Good morning, ladies and gentlemen, and welcome to the Genworth Financial second quarter earnings conference call. My name is Matt and I'll be your coordinator today. (Operator Instructions) I'd now like to turn the presentation over to Alicia Charity, Senior Vice President, Investor Relations. Ms. Charity, you may proceed.

Thank you and welcome to Genworth Financial's second quarter 2009 earnings conference call. We released our press release and financial supplement last evening and they're posted on our website along with some additional detail regarding invested assets. And starting this quarter we'll be posting management's prepared comments following the call for your reference. This morning you'll first hear from Mike Fraizer, our Chairman and CEO, followed by Pat Kelleher, our Chief Financial Officer, and then Ron Joelson, our Chief Investment Officer. Following our prepared comments, we will open the call up for a Q&A period and Pam Schutz, Executive Vice President of our Retirement and Protection segment, Buck Stinson, President, Retirement and Protection Products, Tom Mann, Executive Vice President of our International segment, and Kevin Schneider, Senior Vice President of U.S. Mortgage Insurance will 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 may contain forward-looking statements. Our actual results may vary materially from such statements and we advise you to read the cautionary note regarding forward-looking statements in our earnings release and the Risk Factor section of our most recent annual, Form 10-K, filed with the SEC in March, 2009. This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. In our supplement and earnings release non-GAAP measures have been reconciled to GAAP where required, in accordance with SEC rules. And finally, when we talk about International segment results, please note that all percent changes exclude the impact of foreign exchange. With that, let me turn the call over to Mike Fraizer.

Thanks, Alicia, and thanks, everyone, for your time today. In the second quarter Genworth executed well on our strategies to transition through this economic period and emerge even stronger, with a sharpened business focus. In particular, our specialist business model is on track, investment performance improved, and we added significantly to our capital foundation and flexibility. Looking ahead we're seeing some encouraging market signs in the investment portfolio, our equity related products, and in our International mortgage insurance businesses. At the same time, a couple of areas remain quite challenging. The U.S. housing market displays a mixed bag of positive and negative factors and has not yet seen the anticipated benefits of government modification programs. In addition, unemployment and related consumer impacts remain issues around the globe. This morning I will provide views on overall business positioning, progress on capital strategies, our strong liquidity position, and key risk management initiatives. Pat Kelleher will go deeper on business line performance, and Ron Joelson will share thoughts on key investment topics. Starting with our business segments, we have tailored our strategy to leverage our strengths and reflect today's market realities. In Retirement and Protection our specialist strategy around Main Street life insurance coverages, long-term care insurance, and independent adviser wealth management products and services is on track and we remain opportunistic on the annuity front. Sales levels in the quarter reflected this focus. Retirement and Protection sales, while lower, achieved our overall targets and were consistent with our capital plans. I'm pleased with our sales results here and we would expect these sales trends to continue during 2009 and we'll see some additional product line level transitions as we introduce various new products later in the year. In International we've concentrated our efforts around mortgage insurance in Canada and Australia and lifestyle…

Thanks, Mike. Genworth's operating results in the quarter reflected important progress towards achieving financial strength objectives, improving business performance trends in our retirement and protection segment, some good business results in Canada and Australia, and challenges due to the housing market and economic pressures in Europe and in U.S. Mortgage Insurance. On a sequential quarter basis, increased operating earnings in our Retirement and Protection segment more than offset a decline in International segment earnings and the loss in U.S. Mortgage Insurance was in line with the first quarter results. Strong improvements in credit spreads contributed to improved asset valuation. All in, Genworth's book value per share increased by over 20% from first quarter to $23. This morning I'll focus on three areas - our capital plan, liquidity and business performance, including some views on trends impacting outlook for 2009. Beginning with capital, as of June 30th Genworth had a total of $1.6 billion of capital in excess of regulatory and rating agency targeted levels, a level consistent with our first quarter results. In July we completed the IPO of Genworth MI Canada and received about $705 million in net proceeds, bringing our total amount to about $2.3 billion. In our U.S. life insurance companies, the consolidated risk-based capital ratio remained unchanged from the first quarter at approximately 390% as improving earnings funded declining levels of investment losses and higher capital requirements relating to credit migration during the quarter. Our International segment saw sequential increases in capital ratios in Canada and in Europe as earnings and declines in unrealized losses combined to improve capital ratios while Australia's capital ratio came down a bit from increased levels of new insurance written. The U.S. Mortgage Insurance risk-to-capital ratio increased moderately to 14.8 to 1, and this increase is well within our expectations for…

