GNW 02/12/08_Merrill

  • 152 views
Uploaded on

 

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
152
On Slideshare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
2
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Merrill Lynch Conference Michael Fraizer Chairman and CEO February 12, 2008 ©2008 Genworth Financial, Inc. All rights reserved.
  • 2. Forward-Looking Statements This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” or words of similar meaning and include, but are not limited to, statements regarding the outlook for the company’s future business and financial performance. Forward-looking statements are based on management’s current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to global political, economic, business, competitive, market, regulatory and other factors, including those discussed in the Appendix and in the risk factors section of the company’s Form 10-K filed with the SEC on February 28, 2007, the company’s Form 8-K filed with the SEC on April 16, 2007 and the company’s Form 10-Q filed with the SEC on October 26, 2007. The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise. Non-GAAP and Selected Operating Performance Measures All references to EPS, income, and ROE refer to net operating earnings per diluted share, net operating income and operating return on equity. All references to ROE in the business segments are levered, assuming 25% debt to total capital at the product line level. All financial data as of 12/31/07 unless otherwise noted. For additional information, please see Genworth’s Fourth Quarter of 2007 earnings release and financial supplement, as well investor materials dated February 8, 2008 regarding Genworth’s U.S. Mortgage Insurance business, posted at www.genworth.com. For important information regarding the use of non-GAAP measures and selected operating performance measures, see the Appendix. This presentation should be used in conjunction with the accompanying audio or call transcript. Merrill Lynch & Co., Inc. Conference – February 12, 2008 1
  • 3. 2007 Performance Operating EPS Operating ROE $3.07 13 - 14% Retirement & Retirement & 11.0% Protection Protection 9.5% 50% 50% International 39% 20041 2010 – 2011 2007 Target U.S. Mortgage Ins. 11% 2007 1 Pro Forma - See Genworth’s Q4 2005 Earnings Release (Dated 1/26/06) For Percentages Exclude Corporate And Other Reconciliation. Adjusted For Earnings From Discontinued Operations Of $36MM Merrill Lynch & Co., Inc. Conference – February 12, 2008 2
  • 4. Genworth Strategy Your Financial Security Company Homeownership Life Security Mortgage Protection Insurance Delivering Wellness & Care Services Financial 25 40 Age 55 Retirement Wealth 70 Security Security Management Accumulation Income LTC Managed Accounts Liquidity Merrill Lynch & Co., Inc. Conference – February 12, 2008 3
  • 5. Positioning For The Future Operating Income Mix Driving Growth/ROE Expansion New Business 2005-2007 ROE Sales CAGR Int’l MI 34% High Teens Int’l PPI 23% High Teens Fee Based 84% High Teens ~85%+ New Life 33% Low Teens New LTC 17% Mid Teens Growth ~80% ~90% Engines Opportunistic Spread (13%) Low Teens U.S. MI 61% Mid Teens Repositioning Old Life/Spread Extract Capital Redeployment Old LTC Improve ROE/Extract Capital 2007 2008E 2010/11E Fee Based Includes Fee Based Retirement Income & Managed Money. Spread Includes Spread Based Retirement Income & Institutional Merrill Lynch & Co., Inc. Conference – February 12, 2008 4
