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©2008 Genworth Financial, Inc. All rights reserved.
Raymond James
Patrick KelleherChief Financial Officer
March 5, 2008
1Raymond James Conference – March 5, 2008
Forward-Looking StatementsThis presentation contains “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,”“anticipates,” “intends,” “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. 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 due to global political, economic, business, competitive, market, regulatory and other factors, including those discussed in the Appendix and in the risk factors section of the company’s Form 10-K filed with the SEC on February 28, 2007, the company’s Form 8-K filed with the SEC on April 16, 2007 and the company’s Form 10-Q filed with the SEC on October 26, 2007. The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
Non-GAAP and Selected Operating Performance Measures
All references to EPS, income, and ROE refer to net operating earnings per diluted share, net operating income and operating return on equity. All references to ROE in the business segments are levered, assuming 25% debt to total capital at the product line level.
All financial data as of 12/31/07 unless otherwise noted. For additional information, please see Genworth’s Fourth Quarter of 2007 earnings release and financial supplement, as well investor materials dated February 8, 2008 regarding Genworth’s U.S. Mortgage Insurance business, posted at www.genworth.com.
For important information regarding the use of non-GAAP measures and selected operating performance measures, see the Appendix.
This presentation should be used in conjunction with the accompanying audio or call transcript.
2Raymond James Conference – March 5, 2008
9.5%11.0%
20041 2007
Retirement & Protection
50%
2007Percentages Exclude Corporate And Other
13 - 14%
2010 – 2011Target
Retirement & Protection
50%
U.S. Mortgage Ins. 11%
International39%
2007 PerformanceOperating EPS Operating ROE
$3.07
1 Pro Forma - See Genworth’s Q4 2005 Earnings Release (Dated 1/26/06) For Reconciliation. Adjusted For Earnings From Discontinued Operations Of $36MM
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Genworth Strategy
Mortgage Insurance
ProtectionWellness &
Care Services
AccumulationManaged Accounts
Homeownership Life Security
Wealth Management
Your Financial Security Company
Retirement Security
IncomeLTC
Liquidity
25 40
5570Age
Delivering Financial Security
4Raymond James Conference – March 5, 2008
U.S. MI 61% Mid Teens
Int’l MI 34% High Teens
Int’l PPI 23% High Teens
Fee Based 84% High Teens
New Life 33% Low Teens
New LTC 17% Mid Teens
Opportunistic Spread (13%) Low Teens
Positioning For The Future
2008E
Operating Income Mix
2007
Repositioning
Growth Engines
Driving Growth/ROE Expansion
2010/11E
~80%
~85%+
Fee Based Includes Fee Based Retirement Income & Managed Money. Spread Includes Spread Based Retirement Income & Institutional
2005-2007 Sales CAGR
New Business ROE
Old Life/Spread Extract Capital
Old LTC Improve ROE/Extract Capital
~90%
Redeployment
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Today’s UpdatesPriority Growth Opportunities– International
– Fee Based Wealth Management & Retirement
U.S. Mortgage Insurance
Investment Portfolio
Capital Optimization & Deployment
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Strong International Platform
($MM)
25+ Countries
600+ Distribution Relationships
1,900+ Associates
Global Risk Management
Double Digit Growth
Operating Income~50% GNWOp Income
Australia
22% 2007 Operating ROE$3.4B Mortgage Insurance Unearned Premium Reserve (12/31/2007)
Europe& Other
Retirement Products
2010-2011E2007
585
Canada
PPI
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200+ Financial Institutions Globally
Distributor Branded
Direct or Reinsurance
Sickness/Accident ~50%
Life ~25%
Unemployment ~25%
3 - 5 Year Average Life
PersonalLoan
Mortgage
Other
AutoCredit Card
Protected By:– Waiting & Exclusion Periods– Capitated Claim Payment Period– Maximum Limits
Payment Protection OverviewCoverage2007 Sales By Obligation
52%
16%
8%
13%11%
Mix
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Structured
1.4
.7
.2
.5
New Markets
U.K. & Ireland
ContinentalEurope
2.8($B)
Penetrate Significant Customer Base
New Products & Customers
Lender Structured Transactions
New Markets
Transfer Product/Risk Expertise
Leverage Global Client Base
Mexico, Poland, South Korea, Others
Payment Protection OpportunitySales By Region Established Markets
2007
9Raymond James Conference – March 5, 2008
Global Mortgage Insurance EnvironmentDemand Drivers: Homeownership Initiatives, Capital Regulation,
Economic Environment
Economies Generally Healthy
Slowing Global Housing Finance & Appreciation Trends– Most Pronounced in Spain, Ireland & U.K.
