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Three months ended June 30, (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 $285 $0.60 $268 $0.55 $259 $0.53
Net operating earnings $285 $0.60 $285 $0.58 $277 $0.57
Weighted average diluted
shares 477.4 490.1 490.1
RICHMOND, Va., July 28 /PRNewswire-FirstCall/ -- Genworth Financial, Inc.
(NYSE: GNW) today reported net earnings for the second quarter of 2005 of $285
million, or $0.60 per diluted share. Net earnings for the second quarter of
2004 were $268 million, or $0.55 per diluted share.
Net operating earnings for the second quarter of 2005 were $285 million,
or $0.60 per diluted share, compared to pro forma net operating earnings of
$277 million or $0.57 per diluted share in the second quarter of 2004.
Pro forma net operating earnings in the second quarter of 2004 consists of
pro forma net earnings excluding after-tax net realized investment gains of $4
million and a $22 million IPO-related tax charge.
Results for the second quarter of 2005 include $5 million of earnings from
favorable foreign exchange. Earnings in the current quarter also include $3
million of net bond calls and mortgage loan prepayments compared to $9 million
in the second 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, the company effected a corporate reorganization 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. (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 continue to gain momentum from our key initiatives around new
products, expanded distribution, and service," said Michael D. Fraizer,
chairman and chief executive officer. "This focus is resulting in strong sales
growth in life products and we are making solid progress building awareness
around the need for retirement income. On the international front, our global
platforms for mortgage insurance and payment protection in Europe are
expanding at a rapid pace."
Second Quarter Highlights
- Protection Segment: Term life sales were strong, up 48 percent to $34
million compared to the prior year quarter, and 17 percent sequentially
as competitive pricing, distribution expansion and service initiatives
continue to build sales momentum. Universal life (UL) sales increased
56 percent to $14 million compared with the prior year and 8 percent
sequentially, primarily from the impact of new products. Payment
protection insurance (PPI) sales grew 25 percent to $501 million
compared with the second quarter of 2004 from increased penetration of
existing clients and activation of new clients across its markets.
Excluding the impact of favorable foreign currency exchange (FX), PPI
sales grew 17 percent. William Goings was named president of the life
insurance business effective August 1. Succeeding him as president of
the payment protection business is Robert Brannock, who is based in
Europe and was formerly the PPI sales and marketing leader.
- Retirement Income and Investments (RI&I): Total assets under management
(AUM) grew 10 percent to $37.2 billion (1). Sales of income
distribution series products (2) increased 51 percent over the prior
year quarter to $95 million, and grew 10 percent sequentially. Fixed
annuity sales of $686 million were nearly double both the prior year
and sequential quarter reflecting expanded distribution in the bank
channel and our dynamic fixed annuity pricing disciplines. Fee-based
AUM increased by 40 percent to $6.2 billion(2) primarily reflecting
growth in sales of third party managed assets driven by wholesaling and
distribution expansion.
- Mortgage Insurance (MI): International new insurance written (NIW)
increased to $21.4 billion in the quarter, up 71 percent over the prior
year quarter and included $1 billion of FX. New international flow
insurance written grew 9 percent excluding the impact of FX.
Additionally, growth was accelerated by selected expansion of prime
bulk product offerings in Australia and Europe totaling $7.1 billion
excluding FX. U.S. sales were flat year over year as progress in
penetrating our existing customer base and new product offerings such
as HomeOpeners(SM) offset a decline in flow mortgage insurance demand.
2005 Guidance Update
"Given our solid results to date, we are increasing our full year guidance
for operating earnings per share to a range of $2.35 -- $2.45," said Fraizer.
"Looking ahead to the second half of 2005 we are well positioned but expect
results to reflect typical seasonal increases in delinquencies within mortgage
insurance and normalized corporate expense levels."
(1) Assets under management represent account values, net of reinsurance,
and managed third party assets.
(2) 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.
