Genworth Financial Inc (GNW) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Genworth Financial third quarter earnings conference call. My name is Mikayla and I will be the coordinator today. (Operator Instructions). As a reminder, the 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.

Welcome to Genworth Financial's third quarter 2008 earnings conference call. Our press release and financial supplement were both released at 4 this afternoon and are posted on our website.

This evening you will hear first from Mike Fraizer, our Chairman and CEO, and then Pat Kelleher, our Chief Financial Officer. Following our prepared comments we will open the call up for Q&A, run by Pam Schutz, Executive Vice President of our Retirement and Protection segment, Tom Mann, Executive Vice President of our International segment, and Kevin Schneider, Senior Vice President of US Mortgage Insurance, as well as other business leaders who will be available to take questions.

With regard to forward-looking statements and the use of non-GAAP financial information, some of the statements we make during the call may contain forward-looking statements. Our actual results may differ materially from such statements. We advise you to read the cautionary note regarding forward-looking statements in our earnings release and the Risk Factor section of our most recent annual report Form 10-K filed with the SEC in February 2008.

This evening's discussion will also include non-GAAP financial measures that we believe may be meaningful to investors. Our abbreviated -- our financial supplement and earnings release, non-GAAP metrics have been reconciled to GAAP where required in accordance with SEC rules.

Finally, when we talk about our International segment, please note that all percentage changes exclude the impact of foreign exchange.

With that, let me turn the call over to Mike Fraizer.

This has been the most difficult market environment Genworth has experienced as a public company, and we continue to face unprecedented economic and market uncertainty to a degree that has caused Genworth, like almost all financial service providers, to revisit traditional assumptions on capital and liquidity that govern our businesses.

We are clearly disappointed in our results this quarter and are committed to taking appropriate actions. The magnitude and rate of market change accelerated since mid-September, so I want to summarize some of those dynamics.

First, credit, equity and housing markets displayed new levels of volatility and compounding levels of negative performance, which occurred at speeds that carved substantially into the performance of our equity linked products, investments, US mortgage insurance, and also contributed to the total write-off of goodwill in both our institutional and US mortgage insurance lines in the quarter.

We saw much higher impairment and investment losses than anticipated, which Pat will cover in a minute, along with a decline in income related to limited partnerships, particularly those associated with real estate. Limited partnerships alone, for example, went from a positive contribution of $17 million in last year's third quarter to a loss of $20 million in the quarter just ended.

Second, reinsurance markets have become more difficult to engage, as reinsurers reassess their risk appetites, especially for transactions with exposure to the investment markets and raise prices. This was particularly the case at the very end of September.

We were able, however, to complete nearly $750 million of planned reinsurance and capital efficiency projects since June 30. Finally, we're facing a global slowdown that is becoming more pronounced. As credit markets remained under stress, economies weakened with higher unemployment and reduced consumer spending, and currency shifts continue to be volatile.

In the US we see a consumer led recession driving sharply lower mortgage originations and consumer borrowing, conditions that are spreading around the globe. Outside the US we saw this impact the level of new mortgage insurance originations, as well as lifestyle protection sales in the third quarter. Going forward we expect a slower rate of sales, revenue and earnings growth across our international businesses as the global slowdown continues.

In US mortgage insurance we expect challenging conditions to continue at least through 2009. In this context, I want to give you some insights into how we think about and are addressing liquidity and capital, along with some strategic approaches we are focused on to manage through these conditions.

I will give you an update on our financial position, liquidity and strategic considerations going forward. Pat will then focus on details of the quarter and key plans looking ahead and the conditions that surrounds them.

Starting with liquidity, Genworth has managing its position effectively, with funds available from a number of sources to meet policyholder obligations and holding company needs. We have continued to reposition investment portfolios to increase cash and cash equivalents in our operating company sufficient to meet both ongoing and potentially heightened levels of surrenders or withdrawals, given the market environment.

We have sought to stay well ahead of this curve. We currently have cash and cash equivalents at all of our operating companies totaling some $6.2 billion. And that is up from $4.3 million at September 30.

We have modeled policyholder obligations and cash needs under a variety of stressed scenarios to ensure that we are prepared for contingencies.

Second, we deployed $500 million from our holding company to our life companies in the form of cash, which has the dual benefit of increasing our consolidated life RBCs to approximately 360% for the third quarter, and enhancing liquidity at the life company. As a result of the infusion to the life companies we have about $435 million of cash remaining at the holding company.

Finally, we have two available five-year lines of credit totaling approximately $1.8 billion of effective liquidity. We have not drawn on these facilities, but have had a long-standing Letter of Credit using up a small portion of the lines as collateral. So the number I have just given is net of that.

Turning to capital, we are moving decisively. Our first priority is to support our AA category life company consolidated rating. That first-order objective is followed by the funding of debt maturities, and then having plans and options in place for prolonged credit and economic markets disruptions should these continue.

We're taking several steps to manage additional capital needs or pressures in the current environment. We're suspending our common dividend for the foreseeable future, which gives us about $175 million of additional available capital per year.

We also have formally suspended share buyback actions. Operationally we have had these on hold, and had made no repurchases this year since the $76 million of repurchases completed in the January 2008 timeframe.

To add to capital levels in our life companies, we took and are taking several steps. We downstreamed $500 million from the holding company, as I mentioned earlier, to improve statutory capital levels, primarily impacted by higher investment impairments this quarter.

Second, I'm pleased that we have been able to complete reinsurance transactions, and have clear plans to complete more by year-end, despite difficult reinsurance market conditions.

Third, we will refine or narrow our business focus in certain productlines to preserve capital and enhance risk and profitability profiles. We will be selective in new sales of fixed deferred and variable annuity products, as well as our institutional fixed-income products. I would note that we already have been narrowing our life insurance proposition around the middle market with lower case sizes, which provide a capital and profitability benefit.

Taken together, these actions will have Genworth operate on a somewhat smaller business platform going forward. Coupled with this intentional moderating of targeted new business profiles in the US, we also expect global softening of mortgage originations and consumer lending levels to continue. In addition, we have taken a number of targeted risk management actions over the past year or so, which can also influence sales.

These factors will slow growth rates versus the high levels of business growth we have experienced internationally for the past several years. As growth rates slow, given our specific strategies and economic realities, this will help build capital levels and flexibility. In this connection we will look to identify those international opportunities that can provide the greatest benefit, while curtailing or exiting others.

Along with this tighten strategic focus across Genworth, we intend to shrink our total expense base by approximately $100 million to $150 million as a runrate for 2009. And I would anticipate there could be a related restructuring charge in the fourth quarter.

