Genworth Financial, Inc. (GNW) Earnings Call Transcript & Summary

This is the Genworth 2021 Annual Meeting of Stockholders. My name is Julian. I will be the operator of this meeting and will be assisting the speakers this morning. I will now turn the meeting over to Jim Riepe, Genworth's Non-Executive Chair of the Board.

Thank you, Julian. Good morning, everyone. On behalf of Genworth, I'd like to welcome you to the 2021 Annual Meeting of Stockholders. Like many public companies, with the ongoing coronavirus pandemic, Genworth is conducting this meeting virtually. I, along with the other directors and management, are participating remotely. And we would ask for your patience and understanding if we encounter any technical difficulties. I know all of us look forward to returning to in-person meetings soon. In accordance with our bylaws, I will preside over this meeting. And Mike McCullough, Genworth's Corporate Secretary, will serve as Secretary of the meeting. I'd like to review our Director nominees, each of whom is participating in today's virtual meeting. Genworth stockholders have the opportunity to elect the members of our Board each year. Our Director nominees this year are: Kent Conrad; Karen Dyson; Jill Goodman; Melina Higgins; Tom McInerney, our CEO and President; Howard Mills; Debra Perry; Bob Restrepo; and Ramsey Smith. We also have Genworth's senior management team participating in today's virtual meeting, including Dan Sheehan, who serves as Genworth's Chief Financial Officer and Chief Investment Officer. Dan, along with Shannon Powell, our lead engagement partner from KPMG, the corporation's independent public accounting firm, will be available to make statements and respond to questions, if necessary. Lastly, I would note that Mr. McInerney, Mr. Sheehan and Mr. McCullough are the holders of the proxies solicited by the Board for this meeting. Mr. McCullough, please address the rules of conduct for the annual meeting and confirm that the meeting has been duly called and that a quorum is present.

Thank you, Jim. The agenda and the rules of conduct for today's annual meeting are available on the virtual meeting site. In addition, elements of management's remarks may be forward-looking in nature and are based on our current views of our businesses and the market environment. You can find a description of the risks that we face in the meeting presentation as well as the Risk Factors section of our most recent annual report on Form 10-K. Management may also make reference to some non-GAAP financial measures. Definitions of these measures and the required reconciliations to GAAP are set forth in our earnings presentation and financial supplements for the first quarter of 2021 as well as in the presentation for today's meeting. These materials are available on Genworth's public website. The notice requirements for the Annual Meeting have been satisfied. The Board fixed March 22, 2021 as the record date for this meeting. An affidavit of mailing from a representative of Broadridge Financial Solutions, Inc. is with the Inspector of Election. The affidavit attests to the distribution of the 2021 meeting notice, the proxy statement and the 2020 annual report to the stockholders entitled to these materials. Karl Wagner from American Election Services, LLC is serving as the Inspector of Election and has taken an oath of office. The Inspector of Election has determined that holders of approximately 80% of the shares of the Class A common stock outstanding on the record date are present in person or by proxy, constituting a quorum for the transaction of business at this meeting. Jim, that concludes my report.

