Genworth Financial, Inc. (GNW) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Genworth Financial's January Special Call for investors. My name is Ali, and I will be your coordinator today. [Operator Instructions] As a reminder, the conference is being recorded for replay purposes. [Operator Instructions] I would now like to turn the presentation over to Tim Owens, Vice President of Investor Relations. Mr. Owens, you may proceed.

Thank you, Ali. Good morning, everyone, and thank you for joining Genworth this morning for this special call. We are live today and all in remote locations, so please excuse any technical difficulties we may encounter. Today, we will discuss our most recent transaction update with Oceanwide and our efforts to advance the remaining steps of our contingency plan. Due to applicable security law restrictions, our comments regarding the status of preparations for an IPO of our U.S. Mortgage business will be limited to our prepared remarks. You will hear from our President and Chief Executive Officer, Tom McInerney. Following his prepared comments, we will open up the call for a question-and-answer period. Dan Sheehan, our Chief Financial Officer and Chief Investment Officer, will also be available for 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 Monday's press release, our most recent earnings release and related presentation and our recent annual report on Form 10-K as filed with the SEC. In addition, I would note that we are currently in our quiet period with respect to our fourth quarter financial results. We will, therefore, confine our comments on the topics that were included in the release on Monday. And now I'll turn the call over to our CEO, Tom McInerney.