Finally, acknowledging that market and economic conditions continue to be stressed and are dynamic, we recognize that additional steps may be needed to navigate these uncharted circumstances. Therefore, we are working multiple parallel paths to prepare for an even deeper and prolonged period of market disruption.

This includes taking necessary steps to enable us to retire or refinances our 2009 debt maturities in the event that the debt markets remain limited at that time. And to ensure we have sufficient capital to sustain additional pressures, such as those related to risks of investment impairment or ongoing underperformance of equity markets.

To this end, we are selectively evaluating potential asset sales. And we continue to review strategic options with regard to our US mortgage insurance business and how its value could best be recognized for shareholders.

We are also diligently working to generate additional capital flexibility from the best array of sources available to us, be it a public or private equity, debt issuance, or through traditional capital transactions such as reinsurance.

At this point we will be employing some combination of these initiatives through this cycle to position ourselves to navigate various scenarios characterized by prolonged market disruption and a significant recession.

In sum, we are working intently on multiple fronts available to us to handle this unprecedented environment. We remain committed to all constituencies and policyholders, shareholders, rating agencies, distribution partners and others, and to our dedicated associates that take the actions required to bring Genworth through the period and position us effectively for the future.

With that, let me turn it over to Pat for a look at the third quarter and observations on the environment.

Today I will share some perspective on operating earnings results, and then provide more detailed views into two areas, the investment portfolio and our capital position.

As Mike said, these are unprecedented times in US real estate, equity and credit markets, and we are seeing the results of recent developments in our third quarter earnings. The impact was pronounced in the Retirement and Protection and US Mortgage Insurance segments.

In Retirement and Protection we felt impacts from both the credit and equity markets. We saw declines in investment yields in several productlines from three main areas.

First, lower limited partnership income. Next, from higher cash balances we have been holding as we have repositioned our investment portfolio. And from lower levels of bond calls and mortgage repayments. Together, these reduced operating earnings by more than $50 million.

Next, market conditions in our institutional spread business are such that we have seen early redemptions of a series of funding agreements backing notes, generating a gain of $52 million after-tax. And separately we are seeing uncertainty concerning future new business prospects and narrowing spreads, which led to a $12 million write-down of all remaining goodwill for this business line.

In fee-based retirement income, results reflect equity market volatility that led to increased DAC amortization and increased death benefit guaranty costs, reducing operating earnings for this business by $13 million. And also impacting our variable annuity hedging results, leading to a $22 million below the line realized loss after-tax on deferred acquisition costs.

Turning to US Mortgage Insurance, we saw weaker than expected performance of the 2006 and 2007 books. Total losses were $471 million, after loss mitigations savings of $117 million from both the bulk and, to a lesser extent, the flow books. These losses were partially offset by captive reinsurance benefits of $169 million for the quarter.

These net losses contributed to an increase in the quarterly loss versus our prior expectations, and were the primary cause of write-downs of goodwill and deferred acquisition costs totaling $42 million after-tax.

Our International segment had good performance in the quarter, with 15% operating earnings growth. We did see some impact of current market conditions on new business growth rates. In Canada, earnings increased 16%. Falling mortgage originations and risk management actions to limit loan to value levels in targeted geographies, combined with several product changes resulted in lower new business production.

Losses increased as expected, given the loss seasoning of large book years during a period of slowing economic growth. The loss ratio here continues to remain below pricing expectations.

In Australia earnings grew 31%, helped by lower taxes. We saw slowing mortgage originations and lower levels of new business production, as higher interest rates continued to challenge affordability. As expected, these conditions also contributed to incremental loss pressure from both new delinquencies and lower cure rate.

Recent government actions to lower interest rates are expected to improve affordability pressures among borrowers. We have also taken actions to limit loan to value levels in targeted geographies, which combined with the 17% price increase, should further enhance the profitability of new business.

In lifestyle protection earnings grew 23%. We are seeing the impact of lower levels of consumer lending, resulting in lower new business production levels. Loss ratios remained low for the quarter, but we did see some incremental pressure develop in markets where economic declines have been more pronounced.

In summary, we are seeing good performance with a gradual increase in losses. Risk management actions are taking hold, which along with the global slowdown in lending, are slowing new business production.

Stepping back, we have now seen further slowdowns around the globe and continued volatile financial markets in October. In light of this rapidly changing and volatile situation, we do not view it as prudent to provide any earnings outlook at this time.

Turning to the investment portfolio, I will focus on five key asset classes -- corporate securities, residential and commercial mortgage-backed securities, commercial mortgage loans, and securities lending. The first three account for 86% of net realized losses in the quarter, and 95% of net unrealized losses.

Now starting with corporate. We increased credit rates related selling activities to reposition the portfolio in anticipation of worsening credit market conditions. We had impairments concentrated among several large financial institutions, and we experienced substantial spread widening toward the end of the quarter, which has continued. After-tax realized losses on sale of securities totaled $86 million, and we impaired $202 million of corporate securities.

Gross unrealized losses in our corporate bond portfolio increased by $1.5 billion to $3.5 billion during the quarter, with the largest increases in financial holdings.

Since quarter end governments around the globe have stepped in to stabilize the markets, and this should improve the situation over time, however, gross unrealized losses have continued to increase.

Turning to residential mortgage-backed securities, continued housing market declines contributed to a total of $164 million of impairments after-tax, primarily on RMBS holdings backed by subprime and Alt-A collateral. We had $1.2 billion in book value of securities backed by subprime collateral, and $913 million in book value of securities backed by Alt-A collateral at the end of the quarter.

You can think about this portfolio in three categories. First, securities held at book value with an unrealized loss, where we are seeing and expect good performance of the underlying collateral. These totaled $2 billion, with net unrealized losses on these securities of $385 million for subprime and $263 million for Alt-A.

Next, securities where cash flow testing results indicated credit impairments due to primarily to expected increases in future losses in the underlying loans. These totaled $102 million of book value. Here we recorded a reduction in the book value of these securities of $104 million during the quarter, making book value equal to market value.

Finally, securities where collaterals cash flow testing was adequate, but where our quantitative and qualitative risk assessment indicated a higher risk profile than we want in the portfolio. These totaled $39 million of book value. We monitor these securities closely and will be opportunistic if we see a trading opportunity.

In the third quarter we had $49 million of change of intent related impairments after-tax. Again, with these securities book value is equal to market value. In general these securities are rated below the single-A category.

Turning to CMBS holdings 85% of this portfolio is in the AAA and AA ratings categories, and roughly two-thirds of the portfolio is 2005 and older vintage securities. While unrealized losses have increased here, primarily reflecting illiquidity and floating-rate securities, we have seen minimal levels of CMBS related impairments, totaling $6 million after-tax in the quarter.

