Q1 2020 Earnings Call
Good morning, ladies and gentlemen, and welcome to the Genworth Financial's first quarter 2020 earnings conference call.
My name is Jennifer and I will be or coordinator today.
At this time all participants.
We will facilitate a question and answer session towards the end of this conference call.
As a reminder.
Being recorded for replay purposes.
So we ask that you were.
So to.
Speaker phone or handsets during the Q portion of today's call.
Now, let's turn the presentation over to Tim.
President of Investor Relations Mr. once you May proceed.
Thank you.
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Okay.
Thank you operator, good morning, everyone. Thank you for joining Genworth first quarter 2014 earnings.
During the current environment shelter in place and social doesn't seem like.
All of our speakers it's 40.
What else would you please excuse any so quality or technical issues that may arise.
A press release, some financial supplements released last night.
<unk> earnings presentation.
Well it's draw website.
And we'll be referenced are difficult.
We encourage you to review all these materials.
Today, you will hear from our President and Chief Executive Officer, Tom Bakke Nerdy.
Kelly Groh, <unk> Chief Financial Officer.
Following our prepared comments, we will open up the call for questions. After a period.
In addition to what speakers, Kevin Schneider, Chief operating Officer, Dan Ci Chief Investment Officer.
Be available to take your questions.
During the call. This morning, we made the various forward looking statements.
Actual results may differ materially from such statements.
We'd like you to read the cautionary notes regarding forward looking statement earnings release related presentation.
The rich sector of the most recent annual.
Report on form 10-K filed with the 60.
This morning's discussion also includes non-GAAP financial measures, we believe may be more meaningful to investors.
Financial supplement.
Really.
After material.
Non-GAAP measures have been reconciled to GAAP where required.
According to the rules.
Also when we talk about the adult well Astro <unk>. Please note that all percentage changes exclude the impact of foreign exchange.
Finally weapons just stature result rest of it.
So I mean, the filing statutory statements.
Now I'll turn the call.
Activity.
Hi.
Good morning, everyone.
Our call.
I hope all of younger for almost a website.
Before I get started Oh, we're lucky strike that healthcare workers first responders and it's hard to many of the essential workers.
Well graph, which drove the spread out.
I'd also like you're talking about John with colleagues for their outstanding outwards, zubair customers and policyholders without interruption.
Extraordinary a difficult personal and professional circumstances.
Always first priority since the beginning of this protocol virus as wonderful dropped to help them all billing or people really March.
He was that there will likely be federal and state government mandates allowed shelter in place and social distancing protocols.
Shenanigans vertical design team.
Singles prompted us to conduct a matter torture that work from home tells a march shift insects in Scottsdale spread or general awareness for work from home scenario, while providing us with an overview on areas to improve to ensure John we're servicing operations seamless.
Or a few learnings from this experience, including the need for up with wireless connections wall employees at home.
It's also systems at home office set up.
With the information along through this cost so what was able to implement a work from home health care costs are U.S. offices effective at the close of business on March along.
So to support our boys general just providing additional financial health and wellness resources, including enhanced credit policies to assist the boys and girls for themselves and their family numbers.
We're also consider understood to be diesel, which we operate.
That's what contributions from the Gentleman Foundation.
It's called the guide you know exactly what our aggressive immediate community needs.
So what is matching 100% of employee contributions identified true pretty much at all.
Oh sure opportunities and special initiatives to support seniors and finally, well we are working with the GFC the mortgage overseas in connection with their forbearance policies for mortgage payments as well as for body instead of gross proceeds for life insurance LTC, an annuity policyholders.
We've extended these and other believe options to customers to ensure a continuation of insurance coverage and mitigate financial hardship for our policyholders I'm very proud of rents rolled response out was under leadership of our exactly to the crisis management teams as a result at the corporate work done work employees, our operations and best in class.
Service levels have done maintained with very little disruption.
I would like to discuss you're putting dread the actual reduction log.
Maintain focused on completing while navigating the geologist desired public lot of arms.
Slide multiple Virgo Cirrhotics I got your journey, which has been ongoing for three plus years. We're extremely pleased he oversees all the U.S. regulatory approvals required to complete the oceanwide transaction subject to confirmation to the Gulf Delaware Department of insurance somebody else you why transaction. They proceed honored to just an approval.
Well those approvals in place Oceanwide, it's growing finalizing its funny black for the crowds actually purchase price 540 people share.
