Genworth Financial (GNW) Q1 Earnings Top Estimates, Down Y/Y

Genworth Financial, Inc. (NYSE:GNW) reported first-quarter 2018 adjusted operating income of 25 cents per share, which beat the Zacks Consensus Estimate of 23 cents by 8.7%. However, the bottom line deteriorated 13.8% from the year-ago quarter.

The company reported net income per share of 22 cents, which declined 29% from the prior-year period.

Operational Performance

Total revenues of Genworth Financial inched up 0.4% year over year to $2.1 billion. However, the top line missed the Zacks Consensus Estimate of $2.2 billion by 0.4%.

Total benefits and expenses increased 2.6% year over year to $1.9 billion, primarily owing to higher benefits and other changes in policy reserves, interest expense plus amortization of deferred acquisition costs and intangibles.

Segmental Results

U.S. Mortgage Insurance: Adjusted operating income of $111 million surged nearly 52.1% year over year. Loss ratio for the reported quarter improved 800 basis points (bps) year over year to 9%.

Canada Mortgage Insurance: Adjusted operating income was $49 million, up 36.1% year over year. Loss ratio improved 300 bps year over year to 13%, mainly owing to a decline in new delinquencies, net of cures and lower average reserve per delinquency, representing the ongoing housing market strength and underlying economic conditions.

Australia Mortgage Insurance: Adjusted operating income of $19 million improved 46.2% from the year-ago quarter. Loss ratio for the quarter under review improved 500 bps year over year to 30% due to change in the premium earnings pattern.

U.S. Life Insurance: Adjusted operating loss came in at $5 million against the year-ago operating income of $53 million.

Runoff: Adjusted operating income of $10 million declined 28.6% year over year, primarily due to weak equity market performance supporting the company’s variable annuity business.

Corporate and Other: Adjusted operating loss came in at $59 million, wider than the year-ago loss of $46 million.

Financial Update

Genworth exited the quarter with cash, cash equivalents and invested assets of $75.3 billion, down about 2.1% from the year-end 2017.

Long-term borrowings of Genworth Financial totaled $4.7 billion as of Mar 31, 2018, up approximately 10.2% from year-end 2017.

Book value per share was $26 as of Mar 31, 2018, up 1.2% from the year-ago quarter.

Business Update

In October 2016, Genworth Financial inked a definitive deal with China Oceanwide Holdings Group Co., Ltd. in order to be acquired by the latter for $2.7 billion or $5.43 per share in cash. This transaction will be executed via Asia Pacific Global Capital Co. Ltd., one of China Oceanwide’s investment platforms. Both companies are working toward the buyout’s completion as soon as possible.

For thorough regulatory reviews, the merger agreement between Genworth and Oceanwide got an extension to Jul 1, 2018 (from the previously announced date of Apr 1, 2018).

Due to the delay in receipt of required regulatory approvals, Genworth has successfully completed a $450-million senior secured term loan in March.

Per the announcement on Apr 24, 2018, both Genworth and Oceanwide have re-filed a joint voluntary notice with CFIUS to provide the latter with an extra time to review and discuss the Genworth and Oceanwide merger pact. In relation to the re-filing, CFIUS has agreed to proceed directly to a 45-day investigation period following a one-day review time frame. However, there is no guarantee with regard to CFIUS ultimately agreeing to clear the transaction.

Apart from the clearance by CFIUS, the transaction’s culmination is subject to the receipt of required regulatory approvals in the United States, China and other international jurisdictions plus other closing conditions.

Zacks Rank

Genworth Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Among other players from the insurance industry having already reported first-quarter earnings, the bottom line of The Progressive Corporation (NYSE:PGR) , MGIC Investment Corporation (NYSE:MTG) and RLI Corp. (NYSE:RLI) surpassed the respective Zacks Consensus Estimate.

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