Good morning, ladies and gentlemen, and welcome to Genworth Financial's fourth quarter 2017 earnings conference call. My name is Kathy, 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. Also, we ask that you refrain from using cell phones, speaker phones, or headsets during the Q&A portion of today's call. I would now like to turn the presentation over to Tim Owen, Head of Investor Relations. Mr. Owen, you may proceed.

Thank you, operator. Good morning, everyone, and thank you for joining Genworth's fourth quarter 2017 earnings call. 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 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 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 the results of our international businesses, 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.

Good morning and thank you for joining today's earnings call. Since announcing the Oceanwide transaction, we have followed the general market practice of not holding quarterly earnings calls. However, given the delays we have experienced in closing our pending sale to Oceanwide as well as our desire to explain the important items that impacted our earnings in the fourth quarter, we wanted to provide our investors with an update. I will start by providing a brief overview of our strong 2017 financial performance; the excellent progress we've made towards obtaining long-term care premium rate increases, which is a strategic imperative for Genworth and the LTC insurance industry overall; as well as update you on the pending transaction with Oceanwide. Kelly will then provide a more in-depth update on our fourth quarter and full year results and the significant items that impacted these results. Following our prepared remarks, we will open the call to questions. I am very pleased with Genworth's operating performance in the fourth quarter and full-year 2017. We returned to profitability, generated solid operating results particularly across our global mortgage insurance platform, and made significant continued progress against our multi-year long-term care insurance premium rate action plan. For the full year, net income was $817 million, the first profitable year for Genworth since 2013, and adjusted operating income was $696 million or $1.39 per diluted share. These strong full-year results were primarily driven by solid performance in our MI businesses, particularly in U.S. MI, which generated $311 million in full-year adjusted operating income, a 24% year-over-year increase, as well as smaller reserve charges taken in our U.S. life insurance business. We finished the year on a high note with fourth quarter adjusted operating income of $326 million or $0.65 per diluted share. Our after-tax fourth quarter results were…

Thanks, Tom, and good morning, everyone. Today, I will cover our fourth quarter earnings results and key drivers, capital levels of our subsidiaries, and holding company cash. I will also spend time providing additional details on our U.S. life assumption review, the U.S. GAAP treatment of the Australia earnings curve adjustment, and the tax items Tom mentioned in his opening remarks. Let's begin with this quarter's overall financial performance. I'm pleased to report net income for the quarter of $353 million and adjusted operating income of $326 million. Our results included approximately $220 million of net favorable items that included $456 million of favorable tax items, $152 million of unfavorable items related to the U.S. GAAP treatment of the Australia earnings curve adjustment, and $84 million of unfavorable items relating to the U.S. life assumption review, all after tax. Turning to the segment results for the quarter, we saw very good loss performance across our mortgage insurance platforms. Beginning with U.S. MI, our reported fourth quarter loss ratio was 22%, up 2 points sequentially and down 6 points versus the prior year. While we did see elevated new delinquencies from hurricanes Harvey and Irma, our experience indicates that these delinquencies have different ultimate claim rates, and therefore we have lowered the frequency factors for those incremental delinquencies accordingly. The impact of the incremental hurricane-related delinquencies was approximately $5 million pre-tax or a 3-point impact to the loss ratio in the quarter. , The full-year reported loss ratio of 15% for 2017 is down from last year's 24%, reflecting continued improvement of our book and the strong U.S. housing market. New insurance written was $10.2 billion, down 10% sequentially, driven by a seasonally smaller purchase origination market and 8% versus the prior year, primarily from a modest decline in market share.…

Ladies and gentlemen, at this time, we'll begin the Q&A portion of the call. And we will take our first question from Ryan Krueger with KBW. Ryan Krueger - Keefe, Bruyette & Woods, Inc.: Hi, thanks. Good morning. Can you give us some sense of what business or businesses the term loan would likely be secured by?

Hey, Ryan, it's Kelly. I really appreciate the question. Right now, we're not going to disclose that because, like we mentioned in the press release and in my remarks, we're going to launch this really in the near term. So we will provide that information as soon as we launch it. Obviously, that launch is going to be subject to market conditions and consultation with our advisors. But right now, the one thing I would point you to is we did say we would issue the term loan as well as use some of our holding company cash, so that can give you a view on the sizing that we're thinking about. Ryan Krueger - Keefe, Bruyette & Woods, Inc.: Okay. And then moving to the Delaware insurance approval process, can you give any more color on the magnitude of disparity between the disagreement over GLAIC's valuation? And then I guess other than just you agreeing to put more capital into GLIC, what are the other solutions being considered?