  • 6. Today’s Updates Priority Growth Opportunities – International – Fee Based Wealth Management & Retirement U.S. Mortgage Insurance Investment Portfolio Capital Optimization & Deployment Merrill Lynch & Co., Inc. Conference – February 12, 2008 5
  • 7. Strong International Platform Operating Income ~50% GNW ($MM) Op Income Retirement 25+ Countries Products 600+ Distribution Relationships 585 1,900+ Associates PPI Global Risk Management Canada Double Digit Growth Australia Europe & Other 2007 2010-2011E 22% 2007 Operating ROE $3.4B Mortgage Insurance Unearned Premium Reserve (12/31/2007) Merrill Lynch & Co., Inc. Conference – February 12, 2008 6
  • 8. Payment Protection Overview Coverage 2007 Sales By Obligation Mix Sickness/Accident ~50% Personal Life ~25% 52% Loan Unemployment ~25% 3 - 5 Year Average Life Mortgage 16% Auto 13% Credit Card 11% 8% Other Protected By: 200+ Financial Institutions Globally – Waiting & Exclusion Periods Distributor Branded – Capitated Claim Payment Period – Maximum Limits Direct or Reinsurance Merrill Lynch & Co., Inc. Conference – February 12, 2008 7
  • 9. Payment Protection Opportunity Sales By Region Established Markets ($B) 2.8 Penetrate Significant Customer Base New Products & Customers Lender Structured Transactions Continental 1.4 Europe New Markets .7 U.K. & Ireland Transfer Product/Risk Expertise .2 New Markets Leverage Global Client Base .5 Structured Mexico, Poland, South Korea, Others 2007 Merrill Lynch & Co., Inc. Conference – February 12, 2008 8
  • 10. Global Mortgage Insurance Environment Demand Drivers: Homeownership Initiatives, Capital Regulation, Economic Environment Economies Generally Healthy Slowing Global Housing Finance & Appreciation Trends – Most Pronounced in Spain, Ireland & U.K. Some Liquidity Impact On Global Housing Finance Significant Structural Differences vs. U.S. New Markets Develop Gradually Merrill Lynch & Co., Inc. Conference – February 12, 2008 9
  • 11. Comparing Mortgage Markets Risk Management U.S. Canada Australia Europe Credit Scoring External Yes Yes No U.K. Only Internal Yes Yes Yes U.K. Only Borrower Underwriting Yes Yes Yes Yes Property Appraisals Yes Yes Yes Yes Sub-Prime Products ~20% Limited Limited Limited Reduced Documents ~13% Self Self Limited Employed Employed Second Liens ~14% Limited Limited Limited Premium Payment Monthly Single Single Single Sub-Prime, Reduced Doc And Second Liens Based On Company Estimates Merrill Lynch & Co., Inc. Conference – February 12, 2008 10
  • 12. International Mortgage Insurance Strategy Primary Risk In Force ($B) 151 Canada Canada & Australia Customer Penetration Underwriting & Pricing Discipline Ensure Exposure Management Expand Support Services Australia Europe & Other Slowed Expansion Europe / Other Selective Geographies / Lenders 12/31/2007 Build Gradually For The Future See Appendix For Details Regarding Global MI Risk In Force Merrill Lynch & Co., Inc. Conference – February 12, 2008 11
  • 13. Expanding U.S. Wealth Management Assets Under Management 3 Yr ($B) CAGR 22 ~ 34% Strong Organic & Acquisition Performance AssetMark ~ 33% Advisor Expansion & Penetration Acquisition Leveraging Practice Management Services ~ 36% Existing Platforms 2007 Total Market AUM Outlook ($T) 3 Yr Expect Future Growth Ahead of Market CAGR1 ~ 12% 2.8 – Product Innovation/Income Guarantees .7 Independent ~ 17% – Expanded Services Offerings – Acquisitions Other Channels ~ 11% 2010E 1 Cerulli & Management Estimates Merrill Lynch & Co., Inc. Conference – February 12, 2008 12
