Genworth Financial (GNW) Q3 2021 Earnings Call Transcript

Genworth Financial (GNW 1.50%)
Q3 2021 Earnings Call
Nov 03, 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 third quarter 2021 earnings conference call. My name is Katie and I will be your coordinator today. At this time, all participants are in a listen-only mode. [Operator instructions] As a reminder, the 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 third quarter 2021 earnings call. All of 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 reference 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. Following our prepared comments, we will open up the call for a question-and-answer period. In addition to our speakers, Brian Haendiges, president of our U.S.

life position; and Jerome Upton, deputy chief financial officer, will also 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 third quarter earnings call. We are pleased to report another very strong quarter of operating performance, continuing the recent momentum in our businesses. Net income in the third quarter was $314 million; adjusted operating income totaled $239 million, up from $125 million in the year-ago period, driven primarily by the U.S.

life insurance business. U.S. life reported adjusted operating income of $93 million for the quarter, up from $71 million in the prior quarter and $14 million in the prior year period. The results were primarily driven by LTC insurance, which reported adjusted operating income of $133 million, reflecting strong earnings from in-force rate actions, including higher benefit reductions as well as higher net investment income.

Our U.S. mortgage insurance subsidiary, Enact, held its first quarterly earnings call as a publicly traded company this morning following a successful IPO in September. Its results included very strong adjusted operating income, substantial growth in primary insurance in force, and robust capital sufficiency. Dan will provide more details around Enact performance and its impact on Genworth's consolidated results.

We also encourage shareholders to refer to Enact earnings release and slides posted on its investor relations website for more details. We wanted to get another quarter with improved capital sufficiency in both Enact and our principal life insurance company, Genworth Life Insurance Company or GLIC. We entered the fourth quarter with a strong cash position of approximately $638 million and exciting plans to further strengthen Genworth's balance sheet and advance our long-term growth agenda. Looking forward, we remain focused on five strategic priorities, which we are working on in parallel.

As a reminder, our priorities are to maximize the value of Enact, reduce our holding company debt, achieve economic breakeven and stabilize the legacy LTC portfolio, advance our LTC growth initiatives, and return capital to shareholders. Enact is a valuable business with a leading market position and attractive growth opportunities. We monetize part of our ownership stake during the third quarter through the successful minority IPO, which created significant value for both companies. Genworth received aggregate net proceeds of approximately $529 million from the IPO.

We use those proceeds to retire in full our outstanding promissory note to AXA of approximately $296 million, nearly a year ahead of schedule. After the IPO, both Moody's and S&P issued upgrades to some of our ratings and outlooks as well as those of Enact, reflecting further improvement in our financial flexibility and credit risk profile. We are proud of this outcome and the work we've done today to support these upgrades. After the IPO, our ownership of Enact decreased from 100% to 81.6%.

We intend to maintain our position for the foreseeable future. We expect our majority ownership in Enact to generate a significant dividend stream and to be an important source of cash flow going forward. Next, I'd like to highlight the significant reduction in debt that we have achieved. Inclusive of the $296 million AXA note repayment, we have reduced holding company debt by $1.5 billion year to date.

We are proud of this progress, which brings us closer to our target debt of approximately $1 billion. We also made progress toward stabilizing our legacy LTC portfolio this quarter, primarily through our Multi-Year Rate Action Plan or MYRAP. We have achieved approximately $323 million in rate action approvals year to date, including $117 million in the third quarter, which brings our cumulative total to over $16.3 billion on a net present value basis since 2012. Pursuing these actual justified rate actions is critical to achieving breakeven on an economic basis for the legacy LTC business over time.

You can see the success of this initiative illustrated on Slide 11 of our investor presentation, which shows the impact of LTC in-force rate actions, or IFAs, on our statutory pre-tax earnings since 2017. Since 2019, the annual benefit from IFAs has more than offset our statutory losses from our legacy LTC products. In 2021, this included the impact of a illegal settlement. As you can see on Slide 11, IFAs are critical to ensuring that premiums exceed payouts, helping to mitigate the risk of large losses in our legacy LTC business in the near term.

Over the longer term, we will reach a point when premiums will no longer exceed payouts and the losses that gave rise to our assumption for the shortfall will emerge. That's why we're continuing to pursue IFAs while also addressing high risk LTC categories like policies with compounding benefit increases. We're doing this by offering reduced benefit packages, which provide flexibility to policyholders facing a premium rate increases and which also limit tail risk to Genworth. We're also developing care management initiatives to work to reduce both the likelihood of people needing care and the level of care they require.

Through IFA, benefit reductions, and care management, we are effectively working to mitigate both near-term and long-term risk associated with our legacy books. And as you can see on Slide 10, we've made excellent progress on the long-term challenge as benefit reduction options continue to be selected at a higher frequency by our policyholders. As of September 30, 2021, approximately 43% of Genworth's LTC policyholders have opted some form of reduced benefit option. Taking a step back, the cumulative effect of rate increases, IFAs, achieved since 2013 has positioned us well to meet obligations over the intermediate term.