As previously disclosed Oceanwide has its an answer to them, but forgot swabbing of up to 1.8 billion through all the capital to partially fund actually I was just acquisition of Gem works, which was extended to June 30 2020.
Understandably, we've ever seen several questions about auction wads to answer realized throughout the life. So Tom It may take to want everything up to close which I would like to address.
That's why does informed us they continue to work to lunch funding for the transaction and the funding plan is progressing well.
Only capitals, all gone days private equity for sponsored by legend Holdings, a leading investment management from.
Thanks, a lot as good relationship with a farm with a 17% interest in London Holdings, and the best as one of the partner and some of their transactions.
<unk> ammonia capital to lead the global indefinitely institutions, such as Goldman Sachs. The Canadian pension plan about support.
I would probably have actually looked already into that's it.
In addition to its discussions with all the capital.
A lot is also talking to a number up in parties. They work through the funding plan to ensure the process continues to run smoothly.
Given the unprecedented market disruption due the calling the virus that doesn't Oh, you want to Genmark had previously extended the merger agreement deadline to no later than June 33000, that's why why the parties with additional Todd it's needed to close the transaction well, we announced in March that we were targeting closing by the end today. We currently expect of the challenges.
Caused by the product will likely the way the closing until you have the Joe.
The most recent extraction provides generated the flexibility to pursue alternative strategic options if desired.
Now looking up the judge alternatives or be it focuses on evaluating options.
So to answer 1.1 billion of debt coming due on 2021.
We will discuss in more detail.
Well, having this flexibility is important.
There's even clearer today that the Oceanwide transaction is the best alternative for our shareholders and all the stakeholders.
Warmonger, we reached a significant milestone with our New York regulator Reapproved like transaction at the end of March.
It could actually whether be approval, so let's get it among other things to contribute 100 million took what made at the closing of the transaction Oh.
Following new York's approval or Virginia rug like are also be approved the transaction.
Once those was funny plan is finalized oceanwide, who will discuss the currency conversion a transfer funds, which I understand administration, a foreign exchange or say to complete the transaction.
Which is why will also come from with our Delaware shorts regulator separate transaction. They proceed under its existing approval based on discussions with how to Delaware. We believe they will provide the crop protection.
Before I turn call over Kelly I like to provide a high level overview of a pool of outperformance in the first quarter, particularly in light of the calling the virus epidemic.
Oh, good idea that Democrats significant declines that equity markets and interest rates and talking about fourth quarter performance, primarily the muscle Mark that's a global social economic impacts of Golden 19 began to take hold.
The global mortgage insurance business as expressed experienced limited impact window pandemic in the first quarter of mortgage origination levels remained strong and delinquencies remained stable.
The U.S. mortgage insurance business delivered strong operating income of 148 million up 19% year over year, driven by insurance with worse, well that's falling for flawless performance.
And along strike over U.S.M. I guess as illustrated by the significant amount of new insurance written during the quarter, which was up 86% to 17.9 billion year over year.
However, given the significant impact over 19 continues to have a new York's economy, most notably the unprecedented increase in unemployment.
Well that's protocols currently enough that.
We expect lower mortgage originations as well as hard delinquencies in the second half of 2020.
At the other quarter U.S. semis people are sufficiency ratio is very strong at 142% and access at 1.1 billion above requirements.
Well, we're pleased with the parent level of capital in U.S. Tomorrow, We do expect our P. Myers sufficiency to decrease over time, that's delinquencies increased similarly, Australia my business, although performance in the fourth quarter was solid capital was 175 million above that but targets, the economic and regulatory <unk> as such.
But we expect loan performance in the second half of the year and are closely watching its capital levels.
[noise], probably will discuss capital and liquidity position as well as the options. We have the holding company level to continue to improve our financial flexibility as we move through the rest of the year.
During the life insurance businesses outperformance in the first quarter experience crusher, he doesn't quite an equity markets a whole interest rates, primarily in our fixed annuity business as well as in a one off variable annuity block of business.
Long term care insurance roughly broke even in the first quarter.
Operating profit up 21 million relative last year, primarily due to higher earnings from our in force rate actions.
Continuing to make progress.
Our multiyear LTC rate action plan, while my route which is it's actually stabilizing our long term care insurance business year to date, we continue to make good progress against rate actions. That's consistent with the my route with approvals are 30 million of annualized and of course premiums representing a weighted average premium increase of 30.
