Genworth Financial, Inc.

Amy Corbin - Senior Vice President Investor Relations Tom McInerney - President and Chief Executive Officer Marty Klein - Chief Financial Officer Kevin Schneider - President and Chief Executive Officer, Global Mortgage Insurance

Jimmy Bhullar - JP Morgan Suneet Kamath - UBS Sean Dargan - Macquarie Ryan Krueger - Keefe Bruyette & Woods Colin Devine - Jefferies Geoffrey Dunn - Dowling & Partners Steven Schwartz - Raymond James Scott Frost - Bank of America/Merrill Lynch

Thank you, operator, and good morning, everyone. Thank you for joining us for Genworth’s fourth quarter 2014 earnings call.

In addition to covering our fourth quarter results, we will discuss the long-term care active life margin review and provide an update on our strategic priorities. Our press release and financial supplement were released last evening.

Earlier this morning, our fourth quarter earnings summary presentation, along with the investor materials covering the long-term care active life margin review and our strategic priorities were posted to our website. Both of these presentations will be referenced during our call this morning, and we encourage you to review all of these materials.

Today, you will hear from our President and Chief Executive Officer, Tom McInerney, followed by Marty Klein, our Chief Financial Officer. Following our prepared comments, we will open the call up for a question-and-answer period.

In addition to our speakers, Kevin Schneider, President and CEO of our Global Mortgage Insurance Division will be available to take your questions. With regard to forward-looking statements and the use of non-GAAP financial information, during the call this morning, we may make various forward-looking statements.

Our actual results may differ materially from such statements. We advise you to read the cautionary note regarding forward-looking statements in our earnings release and related presentations, as well as the Risk Factors of our most recent Annual Report on Form 10-K and our Form 10-Qs, as filed with the SEC.

This morning's discussion also includes non-GAAP financial measures that we believe maybe meaningful to investors. In our financial supplement, earnings release and investor materials, non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules.

Also when we talk about international protection and international mortgage insurance results, please note that all percentage changes exclude the impact of foreign exchange. And references to statutory results are estimates for the quarter, due to the timing of the filing of the statutory statements.

Given the level of interest for today's call, we ask that analysts limit themselves to one question and one follow-up. Should you have additional questions, please re-enter the queue.

And now, I'll turn the call over to our CEO, Tom McInerney.

Thank you, Amy, and good morning, everyone. Our objectives for this call are to: update you on fourth quarter of 2014 results; provide a summary of the LTC ALR margin review and resulting outcome; and update you on steps taken as part of our strategic review process commenced over last quarter, as we explore options to maximize long-term stakeholder value.

And in doing so, address questions, that some of you’ve raised since our last call. It is important to note upfront that we are conducting a thorough review of a broad range of strategic options with the help of external financial and strategic advisors.

In order to maintain flexibility with respect to our strategic options for all key stakeholders, we believe we need to pay down $1 billion to $2 billion of debt over time. As you can imagine, there are benefits, challenges and trade-offs associated with each option, such as debt levels and terms, tax considerations and the views of regulators and rating agencies.

That said, we intended to continue to work through these issues and take the steps necessary to properly evaluate and implement the options that will best support our long-term strategic priorities. We have also made decisions that resulted in certain charges in the fourth quarter, that we felt were instrumental in moving forward to return the company to profitable growth as quickly as possible.

The LTC margin is positive in the aggregate, but as we indicated, it might be the case in our past disclosures, the margin turned negative on acquired LTC business, which resulted in an after-tax non-cash GAAP charge of $478 million. We also incurred a moderate 2014 statutory reserve charge in our New York subsidiary, reflect of higher claims severity and lower interest rates.

Further, we also recorded net non-cash charges related to the company’s progress on plans to monetize the lifestyle protection insurance business, which we have previously identified as non-core. Marty will take you through this, along with several other actions in more detail, in a few minutes.

We are also launching a very significantly structuring plan, focused on supplier and cost rationalization which we expect will generate in excess of $100 million in annual cash savings by the end of 2016. Moreover, capital and liquidity remains strong across all platforms and as a holding company.

I also wanted to note that these charges overshadowed another solid quarter for the global mortgage insurance and fixed annuity businesses. There are few important takeaways for our mortgage businesses.

First, the mortgage insurance business continue to show progress from our turnaround efforts, which we laid out 18 months ago, benefiting from strong competitive positions, stable to improving markets and favorable loss ratio performance across all three primary platforms. Additionally, Canada and Australia remained strong cash generators and have been and are expected to continue to reliable sources for future dividends to the holding company.

Second, our USMI platform continue to show improved operating performance, benefiting from a 19% drop in new flow delinquencies, as compared to a year ago, reflecting the burn-through of the older books, as the new books now represent 56% of risk-in-force. While this business has come a long way, we believe it will take a few more years to be a significant cash dividend contributor.

Third, the USMI business played significant progress during the quarter, working with reinsurers toward our plan compliance with new GSE capital requirements by the anticipated effective date. Lastly, we had a settlement in our European mortgage insurance business, which significantly reduced risk-in-force in Ireland with minimal earnings impact.

In summary, the global mortgage insurance business is executing well, and we expect it to continue to be a strong driver of operating performance going forward. Now let me turn to the life division.

The underlying fixed annuities performance was good and absence of reserve charge, life insurance showed modest improvement. LTC remains a significant challenge.

We believe the updated assumptions for the DLR and ALR are reasonable and appropriate, given the experience that has emerged and review is undertaken. We will continue to monitor experience, assumptions and the resulting reserves closely, with support from outside actuarial advisors.

We have made significant progress to-date to rewrite the most problematic LTC blocks acquired or written over a decade ago. However, we expect to continue to feel pressure as these blocks reach their peak loss years as our policyholders’ age, and therefore we will be pursuing additional in-force rate actions to recognize changes and experience.

We are encouraged however with the positive margins on the remaining blocks and will actively monitor and address unfavorable experience as it evolves. On the rate action front, we have made good progress to-date in our 2012 rate actions, and based on current approvals and anticipated first quarter approvals, we now project approximately $240 million to $260 million of additional annual premiums against our $250 million to $300 million objective.

And now, I would turn the call over to Marty to go into more detail on the fourth quarter results and the outcome of the active life margin review.

Thanks, Tom, and good morning, everyone. This morning, I will discuss our long-term care margin review and impacts related to it.

But first, I will briefly review our fourth quarter results. As shown on Slide 3 of the earnings summary, we reported a net operating loss of $416 million and a net loss of $760 million for the quarter.

There were several factors impacting the operating loss, which overshadowed solid operating performances in several of our businesses, particularly in our global mortgage insurance division. These items include: after-tax charges of $478 million from long-term care blocks acquired over 20 years ago as a result of our annual review of active life margins, and unfavorable reserve adjustments totaling $48 million in our life and long-term care businesses.

In addition, reflecting our consideration of a variety of potential strategic options and current business realities, we recognized the following items in net income. First, we wrote off all remaining goodwill in both, our life and long-term care businesses, resulting in an after-tax charge of $274 million.

Goodwill balances are highly dependent upon projected future sales levels. And with our assessment of current market realities, in addition to our active consideration of potential business portfolio changes, projected sales levels could drop in some scenarios.

We conclude that it was appropriate to write-off the associated goodwill balances. Second, we recognized a tax charge of $174 million, reflecting the change in our intent to permanently reinvest earnings from Genworth Mortgage Insurance Australia Limited.

While we have not made any decision with regard to this asset, we are evaluating it among several other available strategic options given its valuation and liquid state. Also, we are progressing on the sales process of the lifestyle protection insurance business, which has been a non-core business for us.

Related to that planned sale, we completed an internal debt restructuring, resulting in $108 million tax benefit. While I won't of course address valuation directly, we are seeing market interest for this business and are seeking to monetize it.

Given current book value, we anticipate a significant loss on sale. Global mortgage insurance had another good quarter as shown on Slide 4, reporting net operating income of $83 million, down slightly versus the prior quarter and prior year when adding back the non-controlling interests impact of the Australia IPO in those periods.

Let's cover Canada on Slide 5 first, where operating earnings were $36 million for the quarter, down $10 million from the prior quarter. We saw lower unemployment and a modest sequential increase in home prices.

Additionally, tax benefits were lower versus the prior quarter. The loss ratio increased 5 points from the prior quarter to 26% from seasonally higher new delinquencies net of cures.