Segment Results
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) Q2 05 Q2 04
Life $55 $60
Long-term care 46 43
Payment protection 23 18
Group 8 8
Total Protection $132 $129
Sales
(in millions) Q2 05 Q2 04
Life $48 $32
Long-term care 42 41
Payment protection 501 402
Group 38 40
Total Protection $629 $515
Protection net operating earnings were $132 million in the current quarter
compared to $129 million in the prior year. Life net operating earnings
decreased to $55 million from $60 million. Growth and in-force performance,
including improved UL spreads, of $12 million were more than offset by less
favorable mortality of $9 million, comprised of $6 million of prior year
favorability and $3 million of current year variance, and an $8 million
deferred gain correction on a reinsured block of term policies. Long-term
care (LTC) net operating earnings were up $3 million. Benefiting long-term
care earnings were favorable performance on blocks of business in which the
company maintains a reinsurance interest and a positive $14 million after-tax
impact related to over-reserving on an incorrectly coded policy rider. These
were partially offset by $10 million of after-tax adjustments to claims
reserves, associated primarily with refinements for the projected duration of
certain claims. PPI net operating earnings were up 28 percent to $23 million
reflecting new business growth and a lower effective tax rate. PPI results
included $1 million of favorable FX.
Sales of term life increased 48 percent to $34 million in the second
quarter of 2005 compared to the prior year quarter and 17 percent on a
sequential basis. This strong growth reflects ongoing success in leveraging
competitive pricing structures, expanded distribution relationships and
service initiatives. Universal life sales increased 56 percent to $14 million
in the quarter demonstrating the continued impact of new product offerings.
Total LTC sales were $42 million, with sales about flat to both the prior year
and prior quarter. PPI sales increased 25 percent to $501 million driven by
growth across all regions and penetration of existing customer relationships.
Excluding the impact of FX, PPI sales were up 17 percent.
Retirement Income & Investments Pro
Net operating earnings Forma
(in millions) Q2 05 Q2 04
Spread-based retail $35 $22
Fee-based 14 11
Spread-based institutional 11 10
Total RI&I $60 $43
Sales
(in millions) Q2 05 Q2 04
Spread-based retail $943 $728
Fee-based 637 553
Spread-based institutional 355 421
Total RI&I $1,935 $1,702
Assets Under Management $37,173 $33,911
RI&I net operating earnings increased $17 million to $60 million for the
second quarter of 2005 driven by growth in all business units and additional
tax benefits compared to last year in both spread-based and fee-based. Spread-
based retail net operating earnings increased $13 million to $35 million
fueled by 8 percent growth in assets under management and improved spreads.
The current quarter included $2 million of net bond calls and mortgage loan
prepayments compared to $6 million in the prior year quarter. Net operating
earnings for fee-based products increased 27 percent to $14 million, largely
from growth in assets under management from new product line offerings and
distribution expansion. Spread-based institutional net operating earnings
were up 10 percent primarily driven by improving spreads. Underlying this
performance is a positive mix shift from older, low margin contracts to new
funding agreements. In addition, each period benefited from certain
investment income items.
Sales of spread-based retail products in the second quarter increased 30
percent compared with the prior year. Fixed annuity sales of $686 million were
nearly double compared to both the prior year and sequential quarter
reflecting greater distribution in the bank channel, our dynamic fixed annuity
pricing structure and efficient capital management. Structured settlement
annuity sales declined 52 percent in connection with low interest rates
combined with a highly competitive environment. Sales of fee-based products
increased 15 percent to $637 million from broadened distribution and product
offerings. Sales of Genworth's income distribution series products continued
to show solid growth, increasing 51 percent to $95 million in the current
quarter compared with the second quarter of 2004. Spread-based institutional
product sales were $355 million, down 16 percent from the prior year.
Mortgage Insurance Pro
Net operating earnings Forma
(in millions) Q2 05 Q2 04
International $60 $51
United States 61 63
Total Mortgage Insurance $121 $114
Sales
(in billions) Q2 05 Q2 04
International $21.4 $12.5
United States 7.2 8.1
Total Mortgage Insurance $28.6 $20.6
Mortgage Insurance net operating earnings were up 6 percent to $121
million in the second quarter of 2005 as a result of growth in the
international business. International net operating earnings were $60 million
compared with $51 million in the prior year quarter reflecting strong revenue
growth offset by increased losses associated with the normal seasoning of the
business and higher expenses from ongoing investment in growth platforms.
