Genworth Financial Reports Fourth Quarter 2004 Earnings

RICHMOND, Va., Jan. 27 /PRNewswire-FirstCall/ -- Genworth Financial, Inc. today reported net earnings from continuing operations for the fourth quarter of 2004 of $346 million, or $0.70 per diluted share. Net earnings from continuing operations for the fourth quarter of 2003 were $220 million, or $0.45 per diluted share.

In connection with the company's initial public offering (IPO) completed on May 28, 2004, the company effected a corporate reorganization that included a series of significant reinsurance, recapitalization and separation transactions. As more fully explained at the end of this release, the company is presenting pro forma financial information that reflects those transactions to enable a more meaningful comparison of its period-to-period results.

Pro forma net earnings from continuing operations in the fourth quarter of 2004 were $346 million, or $0.70 per diluted share, compared to $211 million or $0.43 per diluted share in the fourth quarter of 2003. Pro forma net operating earnings for the fourth quarter of 2004 were $254 million, or $0.52 per diluted share, compared to $179 million or $0.37 per diluted share in the fourth quarter of 2003.

Pro forma net operating earnings in the fourth quarter of 2004 consist of pro forma net earnings from continuing operations, excluding after-tax net realized investment losses of $1 million, a $68 million IPO-related net tax benefit recorded during the quarter and a $25 million after-tax gain related to our waiver of contractual rights under an outsourcing services agreement with General Electric's (GE) global business processing operation, 60% of which was sold in the fourth quarter. Pro forma net operating earnings in the fourth quarter of 2004 included a one-time charge of $32 million after-tax on a small run-off block of equity-indexed annuities resulting from an adjustment of reserving processes.

Pro forma net operating earnings in the fourth quarter of 2003 consist of pro forma net earnings from continuing operations, excluding after-tax net realized investment gains of $32 million.

"2004 was a year of tremendous progress in growing our business, building distribution relationships and maintaining our focus on expense and risk disciplines," said Michael D. Fraizer, chairman and chief executive officer. "We finished the full year with pro forma net operating earnings per share growth of 20 percent, good sequential sales progress and operating ROE of 9.8 percent. We continue to make steady improvements toward our long term goal of 12 percent operating ROE by 2008, and expect to achieve 2005 net operating earnings of $2.30-to-$2.40 per share."

Management believes that the presentation of net operating earnings and operating ROE enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers. However, net operating earnings and operating ROE should not be viewed as a substitute for net earnings or return on equity prepared under accounting principles generally accepted in the U.S. (GAAP). (Please refer to the disclosure at the end of this release for a discussion of the basis on which financial information is presented in this release.)

Key Fourth Quarter Operating Highlights * In the Protection segment, term life insurance sales were $27 million, up 42 percent compared to the prior year quarter and 4 percent on a sequential quarter basis, as a result of competitive pricing and technology-enhanced customer service. Universal life insurance sales were even with the prior year quarter and up 20 percent on a sequential quarter basis, reflecting the launch of new products for the age 50+ market in the second quarter of 2004. Payment Protection Insurance (PPI) sales, excluding runoff business(1), were up 16 percent compared to the fourth quarter of 2003. * Retirement Income and Investments' (RI&I) sales of income distribution series products(2) nearly doubled over the prior year quarter, to $84 million, and were up 20 percent on a sequential quarter basis. Spread institutional sales of $796 million in the quarter were up 51 percent from the prior year quarter and 37 percent sequentially, driven primarily by two large contracts issued in the quarter. * Mortgage Insurance (MI) continued its international expansion, with international insurance in-force (IIF) up $56 billion, or 41 percent over the prior year quarter. Excluding the impact of favorable foreign currency (FX), international IIF grew 35% driven primarily by increased account penetration in Australia and Canada. The unearned premium reserve grew to $1.5 billion at December 31, 2004. Pro Forma Consolidated Operating Results

The company operates in three primary business segments: Protection, Retirement Income & Investments, and Mortgage Insurance, in addition to a Corporate and Other Segment.

Consolidated fourth quarter pro forma net operating earnings growth of 42 percent was driven by increases in all three primary business segments over the prior year quarter, and included $6 million of favorable FX.

Protection Segment pro forma net operating earnings increased 46 percent to $140 million compared to $96 million in the prior year quarter primarily from non-recurring items in the prior year quarter and from growth in life and payment protection.

(1) In the third quarter of 2003, the company evaluated its contractual relationships with PPI distributors against targeted return thresholds and made decisions to terminate or non-renew certain contracts which the company refers to as "non-core" or "runoff." Existing business under these contracts will runoff over several years in the normal course of business.

(2) Income distribution series products are comprised of the company's retirement income annuity product and two variable annuity riders that provide similar income features. The term does not include immediate annuities or fixed annuities, which also serve income distribution needs but are reported separately in the company's fourth quarter financial supplement.