We've achieved over $16.3 billion in rate increases on a net present value basis against the current estimated $22.5 million shortfall in our legacy LTC business. The continued focus on behalf of reductions in care management will help to reduce risk over the long term. We are currently conducting our annual assumption review and expect to strengthen one of our assumptions for benefit utilization rate at the end of the year, just as that we have strengthened other assumptions to bring them in line with long-term expectations. This assumption is a key driver of results and is expected to significantly increase our estimated shortfall, reflecting how our experience has evolved.

When our best estimates change and require the strengthening of assumptions, policyholders benefit from strong reserves backing our liabilities. And as with prior assumptions strengthening, we continue to see broad based support from regulators for actuarially justified rate increases and fully expect these assumptions strengthening to be offset by allowed expansion of our multi-year right action plan. With the combined effect of prior year IFAs, assumptions strengthening coupled with new IFAs, benefit reductions in care management, we remain confident in our ability to achieve economic breakeven. We will share more details from our assumptions review on our fourth quarter call.

I want to thank the regulators, who are on this journey with us, as we work diligently to serve all of our policyholders find solutions to the issue created by products sold in the past and forge a new path forward for the for the LTC industry. I also want to highlight the excellent work being done by our U.S. life colleague led by president and CEO, Brian Haendiges. Brian joined Genworth as chief risk officer in 2020 and took on his current role in February this year.

He has been instrumental in further accelerating risk reduction in our legacy LTC blocks so that we are better positioned to pay benefits over the long term. He will continue to play a key leadership role in this effort moving forward as well as helping us advance our strategic growth agenda in long-term care. Before I move on to our LTC growth initiatives, I want to briefly touch on the upcoming changes to U.S. GAAP accounting under the new long duration target improvement or LDPI, standards that were issued by the Financial Accounting Standards Board.

We are preparing for the implementation of these new roles and expect to provide shareholders with a view on the expected impact sometime next year. I have the effective date in January of 2023. I want to note that the relative impact of these new accounting rules may be greater for Genworth Life Insurance Company compared to other life insurers, given that our U.S. life portfolio is weighted toward traditional long duration insurance liabilities, including long-term care insurance.

Accordingly, we expect a material impact on our U.S. GAAP balance sheet and income statements upon adoption in 2023 and going forward, including a significant reduction of our U.S. GAAP book value or equity. The U.S.

GAAP book value for legacy life companies is expected to be significantly lower going forward under the new accounting. The old U.S. GAAP long duration accounting was based on original pricing assumptions. The new LDTI accounting will change from the original pricing regime to a best estimate or market-oriented accounting model.

The anticipated reduction in U.S. life's book value is a U.S. GAAP accounting change only. It will not impact economic cash flows.

The best indicator of current and future economic cash flows for U.S. life and the legacy LTC business remains the statutory cash flow testing regime under statutory accounting. As a reminder, U.S. insurance regulators primarily focus on statutory accounting results in a regulated U.S.

insurance companies and improving dividends from operating insurance companies to their holding companies. Statutory accounting for U.S. life will not be impacted by the LDTI U.S. GAAP accounting changes.

The new rules will have no impact on cash or cash flow and they do not change U.S. GAAP accounting for now. Also as a reminder, we view the value of our U.S. life insurance legacy business at zero, given that we do not expect insurance regulators to approve future dividends from our legacy life companies for the foreseeable future.

At the same time, we have no plans to contribute a holding company capital into the legacy life insurance businesses. The legacy U.S. life insurance legal entity will continue to fund claims using their existing reserves, statutory capital of $2.5 billion as of the end of June, and the actuarially justified multi-year rate action plan. Given the importance of our statutory results and statutory cash flow and statutory capital levels to our regulators and our reliance upon these results to track the progress and impact of our LTC multi-year rate action plan, we are including new supplemental statutory earnings and capital information in our slides today and plan to do so moving forward.

Now turning to our next priority, advancing LTC growth initiatives. We continue to work toward launching a new and innovative platform that will help address the societal need for long-term care in the U.S. The need for senior care is large and growing given by an aging population, longer life expectancy, increasing need for care, and rising care costs. As reported in our Billion Dollar study published earlier this week.

Long-term care needs -- continue to have significant impacts on aging Americans and their families. The vast majority of Americans are unprepared financially and unsupported in navigating care and health needs in their daily lives. While we'll need a substantial, past [Inaudible] stand-alone LTC insurance offerings have been largely unsuccessful in addressing the needs of customers, who face these challenges, resulting in historically low LTC product penetration. Meanwhile insurers have struggled with an ineffective distribution model and unprofitable economics and have attempted to innovate only on the edges to increase lives insured with hybrid offerings.

