Genworth Financial Announces Second Quarter 2023 Results

Genworth Financial, Inc. (NYSE: GNW) today reported results for the quarter ended June 30, 2023.

“Enact continues to perform well and has increased its planned capital return to Genworth and other shareholders. Based on strong free cash flow, the Genworth Board increased the share repurchase authorization by $350 million.” – Tom McInerney, President & CEO

Consolidated GAAP Financial Highlights

• Net income was driven by Enact, which had strong operating performance resulting from favorable loss performance and increased net investment income
• Net investment gains, net of taxes and other adjustments, increased net income by $33 million in the current quarter, compared with $15 million in the prior year. The investment gains in the current quarter were primarily from mark-to-market adjustments on limited partnership and equity investments held in the LTC business, partially offset by net trading losses
• Changes in fair value of market risk benefits and associated hedges, net of taxes and other adjustments, increased net income by $18 million in the current quarter compared with a decrease of $6 million in the prior year
• Adjusted operating income reflects Enact’s strong operating performance, partially offset by losses in LTC and Corporate and Other
• Net investment income was $785 million in the quarter, a slight decrease from $787 million in the prior year due to lower income from limited partnerships and U.S. Government Treasury Inflation-Protected Securities (TIPS), mostly offset by higher investment yields
• The effective tax rate on income from continuing operations was approximately 24.9 percent in the current quarter, primarily reflecting a higher tax rate of 35 percent on certain forward starting swap gains, consistent with prior quarters

In the second quarter of 2023, the company changed its accounting for the liability for future policy benefits under long-duration targeted improvements accounting guidance (LDTI) to include an estimate in assumptions for cash payments to policyholders associated with previously disclosed LTC legal settlements. This is consistent with the treatment of the estimate for benefit reductions associated with these settlements as part of the liability for future policy benefits. The change impacted the balance sheet and income statement results for prior periods after the adoption of LDTI on January 1, 2023. All prior period amounts reflected herein have been updated to reflect this change. LTC’s GAAP results were impacted as a result, but there was no impact to Enact, the company’s cash flows, capital levels, or statutory accounting results.

Enact

• Adjusted operating income reflected a pre-tax benefit of $4 million from incurred losses driven by a favorable pre-tax reserve release of $63 million, primarily from cure performance on 2020 through first half 2022 delinquencies, including COVID-19 related delinquencies. The prior quarter and prior year included favorable pre-tax reserves releases of $70 million and $96 million, respectively, primarily related to cures on COVID-19 delinquencies
• Net investment income was $50 million pre-tax in the current quarter, up from $36 million pre-tax in the prior year from rising interest rates and higher average invested assets
• Primary insurance in-force increased nine percent versus the prior year to $258 billion, driven by new insurance written (NIW) and continued elevated persistency
• Primary NIW was down 14 percent versus the prior year, primarily from lower originations as a result of elevated interest rates, and increased 15 percent sequentially primarily driven by higher originations
• New delinquencies increased 17 percent to 9,205 from 7,847 in the prior year, primarily from the aging of large, new books

• Enact announced on August 1, 2023 that its Board of Directors has authorized a new share repurchase program of $100 million shares. Enact increased its full year 2023 capital return guidance and now expects to return a total of $300 million of capital to its shareholders
• Enact paid a quarterly dividend of $0.16 per share in the current quarter
• Estimated PMIERs sufficiency ratio was 162 percent, $1,958 million above requirements, down two points from the prior quarter as a result of NIW, partially offset by lapse

Long-Term Care Insurance

• Premiums related to IFAs of $245 million pre-tax, up $19 million versus the prior year
• Lower net investment income of $16 million pre-tax versus the prior year, primarily from limited partnerships and TIPS, partially offset by higher bank loan income and investment yields
• Current quarter results reflected a liability remeasurement loss of $61 million pre-tax. The unfavorable actual experience versus best estimate liability assumptions of $85 million was driven by lower terminations and higher claims as the blocks age, primarily on unprofitable, capped LTC cohorts. This was partially offset by a favorable quarterly assumption update of $24 million related to the implementation timing and approval amounts of certain IFAs

