On April 16, 2014, we issued an updated research report on Genworth Financial Inc. (GNW).
After incurring losses over an extended period, the mortgage business of Genworth started reporting profits. For the sixth consecutive quarter now, the mortgage insurance segment has generated a profit, largely on the heels of substantial lower loss at U.S. Mortgage Insurance.
Gradual improvement in the U.S. housing market, strong loss mitigation programs and a growing private mortgage insurance market helped in increasing new insurance written and lower losses. This in turn helped the U.S. Mortgage Insurance business return to full-year profitability for the first time since 2007.
Further, total flow delinquencies declined 26% year over year, and new delinquencies 21% year over year, with new business remaining quite profitable. Delinquency level in 2013 was the lowest since 2008. Loss mitigation savings in 2013 were $563 million, well above the full-year target of $250 million to $350 million, as flow modifications remained strong.
Genworth is also progressing well with rate increases for its long-term care in force premium. As of Dec 31, 2013, it got approvals of approximately $195 to $200 million for the targeted premium increase from 41 states.
Genworth estimates about 84% of its policyholders agreeing to pay the approved rate increases. It has also started filing for 6% to 13% rate increases on long-term care products (issued in the beginning of 2003 and written through 2012). Current premiums on these policies are in the range of $800 million. The company received approvals from 4 states in 2013.
However, the introduction of new products and pricing changes in the U.S. Life Insurance Division, implemented over the past couple of years, have led to lower sales for Genworth. Genworth estimates long-term care sales to trend down in the near term until the new product gains hold in the market and the company expands its distribution reach.
Also, low interest rate environment will weigh on the operating results of the company.
With respect to earnings performance, the life insurer delivered positive surprises in 2 of the last 4 quarters with an average beat of 5.8%. This was greatly helped by a 26.7% positive earnings surprise in the last reported quarter. Our proven model shows that Genworth is set to deliver another quarter of positive supervise as it has the right combination of a Zacks Rank #3 (Hold) and an Earnings ESP of +2.78%.
Other Stocks to Consider
Other better-ranked life insurers worth reckoning are Protective Life Corp. (PL), Sun Life Financial Inc. (SLF) and Torchmark Corp. (TMK). All these stocks sport a Zacks Rank #2 (Buy).