Q2 2020 Genworth Financial Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to Genworth Financial's second quarter 2020 earnings call.
He was Greg and I'll be your coordinator today at this time all participants are in listen only mode. We will facilitate a question answer session towards the end of the call. As a reminder of the conference is being recorded for replay purposes.
So we have to refrain from using cell phones speaker phones or headsets during the Q anymore.
I would now like to turn the presentation over to Jim Collins, Vice President Investor Relations Mr. owns you May proceed.
Thank you Greg Good morning, and thank you for joining Genworth second quarter earnings call.
Our speakers are once again, we announced this morning. So please excuse any sound quality that technical issues that may arise.
That's really some financial supplement were released last night.
Good morning already presentation was posted to our website will be weapons during our call.
We encourage you to review all of these materials.
Today, we'll hear from our President and Chief Executive Officer, Tom Mcinerney, followed by Kelly Groh, <unk> Chief Financial Officer.
Following our prepared comments, we'll open up the call for question and answer here.
In addition to our speakers, Kevin Schneider, Chief operating Officer Dancing, Chief investment officer will be available to take your questions.
During the call. This morning, we made like various forward looking statements. Our actual results may differ materially from such statements.
We thought you to read the cautionary notes regarding forward looking statements earnings release, or they did presentation as well as to what sectors of our most recent annual report on form 10-K as filed with the RBC.
It's one its discussion also to non-GAAP financial measures, we believe maybe meaningful to investors.
Financial supplement for news release Investor materials, non-GAAP measures have been reconciled to GAAP for required.
Holdings with FCC rules.
So when we talk about the results of Australia Goodman. Please note all percentage changes exclude the impact of foreign exchange.
Finally weapons isn't statutory results are estimates due to the timing of filing of the statutory statements.
And now I'll turn the call over there or president and CEO Tom academic.
Thank you, Tim and good morning, everyone.
Wanted to start my prepared remarks today by acknowledging the leadership announcement you made earlier this week.
First I'd like to think Kelly groh for her many contributions to downward.
Our predecessor companies over the course of or 24 year career.
The only board and I believe Kelly has done an excellent job as CFO since assuming the role in October 2015.
She has done an invaluable partner to me as we navigate a downwards challenges, particularly the many regulatory hurdles we faced.
So you all required genworth regulatory approvals for the China Oceanwide <unk> transactions.
Well I understand that investors and outside observers, sometimes viewed senior management changes with skepticism and this case.
Real story is exactly what we said the press release on Tuesday.
Globant Nike brand damages changed how we view, our professional and personal lives forever.
Calix case.
Well no later in her remarks, having isn't parents and families thousands of miles away analysts goes longer decided to make a change in a professional and personal situation.
Yeah, I agree that are stepping down and see the flow of general after the end of the second quarter when the financial reporting requirements were completed what the right time for her tempur generally.
We appreciate that Kelly has agreed to remain available for a period of time now Dan Sheehan as he transitions into his new responsibilities.
Yeah, and Kelly I've worked closely together Genworth and GE capital for 22 years.
Yeah and has done an outstanding performer and he assumed the role John will seek investment officer in April 2012.
Over like what are your career and insurance industry, starting it up now.
I've observed that putting the investment operations under the CFO can be very effective.
That brings both sides of the balance sheet together under a single financial executive.
Good point of view.
That's a lots were very attractive asset liability management, which will be crucial as all insurance companies navigate a sustained period of very low interest rates.
Well, we had another strong internal candidates to succeed Kelly Warren I believe Dan is the best choice to assume the CFO role.
Yeah that several strongly tenets of the government investment group.
They will now step up and assume additional responsibilities.
To further support the adequacy roll your own Upton CFO global mortgage insurance and interim CFO of U.S. like insurance will be promoted to a newly created position of deputy CFO reporting to Dan.
A significant part of Kelly's finance accounting and actuarial teams will report for Jerome.
Yeah, I think aroma works the other genworth for over 20 years, we're very fortunate to have that both assume higher executive and financial responsibilities at this critical time for Genworth.
Well, that's what invites mckellar during the transition.
Well I'm, a further develop holiday and their teams worked together in the future.
I expected beata will ever more external focus including healthier, helping that's oversee the debt and equity transactions we are considering.
Jerome will oversee the do it they did activities a finance accounting actuarial assumptions.
Yeah. That's also worked very closely with me throughout the China Oceanwide transaction process and he is very well regarded by chairman Lu and China Oceanwide executive team.
As far as our leadership transaction announcement.
I'm also pleased to announce that one kind of I guess, we'll be appointed executive Vice President and Chief risk officer of Genworth.
After September Eightth 2020.
Thanks, Doug as insurance correct you know.
I knew the mutual.
The Nike made too and that since at several leadership roles with pricing with operational actuarial responsibilities are large global insurance companies.
This includes got up to nine cities, where we work together closely for many years.
Recently served as senior Vice President and head of U.S. pricing and product management and mass mutual where he spent nine years and senior roles.
He has an experience the old and society of actuaries with significant experience and investments fixed income products like annuity in long term care.
He will assume its yellow responsibilities from Kelly.
Ben interim tiara Genworth since January 2020.
Now turning to the kinda ocean like transaction.