We were pleased to see improved results in the investment portfolio for the quarter. Favorable market conditions, as well as the impact of risk management actions we are taking to defensively position the portfolio, are evident in our results. This morning my comments are focused on three areas - impairments in unrealized losses, both in the quarter and some emerging trends, risk-reducing actions we have taken, and performance of the commercial mortgage-backed securities portfolio and the commercial mortgage loan portfolio. Of the $117 million of net investment losses taken during the quarter, $18 million relate to asset sales and $99 million are impairments. The impairments consistent of $5 million from corporate holdings, $71 million from structured securities, and $23 million from our retained interest in a single securitized transaction. Trends in corporate impairments are slowing. For example, the $5 million in the second quarter compares to $205 million in the first quarter and $217 million taken in the fourth quarter of 2008. We believe that improved market conditions and active risk selling has contributed to this positive trend. Turing to structured securities, the $71 million of impairments is down significantly from the two prior quarters, where we recorded losses of $183 million and $298 million. More than half of structured impairments totaling $44 million were from Alt-A and subprime securities versus $131 million in the prior quarter. $19 million came from prime securities and $6 million came from CMBS. Looking ahead we see continued pressure on the structured markets but would not expect impairments to increase significantly from current levels. Moving to unrealized losses, the total net unrealized losses on fixed maturities after tax and other adjustments improved significantly, to $3 billion from about $4.1 billion in the first quarter, as a result of declining spreads and certain risk-reducing actions.…

(Operator Instructions) Your first question comes from Darin Arita - Deutsche Bank Securities.

On the U.S. Mortgage Insurance business, can you give a little more color on the rescissions? What are you seeing now that the initial underwriting process did not pick up? And on the loan modifications, what changes to the loans are being made?

As it relates to rescissions, we continue - in this recent environment there was a fair amount of loans that were originated that we're seeing didn't comply with our underwriting guidelines and the guidelines that we had approved and said under which we would insure production. We've also continued to see increasing amounts of misrepresentation and fraud in some of the files when you actually get a chance to look at them and investigate them. So we've continued the routines that we've always done in our business in terms of looking at and investigating this, but frankly, with the developments in our delinquency pipeline, we just have a lot more loans to look at. And so that's really what's driving the increase in that investigation activity. On the modification side, I'm not sure if I got your question exactly but modifications, specifically as they relate to the government-announced programs, have really not gotten a lot of traction yet at this point. We're beginning to see a lot of pickup in that from the servicer side. There's been intense proactive cooperation between the mortgage insurance industry, the servicers, the lenders, and in fact Treasury and administration to knock down all the barriers to trying to make these modifications work, so we've begun to see that start to pick up in terms of modifications that are approved to be processed, and we would see that feathering in and accelerating hopefully over the second half of the year.

On those modifications, would those be reductions of the interest rates and reductions of the principal? I'm just wondering what changes will be made so that we don't see these borrowers re-default.

That's a great point, Darin. When you think about re-defaults, a loan that has resulted in a reduced monthly payment to the borrower and in fact improves their cash flow and their ability to maintain their payment going forward has a far lower likelihood of re-default. And we've begun to see really in the fourth quarter, first quarter and second quarter some of the modifications that we're seeing now and participating in, you're having an increasing number of reduction in borrower payments, and what that does is get them down so they can cash flow the loan. And so we're encouraged that those modifications, with that type of reduction in payment, will drive down a lower default rate going forward - re-default rate, excuse me.

Your next question comes from Mark Finkelstein - Fox-Pitt Kelton.

Pat, I think you made the comment in your opening remarks that you don't expect to put more capital in the life company. Firstly, is that a 2009 assumption or is that an assumption looking out beyond 2009? And then secondly can you just share with us whatever assumptions, whether it's losses or whatever, that gives you the comfort in making that statement?

