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Genworth (GNW) Q1 Earnings Beat Estimates, Decline Y/Y

Genworth Financial, Inc. GNW reported first-quarter 2016 net operating income of 21 cents per share, which handily beat the Zacks Consensus Estimate of 14 cents per share by 50%. However, earnings declined 32.3% year over year.

The company reported net income per share of 11 cents, down 64.5% year over year.
 
Operational Performance
 
Total revenue of Genworth declined 16.4% year over year to $1.8 billion. A decline of 30.5% in premiums and a 2.6% decrease in policy fees and other income resulted in the downside.
 
Total benefits and expenses decreased 11.2% year over year to $1.6 billion due to fall in benefits and other changes in policy reserves, interest credited and interest expenses.
 
Segment-Wise Quarterly Review
 
U.S. Mortgage Insurance: Net operating income of $61 million jumped 17.3% year over year. The loss ratio was 24%. The loss ratio for the year deteriorated 900 bps year over year on lower delinquencies.
 
Canada Mortgage Insurance: Net operating income was $33 million, down 17.5% year over year. The loss ratio in the quarter was 24%, up 200 bps year over year.
 
Australia Mortgage Insurance: Net operating income of $19 million decreased 36.7% year over year. The loss ratio in the quarter was 26%, up 1100 bps year over year.
 
U.S. Life Insurance: Net operating income of $91 million increased 12.3% year over year mainly due to the increase in Long Term Care Insurance.
 
Runoff: Net operating income of $4 million plunged 63.6% year over year. Less favorable equity market performance compared with the year-ago quarter led to the downside.
 
Corporate And Other: Net operating loss of $105 million was wider than the year-ago loss of $60 million.
 
Financial Update
 
Genworth exited the quarter with cash, cash equivalents and invested assets of $76.7 billion, up 1.3% from year-end 2015.
 
Long-term borrowings of Genworth totaled $4.2 billion as of Mar 31, 2016, down about 7.4% from year-end 2015.
 
Book value per share as of Mar 31, 2016 was $28.19, down 8.5% from the 2015-end level.
 
Business Update
 
On Feb 4, 2016, a restructuring plan for the company’s U.S. life insurance businesses was announced, which progressed in the reported quarter. The progress included the company’s suspension of all traditional life insurance and fixed annuity product sales on Mar 7, 2016.

Moreover, the company managed to reduce cash expenditure by approximately $135 million, pre tax, on an annualized basis. By the end of the second quarter of 2016, the company anticipates to achieve annualized cash expense reductions of $150 million or more.

Further, the company recaptured part of universal life insurance business from Brookfield Life and Annuity Insurance Company Limited (“BLAIC”), Genworth’s primary Bermuda domiciled reinsurance subsidiary, to the U.S. life insurance companies, effective since Apr 1, 2016.

Also, the company successfully completed a bond consent solicitation, offering additional strategic and financial flexibility and displaying progress toward the isolation of Long Term Care Insurance (LTC) business.

In Jan 2016, the company completed the sale of certain blocks of term life insurance to Protective Life Insurance Company. This transaction is anticipated to generate an aggregate of $150 million of excess capital for Genworth, which includes a projected tax payment of around $175 million to the holding company that is expected to be settled in Jul 2016.
 
Zacks Rank and Performance of Other Insurers
 
Genworth presently carries a Zacks Rank #4 (Sell). Among the other insurers that have reported first-quarter earnings so far, the bottom line at Assurant, Inc. AIZ and Radian Group Inc. RDN beat their respective Zack Consensus Estimate, while MGIC Investment Corp. MTG missed the same.

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RADIAN GRP INC (RDN): Free Stock Analysis Report
 
GENWORTH FINL (GNW): Free Stock Analysis Report
 
ASSURANT INC (AIZ): Free Stock Analysis Report
 
MGIC INVSTMT CP (MTG): Free Stock Analysis Report
 
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