Investor Materials September 2010 0
Keefe, Bruyette & Woods2010 Insurance Conference
September 8, 2010
©2010 Genworth Financial, Inc. All rights reserved.
Investor Materials September 2010 1
Forward-Looking StatementsThis presentation contains certain “forward-looking statements”
within the meaning of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expects,”
“anticipates,”
“intends,”
“plans,”
“believes,”
“seeks,”
“estimates,”
“will”
or words of similar meaning and include, but are not limited to, statements regarding the outlook for Genworth Financial, Inc.’s (Genworth) future business and financial performance. Forward-looking statements are based on management’s current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to global political, economic, business, competitive, market, regulatory and other factors and risks, including those discussed on page 46, as well as in the risk factors section of Genworth’s Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission (SEC) on February 26, 2010. Genworth undertakes no obligation to publicly update any forward-
looking statement, whether as a result of new information, future developments or otherwise.
Use Of Non-GAAP & Select Operating Performance MeasuresAll financial data as of June 30, 2010 unless otherwise noted. For additional information, please see Genworth’s Quarterly Report on Form 10-Q filed with the SEC on July 30, 2010. All references to return on equity (ROE) refer to operating ROE and are levered assuming a 20% debt to capital at the product line level.
For important information regarding the use of non-GAAP & select operating performance measures, see the Appendix.
Unless otherwise stated, all references in this presentation to net income (loss) and operating income should be read as net income (loss) available to Genworth’s common stockholders and operating income available to Genworth’s common stockholders, respectively.
Investor Materials September 2010 2
Genworth --
Specialist Positioning
HomeownershipInvest Protect RetireProtection And Retirement Mortgage Insurance
Life InsuranceLong Term Care InsuranceWealth ManagementAnnuities & Supplemental ProductsInternational Lifestyle Protection
United StatesAustraliaCanadaEuropeSelect New Markets
Investor Materials September 2010
New Business With Improved Profitability
Risk Management & Loss Mitigation
Investment Portfolio Performance Optimization
Effective Capital Management & Capital Deployment
3
Levers For Improved Earnings & Returns
Investor Materials September 2010 4
Attractive New Business Profitability
New Business Pricing ROEs Increased As A Result Of Pricing Actions, Changes In Product Structure Or New Product Introductions
20%+
New Business Pricing ROE
Mortgage Insurance
Australia MI
U.S. MI
Protection & Retirement
Life Insurance
Wealth Management
Variable Annuities
Long Term Care Canada MIMid Teens
Lifestyle Protection
Low Teens Fixed Annuities
High Teens
Investor Materials September 2010 5
De-Risk
Diversify
Reinvest Excess Cash
Decreased Exposure To Higher Risk SectorsDisciplined Asset-Liability Management Exited Selected Limited Partnerships
Reducing Larger ExposuresPurchasing In Select SectorsAdding High-Quality Names Where Exposure Low
Rates Accretive To Portfolio YieldCompleted $3.5B Cash ReinvestmentPrimarily In Retirement & Protection And International
Optimize Investment Portfolio
Investor Materials September 2010 6
Risk Management & Loss MitigationPrice Increases/Contract Restructuring
Australia & Lifestyle ProtectionU.S. Mortgage InsuranceMonitor Interest Sensitive Products
Modifications, Settlements, Rescissions
& Recoveries
U.S. Mortgage InsuranceInternational Mortgage Insurance
Capital OptimizationCapital Efficient New ProductsLife Insurance Reserve Funding
Investment StrategiesDerivatives & Hedging ProgramsOptimize Asset/Liability Matching
Investor Materials September 2010 7
Sound Capital & Liquidity PositionHolding Company
U.S. Retirement & Protection
International
No Long-Term Debt Maturing Until Mid-2011
$1.1B Of Cash & Highly Liquid Securities
Statutory Earnings Build & Debt Market Opportunities
