RICHMOND, Va., Feb. 1 /PRNewswire-FirstCall/ -- Genworth Financial, Inc.
(NYSE: GNW) today reported net income for the fourth quarter of 2006 of $373
million, or $0.81 per diluted share. Net income for the fourth quarter of
2005 was $307 million, or $0.64 per diluted share. Net income for the full
year of 2006 was $1,328 million, or $2.83 per diluted share, compared to net
income of $1,221 million, or $2.52 per diluted share, for the full year of
2005.
Three months ended December 31, (Unaudited)
2006 2005
Total Per diluted Total Per diluted
share share
(Amounts in millions, except
per share)
Net income $373 $0.81 $307 $0.64
Net operating income(1) $367 $0.80 $300 $0.62
Weighted average diluted shares 460.7 482.6
(1) This is a financial measure not calculated based on U.S. Generally
Accepted Accounting Principles ("Non-GAAP"). See the Use of Non-GAAP
Measures section for additional information.
Net operating income for the fourth quarter of 2006 was $367 million, or
$0.80 per diluted share, compared to net operating income of $300 million, or
$0.62 per diluted share, in the fourth quarter of 2005. Net operating income
for the full year of 2006 was $1,358 million, or $2.89 per diluted share,
compared to net operating income of $1,222 million, or $2.52 per diluted
share, for 2005.
Net operating income for the fourth quarter of 2006 included $6 million
after-tax, or $.01 per diluted share, of favorable foreign exchange and a net
$20 million benefit, after tax, or $.04 per diluted share, from a periodic
update in the recognition of international mortgage insurance premium revenue
and provision for losses.
"Genworth delivered soundly on our 2006 financial targets," said Michael
D. Fraizer, chairman and chief executive. "We produced strong sales across
our global platforms, exceeded our outlook for operating earnings per share
growth and ended the year with an 11.3 percent operating return on equity. In
addition, we took a disciplined approach to capital management by funding
higher return growth, making selective acquisitions, executing on strategic
business exits, and completing share repurchases."
Recent Highlights
- On January 9, Genworth announced several significant leadership
changes. Patrick B. Kelleher will assume the role of chief financial
officer and senior vice president and Pam Schutz and Tom Mann were
both named executive vice presidents.
- In addition, a strategic realignment was announced in order to better
position Genworth for future growth and efficiency. Genworth combined
its U.S. Retirement and Protection businesses into one segment, led
by Schutz, that includes retirement income, managed money, life
insurance, long term care insurance, and institutional. A new
International segment, including international mortgage insurance,
payment protection insurance and international new business
development, will report to Mann, who will also oversee the U.S.
Mortgage Insurance segment. The realignment will be reflected in
financial statements beginning with the first quarter of 2007.
Resegmented financial information will be provided by the end of the
first quarter.
- On January 11, Genworth announced the sale of its Employee Benefits
Group business for $650 million. The sale, which is expected to close
in the second quarter of 2007, is a key move to better focus Genworth
for the future. The business will be categorized as discontinued
operations when net income is reported for the first quarter of 2007.
- During the quarter, Genworth repurchased 10.1 million shares at a
weighted average price of $32.11 per share.
Business Growth
- Total universal life annualized first year deposits increased 86
percent.
- Individual long term care (LTC) sales through independent
distribution channels grew 29 percent and now represent 74 percent of
individual LTC sales.
- Managed Money assets under management (AUM) more than tripled to
$17.3 billion from the addition of more than $9 billion of AUM
related to the acquisition of AssetMark, strong organic growth from
two existing managed money platforms, and favorable equity market
performance.
- Income distribution series(2) sales doubled to $400 million in the
quarter.
- Payment protection sales increased 49 percent(3), including the
acquisition of a block of payment protection policies from a large
U.K. financial institution.
- International mortgage primary insurance in force (IIF) grew 31
percent(3) reflecting strong growth in new insurance written (NIW)
and the acquisition of a run-off block of business in Australia in
the third quarter. The unearned premium reserve increased 22
percent(3) to $2.3 billion versus the prior year period.
- U.S. mortgage insurance had 13 percent growth in primary IIF, to $113
billion from strong flow persistency and bulk sales. Bulk sales
totaled $8.1 billion in the quarter reflecting Genworth's strategy to
expand selectively in this area. Flow persistency improved to 76
percent and flow NIW increased 4 percent sequentially, resulting in a
third consecutive quarter of flow insurance in force growth.
(2) Income distribution series products are comprised of the company's
retirement income annuity product and variable 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.
(3) Excludes the impact of foreign exchange.
2007 Outlook
Genworth affirms its 2007 outlook for operating income of $3.15 to $3.25
per diluted share. Based on the upcoming resegmentation, which will be
reported starting with first quarter results, operating income for the
Retirement and Protection segment is estimated to grow 8 - 12 percent from
$703 million in 2006. This excludes the group business, which will be
reclassified as discontinued operations in the first quarter of 2007.
