Bloomberg News

Genworth Posts Fourth Straight Profit; Shares Advance

July 31, 2012

Genworth Financial Inc. (GNW:US), the insurer seeking a chief executive officer, reported its fourth straight quarterly profit as losses narrowed at the unit backing U.S. home loans.

The stock gained in extended trading as the company said it was seeking to charge more for long-term care coverage. Net income was $76 million, or 16 cents a share, compared with a loss of $136 million, or 28 cents, a year earlier, the Richmond, Virginia-based insurer said today in a statement.

Genworth is seeking to guard its credit rating (GNW:US) after Moody’s Investors Service said last month that it may be cut from the lowest of 10 investment-grade levels. Acting CEO Martin Klein is reviewing the business mix (GNW:US) after losses tied to home loans drained capital and helped cut about $13 billion from the market value (GNW:US) since the end of 2006.

“This is a company that has a lot of moving parts and, as a consequence of that, it’s challenging for some investors to get their hands around what’s going on there,” Mark Palmer, an analyst at BTIG LLC, said before results were announced. “Given where the shares are trading we believe there is the potential for significant appreciation.”

The insurer jumped 7.1 percent to $5.40 in extended trading at 5:35 p.m. in New York. Genworth’s shares had fallen (GNW:US) 23 percent this year on the New York Stock Exchange, the biggest decline in the 81-company Standard & Poor’s 500 Financials Index. (S5FINL) Results were released after the close of regular trading.

Long-Term Care

Genworth said it is taking steps to bolster its long-term care unit after rivals including MetLife Inc. (MET:US) and Prudential Financial Inc. (PRU:US) retreated from the business as near record-low interest pressured returns.

The insurer will request rate increases on some long-term care policyholders of more than 50 percent, after getting approval to raise rates by about 18 percent in 45 states, Genworth said today. It’s also reduced benefits and raised prices for new policies.

The pricing increases on existing policies may boost annual premiums by $200 million to $300 million once implemented, and Genworth said the changes will take place over five years.

“We are implementing significant rate actions and product changes as part of a companywide focus on improving business performance,” Klein said in the statement.

Australia Rebound

The U.S. mortgage-insurance segment’s operating loss narrowed to $25 million in the second quarter from $255 million a year earlier on a decline in delinquencies. Mortgage insurance pays lenders when borrowers default and foreclosures fail to recoup costs. The coverage is typically picked by lenders and paid for by borrowers.

The international mortgage insurance division had operating profit of $76 million, compared with a $78 million profit in the second quarter of 2011. Operating profit at the Australia unit was $44 million, after a $21 million loss in the first three months of this year.

Book value, a measure of assets minus liabilities, climbed to $32.17 at the end of the quarter from $29.99 on March 31. Investment income fell to $846 million from $881 million a year earlier.

Credit-default swaps protecting Genworth’s debt against default for five years fell 0.6 percentage points to 8.8 percent upfront, down from 9.4 percent yesterday, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Credit Swaps

That’s in addition to 5 percent a year, meaning it would cost $880,000 initially and $500,000 annually to protect $10 million of the company’s debt for five years.

Credit-default swaps typically fall as investor confidence improves and rise as it deteriorates. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Klein, the chief financial officer, became acting CEO when Michael Fraizer resigned in May after shelving plans for the initial public offering of the Australia business that backs home loans.

The U.S. life insurance division reported net operating income of $64 million, down from $100 million a year earlier.

Holding company cash was $1.2 billion as of June 30, down from $1.4 billion on March 31, as the company made payments on debt. The figure, which is monitored by investors as a measure of liquidity, had been about $950 million at end of 2011 and climbed after a $350 million debt offering in March.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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Companies Mentioned

  • GNW
    (Genworth Financial Inc)
    • $9.11 USD
    • -0.20
    • -2.2%
  • MET
    (MetLife Inc)
    • $55.87 USD
    • 0.07
    • 0.13%
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