Thank you, Mike. With the holders of the majority of the outstanding shares entitled to vote at this meeting present in person or by proxy, I declare this meeting to be duly convened for the purpose of transacting such business as may properly come before it. The polls will open when all the proposals to be voted on at this meeting have been presented, and the polls will close immediately prior to the preliminary voting report. Today is my last Genworth Board meeting as Chair and a Director. In some ways, it is bittersweet as I joined the Board in its infancy following the company's formation and its spinout from GE. Over the last 15 years, I've had the honor and responsibility, along with my fellow Board members, of helping to guide Genworth through periods of considerable challenge, growth and transformation. Over the years, we, the Board and management, have navigated through the worst financial and housing crisis since the Depression, and countless transactions that substantially altered the company's size, strategy and focus. And perhaps no stress has been greater on all of us, both professionally and personally, than the COVID pandemic. In such an environment, there were inevitable periods of great stress on management, employees and directors. But they all rose to each challenge. As you all well know, this included 4 long years of uncertainty as the company attempted to execute a transaction that would have benefited shareholders and employees but eventually failed to materialize despite management's heroic efforts. The process of change at Genworth over the years was never easy. But as a Board, we always sought to remain focused on those actions needed to continually improve the company's prospects for the benefit of its policyholders, investors and employees. As I depart, I believe the work we have done and decisions we made have today positioned Genworth to begin a positive new stage in its evolution. We have a strengthening financial foundation, focused strategy and a clear vision to share with you today. And I am proud of the work the Board and entire Genworth team has done to bring us to this point. I want to thank you, our shareholders, for your interest, questions and discourse over the years, but especially your patience because many of you have also been with us through these years of constant change. I also want to thank Tom and the management team for their partnership in leading the company. And most importantly, I want to thank all of our Genworth colleagues for their unyielding commitment to our customers, our communities and each other. Lastly, I want to express my great appreciation to my fellow directors for their commitment to Genworth, their friendship and their support. Through long meetings and inevitable highs and lows, they remained collegial and steadfast in trying to make decisions that were in the best interest of all of our constituencies. In that context, I want to recognize 2 Board colleagues, David Moffett and Tom Moloney, who, along with me, are not standing for reelection and are retiring from the Genworth Board today. David has been a director since December 2012, served as our Chair of the Compensation Committee in the last 5 years and made innumerable contributions to the Board's deliberations and decisions. Tom joined our Board in October of 2009 and is the second longest-serving director. He has brought his long experience in the insurance business to bear as Chair of the Risk Committee for the last 6.5 years and as an active member of the Audit Committee. The company and the Board in its deliberations have benefited from their very substantial expertise in insurance and financial services as well as extensive senior management experience. Their strategic focus, practical guidance and commitment to Genworth and its stockholders have been invaluable over the years. Moreover, they have been wonderful partners for me, and I am grateful for their advice, their support and especially their friendship. With my retirement, the directors anticipate appointing Melina Higgins as the next non-executive board chair. Melina has been a steadfast partner and leader on the Board since joining in 2013. I believe she's extremely well-qualified to lead this Board during the company's next chapter, and we are fortunate to have her in this leadership position. I wish Melina, the other directors and the whole Genworth team all the best in the future. With that, I will turn the floor over to Melina.

Thank you, Jim. It has been a true pleasure to serve on this Board with you. I want to thank you on behalf of the Board, management and our stockholders for your leadership and guidance over your 15-year tenure. Your unwavering commitment to Genworth's success was always evident and greatly appreciated. We will miss you. And I look forward to working with the Board to continue the progress you've helped to initiate and guide. To that end, I'm pleased that Jill Goodman, Howard Mills and Ramsey Smith have recently joined our Board and are standing for election by the shareholders for the first time today. Jill brings extensive experience in mergers and acquisitions, along with a legal background and public company service. Howard has extensive experience in global insurance regulation, risk management, governance and public policy matters. Ramsey has over 20 years of insurance products and investment banking experience. This varied set of perspectives and experiences will make great additions to our Board as we pursue our strategic plans. Looking ahead, I'm excited to lead the Board as we enter Genworth's next stage. There will still be challenges, but we have an engaged and diverse Board, a driven management team and a committed workforce on our side. We are proud to be doing important work that can help address societal issues like senior care funding and the homeownership gap. I am honored to lead the Board as we continue our strategic path forward.

Thank you very much, Melina. Now I will turn the meeting over to Tom, who will provide an overview of the progress the company has made and prospects for the future. Tom?

