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Earnings: Genworth share price plunges 6% after $90 million half-year loss

share price falls

The Genworth Mortgage Insurance Australia (ASX: GMA) share price has plunged 6.23% at the time of writing today, after the insurer reported its half-year results.

After reporting a $90.0 million net loss after tax, Genworth has advised it will not pay an interim dividend for 1H20.

What are the key statistics?

I’ve summarised some key financial metrics from Genworth’s results below:

  • Gross written premium up 30% to $239.3 million
  • Net earned premium up 2.2% to $150.8 million
  • Net claims incurred up 26.6% to $101.1 million
  • Insurance loss of $128.1 million compared to $77.3 million profit, largely driven by $194.5 million of acquisition costs
  • Statutory net loss after tax of -$90.0 million compared to an $88.1 million profit in 1H19.
  • Underlying net loss after tax of -$85.5 million versus $43.1 million in 1H19 net profit
  • Basic earnings per share came in at -21.8 cents versus 20.6 cents in 1H19.
  • Net assets down 8.0% from 1H19 to $1.41 billion.
  • Loss ratio increased to 67.0%, up from 54.1% in 1H19.

What did management have to say?

CEO Pauline Blight-Johnston said Genworth’s first half performance reflected “sound fundamentals” and set the company up well to manage the impacts of COVID-19.

A deferred acquisition cost writedown of $181.8 million (pre-tax) hit the company’s bottom line. So too did a $35.5 million increase in loss reserving for the year ahead.

Volume numbers were strong, with new insurance written in its lenders mortgage insurance business up 8.1% to $13.5 billion.

Strong housing market growth in major capital cities (pre-COVID) and the record low-interest rate environment were cited as strong supporting factors.

Those low rates weren’t all good news, however, with 1H20 annualised investment return coming in at 1.7% in 1H20, down from 2.6% p.a. in 1H19.

As at 30 June 2020, 81% of Genworth’s $3.2 billion investment portfolio was in cash and high investment grade fixed interest securities.

What about the capital position?

The $90 million net loss after tax has dropped the Genworth share price by more than 6% today.

However, the insurer’s balance sheet and regulatory capital position remains strong.

Genworth reported a regulatory solvency ratio 1.77 times the prescribed capital amount, well above the board’s target 1.32 to 1.44 times range.

Genworth’s credit rating was also recently affirmed by Standard & Poor’s at ‘A-‘ with Fitch revised from ‘A+’ to ‘A’.

COVID-19 outlook

The Genworth share price is on the move today after kicking off the August earnings season a little early. 

The insurer did report increased estimation uncertainty because of the coronavirus pandemic. 

This uncertainty is driven by disruption to businesses, the expected downturn in gross domestic product (GDP) and the effectiveness of government and central bank measures to support the economy.

Genworth also noted an anticipated increase in future claims “due to the economic impacts of COVID-19”.

How has the Genworth share price performed this year?

The Genworth share price has fallen 55.3% since its full-year earnings result on 5 February and is down 52.3% for the year.

That compares to a 9.7% decline in the S&P/ASX 300 Index (ASX: XKO) over the same period.

That 4 February price has proven to be the high point for the insurer’s share price in the year to date.

Prior to this morning’s market open, the Genworth share price was trading at $1.84 per share. It’s now trading at $1.74 per share (at the time of writing). The company’s price to earnings (P/E) ratio is 6.04 with a market capitalisation of $709.52 million.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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