Turning to our commercial mortgage portfolio, it is well diversified and consist primarily of low leverage first lien loans, which were originated by us, for the most part, through our network of correspondents. At the end of the third quarter there are no delinquent loans or loans in foreclosure, outperforming both the CMBS and ACLI benchmarks.

Weakness in the overall economy is affecting commercial real estate with declines in property values and rising vacancies. However, given the low loan to value of our portfolio, which is around 55%, and its very diverse nature, the portfolio should continue to outperform benchmarks.

Finally, our securities lending program is relatively small at $1.7 billion and fully collateralized with collateral at 102%. Collateral is conservatively invested in high-quality short-term assets with a weighted average maturity of 90 days.

To sum up, we are proactively taking steps to manage risk and defensively position the fixed-income portfolio for this credit cycle. The CMBS securities and commercial mortgages are both performing well. And our securities lending portfolio is a manageable size with high-quality collateral.

Turning to capital. I will review our three business segments and then our holding company. In our Retirement and Protection segment we have and will continue to take steps to maintain capital toward a AA category rating.

Here we are adjusting strategies to reflect credit and equity market realities, and slowing capital consumption by narrowing our business focus. As we said earlier, we completed several reinsurance and capital efficiency transactions during the quarter. These added about $750 million of capital capacity by increasing capital levels and reducing risk-based capital requirements.

Since the end of the quarter we completed an additional $115 million, and we have plans to complete approximately $500 million of additional reinsurance and other capital management actions. This gives us a buffer for adverse future credit and equity market volatility, and a clear expectation to maintain risk-based capital levels in the target AA rating category range.

In our international businesses good performance is translating to higher capital levels. We also see moderating growth reflecting the global economic downturn, and this reduces required capital. Put another way, the International segment is shifting from a consumer of capital to a source of capital, with the potential to dividend on to $450 million over the next couple of years, depending, of course, on a variety of factors.

In US Mortgage Insurance we will continue the disciplined approach we have taken to shift the business model to one with more attractive profitability and improved risk characteristics through product, guideline and price changes. We expect that with these changes our risks to capital ratios, while trending up, will remain below regulatory requirements and in line with rating agency expectations.

Finally, at the holding company we recognize that Genworth Financial's strength is enhanced by assuring the financial strength of our operating companies. At the same time, our capital planning for the holding company is preparing for the possibility that debt markets may not return in 2009, and considering options to reduce leverage.

In addition to reinsurance strategies and suspending the common shareholder dividend and share repurchase programs, we are actively pursuing the other strategies mentioned earlier. These include potential asset sale and external private or public capital raise options.

We're approaching these initiatives in a thoughtful and deliberate way to manage risk and potential shareholder dilution. We're mindful that, if needed, our substantial and undrawn credit facilities are available as a bridging mechanism, providing funding flexibility for our 2009 obligations through mid 2012 at a very attractive cost of funds.

With that, I will open it up for questions.

(Operator Instructions). Ed Spehar, Merrill Lynch.

I have a few questions, I guess, on the liquidity and capital. You given us a lot of things to think about here, and some number and maybe some other numbers you haven't articulated. So could we line these up and think about -- first, starting with liquidity.

When you look at the businesses that you are in where there's a potential for -- for the need for liquidity, so thinking about the institutional business and the annuity business, can you give us some sense of what type of stress test lapses you have assumed, and how that might compare to what the normal outflows would be, if we weren't in these sort of extenuating circumstances?

Any sort of collateral call issues? I guess when you talk about the funding agreement business, are there any more puttable contracts out there that we should be thinking about?

In terms of the retail notes, to what extent did you manage portfolios related to those, that these notes would extent? And if they're not extending, what does that suggest?

I guess really putting everything together on the plus side and the minus side, where all the cash is that you could tap into versus maybe giving us some numbers on the stress test cash that could go out. If I've got a second, I would like to follow up with a capital question.

Thanks for that question. I will take that for you. When we look at the entire enterprise, we look at it segment by segment. If you look at the international businesses those are not businesses where there are cash value type products. We're managing our liquidity, meeting our expected claims obligations, and we feel that we're very well matched there. If we look at Mortgage Insurance, we look at it the same way.

When I look at the life company group, which comprises most of the Retirement and Protection segment, I look at the balance sheet and I break it down into a number of components. We've got a significant balance sheet there. We've got long-term care products. We've got variable products. We've got life insurance products.

When we look at liquidity and stress test in particular, we look at the portion of the balance sheet which relates to liabilities, which have deposit-like characteristics, which is the single premium deferred annuity portfolio and the GICs, which have withdrawal privileges associated with them.

When we look at the GIC portfolio, we are basically planning for liquidity as a matter of course, where we would expect that within the next few months all of those could be withdrawn. So we're holding sufficient funds to retire those obligations with cash. That is part of the reason for the buildup over the last couple of quarter in our cash position.

When we look at the single premium deferred annuity portfolio that is total of $8 billion on our balance sheet. When you look at the cash positions in the insurance companies, they're getting -- they are significantly more than half of that. We're well-positioned to retire both the expected maturities and also withdrawals associated with -- stresses associated with certain distribution where we think that, if there is any concern at all that there might be withdrawals.

In total, we feel very good about the cash positions that we have, and the stress testing that we have done to mature -- or to cover those obligations should they mature early.

On that issue of the amount here, the SPDA of $8 billion, you say more than half is covered with this cash position that you talked about earlier. Should I assume then that if -- I think you said that that has gone up -- or Mike had said that that had up since September.

There was a number that you gave I think early on that had gone up to $6.2 billion, I guess, from $4.3 billion. So should I assume that that means that the GICs that you are assuming that are all going to be withdrawn are a couple of billion dollars?

Two different things. First, I was talking on total Company cash. Now if you go back, you have seen an increase also in the life company cash as well. So I think we have to segment that for Ed. Why don't you go back, Pat, pick that up and walk-through the different pieces of it?

The single premium deferred annuity actually in our Delaware life insurance company, which is the largest holder, or the largest issuer, of single premium annuities, we have an $8 billion balance. What I omitted to indicate is that we have another $3 billion approximately in our New York company. And we're holding significant cash positions in both those companies.

We have stressed the withdrawals on those significantly. We currently experience withdrawals in the neighborhood of 20% of the account balances on an annual basis. In our current liquidity planning, we are currently planning for withdrawals in excess of 50% of that amount, or approximately 30% of the total account balances.

We have not seen withdrawal behavior on those policies which is out of the ordinary at all. In fact, our monitoring of the withdrawals are right in line with our normal expectations. However, we are holding significant additional cash to cover excess withdrawals should that situation occur.

Does that cover your question?