Thank you very much, Jim. On behalf of the rest of the Board and the management team, thank you for your partnership over the last 9 years. We're grateful that you, along with directors David Moffett and Tom Moloney, were willing to remain on the Board while we worked through the strategic challenges of the last few years. I also want to thank Melina for being with us this morning. You've been a trusted adviser in your time on the Board, and I'm looking forward to continuing to work closely with you as you take on your role as Chair. As we have done for many years at Genworth and in keeping with best practices, we maintain separate Chair and CEO roles. The balance between management's execution and Board oversight has worked very well throughout Jim's tenure, and I look forward to this continuing as we start this next chapter in Genworth's history. Thank you to everyone for joining us today for our virtual annual meeting. Please note, for your reference, we have posted slides to accompany my remarks on the Investor Relations section of our website. I want to begin by discussing a recent announcement that we postponed the planned IPO of our U.S. mortgage insurance business, which was recently rebranded as Enact. There was significant volatility in the equity markets and specifically in the MI sector between May 4 and May 12 as a result of some peers' first quarter earnings disclosures. Over that time frame, 4 of Enact's publicly-traded MI peers traded down in price between 14% and 18%. Those declines were compounded by the market's reaction to inflationary concerns on May 12, the day of Enact's planned pricing. As a result of this volatility, Genworth's Board of Directors determined that the pricing for the planned offering did not accurately reflect Enact's market value. As we have considered various options for Enact over the past several years, our objective has been to protect and ultimately unlock its value, enabling us to maximize value for Genworth shareholders in any potential transaction. The Board and I continue to believe that an IPO of up to 19.9% of Enact is the best option to do just that. We maintain our positive long-term outlook for the MI sector based on the strong positive trends in the U.S. housing market and expected tailwinds as the economy continues to recover from COVID-19. We therefore expect to relaunch the IPO process when market conditions improve. A 19.9% IPO of Enact would benefit Genworth and Enact through anticipated ratings improvements for Enact, which is important from a competitive and regulatory perspective, providing Genworth with proceeds to pay down future obligations on an expedited basis; retaining Genworth's ability as a majority shareholder to receive future dividends from Enact when regulatory restrictions ease; and enabling a more accurate reflection of the value of Enact. As I've said before, we intend to make sufficient ownership of Enact after an IPO transaction, so as to preserve the option to distribute the remainder to Genworth shareholders in a future tax-free spin-off. While the IPO postponement was unexpected, these kinds of decisions are always subject to the vagaries of the market at the time of the offering. We are confident that we made the right decision. I'm especially grateful for the work that we've done over the past several years to improve Genworth's financial flexibility, putting us in a position to make this disciplined decision. When I joined Genworth as CEO in 2013, the Board gave me 3 distinct priorities: first, to rejuvenate the U.S. mortgage insurance business, which at that time was still recovering from the 2008 financial crisis; second, to address the high indebtedness of the parent company relative to our expected cash flow from our subsidiaries; and third, to develop and implement a strategy to turn our LTC insurance business, which, like many others, began to see adverse industry-wide claim activity, particularly as Asian baby boomers started to go on claim. Since then, the Board and management team have worked methodically, thought creatively and took decisive action towards these 3 goals. Over time, we have moved Genworth to a position of much greater strength, poised to begin our next chapter. The Enact team has done extraordinary work over the past several years in creating a sustained track record of strong performance. From 2014 to 2020, Enact grew adjusted operating income at a 27% compound annual growth rate. And they delivered this performance despite ratings pressure and uncertainty resulting from a prolonged Oceanwide transaction process. In 2020, Enact drove record insurance in-force of $208 billion and earned $381 million in adjusted operating income, impressive, given the uncertain environment and reserve strengthening undertaken as a result of COVID-19. We've also significantly delevered Genworth's holding company. From 2013 through September of this year, we will have reduced our holding company debt by roughly 51%. We took significant actions from the fourth quarter of 2019 through the first quarter of 2021 to accelerate this effort, including the sale of Genworth Canada for approximately $1.8 billion in net proceeds in 2019, USMI's debt offering in 2020, the sale of our remaining stake in Genworth Australia in February 2021, and ongoing work to align our organization's expenses with our evolving needs. Year-to-date, we have reduced debt by approximately $729 million, including a material portion of the AXA promissory note, and we intend to address our September 2021 debt with the cash we have on hand as well as expected continued strong cash payments from our subsidiaries. As you can see on the slide, following our September paydown, we will have roughly $2 billion left in debt outstanding. Our next debt reduction goal is to pay down the rest of the AXA promissory note and the 2023 and 2024 debt as soon as prudent. This will leave us with roughly $900 million in outstanding debt that would be due in 2034 and 2066, a very manageable and appropriate level of indebtedness for a company of our size and liquidity, considering the eventual resumption of dividends from Enact. I would like to acknowledge Dan Sheehan, who since taking over the CFO role in the middle of 2020 has accelerated our debt reduction efforts and significantly improved our financial flexibility as we move into the next phase of Genworth's journey. Beyond our work to protect the value of Enact and reduce our debt, our third priority has been the stabilization of our legacy long-term care insurance business. I've spoken at length over the years on this topic as we built and refined our multi-year rate action process. We have made exceptional progress on this effort through the end of the first quarter, achieving over $15 billion in net present value from LTC premium increases and benefit reductions since 2012. We continue to work towards achieving our long-term cumulative target of roughly $22.5 billion in rate actions, which are needed to address the current expected shortfall in our legacy LTC cash flow. This target could change over time as our experience-related assumptions may evolve. I'm very proud of the progress we've made against these 3 objectives. Today, we are a much stronger company with significantly better prospects. In 2020, Genworth delivered $310 million in adjusted operating income. This strength continued in the first quarter of 2021, during which we delivered $168 million in adjusted operating income, up from $20 million in the first quarter of 2020. During an uncertain time, we successfully managed capital levels, ending the first quarter with a 159% PMIER sufficiency ratio in Enact, or $1.8 billion above published requirements; risk-based capital in our principal life insurance company, GLIC, of approximately 255%; and $751 million in holding company cash. Looking ahead, we will continue to pursue the 19.9% IPO of Enact while building on our core strengths to develop a sustainable and profitable business model that addresses challenges in senior care funding and the associated services. We'll go about that strategy with a three-pronged approach that I outlined during our first quarter earnings call. First, we will continue to address the challenges in the legacy book through our LTC multi-year rate action plan and other strategic actions. Second, we will use our 40-plus years of LTC experience in intellectual property to launch a new long-term care insurance joint venture in the United States. Our unique insights and ability to apply what we have learned, combined with a third party's expertise and investment, have the potential to be a creative, profitable and much-needed solution to a critical societal issue. We will be seeking to design new LTC products and services with lower and more predictable risks. This will require collaboration between us, third parties and the NAIC and state regulators to change the future LTC regulatory model to allow for management of LTC risks. And third, we believe there is significant opportunity in addressing the same need for long-term care solutions in China. We continue to explore long-term joint venture opportunities there with third parties. Moving forward, we have the right team, strategy and experience, including an engaged Board with diverse perspectives, to capitalize on the growth opportunities we see ahead. We have important work to do, and it's my personal mission to steer Genworth into this new phase for our shareholders, customers and colleagues. Thank you very much for your time. And with that, I will turn it back to Jim.

