Genworth Financial, Inc. (NYSE:GNW) Q1 2019 Earnings Conference Call May 1, 2019 8:00 AM ET

Company Participants

Tim Owens - Vice President of Investor Relations
Tom McInerney - President & Chief Executive Officer
Kelly Groh - Chief Financial Officer

Conference Call Participants

Ryan Krueger - KBW
Tom Gallagher - Evercore
Jimmy Bhullar - JP Morgan
Alex Scott - Goldman Sachs

Operator

Good morning, ladies and gentlemen, and welcome to Genworth Financial's First Quarter 2019 Earnings Conference Call. My name is Kleena, and I will be your coordinator today. At this time, all participants are in listen-only mode. We will facilitate a question-and-answer session towards the end of this conference call. As a reminder, this conference is being recorded for replay purposes. Also, we ask that you refrain from using cell phones, speakerphones or headsets during the Q&A portion of today's call.

I would now like to turn the presentation over to Tim Owens, Vice President of Investor Relations. Mr. Owens, you may proceed.

Tim Owens

Thank you, operator. Good morning, everyone and thank you for joining Genworth's first quarter 2019 earnings call. Our press release and financial supplement were released last night. In 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 Kelly Groh, our Chief Financial 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; and Dan Sheehan, Chief Investment 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 in 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 maybe more 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, we talk about the results of our international 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 CEO, Tom McInerney.

Tom McInerney

Good morning, and thank you for joining our call. Today, we will provide you with a review of Genworth's strong first quarter results and execution against our strategic priorities and an update on the transaction with Oceanwide.

First, a brief review of our results. In the first quarter, Genworth generated $121 million in adjusted operating income, or $0.24 per diluted share compared with adjusted operating income of $125 million, or $0.25 per diluted share in the prior-year period. Our global mortgage insurance businesses continue to drive our overall operating performance with strong growth in our U.S. business.

In U.S. MI first quarter adjusted operating income increased 12% year-over-year to $124 million, driven primarily by strong premium growth from higher insurance in force and favorable loss performance. In the quarter U.S. MI generated $9.6 billion in new insurance written or NIW, as a result of its continued ability to maintain and grow share in the U.S. market. U.S. MI's capital position remains strong ending the quarter with over $600 million in capital above the revised PMIERs requirements, which became effective on March 31.

In Canada, adjusted operating income for the first quarter declined 10% year-over-year excluding the impact of foreign exchange to $41 million on lower earned premium and an increase in expenses. Canada's capital ratio remains well above requirements and our management targets. In Australia, adjusted operating income for the first quarter declined 26% year-over-year excluding the impact of foreign exchange to $14 million, primarily driven by lower premiums due to portfolio seasoning.

Our Life Insurance segment recorded an operating loss of $5 million flat with first quarter of 2018. Higher LTC premiums and benefit reductions as a result of our in force rate actions, as well as strong equity market performance and lower mortality in our life insurance products were offset by higher new LTC claims severity and frequency.

Results were also impacted by less favorable LTC claims terminations year-over-year. Achieving actuarially justified premium rate increases and benefit reductions through our LTC rate action plan remains a high strategic priority for Genworth. These annual LTC premium increases which are intended to address our higher claims experience provides significant leverage to Genworth's cash flow as the higher premiums are expected to be paid over decades into the future.

As shown on slide 10, we received 24 state approvals in the first quarter impacting $241 million of in force premiums, with an average annual premium increase of 62%. From 2012 through the first quarter of 2019, Genworth has achieved approximately $11 billion of approved LTC premium rate increases on a net present value basis.

Let me now turn to the review of the progress made towards completing the Oceanwide transaction. As previously announced, Genworth and Oceanwide have received all necessary approvals from our U.S. state insurance regulators Fannie Mae, Freddie Mac and certain other international jurisdictions. Oceanwide needs to receive clearance in China for the currency conversion and transfer of funds and they're actively engaged with the relevant Chinese regulators.

