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Three months ended March 31, (Unaudited) 2006 2005 Per diluted Per diluted Total share Total share (Amounts in millions, except per share) Net earnings $334 $0.70 $322 $0.65 Net operating earnings $345 $0.72 $326 $0.66 Weighted average diluted shares 479.5 494.3RICHMOND, Va., April 27, 2006, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Genworth
Financial, Inc. (NYSE: GNW) today reported net earnings for the first quarter
of 2006 of $334 million, or $0.70 per diluted share. Net earnings for the
first quarter of 2005 were $322 million, or $0.65 per diluted share.
Net operating earnings for the first quarter of 2006 were $345 million, or
$0.72 per diluted share, compared to net operating earnings of $326 million or
$0.66 per diluted share in the first quarter of 2005.
"Our first quarter demonstrated solid business results, strong capital
management, and excellent progress on new product launches, as we continue to
expand and penetrate markets for retirement income, protection and mortgage
insurance," said Michael D. Fraizer, chairman and chief executive officer.
"Our international operations continued to strengthen their position, with
double digit earnings growth from both payment protection and international
mortgage insurance."
First Quarter Highlights
* Term life sales grew 17 percent, while universal life sales doubled in
the quarter. Individual long term care (LTC) sales increased 8
percent from growth in independent distribution channels, while
Medicare supplement sales accelerated. Payment protection sales in
continental Europe grew 17 percent excluding foreign exchange from new
relationships established during 2005 that are now generating sales.
* In the Protection segment, Genworth launched two key products: a
linked benefits product that combines universal life with long term
care insurance, creating a flexible tool for consumers to meet these
critical needs; and, MasterKey, a term life insurance return of
premium product targeting the home mortgage market. Genworth also
released its 5th annual, national Cost of Care study of nursing home
and related LTC costs. The survey of more than 9,000 care providers
includes nursing home, assisted living and in-home care costs and is
available at genworth.com.
* International mortgage insurance (MI) total flow sales increased 55
percent to $20 billion from expanded distribution and product
capabilities with the addition of 16 new lender relationships during
the quarter. In U.S. MI, flow new insurance written (NIW) increased
despite a smaller market, driven by continued penetration of a
broadened set of distribution channels and increasing sales of our
HomeOpeners(R) products, which reached $910 million or 16 percent of
flow NIW - a four-fold increase from a year ago.
* In the 401(k) retirement income marketplace, Genworth has two initial
launch customers, Paychex Inc. and Smithfield Foods, Inc., for
ClearCourse(SM) - which enables plan participants to buy guaranteed
layers of income, with the potential for market upside, in a separate
account.
* In March, the General Electric Company fully divested its holdings of
Genworth with the sale of 71.2 million shares to the public and the
repurchase of 15 million shares for $479 million by Genworth under its
current $750 million authority.
* On March 22, James S. Riepe, former vice chairman of T. Rowe Price
Group, Inc., joined Genworth's Board of Directors, increasing the
number of independent directors to six, bringing board composition to
a majority of independent directors.
2006 Outlook
Genworth confirms its current earnings outlook of $2.65 to $2.75 net
operating earnings per diluted share.
Segment Results
Segment net operating earnings presented exclude net realized investments
gains (losses) and the cumulative effect of an accounting change related to
stock-based compensation expense. For a reconciliation of segment net
operating earnings to segment GAAP net earnings, see disclosure at the end of
this release.
Protection
Segment net operating earnings
(in millions) Q1 06 Q1 05
Life $74 $68
Long term care 43 42
Payment protection 25 22
Group 7 7
Total Protection $149 $139
Sales
(in millions) Q1 06 Q1 05
Life $62 $42
Long term care 48 41
Payment protection 435 465
Group 34 30
Total Protection $579 $578
Protection segment net operating earnings increased 7 percent to $149
million, driven by strong growth in life insurance and payment protection
results. Life insurance earnings increased 9 percent from solid growth, good
in-force mortality and higher persistency. LTC earnings were $43 million as
in-force growth and a lower loss ratio offset lower investment yields and
higher renewal commission expenses. The LTC loss ratio declined as a result
of higher terminations, a reserve release, and stable paid claims. Prior year
quarter LTC results included $3 million of favorable experience on blocks in
which Genworth has a reinsurance interest. Payment protection earnings
increased 14 percent to $25 million reflecting new business growth, stronger
underwriting margins related to a shift in business mix, and lower taxes.
Earnings included $2 million unfavorable foreign exchange.
Term life sales grew 17 percent from ongoing competitive pricing,
distribution expansion and focused customer service. Total universal life
sales doubled to $28 million reflecting a three-fold increase in excess
deposits and 29 percent growth in annualized first-year deposits. Individual
long term care sales increased $3 million to $41 million from strong
performance in the independent sales channel. Sales of Medicare supplement
products increased $4 million to $7 million from expansion into 16 new states
over the past year and heightened product awareness associated with recent
Medicare legislation. Payment protection sales declined 6 percent primarily
associated with $36 million in unfavorable foreign exchange. Adjusted for
foreign exchange, total sales were flat as strong growth in continental Europe
was offset by a drop in sales in the U.K. Group sales were up 13 percent,
with higher dental and disability sales more than offsetting lower medical
product sales.
