RICHMOND, Va., May 2, 2017 /PRNewswire/ --
- Stockholder Approval Of Acquisition By China Oceanwide Holdings
Group Co., Ltd. (Oceanwide) March 7,
2017 With Approximately 96 Percent Of Votes Cast Voting In
Favor Of The Merger
- All Regulatory Filings For The Oceanwide Acquisition
Submitted
- Progress Made On U.S. Life Restructuring Plan With Several
Internal Reinsurance Transactions Completed
Effective April 1, 2017
- Net Income1 And Adjusted Operating
Income2 Includes An Unfavorable Item In Long Term Care
Insurance (LTC) Relating To Guaranty Fund Assessments For The Penn
Treaty Plan Of Liquidation Of $14
Million After-Tax, Or $0.03
Per Diluted Share
- LTC Results Benefitted From Seasonally Favorable Existing Claim
Experience
- Strong Loss Ratio And Capital Levels In The First Quarter For
U.S. And Canada Mortgage Insurance (MI)
- U.S. MI First Quarter Of 2017 Adjusted Operating Income
Increased 20 Percent Compared To The First Quarter Of 2016
- Holding Company Cash And Liquid Assets Of Approximately
$1.0 Billion
Genworth Financial, Inc. (NYSE: GNW) today reported results for
the period ended March 31, 2017. The
company reported net income of $155
million, or $0.31 per diluted
share, in the first quarter of 2017, compared with net income of
$53 million, or $0.11 per diluted share, in the first quarter of
2016. The adjusted operating income for the first quarter of 2017
was $143 million, or $0.29 per diluted share, compared with adjusted
operating income of $103 million, or
$0.21 per diluted share, in the first
quarter of 2016. Net income and adjusted operating income in
the quarter were each reduced by $14
million after-tax, or $0.03
per diluted share, relating to state guaranty fund
assessments for the Penn Treaty Network American Insurance
Company and American Network Insurance Company (Penn Treaty) plan
of liquidation.
Strategic Update
At a special meeting held on
March 7, 2017, Genworth stockholders
voted to approve the proposed transaction with Oceanwide, under
which Oceanwide has agreed to acquire Genworth for a total
transaction value of approximately $2.7
billion, or $5.43 per share,
in cash. Approximately 96 percent of votes cast were voted in favor
of the merger, which represented 71 percent of Genworth's total
outstanding shares of common stock.
Genworth and Oceanwide continue to work diligently to satisfy
the closing conditions under the merger agreement. On April 28, 2017, Genworth and Oceanwide withdrew
and refiled the joint voluntary notice to The Committee on
Foreign Investment in the United
States ("CFIUS") to permit more time for review and
discussion with CFIUS. All other filings required under the merger
agreement for regulatory approval of the transaction have been
submitted. The closing of the proposed transaction remains subject
to conditions, including the receipt of required regulatory
approvals in the U.S., China, and
other international jurisdictions. Genworth and Oceanwide are
engaged with the relevant regulators regarding the pending
applications and continue to target closing the transaction in the
middle of 2017.
"Led by U.S. MI, our mortgage insurance platform continues to
perform well and we are making progress against our U.S. Life
restructuring and LTC rate action plans," said Tom McInerney, President and CEO of Genworth.
"Genworth continues to work to complete the pending transaction
with Oceanwide and focus on our key financial and operational
priorities, including our multi-year LTC rate action plan."
Financial Performance
Consolidated Net
Income &
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Adjusted Operating
Income
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Three months ended
March 31
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(Unaudited)
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2017
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2016
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Per
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Per
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diluted
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diluted
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Total
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(Amounts in
millions, except per share)
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Total
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share
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Total
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share
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%
change
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Net Income available
to Genworth's common
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stockholders
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$
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155
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$
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0.31
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$
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53
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$
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0.11
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192
%
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Adjusted operating
income
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$
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143
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$
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0.29
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$
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103
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$
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0.21
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39 %
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Weighted-average
diluted shares
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501.0
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499.4
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Three months ended
March 31
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(Unaudited)
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2017
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2016
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Book value per
share
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$
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25.68
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$
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28.19
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Book value per share,
excluding
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accumulated other
comprehensive
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income
(loss)
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$
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19.47
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$
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19.80
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Net income in the first quarter of 2017 benefitted from net
investment gains, net of taxes and other adjustments, of
$13 million in the quarter. Net
income in the first quarter of 2016 was reduced by net investment
losses, net of taxes and other adjustments, of $13 million, a net after-tax loss of $11 million for early extinguishment of Genworth
Holdings' senior notes, an after-tax loss of $6 million on a life block transaction,
restructuring costs of $9 million
after-tax and after-tax fees incurred related to a bond consent
solicitation of $12 million.
Net investment income was $790
million in the quarter, up from $786
million in the prior quarter and up from $789 million in the prior year. Net investment
income continues to reflect variability in prepayment speed
adjustments related to residential mortgage-backed securities and
other variable investment income, as well as higher average
invested assets supporting our LTC business. The reported yield and
the core yield2 for the quarter were 4.53 percent and
4.48 percent, respectively.
Adjusted operating income (loss) results are summarized in the
table below:
Adjusted Operating
Income (Loss)
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(Amounts in
millions)
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Q1
17
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Q4
16
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Q1
16
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U.S. Mortgage
Insurance
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$
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73
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$
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61
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$
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61
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Canada Mortgage
Insurance
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36
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39
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33
|
Australia Mortgage
Insurance
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13
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14
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19
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U.S. Life
Insurance
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53
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(154)
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91
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Runoff
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14
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6
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4
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Corporate and
Other
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(46)
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(103)
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(105)
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Total Adjusted
Operating Income (Loss)
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$
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143
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$
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(137)
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$
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103
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Adjusted operating income (loss) represents income (loss) from
continuing operations excluding net investment gains (losses),
gains (losses) on the sale of businesses, gains (losses) on the
early extinguishment of debt, gains (losses) on insurance block
transactions, restructuring costs and other adjustments, net of
taxes. A reconciliation of net income (loss) to adjusted operating
income (loss) of segments and Corporate and Other activities is
included at the end of this press release.
