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Three months ended December 31, (Unaudited)
2005 2004
Per diluted Per diluted
Total share Total share
(Amounts in millions,
except per share)
Net earnings $307 $0.64 $346 $0.70
Net operating earnings $300 $0.62 $254 $0.52
Weighted average
diluted shares 482.6 492.4
RICHMOND, Va., Jan 26, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Genworth Financial, Inc.
(NYSE: GNW) today reported net earnings for the fourth quarter of 2005 of $307
million, or $0.64 per diluted share. Net earnings for the fourth quarter of
2004 were $346 million, or $0.70 per diluted share. Net earnings for the full
year of 2005 were $1,221 million, or $2.52 per diluted share, compared to net
earnings of $1,157 million or $2.36 per diluted share for the full year of
2004.
Net earnings for the fourth quarter of 2005 included $7 million of after-
tax gains. Net earnings for the fourth quarter of 2004 included a $68 million
IPO-related net tax benefit and $24 million of after-tax gains.
Net operating earnings for the fourth quarter of 2005 were $300 million,
or $0.62 per diluted share, compared to net operating earnings of $254 million
or $0.52 per diluted share in the fourth quarter of 2004. Net operating
earnings for the full year of 2005 were $1,222 million, or $2.52 per diluted
share, compared to pro forma net operating earnings of $1,044 million or $2.13
per diluted share for the full year of 2004.
Net operating earnings for the fourth quarter of 2005 included a $19
million after-tax, or $.04 per diluted share, increase in net investment
income from an adjustment to commercial mortgage loan loss reserves resulting
from a change in the process for estimating credit losses.
"Genworth's strong performance of $2.52 per share of net operating
earnings in 2005 is a testament to our execution focus and growth strategies,"
said Michael D. Fraizer, chairman and chief executive officer. "We have
continued to effectively generate and redeploy capital, delivering solid
improvement in our operating return on equity."
Recent Highlights
- Sales in the quarter were highlighted by a 37 percent increase in term
life sales, and a doubling of sales for universal life compared to the
prior year quarter.
- Income distribution(1) sales in the quarter more than doubled to $201
million in the quarter and benefited from strong sales in the company's
new lifetime withdrawal benefit rider introduced in October.
- In Mortgage Insurance, sales of HomeOpeners(SM) reached nearly $900
million, bringing total year sales to $2.3 Billion.
- Genworth last week announced an agreement to acquire Continental Life
Insurance Company, a Medicare supplement provider, for approximately
$145 million. The transaction will more than double Genworth's book of
Medicare supplement business and enhance the company's senior market
product and distribution position.
- In December, Genworth's board approved a $750 million share repurchase
program.
- Genworth was added to the S&P 500 index on December 1st. Concurrently,
the General Electric Company (GE) reduced its ownership of Genworth to
18 percent with the sale of 41 million shares.
- Samuel D. Marsico was appointed senior vice president and chief risk
officer.
(1) Income distribution series products are comprised of the company's
retirement income annuity product and four 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.
2006 Outlook
"Genworth remains focused on expanding our three strong growth platforms
serving the homeownership, protection and retirement income needs of
consumers," Fraizer said. "We will continue to execute growth, efficiency and
capital reallocation strategies in 2006, and reaffirm our 2006 outlook for
operating earnings of $2.65 to $2.75 per diluted share. At the same time, we
will build our brand across global markets, driving product innovation,
distribution expansion and differentiated service."
Segment Results
Segment net operating earnings presented below are equivalent to net
earnings for all segments except Corporate and Other. All earnings components
discussed below are presented on an after-tax basis. 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.