Some Liquidity Impact On Global Housing Finance
Significant Structural Differences vs. U.S.
New Markets Develop Gradually
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Comparing Mortgage MarketsU.S. AustraliaCanadaRisk Management Europe
Credit ScoringExternal Yes Yes No U.K. OnlyInternal Yes Yes Yes U.K. Only
Sub-Prime, Reduced Doc And Second Liens Based On Company Estimates
Reduced Documents ~13% Self Self LimitedEmployed Employed
Sub-Prime Products ~20% Limited Limited Limited
Property Appraisals Yes Yes Yes Yes
Second Liens ~14% Limited Limited Limited
Borrower Underwriting Yes Yes Yes Yes
Premium Payment Monthly Single Single Single
11Raymond James Conference – March 5, 2008
151
Canada
Europe / Other
Australia
Canada & AustraliaCustomer PenetrationUnderwriting & Pricing DisciplineEnsure Exposure ManagementExpand Support Services
($B)
12/31/2007See Appendix For Details Regarding Global MI Risk In Force
International Mortgage Insurance StrategyPrimary Risk In Force
Europe & OtherSlowed ExpansionSelective Geographies / LendersBuild Gradually For The Future
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Expanding U.S. Wealth ManagementAssets Under Management
AssetMarkAcquisition
Existing Platforms
2007
22
3 YrCAGR
($B)
Strong Organic & Acquisition PerformanceAdvisor Expansion & PenetrationLeveraging Practice Management Services~ 36%
~ 33%
~ 34%
Total Market AUM Outlook
Independent
Other Channels
2010E
2.8
($T)Expect Future Growth Ahead of Market– Product Innovation/Income Guarantees
– Expanded Services Offerings
– Acquisitions
~ 12%
3 Yr CAGR1
~ 11%
~ 17%
1 Cerulli & Management Estimates
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Early Mover
9%
2.8
15%+
1.7 2.7
Positioned For Income Guarantee Market
Market Size1
Market Growth1 15%+
In Process
~ 5.6
✓ Established
5 - 8%
~$10 Trillion Opportunity for Income Guarantees
401(k) /403(b)
ManagedMoney
Mutual Funds
Individual VA(Retail + Rollover)
1 Company And 3rd Party Estimates. Market Size In Trillions
GenworthPosition ✓ Established
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U.S. Mortgage Insurance Overview
Industry Represents MGIC, PMI, UGI, ORI, and Triad Based on MICA Reports. Delinquency Rate Represents Number of Lender Reported Delinquencies Divided by Number of Remaining Policies Consistent with Industry Practices
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
Genworth
Industry
Dec ‘05 Jun ‘06 Dec ‘06 Dec ‘07Jun ‘07
Primary Delinquency Rates
Risk Mix Of Book An Important DifferentiatorCaptive Reinsurance Protects DownsideProduct, Price & Guideline Actions In 2007/2008Quality Revenue Dynamics
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U.S. Mortgage Insurance Portfolio
70-75%
25-30%
Risk In Force
Performing
Under-Performing
Portfolio Mix
91% Prime Book
Avoided Sub-Prime Bulk & Second Liens
Worked to Minimize Stacked Risk Factors
Moved Actively On Risk & Pricing Guidelines With Market Shifts
2004 & Prior Books – Appreciation Benefit
2005-2007 Books – Blended Performance & Reinsurance Protection
Under-Performing Refers To Selected Product, Geographical and Book Year Combinations Where Ever-To-Date Actual Loss Ratio Performance Exceeds Ever-To-Date Pricing Expectations. Select Geographies Include CA, FL, AZ, NV and Great Lakes, Select Products Include Alt-A, A Minus and Sub-Prime.
