Genworth Financial Inc (GNW) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen and welcome to Genworth Financial's first-quarter earnings conference call. My name is Stacy and I will be your coordinator today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference call. As a reminder, this conference is being recorded for replay purposes. Also, we ask that you refrain from using cell phones, speakerphones or headsets during the Q&A portion of today's call. I would now like to turn the presentation over to Alicia Charity, Vice President, Investor Relations. Ms. Charity, you may proceed.

Thank you, operator and welcome to Genworth Financial's first-quarter 2008 earnings conference call. As you know, our press release and financial supplement were both released last night and are posted on our website.

This morning, you will first hear from Mike Fraizer, our Chairman and CEO and then Patrick Kelleher, our Chief Financial Officer. Following our prepared comments, we will open up the call for a question-and-answer period. Pam Schutz, Executive Vice President of our Retirement and Protection segment; Tom Mann, Executive Vice President of our International and U.S. Mortgage Insurance segment, as well as other business leaders, will be available to take questions.

With regard to forward-looking statements and the use of non-GAAP financial information, some of the statements we make during today's 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 or the risk factors section of our most recent annual report on Form 10-K filed with the SEC.

Today's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. Our financial supplement -- in our financial supplement, non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules. And finally, when we discuss our International segment, please note that all percentage changes exclude the impact of foreign exchange. And with that, let me turn the call over to Mike Fraizer.

Thanks, Alicia. Genworth had a difficult first quarter, delivering net operating earnings of $0.56 per share, reflecting tough housing market conditions that hurt U.S. Mortgage Insurance and volatile financial markets that impacted some lines within our Retirement and Protection businesses. At the same time, the International segment performed very well, with 10% operating earnings growth, excluding foreign exchange.

As we said on our last earnings call, 2008 will be a challenging year from an earnings perspective and developments of the past several months have only reinforced our cautious stance. U.S. housing market conditions have rapidly deteriorated. Domestically, we expect unemployment to move up as recessionary factors take hold. Equity markets and interest rates remain volatile and as expected, we are seeing a gradual slowing in global economies. These developments influenced the quarter's year-over-year decline and we expect them to continue for the remainder of the year. With the benefit of additional monthly sets of data, we see 2008 net operating earnings per share coming in lower in the $2.25 to $2.65 range with the high end of that current range at the lower end of the prior range, a downward trend we noted in February.

While we managed through this difficult period, we focus our execution around five key priorities that will position Genworth for improved future performance. So let's look at our progress around the five areas I laid out in February.

First, we are navigating the storm in U.S. Mortgage Insurance with four specific strategies. We are actively managing our existing portfolio. Our portfolio is relatively well-positioned because of the risks that we avoided like subprime bulk and stacked risk factors in our flow book, but we are not immune to the current market downdraft and are managing our risks through loss mitigation efforts like early outbound borrower calling and expanded workout efforts. Lender captive reinsurance is beginning to attach on several books, providing us the support we expected. Captives absorbed $19 million of pretax losses in the quarter and the benefit of lender captive reinsurance is expected to accelerate through the year and into 2009.

We have taken a leadership role to implement even more stringent product restrictions, underwriting standards and pricing moves. These will have important impacts on the risk profile of the 2008 book that is already evident in new insurance written this quarter. And we will continue to take steps, like the 20% price increase on our flow Mortgage Insurance product. We will evaluate additional steps in order to make this business a more attractive risk and return proposition. This can include further narrowing the focus of this business line where we deem appropriate.

There are a number of pending public policy initiatives around the U.S. housing market and we are actively working on these with the GSEs, policy makers and legislators, along with the industry. While the eventual outcome of all the efforts remains unclear at this point, we will continue to take an engaged role.

Our second area centers on expanding Wealth Management and Retirement Income, which remain high priorities for execution and capital deployment. Our focused Retirement Income distribution strategy is working well with 43% growth in Retirement Income annuity products at our targeted distribution partners where we have dedicated additional resources. For example, we increased wholesaling by 24% and these investments are paying off with a significant sales lift and increase in repeat producers.

Given the current market conditions, the Wealth Management business is helping independent financial advisers as they manage their clients through these volatile times. We believe these efforts will support continued net flows as reflected in the year-over-year 9% growth in assets under management.

Our third priority is to responsibly grow our International platforms and deliver solid earnings growth and this is on track. We are seeing some slowdown in global economies and are being proactive in taking appropriate actions to manage risk in these conditions. Overall, International double-digit earnings growth is expected to continue because of our three significant platforms of Mortgage Insurance in Canada and Australia and payment protection in Europe, plus the attractive financial model of having a $3.4 billion unearned premium reserve for Mortgage Insurance that amortized into revenues each quarter and limits earnings volatility. We will remain prudent and gradual about expansion in other new markets and as you saw, remain breakeven this quarter in these markets.

Fourth, we are focused on transitioning our long-term care and life insurance businesses each in different ways. In long-term care, we had good growth in new business as we are leveraging our career sales operation with our new partnership with AARP. Underwriting and pricing disciplines remain top of mind here and the rate increase on the old long-term care block is proceeding as intended.

In the Life business, we have an ongoing shift towards universal life. UL sales slowed a bit this quarter, coming off a very strong year-end and I am encouraged by upward trends in submitted volume. Term life market pricing remains extremely competitive and this is reflected in sales levels as we maintain pricing discipline. We are working to position our term life platform increasingly around the middle market, a more attractive segment given these dynamics.

Fifth, we remain focused on strong capital and risk management and Pat will provide some additional color in this important area.

To wrap up, we are executing on our priorities for 2008 to position Genworth for improved future performance. The current environment, in the U.S. in particular, is difficult and impacted the quarter's results in our outlook for the year. We are managing through this period and remain focused on strategies that set the stage for our ongoing mix shift towards more profitable and high return business lines. With that, I will turn the call over to Pat. Pat?

Thanks, Mike. This morning, I will focus on four areas. First, review how market conditions are impacting business performance; second, look more closely at the quarter's results and how that impacts our outlook for 2008 and what we are doing to position for the future. Next, I will review trends in the investment portfolio and finally, share some perspectives on capital management.

We see five key trends influencing business results in 2008. First, U.S. housing market conditions have worsened and liquidity remains constrained. At year-end, we shared the view with many in the market that the magnitude of the house price declines from the peak in Q4 2005 would be 13% to 15%. Based on what we have seen to date, we now expect the decline to be in the 20% to 25% range with significant regional variation.