Results included $4 million of favorable FX. U.S. net operating earnings
declined 3 percent to $61 million reflecting lower revenue driven primarily by
a $12 billion reduction of insurance in force. This year over year reduction
is principally the result of ongoing low persistency. As compared to the
current period, the second quarter of 2004 included an additional $3 million
favorable impact from lower delinquencies. These items were partially offset
by expense efficiencies.
International NIW grew 71 percent to $21.4 billion, including $1.0 billion
from FX. International flow NIW increased 9 percent to $13.3 billion,
excluding FX, reflecting account penetration in Australia. Selected expansion
of prime bulk product offerings in Australia and Europe added $7.1 billion of
new insurance written, excluding FX, compared to $0.4 billion in the prior
year quarter. U.S. new insurance written was $7.2 billion in the current year
quarter down from $8.1 billion in the second quarter of 2004. This decrease
was driven entirely by fewer bulk transactions with the Federal Home Loan
Banks. U.S. sales were flat year over year as progress in penetrating our
existing customer base and new product offerings such as HomeOpeners(SM)
offset a decline in flow mortgage insurance demand.
Corporate and Other Pro
(in millions) Forma
Q2 05 Q2 04
Net operating loss ($28) ($9)
The Corporate and Other segment had a net operating loss of $28 million in
the current quarter compared with a loss of $9 million in the prior year
quarter. This decline was largely the result of lower investment income of
$15 million after tax and included lower partnership distributions, the impact
of our $500 million share repurchase completed in March of 2005 and a $5
million unfavorable impact due to the timing of prior year surplus
allocations. Results also reflect higher public company stand-alone expenses.
Shareholders' equity as of June 30, 2005 was $13.5 billion, or $28.69 per
share. Shareholders' equity, excluding accumulated other comprehensive
income, as of June 30, 2005 was $11.3 billion. Book value per share,
excluding accumulated other comprehensive income, increased to $24.10 as of
June 30, 2005, compared with $23.52 as of March 31, 2005.
Earnings Conference Call Information
A conference call will be held on July 29 from 10 a.m. to 11 a.m. (EDT) to
discuss second quarter results and business outlook. Genworth's conference
call will be accessible via telephone and the Internet. The detailed earnings
release and the second 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 July 29 through August 5, 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 21797395. 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 there from.
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 other than a $22 million IPO-related tax charge in the second quarter
of 2004.
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 and six months ended June 30, 2005 and 2004 and to pro forma net
operating earnings for the three and six months ended June 30, 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 and additional 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 our businesses, including interest rate fluctuations,
downturns and volatility in equity markets, defaults in portfolio
securities, downgrades in our financial strength and credit ratings,
insufficiency of reserves, competition, inability to attract or retain
independent sales intermediaries and dedicated sales specialists,
foreign exchange rate fluctuations, regulatory restrictions on our
operations and changes in applicable laws and regulations, legal or
regulatory actions or investigations, political or economic instability
and the threat of terrorism and terrorist acts, unexpected changes in
mortality, morbidity and unemployment rates, accelerated amortization
of deferred acquisition costs and present value of future profits,
goodwill impairments, unexpected changes in persistency rates,
increases in statutory reserve requirements, the failure of demand for
long-term care insurance to increase as we expect, the influence of
Fannie Mae, Freddie Mac and a small number of large mortgage lenders
