RICHMOND, Va., July 29,
2020 /PRNewswire/ --
- Merger Agreement With China Oceanwide Holdings Group Co., Ltd
(Oceanwide) Extended To Not Later Than September 30, 2020; Interim Milestone By
August 31, 2020
- Reached Agreement With AXA S.A. (AXA) On July 20, 2020 To Settle Liability For Payment
Protection Insurance Mis-Selling, Which Included A Payment Of
£100MM Subsequent To Quarter-End
- U.S. Mortgage Insurance (MI) Benefited From A Robust Mortgage
Origination Market With $28.4 Billion
In New Insurance Written (NIW)
- U.S. MI Adjusted Operating Loss Of $3
Million Primarily Driven By Higher New Delinquencies
Attributable To The COVID-19 Pandemic
- U.S. MI's PMIERs1 Sufficiency Ratio Estimated At 143
Percent, $1,275 Million Above
Requirements
-
- Reinsurance Transaction On 2009-2019 Blocks Providing
Approximately $180 Million PMIERs
Credit
- U.S. Life Insurance Segment Adjusted Operating Loss Of
$5 Million Driven By Life Insurance
Performance; LTC2 Benefited From Higher Mortality In The
Quarter Indicative Of COVID-19
- Holding Company Cash And Liquid Assets Of $554 Million, Including $59 Million Restricted, With Repurchases Of
$52 Million Principal Amount Of 2021
Senior Notes In The Quarter
Genworth Financial, Inc. (NYSE: GNW) today reported results for
the quarter ended June 30, 2020. The company reported a net
loss3 of $441 million, or $0.86 per diluted share, in the second quarter of
2020, compared with net income of $168 million, or
$0.33 per diluted share, in the
second quarter of 2019. The company reported an adjusted
operating loss4 of $21 million, or
$0.04 per diluted share, in the
second quarter of 2020, compared with adjusted operating income of
$178 million, or $0.35 per
diluted share, in the second quarter of 2019.
In July 2020, the company reached
a settlement agreement with AXA regarding a dispute over payment
protection insurance claims underwritten by the company's former
lifestyle protection insurance business that was acquired by AXA in
2015. As a result, Genworth recorded an after-tax loss of
$516 million for the settlement as
part of discontinued operations in the current quarter.
COVID-19 Update
The COVID-19 pandemic continued to impact Genworth in the
current quarter. Genworth's priority remains servicing its
customers while maintaining the health and safety of all employees
and their families. The company successfully transitioned to a
fully remote work environment in March, and employees have
continued to serve customers and policyholders effectively with
minimal disruption. As cases have continued to surge in some
regions of the U.S. and given the organization's seamless
transition to remote operations, Genworth has decided to extend
remote working conditions until at least January 1, 2021. Genworth is constantly
monitoring and evaluating the impact of COVID-19 and will continue
to act in the best interests of its investors and employees while
effectively addressing customer needs.
The COVID-19 pandemic and related macroeconomic volatility
negatively impacted the company's financial results in the quarter
primarily as a result of higher unemployment, increased home
borrower participation in forbearance programs and increased new
delinquencies which were partly mitigated by the effects of
government stimulus. These effects were partially offset by
benefits from sequential equity market improvement and higher
mortality in the LTC business.
Genworth is closely monitoring macroeconomic indicators and is
conducting extensive scenario planning to tailor its actions to
mitigate adverse effects of the pandemic. The economic impact to
U.S. MI for the remainder of 2020 is uncertain and will depend on
the speed of recovery and the amount and duration of government
stimulus reaching borrowers. Mortgage originations remained strong
during the current quarter driven by the low interest rate
environment which resulted in higher refinance origination volumes.
New delinquencies increased significantly in the current quarter,
peaking in the month of May consistent with forbearance trends seen
earlier in the quarter. Although uncertainty remains high, as
economic activity resumes and forbearance options provide borrowers
with financial stability, higher new delinquencies may be mitigated
by higher cure rates in the second half of 2020. In order to
preserve capital in the company's mortgage insurance subsidiaries
during this period of uncertainty, Genworth does not expect to
receive further dividends from its mortgage insurance businesses in
2020. Additionally, in response to COVID-19, the U.S. MI business
is subject to the temporary PMIERs requirement to obtain
pre-approval from the government-sponsored enterprises (GSEs) for
certain capital related transactions, including dividends. The
amount and timing of dividends in 2021 will depend on a variety of
factors, including the timing of economic recovery from
COVID-19.
In the U.S. life insurance companies, interest rate and equity
market movements are expected to continue to impact U.S. GAAP and
statutory results. Results may also continue to be impacted by
higher mortality, dependent on the length and severity of the
COVID-19 pandemic. The company continues to manage the U.S. life
insurance businesses on a standalone basis with no plans to infuse
or extract capital other than as committed in connection with the
completion of the Oceanwide transaction.
"Genworth's leadership team and employees have shown incredible
resilience and dedication to our customers, policyholders and each
other during this difficult period," said Tom McInerney, President and CEO of Genworth.
"While the severity and duration of the pandemic remains to be
seen, we continue to plan for various scenarios to ensure we are
taking the right steps to best position our businesses to navigate
the impacts of the pandemic."
Strategic Update
On June 30, Genworth and Oceanwide
announced they agreed to extend the merger agreement deadline to
not later than September 30, 2020,
which provides Oceanwide with additional time to secure funding for
the transaction and receive clearance for currency conversion and
transfer of funds from China's
State Administration of Foreign Exchange (SAFE). Oceanwide has
indicated that the financing has been delayed due to the COVID-19
pandemic and uncertain macroeconomic conditions.
"Although the closing process has been further delayed by the
COVID-19 pandemic, the Oceanwide transaction continues to represent
the best strategic option for Genworth's shareholders, and benefits
policyholders, customers and employees," said Tom McInerney, president and CEO of Genworth.
"The fifteenth waiver and extension of the merger agreement
provides both parties with the flexibility needed to navigate this
uncertain environment. In order to address our near-term financial
obligations including the recently announced AXA settlement, we are
moving forward with steps to enhance our liquidity while working
diligently towards closing the transaction."
LU Zhiqiang, chairman of Oceanwide, continued. "The acquisition
of Genworth is a strategically important transaction and a priority
for China Oceanwide. The financing progress has been delayed given
the significant economic impacts of lock-downs associated with the
global pandemic, but we remain committed to securing financing for
the transaction in order to close the transaction as soon as
possible."
As part of the fifteenth waiver and extension, Genworth and
Oceanwide also agreed to additional interim milestones designed to
provide more clarity to Genworth on Oceanwide's progress towards
financing the transaction. Specifically, the fifteenth waiver
includes provisions for Oceanwide to submit satisfactory evidence
to Genworth by August 31, 2020
confirming that:
- Approximately $1.0 billion is
available to Oceanwide from sources in Mainland China to fund the
acquisition of Genworth; and
- Hony Capital and/or other acceptable third parties have
committed to provide Oceanwide $1.0
billion or more from sources outside of China to fund the transaction.
Given the delay in the closing process, Genworth is moving
forward with plans to address its near-term liabilities and
financial obligations, which include the recently announced
settlement agreement with AXA and approximately $1.0 billion of debt maturing in 2021. Genworth
expects these steps to include a debt financing in the near term
and taking the necessary steps to launch a 19.9 percent initial
public offering of its U.S. Mortgage Insurance business, subject to
market conditions, in the event the China Oceanwide transaction is
terminated.
As previously announced, Genworth paid AXA £100 million, or
$125 million, on July 21, 2020 (which amount is in addition to a
£100 million interim cash payment Genworth made to AXA in
January 2020 and expensed in the
fourth quarter of 2019). In addition, Genworth issued a secured
promissory note to AXA, pursuant to which Genworth will make
deferred cash payments totaling approximately £317 million in two
installments: the first on June 30,
2022 and the second on September 30,
2022, subject to certain prepayment obligations. Genworth
has also agreed to pay a significant portion of mis-selling losses
incurred by AXA from the ongoing processing of previously submitted
mis-selling complaints, which losses will be added to and paid with
the second installment on September
30, 2022.
