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RICHMOND, Va., Oct 26, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Genworth Financial, Inc.
(NYSE: GNW) today reported net income of $304 million, or $0.65 per diluted
share, for the third quarter compared with $307 million, or $0.64 per diluted
share, in the prior year. Net operating income(1) for the third quarter was
$307 million, or $0.66 per diluted share, compared with $311 million, or $0.65
per diluted share, in the prior year.
Net operating income for the third quarter of 2006 included $8 million, or
$0.02 per diluted share, related to bond calls, commercial mortgage loan
prepayments and limited partnership earnings compared with $24 million, or
$0.05 per diluted share, in the prior year.
Genworth also announced that its Board of Directors increased the
company's share repurchase authority by $250 million, for a program total of
$1.0 billion. During the quarter, Genworth repurchased $122 million of stock,
bringing the total value of shares repurchased in 2006 through September to
$675 million of the total $1.0 billion available authority.
"Genworth delivered sound sales growth and demonstrated strong progress
redeploying capital," said Michael D. Fraizer, chairman and chief executive
officer. "Our balanced set of businesses keeps us on track to deliver net
operating income of $2.75 - $2.85 per diluted share for the total year."
Third Quarter Highlights
Business Growth
* Total universal life sales increased 74 percent, from a 29 percent
rise in annualized first year deposits and a two-fold increase in
excess deposits.
* Individual long term care (LTC) sales through independent
distribution channels grew 50 percent.
* Single premium immediate annuity sales increased 32 percent from
strong growth across distribution channels.
* Fee-based assets under management (AUM) grew over 50 percent from
strong sales growth in managed accounts and income distribution
series(2). Sales growth reflects expanded distribution
relationships and additional investments in wholesalers and
support.
* On October 20, Genworth completed the acquisition of AssetMark
Investment Services, Inc., a leading provider of open architecture
asset management solutions to independent financial advisors, with
$9 billion in AUM. This brings Genworth's independent advisor
related AUM to $16 billion on a combined basis.
* U.S. mortgage insurance had sequential and year-over-year growth
in primary insurance in-force, to $104 billion. In our flow
business, persistency improved to 74 percent and NIW increased 5
percent sequentially resulting in a second consecutive quarter of
insurance in force growth.
* International mortgage primary insurance in force grew 36 percent
reflecting strong NIW growth and the acquisition of a run off
block of business in Australia. The unearned premium reserve
increased 25 percent to $2.3 billion versus the prior year
period(3).
Capital Management & Redeployment
* During the quarter, Genworth's principal U.S. mortgage insurance
subsidiary released $300 million of mortgage insurance contingency
reserves, the majority of which was paid as a dividend to the
holding company for redeployment.
* In October, a new, wholly-owned subsidiary issued $315 million of
non-recourse funding obligations to fund certain statutory
reserves required for universal life business under what is
commonly known as Regulation AXXX. The subsidiary has received
regulatory approval to issue up to an aggregate of $475 million of
non-recourse funding obligations. In addition, Genworth
securitized an additional $300 million of XXX term life reserves
during the quarter, bringing total term life statutory reserves
securitized to nearly $2.5 billion.
* Genworth increased its quarterly common stock dividend 20 percent
to $0.09 a share, in line with its targeted 11 to 12 percent
payout ratio.
Segment Results
Segment net operating income (loss) presented in the tables below excludes
net investment gains (losses), net of taxes and other adjustments and includes
a $6 million benefit from foreign exchange. The discussion of segment net
operating income (loss) below is on an after-tax basis.
Protection
Segment net operating income
(in millions) Q3 06 Q3 05
Life $79 $73
LTC 38 41
Payment Protection 26 23
Group 9 8
Total Protection $152 $145
Sales
(in millions) Q3 06 Q3 05
Life $69 $57
LTC (including Medicare supplement) 51 41
Payment Protection 570 468
Group 41 37
Total Protection $731 $603
Life insurance results increased 8 percent primarily from new business
growth and continued favorable mortality. LTC income was $38 million, as
growth of the in-force business was more than offset by declining investment
yields as well as low terminations and higher claims on older policies.