U.S. Mortgage Insurance
RBC Ratio ~375%1
Dividend Source In ’11
Self-Contained Capital Plan
RTC Ratio 15.1:11
Sound Capital Ratios
Excess Capital Build
Dividend Source In ’10
1As of June 30, 2010; Risk-Based Capital (RBC) Ratio Estimate Based On Timing Of Statutory Filings
8Investor Materials September 2010
~0.7
0.2
Multi-Year Holding Company Capital Plan
~2.9
~0.9
Sources Uses
~0.3
($B)
1.3
~3.4 2010 2011 2012
~$300MM Additional Dividend CapacityIn Excess Of Plans
~0.8
~0.8
~0.2R&P
+
++International
++
++
++U.S. MI
Sources & Uses Through 2012 Planned Dividend Opportunities
Holding Company Cash
(12/31/09)
Debt
Planned Operating Dividends1
Expense
Credit Facilities
Debt Maturity
Debt Service
1Includes Expected Net Proceeds Of ~$175MM From Canada Share Repurchase
0.4
~0.2
Life Co Infusion
~0.52010
= Completed
Investor Materials September 2010 9
Targeting GNW 10%+ Operating ROE By ’12
Levels Perspectives On ROE Targets2Q101
International 12%Return To Mid Teens Steadily Through 2012High Teens Longer Term
Retirement & Protection 6%
Return To 10% ROE By 2012Low/Mid Teens Longer Term
U.S. MI (12)%Qtrly. Op Income Positive By Mid ’11~20%+ ROE Business Model Over Time
12Q10 Annualized & 20% Levered
Investor Materials September 2010 10
The Case For GenworthWell Positioned For Sound Growth & Market Recovery
Strong Capital & Liquidity
Active Risk Management & Loss Mitigation
International Strength & Improving U.S. Retirement & Protection
U.S. MI Progression With Self-Contained Capital Plan
Optimizing Investment Portfolio & Cash Reinvestment
Clear Path For Earnings Expansion & ROE Growth
Investor Materials September 2010 11
2Q10Operating Income
Retirement & Protection Overview($MM)
Long Term Care
Solid New Generation PerformanceStrong Individual & Group SalesInvesting In Next Generation Offerings
Investing In New Products, Sales & TechnologyDifferentiated Service
Annuities1 Targeted New Business Offerings
Life Insurance
114
Main Street/Emerging Affluent FocusSuccessful New Product LaunchesDistribution Penetration/Service Ease
Wealth Management
1Comprised Of Fee Based & Spread Based Retirement Income
Investor Materials September 2010 12
Source: SRI MacroMonitor 2007. Net Worth Excludes Primary Residence.
Affluent
Mass Affluent & Middle Mkt.
Lower Incomes
Emerging Affluent Near
Retirees0.3%
3%
45%
51%
$50K-$250K Avg. Income
$285K Avg. Net Worth
All R&P Products
Wealth MgmtWorking Families
U.S. Households Target Consumer Segments
“Main Street”
Market Focus
Consumers Desire BalanceProtection & CostAdvice & Control
Security & Growth
Investor Materials September 2010 13
“Main Street”
Growth Opportunity Opportunity To Double LTC Mkt.
Adult Population
Low
Hig
hW
ealth
Current Addressable
Market
43MM
Goal: Expand Addressable
Market By 50MM
Buyers
7MM
Younger Older
Sources: U.S. Census, Insurance Advisory Board
% Ownership By Family Income
Median Coverage1.4X 2.1X 2.1X 2.0X
56%
84% 87% 90%
<$75K $200K+<$200K<$99K
Industry Recommended Coverage: 5X-10X Income
“Main Street”
Life Under-Insured
Investor Materials September 2010
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Main Street Life --
Leveraging Our ExpertiseBGA Policy Volume LeaderLarge In Force1
Loyal Independent Distribution500+ Brokerage General AgenciesRelationships Since 1950sAligned With Main Street FocusStrong New Product Adoption
($B)
’02 ’03 ’04 ’05 ’06 ’07 ’08
471 511 533590 645 670 677
1Face Amount Before Reinsurance2Source: 2008 McKinsey Life Insurance Operations Benchmarking Study For Term Independent3LIMRA
Cost Efficient PlatformGenworth Operations Run ~30% Less Than Industry Average2
Favorable Mortality Experience
GNW
#2
#3
(Policies Per Quarter)3
2Q10
681
’09
674
Investor Materials September 2010
300,000
500,000
700,000
900,000
1,100,000
1,300,000
95 97 99 01 03 05 07 09
15
Long Term Care --
Leveraging ExpertiseStrong ExpertiseSizable In Force1
Distribution Leadership
35 Years Of Morbidity Experience
Pricing, Product Design & Underwriting Advantages
Forward Investing Disciplines
Care Coordination Benefits
Specialist Career Sales Force
Independent Channel Wholesaling
