Company Update (NYSE:GNW): Genworth Financial Inc Announces Fourth Quarter 2015 Results


Genworth Financial Inc (NYSE:GNW) reported results for the period ended December 31, 2015. The company reported a net loss2 of $292 million, or $0.59 per diluted share, compared with a net loss of $760 million, or $1.53 per diluted share, in the fourth quarter of 2014. Net operating loss3 for the fourth quarter of 2015 was $82 million, or $0.17per diluted share, compared with a net operating loss of $415 million, or $0.83 per diluted share, in the fourth quarter of 2014. The net loss and net operating loss in the quarter include net after-tax charges of $184 million, or $0.37 per diluted share, primarily driven by assumption updates in universal life insurance. Additionally, the net loss includes an after-tax loss of $134 million related to the pending sale of the European mortgage insurance business and an additional after-tax loss of $73 million related to the completed lifestyle protection insurance business sale.

The company reported a net loss of $615 million, or $1.24 per diluted share, in 2015, compared with a net loss of $1,244 million, or $2.51 per diluted share, in 2014. The company reported net operating income of $255 million, or $0.51 per diluted share, in 2015, compared with a net operating loss of $398 million, or $0.80 per diluted share, in 2014.

“We are pleased with the continued strong performance of our mortgage insurance businesses,” said Tom McInerney, President and CEO. “In our U.S. life insurance businesses, we are actively pursuing multiple restructuring actions to separate and isolate our LTC business and narrow our commercial focus, including through the suspension of traditional life and fixed annuity sales.”

Strategic Update

In 2016, the company plans to initiate a series of internal restructuring actions aimed at separating and isolating its LTC business, subject to regulatory and other potential third-party approvals. These actions are focused on addressing LTC legacy block issues that continue to pressure ratings across the organization.

Also, the company has decided to suspend all sales of traditional life insurance and fixed annuity products in the first quarter of 2016 given the continued impact of ratings and recent sales levels of these products. This action is expected to reduce cash expenses by approximately $50 million pre-tax annually and the company expects to record an approximately $15 million pre-tax restructuring charge in the first quarter of 2016 related to this decision. In addition, and as previously announced, the company still expects to achieve annualized cash expense reductions of $100 million pre-tax or more. Actions taken in 2015 are expected to reduce cash expenses by approximately $90 to $100 million pre-tax on an annualized basis, bringing total expected cash expense reductions to $150 million or more.

As of December 31, 2015, the U.S. mortgage insurance (MI) business was compliant with the private mortgage insurer eligibility requirements (PMIERs) capital requirements, with a prudent buffer. The company generated a total of approximately $535 million in PMIERs capital credit in 2015 from three reinsurance transactions approved by the government-sponsored enterprises (GSEs) covering the 2009 through 2015 books of business as well as the intercompany sale of its ownership of affiliated preferred securities for approximately $200 million. With regard to the executed reinsurance transactions, the GSEs reserve the right to reassess the PMIERs capital credit on those transactions if certain conditions are not met, including if the statutory risk-to-capital ratio of the business exceeds 18:1. The company intends to maintain a prudent level of capital in excess of the PMIERs capital requirements.

In January 2016, the company completed the sale of certain blocks of term life insurance to Protective Life Insurance Company. The company expects this transaction to generate capital of approximately $100 to $150 million in aggregate to Genworth, which includes an expected tax payment of over $200 million to the holding company that is scheduled to be settled in July 2016, partially offset by a decrease in the unassigned surplus of the U.S. life insurance companies.

In December 2015, the company completed the sale of its lifestyle protection insurance business to AXA with estimated net proceeds of approximately $400 million, subject to post-closing adjustments. In January 2016, the company redeemed its senior notes due in 2016 using $321 million of proceeds from this transaction.

During the fourth quarter, the company announced it had entered into an agreement to sell its European mortgage insurance business to AmTrust Financial Services, Inc. that is expected to result in net proceeds of approximately $55 million to the U.S. MI business. The transaction is expected to close in the first quarter of 2016 and is subject to customary conditions, including requisite regulatory approvals.

In the fourth quarter of 2015, the company changed how it reviews its operating businesses and no longer has separate reporting divisions. Under this new structure, the company has the following five operating business segments: U.S. Mortgage Insurance; Canada Mortgage Insurance; Australia Mortgage Insurance; U.S. Life Insurance (which includes its LTC, life insurance and fixed annuities businesses); and Runoff (which includes the results of non-strategic products which are no longer actively sold). In addition to the five operating business segments, the company also has Corporate and Other activities which include debt financing expenses that are incurred at the Genworth Holdings level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other businesses that are managed outside of the operating segments, including certain smaller international mortgage insurance businesses and discontinued operations. Financial information has been updated for all periods to reflect the reorganized segment reporting structure.

Net investment losses, net of taxes and other adjustments, were zero in the quarter, compared to $22 million in the prior quarter and $4 million in the prior year. Total impairments, net of tax, were $9 million in the quarter, compared to $6 million in the prior quarter and none in the prior year.

Net investment income decreased to $781 million in the quarter, compared to $783 million in the prior quarter and $797 million in the prior year primarily from unfavorable foreign exchange and the continued impact from the low interest rate environment. The reported yield for the current quarter was 4.45 percent. The core yield3 was 4.35 percent, down from the prior quarter. (Original Source)

Shares of Genworth Financial are up 12.5% in after-hours trading. GNW has a 1-year high of $9.19 and a 1-year low of $2.20. The stock’s 50-day moving average is $3.04 and its 200-day moving average is $4.63.

On the ratings front, Genworth Financial has been the subject of a number of recent research reports. In a report issued on January 28, BTIG analyst Mark Palmer maintained a Buy rating on GNW, with a price target of $10, which implies an upside of 258.4% from current levels. Separately, on January 22, UBS’s Suneet Kamath maintained a Sell rating on the stock and has a price target of $2.25.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Mark Palmer and Suneet Kamath have a total average return of -19.0% and 2.6% respectively. Palmer has a success rate of 20.3% and is ranked #3601 out of 3612 analysts, while Kamath has a success rate of 52.0% and is ranked #1202.

Genworth Financial Inc is a financial security company. It provides insurance, wealth management, investment and financial solutions.