Good morning, ladies and gentlemen, and welcome to Genworth Financial's Second Quarter 2025 Earnings Conference Call. My name is Karen, 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 Christine Jewell, Head of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to Genworth's Second 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, Jamal Arland, President and CEO of our U.S. Life Insurance business; Greg Karawan, General Counsel; 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, and thank you to everyone on the line for taking the time to join Genworth's second quarter earnings call. Genworth had a solid second quarter as we continue to advance our long-term strategic priorities. Genworth reported net income of $51 million in the quarter. Adjusted operating income was $68 million or $0.16 per share, driven in large part by another strong quarter from Enact, which contributed $141 million to our adjusted operating income. Total estimated pretax statutory income for our U.S. life insurance companies was $81 million, driven primarily by the net favorable impacts to annuities from equity market and interest rate movement in the quarter. Jerome will discuss this and other financial results in more detail later in the call. Our liquidity position remains strong as we ended the quarter with cash and liquid assets of $248 million. During the quarter, we continued to execute and drive progress against our 3 strategic priorities. First, Enact remains a key source of cash flow and continues to generate strong value for Genworth shareholders as its market value increases. As you may have seen, Enact announced yesterday that it now expects to return approximately $400 million of capital to shareholders this year, underscoring its continued operational strength and robust financial performance. Since Enact's IPO in 2021, our stake in Enact has provided Genworth with over $1 billion in capital returns supporting our ability to buy back shares. Since our current buyback program's initial authorization, we have repurchased a total of $630 million worth of shares at an average price of $5.80 as of July 30. Turning to our next strategic priority. We continue to maintain our self-sustaining customer-centric, LTC life and annuity legacy businesses. We've done this primarily by executing on our multiyear rate action program or MYRAP, which…

Thank you, Tom, and good morning, everyone. We continue to build on our solid foundation, enhanced financial flexibility and deliver on our strategic priorities. Enact once again drove robust operating performance and continues to maintain a strong capital and liquidity position. We also advanced our multiyear rate action plan made significant progress building CareScout and continued to return capital to shareholders. 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, second quarter adjusted operating income was $68 million, driven by Enact. Our Long-Term Care Insurance segment reported an adjusted operating loss of $37 million driven by a remeasurement loss primarily related to unfavorable actual variances from expected experience or A2E. The unfavorable A2E of $42 million was driven by lower terminations and higher benefit utilization, partially offset by the recapture of a block of LTC policies previously assumed by Genworth resulting in a pretax gain of $26 million in the quarter. As we have previously noted in 2023 and 2024, we saw an average quarterly loss from the A2E of about $65 million in LTC. While the favorable seasonal impact from mortality we observed in the first quarter subsided as anticipated, we 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 manage the business. Life and Annuities reported an adjusted operating loss of $7 million in the second quarter. This included an adjusted operating loss of $20 million in life insurance, which improved versus the prior quarter due to lower mortality, partially offset by adjusted operating income of $13…

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

I had some questions on the lawsuit. The first one was on the appeal at the Appellate Court. Can you give us any color on the process there, give any sense of when a decision either way to be made?

Good question, Ryan. Obviously, a lot of shareholders are interested in that. I've asked Greg Karawan, our General Counsel to be here. He has been London throughout the court trial and has obviously a good understanding of the process. So I'd just ask Greg to give you and the other investors and people on the call an update on what the process is from here going forward.

Thanks, Tom, and thanks for the question, Ryan. So unlike in the United States, where most of people will be familiar with, there is no appeal as of right in the United Kingdom, instead permission needs to be sought and granted. Permission could be sought directly from the trial court or from the Appellate Court. As Tom mentioned in his prepared remarks, Santander already sought permission from the trial judge, and that was denied. Santander now has until August 15 to seek permission from the Appellate Court. Once that permission is requested, the Appellate Court would likely take about 2 to 3 months to decide whether to grant permission. If permission is denied, case is pretty much over. If permission is granted, it could take anywhere from 12 to 18 months, inclusive of the time -- the 2 to 3 months for the request for permission for the appeal to be decided.

One quick follow-up on that. So I guess if they did grant permission in the Appellate Court for 18 months, would the payment not occur until after that 12- to 18-month process and everything was decided? Or would it -- because I recall going back to the Genworth AXA case that I thought you actually had to pay them prior to the appeal being decided?

Yes, that's right. And there is no stay of the judgment. The court's order requiring payment by August 15 is still in place. It's not been adjusted. There is no automatic stay and no stay has been sought. So as of today, payment is still required by August 15.

Okay. Great. And then related follow-up was just on the use of proceeds. I heard your comments on potential uses. I guess another possibility, it sounds like this isn't your plan, but I just wanted to check on it. I guess another possibility would be you pay down Genworth's debt and you spin off Enact and then that would result in an elimination probably of the discount your stock trades relative to the implied sum of the parts value. So just want to have some updated thoughts on that. Is that being considered at all? Or do you feel like there's reasons not to pursue that path?

