Income From Continuing Operations of $0.41 Per Diluted Share
RICHMOND, Va., Feb. 7 /PRNewswire-FirstCall/ -- Genworth Financial, Inc.
(NYSE: GNW) today reported income from continuing operations for the fourth
quarter of 2007 of $180 million, or $0.41 per diluted share, compared with
$361 million, or $0.78 per diluted share, in the fourth quarter of 2006.
Income from continuing operations for the full year of 2007 was $1,154
million, or $2.58 per diluted share, compared to $1,283 million, or $2.73 per
diluted share, for the full year of 2006.
Net operating income for the fourth quarter of 2007 was $314 million, or
$0.71 per diluted share, compared to net operating income of $355 million, or
$0.77 per diluted share, in the fourth quarter of 2006. The full year net
operating income was $1,373 million, or $3.07 per diluted share, up from
$1,317 million, or $2.80 per diluted share, in 2006.
Fourth quarter included a $2 million reduction in the gain on the
previously completed sale of the Employee Benefits Group and net investment
losses of $134 million, net of tax and other offsets. These net investment
losses included $123 million of impairments, $93 million of which related to
sub-prime and Alt-A residential mortgage and asset-backed securities. The
impairments of the sub-prime and Alt-A securities, which occurred solely in
securities rated A or below, were the result of adverse changes in the present
value of estimated cash flows of the underlying collateral which, in turn, are
required to be reported as impairment losses valued at estimated fair market
values as of December 31, 2007, which reflect a highly illiquid market for
such securities.
Three months ended December 31 (Unaudited)
2007 2006
Per diluted Per diluted
Total share Total share
(Amounts in millions,
except per share)
Income from continuing
operations $180 $0.41 $361 $0.78
Net income $178 $0.40 $373 $0.81
Net operating income (1) $314 $0.71 $355 $0.77
Weighted average diluted
shares 441.1 460.7
(1) 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.
"We have a cautious stance toward 2008 results, given the accelerating
downturn in the U.S. housing market, slowing global economies and a shifting
interest rate environment. We will navigate these issues, focus on sound
business growth, optimize capital deployment and position Genworth for
improved performance in 2009," said Michael D. Fraizer, Chairman and Chief
Executive Officer. "In December, we provided a wide outlook range of $2.65 to
$3.15 operating earnings per share for 2008, given the high degree of market
uncertainty. In view of current trends, we anticipate being at the lower end
of that range for 2008, and plan to fully update our outlook at the end of the
first quarter."
Fourth Quarter Highlights
- Retirement and wealth management businesses showed on-going progress in
growing fee-based product lines.
- Fee-based retirement income assets under management (AUM) increased
59 percent to $7.3 billion from focused sales initiatives with key
distribution firms.
- Managed money AUM grew 25 percent from product, distribution and
service enhancements.
- In October Genworth successfully launched its partnership with AARP as
the exclusive provider of new long term care (LTC) insurance,
broadening its distribution reach to include the career agent sales
force in addition to telephone and on-line sales.
- International mortgage insurance new insurance written (NIW) increased
11 percent, excluding the impact of foreign exchange. In Canada and
Australia, flow NIW growth was driven by ongoing account penetration
that was partially offset by slowing mortgage insurance markets.
- Payment protection sales from established platforms in southern and
central Europe had solid double-digit sales growth. Sales from new
markets more than doubled, particularly from growth in Mexico and
Poland.
- U.S. Mortgage Insurance continued to take an industry leadership role
in connection with pricing and underwriting guideline changes, product
shifts and geographic limitations. These actions, along with revenue
growth and the benefit from captive reinsurance agreements, effectively
position the business positively going into 2009.
Segment Results
Net operating income presented in the tables below excludes net investment
gains (losses) and other adjustments, net of taxes, as well as the results
from discontinued operations. In the discussion of International results, all
references to percentage changes exclude the impact of foreign exchange. The
impact of foreign exchange on net operating income in the fourth quarter of
2007 was a favorable $26 million.
