GNW - Genworth Financial

[jay21]

I was looking at this one closely, but I think I missed it.  Darn Barron's article.  I like the shareholder base too.  Lots of smarties bought/owned it during Q4 2012.  ESL, Greenblatt and Klarman; oh my.

 

I wouldn't put too much stock into the fact that those guys own it.  They could be looking at it more like an option.  Einhorn I think even mentioned that he will often take small positions (1-2%) where he thinks he has good upside but significant downside.

[CorpRaider]

Maybe so.  They already made like 40% on their Q4 investments in any case.  I bet einhorn wishes he bought options in JCP and HLF.  hah!

[CorpRaider]

(Reuters) - Life and mortgage insurer Genworth Financial Inc's first-quarter profit more than doubled, helped by strong performance in its U.S. mortgage insurance business.

 

Net income rose 124 percent to $103 million, or 21 cents per share, for the quarter ended March 31, from $46 million, or 9 cents per share, a year earlier.

 

The company's operating profit was 30 cents per share.

 

The operating income in the U.S. mortgage unit was $21 million, compared with net operating loss of $44 million a year earlier.

 

http://www.reuters.com/article/2013/04/30/genworthfinancial-results-idUSL3N0DH4H820130430?feedType=RSS&feedName=bondsNews&rpc=43

[GrizzlyRock]

Just a quick note that Klarman exited Genworth during Q1.

 

Biz trading at roughly half of tangible net worth

[CorpRaider]

Klarman and Lampert are out but Berkowitz is in.

[Guest wellmont]

I was looking at this one closely, but I think I missed it.  Darn Barron's article.  I like the shareholder base too.  Lots of smarties bought/owned it during Q4 2012.  ESL, Greenblatt and Klarman; oh my.

 

umm greenblatt uses a computer and forumla to take lots of tiny positions. his entry into GNW is not indicative that he likes it. he's making lots of tiny statistical bets and hoping he beats the index by a bit over time.

[snowball82]

Klarman and Lampert are out but Berkowitz is in.

 

Snowball is in too. Next step 18 $ but, please, be patient

 

[snowball82]

The stock is now side by $ 12 (from 5 $ few time ago). When ROE will return to 7-8%, the price should go to more than $ 20. I thing the ROE was up to 4 % last quarter. What do you think ?

[fareastwarriors]

http://www.cnbc.com/id/100956144

 

Private mortgage insurers back in black after housing crash

 

[snowball82]

5 $ to 12-15 $ had been a good run. So i sold my shares to invest in real estate niche. Industrial real estate here in Canada will do well if we have experienced managers to manage our money. Look HHT investment (HHT.P) topic if you have interest.

[brker_guy]

Earnings on GNW are out:

 

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjE5MDM4fENoaWxkSUQ9LTF8VHlwZT0z&t=1

 

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjE5MDQwfENoaWxkSUQ9LTF8VHlwZT0z&t=1

 

[scorpioncapital]

Does anyone think this stock is selling below liquidation under the most dire assumptions at $13/share?

[valueyoda]

I aggressively bought shares today, as I think that investors misinterpretted the LTC reserve comments yesterday. The CEO has tried to nuance his comments to make sure that investors understood that it only pertained to a small portion of reserves. Furthermore, I think that additional capital requirements for the NI mortgage division are easily covered by reinsurance contracts and IPO proceeds from their Australia division. Besides, adjusted book value incorporating the market value of their stake in Genworth Australia and Canada increased since their earnings release, reflecting strong results. The market cap decline in the last month reflects near term uncertainty, but could easily reserve if the company decides that changes in LTC reserves are small.

[Laxputs]

Would be interested in hearing a valuation case if somebody wanted to work out the math, base case, etc.

[scorpioncapital]

This article is a few months old but I found it to be pretty conservative - http://seekingalpha.com/article/2084683-genworth-financial-as-a-value-investment

 

[snowball82]

5 $ to 12-15 $ had been a good run. So i sold my shares to invest in real estate niche. Industrial real estate here in Canada will do well if we have experienced managers to manage our money. Look HHT investment (HHT.P) topic if you have interest.