Smelter. Unfortunately, we do not having much like representative on todays call. While we were not able to arrange for super on todays call. You will still provide an update based on our knowledge of the latest update with respect to the funding plan.
We are working very closely production wise.
I understand the process and timing for specifically identifying their sources of funding to complete the transaction.
Your tangible either the looks like transaction is the best strategic option for Genworth.
Based on feedback we've received from investors, we believe that closed in the ocean like friends action continues to have strong support from general shareholders.
We've made a clear to oceanwide, they're getting the funny milestone set out in the 15th waiver or the merger agreement is critical to John where our shareholders and other stakeholders to remind investors. We're seeking satisfactory evidenced by August 31st that 1 billion of funding for the transaction from within mainland China is available and it's justified.
Yeah.
In addition, we also requested satisfactory evidenced by that date, but kind of looks like it's been able to secure an additional 1 billion or more from only capital and or potential third party investors.
I would say my questions regarding the delay in ocean why its ability to certify they have secured these funds. We believe the 1 billion from within mainland China is available to fund the transaction.
We also believe the 1.8 billion of funding for money capital was secured prior to the Kroger 19 pandemic.
Since the original how many funding commitments with secured in 2018, the oneq commitments with extended each time, Genworth and ultralight had to extend the merger agreement because of regulatory delays.
It was only after that we'll be making pandemic disrupted global capital in financial markets in February in early March, but the only capital 1.8 going commitment became an issue.
What's your watered down what they are in close contact with varying progress on the funding for ammonia capital or other financial third parties, we will provide updates on the progress in due course.
In the interim young with is working on steps to address or near term financial obligations, which include liabilities arising from the recently announced settlement left so.
As well as approximately a billion of debt maturing in 2021.
Previously outlined he steps, including executing a potential debt financings in the near term and preparing to launch a potential 19.9% initial public offering where he was mortgage insurance business subject to market conditions that the China Oceanwide transaction is further delayed or terminated.
We are keeping oceanwide informed and every step of the way regarding any potential potential steps we may take.
Right has been very supportive of generalists plans throughout these conversations.
Next I would like to cover in more detail, our recently announced settlement with Axa related to liability for payment protection insurance or P.P.I. mis selling losses.
It's in there. It's I don't know that actually has been moved uncertainty around our near term cash needs and have suffered the majority of our obligation to access to 2022.
It's a certain prepayment events.
Under the terms of its settlement.
I won't pay that's a 125 million U.S. dollars on July 21st which is in addition to be approximately a 144 million U.S. hours interim cash payment we made to the accident in January.
We also issued the secured problems in the promissory note to access.
You have to extend with agreed to make deferred cash payments totaling approximately 317 million pounds into instalments again subject to certain prepayment events.
But at the field I pledge at 90.9% of the outstanding shares and Genworth mortgage insurance, Australia, and 19.9% of the outstanding shares in Genworth mortgage holdings.
He's pledges will terminate upon the payment and full of all the obligations by the due dates.
That was well will also pay a significant portion of all future of selling losses incurred by App. So.
Currently estimated to be an obligation of approximately 170 million pounds.
These losses related to PPI, they're selling components previously, we see but yes, but not yet pratt processed by Axa and will be added to the second the to the first installments.
How much will also pay absent poorly interest on the deferred amounts.
In connection with the settlement.
And with incurred an after tax loss of $560 million, that's part of discontinued operations and the second quarter of 2020.
Probably will go into more detail on this in her prepared remarks.
Under the terms of itself, where she's agreement pursuant to which the businesses were sold to access.
As well as the settlement.
We have them that actually recovers amounts from third parties related to the selling losses, including from the distributor responsible for the sell the policies that want to have certain rights.
Sharing those recoveries to recoup payments for the underlying the selling losses.
There are numerous examples of distributors and bags paying for PPI mis selling points I believe.
That is really the ultimate responsibility should lie.
The banks of distributors that sold the products made the vast majority of the profit from the sales and the tenant with their actions that are subject to the mis selling complaints.
Well, we haven't seen as many questions about the details and process.
Those potential recoveries.
We cannot comment on this any further.
The resolution of this litigation removes significant uncertainty as we now know the timing and amount of our obligations to axa and therefore focus our attention on the actions we need to take to enhance our near term liquidity position.
Now I would like to turn to our financial performance in the quarter, including covered Nineteens impact on Genworth before turning the call over to Kelly to provide more details.
Our priority during that's kind of them it continues to be protecting the health and wellbeing about people.
Gentlemen, successfully transitioned to a full <unk> remote work environment in March.
Very proud of our employees and adaptive to that's doing environment.
The majority of employees are still working from home.
We are continuing to serve customers with a level of excellence they expect from Denmark.
Lets cases have continued to surge in some regions of the U.S. and given the Argus organization seamless transition to remote operations.
We have made the decision to extend remote working conditions until at least generate first 2021.
We are constantly monitoring in evaluating the impact of covered my team and we will continue to act and the best interests of our employees and their families while effectively addressing customer needs.
The pandemic impacted or second quarter financial results.
No as result of several macro economic factors, including higher unemployment.
Government stimulus equity market improvement and higher mortality.
