Genworth Financial Inc

Good morning, ladies and gentlemen, and welcome to Genworth Financial's fourth quarter 2020 earnings conference call. My name is Lauren, 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 toward 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.

Thank you, operator. Good morning, and thank you for joining Genworth's fourth 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. Due to applicable security law restrictions, our comments regarding the status of preparations for an IPO of our U.S. mortgage business will be limited to our prepared remarks. Following our prepared comments, we will open up the call for a question and answer period. In addition to our speakers, Rohit Gupta, Chief Executive Officer, Genworth Mortgage Insurance, will be available to take your questions. During the call this morning, we may make various forward-looking statements. Our actual results may differ materially from such statements. We advise you to read the cautionary notes regarding forward-looking statements in our earnings release and related presentation, as well as the risk factors of our most recent annual report on Form 10-K as filed with the SEC. This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. In our financial supplement, earnings relief, and investor materials, non-GAAP measures have been reconciled to GAAP where required in accordance with SBC rules. Also, when we talk about the 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 filing of the statutory statements. And now I'll turn the call over to our president and CEO, Tom McInerney.

Thanks, Tim. Good morning, everyone. And thank you for joining our fourth quarter earnings call. I want to start my prepared remarks today by acknowledging the announcement we made a few weeks ago about Kevin Snyder, Genworth's chief operating officer, who will be leaving Genworth after serving in an advisory role through May 31st of this year. Kevin has been an instrumental leader on our executive committee, and within Genworth's global mortgage insurance businesses over his 25-year career at Genworth and its predecessor companies. As CEO of the Global Mortgage Insurance Division, Kevin led a global mortgage insurance presence across the U.S., Mexico, Australia, Canada, India, and Europe. Kevin provided critical leadership to the disposition of MI Europe, the IPO of Genworth Australia, and the sale of our ownership stake in Genworth Canada. As Chief Operating Officer for Genworth, Kevin also provided critical operating leadership to the U.S. Life team, all while helping lead the company through our transaction with Oceanwide. The Genworth Board of Directors and I are extremely grateful to Kevin for his strong and steady leadership and his outstanding contributions to Genworth over his career. Please join me in wishing Kevin well in his next adventure. Now, turning to the fourth quarter, Genworth delivered very strong results as we continue to execute well and make progress against our strategic priorities. I am pleased with our ongoing ability to achieve strong operating results in what remains an uncertain macroeconomic environment. Following our strategic update on January 5th, we have focused our efforts on executing a revised strategic plan and taking steps to strengthen our businesses. First, as we discussed in January, we remain focused on preparing for a potential partial IPO of USMI subject to market conditions as well as the satisfaction of various conditions and approvals. While we are not permitted to discuss details associated with this transaction due to applicable gun-jumping and related securities laws, I can tell you that we began our preparations for the IPO over a year ago as part of our contingency planning. Since we announced the indefinite delay of the Oceanwide transaction on January 4th and our intent to pursue a partial USMI IPO, We have received multiple expressions of interest from third parties in various transactions involving our USMI business, including a sale of 100% of USMI. The board and management will consider these various proposals moving forward as we continue to prepare for an IPO. Our priority in any transaction would be to maximize long-term shareholder value by unlocking value from USMI and further insulating USMI's ratings. We believe that additional insulation along with significant holding company deleveraging over time would improve USMI's ratings, which are very important from a competitive standpoint. Second, we ended the year in a very strong liquidity position with approximately $1.1 billion of cash, enabling us to pay off our February debt maturity of $338 million. And finally, we recently took actions to realign generalist expense structure to our current business activities, giving the changing footprint of our businesses. expense reductions completed in january which included impacts to people processes and programs are expected to reduce annualized expenses by 50 million we know that this is a challenging time for our employees and we do not take these actions lightly as we execute our contingency plan we have a responsibility to align the u.s life business structure to its current focus which is serving our approximately 3 million existing policyholders by effectively managing the enforced blocks of business additionally We need to ensure that our corporate structure reflects our go-forward business needs. With a sales general candidate and the potential options for USMI, continued streamlining of corporate support functions will be necessary. We evaluate our cost structure on an ongoing basis as we move forward with our contingency strategy. With respect to our U.S. life insurance businesses, I want to be clear that we continue to be committed to improving