Good morning, ladies and gentlemen, and welcome to Genworth Financial’s Fourth Quarter Earnings Conference Call and strategic update. My name is Alan, and I'll be your coordinator today. [Operator Instructions] I would now like to turn the presentation over to Alicia Charity, Senior Vice President, Investor Relations. Ms. Charity, you may proceed.

Good morning, and thank you, all, for joining us today. Our press release and financial supplement were released this morning, and are posted on our website. Following our prepared remarks, our slide presentation will also be posted to the web. This morning, you'll first hear from three of our business leaders starting with Mike Frazier, our Chairman and CEO; followed by Kevin Schneider, President and CEO of our U.S. Mortgage Insurance segment; and then Pat Kelleher, Executive Vice President of our Retirement Protection segment and Genworth's CFO. Following our prepared comments, we'll open up the call for questions and answers. In addition to our speakers, Jerome Upton, Chief Operating Officer of our International segment; and Ron Joelson, Chief Investment Officer; and Buck Stinson, President of our Insurance Products for our Retirement and Protection businesses, will be available to take your 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 differ materially from such statements. We advise you to read the cautionary note regarding forward-looking statements in our earnings release and the Risk Factors section of our most recent annual report on Form 10-K filed with the SEC in February 2010. This morning's discussion may also include 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. In addition, the results we discuss today for the Canadian Mortgage Insurance business reflect total company results, including the minority interest, unless otherwise indicated. And now, let me turn the call over to Mike Frazier.

Thanks, Alicia, and thanks to all of you for joining us today for this extended investor update. I wanted to start with an overview of our quarterly and total year performance before shifting to specific strategic and operating perspectives, which I will address along with Kevin Schneider and Pat Kelleher. Simply put, results in the fourth quarter were not where I want us to be or where we need to be as we transition the company to improve profitability. We can and have a path to do better. U.S. Mortgage Insurance delivered very disappointing results, driven by a sizable reserve update. Our focus here was clear, continue efforts on loss mitigation in attractive new business fronts, but accelerate dealing with additional negative factors that impact the U.S. housing market and do this while maintaining good capital flexibility to handle multiple U.S. housing market scenarios. In contrast, I was pleased with our international performance in the quarter. Canada and Australia remained strong, with improving loss ratios and Lifestyle Protection in Europe is coming along nicely. Investments also continued its progress while Retirement and Protection showed gradual improvement, which we intend to accelerate. On a total year basis, the assessment is similar. The USMI recovery is slower than anticipated and included some disappointing surprises. International executed well, and remains right on track with planned improvements in earnings and ROE. Investment recovery and reinvestment strategies were ahead of schedule, and Retirement and Protection had improving sales, but performance lagged particularly in the lifeline that led to some earnings shortfalls that we should've gotten our arms around sooner. We did, however, attack these during the second half, and now have a much better perspective on potential alternatives to improve these positions. Shifting to a more strategic view of Genworth on Slide 3. I want…

Thanks, Mike, and good morning. I have two objectives this morning. First, I will address our results in the quarter and second, I will provide a look ahead at the path to recovery. We believe we have taken significant steps to reduce uncertainty associated with future reserve development. Considering the increase in reserves over the last two quarters, we have certainly taken prudent steps to bolster reserves. But to be clear, while we'd love to tell you that we have reduced all uncertainty and put all reserve dependent risks behind us, I simply cannot do that. What I can tell you is that three factors help reduce the risk, given the various open issues in the housing market. First, we increased reserves particularly for late-stage delinquencies based on emerging trends in the second half of the year, and incorporated these views into our look forward. Second, we are seeing credit burn through on a frequency basis for the 2006 to 2008 books. And third, we expect continued benefits from loss mitigations along with some degree of cures for loans and foreclosure status based upon actual experience. We also continue to execute our capital flexibility strategy, and I will update you on that front. Now looking ahead, we are working to accelerate a return to profitability of the U.S. Mortgage Insurance business. New delinquency trends are encouraging and although loss mitigation benefits are expected to decline, there remains continued savings opportunity. New business profitability remains strong, and we are actively working with the government to help shape public policy and further reinforce the role of Private Mortgage Insurance in the U.S. housing market. All in all, we're poised and ready to take advantage of a housing market recovery. Now, let's look more specifically at our reserve actions. Genworth has increased reserves…

Thanks, Kevin. I'll now focus on our Retirement and Protection business. Before I get into the details, there's a few key points that I'll highlight throughout the discussion. First, it is clear we need to improve in-force performance, and we'll spend a lot of time on that this morning. Second, we've made progress in refining our portfolio focus in identifying areas that do not merit and continued new capital allocations. And finally, we will highlight our leadership positions in attractive businesses that offer good new business growth opportunities and attractive returns. Moving to our in-force performance on Slide 24. After being on an improving trend line, the overall return on our in-force business declined by almost four points in the last three years. This is unsatisfactory, and we need clear actions to reverse this trend, and we're pursuing this with a sense of urgency. It's important to acknowledge that declines in investment markets contributed significantly to the decline in annuity and wealth management returns over this timeframe. In fixed annuities, we saw declines in spreads as we build cash along with credit losses in the 2008, 2009 timeframe. We've been able to reinvest cash and restore spreads in spite of lower interest rates. In variable annuities, market declines combined with a lack of scale led to lower returns. Going forward, we'll be focused on enhancing the profitability of our fixed annuity portfolio, and we'll complete the exit of variable annuities. Now let me focus on the two biggest topics of Life and long-term care. Life Insurance profitability was much higher back in 2007. This reflected good business with good mortality experience and a low cost expense advantage. We had three negative factors which reduced returns that you can see on the left side of the page. Number one, we used…