We believe the market is ripe for innovation and that Genworth with our 40-plus years of LTC experience and expertise is uniquely prepared to capitalize on this opportunity. As we've said before, we believe a successful reinvigoration of the U.S. LTC market will address both financing and services and ultimately will help to reduce the likelihood of people needing care and/or less than the cost of care that they need. Our long-term LTC growth strategy assumes that future revenues will be weighted more toward capital-light service and advice offerings versus risk-bearing highly regulated and capital-intensive LTC insurance products.

We believe future LTC products and services will require significantly less capital, have less risk, and produce higher returns for shareholders. We believe the capital requirements will be moderate, given the anticipated lower level of risk. As an initial step, we're working on expanding our services offering through our existing subsidiary CareScout, which is a leading provider of clinical assessments and care support solutions for insurers, healthcare organizations, and consumers. We plan to invest a modest initial amount approximately $5 million to $10 million to recapitalize and scale this CareScout business so that we can offer more fee-based services going forward.

But at the same time, we're also working with a highly rated reinsurance partner on launching LTC insurance products with lower and more predictable risks than in the past. The first product will be a low risk individual LTC insurance product with a significant amount of the risk we insured by our partner. However, we firmly believe that the ability to rerate LTC policies annually is absolutely critical success to future LTC insurance products. Accordingly, we don't intend to start writing new business until enough states support the need for annual rerating, enabling us to launch a business that a sustainable, scalable, and profitable we're engaging with our state insurance regulators on this topic and we're working toward launching our first new LTC insurance product with our reinsurance partner in the first half of next year.

We are still in early stages of engaging with rating agencies and other stakeholders and look forward to sharing our progress toward launching this new business on future costs. As we chart a course to future growth, returning to capital -- returning capital to shareholders remains a top priority. After we receive our -- after we achieve our debt target of approximately $1 billion. We plan to return capital to shareholders via regular dividend and or share buybacks while also making prudent investments in our LTC growth initiatives.

This commitment to shareholder is an important part of our story in the near to medium term. And over the longer term, we believe there is a significant opportunity to transform the LTC industry through the successful execution of our growth strategy. Our vision to build a leading profitable platform that offers holistic solutions to the challenges of aging is a unique value proposition in the marketplace and will put Genworth in a category of one. We know that realizing this vision will take time and we can't do it alone.

It will take partnerships with other companies and continued collaboration with regulators and other stakeholders to bring these new solutions to market and create value over time. We look forward to sharing updates in due course. Before I turn the call over to Dan, I would like to acknowledge the significant contributions from both our general counsel, Ward Bobitz; and our chief human resources officer, Pam Harrison; both of whom we recently announced are departing the company effective at the end of the year. They have both served as important counsel and partners in guiding Genworth's progress.

As we move into the next phase of Genworth's journey on more stable footing, they each have decided that now is the right time to move on to their own next phases. Ward's decision to retire comes after 24 years with Genworth, taking the company through its recovery from the financial crisis and its several strategic review processes throughout which he has built strong relationships within Genworth and the regulatory community. This is a well-deserved retirement and I'm thankful for Ward's leadership of the legal team and Ward's many contributions over his tenure. Pam has been a fantastic HR advisor and a partner to me, and I appreciate all she did for Genworth and me as we worked through several very complicated strategic transactions, the Enact IPO, significant disruptions and remote work challenges as a result of COVID-19, and the right sizing of our corporate staff functions, given that Genworth has two remaining businesses, Enact and U.S.

Life. I respect her decision to depart Genworth to be closer to our family in New Jersey and I wish her and her family well. Both positions will be filled by long-serving Genworth leaders, and I have every confidence and their ability to help lead Genworth through its next chapter. With that, I'll now turn the call over to Dan to discuss our third-quarter results and financial position in more detail.

Dan Sheehan -- Chief Financial Officer and Chief Investment Officer

Thanks, Tom, and good morning, everyone. This was another excellent quarter for Genworth, a strong financial performance and continued advancement toward our strategic priorities. Net income this quarter was $314 million. And with this quarter's $239 million adjusted operating income of $0.46 a share, we've reported more than $600 million in adjusted operating income so far this year.

During the quarter, we fully retire the remaining principal amount of the September 2021 debt maturity of $513 million. We also successfully executed Enact's IPO, generating $529 million in net proceeds that we use to pay off the remainder of our AXA promissory note of $296 million and further enhanced our liquidity position. Moving forward with a strong cash position and a clear path for continued execution of Genworth strategy, our Enact subsidiary hosted their earnings call this morning so I'll focus on the key highlights. Enact's NIW for the quarter was $24 billion and contributed its overall 10% year-over-year increase in insurance in-force.

For the third quarter, Enact reported adjusted operating income of $134 million to Genworth and a strong loss ratio of 14%. I would note the Genworth's third quarter adjusted operating income excludes an 18.4% minority interest since the Enact IPO date of September 16th of $4 million and adjusted operating income for the third quarter. Enact finished the quarter with an estimated PMR sufficiency ratio of 181%, approximately $2.3 billion above published requirements. The improvement in the PMR sufficiency versus the prior quarter was driven by strong business cash flows and additional reinsurance credit.

