RICHMOND, Va., Aug. 2, 2016 /PRNewswire/ --
- Solid Loss Ratio, New Insurance Written (NIW) And Capital
Levels In U.S. Mortgage Insurance (MI)
- Improved Loss Ratio In Canada
MI Sequentially, But Higher In Australia MI From Pressure In Queensland And
Western Australia
- Net Income1 And Net Operating
Income2 Include $57
Million After-Tax Of Net Unfavorable Items; Long Term Care
Insurance (LTC) Results Favorably Impacted By $26 Million Of Lower Reserves From Reduced
Benefits Related To Certain Premium Rate Increase
Implementations
- Net Income Included $85 Million
After-Tax Of Gains From The Sale Of Certain U.S. Government
Treasury Inflation Protected Securities (TIPS)
- Update On U.S. Life Insurance Restructuring Plan:
- Achieved Cash Expense Reduction Target Of Approximately
$150 Million Pre-Tax On An Annualized
Basis
- Additional Steps Taken Toward The Repatriation Of Bermuda
Subsidiary
- Holding Company Cash And Highly Liquid Securities Increased To
$934 Million
Genworth Financial, Inc. (NYSE: GNW) today reported results for
the period ended June 30, 2016. The
company reported net income of $172
million, or $0.34 per diluted
share, in the second quarter of 2016, compared with a net loss of
$193 million, or $0.39 per diluted share, in the second quarter of
2015. Net operating income for the second quarter of 2016 was
$123 million, or $0.25 per diluted share, compared with net
operating income of $119 million, or
$0.24 per diluted share, in the
second quarter of 2015.
Strategic Update
In February 2016, the company
announced a restructuring plan for its U.S. life insurance
businesses to: (1) suspend sales of its traditional life insurance
and fixed annuity products; (2) further reduce expense levels in
2016; (3) repatriate existing business from Brookfield Life and Annuity Insurance Company
Limited (BLAIC), its primary Bermuda domiciled reinsurance subsidiary, to
its U.S. life insurance companies in 2016; and (4) separate and
isolate its LTC business. The company made progress on this plan
since the end of the first quarter including:
- Reducing cash expenses by approximately $150 million pre-tax on an annualized basis,
achieving the targeted level of cash expense reduction; and
- Recapturing two blocks of life insurance business from BLAIC to
the U.S. life insurance companies, effective April 1, 2016 and July 1,
2016, and filing for the regulatory approvals to merge BLAIC
into Genworth Life Insurance Company. The merger will, if approved,
complete the repatriation of BLAIC.
During the second quarter of 2016, the company completed the
sale of its European MI business to AmTrust Financial Services,
Inc., which resulted in net proceeds of approximately $50 million to the U.S. MI business.
"Our results in the second quarter were solid, and we were
especially pleased with the strong performance in U.S. MI," said
Tom McInerney, President and CEO.
"We also achieved our cash expense reduction target and remain on
track to complete the repatriation of our Bermuda subsidiary in the fourth quarter."
Financial Performance
Consolidated Net
Income (Loss) &
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Net Operating
Income
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Three months ended
June 30
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(Unaudited)
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2016
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2015
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Per
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Per
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diluted
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diluted
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Total
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(Amounts in
millions, except per share)
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Total
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share
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Total
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share
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%
change
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Net income
(loss)
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$
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172
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$
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0.34
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$
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(193)
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$
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(0.39)
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189 %
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Net operating
income
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$
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123
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$
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0.25
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$
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119
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$
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0.24
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3 %
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Weighted-average
diluted shares
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500.4
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499.3
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Three months ended
June 30
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(Unaudited)
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2016
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2015
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Book value per
share
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$
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30.37
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$
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27.52
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Book value per share,
excluding accumulated other comprehensive income
(loss)
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$
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20.16
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$
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20.87
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Net income was impacted by net investment gains, net of taxes
and other adjustments, of $25 million
in the quarter, including the gains from the sale of certain TIPS
in the quarter, compared to $3
million of net investment gains in the prior year. Total
impairments, net of tax, were $14
million in the quarter, compared to none in the prior
year.
Net investment income decreased to $779
million in the quarter, down from $789 million in the prior quarter primarily from
unfavorable prepayment speed adjustments related to residential
mortgage-backed securities and down from $793 million in the prior year primarily from
lower variable investment income. The reported yield and core
yield2 for the current quarter were both 4.48
percent.
Net operating income (loss) results are summarized in the table
below:
Net Operating
Income (Loss)
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(Amounts in
millions)
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Q2
16
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Q1
16
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Q2
15
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U.S. Mortgage
Insurance
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$
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61
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$
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61
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$
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49
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Canada Mortgage
Insurance
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38
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33
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37
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Australia Mortgage
Insurance
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15
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19
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29
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U.S. Life
Insurance
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55
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91
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57
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Runoff
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6
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4
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9
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Corporate and
Other
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(52)
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(105)
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(62)
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Total Net
Operating Income
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$
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123
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$
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103
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$
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119
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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. The impact
of foreign exchange on net operating income in the second quarter
of 2016 was a favorable $4 million
versus the prior quarter and an unfavorable $3 million versus the prior year in the MI
businesses in Canada and
Australia, respectively.
U.S. Mortgage Insurance
Operating
Metrics
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(Dollar amounts in
millions)
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Q2
16
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Q1
16
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Q2
15
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Net operating
income
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$
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61
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$
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61
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$
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49
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New insurance
written
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Primary
Flow
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$
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11,400
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$
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7,400
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$
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8,200
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Loss ratio
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24%
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24%
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33%
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U.S. MI net operating income was $61
million, compared with $61
million in the prior quarter and $49
million in the prior year. The loss ratio in the current
quarter was 24 percent, flat sequentially and down nine points from
the prior year primarily reflecting the continued decline and
improved performance in delinquencies from the 2005 to 2008 book
years.