Thanks, Pat. We have a focused strategy in international and each of our businesses is in the leadership position in its respective market. Our Canada and Australia Mortgage Insurance businesses have maintained solid performance throughout the global slowdown and subsequent staged recovery. Despite facing a challenging economic environment in Europe, our Lifestyle Protection business has seen strong initial recovery in earnings, as a result of aggressive repricing and distribution arrangement restructuring actions we took in late 2009 and through 2010. At the same time, we are facing some growth headwinds. In Europe, consumer lending remains sluggish with few signs of improvement. In Australia, the high loan-to-value lending market has slowed significantly, but we expect improvement in 2011. While in Canada, we expect a modest decline in the 2011 market from strong levels seen during 2010. Looking ahead, our international business remains very well capitalized, and continues to be a significant source of capital for the holding company. Going forward, we expect approximately 100 basis points of annual ROE improvement through 2012. Now let's look at this deeper, starting in-force performance. Our International businesses have delivered ROEs that are accretive to Genworth overall and as self-funded growth, while being a strong source of dividend for the holding company. In-force performance was impacted to differing extents by the global financial crisis as you can see here. But we have made significant strides towards improving earnings, ROE and risk profiles. Now let's look at each of these platforms in more detail starting with Canada on Slide 35. Our business in Canada has performed very well through a difficult period, benefiting from a diversified portfolio by book year, lender and geography. Our average effective loan-to-value ratio has remained strong at 60%. In addition, during 2010, the economy improved nicely, and we expect to see…

In 2010, we built on our 2009 progress with a number of actions that significantly reinforced our capital strength and flexibility, leaving us in a sound position going forward. Our International businesses are returning dividends to the holding company. We have sufficient capital and liquidity, and maintain strong capital ratios. We have refined a multi-year capital plan that supports ongoing organic growth, addresses 2011 and 2012 debt maturities and moves us to an optimized capital structure that gives us the flexibility to best manage our business mix. I'll remind you that we also did some sound hedging transactions over the past two and a half years and the benefits of some of these show up as credit in our Life company capital-based. When thinking about our capital structure overtime, we are focused on using capital in the most efficient manner that will create the most shareholder value. As we develop and update this plan, we consider many factors including regulatory requirements, target financial strength ratings, desired leverage ratios for flexibility and future sources of capital, including use of deferred tax assets, which I will talk about in a little bit more detail later. Going forward, we plan to maintain appropriate capital levels across all of our businesses, and are targeting approximately 20% leverage ratio by year end 2012, down from the current 26%. As we develop material levels of capital for redeployment over time, we will look closely at returning capital to shareholders by reinstating a dividend or initiating a share repurchase plan. Turning to Slide 43. You can see from the left side of the slide that our International businesses remain a strong source of capital to the holding company, accounting for about 90% of 2010 dividends. In 2011, we are targeting $350 million of dividends from these businesses.…

So we have discussed the actions we have taken and continue to take to improve the profitability of our businesses, add to our financial strength and rebuild shareholder value. To wrap up, I would like to talk more generally about our overall direction, our business mix and additional metrics we use to measure our progress. This is the framework we use in our ongoing evaluation of our business portfolio. It incorporates a range of strategic and financial considerations, and is designed to drive value-maximizing decisions. Clearly, some aspects of our current business mix reflect our history of being sold to the public market and success of offerings by our former parent. But the key question now is what is the most value-creating business mix going forward and over what period of time? From a strategic perspective, we evaluate the attractiveness of each market and business line on a stand-alone basis, along with our related competitive advantages. We also consider any commercial synergies with our other businesses such as the common distributions channel or common service platform, as well as the outlook for each business from a regulatory and public policy perspective. From a financial perspective, we are focused on capital allocation and evaluate each businesses current and prospective returns, its growth and risk profile and any financials synergies it creates. For example, in investment strategies or the ability to access capital or the ability to capture the value of tax assets. Ultimately, we weigh all of these considerations with the objective of maintaining a business portfolio that is value maximizing for our shareholders looking over multiple time frames. Regarding business mix. Some investors and analysts have suggested splitting Genworth into two pure-play companies. We have carefully considered this approach, and our view today is that our business mix makes sense…

[Operator Instructions] And first, we'll go to Andrew Kligerman with UBS.