Protection
Net operating earnings
(in millions) Q4 05 Q4 04
Life $79 $67
Long-term care 43 46
Payment protection 22 22
Group 8 5
Total Protection $152 $140
Sales
(in millions) Q4 05 Q4 04
Life $64 $39
Long-term care 46 41
Payment protection 421 351
Group 69 66
Total Protection $600 $497
Protection Segment earnings increased 9 percent to $152 million, driven by
strong growth in life insurance and $6 million of net investment income from
the mortgage loan reserve adjustment. Life insurance earnings increased 18
percent from solid in-force growth, favorable mortality and $3 million from
the mortgage loan reserve adjustment. Long-term care (LTC) earnings declined 7
percent, as in-force growth was more than offset by lower investment yields,
lower deferred expenses, and continued low policy terminations in older
blocks. LTC results this quarter included a $7 million favorable reserve
adjustment related to benefit elections for a large group case. In the fourth
quarter of 2004, LTC earnings benefited from a $7 million reserve release
associated with a change in process for recording policy lapses. Payment
Protection earnings were flat as solid business growth was offset primarily by
investments in new country expansion and $1 million unfavorable foreign
exchange. Group earnings were up $3 million from business growth and lower
expenses.
Term life sales grew 37 percent from the ongoing combination of
competitive pricing, distribution expansion and focused customer service.
Total universal life sales doubled to $27 million reflecting a three-fold
increase in excess deposits and a 16 percent growth in annual deposits from
growth in age 50+ and survivorship product offerings. Long-term care sales
increased $5 million, primarily from increased coverage elections by group LTC
participants. Payment protection experienced growth across all regions as
sales grew 20 percent. Group sales were up 5 percent, as higher dental and
disability sales offset lower medical product sales.
Retirement Income & Investments (RI&I)
Net operating earnings
(in millions) Q4 05 Q4 04
Spread-based retail $43 $9
Fee-based 14 16
Spread-based institutional 11 10
Total RI&I $68 $35
Sales
(in millions) Q4 05 Q4 04
Spread-based retail $587 $599
Fee-based 811 561
Spread-based institutional 531 796
Total RI&I $1,929 $1,956
Assets Under Management (1) $39,511 $35,953
(1) Assets under management represent account values, net of reinsurance,
and managed third party assets.
RI&I Segment earnings increased to $68 million. Spread-based retail
results of $43 million were driven primarily by business growth and wider
interest spreads. Unusual items in both periods impacted earnings for the
Spread-based retail business line:
Fee-based earnings benefited from strong growth in assets under
management, but were down $2 million due to favorability in guarantee fund
assessments in the prior year totaling $3 million. Spread institutional
earnings increased 10 percent.
Fee-based sales grew 45 percent, driven by sales of income distribution
series products, which more than doubled to $201 million in the quarter. Sales
benefited from the new guaranteed minimum withdrawal benefit for life product
introduced in the quarter. Fee-based managed asset sales grew 57 percent
driven primarily by the expansion of wholesaling support and growth in the
advisor platform.
Spread-based retail sales were about flat reflecting the challenging
interest rate and yield curve environment. Spread-based institutional sales
of $531 million in the quarter included Genworth's first registered notes
offering of $300 million.
Mortgage Insurance
Net operating earnings
(in millions) Q4 05 Q4 04
International $72 $57
United States 47 50
Total Mortgage Insurance $119 $107
Sales
(in billions) Q4 05 Q4 04
International $21.9 $15.2
United States 6.7 7.1
Total Mortgage Insurance $28.6 $22.3
Mortgage Insurance Segment earnings were up 11 percent to $119 million.
International mortgage insurance earnings grew 26 percent, driven by revenue
growth partially offset by loss seasoning associated with normal aging of the
in-force book and higher expenses related to investments in growth markets.
International earnings also included $5 million of favorable foreign exchange.
International new insurance written (NIW) increased 44 percent from strong
account penetration in Australia and Europe as well as $1 billion of favorable
foreign exchange.
U.S. Mortgage Insurance earnings declined 6 percent to $47 million
primarily from higher losses including $7 million related to unusually
favorable delinquencies in the prior year period and $3 million higher
delinquencies in the current quarter related to areas severely impacted by
hurricanes Katrina and Rita. These unfavorable impacts were mostly offset by
lower paid claims of $3 million and lower tax expense of $4 million.
