Genworth Financial Announces Second Quarter 2020 Results
Genworth Financial reported a net loss of $441 million for Q2 2020, compared to a net income of $168 million in Q2 2019. The adjusted operating loss was $21 million, down from $178 million year-over-year. The company reached a settlement with AXA resulting in a £100 million payment and a total after-tax loss of $516 million. Despite a strong mortgage origination market, new delinquencies surged due to COVID-19, with a loss ratio of 94%. The merger agreement with China Oceanwide was extended to September 30, 2020, as funding delays were reported.
- U.S. Mortgage Insurance new insurance written (NIW) increased by 59% sequentially to $28.4 billion in Q2 2020.
- PMIERs sufficiency ratio for U.S. MI is estimated at 143%, $1,275 million above requirements, demonstrating strong capital position.
- Net loss of $441 million reflects a significant decline in financial performance, driven by higher new delinquencies due to COVID-19.
- The adjusted operating loss of $21 million indicates a 112% decrease from prior year, showcasing ongoing challenges in the business.
RICHMOND, Va., July 29, 2020 /PRNewswire/ --
- Merger Agreement With China Oceanwide Holdings Group Co., Ltd (Oceanwide) Extended To Not Later Than September 30, 2020; Interim Milestone By August 31, 2020
- Reached Agreement With AXA S.A. (AXA) On July 20, 2020 To Settle Liability For Payment Protection Insurance Mis-Selling, Which Included A Payment Of
£100M M Subsequent To Quarter-End - U.S. Mortgage Insurance (MI) Benefited From A Robust Mortgage Origination Market With
$28.4 Billion In New Insurance Written (NIW) - U.S. MI Adjusted Operating Loss Of
$3 Million Primarily Driven By Higher New Delinquencies Attributable To The COVID-19 Pandemic - U.S. MI's PMIERs1 Sufficiency Ratio Estimated At 143 Percent,
$1,275 Million Above Requirements - Reinsurance Transaction On 2009-2019 Blocks Providing Approximately
$180 Million PMIERs Credit - U.S. Life Insurance Segment Adjusted Operating Loss Of
$5 Million Driven By Life Insurance Performance; LTC2 Benefited From Higher Mortality In The Quarter Indicative Of COVID-19 - Holding Company Cash And Liquid Assets Of
$554 Million , Including$59 Million Restricted, With Repurchases Of$52 Million Principal Amount Of 2021 Senior Notes In The Quarter
Genworth Financial, Inc. (NYSE: GNW) today reported results for the quarter ended June 30, 2020. The company reported a net loss3 of
In July 2020, the company reached a settlement agreement with AXA regarding a dispute over payment protection insurance claims underwritten by the company's former lifestyle protection insurance business that was acquired by AXA in 2015. As a result, Genworth recorded an after-tax loss of
COVID-19 Update
The COVID-19 pandemic continued to impact Genworth in the current quarter. Genworth's priority remains servicing its customers while maintaining the health and safety of all employees and their families. The company successfully transitioned to a fully remote work environment in March, and employees have continued to serve customers and policyholders effectively with minimal disruption. As cases have continued to surge in some regions of the U.S. and given the organization's seamless transition to remote operations, Genworth has decided to extend remote working conditions until at least January 1, 2021. Genworth is constantly monitoring and evaluating the impact of COVID-19 and will continue to act in the best interests of its investors and employees while effectively addressing customer needs.
The COVID-19 pandemic and related macroeconomic volatility negatively impacted the company's financial results in the quarter primarily as a result of higher unemployment, increased home borrower participation in forbearance programs and increased new delinquencies which were partly mitigated by the effects of government stimulus. These effects were partially offset by benefits from sequential equity market improvement and higher mortality in the LTC business.
Genworth is closely monitoring macroeconomic indicators and is conducting extensive scenario planning to tailor its actions to mitigate adverse effects of the pandemic. The economic impact to U.S. MI for the remainder of 2020 is uncertain and will depend on the speed of recovery and the amount and duration of government stimulus reaching borrowers. Mortgage originations remained strong during the current quarter driven by the low interest rate environment which resulted in higher refinance origination volumes. New delinquencies increased significantly in the current quarter, peaking in the month of May consistent with forbearance trends seen earlier in the quarter. Although uncertainty remains high, as economic activity resumes and forbearance options provide borrowers with financial stability, higher new delinquencies may be mitigated by higher cure rates in the second half of 2020. In order to preserve capital in the company's mortgage insurance subsidiaries during this period of uncertainty, Genworth does not expect to receive further dividends from its mortgage insurance businesses in 2020. Additionally, in response to COVID-19, the U.S. MI business is subject to the temporary PMIERs requirement to obtain pre-approval from the government-sponsored enterprises (GSEs) for certain capital related transactions, including dividends. The amount and timing of dividends in 2021 will depend on a variety of factors, including the timing of economic recovery from COVID-19.
In the U.S. life insurance companies, interest rate and equity market movements are expected to continue to impact U.S. GAAP and statutory results. Results may also continue to be impacted by higher mortality, dependent on the length and severity of the COVID-19 pandemic. The company continues to manage the U.S. life insurance businesses on a standalone basis with no plans to infuse or extract capital other than as committed in connection with the completion of the Oceanwide transaction.
"Genworth's leadership team and employees have shown incredible resilience and dedication to our customers, policyholders and each other during this difficult period," said Tom McInerney, President and CEO of Genworth. "While the severity and duration of the pandemic remains to be seen, we continue to plan for various scenarios to ensure we are taking the right steps to best position our businesses to navigate the impacts of the pandemic."
Strategic Update
On June 30, Genworth and Oceanwide announced they agreed to extend the merger agreement deadline to not later than September 30, 2020, which provides Oceanwide with additional time to secure funding for the transaction and receive clearance for currency conversion and transfer of funds from China's State Administration of Foreign Exchange (SAFE). Oceanwide has indicated that the financing has been delayed due to the COVID-19 pandemic and uncertain macroeconomic conditions.
