Genworth Financial Inc

Good morning, ladies and gentlemen, and welcome to Genward Financial's first quarter 2021 earnings conference. My name is Sian, 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 conference 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 first quarter 2021 earnings call. Our speakers are remote this morning, so please excuse any sound quality or technical issues that may arise. Our press release and financial supplement were released last night, and this morning, our earnings presentation was posted to our website and will be referenced during our call. We encourage you to review all of these materials. Today, you will hear from our President and Chief Executive Officer, Tom McNerney, followed by Dan Sheehan, our Chief Financial Officer and Chief Investment Officer. Due to applicable security law and publicity restrictions, our comments regarding preparations for an IPO of our U.S. mortgage 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 factor on 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 released, and investor materials, non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules. Also, references to statutory 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.

Thank you very much, Tim. Good morning, everyone, and thank you for joining our first quarter earnings call. I'm pleased to report that Genwick delivered strong operating results in the first quarter, while making significant progress against our strategic plan. Today, I will provide a brief overview of performance across our businesses, as well as the progress we've made on our strategic initiatives since our last update. I will also spend a few minutes on Genmore's go-forward strategy. Then Dan Sheehan will discuss the quarterly performance drivers in more detail. Genmore's delivered net income of $187 million for the quarter and adjusted operating income of $168 million. driven by strong performance across U.S. mortgage insurance, as well as in our long-term care insurance business. USMI reported operating income of $126 million, compared with $95 million in the prior quarter and $148 million in the prior year. Relative to the fourth quarter, USMI saw seasonally lower new insurance rents, slightly higher earned premiums driven by insurance-enforced growth, and a 16% decrease in new delinquencies. Results reflected a loss ratio of 22%, which compares fairly to the prior quarter due to higher reserve strengthening in the prior quarter and lower losses from new delinquencies. U.S. Life reported operating income of $62 million for the quarter, compared with $125 million in the prior quarter and a loss of $70 million in the prior year. Results were primarily driven by LTC insurance, which reported adjusted operating income of $95 million, reflecting low new claim incidents and very high claim terminations, likely driven by COVID-19. Importantly, LTC earnings continue to benefit from in-force rate actions. We are optimistic about the potential for broad economic recovery and expansion in the U.S. over the next several years as a result of the vaccine rollout, record federal fiscal stimulus program, and accommodative monetary policy from the Fed. and certainly still remains in the near term, however, and we are continuing to take a prudent approach to managing capital and carefully monitoring developing experience. As a result, we increased our USMI and LTC reserves during the quarter. Overall, I'm very encouraged by our strong operating performance and the excellent execution from our teams over the past year, as we've all had to contend with the challenges associated with COVID-19. Our performance positions turned out well, as we move forward with plans to unlock shareholder value. Turning to our strategic plan, earlier this month, we announced termination of our merger agreement with China Oceanwide. After four and a half years of extraordinary efforts from both sides to close the transaction, this was a disappointing outcome. However, as I've shared on prior earnings calls, Genworth is much stronger today than it was four years ago with significantly better prospects. As a result of a very good operating performance, strategic actions to enhance liquidity and reduce debt, and excellent progress to further reduce risk associated with our legacy LTC insurance blocks through our multi-year rate action plan and benefit reductions, I believe we are well-positioned to create future value as a standalone company. We are laser-focused on pursuing the strategic options that provide the capital and resources we need to further reduce holding company debt, ensure generalists can meet its ongoing financial obligations, and chart a path to growth. We are taking decisive actions, and I'm very confident that Genworth's improved financial position will enable us to meet our future holding company obligations. We've made significant progress in generating liquidity and reducing debt in the first quarter through the sale of our ownership stake in Genworth Australia and the retirement of $729 million of outstanding debt. We also implemented expense reductions resulting in $50 million of annualized savings and continue to prepare for the planned USMI IPO. We entered the first quarter with a strong liquidity position, and we expect to generate additional liquidity from future steps under our plan. We have a strong track record of managing hold-code debt. We have a clear path to address the remaining debt during September, and we are also confident in our ability to repay the balance of our obligation to AXA this year, more than a year ahead of our originally scheduled maturity date. After our September maturity is fully retired, Dan will have reduced holding company debt by 2.2 billion, or over 50%, since 2013. The leveraging will remain a top priority moving forward as we execute on our strategic plan, and Dan will cover our plans to address upcoming obligations in more detail. Related to our obligation to AXA, I also want to note that AXA has initiated a lawsuit in the U.K., against Santander, seeking to recover payouts it made to policyholders for missold payment protection insurance. Most recently, AXA filed a particulars of claim and a summary of