The global mortgage insurance businesses were adversely impacted by her mortgage delinquencies as a result of higher unemployment and increased mortgage forbearance rates.
Listen I reported an adjusted operating loss of $3 million.
Primarily driven by higher delinquencies.
Yes survived she 28 billion and new insurance written during the quarter up 80% versus the prior year driven by higher refinanced originations due to lower interest rates, a larger private mortgage insurance market and higher estimated market share.
But the other corridor, that's a nice PR sufficiency ratio was very strong at 143%.
In excess of 1.2 billion above requirements.
Well, we are pleased with the current level capital and U.S.M.I.. We do expect are pretty minor sufficiency to decrease over time as delinquencies and creates.
Our Australia and my business reported adjusted operating income of 1 million.
Yes dollars bouncing that's down significantly.
ER and versus the prior year due to losses in the second quarter down sequentially versus the prior year do higher losses in the second quarter.
Capital levels remain strong with approximately 275 million Australian dollars above minimum targets.
Yeah elevated delinquencies and the resulting in fruits and capital requirements, we do not expect to receive through their dividends from our am I businesses in 2020.
As they prioritize capital preservation during this period of uncertainty.
And to comply with new regulatory guidelines from the Geo cities, we have implemented a temporary came on our requirements that require approval certain capital related transactions.
It's underscores the importance of the steps you're taking to raise capital to meet genworth upcoming cashes.
Turning to U.S. life insurance segment delivered an adjusted operating loss of $5 million.
And by lower life insurance performance, partially offset by higher performance in the long term fair insurance business due to higher mortality.
A little in part because of 19 pandemic.
Going forward, we'll continue to manage the U.S. life insurance businesses on a stand alone basis with no plans to infuse or correct capital other than as committed in connection with the completion of the Oceanwide transaction.
We're closely monitoring backlog economic indicators and conducting extensive scenario planning exercise is the model potential financial outcomes of different economic scenarios, while the severity and duration of a pandemic and related economically for probably repercussions remain uncertain that wasn't.
Taking steps to maintain sufficient capital levels to ensure that our mortgage insurance companies can withstand a wide range of economic scenarios, well also addressing our upcoming holding company capital obligations.
In summary, we are focused on closing the ocean like for interaction as soon as possible, while protecting shareholder value through the execution of Twitter liquidity raising actions.
We will continue to communicate as frequently as possible to keep you informed <unk> progress against those actions.
Now I will turn call over to Kelly.
Thanks, Tom and good morning, everyone before I jump into our results for the quarter I do you want to acknowledge my personal needs first for lease Tuesday night, as Tom mentioned and pursuing option that allow me to turn it back to the West coast quite Searchignite aging parents, having left on the east coast for the last 23 years China's crashes.
And while they should never perfect time to make a change it's very separate time for me I had to every confidence that Dan She hand, we'll be able to seamlessly to lead our finance and investments organization. In this expanded wall. He and I have worked together for 22 years and I look forward kissing channel, where six feet going forward I do you want to thank Tom and the leader.
<unk> team and each of our employees for what they do for customers and shareholders. Every day I would also like to thank generous part of directors or investors and all of our stakeholders could the opportunity to tariff U.S. generous, yes, I will try to last five years, what that's sad I will move into our second quarter financial result capital positions.
And holding company liquidity I will also highlight some of that continue interact an indirect impacts from has it 19 on these items before I discuss segment financial result, I did want to provide some detail about the $520 million locks in discontinued operations in the second quarter slots primarily represents.
Pre tax accrual at approximately $653 million or $516 million after tax for the axis settlement that we discussed last week.
The settlement was in pound Sterling, we are translating actually U.S. dollars at June 30 gets foreign exchange rate.
After tax accrual included 125 million dollar payment made on July 21st the secret commentary net amount of approximately 395 million and the remainder related primarily to claimed the selling losses that are still being processed estimated at approximately $133 million that protect.
Yes, it did want to know the interest expense on the asset promissory note and true ups to our initial estimates for and process claim payments well continue to flow through discontinued operations as a period expense for attachment in the quarters ahead regarding liquidity in our holding company. We ended the quarter with 500.
54 million in cash and liquid assets are approximately 180 million.
Targeted two times for work that surface buffer.
Page 16 at the Investor presentation provides a quarterly details including in place for tax timing and intercompany items at $72 million and the release of pledged collateral as $11 million due to slightly higher interest rates during the quarter uses in the quarter included $21 million forgotten.
Service and $48 million 2021 got repurchases that were made during open windows during the quarter. These repurchases retired approximately $52 million at par value of our 2021 debt in Turkey.
Earlier this year, we've addressed to large near term application. The proceeds received from the sale of the Canada and my business, including $397 million for our senior notes teaching 2020, and 200 million for the GLIC intercompany note for upcoming holding company debt application we have principal.
Bounces approximately $355 million maturing in February and $660 million maturing in September 2021.
A recent settlement with access allows us to raise proceeds to address those maturities spreading the schedule promissory note payments to access tricked along as 2022.
We're not expecting dividends from our mortgage businesses for the rest of 2020.
Both capital and its subsidiaries given the uncertainty has it my team to address these impacts were taking steps to prepare for <unk> issuance out of our U.S. mortgage holding company in the near term as well is preparing for a 19.9% IPO argued semi business subject to market conditions at the transaction like.