"Although the closing process has been further delayed by the COVID-19 pandemic, the Oceanwide transaction continues to represent the best strategic option for Genworth's shareholders, and benefits policyholders, customers and employees," said Tom McInerney, president and CEO of Genworth. "The fifteenth waiver and extension of the merger agreement provides both parties with the flexibility needed to navigate this uncertain environment. In order to address our near-term financial obligations including the recently announced AXA settlement, we are moving forward with steps to enhance our liquidity while working diligently towards closing the transaction."
LU Zhiqiang, chairman of Oceanwide, continued. "The acquisition of Genworth is a strategically important transaction and a priority for China Oceanwide. The financing progress has been delayed given the significant economic impacts of lock-downs associated with the global pandemic, but we remain committed to securing financing for the transaction in order to close the transaction as soon as possible."
As part of the fifteenth waiver and extension, Genworth and Oceanwide also agreed to additional interim milestones designed to provide more clarity to Genworth on Oceanwide's progress towards financing the transaction. Specifically, the fifteenth waiver includes provisions for Oceanwide to submit satisfactory evidence to Genworth by August 31, 2020 confirming that:
- Approximately
$1.0 billion is available to Oceanwide from sources in Mainland China to fund the acquisition of Genworth; and - Hony Capital and/or other acceptable third parties have committed to provide Oceanwide
$1.0 billion or more from sources outside of China to fund the transaction.
Given the delay in the closing process, Genworth is moving forward with plans to address its near-term liabilities and financial obligations, which include the recently announced settlement agreement with AXA and approximately
As previously announced, Genworth paid AXA
Under the terms of the settlement and the sale and purchase agreement, if AXA recovers amounts from third parties related to the mis-selling losses, including from the distributor responsible for the sale of the policies, Genworth has certain rights to share in those recoveries to recoup payments for the underlying mis-selling losses.
Financial Performance
Consolidated Net Income (Loss) & Adjusted Operating Income (Loss) | ||||||||||||||||
Three months ended June 30 | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Per | Per | |||||||||||||||
diluted | diluted | Total | ||||||||||||||
(Amounts in millions, except per share) | Total | share | Total | share | % change | |||||||||||
Net income (loss) available to Genworth's common stockholders | $ | (441) | $ | (0.86) | $ | 168 | $ | 0.33 | NM5 | |||||||
Adjusted operating income (loss) | $ | (21) | $ | (0.04) | $ | 178 | $ | 0.35 | (112)% | |||||||
Weighted-average diluted shares | 512.5 | 508.7 | ||||||||||||||
As of June 30 | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Book value per share | $ | 28.96 | $ | 27.32 | ||||||||||||
Book value per share, excluding accumulated other comprehensive | ||||||||||||||||
income (loss) | $ | 20.17 | $ | 21.34 | ||||||||||||
The net loss in the quarter included investment gains of
Net investment income was
Genworth's effective tax rate on income from continuing operations for the quarter was approximately 31.1 percent. The effective tax rate was increased from the tax effect of forward starting swap gains settled prior to the change in the corporate tax rate under the 2017 Tax Cuts and Jobs Act, which continue to be tax effected at 35 percent as they are amortized into net investment income, as well as by the higher tax expense related to foreign operations and nondeductible goodwill. The effective tax rate on the loss from discontinued operations for the quarter was 21 percent.
Adjusted operating income (loss) results by business line are summarized in the table below:
Adjusted Operating Income (Loss) | |||||||||||
(Amounts in millions) | Q2 20 | Q1 20 | Q2 19 | ||||||||
U.S. Mortgage Insurance | $ | (3) | $ | 148 | $ | 147 | |||||
Australia Mortgage Insurance | 1 | 9 | 13 | ||||||||
U.S. Life Insurance | (5) | (70) | 66 | ||||||||
Runoff | 24 | (13) | 9 | ||||||||
Corporate and Other | (38) | (41) | (57) | ||||||||
Total Adjusted Operating Income (Loss) | $ | (21) | $ | 33 | $ | 178 | |||||
Adjusted operating income (loss) represents income (loss) from continuing operations excluding the after-tax effects of income (loss) from continuing operations attributable to noncontrolling interests, net investment gains (losses), goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and other adjustments, net of taxes. A reconciliation of net income (loss) to adjusted operating income (loss) is included at the end of this press release.
Unless specifically noted in the discussion of results for the Australia MI business, references to percentage changes exclude the impact of translating foreign denominated activity into U.S. dollars (foreign exchange). Percentage changes that include the impact of foreign exchange are found in a table at the end of this press release.
