(Source: PRNewswire-FirstCall)
RICHMOND, Va., July 30 /PRNewswire-FirstCall/ -- Genworth Financial, Inc. today reported a net loss for the second quarter of 2009 of $50 million, or $0.11 per diluted share, compared with a net loss of $109 million, or $0.25 per diluted share, in the second quarter of 2008. Net operating income(1) for the second quarter of 2009 was $9 million, or $0.02 per diluted share, compared with $212 million, or $0.49 per diluted share, in the second quarter of 2008.
Genworth's results in the quarter included operating income of $127 million from the Retirement and Protection segment and $87 million from the International segment. This was offset by operating losses of $134 million in the U.S. Mortgage Insurance segment and $71 million in Corporate and Other. Results in the quarter included a $36 million reversal of tax benefits reflected in the first quarter, as required by accounting standards. The impact of foreign exchange on net operating income in the second quarter of 2009 was an unfavorable $22 million.
Impairments declined on a year over year and sequential quarter basis to $99 million from $359 million and $388 million, respectively. Net unrealized investment losses also declined on a sequential basis to $3.0 billion from $4.1 billion in the first quarter. Book value per share, which benefited from these investment trends, increased 21 percent sequentially to $23.01 per share from $19.00 per share as of March 31, 2009. Book value per share, excluding accumulated other comprehensive income (loss), increased sequentially to $27.33 per share from $26.61 per share as of March 31, 2009.
Genworth adopted the new investment accounting standard relating to recognition of other-than-temporary impairments in the second quarter of 2009. The company reported "cumulative effect adjustments" to increase book values of invested assets and retained earnings of $588 million and $355 million, after tax, deferred acquisition costs (DAC) and other adjustments, respectively.
"Genworth made substantial progress improving both operating results and balance sheet strength. We achieved sound profitability in the Retirement and Protection and International segments, improved investment performance, enhanced capital flexibility from the IPO of Genworth MI Canada and retired all maturing long term debt until 2011," said Michael D. Fraizer, chairman and chief executive officer. "Our U.S. Mortgage Insurance business continued to execute its self-contained capital plan despite the challenging housing market, and benefited from increased loss mitigation savings while seeing new business with strong profitability."
Three months ended June 30 (Unaudited) 2009 2008 Per Per diluted diluted Total share Total Share (Amounts in millions, except per share) Net income (loss) $(50) $(0.11) $(109) $(0.25) Net operating income $9 $0.02 $212 $0.49 Weighted average diluted shares 433.2 432.9 Second Quarter Highlights Business Platforms -- Retirement and Protection's operating earnings more than doubled to $127 million versus the first quarter, reflecting strong in force performance, stronger equity markets, improved performance on limited partnership investments as well as targeted expense reductions. -- Canadian and Australian mortgage insurance operating earnings remained solid at $90 million, despite the challenging economic environment. Australia flow new insurance written (NIW) grew eight percent(2) to $8.7 billion as a result of ongoing strength in the high loan to value (LTV) market and increased account penetration. In addition, Genworth Australia is implementing a price increase in the third quarter of about 20 percent which follows a 17 percent average price increase taken in 2008. -- U.S. Mortgage Insurance had net loss mitigation savings of $188 million, and selectively wrote new business at prices approximately 35 percent higher than a year ago on a comparable basis reflecting both the price increase made in 2008 as well as the benefit from new business not being subject to ceded premiums for excess of loss captive reinsurance arrangements. -- Investment performance improved significantly in the quarter with year over year and sequential declines in impairments. Net unrealized investment losses decreased to $3.0 billion from $4.1 billion from the first quarter. In the second half of 2009, fixed income impairments are expected to trend in line with the level seen during the second quarter. -- Genworth achieved expense savings which will contribute to annualized savings of about $100 million, an interim step associated with plans announced in 2008 to reduce expenses by $100 million to $150 million. Capital & Liquidity -- Genworth currently has approximately $2.3 billion of capital in excess of regulatory and rating agency required levels, including net proceeds from the Genworth MI Canada initial public offering (IPO). -- Genworth completed the IPO of 42.5 percent of Genworth MI Canada (TSX: MIC) in July and received net proceeds of $705(3) million, including the underwriters exercise of the over allotment option. -- Consolidated U.S. life companies ended the second quarter of 2009 with an estimated risk based capital (RBC) ratio of approximately 390(4) percent. Genworth expects to end the year with an RBC ratio at or above 350 percent. -- The risk to capital ratio in the U.S. mortgage insurance companies was 14.8(4) at the end of the quarter and provides flexibility to selectively increase the level of attractive new business in the second half of 2009. -- The International segment ended the quarter with sound capital ratios in excess of regulatory required levels. -- Genworth maintained substantial liquidity and as of June 30, 2009 held a total of $5.4 billion cash and cash equivalents and received $705(3) million of additional cash in July 2009 associated with the IPO of Genworth MI Canada. Based on the return to more normalized liquidity needs, Genworth is reducing excess cash at its operating companies in stages and investing that cash at more attractive yields. In addition, cash was used during the quarter to retire Genworth's 2009 long term debt maturities in full, with no additional long term debt maturing until 2011. Segment Results
Net operating income (loss) presented in the tables below excludes net investment gains (losses) and other adjustments, net of taxes. In the discussion of International results, all references to percentage changes exclude the impact of foreign exchange. The percentage changes including the impact of foreign exchange are included in a table at the end of this press release.
