Genworth Financial (GNW) Q2 2021 Earnings Call Transcript

Genworth Financial (GNW 1.50%)
Q2 2021 Earnings Call
Aug 04, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to Genworth Financial's second-quarter 2021 earnings conference call. My name is Lauren, and I will be your coordinator today. [Operator instructions] As a reminder, this conference is being recorded for replay purposes. [Operator instructions] I would now like to turn the presentation over to Tim Owens, vice president of investor relations.

Mr. Owens, you may proceed.

Tim Owens -- Vice President of Investor Relations

Thank you, operator. Good morning and thank you for joining Genworth's second-quarter 2021 earnings call. Our speakers are remote this morning, so please excuse any sound quality or technical issues that may arise. Our press release and financial supplement were released last night, and this morning, our earnings presentation was posted to our website and will be referenced during our call.

We encourage you to review all of these materials. Today, you will hear from our president and chief executive officer, Tom McInerney; followed by Dan Sheehan, our chief financial officer and chief investment officer. Due to applicable security law and publicity restrictions, our comments regarding preparations for an IPO of our U.S. Mortgage segment, Enact, will be limited to our prepared remarks.

Following our prepared comments, we will open up the call for a question-and-answer period. In addition to our speakers, Rohit Gupta, chief executive officer, Enact, will be available to take your questions. During the call this morning, we may make various forward-looking statements. Our actual results may differ materially from such statements.

We advise you to read the cautionary notes regarding forward-looking statements in our earnings release and related presentation as well as the risk factors of our most recent annual report on Form 10-K as filed with the SEC. This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. In our financial supplement, earnings release and investor materials, non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules. Also, references to statuary results are estimates due to the timing of the filing of the statutory statements.

And now, I'll turn the call over to our president and CEO, Tom McInerney.

Tom McInerney -- President and Chief Executive Officer

Thank you, Tim. Good morning, everyone, and thank you for joining Genworth's second-quarter earnings call. We reported a very strong operating performance in the second quarter, continuing the reasonable momentum across our businesses while making progress on our strategic plan to create long-term value. In Q2, Genworth delivered net income of 240 million and adjusted operating income of 194 million driven by continued strong performance in our U.S.

mortgage insurance business, now known as Enact, as well as in our long-term care insurance business. Enact reported very strong results with adjusted operating income of 135 million compared with 126 million in the prior quarter and an adjusted operating loss of 3 million in the prior-year period. Relative to the prior quarter, Enact reported higher new insurance written, lower earned premiums and a 32% decrease in new delinquencies. Results reflected a loss ratio of 12%, which compares favorably to the prior quarter due to lower losses from new delinquencies and higher reserve strengthening in the prior quarter.

U.S. life insurance reported adjusted operating income of 71 million for the quarter compared with 62 million in the prior quarter and an adjusted operating loss of 5 million in the prior year. Results were primarily driven by LTC insurance, which reported adjusted operating income of 98 million, reflecting higher earnings from in-force rate actions, including benefit reductions related to a legal settlement and higher net investment income versus both the prior quarter and the prior year. We successfully managed capital levels during the second quarter, ending the quarter with a very strong PMIERs ratio of 165% in Enact or nearly 2 billion above published requirements and risk-based capital in our principal life insurance company, GLIC, of approximately 270%.

Genworth also ended the second quarter with a very strong cash position of 842 million in cash and liquid assets at the holding company level. Our strong performance over the past several quarters provide a solid foundation for us to write the next Genworth's chapter. As our long-term shareholders know, Genworth's financial stability and flexibility have significantly improved over the past several years. We are now on a more stable trajectory as a result of continued strong operating performance particularly at Enact.

Strategic actions we've taken to reduce debt and excellent progress to further reduce risk associated with our legacy LTC insurance blocks. We have adequate liquidity to meet our financial obligations, valuable expertise and capabilities and a focused strategy to drive long-term shareholder value creation. Moving forward, our primary strategic focus in the near term is to continue to reduce holding company debt. In July, we fully retired our remaining 2021 maturities, reducing parent holding company debt by an additional 513 million to approximately 2 billion, including our previously disclosed liability to AXA of approximately 345 million.