A question for the three of you. Mike, just to start off on the restructuring. You mentioned if the balance shifts, you would reconsider potential structuring divestitures, etc. What would that balance shift be? And B, just so I understand the deferred tax asset better, how much could be lost by spinning out the MI businesses as a whole? Second question is to Kevin. This very simply -- if we exclude the reserve build in the fourth quarter, the benefit ratio in U.S. Mortgage Insurance is still an elevated 224%. The question is, I think recently, maybe a few quarters ago, you had said or management had said you expect it to get breakeven by 2011. When do you think you can get to breakeven? What might be a reasonable timeframe to expect that? And then lastly for Pat, on the long-term care insurance, you mentioned that you're pricing to a 15-plus ROE. What gives you that confidence that you're going to get it, given the difficult historic experience? And then the second part to that question is, you also talked about talking to reinsurers or potentially selling off closed blocks. Is there much interest out there, and who might be interested?

Let me kick off. First, as I said, when we look at our current business mix, there are four considerations in continuing the near-term focus. And I said one of those was that we have markets in various stages of recovery, and that those recoveries would lift performance and value on certain business lines. Second, where we are executing plans as you've heard about today, to lift the performance in certain business lines. Some -- again on a recovery track, some clearly need to do better. But either way, until we get them where we want them, we view them as underperforming. Third, I noted the financials’ synergies, in other words, the value of the cash coming from international into the holding company to reduce debt. With that debt reduction, it gives you a much greater portfolio flexibility to look at the businesses that are in your portfolio, or how you move things around. And you have the consumption also of the deferred tax assets, that Pat walked us through, so you see all of those things coming together. Now therefore, to answer your question, there's something we have to shift in that framework to say we need to move in a different direction. And I'll come back also and talk about time period. So if you didn't see some certain recoveries and didn't expect some of the performance, if you didn't see the same potential for allocating capital, whether it's new business or bringing up the in-force and lines, if you add a different view on the financial synergies that I just articulated or the timeframe of achieving them, all of those could cause you to reevaluate. The way I think about it is this, and I want to leave you with two thoughts on this front. First, you…

Just to be clear, it sounds to me like you need a good 12 months to kind of make sure everything is on track before you even think about your balance shift. And then again, I just didn't get a response on deferred tax assets, how much would you stand to lose of that if you are to spin it out?

Let me just come back to your point, and I'll let Pat go into the taxes for a moment. I've talked to many of you about the question where people said, is this a short-term value-creation opportunity or is it a medium-term value creation opportunity, is it a long-term. Basically, when you look at the time it takes a few of these things to play out, this is a medium-term focus and an intense execution focus that I have and this team have. And we would try to give you some of the time periods of some of these factors too and the rates to recovery, so you can see that thinking. So that is again, it's a little more color to your last comment. Pat, would you like to pick up on the deferred tax question for Andrew?

Sure and very straightforward terms, if there were -- first of all, a significant portion of the Non-life deferred tax asset is of course attributable to the U.S. Mortgage Insurance business and the losses over the last couple of years. If you were to change control of that company, new owners would not have the financial benefit of the ability to utilize the tax loss carry forward the same way that we do. And that's a significant difference in the way a new owner would look at pricing the value of that business versus the way that we would look at creating value by utilization of the tax loss carry forwards material to a pricing.

So let's shift, Kevin, you want to pick up on the MI question please?

Andrew, you're right, it was about a year ago now at the previous investor call that we suggested, at some point, we initially targeted the mid-2012 turn in the business. And as you can understand, whenever we provide some type of an outlook like that, it's based on certain assumptions. And what we've all seen is a lot of the assumptions we've based on those have just not played out. There's been a lot of volatility in this market. The many variables that continue to impact the Mortgage Insurance market, I think, are just too difficult for me to provide you with a short-term view. So I guess the way I'd answer it is, more directly is -- I said it was in mid this year, is what we said a year ago, in mid-2011. Where we stand right now is that we've made strong improvements, we think, to help us accelerate the turn, but I just simply can't give you a call. The way the perspective I'd shared is -- as I ended up my comments today is, as the performance of the new books begin to outweigh these '06 to first half '08 more poorly performing books, that will really be the point, at the pivot point is and the transition point is. And once you hit that point, I think you'll see our returns will accelerate out of that point once we get through there. So again, can't make the call right now. I think it's kind of consistent with some of the views of my competitors at this point in time in terms of the way they'd responded to that. But I wish I could give you a date, but I simply can't.

I'll take the questions on long-term care and Life. I should clarify that the 15% return is both our new business return that we're pricing for and also, it's the return that we're seeing on the newer blocks of business that we've written over the past seven to eight years since the early 2000 timeframe.

And that's been consistent?

