On May 28, 2013, we downgraded
Genworth Financial Inc
) to Underperform from Neutral. The introduction of new products
and pricing changes in the U.S. Life Insurance Division led to
Further, Genworth expects operating earnings to be weighed
upon by the continued low interest rate environment. In addition,
the company incurred goodwill impairment and other loss and
expects to incur more losses upon closure of the transaction
related to the sale of its wealth management business.
Why the Downgrade?
The introduction of new products and pricing changes in the U.S.
Life Insurance Division implemented over the past year are
expected to continue in 2013 as well. These actions led to lower
sales for Genworth.
Life insurance sales slipped 68% year over year, while
long-term care insurance sales decreased 17% year over year. In
addition, loss ratios of long-term care insurance business have
been increasing over the past several years and ranged from 65%
to 71% over the last five years.
Genworth expects operating earnings to be weighed upon by
continued low interest rate environment. Genworth expects
consolidated operating earnings per share from after-tax spreads
to be down by 7 cents per share in 2013 and 11 cents per share in
2014. It also anticipates the U.S. Life Insurance segment to be
affected majorly due to its product mix, long-term care and
universal life insurance in particular.
Further, to emphasize on generating capital, increasing the
financial strength and flexibility of the company as well as to
simplify the business model, Genworth decided to divest the
wealth management business. It recognized $27 million from
goodwill impairment. The company also expects to record an
additional after-tax loss of up to $10 million.
Life Insurance Stocks That Warrant a Look
While we prefer to avoid Genworth Financial, other life insurance
stocks worth a look are
Protective Life Corp
StanCorp Financial Group Inc
Lincoln National Corp
). All these stocks carry a Zacks Rank #1 (Strong Buy).
GENWORTH FINL (GNW): Free Stock Analysis
LINCOLN NATL-IN (LNC): Free Stock Analysis
PROTECTIVE LIFE (PL): Free Stock Analysis
STANCORP FNL CP (SFG): Free Stock Analysis
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