  • 14. Positioned For Income Guarantee Market Individual VA 401(k) / Managed Mutual 403(b) Money Funds (Retail + Rollover) Market ~ 5.6 2.8 1.7 2.7 Size1 Market 5 - 8% 9% 15%+ 15%+ Growth1 Genworth ✓ Established ✓ Established In Process Early Mover Position ~$10 Trillion Opportunity for Income Guarantees 1 Company And 3rd Party Estimates. Market Size In Trillions Merrill Lynch & Co., Inc. Conference – February 12, 2008 13
  • 15. U.S. Mortgage Insurance Overview Risk Mix Of Book An Important Differentiator Captive Reinsurance Protects Downside Product, Price & Guideline Actions In 2007/2008 Quality Revenue Dynamics Primary Delinquency Rates 7.0% Industry 6.5% 6.0% 5.5% 5.0% 4.5% Genworth 4.0% 3.5% 3.0% 2.5% 2.0% Dec ‘06 Dec ‘05 Jun ‘06 Jun ‘07 Dec ‘07 Industry Represents MGIC, PMI, UGI, ORI, and Triad Based on MICA Reports. Delinquency Rate Represents Number of Lender Reported Delinquencies Divided by Number of Remaining Policies Consistent with Industry Practices Merrill Lynch & Co., Inc. Conference – February 12, 2008 14
  • 16. U.S. Mortgage Insurance Portfolio Risk In Force 91% Prime Book Avoided Sub-Prime Bulk & Second Liens Performing 70-75% Worked to Minimize Stacked Risk Factors Moved Actively On Risk & Pricing Guidelines With Market Shifts 2004 & Prior Books – Appreciation Benefit 2005-2007 Books – Blended Performance & Under- 25-30% Performing Reinsurance Protection Portfolio Mix Under-Performing Refers To Selected Product, Geographical and Book Year Combinations Where Ever-To-Date Actual Loss Ratio Performance Exceeds Ever-To-Date Pricing Expectations. Select Geographies Include CA, FL, AZ, NV and Great Lakes, Select Products Include Alt-A, A Minus and Sub-Prime. Merrill Lynch & Co., Inc. Conference – February 12, 2008 15
  • 17. Lender Captive Reinsurance Protection 63% GNW Flow Portfolio Has Lender Captive Reinsurance Coverage – Protects Downside Risk Written on a “Book Year” Basis By Lender Attachment Points Are % of a Book Year’s Original Risk In Force Reinsurance Premiums Deposited in 3rd Party Trust 40% Cede Excess of Loss Example 25% Cede Excess of Loss Example Premiums Losses Premiums Losses Lender 25% Remaining Remaining Lender 40% GNW GNW Losses Losses 2nd Loss 2nd Loss Lender Lender (4-14 Claims Layer) 60% 75% (5-10 Claims Layer) GNW GNW 1st Loss (0-4 Claims Layer) 1st Loss (0-5 Claims Layer) GNW GNW Captive Reinsurance Liability Limited to Funds in Trust, Not Subject to Lender Bankruptcy. Trust Balance Impacted by Future Premiums Received, Payment of Claims and Dividends. Percentage of GNW Portfolio in Captive Reinsurance Arrangements As of 12/31/07. Merrill Lynch & Co., Inc. Conference – February 12, 2008 16
  • 18. Lender Captive Attachment Progression 2006 Book Year Example $4.3B Original Risk In Force With Captive Reinsurance Coverage $173MM Losses = Sum of All Attachment Points 46 Lender Captives Comprise Total – Actual Attachment Will Vary By Lender 2006 Attachment Trend As Of 4Q07 % Progression to RIF Ever to Date Specific Lender Remaining Incurred Losses Attachment Point ($B) ($MM) 0 – 50% .7 10 50 – 75% 1.8 55 75 – 100% .8 31 Includes ~$1MM of Captive Reinsurance Benefit 100%+ (Captive Benefit) .1 5 3.4 $101 58% Progression to Aggregate Attachment Point Aggregate Book Year Analysis Provided To Illustrate Directional Progression Toward Attachment. Data Presented in Aggregate For All Trusts. Actual Trust Attachment Will Vary By Individual Lender Contract. Additional Book Years Included in Appendix. Incurred Losses = Change in Reserves + Paid Claims. Information Excludes Quota Share Captive Arrangement Data. Merrill Lynch & Co., Inc. Conference – February 12, 2008 17
