Genworth Financial Estimates Lowered on Soft Long-Term Care


On Aug 22, we issued an updated report on Genworth Financial, Inc. (GNW).

Genworth, in the second quarter, posted mixed results with operating earnings missing the Zacks Consensus Estimate but improving 14.8% year over year driven by an improvement in top line and reduction in expenses.

Genworth’s mortgage insurance businesses continued to perform well driven by consistent improvement in loss performance. However, adverse claims development affected the long-term care insurance business.

On a positive note, Genworth continues to progress on premium rate increase approvals. While approval from eight states is pending, it has already won approval in 48. The company expects incremental premium recognized in 2014 between $120 million and $140 million.

In addition, the U.S. Mortgage Insurance division has been showing improvement on the strength of lower new delinquency development and effective loss mitigation programs along with changes in aging of existing delinquencies. Loss mitigation savings in the first half of 2014 totaled $216 million and full-year savings are projected between $250 million and $350 million.

However, loss ratios of the long-term care insurance business have been increasing over the past several years and have ranged from 63% to 68% over the last five years. The company expects loss ratio within 25–30% in 2014.

Genworth experienced a substantial increase in adverse claims experience for long-term care insurance products. This in turn weighed considerably upon the operating income of the company.

The Zacks Consensus Estimate for 2014 and 2015 witnessed downward revisions as most of the estimates were moved south in the last 60 days. It moved down 11% to $1.75 for 2015 (6 of 7 estimates lowered) and 8.8% to $1.55 for 2015 (5 of 7 estimates lowered).

Genworth carries a Zacks Rank #5 (Strong Sell).

Other Stocks to Consider

Some better-ranked life insurers include Symetra Financial Corporation (SYA), Lincoln National Corporation (LNC) and Voya Financial Inc. (VOYA). All these stocks carry a Zacks Rank #2 (Buy).

Read the Full Research Report on GNW
Read the Full Research Report on LNC
Read the Full Research Report on SYA
Read the Full Research Report on VOYA

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