Then, Pat, how about on the institutional side, the GICs funding agreements, what are those -- similar numbers, similar -- I guess, you said you have assumed that all of those are withdrawn. So does that mean we have cash, or that the securities that we have backing those we're going to be able to sell without meaningful losses? How do we think about that?

Just one other different question is on -- you said that there is -- you looked over the US MI and said, no real issues. I guess how much -- when we think about the captive reinsurance benefit, that is not a -- how does that work in terms of what is cash and what is a GAAP benefit? Isn't that primarily just a GAAP benefit? So how do we look at that?

I will addresses your question first about the GICs. In total there is about $1.2 billion of guaranteed investment contracts in our portfolio overall in the life companies. We are, in fact, holding cash to retire those obligations over a three-month period. In addition, we have funding agreements and funding agreement-backed notes. And our liquidity planning expect that at the maturity of those obligations they will mature and will not be extended. And we have matched our expected cash flows associated with investments and cash positions to cover those liabilities as they mature.

Kevin, do you want to comment on the captive reinsurance with lenders, please?

When you add the amount of reinsurance that is in the trust, or the capital that is held in trust, in those reinsurance agreements, we are getting the benefit on a GAAP basis of the reserves put up against those books of business.

The cash side of it will result when we ultimately pay the claims. So when we pay the claims ultimately associated with those reserves that have put up today, at that point the cash will come out of the trust, and we will have -- that is how those claims will be funded at that point in time.

Then I guess finally on capital. It sounds like you describe -- I guess the question is this, you seem to be very focused on liquidity and the areas where -- and rightfully so. And the areas where you could have a liquidity issue, you seem to be addressing.

So then when we turn to capital, you talk about a number of initiatives on the reinsurance side -- plans to complete another $500 million by year-end, which I'm assuming, given your comments about the difficult reinsurance market, you must have some confidence that that is still going to happen for whatever reason.

The international generating up to $450 million over the next couple of years. I guess what I am a little bit perplexed by is, what is the scenario where you say, we issue equity capital? What looks like it's going to be $4 a share judging by some late market stuff here, how do you -- whether it is public or private, how do we get to the point where you think -- you say you need to raise capital, given everything else that you have outlined, which seem to be numerous other initiatives on the capital front and no obvious liquidity issue?

Let me pick up on that one. First of all, you're right, we have spent a lot of time planning on liquidity in various scenarios as we walk-through. And we think that is prudent for anyone in this market. These are unprecedented times, and you have to plan for that, and plan for those types of conditions to continue. That is how we run the Company on a liquidity standpoint.

Second, is we want to make sure that we have well-capitalized, targeted at our AA rating category life companies. And we have used a number of levers there. As you have heard Pat talk about reinsurance and capital efficiency projects.

And I will add to that, of course, as you focus a business and as you dial different production levels and are selective, you have in-force blocks that generate a significant amount of capital. We are using that, as I articulated, in our planning. And not only the US businesses, but also internationally. Though international you do see an economic slowdown that contributes to that as well.

There will also be some cost benefits, clearly, that come through that help those life companies. So we will keep moving through those various levers. There are multiple ones. And we look at providing for conditions of course that can be challenging in this market going ahead.

Then you move to holding company level. And at our holding company, as I mentioned, we have some $435 million of cash. But we also think that it is prudent to not assume that markets return to a normal state. The debt markets are very dislocated right now, and that could well continue into 2009.

As we have pointed out, we have to be thoughtful about debt maturities that are in that mid 2009 timeframe. And therefore think about various scenarios, various levers you have that you can pursue if those markets are closed, and depending on all the mix of the other things. And that is why I gave you a laundry list of things we're looking at.

Everything from additional capital projects to assets sales, to whether there is a debt refinancing capability that opens equity in its various forms, public or private. Depending on all of these factors, that that would lead us to determine both whether we would pursue that path or any potential timing of of that path.

Now as you think through those, of course -- and you used the words, what scenarios do you look at -- I think everyone looks at scenarios right now, including things like where will the equity markets be? Where will the credit and therefore potential impairments be? All of those factors go into thinking about how you would you use these different levers and any sizing of contribution from them.

I can't peg a number for you, but I can tell you that is how we think about it and trying to prepare prudently for this type of environment.

And the TARP, does that factor in here, anything you want to say about that?

I think, certainly, everyone has looked at multiple angles. I think for the insurance industry specifically the [S&L] path is the most attractive path, and it is one that certainly we examine.

Eric Berg, Barclays Capital.

What I'm hearing is what to me is a markedly much, much more pessimistic tone from you and Pat than in my opinion -- and I will emphasize, just my opinion, then we have heard from other senior executives at your competitors.

You are basically in the same businesses as everybody else, and are facing the same capital markets, except of course for the US Mortgage Insurance business, which admittedly is under terrible pressure. We know that. My question is, the other executives, they're talking about capital, they're talking about liquidity, but not nearly to the same degree that you are. And they are spending much more time talking about how hopeful they are of getting through to the other end of this and the longer-term bright prospects for their business.

My question is, what is different about Genworth? Why are you seemingly so much more concerned about the near-term future to the point that you're not even talking about your businesses, and are talking only about liquidity and capital as if you are expecting a huge typhoon to descend upon you and you are getting ready for it?

I think, first of all, I think the world has changed a little bit. The financial market sort of ground to a halt. And the credit markets, you have seen it ripple through every type of investment. You have seen it ripple through the equity market. And if you have seen a positive economic forecast around the world, I would like to see it, because they only compounded and gotten worse.

I think as a leader, and I'm not going to comment or compare against any other situation, that is your job, fundamentally you want to prepare for the worst and be surprised by upside, as to be hopeful about the future in a world that has totally turned upside down.

And you have heard everyone from government leaders to leaders in every financial institution -- and let's get outside of insurance and talk about the changes that have been out there, talk about the new realities we're dealing with. And therefore appropriate steps must be taken.

So we have had some solid business performances, as you have seen. Look at international. But where I have seen most questions about people in the market are saying, how do you navigate this type of recessionary and financial market dislocation? That comes back to liquidity. That comes back to capital. And that comes back to focus. And that is where we thought we would spend our time today, because we certainly provide a lot of information in both the press release and the supplement about how individual product lines are performing. So we are frankly trying to be responsive to the things we think you should be thinking about and we are thinking about and spending our time on in this type of environment.

I guess my question is -- my question really -- maybe it wasn't as clear as it could have been. It didn't come through the way I wanted to. What I really wanted to say is, is there something different about Genworth's situation in your view that we need to understand -- that is explaining your tone and what you're working on these days relative to competitors?

Listen, I think I have been pretty clear. I will start with the International businesses. First of all, we have a big presence internationally. As we pointed out, when you see things like mortgage origination level slowdown around the world from any place from 20% to 40%, that does impact the level of new business you will attach and add to your very good in-force books of business. That is a point in case -- or a point to be considered.