Second, our outlook for U.S. unemployment worsened from 5% in December to closer to 6% by year-end 2008. In addition, the probability that we will see a recession in the U.S. is now higher; however, it is unclear whether the downturn will be mild or more severe.

Third, short-term interest rates declined about 200 basis points with a more modest decrease in longer-term rates. This increase is the carrying cost of cash positions, but it also provides opportunity for our spread-based Retirement Income business where we have recently seen improved individual annuity product sales and persistency.

Fourth, in Canada, Australia and Europe, we see slowing levels of mortgage originations. Looking forward, we expect slowing economic growth and lower home price depreciation in some markets with certain European countries expecting -- experiencing declines in home prices.

Finally, credit and equity market volatility has increased. In the first quarter, the S&P 500 index was down nearly 10% versus our prior expectation of a 2% quarterly increase through the year. Currently, we expect continued volatility and that a portion of the decline will be recovered over the balance of the year.

Now with this as context, let's look at each business segment's current results, the outlook for 2008 and how we are positioning for the future. Retirement and Protection segment earnings reflected both the market conditions and some specific business issues. Wealth Management and fee-based retirement products delivered solid sales growth, building assets under management that will drive future earnings. Wealth Management earnings are expected to grow for the year, while in fee-based retirement, the first-quarter equity market declines and lower third-party service fees will pressure 2008 results. Looking ahead, these businesses are poised to become an increasing portion of earnings.

In Life Insurance, we face higher funding costs for U.S. statutory reserves, lower persistency from term policies coming out of the level term period and lower term sales. As a result, we expect Life earnings to decline moderately and we are shifting emphasis to universal life to drive future earnings growth.

The transition in long-term care is well underway. We have made strong progress in new business sales and we are seeing solid premium revenue growth overall. The in force rate action will supplement this growth and we expect to see the full premium benefit of these rate actions by the end of 2009.

In view of these recent trends, our outlook for the Retirement and Protection segment overall is for a 3% to 8% operating earnings decline from 2007, below our original target of 2% growth. The biggest variables contributing to this range relate to equity market performance, interest rates and persistency on term life insurance.

The International segment remains on track for 10% earnings growth for 2008, excluding any additional benefit of foreign exchange. On a reported basis, full-year earnings would benefit by an additional $30 million if foreign exchange rates remain at March 31 spot rates.

In payment protection insurance, we are seeing good growth overall with stable margins. In International Mortgage Insurance, we see sound growth in revenue and net operating income in Canada and Australia. We have seen expected declines in new insurance written in concert with declines in mortgage originations. However, revenue growth remains strong overall as the recent large book year's season and loss experience is in line with expectations. We are actively managing risk in markets where home prices are slowing or declining, taking appropriate actions where conditions are changing.

In U.S. Mortgage Insurance, we are reducing our earnings outlook to incorporate the worsening housing market trends we are seeing, primarily in our 2006 and 2007 books. This quarter, we saw a significant deterioration in the 2007 flow book with 2007 reserve increases accounting for more than half of the build in total loss reserves.

Delinquencies remain concentrated in alternative products like Alt-A and A minus, as well as in high loan balance states, particularly in Florida. If this adverse early development of the 2007 book continued over multiple years, we could see lifetime losses with certain lenders exhaust captive coverage, particularly those with relatively higher concentrations of Alt-A and A minus product and exposure to high loan balance states. However, it is too early to make such a determination and we are monitoring the situation while actively working on loss mitigation.

Lender captive reinsurance has now begun to play a more meaningful role in the financial results, adding $19 million pretax benefit to the quarter from several lender captives. We expect the benefits from reinsurance to grow and become a more meaningful contributor to earnings as the year progresses.

Within the last month, we have further tightened underwriting guidelines. Part of a series of such changes started in mid-2007, including exiting Alt-A, A minus and reducing or insuring of greater than 90% loan-to-value loans in declining markets. We expect these changes to further improve the quality and risk profile of the 2008 book. In addition, we announced yesterday a 20% price increase on our flow Mortgage Insurance product.

Our changing U.S. Mortgage Insurance loss outlook also reflects higher delinquency trends in the prime bulk product, which added about $26 million to reserves. We are taking steps to mitigate losses, add high-quality new business at favorable pricing and we will take further steps to improve the risk and return profile of this business as necessary.

Based on developing trends we observed in the first quarter, we now expect about a $100 million net operating loss for the full year in U.S. Mortgage Insurance. Given the high degree of market uncertainty and the potential for trends to accelerate, including further constrained liquidity, unemployment reaching above 6% or a more severe decline in home prices, we could see additional pressure off $50 million to $100 million. Based on these trends, we are also more cautious about how 2009 will play out for U.S. Mortgage Insurance and we will carefully assess the next few quarters before providing any specific view on 2009.

In sum, we expect 2008 to remain challenging with some difficult conditions impacting our U.S. businesses, offset by good International earnings growth. We will evaluate how the current challenges impact the timing of reaching our longer-term financial goals, including return on equity and we will provide an update later in the year.

Let's turn to the investment portfolio. First, in light of the recent housing market trends, the underlying collateral in our RMBS portfolio is showing expected increases in losses and slower prepayments. As a result, we impaired $75 million of RMBS net of tax in the quarter, $28 million related to subprime securities and $47 million related to Alt-A securities. Nearly all of these impairments related to securities related to single A and below and $37 million of these impairments were taken on securities due to expected delays and recovery of principle. These results are consistent with market trends and we will continue to monitor performance in this area.

Second, we impaired $32 million of corporate bonds. Most of this amount related to two securities and overall, this portfolio is performing well.

I will wrap up on capital management. To date, plans to free up trapped capital in low return blocks through securitization have been delayed by capital market conditions. We are now concentrating on opportunities to free up capital through reinsurance of select blocks of low return life insurance and annuity business.

In U.S. Mortgage Insurance, we have flexibility to maintain strong capital ratios and even to free up capital through asset shifts and changes in reinsurance treaties. We repurchased $76 million of shares early in the quarter. Going forward, we will carefully monitor market conditions and our excess capital levels. We may resume share repurchase if we are able to extract capital from low return blocks of business.

In sum, Genworth is focused on executing through a difficult market environment in 2008. We are actively managing business and market risks, prudently building our businesses for the future. With that, I will open it up to questions.

(OPERATOR INSTRUCTIONS). Andrew Kligerman, UBS.