RI&I Segment pro forma net operating earnings grew to $35 million in the fourth quarter of 2004 from $12 million in the fourth quarter of 2003. Growth was due to higher assets under management, improved spreads and increased fee income from new contracts in 2004 to manage GE's municipal guaranteed investment contracts (GIC) business. Growth was partially offset by a one- time charge of $32 million after-tax on a small run-off block of equity- indexed annuities resulting from an adjustment of reserving processes.

Mortgage Insurance Segment pro forma net operating earnings increased to $107 million from $77 million in the fourth quarter of 2003 due to continued strong international growth, $13 million of higher taxes in the prior year quarter and $4 million of favorable FX.

Corporate and Other Segment pro forma net operating loss increased to $28 million in the fourth quarter of 2004 from $6 million in the fourth quarter of 2003 primarily due to non-recurring tax benefits of $32 million in the prior year quarter.

All segment information below is presented on a pro forma basis. Segment pro forma net operating earnings presented are equivalent to pro forma net earnings for all segments except Corporate and Other. For a reconciliation of the Corporate and Other Segment pro forma net operating earnings to GAAP net earnings, see the disclosure at the end of this release.

Pro Forma Segment Net Operating Earnings Protection Pro forma net operating earnings (unaudited) (Dollar amounts in millions) Q4 04 Q4 03 Life $67 $50 Long term care 46 47 Payment protection 22 (5) Group 5 4 Total Protection $140 $96 Sales (Dollar amounts in millions) Q4 04 Q4 03 Life $39 $31 Long term care 41 54 Payment protection 351 498 Group 66 57 Total Protection $497 $640

Protection Segment pro forma net operating earnings increased $44 million due to overall business growth and non-recurring items in the prior year quarter. Life pro forma net operating earnings were up $17 million to $67 million due to in-force growth and lower expenses offset by less favorable mortality of $4 million when compared to the prior year quarter. The prior year quarter also included an increase in policyholder reserves of $10 million that did not recur. Long term care (LTC) pro forma net operating earnings were down $1 million to $46 million. Payment Protection (PPI) pro forma net operating earnings grew to $22 million compared to a loss of $5 million in the prior year quarter. The current quarter included new business growth of $4 million and $2 million related to favorable FX. The prior year quarter included $21 million of one-time expenses related to employee benefit costs, increased DAC amortization and higher travel insurance claim reserves.

Sales of term life were $27 million in the fourth quarter of 2004, compared with $19 million in the comparable prior year period. This growth reflects competitive pricing and technology-enhanced customer service. LTC sales decreased to $41 million in the fourth quarter of 2004 from $54 million in the prior year quarter reflecting shifts in market demand and pricing conditions. As planned, overall PPI sales declined from $498 million in the fourth quarter of 2003 to $351 million in the fourth quarter of 2004 reflecting the strategic decision to exit lower return distribution relationships. PPI sales, excluding runoff business, grew 16 percent from $296 million in the fourth quarter of 2003 to $343 million in the fourth quarter of 2004 from continued growth across European markets. Group sales increased 16 percent in the current year quarter compared to the prior year quarter from growth in all products.

Retirement Income & Investments Pro forma net operating earnings (unaudited) (Dollar amounts in millions) Q4 04 Q4 03 Spread based retail $9 $8 Fee based retail 16 - Spread based institutional 10 4 Total RI&I $35 $12 Sales (Dollar amounts in millions) Q4 04 Q4 03 Spread based retail $599 $675 Fee based retail 561 678 Spread based institutional 796 526 Total RI&I $1,956 $1,879

RI&I pro forma net operating earnings were $35 million for the fourth quarter of 2004 compared to $12 million in the prior year period. Spread retail pro forma net operating earnings were up modestly to $9 million compared to $8 million in the prior year quarter. This included a one-time charge of $32 million after-tax on a small run-off block of equity-indexed annuities resulting from an adjustment of reserving processes. This charge was offset by growth in assets under management, improved investment spreads, and lower guarantee fund assessments in the current quarter. The prior year quarter included $15 million of accelerated DAC amortization. Fee retail pro forma net operating earnings increased to $16 million compared to break-even in the prior year quarter primarily due to new contracts in 2004 to manage GE's municipal GIC business as well as growth due to higher assets under management. Spread institutional pro forma net operating earnings increased to $10 million in the current quarter compared to $4 million in the prior year quarter primarily due to bond prepayments in the current quarter and improved spreads.

Fourth quarter 2004 sales of spread retail products declined 11 percent compared to the prior year quarter, driven primarily by pricing actions taken in fixed annuities and uneven flows in both immediate annuity and structured settlement sales. Sales of fee retail products declined 17 percent from the prior year quarter due to the continued market focus on products with a variety of guarantees, many of which the company elected not to offer, as well as restrictions we placed on fixed account variable annuity sales. Sales of Genworth's income distribution series products were up 87 percent to $84 million in the current period quarter compared to the prior year quarter. The increase in sales of spread institutional products from $526 million to $796 million reflects uneven timing of new contracts.