You look at our lifestyle protection, what we previously called payment protection business. That does vary as far as growth levels with consumer lending behavior. Because a lot of that product, the bulk of that product in fact, attaches as consumers have some type of new financial obligation. It is heavily oriented in Europe. That is a different footprint than you'll see some other companies have.

So as we see consumer lending levels come down, we would expect production to come down. Still good in-force performance, but as you look forward to that, there is certainly a difference.

I think you have seen our new long term care book do quite well. And we commented upon that in the quarter. In fact, we saw some good growth in the quarter, though a little shift in channels there.

We're very pleased about our middle market focus, or I should say even refocus in life, which narrows production levels, but it is really the sweet spot for us.

But when it comes to talking the things that are like equity linked products, when you look at investment areas, given the large fixed income portfolios, when you look at institutional markets, I think we are seeing some of the same dynamics that you see elsewhere. Then you'll have individual different credit risks given on individual investment positions within a portfolio.

Perhaps the different mix the businesses is one thing that you'll see some different dynamics that we share with you to be considered. But certainly there's some of overlap themes. And we get to read and listen to the same types of calls that you get to listen to. I have certainly heard plenty of focus on equity markets, credit markets, liquidity and capital as well.

Andrew Kligerman, UBS.

I'm going to have to respectively disagree with Eric though, because I think there's a lot of pretty dismal calls with other company management. The first area I want to touch on is your capital position, or technically what everybody deems excess capital.

With about a 360% RBC ratio, it seems that in the operating entities things seem to be in order. But you threw a lot of stuff out. You talked about reinsurance of $750 million in the third quarter. And then plans to do another $665 million.

If you do another $665 million in reinsurance, what does that do to your excess capital? And then part B of that is, what asset sales are you planning to do? I was under the impression that you had about $1 billion in assets that you were thinking about disposing of. And if so, what would that do for your excess capital position? Those two parts, and then I will follow on.

It is Pat. I will take the first part. We have always planned capital projects, relating in particular to the XXX and AXXX reserve release, as well as old block capital extractions. Based on the market environment, we have expanded these programs, and we have made capital contributions to position the life companies in particular with a strong capital position.

This is really related to the level and volatility and uncertainties in the credit and equity markets -- the impact that it has on your investment results. As well as the ability to access the debt market. We are at this point reluctant to provide detailed estimates of year-end capital that might not be as predictable as they were previously.

So therefore when you ask about excess capital or deployable capital, we are not really in a position to provide a specific number, because circumstances aren't as reliable, or the conditions aren't as reliable, as they have been in preceding years.

So what you're doing is we're doing additional projects. And we are anticipating that we could have worse than expected results in investment related impairments, and worse than expected results in equity markets. So that we have enough capital and enough capital cushion to weather those results and hit our targeted AA level capital rating.

Let me ask this way then. If you were to do another $665 million in the insurance transaction, could I look at that $665 million as redeployable capital?

You could look at that -- I'm sorry you said --?

I think you said $500 million and another $150 million of reinsurance. Or let me just reread that. I'm sorry -- yes, reinsurance and capital efficiency projects. If you were to complete those projects in the fourth quarter, as mentioned in our press release and in your comments, would that -- could I deem that to be redeployable capital, or as people commonly call it, excess capital, or are there some encumbrances on that?

You could look at that as the equivalent of additional available capital that would be available to support the business either for growth or for covering other capital requirements of any sort.

Then maybe you could give a sense of assets. There's been a lot of talk of initially starting the year with $1.5 billion, and then maybe $0.5 billion in properties have been disposed. Where are you right now in terms of assets that you could dispose of? And then what is the market out there like for those assets? Is it pretty dry or are there really opportunities to dispose of those assets?

Let me sort of stand back. Two different things. One is, when you do liquidity planning you certainly raise cash levels. And then you also look at other things that are assets that could be monetized, because of the characteristics of those under various scenarios. That maybe what you're talking about under that. When I talk about assets, I think about blocks of business.

Yes, That is [on there].

Blocks of business. At times you have seen us prune our business line portfolio to bring additional focus to it. I'm not going to get into anything specific there. But again, when I look at the world, I look out, look at contingencies, we think it is prudent if you take a sharp look at those and look at what options you have, in addition to all the other levers that we talked about, to prepare for this type of environment, and what could be a longer economic slowdown.

Michael, if you were to divest a certain block, is there a market out there for it? Just as you had said, with the debt markets they were pretty tight, is there a market out there for disposing of certain blocks of business?

It really depends on both the type of the block and the type of business line and condition. I will leave it at that time.

That one is a little vague then, that answer. How about the reinsurance market? You had commented a bit on the reinsurance markets being a little tight toward the end there. Do you anticipate any problem with that $665 million?

I will give it to Pat, but I think you have to split the reinsurance market, first of all. There remains uncertainty in the reinsurance market in asset intensive areas. When you're into mortality risk, morbidity risk, we have a much, much more open market. And also we also see some new reinsurance opportunities in areas like mortgage insurance, given the substantial margins in new business.

But, Pat, do you want to go more specifically into the types of projects that we look at as we move into the fourth -- well, we're in the fourth quarter -- as we move through the fourth quarter?

We have already completed some projects in the fourth quarter. And the types of projects that we're looking at are really ones that relate to reinsuring blocks of business where the experience is good, it is observable, and really where there is some sort of arbitrage involved, either with capital or tax, where we are able to generate capital at an effectively low cost and therefore have it available for redeployments in our business.

It sounds like you are somewhat optimistic on that front.

We have been closing transactions, and we have transactions on schedule to be closed, just like we have businesses which are generating new business and generating good claims results as well.

Maybe just quickly shifting other to the Mortgage Insurance business in the United States. You had -- Genworth had done a presentation in late September looking at various scenarios. One of them was a home price depreciation, 33% in most of your scenario, and unemployment getting to close to 10% by the second quarter of '10. Under that scenario you anticipate, I think, if I remember correctly, it was something like $400 million of additional capital needed to be infused in the business.

What kind of scenario are you envisioning now? And you have talked about a very difficult third quarter. Are you looking at that 33% decline, at 10% unemployment, does that still kind of stand your view, or could we even get more severe than that as we sit here now?

Let me turn that over to Kevin Schneider, please.

On that call, the discussion, as you pointed out, was focused on our capital adequacy under some various scenarios. Since that discussion the economy has continued to deteriorate. Unemployment is pushing out into the 6.2% to 6.4% range, I would imagine by the end of the year.

The end of 2008 our delinquencies and cure rates as an industry have certainly not improved. I guess our view at this point in time on where home price depreciation will go to is currently on a -- probably about down about 26% peak to trough, on the index we generally reference to, which is the National Association of Realtor Index.

