Genworth Financial Inc · NYSE:GNW
Genworth Financial — Q3 2014 Earnings Presentation
37 slides from Genworth Financial's earnings presentation, Nov 6, 2014
Slide 1: Third Quarter 2014 Earnings Summary
Third Quarter 2014 Earnings Summary November 6, 2014 ©2014 Genworth Financial, Inc. All rights reserved.
Slide 2: Cautionary Note Regarding Forward-Looking Statements
Cautionary Note Regarding Forward-Looking Statements This presentation contains certain “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expects,” “anticipates,” “inte
Slide 3: Strategic Priorities Update
Strategic Priorities Update Long Term Care Insurance (LTC) Three Part Strategy Continuing To Show Results Results Continued To Benefit From Higher Incremental Premium & Reduced Benefits 47 State Approvals (As Of 10/31/14) As Part Of 2012 In Force Premium Rate Increases 22 State Approvals (As Of 10/3
Slide 4: 3Q14 Key Points
3Q14 Key Points $345MM Unfavorable After-Tax Impact To Net Operating Income (Loss) From Completion Of LTC Claim Reserves Review $35MM Unfavorable After-Tax Correction Of A LTC Claim Reserve Calculation $34MM Unfavorable After-Tax Accruals Impacting Net Operating Income (Loss) Principally In Connecti
Slide 5: 3Q14 Summary -- Genworth Consolidated
3Q14 Summary -- Genworth Consolidated Net Operating Income (Loss)1 Highlights ($MM) Global Mortgage Insurance Division Australia MI NCI2 - - - 11 23 Continued Strong Loss Ratio Performance Of 21% 193 194 In Both Canada & Australia 139 158 107 U.S. MI Losses Increased From Accruals In 87 132 136 (317
Slide 6: 3Q14 Summary -- Global MI
3Q14 Summary -- Global MI Net Operating Income (Loss) Highlights ($MM) Operating Income Down Versus 2Q14; Impact From Accruals In Connection With Australia MI NCI - - - 11 23 Loss Mitigation Disputes In U.S. MI & Full 136 Quarter Impact From Australia Minority 132 IPO 107 Reported Flow NIW1 Up Seque
Slide 7: Canada
Canada Premiums ($MM) Relatively Smaller 2010 & Subsequent Books 138 137 130 128 130 Of Business Unfavorable $6MM Impact From Foreign Exchange Versus Prior Year Flow NIW Increased Sequentially From A 3Q13 4Q13 1Q14 2Q14 3Q14 Seasonally Larger Originations Market & From Flow NIW 6,000 5,000 2,900 5,0
Slide 8: Australia
Australia Premiums ($MM) 98 98 97 102 105 Favorable $2MM Impact From Foreign Exchange Versus Prior Year; Premiums Up From Seasoning Of Newer Books Stable MI Market Size 3Q13 4Q13 1Q14 2Q14 3Q14 Flow NIW 8,000 9,000 7,800 7,900 8,100 Bulk NIW 100 - - - 1,000 Benefits & Other Changes In Policy Reserve
Slide 9: U.S. Mortgage Insurance
U.S. Mortgage Insurance Premiums ($MM) Premium Levels Driven By Increase In 137 142 137 144 146 Insurance In Force From New Books (2009+) Higher NIW Sequentially From Higher Purchase Originations & Market Share Gains; Refinance Originations Remain Low From Higher Interest Rates 3Q13 4Q13 1Q14 2Q14 3
Slide 10: Global MI -- Capital Adequacy
Global MI -- Capital Adequacy Regulatory Capital Ratios Comments 3Q13 4Q13 1Q14 2Q14 3Q141 International MI Segment Dividends Paid To Holding Australia – PCA2 135% 148% 147% 154% 156% Company Of $42MM Through 3Q14 Canada – MCT3 218% 223% 229% 230% 224% Australia PCA Ratio Impacted By Positive U.S. M
Slide 11: 3Q14 Summary -- U.S. Life Insurance
3Q14 Summary -- U.S. Life Insurance Net Operating Income (Loss) Highlights ($MM) 3Q14 Operating Loss Reflected: 111 119 Life Insurance – Mortality Unfavorable 94 Versus The Prior Quarter; Favorable 54 56 21 69 Life (322) Unlocking Offset By Lower Variable 42 46 39 Investment Income; $9MM Unfavorable
Slide 12: Life Insurance
Life Insurance Premiums & Insurance & Investment Product Fees/Other ($MM) 354 347 351 344 377 Recapture Of Reinsurance Treaty Favorably Impacted Premiums In 3Q14 3Q13 4Q13 1Q14 2Q14 3Q14 Net Investment Income & Yield1 ($MM) Unfavorable Impact In 3Q14 From Prepayment Speed 138 139 128 137 123 Adjustm
Slide 13: Long Term Care Insurance
Long Term Care Insurance Premiums ($MM) 564 582 565 577 587 $91MM YTD Pre-Tax Benefit From In Force Premium Rate Action1 3Q13 4Q13 1Q14 2Q14 3Q14 Net Investment Income & Yield ($MM) 282 291 290 292 293 Low Interest Rate Environment & Variability In Limited 5.61% 5.70% 5.59% 5.50% 5.36% Partnership &
