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Three months ended March 31, (Unaudited)
2005 2004 2004 Pro Forma
Per Per Per
diluted diluted diluted
Total share Total share Total share
(Amounts in millions,
except per share)
Net earnings from
continuing operations $322 $0.65 $260 $0.53 $254 $0.52
Net operating earnings $326 $0.66 $250 $0.51 $244 $0.50
RICHMOND, Va., April 28 /PRNewswire-FirstCall/ -- Genworth Financial, Inc.
(NYSE: GNW) today reported net earnings from continuing operations for the
first quarter of 2005 of $322 million, or $0.65 per diluted share. Net
earnings from continuing operations for the first quarter of 2004 were $260
million, or $0.53 per diluted share.
Net operating earnings for the first quarter of 2005 were $326 million, or
$0.66 per diluted share, compared with pro forma net operating earnings of
$244 million or $0.50 per diluted share in the first quarter of 2004.
Net operating earnings consist of net earnings from continuing operations,
excluding after-tax net realized investment losses of $4 million in the first
quarter of 2005. Pro forma net operating earnings consist of pro forma net
earnings from continuing operations excluding after-tax net realized
investment gains of $10 million in the first quarter of 2004.
Management believes that the presentation of net operating earnings
enhances understanding and comparability of performance by highlighting
underlying business activity and profitability drivers. However, net
operating earnings should not be viewed as a substitute for net earnings
prepared under U.S. generally accepted accounting principles (GAAP).
In connection with the company's initial public offering (IPO) completed
on May 28, 2004, a corporate reorganization was effected that included a
series of significant reinsurance, recapitalization and separation
transactions. The company is presenting pro forma financial information for
2004 that reflects those transactions to enable a more meaningful comparison
of its period-to-period results. Except as specifically noted, all performance
comparisons that follow in this earnings release represent 2005 results as
compared with pro forma 2004 results. (Please refer to the disclosure at the
end of this release for a discussion of the basis on which financial
information is presented in this release.)
"We are pleased with the first quarter results," said Michael D. Fraizer,
chairman and chief executive officer. "Genworth had double digit operating
earnings growth across its three primary segments, including robust
performance in international mortgage insurance, strong asset growth across
the product lines and increasing momentum in term and universal life sales.
Combined with execution on our capital re-deployment strategy through a $500
million share buy-back, we have made clear progress toward achieving our 2005
operating goals."
Key First Quarter Highlights
- A secondary offering of 80.5 million Genworth Class A shares, at $26.50
per share, was completed on March 30, 2005. Concurrently, Genworth
repurchased 19.4 million Class B shares at the net offering price of
$25.81, effectively redeploying $500 million of excess capital. These
transactions collectively reduced the ownership of our majority
shareholder, General Electric, to 52 percent.
- In the Protection segment, term life sales were up 12 percent to $29
million and were also up 7 percent sequentially, reflecting continued
competitive pricing, expanded distribution and service initiatives.
Universal life (UL) sales increased 18 percent to $13 million compared
with the prior year and 8 percent sequentially, primarily from expansion
of our offerings. Payment protection insurance (PPI) sales grew 29
percent to $453 million compared with the first quarter of 2004 from
increased activation of new clients and strengthened relationships with
existing clients across its markets. Excluding the impact of favorable
foreign currency exchange (FX), PPI sales grew 21 percent.
- Retirement Income and Investments' (RI&I) sales of income distribution
series products(1) more than doubled over the prior year quarter to $86
million and were in line with the fourth quarter of 2004. Fee-based
assets under management increased by 37 percent to $5.7 billion(2)
reflecting increased distribution and product breadth.
- Mortgage Insurance (MI) continued its international expansion, with
international new insurance written (NIW) up 30 percent over the prior
year quarter to $14.2 billion. Excluding the impact of favorable FX,
new insurance written grew 25 percent primarily driven by increased
account penetration in Australia and Canada. Unearned premium reserves
grew to $1.6 billion at March 31, 2005.
