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RICHMOND, Va., July 27 /PRNewswire-FirstCall/ -- Genworth Financial, Inc.
(NYSE: GNW) today reported second quarter 2006 net earnings of $317 million or
$0.68 per diluted share, a 13 percent increase on a per share basis over the
prior year period. Net operating earnings for the second quarter were $339
million, or $0.72 per diluted share, a 20 percent per share increase over the
comparable prior year period. In the second quarter of 2005 net earnings and
net operating earnings both were $285 million, or $0.60 per diluted share.
"We had an outstanding quarter with good organic growth, international
expansion, in-force performance and disciplined redeployment of capital," said
Michael D. Fraizer, chairman and chief executive officer. "This performance
keeps us on track for around 11 percent total year operating return on equity
and we are raising our full year net operating earnings outlook by 10 cents,
to a range of $2.75 to $2.85 per share."
Quarterly Highlights
Genworth demonstrated solid progress across its new business growth and
capital redeployment agendas.
Business Growth
* In life insurance, term life sales were up 9 percent, and
universal life sales more than doubled from a nearly three-fold
increase in excess deposits and a 67 percent rise in annualized
first year deposits.
* Sales in individual long term care (LTC) were up 8 percent,
largely from 23 percent growth in independent distribution
channels.
* Payment protection sales in continental Europe and Ireland grew
22 percent excluding foreign exchange, from distribution
penetration.
* U.S. mortgage insurance achieved its first sequential quarterly
increase in flow insurance in-force (IIF) in nearly five years,
bringing total IIF to $102 billion, driven by 19 percent
sequential new insurance written (NIW) growth, while flow
persistency was 71 percent.
* International mortgage insurance flow sales grew 43 percent,
excluding foreign exchange, to $20 billion. The unearned premium
reserve increased 22 percent, excluding foreign exchange, to
$2.1 billion versus the prior year quarter-end.
Capital Redeployment
* Genworth signed an agreement to acquire AssetMark Investment
Services Inc., a leading provider of open architecture asset
management solutions to independent financial advisors, for
approximately $230 million with additional performance-based
payments. The transaction is expected to close by year-end. In
addition the company completed the $145 million acquisition of
Continental Life Insurance Company, a Medicare supplement
provider, and the purchase in July of an Australian mortgage
insurance block for $80 million net of a post closing dividend.
* Genworth repurchased approximately $74 million of stock during
the second quarter bringing the total value of shares
repurchased in 2006 through June to $553 million of an announced
$750 million program.
During the quarter, Genworth launched a new brand advertising campaign
celebrating the lives of centenarians, which is detailed at
http://www.genworth.com/100. Additionally, Genworth is a lead sponsor of the
NBC summer reality series, Treasure Hunters, and is the title sponsor of the
Genworth Financial Treasure Challenge, an online companion game that can be
played at NBC.com.
On July 20, Barrett A. Toan, recently retired chairman of Express Scripts,
Inc., was elected to Genworth's board of directors, bringing the total number
of independent directors to seven of the nine board members.
Segment Results
Segment net operating earnings presented below exclude net investment
gains (losses), net of taxes and other adjustments. The following discussion
of segment net operating earnings below are on an after-tax basis.
Protection
Segment net operating earnings
(in millions) Q2 06 Q2 05
Life $77 $55
LTC 37 46
Payment Protection 29 24
Group 8 8
Total Protection $151 $133
Sales
(in millions) Q2 06 Q2 05
Life $69 $48
LTC (including Medicare supplement) 51 42
Payment Protection 515 513
Group 44 38
Total Protection $679 $641
Protection segment net operating earnings increased 14 percent to $151
million, driven by strong growth in both life insurance and payment
protection, partially offset by a decline in LTC results. Life insurance
earnings increased 40 percent from new business growth and favorable
mortality. Life earnings in the prior year quarter included an $8 million
charge related to a deferred gain correction on a reinsured block of term
policies. LTC earnings were $37 million as in-force growth and higher Medicare
supplement earnings were more than offset by higher incurred claims, declining
investment yields, and lower termination rates on older-issued policies, some
with expiring reinsurance coverage. Both quarters included non-recurring
items: the current quarter included a $15 million favorable reserve adjustment
for benefit elections on a large group case and $9 million in unfavorable
adjustments on a reinsured policy block. The prior year quarter unusual items
netted to a favorable $8 million. Payment protection earnings increased 21
percent to $29 million reflecting new business growth, improved underwriting
margins related to a shift in business mix, and lower taxes. Group earnings
were flat as business growth and lower expenses were offset by higher loss
ratios.
