Genworth Financial Reports First Quarter 2006 Earnings

2006-05-02T12:33:00.000-07:00

RICHMOND, Va., April 27, 2006 /PRNewswire-FirstCall/ --

Three months ended March 31, (Unaudited)
2006 2005
Per diluted Per diluted
Total share Total share
(Amounts in millions,
except per share)
Net earnings $334 $0.70 $322 $0.65
Net operating earnings $345 $0.72 $326 $0.66
Weighted average diluted shares 479.5 494.3

Genworth Financial, Inc. (NYSE: GNW) today reported net earnings for
the first quarter of 2006 of $334 million, or $0.70 per diluted share. Net
earnings for the first quarter of 2005 were $322 million, or $0.65 per
diluted share.
Net operating earnings for the first quarter of 2006 were $345 million,
or $0.72 per diluted share, compared to net operating earnings of $326
million or $0.66 per diluted share in the first quarter of 2005.
"Our first quarter demonstrated solid business results, strong capital
management, and excellent progress on new product launches, as we continue
to expand and penetrate markets for retirement income, protection and
mortgage insurance," said Michael D. Fraizer, chairman and chief executive
officer. "Our international operations continued to strengthen their
position, with double digit earnings growth from both payment protection
and international mortgage insurance."
First Quarter Highlights

* Term life sales grew 17 percent, while universal life sales doubled in
the quarter. Individual long term care (LTC) sales increased 8
percent from growth in independent distribution channels, while
Medicare supplement sales accelerated. Payment protection sales in
continental Europe grew 17 percent excluding foreign exchange from new
relationships established during 2005 that are now generating sales.

* In the Protection segment, Genworth launched two key products: a
linked benefits product that combines universal life with long term
care insurance, creating a flexible tool for consumers to meet these
critical needs; and, MasterKey, a term life insurance return of
premium product targeting the home mortgage market. Genworth also
released its 5th annual, national Cost of Care study of nursing home
and related LTC costs. The survey of more than 9,000 care providers
includes nursing home, assisted living and in-home care costs and is
available at genworth.com.

* International mortgage insurance (MI) total flow sales increased 55
percent to $20 billion from expanded distribution and product
capabilities with the addition of 16 new lender relationships during
the quarter. In U.S. MI, flow new insurance written (NIW) increased
despite a smaller market, driven by continued penetration of a
broadened set of distribution channels and increasing sales of our
HomeOpeners(R) products, which reached $910 million or 16 percent of
flow NIW - a four-fold increase from a year ago.

* In the 401(k) retirement income marketplace, Genworth has two initial
launch customers, Paychex Inc. and Smithfield Foods, Inc., for
ClearCourse(SM) - which enables plan participants to buy guaranteed
layers of income, with the potential for market upside, in a separate
account.

* In March, the General Electric Company fully divested its holdings of
Genworth with the sale of 71.2 million shares to the public and the
repurchase of 15 million shares for $479 million by Genworth under its
current $750 million authority.

* On March 22, James S. Riepe, former vice chairman of T. Rowe Price
Group, Inc., joined Genworth's Board of Directors, increasing the
number of independent directors to six, bringing board composition to
a majority of independent directors.

2006 Outlook
Genworth confirms its current earnings outlook of $2.65 to $2.75 net
operating earnings per diluted share.
Segment Results
Segment net operating earnings presented exclude net realized
investments gains (losses) and the cumulative effect of an accounting
change related to stock-based compensation expense. For a reconciliation of
segment net operating earnings to segment GAAP net earnings, see disclosure
at the end of this release.
Protection
Segment net operating earnings
(in millions) Q1 06 Q1 05
Life $74 $68
Long term care 43 42
Payment protection 25 22
Group 7 7
Total Protection $149 $139

Sales
(in millions) Q1 06 Q1 05
Life $62 $42
Long term care 48 41
Payment protection 435 465
Group 34 30
Total Protection $579 $578
Protection segment net operating earnings increased 7 percent to $149
million, driven by strong growth in life insurance and payment protection
results. Life insurance earnings increased 9 percent from solid growth,
good in-force mortality and higher persistency. LTC earnings were $43
million as in-force growth and a lower loss ratio offset lower investment
yields and higher renewal commission expenses. The LTC loss ratio declined
as a result of higher terminations, a reserve release, and stable paid
claims. Prior year quarter LTC results included $3 million of favorable
experience on blocks in which Genworth has a reinsurance interest. Payment
protection earnings increased 14 percent to $25 million reflecting new
business growth, stronger underwriting margins related to a shift in
business mix, and lower taxes. Earnings included $2 million unfavorable
foreign exchange.
Term life sales grew 17 percent from ongoing competitive pricing,
distribution expansion and focused customer service. Total universal life
sales doubled to $28 million reflecting a three-fold increase in excess
deposits and 29 percent growth in annualized first-year deposits.
Individual long term care sales increased $3 million to $41 million from
strong performance in the independent sales channel. Sales of Medicare
supplement products increased $4 million to $7 million from expansion into
16 new states over the past year and heightened product awareness
associated with recent Medicare legislation. Payment protection sales
declined 6 percent primarily associated with $36 million in unfavorable
foreign exchange. Adjusted for foreign exchange, total sales were flat as
strong growth in continental Europe was offset by a drop in sales in the
U.K. Group sales were up 13 percent, with higher dental and disability
sales more than offsetting lower medical product sales.
Retirement Income & Investments (RI&I)
Segment net operating earnings
(in millions) Q1 06 Q1 05
Spread-based retail $36 $34
Fee-based 15 17
Spread-based institutional 10 9
Total RI&I $61 $60