Mortgage Insurance Segment Pro forma net operating earnings (unaudited) Q4 04 Q4 03 (Dollar amounts in millions) International $57 $38 United States 50 39 Total Mortgage Insurance $107 $77 Sales (Dollar amounts in millions) Q4 04 Q4 03 International $15,225 $12,210 United States 7,074 18,087 Total Mortgage Insurance $22,299 $30,297

Mortgage insurance pro forma net operating earnings were $107 million in the fourth quarter of 2004 compared to $77 million in the prior year quarter, an increase of $30 million. International pro forma net operating earnings were up $19 million to $57 million compared to $38 million in the prior year quarter. This growth was primarily due to strong revenue growth, continued low loss ratios, higher taxes in the prior year quarter and favorable FX of $4 million. U.S. pro forma net operating earnings were up $11 million to $50 million due to higher taxes in the prior year quarter and solid in-force performance.

International new insurance written was $15 billion, up 25 percent including $1 billion related to FX. Growth was primarily due to deeper account penetration in Canada and Australia and growth in new insurance written in Europe. U.S. new insurance written was $7 billion in the current year quarter, down from $18 billion in the prior year quarter. This decrease was driven by a $7 billion decline in prime credit bulk sales due to a smaller market and a $4 billion decline in flow sales from a smaller mortgage origination market and actions taken to restructure certain excess of loss risk sharing arrangements.

Corporate and Other Segment (unaudited) Q4 04 Q4 03 Pro forma net operating loss (Dollar amounts in millions) ($28) ($6)

The Corporate and Other Segment had a pro forma net operating loss of $28 million in the fourth quarter of 2004 compared to a loss of $6 million in the fourth quarter of 2003. The current quarter included higher litigation expenses. The prior year quarter included $32 million of tax benefits principally associated with the company's international operations, $8 million of higher reserves at our captive reinsurance subsidiary and other expenses that did not recur.

Shareholders' equity at December 31, 2004 was $12.9 billion, or $26.28 per share. Shareholders' equity, excluding accumulated other comprehensive income, at December 31, 2004 was $11.3 billion. Book value per share, excluding accumulated other comprehensive income, increased to $22.99 at December 31, 2004, compared to $22.35 at September 30, 2004.

Earnings Conference Call Information

The company will hold a conference call on January 28 from 10 a.m. to 11 a.m. (EST) to discuss fourth quarter results and business outlook.

Genworth's conference call will be accessible via telephone and the Internet. This earnings release and the fourth-quarter financial supplement are now available on the company's website. The conference call materials will be available on the company's website January 28 prior to the conference call. Investors are encouraged to review all of these materials. To access the web cast, go to http://www.genworth.com/ at least 15 minutes prior to the event to register and download and install any necessary software. To access the call by telephone, please dial 1-800-599-9795 (U.S.) or 1-617-786-2905 (outside the U.S.) and enter the access code "Genworth" to register. A replay of the call will be available from 1 p.m. EST on January 28 through February 4, 2005 by dialing 1-888-286-8010 in the U.S. or 1-617-801-6888 (outside the U.S.) and entering the access code 62549597. The call will also be replayed at the company's website during this same time period.

Basis of Historical and Pro Forma Financial Information

As part of a corporate reorganization effected in connection with the company's IPO, the company acquired substantially all of the assets and liabilities of GE Financial Assurance Holdings, Inc. (GEFAHI), an indirect subsidiary of GE. The company also acquired certain other insurance businesses that were owned by other GE subsidiaries but managed by members of the company's management team. In consideration for the assets that the company acquired and the liabilities that the company assumed, the company issued various equity and debt securities to GEFAHI.

The company has prepared its historical financial information as if the company had been in existence throughout all relevant periods. The historical financial information through the date of the corporate reorganization (May 24, 2004) includes all businesses that were owned by GEFAHI, including those that were not transferred to the company, as well as the other insurance businesses that the company acquired from other GE subsidiaries in connection with the corporate reorganization. As a result, the company's historical financial information for periods prior to the corporate reorganization is not comparable to historical financial information for periods ending after that date.

Prior to the completion of the IPO, the company entered into several significant reinsurance transactions with Union Fidelity Life Insurance Company (UFLIC), an indirect subsidiary of GE. As part of these transactions, the company ceded to UFLIC, effective as of January 1, 2004, policy obligations under all of its in-force structured settlement contracts, which had reserves of $12.0 billion, and substantially all of its in-force variable annuity contracts, which had general account reserves of $2.8 billion and separate account reserves of $7.9 billion, each as of December 31, 2003. In addition, effective as of January 1, 2004, the company ceded to UFLIC policy obligations under a block of long-term care insurance policies, which had reserves of $1.5 billion as of December 31, 2003. As part of the reinsurance transactions, UFLIC ceded to the company in-force blocks of Medicare supplement insurance, which had reserves of $19 million.