Thank you, Tom, for those remarks. Mike, please present the proposals to be voted on at this meeting, and then we'll take any questions about these proposals after they have all been presented.

Thank you, Jim. There are 4 proposals to be voted on at this meeting. The first proposal is the election of 9 directors to serve until the Annual Meeting of Stockholders in 2022 and until their successors are duly elected and qualified. The Board of Directors recommends the election of the following persons as directors of the corporation: Kent Conrad, Karen Dyson, Jill Goodman, Melina Higgins, Tom McInerney, Howard Mills, Debra Perry, Bob Restrepo and Ramsey Smith. The second proposal is an advisory vote to approve the compensation of our named executive officers. The third proposal is a vote to approve the 2021 Genworth Financial, Inc. Omnibus Incentive Plan. And the fourth proposal is to ratify the Audit Committee's selection of KPMG LLP as the corporation's independent registered public accounting firm for 2021. As stated in the proxy statement, the Board of Directors recommends that stockholders vote for each of the Director nominees as well as for proposals 2, 3 and 4.

Thank you very much, Mike. I hereby declare the polls open at 9:23 a.m. on May 20, 2021 for all proposals properly brought before the meeting. Holders of Genworth Class A common stock as of March 22, 2021, the record date for the Annual Meeting, or their duly authorized proxies can vote electronically on the website until the polls are closed. If you have already voted, you do not need to vote today unless you would like to change your vote. [Voting]

We will now address questions that were submitted on the meeting website regarding the specific proposals to be voted on at this meeting. We will address questions of a more general nature after we conclude the formal business portion of the meeting. [Operator Instructions] I will ask Amy Rein, Genworth's Corporate Communications Leader, to help moderate the questions. Amy, would you please review the questions that we have received?