Thank you very much, Tim, and good morning, everyone, and thank you for joining our call on short notice. We're holding today's call to provide additional information about the transaction update we announced Monday morning. We would like to address questions we've received from shareholders and provide additional context on the factors that led to our decision not to extend the end date under the merger agreement with Oceanwide and to instead fully focus our efforts on executing our contingency plan. Since we last addressed shareholders at our annual meeting of shareholders on December 10, progress on the remaining steps required to close the transaction have been slower than anticipated. As a reminder, these steps include executing the financing plan with Hony Capital and obtaining clearance from China's State Administration of Foreign Exchange, or SAFE, to fund the remainder of the transaction consideration with capital from Mainland China. Oceanwide has informed Genworth that the completion of these final steps, notably the finalization of the Hony Capital financing and guarantee terms has been delayed and that the COVID-19 pandemic and associated restrictions as well as changes in the geopolitical environment have made their negotiations more challenging. Given uncertainty around the completion and timing of these steps, Genworth's Board and Oceanwide have agreed not to extend the current December 31, 2020, end date under the merger agreement. To be clear, the merger agreement remains in effect at this time. However, we have not waived our rights to terminate the agreement. This means that moving forward, either party is able to terminate the merger agreement at any time with written notice to the other party. As we mentioned in our press release, following our most recent discussions with Oceanwide, we no longer believe a closing can occur in the near term. Therefore, Genworth is shifting our focus to executing our contingency plan to meet our near-term liabilities but remain open to closing the transaction if the Oceanwide completes the final steps. I'd like to provide more context on what this means for Genworth and why we believe taking this approach provides the most flexibility to Genworth to maximize value for shareholders. With each extension over the last 4 years, we have always weighed the benefits of the Oceanwide transaction and the actions needed to advance the transaction against our available strategic alternatives at those moments in time, we did that every time. Since March 31, 2020, when most U.S. regulatory approvals were received, we mutually agreed to extend the previous end date to a new end date that both parties thought was reasonable in light of the steps necessary to close the transaction. During each of these extension periods, Oceanwide and Genworth continued to work towards completing the transaction by the new end date. At the same time, Genworth continued to pursue steps required to implement our contingency plan. However, with these extensions, Genworth waived the right to unilaterally terminate the merger agreement until the end date. During our discussions in the last few days with Oceanwide, we became less certain of Oceanwide's ability to finalize the Hony Capital funding and other required closing steps in the near term. Oceanwide indicated that they needed more time to finalize the Hony Capital funding and other required closing steps, but Genworth was unwilling to agree to a longer extension period, which would have prevented Genworth from terminating the merger agreement before the end date. As a result, Genworth and Oceanwide agreed not to extend the merger agreement termination date and to each retain the ability to terminate the current transaction at any time. We believe that closing the Oceanwide transaction will deliver the greatest value for Genworth shareholders and have done everything we can to make that outcome a reality. We are, therefore, leaving open the possibility of ultimately closing the transaction if Oceanwide can secure the required funding and the parties can complete the remaining steps to closing and if the transaction is still in the best interest of Genworth at that time. As previously disclosed, the transaction had previously received all U.S. regulatory approvals needed to close. However, given the passage of time as well as the terms of these approvals, the parties will need to assess whether re-approvals or confirmations are necessary at the appropriate time. In the meantime, we are shifting our focus to executing our contingency plan to raise liquidity to address our 2021 obligations, which include approximately $1 billion of debt maturing in February and September of 2021. Genworth has already made significant progress towards its contingency plan, first, with the sale of our Canadian Mortgage business in December 2019 for approximately $1.8 billion, the proceeds from which we used to immediately retire approximately $840 million of external debt. And second, with the completion of the $700 million debt offering at the U.S. MI holding company level that was completed in September of 2020. As a result of these and other actions to improve our financial flexibility, we have reduced Genworth's holding company debt over time and built a solid position of approximately $1 billion in cash and liquid assets as of December 31, 2020. Approximately $340 million of this $1 billion cash balance will be used to pay for Genworth's February 2021 senior notes at maturity. The key next step in our contingency plan is to complete a partial IPO of U.S. MI, subject to market conditions and the satisfaction of various conditions and approvals, which we are targeting for the first half of 2021. We have been working on this plan throughout 2020, while simultaneously working with Oceanwide to close the transaction. Given that we did not extend the merger agreement deadline, Genworth can terminate the transaction at any time if we think that is better from a shareholder value perspective. Our contingency plan also addresses the need to further align Genworth's expense structure with its business activities. The management team and I have always maintained a key focus on tightly managing expenses over the course of the transaction process, we have balanced the need to optimize our resources with a need to comply with the terms of our merger agreement. Now with our increased focus on our contingency plan, we are taking additional actions to reduce our expenses, which will, in turn, protect the long-term value of the company. We do not take these actions lightly. We know this is a challenging time for our employees. We will act with the utmost care and respect for our colleagues throughout the process. We're working through the details of the program at this time, and we'll provide more information as soon as possible. Although I am disappointed with recent developments, I am pleased that regardless of what ultimately happens, Genworth is in a much stronger financial position now than it was 4 years ago when we first announced the merger due to the actions we've taken to enhance liquidity and our continued execution against our strategic priorities. We have delivered solid operating performance over the last several years, including strong performance in U.S. MI. We've executed against our long-term care insurance multiyear rate action plan, and we've reduced outstanding debt at the holding company over time, all of which has helped stabilize the financial condition of the company. We had a very successful fourth quarter in terms of receiving approvals for long-term care insurance rate actions with over $160 million in additional premium increases achieved during the quarter. As of year-end 2020, we have achieved approvals on approximately $984 million of annualized in-force premiums, representing a weighted average premium increase of 34% or $334 million of annual incremental premiums going forward. On a cumulative net present value basis since 2012 through the end of 2020, which management believes is the best way to track the value we've added over time. So since the end of 2012, we have achieved $14 billion of approved LTC premium rate increases. We still have more to go. We have also significantly improved on our balance sheet flexibility by refinancing our debt and receiving 2 consents from bondholders to further isolate our life and long-term care insurance companies from the U.S. MI. I feel very good about these accomplishments, the position that Genworth is in as we proceed with our contingency plan and Genworth's ability to maximize shareholder value over the long term with or without the Oceanwide transaction. We will update shareholders if we receive a meaningful progress update from Oceanwide. In the meantime, as we move forward with the contingency plan, Genworth will prioritize the following principles that underpin our objective to maximize shareholder value. We will weigh the execution list of any strategic actions and their likelihood of success, use any potential additional cash proceeds generated by possible future actions to protect long-term shareholder value, including further debt reduction, prioritize U.S. MI's financial strength rating, manage the U.S. life insurance companies on a stand-alone basis with no plans to infuse capital into those companies in the future, absent an Oceanwide transaction. And we'll continue to engage with our shareholders and consider their views on various other feasible alternatives. We will continue to pursue actuarially justified premium increases for our legacy LTC insurance books of business, we believe it is extremely important to all of our policyholders and state regulators that our life insurance companies remain financially stable in order to continue to serve our 1.1 million LTC policyholders. We remain open to shareholder feedback on potential contingency plan actions, and we'll continue to communicate as appropriate regarding any strategic actions we are evaluating. I want to once again thank our shareholders, employees and other stakeholders. Your patience, support and feedback on the transaction and our other strategic alternatives have been critical to Genworth as we've navigated substantial geopolitical, regulatory and COVID-19-related headwinds. We are committed to serving your best interest, and we'll continue to work to maximize the long-term value of the company with or without the Oceanwide transaction. And with that, we will now open the line for questions. I want to remind you, as Tim noted earlier, that due to applicable securities law restrictions on publicity, our comments regarding the status of preparations for other matters related to potential IPO of U.S. mortgage will necessarily be limited to our prepared remarks. And with that, I'll turn it back Ali -- to you to open the call to questions. And Dan Sheehan and I are available to answer any of your questions.