Flow NIW of $11.4 billion
increased 54 percent from the prior quarter from a seasonally
larger purchase originations market and increased 39 percent versus
the prior year primarily from a larger purchase originations market
and growth in market share. During the second quarter of 2016, the
company's concentration of single premium flow NIW was slightly
lower than the prior quarter, but higher than the prior year as it
continues its selective participation in this market.
Canada Mortgage Insurance
Operating
Metrics
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(Dollar amounts in
millions)
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Q2
16
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Q1
16
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Q2
15
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Net operating
income
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$
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38
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$
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33
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$
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37
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New insurance
written
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Flow
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$
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4,400
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$
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2,500
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$
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5,400
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Bulk
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$
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19,700
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$
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3,200
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$
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3,300
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Loss ratio
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20%
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24%
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17%
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Canada MI reported net operating income of $38 million versus $33
million in the prior quarter and $37
million in the prior year. The loss ratio in the quarter was
20 percent, down four points from the prior quarter primarily
driven by a seasonal decrease in new delinquencies, net of cures,
but up three points compared to the prior year primarily from
unfavorable experience in oil-producing regions. Results versus the
prior quarter and prior year included increased premiums from a
higher level of NIW in recent years.
Flow NIW was up 64
percent3 sequentially primarily from a
seasonally larger originations market and down 15
percent3 from the prior year primarily from targeted
underwriting changes in certain regions and a slowing housing
market in oil-producing regions. In addition, the company completed
several bulk transactions in the quarter of $19.7 billion, consisting of high quality low
loan-to-value prime loans primarily driven by demand from large
banks in advance of regulatory changes that took effect on
July 1, 2016.
Australia Mortgage Insurance
Operating
Metrics
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(Dollar amounts in
millions)
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Q2
16
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Q1
16
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Q2
15
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Net operating
income
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$
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15
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$
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19
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$
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29
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New insurance
written
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Flow
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$
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5,000
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$
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4,400
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$
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6,500
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Bulk
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$
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800
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$
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—
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$
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1,700
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Loss ratio
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36%
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26%
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28%
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Australia MI reported net operating income of $15 million versus $19
million in the prior quarter and $29
million in the prior year. The loss ratio in the quarter was
36 percent, up 10 points sequentially and up eight points from the
prior year. New delinquencies were up 19 percent versus the prior
quarter from seasonal variation and up four percent versus the
prior year. Continued unfavorable experience primarily from the
commodity dependent regions of Queensland and Western Australia also contributed to higher
new delinquencies versus the prior quarter and prior year. Results
versus the prior quarter reflect $5
million of higher customer contract fees. Results versus the
prior year were impacted by several unfavorable items totaling
$8 million, including unfavorable
foreign exchange, less favorable taxes and the company's further
sell down of approximately 14 percent of its ownership in the
Australia MI business in May
2015.
Flow NIW was up nine percent3 sequentially from
seasonal variation and down 20 percent3 from the prior
year from a smaller high loan-to-value originations market
primarily driven by regulatory focus on the market and tightened
lender risk appetite as well as the impact from the termination of
a customer contract in the second quarter of 2015. In addition, the
company completed a bulk transaction in the quarter of
approximately $0.8 billion,
consisting of high quality low loan-to-value prime loans.
U.S. Life Insurance
Operating
Metrics
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(Amounts in
millions)
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Q2
16
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Q1
16
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Q2
15
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Net operating income
(loss)
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Long Term Care
Insurance
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$
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37
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$
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34
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$
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10
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Life
Insurance
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31
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31
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22
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Fixed
Annuities
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(13)
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26
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25
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Total U.S. Life
Insurance
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$
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55
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$
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91
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$
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57
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Sales
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Long Term Care
Insurance
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Individual
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$
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4
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$
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5
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$
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8
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Group
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2
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2
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1
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Life
Insurance
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Term Life
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2
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5
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9
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Universal
Life
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1
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2
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4
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Linked
Benefits
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1
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2
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2
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Fixed
Annuities
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9
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|
|
168
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224
|
Long Term Care Insurance
LTC had net operating income of $37
million, compared with $34
million in the prior quarter and $10
million in the prior year. Results versus the prior quarter
reflected stable claim experience, a more favorable benefit from
rate actions and higher net investment income, partially offset by
$29 million after-tax of net
unfavorable adjustments, including refinements to the calculations
of reserves and a correction to reserves and premiums. The
current quarter included $26 million
after-tax of lower reserves from reserve releases associated with
reduced benefits that related to a higher level of policyholders
choosing to reduce benefits instead of accepting premium increases
from certain premium rate increase implementations. The company
expects these premium rate increase implementations to be fully
implemented during the third quarter of 2016, and, as a result,
expects the favorable impact of these rate actions to decrease
significantly in the second half of 2016.
Results versus the prior year reflect a more favorable benefit
from rate actions, partially offset by higher severity given the
mix of new claims with a higher average reserve. The
prior quarter included a $4 million
after-tax unfavorable item and the prior year results included
$12 million of after-tax favorable
items. The loss ratio in the current quarter was approximately 70
percent. Individual LTC sales were $4
million in the quarter.
LTC had net operating income of $71
million in the first half of 2016 reflecting seasonally
favorable terminations that are not expected to recur in the second
half of 2016. Additionally, earnings in the first half of 2016 were
favorably impacted by $47 million
after-tax of lower reserves from reduced benefits related to
certain premium rate increase implementations described above.
Life Insurance
Life insurance had net operating income of $31 million, compared with $31 million in the prior quarter and $22 million in the prior year. Results versus the
prior quarter reflect favorable mortality experience and lower
reinsurance expenses that were offset by lower investment income
primarily from unfavorable prepayment speed adjustments related to
residential mortgage-backed securities. Results versus the prior
year reflected lower reinsurance expenses and favorable mortality
experience.
Fixed Annuities
Fixed annuities had a net operating loss of $13 million, compared with net operating income
of $26 million in the prior quarter
and $25 million in the prior year.
