Executive Summary / Key Takeaways

• Genworth Financial is strategically leveraging the robust, cash-generating performance of its majority-owned mortgage insurance subsidiary, Enact, to fund investments in a new aging care growth engine, CareScout, while actively managing its legacy long-term care and life insurance liabilities.
• Enact continues to be a significant source of value, contributing $137 million in adjusted operating income in Q1 2025 and providing consistent capital returns to the holding company, totaling approximately $980 million since its 2021 IPO.
• The company is making tangible progress in building the CareScout platform, significantly expanding its provider network coverage (reaching 90% of the aged 65+ population by Q1 2025) and increasing member matches, with plans to launch a new individual long-term care insurance product in the second half of 2025, backed by a $75 million capital contribution.
• Disciplined management of the legacy long-term care block through the multi-year rate action plan (MYRAP) continues to reduce tail risk, achieving a cumulative net present value benefit of approximately $31.3 billion since 2012, although GAAP earnings volatility from experience deviations is expected to persist.
• Genworth maintains strong financial flexibility at the holding company level, supported by Enact's cash flows, enabling ongoing share repurchases (targeting $100M-$120M in 2025) and opportunistic debt reduction, while managing potential risks from macroeconomic volatility and ongoing litigation.

Genworth's Evolving Identity: From Legacy Challenges to Strategic Pivot

Genworth Financial, Inc. has undergone a significant transformation over the past decade, moving from a diversified insurer grappling with substantial legacy liabilities, particularly in long-term care (LTC), to a more focused entity strategically leveraging its core strengths to pursue new growth avenues. Incorporated in 2003 and going public in 2004, the company initially offered a broad suite of insurance and investment products. However, challenges in its long-duration liabilities, notably LTC, necessitated a strategic shift.

A pivotal moment arrived with the 2013 holding company reorganization, streamlining the corporate structure. More recently, the 2021 initial public offering of Enact Holdings, Inc., Genworth's private mortgage insurance subsidiary, marked a critical step. While Genworth retained an approximately 81% majority voting interest, allowing it to remain consolidated, Enact's public listing unlocked significant value and established it as a vital source of capital for the parent company. This financial flexibility, coupled with aggressive debt reduction efforts that saw holding company debt fall from $4.2 billion in 2013 to $790 million by the end of 2024, has paved the way for Genworth's current strategic focus: maximizing value from Enact, ensuring the self-sustainability of legacy businesses, and investing in the burgeoning aging care market through CareScout.

Within the competitive landscape, Genworth operates across distinct markets. In private mortgage insurance, its Enact segment competes with major players like MGIC Investment Corporation (MTG) and Radian Group Inc. (RDN). In legacy life and annuities, it manages closed blocks that historically competed with large insurers such as MetLife, Inc. (MET) and Prudential Financial, Inc. (PRU). The new frontier is the aging care market, where CareScout is establishing a presence, leveraging Genworth's deep expertise in LTC and extensive claims data as a potential differentiator against a fragmented landscape of service providers and emerging funding solutions.

Genworth's competitive positioning is thus multifaceted. Enact holds a solid position in the mortgage insurance market, although competitors like MTG and RDN often exhibit greater technological efficiency in underwriting and claims processing, leading to potentially lower operating costs per policy. GNW's legacy L&A business, while not actively selling, faces the challenge of managing runoff efficiently compared to the scale and diverse product offerings of large peers like MET and PRU. The strategic pivot to CareScout aims to carve out a unique position in the high-demand aging care space, leveraging GNW's existing relationships and knowledge base.

The Engine of Value: Enact's Consistent Strength

The Enact segment stands as the financial bedrock of the current Genworth strategy. As a leading provider of private mortgage insurance, Enact insures prime-based residential mortgage loans, mitigating credit risk for lenders and facilitating homeownership. Its business model benefits from macroeconomic factors like housing market trends, interest rates, and employment levels, while its operational performance is influenced by underwriting quality, claims management, and competitive dynamics.

Enact has consistently delivered strong financial results. In the first quarter of 2025, the segment contributed $137 million in adjusted operating income to Genworth, a slight increase from $135 million in the prior-year quarter. This follows a record $585 million contribution for the full year 2024. Revenue in Q1 2025 was $307 million, up from $292 million in Q1 2024, driven mainly by higher assumed premiums and insurance in-force growth, partially offset by higher ceded premiums. Net investment income also saw an increase, rising to $63 million in Q1 2025 from $57 million in Q1 2024, primarily due to higher investment yields and average invested assets.

