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Genworth Financial Announces Second Quarter 2022 Results

Net Income of $181 Million and Adjusted Operating Income of $176 Million

  • Enact segment adjusted operating income of $167 million, with nine percent annual growth in insurance in-force and strong loss performance
  • Received first quarterly dividend from Enact of $19 million
  • U.S. Life Insurance segment adjusted operating income of $21 million driven by solid long-term care insurance (LTC) and fixed annuity performance, partially offset by unfavorable life insurance results
  • $52 million in annual premium rate increases approved, increasing net present value from achieved LTC rate actions since 2012 by approximately $300 million, bringing the total to $20.7 billion
  • U.S. life insurance companies’ risk-based capital ratio estimated at 290 percent
  • Retired $48 million of debt, bringing holding company total debt to $1,052 million; cash and liquid assets of $228 million
  • Executed $30 million in share repurchases through July 2022
  • Received a two-notch credit rating upgrade from Moody’s Investors Service in July 2022

RICHMOND, Va.–(BUSINESS WIRE)–$GNW–Genworth Financial, Inc. (NYSE: GNW) today reported results for the quarter ended June 30, 2022. The company reported net income1 of $181 million, or $0.35 per diluted share, in the second quarter of 2022, compared with net income of $240 million, or $0.47 per diluted share, in the second quarter of 2021. The company reported adjusted operating income2 of $176 million, or $0.34 per diluted share, in the second quarter of 2022, compared with adjusted operating income of $194 million, or $0.38 per diluted share, in the second quarter of 2021.

“Despite a very challenging macroeconomic environment, Genworth delivered another quarter of strong performance while further strengthening our balance sheet and returning value to our shareholders through our share buyback program,” said Tom McInerney, Genworth President and CEO. “We are proud of the progress we have made on our long-term value creation strategy. Going forward, we will continue to balance debt reduction, investments in growth and capital return to shareholders, while proactively managing our legacy LTC portfolio.”

Financial Performance

Consolidated Net Income & Adjusted Operating Income

 

Three months ended June 30

 

 

2022

2021

 

 

 

Per

 

Per

 

 

 

diluted

 

diluted

Total

(Amounts in millions, except per share)

Total

share

Total

share

% change

Net income available to Genworth’s common stockholders

$

181

$

0.35

$

240

$

0.47

(25

)%

Adjusted operating income

$

176

$

0.34

$

194

$

0.38

(9

)%

Weighted-average diluted shares

 

514.2

 

 

515.0

 

 

 

 

 

 

 

 

 

As of June 30

 

 

2022

2021

 

Book value per share

 

$

23.28

 

$

29.89

 

Book value per share, excluding accumulated other comprehensive income (loss)

 

$

23.56

 

$

22.33

 

Net investment gains, net of taxes and other adjustments, increased net income by $8 million in the current quarter, compared with $55 million in the second quarter of 2021. The investment gains in the current quarter were primarily from mark-to-market gains on limited partnership investments held in the LTC business and net gains on derivatives partially offset by mark-to-market losses on equity investments.

Net investment income was $787 million in the quarter, compared to $764 million in the prior quarter and $844 million in the prior year. Net investment income increased versus the prior quarter as a result of higher income from limited partnerships and the inflation benefit on Treasury Inflation-Protected Securities (TIPS), primarily in the LTC business. Net investment income decreased versus the prior year as a result of lower variable investment income, primarily driven by lower income from bond calls, commercial mortgage loan prepayments and limited partnerships, partially offset by higher income from TIPS. The reported yield and the core yield2 for the current quarter were 4.83 percent and 4.79 percent, respectively, compared to 4.67 percent and 4.61 percent, respectively, in the prior quarter.

Genworth’s effective tax rate on income from continuing operations for the current quarter was approximately 24.9 percent. As in past quarters, the effective tax rate was increased by the tax effect on certain forward starting swap gains that are taxed at 35 percent when amortized into net investment income.