The full-year loss ratio was 20%, at the midpoint of our 2014 expectation. We expect the 2015 full-year loss ratio to be between 20% and 30%.

Turning to Australia on Slide 6. Operating earnings were $33 million, down $15 million versus the prior quarter, primarily from less favorable tax benefits.

Macroeconomic conditions were generally stable in the quarter as there was a slight decrease in the unemployment rate, and overall home prices experienced modest gains. The loss ratio remains very low at 15%.

The full-year loss ratio was 19%, slightly better than the low-end of our 2014 expectation. We expect the 2015 full-year loss ratio to be between 25% and 30%.

In other countries, we executed a lender settlement, materially reducing risk-in-force in Ireland from $700 million to $60 million with only a minimal financial impact in the quarter. Given the size of our international operations, foreign exchange rates do impact our earnings.

While I can't predict where these rates will go, I can give you some perspective on sensitivities. For instance, if total year 2014 exchange rates were at current levels, our international earnings would have been approximately $30 million lower.

Using this example, the rough rule of thumb would be a 1 point move in either the Canada or Australian exchange rate would result in approximately $2 million change in earnings. I will stress that this is only a translation risk as our assets and liabilities in our international businesses are predominantly held in the respective local currency.

However, we do hedge much of our foreign exchange rates risk associated with expected cash flows. Moving to Slide 7 in USMI, net operating income was $21 million for the quarter, up $23 million from the prior quarter.

As a reminder, the prior quarter included $34 million of after-tax accruals recorded in connection with the settlements, one with Bank of America, which has now received GSE approval, and another, which has now been resolved. The reported loss ratio for the year was 62% including a 9 point unfavorable impact from third quarter of lender settlements.

For 2014, USMI net operating income of $91 million was significantly improved over 2013. Earnings on loss performance should continue to improve with the 2015 full-year loss ratio expected to be between 40% and 50%.

NIW was seasonally down from the prior quarter, but benefited as the business increased its single premium lender paid new insurance written, reflecting its selective participation in this market. Future volumes of this product will vary depending on the valuation of the risk return profile of these transactions.

The company’s estimate that USMI market share increased year-over-year to 15%. At year-end 56% of the risk-in-force is composed to 2009 and forward books of business.

We anticipate this percentage will grow to between 60% and 70% by the end of 2015. Turning to capital and the GMI division on Slide 8.

The prescribed capital amount or PCA ratio in Australia is estimated at 159%, up from the prior quarter from continued strong statutory income. For Canada, the minimum capital test or MCT ratio is estimated at 225%, in line with the prior quarter.

In USMI at quarter-end, the listed capital ratio for GMICO was approximately 14.2 to 1, down from 14.8 to 1 in prior quarter, from an increase of a $125 million admitted deferred tax assets in GMICO, partially offset by changes in value of affiliate investments and increased risk-in-force. Our capital goals in the global MI division for 2015 include, PCA ratio of 132% to 144% in Australia; 220% or greater MCT in Canada; international MI dividends at $150 million to $230 million and combined risk to capital ratio of less than 18 to 1 in USMI.

I would also note that Australia has declared a special dividend, our portion of which is approximately $40 million, and will be received in the first quarter of 2015. We have two strategic priorities for GMI in 2015.

First, in Australia and Canada, we will continue to look for ways to optimize capital to improve ROE, provide for growth opportunities and return capital for the respective shareholders. Second, in USMI, it remains our priority to plan to comply with the new GSE eligibility requirements by the effective date.

We still estimate the capital need to be between $500 million and $700 million. We continued to make progress on reinsurance transactions, where the market appetite remains robust.

However we are waiting on finalization of PMIERs capital accordance standards, and ultimate reinsurance terms are subject to modification. Turning to the U.S.

Life insurance division, as shown on Slide 9, the operating loss was $482 million, reflecting the impact of the Long-Term Care Annual Loss Recognition Review, with the net loss of $750 million after the goodwill charges mentioned earlier. Favorable mortality in life insurance was more than offset by reserve correction on term life Reinsurance Treaty in the current quarter.

Fixed annuity should continue its solid performance. The long-term care insurance net operating loss in the quarter was $506 million, driven primarily by the completion of the Annual Loss Recognition Testing Review and associated charges on the acquired blocks of business, as shown on Slide 10.

I’ll provide greater detail on the review in just a few minutes. Although incurred loss results were primarily impacted by the loss recognition charge on the acquired blocks and other adjustments, the claim reserve review from last quarter also had an impact as we set up higher claim reserves and new claims in the fourth quarter using the updated reserve assumptions and also had lower reserve releases on existing clients.

In addition, we had unfavorable adjustments to our claim reserves at $16 million, including a $44 million claim reserve correction. This correction was identified in the fourth quarter as an operational process control deficiency and how we implement one of the claim reserve assumption updates.

We are currently assessing the internal control environment around this issue as part of the year-end controls assessment to determine whether we have a significant deficiency or a material weakness. While we’ve not yet completed this assessment, we believe this deficiency likely constitute a material weakness in our internal controls, we plan to complete our review process and reflect results in our 10-K, as well as our plans for remediation if we do end up concluding on such a weakness.

We are highly focused on addressing this issue and taking the appropriate actions to fix the issues. Moving to Slide 11, in-force rate actions continue to favorably impact earnings, benefiting results by $41 million, $7 million higher than last year, but $3 million lower than the prior quarter.

We also received additional approvals from the second round of filing from 2012 in-force rate actions that increased the incremental premium approved to $200 million to $210 million, with another $40 million to $50 million expected in the first quarter of 2015, against the total anticipated annual premium increase of $250 million to $300 million once fully implemented. Moving to Slide 12.

Operating earnings on life insurance were $1 million for the quarter, down from $13 million in the prior quarter, and include the reserve correction on Reinsurance Treaty of $32 million that I mentioned earlier. Mortality experiences favorable versus the prior year and unfavorable versus the prior year.

For fixed annuities on Slide 13, earnings were $23 million, slightly lower than the prior quarter. Turning to U.S.

Life statutory performance on Slide 14. Unassigned surplus decreased approximately $135 million and the RBC ratio decreased 18 points to approximately 430% in the quarter.

There were several drivers of this decline. First, as a result of our annual statutory cash flow testing review, we increased reserves by $39 million in our New York subsidiary to reflect an incremental $195 million negative margin on its long-term care insurance business, with the remaining $156 million to be recognized over the next four years.

I’ll provide more details on the review in a few minutes. Second, we increased reserves related to secondary guarantee UL products in our New York subsidiary, which is the second and final increase related to our discussions with the New York regulator on this matter.

Third, we reinsured a block of term universal life to a third-party and reinsurer, providing approximately $80 million of unassigned surplus benefit. And finally, the completion of an internal debt restructuring in the lifestyle protection insurance business, would provide an overall tax benefit to $108 million on a GAAP basis, also resulted in changes to certain inter-company tax balances in U.S.

Life and in the Bermuda entities. The U.S.

Life companies experienced a charge of $155 million, while BLAIC saw a tax benefit of $230 million. With the reflection of this benefit and other timing, BLAIC ended the quarter with an RBC ratio of approximately 345%, up from 245% in the prior quarter.

We expect the RBC ratio in our U.S. Life companies to be greater than 400% at year-end 2015 and repatriation of the long-term care business from BLAIC to the U.S.

Life companies remains strategic priority for 2015. Shifting to Slide 15 in the Corporate & Other division.

The net operating loss for the quarter was $17 million. International protection reported loss of $4 million in the current quarter, if it included approximately $4 million of unfavorable items including higher claim reserves and certain contracts and unfavorable shift in the mix of contracts with profit share, higher expenses and unfavorable foreign exchange.

Runoff earnings were higher by $11 million compared to the prior quarter, primarily related to favorable taxes. We had favorable taxes in Corporate & Other related to timing, with a full-year operating tax rate of 34%.

Moving to investments on Slide 16. Our general account continues to perform well.

The global portfolio of core yield was down slightly from the prior quarter at 4.38%, due to the impact of lower rates and other factors and there were no impairment for the quarter. As shown on Slide 17, at the holding company, we continued to maintain significant liquidity, with cash and liquid assets of approximately $1.1 billion, representing a buffer of approximately $685 million in excess of our target of 1.5x debt service, and well above our $350 million risk buffer.