Over the last several months, we have focused our efforts towards obtaining approval from the Canadian regulatory authorities. Our discussion with Canadian regulators has been centered around national security matters, including data protection and safeguarding our customers' personally identifiable information. These are important complex issues, for which we have significant experience given our success in the design implementation of the enhanced data security program in connection with the CFIUS clearance.

Earlier this year, we proposed a mitigation approach to Canada similar to what was agreed to CFIUS. We've met with the Canadian regulators in person several times to answer their questions, and we have provided them with additional information regarding our proposed mitigation.

We last met with them in the first part of February. At that time, the Canadian regulators have informed us that they had the information that they needed to complete their review. Since then the Canadian regulators have been reviewing the matter and we have not received any additional information requests or questions. However, they have not outlined a time frame for the completion of their review of the transaction.

To allow additional time for Canada's ongoing review Genworth and Oceanwide announced earlier this week that the parties have agreed to extend the merger agreement from April 30, 2019 to June 30, 2019. We believe this should provide adequate time for Canada to finish their review.

Genworth and Oceanwide continue to be actively engaged with other relevant regulators and authorities who have already approved the transaction. We believe these parties continue to fully support the transaction.

I want to thank all the regulators and reviewers of the transaction and all of Genworth's and Oceanwide's stakeholders for their considerable patience as we work through the final phase of the transaction. We recognize that it has been a long and complex process.

We have received a number of questions from the investors, analysts, regulators and rating agencies regarding Oceanwide's and Genworth's plans for the $1.5 billion Oceanwide post-closing capital plan and the $175 million capital commitment to Genworth Life Insurance Company or GLIC from Genworth Holdings.

Originally the first tranche of the $1.5 billion Oceanwide capital plan and the first tranche of the $175 million GLIC contribution were scheduled to be made by March 31, 2019.

It is the intention of Oceanwide and Genworth to adjust the date of the various tranches in light of the later closing date of the transaction, recognizing the importance of funding the $1.5 billion Oceanwide capital commitment comfortably ahead of the debt maturities in 2020 and 2021. We appreciate the cooperation of all regulators in these discussions.

Finally, I want to reaffirm that the Genworth Board continues to believe the Oceanwide transaction represents the best and most certain value to our shareholders. Genworth and Oceanwide remain fully committed to the transaction and we continue to work together to close the transaction as soon as possible.

At the same time, Genworth continues to execute against its strategic priorities and improve Genworth's overall positioning. Our most important priorities are to grow earnings and build capital in our mortgage businesses and to strengthen our U.S. Life business through our LTC rate action plan.

Now, I will turn the call over to Kelly.

Kelly Groh

Thanks, Tom, and good morning, everyone. Today, I will cover more detail on our first quarter financial results and key drivers, capital levels in our businesses and updates around cash and flexibility at our holding company as the transaction with Oceanwide has extended.

Let's begin with this quarter's financial performance. We reported net income for the quarter of $174 million and an adjusted operating income of $121 million. Our mortgage insurance businesses continue to perform well with strong loss ratio performance in the U.S. and Canada and solid capital levels in all the mortgage insurance businesses.

Our U.S. Life and Runoff business results were improved collectively with good in force rate action results, term life mortality experience and equity market performance.

Our strong results in our mortgage insurance businesses continue to reflect an overall solid macroeconomic environment including steady economic growth, low unemployment and interest rate levels and stable housing trends in most markets and at home price levels where we generally provide mortgage insurance coverage.

Our very strong adjusted operating income of $124 million in our U.S. mortgage insurance business reflected an 8% first quarter reported loss ratio, compared to 7% last quarter.

New delinquencies for the quarter were down modestly on a sequential basis, reflecting seasonality. We also saw favorable net cures and aging. Overall insurance in force in USMI continues to grow reaching an all time high of $170 billion at the end of first quarter 2019. This was up 10% versus last year and reflects strong levels of new insurance written as well as good persistency trends.

