This document provides an overview of mortgage insurance losses and captive reinsurance arrangements. It defines key terms like insurance in force, coverage percentage, lifetime claim frequency, severity, and risk sharing arrangements. Examples are given to illustrate how losses are calculated and shared between the mortgage insurer and reinsurance captive. Captive attachment points, timing of benefits, and an example scenario are outlined. The appendix contains cautionary language about forward-looking statements.
2. Forward-Looking Statements
This presentation contains “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words
such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” or
words of similar meaning and include, but are not limited to, statements regarding the outlook for
the company’s future business and financial performance. Forward-looking statements are based
on management’s current expectations and assumptions, which are subject to inherent
uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and
results may differ materially due to global political, economic, business, competitive, market,
regulatory and other factors, including those discussed in the Appendix and in the risk factors
section of the company’s Form 10-K filed with the SEC on February 28, 2007, Form 8-K filed with the
SEC on April 16, 2007 and Form 10-Q filed with the SEC on October 26, 2007. The company
undertakes no obligation to publicly update any forward-looking statement, whether as a result of
new information, future developments or otherwise.
For important information regarding the use of non-GAAP measures included in this presentation,
see our Third Quarter Financial Supplement which can be found on our website at
www.genworth.com.
October 31, 2007 1
3. Mortgage Insurance Loss Tutorial
Industry Lifetime Claim Frequency(4)
Loss Example
Number of Claims Per 100 Loans
Insurance In Force $100
Books
20
Seasoned
Books
Coverage %(1) 25% Through Oil
15 Seasoned Through
Patch
Southern California
Recession
10
Lifetime Claim Frequency
Expectation Per 100 Loans (2) 7% 5
0
Severity (3) 100% ‘80 ‘82 ‘84 ‘86 ‘88 ‘90 ‘92 ‘94 ‘96 ’98 ‘00 ‘02 ‘04
Book Year
Lifetime Losses $1.75 Industry Changes Since Late ’80s:
– Increased Prices
– Adopted FICO Credit Scores For Underwriting
– GSE’s Adopted Use of Automated Underwriting
– Growth of Higher Loan-To-Value Loans, Alt-A,
and Subprime Insured Products
Coverage Percent Based on 90% Loan-to-Value Example
(1)
Lifetime Claim Frequency Assumption Based on Number of Claims For Every 100 Loans Originated in a Book Year
(2)
(3) Severity Represents Actual Claim Amount Divided By Associated Risk in Force
(4) 2002-2004 Industry Book Years Lifetime Frequency Not Fully Developed
October 31, 2007 2
4. Risk Sharing Arrangements in the U.S.
61% Portfolio In Captive Arrangements*
- Mortgage Insurer Retains 1st Loss Position
- Lender “Captive” Takes 2nd Loss Position (“Excess of Loss”)
- Varies Based on Attachment Point for Losses
- Receives Premium (~25% - 40%)
- Mortgage Insurer Has Remaining Exposure
40% Cede Excess of Loss Example 25% Cede Excess of Loss Example
Premiums Losses Premiums Losses
Lender 25%
Remaining Remaining
Lender 40% GNW GNW
Losses Losses
2nd Loss 2nd Loss
Lender Lender
(4-14 Claims Layer) (5-10 Claims Layer)
60% 75%
GNW GNW
1st Loss (0-4 Claims Layer) 1st Loss (0-5 Claims Layer)
GNW GNW
* As of 9/30/07
October 31, 2007 3
5. Captive Reinsurance Tutorial
Captive Attachment Points Are Expressed In Dollars Based On Percentage of a
Book Year’s Original Risk in Force
Captive Reinsurance Is Written on a “Book Year” Basis By Individual Lender
Captive Reinsurance Premiums Are Deposited in Third Party Trust to Collateralize
Claims Obligations
• Genworth Is the Sole Beneficiary of the Trust
• Captive’s Liability Limited to Funds in Trust
Captives Are Cross-Collateralized
• All Funds in the Captive Trust Are Available to Pay Reinsurer Losses in Any Book Year
• Across Book Years By Lender …Existing and New Business
Captive Trust Capital Requirements
• Required to Maintain Greater of:
– 10 to 1 Risk to Capital Ratio, or
– Reinsurer’s Share of Contingency Reserve
• Capital Must Build to 5:1 Risk to Capital Before Reinsurer May Withdraw Capital From Trust
$840 Million In Captive Trusts As Of 9/30/07*
*Trust Fund Balance Subject to Future Additional Ceded Premium, Payment of Claims and Withdrawal of Dividends