We anticipate maintaining this target and risk buffer in 2015. Unfortunately our leverage ratio increased to 25.9% given the long-term care reserve increases, goodwill write-downs and other impacts to equity this quarter.

Stepping back in addition to our current excess liquidity at the holding company and a solid capital levels across our operating platforms, we have significant levers benefiting our financial flexibility. These include monetization of our non-core business, additional life block sales refinancings and reinsurance of MI business risks.

We also have other sources of capital available that we could consider. So it’s the additional sell-down of Australia MI business among others.

We currently believe these are more attractive sources of capital than outright equity raise and we have no current plans to do such a raise at this time. Let me now turn to long-term care and discuss our annual margin testing.

Please refer to the separate presentation on long-term care annual margin testing. In the third quarter, we made significant updates to our long-term care claim reserves to reflect our updated view on our claims severity assumptions.

After review of this experience, expected claim termination rates are expected to be lower and benefit utilization rates are expected to be higher than had been assumed before the third quarter. As a result of the updated assumptions, we expect claimants are staying on claim longer and using more of their available benefits.

We made these updates to our claim reserve assumptions in the third quarter and they have informed the assumptions made in our margin analysis. With these updated claim severity assumptions, we have and will continue to pursue actuarial adjusted client rate actions to attempt to offset the higher expected claims costs.

These new claim cost views and associated rate actions represent the most significant updates for margin analysis last year. Genworth reviews that long-term care active life margins are substantially completed.

We were assisted by two leading external actuarial firms with strong long-term care experience. One firm work closely with our actuaries on the detailed assumptions and reserve changes, and the second firm conducted an independent peer review of our assumptions and approach.

Both firms concluded that these assumptions in the aggregate were reasonable and supported by experience. Slide 2 summarized our active life margin conclusions.

First, GAAP loss recognition testing margins are positive in aggregate. However, we must test our acquired block representing business acquired before 1996 separately from our other business.

The margin on the acquired block, which as we previously disclosed, had very thin margins, was a negative $735 million pre-tax as future in-force rate actions, either incremental premium rate actions or reduced benefits depending on policyholders’ behavior have less impact given the higher rates of the block. Net GAAP liabilities for this block had been approximately $2.6 billion before adjusting for the negative margin.

The other much larger block tested had a positive margin of $2.3 billion. Net GAAP liabilities for this block are approximately $15.7 billion.

Second, statutory cash flow testing margins were positive in aggregate using our policies in-force as of September 30 and adjusting for year-end interest rates. As a reminder, we test each legal entity separately on a statutory basis governed by the specific rules of the regulator in the state of domicile.

The margins in our Genworth Life Insurance Company or GLIC and Brookfield Life and Annuity Assurance Company or BLAIC, were positive $4.3 billion in aggregate before adjusting downward for about $1.9 billion in provisions for adverse deviations or PADs. Given the requirement for cash flow testing in New York, we increased reserves by $39 million in our New York subsidiary to reflect $195 million incremental negative margin on the long-term care insurance business in that entity, with the remaining $156 million to be recognized over the next four years.

Recall, we have had negative margins in New York in the past, for which we have previously held reserves of $80 million. Our statutory capital levels remain solid with an RBC ratio of approximately 430% at year-end reflecting these results.

The components of the statutory and GAAP margins are laid out on Slide 3. The present value of future premiums, claims and expenses are projected based on assumptions reflecting our own experience and actuarial judgment.

As I mentioned, the most significant updates were to claim-related assumptions, such as claim termination rates and benefit utilization rates, informed by the assumptions which were updated in our third quarter claim reserve review, as well as the inclusion of additional assumed future premium increases and reduced benefits, which offset most of the expected increase in claims cost. We developed a new series of anticipated in-force premium increase requests based on updated claim severity assumptions, and these premium increase assumptions were informed by our historical track record of what we had achieved in previous rate actions, and review that role of regulators as well as our third-party advisors.

It is important to note that if actual claim incidents or severity in the future is different than expected, the projected in-force rate actions will change accordingly as these projected rate actions were developed to reflect claims cost being experienced. Other significant impacts related to investment assumptions, given the current low rate environment.

As a reminder, Genworth began hedging interest rates starting in 2000 for long-term care. We have after-tax terminated hedge gains that reside in accumulated other comprehensive income on a GAAP balance sheet of approximately $1.7 billion.

And this amount will amortized in the GAAP income over time. Similarly, we have approximately $830 million primarily from after-tax hedge gains on a statutory basis that reside in the interest maintenance reserve or the IMR on the statutory balance sheet and the IMR amortizes in the statutory income.

While our hedging program has dampened the effective lower interest rates, during 2014, we’ve revised our reinvestment strategy given that environment and adjusted our reinvestment strategy for long-term care business to pick-up additional spread. This new reinvestment strategy is reflected in our cash flow testing analysis, and I’ll provide additional perspectives on this revision in a few minutes.

In addition, we reviewed other assumptions, and in some cases made updates, and particularly, we reviewed claim frequency, lapse rates, morbidity and mortality improvement and expenses. The margin impact from updates in some of these items was modestly favorable.

Slide 4 provides a summary of the key updates we made to both our assumptions concerning claim termination rates and benefit utilization rates. As a reminder from our third quarter earnings call, claim termination rates refer to the expected rates at which claims end and benefit utilization rates refer to how much of the available policy benefits are expected to be used.

Also as you’ll recall, there are numerous assumptions for claim termination and benefit utilization rates based on several characteristic, such as type of policy, as well as policyholder and claim characteristics. Assumptions developed in the third quarter claim reserve review informed our active life margin analysis and we projected them forward over the 40-year-plus projection period.

Subsequent to our third quarter claim reserve review, we continue to assess our assumptions concerning claim termination rates in connection with our active life margin review. After review and consultation with our third-party advisors, we increased the assumptions concerning claim termination rates slightly in the later durations, given that the statistical credibility of our data from claims and duration seven and beyond, well much better, is still limited.

As we noted in our earnings release in commentary, we also updated our assumptions for this refined view in our disabled life insurance in the fourth quarter. The combined impact of changes to the assumptions for claim termination rates and benefit utilization rates reduced GAAP margin by approximately $5.4 billion.

As we discussed in the third quarter, we have developed management actions regarding premium rate increases that we expect will offset much or possibly most of the reduction in our margins from the updated assumptions. Turning to Slide 5.

A key change from the last year’s margin testing is the inclusion of future rate actions in our GAAP loss recognition tests, as well as in our GLIC and BLAIC legal entities. Inclusion of such premium increase and associated benefit reductions is consistent with actuarial guidelines, GAAP accounting and the regulatory framework in almost all states.

In addition, we consulted with our regulators on these assumptions for our cash flow testing work. Before discussing the future rate action assumptions, I want to give some context for actions today.

First, we have a good history of achieving premium rate increases on our in-force blocks. In 2007, we filed for an approximate 10% rate increase and achieved about 90% of our requested filing that resulted in incremental premium of about $50 million to $60 million.

In 2010, we filed for an approximately 18% rate action and achieved about 94% of our requested filing that resulted in incremental premium of about $40 million to $50 million. Additionally, we have made good progress for the 2012 rate actions that represent about $200 million to $210 million of incremental premium when fully implemented by 2017, and have also received or expect to receive approvals in the first quarter, reflecting $40 million to $50 million of additional premium increases.

We still anticipate additional premium increases from 2012 rate actions of $250 million to $300 million when fully implemented. Second, as part of our strategy, beginning in 2013, we have filed for premium increases on our Choice II block.

We have seen good progress to-date in our Choice II filings where we’ve heard back from 30 states and received approval from 22 states. We believe the Choice II approvals received so far will add an incremental $20 million to $30 million in annual premium increases once fully implemented.

We have also received or expect to receive approvals in the first quarter reflecting $20 million to $30 million of Choice II premium increases. Also, we are going back to states that did not approve our Choice II filings to ask them to reconsider increases based on the new claim assumptions.

We anticipate additional premium increases of $40 million to $60 million when fully implemented from the 2013 Choice II rate action. These actions we have been taking just since 2007 should result in additional expected premium of about $380 million to $470 million.

We have developed a plan for future premium rate increases for all older blocks up to and including PC Flex, that were informed by our historical track record, reviewed with the regulators and consistent with projected future claim costs. These rate actions projected to be implemented over the next 15 years assume we achieve incremental annual premium, which grows to $525 million to $625 million at the peak before declining significantly over the subsequent years as the number of active lives declines.