"Last December, we set guidance in the $2.30 to $2.40 range for operating
earnings per diluted share, along with 30 to 50 basis points of operating ROE
progression," said Fraizer. "Given strong first quarter fundamental
performance, unusually low mortgage insurance delinquencies, our share
repurchase and favorable investment items during the quarter, we see
Genworth's 2005 operating performance firmly at the top end of the earnings
per share and ROE ranges before considering any further favorable investment
items, impacts from foreign exchange, or sustained mortgage delinquency
favorability."
(1) Income distribution series products are comprised of the company's
retirement income annuity product and two variable annuity riders that
provide similar income features. The term does not include immediate
annuities or fixed annuities, which also serve income distribution
needs but are reported separately in the company's financial
supplement.
(2) Assets under management represent account values, net of reinsurance,
and managed third party assets.
Consolidated Operating Results
Consolidated first quarter net operating earnings growth of 34 percent was
driven by strong increases in all three primary segments over the prior year
quarter, and included $5 million of favorable FX. Protection segment net
operating earnings increased 13 percent to $139 million compared with $123
million in the prior year quarter primarily from growth in the life business.
RI&I segment net operating earnings grew to $60 million in the current quarter
from $30 million in the first quarter of 2004. Growth was primarily from
higher assets under management and improved spreads. Mortgage Insurance
segment net operating earnings increased to $141 million from $103 million in
the first quarter of 2004 from continued strong international growth, lower
reported delinquencies in the U.S., higher international earned premiums from
the completion of a policy cancellation study, and $4 million of favorable FX.
Corporate and Other segment net operating losses increased $2 million to $14
million in the first quarter of 2005.
Segment net operating earnings presented below are equivalent to net
earnings for all segments except Corporate and Other. For a reconciliation of
the Corporate and Other segment net operating earnings to GAAP net earnings,
see the disclosure at the end of this release.
Segment Net Operating Earnings (Unaudited)
Protection Pro
Net operating earnings Forma
(in millions) Q1 05 Q1 04
Life $68 $57
Long-term care 42 39
Payment protection 22 20
Group 7 7
Total Protection $139 $123
Sales
(in millions) Q1 05 Q1 04
Life $42 $37
Long-term care 41 41
Payment protection 453 351
Group 30 26
Total Protection $566 $455
Protection segment net operating earnings increased to $139 million in the
current quarter from $123 million in the prior year, a 13 percent increase.
This growth was mostly driven by strong results in life insurance products.
Life net operating earnings increased 19 percent primarily from term growth
and in-force performance compared with the prior year quarter. Additionally,
spread improvement in UL was partially offset by unfavorable mortality during
the quarter. Long-term care (LTC) net operating earnings were up $3 million
to $42 million driven by favorable experience on blocks in which we have a
reinsurance interest. PPI net operating earnings were up 10 percent to $22
million reflecting new business growth.
Sales of term life were $29 million in the first quarter of 2005 compared
with $26 million in the comparable prior year period. This 12 percent growth
reflects the ongoing ability to leverage competitive pricing structures,
expanded distribution relationships and service initiatives. Universal life
sales were up 18 percent compared with the prior year quarter resulting from
expanded breadth in our product offerings. LTC sales were $41 million, flat
to both the prior year and prior quarter. PPI sales increased 29 percent to
$453 million in the first quarter of 2005 compared with the prior year.
Excluding the impact of FX, PPI sales were up 21 percent, reflecting strong
growth in new distribution relationships and increased penetration with
current clients. Group sales increased 15 percent compared with the prior
year.
Retirement Income & Investments Pro
Net operating earnings Forma
(in millions) Q1 05 Q1 04
Spread-based retail $34 $16
Fee-based 17 8
Spread-based institutional 9 6
Total RI&I $60 $30
Sales
(in millions) Q1 05 Q1 04
Spread-based retail $683 $762
Fee-based 590 601
Spread-based institutional 349 354
Total RI&I $1,622 $1,717
RI&I net operating earnings were $60 million for the first quarter of 2005
compared with $30 million in the prior year period. Spread-based retail net
operating earnings more than doubled to $34 million compared with $16 million
in the first quarter of 2004. Strong performance was driven by growth in
assets under management and improved spreads, which included $3 million higher
bond calls, prepayments and recoveries. Net operating earnings for fee-based
products increased to $17 million from $8 million in the prior year quarter
primarily from growth in assets under management, as well as lower expenses.
