RICHMOND, Va., July 29 /PRNewswire-FirstCall/ -- Genworth Financial, Inc.
(NYSE: GNW) today reported a loss from continuing operations for the second
quarter of 2008 of $109 million, or $0.25 per diluted share, compared with
income of $321 million, or $0.72 per diluted share, in the second quarter of
2007. Net operating income for the second quarter of 2008 was $212 million,
or $0.49 per diluted share, compared to net operating income of $351 million,
or $0.78 per diluted share, in the second quarter of 2007.
Three months ended June 30 (Unaudited)
2008 2007
Per Per
diluted diluted
Total share Total share
(Amounts in millions, except
per share)
Income (loss) from
continuing operations ($109) ($0.25) $321 $0.72
Net income (loss) ($109) ($0.25) $379 $0.84
Net operating income(1) $212 $0.49 $351 $0.78
Weighted average diluted
shares 432.9 449.0
(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.
Second quarter net investment losses of $321 million, net of tax and
amortization of deferred acquisition costs (DAC), included $144 million of
credit and/or cash flow related impairments, net of tax, and $215 million of
impairments related to a change of intent to hold securities to recovery. Of
total impairments, $326 million related to sub-prime and Alt-A residential
mortgage and asset-backed securities. The company also had $17 million of net
realized gains from asset sales, mainly related to portfolio repositioning
activities.
Accounting Principles Board (APB) Opinion No. 28, Interim Financial
Reporting, requires that tax benefits be recorded during the year in
proportion to pre-tax income. As a result, the higher level of investment
losses during the quarter delayed tax benefits on operating income that would
otherwise have been recognized in the second quarter. Absent this effect,
operating income for the quarter would have increased $40 million, or $0.09
per diluted share. On a full year basis, Genworth's effective tax rate on
operating income is expected to be between 26 and 27 percent.
"We are affirming our outlook for full year 2008 operating earnings per
diluted share in the $2.25-$2.65 range. We continue to manage through a
difficult environment in the U.S. housing and financial markets," said Michael
D. Fraizer, Chairman and CEO. "We are actively mitigating risk in U.S.
Mortgage Insurance as we build a strong 2008 book based on stringent
guidelines and higher prices. We are prudently growing our high return
international lines, and driving financial flexibility with several on-going
capital efficiency projects. With these strategies in place, we remain
comfortable with our capital position, including ending the year with strong
risk-based capital ratios and risk-to-capital metrics, and have no current
plans to raise equity capital."
Segment Results
Net operating income (loss) 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 second
quarter of 2008 was a favorable $19 million.
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.
Retirement and Protection
Retirement and Protection
Net Operating Income
(in millions) Q2 08 Q2 07
Wealth Management $11 $11
Retirement Income
Fee-Based 6 17
Spread-Based 7 26
Life Insurance 87 75
Long Term Care 34 41
Institutional 5 10
Total Retirement and Protection $150 $180
Sales
(in millions) Q2 08 Q2 07
Wealth Management
Gross Flows $1,405 $1,759
Net Flows 361 1,265
Retirement Income
Fee-Based 705 628
Spread-Based 448 354
Life Insurance 85 85
Long Term Care 66 54
Institutional 934 1,007
Assets Under Management (AUM)(2)
(in millions) Q2 08 Q2 07
Wealth Management $20,285 $20,683
Retirement Income Fee-Based 7,959 5,867
Total Fee-Based 28,244 26,550
Retirement Income Spread-Based 20,018 20,341
Institutional 10,773 11,515
Total Spread-Based 30,791 31,856
Total Assets Under Management $59,035 $58,406
(2) Assets under management represent account values, net of reinsurance,
and managed third party assets.
Retirement and Protection earnings declined $30 million to $150 million,
primarily from reduced investment income and increased life reserve funding
costs. In addition, $15 million of net tax benefits from favorable examination
developments were more than offset by $16 million related to a tax timing
difference recorded under APB No. 28. Investment income declined, reflecting
reduced bond calls and prepayments, negative limited partnership valuation
marks and lower short-term yields. The full year effective tax rate on
operating income for Retirement and Protection is anticipated to be between 30
and 34 percent.
Wealth management earnings were stable at $11 million despite equity
market declines. AUM was down slightly to $20.3 billion as net flows of $361
million were more than offset by a $537 million decline from market
performance.
