Genworth Financial Inc. has put long term care insurance on its list of products that are lagging behind expectations.[@@]

General Electric Company, Fairfield, Conn., spun off the Richmond, Va., financial services giant as a stand-alone company with a May stock offering.

Genworth is reporting $268 million in net income for the second quarter on $2.9 billion in revenue, compared with $364 million in net income on $2.9 billion in revenue for the second quarter of 2003.

Genworth argues that comparing its latest results with past results is tricky because of the many underwriting costs, accounting changes, business changes, and other changes and expenses resulting from the spin-off. The company prefers to talk about its pro forma net operating earnings. The company’s pro forma net operating earnings increased to $279 million, from $256 million.

Sales and operating profits on most Genworth products were strong. The launch of a successful new fixed annuity product in the first quarter helped increase annualized “spread retail” product sales 71%, to $728 million.

But Genworth says caution about variable annuity product guarantees, such as guaranteed minimum income benefits, contributed to a 56% drop in annualized VA sales, to $277 million.

Similarly, Genworth says a 2003 LTC insurance price increase implemented to drive sales to the company’s “risk sweet spot” hurt LTC unit performance: Annualized new LTC insurance sales fell 34%, to $39 million.

“We stand by our new pricing structure as it achieves the right balance of [return on equity], prudent risk management and growth,” Rick McKenney, Genworth’s chief financial officer, said Friday during the company’s earnings conference.

After adjusting for the effect of accounting changes, net operating earnings at the Genworth unit that sells LTC insurance and Medicare supplement insurance were up 13%, Genworth says.

But McKenney said Genworth is “strongly addressing” LTC insurance sales as well as sales of term life insurance and variable annuities. McKenney described 11 other products as either selling well or selling about as well as Genworth expects.

In the LTC insurance market, “we’re seeing slow sales across the industry,” McKenney said.