Genworth Financial Inc (NYSE:GNW) reported results for the period ended September 30, 2016. The company reported a net loss of $380 million, or $0.76 per diluted share, in the third quarter of 2016, compared with a net loss of$284 million, or $0.57 per diluted share, in the third quarter of 2015. The net operating loss for the third quarter of 2016 was $405 million, or $0.81 per diluted share, compared with net operating income of $64 million, or $0.13 per diluted share, in the third quarter of 2015. The net loss and net operating loss included $548 million after-tax, or $1.10per diluted share, of net unfavorable items discussed below.
As previously announced, during the third quarter of 2016, the company completed a review of its LTC claim reserves. The company made several changes to its assumptions and methodologies primarily impacting claim terminations, benefit utilization and incurred but not reported reserves. As a result of these changes, claim reserves were increased by approximately $435 million pre-tax resulting in a charge to earnings of $283 million after-tax, or $0.57 per diluted share. Additionally, the company recorded a non-cash charge of $265 million, or $0.53 per diluted share, related to deferred tax assets that are not expected to be utilized before their expiration in light of the company’s latest financial projections, including the impact to current and future earnings associated with higher expected claim costs in LTC and sustained low interest rates.
“While our mortgage insurance performance remained strong, it was overshadowed by the previously announced charges related to the review of our LTC claim reserves and taxes,” said Tom McInerney, President and CEO. “LTC remains challenged, but we continue to receive significant premium rate increases and remain focused on executing our multi-year rate action plan.”
The net loss was impacted by net investment gains, net of taxes and other adjustments, of $12 million in the quarter, compared to net investment losses of $21 million in the prior year. The net loss in the prior year reflected an after-tax loss of $296 million related to a write-off of deferred acquisition costs (DAC) from entering into a life block sale.
Net investment income increased to $805 million in the quarter, up from $779 million in the prior quarter and up from$783 million in the prior year. Prepayment speed adjustments related to residential mortgage-backed securities were favorable versus both the prior quarter and prior year in addition to favorable variable investment income compared to the prior quarter. The reported yield and core yield for the current quarter were 4.62 percent and 4.51 percent, respectively.
Net operating income (loss) represents net operating income (loss) from continuing operations excluding net investment gains (losses), gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and other adjustments, net of taxes. A reconciliation of net operating income (loss) of segments and Corporate and Other activities to net income (loss) is included at the end of this press release.
Unless specifically noted in the discussion of results for the MI businesses in Canada and Australia, references to percentage changes exclude the impact of translating foreign denominated activity into U.S. dollars (foreign exchange). Percentage changes, which include the impact of foreign exchange, are found in a table at the end of this press release.
U.S. Mortgage Insurance
U.S. MI net operating income was $67 million, compared with $61 million in the prior quarter and $37 million in the prior year. The loss ratio in the current quarter was 21 percent, down three points sequentially and down 22 points from the prior year primarily reflecting the continued decline and improved performance in delinquencies from the 2005 to 2008 book years. During the quarter, the company made a favorable $6 million after-tax adjustment to its loss reserves associated with lower expected claim rates on early stage delinquencies, partially offset by higher claim severity on late stage delinquencies. This adjustment favorably impacted the loss ratio by six points.
Flow NIW of $12.8 billion increased 12 percent from the prior quarter and 38 percent versus the prior year primarily from a larger purchase originations market and higher refinance originations from lower interest rates. During the third quarter of 2016, the company’s concentration of single premium flow NIW was lower than the prior quarter and the prior year as it continues its selective participation in this market.
Canada Mortgage Insurance
Canada MI reported net operating income of $36 million versus $38 million in the prior quarter and the prior year. The loss ratio in the quarter was 24 percent, up four points from the prior quarter and up three points compared to the prior year primarily from an increase in new delinquencies, net of cures, in oil-producing regions. Results versus the prior quarter and prior year included increased earned premiums from a higher level of NIW in recent years.
Flow NIW was up 20 percent sequentially primarily from a seasonally larger originations market and down 18 percent from the prior year primarily from targeted underwriting changes in select markets and a smaller market size. In addition, the company completed several bulk transactions in the quarter of $5.1 billion, consisting of high quality low loan-to-value prime loans.