Retirement income fee-based earnings decreased $11 million due to a $4
million decline in third party service fees, a $3 million decline related to
tax timing differences under APB No. 28 and the balance attributed to a
refinement of a prior period dividends received deduction estimate and a
change in financial presentation to net living benefit fees to account for
hedging related costs. Adjusting for these items, fee-based quarterly
earnings growth was consistent with growth in separate account assets. Income
distribution series product sales increased 24 percent from expanded
distribution reach coupled with higher producer productivity.
Retirement income spread-based earnings declined to $7 million, as a
result of $12 million related to tax timing differences under APB No. 28 and
$7 million of lower investment income associated with shortened asset duration
and lower short-term rates. Sales increased 27 percent to $448 million driven
by growth in fixed deferred annuities from increased wholesaler productivity.
Life insurance earnings increased 16 percent primarily from $16 million in
more favorable taxes and strong mortality experience, partially offset by
higher life reserve funding costs. Universal life sales grew seven percent as
annualized first year premiums declined slightly and excess deposits grew 12
percent. Term life sales decreased 14 percent, reflecting intense pricing
competition.
Long term care earnings were $34 million compared with $41 million a year
ago. The prior year included $9 million of investment income from a bond call
compared to none in the current quarter. Results in the quarter reflected a
combination of new business growth, lower expenses, higher terminations and
claims development in older blocks. Total long term care sales increased 22
percent from strong Medicare supplement and individual long term care sales,
with growth in the career channel, offset partially by lower sales in the
independent channel.
International
International
Net Operating Income
(in millions) Q2 08 Q2 07
Mortgage Insurance (MI)
Canada $83 $59
Australia 50 44
Other International 1 4
Payment Protection 49 35
Total International $183 $142
International
Sales
(in billions) Q2 08 Q2 07
Mortgage Insurance
Flow
Canada $7.5 $9.6
Australia 10.0 11.6
Other International 2.1 5.1
Bulk
Canada 0.8 11.9
Australia 0.6 5.9
Other International 0.5 0.4
Total International MI $21.5 $44.5
Payment Protection $0.7 $0.9
Total International earnings increased 15 percent to $183 million. These
results reflect growth in Canada and Australia mortgage insurance and in
payment protection.
In Canada, earnings grew 29 percent from strong earned premium growth
related to in-force book seasoning, offset by a modest increase in losses. The
loss ratio declined sequentially from the first quarter from 26 percent to 21
percent and remains below long-term pricing expectations.
In Australia, earnings were $50 million, reflecting earned premium growth
related to in-force book seasoning and a modest decline in losses, partially
offset by slightly higher expenses. Earnings in the prior year included $5
million from a combination of accelerated premiums from higher policy
cancellations and additional tax favorability that did not recur. The loss
ratio declined six points to 41 percent, compared to a year ago, and was flat
sequentially.
Other international mortgage insurance earnings were $1 million, $3
million below the prior year primarily due to higher losses in Spain.
Slowing global mortgage originations, coupled with selective risk
management actions, resulted in a decline in flow new insurance written in
most international markets. In Canada and Australia, flow new insurance
written decreased 28 percent and 24 percent, respectively. In addition, the
decrease in global mortgage securitizations resulted in limited bulk sales in
both Canada and Australia. Other international sales dropped to $2.6 billion,
reflecting a prudent approach to new markets and curtailing new business in
Spain.
Payment protection earnings increased 26 percent to $49 million primarily
from business growth and a lower effective tax rate, partially offset by
investments in new markets. Total payment protection sales declined to $721
million, primarily from lower sales of structured products. Sales in
established regions, outside of the U.K. and Ireland, grew seven percent. In
the U.K. and Ireland, sales declined reflecting declining levels of consumer
lending.
U.S. Mortgage Insurance
U.S. Mortgage Insurance
(in millions) Q2 08 Q2 07
Net Operating Income (Loss) $(59) $66
Primary Insurance In Force $174.9 $135.5
(in billions)
Primary Risk In Force $36.0 $25.7
(in billions)
Primary Sales
(in billions)
Flow $14.0 $10.8
Bulk 0.4 11.1
Total Primary Sales $14.4 $21.9
U.S. Mortgage Insurance had a $59 million net operating loss in the
quarter as 28 percent earned premium growth was more than offset by higher
incurred losses.