A reconciliation of net operating income (loss) of segments and Corporate
and Other activities to net income is included at the end of this press
release.
Retirement and Protection
Retirement and Protection
Net Operating Income
(in millions)
Q4 07 Q4 06
Managed Money $12 $7
Retirement Income
Fee-Based 17 18
Spread-Based 24 31
Institutional 9 10
Life Insurance 76 83
Long Term Care 36 35
Total Retirement and Protection $174 $184
Sales
(in millions) Q4 07 Q4 06
Managed Money
Gross Flows $1,474 $1,217
Net Flows 741 721
Retirement Income
Fee-Based 760 533
Spread-Based 386 440
Institutional 552 885
Life Insurance 104 79
Long Term Care 66 52
Assets Under Management (2)
(in millions) Q4 07 Q4 06
Fee-Based (3) $28,867 $21,866
Spread-Based (4) 30,826 31,640
Total Assets Under Management $59,693 $53,506
(2) Assets under management represent account values, net of reinsurance,
and managed third party assets.
(3) Fee-based includes managed money and retirement income fee-based
businesses.
(4) Spread-based includes retirement income spread-based and institutional
businesses.
Retirement and Protection earnings of $174 million included $9 million net
favorable adjustments from long term care, while the fourth quarter 2006
earnings of $184 million included approximately $18 million more favorable tax
benefits.
Managed money earnings grew to $12 million stemming from 25 percent growth
in AUM and the full quarter impact in 2007 of earnings from the AssetMark
acquisition, which closed in late October 2006.
Retirement income fee-based earnings of $17 million reflected ongoing
sales growth with underlying growth in AUM, offset by a $2 million decline in
third-party service fees and weaker equity market performance. Sales of fee-
based retirement income products increased 43 percent to $760 million, through
increased market penetration in the wirehouse and independent broker dealer
channels.
Retirement income spread-based earnings were $24 million, down $7 million.
The prior year included a $5 million net benefit comprised of approximately
$12 million of favorable tax benefits, partially offset by higher deferred
acquisition cost amortization. Underlying results reflect lower fixed annuity
AUM, offset in part by higher spreads. Retirement income spread-based sales
were down 12 percent to $386 million, as the business maintained its pricing
discipline in a highly competitive environment.
Institutional earnings dropped $1 million, as an increase in AUM was more
than offset by narrower spreads.
Life earnings declined eight percent to $76 million. Revenue growth was
more than offset by lower term life persistency that negatively impacted
earnings by approximately $10 million. In addition, the prior year included $6
million of higher tax benefits. Universal life sales increased 70 percent,
including eight percent growth in annual deposits and 94 percent growth in
excess deposits. Term life sales declined 21 percent in a highly competitive
environment.
Long term care (LTC) earnings were $36 million and reflected strong new
business performance that was offset by lower terminations in the older LTC
blocks. Results included a favorable reserve adjustment of $11 million from
the completion of a project begun in the third quarter to correct overweight
reserve factors, and a $4 million favorable refinement of the incurred but not
reported claims estimate. In addition, results included an unfavorable
$6 million premium adjustment associated with a reinsurance settlement.
Individual LTC sales grew seven percent to $45 million, with growth in both
the independent and career channels. Strong growth in the linked-benefits
product contributed $10 million in sales for the quarter.
International
International
Net Operating Income
(in millions) Q4 07 Q4 06
Mortgage Insurance
Canada $88 $57
Australia 40 46
Other International 16 4
Payment Protection 36 33
Total International $180 $140
Impact on Net Operating
Income From Annual Premium
Recognition & Loss Factor
Updates
(in millions) Q4 07 Q4 06
Mortgage Insurance
Canada $13 $5
Australia (4) 10
Other International 14 -
Total International MI $23 $15
International
Sales
(in billions) Q4 07 Q4 06
Mortgage Insurance
Flow
Canada $8.1 $6.5
Australia 11.6 9.8
Other International 3.3 5.4
Bulk
Canada $7.8 $0.3
Australia 0.9 0.8
Other International 0.9 2.8
Total International MI $32.6 $25.6
Payment Protection 0.7 $0.7
International earnings increased 10 percent, reflecting strong overall
revenue growth of 23 percent to $767 million. Earnings growth included an $8
million net benefit from annual updates to international premium recognition
curves and loss factors, as detailed in the table above. The discussion of
segment results below exclude the impact of these annual updates.