Spread-based institutional net operating earnings increased to $9 million in
the current quarter compared with $6 million in the prior year quarter from
improved spreads, which included $1 million higher bond calls and prepayments
in the current quarter.
First quarter 2005 sales of spread-based retail products declined 10
percent compared with the prior year driven primarily by continued pricing
discipline in fixed annuities and uneven flows in both immediate and
structured settlement annuity sales in the face of a low interest rate
environment. Compared with Q4 2004, sales in spread-based retail are up 14
percent. Sales of fee-based products were relatively flat compared with the
prior year quarter as growth in managed assets was offset by a decline in
traditional variable annuity sales. Sales of Genworth's income distribution
series products more than doubled to $86 million in the current period quarter
compared with the first quarter of 2004. Spread-based institutional product
sales were $349 million, about even with the prior year. Underlying this
performance is the positive mix shift we continue to see in this line of
business from older, low margin fixed contracts being replaced with new
agreements.
Mortgage Insurance Pro
Net operating earnings Forma
(in millions) Q1 05 Q1 04
International $69 $44
United States 72 59
Total Mortgage Insurance $141 $103
Sales
(in billions) Q1 05 Q1 04
International $14.2 $10.9
United States 5.7 6.8
Total Mortgage Insurance $19.9 $17.7
Mortgage Insurance net operating earnings increased substantially to $141
million in the first quarter of 2005 compared with $103 million in the prior
year quarter, a 37 percent increase. International net operating earnings
were $69 million compared with $44 million in the prior year quarter
reflecting strong revenue growth, continued low loss experience, and favorable
FX of $4 million. The current quarter results included $6 million of earnings
due to the completion of a policy cancellation study in Europe, resulting in a
release of unearned premiums to revenues. U.S. net operating earnings of $72
million were up 22 percent due to $9 million of lower losses, principally
driven by a decline in reported delinquencies. Operating expenses in the U.S.
business decreased by $4 million, reflecting primarily lower contract
underwriting volume and administrative costs compared with the prior year
quarter.
International new insurance written grew 30 percent to $14.2 billion,
including $0.6 billion related to FX. Growth was primarily from continued
increases of flow business sales in Australia and Canada, as well as increases
in selected Australian prime bulk sales. U.S. new insurance written was $5.7
billion in the current year quarter down from $6.8 billion in the prior year
quarter, a 16 percent decline. The decrease was driven by a smaller MI market
size offset by ongoing progress in driving new sales through our customer
segmentation strategy.
Corporate and Other Pro
(in millions) Forma
Q1 05 Q1 04
Net operating loss
($14) ($12)
The Corporate and Other segment had a net operating loss of $14 million in
the current quarter compared with a loss of $12 million in the prior year
quarter. This decline was driven by lower earnings in our Bermuda reinsurer
of $6 million and higher interest expense, partially offset by lower operating
expenses compared with the prior year.
Shareholders' equity at March 31, 2005 was $12.5 billion, or $26.62 per
share. Shareholders' equity, excluding accumulated other comprehensive
income, at March 31, 2005 was $11.1 billion. Book value per share, excluding
accumulated other comprehensive income, increased to $23.52 at March 31, 2005,
compared with $22.99 at December 31, 2004.
Earnings Conference Call Information
The company will hold a conference call on April 29, 2005 from 10 a.m. to
11 a.m. (EDT) to discuss first quarter results and business outlook.
Genworth's conference call will be accessible via telephone and the
Internet. This detailed earnings release and the first quarter financial
supplement are now available on the company's website. The conference call
materials will be available on the company's website just prior to the
conference call. Investors are encouraged to review all of these materials.
To access the web cast, go to http://www.genworth.com at least 15 minutes
prior to the event to register and download and install any necessary
software. To access the call by telephone, please dial 1-800-599-9795 (U.S.)
or 1-617-786-2905 (outside the U.S.) and enter the access code "Genworth" to
register. A replay of the call will be available from 1 p.m. EDT on April 29
through May 6, 2005 by dialing 1-888-286-8010 in the U.S. or 1-617-801-6888
(outside the U.S.) and entering the access code 62549597. The call will also
be replayed at the company's website during this same time period.