The loss ratios have been very consistent over the last couple of years, with mortality and morbidity in line. We're seeing the stability in the investment yield due to the interest rate hedging, so we feel very good about that. When you look past that, you do have a significant amount of capital tied up in the older block of business. We're taking significant rate actions, and we're continuing to -- and we will continue over time with a sense of urgency to address the returns on that business, pulling that up as it runs off and becomes a smaller part of the portfolio. Then with respect to the life and the closed block transactions, I mean, I look at this from the perspective of somebody looking at structured transactions or reinsurance buyer and separate out, I'll say the GAAP gain and lost some in considerations that we have relating to our locked-in assumptions. And I'd say these blocks are pretty good blocks of business with nice cash flows that are performing pretty consistently from an insurance experience perspective. But I think there's opportunities as markets improve and investors are looking for yield to develop transactions and opportunities, which would achieve the results that I've outlined. It's not going to be something that happens overnight, but I think as the markets recover clearly, we have opportunity to do that.

And there's demand out there for these types of blocks of business?

There is demand for long duration yield generally. Yes, it's finding a way to meet that with the structure.

Would you anticipate any major capital charges if you were to go through this?

It's too early to say. I wouldn't rule that out, but it's too early to say.

And moving on, we'll take our next question from Donna Halverstadt at Goldman Sachs.

Andrew touched on a lot of my question but there's one in particular I wanted to follow-up on. You talked a lot about the DTA considerations inherent in any potential spinoff of U.S. MI. But I'm curious if there's any other dating issues related to that? For instance, is there any -- are there any agreements with the GICs that would make it difficult to spin that off? Is there anything buried in the GE tax matters agreement that would pose a hurdle, or are there any agreements or discussions you've had with the U.S. insurance regulators that would make it difficult to spin that?

Donna, this is Mike. Let me give you a couple of perspectives on that. Having gone through that process, when we went public and every type of screen you can imagine. In other words, capital market screens, rating agency screens, regulator screens on any time you go through separation. So as you noted, you look at the cash value of the deferred tax apps, so that's one point. Secondly, just recall that we hold our debt at our holding company level, and part of our whole thrust of delevering to what I call a sum of the parts because you get certain synergies and the amount of debt to coverage ratios you have is when you get to a some of the parts level of leverage, which would be about that 20% level, you have flexibility. Now there's always a renegotiation around those types of things. But now, you're just at a lower debt level, so that it fits with that flexibility option that you want to have, so I would call that a gating factor. There are always reviews that you have with regulators, with rating agencies. We saw this when we took Canada public too, about what do you want the capital structure and when they need to be, what is the inherent capital in an entity, what is the flexibility to have dividends if you do want to take them to a holding company, if there's a degree of debt? So all of those things I can't speculate on. But that's sort of part of the process. The thing here is, again, with the philosophy of we will manage our portfolio businesses for shareholder value over time, we have a pretty experienced team who has gone through shifting portfolios over time, looking at things such as when we took Canada public during a stressed environment that were very well executed. So if the appropriate time comes with a thorough thought and thoughtful screen and assessment of shareholder value creation options, you have a team that can execute. I'll leave it at that.

And the other question I had is kind of a detailed question, but I want to understand it better. In terms of moving -- you referred to it as the non-cash preferred securities exchange transaction that increased the U.S. MI stat capital by about $220 million, and you did that without impacting the capital for life cos [life companies] or the hold co [holding companies] which is a nice maneuver. But can you explain exactly how you were able to create the capital at USMI without impacting capital elsewhere?

This is Pat. I'll take that. I guess the key point is we recognize that we have the flexibility to strengthen the U.S. MI capital position without impacting the capital plans either for the life company or the holding company or other rated Genworth entities, and did this. Basically, we had securities held in a non-rated affiliate and have the flexibility to transfer those down into U.S. and Mortgage Insurance, get regulatory capital credit in North Carolina. So it was available to us. We decided it was prudent because all of the other rated entities had very strong capital positions relative to our targets, and we could do it without impacting the holding company, and that's probably the key point. The second thing that I would say is in terms of the regulatory credit that we did take. We did have those securities valued by the NAIC securities valuation office, so it a very good estimate of market value and therefore, a reliable carrying value in the USMI companies.

So they paid significantly less than the carrying value that you're recognizing in GMICO?

No, they were transferred at the carrying value that we're recognizing which is in market value.

And next, we'll go next to Mark Finkelstein at Macquarie.

I guess just firstly, we talked about the VA business, you put out a press release on that. Pat talked about the Life business, and potentially looking at reinsurance structures. But early in your comments, Mike, I think you mentioned something about a supplemental business that was still under review. What was that business that was still under review? Just for clarification.

Yes, if you look at -- I think it was probably the end of 2009 or 2010, we declared two areas as targeted, where we would narrow our focus and critically look at risk competitiveness and returns. So you had fixed annuities in there, you had variable annuities in there, you had [indiscernible] in there. So we've got through the annuities reviews. We're completing the review on the [indiscernible].

I guess, Kevin, just a couple of questions on the MI business. One is you're assuming loss mitigation in 2011 of $400 million to $500 million. And I guess in the fourth quarter, we had $126 million of benefits, and that number has trended down over time, and I think your comment was that it'll continue to trend down over time. So I guess if we look at the $126 million, why should we feel comfortable that $400 million to $500 million is an achievable number in 2011 and particularly, given the commentary that we think we're well reserved for the emerging client patterns that we have been seeing?