In Canada, earnings grew 19 percent from strong revenue growth, partially
offset by a slightly higher loss ratio, reflecting normal seasoning. Flow
sales were up eight percent to $8.1 billion, and a large prime bulk
transaction contributed the majority of the increase in bulk sales to $7.8
billion.
In Australia, earnings grew 19 percent excluding a $4 million catch up
provision in 2006 for prior period policy cancellations. On a sequential
quarter basis, Australia's loss ratio declined five points to 44 percent.
Sales grew a modest two percent, with growth in the large national bank
distribution channel partially offset by a decline in sales through mortgage
managers.
Other International mortgage insurance earnings declined $2 million,
excluding the impact of the premium recognition curve update. This reflected
slow expansion in new countries (including Mexico, South Korea, Japan and
Germany) and declining new business origination markets in Europe. This also
reflects the company taking a more conservative stance in Ireland, the U.K.
and Spain, with Spain showing higher loss development.
Payment protection earnings of $36 million were up seven percent, adjusted
for a $4 million benefit in the prior year quarter, primarily related to an
exited commercial relationship. Sales were strong in new markets in the
Central and Southern regions from increased market penetration with existing
customers.
U.S. Mortgage Insurance
U.S. Mortgage Insurance
(in millions) Q4 07 Q4 06
Net Operating Income (Loss) $(3) $62
Primary Insurance In Force
(in billions) $157.6 $113.4
Primary Risk In Force
(in billions) $31.3 $23.3
Primary Sales
(in billions)
Flow $16.0 $7.3
Bulk 2.2 8.1
Total Primary Sales $18.2 $15.4
U.S. Mortgage Insurance reported a $3 million net operating loss in the
quarter. Premiums increased 26 percent and were more than offset by higher
losses. Total losses increased by $132 million before taxes, including both
higher paid claims and reserve increases. Primary paid claims were $65
million before taxes in the fourth quarter. This reflects an 81 percent
increase from the fourth quarter of 2006 and 33 percent sequentially. The
average primary paid claim was $39,200, up 32 percent from a year ago,
reflecting higher loan balances in recent book years and a shift of claims to
higher loan balance states. Total year paid claims were $193 million versus a
mid-year 2007 forecast range of $160 - $185 million.
Increases of loss reserves were driven by 29 percent higher flow
delinquencies versus the prior quarter. Delinquency increases were most
pronounced in select products including Alt-A, A Minus and greater than 95
percent loan-to-value loans, as well as in certain geographies, particularly
in Florida and California.
During the quarter, the business completed its third round of risk
management actions, which included pricing and underwriting guideline changes,
product shifts and geographic limitations.
Primary new insurance written increased 18 percent to $18.2 billion,
reflecting mortgage insurance market growth. Flow persistency increased to 85
percent, which combined with new business, brought primary insurance in force
to $157.6 billion.
Corporate and Other
Corporate and Other
(in millions) Q4 07 Q4 06
Net Operating Loss ($37) ($31)
The Corporate and Other net operating loss was driven by lower limited
partnership distributions and higher interest expense.
Investments
Net investment income, net of tax and other offsets, related to bond
calls, commercial mortgage loan prepayments and limited partnership
investments was $9 million, compared to $19 million of similar activity in the
prior year quarter.
Fourth quarter net investment losses of $134 million, net of tax and other
offsets, included $123 million of impairments, $93 million of which related to
sub-prime and Alt-A residential mortgage and asset-backed securities. The
impairments of the sub-prime and Alt-A securities were limited to securities
rated A and below, and were the result of adverse changes in the present value
of estimated cash flows of the underlying collateral which, in turn, are
required to be reported as impairment losses valued at estimated fair market
values as of December 31, 2007, which reflect a highly illiquid market for
such securities.
