Good morning, ladies and gentlemen, and welcome to the Genworth Financial's First Quarter 2013 Earnings Conference Call. My name is Shannon, and I will be your coordinator today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. [Operator Instructions] I would now like to turn the presentation over to Georgette Nicholas, Senior Vice President of Investor Relations. Ms. Nicholas, you may proceed.

Thank you, operator, and good morning, everyone. Thank you for joining us for Genworth's First Quarter 2013 Earnings Call. Our press release and financial supplements were released last evening. Earlier this morning, our first quarter earnings summary presentation was posted to our website. We encourage you to review all these materials. Today, our speakers will be our President and Chief Executive Officer, Tom McInerney; followed by Marty Klein, our Executive Vice President and Chief Financial Officer. Following our prepared comments, we will open the call up for a question-and-answer period. In addition to our speakers, Pat Kelleher, President and CEO of our U.S. Life Insurance Division; Kevin Schneider, President and CEO of our Global Mortgage Insurance Division; Jerome Upton, Chief Financial Officer of our Global Mortgage Insurance Division; and Dan Sheehan, Chief Investment Officer, will be available to take your questions. With regard to forward-looking statements and the use of non-GAAP financial information, during the call this morning, we may make various forward-looking statements. Our actual results may differ materially from such statements. We advise you to read the cautionary notes regarding the forward-looking statements in our earnings release, and the risk factors of our most recent annual report on Form 10-K as filed with the SEC. This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. In our financial supplements, earnings release and investor materials, non-GAAP measures have been reconciled to GAAP were required in accordance with SEC rules. Also when we talk about International Protection and International Mortgage Insurance results, please note that all percentage changes exclude the impact of foreign exchange. And finally, references to statutory results are estimates for the quarter due to the timing of the filing of the statutory statements. And now I'll turn the call over to our CEO, Tom McInerney.

Thanks, Georgette, and good morning, everyone. Overall, I'm pleased with the progress in our results in the first quarter of 2013. Operating income increased to $151 million, representing a significant improvement from last year's first quarter and the fourth quarter 2012, excluding the favorable adjustment from the new Canadian government guarantee framework last quarter and the Australia reserve strengthening and life block transaction impacts from last year. We made headway on several of our strategic priorities, including improving operating performance in our businesses, driven by the continued recovery of U.S. Mortgage Insurance and some improvements in our U.S. Life Insurance Division. Our focus continues on our strategic objectives to improve business performance, simplify the portfolio, generate capital and increase the financial strength and flexibility of the company. Our priority remains to rebuild shareholder value. This morning, I want to focus, first, on steps we are taking to improve business performance, which is where I've been spending most of my time; second, comment on progress made on other strategic objectives; and third, offer a few additional comments regarding Genworth's first quarter results. I will then turn it over to Marty to review first quarter results in more detail. So I'll begin with where I'm spending most of my time, improving business performance. As we move forward, we are working to offer valuable products and services that help consumers plan for their financial security. We must balance demand for products through strong distribution relationships, with the objective of earning an appropriate return over the required cost of capital for shareholders. A prime example of where we are working to obtain this balance is in our approach to managing a long-term care insurance business. I've been meeting with a number of insurance commissioners and state representatives to discuss a rate increase actions and…

Thanks, Tom, and good morning, everyone. Today I'll provide an overview of results for the quarter, update you on the holding company and provide some perspectives on 2013 earnings expectations. Let's begin with first quarter results. We reported operating income of $151 million for the quarter and net income of $103 million. The prior quarter included a $78 million favorable adjustment from the finalization of a new government guarantee framework in Canada. Excluding the favorable adjustment in the prior quarter, operating income increased 84% this quarter. In Global Mortgage Insurance reported net operating income was $102 million compared to income of $55 million in the prior quarter after excluding the favorable adjustment in Canada. Let's cover Canada results first, where operating earnings were $42 million for the quarter. Unemployment in Canada rose slightly to approximately 7.2%, and there was modest sequential increase in home prices. Premiums were down slightly from the maturing of the larger 2007 and 2008 books of business. Changes put into effect in July of last year to eligibility rules for government guarantee mortgages reduced the size of the high loan-to-value mortgage insurance market and, along with normal seasonal impact, drove our flow NIW in the quarter down 25% sequentially. We did complete several bulk transactions in the quarter of approximately $2.4 billion. We participate selectively in this market, and these transactions consist of low loan-to-value prime loans. The loss ratio was flat sequentially at 31% and improved 7 points from the prior year from lower new delinquencies, net of cures, and continued improvement in Alberta. For Australia, operating earnings were $46 million versus $62 million in the prior quarter, which included a favorable tax impact. Unemployment in Australia rose slightly to 5.6%, and home prices rose approximately 3% sequentially. Premiums are up from the prior year,…