Unless specifically noted in the discussion of results for the
MI businesses in Canada and
Australia, references to
percentage changes exclude the impact of translating foreign
denominated activity into U.S. dollars (foreign exchange).
Percentage changes, which include the impact of foreign exchange,
are found in a table at the end of this press release.
U.S. Mortgage Insurance
Operating
Metrics
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(Dollar amounts in
millions)
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Q1
17
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Q4
16
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Q1
16
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Adjusted operating
income
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$
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73
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$
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61
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$
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61
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New insurance
written
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Primary
Flow
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$
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7,600
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$
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11,100
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$
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7,400
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Loss ratio
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17%
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28%
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24%
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U.S. MI reported adjusted operating income of $73 million, compared with $61 million in both the prior quarter and the
prior year. The loss ratio in the current quarter was 17 percent,
down eleven points sequentially driven primarily by strong seasonal
net cures and aging benefits and down seven points from the prior
year primarily reflecting the continued decline and improved
performance in delinquencies from the 2005 to 2008 book years.
Flow NIW of $7.6 billion decreased
32 percent from the prior quarter from a seasonally smaller
purchase originations market, but increased three percent versus
the prior year primarily from a larger purchase originations
market. U.S. MI's flow insurance in force grew 13 percent in
the first quarter of 2017 versus the first quarter of 2016 driven
primarily by an expanded originations market.
Canada Mortgage Insurance
Operating
Metrics
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(Dollar amounts in
millions)
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Q1
17
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Q4
16
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Q1
16
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Adjusted operating
income
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$
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36
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$
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39
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$
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33
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New insurance
written
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Flow
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$
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2,300
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$
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3,900
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$
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2,500
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Bulk
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$
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8,000
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$
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3,700
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$
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3,200
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Loss ratio
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16%
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18%
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24%
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Canada MI reported adjusted operating income of $36 million versus $39
million in the prior quarter and $33
million in the prior year. The loss ratio in the quarter was
16 percent, down two points from the prior quarter from lower
average reserve per delinquency and down eight points compared to
the prior year from a decrease in new delinquencies, net of cures.
Results in the quarter reflect higher expenses both sequentially
and versus the prior year from higher share based compensation.
Flow NIW was down 41 percent3 sequentially
primarily from a seasonally smaller originations market and down 12
percent3 from the prior year primarily from a smaller
market size. In addition, the company completed several bulk
transactions in the quarter of $8.0
billion in the aggregate, consisting of high quality low
loan-to-value prime loans. Effective March
17, 2017, Canada MI increased its flow mortgage insurance
premium rates for new insured mortgages an average of approximately
20 percent to reflect the regulatory capital framework that came
into effect on January 1, 2017.
Australia Mortgage Insurance
Operating
Metrics
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(Dollar amounts in
millions)
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Q1
17
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Q4
16
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Q1
16
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Adjusted operating
income
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$
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13
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$
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14
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$
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19
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New insurance
written
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Flow
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$
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4,100
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$
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5,000
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$
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4,400
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Bulk
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$
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1,000
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$
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—
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$
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—
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Loss ratio
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35%
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30%
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26%
|
Australia MI reported adjusted operating income of $13 million versus $14
million in the prior quarter and $19
million in the prior year. The loss ratio in the quarter was
35 percent, up five points sequentially from seasonally lower net
cures and aging benefits and up nine points from the prior year
from continued unfavorable experience from the commodity dependent
regions of Queensland and
Western Australia.
Flow NIW was down 18 percent3 sequentially from a
seasonally smaller originations market and down 11
percent3 from the prior year from lower levels of high
loan to value lending.
U.S. Life Insurance
Operating
Metrics
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(Amounts in
millions)
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Q1
17
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Q4
16
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Q1
16
|
Adjusted operating
income (loss)
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Long Term Care
Insurance
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$
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14
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$
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(1)
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$
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34
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Life
Insurance
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16
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(193)
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31
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Fixed
Annuities
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23
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40
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26
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Total U.S. Life
Insurance
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$
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53
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$
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(154)
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$
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91
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Sales
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Long Term Care
Insurance
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Individual
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$
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2
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$
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1
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$
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5
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Group
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1
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1
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2
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|
Life
Insurance
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Term Life
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—
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—
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5
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Universal
Life
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1
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—
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2
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Linked
Benefits
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—
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—
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2
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Fixed
Annuities
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1
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—
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168
|
Long Term Care Insurance
LTC reported adjusted
operating income of $14 million,
compared with an adjusted operating loss of $1 million in the prior quarter and adjusted
operating income of $34 million in
the prior year. Results versus the prior quarter reflected
seasonally favorable existing claim experience and higher reserve
releases from reduced benefit elections by in-force policyholders
as Genworth continues to implement its LTC rate action plan.
Results in the quarter also reflect higher new claims growth versus
both the prior quarter and prior year. Results in the quarter
included an accrual for state guaranty fund assessments of
$14 million after-tax relating to the
Penn Treaty plan of liquidation.
Life Insurance
Life insurance reported adjusted
operating income of $16 million,
compared with an adjusted operating loss of $193 million in the prior quarter and adjusted
operating income of $31 million in
the prior year. Results in the prior quarter reflected a
$196 million after-tax charge related
to the company's annual review of life insurance assumptions.
Results versus the prior quarter also reflected higher variable
investment income and improved mortality. Results versus the
prior year reflected higher reserve impacts from the fourth quarter
of 2016 assumption review, lower variable investment income and
unfavorable term mortality, partially offset by lower reinsurance
financing costs.