Term life sales grew 9 percent from competitive pricing, distribution
expansion and focused customer service. Total universal life sales more than
doubled to $32 million reflecting a nearly three-fold increase in excess
deposits and a 67 percent rise in annualized first year deposits. Individual
LTC sales increased $3 million to $41 million driven by 23 percent higher
sales from independent distribution that more than offset lower career channel
sales. Medicare supplement product sales increased $6 million to $9 million,
reflecting the Continental Life acquisition. Payment protection sales overall
grew 5 percent adjusted for foreign exchange. Strong sales in growth markets
were offset by lower U.K. sales. Group sales were up 16 percent to $44
million from expansion of distribution, product offerings and service levels.
Retirement Income & Investments (RI&I)
Segment net operating earnings
(in millions) Q2 06 Q2 05
Spread-based retail $29 $35
Fee-based 15 14
Spread-based institutional 13 11
Total RI&I $57 $60
Sales
(in millions) Q2 06 Q2 05
Spread-based retail $519 $943
Fee-based 1,091 637
Spread-based institutional 379 355
Total RI&I $1,989 $1,935
Assets Under Management (1) $41,129 $37,173
RI&I segment net operating earnings were $57 million, versus $60 million
in the prior year period that included a $9 million tax benefit that did not
recur. Current spread-based retail results benefited from higher investment
income and wider spreads, offset by $4 million higher amortization of deferred
acquisition costs (DAC) mainly related to increased lapse rates on older, low-
return fixed annuity blocks. Fee-based earnings benefited from growth in
assets under management to more than $9.5 billion. Spread-based institutional
net operating earnings were up 18 percent related to the shift out of older,
low margin contracts to new funding agreements. In addition, each period
benefited from about $3 million of favorable investment items.
Fee-based sales grew 71 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 were
up 70 percent, reflecting wholesaling and producer expansion. In spread-based
retail, sales of single premium immediate annuities were $215 million, up 31
percent over the prior year. Fixed annuity sales declined 62 percent,
reflecting the current interest rate and yield curve environment. Spread-
based institutional sales of $379 million in the quarter included a $300
million registered notes offering.
(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 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) Q2 06 Q2 05
International $90 $60
United States 72 61
Total Mortgage Insurance $162 $121
Sales
(in billions) Q2 06 Q2 05
International $21.7 $21.4
United States 8.2 7.2
Total Mortgage Insurance $29.9 $28.6
Mortgage insurance segment net operating earnings were up 34 percent to
$162 million. International mortgage insurance earnings grew 50 percent
reflecting strength across leading positions in Canada, Australia and Europe.
Earnings were up 46 percent in Canada from solid revenue growth and lower
losses. In Australia, net operating earnings increased 40 percent from double-
digit revenue growth, a lower effective tax rate and a $5 million adjustment
to the unearned premium reserve. This more than offset higher losses
associated with portfolio seasoning and increased delinquencies from a limited
number of distribution relationships. Europe and new geographies contributed
$4 million of net operating earnings versus zero in the prior year period,
primarily from growth across Europe along with good loss performance.
International flow NIW increased 42 percent from account penetration in
Europe, Australia and Canada. In Europe, flow NIW more than doubled to $4.5
billion from continued account activation and penetration. Australian flow NIW
increased 25 percent, reflecting strong mortgage origination growth from
several key customers. In Canada, flow NIW increased 37 percent from customer
penetration and growth in mortgage originations. Total NIW was flat due to
higher bulk sales in the year ago quarter.
U.S. mortgage insurance earnings increased 18 percent to $72 million from
insurance in force growth, $5 million lower expenses, $3 million higher
investment income, and $2 million increase in reinsurance premium from
agreements with the company's international operations. U.S. flow persistency
was 71 percent in the quarter as higher interest rates slowed refinancing
activity. Total losses decreased $1 million from both lower paid claims and a
decline in delinquency counts, partially offset by higher reserves per
delinquency.
U.S. flow NIW increased to $6.7 billion, reflecting continued penetration
of new customer segments as well as growth in HomeOpeners(TM) sales, which
reached $1.2 billion or 17 percent of flow production, nearly double the level
a year ago. U.S. bulk NIW more than doubled to $1.5 billion reflecting
participation in selected bulk transactions.