5% for 45 million of annual incremental premiums going forward.
On a field of that present value basis. Since 2012, Genworth has now achieved approximately 12.7 billion of approved LTC premium rate increases.
Along with its objective other initiatives set forth by the NFC long term care insurance task force developable, consistent and timely national approach for revealing LTC insurance premium increases that you identify boxes like consumers with choice such as benefit reductions for policies are no longer affordable bigger right.
It increases.
There's a heightened focus on us extremely important initiative.
After a long term care insurance industry.
Typically in light of the senior health insurance copy of Pennsylvania's or chefs recently filed deal that rehabilitation club.
Yes plan includes proposed changes to either increase policyholder premiums will produce benefits to LTC policies that have a premium below a specified way, which are likely to be policies are those states sort of a hard on actual are justified rate increases.
We will encourage the IC task force you consider whether actually similar to those propose and the ship plan can be applied more generally two states sort of behind on closing rate actions.
Looking ahead, there's a wide range of possible economic recovery scenarios that depend on several factors, including their duration of the pandemic impacts from ongoing fiscal and monetary policies, the volatility and strength of the capital markets and a return to the U.S. consumer.
Well, we expect your turn volatility and this uncertain environment, we're prepared to navigate these challenges I believe the strategies. We have in place will enable jamere you continue to deliver for our stakeholders.
In summary.
Please with the progress you've made in the last three months to secure the final approvals for the transaction, while delivering excellent service to our customers and policyholders during this challenging macroeconomic period.
I'd like to thank our leadership team and the rest of John with employees for their concerted focus this type of uncertainty.
We continue to prior Torah prioritize their safety and well being while we're making 100% committed to closing the oceanwide transaction as soon as possible.
I'd also like to thank our customers and policyholders to their commitment to Genworth as we all managed through this difficult period together.
And finally, I would like to thank our shareholders for their continued patients as we work to bring the oceanwide transaction to successful conclusion.
Now I will turn the call over to Kelly, who will provide you with a more detailed update on her first quarter performance trends today, the business and our liquidity and capital position.
Thanks, Tom and good morning, everyone. Today, I will start to answer perspective, it's regarding current and potential future impacts from the Kevin 19 virus honor businesses, and our holding company liquidity as well, let's discuss our first quarter financial results.
Expand on Tom's comments, because it 19 virus and resulting macroeconomic impacts and regulatory responses are unparalleled what the ultimate impact still very much on certain due to the unknown length at the pandemic. If you didnt shape of the economic recovery and the impact future regulatory and governmental Act.
Actions.
These dynamics will impact all of our businesses going forward.
Our enterprise risk management finance, an actuarial teams are focused on model when these on certain events and being prepared to implement proactive contingency plans to maintain the financial health of our businesses.
And our U.S. mortgage insurance business, we will be closely following delinquencies in the second quarter as we expect them to rise as result at higher unemployment and government supported for Barents programs.
It remains to be seeing how these different countries cure as the economy restarts and if the pattern will be similar to experience with recent localized events, such as Hurricane Harvey and.
And these instances delinquencies cured months later, following rebuilding and stimulus efforts.
We do expect new insurance written or and I got to you for the second half of the year to decline versus a levels. We saw in the first quarter with anticipated flowing the purchase originations market only partially offset by refinancing activity as interest rates will likely remain below.
We started the quarter in a strong capital position with actions we kept the over the last few years.
We ended the quarter, whatever 1.1 billion of capital above the P. Myers minimum and approximately 77% of our risk in force covered by some level of reinsurance.
We remain actively engaged with our regulators and the G.S. used during these turbulent time.
Our view of 'cause it 19 delinquency experience, the overall housing and macroeconomic environment and our ongoing regulatory discussions.
Well inform our view around future U.S. and my dividends.
And we may not received for their dividends from our U.S. My business in 2020 in order to preserve capital in our insurance subsidiaries. During this period of uncertainty.
The amount and timing of dividends will be reevaluated later in the year and depend on the economic recovery from cope with 19.
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Turning to Australia.
The governor supporting similar forbearance programs for up to six months in response to kind of at 19.
However, under Australia practice payments mystery number Barents period are not consider delinquent until after the expiration of the forbearance period, it's scheduled future payments are not present.