Sales
(in millions) Q1 06 Q1 05
Spread-based retail $436 $683
Fee-based 988 590
Spread-based institutional 757 349
Total RI&I $2,181 $1,622

Assets Under Management(1) $40,500 $36,358
RI&I segment net operating earnings increased to $61 million. Spread-
based retail results increased 6 percent driven primarily by wider interest
spreads, lower expenses and favorable reserve refinements. Bond calls and
mortgage prepayments net of deferred acquisition cost amortization
decreased in the quarter to $3 million in the first quarter of 2006
compared with $5 million in the first quarter of 2005. Fee-based earnings
benefited from strong growth in assets under management, but were down $2
million, reflecting investment in growth platforms and $2 million of
non-recurring expense favorability in the prior year quarter.
Fee-based sales grew 67 percent, driven by Lifetime Income Plus, a
guaranteed minimum withdrawal benefit for life product that is part of the
income distribution series(2). Fee-based third-party managed asset sales
grew 80 percent, from wholesaling and producer expansion as well as strong
equity market performance.
Spread-based retail sales declined 36 percent reflecting the
challenging interest rate and yield curve environment. Spread-based
institutional sales of $757 million in the quarter included two registered
notes offerings that totaled $700 million.
(1) Assets under management represent account values, net of reinsurance,
and managed third party assets as of period end.

(2) Income distribution series products are comprised of the company's
retirement income annuity product and four 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.

Mortgage Insurance
Segment net operating earnings
(in millions) Q1 06 Q1 05
International $77 $69
United States 72 72
Total Mortgage Insurance $149 $141

Sales
(in billions) Q1 06 Q1 05
International $20.4 $14.2
United States 6.8 5.7
Total Mortgage Insurance $27.2 $19.9
Mortgage Insurance segment net operating earnings were up 6 percent to
$149 million. International MI earnings grew 12 percent, driven by revenue
growth and lower taxes partially offset by higher losses, primarily in
Australia, which were favorable in the prior year quarter and also reflect
the seasoning of more recent in-force books. Results also included higher
expenses related to investments in growth initiatives and $1 million of
favorable foreign exchange. Earnings in the year ago quarter included a $6
million benefit related to a European cancellation study that resulted in
higher earned premium in the period. International NIW increased 43 percent
from strong account penetration in Europe and Canada. In addition, NIW
included an approximate $4 billion catch-up in sales from delays in
customer reporting of new business from several clients in Australia.
U.S. MI earnings were $72 million. U.S. MI earnings benefited from a
reinsurance agreement with our international business. This was offset by
$4 million of higher pretax losses, which included:
* $9 million of lower paid claims;
* $3 million reserve release associated with a reduction in
delinquencies in areas severely impacted by hurricanes Katrina and
Rita; and
* $16 million lower change in reserves than in the prior year quarter.
U.S. flow persistency increased to 72 percent in the first quarter of
2006 versus 68 percent in the fourth quarter of 2005, driven in part by
slower refinancing activity as a result of higher interest rates. U.S. flow
NIW increased 11 percent to $5.5 billion, reflecting continued progress in
penetrating new customer segments as well as growing HomeOpeners(R) product
sales, which more than offset the reduction in originations associated with
the rise in interest rates. U.S. bulk NIW increased more than 80 percent to
$1.3 billion reflecting participation in selective prime bulk transactions.
Corporate and Other
(in millions)
Q1 06 Q1 05
Segment net operating loss ($14) ($14)
The Corporate and Other segment net operating loss was unchanged
compared to the prior year quarter at $14 million. On a sequential basis,
segment after tax expenses were $20 million lower from timing of brand
initiatives scheduled for rollout later in the year and higher costs
charged to the operating segments. The fourth quarter of 2005 also included
$4 million of higher tax expense compared to the current period.
Other Items
After-tax net realized investment losses of $15 million in the first
quarter of 2006 included an $11 million charge related to the
deconsolidation of several securitization entities as a result of GE's
divestiture of Genworth during the quarter.
Stockholders' equity as of March 31, 2006 was $12.5 billion, or $27.37
per share compared with $12.5 billion, or $26.62 per share at March 31,
2005. Stockholders' equity, excluding accumulated other comprehensive
income, as of March 31, 2006 was $11.7 billion or $25.74 per share compared
with $11.1 billion, or $23.52 per share at March 31, 2005.
Conference Call Information
Genworth will conduct a conference call on April 28 from 9 a.m. to 10
a.m. (EDT).
The conference call will be accessible via telephone and the Internet.
This earnings release and financial supplement are now posted on the
company's website. Investors are encouraged to review all of these
materials. The web cast will be available at genworth.com. To access the
call by telephone, dial 1-800-599-9795 (U.S.) or 1-617-786-2905 (outside
the U.S.), access code "Genworth". A replay of the call will be available
from 1 p.m. EDT on April 28 through May 5, 2006 at 1-888-286-8010 or
1-617-801-6888 (outside the U.S.), access code 57552239. The call will also
be replayed at the company's website during this same time period.
Use of Non-GAAP Measures
This press release includes the non-GAAP financial measure entitled
"net operating earnings." The company defines net operating earnings as net
earnings excluding after-tax net realized 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
earnings for the periods presented in this press release.
Management believes that analysis of net operating earnings enhances
understanding and comparability of performance by highlighting underlying
business activity and profitability drivers. However, net operating
earnings should not be viewed as a substitute for GAAP net earnings. In
addition, the company's definition of net operating earnings may differ
from the definitions used by other companies. The tables at the end of this
press release include reconciliations of net earnings to net operating
earnings.

fdelondras

Genworth Financial Reports First Quarter 2006 Earnings