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.

Thanks, Tom, and good morning, everyone. Today, I will cover our financial results for the third quarter, capital positions of our subsidiaries, and holding company liquidity. While we continue to face challenges created by the pandemic, I'm pleased with the overall progress made in each of these areas during the quarter, with improved earnings, strong capital ratios in our mortgage insurance businesses, and incremental liquidity at the holding company. We reported net income available to general shareholders for the quarter of $418 million and adjusted operating income of $132 million. The primary driver of the difference between adjusted operating income and net income was $250 million of net gains from the sale of U.S. Treasury strips and our life insurance business, as we continued to reposition the portfolio at a time when the market value of those securities had appreciated significantly. The U.S. mortgage and housing market has remained resilient through this period of uncertainty, with improving home prices, a very large origination market, and moderating delinquencies from the earlier peak. Our USMI business has benefited from its participation in this market, which includes strong underlying mortgage credit quality fundamentals. We're pleased with the performance of the business and the improvement in delinquency and loss trends. USMI's third quarter financial results improved sequentially, primarily driven by lower levels of new delinquencies and incurred but not reported reserve, or IBNR favorability. For the quarter, USMI had adjusted operating income of $141 million and reported a loss ratio of 18%. While new primary delinquencies during the third quarter were still elevated versus pre-COVID levels, they were down 66% sequentially with approximately 75% of new primary delinquencies being reported in forbearance plans, which may cure at an elevated rate. Our assumed eventual claim rate or roll rate for the court is new delinquencies. Once again, blended a lower expectation of claims for delinquencies currently in forbearance plans with a higher expected claim rate for delinquencies outside of a forbearance plan. We continue to rely on our past hurricane related roll rates, which were materially lower given prior effectiveness of forbearance and our experience to set forbearance roll rates through the pandemic. In addition to improvement in new delinquencies, USMI released $23 million of the $28 million increase of IBNR reserves that was established in the prior quarter as new delinquency trends improved. Our servicer reported forbearance trends, which are a leading indicator of delinquencies, have declined from peak levels in May and ended the or 61 200 of our active primary policies reported in a forbearance plan with 63 of those in forbearance being reported as delinquent we ended the quarter with 49 700 total primary delinquencies for a delinquency rate of 5.4 percent both of which decreased sequentially as cures outpaced new delinquencies in the quarter Primary new insurance written in USMI was $26.6 billion in the quarter, up 41% versus the prior year, primarily driven by higher refinancing activity and a larger private mortgage insurance market. We estimate our market share will be strong, but down sequentially as our updated view of risk under the prevailing conditions impacted our participation in forward commitment transactions and our decision to adjust our pricing more generally. While our primary insurance in force has grown 15% versus the prior year, Lower persistency partially offsets the strong new business levels. In Australia, the economy continued to recover with stability in the unemployment rate and moderating declines in home prices, although it will be some time before the economy fully recovers to pre-COVID levels. During the quarter, the Australian federal government and Australia's large banks extended the home and business loan deferral program, which will allow eligible borrowers additional assistance beyond the original six-month forbearance period. Approximately 7% of total Australia households are utilizing these programs, down from 11% last quarter. For Australia MI, approximately 3% of our insured loans, or 31,000 loans, are currently participating in these forbearance programs, down from over 48,000 loans at June 30, 2020. Under Australia regulatory guidelines, these loans are not reported as delinquent. The business increased its loss reserves by $18 million last quarter and $24 million this quarter to account for current macroeconomic conditions, disruption to normal delinquency patterns, and uncertainty regarding payment holiday deferrals. Adjusted operating income for Australia for the third quarter was $7 million, up from $1 million in the prior quarter and down from $12 million in the prior year. The US GAAP loss ratio for the quarter was 37%, which was lower than the prior quarter, 63%, and slightly higher than the prior year. Low interest rates and gradually improving consumer confidence following the initial COVID-19 lockdown drove $5.5 billion of flow NIW, which was up 14% sequentially and 17% versus the prior year. Consistent with prior years, In the fourth quarter of 2020, our mortgage insurance business in Australia is expected to complete its annual review of its premium earnings pattern. In addition, the business will continue to assess the appropriateness of its loss reserves as the pace of the economic recovery