The unaudited pro forma financial information for 2003 contained in this press release was previously published in the prospectuses for the company's initial public offering and related offerings and reflects the company's historical combined financial information as adjusted to give effect to the transactions described below and certain other transactions as if each had occurred as of January 1, 2003. The unaudited pro forma financial information for 2004 contained in this press release reflects the company's historical combined financial information as adjusted to give effect to these transactions as if each had occurred as of January 1, 2004. The following transactions are reflected in the unaudited pro forma financial information:

* the removal of certain businesses of GEFAHI that were not transferred to the company in connection with the corporate reorganization; * the reinsurance transactions with UFLIC; * the issuance of equity and debt securities to GEFAHI in exchange for the assets that the company acquired and the liabilities that the company assumed in connection with the corporate reorganization; and * the issuance and sale of $1.9 billion of senior notes and $500 million of commercial paper and the application of the proceeds therefrom.

If the unaudited pro forma financial information for 2004 had been adjusted to give effect to these transactions as if each had occurred as of January 1, 2003, rather than January 1, 2004, then full year pro forma revenues would have been approximately $90 million higher, pro forma benefits and expenses would have been approximately $77 million higher and pro forma net earnings from continuing operations would have been approximately $8 million higher.

The unaudited pro forma financial information is based upon available information and assumptions that the company believes are reasonable. The unaudited pro forma financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of what the company's financial condition or results of operations would have been had the transactions described above occurred on the dates indicated, nor what they may be in the future.

Use of Non-GAAP Measures

This press release includes the non-GAAP financial measure entitled "net operating earnings." The company defines net operating earnings as pro forma net earnings from continuing operations, excluding pro forma after-tax net realized investment gains and losses (which can fluctuate significantly from period to period), changes in accounting principles and non-recurring, infrequent or unusual items. There were no non-recurring, infrequent or unusual items excluded from pro forma net operating earnings for the periods presented in this press release other than a $68 million IPO-related net tax benefit recorded during the fourth quarter of 2004 and a $25 million after-tax gain related to our waiver of contractual rights under an outsourcing services agreement with GE's global business processing operation, 60% of which was sold in the fourth quarter of 2004.

Management believes that analysis of net operating earnings enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers. However, net operating earnings should not be viewed as a substitute for GAAP net earnings. In addition, the company's definition of net operating earnings may differ from the definitions used by other companies. The table at the end of this press release provides a reconciliation of pro forma net operating earnings (as defined above) to historical and pro forma net earnings.

Due to the unpredictable nature of the items excluded from the company's definition of net operating earnings, the company is unable to reconcile its outlook for net operating earnings to net earnings from continuing operations presented in accordance with GAAP.

This press release also includes the non-GAAP financial measure entitled "operating ROE." The company defines operating ROE as pro forma net operating earnings divided by average pro forma stockholders' interest, excluding accumulated non-owner changes in average stockholders' interest (commonly referred to as accumulated other comprehensive income (AOCI)). Management believes that analysis of operating ROE enhances understanding of the efficiency with which the company deploys its capital. However, operating ROE as defined by the company should not be viewed as a substitute for GAAP net earnings divided by average stockholders' interest. The company's operating ROE for 2004 is presented on a basis consistent with the other pro forma financial information presented elsewhere in this press release. The table at the end of this press release provides a reconciliation of the 2004 operating ROE (as defined above) to 2004 GAAP net earnings divided by average stockholders' interest. Due to the unpredictable nature of net operating earnings and average stockholders' interest excluding AOCI, the company is unable to reconcile its outlook for operating ROE to GAAP net earnings divided by average stockholders' interest.

All net realized investment gains (losses) are reflected in the Corporate and Other Segment and are not reflected in the results of any of the company's other segments. As a result, the segment results contained in this press release are presented on a net operating earnings basis, which is the same as net earnings under GAAP for all segments, except Corporate and Other Segment. For a reconciliation of net operating earnings for Corporate and Other Segment to net earnings presented in accordance with GAAP, see the table at the end of this press release. The term "net operating loss" as used in this press release is also a non-GAAP financial measure and has an analogous meaning to "net operating earnings."

Definition of Sales

The term "sales" as used in this press release means (1) annualized first- year premiums for term life insurance, long-term care insurance, and group life and health insurance; (2) new premiums/deposits for universal life insurance, spread-based and variable products; (3) new deposits for managed assets; (4) written premiums gross of reinsurance and cancellations for PPI; and (5) new insurance written for mortgage insurance, which in each case reflect the amount of business the company generated during each period presented. Sales do not include renewal premiums on policies or contracts written during prior periods. The company considers annualized first-year premiums, deposits, written premiums and new insurance written to be a measure of the company's operating performance because they represent a measure of new sales of insurance policies or contracts during a specified period, rather than a measure of the company's revenues or profitability during that period. This operating measure enables the company to compare its operating performance across periods without regard to revenues or profitability related to policies or contracts sold in prior periods or from investments or other sources.