The gross increase in U.S. mortgage insurance reserves was $312 million
before taxes, and was offset by $110 million of benefit from captive
reinsurance. Net reserves increased $202 million primarily from increased
delinquency counts and reserve strengthening concentrated in Florida,
California, Arizona and Nevada and in the 2006 and 2007 book years. More than
80 percent of the reserve increase was related to mortgages in these four
states.
Paid claims were $92 million, before taxes, an increase of $51 million
versus the second quarter of 2007 and $8 million, sequentially. The average
paid claim was $42,900, up from $32,500 a year ago, reflecting higher loan
balances in recent book years and a shift in claims to higher loan balance
states.
Loss mitigation activities have increased significantly driven by the
corresponding increase in delinquencies. The company completed nearly 3,000
workouts, modifications and pre-claim sales during the quarter. Additionally,
investigations and audits of emerging delinquencies in the second quarter
resulted in an increase in rescissions due to misrepresentation, ineligibility
and policy exclusions.
Flow new insurance written increased 30 percent to $14.0 billion from an
increase in market share, partially offset by a decline in the overall size of
the mortgage insurance market. Underwriting and guideline changes for risk
management effectively limited sales of alternative products such as Alt-A and
A minus loans, which represented only one percent of new insurance written
during the quarter.
The price increase announced in April was successfully implemented in
July, raising prices by more than 20 percent. Based on revised Government
Sponsored Entity (GSE) requirements effective in June, excess of loss captive
reinsurance limits have been reduced to a maximum 25 percent cede on new
business, which will increase earned premiums going forward. Flow persistency
remained strong, rising to 85 percent.
Corporate and Other
Corporate and Other (in millions) Q2 08 Q2 07
Net Operating Loss $(62) $(37)
The Corporate and Other net operating loss of $62 million was $25 million
higher primarily due to higher current period tax expense timing impacts.
Investments
Second quarter net investment losses of $321 million, net of tax and
amortization of DAC, included $144 million of credit and/or cash flow related
impairments, net of tax, and $215 million of impairments related to a change
of intent to hold securities to recovery. Of total impairments, $326 million
related to sub-prime and Alt-A residential mortgage and asset-backed
securities, with the majority currently rated below single-A. The company
also had $17 million of net realized gains from asset sales, mainly related to
portfolio repositioning activities.
Bond calls and mortgage loan prepayments were $7 million, net of tax and
DAC, in the quarter, compared with $13 million a year ago. Limited partnership
income (loss) was $(7) million compared with $3 million a year ago.
Stockholders' Equity
Stockholders' equity as of June 30, 2008 was $12.3 billion, or $28.52 per
share, compared with $13.0 billion, or $29.30 per share, as of June 30, 2007.
Stockholders' equity, excluding accumulated other comprehensive income (loss),
as of June 30, 2008 was $12.6 billion, or $29.14 per share, compared with
$12.4 billion, or $28.05 per share, as of June 30, 2007.
About Genworth Financial
Genworth Financial, Inc. (NYSE: GNW) is a leading public Fortune 500
global financial security company. Genworth has $114 billion in assets and
employs approximately 7,000 people in 25 countries. Its products and services
help meet the investment, protection, retirement and lifestyle needs of over
15 million customers. Genworth operates through three segments: Retirement
and Protection, International and U.S. Mortgage Insurance. Its products and
services are offered through financial intermediaries, advisors, independent
distributors and sales specialists. Genworth Financial, which traces its
roots back to 1871, became a public company in 2004 and is headquartered in
Richmond, Virginia. For more information, visit genworth.com.
Conference Calls and Financial Supplement Information
This press release with the expanded tables and the abbreviated
statistical supplement are now posted on the company's website. The timing of
the finalization of investment items impacted the production of the second
quarter 2008 financial supplement, which will be available on the company's
website on August 1. Investors are encouraged to review all of these
materials.
Genworth will conduct a conference call on July 30 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
July 30 conference call is 877 545.1491 or 719 325.4943 (outside the U.S.),
passcode 1536784. 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 888 203.1112 or 719 457.0820 (outside the U.S.)
passcode 1536784. The replay will be available through August 13, 2008.
Use of Non-GAAP Measures
This press release includes the non-GAAP financial measure entitled "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 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 impairments, changes in intent to hold securities to recovery
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 (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) in accordance
with GAAP, the company believes that net operating income (loss), and measures
that are derived from or incorporate net operating income (loss), 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 (loss) should not be viewed as a substitute for GAAP net
income (loss). In addition, the company's definition of net operating income
(loss) may differ from the definitions used by other companies. There were no
infrequent or unusual non-operating items excluded from net operating income
(loss) for the periods presented in this press release. The tables at the end
of this press release reflect 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 (loss) income for the three months ended
June 30, 2008 and 2007.