Corresponding GAAP margin impacted these rate actions, reflecting both additional premiums, as well as reduced benefits, is approximately $4.9 billion pre-tax. Before I move on to other assumptions in our margin analysis, let me provide some perspectives on future rate actions and corresponding potential reductions and benefits.

We believe providing alternatives to policyholders so they can choose between accepting higher premiums or electing benefit reductions in these guaranteed renewal policies is important. And we expect to see even more focus on and receptivity of reduced benefits as an alternative to higher premiums.

We believe regulators and policyholders generally are more receptive to this approach and certainly prefer having choices. Such reduced benefits generally are expected to be actuarially equivalent to higher premiums.

And so the margin impact should not be significantly different. However, with reduced benefits, our exposure to changes in future claims cost is lower.

In other words, our tail risk is reduced. In a low inflation world, some policyholders may find it more attractive to lower their benefit increased option or buy our riders on their policies in lieu of higher premiums.

Choice I and II representing our largest blocks have the higher proportion that buy our features than do older production generations. Electing these benefits such as choosing reduction in a buyout feature, maybe easier for those policyholders to accept than paying higher premiums, and regulators increasingly prefer the carriers provide such choices to policyholders.

Certainly different people have different views on the subject of rate actions and the ability of Genworth and other long-term care providers to obtain them. We believe regulators are generally more receptive to acknowledging the need for such rate actions, and we have been working with them to gain approvals in forms that they think are more beneficial to policyholders through approaches, such as staged increases or providing alternatives for reduced benefits.

Our assumptions on future rate actions are in line with what would be actuarially justified, while reflecting our own historical track record as the model corresponding additional premium. Now let's shift to Slide 6 in investment assumptions.

Our cash flow testing projections assume a 10-year treasury rate of approximately 2.2%, in line with levels at year-end, rising to approximately 4.7% in 2028 to 2030, before gradually declining over the remaining projection period to 4% to 4.2%. During 2014, our investment risk and asset liability management team modified the reinvestment strategy for long-term care.

In order to increase spread in a lower interest rate environment, we’ve made changes to our reinvestment allocations, which will lower the overall credit quality one notch to BBB+ over time. Also historically, we have invested very little in alternative investments, but we do plan to build up an allocation of up to 5% over time.

We’ve reflected these changes in reinvestment strategy in our cash flow testing analysis. For GAAP loss recognition testing, we utilized a static discount rate that is in line with our current portfolio yield, as has been our practice for many years.

As a result of the reserve increases in the third quarter and the fourth quarter, the assets required to back the liabilities increased, as we needed to contribute assets so that assets equaled liabilities. In this low rate environment, these additional assets were lower yielding and decreased the PGAAP and HGAAP discount rates by 35 basis points and 23 basis points, respectively.

This impact in GAAP margins of the year-end discount rates was an unfavorable $1.5 billion. Long-term care is a long duration product and movements in any number of assumptions can impact performance over time.

With that as a backdrop, we’ve provided selected sensitivities on illustrative assumptions on Slide 7 but actual experience may differ. The claims cost sensitivity or sensitivity A, further increases the claims severity or claim frequency above what we have included in our updated assumptions.

This sensitivity does not include future rate action or benefit reductions that we would likely put in place to offset much of this impact. Given the potential impact of interest rates on margins, we are providing two sensitivities.

The first interest rate sensitivity or sensitivity B assumes that the 10-year treasury rates are 2.5% on a statutory basis for the entire production period. The second interest rate sensitivity or sensitivity C assumes the discount rates impacting PGAAP, HGAAP and statutory cash flow testing are reduced by 25 basis points.

Finally, the in-force rate action sensitivity or sensitivity D, assumes that we only achieve 90% of the planned future rate actions that we have modeled. Next, I will cover two GAAP accounting implications and emerge as a result of our margin testing and are summarized on Slide 8.

First, given the negative margin on our acquired block, GAAP reserve assumptions were unlocked and reset so that the expected margin is zero. With zero margins, block has a higher likelihood of a future unlocking.

Second, as I discussed earlier, the loss recognition testing margin on our other block, the HGAAP block is $2.3 billion on the GAAP basis. However, given the new claim severity and in-force rate action assumptions, the earnings over the projection period display a pattern of profit for the next 15 years or so followed by losses thereafter.

The profit period has a present value of approximately $3.5 billion, while the present value of the losses is negative $1.2 billion netting to the $2.3 billion margin. This is the result of the active life reserve assumptions being locked in under GAAP and the increased premium or associated reduced benefits fall into the bottom line in the analysis, while the higher claim severity assumptions contribute to losses in later years.

This expected pattern has emerged for the first time during this year’s margin testing given our updated view on claims severity. Therefore, we will use the portion of the expected benefit from future in-force rate actions to fund the expected future losses during the expect profit periods, rather than being fully recognized in the period received.

This change should help limit loss recognition testing margin deterioration in the future, as we accrue an additional reserve liability for the future loss periods. We’ve provided a lot of information this morning.

So let me sum up on our margin results. Our GAAP and statutory margin are lower than last year but remain positive and aggregate.

We must however recognize that GAAP charge on our block of policies acquired before 1996 as that block must be tested separately. We also have reserve increases in our New York subsidiary due to its incremental negative margin which excludes future rate actions.

Finally, our U.S. Life capital and RBC levels remains solid, even after reflecting our new claim cost assumptions in our claim and our active life reserve processes.

With that, I’ll turn the call back over to Tom.

Now, let me take a minute to discuss in a bit more detail our strategic review and priorities. As discussed already, we have and continue to analyze a range of strategic options to maximize shareholder value.

Working with our Board, we have engaged external financial and strategic advisors to assist us in our reviews. We have made candid appraisals of our businesses strengths and weaknesses, and are taking proactive measures to rationalize our overall portfolio.

We believe that our mortgage insurance businesses are our strongest businesses and we expect them to continue to perform well in 2015 and beyond. We must continue to take steps to mitigate LTC risks, given the pressures on the older LTC blocks and the impacts we were seeing on sales given rating pressures.

To that end, we continue to capitalize on our industry leadership in order to drive regulatory and market changes that are necessary to sustain this business over the long-term. By far, the most important action we can take to make LTC a viable business is to continue to work with all state regulators to seek significant actuarially justified premium rate increases and benefit reductions on the existing in-force LTC blocks.

We see that in future premium increases or benefit reductions on the older blocks of business is critical to maintaining positive ALR margins. In addition to securing future premium increases or benefit reductions, we will continue to develop higher return, lower risk new LTC and combo products to address the growing LTC needs and increasing size of the aging U.S.

population. And we will press on regulators the need to consider more frequent and smaller premium increases on current and future business as experience dictates.

We believe that the results of the cost and portfolio rationalization efforts we are pursuing, will improve our ability to reduce debt levels, increase capital buffers, improve operating earnings and ROE in the life businesses and grow profitable mortgage business. We remain actively engaged with our Board, key stakeholders and external advisors to ensure appropriate evaluation of growth opportunities, capital structure, regulatory actions and rating considerations.

We will provide investors with regular progress updates. And now Marty, Kevin Schneider and I are happy to answer your questions.

Hi, good morning. I just had a couple of questions.

First, you mentioned the plan to reduce debt by $1 billion or $2 billion. Wondering if you could discuss the sources of cash to the hold co in 2015?

Obviously you’re going to get dividends from the Australia and Canadian MI businesses, but what are you going to get at the hold co other than that? I’m assuming that you might not be able to get much dividends from the lifestyle, but - maybe that’s my first question.

So let me just take the first part and say that working with our Board and our external financial and strategic advisors, we determine that when we’re looking at all of the options that we might consider to raise shareholder value, we don’t have as much flexibility as we’d like because of the level of debt at the holding company. And so based on working with rating agencies, regulators and our feedback from external advisors, we believe that target of $1 billion to $2 billion of debt reduction at the hold co, frees up a lot of additional options to consider.

So as we look at strategic options, we are looking at those that will allow us over time to reduce that debt. I’ll turn it over to Marty I guess, to give you a little bit of specifics in terms of the 2015 operating dividend that we’re expecting.

Hi Jimmy, it’s Marty. I think we have in our cash plans are really the planned dividends that we have coming from Australia and Canada.