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40% Cede Excess of Loss Example
GNW
Lender
Premiums
60%
40%
GNW
Lender
Losses
1st Loss (0-4 Claims Layer)
GNW
2nd Loss(4-14 Claims Layer)
RemainingLosses
Lender Captive Reinsurance Protection
25% Cede Excess of Loss Example
GNW
Lender
Premiums
75%
25%
GNW
Lender
Losses
1st Loss (0-5 Claims Layer)
GNW
2nd Loss(5-10 Claims Layer)
RemainingLosses
Captive Reinsurance Liability Limited to Funds in Trust, Not Subject to Lender Bankruptcy.Trust Balance Impacted by Future Premiums Received, Payment of Claims and Dividends.Percentage of GNW Portfolio in Captive Reinsurance Arrangements As of 12/31/07.
63% GNW Flow Portfolio Has Lender Captive Reinsurance Coverage– Protects Downside Risk
Written on a “Book Year” Basis By Lender
Attachment Points Are % of a Book Year’s Original Risk In Force
Reinsurance Premiums Deposited in 3rd Party Trust
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Lender Captive Attachment Progression
0 – 50% .7 1050 – 75% 1.8 5575 – 100% .8 31100%+ (Captive Benefit) .1 5
3.4 $101
2006 Book Year Example
% Progression to Specific Lender
Attachment Point
RIF Remaining
($B)
Ever to Date Incurred Losses
($MM)
$4.3B Original Risk In Force With Captive Reinsurance Coverage$173MM Losses = Sum of All Attachment Points 46 Lender Captives Comprise Total – Actual Attachment Will Vary By Lender
2006 Attachment Trend As Of 4Q07
58% Progression to Aggregate Attachment Point
Includes ~$1MM of Captive Reinsurance Benefit
Aggregate Book Year Analysis Provided To Illustrate Directional Progression Toward Attachment. Data Presented in Aggregate For All Trusts. Actual Trust Attachment Will Vary By Individual Lender Contract. Additional Book Years Included in Appendix.Incurred Losses = Change in Reserves + Paid Claims. Information Excludes Quota Share Captive Arrangement Data.
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Product Actions Taken For 2008
Alt-A > 90% LTV, < 660 FICOA Minus Above 95% LTV, < 575 FICO100 LTV < 620 FICO And Interest Only
Price Increases
Prime≤ 95% LTV
Prime> 95% LTV
A-MinusAlt-A
Flow New Insurance Written
80%
1%5% 2%
Products Not Insured By GenworthSub-Prime Bulk Alt-A >95% LTV
Guideline Restrictions
2008E
Alt-A Primary & 2nd, Purch. & Rate TermA Minus Primary Only100 LTV 95% LTV In 85 Declining Markets
Alt-A ~43% In 660 – 699 FICO BucketA Minus ~18% Price Increase100 LTV ~50% Increase For 56% of NIW
Sub-Prime
12%
100%
Genworth Alt-A Consists Of Loans With Reduced Documentation Or Verification Of Income Or Assets And A Higher Historical And Expected Default Rate Than Standard Documentation Loans.
Product Exits
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U. S. Mortgage Insurance – Looking AheadMarket Returns To MI Book Value Supported
12/31/07 12/31/12E
$2.6$0.5
$0.7
($B) @ 100% Loss Severity
ExistingBusiness
UnderwritingMargin
NewBusinessInvest.