Payment protection results increased 13 percent to $26 million reflecting
sales expansion, improved underwriting margins associated with a shift in
business mix towards continental Europe, and lower taxes. Group net operating
income increased 13 percent.
Total universal life sales were up $14 million to $33 million reflecting a
29 percent rise in annualized first year deposits and a two-fold increase in
excess deposits. Term life sales declined 5 percent, as distribution expansion
and focused customer service were more than offset by the effects of a highly
competitive pricing environment and a slowing market. Individual LTC sales
increased $6 million to $44 million, as strong growth in the independent
distribution channels and increased sales ahead of a price increase on new
product sales in California more than offset lower sales in the career
channel. During the quarter, actions were implemented to reposition the career
sales force away from a centrally organized, leads-based business model to a
more entrepreneurial, local sales model. Medicare supplement sales increased
$4 million to $7 million, reflecting the company's acquisition earlier this
year of Continental Life. Payment protection sales grew 16 percent. Strong
sales in growth markets and reciprocal reinsurance transactions in Canada were
partially offset by lower U.K. sales. Group sales were up 11 percent to $41
million from enhanced product offerings and distribution penetration.
Retirement Income & Investments (RI&I)
Segment net operating income
(in millions) Q3 06 Q3 05
Spread-Based Retail $23 $39
Fee-Based 21 14
Spread-Based Institutional 9 6
Total RI&I $53 $59
Sales
(in millions) Q3 06 Q3 05
Spread-Based Retail $647 $618
Fee-Based 1,043 673
Spread-Based Institutional 596 1,081
Total RI&I $2,286 $2,372
Assets Under Management(4) $41,979 $39,010
Spread-based retail results declined $16 million to $23 million compared
to the prior year quarter, which included $9 million of bond calls and
prepayments versus $2 million in the current quarter and also had $3 million
of favorable tax adjustments. Results in the current quarter benefited from
wider spreads that were more than offset by net outflows in fixed annuities
and $4 million higher amortization of deferred acquisition costs (DAC) mainly
related to increased lapse rates on older, low-return fixed annuity blocks.
Fee-based net operating income increased 50 percent to $21 million from growth
in assets under management and lower taxes. Spread-based institutional net
operating income was up 50 percent primarily from widening spreads driven by
the shift out of older, lower return GIC contracts to new funding agreements
backing notes.
Fee-based sales grew 55 percent, driven by Lifetime Income Plus, a
guaranteed minimum withdrawal benefit for life product that is part of the
income distribution series. Fee-based third-party managed asset sales were up
40 percent, reflecting wholesaler and producer expansion. In spread-based
retail, sales of single premium immediate annuities were $250 million, up 32
percent over the prior year. Fixed annuity sales declined 5 percent,
reflecting an unfavorable yield curve environment that makes alternative
products more attractive. Spread-based institutional sales of $596 million in
the quarter included $450 million of funding agreements backing notes.
Mortgage Insurance
Segment net operating income
(in millions) Q3 06 Q3 05
International $81 $68
United States 53 58
Total Mortgage Insurance $134 $126
Sales
(in billions) Q3 06 Q3 05
International $28.7 $21.0
United States 8.2 7.2
Total Mortgage Insurance $36.9 $28.2
International mortgage insurance income grew 12 percent reflecting
strength across leading positions in Canada, Australia and Europe. Income in
the prior year included $6 million of favorable items in Australia that did
not recur. In Canada, income was up 29 percent from solid revenue growth. In
Australia, net operating income excluding the unusual items in the prior year,
increased 18 percent from double-digit revenue growth and a lower effective
tax rate partially offset by higher losses associated with portfolio seasoning
and an increase in losses from a limited number of distribution relationships.
