Q4 2020 Genworth Financial Inc Earnings Call
Please standby.
Good morning, ladies and gentlemen, and welcome to Genworth Financial's fourth quarter, 'twenty and 'twenty earnings Conference call. My name is Lauren and I will be your coordinator today.
At this time all participants are in a listen only mode. We will facilitate a question and answer session towards the end of this conference call as.
The reminder of the conference is being recorded for replay purposes and.
Also we ask that you refrain from using cell phones speaker phones for headsets during the Q&A portion of today's call.
I would now like to turn of the presentation over to Tim Owens, Vice President of Investor Relations. Mr. Owens You May proceed.
Thank you operator, good morning, and thank you for joining Genworth fourth quarter of 2020 earnings call.
So I wanted to kind of run out this morning for please excuse any non quality of technical issues that may arise.
The press release and financial supplement were released last night and this morning. Our earnings presentation was posted to our website will be referenced during our call.
We encourage you to review all of these materials.
A day well hear from our President and Chief Executive Officer, Tom Mcinerney, followed by Dan Sheehan, Our Chief Financial Officer, the Chief Investment Officer.
Do the applicable security law restrictions for comments regarding the status of preparations for an IPO of our U S mortgage debt will be limited sort of prepared remarks.
Following our prepared comments, we will open up the call for a question and answer period.
In addition to our speakers rohit.
Chief Executive officer of Genworth mortgage insurance.
The available to take your questions.
During the call. This morning may make various forward looking statements.
Our actual results may differ materially from such statements.
We advise you to read the cautionary notes regarding forward looking statements and our earnings release and.
Related presentation as well as the risk factors of our most recent annual report on form 10-K and filed with the SEC.
This morning's discussion also includes non-GAAP financial measure for we believe may be meaningful to investors and.
And our financial supplement earnings release, and invest and material.
And I'm not sure and reconciled the GAAP, we're required and in accordance with FCC rules.
Also when we talk about the results of our Australia business. Please note that all percentage changes and exclude the impact of foreign exchange and finally references for our results our estimates of the timing of filing of the statutory but.
And now I'll turn the call over to our President and CEO Tom Mcinerney.
Thanks, Tim and good morning, everyone and thank you for joining our fourth quarter earnings call.
I wanted to start my prepared remarks today by acknowledging the announcement, we made a few weeks ago about Kevin Schneider channel.
Of course, Chief operating officer, who.
He will be leaving Genworth after serving in an advisory role through May 31 of this year.
And it's been an instrumental leader on our Executive Committee and will then Genworth global mortgage insurance businesses over the 25 year career at Genworth and its predecessor companies.
As CEO of the global mortgage insurance division kind of lot of global mortgage insurance presence across the U S, Mexico, Australia, Canada, India and Europe.
Kevin provided of critical leadership to the the disposition of M of Europe, the IPO of Genworth, Australia, and the sale of our ownership stake in Genworth, Canada.
And see the operating officer for Genworth and then also provided of critical operating leadership for the U S life team all while helping lead the company through our transaction with Ocean lives.
The gentleman and board of directors and I are extremely grateful to Kevin for a strong and steady leadership and his outstanding contributions to genworth over his career. Please join me and wished and Kevin well and this next adventure.
Now turning to the fourth quarter Genworth delivered very strong results as the.
We continue to execute well and make progress against our strategic priorities and I am pleased with our ongoing ability of your achieved strong operating results and what remains an uncertain macroeconomic environment.
All of our strategic update on January sales, we have focused our efforts and executing our revised strategic plan and taking steps to strengthen our businesses.
First as we discussed in January.
We remain focused on preparing for a potential partial IPO of U S and my subject to market conditions as well as the satisfaction of various conditions and approvals.
While we are now committed to discuss details associated with this transaction due to the applicable gun jumping and related securities laws I can tell you that we began our preparations for the IPO over a year ago as part of our contingency planning.
Since we announced the indefinitely the lag of the OCI transaction on January 4th and.
And our intent to pursue of partial U S. M. M. I P. O. We have received multiple expressions of interest from third parties and the various transactions involving our U S and my business, including a sale of the 100 per cent of U S and line.
The board and management will consider the various proposals moving forward as we continue to prepare for an IPO, our priority and any transaction would be to maximize long term shareholder value by unlocking value from U S and my and further insulating you optimize ratings, we believe that additional installation along with the.
Significant of holding company and deleveraging over time would improve you of somebody's ratings, which are very important from the competitive standpoint.
Okay, and we ended the year and a very strong liquidity position with approximately $1 1 billion of cash and enabling us to pay off for February of debt maturity of $338 million and finally, we recently took the access to realign genworth expense structure to our current business activities, given the changing footprint of our businesses.
Expense reductions completed in January which included impacts of the people processes and programs are expected to reduce the annualized expenses by $50 million.
We know that the challenging time for our employees and we do not take these actions lightly as.