Stockholders' Equity
Stockholders' equity as of December 31, 2007 was $13.5 billion, or $30.92
per share, compared with $13.3 billion, or $30.09 per share, as of December
31, 2006. Stockholders' equity, excluding accumulated other comprehensive
income, as of December 31, 2007 was $12.8 billion, or $29.25 per share,
compared with $12.2 billion, or $27.48 per share, as of December 31, 2006.
Share Repurchases
During the quarter, the company settled its second quarter accelerated
share repurchase program and received an additional 2.5 million shares. The
company also repurchased approximately $24 million, or approximately one
million shares, during the fourth quarter under its current program.
About Genworth Financial
Genworth is a leading financial security company meeting the retirement,
longevity and lifestyle protection, investment and mortgage insurance needs of
more than 15 million customers. It has a presence in more than 25 countries.
For more information, visit genworth.com.
Conference Calls and Financial Supplement Information
This press release and the fourth quarter 2007 financial supplement are
now posted on the company's website. Investors are encouraged to review all
of these materials.
Genworth will conduct a conference call on February 8 from 9 a.m. to 10
a.m. (ET) to discuss the quarter's results and outlook. The conference call
will be accessible via telephone and the Internet. The dial-in number for
Genworth's February 8 conference call is 1-866-875-7108 or 1-706-634-9180
(outside the U.S.), passcode 31321803. 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.
The webcast will be archived on the company's website and a replay of the
call will be available at 1-800-642-1687 or 1-706-645-9291 (outside the U.S.)
passcode 31321803. The replay will be available through February 22, 2008.
Following the earnings call, Genworth will host a separate conference call
and webcast at 11 a.m. (ET) to provide additional information on operating
metrics and analysis of the company's U.S. Mortgage Insurance business. The
dial-in number will be 1-866-875-7108 or 1-706-634-9180 (outside the U.S.),
passcode 33336144. 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. The materials for this call will
be posted on the company's website approximately 1 hour prior to the call.
Use of Non-GAAP Measures
This press release includes the non-GAAP financial measure entitled "net
operating income." The chief operating decision maker evaluates segment
performance and allocates resources on the basis of net operating income. The
company defines net operating income (loss) as income (loss) from continuing
operations excluding after-tax net investment gains (losses) and other
adjustments and infrequent or unusual non-operating items. This metric
excludes these items because the company does not consider them to be related
to the operating performance of its segments and Corporate and Other
activities. A significant component of the net investment gains (losses) is
the result of credit-related impairments and credit-related gains and losses,
the timing of which can vary significantly depending on market credit cycles.
In addition, the size and timing of other investment gains (losses) are often
subject to Genworth's discretion and are influenced by market opportunities,
as well as asset-liability matching considerations. Infrequent or unusual
non-operating items are also excluded from net operating income 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 in accordance
with GAAP, the company believes that net operating income, and measures that
are derived from or incorporate net operating income, are appropriate measures
that are useful to investors because they identify the income attributable to
the ongoing operations of the business. However, net operating income should
not be viewed as a substitute for GAAP net income. In addition, the company's
definition of net operating income may differ from the definitions used by
other companies. There were no infrequent or unusual non-operating items
excluded from net operating income for the periods presented in this press
release other than a $14 million after-tax expense recorded in the first
quarter of 2007 related to reorganization costs. The table at the end of this
press release reflects net operating income (loss) as determined in accordance
with Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information, and a reconciliation of net
operating income (loss) of the company's segments and Corporate and Other
activities to net income for the three and twelve months ended December 31,
2007 and 2006.
Due to the unpredictable nature of the items excluded from the company's
definition of net operating income, the company is unable to reconcile its
outlook for net operating income to net income presented in accordance with
GAAP.
