Genworth Financial, Inc. (NYSE:GNW) Q3 2020 Earnings Conference Call November 5, 2020 8:00 AM ET

Company Participants

Tim Owens - Vice President, Investor Relations
Tom McInerney - President & Chief Executive Officer
Dan Sheehan - Chief Investment Officer
Kevin Snyder - Chief Operating Officer

Conference Call Participants

Howard Mills - Deloitte
Sean Perkins - Waterfall Asset Management
Manuel Garcia - Anchorage
Geoffrey Dunn - Dowling & Partners
Howard Amster - Amster Trading
Charles Sweat - Balyasny

Operator

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 [Operator Instructions] I would now like to turn the presentation over to Tim Owens, Vice President of Investor Relations, Mr. Owens. You may proceed.

Tim Owens

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.

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 Genworth's other strategic priorities and provide a brief overview of our strong third quarter results before turning the call over to Dan Shan, 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 had 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 dialog with them as they were 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 we'll 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 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 remained 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.

Dan Sheehan

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% and 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 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 trend. 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 [ph] 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 2000 [ph], 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 ticket.

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 test. 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 past 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.

With that, let's open it up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Howard Mills with Deloitte.

Howard Mills

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

Operator

[Operator Instructions] We'll go next to Stan Mercer [ph]. Stan, your line is open.

Unidentified Analyst

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

Operator

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

Sean Perkins

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 -- equity IPO of the USMI subsidiary. Could we walk through the sequencing of those events, if possible at all?

Tom McInerney

Sure, Sean. Thanks for the question. So as we disclosed earlier in the week, based on information promotion wide and documentation that is submitted to Genworth, we expect that the Hony Capital funding will occur in November, and they're gathering the funds. I mean, obviously, they have a lot of different sources of cash in Mainland China. So they're gathering that to put it in an account. But they do need approval -- re-approval, if you will, from the NDRC and say best to authorized exchange. Based on everything we know, we're hopeful that we can close by the end of the month with no need for an extension.

On the USMI IPO, we're continuing to operate assuming there isn't a deal closed, obviously, to be cautious, although we're cautiously optimistic that we will be able to close the deal. And so we're doing all the steps, the filings that have to be done with SEC, there [indiscernible] up here, etcetera, I think probably a lot of them on the call are familiar with that. And so our view is that we would be in a position to launch an IPO, subject to market conditions. Right now, they're pretty positive. And obviously, the USMI business is doing well, recovering from COVID-19. And so our current plans, if there is no deal, would be to launch an IPO sometime in the first half of next year.

Sean Perkins

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

Tom McInerney

I mean -- yes, that's another good question, Sean. I would say, look, I think that USMI is a valuable business. I would say we're disappointed on the management team that the rating agencies don't give us full credit for the terrific performance of our USMI business. I mean I think the team there -- I've been here eight years now, almost. And the team there has had, I think, awesome results over the last eight years. They continue to do very well on the earnings side. They've got significant excess capital, above PMIERs requirements. As Dan mentioned, if you conclude the ILN deal we did in the fourth quarter, we're at 147%.

So I don't know why the U.S. MI ratings aren't higher. Whether we do the deal or not, one of the things that we're working with the rating agencies and to some degree the GSEs on is, if we did have an IPO, so there's some public float for USMI that should be a significant positive for ratings. And I think the ratings should be higher and more consistent with our competitors, given the performance of USMI is equal or better than most of our competitors.

So that is -- it's possible. it'll be up to the -- obviously, the new goal post closing, but there is a possibility that we would decide to do the IPO anyway. If by doing that, that allows us to get to the ratings that we think we deserve now, if that makes sense.

Sean Perkins

Yes, it does, and I really appreciate that disclosure. As it relates to the -- just on the AXA settlement, would there be any proceeds from the China Oceanwide closing that have been earmarked or would be earmarked for any form of the same on the AXA settlement?