The U.S. purchase origination market was down versus the prior quarter from seasonality and flat versus the prior year. Our new insurance written or NIW for the quarter was $9.6 billion, up 3% sequentially and 7% versus the prior year. We expect our USMI first quarter 2019 estimated market share to increase sequentially.

We have selectively participated in forward commitment transactions and have continued to successfully rollout our proprietary risk based pricing engine, GenRATE and have seen good adoption. We continue to manage to an overall return expectation in the mid-teens on the 2019 book year new insurance written.

Turning to Canada. The loss ratio of 15% represents a decrease of 3 points from the prior quarter on lower average reserves on delinquencies, primarily in Alberta and the Atlantic region and an increase of 2 points from the prior year on higher new delinquencies, net of cures.

Canada's targeted loss ratio for 2019 is 15% to 25% in the first quarter's performance and expectations for the remainder of the year are in line with those expectations. Flow NIW in Canada decreased 33% sequentially from a seasonally smaller origination market and 8% versus the prior year, primarily from lower originations resulting from ongoing affordability pressure in larger Canadian cities.

Moving to Australia. The U.S. GAAP loss ratio in the quarter was 34%, up 5 points versus the prior quarter from seasonally higher new delinquencies, net of cures, and up 4 points versus the prior year, mostly from lower earned premiums in the current quarter.

On Australia's IFRS accounting basis, the quarterly loss ratio of 55% for the first quarter of 2019 was in line with the full year loss ratio expectations of 45% to 55%, considering the seasonal pattern of higher delinquencies traditionally experienced in the first half of the year.

Our Flow New business levels in Australia were down 15% versus the prior quarter, from a seasonally smaller origination market, and up 9% versus the prior year, primarily from higher mortgage origination activity from certain lender customers. As I mentioned, our first quarter results in our U.S. life segment plus runoff, were driven by good in-force rate action results in long-term care, term life mortality experience and equity market performance. These results were partially offset by a couple of distinct items I will go through.

In long-term care, claim terminations were sequentially higher in the first quarter, which is generally consistent with seasonal patterns as we tend to see higher terminations in the first half of the year and lower terminations in the second half of the year. Compared to last year, claim terminations were less favorable, although, still within our range of expectations.

New claims following updated utilization assumptions from the fourth quarter of 2018 did reflect higher severity versus prior periods that we expect will continue. We did see an incurred but not reported, or IBNR, benefit during the quarter, which offset the incremental new claim expense versus the prior quarter. The overall financial benefits of in-force rate actions for LTC were better sequentially and versus the prior year, as illustrated on page 10 of the Investor deck released this morning.

I do want to spend a minute discussing the LTC rate actions and their impact to our financials. We continue to see very good results of our multi-year in-force rate action plan and most regulators have been approving actuarially justified rate action requests. These approval amounts have been in line with assumptions used in our margin testing and this will continue to be a focus of ours.

Based on last year's margin testing, we estimated the need for approximately $6 billion on a net present value basis in anticipated future approved rate actions under actuarial assumptions that were updated in late 2018. Our first quarter approvals from a couple of large states on a net present value basis were approximately $500 million of the $6 billion remaining as of year-end 2018.

Our multi-year rate action plan assumes it will take approximately 10 years to obtain and implement these remaining approvals and considers the timing and phase-in implementation on rate actions previously approved. To-date, for statutory accounting, we have recognized LTC claim reserve increases immediately in the quarter we updated assumptions.

This creates a timing mismatch between the reserve increases and the offsetting implementation of actuarially justified rate actions. Therefore we may see variability in statutory results and declining risk-based capital ratios, given the time lag until the premium increase benefits are fully realized and reflected in the financials.

We plan on continuing to discuss this timing mismatch with our insurance regulators and if in the future any claims reserves strengthening is required, based on experience, we may seek to better match future premium income benefits with reserve increases for statutory accounting purposes.