Affinity --
e.g., AARP
Growing Group Presence
Scale AdvantagesProcess More Business Than Six
Of Top 10 Carriers Combined
300+ Dedicated Claims Specialists
1Includes Majority Of LTC Individual Policies
Label on chart thru 2009In
For
ce P
olic
ies
Investor Materials September 2010 16
Independent Advisor Wealth Management
496Independent
Other Channels
1,814
12/31/09
1,318
Genworth Ranked #2 TAMP1
Source: Cerrulli Associates
Industry Assets Under ManagementManaged Account Market
Open Architecture Platform
Asset Allocation & Rebalancing
Marketing & Technology Services
Broad Value Proposition
How We Differentiate
“Sailing & Rowing”
Framework
Operational Ease & Support
Practice Management Services
Penetrate Advisor Value Chain
1Turnkey Asset Management Program
($B)
Investor Materials September 2010 17
R&P Product Portfolio Outlook
Sources: LIMRA, VARDS, Cerrulli & Management Estimates
Life
LTC
Managed
Accounts
Targ
eted
Bus
ines
ses
Lead
ersh
ipB
usin
esse
sMarket Growth/
GNW Target vs. Market
GNW New Business
Targets
Moderate
Growth
Challenged
Industry Growth
Good
Growth
Outperform
Outperform
Outperform
Variable
Annuities
Fixed
Annuities
Med Supp
Moderate
Growth
Lower
Growth
Steady Growth
Niche
In Line
Managing
For ROE
In Line
12%-14% ROE
15%+ ROE
20%+ ROE
15%+ ROE
10%+ ROE
12%-14%+ ROE
Investor Materials September 2010 18
2Q10Operating Income
International Overview($MM) 105
Australia MIRecovery Continues …
Improved Home Price & Unemployment TrendsMarket Leader --
Continued Execution
Lifestyle Protection
Re-Pricing In Place; New Claims Slowing; Broadening Growth Model
Other Int’l MI Europe MI Small & Well Contained …
New Opportunities
Recovery Continues …
Improved Home Price & Unemployment TrendsShare Re-Capture Focus --
Leverage Service Capabilities
1Canada MI Excludes $35MM Of Operating Income Attributable To Noncontrolling Interests In 2Q10
Canada MI1
Investor Materials September 2010 19
Limited Reliance On Capital Markets
Active Regulatory Oversight
Strong Credit Culture
High Quality Borrowers
Mortgage Interest Not Tax Deductible
Lender-Friendly Legislation
Differentiated Housing Market Performance
U.S.1
4.58%
AUS1
0.50%
CAN1
0.44%1994 1997 2001 2005
5%
0%
1%
2%
3%
1Loans In Arrears 90+ Days. For Australia, Only Includes Loans On Banks’ Balance Sheets. Sources: Reserve Bank Of Australia (4Q09) & Management Estimates, Canadian Bankers Association (1Q10) & U.S. Mortgage Bankers Association (1Q10)
Canada/Australia Characteristics Mortgage Delinquency Rate
2009
4%
6%
Investor Materials September 2010 20
Home Price Appreciation Trends
Sources: Canadian Real Estate Association; RP Data & Management Estimates1End Of Period Unemployment Rate
Observations
CanadaAustralia
300
400
500
600
4Q07 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q103.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%Median Home PriceUnemployment Rate
Home Prices (AUS$K)Unemployment1
200
225
250
275
300
325
350
4Q07 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q105.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%Average Home PriceUnemployment Rate
Home Prices (CAN$K)Unemployment1
Home Prices Have RecoveredUnemployment ImprovementsGovernment Stimulus Withdrawals
// //
Investor Materials September 2010 21
Australia Mortgage Insurance
81.6($B)
2009
2008
2007
2006
2005
2004 &
Prior
Bulk
80%
75%
70%
61%
56%
~50%
~45%
Effective LTV1
1Book Year Risk In Force Based Upon Flow. Effective LTV Estimated Based On Accumulated Regional HPA.
PositioningRisk In Force By VintageDeep/Consolidating Lender Relationships
Eliminated >95% LTV Products In ’08
Strong Underwriting & Rate Buffers
~20% Price Increase 3Q09; +17% In ’08
Market Duopoly
6/30/10
Growth OpportunityCustomer Value Chain Penetration
Targeted Share Penetration
Slowing Origination Market Given Stimulus Withdrawal
2010 84%
Investor Materials September 2010 22
Canada Mortgage Insurance
77.1($B)
2009
2008
2007
2006
2005
2004 &
Prior
Bulk
86%
87%
76%
66%
59%
~48%
~46%
Effective LTV1
1Book Year Risk In Force Based Upon Flow. Effective LTV Estimated Based On Accumulated Regional HPA.