U.S. Mortgage Insurance
Operating Metrics | |||||||||||
(Dollar amounts in millions) | Q2 20 | Q1 20 | Q2 19 | ||||||||
Adjusted operating income (loss) | $ | (3) | $ | 148 | $ | 147 | |||||
New insurance written | |||||||||||
Primary Flow | $ | 28,400 | $ | 17,900 | $ | 15,800 | |||||
Loss ratio | 94 % | 8 % | — % | ||||||||
U.S. MI reported an adjusted operating loss of
U.S. MI losses of
Australia Mortgage Insurance
Operating Metrics | |||||||||||
(Dollar amounts in millions) | Q2 20 | Q1 20 | Q2 19 | ||||||||
Adjusted operating income | $ | 1 | $ | 9 | $ | 13 | |||||
New insurance written | |||||||||||
Flow | $ | 4,400 | $ | 4,100 | $ | 3,700 | |||||
Bulk | $ | 100 | $ | 200 | $ | 1,200 | |||||
Loss ratio | 63 % | 34 % | 34 % | ||||||||
Australia MI reported adjusted operating income of
U.S. Life Insurance
Adjusted Operating Income (Loss) | |||||||||
(Amounts in millions) | Q2 20 | Q1 20 | Q2 19 | ||||||
Long Term Care Insurance | $ | 48 | $ | 1 | $ | 37 | |||
Life Insurance | (81) | (77) | 10 | ||||||
Fixed Annuities | 28 | 6 | 19 | ||||||
Total U.S. Life Insurance | $ | (5) | $ | (70) | $ | 66 | |||
Long Term Care Insurance
Long term care insurance reported adjusted operating income of
Life Insurance
Life insurance reported an adjusted operating loss of
Fixed Annuities
Fixed annuities reported adjusted operating income of
Runoff
Runoff reported adjusted operating income of
Corporate And Other
Corporate and Other reported an adjusted operating loss of
Capital & Liquidity
Genworth maintains the following capital positions in its operating subsidiaries:
Key Capital & Liquidity Metrics | |||||||||||||
(Dollar amounts in millions) | Q2 20 | Q1 20 | Q2 19 | ||||||||||
U.S. MI | |||||||||||||
Consolidated Risk-To-Capital Ratio6 | 12.0:1 | 12.2:1 | 11.8:1 | ||||||||||
Genworth Mortgage Insurance Corporation Risk-To-Capital Ratio6 | 12.2:1 | 12.4:1 | 12.1:1 | ||||||||||
Private Mortgage Insurer Eligibility Requirements (PMIERs) Sufficiency Ratio6,7 | 143 | % | 142 | % | 123 | % | |||||||
Australia MI | |||||||||||||
Prescribed Capital Amount (PCA) Ratio6 | 177 | % | 178 | % | 208 | % | |||||||
U.S. Life Insurance Companies | |||||||||||||
Consolidated Risk-Based Capital (RBC) Ratio6 | 220 | % | 194 | % | 191 | % | |||||||
Holding Company Cash and Liquid Assets8,9 | $ | 554 | $ | 575 | $ | 403 | |||||||
Key Points
- U.S. MI's PMIERs sufficiency ratio is estimated to be 143 percent,
$1,275 million above requirements. The PMIERs sufficiency ratio was up one percent, or$104 million sequentially, with improvement driven primarily from business cash flows, elevated lapse of existing business and an increase in reinsurance credit, partially offset by incremental new delinquencies and capital consumed by NIW. Both the current quarter and prior quarter ratios benefited from a 0.30 multiplier applied to the risk based required asset factor for loans, pursuant to recently announced GSE PMIERs guidance, which resulted in a reduction of PMIERs required assets by an estimated$1,057 million at the end of the quarter; - In the current quarter, U.S. MI executed an aggregate excess of loss reinsurance transaction which provided up to
$300 million of reinsurance coverage on the 2009-2019 book years to provide PMIERs capital credit for elevated delinquencies as a result of COVID-19. The PMIERs sufficiency in the current quarter included approximately$180 million of capital credit in respect of this transaction. Combined with the other outstanding credit risk transfer transactions, including the insurance linked note, the credit risk transfer program provided an aggregate of approximately$1.0 billion of PMIERs capital credit as of June 30, 2020; - Australia MI's PCA ratio is estimated to be 177 percent, above the company's target operating range of 132 to 144 percent. The PCA ratio was down one point sequentially;
- Subsequent to quarter end, Australia MI executed a series of Tier 2 debt transactions that extended favorable regulatory capital credit;
- U.S. life insurance companies' consolidated statutory risk-based capital is estimated to be
220% , up from the prior quarter primarily due to statutory income on LTC from favorable mortality and favorable equity market impacts on variable annuities during the current quarter; and - The holding company ended the quarter with
$554 million of cash and liquid assets, including$59 million that is restricted, which is above the company's target of two times expected annual debt interest payments excluding restricted cash and liquid assets. During the second quarter, the holding company repurchased$52 million of its 2021 maturities at a$4 million discount. Subsequent to quarter end, the company made a£100 million payment ($125 million ) to AXA related to the settlement agreement on July 21, 2020.
About Genworth Financial
Genworth Financial, Inc. (NYSE: GNW) is a Fortune 500 insurance holding company committed to helping families achieve the dream of homeownership and address the financial challenges of aging through its leadership positions in mortgage insurance and long term care insurance. Headquartered in Richmond, Virginia, Genworth traces its roots back to 1871 and became a public company in 2004. For more information, visit genworth.com.
From time to time, Genworth releases important information via postings on its corporate website. Accordingly, investors and other interested parties are encouraged to enroll to receive automatic email alerts and Really Simple Syndication (RSS) feeds regarding new postings. Enrollment information is found under the "Investors" section of genworth.com. From time to time, Genworth's publicly traded subsidiary, Genworth Mortgage Insurance Australia Limited, separately releases financial and other information about its operations. This information can be found at http://www.genworth.com.au.
Conference Call And Financial Supplement Information
This press release and the second quarter 2020 financial supplement are now posted on the company's website. Additional information regarding business results will be posted on the company's website, http://investor.genworth.com, by 8:00 a.m. on July 30, 2020. Investors are encouraged to review these materials.
Genworth will conduct a conference call on July 30, 2020 at 9:00 a.m. (ET) to discuss business results and provide an update on strategic objectives, including the pending transaction with China Oceanwide. Genworth's conference call will be accessible via telephone and the Internet. The dial-in number for Genworth's July 30th conference call is 888 208.1820 or 323 794.2110 (outside the U.S.); conference ID # 6602361. To participate in the call by webcast, register at http://investor.genworth.com at least 15 minutes prior to the webcast to download and install any necessary software.
A replay of the call will be available at 888 203.1112 or 719 457.0820 (outside the U.S.); conference ID # 6602361 through August 14, 2020. The webcast will also be archived on the company's website for one year.
Use of Non-GAAP Measures
This press release includes the non-GAAP financial measures entitled "adjusted operating income (loss)" and "adjusted operating income (loss) per share." Adjusted operating income (loss) per share is derived from adjusted operating income (loss). The chief operating decision maker evaluates segment performance and allocates resources on the basis of adjusted operating income (loss). The company defines adjusted operating income (loss) as income (loss) from continuing operations excluding the after-tax effects of income (loss) from continuing operations attributable to noncontrolling interests, net investment gains (losses), goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and infrequent or unusual non-operating items. Gains (losses) on insurance block transactions are defined as gains (losses) on the early extinguishment of non-recourse funding obligations, early termination fees for other financing restructuring and/or resulting gains (losses) on reinsurance restructuring for certain blocks of business. The company excludes net investment gains (losses) and infrequent or unusual non-operating items because the company does not consider them to be related to the operating performance of the company's segments and Corporate and Other activities. A component of the company's net investment gains (losses) is the result of estimated future credit losses, the size and timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) can be subject to the company's discretion and are influenced by market opportunities, as well as asset-liability matching considerations. Goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions and restructuring costs are also excluded from adjusted operating income (loss) because, in the company's opinion, they are not indicative of overall operating trends. Infrequent or unusual non-operating items are also excluded from adjusted operating income (loss) if, in the company's opinion, they are not indicative of overall operating trends.