Turning to life insurance. Mortality and term life was lower than both last quarter and last year, due primarily to lower claims severity. Higher variable investments and limited partnership income also drove improved results versus last quarter and last year.

Results in the quarter also included actuarial model updates in Universal Life, totaling $11 million after tax, which primarily increased the amortization of deferred acquisition costs. While mortality and term life was lower this quarter, we have seen mortality for UL trend higher than our price for assumptions over the last several years.

I also want to point out that the term life business continues to be impacted from higher lapses, primarily associated with the large 15-year and 20-year level of premium term life insurance blocks entering their post-level premium periods, which results in lower premiums and accelerated amortization of deferred acquisition costs upon lapse, given the locked-in assumptions under current accounting standards.

We expect this trend to accelerate in 2019 as a larger block of 20-year level premium term business written in 1999 reaches the end of its level premium period.

In our fixed annuity products, we saw favorable mortality versus the prior quarter and prior year. Results in the quarter also reflected a sequential reduction to reserves associated with fixed indexed annuities driven by the equity market improvement in the quarter. This was more than offset by an after-tax loss recognition charge of $13 million related to single premium immediate annuities, mainly from lower interest rates and turnover in the supporting investment portfolio.

Our loss in the Corporate and Other segment of $73 million for the quarter was higher than the prior period mainly due to a $12 million expense related to the Global Intangible Low-Taxed Income or the acronym GILTI which I will refer to as GILTI provision of the 2017 Tax Cuts and Jobs Act.

We have calculated the GILTI expense based on our interpretations of the current rules. However these interpretations may change as further guidance is issued on this new area of tax law. GILTI has an impact on our effective tax rate due to the interaction between foreign tax credit carry forward rules, utilization of U.S. net operating loss carry forwards and projected taxable losses in the U.S. life business.

The impact to the effective rate is expected to continue through 2020, but is projected to be reduced in future years, assuming we return to having positive taxable income after utilizing net operating losses in our U.S. businesses.

We do not expect GILTI to result in significant cash tax payments in 2019 or future years. We also recorded $13 million additional tax expense in the Corporate and Other segment driven by the level of capital gains recognized during the quarter. The interim financial reporting requirements of APB 28 attempts to smooth your overall tax rate on net income by quarter. This timing difference will reverse by the end of the year.

Now I'll move to capital levels where our mortgage insurance businesses continue to maintain very strong capital positions. In USMI, we finished the quarter with a PMIER sufficiency ratio of 123% or in excess of more than $600 million above the required assets.

Note this does reflect the revised private mortgage insurer eligibility requirements which were finalized late last year by the Federal Housing Finance Agency, FHFA and effective for first quarter 2019 reporting.

In our Canada MI business, we saw an estimated Mortgage Insurer Capital Adequacy Test or MICAT ratio which is a new standard of 172% in the quarter which continues to remain well above the company's operating target range of 160% to 165%.

Late last year the Canadian Office of the Superintendent of Financial Institutions or OSFI finalized updates to the capital guidelines for mortgage insurers which became effective January 1, 2019. These updates had no significant impact on our reported capital ratio. While Canada did not execute any extraordinary capital deployment activities during the quarter beyond their ordinary dividends their expectations for 2019 extraordinary capital redeployment are between CAD400 million and CAD550 million.

At current foreign exchange rates that range translates to approximately $120 million to $165 million to our holding company and approximately $50 million to $65 million to USMI.

Our Australia MI business ended the quarter with an estimated capital ratio of 201%, up from 194% last quarter which is approximately AUD500 million above the high end of the Prescribed Capital Amount or PCA management target range of 132% to 144%.

The increase in Australia's capital ratio reflected continued portfolio seasoning and in force profitability offset by Australia's biannual ordinary dividend payment and execution of a portion of their share repurchase initiative of AUD100 million which was announced last quarter.