and changes to delinquency patterns, including payment holiday deferrals, become clearer. Turning to U.S. life, the segment reported adjusted operating income of $14 million for the third quarter. Our U.S. life businesses continue to experience elevated mortality across all of our products, in part attributable to the COVID-19 pandemic. We also continue to experience negative impact on DAC amortization and reserves from our 20-year term and 10-year term universal life insurance blocks as they enter their post-level premium period. Net investment income for U.S. life was up sequentially versus the prior year and included higher limited partnership income. as well as favorable inflation adjustments on U.S. Treasury inflation-protected securities. In long-term care, claim terminations were significantly higher in the third quarter versus the prior year and flat to the prior quarter. Although we do not require death certificates for LTC terminations and cannot make a direct attribution to official causes of death, we do believe some degree of incremental terminations were the result of COVID-19, and we continue to monitor these trends closely. Although new claim incurrals on Choice 1 and Choice 2 blocks continue to grow as they age, we've experienced favorable development on IV&R claims from lower new claim incidents overall. Since the start of COVID-19 pandemic, new claim submissions have decreased further, driving additional favorable IV&R development. However, we do believe that this more recent reduction in incidents is temporary, reflecting delays in reporting claims due to social distancing and shelter-in-place protocols, and that our incidents experience will ultimately resemble previous trends. As a result, we further strengthened our IBNR by 24 million in the quarter. The overall IBNR calculation will be reviewed and recalibrated during our fourth quarter assumption review. Shifting to in-force rate actions for LTC, the overall benefits were slightly lower than the prior quarter and prior year, as illustrated on page 10 of the investor presentation. While the benefit reductions from in-force rate actions remain strong in 2020, they're lower relative to 2019, which benefited from several large state implementations. Our filing activity for new rate actions also accelerated during the third quarter, and we expect that to continue for the remainder of the year. These filings include newer product series for which we've not requested rate increases in the past. They also include a variety of benefit reduction alternatives, which we've seen more policyholders select. During the quarter, Genworth received approvals impacting 338 million of premiums with a weighted average approval rate of 28%. We remain engaged with state regulators on the importance of actuarially justified rate increases. In addition to the approvals we've received so far this year, We're also working on current filings and hope to secure additional significant approvals during the fourth quarter of 2020. Turning to life insurance, overall mortality for the quarter was elevated versus the prior quarter and prior year. The third quarter included an estimate of approximately 12 million in COVID-19 related claims based upon death certificates received to date. Absent the COVID-19 impacts, mortality would have been flat versus the prior quarter, but modestly higher versus the prior year. The term life insurance business was negatively impacted by shock lapses that continue to be higher than our original locked-in assumptions, as more of the large 20-year level premium term life insurance business written in the year 2000 entered the post-level premium period during the quarter. Total term life insurance stack amortization, a non-cash impact primarily related to these term life lapses, reduced earnings by $34 million after tax, which is unfavorable compared to the prior quarter. As sales levels declined in the second half of 2000, we expect amortization related to term policies entering the post-level period to begin to decrease in the fourth quarter and into 2021. Going forward, given smaller block sizes and reinsurance agreements in place, we would expect term DAC amortization on policies entering the post-level period to be lower than what we observed in 2019 and thus far in 2020. Life insurance results also continue to be negatively impacted by losses in our term universal life insurance product. As a reminder, this is driven by a dynamic of GAAP reserve bill uncertainties policies as they enter their post-level premium period without the offsetting premium revenue due to premium grace periods. Though the impact in the current period was smaller than the prior quarter, we expect this negative dynamic will persist in the fourth quarter of 2020 and into the first half of 2021. after which the number of policies lapsing should exceed the number of policies entering the premium grace ticket. In fixed annuities, lower net spread compared to the prior quarter and prior year pressured earnings, which was mostly offset by higher mortality than single premium immediate annuities. In the runoff segment, our adjusted operating income was $19 million for the third quarter. The segment benefited from equity market improvement during the quarter, though equity market performance was not as strong as it was in the second quarter. For our U.S. life insurance companies, we're in the process of completing our annual review of key actuarial assumptions in the fourth quarter