Good morning ladies and gentlemen, and welcome to the Genworth Financial's Third Quarter 2020 Earnings Conference Call. My name is Jennifer 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 presentation over to Tim Owens, Vice President of Investor Relations, Mr. Owens. You may proceed.

Good morning, and thank you for joining Genworth's third quarter 2020 earnings call. Our speakers are once again remote this morning, so please excuse any sound quality or technical issues that may arise. Our press release and financial supplement were released last night and this morning, our earnings presentation was posted to our website and will be referenced during our call. We encourage you to review all of these materials. Today, you will hear from our President and Chief Executive Officer, Tom McInerney; followed by Dan Sheehan, our Chief Financial Officer and Chief Investment Officer. Following our prepared comments, we will open up the call for a question-and-answer period. In addition to our speakers, Kevin Schneider, Chief Operating Officer, will be available to take your questions. During the call this morning, we 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 in our earnings release and related presentation as well as the risk factors of our most recent annual report on Form 10-K as filed with the SEC. This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. In our financial supplement, earnings release and investor materials, non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules. Also, when we talk about results of our Australia business, please note that all percentage changes exclude the impact of foreign exchange. And finally, references to statutory results are estimates due to the timing of the filing of the statutory statements. And now I'll turn the call over to our President and CEO, Tom McInerney.

Thank you very much, Tim. Good morning everyone, and thank you for joining our call. First, I'd like to discuss the status of our pending transaction with Oceanwide. Then I'll touch on progress across several of Genworth's other strategic priorities and provide a brief overview of our strong third quarter results before turning the call over to Dan Sheehan, Genworth's Chief Financial and Investment Officer. Earlier this week, Genworth announced that Oceanwide had made significant progress towards the Hony Capital funding and other requirements in order to close the Oceanwide transaction. As indicated in the documentation submitted to Genworth, Hony Capital expects to be able to finalize the $1.8 billion financing in November. Oceanwide is also focused on the funds in Mainland China that will provide the remaining amount of capital required to pay for the total purchase price of $5.43 per share, so that we can close the transaction by November 30th, subject to timely receipt of regulatory approvals and clearances. Additionally, Oceanwide has made progress in the China regulatory process, submitting updated information and requesting confirmation of the extension of the acceptance of the filing from the Chinese National Development and Reform Commission or NDRC. We are extremely pleased with Oceanwide's progress and update. Genworth's Chairman, Jim Riepe, and I have maintained regular communication with Chairman LU and Oceanwide throughout this process, and we will continue to maintain a dialogue with them as they work to complete the remaining steps to close. We are hopeful that Oceanwide's transaction funding will be completed in time to close the transaction by November 30, without the need for an additional extension. We look forward to providing further updates as we work toward a successful closing of the transaction. In parallel with the transaction process, we have remained focused on executing well and continuing to enhance Genworth's liquidity position in order to meet our ongoing capital obligations. These plans include raising $750 million of debt at the USMI holding company level, which we completed in the third quarter. Certain of those proceeds will be used to address our $338 million of debt maturing in February of 2021, which Dan will discuss as part of our overall liquidity position in his remarks. We also continue to take steps to prepare for a potential IPO of our USMI business. We are making good progress on these efforts and will continue to take steps to position ourselves to launch an IPO, subject to market conditions, if the China Oceanwide transaction is further delayed or terminated. We are also making great progress on our multiyear LTC Rate Action Plan or MYRAP, which remains essential to stabilizing our legacy long-term care insurance business. Year-to-date, we have received approvals on $595 million of annualized in-force premiums, representing a weighted average premium increase of 29% or $173 million of annual incremental premiums going forward. On a cumulative net present value basis since 2012, Genworth has now achieved approximately $13.5 billion of approved LTC premium rate increases. We are committed to developing industry-wide solutions to enhance the vitality of the long-term care insurance industry through our continued involvement with the NAIC and its long-term care insurance executive task force. To this end, an NAIC subgroup was recently formed to focus on LTC insurance reduced benefit options. We are working to identify options and develop recommendations to provide customers with more choices regarding modifications to their LTC contract benefits, where policies are no longer affordable due to rate increases. Before I turn the call over to Dan, I will provide a high-level overview of our financial performance for the third quarter. We delivered strong net income of $418 million and adjusted operating income of $132 million, led by outstanding performance in our US mortgage insurance business. The COVID-19 pandemic continued to impact Genworth's businesses in a number of ways. In the third quarter, we saw sequential improvement in unemployment trends, lower levels of new mortgage delinquencies, relative to the second quarter and a robust mortgage origination market, all of which benefited the USMI business. Mortality remained elevated relative to the prior year which had a mixed impact on the LTC and life insurance businesses. US Mortgage Insurance reported adjusted operating income of $141 million compared with an adjusted operating loss of $3 million in the prior quarter and adjusted operating income of $137 million in the prior year. The sequential improvement was driven by lower delinquencies and incurred but not reported or IBNR favorability. USMI achieved $26.6 billion in new insurance written during the quarter, up 41% versus the prior year, driven primarily by higher refinance originations and a larger private mortgage insurance market. At the end of the quarter, USMI's PMIERs sufficiency ratio was 132%, in excess of $1 billion above the published requirements. Our Australia MI business reported adjusted operating income of $7 million, up from $1 million in the prior quarter and down from $12 million in the prior year. Capital levels remain strong with approximately AUD300 million above management targets. In response to continued uncertainty in the macroeconomic environment, we are preserving capital in Genworth's mortgage insurance subsidiaries, and therefore, we do not expect to receive further dividends from the mortgage insurance businesses in 2020. 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 US life insurance, we delivered adjusted operating income of $14 million, up from a loss of $5 million in the prior quarter and a loss of $1 million in the prior year. This total included an adjusted operating loss of $69 million in life insurance due primarily to higher amortization of deferred acquisition costs versus the prior quarter and year, offset by adjusted operating income of $59 million in long-term care insurance and $24 million in fixed annuities. In long-term care insurance, we are still seeing higher-than-normal claim terminations in part due to COVID-19 as well as lower incidence of new claims. We have strengthened our IBNR reserves as a result and are continuing to monitor these trends closely. I am proud of the continued strong execution across our teams, all of whom are continuing to deliver excellent service to our customers in a remote work environment. Out of an abundance of caution, we have decided to maintain our office closures and work-from-home status until a safe vaccine is widely available to the general public. Based on recent vaccine guidance, we will not open our offices any earlier than June 1, 2021. While uncertainty remains high, we are confident that we're taking the right steps to position our businesses to navigate uncertainty, focusing on the factors we can control, continuing to operate effectively and maintaining strong capital positions in our mortgage insurance businesses. We will continue to maximize the Company's value for our shareholders by taking proactive steps to improve our financial flexibility, while working tirelessly towards a successful conclusion of the merger with Oceanwide. With that, I'll now turn the call over to Dan.