Under the terms of the settlement and the sale and purchase
agreement, if AXA recovers amounts from third parties related to
the mis-selling losses, including from the distributor responsible
for the sale of the policies, Genworth has certain rights to share
in those recoveries to recoup payments for the underlying
mis-selling losses.
Financial Performance
Consolidated Net
Income (Loss) & Adjusted Operating Income (Loss)
|
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Three months ended
June 30
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2020
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2019
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Per
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Per
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|
|
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diluted
|
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|
diluted
|
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Total
|
(Amounts in
millions, except per share)
|
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Total
|
|
share
|
|
Total
|
|
share
|
|
% change
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|
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|
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|
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|
|
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|
Net income (loss)
available to Genworth's common stockholders
|
|
$
|
(441)
|
|
$
|
(0.86)
|
|
$
|
168
|
|
$
|
0.33
|
|
NM5
|
Adjusted operating
income (loss)
|
|
$
|
(21)
|
|
$
|
(0.04)
|
|
$
|
178
|
|
$
|
0.35
|
|
(112)%
|
Weighted-average
diluted shares
|
|
|
512.5
|
|
|
|
|
|
508.7
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As of June
30
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2020
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2019
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Book value per
share
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$
|
28.96
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$
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27.32
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|
Book value per share,
excluding accumulated other comprehensive
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|
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|
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|
|
|
income
(loss)
|
|
|
|
|
$
|
20.17
|
|
|
|
|
$
|
21.34
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|
|
|
The net loss in the quarter included investment gains of
$101 million, net of taxes and other
adjustments. The investment gains were driven by sales of U.S.
Treasury bonds and mark-to-market gains on limited partnerships and
equity securities. Net income in the second quarter of 2019
included $35 million from investment
losses, net of taxes and other adjustments.
Net investment income was $786
million in the quarter, compared to $793 million in the prior quarter and
$816 million in the prior year. Net
investment income was lower than the prior quarter as a result of
lower income from bond calls and prepayments and an unfavorable
inflation impact on U.S. Government Treasury Inflation Protected
Securities (TIPS) in the quarter compared to favorable inflation in
the prior quarter, partially offset by higher income from limited
partnerships. Net investment income was lower than the prior year
due to unfavorable inflation impact of TIPS in the quarter compared
to favorable inflation in the prior year. The reported yield and
the core yield4 for the quarter were 4.65 percent and
4.59 percent, respectively, compared to 4.71 percent and 4.57
percent, respectively, in the prior quarter.
Genworth's effective tax rate on income from continuing
operations for the quarter was approximately 31.1 percent. The
effective tax rate was increased from the tax effect of forward
starting swap gains settled prior to the change in the corporate
tax rate under the 2017 Tax Cuts and Jobs Act, which continue to be
tax effected at 35 percent as they are amortized into net
investment income, as well as by the higher tax expense related to
foreign operations and nondeductible goodwill. The effective tax
rate on the loss from discontinued operations for the quarter was
21 percent.
Adjusted operating income (loss) results by business line are
summarized in the table below:
Adjusted Operating
Income (Loss)
|
|
|
|
|
|
|
|
|
|
(Amounts in
millions)
|
|
Q2
20
|
|
Q1
20
|
|
Q2
19
|
U.S. Mortgage
Insurance
|
|
$
|
(3)
|
|
$
|
148
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|
$
|
147
|
Australia Mortgage
Insurance
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|
1
|
|
|
9
|
|
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13
|
U.S. Life
Insurance
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|
|
(5)
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|
|
(70)
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|
|
66
|
Runoff
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24
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|
|
(13)
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|
|
9
|
Corporate and
Other
|
|
|
(38)
|
|
|
(41)
|
|
|
(57)
|
Total Adjusted
Operating Income (Loss)
|
|
$
|
(21)
|
|
$
|
33
|
|
$
|
178
|
Adjusted operating income (loss) represents income (loss) from
continuing operations excluding the after-tax effects of income
(loss) from continuing operations attributable to noncontrolling
interests, net investment gains (losses), goodwill
impairments, gains (losses) on the sale of businesses, gains
(losses) on the early extinguishment of debt, gains (losses) on
insurance block transactions, restructuring costs and other
adjustments, net of taxes. A reconciliation of net income (loss) to
adjusted operating income (loss) is included at the end of this
press release.
Unless specifically noted in the discussion of results for the
Australia MI business, references to percentage changes exclude the
impact of translating foreign denominated activity into U.S.
dollars (foreign exchange). Percentage changes that include the
impact of foreign exchange are found in a table at the end of this
press release.
U.S. Mortgage Insurance
Operating
Metrics
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in
millions)
|
|
Q2
20
|
|
Q1
20
|
|
Q2
19
|
Adjusted operating
income (loss)
|
|
$
|
(3)
|
|
$
|
148
|
|
$
|
147
|
New insurance
written
|
|
|
|
|
|
|
|
|
|
Primary Flow
|
|
$
|
28,400
|
|
$
|
17,900
|
|
$
|
15,800
|
Loss ratio
|
|
|
94 %
|
|
|
8 %
|
|
|
— %
|
U.S. MI reported an adjusted operating loss of $3 million,
compared with adjusted operating income of $148 million in the prior quarter and
$147 million in the prior year. U.S.
MI's flow insurance in force increased 16 percent versus the prior
year from strong NIW, driving continued growth in earned premiums.
Flow NIW increased 59 percent from the prior quarter due to higher
purchase and refinance originations and was up 80 percent versus
the prior year primarily driven by higher refinance originations, a
larger private mortgage insurance market and higher estimated
market share. Flow insurance in force growth from NIW was partially
offset by low persistency, which was 60 percent for the quarter,
down from 76 percent in the prior quarter and 82 percent in the
prior year. The growth in earned premiums versus the prior quarter
and prior year was also driven by increased single premium policy
cancellations from lower persistency and higher mortgage
refinancing activity, partially offset by lower average premium
rates and higher ceded premiums associated with the company's
credit risk transfer program.
U.S. MI losses of $228 million and
loss ratio of 94 percent were up from both the prior year and
sequentially driven by an increase in new delinquencies from the
COVID-19 pandemic. Total flow delinquencies increased from 15,246
to 53,372 sequentially driven by 48,249 new delinquencies in the
quarter, of which 87 percent are subject to a forbearance plan and
may cure at an elevated rate. New delinquencies contributed
$170 million of loss expense in the
quarter, and in addition, losses included approximately
$28 million of incremental loss
expense associated with incurred but not reported (IBNR)
delinquencies. U.S. MI also strengthened reserves on existing
delinquencies by $28 million,
primarily due to the deterioration of early cure emergence patterns
impacting the frequency of claim, along with a modest increase in
the estimated claim severity.
Australia Mortgage Insurance
Operating
Metrics
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|
|
|
|
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|
(Dollar amounts in
millions)
|
|
Q2
20
|
|
Q1
20
|
|
Q2
19
|
Adjusted operating
income
|
|
$
|
1
|
|
$
|
9
|
|
$
|
13
|
New insurance
written
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|
|
|
|
|
|
|
|
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Flow
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$
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4,400
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$
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4,100
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$
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3,700
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Bulk
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$
|
100
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$
|
200
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$
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1,200
|
Loss ratio
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63 %
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|
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34 %
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34 %
|
Australia MI reported adjusted operating income of $1
million, down from $9 million in the prior quarter
and $13 million in the prior year primarily from
lower earned premiums and higher losses in the current quarter.