[Operator Instructions] Our first question is from Sean Dargan of Macquarie.

I have a question for Kevin regarding the outlook for U.S. MI. Just when I look at the results this quarter, I understand there's some favorable seasonality in the first quarter. But when I look at the results that some of your MI competitors have put up and their outlook for the year, I see reserves in Florida, which I know will be a trouble spot this year, it seems to me that, perhaps, the outlook is a bit cautious?

Yes, Sean. Obviously, we are quite pleased with our results in the first quarter, we're encouraged by the direction that we're seeing and what's going on with our business performance. As you said, we do benefit from seasonality in the first quarter, in particular -- and you really in the first half of the year, but in particular, in the first quarter. And we just think the environment has enough uncertainty that remains in it. There's still sort of a sluggish job growth and that really hasn't taken off, even though home prices are generally trending up, which is a very positive for us. We just think at this point in time, our best course is to remain cautious, and we'll certainly update you as we progress through the year, as we continue to observe our development. And we'll be back at the next quarter with -- to see if we need to revise or change that outlook going forward.

Okay. And I have a follow-up. I think it was said that the target risk to capital level in U.S. MI would be 25:1, but it seems that the NAIC and the GSEs will be looking for more stringent capital requirements going forward, maybe in the range of 20:1 of 18:1. I'm just wondering what your thoughts are around that and if something like that went through, how would you get there?

Yes. Great question. Tom observed in his comments that we're committed to managing down our risk-to-capital level below the 25:1 statutory requirement, and I would say ultimately in line with other outcomes that may come out from either NAIC or the GSEs. There's many ways one can get to that and to achieve that reduction in the risk of capital. And just to highlight a few besides the obvious, one, is profitability and ongoing improvement in our statutory income. Second possibility was some reinsurance. Another way we might -- that might help us further get down to those type of levels is the ultimate realization of some of our DTA benefit over time as profitability improves. So we got a number of different ways to get after that, and we'll consider all of our stakeholders. And over the long term, as we get more clarity on what those levels are ultimately going to be, I think it's a little premature to make that call. But we're talking with all those same folks, as you can imagine, on an ongoing basis. And we do think it is prudent to get that number back down over time to below that 25:1 level.

Our next question is from Steven Schwartz of Raymond James & Associates. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: A couple of number of questions, if I could. First, on long-term care and the actuarial assumption changes. Maybe, Marty, you can go through how that affected the revenue line and the expense line. I think it changed both.

This is Pat. I'll take that question. Okay, so the first quarter adjustments favorably impacted reserves a net of $20 million on an after-tax basis, and there was an unfavorable impact and reduction to premium -- reported premium revenue of $14 million after tax, and that's the net of $6 million. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: And that's the net of what, Pat?

Of $6 million. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: Okay. All right. And then looking at Page 8 of the presentation and -- at the bottom, am I, looking at these percentage numbers for Life Insurance? Is that A to E? Is that what those numbers are? The 96%, 97%, 93%, 80%, 88%?

Yes, those are actual to expected ratios for term mortality, where the expected is pricing. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: Okay. And then going back to U.S. MI, I'm wondering about maybe a -- an update on anything regulatory going on.

