Genworth Financial Inc (GNW) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to Genworth Financial's fourth quarter earnings conference call. My name is Melissa 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, the conference is being recorded for replay purposes. Also, we ask that you refrain from using cell phones, speaker phones or head sets 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. Welcome to Genworth Financial's fourth quarter 2008 earnings conference call. Our press release and financial supplement were both released last night and are posted on our website. In addition, we posted some additional information on our investment portfolio that we thought would be helpful as well. This morning, you'll first hear from Mike Fraizer, our Chairman and CEO. Followed by Pat Kelleher, our Chief Financial Officer, and then Ron Joelson, our Chief Investment Officer who joined Genworth in December. Because we are covering more detail on our investment portfolio today, you can expect the call to run a little bit longer than usual. Following our prepared comments we will open up the call for questions and answers. Also on the call today are 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.

With regard to forward-looking statements, and the use of non-GAAP financial information, some of the statements we make during the call may contain forward-looking statements. Our actual results may differ materially from such statements. We advise you to read the cautionary note regarding forward-looking statements in our earnings release and the risk factors section of our most recent quarterly report Form 10-Q filed with the SEC in November. This morning's discussion may also include non-GAAP financial measures that we believe may be meaningful to investors. In our financial supplement and Earnings Release, non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules. And finally when we talk about our international segment results, 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 and thanks everyone for your time today. Genworth had a tough fourth quarter in a very difficult and unprecedented operating environment. The disappointing parts are clear from our earnings release and included investment performance in certain areas, Retirement and Protection segment results and US Mortgage Insurance delinquency and loss trends. At the same time, we demonstrated significant progress across a number of areas that has improved our position and path going forward. Most importantly, we ended the quarter in a stronger capital and liquidity position than in the third quarter, as a result of these actions. In addition, we have a clear path for retiring maturing 2009 debt, with $400 million already repurchased and no further maturities until 2011. We completed a rapid focusing and streamlining of our business platforms for the conditions we see, which also generate significant cost savings. And we implemented aggressive risk mitigation strategies with meaningful financial benefits, ranging from locking in gains from interest rate floors to toughened product and underwriting standards to reduced Mortgage Insurance exposures in key parts of the US and Europe portfolio.

Let there be no mistake, we have taken decisive steps, gotten a lot of things behind us, positioned ourselves to handle what we believe will be equally challenging or even worse market conditions over the next 12 to 18 months, and are focused on serving our policyholders and rebuilding value for our shareholders. Today, I will discuss three areas with you including our business segments, and how we're positioning these, how we're strategically managing capital and liquidity, and how we approach and think about strategic options for additional capital flexibility. Next, Pat Kelleher will walk through important aspects of the quarter and how we see 2009. Ron Joelson, who took over as our CIO in December, will then share thoughts on key investment topics and we will conclude with your questions.

Starting with our business segments, we have tailored our strategy to reflect today's market realities. In Retirement and Protection, we refined our specialty strategy around main stream life insurance coverage, long-term care insurance, wealth management products and support services through independent advisors and retirement offerings that fit our risk appetite and strengths. A deeper focus on middle market and emerging affluent segments cuts across these four areas. Moreover, we positioned our strategy and business mix to reflect our current ratings. In international, we concentrated our efforts around Mortgage Insurance in Canada, and Australia and lifestyle protection in Europe and select new markets. Mortgage Insurance in Europe is small and well-contained and is being run with risk management and mitigation as the priority with tangible success. Several other expansion activities were terminated and you saw the announced sale of of our Mexican life and P and C business.

This brings us to US Mortgage Insurance. Here, the new business model was successfully retooled for a lower risk profile with much higher returns, driven by product, guideline, underwriting and pricing changes. We extensively focus on loss mitigation with growing benefits seen each quarter. Finally, we are running this business to be self-contained from a capital standpoint as we look ahead at ongoing market challenges. So we are managing the business to handle unemployment scenarios near 10% in early 2010, along with significant additional home price declines and stay within risk to capital targets on a multi-year basis. That means, if required, we would further lower new business volumes to achieve our goal though of course other options such as reinsurance may be available.

Turning to capital and liquidity strategies, we made tremendous progress. Through capital strategies including use of reinsurance, repositioning of investment portfolios, locking in benefits of risk management hedging strategies and carefully targeting production levels to the best opportunities, we see consolidated life Company risk-based capital ratios rising to a range of 420 to 450% as of year-end, or about 600 to $850 million in excess of our targeted 350% RBC level. Pat will give you more perspectives on our 2009 RBC outlook in a few minutes. On the international front, we remain well within risk to capital targets and have excess capital available. US Mortgage Insurance completed 2008 at a 14.5 to 1 risk to capital ratio, about $950 million in excess of the regulatory requirement of 25 to 1.

Moving to liquidity, we built total cash and cash equivalent levels to $7.3 billion across the Company, including $860 million at the holding Company, $4.3 billion in the US life operating companies, and the remainder at other operating companies. As you know, cash does not earn much today so these levels do create a temporary earnings drag. But we see these as prudent, given the partially frozen capital markets and protective of book value, given investment markets. The good news is that we have seen liquidity risks or demands decline. For example, fixed annuity lapses, which rose marginally during the early portion of the quarter, returned to normal levels. In the institutional business, assets under management declined, primarily from expected and scheduled maturities. I will note that we had a very limited number of early withdrawals. As a result, we anticipate redeploying more of this cash toward longer term investments going forward.

We also have line of sight on retiring debt maturing in 2009 out of currently available funds and already repurchased some $400 million of that debt. In addition, we have $746 million of remaining capacity in our attractively priced five-year credit lines which extend to 2012. You may recall that we drew funds under these lines in November to begin retiring debt maturing in 2009, achieving a lower funding cost than the old debt given the pricing of the lines. We have no current plans to draw further on these facilities and have no other debt maturing until 2011. So we have a clear path on funding Company needs as we look forward. This brings us to how we approach and think about strategic options for additional capital flexibility, given market uncertainties in the new world we live in. At our last earnings call, we talked about several options to improve capital flexibility. We have made substantial progress since then, both in completing important capital projects in the quarter to improve capital levels and in narrowing the focus on actions we can take to provide additional capital flexibility.