The table below shows adjusted operating income (loss) by segment and for Corporate and Other activities:

Adjusted Operating Income (Loss)

 

 

 

(Amounts in millions)

Q2 22

Q1 22

Q2 21

Enact3

$

167

 

$

135

 

$

135

 

U.S. Life Insurance

 

21

 

 

(4

)

 

71

 

Runoff

 

2

 

 

9

 

 

15

 

Corporate and Other

 

(14

)

 

(9

)

 

(27

)

Total Adjusted Operating Income

$

176

 

$

131

 

$

194

 

Adjusted operating income (loss) represents income (loss) from continuing operations excluding the after-tax effects of income (loss) from continuing operations attributable to noncontrolling interests, net investment gains (losses), gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, initial gains (losses) on insurance block transactions, restructuring costs and other adjustments. A reconciliation of net income to adjusted operating income is included at the end of this press release.

Enact

Operating Metrics

     

 

 

 

(Dollar amounts in millions)

     

Q2 22

Q1 22

Q2 21

Adjusted operating income3

     

$

167

 

$

135

 

$

135

 

Primary new insurance written

     

$

17,448

 

$

18,823

 

$

26,657

 

Loss ratio

     

 

(26

)%

 

(4

)%

 

12

%

Enact reported adjusted operating income of $167 million, compared with $135 million in both the prior quarter and prior year. Enact’s primary insurance in-force increased nine percent versus the prior year, driven by new insurance written (NIW) and higher persistency given the rise in interest rates. Primary NIW decreased seven percent from the prior quarter. It was also down 35 percent versus the prior year, primarily from a smaller private mortgage insurance market. Enact’s expenses in the current quarter were $61 million, resulting in an expense ratio of 26 percent.

Enact’s current quarter results reflected a benefit of $62 million from incurred losses driven by a favorable $96 million pre-tax reserve release, primarily related to cures on 2020 COVID-19 delinquencies, which reduced the loss ratio to negative 26 percent. Results in the prior quarter and prior year reflected a benefit of $10 million and losses of $30 million, and a loss ratio of negative four percent and 12 percent, respectively. Losses in the prior quarter included a favorable $50 million pre-tax reserve release, primarily related to cures on 2020 COVID-19 delinquencies. New delinquencies in the current quarter were 7,847, a decrease of 10 percent from 8,724 in the prior quarter, driven by seasonality. Current quarter new delinquencies increased 14 percent from 6,862 in the prior year. The current quarter new delinquency rate of 0.8 percent remained consistent with pre-pandemic levels. Approximately 21 percent of new primary delinquencies in the current quarter were reported in forbearance plans which may cure at elevated rates.

U.S. Life Insurance

Adjusted Operating Income (Loss)

 

 

 

(Amounts in millions)

Q2 22

Q1 22

Q2 21

Long-Term Care Insurance

$

34

 

$

59

 

$

98

 

Life Insurance

 

(34

)

 

(79

)

 

(40

)

Fixed Annuities

 

21

 

 

16

 

 

13

 

Total U.S. Life Insurance

$

21

 

$

(4

)

$

71

 

 

 

 

 

Long-Term Care Insurance In-Force Rate Action Performance

 

 

 

(Amounts in millions)

Q2 22

Q1 22

Q2 21

Adjusted Operating Income from In-Force Rate Actions4, 5

$

255

 

$

304

 

$

310

 

Long-Term Care Insurance

Long-term care insurance reported adjusted operating income of $34 million, compared with $59 million in the prior quarter and $98 million in the prior year. Adjusted operating income impacts of $255 million4 from cumulative in-force rate actions were less favorable than the prior quarter and prior year, driven primarily by lower reserve releases from benefit reductions related to a legal settlement, as that settlement is materially complete. However, a second legal settlement will begin to be implemented in the second half of 2022.

In the current quarter, claim terminations and healthy life mortality were lower versus the prior quarter from a seasonal decrease in mortality and lower pandemic impacts. New claims increased versus the prior quarter and prior year driven by both higher severity and frequency as the legacy blocks age.

LTC results reflected higher net investment income of $31 million after-tax versus the prior quarter, primarily from the favorable impact of limited partnerships and TIPS. Compared to the prior year, LTC experienced lower net investment income of $18 million after-tax, primarily from the impact of lower income from limited partnerships, bond calls and commercial mortgage loan prepayments, partially offset by TIPS performance.

Renewal premiums decreased versus the prior year driven by policy terminations and policies entering paid-up status because of higher non-forfeiture and reduced benefit elections by policyholders.

Life Insurance

Life insurance reported an adjusted operating loss of $34 million, compared with adjusted operating losses of $79 million in the prior quarter and $40 million in the prior year. Current quarter results were favorably impacted by significantly lower mortality, driven by lower impacts from the pandemic. Amortization of deferred acquisition costs (DAC) related to term lapses increased in the current quarter as the 20-year term block issued in 2002 entered the post-level premium period.