We would still anticipate some level of increased delinquencies following the expiration at the forbearance programs due to economic pressures and are likely to experience reduced earnings in Australia business pretty remainder of figure.
Similar to the U.S. shaped recovery and the cure rates for these delinquencies will be the drivers for the ultimate financial performance.
We expect lower new business volume in Australia, given the current state of the economy and the housing market activity.
We started the quarter in a strong capital position in Australia with over 400 million Australian dollars have capital above our targeted minimum levels.
Unlimited that at the local level, what the 2025 maturity.
Also in January Australia, renewed 800 million Australian dollars of excess of loss reinsurance like a panel at the upper 20 reinsurers.
However, given the heightened uncertainty over covered my team and recent regulatory guidance.
Our restaurant business, what's true financial guidance in late March and now what we consider dividends for the west Didier until there's more clarity around the impacts of Cabot 19.
The consideration in this decision that was noted in Australia is released last night.
The 182 million Australian dollar local accounting charge, the business took for liability adequacy testing or L.A.T.
This test calculates potential losses, using a higher confidence level, then best estimates and evaluate recoverability at the back talents and then the need for any additional reserves that stress case.
It was no equivalent charge under U.S. GAAP accounting in the first quarter. As you know deficiency is lifted due to higher unearned premium reserves lower DAC balances and an accounting Rashid based on the best estimate of outcomes.
Regarding our U.S. life businesses, Cabot 19, economic impacts and uncertainties do not change our view that this business is isolated and dependent on its existing capital.
Multiyear LTC rate action plan and prudent management at the enforce business, which includes expense management.
We have not yet seen meaningful elevated levels of direct mortality or lapses in or U.S. like business from the cup in 19 virus.
[laughter].
Well, we have experienced is a result macro economic impacts of the social distancing measures, which includes the reduction in GDP and higher unemployment, which is driving interest rates to at historically low level.
Increasing equity market volatility and causing credit deterioration.
These impacts will certainly be a heightened focus area of ours going forward.
Well, a short term impact may not necessarily causing impact to our long term actuarial assumptions that we're monitoring and well review later this year. These broader macroeconomic factors did impact our once your results primarily on U.S. why products that require updates for unlocked assumptions, such as our variable and fixed.
The new cities.
We also experienced unfavorable mark to market losses on or equity in limited partnership investments, reflecting the significant market decline as of March 31st.
We will continue to monitor interest rates as we move later on here and evaluate all of our assumptions that may need updating as we see longer term trends.
In addition to the dislocated market environment, the National Association of insurance commissioners or any I see and a number of states have instituted temporary premium grace period programs and no lapse guidelines.
I do not anticipate this will have a meaningful impact.
I did want to spend a few minutes discussing our investment portfolio given questions investors may have we've added an additional slide to the presentation posted this morning on our website.
Approximately 85% of our cash and investment portfolio, which totaled $73.2 billion in market value at the end of the first quarter backs or U.S. life insurance obligations.
Its portfolio is constructed to create a level of diversification based on sector issuer and ratings.
In total approximately 78% is invested in investment grade fixed maturity securities, but the majority rated a or better.
We've always monitored our investment portfolio very carefully for signs of distressed it could be early indicators of rating downgrades in credit losses.
In the first quarter, we saw no credit losses, and limited level of credit migration within our fixed income portfolio.
Also with the low interest rate environment, partly offset by widening credit spreads are unrealized gain position was <unk> point $9 billion attempt the corner with less than 5% trading at less than 85% of book value as a threeq 31.
Both of these metrics have improved since quarter end.
We do expect credit migration and credit losses will accelerate into Q, but.
Particularly in the energy and transportation sectors, which represent approximately 9% of our fixed income portfolio.
Another 10% of our portfolio is or approximately 7 billion dollar commercial mortgage loan portfolio.
Which we are also closely monitoring.
As of quarter end, all loans were performing.
However, we have received a number of inbound calls I think last few weeks related to restructuring, but the focus on loans for retail properties.
We are evaluating these situations one by one with a focus on principle preservation.
Well the scale of the Kevin 19 virus and implications are unprecedented and many uncertainties remain we will continue to monitor events and proactively take steps to preserve and improve the financial health of our businesses.
Before I talk about operating results for the quarter.
I did want to address liquidity at our holding company as this remains a top priority.
We ended the quarter like $575 million in cash and liquid assets or approximately 200 million above our targeted two times forward that service buffer.