Sure Mike is further delayed or terminated based on recent pure issuance is any underlying strength of our U.S. mortgage insurance subsidiary, we view these capital market transactions as available and at a reasonable cost a financing the agreement with national wide gives us flexibility to pursue these and other options in parallel.
Let the ongoing transaction.
Last quarter, we spent considerable time discussing that roughly 78 billion dollar cash and investment portfolio given the sharp disruptions in the markets from Cabot 19 during the second quarter U.S. equity market rebounded considerably and credit spreads tightened increasing or unrealized gain position.
<unk> point $7 billion, what's left from 1% of our total fixed maturities trading at less than 85% of book value at June Thirtyth credit migration. During the quarter has also been more favorable than we had anticipated last quarter, given the strength and the markets driven by government stimulus. Despite this improvement we're closely monitoring.
Other asset classes, such as commercial mortgage loans, which we continue to proactively work with our borrowers we didnt make some minor modifications to lands and observed one delinquent loans during the quarter.
Turning back to earnings for the quarter, we reported a net loss available to general shareholders for the quarter at $441 million and adjusted operating loss of $21 million.
Net loss in the quarter was primarily driven by the Peisner $29 lots in discontinued operations made up mainly from the Axa litigation settlement I mentioned before.
In the U.S., we continue to closely monitor t. macroeconomic trend, which will impact our mortgage insurance business, including historically low interest rates elevated unemployment levels and uncertainties around the amount.
And timing at future economic stimulus in Michigan.
We're also monitoring housing specific trends, including mortgage finance activity forbearance uptake and home prices. During this period, we have conducted extensive scenario planning to better understand and tailor our actions to mitigate the adverse effects are dependent on our best match, the ultimate financial outcome for U.S.
Am I kinda pandemics direct and indirect impact is uncertain and may not be known for several quarters if not longer.
You asked them I hadn't adjusted operating loss for the quarter at $3 million under reported loss ratio, 94% performance was primarily driven by increased losses from higher need delinquencies to reserve strengthening attributable to that hasn't 19 pandemic. Many loan servicers have updated their reporting to us to include weather.
Our alone is covered by forbearance servicer reported for parents fled meaningfully during the quarter and ended the second quarter with approximately 7.7% or 68800 acted flow policies reported any per parents plan like approximately 62%, but there was an from.
Parents being reported as delinquent forbearance today has been a leading indicator of future new delinquencies. However, it's difficult to predict the future level of forbearance and how many of the policies in a for parents plan that remain current well go delinquent in the future.
During the quarter they were safe notifications for 48200 news flow delinquencies of which approximately 87% are in for parents plant, which make here at an elevated rate. These new delinquencies contribute at $170 million in reserve increases and the quarter. This was calculated by ups.
Flying a claim rate or roll rate, it's between our expected roll rates on prior early stage delinquencies and our past hurricane related called rates, which were materially lower given the prior effectiveness at forbearance losses. During the quarter also included a $28 million pretax incurred but not recorded a good sir.
Delinquencies expected to be reported in the future and a 28 million dollar pre tax reserve strengthening to reflect assumed deterioration in early cure emergence patterns and a modest increase in severity.
Slow new insurance written in the last time I was $28.4 billion in the quarter up 80% person at the prior year, primarily driven by refinancing activity any larger private mortgage insurance market as overall housing fundamentals remain strong we estimate our market share remains strong, but maybe modestly down.
Sequentially, the strong refinancing activity drove lower persistency levels, partially offsetting the insurance portfolio growth from new insurance written it also drove an increase in single premium cancellations that benefited earned premiums by $20 million pre tax on a sequential basis.
In Australia. The economy continues to slow they reopen but there are still significant challenges to the economic recovery, including newly implemented state border restrictions and lock down the Australian Federal government and Australia as large banks had put several programs in place to help those impacted by cobot 19.
These programs include an initial six month home and business lung deferral program. It was recently extended four months well now Brian until at least January 2021 for borrowers and need it for their assistance approximately 11% of total Australia households are utilizing these programs for Australia am I.
Approximately 4% of our insured loans or over 48000 loans are currently participating in these for parents programs and under Australia regulatory guidelines are not reporting as starting point.
To account for this dynamic and anticipating some of these borrowers may become delinquent following the forbearance period the business strengthened its reserves by 18 million U.S. dollars during the second quarter financial performance for the second quarter reflected this reserve increase with adjusted operating income $1 million down from 9 million.
In in the prior quarter and 13 million in the prior year. The U.S. GAAP loss ratio for the quarter was 63%, which was higher than the prior quarter and prior year low interest rates have improved consumer confidence following the initial cap at 19 locked down tariff slow and I got to you leveled up sequentially and first.
As part of the here.
Before I discuss second quarter results in our U.S. like business I did want to discuss other aspects at low interest rates, which have a broad and generally negative impact on that business. A 10 year U.S. treasury rate ended the quarter at 66 basis points compared to 192 basis points at year end 2019, we.
I've seen an immediate impact to our fixed and variable annuity reserves and DAC amortization as result of peak lower interest rates reflected in our earnings in these products year to date.
