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Article by DailyStocks_admin    (02-23-12 12:49 AM)

Description

Genworth Finl. Director STEVEN W ALESIO bought 50000 shares on 2-15-2012 at $ 8.91

BUSINESS OVERVIEW

Overview

Genworth Financial, Inc. is a leading financial security company dedicated to providing insurance, wealth management, investment and financial solutions to more than 15 million customers, with a presence in more than 25 countries. Genworth was incorporated in Delaware in 2003 in preparation for an initial public offering of Genworth common stock, which was completed on May 28, 2004 (“IPO”). We are headquartered in Richmond, Virginia and have approximately 6,500 employees.

As a financial security company, we are dedicated to helping meet the life security, retirement security, wealth management and homeownership needs of our customers. Our life security offerings protect people during unexpected events. These life security products and services include our payment protection coverages in Europe, Canada and Mexico, and in the United States, life insurance products, as well as care coordination and wellness services. We help people achieve financial goals and independence by providing retirement security offerings. In the United States, retirement security products include various types of annuity and guaranteed retirement income products, as well as individual and group long-term care and Medicare supplement insurance. We help individuals accumulate and build wealth for financial security in the United States with our wealth management products that include financial planning services and managed accounts. We enable homeownership in the United States and internationally by providing mortgage insurance products that allow people to purchase homes with low down payments while protecting lenders against the risk of default. Through our homeownership education and assistance programs, we also help people keep their homes when they experience financial difficulties. Across all of our businesses, we differentiate through product innovation and by providing valued services such as education and training, wellness programs, support services and technology linked to our insurance, investment and financial products that address both consumer and distributor needs. In doing so, we strive to be easy to do business with and help our business partners grow more effectively.

Our products and services are designed to help consumers meet key financial security needs. Our primary products and related services are targeted at markets that are benefiting from significant demographic, legislative and market trends, including the aging population across the countries in which we operate, and the growing reality that responsibility for building financial security resides primarily with the individual. We distribute our products and services through diversified channels that include financial intermediaries, advisors, independent distributors, affinity groups and dedicated sales specialists. We are committed to our distribution partners and policyholders and continue to invest in key distribution relationships, product innovation and service capabilities.

As of December 31, 2010, we had the following operating segments:


•

Retirement and Protection. We offer and manage a variety of protection, wealth management and retirement income products. Our primary protection products include life and long-term care insurance. Additionally, we offer other Medicare supplement insurance products, as well as care coordination services for our long-term care policyholders. Our wealth management and retirement income products include: a variety of managed account programs and advisor services, financial planning services, fixed and variable deferred and immediate individual annuities and group variable annuities offered through retirement plans. For the year ended December 31, 2010, our Retirement and Protection segment’s net income available to Genworth Financial, Inc.’s common stockholders and net operating income available to Genworth Financial, Inc.’s common stockholders were $403 million and $485 million, respectively.

•

International. We offer mortgage and lifestyle protection insurance products and related services in multiple markets. We are a leading provider of mortgage insurance products in Canada, Australia, Mexico and multiple European countries. Our products predominantly insure prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. On a limited basis, we also provide mortgage insurance on a structured, or bulk, basis that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk. We are a leading provider of payment protection coverages (referred to as lifestyle protection) in multiple European countries. Our lifestyle protection insurance products primarily help consumers meet specified payment obligations should they become unable to pay due to accident, illness, involuntary unemployment, disability or death. For the year ended December 31, 2010, our International segment’s net income available to Genworth Financial, Inc.’s common stockholders and net operating income available to Genworth Financial, Inc.’s common stockholders were $444 million and $434 million, respectively.


•

U.S. Mortgage Insurance. In the United States, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. We selectively provide mortgage insurance on a structured, or bulk, basis with essentially all of our bulk writings prime-based. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk. For the year ended December 31, 2010, our U.S. Mortgage Insurance segment’s net loss available to Genworth Financial, Inc.’s common stockholders and net operating loss available to Genworth Financial, Inc.’s common stockholders were $559 million and $580 million, respectively.

We also have Corporate and Other activities which include debt financing expenses that are incurred at our holding company level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of non-core businesses and non-strategic products that are managed outside of our operating segments. Our non-strategic products include our institutional and corporate-owned life insurance products. Institutional products consist of: funding agreements, funding agreements backing notes (“FABNs”) and guaranteed investment contracts (“GICs”). For the year ended December 31, 2010, Corporate and Other activities had a net loss available to Genworth Financial, Inc.’s common stockholders and a net operating loss available to Genworth Financial, Inc.’s common stockholders of $146 million and $213 million, respectively.

We had $13.9 billion of total Genworth Financial, Inc.’s stockholders’ equity and $112.4 billion of total assets as of December 31, 2010. For the year ended December 31, 2010, our revenues were $10.1 billion and we had net income available to Genworth Financial, Inc.’s common stockholders of $142 million.

Positioning for the Future

We offer a variety of products and services that meet consumers’ financial security needs at various stages of their lives. We focus on those products and services where we have leadership positions or can differentiate based on: product innovation and value; risk expertise; distribution strength; service effectiveness or cost efficiency. Consistent with this strategy, we have concentrated our product and service offerings in our life insurance, long-term care insurance, wealth management, lifestyle protection insurance and mortgage insurance businesses. We also selectively target certain annuity and supplemental protection offerings. As a result, in January 2011, we announced we have discontinued new sales of variable annuity products. This approach is designed to help us achieve growth and create stockholder value through pursuit of the following key initiatives:


•

Drive new business with improved profitability. As we focus on our leadership businesses, we continue to concentrate on market segments that we see as most attractive and that best fit with our strengths, profitability targets and risk tolerance. We strive to maintain appropriate return and risk thresholds in our product offerings through pricing actions and changes in product design or

distribution structures, as well as new product introductions. We have tightened our underwriting guidelines and expect this will contribute to future profitability.


•

Optimize investment portfolio performance. We have restructured our investment portfolio to help protect against the potential impact of a prolonged recession or slow economic recovery, including the exit of riskier investments. We have a disciplined asset-liability management process that enables us to manage our assets and liabilities effectively. We reduced exposures in several major asset classes, including the financial sectors, and exited selected investments in limited partnerships. We have a diversified investment portfolio and have shifted certain investments towards industries that we believe will be less impacted by economic cycles, such as utilities. We continue to identify and limit certain exposure levels to maintain or achieve desired diversification. We reinvested the substantial cash balances we maintained through 2009 to enhance investment income and yields. We also pursue selected portfolio hedging strategies to enhance returns.


•

Continue active risk management and loss mitigation. We seek to adapt to changes and proactively manage risk as it relates to our businesses. We review our pricing and product designs, as well as our underwriting guidelines, and make adjustments as necessary. In 2009, we re-priced products in our lifestyle protection and U.S. mortgage insurance businesses, as well as in certain of our international mortgage insurance markets. We have improved our distribution arrangements and refined our products and target markets in our lifestyle protection insurance business. We reduced our mortgage insurance risk in-force in Europe which was primarily driven by reductions in Spain. We maintain active loss mitigation efforts in our U.S. mortgage insurance business, including pursuit of appropriate loan modifications, investigating loans for underwriting and master policy compliance, and where appropriate, executed loan rescissions or selected settlements. Additionally, we pursue targeted loss mitigation strategies in mortgage insurance markets outside the United States.


•

Execute effective capital management and capital deployment. We pursue capital management strategies to support the capitalization and targeted ratings for our insurance companies and holding company. Our objective is to maintain adequate levels of capital in the event of unforeseen events, while still meeting our targeted goals. We have achieved the generation of statutory capital from profit emergence on our in-force business, as well as from ongoing capital management and efficiency strategies such as use of reinsurance, management of new business levels and cost reductions. In addition, we continue to evaluate opportunities to redeploy capital from lower returning blocks of business.

Growth Strategies

Our objectives are to increase revenues and operating income, as well as enhance returns on equity. Our plans to do this are based on the following strategies in each of our segments:


•

Retirement and Protection . Our strategy is focused on life insurance, long-term care insurance and independent advisor wealth management offerings, with a more targeted focus on fixed annuities and other supplemental protection offerings. We are committed to providing competitively-priced life insurance products that give consumers greater flexibility. In late 2009, we introduced a new term universal life insurance product that offers death benefit guarantee premiums and a similar value proposition to traditional term life insurance but offers flexibility similar to universal life coverage. This new product was designed to meet consumer needs that had previously been met by level-period term life insurance products which we no longer sell. We continue to focus on growth in our long-term care insurance business, as well as leverage our leadership in long-term care insurance to expand related product lines and services. We are committed to growing our wealth management business and selectively target our fixed annuity products. We will distribute annuity offerings through channels, distributors and advisors with greatest growth opportunities and that are most clearly aligned with our strategic objectives and risk appetite.