Income
2008E Book Value $2.5 to $2.6B
$3.9+
2006 2007
Quality New Business$3B Investment PortfolioCaptive Reinsurance Coverage
174
287
($B)
1 Inside Mortgage Finance As Of January 31, 2008
U.S. MI Flow NIW Market1
See February 8, 2008 Investor Update In Its Entirety For Scenario Details
Investor Briefing Scenario
65%
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Investment PortfolioQuality Assessment~50% Investment Grade BondsCommercial Mortgages LTV ~52%Commercial MBS 98% Investment Grade
– Original Average LTV ~69%Avoided RMBS CDOsMunicipals Underwritten to Underlying CreditSecurities Lending A-1/P-1 and AAA
4%
7%
$74
CMBS & ABS
Equity & LPs 2%
Non-Inv GradeMunicipal 3%
Policy Loans 2%
Sec Lending 3%
12/31/07
($B)
RMBSCash & ST
Risk Considerations$2.9B Remaining Sub-Prime / Alt-A RMBS –Substantial Markdowns TakenBelow Investment Grade Under 4%Equities Less Than 1%
49%
12%
4%
12%
LTC Hedges/Others 2%
CommercialMortgages
Investment Grade Public &Private Bonds
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Sub-Prime Securities Update
A
BBB/BB/B
AA
AAA
Market Value 12/31/07
Sub-Prime RMBS
($284) Change In Market Value Since 9/30/07
($MM)1,486
95% Level 2 Pricing
Regular Performance Monitoring
$71MM After-Tax Impairments 4Q ’07 – Primarily 2006 Vintage
– 75% < BBB
– 25% Single A
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+++
++ ++- +
Neutral/+
Neutral
+
++ +
+ +
+ ++
++ ++ ++
Five Levers to Drive Shareholder Value
Core Growth & Improving Returns
Capital Management & Redeployment
Cost Efficiencies
Investment Performance
Smart Use Of Capital Markets
2004 – 2007 2008E 2009/10E
Impact
International/Retirement & ProtectionU.S. Mortgage Insurance
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Focus On Redeploying Low Return Capital
2.8
12/31/2007
Life / Annuities
Old LTC
($B)
Reassessed Blocks Under Integrated Retirement & Protection Organization
Assessing Reinsurance, Capital Markets and Closed Block Options
8 to 12 Percent Pricing Action
Pursuing Extraction Options– Individual Or Blended Blocks
Select Blocks Targeted
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The Case For Genworth
13%-14%
11.0%11.0%10.4%
1 See Genworth’s 4Q ’05 Income Press Release (Dated 1/26/06) For Reconciliation. GAAP Basis ROE 10.7%.
Shifting Mix For Growth & Returns
Expanding International & Wealth/Retirement Platforms
Capital & Risk Management Discipline
ROE Expansion Path – Manageable Disruption In 2008
1 2010 – 2011 Target
2005 2006 2007
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Captive Reinsurance - Disclosure
Aggregate Book Year Analysis Provided To Illustrate Directional Progression Toward Attachment.Data Presented in Aggregate For All Trusts. Actual Trust Attachment Will Vary By Individual Lender Contract.Incurred Losses = Change in Reserves + Paid ClaimsInformation excludes Quota Share Captive Arrangement Data.
Book Year RIF ($B)
Sum of Loss Attachment
Points ($MM)
Progression to
Attachment Point Current RIF ($B)
Ever to Date Incurred Losses
($MM)
Additional Losses to Reach Aggregate Attachment ($MM)
Aggregate % to
Attachment2005 Total 3.0 125 2.0 61 64 49%
0 -50% 0.8 1650 -75% 0.8 2875-99% 0.4 15Attached 0.0 2
2006 Total 4.3 173 3.4 101 72 58%0 -50% 0.7 10
50 -75% 1.8 5575-99% 0.8 31Attached 0.1 5
2007 Total 7.2 289 6.9 56 233 19%0 -50% 6.9 56
50 -75% 0.0 075-99% 0.0 0Attached 0.0 0
Captive Benefit in Quarter ($MM) 1
Captive Disclosure Q4 2007
Original Book 4Q07
27Raymond James Conference – March 5, 2008
A 5-Year View
Existing Portfolio
Book Value ProfileKey Assumptions
12/31/07 12/31/12E
$2.6$0.5
$0.7($B) @ 100% Severity
ExistingBusiness
UnderwritingMargin
NewBusinessInvest.