Credit spreads, which have widened in the early stages. The pen connect has since normalized given the magnitude of government intervention or do you think purchase Yelp and pressuring net investment income, particularly in future periods. Our long term view, if interest rates as well as our portfolio yield will impact our assessment of our interest rate assumption.
As we work to complete our actuarial reviews in the fourth quarter significant decreases in our interest assumptions could have a material negative impact on reserves and DAC amortization in our universal life products and loss recognition testing in our long term care term life and single premium immediate annuity products we're done.
And then interest rate assumptions could also impact statutory cash flow testing, including Standalone testing of Universal life insurance products, a secondary guarantees inner U.S. life subsidiaries.
In long term care insurance any updates to our assumptions, including those around interest rates will likely increase the future amount of LTC premium rate actions needed to avoid a reduction in margin or strengthening of reserves. We have disclosed some of our just great interest rate sensitivity in our annual report on form 10-K, which I would encourage them to.
Just to repeat.
We will continue to closely monitored the low rate environment as we move forward.
Our unified business experienced elevated mortality across all of our products in the second quarter impart attributable to the kinds of 19 pandemic.
We also experienced continued negative DAC and reserve and tax try life products, a certain 10, and 20 or blocks in or the post level premium period.
In long term care claim enacted policy terminations were significantly higher in the second quarter versus the prior period in prior year in excess of than normal seasonal capability. Although we do not require death certificates for LTC you cannot make a direct attribution to official causes of death, we do believe some degree.
<unk> incremental terminations, where there were sold 'cause it 19, and we're monitoring trends closely.
New claiming curls honor newer LTC products, particularly choice one can choice to grew and the second quarter as we would expect if these blocks age.
Experience was partially offset by continued favorable development on incurred but not reported claims.
However, during the second quarter, New claims commissions decreased on our older LTC products, coinciding with the timing of because that 19 pandemic. We do believe that this decrease is temporary reflecting delays and reporting of claims due to social piston thing and shelter in place protocols and that our incidents experience while open.
What weve resembled previous trend as a result, we strengthened our incurred but not reported or idea in our reserve for this phenomenon during the quarter.
The overall benefits at the end persuade actions for LTC or modestly higher than the prior year, but flat sequentially as illustrated on page 11 at the Investor presentation.
As we've discussed in the past the benefit reductions from enforce rate actions can fluctuate from quarter to quarter and were very beneficial in 2018 and 2019 do you see some large state implementation.
Similar large state implementation have not yet occurred in 2020 and 2020, our multiyear rate action filings are expected to be stronger in the second half of the year as has historically been a case piece will include newer product series for which we have not quick question rate increases in the past these filings Warren.
Say that variety of benefit reduction alternatives, which we've seen more and more policyholder select.
We will continue to monitor policyholder behavior carefully in light of the potential has a 19 impact on our policyholders.
During the quarter Kenworth received approval impacting $127 million of premiums, but the weighted average approval rate of 25%.
With continued to stay actively engaged with state regulators throughout the pandemic on the importance of Actuarially justified rate increases in addition to the approvals wafer stage through the first half of the year. They offer belt a strong pipeline of potential approval. We have typically performed our Ain't No claims review and either.
The third or fourth quarter. This year, we expect to finalize the claims review concurrent with the accept life Reserve review in the fourth quarter well work is still ongoing current trends do you not indicate a need to strengthen the claims reserve as assumption to look to be holding up well up in the aggregate given the unusual year with the.
Global pandemic finalizing our with you on the fourth quarter will help ensure a week adequately consider at the appropriate potential impacts we will be focused on several key claim areas such as benefit utilization and claim termination rates. In addition to the idea in our incident assumption, which has performed favorably in recent years.
Turning to life insurance overall mortality for the quarter was elevated versus the prior year.
<unk> versus the prior quarter. The second quarter included an estimate of approximately $10 million into that 19 related claims net of reinsurance intact based on death certificates for seek today.
Absent the cobot 19 impacts mortality would have been marginally better than the per quarter and tracked versus the prior year.
The term life insurance business continues to be negatively impacted from shock lapses that are higher than our original locked in assumptions.
Especially with the large 20 year level premium term life insurance business written into your 2000, there's the entering the post couple of premium period total term life insurance DAC amortization and noncash impact primarily related to these term life lapses reduced earnings by $27 million after tax which is flat.
In the prior quarter, we expect amortization related business written in 2000 to remain elevated tree 2020 as more policies enter their post total premium period and lapse it accelerate.
Insurance results also continued to be negatively impacted by an operating loss of $20 million in our term Universal life product. As a reminder, this is driven by dynamic of the gap reserve build on certain of these policies as they enter their personal premium period without the offsetting premium revenue.
Hi, good opinion Grace periods, we expect this negative dynamic will persist throughout 2020 and into early 2021, after which the number of policies lapsing should exceed the number of policy entering the print embrace period in fixed annuities, a rebound in equity markets since March 31st.
Helped our fixed indexed annuity products and higher mortality and single premium immediate annuities from an adjusted operating income of approximately $28 million during the quarter versus six $9 last quarter. The run off segment also benefited from equity market improvement during the quarter.
Our adjusted operating loss in corporate and other was $38 million for the quarter slots with lower versus the prior quarter, primarily attributable to lower expenses interest as we have paid down debt.