Good morning. Just maybe a little more color around the sensitivity in the U.S. Mortgage Insurance. I guess you are saying that, Pat, that your $100 million maximum likely loss for 2008 could even be $50 million to $100 million lower and then you are more cautious around '09. So maybe you could give a little color around those recent sensitivity models that you provided and whether they are valid. And it sounds like this prime bulk book too is having some impact, so maybe you can talk about potential losses in that portfolio. I know you can't be too specific, but some color would be helpful.

Andrew, it's Mike. Good morning. Let me give you a couple of perspectives, given sort of what takes you towards the $100 million loss in U.S. Mortgage Insurance versus what could take you towards the lower end of the range that Pat described.

What we have tried to do very carefully is make everything that we see in the market right now into that loss of $100 million figure. That would include, for example, just within the year, just within 2008, 12%, 13% type of decline in home prices -- again, with regional variation.

It will also see unemployment moving up toward 6% by the end of the year. So again, -- I know yesterday's unemployment report was a little better directionally than that, but we have tried to look forward on that front.

Now what could take you to the lower end where you see that $50 million to $100 million of pressure and a lot of it is driven by further deterioration of the macroeconomic environment. We would expect -- you'd have to see a scenario where, just within 2008, home price drops were in the 13% to 20% range for the year. You would also see a more stressed unemployment scenario to over 6%, which would even bring your average for the year up very near 6%. So a long ways to go there. And of course, you have some different mix impacts depending what loss pressure comes through what captive. So that is what could take you to that $50 million to $100 million pressure. So we've tried to show the factors that would drive you there.

Now, separately you asked about the dynamics around the prime bulk business. Kevin Schneider, do you want to provide a perspective on that?

Yes, Andrew, there has been delinquencies in our bulk business and the bulk business in aggregate represents about $1.5 billion of total risk in force or only 4% of our total risk in force. Those delinquencies increased in this quarter. Our delinquency rate grew on this combined business from 2.8% to 4.3% sequentially over the fourth quarter and these increases were driven in both our lender portfolio and our GSE Alt-A business. That combined represents about 3% of total risk in force.

Given the benefit of the deductible structures that we have in our GSE Alt-A business, the predominant bulk reserve development was really driven through that portfolio book of business. Again, given the high FICO nature of this business, the low LTV nature of this business, it is really too early to call the ultimate loss development that we would expect from these delinquencies, but in any event, we continue to manage through that loss development to our active loss mitigation where, based upon what we have seen so far, that is included again in the minus 100 downside expectation for the year, but there could be additional pressure from that bulk development going out into the minus $50 million to minus $100 million as well.

And just to kind of go full circle on this, the '09, '10 numbers where you were thinking north of $200 million would likely be the earnings scenario, north of $300 million, the likely earning scenario in '10. Are those numbers off the table at this stage?

Andrew, the way we have looked at it is the one thing that we have seen in 2008 and even towards the end of 2007 is a lot of uncertainty on where the markets are headed. And as I also mentioned, you have a lot of different public policy, as well as lender initiatives out there and those impacts are uncertain. So at this point, we think it is more prudent to get the data, let the quarter's play through a bit here and give you a real sharp viewpoint than try to estimate a trajectory given market conditions.

Thank you.

Mark Finkelstein, Fox-Pitt Kelton.

Good morning. I have a few questions. I guess just to kind of go back to the prior question, does the low end of the revised range incorporate the potential for $50 million to $100 million worse than expected performance in U.S. semi?

Yes.

Okay, so that is in there. Secondly, just on the price increase in the U.S., can you talk about your expectation of whether competitors will follow your rate increase and if they don't, I guess what does that mean for your competitiveness and how would you think NIW would play out?

I have no idea what my competitors will do. We raised that price increase because we view it as the appropriate thing to do in this environment based upon the uncertainty and volatility in the housing market. As we have reduced our volatility and our product going forward and restricting insurance in higher-risk products, this price increase will improve the long-term returns of our business.

So we made the announcement yesterday. You will have to talk to my competitors, but I have no idea what they will do, but we think it is the prudent thing to do for Genworth Mortgage Insurance.

Okay. And then just moving to Canada real quick, loss ratio trends did pick up. Can you just go through what you are seeing and whether or not it's a little bit of a quicker deterioration, you know, in the favorability that you have shown than what you'd expected, and maybe just talk about how you think that could play out for the rest of the year.

Let me give you just a perspective before I -- then I'll give it to Tom for a little more color. I think we have been very consistent in telling investors that we would expect to see the Canadian book season after some long periods of extraordinarily low levels of losses, and that is exactly what we are seeing.

Tom, do you want to go into some details on that?

Thanks, Mike, and I would really offer a similar response. The first-quarter loss ratio, you are right, was at 26%. It is actually about 4 points above what we saw in the fourth quarter of last year if you adjust the fourth-quarter ratio for the unearned premium reserve adjustments that we made. And again, I will give my normal reminder, the Canadian market is very different from the United States. It has very limited use of nonprime products as an example, very lower reliance on the capital markets.

But that being said, the Canadian economy does in fact mirror to a lesser degree the impact that you see in the United States. In the latter part of 2007, we began to see some of those unemployment pressures and the slowdown in home price appreciation. So as Mike just indicated, we have said on our prior calls that our losses will return to more normalized levels. The loss ratio levels we have in Canada today are materially below pricing, but we would expect that our '06 and in particular '07 books will return to more normalized loss ratio levels, again consistent with pricing in that 35% to 40% level.

So we are watching Canada very carefully, and indeed if there is deeper recessionary issues in the United States, you will see some spillover to Canada. And yes, that could impact the loss environment going forward, but I would like to remind you that our revenue growth there is very, very strong. We've got a 16% year-over-year performance in the first quarter, and we will continue to see very strong revenue growth in the Canadian markets given the size of the '05 and '07 books that we've put in place.

Okay, great. Thank you.

Dan Johnson, Citadel Investment.

Great. Thank you very much. I guess the question was somewhat already asked about what does the growth in the flow book look like, but I guess that is going to be heavily dependent upon the price increase reaction, but even holding that aside, if you look at the book written in '07 and then you look at your underwriting changes, all other things being equal, how much would the '07 book change if we carved out the states' products risk levels that were no longer looking to write?

Dan, just to be clear on your first question, because I know there was some dialogue around it, we expect NIW to be pretty flat if you go '07 to '08, but, Kevin, will you provide some detail perspectives for Dan on the question?