  • 19. Product Actions Taken For 2008 Flow New Insurance Written Products Not Insured By Genworth Sub-Prime Bulk Alt-A >95% LTV 100% Sub-Prime 2% Product Exits 5% A-Minus 1% Alt-A Alt-A > 90% LTV, < 660 FICO Prime 12% A Minus Above 95% LTV, < 575 FICO > 95% LTV 100 LTV < 620 FICO And Interest Only Guideline Restrictions Prime Primary & 2nd, Purch. & Rate Term Alt-A 80% ≤ 95% LTV A Minus Primary Only 100 LTV 95% LTV In 85 Declining Markets Price Increases Alt-A ~43% In 660 – 699 FICO Bucket A Minus ~18% Price Increase 2008E 100 LTV ~50% Increase For 56% of NIW Genworth Alt-A Consists Of Loans With Reduced Documentation Or Verification Of Income Or Assets And A Higher Historical And Expected Default Rate Than Standard Documentation Loans. Merrill Lynch & Co., Inc. Conference – February 12, 2008 18
  • 20. U. S. Mortgage Insurance – Looking Ahead Market Returns To MI Book Value Supported ($B) Investor Briefing Scenario ($B) @ 100% Loss Severity $3.9+ 287 $0.7 $0.5 New 65% $2.6 Business Invest. Income Existing 174 Business Underwriting Margin 12/31/07 12/31/12E 2008E Book Value $2.5 to $2.6B Quality New Business $3B Investment Portfolio 2006 2007 Captive Reinsurance Coverage U.S. MI Flow NIW Market1 1 Inside Mortgage Finance As Of January 31, 2008 See February 8, 2008 Investor Update In Its Entirety For Scenario Details Merrill Lynch & Co., Inc. Conference – February 12, 2008 19
  • 21. Investment Portfolio ($B) $74 Quality Assessment ~50% Investment Grade Bonds Commercial Mortgages LTV ~52% 49% Investment Commercial MBS 98% Investment Grade Grade Public & Private Bonds – Original Average LTV ~69% Avoided RMBS CDOs Securities Lending A-1/P-1 Municipals Underwritten to Underlying Credit Commercial 12% Mortgages Risk Considerations 12% CMBS & ABS $2.9B Remaining Sub-Prime / Alt-A RMBS – RMBS 7% Substantial Markdowns Taken Cash & ST 4% Non-Inv Grade 4% Below Investment Grade Under 4% Municipal 3% Sec Lending 3% Equities Less Than 1% Equity & LPs 2% Policy Loans 2% LTC Hedges/Others 2% 12/31/07 Merrill Lynch & Co., Inc. Conference – February 12, 2008 20
  • 22. Sub-Prime Securities Update Sub-Prime RMBS ($MM) 1,486 95% Level 2 Pricing AAA Regular Performance Monitoring $71MM After-Tax Impairments 4Q ’07 AA – Primarily 2006 Vintage – 75% < BBB A – 25% Single A BBB/BB/B Market Value 12/31/07 ($284) Change In Market Value Since 9/30/07 Merrill Lynch & Co., Inc. Conference – February 12, 2008 21
  • 23. Five Levers to Drive Shareholder Value Impact 2008E 2009/10E 2004 – 2007 Core Growth & Improving Returns ++ ++ International/Retirement & Protection ++ U.S. Mortgage Insurance + + - Capital Management & Redeployment ++ ++ ++ + Cost Efficiencies ++ Neutral/+ + Neutral + Investment Performance + Smart Use Of Capital Markets ++ + Merrill Lynch & Co., Inc. Conference – February 12, 2008 22
  • 24. Focus On Redeploying Low Return Capital Select Blocks Targeted ($B) 2.8 Reassessed Blocks Under Integrated Retirement & Protection Organization Life / Annuities Assessing Reinsurance, Capital Markets and Closed Block Options 8 to 12 Percent Pricing Action Old LTC Pursuing Extraction Options – Individual Or Blended Blocks 12/31/2007 Merrill Lynch & Co., Inc. Conference – February 12, 2008 23
  • 25. The Case For Genworth Shifting Mix For Growth & Returns Expanding International & Wealth/Retirement Platforms Capital & Risk Management Discipline ROE Expansion Path – Manageable Disruption In 2008 13%-14% 11.0% 11.0% 10.7% 2010 – 2011 2005 1 2006 2007 Target 1 See Genworth’s 4Q ’05 income press release (dated 1/26/06) for reconciliation Merrill Lynch & Co., Inc. Conference – February 12, 2008 24
  • 26. Appendix ©2008 Genworth Financial, Inc. All rights reserved.