for each of our product lines that we've done in prior years. As with most insurers with long-duration products, we're focused on assumptions related to our long-term view of interest rates and current portfolio yields, which impact loss recognition and statutory cash flow testing. In addition, certain of our universal life insurance products with secondary guarantees require separate testing on a statutory basis, using a prescribed reinvestment rate from July to June each year. Given the declining rates during this period, we currently believe that we will likely need to increase statutory reserves by approximately $200 million in 2020, which would equate to roughly a 15 to 20 point reduction in risk-based capital for Genworth Life Insurance Company, or GLIC. For LTC, we expect to finalize the claims reserve review concurrent with the active life reserve review also in the fourth quarter. While this work is ongoing, current trends do not indicate a need to strengthen the claims reserve, as assumptions appear to be holding up in the aggregate. For corporate and other, our adjusted operating loss is $49 million for the third quarter. This loss was higher versus the prior quarter, primarily attributable to tax adjustments. Our approximately $79 billion cash and investment portfolio continues to perform well, given the uncertain macroeconomic environment. The fixed maturity unrealized gain position continued to improve, reaching $9.2 billion at the end of the quarter, reflecting improvements in the credit markets, benign credit migration, and minimal impairments. Turning to capital levels, our U.S. and Australian mortgage insurance businesses maintained strong capital positions at the end of the third quarter. In USMI, we finished the quarter with a PMIR sufficiency ratio of 132%, or approximately $1.1 billion above published requirements as of September 30, 2020. The decline in our PMIR sufficiency versus the prior quarter was driven by strong new business levels, partially offset by elevated lapses, and the acceleration of the amortization of existing reinsurance transactions. In addition, Capital credit from our 2009 to 2019 excess of loss contract decreased as delinquency development has been more favorable than previously expected. These impacts were only partially offset by strong business cash flows. In October, as part of our normal credit risk transfer program, we completed an insurance-linked note transaction, which will provide an additional $350 million of PMIRES credit and would result in a PMIRES efficiency ratio of 147% against published requirements. The PMAR sufficiency calculation continues to include the effect of the 30% multiplier for eligible delinquencies associated with COVID-19. As we noted in the press release, the GSE has recently imposed certain capital restrictions on our USMI business, including the requirement that GEMICO maintain 115% of PMAR's minimum acquired assets, which will remain in effect until certain conditions are met. Our Australia MI business ended the quarter with an estimated prescribed capital amount or PCA ratio of 179%, which is approximately 300 million Australian dollars above the high end of the management target range of 132 to 144%. Post quarter end, the business redeemed the remaining portion of its tier two debt due in 2025, leaving only 190 million Australian dollars outstanding due in 2030. We estimate capital in Genworth Life Insurance Company, or GLIC, as a percentage of company action level RBC to be approximately 240% as of the end of the third quarter, up approximately 15 points from the second quarter. The improvement was primarily driven by LTC performance and a reduction in reserves on variable annuities related to the continued equity market recovery. For holding company cash, we ended the quarter with $814 million in cash and liquid assets, or approximately $450 million above our targeted cash buffer. Approximately $340 million of the holding company cash balance is ring-fenced for our February 2021 senior notes maturity, which we plan to pay at that time. Page 16 of the investor presentation provides the quarterly detail, including cash inflows of $436 million from the recent USMI debt issuance and intercompany tax payments of $23 million. Cash uses in the quarter include $125 million paid to AXA in July as part of the agreed upon settlement, $59 million for debt service, and $18 million for 2021 debt repurchases that were made during open windows during the quarter. For upcoming holding company debt obligations, we have principal balances of $338 million maturing in February 2021 and $659 million maturing in September 2021. As we noted last quarter, we're not expecting dividends from our mortgage insurance businesses for the rest of 2020 to preserve capital in these subsidiaries, given the uncertainty of COVID-19. To fully address the September 21 maturity, we continue to prepare for an IPO of our USMI business subject to market conditions if the transaction with Oceanwide is further delayed or terminated. Our agreement with Oceanwide affords us flexibility to pursue this or other paths to strengthen our liquidity position. In closing, we've taken numerous steps to improve the liquidity and financial flexibility of our holding company, as well as position our business to navigate these uncertain times. We're pleased with the financial progress and remain focused on providing value to all of our key stakeholders. With that, let's open it up to questions.

