On Jul 15, 2013, shares of Genworth Financial Inc. (GNW) reached a 52-week High of $12.94. The momentum was driven by the life insurer’s continued efforts to augment its operational performance.
To better focus on capital generation, increasing the financial strength and flexibility of the company as well as simply the business model, Genworth decided to divest the wealth management business.
With the intention to reduce expenses, Genworth decided to sever 400 positions. Though Genworth will have to bear severance fees, outplacement and other associated costs of $15 to $20 million during the second quarter, it will have $80 to $90 million in annual pre-tax expense savings when the plan becomes fully implemented.
Additionally, Genworth gained approval for implementation of its U.S. Mortgage Insurance Capital Plan. It is expected to lower Genworth Mortgage Insurance Company's (:GMICO), the main U.S. mortgage insurance subsidiary‘s risk-to-capital by 12 to 15 points. Further, the plan should enhance the company’s new business writing capability and lower the default risk under the agreement covering its senior notes. The plan also comprises a contribution of $100 million in cash by Genworth to GMICO. Moreover, for 2013, Genworth estimated loss mitigation savings between $250 million and $350 million, new insurance written to be between $15 billion and $20 billion, and new delinquency to decline between 15% and 20%.
Valuation for Genworth looks stretched. The shares are trading at a discount to the peer group average both on a forward price-to-earnings basis and on price-to-book basis. Return on equity of 3.0% is much lower than the peer group average of 8.2%. The 1-year return from the stock came in at 141%, above the S&P’s return of 24%.
Genworth Limited presently carries a Zacks Rank #3 (Hold). Life insurers like American Equity Investment Life Holding Co. (AEL), China Life Insurance Co. Ltd. (LFC) and Reinsurance Group of America Inc. (RGA), among others, carry a favorable Zacks Rank #1 (Strong Buy) and appear impressive.
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