Sure, Dan. I think the real change we are going to see is the change in concentration of that business that is written. If you start at sort of the overall level, top level, mortgage originations in '08 are expected to be down about 18% to 20% over '07. The mortgage insurance market will sort of follow that trend downward and will be down, probably off about 20% as well.

But when you think about the composition of that business that was written, based upon the multiple guideline changes Genworth and ultimately the industry made last year, it is feathering into a much different composition of business that we are seeing materialize in 2008. Specifically, we have exited the Alt-A, we have exited the A minus, we have exited above 95% LTV in many markets, we have restricted in declining markets LTVs to 90% going forward.

All of this is manifesting itself in terms of actual production we see coming into our business and really predominantly a core product-type composition of the business. In fact, through the first quarter of '08, our core product represented about 82% of our overall business and all the other specialty products were really being driven down materially.

So the way to think about it is we could have a smaller overall market. The risk characteristics of that market will be significantly improved over last year. Some of that product, higher risk product will be running away and perhaps going to the FHA. We think that is appropriate for our position. We will reduce the volatility of our market and based upon some of our share progress that we have made, we will end up with an NIW level, to Mike's point, very consistent with what we did last year.

Great and then two others in terms of the mix of business put on in the quarter and the performance. I know in prior calls, you have had a slide near the end of your deck, sort of a grid if you will, vintage, your product category type and different metrics along the top. Is that in the supplement now or did I miss the slide?

What we try to do is incorporate more and more data in the supplement over time. We will take another look to see if there is some additional data that could be helpful.

Well, for example, I guess the thing I had been looking at was how much business was still being written in the plus 95% category. Is that information in the supplement?

I have to verify the supplement, if we have it split by LTV. I don't believe it is, Dan, but we will get back to you on that.

Okay, great. And then finally and rather importantly, 2008 business obviously is going to be fairly meaningful in terms of size. At what point do you think we will have a sense as to the relative profitability of this book of business compared to say more traditional years of say '03 or '04 and how important is it going to be to distinguish between the business written in the first quarter of '08 versus those in the remaining three quarters? Thank you.

Dan, on that question, great question. Let me just give you a principle that we have always used every time that we have made one of these guideline changes, underwriting changes, even pulling out of a product or repricing a product that Kevin walked through. Every time that we have taken one of those steps, we do a significant amount of what we would call back testing, so that we go back through the book and say, what would that change have done, not only to '07, but even things coming through '06 and also as we go into '08. And we also do that in view of the trends we have seen and see going forward in specific very local levels of markets as far as the downward pressure on values in many of those markets.

Based upon all of that back testing work, which, as you have also seen, has resulted in more than one move on the guidelines and products, is we would expect that what we are putting on the books will perform at better than the prior pricing return-on-equity targets and we have left ourselves some cushion, which we think is appropriate.

In addition, as we have said, we think this is a business model that deserves higher return and therefore, have taken the action such as we did on the pricing area. So that will give you a perspective on why we look at the '08 book or how we look at the '08 book and why we think the '08 book should be sound.

And in terms of the issue of sort of given the timeframe of your guideline changes, that the real benefit is -- does it come on instantaneously or is it more of a second-half benefit?

Well, you see two perspectives. One thing that we did early and I think was good was put on certain geographic restrictions. We called it the declining markets policy. I think it is pretty common in the industry right now. So I think that was very helpful as far as looking ahead at where the markets were going, not just reacting to where they were today and building that into your risk profile. The fact is though that when you make a change, there is a period to clear a pipeline, which can be two or three months when you make a change. So you would say with all of the changes that have been made, you will see a compounding effect in the second quarter and a real big sort of clearance effect in the third quarter of anything that were in pipelines. And Kevin, anymore color on that?

Yes, we have already seen a material impact in the composition of the business. It will continue to improve as the last round or so of these guideline changes are fully implemented given the requirement for the pipeline clearance, but the pricing impact that was announced yesterday will really become evident in the second-half performance because it will go into effect mid July.

Thank you very much.

Ed Spehar, Merrill Lynch.

Thank you, good morning. I had a question on Retirement and Protection. Pat, I think you said that the outlook was for 3% to 8% earnings decline in '08. First of all, is that correct?

That's correct.

Okay. I guess the question is if I look at 2007 and I assumed an 8% earnings decline and I consider what you earned in the first quarter, you would have to be at about $180 million a quarter run rate for the balance of the year, quarterly run rate, to get to that down 8% and I guess I am having a hard time understanding how we get from the current earnings run rate of a little over $160 million to $180 million given that the trends in a number of these businesses don't seem particularly good right now. Could you help me out on that?

I can help. The trends in particular in the fee-based Retirement Income line are really very positive because of the development of new sales and growth in AUM. What we saw in the first quarter associated with the market volatility was some reserve strengthening for guaranteed benefits. When you take that out, the trend looks much more favorable.

The second item would be long-term care. We are seeing good results and we should be seeing the impact of our rate actions take effect over the balance of the year.

The guidance range, does it contemplate -- as you said with U.S. Mortgage Insurance, I think you set an expectation of $100 million loss, but the guidance range contemplates $150 million to $200 million. Does the guidance range contemplate a worse outcome for Retirement and Protection than down 3% to 8%?

Here is the way to look at that one, Ed. Let me give you the same type of walk perhaps if that is helpful that I provided on U.S. Mortgage Insurance. First, [what would seem] to be towards the top end of the range. Well, we already have seen some recovery in the equity markets and you would probably see a 2% quarterly increase gradually towards the end of the year. You would see a stable level of persistency pressure that we have seen on the life side and we have talked about. You would also see interest rates at today's levels because, of course, that impacts some of the spread-based lines and any of your cash positions.

What could take you to the lower end of the range as it relates to Retirement and Protection? Well, first, we would expect further deterioration. In other words, the equity markets would go back to sort of their lows, down towards the 11,000 area and if you did that and took it through, that would cost you about $0.05 a share and then we basically left room of about $0.04 for any other negative impacts from interest rate reductions, if we saw any more pressure that we think we have. That accounted for well in the life line and that would be in that additional $0.04 that I mentioned.

And Mike, so those items then would be beyond this 3% to 8% that you talk about for the segment, correct?

Those items would be the ones that get you down to the 8% decline.

They would get you to 8%? Okay, thanks.

Jimmy Bhullar, JPMorgan.