Income
Claim Frequency Expectation for Every 100 Loans
Company Estimates; Captive Attachment Based on Aggregate Analysis – Actual Results Will Vary By Lender
Lifetime Loss Ratio Reflects Weighted Average Lifetime Expected Loss Ratio For Total Portfolio
Existing Business and Investment Income Are Net of Income TaxesExisting Business Includes After Tax Premium From International Support ArrangementsProjected Book Value Excludes Impact of Dividends From Our U.S. Mortgage Insurance
Subsidiaries to Genworth
Portfolio
’04 & Prior
’05 – ’07
’08 & Forward
Ever-To-Date
1.4
0.3
-
CaptivesAttach?
No
Yes
No
Lifetime
2
8
4
Claim Frequency
2005-2007 Books @ 115% Severity: $.1B Additional Losses By 2012
Performing Well 5Under-Performing 13
2007 2012E2010E2008E 2009E 2011E
$2.6
($B) @ 100% Severity
Book Value Progression
$2.5-2.6
$3.9+
$3.9+
28Raymond James Conference – March 5, 2008
Exhaust Captive CoverageClaim Frequency Assumptions for Every 100 Loans
Portfolio
’04 & Prior
’05 – ’07
’08 & Forward
Ever-To-Date
1.4
0.3
-
CaptivesAttach?
No
Yes
No
Lifetime
2
15
4
Claim Frequency
Scenarios: Exhaust Captives or Eliminate Book Value
U.S. Mortgage Ins. Book Value To 0Claim Frequency Assumptions for Every 100 Loans
Portfolio
’04 & Prior
’05 – ’07
’08 & Forward
Ever-To-Date
1.4
0.3
-
CaptivesAttach?
No
Yes
No
Lifetime
2
40
4
Claim Frequency
Performing 8Under-Performing 25
Performing 10Under-Performing 81
Company Estimates; Captive Attachment Based on Aggregate Analysis – Actual Results Will Vary By LenderExisting Business and Investment Income Are Net of Income TaxesExisting Business Includes After Tax Premium From International Support ArrangementsProjected Book Value Excludes Impact of Dividends From U.S. Mortgage Insurance Subsidiaries to Genworth
12/31/07 12/31/12
$2.6 $(0.3)$0.6
NewBusinessInvest.
IncomeExistingBusiness
UnderwritingMargin
($B) @ 100% Severity
2005-2007 Books @ 115% Severity: $.2B Additional Losses Incurred By 2012
Book Value Profile$2.9+
29Raymond James Conference – March 5, 2008
U.S. MI Portfolio – Delinquency Rates($B)
Total FICO > 660 FICO 620 - 659 FICO < 620Primary Risk In Force 3Q 07 4Q 07 3Q 07 4Q 07 3Q 07 4Q 07 3Q 07 4Q 07
Primary Risk In Force $28.1 $19.7 $5.9Default Rate 3.4% 1.9% 6.3%
2007 Policy Year $8.1 $5.5 $1.7Default Rate 1.4% 0.9% 1.7%
2006 Policy Year $6.0 $4.2 $1.2 $0.6Default Rate 3.8% 2.2% 6.0% 12.6%
2005 Policy Year $4.4 $3.1 $0.9 $0.4Default Rate 4.0% 2.4% 6.6% 12.2%
2004 & Prior Policy Years $9.6 $6.8 $2.1Default Rate 4.3% 2.2% 8.8%
Fixed Rate $26.2 $18.2 $5.6 $2.4Default Rate 3.3% 1.7% 6.2% 10.3%
ARMs $1.9 $1.5 $0.3 $0.1Default Rate 4.1% 3.0% 9.0% 17.1%
LTV > 95% $7.9 $4.7 $2.1Default Rate 4.6% 2.1% 6.4%
Alt-A $1.9 $1.5 $0.3 $0.1Default Rate 4.1% 3.3% 7.9% 13.2%
Interest Only & Option ARMs $3.6 $2.9 $0.5 $0.2Default Rate 3.1% 2.6% 5.7% 9.9%
$0.95.0%
$2.510.5%
$0.714.0%
$1.111.6%
Loans With Unknown FICO Scores Are Included in the FICO 620 – 659 CategoryDelinquency Rate Represents Number of Lender Reported Delinquencies Divided By Number of Remaining Policies Consistent With Mortgage Insurance Industry PracticesGNW Alt-A Consists of Loans With Reduced Documentation or Verification of Income or Assets And a Higher Historical And Expected Default Rate Than Standard Documentation Loans.
