2010 Q4 Earnings: Genworth Mortgage Woes Result in Surprise Loss

Retirement, LTC and wealth management offset some of the loss

In an unwelcome surprise, Genworth Financial Inc. (GNW) on Wednesday reported a $161 million net loss in the fourth quarter due to problems in its mortgage insurance business. Good news, however, came out of the retirement unit, which saw a 7% rise in areas such as long-term care and wealth management.

The company reported a Q4 2010 net loss of $0.33 per diluted share, compared with net income of $40 million, or $0.08 per diluted share, in the fourth quarter of 2009.

"The U.S. (mortgage insurance) recovery is slower than anticipated and included some disappointing surprises," said Chairman and CEO Mike Fraizer during the company’s conference call.

At the segment level, results in the quarter included net operating income of $138 million from Retirement and Protection and $117 million in International. “This was more than offset by a net operating loss of $352 million in U.S. Mortgage Insurance,” Genworth reported in its Q4 2010 earnings release ,

Individual long-term care insurance sales increased 30% versus the prior year, marking the seventh sequential quarter of growth, at $83 million versus $63 million in fourth-quarter 2009. Long-term care net operating income fell, however, to $43 million from $49 million a year ago.

Wealth management net flows were $646 million, the seventh consecutive quarter of positive net flows, and net operating income rose to $11 million from $7 million a year ago.

The Retirement and Protection unit’s total assets under management (AUM) grew to $52.2 billion in Q4 2010 versus $46.3 billion in Q4 2009. Of that, wealth management grew to $24.7 billion versus $18.9 billion, fee-based retirement income grew to $9.0 billion from $8.3 billion and spread-based retirement income fell to $18.5 billion from $19.2 billion.

"We demonstrated solid International results, improvements in Retirement and Protection and good sales momentum in the fourth quarter," Fraizer said in a statement. "However, as a result of losses in the U.S. Mortgage Insurance business, our overall results for the quarter and the year were not acceptable. We are taking aggressive actions on several fronts to improve performance in 2011 and beyond, including strengthening U.S. Mortgage Insurance reserves while maintaining good capital flexibility to support new business growth."

Genworth, which is historically one of the five largest U.S. mortgage insurers, boosted reserves in mortgage insurance by $350 million before taxes in the fourth quarter.

“That pushed the unit into an operating loss more than double that of the third quarter and nearly five times larger than what it reported a year ago,” Reuters reported. “Losses were amplified by a decline in the amount of money saved from efforts to modify loans, rescind policies and settle disputes with lenders.”

In other Genworth news earlier this year, the Richmond, Va.-based company on Jan. 6 announced that it was discontinuing sales of both retail and group variable annuities in the first quarter this year.

Read about Genworth’s Q3 2010 earnings at AdvisorOne.com.

Read AdvisorOne's 2010 Q4 earnings calendar for the financial sector for release dates and links to earnings stories.

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