Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Genworth Financial, Inc. (NYSE:GNW)

Q2 FY08 Earnings Call

July 30, 2008, 09:00 AM ET

Executives

Alicia Charity - VP, IR

Michael D. Fraizer - Chairman, President and CEO

Patrick B. Kelleher - Sr. VP and CFO

Kevin D. Schneider - President, U.S. Mortgage Insurance

Thomas H. Mann - EVP

Pamela S. Schutz - EVP

Analysts

Andrew Kligerman - UBS

Daniel Johnson - Citadel

Darin Arita - Deutsche Bank

Edward Spehar - Merrill Lynch

Steven Schwartz - Raymond James

Eric Berg - Lehman Brothers

Thomas Gallagher - Credit Suisse

Jeffrey Schuman - Keefe, Bruyette & Woods

Mark Finkelstein - Fox-Pitt Kelton

Operator

Good morning, ladies and gentlemen, and welcome to Genworth Financial's Second Quarter Earnings Conference Call. My mane is Stacy, and I'll be your coordinator today. At this time all participants are in a listen-only mode. We'll facilitate a question-and-answer session towards the end of this conference call. As a reminder, the conference is being recorded for replay purposes. Also, we ask you to refrain from using cell phones, speaker phones or headsets during the Q&A portion of today's call.

I'd now like to turn the presentation over to Alicia Charity, Vice President, Investor Relations. Ms. Charity, you may proceed.

Alicia Charity - Vice President, Investor Relations

Thank you, operator. And, welcome to Genworth Financial's second quarter 2008 earnings conference call. Our press release with expanded tables and an abbreviated supplement were both released last night, and are posted on our website. Finalizing evaluations on investment securities, delay production of the financial supplement in its entirety. It will be filed as an 8-K and posted on our website on Friday.

This morning, you'll hear from Mike Fraizer, our Chairman and CEO, and then Pat Kelleher, our Chief Financial Officer. Following our prepared comments, we'll open up the call for a question-and-answer period. Pam Schutz, Executive Vice President of our Retirement and Protection segment; Tom Mann, Executive Vice President of our International segment; and Kevin Schneider, President of U.S Mortgage Insurance, as well as other business leaders will be available to take questions.

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

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

And finally, when we talk about International segment results, please note that all percent changes exclude the impact of foreign exchange.

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

Michael D. Fraizer - Chairman, President and Chief Executive Officer

Thanks, Alicia. Genworth weathered a difficult environment in the first half, and we anticipate and are prepared for a similar environment through the rest of the year and into 2009. Clearly, we're not satisfied with our overall current performance levels. All we see is strength in our international operations. We have several business lines along with their investment portfolios, feeling some strains from the spreading impacts of market downturns. We're aggressively managing through this landscape on multiple fronts. Our focus is simple, take necessary actions today to position the business for the future and improve 2009 performance.

We believe the strong steps we're taking now, we'll accomplish this goal. We are mindful that the environment is still evolving, but our visibility today into our U.S mortgage insurance and investment portfolios is clear than it has been since the housing market crisis, and subsequent general financial turmoil began. And this visibility has led us to make some additional shifts to asset portfolios and loss mitigation activities in the U.S and globally.

With that, we continue to take decisive actions to deal with mortgage insurance related risks at Genworth. We are positioned in the U.S Mortgage Insurance business model, to improve future profitability. For example, we move first in the industry to increase core pricing levels, a trend now effective across most of the market. We continue to restrict underwriting criteria and declining geographic submarkets, and we're realizing material benefits from mass mitigation activities, which are important steps that will make this business stronger, along with the recent passage of housing legislation.

We're also taking action to have the flexibility to reposition our investment portfolio to support Genworth's risk tolerance and related strategies. This change of intent to hold certain securities resulted in the $215 million out of the total $359 million after-tax impairments that you saw in the quarter, and the accompanying $40 million negative tax impact on operating earnings.

I would note that the realized loss associated with change of intent does not flow through this statutory income. Again, this action gives us flexibility to be opportunistic and move into the markets at a time of our choosing to reposition securities that we believe have no value recovery opportunity or no longer fit with our portfolio.

Finally, we're focused on maintaining capital flexibility and sound capital positions, without the need to raise additional equity capital as we move through this period. We're closely managing our risk based capital and risk-to-capital ratios. We use various approaches including traditional reinsurance to free trapped capital, repositioning of assets to increase capital availability or by accessing external capital through reinsurance structures that would fund targeted new business growth in a more efficient and profitable manner.

The bottom line is that we take preserving shareholder capital and maintaining capital flexibility very seriously, and this remains top of mind for myself and the management team.

With the first half completed, and after taking a hard look at the environment, we are affirming our 2008 outlook for net operating earnings per share $2.25 to $2.65 range. We expect the tax rate to decline in the second half of 2008, and the recoup to $40 million in higher taxes in this quarter with a full year effective tax rate of around 27%.

I would expect to provide some directional outlook for 2009, on our next earnings call towards the end of October, and present a more comprehensive view at a December investor update.

This morning, Pat and I, will focus on four key areas where we're actively working to manage risk and position Genworth for the future. First, on U.S Mortgage Insurance, where we're making good progress in navigating today's market or shifting the business to a more profitable model; second, on how we're carefully growing our international business and delivering strong earnings growth. Then Pat, will walk through our investment portfolio performance. And finally, he will provide some additional detail on how we're driving capital flexibility.

Let me start with U.S Mortgage Insurance. As we have seen for the past several quarters, incurred losses in U.S Mortgage Insurance are more pronounced in those states that previously experienced the most rapid home price appreciation levels and use of alternative products. These include Florida, California, Arizona, and Nevada, which combined accounted for more than 80% of the increase in reserves this quarter. These four states, plus Michigan and Ohio, where the economies have been sluggish give us six states we consider as key geographic risk exposures.

Lender captive reinsurance absorbed $110 million or about 29% of total flow losses in the quarter with those benefits going mainly to the 2006 and 2007 vintages. We anticipate lender captive reinsurance will provide protection benefits to the 2005 vintage later this year and in this subsequent years.

We have also intensified loss mitigation efforts. Nearly tripling the number of specialists focused on these activities. We worked out nearly 3,000 loans in the quarter, enabling many families to stay in their homes. In addition, while Genworth pays all legitimate claims, we have increased investigations in line with the core underwriting practices we've seen in portions of the 2006 and 2007 books in particular. We've taken strong actions to improve the quality and profitability of the 2008 in future books, excluding many products, limiting loan-to-value ratios, and raising price by more than 20%, as we announced in April.