 

Update : The symbol HHT.P changed for bvd.un, Boulevard Industrial real estate investment trust a new REIT listed  (see new topic).

[scorpioncapital]

Any thoughts on the value of this business at $7/share? I saw an article said even if Long term care reserve adjustment was $1 billion (and it was half of that in the latest release) it would still be worth above 10+/share.

[tede02]

I just read the WSJ article on the reserve charge.  Ironically, within the last hour, I just had a client purchase life insurance through Genworth. 

 

I haven't done any deep analysis on this firm but if it's helpful to anyone here, I've been in the financial services business since 2008 and always have had the perception that this firm is the leader in LTC (and a leading life insurer generally).  This seems to simultaneously be good and bad for the company.  Bad because they clearly underestimated their future liabilities on older policies (which they're paying for now).  Good because they probably know more about the business than anyone and will be positioned to be a leader in the future for what certainly is going to be a huge societal issue (aging population).  Additionally, the vast majority of insurance companies have completely exited this business leaving an opportunity for firms who can figure it out (but obviously there continues to be  risk for those who get it wrong). 

 

I can also add that premiums have gone up considerably for LTC insurance.  I've sold perhaps a dozen polices over the past 4 or 5 years.  All have been with Genworth.  I've sold none in the last 12-18 months however.  I can't remember exactly when, but premiums increased around 25% for all new policies and the benefits being offered were trimmed back (which is a major reason why I haven't sold any new ones).  The economics of buying the insurance just don't work for most individuals. 

 

I would be tempted to look at Genworth at today's price.  If the company get its reserves strengthened and can adjust their pricing accordingly, the firm will probably do well over time. 

 

[matts]

I just read the WSJ article on the reserve charge.  Ironically, within the last hour, I just had a client purchase life insurance through Genworth. 

 

I haven't done any deep analysis on this firm but if it's helpful to anyone here, I've been in the financial services business since 2008 and always have had the perception that this firm is the leader in LTC (and a leading life insurer generally).  This seems to simultaneously be good and bad for the company.  Bad because they clearly underestimated their future liabilities on older policies (which they're paying for now).  Good because they probably know more about the business than anyone and will be positioned to be a leader in the future for what certainly is going to be a huge societal issue (aging population).  Additionally, the vast majority of insurance companies have completely exited this business leaving an opportunity for firms who can figure it out (but obviously there continues to be  risk for those who get it wrong). 

 

I can also add that premiums have gone up considerably for LTC insurance.  I've sold perhaps a dozen polices over the past 4 or 5 years.  All have been with Genworth.  I've sold none in the last 12-18 months however.  I can't remember exactly when, but premiums increased around 25% for all new policies and the benefits being offered were trimmed back (which is a major reason why I haven't sold any new ones).  The economics of buying the insurance just don't work for most individuals. 

 

I would be tempted to look at Genworth at today's price.  If the company get its reserves strengthened and can adjust their pricing accordingly, the firm will probably do well over time.

 

Thanks for your on-the-ground views. The massive increase in premiums jives with what the company has been saying. Their reserving was so bad that the government allowed them to increase premiums on existing contracts.

 

Why do you think this company will do well when in the previous sentence you said that the product does not make economic sense for most people? Isn't that a contradiction?

 

[tede02]

Here's the problem with buying LTC insurance.  If your asset base is say, below $500k, you probably don't have enough income to purchase the insurance or enough assets to protect.  If you have more than say $2.5 million in investable assets, you probably have sufficient assets to self insure (you can buy a lot of health care, even at $10k per month, with $2.5m+ of investable assets).  As premiums for new coverage increase, people on the low-end of the range get priced out so I would expect volume to decrease. 

