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WEST DES MOINES — Shares of Genworth Financial Inc. gave ground Friday, the day after the insurer reported a first-quarter loss largely due to subprime mortgage impairments and investment losses.
The losses from investments in derivatives, subprime home mortgages and corporate fixed securities are not uncommon in the insurance industry, which has been hit hard by declining markets and the credit crunch.
Richmond, Va.-based Genworth said after the markets closed Thursday that it lost $469 million, or $1.08 per share, in the first quarter compared with a profit of $116 million, or 27 cents per share, a year earlier.
Excluding one-time losses, earnings were $14 million, or 3 cents a share. Analysts polled by Thomson Reuters expected 19 cents a share on revenue of $2.7 billion.
Shares slipped 3 cents to $4.56 in midday trading but were as low as $4.03 earlier in the session. They have traded between 70 cents and $23.91 in the past 52 weeks.
Chief Executive Michael D. Fraizer said he's beginning to see some improvement in the company's investment portfolio.
"I like the trends we're starting to see in (the) economic investments area," Fraizer said in an interview with The Associated Press.
Quarter-over-quarter losses are dwindling among many of the company's investments, a sign that the value of those products such as mortgage-backed securities are bottoming.
Fraizer also noted that new accounting standards going into effect will help reverse some of those impairment charges and write-downs in the second quarter.
Some of the first-quarter impairments not related to credit included $155 million of financial hybrid securities, on which the company expects full principal recovery but accounting rules require it to be reported as an impairment.
The securities, principally United Kingdom financials, were impaired because of the length of time the market value has been below amortized cost.
Fraizer said the company's core products — life insurance, long-term care insurance and wealth management — are needed now more than ever by consumers dealing with the weak economy and losses from the sharp decline in the stock market.
He said the company is poised for growth in its life insurance business, which he said has potential for market share growth and the long-term care insurance market, which he believes is underserved.
Fraizer said that while volume is light in the mortgage insurance sector, the quality of customers has been getting stronger. Due to more stringent underwriting, lower interest rates and requirements that home buyers put up larger down payments — which provides a cushion and lessens potential losses — quality of sales is up, he said.
Genworth is planning to sell a minority stake in its Canadian mortgage insurance business to help bolster an already strong cash reserve and liquidity position.
The decision to spin off the business and sell a minority stake through an initial public offering was done as part of an in-depth review of operations in recent months.
"We've done our homework," Fraizer said.
Fox-Pitt Kelton analyst Mark Finkelstein said the deal could generate around $500 million of proceeds for Genworth.
He said first-quarter results were no surprise although investment losses were high.
"Nonetheless, while we agree Genworth likely needs to sell assets to solidify capital and, if successful, this approach is a creative one, the execution risk will likely be a key focus," he said in a note to investors.
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Associated Press Writer Stephen Bernard contributed to this story from New York.