Fixed Annuities
Fixed annuities reported
adjusted operating income of $23
million, compared with $40
million in the prior quarter and $26
million in the prior year. Results in the quarter
reflected favorable impacts from single premium immediate annuity
mortality experience versus the prior quarter. Results in the
prior quarter include a $6 million
after-tax favorable adjustment related to state guaranty funds and
a $10 million after-tax favorable
impact related to an update of lapse assumptions and other
refinements.
Runoff
Runoff reported adjusted operating income of
$14 million compared with
$6 million in the prior quarter and
$4 million in the prior year.
Results versus the prior quarter and prior year were primarily
driven by improved equity market performance.
Corporate And Other
Corporate and Other reported an
adjusted operating loss of $46
million, compared with $103
million in the prior quarter and $105
million in the prior year. Results in the current
quarter reflected lower interest expense associated with our junior
subordinated notes due to the interest rate change from fixed to
floating rate and a correction to our Tax Matters Agreement
liability. Results in the prior quarter reflected
$29 million of deferred tax charges
and an increase in professional fees and legal expenses associated
with the Oceanwide transaction and pending litigation.
Capital & Liquidity
Genworth maintains the
following capital positions in its operating
subsidiaries:
Key Capital &
Liquidity Metrics
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(Dollar amounts in
millions)
|
|
Q1
17
|
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Q4
16
|
|
Q1
16
|
U.S.
MI
|
|
|
|
|
|
|
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|
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Consolidated
Risk-To-Capital Ratio4
|
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|
13.6:1
|
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|
14.4:1
|
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|
15.3:1
|
|
|
Genworth Mortgage
Insurance Corporation Risk-To-Capital
Ratio4
|
|
|
13.7:1
|
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14.5:1
|
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|
15.5:1
|
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|
Private Mortgage
Insurer Eligibility Requirements (PMIERs) Sufficiency
Ratio5
|
|
|
118
|
%
|
|
|
115
|
%
|
|
|
113
|
%
|
Canada
MI
|
|
|
|
|
|
|
|
|
|
|
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|
|
Minimum Capital Test
(MCT) - New Regulatory Framework Effective January 1,
20174
|
|
|
162
|
%
|
|
|
245
|
%
|
|
|
234
|
%
|
Australia
MI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prescribed Capital
Amount (PCA) Ratio4
|
|
|
171
|
%
|
|
|
157
|
%
|
|
|
168
|
%
|
U.S. Life Insurance
Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Risk-Based Capital (RBC) Ratio4
|
|
|
326
|
%
|
|
|
329
|
%
|
|
|
373
|
%
|
Holding Company
Cash6 and Liquid Assets7
|
|
$
|
999
|
|
|
$
|
1,098
|
|
|
$
|
760
|
|
Key Points
- U.S. MI's PMIERs sufficiency ratio of 118 percent increased in
the quarter from a reduction in required assets due to seasonal
cure benefits and Canada MI stock valuation improvement;
- Canada MI's MCT ratio as of March 31,
2017 under the new capital framework is estimated to be 162
percent, above the recalibrated regulatory minimum requirement of
150 percent and within a target range of 160 to 165 percent;
- Australia MI's capital levels improved sequentially driven
primarily by portfolio seasoning;
- The holding company ended the quarter with $999 million of cash and liquid assets,
representing a buffer of approximately $570
million in excess of restricted cash and liquid assets and
one and a half times annual debt service; and
- $175 million of holding company
cash is committed to facilitate the separation and isolation of the
LTC business.
About Genworth Financial
Genworth
Financial, Inc. (NYSE: GNW) is a Fortune 500 insurance holding
company committed to helping families achieve the dream of
homeownership and address the financial challenges of aging through
its leadership positions in mortgage insurance and long term care
insurance. Headquartered in Richmond, Virginia, Genworth traces its roots
back to 1871 and became a public company in 2004. For more
information, visit genworth.com.
From time to time, Genworth releases important information via
postings on its corporate website. Accordingly, investors and other
interested parties are encouraged to enroll to receive automatic
email alerts and Really Simple Syndication (RSS) feeds regarding
new postings. Enrollment information is found under the "Investors"
section of genworth.com. From time to time, Genworth's
publicly traded subsidiaries, Genworth MI Canada Inc. and Genworth
Mortgage Insurance Australia Limited, separately release financial
and other information about their operations. This information can
be found at http://genworth.ca and
http://www.genworth.com.au.
Financial Supplement Information
This press release,
first quarter 2017 financial supplement and earnings presentation
are now posted on the company's website. Investors are encouraged
to review these materials. Due to the pending sale to Oceanwide,
the company does not plan to host an earnings call.
Use of Non-GAAP Measures
This press release includes
the non-GAAP financial measures entitled "adjusted operating income
(loss)" and "adjusted operating income (loss) per share." Adjusted
operating income (loss) per share is derived from adjusted
operating income (loss). The chief operating decision maker
evaluates segment performance and allocates resources on the basis
of adjusted operating income (loss). The company defines adjusted
operating income (loss) as income (loss) from continuing operations
excluding the after-tax effects of income attributable to
noncontrolling interests, net investment gains (losses), goodwill
impairments, gains (losses) on the sale of businesses, gains
(losses) on the early extinguishment of debt, gains (losses) on
insurance block transactions, restructuring costs and infrequent or
unusual non-operating items. Gains (losses) on insurance block
transactions are defined as gains (losses) on the early
extinguishment of non-recourse funding obligations, early
termination fees for other financing restructuring and/or resulting
gains (losses) on reinsurance restructuring for certain blocks of
business. The company excludes net investment gains (losses) and
infrequent or unusual non-operating items because the company does
not consider them to be related to the operating performance of the
company's segments and Corporate and Other activities. A component
of the company's net investment gains (losses) is the result of
impairments, the size and timing of which can vary significantly
depending on market credit cycles. In addition, the size and timing
of other investment gains (losses) can be subject to the company's
discretion and are influenced by market opportunities, as well as
asset-liability matching considerations. Goodwill impairments,
gains (losses) on the sale of businesses, gains (losses) on the
early extinguishment of debt, gains (losses) on insurance block
transactions and restructuring costs are also excluded from
adjusted operating income (loss) because, in the company's opinion,
they are not indicative of overall operating trends. Infrequent or
unusual non-operating items are also excluded from adjusted
operating income (loss) if, in the company's opinion, they are not
indicative of overall operating trends.