While some of these items may be significant components of net income (loss) available to Genworth Financial, Inc.'s common stockholders in accordance with U.S. GAAP, the company believes that adjusted operating income (loss) and measures that are derived from or incorporate adjusted operating income (loss), including adjusted operating income (loss) per share on a basic and diluted basis, are appropriate measures that are useful to investors because they identify the income (loss) attributable to the ongoing operations of the business. Management also uses adjusted operating income (loss) as a basis for determining awards and compensation for senior management and to evaluate performance on a basis comparable to that used by analysts. However, the items excluded from adjusted operating income (loss) have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income (loss) and adjusted operating income (loss) per share on a basic and diluted basis are not substitutes for net income (loss) available to Genworth Financial, Inc.'s common stockholders or net income (loss) available to Genworth Financial, Inc.'s common stockholders per share on a basic and diluted basis determined in accordance with U.S. GAAP. In addition, the company's definition of adjusted operating income (loss) may differ from the definitions used by other companies.
Adjustments to reconcile net income (loss) available to Genworth Financial, Inc.'s common stockholders to adjusted operating income (loss) assume a 21 percent tax rate for the company's domestic segments and a 30 percent tax rate for its Australia Mortgage Insurance segment and are net of the portion attributable to noncontrolling interests. Net investment gains (losses) are also adjusted for DAC and other intangible amortization and certain benefit reserves.
In the second quarter of 2020, the company recorded a goodwill impairment of
During the second and first quarters of 2020, the company repurchased
The company recorded a pre-tax expense of
The tables at the end of this press release provide a reconciliation of net income (loss) available to Genworth Financial, Inc.'s common stockholders to adjusted operating income (loss) for the three months ended June 30, 2020 and 2019, as well as for the three months ended March 31, 2020, and reflect adjusted operating income (loss) as determined in accordance with accounting guidance related to segment reporting.
This press release includes the non-GAAP financial measure entitled "core yield" as a measure of investment yield. The company defines core yield as the investment yield adjusted for items that do not reflect the underlying performance of the investment portfolio. Management believes that analysis of core yield enhances understanding of the investment yield of the company. However, core yield is not a substitute for investment yield determined in accordance with U.S. GAAP. In addition, the company's definition of core yield may differ from the definitions used by other companies. A reconciliation of reported U.S. GAAP yield to core yield is included in a table at the end of this press release.
Definition of Selected Operating Performance Measures
The company taxes its international businesses at their local jurisdictional tax rates and its domestic businesses at the U.S. corporate federal income tax rate of 21 percent. The company's segment tax methodology applies the respective jurisdictional or domestic tax rate to the pre-tax income (loss) of each segment, which is then adjusted in each segment to reflect the tax attributes of items unique to that segment such as foreign withholding taxes and permanent differences between U.S. GAAP and local tax law. The difference between the consolidated provision for income taxes and the sum of the provision for income taxes in each segment is reflected in Corporate and Other activities.
The annually-determined tax rates and adjustments to each segment's provision for income taxes are estimates which are subject to review and could change from year to year.
The company reports selected operating performance measures including "sales" and "insurance in force" or "risk in force" which are commonly used in the insurance industry as measures of operating performance.
Management regularly monitors and reports sales metrics as a measure of volume of new business generated in a period. Sales refer to new insurance written for mortgage insurance products. The company considers new insurance written to be a measure of the company's operating performance because it represents a measure of new sales of insurance policies during a specified period, rather than a measure of the company's revenues or profitability during that period.
Management regularly monitors and reports insurance in force and risk in force. Insurance in force for the company's mortgage insurance businesses is a measure of the aggregate original loan balance for outstanding insurance policies as of the respective reporting date. Risk in force for the company's U.S. mortgage insurance business is based on the coverage percentage applied to the estimated current outstanding loan balance. Risk in force in the Australia mortgage insurance business is computed using an "effective" risk in force amount, which recognizes that the loss on any particular loan will be reduced by the net proceeds received upon sale of the property. Effective risk in force has been calculated by applying to insurance in force a factor of 35 percent that represents the highest expected average per-claim payment for any one underwriting year over the life of the company's mortgage insurance business in Australia. The company also has certain risk share arrangements in Australia where it provides pro-rata coverage of certain loans rather than 100 percent coverage. As a result, for loans with these risk share arrangements, the applicable pro-rata coverage amount provided is used when applying the factor. The company considers insurance in force and risk in force to be measures of its operating performance because they represent measures of the size of its business at a specific date which will generate revenues and profits in a future period, rather than measures of its revenues or profitability during that period.
Management also regularly monitors and reports a loss ratio for the company's businesses. For the mortgage insurance businesses, the loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. For the long term care insurance business, the loss ratio is the ratio of benefits and other changes in reserves less tabular interest on reserves less loss adjustment expenses to net earned premiums. The company considers the loss ratio to be a measure of underwriting performance in these businesses and helps to enhance the understanding of the operating performance of the businesses.
These operating performance measures enable the company to compare its operating performance across periods without regard to revenues or profitability related to policies or contracts sold in prior periods or from investments or other sources.