Europe and Rest of World contributed $1 million of net operating income versus
$2 million in the prior year, primarily from growth across Europe that was
more than offset by higher investments in new market platforms and non-
recurring employee benefit related expenses.
International NIW increased 31 percent to $28.7 billion primarily from
account penetration in Canada and Europe, higher bulk volume in Canada and
modest Australia flow business growth. In Canada, NIW increased 66 percent
from customer penetration and growth in mortgage originations and included
$2.7 billion of bulk NIW. In Europe and Rest of World, NIW increased 79
percent to $5.4 billion from continued account activation and penetration.
U.S. mortgage insurance income decreased $5 million compared to the prior
year quarter, which included a net of $5 million of favorable items that did
not recur. U.S. flow persistency was 74 percent in the quarter compared to 59
percent in the prior year as higher interest rates and lower home price
appreciation slowed refinancing activity. Current quarter results reflect
revenue growth and lower expenses. This was offset by a modest increase in
paid claims and an increase in reserves from the seasonal increase in
delinquencies.
U.S. mortgage insurance NIW increased to $8.2 billion, reflecting
participation in select prime bulk transactions. Flow NIW was flat compared
to the prior period as increased account penetration in distribution channels
offset a smaller market size. Sales of HomeOpeners(R), a product designed to
compete with simultaneous second mortgages, reached $1.2 billion, or 17
percent of flow production.
Corporate and Other
(in millions)
Q3 06 Q3 05
Segment net operating loss ($32) ($19)
The Corporate and Other segment net operating loss was $32 million in the
current quarter, $13 million higher than the prior year, primarily from lower
investment income on surplus and lower partnership distributions.
Stockholders' Equity
Stockholders' equity as of September 30, 2006 was $13.3 billion, or $29.44
per share compared with $13.3 billion, or $28.31 per share, as of September
30, 2005. Stockholders' equity, excluding accumulated other comprehensive
income, as of September 30, 2006 was $12.1 billion, or $26.86 per share,
compared with $11.6 billion, or $24.67 per share as of September 30, 2005.
Share Repurchase
During the quarter, Genworth repurchased 3.6 million shares at a weighted
average price of $34.43 per share. Genworth has the remaining authority to
repurchase an additional $325 million by June 2007.
The timing of share repurchases under the company's stock repurchase
program will depend on a variety of factors, including market conditions, and
may be suspended or discontinued at any time. Common stock acquired through
the repurchase program will be held as treasury shares and may be used for
general corporate purposes, including reissuances in connection with
acquisitions, employee stock option exercises or other employee stock plans.
About Genworth Financial
Genworth is a leading insurance holding company, serving the lifestyle
protection, retirement income, investment and mortgage insurance needs of more
than 15 million customers, and has operations in 24 countries. For more
information, visit http://www.genworth.com.
Conference Call and Financial Supplement Information
This press release and the financial supplement are now posted on the
Company's website. Investors are encouraged to review all of these materials.
A conference call will be held on October 27 at 9 a.m. (EDT) to discuss
the quarter's results and outlook. Genworth's conference call will be
accessible via telephone and the Internet. The dial-in number for Genworth's
October 27 conference call is 1-866-875-7108 or 1-706-634-9180 (outside the
U.S.); the pass code is "Genworth." To participate in the call by webcast,
register at http://investor.genworth.com at least 15 minutes prior to the
webcast, and download and install any necessary software.
The webcast will be archived on the company's website. A replay of the
call will be available at 1-800-642-1687 or 1-706-645-9291 (outside the U.S.);
pass code 8429033. A downloadable podcast/MP3 file will be available within
24 hours of the earnings call. The webcast replay and file download will be
available through November 3, 2006.
Use of Non-GAAP Measures
This press release includes the non-GAAP financial measure entitled "net
operating income." The company defines net operating income as net income
excluding after-tax net investment gains (losses), which can fluctuate
significantly from period to period, changes in accounting principles and
infrequent or unusual non-operating items. There were no infrequent or unusual
non-operating items excluded from net operating income for the periods
presented in this press release.