Thanks, Tom, and good morning, everyone. Today, I will cover our financial results for the third quarter, capital positions of our subsidiaries and holding company liquidity. While we continue to face challenges created by the pandemic, I'm pleased with the overall progress made in each of these areas during the quarter with improved earnings, strong capital ratios in our mortgage insurance businesses and incremental liquidity at the holding company. We reported net income available to Genworth shareholders for the quarter of $418 million and adjusted operating income of $132 million. The primary driver of the difference between adjusted operating income and net income was $250 million of net gains from the sale of US Treasury Strips in our life insurance business as we continue to reposition the portfolio at a time when the market value of those securities had appreciated significantly. The US mortgage and housing market has remained resilient through this period of uncertainty with improving home prices, a very large origination market and moderating delinquencies from the earlier peak. Our USMI business has benefited from its participation in this market, which includes strong underlying mortgage credit quality fundamentals. We're pleased with the performance of the business and the improvement in delinquency and loss trends. USMI's third quarter financial results improved sequentially, primarily driven by lower levels of new delinquencies and incurred but not reported reserve or IBNR favorability. For the quarter, USMI had adjusted operating income of $141 million and reported a loss ratio of 18%. While new primary delinquencies during the third quarter were still elevated versus pre-COVID levels, they were down 66% sequentially, with approximately 75% of new primary delinquencies being reported in forbearance plans, which may cure at an elevated rate. Our assumed eventual claim rate or roll rate for the quarter's new delinquencies once again blended a lower expectation of claims for delinquencies currently in forbearance plans with a higher expected claim rate for delinquencies outside of a forbearance plan. We continue to rely on our past hurricane-related roll rates, which were materially lower given prior effectiveness of forbearance and our experience to set forbearance roll rates through the pandemic. In addition to improvement in new delinquencies, USMI released $23 million of the $28 million increase of IBNR reserves that was established in the prior quarter as new delinquency trends improved. Our servicer-reported forbearance trends, which are a leading indicator of delinquencies have declined from peak levels in May and ended the third quarter with 6.7% or 61,200 of our active primary policies reported in a forbearance plan, with 63% of those in forbearance being reported as delinquent. We ended the quarter with 49,700 total primary delinquencies or a delinquency rate of 5.4%, both of which decreased sequentially as cures outpaced new delinquencies in the quarter. Primary new insurance written in USMI was $26.6 billion in the quarter, up 41% versus the prior year, primarily driven by higher refinancing activity in a larger private mortgage insurance market. We estimate our market share will be strong, but down sequentially as our updated view of risk under the prevailing conditions impacted our participation in forward commitment transactions and our decision to adjust our pricing more generally. While our primary insurance in force has grown 15% versus the prior year, lower persistency partially offset the strong new business levels. In Australia, the economy continued to recover with stability in the unemployment rate and moderating declines in home prices, although it will be some time before the economy fully recovers to pre-COVID levels. During the quarter, the Australian federal government and Australia's large banks extended the home and business loan deferral program, which will allow eligible borrowers additional assistance beyond the original six-month forbearance period. Approximately 7% of total Australia households are utilizing these programs, down from 11% last quarter. For Australia MI, approximately 3% of our insured loans or 31,000 loans are currently participating in these forbearance programs, down from over 48,000 loans at June 30th, 2020. Under Australia regulatory guidelines, these loans are not reported as delinquent. The business increased its loss reserves by $18 million last quarter and $24 million this quarter to account for current macroeconomic conditions, disruption to normal delinquency patterns and uncertainty regarding payment holiday deferrals. Adjusted operating income for Australia for the third quarter was $7 million, up from $1 million in the prior quarter and down from $12 million in the prior year. US GAAP loss ratio for the quarter was 37%, which was lower than the prior quarter, 63% and slightly higher than the prior year. Low interest rates and gradually improving consumer confidence, following the initial COVID-19 lockdown, drove $5.5 billion of flow NIW, which was up 14% sequentially and 17% versus the prior year. Consistent with prior years, in the fourth quarter of 2020, our mortgage insurance business in Australia is expected to complete its annual review of its premium earnings pattern. In addition, the business will continue to assess the appropriateness of its loss reserves as the pace of the economic recovery and changes