PositioningRisk In Force By VintageIntegrated In Lender Value Chain
Strong Underwriting
Eliminated >95% LTV & 40 Year Amortization In ’08
Increased Lender Training & QA
Executing Capital Optimization Plan
6/30/10
Growth Opportunity
Origination Market Normalizing
Deepen Lender Relationships
Differentiate On Service
Share Recapture
2010 93%
Investor Materials September 2010 23
Lifestyle Protection($MM)
Accident &Sickness
Life
Involuntary Unemployment
Other
Coverage Type (1H10)Earned Premiums
27%
29%
34%
10%
Trends
Strategic PrioritiesCapture Re-Pricing & Distribution Contract Modification BenefitsActive Loss Mitigation – Unemployment & Accident & SicknessDrive Penetration Of Existing CustomersExpanded Focus On New Products/Channels + Select Additional Countries
Slowing New Claim Registrations
Claims Durations Extend
Consumer Lending Remains Slow
Banks Re-Assessing Capital Options
Product Value Proposition Strong– Regulation Benefit Potential
Investor Materials September 2010 24
Actively Managing Through Challenging Housing Market
Loss Mitigation Focus
Self-Contained Capital Disciplines
Grow Highly Profitable New Business
Active In Regulatory Reform
U.S. Mortgage Insurance Portfolio
($B)
6/30/10
30.3
Sub-Prime
Flow-Prime
Bulk
Primary Risk In Force
Investor Materials September 2010 25
1Q08
15.819.1 20.5 21.5
23.1 22.920.0 18.9
U.S. MI Flow Delinquency TrendsAvg. Reserve Per Delinquency($K) (%)
1Q08
8.0
4Q083Q08
21.924.2 24.5
1Q09
10.0
2Q09
10.4
2Q08
2.8 14.211.3 7.2 8.2(Count, K)
3Q09
12.6
14.4
Change In Delinquencies
4Q09
7.3
7.3
Two Different Housing Cycles
4Q083Q08 1Q09 2Q092Q08 3Q09 4Q09
Bad Products & OriginatorsSpecial Products & Sand States DrivenDeclining Impact On New Delinquencies
Standard Products/National BasisUnemployment Drives DelinquenciesSeasonal Pattern Returning
1Q10
1Q10
19.2
(5.1)
(4.7)
19.5
2Q10
8.4
2Q10
(3.6)
(3.5)
Investor Materials September 2010 26
Rising U.S. MI Benefits From Loss MitigationLoss Mitigation Experience Trends
1H09 1H10
333
450
Modifications1
Investigations/
Rescissions
($MM)
1Includes Home Affordable Modification Program (HAMP) And Other Modifications As Well As Workouts & Claims Management.
2010E Loss Mitigation Savings ~ In Line With 2009 Benefit
Shift From Rescissions To Modifications
Multiple Modification Programs Beyond Government HAMP Effort
Modification Programs Have Similar Payment Reductions ~30%
– Should Lower Redefault Rate
16,000+ GNW Delinquent Loans In HAMP Trial Period (~16% Of Delqs.)
Investor Materials September 2010 27
U.S. Mortgage Insurance Loss TrendsBulk LossesFlow Losses
484385
219274
226
1Q09 2Q09 3Q09 4Q09 1Q10
($MM)
366338
176
4
($MM)
1Flow & Bulk, Including Workouts, Presales, Policy Rescissions & Targeted Settlements, Net Of Reinstatements
2Q09
3Q09
4Q09
1Q10
2Q10
Loss Mit.1
188
224
290
233
217
Reins.