Given the significant declines in interest rates in the quarter,
the company tested its fixed immediate annuity blocks for
recoverability as part of loss recognition testing which resulted
in a negative margin. As a result, the remaining deferred
acquisition costs (DAC) balance was written off and reserves were
increased resulting in a $21 million
after-tax unfavorable impact to earnings. Future adverse changes in
assumptions would be immediately reflected in earnings if the
margin for this block is reduced below zero. Additionally, during
the quarter, a third-party reinsurer recaptured a block of single
premium immediate annuities (SPIA) resulting in a $7 million after-tax unfavorable impact to
earnings. Results versus both the prior quarter and prior year also
reflect unfavorable impacts from SPIA mortality experience and
less favorable variable investment income.
Runoff
Runoff net operating income was $6
million, compared with $4
million in the prior quarter and $9
million in the prior year.
Corporate And Other
Corporate and Other net operating loss was $52 million, compared with $105 million in the prior quarter and
$62 million in the prior year.
Results in the prior quarter included expenses of $54 million after-tax related to litigation
settlement and legal expenses.
Capital & Liquidity
Genworth maintains solid capital positions in its operating
subsidiaries.
Key Capital &
Liquidity Metrics
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(Dollar amounts in
millions)
|
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Q2
16
|
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Q1
16
|
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Q2
15
|
|
U.S.
MI
|
|
|
|
|
|
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Consolidated
Risk-To-Capital Ratio4
|
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15.0:1
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15.3:1
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|
13.7:1
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|
Genworth Mortgage
Insurance Corporation Risk-To-Capital
Ratio4
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|
15.1:1
|
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|
15.5:1
|
|
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|
13.5:1
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|
|
Private Mortgage
Insurer Eligibility Requirements (PMIERs)
Sufficiency Ratio5
|
|
|
115
|
%
|
|
|
113
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%
|
|
|
N/A
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Canada
MI
|
|
|
|
|
|
|
|
|
|
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|
Minimum Capital Test
(MCT) Ratio4
|
|
|
233
|
%
|
|
|
234
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%
|
|
|
231
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%
|
Australia
MI
|
|
|
|
|
|
|
|
|
|
|
|
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|
Prescribed Capital
Amount (PCA) Ratio4
|
|
|
156
|
%
|
|
|
168
|
%
|
|
|
164
|
%
|
U.S. Life Insurance
Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Risk-Based Capital (RBC)
Ratio4
|
|
|
370
|
%
|
|
|
391
|
%
|
|
|
455
|
%
|
|
Unassigned
Surplus4
|
|
$
|
(410)
|
|
|
$
|
(328)
|
|
|
$
|
97
|
|
Holding Company
Cash6 and Liquid Assets7
|
|
$
|
934
|
|
|
$
|
760
|
|
|
$
|
1,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Points
- U.S. MI PMIERs sufficiency ratio increased in the quarter and
the business remained PMIERs compliant, with a buffer as of
June 30, 2016. The U.S. MI business
executed two excess of loss reinsurance transactions with a panel
of reinsurers covering current and expected NIW for the 2016 and
2017 book years, both effective as of July
1, 2016. Each transaction is expected to provide
approximately $150 million of PMIERs
capital credit upon completion of each book year. The
transactions have been approved by the government-sponsored
enterprises (GSEs);
- Canada MI and Australia MI continue to maintain solid capital
ratios in excess of management targets;
- U.S. life insurance companies' unassigned surplus decreased
from the prior quarter from reinsurance transactions in the life
insurance business and the RBC ratio decreased from the prior
quarter due, in part, to the impact of lower interest rates on
variable annuity products. Both unassigned surplus and RBC ratio
reflected an increase in reserves related to universal life
insurance policies with secondary guarantees in the company's
New York subsidiary as well as the
net unfavorable adjustments to LTC reserves, partially offset by
favorable impacts from LTC premium rate increases;
- The holding company ended the quarter with approximately
$934 million of cash and liquid
assets, representing a buffer of approximately $510 million in excess of one and a half times
annual debt service and restricted cash. The holding company
continues to target maintaining cash balances of at least one and a
half times its annual debt service expense plus a risk buffer of
$350 million, but may go below the
target level at times to proactively address liabilities;
- Holding company cash and liquid assets increased from the prior
quarter from $128 million of
intercompany tax payments primarily related to realized gains on
derivative positions, $88 million of
dividends from the operating companies, including the impact of an
Australia MI capital reduction initiative, $21 million of net other items and expenses
including cash margin posted for hedges, partially offset by
$63 million paid for debt interest
expense; and
- In July 2016, the holding company
received an intercompany tax payment from the U.S. life insurance
companies of approximately $175
million attributable to the life block transaction completed
in the first quarter of 2016 that is committed to be used to
facilitate the separation and isolation of the LTC business, which
is subject to ongoing regulatory discussions and approvals.
About Genworth Financial
Genworth Financial, Inc. (NYSE: GNW) is a Fortune 500 insurance
holding company committed to helping families achieve the dream of
homeownership and address the financial challenges of aging through
its leadership positions in mortgage insurance and long term care
insurance. Headquartered in Richmond,
Virginia, Genworth traces its roots back to 1871 and became
a public company in 2004. For more information, visit
genworth.com.
From time to time, Genworth releases important information via
postings on its corporate website. Accordingly, investors and other
interested parties are encouraged to enroll to receive automatic
email alerts and Really Simple Syndication (RSS) feeds regarding
new postings. Enrollment information is found under the "Investors"
section of genworth.com. From time to time, Genworth's
publicly traded subsidiaries, Genworth MI Canada Inc. and Genworth
Mortgage Insurance Australia Limited, separately release financial
and other information about their operations. This information can
be found at http://genworth.ca and
http://www.genworth.com.au.
Conference Call and Financial Supplement Information
This press release and the second quarter 2016 financial
supplement are now posted on the company's website. Additional
information regarding business results and strategic update will be
posted on the company's website, http://investor.genworth.com, by
7:30 a.m. on August 3, 2016. Investors are encouraged to
review these materials.