Life and Annuities

Life Insurance

• Current quarter results reflected lower mortality experience
• Deferred acquisition costs amortization expense was lower, primarily driven by lower lapses and block runoff

Annuities

• Fixed annuities results reflected lower fixed payout annuity mortality and lower net spreads, primarily related to block runoff
• Variable annuities reported higher adjusted operating income versus the prior year from favorable impacts of the aging of the block

U.S. Life Insurance Companies Statutory Results and RBC

• Statutory pre-tax income estimated at $63 million for the current quarter, driven by:
  • LTC, which continues to benefit from premium increases and benefit reductions from IFAs, including more favorable impacts from reduced benefit selections on policies subject to legal settlements versus the prior year, but experienced pressure from seasonally lower terminations, higher claims as the blocks age, and legal settlement expenses
  • Improved mortality in life insurance
  • Favorable impacts to variable annuity reserves from equity market and interest rate movements
• The U.S life insurance companies estimate quarter-end RBC to be 293 percent, down slightly from the prior quarter

Corporate and Other

• The current quarter adjusted operating loss of $20 million was higher versus the prior quarter and prior year’s adjusted operating losses of $18 million and $16 million, respectively. Expenses related to the company’s new growth initiatives with its CareScout business increased versus the prior year

Holding Company Cash and Liquid Assets

• Cash and liquid assets of $222 million remained above the company’s cash target of two-times annual debt service
• Cash inflows during the quarter consisted of $63 million from intercompany tax payments and $54 million from Enact capital returns, which included a $21 million quarterly dividend and $33 million in share repurchase proceeds
• Current quarter cash outflows included $112 million in share repurchases and $19 million related to debt servicing costs

Returns to Shareholders

• The company announced on July 31, 2023 that its Board of Directors has authorized the repurchase of an additional $350 million of shares of Class A common stock under its existing share repurchase program. After increasing the authorization, as of July 31, 2023, an aggregate of approximately $436 million will be available for purchase under the program
• In the second quarter of 2023, the company repurchased $112 million of its common stock at an average price of $5.45 per share. Subsequently, in July 2023, the company repurchased an additional $20 million of its common stock at an average price of $5.40

About Genworth Financial
Genworth Financial, Inc. (NYSE: GNW) is a Fortune 500 company focused on empowering families to navigate the aging journey with confidence, now and in the future. Headquartered in Richmond, Virginia, Genworth provides guidance, products, and services that help people understand their caregiving options and fund their long-term care needs. Genworth is also the parent company of publicly traded Enact Holdings, Inc. (Nasdaq: ACT), a leading U.S. mortgage insurance provider. For more information on Genworth, visit genworth.com, and for more information on Enact Holdings, Inc. visit enactmi.com.

Conference Call Information
Investors are encouraged to read this press release and summary presentation, which are now posted on the company’s website, http://investor.genworth.com.

Genworth will conduct a conference call on August 9, 2023 at 9:00 a.m. (ET) to discuss its second quarter results, which will be accessible via:

• Telephone: 888-208-1820 or 323-794-2110 (outside the U.S.); conference ID # 4877504; or
• Webcast: https://investor.genworth.com/news-events/ir-calendar

Allow at least 15 minutes prior to the call time to register for the call. A replay of the webcast will be available on the company’s website for one year.