to delinquency patterns, including payment holiday deferrals become clearer. Turning to US Life. The segment reported adjusted operating income of $14 million for the third quarter. Our US life businesses continued to experience elevated mortality across all of our products, in part attributable to the COVID-19 pandemic. We also continue to experience negative impacts on DAC amortization and reserves from our 20-year term and 10-year term universal life insurance blocks as they enter their post level premium period. Net investment income for US life was up sequentially and versus the prior year included higher limited partnership income as well as favorable inflation adjustments on US treasury inflation protected securities. In long-term care, claim terminations were significantly higher in the third quarter versus the prior year and flat to the prior quarter. Although we do not require debt certificates for LTC terminations and cannot make a direct attribution to official causes of death, we do believe some degree of incremental terminations were the result of COVID-19, and we continue to monitor these trends closely. Although new claim incurrals on Choice 1 and Choice 2 blocks continue to grow with age, we've experienced favorable development on IBNR claims from lower new claim incidence overall. Since the start of the COVID-19 pandemic, new claim submissions have decreased further driving additional favorable IBNR development. However, we do believe that this more recent reduction in incidence is temporary, reflecting delays in reporting claims due to social distancing and shelter-in-place protocols and that our incidence experience will ultimately resemble previous trends. As a result, we've further strengthened our IBNR by $24 million in the quarter. The overall IBNR calculation will be reviewed and recalibrated during our fourth quarter assumption review. Shifting to in-force rate actions for LTC, the overall benefits were slightly lower than the prior quarter and prior year, as illustrated on Page 10 of the investor presentation. While the benefit reductions from in-force rate actions remained strong in 2020, they're lower relative to 2019, which benefited from several large state implementations. Our filing activity for new rate actions also accelerated during the third quarter, and we expect that to continue through the remainder of the year. These filings include newer product series for which we've not requested rate increases in the past. They also include a variety of benefit reduction alternatives, which we've seen more policyholders select. During the quarter, Genworth received approvals impacting $338 million of premiums with a weighted average approval rate of 28%. We remain engaged with state regulators on the importance of actuarially-justified rate increases. In addition to the approvals we've received so far this year, we're also working on current filings and hope to secure additional significant approvals during the fourth quarter of 2020. Turning to life insurance, overall mortality for the quarter was elevated versus the prior quarter and prior year. The third quarter included an estimate of approximately $12 million in COVID-19-related claims, based upon death certificates received to date. Absent the COVID-19 impacts, mortality would have been flat versus the prior quarter, but modestly higher versus the prior year. The term life insurance business was negatively impacted by short lapses that continue to be higher than our original locked-in assumptions as more of the large 20-year level premium term life insurance business written in the year 2000 entered the post-level premium period during the quarter. Total term life insurance DAC amortization, a non-cash impact primarily related to these term life lapses, reduced earnings by $34 million after tax, which is unfavorable compared to the prior quarter. As sales levels declined in the second half of 2020, we expect amortization related to term policies entering the post-level period to begin to decrease in the fourth quarter and into 2021. Going forward, given smaller block sizes and reinsurance agreements in place, we would expect term DAC amortization on policies entering the post-level period to be lower than what we observed in 2019 and thus far in 2020. Life Insurance results also continue to be negatively impacted by losses in our term universal life insurance product. As a reminder, this is driven by a dynamic of GAAP reserve build on certain of these policies as they enter their post-level premium period without the offsetting premium revenue due to premium grace periods. Though the impact in the current period was smaller than the prior quarter, we expect this negative dynamic will persist in the fourth quarter of 2020 and into the first half of 2021, after which the number of policies lapsing should exceed the number of policies entering the premium grace period. In fixed annuities, lower net spreads compared to the prior quarter and prior year pressured earnings, which was mostly offset by higher mortality and single premium immediate annuities. In the runoff segment, our adjusted operating income was $19 million for the third quarter. The segment benefited from equity market improvement during the quarter, though equity market performance was not as strong as it was in the second quarter. For our US life insurance companies, we're in the process of completing our annual review of key actuarial