Sure, Mark, I'd be happy to do that. It is 2009, but it's also forward-looking beyond that. And frankly what we've seen over the course of the past couple of quarters is good statutory core income growth increasing our operating earnings within the life companies, and that's been offset by credit migration and investment losses that we've experienced. But what we are seeing is a declining trend in the investment losses, and what that's generating we think going forward is more earnings power from a statutory perspective to the point whereas if things continue on the path that they're on we should be starting to look at dividends from the life companies over an extended period of time.

What were stat earnings in the life company in the second quarter? Do you have an estimate on that yet?

I don't have the earnings number, but I would say from the perspective of core income growth, with some help from the equity markets, we saw our risk-based capital ratio lift from the starting point of 390% by a little over 50 percentage points, and that was really offset by the combination of investment losses as well as credit migration that we saw impacting required capital for the period.

On the MI business it seems like the flow business is showing or starting to show some stabilization, but the bulk business deteriorated a little bit in the quarter. Can you just give more color on the bulk business and what are the remediation efforts and rescissions, etc., that you're able to perform on that block?

Just to reemphasize your comment relative to flow losses, we did see some stabilization in our delinquency and reserve development on flow losses in the second quarter, which is really largely driven by some stabilization in the specialty products and [inaudible] states development of those flow losses. On the bulk side we do have continued deterioration in the bulk loss development and it's really driven largely by these loans were structured in a way - or these pools were structured in a way that had deductibles and as those deductibles have been filled up and fulfilled, then the additional losses and delinquency development beyond those deductible levels are pressuring our bulk loss development. Same reaction to the previous caller's question regarding what we're seeing in those loans - we're continuing to see loans that did not comply with our underwriting guidelines and loans that have fraud and misrepresentation in those, and those are the type of loans that we're pursuing from an investigation standpoint. We pay all of our claims that are owed per our master policy requirement and will continue to do so, but we are not obligated to pay claims that are associated with fraud and misrepresentation.

Your next question comes from Eric Berg - Barclays Capital.

I joined the call a little bit late, so I will apologize in advance if you touched on this; just tell me. In the narrative of your news release - and what I'd like to do is to build on a discussion I had with Alicia last night - you mentioned a log jam with respect to the movement of homeowners who are in trouble from delinquency to foreclosure. I'm not sure if this has anything to do with the economics as much as with timing and by that I mean that if a person's in trouble and his foreclosure is delayed that's really all we're talking about, that is to say, when that person loses his home rather than if. So my question is: How is this log jam affecting the economics of the business, in other words, whether there will or will not be a loss, and how is it affecting the financial results? Why are you telling this? Why is this important for us to know in terms of understanding the financial results of the domestic mortgage insurance business?

As you think about what we're seeing in the marketplace, in a normal environment loans that were ultimately going to go to claim once they hit foreclosure there's a time period that they make it through the process and come out the back side and you see that claim presented to you. In the environment we're in right now there is an increasing amount of loans that are in the system that are delinquent that once they hit the foreclosure process are not coming out the back side of the process on the normal pace that one would expect them. For us, the importance of that to our economic performance or our income performance is those are loans now that continue to age, that are in our delinquency population, that we continue to reserve against, and those reserves build over time. We're seeing a delay in fact somewhat below our expectations in our actual paid claim population at this point in time, so paid claims are actually running a little behind where one would expect them to be. But the continued development of loans that are delinquent, they are sort of stuck in the system. I think the implications in the marketplace right now are that a lot of these modification programs that have been introduced in the marketplace, specifically the administration's programs, have probably slowed some of this development and transition through the system down while the servicers get their arms around them and are able to better implement them. So what I would expect to see is some freeing up of that log jam going forward as more and more borrowers get access to these modification programs.

But since you set reserves based on delinquencies not based on foreclosures, once a person's home mortgage is severely delinquent, you're going to reserve for that irrespective of whether that person's foreclosure proceeds at a normal pace or not. Maybe this question is better addressed by Pat, I don't know, but is this affecting the financial results, the income of the mortgage insurer, this log jam?

Again, we reserve on a case basis when a delinquency is reported to us, and as that delinquency ages through its normal delinquency life up to foreclosure - and then ultimately to claim - we reserve against that. What you're seeing right now I think is a higher development of overall incurred on a reserving basis and lower than what we would expect loss on a paid claim basis because of what's being held up in the system. But it is being appropriately reserved for.

