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Genworth Turns Around in Q3 but Earnings Miss Estimates

Genworth Financial Inc.GNW posted third-quarter earnings of 13 cents per share, missing the Zacks Consensus Estimate by 43.5%. Earnings rebounded from the year-ago loss of 65 cents per share largely on the back of a sturdy performance at the U.S. Life Insurance division.

Genworth Financial Inc. (GNW) - Earnings Surprise | FindTheCompany

Including the impact of 59 cents loss per share related to a write-off of deferred acquisition costs (DAC) from the previously announced life block sale, the insurer incurred loss of 57 cents per share, narrower than the year-ago loss of $1.70.

Shares lost 7.1% in the after-market trading session to reflect the underperformance.

Operational Performance

Total revenue of Genworth declined 3% year over year to $2.15 billion. The decrease was due to lower premiums (down 5.4%) and lower insurance and investment product fees and other (down 26%). Revenues narrowly missed the Zacks Consensus Estimate of $2.16 billion.

Total benefits and expenses increased 22.7% year over year to $2.5 billion due to higher benefits and other changes in policy reserves, and acquisition and operating expenses in the quarter.

Segment-Wise Quarterly Review

U.S. Life Insurance : The segment reported net operating profit of $40 million, turning around from the year-ago loss of $322 million. Substantially lower loss at Long Term Care Insurance and higher profits at Life Insurance fueled the improvement.

Long-term Care Insurance and Life Insurance witnessed favorable mortality on existing claims but Fixed Annuities witnessed unfavorable mortality on existing claims.

Global Mortgage Insurance : The segment's net operating income of $91 million increased 7.1% year over year. Reversal of the year-ago loss at U.S. Mortgage Insurance, drove the improvement. Loss ratio at U.S. Mortgage Insurance increased 100 bps sequentially on new flow delinquencies.

At International Mortgage Insurance, loss ratio at Canada Mortgage Insurance was higher sequentially due to a seasonal increase in new delinquencies but was flat year over year. Australia Mortgage Insurance loss ratio increased year over year and sequentially.

Corporate and Run-Off : Net operating loss was $67 million, narrower than $86 million loss incurred in the year-ago quarter.

Financial Update

Genworth exited the quarter with cash, cash equivalents and invested assets of $76.5 billion, down 1.2% from 2014 end.

Long-term borrowings of Genworth totaled $4.6 billion as of Sep 30, 2015, down about 0.9% from 2014 end.

Business Update

Genworth expects pretax cash savings of more than $100 million by the first half of 2016.

Genworth estimates that an additional capital between $500 million and $700 million will be required to be fully compliant with the final PMIERs. It also expects to comply with Mortgage Insurer Eligibility Requirements by Dec 31, 2015. As such, an excess of loss reinsurance transaction on its 2015 book of business is expected to add $225 million to PMIERs capital credit as of Dec 31, 2015.

Also, Genworth is expected to have generated about $525 million in PMIERs capital credit year to date from three reinsurance transactions covering the 2009 through 2015 books of business in addition to the intercompany sale of its ownership of affiliated preferred securities of about $200 million.

The insurer is on track to close the sale of its lifestyle protection insurance business. The divestiture is estimated to bring about $400 million in net proceeds and close by the end of 2015.

Genworth has also agreed to vend certain blocks of its term life insurance to Protective Life Insurance Company by the first quarter of 2016. This transaction is expected to generate initial capital between $100 million and $150 million.

Subsequent to the third quarter, Genworth inked a deal to sell its European mortgage insurance business to AmTrust Financial Services, Inc. AFSI for net proceeds of about $55 million. This insurer is estimated to record an after-tax GAAP loss of about $140 million in the fourth quarter of 2015. The transaction is expected to culminate in the first quarter of 2016.

Performance of Other Life Insurers

While earnings at Torchmark Corp. TMK surpassed the Zacks Consensus Estimate, StanCorp Financial Group Inc. SFG missed the same in the third quarter.

Zacks Rank

Genworth presently carries a Zacks Rank #3 (Hold).

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GENWORTH FINL (GNW): Free Stock Analysis Report

STANCORP FNL CP (SFG): Free Stock Analysis Report

TORCHMARK CORP (TMK): Free Stock Analysis Report

AMTRUST FIN SVC (AFSI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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