During the quarter, we addressed a number of large near term obligations with proceeds received from the sale at a candidate and my business in December 2019.
As depicted on page 16 at the Investor deck Genworth retired June 2020 debt. In addition to repurchasing $14 million up our 2021 debt in the open market at prices below par.
He also fully retired the 200 million dollar intercompany note to glut.
Other uses of cash during the quarter included additional cash collateral relating to our interest rate hedge on our hybrid debt given the sharp reduction in interest rates.
Interest expense at $66 million, which include accrued and unpaid interest on the early debt retirement.
A 134 million dollar interim payment to access, which we discussed on last quarter's call and approximately $75 million and other miscellaneous on timing items that are typically higher in one Q and are mostly reimbursed by our businesses throughout the year.
Finally, we received ordinary dividends of 11 million U.S. dollars from our Australia business during the quarter.
Do you want to update investors on the Axa litigation that we discussed last quarter.
We continue to de uncertain at the ultimate amounts that maybe do or commanded under a ruling.
Accesses updated their invoice claim amount not at the January interim payment to 389 million pounds, which converts to $483 million at March 31st foreign currency exchange rates.
As mentioned before Axa is also seeking a tax grossed up on the amounts invoiced for an additional amount of approximately $142 million assuming march 31st FX rates.
I know damages well because subject as of June hearing, which we have no reason at this time to.
Believe well be delayed due to cope at 19.
Such.
As we manage our liquidity and 2020 and beyond we're mindful of peace possible incremental litigation expenses and approximately 1.1 billion combined debt maturity in February in September after 2021.
We are also cautiously planning for no further subsidiary dividends in 2020 to present the capital in our mortgage insurance subsidiaries.
We are reviewing alternatives to meet those needs in the event the Irish my transaction, it's terminated or delayed.
He's liquidity alternatives include a possible debt issuance from our U.S. mortgage insurance business spray secured loan facility, which would provide time for markets to recover before a more permanent solution can be found and we can further de lever.
Our agreement with if some wide gives us flexibility to pursue the other options in parallel with the ongoing transaction, although our top priority skill to close the ocean why transaction.
Turning back to earnings for the quarter, we recorded a net loss available to genworth shareholders for the quarter $66 million, an adjusted operating income at $33 million.
The net loss in the quarter included investment losses of $89 million net of taxes, and other adjustments, primarily reflecting embedded derivative losses on our variable annuity product.
FX hedges in Australia, and Mark to market losses on equity Securities and limited partnerships.
And you have to my adjusted operating income for the quarter was $148 million compared to 160 million in the prior quarter and 124 million in the prior year.
The prior quarter results included $21 million at favorable impacts from assumption updates.
The reported loss ratio for the quarter was 8%.
Overall financial performance through the first quarter of 2020 has been generally strong and characterized by strong housing fundamentals, increasing insurance in force and lower delinquencies.
We did not observed any 'cause it 19 related delinquencies during the quarter nor deterioration in performance trends are adjusting delinquencies that would warrant reserve strengthening.
Slow new insurance written in U.S., a mine was 17.9 billion in the quarter up 86% versus the prior year, primarily driven by larger private mortgage rich insurance market.
In Australia, adjusted operating income was $9 million in the quarter down from 12 million in the prior quarter and 14 million in the same quarter or the prior year.
The U.S. GAAP loss ratio for the quarter was 34%.
Financial performance on the U.S. GAAP basis in Australia treat the first quarter of 2020 has been generally stable, although the pressure from smaller enforced bucks portfolio seasoning and lower policy cancellations have driven lower results versus prior periods.
At the 19 did not have a material impact on U.S. GAAP results for GMH for the first quarter of 2020.
Well, new insurance written in Australia increased 26% versus the prior year to 4.1 billion due to the higher mortgage origination volumes prime acute customer.
Turning to our U.S. life insurance segment results were impacted by continued lapses in our 20 year term life products and low interest rate an equity market volatility impacting fixed indexed annuities.
Long term care insurance, our multiyear rate action plan continues to be the key driver for adults.
In LTC claim terminations were higher in first quarter versus the prior period and consistent with seasonal expectations.
If it utilization rates on existing claims which are updated each quarter on a rolling basis at a slightly favorable impact on earnings for the quarter compared to an unfavorable uptake in the prior year.