[Operator Instructions] And we'll take our first question from Ryan Krueger from KBW.

My first question relates to the current regulatory approvals that you have for the Oceanwide transaction. Do you have any sense on -- from a timing standpoint, if there are certain dates that any of these existing approvals would expire that you'd then have to restart the process?

That's very important question, Ryan. Clearly, we have received all the U.S. regulatory approvals, but the approvals have different terms and conditions. And so depending on -- as we go forward, the timing and where we are, we are able to close the transaction, we do think we would have to go back, in some cases, to get approvals. For example, in North Carolina, their approval expires, I think, sometime in the third week of January. So we'll have to talk to them to extend that. They have been generally willing in the past to do that for 90 days. We are -- our team, as you can imagine, Ryan, we talk to all the regulators quite often and give them a full update after we released a press release tomorrow morning. So I would say, I think the Genworth regulators continue to be supportive of the deal, obviously, for New York and Delaware, those 2 companies, there's capital that's committed by Oceanwide and Genworth. If we close, that won't be there if we don't. And obviously, from all the Genworth regulatory perspectives, a key driver of why they support the deal is the $1.5 billion capital plan that Oceanwide is responsible for post the closing the transaction.

Did you receive a confirmed re-approval from Delaware? Or did it not get to that point?

So in Delaware, their approval is current. But as we've mentioned before, as their approval which goes all the way back, the public hearing was in November 2018. And as part of their approval, they had done their due diligence on 2 different funding sources for the transaction. One was at all $2.7 billion, $2.8 billion comes from their China Oceanwide assets resources in Mainland China, or -- and this is what we told them we think is likely, given what we expect to be the construction sort to say, that will -- that $1 billion will come from Mainland China and $1.8 billion will be funded through the Hony Capital Mezzanine Fund. So what we have to confirm with Delaware, what China Oceanwide has to confirm is if we -- if they finalize all the funding and were ready to close, they have to confirm with Delaware that the funding is 1 of the 2 methods that Delaware has already approved going back to their hearing in 2018.

Got it. And then my other question relates to the plan without a sale to Oceanwide. You mentioned that each time you've extended the deal, you compared it to your other strategic alternatives. Can you -- and we know, I guess, the contingency plan, which seems like a first step. But can you give us any more perspective on when you looked at the other alternatives, what do you view as the best alternative for shareholders without a sale, but kind of longer term beyond the initial contingency plan?

Ryan, another good important question. So we've been -- going back several waivers ago, we negotiated with China Oceanwide to really have the freedom to pursue almost any strategic alternative, we obviously have to keep them fully up to date, et cetera. So even though part of the reason we sold our Genworth Canada obviously was because we could not get regulatory approval in Canada. But it was also the case that it was part of the contingency plan if we didn't do the Oceanwide transaction. And so the sale of Genworth Canada for $1.8 billion in December of 2019 was really the first step of the contingency plan. It also had the benefit of allowing us, as I said in my remarks, to reduce our debt immediately by $840 million. Of course, the $1 billion that we have at the end of the year, a significant amount of that is from those proceeds. So that was an important first step. We then in terms of raising additional liquidity to meet our 2021 debt, the second part of the contingency plan was the $750 million debt offering from U.S. MI. And both those steps are the contingency plan, which we have also called Plan B, were approved by Oceanwide along the way, including they're retaining their purchase price of $5.43. And then we also had to -- again, as part of the contingency plan, we had to -- we felt put the settlement with AXA behind it. So we did that as well in 2020. So the remaining steps are the contingency plan. And so those steps, we had to do whether we did the deal or not and Oceanwide allow us to do those 3 steps. And the next step is to -- the key point is the IPO of U.S. MI. And we're also -- now that we're operating under the contingency plan, we're also looking at our operating expenses because we did keep some expenses that were required on the merger agreement, assuming we close, but now that -- that's less certain that we'll close, we'll see if Oceanwide can finalize their Hony funding and complete the other steps. But given that we're operating under the contingency plan, there are expenses that we would incur if the deal closes that we do not need to incur if we don't close. And so again, as part of the contingency plan, as I mentioned in my remarks, we will be looking to rightsize our expenses consistent with the no-deal scenario in the contingency plan.

I guess just the last one. I guess, after you do all of the things you said, I mean, do you -- I guess, is one likely path to pursue a full separation of the mortgage insurance and life insurance businesses, is that the longer-term potential plan beyond as first step?

