It's no secret Genworth had an awful first quarter this year, but check out this article from National Underwriter...I wonder if all is well at Genworth? Declining surplus due to dividends upstreamed or paid out, plus a hefty capital loss...

National Underwriter Life & Health/Financial Services Edition

100 Top Life Insurers Posted Record Earnings In 2005; Five companies earned more than $1 billion last year BYLINE: BY FREDERICK S. TOWNSEND AND LAURIE DALLAIRE.

Largest net capital losses were posted by AGC Life at $387 million; Transamerica Occidental, $377 million; and Genworth Life, $361 million.

Twenty-nine of the Townsend 100 Companies had surplus declines in 2005. The largest percentage surplus declines were Travelers Insurance, 43%; Metropolitan Tower, 41%; Farmers New World, 40%; and Genworth Life & Annuity, 39%.

It's important not to take one statistic, shocking as it may seem on its face, and not look at the whole picture. A few weeks ago there was a story about how AIG took a 15% hit to one statistic in 1Q 2006. I posted a response on my weblog at www.structuredsettlements.typepad.com I mean people incorrectly thought that company wa sgoing down the tubes because solely of the Greenberg situation.
With respect to Genworth, last year was the final hand off from GE so there may have been some explanation (e.g. surplus need to be invested to develop business). A good place to look is the companies annual filings which is where I looked. All of this can be found at www.genworth.com

Incidentally I understand that Genworth was ranked #1 in:
United States Variable Annuity sales
Long Term Care sales
Global Mortgage Insurance
European Payment Protection Insurance

They were ranked #2 in US Fixed Immediate Annuity sales

They were ranked #4 in Term Life sales

I wouldn't rush to judgment on this company just yet.

http://library.corporate-ir.net/library/17/175/175970/items/190815/2005AnnualReview.pdf

None of the rating agencies have done anything with Genworth's ratings and they have likely had teh opportunity to revie wthe statistic that Jack brings up.

John, Jack,

Interesting discussion topic and nice job pulling together the statistical data on Genworth John.

I agree that any time you get a spin off and divestiture of a life company, your going to have some accounting events that if taken at first glance are going to make you pause. Genworth is clearly going to have to learn to compete and operate from outside the protective/suffocating bubble of GE Capital.

Where I get nervous about many of the life markets now is that with demutualization, spin offs, hedge fund involvement and other deep pocket owners in the game for short term game, you can have decisions being made to buy market share or prop up earnings, in what has been since it's inception a get rich slow business. I'm not suggesting for a minute that any of the new spin off life companies such as Symetra, Genworth, etc, are in the same boat as the Charters, Monarch's, Confed's, but that we all need to keep a careful eye on who actually owns these firms now and what their corporate goal is. Are they into this for the long haul, or is this one more "asset" to be dressed up for resale and profit down the road.

I'm sure Genworth will be fine, primarily as a result of the broad range of product lines and assets the have, but Jack's correct that we will all need to be vigilant in seeing what progress they make in the years ahead.

John,

Good points, but sales have absolutely nothing to do with solvency. And the Genworth spin-off has been going on since 2004; most divesture charges would have been incurred by now. In fact, going public would create capital, not make it disappear. On the sales point, by that standard you would've found the record annuity sales posted by Executive Life in the late 1980's a measure of great solvency, but we know better than that. Bear in mind, I think Genworth is a great company, but large decreases in surplus can (I repeat, CAN) be an indication a parent is raiding a sub for capital (which is exactly what happened with Confed Life). Not that I think that is happening here, but I also don't think we should just blindly rely on a rating, again citing the ratings of Exec and Confed before their fall, but instead look beyond that to measures like surplus and underwriting. I remember several of the life companies talking about the warning signs on Executive long before they tanked. How disciplined a company is, how spread they are, and how much surplus they hold should be a factor in selecting a life insurer. Too often people choose a company just because it's the cheapest, and other issues like solvency, security, and discipline be damned.

All that being said, Genworth is a well capitalized, well diversified company with a decent amount of surplus and good ratings. BUT that doesn't explain the huge drop in surplus? Small surplus declines are not uncommon when assets don't perform as expected or there are unexpected charges, but this wasn't small. And I think we should always be ready to ask questions about the companies we place business with. But maybe you're right. Life insurers never fail (Exec, Confed, Monarch, Reliance), and selling a lot of product (Worldcom) and being big (Enron) should surely make us comfortable in the infallibility of a company. Yeah, your're right. What was I thinking?

Jack, how about we ask the Genworth folks what's up? Then post it here or on my blog.

I never said that life companies never fail. You have alleged that did. I just dont think sensational headlines about insurers, without having all the facts help anyone.

Loks like it was a statutory charge related to contingency reserves on Genworth's Mortage Insurance Business. It's all there on pages 46 and 72 of the Genworth 10K

http://library.corporate-ir.net/library/17/175/175970/items/190816/2005AR10K.pdf

And Jack...let's not try to fool anyone about Genworth's rates being the cheapest. As 10,000 Maniacs once sang "these days you'll remember" (pre-GE when First Colony was the cheapest and had A++)

10,000 Maniacs...I thought the industry only had about 500 brokers John?

Nonsense, John. I didn't allege anything. I said that your measure of solvency, great sales, isn't a good indicator of a company's stability. Your response to the National U/W article was to list how well they ranked in terms of sales. I also didn't say anywhere in my post Genworth's rates were cheapest. In fact, if you read my post, you'll see that I led with the fact their structure sales were down, which is due to their price position during the first quarter. What I actually said was that a flight to cheapest rates is all that seems important to folks these days.