77
49
39
35
56
Net Losses
308
170
235
191
193
($MM)
Delinquencies On 2005 –
2007 Vintages Peaked In Early 2010
249
2Q10 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
21
3Q09
4Q09
1Q10
2Q10
GSE Alt-A
315
295
58
29
FHLB/Other
461
476
465
480
Total RIF
776
771
523
509
(RIF, $MM)
Investor Materials September 2010 28
U.S. MI Self-Contained Capital Plan
($B)Statutory Position Risk To Capital Ratio
14.6:1
2Q09
15.1:1 14.9:114.8:1
3Q09 4Q09
1 The Portfolio Is Stress-Tested In The Severe Scenario With An 18-20% Home Price Decline Assumption 2 Federal Housing Finance Agency
12
14
16
ContingencyReserves
0.9
Surplus0.8
1.7
6/30/10E
Current Operating Assumptions14% To 17%1
Peak-To-Trough Home Price Decline FHFA2
Index & 10.3% Unemployment
Ability To Absorb Home Price Declines Of 35% To 38% In FHFA Index Peak-To-
Trough & 14% Unemployment
1Q10 2Q10E
15.1:1
Investor Materials September 2010 29
Expect Industry To Regain Share From FHA Over Time
Combination Of FHA & GSE Actions Influence Share Shifts
Traditional MI Strengths Demonstrated In Current Cycle
Anticipate Multiple Proposals For GSE Reform
0%
10%
20%
30%
40%
1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10
Industry View --
Increase MI OpportunityMarket Share Trends
FHA/VA
Industry Flow MI
Source: Inside Mortgage Finance Mortgage Origination Indicators.
Investor Materials September 2010 30
U.S. Mortgage Insurance --
Looking Ahead
2008
Thru 1H09
2H09 Thru
2011
Capital & Liquidity
Loss Trends
Loss Mitigation
Growth & Margin
Defensive Positioning
Capital Ratio Flexibility
Strong Growth Capacity
2005–2007 Books
Peaked in Early 2010
Low Losses In Recent Vintages
Internal Modifications
& Rescissions
Addition Of Federal
Modifications & Other Servicer
Programs
Limiting MSAs
Low Production
35%+ Price Increase
Clean Underwriting
Recover FHA Share
Time Period
Pressure From
2005 –
2007 Book Years
Investor Materials September 2010 31
Investment Portfolio Overview$71.8B
6/30/10
Cash/Cash Equivalents & Short-Term Investments
Commercial Mortgage Loans
Investment Grade Structured Securities
Non Inv Grade Fixed Maturities
57%Investment Grade Corporate & Municipal Fixed Maturities
1Other Includes: Trading Securities, Derivatives & Restricted Investments Related To Securitization Entities
Sec. Lend, Policy Loans, Other1
5%
12%
7%
1%
8%
Ltd. Partnerships & Equities
10%
Key PerspectivesCompleted $3.5B Cash Reinvestment
High Quality Portfolio
Strong Commercial Real Estate
Declining Loss Trends
Investor Materials September 2010 32
Declining Impairments & Losses
Improved Diversification & Deploying Cash Opportunistically
Manageable Stress Loss Scenarios
1Exclude Net Investment Gains (Losses) Related To Derivatives, Trading Securities, Bank Loans, Held-for-Sale Mortgage Loans, Limited Partnerships & Gains (Losses) Related To Securitization Entities.
2Includes Loss On Sale Of Limited Partnerships
($MM, After-Tax)
Structured Impairments
Corporate Impairments
Other Impairments
Realized Gains (Losses)
GAAP: Net Realized Gains (Losses)1
1Q09
(117)(62)
(69)(99)
(410)
2Q09 3Q09 4Q092 1Q10
(20)
2Q10
Investor Materials September 2010 3333
Declining Net Unrealized Losses($MM, After-Tax, Deferred Acquisition Costs & Other)
Corporate Securities
Government, Agency, Other
Residential Mortgage-Backed Securities
Commercial Mortgage-Backed Securities
Other Asset-Backed/Mortgage-Backed Securities
1Q09
(3,023)
(860)(1,398)(1,401)
(4,095)
2Q09 3Q09 4Q09 1Q10
29
2Q10
Investor Materials September 2010 34
The Case For GenworthWell Positioned For Sound Growth & Market Recovery
Strong Capital & Liquidity
Active Risk Management & Loss Mitigation
International Strength & Improving U.S. Retirement & Protection
U.S. MI Progression With Self-Contained Capital Plan
Optimizing Investment Portfolio & Cash Reinvestment
Clear Path For Earnings Expansion & ROE Growth
Investor Materials September 2010 36
Commercial Mortgage Loan ComparisonMarket Concerns Portfolio Genworth Portfolio
Portfolio Diversified By Property Type, Geography & TenancyConcentrated Positions
Construction Loans No Construction Loans
Bullet Loans Amortizing Loans
Inflated Assumptions (Cap Rates, Vacancies & Rent Rolls)
Conservative Assumptions --
In Force Cash Flow Underwriting
LTV At Origination > 80%
Weak Amortization
Average Current LTV Of 65%
Amortizing Portfolio
High Rollover Risk Low Rollover Risk
Low Debt Service Coverage <1.2X High Debt Service Coverage 2.23X
Investor Materials September 2010 37
Total Commercial Real Estate Holdings
CommercialMortgage
Loans62%
CMBS32%
Limited Partnerships1%
Portfolio Diversified By Property Type, Geography & Tenancy
89% Fixed Rate Mortgages; 11% Floating Rate Mortgages
Low Commercial Real Estate Limited Partnership Exposure Of $165MM
Total Portfolio $11.6 Billion Commercial Property Types
Restricted5%
Retail 2.32X
DSCR2
Office 2.43X
Industrial 1.62X
Apartment 2.03X
Hotel 3.94X
Other 2.46X
Total 2.23X
63%
LTV1
66%
62%
62%
84%
42%
65%
1Loan-To-Value Based On Current Valuation.2Debt Service Coverage Ratios Include Both Fixed (1.71X) & Floating Loans (6.68X).