U.S. flow persistency increased to 68 percent in the fourth quarter versus
59 percent in the third quarter, as higher interest rates slowed refinancing
activity. Domestic flow NIW increased 4 percent to $6.6 billion, reflecting
continued progress in penetrating new customer segments as well as growing
success in HomeOpeners(SM) product sales. In total, domestic NIW decreased 6
percent as we completed fewer bulk transactions.
Corporate and Other
(in millions)
Q4 05 Q4 04
Net operating loss ($39) ($28)
The Corporate and Other Segment net operating loss was $39 million in the
current quarter. Losses were higher by $11 million as compared to the prior
year primarily from $8 million higher taxes and higher public company costs.
These impacts were partially offset by favorable investment income.
Stockholders' equity as of December 31, 2005 was $13.3 billion, or $28.26
per share compared with $12.9 billion, or $26.28 per share at December 31,
2004. Stockholders' equity, excluding accumulated other comprehensive income,
as of December 31, 2005 was $11.9 billion or $25.28 per share compared with
$11.3 billion, or $22.99 per share at December 31, 2004.
Conference Call Information
Genworth will conduct a conference call on January 27 from 9 a.m. to
10 a.m. (EST).
The conference call will be accessible via telephone and the Internet.
This earnings release and the financial supplement are now posted on the
company's website. Investors are encouraged to review all of these materials.
The web cast will be available at http://www.genworth.com. To access the call
by telephone, dial 1-800-599-9795 (U.S.) or 1-617-786-2905 (outside the U.S.),
access code "Genworth". A replay of the call will be available from 1 p.m. EST
on January 27 through February 3, 2006 at 1-888-286-8010 or 1-617-801-6888
(outside the U.S.), access code 57552239. The call will also be replayed at
the company's website during this same time period.
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 infrequent or unusual non-
operating items. There were no infrequent or unusual non-operating items
excluded from net operating earnings for the periods presented in this press
release other than a $22 million IPO-related tax charge recorded during the
second quarter of 2004, a $68 million IPO-related net tax benefit recorded
during the fourth quarter of 2004 and a $25 million after-tax gain related to
our waiver of contractual rights under an outsourcing services agreement with
GE's global business processing operation, 60% of which was sold in the fourth
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 tables at the end of this press release include a
reconciliation of net earnings to net operating earnings and to pro forma net
operating earnings.
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.
From time to time, the company also references the non-GAAP financial
measure entitled "operating return on equity" or "operating ROE." The company
defines operating ROE as net operating earnings divided by average
stockholders' equity, excluding accumulated other comprehensive income (AOCI)
in average stockholders' equity. 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' equity. The tables at the end of this press release include a
reconciliation of ROE to operating ROE.
Due to the unpredictable nature of net earnings and average stockholders'
equity excluding AOCI, the company is unable to reconcile its outlook for
operating ROE to GAAP net earnings divided by average stockholders' equity.
From time to time, the company also references the non-GAAP financial
measure entitled "expense ratio" as a measure of productivity. The company
defines expense ratio as acquisition and operating expenses, net of deferrals,
divided by total revenues, excluding the effects of the payment protection
business. The payment protection business is excluded from this ratio as its
expense base is comprised of varying levels of non-deferrable acquisition
costs. Management believes that analysis of the expense ratio excluding the
payment protection business enhances understanding of the underlying
productivity of the company. However, the expense ratio as defined by the
company should not be viewed as a substitute for the GAAP expense ratio of
acquisition and operating expenses, net of deferrals, divided by total
revenues. In addition, the company's definition of expense ratio may differ
from the definitions used by other companies. The tables at the end of this
press release include a reconciliation of the company's GAAP expense ratio to
the expense ratio as defined by the company.