Cautionary Note Regarding Forward-Looking Statements

This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward- looking statements may be identified by words such as "expects," "intends," "anticipates," "plans," "believes," "seeks," "estimates," "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for the company's future business and financial performance. Forward- looking statements are based on management's current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to global political, economic, business, competitive, market, regulatory and other factors, including the following:

* Risks relating to the company's businesses, including interest rate fluctuations, downturns and volatility in equity markets, defaults in portfolio securities, downgrades in the company's financial strength and credit ratings, unexpected changes in mortality and morbidity rates, accelerated amortization of deferred acquisition costs and present value of future profits, impairment of the value of goodwill, decreases in the volume of mortgage originations, increases in mortgage insurance cancellations, increases in the use of captive reinsurance in the mortgage insurance market, the influence of large mortgage lenders and investors, foreign exchange rate fluctuations, insufficiency of reserves, legal constraints on dividend distributions by subsidiaries, illiquid investments, competition, inability to attract or retain independent sales intermediaries and dedicated sales specialists, defaults by counterparties, regulatory restrictions on the company's operations, changes in applicable laws and regulations, legal or regulatory actions or investigations, political or economic instability and the threat of terrorism; and * Risks relating to the company's separation from GE, including the loss of benefits associated with GE's brand and reputation, the company's need to establish the new Genworth brand identity quickly and effectively, the company's inability to present financial information in SEC filings that accurately represents the results the company would have achieved as a stand-alone company, the possibility that the company will not be able to replace services previously provided by GE on comparable terms, uncertainty of amounts and timing of payments that the company has agreed to make to GE under the company's tax matters agreement and other matters relating to that agreement, potential conflicts of interest with GE and GE's engaging in the same type of business as the company does in the future.

The company undertakes no obligation to publicly update any forward- looking statement, whether as a result of new information, future developments or otherwise.

About Genworth Financial

Genworth is a leading insurance holding company, serving the lifestyle protection, retirement income, investment and mortgage insurance needs of more than 15 million customers, and has operations in 20 countries, including the U.S., Canada, Australia, the U.K. and more than a dozen other European countries. For more information, visit http://www.genworth.com/.