Due to the unpredictable nature of the items excluded from the company's
definition of net operating income (loss), the company is unable to reconcile
its outlook for net operating income (loss) to net income (loss) 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 the wealth management 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 measures of the company's operating
performance because they represent measures of new sales of insurance policies
or contracts during a specified period, rather than measures of the company's
revenues or profitability during that period.
Management regularly monitors and reports assets under management for the
wealth management business. Assets under management for the wealth management
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 wealth management business to be
measures of the company's operating performance because they represent
measures of the size of the business at a specific date, rather than measures
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,
downgrades in the company's financial strength or credit ratings,
insufficiency of reserves, legal constraints on dividend distributions by
subsidiaries, intense competition, availability and adequacy of reinsurance,
defaults by counterparties, legal or regulatory investigations or actions,
political or economic instability, regulatory restrictions on the company's
operations and changes in applicable laws and regulations, 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 disease pandemic;
-- Risks relating to the company's Retirement and Protection segment,
including 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 an announced rate increase 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 delinquency 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 increases in mortgage insurance delinquency rates or severity of
defaults, deterioration in economic conditions or a decline in home price
appreciation, 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 alternatives to private mortgage
insurance (such as simultaneous second mortgages) and reductions by lenders in
the level of coverage they select, 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 General Electric Company
(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
June 30,
2008 2007
Revenues:
Premiums $1,709 $1,549
Net investment income 953 1,024
Net investment gains (losses) (518) (51)
Insurance and investment product fees and other 254 243
Total revenues 2,398 2,765
Benefits and expenses:
Benefits and other changes in policy reserves 1,386 1,090
Interest credited 320 391
Acquisition and operating expenses, net of
deferrals 551 495
Amortization of deferred acquisition costs and
intangibles 209 207
Interest expense 110 124
Total benefits and expenses 2,576 2,307
Income (loss) from continuing operations before income
taxes (178) 458
Provision (benefit) for income taxes (69) 137
Income (loss) from continuing operations (109) 321
Income from discontinued operations, net of taxes - 5
Gain on sale of discontinued operations, net of
taxes - 53
Net income (loss) $(109) $379
Earnings (loss) from continuing operations per common
share:
Basic $(0.25) $0.73
Diluted $(0.25) $0.72
Earnings (loss) per common share:
Basic $(0.25) $0.86
Diluted $(0.25) $0.84
Weighted-average common shares outstanding:
Basic 432.9 439.4
Diluted 432.9 449.0
Reconciliation of Net Operating Income to Net Income (Loss)
(Amounts in millions, except per share amounts)
Three months ended
June 30,
2008 2007
Net operating income:
Retirement and Protection segment $150 $180
International segment 183 142
U.S. Mortgage Insurance segment (59) 66
Corporate and Other (62) (37)
Net operating income 212 351
Net investment gains (losses), net of taxes and
other adjustments (321) (30)
Income (loss) from continuing operations (109) 321
Income from discontinued operations, net of taxes - 5
Gain on sale of discontinued operations, net of taxes - 53
Net income (loss) $(109) $379
Earnings (loss) per common share:
Basic $(0.25) $0.86
Diluted $(0.25) $0.84
Net operating earnings per common share:
Basic $0.49 $0.80
Diluted $0.49 $0.78
Weighted-average common shares outstanding:
Basic 432.9 439.4
Diluted 432.9 449.0
Net Operating Income by Segment - Retirement and Protection
(Amounts in millions)
Retirement and Protection
Long-term
