Financial Case Study

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Genworth Financial, Inc., incorporated in 2003, is an insurance company in the United States with an expanding international presence serving the life and lifestyle protection, retirement income, investment and mortgage insurance needs of more than 15 million customers. The Company is a carve-out of General Electric Company that distributes its products and services in 22 countries through a distribution network that includes financial intermediaries, independent producers and dedicated sales specialists. The Company's three operating segments include Protection, Retirement Income and Investments and Mortgage Insurance.

Protection

The Company offers United States customers life insurance, long-term care insurance, and, for companies with fewer than 1,000 employees, group life and health insurance. In Europe, Genworth offers payment protection insurance, which helps consumers meet their payment obligations in the event of illness, involuntary unemployment, disability or death.

Term-life insurance policies provide a death benefit if the insured dies while the coverage is in force. Term-life policies lapse with little or no required payment by the Company at the end of the coverage period if the insured is still alive. The Company's primary term-life insurance products have guaranteed level premiums for initial terms of five, 10, 15, 20 or 30 years.

Universal life insurance policies provide policyholders with lifetime death benefit coverage, the ability to accumulate assets on a flexible, tax-deferred basis and the option to access the cash value of the policy through a policy loan, partial withdrawal or full surrender. The Company's universal life products allow policyholders to adjust the timing and amount of premium payments. Genworth also sells joint, second-to-die policies that are typically used for estate-planning purposes. These policies insure two lives rather than one, with the policy proceeds paid after the death of both insured individuals.

The Company offers long-term care insurance products that provide protection against the high and escalating costs of long-term health care provided in the insured's home and in assisted living and nursing facilities. Insured's become eligible for benefits when they are incapable of performing certain activities of daily living or when they become cognitively impaired. In contrast to health insurance, long-term care insurance provides coverage for skilled and custodial care provided outside of a hospital. The typical claim covers duration of care of three to 24 months. Genworth also offers Medicare supplement insurance that provides coverage for Medicare-qualified expenses that are not covered by Medicare because of applicable deductibles or maximum limits.

The Company provides payment protection insurance to customers throughout Europe. Payment protection insurance helps consumers meet their payment obligations on outstanding financial commitments, such as mortgages, personal loans or credit cards, in the event of a misfortune, such as illness, involuntary unemployment, temporary incapacity, permanent disability or death. The Company offers payment protection insurance in the United Kingdom and in 12 other European markets, including Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland.

Genworth offers a full-range of employment-based benefit products and services to employers with fewer than 1,000 employees, as well as select groups within larger companies that require highly customized benefit plans. This group's products include group non-medical insurance products, such as dental, vision, life and disability insurance; group medical insurance products, such as stop-loss insurance and fully insured medical, and individual voluntary products. The Company uses an independent network of approximately 4,000 licensed group life and health insurance brokers and agents, supported by a nationwide sales force of approximately 100 employees, to distribute group life and health insurance products. Individual voluntary products are sold through employers and other worksite-based groups using a network of independent insurance producers. As of December 31, 2004, Employee Benefits Group provided employment-based benefit products and services to more than 31,000 organizations, including approximately 2.7 million plan participants.

The Company offers individual voluntary life and health insurance and annuity contracts through worksite marketing programs in which Genworth's representatives visit employer premises and make presentations to employees. The Company's individual health coverage consists primarily of short-term disability benefits with benefit periods generally ranging from nine months to two years.

Retirement Income and Investments

Genworth offers United States customers fixed, variable and income annuities, variable life insurance, asset management, as well as specialized products, including guaranteed investment contracts, funding agreements and structured settlements. Genworth offers fixed deferred, fixed immediate and variable deferred annuities. The Company offers these products to a broad range of consumers, generally aged 45 and older, who want to accumulate tax-deferred assets for retirement, desire a tax-efficient source of income during their retirement, as well as seek to protect against outliving their assets during retirement.

Genworth offers variable life insurance products, which provide insurance coverage through a policy that gives the policyholder flexibility in investment choices, and, in some products, in premium payments and coverage amounts. The Company's variable life products enable the policyholder to allocate all or a portion of his premiums to separate accounts that invest in investment accounts, which are distinct from a general account, and track the performance of selected mutual funds, including funds from Fidelity, Oppenheimer and GE. There is no guaranteed minimum rate of return in these sub accounts and the policyholder bears the entire risk associated with the performance of these sub accounts.

The Company offers asset management services to affluent individual investors. Most of its clients for these services have accumulated significant retirement capital, and the Company's principal asset management strategy is to help protect client's retirement assets, while taking advantage of opportunities for capital appreciation. Genworth's asset management clients are referred by its financial advisers. The Company works with these financial advisers to develop portfolios consisting of individual securities, mutual funds and variable annuities designed to meet each client's particular investment objectives. The products consist of separately managed accounts, managed mutual funds accounts and managed variable annuity services. For each of these products, Genworth receives a management fee based upon the amount of assets under management.

The Company's broker-dealers have more than 2,000 affiliated personal financial advisers, including approximately 1,700 accountants who sell annuity and insurance products, as well as third-party mutual funds and other investment products. In connection with these sales, Genworth receives commission and fee income from purchasers, and pays a portion of the commissions and fees to personal financial advisers.

Mortgage Insurance

The Company offers mortgage insurance products in the United States, Canada, Australia and Europe that facilitate homeownership by enabling borrowers to buy homes with low-down-payment mortgages. These products generally also aid financial institutions in managing their capital efficiently by reducing the capital required for low-down-payment mortgages. The Company provides lenders with various underwriting and other products and services related to home mortgage lending. The products in this segment include primary mortgage insurance, bulk insurance and pool insurance.

Genworth performs fee-based contract underwriting services for mortgage lenders. The principal contract underwriting service is to determine whether the data relating to a borrower and a proposed loan contained in a mortgage loan application file complies with the lender's loan underwriting guidelines or the ...