Genworth will conduct a conference call on August 3, 2016 at 9:00
a.m. (ET) to discuss business results and provide a progress
update on strategic priorities. The conference call will be
accessible via telephone and the Internet. The dial-in number for
the conference call is 877 888.4034 or 913 489.5101 (outside the
U.S.); conference ID # 3488123. To participate in the call by
webcast, register at http://investor.genworth.com at least 15
minutes prior to the webcast to download and install any necessary
software.
Replays of the call will be available through August 17, 2016 at 888 203.1112 or 719 457.0820
(outside the U.S.); conference ID # 3488123. The webcast will also
be archived on the company's website.
Use of Non-GAAP Measures
This press release includes the non-GAAP financial measures
entitled "net operating income (loss)" and "net operating income
(loss) per common share." Net operating income (loss) per common
share is derived from net operating income (loss). The chief
operating decision maker evaluates segment performance and
allocates resources on the basis of net operating income (loss).
The company defines net operating income (loss) as income (loss)
from continuing operations excluding the after-tax effects of
income attributable to noncontrolling interests, net investment
gains (losses), goodwill impairments, gains (losses) on the sale of
businesses, gains (losses) on the early extinguishment of debt,
gains (losses) on insurance block transactions, restructuring costs
and infrequent or unusual non-operating items. Gains (losses) on
insurance block transactions are defined as gains (losses) on the
early extinguishment of non-recourse funding obligations, early
termination fees for other financing restructuring and/or resulting
gains (losses) on reinsurance restructuring for certain blocks of
business. The company excludes net investment gains (losses) and
infrequent or unusual non-operating items because the company does
not consider them to be related to the operating performance of the
company's segments and Corporate and Other activities. A component
of the company's net investment gains (losses) is the result of
impairments, the size and timing of which can vary significantly
depending on market credit cycles. In addition, the size and timing
of other investment gains (losses) can be subject to the company's
discretion and are influenced by market opportunities, as well as
asset-liability matching considerations. Goodwill impairments,
gains (losses) on the sale of businesses, gains (losses) on the
early extinguishment of debt, gains (losses) on insurance block
transactions and restructuring costs are also excluded from net
operating income (loss) because, in the company's opinion, they are
not indicative of overall operating trends. Infrequent or unusual
non-operating items are also excluded from net operating income
(loss) if, in the company's opinion, they are not indicative of
overall operating trends.
While some of these items may be significant components of net
income (loss) available to Genworth's common stockholders in
accordance with GAAP, the company believes that net operating
income (loss) and measures that are derived from or incorporate net
operating income (loss), including net operating income (loss) per
common share on a basic and diluted basis, are appropriate measures
that are useful to investors because they identify the income
(loss) attributable to the ongoing operations of the business.
Management also uses net operating income (loss) as a basis for
determining awards and compensation for senior management and to
evaluate performance on a basis comparable to that used by
analysts. However, the items excluded from net operating income
(loss) have occurred in the past and could, and in some cases will,
recur in the future. Net operating income (loss) and net operating
income (loss) per common share on a basic and diluted basis are not
substitutes for net income (loss) available to Genworth's common
stockholders or net income (loss) available to Genworth's common
stockholders per common share on a basic and diluted basis
determined in accordance with GAAP. In addition, the company's
definition of net operating income (loss) may differ from the
definitions used by other companies.
Adjustments to reconcile net income (loss) attributable to
Genworth's common stockholders and net operating income (loss)
assume a 35 percent tax rate (unless otherwise indicated) and are
net of the portion attributable to noncontrolling interests. Net
investment gains (losses) are also adjusted for DAC and other
intangible amortization and certain benefit reserves.
In June 2016, the company
completed the sale of its term life insurance new business platform
and recorded a pre-tax gain of $12
million. In May 2016, the
company completed the sale of its mortgage insurance business in
Europe and recorded an additional
pre-tax loss of $2 million. In the
first quarter of 2016, the company recorded a pre-tax estimated
loss of $7 million and a tax benefit
of $27 million related to the planned
sale of the mortgage insurance business in Europe. These transactions were excluded from
net operating income (loss) for the periods presented as they
related to a gain (loss) on the sale of businesses.
In June 2016, the company settled
restricted borrowings of $70 million
related to a securitization entity and recorded a $64 million pre-tax gain related to the early
extinguishment of debt. In January
2016, the company paid a pre-tax make-whole expense of
$20 million related to the early
redemption of Genworth Holdings, Inc.'s 2016 notes. The company
also repurchased $28 million
principal amount of Genworth Holdings, Inc.'s notes with various
maturity dates for a pre-tax gain of $4
million in the first quarter of 2016. These transactions
were excluded from net operating income (loss) for the periods
presented as they related to a gain (loss) on the early
extinguishment of debt.
In the first quarter of 2016, the company completed a life block
transaction resulting in a pre-tax loss of $9 million in connection with the early
extinguishment of non-recourse funding obligations.
In the second and first quarters of 2016, the company recorded a
pre-tax expense of $5 million and
$15 million, respectively, related to
restructuring costs as part of an expense reduction plan as the
company evaluates and appropriately sizes its organizational needs
and expenses. In the second quarter of 2015, the company also
recorded a pre-tax expense of $3
million related to restructuring costs.
There were no infrequent or unusual items excluded from net
operating income (loss) during the periods presented other than
fees incurred during the first quarter of 2016 related to Genworth
Holdings, Inc.'s bond consent solicitation of $18 million for broker, advisor and investment
banking fees.
The tables at the end of this press release reflect net
operating income (loss) as determined in accordance with accounting
guidance related to segment reporting, and a reconciliation of net
operating income (loss) of the company's segments and Corporate and
Other activities to net income (loss) available to Genworth's
common stockholders for the three months ended June 30, 2016 and 2015, as well as for the three
months ended March 31, 2016.
This press release includes the non-GAAP financial measure
entitled "core yield" as a measure of investment yield. The company
defines core yield as the investment yield adjusted for those items
that are not recurring in nature. Management believes that analysis
of core yield enhances understanding of the investment yield of the
company. However, core yield is not a substitute for investment
yield determined in accordance with GAAP. In addition, the
company's definition of core yield may differ from the definitions
used by other companies. A reconciliation of core yield to reported
GAAP yield is included in a table at the end of this press
release.