Sure. So as we've talked about in the past, and this was also part of what we have been doing over the last several years, we have been further separating the life companies from particularly U.S. MI, trying to keep the rating separate, et cetera. And we did 2 bond consents. I mentioned that in my remarks. So we do feel we really have those separated. So obviously, without the deal closing, we will look to, over time, separate the life companies from U.S. MI. And the IPO, if we go forward with that as a first step, we could spend the balance off the shareholders or do secondaries. And also, we have been allowed, again, for some period of time to consider other strategic alternatives, including an offer for the whole company. So all of those strategic alternatives we will consider if they come up. As I mentioned in my remarks, we'll certainly want feedback from our investors. We get feedback on their views and opinions. They don't all have the same views and opinions, but we'll take that into account. So we really are looking to whatever is the best strategic alternative to maximize value. We clearly think today, if we could have closed today, that the $5.43 from Oceanwide is the best strategic alternative. But given the delay and the uncertainty, we still hope to close, we'll have to evaluate the Oceanwide offer, as we've done each time we extended in the past against any and all of the other options that are available to Genworth. And the main criteria, of course, will be to choose the alternative alternatives that maximize long-term shareholder value.

We will now take our next question from Kwaku Abrokwah from Goldman Sachs.

You've talked about in the past that the 19.9% limitation is due to tax considerations. Can you briefly touch on the details? And my follow-up question is that beyond retaining a favorable tax position, are there any binding limitations that would prevent further share sales of U.S. MI, such as asset sale or continued controlled covenants and indenture of the unsecured bonds?

So yes, good question. Unfortunately, I can't really talk very much about the IPO because as you go forward now anticipating that we'll pursue the IPO, we are under front-running and other SEC rules that don't allow us to talk about the IPO. The only real -- I mean, you have to wait for the final perspective in terms of communicating to the market about that. But what I would say, generally, so this would apply to Genworth or any company in the U.S., if you IPO less than 20%, so 19.9%, you still have the availability for a full tax consolidation. If you go over 20%, then you lose the benefits -- some of the benefits of the tax consolidation. Now again, in the future, we'll talk about that. And there are things that any company can do, if we do more than 19.9% to limit the friction, if you will, from those tax benefits. But I'm not talking about our deal at all here. I'm talking about generally in the market for IPOs that is why many companies ultimately -- depending on their objectives, decide to do their IPOs with 19.9% because of the tax benefits.

And this really -- I'm not sure if you can talk about it, but there's no real covenant in the unsecured bonds so that comes into consideration here.

Dan, you want to address that without really -- you could by just talking about the bond covenants versus talking about the IPO?

Yes. I think as we considered our strategic options, there are no things that we're currently planning on doing that would have meaningful challenges under the existing bond covenants. Now that could change depending on whether our execution plans adjust as the market evolves as we go forward. But at this point, we're operating well within the constraints that are in our bond covenants.

We'll now take our next question from Joshua Esterov from CreditSights.

You stated earlier in the remarks and in the press release you put out there today that the holding company liquidity was approximately $1 billion at year-end. Can you tell us what drove the increase over the third quarter? Was it an additional distribution from that U.S. MI offering?

Dan, do you want to take that one?

Yes. I guess what I would say at this point is we are in the quiet period, and I'm not terribly comfortable going through a lot of the details that relate to fourth quarter operations. What I would say is that, as we mentioned, we're going to end the year at right around $1 billion in cash, which is a, I think, a reasonable position to be in as we move into 2021 and need to address our near-term liabilities. We'll certainly cover all the details in terms of where the cash has moved from third quarter to fourth quarter as we get into the earnings review process and at the earning call in February.

Okay. And as a second unrelated question, earlier, you spoke about some expense management efforts. Are these expense management plans expected to primarily impact costs associated with the holding company? Or is it more for opco statutory capital levels at either the life or for PMIER services at U.S. MI? Can you expand on that a bit?

