Mortgage insurer Genworth sees housing improvement

NEW YORK (AP) — Genworth Financial Inc. is starting to see improvement in the housing and investment markets, which helped the life and mortgage insurer return to profitability in the third quarter.

The unexpected profit helped limit the decline in the company's shares on a dreary day for the stock market. Shares slipped 18 cents to $10 in afternoon trading Friday after trading as high as $11.45 earlier in the session.

Genworth's profit available to common shareholders for the quarter ending Sept. 30 was $19 million, or 4 cents per share. The company lost $258 million, or 60 cents per share, during the same quarter last year.

Analysts polled by Thomson Reuters forecast, on average, a loss of 2 cents per share for the quarter.

While not fully recovered from the real estate meltdown, Genworth's U.S. mortgage insurance business is showing significant signs of improvement that have helped it steady its quarterly results.

The division posted a net operating loss of $116 million in the quarter, but $62 million was tied to a special, previously announced charge to settle an arbitration proceeding.

Michael Fraizer, the company's chairman andCEO, said that while losses are likely to remain elevated, "positives are outweighing negatives."

Genworth is starting to ramp up its insurance business as the housing market starts its slow ascent toward recovery. Genworth eased restrictions for underwriting mortgage insurance contracts in 199 markets during the third quarter.

Fraizer noted that expected losses will fit into more historical patterns in the coming quarters as losses tied to subprime lending and exotic mortgage products have mostly work their way out of the system. That means future losses, which are likely to be driven by unemployment and seasonality, will be more predictable, he said.

Loan modification programs are also being ratcheted up to help customers avoid defaulting. Fraizer said in an interview with The Associated Press that benefits from those programs won't likely be fully realized until 2010 and 2011.

As mortgage lending starts to increase with the recovery, Genworth should be able to pocket more gains. New business is about twice as profitable as insurance underwritten before the downturn, Fraizer said.

Genworth returned to profitability in the third quarter as it was also able to minimize investment losses. Fraizer said the company has been able to sell off some of its risky investments as the market continues its quick recovery. Net investment losses totaled $122 million during the third quarter, compared with $816 million during the same quarter last year.

Genworth has been rebuilding its cash cushion as the market has improved as well. In late September it completed a stock sale that added more than $500 million to its reserves. The insurer also has no debt maturing in 2010, which will allow it to continue to strengthen its capital base.

During the first few months of the year, investors worried about companies like Genworth because of potential losses tied to their life insurance businesses. As stocks tumbled, investors worried that the insurers would have to dip into reserves to cover minimum payments on retirement policies. A rebound in the stock market and improving financial results has reduced those concerns in recent months.

Net income in Genworth's retirement and protection division, which includes life insurance operations, totaled $120 million during the third quarter, down from $178 million during the same quarter last year.

However, Fraizer said sales, accounts and customer flows have improved from the previous quarter.