As we execute our contingency plan, we have a responsibility to align and the U S life with the structure to its current focus which is serving our approximately 3 million of existing policyholders by effectively managing the in force blocks of business. Additionally, we need to ensure that our corporate structure reflects our go forward business needs with the sale of Genworth, Canada and the Patel.
First of all options for the U S of my continued streamlining of corporate support functions will be necessary.
We evaluate our cost structure on an ongoing basis as they move forward with our contingency strategy.
With respect to our U S life insurance businesses I want to be clear that we continue to be committed to improving long term care insurance model and the United States, which has experienced significant challenges due to the legacy business and regulatory issues. When the products were designed decades ago.
And with that as the leader of long term care and assurance with 40 years of experience and expertise that we can leverage to help create a much stronger more viable industry standard model. The meets the demands of an aging population.
Due to our experience and pioneering these products developing solutions to reduce losses on the legacy policies.
And learning from past industry challenges, we believe the jumbo can play a key role and strengthening the long term care insurance market and effort, which is being spearheaded by the NIH the LTC insurance Executive Task Force.
And support of this effort, we continue to execute against our LTC multiyear rate action plan to secure approvals for long term care insurance rate actions and better.
Reductions of.
Progress on this initiative and significantly improve the financial stability of our low.
For the long term care insurance business with more work still to be done.
As I shared on the generates of call. We had a very successful fourth quarter for LTC rate action approvals with over $160 million and additional premium increases achieved.
As of year end 2020, we achieve the approvals at more than 1 billion of annualized in force premiums representing a weighted average premium increase of 34% for 330 or $344 million on an annual incremental premiums going forward.
And the cumulative net present value basis from 2012 through the end of 2020, we have achieved approximately $14 5 billion of approved LTC premium rate increases.
As we've discussed in the past we have no plans to infuse additional capital into or extract capital from our U S life insurance businesses going forward. The U S life insurance businesses will continue to rely on their consolidated statutory capital of approximately $2 $3 billion as of.
The end of the third quarter significant claim and ALR of reserves prudent management of the in force blocks and Actuarially justified rate and actions to satisfy the obligations to our policyholders.
Before I turn to our fourth quarter results I want to provide a brief update and where things stand and the ocean wide.
Merger agreement with the Ocean wide remains in effect.
And why it has informed us it is considering the work towards obtaining the financing to close the transaction, but based on our recent conversations we go and apply the funding issues will be resolved and the near term if at all.
While the outlook remains open for completing the transaction our primary focus has shifted to our contingency plan and the U S and my IPO.
If there is no transaction it is possible that osha wanted genworth could and the future agreed to pursue of long term care insurance focused joint venture and China, given the excellent long term growth opportunities for elder game for elder care and China and the strong relationship we have established for the ocean lines.
The other words isn't a much stronger financial position now than it was four years ago. When we first announced the merger we have.
And several strategic actions to enhance holding company liquidity reduce debt.
One of the rice isolate you of semi for the U S life companies and significantly reduce the capital risk associated with our legacy LTC insurance blocks.
Genworth is also delivered solid operating performance of over the last several years led by strong results and U S and my which grew adjusted operating income at a 27% compound annual growth rate from 2000, Fourteens and 2020, which is among the fastest growth rates and the mortgage insurance industry.
In addition, we have significantly improved our balance sheet flexibility over the last few years by refinancing our debt and receiving two consents from bondholders. The further isolate or of life and long term care insurance companies from the U S. M. A.
I am proud of these accomplishments, which have put genworth of more solid financial footing. As we proceed with our plans to maximize shareholder value over the long term.
Now I'd like to briefly cover a few highlights of our fourth quarter financial operating performance.
For turning the call over to Dan to provide more details.
And the fourth quarter Genworth reported net income of $267 million and adjusted operating income of $173 million the.
The adjusted operating income result was the highest quarterly result, and the last six quarters.
Uhm I reported adjusted operating income of $95 million for the quarter and reported a record level of new insurance written for the full year.
Australia, and my reported and adjusted operating loss of $16 million for the quarter.
Impacted by higher losses from reserve strengthening compared to the prior quarter and prior year.
The U S life companies reported quarterly adjusted operating income of $129 million.
This was driven by LTC insurance adjusted operating income of 129 million net of reserve strengthening.
The strong LTC results reflect the cumulative benefits of 48, and a half billion of LTC premium increases since 2012 the.
The 75 million year over year increase and net investment income and significantly higher LTC claim terminations and lower claimants of incidents because of the COVID-19 and fantastic.
We are prudently managing capital and reserves and lot of the continued economic disruption and uncertainty caused by the pandemic as a result, we increased reserves across Australia and my <unk>.
U S of mine and U S life during the quarter.
I'd like to thank all of our employees for their hard work and our staff and outstanding execution during 2020, which enabled us to deliver very strong full year of companywide adjusted operating income of $317 million. Despite the substantial challenges imposed by COVID-19.