As you know, we expect that to be in the range of $150 million to $230 million. And remind you, our annual debt services’ order of magnitude is around $280 million.

We’re also obviously going into the year here with significant liquidity at the holding company, probably over close to $350 million to $400 million kind of over our cash buffers. That obviously provides some lift there.

So we do anticipate holding company balances to be relatively stable with the dividends we’re getting. Obviously the other thing that we’re working on as we mentioned in the remarks is we are launching our sales process of lifestyle protection.

We’re not managing our holding company cash reflecting that, but obviously if we execute that, that will create some upside.

And the $1 billion to $2 billion, you’re planning on doing that this year or is it more of a longer term target?

So it’s more of a longer term target. And we’re looking at things, as Marty said, like selling LP, as we said last quarter, we’re looking at selling blocks of life annuity.

We are looking at our Australia business, and should we sell further down there, that was part of the reason for that PRI tax charge. And now obviously there are other options.

But all of those we’re looking at in conjunction with our Board and external advisors to do over the longer term.

Yes, but it’s sort of a reasonable assumption that to do any debt pay down you would need to sell assets of the insured businesses, because from the operation - the cash flows are somewhat limited.

That’s right, yes.

Yes. And then another question just related to that.

Are there any implications if you do determine that there is a weakness in internal controls in your ability to do asset sales or do anything else in the short-term?

Hi Jimmy, I think this came up really in the third quarter related to our long-term care at disabled life reserve charge and we had a manual process that get introduced for the first time with that adjustment. And that’s really where the issue is.

We obviously have been working on addressing that. When we have our 10-K, we’ll provide more details on that ever if it is in fact a material weakness, we’re still assessing that.

And then if it is material weakness, we’ll provide remediation plan. I do think that we’re still going through our overall control assessment.

So I don’t want to make any conclusions right here, but at this point, I anticipate that if it is a material weakness, it’s pretty isolated to that particular situation. That is the case that we’d anticipate in the broader issues as you described.

Okay, thanks. And then just one last one.

You did change the permanent reinvestment assertion for Australia. That sort of gives you some flexibility to sell down your stake.

Wondering why you did not do that for the Canadian business, and is that something you would consider?

Yes. I mean, the first thing I would say on all three MIs is that, we think all three are performing well and they are our strongest businesses.

When looking at Australia and Canada, in our holdings of those, we looked at the percentage of ownership that we have of those. We looked at whether the banks in those markets receive explicit or implicit credit for the mortgage insurance.

We look at our market share versus competitors and the overall competitive environment. We do think in Canada, there is a potential based on what the housing regulators have said that they may look to reduce the housing authority corporations guarantees and therefore the tax credit exposure.

So we think that’s a potential in the Canadian market to grow. And then obviously for management oversight and synergies between Canada and Australia are different.

So all of those went in. And so our conclusion was, we’re looking - we haven't made any decisions yet on Australia, but we are looking at options to sell down further.

Right at this point, we are not currently looking to sell down in Canada. So that’s the difference in the tax agreement.

Okay. Thank you.

Great, thanks. Good morning.

Marty, I was hoping you could help us reconcile the statutory active life margin, in terms of what you showed us in the last presentation and what you’re showing us today, just in terms of the pieces. So you start with the, whatever it was, the $2.6 billion I think.

What was the impact of the revised claims assumptions? And then separately what was the impact of the future rate increase benefit that ultimately gets you to, I think what the comparable number is this quarter of $2.1 billion?

Yes, you’re right. Your beginning and ending balances are right, Suneet.

And we called out in my prepared remarks, the pieces on a GAAP basis. And those assumptions are really the same on a cash flow testing basis.

We would want a slight change or maybe not the slight change, I’ll speak to it in a moment. I don’t want to get into specific amounts, but the assumptions are the same.

The discounting rates a little bit different. So those amounts are roughly the same.

I’ll mention those again on a GAAP basis about $5.4 billion negative impact to margins on updated claims termination rates in utilization assumptions, about $1.5 billion for interest rates as decrease to margin. Then on the positive side, about $4.9 billion pre-tax of premium in-force rate actions in the future.

And then about - we didn’t really call it out, but roughly $500 million to $600 million of sort of other adjustments. And those kind of really gets you in the GAAP walk.

On the statutory side, it’s really those same items. The present value is a little bit different.

I think the difference in stat is that with the interest rate approach that we use, it’s different in statutory testing, where we use a variety of randomly generated interest rates and take the average of that and we described in the presentation what that average gets to. That’s obviously a different approach than what we do in GAAP, where we just use our current portfolio rate and use that to discount back the cash flows.

Then the other adjustment in statutory which is not reflected in the GAAP margins I was thinking is that new reinvestment strategy I articulated, where we’re over time it really takes a long period of time as we reinvesting in bonds such that the average credit quality in the reinvestment strategy is BBB+. Let's say probably 15, almost 20 years in the models, they get fully into that BBB+ category in average.

And then similarly we built in small allocation alternatives that builds up over time. I think it takes 10 to 12 years to get up to the, I think 5% allocation.

So those are really the differences on stat and really kind of you think about the $1.5 billion interest rates hit in margin or in GAAP it’s bit less on statutory basis for those regions.

I mean, frankly I think a lot of us are more focused on statutory. So at some point if you could give us a clear reconciliation of how that ALR on a stat basis change, that would be very helpful.

And second question I have is on the anticipated rate increases. I guess its Slide 5 of your LTC presentation.

So it looks you have prior approved or anticipated rate actions of $380 million to $470 million. But when we think about the $525 million to $625 million of anticipated peak incremental annual premiums, is that in addition to the $380 million to $470 million, or does that include some of the $380 million to $470 million?

Yes, that is in addition to the $380 million and $470 million. So those are future premium increases or benefit reductions that will seek over the next 15 years or so.

I do want to make a comment there. I’ve been here for two years, and I think there has been a significant change from a regulatory perspective in terms of where the states are.

I think two years ago, I think a number of the regulators were still working through what was actuarially justified. I think now there is a recognition based on our recent experience, our experience in competitors that there is a need for significant increases on the old business for us and other companies.

And long-term care is a guaranteed renewable policy. So regulators are required to approve appropriate actuarially justified increases.

So I think there has been a change over the last two years in terms of how regulators in all the states look at.

Right. And when you say in your prepared remarks that you’ve run these price increases by the regulators.

Is that - who specifically is that? Is that just your main insurance regulator?

Have you sort of discussed this with all of them that you have to go back to and ask for price increases?

Yes, Suneet, it’s really with the [indiscernible] of regulators for U.S. Life companies.

We do anticipate having a call with all the insurance departments there shortly to go over this type of information. But it’s really in conjunction with consultation with the regulatory council - the regulators that were going to fill other states.

I would just point out by the way that one of thing that’s in our future rate actions, which is part of the overall block that we haven't had certainly as much rate actions are in Choice I and Choice II, which really represents about $1.4 billion or the lower $1.4 billion of the overall $2.4 billion of in-force. And as we think about the new claim termination rate and utilization assumptions or updated assumptions that we have, that’s an area where really I think big chunk of the future rate actions comes into play.

Historically, we haven't had as much focus on that if you think about the 2007 and 2010 rate actions. They were really contained in the much older blocks.

Got it. Makes sense.

And then just a last quick one, just on long-term care. If we back out the charges and then we back out the benefits from the rate actions of, I think, $41 million, it looks like the normalized earnings excluding rate actions for LTC in the quarter was a negative $53 million which is, as far as I’ve been tracking this is the worse quarter we’ve seen.

So just any color in terms of what you’re seeing in the core business? Why we saw some significant deterioration relative to what we saw in the third quarter?

I would have expected maybe the DLR charge would have improved earnings because you’re sort of frontloading some benefits, but maybe that’s not right.

Yes, Suneet, let me just - I think the core is really - we can maybe talk about this little bit offline, but the core is a little bit higher. You figured right, it is negative.

That’s the first time we’ve seen it negative. There are number of, kind of non-recurring things between the reserves.

And the margin impact this time, the adjustment that we’re having in the reserves that we talked about earlier, the error is worth about $44 million. So we do have those things.

But you back all that out, it still is a negative P&L number. I think a couple of things are driving that.

Really part of it is really related to the new claim reserve assumptions that we’ve put in place at the end of the third quarter and there is a couple of aspects to that. One is as new claims come onto the books, we are now setting up significantly higher reserve than we did in the past.