Australia MI flow NIW increased 15 percent sequentially and
increased 32 percent versus the prior year due to higher mortgage
origination volume with continued low interest rates and improving
consumer confidence. Through the second quarter, over 48,000 of
Australia MI's insured loans, or 4% of its insured loans in force,
were enrolled in a payment deferral or payment holiday program.
Under regulatory guidance, these loans, unless previously
delinquent, are reported as current. The business strengthened its
loss reserve by $18 million in the
current quarter, including IBNR reserving for the loan payment
deferrals, to reflect anticipated economic impacts caused by the
COVID-19 pandemic. The loss ratio in the quarter was 63 percent, up
29 points both sequentially and versus prior year primarily due to
the increases in loss reserves.
U.S. Life Insurance
Adjusted Operating
Income (Loss)
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|
|
|
|
|
|
|
|
|
(Amounts in
millions)
|
|
Q2
20
|
|
Q1
20
|
|
Q2
19
|
Long Term Care
Insurance
|
|
$
|
48
|
|
$
|
1
|
|
$
|
37
|
Life
Insurance
|
|
|
(81)
|
|
|
(77)
|
|
|
10
|
Fixed
Annuities
|
|
|
28
|
|
|
6
|
|
|
19
|
Total U.S. Life
Insurance
|
|
$
|
(5)
|
|
$
|
(70)
|
|
$
|
66
|
Long Term Care Insurance
Long term care insurance reported adjusted operating income of
$48 million, compared with $1 million in the prior
quarter and $37 million in the prior year. Mortality in the
current quarter was higher compared to the prior quarter and prior
year, impacting active claims, pending claims and active policies.
Although it is not the company's practice to track cause of death
for LTC policyholders and claimants, current quarter LTC results
were likely impacted by the COVID-19 pandemic. In light of the
significant decrease in LTC new claim incidence the company has
experienced during the COVID-19 pandemic, IBNR claim reserves were
strengthened $37 million in the
current quarter, reflecting the assumption that incidence during
the quarter was temporarily delayed. The IBNR reserve strengthening
partially offset the continued favorable development on IBNR
claims. Premiums from in force rate actions were higher than the
prior quarter and prior year, partially offset by less favorable
impacts from benefit reductions.
Life Insurance
Life insurance reported an adjusted operating loss of
$81 million, compared with an adjusted operating loss of
$77 million in the prior quarter and
adjusted operating income of $10 million in the prior year.
Results reflected higher amortization of deferred acquisition costs
(DAC) compared to the prior year, primarily associated with higher
lapses from the large 20-year level-premium term life insurance
block entering its post-level premium period. Results also
reflected reserve increases during the premium grace period in the
10-year term universal life insurance block associated with
policies entering the post-level premium period that were higher
than the prior year and lower than the prior quarter. Universal
life mortality was higher compared to the prior quarter and prior
year, attributable in part to the COVID-19 pandemic. Prior year
results included a reinsurance correction and a refinement
resulting in a net favorable after-tax impact of $17 million.
Fixed Annuities
Fixed annuities reported adjusted operating income of
$28 million, compared with $6 million in the prior
quarter and $19 million in the prior year. Results versus the
prior quarter and prior year reflected favorable reserve changes
and DAC amortization due to the favorable equity market changes and
higher mortality in the single premium immediate annuity product.
Results versus the prior year also reflected lower net spreads and
DAC amortization reflecting higher lapses. Results in the prior
year included unfavorable after-tax charges of $4 million from loss recognition testing on the
single premium immediate annuity block.
Runoff
Runoff reported adjusted operating income of $24 million,
compared with an adjusted operating loss of $13 million in the
prior quarter and adjusted operating income of $9 million in
the prior year. Results in the current quarter reflected impacts in
the company's variable annuity business from favorable equity
market performance compared to the prior quarter and prior
year.
Corporate And Other
Corporate and Other reported an adjusted operating loss of
$38 million, compared with $41 million in the prior
quarter and $57 million in the prior year. Operating expenses
in the current quarter were favorable compared to the prior quarter
and prior year primarily from lower corporate spending.
Additionally, results in the current quarter and prior quarter
reflected lower interest expense compared to the prior year from
the early redemption of Genworth Holdings, Inc.'s June 2020 senior notes in January 2020.
Capital & Liquidity
Genworth maintains the following capital positions in its
operating subsidiaries:
Key Capital &
Liquidity Metrics
|
|
|
|
|
|
|
|
|
|
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|
|
(Dollar amounts in
millions)
|
|
Q2
20
|
|
Q1
20
|
|
Q2
19
|
U.S. MI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Risk-To-Capital Ratio6
|
|
|
12.0:1
|
|
|
|
12.2:1
|
|
|
|
11.8:1
|
|
|
Genworth Mortgage
Insurance Corporation Risk-To-Capital Ratio6
|
|
|
12.2:1
|
|
|
|
12.4:1
|
|
|
|
12.1:1
|
|
|
Private Mortgage
Insurer Eligibility Requirements (PMIERs) Sufficiency
Ratio6,7
|
|
|
143
|
%
|
|
|
142
|
%
|
|
|
123
|
%
|
Australia
MI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prescribed Capital
Amount (PCA) Ratio6
|
|
|
177
|
%
|
|
|
178
|
%
|
|
|
208
|
%
|
U.S. Life Insurance
Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Risk-Based Capital (RBC) Ratio6
|
|
|
220
|
%
|
|
|
194
|
%
|
|
|
191
|
%
|
Holding Company Cash
and Liquid Assets8,9
|
|
$
|
554
|
|
|
$
|
575
|
|
|
$
|
403
|
|
Key Points
- U.S. MI's PMIERs sufficiency ratio is estimated to be 143
percent, $1,275 million above
requirements. The PMIERs sufficiency ratio was up one percent, or
$104 million sequentially, with
improvement driven primarily from business cash flows, elevated
lapse of existing business and an increase in reinsurance credit,
partially offset by incremental new delinquencies and capital
consumed by NIW. Both the current quarter and prior quarter ratios
benefited from a 0.30 multiplier applied to the risk based required
asset factor for loans, pursuant to recently announced GSE PMIERs
guidance, which resulted in a reduction of PMIERs required assets
by an estimated $1,057 million at the
end of the quarter;
- In the current quarter, U.S. MI executed an aggregate excess of
loss reinsurance transaction which provided up to $300 million of reinsurance coverage on the
2009-2019 book years to provide PMIERs capital credit for elevated
delinquencies as a result of COVID-19. The PMIERs sufficiency in
the current quarter included approximately $180 million of capital credit in respect of this
transaction. Combined with the other outstanding credit risk
transfer transactions, including the insurance linked note, the
credit risk transfer program provided an aggregate of approximately
$1.0 billion of PMIERs capital credit
as of June 30, 2020;
- Australia MI's PCA ratio is estimated to be 177 percent, above
the company's target operating range of 132 to 144 percent. The PCA
ratio was down one point sequentially;
- Subsequent to quarter end, Australia MI executed a series of
Tier 2 debt transactions that extended favorable regulatory capital
credit;
- U.S. life insurance companies' consolidated statutory
risk-based capital is estimated to be 220%, up from the prior
quarter primarily due to statutory income on LTC from favorable
mortality and favorable equity market impacts on variable annuities
during the current quarter; and
- The holding company ended the quarter with $554 million of cash and liquid assets, including
$59 million that is restricted, which
is above the company's target of two times expected annual debt
interest payments excluding restricted cash and liquid assets.
During the second quarter, the holding company repurchased
$52 million of its 2021 maturities at
a $4 million discount. Subsequent to
quarter end, the company made a £100 million payment ($125 million) to AXA related to the settlement
agreement on July 21, 2020.
About Genworth Financial
Genworth Financial, Inc. (NYSE: GNW) is a Fortune 500 insurance
holding company committed to helping families achieve the dream of
homeownership and address the financial challenges of aging through
its leadership positions in mortgage insurance and long term care
insurance. Headquartered in Richmond,
Virginia, Genworth traces its roots back to 1871 and became
a public company in 2004. For more information, visit
genworth.com.