Our goal is to reduce holding company debt to a sustainable level of approximately 1 billion, creating more financial flexibility for Genworth to return capital to shareholders and make prudent investments in future growth. Since 2013, we have reduced wholly company debt by a total of approximately 2.2 billion. Related to the obligation to AXA, I mentioned last quarter that AXA has initiated a lawsuit in the U.K. against an insurer seeking to recover payouts it made to policyholders for missed payment protection insurance, a significant portion of which Genworth agreed to reimburse as part of the 2020 settlement.

AXA's lawsuit against an insurer is an ongoing matter. And as with typical litigation, we expect the process to pull out over the next 18 to 24 months. As I've said before, Genworth is entitled to certain recoveries AXA may receive from Sendentera. While any recoveries will be very positive for Genworth, our plans are not reliant upon those potential reimbursements.

Beyond that, we can't comment further on this litigation. To further accelerate our efforts to reduce debt, and improve it, Enact and Genworth credit ratings, we remain focused on partially monetizing our ownership of Enact through a minority IPO of up to 19.9%. 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's shareholders in any potential transaction. The board and I continue to believe that a future IPO 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 continue to monitor the market and will remain prepared to recommence the IPO process, subject to various conditions and approvals when market conditions improve. However, as a reminder, we are currently in registration with the SEC.

And as a result of applicable publicity restrictions, I won't provide any additional details about or discuss the timing of the potential offering. We will be very limited in our comments about Enact other than reviewing its quarterly results. We expect our majority ownership stake in Enact to generate a significant dividend stream in the future as we work to move our legacy LTC books to breakeven and build a profitable new LTC company. We have received approval from the North Carolina Department of Insurance to dividend 200 million of capital from GMICO to Enact Holdings in the fourth quarter of 2021.

Subject to market conditions, business performance, other regulatory approvals and compliance with applicable GSE requirements. This increases our confidence in Enact, issuing a 200 million dividend in the fourth quarter. Following the planned IPO, we intend to maintain our ownership of Enact for the foreseeable future, while preserving the option to distribute the remainder to Genworth's shareholders and a tax-free spin-off with that as an attractive option in the future. Next, we are working toward stabilizing our legacy LTC portfolio through our multiyear rate action plan or MYRAP, which will enable us to focus on our long-term LTC growth strategy.

we have made exceptional progress on this effort with over 15.5 billion in net present value from LTC premium increases and benefit reductions achieved since 2012, including an incremental 49 million in rate actions approved during the second quarter. These rate actions provided more options for policyholders, including reduced benefit and stable premium options, which continue to be selected at a higher frequency by our policies. We are working to develop even more benefit options for our policyholders to choose from when faced with the rate actions. As of June 30, 2021, approximately 59% of Genworth's LTC policyholders have accepted all premium increases in full, 27% have taken a reduced benefit option and 14% have opted for a non-forfeiture option.

Reducing our legacy LTC liabilities through the MYRAP and other rate action initiatives is critical to achieving breakeven on an economic basis with the legacy LTC business over time. Our current long-term cumulative improvement target on a net present value basis is roughly 22.5 billion in rate actions, which is the amount needed to address the current expected shortfall in our legacy LTC books of business. Having achieved 15.5 billion against the current target of 22.5 billion means we are approximately two-thirds of the way toward achieving breakeven. I would note that we will complete our annual LTC assumptions review later this year, and this target could change over time as our experience evolves.

Given that state regulators have and will continue to spread LTC premium increases over several years, returning our legacy LTC portfolio to breakeven on an economic basis is likely five to seven years or more away. We are proud of our steady progress toward this goal and the MYRAP remains an important strategic initiative for Genworth since achieving breakeven will expand optionality and increase the potential long-term value of our overall company to shareholders. With these key initiatives underway, we have begun to focus our growth strategy on the future of LTC insurance and we are advancing our plans through a new insurance company to create a leading profitable LTC insurance business in the U.S As I said before, there is a great need for long-term care solutions in the U.S. with 54 million Americans, aged 65 and older, at the end of 2019, and with that number expected to increase to 95 million by 2060, while at the same time, care costs are rising rapidly.