Tom McInerney

Another good question, Sean. So the -- in the Oceanwide closing, we think that will close by the end of the month. We do provide in the transaction that there's $1.5 billion of new capital coming into Genworth, apart from the purchase price, the $2.7 billion that goes to shareholders at $5.43 per share. But the $1.5 billion that's going to come in three tranches of $500 million each, one at the end of January of '21, one at the end of April, one at the end of July. And so, we believe with the $814 million of cash we have on hand, with that $1.5 billion, potentially an IPO, as we just talked about, Sean.

But those -- the cash of $814 million and $1.5 million, that's $2.3 billion. And so we think that, that is -- will go towards reducing the liabilities of the 2021 debt, which is around $1 billion. And then we owe AXA under the note in two tranches in 2022. And then -- so that is the expectation in terms of what proceeds from the further investment by Oceanwide, how will be used? I think that in the cash -- there are other possibilities, other investments in the different businesses. But our main focus will be on using that $1.5 billion plus cash on hand. And certainly, any dividends we get next year in the future from the MI subsidiaries to pay off the 2021 debt and retire the AXA liability in 2022.

Sean Perkins

Very helpful. Thanks so much.

Tom McInerney

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

Operator

We'll go next to Manuel Garcia with Anchorage.

Manuel Garcia

Hi guys, a couple of questions, one for the Hony Capital, I think in the past, one of the reasons you describe 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?

Tom McInerney

Manuel. Thanks for the question. Yes, I would say I think we're in very good shape on the $1.8 billion. I think the Hony and the partners have been arranged pretty much and the 35% of the funding comes from Mainland China, so I think that's a good shape. Obviously, we are dependent on the actual funding of those together, the $2.7 billion on the approval of NDRC and then the SAFE authorization, the window how that conversion process works.

We do think that, I mean, obviously, I don't want to get ahead of the Chinese regulators, it's their decision to make, but from the beginning, based on a number of conversations that I've had with the -- Chairman LU was very close to all of them. We do believe that they continue to support the deal. So, it would be November 5 today so in the next three weeks or so, we hope those approvals come in from NDRC and SAFE and then the money would be wired out of Mainland China and then Hony Capital would transfer its $1.8 billion and then we'd be able to close the deal by the end of November, that's the plan.

Manuel Garcia

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?

Tom McInerney

I think based --

Manuel Garcia

Or not yet?

Tom McInerney

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

Manuel Garcia

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?

Tom McInerney

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.

Manuel Garcia

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?

Tom McInerney

Yes, Manuel I would say, I think I'll be a little careful when you look at quarter-to-quarter market share because that's going to be based on a lot of different things, but I'll ask Kevin Snyder, who is our Chief Operating Officer to give you a more precise answer in terms of -- we think the NIW was very strong in the quarter, but I think Kevin can give you a little bit more details on how the business saw the opportunities and what we did from a new business perspective. So, Kevin, over to you.

Kevin Snyder

Thanks, Tom. I -- our market share is continually is 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, we regularly -- 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. And 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. And 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 maintain the returns we're trying to achieve for our business.

Manuel Garcia

Just in terms of that point and I fully agree I think maintaining market share in a bad environment is not a good idea as I think that's totally valid, but did you see pricing weaken, like if you look on a like-for-like basis, is that what made you pull back and say you program business that you just highlighted? Was it -- you think -- are there increasing risk that you see that make you more concerned? Just trying to get a sense of that point. It's not a criticism of the lower market share, it's more just try to understand what did you see that made you want to pull back a bit as you said.

Kevin Snyder

No, we had a very strong market share in Q2. And there was -- I would say there was some enhanced pricing competition in the Q3, but nothing really out of whack. We remain cautious on this environment and what's going to happen and play out with COVID overall. We think the credit quality of the business, we've been writing has been very strong. And when you compare it to the last big downcycle, it's just a much smaller -- stronger business volume. So, maybe a little bit of competition, but just all of the days of business in the US Mortgage Insurance business.

Tom McInerney

The only thing I would Manuel if I look at our operating plan for 2020, I can tell you that we did not expect we'd be writing new NIW more than $25 billion in any of our quarters this year. So we -- if you go back to the second quarter, it was over $28 billion and this quarter over $26 billion. So, it's always hard to know what other competitors are doing, but from my perspective and looking at the goals of USMI, I think they're well above their expectations this year in terms of NIW being written.