From time to time, Genworth releases important information via
postings on its corporate website. Accordingly, investors and other
interested parties are encouraged to enroll to receive automatic
email alerts and Really Simple Syndication (RSS) feeds regarding
new postings. Enrollment information is found under the "Investors"
section of genworth.com. From time to time, Genworth's publicly
traded subsidiary, Genworth Mortgage Insurance Australia Limited,
separately releases financial and other information about its
operations. This information can be found at
http://www.genworth.com.au.
Conference Call And Financial Supplement Information
This press release and the second quarter 2020 financial
supplement are now posted on the company's website. Additional
information regarding business results will be posted on the
company's website, http://investor.genworth.com, by 8:00 a.m. on July 30, 2020. Investors are
encouraged to review these materials.
Genworth will conduct a conference call on July 30, 2020 at
9:00 a.m. (ET) to discuss business
results and provide an update on strategic objectives, including
the pending transaction with China Oceanwide. Genworth's conference
call will be accessible via telephone and the Internet. The dial-in
number for Genworth's July 30th conference call is
888 208.1820 or 323 794.2110 (outside the U.S.); conference ID #
6602361. To participate in the call by webcast, register at
http://investor.genworth.com at least 15 minutes prior to the
webcast to download and install any necessary software.
A replay of the call will be available at 888 203.1112 or 719
457.0820 (outside the U.S.); conference ID # 6602361 through
August 14, 2020. The webcast will also be archived on the
company's website for one year.
Use of Non-GAAP Measures
This press release includes the non-GAAP financial measures
entitled "adjusted operating income (loss)" and "adjusted operating
income (loss) per share." Adjusted operating income (loss) per
share is derived from adjusted operating income (loss). The chief
operating decision maker evaluates segment performance and
allocates resources on the basis of adjusted operating income
(loss). The company defines adjusted operating income (loss) as
income (loss) from continuing operations excluding the after-tax
effects of income (loss) from continuing operations attributable to
noncontrolling interests, net investment gains (losses), goodwill
impairments, gains (losses) on the sale of businesses, gains
(losses) on the early extinguishment of debt, gains (losses) on
insurance block transactions, restructuring costs and infrequent or
unusual non-operating items. Gains (losses) on insurance block
transactions are defined as gains (losses) on the early
extinguishment of non-recourse funding obligations, early
termination fees for other financing restructuring and/or resulting
gains (losses) on reinsurance restructuring for certain blocks of
business. The company excludes net investment gains (losses) and
infrequent or unusual non-operating items because the company does
not consider them to be related to the operating performance of the
company's segments and Corporate and Other activities. A component
of the company's net investment gains (losses) is the result of
estimated future credit losses, the size and timing of which can
vary significantly depending on market credit cycles. In addition,
the size and timing of other investment gains (losses) can be
subject to the company's discretion and are influenced by market
opportunities, as well as asset-liability matching considerations.
Goodwill impairments, gains (losses) on the sale of businesses,
gains (losses) on the early extinguishment of debt, gains (losses)
on insurance block transactions and restructuring costs are also
excluded from adjusted operating income (loss) because, in the
company's opinion, they are not indicative of overall operating
trends. Infrequent or unusual non-operating items are also excluded
from adjusted operating income (loss) if, in the company's opinion,
they are not indicative of overall operating trends.
While some of these items may be significant components of net
income (loss) available to Genworth Financial, Inc.'s common
stockholders in accordance with U.S. GAAP, the company believes
that adjusted operating income (loss) and measures that are derived
from or incorporate adjusted operating income (loss), including
adjusted operating income (loss) per share on a basic and diluted
basis, are appropriate measures that are useful to investors
because they identify the income (loss) attributable to the ongoing
operations of the business. Management also uses adjusted operating
income (loss) as a basis for determining awards and compensation
for senior management and to evaluate performance on a basis
comparable to that used by analysts. However, the items excluded
from adjusted operating income (loss) have occurred in the past and
could, and in some cases will, recur in the future. Adjusted
operating income (loss) and adjusted operating income (loss) per
share on a basic and diluted basis are not substitutes for net
income (loss) available to Genworth Financial, Inc.'s common
stockholders or net income (loss) available to Genworth Financial,
Inc.'s common stockholders per share on a basic and diluted basis
determined in accordance with U.S. GAAP. In addition, the company's
definition of adjusted operating income (loss) may differ from the
definitions used by other companies.
Adjustments to reconcile net income (loss) available to Genworth
Financial, Inc.'s common stockholders to adjusted operating income
(loss) assume a 21 percent tax rate for the company's domestic
segments and a 30 percent tax rate for its Australia Mortgage
Insurance segment and are net of the portion attributable to
noncontrolling interests. Net investment gains (losses) are also
adjusted for DAC and other intangible amortization and certain
benefit reserves.
In the second quarter of 2020, the company recorded a goodwill
impairment of $3 million, net of the
portion attributable to noncontrolling interests, in its
Australia mortgage insurance
business.
During the second and first quarters of 2020, the company
repurchased $52 million and
$14 million, respectively, principal
amount of Genworth Holdings, Inc.'s (Genworth Holdings) senior
notes with 2021 maturity dates for a pre-tax gain of $3 million and $1
million, respectively. In January
2020, the company paid a pre-tax make-whole expense of
$9 million related to the early
redemption of Genworth Holdings' senior notes originally scheduled
to mature in June 2020 and Rivermont
Life Insurance Company I, the company's indirect wholly-owned
special purpose consolidated captive insurance subsidiary, early
redeemed all of its $315 million
outstanding non-recourse funding obligations originally due in 2050
resulting in a pre-tax loss of $4
million from the write-off of deferred borrowing costs.
These transactions were excluded from adjusted operating income
(loss) as they relate to gains (losses) on the early extinguishment
of debt.
The company recorded a pre-tax expense of $1 million in both the second and first quarters
of 2020 related to restructuring costs as it continues to evaluate
and appropriately size its organizational needs and expenses. There
were no infrequent or unusual items excluded from adjusted
operating income (loss) during the periods presented.
The tables at the end of this press release provide a
reconciliation of net income (loss) available to Genworth
Financial, Inc.'s common stockholders to adjusted operating income
(loss) for the three months ended June 30,
2020 and 2019, as well as for the three months ended
March 31, 2020, and reflect adjusted
operating income (loss) as determined in accordance with accounting
guidance related to segment reporting.
This press release includes the non-GAAP financial measure
entitled "core yield" as a measure of investment yield. The company
defines core yield as the investment yield adjusted for items that
do not reflect the underlying performance of the investment
portfolio. Management believes that analysis of core yield enhances
understanding of the investment yield of the company. However, core
yield is not a substitute for investment yield determined in
accordance with U.S. GAAP. In addition, the company's definition of
core yield may differ from the definitions used by other companies.
A reconciliation of reported U.S. GAAP yield to core yield is
included in a table at the end of this press release.
Definition of Selected Operating Performance Measures
The company taxes its international businesses at their local
jurisdictional tax rates and its domestic businesses at the U.S.
corporate federal income tax rate of 21 percent. The company's
segment tax methodology applies the respective jurisdictional or
domestic tax rate to the pre-tax income (loss) of each segment,
which is then adjusted in each segment to reflect the tax
attributes of items unique to that segment such as foreign
withholding taxes and permanent differences between U.S. GAAP and
local tax law. The difference between the consolidated provision
for income taxes and the sum of the provision for income taxes in
each segment is reflected in Corporate and Other activities.
The annually-determined tax rates and adjustments to each
segment's provision for income taxes are estimates which are
subject to review and could change from year to year.
The company reports selected operating performance measures
including "sales" and "insurance in force" or "risk in force" which
are commonly used in the insurance industry as measures of
operating performance.