Management believes that analysis of net operating income enhances
understanding and comparability of performance by highlighting underlying
business activity and profitability drivers. However, net operating income
should not be viewed as a substitute for GAAP net income. In addition, the
company's definition of net operating income may differ from the definitions
used by other companies. The table at the end of this press release includes a
reconciliation of net income to net operating income.
Due to the unpredictable nature of the items excluded from the company's
definition of net operating income, the company is unable to reconcile its
outlook for net operating income to net income presented in accordance with
GAAP.
During 2006, the company began allocating net investment gains (losses) to
the segments in determining segment net income. The company excludes net
investment gains (losses), net of taxes and other adjustments, from segment
net operating income for each of the segments. Other adjustments represent
amortization of deferred acquisition costs and other intangible assets
associated with the net investment gains (losses). During 2005, all net
investment gains (losses) were recorded in the Corporate and Other segment.
For a reconciliation of segment net income to segment net operating income,
see the company's third quarter 2006 financial supplement on the company's
website at http://www.genworth.com or in the company's Current Report on Form
8-K furnished on October 26, 2006.
From time to time, the company also references the non-GAAP financial
measure entitled "operating return on equity" or "operating ROE." The company
defines operating ROE as net operating income divided by average stockholders'
equity, excluding accumulated other comprehensive income (AOCI) in average
stockholders' equity. Management believes that analysis of operating ROE
enhances understanding of the efficiency with which the company deploys its
capital. However, operating ROE as defined by the company should not be viewed
as a substitute for GAAP net income divided by average stockholders' equity.
Due to the unpredictable nature of net income and average stockholders' equity
excluding AOCI, the company is unable to reconcile its outlook for operating
ROE to GAAP net income divided by average stockholders' equity.
Definition of Sales
The term "sales" as used in this press release means (1) annualized first-
year premiums for term life insurance, long-term care insurance, Medicare
supplement insurance and group life and health insurance; (2) new and
additional premiums/deposits for universal life insurance, spread-based and
variable products; (3) new deposits for managed assets; (4) written premiums,
deposits and premium equivalents for third-party administered business gross
of ceded reinsurance and cancellations for payment protection insurance; (5)
new insurance written for mortgage insurance, which in each case reflects the
amount of business the company generated during each period presented; and (6)
written premiums net of cancellations for our Mexican-domiciled operations.
Sales do not include renewal premiums on policies or contracts written during
prior periods. The company considers annualized first-year premiums, new
premiums/deposits, written premiums and new insurance written 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.
This operating measure enables 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 the following:
* Risks relating to the company's businesses, including interest rate
fluctuations, downturns and volatility in equity markets, defaults in
portfolio securities, downgrades in the company's financial strength and
credit ratings, insufficiency of reserves, legal constraints on dividend
distributions by subsidiaries, illiquidity of investments, competition,
inability to attract or retain independent sales intermediaries and
dedicated sales specialists, availability and adequacy of reinsurance,
defaults by counterparties, foreign exchange rate fluctuations,
regulatory restrictions on the company's operations and changes in
applicable laws and regulations, legal or regulatory investigations or
actions, political or economic instability, the failure or any
compromise of the security of the company's computer systems and the
occurrence of natural or man-made disasters or a pandemic disease;
* Risks relating to the company's Protection and Retirement Income and
Investments segments, including unexpected changes in morbidity,
mortality and unemployment rates, accelerated amortization of deferred
acquisition costs and present value of future profits, goodwill
impairments, reputational risks if the company were to raise premiums on
in-force long-term care insurance products, medical advances such as
genetic mapping research, unexpected changes in persistency rates,