And I think it's good execution I think by the team and as I say, you know, they -- again we're very disappointed with the ratings. We think the ratings for USMI are wrong and we do think that the rating because we are lower than our competitors, even though we operate as well or better than the competitors, we think that has some issue. Despite all of that, I'm extremely pleased with how well Kevin, Rohit Gupta, the people running USMI have done. So, we're very pleased with the level and NIW and as Kevin mentioned the most important thing is we continue to price new business in the mid-teens. And so, if you look at a 70 basis point risk free rate, pricing that amount to do business over $25 billion in the last two quarters of NIW in the mid-teens, I think adds a lot of value to the USMI and ultimately to Genworth.

Manuel Garcia

Yes. All right, thank you guys very much

Operator

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

Geoffrey Dunn

Thanks, good morning. I just wanted to follow up on that in my line of questioning. Is your sense -- with the market share decline sequentially, is that primarily due to the loss forward commitment contract? Or are you pulling back in other aspects of the traditional flow market?

Kevin Snyder

I would say…

Tom McInerney

I was going to say, yes, thanks for the question, I have to turn it to Kevin to answer the questions on USMI.

Kevin Snyder

I would say, as I mentioned, we were a little bit more selective in our participation of that business. It was conscious. And it's not necessary that we lost anything, Geoff. But if that is 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.

Geoffrey Dunn

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?

Kevin Snyder

I think overall that was probably -- that's probably in the ballpark. We -- it's probably backed off a little bit, but Geoff it's still about it's still above the level that we -- as we entered into this period. And it's starting to reflect some of the performance we're seeing as the forbearance trends come down and as delinquency start to decline and as, and as the cures are doing a good job against the new delinquencies. So, we see overall a pretty good environment and it's on a good trend. So, I think we're still up compared to where we started, maybe not the full 20%, but backed off a little bit.

Geoffrey Dunn

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 '18, what is your sense in terms of pricing power and actually need to increased pricing in that scenario to maintain returns?

Tom McInerney

Yes we are -- if our returns are impacted negatively from a subsequent change in the tax approach under a Biden presidency, I think we're pricing the cost -- our cost, and we'd have to respond and to maintain existing returns to our customers. So, I think it would -- we took advantage of when the tax rate went down. We passed that along to the customers, and we may have to push some of that back if taxes go up.

Geoffrey Dunn

Okay, thank you.

Operator

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

Howard Amster

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 time line on that? And the second question is, can you just go over, again, the increases that you're proposing for the long-term care?

Tom McInerney

Sure. Thanks, Howard, for both of those questions. Good morning. So on AXA, we made the settlement. As part of the settlement, there are still some invoices coming in from AXA, and we gave the market a view that we thought that would be a little over GBP100 million of new -- the invoices that we're in, but that will sort of be passed through. And I think that's all proceeding pretty much as we expected.

As I have said on a number of previous calls and as you know, Howard, I spent 11 years in Europe. So I'm very familiar with all of these insurance and banking cases in terms of the misselling. And the precedent is that in almost all cases in the end, the banking partner -- because they developed the selling and insurers did not, the banking partners were held responsible. And so my view is that's still the case. The bank here is Banco Santander. And I would think going forward, we ultimately -- AXA would ultimately be successful in pursuing recoveries. And as we said, as part of our agreement with AXA, we would share to the extent we've made payments in that. So that all has to go through a process and that's really more AXA's decision than ours. But again, the precedent would say that at some point in the future, we would get recovery.

On the LTC side, we went through the numbers, $595 million of premiums, approval average of 29%. I mean that's $173 million. In a net present value basis, our cumulative is now 13.5% [ph] a day. I will tell you, we have several large states in our LTC premium approval queue, if you will, where we anticipate that we will receive good increases. And because they're big states, they're obviously more meaningful. It's always a little hard to predict exactly when they'll come in. But I do expect in the fourth quarter, we'll have some good success. Overall, I'm very, very pleased. Our multiyear rate action plan that we've been working on since 2014, we updated every year as assumptions are updated. So we change assumptions, increase assumptions, increase reserves. We're able to, more or less, offset that with LTC premium increases. And I think that continues to be the case. I would say -- you know there's this NAIC long-term care task force, 44 commissioners, I think are on that.