So, Ryan, it's Tom. I'll take that one. Thanks for the question. It's a good one. The first thing I would say is, as you know, there are different ways to value GLAIC. You could -what's the fair market value a willing buyer would pay, and then obviously this kind of cash flows and those have all different kinds of assumptions. I think it's the position of Genworth and Oceanwide because we did do a very significant sales process for GLAIC in 2015. And we all – we updated that just before we – the board decided to go forward with the China Oceanwide deal. We did get an update in 2016 from those most interested in GLAIC as to where they were on pricing. So we feel strongly, Genworth and Oceanwide, that the right way to value GLAIC is what that fair market value process led to, which is $700 million. I think Delaware has an outside adviser. They're still doing work. They're certainly looking at the values that others had bid, but they're also doing this kind of cash flow. So I think we're still in discussions with that. And it's one of the reasons that I think companies tend not to have these conference calls during the transactions because there's a lot of things you want to know, but we really can't comment because we're in active negotiations, and in our case, primarily with Delaware and CFIUS. And so we think it would hurt. I think you can all understand it hurt Genworth and our shareholders and shareholder value if we started to talk about what those negotiations might be. But coming back to your question though, I think there are a number of options in terms of what's the ultimate value but also should we do the unstacking or not. So there are just many things still to be determined, and as I say, Delaware I think is still working on their evaluations. Ryan Krueger - Keefe, Bruyette & Woods, Inc.: Thanks, and then just one last one. We haven't heard much on the process with the New York DFS and if there were some – anything specific there that there's a disagreement on. Can you give us any sense of those discussions?

So obviously we've had discussions with all the regulators, including New York. I think that's proceeding well. New York has tended on behalf of all of the regulators, and all 50 regulators are interested in this deal given the financial condition of GLIC. And I think their focus has been on the – protecting the private data and cyber security and those things. So they're working on that. But I think we have New York – based on my discussions with them, I think that process is going reasonably well. Ryan Krueger - Keefe, Bruyette & Woods, Inc.: Thank you.

We'll take our next question from Jimmy Bhullar with JPMorgan.

Hi, good morning. So the first question I had was just on the CFIUS re-filing. Have you gotten input from them or comments from them that data is the specific issue that they were concerned with or how do you feel – how do you feel about your chances of easing those concerns?

So, with CFIUS, as you've probably read, the CFIUS process is a very confidential process. So I – I'm not able to give you any view on what CFIUS thinks. But our view, and based on, again, what our general understanding is and based also on what's been made public on other CFIUS deals, is we think it's important to protect the private information of our policyholders or our U.S. MI U.S. customers. And therefore, we have all along, in our previous discussions and filings, have focused on trying to create a stronger mitigation plan as we can. We think this new structure with a prominent U.S. third-party data security administrator makes our mitigation plan much stronger. As far as I know, it's unique and that I don't think in other deals it was proposed. So we've re-filed with that. We think it makes our mitigation plan much stronger. How CFIUS will interpret that? I don't know.

And you're not sure that data is the only issue because there's a lot of concern about sort of political relations between the U.S. and China and whether the deals from China are going to be more restricted in the future, so?

Yes. I would just say, I'm not really able to comment on what the CFIUS view is.

And then any thoughts on the magnitude of dividends that you could extract from the U.S. MI business in 2018 and in future periods?

We've got the draft PMIERs 2.0 standards that's really haven't been shared with the market. But we do think that a modest level of dividends this year is very appropriate and staying well above PMIERs 1.0 and well within PMIERs 2.0. Going forward, we do have current unassigned surplus about $250 million worth of unassigned surplus. So there's no regulatory restrictions on the U.S. MI dividend. But we do think also going forward there – as long as we maintain the strong capital levels, we could get both ordinary and extraordinary dividends.

And what – I guess modest less than $50 million or is it – how do you define modest for this year?

Yes. We're not going to say exactly what we're going to dividend. I appreciate the question. I understand you're trying to do a cash roll forward. We're going to get it online. We're going to evaluate the level of capital just based on how the final PMIERs 2.0 comes out, and we'll give you more information as we go through that. But in the next couple of quarters, we would expect to see a dividend from U.S. MI.