assumptions in the fourth quarter for each of our product lines as we've done in prior years. As with most insurers with long duration products, we're focused on assumptions related to our long-term view of interest rates and current portfolio yields, which impact loss recognition and statutory cash flow tests. In addition, certain of our universal life insurance products with secondary guarantees require separate testing on a statutory basis using the prescribed reinvestment rate from July to June each year. Given the declining rates during this period, we currently believe that we will likely need to increase statutory reserves by approximately $200 million in 2020, which would equate to roughly a 15 point to 20 point reduction in risk-based capital for Genworth Life Insurance Company or GLIC. For LTC, we expect to finalize the claims reserve review, concurrent with the active life reserve review also in the fourth quarter. While this work is ongoing, current trends do not indicate a need to strengthen the claims reserve as assumptions appear to be holding up in the aggregate. For corporate and other, our adjusted operating loss is $49 million for the third quarter. This loss was higher versus the prior quarter, primarily attributable to tax adjustments. Our approximately $79 billion cash and investment portfolio continues to perform well given the uncertain macroeconomic environment, the fixed maturity unrealized gain position continued to improve, reaching $9.2 billion at the end of the quarter, reflecting improvements in the credit markets, benign credit migration and minimal impairments. Turning to capital levels. Our US and Australian mortgage insurance businesses maintained strong capital positions at the end of the third quarter. In USMI, we finished the quarter with a PMIERs sufficiency ratio of 132% and or approximately $1.1 billion above published requirements as of September 30th, 2020. The decline in our PMIERs sufficiency versus the prior quarter was driven by strong new business levels, partially offset by elevated lapses and the acceleration of the amortization of our existing reinsurance transactions. In addition, capital credit from our 2009 to 2019 excess of loss contract decreased as delinquency development has been more favorable than previously expected. These impacts were only partially offset by strong business cash flows. In October as part of our normal credit risk transfer program, we completed an insurance-linked note transaction, which will provide an additional $350 million of PMIERs credit and would result in a PMIERs sufficiency ratio of 147% against published requirements. The PMIERs sufficiency calculation continues to include the effect of the 30% multiplier for eligible delinquencies associated with COVID-19. As we noted in the press release, the GSE has recently imposed certain capital restrictions on our USMI business, including the requirement that GEMICO maintained 115% of PMIERs minimum acquired assets, which will remain in effect until certain conditions are met. Our Australia MI business ended the quarter with an estimated prescribed capital amount or PCA ratio of 179%, which is approximately AUD300 million above the high end of the management target range of 132% to 144%. Post quarter end, the business redeemed the remaining portion of its Tier 2 debt due in 2025, leaving only AUD190 million outstanding due in 2030. We estimate capital in Genworth Life Insurance Company or GLIC, as a percentage of Company action level RBC to be approximately 240% as of the end of the third quarter, up approximately 15 points from the second quarter. The improvement was primarily driven by LTC performance and a reduction in reserves on variable annuities related to the continued equity market recovery. For holding company cash, we ended the quarter with $814 million in cash and liquid assets, or approximately $450 million above our targeted cash buffer. Approximately $340 million of the holding company cash balance is ring-fenced for our February 2021 senior notes maturity, which we plan to pay at that time. Page 16 of the investor presentation provides the quarterly detail, including cash inflows of $436 million from the recent USMI debt issuance and intercompany tax payments of $23 million. Cash uses in the quarter include $125 million paid to AXA in July as part of the agreed-upon settlement, $59 million for debt service and $18 million for 2021 debt repurchases that were made during open windows during the quarter. For upcoming holding company debt obligations, we have principal balances of $338 million, maturing in February 2021 and $659 million maturing in September 2021. As we noted last quarter, we're not expecting dividends from our mortgage insurance businesses for the rest of 2020 to preserve capital in these subsidiaries given the uncertainty of COVID-19. To fully address the September 21 maturity, we continue to prepare for an IPO of our USMI business subject to market conditions, if the transaction with Oceanwide is further delayed or terminated. Our agreement with Oceanwide affords us flexibility to pursue this or other paths to strengthen our liquidity position. In closing, we've taken numerous steps to improve the liquidity and financial flexibility of our holding company as well as position our business to navigate these uncertain times. We're pleased with the financial progress and remain focused on providing value to all of our key stakeholders.