International segment income is expected to grow 13 - 17 percent from $468
million in 2006 and domestic mortgage insurance income is estimated to
increase 5 - 8 percent from $259 million in 2006. Corporate and Other is
expected to report a loss of $145 - $155 million for the full year 2007.
Segment Results
Segment net operating income presented in the tables below excludes net
investment gains (losses), net of taxes and other adjustments. The discussion
of segment net operating income is presented on an after-tax basis, and does
not reflect the company's announced realignment of business segments. In the
discussion of all results, the percentage changes, including net operating
income, sales, NIW and unearned premium reserves, exclude the impact of
foreign exchange. The impact of foreign exchange was $2 million in the
Protection segment and $4 million in the Mortgage Insurance segment.
Protection
Segment net operating income
(in millions)
Q4 06 Q4 05
Life $83 $79
Long term care 35 43
Payment protection 33 21
Group 11 8
Total Protection $162 $151
Sales
(in millions) Q4 06 Q4 05
Life $79 $64
Long term care 52 46
Payment protection 709 437
Group 61 69
Total Protection $901 $616
Fourth quarter Protection segment net operating income increased 6 percent
from strong income growth in life insurance and payment protection, which
offset lower LTC results. Life insurance income increased 5 percent from
business growth and favorable taxes. LTC income declined $8 million; however,
the prior year quarter included a $7 million favorable reserve adjustment
related to benefit elections for a large group case. Underlying LTC income
reflects growth and favorable loss experience in new business and $7 million
from the acquisition of Medicare supplement provider Continental Life, offset
by higher losses on older issued policies and declining investment yields.
Payment protection income grew 48 percent reflecting growth in higher margin
markets, a lower effective tax rate, and a $4 million net benefit primarily
related to a settlement from an exited commercial relationship. Group income
was up $3 million primarily from premium growth and lower expenses.
Total life sales increased 23 percent to $79 million, driven by a 70
percent increase in universal life sales that more than offset an 11 percent
decline in term sales. Universal life sales in the quarter included an $8
million favorable adjustment from excess deposits made in prior quarters.
Term life sales reflected a competitive pricing environment and a continued
shift by brokerage general agents towards the sale of universal life products.
Individual LTC sales increased 11 percent to $42 million reflecting growth in
the independent sales channel that offset a decline in the career sales
channel. Medicare supplement sales more than doubled to $7 million reflecting
the addition of Continental Life. Payment protection sales grew 49 percent
and included $155 million related to the acquisition of a block of policies.
Group sales declined 12 percent, driven by a decline in non-medical products.
Retirement Income & Investments
Segment net operating income
(in millions)
Q4 06 Q4 05
Spread-based retail $31 $43
Fee-based 25 14
Spread-based institutional 10 11
Total RI&I $66 $68
Sales
(in millions) Q4 06 Q4 05
Spread-based retail $440 $587
Fee-based 1,750 811
Spread-based institutional 885 531
Total RI&I $3,075 $1,929
Assets Under Management(4) $53,506 $39,511
(4) Assets under management represent account values, net of reinsurance,
and managed third party assets.
Retirement Income and Investments income totaled $66 million, a $2 million
decline from the fourth quarter of 2005, which included favorable investment
items that were $20 million higher than the current quarter. Fee-based income
increased 79 percent to $25 million primarily from strong growth in assets
under management and $3 million from the acquisition of AssetMark. Spread-
based retail income declined $12 million to $31 million in the quarter
compared with the prior year quarter, which included favorable investment
items that were $17 million higher than the current quarter. The current
quarter included a $9 million benefit from a lower effective tax rate as well
as a $3 million positive impact from wider spreads. This was more than offset
by lower account balances associated with fixed annuity net outflows and $7
million higher amortization of deferred acquisition costs (DAC), mainly
related to increased lapse rates on older, low-return fixed annuity blocks.
Spread-based institutional income decreased $1 million compared to the prior
year, which included favorable investment items that were $3 million higher
than the current quarter. Current quarter results reflect widening spreads
driven by the shift out of older, lower return GIC contracts to new funding
agreements backing registered notes.
Fee-based sales more than doubled to $1.8 billion from strong managed
money sales, reflecting wholesaler and producer expansion as well as $572
million of sales from AssetMark. Income distribution series sales also
doubled to $400 million in the quarter driven by Lifetime Income Plus, a
guaranteed minimum withdrawal benefit for life product that is part of the
income distribution series. Spread-based retail sales declined 25 percent
reflecting an unfavorable yield curve environment that made alternative
products more attractive. Spread-based institutional sales increased 67
percent to $885 million primarily from strong sales of funding agreements
backing registered notes.