•

International. We are growing our international businesses within geographies that have attractive market and regulatory conditions for profitable growth, while managing economic, product and underwriting risks. We have established international mortgage insurance platforms in Canada, Australia, Europe and Mexico and intend to operate them in a disciplined fashion with an ongoing focus on risk management. Our entry and growth in developing international mortgage insurance markets will be selective. In our lifestyle protection insurance business, we continue to refine our products and target markets. We implemented significant price and distribution contract changes for both new and eligible in-force policies which have benefited earnings and going forward will help mitigate the pressure from increasing claims durations resulting from continued high unemployment in Europe. We maintain our focus on markets in Europe and plan to grow our lifestyle protection insurance business selectively in other new markets.


•

U.S. Mortgage Insurance . In the United States, economic factors such as high unemployment, underemployment, declining home prices and limited credit availability significantly impacted mortgage origination volumes and had an effect on home buyers’ abilities and willingness to meet their mortgage obligations. We responded by shifting to a business model that is expected to deliver higher returns with a lower risk profile, through tightened underwriting criteria, increased pricing and certain restrictions based on product type and geographic location, while maintaining our focus on insuring high quality single-family mortgages. We continue to pursue a flexible capital strategy in our U.S. mortgage insurance business to support new business growth.

Life insurance

Our life insurance business markets and sells products that provide a personal financial safety net for individuals and their families. These products provide protection against financial hardship after the death of an insured. Some of these products also offer a savings element that can help accumulate funds to meet future financial needs. In 2009, we implemented new marketing strategies and enhanced sales support services and product offerings. A key objective of these efforts was to further assist producers selling to our primary target market of main street consumers, that encompass the middle market and emerging affluent market, who purchase policies with face amounts of $1 million or less. Embedded in these services are a simplified fulfillment process and streamlined underwriting which enable high volume, low-cost processing for policies being sold in these markets. Within our primary target market, we have also launched, and continue to launch, additional products, services and marketing strategies focused on consumers who purchase policies with face amounts in excess of $500,000.

Products

Our current life insurance offerings include universal life and term universal life. We also have runoff blocks of term and whole life insurance. In 2009, we introduced a new term universal life insurance product that was designed to replace new sales of our existing term life insurance products. The term universal life insurance product offers death benefit guarantee premiums that are competitive with traditional term insurance premiums for comparable durations. This product also provides greater flexibility similar to universal life insurance coverage.

We also offer other universal life insurance products that are designed to provide permanent protection for the life of the insured and may include a buildup of cash value that can be used to meet particular financial needs during the policyholder’s lifetime. Our in-force blocks of term life insurance products provide coverage with guaranteed level premiums for a specified period of time and generally have little or no buildup of cash value.

Underwriting and pricing

Underwriting and pricing are significant drivers of profitability in our life insurance business, and we have established rigorous underwriting and pricing practices. We have generally reinsured risks in excess of $5 million per life. We set pricing assumptions for expected claims, lapses, investment returns, expenses and customer demographics based on our historical experience and other factors.

We target individuals primarily in preferred risk categories, which include healthier individuals who generally have family histories that do not present increased mortality risk. We also have significant expertise in evaluating applicants with health problems and offer appropriately priced coverage based on stringent underwriting criteria.

Distribution

We offer life insurance products through an extensive network of independent brokerage general agencies (“BGAs”) throughout the United States and through financial intermediaries and insurance marketing organizations. We believe there are opportunities to expand our sales in each of these and other distribution channels through additional product offerings, services and marketing strategies.

Competition

Competition in our life insurance business comes from many sources, including traditional insurance companies as well as non-traditional providers, such as banks and structured finance or private equity markets. The life insurance market is highly fragmented. Competitors have multiple access points to the market through BGAs, financial institutions, career sales agents, multi-line exclusive agents, e-retail and other life insurance distributors. We operate primarily in the BGA channel and have built additional capabilities in other channels. We believe our competitive advantage in the life insurance market comes from our long history serving this market, our reputation for service excellence, underwriting expertise and low cost operations.

Long-term care insurance

We established ourselves as a pioneer in long-term care insurance over 35 years ago and remain a leading provider in the industry. Our experience helps us plan for disciplined growth built on a foundation of strong risk management, product innovation, a diversified distribution strategy and claims processing expertise.

Products

Our individual and group long-term care insurance products provide defined levels of protection against the significant and escalating costs of long-term care services provided in the insured’s home or in assisted living or nursing facilities. Insureds become eligible for certain covered benefits if they become incapable of performing certain activities of daily living. In contrast to health insurance, long-term care insurance provides coverage for skilled and custodial care provided outside of a hospital or health-related facility. Long-term care insurance claims typically have a duration of approximately two to four years with an average duration of approximately three years.

We also offer a linked-benefits product for customers who have traditionally self-funded long-term care risk or seek multiple benefits. Our linked-benefits product combines universal life insurance with long-term care insurance coverage in a single policy that provides cash value, death benefits and long-term care benefits. In 2011, we will also begin offering access to a Wellness Program designed to promote a healthier lifestyle alternative for our policyholders as part of certain of our individual long-term care insurance products. As a complement to our long-term care insurance offerings, Medicare supplement insurance provides supplemental insurance coverage to seniors who participate in the Medicare program. This product covers deductibles and coinsurance amounts that are not covered by traditional Medicare, which seniors without supplemental coverage would have to pay out-of-pocket. The product design was standardized in 1992 to provide better clarity for seniors and was revised again in 2008 when Congress passed the Medicare Improvement for Patients and Providers Act (“MIPPA”). One effect of MIPPA is that all companies underwriting Medicare supplement insurance were required to re-file their products to reflect the new plan and benefit changes in order to continue selling after May 31, 2010. We have obtained approval for our re-filed plans in 38 of 40 states as of December 31, 2010, with the approval in the remaining states still pending.

Underwriting and pricing

We employ extensive medical underwriting policies to assess and quantify risks before we issue our long-term care insurance policies, similar to, but separate from, those we use in underwriting life insurance products.

We have accumulated extensive pricing and claims experience, and believe we have the largest actuarial database in the industry. The overall profitability of our long-term care insurance business depends primarily on the accuracy of our pricing assumptions for claims experience, morbidity and mortality experience, persistency and investment yields. Our actuarial database provides us with substantial data that has helped us develop sophisticated pricing methodologies for our newer policies. We tailor pricing based on segmented risk categories, including marital status, medical history and other factors. Profitability on older policies issued without the full benefit of this experience, particularly with respect to persistency trends, has been lower than initially assumed in pricing of those blocks. We continually monitor trends and developments and update assumptions that may affect the risk, pricing and profitability of our long-term care insurance products and adjust our new product pricing and other terms, as appropriate. We also work with a medical advisory board comprised of independent experts from the medical field that provides insights on emerging morbidity and medical trends, enabling us to be more proactive in our risk segmentation, pricing and product development strategies.

In October 2010, we announced plans to file for a premium rate increase of 18% on two blocks of older long-term care insurance policies. We began filing for the rate changes in November 2010 and the implementation of any rate increase will not begin to take effect until 2011. The state approval process of an in-force rate increase varies, and in certain states can take up to two years to obtain approval. Upon approval, premium increases may only occur on an insured’s policy anniversary date. Therefore, the benefits of any rate increase may not be fully realized until the implementation is complete over the next several years. As of December 31, 2010, these blocks represented approximately $550 million, or 29%, of our total annual long-term care insurance premium in-force. During 2007 and 2008, we filed for state regulatory approvals for a premium rate increase of between 8% and 12% on most of our block of older issued long-term care insurance policies. The rate increase has been fully approved in 45 states with implementation occurring on a staged basis.

Distribution

We have a broad and diverse distribution network for our long-term care insurance products. We distribute our products through diversified sales channels consisting of appointed independent producers, financial intermediaries, dedicated sales specialists and affinity groups. We have made significant investments in our servicing and support for both independent and dedicated sales specialists and we believe our product features, distribution support and services are leading the industry.

In 2007, we entered into a five-year exclusive endorsement agreement with AARP to offer long-term care insurance products to its approximately 40 million members. This relationship includes access to members through our career sales force, as well as telephone, internet and direct mail sales channels.

CEO BACKGROUND

Steven W. Alesio, 57, former Chairman of the Board of The Dun & Bradstreet Corporation. Director since March 2010.