COVID-19 has heightened the focus on long-term care among legislators and the general public. We believe it also has accelerated the long-term trend of seniors increasingly seeking to receive care in our homes as was evident throughout the pandemic, if not well before, enabling more must be done to protect and empower seniors, enabling them to remain in the setting of their choice and receive the services and support they need to maintain their dignity as they age. Unfortunately, many older adults, especially those in the middle class, have limited options to pay for long-term care and the existing funding gap is simply is too large for either the public or private sectors to fill on their own. That's why we believe partnership with the public and private sectors is critical.

We believe the government and private sectors can collaborate successfully to address the long-term care dilemma, and we are encouraged to see an acknowledgment of this necessary alliance and recently introduced legislation including the well-being insurance for seniors to be at home or WISH Act proposed by U.S. rep Tom Suozzi. We are especially pleased to see that public education is a vital component of his legislation. Focusing greater awareness of the likelihood of requiring long-term care during one's later years, the programs that make cover care needs and the options available to enhance care, we encourage families to have the necessary conversations with our loved ones and take appropriate steps to ensure that resources are available to fund their long-term care needs.

We expect these recent developments, we will reignite conversations about reforming the long-term tariff system in the U.S. And we are eager to participate and lend our unique expertise in this effort. There are only a few players in the LTC insurance market today due to severe financial challenges arising from our legacy LTC business. We know the key to success in the future is to learn from the past, to design new insurance products with lower and more predictable risks.

Through our extensive experience with LTC, we've also identified several opportunities adjacent to insurance, including products and services that help people navigate a complex and fragmented support system to find the best care. We believe a successful reinvigoration of the U.S. LTC market will address both financing and services and ultimately will hopefully reduce the likelihood of people needing care and/or lessening the care that they need. We have a clear picture of a large addressable market for LTC solutions in the U.S.

and are working hard on developing a new and improved go-to-market strategy. As we've mentioned previously, we also see compelling long-term opportunities in China, but have decided to focus our efforts on launching a U.S. business in the near term. Our plan is to launch this new business sometime in 2022 in partnership with highly rated third parties.

While Genworth's most significant contribution to any potential partnership would be our intellectual property and expertise, we may also invest a prudent level of capital. We look forward to updating shareholders with more details in due course. To sum up, we are laser focused on five key priorities. One, reduce our holding company debt to approximately 1 billion.

Two, maximizing the value of an Enact. Three, returning capital to shareholders. Four, achieving economic breakeven and stabilizing the legacy LTC portfolio. And finally, preparing to launch a new LTC joint venture in the U.S I believe the current market value of our shares does not reflect Genworth intrinsic value and that the key to driving significant shareholder value will be our execution on these five priorities in the near term.

After reaching our 1 billion debt target and realizing the resumption of dividends from Enact to the parent company, we expect to generate reliable and sustainable future cash flows that will enable Genworth to consider returning cash to shareholders through a regular dividend and through share repurchases. We know this is an especially important step for our shareholders who've been extremely patient throughout the last several years of uncertainty. We will also be in a strong position to continue to prudently invest and new LTC business opportunities where we are uniquely qualified and positioned to win. We are extremely proud of the work we've done to put the company on this path.

Genworth has an engaged board and leadership team, a skilled and dedicated workforce and the unparalleled experience and expertise to create long-term value. With that, I'll now turn the call over to Dan to discuss our second-quarter results and financial position in more detail.

Dan Sheehan -- Chief Financial Officer and Chief Investment Officer

Thanks, Tom, and good morning, everyone. I'm pleased with the continued progress made during the quarter with strong earnings and capital ratios in our Enact U.S. mortgage insurance segment, strong results from our long-term care insurance business and increased liquidity at the holding company. We ended the quarter with more than 842 million in holding company cash.

Subsequent to quarter end, we retired our remaining September 2021 debt of 513 million, which reduced parent company debt to approximately 2 billion, including the AXA liability. We reported net income available to Genworth shareholders for the quarter of 240 million and adjusted operating income of 194 million. Included in net income for the quarter was 46 million in non-operating items, mostly consisting of mark-to-market increases on limited partnerships in our investment portfolio. Turning to the Enact segment.