Basis of Financial Information
As part of a corporate reorganization effected in connection with the
company's IPO, the company acquired substantially all of the assets and
liabilities of GE Financial Assurance Holdings, Inc. (GEFAHI), an indirect
subsidiary of GE. The company also acquired certain other insurance businesses
that were owned by other GE subsidiaries but managed by members of the
company's management team. In consideration for the assets that the company
acquired and the liabilities that the company assumed, the company issued
various equity and debt securities to GEFAHI.
The company has prepared its financial information as if the company had
been in existence throughout all relevant periods. The financial information
through the date of the corporate reorganization (May 24, 2004) includes all
businesses that were owned by GEFAHI, including those that were not
transferred to the company, as well as the other insurance businesses that the
company acquired from other GE subsidiaries in connection with the corporate
reorganization. As a result, the company's financial information for periods
prior to the corporate reorganization is not comparable to financial
information for periods ending after that date.
Prior to the completion of the IPO, the company entered into several
significant reinsurance transactions with Union Fidelity Life Insurance
Company (UFLIC), an indirect subsidiary of GE. As part of these transactions,
the company ceded to UFLIC, effective as of January 1, 2004, policy
obligations under all of its in-force structured settlement contracts, which
had reserves of $12.0 billion, and substantially all of its in-force variable
annuity contracts, which had general account reserves of $2.8 billion and
separate account reserves of $7.9 billion, each as of December 31, 2003. These
contracts represent substantially all of the company's contracts that were in
force as of December 31, 2003 for these products. In addition, effective as of
January 1, 2004, the company ceded to UFLIC policy obligations under a block
of long-term care insurance policies, which had reserves of $1.5 billion as of
December 31, 2003. As part of the reinsurance transactions, UFLIC ceded to the
company in-force blocks of Medicare supplement insurance, which had reserves
of $19 million.
The unaudited pro forma financial information for 2004 contained in this
press release reflects the company's historical financial information as
adjusted to give effect to the transactions described below and certain other
transactions as if each had occurred as of January 1, 2004. The following
transactions are reflected in the unaudited pro forma financial information:
- the removal of certain businesses of GEFAHI that were not transferred to
the company in connection with the corporate reorganization;
- the reinsurance transactions with UFLIC;
- the issuance of equity and debt securities to GEFAHI in exchange for the
assets that the company acquired and the liabilities that the company
assumed in connection with the corporate reorganization; and
- the issuance and sale of $1.9 billion of senior notes and $500 million
of commercial paper and the application of the proceeds therefrom.
The unaudited pro forma financial information is based upon available
information and assumptions that the company believes are reasonable. The
unaudited pro forma financial information is for illustrative and
informational purposes only and is not intended to represent or be indicative
of what the company's financial condition or results of operations would have
been had the transactions described above occurred on the dates indicated, nor
what they may be in the future.
Use of Non-GAAP Measures
This press release includes the non-GAAP financial measure entitled "net
operating earnings." The company defines net operating earnings as net
earnings from continuing operations, excluding after-tax net realized
investment gains and losses (which can fluctuate significantly from period to
period), changes in accounting principles and non-recurring, infrequent or
unusual items. There were no non-recurring, infrequent or unusual items
excluded from net operating earnings for the periods presented in this press
release.
Management believes that analysis of net operating earnings enhances
understanding and comparability of performance by highlighting underlying
business activity and profitability drivers. However, net operating earnings
should not be viewed as a substitute for GAAP net earnings. In addition, the
company's definition of net operating earnings may differ from the definitions
used by other companies. The table at the end of this press release provides a
reconciliation of net earnings to net operating earnings (as defined above)
for the three months ended March 31, 2005 and 2004 and to pro forma net
operating earnings for the three months ended March 31, 2004.
Due to the unpredictable nature of the items excluded from the company's
definition of net operating earnings, the company is unable to reconcile its
outlook for net operating earnings to net earnings from continuing operations
presented in accordance with GAAP.