The business we're riding today has a maximum loan-to-value of 90% in a total of 144 markets we identified that's having increased potential for home price declines with selective exceptions for affordable housing programs.

These restricted markets would represent about half of the source of anticipated new business originations. Moreover, the vast majority of these loans are GSE conforming, with a minimum FICO score of 680, and no alternative products. As a result of our guideline changes, product exits and price increases the 2008 book has characteristics withstand a significantly higher claims rate than we expect, and still produce attractive profitability.

Finally, we are very pleased with the passage of the Housing Bill, and public policy and regulatory steps being taken to help the housing market regain stability or promoting sound underwriting disciplines.

Now, let me turn to our International segment. Here, results in the quarter were strong up 15%, excluding foreign exchange. Payment Protection performed well driven by its strong position on the European continent with earnings up 26% while still investing prudently in new markets. International Mortgage Insurance also performed well up 12%, driven by our Australian and Canadian platforms.

I would note that many of the conditions that are driving difficulties in the U.S housing markets are not characteristic of global housing markets, and in particular Canada and Australia, which together represent about 95% of International Mortgage Insurance risk in force.

High risk lending such as non-prime, no-DAC and 100% loan-to-value lending are far less common in these geographies. In addition, capital markets funding of high-risk products was not a factor in these markets. Our sound loss performance in Canada and Australia demonstrates that these markets are structured differently and will continue to perform better than the U.S.

Our loss ratio in Australia has been trending down over the past several quarters. And in Canada, losses improved sequentially and remained well below pricing. This quarter, we've added disclosure on our supplements, so you can see the attractiveness of International Mortgage Insurance in these two leading platforms, and examine performance characteristics at a more granular level.

That being said, we do recognize that global economies are gradually slowing. In Australia and Canada home price appreciation is expected to slow from double-digit levels in 2007 to 4% to 5% range in 2008. And GDP in these markets is expected to decline somewhat as well.

The economic and housing slowdowns in several European countries are more pronounced. For Genworth, this represents only 5% of international risk in force, and much of it have significant levels of embedded home price appreciation behind it.

Genworth is taking broad actions to manage risks and position our International segment for continued strong performance in this gradually slowing environment. In Canada, we've tightened underwriting and implemented product changes were appropriate and will continue to do so. Concurrent with these moves, the government recently announced certain shifts in loan products it will guarantee through its backstop program including eliminating loans with loan-to-values over 95% and 40 year amortizations. The government is also requiring guaranteed portfolios to have less than 3% of exposures to loans with credit scores of less than 620.

Genworth has already met or will meet these moves and currently satisfies the last test related to FICO score exposure. In Australia, we're maintaining a path, started in 2006 to tighten underwriting, where we anticipate higher future risk factors. This is demonstrated by tightening underwriting in certain areas of New South Wales, and restricting loan-to-value levels in Western Australia, where home price appreciation have been growing more quickly.

In addition, and as a result of the slowdown in mortgage finance the majority of our new insurance written is shifted to large deposit taking lenders that traditionally have very strong underwriting routines.

In Europe, our book is generally well seasoned. We have limited production in the UK, and the book is small, and very seasoned with an effective loan-to-value of 68%. In Spain, we saw a weak performance in certain portions of our book and aggressively tightened new business underwriting, repriced product and exited several relationships. As a result new insurance written in Spain is down over 90%. We do expect some volatility in the loss ratio in Spain in the future quarters and are focused on loss mitigation including working with lenders to limit future risks.

To wrap up, Genworth is intensely managing through a challenging market environment, actively taking steps to manage risks, insure sound capital positions and flexibility, prudently invest in growth, and position Genworth for the future including improved 2009 performance.

With that, I'll turn the call over to Pat. Pat?

Patrick B. Kelleher - Senior Vice President and Chief Financial Officer

Thank you. As Mike said, I will focus on two areas this morning, the investment portfolio and our capital position. Composition of our investment portfolio has shifted modestly during the quarter, and we are proactively and decisively managing this shift to mitigate risk and to optimize returns in the current financial market environments.

Specifically, we have been trimming corporate bond holdings in certain financial services and consumer demand driven sectors. Increasing cash holdings for normal operating needs, but also for redeployment opportunities in sectors that we feel are more attractive, and taking a more segmented approach to the RMBS portfolio.

These actions are important steps to enable repositioning of the investment portfolio going forward. Let's look at the portfolio in a bit more detail starting with some perspectives on RMBS holdings. We determine fair market values for RBMS securities, using market pricing data, and we compare these calculations to results from internal pricing models, which reflect a current evaluation of the quality of underlying collateral.

Based on our experience, we believe that analysis of the underlying collateral is more indicative of the intrinsic value than market prices. This is because market pricing is based on very limited trading information. Based on these analytics, the value of the RMBS Securities back by Alt-A and subprime collateral is $2.4 billion at book, and $1.7 billion at market.

For monitoring and management, we have divided this portfolio into three parts: First, securities with an unrealized loss where we're comfortable with the performance of the underlying collateral. These securities have a book value of $2.2 billion with net unrealized losses of about $700 million.

Second, securities where we identify the credit related impairment, because they failed cash flow testing in the quarter. These credit related impairments totaled $121 million after-tax for the second quarter. And they were concentrated in holdings that had been downgraded to below investment grade. The book and market values of these securities now totaled $104 million.

And third, securities where collateral cash flow testing was adequate, but where our quantitative and qualitative risk assessment indicated a higher risk profile than we desired. Here, we recorded a change-of-intent related impairment of $215 million after-tax for the quarter.

In general, these securities are rated below the single A category. The book and market value of these securities now totaled 61 million. We'll be monitoring these securities closely, and we will be opportunistic if the market improves. Adding this up, we're certainly not pleased with the level of impairments in the RMBS portfolio. However, we do feel that we have taken prudent action to segment the portfolio and take a more conservative stance.

Shifting to the corporate bond portfolio, we are trimming holdings in a number of areas that are more sensitive to consumer discretionary spending, and selectively reducing financial sector holdings. I will note that we have approximately $170 million in Fannie Mae and Freddie Mac debt, the vast majority of which is senior debt. We also have about $130 million in preferred stock.

Next, I want to review our cash position, which did increase during the quarter. The holding company had $1 billion of cash and short-term investments at June 30th, including the proceeds of $600 million of debt issued in the quarter. This is held as pre-funding for 2009 debt maturities, and as capital available to support both holding and operating company cash flow needs. We temporarily increased cash positions in our U.S Life companies to tighten near-term asset liability matching, and to fund new fixed income investments in attractive sectors.