Today, I want to highlight two areas where we concentrate our efforts. The first is our application to become a thrift holding Company, acquire the thrift with which we have a contingent definitive purchase agreement and access the capital purchase program under TARP. Our application remains pending as we work through the review process with OTS. We believe we have a business mix that fits well with public policy goals and that we meet other requirements. However, it is difficult to handicap the prospects of this, given the fluid nature of government strategies, priorities and available funds. We will continue assessing this option but our capital and liquidity strategies will not depend on it. The second potential strategy is selected asset sales. You saw one small step in this direction with the announced sale of our Mexican life and P&C platform. I'm not going to comment further with specifics on this area, but suffice it to say that selective work continues in a diligent manner. As we look at opportunities to add to capital flexibility, let me emphasize that we would work to minimize any shareholder dilution.

So in sum, we have wrapped up a very tough year but have taken decisive steps in a short period of time to position the Company for the future in support of our policyholders and rebuilding value for our shareholders. Clearly, I am not satisfied with our results and am disappointed in falling short of our goals but I am proud of how our associates and distribution partners responded, enabling us to move ahead. And that is exactly what we are doing with energy and confidence.

With that, let me turn it over to Pat.

Thanks, Mike.

Genworth made great progress on capital and liquidity in the fourth quarter and while the challenging environment did take its toll on earnings, here again we took decisive action to manage against ongoing headwinds. The more than 50 points of improvement we estimate in our RBC ratio since last quarter to the 420 to 450% range at year-end positions the life companies very well. We expect to be able to cover potential additional impairments in 2009, and even to comfortably absorb another decline in the S&P 500 index, for example, to the 700 level by year-end. With our current RBC levels, we believe we can stay within our targeted ratio of 350% or higher through 2009 with continued use of reinsurance and capital projects.

This morning, I will focus on three areas. Results in the quarter, how we are positioning Genworth for the future, and some perspectives on outlook for 2009. Starting with the quarter. Our international segment had the strongest performance of the group with $124 million of net operating earnings. This was down from the prior year quarter, due mostly to unfavorable foreign exchange of $30 million, and a $13 million change in net benefit last year from an annual year-end update to the international premium recognition calculation.

Results in our US segments clearly were unsatisfactory. US Mortgage Insurance reflected difficult housing market conditions. In Retirement and Protection, extreme volatility led to significant write-offs of deferred acquisition costs and goodwill in our retirement income business, driving the segment earnings negative overall. The goodwill charge totaled $238 million, and DAC acceleration in both fee based and spread based retirement income lines was $59 million. Results in the quarter also included good mortality and life insurance, improved loss ratio in long-term care, and positive results from wealth management, despite a difficult market. In the investment portfolio, the large cash balances we built for liquidity purposes contributed to lower net investment income, as did a decrease in limited partnership income of $28 million.

Now let me turn to net income. Which had large components in both the gain and loss categories. On the gain side of the equation, we generated about $445 million after tax of gain on an interest rate floor strategy that we employ as part of our risk and capital management program. We've since modified the program to minimize volatility going forward. These modifications essentially lock in gains. However, we should expect some ongoing quarterly volatility in evaluation of the position. This gain helped moderate our total net realized loss for the quarter. On the loss side of the equation, we had impairments of $529 million, and the $25 million restructuring charge in the quarter.

Included in impairments were $290 million of additional write-offs of structured assets, mostly subprime and Alt-A RMBS. From an accounting perspective, we do 9920 impairment testing on these securities based on their current rating, rather than on their original rating which is the other approach commonly employed in the industry. As a result, about 70% of our subprime and Alt-A RMBS are subject to this testing. We think this results in relatively more conservative marks on these securities.

Let's shift to the decisive business actions we are taking to position Genworth for the future. These steps include the following refinements to our specialist insurer strategy. First, in Retirement and Protection, we shifted our infrastructure to fit a more specialist life Company model. We will be more selective in our product offerings, continuing our leading positions in long-term care, wealth management and life and being more opportunistic with annuities. Second, we scaled back international expansion plans to reflect the global economic slowdown. In our established platforms, we expect lower new business levels, reflecting smaller origination markets and tightened underwriting.

Achieving this required focus in three areas. First, cutting expenses and right-sizing our organization to reflect market realities. Second, targeting new business production at the best opportunities. And finally, continuing to take decisive risk management action. Starting with expenses, in January we reduced our employee base by 14%, to reflect the slowing economic environment and the refinement of our strategy. This reduces headquarters and business expenses by eliminating redundancies. In total, these steps will result in over $100 million in annualized gross cost savings. This, together with other planned actions, positions Genworth to reduce net expenses by up to $150 million on an annual run rate basis by the third quarter of 2009.

Now, turning to new business. In Retirement and Protection, we changed to a functional model to better align product and distribution resources. This enables us to be more selective in our product portfolios, and more tightly aligned with our key distribution partners. We will build on our strong long-term care and life insurance businesses and our growing leadership in the independent advisor wealth management arena. Given our capital management, our risk appetite and the market environment, we will sell less fixed and variable annuities in 2009 than we have in the past. With respect to variable annuities, we've taken actions to mitigate the impact of the equity market downturn. We've raised prices on our withdrawal benefit rider to offset higher hedging costs and given the volatile market we are currently developing new product designs that balance commercial appeal with our capital and risk requirements.

Turning to international new business production, our plans take into account slowing global economies and the risk management actions we've taken over the past 12 months. Given the economic slowdown, we expect smaller origination markets in all geographies and a curtailment of retail credit in Europe. Our risk management actions include tightened underwriting, product restrictions and price increases in some markets. Taking into account both of these factors, we expect higher quality new business but lower levels of new business premium across the international segment. In US Mortgage Insurance, we've already pulled back sharply on products and geographies as part of our risk management rigor. We expect this, combined with slowing originations, to cause a measurable reduction in new business levels in 2009.

We are managing US MI new business writings to make sure we stay appropriately capitalized at levels well below the statutory limit of 25 to 1. That means that if the loss environment weakens beyond our stress scenario assumptions, we will stay flexible and could further restrain sales if conditions warrant in order to preserve capital. Specifically we manage our capital under the assumption of a severely stressed environment. This assumes continued rising unemployment towards 10% by early 2010. We assume home prices that have declined 20% from their peak through the end of 2008 have another 13% to go before troughing. This is based on the National Association of Realtor's Index for those who watch Kay Schiller, the equivalent decline would be 36%.