So think about it as probably another -- at this point in time -- down about 13%, so say another 10% to 13% to go there. That is really the way we're thinking right now about those scenarios.

The chart that we talked about was talking about over the course of 2009, and walking from really our STAT capital levels at the end of the second quarter to the end of 2009 under different outcomes such as that. And what we said was, even under those scenarios, we would still be operating about at the AA capital -- rating agency capital level of about $2 billion.

The additional $400 million or $450 million that was on the chart was not required at that point in time. It is what we said we would be going after to try and further supplement and augment our capital cushion or our capital position.

So we would still be pursuing those type alternatives. And there's many ways of getting after those. They could be reinsurance type solutions. And we continue to work on some reinsurance options right now. The other option that potentially could be available for Genworth and for the industry might be some solutions associated with the TARP plan that are very, very housing specific that could provide some additional capital support.

Just real quickly, is there any update that you want to provide on that [Rest] Mortgage Insurance division? I know you had put out a release that you were exploring alternatives. Anything that you could specifically comment on?

Basically we continue to review options regarding the business. We talked about some in our previous announcements, including a spinoff. There are many complexities, I would say, to consider. And we will act thoughtfully.

We're going through and looking at the various strategic options and want to do what creates the most opportunity for shareholders. We're working with some advisers, as we consider those options. I don't have anything specifically to update you on outside of, we're being thorough and thoughtful and looking at a lot of alternatives.

Donna Halverstadt, Goldman Sachs.

Most of my questions were asked, but I do have follow ups to two of the answers you gave, as well as one question that has not yet been asked. I will start with that one.

You mentioned the ability to draw on your credit line. Are there any circumstances under which you would not be able to draw, whether that be financial covenants or MAC clauses, or anything that could preclude your drawing?

This is Pat. I will take that. We do have conditions and covenants. And at the present time we do not foresee any circumstances which would prevent us bribing in a position in the foreseeable future from drawing on those facilities.

One of the things I wanted to follow up on was an answer that you gave to Ed. I just want to make sure that I heard you completely and correctly. In terms of the GICs and the FAs, I think you said you have sufficient holding company cash to retire all the GIC obligations over the next three months. And that with respect to the FAs you're expecting they won't be extended at maturity. The cash flows are matched. Does that presume that the FAs are not puttable upon any ratings downgrades?

Yes. At this point what I would say is the cash that we have is sufficient in the life insurance companies that are issuers of those contracts to retire the guaranteed investment certificates -- or guaranteed investment contracts over the next three months. And also to retire on maturity the funding agreement. We had previously in the year had a small number of contracts with ratings downgrade related -- I am sorry, just with general put provisions, not ratings downgrade related. But we have since negotiated termination agreements on those, and they are provided for in our liquidity and cash planning.

So none of the remaining FAs have ratings puts on them? Is that correct?

That's correct. One other thing I would mention is that, with respect to the GICs, although we planned for liquidity in this way, we have only had a few inquiries relating to market value adjustments and surrender of those contracts at this point in time.

Then one other thing I wanted to follow up on. You mentioned that with respect to the MI business there could be some TARP solutions, some housing specific items that could potentially provide capital support. Can you be a little bit more specific, what you are thinking about there?

There is a lot of activity going on in Washington right now. I don't have any of the specifics, other than I think the industry is looking for a number of ways -- when I say the industry, the government is looking for a number of ways to use the money associated with that to support homeownership and to support housing. So that is just what I was referring to -- nothing specifically related to Genworth at this point in time.

[Patricia Machey], Bank of Hawaii.

We are concerned about some bonds that are maturing in 2009. We own about $10 million of the bonds that are due in May of '09. And there's a total holding of $600 million and $500 million in June of '09, totaling about $1.1 million (sic - see press release). So my question is, based on your liquidity, it looks like it is reduced to $435 million in cash and cash equivalents. How are you planning to play these bonds when they become due?

This is Mike. I think I addressed that in my opening remarks quite specifically. That, first of all, that as we move through and operate our businesses, we have very good liquidity at the operating levels. Then, as I talked about the holding company levels, and pointed specifically to midyear 2009 debt maturities, which you are pointing to now, that we have a variety of opportunities to deal with those.

One, of course, is to see where the markets go. When do the markets open up again? Additionally, that is why I talked about the other opportunities that one assesses before you even get to the credit lines that Pat talked about that are a substantial asset of the Company, the five-year lines.

And that is why I have talked that if the debt markets are closed, and other market dislocations continue, you look at the whole laundry list of everything from asset sales, as an example, to how you might raise equity, as an example, and so on, and what combination of those. We are well aware of those maturities, and certainly have the backup capability of accessing our lines to navigate through that period quite successfully.

Your credit lines are $1.8 billion, that you mentioned, as well as $6.2 billion at the operating company?

We're talking a holding company debt now. We have talked you about the credit lines at the holding company level. Now we talked about operating company, and I think you have heard on this call a whole set of discussions about how various operating company can be used under various scenarios.

Will some of that be upstreamed to the holding company if necessary, the $6.2 billion?

What we have looked at is keeping what is in the operating companies within the operating companies at this point in time.

But if you need to access the credit lines do you have $1.8 billion?

That is what we have said.

I have two more questions. How much in commercial paper outstanding do you have?

Pat, you want to take that please?

Approximately $220 million.

It is over $100 million. $220 million?

That's correct.

I see. Another question, is there is this CPFF, the commercial paper funding facility. I understand that you folks are participating in it. How much are you participating?

That is correct. We are participating, and we are eligible to participate up to a limit of approximately $223 million.

So that adds additional liquidity to the holding company. So you are participating up to $223 million?

That's correct.

Steven Schwartz, Raymond James & Associates.

A lot has been covered. I do want to touch on a couple of things. Kevin (inaudible) this morning, realizing that the '06 and '07 businesses are still going through the trials and travails, can you touch on the 2005 book?

The 2005 book is also pressured. Really it is the combination of the '05, '06, and '07 books, primarily of the '06 and '07 books where we experienced most of the pressure. But the 2005 book I would imagine will perform outside of pricing. And that is our expectation at this point in time.

Radian had put it this morning, or maybe it was yesterday, everything is beginning to blend together here, that they thought that 2005 book, the delinquencies had peaked. Do you think that would be true for your book or not?

I don't think they had peaked yet. I think they should be peaking through this period of time and probably will in early '09.

Maybe you can touch on -- you mentioned Washington, but there have been some other programs. Maybe you could talk about how MI is going to participate in that? The BofA program -- I think JP Morgan, also just announced a program to deal to keep down foreclosures.

