Genworth Profit Rises 86% on Mortgage Insurance
Genworth Financial Inc. (GNW), the best-performing insurer in the Standard & Poor’s 500 Index this year, said earnings increased 86 percent as the unit that backs U.S. home loans reported a second straight profit.
Second-quarter net income rose to $141 million, or 28 cents a share, from $76 million, or 16 cents, a year earlier, Richmond, Virginia-based Genworth said today in a statement. Operating profit, which excludes some investment results, was 27 cents a share, missing the 29-cent average estimate of 10 analysts surveyed by Bloomberg.
Chief Executive Officer Tom McInerney has overseen a 78 percent share rally since starting on Jan. 1 and putting in place a plan to secure the company’s investment-grade credit rating. The insurer is benefiting from a rebound in the U.S. housing market and is cutting expenses while raising premiums for long-term care coverage.
“The choice of Tom McInerney as CEO pointed to the need for operational improvement at the company’s core businesses,” Mark Palmer, an analyst at BTIG LLC, said before the earnings release. “The turnaround has been very significant, and now it’s just a question of sustainability.”
Operating profit at the U.S. mortgage insurer was $13 million, compared with a $25 million loss a year earlier. Before reporting positive results in the three months ended March 31, the unit had been unprofitable since 2007.
Book value, a measure of assets minus liabilities, fell to $29.76 a share from $32.90 at the end of the first quarter. Holding-company cash stood at about $1 billion, compared with about $955 million on March 31.
“They have been the twin pillars of strength for the company through and after the credit crisis,” Palmer said. “There’s a certain degree of nervousness about those businesses right now, given the fact that the housing markets in Australia and Canada to some appear extended.”
McInerney, 57, replaced Michael Fraizer, who stepped down May 1, 2012, after Genworth shelved a planned initial public offering of its Australian mortgage insurer. Chief Financial Officer Martin Klein had been acting CEO.
Genworth said last month it would cut 400 jobs amid pressure from low interest rates. The reductions will help the company save $80 million to $90 million a year, and costs tied to the firings were expected to be about $15 million to $20 million in the second quarter, the company said.
Genworth has units that back mortgages and sell long-term care coverage and life insurance. The insurer invests in bonds and other assets to back future payouts, and low interest rates have pressured investment results.
Mortgage insurers led by MGIC Investment Corp. (MTG) have surged this year on bets they can increase sales as the U.S. government scales back its role in the housing market and more people purchase homes. MGIC last week reported its first quarterly profit since 2010. The companies, which cover losses when homeowners default and foreclosures fail to recoup costs, suffered when home prices crashed amid the financial crisis.
Genworth avoided a downgrade to junk at Moody’s Investors Service by isolating its U.S. mortgage insurer this year, while Standard and Poor’s has a negative outlook on its BBB-rating, citing a need to improve operating results. McInerney has said the company needs to boost its credit grade before returning capital to shareholders.
Long-term care operating profit climbed to $26 million from $14 million, Genworth said.
McInerney said in February that he’s focused on improving results from long-term care, after fourth-quarter profit at the unit dropped 75 percent. Genworth is working with regulators to increase rates for the coverage that helps pay for home-health aides or residence in nursing homes, he said.
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