Yes, Steve, I don't think there's any real breaking news on anything from a regulatory standpoint. We continue to actively participate and watch what might happen as it relates to any changes regarding the FHA. The government certainly watching that closely and trying to protect the taxpayers, so there's certainly an opportunity for some changes in terms of the regulatory framework around FHA. The QRM standard has still not come out and been published and finalized, so that remains something that we watch and are actively involved in, particularly as it relates to the potential for some down payment requirements to be QRM-qualified. I think based upon sort of where I see that heading right now, it's more likely the QRM is -- could end up being broadly defined similar to QM. I mean, we think that's a reasonable outcome for us. I mean, and the last thing really is sort of, or 2 additional things. One is just where does Basel end up, particularly for portfolio holders of mortgages where they have mortgage insurance on them. There remains some discussion around whether those folks will get credit for the credit enhancement provided by the mortgage insurance, but that's still up in the air. And then, we got a busy regulatory agenda. The final thing is just where do we stand on GSE reform. And there's a lot of dialogue underway on that. I just don't see any big changes coming in calendar '13.

Our next question is from Joanne Smith of Scotia Capital.

Yes. I just had a quick numbers question, then a broader question. I was wondering what is the private mortgage insurance market share numbers currently? And then just secondarily, I was just wondering if you could talk a little bit about additional asset sales going forward. You've announced the wealth management and the home equity portfolio. I'm just wondering if there are other kind of non-core assets that you're thinking about maybe disposing of?

Yes. Joanne, I'll start off on the market share question as it relates to private mortgage insurance. Our penetration as an industry in the first quarter was around 8% in aggregate, and that includes both the refi and the purchase penetration levels. The most interesting percentage, I think, is really the growth in our purchase penetration. As you know, we have a much higher -- out of every 100 loans, we got a lot more MI loans from the purchase side than we do on the refi side, and that's been held steady over 16% for both Q4 and for Q1. So we're really back to sort of -- certainly back to pre-crisis levels, and actually back to sort of pre-early 2000s-type levels. So we're getting back into a range where we have a nice purchase penetration outcome, and now we're just waiting for that purchase market to really start to come through. And I think home prices have -- and the combination of both the home prices where they are and interest rate environment right now makes it very attractive for people to get back into the purchase market. If we had a little bit more, I think, improvement and what's going on from the job creation side, we think there's a lot of buyers that will come back into the market even as rates may trend up a little higher. So about 16%, refi is about 5%, total 8% on the quarter.

And just a quick follow-up before we move on to the other questions. It seems to me that there's some regional strengths in the housing market where there might be weaknesses that continue in other regions. Can you just talk a little bit about where you're seeing the strengths and weaknesses in the market currently?

Yes. As you probably read yourself, a lot of the markets that had been seeing the most significant stress are really starting to see some strong comeback in terms of their home price numbers. So you have good home price appreciation going on, out on the West Coast, even due in Florida to some extent much more -- not recovering quite as strongly because of the drawn out for closure environment down there. Phoenix and Nevada are even improving. So all the places that suffered the biggest declines are seeing some strong growth. We do continue to see some weakness in the Northeast, in particular in New York and in New Jersey area, just not quite as strong, and so we're monitoring that closely. But overall, across the board, we think we've got a firm bottom and things are headed in the right direction.

Joanne, this is Tom. I'll take your question on sales and other strategic priorities. First, as you know, the Australia IPO is still a priority for us. But keep in mind that our 2013 cash and capital plans didn't include it, so we're not under pressure from an overall capital cash position to do anything. We have said a few times before that we think that our timing for the IPO will be later this year in the fourth quarter, maybe even to next year. And there's 2 reasons for that. First, while we're pleased with the results of the last 4 quarters in Australia, we do expect continued good performance. And so, therefore, we think that helps the value over time. And second, we haven't seen a lot of IPO activity in Australia, and so we'd like to see over the next few months a little bit more evidence of a good IPO market. So we're really watching those 2 things quite a bit and we'll have more to say on that later in the year. The other business that's non-core is LPI, and we did -- we have looked and continue to look at 3 options, run it off now, sell it now, we're positioning it for sale in the future. And when we've done our work on that, we think from a shareholder value perspective of the 3 scenarios, the best is to position the business for sale in the future, which -- and what do we mean by that next 2 to 3 years. And I'll make a few additional points about LPI. It is still profitable despite very tough markets in Europe. We believe management's doing a good job given the challenges they face. They're focused on reducing the footprint in Europe, and we've said that we want to reduce the number of strategic distribution partners by half, which we think will strengthen the business. We're also reducing expenses in line with the reduction in sales. We are selectively expanding in the market outside of Europe, and we're tightly managing the capital and still expect to see LPI pay dividends as planned to the holding company. So in looking at all that, we're still convinced that the best strategy for shareholder value is to wait, hopefully see some improvements in Europe and time for the other platforms to develop for value later on. Obviously, we'll keep you updated as the year progresses. And then finally, on the variable annuity business, they're having a few transactions that have happened from a value perspective. We don't think the value yet is there to do anything, so we'll continue to look, but nothing eminent there.