Retirement Income & Investments (RI&I)
Segment net operating earnings
(in millions) Q1 06 Q1 05
Spread-based retail $36 $34
Fee-based 15 17
Spread-based institutional 10 9
Total RI&I $61 $60
Sales
(in millions) Q1 06 Q1 05
Spread-based retail $436 $683
Fee-based 988 590
Spread-based institutional 757 349
Total RI&I $2,181 $1,622
Assets Under Management(1) $40,500 $36,358
RI&I segment net operating earnings increased to $61 million. Spread-
based retail results increased 6 percent driven primarily by wider interest
spreads, lower expenses and favorable reserve refinements. Bond calls and
mortgage prepayments net of deferred acquisition cost amortization decreased
in the quarter to $3 million in the first quarter of 2006 compared with $5
million in the first quarter of 2005. Fee-based earnings benefited from
strong growth in assets under management, but were down $2 million, reflecting
investment in growth platforms and $2 million of non-recurring expense
favorability in the prior year quarter.
Fee-based sales grew 67 percent, driven by Lifetime Income Plus, a
guaranteed minimum withdrawal benefit for life product that is part of the
income distribution series(2). Fee-based third-party managed asset sales grew
80 percent, from wholesaling and producer expansion as well as strong equity
market performance.
Spread-based retail sales declined 36 percent reflecting the challenging
interest rate and yield curve environment. Spread-based institutional sales
of $757 million in the quarter included two registered notes offerings that
totaled $700 million.
(1) Assets under management represent account values, net of reinsurance,
and managed third party assets as of period end.
(2) Income distribution series products are comprised of the company's
retirement income annuity product and four variable annuity riders
that provide similar income features. These products do not include
single premium immediate annuities or fixed annuities, which also
serve income distribution needs but are reported separately in the
company's financial supplement posted on the company's website.
Mortgage Insurance
Segment net operating earnings
(in millions) Q1 06 Q1 05
International $77 $69
United States 72 72
Total Mortgage Insurance $149 $141
Sales
(in billions) Q1 06 Q1 05
International $20.4 $14.2
United States 6.8 5.7
Total Mortgage Insurance $27.2 $19.9
Mortgage Insurance segment net operating earnings were up 6 percent to
$149 million. International MI earnings grew 12 percent, driven by revenue
growth and lower taxes partially offset by higher losses, primarily in
Australia, which were favorable in the prior year quarter and also reflect the
seasoning of more recent in-force books. Results also included higher
expenses related to investments in growth initiatives and $1 million of
favorable foreign exchange. Earnings in the year ago quarter included a $6
million benefit related to a European cancellation study that resulted in
higher earned premium in the period. International NIW increased 43 percent
from strong account penetration in Europe and Canada. In addition, NIW
included an approximate $4 billion catch-up in sales from delays in customer
reporting of new business from several clients in Australia.
U.S. MI earnings were $72 million. U.S. MI earnings benefited from a
reinsurance agreement with our international business. This was offset by $4
million of higher pretax losses, which included:
* $9 million of lower paid claims;
* $3 million reserve release associated with a reduction in
delinquencies in areas severely impacted by hurricanes Katrina and
Rita; and
* $16 million lower change in reserves than in the prior year quarter.
U.S. flow persistency increased to 72 percent in the first quarter of 2006
versus 68 percent in the fourth quarter of 2005, driven in part by slower
refinancing activity as a result of higher interest rates. U.S. flow NIW
increased 11 percent to $5.5 billion, reflecting continued progress in
penetrating new customer segments as well as growing HomeOpeners(R) product
sales, which more than offset the reduction in originations associated with
the rise in interest rates. U.S. bulk NIW increased more than 80 percent to
$1.3 billion reflecting participation in selective prime bulk transactions.
Corporate and Other
(in millions)
Q1 06 Q1 05
Segment net operating loss ($14) ($14)
The Corporate and Other segment net operating loss was unchanged compared
to the prior year quarter at $14 million. On a sequential basis, segment
after tax expenses were $20 million lower from timing of brand initiatives
scheduled for rollout later in the year and higher costs charged to the
operating segments. The fourth quarter of 2005 also included $4 million of
higher tax expense compared to the current period.
Other Items
After-tax net realized investment losses of $15 million in the first
quarter of 2006 included an $11 million charge related to the deconsolidation
of several securitization entities as a result of GE's divestiture of Genworth
during the quarter.
Stockholders' equity as of March 31, 2006 was $12.5 billion, or $27.37 per
share compared with $12.5 billion, or $26.62 per share at March 31, 2005.
Stockholders' equity, excluding accumulated other comprehensive income, as of
March 31, 2006 was $11.7 billion or $25.74 per share compared with $11.1
billion, or $23.52 per share at March 31, 2005.