Finally, let me touch on our commercial mortgage-backed security. This $4.9 billion portfolio is well diversified and the average loan-to-value was 60% at origination. To-date, we've seen the collateral performing in line with original underwriting and pricing expectations. The isolated impairments we have seen relate to loan expansions on securities purchased at a discount, and where there is no current expectation of principle impairment. We would expect this trend to continue.

To sum up, we're proactively taking steps to mange risks, and defensively position the investment portfolio for this credit cycle, and to capitalize on opportunities in the current market.

Turning to capital, maintaining financial flexibility and capital to support our AA category financial strength ratings are key priorities for Genworth. In our U.S Life Insurance companies, we target risk based capital ratios of greater than 350%. In our mortgage insurance companies, we target risk to capital ratios based on the rating agency risk adjusted capital requirement.

We build an additional cushion to provide for a variety of market conditions, and/or rating agency methodology changes. With that in mind, our review actions we're taking to efficiently manage the capital position for each of our three operating segments.

Starting with U.S Mortgage Insurance; we are executing plans we discussed in January, to maintain target risk based capital levels without committing additional funds from the holding company. These plans also included positioning our U.S Mortgage Insurance company to participate in incremental new business growth funded by external capital.

During the second quarter, we completed a transaction that created an additional $110 million of capital capacity, through a reduction of risk and corresponding required capital. We continue to explore additional transactions to provide capital flexibility given the U.S Mortgage Insurance losses we're seeing. We're also actively engaged in a number of potential reinsurance transactions that would provide an additional $200 million to $400 million of new capital to fund growth opportunities over the next couple of years.

Turning to retirements and protections; we have outlined plans to extract about half the $2.8 billion of capital trapped in low return life insurance long-term care, and annuity blocks over a multi-year period. To-date, we've made good progress towards completing a combination of related reinsurance transactions, which are designed to enhance our capital position. Executing these transactions would meet our 2008 objective or freeing up capital from low return block. As you know, we have used securitizations to fund additional universal and term life insurance reserves. Since late last year, and given the lack of liquidity and securitization markets, we've completed reinsurance transactions to fund some of these reserves.

Reinsurance provides a good alternative in the near term. While over the longer term, we expect conditions in the life securitization market will improve. In some... although retirements and protection has seen the impact of higher impairments, these various capital initiatives enhance our capital flexibility.

In our international segment, where we've been adding capital to fund strong growth, the market is slowing. The global decrease and new mortgage originations has resulted in a corresponding slowdown in Mortgage Insurance growth. This coupled with the favorable loss trends we're seeing in Canada and Australia decreases the capital required internationally. Over the near-term these international mortgage insurance companies are expected to become a source of capital.

Adding this up, we have good capital plans in place across the company. We've made solid progress to improve flexibility to navigate this difficult environment. And we expect to end the year with solid risk-based capital ratios and risk-to-capital metrics along with $300 million to $600 million of deployable capital consistent with our capital plan.

With that, I'll open the call for questions.

Question And Answer

Operator

Thank you. Ladies and gentlemen, at this time we'll begin the Q&A portion of the call. [Operator Instructions]. We will go first to Andrew Kligerman with UBS.

Andrew Kligerman - UBS

Hi. Good morning; two questions.

Michael D. Fraizer - Chairman, President and Chief Executive Officer

Hi.

Andrew Kligerman - UBS

That was a really interesting review of capital perhaps you could give us a little maths on how you originally had expected $300 million to $600 million in excess capital by the end of the year. Maybe, give us a little more color on how you're going to get to that number more specifically. And also these capital charges from realized losses or impairments as you will. How are they going to affect it? And then, just to Michael, a question you're effectively going to change the U.S MI pricing, I guess, that's effective in July. You put 14 plus billion in new insurance written on the books in the U.S. And I think you were touching on it in your presentation earlier, but if prices are going up 20 plus percent, on this new plan, what is that telling us about the business that was recently put on, I mean what kind of returns can we expect from there?

Michael D. Fraizer - Chairman, President and Chief Executive Officer

Good questions, Andrew. Let me just turn the first two over to Pat, and then, I'm also going to have Kevin Schneider to comment on our U.S MI new business. Pat?

Patrick B. Kelleher - Senior Vice President and Chief Financial Officer

Thanks Mike. With respect to our original capital map or capital walk, we were looking at generating a certain level of expected statutory income, investing a certain amount in new business. I would say that what's happening with the impairments that we've seen, and I'll just give you a couple of figures. In the first quarter of '08, we had statutory impairments of $73 million. In the second quarter of '08, we had statutory impairments of $87 million. We're seeing a little bit of extra pressure relative to our expectations through impairments and through some, I'll say some difficult challenging growth markets.

But, when you look at our original capital plans, we had planned capital actions to extract capital from low return blocks of about $500 million. The transactions we're working on are already targeted at that level. And in addition, we had provided for... a fairly significant share repurchases over the balance of the year. And what we have said is, kind of depending upon how these things work out, our efforts to be... and our success in extracting capital from the low return blocks combined with keeping an eye on the developing impairments and developing statutory earnings.

We would then later probably at the end of third quarter take a close look at the share repurchase, and we would make a decision accordingly. So we think that based on the actions that we've taken, based on the way we were originally set out the capital plan, we have the flexibility to get there, albeit, it may not be exactly how we laid it out originally.

Operator

Thank you. The next --

Kevin D. Schneider - President, U.S. Mortgage Insurance

Let me catch your last question there Andrew. This is Kevin. The pricing increase that we did announce at the end of the last quarter does go into effect of January... July 14, so we're a week into that. And that will certainly provide additional cushion in what is a very uncertain mortgage market. But, what we feel really good about is the overall developing loan characteristics of the book of business that we've putting on. You could probably characterize that the early part of the quarter, probably had a little bit of carry over. And the pipeline clearance from the end of 2007, but in the main we have eliminated the Alt-A, we've eliminated the A minus. We were eliminating the 100... most of the 100% loan-to-value product. Our debt-to-income ratios are coming down on the business we're doing. The credit levels of the borrowers, that are insured are rising. Our overall LTVs are coming down. So literally every week of production we're seeing improving composition and loan characteristics in the business we're writing.

So I would say that as we go forward through a combination of our guideline changes, our pricing, on the declining markets approach that we've taken, we really feel this book of business in total is going to be a profitable book of business 2008. And, as the pricing continues to feather [ph] in this overall book will have room for, a rising overall ultimate claims rate higher than what we expect, and still produce accretive ROEs to our business.

Operator

And we'll go next to Dan Johnson with Citadel.