Investor Materials September 2010 38
Commercial Mortgage Loan Portfolio
Annual RevaluationOn-Going Surveillance
Whole Loan 93%
B-Note 4% Mezzanine 3%Low Average Loan Size ~$4MMLow 60-Day Delinquencies (0.61%)Average Occupancy 88%Majority Fixed Rate Whole Loans
Low Refinance Risk As Only 3% Matures In 2010, 6% In 2011, 6% In 2012
Limited B-Note/Mezzanine HoldingsSupports Floating Rate LiabilitiesNo Maturities In 2010
Total Portfolio $7.2 Billion Comments
Surveillance Practices
Investor Materials September 2010
($B)
39
Commercial Mortgage Portfolio Indicators
1Chart Excludes Floating Rate Loans Which Have Higher (Better) Ratios
Debt Service Ratios Remain Strong But Reflect Declines In Property Income
Strong Delinquency Performance
Debt Service Ratios --
Fixed1 60+ Day Delinquency
0%
2%
4%
6%
8%
10%
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
CMBS (Trepp)
Genworth Mortgages
851bps
60bps
0.00.51.01.52.02.53.0
<1.0 1-1.25 1.25-1.5 1.5-2 >2.02009 2010
Investor Materials September 2010 40
Commercial Mortgage Loan-To-Value Detail
<50%
50-60%
>75%
60-70%
15%70-75% 15%
26% 24%
20%
Positioned To Withstand Property Value Declines
Average LTV Of 65%High Debt Service Coverage Ratio Of 1.71X For Fixed Rate Loans; 2.23X For The Total Portfolio
Limited Interest Only Exposure
Loan ValuationPrimarily Direct Cap Valuation Based On Existing Cash FlowAnnual Loan Revaluation In ProcessGenworth Valuation At Origination On Avg 10% Below Appraised Value
Valuations Based On 2009 Property Values
Investor Materials September 2010 41
Fair Value -
$3.7 Billion($MM)
AAA 1,942 332 331 118 29 2,752AA 45 46 109 61 -- 261A 49 26 78 107 -- 260BBB 52 17 39 47 -- 155<BB 65 13 119 101 -- 298Total
2,153
434
676
434
29
3,726BV
2,121
526
817
628
25
4,117
2004 &Prior
2005 2006 2007AAA
AA
A
<BB
BBB
Commercial Mortgage-Backed Securities
Note: Current Ratings As Of June 30, 2010
2009
Highly Rated Portfolio81% AAA/AA92% Investment Grade
69% ’05 Vintage & Prior
Majority CMBS Well Insulated From Stress Life-
Time Loss Estimates; 60% Agency Or 4X Stress Loss Coverage
Total
4%8%
74%
7%7%
Investor Materials September 2010 42
CMBS Stress Testing
60% Of Portfolio Can Withstand ≥
4.0X Stress Lifetime Loss Estimates
~90% Of Portfolio Can Withstand ≥
2.0X Stress Lifetime Loss Estimates
Subordination Levels Provide Loss Cushion
Average Market Stress Loss Forecasts Stabilized ~11%1Over The Lifetime Of The Securities. Coverage: CMBS Subordination/Deal Stress Loss. Some Deals Are Not Covered By All Default Models; Only Property & Portfolio Research Data Used For Large Loan Deals. Charts Exclude Interest-Only & Rake Bonds.