Mr. Alesio has been a Senior Advisor at Providence Equity Partners since December 2010. Mr. Alesio was the Chairman of the Board of The Dun & Bradstreet Corporation (“D&B”) from May 2005 until his retirement in June 2010. He was initially elected to D&B’s board of directors in May 2002. Mr. Alesio served as D&B’s Chief Executive Officer from January 2005 to December 2009, its President from May 2002 to February 2007, its Chief Operating Officer from May 2002 to December 2004 and its Senior Vice President of Global Marketing, Strategy Implementation, E-Business Solutions ™ and Asia-Pacific/Latin America from January 2001 to April 2002. Before joining D&B, Mr. Alesio was with the American Express Company for 19 years, most recently serving as President and General Manager of the Business Services Group and as a member of that company’s Planning and Policy Committee, a position he held from January 1996 to December 2000. During the last five years, Mr. Alesio also served as a director of the following public company: The Dun & Bradstreet Corporation. Mr. Alesio received a B.S. in Accounting from St. Francis College and an M.B.A. from the University of Pennsylvania’s Wharton School.



Qualifications: Mr. Alesio, as the former chairman and former chief executive officer of a public company, has developed significant strategic and marketing expertise and also has substantial experience managing international operations and technology changes. Mr. Alesio also has 19 years of experience with a financial services company as well as experience with accounting and finance.



William H. Bolinder, 67, former President, Chief Executive Officer and a director of Acadia Trust N.A. Director since October 2010.



Mr. Bolinder retired in June 2006 from serving as President, Chief Executive Officer and a director of Acadia Trust N.A., positions he had held since 2003. He had previously been a member of the Group Management Board for Zurich Financial Services Group from 1994 to 2002. Mr. Bolinder joined Zurich American Insurance Company, USA in 1986 as Chief Operating Officer and became Chief Executive Officer in 1987. He has been a director of Endurance Specialty Holdings Ltd. since December 2001 and became the non-executive Chairman of the Board in March 2011. Mr. Bolinder was a director of Quanta Capital Holding Ltd. from January 2007 to October 2008. Mr. Bolinder has also served on the board of the American Insurance Association, American Institute for Chartered Property Casualty Underwriting, Insurance Institute for Applied Ethics, Insurance Institute of America, Insurance Services Office, Inc. and the National Association of Independent Insurers. Mr. Bolinder received a B.S. in Business Administration from the University of Massachusetts, Dartmouth.



Qualifications: Mr. Bolinder offers extensive experience in the insurance and financial services industry, including a combined 16 years serving in various positions with one of the world’s largest insurance companies and its U.S. subsidiary, and three years as president, chief executive officer and director of an investment advisory and trustee company. Mr. Bolinder’s current and former directorships with underwriters of specialty lines of insurance and reinsurance provide valuable knowledge regarding the international financial services sector.



Michael D. Fraizer, 52, Chairman of the Board, President and Chief Executive Officer of Genworth Financial, Inc. Director since May 2004.



Mr. Fraizer has been our Chairman of the Board, President and Chief Executive Officer since the completion of our initial public offering (“IPO”) in May 2004. Prior to our IPO, he was a Senior Vice President of General Electric Company (“GE”) and served as Chairman and Chief Executive Officer of GE Financial Assurance Holdings, Inc. (“GEFAHI”) overseeing several insurance entities. Prior to serving in those roles, Mr. Fraizer served in various capacities at GE, including leadership roles at GE Capital Commercial Real Estate, GE Japan, GE Corporate Business Development and GE Corporate Audit Staff. Mr. Fraizer is a graduate of GE’s Financial Management Program. Mr. Fraizer is currently Chairman of the American Council of Life Insurers Board of Directors. Mr. Fraizer currently serves on the boards of the Andre Agassi Foundation for Education and the Richmond Performing Arts CenterStage. He is also a member of the executive counsel of the P-20 Bridging Richmond Education Initiative. Mr. Fraizer received a B.A. in Political Science from Carleton College.



Qualifications: Mr. Fraizer brings insight across commercial, financial and operational aspects of our business, from his current role and history with the company. Mr. Fraizer has held a number of chief executive officer and general management roles in his 30 year career that have required strategic, financial, business transformation and business building skills in U.S. and international markets.



Nancy J. Karch, 63, former Senior Partner of McKinsey & Company. Director since October 2005.



Ms. Karch was a Senior Partner of McKinsey & Company, an independent consulting firm, from 1988 until her retirement in 2000. Prior thereto, Ms. Karch served in various executive capacities at McKinsey since 1974. She is a director of Kimberly-Clark Corp., Liz Claiborne, Inc., MasterCard Incorporated, and The Corporate Executive Board Company. Ms. Karch is also on the board of the Westchester Land Trust and Northern Westchester Hospital, both not-for-profit organizations. Ms. Karch received a B.A. in Mathematics from Cornell University, an M.S. in Mathematics from Northeastern University and an M.B.A. from Harvard Business School.



Qualifications: Ms. Karch, based on her 26 years at a global consulting firm, including 12 years as a Senior Partner, offers substantial expertise in the area of strategic and marketing issues. Ms. Karch also has substantial experience as a public company director.



J. Robert “Bob” Kerrey, 67, President Emeritus of The New School University and former United States Senator. Director since June 2004.



Mr. Kerrey served as President of The New School University from 2001 until December 2010. He was appointed President Emeritus in 2011. From January 1989 to December 2000, he was a U.S. Senator for the State of Nebraska. Mr. Kerrey was a democratic candidate for President in 1992. From January 1982 to December 1987, Mr. Kerrey served as Governor of Nebraska. Prior thereto, Mr. Kerrey was an independent businessman and founder of a chain of restaurants and health clubs. Mr. Kerrey served in Vietnam as a Navy SEAL from 1966 to 1969, for which he received the Congressional Medal of Honor. He serves on the boards of Jones Apparel Group, Inc., Scientific Games Corporation and Tenet Healthcare Corporation. Mr. Kerrey received a B.S. in Pharmacy from the University of Nebraska.



Qualifications: Mr. Kerrey’s experience as a U.S. Senator and former Governor of the State of Nebraska provides the Board with information and insight into the areas of governmental relations and legislative/regulatory issues. Mr. Kerrey also was President of a 10,000 student university for ten years, which provided him with experience in overseeing large organizations. He has also served on several public company boards.

LOGO

Risa J. Lavizzo-Mourey, 56, President and Chief Executive Officer of the Robert Wood Johnson Foundation. Director since November 2007.



Dr. Lavizzo-Mourey is the President and Chief Executive Officer of the Robert Wood Johnson Foundation and has served in that capacity since January 2003. She previously served as a Senior Vice President of the Robert Wood Johnson Foundation from April 2001 to January 2003. Dr. Lavizzo-Mourey served as the Director of the Institute on Aging and Chief of the Division of Geriatric Medicine from 1984 to 1992 and 1994 to 2001 and the Sylvan Eisman Professor of Medicine and Health Care Systems at the University of Pennsylvania from 1997 to 2001. She has served on numerous federal advisory committees including the Task Force on Aging Research, the Office of Technology Assessment Panel on Preventive Services for Medicare Beneficiaries, the Institute of Medicine’s Panel on Disease and Disability Prevention Among Older Adults and the President’s Advisory Commission on Consumer Protection and Quality in the Healthcare Industry. Dr. Lavizzo-Mourey also serves as a director of Hess Corporation. During the last five years, Dr. Lavizzo-Mourey also served as a director of the following public company: Beckman Coulter, Inc. Dr. Lavizzo-Mourey earned an M.D. from Harvard Medical School and an M.B.A. from the University of Pennsylvania’s Wharton School.



Qualifications: Dr. Lavizzo-Mourey is a physician with an extensive background in public policy, particularly in the areas of aging and long-term care, having served on numerous federal advisory committees, with a not-for-profit foundation and with a private university. Dr. Lavizzo-Mourey has also served on several public company boards.



Christine B. Mead, 55, former Executive Vice President and Chief Financial Officer of Safeco Corporation. Director since October 2009.



Ms. Mead was the Executive Vice President and Chief Financial Officer of Safeco Corporation and the Co-President of the Safeco insurance companies from November 2004 until her retirement in December 2005. From January 2002 to November 2004, Ms. Mead served as Senior Vice President, Chief Financial Officer and Secretary of Safeco Corporation. Prior to joining Safeco in 2002, Ms. Mead served in various roles at Travelers Insurance Companies from 1989 to 2001, including Senior Vice President and Chief Financial Officer, Chief Accounting Officer, and Controller. Ms. Mead also served with Price Waterhouse LLP from 1980 to 1989, and with Deloitte Haskins & Sells in the United Kingdom from 1976 to 1980. Ms. Mead is on the board of People for Puget Sound and an advisory board member of Outward Bound, both non-profit organizations. Ms. Mead received a B.S. in Accounting from University College Cardiff, United Kingdom.



Qualifications: Ms. Mead brings experience as the former chief financial officer of a public company. She worked for 16 years in the insurance industry, as well as 13 years for major accounting firms. Her international background adds a unique perspective to our Board.