Capital optimization remains a focus for the business given its excess capital position. In fact Australia has recently announced that a resolution will be put to shareholders at the company's Annual General Meeting in May to consider and approve future possible buybacks of up to 100 million shares over the next 12-month period.

The Genworth Holding Company received a total of $47 million in net dividends and proceeds from repurchases from our international mortgage insurance subsidiaries during the quarter including $14 million of share buyback proceeds from Canada which were held at an intermediate holding company at year-end.

Capital in Genworth Life Insurance Company or GLIC ended the first quarter at approximately 195% of company action level RBC. This ratio reflects combined statutory profits in our non-LTC products offset by ongoing statutory losses and claims growth in LTC.

As I discussed, the benefits of the entire multiyear rate action plan will be implemented over time which will help offset some of the LTC claims pressure.

Given that we've received a number of questions from investors trying to understand RBC, I wanted to take a moment now to clarify a few points. When Tom or I discuss RBC, we generally discuss it in the context of a percentage of required assets on a company action level basis or the point at which a company would need to file a plan of action for improvement with its domiciliary regulator. This basis reflects required assets that are twice the authorized control level amounts which is the basis used primarily for regulatory compliance purposes.

Said another way our RBC for GLIC of approximately 195% on a company action level basis is the same as approximately 390% on an authorized control level basis. The minimum level before a plan of action must be filed with the regulator is two times ACL required assets or in other words 100% of the company action level risk-based capital or three times ACL required assets or 150% company action level RBC if the negative trend test rules apply.

The negative trend test looks at historical loss levels and whether those loss levels would breach certain RBC thresholds. None of our companies have breached these levels.

I also want to remind investors that as a part of our earlier agreement with Delaware regarding the Oceanwide transaction, Genworth will contribute to GLIC $175 million with the timing of the first tranche consistent with the closing date of the transaction and the remaining tranches to be agreed upon with the relevant regulators.

The contribution to GLIC is a special one-time commitment made in conjunction with the proposed transaction with Oceanwide. As we have indicated previously, it is our intention to manage the U.S. life entities on a standalone basis with no future plans to infuse capital in these businesses.

The U.S. life businesses will rely on their consolidated statutory capital of approximately $1.9 billion, prudent management of in force blocks, and the actuarially justified rate actions to satisfy policyholder obligations.

Moving to the holding company, we ended the quarter with slightly over $400 million in cash and liquid assets as compared to just over $500 million last quarter. Our current cash level is approximately $100 million below our targeted two times forward debt service buffer.

During the quarter, total net dividends and proceeds from share repurchases to the holding company were $47 million. Intercompany tax payments of $30 million were also sourced to the holding company during the first quarter.

Offsetting this were interest payments of $71 million that are higher in the first and third quarters given the timing of semiannual interest payments. We posted additional cash collateral of $22 million primarily on our hybrid debt interest rate swaps as rates moved lower during the quarter.

We also had $83 million in other items which included certain employee benefit expenses that trend higher in the first quarter and are mostly replenished by the businesses throughout the remaining quarters of the year.

We continue to discuss the timing of the $1.5 billion capital plan with Oceanwide and our regulators in light of the delay of closing the transaction and we are mindful of the upcoming holding company obligations.

In addition through approximately $400 million in unsecured debt maturing in June of 2020, other near-term holding company obligations include the $175 million contribution to GLIC and the $200 million intercompany note due in March of 2020.

The capital commitment from Oceanwide along with the existing holding company cash and dividends from our well-capitalized mortgage insurance subsidiaries will be key to addressing these items.

To sum things up for the quarter, we remain focused on the operational progress including our LTC rate action plan and other strategic actions intended to improve and help stabilize our U.S. life insurance businesses. Our mortgage insurance businesses continue to execute on their priorities and are performing very well with solid earnings and strong capital levels.

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

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now begin the Q&A portion of the call. [Operator Instructions] Our first question comes from Ryan Krueger from KBW.