Mark, I think about it as sort of on three fronts. One, we have a consistent track record of delivering on loss mitigation performance. It was nearly $8.50 a year ago. We didn't hit exactly what we set out to accomplish in 2010, but we got -- came in about $740 million. So I'll start with saying we set aggressive targets for this, and we've gone out and achieved it. Secondly, as I showed you on the page in the presentation, we really have segregated what we think the opportunities are, and we have resources and plans in place to aggressively go after that and go after it and get it. One of the things that gives you additional opportunity besides just the existing delinquency exposure you have today is you can go after new delinquencies that develop, and one should expect them to develop on a go-forward basis. So as I mentioned, we have targeted strategies to move upstream and get to those borrowers sooner and work with the servicers to influence borrowers sooner. Secondly, the servicers are actually beginning to adopt some of the best practice from those who have performed much better. There continued to be new modification programs that are really in their infancy, and haven't gotten their legs yet, and we expect some to come out of that. Additionally, despite all the bad rep and press you continue to get from HAMP. HAMP trials continue to go up. In December, HAMP trials were up 40,000 as reported across the country. So you continue to have some benefit there. We still have some opportunity in terms of claims management that continues to run through our numbers and then lastly, we got a little bit of additional benefit on a go-forward basis from previous settlement activity that we've achieved. So all in, it's still going to take the performance from those servicers and get some traction on the plan. But we feel really good about what we have. We got the plans and resources in place to go after it and we're not starting from scratch. We've been doing this for several years.

A clarification just on the kind of risk to capital. I think you said that in 2011, that you would expect to exceed the 25:1 threshold. Was that just at GMICO or was that in aggregate which has a lower risk to capital ratio?

I think when we would expect under various scenarios, pressure across both of them. And so it's one of the things that the entities have led to going out and securing the waivers. So there is certainly pressure, more pressure in GMICO because -- I think we would expect them both to be pressured in the year. And then there's some upward pressure on that going forward, but we got some nice flexibility in place to be able to deal with it and to be able continue with profit with the business.

Pat, on long-term care, if I adjust for the reserve increase in the quarter, my loss ratio is still elevated relative to historical levels, I believe. I guess can you just talk about the pattern you're seeing in the long-term care business, and whether we should interpret that as any deterioration, just waiting the fluctuation, how should we think about that?

I'll ask Buck Stinson to take that question.

Yes, Mark. I'll give you more color on loss ratio in the fourth quarter. The reported loss ratio was 73%, and that included the $20 million of reserve strengthening. That was a result of our annual actuarial review of reserves that was in our disabled life reserve. Just to give you some context, that total reserve is a little over $3.5 billion, so it was $20 million of strengthening in that area. When you back that out, the fourth quarter loss ratio was approximately 67%. Now on an annualized basis, and that's what we are managing the business with guidance on an annualized interest adjusted loss ratio between 60% and 70% for 2010 including that reserve strengthening, our annualized loss ratio was 66% for 2009. For reference, that number was 65%. That reserve strengthening and that erosion we're seeing, isolated primarily in the older blocks, and that's one of the reasons that led us to request an additional 18% rate increase on those older blocks of business. And going forward, we would expect to manage our total annualized interest adjusted loss ratio well within that 60% to 70% range.

Next, we'll go to Joanne Smith with Scotia Capital.

Can you please just get a bit more granular on the sand states, USMI experience and the trends that you're seeing there? And second, I was just wondering if you consolidate the Mortgage Insurance businesses since you're a Global Mortgage Insurance entity, is there any risk to the Canadian and the Australian capital strength ratings as a result of that?

Let me pick up with the first one. This is Mike, then I'll hand it off to Kevin. Understand that we have a very distinct legal structures. If you look at where our international MI stand versus our USMI, these are totally distinct, and that is something we communicate to each of the platforms, each of the regulators, and nothing changes there.

Just on a reporting basis, Mike?

Yes. So that you can sit there and look, so that you have the opportunity to look at total global Mortgage Insurance exposure, look at the dynamics of it, look at the profit dynamics of it, the return dynamics of different patterns. But moving towards that segmentation, we think you'd get better visibility and granularity on that basis. So it will not impact those ratios in my mind at all because of the separateness in the structures that we have established. So Kevin, do you want to go in more depth on the sand states please?