Thank you, Jim. The first 2 questions are for you. First, can you speak to how Genworth's CEO compensation compares to similarly sized companies?

Well, as always, the Board and management's role is to maximize the value of Genworth to shareholders, so our executive compensation policies are in line with that objective. We believe total compensation opportunities should be competitive within the relevant marketplace. To that end, we benchmark our compensation against a specific list of peer companies, which is developed by an independent consultant and reviewed on an annual basis for relevancy and to ensure that our executive comp is in line with best practices. As compared to our peers, our CEO's target pay is below the median. Keep in mind that we use this relevant peer group to determine total compensation opportunity. Actual payouts will vary by company based on company performance during the periods covered.

Thank you. Next question. Can you also discuss the rationale behind the strategic objectives tied to compensation? Why is rightsizing the organization one of them? While this may be a strategic objective, it seems counterintuitive to compensate executives for the job loss of employees.

In addition to financial metrics, the Comp Committee established key strategic priorities to measure management's performance. Rightsizing the organization was one of the most important strategic priorities for 2020 because as our operating model has evolved, we need to reduce fixed cost dependency and transition into more of a variable cost structure. We looked holistically across processes, programs and other companies' spend to align our expense structure to our business activities. To continue to drive profitability, our cost base needs to be lower to better reflect the operating footprint of our current company and businesses, which is smaller following the sale of our Canadian and Australian mortgage insurance businesses. This is an unfortunate consequence of becoming a smaller company, and these are always tough decisions. The full list of these strategic priorities, the committee's rationale for including them, as well as results and funding outcomes, can be found in our proxy statement.

Thank you, Jim. And now a final question for Melina. Melina, what strategic objectives will management be evaluated on going forward now that the Oceanwide transaction is terminated. Has the Board considered tying goals related to debt reduction or share price performance to management compensation?

As Jim touched on, our compensation practices should ultimately help maximize value for Genworth's shareholders. And as such, our key objective in compensating executive officers is to attract, retain and motivate employees of superior ability who are dedicated to the long-term interest of our shareholders. The Compensation Committee established key strategic priorities for 2020 designed to have an impact on company financial performance and stockholder value, which translates to initiatives to sustainably manage debt. I would also note that a significant portion of our executive target compensation is in equity, and as such, management's interests are directly aligned with shareholders. Going forward, we are evaluating additional metrics tied to long-term incentive grants to further align compensation with shareholder value creation.

Thank you, Melina. Jim, that's all for the proposal related questions submitted.

Thanks very much, Amy. Therefore, I hereby declare the polls closed at 9:28 a.m. on May 20, 2021. Mike, would you please present the preliminary report of the Inspector of Election?

Jim, the Inspector of Election has preliminarily determined that each director nominee has received a majority of the votes cast in favor of his or her election. The Inspector of Election has also preliminarily determined that the advisory vote on the compensation of our named executive officers has been approved by the affirmative vote of a majority of shares of Class A common stock present at the meeting in person or by proxy and entitled to vote on the matter. The vote to approve the 2021 Genworth Financial Omnibus Incentive Plan has been approved by the affirmative vote of a majority of shares of Class A common stock present at the meeting in person or by proxy and entitled to vote on the matter. And the ratification of the selection of KPMG LLP as the corporation's independent registered public accounting firm for 2021 has been approved by the affirmative vote of a majority of shares of Class A common stock present at the meeting in person or by proxy and entitled to vote on the matter. This completes the report.

Thank you, Mike. Based on the Inspector of Election's preliminary report, I declare that each person nominated for election as a Director at this meeting has been elected; the advisory vote on named executive officer compensation has been approved; and the vote of the 2021 Genworth Financial, Inc. Omnibus Incentive Plan is approved; and the selection of KPMG LLP as the corporation's independent registered public accounting firm has been ratified. The final voting results for all of these proposals will appear in a Form 8-K to be filed within 4 business days of this meeting, and they will also be posted on Genworth's public website. That concludes the formal portion of the 2021 Annual Meeting of Stockholders. With that portion now adjourned, let me open the floor for general questions or comments about our company. I'll ask Amy Rein to moderate this session as well. Amy?