Regarding a fourth quarter dividend, Enact is evaluating economic and business conditions, including the resolution of forbearance-related delinquencies. Assuming these conditions remain supportive, Enact intends to recommend to their board the approval of a $200 million dividend. Genworth would receive its pro rata share of that dividend based on its ownership interest or approximately $160 million. Turning to the U.S.

Life segment, overall result was solid in the quarter at $93 million, driven by the continued strength of the LTC in-force rate action plan and variable investment income. Mortality continue to be elevated in the quarter in part from COVID-19, which negatively impacted our life insurance results. Long-term care had adjusted operating income of $133 million, compared to $98 million in the prior quarter and $59 million in the prior year. As we discussed last quarter, our overall GAAP margins are slightly positive.

We've established a GAAP-only profits followed by losses reserve, which covers projected losses in the future. As of the third quarter, the pre-tax balance of this reserve was $1.1 billion, up from $625 million as of year end 2020. This reduced LTC earnings by $129 million after tax during the quarter. Earnings from in-force rate actions of $304 million prior to profits followed by losses increased versus the prior year.

Page 9 of the investor presentation illustrates the strong quarterly earnings trends from our in-force rate actions. The Choice I legal settlement that we discussed last quarter favorably impacted our results by $48 million or $16 million after profits followed by losses. As of quarter end, 42% of the settlement class have reached the end of their selection period and we expect the remaining class members to make their elections by mid-2022. We also have an agreement for a similar settlement for PCS1 and PCS2 policy forms to still subject to final court approval, the process underway.

If approved in a timely fashion, we expect claimants to start making their elections mid to late 2022. At this time, it's difficult to assess the overall impact of these legal settlements will have going forward as full implementation will take another one to two years. Shifting to in-force rate action approvals to LTC, during the quarter, we received approvals impacting approximately $394 million of premiums with a weighted average approval rate 30%. Year to date, we received approvals impacting $871 million of premiums, the weighted average approval rate of 37%, up from the comparable period last year when we received approvals impacting $595 million in premiums with the weighted average approval rate of 29%.

Our quarterly approvals are uneven. We expect approvals in the fourth quarter and 2022 to be strong based on pending filings and regulators recognition of the importance of actuarially justified rate increases for Genworth and the industry. We experienced favorable variable investment income in LTC again this quarter, reflecting higher limited partnership income, gains on Treasury Inflation Protected Securities and bond calls and mortgage prepayments. While we have seen very strong variable net investment income this year.

We do expect this investment performance to moderate over time. [Audio gap] in the third quarter were higher versus the prior quarter and lower versus the prior year, as noted on Page 8 of the investor presentation. We did not materially adjust our previously established COVID reserve for mortality during the quarter. as the pandemic continues to develop, mortality experience may fluctuate in the near term and we will increase or decrease the COVID-19 mortality adjustment accordingly.

New active claims have trended up gradually in 2021 although incidence remains lower than pre-pandemic levels and continues to drive favorable IBNR development during the quarter. Pending claims submissions, which are a leading indicator of future new claim incidents, increased during the quarter and versus the prior year. We expect to complete our claims assumption review in the fourth quarter while this work is ongoing and not completed. Preliminary indications are that our claim reserve assumptions are holding up in the aggregate.

We also plan to complete our review of assumptions related to our active life reserves as well as loss recognition testing and statutory cash flow testing in the fourth quarter. For these updates, we're generally not including data from 2020 or later in setting any long-term assumptions as we do not yet have sufficient information around longer term effects of the pandemic. As Tom mentioned, a key area of focus for this year's active life reserve review is the utilization trend assumption, which reflects our view of how benefit utilization will emerge in the future. Although our recent utilization experience has generally been favorable, we believe this is primarily driven by the pandemic and temporary in nature.

Another area of focus for the utilization assumption is the growth rate of the cost of care in our 2021 review as we compare our long-term assumption for our accumulated experience as well as to industry benchmarks. While the expected change in the long-term utilization assumption would significantly increase the $22.5 billion legacy shortfall, as Tom stated, we plan to offset the increase to an expansion of our multi-year rate action plan. We also continue to focus our discussions with regulators on refining options available to policyholders and responding to adverse changes and experience in a timely matter. We expect to finalize our assumption review in the fourth quarter and we'll share more detail about these updates and associated margin impacts at that time.

Turning to life insurance, overall mortality for the quarter continue to be elevated versus historical experience, including the prior quarter and prior year. Our third quarter included an estimate of approximately $24 million after tax in COVID-19 claims based upon death certificates received to date. In our term Universal Life and Universal Life products, we recorded a $30 million after tax charge for DAC recoverability, up from $13 million in the prior quarter. The charges continue to reflect the unfavorable mortality experience and continued block runoff.