Yes. So Joshua, good question. We'll have more details on our earnings call, which is -- for the fourth quarter, which will be the first week of February, I think, sometime then. So we'll have more details. As you can imagine, January 5, we're beginning the process of notifying our employees about our plans, including the cost reduction. So I want to be careful to respect those discussions that need to take place. But let me give you an example. One of the parts of the Oceanwide transaction, which is very appealing to Oceanwide, is the ability to fund a new U.S. long-term care insurance company that they would capitalize as part of their post-closing capital plan and that we would have that licensed in all 50 states, and we would go forward, it would have no legacy LTC liabilities. So presumably a higher rating. We've had discussions with particularly A.M. Best. And so obviously, we're spending some money to have that company licensed in all 50 states to sell new products. We still have work to do there. And we're retaining some limited, I would say, at this point, sales and marketing staff. Obviously, if the deal doesn't happen, we're -- because our legacy life companies and GLICNY do not have high ratings, while I think at the margin, we're selling 1 million or less of new premiums a quarter, so that's really not viable long term that would be if we can close with this new company. And so there is an example of expense that is needed, and it was part of the merger agreement that we agreed to -- as we're going through the closing process, I'm not expecting it would take this long to carry some of those expenses. So that's an example of operating expense that will be taken out. The other thing I would say is, clearly, a major step that we took as part of the contingency plan in December of 2019, with selling Genworth Canada, obviously, our corporate overhead expenses get allocated to, like all companies, to all of their subsidiaries. So because we now -- we no longer have Genworth Canada as an operating company. And at the current, we got the $1.8 billion of cash, which we felt and still feel was a good value for the company. But we've got to do something with those overhead expenses because we're now a smaller company because we've sold Genworth Canada, we have to rightsize that. So those are 2 examples then there are others. So it isn't one area. It's a number of different areas. And it's both people expenses as well as investments in new systems and those kinds of things, particularly in the life companies since we really won't be actively selling going forward given without the deal, given the ratings that we have from legacy companies.

We'll now take our next question from Ryan Gilbert from BTIG.

So first question, I guess, it sounds like the partial IPO of U.S. MI is your preferred path. Moving forward, I guess, in your filings, you talked about also doing a convertible or equity-linked notes offering to satisfy the September maturity. And I'm just wondering if you could talk a little bit about the cost benefit of the partial IPO of the U.S. MI versus doing some debt offering to satisfy the September notes?

Well, we are focusing on the IPO, but there are other alternatives to that. And we'll continue to evaluate those along the way. I don't think there's not much further I'd comment on that. I don't know, Dan, if you want to make any additional comments?

The only thing I would say is that if you're thinking about it from a cost-benefit perspective, obviously, the debt cost would be cheaper than equity cost. That's always the case. However, one of our major goals is to reduce debt over time. And so to the extent that we considered or executed on a debt path, that would likely be temporary, more like a bridge to execute on our preferred plan, if you will, and not driven by the cost differential between debt and equity.

Okay. Got it. Next question, I know that you put a moratorium in place on the dividend from the U.S. MI in 2020. And, I guess, just putting the IPO aside for a minute, how much do you think you could dividend up to the holding company in 2021, just given the restrictions that the GSE is placed on your business and then the AXA agreement?

So let me just give an overall industry and the regulatory perspective, and then I'll ask Dan to make any comments. But it's a good question. But remember, as what we've said, and I think our other mortgage insurers in the U.S. have said, we are -- now that because of COVID-19, all 50 states in 2020 declared an emergency. Under the PMIERs capital standards from the GSEs, when a -- when you have a delinquency, but you're under -- but in a state -- so the mortgage is in the state that's under one of these mergers that usually it's a hurricane or something like that. But in this case, it's COVID-19. So it's every state. We -- for delinquency, that without this emergency, we would put up 100% of reserve against the delinquency under the PMIER capital rules, if a state of emergency applies in that state or area, you only have to put up 30% of the reserve against the delinquency because the expectation is after the emergency is over -- obviously, there's uncertainties around COVID-19. But after it's over, you will have a higher cure rate than you would if you had delinquency, but without any of these issues, for example, caused by COVID-19. And so what the GSEs have requested of all the mortgage insurance companies, including Genworth, is while you have the advantage of this 30% PMIERs capital reserve versus the normal 100%, we do not want the operating companies to dividend to the parent. So that's a condition that my understanding is it applies to all of the MI companies, Genworth as well as our competitors. Dan, is there anything else you would want to say on dividends? Or do we want to hold that until the earnings call in a month or so. Dan, are you on mute?

Yes. Thank you, Tom. I was on mute. So just a couple of comments. One is that we voluntarily suspended dividends because of the level of economic uncertainty, and that was not related to our capital position or operating performance. And so right now, as Tom mentioned, there are some restrictions on all MI companies where those to go away and the economic uncertainty to return to more normal levels, our capital position and our operating performance would allow us to resume normal dividends. And so it's -- it will be our assumption that at some point, we will resume normal dividends. There are no restrictions other than those currently imposed on all MI companies by the GSEs because of their programs that are in place. And so we would return and resume a normal dividend policy out into the future. We're expecting that at this point not to be in the next quarter or 2, just because the level of uncertainty is still relatively high.

Okay. Got it. And last question for me. Do you have an estimate or a range of potential annual savings from the expense reductions you're planning on undertaking?