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
segment 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 payment protection insurance; 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, new 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 and risks, 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, legal constraints on dividend distributions
by subsidiaries, illiquidity of investments, competition, inability to
attract or retain independent sales intermediaries and dedicated sales
specialists, defaults by counterparties, 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, the failure or any
compromise of the security of our computer systems and the occurrence
of natural or man-made disasters;
- Risks relating to our Protection and Retirement Income and Investments
segments, including unexpected changes in mortality, morbidity and
unemployment rates, accelerated amortization of deferred acquisition
costs and present value of future profits, goodwill impairments,
medical advances such as genetic mapping research, unexpected changes
in persistency rates, increases in statutory reserve requirements, the
failure of demand for long-term care insurance to increase as we expect
and changes in tax and securities laws;
- Risks relating to our Mortgage Insurance segment, including 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, legal or regulatory actions or investigations under
applicable laws and regulations, including the Real Estate Settlement
Practices Act and the Federal Fair Credit Reporting Act, 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
lack of comparability between our financial information for periods
before the IPO and for periods after the IPO, the possibility that we
will not be able to replace services previously provided by GE on terms
that are at least as favorable, 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 24 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
Three months ended
(Amounts in millions, except per share data) December 31,
2005 2004
(Unaudited)
Revenues:
Premiums $ 1,531 $ 1,606
Net investment income 941 825
Net realized investment gains (losses) 11 (1)
Policy fees and other income 172 212
Total revenues 2,655 2,642
Benefits and expenses:
Benefits and other changes in policy reserves 1,053 1,129
Interest credited 374 344
Acquisition and operating expenses, net of
deferrals 513 457
Amortization of deferred acquisition
costs and intangibles 176 234
Interest expense 80 63
Total benefits and expenses 2,196 2,227
Earnings from continuing operations before
income taxes and accounting changes 459 415
Provision for income taxes 152 69
Net earnings $ 307 $ 346
Net earnings per common share:
Basic $ 0.65 $ 0.71
Diluted $ 0.64 $ 0.70
Weighted-average common shares outstanding:
Basic 470.9 489.6
Diluted 482.6 492.4
COMBINED STATEMENT OF EARNINGS INFORMATION
(Amounts in millions, except Twelve months ended December 31,
per share data) Historical Pro forma
2005 2004 2004
(Unaudited)
Revenues:
Premiums $ 6,297 $ 6,559 $ 6,388
Net investment income 3,536 3,648 3,160
Net realized investment gains
(losses) (2) 26 23
Policy fees and other income 673 824 664
Total revenues 10,504 11,057 10,235
Benefits and expenses:
Benefits and other changes in
policy reserves 4,205 4,804 4,340
Interest credited 1,425 1,432 1,319
Acquisition and operating
expenses, net of deferrals 1,989 1,902 1,747
Amortization of deferred acquisition
costs and intangibles 794 1,064 962
Interest expense 293 217 243
Total benefits and expenses 8,706 9,419 8,611
Earnings from continuing operations before
income taxes and accounting changes 1,798 1,638 1,624
Provision for income taxes 577 493 494
Net earnings from continuing operations
before accounting changes 1,221 1,145 $ 1,130
Gain on sale of discontinued operations,
net of taxes - 7
Net earnings before accounting change 1,221 1,152
Cumulative effect of accounting
changes, net of taxes - 5
Net earnings $ 1,221 $ 1,157
Net earnings per common share:
Basic $ 2.57 $ 2.36
Diluted $ 2.52 $ 2.36
