Genworth's Q3 2025 Earnings Call: Contradictions in Legacy LTC Runoff, Statutory Income, and Claims Outlook

Date of Call: None provided

Financials Results

• EPS: $0.04 per share (adjusted operating income of $17M); GAAP net income $116M. Enact contributed $134M to adjusted operating income.

Guidance:

• Enact expects to return approximately $500M in 2025; Genworth expects to receive ~ $405M (based on ~81% ownership).
• Genworth expects to allocate $200M–$225M to share repurchases in 2025 (Board authorized $350M program).
• Invest approximately $45M–$50M in CareScout Services in 2025; initial $85M capital invested in CareScout Insurance.
• CareScout expects >3,000 matches in 2025; Care Assurance approved in 37 states.
• Legacy U.S. Life Insurance companies will be managed as a closed block (no capital injections).

Business Commentary:

* Enact's Performance and Share Repurchase: - Enact contributed $134 million to Genworth's adjusted operating income for Q3 2025, down slightly from the previous quarter. - This performance was supported by primary insurance in force growing to $272 billion, with strong persistency. - The contribution from Enact led Genworth to announce a new $350 million share repurchase authorization, reflecting confidence in Genworth's strategy and financial condition.

• CareScout Services and Acquisitions:
• CareScout Services achieved over 2,500 matches between LTC policyholders and CQN home care providers year-to-date, surpassing its original goal.
• The company acquired Seniorly, expanding its network to include over 700 providers with more than 950 locations, covering over 95% of the U.S. population aged 65 and older.

• These developments strengthened CareScout's position in the home care and assisted living sectors, enhancing its comprehensive care platform.

• MYRAP and LTC Insurance Risk Management:

• Genworth's multiyear rate action plan (MYRAP) achieved $31.8 billion in net present value of rate actions, reducing tail risk in LTC.
• The company focused on benefiting from benefit reductions, with 61% of policyholders electing to do so, lowering long-term risk.

• This proactive management is essential for ensuring the self-sustainability of the legacy LTC block and reducing exposure to higher cost benefit features.

• Investment Portfolio and Cash Management:

• Genworth ended the quarter with $254 million in cash and liquid assets, supported by investments in alternatives yielding approximately 6.8%.
• The company continues to invest in CareScout, with an expected investment of $45 million to $50 million in 2025.
• This strategy aims to balance capital allocation between long-term growth, shareholder returns, and debt retirement, leveraging Enact's cash flows for liquidity.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted 'solid net income of $116 million' and that Enact 'contributed $134 million' to adjusted operating income, announced a new $350M repurchase authorization and guidance to deploy $200M–$225M in buybacks, and emphasized CareScout's expansion and product rollouts (Care Assurance approved in 37 states and >3,000 expected matches in 2025).

Q&A:

• Question from Peter Enderlin (MAZ Partners): Well, first of all, congratulations on the way you continue to manage all the multiple complicated moving pieces of this whole strategic picture. But second -- and this is kind of a hard question to ask and answer, I guess. But is there any meaningful way you could talk about the ultimate strategic long-term resolution of the LTC situation for the company. I mean you've done a lot to improve itself and also your approach to with the new operations you're undertaking. But if you look out, I don't know, 10, 20 years, whatever, where does that thing end up in relation to Genworth itself?
  Response: Legacy LTC will be managed for self-sustainability via premium increases and benefit reductions; CareScout is a separate, scalable growth business targeting a large unmet market and is positioned to operate—and potentially stand—on its own.

• Question from Peter Enderlin (MAZ Partners): Is it too simplistic to say that the legacy LTC business is basically going to be a runoff and then the rest of it would be a stand-alone business that could eventually be literally separated from Genworth itself?
  Response: Yes; the legacy LTC block is a long runoff (decades) managed separately, while CareScout businesses are run independently and could stand apart from the legacy LTC operations.

• Question from Ross Levin (Arbiter): My question is, at what point, you were generating some statutory income out of the legacy Life for long-term care business. It seems like that slipped to slightly negative over the last several quarters. Could you just talk -- I know it's small numbers in the context of the whole, but could you just talk about what's driven the transition to somewhat negative statutory earnings?
  Response: Negative statutory earnings are primarily driven by rising LTC claims and higher benefit utilization; mortality pressure also affected life results, partly offset by annuity gains and MYRAP rate actions, while prior legal settlements and COVID-related terminations that previously helped earnings are now behind us.