Ladies and gentlemen, we will now begin the Q&A portion of the call. As a reminder, please refrain from using cell phones, speaker phones, or headsets. Press star 1 to ask a question. If at any time your question has already been answered or you would like to withdraw your question, please press star 2 to be removed from the queue. please press star one now. We'll go first to Howard Mills with Deloitte.

No, I'm sorry. I did not intend to ask a question. Thank you.

Once again, to ask a question, that's star one. We'll go next to Stan Mercer. Stan, your line is open.

I did not intend to ask a question. I'm sorry.

We'll go next to Sean Perkins with Waterfall Asset Management.

Thanks for having me call, guys. I just wanted to clarify a couple things related to potential ocean-wide closing or the potential IPO, equity IPO of the USMI subsidiary. Could we walk through the sequencing of those events, if possible at all?

Sure, Sean. Thanks for the question. you know, as we disclosed earlier in the week, you know, based on information from Oceanwide and documentation they submitted to Genworth, we expect that the Honi Capital funding will occur in November and they're gathering the funds. I mean, obviously they have a lot of different sources of cash in mainland China, so they're gathering that to put it in an account. But, you know, they do need approval of re-approval, if you will, from the NDRC and SAFE has to authorize the exchange. Based on everything we know, we're hopeful that we can close by the end of the month with no need for an extension. On the USMI IPO, we're continuing to operate assuming there isn't a deal closed, obviously to be cautious. although we're cautiously optimistic that we will be able to close the deal. And so we're doing all the steps, you know, the filings that have to be done with SEC. There's time and periods, et cetera. I think probably a lot of people on the call are familiar with that. And so our view is that we would be in a position to launch an IPO subject to market conditions. You know, right now they're pretty positive. and obviously the USMI business is doing well recovering from COVID-19. And so our current plan, if there is no deal, would be to launch an IPO sometime in the first half of next year.

Got it. And it says that they're mutually exclusive. Is there any scenario in which you'd close the China Oceanwide transaction and still move forward with any form of an IPO of USMI?

Yeah, I mean, yeah. another good question, Sean. I would say, look, I think that USMI is a valuable business. I would say we're disappointed on the management team that the rating agencies don't give us full credit for the terrific performance of our USMI business. I mean, I think the team there, I've been here eight years now almost, and the team there has had I think awesome results for the last eight years. They continue to do very well on the earnings side. They've got significant excess capital above PMR's requirements. As Dan mentioned, if you conclude the ILN deal we did in the fourth quarter, we're at 147%. So I don't know why the USMI ratings aren't higher. Whether we do the deal or not, one of the things that we're working with the rating agencies, and to some degree the GSEs on, is if we did have an IPO, so there's some public float for USMI, that should be a significant positive for the ratings. I mean, I think the ratings should be higher and more consistent with our competitors, given the performance of USMI is equal or better than most of our competitors. So that is You know, it's possible it would be up to, obviously, the new board post-closing, but there is a possibility that we would decide to do the IPO anyway if, by doing that, that allows us to get to the ratings that we think we deserve now, if that makes sense.