Weighted-average common shares
outstanding:
Basic 475.3 489.5
Diluted 484.6 490.5
GENWORTH FINANCIAL
4Q 2005 FINANCIAL SUPPLEMENT
Reconciliation of Net Earnings to Net Operating Earnings
(Amounts in millions, except per share data)
Three months Twelve months
ended December 31, ended December 31,
2005 2004 2005 2004
(Unaudited)
Net earnings $ 307 $ 346 $ 1,221 $ 1,157
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 307 346 1,221 1,145
Net realized investment losses
(gains), net of taxes (7) 1 1 (16)
Net tax benefit related to initial
public offering - (68) - (46)
Gain on outsourcing service
agreement, net of taxes - (25) - (25)
Net operating earnings $ 300 $ 254 $ 1,222 $ 1,058
Net earnings from continuing
operations before accounting change $ 1,145
Excluded assets and liabilities(a) 7
Reinsurance transactions(b) (4)
Capital structure and other(c) (18)
Pro forma net earnings from
continuing operations 1,130
Net realized investment gains,
net of taxes (15)
Net tax expense related to initial
public offering (46)
Gain on outsourcing service
agreement, net of taxes (25)
Pro forma net operating earnings $ 1,044
Net earnings per common share:
Basic $ 0.65 $ 0.71 $ 2.57 $ 2.36
Diluted $ 0.64 $ 0.70 $ 2.52 $ 2.36
Net earnings from continuing
operations before accounting change
per common share:
Basic $ 0.65 $ 0.71 $ 2.57 $ 2.34
Diluted $ 0.64 $ 0.70 $ 2.52 $ 2.33
Net operating earnings per common
share:
Basic $ 0.64 $ 0.52 $ 2.57 $ 2.16
Diluted $ 0.62 $ 0.52 $ 2.52 $ 2.16
Pro forma net earnings from
continuing operations per
common share:
Basic $ 2.31
Diluted $ 2.30
Pro forma net operating earnings
per common share:
Basic $ 2.13
Diluted $ 2.13
Weighted-average common shares
outstanding:
Basic 470.9 489.6 475.3 489.5
Diluted 482.6 492.4 484.6 490.5
Note: For a discussion of notes (a), (b), and (c) to these tables see
Notes to Pro Forma Financial Information and Reconciliation Tables.
RECONCILIATION OF CORPORATE AND OTHER SEGMENT NET EARNINGS (LOSS)
TO PRO FORMA NET OPERATING LOSS
Three months ended Twelve months ended
December 31, December 31,
(Amounts in millions) 2005 2004 2005 2004
(Unaudited)
Segment net earnings (loss) $ (32) $ 64 $ (101) $ 52
Excluded assets and liabilities (a) - - - (7)
Reinsurance transactions (b) - - - 2
Capital structure and other (c) - - - (18)
Pro forma segment net earnings (loss) (32) 64 (101) 29
Pro forma net realized (gains)
losses on investments, net of taxes (7) 1 1 (15)
Net tax benefit related to initial
public offering - (68) - (46)
Gain on outsourcing services
agreement, net of taxes - (25) - (25)
Pro forma net operating loss $ (39) $ (28) $ (100) $ (57)
Note: For a discussion of notes (a), (b), and (c) to these tables see
Notes to Pro Forma Financial Information and Reconciliation Tables.
PRO FORMA FINANCIAL INFORMATION
Twelve months ended December 31, 2004
Pro forma
adjustments Pro forma Pro forma
- excluded adjustments adjustments
assets and - reinsurance - capital
liabilities transactions structure Pro
Historical (a) (b) and other(c) forma
(Amounts in millions) (Unaudited)
Revenues:
Premiums $ 6,559 $ (80) $ (91) $ - $ 6,388
Net investment
income 3,648 (28) (460) - 3,160
Net realized
investment
gains (losses) 26 (3) - - 23
Policy fees and
other income 824 (103) (57) - 664
Total revenues 11,057 (214) (608) - 10,235
Benefits and expenses:
Benefits and
other changes in
policy reserves 4,804 (71) (393) - 4,340
Interest credited 1,432 - (113) - 1,319
Acquisition and
operating expenses,
net of deferrals 1,902 (117) (38) - 1,747
Amortization of
deferred
acquisition costs
and intangibles 1,064 (46) (56) - 962
Interest expense 217 - - 26 243
Total benefits
and expenses 9,419 (234) (600) 26 8,611
Earnings from
continuing
operations before
income taxes 1,638 20 (8) (26) 1,624
Provision for
income taxes 493 13 (4) (8) 494
Net earnings from
continuing
operations $ 1,145 $ 7 $ (4) $ (18) $ 1,130
Note: For a discussion of notes (a), (b), and (c) to these tables see
Notes to Pro Forma Financial Information and Reconciliation Tables.