Definition of Selected Operating Performance Measures
Management regularly monitors and reports a production volume metric
referred to as "sales," which is a measure commonly used in the insurance
industry as a measure of volume of new and renewal business generated in a
period. "Sales" refers to (1) annualized first-year premiums for term life
insurance, long term care insurance and Medicare supplement insurance; (2) new
and additional premiums/deposits for universal life insurance, linked-
benefits, spread-based and variable annuity products; (3) gross and net flows
for our managed money business which represent gross flows net of redemptions;
(4) written premiums and deposits, gross of ceded reinsurance and
cancellations, and premium equivalents, where we can earn a fee for
administrative services only business, for payment protection insurance; (5)
new insurance written for mortgage insurance, which in each case reflects the
amount of business the company generated during each period presented; and (6)
written premiums net of cancellations for the Mexican insurance operations.
Sales do not include renewal premiums on policies or contracts written during
prior periods. The company considers annualized first-year premiums, new
premiums/deposits, gross and net flows, written premiums, premium equivalents
and new insurance written 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 regularly monitors and reports assets under management for the
managed money business. Assets under management for the managed money
business represent third-party assets under management that are not
consolidated in the financial statements. Insurance in-force for the life
insurance, international mortgage insurance and U.S. mortgage insurance
businesses is a measure of the aggregate face value of outstanding insurance
policies as of the respective reporting date. Risk in-force for the
international and U.S. mortgage insurance businesses is a measure that
recognizes that the loss on any particular mortgage loan will be reduced by
the net proceeds received upon sale of the underlying property. The company
considers assets under management for its managed money business to be a
measure of the company's operating performance because it represents a measure
of the size of the business at a specific date, rather than a measure of the
company's revenues or profitability during that period.
These operating 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 the following:
- Risks relating to the company's businesses, including interest rate
fluctuations, downturns and volatility in equity and credit markets,
defaults in portfolio securities, downgrades in the company's financial
strength and credit ratings, insufficiency of reserves, legal
constraints on dividend distributions by subsidiaries, competition,
availability and adequacy of reinsurance, defaults by counterparties,
regulatory restrictions on the company's operations and changes in
applicable laws and regulations, legal or regulatory investigations or
actions, political or economic instability, the failure or any
compromise of the security of the company's computer systems, and the
occurrence of natural or man-made disasters or a pandemic disease;
- Risks relating to the company's Retirement and Protection segment,
including unexpected changes in morbidity and mortality, accelerated
amortization of deferred acquisition costs and present value of future
profits, goodwill impairments, reputational risks as a result of the
company's decision to file for an increase in premiums on certain in-
force long term care insurance products, medical advances such as
genetic mapping research, unexpected changes in persistency rates,
increases in statutory reserve requirements, and the failure of demand
for long term care insurance to increase as the company expects;
- Risks relating to the company's International segment, including
political and economic instability, foreign exchange rate fluctuations,
unexpected changes in unemployment rates, deterioration in economic
conditions or decline in home price appreciation, unexpected increases
in mortgage insurance default rates or severity of defaults, decreases
in the volume of high loan-to-value international mortgage
originations, increased competition with government-owned and
government-sponsored entities offering mortgage insurance, changes in
regulations, and growth in the global mortgage insurance market that is
lower than the company expects;
- Risks relating to the company's U.S. Mortgage Insurance segment,
including the influence of Fannie Mae, Freddie Mac and a small number
of large mortgage lenders and investors, decreases in the volume of
high loan-to-value mortgage originations or increases in mortgage
insurance cancellations, increases in the use of simultaneous second
mortgages and other alternatives to private mortgage insurance and
reductions by lenders in the level of coverage they select, unexpected
increases in mortgage insurance default rates or severity of defaults,
deterioration in economic conditions or a decline in home price
appreciation, increases in the use of reinsurance with reinsurance
companies affiliated with the company's mortgage lending customers,
increased competition with government-owned and government-sponsored
entities offering mortgage insurance, changes in regulations, legal
actions under Real Estate Settlement Practices Act, and potential
liabilities in connection with the company's U.S. contract underwriting
services; and
- Other risks, including the possibility that in certain circumstances
the company will be obligated to make payments to GE under the
company's tax matters agreement with GE even if the company's
corresponding tax savings are never realized and the company's 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 company's tax matters agreement with GE may discourage takeover
attempts and business combinations that stockholders might consider in
their best interests.
