Genworth Financial, Inc. (GNW) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning, ladies and gentlemen, and welcome to Genworth Financial's First Quarter 2021 Earnings Conference. My name is , 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 a reminder, the conference is being recorded for replay purposes I would now like to turn the conference over to Tim Owens, Vice President of Investor Relations. Mr. Owens, you may proceed.
Tim Owens: Thank you, Operator. Good morning, and thank you for joining Genworth's first quarter 2021 earnings call. Our speakers are remote this morning, so please excuse any sound quality or technical issues that may arise.
Tom McInerney: Thank you very much, Tim. Good morning, everyone, and thank you for joining our first quarter earnings call. I'm pleased to report that Genworth delivered strong operating results in the first quarter, while making significant progress against our strategic plan. Today, I will provide a brief overview of performance across our businesses, as well as the progress we've made on our strategic initiatives since our last update. I will also spend a few minutes on Genworth's go-forward strategy. Then Dan Sheehan will discuss the quarterly performance drivers in more detail. Genworth delivered net income of $187 million for the quarter, and adjusted operating income of $168 million driven by strong performance across U.S. Mortgage Insurance as well as in our long-term care insurance business. U.S. MI reported operating income of $126 million, compared with $95 million in the prior quarter, and $148 million in the prior year. Relative to the fourth quarter, U.S. MI saw seasonally lower new insurance written, slightly higher earned premiums driven by insurance in-force growth, and a 16% decrease in new delinquencies. Results reflected a loss ratio of 22%, which compares favorably to the prior quarter due to higher reserve strengthening in the prior quarter, and lower losses from new delinquencies.
Dan Sheehan: Thanks, Tom, and good morning, everyone. I am pleased with the continued progress made during the quarter with strong earnings and capital ratios in our U.S. mortgage insurance business and results from our LTC multi-year rate action plan. At our holding company, we continue to deleverage including fully retiring the February debate maturity, prepaying a material portion of the AXA obligation, and reducing the amount outstanding on our September '21 maturities. We also ended the quarter with more than $750 million in holding company cash. We reported net income available to Genworth shareholders in the quarter of $187 million and adjusted operating income of $168 million. Included in net income for the quarter was $33 million in mostly mark-to-market gains and a $30 million benefit in discontinued operations primarily related to tax items on prior divestures. These items were partially offset by $21 million in severance cost related to our previously announced restructuring.
Operator: Thank you. So, we will take our first question from Peter Troisi at Barclays. Please go ahead.
Peter Troisi: Hi, good morning, everyone. Thanks very much for the comments about how you're planning on approaching the debt and paying it down. I guess my question is it seems like you are going to use existing cash and existing cash flow or cash flow from existing businesses to effectively repay all the debt. But, down the road, if you no longer own U.S. MI or have a large stake in it, where will the cash flow come from to repay the debt?
Tom McInerney: Peter, that's a good question. And it's clear that the U.S. life companies, the legacy companies will not be able to pay dividends. And as we said, and Dad had said, we have no plans to put any money into those. But we are hopeful that with joint venture opportunities in the U.S. and China, with partners, so we'll be sharing the capital investment, but we would hope that over time those will be successful businesses in the new companies, not the legacy companies, that have a variety of long-term care insurance products and services, at some point down the road we'll be able to pay dividends. But for the foreseeable future the only dividends we would receive would be coming from U.S. MI based on our ownership in U.S. MI. Dan, do you want to add anything to that?
Dan Sheehan: No, I think you covered it pretty well, Tom.
Tom McInerney: Peter, anything else?
Peter Troisi: Yes. No, a couple quick follow-ups. It seems like then that you are contemplating in your cash forecasting, as it relates to debt repayment, you're contemplating some cash flow coming out of the life businesses which will be used to repay debt. Is that right?
Tom McInerney: No, right now we don't expect any dividends from our life companies, which I'll call the legacy companies. In the future, depending on whether we go forward with the joint ventures that I've briefly discussed, it's still early days on those. We would hope that those would be profitable down the road. And when they reach the required level of profitability they would be able to pay dividends, but there's no current expectations --
Dan Sheehan: Yes, I would just ask -- sorry, Tom. I would just add, Peter, that although while the -- as long as the U.S. life company has taxable income we benefit from the consolidation, the same as we do with U.S. MI, and that income will offset losses at corporate for debt service and other matters. And in fact, through that process we will create cash flow from both USMI and the Life companies that will be used to pay our debt service payments as well.
Peter Troisi5: Yes, that makes sense. And we've seen those cash tax payments benefit holding company cash over the past few quarters. Is there a way for us to gauge the size and frequency of those cash tax payments to the holding company over time?
Tom McInerney: I give that one to Dan.
Dan Sheehan: Okay. Thanks, Tom. So, we don't provide full guidance on earnings. But what I would say is that, so long as we have positive earnings coming out of Life business and positive earnings coming out of USMI, it's sort of simple math to say what do we have left in terms of debt service payments, and we have a little bit of other costs in corporate, but not a lot. And just do the math and flow it through your model.
Peter Troisi: Okay. Thanks very much for the answers.
Dan Sheehan: Thanks, Peter.
Operator: Thank you. So, we'll now take our next question from Joshua Esterov, CreditSights. Please go ahead.
Joshua Esterov: Hey, good morning, guys. Thanks for taking my question. Can you folks hear me all right?
Tom McInerney: We can.
Joshua Esterov: Yes. Okay, great. Can you give us a quick update to the extent you're able to, with regards to any conversations you might have had with the GSEs or anything you heard from the GSEs with regards to when they intend to start allowing capital distribution out of mortgage insurance operating companies?
Tom McInerney: We will start with Rohit, and then Dan.
Rohit Gupta: Sure. Thanks, Tom. Hi, Joshua. So, we currently are operating under GSE capital preservation requirements through June 21. And all of my companies are under the same requirements, where any dividends from operating companies have to be pre-approved by the GSE. We are in ongoing discussions with GSEs and FHFA all the time about how they are thinking about forbearance, how they're thinking about pandemic recovery. But until they make a final decision, we don't have any further guidance to provide on how they're thinking about capital or dividends in the future.
Joshua Esterov: Understood, I appreciate it.
Tom McInerney: Dan, anything to add to that?
Dan Sheehan: No, I think that was pretty comprehensive. Thanks, Rohit.
Joshua Esterov: Thanks, guys.
Operator: Ladies and gentlemen, as there are no further questions, I'll now turn the call back over to Mr. McInerney for closing comments.
Tom McInerney: Thank you very much, Shion. And thank you to all of you for joining the call today. While we're certain there are many more questions relating to our planned IPO of USMI, we really appreciate that everyone on the call today respected our inability to discuss the IPO beyond our prepared remarks, given the S-1 registration filing with the SEC. Having said that, and I hope as you got from Dan and my remarks, we are excited about Genworth's next chapter, and we look forward to continuing to update you as we execute our plans going forward. Thank you again for your interest and support of Genworth. And with that, I'll turn the call back over to Shion.
Operator: Ladies and gentlemen, this concludes Genworth financials first quarter conference call. Thank you for your participation. And at this time the call will end.