Turning to risk management actions, these are most pronounced in our US Mortgage Insurance business. Here, loss mitigation is a key factor and this reduced US MI losses by $135 million in the quarter. We expect that number will grow in 2009. We, as well as others in the industry, have seen heightened levels of misrepresentation in the 2005 to 2007 books in particular and we will review and audit flow and bulk claims to validate coverage. We rescinded a bulk portfolio contract in the quarter where we saw fraud and misrepresentation. This contributed to a decline of about $475 million in bulk risk in force. We currently have a total of $872 million of bulk risk in force, divided evenly between GSE Alt-A and Federal Home Loan Bank business. We will continue to look carefully at loss development here and we would expect to see additional rescission activity.

Before I turn it over to Ron, let me provide some perspective on our 2009 outlook. The environment remains volatile and uncertain. There are many government programs under consideration or in implementation. And no one knows how effective they will be. Unemployment is increasing and no one is certain when it will peak. This makes it difficult to provide a specific outlook for 2009.

Instead, I will discuss key drivers of each business segment and how various scenarios would impact 2009 operating earnings. Retirement and Protection earnings will of course depend on the fixed income investment markets. Additionally, equity markets have influence both on retirement income and on wealth management. Even a modest recovery would have a positive influence. Distribution management is also key as we reinforce Genworth's position as the preferred provider of individual long-term care insurance and a solid player in the main stream market for life insurance, Medicare supplemental insurance and related services.

In the investment portfolios, we are making good in roads and appropriate repositioning among asset classes and sectors. Still, we expect some yield pressure from high cash balances until we can start to effectively redeploy those funds. The weak economy is also likely to impact limited partnerships and realized investment losses. This would create some income pressure. International earnings should still deliver very respectable earnings. However, we do expect results to be below 2008 performance, reflecting a stronger US dollar, lower new business premiums, and challenging economic environments in international markets. Foreign exchange is expected to have the most significant impact.

In US Mortgage Insurance, loss pressures will continue. We have received substantial benefits from captive reinsurance covering over $500 million of losses in 2008. This will continue, although these benefits will trend down in 2009. Regarding the captives, we should note that in total, approximately $1 billion of aggregate trust balances remain across the various captives and performance among these captives does vary with some not yet penetrated and others having exhausted their coverage. All in, we do expect US MI earnings to improve in 2009 and our estimates do not attempt to reflect the impact of new government programs to keep people in their homes.

Under the severe stress we've modeled, our outlook for the US MI operating loss would be roughly in line with 2008. This does reflect aggressive loss mitigation, captive benefits and the unemployment and home price declines I mentioned earlier. On the other hand, if we do get to double-digit unemployment for any protracted period or if home prices fall even further than expected, these results could be worse. Adding this all up, we are taking necessary actions that position Genworth to navigate this difficult period. Earnings clearly remain pressured in the near term but the steps we've taken and are taking going forward will preserve capital and book value over time and position Genworth for a return to solid business growth.

And with that, I'll turn it over to Ron.

Thank you, Pat. Genworth's investment portfolio has been impacted by economic uncertainty, frozen credit markets and spread widening. We are managing investment assets under the assumption that the recession will be deep and prolonged though we hold out the possibility of improvement late in 2009 or early 2010. Throughout 2008, we have invested with an eye towards intensively managing liquidity and capital as Mike and Pat have noted. Accordingly, we're focused on risk reduction and portfolio diversification. We're also selectively taking advantage of some attractive investment opportunities, especially the wide spreads in investment grade corporates.

This morning I'll cover four areas. Investment income, more detail on impairments and unrealized losses in the fourth quarter. Asset classes where we focus a great deal of time and attention and finally, how we're defensively positioning the portfolio given this current economic environment. Starting with net investment income, NII declined about $400 million pretax to $3.7 billion, from the prior year. However, this was primarily from floating rate assets and the earnings impact was partially mitigated by a reduction in interest credited on floating rate liabilities. We also had $114 million of lower limited partnership income in 2008 on a pretax basis as our equity in these investments decreased. Yields on our core fixed income portfolio have been stable throughout 2008, averaging about 5.8% with little volatility quarter-to-quarter. We define this core portfolio as excluding floating rate assets, limited partnerships, mortgage prepayments, and the excess cash balances we are currently holding.

As Alicia mentioned, we posted some investment slides on our website and one shows a reconciliation of the net investment income from core fixed, and these variable income assets. Looking ahead, we would expect core yields to remain relatively stable. Turning to impairments, these totaled $529 million in the quarter, of that amount, $290 million related to RMBS, with subprime and Alt-A comprising about $219 million. The RMBS portfolio has already been paid down substantially. Excluding impairments, subprime has paid down 53% of face value through continued payments and similarly Alt-A has paid down 35%. Our remaining portfolio includes approximately $600 million of subprime and $500 million of Alt-A, of which 56% is rated AAA or AA. The difference between book and market of these remaining securities total about $600 million on the Alt-A and subprime portfolio combined.

In contrast, the prime RMBS portfolio has seen marginal deterioration. In the quarter there were $71 million of impairments, all on assets rated A or below and the portfolio has also paid down substantially, 39% from continued payments. We also had $219 million of impairments in the corporate bond portfolio with the exception of one financial credit event, write-downs were not concentrated in any particular sector or issuer. We continue to diversify the portfolio in anticipation of weakening overall economic trends.

Turning to unrealized losses, the net unrealized investment losses were about $4 billion, net of tax, DAC and other items. Excluding these items, net unrealized losses were $7 billion, up from $5.1 billion in the third quarter. The increase was primarily from corporate bonds which increased nearly $1 billion as spreads widened by 150 to 200 basis points along the curve. With the greatest impact being in consumer cyclicals. These spreads represent underlying default rates higher than we would anticipate and are more reflective of the supply demand imbalance than expected defaults. Unrealized losses for CMBS increased about $820 million as spreads widened across all credit qualities and maturities.

Looking at it another way, if the -- of the $7 billion of net unrealized losses, $4.8 billion represent securities with market value declines in excess of 20% for a time period greater than 12 months. Of that, about $1.7 billion represents financials, which we know have been hard-hit, but have also been generally supported by government actions. Another $2.3 billion represents mortgage and asset backed securities, where we cash flow test individual assets and feel comfortable given the expected principal repayments as compared with the book value. The remaining is comprised primarily of investment grade securities where we have reviewed each asset and expect to receive all contractual payments and finally, let me spend some additional time on asset classes that have become more of a focal point in this market, specifically commercial mortgage loans, commercial mortgage backed security or CMBS and European hybrids.

