MET MetLife Inc

We are upgrading Genworth Financial Inc. (GNW) to Neutral from Underperform as the company remains focused on the robust performance of its Retirement and Protection segment, lower delinquencies and strong scores with the rating agencies.

To focus more on its Retirement and Protection segment, Genworth agreed to sell its Medicare supplement business and related blocks of  its in-force business. The company inked the deal to sell the Medicare biz to Aetna Inc. for $290 million.

The transaction includes the sale of Continental Life Insurance Company of Brentwood, Tennessee and its subsidiary, American Continental Insurance Company. Genworth estimates that approximately $240 million will be available for utilization within its life insurance companies from the transaction. The company also expects to record an after-tax gain of approximately $35 million from the sale.

Genworth scores strongly with the credit rating agencies. A. M. Best affirmed the financial strength ratings of “A” and issuer credit ratings of “a” of Genworth major life and health subsidiaries. The rating agency also affirmed the ICR of “bbb” of the company. The rating agency eyes Genworth favorably, taking into account its strong business position in term life, long-term care, retirement and wealth management markets.

In the second quarter, Genworth experienced primary delinquencies to decline 2% sequentially. New delinquencies declined 18% year-over-year and 11% sequentially. Genworth also had a reserve strengthening of $300 million in the quarter.

On the flip side, Genworth’s mortgage insurance business is still experiencing losses. However, management remains focused on returning to profitability. It is targeting $400 million to $500 million of loss mitigation benefits. In the quarter Genworth achieved $130 million loss mitigation benefits. The company also estimates pretax income from its books of business originated since mid-2008 at $430 million over their life with a return on equity in excess of 25%.

The second quarter also suffered a higher year-over-year loss at the U.S. Mortgage Insurance segment. However, better results at Retirement & Protection and at International were a partial offset. The second-quarter operating loss was wider than that of the Zacks Consensus Estimate. 

The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

Based in Richmond, Virginia, Genworth Financial offers a variety of products to customers in areas such as life insurance and lifestyle protection, long-term care insurance, annuities, asset management and mortgage insurance through financial intermediaries, advisors, independent distributors and sales specialists. The company competes with MetLife, Inc. (MET) and Prudential Financial, Inc. (PRU).

 
GENWORTH FINL (GNW): Free Stock Analysis Report
 
METLIFE INC (MET): Free Stock Analysis Report
 
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
 
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