Turning to capital levels are U.S. and Australian mortgage insurance businesses maintained very strong capital position at the ended the quarter can you answer might we finished the quarter with a p. Myers sufficiency ratio at 143% or approximately 1.275 billion about work part assets as of June.
30 at 2020 improvement in our P. Myers efficiency was driven by strong business cash was elevated lapses and credit from our new aggregate Oh nine to 19 book here excessive loss reinsurance transaction in the quarter, which more than offset the capital consumption from new insurance written.
And new delinquencies in the quarter, our P. Myers Sufficiency also includes the effect of 30% multiplier for eligible delinquencies associated with Cobot 19. This quarter, we did provide a p. myers capacity illustration on page eight at the Investor presentation help demonstrate to investors.
Balance sheet strength at the U.S.. So my under a hypothetical level, that's incremental many delinquencies required to consume the current P. Myers sufficiency as Patriot flats, U.S. semis balance sheet could withstand a 32% delinquency rate or over five times the current level of delinquencies as it too cheap.
20.
Capacity grows to withstand a 35% delinquency rate or approximately six times the current delinquency rate when including the remaining limit of our aggregate nine to 19 obscure excess of loss reinsurance transaction intended to provide p. Myers credit for elevated delinquencies, we also incurred.
So did the page and the investor deck, providing additional details on the U.S. semi credit risk transfer program to help investors better understand that the reinsurance structures, we have in place.
Our straight in my business ended the quarter with an estimated prescribed capital amount or PC a ratio of 177%, which is approximately 275 million Australian dollars above the high end at the management target range of 132% to 144% subsequent to the quarter.
Charlie I might upsized and refinance a significant portion of their churchey debt, which enables the business to extend the Churchill that's favorable capital treatment.
We expect capital in Genworth life insurance company or GLIC as a percentage of company action level to be approximately 220% as if the ended the second quarter up approximately 26 point, it's from the first quarter. The improvement was driven by LPC mortality related reserve releases and their production and reserves under.
We're able annuities related to the equity market recovery.
In closing with taken numerous steps to improve the liquidity and financial flexibility, our holding company as well its position our business to navigate these uncertain times, we remain focused on providing value to all our key stakeholders.
With that I will turn it over to Dan Chan for a brief remarks before we move and take QNX.
Thank you Kelly and good morning, everyone.
First I'd like to Echo Tom's comments and recognize Kelly for her outstanding careers and dedication to Genworth.
I had the pleasure working with her over the last 22 years during which for a partnership there's been invaluable to me.
I'm also grateful that Kelly will be saying on for some time to ensure smooth transition as I assume her responsibilities as CFO.
I'm pleased to be expanding their role a genworth from leading investments team to leading both investments and said I.
Across both teams have extremely talented colleagues, who will support me in this newly desert designed role as well as step up in assumed greater responsibility with respect to day to day activities.
'cause a member of Genworth executive leadership team since 2012.
In very involved in the development and execution of our strategic priorities as well as the ongoing ocean more transaction process.
Advancing genworth strategic priorities as Tom until we have just reviewed.
As well is working to close the transaction I mean, my top focus.
I look forward to communicating our progress on these trends going forward was genworth CFO.
With that we can open up questions.
Thank you very much Sir ladies and gentlemen will now begin acuity. Unfortunately, the call as a reminder, please refrain from using cell phones speaker phones or headsets.
Star one to ask a question.
And if at any time. Your question has been answered or you would like to withdraw. Your question you can press star to to be removed from the Q.
Thats Star one.
Please press star one now.
And we'll take our first question from Geoffrey Dunn with Dowling partners.
Thank you good morning.
Kelly.
Father taught you referenced with respect to the Pmiers crosses Austria analysis, but can you elaborate a little bit more on how the company.
Given so much from any uncertainty because approaching planning for the exploration of the 30% multiplier in 21 of them quicker.
Well you want to take that one.
Yeah, actually I'm I'm going to let Kevin Kevin take that one.
Jeff I I.
First of all I think the expiration of that's 30% multiplier is.
It is something that'll be.
Open new year, and and depending on what the development is embedded in the cold that situation and could absolutely be sold in the through visited by the do it seems again.
In terms of an expansion just like other stimulus, it's been probably until the market today.
I I don't view that currently has a.
They're great as the book and that will absolutely and.
Good good treatment of those cold the delinquencies secondary where our books are generating a significant amount of aren't going.
ER positive cash flow today.
That will continue to help our p. Myers sufficient to going forward, we have the additional availability to to perhaps pursue some incremental reinsurance or insurance like notes to help with that our additional help.
Provides additional capital sufficiency. So I think we actually have a lot of others to to work with going forward and and.
The production, we're putting on the books today continues to be very strong from a credit standpoint, and a will continue to provide health. This route profitability going forward. So I think we have a degree of options and we'll continue to about your body weight goes and pulled those logos shows we like into the future and see how this quarter.
Okay, well with respect to the idea there shouldnt get out of the Warsaw platform.
Assuming that it would be to upstream most farms before the IPO, it's not something you've already discussed with the Jews people in the moratorium on dividends.