  • 27. Captive Reinsurance - Disclosure Captive Disclosure Q4 2007 Original Book 4Q07 Progression Sum of Loss to Additional Losses Aggregate % Ever to Date Attachment Attachment to Incurred Losses to Reach Aggregate RIF ($B) Points ($MM) Point Current RIF ($B) Attachment ($MM) Attachment Book Year ($MM) 2005 Total 3.0 125 2.0 61 64 49% 0.8 16 0 -50% 0.8 28 50 -75% 0.4 15 75-99% 0.0 2 Attached 2006 Total 4.3 173 3.4 101 72 58% 0.7 10 0 -50% 1.8 55 50 -75% 0.8 31 75-99% 0.1 5 Attached 2007 Total 7.2 289 6.9 56 233 19% 6.9 56 0 -50% 0.0 0 50 -75% 0.0 0 75-99% 0.0 0 Attached Captive Benefit in Quarter ($MM) 1 Aggregate Book Year Analysis Provided To Illustrate Directional Progression Toward Attachment. Data Presented in Aggregate For All Trusts. Actual Trust Attachment Will Vary By Individual Lender Contract. Incurred Losses = Change in Reserves + Paid Claims Information excludes Quota Share Captive Arrangement Data. Merrill Lynch & Co., Inc. Conference – February 12, 2008 26
  • 28. A 5-Year View Key Assumptions Book Value Profile $3.9+ ($B) @ 100% Severity Existing Portfolio $0.7 Claim Frequency Expectation for Every 100 Loans $0.5 New Claim Frequency Captives $2.6 Business Portfolio Lifetime Attach? Ever-To-Date Invest. Income Existing ’04 & Prior No 1.4 2 Business ’05 – ’07 Yes 0.3 8 Underwriting ’08 & Forward No - 4 Margin 12/31/07 12/31/12E Performing Well 5 2005-2007 Books @ 115% Severity: Under-Performing 13 $.1B Additional Losses By 2012 Book Value Progression $3.9+ ($B) @ 100% Severity $2.6 $2.5-2.6 Company Estimates; Captive Attachment Based on Aggregate Analysis – Actual Results Will Vary By Lender Lifetime Loss Ratio Reflects Weighted Average Lifetime Expected Loss Ratio For Total Portfolio Existing Business and Investment Income Are Net of Income Taxes Existing Business Includes After Tax Premium From International Support Arrangements Projected Book Value Excludes Impact of Dividends From Our U.S. Mortgage Insurance Subsidiaries to Genworth 2007 2008E 2009E 2010E 2011E 2012E Merrill Lynch & Co., Inc. Conference – February 12, 2008 27
  • 29. Scenarios: Exhaust Captives or Eliminate Book Value Exhaust Captive Coverage U.S. Mortgage Ins. Book Value To 0 Claim Frequency Assumptions for Every 100 Loans Claim Frequency Assumptions for Every 100 Loans Claim Frequency Claim Frequency Captives Captives Portfolio Portfolio Attach? Attach? Ever-To-Date Ever-To-Date Lifetime Lifetime ’04 & Prior ’04 & Prior No No 1.4 1.4 2 2 ’05 – ’07 ’05 – ’07 Yes Yes 0.3 0.3 15 40 ’08 & Forward ’08 & Forward No No - - 4 4 Performing 8 Performing 10 Under-Performing 25 Under-Performing 81 Book Value Profile $2.9+ ($B) @ 100% Severity $0.6 $(0.3) $2.6 New Business Invest. Existing Income Business Underwriting Margin 12/31/07 12/31/12 2005-2007 Books @ 115% Severity: Company Estimates; Captive Attachment Based on Aggregate Analysis – Actual Results Will Vary By Lender Existing Business and Investment Income Are Net of Income Taxes $.2B Additional Losses Incurred By 2012 Existing Business Includes After Tax Premium From International Support Arrangements Projected Book Value Excludes Impact of Dividends From U.S. Mortgage Insurance Subsidiaries to Genworth Merrill Lynch & Co., Inc. Conference – February 12, 2008 28
  • 30. U.S. MI Portfolio – Delinquency Rates ($B) Total FICO > 660 FICO 620 - 659 FICO < 620 Primary Risk In Force 3Q 07 4Q 07 3Q 07 4Q 07 3Q 07 4Q 07 3Q 07 4Q 07 $31.3 $28.1 $2.9 $6.4 $22.1 Primary Risk In Force $19.7 $5.9 $2.5 3.4% 4.3% Default Rate 1.9% 6.3% 10.5% 12.8% 7.5% 2.5% $12.1 $8.1 $2.4 $1.3 2007 Policy Year $5.5 $8.5 $1.7 $0.9 1.4% 2.8% Default Rate 0.9% 1.7% 5.0% 3.8% 9.4% 1.7% $6.0 $5.9 $0.6 2006 Policy Year $4.2 $1.2 $0.6 $1.2 $4.1 3.8% Default Rate 2.2% 6.0% 12.6% 5.4% 15.4% 8.3% 3.6% $4.4 $4.2 $0.9 $0.3 2005 Policy Year $3.1 $0.9 $0.4 $3.0 4.0% Default Rate 2.4% 6.6% 12.2% 5.2% 8.5% 14.4% 3.2% $9.1 $9.6 $0.7 2004 & Prior Policy Years $6.8 $2.1 $0.7 $6.5 $1.9 4.3% 4.7% Default Rate 2.2% 8.8% 14.0% 2.4% 9.5% 15.3% $26.2 $29.4 Fixed Rate $18.2 $5.6 $2.4 $2.7 $20.6 $6.1 3.3% Default Rate 1.7% 6.2% 10.3% 12.5% 4.0% 2.1% 7.2% $1.9 $1.9 ARMs $1.5 $0.3 $0.1 $1.5 $0.3 $0.1 4.1% 7.2% Default Rate 5.9% 3.0% 9.0% 17.1% 12.0% 23.2% $7.9 $2.3 $1.2 $8.8 LTV > 95% $4.7 $2.1 $1.1 $5.4 4.6% 5.8% Default Rate 2.1% 6.4% 11.6% 2.6% 8.0% 15.3% $1.9 $1.9 $0.3 $0.1 Alt-A $1.5 $0.3 $0.1 $1.6 4.1% 6.2% Default Rate 3.3% 7.9% 13.2% 5.1% 11.7% 18.2% $3.6 $3.3 $4.0 $0.5 Interest Only & Option ARMs $2.9 $0.5 $0.2 $0.2 3.1% 5.0% Default Rate 2.6% 5.7% 9.9% 9.2% 5.6% 16.8% = Significant Increases in Delinquency Rates Loans With Unknown FICO Scores Are Included in the FICO 620 – 659 Category Delinquency Rate Represents Number of Lender Reported Delinquencies Divided By Number of Remaining Policies Consistent With Mortgage Insurance Industry Practices GNW Alt-A Consists of Loans With Reduced Documentation or Verification of Income or Assets And a Higher Historical And Expected Default Rate Than Standard Documentation Loans. Merrill Lynch & Co., Inc. Conference – February 12, 2008 29