Current quarter results included a lower charge of $7 million after-tax versus the prior quarter related to DAC recoverability testing in the company’s universal life insurance products6. In the prior quarter, the company also recorded a $20 million after-tax charge related to a cost of insurance legal settlement.

Fixed Annuities

Fixed annuities reported adjusted operating income of $21 million, compared with $16 million in the prior quarter and $13 million in the prior year. Results in the current quarter reflected higher mortality in the single premium immediate annuity product and lower DAC amortization in the fixed index annuity product as a result of rising interest rates. Net investment spreads were lower versus the prior year, primarily from lower bond calls and commercial mortgage loan prepayments, as well as anticipated block runoff.

Runoff

Runoff reported adjusted operating income of $2 million, compared with $9 million in the prior quarter and $15 million in the prior year. Current quarter results in the closed variable annuity product line were impacted by unfavorable equity market performance compared to the prior quarter and prior year.

Corporate And Other

Corporate and Other reported an adjusted operating loss of $14 million, compared with adjusted operating losses of $9 million in the prior quarter and $27 million in the prior year. Current quarter results were lower compared to the prior quarter due to lower investment income. Additionally, results in the current quarter reflected lower interest expense versus the prior year from the reduction of Genworth holding company debt.

Capital & Liquidity

Genworth maintains the following capital positions in its operating subsidiaries:

Key Capital & Liquidity Metrics

 

 

 

(Dollar amounts in millions)

Q2 22

Q1 22

Q2 21

Enact

 

 

 

Combined Risk-To-Capital Ratio7

12.6:1

12.0:1

11.8:1

Enact Mortgage Insurance Corporation Risk-To-Capital Ratio7

12.6:1

12.1:1

12.0:1

Private Mortgage Insurer Eligibility Requirements (PMIERs) Sufficiency Ratio7, 8

 

166

%

 

176

%

 

165

%

U.S. Life Insurance Companies

 

 

 

Consolidated Risk-Based Capital Ratio7

 

290

%

 

296

%

 

272

%

Holding Company Cash and Liquid Assets9,10

$

228

 

$

215

 

$

842

 

Key Points

  • Enact’s PMIERs sufficiency ratio is estimated to be 166 percent, $2,047 million above published PMIERs requirements11. The PMIERs sufficiency ratio decreased 10 points, or by $214 million, sequentially, driven by Enact’s operating company distribution to its holding company, Enact Holdings, Inc., NIW and amortization of existing reinsurance transactions, partially offset by lapses, business cash flows and lower delinquencies;
  • PMIERs sufficiency benefited from a 0.30 multiplier applied to the risk based required asset factor for certain non-performing loans, which resulted in a reduction of the published PMIERs required assets by an estimated $178 million at the end of the current quarter, compared to $272 million at the end of the prior quarter and $760 million at the end of the second quarter of 2021. These amounts are gross of incremental reinsurance benefits from the elimination of the 0.30 multiplier;
  • Enact paid its first quarterly dividend of $0.14 per share during the current quarter, with $19 million paid to Genworth;
  • Enact executed a five-year $200 million revolving credit facility to enhance its future financial flexibility;
  • U.S. life insurance companies’ consolidated statutory risk-based capital ratio is estimated to be 290 percent at the end of the current quarter, down from 296 percent in the prior quarter, primarily from the impact of declining equity markets in the closed variable annuity product line;
  • Genworth’s holding company ended the quarter with $228 million of cash and liquid assets. Cash sources in the quarter included $58 million from net intercompany tax payments and a $19 million dividend from Enact. During the current quarter, the company reduced its February 2024 debt obligation by $48 million through open market repurchases, leaving $152 million of principal remaining on the 2024 debt. Genworth’s parent holding company public debt outstanding was $1,052 million as of June 30, 2022;
  • The company repurchased $15 million of its common stock at an average price below $3.90 per share in the second quarter and repurchased an additional $15 million in July 2022 at an average price below $3.75 per share. The company authorized a $350 million share repurchase program in May 2022 and expects the majority of share repurchases to occur following the repayment of its remaining 2024 debt; and
  • In July 2022, Moody’s Investors Services upgraded the senior unsecured debt rating of Genworth Holdings, Inc. by two notches, from B1 to Ba2. The outlook for the rating is stable.