Yes, there has been a number programs that had been announced recently. We are supportive of any that can help keep more homeowners in their homes, and help keep less -- reduce the amount of additional supply of inventory that is beginning -- that is getting put into the market.

You think about the BofA program specifically, we have identified -- we have probably about 14,000 overall policies in force that are part of -- potentially of that settlement. But it whether those will ultimately result in an improvement for those borrowers, it is still very early on since the announcement of that. A lot of that stuff was really focused on subprime ARM events, and we didn't participate in that, as you are aware.

The Chase program is very, very new and not a lot of details. But again we're very supportive of that. And Chase has been a big partner -- a lending partner of ours, and I'm sure we will work closely with them if there is opportunity there.

What I am trying to get at here is do you know how you would participate? Has this thing even gotten that far yet? (multiple speakers).

It really hasn't.

Then finally, this concerns MI, but I think it may be for Mike instead. You announced alternatives, or that you were exploring alternatives for the US MI business, Mike. I've got to ask you, as the CEO of this company, what possible sense would it make to spin out the US MI business, but keep the international MI business, together with the life insurance company? To me that just doesn't make any sense.

Everyone is entitled to their own opinion. We will look at various alternatives and we get plenty of input from investors and other constituencies, and we will take those all into account. But we have to do what is right for the Company. And look at our opportunities and where to deploy capital and how to optimize value over time, and that is what we going to do.

Not to beat this horse or anything. And I don't mean to be rude, by the way. But does it make sense in your mind to have the international MI businesses together with the US life business, where you might have -- maybe wrongly -- but investors out there with the same concerns about what might happen -- that what happened in the US, to a lesser admittedly, might happen overseas?

I will put it this way. We have had very direct discussions and public forums and with investors about the differences between the US MI market and the international markets. And I think you would note that in the performance. Just look at the quarter on that front.

You have seen difference in product characteristics, underwriting, who are the distributors, or the securitization impacted a market or not. Did it bring in alternatives products? Capital regulation and so on. So certainly we have seen attractive performances Internationally, and we're navigating a very tough cycle. Though I think Kevin and his team are doing an excellent job of that here domestically.

Your question is fundamentally one that any team has to look at throughout time, which is how do you balance your mix of businesses, where do you allocate capital? We have to do that, and do that actively and thoughtfully. And that is where we will proceed.

So I appreciate the question. And I hope you appreciate that we have to consider a variety of factors in their totality as we look at the that and look at capital allocation and capital redeployment decisions.

I didn't mean to be rude. I do appreciate the candor.

Greg Roeder, Adirondack Funds.

Thanks for your time. I have a quick question on equity linked products. What is your total exposure to equity linked?

Roughly $7 billion of variable annuities.

What are the challenges are you seeing on the hedging side? I was listening to the Hartford call, and they spend a lot of time on the issues regarding hedging. How much capital does that consume on the hedging side?

I'm going to turn that over to Pat.

I would say the third quarter was an extremely challenging environment, with high volatility in both interest rates and equity markets. The quarterly performance of our hedge program was at the high end of our expected volatility, given the performance metrics we track. We do remain tightly hedged to the equity and interest rate changes on a regular basis.

I think that in the short term we're going to continue to see additional volatility. And we're working on improving the hedge program in order to track for closely the actual funds being invested with the hedging. That is done using the indices that are available. And I would anticipate that would help us reduce the basis risk we have seen over the last couple of quarters. From a capital perspective, hedging is a very good thing. It reduces the capital that is needed to support those productlines and the risk.

In terms of your GICs, you are assuming pretty conservatively that you would have to liquidate the entire $1.2 billion. I guess my question is, is there any chance that the GIC market will begin to thaw out and possibly you could reaccess that market sometime down the road?

Pam, why don't you take that please?

Based on what we are seeing today, we don't see that. Our competitors in that market, everybody has been slow, and given credit spreads so wide and the market environment, but we do not see that at this time.

Is there any possible TARP initiatives that would address the GIC market?

Not that we know of.

Jeff Schuman, KBW.

I would like to start by coming back to the funding agreements and the funding agreement-backed notes for a moment. One point I'm not sure I understood. Pat, I think you talked about anticipating being able to fund the regular maturities of these contracts. But then starting this quarter you had what you called early redemptions that were done at discount to contract value. So I assume these were some sort of extra contractual arrangements, is that correct?

We accommodated a request from a customer who really needed liquidity on a basis which was elective and where we thought the terms were appropriate, and we had the liquidity to accommodate. And as a result we recorded a gain.

We should not expect that there would be significant volume of these, that you do those as kind of one-off, is that fair?

That is very fair.

Next I was wondering if we could get a little more complete picture of the short and of the holding company balance sheet. You talked about $435 million of cash. Then you also talked about $240 million of CP. To what extent is the $435 million funded short, and then maybe not so available to downstream versus maybe funded longer where you might have some more flexibility?

It is about half and half now. We also have cash flows that are scheduled to be coming to the holding company over the near-term that are taken into account in our plan. All in, we have the holding company cash we need over the time frame Mike indicated to satisfy all our needs.

But I guess I was wondering about taking it a step further, whether the holding company, not only had enough capital for its own needs, but whether there were sort of additional resources to support the operating companies as well?

Of course we keep a cushion. But as Mike had indicated, that is why we're looking at the opportunities, or potential, to raise capital through both public and private markets, as well as looking at the asset sales, because we're looking to have a capital position which is stronger at the holding company level.

Then lastly, we haven't had a lot of time to go through the segments, but -- and there were certainly a lot of unusual items pointed out in the press release. The one thing I don't think we have quite reconciled is it appeared that DAC amortization was very, very different in a number of the segments.

I think it was pretty light in life insurance and maybe a bit negative in one of the retirement businesses. Were there some positives DAC unlocking this quarter, or what might have driven some of the really anomalous DAC amortization results?

This is Pat. I will take that question. There were -- in the annuity productlines we had some capital losses that we recorded during the period relating to assets that are supporting the FAS 97 product. And as a result, we wrote up the DAC because those losses are part of the gross margins in the profit stream.

So the DAC offsets on the capital losses are offsetting -- are running through the operating income. Okay. Thank you very much.

[George Kaleo], Lightspeed.

I just want to understand, a couple of points of clarification in terms of the liquidity at the holding company level. You basically brought down to the life insurance companies $500 million. But if I understood your answer to the prior question correctly, you plan now envisions you upstreaming cash to the holding company level between now and the next few months. Is that correct, the way I understood it?

Within our group, we had the life companies, where we wanted to put more capital in to provide a buffer or a cushion and achieve target AA level capital ratios. Also within our group we have companies that have more capital than what they need. And at times like this, we plan to use that capital elsewhere.

