Genworth Financial, Inc. (NYSE:GNW)
Annual Shareholder Meeting Conference Call
May 17, 2012 09:00 am ET
James S. Riepe – Former Vice Chairman of T. Rowe Price Group, Inc.
Leon E. Roday – Senior Vice President, General Counsel & Secretary
Martin P. Klein – Acting President and Acting Chief Executive Officer; Senior Vice President – Chief Financial Officer
James S. Riepe
Good morning everybody. My name is Jim Riepe, I’m the Non-Executive Chair of the Board of Directors of Genworth Financial. In accordance with our bylaws, I’m going to preside over the meeting this morning with Leon Roday, our General Counsel and Secretary. He will be Secretary of the meeting. On behalf of Genworth, it is my pleasure to welcome everybody to our 2012 Annual Meeting of stockholders.
Before we begin the business portion of the meeting, I’d like to introduce our director nominees. Genworth stockholders have the opportunity to elect their board every year. I’m standing for election as are six of my colleagues. As with our directors stand as I call their names, Bill Bolinder, Nancy Karch, Chris Mead, Tom Moloney, and Jim Parke. Steve Alesio who could not join us today had to leave the country last night is also standing for reelection.
One of our current directors, Dr. Risa Lavizzo-Mourey is not standing for reelection as you saw in the proxy due to her very active schedule as Head of the Robert Wood Johnson Foundation. Risa has been a director of Genworth since 2007. She contributed importantly to the board’s deliberations in addition to brining her extensive experience in healthcare and health policy to our board table.
In addition, former Nebraska Senator Bob Kerrey and governor, one of Genworth’s founding directors at the time of the IPO in 2004 stepped down from our board in March of this year when Bob decided to run for the senate again from Nebraska and we wish him well on that. Bob provided an valuable counsel to the company with the respect to our government relations sharing our legal and public affairs committee. Both he and Risa will be missed not only for their professional contributions with the board, but also for their friendship.
And lastly, as you all know, Mike Fraizer, Chairman and CEO of Genworth since its initial public offering in 2004 resigned earlier this month. Mike had at the collection of businesses that became Genworth for a number of years while they were inside GE. He led the organization that’s transitioned to a publicly held company followed by several years of successful growth and then brought Genworth through the worst financial and housing crisis that our country has seen in more than 70 years.
Some four years into this difficult environment, Mike decided that it would be timely and best for the company if he step aside and allowed others to lead the organization and its continuing challenge of rebuilding shareholder value. The Board understood Mike’s situation and accepted his resignation especially on behalf of his fellow employees and investors, their great appreciation for his many years of contribution to Genworth.
Mike’s commitment to Genworth is work ethic, his deep knowledge of the business and his high integrity has benefited Genworth in many ways. I know his colleagues in the firm and the directors all wish him well for the future.
Let me also introduce several other members of Genworth’s senior management team. The board and I are very pleased that Martin Klein has assumed the position of acting CEO. His combination of leadership, analytic and business skills will serve him well as he serves alongside the senior management team to build on Genworth’s successes while also addressing its challenges.
This senior team includes Pat Kelleher, President & CEO of the Insurance and Wealth Management Division; Kevin Schneider, newly named President & COO of the Global Mortgage Insurance Division; and Dan Sheehan, newly named Chief Investment Officer.
Several of our other senior leaders are with us this morning as well. I won’t take the time to introduce them all, but if questions are raised in their areas of expertise, I will ask them to respond. I look forward to continuing to work closely with Martin and the entire leadership team and the board is very grateful for their dedication and commitment to Genworth and to Genworth’s shareholders.
Now back to the business of the meeting, present today are representatives from KBMG, the corporation’s independent public accounting firm. Mr. Roday and Mr. Klein are the holders of the proxy solicited by the board for this meeting. Now let me ask Mr. Roday to address the rules for the meeting and to establish that the meeting has been duly called and that quorum is present.
Leon E. Roday
Thank you. Upon entering, each of you was presented with an agenda for the Annual Meeting and the rules of conduct for today’s meeting. To ensure orderly meeting, we ask that all participants in the meeting abide by these rules. In addition, elements of management’s remarks may be forward-looking in nature given our base on our current views of our businesses and the market environment. You can find a description of the risks that we faced in the risk factors section of our most recent annual report on Form 10-K.
Management may also make reference to a few new non-GAAP financial measures. Definitions of these measures and the required reconciliations to GAAP are set forth in the fourth quarter of 2011 and first quarter of 2012 financial supplements, both of which are posted on our website.