Eric, one thing just to clarify. Our reserves are based on emerging experience as we see it. As we haven't seen the impact of these modification programs in our actual results, we basically ignore them in setting reserves, so to the extent that the modification programs have a beneficial impact that will benefit financial results.

What would be an example of a type of modification, Kevin, that you would consider to be - what is the nature of modifications that clearly are not working, that do lead to re-default? How should we think of the different types of modifications, those that work versus those that don't?

It's a great question. When I think about those that are having more difficulty working today in this environment, those are modifications where arrearages - a borrower gets behind, they get behind in their payment, and historically in a more normalized environment you could take those arrearages that they're behind on, perhaps add them into the principal amount of the loan and extend the amortization period, so you stretch our their payment requirement over a longer period of time. That doesn't necessarily do anything to lower the borrower's monthly payment, so those type of modifications are having higher re-default rates. I contrast that to a modification where the borrower's monthly payment is lowered and that can be achieved through a number of ways. It can be achieved through a reduction in the interest rate. It can be achieved through a reduction in principal. And by doing that you get the borrower into a better cash flow position, a cash flow position that in fact substantiates that they can maintain their monthly payment going forward. And those type of modifications are having a lower re-default rate and we would expect to see more of those going forward because that's really where the administration's modification efforts are focused.

Do rating migration downgrades on a GAAP basis affect the likelihood or the need to impair a bond? If a bond is downgraded obviously it's going to affect its price; it's going to be statutory capital. But what about in terms of the likelihood that you will impair a bond? Is that likelihood affected by ratings changes?

The downgrade per se doesn't have that impact, but if the downgrade is suggestive or is so severe that we actually think there would be an economic loss in the future and we wouldn't receive a full return of principal, then, yes, it would result in an impairment.

Your next question comes from [Jordan Hymowitz - Philadelphia Capital].

The average paid claim in dollar went down substantially. What caused that? Is it because your California's getting less prevalence?

Jordan, it's largely driven by the mix of paid claim development, where it's coming from right now, as well as we're also getting the benefit of some offset from our captives on the seeded loss side of the income statement. In other words, the captives now are also benefiting to the claim payment and so our actual paid claim amount is being impacted.

You said you raised rates in the U.S. Can you say the absolute amount in basis points that the new rate is versus before, versus the percentage increase for prime?

I'm trying to remember off the top of my head. I can tell you the way you need to think about the rate increase is we did a 20 percentage point increase and so I believe it took us from the 50-some basis point level up into the 60-some basis point level, say, for a typical 90% loan-to-value loan. I'd contrast that with a 95% loan-to-value loan, which is in fact priced 30% higher than a 90% LTV level. So from that you've got a baseline price increase of about 20%. And then on top of that we're also benefiting from a reduction in the captive seeded premium levels because we're not doing captives going forward, and that picked up an additional 15% of price increase for us on a comparable mix basis.

So when I try and extrapolate that increase in pricing and assume a 50% loss rate, would I assume that you're writing new business close to a 20% ROE today?

I think you could safely assume that our new business model, with the reduction in the volatility driven by our underwriting standards and our price increase is going to be sufficiently north of 20% ROE.

Your next question comes from Steven Schwartz - Raymond James.

Mike, maybe you could talk about something I've been wondering about - CLASS, Teddy Kennedy's program for long-term care. What're your thoughts on that, how that might affect you if that came to eventuality? Ron, maybe you could talk about CIT. It seemed to me that maybe you're still holding that at cost. That would be a little bit different from everybody else I think so far who's reported. And then, Kevin, could you remind us what your rating is on the MI companies, what the GSEs are currently thinking about ratings and weighting ratings and maybe touch upon the MJC restructuring and your thoughts on that vis-à-vis the Genworth business?

Steven, let me start and in handling your first question I'm also going to hand it over to Buck Stinson, given his long and deep experience in the long-term care front and all of our active engagement on the CLASS topic. I'll just observe that I think CLASS as a proposal is just bad public policy, does not achieve a helpful goal for the consumer, specifically, and that there's an education effort under way to help people understand the flaws in this area, coupled with the ongoing importance of the private long-term care market. Buck, could you take that apart for us in a walkthrough?