Like LTC, we're generally not including data from 2020 or later in setting any long-term assumptions in life insurance. However, we're closely monitor in our elevated mortality experience in the context of the ongoing pandemic, including older age mortality as well as mortality improvement. With respect to interest rates, we're focused on our long-term view of interest rates and current portfolio yields. On a statutory basis, stand-alone testing of Universal Life products leverages a prescribed interest rate and we expect to increase statutory reserves in the fourth quarter to reflect the decrease in this rate.

Any potential changes to our life assumptions could further negatively impact our statutory results or reduce GAAP earnings in the fourth quarter. In fixed annuities, adjusted operating earnings of $28 million for the quarter was higher sequentially driven by favorable mortality and the change in reserves related to the increase in interest rates during the quarter. In the runoff segment, our adjusted operating income was $11 million for the third quarter versus $15 million in the prior quarter and $19 million last year. Variable annuity performance was driven by equity market performance, which was unfavorable versus the prior quarter and the prior year.

Additionally mortality in the corporate on life insurance products was unfavorable in the current quarter. We expect capital in Genworth Life Insurance Company, GLIC, as a percentage of company action level RBC to be approximately 290%, up from 272% at the end of the second quarter. Driving this result is U.S. life statutory earnings, which continue to benefit from higher LTC earnings from the impact of in-forced rate actions, including the benefit from the Choice I legal settlement.

Absent these rate actions, statutory losses over the last few years would have been significant as noted on Page 11 of the investor presentation. Statutory earnings to LTC are generally higher than GAAP earnings as the concept of profits followed by losses that I discussed earlier does not exist for statutory accounting. Page 12 of the investor deck highlights recent trends on a quarter lag in statutory performance for the consolidated life companies. Statutory earnings are also more aligned to taxable earnings, which have resulted in strong cash tax payments to the holding company over the last few quarters.

As Tom noted, with the implementation of LDTI on a U.S. GAAP basis, we plan to highlight the statutory results for our U.S. life insurance business as a part of our quarterly earnings process going forward. Rounding out the results, adjusted operating income in corporate and other was $1 million and was improved from last quarter in the prior year, driven by lower interest expense and a favorable tax adjustment.

Turning to the holding company, we ended the quarter with a very strong cash position of $638 million with no debt due until our $400 million maturity in August 2023. As Tom mentioned, we've retired more than $1.5 billion of debt during 2021 while maintaining prudent cash buffers for forward debt service obligations. This is outstanding progress toward our priority of reducing holding company debt to approximately $1 billion. Page 13 of the investor presentation provides the detailed quarterly cash activity for the third quarter.

Most notably, the net proceeds from the Enact IPO were $529 million, which enabled the full retirement of the AXA promissory note of $296 million. Intercompany tax payments were $96 million during the quarter and reflected a strong underlying taxable income of Enact and U.S. Life. We expect cash tax payments to continue in 2022 although at reduced levels as U.S.

Life trends normalize over time we continue to optimize Genworth's group taxable assets and do not anticipate paying federal tax in the near-term. With our improved liquidity position, we intend to retire our 2023 debt maturity once Enact declares their dividend, moving us $400 million closer to our debt target. We then anticipate retiring the 2024 debt maturity, leaving an improved debt ladder with the next maturity not until 2034. In closing, once we've achieved our goal of reducing holding company debt to approximately $1 billion, we'll be positioned to return capital to shareholders.

Dividends from Enact are our main source of cash flow for the foreseeable future and I expect that we'll have a further assessment of future dividend stream in the next several months. While we that view, we continue to evaluate the optimal approach for shareholder returns. Our approach will be to find opportunities to return capital to shareholders while still building value over the long term. With that, we will now open the line for questions.

Questions & Answers:

Operator

[Operator instructions] We'll go first to Ryan Krueger with KBW.

Ryan Krueger -- Keefe, Bruyette and Woods -- Analyst

Hey, guys. Good morning. I have a few questions since -- it's been a while. Maybe first could you just provide an update on the status of the AXA counter-lawsuit against Santander? And any sense of when this -- a decision could be made and how much potential recovery you could get?

Tom McInerney -- President and Chief Executive Officer

So, Ryan, I'll take that one. It's a good question. We get it often. So I would say that that asset, Santander litigation process is going through the U.K.

courts. You'd normally expect 18 months, 24 months for it to be resolved. Our understanding is, given COVID-19 in the U.K. I'm sure it's the case in the U.S.

as well that the court dockets on this litigation are more challenged than they than they used to be. So I -- guidance would be -- probably a couple years from beginning from when it started, which was January this year, could be delayed more than normal because of the COVID-19 backlog. In terms of the amount, we pay significant amounts to AXA under our guarantee. And if the AXA wins in the litigation, we would expect the amount that we pay, we would have the ability to ultimately recover a significant amount, but that really depends on how the litigation goes.

And so it's pretty hard for up to this point to assess. But I would say depending on how the litigation process goes, there's a potential for significant upside depending on how the case plays out.