Beginning with commercial mortgage loans, our $8.3 billion portfolio has been invested with some of the tightest underwriting standards in the industry. We have about 2,200 loans with an average loan size of only $4 million. The portfolio is well-diversified by property type with about 29% retail, 26% office and 26% industrial. Average occupancy remains high at 92% and the average loan to value is a conservative 54% and that is at current valuations not at origination. The average debt service coverage ratio stands at nearly two times. Given the uncertainties surrounding refinancing in this environment, we expect the portfolio to benefit from the fact that only 2% of the portfolio matures in 2009 and just 4% matures in 2010. In sum, our commercial loan portfolio has performed very well with an increase of only $2 million in the mortgage loan loss reserve in the quarter bringing the total to $23 million on the $8.3 billion portfolio. And, given its risk characteristics, we would expect continued good performance even in this challenging environment.

Turning to our $3.8 billion of commercial mortgage backed securities, we assess this portfolio in a number of ways, including by vintage, by rating and by deal type. I'll start with vintage. More than half the portfolio is from 2004 and prior. The remainder is fairly evenly divided among the '05 through '07 vintages. In the later vintages, the majority of our exposure is the large loan category where we re-underwrite each underlying loan routinely. Next, 88% of the portfolio is rated AAA or AA, only 1% is rated below BBB and nearly all of these is from 2004 and prior vintages.

In total, our upgrade to downgrade ratio for the portfolio is more than twice the sector average. We have experienced 1.5 to 1 upgrades over down grades compared to a market average of 0.7 to one. Delinquencies have also been navigable, tracking at slightly over 1% for the quarter. Portfolio has low leverage and strong coverage with a weighted average loan to value of 62%, I'm sorry with a weighted loan to value average of 62%. And a weighted average debt service coverage ratio of 1.6 times. Given these characteristics, we believe this portfolio can withstand high levels of stress. Assuming a 15 to 40% drop in commercial real estate property values, and unemployment between 8 and 11%, only 8% of our our CMBS holdings demonstrate less than four times coverage based on the average of these ranges. Less than 1% is below 1.2 times coverage. This testing was based on December data.

Regarding CMBS deal types, conduits represent about 57% of the portfolio, of which 88% is rated AAA or AA. The second largest deal type is large loan, which includes multi-borrower floating rate transactions as well as single borrower deals. These transactions represent 23% of CMBS, and here we have greater transparency and lower trust leverage. In addition we re-underwrote all of the CMBS at the property level with lower trust leverage and lower subordination. Finally, there is minimal re-fi risk in our floating rate portfolio with less than 5% of the portfolio repaying in 2009 and less than 9% scheduled in 2010. Another area where we're paying close attention is our hybrid securities portfolio from European and UK banks. While some of these securities are suffering from talk about potential nationalization of UK banks, it is unclear which if any of these securities would ultimately be impacted. We have approximately $415 million of hybrid exposure to the United Kingdom banks. Of this amount, $230 million is invested in Tier 1 capital securities.

And in closing, we are actively working to defensively position the portfolio for market realities. 2008 was a challenging year because the focus was on liquidity and capital preservation through risk reduction and repositioning. As our liquidity and capital picture have both improved, we are focused on putting money to work in high quality corporates, where we can take advantage of wider spreads. We invest with an eye toward fundamental credit analysis, generating appropriate returns given our risk tolerance and desire for excess capital, and producing stable net investment income for our portfolios. And with that, we will open it up for questions.

Thank you, ladies and gentlemen. At this time we'll begin the Q&A portion of the call. As a reminder, please refrain from using cell phones, speaker phones or headsets. (Operator Instructions). And we'll take our first question from Ed Spehar with Merrill Lynch.

Good morning. I had a few quick questions. I guess the first is, Mike, you mentioned the possibility I think of bringing cash down and investing longer. And I'm just wondering, why would you bring cash balances down right now? I think where the stock is trading, it's clearly not about earnings and so how do you balance that versus just the comfort maybe that's provided by a higher cash balance? And then on the statutory side, is there any ongoing statutory earnings impact from the realization of this derivative gain? And maybe you could give us some indication of what the preliminary stat operating earnings were for '08 and is there any reason to think that that will change materially in '09? Thanks. Again operating, not net.

Thanks, Ed. Let me provide a perspective and then hand it over to Pat for some more specifics. Listen, I think we've been very clear and I'll try to always emphasize that we will always manage this business in this type of environment first for capital and liquidity and we've built strong capital positions or stronger capital positions as you've seen and excellent liquidity and we will maintain that. No doubt about that. We'll be prudent and thoughtful about it. Just when we do look at results, we do have some opportunities, we think, to gradually reinvest some excess cash levels. But we're going to do that always with prudence in mind. So with that as a backdrop, Pat, do you want to pick up and provide some more specifics, please?

Yes, I will, Mike. A big portion of our cash position, about $4.5 billion is in the US life companies and here we're holding cash for two reasons. First, a portion of the cash will be used for funding agreements that are maturing throughout 2009. And second, we've increased our cash position to ensure flexibility to meet policyholder needs for cash withdrawals as the economy slows and as markets decline and in this context I should note that our lapses at the end of the year and heading into 2009 for both the single premium deferred annuities and the guaranteed investment contracts, were less than planned and they're trending lower. And as a result, we're being cautious but we're currently planning to redeploy some of the current cash holdings.

Now, another big cash position is in our international companies. We have about $1.7 billion of cash. And these international companies don't have I'll say deposit like or cash value products. Here we're holding some excess cash primarily as a result of portfolio repositioning that's in progress, as we move away from lower investment grade quality to higher quality given the slowing global environment. So there we think there's an appropriate opportunity to redeploy some of the cash and that's part of the plan that we have in place.

Now, getting to the derivative gain, what I would say, as part of the normal risk management program that we have in place here, we identify and pursue hedging strategies, where appropriate. In 2008, Genworth developed a view that the economic downturn may well be more significant than we previously estimated and it might lead to significant declines in interest rates, which could impact our capital position. So we put the floors in place to hedge this risk. Interest rates, subsequently fell faster and steeper than we modeled and as rates moderated, we modified the program, effectively to lock in gains and significantly reduce the sensitivity of the position to future moves in rates. That increased our surplus significantly because those are income producing derivatives and we would expect to manage that position going forward and over a period of time that will come in -- it's already in our surplus and it will eventually work through the operating earnings and our reports.