So that’s a pretty big difference that we’re seeing this quarter. And then along those same lines within the claim reserve approach that we have, we had less in the way of reserve releases on existing claims.

And again you’ll recall that we updated our claim termination rates. We think people stay on claim longer.

So those dynamics this quarter had a pretty big impact on the quarter. I think that obviously has a current period impact presumably if we have the claim reserve right, that needs to be a lot less drag in future periods or hopefully no drag in future periods from the claims that go on the books.

Then the final thing I’d say is this quarter we have a fair amount less in reinsurance benefits. I want to say after-tax probably about $15 million less in reinsurance benefits quarter-over-quarter, if that’s helpful.

Got it. Yes, my quarter number just backed up the benefit of the rate actions.

That’s how I got from your minus 12 to my number. But thanks again, will follow up.

Yes, but the only thing I would say on that is, I think you have to count the premium increase as the benefit reductions we’re getting and there is no question that going forward, we will, based on the new claim termination rates and benefit utilization, we do need to go back to the state on those old blocks and take that into account. And so that’s part of why you need the premium increases to benefit reductions going forward that we laid on Slide 5.

So to me that’s a critical part of it. And we obviously would expect - and these are all the numbers that are shown on Page 5 are the annual incremental premiums.

And so lot of incremental premiums, or going forward, we think there may be more benefit reduction and premium increases depending what policyholders decide. So I think those are very important to restore the profitability of the in-force long-term care business.

Understood. Thanks for the your time.

Thank you. Good morning.

I just want to follow-up on the present value of future premiums embedded in your margins. As far as I’m aware, you’re the only company assuming future rate increases that have not been either filed or approved, and Tom’s commentary that getting these rate increases are critical, I think puts us even some investors’ mind that you may have to walk away from the estimates of the benefit that you’re going to be getting from these in your margins.

So just to be clear, this methodology was signed off by the Delaware regulator in two separate actuarial firms?

Hi Sean, it’s Marty. Actually I don’t want to really speak to individual companies, but I think actually the number of companies, actually more than a few that do include future rate actions in their GAAP analysis, and the increasingly as we’ve done the research, it looks to be in the statutory basis as well.

So I don’t want to talk about specific companies on this call, but certainly can follow-up and give you some direction on that offline. I’d also say that on a statutory basis with exception in New York, that if you look at the guidelines in cash flow testing, they typically point to actuarial guidelines.

Then you go to the actuarial guidelines, and they in fact allow for cash flow testing on businesses such as long-term care, which are guaranteed renewal. So then beyond that, we did speak with our - the regulators that are in domiciled states specifically about this.

They agreed that it’s appropriate to include it, again with the exception of New York, which does not allow for it. And then after we develop the plan, we then spoke again with them and reviewed it, if that’s helpful.

Sure. And the actuarial firms that you mentioned are also okay with this methodology?

Yes, they’ve reviewed all of our assumptions, including this, and they believe the margin tests in aggregate - our margin results in aggregate are appropriate given the assumptions we used including these.

Great. And one follow-up.

So you wrote down all goodwill associated with LTC and Life, but you did not write-down DAC or take a DAC charge. Can you just remind us what the difference in accounting is in which you have to impair DAC versus goodwill?

Certainly. It is a different approach.

For us as we test goodwill, it’s really a kind of two-prong test. One is a test I looked at the overall value including the in-force and projected sales.

And actually, for a while now, both our life insurance and long-term care lines have failed that particular test. So then you segue to another test that really is very much focused on value of new sales in both, life and long-term care.

As you recall, we did personally impair a write-off that some of the goodwill balances and life insurance and long-term care. As we now look at where we are this quarter with potentially reduced sales from where we are given rating issues and some of the other things that we may do and dial-in back sales to preserve capital along with current captions [ph] we decided to write-down all the remaining goodwill.

Shifting to DAC, it is a different analysis. That really frankly is part of the overall margin testing.

So when you do your GAAP margin testing, if the margins are negative, you then first write-off the DAC. And then after the DAC is written down, you go into the reserves and reset those.

So our margins that we saw on the historical GAAP block are still quite positive, and so we are in a situation where we’re writing down DAC. Obviously in the future if we decide to report parts of the long-term care business separately from a GAAP accounting standpoint and certainly investors have different opinions on that if it makes sense to take some of the older business and put it in a different block and report separately, it would be tested separately and it would be DAC write ups in that scenario.

Good. Thank you.

Thanks. Good morning.

On the sensitivities you provided to the active life margins, I had a couple of questions there. I guess, first, how should we think about the interplay between the impact of lower interest rates and the lower dividend rate?

In other words, if interest rates were lower than your assumption, would that also likely lead to a discount rate reduction on top of that as well?

Yes, the discount rate is really a function of interest rates and spreads. Basically it’s effectively the portfolio rate.

For GAAP, it’s the current portfolio rate and we just use that all the way through. And for stat, it’s one of the portfolio rate is year-by-year depending on the tests or the scenario that’s being used in the cash flow testing.

But it is effectively the portfolio rate. Now obviously the portfolio rate does depend on interest rates, as well as the spreads you’re getting on your portfolio.

Okay, I see. So if interest rates are lower as the portfolio yields comes down, you also lower your discount rates, so there is essentially two impacts?

: Right.

Okay. And then can you - you show that sensitivities is relative to the $4.3 billion statutory margin.

That’s before PADs?

Right.

Can you help us think about what the sensitivities would lead to the number that’s already after the PADs, because that the sensitivities would be lower, have you already assuming some of this I think in the PADs?

No, I think it’s a very good point. And again after PADs, I think our margins are right around $2.1 billion.

The PADs this year are largely for a couple of reasons. One is for future rate actions and the other is really for what we’re expect to have on the asset side or recurring side.

So I think you make a good point that close to $2 billion in PADs that we have - or actually $2.2 billion PADs we have, those really go sort of directly to interest rate-related aspects and conservatives in there, as well as rate action PADs.

Got it. Okay.

And then if BLAIC - can you give us an update on how much these statutory capital and RBC ratios are at the end of the year in BLAIC and what the anticipated impact of repatriating that will be?

Sure. BLAIC’s RBC did go up just about 100 basis points during the quarter to about 345% at year-end.

The biggest part of that had to do with this tax benefit we got from LPI kind of restructuring. And that really contributed most significantly to BLAIC’s RBC increase this quarter.

In addition, there was a smaller timing impact related to a repatriation of some small block of term business that was in there. So BLAIC’s RBC is now 345%.

The overall capital level in BLAIC is just over $800 million.

Thank you.

Good morning. I guess couple of questions.

First, Marty, you intimated the possibility - you are considering a closed block. And based on your comments that there would be a DAC impairment.

Is it fair to conclude if we do look at what you define as the old block here, it would fail the margin testing. And so there is a deficiency on that is the first question.

Second and perhaps you have Ken Schneider who can talk to this. When you’re looking at changing the investment strategy, how much is that impacting the margin testing you’ve done here?

What I’m getting at is how dependent on it - how dependent is the testing on the success of that strategy? So if you can clarify that.

And then for Tom. I guess, Tom, I’m scratching my head here because you’re telling me the MI businesses are getting better, and yet I’m looking at your guidance for next year and you’re guiding for lower loss, for weaker loss ratios in both Australia and Canada versus what they had in 2014.

So maybe you can reconcile that, since frankly I think you’re forecasting some fairly significant increases in the loss ratios for both of them.

Well, Colin, let me start off. And on your first question, the historical GAAP block really, except for the acquired block its business really acquired I think ’96 and before.

It represents a lot of the older generations as well as the newer generations. It’s every modeled in aggregate.

I think it is very fair to say that the older blocks are performing much less well, in fact losing money versus the newer blocks. So in the overall margin that we have on GAAP, clearly that’s - well maybe not that clearly, the function of newer business that has very, very positive margin and that offsets to some extent what would be presumably negative margin in the older blocks.

So if we did at some point, and I noticed this was in your note, but take some part of the old long-term care business and report it separately and manage it different, that would likely create a DAC loss. Again we’re looking at a lot of different things right now as Tom mentioned and certainly that would be something that could happen.

We’re still assessing that along with a variety of other things. With respect to your second question, I’d say that the reinvestment strategy and cash flow testing, it’s a reinvestment strategy that is pretty typical with insurance companies.