There are different phases of that. I think while we're still in the process of talking to our Genworth associates about it, I'd like to defer that, and we'll commit to give you a more broad update on that, more details at the fourth quarter earnings call, which would be in early February.

We will now take our next question from Geoffrey Dunn from Dowling & Partners.

My original question actually did have to do with the potential special dividend ahead of the IPO. But secondarily, there's no question there's a lot of dividend capacity from the U.S. MI platform over the next several years, at least. Fair to say that Australia and Canada are good examples of how that cash flow could ultimately be your share that brought back to Genworth for future cash needs.

I'll let you handle that one, Dan.

Yes. The -- so just, I guess, a couple of comments. I mean, one is, obviously, right now, all U.S. MI companies are under restrictions from a dividend policy perspective. And we do have some additional constraints placed on us by the GSEs at this point. But as I mentioned, our capital position, and as you noted, is more than sufficient to overcome that. And at some point, resume a normal dividend policy. But yes, that's something that we would have to assess as we move forward and as economic conditions stabilize here.

We will now take our next question from Peter Troisi from Barclays.

So just wondering if you have to file a new Form A with the North Carolina regulator for the minority IPO of U.S. MI? Or can you just amend the existing filing?

So I think, Peter, the answer to that is under both the GSE regulatory regime and North Carolina, an IPO of U.S. MI, if we go forward with that, would be deemed to be a change of control, even though it's a partial IPO is what we're considering it at this point. So that would require the regular Form A filings for change of control, I believe with -- I'm not a lawyer, but I believe with both North Carolina and with the GSEs. Dan, you -- I think that's correct.

Yes. So I don't have anything to add to that.

Okay. Great. And can you confirm if that process has already started with the North Carolina regulator as it relates to the minority IPO of U.S. MI?

Well, again, we really can't talk about the details of the IPO and where we are on that. But in my prepared remarks, I would say that in 2020, led by Dan and Rohit Gupta, who is the CEO of U.S. MI, we have been working on preparing for the IPO. So there are a number of -- we have done a lot of work in 2020 on that. But I really can't go into any of the details on that given the restrictions we're under, imposed by the SEC under front-running and other rules around IPOs.

Okay. Understood. And then just one other for me. The parent company liquidity of about $1 billion as of year-end 2020, does that include the U.S. MI bond proceeds that were held back at the U.S. MI Holdco?

No, the -- so we issued $750 million of debt. And I think Dan will correct me if I'm off, we did dividend, I think, $436 million of that to the parent. So that's part of the $1 billion. And the remainder is held at the U.S. MI holding company levels. Is that right, Dan?

Yes. So just to be clear, the $1 billion of cash is at the holdco level of the parent company. So it does not include the money that's being held back at U.S. MI holdco.

We will now take our next question from Don Espey from Shah Capital.

We have 2 questions for Tom. Tom, regarding the AXA settlement, do you expect Genworth to get paid by Santander, the guilty party at large in the second half of 2022? And is it fair to assume that Genworth will get paid a similar amount that it is paying to AXA?

So Don, good question. And going back to the AXA settlement that was last summer and what we said on that and what I've consistently said is there is a lot of precedent in Europe because many, if not most of the large insurance companies and many of the banks in Europe did the same kind of credit insurance business that Genworth's insurance subsidiary that we sold to AXA was doing. And the precedent in all those cases would suggest that it is a -- the claim and why policyholders are being reimbursed is because there was misselling of the policies. And Genworth in our subsidiary that we sold to AXA was not part of the selling process. So in theory, did not do the misselling. And my -- what I've said -- and again, this is -- AXA is the one who now owns the company, but I do believe that based on the precedent, ultimately, the bank distributor would be held responsible in the end. But that's a process that will unfold in the future. And it's really under -- we're not directly involved. It's AXA, but we as part of our agreement with AXA, to the extent they do recover, we -- on a pro rata basis, depending on the recoveries, would share on that.

Okay. And then regarding LTC liabilities, though it's been so terribly unfortunate and sad so many lives have been lost to COVID, especially in the age 70 and over age group, we are hoping you could help us understand, though, the impact that this is having on our LTC liabilities. We're assuming it's got to be pretty significant.