• Question from Ross Levin (Arbiter): Yes. Understood. I guess to the extent that maybe several quarters ago or a year or 2 ago, someone might have felt you were getting ahead of things in terms of being able to generate some statutory income via some of the modifications you were able to negotiate with your state regulators. Like why -- what has caused us to sort of fall behind the curve again, if that makes any sense?
  Response: Earlier favorability came from COVID-related higher terminations and large legal settlements; with those effects gone and larger in-force blocks aging, claims and utilization have increased, producing quarter-to-quarter variability despite ongoing MYRAP actions.

• Question from Ross Levin (Arbiter): So if you achieve your ambition in terms of the MYRAP, you would not expect to ultimately generate statutory income out of the legacy long-term care block?
  Response: The goal of MYRAP is to achieve breakeven—generate sufficient premium increases and benefit reductions to cover projected claims; it is intended to ensure self-sustainability rather than produce significant statutory profits.

Contradiction Point 1

Legacy LTC Business Runoff and Standalone Operations

It involves the strategic direction and future plans for the legacy LTC business, which is a significant part of the company's operations.

Is the legacy LTC business a runoff with the rest becoming a standalone business that could eventually separate from Genworth? - Peter Enderlin(MAZ Partners)

20251106-2025 Q3: The legacy LTC business is a long runoff, while new CareScout opportunities are standalone, allowing for separate operations. - Thomas McInerney(CEO)

What's the expected timeline for CareScout Quality Network to reach break-even profitability? - Ryan Krueger(KBW)

2025Q1: The new CareScout businesses are separate from legacy LTC, allowing for potential standalone operations. - Thomas McInerney(CFO)

Contradiction Point 2

Long-Term Care Claims and Statutory Income

It relates to the financial performance and sustainability of the legacy long-term care business, which has significant implications for the company's financial health.

Could you explain what factors have driven the shift from positive to slightly negative statutory earnings in the legacy Life long-term care business over the past several quarters? - Unknown Analyst(Arbiter)

20251106-2025 Q3: The pressure on statutory income is mainly from long-term care, driven by increasing claims and benefit utilization. - Jerome Upton(CFO)

Can you clarify the change in the agreement with AXA? Will AXA still receive proceeds from litigation recovery if you cover losses up to GBP 80 million? - Ryan Krueger(KBW)

2025Q1: We are focused on reducing the statutory funding gap. We are executing on our multi-year rate action plan. - Jerome Upton(CFO)

Contradiction Point 3

Statutory Income from Legacy LTC Business

It pertains to the expected financial performance of the legacy LTC business, which is crucial for evaluating the company's financial health and strategic direction.

Would achieving MYRAP goals mean you won't generate statutory income from the legacy long-term care block? - Unknown Analyst(Arbiter)

20251106-2025 Q3: We aim for premium increases and benefit reductions to achieve breakeven, paying all projected claims without expecting statutory income. - Thomas McInerney(CEO)

Does the funding allow you to adjust capital targets like holdco liquidity or indebtedness? - Joshua Esterov (CreditSights)

2025Q2: We expect to generate statutory income in the life business, although it will be pressured by increases in long-term care and mortality. - Jerome Upton(CFO)

Contradiction Point 4

Long-Term Care Business Outlook and Rate Increases

It involves the outlook for the long-term care business, specifically regarding the stability of claims patterns and the potential for further rate increases, which are crucial for understanding the company's financial sustainability and strategic direction.

Is the legacy LTC business being treated as a runoff with the rest as a standalone business that could eventually separate from Genworth? - Peter Enderlin (MAZ Partners)

20251106-2025 Q3: The legacy LTC business is a long runoff, while new CareScout opportunities are standalone, allowing for separate operations. - Thomas McInerney(CEO)

What is the outlook for long-term care, and are there trends in pricing that could lead to higher rates? - Unknown (Arbiter)

2024Q4: The long-term care outlook is stable, with no major changes in claims patterns. We're seeing a favorable pricing environment with recent rate increases, and we're confident in our ability to manage our business effectively. There's no indication of further rate increases at this time, given our current underwriting practices and pricing. - Brian Wenzel(CEO)

Contradiction Point 5

Statutory Income from Legacy Life for Long-Term Care

It involves the expectation of statutory income generation from the legacy long-term care business, which is a critical factor in assessing the company's financial health and future prospects.

If you achieve your MYRAP goals, will you not expect to generate statutory income from the legacy long-term care block? - Unknown (Arbiter)

20251106-2025 Q3: We aim for premium increases and benefit reductions to achieve breakeven, paying all projected claims without expecting statutory income. - Thomas McInerney(CEO)

What trends in the mortgage market are affecting new insurance originations? - Unknown (Arbiter)

2024Q4: We delivered $1.1 billion of earnings for the year, including $1.4 billion of operating income and statutory income of $300 million. - Jerome Upton(CFO)