Yeah, it does, and I really appreciate that disclosure. Sure. As it relates to the – just on the AXA settlement, would there be any proceeds from the China Oceanwide Closing that have been earmarked or would be earmarked for any form of payment on the AXA settlement?

Another good question, Sean. So the – in the Oceanwide Closing, and we think that will close by the end of the month, we do – provide in the transaction that there's $1.5 billion of new capital coming into Genworth, apart from the purchase price, the $2.7 billion that goes to shareholders at $5.43 per share. But the $1.5 billion, that's going to come in three tranches of $500 million each, one at the end of January of 21, one at the end of April, one at the end of July. And so we believe with the $814 million of cash we have on hand with that one and a half billion, you know, potentially an IPO, as we just talked about, Sean, that those, the cash of 814 million and one and a half, you know, that's 2.3 billion. And so we, we think that that is, you know, we'll go towards reducing the liabilities, the 2021 debt, which is around a billion. And then we, owe APSA under the note in two tranches in 2022. So that is the expectation in terms of what proceeds from the further investment by Oceanwide, how it will be used. I think that and the cash, there are other possibilities, other investments in the different businesses, but our main focus will be on using that $1.5 billion plus cash on hand and certainly any dividends we get next year in the future from the MI subsidiaries to pay off the 2021 debt and retire the X liability in 2022. Very helpful. Thanks so much. You're very welcome, Sean. Thanks for the questions.

We'll go next to Manuel Garcia with Anchorage.

Hi, guys. A couple questions. One, for the Hone Capital, I think in the past, One of the reasons you described the holdup was that Hone itself isn't providing the 1.8. They were going to get a bunch of LPs behind them to provide it. Has that now been received? Do they have all that capital, all the funding for the 1.8 billion already approved, and it's just a matter of getting the regulatory approval?

Manuel, thanks for the question. I would say I think we're in very good shape on the 1.8 billion. I think the Hone and the partners have been arranged well. uh, pretty much. And, uh, you know, the 35% of the funding comes from mainland China. I think that's in good shape. You know, obviously we are dependent on the actual funding of those, those together, the 2.7 billion, uh, on, uh, the approval of MDRC and then the safe authorization, uh, you know, the window, how that conversion process works. You know, we do think that, I mean, obviously, I want to get ahead of the Chinese regulators. That's their decision to make. But, you know, from the beginning, based on a number of conversations that I've had with Chairman Liu, who is very close to all of them, you know, we do believe that they continue to support the deal. So, it would be, you know, it's November 5th today, so in the next three weeks or so, we hope those approvals come in from NDRC and SAFE, and then, you know, the money would be wired out of mainland China, and then Honey Capital would transfer its $1.8 billion, and then we'd be able to close the deal by the end of November. That's the plan.

Yeah, yeah. Yeah, no, no, I don't think the concern has been the regular. I guess the concern has really been does Honey have the 1.8? I guess the answer is it does. The answer is yes.

I think based on everything we've heard, we think the Honey capital, 1.8 billion is in good shape.

It's in good shape. Okay. Okay, thank you for that. Second question I had is for the $1.5 billion of new capital and the three subsequent tranches, is that money already financed and locked in, or is there going to be a process next year of getting that capital approved? What's the new updated source of that $1.5 billion, and is there any uncertainty of it actually coming into the entity post-deal closing?

Again, going back all the way to the beginning of the deal, A significant reason that the Genworth regulators are supportive of the deal is because of that $1.5 billion. So it's a big part of the transaction. And I think all the regulators of Genworth and Genworth itself have done their due diligence on the $1.5 billion. And so on that, Oceanwide can rely on their total businesses around the world and capital. And so, again, based on the conversations we've had in documentation on the $1.5 billion, we and the regulators are comfortable that those $500 million tranches will come in as scheduled.

Okay. And then, sorry, my final question was, you know, you had some commentary on the USMI business. I think you talked about, you know, losing some market share, though it obviously still being a pretty solid market share. And you talk about being a little more conservative. Did Did you see pricing weaken this last quarter? What made you take a more conservative approach than your competitors?