I guess, I'd probably reference you, Joanne, back to Page 15 in our discussion this morning. What that really shows you is -- just articulated again is what the delinquent risk that is currently in some form of foreclosure, the levels that we have that reserved against as a percentage of our overall risk in-force. In the quarter, you continue to have some uptick in foreclosure development and in a couple of the sand states. But overall, at the same time, it's just our view that these are going to be harder to cure. You're going to have less loss mitigation opportunities in those compared to where we were early on in the cycle. And if you think back on it, as we went into 2009 and we saw an acceleration in our loss mitigation benefits that was coming from both rescission activity that was really geared towards a lot of the problem loans and the problem loan types that were originated in those sand states, coupled with the growth in loan modification benefit that we really saw across the country, and in the sand states as well. We reflected that in our reserve calculations. And what we've experienced, really, beginning in the third period and accelerating a little bit more into the fourth quarter is simply, number one, due to our process, rescission benefit and rescission experience was trailing off. And then loan modification trends in those areas also began to trend down. And so, now we've taken that into our account into our reserve calculations. So we benefited from it back at the time when our experience demonstrated that we're getting that help, and we've had to correct, as we've seen that experience shift the other way as we've gotten through the lion share of some of these loan modification. So I guess that's how I would characterize what's going on there. You can see that's it's still a pretty significant percentage of our overall reserves are base in those areas, those across Michigan. A lot of the late stage stuff is really down there, but we continue to have cures coming out of there even at this point in time. And that's really a lot of the bases for the support what we have, and why we think we reserve at appropriate level. And lastly, when I think about what we've done, just to reiterate, we really went back and strengthened reserves on the oldest, later stage stuff. The new books aren't really feeding the beast anymore there. So the earlier performance on early term delinquencies are improving, so you're getting some benefit there. You're not adding more to the bucket. And then the stuff in the middle is although some of it continues, we saw some of the continued transition to foreclosure on the period, we're still getting some cures out of that.

Can you just compare Florida from the third quarter to the fourth quarter, Kevin?

I would tell you on a foreclosure start basis, it was actually down in the fourth quarter. I think we saw some spikes in the third quarter that may have been attributable to some of the servicer activity to push things through back then. Just about the point that that all happened and we had the big spike in overall foreclosures in the fourth quarter, everything got frozen when you had all the Robo signing and other issues develop and materialize in the marketplace, so I think things were -- overall in Florida, our foreclosure development was down.

And so you have seen an improvement since the Robo signing and all of that stuff has occurred, that market is starting to move again?

When you say move again, if you'd clarify that.

I'm talking about the process...

It's sort of -- certainly claims were at the same level, claim submissions that we saw in the third quarter. We think things are starting to loosen up again, and so one could expect continued move through in liquidations on inventory.

And next we'll go to Tom Gallagher at Crédit Suisse. Thomas Gallagher - Crédit Suisse AG: I wanted to shift gears away from MI for a minute onto Life insurance. I guess this is for Pat. I just want to understand what was sort of driving the strong improvement in risk-based capital at year end up to 390? I think it was 365 at 3Q. Was there a capital contribution there? Was it earnings driven? That was my first question.

Yes, there are two factors. The first one was earnings. We did see better investment earnings. We saw better markets, which improved the variable annuity earnings during the quarter. We saw good mortality, so statutory earnings did improve, and that reflected a big part of it. I'd say about half of it resulted from the BlackRock re-rating of structured securities and one of the things that we've been highlighting over a period of time is that on our CMBS investments are to a very large extent, super senior investments in terms of structuring with a lot of coverage and subordination built into them, and when BlackRock did the analysis and the capital requirements were reset, we saw a pickup of about 11, 12 RBC percentage points based on that factor alone. So you combine the two and the only third note is no capital contribution in overall performance, and reflecting the re-rating of the securities. Thomas Gallagher - Crédit Suisse AG: And then Pat, also curious, if I look at through 3Q, you were losing about $100 million on an operating basis in terms of Genworth Life. And now I assume that's reversed or at least you didn't lose money on an operating basis in 4Q. So first question is what was behind, on an operating basis, losing money through 3Q? And also, I guess last question I had is you commented on what's going on a GAAP basis for long term care. Has that been impacting your stat results at all?

When you talk about an operating basis to clarify, you're talking about statutory operating earnings? Thomas Gallagher - Crédit Suisse AG: Exactly. $101 million loss through 3Q.

Yes, so what you'll see, if you look at life and long-term care and fixed annuities, that whether you're talking about statutory or GAAP earnings, earnings tend to emerge in a very predictable sort of way. And the one thing that does on a statutory basis because of the reserving requirements, causing our operatings to swing around, is the variable annuity valuations and the way the statutory reserving is set at very conservative levels. So what actually happens on a statutory basis is there's more volatility to that even than there is in on a GAAP basis. And so we see declines in earnings when markets decline, and we see robust recovery in earnings when markets improve, so we saw a little bit of that in the third and in the fourth quarter. And I would underscore that when we look at some of the strategic decisions that we've made overall in terms of emphasizing the attractive returns on Life Insurance business and long-term care and Wealth Management and shifting more of our capital allocation in that direction, that does lower that risk profile, and improve the stability and reliability of earnings both on a GAAP and statutory basis. So I thank you for asking that question, because that's an important point. Thomas Gallagher - Crédit Suisse AG: And then on long term care, can you talk about -- you talk about how that's been developing on a GAAP basis, which sounds reasonably within a narrow band. How has that been developing on a statutory basis?