= Significant Increases in Delinquency Rates
$31.34.3%
$12.12.8%
$5.95.4%
$4.25.2%$9.14.7%
$29.44.0%$1.97.2%
$8.85.8%
$1.96.2%
$4.05.6%
$22.12.5%
$8.51.7%
$4.13.6%
$3.03.2%
$6.52.4%
$20.62.1%$1.55.9%
$5.42.6%
$1.65.1%
$3.35.0%
$6.47.5%
$2.43.8%
$1.28.3%$0.98.5%
$1.99.5%
$6.17.2%$0.312.0%
$2.38.0%
$0.311.7%
$0.59.2%
$2.912.8%
$1.39.4%
$0.615.4%
$0.314.4%
$0.715.3%
$2.712.5%
$0.123.2%$1.215.3%
$0.118.2%
$0.216.8%
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Europe
Comparing Global MI Risk In Force
U.S. AustraliaCanada
66
2007
20062005
22
9
13
7
2004& Prior
31
($B)
9
5
12
4
77
27
14
16
10
8
86%
77%
71%
~60%
Effective LTV1
75%
71%
63%
~60%
92%87%
94%
93%88%
<80%
Canada and Australia – Solid Embedded Home Price Appreciation
Effective LTV
Effective LTV
Effective LTV
Vintage
Bulk 1
15 ~50% 10 ~50%~70%~75%
1 Book Year Risk In Force and Effective LTV Based on Flow; Total Bulk Shown Separately Primary Risk In Force as of 12/31/07
31Raymond James Conference – March 5, 2008
Stress Test Prior To InvestmentAvoided Riskier Originators & 2nd LiensUnderlying LTVs ~ 80%~4 Year Average Life2007 Impairments: $78MM; 77% BBB & Below
2004 & Prior 2005 2006 1st Half 2006 2nd Half 2007
163
618734
166
112
14743
130
5281 13
19891
102
345468
265215 193
Sub-Prime RMBS Holdings($MM)
AAA 51%
AA 22%
A 21%
<BBB 6%
24
Ratings Reflect Levels As Of 12/31/07
Total = $1,486
32Raymond James Conference – March 5, 2008
2004 & Prior 2005 2006 1st Half 2006 2nd Half 2007
~85% Fixed Rate Mortgages (> 5 Year)Weighted Average FICO ~710Underlying LTVs ~73%2007 Impairments: $26MM; 73% BBB & Below
214
3271
262
274
13016
126
9961 7
103618
81
10
682
293
46101
327
2
Alt-A RMBS Holdings($MM)
AAA 50%
AA 29%
A 19%
<BBB 2%
Ratings Reflect Levels As Of 12/31/07
Total = $1,449
33Raymond James Conference – March 5, 2008
Capital Generation
U.S. Stat EarningsAnd Capital Release
International
Capital Markets Efficiency
Block Extraction
Other Capital Mgmt.