Thomas E. Moloney, 67, former Senior Executive Vice President and Chief Financial Officer of John Hancock Financial Services, Inc. Director since October 2009.



Mr. Moloney retired as the Senior Executive Vice President and Chief Financial Officer of John Hancock Financial Services, Inc. in December 2004. He had served in that position since 1992. Mr. Moloney served in various other roles at John Hancock Financial Services, Inc. during his tenure from 1965 to 1992, including Vice President, Controller, and Senior Accountant. Mr. Moloney also served as the interim Chief Financial Officer of MSC—Medical Services Company from December 31, 2007 to March 31, 2008. Mr. Moloney is on the boards of Nashoba Learning Group and the Boston Children’s Museum, both non-profit organizations. During the last five years, Mr. Moloney also served as a director of the following public company: MSC—Medical Services Company. Mr. Moloney received a B.A. in Accounting from Bentley College and holds a Professional Director Certification from the Corporate Directors Group.



Qualifications: Mr. Moloney provides almost 40 years of insurance industry and accounting experience, including having served as the chief financial officer of a public insurance company. He provides extensive knowledge of accounting and finance in regard to insurance products and industry trends.



James A. Parke, 65, former Vice Chairman and Chief Financial Officer of GE Capital Services and former Senior Vice President of General Electric Company. Director since May 2004.



Mr. Parke retired as Vice Chairman and Chief Financial Officer of GE Capital Services and a Senior Vice President at GE in December 2005. He had served in those positions since 2002. From 1989 to 2002 he was Senior Vice President and Chief Financial Officer at GE Capital Services and a Vice President of GE. Prior thereto, from 1981 to 1989 he held various management positions in several GE businesses. He also serves as a director of buildOn, a not-for-profit corporation. Mr. Parke received a B.A. in History, Political Science and Economics from Concordia College in Minnesota.



Qualifications: Mr. Parke offers extensive experience in the areas of finance, financial services and capital markets, gained in part through his 37 years of experience with GE and GE Capital, including having served as a former Vice Chairman and Chief Financial Officer of GE Capital, where he helped build GE’s financial and insurance businesses.

James S. Riepe, 67, former Vice Chairman of T. Rowe Price Group, Inc. Director since March 2006 and Lead Director since February 2009.



Mr. Riepe is a retired Vice Chairman and a Senior Advisor at T. Rowe Price Group, Inc. Mr. Riepe served as the Vice Chairman of T. Rowe Price Group, Inc. from 1997 until his retirement in December 2005. Prior to joining T. Rowe Price Group, Inc. in 1982, Mr. Riepe was an Executive Vice President of The Vanguard Group. Mr. Riepe serves as a director of The NASDAQ OMX Group, Inc. and LPL Investment Holdings, Inc. He is a member of the University of Pennsylvania’s Board of Trustees and the chairman of the Penn Medicine Board of Trustees. Until April 2006, Mr. Riepe served as a director of T. Rowe Price Group, Inc. (a public company) and 57 T. Rowe Price registered investment companies (mutual funds). Mr. Riepe received a B.S. in Industrial Management, an M.B.A. and an Honorary Doctor of Laws degree from the University of Pennsylvania.



Qualifications: Mr. Riepe brings to the Board significant expertise in finance and investments gained through his experiences as a senior executive in the investment management industry, including 23 years with T. Rowe Price.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

Our business

We are a leading financial security company dedicated to providing insurance, wealth management, investment and financial solutions to more than 15 million customers, with a presence in more than 25 countries. We have three operating segments: Retirement and Protection, International and U.S. Mortgage Insurance.


• Retirement and Protection. We offer and manage a variety of protection, wealth management and retirement income products. Our primary protection products include life and long-term care insurance. Additionally, we offer other Medicare supplement insurance products, as well as care coordination services for our long-term care policyholders. Our wealth management and retirement income products include: a variety of managed account programs and advisor services, financial planning services, fixed and variable deferred and immediate individual annuities and group variable annuities offered through retirement plans. For the year ended December 31, 2010, our Retirement and Protection segment’s net income available to Genworth Financial, Inc.’s common stockholders and net operating income available to Genworth Financial, Inc.’s common stockholders were $403 million and $485 million, respectively.


• International. We offer mortgage and lifestyle protection insurance products and related services in multiple markets. We are a leading provider of mortgage insurance products in Canada, Australia, Mexico and multiple European countries. Our products predominantly insure prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. On a limited basis, we also provide mortgage insurance on a structured, or bulk, basis that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk. We are a leading provider of payment protection coverages (referred to as lifestyle protection) in multiple European countries. Our lifestyle protection insurance products primarily help consumers meet specified payment obligations should they become unable to pay due to accident, illness, involuntary unemployment, disability or death. For the year ended December 31, 2010, our International segment’s net income available to Genworth Financial, Inc.’s common stockholders and net operating income available to Genworth Financial, Inc.’s common stockholders were $444 million and $434 million, respectively.


• U.S. Mortgage Insurance. In the United States, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. We selectively provide mortgage insurance on a structured, or bulk, basis with essentially all of our bulk writings prime-based. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk. For the year ended December 31, 2010, our U.S. Mortgage Insurance segment’s net loss available to Genworth Financial, Inc.’s common stockholders and net operating loss available to Genworth Financial, Inc.’s common stockholders were $559 million and $580 million, respectively.

We also have Corporate and Other activities which include debt financing expenses that are incurred at our holding company level, unallocated corporate income and expenses, eliminations of inter-segment transactions, the results of non-core businesses and non-strategic products that are managed outside of our operating segments. For the year ended December 31, 2010, Corporate and Other activities had a net loss available to Genworth Financial, Inc.’s common stockholders and a net operating loss available to Genworth Financial, Inc.’s common stockholders of $146 million and $213 million, respectively.

Our financial information

The financial information in this Annual Report on Form 10-K has been derived from our consolidated financial statements.

Revenues and expenses

Our revenues consist primarily of the following:


• Retirement and Protection . The revenues in our Retirement and Protection segment consist primarily of:


• net premiums earned on individual term life insurance, individual and group long-term care insurance, Medicare supplement insurance and single premium immediate annuities with life contingencies;


• net investment income and net investment gains (losses) on the segment’s separate investment portfolios; and


• insurance and investment product fees and other, including surrender charges, mortality and expense risk charges, primarily from variable annuity contracts and universal life insurance policies, management fees and commissions from wealth management products, and other administrative charges.


• International . The revenues in our International segment consist primarily of:


• net premiums earned on international mortgage and lifestyle protection insurance policies;


• net investment income and net investment gains (losses) on the separate investment portfolio held by our international mortgage and lifestyle protection insurance businesses; and


• insurance and investment product fees and other, primarily third-party administration fees from our lifestyle protection insurance business.


• U.S. Mortgage Insurance . The revenues in our U.S. Mortgage Insurance segment consist primarily of:


• net premiums earned on mortgage insurance policies and premiums assumed through our inter-segment reinsurance and capital maintenance agreement with our international mortgage insurance business;


• net investment income and net investment gains (losses) on the segment’s separate investment portfolio; and


• fee revenues from contract underwriting services.


• Corporate and Other . The revenues in Corporate and Other consist primarily of:


• net premiums, insurance and investment product fees, income from non-core businesses and non-strategic products and eliminations of inter-segment transactions and


• unallocated net investment income and net investment gains (losses).

Our expenses consist primarily of the following:


• benefits provided to policyholders and contractholders and changes in reserves;


• interest credited on general account balances;


• acquisition and operating expenses, including commissions, marketing expenses, policy and contract servicing costs, overhead and other general expenses that are not capitalized (shown net of deferrals);


• amortization of DAC and other intangible assets;

• goodwill impairment charges;


• interest and other financing expenses; and


• income taxes.

We allocate corporate expenses to each of our operating segments using a methodology that includes allocated capital.

Management’s discussion and analysis by segment contains selected operating performance measures including “sales,” “assets under management” and “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 refer to: (1) annualized first-year premiums for term life, long-term care and Medicare supplement insurance; (2) new and additional premiums/deposits for universal life insurance, term universal life insurance, linked-benefits, spread-based and variable products; (3) gross and net flows, which represent gross flows less redemptions, for our wealth management 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 our lifestyle protection insurance business; (5) new insurance written for mortgage insurance, which in each case reflects the amount of business we 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. We consider annualized first-year premiums, new premiums/deposits, gross and net flows, written premiums, premium equivalents and new insurance written to be a measure of our operating performance because they represent a measure of new sales of insurance policies or contracts during a specified period, rather than a measure of our revenues or profitability during that period.