Hi, thank you. I have a few questions. The first one, I realize on domestic MI, I realize you are not discussing outlook for 2009, but can you comment on whether you still expect 2008 to be a trough year in terms of earnings for that business or under what scenarios could 2009 be even worse than 2008? And then I have a few more.

I just want to sort of say with my previous explanation that we have seen uncertainty out there and if anything, as we looked at the fourth quarter and into the first quarter, we want to have all of the data to give the best number we can on 2009 because there are so many dynamics. You do have more captives attaching and as I expected, we expect to see more benefit. You have the production levels that Kevin talked about on NIW. Though you see the overall mortgage origination market down and then you have all the public policy interactions. So we are going to get that data and then we are going to give you a look later in the year.

Okay. And then secondly on -- I think in your comments -- I think it was Pat who mentioned that some loss in the 2007 book that exhaust captive coverage, could you elaborate on that and if this pertains specifically to 2007 or do you see this happening with business written in early '08 and in 2006 as well?

In Pat's comments, Jimmy, he mentioned that, under various scenarios, you could see situations where perhaps some of the individual lender captives could pressure the back end of their attachment point. It is just so early to definitively forecast that in such a young book in this environment, but based upon the rapid acceleration that we witnessed in the first quarter, particularly on the 2007 books, you could run some scenarios that would lead you to believe that some of those could exceed their loss here.

The ultimate development is really going to depend around continued delinquency progression, what ultimately happens in terms of lapse rates and cure trends and the impact of other loss mitigation efforts, but you have got to remember, this book is on average six to eight months old. So we are cautious about its ultimate outcome.

I think Pat's comments were prudent and then going back to what we told you back in February, we did indicate that it would be unlikely that all three book years -- '05, '06 and '07 -- would, in the aggregate, exceed their tier levels and we still think it would take multiple years of poor development to exhaust the coverage in all three of those book years, but Pat's comments just said that 2007 could be pressured.

Okay. And the last one I have is on International MI. If you could just -- with the new insurance written being down, could you comment on how much of the decline is because of tightened underwriting standards on your part and how much of it is because of just the market shrinking because of lower high loan-to-value originations and then just generally, your comfort with the bulk business that you wrote internationally in 2007?

Tom, do you want to take that, please?

I sure will, Jimmy. Let me use the first quarter as a method of answering your question because their flow production was down about 30% on a foreign exchange adjusted basis and I think you can take that production and put it in three buckets.

The first is that, last year, the first quarter of last year, we had about $1 billion of Australian production that was actually catch-up for some client reporting issues and without that, we would have actually been down 24% in the first quarter and then you can take that remaining 24% and really put it into two buckets, almost split evenly. The first one is that we are seeing this slowdown at origination markets that you have mentioned, particularly in Canada and Australia and to a reasonable degree in Spain as well and that was about 12% of the decline. And the other 12%, if you will, did relate directly to the underwriting restrictions that we have put in place -- again, particularly in Europe. So it is really those three items that have contributed to that shortfall.

And I will add another comment, as you think about this going forward, we don't anticipate being down with our production levels on a full-year basis by that 30%. So we expect to see some recovery in the Canadian market since we have seen a rate decrease there.

Your second question was about our bulk performance. Our bulk performance as of this point in time continues to perform very well internationally.

Josh Smith, TIAA-CREF.

Hi, thanks for taking the question. On the delinquencies, typically we see favorable movement from fourth quarter to first quarter with seasonality. Obviously that is being overwhelmed by other factors. So on the flow book, it was up 8%. Can you characterize exactly what is driving that? Is that mostly just home prices or how would you characterize that increase?

Kevin, do you want to take that, please?

Sure, Josh. If you think about seasonality we usually see in the first two quarters of the year compared to what we saw in terms of delinquency development in the second and third -- or third and fourth quarter of '07, we did see the impact of a little bit of seasonality. Certainly not to the same extent that we have in prior periods because of the development of these books.

I think what you're seeing here with that 8% flow delinquency development rise is you are seeing the effect of slower cure rates on some of those '07 books. So you are seeing books -- the 2007 book, which had higher concentrations of again the Alt-A and the A minus product, particularly in some of those higher loan balance states. They are just slowing down in terms of their ability to be cured and their ability to mitigate them. So we did see some evidence of some seasonal adjustment. It is a little too early to get optimistic about that and we will continue to trend it, but that is what we are seeing in that first-quarter development.

Okay and the only other question I had was on the investment portfolio. Can you characterize -- you got a benefit of derivatives qualifying as hedges of, I don't know, $150 million or so to mitigate the big increase in unrealized losses. Can you characterize what those are?

Let me turn that over to Vic Moses.

Hi. This is a hedging for our variable annuity product and that hedging program is a three Greek hedging program; however, it is not perfect and it is designed to track the indices long term. We expect some volatility on that on a quarterly basis. I think our one standard deviation numbers are about $3 million per billion of in force and so the numbers we are seeing here, although they are a tough quarter, are not out of line and I think you if you look at our cumulative position on those hedges, we are pretty close to the breakeven.

Thanks a lot.

Al Copersino, Madoff Investments.

Thank you very much. I just wanted to confirm you guys have no exposure to HELOCs, second liens and that sort of thing in the DMI business, is that correct?

We have less than $1 million of total exposure to second-lien business.

Okay, great. My other question -- I am -- and it is a very difficult time to understand exactly which trend is driving what. I am struggling with the combination of two trends and wondering if you could help me out with that in the U.S. MI business. You have on the one hand the seasonality where, in most years, we expect to see all metrics improve fourth quarter to first quarter, whether it is loss ratios or what have you. On the other hand, of course, we are still in the midst of a very unusual and very difficult cycle right now. And I curious if you could maybe just give us a sense for what the interplay was between those two factors, the normal fourth to first-quarter seasonality versus the current environment we are in as it relates to loss ratios or delinquencies or what have you. I hope my question is clear. Understand I am talking about just two different trends going on. I am trying to separate them out a little bit.

Kevin, do you want to take that?

I will take a shot at taking it. As we shared both through our investor update in December, as well as in our fourth-quarter call in February, this is simply a difficult environment in which to predict normal development of losses. What you see in the first quarter is simply that the development of that 2007 and 2006 books, which had a higher concentration of those specialty products we discussed is simply overwhelming the traditional seasonality effects that you see in the first quarter.