4Q09 1Q10 2Q10Conduit Stress Loss Rate
Market Stress Loss Forecasts GNW CMBS Stress Test Results
Conclusions
Average
11.3%
11.1%
11.2%2007
17.7
17.6
17.72006
13.7
13.4
13.42005
9.4
9.0
9.1≤
2004
4.4
4.4
4.7
4Q09 1Q10 2Q10
Stress Loss Coverage1
GNW Portfolio %
Agency & ≥
4.0X 59% 62% 60%<4.0X
41
38
40<2.0X
11
11
10<1.2X
4
4
4
Investor Materials September 2010
0%
5%
10%
15%
20%
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
43
Outperformed U.S. MI Peers Through Cycle
1Data From 8Ks, 10Qs & Supplements Of Peers & Company Reported Through August 3, 20102Based On Total RIF3As Of June 30, 2010 FHLB Is 78% Of Total Bulk RIF & Is Performing At <2% Delinquency Rate4Risk To Capital Estimate 5Pre-Tax Operating Basis6Excludes GNW; Radian Added December 2008
Industry6
GNW
Delta
Key Performance Metrics1 Industry Primary Delq
Rates
Peers 1 2 3 4 GNW
ARM2
(< 5 Yrs)
11%
7%
9%
5%
2%
Alt-A2
12%
12%
16%
11%
3%
Bulk RIF
14% 11%
13%
7%
2%3
Geographic2
California
8%
12%
8%
6%
5%
Florida
8%
9%
10%
8%
8%
RTC4
17.8
17.9
15.8
23.0
15.1
Net Loss ($B)
(3.8)
(2.2)
(1.9) (1.4)5
(0.8)
(3Q07-2Q10)
Investor Materials September 2010 44
This presentation includes the non-GAAP financial measure entitled “net operating income.” The company defines net operating income as income (loss) from continuing operations excluding net income attributable to noncontrolling interests, after-tax net investment gains (losses), which can fluctuate significantly from period to period, changes in accounting principles and infrequent or unusual non-operating items. There were no infrequent or unusual non-operating items excluded from net operating income for the periods presented in this presentation.
Management believes that analysis of net operating income enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers. However, net operating income should not be viewed as a substitute for GAAP net income. In addition, the company's definition of net operating income may differ from the definitions used by other companies. For a reconciliation of segment net income to segment net operating income, see the company’s second quarter 2010 financial supplement on the company’s website at genworth.com.
This presentation also includes the non-GAAP financial measure entitled “operating return on equity” or “operating ROE.” The company defines operating ROE as net operating income divided by average ending Genworth Financial, Inc.’s stockholders’ equity, excluding accumulated other comprehensive income (AOCI) in average ending Genworth Financial, Inc.’s stockholders’ equity. Management believes that analysis of operating ROE enhances understanding of the efficiency with which the company deploys its capital. However, operating ROE as defined by the company should not be viewed as a substitute for GAAP net income divided by average ending Genworth Financial, Inc.’s stockholders’ equity. Due to the unpredictable nature of net income and average ending stockholders’ equity excluding AOCI, the company is unable to reconcile its outlook for operating ROE to GAAP net income divided by average ending Genworth Financial, Inc.’s stockholders’ equity.
Use Of Non-GAAP Measures
Investor Materials September 2010 45
This presentation 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 the 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, linked-benefits, spread-based and variable products; (3) gross and net flows, which represent gross flows less redemptions, for the wealth management business; (4) written premiums and deposits, gross of ceded reinsurance and cancellations, and premium equivalents, where the company earns a fee for administrative services only business, for lifestyle protection insurance; (5) new insurance written for mortgage insurance, which in each case reflects the amount of business the company generated during each period presented; and (6) written premiums, net of cancellations, for the Mexican insurance operations. Sales do not include renewal premiums on policies or contracts written during prior periods.
The company considers annualized first-year premiums, new premiums/deposits, gross and net flows, written premiums, premium equivalents and new insurance written to be measures of the company's operating performance because they represent measures of new sales of insurance policies or contracts during a specified period, rather than measures of the company's revenues or profitability during that period.
Management regularly monitors and reports assets under management for the wealth management business, insurance in force and risk in force. Assets under management for the wealth management business represent third-party assets under management that are not consolidated in the company’s financial statements. Insurance in force for the 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. Risk in force for the international and U.S. mortgage insurance businesses is a measure that recognizes that the loss on any particular mortgage loan will be reduced by the net proceeds received upon sale of the underlying property. The company considers assets under management for the wealth management business, insurance in force and risk in force to be measures of the company’s operating performance because they represent measures of the size of the business at a specific date, rather than measures of the company’s revenues or profitability during that period.