 

However, my experience is, its the people who don't really need to buy it(financially) are the ones who do.  These folks have been financially conservative all of their lives which is why they've built a nest egg in the seven figures.  Many have had family members experience a long-term care event and have seen the devastating consequences.  Therefore, it becomes a sleep well kind of issue (they want the insurance because they sleep better having it, especially if they've had a family member suffer dementia/Alzhemiers). 

 

So it does seem like a contradiction to say people are getting priced out of it but the company will do well.  However, I think with the aging population and increased attention to dementia/Alzheimer's, there will be a decent market for those insurers who get it right.  People really fear ending up in a long-term care facility (understandably so).   

[tede02]

Spent a little time looking at GNW's valuation and financials tonight.  This company appears very cheap.  Its currently trading for about 1/3 of book value.  At first glance the company looks convincingly solvent.  Of $15b in equity, $3.5b is cash on the balance sheet and market cap is about $5b.  Obviously the future LTC costs are the cloud hanging over the company.  It's just hard to believe they won't be able to raise premiums enough to right the ship, even if it means exiting the LTC marketplace at some point.  From what I've read here, the firm has other very profitable segments.  More research is order clearly.  Perhaps an option hedge would make sense here after reading the "Ask Eric" thread. 

[tede02]

I'm going to initiate a small position in GNW today.  I haven't done an extremely deep dive into this which is why I'm just dabbling.  Nonetheless, it seems clear that as the company works through its legacy issues, it should conservatively be able to generate around $500m net over time (the firm was earning well over $1b prior to the recession).  The current market cap is something like $3,900m.  That is pretty cheap, though it assumes the company can navigate it's challenges. 

 

Further, it appears many of the concerns mentioned here around the mortgage insurance operations have not panned out over the last 2-3 years.  After the housing meltdown here in the US, I just ask myself, how could this firm not have learned those lessons and adjusted pricing accordingly?  Additionally, with respect to LTC, assume whatever's on the book has no value.  The company has been raising prices on these old policies (approved in 47 states) and plans to continue to do so.  It seems very clear that they are working hard to make lemonade out of lemons.  There certainly are no guarantees here and this uncertainty is probably the biggest factor hanging over the stock price.  As the leading firm in the industry, I have to assume that all the data they've accumulated has some value and will likely lead them to get the pricing right over time (they could also get it wrong but I just think the odds of that are much less.  I wouldn't be surprised if the pendulum swung too far to the conservative side.  That just seems to be the nature of things like lending and insurance pricing).

 

So there's my short and perhaps shallow reasoning for initiating a position today.  The position is small because I'm still learning about analyzing insurance companies and I think the uncertainty around the LTC business warrants some caution.  Nonetheless, I think the firm is cheap and can work through its problems over the coming years.  I may buy a put just to experiment with options a bit after reading the Ask Eric thread.  This would insure my position.  On the upside I would hope for a double in share price within 3 years.  Monish made a good point once that if you want 20% annualized returns, you need to think about investments that will double every 3 years or there abouts. 

[no_free_lunch]

Plan Maestro has done quite a bit of tweeting on Genworth lately.

 

 

In particular he referenced this presentation.

 

http://www.boothlaird.com/wp-content/uploads/2015/08/Booth-Laird-Investment-Partnership-Genworth-Analysis.pdf

 

The valuation component of the presentation is that the stock could be a triple and bear case it's probably about +50%.

[lincolnc]

This probably too toxic for most to consider as a long.  The chart looks absolutely awful.  But is now trading at less than 10% of Book Value.  It seemed pretty troubled at $5.00 but is now around $2.50.  Can it get to zero?

 

My sense is that the long-term care and mortgage insurance businesses (Canada and Australia) are basically money losers.  LTC needs to be repriced and they might get repriced out of the business.  Mortgage insurance in Canada and Australia may just be at the cusp of a major downturn given commodity rout and broadly the commodity export focus of both economies....

[gurpaul88]

Seems to be falling off a cliff. Anyone still in this? I don't think much has changed from the initial thesis.