MET MetLife Inc

We are downgrading our recommendation on Genworth Financial Inc. (GNW) to Underperform from Neutral.

Genworth’s mortgage insurance business is still experiencing losses, though the magnitude of loss has narrowed in the third quarter. Better loss mitigation results, stability in the aging of loan delinquencies and higher levels of profitable new business aided the company to post lower losses.

Management thus remains focused on returning to profitability. The company is expecting to reach the higher-end of the targeted $400 million to $500 million of loss mitigation benefits. Genworth, year to date, has achieved $450 million loss mitigation benefits.

Also, starting 2012, Genworth will adopt the deferred acquisition cost (DAC) guidance. The guidance pertains to incremental direct costs of contract acquisitions and their postponement while other costs are incurred as they arise.

Genworth estimates the adoption of the DAC guidance will lower retained earnings and stockholders' equity by about $1.3 billion to $1.6 billion. Though the company expects to defer some costs and book lower amortization, it expects earnings to be lower in the future.

To focus more on its Retirement and Protection segment, Genworth sold its Medicare supplement business and related blocks of in-force business.

Furthermore, Genworth plans an initial public offering of its Australian mortgage insurance business in the second quarter of 2012, in order to support future growth opportunities for the Australian business with greater access to the capital markets, maintain control positions of strategic mortgage insurance platforms in Australia, and free material capital for redeployment.

Results at Retirement and Protection as well as at International continue to be solid. Retirement and Protection for the first nine months posted a double digit operating income growth while International delivered a single digit operating income growth.

Life Insurance continues to perform strongly with Lifestyle Protection delivering solid results based on effective pricing, risk and cost actions. As such the company remains focused on undertaking beneficial opportunities, pursuing cost containment measures, and focusing more on product and distribution in slower markets.

These efforts on the part of Genworth will generate a gross benefit of over $70 million with most of it benefiting 2012 earnings.

The Zacks Consensus Estimate for fourth-quarter 2011 is 21 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, 47 cents and $1.32.

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