This press release also includes the non-GAAP financial measure entitled
"operating ROE." The company defines operating ROE as net operating earnings
divided by average stockholders' interest, excluding accumulated non-owner
changes in average stockholders' interest (commonly referred to as accumulated
other comprehensive income (AOCI)). Management believes that analysis of
operating ROE enhances understanding of the efficiency with which the company
deploys its capital. However, operating ROE as defined by the company should
not be viewed as a substitute for GAAP net earnings divided by average
stockholders' interest. Due to the unpredictable nature of net operating
earnings and average stockholders' interest excluding AOCI, the company is
unable to reconcile its outlook for operating ROE to GAAP net earnings divided
by average stockholders' interest.
All net realized investment gains (losses) are reflected in the Corporate
and Other segment and are not reflected in the results of any of the company's
other segments. As a result, the segment results contained in this press
release are presented on a net operating earnings basis, which is the same as
net earnings from continuing operations before accounting change under GAAP
for all segments, except Corporate and Other segment. For a reconciliation of
net operating earnings for Corporate and Other segment to net earnings
presented in accordance with GAAP, see the table at the end of this press
release. The term "net operating loss" as used in this press release is also a
non-GAAP financial measure and has an analogous meaning to "net operating
earnings."
Definition of Sales
The term "sales" as used in this press release means (1) annualized first-
year premiums for term life insurance, long-term care insurance, and group
life and health insurance; (2) new premiums/deposits for universal life
insurance, spread-based and variable products; (3) new deposits for managed
assets; (4) written premiums gross of reinsurance and cancellations for PPI;
and (5) new insurance written for mortgage insurance, which in each case
reflects the amount of business the company generated during each period
presented. Sales do not include renewal premiums on policies or contracts
written during prior periods. The company considers annualized first-year
premiums, deposits, written premiums 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.
This operating measure enables 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, including the following:
- Risks relating to the company's businesses, including interest rate
fluctuations, downturns and volatility in equity markets, defaults in
portfolio securities, downgrades in the company's financial strength and
credit ratings, unexpected changes in mortality and morbidity rates,
accelerated amortization of deferred acquisition costs and present value
of future profits, impairment of the value of goodwill, failure of
demand for long-term care insurance to increase as expected, decreases
in the volume of mortgage originations, increases in mortgage insurance
cancellations, increases in the use of captive reinsurance in the
mortgage insurance market, the influence of large mortgage lenders and
investors, foreign exchange rate fluctuations, insufficiency of
reserves, legal constraints on dividend distributions by subsidiaries,
illiquid investments, competition, inability to attract or retain
independent sales intermediaries and dedicated sales specialists,
defaults by counterparties, regulatory restrictions on the company's
operations, changes in applicable laws and regulations, legal or
regulatory actions or investigations and increased regulatory scrutiny
into some aspects of the company's operations, political or economic
instability and the threat of terrorism; and
- Risks relating to the company's separation from GE, including the loss
of benefits associated with GE's brand and reputation, the company's
need to establish the new Genworth brand identity quickly and
effectively, the company's inability to present financial information in
SEC filings that accurately represents the results the company would
have achieved as a stand-alone company, the possibility that the company
will not be able to replace services previously provided by GE on
comparable terms, uncertainty of amounts and timing of payments that the
company has agreed to make to GE under the company's Tax Matters
Agreement and other matters relating to that agreement, potential
conflicts of interest with GE and GE's engaging in the same type of
business as the company does in the future.
The company undertakes no obligation to publicly update any forward-
looking statement, whether as a result of new information, future developments
or otherwise.
About Genworth Financial
Genworth is a leading insurance holding company, serving the lifestyle
protection, retirement income, investment and mortgage insurance needs of more
than 15 million customers, and has operations in 22 countries, including the
U.S., Canada, Australia, the U.K. and more than a dozen other European
countries. For more information, visit http://www.genworth.com.