Yeah, well, you know, Manuel, I would say I think you ought to be a little careful when you look at quarter-to-quarter market share because that's going to be based on a lot of different things. But I'll ask Evan Schneider, who's our chief operating officer, to give you a more precise answer in terms of Because we think the NAW is very strong in the quarter, but I think Kevin can give you a little bit more details on how the business saw the opportunities and what we did from a new business perspective. So, Kevin, over to you.

Thanks, Tom. Our market share continually is impacted by the execution of our go-to-market strategy, and that's including but not limited to our price competitiveness, relative to our peers, and in particular in the last year in our selective participation in some forward commitment transactions. We do estimate that our share is down from the prior quarter. As Tom mentioned, we regularly market share moves around. We gain some, we lose some at the customer level on a quarter-to-quarter basis. But I guess what I would tell you is, you know, we pulled back in some price-sensitive areas of the markets. We didn't do quite as much of the forward commitment business. Managing our new business volumes is like managing a portfolio. We're always trying to manage the risk and the reward return tradeoff associated with it. And with the extensive volume that was available in the market this time, we chose to trim back some of that and think our shares down a little bit. We feel very good about our share level and the level it will still come in at, and we think we are poised to continue to drive strong share and perhaps additional share progression going forward. This is a competitive market, and it's always going to be competitive, and we react to that with an eye on maintaining the returns we're trying to achieve for our business.

Well, you know, just in terms of that point, and I totally agree, I think, you know, maintaining market share in a bad environment is not a good idea, so I think that's totally valid. But did you see pricing weaken? Like, if you look at it on a like-for-like basis, is that what made you pull back and say, you know, the program business that you just highlighted? Was it, you think, are there increasing risks that you see that make you more concerned? Just trying to get a sense of that point. It's not a criticism of the lower market share. It's more just trying to understand what did you see that made you want to pull back a bit, as you said.

No, we had a very strong market share in Q2. And there was, I would say there was some enhanced pricing competition in the Q3, but nothing really out of whack. We remain cautious on this environment and what's going to happen and play out with COVID overall. We think the credit quality of the business we've been writing has been very strong. I mean, you compare it to you know, to the last big down cycle. And it's just a much smaller, stronger business volume. So maybe a little bit of competition, but just all in a day's business in the U.S. mortgage insurance business.

Yeah, the only thing I would add, if I look at our operating plan for 2020, I can tell you that we did not expect we'd be writing new NAW more than $25 billion in any of our quarters this year. So we You go back to the second quarter, it was over $28 billion. And this quarter, over $26 billion. So, you know, it's always hard to know what other competitors are doing. But from my perspective and looking at, you know, the goals of USMI, I think they're well above their expectations this year in terms of NIW being written. And I think it's good execution, I think, by the team. And as I say, you know, they, again, we're very disappointed with the ratings. We think the ratings for USMI are wrong. And we do think that the rating, because we are lower than our competitors, even though we operate as well or better than the competitors, we think that has, you know, some issue. Despite all that, you know, I'm extremely pleased with how well, you know, Kavan, Rohit, Gupta, the people running USMI have done. So, you know, we're very pleased with the level of NIW. And as Like Kevin mentioned, the most important thing is we continue to price new business in the mid-teens. And so, you know, if you look at a 70 basis point risk-free rate, you know, pricing that amount of new business, over $25 billion in the last two quarters of NAW in the mid-teens, you know, I think adds a lot of value to USMI and ultimately to January.

All right. Thank you guys very much.

We'll go next to Jeffrey Dunn with Dowling and Partners.

Thanks. Good morning. I just wanted to follow up on that MI line of questioning. Is your sense with the market share decline sequentially, is that primarily due to the loss forward commitment contract, or are you pulling back in other aspects of the traditional flow market?

I would say, Jeff, that it's – I'm sorry.