The U.S. mortgage and housing market continues to demonstrate positive momentum characterized by a large origination market, increasing home prices and the continuation of decreasing new delinquencies from their pandemic-driven peak. Despite the challenges of low housing inventory and rising home prices, affordability remains favorable, supported by prevailing low interest rates. During the quarter, we estimate the originations market accelerated its transition to purchase originations, which is a positive trend for the private mortgage insurance industry as we experienced approximately four times higher penetration in purchase originations versus refinances.

For the second quarter, Enact reported adjusted operating income of 135 million and a loss ratio of 12% compared to adjusted operating income of 126 million and a loss ratio of 22% in the prior quarter. The improvement in results was primarily driven by lower new delinquencies compared to the prior quarter. In addition, insurance in force grew approximately 10% versus the prior year, primarily driven by over 100 billion in new insurance written over the last four quarters. New insurance written in Enact was 26.7 billion in the quarter, up 7% versus the prior quarter, driven primarily by a larger purchase origination market and down 6% versus the prior year, primarily driven by lower estimated market share.

A healthy and prudent MI market has enabled us to continue to write new business at attractive low to mid-teen returns. We see the market and underwriting conditions, including the pricing environment as being well within our risk-adjusted return appetite. Ultimately, we expect our second quarter new insurance written with its strong credit profile and attractive pricing to positively contribute to our future profitability and return on equity going forward. Our persistency increased seven points compared to the previous quarter and four points compared to second-quarter 2020 driven by a modest increase in interest rates and the decline in the percentage of in-force policies with mortgage rates above prevailing rates.

However, the overall low interest rate environment and resulting refinance activity continued to drive low persistency across our insurance portfolio. Premiums were lower versus the prior quarter and flat to the prior year, impacted by lower single premium cancellations, higher ceded premiums and lapse of older, higher-priced policies, offset by insurance in force growth. While single premium cancellations remain elevated, we did see a 6 million decline to 20 million this quarter versus 26 million last quarter and 35 million last year. Ceded premiums were up 2 million this quarter to 18 million versus 16 million last quarter and reflect the expansion of our credit risk transfer program.

We've added a disclosure this quarter in our investor presentation to provide additional insights regarding changes in our base and net earned premium rates over time. As noted on page five of the investor presentation, our base premium rates have declined modestly from lapse driven attrition within the quarter, with more meaningful reductions in the net premium rate driven by the impacts of changes in single premium cancellations and ceded premiums. Since June, we've been providing investors a monthly reported delinquency activity and have now seen four consecutive quarters of improving delinquency trends with sequentially lower new delinquencies and cures in excess of these delinquencies. For the quarter, cures of approximately 14,500 were up 7% sequentially and continue to outpace new delinquencies.

Our new delinquency rate or new delinquencies over policies in force, was 0.7%, which reflects a return to pre-pandemic levels. We're encouraged by this milestone, which reflects ongoing recovery from the pandemic. New delinquencies of approximately 7,000 during the quarter were down 30% sequentially with 45% reported in new forbearance plants. These delinquencies resulted in 30 million in loss expense in the quarter.

Additionally, we released 4 million of IBNR reserves related to June delinquencies that have not yet been reported by services to us and which we expect will be lower than had been assumed in our prior IBNR reserves. The release of IBNR reserves was offset by other losses. Consistent with the prior quarter, our expected ultimate claim rate on new delinquencies was approximately 8%. We ended the quarter with approximately 33,500 total delinquencies or a delinquency rate of 3.6%.

In total, approximately 64% of our total delinquencies are in forbearance plans. Importantly, 94% of our delinquencies have mark-to-market loan to values, reflecting at least 10% borrower equity and 60% of mark-to-market loan to values, reflecting at least 20% borrower equity using March 2021 home prices. We believe this level of embedded home price appreciation across our delinquencies could have a positive impact on future claim rates and severity of claims, as forbearance plans expire, and foreclosure moratorium ends. Turning to the U.S.

life segment. We reported adjusted operating income of 71 million in the quarter, which compared to adjusted operating income of 62 million in the prior quarter and an adjusted operating loss of 5 million in the prior year. Overall results in this segment were driven by strong variable investment income and benefit reductions in long-term care. Mortality was lower in the quarter as impacts related to the COVID-19 pandemic have lessened.