And then lastly, could you sort of give us some details on what really drove the reduction in the active life reserves and LTC? I think it declined by about $0.5 billion?

Yes, Jimmy – we go through extensive process every year. I appreciate the question by the way because it is a very important one as we think about margins. And the one thing we need to think about related to long-term care as well is, as you know, it's a very long product with net present value of claims of over $50 billion. So a small decrease in margin, even though $0.5 billion is a lot, when you think about it in context or the net present value of claims. It's not quite as big as you might think. Really what drove that – and I think we talked about this a little bit in our press release last quarter if I remember. But the biggest change was, as we were looking at emerging experience between our policies that had lifetime benefits and our policies that had limited benefits, we saw really a difference in incidence of claim. I think I mentioned in my prepared remarks that for the policies with lifetime benefits, there's really less of a hindrance for them claiming because there's really no opportunity for them to exhaust the benefit pool. And so if you have limited benefits, you've got to think about preserving those to the time figures most ill. So – that was really the nature of the biggest changes to the margin overall. Is that helpful?

Yes. And thank you.

And I would – this is Tom. I would just add that – we've been working with the regulators, I think, in a very positive way. And I think regulators are becoming more open to premium increases in order for us to be able to pay the future claims. And I do think that you should make too much out of the absolute level of the margin because what I've – what we've agreed to with the regulators that over time we're trying to get the cash flows to break even. So one of the – you would expect the margin to remain positive, but not far above zero, because in effect, that's what we've agreed to with the regulators that we would see premium increases. So we remain positive on the margin but not necessarily with a big cushion. So I just – my own view is you shouldn't look too much at the absolute value of the margin.

Okay. Thank you.

Now I'll take our next question from Sean Dargan with Wells Fargo.

Hi. Thank you, and good morning. Kelly, I just want to run through RBC. So it sounds like the total impact from tax reform numerator and denominator is 20 point hit to 2017 RBC plus an additional 50 point to 60 point hit in 2018?

Hey, thanks so much, Sean, for the question. When we look at the 20-point impact on 2017, yep, that's our view. And really what's driving it is about $250 million just revaluation impact. But that's partially offset by better ability to utilize foreign tax credits under the new rule. So that's really just – your admitted DTA goes down because of the revaluation. Regarding 2018, I don't think it's determined yet as to whether the factors for risk-based capital are going to change in 2018, whether they're going to be phased in, whether they're going to be adopted later. But what we wanted to give you a view for is based on our year-end 2017 capital levels. If the factors were changed strictly for the new federal tax rate, that impact would be roughly 50 points to 60 points. A lot can happen from an operational perspective. Over the year, that would change that impact, but that was really sort of a pro forma view based on 2017 capital. So, undetermined as to how to phase in or when those factors are going to be changed at this point.

Okay. And I have a related question. And it kind of ties into what I think somebody asked at the Annual General Meeting. But there's a possibility that you may need to strengthen the statutory reserves as a result of cash flow testing. And your RBC is going to go down as a result of tax reform. So, are you – is the holdco legally required to put cash into GLIC or – what kind of RBC ratio is acceptable to you. Because you're not really selling the business and you don't need to defend insurance financial strength ratings.

Sean, there is a regime by the regulators in terms of where the RBC is, where you have to create a plan with them. And that's, at an RBC level, well below where we are. It's – I think it's around 100 is where you have to work on a plan with them. So there's quite a bit of room. Clearly, it's important the higher RBC, the higher the ratings. And if we were actively selling life and annuity business, that would matter. But clearly, we want the RBC and we've worked hard to have as high on RBC as we can have. But certainly there is – there is no significant issue around the RBC ratio until it starts to drift below where the regulators step in and require a specific plan to address it.

Yes. Sean, it's Kelly again. I'll add one thing to that. When we think about it, and you think about GLIC consolidated as the parent company of the U.S. Life division, we're dependent on $8 billion of future in force rate actions. And so we – we're not sitting on $8 billion at the holding company to make up that difference. This is going to be dependent on getting benefit reductions on our policies at an appropriate level, getting those future rate actions, and not supporting it with our holding company cash. So if that helps, that's our intention at this point, is to really work hard on making sure that we're shoring up those policies.

Okay, thank you. That helps. Thanks.

We'll take our next question from Tom Gallagher with Evercore.