Thank you, Jim. Ahead of today's meeting, we received several questions from stockholders related to debt reduction and the postponement of the IPO of Enact. Tom has addressed those questions in his prepared remarks. Beyond those topics, we will try to provide a response to as many submitted questions as possible. To help with this, we have grouped together or summarized questions that are on the same or related topics. This first one is for Tom. We received a number of questions on what Genworth's plan is to create value for shareholders going forward, especially considering the stock price has underperformed over the last several years. Beyond your prepared remarks, are there any additional updates you can share?

Well, Amy, this is a very important question. I mentioned in my prepared remarks our 3 long-term critical areas of focus have been increasing Enact's profitability, reducing our holding company debt and achieving the LTC premium increases or benefit reductions. I think with continued progress in these 3 areas, we will be able to increase our share price over time. Our goal is to reduce holding company debt to the $1 billion range. We're working very hard to achieve that target, and we're making excellent progress, as I noted. At that level of debt, the $1 billion level, we would consider the best ways to return capital to shareholders, which would include reinstating a regular dividend and share buybacks. We look forward to updating our investors as we make progress over time.

Thanks, Tom. We also received several questions about whether and when Genworth will consider returning capital to shareholders in the form of dividends. Can you speak to that?

I can. And I'll just repeat what I just said and give our shareholders sort of our target in this area. So our goal is to reduce holding company debt to a more manageable level, and we believe that's approximately $1 billion. Once we achieve that $1 billion reduction in debt, and as I mentioned earlier in my remarks, we expect to be at $2 billion by the end of this year and we'll continue to make progress. But once we get to that $1 billion of debt, the cash flow from our subsidiaries will more than cover that debt service. And at that point, we will be in a position to return capital to shareholders. And clearly, there are various ways to do that. But certainly, we will consider reinstating a regular dividend and also share buybacks.

Thank you. Another one for you, Tom, we received from several shareholders. What is Genworth's policy regarding donations to political parties, groups or individuals?

It's another good question. The first thing I would say is that Genworth is a relatively small contributor to political parties and candidates compared to most other companies, so pretty small in this area. We do have a voluntary PAC, and like most companies have PACs, and they're voluntary. And they're funded by employee contributions, not any contributions from the company itself. Just to give shareholders a sense. So the Genworth PAC, which again is funded by employee contributions -- voluntary employee contributions, we generally support -- the PAC only supports candidates who have taken positions on issues involving private enterprise and on economic questions of national importance but are also consistent with Genworth's business interest. We also support candidates who have experience on the issues that are important to Genworth, who represent geographic areas of strategic importance to Genworth, mostly where our employees are based, and also candidates who are working to promote bipartisan and consensus-driven policy to address the divisive and challenging issues that face Genworth, but also increasingly, our country as a whole. In terms of oversight of these contributions, again, in the PAC and others, the Nominating and Corporate Governance Committee of our Board reviews our political contributions and expenditures on a regular basis. And they also look at the operations of our Political Action Committee, or PAC, and also review our public disclosures regarding all of these activities.

Thank you, Tom. The next question is one we received from [ Kevin Westburn ]. What has been done to better educate analysts and does Genworth have roadshows planned?

Kevin, thank you for your question. It's an important one. The Genworth management team regularly engages with shareholders and sell-side analysts both to educate them in our performance and our strategic objectives and to receive their input on our strategy. I would encourage shareholders to review our quarterly earnings materials, which are published on our IR website, Investor Relations website. In addition to the quarterly performance, we provide an update on our strategic priorities each quarter. And as we enter this new phase with a company structure that looks different than it did over the past few years, we will be seeking to educate the market through more traditional IR forums such as conferences, roadshows in addition to our direct ongoing engagements each quarter.

Thank you, Tom. The next question is from [ Obar Catham ]. Why did you sell the Australia part of the business when it was profitable? And where do you expect future growth and income to come from?