Yes, Steven, just to add some more color to what Mike's talking about, I was in Washington, in fact, all day Wednesday. Genworth's been actively involved in the broader health care reform debate, keeping track of what implications all of the various movements might have on our business, and we've watched a very fluid process as it's moved through the House and the Senate. In terms of impact on Genworth's overall business model, our current view is that whatever comes out the back end in a broader form will have limited impact on our business model, but specifically we are watching the CLASS Act and have analyzed that particular bill in detail. As you know, the bill would provide a voluntary federal long-term care insurance program that would provide a very minimal level of benefits for participants. And while we believe that if passed that bill could temporarily disrupt the long-term care private market, our broader concern is what Mike mentioned, which is the lack of actuarially sound fundamentals backing the public policy. Just recently the Academy of Actuaries has released an analysis of the CLASS Act and that's part of this education program that we're actively participating in, but that concluded that the proposed structure and funding approach would not only be unsustainable within the foreseeable future but very unlikely to cover more than a very small portion of the intended population, in essence creating another underfunded government entitlement program. So we believe it's bad public policy. We don't think that there's going to be wide participation even if it is passed; we think the private market could compete favorably against it. But we're concerned about the additional confusion that that bill might introduce into the public, so we stay actively involved monitoring that bill.

Is it your thought maybe temporarily people might think that that's a replacement for private coverage until they figure out maybe it's not?

Yes, our concern, our battle today when we sit down with consumers is we have to convince them that Medicare isn't designed for long-term care, so we think yet another entitlement program over the top would just create additional confusion. Again, when the facts get explained we think, again, the private products are going to compete very favorably, but it just would add additional confusion.

On the CIT question, as I mentioned in our remarks, we hold roughly $90 million of those securities. They were not impaired because the events which occurred were subsequent to the quarter end; however, consistent with everyone else, we do carry the bonds at the market value, which is in the mid 60s. It's about $64 million of the $90 million.

Steven, as I understood it, you had two questions; one was relative to the GSE ratings and eligibility. And the GSEs have continued to support the individual mortgage insurers, even with rating agency ratings that have been reduced below the double A rating level. And I think the comfort level they have there is with the strength of the state regulatory regime and the comfort the state regulators have with our ongoing claims-paying capability as well as the ability to write new business.

Kevin, what's your rating these days?

Triple B minus, I believe. Historically it's been a double A eligibility requirement by the GSEs and as we went through 2008, a number of the mortgage insurers had ratings reductions below the double A level and the GSEs have continued to operate and allow those mortgage insurers and the entire industry in fact to continue to be eligible insurers and support writing new business for them at this point. On the second question regarding MGIC's proposed approach to stacking of legal entities, we haven't had any detailed discussions like that with the GSEs regarding this issue. We believe we can continue to run our business on a self-contained basis, but we're always going to continue to evaluate smart options for additional capital flexibility. And in fact when we think about the production that we're writing today, with that increased pricing that we talked about with an earlier questioner and those increased underwriting guidelines, that's good production that we believe is going to generate profitable margins and is an attractive place to deploy capital. So we will continue to evaluate all options and we'll update you going forward on additional plans we chose to execute with our capital plan.

Your next question comes from Mike Zaremski - Credit Suisse.

I'm going to exhaust the conversation on U.S. MI, if that's okay. Have you guys given a base and worst case estimate of U.S. MI's operating losses in 2010 if things stay -

No, we have not.

So the sequential losses were down in the segment. It seems to be due to loss mitigation trends. Do you think the loss mitigation trends are sustainable given that delinquencies are probably still going to rise on mortgages?

As I said, we continue to have through the combination of both our loan modification efforts and loan workout efforts as well as continued opportunities on the investigation side, I do believe we'll continue to benefit from loss mitigation going forward. I think we mentioned earlier in one of the prepared remarks that we had over $300 million of benefit in the first half and we would see that growing in the second half of the year. And if I could come back to your first quarter and just expand upon it a little bit, while we haven't provided loss level outlook for 2009 or 2010, what we have done is and we're operating our business assuming we're going to be in an environment where unemployment grows to a little over 10%, 10.3%, in early 2010 and we ultimately have a peak-to-trough decline of 35%. So that's the way we've been running the business. But we've also said given the uncertainties of this environment we're in, we think it's prudent to stress that even further and so we've looked at stress scenarios that would drive the peak-to-trough housing price decline down to 47% and looked at unemployment levels up to 14%, clearly outside of any ranges that anybody's really forecasting today or even that we believe today, but we're very comfortable that we continue to have sufficient claims-paying resources and capabilities under even those type of dire stress scenarios.

