different ways. One is the savings, and we're on pace for the $1 billion to $1.5 billion in savings. And I think the savings alone allow CareScout services to be breakeven. But I think we bring in new revenue as we add new clients, both insurance and direct-to-consumer clients. And over the long run, we hope to add significant valuation of the company.

[Operator Instructions]. We'll take our next question from the line of Brett Osetec with KBW. Please go ahead.

You guys mentioned the WISH act in your prepared remarks. Can you just elaborate a little bit more about what kind of tailwinds you think that might provide for the CareScout offering going forward?

Yes. So, thank you, Brett. It's a great question. Our first product, which is a traditional LTC insurance product with -- but it's fairly capitated. So, if you look at the claims -- the average claims over the last 40 years, have been in the $250,000 range. Now the most expensive claim, I think we paid is $3.4 million of a woman who had Alzheimer's and was on claim a long time and it's still ongoing. So, we're -- we -- by offering the maxim in this new policy provides $250,000. It protects a lot of our tail risk. We learned that because originally, we were all selling unlimited benefits with high compound inflation. But if you -- so $250,000 is the average of claims over time. But if you have a severe dementia, Alzheimer's type disease and disability, it's going to be a lot higher. The challenge for the private insurers like CaraScout is if you're going to cover those very high claims that are dementia-related, you've got to charge a lot on all of your policies. So, we can keep the cost of this new -- this first new product, and we'll have many more products. We're already working on other products, more manageable for more consumers. The average, depending on what you buy and your age and medical history, it's probably in the 3,000 to 3,500 range. We think it's very appropriate for the federal or state governments. There's already a plan in Washington state to cover some amount of coverage. But the WISH act that Tom Quasi introduced and reintroduced with his Republican colleague. It basically is a catastrophic coverage. So, individuals through their savings or private insurance will be responsible for, and it depends on your income. So, if you are lower income, you would…

It appears that there are no questions at this time. Ladies and gentlemen, I will now turn the conference back over to Mr. McInerney for closing comments.

Thank you very much, Daniel, and I want to thank everybody and Ryan and Brett for the great questions. And I want to thank you all for joining the call and for your ongoing support and interest in investments in Genworth. We're very proud of first quarter results, and Enact continues to do extremely well, and I assume many of you listen to their earnings call, and so they're in a good place. And I think we're making great progress on our three strategic priorities that Jerome and I outlined. So, we're looking forward to significant success in growing CareScout over time and also look forward to continued good cash flow, strong cash flow from Enact. So, thank you very much. And Danielle, I'll turn it back over to you to close the call.

Ladies and gentlemen, this concludes Genworth Financials’ First Quarter Conference Call. Thank you for your participation. At this time, the call ends.