So Ryan, I think for use of proceeds, Jerome and I are still looking at that. I think what you'll see is, as in the past, a significant amount of that will be used for share buybacks and then opportunities if there are any further CareScout investments, although we don't see a significant faster investment in there unless there are inorganic small add-on acquisition opportunities which they come to us from time to time and then opportunistically repurchasing debt. But I want to remind, it's a great question. We get it a lot. I want to remind you and the market investors that just paying down the debt does not allow us to do the spin-off. I laid out in the annual meeting because we have -- we get a lot of questions on this, the RemainCo, even if we used all the proceeds and ongoing proceeds from Enact to eliminate the $790 million of debt, we still can't do the spin-off. It's not viable because the RemainCo which would then be the U.S. Life businesses, Long-Term Care, Life & Annuity and the CareScout businesses, none of those have positive cash flow that can be paid to the holding company. Therefore, we -- the spin is something we will look at, but what it will require would be that the CareScout businesses achieved breakeven, and we've said -- we think that's around 5 years. And then once they are in a position to be a regular dividend payer which we expect at some point, then the spin-off option is viable.

[Operator Instructions] We'll take our next question from Pete Enderlin with MAZ Partners.

What about the possibility of, at some point, initiating a common stock dividend? I don't know if there are any specific restrictions now, but those could go away if you get the amount from AXA?

So Pete, it's a good question. We get it quite a bit. I would say, we talk a lot to our shareholders. I would say at this point, the vast majority of shareholders, 80% or more are encouraging us to use excess cash for buybacks versus debt repurchases unless they are good pricing in the market for the debt. So we continue to look at other opportunities because shareholders prefer the repurchases versus instituting a regular dividend, which certainly is a possibility and option. At this point, we decided not to look at a dividend. But the Board and management look at that on an ongoing basis. So that could be a possibility at some point.

Our next question will return to Ryan Krueger with KBW.

Sorry, one more on the lawsuit. Is there any consideration or potential for a settlement that would just eliminate the possibility of an appeal? And the reason I ask is it sounds like what could happen is you'll receive the $750 million soon. But then if they were to grant Santander the right to appeal, you'd at least have a risk of having to pay back proceeds, which I would think would then make it more difficult to deploy all of them. So I wanted to hear any thoughts on it that if there's any possibility there?

So Ryan, what I would say is you never know on settlement. I would go back to what we've been saying for a number of years. We've always thought that the liability for these misselling claims was on the bank, Santander, not on the insurance companies, which we owned and then AXA bought. So we always thought we had a strong case. I think the court decision is pretty clear that they agreed with that. So we're open -- always open to talking but because we feel very good about the prospects of prevailing if there is an appeal and it's granted, I think if -- the only thing that I would consider would be some time value of money. I will -- I want Greg to comment because with the payment being made that actually doesn't come to us. It's paid to AXA. But Greg, do you want to just cover how the process works when the payment is made -- even whether -- and then talk about then how that interacts with whether an appeal is granted or not by the type of Appellate Court.

Sure. That's exactly right, Tim. As both you and Jerome made clear in your prepared remarks, -- in fact, if Santander pays the judgment on August 15, that payment goes to AXA, but if the appeal process is still underway, that is a request for permission to appeal has been made or if it has been granted. AXA doesn't pay Genworth its share of the recovery until all appeals have been favorably resolved. So that is the process of -- that's how that would work. As far as settlement, I agree with all of Tom's remarks, we feel optimistic about our ability to rebut any appeal that's made even if permission is granted.

Okay. So you won't receive the proceeds on August 15. The -- you'll receive the proceeds possibly a few months later if the request is denied, but if not, it won't be until that process is completed?

That's right. If for some reason, Santander does not seek request for permission to appeal, that would put an end to it or if they do request permission, then 2 to 3 months after that, if the request is denied, if it's granted, then somewhere 12 to 18 months once the appeal is resolved and favorably decided.

Our next question comes from Joshua Esterov with CreditSights.

I appreciate the commentary on thinking about the deployment of the litigation proceeds, but does the receipt of funds perhaps give you an opportunity to maybe recalibrate where you want to be in certain categories, for example, like a target level of holdco liquidity or target level of overall indebtedness. Just wondering if the actual receipt of funds make you revisit any of these or any other items?

Josh, this is Jerome. Thank you for the question. I would first highlight that, of course, when we get a quantum of proceeds of this magnitude, we will be assessing all options and how we allocate that capital. I think Tom and I both highlighted, we're going to follow our normal capital allocation approach. We'll be looking at holding company cash, but I have to tell you, we're very comfortable with where we are in the buffer that we hold, which is 2x our debt service. And I would just also highlight to you, Josh, when you think about our leverage right now, excluding U.S. Life, we're 20% -- right around 20%. We had debt service of around $50 million per year. We have 6x interest coverage. So we're comfortable with where we are and the leverage. But back to your macro question, of course, we will evaluate everything. We're pleased with the outcome of the case, but we're comfortable with holding company cash. We're comfortable with our leverage. So we will most likely continue to focus on share buybacks when our share price is trading at this level.