Operational metrics underscore Enact's scale and performance. Primary insurance in-force grew 2% year-over-year to $268.4 billion as of March 31, 2025, supported by new insurance written and elevated persistency (84% in Q1 2025). While new insurance written decreased 7% in Q1 2025 compared to Q1 2024 ($9.8 billion vs. $10.5 billion), primarily due to lower estimated market share, the overall portfolio continues to grow.

Enact's loss performance is a key indicator of underwriting quality and claims management effectiveness. The loss ratio was 12% in Q1 2025, compared to 8% in Q1 2024. Both periods benefited from favorable reserve development, with a $47 million pre-tax reserve release in Q1 2025 driven by favorable cure performance on earlier delinquencies, following a $54 million release in Q1 2024. The expense ratio remained stable at 21% in Q1 2025.

Capital strength is paramount in mortgage insurance. Enact's estimated PMIERs sufficiency ratio stood at a robust 165% ($2.0 billion above requirements) as of March 31, 2025, demonstrating ample capital buffer. This compares favorably to regulatory and GSE requirements and positions Enact strongly within the competitive landscape, where maintaining sufficient capital is a key barrier to entry and operational necessity.

Crucially for Genworth Financial, Enact serves as a reliable and significant source of cash flow. Since its IPO in 2021 through Q1 2025, Enact has returned approximately $980 million to Genworth. In Q1 2025 alone, Genworth Holdings received $76 million in capital returns from Enact, comprising $53 million from share repurchases and $23 million from quarterly dividends. Enact's recent announcement of a 14% increase to its quarterly dividend and a new $350 million share repurchase authorization signals management's confidence in future cash generation and commitment to returning capital, which directly benefits Genworth as the majority shareholder. Enact expects to return similar levels of capital in 2025 as it did in 2024, providing a predictable funding source for Genworth's strategic initiatives.

Managing the Legacy: Disciplined Runoff and Risk Mitigation

While Enact provides the financial engine, a core strategic priority for Genworth remains the disciplined management of its legacy U.S. life insurance subsidiaries, which house closed blocks of long-term care (LTC), life insurance, and annuity products. These entities are managed on a standalone basis, operating as a "closed system" where existing reserves and capital are intended to cover future claims and obligations, with no expectation of capital flowing to or from the holding company.

The Long-Term Care Insurance segment is the most significant and complex of these legacy blocks. Its financial performance is heavily influenced by actual experience relative to long-term actuarial assumptions (morbidity, mortality, persistency, benefit utilization) and the impact of in-force rate actions. The multi-year rate action plan (MYRAP), initiated in 2012, remains the primary tool to improve the financial profile and reduce tail risk on this block by securing premium rate increases and associated benefit reductions. This program has achieved an estimated cumulative economic benefit of approximately $31.3 billion on a net present value basis through the first quarter of 2025. Progress continues, with $24 million of gross incremental premium approvals secured in Q1 2025 at a weighted-average increase of 28%. While the pace of approvals may be smaller in 2025 compared to prior years, consistent with long-term plans, the cumulative impact is substantial. Policyholder elections to reduce benefits in response to rate actions and legal settlements (which are now materially complete as of Q4 2024) have accelerated the decline in renewal premiums but also reduced future claim exposure.

GAAP accounting for LTC liabilities (under LDTI) introduces volatility, as quarterly results reflect deviations between actual experience and long-term assumptions (A to E). In Q1 2025, the LTC segment reported an adjusted operating loss of $30 million, a shift from a $3 million income in Q1 2024. This change was primarily driven by lower limited partnership income and lower renewal premiums. The quarter did see a liability remeasurement gain of $18 million (pre-tax, net of reinsurance) due to favorable actual variances, largely from seasonally high mortality, but management expects quarterly A to E losses around the average level of $65 million to persist throughout 2025. This GAAP volatility contrasts with the statutory view, which management believes better reflects the underlying economics and the positive impact of rate actions. Statutory pre-tax income for LTC was $50 million in Q1 2025, benefiting from seasonally high mortality. The consolidated risk-based capital ratio for the U.S. life insurance subsidiaries (GLIC) was an estimated 304% at the end of March 2025, indicating a sound statutory capital position.

The Life and Annuities segment, comprising closed blocks of life insurance and annuity products, also contributes to legacy management. This segment reported an adjusted operating loss of $33 million in Q1 2025, an increase from a $15 million loss in Q1 2024. The life insurance products saw a $44 million loss, primarily due to unfavorable seasonally high mortality and lower net investment income from corporate-owned life insurance policy loans. Fixed annuities contributed $4 million in income, down from $11 million, mainly due to lower net spread income from block runoff. Variable annuities reported a $7 million loss. Like LTC, results in L&A are impacted by mortality, persistency, and investment performance, with ongoing block runoff driving declining premiums and invested assets.