Mr. Riepe, the notice requirements for the annual meeting have been satisfied. The board fixed March 21, 2012 as the record day for this meeting or half day of mailing from a representative of Computershare Shareowner Services LLC, the corporation’s transfer agent is with the inspector of election. The affidavit test to the [do mailing] of the 2012 meeting notice, the proxy statement and the 2011 annual report to the shareholders. [Ian Kansy] from Computershare Shareowner Services LLC is serving as the inspector of election and has taken an oath of office.
The inspector of election has determined that holders of approximately 89% of the shares of the Class A Common Stock outstanding on the record day are present in person or by proxy constituting a quorum for the transaction of business at this meeting.
Inspector of Election has a list of all stockholders who are entitled to vote at this meeting. The list will be kept open during the meeting for inspection by any stockholder for any purpose to remain to the meeting. Mr. Chairman.
James S. Riepe
Thank you, Mr. Roday. We’re the holders of the majority the outstanding shares entitled to vote at this meeting present in person or by proxy I declare this meeting to be duly convening for the purpose of transacting such business as may properly come before it. The polls will open when all the proposals to be (inaudible) this meeting have been presented and the polls will close immediately prior to the preliminary voting report. But before we move up to those business items for stockholder vote Mr. Klein and I would like to make a few remarks to you all about the company. And let me begin. As this challenging economic environment continues on into its fifth year and your company has undergone there is a recent management change of the board and we’ve recognized that many of you have questions about Genworth’s plans moving forward.
First during and after this transaction you should be confident that our focus will remain on improving the company’s operating performance, maintaining adequate financial liquidity and managing our capital, so as you use it most effectively. During this interim period, the board also will initiate a search for a permanent CEO. In just a moment Mr. Klein will provide more specific information about the priorities that will guide our actions going forward. But first I’d like to make a few comments from my own [driven] perspective.
As we look ahead, the board and the senior leadership team will continue our intense review of Genworth’s business portfolio. Genworth’s business portfolio was a diverse and complex one, operating in a highly regulated environment and with many constituencies to serve including stockholders, bondholders, policyholders, regulators, rated agencies, distributors and customers. We’ve been analyzing the business operations and their prospects, as well as the capital and debt required to support those operations. We have also worked with third-party advisors, so as the benefit from an outsider’s perspective.
The goal is to determine how best to maximize the portfolios value over the medium to long-term. This includes steps to better align our businesses, enhance their risk profiles, evaluate their prospects and reallocate capital runways that will support shareholder value.
We are painfully aware that there is no silver bullet that will remove all of the challenges in these businesses. On the other hand, we also see opportunities for value creation. We are far along in this process and are developing a strategic plan that address how to strengthen our capital structure and realign our business portfolio including some very specific actions that we intend to take.
Importantly, I want to note that in the meantime if decisions can be made that will enhance the portfolios value. You can be assured we will not wait to make them. In some cases such a move might be announced in an advance and then others the company’s interest will be better served by keeping our intentions confidential.
Having lived through the most difficult financial crises any of us have ever seen. The board has determined to maintain a strong and liquid balance sheet. Get all of us directors and management also realize that the equity markets have heavily discounted the value of the company’s businesses for several years now. So the challenge to the directors and management team is to take actions that will reduce that discount. We expect to accomplish that by assuring that we execute effectively in our core businesses. While at the same time, realign the business portfolio, so as to capitalize on Genworth’s core strengths. If we are successful these actions will serve to substantially rebuild the shareholder value.
Let me now turn the podium over to Mr. Klein, who will give you a few more details about our current priorities. Marty?
Martin P. Klein
Thank you, Mr. Riepe. Good morning and thanks everybody for joining us. Today I’ll be providing an overview of our 2011 performance and our 2012 priorities. The first I’d like to say appreciate the opportunity to service Genworth’s acting Chief Executive Officer. For the past years, I’ve been with the company of witness to our employees’ extraordinary commitments and making a difference for the people that count on us everyday.
I look forward to working with them and with the board to this new capacity moving forward. A general part, we continue to meet the important needs of our customers, the strong products and services innovation. At the same time we’re working to improve the performance of our businesses, while maintaining strong liquidity and generating and managing capital.
Let’s start with our performance. Clearly 2011 was the very tough year for Genworth and for our shareholders. However, during the year, we did take several important steps. We refocused our leadership lines matching our capabilities with the greatest market opportunities. We wrote new business at with good returns. We improved our enforced business performance to reprising and loss mitigation strategies, and we generated managed our capital at the operating and holding company level.