I was going to say, Jeff, thanks for the question. I'm going to turn it over to Kevin to answer any questions that come to mind.

I would say, as I mentioned, we were a little bit more selective in our participation of that business. It was conscious. And it's not necessarily that we lost anything, Jeff, but that is probably the most price-sensitive channel in the market. And so it was at that level and not really pressure from the rest of the market space.

Okay. And then... I think the general consensus back in the second quarter was on average pricing was up 10%, 20% from pre-COVID. Do you think that still is generally the case?

I think overall that's probably in the ballpark. It's probably backed off a little bit. Jeff, it's still above the level as we entered into this period. And it's starting to reflect some of the performance we're seeing as as the forbearance trends come down, and as delinquencies start to decline, and as the cures are doing a good job against the new delinquencies. So we see overall a pretty good environment, and it's on a good trend. So I think we're still up compared to where we started, maybe not the full 20%, but backed off a little bit.

OK. And the last question. If Biden ends up winning and pushing through the shift in corporate tax rates, the industry passed on all the tax savings back in the spring of 18. What is your sense in terms of pricing power and actually need to increase pricing in that scenario to maintain returns?

If our returns are impacted negatively from a subsequent change in the tax rate, approach under a Biden presidency. You know, I think we priced in the cost, you know, our cost, and we'd have to respond and to maintain the existing returns for our customers. So I think it would, we took advantage of when the tax rate went down, we passed that along to the customers, and, you know, we may have to push some of that back if taxes go up. Okay, thank you.

We'll go next to Howard Amster with Amster Trading.

Congratulations on a great quarter, Tom. I did want to ask you a question on Axia, where you might get some money back from some of the banks that sold the insurance. And I'm wondering how that's going. What's the timeline on that? And the second question is, can you just go over again – the increases that you're proposing for the long-term care?

Sure. Thanks Howard for both of those questions. Good morning. So, you know, on APSA, you know, we made the settlement as part of the settlement. There are still some invoices coming in from APSA and we gave the market a view that we thought that would be a little over 100 million pounds of new the invoices that we're in, but that will, you know, sort of be passed through. And I think that's all, uh, proceeding pretty much as we expected. Uh, you know, as I have sat on a number of previous calls, uh, you know, as you know, Howard, I spent 11 years in Europe, so I'm very familiar with all of these insurance and banking cases in terms of the mis-selling and, you know, the, the precedent is that, uh, in almost all cases in the end, the banking partner, because they did all the selling and the insurers did not, the banking partners were held responsible. And so, you know, my view is that's still the case. The bank here is a bank of ascendant air. And, you know, I would think going forward, we ultimately, you know, AXA would ultimately be successful in, you know, in pursuing recoveries. And as we've said, as part of our agreement with acts that we would we would share to the to the extent we've made we've made payments in that so you know that all has to go through a process uh you know and uh that's that's really more access decision than ours but uh but again the president would say that at some point in the future uh we would get recovery on the lcc side we went through the numbers you know 595 million of A premiums approval average of 29%, maybe that's 173 million in a net present value basis. Our cumulative is now 13 and a half billion. I will tell you, we have several large states in our LTC premium approval queue, if you will, where we anticipate that we will receive good increases, and because they're big states, they're obviously more meaningful. It's always a little hard to predict exactly when they'll come in, but I do expect in the fourth quarter we'll have some good success. Overall, I'm very, very pleased. Our multi-year rate action plan that we've been working on since 2014, we update it every year as assumptions are updated. we change assumptions, increase assumptions, increase reserves, we're able to more or less offset that with LTC premium increases. And I think that continues to be the case. I would send, you know, there's this NAIC long-term care task force. 44 commissioners, I think, are on that. And by and large, I would say that the NAIC and almost all the states strongly support approving these premium increases. In the end, it all goes to pay claims to their policyholders, and that's part of their obligation to make sure those claims are paying. So I think the LTC premium increases continue to go well. They've been going well for the last five or six years, and I think that will continue. I do think today versus three or four years ago, it seems like the regulators are more open and willing because I think they have seen over the last five or six years as all the claims have come in for the whole industry that you know these are actually justified premium increases and if they're actually justified their requirement is to is is to grant them they they spread them out more than i i like i would like uh i think that they're doing that to make it easier for our policyholders which is understandable but we we are still getting that present value uh that we anticipated under the multi-year rate action plan. So I think that's a plus.