and investors, increased regulatory scrutiny of Fannie Mae and Freddie
Mac resulting in possible regulatory changes, decreases in the volume
of high loan-to-value mortgage originations, 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, insufficiency of premium rates to
compensate us for risks associated with mortgage loans bearing high
loan-to-value ratios, increases in the use of captive reinsurance in
the mortgage insurance market, changes in the demand for mortgage
insurance that could arise as a result of efforts of large mortgage
investors, potential liabilities in connection with contract
underwriting services and growth in the European mortgage insurance
market that is lower than we expect; and
- Risks relating to our separation from GE, including the loss of
benefits associated with GE's brand and reputation, our need to
establish our new Genworth brand identity quickly and effectively, the
possibility that in certain circumstances we will be obligated to make
payments to GE under our tax matters agreement even if our
corresponding tax savings either are delayed or never materialize, the
possibility that in the event of a change in control of our company we
would have insufficient funds to meet accelerated obligations under the
tax matters agreement, GE's control over certain tax matters that could
have an impact on us, potential conflicts of interest with GE and GE's
engaging in the same type of business as we do 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)
(Unaudited)
Three months ended June30 Six months ended June 30,
2004 2004
2005 2004 Pro forma 2005 2004 Pro forma
Revenues:
Premiums $1,614 $1,708 $1,640 $3,219 $3,430 $3,259
Net investment
income 842 1,001 797 1,693 2,038 1,550
Net realized
investment gains
(losses) -- 8 6 (6) 24 21
Policy fees and
other income 154 204 144 315 453 293
Total revenues 2,610 2,921 2,587 5,221 5,945 5,123
Benefits and
expenses:
Benefits and other
changes in policy
reserves 1,051 1,290 1,097 2,126 2,641 2,177
Interest credited 347 364 324 687 760 647
Underwriting,
acquisition and
insurance expenses,
net of
deferrals 498 511 451 935 1,034 879
Amortization of
deferred
acquisition costs
and intangibles 233 270 229 436 600 498
Interest expense 69 47 59 141 94 120
Total benefits and
expenses 2,198 2,482 2,160 4,325 5,129 4,321
Earnings from
continuing
operations
before income taxes
and accounting
change 412 439 427 896 816 802
Provision for income
taxes 127 171 168 289 288 289
Net earnings from
continuing
operations before
accounting change 285 268 $259 607 528 $513
Gain on sale of
discontinued
operations, net
of taxes -- -- -- 7
Net earnings before
accounting change 285 268 607 535
Cumulative effect of
accounting change,
net of taxes -- -- -- 5
Net earnings $ 285 $ 268 $ 607 $ 540
Net earnings per
common share:
Basic $ 0.61 $ 0.55 $ 1.27 $ 1.10
Diluted $ 0.60 $ 0.55 $ 1.25 $ 1.10
Weighted-average
common shares
outstanding:
Basic 470.4 489.5 479.6 489.5
Diluted 477.4 490.1 485.9 490.1
PRO FORMA FINANCIAL INFORMATION
(Amounts in millions, except per share data)
(Unaudited)
Three months ended June 30, 2004
Pro forma Pro forma Pro forma
adjustments- adjustments- adjustments-
excluded reinsurance capital
Histor- assets and transactions structure Pro
ical liabilities(a) (b) (c) forma
Revenues:
Premiums $1,708 $ (26) $ (42) $ -- $1,640
Net investment
income 1,001 (10) (194) -- 797
Net realized
investment
gains 8 (2) -- -- 6
Policy fees and
other income 204 (36) (24) -- 144
Total revenues 2,921 (74) (260) -- 2,587
Benefits and
expenses:
Benefits and
other changes
in policy
reserves 1,290 (22) (171) -- 1,097
Interest
credited 364 -- (40) -- 324
Underwriting,
acquisition,
and insurance
expenses, net
of deferrals 511 (44) (16) -- 451
Amortization of
deferred
acquisition
costs and
intangibles 270 (17) (24) -- 229
Interest expense 47 -- -- 12 59
Total benefits
and expenses 2,482 (83) (251) 12 2,160
Earnings before
income taxes 439 9 (9) (12) 427
Provision for
income taxes 171 3 (3) (3) 168
Net earnings $ 268 $ 6 $ (6) $ (9) $ 259
Net earnings per
per common
share:
Basic $ 0.55 $ 0.53
Diluted $ 0.55 $ 0.53
Weighted-Average