You LTC claims for the quarter continue to reflect higher claim counts on our larger choice, one and twice two blocks, which we expect those blocks age.
The overall benefits at the enforce rate actions for LTC, particularly the reduce benefit impacts were higher than the prior year, but down sequentially as illustrated on page 11 of the Investor presentation released this morning.
As we discussed in the past benefit reductions can fluctuate from quarter to quarter and we're also beginning to see a wind down at the implementations associated with large state approvals. We received in 2018 in early 2019, consistent with our projections.
We expect the benefit of enforce rate actions to continue to be strong this year, although at a level more consistent what first quarter performance.
These reduction approvals included expanded reduced benefit and stable premium options, which continue to be selected at a higher frequency by or policy holders as many of these policy holders have been subject to multiple rounds of increases.
This flexibility for our policy holders is more important than ever given the covert 19 macro economic impacts.
We will continue to monitor policyholder behavior carefully in light of the potential cobot 19 impact to our policyholders.
During the quarter Kenworth received approval impacting 130 million to premiums with a weighted average approval rate at 35%, which was inline with expectations.
We believe regulators continue to recognize the importance of timely justifiable rate actions and our experience for last few months reinforces that despite the many priorities and work from home orders of the state insurance departments.
Turning to life insurance overall mortality in term and universal life for the quarter was significantly unfavorable versus the prior quarter in prior year.
Although we do not have evidence that this is related to cope with 19, given only three claims identified as related to cobot 19 were received during the quarter totaling just under $300000 and benefit payments.
We will continue to monitor our mortality experience as well as any impacts from Cabot 19, as we progress throughout the year.
Life results were also negatively impacted by an operating loss of $30 million in our term universal life product as we experienced a significant got reserve build in the quarter I. Certainly these policies entered their post couple of premium period and are currently in the Grace period.
The ultimate persistency. These products that are enabling these periods of higher premiums is uncertain.
Reserves attributable to these policies increased during the quarter and will be released over time, assuming a meaningful number of these policies lapse after the premium Grace period expires.
Yes, its 10 year term you well grew throughout 2010 and peak mid 2011, we therefore expect this negative dynamic will persist through 2020 and into early 2021, after which the number of policies last thing should exceed the number of policies entering the.
Premium Grace period.
A term life business also continues to be negatively impacted from shock lapses that are higher than our original joaquin assumptions, especially with the large 20 year level premium term life insurance business written into your 2000 that is entering the post couple of premium period.
Total term life insurance DAC amortization, a noncash impact primarily related to these term life lapses reduced earnings by $27 million after tax, which is 6 million higher than the last quarter.
We expect amortization related to the business written in 2000 to remain elevated it true out 2020 and into early 2021 as more interest the post <unk> premium period and lapses accelerate.
It's fixed annuities low interest rates, an equity markets drove additional reserves in fixed indexed annuities of approximately $9 million during the quarter compared to a reserve release in the prior quarter.
Our single premium immediate annuities did not record any additional charges related to loss recognition testing in the quarter.
The results in a runoff segment, we're also negatively impacted during the quarter from the equity market and rate decline.
As a reminder, the run off segment consists mostly of our variable annuity block of approximately $5.7 billion of assets under management the for reinsurance.
3.8 billion never insurance, which has been in run off since 2011.
Our adjusted operating loss in corporate and other was $41 million for the quarter.
This loss was lower versus last quarter, primarily attributable to lower interest expense as we retired debt.
Turning to capital levels.
Our U.S. and Australian mortgage insurance businesses maintained a very strong capital position at the ended the quarter.
We will continue to closely monitor capital levels as the year progressive given the dynamics I discussed earlier.
In the U.S. or might we finished the quarter with a p. Myers sufficiency ratio of 142%.
The P. Myers sufficiency level is in excess of $1.1 billion about the level of required assets as of March 31st 2020.
This amount did include a modest 3.4 54 million dollar benefit.
Study application of the industry's p. Myers existing treatment of delinquencies for properties located in female declared major disaster areas for eligible but when currencies.
Our strong and my business ended the quarter with an estimated capital ratio of 178%, which is approximately 270 million Australian dollars or 175 million U.S. dollars above the high end at the prescribed capital amount or PC a management target range.
At 132% to 144%.
This represents a decrease from 191% last quarter largely from in first quarter loss due to the Australia gap liability adequacy testing I mentioned earlier.
We expect cap.
