Genworth Suffers Weakness in LTC Business, Estimates Down

We issued an updated research report on Genworth Financial Inc. GNW on Mar 30, 2015.

Genworth incurred loss in the fourth quarter that compared unfavorably with the Zacks Consensus Estimate and year-ago earnings due to substantial loss at its long-term care (LTC) business. With respect to the earnings trend, the company delivered a negative surprise in three of last four quarters with an average beat of -384.1%.

Genworth has been witnessing lower sales due to the introduction of products and pricing changes in the U.S. Life Insurance Division implemented over the past couple of years. Long-term care insurance sales continue to deteriorate. Moreover, loss ratios of long-term care insurance business have been increasing over the past several years and have ranged from 63% to 129% over the last five years.

Loss ratio in 2014 deteriorated 6,300 basis points year over year due to loss recognition testing in the fourth quarter and comprehensive claims review in the third quarter.

Additionally, investment results continue to witness a downturn, with 2014 not being an exception. While net investment income witnessed about 1% decline, annualized weighted-average investment yields declined 10 basis points due to lower reinvestment yields on higher average invested assets. Given a soft interest rate environment, we do not expect any immediate turnaround in investment results.

This Zacks Rank #5 (Strong Sell) life insurer is witnessing downward estimate revisions over the last 60 days as almost all the estimates moved south. The Zacks Consensus Estimate moved down by 26.7% to $1.01 for 2015 and 12.7% to $1.24 for 2016.

Stock to Consider

While we presently avoid Genworth, some better-ranked life insurers are American Equity Investment Life Holding Co. AEL, Universal American Corp. UAM and Voya Financial, Inc. VOYA. All these stocks sport Zacks Rank #2 (Buy).

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