Conference Call Information
Genworth will conduct a conference call on April 28 from 9 a.m. to 10 a.m.
(EDT).
The conference call will be accessible via telephone and the Internet.
This earnings release and 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 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. EDT on April
28 through May 5, 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 excluding after-tax net realized investment gains (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.
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
reconciliations of net earnings to 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.
During 2006, the company began allocating net realized investment gains
(losses) to the operating segments in determining segment net income. We
exclude the net realized investment gains (losses), net of taxes and other
adjustments, from operating net income for each of the segments. Other
adjustments represent amortization of deferred acquisition costs and other
intangible assets associated with the net realized investment gains (losses).
During 2005, all net realized investment gains (losses) were recorded in the
Corporate and Other segment. For a reconciliation of segment net earnings to
segment net operating earnings, see our first quarter 2006 financial
supplement on our website at genworth.com or in our Current Report on Form 8-K
furnished on April 27, 2006.
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. 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.
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, Medicare
supplement 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 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, 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, availability and
adequacy of reinsurance, defaults by counterparties, foreign exchange
rate fluctuations, regulatory restrictions on the company's operations
and changes in applicable laws and regulations, legal or regulatory
investigations or actions, political or economic instability, the
failure or any compromise of the security of the company's computer
systems and the occurrence of natural or man-made disasters or
pandemic disease;
* Risks relating to the company's Protection and Retirement Income and
Investments segments, including unexpected changes in morbidity,
mortality and unemployment rates, accelerated amortization of deferred
acquisition costs and present value of future profits, goodwill
impairments, reputational risks if the company were to raise premiums
on in-force long-term care insurance products, 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 the company expects and
changes in tax and securities laws;
* Risks relating to the company's 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 or
increases in mortgage insurance cancellations, increases in the use of
simultaneous second mortgages and other alternatives to private
mortgage insurance and reductions by lenders in the level of coverage
they select, unexpected increases in mortgage insurance default rates
or severity of defaults, deterioration in economic conditions,
insufficiency of premium rates to compensate the company 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, competition with government-
owned and government-sponsored entities, potential liabilities in
connection with contract underwriting services and growth in the
European mortgage insurance market that is lower than the company
expects; 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 its new Genworth brand identity quickly and
effectively, the possibility that the company 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 the
company will be obligated to make payments to GE under our tax matters
agreement even if the company's corresponding tax savings either are
delayed or never materialize, the possibility that in the event of a
change in control of our company the company would have insufficient
funds to meet accelerated obligations under the tax matters agreement,
the possibility that certain service agreements with GE are not
extended on favorable terms, and the significance of the company's
distribution relationship with GE in the payment protection insurance
business.
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 genworth.com.
Net Earnings
(amounts in millions)
Three months ended March 31,
2006 2005
REVENUES:
Premiums $ 1,539 $ 1,605
Net investment income 924 851
Net realized investment gains (losses) (22) (6)
Policy fees and other income 184 161
Total revenues 2,625 2,611
BENEFITS AND EXPENSES:
Benefits and other changes in policy reserves 1,035 1,075
Interest credited 373 340
Acquisition and operating expenses, net of
deferrals 475 447
Amortization of deferred acquisition costs
and intangibles 174 193
Interest expense 82 72
Total benefits and expenses 2,139 2,127
NET EARNINGS BEFORE INCOME TAXES AND ACCOUNTING
CHANGE 486 484
Provision for income taxes 156 162
Effective tax rate 32.1% 33.5%
NET EARNINGS BEFORE ACCOUNTING CHANGE 330 322
Cumulative effect of accounting change,
net of taxes 4 -
NET EARNINGS 334 322
ADJUSTMENTS TO NET EARNINGS:
Net realized investment losses (gains),
net of taxes and other adjustments 15 4
Cumulative effect of accounting change,
net of taxes (4) -
NET OPERATING EARNINGS $ 345 $ 326
Reconciliation of Net Earnings to Net Operating Earnings
(amounts in millions, except per share data)
Three months ended March 31,
2006 2005
Net earnings $ 334 $ 322
Less cumulative effect of accounting change,
net of taxes 4 -
Net earnings before accounting change 330 322
Net realized investment losses (gains),
net of taxes and other adjustments 15 4
Net operating earnings $ 345 $ 326
Net earnings per common share:
Basic $ 0.72 $ 0.66
Diluted $ 0.70 $ 0.65
Net earnings before accounting change per
common share:
Basic $ 0.71 $ 0.66
Diluted $ 0.69 $ 0.65
Net operating earnings per common share:
Basic $ 0.74 $ 0.67
Diluted $ 0.72 $ 0.66
Weighted-average common shares outstanding:
Basic 467.0 488.8
Diluted 479.5 494.3
SOURCE Genworth Financial, Inc.
Investors: Jean Peters, +1-804-662-2693,
jean.peters@genworth.com,
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.
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