[laughter], sorry, we expect capital into work life insurance company or GLIC as a percentage of company action level RBC to be approximately 195% as at the end of the first quarter down approximately 18 points from year end 2019.
Statutory results were primarily driven by reserve increases on variable annuities, which were only partially offset by hedge gains.
As part of the Irish My transaction, Genworth will contribute $175 million to GLIC and $100 million to GLICNY upon closing the transaction.
This is possible due to the 1.5 billion dollar capital contribution committed as a part of the transaction.
Other than the contributions to U.S. life subsidiaries that we agreed to make in connection with obtaining regulatory approval for the us why transaction.
It is our intention to manage all of our U.S. license teeth on a standalone basis, what can no plans to infuse any additional capital.
In closing.
These are unprecedented times.
We expect cobot 19, well have a far reaching an uncertain impact on the economies on which we operate in the quarters ahead.
From a financial standpoint, we started the year well positioned through actions, we took to build up capital in our mortgage platforms further isolate our U.S. light business and position that success with the multiyear rate action plan and selling our Canada and my business with proceeds used to address near term holding company obligations.
We will continue to navigate through these uncertain times with a focus on all our key stakeholders.
With that let's open it up for questions.
Ladies and gentlemen, we will now begin that Q and a portion of the call. As a reminder, please refrain from using cellphones speaker phones are headsets.
Press Star one to ask a question.
Anytime your question has already been answered or are you would like to withdraw. Your question. Please press star to to be removed from the Q.
Please press star one now.
Well with our first question from Josh.
Lets credit sites.
Oh good morning. Thank you very much my questions on the timing of the deal. So in previous quarters like New York regulators were looking for capital contribution connection to the deal, but generally he mentioned that if it solution wasn't quite fairly quickly that charitable foundation like could call the deal fall now.
With that ultimately in China, Oceanwide quote in terms of finalizing funding, how how lamentable or you see extend ideal beyond.
At June Thirtyth have hurt.
So thank you very much for the question. It's a good question and I'll take that one.
Well the first I would say and this is a you'll hear the press release.
Both China Oceanwide to their chairman and Jon Bortz at all or fully committed to the transaction.
We have all approvals at this point.
Generally go read the despite all those up its global 19 game and given all the uncertainty it's clearly a challenge I think for any any deals.
Under under these circumstances, but John Oceanwide continues to work.
The only capital or to a range still 1.8 billion funding and so we're focused on closing the deal we hope to do that but soon as possible but ended the quarter.
Well, we'll just have to see Oh things develop I think.
Both robots as shown over a long period of blog <unk> commitment to the deal and I think a lesser focus at this point on both sides.
Thanks, a lot I appreciate that and maybe one quick follow up is most of the finalizing components and try to try to that related to the only funding commitment or is that for the for the remainder of the 900 million that needs to be funded from traditional like.
So I think the funding within Balan trying to run Oceanwide is in good shape I think the focus at this point is working with all the capital as I mentioned.
The only capital and it looks like a very good relationship.
Oh, oceanwide own 17% of of the founder owner of small wholly legend holdings. So I think that's.
Going well, but obviously given all the uncertainty it's taking more time, but we still hope to be able to close by their the gold the second quarter.
Thank you very much both foreign and state.
Your two facts.
Well go next to market Palmer with <unk>.
Yes, thanks for taking my questions.
You alluded to.
China Oceanwide working with third parties on their funding plan.
If you could just give a little bit more color in terms of what the roll those third parties would potentially play and why that whether reaching out to them.
Beyond human capital.
Work, that's good question and I'll take that one again.
They were making progress of all the capital and other as we said they have a relationship there but also.
We're talking to all the other parties or just given all of the uncertainties.
Case, they need to rely on Oh perrigo. So at this point I think the you know the main focus is of Hong <unk> capital and getting that funding plan filings.
And also you had mentioned a that.
You know expected that the the deal will not be close until the end of June and had said that that gives you flexibility to explore other options. If you could just provide a little bit more color on what you meant by that.
So mark there were no good question.
Well when we've extended the transaction from the end of March to the end of June.
Obviously, the gold at 19 issues were just developing and then I was in.
Like March but there was you know we had already gone to working remotely. So we knew there we're gonna be challenges that we did say, we did ask and the discussions with.
China Oceanwide that given all the uncertainties because of global 19, it was screwed up for a genworth to look at all the alternatives to the extent we are unable in young to close the deal.