Three months ended Wealth Retirement Instit- Life Care
June 30, 2008 Management Income utional Insurance Insurance Total
Revenues:
Premiums $- $111 $- $250 $524 $885
Net investment
income 1 291 100 148 215 755
Net investment
gains (losses) - (105) (303) (80) (23) (511)
Insurance and
investment
product fees
and other 85 54 - 89 6 234
Total revenues 86 351 (203) 407 722 1,363
Benefits and expenses:
Benefits and other
changes in policy
reserves - 191 - 208 531 930
Interest credited - 129 86 60 45 320
Acquisition and
operating expenses,
net of deferrals 67 42 2 34 84 229
Amortization of
deferred
acquisition costs
and intangibles 1 28 1 39 31 100
Interest expense - 1 - 38 - 39
Total benefits
and expenses 68 391 89 379 691 1,618
Income (loss) from
continuing
operations before
income taxes 18 (40) (292) 28 31 (255)
Provision (benefit)
for income taxes 7 - (101) (6) 12 (88)
Income (loss) from
continuing
operations 11 (40) (191) 34 19 (167)
Adjustment to income
(loss) from
continuing
operations:
Net investment
(gains) losses,
net of taxes and
other adjustments - 53 196 53 15 317
Net operating income $11 $13 $5 $87 $34 $150
Retirement and Protection
Long-term
Three months ended Wealth Retirement Instit- Life Care
June 30, 2007 Management Income utional Insurance Insurance Total
Revenues:
Premiums $- $151 $- $238 $498 $887
Net investment
income 1 315 167 164 213 860
Net investment
gains (losses) - (22) (6) (7) (10) (45)
Insurance and
investment product
fees and other 81 46 - 95 5 227
Total revenues 82 490 161 490 706 1,929
Benefits and
expenses:
Benefits and other
changes in policy
reserves - 221 - 202 494 917
Interest credited - 142 149 62 38 391
Acquisition and
operating expenses,
net of deferrals 65 37 2 31 87 222
Amortization of
deferred
acquisition costs
and intangibles - 41 1 36 34 112
Interest expense - 1 - 50 - 51
Total benefits
and expenses 65 442 152 381 653 1,693
Income (loss) from
continuing
operations before
income taxes 17 48 9 109 53 236
Provision for
income taxes 6 16 3 39 19 83
Income (loss) from
continuing
operations 11 32 6 70 34 153
Adjustment to income
(loss) from
continuing
operations:
Net investment
(gains) losses,
net of taxes and
other adjustments - 11 4 5 7 27
Net operating income $11 $43 $10 $75 $41 $180
Net Operating Income by Segment - International
(Amounts in millions)
International
Mortgage Mortgage Other Payment
Three months ended Insurance Insurance Mortgage Protection
June 30, 2008 - Canada - Australia Insurance Insurance Total
Revenues:
Premiums $ 139 $85 $29 $375 $628
Net investment income 50 38 9 51 148
Net investment gains
(losses) 26 - - (1) 25
Insurance and investment
product fees and other - 1 - 6 7
Total revenues 215 124 38 431 808
Benefits and expenses:
Benefits and other
changes in policy reserves 30 35 19 76 160
Acquisition and operating
expenses, net of deferrals 22 18 17 216 273
Amortization of deferred
acquisition costs and
intangibles 9 6 2 80 97
Interest expense - - - 8 8
Total benefits and
expenses 61 59 38 380 538
Income from continuing
operations before income
taxes 154 65 - 51 270
Provision (benefit) for
income taxes 54 15 (1) 3 71
Income from continuing
operations 100 50 1 48 199
Adjustment to income
from continuing operations:
Net investment (gains)
losses, net of taxes
and other adjustments (17) - - 1 (16)
Net operating income $83 $50 $1 $49 $183
Net operating income
adjusted for foreign
exchange $76 $43 $1 $44 $164
International
Mortgage Mortgage Other Payment
Three months ended Insurance Insurance Mortgage Protection
June 30, 2007 - Canada - Australia Insurance Insurance Total
Revenues:
Premiums $ 94 $72 $29 $314 $509
Net investment income 31 31 7 44 113
Net investment gains
(losses) - (2) (1) (2) (5)
Insurance and investment
product fees and other - - - 7 7
Total revenues 125 101 35 363 624
Benefits and expenses:
Benefits and other
changes in policy reserves 16 34 11 51 112
Acquisition and operating
expenses, net of deferrals 15 13 18 183 229
Amortization of deferred
acquisition costs and
intangibles 5 5 1 75 86
Interest expense - - - 10 10
Total benefits and
expenses 36 52 30 319 437
Income from continuing
operations before income
taxes 89 49 5 44 187
Provision for income taxes 30 7 1 10 48
Income from continuing
operations 59 42 4 34 139
Adjustment to income
from continuing operations:
Net investment (gains)
losses, net of taxes and