While some of these items may be significant components of net
income (loss) available to Genworth's common stockholders in
accordance with GAAP, the company believes that adjusted operating
income (loss) and measures that are derived from or incorporate
adjusted operating income (loss), including adjusted operating
income (loss) per share on a basic and diluted basis, are
appropriate measures that are useful to investors because they
identify the income (loss) attributable to the ongoing operations
of the business. Management also uses adjusted operating income
(loss) as a basis for determining awards and compensation for
senior management and to evaluate performance on a basis comparable
to that used by analysts. However, the items excluded from adjusted
operating income (loss) have occurred in the past and could, and in
some cases will, recur in the future. Adjusted operating income
(loss) and adjusted operating income (loss) per share on a basic
and diluted basis are not substitutes for net income (loss)
available to Genworth's common stockholders or net income (loss)
available to Genworth's common stockholders per share on a basic
and diluted basis determined in accordance with GAAP. In addition,
the company's definition of adjusted operating income (loss) may
differ from the definitions used by other companies.
Adjustments to reconcile net income (loss) attributable to
Genworth's common stockholders and adjusted operating income (loss)
assume a 35 percent tax rate (unless otherwise indicated) and are
net of the portion attributable to noncontrolling interests. Net
investment gains (losses) are also adjusted for deferred
acquisition cost (DAC) and other intangible amortization and
certain benefit reserves.
In the first quarter of 2016, the company recorded an estimated
pre-tax loss of $7 million and a tax
benefit of $27 million related to the
planned sale of the mortgage insurance business in Europe.
This transaction was excluded from adjusted operating income (loss)
for the periods presented as it related to a gain (loss) on the
sale of businesses.
In January 2016, the company paid
a pre-tax make-whole expense of $20
million related to the early redemption of Genworth
Holdings, Inc.'s (Genworth Holdings) 2016 notes. The company also
repurchased $28 million principal
amount of Genworth Holdings' notes with various maturity dates for
a pre-tax gain of $4 million in the
first quarter of 2016. These transactions were excluded from
adjusted operating income (loss) for the periods presented as they
related to a gain (loss) on the early extinguishment of debt.
In the first quarter of 2016, the company completed a life block
transaction resulting in a pre-tax loss of $9 million in connection with the early
extinguishment of non-recourse funding obligations.
In the first quarters of 2017 and 2016, the company recorded a
pre-tax expense of $1 million and
$15 million, respectively, related to
restructuring costs as part of an expense reduction plan as the
company evaluates and appropriately sizes its organizational needs
and expenses.
There were no infrequent or unusual items excluded from adjusted
operating income (loss) during the periods presented other than
fees incurred during the first quarter of 2016 related to Genworth
Holdings' bond consent solicitation of $18
million for broker, advisor and investment banking fees.
The tables at the end of this press release provide a
reconciliation of net income (loss) available to Genworth's common
stockholders to adjusted operating income (loss) for the three
months ended March 31, 2017 and 2016,
as well as for the three months ended December 31, 2016 and reflect adjusted operating
income (loss) as determined in accordance with accounting guidance
related to segment reporting.
This press release includes the non-GAAP financial measure
entitled "core yield" as a measure of investment yield. The company
defines core yield as the investment yield adjusted for items that
do not reflect the underlying performance of the investment
portfolio. Management believes that analysis of core yield enhances
understanding of the investment yield of the company. However, core
yield is not a substitute for investment yield determined in
accordance with GAAP. In addition, the company's definition of core
yield may differ from the definitions used by other companies. A
reconciliation of core yield to reported GAAP yield is included in
a table at the end of this press release.
Definition of Selected Operating Performance
Measures
The company reports selected operating performance
measures including "sales" and "insurance in force" or "risk in
force" which are commonly used in the insurance industry as
measures of operating performance.
Management regularly monitors and reports sales metrics as a
measure of volume of new and renewal business generated in a
period. Sales refer to: (1) new insurance written for mortgage
insurance; (2) annualized first-year premiums for long term care
and term life insurance products; (3) annualized first-year
deposits plus five percent of excess deposits for universal and
term universal life insurance products; (4) 10 percent of premium
deposits for linked-benefits products; and (5) new and additional
premiums/deposits for fixed annuities. Sales do not include renewal
premiums on policies or contracts written during prior periods. The
company considers new insurance written, annualized first-year
premiums/deposits, premium equivalents and new premiums/deposits 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.
Management also regularly monitors and reports a loss ratio for
the company's businesses. For the mortgage insurance businesses,
the loss ratio is the ratio of incurred losses and loss adjustment
expenses to net earned premiums. For the long term care insurance
business, the loss ratio is the ratio of benefits and other changes
in reserves less tabular interest on reserves less loss adjustment
expenses to net earned premiums. The company considers the loss
ratio to be a measure of underwriting performance in these
businesses and helps to enhance the understanding of the operating
performance of the businesses.
An assumed tax rate of 35 percent is utilized in certain
adjustments to adjusted operating income (loss) and in the
explanation of specific variances of operating performance and
investment results.