Managing these legacy blocks involves complex actuarial assumptions and operational execution. While not a growth engine, their stable management is crucial to the overall investment thesis, ensuring that these long-duration liabilities are appropriately reserved and capitalized within their ring-fenced structure, thereby protecting the holding company and enabling investment in future growth.

Forging the Future: The CareScout Growth Engine

Genworth's strategic pivot towards growth is centered on CareScout, an initiative aimed at addressing the significant and growing demand for aging care services and funding solutions driven by the aging baby boomer demographic. This initiative comprises two main pillars: CareScout Services and CareScout Insurance.

CareScout Services is building a fee-based business around the CareScout Quality Network (CQN), a curated network of credentialed long-term care providers. The network has seen rapid expansion, growing to 543 home care providers nationwide by the end of Q1 2025, covering approximately 90% of the aged 65-plus census population in the U.S. This significantly exceeds the initial 2024 target of 65% coverage. A key competitive advantage of the CQN is the pricing negotiated with providers; approximately 90% have agreed to hourly rates below the median cost of care in their local areas, with many offering discounts up to 20% off their standard rates. With home care costs often exceeding $5,000 per month, this translates to potential monthly discounts of around $1,000 per month for users. The revenue model for CareScout Services is tied to these savings: CareScout receives a fee equal to 25% of the monthly discount, with the remaining 75% benefiting the user (policyholder or consumer) through lower costs or, in the case of Genworth policyholders, reducing Genworth's LTC claim costs.

Early adoption of the CQN by Genworth policyholders on claim is promising, with 576 matches recorded in Q1 2025, a substantial increase from 52 in Q1 2024. This early traction supports the expectation that the network can drive $1 billion to $1.5 billion in claims savings for Genworth's legacy LTC block over time, providing a tangible benefit alongside potential external revenue. Expansion plans for CareScout Services include adding assisted living communities in large metropolitan areas in 2025, extending network access to policyholders of other LTC insurers (pilot programs are underway with two leading insurers), and launching a direct-to-consumer offering.

CareScout Insurance represents Genworth's planned re-entry into the LTC funding market with new, innovative products. The first planned product, CareScout Care Assurance, is an individual LTC insurance policy designed with conservative assumptions and capitated coverage limits to mitigate the risk of future premium increases, a key challenge in the historical LTC market. This product will also include access to the CQN as a competitive differentiator, helping policyholders maximize their benefits. The product received approval from the Interstate Insurance Product Regulation Commission Compact in April 2025, covering 23 individual jurisdictions, and Genworth is filing for additional state licenses with a target of obtaining approvals in 30-35 states before launching in the second half of 2025. To support this new venture and meet regulatory capital requirements for a start-up insurer, Genworth plans to contribute $75 million of capital to its CareScout Insurance subsidiary in 2025. A partnership with a highly rated reinsurer is also in place to manage risk and capital efficiency, with plans to retrocede 40-50% of liabilities in the early years. Development of a hybrid LTC product is also underway, combining cash value accumulation with a minimum guaranteed LTC benefit and CQN access.

These investments in CareScout, totaling an expected $45 million to $50 million in CareScout Services in 2025 in addition to the $75 million capital contribution to CareScout Insurance, are funded by the holding company, primarily through cash flows from Enact. The strategic rationale is clear: leverage Genworth's deep domain expertise in aging and LTC, build a differentiated platform addressing a massive and growing market need (driven by the 70 million baby boomers), and create new, sustainable revenue streams and long-term value for shareholders.

Financial Flexibility and Capital Allocation

Genworth's strategic pivot is underpinned by its strengthened financial position at the holding company level. Genworth Holdings ended the first quarter of 2025 with $211 million of unrestricted cash and cash equivalents. This figure includes approximately $98 million of advance cash payments from subsidiaries held for future obligations, such as the planned $75 million capital contribution to CareScout Insurance in 2025. Excluding this earmarked cash, the holding company maintains a buffer relative to its target of two times expected annual external debt interest payments.

The primary source of cash flow to the holding company is capital returns from Enact, which provided $76 million in Q1 2025. This predictable cash flow enables Genworth Financial's capital allocation priorities: investing in CareScout growth initiatives, returning capital to shareholders through share repurchases, and opportunistically retiring debt.