Ryan Krueger

Hi good morning. First on Canada, can you just talk about when the Canadian review started? And have you had any contact with them since you met in early February?

Tom McInerney

Thanks for the question Ryan. I mean obviously we originally filed with Canada shortly after we signed the deal so we signed in October of 2016. I think we did the Form A filings there end of the year in 2016. Of course, there have been changes to the deal along the way. We refilled with a contingency plan capital, plan from Oceanwide. There are some changes by Delaware there is a CFIUS update. So you could look at it from their perspective that the deal has changed along the way.

So I think they -- and we started more significant discussions in January and we used -- one of the advantages we have is we spent significant time with CFIUS and it's also like in Canada complex mitigation plan that has a lot of different pieces to it. And so we had discussions with them, several meetings as I mentioned the last was early February. What my understanding is they have said they have all the information they need. Unfortunately, they haven't really given us a time frame for when they will finish the review. And there are several different agencies that are reviewing the mitigation plan and the filing overall.

Ryan Krueger

Okay. Thanks. And then the second question was within any of the regulatory approvals or the merger agreement, can you just remind us are there any requirements in terms of specifics towards China Oceanwide's financial conditions or -- and are they required to hold any sort of assets in any escrow accounts?

Tom McInerney

No. There are none of those requirements. Clearly, as time goes on and we have year-end 2018 financials and I'm sure those when they're finished by China Oceanwide they will be submitted to all the regulators. Virginia is our lead regulator and they're coordinating with all the other regulators and with us. Obviously, they're here based in Richmond where we are so it's very convenient for us to have all those discussions. Virginia has been very supportive of the transaction. They've of course approved it. And so we -- in addition to our work with our teams with all of the regulators keeping them all up-to-date Virginia is also coordinating from an overall regulatory perspective. But there are no specific requirements obviously. The regulators until the deal closes, they'll continue to review anything that's new and new information. That's sort of the normal course.

Ryan Krueger

Does -- I guess similar to question about China Oceanwide, but do they have I guess liquid assets currently in excess of the purchase price?

Tom McInerney

So Ryan they -- in the Delaware hearing a significant part of the focus of the hearing was on China Oceanwide financial resources. And so they -- as part of the filings with all the regulators plus as updated by China Oceanwide representatives they went through all that. We obviously have been doing our own due diligence and so they have significant financial assets and cash. One of the challenges that we still have is ultimately once we wrap up with Canada is the Chinese regulators will have to decide how much of the purchase price can come from the assets that China Oceanwide has and -- Mainland China versus offshore. And as you recall one of -- along the way or year or so ago I think that we worked on a contingent plan.

So I think both China Oceanwide and Genworth have worked on a plan so that we feel very comfortable regardless of how save comes out in terms of the conversion of the currency and the funding. We have both our original plan. We have all of the proceeds coming from the excess assets and excess cash in China. But we also have a contingent plan if we -- if the regulators in China put a limit on that. So we feel very comfortable both Oceanwide and Genworth that the $2.7 billion is -- there are assets both within China and outside that are more than adequate to fund the transaction and also to fund the $1.5 billion capital plan.

Ryan Krueger

Okay. Thank you.

Operator

[Operator Instructions] The next question comes from Tom Gallagher from Evercore. Please go ahead.

Tom Gallagher

Good morning. Kelly your comment on RBC potentially going down just given the lag between the rate approvals and the benefits there versus a more immediate potential strengthening of gross long-term care reserves. Based on what you're seeing right now, would you anticipate a meaningful impact to RBC? And I guess if it is, is there a contingency plan like do you think you'd be able to file for a permit to practice, particularly if you think the regulators see that its truly just a time -- a timing issue?

Kelly Groh

Thanks for the question, Tom and good morning. I think it's a great question. We are -- we continually look at our risk-based capital forecast in our operating plans over a multiyear time horizon. Permit to practices similar to what GE had done on their very large increase are a certain things that we would consider to talk to the regulators over time. It depends on the facts and circumstances that we run into at that period of time. But as you saw in the first quarter, we started putting up higher average claims and it will take time to file and then implement the rate actions associated with those higher claim levels.