increases in statutory reserve requirements, the failure of demand for
long-term care insurance to increase as the company expects and changes
in tax and securities laws;
* Risks relating to the company's Mortgage Insurance segment, including
the influence of Fannie Mae, Freddie Mac and a small number of large
mortgage lenders and investors, increased regulatory scrutiny of Fannie
Mae and Freddie Mac resulting in possible regulatory changes, decreases
in the volume of high loan-to-value mortgage originations or increases
in mortgage insurance cancellations, increases in the use of
simultaneous second mortgages and other alternatives to private mortgage
insurance and reductions by lenders in the level of coverage they
select, unexpected increases in mortgage insurance default rates or
severity of defaults, deterioration in economic conditions,
insufficiency of premium rates to compensate the company for risks
associated with mortgage loans bearing high loan-to-value ratios,
increases in the use of captive reinsurance or other risk sharing
structures in the mortgage insurance market, changes in the demand for
mortgage insurance that could arise as a result of efforts of large
mortgage investors, legal or regulatory actions or investigations under
applicable laws and regulations, including the Real Estate Settlement
Practices Act and the Federal Fair Credit Reporting Act, competition
with government-owned and government-sponsored entities, potential
liabilities in connection with contract underwriting services and growth
in the global mortgage insurance market that is lower than the company
expects; and
* Risks relating to the company's separation from GE, including the
possibility that the company will not be able to replace certain
services previously provided by GE on terms that are at least as
favorable, the possibility that in certain circumstances the company
will be obligated to make payments to GE under our tax matters agreement
even if the company's corresponding tax savings either are delayed or
never materialize, the possibility that in the event of a change in
control of our company the company would have insufficient funds to meet
accelerated obligations under the tax matters agreement, the possibility
that certain service agreements with GE are not extended on favorable
terms, and the significance of the company's distribution relationship
with GE in the payment protection insurance business.
The company undertakes no obligation to publicly update any forward-
looking statement, whether as a result of new information, future developments
or otherwise.
(1) This is a financial measure not calculated based on U.S. Generally
Accepted Accounting Principles ("Non-GAAP"). See the Use
of Non-GAAP Measures section for additional information.
(2) Income distribution series products are comprised of the company's
retirement income annuity product and variable annuity riders that
provide similar income features. These products do not include single
premium immediate annuities or fixed annuities, which also serve
income distribution needs but are reported separately in the company's
financial supplement posted on the company's website.
(3) In the discussion of all international results, the percentage
changes, including net operating income, sales, NIW or unearned
premium reserves, exclude the impact of foreign exchange.
(4) Assets under management represent account values as of period end, net
of reinsurance, and managed third party assets.
Net Income and Net Operating Income
(amounts in millions, except per share data)
Three months ended
September 30,
2006 2005
REVENUES:
Premiums $1,680 $1,547
Net investment income 944 902
Net investment gains (losses) (6) (7)
Policy fees and other income 186 186
Total revenues 2,804 2,628
BENEFITS AND EXPENSES:
Benefits and other changes in policy reserves 1,183 1,026
Interest credited 383 364
Acquisition and operating expenses, net of
deferrals 533 506
Amortization of deferred acquisition costs
and intangibles 170 217
Interest expense 87 72
Total benefits and expenses 2,356 2,185
INCOME BEFORE INCOME TAXES 448 443
Provision for income taxes 144 136
Effective tax rate 32.1% 30.7%
NET INCOME 304 307
ADJUSTMENT TO NET INCOME:
Net investment (gains) losses, net of
taxes and other adjustments 3 4
NET OPERATING INCOME $307 $311
Effective tax rate (operating income) 32.1% 30.9%
Net earnings per common share:
Basic $0.67 $0.65
Diluted $0.65 $0.64
Net operating earnings per common share:
Basic $0.68 $0.66
Diluted $0.66 $0.65
Weighted-average common shares outstanding:
Basic 453.8 470.7
Diluted 467.2 481.1
SOURCE Genworth Financial, Inc.
Investors: Alicia Charity,
+1-804-662-2248,
Alicia.Charity@genworth.com, or
Media:
Phil Moeller,
+1-804-662-2534,
Philip.Moeller@genworth.com,
both of Genworth
Financial, Inc.
http://www.genworth.com