Well I'll agree with that one I you know I think we do have a good relationships with if you see and with all regulators or keeping them.
It will all along the way so I do think we're focused on.
Issuing the debt a transaction. After you have some are level in the near term.
We're also preparing for the IPO of 19.9%.
That's a you know we would we would.
I need to see where we are with the transaction to the extent of transaction closes because of the pointed out billion capital commitment. We in that case, he made oh the IPO.
Yeah, and the other thing I would remind you of Jeff is Joe in terms of where we would issue that get it would be at the mortgage holding company. So therefore, there is no restriction on dividends from a holding company and we hold the adequate cash and capital to cover interest charges.
Gotcha and then last question Kelly I did hear your comment about your claim rate on the notices.
Given where we're kind of normalize versus hurricanes or 60% of good guess as to where you might have bad but.
Do you think that where you will be consistent in the back half or potentially waters.
Jobs, where do I don't know doesn't let me put exact.
Hi.
I think if you think about roll rates.
Our assumption is these are going to operate the delinquencies are going to operate somewhere in between Pepsico traditional roller it will vary level.
And the Hurricane type performance, which was much lower.
Cold and and I know how you look at this all the time one of the things were seeing.
This quarter is that the loan balances drilled loans that are Cobra delinquencies or are doing good with food Governor forbearance, coram, Cabot higher average or lift level, and primarily driven by higher loan balances. So appeal.
If I could but sort of point you to like I'd card quarter, <unk> quarterly financial statements and you can see that's the newer the newer loans that are one to three months, perhaps do have a higher have a higher loan level that higher loan levels consistent with what I decided it's coming from the higher loan balances.
That's primarily driven by the 26 came in and later book years, which are at a bigger size of our book and then the rest is that our entire book so that really requires a little lower a little lower roll rate the new just suggested.
But I think you can sort of back to back into back into that it's somewhere between.
The traditional rub those loans that we had prior to the prior to the beginning of the pandemic and then the resultant loan levels that are and and expected roll rates.
They're driven by the pandemic a cold the delinquency so it's probably a little lower than you expect at this point.
If you can back into some of that map and get a better estimate of where whereas if you look at those those details I think it's probably on page.
Okay page 20 of our dark yourself.
And then just the back half of the year do you think that'll be stable or do you think will be a creep up as you.
Oh, I'm, sorry, I take it all depends on that's something that she was very difficult to predict at this point, if we see that we're not giving the reaction that we expect fuel to be more like a hurricane type loan level, we'll have to consider that ratchet that up a little bit more reserves.
But at this point it used to treat consumed itself.
Okay. Thank you.
So another quick reminder, that is star one if you have any questions and just make sure you function is there enough cluster seem that signal on the next question will come from Josh astrology with credit sites.
Well good morning. Thank you with regard to you look forward and true could you give some color and what you're listening on a monthly basis in terms of delinquency activity like Hobbit April compared to make compared to June and and as a bit of a follow up to that can you talk a typical lag time between a missed payment and when it gets reported to you by the services.
Yeah, I'll break that are our you know the.
Lets them unique about this period is.
The poor Barents plans is really band and the pick up until Barents has really been sort of a leading indicator of delinquencies.
In this during the cycle as for Forbearance really started ratcheting up I would say materially April over March.
And then and then again may or May yogurt may over April and then it's sort of leveled off a little bit since then and has really kind of stable and there. That's it's widely reported in the trades variances as the creeping down very gradually ever ever since then our delinquencies followed that's all good saying path.
Either at a little different like and Ah, but they had settled down in terms about delinquency growth has begun to flatten out like we've come into the end of the second quarter I'm you know we have some estimates for.
Some continued growth and those are the delinquencies that we referenced in Kelly's remarks you.
In our incurred but not reported charge and wants to see how that comes in July, but but so far we've seen no.
Step up in those they like what she goes we originally thought in the second quarter and then a gradually a gradual decline as weve.
We've gotten toward the end of the corridor.
Thanks, a lot I appreciate that color and then could you just to.
Give us a reminder, for what the typical I guess between with paying and when it's reported a few by the servicer.
Well, we usually reported between two and three months post close.
Perhaps too.
Got it. Thank you and then I could get one more in here for from a strategic perspective. It. It sounds like you know there's a number of options available to you to raise liquidity.
In the short term if he is the kind of.
To prioritize you it sounds like you're saying that the most likely scenarios the partial IPO.
The U.S. more insurance combined with a debt raise at the mortgage insurance holding company level is that about right or is some kind of collateralization of.
Your unpledged interest and U.S. mortgage insurance.
Part of that makes as well.
Josh I think you're good question I think your premise is right that.
The focus is on a pull the near term.
Issuance of the U.S. somebody holding company level I know, we're also preparing taking all the stuff so when needs to do to be ready for a 19.9%.
IPO Oh.
Oh, you answer Mike and you know we also will have more information in terms of the deal and and as we get through to the end of August or how much is committed and so on so I would say that it's likely that the debt.
If you will proceed I think we intend to do the 19.9% IPO if the Oceanwide transaction ended up being further delayed or potentially terminated.
But I think the IPO will be dependent really.
Close and because obviously the automaker benefits to to Genworth that are all of a regular just appreciate is the one and a half a billion capital plan a promotion line that's part of the transaction.