[Operator Instructions] Our next question is from Mark Palmer of BTIG.

Just a quick question for Marty in following up on the Australian IPO discussion. On the last conference call, the fourth quarter call, I believe you made a remark about how there had been some signs of improvement in the Australian capital markets, such that a fourth quarter IPO could potentially be more feasible. Just want to get a sense of if you're seeing those same signs now, or if there's been any change since that comment?

Yes, Mark. I would say that we really haven't seen any change. I think the markets, equity markets over there are generally, in the public markets, working okay. But one thing that really hasn't happened, as Tom just mentioned, is there really -- continuously really not being any significant IPO activity. We do see, as we did maybe a few months ago, perhaps a pipeline that's building, but nothing's really come to market yet so we want to watch that pretty closely.

And our next question is from Ed Shields of Sandler O'Neill. Edward Shields - Sandler O'Neill + Partners, L.P., Research Division: I think I've got a question for Marty here. With the proposed NAIC model changes for RMBS and CMBS, can you just comment on anticipated impacts this may have on your RMBS, CMBS or the RBC ratio, either in whole dollar amounts or RBC points?

Sure. Let me actually turn that over to Dan Sheehan, our CIO, who's been tracking that pretty closely.

Yes, thanks. A couple of things. Most importantly, I just want to note that, that proposal is still in the comment period. As recently as yesterday, there were discussions around potential implementation and there's certainly a number of questions that still need to be answered. So at this point, I think it's preliminary, and we'll follow it closely to make sure that as we move closer to implementation, we are aware of the changes and the impact on the portfolio. I think there are sort of 2 real changes that are being discussed. One is to broaden the inclusion to be all cash flows and not just principal-based. The second is to change to a risk-free discount rate versus the coupon rate. I think both of those are potentially negative for capital at the CUSIP level on a case-by-case basis. I think one positive coming out of the discussion, though, is that there is a lot of talk about finalizing assumptions much earlier in the year, which is a positive for the industry. At this point, our expectation is that we would manage any impact from this change within our existing capital plan. I say that for a number of reasons. First off, we have not been an active buyer of this legacy positions, which have benefited from the recent capital changes. Secondly, our legacy portfolios have continued to decline, and that decline is actually accelerated in the last few quarters. And so we believe that we have a manageable book and you've seen that come through in a steady improvement in the level of impairments over the last few quarters. And then finally, there's also another proposal on the table to change the risk-based capital rules for commercial mortgages. And that was actually approved at the Capital Adequacy Task Force yesterday, and so it's actually ahead in the process and more likely to be implemented in 2013. That proposal is actually going to change the model to be based on a combination of loan-to-value and debt service coverage ratios, and to model more closely the way bonds are modeled from a capital basis. Based on the overall quality of our portfolio and the historical strong performance, we would expect that change to be positive. And so I would say the net effect if both of these changes go into effect this year would probably neutral to slightly positive.

Our next question is from Conor Ryan of Saba Capital. [ :p id="A05" name="Conor Ryan" type="A" /> What sort of NIW are you guys trying to target in the sort of 2014, 2015 context?