I'll now turn the call over to Dan to discuss the fourth quarter and full year results and more detail.
Thanks, Tom and good morning, everyone today I'll cover our financial results for the fourth quarter capital positions of our subsidiaries and holding company liquidity I am pleased with the continued progress made and each of these areas during the quarter with improved earnings.
Yes, and our multiyear rate action plan and strong capital ratios and our mortgage insurance businesses and incremental liquidity at the holding company.
We reported net income available to genworth shareholders for the quarter of $267 million and adjusted operating income of $173 million.
Included in net income for the quarter was 160 million and realized investment gains primarily from the mark to market on certain securities and derivatives gains.
Partially offset by a $30 million of loss from discontinued operations.
The loss from discontinued operations, primarily related to tax charges.
The U S mortgage and housing market continued to perform well and the spirit of uncertainty and improving home prices are very large origination market and continuation of slowing delinquencies from the earlier peak.
We're closely monitoring government initiatives, including the recently announced foreclosure moratorium extension and fiscal stimulus plans along with forbearance options currently available, which we view as positive for delinquency and tour of development and ultimate claims.
Overall financial results for <unk> and the fourth quarter were driven by strong insurance in force growth and lower levels of new delinquencies, partially offset by reserve strengthening.
For the quarter U S semi reported adjusted operating income of 95 million and a loss ratio of 35%.
Primary new insurance written and U S. M. I was 27 billion and the quarter up 49% versus the prior year, primarily driven by higher refinancing activity and a larger private mortgage insurance market.
As most of our peers of not reported we estimate our market share was generally flat versus the prior quarter.
While we're pleased with our and IW levels and primary insurance in force growth of 14% versus the prior year.
<unk> interest rate environment, and high refinance activity has driven low persistency levels, and our insurance portfolio with varying impacts to our business.
Low persistency has increased single premium cancellations, which have remained elevated throughout 2020 and benefited premiums during the quarter by $32 million, which was unchanged from the prior quarter.
While we could continue to see elevated levels of single premium cancellations. We do expect this trend of decline going forward with the lower mix of single premium product and eventual uptick and mortgage rates.
Lower persistency throughout 2020 has shifted the mix of our risk and force to be weighted more towards the most current book years as illustrated on page five of the Investor presentation.
The credit quality of these recent vintages remains strong.
In addition to our 2005 through 2008 legacy books now comprise only 5% of our risk in force.
While new primary delinquencies of during the fourth quarter was still elevated versus pre COVID-19 levels. They were down 28% sequentially with approximately 56% of new primary delinquencies being reported and forbearance plans.
We ended the quarter with approximately 44900 total primary delinquencies or delinquency rate of 4.86% both of which decreased sequentially as cure has outpaced new delinquencies and the quarter and.
And total approximately 31800 or 71% of our primary delinquencies are and forbearance.
Our service of reported forbearance trends continue to decline from peak levels of May 2020, and ended the fourth quarter was five 4% or approximately 50000 overactive primary policies reported and a forbearance plan with 37% of those and forbearance still reported as current.
During the quarter, we revised our estimated claim rates for previously reported delinquencies.
The $37 million of pre tax reserve increase and the quarter, primarily reflects our expectation the prior delinquencies and forbearance plans will have a higher claim rate and our initial best estimate given the slower emergence of cures relative to our original expectations as well as the ongoing economic impact due to the pandemic.
With this adjustment our current blended claim rate estimates for all COVID-19 delinquencies or delinquency since April that remain outstanding at year end is approximately 7%.
And Australia, the economy continues to recover as evidenced by positive trends and the unemployment rate and home prices.
Last quarter, the Australia, and federal government and Australia as large banks extended the home and business loan deferral program, which allowed eligible borrowers additional assistance beyond the original six month forbearance period.
Approximately $2 four per cent of total Australia households are utilized and these programs down from 7% last quarter.
For Australia, MRI over 8100 loans or approximately 1% of our insured loans are currently participating in these forbearance programs.
And from approximately 31000 and bounds reported at September 32020.
Under Australia regulatory guidelines. These loans are not reported as delinquent.
The ultimate outcome of these loans remains uncertain and considering the current macroeconomic conditions, including the phase out of certain borrowers support measures.
During the current quarter, Australia business strengthened its U S. GAAP loss reserves by 88 million pre tax the majority of which was the result of the refinement and methodology that recognizes losses earlier on and average primarily through the I B and our reserve the.
And the methodology of refinement was prompted by observed changes and incidence patterns of delinquencies and claims resulting in part from the COVID-19 borrower support measures previously mentioned.
Including this reserve update.
The adjusted operating loss for Australia for the fourth quarter was $16 million compared to adjusted operating income of 7 million and the prior quarter and 12 million and the prior year.
The U S GAAP loss ratio for the quarter was 122%.
The strong mortgage origination volume supported by low interest rates drove $6 7 billion of flow and IW, which was up 18% sequentially and 29% versus the prior year.
