Workflow
Genworth(GNW) - 2023 Q1 - Quarterly Report
GNWGenworth(GNW)2023-05-04 16:00
Transcript
Slide

Debt Reduction and Credit Rating Upgrades - Genworth Financial reduced Genworth Holdings' debt to less than 1.0 billion and received multiple rating agency upgrades[368] - Fitch Ratings upgraded Enact Mortgage Insurance Corporation's financial strength rating to "A-" from "BBB+" with a stable outlook[375] - Moody's Investors Service upgraded Genworth Holdings' credit rating to "Ba1" from "Ba2" and EMICO's financial strength rating to "A3" from "Baa1"[375] - S&P Global Ratings upgraded Genworth Financial and Genworth Holdings' credit rating to "BB-" from "B+" and EMICO's financial strength rating to "BBB+" from "BBB"[375] Share Repurchases and Dividends - Enact Holdings contributed 37 million to Genworth Holdings in Q1 2023 through share repurchases and quarterly dividends[370] - Genworth Financial repurchased 182millionworthofcommonsharesunderitssharerepurchaseprogram,including182 million worth of common shares under its share repurchase program, including 68 million in Q1 2023 and 50millioninApril2023[370]−GenworthFinancialrepurchased11,224,848sharesofitscommonstockatanaveragepriceof50 million in April 2023[370] - Genworth Financial repurchased 11,224,848 shares of its common stock at an average price of 6.08 per share for a total cost of 68millioninQ12023[405]−EnactHoldingsincreaseditsquarterlydividendto68 million in Q1 2023[405] - Enact Holdings increased its quarterly dividend to 0.16 per share for June 2023, with Genworth Holdings receiving 19millionasthemajorityshareholderinQ12023[436]Long−TermCareInsurance−ThecumulativeeconomicbenefitofGenworth′slong−termcareinsurancein−forcerateactionplanthroughQ12023wasapproximately19 million as the majority shareholder in Q1 2023[436] Long-Term Care Insurance - The cumulative economic benefit of Genworth's long-term care insurance in-force rate action plan through Q1 2023 was approximately 23.8 billion, with a total expected amount of 30.3billion[369]−Genworth′slong−termcareinsurancebusinessreceivedapprovalsforapproximately30.3 billion[369] - Genworth's long-term care insurance business received approvals for approximately 50 million of incremental annual premiums in Q1 2023[369] - The cumulative economic benefit of the long-term care insurance multi-year in-force rate action plan through Q1 2023 was approximately 23.8billion[404]−InQ12023,23statefilingswereapprovedimpacting23.8 billion[404] - In Q1 2023, 23 state filings were approved impacting 78 million in in-force premiums with a weighted-average rate increase of 64%, generating 50millioningrossincrementalpremiums[486]−Thecompanysubmitted29newfilingsinQ12023onapproximately50 million in gross incremental premiums[486] - The company submitted 29 new filings in Q1 2023 on approximately 247 million in annualized in-force premiums[486] - Long-term care insurance segment revenues increased by 3million(0.33 million (0.3%) to 1,098 million in Q1 2023 compared to Q1 2022, driven by higher premiums and net investment income[478] - Premiums increased by 9million(19 million (1%) to 616 million in Q1 2023, primarily due to 30millionfromnewlyimplementedin−forcerateactions,partiallyoffsetbylowerrenewalpremiums[478][481]−Netinvestmentincomeroseby30 million from newly implemented in-force rate actions, partially offset by lower renewal premiums[478][481] - Net investment income rose by 26 million (6%) to 473millioninQ12023,largelyfromhigherincomefromlimitedpartnershipsandbankloansaswellashigherinvestmentyields[478][481]−Benefitsandexpensesincreasedby473 million in Q1 2023, largely from higher income from limited partnerships and bank loans as well as higher investment yields[478][481] - Benefits and expenses increased by 108 million (11%) to 1,125millioninQ12023,drivenbyhigherbenefitpayments,lossadjustmentexpenses,andoperatingexpenses[478][482]−Liabilityremeasurementlosseswere1,125 million in Q1 2023, driven by higher benefit payments, loss adjustment expenses, and operating expenses[478][482] - Liability remeasurement losses were 5 million in Q1 2023 compared to gains of 65millioninQ12022,a10865 million in Q1 2022, a 108% unfavorable change, largely due