We'll go first to Howard Mills with Deloitte.

No, I'm sorry, I did not intend to ask a question. Thank you.

We'll go next to Stan Mercer. Stan, your line is open.

I did not intend to ask a question, I'm sorry.

We'll go next to Sean Perkins with Waterfall Asset Management.

Thanks for having the call, guys. I just wanted to clarify a couple of things related to potential Oceanwide closing and/or the potential IPO of the USMI subsidiary. Could we walk through the sequencing of those events, if possible at all?

Sure, Sean. Thanks for the question. As we mentioned earlier in the week, based on information from Oceanwide and documents submitted to Genworth, we expect the Hony Capital funding to take place in November, as they are collecting funds from various sources in Mainland China. They are working on depositing that money into an account, but they require re-approval from the NDRC to authorize the exchange. We are hopeful that we can finalize this by the end of the month without needing an extension. Regarding the USMI IPO, we are proceeding with the assumption that a deal may not be closed, which makes us cautious, but we are cautiously optimistic about the closing. We are completing all necessary filings with the SEC and undertaking related steps, which I believe many on the call are familiar with. We aim to be prepared to launch an IPO depending on market conditions, which currently look positive. The USMI business is performing well as it recovers from COVID-19, and if there is no deal, our plan would be to launch the IPO in the first half of next year.

Got it. And in such that they're mutually exclusive, is there any scenario in which you would close the China Oceanwide transaction and still move forward with any form of IPO of USMI?

Yes, that’s a great question, Sean. I believe that USMI is a valuable business, and we're disappointed that the management team hasn't received full credit from the rating agencies for the impressive performance of our USMI business. I've been here for almost eight years, and the team has achieved remarkable results during this time. They continue to excel on the earnings front and have substantial excess capital, exceeding PMIERs requirements. As Dan indicated, when factoring in the ILN deal from the fourth quarter, we stand at 147%. I'm uncertain why the U.S. MI ratings aren't higher. Regardless of whether we proceed with the deal or not, we are engaging with the rating agencies and, to some extent, the GSEs about the potential for an IPO. A public float for USMI should positively influence our ratings. Given that the performance of USMI is equal to or better than most of our competitors, I believe the ratings should be higher and more in line with them. There is a possibility that we might choose to pursue the IPO if it helps us achieve the ratings we believe we deserve.

Yes, it does, and I really appreciate that disclosure. Regarding the AXA settlement, will there be any proceeds from the China Oceanwide closing that have been designated or will be designated for any part of the AXA settlement?