Daniel Johnson - Citadel

Great. Thank you very much. I appreciate the improved disclosure and the risk related to the MI business in the supplement. Can we go to the... there is a page where we go through the captive arrangements, and again very good disclosure here. One of the things that I think we'll be interested in watching over the next couple of quarters is, the progression of the attached portfolio as it works it's way through, well potentially, through the captive arrangements, and if I guess, the current [ph] going up at the top end. What can you tell us now about where we are with some of these books of business in that. And really important I mean what's... where do you think we end up in terms of how much dollars come out the top end?

Kevin D. Schneider - President, U.S. Mortgage Insurance

Dan, this Kevin. The first thing to think about is the development of those in terms of coming of that top end is very highly dependent on the nature of the structure that was entered into the first place. Those that had lower seated premium levels had lower... had a lower ultimate top tier of the attachment. And those are likely to be more pressured, as the 2007 and 2006 books developed. At this point in time, while it's too early to definitively forecast how that 2007 book is going to perform in this environment the acceleration so far in terms of delinquency developments, the incurred loses and the captive development as well, you know, collede [ph] it to believe it's some of the 2007 lender captives could exceed the tier. I would say we believe that some of the 2007... 2006, our captive books could be also pressured, but I think the real question is going to be what's the level of materiality around the pressure.

Ultimately, as they do come out the top end of the captive is where that might occur, we would expect our earned premium growth to be able to absorb that those loses that would come back to Genworth, and we think they and largely should be very manageable, but again the ultimate development is really going to depend upon continued delinquency progression, the geographic and product concentration to what's can ultimately happen in terms of lap in tier rates and the impact of our loss mitigation efforts, but at this point in time we would believe that to be manageable.

Daniel Johnson - Citadel

And on that issue sort of as you said depends on how the underlying business is doing, I mean we can talk about the severity progression, the delinquency progression obviously moved up a good, but unlike what we've seen at some other companies. Well not that many have reported yet, but at least a few the severity component continues to move up meaningfully, can you sort of point to some other sources of that and importantly how long do you think you'll be looking at rapidly increasing severity rates. Thank you.

Kevin D. Schneider - President, U.S. Mortgage Insurance

When you refer to severity, I think I'm interpreting that as average claim rate.

Daniel Johnson - Citadel

Correct.

Kevin D. Schneider - President, U.S. Mortgage Insurance

If I'm following you correctly.

Daniel Johnson - Citadel

Yes, it was up about 20% sequentially does that 19,000 number?

Kevin D. Schneider - President, U.S. Mortgage Insurance

Yes, the growth in the dollar amount of the average claim rate is obviously being impacted by and particular those four states that has the highest loan levels, the highest property levels. Those states that are providing the most increased in our delinquency development so California, Florida, Nevada and Arizona. We should expect that in terms of those claims rates to continue to be pressured as those delinquencies work their way through the system.

In terms of thinking about how we historically talk about severity. Severity is really going to... excuse me, it's going to move around really region-by-region at this point in time, our severity level for the quarter came in at about 103% of it a little bit from the first quarter at 102, but again just to remind you we believe there is a structural limitation on that. That's really based into our ultimate claims obligation levels in the coverage that we provide. So we feel good about where that is right now and is well within the range that we assume in terms of our severity assumptions.

Daniel Johnson - Citadel

The movement from sort of quarterly severity of a just couple percent in last year and now we're looking at sort of mid 25% sequential severities that's was expected?

Kevin D. Schneider - President, U.S. Mortgage Insurance

Well, again you're and talking about ultimate claims dollars, average claims dollars it will absolutely based upon the development and emergence of delinquencies in the third and fourth quarter of 2007, when those... as those loans began to go delinquent and particularly being driven by the higher loan balance states. Then we did have an expectation that ultimately those delinquencies that went to claim would drive a higher average claim amount.

Daniel Johnson - Citadel

Thank you, very much.

Kevin D. Schneider - President, U.S. Mortgage Insurance

You're welcome.

Operator

And we move next to Darin Arita with Deutsche Bank.

Darin Arita - Deutsche Bank

Hi, good morning. Question on the investment portfolio, can you us a sense what percent have the Alt-A and sub-prime RMBS exposure has been written down, based on the original ratings in particular your single A and BBB and below charges?

Michael D. Fraizer - Chairman, President and Chief Executive Officer

Let me turn that over to Pat. Pat?

Patrick B. Kelleher - Senior Vice President and Chief Financial Officer

Thanks. I would say that at this point in time, the vast majority of the impairments we've recorded including the changing of intent related write-downs has been related to securities, which were originally in the single A and BBB category with minor, I'll say some invasion not a large number of claims enter the AA That answer your question?

Darin Arita - Deutsche Bank

I think so. I guess if I looked at what you had originally rated single A, and if you still held that security now would it be fair to assume that you are carrying value at this point is almost zero.?

Patrick B. Kelleher - Senior Vice President and Chief Financial Officer

Our carrying value would be consistent with the market values, which are steeply discounted from kind of the original amount of the obligation.

Darin Arita - Deutsche Bank

Okay. And as you're shifting the investment portfolio as you talked about today. What sort of the fact should we expect that you have on your investment yields?

Patrick B. Kelleher - Senior Vice President and Chief Financial Officer

I would expect that as we start to employ the relatively significant cash balances we're holding and look for opportunities to invest in the current market with -- I guess when you look at the 10 year treasury being 50 basis points over what it was at the end of the first quarter, corporate spreads being at relatively wide levels probably consistent with what we saw at the first quarter. We see opportunity to increase our return by deploying those funds.

Darin Arita - Deutsche Bank

Okay, great. And then just one last question on the mortgage insurance business, I wondering how's Genworth applying the lessons it's learned on the U.S Mortgage Insurance business, so that it can stay ahead of the curve on the international business?

Michael D. Fraizer - Chairman, President and Chief Executive Officer

I'm just... I'm going to turn that over to Tom, because as you can imagine first of all we thought about that for a long period of time and we are quite active on first sharing things we have learned down through the every level of the organization talking about product, talking about underwriting, all the way through the process including your operations and monitoring, but Tom want to pick up on also how different the international business is again, as far as design versus the U.S market.

Thomas H. Mann - Executive Vice President

Exactly, Darin and again a great question. As we have talked about in prior calls and earlier this morning while the international markets are very, very different from the United States particularly from the perspective of the normal amount of non-prime and non-standard products and is reportedly reduced reliance on mortgage backed securities that will actually drove a lot of the non-standard products in the United States. So while the markets are different we'll also tried to look at the United States markets and that actually worked with many international regulator's and others to make sure that a lot of the issues we have here are not being repeated.