We’ve had a very high credit quality portfolio with long-term care, particularly given the long duration nature of it. In fact in the new reinvestment strategy, the credit quality in the very long duration stuff is still very high, but as we are looking to like many other insurance companies feel a little bit more spread, we then intend to reinvest in a little bit lower credit quality things such as the average portfolio with BBB+.

Similarly we’d also have had historically covered next to nothing in alternative investments. I think a number of other insurance companies have 3%, 4%, 5%, 6%, 7% in equities or alternatives.

So we’ve had historically close to zero. So we’d build that up to about 5%.

I think those things in the model, because it’s an reinvestment strategy and it’s a very long duration portfolio, it takes quite a long time and the model is kind of buildup that really make a bigger impact as in the case of the bond portfolio credit quality. I think it takes 15 to 20 years.

And on the case of alternatives, it probably takes about dozen years or so to kind of built up to that 5% allocation. Clearly alternative investments have higher return in them than do fixed income bonds these days.

That was the model. Now turning over to Tom for your last question.

Yes, Colin, I would say that, first of all, we were pleased with the performance of all three of the MIs in 2014. If you look at that one slide that Marty showed in terms of how they performed against the targets, we said at the beginning of the year, that’s all green on that page.

I would say, we think they are good businesses, they are performing well. The loss ratios in 2014 were well below what our targets were.

And so I think my feeling - I’ll let Kevin talk specifically about 2015 in the guidance, that they were very low. We think over time based on the historical performance in those markets that those loss ratios in 2014 were so good that they are probably not sustainable at that level.

We still think 2015 loss ratios will be good, but I’ll turn it over to Kevin to give you some more specifics on 2015.

Yes, Colin, the guidance as made in Marty’s remarks, in Canada, we’re expecting it to be between 20% and 30% next year. Had great experience this year.

I think the thing - and to Tom’s point, I don’t think it’s sustainable. It’s still even in our guidance, its well within the range on our pricing expectations in Canada where we price the business.

I think we just need - we’re lot of cautious right now as we observe the impact, as we play to 2015 on what the oil prices are going to do to the country. And that’s something we’re watching very closely.

We think that’s probably going to cap down the overall home price appreciation experience in Canada. And you might have some pressure relative to that oil price, in fact on overall unemployment.

So, like we’re a little bit more cautious on it, but still a solid loss ratio performance. In Australia, we’re targeting at 25% to 30% range in Australia.

I guess it’s just lot of same type dynamics via the Australia economy is holding up pretty well, but obviously the RBA is concerned with the strength of that economic growth. They’ve reduced HP - they’ve reduced cash rates as a result of that and cut the rates.

So I think they are expecting some challenges to the economy. We think there is absolutely going to be a moderation in home rates down there.

We’ve benefited significantly in 2014 from cure rates in Australia where we’ve sold houses and not even experienced any losses associated with it because of the high home price appreciation levels. So I think that’s going to tap down.

So still very solid performance, well within our pricing expectations, but it is going to moderate I think off of what have been really two very, very favorable years from a loss ratio perspective. And then the U.S.

business is going to grow. It’s going to continue to grow and experience, I think a decent year, in line with Tom’s comments.

Thank you. One follow-up for Marty.

Marty, lifestyle protection. I think you acknowledged that there is going to be a significant loss.

I think that was the adjective you used if you’re able to sell it. Given that, why wasn’t the DAC impaired at a minimum?

It seems to me effectively you acknowledged that $248 million has gone. So why not - so just clear the DAC filled [ph] in this quarter?

Yes. Like I said, it would be kind of nice to clear the DAC and some of the stuff, but we do have to follow GAAP accounting rules.

I would say that where we’re launching a process the GAAP accounting for this really means to do what you described would really entail calling a discontinued operations. And I think to do a lot of that - so if you have to have a pretty tangible plan where you feel extremely confident that you actually would execute itself within about a year timeframe.

And so while we’re launching the sale, and hopefully we’ll be in a position where later in the year we’d be able to actually execute the sale. I think we’re not quite to the point where we can get to that GAAP accounting threshold and do that.

I would say that certainly our intent to sell it hopefully later this year. We’ve launched that process.

I don’t really want to comment on the valuation we expect to get from LPI, but we do want to make sure, you and our investors and analysts all understand that I think it’s quite likely to be below and probably well below the current GAAP book value. But we’re not really quite at the point yet from a GAAP accounting standpoint when we’re able to make that change in our accounting.

Okay. Well I hope you can get that in the next quarter.

Thanks.

Well, the farther along we get, the better for us. So we hope we move it along as well too.

Thanks, Colin. By the way just to be definitive on your question on the cash flow testing.

Yes, we absolutely would pass cash flow testing without this reinvestment strategy handily. So it didn’t have so much of an impact that would negative margins.

But it is fairly dependent on the assumptions on the new business and it’s still early days for those to be fair too, right?

Yes. To be fair, absolutely, yes.

We called out, I think the impact on a GAAP basis is 4.9. It’s pretty similar on stat, so you can certainly wind it in.

And we want the people know what was in that assumption, any amount of premium that’s in that assumption. Absolutely.

Okay. Thanks.

Thanks. Good morning.

Just a little change in questioning. I was little confused on domestic MI for this quarter.

Was there, or was there not an additional loss accrual this quarter?

Geoff, there was not an additional loss for accrual. I think what we’ve seen in the U.S.

business or we’re continuing to see positive emergence of our early term delinquencies, but we made no adjustments to our factors associated with that. We’re going to continue to watch for sustained performance before we make those adjustments, but we’re probably reserved it sort of the one in six times from a frequency standpoint, trending more towards one in seven, but we need to see more sustained performance on that.

And on the other side of it, we still got to be prudent I think as we watch severity, because severity has been kind of sticky. The older adults continue to age.

When you look at that altogether, our reserves are performing - our business is performing consistent with our reserve expectations, but we had no adjustment this quarter.

Okay. And then you also alluded to discussions with reinsurers.

Are there any new reinsurance agreements this quarter and are you still looking at XOL [ph]?

We put no reinsurance agreements in place this quarter. We did make some nice progress working in the U.S.

business, if that’s your question, with reinsurers and consistent with our plans to be compliant from a PMIER standpoint. I think we’ve made a lot of progress with the reinsurers.

Where we stand though is we still don’t have a PMIER standards are not final. Until they’re final, we won't know exactly how they’re going to gauge the insurance.

So we’re working on that and good review right now with the GSEs, as well as with our state regulator.

Okay. But at this point you still going down the XOL [ph] quota?

At this point in time, that would be our approach. Yes.

All right, great. Thank you.

Hi, good morning everybody. Lot have already been answered already.

Marty, your description of the profit pattern for GAAP on LTC. Are you basically referencing SOP 03-1?

Is that how this is going to work?

Not exactly in those ordering, but of course it would come up, because it is new phenomenon for us. And again what we’re seeing here in our margin testing for GAAP is the kind of expected pattern of earnings is over the next 15 or 16 years, we have positive earnings and then it becomes negative after that, kind of under the way we’ve been reporting.

And as those losses kick in after about year ’15 or ’16, the present value of those losses is about $1.2 billion. You take the $3.5 billion positive and $1.2 billion negative, you still have positive margin of $2.3 billion.

But under GAAP accounting, when you have a period in the future where there are losses, you do need to accrue a liability for that. Beyond that, there is not really any clear GAAP accounting guidance on exactly how to do that.

So we’re working with our accounting teams and our auditors to develop the approach. And again, I think there could be a variety of approaches depending on how we decide to do it and working in conjunction with our auditors.

I think what we’d anticipate doing is taking - given that we now have a different view of severity on existing book, we would probably take of the future rate actions on these existing book that we’re tending to get. And rather than having normal courses, we do have that all hit the bottom line as we get those additional premiums or as we get reserve releases.

We’d rather take some of that benefit and spread - and fund that liability for those future losses. Again I’d remind you that this really relates to the block business we have at the point of time we did the cash flow - I’m sorry, the margin testings we’ve had at year-end.

So any new business that we would write is really not part of this, that’s really reflective of the block that we have on the books right now, but basically what will take is part of the benefits we get from future rate actions rather hitting the bottom line. We’ll take some of that and build up an incremental liability to fund those losses, so that $1.2 billion losses would be effectively zero at a liability we build up.