Conor, we haven't really -- this is Kevin, in the U.S., we haven't really provided any expectation on '14, '15. I would think of it as an origination market that should be growing from the points we're at this year, where what we've provided for this year is we think we'll be in the 15% to 20% range. I think we'll probably be in the middle upper end of that range. Think about it then as we talked about earlier in response to Joanne's question of about a 16% purchase penetration market going forward. I think that gives us an opportunity for some expansion in our NIW going forward, and a little bit of share progression potentially. So I think growing marginally over time in the '14 and '15 back into some more traditional and sustainable levels of NIW delivery. [ :p id="A05" name="Conor Ryan" type="A" /> Okay. And then do you guys feel confident that your long-term care reserves are more than adequate, and most of the issues associated with that segment are largely behind you?

With respect to the reserves, I would say that, as Marty indicated, we completed our year-end regulatory cash flow testing, and across the U.S. Life companies, the reserves were adequate. And with sufficient margin, inclusive of provisions for adverse deviation that we provide for in that testing, we also completed and continue to regularly monitor our GAAP long-term care reserve adequacy testing. And the results, again, of our most recent testing indicate the aggregate reserves are adequate with sufficient margin under current assumptions and expectations. In addition, in the third quarter of last year, we updated fairly comprehensively our assumptions around our long-term care claim reserves and thorough -- did a thorough review of claims history. Since implementing those changes in third quarter, our merging experience is indicating our claim reserve levels just slightly more than needed than aggregate, which is appropriate given that their claims -- best estimate claim reserves and relatively short duration. With respect to the performance of the long-term care business, I would say that we -- as Tom indicated, we got a lot of work to do, our progress to date on the re-rating of the older blocks is in line with our expectations. But there's a lot more work to be done there, as well as repositioning the new business portfolio from a risk and profitability perspective. We've take a series of actions, and you can expect more on that front. So more work to do, but good progress to date, I think. [ :p id="A05" name="Conor Ryan" type="A" /> Great. And just sort of tying into that, I mean, obviously, you guys have done a great job of sort of addressing some of the credit market's concerns associated with some of your subsidiaries. And given that you think you have more than adequate reserves levels, I mean, is it possible that you're being conservative with holding company cash? And at what point in the future, what level of profitability would you want to be at before you started really focusing on potentially shifting your attention from improving ratings and improving your creditworthiness to focusing on shareholders?

Conor, let me just give you a little bit of a perspective on my view on long-term care. Certainly, we think the improvements we're making there are very important from a shareholder value perspective. I want to make it clear that I think it will be a challenge to turn the long-term care business around. There are 3 key priorities from our perspective. The first you know about, and we're along -- well along the path, which is large in-force rate increases on the older books, which given a lot of issues and low interest rates lapses, things that you've heard about, we need significant increases on to bring those back to a breakeven. And that's real hands-on work. It requires us to meet with each of the 50 state regulators. I'm personally involved, as is Pat and others. And so there's progress to be made, but that's an ongoing challenge for us. I also said in my prepared remarks that on the newer products, and let's roughly define those as products issued on forms since 2004. Right now, those products are profitable. But just given that rates are lower now than they were, they may require some rate increases going forward. And so the second part of our strategy is on the newer products to continue to proactively manage them, look at the results and experience and be prepared to go sooner and perhaps more frequently to regulators to the extent we think that's necessary. And then finally, I think the team -- Pat's team have done a good job on new products. We just launched a new product on April 15, which we call Flex 2 , which has a significant number of improvements from an underwriting perspective, reducing benefits. And we hope that, that will be a…

Look, as I said, I think we -- if you look at our ROEs today and our operating performance, it's not where we want it to be and we want to continue to improve it. We, of course, continue to look at options to unlock shareholder value, and some of those are on the transactions we've done. We're also -- there's the Australia IPO and other actions that we'll take over time. And clearly, we do understand the need to run the businesses well, manage capital tightly, focus on selling products above the cost of capital and returning capital to shareholders when we can, we need to continue though to make improvements and improve our financial flexibility, I think, before I would be comfortable with doing a lot there. Marty, I'll let you add your point of view.