to higher new claims and benefit utilization[478][482] - Adjusted operating loss was 37 million in Q1 2023 compared to income of 27millioninQ12022,drivenbyunfavorablecashflowassumptionupdatesandhighernewclaims[480]CareScoutServicesBusiness−GenworthlaunchedtheinitialphaseofitsCareScoutservicesbusinessinMarch2023,focusingonadigitalplatformandpreferredprovidernetworkforhomecare[373]−Genworth′sCareScoutservicesbusinessaimstogeneratesignificantreductionsinlegacylong−termcareinsuranceclaimscoststhroughnetworkdiscounts[373]−Acquisitionandoperatingexpensesincreasedby27 million in Q1 2022, driven by unfavorable cash flow assumption updates and higher new claims[480] CareScout Services Business - Genworth launched the initial phase of its CareScout services business in March 2023, focusing on a digital platform and preferred provider network for home care[373] - Genworth's CareScout services business aims to generate significant reductions in legacy long-term care insurance claims costs through network discounts[373] - Acquisition and operating expenses increased by 7 million (78%) to 16millioninQ12023,drivenbyCareScoutgrowthinitiativesandrestructuringcosts[517]−Adjustedoperatinglossincreasedby16 million in Q1 2023, driven by CareScout growth initiatives and restructuring costs[517] - Adjusted operating loss increased by 6 million (50%) to (18)millioninQ12023,primarilyduetohigherCareScoutexpensesandinterestcosts[515]FinancialPerformanceandMetrics−Premiumsdecreasedby(18) million in Q1 2023, primarily due to higher CareScout expenses and interest costs[515] Financial Performance and Metrics - Premiums decreased by 2 million (0%) to 915millioninQ12023comparedtoQ12022[384]−Netinvestmentincomeincreasedby915 million in Q1 2023 compared to Q1 2022[384] - Net investment income increased by 23 million (3%) to 787millioninQ12023comparedtoQ12022[384]−Netinvestmentlosseswere787 million in Q1 2023 compared to Q1 2022[384] - Net investment losses were 11 million in Q1 2023, a decrease of 53million(12653 million (126%) compared to Q1 2022[384] - Total revenues decreased by 39 million (2%) to 1,854millioninQ12023comparedtoQ12022[384]−Benefitsandotherchangesinpolicyreservesincreasedby1,854 million in Q1 2023 compared to Q1 2022[384] - Benefits and other changes in policy reserves increased by 7 million (1%) to 1,172millioninQ12023comparedtoQ12022[384]−Liabilityremeasurementlosseswere1,172 million in Q1 2023 compared to Q1 2022[384] - Liability remeasurement losses were 22 million in Q1 2023, an increase of 63million(15463 million (154%) compared to Q1 2022[384] - Changes in fair value of market risk benefits and associated hedges were 17 million in Q1 2023, an increase of 58million(14158 million (141%) compared to Q1 2022[384] - Net income available to Genworth Financial, Inc.'s common stockholders decreased by 129 million (68%) to 62millioninQ12023comparedtoQ12022[384]−AdjustedoperatingincomeavailabletoGenworthFinancial,Inc.′scommonstockholdersdecreasedby62 million in Q1 2023 compared to Q1 2022[384] - Adjusted operating income available to Genworth Financial, Inc.'s common stockholders decreased by 36 million (30%) to 84millioninQ12023comparedtoQ12022[390]−Basicearningspersharedecreasedby6684 million in Q1 2023 compared to Q1 2022[390] - Basic earnings per share decreased by 66% to 0.13 in Q1 2023 compared to 0.38inQ12022[393]−Dilutedearningspersharedecreasedby680.38 in Q1 2022[393] - Diluted earnings per share decreased by 68% to 0.12 in Q1 2023 compared to 0.37inQ12022[393]−Adjustedoperatingincomedecreasedby300.37 in Q1 2022[393] - Adjusted operating income decreased by 30% to 84 million in Q1 2023 compared to 120millioninQ12022[395]−Enactsegment′sadjustedoperatingincomeincreasedby6120 million in Q1 2022[395] - Enact segment's adjusted operating income increased by 6% to 143 million in Q1 2023 compared to 135millioninQ12022[395]−Long−TermCareInsurancesegmentreportedanadjustedoperatinglossof135 million in Q1 2022[395] - Long-Term Care Insurance segment reported an adjusted operating loss of 37 million in Q1 2023 compared to an income of 27millioninQ12022[395]−LifeandAnnuitiessegment′sadjustedoperatinglossimprovedby8727 million in Q1 2022[395] - Life and Annuities