Another good question, Sean. We expect the Oceanwide closing to finalize by the end of the month. In this transaction, we anticipate $1.5 billion of new capital coming into Genworth, in addition to the $2.7 billion purchase price that will go to shareholders at $5.43 per share. The $1.5 billion will be received in three payments of $500 million each: one at the end of January 2021, another at the end of April, and the last at the end of July. With the $814 million in cash we currently have, combined with that $1.5 billion, potentially along with an IPO as we discussed, the total amounts to $2.3 billion. We believe this will help reduce the liabilities of the $1 billion in 2021 debt. We also have payments due to AXA in two tranches in 2022. This outlines how the proceeds from Oceanwide’s additional investment are expected to be utilized. While there are other investment opportunities in different businesses, our primary focus will remain on utilizing the $1.5 billion along with our available cash. Additionally, any dividends from the MI subsidiaries in the coming year will assist in paying off the 2021 debt and addressing the AXA obligation in 2022.

Very helpful. Thanks so much.

All right, very welcome. Sean. Thanks for the questions.

We'll go next to Manuel Garcia with Anchorage.

Hi guys, a couple of questions, one for the Hony Capital, I think in the past, one of the reasons you described the holdup was that Hony itself isn't providing the $1.8 billion, there were going to get a bunch of LPs behind them to provide it. Has that now been received? Do they have all that capital, all the funding for the $1.8 billion already approved and it's just a matter of getting the regulatory approval?

Thank you for the question, Manuel. I believe we are in a strong position regarding the $1.8 billion. Hony and the partners have mostly finalized arrangements, and 35% of the funding is coming from Mainland China, which looks promising. However, we rely on the actual funding being finalized, which depends on the approval from NDRC and the SAFE authorization, as well as the conversion process. While I do not want to speculate on the actions of the Chinese regulators, I have had several discussions, and Chairman LU is very connected with them. We are optimistic that they will continue to support the deal. It is November 5 today, and we hope to receive those approvals from NDRC and SAFE in the next three weeks. Once we get the approvals, the funds will be transferred from Mainland China, Hony Capital will provide the $1.8 billion, and we expect to close the deal by the end of November. That is our plan.

Yes, no, no. I don't think the concern has been the regulator, I guess the concern has really been does Hony have the $1.8 billion. I guess the answer is, it does. The answer is, yes?

I think based on everything we have heard, we think the Hony Capital $1.8 billion is in good shape.

It's in good shape, okay. Okay, thank you for that. Second question I had is, for the $1.5 billion of new capital and the three subsequent tranches. Is that money already financed and locked in? Or is there going to be a process next year of getting that capital approved? What's the new updated source of that $1.5 billion? Any uncertainty of it actually coming into the entity post deal closing?

Again, going back all the way to the beginning of the deal, a significant reason that the Genworth regulators are supportive of the deal is because of that $1.5 billion. So it's a big part of the transaction and I think all of the regulators of Genworth and Genworth itself have done their due diligence on the $1.5 billion. And so on that, Oceanwide can rely on their total businesses around the world and capital. And so, again based on the conversations we've had and documentation on the $1.5 billion, we and the regulators are comfortable that those $500 million tranches will come in as scheduled.

Okay and then sorry, my final question was you had some commentary on the USMI business, I think you talked about losing some market share though, obviously still be in a pretty solid mortgage share. You talked about being a little more conservative. Did you see pricing weaken this last quarter? What made you take a more conservative approach than your competitors? Just trying to get a sense of that point.

Yes, Manuel, I want to be a bit cautious when discussing quarter-to-quarter market share as it depends on various factors. I’ll have Kevin Snyder, our Chief Operating Officer, provide a more detailed response regarding our strong New Insurance Written (NIW) this quarter, along with insights on how we identified opportunities and our new business strategies. Kevin, please take it from here.

Thanks, Tom. Our market share is continually impacted by the execution of our go-to-market strategy and that's including, but not limited to, our price competitiveness relative to our peers, and particularly in the last year in our selective participation in some forward commitment transactions. We do estimate that our share is down from the prior quarter. As Tom mentioned, market share moves around, we gain some, we lose some with the customer level on a quarter-to-quarter basis. But I guess what I would tell you is we pulled back in some price-sensitive areas of the market. We didn't do quite as much of the forward commitment business. Managing our new business volumes is like managing a portfolio. We're always trying to manage the risk and the reward return trade-off associated with it. With the extensive volume that was available in the market this time, we chose to trim back some of that and think our share's down a little bit. We feel very good about our share level and the level it will still come in at. We think we are poised to continue to drive strong share and perhaps additional share progression going forward. This is a competitive market and it's always going to be competitive and we react to that with an eye on maintaining the returns we're trying to achieve for our business.