  • 31. Comparing Global MI Risk In Force ($B) Effective LTV 77 Effective 66 75% LTV 16 13 86% 14 71% 9 77% 10 63% 7 71% Effective Vintage 31 LTV1 2007 22 94% 12 ~60% 27 ~60% Effective 2006 5 93% LTV 2005 8 4 88% 2004 92% 15 ~50% <80% 9 87% 10 ~50% & Prior ~75% ~70% 1 Bulk U.S. Canada Australia Europe Canada and Australia – Solid Embedded Home Price Appreciation Book Year Risk In Force and Effective LTV Based on Flow; Total Bulk Shown Separately 1 Primary Risk In Force as of 12/31/07 Merrill Lynch & Co., Inc. Conference – February 12, 2008 30
  • 32. Sub-Prime RMBS Holdings ($MM) Total = $1,486 468 <BBB 6% 345 43 265 34 A 21% 147 215 2 87 193 81 4 61 13 AA 22% 52 112 91 198 163 AAA 51% 102 166 130 2004 & Prior 2005 2006 1st Half 2006 2nd Half 2007 Stress Test Prior To Investment Avoided Riskier Originators & 2nd Liens Underlying LTVs ~ 80% ~4 Year Average Life 2007 Impairments: $78MM; 77% BBB & Below Ratings Reflect Levels As Of 12/31/07 Merrill Lynch & Co., Inc. Conference – February 12, 2008 31
  • 33. Alt-A RMBS Holdings 682 Total = $1,449 ($MM) 16 130 <BBB 2% 327 274 293 10 A 19% 71 7 61 32 AA 29% 101 99 2 262 46 214 18 126 AAA 50% 10 81 36 2004 & Prior 2005 2006 1st Half 2006 2nd Half 2007 ~85% Fixed Rate Mortgages (> 5 Year) Weighted Average FICO ~710 Underlying LTVs ~73% 2007 Impairments: $26MM; 73% BBB & Below Ratings Reflect Levels As Of 12/31/07 Merrill Lynch & Co., Inc. Conference – February 12, 2008 32
  • 34. Capital Generation ($B) Actions 2007E 2008E U.S. Stat Earnings Retirement & Protection Growth 1.3 1.4 And Capital Release U.S. Mortgage Insurance Decline International 0.9 1.1 Increase Reflects Growing In Force Capital Markets 0.3 0.4 Life XXX and AXXX Securitizations Efficiency 2007 Group Sale Block Extraction 0.6 0.4 Selective Reinsurance Contingency Reserve Release Other Capital Mgmt. 0.9 0.2 2007 Equity Unit Conversion Debt Capacity & Service 4.0 3.5 Merrill Lynch & Co., Inc. Conference – February 12, 2008 33
  • 35. Capital Deployment ($B) Actions 2007E 2008E New Business Funding International, Annuities & LTC 2.6 2.8 – Statutory Strain Growth – Required Capital Bolt-On Acquisition Pipeline Maintained .1 .2 - .5 Pipeline Target Fee Based & International Repurchases/ 1.3 .3 - .7 $1B Authorization Through ’09: Dividends $100MM Repurchased Through January 4.0 3.3 - 4.0 Ending Deployable .8 .3 - .6 Capital Merrill Lynch & Co., Inc. Conference – February 12, 2008 34
  • 36. Use Of Non-GAAP Measures This presentation includes the non-GAAP financial measure entitled quot;net operating income.quot; The chief operating decision maker evaluates segment performance and allocates resources on the basis of net operating income. The company defines net operating income (loss) as income (loss) from continuing operations excluding after-tax net investment gains (losses) and other adjustments and infrequent or unusual non-operating items. This metric excludes these items because the company does not consider them to be related to the operating performance of its segments and Corporate and Other activities. A significant component of the net investment gains (losses) is the result of credit-related impairments and credit-related gains and losses, the timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) are often subject to Genworth’s discretion and are influenced by market opportunities, as well as asset-liability matching considerations. Infrequent or unusual non-operating items are also excluded from net operating income if, in the company’s opinion, they are not indicative of overall operating trends. While some of these items may be significant components of net income in accordance with GAAP, the company believes that net operating income, and measures that are derived from or incorporate net operating income, are appropriate measures that are useful to investors because they identify the income attributable to the ongoing operations of the business. However, net operating income should not be viewed as a substitute for GAAP net income. In addition, the company's definition of net operating income may differ from the definitions used by other companies. There were no infrequent or unusual non-operating items excluded from net operating income for the periods presented in this press release other than