The business also completed its annual review of the premium earnings pattern and the fourth quarter, which resulted in no changes.
Turning to U S life. The segment reported adjusted operating income of 129 million and the quarter compared to adjusted operating income of $14 million from the prior quarter and and adjusted operating loss of $115 million and the prior year.
Our U S life businesses benefited from variable investment income and continued to experience elevated mortality that we believe is attributable in part to the COVID-19 pandemic.
And long term care adjusted operating income was 129 million and the fourth quarter compared to 59 million and the prior quarter and $19 million and the prior year results continue to reflect the cumulative benefits of our eight year track record of achieving significant LTC premium increases and benefit reductions.
And terminations were significantly higher and the fourth quarter versus the prior quarter and year, we do not require a desk tickets for LTC terminations, but assume the elevated terminations were driven by COVID-19.
We believe that the recent increase and claim terminations during the pandemic as temporary and has primarily impacted our most vulnerable claimants and the fourth quarter. We increased claim reserves by $91 million pretax as noted on page 13 of the investor materials, reflecting our view that the remaining claim population is less like the determined.
And the pre pandemic average.
New claim submissions remain lower than expected, which continues to drive favorable IV and our development. However, we currently believe that the decrease and incidence is temporary reflecting delays and policyholders on claim due to COVID-19 concerns and restrictions and then our incidence experience will ultimately resemble previous trends as of.
The result, we further strengthened our IP and our reserve by 47 million pre tax in the quarter. After strengthening this reserve by 24 million pre tax and the prior quarter.
Net investment income for LTC was up 29 million of after tax versus the prior quarter and $40 million versus the prior year from higher limited partnership and variable investment income.
Shifting to enforce rate actions for LTC. The overall benefits from in force rate actions have remained strong throughout 2020 for the year Genworth received approvals impacting approximately 1 billion of premiums with the weighted average approval rate 34%.
In addition, our premium rate filing increased activity for the year outpaced all prior years as measured by number of filings and impacted premiums as a reminder, and 2020, we began filing for actuarially justified rate increases on new product series for which we had not requested rate increases in the past.
We.
And engage with state regulators and the importance of Actuarially justified rate increases and are encouraged by the continued cooperation from most of our regulators.
Page 15, and the invest and materials illustrates the cumulative approvals by product series.
Turning to life insurance overall mortality for the quarter was elevated versus the prior quarter and prior year. The fourth quarter included an estimate of approximately 16 million of after tax and COVID-19 related claims based on death certificates received to date, bringing the full year amount to 39 billion after tax.
Term life insurance products continued to be negatively impacted by shock lapses that are higher than our original locked in assumptions as the large 20 year level premium term life insurance business written in 2000 enters the post level premium period.
Total term insurance DAC amortization of non.
Noncash impact primarily related to these term life lapses reduced earnings by 18 million of after tax compared to $34 million from the prior quarter.
As sales levels declined and the second half of 2000, and we expect the amortization related to the term policies entering the post level period. The continued to decrease and two 2021.
And our term universal life insurance product as part of our assumption updates, we refined our modeling assumptions for premium persistency as policies enter the post level period and do not expect to see the increased reserve the network the experienced in prior quarters.
And fixed annuities adjusted operating earnings of $20 million for the quarter was lower compared to the prior quarter and prior year, driven by lower mortality and lower net spreads and the single premium immediate annuities the.
These products continue to decline since we suspended sales and 2016 with the total AUM, excluding favorable market impacts of <unk> 2 billion down, 11% and 2022 of 11 8 billion.
And the run off segment, our adjusted operating income was $13 million for the fourth quarter down sequentially and versus the prior year.
The fourth quarter assumption updates were partially offset by strong equity market and interest rate improvement during the quarter.
Our variable annuity products continued to decline since we suspended sales and 2011 with total AUM, excluding favorable market impacts of <unk> 5 billion down, 11% and 2000 25 billion.
For our U S life insurance companies, we completed our review of key actuarial assumptions and the fourth quarter for each of our product lines and.
And LTC, we updated all claim reserve assumptions.
The impact of that update was not material to our claim reserves. The currently view the pandemic driven trends observed in the latter half of 'twenty and 'twenty is temporary and not indicative of the future trends for loss performance.
Our active life margins and LTC remained flat versus the prior year at $500 million to $1 billion.
We reviewed the key assumptions for labs mobility mortality expenses and long term interest rates among other assumptions for 2020. The GAAP active life margins included unfavorable updates for benefit utilization and claim termination rates, particularly for in force policies, and our New York Domiciled and.
Of the litany.
For Glick and these policies, we've been monitoring emerging claims trends relative to the nationwide experience with the benefit of additional data and actuarial analysis for 2020, we were able to fully reflect new York specific experience and cliff means the assumptions.
We've observed that the severity of New York claimed tends to be significantly higher than the nationwide average driven by low oil and mortality.