Management regularly monitors and reports sales metrics as a
measure of volume of new business generated in a period. Sales
refer to new insurance written for mortgage insurance products. The
company considers new insurance written to be a measure of the
company's operating performance because it represents a measure of
new sales of insurance policies during a specified period, rather
than a measure of the company's revenues or profitability during
that period.
Management regularly monitors and reports insurance in force and
risk in force. Insurance in force for the company's mortgage
insurance businesses is a measure of the aggregate original loan
balance for outstanding insurance policies as of the respective
reporting date. Risk in force for the company's U.S. mortgage
insurance business is based on the coverage percentage applied to
the estimated current outstanding loan balance. Risk in force in
the Australia mortgage insurance
business is computed using an "effective" risk in force amount,
which recognizes that the loss on any particular loan will be
reduced by the net proceeds received upon sale of the property.
Effective risk in force has been calculated by applying to
insurance in force a factor of 35 percent that represents the
highest expected average per-claim payment for any one underwriting
year over the life of the company's mortgage insurance business in
Australia. The company also has
certain risk share arrangements in Australia where it provides pro-rata coverage
of certain loans rather than 100 percent coverage. As a result, for
loans with these risk share arrangements, the applicable pro-rata
coverage amount provided is used when applying the factor. The
company considers insurance in force and risk in force to be
measures of its operating performance because they represent
measures of the size of its business at a specific date which will
generate revenues and profits in a future period, rather than
measures of its revenues or profitability during that period.
Management also regularly monitors and reports a loss ratio for
the company's businesses. For the mortgage insurance businesses,
the loss ratio is the ratio of benefits and other changes in policy
reserves to net earned premiums. For the long term care insurance
business, the loss ratio is the ratio of benefits and other changes
in reserves less tabular interest on reserves less loss adjustment
expenses to net earned premiums. The company considers the loss
ratio to be a measure of underwriting performance in these
businesses and helps to enhance the understanding of the operating
performance of the businesses.
These operating performance measures enable the company to
compare its operating performance across periods without regard to
revenues or profitability related to policies or contracts sold in
prior periods or from investments or other sources.
Cautionary Note Regarding Forward-Looking
Statements
This press release contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements may be identified by words such
as "expects," "intends," "anticipates," "plans," "believes,"
"seeks," "estimates," "will" or words of similar meaning and
include, but are not limited to, statements regarding the outlook
for the company's future business and financial performance.
Examples of forward-looking statements include statements the
company makes relating to the closing of the transaction with China
Oceanwide Holdings Group Co., Ltd. (together with its affiliates,
Oceanwide), Oceanwide's funding plans and transactions the company
is pursuing to address its near-term liabilities and financial
obligations, which may include raising debt through its mortgage
insurance subsidiaries and/or transactions to sell a percentage of
its ownership interests in its mortgage insurance businesses, as
well as statements the company makes regarding the potential
impacts of the COVID-19 pandemic. Forward-looking statements are
based on management's current expectations and assumptions, which
are subject to inherent uncertainties, risks and changes in
circumstances that are difficult to predict. Actual outcomes and
results may differ materially from those in the forward-looking
statements due to global political, economic, business,
competitive, market, regulatory and other factors and risks,
including, but not limited to, the following:
- risks related to the proposed transaction with Oceanwide
including: the risk that Oceanwide will be unable to raise funding
or the company's inability to complete the Oceanwide transaction in
a timely manner or at all, which may adversely affect the company's
business and the price of its common stock; the risk that the
company will be unable to address its near-term liabilities and
financial obligations, including the risks that it will be unable
to raise new debt financing and/or sell a percentage of its
ownership interest in its U.S. mortgage insurance business to repay
the promissory note to AXA or refinance its debt maturing in 2021
or beyond; the parties' inability to obtain regulatory approvals,
clearances or extensions, or the possibility that such regulatory
approvals or clearances may further delay the Oceanwide transaction
or may not be received prior to September
30, 2020 (and either or both of the parties may not be
willing to further waive their end date termination rights beyond
September 30, 2020) or that
materially burdensome or adverse regulatory conditions may be
imposed or undesirable measures may be required in connection with
any such regulatory approvals, clearances or extensions (including
those conditions or measures that either or both of the parties may
be unwilling to accept or undertake, as applicable) or that with
continuing delays, circumstances may arise that make one or more
previously obtained regulatory approvals or clearances no longer
valid, one or both parties unwilling to proceed with the Oceanwide
transaction or unable to comply with the conditions to existing
regulatory approvals, or one or both of the parties may be
unwilling to accept any new condition under a regulatory approval;
the risk that the parties will not be able to obtain other
regulatory approvals, clearances or extensions, including in
connection with a potential alternative funding structure or the
current geo-political environment, or that one or more regulators
may rescind or fail to extend existing approvals, or that the
revocation by one regulator of approvals will lead to the
revocation of approvals by other regulators; the parties' inability
to obtain any necessary regulatory approvals, clearances or
extensions for the post-closing capital plan; the risk that a
condition to the closing of the Oceanwide transaction may not be
satisfied or that a condition to closing that is currently
satisfied may not remain satisfied due to the delay in closing the
Oceanwide transaction or that the parties will be unable to agree
upon a closing date following receipt of all regulatory approvals
and clearances; the risk that existing and potential legal
proceedings may be instituted against the company in connection
with the Oceanwide transaction that may delay the transaction, make
it more costly or ultimately preclude it; the risk that the
proposed Oceanwide transaction disrupts the company's current plans
and operations as a result of the announcement and consummation of
the transaction; potential adverse reactions or changes to the
company's business relationships with clients, employees, suppliers
or other parties or other business uncertainties resulting from the
announcement of the Oceanwide transaction or during the pendency of
the transaction, including but not limited to such changes that
could affect the company's financial performance; certain
restrictions during the pendency of the Oceanwide transaction that
may impact the company's ability to pursue certain business
opportunities or strategic transactions; continued availability of
capital and financing to the company before, or in the absence of,
the consummation of the Oceanwide transaction; further rating
agency actions and downgrades in the company's credit or financial
strength ratings; changes in applicable laws or regulations; the
company's ability to recognize the anticipated benefits of the
Oceanwide transaction; the amount of the costs, fees, expenses and
other charges related to the Oceanwide transaction; the risks
related to diverting management's attention from the company's
ongoing business operations; and the company's ability to attract,
recruit, retain and motivate current and prospective employees may
be adversely affected;
- strategic risks in the event the proposed transaction with
Oceanwide is not consummated including: the company's inability
to successfully execute alternative strategic plans to effectively
address its current business challenges (including with respect to
stabilizing its U.S. life insurance businesses, debt and other
obligations, cost savings, ratings and capital); the risk that the
impacts of or uncertainty created by the COVID-19 pandemic delay or
hinder alternative transactions or otherwise make alternative plans
less attractive; the company's inability to attract buyers for any
businesses or other assets it may seek to sell, or securities it
may seek to issue, in each case, in a timely manner and on
anticipated terms; failure to obtain any required regulatory,
stockholder and/or noteholder approvals or consents for such