In addition to looking at the performance of certain products like 100% loan-to-value and others and while we had nominal positions of those internationally we pulled back. We have always looked at areas that could be recessionary sensitive and since we've again seen what's happening in the United States we pulled back. But, as importantly I think the real international story is what I mentioned to you earlier and that is that the world had watched the United States and there have been some pretty aggressive thoughts not to let some of the issues that we have encountered here migrate or matriculate if you will to those environments. And you may have seen as an example the Canadian government actions to eliminate the guarantee on certain mortgage loan product. It was a terrific move, they are nominal high risk products in Canada, but they literally do not want to see the migration of what was in the United States and Canada. So we cautiously share of best practices and it goes beyond the best practices internally, but we are also using the external as well.

Darin Arita - Deutsche Bank

Great. Thanks very much.

Operator

And we'll go to next to Ed Spehar with Merrill Lynch.

Edward Spehar - Merrill Lynch

Thank you. Good morning, I have two questions; I guess first for Mike. You are maintaining your earnings guidance and I think you said something along the lines of that you have more visibility into the MI outlook and you've had in the other point during this crisis period for housing and so I guess my interpretation is first of all is that the U.S MI loss range that you gave us last quarter for the year of $100 million to $200 million really hasn't changed.

So I guess I would like you to tell me if that's correct and then related to that I know you're not going to give us an '09 number, but given the sort of the visibility are you comfortable enough today with the outlook to say that the trash should be sometime in late '08 or early '09 and then I had one quick follow-up?

Michael D. Fraizer - Chairman, President and Chief Executive Officer

Well first, answer to your first question, yes we remain in the $100 million to $200 million loss range in U.S MI sort of interpreting and expanding upon your second question, yes I can sort of think about the year. I mean if you annualize the second quarter reported year-to-date, you're sort of right just above $900 million. On top of that, if you look at the tax rate of around 27% of the year, you're going to get it about 45% on top of that. If you look at the some improvements, we anticipate on the investment front that has an opportunity for the low 40s. If you look at second half U.S MI, because of the captive impact also as I mentioned we would expect to get some captive benefit on that '05 vintage second half versus first half could... we'd anticipate around a plus 50.

And then you have business growth, you've cost savings that's sort of range of $35 million and that's how you can see a path, and there's going to be some variants on individual items right into that range.

Now I'm... you're right, I'm not going to give you a view on 2009. And, I would like to stick with the plan of giving you a directional look at our next earnings call, which should be at towards the end of October with a more comprehensive view. In December at an Investor update, but that you can see what we're doing, quite diligently to change the U.S MI business model and do everything. We have smart growth on the one hand manage risk really well with... like our declining markets policies and stringent underwriting. And dealing with the realities of some of the underwriting practices, we saw particularly in portions of that '06 and '07 book, and we intently focused on lost mitigation including investigations, and you add that up, we think that's a right step to take to that business to position it for the future.

Edward Spehar - Merrill Lynch

And Mike just on the $50 million plus that you said in the second half in the U.S MI, I think you said the captive been, what could you just... what does that refer to?

Michael D. Fraizer - Chairman, President and Chief Executive Officer

Well, I'm just show any other difference of our annualizing first half versus second half.

Edward Spehar - Merrill Lynch

Okay. So you said it is an additional, okay. And then, just the final question was...

Michael D. Fraizer - Chairman, President and Chief Executive Officer

And that type of thing would put U.S MI in sort of the midpoint of what... of that $100 million or $200 million loss number that I gave you.

Edward Spehar - Merrill Lynch

Okay. And then, the final question is, you had a small net loss this quarter because of the impairments and the realized loss... what's the... what do you think the chance that you have the net loss, forgetting about operating, that you have a net loss in the second half of the year?

Michael D. Fraizer - Chairman, President and Chief Executive Officer

No, I think Pat has dealt with the rigorous approach that we've taken to the investment arena. Of course, it remains a dynamic market but when of where the impairments we took came from, they certainly come from the portions of the portfolio that we thought had the most risk. Pat, any other thoughts on that, but--

Patrick B. Kelleher - Senior Vice President and Chief Financial Officer

Yes, to give you a visibility on that, I think it's important to kind of provide some clarity on what our growth on realized loss position is, and you'll see this, when the Q comes out. But, we currently have growth on realized losses of approximately $3.5 billion. We've got about $1.9 billion of that related to corporate, and $1.5 billion of the remaining in structures. So that's like virtually all of it.

So generally, the unrealized losses in corporate reflect recent interest rate increases and the economic conditions that have resulted in spreads widening through the year. And I'd say, in addition we're monitoring individual names, and we've impaired what we've concluded, we will not receive full interest in principal payments on.

You look at the $1.5 billion in structured, we've concluded from the quantitative and the qualitative analysis that the $0.7 billion component in subprime and Alt-A is performing well. And the remainder is the combination of prime agency, ABS, CMBS for which the underlying collaterals actually performing better. So if we think that we've been conservative and appropriately so, with how we've handled the investment portfolio and the risk profile. So I'm looking at the future quarters with a much different expectation for investment results. And I feel good about that.

Edward Spehar - Merrill Lynch

Thank you very much.

Operator

And we'll move next to Steven Schwartz with Raymond James.

Steven Schwartz - Raymond James

Hey, good morning, everybody. Kevin, could you help here a little bit? Could you describe... you mentioned the reinsurance structure that you put in this quarter, that you're looking at that others. Could you describe those please? And I'm also interested in trying to get a handle on how much business you think you create [ph] in the U.S we've got any restructure in place?

Kevin D. Schneider - President, U.S. Mortgage Insurance

We did... Steven we did not implement, any new reinsurance structure within the U.S Mortgage Insurance business.

Steven Schwartz - Raymond James

No, you did not.

Kevin D. Schneider - President, U.S. Mortgage Insurance

We moved... you may have been referring to... we did create some added capital cushion by redeploying some assets that were invested in sort of a high capital charge position. And we redeployed those assets into a lower capital charge position. So the Pat's comments that created a little over $100 million worth of capital flexibility for us.

Steven Schwartz - Raymond James

Okay. I understand that. So if you are looking at some structures. Is that correct?

Kevin D. Schneider - President, U.S. Mortgage Insurance

We absolutely continue to evaluate structured opportunities that would create additional capital cushions for us give us the ability to perhaps expand our writings through some of the support of that additional capital. I mean, that capital again could come from a... outside insurer or from other sources as opposed to our own equity.