Use of Non-GAAP Measures
This press release includes the non-GAAP financial measures entitled "adjusted operating income (loss)" and "adjusted operating income (loss) per share." Adjusted operating income (loss) per share is derived from adjusted operating income (loss). The company’s President and Chief Executive Officer (Principal Executive Officer), who serves as the chief operating decision maker, evaluates segment performance and allocates resources on the basis of adjusted operating income (loss). The company defines adjusted operating income (loss) as income (loss) from continuing operations excluding the after-tax effects of income (loss) from continuing operations attributable to noncontrolling interests, net investment gains (losses), changes in fair value of market risk benefits and associated hedges, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, restructuring costs and infrequent or unusual non-operating items. A component of the company’s net investment gains (losses) is the result of estimated future credit losses, the size and timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) can be subject to the company’s discretion and are influenced by market opportunities, as well as asset-liability matching considerations. The company excludes net investment gains (losses), changes in fair value of market risk benefits and associated hedges, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, restructuring costs and infrequent or unusual non-operating items from adjusted operating income (loss) because, in the company’s opinion, they are not indicative of overall operating performance.

While some of these items may be significant components of net income (loss) in accordance with GAAP, the company believes that adjusted operating income (loss) and measures that are derived from or incorporate adjusted operating income (loss), including adjusted operating income (loss) per share on a basic and diluted basis, are appropriate measures that are useful to investors because they identify the income (loss) attributable to the ongoing operations of the business. Management also uses adjusted operating income (loss) as a basis for determining awards and compensation for senior management and to evaluate performance on a basis comparable to that used by analysts. However, the items excluded from adjusted operating income (loss) have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income (loss) and adjusted operating income (loss) per share on a basic and diluted basis are not substitutes for net income (loss) or net income (loss) per share on a basic and diluted basis determined in accordance with GAAP. In addition, the company’s definition of adjusted operating income (loss) may differ from the definitions used by other companies.

Adjustments to reconcile net income (loss) to adjusted operating income (loss) assume a 21 percent tax rate and are net of the portion attributable to noncontrolling interests. Changes in fair value of market risk benefits and associated hedges are adjusted to exclude changes in reserves, attributed fees and benefit payments.

The tables at the end of this press release provide a reconciliation of net income available to Genworth Financial, Inc.'s common stockholders to adjusted operating income for the three months ended June 30, 2023 and 2022, as well as the three months ended March 31, 2023 and reflect adjusted operating income (loss) as determined in accordance with accounting guidance related to segment reporting.

This press release includes the non-GAAP financial measure entitled "core yield" as a measure of investment yield. The company defines core yield as the investment yield adjusted for items that do not reflect the underlying performance of the investment portfolio. Management believes that analysis of core yield enhances understanding of the investment yield of the company. However, core yield is not a substitute for investment yield determined in accordance with GAAP. In addition, the company's definition of core yield may differ from the definitions used by other companies. A reconciliation of reported GAAP yield to core yield is included in a table at the end of this press release.

Long-duration targeted improvements
On January 1, 2023, the company adopted new GAAP accounting guidance that significantly changed the recognition and measurement of long-duration insurance contracts, commonly known as LDTI. This accounting guidance impacted the company’s LTC, life insurance and annuity products and was applied as of January 1, 2021. While the new guidance has had a significant impact on existing GAAP financial statements and disclosures, it does not impact the cash flows or underlying economics of the business, business strategy, statutory net income (loss) or RBC of the U.S. life insurance companies, and it does not have an impact on the Enact segment, Corporate and Other or management of capital. All prior period information herein has been re-presented to reflect the adoption of LDTI.

All financial information in this press release is based on the company's implementation of LDTI and is currently unaudited. It is possible that the final audited financial results may differ, perhaps materially, from the information included in this press release.

Statutory Accounting Data
The company presents certain supplemental statutory data for GLIC and its consolidating life insurance subsidiaries that has been prepared on the basis of statutory accounting principles (SAP). GLIC and its consolidating life insurance subsidiaries file financial statements with state insurance regulatory authorities and the National Association of Insurance Commissioners that are prepared using SAP, an accounting basis either prescribed or permitted by such authorities. Due to differences in methodology between SAP and GAAP, the values for assets, liabilities and equity, and the recognition of income and expenses, reflected in finan