Management regularly monitors and reports assets under management for our wealth management business, insurance in-force and risk in-force. Assets under management for our wealth management business represent third-party assets under management that are not consolidated in our financial statements. Insurance in-force for our life, international mortgage and U.S. mortgage insurance businesses is a measure of the aggregate face value of outstanding insurance policies as of the respective reporting date. For our risk in-force in our international mortgage insurance business, we have computed 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% that represents our highest expected average per-claim payment for any one underwriting year over the life of our businesses in Canada, Australia and New Zealand. Risk in-force for our U.S. mortgage insurance business is our obligation that is limited under contractual terms to the amounts less than 100% of the mortgage loan value. We consider assets under management for our wealth management business, insurance in-force and risk in-force to be a measure of our operating performance because they represent a measure of the size of our business at a specific date which will generate revenues and profits in a future period, rather than a measure of our revenues or profitability during that period.

We also include information related to loss mitigation activities for our U.S. mortgage insurance business. We define loss mitigation activities as rescissions, cancellations, borrower loan modifications, repayment plans, lender- and borrower-titled presales and other loan workouts and claim mitigation actions. Estimated savings related to rescissions are the reduction in carried loss reserves, net of premium refunds and reinstatement of prior rescissions. Estimated savings related to loan modifications and other cure related loss mitigation actions represent the reduction in carried loss reserves. For non-cure related actions, including presales, the estimated savings represent the difference between the full claim obligation and the actual amount paid. We believe that this information helps to enhance the understanding of the operating performance of our U.S. mortgage insurance business as they specifically impact current and future loss reserves and level of claim payments.

These operating measures enable us to compare our 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.

Business trends and conditions

Our business is, and we expect will continue to be, influenced by a number of industry-wide and product-specific trends and conditions.

General conditions and trends affecting our businesses

Financial and economic environment. As a financial security company, the stability of both the financial markets and global economies in which we operate impacts the sales, revenue growth and profitability trends of our businesses. Despite swings experienced in equity markets, credit markets, interest rate spreads and systemic European sovereign risk, global financial markets improved during 2010 from the volatility experienced in 2009. In 2010, Canadian and Australian economies and housing markets improved although the volume of high loan-to-value mortgage originations in Australia remained substantially below levels seen in prior years. The U.S. housing market reflected continuing stress, growing levels of foreclosures and variations in performance by sub-market, including continued signs of stabilization within certain regions. Europe remained a slow growth environment with lower consumer lending activity.

Slow economic growth, coupled with uncertain financial market, government policy, regulatory reform and other market conditions, influenced, and we believe will continue to influence, investment and spending decisions by consumers and businesses as they adjust their consumption, debt, capital and risk profiles in response to these conditions. As a result, our sales, revenues and profitability trends of certain insurance and investment products were adversely impacted during the first half of 2009. Since then, these trends have generally improved as investor confidence in the markets and the outlook for some consumers and businesses strengthened. Other factors such as government spending, monetary policies, regulatory initiatives, the volatility and strength of the capital markets, anticipated tax policy changes and the impact of U.S. healthcare and financial regulation reform will continue to affect economic and business outlooks and consumer behaviors moving forward.

In response to market conditions, we adjusted our investment and asset-liability management strategies to reduce risk during strained economic and financial market conditions. In addition, we refined our product and distribution management strategies to best fit with our strengths, profitability targets and risk tolerance. These and other company actions were made to enhance our competitive position as well as our capital flexibility and liquidity. See “—Trends and conditions affecting our segments” below for a discussion regarding the impacts the financial markets and global economies have on our businesses.

The U.S. government, Federal Reserve and other legislative and regulatory bodies continue to take a variety of other actions to support the capital markets, influence interest rates, stabilize housing markets and provide needed liquidity to promote economic growth. These include various mortgage restructuring programs implemented or under consideration by the GSEs, lenders, servicers and the U.S. government. Outside of the United States, various governments took actions to stimulate economies, stabilize financial systems and improve market liquidity. In general, these actions have positively affected these countries and their markets; however, there can be no assurance as to the future level of impact of any of these actions on the economic and financial markets, including levels of volatility. A delayed economic recovery period or a U.S. or global recessionary or debt crisis setback could materially and adversely affect our business, financial condition and results of operations.

Volatility in credit and investment markets . During the fourth quarter of 2010, markets were characterized by rising U.S. Treasury yields and tightening credit spreads. A combination of improving macroeconomic data, anticipated fiscal stimulus in the form of tax cut extensions, weaker non-U.S. investor demand and the Federal Reserve’s second quantitative easing program designed to stimulate economic recovery and encourage investment in higher risk sectors in part drove intermediate and long interest rates higher in the fourth quarter. Strong investor demand for higher yielding assets and declining net supply of spread product continued to drive credit spreads tighter in most sectors. Concerns regarding systemic European sovereign risk resurfaced but concerns were more focused on particular European borrowers. For securitized products, the market was characterized by shrinking supply and lower issuance across all asset types. Asset valuations in securitized sectors continued to improve given a strong supply and demand imbalance, stable credit performance, and the structural protections embedded in the transactions brought to market.

Certain segments of the marketplace are still experiencing declines in the performance of collateral underlying certain structured securities, but impairments of corporate bonds held in our investment portfolio continued their downward trend and were at moderate levels during the first half of 2010 with a minimal increase in the third and fourth quarters of 2010. We recorded net other-than-temporary impairments of $208 million during the year ended December 31, 2010 which were lower than prior year levels and we expect losses to moderate further. Additionally, during the year ended December 31, 2010, losses related to limited partnerships decreased $147 million as compared to the year ended December 31, 2009 with limited partnership gains since the first quarter of 2010. Although economic conditions may continue to negatively impact certain investment valuations, the underlying collateral associated with securities that have not been impaired continues to perform.

Looking ahead, we believe that the current credit environment provides us with opportunities to invest across a variety of asset classes to meet our yield requirements, as well as to continue execution of various risk management disciplines involving further diversification within the investment portfolio. See “—Investments and Derivative Instruments” for additional information on our investment portfolio.

Trends and conditions affecting our segments

Retirement and Protection

Life insurance . Results of our life insurance business are impacted by sales, mortality, persistency, investment yields, expenses, reinsurance and statutory reserve requirements. Additionally, sales of our products and persistency of our insurance in-force are dependent on competitive product features and pricing, distribution and customer service.

The increase in life insurance sales we experienced during the second half of 2009 continued throughout 2010, in large part the result of strong adoption of our new term universal life insurance product. As anticipated, sales of our traditional term life insurance product have declined given the introduction late in 2009 of our new term universal life insurance product. We believe our term universal life insurance product offers a similar or better value proposition to the consumer as our traditional term life insurance product which we no longer sell, and is competitively priced for the middle and emerging affluent markets. We have experienced strong adoption of the product, with sales of $96 million in 2010. In our universal life insurance products, sales during 2010 were relatively stable given product changes made in 2009. Going forward, the level of new sales will depend on ongoing distributor and consumer adoption and usage, as well as overall market conditions.

Throughout 2009 and 2010, we experienced favorable mortality results in our term life insurance products as compared to priced mortality assumptions. Additionally, we have experienced lower persistency as compared to pricing assumptions for 10-year term life insurance policies written in 1999 and 2000 as they go through their post-level rate period. We expect this trend to continue as policies go through their post-level rate period and then moderate thereafter.

Regulations XXX and AXXX require insurers to establish additional statutory reserves for term life insurance policies with long-term premium guarantees and certain universal life insurance policies with secondary guarantees, which increase the capital required to write these products beyond economic requirements. The solutions for the increased reserve requirements on some of our in-force books of business have become more limited and expensive; however, we have committed funding sources for approximately 95% of our anticipated peak level reserves required under Regulations XXX and AXXX so we believe unfunded reserve exposure is minimal. Additionally, we have made product modifications and introduced new products designed to reduce capital requirements and limit financing costs compared to existing products and thereby improve the profitability of new business. The new term universal life insurance product, discussed above, offers death benefit guarantee premiums that are competitive with traditional term insurance premiums for comparable durations and provides greater consumer flexibility typically associated with universal life coverage.

Long-term care insurance. Results of our long-term care insurance business are influenced by morbidity, mortality, persistency, investment yields, new product sales, expenses and reinsurance as well as the relative competitiveness of our offerings.

In recent years, industry-wide first-year annualized premiums of long-term care insurance have either declined or grown moderately. While our overall sales in 2009 were adversely impacted primarily by the general economic conditions and lower sales through our independent distribution and career force channels, in the second half of 2009 and continuing into 2010, we experienced improvements in our long-term care insurance sales. Recent improvements are due in part to the breadth of our distribution, and we have made progress on multiple growth initiatives with an emphasis on distribution effectiveness and broadening our individual and group offerings.