New York incidents also tends to be materially higher than the nationwide average.
These items drove updates to our in force rate action plan, which is essential to our strategy and proactively managing and mitigating adverse emerging experience.
And we now project the need for $22 5 billion and the LTC premium increases and benefit reductions on the net present value based and as Tom mentioned since 2012, we've achieved $14 5 billion of this amount, leaving the need of approximately 8 billion Levine.
The remaining amount has grown from last year, but largely offsets the net unfavorable impacts from the assumption updates approximately half of the additional rate action of assumptions added to this year's multiyear rate action plan out of.
To reflect the adoption of New York specific experience that I discussed previously.
Also a significant portion of the addition of weight action of assumptions include higher Actuarially justified rate increase the balance on our newer products series choice two and later.
And these newer product series of a lower attained age and the longer runway for collecting additional premiums. This allows for smaller more manageable premium increases for our policyholders, but a higher net present value benefit for the approved premium increase.
We also completed our actuarial assumption updates for our life insurance products during the fourth quarter for the net benefit of 10 billion of after tax.
Model refinements and term Universal life that I previously mentioned and updates for mortality persistency and interest rates and our universal and term Universal life products resulted in a net benefit of 60 million of after tax.
This was partially offset by a $50 million after tax charge related to universal life DAC Recoverability testing primarily related to these updates.
As we noted last quarter certain of our Universal life insurance products. The secondary guarantees required separate testing on a statutory basis called AG 38, D which uses.
The prescribed reinvestment rate from July to June each year.
The decline in rates during this period drove the need to increase statutory reserves by approximately 230 million in 'twenty and 'twenty.
Which we believe will negatively impact our risk based capital for Genworth life insurance company of Glick by approximately 20 points.
Rounding out the results corporate and others adjusted operating loss is 48 million for the fourth quarter and was in line from the prior quarter and prior year.
Turning to capital levels, our U S and Australian mortgage insurance businesses maintained strong capital positions at the end of the fourth quarter and the U S. Semi we finished the quarter with the Pmiers sufficiency ratio of 137% for approximately $1 2 billion above published requirements as of year end 2020.
The improvement and our Pmiers sufficiency versus the prior quarter was driven by the insurance linked note transaction executed in October which provided the $311 million of P. Myers credit at year end 2020, and elevated lapse from prevailing low interest rates. These impacts were partially offset by strong new business levels and elevated lab.
And as which accelerate the amortization of our existing reinsurance transactions.
And January we received regulatory approval for ex ol reinsurance on our 2021 book of and I W, which will provide up to $210 million of P. Myers credit on a portion of current and expected new insurance written for the 2021 book.
Our Australia business ended the quarter with an estimated prescribed capital amount or PCA ratio of 165 per cent, which is approximately 200 million Australian dollars above the high end of the management target range of 132% to 144 per cent.
During the quarter of the Australia business successfully renewed its 800 million Australian dollar of reinsurance program, which was effective January one 2021.
Absent any impact from cash flow testing, we would expect capital of Genworth life insurance company or Glick as a percentage of the company action level of RBC at year end to be above the prior year, including the AG 38 impact that I just mentioned U.
The U S life statutory income and the quarter benefited from earnings and L. T C from the temporary shifts and termination and the incidence trends and from in force rate actions.
The holding company cash we ended the quarter and a very strong cash position with $1 1 billion of cash and liquid assets or approximately $740 million above our targeted cash buffer.
I would note. This excludes approximately 300 billion and cash held at <unk> Intermediate holding company Genworth Mortgage Holdings, Inc. That under current GSE restrictions must be used for interest expenses for the August 20th debt issuance or as capital contributions to the operating company.
Approximately $340 million of the Genworth holding company cash balance was used to pay the principal of our February 2021 senior note maturity.
Page 20 of the Investor presentation provides quarterly activity, including intercompany tax payments of $190 million.
These intercompany tax payments reflect strong underlying taxable income from our U S insurance subsidiaries and the third and fourth quarter of 2020, we.
We expect these payments to continue through 2021, although at a lower amount.
As we look forward to fully address of the September 'twenty, one maturity and maintain out for debt service buffer. We continue to prepare for a potential IPO of our U S semi business subject to market conditions as Tom mentioned.
And closing we've taken numerous steps to improve the liquidity and financial flexibility of our holding company as well as position our businesses to navigate these uncertain times and we're pleased with our financial progress and remain focused on providing value to all key stakeholders.
With that we'll now open the line for questions.
As Tim noted earlier, the applicable securities law restrictions our comments regarding the status of preparations are other matters related to a potential IPO of our U S mortgage business will be limited to our prepared remarks.
Ladies and gentlemen, we will now begin the Q&A portion of the call. As a reminder, please refrain from using cell phones speaker phones or headsets and <unk>.
Star one to ask a question is that anytime you're question has already been answered or you would like to withdraw. Your question. Please press star two to be removed from the queue.
