GNW USmortgage_pres

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GNW USmortgage_pres

  1. 1. Investor Materials U.S. Mortgage Insurance Loss and Captive Tutorial October 31, 2007 ©2007 Genworth Financial, Inc. All rights reserved. Company Confidential
  2. 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, Form 8-K filed with the SEC on April 16, 2007 and 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. For important information regarding the use of non-GAAP measures included in this presentation, see our Third Quarter Financial Supplement which can be found on our website at www.genworth.com. October 31, 2007 1
  3. 3. Mortgage Insurance Loss Tutorial Industry Lifetime Claim Frequency(4) Loss Example Number of Claims Per 100 Loans Insurance In Force $100 Books 20 Seasoned Books Coverage %(1) 25% Through Oil 15 Seasoned Through Patch Southern California Recession 10 Lifetime Claim Frequency Expectation Per 100 Loans (2) 7% 5 0 Severity (3) 100% ‘80 ‘82 ‘84 ‘86 ‘88 ‘90 ‘92 ‘94 ‘96 ’98 ‘00 ‘02 ‘04 Book Year Lifetime Losses $1.75 Industry Changes Since Late ’80s: – Increased Prices – Adopted FICO Credit Scores For Underwriting – GSE’s Adopted Use of Automated Underwriting – Growth of Higher Loan-To-Value Loans, Alt-A, and Subprime Insured Products Coverage Percent Based on 90% Loan-to-Value Example (1) Lifetime Claim Frequency Assumption Based on Number of Claims For Every 100 Loans Originated in a Book Year (2) (3) Severity Represents Actual Claim Amount Divided By Associated Risk in Force (4) 2002-2004 Industry Book Years Lifetime Frequency Not Fully Developed October 31, 2007 2
  4. 4. Risk Sharing Arrangements in the U.S. 61% Portfolio In Captive Arrangements* - Mortgage Insurer Retains 1st Loss Position - Lender “Captive” Takes 2nd Loss Position (“Excess of Loss”) - Varies Based on Attachment Point for Losses - Receives Premium (~25% - 40%) - Mortgage Insurer Has Remaining Exposure 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) (5-10 Claims Layer) 60% 75% GNW GNW 1st Loss (0-4 Claims Layer) 1st Loss (0-5 Claims Layer) GNW GNW * As of 9/30/07 October 31, 2007 3
  5. 5. Captive Reinsurance Tutorial Captive Attachment Points Are Expressed In Dollars Based On Percentage of a Book Year’s Original Risk in Force Captive Reinsurance Is Written on a “Book Year” Basis By Individual Lender Captive Reinsurance Premiums Are Deposited in Third Party Trust to Collateralize Claims Obligations • Genworth Is the Sole Beneficiary of the Trust • Captive’s Liability Limited to Funds in Trust Captives Are Cross-Collateralized • All Funds in the Captive Trust Are Available to Pay Reinsurer Losses in Any Book Year • Across Book Years By Lender …Existing and New Business Captive Trust Capital Requirements • Required to Maintain Greater of: – 10 to 1 Risk to Capital Ratio, or – Reinsurer’s Share of Contingency Reserve • Capital Must Build to 5:1 Risk to Capital Before Reinsurer May Withdraw Capital From Trust $840 Million In Captive Trusts As Of 9/30/07* *Trust Fund Balance Subject to Future Additional Ceded Premium, Payment of Claims and Withdrawal of Dividends October 31, 2007 4
  6. 6. Captive Reinsurance Tutorial Captive Reinsurance Attachment Timing Varies By Lender, By Book Year GAAP Benefit Starts When Incurred Losses Reach Attachment Point – Incurred Losses = Paid Claims + Reserves for Delinquencies Cash Benefit Starts When Claims Paid Reach Attachment Point Conceptual Illustration* Lender Book Year A 2007 A 2006 Captive Losses B 2007 B 2006 C 2007 C 2006 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 *Actual Results will Vary by Lender/Composition of Product Reinsured; Graphical Example Assumes Captive Attachment in 2009 October 31, 2007 5
  7. 7. Captive Reinsurance Example Single Lender Scenario One Book Year – Single Lender Captive $100 Million Risk In Force Originated in 2006 40% Captive Reinsurance … 4% Attachment Point ($4 Million) Ultimate Claims Rate of 8% and an Accelerated Loss Development Curve GNW Revenue Captive Benefits GNW Incurred Losses GNW Accrues Captive ($ in Thousands) Benefit Based on Incurred Losses Captive Pays Cash For Losses to GNW Life 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Claims Paid 5 341 1,078 1,595 2,089 1,125 803 482 321 161 8,000 Change in Reserves 235 1,419 682 165 (1,049) (565) (403) (242) (161) (81) 0 Captive Benefit Accrued 0 0 0 (1,520) (1,040) (560) (400) (240) (160) (80) (4,000) GNW Incurred Losses $240 $1,760 $1,760 $240 - - - - - - $4,000 October 31, 2007 6
  8. 8. Appendix 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 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. October 31, 2007 7

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