Good morning, just a question on the statutory review. Is there a big difference between statutory and GAAP reserves, and will Actuarial Guideline 51 have any impact on your results?

Thanks, Tom. I appreciate the question. Let me take the last one, Actuarial Guideline 51. We think we're completely compliant with that based on how we review our rate action plan right now, so we don't see that impacting our results whatsoever. Regarding stat and GAAP reserves, there is a difference. There are a couple differences. GAAP is using your best estimate. And so when we look at our GAAP reserves and our GAAP margin testing, we're using our best estimate assumptions as a part of that. The other difference from a GAAP perspective is we're talking about our margin over and above our deferred acquisition cost balances, which are not a concept you have in stat. And so we've got about $1.3 billion of deferred acquisition costs in long-term care, so you can think of that margin as the amount above that. Secondly from a stat perspective, there's a different discount rate that's used. It's a statutory rate. It's typically lower. And in addition to that, we use a provision for adverse deviation. So it's not your best estimate assumption. It's a moderately adverse scenario that's used to establish that. So hopefully that helps.

That does, Kelly. And are you able to use the offset for adverse claims experience, where you're assuming higher future rate increases? Are you able to use that same assumption in stat as you are for GAAP?

From a Genworth Life Insurance Company perspective in Delaware, we are, and that fits in with the actuarial guidelines that have been clarified. On a New York basis, they have different rules and different rules for applying cash flow testing in general in a variety of different areas. So we're not currently including rate actions into the future on that at this point.

And, Tom, it's Tom. I would just add that when we work with the regulators on the premium increases or benefit reductions, the focus is on all the statutory ratios and margin. So in terms of how those premium increases are applied for and approved by regulators, it's all based on statutory numbers, not on U.S. GAAP.

Got you. And, Kelly, can you give the number that the differential to GAAP versus the stat reserve today, if you have that?

Tom, I don't have that at my fingertips right here, but it's something we can absolutely provide to the market. So happy to follow up, it's an easy thing to get.

Okay, thanks. And then just last question, the unstacking of GLIC and GLAIC, if you don't get approval for that, is that a deal-breaker, or is there a way to still get this deal done without unstacking?

So, Tom, I would say that both Genworth and Oceanwide believe it's important to unstack GLAIC because if we were able to do that, it does create an additional future dividend stream, so that's really been our goal all along. Obviously, we're in discussions with Delaware. I don't want to get into all the different permutations of that. I think that would hurt Genworth if I were to do that. But I do think all potential options are there, $700 million, a different amount. We're also proceeding without an unstacking. So I think those are all options that we're working on with the regulators. So that's to be determined where we end up.

Hey, Tom, it's Kelly again. I just wanted to mention someone handed me the right piece of paper to look at to give you the LTC reserves. So on a statutory basis, our gross long-term care reserves, including claims reserves, et cetera, is a little over $27 billion. And this is as of third quarter, by the way. And then as of third quarter, our GAAP reserve is about $26.2 billion.

So pretty close, okay.

Yes.

And then final question. The gross changes when you made – looked at the margin, the $0.5 billion reduction, you mentioned there was an offset from assumed future rate increases. How big of an impact was that?

So, Tom, basically what we do every year when we change our claim assumption, in this case, the way I look at it is we were looking at lifetime and non-lifetime business together. We decided – the actuaries felt there was a different incidence rate, which makes sense on lifetime claims. Our policyholders aren't trying to save their benefit amount because it's a lifetime, so that we were finding that lifetime claims tend to be earlier. And so as a result of separating them, we raised the incidence rates for the future or present value of claims. We didn't really offset that with a reduction on the non-lifetime benefit side. And so we then use that. We're working with Elena Edwards and the team, the team that I mentioned. We then decide how much of that higher claims we're going to seek to recover in premium increases, and we build that into our five to seven-year plan. And so the way I look at it, we didn't put into our premium increase plan a 100% offset of that claim amount.

So it's just a partial offset.

Correct.

Okay, thanks.

We'll now take our next question from Peter Troisi with Barclays.

Great, thanks. Maybe just to follow up to Ryan's question from before, can you remind us if there are any regulatory restrictions on pledging your subsidiaries as collateral on the secured financing that you've mentioned?

Thanks for the question, Peter. It's Kelly. We don't have any regulatory restrictions on pledging any of our ownership positions related to the holdings in our holding company.

