Good morning, ladies and gentlemen, and welcome to Genworth Financial's Third Quarter 2018 Conference Call. My name is Amy, 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, the 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.

Thank you, operator. Good morning, everyone, and thank you for joining Genworth's third quarter 2018 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 our 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 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 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. Before I turn the call over to Tom and Kelly, as we have previously announced, we planned to hold our 2018 annual stockholders meeting on December 13 to comply with the New York Stock Exchange rules. Our 2018 proxy statement will be filed in the near future. Any event that propose merger with Oceanwide is completed by December 13, 2018, the 2018 annual stockholders meeting will not be held. And now, I'll turn the call over to our CEO, Tom McInerney.

Good morning and thank you for joining today's earnings call. Genworth had a very good third quarter delivering strong earnings, execution against our strategic priorities and significant progress towards closing the proposed transaction with Oceanwide. In the third quarter, Genworth generated $145 million in adjusted operating income or $0.29 per diluted share compared with adjusted operating income of $76 million or $0.15 per diluted share in the prior year period. Our global mortgage insurance business continues to drive earnings with strong growth in our U.S. and Canada MI businesses. Our U.S. life insurance results were mixed with strong performance in our fixed annuity business offset by less favorable performance in our long-term care on life insurance businesses. Starting with U.S. MI, third quarter adjusted operating income increased 62% year-over-year to $118 million driven by solid insurance and force growth, favorable loss performance and benefits from the lower tax rate. U.S. MI's capital position remains strong, ending the quarter with over $750 million in capital above PMIERs requirement. As many of you know PMIERs 2.0 was finalized in September, and will come effect as of March 31, 2019, and we will also have significant access against this new standard. In Canada, adjusted operating income increased 22% year-over-year to $44 million with stable loss performance. Canada's capital ratio strengthened compared to the second quarter in the prior year period and remains well above than minimum requirements. And in Australia, adjusted operating income increased 50% year-over-year to $17 million. Our U.S. Life Insurance segment delivered an operating loss of $3 million, primarily driven by unfavorable LTC claim terminations, higher LTC benefit utilization trends and new LTC claims. Our LTC premium rate action plan remains a high strategic priority for Genworth. As shown on Slide 10, we've received 39 state filing approvals in the…

Thanks, Tom, and good morning, everyone. Today, I will cover our third quarter financial results and the key drivers, capital levels in our businesses, and updates around cash and flexibility at our holding company. Let's begin with this quarter's financial performance. We reported net income for the quarter of $146 million and adjusted operating income of $145 million. Our overall results continue to reflect a very strong loss performance in our U.S. and Canadian mortgage insurance businesses. Our U.S. Life Insurance business results were mixed with continued strong fixed annuity performance and losses in long term care and life insurance. Our strong results in our mortgage insurance businesses continue to reflect positive macroeconomic environment, including steady economic growth, low unemployment levels and favorable housing trends in most regions. In our U.S. Mortgage Insurance business, our third quarter reported loss ratio was 11%, which is up 19 points from the prior quarter and down nine points from the prior year. Last quarter's loss ratio reflected a favorable pre-tax $28 million reserve adjustment, which benefited earnings by $22 million dollars and reduced the loss ratio by 15 points to a negative 8%. The sequential increase in the loss ratio absent that adjustment was driven by less favorable metrics and aging partially offset with the lower reserve factor applied to new delinquencies in the quarter. We continue to track the incremental losses from last year's hurricanes and these delinquencies are performing consistent with what we have reserved. Our exposure to the most recent hurricanes, Florence and Michael, is lower and we do not anticipate any material impacts from these events. Overall, insurance in-force in U.S. MI, continues to grow reaching an all time high of $163 billion at 3Q, '18. This was up 10% versus last year and reflects favorable persistency trends as…

Ladies and gentlemen, we will now begin the Q&A portion of the call. [Operator Instructions] We'll take our first question from Ryan Krueger with KBW.

Hi, thanks. Good morning. Could you give us some additional perspective on the other approvals that you need to obtain in China and the process to achieve that?

So Ryan, I talked about the NDRC process. And so they have oversight an approval for macroeconomic planning policy issues in China. So they have accepted the filing. So I think that allows us to go forward. The other entities include SAFE, which is the State Administrator for Foreign Exchange, so they, obviously, have to sign off the funding for the deal. And we have a contingent structure in place for that. So I think both Oceanwide and Genworth feel comfortable with where we are, but, obviously, ultimately SAFE will have to opine. In the CBIRC, which is the China Banking and Insurance Regulatory Commission, they will be providing an advisory opinion on the deal, and so that's another process we go through. I have, in the last so many months, have had several meetings with this CBIRC. And again, I think, I've mentioned before that they are supportive because of the opportunity that Oceanwide and Genworth have in terms of bringing the expertise and long term care insurance to China, which is a significant priority.

Thanks. And then in the U.S. outside of Delaware is New York, the only other state that you have not received approval from?