Assets under management increased by 35 percent from strong growth in fee-
based products, the addition of over $9 billion of assets from the AssetMark
acquisition and favorable equity market performance.
Mortgage Insurance
Segment net operating income
(in millions) Q4 06 Q4 05
International $107 $72
United States 62 47
Total Mortgage Insurance $169 $119
Sales
(in billions) Q4 06 Q4 05
International $25.6 $21.9
United States 15.6 6.7
Total Mortgage Insurance $41.2 $28.6
Mortgage insurance segment net operating income was up 39 percent. Net
operating income included a $20 million benefit from a periodic update and
methodology refinements to the international premium recognition curves
partially offset by a periodic update to loss factors in Australia. These
updates increased net income by $10 million in Australia, $5 million in Canada
and $5 million in the U.S. related to the Australian reinsurance relationship
for capital support.
International mortgage insurance net operating income, excluding these
updates, was up 22 percent. In Canada, income was up 11 percent reflecting
solid revenue growth. In Australia, net operating income increased 42 percent
from double-digit revenue growth, $4 million from higher policy cancellations
and a lower effective tax rate partially offset by higher losses principally
from a limited number of distribution relationships. Europe and other
geographies contributed $4 million versus $2 million in the prior year,
primarily from growth across Europe and lower taxes. International flow NIW
increased 9 percent from strong growth in flow sales in Canada and flow and
bulk sales in Europe.
U.S. mortgage insurance net operating income, excluding the benefit from
updating premium recognition, increased 21 percent to $57 million from strong
premium growth and $7 million lower expenses partially offset by $3 million
higher losses.
Primary IIF increased for the fourth sequential quarter to $113 billion
reflecting strong bulk production in the quarter. Bulk NIW was $8.1 billion
in the fourth quarter from attractive opportunities in the portfolio and GSE
Alt-A bulk channels. U.S. flow NIW increased 10 percent to $7.2 billion.
Corporate and Other
Corporate and Other
(in millions)
Q4 06 Q4 05
Net operating loss ($30) ($38)
Corporate and Other net operating loss was $8 million lower in the current
quarter resulting from $6 million higher income from limited partnerships and
$2 million of lower expenses.
Stockholders' Equity
Stockholders' equity as of December 31, 2006 was $13.3 billion, or $30.09
per share, compared with $13.3 billion, or $28.26 per share, as of December
31, 2005. Stockholders' equity, excluding accumulated other comprehensive
income, as of December 31, 2006 was $12.2 billion, or $27.48 per share,
compared with $11.9 billion, or $25.28 per share, as of December 31, 2005.
Share Repurchase
During the quarter, Genworth repurchased 10.1 million shares at a weighted
average price of $32.11 per share. Genworth currently has the authority to
repurchase an additional $500 million in 2007.
The timing of share repurchases under the company's stock repurchase
program will depend on a variety of factors, including market conditions, and
may be suspended or discontinued at any time. Common stock acquired through
the repurchase program will be held as treasury shares and may be used for
general corporate purposes, including reissuances in connection with
acquisitions, employee stock option exercises or other employee stock plans.
About Genworth Financial
Genworth is a leading financial security company meeting the retirement,
longevity and lifestyle protection, investment and mortgage insurance needs of
more than 15 million customers with a presence in more than 25 countries. For
more information, visit genworth.com.
Conference Call and Financial Supplement Information
This press release and the fourth quarter financial supplement are now
posted on the company's website. Also posted on the company's website is a
graphical depiction of the company's new segmentation that is effective
beginning with the first quarter of 2007. Investors are encouraged to review
all of these materials. Genworth will conduct a conference call on February 2
from 9 a.m. to 10 a.m. (ET) to discuss the quarter's results and outlook. The
conference call will be accessible via telephone and the Internet. The dial-
in number for Genworth's February 2 conference call is 1-866-875-7108 or
1-706-634-9180 (outside the U.S.). To participate in the call by webcast,
register at http://investor.genworth.com at least 15 minutes prior to the
webcast to download and install any necessary software.
The webcast will be archived on the company's website. A replay of the
call will be available at 1-800-642-1687 or 1-706-645-9291 (outside the U.S.);
pass code 5929207. A downloadable podcast/MP3 file will be available within
24 hours of the earnings call. The webcast replay and file download will be
available through February 16, 2007.
Use of Non-GAAP Measures
This press release includes the non-GAAP financial measure entitled "net
operating income." The company defines net operating income as net income
from continuing operations 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 income
for the periods presented in this press release.
Management believes that analysis of net operating income enhances
understanding and comparability of performance by highlighting underlying
business activity and profitability drivers. However, net operating income
should not be viewed as a substitute for GAAP net income. In addition, the
company's definition of net operating income may differ from the definitions
used by other companies. The tables at the end of this press release include
a reconciliation of net income to net operating income.