Definition of Selected Operating Performance Measures
The company reports selected operating performance measures
including "sales" and "loss ratio" which are commonly used in the
insurance industry as measures of operating performance.
Management regularly monitors and reports sales metrics as a
measure of volume of new and renewal business generated in a
period. Sales refer to: (1) new insurance written for mortgage
insurance; (2) annualized first-year premiums for long term care
and term life insurance products; (3) annualized first-year
deposits plus five percent of excess deposits for universal and
term universal life insurance products; (4) 10 percent of premium
deposits for linked-benefits products; and (5) new and additional
premiums/deposits for fixed annuities. Sales do not include renewal
premiums on policies or contracts written during prior periods. The
company considers new insurance written, annualized first-year
premiums/deposits, premium equivalents and new premiums/deposits to
be a measure of the company's operating performance because they
represent a measure of new sales of insurance policies or contracts
during a specified period, rather than a measure of the company's
revenues or profitability during that period.
Management also regularly monitors and reports a loss ratio for
the company's businesses. For the mortgage insurance businesses,
the loss ratio is the ratio of incurred losses and loss adjustment
expenses to net earned premiums. For the long term care insurance
business, the loss ratio is the ratio of benefits and other changes
in reserves less tabular interest on reserves less loss adjustment
expenses to net earned premiums. The company considers the loss
ratio to be a measure of underwriting performance in these
businesses and helps to enhance the understanding of the operating
performance of the businesses.
An assumed tax rate of 35 percent is utilized in certain
adjustments to net operating income (loss) and in the explanation
of specific variances of operating performance and investment
results.
These operating performance measures enable the company to
compare its operating performance across periods without regard to
revenues or profitability related to policies or contracts sold in
prior periods or from investments or other sources.
Cautionary Note Regarding Forward-Looking
Statements
This press release contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements may be identified by words such
as "expects," "intends," "anticipates," "plans," "believes,"
"seeks," "estimates," "will" or words of similar meaning and
include, but are not limited to, statements regarding the outlook
for the company's future business and financial performance.
Forward-looking statements are based on management's current
expectations and assumptions, which are subject to inherent
uncertainties, risks and changes in circumstances that are
difficult to predict. Actual outcomes and results may differ
materially due to global political, economic, business,
competitive, market, regulatory and other factors and risks,
including, but not limited to, the following:
- strategic risks including: the company's inability to
successfully execute strategic plans to effectively address its
current business challenges (including with respect to the
restructuring of the U.S. life insurance businesses, cost savings,
ratings and capital), the company's inability to attract buyers for
any businesses or other assets the company may seek to sell, or
securities it may seek to issue, in each case, in a timely manner
on anticipated terms; failure to obtain any required regulatory,
stockholder and/or noteholder approvals or consents, or its
challenges changing or being more costly or difficult to
successfully address than currently anticipated or the benefits
achieved being less than anticipated; inability to achieve
anticipated cost-savings in a timely manner; or adverse tax or
accounting charges; and inability to increase the capital needed in
its businesses in a timely manner and on anticipated terms,
including through improved business performance, reinsurance or
similar transactions, asset sales, securities offerings or
otherwise, in each case as and when required;
- risks relating to estimates, assumptions and valuations
including: inadequate reserves and the need to increase reserves
(including as a result of any changes the company may make to its
assumptions, methodologies or otherwise in connection with periodic
or other reviews); inaccurate models; deviations from its estimates
and actuarial assumptions or other reasons in the long term care
insurance, life insurance and/or annuity businesses; accelerated
amortization of DAC and present value of future profits (PVFP)
(including as a result of any changes the company may make to its
assumptions, methodologies or otherwise in connection with periodic
or other reviews); adverse impact on the company's financial
results as a result of projected profits followed by projected
losses (as is currently the case with the long term care insurance
business); and changes in valuation of fixed maturity, equity and
trading securities;
- risks relating to economic, market and political
conditions including: downturns and volatility in global
economies and equity and credit markets; interest rates and changes
in rates (particularly given the historically low interest rate
environment) have adversely impacted, and may continue to
materially adversely impact, the company's business and
profitability; deterioration in economic conditions or a decline in
home prices that adversely affect the company's loss experience in
mortgage insurance; political and economic instability or changes
in government policies; and fluctuations in foreign currency
exchange rates and international securities markets;
- regulatory and legal risks including: extensive
regulation of the company's businesses and changes in applicable
laws and regulations; litigation and regulatory investigations or
other actions; dependence on dividends and other distributions from
the company's subsidiaries (particularly its international
subsidiaries) and the inability of any subsidiaries to pay
dividends or make other distributions to the company, including as
a result of the performance of its subsidiaries and insurance,
regulatory or corporate law restrictions (including the
unwillingness or inability of the subsidiary that indirectly owns
most of the interests in the Australian and Canadian mortgage
insurance businesses to pay the dividends that it receives from
those businesses as a result of the impact on its financial
condition of its capital support for certain long term care
insurance related reinsurance arrangements); adverse change in
regulatory requirements, including RBC; changes in regulations
adversely affecting the company's international operations;
inability to meet or maintain the PMIERs; inability of the U.S.