COMBINED STATEMENT OF EARNINGS INFORMATION Three months ended December 31, (Amounts in millions, except per Historical Pro forma share data) 2004 2003 2004 2003 (Unaudited) Revenues: Premiums $1,606 $1,766 $1,606 $1,651 Net investment income 825 1,031 825 757 Net realized investment gains (losses) (1) 39 (1) 49 Policy fees and other income 212 230 212 134 Total revenues 2,642 3,066 2,642 2,591 Benefits and expenses: Benefits and other changes in policy reserves 1,129 1,464 1,129 1,184 Interest credited 344 402 344 335 Underwriting, acquisition and insurance expenses, net of deferrals 429 427 429 352 Amortization of deferred acquisition costs and intangibles 262 416 262 359 Interest expense 63 46 63 61 Total benefits and expenses 2,227 2,755 2,227 2,291 Earnings from continuing operations before income taxes and accounting changes 415 311 415 300 Provision for income taxes 69 91 69 89 Net earnings from continuing operations 346 220 $346 $211 Loss on sale of discontinued operations, net of taxes - (7) Net earnings $346 $213 Net earnings per share: Basic $0.71 $0.44 Diluted $0.70 $0.44 Shares outstanding Basic 489.6 489.5 Diluted 492.4 489.5 COMBINED STATEMENT OF EARNINGS INFORMATION Twelve months ended December 31, (Amounts in millions, except per Historical Pro forma share data) 2004 2003 2004 2003 (Unaudited) Revenues: Premiums $6,559 $6,707 $6,388 $6,256 Net investment income 3,648 4,051 3,160 2,964 Net realized investment gains 26 10 23 38 Policy fees and other income 824 915 664 529 Total revenues 11,057 11,683 10,235 9,787 Benefits and expenses: Benefits and other changes in policy reserves 4,804 5,270 4,340 4,229 Interest credited 1,432 1,624 1,319 1,358 Underwriting, acquisition and insurance expenses, net of deferrals 1,812 1,916 1,657 1,583 Amortization of deferred acquisition costs and intangibles 1,154 1,351 1,052 1,149 Interest expense 217 140 243 205 Total benefits and expenses 9,419 10,301 8,611 8,524 Earnings from continuing operations before income taxes and accounting changes 1,638 1,382 1,624 1,263 Provision for income taxes 493 413 494 371 Net earnings from continuing operations before accounting changes 1,145 969 $1,130 $892 Net earnings from discontinued operations, net of taxes - 186 Gain (loss) on sale of discontinued operations, net of taxes 7 (74) Net earnings before accounting change 1,152 1,081 Cumulative effect of accounting changes, net of taxes 5 - Net earnings $1,157 $1,081 Net earnings per share: Basic $2.36 $2.21 Diluted $2.36 $2.21 Shares outstanding Basic 489.5 489.5 Diluted 490.5 489.5 PRO FORMA FINANCIAL INFORMATION Three months ended December 31, 2004 Pro forma Pro adjust Pro forma ments forma adjust - adjust ments exclud ments - ed - capital assets reinsu struct and rance ure liabil transa and ities ctions other Pro (Dollar amounts in millions) Historical (a) (b) (c) forma (Unaudited) Revenues: Premiums $1,606 $- $- $- $1,606 Net investment income 825 - - - 825 Net realized investment (losses) (1) - - - (1) Policy fees and other income 212 - - - 212 Total revenues 2,642 - - - 2,642 Benefits and expenses: Benefits and other changes in policy reserves 1,129 - - - 1,129 Interest credited 344 - - - 344 Underwriting, acquisition and insurance expenses, net of deferrals 429 - - - 429 Amortization of deferred acquisition costs and intangibles 262 - - - 262 Interest expense 63 - - - 63 Total benefits and expenses 2,227 - - - 2,227 Earnings from continuing operations before income taxes 415 - - - 415 Provision for income taxes 69 - - - 69 Net earnings from continuing operations $346 $- $- $- $346 Three months ended December 31, 2003 Pro forma Pro adjust Pro forma ments forma adjust - adjust ments exclud ments - ed - capital assets reinsu struct and rance ure liabil transa and ities ctions other Pro (Dollar amounts in millions) Historical (a) (b) (c) forma (Unaudited) Revenues: Premiums $1,766 $(57) $(58) $- $1,651 Net investment income 1,031 (15) (259) - 757 Net realized investment gains (losses) 39 (1) 11 - 49 Policy fees and other income 230 (65) (31) - 134 Total revenues 3,066 (138) (337) - 2,591 Benefits and expenses: Benefits and other changes in policy reserves 1,464 (60) (220) - 1,184 Interest credited 402 - (67) - 335 Underwriting, acquisition and insurance expenses, net of deferrals 427 (48) (27) - 352 Amortization of deferred acquisition costs and intangibles 416 (29) (28) - 359 Interest expense 46 - - 15 61 Total benefits and expenses 2,755 (137) (342) 15 2,291 Earnings from continuing operations before income taxes 311 (1) 5 (15) 300 Provision for income taxes 91 2 1 (5) 89 Net earnings from continuing operations $220 $(3) $4 $(10) $211 Note: For a discussion of notes (a), (b), and (c) to these tables see Notes to Pro Forma Financial Information and Reconciliation Tables. PRO FORMA FINANCIAL INFORMATION Twelve months ended December 31, 2004 Pro forma Pro adjust Pro forma ments forma adjust - adjust ments exclud ments - ed - capital assets reinsu struct and rance ure liabil transa and ities ctions other Pro (Dollar amounts in millions) Historical (a) (b) (c) forma (Unaudited) Revenues: Premiums $6,559 $(80) $(91) $- $6,388 Net investment income 3,648 (28) (460) - 3,160 Net realized investment gains (losses) 26 (3) - - 23 Policy fees and other income 824 (103) (57) - 664 Total revenues 11,057 (214) (608) - 10,235 Benefits and expenses: Benefits and other changes in policy reserves 4,804 (71) (393) - 4,340 Interest credited 1,432 - (113) - 1,319 Underwriting, acquisition and insurance expenses, net of deferrals 1,812 (117) (38) - 1,657 Amortization