October 31, 2007 4
6. Captive Reinsurance Tutorial
Captive Reinsurance Attachment Timing Varies By Lender, By Book Year
GAAP Benefit Starts When Incurred Losses Reach Attachment Point
– Incurred Losses = Paid Claims + Reserves for Delinquencies
Cash Benefit Starts When Claims Paid Reach Attachment Point
Conceptual Illustration*
Lender Book Year
A 2007
A 2006
Captive Losses
B 2007
B 2006
C 2007
C 2006
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
*Actual Results will Vary by Lender/Composition of Product Reinsured; Graphical Example Assumes Captive Attachment in 2009
October 31, 2007 5
7. Captive Reinsurance Example
Single Lender Scenario
One Book Year – Single Lender Captive
$100 Million Risk In Force Originated in 2006
40% Captive Reinsurance … 4% Attachment Point ($4 Million)
Ultimate Claims Rate of 8% and an Accelerated Loss Development Curve
GNW Revenue Captive
Benefits
GNW Incurred Losses
GNW Accrues Captive
($ in Thousands)
Benefit Based on
Incurred Losses Captive Pays
Cash For
Losses to GNW
Life
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Claims Paid 5 341 1,078 1,595 2,089 1,125 803 482 321 161 8,000
Change in Reserves 235 1,419 682 165 (1,049) (565) (403) (242) (161) (81) 0
Captive Benefit Accrued 0 0 0 (1,520) (1,040) (560) (400) (240) (160) (80) (4,000)
GNW Incurred Losses $240 $1,760 $1,760 $240 - - - - - - $4,000
October 31, 2007 6
8. Appendix
Cautionary note regarding forward-looking statements
This presentation contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-
looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “will,” or words of
similar meaning and include, but are not limited to, statements regarding the outlook for our future business and financial performance. Forward-
looking statements are based on management’s current expectations and assumptions, which are subject to inherent uncertainties, risks and
changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to global political, economic, business,
competitive, market, regulatory and other factors and risks, including the following:
• Risks relating to our businesses, including interest rate fluctuations, downturns and volatility in equity and credit markets, defaults in portfolio
securities, downgrades in our financial strength and credit ratings, insufficiency of reserves, legal constraints on dividend distributions by
subsidiaries, competition, availability and adequacy of reinsurance, defaults by counterparties, regulatory restrictions on our operations and changes
in applicable laws and regulations, legal or regulatory investigations or actions, political or economic instability, the failure or any compromise of the
security of our computer systems, and the occurrence of natural or man-made disasters or a pandemic disease;
• Risks relating to our U.S. Mortgage Insurance segment, including the influence of Fannie Mae, Freddie Mac and a small number of large mortgage
lenders and investors, decreases in the volume of high loan-to-value mortgage originations or increases in mortgage insurance cancellations,
increases in the use of simultaneous second mortgages and other alternatives to private mortgage insurance and reductions by lenders in the level
of coverage they select, unexpected increases in mortgage insurance default rates or severity of defaults, deterioration in economic conditions or a
decline in home price appreciation, increases in the use of reinsurance with reinsurance companies affiliated with our mortgage lending customers,
increased competition with government-owned and government-sponsored entities offering mortgage insurance, changes in regulations, legal
actions under Real Estate Settlement Practices Act, and potential liabilities in connection with our U.S. contract underwriting services; and
• Other risks, including the possibility that in certain circumstances we will be obligated to make payments to GE under our tax matters agreement
even if our corresponding tax savings are never realized and payments could be accelerated in the event of certain changes in control, and
provisions of our certificate of incorporation and by-laws and our tax matters agreement with GE may discourage takeover attempts and business
combinations that stockholders might consider in their best interests.
We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
October 31, 2007 7