Now regarding our forecast, right now, we don't have a forecast that shows us going into a scenario where it would require us to submit a plan of action with our regulators. So, it is a discussion we would continue to have with our regulators, but our forecast currently does not show that.

Tom Gallagher

Okay. Thanks. And then, just on that same topic, can you talk a bit about what kind of change there was percentage terms? Was it a meaningful increase in both severity and frequency in terms of the long-term care claims? I think if I look back to your 2018 filing, frequency didn't change too much. It was -- severity was up in the teens. Can you quantify at all what kind of trend change you saw in the first quarter?

Kelly Groh

Tom, I don't have that in front of me right now. We'd be happy to evaluate whether or not there's a meaningful information that investors could gain from that and figure out what level of granularity. We can also look at if there's anything in our 10-Q that would be adequate when we file that, so we'll have to get back to you on that one.

Tom Gallagher

Okay. Great. And then, just as it relates to the rate increases, you've clearly been having more success there. If you look at 2017, it was a little less than 30%, 45% in 2018 and now to start the year you're at 60% rate increase weighted average. Is there -- can you talk a little bit about what's going on with the states? Is that -- are we seeing that level because some of the bottlenecks for states that weren't grading rate increases are now coming through? Or are you actually seeing just higher across-the-board rate increases occurring? And where would you expect that trend to go?

Tom McInerney

So, John, that's a great question and it's a complex question, because every state and the District of Columbia, so 51 jurisdictions does it somewhat differently. I do think from -- if you look back over the last five or six years 2013 and 2014 I think it was difficult receiving the large increases, triple-digit type increases from any of the states. I think that has changed. I think over the last five or six years Genworth and all of the other long-term care insurers with legacy blocks have provided a lot of information to the regulators, and so I would say all regulators recognize that there are significant needs for actuarially justified premium increases.

I would say generally there has been 40 to 45 states who are doing significantly well from our perspective and I think other insurers' perspective and really stepping up and giving significant premium increases on some policy forms where over 200% cumulative increases. And I think we've said in the past that the most problematic legacy policies are those that have unlimited number of years of coverage and 5% compound inflation protection and that we need 300% type increases. And so, if you look at our cumulative net present value of $11 billion now at the end of the first quarter versus original target that has grown, but it's at $16.5 billion. We're around two-thirds and if you look at the average from those 40 to 45 states, we're in pretty good shape.

There are some states that are behind. And so, I do believe that one of the challenges in the industry and among the 50 states is, there are some states that are very far along in giving very significant premium increases to Genworth and to other companies and then there are other states that are well behind. And I do think there is pressure coming from the majority of states against those few states that have -- are behind.

And so, I do think you will see, and in some cases your hypothesis was right that some of the large increases that we've received lately have come from states that have ways to catch up. And I think ultimately all the regulators and the NAIC, I think really have to, in my perspective, figure out a more consistent basis for granting premium increases now that I think there's no question that these increases are needed and are actuarially justified. But we don't have homogeneity across all the states in terms of how they do it. Everyone is somewhat different.

And so I do think more and more states that are in pretty good shape along the way, they have more to do, but they've been really I think have done a great job in terms of managing this. And I think they need to put some pressure on their fellow regulators and commissioners to step-up more. And so, hopefully we'll see that.

Tom Gallagher

That’s helpful. Thanks, Tom.

Operator

[Operator Instructions]

The next question comes from Jimmy Bhullar from JPMorgan. Please go ahead.

Jimmy Bhullar

Hi, good morning. I joined the call late, so I don't know if you covered this topic. But can you sort of talk about if there's a possibility that if the merger approval process continues toward the acquisition approval continues to get delayed, is there a point at which you might need to go and re-seek the approval that you've already obtained? So is there an expiration date or is there a way for the regulators to sort of ask you to restart the process beyond a certain point?