particulars, documents which outline its allegations and claims in this action. Under our agreement with AXA, Jenworth is entitled to certain recoveries AXA may receive from Santander. As I've said in the past, There are numerous examples of distributors and banks paying for the PPI and the selling complaints, and we remain optimistic about the potential for recoveries. But beyond that, we cannot comment further on this litigation. Next, I'd like to spend a few minutes outlining the next steps in our strategic plan. With respect to USMI, we remain focused on preparing for a public offering of a portion of our interest, subject, of course, to market conditions, as well as the satisfaction of various conditions and receipt of required approvals. We are currently in registration with the SEC, and as a result of applicable marketing and other restrictions, I cannot provide any details about or discuss the timing of the planned offering. We will be very limited in our comments about USMI today, other than reviewing its quarterly results. As part of our strategy, our strong preference is to maintain sufficient ownership of USMI so as to preserve the option to distribute the remainder to general shareholders in a tax-free spinoff in the future. After the IPO, we have no current plans to further sell down our stake in USMI, and based on our expected debt reduction plan and strong cash flow profile, we have no need to do so to meet our upcoming debt obligations. That's all I can say specifically about the IPO process for now. As we work on the U.S. MIIPO and reduce our debt to a more manageable level. We are also pursuing the next chapter in our U.S. life insurance business. In particular, we are committed to developing and refining sustainable long-term care insurance business models. We are taking a three-pronged approach to maximize the value of our LTC business and to monetize our deep expertise in this area. First and most importantly, we are continuing to mitigate our downside risk through our LTC multi-year rate action plan and reduced benefit options, both of those will continue to reduce our risks. We have made exceptional progress on this effort through the end of the first quarter, achieving over $15 billion in net present value from LTC premium increases and benefit reductions since 2012. Second, we are also exploring opportunities to partner with well-regarded third parties to launch a new long-term care insurance business in the United States. There's a huge need for long-term care solutions in the U.S. with 54 million Americans age 65 and older at the end of 2019, and with that number expected to increase to 95 million by 2060. There are very few players in the LTC insurance market today due to severe financial challenges arising from legacy LTC business. We are evaluating opportunities to monetize our LTC expertise and own intellectual property In partnership with strong third parties, we develop a number of new LTC products and services. Genworth and our potential partners believe this can be a profitable business in the future while addressing a societal need. The key to success in the future is to learn from the past, to design new LTC products and services with lower and more predictable risks. We will also be working with the NAIC and state regulators to change the future LTC regulatory model to allow for timely, and prudent management of LTC risks. Third, we are working with China Ocean Line to develop a strategy to address the significant need for long-term care solutions in China. We continue to explore joint venture opportunities, building on the strong relationship, mutual trust, respect, and potential LTC business plans we've developed through working together over the last several years. The leadership team and I are excited and energized as we move forward with our overall strategic plan. We are remaining nimble and taking decisive actions to maximize the value of our businesses. We have the right initiatives in place and the right team to lead the execution of our strategy. We refreshed our board of directors during the first quarter with the addition of Jill Goodman, Managing Director at Foros Advisors LLC, Howard Mills, a former superintendent of the New York Insurance Department, and Ramsey Smith, founder and CEO of Alex.FYI. These three new independent directors bring a wealth of diverse experience and skills. I'm delighted to have them on our board and look forward to their contributions. In conjunction with this news, we announced that our board chair, Jim Riepe, along with directors David Moffitt and Tom Maloney, intend to retire from the Genwick board following the completion of their current terms in May. I would like to thank Jim for his exceptional leadership as board chair over the last nine years. Tom and David were chairs of a risk committee and compensation committee respectively, and they provided many years of service and excellent contributions to Genworth. The remaining Genworth board members and I are very grateful that Jim, Tom, and David were willing to remain on the board while we worked through the strategic challenges of the last few years. Finally, Before I turn the call over to Dan, I'd like to highlight that Genworth published its first ever sustainability report on April 1st. We all faced our share of challenges in 2020, but as a company, Genworth continued to deliver on our promise to help families become more financially secure, self-reliant, and prepared for what the future may bring. At the same time, our commitment to advancing sustainability has never wavered. We recognize that the success of our businesses over the long term is linked to our efforts to help build a better society and a better tomorrow for our various stakeholders by caring for people and our planet. I encourage you to read more about our focus areas and impact in our April report. In summary, we are highly focused on executing our strategic priorities, including with respect to our interest in USMI, continuing to improve our legacy LTC insurance book, refining our go-forward plans for new LTC businesses, in the U.S. and China and making progress on deleveraging the holding company. And with that, I'll turn it over to Dan.