I'd say on a statutory basis, that the reserves are set on a prudent or more conservative bases, so they're larger and what happens is they release over time. So we have an interaction of larger statutory reserves set up on the new business, more of a statutory release on the old business. But I would say that's similar to the GAAP returns, long-term care profits, regardless of the basis that you measure and given the stability on our loss ratios, are going to be fairly stable over time at least on an annual basis. Thomas Gallagher - Crédit Suisse AG: So you're not seeing any material degradation of profitability due to LTC on a stat basis right now?

That's correct.

And next we'll go to Edward Spehar at Bank of America Merrill Lynch.

Despite the additional U.S. MI stats that you've provided on this call, I'm sure I'm not the only person that's confused by the fact that this far into the housing downturn at the U.S. Mi loss is up. And just putting aside all the pieces but just very high level, the U.S. MI loss is up 26% in 2010 versus 2009 which when you compare it to the other MI companies who saw dramatic improvements in the loss. Now understanding, you might argue they did worse than you in the prior year, and that may be true, but you've always made the case that your underwriting was better, your risk selection was better, and that you would always expect to have better results. So I'm just a little bit confused by why it seems you guys are playing catch-up right now on some issues versus some of these other companies? And then I have a one question on the Life side.

Kevin, do you want to take that please?

Ed, I guess to start with, and if you go back and look at our performance through the entire cycle, compared to our competition, I think that you'll see an overall stark contrast, even given the provisioning and the reserve building that we've done in the latter half of this year between us and their performance. So number one, I do believe that the difference in portfolio that we had, a portfolio that as I've shared before had, an [indiscernible] concentration at the end of the day, that was like 3% of our overall portfolio base compared to others that were multiples of that number, the portfolio that had a much shorter term arm percentage at about 2% of our overall portfolio, which admittedly has performed poorly for across the market compared to everybody else in multiple fronts. That portfolio had, had only 2% of our overall RIF that's currently based in bulk. Number one, I do think that portfolio and our underwriting characteristics have been a big difference and that is something as you think about going forward and where we are today, following the strengthening that we did, will continue to benefit us as we roll forward. Secondly, the other big thing that -- and you referred to it in terms of the way you describe the timing, it's simply the timing of our rescission experience and the timing of our rescission approach. We had a different process, and I talked about it a little earlier. So I'm sorry if you didn't get to hear the whole thing, but our process was to go after loans to the point of delinquency, investigate them and eliminate that risk if there was rescindable risk, before it had the opportunity to age through and continue to build the reserves and then…

And then just one other question. I think for Pat on the Life side and following up on prior question on statutory. I'm sorry if I missed this, but did you give any indication of what you think the normalized statutory operating earnings would be for the Life business? I mean you've been losing, in general, with Life like $100 million -- $80 million to $100 million a quarter or something the last few quarters?

What I would say and yes, I'll give you an idea of what that looks like, but I want to step back for a minute and talk about what we've done in the U.S. Life companies over the course of last year, and one of the things that we had laid out was an emphasis in terms of managing the investment portfolio and diversifying risk and minimizing loss exposure. And we did that very successfully. What that did was it gave us more capital to work with, and when you look at where we put that capital to work, and it did impact the statutory earnings in the year, but the flip side of that is it substantially increases our expectations of statutory earnings in future years. As we built our Life sales up year-over-year, 40%, our long-term care sales, 30%. There's statutory strain associated with that business, and that builds good future statutory earnings power, which is enabling more capacity to grow and create distributable earnings in the future for the plans that we've outlined before. So we essentially, purposely increased sales to take advantage of the market opportunity that we created, used statutory income to generate that. We got, I'll say a statutory income result, which is lower than our usual run rate. And looking forward, we would expect that to return to more levels that are more consistent with our historical level. And I might add that here's where the deferred tax asset is also important because in the near term, our pretax statutory income is going to be the same as our after statutory income, so that's going to assist in capital generation. We think that we've actually built back our market share expense, money wisely, and created capital capacity going forward, which is going to enable us to grow this business and produce the value propositions that we talked about today.

Two follow-ups. First of all, how long will pretax and after-tax stat operating earnings do you think be the same, for how many years?

I said that we would have most of our deferred tax assets utilized within the next seven to eight years. So we're going to be utilizing them to offset emerging earnings and taxes on that for that time period and that's what you should take away from the earlier comments.

Secondly, if you stopped writing new business today, how much would your statutory earnings go up?

Probably about $400 million.

So when I look back -- I don't have the last five years in front of me right now, but what did this business used to do in terms of stat? I mean, the good times wasn't it more like $600 million to $700 million of stat earnings?

I can't speculate on what it was pre-2007 timeframe at this point. But I think the important points are what we're doing right now in terms of utilizing our capital position to enable profitable new Life and long-term care business growth and how that enables us to continue to build value going forward. What I will do for you is, since I don't have them immediately available, I can check on the pre-2007 numbers and call you later and let you know what they are.