So Don, what I would say there is we are seeing, unfortunately, as you said, and our hearts go out to our policyholders and the families, but we are seeing many of the deaths in COVID-19 occurring in the elderly, many of whom are in nursing homes, some of them are Genworth policyholders or policyholders of other insurance companies. And obviously, if they do pass away and they were on claim, whether it's a Genworth claim or any other insurers, obviously, the claim ends. And so I do think what you've seen -- I don't want to talk about the fourth quarter, but what we've seen year-to-date through the end of September for Genworth, and I think all of our competitors reporting the same thing as lower claim severity, higher claim terminations because of those unfortunate deaths. The other thing that is occurring is because of COVID-19 and the worry about people coming into the home to give care that 70% of our claims, and we have approximately 50,000 claims that are active, 70% of those are in the home. And so in some cases, families do not want a caregiver to come in. And so that lowers the incidence in the claim payments. And also, my -- and I think competitors are seeing that across the industry, as are we. And I do think that it's likely that -- and we factored this into our IBNR, Incurred But Not Reported Reserves, it's likely that some of our policyholders as well as our competitors' policyholders would be eligible for claims, but the policyholder or the families haven't submitted a claim because, again, they're not having a caregiver come into the home. And similarly, I think if the claim had to be -- the site was assisted living facility or a nursing home, we are likely seeing a lower incidence there as well because of concerns about the -- how contagious COVID-19 is. But what I would say, Don, is that it's too early, and these are obviously long-term liabilities, 30, 40 years, that claims will occur over time for our 1.1 million policyholders. So it's pretty hard to make any definitive long-term assumptions about are these permanent changes or not? Could be, maybe not. And so while we're seeing benefits so far this year, how permanent they are? We don't know. And so because we do think there'll be a catch-up on claims and we have been making sure in our IBNR reserves that they're appropriate. Hey, operator, Ali, before we take the next question because we are running late, we don't have a lot of time left. And I am surprised that we have not -- Dan and I have not had some questions that, at least as we were preparing and setting up the call, we had been receiving from a lot of our shareholders. So I thought I would address those because I would assume we can't take all the questions. I assume there are some questions out there. So one of the questions we've gotten from several shareholders is, gee, when you had your shareholder meeting in December 10, you were somewhat optimistic that you could close by the end of the year. I talked about the closing and what happened over -- since December 10, over the last 3 weeks. So I just thought I would cover a little bit of that. we -- and we did talk about COVID-19. And as I said, clearly, with the Hong Kong restrictions that are still in effect, that only 2 people can meet at a time. So instead of having the China Oceanwide team and the Hony Capital team meet together, it's been restricted to 2 people. So -- and the Chairman and the Hony Capital CEO have met. But it just makes it more difficult, as you can all imagine. The other thing that was beginning to be the case in early December and maybe even before then, but it's continued and perhaps gotten a little worse. There has been a significant spike in COVID-19 cases around the world, certainly in the U.S., in Hong Kong, in the European Union and in the U.K. And I think you've all probably read the reports out of the U.K. that they're going into a heavy lockdown. So in addition to putting pressure on how you meet face-to-face, which is important in Asia, it also raises due diligence questions from Hony Capital. And I understand from China Oceanwide that they have asked and due diligence as they're finalizing the agreements what effect will these significant spikes in COVID-19 in the U.S., the impact it could have on the global community, how does that affect Genworth's operations and its businesses. So those are some of the questions, newer questions based on very current information. And then the other thing that I mentioned briefly in my script, and obviously, it's been the case for some time, is the geopolitical issues that are out there. And I don't have time to cover all of them. And obviously, I'm not privy to all the things that are going on there. But I will say, while we were very positive at the end of November, on November 30, the NDRC approved the transaction or extended that, so that, that one gave the Board more confidence. The Chairman LU had said he was -- while it took longer than I think I have hoped anyways, he thought we would get that and we did. So that gave us some confidence. And obviously, with the NDRC extending, it gave us confidence that, as we thought was the case that the Chinese regulator still supported the deal. So that was a positive, however. So you have -- but then you're offsetting that, you have COVID-19, obviously out of our control, but that's happening as we see and changing day-in, day-out and maybe the vaccines will help that over time. But also at the end of November, the U.S. administration issued an Executive Order, which puts some limits on U.S. investors' investment in China companies traded on U.S. Exchanges. And so that obviously was also became a question from Hony -- again, from what I understand from China Oceanwide around and of course, we saw on December 31, the day we're trying to figure out which options to pursue going forward, terminate, extend or what we decided on, just keeping the merger agreement in effect, on New Years eve New York Stock Exchange said they were going to delist 3 major China telecoms. And so obviously, the question there is from -- again, my understanding, I didn't -- I haven't talked directly with Hony. So China Oceanwide does that -- is there any possibility that the U.S. administration, including the new one, might do something similar for -- on a private deal, like the China Oceanwide Genworth, and I don't think that's the case. But that -- certainly, those are legitimate due diligence questions that I think most of us would ask. And so I do think COVID-19, the meeting restrictions have had impact, but COVID-19 and some of these geopolitical issues that have emerged very recently, in matter of days, I think, have raised additional due diligence questions. And then the second set of questions that I thought I would get -- that I didn't get, and I thought I would address it because I assume there are questions on. Well, Genworth had the opportunity to receive evidence from China Oceanwide over the last 2 extensions in terms of your confidence in the ability of Oceanwide to close, so I wanted to cover what those -- what the level of confidence and the evidence we have, first of all, there were several written letters from Chairman LU to the Genworth Board and vice versa from the Genworth Board written by our Chair, Jim Riepe, asking for questions of Oceanwide about the funding, both the Mainland China funding and the Hony Capital funding. And so we did have a number of letters from Chairman LU talking about that. In terms of the Mainland China funding, we've had many discussions with China Oceanwide that -- including involving the Chairman with our Chairman, Jim Riepe, and myself. We also -- we reviewed the annual financial statements of the most important China Oceanwide affiliates, including the buyers, the affiliates, the buyers of Genworth, both annual results and quarterly results which would have the balance sheets of those companies and how much cash they had on the balance sheet. We also -- China Oceanwide is required to file with all of the Genworth regulators, regular financial updates as the quarters pass and the year-end, more on the year-end. And what is done there is, we take, obviously, the China Oceanwide financial statements are under China GAAP and in RMBs. And there is a process where you adjust. It's not an audit level adjustment, but we do adjust the RMB results to U.S. dollars and note for the regulators, how you might reconcile at least the key items from China GAAP to U.S. GAAP. So that's something that we had access to on an ongoing basis as well as our regulators. And then I did mention this, and Oceanwide has announced these in 2020 that they did sell 30% of Minsheng Securities that they owned -- subsidiary owned in China. And they also sold some real estate in China. And I think the combined proceeds of that were in the order of RMB 11.5 billion. And then we do -- we also know that Oceanwide has lines of credits in China. And then on the Hony Capital side, again, we have frequent phone calls with China Oceanwide. We did receive an updated commitment letter from Hony Capital Mezzanine Fund for the $1.8 billion. I would note that the commitment letter did discuss the COVID-19 challenges and so on, but the -- certainly, the commitment letter was for the $1.8 billion, it got extended, including to the end of the year. So we did have that. So I do know that we were asked for some examples of the evidence. And so I didn't cover everything, but I wanted to give all of you a sense of those 2 questions, both the funding evidence as well as why COVID-19 pandemic and the spikes and also some of the U.S. geopolitical issues could have raised additional due diligence questions from Hony, which required more time for us to and for Oceanwide to get through. So I wanted to make those. Ali, I'll turn it back over, we're getting near to the end, and maybe if there's another 1 or 2 questions, and then we'll wrap up the call.