Cautionary Note Regarding Forward-Looking Statements
This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as "expects," "intends," "anticipates," "plans," "believes," "seeks," "estimates," "will" or words of similar meaning and include, but are not limited to, statements regarding the outlook for the company's future business and financial performance. Examples of forward-looking statements include statements the company makes relating to the closing of the transaction with China Oceanwide Holdings Group Co., Ltd. (together with its affiliates, Oceanwide), Oceanwide's funding plans and transactions the company is pursuing to address its near-term liabilities and financial obligations, which may include raising debt through its mortgage insurance subsidiaries and/or transactions to sell a percentage of its ownership interests in its mortgage insurance businesses, as well as statements the company makes regarding the potential impacts of the COVID-19 pandemic. Forward-looking statements are based on management's current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially from those in the forward-looking statements due to global political, economic, business, competitive, market, regulatory and other factors and risks, including, but not limited to, the following:
- risks related to the proposed transaction with Oceanwide including: the risk that Oceanwide will be unable to raise funding or the company's inability to complete the Oceanwide transaction in a timely manner or at all, which may adversely affect the company's business and the price of its common stock; the risk that the company will be unable to address its near-term liabilities and financial obligations, including the risks that it will be unable to raise new debt financing and/or sell a percentage of its ownership interest in its U.S. mortgage insurance business to repay the promissory note to AXA or refinance its debt maturing in 2021 or beyond; the parties' inability to obtain regulatory approvals, clearances or extensions, or the possibility that such regulatory approvals or clearances may further delay the Oceanwide transaction or may not be received prior to September 30, 2020 (and either or both of the parties may not be willing to further waive their end date termination rights beyond September 30, 2020) or that materially burdensome or adverse regulatory conditions may be imposed or undesirable measures may be required in connection with any such regulatory approvals, clearances or extensions (including those conditions or measures that either or both of the parties may be unwilling to accept or undertake, as applicable) or that with continuing delays, circumstances may arise that make one or more previously obtained regulatory approvals or clearances no longer valid, one or both parties unwilling to proceed with the Oceanwide transaction or unable to comply with the conditions to existing regulatory approvals, or one or both of the parties may be unwilling to accept any new condition under a regulatory approval; the risk that the parties will not be able to obtain other regulatory approvals, clearances or extensions, including in connection with a potential alternative funding structure or the current geo-political environment, or that one or more regulators may rescind or fail to extend existing approvals, or that the revocation by one regulator of approvals will lead to the revocation of approvals by other regulators; the parties' inability to obtain any necessary regulatory approvals, clearances or extensions for the post-closing capital plan; the risk that a condition to the closing of the Oceanwide transaction may not be satisfied or that a condition to closing that is currently satisfied may not remain satisfied due to the delay in closing the Oceanwide transaction or that the parties will be unable to agree upon a closing date following receipt of all regulatory approvals and clearances; the risk that existing and potential legal proceedings may be instituted against the company in connection with the Oceanwide transaction that may delay the transaction, make it more costly or ultimately preclude it; the risk that the proposed Oceanwide transaction disrupts the company's current plans and operations as a result of the announcement and consummation of the transaction; potential adverse reactions or changes to the company's business relationships with clients, employees, suppliers or other parties or other business uncertainties resulting from the announcement of the Oceanwide transaction or during the pendency of the transaction, including but not limited to such changes that could affect the company's financial performance; certain restrictions during the pendency of the Oceanwide transaction that may impact the company's ability to pursue certain business opportunities or strategic transactions; continued availability of capital and financing to the company before, or in the absence of, the consummation of the Oceanwide transaction; further rating agency actions and downgrades in the company's credit or financial strength ratings; changes in applicable laws or regulations; the company's ability to recognize the anticipated benefits of the Oceanwide transaction; the amount of the costs, fees, expenses and other charges related to the Oceanwide transaction; the risks related to diverting management's attention from the company's ongoing business operations; and the company's ability to attract, recruit, retain and motivate current and prospective employees may be adversely affected;
- strategic risks in the event the proposed transaction with Oceanwide is not consummated including: the company's inability to successfully execute alternative strategic plans to effectively address its current business challenges (including with respect to stabilizing its U.S. life insurance businesses, debt and other obligations, cost savings, ratings and capital); the risk that the impacts of or uncertainty created by the COVID-19 pandemic delay or hinder alternative transactions or otherwise make alternative plans less attractive; the company's inability to attract buyers for any businesses or other assets it may seek to sell, or securities it may seek to issue, in each case, in a timely manner and on anticipated terms; failure to obtain any required regulatory, stockholder and/or noteholder approvals or consents for such alternative strategic plans, or the company's challenges changing or being more costly or difficult to successfully address than currently anticipated or the benefits achieved being less than anticipated; inability to achieve anticipated cost-savings in a timely manner; adverse tax or accounting charges; and the company's ability to increase the capital needed in its mortgage insurance businesses in a timely manner and on anticipated terms, including through business performance, reinsurance or similar transactions, asset sales, securities offerings or otherwise, in each case as and when required;