Ryan Krueger -- Keefe, Bruyette and Woods -- Analyst

Thanks. Another question was on targeted debt as well as capital return. I guess maybe the question is -- long term, is your plan to eventually fully separate Enact? And I guess if so, I would I would think that goal would be to pay down debt to zero to enable that to happen? So kind of [Inaudible] an update on that in regard to your statements on $1 billion long-term debt target and returning capital to shareholders.

Tom McInerney -- President and Chief Executive Officer

Thanks, Ryan. I'll take the first part of that and maybe ask Dan to comment. So our goal is to get the long-term debt to around the billion dollar range, and that's been, as you know, our target for a while. Realistically, we're talking about $900 million.

And so when we get the debt to the 2034 and the 2066, the $900 million. Obviously, a very long time before we have to make any principal payments. And at that level of debt, I think the interest payments are in the $40 million range, so very manageable for us. So that's sort of why we have that as a target.

Longer term, we could keep our 81.6% of Enact for -- we've said, for the foreseeable future. We obviously have options to either spin off. We've talked about that, the 81.6% to shareholders on a tax-free basis. Depending on where we are down the road, that could be an attractive option.

There are obviously other options. I do think you're right that in terms of our long-term goals, we we want the U.S. Life company to be able to stand on their own. And right now because we don't anticipate any dividends from the Life company, that would mean the Life company couldn't carry any debt.

However, as I've talked about on the call and I've talked about before, to the extent that the new business opportunities we see in LTC, we think they're attractive and over time if the Life companies through the new growth business and capital produced from that, it could be that the life company could handle some debt in the future. But but absent the ability of the Life companies to pay dividends, and that would be from the new business not from the legacy company, but absent dividend flow from the new companies the Life company really can't have significant debt. Dan, you want anything to that?

Dan Sheehan -- Chief Financial Officer and Chief Investment Officer

Yeah, so I would just reiterate that once we pay off the 23 from the 24s, we've got 10 years plus of runway with that service in the $35 million to $40 million range to give us the utmost flexibility. And so if ultimately the Life companies can support that level of debt service, we'd have the option to spin off the company. If they cannot, then I think the point is right that we would look at potentially paying down the rest of the data. That was still our goal.

Ryan Krueger -- Keefe, Bruyette and Woods -- Analyst

One last question is -- and I know this is somewhat challenging but can you give any sense of in a more normal year, I guess without COVID, what level of cash tax inflows you might expect at the holding company?

Tom McInerney -- President and Chief Executive Officer

Dan, I'll let you take that one. It's a good question.

Dan Sheehan -- Chief Financial Officer and Chief Investment Officer

Thanks. So the tax question it really is a question that's really directly tied to earnings and we haven't provided a forward guidance on earnings. But I can give you a kind of a rule of thumb way to think about the taxes and what I would do there is just break it into two parts. And I would look at your modeled earnings for Enact.

At around the 21% percent tax rate to a normal tax rate there, that'll get you in the ballpark for what we would expect Enact's payments to the whole could be, obviously adjusting for our ownership interest. On the Life side, we do have some sort of legacy issues from forward starting swaps and others that are taxed at a higher rate. So the tax rate for the life side is going to be a little bit higher than 21%. But the way I would think about this is is not so much looking at GAAP earnings but looking at stat earnings, and that's one of the reasons why we've added profits followed by losses information to our presentation into our materials.

And if you look at this quarter, we had $129 million after tax in profit followed by losses. And so if you want to sort of convert to an approximation for what the stat earnings would likely be and just use a slightly higher tax rate, those two components when put together get you really right to the approximate tax number, which is the cash payment to the holding company. So as you look at what you're modeling going forward and you issue those rules of thumb, I think you'll get pretty close.

Ryan Krueger -- Keefe, Bruyette and Woods -- Analyst

That's helpful. Thank you.

Operator

Thank you. We'll take our next question from Ryan Gilbert with BTIG.

Ryan Gilbert -- BTIG -- Analyst

Thanks, everyone. Good morning. My first question was on the debt maturities. Appreciate the color around the 2023 note.

Do you have any, I guess, timing that you can offer on when you intend to retire the 2024 maturity?

Tom McInerney -- President and Chief Executive Officer

Dan, I think that's a good question for you.

Dan Sheehan -- Chief Financial Officer and Chief Investment Officer

Yeah. I think if you look at our cash position, as in the third quarter, we're obviously in very good position to pay off the 23. What we said is that we will pay off the 23s once Enact declares a dividend. That would give us approximately $400 million if you just sort of add third quarter cash plus the dividend, which puts us in a position to be set up reasonably well to the 24s.

But the timing of paying off the 24 is, first of all, we have a lot of time between now and the 2024 maturity. I think we'll balance the number of factors, including what the cash flows look like quarter by quarter. So at this point, I think it's our expectation we'd be in a position to pay that off early but we're not yet ready to declare timing as it relates to that. But certainly if the fourth quarter goes as expected, and we do get the dividend ultimately from Enact, we'll be a lot closer to being able to provide guidance on that.