Corporate and Other
(in millions) Q2 06 Q2 05
Segment net operating loss ($31) ($29)
The Corporate and Other segment net operating loss was $31 million in the
current quarter, $2 million higher than the prior year, primarily reflecting
higher interest expense and lower tax benefits.
Other Items
Pretax second quarter net investment losses were $49 million, and $22
million net of taxes and other adjustments. Net investment losses resulted
primarily from asset sales for portfolio repositioning activities.
During the quarter, Genworth repurchased 2.2 million shares at a weighted
average price of $33.24. Genworth has the remaining authority to repurchase
an additional $197 million, which it currently expects to complete by year-
end.
Stockholders' equity as of June 30, 2006 was $12.2 billion, or $26.84 per
share compared with $13.5 billion, or $28.69 per share as of June 30, 2005.
Stockholders' equity, excluding accumulated other comprehensive income, as of
June 30, 2006 was $12.0 billion or $26.33 per share compared with $11.3
billion, or $24.10 per share as of June 30, 2005.
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
United States, Australia, Canada, Japan, Mexico, New Zealand, the United
Kingdom and 17 other European countries. For more information, visit
http://www.genworth.com.
Conference Call Information
Genworth will conduct a conference call on July 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 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.
EDT on July 28 through August 4, 2006 at 1-888-286-8010 or 1-617-801-6888
(outside the U.S.), access code 99299601. The call will also be replayed at
the company's website during this same time period. A downloadable
podcast/MP3 file will be available within 24 hours of the earnings call. This
download will be available through August 4, 2006.
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 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 table at the end of this press release includes a
reconciliation 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 presented in accordance
with GAAP.
During 2006, the company began allocating net investment gains (losses) to
the operating segments in determining segment net earnings. The company
excludes net investment gains (losses), net of taxes and other adjustments,
from operating net earnings for each of the segments. Other adjustments
represent amortization of deferred acquisition costs and other intangible
assets associated with the net investment gains (losses). During 2005, all net
investment gains (losses) were recorded in the Corporate and Other segment.
For a reconciliation of segment net earnings to segment net operating
earnings, see the company's second quarter 2006 financial supplement on the
company's website at http://www.genworth.com or in the company's Current
Report on Form 8-K furnished on July 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
and deposits gross of ceded reinsurance and cancellations for payment
protection insurance; (5) new insurance written for mortgage insurance, which
in each case reflects the amount of business the company generated during each
period presented; and (6) written premiums net of cancellations for our
Mexican-domiciled operations. Sales do not include renewal premiums on
policies or contracts written during prior periods. The company considers
annualized first-year premiums, new premiums/deposits, 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 a 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 or other risks sharing
structures 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 global 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.
Net Earnings and Net Operating Earnings
(amounts in millions, except per share data)
Three months ended June 30,
2006 2005
REVENUES:
Premiums $1,648 $1,614
Net investment income 953 842
Net investment gains (losses) (49) -
Policy fees and other income 202 154
Total revenues 2,754 2,610
BENEFITS AND EXPENSES:
Benefits and other changes in policy reserves 1,096 1,051
Interest credited 378 347
Acquisition and operating expenses, net of
deferrals 521 523
Amortization of deferred acquisition costs
and intangibles 207 208
Interest expense 88 69
Total benefits and expenses 2,290 2,198
NET EARNINGS BEFORE INCOME TAXES 464 412
Provision for income taxes 147 127
Effective tax rate 31.7% 30.8%
NET EARNINGS 317 285
ADJUSTMENT TO NET EARNINGS:
Net investment losses (gains), net of taxes
and other adjustments 22 -
NET OPERATING EARNINGS $339 $285
Net earnings per common share:
Basic $0.70 $0.61
Diluted $0.68 $0.60
Net operating earnings per common share:
Basic $0.74 $0.61
Diluted $0.72 $0.60
Weighted-average common shares outstanding:
Basic 455.8 470.4
Diluted 468.3 477.4
SOURCE Genworth Financial, Inc.
CONTACT: Investors: Alicia Charity, +1-804-662-2248,
Alicia.Charity@genworth.com, or
Media: Phil Moeller, +1-804-662-2534,
Philip.Moeller@genworth.com,
both of Genworth Financial, Inc.