other adjustments - 2 - 1 3
Net operating income $59 $44 $4 $35 $142
Net Operating Income by Segment - U.S. Mortgage Insurance and Corporate and
Other
(Amounts in millions)
U.S. Mortgage Corporate
Three months ended June 30, 2008 Insurance and Other
Revenues:
Premiums $190 $6
Net investment income 36 14
Net investment gains (losses) 1 (33)
Insurance and investment product fees and other 11 2
Total revenues 238 (11)
Benefits and expenses:
Benefits and other changes in policy reserves 295 1
Acquisition and operating expenses, net of
deferrals 36 13
Amortization of deferred acquisition costs
and intangibles 11 1
Interest expense - 63
Total benefits and expenses 342 78
Income (loss) from continuing operations
before income taxes (104) (89)
Provision (benefit) for income taxes (45) (7)
Income (loss) from continuing operations (59) (82)
Adjustment to income (loss) from continuing
operations:
Net investment (gains) losses, net of taxes
and other adjustments - 20
Net operating income (loss) $(59) $(62)
U.S. Mortgage Corporate
Three months ended June 30, 2007 Insurance and Other
Revenues:
Premiums $148 $5
Net investment income 36 15
Net investment gains (losses) - (1)
Insurance and investment product fees and other 10 (1)
Total revenues 194 18
Benefits and expenses:
Benefits and other changes in policy reserves 60 1
Acquisition and operating expenses,
net of deferrals 34 10
Amortization of deferred acquisition costs and
intangibles 8 1
Interest expense - 63
Total benefits and expenses 102 75
Income (loss) from continuing operations
before income taxes 92 (57)
Provision (benefit) for income taxes 26 (20)
Income (loss) from continuing operations 66 (37)
Adjustment to income (loss) from continuing
operations:
Net investment (gains) losses, net of taxes and
other adjustments - -
Net operating income (loss) $66 $(37)
Consolidated Balance Sheets
(Amounts in millions)
June 30, December 31,
2008 2007
Assets
Investments:
Fixed maturity securities available-
for-sale, at fair value $51,887 $55,154
Equity securities available-for-sale,
at fair value 409 366
Commercial mortgage loans 8,573 8,953
Policy loans 1,806 1,651
Other invested assets 4,614 4,676
Total investments 67,289 70,800
Cash and cash equivalents 5,861 3,091
Accrued investment income 679 773
Deferred acquisition costs 7,530 7,034
Intangible assets 991 914
Goodwill 1,618 1,600
Reinsurance recoverable 16,571 16,483
Other assets 1,320 822
Separate account assets 12,356 12,798
Total assets $114,215 $114,315
Liabilities and stockholders' equity
Liabilities:
Future policy benefits $27,529 $26,740
Policyholder account balances 36,842 36,913
Liability for policy and contract claims 4,418 3,693
Unearned premiums 5,758 5,631
Other liabilities 6,093 6,255
Non-recourse funding obligations 3,455 3,455
Short-term borrowings 200 200
Long-term borrowings 4,531 3,903
Deferred tax liability 688 1,249
Separate account liabilities 12,356 12,798
Total liabilities 101,870 100,837
Stockholders' equity:
Common stock 1 1
Additional paid-in capital 11,482 11,461
Accumulated other comprehensive income (loss):
Net unrealized investment gains (losses) (1,723) (526)
Derivatives qualifying as hedges 548 473
Foreign currency translation and other
adjustments 904 780
Total accumulated other comprehensive
income (loss) (271) 727
Retained earnings 3,833 3,913
Treasury stock, at cost (2,700) (2,624)
Total stockholders' equity 12,345 13,478
Total liabilities and stockholders'
equity $114,215 $114,315
Net Investment Gains (Losses), Net of Taxes and Other Adjustments
(Amounts in millions)
Impairments (After-Tax)
Credit
and Cash Change in Total
Three months ended June 30, 2008 Flow Related Intent After-Tax
Alt-A residential mortgage-backed
securities $(60) $(55) $(115)
Sub-prime residential mortgage-backed
securities (52) (159) (211)
Prime residential mortgage-backed
securities (8) (1) (9)
Corporates and other (24) - (24)
Total impairments $(144) $(215) (359)
Total net realized gains (losses) 17
Other 6
Net investment gains (losses), net of
taxes (336)
DAC and other intangible amortization
related to net investment gains (losses) 15
Net investment gains (losses), net of
taxes and other adjustments $(321)
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, Tom Topinka, +1-804-662-2444
thomas.topinka@genworth.com
Web site: http://www.genworth.com
(GNW)