Okay. And obviously that would include the equity of their subsidiaries, right?

It would.

Okay, great. Thanks. And then international MI dividends, I think you said, were $135 million in 2017. How do you think about the run rate of that dividend flow? Do you think it potentially could decline this year given some of the regulatory changes in Canada?

Yes. I'll take that, Peter. This is Kevin Schneider. The – as Kelly mentioned, we believe we're going to begin some dividends coming out of U.S. MI this year. And so that's – it's not international, but that will be an incremental flow to the holding company. Overall, I would say with the current capital levels that Kelly talked about overall in our prepared remarks, both the Australia and the Canadian companies are operating at very strong capital levels right now. So I think we'll continue to see ordinary dividend flows that are consistent with whatever their ordinary – their income is. We also, because of those high capital ratios, have access to extraordinary dividend capacity. And so the businesses are very focused on continuing to optimize their capital and to run official capital businesses. We have to wait and see how things evolve to your question in Canada to finalize if there are going to be any regulatory changes there in Canada. But longer term, I think we'll have – we'll continue to have good support from those companies in those businesses augmented in particular by the opportunity for additional capital from an extraordinary basis. And we have pretty good track record of delivering on some of that.

Okay. That makes sense. Thanks. And then maybe just one follow-up for Kelly. On the 20-point impact to the Life RBC in 2017 and then the 50-point to 60-point potential impact in 2018, are those – do those factor changes to the numerator and denominator of the RBC ratio for GLAIC as well as GLIC?

Yes. Thanks for the question, Peter. That does. That's really our view of what it would be on a holding company basis. So this is assuming no unstacking. It's based on what we're going to report as of year-end 2017 because we still have all the companies stacked. And just to give you an illustrated view, the 50 to 60 was looking at the same structure on a pro forma basis looking at 2017. So hopefully that's helpful.

And what I would add to that is obviously – all of the life insurance companies are going to have a change in the RBC calculation, and there's been a lot of disclosure on that by other companies. So I don't think the life insurance industry is working with the NAIC through the – and the ACLI is involved, working on the RBC calculations and when they will apply. So all of that is to-be-determined. I think what we were trying to do like other companies is just show if the factors were changed, what that impact would be based on where we are today. But that's a – will be developed in terms of how that's going to work and what the timeline will be for that. I think we'll be work – the industry will be working with the NAIC on that.

Okay. Great. Thanks very much.

Ladies and gentlemen, we have time for one final question. We'll now take our next question from Josh Esterov with CreditSights.

Hello, good morning. In light of earlier comments that PMIER 2.0s could potentially have a significant reduction for the PMIER buffer and the plan to resume dividends out of U.S. MI in 2018. Are you concerned about any potential negative rating implications for U.S. MI or negative implications for U.S. market share, kind of given a weaker capital position relative to peers?

This is Kevin. I think the – when you look at our – the strength of our capital position versus peers, it's pretty strong. We are challenged by the financial strength rating differential that we've been experiencing. But overall, I think this business has got a very strong balance sheet that continues to strengthen. Our statutory risk to capital continues to improve. The strength of our overall PMIERs sufficiency ratios at this point and the absolute magnitude in advance or in excess of our required assets is very strong. I think everybody is going to be faced with some challenges, if some additional pressure to required capital. When the 2.0 is ultimately clarified and published following the comment period, our view is, that should not interfere with, number one, our dividend plans for next year. We feel that we would be incompliant with 2.0 if and when – if it came out as we expect at the end of 2018. And the reality is our share is really sort of on a quarter-over-quarter basis over the last two quarters or three quarters has been relatively stable. And we did say we're down a little bit over 4Q 2016 to 4Q 2017. But largely, I think while we have felt some pressure from our financial strength ratings, we – there, the business has been performing well. And you're going to see us sit with a loss ratio that I think is sort of sticky compared to the last quarter.

Got it, thank you very much.

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

Thank you, Kathy, and thanks all of you for your time and questions today. In summary, what I'd say is that 2017 was a pivotal year for Genworth. We delivered strong financial and operating performance; continued our outstanding progress towards achieving our multi-year LTC rate action plan and we continue to work non-stop towards closing the transaction with Oceanwide. So thank you again for your continued interest in Genworth.

Ladies and gentlemen, this concludes Genworth Financial's Fourth Quarter Earnings Conference Call. Thank you for your participation. At this time, the call will end.