But on a net basis, do you expect to cash to go up to the holding company level in the near future or not? Did I understand the question -- the answer correctly?

There will be some cash that goes to the holding company level within the next six months. That is correct.

My last question is this. If you look at 2009, an particularly in light of the comments you made on how October softness exacerbated, and obviously you are looking at (inaudible) during the past, is there any kind of scenario you are looking at where the holding company may be finding it a little bit tough to have enough cash and drawn on the $1.8 million to take out the '09 bonds, but then have a little bit of a cash requirement to go down to the holding company levels and then have a little bit of a liquidity potential problem there? Or that is completely, even under the most stressed situations, not going to happen?

Before I answer your question, what I would like to clarify with respect to cash going to the holding company, it is not from the US life companies, it is from elsewhere in the system.

To address your question relating to looking at plans and capital needs and under what circumstances would we plan perhaps to look at drawing the credit lines, looking at our plan said this point in time, in terms of the options available to us that we're considering, we are considering the credit lines to be backed up in contingency plans. We do not foresee drawing on the credit lines over the near term.

Tom Gallagher, Credit Suisse.

This is actually Mike Zaremski filling in for Tom. I had a follow-up on -- you had mentioned the covenants earlier. Could you tell us specifically some of the financial covenants, what they are and some of the specifics?

Pat, do you want to take that please?

We have, I will say standard covenants, in the credit agreements, which are really designed to prevent us from divesting on material portions or large portions of Genworth, which were not contemplated at the point in time where we had entered into those agreements. And that is generally the nature of the types of covenants we're looking at.

So no minimum, like statutory levels or RBC type covenants?

None whatsoever.

My follow-up is, the risks to cap in the Supplements 14.8, and I know it is lagged by a quarter. I don't know if you guys have your statutory statements done yet. But could you estimate what it is as of the quarter end? And could you tell us where you are using your stress case scenarios you talked about quarter -- where the risk to cap would max out at?

Let me direct that to Kevin Schneider.

At the end of the quarter our risk to capital was at about 15.7. The stress levels that we shared with you when we had that call really drilling in on capital earlier, the latter part of September, would take it out to about 19.1.

Brian Smith, USAA.

I wanted to go back to your comments about SPDAs. You said -- and I'm not sure I heard you correctly -- it sounded like you mentioned there was 20% of the balances were withdrawn.

No, not all. In fact, we haven't seen any abnormal activity in SPDAs. And in fact, I think consumers have come to appreciate the value of the annuity proposition in an uncertain time, particularly with (inaudible) income.

So was there another aspect to your question? I'm sorry (multiple speakers).

What was 20% withdrawal rate you mentioned?

You may be thinking about how much of it is out of surrender charge period.

That makes sense now.

It would something like that -- let me turn that over to Pam Schutz (multiple speakers).

I think what Pat was referring to is that the normal anticipated surrenders or withdrawals would be 20%. And in a stressed scenario we had put it at 50%. I think that was the 20% and 50%.

Are you seeing any kind of turning like that at all? Maybe not so much with SPDAs, but with any of your other business where you're having policies lapsing?

No, we are not seeing anything out of the normal ranges, the expected ranges.

I'm glad I misunderstood that. Back to your capital levels, it sounds to me like you have, at least right now, relatively strong capital levels. But A.M. Best has put you on review for downgrade. I'm just kind of curious if you can reconcile why that is? I imagine you have spoken with them before the call.

Let's just step back. I think in response to Eric's earlier question, there are uncertain environments. We have had some impairments, for example, some come through that we talked about. Those, of course, impact the risk-based capital.

Now we have had offsets to those. So I think you see various constituencies just looking at the overall market dislocation, investment environment, what is going to happen with the economic environment. And you have seen a lot of scrutiny across the industry in general right now. So, of course, each agency has to make their own assessment. We share information. At times there may be differences in assessment, and we understand that.

Have they given you any type of a level, maybe not in any IC or risk-based capital level, but some other level? Your capital is in pretty good shape, what would they require?

I will put it this way, in general, and you have seen this in a number of our announcements that you try to run above a 325% risk-based capital ratio to be a AA category company. Different firms have some different standards around that. What I would say, one has to look at in this environment, with equity markets, with debt markets, is how do you keep maintaining an appropriate range of capital with all these different things going on in the market? And that is why we have talked about the various lovers we have in the business to do just that.

Would you see, if you were to move data notch at A.M. Best, what kind of an impact do you think that would have on your sales?

I'm not going to speculate. At this point we've got a lot of different lovers. If you look at what is the differences in general between different types and positions of companies. For example, if you look at things that are AA category companies overall, you're going to see a wide breadth of productlines.

If you go below that level, you're going to see, for example, lines like life insurance, long term care, med stuff (inaudible) no material adverse effect. If you were in spread or fee-based annuities, you would expect to see a reduced new business.

However, for example, look what we did in the quarter is, where we did see some investment pressures, we did move to make an appropriate infusion into the US life companies to maintain the ratios and that rating that supports that type of annuity business and moving forward. That may be a way for you to think about it.

Suneet Kamath, Sanford Bernstein.

I will try to make this quick. Just as a follow-up to an earlier answer that you provided, if the credit market markets don't unfreeze and you're looking at this $1.1 billion maturity payment next year, and you have $1.8 billion of line of credit capacity that is long-term in nature, and you said yourselves that you don't expect to violate any of the covenants, why would you raise equity at your current valuation, rather than draw down on that credit line to repay the debt, which is I think what you said in response to an earlier question? Why wouldn't that make more sense for a company focused on shareholder value?

First, let's step back. There have been various questions about the credit lines. One thing I do want to make sure -- there was a question that we had some comment about what types of things are in a credit line. One of the standard things I want to make sure everyone understands is there is normal network maintenance type covenant. And we have a substantial cushion that takes care of that. So I will give you that as background.

Your point is very good that these credit lines, which are five-year lines, they are attractively priced, are true assets of the Company. And we don't ignore that at all. We look at those as being valuable assets that can help you navigate a situation, depending on what the markets are doing.

Now I think in general, you like to keep a portion of your credit lines, indeed as backup. That is how when you think about them, because they are for the unknown, But certainly you would look at them as one of the important lovers. But we think with the things going on in the environment you need to look at other levers as well, and look at them all in combination. Whether they be the lists that I have gone through or, of course, using the credit lines. So we will be thoughtful about that. And I understand the point.

My interpretation that you would not use the credit line to pay the maturity and would raise equity, I thought that is what you had said. That is in fact incorrect, and you would be thoughtful trying to balance the two, is that what you're saying?

That is exactly what I said in my opening remarks. And I thought I was pretty clear on that. And I will just reaffirm those.

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