This presentation also includes a metric related to loss mitigation activities for the U.S. mortgage insurance business. The company defines loss mitigation activities as rescissions, cancellations borrower loan modifications, repayment plans, lender- and borrower-titled pre-sales 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 pre-sales, the estimated savings represent the difference between the full claim obligation and the actual amount paid. The company believes that this metric helps to enhance the understanding of the operating performance of the U.S. mortgage insurance business.
These operating measures enable the company to compare its operating performance across periods without regard to revenues or profitability related to policies or contracts sold in prior periods or from investments or other services.
Definition Of Select Operating Performance Measures
Investor Materials September 2010 46
This presentation contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “will” or words of similar meaning and include, but are not limited to, statements regarding the outlook for the company’s future business and financial performance. Forward-looking statements are based on management’s current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to global political, economic, business, competitive, market, regulatory and other factors and risks, including the following:Risks relating to the company’s businesses, including downturns and volatility in equity and credit markets, downgrades in the company’s financial strength or credit ratings, interest rate fluctuations and levels, adverse capital and credit market conditions, the valuation of fixed maturity, equity and trading securities, defaults, downgrade or other events impacting the value of the company’s fixed maturity securities portfolio, defaults on the company’s commercial mortgage loans or investments in commercial mortgage-backed securities, goodwill impairments, the soundness of other financial institutions, inability to access the company’s credit facilities, an adverse change in risk-based capital and other regulatory requirements, insufficiency of reserves, legal constraints on dividend distributions by subsidiaries, competition, availability, affordability and adequacy of reinsurance, default by counterparties, loss of key distribution partners, regulatory restrictions on the company’s operations and changes in applicable laws and regulations, legal or regulatory investigations or actions, the failure or any compromise of the security of the company’s computer systems and the occurrence of natural or man-made disasters or a pandemic; Risks relating to the Retirement and Protection segment, including changes in morbidity and mortality, accelerated amortization of deferred acquisition costs and present value of future profits, reputational risks as a result of rate increases on certain in-force long-term care insurance products, medical advances, such as genetic research and diagnostic imaging, and related legislation, unexpected changes in persistency rates, ability to continue to implement actions to mitigate the impact of statutory reserve requirements and the failure of demand for long-term care insurance to increase; Risks relating to the International segment, including political and economic instability, foreign exchange rate fluctuations, unexpected changes in unemployment rates, unexpected increases in mortgage insurance default rates or severity of defaults, the significant portion of high loan-to-value insured international mortgage loans which generally result in more and larger claims than lower loan-to-value loans, competition with government-owned and government-sponsored enterprises offering mortgage insurance and changes in regulations; Risks relating to the U.S. Mortgage Insurance segment, including increases in mortgage insurance default rates or severity of defaults, uncertain results of continued investigations of insured U.S. mortgage loans, possible rescissions of coverage and the results of objections to our rescissions, the extent to which loan modifications and other similar programs may provide benefits to the company, unexpected changes in unemployment rates, further deterioration in economic conditions or a further decline in home prices, changes to the role or structure of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), competition with government-owned and government-sponsored enterprises offering mortgage insurance (including the Federal Housing Administration), changes in regulations that affect the U.S. mortgage insurance business, the influence of Fannie Mae, Freddie Mac and a small number of large mortgage lenders and investors, decreases in the volume of high loan-to-value mortgage originations or increases in mortgage insurance cancellations, increases in the use of alternatives to private mortgage insurance and reductions by lenders in the level of coverage they select, the impact of the use of reinsurance with reinsurance companies affiliated with mortgage lending customers, legal actions under Real Estate Settlement Procedures Act of 1974 and potential liabilities in connection with the company’s U.S. contract underwriting services; Other risks, including the possibility that in certain circumstances the company will be obligated to make payments to General Electric Company (GE) under the tax matters agreement with GE even if the company’s corresponding tax savings are never realized and payments could be accelerated in the event of certain changes in control and provisions of the certificate of incorporation and bylaws and the tax matters agreement with GE may discourage takeover attempts and business combinations that stockholders might consider in their best interests; andRisks relating to the company’s common stock, including the suspension of dividends and stock price fluctuation.
The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
Cautionary Note Regarding Forward-Looking Statements