So we -- good question Ryan. We've received approval before from Virginia and North Carolina. But they were approving the deal when we were still pursuing and staffing. So not only changed the deal and done the supplementation filings, they have to reapprove for the new structure, but again, I think that they seem to be comfortable. In New York, those discussions are also going well. I think we've mentioned in the past that New York is among the 50 states that deemed to be the expert in the cyber security issues, so one of the areas of focus -- for New York -- for both New York and also the other state regulators is on the cyber security protection. So obviously, since the June approval by the CFIUS, we have reviewed with New York and with the other regulators, but particular with New York, the CFIUS mitigation plan, and my view is they seemed to be quite comfortable with that. I think New York has their own cyber security regulations, and the CFIUS plan in part was designed, so that it would also meet all the parameters for New York. So we feel comfortable with that. And then the GSEs have to approve the deal. Their focus is on, obviously, U.S. MI. And again, we think this transaction is a positive for U.S. MI particularly because of the $1.5 billion capital investment plan. And then, in addition to the GSEs overseeing U.S. MI, the Canada and Australia regulators have to approve the deal on behalf of the GMA and MIC [ph]. So those are the overall regulatory process. Obviously, it took quite awhile 18 months or so on the CFIUS process, and we were focused on that. And I think the other regulators wanted to see how that process went. And so since June, we've really geared up for the other regulators. And I would, from a Genworth perspective, we think those processes are going well.

Thanks. And then, just one on long-term care. Given the outstanding reserve review, to what extent does -- is that uncertainty a potential issue with receiving regulatory approvals? And then, I guess, related to that if you do have negative development on the active life reserve, is your position that you can assume further future rate increases beyond what is already included in your reserves?

So, again, good question. So on the first one, so from Delaware's perspective, and they oversee GLIC. The decision for them is does the deal -- is it in the -- for the benefit of the policyholders versus the status flow. And I would say, first, whatever happens on the DLR and ALR, and Kelly may want to give a little bit of background on the process there. That will occur no matter whether we do the deal or not. So I think the Delaware review will be primarily based. And the points that Genworth will be making, we think it's clearly the deal is clearly in the best interest of policyholders because of the 1.5 billion capital plan. We're now able with that capital plan to invest $175 million into GLIC, which we would not have been able to do without it. It also allows us, I think, to manage the company going forward as a private company without the quarterly pressures that you have as a public company. And I think, our position is that that makes the multi-year rate action plan, our ability to be flexible on that. So I think for all those reasons, we feel good about representing to Delaware at the hearing that this is clearly in the best interest of policyholders. And again, coming back to, I think, whatever happens on the reserves, we obviously have ongoing meetings. Kelly Groh and Lori Evangel, our Chief Risk Officer, meet with the regulators quarterly on results as we are announcing them. And so again, I think, they're generally comfortable with where we are.

Our next question is from Jimmy Bhullar with JP Morgan.

Hi, good morning. I just had one follow-up to the deal. Just what's your level of confidence that you can actually complete the transaction before the agreement expires? I guess because the Delaware hearings scheduled for late November. I doubt they're going to come back that fast. So are you -- I'm assuming you're both committed to extending the December 1st date, but what do you think the timeline is in terms of getting the approval done in Delaware and the others?

Jimmy, good questions. The hearing is November 28th. And so the commissioner of Delaware has up to 30 days following the hearing to make decision. We would expect that he may not take or the department may not take all of that time, but that will bring us to the end of December. We also think the other -- the only public hearing we have to have is with Delaware. So we think the other regulators are on track to certainly meet a year-end closing. We've extended the termination date to December 1st. What that really means is, after December 31st, so we don't extend either of us would have the right to terminate the merger agreement. I think we've demonstrated with, I think, we've extended 5 or 6x that we're both very committed to the deal. And I would say that certainly speaking for Genworth, we're certainly committed. And if we have to extend December 1st date, we will. And I also believe -- I don't want to speak for Chairman Lu, but I'm highly confident based on our strong relationship that they're also comfortable with that. We're both hoping that we can meet all the regulatory approvals in all the countries so that we can close by the end of the year.

And then just on the U.S. MI business, I don't think you're planning on taking any dividends out in the 4Q book. What's the likelihood of and what's your expectations for dividends out of that business in 2019?

Jimmy, this is Kevin. You're correct. We do not have any additional plans for more dividends in calendar '18. Following the second quarter dividend, we still had $270 million of unassigned surplus in our flagship mortgage insurance writer Gemaco, and more than $1.3 billion in excess to the 25 to statutory requirement. So I guess, what I tell you at this point, we will look at our capital situation as we head into the New Year. And we'll reevaluate that situation subject to whatever the prevailing market conditions are at that point. And we'll update you going into 2019, if it's still necessary. But at this point, we're not ready to make that call.

And then just lastly on -- you had -- lost the client this quarter, I think, just given your rating situation. Are you concerned about additional client sort of disruption? Have you had any discussions with anybody else?