In the first half of 2009, termination rates increased on our business resulting in lower benefits and other changes in policy reserves that contributed positively to results of operations. However, during the second half of 2009 and in 2010, termination rates have decreased and returned to levels experienced historically resulting in higher benefits and other changes in policy reserves that contributed to lower results of operations. In recent periods, we have experienced, and may continue to, experience higher claims in older issued policies which negatively impact our results of operations.

In the fourth quarter of 2010, one of our competitors announced its intent to exit the long-term care insurance market effective January 1, 2011. In addition, several competitors have announced their intent to seek rate actions on their individual and certain group long-term care insurance products. These announcements by competitors, coupled with our announcement, in October 2010, that we planned to file for a premium rate increase of 18% on two blocks of older long-term care insurance policies, could disrupt the market and impact our sales going forward.

We continue pursuing multiple initiatives including: new product issuance and service offerings; investing in claims paying capabilities; maintaining tight expense management; actively exploring alternative reinsurance strategies; executing effective investment strategies; and considering other actions to improve business profitability and the performance of the overall block. These efforts include our older blocks of business and the potential for future in-force rate increases, where warranted. In this connection, we began filing for a rate increase of 18% on two blocks of older long-term care insurance policies in November 2010 and the implementation of any rate increase will not begin to take effect until 2011. The state approval process of an in-force rate increase varies, and in certain states can take up to two years to obtain approval. Upon approval, premium increases may only occur on an insured’s policy anniversary date. Therefore, the benefits of any rate increase may not be fully realized until the implementation is complete over the next several years. As of December 31, 2010, these blocks represented approximately $550 million, or 29%, of our total annual long-term care insurance premium in-force.

In addition, changes in regulations or government programs, including certain aspects of healthcare reform, such as the CLASS Act, could impact our long-term care insurance business positively or negatively. As such, we continue to actively monitor regulatory developments.

Wealth management. Results of our wealth management business are impacted by the demand for asset management products and related support services, investment performance and equity market conditions.

The decline and volatility in the equity markets that began in 2008 negatively impacted the asset management industry overall, as well as our assets under management, net flows, the performance of certain mutual funds we offer and associated fee income. The recovery of equity and fixed income markets began in the second quarter of 2009 and continued throughout 2009 and 2010.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Overview

Our business

We are a leading financial security company dedicated to providing insurance, wealth management, investment and financial solutions to more than 15 million customers, with a presence in more than 25 countries. We have three operating segments: Retirement and Protection, International and U.S. Mortgage Insurance.


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Retirement and Protection. We offer and/or manage a variety of protection, wealth management and retirement income products. Our primary insurance products include life and long-term care insurance. Additionally, we offer other Medicare supplement insurance products, as well as care coordination services for our long-term care policyholders. Our wealth management and retirement income products include: a variety of managed account programs and advisor services, financial planning services and fixed deferred and immediate individual annuities. We previously offered variable deferred annuities and group variable annuities offered through retirement plans. For the three months ended September 30, 2011, our Retirement and Protection segment’s net income available to Genworth Financial, Inc.’s common stockholders and net operating income available to Genworth Financial, Inc.’s common stockholders were $77 million and $120 million, respectively. For the nine months ended September 30, 2011, our Retirement and Protection segment’s net income available to Genworth Financial, Inc.’s common stockholders and net operating income available to Genworth Financial, Inc.’s common stockholders were $312 million and $396 million, respectively.


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International. We offer mortgage and lifestyle protection insurance products and related services in multiple markets. We are a leading provider of mortgage insurance products in Canada, Australia, Mexico and multiple European countries. Our products predominantly insure prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. On a limited basis, we also provide mortgage insurance on a structured, or bulk, basis that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk. We are a leading provider of protection coverages primarily associated with certain financial obligations (referred to as lifestyle protection) in multiple European countries. These lifestyle protection insurance products help consumers meet specified payment obligations should they become unable to pay due to accident, illness, involuntary

unemployment, disability or death. For the three months ended September 30, 2011, our International segment’s net income available to Genworth Financial, Inc.’s common stockholders and net operating income available to Genworth Financial, Inc.’s common stockholders were $117 million and $98 million, respectively. For the nine months ended September 30, 2011, our International segment’s net income available to Genworth Financial, Inc.’s common stockholders and net operating income available to Genworth Financial, Inc.’s common stockholders were $354 million and $329 million, respectively.


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U.S. Mortgage Insurance. In the United States, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. We selectively provide mortgage insurance on a structured, or bulk, basis with essentially all of our bulk writings prime-based. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage capital and risk. For the three months ended September 30, 2011, our U.S. Mortgage Insurance segment’s net loss available to Genworth Financial, Inc.’s common stockholders and net operating loss available to Genworth Financial, Inc.’s common stockholders were $77 million and $79 million, respectively. For the nine months ended September 30, 2011, our U.S. Mortgage Insurance segment’s net loss available to Genworth Financial, Inc.’s common stockholders and net operating loss available to Genworth Financial, Inc.’s common stockholders were $410 million and $413 million, respectively.

We also have Corporate and Other activities which include debt financing expenses that are incurred at our holding company level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of non-strategic products that are managed outside of our operating segments. Our non-strategic products include our institutional and corporate-owned life insurance products. Institutional products consist of: funding agreements, funding agreements backing notes (“FABNs”) and guaranteed investment contracts (“GICs”). For the three months ended September 30, 2011, the net loss available to Genworth Financial, Inc.’s common stockholders and net operating loss available to Genworth Financial, Inc.’s common stockholders were $88 million and $35 million, respectively, for Corporate and Other activities. For the nine months ended September 30, 2011, Corporate and Other activities had a net loss available to Genworth Financial, Inc.’s common stockholders and a net operating loss available to Genworth Financial, Inc.’s common stockholders of $241 million and $184 million, respectively.

Beginning in the fourth quarter of 2011, we plan to change our operating business segments to better align our businesses. Under the new structure, we will operate through three divisions: Insurance and Wealth Management, Mortgage Insurance and Corporate and Runoff. Under these divisions, there will be six operating business segments. The Insurance and Wealth Management Division will include the following operating business segments: U.S. Life Insurance (which will include our life insurance, long-term care insurance and fixed annuities businesses), Wealth Management and International Protection (which will include our lifestyle protection insurance business). The Mortgage Insurance Division will include the following operating business segments: U.S. Mortgage Insurance and International Mortgage Insurance. The Corporate and Runoff Division will include the Runoff segment and Corporate and Other activities. The Runoff segment will include variable annuities, Medicare Supplement insurance, institutional products and other non-core businesses. Corporate and Other activities will include interest and other debt financing expenses, other corporate income and expenses not allocated to the segments. These changes will allow us to sharpen our focus on common aspects within each group of businesses while taking advantage of current financial synergies. We intend to reflect this new segment reporting in our Annual Report on Form 10-K for the year ended December 31, 2011.

Business trends and conditions

Our business is, and we expect will continue to be, influenced by a number of industry-wide and product specific trends and conditions. The following discussion of business trends and conditions should be read together with the trends discussed in our 2010 Annual Report on Form 10-K, which described additional business trends and conditions.

General conditions and trends affecting our businesses

Financial and economic environment. The stability of both the financial markets and global economies in which we operate impacts the sales, revenue growth and profitability trends of our businesses. Equity markets, credit markets and interest rate spreads improved during 2010 and into the first half of 2011 but experienced higher volatility and widening spreads in the third quarter of 2011. Although global financial markets experienced some improvement since 2010, the European debt crisis and concerns regarding the U.S. economy impacted the recovery. The U.S. housing market reflected continuing stress and growing levels of foreclosures with variations in performance by sub-market, including signs of stabilization within certain regions while others declined. Unemployment and underemployment levels in the United States remained relatively constant with the fourth quarter of 2010 and the first half of 2011. We expect unemployment and underemployment levels in the United States to stabilize at elevated levels and gradually decrease over time though remain elevated for an extended period. In Canada, the housing market was pressured by a smaller refinance market while home prices remained relatively stable in the market segment we serve and unemployment levels improved modestly from the second quarter of 2011. In Australia, the housing market has remained fairly stable with home prices declining modestly from the second quarter of 2011 while unemployment levels increased slightly from the second quarter of 2011. Consumers in Australia remained cautious given higher interest rates, higher costs of living, general concerns about the global economy and slow recovery in regions impacted by the recent natural disasters. Europe remained a slow growth environment with lower lending activity and reduced consumer spending, particularly in Greece, Spain, Portugal, Ireland and Italy, in part as a result of the European debt crisis. See “—Trends and conditions affecting our segments” below for a discussion regarding the impacts the financial markets and global economies have on our businesses.