STATEMENT OF EARNINGS INFORMATION
(Amounts in millions, except per share data)
Three months ended March 31,
Pro forma
2005 2004 2004
(Unaudited)
Revenues:
Premiums $1,605 $1,722 $1,619
Net investment income 851 1,037 753
Net realized investment (losses) gains (6) 16 15
Policy fees and other income 161 249 149
Total revenues 2,611 3,024 2,536
Benefits and expenses:
Benefits and other changes in policy reserves 1,075 1,351 1,080
Interest credited 340 396 323
Underwriting, acquisition and insurance
expenses, net of deferrals 408 508 413
Amortization of deferred acquisition costs and
intangibles 232 345 284
Interest expense 72 47 61
Total benefits and expenses 2,127 2,647 2,161
Earnings from continuing operations before
income taxes and accounting change 484 377 375
Provision for income taxes 162 117 121
Net earnings from continuing operations before
accounting change 322 260 $254
Gain on sale of discontinued operations, net of
taxes - 7
Net earnings before accounting change 322 267
Cumulative effect of accounting change, net of
taxes - 5
Net earnings $322 $272
Net earnings per common share:
Basic $0.66 $0.56
Diluted $0.65 $0.56
Weighted-average common shares outstanding:
Basic 488.8 489.5
Diluted 494.3 489.5
PRO FORMA FINANCIAL INFORMATION
(Amounts in millions, except per share data)
Three months ended March 31, 2004
Pro forma
adjustments- Pro forma Pro forma
excluded adjustments- adjustments-
assets and reinsurance capital Pro
Historical liabilities(a) transactions(b) structure(c) forma
(Unaudited)
Revenues:
Premiums $1,722 $(54) $(49) $- $1,619
Net investment
income 1,037 (18) (266) - 753
Net realized
investment
gains 16 (1) - - 15
Policy fees and
other income 249 (67) (33) - 149
Total revenues 3,024 (140) (348) - 2,536
Benefits and
expenses:
Benefits and
other changes
in policy
reserves 1,351 (49) (222) - 1,080
Interest
credited 396 - (73) - 323
Underwriting,
acquisition,
and insurance
expenses, net
of deferrals 508 (73) (22) - 413
Amortization of
deferred
acquisition
costs and
intangibles 345 (29) (32) - 284
Interest expense 47 - - 14 61
Total benefits
and expenses 2,647 (151) (349) 14 2,161
Earnings from
continuing
operations
before income
taxes and
accounting change 377 11 1 (14) 375
Provision for
income taxes 117 10 (1) (5) 121
Net earnings
from continuing
operations $260 $1 $2 $(9) $254
Net earnings from
continuing
operations per
common share:
Basic $0.53 $0.52
Diluted $0.53 $0.52
Weighted-Average
common shares
outstanding:
Basic 489.5 489.5
Diluted 489.5 489.5
Note: For a discussion of notes (a), (b), and (c) to these tables see
Notes to Pro Forma Financial Information
RECONCILIATION TO NET OPERATING EARNINGS
(Amounts in millions, except per share data)
Three months ended
March 31,
2005 2004
(Unaudited)
Net earnings $322 $272
Gain on sale of discontinued operations, net of taxes - (7)
Cumulative effect of accounting change, net of taxes - (5)
Net earnings from continuing operations before accounting
change 322 260
Net realized investment losses (gains), net of taxes 4 (10)
Net operating earnings $326 $250
Net earnings from continuing operations before accounting
change $260
Excluded assets and liabilities(a) 1
Reinsurance transactions(b) 2
Capital structure and other(c) (9)
Pro forma net earnings from continuing operations 254
Net realized investment gains, net of taxes (10)
Pro forma net operating earnings $244
Net earnings per common share:
Basic $0.66 $0.56
Diluted $0.65 $0.56
Net earnings from continuing operations before accounting
change per common share:
Basic $0.66 $0.53
Diluted $0.65 $0.53
Net operating earnings per common share:
Basic $0.67 $0.51
Diluted $0.66 $0.51
Pro forma net earnings from continuing operations per
common share:
Basic $0.52
Diluted $0.52
Pro forma net operating earnings per common share:
Basic $0.50
Diluted $0.50
Weighted-average common shares outstanding:
Basic 488.8 489.5
Diluted 494.3 489.5
Note: For a discussion of notes (a), (b), and (c) to these tables see
Notes to Pro Forma Financial Information
RECONCILIATION OF CORPORATE AND OTHER SEGMENT NET EARNINGS (LOSS) TO
NET OPERATING LOSS
(Amounts in millions)
Three months ended
March 31,
2005 2004
(Unaudited)
Segment net (loss) earnings from continuing operations $(18) $4
Net realized investment losses (gains), net of taxes 4 (10)
Segment net operating loss $(14) $(6)
Segment net earnings $4
Excluded assets and liabilities(a) (1)
Reinsurance transactions(b) 4
Capital structure and other(c) (9)
Pro forma segment net loss (2)
Net realized investment losses (gains), net of taxes (10)
Pro forma segment net operating loss $(12)
Note: For a discussion of notes (a), (b), and (c) to these tables see
Notes to Pro Forma Financial Information
Notes to Pro Forma Financial Information
(a) Reflects adjustments to exclude amounts included in the company's
historical earnings relating to (1) certain businesses (formerly
reported in the company's Affinity segment) and certain investment
partnerships, which in each case were not transferred to the company,
and (2) net realized investment (gains) losses and related tax
benefit arising from sales of Affinity segment assets that were
reflected in the company's Corporate and Other segment.