A reconciliation of net operating income (loss) of segments and Corporate and Other activities to net income (loss) is included at the end of this press release.
Retirement and Protection Retirement and Protection Net Operating Income (in millions) Q2 09 Q2 08 Life Insurance $58 $87 Long Term Care 43 34 Wealth Management 7 11 Retirement Income Fee-Based 11 6 Spread-Based 2 7 Institutional 6 5 Total Retirement and Protection $127 $150 Sales (in millions) Q2 09 Q2 08 Life Insurance $49 $85 Long Term Care 44 66 Wealth Management Gross Flows 1,113 1,405 Net Flows 160 361 Retirement Income Fee-Based 154 705 Spread-Based 296 448 Institutional - 934 Assets Under Management(5) (in millions) Q2 09 Q2 08 Wealth Management $15,909 $20,285 Retirement Income Fee-Based 7,353 7,959 ----- ----- Total Fee-Based 23,262 28,244 ------ ------ Retirement Income Spread-Based 19,714 20,018 Institutional 5,555 10,773 ----- ------ Total Spread-Based 25,269 30,791 Total Assets Under Management $48,531 $59,035
Retirement and Protection earned $127 million compared with $150 million a year ago. Earnings more than doubled on a sequential basis, reflecting solid in force results, stronger equity markets, improved performance on limited partnership investments and targeted expense reductions.
Life insurance earnings decreased to $58 million from $87 million. Earnings in the prior year included an $18 million favorable tax examination development that did not recur. Earnings improved $20 million sequentially primarily from higher investment income and lower expenses. Total life sales decreased 42 percent from prior year primarily reflecting a decline in the universal life market. Genworth continued its transition to the "main street" life insurance market characterized by policy face sizes of $1 million and below with an average size of approximately $250,000 resulting in lower comparable premium levels while achieving a two percent sequential increase in new policies sold.
Long term care (LTC) earnings grew $9 million to $43 million, as profit emergence associated with favorable in force performance, new block business growth and lower expenses more than offset normal in force claims seasoning and higher Medicare supplement claims. Margins improved on the old blocks of business, primarily from the emerging impact of the previously announced in force price increase. Individual LTC sales decreased $19 million primarily from an overall decline in the LTC market size. On a sequential basis, individual LTC sales increased $1 million from higher career channel sales.
Wealth management earnings decreased to $7 million, driven by a decline in assets under management (AUM) to $15.9 billion from $20.3 billion, related primarily to equity market performance and lower net flows on a year over year basis. During the quarter, net flows improved to positive $160 million compared with negative net flows of $478 million in the first quarter. This, combined with favorable market performance, resulted in a $1.7 billion sequential increase in AUM. This positive trend continued during July.
Retirement income fee-based earnings increased to $11 million from lower DAC amortization attributable to favorable equity market performance during the quarter, including an $8 million catch-up adjustment. This was partially offset by higher taxes and $7 million lower fee income from variable annuities. Retirement income spread-based earnings declined to $2 million from $7 million primarily from lost yield associated with holding higher cash balances and lower valuations versus the prior year on limited partnership investments. Total spread-based AUM was relatively flat sequentially ending at $19.7 billion. Fixed annuity lapse rates declined and are below pricing assumptions.
Genworth's decline in overall annuity sales reflects its strategic shift to focus on the independent channels and other targeted distributors that fit best with capital plans, ratings levels and risk management tolerance.
Institutional earnings were $6 million, with $19 million of income from opportunistic retirement of funding agreements backing notes (FABNs) that were offset by lower net investment spread associated with a decline in AUM and holding higher cash balances. AUM declined $1.1 billion sequentially to $5.6 billion, primarily reflecting scheduled maturities and opportunistic liability repurchases.
International International Net Operating Income (Loss) (in millions) Q2 09 Q2 08 Mortgage Insurance Canada $58 $83 Australia 32 50 Other International (7) 1 Lifestyle Protection 4 49 Total International $87 $183 International Sales (in billions) Q2 09 Q2 08 Mortgage Insurance (MI) Flow Canada $3.6 $7.5 Australia 8.7 10.0 Other International 0.6 2.1 Bulk Canada - 0.8 Australia - 0.6 Other International 0.1 0.5 Total International MI $13.0 $21.5 Lifestyle Protection $0.5 $0.7
International earnings decreased 40 percent to $87 million, reflecting sound mortgage insurance performance in slowing economies and smaller origination markets, offset by substantially lower earnings in the lifestyle protection business which reflected impacts from rising unemployment in Europe.
In Canada and Australia, housing markets are showing early signs of stabilization as a sequential lift in home prices in aggregate occurred during the quarter. Government homeownership programs and lower interest rates enhanced housing affordability and increased home sales activity, contributing to home price stabilization. At the same time unemployment continued to increase in both markets during the quarter, and is expected to rise moderately through the remainder of 2009 and into 2010.
In Canada, earnings were $58 million, down from the prior year, primarily from increased losses from seasoning of the 2007 and 2008 books during a period of declining home prices in certain regions and rising unemployment. On a sequential basis, the loss ratio in Canada increased nine points to 48 percent primarily from increased loss severity, a modest increase in total delinquency counts as well as lower earned premiums. Average reserve per delinquency increased to CDN$62,800 from CDN$58,100 in the first quarter primarily from loss severity in Alberta and British Columbia reflecting home price declines. Loss mitigation initiatives, where the company is partnering with lenders to work out loans for borrowers facing financial difficulty, have increased during the quarter.