Actions2007E 2008E
1.3 1.4
0.6 0.4
0.9 1.1
0.3 0.4
0.9 0.2
Retirement & Protection GrowthU.S. Mortgage Insurance Decline
2007 Group Sale Selective Reinsurance
Increase Reflects Growing In Force
Life XXX and AXXX Securitizations
Contingency Reserve Release2007 Equity Unit ConversionDebt Capacity & Service
($B)
4.0 3.5
34Raymond James Conference – March 5, 2008
Capital Deployment
New Business Funding– Statutory Strain– Required Capital
Bolt-On Acquisition Pipeline
Repurchases/Dividends
Ending Deployable Capital
International, Annuities & LTC Growth
$1B Authorization Through ’09: $100MM Repurchased Through January
Pipeline Maintained Target Fee Based & International
Actions
($B)
2.6 2.8
1.3 .3 - .7
.8 .3 - .6
2007E 2008E
4.0 3.7 - 4.0
.1 .2 - .5
35Raymond James Conference – March 5, 2008
Use Of Non-GAAP MeasuresThis presentation includes the non-GAAP financial measure entitled "net operating income." The chief operating decision maker evaluates segment performance and allocates resources on the basis of net operating income. The company defines net operating income (loss) as income (loss) from continuing operations excluding after-tax net investment gains (losses) and other adjustments and infrequent or unusual non-operating items. This metric excludes these items because the company does not consider them to be related to the operating performance of its segments and Corporate and Other activities. A significant component of the net investment gains (losses) is the result of credit-related impairments and credit-related gains and losses, the timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) are often subject to Genworth’s discretion and are influenced by market opportunities, as well as asset-liability matching considerations. Infrequent or unusual non-operating items are also excluded from net operating income 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 in accordance with GAAP, the company believes that net operating income, and measures that are derived from or incorporate net operating income, are appropriate measures that are useful to investors because they identify the income attributable to the ongoing operations of the business. However, net operating income should not be viewed as a substitute for GAAP net income. In addition, the company's definition of net operating income may differ from the definitions used by other companies. There were no infrequent or unusual non-operating items excluded from net operating income for the periods presented in this press release other than a $14 million after-tax expense recorded in the first quarter of 2007 related to reorganization costs. The tables in the appendix of this presentation reflect net operating income (loss) as determined in accordance with Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, and a reconciliation of net operating income (loss) of the company’s segments and Corporate and Other activities to net income.
Due to the unpredictable nature of the items excluded from the company's definition of net operating income, the company is unable to reconcile its outlook for net operating income to net income presented in accordance with GAAP.
In this presentation, the company also references the non-GAAP financial measure entitled “operating return on equity” or “operating ROE.” The company defines operating ROE as net operating income divided by average ending stockholders’ equity, excluding accumulated other comprehensive income (AOCI) in average ending stockholders’ equity. Management believes that analysis of operating ROE enhances understanding of the efficiency with which the company deploys its capital. However, operating ROE as defined by the company should not be viewed as a substitute for GAAP net income divided by average ending stockholders’ equity. The tables in the appendix of this presentation include a reconciliation of operating ROE to GAAP net income divided by average ending stockholders’ equity. Due to the unpredictable nature of net income and average ending stockholders’ equity excluding AOCI, the company is unable to reconcile its outlook for operating ROE to GAAP net income divided by average ending stockholders’ equity.
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Consolidated Net Income by Quarter(amounts in millions, except per share amounts)
39Raymond James Conference – March 5, 2008
Selected Operating Performance MeasuresThis presentation also contains selected operating performance measures including “sales,” “assets under management”, “insurance in-force” or “risk in-force” which are commonly used in the insurance and investment industries as measures of operating performance.
Management regularly monitors and reports sales metrics as a measure of volume of new and renewal business generated in a period. Sales refers to (1) annualized first-year premiums for term life insurance, long-term care insurance and Medicare supplement insurance; (2) new and additional premiums/deposits for universal life insurance, linked-benefits, spread-based and variable products; (3) gross flows and net flows, which represent gross flows less redemptions, for our managed money business; (4) written premiums and deposits, gross of ceded reinsurance and cancellations, and premium equivalents, where we earn a fee for administrative services only business, for payment protection insurance; (5) new insurance written for mortgage insurance, which in each case reflects the amount of business the company generated during each period presented; and (6) written premiums, net of cancellations, for our Mexican insurance operations. Sales do not include renewal premiums on policies or contracts written during prior periods.