Our share has been impacted over the last year so due to a number of reasons, not just our financial condition, but competitive pricing, some concerns around Genwroth's financial condition as well as some concerns over the proposed transaction with Oceanwide. In the first half of the year, we benefitted from some volume pickups due to increases in concentration in our customer base. And we disclosed that and that could create some volatility if those customers moved around at all. And so what happened in the third quarter is, we did lose one of those customers in the third quarter. And that was the material driver both on a BPQ basis and a variance to prior year in terms of the downward trend in our share. This is a competitive industry, has been forever and continues to be. And so, we will continue to go out as the business does every day and fight to deliver value and pick up more production with all of our -- with our remaining customer base. And the customer that we lost could become a customer again going forward. So, and we are encouraged by the capital contribution plan that should actually help us going forward from a ratings and financial conditions state over time.

Ladies and gentlemen our last question today will be from Tom Gallagher with Evercore. Q – Tom Gallagher: Good morning. Kelly, you had mentioned the planned methodology changes for long-term care claims or long-term care claims estimates. Can you elaborate a bit further on exactly what the methodology change is going to entail?

Good morning, Tom. I'll be happy to take that question. You know when I think about DLR, you know just to level set everyone, our DLR, our claims reserve is about $7 billion on a statutory basis, and about $6.7 billion on a GAAP basis. As I mentioned over – every quarter, we have to assert that our current reserves are our best estimate on claims reserves. So it's something that we look at every quarter. We do update a few of the assumptions every quarter. We do a rolling utilization update. We update for interest rates on a quarterly basis. We are evaluating methodology changes though because in the last couple quarters, one of the things I've talked about is the negative utilization experience versus the reserves we put up for each of those claims. What we're really looking at is if a more complicated model will better track that experience development, so rather than use kind of our lagging simplified model where we just roll with expect -- or with actual experience, it would be more of a generalized linear model that takes a lot of different variables in. Given the complexity of that though, we're really trying to assess if this is really appropriate given industry practice, given third-party actuarial view on does this better track what we would expect to see from an emerging trend perspective. And that's really the reason we've delayed from the third to the fourth quarter is the fact that we're not sure whether or not a methodology change is appropriate at this time and we need that third-party view to be able to give us feedback and tell us if they think that this would fit our claims experience better. Q – Tom Gallagher: Got it. And the third-party consultant is focused specifically on this issue, or is it broader than that considering long-term morbidity assumptions et cetera, how kind of broad is the third-party consultant engagement?

We are asking them to look at all of our current claims review and any potential changes that we're evaluating at this point in time. I'm not going to go into every detailed assumption. But they will be looking at not just the methodology changes associated with a generalized linear model, but they will be looking at our entire claims reserves. Q – Tom Gallagher: Okay. And then, Tom, the -- so after the contribution of the $175 million to the life and -- life and annuity businesses, I think, it said in the press release and you've mentioned there won't be -- the intention is not to make any further contributions to these subsidiaries by Genworth or Oceanwide after that final contribution. Are there any contingencies to that or is your understanding that it is then effectively legally isolated for all practical purposes? Or are there any remaining contingencies depending on some kind of MAC clause if LTC has worse experience or anything like that?

Tom, those are great questions. The first thing I would say in terms of the isolation, we did, as you know, receive the bond consent approval on GLAIC. So now anything that becomes a challenge for GLIC, GLAIC, or GLICNY, would be outside of the bond covenant. So we're very pleased with that. I have -- in January, I'll have been here six years, and I would say for my entire tenure, I have been meeting with all the regulators in all the states. And have made it very clear that -- while there is still roughly $2.5 billion of capital into the life companies, the current shareholders or new shareholders would not be able or willing to contribute additional capital on the legacy blocks. And that those legacy blocks, the goal was to work together with the regulators to get to breakeven at some point in the future, and we're on track for that. And I do think that the regulators have been quite helpful. And in terms of the deal, we have said that you can't expect, again the current shareholders or new shareholders to continue to invest in the legacy block. As part of the discussions in the last month or so with Delaware and the other principal regulators, we did agree to invest $175 million into GLIC and I think that obviously is the big plus and that comes because of the deal and the fact that Oceanwide is contributing $1.5 billion overall, which as Kelly and I have said a few times now, our intention would be to use that primarily to pay off the '20 and '21 debt, but for other growth opportunities to the extent we have that. So, I believe that the US state regulators understand that the principal way we're going to get the company -- the GLIC and GLICNY to breakeven going forward is through premium increases and I think they're comfortable with that. And again I think the value-add for the deal from the regulators and the policyholders' perspective is we are able to invest $175 million that we wouldn't have been able to do without the capital contribution from Oceanwide.

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

To all of you for your time and questions today, I'm very proud of Genworth's performance and progress during the quarter. And I want to thank all of our Genworth business leaders and all of Genworth employees for continuing to primarily focus on the businesses and our customers as some of us focus on all the steps we have to take to get the transaction approved. We certainly appreciate the continued investment and interest from all of our shareholders in Genworth. And we expect to be back to you with update as soon as they are available. And thanks again for being on the call today.

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