If I look at statutory earnings for 2008, I can only really give you a preliminary information. We did have, I would say, a large reserve build relating to our VA business, but if we normalize for this, our US life Company, statutory operating earnings would be about $400 million. Does that address your questions, Ed?

Yeah. Just, Pat, can you maybe give us any indication, barring major change in the equity market, is that a kind of run rate to expect for the life companies to continue?

The run rate that we would expect, probably I'd have to say ignoring the variable annuity reserves, because that will be volatile coming through the next year, is about $400 million.

Okay. Thank you. And that's just the life Company; right? US life.

Just the life companies.

Thanks.

We'll take our next question from Steven Schwartz from Raymond James.

Good morning, can you hear me.

Yes, we can hear you.

Great. Just Pat, just to follow up here, the hedging that you had that went through your surplus, your point here is that you took the gain, you're no more risky than you were, you feel comfortable with that?

That's correct.

Okay. I just wanted to ask a couple more. Pat, there was some type of refinement to LTC, can you talk about that?

I'd like to ask Buck Stinson to explain that to you.

The reserve refinement you saw in the fourth quarter was the result of an upgrade in our actuarial valuation systems. Those changes provided the business with a more refined calculation on the valuation factors for our claim reserves and that was -- that resulted in a bump in earnings there of about $10 million in the fourth quarter.

Great. Thank you, Buck. And then finally, there is a statement in the press release talking about how 80% of delinquencies were sold through the GSEs, something to that extent. What is the importance of that statement? Is that to suggest that that's what could be affected if cram-down legislation were to come through?

Let me turn that over to Kevin Schneider.

Steven, the purpose of the statement was just to identify how much of the business that we had insured ultimately ended up with the GSEs, compared to business that might have gone -- that might still be in originators or investor's portfolios and private MBS. Cram-down, the implication that cram-down is really too soon to understand where that might impact across either of those different places but it's certainly a large percentage of all the business that we do associated with the GSEs. So anything that would impact or improve delinquencies relative to the GSEs or other modification programs that Fannie Mae or Freddie Mac might be doing would be -- that's 80% of our portfolio that would be subject to that.

Okay. Thank you very much, guys.

We'll take our next question from Andrew Kligerman with UBS.

Good morning. First question is around the reinsurance that you mentioned. Could you -- if I recall correctly, you were looking to -- you did over $100 million as you had reported the third quarter into the fourth and you expected to do another $500 million. Could you give us a little color on how much capital you freed up on reinsurance and in what areas you were able to do so?

Andrew, let me turn that over to Pat.

Hi, Andrew. Over the course of the fourth quarter, we completed virtually all of the capital projects that we had out there. That created what I'll call capital capacity which is a combination of increase in available capital as well as reductions in required capital of about $700 million to $750 million. The types of transactions we did were two I'll say traditional reinsurance transactions and two securitization type reinsurance transactions which utilize letters of credit and all these transactions relate to our life product lines and the character of them is such that they're risk transfer but they're also financing oriented.

Is there any capacity to do more of that if need be next year or in '09, rather, and what are your intentions around that?

We would plan to use reinsurance as part of our ongoing capital and risk management program going forward, just the same way that we have this year.

But nothing specific? Because last year you had specifics outlined. This year, no?

We have plans in place but at this time I really can't -- I don't have specifics that I'm prepared to share with you.

Okay. That's good. And then on the fixed annuity book, you've got about $12 billion in assets. I think I see about $730 million plus of surrenders in the quarter. Certainly not bad and certainly not even close to some of the panic some people were predicting. So, you know, a relatively very good performance. So you mentioned on the call that the surrenders actually mitigated toward the end of the year. Could you give us a little color around that? How much did it mitigate toward the end of the year relative -- I mean, relative to the beginning of the fourth quarter? What do you see happening going on in '09 in that book?

Let me just give you a general perspective and turn it over to Pam. I mean, first, it didn't go up significantly.

Right.

I think that's the first point. A second point is when there are times of uncertainty, it's up to us to communicate about the realities and strengths of the business and be balanced and we did that with our distribution and the distribution then takes that word on and I think that was very effectively done by our team. So then we've seen them really come back down, even that modest move, really come back down to quite normal levels and Pam maybe provide some more color, please.

Given the challenging market environment and what we have learned consumers need for cash, fixed annuities were slightly elevated in October and November. But I want to remind everybody that this was not outside of our normal range for a two-year period and then they have trended down in December and even more so in January.

That's great. And --

We think we're in good shape there, Andrew.

That's great. And then lastly, with regard to RBC, I just want to make sure I'm hearing and reading that right. There's a phrase in the press release and I think it was stated on the call as well, anticipate maintaining its RBC at or above the 350% level. When you state that, do you mean that you just don't see it getting that low or do you anticipate actually toward the end of the year migrating toward that 350% level, down from the much higher level you're standing at at the end of the year?

Pat, you want to take that, please?

Sure, I'll do that. In our capital planning, we look at the expectations for performance next year and we take into account worse than expected results in terms of the different factors that influence our capital position going forward given the environment that we're in and as we do that, and we look at the management actions that we would take in managing the business and capital positions going forward through that period, we feel comfortable that we're on track, managing to levels at or over the 350 target level.

Pat, you don't necessarily expect to go to the 350? Or you do?

We're not making a point forecast, just a way to think about it, Andrew. We run the business -- this is Mike, I'm sorry. We run the business to be at or above 350. That is where we think we will come in at the end of '09. But let's -- you know, let's all understand that we have an uncertain economic and investment environment and you've heard all types of companies talk about that in the industry so we've created a nice, what we think is buffer, to handle those uncertainties and still run the Company comfortably in the range that we want to for our products, our distribution and our ratings.

Thanks a lot.

Thank you, Andrew.

We'll take our next question from Tom Gallagher with Credit Suisse.

Good morning. Mike, first question, just on strategic alternatives for US MI. Can you talk a bit about the way you're thinking about that business? Is it possible to still potentially spin that off? What would that do to capitalization or just overall what are you thinking about US MI right now?