- risks relating to estimates, assumptions and valuations including: inadequate reserves and the need to increase reserves (including as a result of any changes the company may make to its assumptions, methodologies or otherwise in connection with periodic or other reviews, including reviews it expects to complete and carry out in the fourth quarter of 2020); risks related to the impact of the company's annual review of assumptions and methodologies related to its long term care insurance claim reserves and margin reviews in the fourth quarter of 2020, including risks that additional information obtained in finalizing its claim reserves and margin reviews in the fourth quarter of 2020 or other changes to assumptions or methodologies materially affect margins; the inability to accurately estimate the impacts of the COVID-19 pandemic; inaccurate models; deviations from the company's estimates and actuarial assumptions or other reasons in its long term care insurance, life insurance and/or annuity businesses; accelerated amortization of deferred acquisition costs (DAC) and present value of future profits (PVFP) (including as a result of any changes it may make to its assumptions, methodologies or otherwise in connection with periodic or other reviews, including reviews it expects to complete and carry out in the fourth quarter of 2020); adverse impact on the company's financial results as a result of projected profits followed by projected losses (as is currently the case with its long term care insurance business); adverse impact on the company's results of operations, including the outcome of its reviews of the premium earnings pattern for its mortgage insurance businesses; and changes in valuation of fixed maturity and equity securities;
- risks relating to economic, market and political conditions including: downturns and volatility in global economies and equity and credit markets, including as a result of prolonged unemployment, a sustained low interest rate environment and other displacements caused by the COVID-19 pandemic; interest rates and changes in rates have adversely impacted, and may continue to materially adversely impact, the company's business and profitability; deterioration in economic conditions or a decline in home prices that adversely affect the company's loss experience in mortgage insurance; political and economic instability or changes in government policies; and fluctuations in foreign currency exchange rates and international securities markets;
- regulatory and legal risks including: extensive regulation of the company's businesses and changes in applicable laws and regulations (including changes to tax laws and regulations); litigation and regulatory investigations or other actions; dependence on dividends and other distributions from the company's subsidiaries (particularly its mortgage insurance subsidiaries) and the inability of any subsidiaries to pay dividends or make other distributions to the company, including as a result of the performance of its subsidiaries, heightened regulatory restrictions resulting from the COVID-19 pandemic, and other insurance, regulatory or corporate law restrictions; the inability to successfully seek in force rate action increases (including increased premiums and associated benefit reductions) in the company's long term care insurance business, including as a result of the COVID-19 pandemic; adverse change in regulatory requirements, including risk-based capital; changes in regulations adversely affecting the company's Australian mortgage insurance business; inability to continue to maintain the private mortgage insurer eligibility requirements (PMIERs); the impact on capital levels of increased delinquencies caused by the COVID-19 pandemic; inability of the company's U.S. mortgage insurance subsidiaries to meet minimum statutory capital requirements; the influence of Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and a small number of large mortgage lenders on the U.S. mortgage insurance market and adverse changes to the role or structure of Fannie Mae and Freddie Mac; adverse changes in regulations affecting the company's mortgage insurance businesses; additional restrictions placed on the company's U.S. mortgage insurance business by government and government-owned and government-sponsored enterprises (GSEs) in connection with a new debt financing and/or sale of a percentage of its ownership interests therein; inability to continue to implement actions to mitigate the impact of statutory reserve requirements; changes in tax laws; and changes in accounting and reporting standards;
- liquidity, financial strength ratings, credit and counterparty risks including: insufficient internal sources to meet liquidity needs and limited or no access to capital (including the ability to obtain further financing, either through raising new debt financing and/or selling a percentage of the company's ownership interests in its mortgage insurance businesses, or under a secured term loan or credit facility); the impact on holding company liquidity caused by the inability to receive dividends or other returns of capital from the company's mortgage insurance businesses as a result of the COVID-19 pandemic; the impact of increased leverage as a result of the AXA settlement and related restrictions; continued availability of capital and financing; future adverse rating agency actions, including with respect to rating downgrades or potential downgrades or being put on review for potential downgrade, all of which could have adverse implications for the company, including with respect to key business relationships, product offerings, business results of operations, financial condition and capital needs, strategic plans, collateral obligations and availability and terms of hedging, reinsurance and borrowings; defaults by counterparties to reinsurance arrangements or derivative instruments; defaults or other events impacting the value of the company's fixed maturity securities portfolio; and defaults on the company's commercial mortgage loans or the mortgage loans underlying its investments in commercial mortgage-backed securities and volatility in performance;
- operational risks including: inability to retain, attract and motivate qualified employees or senior management; ineffective or inadequate risk management in identifying, controlling or mitigating risks; the impact on processes caused by shelter-in-place or other governmental restrictions imposed as a result of the COVID-19 pandemic; reliance on, and loss of, key customer or distribution relationships; competition, including in the company's mortgage insurance businesses from GSEs offering mortgage insurance; the design and effectiveness of the company's disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations; and failure or any compromise of the security of the company's computer systems, disaster recovery systems and business continuity plans and failures to safeguard, or breaches of, its confidential information;