Yes, and I would just add that getting more stability in our operating company dividends is important. And as I think you know, the Life company for the first time this year and a number of years is now -- has the ability to return an ordinary dividend. But it's early days. We want to watch that closely. We feel like early in the year, we're in pretty good stead on that, but we've kind to have to watch that as a place through the year. We also had pointed out while our ratings outlook with Moody's stabilized, we still have a negative outlook, as Tom mentioned in his remarks, with S&P at BBB-, so -- with a negative outlook, and so we really feel like we want to continue to get increased financial flexibility and hopefully clear that up. Yes, I would say that I think that the holding company cash targets of 2x debt service is an absolute minimum threshold for us, and this $350 million target buffer we have in excess of that is to make sure that we're always able to have a 2x debt service. And as we get some more stability and certainty in our dividend flows, as we take care of some of their nearer-term debt, for example, the 2014 bonds, we're going to dedicate the wealth management proceeds toward that, but we haven't closed the wealth management transaction yet so, we need to do that. Then also, if we're able to get credit lines in place at some point and get some form of contingent liquidity, those will all be considerations as we might think about revising the buffer, but we have to get through some of those things first before we do that. [ :p id="A05" name="Conor Ryan" type="A" /> Yes, I know. And I'm not trying to assume that any of this happens tomorrow. I'm just sort of curious, it sounds like to the extent that you can generate some of the operating performance that you're looking to achieve, we could be -- let's say, we're on a '14, '15 time frame, and now any earnings that you're generating could theoretically be more solely focused on shareholders. Is that fair?

Yes, I think that's very fair, and we'll look at -- when we get there, and we're working hard to get there on all the options that we'd have to return capital to shareholders, including dividends and share repurchases. And, obviously, an important event to go this year is the Australia IPO, which we hope to do later in the year.

Our next question is from Craig Perry of Panning Capital. [ :p id="A05" name="Craig Perry" type="A" /> Just a very quick question. I was just curious -- somewhat related to Conor's question. Would you also consider, similar to what you've done in Canada, a partial IPO of the U.S. Mortgage businesses, assuming your return to profitability? Obviously, there are certain groups investors who have a particular interest in owning that asset, and so just curious to get your thoughts on that.

Craig, it's interesting. When I came to Genworth in January, I don't think I got that question. [ :p id="A05" name="Craig Perry" type="A" /> You would have gotten it from me, I promise.

Yes. I don't think I did receive that. But with the actions that some others have done in the industry, and I think particularly this quarter with the profit for U.S. MI, that question is starting to appear. But let me say where I am on that. First, we're focused on continuing to improve the business performance in U.S. MI. Once U.S. MI is consistently profitable and the 2005 and 2008 books are no longer an issue, we will look at evaluating various options for U.S. MI. But I think it's premature now to be looking at or talking about those options. [ :p id="A05" name="Craig Perry" type="A" /> Got it. Well, please include my name in the book when you do float it.

And I would -- we will think about that. And I would just add that, that we're very focused on -- for thinking about IPOs, the Australian IPOs, as Tom mentioned, so we'd look to see if we can do that in the fourth quarter. It may come later, but we want to focus on that. And we think actually, as you compare the 2, that would have a better return profile for shareholders at this point in time, versus the U.S. MI IPO

Our next question is from Jimmy Bhullar of JPMorgan. Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division: I just had a question on the MI business. So it did pretty well this quarter, and it's gotten even better if you take out the charge. So I was a little surprised that you didn't your guidance for profitability for the year. I think you're expecting a profit in 1 to 2 quarters and a modest profit for the year. So just wondering how you expect MI margins to trend. I recognize there's a little bit of seasonality in the first half versus second half, but is there some built-in conservatism in your numbers, or was there something this quarter that you saw that might not repeat in the next few quarters?

Jimmy, this is Kevin. As I responded to Sean's first question this morning, there's nothing new we're seeing, at this point in time, that would either cause me to guide you up or down from the guidance that we've provided at the beginning of the year. Our news continue to come down. We have seen the seasonality that you see in the first half. You've got to recognize that, that means you don't always have it in the second half. And so you can have some upward pressure on your cures and things in the second half of the year. We do expect, as the economy continues to mend and heal, the second half could have some economic improvement that could be favorable to you. And as I've referenced before, we have a -- the benefit of some interest dividends that run through our investment line that we get in the first quarter and the third quarter a year, so there's a little bit of a timing issue on that, that was favorable in the first quarter. But other than that, we just think, at this point in time, we're going to remain cautious, it's still an uncertain environment and just as soon as we are prepared to update you either direction, probably next quarter call, we'll be back to provide you that progress, and our views at that point in time.