Please press star one now.
We will take our first question from Ryan Krueger with VW.
Hi, good morning.
As you weigh a potential of partial IPO of the U S and my <unk>.
For the full sale of of the company can you discuss what some of the key considerations would be in terms of making that decision.
Yeah.
Well, Ryan I think the baseline is what.
Whichever provides the best.
Long term shareholder value.
And that's based obviously on.
The price on the wholesale versus.
What we think the execution is on the IPO one of the the.
The core plan is the.
A partial IPO of that preserves.
And the ability for a tax free spin off of the U S and my shares.
And to Denver shareholders and the future so that that's an important.
Criteria.
Considering the partial IPO versus the wholesale.
Got it and then.
And yet.
And can you help us think about any type.
I guess, if you did do a bulk sale.
How to think about the tax consequences that might emerge from net new.
And that rate.
And when the rest of the company.
Well I think the main thing is you lose some tax consolidation other wouldn't be I think the taxable gain but Dan do you want to you want to cover.
The implications of the planes question.
Sure and in the case of of full sale.
No there wouldn't be meaningful cash consideration for us we've got a fairly high basis.
<unk>.
The the real issue.
And there's going to be making sure that.
Going forward, we're comfortable with what the.
The deal with the proceeds of the sale and the tax position that we'd be and sort of post sale, but the tax via the.
Wholesale of U S M I.
Relatively straightforward from tax perspective.
Alright, and then just last one I guess what level of confidence do you have that you do sell U S debt.
100 per cent of the proceeds will be available for the holding company.
Vs regulators through the fall and a process requiring some some of amount can be contributed to the glick.
So Ryan I'm and this has come up a lot and.
And it's a difficult question to answer.
Yeah. There is there is no law statutory law authority.
And I give regulators so our principal regulators.
All aware for the Glick and New York, Obviously for the New York subsidiary of Virginia for the lab. There is no legal authority that gives our regulators the right.
And the.
Legal rights of require Genworth of any holding company to contribute.
The capital or the proceeds and this case, one and your question from the U S and myself however.
You know I'm sure that it would be.
Challenges from the states of potential litigation, so one of the things that Dan and I and the board have to think about is of.
The the.
The ability to ultimately convert whatever proceeds and the proceeds could be cash the proceeds could be.
Cash and shares again, many different alternatives, but clearly.
When the cash will be available to shareholders as the key criteria and our financial and outside legal advisors are very focused on debt.
Thank you.
We'll take our next question from Joshua <unk> with credit sites.
Yeah.
Hey.
Appreciate you taking the question I think at this point, you set yourself pretty well with a clear runway towards addressing the 2021 debt obligations and assuming a successful IPO of U S mortgage insurance debt I'm curious to hear about your strategy for dealing with some of the obligations, let's say over 2022 through 2020 for that timeframe.
And you've got the Axa litigation settlement payment of couple of debt maturities and paying for.
And I don't think existing liquidity plus plus the partial IPO will be would be sufficient.
And how you kind of approach that would be helpful.
But for.
Certainly I think we're in good shape on the 2020 ones in terms of the the Axa amounts they're not due until 2022 and there are of significant other sources of cash.
Cash.
We do have.
Potential cash flow.
And next year from GMA and from the semi in terms of dividends or other options with either of those so.
I think we're feeling reasonably good about our ability to handle all of the obligations through the end of 'twenty for and then the remaining debt was about 900 million isn't the threat.
300 million is due in 2034 and then the the balance of about $600 million due in 2066. So we feel we're in pretty good shape and I wanted to provide just a little bit of color on that.
And of the things we're looking at.
Yes. Thank you Tom so for for 'twenty and 'twenty. One we ended the year with until you want of cash which is sufficient to pay off.
Both of the February which was paid off.
This week as well as the September and.
The IPO is going to help us rebuild the buffer, but also give us the proceeds to pay off the axa liabilities in 2022 and.
And what I would say is between the.
Dividend cash flows from <unk> and.
I always have Australia of which we set of the financial asset for some time.
And with the liquid.
With liquid asset and U S M. A republic shares to the extent that we needed to we could use the potential sell down and to take care of liabilities and $23 20 for my guests and.
And assuming COVID-19.
Lessons and the second half of the year and we returned to more of a normal economy.
The cash flows off of <unk>, which has been a very strong business for a number of years will allow us to pay off the 20, threes and 'twenty force between dividends and cash on hand.
I appreciate the color that's all of it if I could.
Squeeze and a second.
The second one here and I recognize your ability to speak to you optimize limited right now, but I think in your prepared remarks, you had mentioned that.
And the ratings for the U S and eyewear were very important from a competitive standpoint I was curious if you could elaborate on that just the data. It seems like the date the ratings disadvantage hasn't been a major factor in the channel its ability to win business.
Is that more about concern about like what's the transfer pricing or that it could translate to for less competitive pricing from genworth.