Thank you very much. You're welcome, Bob.

Thanks. Ladies and gentlemen, we have time for one final question coming from Charles Sweat with Polyosny.

Thanks. Sorry, I was on mute. Wanted to follow up on the financing question for the Oceanwide transaction. And Oceanwide has a pretty you know, complicated corporate structure. And one thing I just wanted to clarify, since the documents that they provided regarding the financing, you know, aren't available, is that there appears to be, you know, some real estate projects in the United States where Honey Capital is buying assets from Oceanwide. And just want to make sure that the financing for the Genworth transaction isn't subject to those real estate transactions closing because the numbers that we're talking about are pretty similar.

Charles, great question. The Hone Capital funds that are looking at the San Francisco property and then the funds for our deal are totally separate funds of Hone Capital. The transaction, it's sort of a bridge loan to Oceanwide two years provided by the Honey Capital Mezzanine Fund LP, which is a, you know, it's a listed fund. And then for the San Francisco property, there is a Honey Capital Real Estate Fund that is the counterparty in that transaction. So, you know, both Honey Capital is a general partner to the limited partners. These are different funds with different priorities. One is a real estate fund, and the other is a mezzanine debt fund.

Great. Thanks.

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

Thank you very much, Jennifer. And I also want to thank everybody for joining the call. I also want to thank the questions. I think... All of you asked very good questions that I know a lot of investors are interested in. So thank you for that. That gave us a chance to, I think, give a little bit more perspective on those. I do want to reiterate that we're very pleased with the progress that Oceanwide is making since the update previous to the one we did on Monday. You know, they've made great strides in finalizing the financing with Honey Capital as well as from Mainland China, and I think they're in good shape in updating all the necessary filings. Obviously, they're waiting for the final approval or re-approval from NDRC and then the safe actions. But we're hopeful that based on everything we know and the documentations we've received, that we can close the transaction by the end of November. We still think it's the best value for our shareholders, and we are hopeful. that we'll be able to close without an additional extension. In the meantime, we're running the company, focusing our strategic priorities, including the debt financing that we did. The $750 million at the USMI holding company level, we're full speed ahead on the IPO. And I think if you look at the USMI results, I think they were fantastic in the quarter. Australia had a good quarter and You know, we have the ongoing challenges in the life insurance business because we had a lot of business that was written 20 years ago that's coming through at the end of the level term, and the lapse rates are higher than the assumptions made, you know, 20 years ago. And so that has an impact on DAC. That's a non-cash charge. And we expect, and Dan gave you a little bit of perspective on that. But, you know, despite that, Overall, for the division, the U.S. Life Division, which includes LTC and fixed annuities, I think at $59 million and $24 million, respectively, it was a good quarter. So, you know, I think particularly if you put it in, and I say particularly USMI in the context of we're still challenged as a country and I guess as a global economy with COVID-19. So, you know, when I look at the third quarter, the $418 million net income, and the $132 million of adjusted operating income. You know, I think it's just a very strong quarter. And, you know, that bodes well, obviously. I think China Oceanwide, the chairman, is encouraged by the quarterly results. And so hopefully that will continue. Obviously, COVID-19 is still a significant issue. And, you know, we'll see how that plays out. The cases are going up. So it's something, obviously, to focus on. Again, thanks to everybody for your interest, your support of Genworth and shareholders. And with that, I'll turn the call back over to Jennifer.

Ladies and gentlemen, this concludes Genworth Financial's third quarter conference call. Thank you for your participation. At this time, the call will end.