long-term care insurance model in the United States, which has experienced significant challenges due to legacy business and regulatory issues when the products were designed decades ago. Dan Winters is a leader in long-term care insurance with 40 years of experience and expertise that we can leverage to help create a much stronger, more viable industry standard model that meets the demands of an aging population. Due to our experience in pioneering these products, developing solutions to reduce losses on the legacy policies, and learning from past industry challenges, We believe Genworth can play a key role in strengthening the long-term care insurance market, an effort which is being spearheaded by the NAIC LTC Insurance Executive Task Force. In support of this effort, we continue to execute against our LTC multi-year rate action plan to secure approvals for long-term care insurance rate actions and benefit reductions. Our progress on this initiative has significantly improved the financial stability of our legacy long-term care insurance business, with more work still to be done. As I shared on our January 5th call, we had a very successful fourth quarter for LTC rate action approvals, with over $160 million in additional premium increases achieved. As of year end 2020, we achieved approvals on more than $1 billion of annualized and enforced premiums, representing a weighted average premium increase of 34%, or $344 million on an annual incremental premiums going forward. On a cumulative net present value basis from 2012 through the end of 2020, we have achieved approximately $14.5 billion of approved LTC premium rate increases. As we've discussed in the past, we have no plans to infuse additional capital into or extract capital from our U.S. life insurance businesses. Going forward, the U.S. life insurance businesses will continue to rely on their consolidated statutory capital of approximately $2.3 billion as of the end of the third quarter, significant claim in ALR reserves, prudent management of enforced blocks, and actuarially justified rating actions to satisfy obligations to our policyholders. Before I turn to our fourth quarter results, I want to provide a brief update on where things stand with Oceanwide. The merger agreement with Oceanwide remains in effect. Oceanwide has informed us it is continuing to work towards obtaining the financing to close the transaction. But based on our recent conversations, we do not believe the funding issues will be resolved in the near term, if at all. While Genworth remains open to completing the transaction, our primary focus has shifted to our contingency plan and the USMI IPO. If there is no transaction, it is possible that Oceanwide and Genworth could, in the future, agreed to pursue a long-term care insurance focus joint venture in China, given the excellent long-term growth opportunities for elder care in China and the strong relationship we have established with Oceanwide. Denworth is in a much stronger financial position now than it was four years ago when we first announced the merger. We have taken several strategic actions to enhance holding company liquidity, reduce debt, further isolate USMI from the US life companies, and significantly reduce the capital risk associated with our legacy LTC insurance blocks. Denworth has also delivered solid operating performance over the last several years, led by strong results in USMI, which grew adjusted operating income at a 27% compound annual growth rate from 2014 to 2020, which is among the fastest growth rates in the mortgage insurance industry. In addition, we have significantly improved our balance sheet flexibility over the last few years by refinancing our debt and receiving two consents from bondholders that further isolated our life and long-term care insurance companies from USMI. I am proud of these accomplishments, which have put Genworth on more solid financial footing as we proceed with our plans to maximize shareholder value over the long term. Now I'd like to briefly cover a few highlights of our fourth quarter financial and operating performance before turning the call over to Dan to provide more details. In the fourth quarter, Genworth reported net income of $267 million and adjusted operating income of $173 million. The adjusted operating income result was the highest quarterly result in the last six quarters. USMI reported adjusted operating income of $95 million for the quarter and reported a record level of new insurance written for the full year. Australia MI reported an adjusted operating loss of $16 million for the quarter, impacted by higher losses from reserve strengthening compared to the prior quarter and prior year. The U.S. life companies reported quarterly adjusted operating income of $129 million. This was driven by LTC insurance adjusted operating income of $129 million net of reserve strengthening. The strong LTC results reflect the cumulative benefits of $14.5 billion with LTC premium increases since 2012, a $75 million year-over-year increase in net investment income, and significantly higher LTC claim terminations and lower claim incidents because of the COVID-19 pandemic. We are prudently managing capital and reserves in light of the continued economic disruption and uncertainty caused by the pandemic. As a result, we increased reserves across Australia MI, USMI, and US Life during the quarter. I'd like to thank all of our employees for their hard work and outstanding execution during 2020, which enabled us to deliver a very strong full year company-wide adjusted operating income of 317 million, despite the substantial challenges imposed by COVID-19. I'll now turn the call over to Dan to discuss the fourth quarter and full year results in more detail.