common shares
outstanding:
Basic 489.5 489.5
Diluted 490.1 490.1
See Notes to Pro Forma Financial Information
PRO FORMA FINANCIAL INFORMATION
(Amounts in millions, except per share data)
(Unaudited)
Six months ended June 30, 2004
Pro forma Pro forma Pro forma
adjustments- adjustments- adjustments-
excluded reinsurance capital
Histor- assets and transactions structure Pro
ical liabilities(a) (b) (c) forma
Revenues:
Premiums $3,430 $ (80) $ (91) $ -- $3,259
Net investment
income 2,038 (28) (460) -- 1,550
Net realized
investment
gains 24 (3) -- -- 21
Policy fees and
other income 453 (103) (57) -- 293
Total revenues 5,945 (214) (608) -- 5,123
Benefits and
expenses:
Benefits and
other changes
in policy
reserves 2,641 (71) (393) -- 2,177
Interest
credited 760 -- (113) -- 647
Underwriting,
acquisition,
and insurance
expenses, net
of deferrals 1,034 (117) (38) -- 879
Amortization of
deferred
acquisition
costs and
intangibles 600 (46) (56) -- 498
Interest expense 94 -- -- 26 120
Total benefits
and expenses 5,129 (234) (600) 26 4,321
Earnings from
continuing
operations
before income
taxes and
accounting
change 816 20 (8) (26) 802
Provision for
income taxes 288 13 (4) (8) 289
Net earnings
from
continuing
operations $ 528 $ 7 $ (4) $ (18) $ 513
Net earnings
from continuing
operations per
common share:
Basic $ 1.08 $ 1.05
Diluted $ 1.08 $ 1.05
Weighted-Average
common shares
outstanding:
Basic 489.5 489.5
Diluted 490.1 490.1
See Notes to Pro Forma Financial Information
RECONCILIATION TO NET OPERATING EARNINGS
(Amounts in millions, except per share data)
(Unaudited)
Three months Six months
ended June 30, ended June 30,
2005 2004 2005 2004
Net earnings $ 285 $ 268 $ 607 $ 540
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 285 268 607 528
Net realized investment (gains) losses,
net of taxes -- (5) 4 (15)
Net tax expense related to initial public
offering -- 22 -- 22
Net operating earnings $ 285 $ 285 $ 611 $ 535
Net earnings from continuing operations
before accounting change $ 268 $ 528
Excluded assets and liabilities(a) 6 7
Reinsurance transactions(b) (6) (4)
Capital structure and other(c) (9) (18)
Pro forma net earnings from continuing
operations 259 513
Net realized investment gains, net of
taxes (4) (14)
Net tax expense related to initial public
offering 22 22
Pro forma net operating earnings $ 277 $ 521
Net earnings per common share:
Basic $ 0.61 $ 0.55 $ 1.27 $ 1.10
Diluted $ 0.60 $ 0.55 $ 1.25 $ 1.10
Net earnings from continuing operations
before accounting change per common
share:
Basic $ 0.61 $ 0.55 $ 1.27 $ 1.08
Diluted $ 0.60 $ 0.55 $ 1.25 $ 1.08
Net operating earnings per common share:
Basic $ 0.61 $ 0.58 $ 1.27 $ 1.09
Diluted $ 0.60 $ 0.58 $ 1.26 $ 1.09
Pro forma net earnings from continuing
operations per common share:
Basic $ 0.53 $ 1.05
Diluted $ 0.53 $ 1.05
Pro forma net operating earnings per
common share:
Basic $ 0.57 $ 1.06
Diluted $ 0.57 $ 1.06
Weighted-average common shares
outstanding:
Basic 470.4 489.5 479.6 489.5
Diluted 477.4 490.1 485.9 490.1
See Notes to Pro Forma Financial Information
RECONCILIATION OF CORPORATE AND OTHER SEGMENT NET EARNINGS (LOSS)
TO NET OPERATING LOSS
(Amounts in millions)
(Unaudited)
Three months Six months
ended June 30, ended June 30,
2005 2004 2005 2004
Segment net (loss) earnings from
continuing operations $ (28) $ (10) $ (46) $ (6)
Net realized investment (gains) losses,
net of taxes -- (5) 4 (15)
Net tax expense related to initial public
offering -- 22 -- 22
Segment net operating (loss) gain $ (28) $ 7 $ (42) $ 1
Segment net loss $ (10) $ (6)
Excluded assets and liabilities(a) (6) (7)
Reinsurance transactions(b) (2) 2
Capital structure and other(c) (9) (18)
Pro forma segment net loss (27) (29)
Net realized investment gains, net of
taxes (4) (14)
Net tax expense related to initial public
offering 22 22
Pro forma segment net operating loss $ (9) $ (21)
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 earnings 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
and six months ended June 30, 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: Neal McGarity, +1-804-662-2534,
Neal.mcgarity@genworth.com, all of Genworth Financial