Yes, I think, I mean, this could be, I guess, this is from a outside service, so it could be wrong. But I just pulled this up, but it looks to me like sort of $600 million, $700 million then it dropped down to a few hundred million in 2007. This is generally with Life, and then it was less than $100 million in 2008 and 2009. If it was $400 million, if you stopped writing all new business but you are going to keep writing new business, at what point is there a cross over? I mean, should we be assuming that this stat earnings then going forward considering your plans to grow are going to be less than $400 million for some time?

What I would say is having recaptured the, I'll say, the market share that we had in the 2006, 2007 timeframe in the Life business and having seen the bounce back in the industry sales in long-term care that we certainly participated in, that going forward, we wouldn't see the same increases so we would see -- I would expect a more healthy level of statutory earnings going forward. And separately to your earlier point, I would want to follow-up with you to check on the numbers and call you because a lot of times, those services take specific companies and don't show the consolidated results. And I found oftentimes that they don't give the accurate picture. So I'd like to reconcile numbers, and make sure you're working with what our actual history of reported results is on a consolidated basis.

In terms of your structure, aren't all the earnings underneath Genworth's Life Insurance or is Genworth Life and Annuity something have to add to that?

It depends upon how it's reported, but the consolidated results would be everything that consolidates into Genworth Life Insurance Co. in the U.S.

And next, we'll go to Suneet Kamath with Sanford Bernstein.

But I had a couple of questions about Slide 53 in your deck. The first is on the ROE growth guidance, the 30 to 60 basis points per year x MI and other things. I'm not sure what you're doing with corporate there so I just was curious what your starting point ROE is. If I just back out MI, I think it's probably around 6% or so, maybe 6%, 7%, but how would you think about the starting point on top of which you will build by 30 to 60 basis points a year?

This is Pat. The starting point is the 2010 return on equity for retirement -- or for the business was just 6.5%.

And then a question about the leverage at 20% by 2012. If I just think about some of the other life insurance companies out there that quite frankly have higher ratings than you do, it seems like they're not quite targeting 20%. It may be something higher than that. So I'm just curious why do you feel the need to go all the way down to 20%, given that quite frankly, your ratings are lower, I would think that, that would give you some incremental capacity. So is the idea here to try to get back to the sort of a AA or is it to sort of position you for some potential business restructuring down the road after you reduce your sort of cash needs?

Other life companies don't have Mortgage Insurance companies. Mortgage Insurance companies tend to carry less debt. And to my point, if you delever to a sum of the parts basis, you have more strategic flexibility in your portfolio.

Ladies and gentlemen, we have time for one final question from Darin Arita at Deutsche Bank.

Just as we're thinking about the business portfolio, the Canadian IPO was very successful, and it trades that are premium to book rather than a discount. I guess, I'm curious how you're thinking about that success relative to the Australian business, and how a partial IPO might highlight value for shareholders.

Darin, this is Mike. Not an uncommon question, but I'd begin a step back and assuming you've heard sort of the comments I've walked through today, and the need to take a comprehensive look. I think what you want to do is look at this on a medium term basis, and if you take your hypothetical case and say, what type of value do you have embedded in the only global Mortgage Insurance platform? Do you add to that value? Do you degrade from that value if you take sort of a piecemeal approach, which is what you're talking about. We don't have a desire to be sort of a merchant bank holding company, per se. I think it's best to look strategically at the business, therefore, and the clustering of Protection and Requirement. We were proud of the lines we're in. We're leaders of the lines we're in. And look at the Mortgage Insurance platforms that we're in, how we're positioned and what their potential is going forward, and then think strategically more on those two fronts. Though I understand given the success of Canada, which we too were pleased with, given the circumstances, how the questions comes up against Australia. So that's how we're thinking about approaching it, and see great potential in the Australian business going forward.

I mean, is there a much benefit though, cross benefit if we're thinking about a global mortgage insurance company in terms of having Australia, Canada and the U.S.?

Yes, actually we've seen probably the greatest commercial synergy within the Global Mortgage Insurance group. I get to fly around the world and talk to a lot of groups' regulators, rating agencies, customers and to a person, everyone of them cites that as an advantage and part of the reason we get the business we do, we get the pricing we do. And they look for us not just for product, but they look for us for risk management guidance. They look for us for who has at the best technology in the world. We get consulted on public policy, housing public policy, housing finance policy, and that's because we have a perch in so many different geographies of the world. We have, as an example, either weekly or biweekly operations meetings, where we have people, for example, on ops areas, in loss mitigation areas, transferring practices. We will move over time to a single technology platform, because we've learned from the different ones we've put out there. We learned which value-added services get more business and entrench you in customers, and which are nice to do's but not need to do's. You'll also find us going into -- selectively into new markets. There are markets of the future that will be the next Canada or the next Australia, and the fact that we've lived through a lot of cycles, including the one in the U.S. that gets a lot of discussion, and that we've operated successfully through cycles as far as protect capital and protecting policyholders makes us more credible as we sit with typically those governments, and talk about what type of housing finance policy we want to have, how do you want to look at Basel III in the translation of it to your market, what are…

Ladies and gentlemen, this concludes Genworth Financial's Fourth Quarter Earnings Conference Call. We thank you for your participation. At this time, the call will end.