These operating performance measures enable 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, but not limited to, the following:
- risks related to the proposed transaction with Oceanwide
Holdings Group Co., Ltd. (Oceanwide) including: the company's
inability to complete the transaction in a timely manner or at all;
the company's inability to obtain regulatory approvals, or the
possibility that the parties may delay the transaction or that
materially burdensome or adverse regulatory conditions may be
imposed in connection with any such regulatory approvals; existing
and potential legal proceedings may be instituted against the
company in connection with the announcement of
the transaction that may delay the transaction, make it more
costly or ultimately preclude it; the risk that the proposed
transaction disrupts the company's current plans and operations;
certain restrictions during the pendency of the transaction may
impact the company's ability to pursue certain business
opportunities or strategic transactions; continued availability of
capital and financing to the company before the consummation of the
transaction; there may be further rating agency actions and
downgrades in the company's financial strength ratings; there may
be changes in applicable laws or regulations; the company may not
recognize the anticipated benefits of the transaction; the amount
of the costs, fees, expenses and other charges related to the
transaction; management's attention may be diverted from the
company's ongoing business operations; the merger agreement may be
terminated in circumstances that would require the company to pay
Oceanwide a fee; the company's ability to attract, recruit, retain
and motivate current and prospective employees may be adversely
affected; and disruptions and uncertainty relating to the
transaction, whether or not it is completed, may harm the company's
relationships with its employees, customers, distributors, vendors
or other business partners, and may result in a negative impact on
the company's business;
- strategic risks in the event the proposed transaction with
Oceanwide is not consummated including: the company's inability
to successfully execute alternative strategic plans to effectively
address its current business challenges (including with respect to
the restructuring of its U.S. life insurance businesses, debt
obligations, cost savings, ratings and capital); the company's
inability to attract buyers for any businesses or other assets it
may seek to sell, or securities it may seek to issue, in each case,
in a timely manner and on anticipated terms; failure to obtain
any required regulatory, stockholder and/or noteholder approvals or
consents for such alternative strategic plans, or the company's
challenges changing or being more costly or difficult to
successfully address than currently anticipated or the benefits
achieved being less than anticipated; inability to achieve
anticipated cost-savings in a timely manner; or adverse tax or
accounting charges; and inability to increase the capital needed in
the company's businesses in a timely manner and on anticipated
terms, including through improved business performance, reinsurance
or similar transactions, asset sales, securities offerings or
otherwise, in each case as and when required;
- risks relating to estimates, assumptions and valuations
including: inadequate reserves and the need to increase reserves
(including as a result of any changes the company may make in the
future to its assumptions, methodologies or otherwise in connection
with periodic or other reviews); inaccurate models; deviations from
the company's estimates and actuarial assumptions or other reasons
in its long term care insurance, life insurance and/or annuity
businesses; accelerated amortization of deferred acquisition costs
(DAC) and present value of future profits (PVFP) (including any
changes it may make in the future to its assumptions, methodologies
or otherwise in connection with periodic or other reviews); adverse
impact on the company's financial results as a result of projected
profits followed by projected losses (as is currently the case with
its long term care insurance business); and changes in valuation of
fixed maturity, equity and trading securities;
- risks relating to economic, market and political
conditions including: downturns and volatility in global
economies and equity and credit markets; interest rates and changes
in rates (particularly given the historically low interest rate
environment) have adversely impacted, and may continue to
materially adversely impact, the company's business and
profitability; deterioration in economic conditions or a decline in
home prices that adversely affect the company's loss experience in
mortgage insurance; political and economic instability or changes
in government policies; and fluctuations in foreign currency
exchange rates and international securities markets;
- regulatory and legal risks including: extensive
regulation of the company's businesses and changes in applicable
laws and regulations; litigation and regulatory investigations or
other actions; dependence on dividends and other distributions from
the company's subsidiaries (particularly its international
subsidiaries) and the inability of any subsidiaries to pay
dividends or make other distributions to the company, including as
a result of the performance of its subsidiaries and insurance,
regulatory or corporate law restrictions; adverse change in
regulatory requirements, including risk-based capital; changes in
regulations adversely affecting the company's international
operations; inability to meet or maintain the private mortgage
insurer eligibility requirements (PMIERs); inability of the
company's U.S. mortgage insurance subsidiaries to meet minimum
statutory capital requirements and hazardous financial condition
standards; the influence of Federal National Mortgage Association
(Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac)
and a small number of large mortgage lenders on the U.S. mortgage
insurance market and adverse changes to the role or structure of
Fannie Mae and Freddie Mac; adverse changes in regulations
affecting the company's mortgage insurance businesses; inability to
continue to implement actions to mitigate the impact of statutory
reserve requirements; impact of additional regulations pursuant to
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
Dodd-Frank Act); and changes in accounting and reporting
standards;
- liquidity, financial strength ratings, credit and
counterparty risks including: insufficient internal sources to
meet liquidity needs and limited or no access to capital (including
the company's inability to replace its credit facility); recent or
future adverse rating agency actions, including with respect to
rating downgrades or potential downgrades or being put on review
for potential downgrade, all of which could have adverse
implications for the company, including with respect to key
business relationships, product offerings, business results of
operations, financial condition and capital needs, strategic plans,
collateral obligations and availability and terms of hedging,
reinsurance and borrowings; defaults by counterparties to
reinsurance arrangements or derivative instruments; defaults or
other events impacting the value of the company's fixed maturity
securities portfolio; and defaults on the company's commercial
mortgage loans or the mortgage loans underlying its investments in
commercial mortgage-backed securities and volatility in
performance;
- operational risks including: inability to retain,
attract and motivate qualified employees or senior management;
ineffective or inadequate risk management in identifying,
controlling or mitigating risks; reliance on, and loss of, key
customer or distribution relationships; availability, affordability
and adequacy of reinsurance to protect the company against losses;
competition; competition in the company's mortgage insurance
businesses from government and government-owned and
government-sponsored enterprises (GSEs) offering mortgage
insurance; material weakness in, or ineffective, internal control
over financial reporting; and failure or any compromise of the
security of the company's computer systems, disaster recovery
systems and business continuity plans and failures to safeguard, or
breaches of, its confidential information;
- insurance and product-related risks including: the
company's inability to increase sufficiently, and in a timely
manner, premiums on in force long term care insurance policies
and/or reduce in force benefits, and charge higher premiums on new
policies, in each case, as currently anticipated and as may be
required from time to time in the future (including as a result of
the company's failure to obtain any necessary regulatory approvals
or unwillingness or inability of policyholders to pay increased
premiums); the company's inability to reflect future premium
increases and other management actions in its margin calculation as
anticipated; failure to sufficiently increase new sales for the
company's long term care insurance products; inability to realize
anticipated benefits of the company's rescissions, curtailments,
loan modifications or other similar programs in its mortgage
insurance businesses; premiums for the significant portion of the
company's mortgage insurance risk in force with high loan-to-value
ratios may not be sufficient to compensate the company for the
greater risks associated with those policies; decreases in the
volume of high loan-to-value mortgage originations or increases in
mortgage insurance cancellations; increases in the use of
alternatives to private mortgage insurance and reductions in the
level of coverage selected; potential liabilities in connection
with the company's U.S. contract underwriting services; and medical
advances, such as genetic research and diagnostic imaging, and
related legislation that impact policyholder behavior in ways
adverse to the company;
- other risks including: occurrence of natural or man-made
disasters or a pandemic; impairments of or valuation allowances
against the company's deferred tax assets; the possibility that in
certain circumstances the company will be obligated to make
payments to General Electric Company (GE) under the tax matters
agreement with GE even if its corresponding tax savings are never
realized and payments could be accelerated in the event of certain
changes in control; and provisions of the company's certificate of
incorporation and bylaws and the tax matters agreement with GE may
discourage takeover attempts and business combinations that
stockholders might consider in their best interests; and
- risks relating to the company's common stock including:
the continued suspension of payment of dividends; and stock price
fluctuations.
The company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future developments or otherwise.
Condensed
Consolidated Statements of Income
|
(Amounts in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
|
|
March
31,
|
|
|
|
2017
|
|
2016
|
|
Revenues:
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,136
|
|
$
|
794
|
|
Net investment
income
|
|
|
790
|
|
|
789
|
|
Net investment gains
(losses)
|
|
|
34
|
|
|
(19)
|
|
Policy fees and other
income
|
|
|
211
|
|
|
221
|
|
Total
revenues
|
|
|
2,171
|
|
|
1,785
|
|
Benefits and
expenses:
|
|
|
|
|
|
|
|
Benefits and other
changes in policy reserves
|
|
|
1,246
|
|
|
860
|
|
Interest
credited
|
|
|
167
|
|
|
177
|
|
Acquisition and
operating expenses, net of deferrals
|
|
|
270
|
|
|
394
|
|
Amortization of
deferred acquisition costs and intangibles
|
|
|
94
|
|
|
99
|
|
Interest
expense
|
|
|
62
|
|
|
105
|
|
Total
benefits and expenses
|
|
|
1,839
|
|
|
1,635
|
|
Income from
continuing operations before income taxes
|
|
|
332
|
|
|
150
|
|
Provision for income
taxes
|
|
|
116
|
|
|
23
|
|