Due to the unpredictable nature of the items excluded from the company's
definition of net operating income, the company is unable to reconcile its
outlook for net operating income to net income presented in accordance with
GAAP.
During 2006, the company began allocating net investment gains (losses) to
the segments in determining segment net income. The company excludes net
investment gains (losses), net of taxes and other adjustments, from segment
net operating income 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 Corporate and Other. For a
reconciliation of segment net income to segment net operating income, see the
company's fourth 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 February 1, 2007.
This press release also includes the non-GAAP financial measure entitled
"operating return on equity" or "operating ROE." The company defines
operating ROE as net operating income divided by average ending stockholders'
equity, excluding accumulated other comprehensive income (AOCI) in average
ending 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 income divided by average ending
stockholders' equity. The tables at the end of this press release include a
reconciliation of operating ROE to GAAP net income divided by average ending
stockholders' equity. Due to the unpredictable nature of net income and
average ending stockholders' equity excluding AOCI, the company is unable to
reconcile its outlook for operating ROE to GAAP net income divided by average
ending 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,
deposits and premium equivalents for third-party administered business, 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 insurance 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 risk
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
possibility that the company will not be able to replace certain
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 Income and Net Operating Income
(amounts in millions, except per share data)
Three months ended Twelve months ended
December 31, December 31,
2006 2005 2006 2005
REVENUES:
Premiums $ 1,620 $ 1,531 $ 6,487 $ 6,297
Net investment income 1,016 941 3,837 3,536
Net investment gains (losses) 8 11 (69) (2)
Policy fees and other income 202 172 774 673
Total revenues 2,846 2,655 11,029 10,504
BENEFITS AND EXPENSES:
Benefits and other changes in
policy reserves 1,171 1,053 4,485 4,205
Interest credited 388 374 1,522 1,425
Acquisition and operating
expenses, net of deferrals 484 513 2,013 1,989
Amortization of deferred
acquisition costs and intangibles 176 176 727 794
Interest expense 107 80 364 293
Total benefits and expenses 2,326 2,196 9,111 8,706
INCOME BEFORE INCOME TAXES AND
ACCOUNTING CHANGE 520 459 1,918 1,798
Provision for income taxes 147 152 594 577
Effective tax rate 28.3% 33.1% 31.0% 32.1%
NET INCOME BEFORE ACCOUNTING CHANGE 373 307 1,324 1,221
Cumulative effect of accounting
change, net of taxes - - 4 -
NET INCOME 373 307 1,328 1,221
ADJUSTMENT TO NET INCOME:
Net investment (gains) losses, net
of taxes and other adjustments (6) (7) 34 1
Cumulative effect of accounting
change, net of taxes - - (4) -
NET OPERATING INCOME $ 367 $ 300 $ 1,358 $ 1,222
Net earnings per common share:
Basic $ 0.83 $ 0.65 $ 2.91 $ 2.57
Diluted $ 0.81 $ 0.64 $ 2.83 $ 2.52
Net operating earnings per
common share:
Basic $ 0.82 $ 0.64 $ 2.98 $ 2.57
Diluted $ 0.80 $ 0.62 $ 2.89 $ 2.52
Weighted-average common shares
outstanding:
Basic 447.4 470.9 455.9 475.3
Diluted 460.7 482.6 469.4 484.6
Reconciliation of Operating ROE
(amounts in millions)
Twelve months ended
December 31,
2006 2005
GAAP Basis ROE
Net income for the twelve months ended (1) $ 1,328 $ 1,221
Quarterly average stockholders' equity, excluding
accumulated other comprehensive income (2) $ 11,987 $ 11,437
GAAP Basis ROE (1) divided by (2) 11.1% 10.7%
Operating Basis ROE
Net operating income for the twelve months ended (1) $ 1,358 $ 1,222
Quarterly average stockholders' equity, excluding
accumulated other comprehensive income (2) $ 11,987 $ 11,437
Operating Basis ROE (1) divided by (2) 11.3% 10.7%
(1) A reconciliation of net income to net operating income is provided in
the preceding table.
(2) Quarterly average stockholders' equity, excluding accumulated other
comprehensive income, is derived by averaging ending stockholders'
equity, excluding accumulated other comprehensive income, for the most
recent five quarters.
SOURCE Genworth Financial, Inc.
CONTACT: Investors: Alicia Charity, +1-804-662-2248,
Alicia.charity@genworth.com,
Linnea Olsen, +1-804-662-2536,
Linnea.olsen@genworth.com;
Media: Phil Moeller, +1-804-662-2534,
Philip.moeller@genworth.com,
all of Genworth Financial, Inc.