of deferred acquisition costs and intangibles 1,154 (46) (56) - 1,052 Interest expense 217 - - 26 243 Total benefits and expenses 9,419 (234) (600) 26 8,611 Earnings from continuing operations before income taxes 1,638 20 (8) (26) 1,624 Provision for income taxes 493 13 (4) (8) 494 Net earnings from continuing operations $1,145 $7 $(4) $(18) $1,130 Twelve months ended December 31, 2003 Pro forma Pro adjust Pro forma ments forma adjust - adjust ments exclud ments - ed - capital assets reinsu struct and rance ure liabil transa and ities ctions other Pro (Dollar amounts in millions) Historical (a) (b) (c) forma (Unaudited) Revenues: Premiums $6,707 $(244) $(207) $- $6,256 Net investment income 4,051 (70) (1,017) - 2,964 Net realized investment gains 10 6 22 - 38 Policy fees and other income 915 (260) (126) - 529 Total revenues 11,683 (568) (1,328) - 9,787 Benefits and expenses: Benefits and other changes in policy reserves 5,270 (196) (845) - 4,229 Interest credited 1,624 - (266) - 1,358 Underwriting, acquisition and insurance expenses, net of deferrals 1,916 (248) (85) - 1,583 Amortization of deferred acquisition costs and intangibles 1,351 (105) (97) - 1,149 Interest expense 140 - - 65 205 Total benefits and expenses 10,301 (549) (1,293) 65 8,524 Earnings from continuing operations before income taxes 1,382 (19) (35) (65) 1,263 Provision for income taxes 413 (4) (15) (23) 371 Net earnings from continuing operations $969 $(15) $(20) $(42) $892 Note: For a discussion of notes (a), (b), and (c) to these tables see Notes to Pro Forma Financial Information and Reconciliation Tables. RECONCILIATION OF COMPANY NET EARNINGS TO PRO FORMA NET OPERATING EARNINGS Three months ended Twelve months ended December 31, December 31, (Amounts in millions, except per 2004 2003 2004 2003 share data) (Unaudited) Net earnings $346 $213 $1,157 $1,081 Net earnings from discontinued operations, net of taxes - - - (186) (Gain) loss on sale of discontinued operations, net of taxes - 7 (7) 74 Cumulative effect of accounting change, net of taxes - - (5) - Net earnings from continuing operations 346 220 1,145 969 Excluded assets and liabilities (a) - (3) 7 (15) Reinsurance transactions (b) - 4 (4) (20) Capital structure and other (c) - (10) (18) (42) Pro forma net earnings from continuing operations 346 211 1,130 892 Pro forma net realized (gains) losses on investments, net of taxes 1 (32) (15) (25) Net tax benefit related to initial public offering (68) - (46) - Gain on outsourcing services agreement, net of taxes (25) - (25) - Pro forma net operating earnings $254 $179 $1,044 $867 Net earnings per share Basic $0.71 $0.44 $2.36 $2.21 Diluted $0.70 $0.44 $2.36 $2.21 Net earnings from continuing operations per share Basic $0.71 $0.45 $2.34 $1.98 Diluted $0.70 $0.45 $2.33 $1.98 Pro forma net earnings from continuing operations per share Basic $0.71 $0.43 $2.31 $1.82 Diluted $0.70 $0.43 $2.30 $1.82 Pro forma net operating earnings per share Basic $0.52 $0.37 $2.13 $1.77 Diluted $0.52 $0.37 $2.13 $1.77 Shares outstanding Basic 489.6 489.5 489.5 489.5 Diluted 492.4 489.5 490.5 489.5 RECONCILIATION OF CORPORATE AND OTHER SEGMENT NET EARNINGS (LOSS) TO PRO FORMA NET OPERATING LOSS Three months ended Twelve months ended December 31, December 31, (Dollar amounts in millions) 2004 2003 2004 2003 (Unaudited) Segment net earnings (loss) $64 $24 $52 $(54) Excluded assets and liabilities (a) - (3) (5) (2) Reinsurance transactions (b) - 15 - 47 Capital structure and other (c) - (10) (18) (42) Pro forma segment net earnings (loss) 64 26 29 (51) Pro forma net realized (gains) losses on investments, net of taxes 1 (32) (15) (25) Net tax benefit related to initial public offering (68) - (46) - Gain on outsourcing services agreement, net of taxes (25) - (25) - Pro forma net operating loss $(28) $(6) $(57) $(76) RECONCILIATION OF OPERATING ROE (Amounts in millions, except ROE) GAAP Basis Total stockholders' equity as of December 31, 2004 $12,866 Less accumulated nonowner changes in stockholders' equity (AOCI) as of December 31, 2004 1,609 Total stockholders' equity, excluding AOCI as of December 31, 2004 (I) 11,257 Total stockholders' equity as of December 31, 2003 15,800 AOCI as of December 31, 2003 1,672 Total stockholders' equity, excluding AOCI as of December 31, 2003 (II) 14,128 Total (I+II) 25,385 ÷ 2 Average stockholders' equity, excluding AOCI $12,693 2004 net earnings $1,157 ROE (net earnings divided by average stockholders' equity, excluding AOCI) 9.1% GAAP Basis, As Adjusted - Operating ROE Total stockholders' equity, excluding AOCI as of December 31, 2004 $11,257 Adjusted stockholders' equity, excluding AOCI as of December 31,2003 (see table below for reconciliation) 9,956 Total 21,213 ÷ 2 Average adjusted stockholders' equity, excluding AOCI $10,607 2004 pro forma net operating earnings (see page 14 for reconciliation) $1,044 Operating ROE (pro forma net operating earnings divided by average adjusted stockholders' equity, excluding AOCI) 9.8% RECONCILIATION OF COMPANY TOTAL STOCKHOLDERS' EQUITY, EXCLUDING AOCI (Amounts in millions) As of December 31, 2003 Total stockholders' equity $15,800 AOCI 1,672 Total stockholders' equity, excluding AOCI 14,128 Excluded assets and liabilities (a) 673 Reinsurance transactions (b) (1,434) Capital structure and other (c) (3,411) Adjusted stockholders' equity, excluding AOCI $9,956 Note: For a discussion of notes (a), (b), and (c) to these tables see Notes to Pro Forma Financial Information and Reconciliation Tables. Notes to Pro Forma Financial Information and Reconciliation Tables