Our next question is from Joanne Smith of Scotia Capital.

I just wanted to go back to your comments about the long-term care rate increases. And I think the comment was that, on the older book, the rate increases are enough to get you to breakeven or slightly above. And that the strategy, going forward, is that you would like to go back to regulators for smaller rate increases more frequently. And I'm just wondering, how those conversations are going to go with regulators once you're at a like a premium deficiency mode in that book. Is it going to become more difficult to get those more frequent rate increases?

This is Pat, Joanne. I'll take that question. When we make the reference to smaller and more frequent rate increases, we're looking really at the policies issued on forms introduced since 2004, which are different groups of policies from those older blocks where we're looking for the rate increases to get back to, say, a breakeven or modestly better than that. And the approach -- the rationale for the approach there is that we need to stay on top of the emerging experience and we've learned from the old books of business that acting early and preemptively with smaller increases is more manageable for policyholders. We think it's something that's more doable and approvable from a regulatory perspective because of the implications of large increases. And also from the point of view of the company and shareholders in terms of managing to a target pricing result, as we -- if we're reacting quickly to emerging circumstances and making the adjustments it really lowers the overall risk profile of the book. And we think that learning from the lessons of the past as we look at the newer books and business, that's the right way to approach it.

And Joanne, it's Tom. I just want to reference back to my earlier prepared remarks because I think the language I used was a little bit different than what you said. What we think is the significant price increases that we're requesting, bring the older business closer to a break-even point, and it also helps to reduce the strain on earnings and capital.

Ladies and gentlemen, we have time for one final question from Jordan Hymowitz of Philadelphia Financial.

You have a big AOCI gain on the bonds. Can any of those bonds be sold and that gain locked in at this point? I know a number of them are attached to longer-term contracts. I guess, what portion of that approximately $7 in book value could be locked in today and replaced with lower yielding bonds, if you wanted?

Okay. This is Pat. Thank you for asking that question. Our accumulated other comprehensive income is comprised, of course, of the unrealized gains on the bond portfolio. But it's also comprised of realized and unrealized gains on our hedging portfolio. And if you think about, I'll say, outside the long-term care business and Life Insurance and annuities where we have a lot of investments, we've really matched cash flows assets to liabilities. So while some of those bonds are in a gain position, we actually need the aggregate of the cash flows to match future claims and expenses and provide for future profits on the book. But I will point out that with respect to the long-term care portfolio where we've used derivatives, hedging strategies to extend the maturities of our assets, the accumulated other comprehensive income includes, on a pretax basis, about $2.8 billion of realized and unrealized gains, which effectively, our gains which in a low interest rate environment, would be available to offset and to provide funding for claims and expenses on our long-term care book. And that is something that I think distinguishes Genworth from a number of the other long-term care carriers in terms of how we've provided for protecting the downside, associated with lower interest rates. And perhaps, why some of our reserve adequacy calculations are producing different results.

So $2.8 billion of the -- I think it's $3.7 billion, if I remember correctly, could hypothetically be realized and replaced with other at-market rate bonds, so to speak, and actually lock in those gains?

I wouldn't put it that way. I would -- first of all, in accumulated other comprehensive income, it's an after-tax number. So it will be more like $1.7 billion there. But effectively, that includes the benefit of the $2.8 billion in realized and unrealized accretion of the value of those hedging positions. And that value will ultimately release through net investment income as a revenue to fund future claims and expenses.

Thank you. Ladies and gentlemen, I will now turn the call back over to Mr. McInerney for closing comments.

Thank you, Shannon, and thanks to all of you for your time and questions today. Just to sum up the quarter, I'd say that further execution on key strategic objectives moves us further along the path to a successful turnaround in the company. The focus remains on accomplishing the 2013 goals that we laid out in February, and we're on track to do so. We feel the company has products customers need, leadership positions in core businesses, strong distribution relationships, and we have an experienced team of hard-working employees and all of us have a strong commitment to execute Genworth strategy and deliver better performance for shareholders.

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