segment's adjusted operating loss improved by 87% to 4 million in Q1 2023 compared to 30millioninQ12022[395]−Enact′sPMIERssufficiencyratiowas16430 million in Q1 2022[395] - Enact's PMIERs sufficiency ratio was 164% or 2,098 million above requirements as of March 31, 2023[401] - Enact's primary persistency rate increased to 85% in Q1 2023 compared to 76% in Q1 2022[401] - Enact's new insurance written decreased by 30% to 13.2billioninQ12023comparedtoQ12022,primarilyduetoadeclineinoriginationsfromelevatedinterestrates[422]−Enact′sprimarypersistencyrateincreasedto8513.2 billion in Q1 2023 compared to Q1 2022, primarily due to a decline in originations from elevated interest rates[422] - Enact's primary persistency rate increased to 85% in Q1 2023 from 76% in Q1 2022, driven by a decline in the percentage of in-force policies with mortgage rates above current interest rates[423] - Enact's loss ratio for Q1 2023 was (5)%, with a favorable reserve adjustment of 70 million primarily related to favorable cure performance on COVID-19 delinquencies from 2020 and 2021[425] - New primary delinquencies in Q1 2023 increased to 9,599, contributing 58millionoflossexpense,comparedto8,724newprimarydelinquenciesand58 million of loss expense, compared to 8,724 new primary delinquencies and 39 million of losses in Q1 2022[427] - Enact's risk-to-capital ratio was approximately 12.7:1 as of March 31, 2023, compared to 12.9:1 as of December 31, 2022, remaining below the maximum risk-to-capital ratio of 25:1[429] - Enact had estimated available assets of 5,357millionagainst5,357 million against 3,259 million net required assets under PMIERs as of March 31, 2023, with a sufficiency ratio of 164%[432] - Enact's PMIERs sufficiency as of March 31, 2023 was relatively flat, with a 120millionbenefitfromtheapplicationofa0.30multipliertoeligibledelinquencies,comparedto120 million benefit from the application of a 0.30 multiplier to eligible delinquencies, compared to 132 million as of December 31, 2022[434] - Enact executed an excess of loss reinsurance transaction providing up to 180millionofcoveragefor2023bookyearpolicies,with180 million of coverage for 2023 book year policies, with 1,523 million of PMIERs capital credit as of March 31, 2023[435] - Enact's total revenues increased by 4% to 281millioninQ12023,drivenbya31281 million in Q1 2023, driven by a 31% increase in net investment income to 46 million[440] - Enact recorded a favorable reserve adjustment of 70millioninQ12023,primarilyrelatedtobetter−than−expectedcureperformanceonCOVID−19delinquenciesfrom2020and2021[444]−Primaryinsurancein−forceincreasedby970 million in Q1 2023, primarily related to better-than-expected cure performance on COVID-19 delinquencies from 2020 and 2021[444] - Primary insurance in-force increased by 9% to 252,516 million in Q1 2023, driven by new insurance written and lower lapses due to elevated interest rates[447] - New insurance written decreased by 30% to 13,154millioninQ12023,primarilyduetoloweroriginationscausedbyelevatedinterestrates[447]−Enact′slossratiodecreasedslightlyto(5)13,154 million in Q1 2023, primarily due to lower originations caused by elevated interest rates[447] - Enact's loss ratio decreased slightly to (5)% in Q1 2023, largely due to a higher favorable reserve adjustment, while the expense ratio decreased to 23% driven by lower operating costs[451] - Primary insurance in-force increased to 252.516 billion in 2023 from 231.853billionin2022,withthelargestgrowthinthe95.01231.853 billion in 2022, with the largest growth in the 95.01% and above loan-to-value ratio category, rising to 40.776 billion from 36.867billion[454]−Primaryriskin−forcegrewto36.867 billion[454] - Primary risk in-force grew to 64.106 billion in 2023 from 58.295billionin2022,withthehighestincreaseinthe90.0158.295 billion in 2022, with the highest increase in the 90.01% to 95.00% loan-to-value ratio category, reaching 30.589 billion from 27.987billion[454]−Delinquencyratedecreasedto1.9327.987 billion[454] - Delinquency rate decreased to 1.93% in March 2023 from 2.08% in December 2022, with delinquent loans dropping to 18,633 from 19,943[456] - Reserves as a percentage of risk in-force remained flat at 