Slide 14: 2012 LTC In Force Premium Rate Increase ($MM)
2012 LTC In Force Premium Rate Increase ($MM) Premium Expectation From 2012 Announced Rate Action1 Approvals CA + Second Round Expectation 47 States Filings When Fully 31 States Implemented ~250-300 ~190-200 + ~60-100 = 1Includes Assumptions For Waiver Of Premium & Policyholder Behavior Earnings Imp
Slide 15: Fixed Annuities
Fixed Annuities Net Investment Spread1 ($MM) 142 155 154 153 154 Fixed Annuity Spreads Impacted By Variability In Limited Partnership & Bond Call Income 3Q13 4Q13 1Q14 2Q14 3Q14 Excluding This Variability, Fixed SPDA2 Spread 1.47% 1.61% 1.70% 1.61% 1.70% Annuity Spreads In Line With Prior SPIA3 Spre
Slide 16: GAAP Goodwill Impairment Testing
GAAP Goodwill Impairment Testing Life Insurance Decrease In New Business Value Resulted In Failing Step 1 (Fair Value < Book Value) Due To Small Margin In Prior Year’s Evaluation Sales Projections Were Lowered – Focus On Transitioning To Higher Return Permanent Products, Including Universal Life, In
Slide 17: U.S. Life Company Statutory Results
U.S. Life Company Statutory Results Unassigned Surplus Highlights ($MM) 563 Unassigned Surplus Decreased ~$260MM, RBC Ratio Decreased ~45 Points & Net Income Decreased ~$325MM 440 444 Due To Impact Of LTC Claims Reserve Review & Calculation Correction Excluding Impact Of LTC Claims Reserve ~2901 Rev
Slide 18: 3Q14 Summary -- Corporate & Other
3Q14 Summary -- Corporate & Other Net Operating Loss Highlights ($MM) International Protection Continued Pressure From Slow Consumer Lending In Europe High Unemployment Levels Persist In Southern Europe (33) (32) European GDP Showed Modest Improvement YTD (47) Runoff Equity Market Growth Lower Than
Slide 19: Net Investment Income
Net Investment Income Net Investment Income Highlights ($MM) 835 Sequential Decrease In Net Investment 801 805 813 805 Income Primarily From Unfavorable Prepayment Speed Adjustment On Structured Securities Of $22MM $2.8B Of Purchases In 3Q14 Primarily In Corporate Debt Securities, ABS5, CMBS/RMBS6 ,
Slide 20: Holding Company Cash & Liquid Assets
Holding Company Cash & Liquid Assets1 Cash & Liquid Assets Roll Forward Highlights ($MM) Variance (85) Target Holding Company Cash & Liquid Assets Of 1.5X Interest Coverage Plus $350MM Buffer Maintained At Quarter Ends Leverage Ratio Increased To 25.1%3 From 23.9%3 Due To Decrease In Equity 1,2232 (
Slide 21: 2014 Goals Recap: Holding Company & Corporate & Other Division
2014 Goals Recap: Holding Company & Corporate & Other Division 2014 Results 2014 Goals & Milestones 3Q 3QYTD Observations Holding Company Holding Company Cash & Liquid $1,138MM2 ; $720MM In Excess Of Assets1: Exceed 1.5X Interest Coverage 1.5X Interest Coverage Plus Risk Buffer Of $350MM 24% Leverag
Slide 22: 2014 Goals Recap: U.S. Life Insurance
2014 Goals Recap: U.S. Life Insurance 2014 Results 2014 Goals & Milestones 3Q 3QYTD Observations Dividends Of $175-$225MM No Dividend Paid In 3Q14; Not Expected To Meet Goal U.S. Life Unassigned Surplus Of $540-$565MM ~$290MM1; Not Expected To Meet Goal RBC Ratio > 400% ~445%1 1Company Estimate For
Slide 23: 2014 Goals Recap: Global MI
2014 Goals Recap: Global MI 2014 Results 2014 Goals & Milestones 3Q 3QYTD Observations Dividends Of $70-$110MM (Revised From International MI $42MM YTD; Revised Dividend Plan $150-$225MM Due To Australia MI IPO) On Track Canada MCT Of 220% (Revised From In ~224%1 Excess Of 190% After Consultation Wi
Slide 24: Summary
Summary Remain On Track For Global MI 2014 Business Goals…U.S Life Insurance Division Challenged From LTC Claims Review & Goodwill Impacts Results In The Quarter Included: $345MM Unfavorable After-Tax Impact To Net Operating Income (Loss) From Completion Of LTC Claim Reserves Review $35MM Unfavorabl
Slide 25: Appendix
Appendix Genworth 3Q14 Earnings Call Presentation - November 6, 2014 24
Slide 26: Total Genworth Financial, Inc.'s Stockholders' Equity
