With regard to forward-looking statements and the use of non-GAAP financial information, during the call this morning, we may make various forward-looking statements. Our actual results may differ materially from such statements. We advise you to read the cautionary note regarding forward-looking statements in our earnings release and the Risk Factors section of our most recent annual report on Form 10-K and quarterly report on Form 10-Q each filed with the SEC. This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. In our supplement and earnings release, non-GAAP measures have been reconciled to GAAP were required in accordance with SEC rules. When we talk about International Protection and International Mortgage Insurance results, please note that all percentage changes exclude the impact of foreign exchange. And now, let me turn the call over to Marty Klein.Martin P. Klein Thanks, Georgette, and good morning. We have a lot of ground to cover this morning, so our prepared remarks will run about 45 minutes and we may run a bit past 10:00 a.m. to allow time for questions. Today, we'll comment on second quarter results, give an update on our rating situation, provide some detail on long-term care reserving and highlight recent product and rate actions. But first, I think it's important to discuss the strategic review our management team has taken in conjunction with our board. As a backdrop, our current share price and bond spreads are simply unacceptable. We understand the concerns of investors and bondholders. We launched our comprehensive strategic review to develop specific plans that would address this concerns and set a course for turning around Genworth and rebuilding our financial strength, flexibility and performance. We want to give our constituents as much clarity as possible about our direction. The review of the strategy is complete. We are moving ahead to implement near-term action plans and our far along in the development of longer-term steps.
This morning, I want to frame the objectives, issues and constraints we are addressing to provide you better insights into our process. As I know you understand in order to optimize our ability to execute and to avoid creating undue market expectations and distractions, we will not discuss specific transactions until the appropriate times. We are focused on 3 primarily issues consistent with the feedback from our investors and bondholders. First, operating business performance must improved significantly. Quite simply, many of our businesses have been generating relatively low returns on their capital and results must improve regardless of strategy. Second, financial flexibility should be increased to execute our strategic plans. And finally, we need to address the complexity of our business portfolio, so it is simpler for investors to understand and more attractive for them to invest their capital.To address these issues, we have the following objectives in our review. We identified businesses which are strategic from those which are better characterized as financial investments. In this regard, we have considered several factors including the competitive landscape and business environment for each business, including assessments of where we have clear advantages, the ability of the business to generate returns in excess of its specific cost of capital, the ability to alter a product's design, underwriting characteristics or pricing, the potential of the business to generate capital for strategic flexibility and finally, the expected timing for achievement of specific business goals. Prior to this review, we had not distinguished between strategic businesses and businesses which should be effectively viewed and managed as financial investments. For businesses that are strategic, we are developing plans for them to improve performance and be financially sound. To be successful, businesses will need to deliver operating results that will support their full infrastructure costs, generate cash that covers their share of debt service, and produce returns above our specific cost of capital. This will provide the discipline and focus for this businesses to stand on their own. This discipline reduces their reliance on other businesses or on the holding company. This, in turn, should improve financial results and create both strategic and financial flexibility.
In the past, products were priced and managed to support overall leverage targets in cost of capital which did not reflect their profit risk profile of the particular product, and cash generation was not a specific or consistent objective. In addition, some function on overhead costs were not always fully allocated or covered by product pricing margins. This interdependency and subsidization across products hurt the performance of the businesses and financial flexibility of the holding company.Read the rest of this transcript for free on seekingalpha.com