The company undertakes no obligation to publicly update any forward-
looking statement, whether as a result of new information, future developments
or otherwise.
Consolidated Statements of Income
(Amounts in millions, except per share amounts)
Three months ended Twelve months ended
December 31, December 31,
2007 2006 2007 2006
Revenues:
Premiums $1,670 $1,446 $6,330 $5,802
Net investment income 1,053 1,003 4,135 3,787
Net investment gains (losses) (214) 8 (332) (69)
Insurance and investment product
fees and other 266 200 992 765
Total revenues 2,775 2,657 11,125 10,285
Benefits and expenses:
Benefits and other changes in
policy reserves 1,255 1,050 4,580 4,004
Interest credited 385 388 1,552 1,520
Acquisition and operating
expenses, net of deferrals 551 446 2,075 1,858
Amortization of deferred
acquisition costs and
intangibles 209 165 831 686
Interest expense 126 107 481 364
Total benefits and expenses 2,526 2,156 9,519 8,432
Income from continuing operations
before income taxes and cumulative
effect of accounting change 249 501 1,606 1,853
Provision for income taxes 69 140 452 570
Income from continuing operations
before cumulative effect of
accounting change 180 361 1,154 1,283
Income from discontinued
operations, net of taxes -- 12 15 41
Gain (loss) on sale of discontinued
operations, net of taxes (2) -- 51 --
Income before cumulative effect of
accounting change 178 373 1,220 1,324
Cumulative effect of accounting
change, net of taxes -- -- -- 4
Net income $178 $373 $1,220 $1,328
Earnings from continuing
operations per common share:
Basic $0.41 $0.81 $2.62 $2.81
Diluted $0.41 $0.78 $2.58 $2.73
Earnings per common share:
Basic $0.41 $0.83 $2.77 $2.91
Diluted $0.40 $0.81 $2.73 $2.83
Weighted-average common
shares outstanding:
Basic 437.4 447.4 439.7 455.9
Diluted 441.1 460.7 447.6 469.4
Reconciliation of Net Operating Income to Net Income
(Amounts in millions, except per share amounts)
Three months ended Twelve months ended
December 31, December 31,
2007 2006 2007 2006
Net operating income:
Retirement and Protection segment $174 $184 $762 $703
International segment 180 140 585 468
U.S. Mortgage Insurance segment (3) 62 167 259
Corporate and Other (37) (31) (141) (113)
Net operating income 314 355 1,373 1,317
Net investment gains (losses),
net of taxes and other adjustments (134) 6 (205) (34)
Expenses related to reorganization,
net of taxes -- -- (14) --
Income from continuing operations 180 361 1,154 1,283
Income from discontinued operations,
net of taxes -- 12 15 41
Gain (loss) on sale of discontinued
operations, net of taxes (2) -- 51 --
Income before cumulative effect
of accounting change 178 373 1,220 1,324
Cumulative effect of accounting
change, net of taxes -- -- -- 4
Net income $178 $373 $1,220 $1,328
Earnings per common share:
Basic $0.41 $0.83 $2.77 $2.91
Diluted $0.40 $0.81 $2.73 $2.83
Net operating earnings per
common share:
Basic $0.72 $0.79 $3.12 $2.89
Diluted $0.71 $0.77 $3.07 $2.80
Weighted-average common shares
outstanding:
Basic 437.4 447.4 439.7 455.9
Diluted 441.1 460.7 447.6 469.4
SOURCE Genworth Financial, Inc.
CONTACT: Investors, Alicia Charity, +1-804-662-2248
alicia.charity@genworth.com, or Kelly Groh, +1-804-281-6321
kelly.groh@genworth.com, or Media, Al Orendorff, +1-804-662-2534
alfred.orendorff@genworth.com, all of Genworth Financial, Inc.
Web site: http://www.genworth.com
(GNW)