Great question. Let me just share a few key perspectives that you may find helpful and if somebody has a BlackBerry, let's get it away from the phone, please. First, given the rapidly changing market conditions, we did not identify any immediate attractive or viable strategic alternatives, though various groups continue to identify cooperation concepts with us in areas like new business reinsurance so those discussions certainly continue. In addition, there remains some open areas like the potential availability of TARP funds to insurance companies or even to the MI industry specifically. So we continue to believe that we have the best Mortgage Insurance platform in the business and certainly have been a leader in shifting the business model to a lower risk profile with much higher returns for those new vintages of business. With that in mind, our current priority is to run the business as a viable part of the Company with strong risk management and mitigation practices but importantly, importantly, keep it self-contained from a capital management perspective and overall, when you look at the focus in managing our total business portfolio going forward, certainly it would continue to be on seeking the path that delivers the best value for shareholders. So we update our board periodically on our assessment and we would of course likely announce any formal conclusions when they occur.

So, Mike, bottom line is no plans to have that business consume any capital from other parts, meaning no need to downstream capital, should be self-containing from a capital standpoint while you're considering potential alternatives, is that fair to say?

That is correct, no plan to do so.

Okay. The next question I had, just to follow up with Pat, on these interest rate gains on the interest rate floors, should we think about this that you had interest rate floors in place to defend against, sort of an extreme interest rate environment where minimum contractual guarantees suddenly started becoming exercisable or probably more in the money to customers? And now you've sold those, so is your book now more vulnerable if in fact we do go into a much lower interest rate environment or have you put hedges back in place?

Pat, you want to -- ?

I'll do that. The way I would think about it is, yes, in fact, that's what we did. We looked at the possibility and probability of steep declines in interest rates, which would remain in place over an extended period of time and how would we protect Genworth's capital position and provide for strong claims paying capability in that environment. And in fact, the environment changed. Those hedges increased in value by more than we had anticipated and, therefore, as a result of that better than expected performance, at least in terms of hedge effectiveness, we locked in a significant gain which -- and as we managed the position going forward, what we've effectively done is modified such that it really isn't that sensitive to changes in interest rates at all because we have what we need to cover the event that we're planning for. Does that address your question?

Sure. I just wanted to make sure you still had a similar sized hedge now in place. That in fact if we do experience a long-term decline in interest rates, that you would still be protected.

We are indeed.

Okay. Thanks. And then last question. So on the $700 million of debt due in 2Q, I believe you have $860 million of cash at the holding Company. So it looks like that's covered. Are there any other obligations we should think about at the holding Company that might be triggered upon, any ratings actions or otherwise?

This is Pat. We feel very good about the cash position of the holding Company. We're in position really to retire the maturing debt and to service normal ongoing obligations which at this point are primarily debt service costs.

Thanks.

We'll take our next question from Darin Arita with Deutsche Bank.

Thank you. I had a question on the dividends from the non-US subsidiaries and out of the $400 million in 2009 , how much of that is a drawdown on the excess capital of the non-US subsidiaries versus the ongoing dividend capacity of these

Pat, will you take that, please?

I will take that question. Yeah, we have dividends scheduled from the non-US subsidiaries and essentially, a significant portion of that is the life insurance or the insurance companies, which are really in a holding Company status in Bermuda, sitting over the top of the international operations. Most of the dividends that we are drawing are from those entities where we've kept substantial capital in excess of regulatory requirements and to a lesser extent, we have sources of dividends from other subsidiaries.

As you think about the Canadian and Australian Mortgage Insurance subsidiaries and also the payment protection or lifestyle protection business, the growth is slowing there. So if we think about 2009 and beyond, to what degree are those earnings really excess capital generation that you could pay as dividends?

I believe that in our international businesses, given that we ended the year with stronger capital positions than we had forecast earlier in the year, and given that markets are slowing and new business growth is following that pattern, that we're very well-positioned looking forward in terms of generating earnings and dividend capacity in those operations.

Thanks. And one last one, in terms of the structured investments and the impairment process. Could you talk about how that impairment testing process works when you base it on ratings, whether it's on current or original ratings?

Yes, I can do that. This is Pat. What we do is what's called a continuous evaluation of the types of securities that go into 9920 testing. There's two approaches that can be used and the other approach is one where when you purchase a security, the rating at that point in time is what determines whether or not that security is subject to 9920 testing. With our approach, what happens is we re-evaluate that decision at every quarter-end or the end of every financial reporting period and if at that point in time we consider that the security is of other than high quality, then we add that to our 9920 impairment testing pool which in this environment makes for a more comprehensive 9920 examination of your cash flows and we believe it generally results in a more conservative approach in your evaluation of OTTI.

I guess, though, if you're looking at -- I'm trying to understand is you're looking at the ratings versus looking at the cash flows, why is it that putting it into the current rating generates and impairment whereas looking at the cash flows by itself did not?

This is Ron. It's really more a question of identifying which securities we then apply the 9920 test. So we identify all structured securities that are not of high quality, so AA minus based on those current ratings so we either choose those or we look at any security that may be of high quality before where the price has declined more than 40% and we would also test those under 9920. So we go beyond the quality rating. We also look at the market value decline.

Thank you.

We'll take our next question from Ann Maysek from Rose Grove Capital.

Thanks for your the disclosure on the hybrid investment in the UK. Can you give a broader idea of what your exposure is to the rest of Europe as well the US, please.

Let me turn that over to Ron. Ron?

Give you a little bit more color. We have about $1.2 billion of total European bank hybrid exposure, so of that amount, it's 415 that relates to the UK and of that UK amount, $230 million represents Tier 1 capital and we're defining Tier 1 as the preferred stock, debt in perpetuity , subordinated, anything where the coupon deferral is non

Ok. And the US.

That $1.2 billion is non-US.

So it's all non-US. It goes beyond Europe.

I'm sorry, the US, you have exposure there too as well?

At this point, we're not disclosing that.

Okay. Thank you.

We'll take our next question from Mark Finkelstein with Fox-Pitt Kelton.

Good morning. Sorry to beat a dead horse here, but I'm still a little bit confused on what was locked in and what the volatility on the interest rate hedges will be going forward. I guess maybe a way to tackle it is if rates were to kind of spike up, how much of that 445 should we think about as potentially reversing and how much would we think about as permanently in stack capital?

Pat, do you want to take that, please?

I'll take that. We've changed the position such that it really doesn't change very much if rates spike up, so to be I'll say conservative, let's say it would move between 90 and 110% within I guess a foreseeable range, if rates move up and then down. So it's really pretty much levelized in terms of sensitivity to interest rates, although it does act in such a way that as we manage it, if rates go significantly down, we will be tilting and shifting that position to protect our down side.