Let’s look at each of our businesses now. In our Insurance and Wealth Management Division, our focus is on increasing profitability and in capital generation and improving statutory performance. In life insurance, we’re being selective regarding new business, implementing product design changes and reprising many products. We continue to do these reinsurance and in new business to manage capital effectively. We also completed our first life insurance block transaction, which generated a very significant capital benefit.
In long-term care, we implemented our second premium rate increase on majority of our older ship policies, which has begun to take effect, and we’re closely watching the performance of the business and we’ll access potential, additional rate actions accordingly. We continue to see sound performance across the bulk of newer ship policies and a price (Inaudible) for the low interest rate environment as we managed capital and risk, we use reinsurance on new business reinsuring about 40% of the new long-term care product. In fixed annuities, we continue to manage new business to meet or exceed the targets we have in a low rate environment.
In international protection, we’ve repositioned and continue to take actions that impact the business in Europe given the very challenging environment there. In wealth management, the business is now solely focused on its turnkey asset management business with the sale of our accounting advisory unit general financial investment services, earlier this year.
Let’s now turn to our global mortgage insurance division. In international mortgage insurance, we’re targeting new business selectively maintaining pricing disciplines and underwriting guidelines in a competitive environment and generating capital for our holding company. Following sound results in 2011, our first quarter performance was mixed with very disappointing results in Australia which caused us to delay our planned minority initial IPO.
We now expect to complete the IPO in early 2013 subject to market conditions, valuation considerations which will include business performance and regulatory approvals. In U.S. mortgage insurance, we’re managing the business to return to profitability realizing strong benefits from loss mitigation management programs pursuing capital management strategies and writing highly profitable new business while maintaining pricing discipline and underwriting guidelines.
I’d point out that in all of our mortgage platforms, we’re working with legislatures and other groups to influence housing policies, navigate for sustainable framework for mortgage lending. Turing now to financial strength, we remain very focused on maintaining risk buffers and effectively managing overall exposures. Our holding company cash targets average which is about $600 million, which is important in order to maintain and preserve our ratings.
Second, our targets include an additional buffer of approximately $350 million for stress scenarios that could impact the holding company’s dividend sources over the time 18 months. We expect to continue to manage holding company cash to meet or exceed these targets as we navigate the current environment. I’d point out that this additional buffer could change to a add capital flexibility and increase our distributable earnings profile to support dividends to the holding company.
We’re making headway in our strategy to create further dividend streams to the holding company. A key goal is to have the U.S. (Inaudible) companies pay a regular ordinary dividend beginning next year. Moving forward we will continue to manage our capital to support statutory earnings, dividends to the holding company, risk buffers and ultimately shareholder value.
With respect to share repurchase as I mentioned in our first quarter earnings update, given our cash resources at the holding company, our debt service needs and liquidity targets as well as the delay in the Australian IPO, it’s unlikely that (Inaudible) commence the share repurchase program in 2012.
There is no question. We have much more work to do and reach our goals and rebuild the value of Genworth. Moving forward, we’ll continue to focus on improving the performance of our businesses to help to increase our financial strength and our financial flexibility.
As we do so, we have very clear priorities which are first working with the Board, we’ll continue to reposition our business portfolio and capital structure to focus on our leadership lines and rebuild shareholder value over the medium to long term. Second, we will manage distributable earnings by improving business performance and third, we will add to enterprise and holding company’s financial strength by maintaining (Inaudible) buffers and managing worst exposures in generating and managing capital effectively.
From my perspective, I want to reiterate Mr. Riepe’s comments on our intense review with the Board of our business and our capital structures and we recognize the importance of this review for our investors, our customers and our employees. In the meantime, our leadership team and our employees are determined to deliver on the priorities I’ve outlined to make a difference for our shareholders, our bondholders and customers that we serve.
Thank you for your continued support of Genworth. Now, I’d like to turn the podium back over to Mr. Riepe.
James S. Riepe
Thank you, Marty. Mr. Roday, please present the proposals to be voted on at the meeting.
The first proposal before the stockholders of the corporation is the election of seven Directors to serve until the annual meeting to stockholders in 2013 or until their successors are duly elected and qualified.
On May 1, 2012, the Board of Directors withdrew, Michael Fraizer's nomination to stand for election as a Director at the annual meeting of stockholders and reduce the size of the Board to seven Directors. Effective as of the annual meeting.
The Board of Directors recommends the election of the following persons as Directors of the Corporation. Steven Alesio, Bill Bolinder, Nancy Karch, Chris Mead, Tom Moloney, Jim Parke and Jim Riepe. Each of these nominees has been nominated in accordance with our bylaws. Bios for each of the nominees are provided in the company’s 2012-proxy statement.