- insurance and product-related risks including: the company's inability to increase premiums and reduce benefits sufficiently, and in a timely manner, on its in force long term care insurance policies, in each case, as currently anticipated and as may be required from time to time in the future (including as a result of a delay or failure to obtain any necessary regulatory approvals, including as a result of the COVID-19 pandemic, or unwillingness or inability of policyholders to pay increased premiums and/or accept reduced benefits), including to offset any negative impact on the company's long term care insurance margins; availability, affordability and adequacy of reinsurance to protect the company against losses; decreases in the volume of high loan-to-value mortgage originations or increases in mortgage insurance cancellations; increases in the use of alternatives to private mortgage insurance and reductions in the level of coverage selected; potential liabilities in connection with the company's U.S. contract underwriting services; and medical advances, such as genetic research and diagnostic imaging, and related legislation that impact policyholder behavior in ways adverse to the company;
- other risks including: impairments of or valuation allowances against the company's deferred tax assets and the occurrence of natural or man-made disasters or a pandemic, such as the COVID-19 pandemic, could materially adversely affect its financial condition and results of operations.
The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise. This press release does not constitute an offering of any securities.
Condensed Consolidated Statements of Income | ||||||||||||
(Amounts in millions, except per share amounts) | ||||||||||||
(Unaudited) | ||||||||||||
Three months ended | Three months ended | |||||||||||
June 30, | March 31, | |||||||||||
2020 | 2019 | 2020 | ||||||||||
Revenues: | ||||||||||||
Premiums | $ | 1,019 | $ | 1,001 | $ | 1,015 | ||||||
Net investment income | 786 | 816 | 793 | |||||||||
Net investment gains (losses) | 159 | (46) | (152) | |||||||||
Policy fees and other income | 174 | 223 | 181 | |||||||||
Total revenues | 2,138 | 1,994 | 1,837 | |||||||||
Benefits and expenses: | ||||||||||||
Benefits and other changes in policy reserves | 1,486 | 1,251 | 1,361 | |||||||||
Interest credited | 139 | 146 | 141 | |||||||||
Acquisition and operating expenses, net of deferrals | 223 | 229 | 249 | |||||||||
Amortization of deferred acquisition costs and intangibles | 93 | 84 | 116 | |||||||||
Goodwill impairment | 5 | — | — | |||||||||
Interest expense | 44 | 60 | 52 | |||||||||
Total benefits and expenses | 1,990 | 1,770 | 1,919 | |||||||||
Income (loss) from continuing operations before income taxes | 148 | 224 | (82) | |||||||||
Provision (benefit) for income taxes | 46 | 66 | (10) | |||||||||
Income (loss) from continuing operations | 102 | 158 | (72) | |||||||||
Income (loss) from discontinued operations, net of taxes | (520) | 60 | — | |||||||||
Net income (loss) | (418) | 218 | (72) | |||||||||
Less: net income (loss) from continuing operations attributable to noncontrolling interests | 23 | 15 | (6) | |||||||||
Less: net income from discontinued operations attributable to noncontrolling interests | — | 35 | — | |||||||||
Net income (loss) available to Genworth Financial, Inc.'s common stockholders | $ | (441) | $ | 168 | $ | (66) | ||||||
Net income (loss) available to Genworth Financial, Inc.'s common stockholders: | ||||||||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.'s common | ||||||||||||
stockholders | $ | 79 | $ | 143 | $ | (66) | ||||||
Income (loss) from discontinued operations available to Genworth Financial, Inc.'s common | ||||||||||||
stockholders | (520) | 25 | — | |||||||||
Net income (loss) available to Genworth Financial, Inc.'s common stockholders | $ | (441) | $ | 168 | $ | (66) | ||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.'s common stockholders | ||||||||||||
per share: | ||||||||||||
Basic | $ | 0.16 | $ | 0.29 | $ | (0.13) | ||||||
Diluted | $ | 0.15 | $ | 0.28 | $ | (0.13) | ||||||
Net income (loss) available to Genworth Financial, Inc.'s common stockholders per share: | ||||||||||||
Basic | $ | (0.87) | $ | 0.33 | $ | (0.13) | ||||||
Diluted | $ | (0.86) | $ | 0.33 | $ | (0.13) | ||||||
Weighted-average common shares outstanding: | ||||||||||||
Basic | 505.4 | 503.4 | 504.3 | |||||||||
Diluted10 | 512.5 | 508.7 | 504.3 | |||||||||
Reconciliation of Net Income (Loss) to Adjusted Operating Income (Loss) | |||||||||||||
(Amounts in millions, except per share amounts) | |||||||||||||
(Unaudited) | |||||||||||||
Three | Three | ||||||||||||
months ended | months ended | ||||||||||||
June 30, | March 31, | ||||||||||||
2020 | 2019 | 2020 | |||||||||||
Net income (loss) available to Genworth Financial, Inc.'s common stockholders | $ | (441) | $ | 168 | $ | (66) | |||||||
Add: net income (loss) from continuing operations attributable to noncontrolling interests | 23 | 15 | (6) | ||||||||||
Add: net income from discontinued operations attributable to noncontrolling interests | — | 35 | — | ||||||||||
Net income (loss) | (418) | 218 | (72) | ||||||||||
Less: income (loss) from discontinued operations, net of taxes | (520) | 60 | — | ||||||||||
Income (loss) from continuing operations | 102 | 158 | (72) | ||||||||||
Less: net income (loss) from continuing operations attributable to noncontrolling interests | 23 | 15 | (6) | ||||||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.'s | |||||||||||||
common stockholders | 79 | 143 | (66) | ||||||||||
Adjustments to income (loss) from continuing operations available to Genworth Financial, Inc.'s common | |||||||||||||
stockholders: | |||||||||||||
Net investment (gains) losses, net11 | (131) | 43 | 115 | ||||||||||
Goodwill impairment, net12 | 3 | — | — | ||||||||||
(Gains) losses on early extinguishment of debt | (3) | — | 12 | ||||||||||
Expenses related to restructuring | 1 | — | 1 | ||||||||||
Taxes on adjustments | 30 | (8) | (29) | ||||||||||
Adjusted operating income (loss) | $ | (21) | $ | 178 | $ | 33 | |||||||
Adjusted operating income (loss): | |||||||||||||
U.S. Mortgage Insurance segment | $ | (3) | $ | 147 | $ | 148 | |||||||
Australia Mortgage Insurance segment | 1 | 13 | 9 | ||||||||||
U.S. Life Insurance segment: | |||||||||||||
Long Term Care Insurance | 48 | 37 | 1 | ||||||||||
Life Insurance | (81) | 10 | (77) | ||||||||||
Fixed Annuities | 28 | 19 | 6 | ||||||||||
Total U.S. Life Insurance segment | (5) | 66 | (70) | ||||||||||
Runoff segment | 24 | 9 | (13) | ||||||||||
Corporate and Other | (38) | (57) | (41) | ||||||||||
Adjusted operating income (loss) | $ | (21) | $ | 178 | $ | 33 | |||||||
Net income (loss) available to Genworth Financial, Inc.'s common stockholders per share: | |||||||||||||
Basic | $ | (0.87) | $ | 0.33 | $ | (0.13) | |||||||
Diluted | $ | (0.86) | $ | 0.33 | $ | (0.13) | |||||||
Adjusted operating income (loss) per share: | |||||||||||||
Basic | $ | (0.04) | $ | 0.35 | $ | 0.07 | |||||||
Diluted | $ | (0.04) | $ | 0.35 | $ | 0.07 | |||||||
Weighted-average common shares outstanding: | |||||||||||||
Basic | 505.4 | 503.4 | 504.3 | ||||||||||
Diluted10 | 512.5 | 508.7 | 504.3 | ||||||||||
Condensed Consolidated Balance Sheets | ||||||||||||
(Amounts in millions) | ||||||||||||
June 30, | December 31, | |||||||||||
2020 | 2019 | |||||||||||
(Unaudited) | ||||||||||||
Assets | ||||||||||||