In long-term care, adjusted operating income was 98 million in the second quarter compared to 95 million in the prior quarter and 48 million in the prior year. I do want to remind investors, while we have a positive lifetime GAAP margin on our long-term care block, the emergence of profits over time is uneven. Under GAAP, we deferred a portion of our LTC profitability by accumulating the profits followed by losses reserve to help cover projected losses in the future. As of the second quarter, the pre-tax balance of this reserve was 957 million, up from 625 million as of year-end 2020.

This had an earnings impact of 125 million after tax during the quarter. For the quarter, variable investment income in LTC was up 35 million after tax versus the prior quarter and 63 million after tax versus the prior year, reflecting higher limited partnership income, gains on treasury inflation protected securities and bond calls and prepayments. As we look forward, we would expect this investment performance to moderate. Claim terminations in the second quarter was significantly lower versus the prior quarter and prior year and recently trended toward more normalized patterns as noted on page 11 of the investor presentation.

To remind investors, we had previously established a reserve of 158 million for mortality experience during the pandemic to reflect our view that the remaining claim population is less likely to terminate than the pre-pandemic average due to the pandemic impacting our most vulnerable claimants. However, with the significant decline in mortality in the second quarter, we did not establish additional reserves for this mortality adjustment or reduced a portion of the cumulative balance, leaving a remaining reserve of 143 million. As the pandemic continues to develop, mortality experience may fluctuate in the near term and we would increase or decrease the COVID-19 mortality adjustment accordingly. Although new active claims trended up gradually in the first half of 2021, incidence remains lower than pre-pandemic levels, and drove continued favorable IBNR development during the quarter.

Pending claim submissions, which are a leading indicator of future new claim incidents increased during the quarter and based on this experience, we expect incidents to continue to trend higher in the quarters ahead. Earnings from in-force rate actions increased versus the prior year and prior quarter, driven primarily by benefit reductions, including the impacts of benefit reduction elections related to a legal settlement that favorably impacted this quarter by 71 million or 22 million after adjusting for profits followed by losses. At this time, it's difficult to assess the overall impact the legal settlement will have going forward as full implementation of the settlement will take another two to three quarters. This settlement applies to a subset of our choice on policyholders or approximately 20% of more than 1 million long-term care insurance policyholders and provides additional clarity into future rate actions with expanded benefit reduction at nonforfeiture options.

We also have an agreement in principle for a nationwide settlement on a basis similar to the Choice 1 settlement, subject to full documentation and court approval, which applies to our PCS 1 and PCS 2 policy forms that comprise approximately 15% of our long-term care insurance policyholders. Shifting to in-force rate action approvals for LTC during the quarter, we received approvals impacting approximately 81 million of premiums with a weighted average approval rate of 60%. For the first half of 2021, we received approvals impacting 477 million in premiums with a weighted average approval rate of 43% compared to 257 million in premiums and a weighted average approval rate of 30% for the first half of 2020. While quarterly approvals are uneven, we expect approvals in the second half of 2021 to be strong based on pending filings with a few large states.

We do expect to complete our claims assumption review in the fourth quarter. We're monitoring emerging experience, particularly in mortality and benefit utilization. While this work is ongoing, preliminary indications are that our claim reserve assumptions are holding up in the aggregate. In the fourth quarter, we also plan to complete our review of our active life reserve assumptions, including mortality, benefit utilization, interest rates and in-force rate actions, among other assumptions.

Any assumption changes that result in pressure to our active life margins will be assessed for inclusion in our multiyear rate action plan. for 2021 assumption updates, we're generally not including data from 2020 and setting any long-term assumptions as we do not yet have sufficient information around longer-term effects of the pandemic. Turning to life insurance. Overall mortality for the quarter continued to be elevated versus historical experience, although improved versus the prior quarter.

The second quarter included an estimate of approximately 9 million after tax in COVID-19 claims based upon death certificates received to date. Despite improvement versus the prior quarter from the decrease in COVID-19 claims, mortality remained higher than the prior year. The impact of term life insurance products from shop lactis has moderated as a result of the reinsurance agreements in place related to the 20-year term block issued in 2001. Total term life insurance stack amortization, reduced earnings by 12 million after tax versus 13 million after tax in the prior quarter and 27 million in the prior year.