Any thoughts on that one of your heads here and would be helpful.
And you asked whether that's a good question and I would say.
And I'll ask Robert relative President and CEO of U.
<unk> and he's been in that role as long as I've been here for eight years done an outstanding job, one and use of it and so he is now going to be of sneaker going for it. So I'll, let him give you a little bit of.
On the the competitive landscape.
U S and library and patterns, but we think.
And we've been very successful ROE and the team very successful and maintaining reasonable market share you know when you have <unk>.
And my competitors.
The the.
The average market share.
The around 15% and I think we've been able to be in that range. However, there is no question that our ratings are lower than the other.
And while it hasn't been impacted and so far and we think over the long run and our goal is to get our ratings.
In line with or without competitors, because we feel that we'd be able to compete on a and a better basis, but rather that you and the market every day.
Dealing with this so if you want to give up.
Some kind of suggests where I think we appreciate it.
Sure Tom. Thank you good morning, Joshua So I would just add to a few things of Tom's comment and I completely agree with the statement that we have been able to navigate very successfully and the market given the elevated disadvantage over the last few years.
And from a flow mortgage insurance market perspective, there are some customers. There are some segments of the market primarily the depository institution. So think about large banks think about small banks that do care about grading the even with our very strong P Myers levels.
And and improvement in our ratings would actually help us compete better in those segments and those of the segments, where historically, we have not been very successful and so that would be and upside to overflow mortgage insurance market and to your comment and the credit risk transfer market ratings and important configuration for.
Participation and those reinsurance transactions. So while we have navigated in that market a little bit we have not been a big part of spent and the GSE CRT transactions as well as a portfolio of loans for banks. So.
So that would be and upside to the business and lastly, a strategic consideration for US always is making sure that our ratings also position us.
As a strong counterparty to the GSE.
So making sure that our ratings are competitive and we are seeing not only for all of the P. Myers perspective, but also from a ratings perspective as cash.
And a strong counterparty and competitive counterparty and the market are the reasons the shoe for higher ratings.
Understood. Thank you everyone for your time.
And as a reminder of that is star one to ask a question. We will take our next question from Ryan Gilbert with B P. I G.
Thanks, and good morning first question, Tom just for you.
You know.
Regarding the potential for Osha and wide transaction is there anything you've learned.
Since the January 5th call that.
I guess, just anything incremental on the ocean wind facility to the source of funding.
And to complete the transaction because I think the market is reacting.
To your commentary around.
And while maybe not being able to source of the funding at all.
So just any any incremental information you've learned.
Since January of that might have changed here your view around the transaction.
Well look the you know the the ultrahigh merger agreement is still on the staff instead of my comments I believe of Ocean wide continues to.
Work on the financing and particularly the financing outside of China.
And with <unk> capital and I think there are other are ongoing challenges and the the geopolitical landscape that are out of the ocean wide and Genworth control in terms of the relationship between China and the U S. I think they still want to do the transaction and we still think.
For that transaction as we've said for some time.
We think is the best option for shareholders and it could be achieved but just given where we are and you know.
The time has passed since the end of the year.
I have regular conversations all the time of the Ocean wind. So we're we're still working with working with them to help and anyway, we can on the financing but.
I think we are where we are and based on the the conversations that I've had with the chairman and the.
As the senior team.
It does appear that it would be difficult for them.
The two.
Ways of the financing and the near term.
If at all but we're still open to that and I think they still are very focused on trying to get the financing in place. So those of the comments other than that right.
Okay. Thank you for that.
And and anything you can you can comment on just regarding the potential long term characterize the venture with Ocean wind and China, and maybe how you would capitalize your.
A portion of that potential joint venture.
That's a great question and I.
I'd say and and and I think we've been consistent over the for years that a key driver for wireless and wired was a buzz and is willing to pay $5 43.
Because of the huge potential in China. There are the 250 million Chinese today, 60, and older that will double the 500 million by 2050.
I think the the government is encouraging outside parties, including Genworth.
To come in and innovate and the market there really isn't a.
A strong well developed competitive long term care insurance market.
And China or health insurance market in China, and so we have been working with ocean wide.
The army.
The transaction on the strategy.
And China and we have outside.
For firms consulting firms and others advising on that so I think the the opportunities and China LTC are very substantial.
There isn't a lot of.
But no one in China that I know of has 40 years of experience and the market. So.
And I do think that in the joint venture.
Would bring.
Less capital and we bring some perhaps but less capital and but our our our expertise and experience. So and my guess is we would end up probably.
Probably not being a.
The majority owner of that joint venture because we would not.
Put as much capital and as others, there's a lot of interested parties.
The other partners beyond the on trying to Osha and why that would be interested in and working with the ocean wide and the tumors. So I think it's the it's a significant opportunity and I would say while we.
We'll see if osha why can complete their financing.
And if they can we can move forward with the transaction, but if not I think there's a reasonable chance.