(b) Reflects adjustments to record the effects of the reinsurance
transactions the company entered into with, and the related
contribution the company made to UFLIC, an indirect subsidiary of GE.
As part of these transactions, the company ceded to UFLIC all of its
in-force structured settlement contracts, substantially all of its in-
force variable annuity contracts, and a block of long-term care
insurance policies that it reinsured from Travelers in 2000, and it
assumed from UFLIC a block of Medicare supplement insurance, all
effective as of January 1, 2004.
The unaudited pro forma financial information for 2004 gives effect to
the reinsurance transactions as if each had occurred as of January 1,
2004 and excludes the effects of all ceded reinsured contracts that
were issued before January 1, 2004. The company has continued to sell
variable annuities and structured settlements after completion of the
reinsurance transactions and is retaining that business for its own
account, subject to third party reinsurance in the ordinary course of
business. The company's pro forma statement of earnings for the three
months ended March 31, 2004 excludes the impact of the entire block of
long-term care insurance policies that the company ceded to UFLIC as
the company did not issue any new policies for this block in 2004, and
the company will not issue any in the future.
Under the reinsurance transactions, the company receives an expense
allowance to reimburse it for costs it incurs to service the reinsured
blocks. Actual costs and expense allowance amounts will be determined
by expense studies to be conducted periodically. The pro forma
adjustments have been prepared assuming that actual costs incurred
during the pro forma periods, as determined under the company's
historical cost structure and allocation methods, were reimbursed by
an expense allowance.
Concurrently with the reinsurance transactions, the company
contributed $1.836 billion of capital to UFLIC, which primarily
represented the excess statutory capital in the company's insurance
subsidiaries after giving effect to the reinsurance transactions. As a
significant portion of the assets transferred and contributed were not
owned for the entire period, the pro forma adjustments to reduce net
investment income and net realized investment gains were based upon a
proportional allocation of investment income from the investment
assets historically identified as (1) supporting the blocks of
business reinsured for the reinsurance, and (2) representing surplus
of subsidiaries providing assets that were contributed to UFLIC.
(c) Reflects adjustments for changes in the company's capitalization to
exclude the impact of commercial paper, short-term borrowings from GE
Capital and derivatives that were not transferred to the company in
connection with the corporate reorganization and to include the impact
of the issuance of $600 million of the company's 6.00% Equity Units
and $100 million of the company's 5.25% mandatory redeemable Series A
Cumulative Preferred Stock, both of which were completed on May 28,
2004, the issuance of 3, 5, 10 and 30 year notes totaling $1.9 billion
which was completed June 15, 2004, and the issuance of $500 million of
commercial paper which was completed June 14, 2004, as well as
interest expense related to the accretion of the company's obligation
to GE under the Tax Matters Agreement and the tax impacts resulting
from these changes in the company's capitalization.
SOURCE Genworth Financial, Inc.
CONTACT: Investors: Jean Peters, +1-804-662-2693,
jean.peters@genworth.com or Alicia Charity, +1-804-662-2248,
alicia.charity@genworth.com; or Media: Mike Kachel, +1-804-662-2534,
mike.kachel@genworth.com, all of Genworth Financial, Inc.