Ryan Gilbert -- BTIG -- Analyst

OK. Great. So pint being those that you feel comfortable that you can prepay that you're not going to pay down maturity. Got it.

Second question is on -- can you remind us what your NOL position looks like and the extent that your NOLs are contributing to the cash tax payments that you're getting from the subsidiaries?

Tom McInerney -- President and Chief Executive Officer

[Inaudible]

Dan Sheehan -- Chief Financial Officer and Chief Investment Officer

Yes, great question. Yeah, what I would say is that as of third quarter, we've effectively used all of the tax assets that are on the balance sheet and we're really in the sort of normal tax planning mode. And what we've said is that we in the near term do not expect it to be a cash taxpayer at the federal level, which means that we do have sort of normal cash planned tax planning strategies that we're implementing that will allow the cash to come to the local hold co at least in the near term. But I think in the medium term, to the extent that we continue to see very strong earnings from both Enact and the Life companies, I think ultimately we'll be a cash taxpayer.

Ryan Gilbert -- BTIG -- Analyst

OK. Great. Last one for me is on the shortfall in the LTC business. I think over the last few years the GAAP has been around $8 billion.

Is that how we should be thinking about it for -- as we get into fourth quarter and 2022? Or do you think that this increase that you're that you're telegraphing here could be outsized relative to what we've seen over the past couple of years?

Tom McInerney -- President and Chief Executive Officer

Well, I -- Ryan, I -- what I think what we've said is we do think the benefit utilization trend that we're looking at is a significant assumption. And if we -- ultimately, we're still reviewing that. Obviously, we're still in the middle of the fourth quarter but if we change that, that could be significant. What we've also said is to the extent that we do make a change, we do think we will be fully able to recover that dollar for dollar with an expansion of our multi-year rate action plan.

So if we -- I think because we've had so many questions over the years on how should investors understand where we are, I do think a convenient way to look at it in an economic basis is what is the shortfall and what is the net present value that we've achieved. And so that gap, as you said, it's varied. At the end of the third quarter it's lower than where it was at the end of last year. So it was $22.5 billion less $16.3 billion or $6.2 billion.

But it has been a different amount than that. It's been 8, it's been 9. If you go back several years, it's been 10. So I I think what -- it's less important, I think, what the gap is.

It's more important do we think working with regulators we can recover that in terms of future premium increases. And the one thing I'll say, and I did thank the insurance regulators, some of are on the call, I think we've really over a long period of time now, eight or nine years that we've been working on, we have a very good relationship with the regulators in all 50 states. There are still some states that are ahead of other states on what they're granted. But generally, I think they're all stepping up.

I think their goal and our goal is the same, which is to provide premium increases benefit -- and/or benefit reductions in the future that allow us to pay off all the claims. And as we've now paid around 330,000, claims, I think it's around $23 billion for long-term care and it's based on that evolving claim experience that we look at and update the assumptions and then we we talk with the regulators. I think if you ask regulators, they would say for Genwoth and all LTC insurers, they're also looking at the benefit utilization trend. We've seen recently -- particularly in -- what's driving some of the changes we're seeing is you have seen in many states, the states raising the minimum still about hourly rates to about $15 an hour.

And as you know, a lot of in-home caregivers -- I also think caregivers in nursing homes that they tend to be impacted by the rise in those minimums. So I do think we've seen in the last few years as many states have moved from, I guess, the federal rate of $7.25 to $15. We have seen an increase in cost you know at some point, we would expect that to revert back. And then you have the other competing challenge of, I think, the fed in the U.S.

and in many central governments have struggled to get to their long-term inflation rate of 2%. They haven't been able to achieve that and then significantly lower. Although recently in the last six months to 12 months, supply chain and other issue -- have caused inflation as it seems to be in the 5% range. So all of that is what would Dan and our team are looking at in terms of what we need to do in the benefit utilization.

But I think sort of the bottom line, I think, for investors is we do expect that whenever -- whatever changes we make, if we make a change, could be material but that we would be able to expand and the MYRAP could cover that.

Ryan Gilbert -- BTIG -- Analyst

OK. Understood. I appreciate it. Thanks very much.

Tom McInerney -- President and Chief Executive Officer

Thanks, Ryan.

Operator

We'll take our next question from Josh Esterov CreditSights.

Josh Esterov -- CreditSights -- Analyst

Hey, good morning. Appreciate you taking my question. Sort of a follow up to the question just a little while ago but can you give us a sense of the magnitude of the strengthening or alternatively where the benefit utilization trend assumption is currently versus where it might be set? And sort of a follow up to that, how you expect the reserve strengthening to impact the Life company's ability to send tax sharing payments to the parent either for the fourth quarter or into next year. Thanks.

Tom McInerney -- President and Chief Executive Officer

Yeah. So it's a good question. It's a very complicated question. The first thing I'd say is it's November 3rd, so we're -- we've got quite a bit of work still to do to make an ultimate decision on that.