[ Omar ], great question. As we said in the past, our stake in Genworth Mortgage Australia was a financial asset, not a strategic asset. And as such, we looked to monetize it at a good time. We think we received a great price for Genworth Mortgage Australia, and as a result of the transaction, which produced $370 million of proceeds, really helped us enhance our liquidity and also will help us as we pay down the debt towards our ultimate goal of $1 billion. I'd also note that Genworth Australia has not been paying dividends to the holding company since the first quarter of 2020. In terms of the second part of the question, we expect future growth for Genworth to come from Enact, which has delivered very strong financial results over the past several years, and eventually from our planned joint ventures and the LTC insurance that I talked about, whether it's in the United States or China.

Thanks, Tom. The next question is from [ Glenn Chester ]. How did COVID impact the trajectory of the long-term care financials for Genworth?

Glenn, thanks. Another key question. I want to extend first my sincerest sympathies to everyone who has been affected by this deadly pandemic. In the U.S., we are very encouraged by the progress of the vaccine rollout and the signs that we can see where the public is returning to more normal and hopefully putting the pandemic behind us. In LTC insurance, we had strong financial results in 2020 and in the first quarter of 2021, driven by higher claim terminations likely linked to COVID-19, but also higher premiums as a result of our very successful multi-year rate action plan. Notwithstanding these strong results, we did decide to increase reserves in 2020 and the first quarter of '21, reflecting our view that the elevated claim terminations are probably temporary and our remaining claim population on the LTC side is likely less likely to terminate than the prepandemic average.

Thank you, Tom. The next question is from [ David Robinson ] and has 2 parts. The first part is what will need to change in order for U.S. MI companies, including Genworth's mortgage insurance business, to be allowed to pay out dividends?

David, thanks for being on the call today, and thank you for your question. Enact is currently operating under temporary capital preservation provisions, would have been put in place by the GSEs through June 30 of this year. Policymakers and the GSEs provide significant relief to U.S. mortgagees by allowing them to defer monthly mortgage payments because of COVID-19. When 2 mortgage payments are missed, the loan is technically in default for us under our mortgage insurance. However, the GSEs provided temporary relief to all mortgage insurers that allows MI companies, like Enact, to record only 30% of the normal capital when we have a delinquency. In return, they prohibited all MI companies from paying dividends as long as the reserve benefit or capital benefit was in effect. So David, we believe that as vaccinations increase and COVID-19-related defaults recede, we expect the GSEs to allow dividends based on the pre-COVID rules as the temporary forbearance programs that publicly policymakers and the GSEs put in place are unwound. And looking to the future, we anticipate returning to pre-COVID-19 dividend policies for Enact certainly by 2022, and there's a possibility that we could receive [ the next ] dividend in the fourth quarter of this year. Of course, the valuation of future dividends is dependent on capital requirements of our subsidiaries, the capital needs of the holding company and market conditions, among other factors, which, of course, are subject to change and are -- some of those are obviously outside of our control.

Thank you. The second part of the question is what value would a spinoff of Genworth USMI bring to shareholders? And when would you seek to spin it off?

David, another very good question. I think I previously covered in my remarks the primary benefits of the IPO of Enact for Genworth shareholders. And I think your question is more about a potential spinoff after an IPO than the IPO itself. So I would just refer other shareholders back to the slide earlier where I reviewed the benefits of the IPO itself. But in addition to the IPO, by retaining and holding 80% or more of Enact, we preserve significant tax benefits for Genworth and for our shareholders, including the option for a subsequent tax-free spin-off of the Enact shares directly to Genworth shareholders. We believe preserving this option provides significant benefit to all of our shareholders. We do not really have a specific timetable for a future spinoff. That depends on a lot of things, performance of Enact and markets in general. But we would not expect to be in a position to execute the spin-off for several years because, as I previously noted, we do really need to focus on getting the debt down to the $1 billion level. Following a potential spin-off, the remaining company needs to be able to continue to satisfy its ongoing liabilities, whatever debt obligations we'd have at that point. So we also need to keep in mind those liabilities that we have to deal with as we consider the timing of the spin-off. So hopefully, David, that gives you an idea of when we might do it. But as I said, I think it's probably a few years from now before we'll really be in a position to consider spinning off the remaining 80% or so.

Thank you. Next question. What is Genworth's plan to improve its ratings?