(a) Reflects adjustments to exclude amounts included in the company's historical combined earnings relating to (1) certain businesses (formerly reported in the company's Affinity Segment) and certain investment partnerships, which in each case were not transferred to the company, and (2) net realized investment (gains) losses and related tax benefit arising from sales of Affinity segment assets that were reflected in the company's Corporate and Other Segment.

In addition, related to the statement of financial position as of December 31, 2003, reflects adjustments to exclude $1,691 million of commercial paper and all related impacts of derivative contracts hedging the commercial paper cash flows, $548 million of short-term borrowings from GE Capital and intercompany balances that were not transferred to the company.

(b) Reflects adjustments to record the effects of the reinsurance transactions the company entered into with, and the related contribution the company made to, UFLIC, an indirect subsidiary of GE. As part of these transactions, the company ceded to UFLIC all of its in-force structured settlement contracts, substantially all of its in-force variable annuity contracts, and a block of long-term care insurance policies that it reinsured from Travelers in 2000, and it assumed from UFLIC a block of Medicare supplement insurance, all effective as of January 1, 2004. The unaudited pro forma earnings information for 2003 gives effect to the reinsurance transactions as if each occurred as of January 1, 2003 and excludes the effects of all ceded reinsured contracts that were issued before January 1, 2003. The unaudited pro forma earnings information for 2004 gives effect to the reinsurance transactions as if each had occurred as of January 1, 2004 and excludes the effects of all ceded reinsured contracts that were issued before January 1, 2004. The adjusted stockholders' equity information gives effect to the reinsurance transactions as if each had occurred as of December 31, 2003. The company has continued to sell variable annuities and structured settlements after completion of the reinsurance transactions and is retaining that business for its own account, subject to third party reinsurance in the ordinary course of business.

As a result, the company's unaudited pro forma combined statement of earnings reflects premiums and fees from these products issued after January 1, 2003 (in the case of pro forma information for 2003), even though variable annuities and structured settlements issued during such year are included in the blocks of policies reinsured to UFLIC. The company's pro forma combined statements of earnings for the years ended December 31, 2003 and 2004 exclude the impact of the entire block of long-term care insurance policies that the company ceded to UFLIC as the company did not issue any new policies for this block in 2003 or 2004, and the company will not issue any in the future.

Under the reinsurance transactions, the company receives an expense allowance to reimburse it for costs it incurs to service the reinsured blocks. Actual costs and expense allowance amounts will be determined by expense studies to be conducted periodically. The pro forma adjustments have been prepared assuming that actual costs incurred during the pro forma periods, as determined under the company's historical cost structure and allocation methods, were reimbursed by an expense allowance.

In addition to investment assets transferred to UFLIC in exchange for a reinsurance recoverable asset from UFLIC, concurrently, the company contributed $1.836 billion of capital to UFLIC, which primarily represented the excess statutory capital in the company's insurance subsidiaries after giving effect to the reinsurance transactions. As a significant portion of the assets transferred and contributed were not owned for the entire period, the pro forma earnings adjustments to reduce net investment income and net realized investment gains were based upon a proportional allocation of investment income from the investment assets historically identified (1) as supporting the blocks of business reinsured for the reinsurance, and (2) as representing surplus of subsidiaries providing assets to be contributed to UFLIC for the contribution.

(c) Reflects adjustments for changes in the company's capitalization to exclude the impact of commercial paper, short-term borrowings from GE Capital and derivatives that were not transferred to the company in connection with the corporate reorganization and to include the impact of the issuance of $600 million of the company's 6.00% Equity Units and $100 million of the company's 5.25% mandatory redeemable Series A Cumulative Preferred Stock, both of which were completed on May 28, 2004, the issuance of 3, 5, 10 and 30 year notes totaling $1.9 billion which was completed June 15, 2004, and the issuance of $500 million of commercial paper which was completed June 14, 2004, as well as interest expense related to the accretion of the company's obligation to GE under the Tax Matters Agreement and the tax impacts resulting from these changes in the company's capitalization.

In addition, adjusted stockholders' equity as of December 31, 2003 reflects adjustments to include $550 million Contingent Note issued to GEFAHI, the company's first-year cost of stock option and stock appreciation rights to management and employees and cost relating to conversion of certain existing stock-based compensation awards, and the company's obligation to GE and other effects under the Tax Matters Agreement, as well as to reflect capital contributions received from GE and dividends paid to GE in 2004.