Okay. That's helpful. And then just I guess thinking about life insurance a little bit, I guess is there anything that we should think about in terms of sales going forward and managing statutory strain in light of kind of where we are with credit markets and where you are with your capital position. I mean, how should we think about life sales in that context?

Well, this is Mike. Let me just go back to the strategy. Because if you -- the strategy is to focus on where we have strengths and where we've had the deepest customer relationships and differentiation. And that's very much around what we've said and called main stream life. So how do you think about that? That's term life, under $1 million face. In fact, if you look at our typical average policy size, it's roughly in the $250,000 space. That's a piece of the market too where we get to leverage our technology capabilities and underwriting expertise. Secondly, is in Universal Life. We can go bigger than that. In other words, it's sort of $5 million under, and though once again if you look at a lot of our sweet spot, a lot of our sweet spot is again under the $1 million level. So we're really first focused on saying in a very competitive market, that has had a lot of different approaches to it, let's focus where it's best and in fact, that focus fits with where we want to deploy capital.

Okay. So in those areas, you're not putting the brakes on the production as long as it meets pricing criteria.

You're keeping it focused in those sweet spots and of course, as Pat talked about earlier, one of the great things that we've had for years, this is not just new, is we've had reinsurance partners. And reinsurance partners who frankly value our very disciplined underwriting and the good mortality performance that we've had, so that also brings capacity to you as well. So, any other color on that?

Yeah, just, as Mike pointed out, in the smaller bands we are more competitive in the market, below $1 million in term and particularly 250 and below. And in UL, up to $5 million. I want to say that what we have built there is a service and fulfillment model to make going after that market for our producers and distributors more profitable.

Okay. Thank you.

We'll take our next question from Colin Devine with Citigroup.

Good morning. I was wondering, Mike, if you could talk a little bit about the strategic direction going forward. I recall at the analyst meeting about a year ago, you felt that the market didn't understand you and had it wrong and clearly, the stock's done what it's done. Why do you continue to believe it's viable to run this multi-strategy approach, combining Mortgage Insurance with a traditional life and annuity business?

Well, first let's step back, Colin. We've seen a big shift, obviously, in the markets on multiple fronts. We've seen them shift from economic perspectives and we've also seen them shift specifically in the financial markets. So you're right to point out, we have to deal with those realities and in fact, every Company has to deal with those realities. First thing is we have the mix of businesses that we have and that's is certainly the case, given our history. And what we've tried to do and I think done thoughtfully, is focus them, further focus them for the type of environment we see today and we see going ahead.

You've heard that as far as how we've done that in the specialty model in Retirement and Protection, also in international, focusing on the biggest platforms and then certainly it's been almost a two-year focusing process in US Mortgage Insurance. Now, over time, we will see how the business portfolio plays out. And certainly that can have a shift in mix over a multi-year period. I mean, over a multi-year period you would certainly expect to see the Retirement and Protection, the lifestyle protection component to go up and I would expect some housing exposures to go down. So we'll deal with those but right now, what we -- we'll deal with those strategic issues over time, but right now we're focused on running the best business platforms we can, while we manage capital, profitability, liquidity and risk management in a thoughtful manner.

But then you're saying that you still believe that this mortgage insurance, credit insurance, traditional life strategy is the way to go? I mean, the Company's a reflection of your strategy, Mike, and the stock price is frankly a reflection of that. And what I'm hearing is you remain fully committed to this strategy. If that's incorrect, please clarify.

We're not having a whole strategic Investor Day right now, as a context and I look forward to doing that later in 2009 and get some market clarity. I am suggesting that I think your point about the looking at housing risks and life, Retirement and Protection risks have to be different. And over time, I would see certainly shifting the mix of the Company with a greater, much greater percentage of Retirement and Protection and lifestyle protection mix in the Company and lesser exposure to housing markets. Now, what I'm not doing is making a specific declaration on timing on that, but clearly, there are various strategic alternatives over time that one might consider in looking at that.

All right. Thank you.

We'll take our next question from Scott Frost with HSBC.

Yeah, I wanted to go over something here, make sure I understood it. It looks like when you talk about your bank facilities, you have roughly $750 million available, leaving a $1.250 billion drawn on the facilities. Is that correct? And if so, what's the plan for repaying that debt outstanding and can you remind us of any major covenants on the facility. Are there any ratings or regulatory capital triggers? Are there any specific debt to asset or Mac clause?

You've asked several different questions there. I mean, I'm going to hand it off to Pat to walk through some of the specifics but first of all, as you point out, we did make a draw in November. And that draw also lowered actually our cost of funding because it's lower than the debt that we started buying back and will continue to buy back. And we don't have any current plans to further access those very attractive lines.

I understand that. What I asked, though, was with all due respect I count a $1.250 billion drawn on the facilities, is that correct, and is what's the plan for paying that down.

No, that's not correct.

Okay.

We drew just under $900 million on those facilities. We had just under $740 million still not drawn on those facilities. Now, those facilities go out through 2012 and they're as I said at a much lower cost than a -- well, one, than the debt they replaced and two, certainly than any debt you see in the markets today. So we will pay those off over time.

Okay.

So as you get out in the 2011, 2012 time frame from normal operating performance and cash flows that will come up to the holding Company, that's how those lines will be retired. Now, your second part of that question was could we expand on specifics around the lines. So Pat, could I turn that over to you, please.

Yeah, for the second part of the question, we do have one financial covenant. It's a consolidated minimum net worth requirement and we're currently well in excess of that requirement in terms of our year-end position and consolidated minimum net worth. We also have a couple of restrictions which essentially require that we don't make -- I'll say significant and material changes to the character of the Company and the earnings streams by divesting for example a business segment and essentially change the Company into something different than when it was underwritten at the time that we agreed to the terms of the liquidity facility.

Okay. Great. Thanks, can I have a follow-up for TARP funds. How likely do you think it is that TARP funds will be made available to insurers, generally, assuming that you become or as other companies have, banker thrift holding companies and how do you imagine that would work? Do you think that the support would come at the whole Co versus the Op Co level and why.