mortgage insurance subsidiaries to meet minimum statutory capital
requirements and hazardous financial condition standards; the
influence of Federal National Mortgage Association (Fannie Mae),
Federal Home Loan Mortgage Corporation (Freddie Mac) and a small
number of large mortgage lenders on the U.S. mortgage insurance
market and adverse changes to the role or structure of Fannie Mae
and Freddie Mac; adverse changes in regulations affecting the
mortgage insurance businesses; inability to continue to implement
actions to mitigate the impact of statutory reserve requirements;
impact of additional regulations pursuant to the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the Dodd-Frank Act); and
changes in accounting and reporting standards;
- liquidity, financial strength ratings, credit and
counterparty risks including: insufficient internal sources to
meet liquidity needs and limited or no access to capital (including
the company's inability to replace the company's credit facility);
recent or future adverse rating agency actions, including with
respect to rating downgrades or potential downgrades, or being put
on review for potential downgrade, all of which could have adverse
implications for the company, including with respect to key
business relationships, product offerings, business results of
operations, financial condition and capital needs, strategic plans,
collateral obligations and availability and terms of hedging,
reinsurance and borrowings; defaults by counterparties to
reinsurance arrangements or derivative instruments; defaults or
other events impacting the value of the company's fixed maturity
securities portfolio; and defaults on the company's commercial
mortgage loans or the mortgage loans underlying its investments in
commercial mortgage-backed securities and volatility in
performance;
- operational risks including: inability to retain,
attract and motivate qualified employees or senior management;
ineffective or inadequate risk management in identifying,
controlling or mitigating risks; reliance on, and loss of, key
customer or distribution relationships; availability, affordability
and adequacy of reinsurance to protect the company against losses;
competition; competition in the mortgage insurance businesses from
government and GSEs offering mortgage insurance; material weakness
in, or ineffective, internal control over financial reporting; and
failure or any compromise of the security of the company's computer
systems, disaster recovery systems and business continuity plans
and failures to safeguard, or breaches of, its confidential
information;
- insurance and product-related risks including: the
company's inability to increase sufficiently, and in a timely
manner, premiums on in force long term care insurance policies
and/or reduce in force benefits, and charge higher premiums on new
policies, in each case, as currently anticipated and as may be
required from time to time in the future (including as a result of
the failure to obtain any necessary regulatory approvals or
unwillingness or inability of policyholders to pay increased
premiums); the company's inability to reflect future premium
increases and other management actions in its margin calculation as
anticipated; failure to sufficiently increase new sales for the
long term care insurance products; inability to realize anticipated
benefits of the rescissions, curtailments, loan modifications or
other similar programs in the mortgage insurance businesses;
premiums for the significant portion of the mortgage insurance risk
in force with high loan-to-value ratios may not be sufficient to
compensate the company for the greater risks associated with those
policies; decreases in the volume of high loan-to-value mortgage
originations or increases in mortgage insurance cancellations;
increases in the use of alternatives to private mortgage insurance
and reductions in the level of coverage selected; potential
liabilities in connection with the U.S. contract underwriting
services; and medical advances, such as genetic research and
diagnostic imaging, and related legislation that impact
policyholder behavior in ways adverse to the company;
- other risks including: occurrence of natural or man-made
disasters or a pandemic; impairments of or valuation allowances
against the company's deferred tax assets; the possibility that in
certain circumstances the company will be obligated to make
payments to General Electric Company (GE) under the tax matters
agreement with GE even if its corresponding tax savings are never
realized and payments could be accelerated in the event of certain
changes in control; and provisions of the company's certificate of
incorporation and bylaws and the tax matters agreement with GE may
discourage takeover attempts and business combinations that
stockholders might consider in their best interests; and
- risks relating to the company's common stock including:
the continued suspension of payment of dividends; and stock price
fluctuations.
The company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future developments or otherwise.
Condensed
Consolidated Statements of Income
|
(Amounts in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
|
|
|
June
30,
|
|
|
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,127
|
|
$
|
1,134
|
Net investment
income
|
|
|
779
|
|
|
793
|
Net investment gains
(losses)
|
|
|
30
|
|
|
8
|
Policy fees and other
income
|
|
|
300
|
|
|
222
|
|
Total
revenues
|
|
|
2,236
|
|
|
2,157
|
Benefits and
expenses:
|
|
|
|
|
|
|
Benefits and other
changes in policy reserves
|
|
|
1,193
|
|
|
1,232
|
Interest
credited
|
|
|
173
|
|
|
181
|
Acquisition and
operating expenses, net of deferrals
|
|