I completely understand your point. Maintaining market share in a challenging environment may not be the best strategy. Did you notice a decline in pricing on a like-for-like basis? Is that what prompted you to reduce the program business you mentioned? Are there increasing risks that you see which raise your concerns? I'm trying to grasp what led you to decide to pull back a bit, as you indicated. This isn't a critique of your lower market share; I'm just trying to understand your perspective on the situation.

No, we had a very strong market share in Q2. There was some enhanced pricing competition in Q3, but nothing significant. We remain cautious about the current environment and the ongoing impacts of COVID. We believe the credit quality of the business we have been writing has been very strong. Compared to the last major downturn, our business volume is much stronger. There may be a bit of competition, but that reflects the regular business dynamics in the US Mortgage Insurance sector.

Looking at our operating plan for 2020, I can say we did not expect to be writing new insurance in force of more than $25 billion in any quarter this year. However, in the second quarter, we exceeded $28 billion, and this quarter we surpassed $26 billion. It's difficult to know what our competitors are doing, but from my standpoint and considering the objectives of USMI, I believe they are performing well above their expectations regarding new insurance written this year. This demonstrates excellent execution by the team. While we are disappointed with the ratings and believe they are inaccurate—since we operate as well, if not better, than our competitors—it could be affecting our standing. Despite this, I am very pleased with how well Kevin, Rohit Gupta, and the team at USMI have performed. We're satisfied with the level of new insurance written, and as Kevin mentioned, it’s crucial that we continue to price new business in the mid-teens. With a 70 basis point risk-free rate, pricing that amount of new business at over $25 billion in new insurance written in the mid-teens adds significant value to USMI and ultimately to Genworth.

Yes. All right, thank you guys very much.

We'll go next to Geoffrey Dunn with Dowling & Partners.

Thanks, good morning. I wanted to follow up on my previous question. Do you think the sequential decline in market share is mainly because of the loss of the forward commitment contract, or are you also reducing your involvement in other areas of the traditional flow market?

I would say, as I mentioned, we were a little bit more selective in our participation in that business. It was conscious. And it's not necessarily that we lost anything, Geoff. But if that's probably the most price-sensitive channel in the market. And so we, it, it was at that level and not really pressure from the rest of the market space.

Okay. And then I think the general consensus back in the second quarter was, on average pricing was up 10%, 20% from pre-COVID. Do you think that still is generally the case?

I think overall that estimate is reasonable. It's likely decreased slightly, but it's still above the level we were at when we entered this period. We're beginning to see the effects of improving forbearance trends, declining delinquency rates, and effective cures for new delinquencies. Overall, the environment looks positive and is trending in the right direction. While we're still up compared to our starting point, it may not be the full 20%, but there has been a slight decrease.

Okay, and then last question. If Biden ends up winning and pushing through that shift in corporate tax rates, the industry passed on all the tax savings back in the spring of 2018, what is your sense in terms of pricing power and actually need to increase pricing in that scenario to maintain returns?

Yes, if our returns are negatively affected by a change in the tax policy under a Biden presidency, we are accounting for that cost, and we will need to respond to ensure we maintain our current returns for customers. We benefitted when the tax rate decreased and passed those savings on to customers, but we may need to reverse some of that if taxes increase.

Okay, thank you.

We'll go next to Howard Amster with Amster Trading.

Congratulations on a great quarter, Tom. I did want to ask you a question on AXA, where you might get some money back from some of the banks that sold the insurance? And I'm wondering how that's going? What's the timeline on that? And the second question is, can you just go over, again, the increases that you're proposing for the long-term care?