We will likely see additional shock lapse amortization next year with a 20-year block issued in 2002, which is not reinsured, although the impacts are anticipated to be smaller than 2019 and 2020, given the smaller size of the block. In our universal life products, we recorded a 13 million after-tax charge for DAC recoverability and down from 17 million in the prior quarter. The charges in the first two quarters of this year reflected the unfavorable mortality experience and continued block runoff. Similar to LTC, we'll also complete our annual review of life insurance assumptions, including mortality, persistency and interest rates in the fourth quarter.

As we complete our review, we're closely monitoring our elevated mortality experience, including older age mortality as well as mortality improvement and potential changes to our assumptions could negatively impact our earnings in the fourth quarter. In fixed annuities, adjusted operating earnings of 13 million for the quarter was lower compared to the prior quarter and prior year, primarily from lower mortality and single premium immediate annuities and unfavorable impact from the decline in interest rates during the quarter. In the runoff segment, our adjusted operating income was 15 million for the second quarter versus 12 million in the prior quarter and 24 million last year. Equity market performance was more favorable versus the prior quarter and less favorable versus the prior year.

Rounding out the results, corporate and others adjusted operating loss was 27 million and was improved from last quarter in the prior year. primarily driven by lower interest expense. Our deleveraging efforts this year and moving forward are projected to decrease the losses in this segment in the quarters ahead. Turning to capital levels.

In the Enact segment, we finished the quarter with an estimated PMIERs sufficiency ratio of 165% or approximately 1.9 billion above published requirements. The improvement in our PMIERs sufficiency versus the prior quarter was driven by strong business cash flows, lower required assets related to declining delinquent inventory, continued capital credit from our forward excess of loss reinsurance transaction and the execution of an insurance-linked note on a portion of our 2020 book, which provided approximately $300 million of PMIERs credit origination. As Tom mentioned, subsequent to the second quarter, GMICO, our flagship MI entity, received approval from North Carolina Department of Insurance, our domestic regulator, to dividend 200 million in the fourth quarter. While subject to market conditions, business performance and other regulatory approvals, including compliance with the applicable GSE requirements, our confidence has increased in Enact, issuing a 200 million dividend in the fourth quarter.

We expect capital in Genworth life insurance company, or GLIC, as a percentage of company action level RBC to be approximately 270%, up from 254% at the end of the first quarter. U.S. life statutory earnings in the second quarter benefited from LTC earnings from the impact of in-force rate actions and claim experience. Statutory earnings for LTC are generally higher than GAAP earnings because the concept of profits followed by losses does not exist for statutory accounting.

Statutory earnings are more aligned to taxable earnings, which has contributed cash tax payments to the holding company over the last few quarters and which we expect to continue. Turning to the holding company. We're very pleased with the improvement in our liquidity and financial flexibility as we've retired more than 1.2 billion of debt through July while maintaining prudent cash buffers for forward debt service obligations. Page 18 of the investor presentation provides a detailed quarterly cash activity for the second quarter including intercompany tax payments of 112 million, which we do expect to continue in the near term, although at lower rates.

As I mentioned earlier, we ended the quarter in a very strong cash position with 842 million in cash and liquid assets were 655 million above our targeted cash buffer. This excludes approximately 284 million in cash held at Enact's holding company. As we look forward, we believe that our liquidity and financial flexibility profile should improve even further. With cash on hand, expected intercompany tax payments, the planned minority IPO of Enact and resumption of their dividends, our financial flexibility should improve meaningfully.

Once our parent debt level reaches approximately 1 billion, we'll be in a better position to return capital to shareholders and make prudent investments in future growth. In closing, we've taken numerous steps to improve the liquidity and financial flexibility of our holding company and the position of our businesses. We're pleased with our financial progress and remain focused on providing value to all key stakeholders. One final note, as Tim noted earlier, due to applicable securities laws restrictions, our comments regarding the status of preparations and other matters related to the planned Enact IPO will be limited to our prepared remarks.

With that, we'll now open the line for questions.

Questions & Answers:

Operator

[Operator instructions] We'll take our first question from Don Espey with Shah Capital.

Don Espey -- Shah Capital Management -- Analyst

Hi. Good morning, all. Two questions for Tom. Tom, in spite of all the fundamental improvements, Genworth's equity has been just a perennial underperformer for so long now.