alternative strategic plans, or the company's challenges changing
or being more costly or difficult to successfully address than
currently anticipated or the benefits achieved being less than
anticipated; inability to achieve anticipated cost-savings in a
timely manner; adverse tax or accounting charges; and the company's
ability to increase the capital needed in its mortgage insurance
businesses in a timely manner and on anticipated terms, including
through business performance, reinsurance or similar transactions,
asset sales, securities offerings or otherwise, in each case as and
when required;
- risks relating to estimates, assumptions and valuations
including: inadequate reserves and the need to increase reserves
(including as a result of any changes the company may make to its
assumptions, methodologies or otherwise in connection with periodic
or other reviews, including reviews it expects to complete and
carry out in the fourth quarter of 2020); risks related to the
impact of the company's annual review of assumptions and
methodologies related to its long term care insurance claim
reserves and margin reviews in the fourth quarter of 2020,
including risks that additional information obtained in finalizing
its claim reserves and margin reviews in the fourth quarter of 2020
or other changes to assumptions or methodologies materially affect
margins; the inability to accurately estimate the impacts of the
COVID-19 pandemic; inaccurate models; deviations from the company's
estimates and actuarial assumptions or other reasons in its long
term care insurance, life insurance and/or annuity businesses;
accelerated amortization of deferred acquisition costs (DAC) and
present value of future profits (PVFP) (including as a result of
any changes it may make to its assumptions, methodologies or
otherwise in connection with periodic or other reviews, including
reviews it expects to complete and carry out in the fourth quarter
of 2020); adverse impact on the company's financial results as a
result of projected profits followed by projected losses (as is
currently the case with its long term care insurance business);
adverse impact on the company's results of operations, including
the outcome of its reviews of the premium earnings pattern for its
mortgage insurance businesses; and changes in valuation of fixed
maturity and equity securities;
- risks relating to economic, market and political
conditions including: downturns and volatility in global
economies and equity and credit markets, including as a result of
prolonged unemployment, a sustained low interest rate environment
and other displacements caused by the COVID-19 pandemic; interest
rates and changes in rates have adversely impacted, and may
continue to materially adversely impact, the company's business and
profitability; deterioration in economic conditions or a decline in
home prices that adversely affect the company's loss experience in
mortgage insurance; political and economic instability or changes
in government policies; and fluctuations in foreign currency
exchange rates and international securities markets;
- regulatory and legal risks including: extensive
regulation of the company's businesses and changes in applicable
laws and regulations (including changes to tax laws and
regulations); litigation and regulatory investigations or other
actions; dependence on dividends and other distributions from the
company's subsidiaries (particularly its mortgage insurance
subsidiaries) and the inability of any subsidiaries to pay
dividends or make other distributions to the company, including as
a result of the performance of its subsidiaries, heightened
regulatory restrictions resulting from the COVID-19 pandemic, and
other insurance, regulatory or corporate law restrictions; the
inability to successfully seek in force rate action increases
(including increased premiums and associated benefit reductions) in
the company's long term care insurance business, including as a
result of the COVID-19 pandemic; adverse change in regulatory
requirements, including risk-based capital; changes in regulations
adversely affecting the company's Australian mortgage insurance
business; inability to continue to maintain the private mortgage
insurer eligibility requirements (PMIERs); the impact on capital
levels of increased delinquencies caused by the COVID-19 pandemic;
inability of the company's U.S. mortgage insurance subsidiaries to
meet minimum statutory capital requirements; the influence of
Federal National Mortgage Association (Fannie Mae), Federal Home
Loan Mortgage Corporation (Freddie Mac) and a small number of large
mortgage lenders on the U.S. mortgage insurance market and adverse
changes to the role or structure of Fannie Mae and Freddie Mac;
adverse changes in regulations affecting the company's mortgage
insurance businesses; additional restrictions placed on the
company's U.S. mortgage insurance business by government and
government-owned and government-sponsored enterprises (GSEs) in
connection with a new debt financing and/or sale of a percentage of
its ownership interests therein; inability to continue to implement
actions to mitigate the impact of statutory reserve requirements;
changes in tax laws; and changes in accounting and reporting
standards;
- liquidity, financial strength ratings, credit and
counterparty risks including: insufficient internal sources to
meet liquidity needs and limited or no access to capital (including
the ability to obtain further financing, either through raising new
debt financing and/or selling a percentage of the company's
ownership interests in its mortgage insurance businesses, or under
a secured term loan or credit facility); the impact on holding
company liquidity caused by the inability to receive dividends or
other returns of capital from the company's mortgage insurance
businesses as a result of the COVID-19 pandemic; the impact of
increased leverage as a result of the AXA settlement and related
restrictions; continued availability of capital and financing;
future adverse rating agency actions, including with respect to
rating downgrades or potential downgrades or being put on review
for potential downgrade, all of which could have adverse
implications for the company, including with respect to key
business relationships, product offerings, business results of
operations, financial condition and capital needs, strategic plans,
collateral obligations and availability and terms of hedging,
reinsurance and borrowings; defaults by counterparties to
reinsurance arrangements or derivative instruments; defaults or
other events impacting the value of the company's fixed maturity
securities portfolio; and defaults on the company's commercial
mortgage loans or the mortgage loans underlying its investments in
commercial mortgage-backed securities and volatility in
performance;
- operational risks including: inability to retain,
attract and motivate qualified employees or senior management;
ineffective or inadequate risk management in identifying,
controlling or mitigating risks; the impact on processes caused by
shelter-in-place or other governmental restrictions imposed as a
result of the COVID-19 pandemic; reliance on, and loss of, key
customer or distribution relationships; competition, including in
the company's mortgage insurance businesses from GSEs offering
mortgage insurance; the design and effectiveness of the company's
disclosure controls and procedures and internal control over
financial reporting may not prevent all errors, misstatements or
misrepresentations; and failure or any compromise of the security
of the company's computer systems, disaster recovery systems and
business continuity plans and failures to safeguard, or breaches
of, its confidential information;
- insurance and product-related risks including: the
company's inability to increase premiums and reduce benefits
sufficiently, and in a timely manner, on its in force long term
care insurance policies, in each case, as currently anticipated and
as may be required from time to time in the future (including as a
result of a delay or failure to obtain any necessary regulatory
approvals, including as a result of the COVID-19 pandemic, or
unwillingness or inability of policyholders to pay increased
premiums and/or accept reduced benefits), including to offset any
negative impact on the company's long term care insurance margins;
availability, affordability and adequacy of reinsurance to protect
the company against losses; decreases in the volume of high
loan-to-value mortgage originations or increases in mortgage
insurance cancellations; increases in the use of alternatives to
private mortgage insurance and reductions in the level of coverage
selected; potential liabilities in connection with the company's
U.S. contract underwriting services; and medical advances, such as
genetic research and diagnostic imaging, and related legislation
that impact policyholder behavior in ways adverse to the
company;
- other risks including: impairments of or valuation
allowances against the company's deferred tax assets and the
occurrence of natural or man-made disasters or a pandemic, such as
the COVID-19 pandemic, could materially adversely affect its
financial condition and results of operations.
The company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future developments or otherwise. This press release does not
constitute an offering of any securities.