Beyond that, in terms of being more refined in terms of the exact drivers, we have an economy that has deteriorated. We have unemployment that has moved up. We have home price declines that are driven by higher inventory levels of homes in the marketplace with those declines. There is less opportunity to mitigate those losses and for the borrowers to cure. There are tightened liquidity standards in the marketplace, higher underwriting standards in the marketplace, which basically present less refinance opportunities for a number of those troubled borrowers. So you have a number of different environmental factors coming together, but the bottom line is those books are not curing as fast as one would expect in the first-quarter seasonality and it is overwhelming the first-quarter seasonality development.

Let me take one other slice at this issue if I could. I am guessing you would think it is not appropriate to take a look at what your historical seasonality has been fourth quarter to first quarter. Strip that out this time and say that that is the underlying worsening that we have seen in the last three months. Is that not an appropriate exercise or is that an appropriate exercise?

Well, we have, over the last several quarters, tracked our traditional seasonality development and have tracked how we have performed against that in excess of the traditional range of seasonality outcomes. If you take a look at that for the first quarter, traditionally in the first quarter, we end up going down in terms of our delinquency development roughly 5%. What you have here is we went up about 8%.

Taking it back to the fourth quarter, fourth quarter traditionally is up in the neighborhood of about 5% and I want to say it was in excess of 20% some in the fourth-quarter development. So what we have attempted to do is continue on a month-by-month basis and a quarter-by-quarter basis to monitor that development and attempt to layer that in to our forecast going forward and I take you back to why we ended up with providing the range of outcomes on the range of between 100 and 200. That is what we are baking into that 100% downside number we are looking at right now.

Suneet Kamath, Sanford Bernstein.

Thank you. Just two questions. First, clarification in terms of Pat's comments. Pat, I thought you said that, in terms of share repurchase, that you may resume share repurchase if you can execute on some of these capital freeing reinsurance transactions. Does that mean that, assuming that doesn't happen, the $500 million base case that you talked about in terms of your guidance is off the table? And then second, if I look at your supplement, I guess it is pages 55 and 56, that show your subprime and Alt-A exposure, I am just looking at the net unrealized losses in total, comparing that to the fair value numbers. And it looks like, in the aggregate, you have an unrealized -- the stuff on the subprime side is trading at about 49% of book and the Alt-A is trading at 68% of book. So I just want to understand, as you think about other than temporary impairment charges, is this something that we should be concerned about?

Okay, your first question was on share repurchase and I would tell you that we are actively working on those programs to free up capital in our life insurance and annuity productlines and I meant what I said, but we are going to wait until we see progress on that front before resuming the share repurchase program.

On your second question relating to the unrealized loss position, we did a very thorough job of going through, doing the cash flow testing, taking into account the current trends and experience that we are seeing in the U.S. housing market and in the financial markets and looking at kind of the cash flows on the underlying collateral and where we expect to recover and where we don't expect to recover on securities.

The impairment that we took reflect those expectations and I would suggest that my view is that the unrealized gains and losses that exist on securities where we have not taken impairments simply reflect risk premiums that are out there in the market due to the current situation, but we expect to recover principal and interest on those securities as hold them to maturity. Now circumstances can change in the future, but we have taken into account our best estimate including all these trends.

Tisha Jackson, Columbia Management.

Thanks for taking my call. I just have a quick question and I know there is still uncertainty as to what Congress will do, but in terms of like what is on the table now with them saying that banks could have the option of reducing a borrowers mortgage to 85% of current value and then moving the loan to the FHA, what would a mortgage insurer's obligation be in that case? If the bank voluntarily takes the loan down, is a mortgage insurer still on the hook?

Kevin, you want to take that?

Patricia, unless there is a claimable event, we would not be on the hook. The way with all the different rescue programs that are being debated and offered up in Congress today, most of those assume a refinancing that would provide an opportunity for the borrower to get refinanced into an FHA-insured and supported loan. Under that refinance option, there wouldn't be a claimable event.

Darin Arita, Deutsche Bank.

Thank you. Just a question on the capital deployment in 2008, looking at the slide from the December Investor Day. The new business funding estimate was $2.8 billion. How flexible is that number to move either up or down?

With respect to our capital planning, we started the year with about $800 billion of excess capital. We have seen some good growth in Retirement Income lines and we have seen moderating growth in some other lines. We have also taken some impairments in the first quarter. The way we are looking at it, we have an expectation at this point in time of $300 million to $600 million of excess capital at the end of the year and we are kind of working our capital management plans to target that result. That gives us flexibility that we need to take advantage of opportunities that come along through the year.

All right, that's helpful. And so is it fair to assume that the GAAP impairments taken thus far in the investments, those are flowing straight into the statutory net income?

Vic, you want to walk through that, please?

I think, in general, statutory impairments are usually lower than the GAAP impairments and there are a couple of reasons for that. It is easier to fail the GAAP test. [9920] is a discounted cash flow test and the statutory test is a nominal cash flow test and when a security fails the 9920 test, we market to market. If it fails the statutory test, we just take the cash flow drop. So statutory losses generally lower than GAAP losses.

Can you just give us an idea out of the $121 million of impairments in the first quarter, the stat [effect]?

Yes, the stat number was $83 million.

Tom Gallagher, Credit Suisse.

Hi, a couple on U.S. MI and then one on International. Just on the U.S., I just want to get a better sense for some perspective on the commentary about the risk of piercing through the back end of the captives for the '07 book. Are we talking about small pieces or is it broader based potentially? If you could just comment on that. And then also, can you just update us on thoughts on capital in U.S. MI with the risk to capital ratio now at 12.4?

Tom I will just give you a general comment and hand it off to Kevin. I think he covered it thoroughly. It is very lender-specific. It is very multiyear-dependent as far as what happens over multi years and also then various multiple assumptions as he walked through. So Kevin, if you want to add anything, but otherwise hit the second half of Tom's question.

Yes, I really don't have anything to add in terms of the captive attachment on the 2007 book, other than perhaps this perspective. The 2007 book, based upon the early development of that book, again, you could run scenarios that would pressure some of the captives, but again it is far too early. Some of the product that is pressuring the development in those captives has deteriorated initially on a trend that literally could burn out and you could have it moderating back to more traditional delinquency development and ultimate loss levels. So Tom, it is just too soon to be able to call that.

In terms off the U.S. capital or the capital requirements for the U.S. business, we still think we are sufficiently capitalized for this business. The rating agencies have basically said that we have adequate capital for our claims paying obligations and we think we are in a good position to take advantage of the growth opportunities that present themselves to us in this environment as well.