Income from
continuing operations
|
|
|
216
|
|
|
127
|
|
Loss from
discontinued operations, net of taxes
|
|
|
—
|
|
|
(19)
|
|
Net
income
|
|
|
216
|
|
|
108
|
|
Less: net income
attributable to noncontrolling interests
|
|
|
61
|
|
|
55
|
|
Net income available
to Genworth Financial, Inc.'s common stockholders
|
|
$
|
155
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations available to Genworth Financial, Inc.'s
|
|
|
|
|
|
|
|
common
stockholders per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
$
|
0.14
|
|
Diluted
|
|
$
|
0.31
|
|
$
|
0.14
|
|
Net income available
to Genworth Financial, Inc.'s common stockholders
|
|
|
|
|
|
|
|
per
share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
$
|
0.11
|
|
Diluted
|
|
$
|
0.31
|
|
$
|
0.11
|
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
|
498.6
|
|
|
498.0
|
|
Diluted
|
|
|
501.0
|
|
|
499.4
|
|
Reconciliation of
Net Income (Loss) to Adjusted Operating Income
(Loss)
|
(Amounts in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
Three
|
|
|
|
|
|
months
ended
|
|
months
ended
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
|
|
|
|
2017
|
|
2016
|
|
2016
|
Net income (loss)
available to Genworth Financial, Inc.'s common
stockholders
|
|
$
|
155
|
|
$
|
53
|
|
$
|
(122)
|
Add: net income
attributable to noncontrolling interests
|
|
|
61
|
|
|
55
|
|
|
59
|
Net income
(loss)
|
|
|
216
|
|
|
108
|
|
|
(63)
|
Loss from
discontinued operations, net of taxes
|
|
|
—
|
|
|
(19)
|
|
|
(4)
|
Income (loss) from
continuing operations
|
|
|
216
|
|
|
127
|
|
|
(59)
|
Less: income from
continuing operations attributable to
|
|
|
|
|
|
|
|
|
|
noncontrolling interests
|
|
|
61
|
|
|
55
|
|
|
59
|
Income (loss) from
continuing operations available to Genworth Financial,
Inc.'s
|
|
|
|
|
|
|
|
|
|
common stockholders
|
|
|
155
|
|
|
72
|
|
|
(118)
|
Adjustments to income
(loss) from continuing operations available to
Genworth
|
|
|
|
|
|
|
|
|
|
Financial, Inc.'s common
stockholders:
|
|
|
|
|
|
|
|
|
|
Net investment
(gains) losses, net8
|
|
|
(20)
|
|
|
19
|
|
|
(28)
|
Losses on sale of
businesses
|
|
|
—
|
|
|
7
|
|
|
—
|
Losses on early
extinguishment of debt, net
|
|
|
—
|
|
|
16
|
|
|
—
|
Losses from life
block transactions
|
|
|
—
|
|
|
9
|
|
|
—
|
Expenses related to
restructuring
|
|
|
1
|
|
|
15
|
|
|
—
|
Fees associated with
bond consent solicitation
|
|
|
—
|
|
|
18
|
|
|
—
|
Taxes on
adjustments
|
|
|
7
|
|
|
(53)
|
|
|
9
|
Adjusted operating
income (loss)
|
|
$
|
143
|
|
$
|
103
|
|
$
|
(137)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating
income (loss):
|
|
|
|
|
|
|
|
|
|
U.S. Mortgage
Insurance segment
|
|
$
|
73
|
|
$
|
61
|
|
$
|
61
|
Canada Mortgage
Insurance segment
|
|
|
36
|
|
|
33
|
|
|
39
|
Australia Mortgage
Insurance segment
|
|
|
13
|
|
|
19
|
|
|
14
|
U.S. Life Insurance
segment:
|
|
|
|
|
|
|
|
|
|
Long Term Care Insurance
|
|
|
14
|
|
|
34
|
|
|
(1)
|
Life Insurance
|
|
|
16
|
|
|
31
|
|
|
(193)
|
Fixed Annuities
|
|
|
23
|
|
|
26
|
|
|
40
|
Total U.S. Life
Insurance segment
|
|
|
53
|
|
|
91
|
|
|
(154)
|
Runoff
segment
|
|
|
14
|
|
|
4
|
|
|
6
|
Corporate and
Other
|
|
|
(46)
|
|
|
(105)
|
|
|
(103)
|
Adjusted operating
income (loss)
|
|
$
|
143
|
|
$
|
103
|
|
$
|
(137)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
available to Genworth Financial, Inc.'s common stockholders
|
|
|
|
|
|
|
|
|
|
per
share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
$
|
0.11
|
|
$
|
(0.25)
|
Diluted
|
|
$
|
0.31
|
|
$
|
0.11
|
|
$
|
(0.25)
|
Adjusted operating
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
$
|
0.21
|
|
$
|
(0.27)
|
Diluted
|
|
$
|
0.29
|
|
$
|
0.21
|
|
$
|
(0.27)
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
498.6
|
|
|
498.0
|
|
|
498.4
|
Diluted9
|
|
|
501.0
|
|
|
499.4
|
|
|
498.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets
|
(Amounts in
millions)
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
|
2017
|
|
2016
|
Assets
|
|
|
|
|
|
Cash, cash
equivalents and invested assets
|
|
$
|
75,387
|
|
$
|
75,012
|
|
Deferred acquisition
costs
|
|
|
3,207
|
|
|
3,571
|
|
Intangible assets and
goodwill
|
|
|
381
|
|
|
348
|
|
Reinsurance
recoverable
|
|
|
17,681
|
|
|
17,755
|
|
Other
assets
|
|
|
703
|
|
|
673
|
|
Separate account
assets
|
|
|
7,327
|
|
|
7,299
|
|
|
|
|
Total
assets
|
|
$
|
104,686
|
|
$
|
104,658
|
Liabilities and
equity
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Future policy
benefits
|
|
$
|
37,291
|
|
$
|
37,063
|
|
|
Policyholder account
balances
|
|
|
25,383
|
|
|
25,662
|
|
|
Liability for policy
and contract claims
|
|
|
9,295
|
|
|
9,256
|
|
|
Unearned
premiums
|
|
|
3,370
|
|
|
3,378
|
|
|
Deferred tax and
other liabilities
|
|
|
2,732
|
|
|
2,969
|
|
|
Borrowings related to
securitization entities
|
|
|
68
|
|
|
74
|
|
|
Non-recourse funding
obligations
|
|
|
310
|
|
|
310
|
|
|
Long-term
borrowings
|
|
|
4,194
|
|
|
4,180
|
|
|
Separate account
liabilities
|
|
|
7,327
|
|
|
7,299
|
|
|
|
|
Total
liabilities
|
|
|
89,970
|
|
|
90,191
|
|
Equity:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
1
|
|
|
1
|
|
|
Additional paid-in
capital
|
|
|
11,964
|
|
|
11,962
|
|
|
Accumulated other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Net unrealized
investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
(losses) on securities not other-than-temporarily
impaired
|
|
|
1,233
|
|
|
1,253
|
|
|
|
|
|
Net unrealized gains
(losses) on other-than-temporarily impaired securities
|
|
|
10
|
|
|
9
|
|
|
|
|
Net unrealized
investment gains (losses)
|
|
|
1,243
|
|
|
1,262
|
|
|
|
|
Derivatives
qualifying as hedges
|
|
|
2,036
|
|
|
2,085
|
|
|
|
|
Foreign currency
translation and other adjustments
|
|
|
(183)
|
|
|
(253)
|
|
|
Total accumulated
other comprehensive income (loss)
|
|
|
3,096
|
|
|
3,094
|
|
|
Retained
earnings
|
|
|
451
|
|
|
287
|
|
|
Treasury stock, at
cost
|
|
|
(2,700)
|
|
|
(2,700)
|
|
|
|
|
Total Genworth
Financial, Inc.'s stockholders' equity
|
|
|
12,812
|
|
|
12,644
|
|