Australia Mortgage Insurance
Australia MI reported net operating income of $14 million versus $15 million in the prior quarter and $21 million in the prior year. The loss ratio in the quarter was 42 percent, up six points sequentially and up 13 points from the prior year. Continued unfavorable experience primarily from the commodity dependent regions of Queensland and Western Australia contributed to unfavorable aging of existing delinquencies versus the prior quarter and prior year as well as a 16 percent increase in new delinquencies versus the prior year. Results in the prior year included actuarial updates that had a negligible impact on earnings, but did unfavorably impact the prior year loss ratio by approximately seven points.
Flow NIW was down eight percent sequentially and down 27 percent from the prior year from a smaller high loan-to-value originations market.
U.S. Life Insurance
LTC had a net operating loss of $270 million, compared with net operating income of $37 million in the prior quarter and a net operating loss of $10 million in the prior year. During the quarter, the company completed its annual review of assumptions and methodologies related to its LTC claim reserves. Based on this review, which included an additional year of claims experience since the last annual review in the third quarter of 2015, the company updated several assumptions and methodologies related to LTC claim reserves. The updates included the following:
- Reflected differences in claim termination rate assumptions between product types and daily benefit amounts;
- Reduced claim termination rate assumptions for longer duration claims for certain product types;
- Modestly refined utilization rate assumptions; and
- Refined methodology primarily related to the calculation of incurred but not reported reserves to better reflect the aging of the block.
As a result of this review, the company increased LTC claim reserves by approximately $435 million pre-tax resulting in an after-tax charge to earnings of $283 million for the third quarter. The updated assumptions also increased new claim severity versus the prior quarter and prior year.
Results for the quarter included a less favorable impact from higher premiums and reduced benefit options of $4 million after-tax versus the prior quarter and a more favorable impact of $35 million after-tax versus the prior year related to premium increases from in force rate actions approved and implemented to date.
Results in the prior quarter included $29 million after-tax of net unfavorable adjustments while results in the prior year included $21 million of after-tax unfavorable items.
Life insurance had net operating income of $48 million, compared with $31 million in the prior quarter and the prior year. Results versus the prior quarter reflect higher investment income from favorable prepayment speed adjustments related to residential mortgage-backed securities as well as favorable in force performance and lower expenses. Results versus the prior year reflected lower reinsurance expenses.
Fixed annuities had net operating income of $15 million, compared with a net operating loss of $13 million in the prior quarter and net operating income of $19 million in the prior year. Results in the quarter include an $8 million after-tax unfavorable correction related to state guaranty funds, partially offset by favorable variable investment income versus the prior quarter. Results in the prior quarter included $28 million after-tax of unfavorable items.
Runoff net operating income was $12 million, compared with net operating income of $6 million in the prior quarter and a net operating loss of $4 million in the prior year.
Corporate And Other
Corporate and Other net operating loss was $327 million, compared with $52 million in the prior quarter and $68 million in the prior year. Results in the quarter reflected $265 million of deferred tax charges. (Original Source)
Shares of Genworth closed today at $4.11, down $0.09 or -2.14%. GNW has a 1-year high of $5.27 and a 1-year low of $1.57. The stock’s 50-day moving average is $5.01 and its 200-day moving average is $3.77.
On the ratings front, Genworth has been the subject of a number of recent research reports. In a report issued on October 31, BTIG analyst Mark Palmer maintained a Hold rating on GNW. Separately, on September 19, Compass Point’s Kenneth Billingsley downgraded the stock to Hold.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Mark Palmer and Kenneth Billingsley have a yearly average loss of 3.9% and 1.9% respectively. Palmer has a success rate of 47% and is ranked #3809 out of 4165 analysts, while Billingsley has a success rate of 57% and is ranked #3011.
Genworth Financial, Inc. is a financial services company, which engages in the provision of insurance, wealth management, investment and financial solutions. It operates its business through the following segments: U.S. Life Insurance, U.S. Mortgage Insurance, Canada Mortgage Insurance, Australia Mortgage Insurance, and Runoff.