Steven Schwartz - Raymond James

So, a side cart [ph]?

Kevin D. Schneider - President, U.S. Mortgage Insurance

Side cart type approach. Yes.

Steven Schwartz - Raymond James

Okay. And given... let's assume that doesn't happen. What kind of run rate of business could you write?

Kevin D. Schneider - President, U.S. Mortgage Insurance

We think we're adequately positioned right now, to continue to write at out current market penetration and share levels.

Steven Schwartz - Raymond James

Okay.

Kevin D. Schneider - President, U.S. Mortgage Insurance

The additional flexibility is prudent in this environment, and we think about it in terms of the need to be able to take up some additional production and penetration as we go forward, and then as things develop in the marketplace.

Steven Schwartz - Raymond James

Okay. Pam, I'm sure you're just sitting there all alone. Could you maybe touch on your business. It didn't obviously, its not as key in the current environment I guess, as worrying about the other issues that we're worrying about. The business didn't look all that good and maybe, you can touch on, maybe some of the highlights of what's going on in there?

Pamela S. Schutz - Executive Vice President

is there any specific area that you'd like to overall discuss?

Steven Schwartz - Raymond James

The... I thought see [ph] basis kind of leak, I talked the spread based business was kind of weak, you mentioned in long-term care that I think on some other blocks of business that you're still seeing some morbidity issues maybe you can touch on those.

Pamela S. Schutz - Executive Vice President

Okay.

Steven Schwartz - Raymond James

Maybe you disagree.

Pamela S. Schutz - Executive Vice President

let me walk through... yes, we had an $11 million drop in our fee based business. But, what I want to first say on our fee based business is if you look at our underlying growth in assets under management. The underlying core fundamentals of income would indicate that our income level should be tracking that.

Let me walk through the C base and the deterioration that you saw of the 11 million, 3 million was attributed to the taxes on the impairments. As we discussed at investor day we are seeing and this was disclosed at investor day, $3 million of earnings from C is from GE that are non-recurring.

In addition there was $3 million of reclassification of our hedging costs, from gains losses to operating income. So that's the geography and then a $ 3 million one time DRD adjustment, and then if you look, we had about $5 million of earnings growth just from the AUM increase, but that was offset by the market performance... the overall market performance. So I want to reiterate on fee if you net out these adjustments and our overall growth in AUM, our earnings would attract to that. But it is a lot going on. On spread base the drop there largely due to investment yields and floating rate assets and a decline in yields. Tom, that's and tax from the impairments of $12 million. On long term care that's pretty simple. If you take out the onetime bond call from last year of $9 million, there was roughly a 6% increase in earnings.

Steven Schwartz - Raymond James

Okay. And you mentioned mobility there was nothing there that I was just throw your light?

Pamela S. Schutz - Executive Vice President

No that was in line with our expectation.

Steven Schwartz - Raymond James

That was in line, okay

Pamela S. Schutz - Executive Vice President

And the increase the 6 million if you take out the bond call, driven by new business growth and expense productivity.

Steven Schwartz - Raymond James

Okay and the rate increases should be hitting shortly no?

Pamela S. Schutz - Executive Vice President

Yes, we would expect to see that they're coming through in last half of the year.

Steven Schwartz - Raymond James

Okay. Thank you.

Operator

And we'll move next to Eric Berg with Lehman Brothers.

Eric Berg - Lehman Brothers

Thanks very much. I would see that in order to prevent a recurrence of the difficulties that you and others have experienced in mortgage insurance. But it can't just be a matter of sort of raising prices or getting out of specific product types as Kevin mentioned, because there is always a risk that what you do next is going to be your mistake.

In other words I am thinking that in order to let your current there's got to be sort of a change instead of how people think when they come into work each day in general about... in broad sense about approaching the business, about what housing prices will do about the quality of underwriting.

What are you doing, my question is what are you doing to sort of... the question is purposefully general change peoples general approach to doing business in this business. To prevent, I know my questions are a little bit fuzzy but I hope the main ideas coming across?

Michael D. Fraizer - Chairman, President and Chief Executive Officer

Eric, it's Mike. Let me give you a couple of perspectives and then I will hand it off to Kevin to provide I am sure more detail perspective is I think we have been pretty clear that we have challenged every aspect of the business model and you do have to use all of the leverage that you talked about in mortgage, you do have to look at product, you do have to look at underwriting, you have to look at lenders and their practices and what businesses they are in and not in, you have to look at how you make assumptions that the geographic sub-market level going forward and the analytics. I think we have learned some things about analytics and been able to even sharpen more loss predictive capabilities. You have to look at prices, you have to work on the regulatory environment too because there are a certain thing that have to go on in the regulatory and for example lender audit environment.

That are important as well, you have to look at the secondary markets and therefore again what are the GSE [ph] is doing given that's where mortgage insurance still tends to attach and what business do they accept and how are they looking at risks. So you have to look at all of those levers in we have in every one of the moves that we've been describing over the past couple of quarters. Now taking it even deeper within the business Kevin you want to build upon that.

Kevin D. Schneider - President, U.S. Mortgage Insurance

Well just build upon a bit, we need to... we have charged our business and challenged everybody across our business to create a higher return business model with reduced volatility.

One of the ongoing realities if that reduced volatility and being able to execute that and consistently deliver upon it, is that we're going to... you see us shifting back and becoming a core product type business, a core product business that is going to maintain our credit standards through cycles.

We will be really focused strategically on becoming the most efficient and profitable manager of low down payment risk and that requires a number of changes to the way we think about things to Mike's point from underwriting upfront to brining in the business to our portfolio management, to our risk disciplines, to our audit functions, to the way we deal with commercial relationships which is all going to be geared around and designed around that reduced volatility and that higher business return.

So you're absolutely right, this is a different environment its just about should not about change in a few things in terms of what we ensure, but its about taking an organization now who is going through and living with the realities of this cycle and making sure that nobody that collectively everything we do and all of our activities tied together and that don't allows us to drift back to this in the future.

Additionally, its not just organizational, it truly is going to require continued regulatory change and we're working very... we're very focused on that as well. We're very pleased this morning with the President's signage [ph], of the new housing legislation, the benefits that's going to do in terms of showing up on the GSEs and bringing yet an affected regulator. That's all good for business going forward and we feel very favorable about that as well as continuing to work with bank regulators, such so that they continue to reinforce this return to this type of underwriting standards that we think are so important.

Eric Berg - Lehman Brothers

Kevin, one final question. We've talked repeatedly about the four states that are the center of this storm, but it looks to the delinquency data in your supplements that you are getting short increases in mid of the year you have a much smart business and [indiscernible] and probably New England and Mid-Atlantic states. My question, this is housing crisis or narrow crisis or is it now every where in America?

