Earlier this month, a subpar performance at its Australian mortgage insurance unit took some of the shine off Genworth Financial's (NYSE: GNW ) otherwise good performance in its U.S. life insurance and U.S. mortgage insurance businesses. The loss at its Australian mortgage insurance unit caused Genworth's first-quarter profits to fall by a staggering 43% to $47 million. What's going on with Genworth these days?
Losses all around
Life insurers haven't been doing very well this quarter. Peer MetLife (NYSE: MET ) posted a loss of $94 million as the value of its derivatives fell. The situation was no better at Prudential (NYSE: PRU ) , which reported a $967 million loss in its first quarter as it, too, suffered from declining derivative value.
As for Genworth, its global mortgage insurance wing reported a loss of $36 million, as opposed to a profit of $16 million in the year-ago period. The company posted its biggest loss at its Australian business, which sank $21 million. This loss was primarily the result of after-tax impact worth $53 million due to reserve-strengthening in Australia.
The loss in Australia has further set back Genworth's IPO plans for its Australian mortgage insurance business. In April, the insurer's shares dropped as much as 23% in intraday trading when the company announced its intentions of postponing the IPO. Shareholders are concerned that the delay will affect the company's capital deployment plans. Investors were hoping the capital that would have been freed by the IPO would be used to buy back shares and thus increase shareholder value. But now, given the loss and the delay, acting CEO Martin Klein said the chances of a buyback program this year seemed bleak, giving investors enough reasons for concern.
The IPO had been planned for the second quarter of 2012. Among other things, it would help sort out Genworth's business portfolio, allowing for better penetration into capital markets and aiding the growth of its Aussie business.
Change at the top
Another noteworthy development has been the resignation of Michael D. Fraizer, who had served as CEO of Genworth since 2004. Martin P. Klein has taken over the reins as the search for a more permanent replacement continues. Following the leadership change, Klein was quizzed on the direction of the company and what steps it would take to improve shareholder value. Klein replied, "The most important thing we can be doing right now is to improve the performance of our businesses, which is very important to give us the flexibility to execute various strategies."
The company is still recovering from the huge losses it suffered during the housing bust. A positive is that delinquencies are on the decline, with total flow delinquencies in its U.S. mortgage insurance business declining by 11% this quarter versus the year-ago period, followed by a 9% decline on a sequential basis.
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