Got it. Thank you very much appreciate everyone.
Once more folks star one for any questions and next we have Mark Palmer with BTG.
Yes, thanks, and good morning.
A couple of questions one on U.S. mortgage insurance it was a big quarter in terms of then I W. at 28 plus billion dollars. If you can give a breakdown on.
How that laid out in terms of refinancings Virtu versus purchase and also just wanted to make sure that occurred correctly that that's the company believes that it may have lost share sequentially on that number.
Mark I'll, let me start with Nick Let me start with the excuse me Tom Let me start with the second part of your question.
We did say that it might be down a little bit flat to down from last quarter.
No not not materially down and but it's really difficult for us or that you're saying that until the reps to.
<unk> companies provide their results, but but we don't forget to <unk> you know, we don't because there's a big downward stuff.
We had a very very strong quarter.
Overall and as mentioned that you know we live in this interest rate environment.
There's a significant amount of refinancing activity.
That that refinancing activity I tell you, it's been broadly or refinance market probably was a penetration was probably about a 7% penetration rate in the refinances and but but equally strong as the purchase penetration, which was EUR estimate close to 26%.
Purchase penetration for loans high loan to value loans are they had and mine on them. So I think that's that's probably a pretty good gauge the purchase market's been really strong and so this is surprisingly strong as help home sales through this is gonna be a very big year for mortgage originations over.
Paul and I would say you know.
It's something that we're very encouraged by and we've had good pricing to support that as well.
Thank you and a one other question with regard to the.
I'll get 31 milestone with regard to.
The provision of evidence or financing being available outside of mainland China.
Would the company need to see funds in escrow you know what would constitute acceptable evidence.
That the financing is actually in place.
Well, that's a good question and Oh, I would say, what we're working very well with China, Oceanwide and their chairman Chairman Lu.
This week, our German already done exactly dreamlounger might be like talk to my Chairman Lu.
Then we will look for.
You know satisfactory evidence that both the 1 billion in mainland China, which we think is in good shape, but also.
The 1 billion or more outside of China, but it is secured and commitment committed and and obviously, we would want to see in our advisors want to see strong.
Covenants in terms of the documentation from Oneq capital or any of the.
Limited partners that are.
Part of that was the 1.8 billion financing, but from outside I'm able to China.
Thank you.
All right, ladies gentlemen wear out of time I'll now turn the call back over to Mr. Mcinerney for any closing comments.
My apologies I'm actually we did have a question.
It looks like on a follow up from Geoffrey Dunn with Dowling partners.
Oh, sorry to go way. That's just one last question about numbers are you able to disclose the actual available assets at minimal acquired assets for them I platform.
Yes.
That was you want to take that are Kelly.
I do not have access to that he will be.
It's could be something we could look at offline for and get back with your job.
Okay, Yeah, and tell you have been in one of the when it was just.
Yeah, Jeff one of the comments that I made and you can you can easily back into this is that we had 1.275 billion its efficiency at 143% P. Myers Ara that ratio so that'll that'll give you that.
That will give you that available assets.
Yeah, No I I saw that I was just trying to make sure that we'll keep you would consider just given the card numbers going forward, so, but yes, I saw that small class.
Thank you.
Ladies and gentlemen, with that we are out of time I'll now turn the call back to Mr. mcinerney for any closing comments.
Thank you very much Greg I want to take everyone. Joining the call today, we really appreciate it.
I I do want to comment again, and thank Kelly groh for.
24 years of excellent work and service to Genworth.
So my pleasure to be you know partnering with her as CFO.
For the last five years, and we wish you a very well on her on her journey back up to the West coast.
The where their parents I know from very close to them and.
You know we look we wish for all the best and obviously, we think we.
That was strong team and a good succession plan in place of down in the room and others.
Obviously, we face continued a unprecedented uncertainty and challenges like all companies, we look over 19 pandemics.
We remain focused on the safety of all employees and serving our customers very well despite working remotely.
Which we think we're gonna be doing through the end of the year.
We also continue to prepare for a wide variety of economic performance scenarios betting on how Ur Cobot 19 plays out the severity of duration.
And obviously, we all facing.
Together, the volatility and uncertainty that results and finally, we're working very closely and very well with those who wanted to close the transaction I think the long term fundamentals and value of the transaction to both sides. John Oceanwide in general are as strong as ever from a long term perspective, and both companies were medical.
We committed.
To the transaction and you know we're working through.
All the financing challenges or.
And coordinating that helping oceanwide anyway, we can.
And we'll see where we are as we approach the end of August but we have.
Very close second points, along the way it all through the month.
So we're we're.
Confident about but you know obviously, it's a it's always a challenge so given.
Just the uncertainties, but there is under covert making for financing all you know all deals so overwhelmed the world.
Yeah, there's going to focusing on that as a top priority to close that transaction. We're also taking steps to meet or near term obligations and liabilities and talked about that today. Both both go in Oh, and you're asking some questions on them. So.
So again, thank you everybody for your interest in support of Genworth and without Greg I'll turn it back over to you.
Thank you, Sir ladies and gentlemen, this concludes Genworth Financial's second quarter earnings call. Thank for your participation at this time the call relent.
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