The share repurchase program is a key mechanism for returning value to shareholders. Since its inception in May 2022 through April 30, 2025, Genworth Financial has repurchased $600 million worth of shares at an average price of $5.75 per share. In Q1 2025, the company repurchased 6.52 million shares for $46 million (excluding excise taxes and other costs) at an average price of $6.91 per share. An additional 1.42 million shares were repurchased in April 2025 for $10 million at an average price of $7.03 per share, leaving approximately $100 million available under the current authorization as of April 30, 2025. For the full year 2025, Genworth expects to allocate between $100 million and $120 million to share repurchases, a range that may vary based on business performance, market conditions, and share price.

Debt reduction has also been a consistent priority. Genworth has opportunistically retired debt, reducing its total holding company debt to $790 million by the end of 2024. This manageable debt level, combined with sustainable cash flows from Enact, provides significant financial flexibility.

The disciplined approach to capital allocation, balancing investments in future growth with direct returns to shareholders and debt management, is central to Genworth's strategy for maximizing long-term value.

Risks and Challenges

Despite the strategic progress, Genworth faces significant risks and challenges that could impact its financial performance and the execution of its strategy.

Macroeconomic volatility remains a key concern. Changes in interest rates, equity markets, and housing prices directly impact Enact's business (new insurance written, persistency, claims) and the investment portfolio performance across all segments. Elevated inflation could persist, increasing the cost of care in the LTC business and potentially impacting liquidity and profitability if not offset by rate actions or network savings. Geopolitical tensions and changing international trade policies, including tariffs, could further exacerbate economic uncertainty, although management believes a moderate recession would be manageable given the company's financial flexibility.

The legacy LTC business continues to present inherent volatility. Results are sensitive to deviations in actual experience (morbidity, mortality, persistency, utilization) from long-term assumptions. While the MYRAP and legal settlements have reduced tail risk, future assumption updates or sustained adverse experience could still lead to material impacts on reserves and GAAP earnings. The quarterly remeasurement of LTC liabilities based on the single-A bond rate also introduces significant interest rate sensitivity and volatility to reported results and equity.

Litigation and regulatory matters pose ongoing risks. Genworth is involved in several legal proceedings, including putative class actions related to cost of insurance charges (TVPX), dividend payments and reinsurance (Burkhart), ERISA fiduciary duties (Trauernicht), and alleged wrongful policy terminations (Fox, Kaplan). The company is also a defendant in lawsuits related to the MOVEit cybersecurity incident impacting a third-party vendor. The outcome of the AXA/Santander litigation, while potentially favorable, is uncertain and could require Genworth to pay up to £80 million under a guarantee to AXA depending on the result. Regulatory scrutiny in the insurance industry is high, and adverse actions or new regulations could negatively impact the business.

Execution risk is present in the CareScout growth initiatives. Successfully scaling the CareScout Quality Network, expanding to new customer segments (other insurers, direct-to-consumer), and launching the new CareScout Insurance product require significant investment, operational execution, and market acceptance. While early signs are positive, achieving the targeted growth and profitability will take time and is not guaranteed. The ability to obtain necessary state approvals for the new insurance product (targeting 30-35 states) is critical for a successful launch.

Counterparty credit risk exists, particularly with reinsurance arrangements and derivative instruments. Defaults by counterparties could impact financial results.

These risks necessitate careful management and monitoring, and their realization could adversely affect Genworth's ability to execute its strategic priorities and generate value for shareholders.

Conclusion

Genworth Financial is actively reshaping its future by strategically leveraging the stable, cash-generating power of its mortgage insurance business, Enact, to fuel investment in the high-potential aging care market through CareScout. This pivot is enabled by the significant financial flexibility built through disciplined debt reduction and consistent capital returns from Enact. While the company continues to manage the inherent volatility and tail risk within its legacy long-term care and life insurance blocks through rigorous in-force management and rate actions, the narrative is increasingly shifting towards the growth potential offered by CareScout.

The successful scaling of the CareScout Quality Network and the planned launch of the new CareScout Insurance product in 2025 represent tangible steps towards creating new revenue streams and addressing a critical societal need. Investors should monitor the progress of the CareScout build-out, including network expansion, customer adoption, and state approvals for the new insurance product, as key indicators of future growth potential. Simultaneously, continued strong performance and capital returns from Enact, coupled with effective management of legacy liabilities and successful navigation of macroeconomic and litigation risks, will be crucial for sustaining financial flexibility and delivering long-term shareholder value. Genworth's story is one of transformation, seeking to unlock value by balancing the management of its past with strategic investment in a future aligned with powerful demographic trends.