I do think based on what we're seeing, it's more likely than not that we'll make a change in that benefit utilization reserve. But again, this is a margin testing issue so this is not related to current U.S. GAAP earnings or statutory earnings. This would be you know if we make the change, we'll pay those claims over a long period of time.

And we've got a long period of time to cover the -- those costs through premium increases or benefit reductions. I would not expect, Josh, that the -- those changes would have a material impact on statutory earnings for the balance of this year or next year. And we did give you on that Slide 11 some of the trends. And so I think this is a margin, long-term cash flow impact down the road.

It isn't so much will impact short-term earnings. Short-term earnings are based on the actual claims we pay. And so to the extent we weren't able to assume we can recover those -- that increase in reserves both through future payments and ultimately had a premium deficiency we didn't have a positive margin, that would have a short-term impact. So I think from a -- if you look at earnings in the next -- in the near term, they won't be significantly impacted by these changes if we make the change.

Josh Esterov -- CreditSights -- Analyst

Got it. Thank you appreciate the color. And just to make sure I understood correctly what you just mentioned, so you're -- so your base expectation at least at this point, I recognize there's still work to do, is that there would still remain a greater than zero margin for reserve testing purposes inclusive of a revised MYRAP plan. Correct?

Tom McInerney -- President and Chief Executive Officer

Yeah. Well, yeah I would say just with the caveat, let us do the work and we've got a ways to go. But basically we assume that whatever change we may make will expand the MYRAP. And I think basically, as you've seen, the U.S.

GAAP margin and the statutory margin are different because the testing or different. One's pre-tax, one's after tax. One has prescribed statutory interest rate. The other has a portfolio rate, so there's a lot of complexity.

But I would say that the bottom line is that we would expect that from a margin perspective that whatever changes we make on assumptions, assuming we can recover, and we're confident of that there wouldn't be a material change in the margin and we would we would expect  after we complete the analysis with the caveat that we're not there and things could change, that the margin likely both on the loss recognition, the U.S. GAAP margin, the snap margin would roughly be in the range that they've been. Obviously we have pretty broad -- we have a range of five for the U.S. GAAP margin, $500 million to $1 billion.

And so we would expect after whatever changes we're going to make, assuming we can expand the MYRAP for the margin to be somewhere within that range.

Josh Esterov -- CreditSights -- Analyst

Very helpful. Thank you very much.

Tom McInerney -- President and Chief Executive Officer

You're welcome, Josh.

Operator

Ladies and gentlemen, we have time for one final question from Geoffrey Dunn with Dowling & Partners.

Geoffrey Dunn -- Dowling and Partners -- Analyst

Thanks. Good morning. If you're able to retire you're 23s after the Enact dividend. Can you share any estimate of make whole and potential accrued interest at that point on top of principal?

Tom McInerney -- President and Chief Executive Officer

Great question, Geoff. I'll give that to Dan.

Dan Sheehan -- Chief Financial Officer and Chief Investment Officer

Yeah. Thanks, Tom. Certainly it depends on the level of interest rates at the time but I would expect that number to be between $30 million and $40 million.

Geoffrey Dunn -- Dowling and Partners -- Analyst

OK. And then can you also remind us as we consider the potential for early on the 24s, the liquidity target you're aiming to have at the holdco?

Dan Sheehan -- Chief Financial Officer and Chief Investment Officer

I mean what we've said, generally speaking, is that we'd like to have two times debt service coverage. As our level of debt has come down, we've sort of thrown a number out there around $200 million. Certainly as we pay down the 23s and 24s, we would revisit that and there would be opportunity to reduce that. But at this point, we're still thinking about the number around $200 million.

Geoffrey Dunn -- Dowling and Partners -- Analyst

OK. Thanks.

Operator

Ladies and gentlemen, I will now turn the call back over to Mr. McInerney for closing comments.

Tom McInerney -- President and Chief Executive Officer

Katie, thank you very much. And I want to thank all of the people on the call today for joining the call. I also want to thank the two Ryans, Josh, and Geoff for what I thought were excellent questions, right on point and hopefully we we've been able to answer those well.  The bottom line is I think we had an excellent third quarter. We've had a good year so far through the nine months.

We're very happy with the operating result, the progress we've made against those five strategic priorities, and we're very excited that we've hit a turning point. And going forward we're pretty positive on Genworth's future. And obviously we look forward to talking to again next quarter to give you an update and talk about where we are against executing on those priorities. So with that, thank you.

Thanks for your interest, support of Genworth. And I'll turn the call back to Katie to end the call.

Operator

[Operator signoff]

Duration: 58 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

Ryan Krueger -- Keefe, Bruyette and Woods -- Analyst

Ryan Gilbert -- BTIG -- Analyst

Josh Esterov -- CreditSights -- Analyst

Geoffrey Dunn -- Dowling and Partners -- Analyst

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