Okay and I appreciate the comment about the captives and I know it is very situation and lender-specific. Again, I will try and come back at this in this way. So when I look at your disclosure showing where you are at in terms of your -- I guess whether you have attached or not in that various disclosure on the bucket, it shows you're -- for the '07 book - zero to 50% is $4.3 billion. So in other words, the vast bulk of it is still fairly far away from attachment. Would something like this be a reasonable way to think about the books that may be at risk of piercing through the back end, this disclosure, in terms of that which is attached might be more at risk?

Yes, we provided an updated way to look at this in our disclosure. I think it is on page 49 because, previously, we provided an aggregate percentage to attachment for each book to try and demonstrate that progression and that is how we talked about it in February. But given the variance of attachment across the captives in book years, I think a better way to look at it and to understand that progression is through that grouping of lenders and quartiles that we present on that in our quarterly financial supplement.

Okay, thanks. And then just one on International MI. Can you give us -- and I think you have done this in the past; I forget when it was -- but can you give us some sensitivity of how much premiums can still grow even with a substantial reduction in sales, just due to the unearned premium amortization?

Tom, do you want to take that?

Tom, thank you very much for the question. Tom, this is Tom Mann. Thank you very much for the question. A couple of perspectives and the way to think about that is when you are looking at any one year's earned premium recognition, only about 10% of that would be impacted by your current levels of new insurance written.

So the second point I would ask you to remember is the unearned premium nature of our business. In other words, as we have discussed, it is a single financed premium product. We have rather large unearned premium reserves, $3.4 billion. Our unearned premium reserves continue to grow and as we look forward, given the size of the 2005, 2006 and 2007 books that we have written, we are very comfortable about the continued solid revenue growth that we will have in this business because those are rather large books. We will continue to roll through the earned premium statement of our operating statements for the rest of the year and into the future years as well.

And Tom, just one quick follow-up. So when I looked at that type of analysis and I had assumed the amortization of the unearned premium was something like five years -- I don't know if that sounds about right -- but I had looked at, if sales are down even 30% or 40%, you would still grow revenues double digit. Does that sound roughly right to you?

That sounds very roughly right. That is exactly right.

Steven Schwartz, Raymond James.

Hi, good morning, everybody. A few questions. First, just a quick follow-up. Pat, I missed it; I'm sorry. What was the guidance that you were giving on the International side?

For International, the guidance was --.

Yes, the growth in operating --.

Yes, the growth was 10% excluding the impact of foreign exchange and then I said that, on a reported basis, if the foreign exchange rates remain at the first-quarter-end spot levels, it would be an additional $30 million.

Okay, great. Thank you very much. A few questions here. One thing, Kevin, maybe you can touch on, the issue of home price depreciation and the possibility of greater home price depreciation, what that might do. What severity are you reserving at? If I am asking this right, the full 115% or something lower?

Steven, what we are seeing in our severity development on the year is basically exactly what we expected to be assuming. We had severity on the quarter that has trended basically flat sequentially from the fourth quarter to the first quarter at roughly 102% and what you see going on there is we continue to see higher severity regions such as the Great Lakes, which is probably running upwards of about 110%-ish, offset by lower severity regions. So as we have discussed, we really have a -- severity has a structural cap in our business because it is driven by our full guarantee claims payment obligation and that actually went down a little bit in the fourth quarter as a percentage of ultimate settlement. So what is assumed in our reserve development is what we are seeing in our actual severities.

Okay, all right, fair enough. Maybe you can touch on -- while I have got you -- the change in captive reinsurance programs and what that might be? I think Fannie and Freddie have both said, starting in the second half of the year, that they will no longer accept [40 XOL] business. What that might mean to you?

Yes, that's a great question. Fannie and Freddie, effective January 1, will no longer be accepting loans in a 40% cede. As a result, a number of our lenders will be rolling back to 25% cedes. As we think about that, based upon the quality of the book we are writing in 2008 and in particular based on the -- that will be impacted by our pricing and all the guideline changes we have announced and discussed earlier, we are going to have a solid book of business going forward and the reduction in those ceded premiums to the captives we view as a good outcome. We are less dependent and have less need for that reinsurance protection going forward given the improvement in underwriting guidelines and the improvement in pricing and we would view that as a net positive in providing additional earned premium to our margins.

Okay, and then you said January 1 --.

Pardon me. Excuse me. If I did, I meant to say June 1.

Okay. And then one last question for you. In the guidance that you are giving, the potential for $100 million to $200 million loss on U.S. MI, how much are you assuming in terms of recoveries from captive reinsurance programs in that number?

That number is going to move around, Steven, depending on how the ultimate gross loss development plays through depending on the individual book year, depending on the individual captive development. So we are not providing a range of guidance on that right now.

Okay and then, Tom, MGIC, in its conference call, indicated they might be having some difficulties in Australia because of the downgrade in their rating. I would assume that anything there could redound to your benefit.

We are very well-positioned in Australia.

You're going to leave it at that?

I am going to leave it at that.

All right. Thanks, guys.

Jeff Schuman, KBW.

Good morning. I was wondering if we could follow up a little bit with Pat on the nature of the reinsurance program that you are looking at. Just on the surface, just reinsuring some business and then redirecting that capital to share repurchase wouldn't automatically drive a net benefit unless there was something to arbitrage, whether it is reserve redundancies or regulatory arbitrage. What kind of is conceptually the basic opportunity that you are looking for there?

With reinsurance, there is a different costing structure for reinsurers, particularly international reinsurance and we would look to arbitrage that structure.

So it is essentially cost of capital arbitrage, is that what you are looking for?

Yes, it is.

This is Mike. Let me also add, you have a redeployment opportunity too because, as we have split out for you, there is a series of blocks of business that we have looked at in the sector and we laid this out also at our last Investor Day that includes about $1.4 billion of capital associated with lower return life and annuity blocks. Taking the step beyond what Pat described in taking that capital and using it for a higher return purpose, including what we think is an opportunity in the repurchase area, is a capital deployment opportunity.

If the returns are low on some of these blocks, does that create the possibility that you would realize a loss in that transaction or not?

Well, one of the things we are looking at is, and it is very situation-dependent as Pat described on various factors, but also we may find that it is optimal to blend some blocks of business too.

Mark Patterson, NWQ Investment Management.

