While Genworth’s mortgage insurance businesses provide additional product diversification, both the domestic and international segments have reported volatility in recent years, driven by macroeconomic pressures within certain real estate markets. However, in 2013 and into 2014, the group has reported increasingly favorable results in these segments, tied to recovery in most markets, as well as increasingly stringent underwriting processes. While some seasonality is apparent in select markets, the general trend reflected improved delinquencies relative to prior periods. Genworth recently announced its intent to resume the process of a partial initial public offering (IPO) of its Australian mortgage insurance business. The execution of the IPO is subject to market conditions and valuation considerations, including business performance. Proceeds from the IPO would be available to ensure the operating businesses remain appropriately capitalized and to make progress on the company’s medium-term leverage targets. Also, in December 2013, Genworth raised $400 million from a debt issuance for the purpose of prefunding anticipated government-sponsored entity requirements within its domestic mortgage insurance operations, which are expected to be implemented later this year.
Genworth has improved the quality of its investment portfolio over the past few years, while retaining adequate yield in the current low interest rate environment. The company has reported a continued lower level of impairments, and like several of its peers, has opportunistically purchased securities within certain riskier asset classes to bolster yield. In addition to its typical investment grade corporate bonds and structured securities, A.M. Best notes that Genworth continues to take mortgage risk on both sides of its balance sheet, which somewhat increases the risk of this asset class to the company. However, the company has reported minimal impairments related to commercial mortgage loan investments, and overall investment exposure to this asset class is generally consistent with peers. A.M. Best will continue to closely monitor Genworth’s overall investment performance for material losses going forward.
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