Genworth Financial, Inc. (NYSE:GNW) Q1 2018 Earnings Conference Call - Preliminary Transcript

May 02, 2018 • 08:00 am ET

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Genworth Financial, Inc. (NYSE:GNW) Q1 2018 Earnings Conference Call - Preliminary Transcript

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Presentation
Executive
Thomas J. McInerney

Our mortgage insurance businesses had excellent results, with solid growth and strong capital levels in each of our global businesses. We also had very strong loss performance in our US and Canada businesses. Starting with US MI, first quarter adjusted operating income increased 52% year-over-year to $111 million, driven by insurance in force growth, strong loss performance and tax reform benefit. In Canada, excluding the impact of foreign currency, adjusted operating income increased 28% year-over-year to $49 million as we continue to experience a strong housing market and underlying economic conditions.

And in Australia, excluding the impact of foreign currency, adjusted operating income increased 38% year-over-year to $19 million with higher earned premiums in the quarter due in part to the updated earnings curve pattern. Our life insurance segment faced continued headwinds, generating an operating loss of $5 million driven by long term care insurance losses. However, these challenges were partially offset by continued traction on our multi-year long term care insurance rate action plan that we expect will continue as we move through 2018. As shown on slide 10 of the earnings presentation, Genworth continues to make significant progress on improving the performance of our legacy LTC policies.

There is significant leverage to Genworth's cash flow from these annual premium increases which are intended to cover our higher claims experience as the higher premiums are expected to be paid over decades into the future. We continue to seek additional annual premium increases on our in force policies under our multi-year rate action plan over the next five years to seven years, which we estimate will add an additional $8 billion of future cash flow to Genworth on a net present value basis. Let me now provide an update on the Oceanwide transaction. Since our last update, Genworth and Oceanwide have continued to work together on the required regulatory approvals and the closing conditions of our pending transaction.

In order to allow more time for regulatory reviews, Genworth and Oceanwide have extended a period for termination rights under the merger agreement to July 1, 2018. It is important to note that each time a merger agreement extension is considered, Genworth's board performs an evaluation to assess whether it is the best transaction for stockholders versus other secondary alternatives. Our board extended the merger agreement as it continues to believe that the Oceanwide transaction represents the best and most certain value for stockholders. Also during the first quarter, Oceanwide and Genworth received approval from regulators in Australia for the proposed transaction.

As we announced last week, Genworth and Oceanwide withdrew and re-filed their joint voluntary notice with the Committee on Foreign Investment in the United States or CFIUS, to provide them with additional time to review and discuss our proposed transaction. We are encouraged by the fact that CFIUS agreed to proceed directly to a 45-day investigation period following a one day review period. The re-filing enables us to continue our ongoing productive conversations with CFIUS about the additional data security