Hi, thanks. Mike, I guess a question for you since it seems like the Q&A of this call has been 80% or 90% based on your U.S. MI business. I am just curious if you have been exploring any alternatives for that business. You guys mentioned in the past maybe working with some third parties to put money to work, but I don't think that really was associated with maybe considering some different alternatives you might have with your own business, spinning it out, putting some other peoples' investment into that business in a joint venture. And the reason I bring this up, and I would like to get your comments on it is because the way that I look at this, you have got less than $6 of book value associated with that business right now. And if I took it all out of your book value, you are down to 23.5 and I hear you talk about $100 million to $200 million of losses in that business. So if I back that out of your new guidance range, you kind of midpointed somewhere around 280 on a 2350 book if USMI is worth zero. So you are getting somewhere around a 12% ROE on a business -- the rest of your businesses that many of them are facing very challenging markets themselves. It is not like they are overearning. And the investment community is obviously very troubled by what is going on with domestic MI. I think your business is better positioned than your peers and I think you're getting negative value for the business.

I will give you a few perspectives and you also have asked sort of a series of questions, so let me walk down some thinking. First of all, I would agree that there is no little or no value, some investors would argue a negative value, attributed to that specific business line right now, largely because of the environment that is out there, the uncertainty and we have seen, whether it is on the lender side or even on the competitor's side to that U.S. MI business, some very challenging performances out there. So that is just the reality.

So the first priority we have is to rebuild the value in the business as opposed to looking at where that business is in a trough of a cycle. I think the team has a good plan to do that. We have outlined and been a leader in taking the number of moves down that path. I don't think you would do all of the work that Kevin has outlined just to get back to the same business model that we had 24 months ago. I think this is a business model that deserves a higher return. I think this is a business model that has to be characterized by conservative underwriting and it needs to be characterized by a lending partner environment and a regulatory environment that doesn't let bad practices return. I think this is a business that needs to have more blend of a single premium characteristic; that can be quite positive that you have seen the benefits of internationally.

I think this is a business also that, in some cases, needs to provide some other ways to help consumers in addition to the underlying mortgage product because it helps broaden the value proposition and how the product is sold and those have to come together to think of this as more of a 15% to 20% ROE business line, not what depending on your mix of business in the industry ran between 11% and 15%.

It is also a business that I think, over time, I would like to see characterized by less captive reinsurance, coupled with the very stringent underwriting guidelines that are out there. So we are diligently focused on putting that new business model in place with the latest move that we have made on the pricing being indicative of that.

Then there is the bridge opportunity, as you described and I have commented upon to be opportunistic in this market. In the last call, I suggested that we could be a conduit of capital for the industry. I think our discipline has been respected in the industry. We have narrowed down a number of ways to be opportunistic. I think a type of approach such as a sidecar structure is the most attractive and if you move down a path like that, the minimum level of a sidecar is probably around $400 million, but most sidecars that you would see in this area would be in the $400 million to $700 million range and we have diligently worked on that area.

So now let's take the step beyond executing the plan the team has and being opportunistic and say how do we look at any of our business lines. I think when you look at a business line, you have to say, do you like the market, including the growth characteristics? Do you like the strategies and capabilities and competitiveness of what you bring to that market? Can you deal with or do you like the regulatory framework? Do you like the business model and the returns on capital, including any volatility characteristics? Are you performing or not? And finally, do the equity markets reward the performance that you deliver?

I look at U.S. MI right now and I say, the markets are attractive. I think we have the right strategies, capabilities and competitiveness. We certainly understand the regulatory framework and are working actively to improve it back to the underwriting discipline. It is fair to say we are not happy with the results we are delivering, even though they are better than others and we understand the absolute level of performance for our shareholders and we need to do better than that so that needs improvement.

And when it comes to the returns on capital, along with the business model as I said, you don't want to go through all of this and not get to a new business model, so that needs improvement and we have to see a path that the equity markets will reward us for our performance. So that is how I would evaluate the situation.

I will just close the same way that I got asked this question actually back in May of last year and I said we are active managers of our portfolio for shareowner value and on that front, we have made moves where we don't see a path going forward such as structured settlements. We went public, so we had a travel insurance business. We had a small group benefits business that we worked on for a number of years and then decided that capital was best used elsewhere. So we take a very disciplined approach to managing our business lines.

So that is how I think about it. This team has a good game plan in place, but we will continue operating, allocating capital for shareowner value in a disciplined fashion.

Amanda Lynam, Goldman Sachs.

Hi, thanks. Our question was actually already answered. Thanks very much though.

We have time for one final question. We will go next to Eric Berg with Lehman Brothers.

Thanks very much. Just a couple of questions; one narrow and one broad. Both, yes, on MI. Kevin, if you have made all the changes that you did many months ago -- Alt-A out, A minus out, high loan-to-value in certain markets exited -- why was the business as strong as it was in the March quarter in terms of new risk produced or added to the books, new premiums written and so forth?

If we had made all of those changes back in June of last year across the board, we would have had a little bit less content of that in the first quarter, but the simple reason that it was strong in the first quarter is that is what is getting originated in the marketplace today. The market has reacted and has severely trimmed back on that and we have made some progress ourselves in terms of our own share progression.

My final question is purposefully general, by it is this. I am sure, Kevin, you have been surprised by many things as you have looked at the page after page of data on the housing market, but is there anything that sort of stands out in this whole experience? Whatever inning we are in here, whether it is what is happening in California, what the extent of the decline in Florida, the willingness of certain high FICO score borrowers to walk away, if there is one or two things that has really jump out the pages of data that you have looked at and have led you to say, wow, I have never would have expected that, what has surprised you the most about, let's say, what is going on or customer behavior in this whole complicated situation?

Eric, that is a broad one.

It is purposefully broad.

And I continually get surprised every day. So the biggest change to me has been the rapid deterioration both of Florida and the California experience. Nobody ever would have predicted the extent of the home price downgrade in those markets, but if I step back from that, the other thing that we have all learned through this period is it gets back to the fundamentals of sound, prudent underwriting and if you are underwriting properly and loans are getting originated to those standards and you have good linkage between those underwriting standards and what the investors are paying for those loans in the secondary markets, it is all about liquidity. When the liquidity dried up and went away, things jumped off the charts and I really think, at the end of the day, that is probably one of the biggest drivers of this. Once liquidity exited the market, everything accelerated or decelerated or whatever you want to call it.

I understand your answer. Thanks very much.

Ladies and gentlemen, this will conclude Genworth Financial's first-quarter earnings conference call. We do thank you for your participation and at this time, the call will end.