Okay. So the use of benefit factors and what have you that you might do for GMIB or SUL is not necessarily - that’s not necessarily the way it’s going to work?

No, not at all. This is all within the existing block that we have at long-term care.

And basically, as we’re projecting forward, we would take our new view of claims which creates the losses in future years along with our new view of future rate actions and kind of change the accounting recognition for those future rate actions, so that some of that would be building up as a liability reserve, if you will, against those going through losses, but it’s all within the long-term care line of business.

Right. Yes, I understood that.

I guess my question, it goes back to - I don’t have the page number on here, Page 3 of the long-term care insurance annual margin testing. The present value future claims and expenses is $40.7 million.

The present value of future premiums is $27.3 million on the HGAAP lock.

Yes.

Does that mean I’m going to have a benefit ratio, benefits divided by premium of, I think that’s 150%?

Yes, I’m not sure I look at quite like that. I think what - in fact this doesn’t really change the margin.

So I think what it does is it changes the pattern of GAAP earnings recognition for the future rate actions. And I think that’s maybe way to think about it where if we did nothing we’d get these future - just to go in the status quo where we would change nothing.

What we’d see is over the next 15 or 16 years, we’d get these additional premiums or reserve releases that would just benefits and that would hit the bottom line and that would help benefit the next 15 or 16 years. But then you get into those later periods beyond 15 or 16 years, and a lot of that benefit what already have been recognized in our GAAP P&L.

And then you’ve got these higher claims, given our new severity - updated severity assumptions and those higher severity expectations would lead to losses in future years. So rather than doing that, what we need to do is set up accrual for a liability to fund that period of time when there are those future losses.

And the way that we’ll do that is we will not recognize the full benefit of those additional premiums or the full benefit of reserve releases, but rather we’ll recognize one part of that benefit and then set aside the remainder of that benefit and kind of accrue and reserve for a liability against those losses.

All right, so different profit liabilities what you’ll set up. Okay.

And then for Tom. I can't find the number here, but I thought I saw that the debt to total capital is currently 25.9%.

Was that correct?

That’s correct.

That doesn’t strike me as ridiculously high. I mean, all other companies are around 25%.

I don’t really understand why you think you really need some significant action here?

So again I would say Steven that it’s based on the options we’re considering, including a number of investors and shareholders over time have talked about a split, and with $4.6 billion of debt at the holding company, and today Australia and Canada being the primary sources of cash capital to service the debt, our feeling is to have a broader array of options that we could consider. Again, we have made no decisions on any of these.

We believe we have more flexibility if the debt was $1 billion to $2 billion lower than what it is today. We have talked to the rating agencies, we’ve talked to regulators and certainly we’ve heard from a number of investors over time.

And I do think that given the level of debt and given today’s payors, if you will, the debt service. Now USMI, we think in a few years as it builds earnings on the unassigned surplus from the loss years goes away, it will also be a payor of dividends.

We don’t think we have a long-term care. We are looking to improve the RBC capital supporting long-term care.

And therefore we don’t expect a lot of ability at least in the next few years to pay dividends. So it’s really to have flexibility to consider a broad array of options that are feasible we believe, and our outside financial advisors have also confirmed that we have to reduce the debt around that range, given the current cash capital generation of our operating subsidiary.

Tom, you referenced a split. I assume you were referencing the potential splitting MI from the life insurance operations.

Would that be correct?

Right. A number of investors and others have talked about that.

Sure. Okay.

Thank you.

But again, we haven't made any decisions. And I think the debt pay down Tom talked about would be designed to give us flexibility to do other options whatever they are, but I think they are current earning streams that make the businesses, I think the debt level is quite manageable, but what we would like to do is pay down a billion or a couple of billion to have more strategic flexibility, if you will.

But I think with the status quo what we have, well, it’s a little bit more than we’d like, we certainly think it’s very manageable with the flows that we will be getting from Canada, Australia, USMI come back over time. And US Life, we’re going to really sit tight on as far as dividends for the next year or two and lift that capital base still back up.

Okay. Thank you.

Hi, thanks. Just wanted to make sure I understood this on Slide 3.

You’re talking about, for example the $42.7 billion is the PV future claims. You’re saying that increased by $5.4 billion.

Is that what you called out in the release, and then you were offsetting that by $4.9 billion of additional premium increases? And this leads us to the second question here.

Is that right way to - am I thinking about that the right way?

Right. The $5.4 billion is really represented in the present value future claims in expenses line.

Okay.

So that’s larger by that $5.4 billion. Again there is one distinction on the GAAP versus stat.

One is GAAP is pre-tax and the $5.4 billion is a pre-tax number. And then similarly the additional premiums, $4.9 billion pre-tax of future premium benefits are really reflected in the present value future premiums row.

Okay. Now, that’s what I wanted to ask you about.

You talked about earlier the premium increases that you’re going to get, that have already been approved, plus incremental expected additional premiums. It looks like about - if I look at sort of midpoint, it looks like a $1 billion annually or whatever, is what you’re supposed to be getting.

Am I assuming kind of a similar ratio in that $4.9 billion of rate increases you’ve already gotten versus rate increases you expect to get?

Yes, to be clear and I’ll refer folks to, I guess, it’s Slide 5, that $4.9 billion of benefit of pre-tax to margin reference is really associated just with the incremental premium that we’d get in the future at its peak. That’s $525 million to $625 million.

What happens as we implement that, look at that in our modeling? It kind of builds up over time and takes us about 15 years to really get that fully implemented.

So it ramps up pretty slowly. And then actually it ramps down pretty quickly as the number of active lines paying their premium comes.

So it’s really just about four, five, six years where we’re getting additional premium in the neighborhood. But the $4.9 billion is associated only with that, what we say, anticipated peak actual additional premium.

So the other premium that we referenced that we’ve gotten to-date, the $380 million to $470 million, is really I’m just trying to get the context for folks about what we’ve already achieved just in the last few years with these rate actions. That’s already because it’s improved.

That had already been built in to our margin testing.

Okay. Just, I guess, I should have asked more simply.

Of the $4.9 billion of premiums you expect to get, how much of that is already been done?

That’s all in the future.

That’s all in the future, so…

That’s all in the future.

That has to be requested from regulators and approved. Am I correct?

That’s right. Yes.

That is right.

Okay. For your debt reduction, what I count - it sounds like over time I’m looking at your debt maturity schedule.

It looks like you’ve got $300 million due in ‘16, $600 million in ‘18, $400 million in ‘20. I mean is that the time period I’m thinking about for your debt reduction plan.

Is it normal amortization? Is that the time horizon we’re talking about?

And do you consider the 6.15%, so 66% to junior subs, is that contemplated as part of the plan of reduction?

There is different ways to pay down the debt. One is just with the passage of time, really just pay off the maturities.

And really the next two maturities we have are $300 million and $600 million, respectively. That’s certainly one way to do it.

I think what Tom described as we look at the strategy is what - is there anything we should be doing differently in the options we should be look at that if we did choose those, those might accelerate those pay downs, that if we sold the business or did something different or put something in runoff or a variety of different things, will that create some capital level, give us the opportunity to do something quicker, if it made sense to do any kind of scenario. So obviously how we think about the pay down of debt is going to be a function of what we decide to do strategically in a very intertwined.

So again that sounds like that applies tenders or open market purchases?

Yes, if we did do that. You’re exactly right.

For example, we sold a business and had some capital, we might then say, well, let's rather than waiting for maturity we might then do a tender. And again we have different, obviously tenders with different maturities and different costs.

And we’d look at all that and that particular market decides, if we want to do a tender or some open market purchases or what have you.

Okay, great. Thanks a lot.

That’s it from me.

Thank you for your question.

Thank you, Kristy. And again, thank you for all - everybody on the phone today for your time and your questions.

And although we may not have answered every question about all of our future actions, we hope you have a sense of our focus and priorities and that you found today’s discussion helpful. While our challenges are both complex and substantial, we are confident our actions to-date and the strategic review of future actions that we’re now looking at, will serve to continue to grow our mortgage insurance businesses, will rationalize our life insurance business, while leveraging our leading position in long-term care to significantly improve in-force profitability and improve the way the LTC industry has regulated.

I can assure you that our management team is focused and determined to transform and build value in Genworth’s businesses for the benefit of all of our stakeholders. Thank you very much.