a $14 million after-tax expense recorded in the first quarter of 2007 related to reorganization costs. The tables in the appendix of this presentation reflect net operating income (loss) as determined in accordance with Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, and a reconciliation of net operating income (loss) of the company’s segments and Corporate and Other activities to net income. Due to the unpredictable nature of the items excluded from the company's definition of net operating income, the company is unable to reconcile its outlook for net operating income to net income presented in accordance with GAAP. In this presentation, the company also references the non-GAAP financial measure entitled “operating return on equity” or “operating ROE.” The company defines operating ROE as net operating income divided by average ending stockholders’ equity, excluding accumulated other comprehensive income (AOCI) in average ending stockholders’ equity. Management believes that analysis of operating ROE enhances understanding of the efficiency with which the company deploys its capital. However, operating ROE as defined by the company should not be viewed as a substitute for GAAP net income divided by average ending stockholders’ equity. The tables in the appendix of this presentation include a reconciliation of operating ROE to GAAP net income divided by average ending stockholders’ equity. Due to the unpredictable nature of net income and average ending stockholders’ equity excluding AOCI, the company is unable to reconcile its outlook for operating ROE to GAAP net income divided by average ending stockholders’ equity. Merrill Lynch & Co., Inc. Conference – February 12, 2008 35
  • 37. Consolidated Net Income by Quarter (amounts in millions, except per share amounts) Merrill Lynch & Co., Inc. Conference – February 12, 2008 36
  • 38. Merrill Lynch & Co., Inc. Conference – February 12, 2008 37
  • 39. Reconciliation of Operating ROE (amounts in millions) Merrill Lynch & Co., Inc. Conference – February 12, 2008 38
  • 40. Selected Operating Performance Measures This presentation also contains selected operating performance measures including “sales,” “assets under management”, “insurance in- force” or “risk in-force” which are commonly used in the insurance and investment industries as measures of operating performance. Management regularly monitors and reports sales metrics as a measure of volume of new and renewal business generated in a period. Sales refers to (1) annualized first-year premiums for term life insurance, long-term care insurance and Medicare supplement insurance; (2) new and additional premiums/deposits for universal life insurance, linked-benefits, spread-based and variable products; (3) gross flows and net flows, which represent gross flows less redemptions, for our managed money business; (4) written premiums and deposits, gross of ceded reinsurance and cancellations, and premium equivalents, where we earn a fee for administrative services only business, for payment protection insurance; (5) new insurance written for mortgage insurance, which in each case reflects the amount of business the company generated during each period presented; and (6) written premiums, net of cancellations, for our Mexican insurance operations. Sales do not include renewal premiums on policies or contracts written during prior periods. The company considers annualized first-year premiums, new premiums/deposits, gross and net flows, written premiums, premium equivalents and new insurance written to be a measure of the company’s operating performance because they represent a measure of new sales of insurance policies or contracts during a specified period, rather than a measure of the company’s revenues or profitability during that period. Management regularly monitors and reports assets under management for the company’s managed money business, insurance in-force and risk in-force. Assets under management for the company’s managed money business represent third-party assets under management that are not consolidated in our financial statements. Insurance in-force for the company’s life insurance, international mortgage insurance and U.S. mortgage insurance businesses is a measure of the aggregate face value of outstanding insurance policies as of the respective reporting date. Risk in-force for the company’s international mortgage insurance and U.S. mortgage insurance businesses is a measure that recognizes that the loss on any particular mortgage loan will be reduced by the net proceeds received upon sale of the underlying property. The company considers assets under management for the company’s managed money business, insurance in-force and risk in-force to be a measure of the company’s operating performance because they represent a measure of the size of the company’s business at a specific date, rather than a measure of the company’s revenues or profitability during that period. These operating measures enables the company to compare its operating performance across periods without regard to revenues or profitability related to policies or contracts sold in prior periods or from investments or other sources. Merrill Lynch & Co., Inc. Conference – February 12, 2008 39