This is Mike; let me give you three perspectives. When you look at the overall financial system including insurers and the dialogue is appropriate given their important role in buying a great portion of the bonds as an example in the US and therefore being part of the capital flow system, so there's clearly that case. Who knows, exactly, what will be available and I know there are discussions about that there might be announcements today or additional announcements this week about an overall plan. We'll all have to see what that entails. So I'm not going to handicap that as I try to allude to earlier in the remarks. I mean, if there is a scenario where you have TARP funds, and again, our capital strategy is -- let me be clear -- are not going to be dependent on that as a path because of the other levers that I've talked about. You're going to look at those funds and of course directing any funds towards US businesses. Whether those funds are supportive of giving additional flexibility in life companies or supporting additional growth there, or whether those funds are supportive of US Mortgage Insurance entities in supporting housing, because housing is a very important public policy issue for the entire country right now and in fact, I think that's part of the case for the MI industry and then certainly it's part of our business mix. So you would expect, if there were such funds and it made sense to go down that option, that some of those funds would end up there and then some could be retained at the holding Company for future decisions. Where you wouldn't have funds go of course is outside the US.

Okay. Thank you.

We'll take our next question from with Kunal Shah with Davidson Kempner.

My question's been answered.

We'll take our next question from Suneet Kamath with Sanford Bernstein.

Good morning. I just wanted to follow up on TARP and then I'll have another question. Per my read of the situation, seems like Genworth is the only life insurance Company that has not been approved by the OTS. I apologize if you covered this earlier in your comments. Just wondering what is going on there and then are there any deadlines in terms of having to receive approval, I think there were some of those in the past, just wondering if we should really be concerned that you appear to be sort of an outlyer here and then I'll have a second question.

I'll give you two or three perspective that's might be helpful here. I mean, first of all, there were a number of companies active in this area and of course that creates a certain amount of work in review processes and high amount of demand. Second is every Company has to be looked at with its business mix and we do have a different business mix, specifically, the Mortgage Insurance component would be a different part that is not typical in other situations and, therefore, one has to share information and explain that specifically. Third is the OTS did apply for an extension, well in advance of any of the due date for -- that was initially established in mid January. And I think you noted there was a change in administration, a change in participants in the executive branch, so there is a transition period that we felt the impact of. So the OTS has been clear, that they've continued their work, we continue to work actively with them, give them information as now we move forward and you have a new administration in place and that's how we're taking this forward and that's how we've communicated and I think that's what you've seen and I understand that it's difficult sort of looking outside, in, not having those specifics to say what is transpiring here.

Okay. And then my second question relates to the variable annuity business where I think you said you're going to be opportunistic going forward. If I think back to some of your past investor days, you've used a tag line, don't mean to put words in your mouth but Genworth tries to anticipate where markets are going. And as I think about the variable annuity business, especially the new business opportunities, it just seems to me that there is a huge opportunity here for the life insurance industry and I think that's been addressed by other companies in their comments. So I'm just wondering what you're seeing in that product that will perhaps cause you to be more opportunistic as opposed to more aggressive? We've seen some price increases in the market. Is your view that perhaps the price increases that we've seen are still not appropriate to generate a decent return or what's going on there? Thanks.

Thanks for the question. Let me turn that over to Pam Schutz.

Let me start off with outlining our strategy, which we talked about this morning. It is really one of focus and we have refined our strategy to be more of a specialist. So let me just summarize. We are looking to grow long-term care and related products to long-term care. We are excited about our Main Street strategy in life insurance in the lower bands. And we will continue to grow our wealth management strategy.

With respect to annuities, we, as we've said, we do expect to sell less in 2009 than we have in the past and this would be all annuities and this is based on our risk, our capital management and strategy as well as where we see the market in 2009. Having said all that, we are continuing to sell variable annuities and we do see annuities in general as an important part of retirement income solution for consumers. Our variable annuity strategy, just to walk you back through that, we've been very thoughtful about our product designs, requiring balanced fund allocations in our variable annuity, we have hedging. We do hedging on our withdrawal benefits, as well as starting in August of last year, we have co-insurance on our new business. We are looking at new product designs we will balance commercial appeal as well as meeting our risk and capital strategies for the variable annuity line and as we get closer to that, we will share what those designs are.

If I could just follow up, Pam. I'm just wondering how much of this decision to be opportunistic in VAs is a function of the importance of third party distribution and the fact that your ratings and rating outlook are generally below some of the other bigger players in this space? That's really what I'm trying to get at.

Yeah, I think it's a combination. It's a combination of our capital strategy for 2009, our risk appetite, as well as where we see the market and our distribution and leveraging what we do best in long-term care and in life and in wealth management.

And I'm just going to add to that, that we look forward to going out with our distribution and conveying the capital and liquidity progress that we've made here now that we're out of the quiet period. We think that should be a positive.

Thank you.

We'll take our next question from Amanda Lynam with Goldman Sachs.

Our questions have been asked. Thank you.

We have time for one final question. We'll take it from Eric Berg with Barclays Capital.

Thanks much. Two questions. Good morning to everyone, by the way. With respect to the decision in the December quarter of the bulk deal that you're saying included an element of either misrepresentation or other fraud, to what extent were the earnings in the December quarter in Mortgage Insurance affected by your challenging or your cancellation of that contract and should we consider this to be a closed matter or is it reasonable to presume that this is going to have to be litigated and we'll just have to see whether there will be ongoing obligations under this bulk deal. That's my first question.

Let me turn that over to Kevin Schneider.

Good morning, Eric.

Good morning to you, Kevin.

We, as we reported in the second quarter of the year, we had filed an arbitration proceeding regarding those bulk transactions, seeking really a declaration of our rights to rescind the coverage, which we did on a pool-wide basis in December. The results of our performance in the quarter, as a result, was basically frozen. Just think about it sort of frozen, suspended in time. We didn't realize any material benefits from a reduction in those losses. We -- what you'll see is that we did take down our risk in force. So it did impact our risk in force level, relative to our bulk business, and had a, therefore, a little bit of an impact on our risk to capital levels. In terms of whether you think that -- your second question was, is this a closed issue? And as I mentioned, when we did the pool-wide rescission, we amended our arbitration demand and would imagine we'll continue to work with the other party to try and resolve it.

Second question relates to XXX and the series of securitizations that you have done over the years. To the extent that there are declines in asset values that have occurred inside those trusts, to what extent is there recourse to Genworth and to what extent might the corporation have to place additional assets into those trusts?

Pat, do you want to take that, please?

The programs that we have put together are -- I think I accurately described them as non-recourse programs and we designed those such, they would be self-sustaining and accordingly, we feel very comfortable with the way that they're working at this time. We would like to see less declines in those assets, but hopefully that will change over time as well.

Thank you.

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