42% in March 2023 compared to December 2022, with total reserves at 462 million[458][459] - California accounted for 12% of primary risk in-force and 11% of direct primary case reserves, with a delinquency rate of 1.99% in March 2023, down from 2.09% in December 2022[462] - Policy years 2020 and later represented 68% of total direct primary case reserves and 95% of primary risk in-force as of March 2023[467] - The 2021 policy year had the highest primary insurance in-force at 79.377billion,representing3179.377 billion, representing 31% of the total portfolio, with a delinquency rate of 1.23%[466] - The 2023 policy year showed a minimal delinquency rate of 0.02%, with primary insurance in-force at 13.027 billion, accounting for 5% of the total portfolio[466] - Policy years 2008 and prior accounted for 25% of direct primary case reserves but only 3% of primary risk in-force, with a delinquency rate of 8.81%[466] - The New York Metropolitan Division had the highest delinquency rate at 3.51% in March 2023, down from 3.75% in December 2022, and accounted for 8% of direct primary case reserves[463] Life and Annuities Segment - Life insurance in-force before reinsurance decreased by 10% to 292.1billioninQ12023comparedtoQ12022[511]−Netinvestmentincomedecreasedby5292.1 billion in Q1 2023 compared to Q1 2022[511] - Net investment income decreased by 5% to 264 million in Q1 2023 compared to 279millioninQ12022[500]−Totalrevenuesdecreasedby11279 million in Q1 2022[500] - Total revenues decreased by 11% to 479 million in Q1 2023 compared to 536millioninQ12022[500]−Adjustedoperatinglossinlifeinsuranceproductsdecreasedby536 million in Q1 2022[500] - Adjusted operating loss in life insurance products decreased by 20 million due to a non-recurring legal settlement accrual in the prior year[504] - Fixed annuity adjusted operating income increased by 1millionmainlyduetohighermortalityinsinglepremiumimmediateannuityproducts[504]−Variableannuityadjustedoperatingincomeincreasedby1 million mainly due to higher mortality in single premium immediate annuity products[504] - Variable annuity adjusted operating income increased by 5 million due to aging of the block resulting in lower attributed fees and benefit payments[504] - Benefits and other changes in policy reserves decreased by 4% to 246millioninQ12023comparedto246 million in Q1 2023 compared to 255 million in Q1 2022[500] - Acquisition and operating expenses decreased by 31% to 53millioninQ12023comparedto53 million in Q1 2023 compared to 77 million in Q1 2022[500] - Mortality experience for older ages is emerging, and the company continues to monitor trends in mortality improvement[495] - The effective tax rate increased to 22.4% in Q1 2023 from 18.6% in Q1 2022 due to tax benefits from tax-favored items in relation to a pre-tax loss[509] Investment Portfolio and Market Conditions - The company sold the majority of its investment holdings in First Republic Bank and will record a loss in Q2 2023[529] - Fixed maturity securities portfolio was 96% investment grade and comprised 77% of total invested assets and cash as of March 31, 2023[530] - The company plans to convert remaining LIBOR-based derivatives to SOFR in Q2 2023, with no material adverse impact expected[533] - The U.S. Federal Reserve increased interest rates by 25 basis points in February and March 2023, bringing the upper end of the target range to the highest level since 2006[522] - The company's exposure to regional banks and commercial real estate is being closely monitored, with risks deemed manageable[529] - Fixed maturity securities—taxable yield remained stable at 4.4% for both 2023 and 2022, with a decrease in amount from 580millionto580 million to 561 million[536] - Net investment income increased by 23millionto23 million to 787 million in 2023, with a yield of 4.9%, up from 4.7% in 2022[536] - Limited partnership income increased by 21million,contributingtohighernetinvestmentincomein2023[537]−Realizedinvestmentlossesonavailable−for−salefixedmaturitysecuritiesincreasedto21 million, contributing to higher net investment income in 2023[537] - Realized investment losses on available-for-sale fixed maturity securities increased to 16 million