We'll take our next question from Colin Devine with [indiscernible] Associates.

I had 2 questions, and none of them are on the Santander. I think we've gotten to the bottom of that. The first one, can you give us a little more color on the LTC recapture, the size of the policy and also clarify with the $26 million gain pre or post-tax? And then the second question relates to the new LTC products. Are they being written either the legacy companies, i.e., GLIC? Or are you going to be offering those out of CareScout insurance?

So we'll let Jerome have the first one, and Colin, I'll take the second one, and nice to hear from you, Colin.

Thank you for the question on the recapture. I would dimension this as the business was ceded to us some time ago, and it ultimately became subject to arbitration. The ceding company had requested a return of assets and reserves that were simply, in our view, materially higher than what we believe to be fair. And therefore, it became subject to arbitration. The outcome of the arbitration was favorable to Genworth and the arbiters agreed with our lower return of assets and reserves. And the settlement was final in May, giving rise to this onetime gain. I will highlight, we paid roughly $24 million and add $50 million on the books for U.S. GAAP. So that's how you get to the $26 million.

So Colin, any follow-up on that for Jerome. And if not, I'll take the second question.

Sure, Tom. Can you just give us a sense of the size of the underlying liabilities related to that treaty? And if you're comfortable, who the arbitration was with on the other side?

The arbitration was with Blue Cross, Blue Shield in Nebraska. It has been disclosed in our publicly filed documents. And the quantum of the liability was $50 million. The reserves that we had on the books was roughly $50 million for U.S. GAAP.

Yes. Thank you, Colin, for the question. Turning to your second part on long-term care. So just to remind you, we view the Genworth legacy life operating companies to be stand-alone, separate self-sustaining and all of the new business that we're writing, the new Long-Term Care Insurance business. So the first product, which I said has been approved for sale in 29 states. And we'd like to have 30 of the 35, and there's no magic number there before we launch. So that's a traditional long-term care insurance product that we think is priced conservatively good returns for us. And with the fact that we will be reviewing the pricing assumptions against reality over time and seeking increases if we need to, although this product is designed where we won't need an increase, but it's hard to be sure of that given that the duration of the liability is 30 years. As I also said, we're now in the process. We filed with insurance compact, which is 23, 24 states for a worksite version of that product. And then we have an annuity hybrid new product design that we're working on. We expect that to come out sometime in early next year and then we'll expand the offerings from there. All of those products will be -- I mean, we're funding this new insurance company, CareScout Insurance Company. It's domiciled in Virginia with $85 million, and that new company will be the issuer of all the new long-term care insurance or funding solutions going forward.

Tom, just to clarify that CareScout Insurance, that is the former Genworth insurance company? Is that correct?

Well, the Genworth insurance company -- we did buy a shell company many years ago in North Carolina. We rebranded that CareScout. So going forward, the new services business and insurance business, we branded CareScout and then it was redomicile to Virginia. So -- and that's CareScout Insurance Company.

And that is -- just to clarify, that is owned directly by the holding company...

It's not in the chain that owns the 3 Genworth legacy life company. Thank you, Colin. Nice to hear from you.

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

Karen, thank you very much, and I want to thank Ryan, Pete, Josh and Colin for their questions. I think they are very good questions, and obviously, a lot of our shareholders, investors in the market are interested in that. So I think we're doing a great job on our 3 strategic priorities. We're very pleased with the way the AXA litigation played out. We think the judge got it right. And going forward, we're very optimistic about the growth in CareScout, both on the services side with our CareScout Quality Network on the insurance side. We now have the benefit of the potential AXA proceeds when an appeal is resolved. And plus, as Rohit in the earlier call today, if any of you were on that for Enact that they have increased their capital return for all shareholders this year from $350 million to $400 million. And so we still have, obviously, a very strong cash -- free cash flow generator in Enact. So we feel we're in very good shape going forward. And we look forward to an increase in return, obviously, with the significant new proceeds, significant more capital return through to shareholders, principally through the buybacks. We'll look at the data opportunistically. But as Jerome said, at 20%, if you take all the GAAP equity of the life companies out, we're still among the lowest debt to capital in the industry, very low $50 million of annual interest. So we feel in a very, very good position. And for those of you who have followed us for a long time, I mean, I think we're stronger today than we've ever been, and we now have a significant improvement in the financial strength of the company. Obviously, those proceeds represent a big part of our existing market cap. I want to thank all of you for the call. I want to thank the 4 questioners. I think there were questions that we get a lot and look forward to updating you next quarter. Thank you very much. And with that, Karen, I'll turn the call back 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.