And given the relationship we have developed over the last for years. The work we've done on analyzing the market and the entry and so the market.
That's a significant opportunity and if we can't do the full transaction I think we're very open to that of houses out from them.
Okay got it. Thank you last one for me the.
The 50 million annualized cost savings.
Do you have an idea or can you tell us the split between the holding company expense reductions and subsidiary of expense reductions.
The there was a split of I'll ask Dan to give you a little bit more detail on that debt.
Sorry, I cannot hear the question could you repeat.
And the question Dan was.
Million of expense reductions in January.
What was.
Subsidiary operating companies and expense reductions versus the corporate overhead I think that was the question.
I don't have a breakout of what I would say is that.
And there was a significant amount of reduction inside the life companies as a result of.
Some of the the changes to realign with our expectation going forward for limited sales.
And there was the sort of I would say of widespread.
The reduction across corporate generally.
Those numbers will be numbers, and we'll put forth and us and the first quarter.
And the last thing I would say.
We did.
I think of.
The civic reductions that we did in January of that resulted in our estimate of cost savings of <unk>.
$50 million.
We will and it will continue the to look at that.
As I said in my remarks, we're going to need to continue to rightsize. The organization as we go forward, obviously, it will depend on which option.
We would do for you of semi but our goal would be to.
Continue to align our expense base group, including overhead with.
The revenues of the businesses generally.
Okay. Thank you.
Our next question comes from Geoffrey Dunn with Dowling and partners.
Thanks, Good morning, a couple of my questions for you I appreciate your share in the singles impact on the premium could you further elaborate and share the quarter costs for your ex of wells as well as the quarter costs for islands.
I'll, let our Rohit and.
And so those are good questions Jeff definitely.
Sure. Thanks, Jeff So I think of from a reinsurance perspective, we have not outlined the cost and other.
The disclosures, but I would generally articulate the cost of being bad debt creep back at pre COVID-19 levels and that is for the 2021 excess of loss reinsurance of Dan mentioned in his remarks, and then from an island perspective, I would say the same thing that the October Ireland that we basically executed after the quarter closed third quarter.
The cost on that island was the same as pre COVID-19 levels and as we look at the month of February and the transactions, we have seen and the market. We continue to see the island market very robust and the costs being very competitive and attractive for us.
Okay, and then with respect to your comment on the reserve strengthening I understand but the average is now up to 7%.
Are you, saying also that you're 7% of the fourth quarter or was it a higher number than 7% the brought up the average as well as the strengthening charge.
Yes, so just what I would say is we are in the unprecedented environment here. When we just think about our overall roll rates and what goes on factors the flow.
Data and the programs we have today are very different and the forbearance programs and we used to have pre COVID-19.
And then there were the numbers less than 5% of all of delinquent base used to be in forbearance programs and as Dan mentioned right now 71% of of our delinquency of the band of the year, our and forbearance programs essentially what we did was as we were navigating through the year and we looked at cure rates coming from for beta.
And as delinquencies, we did not see those scale rate navigating to the level that we would've expected based on the choice of roll rates, we made earlier and the year.
So based on that experience, we decided to increase primarily of our four beta and short rates and the accumulated number came to 7% for all Covid delinquencies forbearance and non core billings combined at the end of fourth quarter.
Right I'm, asking I guess, specifically what was the assumption for Q4, though.
What's the kind of your run rate exiting the year are you out of 7% of assumption as we go into the beginning of the year or is it a higher number that helped bring up the overall average for the last nine months.
Yes. So we are at 7% as we ended the fourth quarter for Covid delinquencies and for non Covid delinquency that number would be higher because non cover of delinquencies growth non forbearance.
And seven per cent for news and so for you.
Blended number is about 7%.
Yes.
Okay. Thanks.
Ladies and gentlemen, we have time for one final question from Howard Amster with Horizon group.
Tom.
I think my question was answered the risk.
The cost savings are for the $50 million for the come from so thank you very much.
Yeah. Thanks.
Ladies and gentlemen, I will now turn the call back over to Mr. Mcinerney for closing comments.
Thanks, Lauren and thanks for all of you for and the call today and.
Closing I would.
And just reiterate that we have made significant progress towards meeting our debt obligations and 2021.
Including the working towards the potential IPO of the U S and my business.
Dreamliner cost structure and we also paid the February of debt obligation.
We look forward of continuing to execute against our plans to further strengthen our financial position and maximize long term shareholder value.
I'd like to thank our employees once again for their outstanding work and a very difficult year 2020.
As we move forward through the pandemic will continue to be prepared for a variety of economic and for them scenarios and our business and.
And we look forward to updating you on our progress and thank you all very much for your interest and support of Genworth and <unk>.
With that and the one and I'll turn the call back over the year.
Ladies and gentlemen, this concludes Genworth financial fourth quarter Conference call. Thank you for your participation at this time of the call will end.
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