Yes, it's a great question. Improved ratings are very important to Genworth and also to our operating companies, particularly Enact. We want Enact to have ratings that are competitive with its competitors. We think it's very important over time. But we do know from our discussions with the rating agencies over the last few years that one of their primary concerns was the high level of indebtedness of the holding company. And of course, I've talked about the key priority of reducing holding company debt, along with increasing Enact's profitability and the LTC premium increases. As you can see in the slides that accompanied my prepared remarks, we've reduced holding company debt from $4.2 billion in 2013 to approximately $2 billion pro forma by the end of the year. I think as we get to $2 billion and then ultimately closer to our long-term goal of $1 billion, we expect the rating agencies to reevaluate Genworth's ratings because we will have a significantly stronger balance sheet, much lower debt to capital and much higher interest and debt service coverage. I would also note that you probably have seen the rating agencies do have a positive ratings outlook on Enact pending the completion of the IPO.

Thank you, Tom. Next question is from [ John Payne ]. Will there ever, over a long horizon, be a possibility that the Life and LTC subsidiary will pay dividends to the holding company?

John, that's a very difficult question to answer. I would say, I agree with your point. It is a longer horizon. And so keep in mind, we really need to get the legacy long-term care insurance business to a place where it can be breakeven going forward. And as we've said, when you look at the premiums we were collecting versus what we needed to get to that breakeven, that was about $22.5 billion of future net present value that we need. We were about 2/3 of the way there. We've got $15 billion -- a little over $15 billion at the end of the first quarter. So that delta, we need to get there. When we do get to that point, then we'll be breakeven. And at that point -- particularly, I've noted that we are looking to monetize our expertise in long-term care in a new U.S. joint venture and a China joint venture. So to the extent we get the legacy book to breakeven -- and that's going to take some more time, a number of years, but then if we have the 2 joint ventures beginning to take off, at that point, I think we hope to really have significant value creation in life companies. But the key is, and unfortunately, the regulators, while they've been very good lately, in the last few years, about significant premium increases, they do spread it out over time. So the remaining amount that we need, we do expect that the regulators will give that to us, but over time. So really, it's really depending on how that multi-year rate action plan goes in terms of when we could really look forward and the shareholders can look forward to potential cash flow from the life companies.

Thank you, Tom. We have one more question. Can you provide an update on Genworth's ESG priorities and commitments?

Yes, another very important topic for Genworth and for all U.S. companies. So beyond our core commitment to well-being for everybody and the planet and all people in the communities in which we live and work, our core business platforms are committed to promoting and facilitating sustainable lifestyles by enabling more people to have access to insurance products that help them achieve the dream of homeownership. And so that's really the vision and the objectives of Enact, and then maintain their lifestyles -- and hopefully, high-quality lifestyles as they age, which is a key part of the benefit of our long-term care insurance business. The Nominating and Corporate Governance Committee of our Board oversees our ESG strategy, and they evaluate the progress of management on our objectives as we balance the interest of our policyholders, consumers, investors, nonprofit partners and, of course, our employees. Our ESG priorities for 2021 include establishing an ESG Investment Committee, adopting an ESG investments policy for our general account, and assigning internal ESG scores to our credit portfolio holdings, all of which we have completed this year. Continuing our focus on diversity, equity inclusion initiatives, we are very pleased about the greater diversity and background and perspectives reflected in our new Board of Directors. And we're also continuing to be good stewards of our environment. For the second consecutive year, we achieved a management B score for our CDP assessment, which speaks to our commitment to climate environmental initiatives. We are in the process of preparing our 2021 submission, and obviously, there's significant more work to be done in this area. But we do recognize the importance of communicating our current ESG initiatives and our future plans, and towards that end, we did just recently publish our first sustainability report in April. And I'll invite all of you, all the shareholders to review that sustainability report.

Thank you, Tom. That concludes the Q&A portion of today's meeting.

Thank you all very much for attending today's virtual meeting. We very much appreciate your interest and input. All of us at Genworth thank our shareholders for their support this past year. And we wish everyone a safe and healthy remainder of the year. This now concludes the 2021 Genworth Annual Meeting of Stockholders, and the meeting is now adjourned. Thank you.

The virtual meeting has now concluded. Thank you for attending today's presentation. You may now disconnect.