Sure. Thanks for your questions, Howard. Good morning. Regarding AXA, we reached a settlement, but we are still receiving some invoices from them. We estimated that these invoices would total slightly over GBP100 million, and they will be passed through. Everything is progressing as we anticipated. As I've mentioned in prior calls and as you know, I spent 11 years in Europe and am quite familiar with these insurance and banking cases related to misselling. Typically, the banking partner, which in this case is Banco Santander, is held responsible since they were the ones selling the products, rather than the insurance companies. I still believe that this will be the case. Going forward, I think AXA will likely be successful in seeking recoveries, and as part of our agreement with them, we will share in any payments made. This process is primarily in AXA's hands, but based on precedent, I am optimistic that we will receive a recovery in the future. On the long-term care (LTC) side, we reported $595 million in premiums with an average approval rate of 29%, which translates to $173 million. Our cumulative net present value is now $13.5 billion. We have several large states currently in our LTC premium approval queue, where we expect to see positive outcomes due to their significance. While it's challenging to predict exactly when these approvals will arrive, I do anticipate good progress in the fourth quarter. Overall, I am very pleased with our situation. Our multiyear rate action plan, which we have been updating since 2014, continues effectively as we revise our assumptions and increase reserves while offsetting some of that with LTC premium increases. The NAIC long-term care task force, comprising 44 commissioners, generally supports the approval of these premium increases because they ultimately aid in fulfilling our obligation to pay claims. I believe that the LTC premium increases have been successful over the past five or six years, and I expect that trend to continue. Compared to three or four years ago, it seems regulators are now more open to these increases, as they recognize the actuarial justification based on industry claims over the years. While the regulators tend to spread the increases out more than I would prefer—likely to ease the burden on policyholders—I am still confident that we are achieving the net present value we anticipated under our rate action plan, which is a positive outcome.

Thank you very much.

Welcome Howard, thanks.

Ladies and gentlemen, we have time for one final question coming from Charles Sweat with Balyasny.

Thanks. Sorry, I was on mute. Wanted to follow up on the financing question for the Oceanwide transaction. Oceanwide has a pretty complicated corporate structure. And one thing I just wanted to clarify since the documents that they provided regarding the financing aren't available, is that there appears to be some real estate projects in the United States where Hony Capital is buying assets from Oceanwide. I just want to make sure that the financing for the Genworth transaction isn't subject to those real estate transactions closing because the numbers that we're talking about are pretty similar.

So Charles, great question. The Hony Capital funds that are considering the San Francisco property and the funds for our deal are completely separate entities within Hony Capital. The transaction is essentially a bridge loan to Oceanwide, provided for two years by the Hony Capital Mezzanine Fund, which is a listed fund. For the San Francisco property, there is a Hony Capital real estate fund that is the counterparty in that transaction. Hony Capital acts as both a general partner and limited partner; however, these are distinct funds with different priorities. One is focused on real estate, while the other functions as a mezzanine debt fund.

Ladies and gentlemen. I will now turn the call back over to Mr. McInerney for closing comments.

Thank you very much, Jennifer. I also want to express my gratitude to everyone for being part of the call and for the insightful questions. Your inquiries allowed us to provide more perspective on the topics discussed. I want to emphasize that we are very pleased with Oceanwide's progress since our last update on Monday. They have made significant advancements in securing financing with Hony Capital and from Mainland China. They are in a good position with all the necessary filings and are currently waiting for final approval or re-approval from the NDRC and the actions from SAFE. We are optimistic that, based on the information and documentation we have received, we can finalize the transaction by the end of November. We believe this is the best outcome for our shareholders and are hopeful we can close it without needing further extensions. Meanwhile, we are actively managing the Company and concentrating on our strategic priorities, including the debt financing of $750 million at the USMI holding company level, and we are making significant progress on the IPO. The USMI results for the quarter were impressive, with Australia performing well. We do face ongoing challenges in the life insurance segment due to business written 20 years ago nearing the end of its level term and experiencing higher lapse rates than initially anticipated, which has resulted in a non-cash charge. However, overall, the US life division, which includes long-term care and fixed annuities, reported $59 million and $24 million respectively, showing a solid performance. This remains particularly noteworthy given the ongoing challenges posed by COVID-19 in the country and global economy. Looking at the third quarter with $418 million in net income and $132 million in adjusted operating income, it reflects a very strong quarter. China Oceanwide and our Chairman are pleased with these quarterly results, and we hope this trend will continue. We must keep an eye on the situation with COVID-19, as cases are rising. Thank you all for your interest and support as shareholders of Genworth. I will now hand the call back to Jennifer.

Ladies and gentlemen, this concludes Genworth Financial's third quarter conference call. Thank you for your participation. At this time, the call will end.