|
327
|
|
|
295
|
Amortization of
deferred acquisition costs and intangibles
|
|
|
112
|
|
|
101
|
Interest
expense
|
|
|
80
|
|
|
103
|
|
Total benefits and
expenses
|
|
|
1,885
|
|
|
1,912
|
Income from
continuing operations before income taxes
|
|
|
351
|
|
|
245
|
Provision for income
taxes
|
|
|
110
|
|
|
70
|
Income from
continuing operations
|
|
|
241
|
|
|
175
|
Loss from
discontinued operations, net of taxes
|
|
|
(21)
|
|
|
(314)
|
Net income
(loss)
|
|
|
220
|
|
|
(139)
|
Less: net income
attributable to noncontrolling interests
|
|
|
48
|
|
|
54
|
Net income (loss)
available to Genworth Financial, Inc.'s common
stockholders
|
|
$
|
172
|
|
$
|
(193)
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations available to Genworth Financial, Inc.'s
|
|
|
|
|
|
|
|
common stockholders
per common share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.39
|
|
$
|
0.24
|
|
Diluted
|
|
$
|
0.39
|
|
$
|
0.24
|
Net income (loss)
available to Genworth Financial, Inc.'s common
stockholders
|
|
|
|
|
|
|
|
per common
share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.35
|
|
$
|
(0.39)
|
|
Diluted
|
|
$
|
0.34
|
|
$
|
(0.39)
|
Weighted-average
shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
|
498.5
|
|
|
497.4
|
|
Diluted
|
|
|
500.4
|
|
|
499.3
|
|
|
|
|
|
|
|
Reconciliation of
Net Operating Income to Net Income (Loss)
|
(Amounts in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
Three
|
|
|
|
|
|
months
ended
|
|
months
ended
|
|
|
|
|
|
June
30,
|
|
March
31,
|
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
Net operating income
(loss):
|
|
|
|
|
|
|
|
|
|
U.S. Mortgage
Insurance segment
|
|
$
|
61
|
|
$
|
49
|
|
$
|
61
|
Canada Mortgage
Insurance segment
|
|
|
38
|
|
|
37
|
|
|
33
|
Australia Mortgage
Insurance segment
|
|
|
15
|
|
|
29
|
|
|
19
|
U.S. Life Insurance
segment:
|
|
|
|
|
|
|
|
|
|
Long Term Care
Insurance
|
|
|
37
|
|
|
10
|
|
|
34
|
Life
Insurance
|
|
|
31
|
|
|
22
|
|
|
31
|
Fixed
Annuities
|
|
|
(13)
|
|
|
25
|
|
|
26
|
Total U.S. Life Insurance
segment
|
|
|
55
|
|
|
57
|
|
|
91
|
Runoff
segment
|
|
|
6
|
|
|
9
|
|
|
4
|
Corporate and
Other
|
|
|
(52)
|
|
|
(62)
|
|
|
(105)
|
Net operating
income
|
|
|
123
|
|
|
119
|
|
|
103
|
Adjustments to net
operating income:
|
|
|
|
|
|
|
|
|
|
Net investment gains
(losses), net (see below for reconciliation)
|
|
|
39
|
|
|
5
|
|
|
(19)
|
Gains (losses) on
sale of business
|
|
|
10
|
|
|
—
|
|
|
(7)
|
Gains (losses) on
early extinguishment of debt
|
|
|
64
|
|
|
—
|
|
|
(16)
|
Gains (losses) from
life block transactions
|
|
|
—
|
|
|
—
|
|
|
(9)
|
Expenses related to
restructuring
|
|
|
(5)
|
|
|
(3)
|
|
|
(15)
|
Fees associated with
bond consent solicitation
|
|
|
—
|
|
|
—
|
|
|
(18)
|
Taxes on
adjustments
|
|
|
(38)
|
|
|
—
|
|
|
53
|
Income from
continuing operations available to Genworth
|
|
|
|
|
|
|
|
|
|
|
Financial, Inc.'s
common stockholders
|
|
|
193
|
|
|
121
|
|
|
72
|
Add: income from
continuing operations attributable to noncontrolling
interests
|
|
|
48
|
|
|
54
|
|
|
55
|
Income from
continuing operations
|
|
|
241
|
|
|
175
|
|
|
127
|
Loss from
discontinued operations, net of taxes
|
|
|
(21)
|
|
|
(314)
|
|
|
(19)
|
Net income
(loss)
|
|
|
220
|
|
|
(139)
|
|
|
108
|
Less: net income
attributable to noncontrolling interests
|
|
|
48
|
|
|
54
|
|
|
55
|
Net income (loss)
available to Genworth Financial, Inc.'s common
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
$
|
172
|
|
$
|
(193)
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
available to Genworth Financial, Inc.'s common
|
|
|
|
|
|
|
|
|
|
|
stockholders per
common share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.35
|
|
$
|
(0.39)
|
|
$
|
0.11
|
|
Diluted
|
|
$
|
0.34
|
|
$
|
(0.39)
|
|
$
|
0.11
|
Net operating income
per common share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
$
|
0.24
|
|
$
|
0.21
|
|
Diluted
|
|
$
|
0.25
|
|
$
|
0.24
|
|
$
|
0.21
|
Weighted-average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
498.5
|
|
|
497.4
|
|
|
498.0
|
|
Diluted
|
|
|
500.4
|
|
|
499.3
|
|
|
499.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net
investment gains (losses):
|
|
|
|
|
|
|
|
|
|
Net investment gains
(losses), gross
|
|
$
|
30
|
|
$
|
8
|
|
$
|
(19)
|
Adjustments
for:
|
|
|
|
|
|
|
|
|
|
|
DAC and other
intangible amortization and certain
|
|
|
|
|
|
|
|
|
|
|
benefit
reserves
|
|
|
6
|
|
|
6
|
|
|
9
|
|
Net investment
(gains) losses attributable to noncontrolling
interests
|
|
|
3
|
|
|
(9)
|
|
|
(9)
|
Net investment gains
(losses), net
|
|
$
|
39
|
|
$
|
5
|
|
$
|
(19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets
|
(Amounts in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
December
31,
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Assets
|
|
|
|
|
|
Cash, cash
equivalents and invested assets
|
|
$
|
78,205
|
|
$
|
75,746
|
|
Deferred acquisition
costs
|
|
|
4,046
|
|
|
4,398
|
|
Intangible assets and
goodwill
|
|
|
267
|
|
|
357
|
|
Reinsurance
recoverable
|
|
|
17,564
|
|
|
17,245
|
|
Deferred tax and
other assets
|
|
|
640
|
|
|
675
|
|
Separate account
assets
|
|
|
7,484
|
|
|
7,883
|
|
Assets held for
sale
|
|
|
—
|
|
|
127
|
|
|
|
|
Total
assets
|
|
$
|
108,206
|
|
$
|
106,431
|
Liabilities and
equity
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Future policy
benefits
|
|
$
|
37,154
|
|
$
|
36,475
|
|
|
Policyholder account
balances
|
|
|
26,182
|
|
|
26,209
|
|
|
Liability for policy
and contract claims
|
|
|
8,289
|
|
|
8,095
|
|
|
Unearned
premiums
|
|
|
3,412
|
|
|
3,308
|
|
|
Deferred tax and
other liabilities
|
|
|
4,090
|
|
|
3,028
|
|
|
Borrowings related to
securitization entities
|
|
|
85
|
|
|
179
|
|
|
Non-recourse funding
obligations
|
|
|
310
|
|
|