And as part of that discussion they agreed with us as part of the 14th 14th way, but what we saw and.
Oh, just before the end of March it allows us to explore or any other alternatives and we talked about some of the plan b options sometime ago. There. There are still there it's going I. Both said it all remarks, we're primarily focused on the EUR 1.1 billion of debt or do they.
Sure. So most of the immediate focus on the alternatives is around the refinancing.
Oh, well 1.1 billion about assuming if the deal doesn't close we don't get the wanting to have filling in therefore.
We have to look for look to refinance the debt that comes to an extra.
Thanks very much.
Next to Robert Weaver, with I NTL FC Stone.
Hi, my questions the metric thank you.
Thank you Robert.
Well go next to Christopher Bolton private Investor.
Caller. Your line is open you may be on me.
Before we actually did they have been approved.
So you on Oh, we're confident that.
Oh, no obligations for long term care policyholders in the older books of business are looking more secure a new York when your projection say three or four years ago.
Christopher I'll take that question as well you know we we have made.
I would say tremendous progress in the last.
It was seven years since 2012.
Look.
If you look at the original place for premiums, but opinions, we need there was a significant shortfall as of the end of the first quarter. Oh, we have received since 2012, a premium increases or benefit reductions that have a net present value benefit the genworth of a 12.7 billion.
Yeah.
We have a little bit over 77 billion or future premium increases the benefit.
Reductions could go a lot of that is on the new were a blocks, what we call or choice to block.
Which were issued in the 2003 to 2010 11, 12 periods and so given where we are watching we would say were 60% or sold away through shoring up those those books and bringing them closer to a breakeven gig and level with a pretty aggressive side.
Say today versus where we were several years ago, which is the basis for your questions I like where are much better position.
Oh, that's happening as Ah that's happened over the last.
All three to five years.
This partly because of the Penn Treaty and solvency and also I talked a little bit on my prepared remarks about the sooner health insurance company or Pennsylvania, and their rehabilitation plan I think.
The leaders have done.
More open to.
Providing significant premium increases that if it productions.
For all day long term care ensures that because of the shortfalls in the book. So I do think Oh. We're also working all of US included Genworth working well with regulators to shore up those legacy books of business. So the answer your question.
Okay and ended the follow up to the on the Lifesize.
Oh, Oh, the term and a universal life products.
Our policyholders and as far as your ability to move their ability.
200, you claim obligations on the lunch side on your you all products what would you say that policyholders are on a stronger position to real long as policy benefits.
With the with the transaction then close one without the transaction been close you in keeping in mind, but the fact that well Genworth will remain an independent other they no goes to two Chinese ownership.
Well, Chris Rock I would say, we have bought all along that our policyholders life annuity long term care on mortgage insurance customers and the U.S. and Australia, all advances significantly by the transaction because.
In addition to the purchase price of China Oceanwide is investing an additional one of the have billions of capital a significant amount of that will go to strengthen the balance sheet reduced the data that the debt to a place where words were very comfortable.
With whether that will be after the industrial the would have going so I think that strikes ends of the company. A therefore is a in a badge a significant advantage for the deal for all policyholders are they go regulators are also recognize that and while we.
How committed as part of the deal to put capital into our main a 49 stay company.
Were almost 75 million and 100 million, but let me.
That will further strengthen down, but but more broadly I think of regulators also see the benefits of the transaction.
Okay. Thank you.
Ladies and gentlemen, we're out of time and I will now turn the call back over to Dr. I'm, sorry, Mr. Mcinerney for closing comments.
Thank you very much operator, thank you to all all of you have for joining the call today.
Oh all of them work, Oh look them I don't know, we all phase unprecedented uncertainty and challenges to the Cobra 19 pandemic Genworth, we're managing well working remotely.
It's been a significant surprise to me that we've been able to.
Oh, both protect our employees and their families and serve our customers well.
Despite all working remotely since the middle of March we continue to work closely with the ocean water to close the transaction.
They continue to work on the funding plan and we are making progress.
We are prepared for a wide variety of economic and business styles in a businesses given the unprecedented.
So in volatility uncertainty given the cold in 19. So thank you all very much reactors in support of Genworth and.
At this point I'll turn the call back over to the operator.
Ladies and gentlemen, this concludes Genworth financial first quarter earnings Conference call. Thank you for your participation at this time the call and.
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