Reconciliation of Operating ROE
(Amounts in millions)
(Unaudited)
GAAP Basis 2004 2005
Net earnings $ 1,157 $ 1,221
Divided by average stockholders' equity
excluding AOCI from below $ 12,293 $ 11,436
ROE 9.4% 10.7%
GAAP Basis, As Adjusted - Operating ROE
2004 pro forma and 2005 net operating earnings
(see reconciliation of net earnings chart) $ 1,044 $ 1,222
Divided by 2004 average adjusted stockholders'
equity and 2005 average stockholders' equity
excluding AOCI from below $ 10,623 $ 11,436
Operating ROE 9.8% 10.7%
For purposes of computing Operating ROE, we use a 5-point quarterly
average of Stockholders' Equity, as shown below.
12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 2005
Average
Total stockholders'
equity, end of
period $12,866 $12,520 $13,506 $13,328 $13,310
Less accumulated
other comprehensive
income (AOCI), end
of period 1,609 1,459 2,164 1,714 1,404
Total stockholders'
equity excluding
AOCI, end of period $11,257 $11,061 $11,342 $11,614 $11,906 $11,436
12/31/03 3/31/04 6/30/04 9/30/04 12/31/04 2004
Average
Total stockholders'
equity, end of
period $15,800 $17,425 $11,077 $12,186 $12,866
Less accumulated
other comprehensive
income (AOCI), end
of period 1,672 2,976 386 1,246 1,609
Total stockholders'
equity excluding
AOCI, end of period 14,128 14,449 10,691 10,940 11,257 $12,293
Excluded assets and
liabilities (a) 673 685 - - -
Reinsurance
transactions (b) (1,434) (1,422) - - -
Capital structure
and other (c) (3,411) (3,441) - - -
Adjusted
Stockholders'
Equity $ 9,956 $10,271 $10,691 $10,940 $11,257 $10,623
Note: For a discussion of notes (a), (b), and (c) to these tables see
Notes to Pro Forma Financial Information and Reconciliation Tables.
Reconciliation of Expense Ratio
(Unaudited)
(Amounts in millions)
For the year ended December 31,
Pro forma
GAAP Basis 2005 2004 2004
Acquisition and operating expenses,
net of deferrals 1,989 1,902 1,747
Divided by total revenues 10,504 11,057 10,235
Expense ratio 18.9% 17.2% 17.1%
GAAP Basis, As Adjusted - Expense Ratio
Acquisition and operating expenses,
net of deferrals 1,989 1,902 1,747
Less payment protection business 734 617 617
Adjusted acquisition and operating
expenses, net of deferrals (1) 1,255 1,285 1,130
Total revenues 10,504 11,057 10,235
Less payment protection business 1,439 1,549 1,549
Adjusted total revenues (2) 9,065 9,508 8,686
Adjusted expense ratio (1) divided by (2) 13.8% 13.5% 13.0%
Notes to Pro Forma Financial Information and Reconciliation Tables
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 historical financial information as if the
company had been in existence throughout all relevant periods. The historical
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 historical
financial information for periods prior to the corporate reorganization is not
comparable to historical financial information for periods ending after that
date.
- (a) Reflects adjustments to exclude amounts included in the company's
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.
In addition, related to the statement of financial position as of December
31, 2003, reflects adjustments to exclude $1,691 million of commercial paper
and all related impacts of derivative contracts hedging the commercial paper
cash flows, $548 million of short-term borrowings from GE Capital and
intercompany balances that were not transferred to the company.
- (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
combined statements of earnings for the year ended December 31, 2004 exclude
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) as 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.
Investors: Jean Peters, +1-804-662-2693, jean.peters@genworth.com, or Alicia Charity,
+1-804-662-2248, alicia.charity@genworth.com; or Media: Phil Moeller,
+1-804-662-2534, philip.moeller@genworth.com, all of Genworth Financial, Inc.
