Genworth Financial's (NYSE: GNW) widened operating loss in its U.S. mortgage insurance business was a disappointment last quarter as the economy continues to grapple with larger issues such as high unemployment and a snail-paced recovery.

Looking back
Genworth posted a net loss of $96 million compared to a net income of $82 million in the preceding quarter, and net income of $42 million in the same quarter of 2010. This was primarily due to ballooning operating losses in its U.S. mortgage segment. The company's total revenue improved to $2.65 billion from $2.41 billion in the year-ago quarter. This much good news was due to growth in net investment income and insurance and investment product fees.

While its retirement and protection and international segments witnessed year-over-year increases of 31% and 2%, respectively, its U.S. mortgage insurance segment more than quadrupled its operating losses. MetLife (NYSE: MET), which reported net income of $1.2 billion, saw the operating earnings for its retirement products grow 48% on higher separate account fee income.

The concern
The loss in the U.S. mortgage insurance segment was due to $300 million in charges related to reserve strengthening, which in turn was a result of a decline in cure rates for delinquent loans and continued aging trends in the delinquent loan inventory. MGIC Investment (NYSE: MTG) also posted quarterly losses on higher defaults on mortgage loans. The higher loan defaults reflect the sluggishness that is still prevailing in the U.S. residential real estate market.

The poor performance of its U.S. mortgage insurance segment has once again weighed down Genworth's profits. Management has therefore decided to eventually split its mortgage insurance business. The revenue from this segment accounts for just 7% of Genworth's total revenue. The decision of splitting this business seems plausible since it will help the company to focus more on core operations and report profits eventually.

The Foolish bottom line
Although hurt by mortgage loss, Genworth still looks better than peers such as Radian Group (NYSE: RDN), PMI Group (NYSE: PMI), or MGIC. With its diversified business and, more importantly, its other segments performing impressively, Genworth has a relatively better chance of getting back on track. And the split should further boost its performance in the long run. But at the moment, it's still struggling under mortgage losses, and I would remain cautious.