Condensed
Consolidated Statements of Income
|
(Amounts in
millions, except per share amounts)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
Three months
ended
|
|
|
|
|
|
June
30,
|
|
March
31,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,019
|
|
$
|
1,001
|
|
$
|
1,015
|
Net investment
income
|
|
|
786
|
|
|
816
|
|
|
793
|
Net investment gains
(losses)
|
|
|
159
|
|
|
(46)
|
|
|
(152)
|
Policy fees and other
income
|
|
|
174
|
|
|
223
|
|
|
181
|
Total
revenues
|
|
|
2,138
|
|
|
1,994
|
|
|
1,837
|
Benefits and
expenses:
|
|
|
|
|
|
|
|
|
|
Benefits and other
changes in policy reserves
|
|
|
1,486
|
|
|
1,251
|
|
|
1,361
|
Interest
credited
|
|
|
139
|
|
|
146
|
|
|
141
|
Acquisition and
operating expenses, net of deferrals
|
|
|
223
|
|
|
229
|
|
|
249
|
Amortization of
deferred acquisition costs and intangibles
|
|
|
93
|
|
|
84
|
|
|
116
|
Goodwill
impairment
|
|
|
5
|
|
|
—
|
|
|
—
|
Interest
expense
|
|
|
44
|
|
|
60
|
|
|
52
|
Total
benefits and expenses
|
|
|
1,990
|
|
|
1,770
|
|
|
1,919
|
Income (loss) from
continuing operations before income taxes
|
|
|
148
|
|
|
224
|
|
|
(82)
|
Provision (benefit)
for income taxes
|
|
|
46
|
|
|
66
|
|
|
(10)
|
Income (loss) from
continuing operations
|
|
|
102
|
|
|
158
|
|
|
(72)
|
Income (loss) from
discontinued operations, net of taxes
|
|
|
(520)
|
|
|
60
|
|
|
—
|
Net income
(loss)
|
|
|
(418)
|
|
|
218
|
|
|
(72)
|
Less: net income
(loss) from continuing operations attributable to noncontrolling
interests
|
|
|
23
|
|
|
15
|
|
|
(6)
|
Less: net income from
discontinued operations attributable to noncontrolling
interests
|
|
|
—
|
|
|
35
|
|
|
—
|
Net income (loss)
available to Genworth Financial, Inc.'s common
stockholders
|
|
$
|
(441)
|
|
$
|
168
|
|
$
|
(66)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
available to Genworth Financial, Inc.'s common
stockholders:
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations available to Genworth Financial,
Inc.'s common
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
$
|
79
|
|
$
|
143
|
|
$
|
(66)
|
Income
(loss) from discontinued operations available to Genworth
Financial, Inc.'s common
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
|
(520)
|
|
|
25
|
|
|
—
|
Net
income (loss) available to Genworth Financial, Inc.'s common
stockholders
|
|
$
|
(441)
|
|
$
|
168
|
|
$
|
(66)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations available to Genworth Financial, Inc.'s
common stockholders
|
|
|
|
|
|
|
|
|
|
per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.16
|
|
$
|
0.29
|
|
$
|
(0.13)
|
Diluted
|
|
$
|
0.15
|
|
$
|
0.28
|
|
$
|
(0.13)
|
Net income (loss)
available to Genworth Financial, Inc.'s common stockholders per
share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.87)
|
|
$
|
0.33
|
|
$
|
(0.13)
|
Diluted
|
|
$
|
(0.86)
|
|
$
|
0.33
|
|
$
|
(0.13)
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
505.4
|
|
|
503.4
|
|
|
504.3
|
Diluted10
|
|
|
512.5
|
|
|
508.7
|
|
|
504.3
|
Reconciliation of
Net Income (Loss) to Adjusted Operating Income
(Loss)
|
(Amounts in
millions, except per share amounts)
|
(Unaudited)
|
|
|
|
|
|
Three
|
|
Three
|
|
|
|
|
|
|
months
ended
|
|
months
ended
|
|
|
|
|
|
|
June
30,
|
|
March
31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
Net income (loss)
available to Genworth Financial, Inc.'s common
stockholders
|
|
$
|
(441)
|
|
$
|
168
|
|
$
|
(66)
|
|
Add: net income
(loss) from continuing operations attributable to noncontrolling
interests
|
|
|
23
|
|
|
15
|
|
|
(6)
|
|
Add: net income from
discontinued operations attributable to noncontrolling
interests
|
|
|
—
|
|
|
35
|
|
|
—
|
|
Net income
(loss)
|
|
|
(418)
|
|
|
218
|
|
|
(72)
|
|
Less: income (loss)
from discontinued operations, net of taxes
|
|
|
(520)
|
|
|
60
|
|
|
—
|
|
Income (loss) from
continuing operations
|
|
|
102
|
|
|
158
|
|
|
(72)
|
|
Less: net income
(loss) from continuing operations attributable to noncontrolling
interests
|
|
|
23
|
|
|
15
|
|
|
(6)
|
|
Income (loss) from
continuing operations available to Genworth Financial,
Inc.'s
|
|
|
|
|
|
|
|
|
|
|
common
stockholders
|
|
|
79
|
|
|
143
|
|
|
(66)
|
|
Adjustments to income
(loss) from continuing operations available to Genworth Financial,
Inc.'s common
|
|
|
|
|
|
|
|
|
|
|
stockholders:
|
|
|
|
|
|
|
|
|
|
|
Net investment
(gains) losses, net11
|
|
|
(131)
|
|
|
43
|
|
|
115
|
|
Goodwill impairment,
net12
|
|
|
3
|
|
|
—
|
|
|
—
|
|
(Gains) losses on
early extinguishment of debt
|
|
|
(3)
|
|
|
—
|
|
|
12
|
|
Expenses related to
restructuring
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Taxes on
adjustments
|
|
|
30
|
|
|
(8)
|
|
|
(29)
|
|
Adjusted operating
income (loss)
|
|
$
|
(21)
|
|
$
|
178
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating
income (loss):
|
|
|
|
|
|
|
|
|
|
|
U.S. Mortgage
Insurance segment
|
|
$
|
(3)
|
|
$
|
147
|
|
$
|
148
|
|
Australia Mortgage
Insurance segment
|
|
|
1
|
|
|
13
|
|
|
9
|
|
U.S. Life Insurance
segment:
|
|
|
|
|
|
|
|
|
|
|
Long Term Care
Insurance
|
|
|
48
|
|
|
37
|
|
|
1
|
|
Life
Insurance
|
|
|
(81)
|
|
|
10
|
|
|
(77)
|
|
Fixed
Annuities
|
|
|
28
|
|
|
19
|
|
|
6
|
|
Total U.S. Life
Insurance segment
|
|
|
(5)
|
|
|
66
|
|
|
(70)
|
|
Runoff
segment
|
|
|
24
|
|
|
9
|
|
|
(13)
|
|
Corporate and
Other
|
|
|
(38)
|
|
|
(57)
|
|
|
(41)
|
|
Adjusted operating
income (loss)
|
|
$
|
(21)
|
|
$
|
178
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
available to Genworth Financial, Inc.'s common stockholders per
share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.87)
|
|
$
|
0.33
|
|
$
|
(0.13)
|
|
Diluted
|
|
$
|
(0.86)
|
|
$
|
0.33
|
|
$
|
(0.13)
|
|
Adjusted operating
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.04)
|
|
$
|
0.35
|
|
$
|
0.07
|
|
Diluted
|
|
$
|
(0.04)
|
|
$
|
0.35
|
|
$
|
0.07
|
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
505.4
|
|
|
503.4
|
|
|
504.3
|
|
Diluted10
|
|
|
512.5
|
|
|
508.7
|
|
|
504.3
|
|
Condensed
Consolidated Balance Sheets
|
(Amounts in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
December
31,
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Cash, cash
equivalents, restricted cash and invested assets
|
|
$
|
78,520
|
|
$
|
75,226
|
|
Deferred acquisition
costs
|
|
|
1,718
|
|
|
1,836
|
|
Intangible assets and
goodwill
|
|
|
223
|
|
|
201
|
|
Reinsurance
recoverable, net
|
|
|
16,900
|
|
|
17,103
|
|
Deferred tax and
other assets
|
|
|
740
|
|
|
868
|
|
Separate account
assets
|
|
|
5,536
|
|
|
6,108
|
|
|
|
Total
assets
|
|
$
|
103,637
|
|
$
|
101,342
|
Liabilities and
equity
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Future policy
benefits
|
|
$
|
41,463
|
|
$
|
40,384
|
|
|
Policyholder account
balances
|
|
|
22,921
|
|
|
22,217
|
|
|
Liability for policy
and contract claims
|
|
|
11,280
|
|
|
10,958
|
|
|
Unearned
premiums
|
|
|
1,804
|
|
|
1,893
|
|
|
Other
liabilities
|
|
|
2,075
|
|
|
1,428
|
|
|
Non-recourse funding
obligations
|
|
|
—
|
|
|
311
|
|
|
Long-term
borrowings
|
|
|
2,817
|
|
|
3,277
|
|
|
Separate account
liabilities
|
|
|
5,536
|
|
|
6,108
|
|
|
Liabilities related
to discontinued operations
|
|
|
653
|
|
|
134
|
|
|
|
Total
liabilities
|
|
|
88,549
|
|
|
86,710
|
|
Equity:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
1
|
|
|
1
|
|
|
Additional paid-in
capital
|
|
|
11,996
|
|
|
11,990
|
|
|
Accumulated other
comprehensive income (loss)
|
|
|
4,447
|