Slow or varied levels of economic growth, coupled with uncertain financial markets and economic outlooks, changes in government policy, regulatory reforms and other changes in market conditions, influenced, and we believe will continue to influence, investment and spending decisions by consumers and businesses as they adjust their consumption, debt, capital and risk profiles in response to these conditions. These trends change as investor confidence in the markets and the outlook for some consumers and businesses shift. As a result, our sales, revenues and profitability trends of certain insurance and investment products have been and could be further impacted negatively or positively going forward. In particular, factors such as government spending, monetary policies, the volatility and strength of the capital markets, anticipated tax policy changes and the impact of U.S. healthcare and global financial regulation reform will continue to affect economic and business outlooks and consumer behaviors moving forward.

The U.S. government, Federal Reserve and other legislative and regulatory bodies have taken certain actions to support the economy and capital markets, influence interest rates, influence housing markets and mortgage servicing and provide liquidity to promote economic growth. These include various mortgage restructuring programs implemented or under consideration by the GSEs, lenders, servicers and the U.S. government. Outside of the United States, various governments previously took actions to stimulate economies, stabilize financial systems and improve market liquidity. In general, these actions had a positive effect on these countries and their markets; however, there can be no assurance as to the future level of impact these types of actions may have on the economic and financial markets, including levels of volatility. A delayed economic recovery period, a U.S. or global recession or regional or global financial crisis could materially and adversely affect our business, financial condition and results of operations.

We manage our product offerings, investment and asset-liability management strategies to moderate risk especially during periods of strained economic and financial market conditions. In addition, we continue to review our product and distribution management strategies to align with our strengths, profitability targets and risk tolerance. These and other company actions should enhance our competitive position as well as our capital flexibility and liquidity.

Volatility in credit and investment markets . During the third quarter of 2011, markets were characterized by significant volatility due to increased uncertainty regarding both the U.S. and European economies and concerns over a potential financial crisis emanating out of Europe. In particular, concerns grew about the spread of economic and financial system risk from peripheral Europe to the larger European countries, along with concerns about the impact on the European banking sector of a possible default on Greek debt, exposure to other troubled sovereign debt and potential related contagion effects on other institutions or markets. As a result, spreads on financial sector securities widened substantially and liquidity in those names dropped notably during the third quarter of 2011. Further, U.S. Treasury purchases of 10-year and 30-year bonds drove U.S. Treasury yields to historically low levels. As corporate spreads widened over this period in response to declining U.S. Treasury yields and ongoing economic uncertainty, U.S. corporate issuance grew sporadic, with declining levels of liquidity overall. With the flight to quality during the quarter, demand for high quality investment grade assets remained stable, but demand for most other sectors weakened, most notably for high yield and commercial mortgage-backed securities.

We recorded net other-than-temporary impairments of $114 million during the nine months ended September 30, 2011, which were relatively consistent with prior year levels; however, we expect losses to moderate further from prior year levels. Even though certain segments of the marketplace are still experiencing declines in the performance of collateral underlying certain structured securities, impairments of structured securities in our investment portfolio declined further in the third quarter of 2011 from the moderate levels recorded in the second half of 2010 and the first half of 2011. However, in the third quarter of 2011, impairments related to corporate securities increased as a result of expected restructuring of two private placement debt securities. Although economic conditions may continue to negatively impact certain investment valuations, the underlying collateral associated with securities that have not been impaired continues to perform.

Looking ahead, we believe that the current credit environment provides us with opportunities to invest across a variety of asset classes to meet our yield requirements, as well as to continue execution of various risk management disciplines involving further diversification within the investment portfolio. See “—Investments and Derivative Instruments” for additional information on our investment portfolio.

Trends and conditions affecting our segments
CONF CALL

Georgette Nicholas

Good morning, and thank you for joining us for our conference call on U.S. Mortgage Insurance. We have a presentation we will be webcasting during this call, and I've also posted the full presentation to our website. This morning, you will hear from 2 of our business leaders. Starting with Kevin Schneider, President of our U.S. Mortgage Insurance segment; followed by Marty Klein, our CFO.

Following our prepared comments, we will open the call up for a question-and-answer period. In the question-and-answer period of the call, we ask that you focus your questions on our U.S. Mortgage Insurance business and strategy given the purpose of today's call.

In addition to our speakers, Dean Mitchell, Chief Financial Officer of U.S. Mortgage Insurance segment, will also be available to take questions.

With regard to forward-looking statements and the use of non-GAAP financial information, some of the statements we make during the call this morning may contain forward-looking statements. Our actual results may differ materially from such statements. We advise you to read the cautionary note regarding forward-looking statements in our fourth quarter earnings release and the risk factor section of our most recent annual report on Form 10-K filed with the SEC in February 2011, and our third quarter Form 10-Q filed with the SEC in November, 2011.

This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. In our quarterly financial supplement and earnings release, non-GAAP measures have been reconciled to GAAP, where required, in accordance with SEC rules. Today, beginning on Slide 2, we will cover a discussion on the portfolio, trends and losses, our assessment on embedded value, claims paying ability and the quality of new business. We will then discuss our capital strategy and provide an overview of the strategic options we have considered for the U.S. Mortgage Insurance business and provide perspectives on why we have chosen the current path we are executing. We will end with an update on the state of the industry and activities in Washington.

And now, let me turn the call over to Kevin Schneider.

Kevin D. Schneider

Thanks, Georgette. And thanks to all of you for joining us today for this extended Investor Update. As you can see, I will be providing some review of 2011 trends and results, along with some of our current expectations for 2012. While we are providing these forward-looking metrics to provide further information regarding our current expectations, please recognize that there continues to be challenging economic conditions pressuring the housing industry, and unfavorable employment conditions are still impacting the ability of homeowners to stay current in their mortgage payments. Thus, meaningful changes in the current trends could have material impacts on our expectations.

So let's begin on Slide 3 where I will provide some perspective on the key messages we are communicating in the presentation today.

First, risk discipline entering the cycle resulted in differentiated portfolio mix with go forward implications. While there are areas we wish we had taken action faster or not insured at all, we are seeing differentiation in the performance of our portfolio when compared to others. Changes in reserve expectations negatively impacted 2010 and 2011 results, and our current expectation is new delinquencies should drive losses going forward. Risk to capital is elevated, but our claims paying ability is sound. New business adds positive economics and benefits claims paying ability. Our new business is performing better than pricing with a 20%-plus return on equity and is contributing very little to new delinquency development. And we have plans in place to continue to write new business. Multiple factors drive return to profitability, and we will outline the key drivers for you. And finally, we evaluated all strategic options for this business and are following a chosen path while pursuing alternatives.

With that, let's begin with a look at a comparison of Genworth's primary portfolio of risk in-force as of December 31, 2011, compared to other private mortgage insurers on Slide 4.

We believe the Genworth portfolio, on a relative basis, is a result of a differentiated risk discipline heading into the financial cycle. And although, we too, have been significantly impacted by the loans insured during 2005 to 2008, the difference in delinquency rates is an illustration of our relative risk appetite. We underweighted our participation in riskier products such as Alt-A loans, bulk and Wall Street securitized loans and short-term adjustable-rate mortgages. In addition, we have strengthened our reserves over the last 2 years to a level that, based on our knowledge, is the highest in the industry.

While these reserve-strengthening actions result in a risk-to-capital level that is above 25:1, we believe we have the comprehensive balance sheet strength and a capital strategy that provides a corridor through which to manage new business writings.

Turning to Slide 5, we have provided a snapshot of our total flow risk in-force as of year-end 2011 by vintage, along with the comparative reserve levels for each book year. As you can see, the 2005 to 2007 book years are still a large part of our portfolio with a disproportionate percentage of reserves. These books have been impacted by several years of home price depreciation, especially in Sand State geographies, as well as underwriting guidelines and practices that were not consistent with today's credit policy and underwriting standards. We view the 2008 book of business as the transition vintage with overhang from the 2007 products and pricing, but better performance for business written in the second half of 2008.

You can also see that the 2009 to 2011 books have very low reserve levels as the delinquency development of these books has been favorable.

Slide 6 shows the composition of our current delinquency inventory by aging category, as well as our flow reserve per delinquency over time. This demonstrates the effects of reserve strengthening in 2010 and '11, as well as the change in aging composition while overall delinquencies continue to trend down.

With that overview of our portfolio, let's now get into a more detailed discussion of loss development and our expectation for 2012 on Slide 7.

At a very basic level, incurred losses are driven by 2 factors: Either, one, a change in expectation of claims on the current inventory delinquencies; or two, new delinquencies. A leading indicator of the need for a change in reserving can be aging, net of cures on delinquent loans. But aging pressure must be assessed as either temporary or permanent prior to making a reserve change.