The company considers annualized first-year premiums, new premiums/deposits, gross and net flows, written premiums, premium equivalents and new insurance written to be a measure of the company’s operating performance because they represent a measure ofnew sales of insurance policies or contracts during a specified period, rather than a measure of the company’s revenues or profitability during that period.
Management regularly monitors and reports assets under management for the company’s managed money business, insurance in-force and risk in-force. Assets under management for the company’s managed money business represent third-party assets under management that are not consolidated in our financial statements. Insurance in-force for the company’s life insurance, international mortgage insurance and U.S. mortgage insurance businesses is a measure of the aggregate face value of outstanding insurance policies as of the respective reporting date. Risk in-force for the company’s international mortgage insurance and U.S. mortgage insurance businesses is a measure that recognizes that the loss on any particular mortgage loan will be reduced by the net proceeds received upon sale of the underlying property. The company considers assets under management for the company’s managed money business, insurance in-force and risk in-force to be a measure of the company’s operating performance because they represent a measure of the size of the company’s business at a specific date, rather than a measure of the company’s revenues or profitability during that period.
These operating measures enables 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.
40Raymond James Conference – March 5, 2008
Cautionary note regarding forward-looking statements
This presentation 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 our future business and financial performance. 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 due to global political, economic, business, competitive, market, regulatory and other factors and risks, including the following:
• Risks relating to our businesses, including interest rate fluctuations, downturns and volatility in equity and credit markets, defaults in portfolio securities,downgrades in our financial strength and credit ratings, insufficiency of reserves, legal constraints on dividend distributions by subsidiaries, competition, availability and adequacy of reinsurance, defaults by counterparties, regulatory restrictions on our operations and changes in applicable laws and regulations, legal or regulatory investigations or actions, political or economic instability, the failure or any compromise of the security of our computer systems, and the occurrence of natural or man-made disasters or a pandemic disease;
• Risks relating to our Retirement and Protection segment, including unexpected changes in morbidity and mortality, accelerated amortization of deferred acquisition costs and present value of future profits, goodwill impairments, reputational risks as a result of our plans to file for an increase in the premiums on certain in-force long-term care insurance products, medical advances such as genetic mapping research, unexpected changes in persistency rates, increases in statutory reserve requirements, and the failure of demand for long-term care insurance to increase as we expect;
• Risks relating to our International segment, including political and economic instability, foreign exchange rate fluctuations, unexpected changes in unemployment rates, deterioration in economic conditions or decline in home price appreciation, unexpected increases in mortgage insurance default rates or severity of defaults, decreases in the volume of high loan-to-value international mortgage originations, increased competition with government-owned and government-sponsored entities offering mortgage insurance, changes in regulations, and growth in the global mortgage insurance market that is lower than we expect;
• Risks relating to our U.S. Mortgage Insurance segment, including the influence of Fannie Mae, Freddie Mac and a small number of large mortgage lenders and investors, decreases in the volume of high loan-to-value mortgage originations or increases in mortgage insurance cancellations, increases in the use of simultaneous second mortgages and other alternatives to private mortgage insurance and reductions by lenders in the level of coverage they select, unexpected increases in mortgage insurance default rates or severity of defaults, deterioration in economic conditions or a decline in home price appreciation, increases in the use of reinsurance with reinsurance companies affiliated with our mortgage lending customers, increased competition with government-owned and government-sponsored entities offering mortgage insurance, changes in regulations, legal actions under Real Estate Settlement Practices Act, and potential liabilities in connection with our U.S. contract underwriting services; and
• Other risks, including the possibility that in certain circumstances we will be obligated to make payments to GE under our tax matters agreement even if our corresponding tax savings are never realized and payments could be accelerated in the event of certain changes in control, and provisions of our certificate of incorporation and by-laws and our tax matters agreement with GE may discourage takeover attempts and business combinations that stockholders might consider in their best interests.
We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.