Due to higher loss at the U.S. Mortgage Insurance segment as well as weak results at Retirement and Protection and at International, we are downgrading Genworth Financial (GNW – Analyst Report) to Underperform.
Genworth’s mortgage insurance business is experiencing losses as a result of the stressed economic conditions combined with elevated unemployment rates. Though the overall economy is showing signs of improvement, the unemployment rate is expected to remain elevated, which will further weigh on the company’s mortgage insurance business.
Genworth has experienced significant declines in the sale of life, wealth management and long-term care insurance products. Additionally, earnings were lower in the lifestyle protection business associated primarily with higher unemployment related claims. The company has experienced significant outflows in its wealth management business, which has severely impacted its assets under management.
Genworth’s investment portfolio, that experienced significant losses and impairments in its investment portfolio in the last several quarters, is another area of concern. We expect the company to experience modest investment losses and impairments in the next couple of quarters given its significant exposure to commercial mortgage loans and mortgage-backed securities.
However, Genworth Financial is aggressively lowering its debt levels. In November 2010, the compnay repaid the borrowings under its five-year revolving credit facilities in two installments. Genworth had also taken steps to improve profitability across many of its segments, including price increases across several lines, introduction of high-margin products, distribution expansion and strict underwriting standards.
The company is focusing to fuel growth in its Wealth Management business through acquisitions. It is acquiring Altegris, a specialist in alternative investments, to expand its offerings to financial advisers.
The Zacks Consensus Estimate for fourth-quarter 2010 is 17 cents per share. For full years 2010 and 2011, the Zacks Consensus Estimates are, respectively, 70 cents per share and $1.30 per share.
The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward pressure on the shares over the near term.
Based in Richmond, Virginia, Genworth Financial offers a variety of products to customers in areas such as life insurance and lifestyle protection, long-term care insurance, annuities, asset management and mortgage insurance through financial intermediaries, advisors, independent distributors and sales specialists. The company competes with MetLife, Inc. (MET – Analyst Report) and Prudential Financial, Inc. (PRU – Analyst Report).