Kevin D. Schneider - President, U.S. Mortgage Insurance

Well I when you...if you step back away from the development, when I think about our... answer your question its is they still largely centered in terms of the impact from the specialty products and from the price declines on those four states. They continue to drive a tremendous amount of all the reserve strengthening, they're tremendous to be the drivers of our new loss development, but there is no doubt that the housing crisis is expanding to further parts of the country. We are seeing some increases as you mentioned in the North East, in certain states, in the Mid-West... excuse and what you call the--

Eric Berg - Lehman Brothers

Mid-Atlantic state.

Kevin D. Schneider - President, U.S. Mortgage Insurance

Mid-Atlantic yes, but when we step back and look at what's really driving our delinquency development right now, our total core business outside of those states is still holding up very strongly. Our... just to give you some flavor for it, our core what's driving some of the outside those specially products in those four states, our core business is really holding up well and if you take those four business, those four states out of it, our delinquency development there has been effectively flat over the last three quarters, that's around a little bit but it continues to be driven by those states, but the... this is not just a unique housing situation for those four states.

Eric Berg - Lehman Brothers

Thank you very much.

Kevin D. Schneider - President, U.S. Mortgage Insurance

You are welcome.

Operator

And we'll go next to Tom Gallagher with Credit Suisse.

Thomas Gallagher - Credit Suisse

Good morning, just a couple of questions for Kevin as well. The first one is on your comment that some of the '07 captives may receive the tiers, can you give a little perspective on that in terms of we're talking about a meaningful percent of '07 book or is it going to be fairly limited in terms of how much of it. And then second one is also on the delinquency trends, I appreciate the new disclosure which shows by FICO scores and by book year and if you look at the '07, '06 books you are seeing delinquency trends going up on some of the higher FICO scores. Can you give also a little perspective on what you're seeing there and is that and do you expect to continue escalation on the higher quality book. Thanks.

Thomas H. Mann - Executive Vice President

Okay. First on cap, this is Tom, the 2007 book is simply there has been an acceleration of the attachment of those captives as delinquencies and reserving against the delinquencies has escalated for those captives. That will simply bring forward the overall benefit of those captives into they will able to be recognize in earlier periods. The captive's that had a lower top-end attachment level will in all likelihood be those that are most pressured. But, they will pressured on the others, and it's all based upon how much geographic and specialty product content in general, was within those individual lender captives. Again, we believe that the pressured of the upper end of those captives will be manageable. It's far too early to call what the ultimate development's going to be. It's going to be largely depended on how these things ultimately develop, and the overall loss mitigation efforts of the entire industry against this challenge. So, to give you a further visibility into it, beyond what we've provided in our disclosures, I really can't.

Thomas Gallagher - Credit Suisse

Well, just a quick follow-up on that shall I presume, then it would be more isolated to the captives that have the 10% on the top-end, and can you just remind us what percent of your total--

Thomas H. Mann - Executive Vice President

If you think about it, those captives that had a 10% upper lost here, any business that's in... if that entire book ultimately performs at a 12 that's going to be outside that tier. You got just the way you need to think about it. Those captives that had a... an upper 14% last year had more room within the captive and of the 12, those will stay within the captive. In terms, of our percentage mix, of how many were in the deeper Cs... 30%, I've to get back with you on that Tom, we'll give you a follow up answer on that offline.

Thomas Gallagher - Credit Suisse

Okay.

Thomas H. Mann - Executive Vice President

Turning to your discussion around a delinquency trends, and developments, I'm trying to get back to what it was, if you remind me with the second question again.

Thomas Gallagher - Credit Suisse

Sure.

Thomas H. Mann - Executive Vice President

Those are higher FICO, excuse me, excuse me.

Thomas Gallagher - Credit Suisse

That the higher FICO of delinquencies.

Thomas H. Mann - Executive Vice President

Yes, in our disclosure, this is a document that we've been sharing for the last couple of quarters on some of our investor websites. It's really to try and give you much transparency at a book year, on a FICO basis and as well as at some alternate product cut. There is some deterioration you see in some of the higher FICO ranges. I think what you'll probably see is that, it's really being driven by more the adjustable rate product. The adjustable rate product is compared to the fixed rate product it's certainly suffering a higher delinquency level at all FICO, across all FICO scores. You're seeing it also again in the Alt-A product. That's another big driver of it as well as in some of the other interest only option on pieces. So, I really think that that's where you see it. And then those four state, when the four states are suffering pressure, it doesn't matter exactly what your FICO score is. If you're suffering from that, and I ... so the regional pressure on those four states is probably other big driver of that level.

Thomas Gallagher - Credit Suisse

Okay, thanks.

Operator

And we'll go next to [indiscernible] from Stanford Bernstein.

Unidentified Analyst

Thanks. I guess two quick ones for Pat. First on the securities where you've indicated that you no longer have an intent to hold to recovery. Sort of going forward, how are those securities treated in terms of mark-to-market, are they're treated like trading account assets or do they still sit, in the available for sale. That's the first question.

Then, the second question relates to your variable annuity business. Yes, I guess, based on conference calls the we've heard so far this quarter, seems that the life sector's kind of spread in terms of how it treats the impact of the equity markets with respect to variable annuity DAC amortization with some companies, chewing up every quarter of the company's holding off until sort of a third quarter back review. Can you just remind us which side of the fence you guys are on? Thanks.

Patrick B. Kelleher - Senior Vice President and Chief Financial Officer

Okay. For your first question, all of the assets that we have on the balance sheet are mark-to-market, and the difference is kind of how you handle these in terms of accretion going forward. And what we would do is we would accrete these securities to our expectations of interest and principal recovery. And those items would come through investment income for each period.

Unidentified Analyst

But, is that also on the securities that you, basically are holding for now. But you plan to sell them... those don't get reclassified as trading account?

Patrick B. Kelleher - Senior Vice President and Chief Financial Officer

I'm sorry they would remain as available for sale.

Unidentified Analyst

Okay. Thanks, and then on the DAC?

Patrick B. Kelleher - Senior Vice President and Chief Financial Officer

On the DAC question, we do a vigorous analysis every quarter, and we... you can say that we do true ups for DAC if there is kind of minor fluctuations each quarter, and if there were a more significant change in the market, then we would do a full unlocking.

Unidentified Analyst

Okay; so no reason at this point to expect a big unlocking in the third quarter based on the markets that we've seen so far?