|
|
3,433
|
|
|
Retained
earnings
|
|
|
899
|
|
|
1,461
|
|
|
Treasury stock, at
cost
|
|
|
(2,700)
|
|
|
(2,700)
|
|
|
|
Total Genworth
Financial, Inc.'s stockholders' equity
|
|
|
14,643
|
|
|
14,185
|
|
|
Noncontrolling
interests
|
|
|
445
|
|
|
447
|
|
|
|
Total
equity
|
|
|
15,088
|
|
|
14,632
|
|
|
|
Total liabilities and
equity
|
|
$
|
103,637
|
|
$
|
101,342
|
Reconciliation of
Adjusted Operating Income Previously Reported to Adjusted Operating
Income
|
Re-Presented to
Exclude Discontinued Operations
|
(Amounts in
millions)
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
|
|
June
30,
|
|
|
|
2019
|
Adjusted operating
income as previously reported
|
|
$
|
204
|
Remove Canada
Mortgage Insurance segment adjusted operating income
reported
|
|
|
|
as discontinued
operations
|
|
|
(41)
|
Adjustment for
corporate overhead allocations, net of
taxes13
|
|
|
(5)
|
Adjustment for
interest on debt that was required to be repaid as a result of the
disposal
|
|
|
|
transaction, net of
taxes14
|
|
|
6
|
Tax
adjustments15
|
|
|
14
|
Re-presented adjusted
operating income
|
|
$
|
178
|
Impact of Foreign
Exchange on Adjusted Operating Income and Flow New Insurance
Written16
Three months ended
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
Percentages
|
|
Percentages
|
|
|
|
Including
Foreign
|
|
Excluding
Foreign
|
|
|
|
Exchange
|
|
Exchange17
|
Australia
MI:
|
|
|
|
|
|
|
Adjusted operating
income
|
|
(92)%
|
|
(92)%
|
Flow new insurance
written
|
|
19 %
|
|
32 %
|
Flow new insurance
written (2Q20 vs. 1Q20)
|
|
7 %
|
|
15 %
|
Reconciliation of
Reported Yield to Core Yield
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
months
ended
|
|
|
|
|
|
June
30,
|
|
March 31,
|
(Assets - amounts
in billions)
|
|
2020
|
|
2020
|
Reported Total
Invested Assets and Cash
|
|
$
|
77.9
|
|
|
$
|
73.2
|
|
Subtract:
|
|
|
|
|
|
|
|
|
|
|
Securities
lending
|
|
|
0.1
|
|
|
|
0.1
|
|
Unrealized
gains (losses)
|
|
|
9.7
|
|
|
|
6.0
|
|
Adjusted End of
Period Invested Assets and Cash
|
|
$
|
68.1
|
|
|
$
|
67.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Invested
Assets and Cash Used in Reported and Core Yield
Calculation
|
|
$
|
67.6
|
|
|
$
|
67.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income - amounts
in
millions)
|
|
|
|
|
|
|
|
|
Reported Net
Investment Income
|
|
$
|
786
|
|
|
$
|
793
|
|
Subtract:
|
|
|
|
|
|
|
|
|
|
|
Bond
calls and commercial mortgage loan prepayments
|
|
|
8
|
|
|
|
16
|
|
Other
non-core items18
|
|
|
2
|
|
|
|
7
|
|
Core Net Investment
Income
|
|
$
|
776
|
|
|
$
|
770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
Yield
|
|
|
4.65
|
%
|
|
|
4.71
|
%
|
Core Yield
|
|
|
4.59
|
%
|
|
|
4.57
|
%
|
________________________
1 Private Mortgage Insurer Eligibility
Requirements
2 Long term care insurance
3 Unless otherwise stated, all references in this
press release to net income (loss), net income (loss) per share,
adjusted operating income (loss), adjusted operating income (loss)
per share and book value per share should be read as net income
(loss) available to Genworth's common stockholders, net income
(loss) available to Genworth's common stockholders per diluted
share, adjusted operating income (loss) available to Genworth's
common stockholders, adjusted operating income (loss) available to
Genworth's common stockholders per diluted share and book value
available to Genworth's common stockholders per share,
respectively.
4 This is a financial measure that is not
calculated based on U.S. Generally Accepted Accounting Principles
(Non-GAAP). See the Use of Non-GAAP Measures section of this
press release for additional information.
5 The company defines "NM" as not meaningful for
increases or decreases greater than 200 percent.
6 Company estimate for the second quarter of 2020
due to timing of the preparation and filing of statutory
statements.
7 The PMIERs sufficiency ratio is calculated as
available assets divided by required assets as defined within
PMIERs. The current period PMIERs sufficiency ratio is an estimate
due to the timing of the PMIERs filing for the U.S. mortgage
insurance business. As of June 30,
2020, March 31, 2020, and
June 30, 2019, the PMIERs sufficiency
ratios were in excess of $1.2
billion, $1.1 billion and
$0.65 billion, respectively, of
available assets above the applicable PMIERs requirements.
8 Holding company cash and liquid assets comprises
assets held in Genworth Holdings, Inc. (the issuer of outstanding
public debt) which is a wholly-owned subsidiary of Genworth
Financial, Inc.
9 Genworth Holdings, Inc. had $504 million, $525
million and $358 million of
cash, cash equivalents and restricted cash as of June 30, 2020, March 31,
2020 and June 30, 2019,
respectively, which included $10
million and $7 million of
restricted cash and cash equivalents as of June 30, 2020 and June 30,
2019, respectively. Genworth Holdings, Inc. also held
$50 million, $50 million and $45
million in U.S. government securities as of June 30, 2020, March 31,
2020 and June 30, 2019,
respectively, which included $49
million, $50 million and
$42 million, respectively, of
restricted assets.
10 Under applicable accounting guidance, companies
in a loss position are required to use basic weighted-average
common shares outstanding in the calculation of diluted loss per
share. Therefore, as a result of the loss from continuing
operations for the three months ended March
31, 2020, the company was required to use basic
weighted-average common shares outstanding in the calculation of
diluted loss per share for the three months ended March 31, 2020, as the inclusion of shares for
stock options, restricted stock units and stock appreciation rights
of 5.4 million would have been antidilutive to the calculation. If
the company had not incurred a loss from continuing operations for
the three months ended March 31,
2020, dilutive potential weighted-average common shares
outstanding would have been 509.7 million.
11 For the three months ended June 30, 2020,
June 30, 2019 and March 31, 2020, net investment (gains)
losses were adjusted for DAC and other intangible amortization and
certain benefit reserves of $(4) million, $(3) million
and $(11) million, respectively, and adjusted for net
investment gains (losses) attributable to noncontrolling interests
of $32 million, $— million and $(26) million,
respectively.
12 For the three months ended June 30, 2020, goodwill impairment was adjusted
by $2 million related to the
company's mortgage insurance business in Australia for the portion attributable to
noncontrolling interests.
13 Expenses previously reported in the Canada MI
segment and moved to Corporate and Other Activities.
14 Interest on a senior secured term loan facility
owed by Genworth Holdings, Inc. previously reported in Corporate
and Other Activities and moved to discontinued operations.
15 Tax impacts resulting from the classification of
Genworth Canada as held-for-sale.
16 All percentages are comparing the second quarter
of 2020 to the second quarter of 2019 unless otherwise stated.
17 The impact of foreign exchange was calculated
using the comparable prior period exchange rates.
18 Includes cost basis adjustments on structured
securities and various other immaterial items.
View original
content:http://www.prnewswire.com/news-releases/genworth-financial-announces-second-quarter-2020-results-301102469.html
SOURCE Genworth Financial, Inc.