The second proposal is an advisory vote to approve named Executive Officer compensation. The third proposal is a vote to improve the Genworth Financial Inc., 2012 Omnibus Incentive Plan. The fourth proposal is to ratify the audit committee’s ratification of KPMG LLP as the Corporations Independent Registered Public Accounting Firm for 2012. As stated in the proxy statement the Board recommends the stockholders vote four each vote of these proposals. Mr. Riepe.
James S. Riepe
Thank you. I hereby declare the polls open at 9:18 am holders of Genworth Class A Common Stock who have not send in an proxy card or submitted a proxy by telephone or internet and who wish to vote or stockholders who have already submitted a proxy, but who to wish to change their vote will be given a ballot. Please raise your hand and a ballot will be given to you now, if you want to vote here at the meeting.
I see no hands. We will now accept – if you have already send in a completed proxy card or submitted a proxy by telephone or internet, you do not need to vote by ballot today unless you would like to change the vote reflected on you previously submitted proxy, we have not handed out any ballots that are so. Is that correct.
We will now accept any questions you may have about the matters to be voted on at this meeting. At this time, there will be no matters other than these four proposals that we’ll take about now. Questions of the general nature will be taken later.
If you have a question about one of these proposals, please raise your hand wait to be recognized, weighting for a microphone, once you are recognized, we brought to you state your name, your status as a stockholder of record or proxy holder and present your question. Are there any questions at all on any of the four proposals, which the stockholders are considering at this meeting?
Okay, we will now collect any outstanding ballots, if you brought your proxy card and wish to vote by ballot, please hold up your hands and your proxy card can be collected.
Okay, all those desiring to vote by ballot have done so and all the ballots have been collected. I hereby declare the polls have closed at 9:20 am.
Mr. Roday please present the preliminary report of the Inspector of Election.
Leon E. Roday
Okay. The Inspector of Election has preliminarily determined that each of Steven Alesio, Bill Bolinder, Nancy Karch, Chris Mead, Tom Moloney, Jim Parke, and Jim Riepe has received more votes cast for then against for his or her election. Therefore in accordance with our majority-voting standard for uncontested Director of Elections, each Director has received a majority of the votes cast in favor of his or her election.
Inspector of Election has also preliminary determined. The advisory vote to approve the compensation of our named executive officers has been approved by the affirmative vote of a majority of shares of Class A Common Stock present at the meeting in person or by a proxy and entitled to vote on this matter.
In addition, the vote to approve the Genworth Financial Inc., 2012 Omnibus Incentive Plan has been approved by the affirmative vote of a majority of shares of Class A Common Stock present at the meeting in person or by proxy and entitled to vote on this matter with the total votes cast also on the proposal representing of over 50% of the total outstanding shares of common stock.
Finally, the ratification and the selection of KPMG LLP as the Corporations Independent Registered Public Accounting Firm for 2012 has been approved by the affirmative vote of a majority of shares of Class A Common Stock present at the meeting in person or by proxy and entitled to vote on this matter.
James S. Riepe
Thank you Mr. Secretary. Based on the Inspector of Elections preliminary report, I declare that each person nominated for election as a director at this meeting has been elected. The advisory vote on the named executive officer compensation is approved. The vote on the Genworth Financial, Inc. 2012 Omnibus Incentive Plan is approved and the selection of KPMG LLP as the Corporations Independent Registered Public Accounting Firm is ratified. The [brokering] results of the election will appear in a current report on Form 8-K, which will be issued within four days (inaudible) of this meeting.
This now concludes the formal business portion of the Annual Meeting and that portion is now adjourned. Let me now open the floor for questions, I’ll remind you that the rules of conduct that you received upon to entering the meeting indicate that we would like you to be recognized raise your hand get a microphone, state your name clearly your status as a stockholder of record as of March 21, or a proxy holder for such stockholder. And then present your question and your comment. Again as a courtesy to the other stockholders, please limit your question or comments to the business of the company to know more than three or four minutes to give others an opportunity to be [hear]. We have any questions from the floor.
[No Q&A session for this event]
James S. Riepe
Okay. Thank you very much we will not have any questions then and let me adjourned the meeting. That concludes the 2012, Genworth Financial, Inc. Annual Meeting to stockholders. I want to thank all of the employees of Genworth. And I want to thank a very hardworking Board of Directors for all of their efforts on behalf of Genworth and Gen we look forward to seeing you again next year.
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