About Genworth Financial

Genworth Financial, Inc. (NYSE: GNW) is a Fortune 500 provider of products, services and solutions that help families address the financial challenges of aging. Headquartered in Richmond, Virginia, Genworth applies its nearly 150 years of experience each day to helping people navigate caregiving options and fund their long-term care needs. Genworth is also the parent company of publicly traded Enact Holdings, Inc. (Nasdaq: ACT), a leading U.S. mortgage insurance provider. For more information on Genworth, visit genworth.com, and for more information on Enact Holdings, Inc. visit enactmi.com.

Conference Call And Financial Supplement Information

Investors are encouraged to read this press release, summary presentation and financial supplement, which are now posted on the company’s website, http://investor.genworth.com.

Genworth will conduct a conference call on August 2, 2022 at 9:00 a.m. (ET) to discuss the second quarter’s results, which will be accessible via:

Allow at least 15 minutes prior to the call time to register for the call. A replay of the call will be available at 888-203-1112 or 719-457-0820 (outside the U.S.); conference ID # 5586482 through August 16, 2022.

Prior to Genworth’s conference call, Enact will hold a conference call on August 2, 2022 at 8:00 a.m. (ET) to discuss its results from the second quarter, which will be accessible via:

Allow at least 15 minutes prior to the call time to register for the 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 (loss) from continuing operations attributable to noncontrolling interests, net investment gains (losses), gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, initial gains (losses) on insurance block transactions, restructuring costs and infrequent or unusual non-operating items. Initial 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 initial 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 estimated future credit losses, 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. Gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, initial 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 Financial, Inc.’s common stockholders in accordance with U.S. 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 Financial, Inc.’s common stockholders or net income (loss) available to Genworth Financial, Inc.’s common stockholders per share on a basic and diluted basis determined in accordance with U.S. 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) available to Genworth Financial, Inc.’s common stockholders to adjusted operating income (loss) assume a 21 percent tax rate and are net of the portion attributable to noncontrolling interests. Net investment gains (losses) are also adjusted for DAC and other intangible amortization and certain benefit reserves.

In the second and first quarters of 2022, the company repurchased $48 million and $82 million, respectively, principal amount of Genworth Holdings, Inc.’s (Genworth Holdings) senior notes due in February 2024 for a pre-tax loss of $1 million and $3 million, respectively. These transactions were excluded from adjusted operating income as they relate to gains (losses) on the early extinguishment of debt.

The company recorded a pre-tax expense of $1 million and $5 million in the second quarter of 2022 and 2021, respectively, related to restructuring costs as it continues to evaluate and appropriately size its organizational needs and expenses. There were no infrequent or unusual items excluded from adjusted operating income during the periods presented.

The tables at the end of this press release provide a reconciliation of net income available to Genworth Financial, Inc.’s common stockholders to adjusted operating income for the three months ended June 30, 2022 and 2021, as well as for the three months ended March 31, 2022, 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 U.S. GAAP. In addition, the company’s definition of core yield may differ from the definitions used by other companies. A reconciliation of reported U.S. GAAP yield to core yield is included in a table at the end of this press release.

Definition of Selected Operating Performance Measures

The company taxes its businesses at the U.S. corporate federal income tax rate of 21 percent. Each segment is then adjusted to reflect the unique tax attributes of that segment such as permanent differences between U.S. GAAP and tax law. The difference between the consolidated provision for income taxes and the sum of the provision for income taxes in each segment is reflected in Corporate and Other activities.

The annually-determined tax rates and adjustments to each segment’s provision for income taxes are estimates which are subject to review and could change from year to year.

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 business generated in a period. Sales refer to new insurance written for mortgage insurance products included in the company’s Enact segment. The company considers new insurance written to be a measure of the operating performance of its Enact segment because it represents a measure of new sales of insurance policies during a specified period, rather than a measure of revenues or profitability during that period.

Management regularly monitors and reports insurance in-force and risk in-force for the company’s Enact segment. Insurance in-force is a measure of the aggregate unpaid principal balance as of the respective reporting date for loans insured by the company’s U.S. mortgage insurance subsidiaries.

Contacts

Investors:

Sarah E. Crews

InvestorInfo@genworth.com

Media:

Amy Rein

Amy.Rein@genworth.com

Read full story here

Staff

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