1,920
|
|
|
Long-term
borrowings
|
|
|
4,191
|
|
|
4,570
|
|
|
Separate account
liabilities
|
|
|
7,484
|
|
|
7,883
|
|
|
Liabilities held for
sale
|
|
|
—
|
|
|
127
|
|
|
|
|
Total
liabilities
|
|
|
91,197
|
|
|
91,794
|
|
Equity:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
1
|
|
|
1
|
|
|
Additional paid-in
capital
|
|
|
11,955
|
|
|
11,949
|
|
|
Accumulated other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Net unrealized
investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
(losses) on securities not other-than-temporarily
impaired
|
|
|
2,770
|
|
|
1,236
|
|
|
|
|
|
Net unrealized gains
(losses) on other-than-temporarily impaired securities
|
|
|
19
|
|
|
18
|
|
|
|
|
Net unrealized
investment gains (losses)
|
|
|
2,789
|
|
|
1,254
|
|
|
|
|
Derivatives
qualifying as hedges
|
|
|
2,439
|
|
|
2,045
|
|
|
|
|
Foreign currency
translation and other adjustments
|
|
|
(140)
|
|
|
(289)
|
|
|
Total accumulated
other comprehensive income (loss)
|
|
|
5,088
|
|
|
3,010
|
|
|
Retained
earnings
|
|
|
789
|
|
|
564
|
|
|
Treasury stock, at
cost
|
|
|
(2,700)
|
|
|
(2,700)
|
|
|
|
|
Total Genworth
Financial, Inc.'s stockholders' equity
|
|
|
15,133
|
|
|
12,824
|
|
|
Noncontrolling
interests
|
|
|
1,876
|
|
|
1,813
|
|
|
|
|
Total
equity
|
|
|
17,009
|
|
|
14,637
|
|
|
|
|
Total liabilities and
equity
|
|
$
|
108,206
|
|
$
|
106,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of Foreign
Exchange on Operating Results8
Three months ended
June 30, 2016
|
|
|
Percentages
|
|
|
Percentages
|
|
|
|
Including
Foreign
|
|
|
Excluding
Foreign
|
|
|
|
Exchange
|
|
|
Exchange9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada Mortgage
Insurance (MI):
|
|
|
|
|
|
|
Flow new insurance
written
|
|
(19)
|
%
|
|
(15)
|
%
|
Flow new insurance
written (2Q16 vs. 1Q16)
|
|
76
|
%
|
|
64
|
%
|
|
|
|
|
|
|
|
Australia
MI:
|
|
|
|
|
|
|
Flow new insurance
written
|
|
(23)
|
%
|
|
(20)
|
%
|
Flow new insurance
written (2Q16 vs. 1Q16)
|
|
14
|
%
|
|
9
|
%
|
|
|
|
|
|
|
|
Reconciliation of
Core Yield to Reported Yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
months
ended
|
|
|
|
|
|
|
June
30,
|
|
(Assets - amounts
in billions)
|
|
2016
|
|
Reported Total
Invested Assets and Cash
|
|
$
|
77.6
|
|
|
Subtract:
|
|
|
|
|
|
|
|
|
Securities
lending
|
|
|
0.3
|
|
|
|
Unrealized gains
(losses)
|
|
|
7.6
|
|
|
Adjusted end of
period invested assets
|
|
$
|
69.7
|
|
|
|
|
|
|
|
|
|
|
|
Average Invested
Assets Used in Reported Yield Calculation
|
|
$
|
69.5
|
|
|
Subtract:
|
|
|
|
|
|
|
|
|
Restricted commercial
mortgage loans and other invested assets related to
|
|
|
|
|
|
|
securitization
entities10
|
|
|
0.1
|
|
|
Average Invested
Assets Used in Core Yield Calculation
|
|
$
|
69.4
|
|
|
|
|
|
|
|
|
|
|
|
(Income - amounts
in millions)
|
|
|
|
|
|
Reported Net
Investment Income
|
|
$
|
779
|
|
|
Subtract:
|
|
|
|
|
|
|
|
|
Bond calls and
commercial mortgage loan prepayments
|
|
|
5
|
|
|
|
Other non-core
items11
|
|
|
(6)
|
|
|
|
Restricted commercial
mortgage loans and other invested assets related to
|
|
|
|
|
|
|
securitization
entities10
|
|
|
2
|
|
|
Core Net Investment
Income
|
|
$
|
778
|
|
|
|
|
|
|
|
|
|
|
|
Reported
Yield
|
|
|
4.48
|
%
|
|
Core Yield
|
|
|
4.48
|
%
|
|
1 Unless otherwise stated, all references in this
press release to net income (loss), net income (loss) per share,
net operating income (loss), net operating income (loss) per share,
book value, book value per share and stockholders' equity should be
read as net income (loss) available to Genworth's common
stockholders, net income (loss) available to Genworth's common
stockholders per diluted share, net operating income (loss)
available to Genworth's common stockholders, net operating income
(loss) available to Genworth's common stockholders per diluted
share, book value available to Genworth's common stockholders, book
value available to Genworth's common stockholders per share and
stockholders' equity available to Genworth's common stockholders,
respectively.
2 This is a financial measure not calculated based on
U.S. Generally Accepted Accounting Principles (Non-GAAP). See
the Use of Non-GAAP Measures section of this press release for
additional information.
3 Percent change excludes the impact of foreign
exchange.
4 Company estimate for the second quarter of 2016,
due to timing of the filing of statutory statements.
5 Calculated as available assets divided by required
assets as defined within PMIERs. As of June
30, 2016 and March 31, 2016,
the PMIERs sufficiency ratios were in excess of $350 million and $300
million, respectively, of available assets above the PMIERs
requirements. Company estimate for the second quarter of 2016.
6 Holding company cash and liquid assets
comprises assets held in Genworth Holdings, Inc. (the issuer of
outstanding public debt) which is a wholly-owned subsidiary of
Genworth Financial, Inc.
7 Comprises cash and cash equivalents of $834 million, $760
million and $904 million,
respectively, and U.S. government bonds of $100 million, zero and $250 million, respectively, as of June 30, 2016, March 31,
2016 and June 30, 2015.
8 All percentages are comparing the second quarter of
2016 to the second quarter of 2015 unless otherwise stated.
9 The impact of foreign exchange was calculated using
the comparable prior period exchange rates.
10 Represents the incremental assets and investment
income related to restricted commercial mortgage loans and other
invested assets.
11 Includes cost basis adjustments on structured
securities and various other immaterial items.
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/genworth-financial-announces-second-quarter-2016-results-300307876.html
SOURCE Genworth Financial, Inc.