Genworth Financial Inc

Good morning, ladies and gentlemen, and welcome to the Genworth Financial's third quarter 2020 earnings conference call. My name is Jennifer, and I will be your coordinator today. At this time, all participants are in a listen-only mode. We will facilitate a question and answer session towards the end of this conference call. As a reminder, the conference is being recorded for replay purposes. Also, we ask that you refrain from using cell phones, speaker phones, or headsets during the Q&A portion of today's call. I would now like to turn the presentation over to Tim Owens, Vice President of Investor Relations. Mr. Owens, you may proceed.

Good morning, and thank you for joining Genworth's third quarter 2020 earnings call. Our speakers are once again 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. Following our prepared comments, we will open up the call for a question and answer period. In addition to our speakers, Kevin Schneider, Chief Operating Officer, 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 earning release and related presentations, as well as the risk factors of our most recent annual report on Form 10-K that's 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, when we talk about results of our Australia business, please note that all percentage changes exclude the impact of foreign exchange. And finally, references to statutory results are estimates due to the timing of the filing of the statutory statement. And now, I'll turn the call over to our President and CEO, Tom McInerney.

Thank you very much, Tim. Good morning, everyone, and thank you for joining our call. First, I'd like to discuss the status of our pending transaction with OceanWise. Then I'll touch on progress across several of Genworth's other strategic priorities and provide a brief overview of our strong third quarter results before turning the call over to Dan Sheehan, Genworth's Chief Financial Investment Officer. Earlier this week, Genworth announced that Oceanwide had made significant progress towards Zahoni Capital funding and other requirements in order to close the Oceanwide transaction. As indicated in the documentation submitted to Genworth, only capital expects to be able to finalize the $1.8 billion financing in November. Oceanwide is also focused on the funds in mainland China that will provide the remaining amount of capital required to pay for the total purchase price of $5.43 per share so that we can close the transaction by November 30th, subject to timely receipt of regulatory approvals and clearances. Additionally, Oceanwide made progress in the China regulatory process submitting updated information and requesting confirmation of the extension of the acceptance of the filing from the Chinese National Development and Reform Commission, or NDRC. We are extremely pleased with Oceanwide's progress and update. Denver's Chairman Jim Riepe and I have maintained regular communication with Chairman Liu and Oceanwide throughout this process, and we will continue to maintain a dialogue with them as they work to complete the remaining steps to close. We are hopeful that Oceanwide's transaction funding will be completed in time to close the transaction by November 30 without the need for an additional extension. We look forward to providing further updates as we work toward a successful closing of the transaction. In parallel with the transaction process, we have remained focused on executing well and continuing to enhance Genhorse's liquidity position in order to meet our ongoing capital obligations. These plans include raising $750 million of debt at the USMI holding company level, which we completed in the third quarter. Certain of those proceeds will be used to address our $338 million of debt maturing in February of 2021, which Dan will discuss as part of our overall liquidity position and his remarks. We also continue to take steps to prepare for a potential IPO of our USMI business. We are making good progress on these efforts, and we'll continue to take steps to position ourselves to launch an IPO subject to market conditions if the China Oceanwide transaction is further delayed or terminated. We are also making great progress on our multi-year LTC rate action plan, or MIRAP, which remains essential to stabilizing our legacy long-term care insurance business. Year-to-date, we have received approvals on $595 million of annualized in-force premiums representing a weighted average premium increase of 29% or 173 million of annual incremental premiums going forward. On a cumulative net present value basis since 2012, Denworth has now achieved approximately 13.5 billion of approved LTC premium rate increases. We are committed to developing industry-wide solutions to enhance the vitality of long-term care insurance industry through our continued involvement with the NAIC and its Long-Term Care Insurance Executive Task Force. To this end, an NISD subgroup was recently formed to focus on LTC insurance reduced benefit options. We are working to identify options and develop recommendations to provide customers with more choices regarding modifications to their LTC contract benefits where policies are no longer affordable due to rate increases. Before I turn the call over to Dan, I will provide a high-level overview of our financial performance for the third quarter. We delivered strong net income of $418 million and adjusted operating income of $132 million, led by outstanding performance in our U.S. mortgage insurance business. The COVID-19 pandemic continued to impact Genworth's businesses in a number of ways. In the third quarter, we saw sequential improvement in unemployment trends, lower levels of new mortgage delinquencies relative to the second quarter, and a robust mortgage origination market all which benefited the USMI business. Mortality remained elevated relative to the prior year, which had a mixed impact on the LPC and life insurance businesses. U.S. mortgage insurance reported adjusted operating income of $141 million, compared with an adjusted operating loss of $3 million in the prior quarter and adjusted operating income of $137 million in the prior year. The sequential improvement was driven by lower delinquencies and incurred but not reported, or IBNR, favorability. USMI achieved $26.6 billion in new insurance written during the quarter, up 41% versus the prior year, driven primarily by higher refinance originations and a larger private mortgage insurance market. At the end of the quarter, USMI's PMIR sufficiency ratio was 132%, in excess of $1 billion above the published requirements. Our Australia MI Business reported adjusted operating income of $7 million, up from $1 million in the prior quarter and down from $12 million in the prior year. Capital levels remain strong with approximately $300 million Australian dollars above management targets. In response to continued uncertainty in the macroeconomic environment, we are preserving capital in general as mortgage insurance subsidiaries, and therefore, we do not expect to receive further dividends from the mortgage insurance businesses in 2020. The amount and timing of dividends in 2021 will depend on a variety of factors, including the timing of economic recovery from COVID-19. In U.S. life insurance, we delivered adjusted operating income of $14 million up from a loss of $5 million in the prior quarter and a loss of $1 million in the prior year. This total included an adjusted operating loss of $69 million in life insurance due primarily to higher amortization of deferred acquisition costs versus the prior quarter and year, offset by adjusted operating income of $59 million in long-term care insurance and $24 million in fixed annuities. In long-term care insurance, we are still seeing higher-than-normal claim terminations, in part due to COVID-19, as well as lower incidence of new claims. We have strengthened our IBNR reserves as a result and are continuing to monitor these trends closely. I am proud of the continued strong execution across our teams all of whom are continuing to deliver excellent service to our customers in a remote work environment. Out of an abundance of caution, we have decided to maintain our office closures and work from home status until a safe vaccine is widely available to the general public. Based on recent vaccine guidance, we will not open our offices any earlier than June 1st, 2021. While uncertainty remains high, we are confident that we're taking the right steps position our businesses to navigate uncertainty, focusing on the factors we can control, continuing to operate effectively, and maintaining strong capital positions in our mortgage insurance businesses. We will continue to maximize the company's value for our shareholders by taking proactive steps to improve our financial flexibility while working tirelessly towards a successful conclusion of the merger with Oceanwide. With that, I'll now turn the call over to Dan.