By the way, while it does list the impact of mortgage reserves and its affect on surplus, there is nothing to tie that to the amounts listed by National U/W. The 10K doesn't specify the exact amount or impact. That's a nice guess on your part, but are you even sure the surplus line reported is that of Genworth Life and Annuity? Or in other words, did you check to see if Genworth Life writes mortgage insurance and would thus show up for them (hint: it's not a life insurance line of business). And of course, both entries have nothing to do with capital losses. That's pure investment return, and has nothing to do with statutory or gaap reserves on mortgage insurance.

Your quote..."But maybe you're right. Life insurers never fail (Exec, Confed, Monarch, Reliance), and selling a lot of product (Worldcom) and being big (Enron) should surely make us comfortable in the infallibility of a company. Yeah, your're right. What was I thinking?
May 20, 2006" | Jack

A year ago people were questioning MetLife's and Prudential's rates. "How could it be that they're so out of line with everyone else" said many including Wahlstrom.

Metropolitan Tower the successor in interest to Metropolitan Ins and Annuity Company, the pre 2004 owner of billions in structured settlements had a bigger surplus hit in the same study. Those structured settlements are guaranteed by Metropolitan Life Insurance Company. Are you concerned about them too?

Unfortunately for them Presidential Life was caught up in the Executive Life junk bond whirlwind but they are still around 15 years later despite tough New York State Insurance regulations.

The point is stay cool, get all the facts and don't scare people! I'll contact Genworth tomorrow and see what's up.

Not intended as a scare, but rather a healthy discussion. Who better than us to look into, question, and review what the life companies are doing. Genworth had a so-so year, but remains well capitalized. Doesn't mean we shouldn't ask "why". And no, I'm not worried about Met; then again, I'm not worried about Genworth. Does keep me from asking about them, though.

I think the discussion is healthy. One of the drawbacks of our industry over the years was the lack of a forum to ask these questions, which may have kept some really flawed markets selling product long past the point when brokers should have known to stop sending money their way. I in particular was caught flat footed on Confederation Life.

However, I think John's concern is that life markets more then just about any other financial entity carry on their business largely on the confidence of brokers and agents to trust that they will fulfill their promises and have the funds to meet their obligations. As someone who witnessed the runs on Charter, Executive, Mutual Benefit and others i'm very sensitive to the fact we need to be careful in drawing a market into question. I"m not speaking for John here but I think he is guided by that same degree of caution.

However, Jack, I do agree we have to be able to discuss the obvious, which is what a publicly filed financial document is. Obvious and literal. The next step should be to get someone from Genworth to comment if they are able, and absent that, continue to do the kind of factual review you both are quite good at engaging in.

FYI I have contacted Genworth, MetLife and American General whose guarantor is AGC Life and will report back here and on my blog.

Thanks John. Looking forward to hear what you find out.

I've reponded on my blog

John,

Great follow up. Again, I encourage others to check out John's blog for more detail on this. Also, JD will be joining me for a couple of sessions on Settlement Roundtable this week to discuss his thoughts on the factoring series we started. Make sure you check those out once we post them.

http://www.insurancenewsnet.com/article.asp?a=top_lh&lnid=380095016

Above link is to an insurancenet.com article posted in April about Genworth's first quarter report. I also hope to shortly have an explanation from Genworth directly. Looks like Genworth's earnings were actually up a little for the quarter

Just to add my 2 cents worth. Pretty impressive fixed annuity sales results from some of the major markets (Genworth, Allstate, Met and NY Life). Add those companies structured settlement sales to the numbers and you have excellent fixed annuity sales in the life insurance industry. Things look pretty good to me. This is from the Beacon Report I found from Mr. Darer's link.

Evanston, IL, May 25, 2006 - U.S. sales of fixed annuities reached $16.8 billion in first quarter, 2006, a 0.4% decrease from the previous quarter. Improvement was steady throughout first quarter, with March showing the highest monthly sales. Results were 7.4% below the same period last year, according to new estimates from the "Beacon Research Fixed Annuity Premium Study" based on sales of 51 insurance companies. First quarter indexed annuity sales were $6.6 billion, up 1.6% from the prior quarter and 6.5% above first quarter, 2005.

MasterDex, an indexed annuity issued by Allianz Life Insurance Company of North America, was the quarter’s top-selling product in the Study for the seventh consecutive period, followed by Allstate Financial’s (NYSE: ALL) Preferred Performance. Two New York Life book value products - LifeStages/MainStay Single Premium Fixed Annuity and LifeStages/MainStay Preferred Fixed Annuity - were number three and four, respectively. Secure Index Opportunities Plus, an indexed annuity issued by ING USA (NYSE: ING), took fifth place. First quarter results include sales of some 196 products.

Two of the top five products also led sales in a distribution channel, with the Allianz MasterDex once again the best seller among independent producers and Allstate’s Preferred Performance the bank channel leader. The top seller among captive agents was New York Life’s LifeStages Choice Fixed Annuity, a book value product. For the third consecutive quarter, the sales leader among independent broker-dealers was John Hancock’s GPA Plus, another book value product.* But MVA products continued to lead sales in the other B-D channels. MetLife’s Fixed Annuity FA took first place among large/regional B-Ds. Allstate’s Choice Rate was the best-seller among wirehouses, a position it has held since third quarter, 2005.

By product type, Allstate’s Choice Rate was also first quarter’s best-selling market-value adjusted (MVA) product. Genworth had the leading immediate annuity.

I think the fact that A.M. Best has increased its ratings of American Geberal AI Life and AGC Life to A++ should wrap up one of the little details of this thread. I have spoken to Genworth and expect to have its answer shortly.

Met with a Genworth representative last week and the subject came up. Expect to have something concrete within the next week