in 2023 from 8millionin2022[540]−Netunrealizedgainsonequitysecuritieswere8 million in 2022[540] - Net unrealized gains on equity securities were 11 million in 2023, compared to net unrealized losses of 6millionin2022[541]−Totalcash,cashequivalents,andinvestedassetsincreasedto6 million in 2022[541] - Total cash, cash equivalents, and invested assets increased to 61,594 million in 2023 from 60,747millionin2022[544]−Approximately660,747 million in 2022[544] - Approximately 6% of the company's investment holdings were classified as Level 3 measurements, based on significant inputs not market observable[545] - U.S. corporate fixed maturity securities had a fair value of 27,872 million, with gross unrealized losses of 2,391millionasofMarch31,2023[548]−Non−U.S.corporatefixedmaturitysecuritieshadafairvalueof2,391 million as of March 31, 2023[548] - Non-U.S. corporate fixed maturity securities had a fair value of 8,059 million, with gross unrealized losses of 655millionasofMarch31,2023[548]−Totalavailable−for−salefixedmaturitysecuritieshadafairvalueof655 million as of March 31, 2023[548] - Total available-for-sale fixed maturity securities had a fair value of 47,381 million, with gross unrealized losses of 3,968millionasofMarch31,2023[548]−Fixedmaturitysecuritiesincreasedby3,968 million as of March 31, 2023[548] - Fixed maturity securities increased by 0.8 billion compared to December 31, 2022, primarily due to a decrease in net unrealized losses related to lower interest rates, partially offset by net sales and maturities[550] - Total available-for-sale fixed maturity securities had a fair value of 46.583billionasofMarch31,2023,withgrossunrealizedgainsof46.583 billion as of March 31, 2023, with gross unrealized gains of 596 million and gross unrealized losses of 4.847billion[550]−Bankloaninvestmentsincreasedto4.847 billion[550] - Bank loan investments increased to 495 million as of March 31, 2023, up from 467millioninDecember2022,representing81467 million in December 2022, representing 81% of total other invested assets[553] - Derivatives notional value increased to 11.025 billion as of March 31, 2023, up from 8.686billioninDecember2022,drivenbyadditionsininterestrateswaps[555]−Thenumberoffixedindexannuityembeddedderivativepoliciesdecreasedto7,315asofMarch31,2023,downfrom7,819inDecember2022,reflectingproductrunoff[555]−Totalassetsincreasedby8.686 billion in December 2022, driven by additions in interest rate swaps[555] - The number of fixed index annuity embedded derivative policies decreased to 7,315 as of March 31, 2023, down from 7,819 in December 2022, reflecting product runoff[555] - Total assets increased by 1.479 billion to 91.178billionasofMarch31,2023,comparedto91.178 billion as of March 31, 2023, compared to 89.699 billion in December 2022[557] Mortgage Insurance Market and Regulatory Changes - Mortgage origination activity remained slow in Q1 2023 due to rising mortgage rates, with the refinance market expected to stay low as the Federal Reserve has not signaled any interest rate reductions[411] - The unemployment rate remained flat at 3.5% in March 2023, with under six million unemployed Americans, of which approximately one million were long-term unemployed over 26 weeks[412] - The FHFA announced targeted changes to the GSEs' guarantee fee pricing, eliminating upfront fees for certain first-time home buyers and increasing fees for cash-out refinance loans, with Enact expecting a net positive impact on the private mortgage insurance market[418] - The Department of Housing and Urban Development announced a 30 basis point reduction in the annual insurance premium for FHA-insured mortgages, expected to have a negative impact on the private mortgage insurance market but partially offset by recent FHFA pricing changes[421] COVID-19 Impact and Mortality Trends - COVID-19 led to higher mortality in early 2022, but levels returned to pre-pandemic levels in H2 2022, potentially reducing future mortality rates[470] - The company continues to pursue premium rate increases and benefit reductions on older blocks of business to improve profitability, with legal settlements impacting 20%, 15%, and 35% of the block implemented between 2021-2023[474]