Some of the major lenders, I think, including JP Morgan, ended their foreclosure moratoriums recently. Should we be thinking about kind of a backlog of foreclosures potentially picking up losses in the coming quarters then? I'm not sure if there's an element of IBNR in your reserves. How should we think about that?

First, there is absolutely an element of IBNR in our loss reserves. Secondly, while we do have some individual moratoriums that have been lifted, they're largely continued throughout the system right now. And there are also continued calls for even additional moratoriums from Congress right now. So I think the way to think about it and the way I think about it is today there is some clogging in the system of loans that haven't gone on from foreclosure on to claim and we should see more of that beginning to work itself through the system. But at the same time we should also see the pickup in some of the modification programs, which are really extensive, and those should help benefit some of those loans that are held up in the process.

On the captive benefits, they've declined for the third quarter in a row. Should we be concerned that potentially - does that mean you're piercing through lots of the benefits and then we're not going to see the captives mitigate as many losses in the coming quarters?

Well, the way we have expected and have talked on previous calls, we would expect the amount of captive benefit to decline throughout the year. I think our expectation for 2009 is probably somewhere in the range of $250 million worth of captive benefit. We've got $119 million in the first quarter, $76-ish million I think in the second quarter, and that would continue to trickle down. What you're going to see is a shift in the mix of the benefit coming from a reserve offset and starting to see more benefit from the captives in terms of the actual paid claims benefit side of it on a cash basis when claims ultimately are presented. As it relates to captives going through the loss tiers, with the type of development in the marketplace and the type of economic outlooks and stress scenarios that I've described and the way we're managing the business, we'd absolutely expect some of the captives to come out the top end of the tier, particularly for those captives that had lower back end attachment points. So we would expect that and are planning that; those are actually planned in our internal loss forecast. And, again, you're going to continue to get benefit from increased loss mitigation, which will develop over time.

Your final question comes from Edward Spehar - BAS-ML.

Kevin, on the topic of captives, if we look at the benefit that you think you're going to get from all of the loan modification efforts, could you help us in terms of the relative significance of that versus the benefit that we have seen from captive reinsurance? Can you sort of size it on a relative basis?

Ed, last year I think we got the benefit of about $500 million from captive recoverables. This year, as I just said, I believe we'll get roughly $250 million. Over time I would expect you're going to see a total of over $1 billion worth of total offset from the captives multiyear as they run out over time. So that's the way I think about that in a multi-period timeframe. On a loss mitigation and loan modification standpoint, I really think you could see similar type relief over a multi-year period. Having realized over $300 million worth of benefit in the first half of this year, if you just expand that out over time I think you could be in similar type buckets. And I really think a bigger portion of them going forward is going to come from modifications.

How should we think about at what point do we see the turn in the quarterly results? I'm not looking for specifics but, if we're just trying to model out, when do things start to look better from a bottom line standpoint?

The way I'm thinking about it right now is at the point at which our new delinquency development starts to decline and you start to actually see some improvement in the cure rates. And right now in the first half of the year we did actually see some favorable development in new delinquencies. Much of that may be seasonal, but we didn't get the benefit of that seasonality in 2008 so I find that encouraging in 2009. But I'm not sure that trend is going to manifest itself all the way through the year. What is more important right now is we're not seeing any improvement yet in the cure rate. And once you start to see that turn the corner, that's when I think we'll be able to talk more specifically about improvement on the bottom line.

Historically if we think about the relationship between delinquency stats improving or declining and improvement in cure rates, just historically, what kind of a lag is there or is there a lag?

Ed, I honestly don't know the answer to that question. I'll be glad to do some further research on it and get back to you.

Ladies and gentlemen, this concludes Genworth Financial's second quarter earnings conference call. Thank you for your participation. At this time the call will end.