|
Noncontrolling
interests
|
|
|
1,904
|
|
|
1,823
|
|
|
|
|
Total
equity
|
|
|
14,716
|
|
|
14,467
|
|
|
|
|
Total liabilities and
equity
|
|
$
|
104,686
|
|
$
|
104,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of Foreign
Exchange on Flow New Insurance Written10
Three months ended
March 31, 2017
|
|
|
Percentages
|
|
|
Percentages
|
|
|
|
Including
Foreign
|
|
|
Excluding
Foreign
|
|
|
|
Exchange
|
|
|
Exchange11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada Mortgage
Insurance (MI):
|
|
|
|
|
|
|
Flow new insurance
written
|
|
(8)
|
%
|
|
(12)
|
%
|
Flow new insurance
written (1Q17 vs. 4Q16)
|
|
(41)
|
%
|
|
(41)
|
%
|
|
|
|
|
|
|
|
Australia
MI:
|
|
|
|
|
|
|
Flow new insurance
written
|
|
(7)
|
%
|
|
(11)
|
%
|
Flow new insurance
written (1Q17 vs. 4Q16)
|
|
(18)
|
%
|
|
(18)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Core Yield to Reported Yield
|
|
|
|
Three
|
|
|
months
ended
|
|
|
March
31,
|
(Assets - amounts
in billions)
|
|
2017
|
Reported Total
Invested Assets and Cash
|
|
$
|
74.7
|
|
Subtract:
|
|
|
|
|
|
Securities
lending
|
|
|
0.3
|
|
|
Unrealized gains
(losses)
|
|
|
4.6
|
|
Adjusted end of
period invested assets
|
|
$
|
69.8
|
|
|
|
|
|
|
Average Invested
Assets Used in Reported Yield Calculation
|
|
$
|
69.7
|
|
Subtract:
|
|
|
|
|
|
Restricted commercial
mortgage loans and other invested assets related to
|
|
|
|
|
|
|
securitization
entities12
|
|
|
0.1
|
|
Average Invested
Assets Used in Core Yield Calculation
|
|
$
|
69.6
|
|
|
|
|
|
|
(Income - amounts
in millions)
|
|
|
|
|
Reported Net
Investment Income
|
|
$
|
790
|
|
Subtract:
|
|
|
|
|
|
Bond calls and
commercial mortgage loan prepayments
|
|
|
6
|
|
|
Other non-core
items13
|
|
|
3
|
|
|
Restricted commercial
mortgage loans and other invested assets related to
|
|
|
|
|
|
|
securitization
entities12
|
|
|
1
|
|
Core Net Investment
Income
|
|
$
|
780
|
|
|
|
|
|
|
Reported
Yield
|
|
|
4.53
|
%
|
Core Yield
|
|
|
4.48
|
%
|
_________________________
1 Unless otherwise stated, all references in this press
release to net income (loss), net income (loss) per share, adjusted
operating income (loss), adjusted operating income (loss) per share
and book value per share should be read as net income (loss)
available to Genworth's common stockholders, net income (loss)
available to Genworth's common stockholders per diluted share,
adjusted operating income (loss) available to Genworth's common
stockholders, adjusted operating income (loss) available to
Genworth's common stockholders per diluted share and book value
available to Genworth's common stockholders per share,
respectively.
2 This is a financial measure that is not calculated
based on U.S. Generally Accepted Accounting Principles
(Non-GAAP). See the Use of Non-GAAP Measures section of this
press release for additional information.
3 Percent change excludes the impact of foreign
exchange.
4 Company estimate for the first quarter of 2017, due to
timing of the filing of statutory statements; The MCT Ratio for
Canada MI in the first quarter of 2017 reflects the new regulatory
framework effective January 1,
2017. The Consolidated RBC Ratio for the U.S. Life Insurance
companies in the first quarter of 2016 is restated to reflect the
merger of Brookfield Life Annuity Insurance Company with and into
Genworth Life Insurance Company as if the merger occurred
January 1, 2015.
5 Calculated as available assets divided by required
assets as defined within PMIERs. As of March
31, 2017, December 31, 2016
and March 31, 2016, the PMIERs
sufficiency ratios were in excess of approximately $400 million, $350
million and $300 million,
respectively, of available assets above the PMIERs requirements.
Company estimate for the first quarter of 2017.
6 Holding company cash and liquid assets comprises
assets held in Genworth Holdings, Inc. (the issuer of outstanding
public debt) which is a wholly-owned subsidiary of Genworth
Financial, Inc.
7 Comprises cash and cash equivalents of $849 million, $998
million and $760 million,
respectively, and U.S. government bonds of $150 million, $100
million and zero, respectively, as of March 31, 2017, December
31, 2016 and March 31,
2016.
8 For the three months ended March 31, 2017 and 2016 and the three months
ended December 31, 2016, net
investment gains (losses) were adjusted for DAC and other
intangible amortization and certain benefit reserves of zero,
$(9) million and $1 million respectively, and adjusted for net
investment gains (losses) attributable to noncontrolling interests
of $14 million, $9 million, and $12
million, respectively.
9 Under applicable accounting guidance, companies in a
loss position are required to use basic weighted-average common
shares outstanding in the calculation of diluted loss per share.
Therefore, as a result of the loss from continuing operations, the
company was required to use basic weighted-average common shares
outstanding in the calculation of diluted loss per share as the
inclusion of shares for stock options, restricted stock units and
stock appreciation rights of 2.5 million for the three months ended
December 31, 2016 would have been
antidilutive to the calculation. If the company had not incurred a
loss from continuing operations in this period, dilutive potential
weighted-average common shares outstanding would have been 500.9
million for the three months ended December
31, 2016.
10 All percentages are comparing the first quarter of
2017 to the first quarter of 2016 unless otherwise stated.
11 The impact of foreign exchange was calculated using
the comparable prior period exchange rates.
12 Represents the incremental assets and investment
income related to restricted commercial mortgage loans and other
invested assets.
13 Includes cost basis adjustments on structured
securities and various other immaterial items.
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/genworth-financial-announces-first-quarter-2017-results-300449944.html
SOURCE Genworth Financial, Inc.