What else needs to change to get sentiment on a more virtuous and deserved footing?

Tom McInerney -- President and Chief Executive Officer

Don, I would say that we believe, the board and I, and Dan, that the company is in a very strong position we've made enormous progress over the last several years. We do think we're in a position with our debt at 2 billion at this point and looking forward to moving it toward our long-term target of a billion then we'll be in a position to return the capital to shareholders. And we think that's a very important part of getting the share price to where we think it's appropriate, given all the progress made. And I did say in my remarks, we think the intrinsic value of Genworth's shares is higher than where it's currently trading.

It's up a little bit this morning, but we think there's quite a ways to go, and we're doing all we can. I listed the fiv e priorities that we have. We think that's the right path, and we would hope to see the shares be closer to what we think is the value given all the steps we've done in the last several quarters to position the company well.

Don Espey -- Shah Capital Management -- Analyst

OK. And just along the similar topic, why are the ratings agencies completely out of touch to your balance sheet improvements?

Tom McInerney -- President and Chief Executive Officer

I'll let Dan, and maybe Rohit give you details. I would say I've been around a long time, over 40 years, and I would say rating agencies are very good at reducing ratings, but they do take longer, it seems than they should. Certainly, we believe the ratings are far below where they deserve to be because of all the balance sheet strengthening we've done. But I think they tend to be slower on the uptake.

Dan, obviously, spends a lot of time with the rating agencies for both the holding company and the subsidiaries. And Rohit, obviously, spends time with them regarding Enact. And if Dan, Rohit are also on the call, if you want to add any comments to that, for Don, that would be great.

Dan Sheehan -- Chief Financial Officer and Chief Investment Officer

Yeah. Thanks, Tom. I'll just make a couple of comments. One is that we do have regular communications with them, and we're presenting them information ahead of when it comes out to the street.

And so they're very well informed. I would argue it probably more a frequent visitor than most there in part because we think we've got a very good story to tell especially over the last few quarters. And the big debt wall that we had in 2021, we've addressed at this point, and we're in a very strong cash position to manage their challenges going forward. Generally, I think they have a very positive view of U.S.

MI. But because we have limited sources of capital at the holding company, they've really been in a holding pattern waiting for the potential IPO of Enact. And despite the improvement they still have not been willing to move at this point. We continue to share our story and they'll make their decisions independent of us.

But we do believe we've kept them very well informed along the way. And certainly, they've been made and kept abreast of all the progress we've been making.

Rohit Gupta -- Chief Executive Officer

Yeah. Don, the only thing I would add to Dan's comments and Tom's comments is that we are at BB+ for GMICO from S&P, BAA3 from Moody's and BBB- from Fitch. And we believe that our performance continues to be very strong as we recover from the pandemic. We delivered strong net operating income, strong loss performance and a very strong balance sheet with 165% PMIERs sufficiency and $1.9 billion of buffer.

So our focus is going to continue to be on our performance, and we believe that the ratings will come along with that. So we are focused on taking the right steps as Tom outlined, and we believe that that would lead to the right ratings outcome. Our stand-alone rating for our business are comparable to our peers. So that is in the investment-grade range.

And then overall entity ratings would follow with performance.

Dan Sheehan -- Chief Financial Officer and Chief Investment Officer

OK. Thanks all. Take care.

Tom McInerney -- President and Chief Executive Officer

Thanks, Tom.

Operator

[Operator instructions] Ladies and gentlemen, as there are no further questions, I will now turn the call back over to Mr. McInerney for closing comments.

Tom McInerney -- President and Chief Executive Officer

Lauren, thank you very much, and thank you to all of you for joining the call today. We're excited about Genworth's next chapter, and we look forward to continuing to update you as we execute against our plan and our five key priorities that we outlined today. Thank you for your interest and support of Genworth. And with that, I'll turn it back -- the call over to Lauren.

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Tim Owens -- Vice President of Investor Relations

Tom McInerney -- President and Chief Executive Officer

Dan Sheehan -- Chief Financial Officer and Chief Investment Officer

Don Espey -- Shah Capital Management -- Analyst

Rohit Gupta -- Chief Executive Officer

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