And ladies and gentlemen, we are out of time, and I'll turn the call back over to Mr. McInerney, please, for closing comments.

Okay, Ali. Well, thank you very much, and thanks again to all of our shareholders, investors for getting on the call on short notice. Hopefully, we are giving you an overview of the fact that we're focused on the contingency plan and the action steps going forward. Merger agreement is still effective, but either party can terminate. As we said in the press release, I think China Oceanwide is still committed to closing. As Chairman LU said in his "in the press release," he believes that it's still a very viable transaction for Oceanwide. And we also think at $5.43 per share, it's a good deal for our shareholders. So we're both continuing to work on that. But just because of the uncertainty and how much more time it will take and the fact that we're getting closer to our debt maturities in 2021, we felt we had no choice, but to go forward with a full focus on the contingency plan. Many of the steps we've already implemented, but the remaining steps that we talked about, while still leaving open the options, so we still have the optionality, if Oceanwide can complete its funding and we complete the other steps, we would still be open to closing the Oceanwide transaction. If at the time, when the funding is in place, and we could close and we have the regulatory approvals we would need at the time, if at the time, the $5.43 per share still looks like an attractive value for our shareholders against whatever the alternative and wherever the share price is trading at that time in the future. So with that, thank you all very much. We -- you have been giving us input and your views on steps forward, we would look forward to continuing to get those, the next significant update, we'll do both, cover the fourth quarter and some of the financial questions that were asked, will be early February, we'll also be able to give you an update on where things are with Oceanwide. And obviously, in the interim, between early February and now, if something materially emerges, we certainly would issue a press release to announce whatever that may be. So thank you very much. And we'll, for sure, talk to you in about a month as we update you on the fourth quarter results. Thank you very much.

Ladies and gentlemen, this concludes Genworth Financial's January special call for investors. Thank you for your participation. At this time, the call will end.