During the last 2 years, we have made significant changes to our loss expectation driven by our observed loss experience. While we are humbled by the magnitude and frequency of those adjustments, we feel that given prevailing conditions, current trends and the composition of our delinquency inventory, that our reserve levels are adequate. Our internal views on reserves with respect to this existing delinquency population are also consistent with the inputs of various external third parties who have reviewed our reserves and loss expectations.

Therefore, unless permanent trend in claims development exceed our current expectations, losses in 2012 and beyond should be driven primarily by new delinquencies. This view has been supported by loss performance in 3Q and 4Q, following the reserve adjustments we made in the second quarter of 2011.

Beginning on Slide 8, I'd like to provide some additional detail on our view of adequacy of our reserves. During the past year, we have added disclosure on cures by aging category and reserves as a percentage of delinquent risk to provide more transparency into our cure trends and strength of reserves by aging categories.

This slide tracks the static population of December 2009 delinquencies over the past 2 years. As you see, the cumulative cure percentage has trended up over time and continued to grow during 2011. However, it is important to realize that there are still unresolved delinquencies from this year-end 2009 starting point. In fact, 20% of the delinquencies from this population remain unresolved.

Ultimately, we expect additional cures from this unresolved population to build to the current cure assumption in our reserve factors. While this analysis is limited to one vintage as of December 2009, in the aggregate, cure experience continues to support our current reserve levels.

Slide 9 provides an update to the reserve actions we took in second quarter 2011. As you may recall, we increased our reserves at that time by $100 million per experience that we saw on the second quarter and approximately $200 million for our expectation of further deterioration of future cure rates. As expected, we experienced further deterioration in cure rates in the third quarter of 2011, which we estimate utilized approximately $100 million of the initial $200 million strengthening.

During the fourth quarter, cure rates began to stabilize and we used an incremental, approximately $20 million. This leaves $80 million of our second quarter action remaining to be utilized on a go-forward basis. While there can be no assurance that cure rates will not deteriorate more than the remaining $80 million provision, we feel good about the cure activity over the last 2 quarters and we'll continue to monitor them closely.

Finally, as you can see on Slide 10, regarding the adequacy of our reserve levels, loss mitigation has played a significant role in limiting our losses, and we expect that to continue in 2012. As a reminder, loss mitigation benefits are not being driven by an expectation of significant rescissions during the year. As we've publicly disclosed, we do not have any material rescission expectation built into our reserves as the majority of our rescissions already occurred as of second quarter 2010. We have a different investigation process than other mortgage insurers. Early in the cycle, we reviewed delinquent loans for missing documents, adherence to underwriting guidelines and fraud and misrepresentations. And we rescinded those loans that were not in compliance with our master policies.

This is contrasted to the practice of some of our competition where loans were investigated later in the process, in fact, at the point of claims submission. As you can see from the historical view, we exceeded our 2011 expectation of $400 million to $500 million in loss mitigation savings, primarily driven by workouts or loan modifications and claim mitigation activities.

As a reminder, we report loss mitigation savings as the reserve that is released when a delinquent loan is cured through loan modification, rescission or any reduced claim amount through a short sale or negotiated claim payment. While we do expect workouts to continue to drive material savings in 2012, you can see that our expectation is a 28% decline in those workouts from roughly 18,000 to 13,000 expected loan modifications in the current year.

The recent announced extension of the HAMP program through year-end 2013 does have the potential to add additional workout opportunities that had been declining with the previous anticipated wind down of the HAMP program.

Now let's turn to new delinquencies in 2012. Again, because we believe that our current reserve levels are adequate with respect to our existing delinquency inventory, our incurred loss expectation for 2012 is driven primarily by expected new delinquencies. Slide 11 provides the actual delinquency development of 2005 to 2008 books, which peaked in either late 2009 or 2010, depending on the book year.

Since peaking, while the continued burn-out of these problem vintages is slower than we would like, it is clearly evident that these books are producing fewer new delinquencies over time. We expect this burnout to continue producing fewer new delinquencies resulting in improved financial performance on a go-forward basis.

We have been providing Slide 12 to the investment community for several periods to illustrate new delinquency trends and re-delinquency trends in our portfolio. However, as we look forward to 2012, we have added an annual review of these trends on Slide 13 to help further illustrate that our 2012 view of new delinquencies is reasonable and appropriate.

We believe that the new delinquency trends experienced over the last 2 years are sustainable and will continue as macroeconomic trends slowly improve and we get further away from the origination of problem vintages. As a reminder, new delinquency developments normally accelerate during the first 2 to 3 years of a book's life and then declines over time. However, due to the favorable performance and relative size of the 2009 to 2011 books, we do not expect the normal pattern of accelerating delinquencies to have a material impact on losses. Our incurred loss expectation is still being driven by the books originated from 2005 to 2008.

So how does all this influence our view of losses in 2012?

We have provided a historical view of loss drivers from 2010 through 2011, along with our current expectation of 2012 losses on Slide 14. This slide shows the negative impact from reserve adjustments and aging during 2010 and '11. However, experience since our last reserve action in the second quarter, has been in line with our expectations and we anticipate that trend to continue in 2012. Although we do expect seasonal variation in new delinquencies in 2012, our current expectation of losses will be driven, primarily by new delinquencies that are clearly declining combined with an expectation that reserves are adequate for claims on existing delinquencies.

Now, let's transition into our views of Genworth's claims paying resources and the factors that influence our claims paying ability.

Turning to Slide 15. It starts with an evaluation of our substantial claims paying resources of $3.7 billion available at year-end 2011. This includes $600 million of captive trust assets, which are not on our balance sheet. We only record benefits that are supported by captive trust assets, and we expect, approximately $100 million of claims to be paid by those trusts in 2012.

Future claims paying capability is then influenced by the quality of those assets, by our modeling approach and assumptions, by loss expectation and new business levels and performance. Slide 16 provides a more granular view of our investment portfolio excluding the captive trusts. We currently hold approximately $500 million of cash and short-term investments, which represent a buffer of liquidity to meet short-term obligations. Our $1.9 billion investment portfolio consists primarily of investment grade securities with an average yield of about 4%, average effective duration of about 4 years, and no single issuer concentrations greater than 2%. In addition, we hold about $700 million of investments and affiliates. So let's move on to why we believe these claims paying resources are sufficient as we manage through the cycle.

Slide 17 provides an overview of our thoughts on modeling, which starts with acknowledging the volatility and uncertainty in economic conditions and future financial performance. In addition, most deterministic mortgage models have used historical relationships between changes in home prices or unemployment rates to predict future losses. Unfortunately, these historical relationships have broken down in this period of unexpected financial stress and challenged the reliability of econometric modeling. As a result, we forecast an expected range of outcomes using one set of economic inputs that we get from a third-party provider, and then adjust based on our trended view of claims on both existing delinquencies and forecasted new delinquencies to provide ranges around our base expectations. I will reiterate that we have also worked with outside third parties whose own inputs of our loan level portfolio and loss forecast are largely consistent with our expectations.

So let's turn to Slide 18 and talk about some specifics behind our forecast and how we have adjusted them to determine our expected range of outcomes.

We have used one set of economic assumptions in our forecast based on data provided by a third party provider, as a baseline in our forecasting. We actually ended 2011 in a favorable position on HPA relative to this assumption. But we still anticipate an additional 5 to 6 points of further home price declines with peak to trough declines in home prices of approximately 25%, bottoming out roughly midyear 2012. In a similar manner, although unemployment ended 2011 better than the above 9% forecast, we still model a very slow increase in employment with forecasted unemployment at or above 9% throughout early 2013. We have also provided our forecasted slow NIW and how we expect that to grow as originations recover and we build our market share with improved mortgage insurance penetration. We will go deeper into our view on new business later during the presentation.

Our base expectation starts with our belief that current reserves are appropriate for future claims on our existing delinquencies. Another important input is the level of modifications in 2012 of approximately 13,000 modified loans. We have then incorporated claim roll rates on new delinquencies of about 21% or slightly higher than our current experience but improving over time. In developing a range of performance, we then provide for further deterioration and losses and a reduction in new insurance written. We feel this range provides us with a baseline to manage the business, share our expectations with regulators, GSEs and rating agencies, and to develop a capital plan with contingencies within this range of expected outcomes.


Risk discipline entering the cycle resulted in differentiated portfolio mix and with go forward implications. Changes in reserve expectation negatively impacted 2010 and 2011 results. And our current expectation, is new delinquencies should drive losses going forward.

Our risk-to-capital level is elevated, but our claims paying ability is sound. New business adds positive economics and benefits claims paying ability, and we have plans in place to continue to write new business. Multiple factors drive a return to profitability. We evaluated all strategic options and continue pursuing alternatives. We are following a chosen path and are very focused on a transition to profitability. That concludes our prepared remarks, and I'd like to turn it back over to the operator for the question-and-answer segment of today's call.

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