Total Genworth Financial, Inc.’s Stockholders’ Equity ($MM) 3Q14 2Q14 1Q14 4Q13 3Q13 U.S. Life Insurance 11,153 11,118 10,602 9,485 9,604 Int’l Mortgage Insurance 3,331 3,454 3,971 3,864 3,967 Canada 1,699 1,746 1,648 1,661 1,686 Australia 1,392 1,443 2,055 1,935 2,008 Other Countries 240 265 268 26
Slide 27: GAAP Goodwill Impairment Testing
GAAP Goodwill Impairment Testing Background Goodwill Is Not Amortized, Required To Be Tested For Impairment Life & LTC Are Separately Tested For Impairment Multiple Step Impairment Test Based On Fair Value Compared To Book Value Step 1: Fair Value < Book Value (Impairment Indicator) Step 2: Required
Slide 28: Use Of Non-GAAP Measures
Use Of Non-GAAP Measures This presentation includes the non-GAAP1 financial measures entitled "net operating income (loss)" and “operating earnings per share.” Operating earnings per share is derived from net operating income (loss). The chief operating decision maker evaluates segment performance a
Slide 29: Reconciliation Of Net Operating Income (Loss) To Net Income (Loss)
Reconciliation Of Net Operating Income (Loss) To Net Income (Loss) 2014 2013 (Amounts in millions, except per share amounts) 3Q 2Q 1Q 4Q 3Q U.S. Life Insurance Division U.S. Life Insurance segment: Life Insurance $ 13 $ 39 $ 21 $ 56 $ 54 Long-Term Care Insurance (361) 6 46 42 41 Fixed Annuities 26 2
Slide 30: Reconciliation Of Net Investment Gains (Losses)
Reconciliation Of Net Investment Gains (Losses) 2014 2013 (Amounts in millions) 3Q 2Q 1Q 4Q 3Q Net investment gains (losses), gross $ (27) $ 34 $ (17) $ 26 $ (23) Adjustments for: Deferred acquisition costs and other intangible amortization and certain benefit reserves 9 3 1 - 6 Net investment gains
Slide 31: Reconciliation Of Core Yield – Genworth Consolidated
Reconciliation Of Core Yield – Genworth Consolidated 2014 2013 (Assets - amounts in billions) 3Q 2Q 1Q 4Q 3Q Reported - Total Invested Assets and Cash $ 76.6 $ 76.9 $ 74.8 $ 72.8 $ 73.1 Subtract: Securities lending 0.3 0.3 0.3 0.2 0.2 Unrealized gains (losses) 5.4 5.6 4.3 2.8 3.3 Derivative counterp
Slide 32: Reconciliation Of Reported Yield – U.S. Life Division
Reconciliation Of Reported Yield – U.S. Life Division 2014 2013 U.S. Life Insurance Division 3Q 2Q 1Q 4Q 3Q (Assets - amounts in millions) Reported - Total Invested Assets and Cash $ 59,339 $ 58,341 $ 56,710 $ 54,506 $ 54,316 Subtract: Unrealized gains (losses) 4,982 5,160 3,975 2,546 3,047 Adjusted
Slide 33: Reconciliation Of Pre-Deposit Accounting Basis For LPI
Reconciliation Of Pre-Deposit Accounting Basis For LPI 3Q 2014 2Q 2014 1Q 2014 4Q 2013 3Q 2013 Deposit Pre-Deposit Deposit Pre-Deposit Deposit Pre-Deposit Deposit Pre-Deposit Deposit Pre-Deposit Accounting Accounting Accounting Accounting Accounting Accounting Accounting Accounting Accounting Accoun
Slide 34: Reconciliation Of Net Income (Loss) Before Noncontrolling Interests In Australia MI Business
Reconciliation Of Net Income (Loss) Before Net Income Attributable To Noncontrolling Interests In The Australia MI Business To Net Income (Loss) Available To Genworth's Common Stockholders And Net Operating Income (Loss) Before Net Income Attributable To Noncontrolling Interests In The Australia MI
Slide 35: Reconciliation Of Leverage Ratio
Reconciliation Of Leverage Ratio As of As of (Amounts in millions) September 30, 2014 June 30, 2014 Long-term borrowings $ 4,662 $ 4,691 Adjust long-term borrowings related to noncontrolling interests: Canada (noncontrolling interests ownership of 42.7%) (166) (174) Australia (noncontrolling interes
Slide 36: Definition Of Selected Operating Performance Measures
Definition Of Selected Operating Performance Measures Management uses selected operating performance measures including ''sales" and "insurance in force" or "risk in force" which are commonly used in the insurance industry as measures of operating performance. Management regularly monitors and repor
Slide 37: Cautionary Note Regarding Forward-Looking Statements
Cautionary Note Regarding Forward-Looking Statements This presentation contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as "expects," "intends," "anticipates," "plans,"