Genworth Financial (GNW) Posts Q4 Loss of 84c/Share

Genworth Financial (NYSE: GNW) reported Q4 EPS of ($0.84), which may not compare with the analyst estimate of ($0.03).

The current quarter results included an after-tax GAAP charge of $478 million related to the LTC active life margin review of its blocks acquired before 1996. Additionally, the company's New York subsidiary had a preliminary3 incremental negative margin of $195 million. The company increased statutory reserves by $39 million in the New York subsidiary in the fourth quarter, with the remaining $156 million recognized over the next four years. The remaining LTC blocks have positive margin. The company also recorded non-cash charges of $340 million after-tax reflecting the write off of remaining life insurance and LTC goodwill, as well as a tax charge related to a change in its permanent reinvestment assertion in Australia mortgage insurance (MI) and a tax benefit in connection with the company's plan to sell the lifestyle protection insurance business, which was previously identified as non-core.

Long Term Care Insurance

Long term care insurance net operating loss was $506 million, compared with a net operating loss of $361 million in the prior quarter and net operating income of $42 million in the prior year.

During the quarter, the company substantially completed (pending regulatory filings) its annual review of active life margins, including a review of the associated assumptions and methodologies. The company updated its margin assumptions and methodologies, informed by the work done in connection with the claim reserve review completed in the third quarter of 2014. The updates resulted in changes to claim termination rates and benefit utilization assumptions and associated methodologies, which materially reduced the company's active life margins. As part of the review, the company also developed updated assumptions relating to planned in force premium rate increases on in force policies that offset much of the reduction on margins from the updated margin assumptions, and also reviewed its other active life margin assumptions, including but not limited to claims frequency, and investment allocation and returns. As previously disclosed, the company is required to separately test its acquired LTC blocks for recoverability as part of its loss recognition testing margin review which resulted in a negative margin for these blocks, and the company unlocked the associated active life reserve assumptions, while the margin on the remaining blocks was positive. The current quarter impact of this unlocking, as well as additional adjustments to reserves, are as follows:

• Reserves were increased $729 million pre-tax or $474 million after-tax and the present value of future profits balance of $6 million pre-tax or $4 million after-tax was written off as a result of annual loss recognition testing;
• Claim reserves were increased a net $24 million pre-tax or $16 million after-tax, as a result of a $44 million after-tax correction to the prior quarter's claim reserve primarily related to claims in course of settlement, partially offset by a $28 million after-tax refinement of assumptions relating to claim termination rates.

Results for the quarter also included lower benefits from premium increases and reduced benefit options of $3 million after-tax versus the prior quarter and a favorable benefit of $7 million after-tax versus the prior year related to the premium increases approved and implemented to date.

Benefits and other changes in policy reserves increased $151 million after-tax versus the prior quarter and increased $549 million after-tax versus the prior year. Results versus the prior quarter were primarily impacted by the completion of the annual review of active life margins completed in the current quarter and the impact in the prior quarter from the completion of the claim reserve review, in addition to lower reinsurance benefits in the current quarter. Performance was unfavorable to the prior year primarily from the completion of the annual review of active life margins in the current quarter, but was also impacted by higher new claim severity assumptions resulting from the claim reserve review completed in the third quarter of 2014 in addition to higher frequency of new claims.

Individual LTC sales of $17 million were lower than the prior quarter and the prior year. In July 2014, the company launched its Privileged Choice Flex 3.0 product. This product is now available in 45 states. Sales are expected to continue at low levels in the near term due to the introduction of this higher priced product and ratings pressure.

For earnings history and earnings-related data on Genworth Financial (GNW) click here.

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