  • 41. Cautionary note regarding forward-looking statements This presentation contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “will,” or words of similar meaning and include, but are not limited to, statements regarding the outlook for our future business and financial performance. Forward-looking statements are based on management’s current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to global political, economic, business, competitive, market, regulatory and other factors and risks, including the following: • Risks relating to our businesses, including interest rate fluctuations, downturns and volatility in equity and credit markets, defaults in portfolio securities, downgrades in our financial strength and credit ratings, insufficiency of reserves, legal constraints on dividend distributions by subsidiaries, competition, availability and adequacy of reinsurance, defaults by counterparties, regulatory restrictions on our operations and changes in applicable laws and regulations, legal or regulatory investigations or actions, political or economic instability, the failure or any compromise of the security of our computer systems, and the occurrence of natural or man-made disasters or a pandemic disease; • Risks relating to our Retirement and Protection segment, including unexpected changes in morbidity and mortality, accelerated amortization of deferred acquisition costs and present value of future profits, goodwill impairments, reputational risks as a result of our plans to file for an increase in the premiums on certain in-force long-term care insurance products, medical advances such as genetic mapping research, unexpected changes in persistency rates, increases in statutory reserve requirements, and the failure of demand for long-term care insurance to increase as we expect; • Risks relating to our International segment, including political and economic instability, foreign exchange rate fluctuations, unexpected changes in unemployment rates, deterioration in economic conditions or decline in home price appreciation, unexpected increases in mortgage insurance default rates or severity of defaults, decreases in the volume of high loan-to-value international mortgage originations, increased competition with government-owned and government-sponsored entities offering mortgage insurance, changes in regulations, and growth in the global mortgage insurance market that is lower than we expect; • Risks relating to our U.S. Mortgage Insurance segment, including the influence of Fannie Mae, Freddie Mac and a small number of large mortgage lenders and investors, decreases in the volume of high loan-to-value mortgage originations or increases in mortgage insurance cancellations, increases in the use of simultaneous second mortgages and other alternatives to private mortgage insurance and reductions by lenders in the level of coverage they select, unexpected increases in mortgage insurance default rates or severity of defaults, deterioration in economic conditions or a decline in home price appreciation, increases in the use of reinsurance with reinsurance companies affiliated with our mortgage lending customers, increased competition with government-owned and government-sponsored entities offering mortgage insurance, changes in regulations, legal actions under Real Estate Settlement Practices Act, and potential liabilities in connection with our U.S. contract underwriting services; and • Other risks, including the possibility that in certain circumstances we will be obligated to make payments to GE under our tax matters agreement even if our corresponding tax savings are never realized and payments could be accelerated in the event of certain changes in control, and provisions of our certificate of incorporation and by-laws and our tax matters agreement with GE may discourage takeover attempts and business combinations that stockholders might consider in their best interests. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise. Merrill Lynch & Co., Inc. Conference – February 12, 2008 40