We reiterate our Neutral recommendation on Genworth Financial Inc. (GNW) following mixed third-quarter 2013 results, a slightly lower profit expectation from International Mortgage Insurance and softer long-term care sales. The life insurer presently carries a Zacks Rank #3 (Hold).
Why the Reiteration?
Genworth’s third quarter operating earnings per share fell short of the Zacks Consensus Estimate but was a couple of cents above the year-ago level. The top line however, missed on both counts.
The Zacks Consensus Estimate for 2013 moved south 3.5% over the last 60 days to $1.10 while for 2014 it moved down by 2.1% to $1.43.
Due to the introduction of new products and pricing changes in the U.S. Life Insurance Division, Life insurance sales slipped 72% year over year in the first nine months of 2013, while long-term care insurance sales decreased 31% year over year. Genworth estimates long-term care sales to trend down in the near term, given these changes.
Genworth expects operating earnings to be weighed upon by continued low interest rate environment. Genworth expects consolidated operating earnings per share from after-tax spreads will be down by 7 cents in 2013 and 11 cents per share in 2014 if the investment yields and asset allocation strategies, through 2015, do not change.
Adjusting for the impact of foreign exchange, management estimates 2014 International Mortgage Insurance segment profit to be lower by 10% to 15% from 2013 level.
Counting on positives, for the sixth consecutive quarter, the mortgage insurance segment generated a profit. Total flow delinquencies declined 24% year over year, and new delinquencies fell 19% year over year. Year-to-date loss mitigation savings were $439 million, well above the full-year target of $250 million to $350 million, as flow modifications remained strong.
Genworth got approvals of approximately $155 to $160 million of the targeted premium increase for its long-term care in force premium from 31 states. The company has also started filing for 6% to 13% rate increases on long-term care products. Genworth expects $200 to $300 million of additional annual premiums when fully implemented over the next five years.
Genworth has been strengthening its financial position. The company addressed its debt maturities till Dec 2016. Issuance of $400 million in new debt and a new 3-year credit facility of $300 million increased financial flexibility of the company.
Other Stocks to Consider
Some better-ranked stocks in the same sector include StanCorp Financial Group Inc. (SFG), American Equity Investment Life Holding Co. (AEL) and Reinsurance Group of America Inc. (RGA). While StanCorp sports a Zacks Rank #1 (Strong Buy), American Equity and Reinsurance Group carry a Zacks Rank #2 (Buy).
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