Cash, cash equivalents, restricted cash and invested assets | $ | 78,520 | $ | 75,226 | ||||||||
Deferred acquisition costs | 1,718 | 1,836 | ||||||||||
Intangible assets and goodwill | 223 | 201 | ||||||||||
Reinsurance recoverable, net | 16,900 | 17,103 | ||||||||||
Deferred tax and other assets | 740 | 868 | ||||||||||
Separate account assets | 5,536 | 6,108 | ||||||||||
Total assets | $ | 103,637 | $ | 101,342 | ||||||||
Liabilities and equity | ||||||||||||
Liabilities: | ||||||||||||
Future policy benefits | $ | 41,463 | $ | 40,384 | ||||||||
Policyholder account balances | 22,921 | 22,217 | ||||||||||
Liability for policy and contract claims | 11,280 | 10,958 | ||||||||||
Unearned premiums | 1,804 | 1,893 | ||||||||||
Other liabilities | 2,075 | 1,428 | ||||||||||
Non-recourse funding obligations | — | 311 | ||||||||||
Long-term borrowings | 2,817 | 3,277 | ||||||||||
Separate account liabilities | 5,536 | 6,108 | ||||||||||
Liabilities related to discontinued operations | 653 | 134 | ||||||||||
Total liabilities | 88,549 | 86,710 | ||||||||||
Equity: | ||||||||||||
Common stock | 1 | 1 | ||||||||||
Additional paid-in capital | 11,996 | 11,990 | ||||||||||
Accumulated other comprehensive income (loss) | 4,447 | 3,433 | ||||||||||
Retained earnings | 899 | 1,461 | ||||||||||
Treasury stock, at cost | (2,700) | (2,700) | ||||||||||
Total Genworth Financial, Inc.'s stockholders' equity | 14,643 | 14,185 | ||||||||||
Noncontrolling interests | 445 | 447 | ||||||||||
Total equity | 15,088 | 14,632 | ||||||||||
Total liabilities and equity | $ | 103,637 | $ | 101,342 | ||||||||
Reconciliation of Adjusted Operating Income Previously Reported to Adjusted Operating Income | ||||
Re-Presented to Exclude Discontinued Operations | ||||
(Amounts in millions) | ||||
Three months ended | ||||
June 30, | ||||
2019 | ||||
Adjusted operating income as previously reported | $ | 204 | ||
Remove Canada Mortgage Insurance segment adjusted operating income reported | ||||
as discontinued operations | (41) | |||
Adjustment for corporate overhead allocations, net of taxes13 | (5) | |||
Adjustment for interest on debt that was required to be repaid as a result of the disposal | ||||
transaction, net of taxes14 | 6 | |||
Tax adjustments15 | 14 | |||
Re-presented adjusted operating income | $ | 178 | ||
Impact of Foreign Exchange on Adjusted Operating Income and Flow New Insurance Written16 Three months ended June 30, 2020 | |||||||
Percentages | Percentages | ||||||
Including Foreign | Excluding Foreign | ||||||
Exchange | Exchange17 | ||||||
Australia MI: | |||||||
Adjusted operating income | (92)% | (92)% | |||||
Flow new insurance written | 19 % | 32 % | |||||
Flow new insurance written (2Q20 vs. 1Q20) | 7 % | 15 % | |||||
Reconciliation of Reported Yield to Core Yield | |||||||||||
Three | |||||||||||
months ended | |||||||||||
June 30, | March 31, | ||||||||||
(Assets - amounts in billions) | 2020 | 2020 | |||||||||
Reported Total Invested Assets and Cash | $ | 77.9 | $ | 73.2 | |||||||
Subtract: | |||||||||||
Securities lending | 0.1 | 0.1 | |||||||||
Unrealized gains (losses) | 9.7 | 6.0 | |||||||||
Adjusted End of Period Invested Assets and Cash | $ | 68.1 | $ | 67.1 | |||||||
Average Invested Assets and Cash Used in Reported and Core Yield Calculation | $ | 67.6 | $ | 67.3 | |||||||
(Income - amounts in millions) | |||||||||||
Reported Net Investment Income | $ | 786 | $ | 793 | |||||||
Subtract: | |||||||||||
Bond calls and commercial mortgage loan prepayments | 8 | 16 | |||||||||
Other non-core items18 | 2 | 7 | |||||||||
Core Net Investment Income | $ | 776 | $ | 770 | |||||||
Reported Yield | 4.65 | % | 4.71 | % | |||||||
Core Yield | 4.59 | % | 4.57 | % | |||||||
________________________
1 Private Mortgage Insurer Eligibility Requirements
2 Long term care insurance
3 Unless otherwise stated, all references in this press release to net income (loss), net income (loss) per share, adjusted operating income (loss), adjusted operating income (loss) per share and book value per share should be read as net income (loss) available to Genworth's common stockholders, net income (loss) available to Genworth's common stockholders per diluted share, adjusted operating income (loss) available to Genworth's common stockholders, adjusted operating income (loss) available to Genworth's common stockholders per diluted share and book value available to Genworth's common stockholders per share, respectively.
4 This is a financial measure that is not calculated based on U.S. Generally Accepted Accounting Principles (Non-GAAP). See the Use of Non-GAAP Measures section of this press release for additional information.
5 The company defines "NM" as not meaningful for increases or decreases greater than 200 percent.
6 Company estimate for the second quarter of 2020 due to timing of the preparation and filing of statutory statements.
7 The PMIERs sufficiency ratio is calculated as available assets divided by required assets as defined within PMIERs. The current period PMIERs sufficiency ratio is an estimate due to the timing of the PMIERs filing for the U.S. mortgage insurance business. As of June 30, 2020, March 31, 2020, and June 30, 2019, the PMIERs sufficiency ratios were in excess of
8 Holding company cash and liquid assets comprises assets held in Genworth Holdings, Inc. (the issuer of outstanding public debt) which is a wholly-owned subsidiary of Genworth Financial, Inc.
9 Genworth Holdings, Inc. had
10 Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of the loss from continuing operations for the three months ended March 31, 2020, the company was required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share for the three months ended March 31, 2020, as the inclusion of shares for stock options, restricted stock units and stock appreciation rights of 5.4 million would have been antidilutive to the calculation. If the company had not incurred a loss from continuing operations for the three months ended March 31, 2020, dilutive potential weighted-average common shares outstanding would have been 509.7 million.
11 For the three months ended June 30, 2020, June 30, 2019 and March 31, 2020, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of
12 For the three months ended June 30, 2020, goodwill impairment was adjusted by
13 Expenses previously reported in the Canada MI segment and moved to Corporate and Other Activities.
14 Interest on a senior secured term loan facility owed by Genworth Holdings, Inc. previously reported in Corporate and Other Activities and moved to discontinued operations.
15 Tax impacts resulting from the classification of Genworth Canada as held-for-sale.
16 All percentages are comparing the second quarter of 2020 to the second quarter of 2019 unless otherwise stated.
17 The impact of foreign exchange was calculated using the comparable prior period exchange rates.
18 Includes cost basis adjustments on structured securities and various other immaterial items.
View original content:http://www.prnewswire.com/news-releases/genworth-financial-announces-second-quarter-2020-results-301102469.html
SOURCE Genworth Financial, Inc.
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