Patrick B. Kelleher - Senior Vice President and Chief Financial Officer

I would not expect that, based on what we've seen so far.

Unidentified Analyst

Okay. Thanks very much.

Operator

And we'll go next to Jeff Schuman with KBW.

Jeffrey Schuman - Keefe, Bruyette & Woods

Good morning. Couple of follow-ups on capital, Pat, when you were talking about capital targets in the insurance operations you mentioned that you have to manage through a number of constraints from the life side. You're able to give us an kind of 350 RBC [ph] is kind of one benchmark to look at. On the mortgage side, is there any kind of benchmark, you can kind of point us to or a range that's kind of risk to capital or something that we can kind of think about there.

Kevin D. Schneider - President, U.S. Mortgage Insurance

I'll handle the first one on the mortgage side Jeff. The... our reported risk-to-capital at the end of the first quarter is a little over 13 to 1. That will probably feather in a little by the 14 for our second quarter. Well, below a 25 to 1 statutory minimum requirement. So, we really feel that given our pricing approach, and our current product mix we would expect to sort be able to operate comfortably in the mid to upper teens for our targeted risk-to-capital level over the next several periods. The other thing to remember on that I think, just to comment is, risk-to-capital is only one measure of capital adequacy, and it really doesn't differentiate between the risk profiles of the underlying collateral. And I'll put it another way, our risk-to-capital on a relative basis is on our lower risk profile.

Jeffrey Schuman - Keefe, Bruyette & Woods

Okay. That's helpful. And has there been any change in terms of rating agency thinking about the statutory continuously reserving the space we have been fleeted as capital and does that continue to be kind of a universal to you?

Patrick B. Kelleher - Senior Vice President and Chief Financial Officer

This is Pat, I'll answer that. I mean, the rating agencies basically look at the total available capital in the company like all of the resources you have to satisfy obligations. And they compare that to the stress capital requirements in their models, and that's how they get there. So, they don't really look at the contingency reserves separately, its kind of an all in picture.

Jeffrey Schuman - Keefe, Bruyette & Woods

Okay. Thank you. And then, one other clarification, I think Kevin has talked about reinsurance transactions on the MI side. And Pat, I think you talked about using reinsurance support for sort of XXX release, But, can you manage capital in this period, are you using coinsurance or other sort of increase the reinsurance tool of until the life and retirement sight to manage capital?

Patrick B. Kelleher - Senior Vice President and Chief Financial Officer

The answer to that question would be, yes.

Jeffrey Schuman - Keefe, Bruyette & Woods

And is it sufficient that we need to think a little bit about kind of net impact, and kind of net top line growth into '09, or it's not significant?

Patrick B. Kelleher - Senior Vice President and Chief Financial Officer

Yes, the way that I would look at it is, if you could look at these as reinsuring of relatively low return, low risk block. And therefore the financing charge for funding the capital for those blocks is economic. And, so it has a lesser impact than you might otherwise expect for traditional coinsurance.

Jeffrey Schuman - Keefe, Bruyette & Woods

Okay.

Michael D. Fraizer - Chairman, President and Chief Executive Officer

Hey, Jeff, Mike, just again I just want to make sure our strategy is well understood is, using with we have one, and then talking now within retirement and protection and thinking about the life, the annuity blocks. Also we've talked about loan compared is, one is to use, either capital market or reinsurance to free trapped capital from lower return blocks. And that remains a focus. So, the focus now is on using reinsurance in the current markets. So, consistent strategy, a different mechanism to do it and we've seen more reinsurance opportunities over the past several months to do so. Remember, the second strategy have you point out a XXX, XXX is you have the additional reserve levels and funding those additional reserves for capital efficiency, you have also see move from the securitization markets to the re-insurance markets. So those are the two ways to think about at vis-à-vis retirement and protection.

Jeffrey Schuman - Keefe, Bruyette & Woods

That's very helpful. Thank you.

Operator

Thank you. Ladies and gentlemen, we have time for one final question and we'll take that from Mark Finkelstein with FPK.

Mark Finkelstein - Fox-Pitt Kelton

Hi, I'll make this quick. Just a couple of follow-up questions on the, I guess the target at deployable capital of 300 to 600 at the end of the year. I guess the first question is, does that assume a kind of a capital collision or capital margin over the 350 RBC and your targeted metric on the U.S MI and if so, how much capital above that is in that 300 to 600 kind of number?

Kevin D. Schneider - President, U.S. Mortgage Insurance

Yes, it does assume a capital equation that we've kind of build in to our standard capital charges and capital plan. And on the life side that's like $200 million to $300 million range and we have a similar number on the mortgage and insurance side, but it's more it varies from time to time as well I'll say like a $100 million to $400 million.

Mark Finkelstein - Fox-Pitt Kelton

Okay. So the 300 or 600 is above those equations?

Kevin D. Schneider - President, U.S. Mortgage Insurance

Yes it is.

Mark Finkelstein - Fox-Pitt Kelton

Okay perfect and then...

Kevin D. Schneider - President, U.S. Mortgage Insurance

Consistent with the I believe that presentations we did around investor day over year end.

Mark Finkelstein - Fox-Pitt Kelton

Okay. And then secondly, just on the $1.4 billion of capital that you expect to be freed up in life minorities, over the next couple of years. I guess how of much that is budgeted for '08 to be included in the stack capital at year end just part of that capital analysis?

Kevin D. Schneider - President, U.S. Mortgage Insurance

I am sorry I am sure I understood, could ask that question again.

Mark Finkelstein - Fox-Pitt Kelton

Part of the capital plans is to free up I guess $1.4 billion or half of the 2.8 billion of trapped capital through reinsurance or other solutions and how much do you expect to get free-to-up this year and that is a part of the capital plan and what you are expecting at year end in terms of capital?

Kevin D. Schneider - President, U.S. Mortgage Insurance

Yes, $500 million, does that answer your question?

Mark Finkelstein - Fox-Pitt Kelton

Yes, it does. Then the only other thing I was going to you ask quick is Alferd [ph] announced on its call yesterday. A change in the statutory way of estimating kind of impairments from going from a undiscounted cash flow to a discount cash flow unstructured securities and they estimated that they have a pretty decent kind of capital impact, have how guys done the analysis on that if its implemented and how much does that impact statutory capital?

Michael D. Fraizer - Chairman, President and Chief Executive Officer

Yes we have done the analysis in our estimate is $200 million.

Mark Finkelstein - Fox-Pitt Kelton

$200 million, okay, great. Thank you.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Genworth Financial, Inc. Q2 2008 Earnings Call
This Transcript
All Transcripts