Tom McInerney

Jimmy, that's a good question, and there have been questions before you joined on the deal progress, but that specific question hasn't come up. What I would say is that we have a lead regulator Virginia that has approved the deal, and it's coordinating with all the regulators. And we have a specific team led by our General Counsel or Bob who has focused discussions with all the regulators.

So I think we really kept all the regulators up to speed. I think the regulators that have approved the deal remain very supportive of the transaction. Obviously, we will update them along the way. Obviously, each quarter we have financial statements that we release so we provide those.

And then my expectation would be that Oceanwide -- some of the public companies that file in 2018 sometime in May those financials become available and I think we'll submit those. But I do not see any of the other regulators who've already approved undoing their approval, if you will. I think they'll continue to want to see new information just with the passage of time.

And I think the focus now really is on Canada and we discussed that on the previous question, but we've learned in the CFIUS process that it takes time to go through these mitigation plans. It's not something that any of these regulators, including Canada have broad experience in so it's new. We were fortunate. In the case of Canada, we had a very good model in CFIUS. I think that was a very good strong mitigation plan.

So that's the basis that we've used. We've gone back and forth with Canada. What I said on the call earlier is that the last meeting we had with them was in early February. At that time they told us that they had the information they needed to review the transaction. Obviously, we extended again to June 30, and we think that it should be enough time for them to finish their process. And it's really Canada that's left, and I think the other regulators that have already approved are still very supportive of the deal.

Jimmy Bhullar

And then can you share any insight that you have on Oceanwide financing for the transaction? I don't think there's an escrow account with the money sitting in, but do you have any views on how they're going to finance it?

Tom McInerney

Yes. So that question did come up before. It's a good question. So in the process both Genworth and all the regulators have done due diligence on China Oceanwide and the funding, and there is significant excess cash and capital within Mainland, China that China Oceanwide has.

As you know, I've talked about this before. Several months ago maybe even a year ago, we did come up with a contingency plan that -- to the extent that safe ultimately limits the amount of currency conversion within Mainland, China. Oceanwide does have a contingent plan that has cash and other capital as well as financing outside of China.

So we believe that whether the deal is funded primarily from China or outside under the contingency plan that Oceanwide is in very good shape in terms of being prepared once we get the final approvals from Canada to move forward and close the deal that they have adequate cash and capital to not only provide the purchase price of $2.7 billion, but also the $1.5 billion capital that's due over time post the closing.

Jimmy Bhullar

Okay. Thank you. Good luck.

Tom McInerney

Thank you Jimmy.

Operator

The next question is from Alex Scott from Goldman Sachs. Please go ahead.

Alex Scott

Hi. I just had a quick one on long-term care. I know that the regulators had some, I guess, enhanced disclosure on the actuarial guidance 51 that was issued for year-end 2018. I'd just be interested in any feedback you got through that process. I think there was a focus on morbidity assumptions and more specifically incidence curves. So I would be interested if you got any color in terms of how are some of those assumptions compared to the industry and through that process?

Kelly Groh

Thanks for the question Alex. I think those conversations are ongoing. All the carriers just recently submitted their cash flow testing memorandum, and I think the regulators are methodically looking through all of that and having discussions. We feel like we're very compliant with actuarial guideline 51 and that all of our methods are very supportable based on our experience, and with appropriate provisions for adverse deviation.

Alex Scott

All right. Thank you.

Operator

As there are no further question signals. I will now turn the call back to your host Mr. McInerney.

Tom McInerney

Thank you very much Kleena, and thanks to all of you for your time and questions today. We appreciate your continued investment and interest in Genworth. And we recognize that the Oceanwide transaction approval process has been very frustrating, and it's obviously taken longer than any of us expected. But please be assured that Oceanwide and Genworth are working very hard to close the transaction as soon as possible. And thank you very much for being on the call this morning.

Operator

That will conclude today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.