And by and large, I would say that the NAIC in almost all the states, strongly support approving these premium increases. It's -- in the end, it all goes to pay claims to their policyholders. And that's part of our obligation to make sure those claims are paying. So, I think the LTC, premium increases continue to go well. They've been going well for the last five or six years. And I think that will continue. I do think today versus three or four years ago, it seems like the regulators are more open and willing because I think they have seen over the last five or six years as all the claims that have come in, for the whole industry, that these are actuarially-justified premium increases.

And if they are actuarially-justified, their requirement is to grant them. They spread them out more than I would like. I think that they're doing that to make it easier for our policyholders, which is understandable. But we are still getting a net present value that we anticipated under the multiyear rate action plan. So, I think that's a plus.

Howard Amster

Thank you very much.

Tom McInerney

Welcome Howard, thanks.

Operator

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

Charles Sweat

Thanks. Sorry, I was on mute. Wanted to follow up on the financing question for the Oceanwide transaction. And 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.

Tom McInerney

So Charles, great question. The Hony Capital funds that are looking at the San Francisco property and then the funds for our deal are totally separate funds of Hony Capital. And the transaction, it's sort of a bridge loan to Oceanwide, two years provided by the Hony Capital Mezzanine Fund LP, which is a -- it's a listed fund. And then for the San Francisco property, the -- there is a Hony Capital real estate fund that is the counterparty in that transaction. So, both Hony Capital is a general partner and limited partners, these are different funds with different priorities. One is real estate fund and the other is a mezzanine debt fund.

Charles Sweat

Great, thanks.

Operator

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

Tom McInerney

Thank you very much, Jennifer. And I also want to thank everybody for joining the call. I also want to thank the questions. I think all of you asked very good questions, and I know a lot of investors are interested in. So thank you for that. That gave us a chance to, I think, give a little bit more perspective on those. I do want to reiterate that we're very pleased with the progress that Oceanwide is making since the update previous to the one we did on Monday. They've made great strides in finalizing the financing with Hony Capital as well as from Mainland China. And I think they've -- they're in good shape in all the -- updating all the necessary filings. Obviously, they're waiting for the final approval or re-approval from NDRC and then the SAFE actions. But we're hopeful that based on everything we know and the documentation we've received that we can close the transaction by the end of November. We still think it's the best value for our shareholders, and we are hopeful that we'll be able to close without an additional extension.

In the meantime, we're running the Company, focusing our strategic priorities, including the debt financing that we did. The $750 million [ph] at the USMI holding company level, we're full speed ahead on the IPO. And I think if you look at the USMI results, I think they were fantastic in the quarter. Australia had a good quarter, and we have the ongoing challenges in the life insurance business because we had a lot of business that was written 20 years ago that's coming through with the end of a level term and the lapse rates are higher than the assumptions made 20 years ago. And so that has an impact on that. That's a non-cash charge. And we expect -- and Dan gave you a little bit of perspective on that. But despite that, overall, for that -- the division, the US life division, which includes LTC and fixed annuities, I think at $59 million and $24 million respectively, it was a good quarter.

So I think, particularly, as you put it at and I'd say particularly USMI in the context of we're still challenged as a country and I guess, as a global economy with COVID-19. So when I look at the third quarter, the $418 million net income and the $132 million of adjusted operating income, I think it's just a very strong quarter, and that bodes well, obviously. I think China Oceanwide and Chairman is encouraged by the quarterly results. And so hopefully that will continue. Obviously, COVID-19 is still a significant issue, and we'll see how that plays out. The cases are going up. So, it's something obviously to be focused on.

Again, thanks to everybody for your interest and your support of Genworth as shareholders. And with that, I'll turn the call back over to Jennifer.

Operator

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