BC-GNW-MORTGAGE-INSURANCE-UPDATE2

Genworth U.S. Mortgage Business May Profit in 2011 (Update2)

c.2009 Bloomberg News

(Adds CEO's comment in the third paragraph.)

Dec. 15 (Bloomberg) -- Genworth Financial Inc., the life insurer and mortgage guarantor, said its unit that backs U.S. home loans may return to operating profit in the middle of 2011.

The insurer expects to generate a return on equity of more than 20 percent in the business when conditions in the housing market improve, Chief Executive Officer Michael Fraizer said today in a presentation to investors.

"This doesn't happen overnight," Fraizer said.

Genworth's life and mortgage insurance units have suffered as investments tumbled last year and a growing number of borrowers missed payments on their homes. The Richmond, Virginia-based company posted net income of $19 million in the three months ended Sept. 30, breaking a streak of five straight quarterly losses, and raised funds with share and debt offers and the sale of a stake in a Canadian business.

Genworth shares dropped 27 cents, or 2.4 percent, to $11.24 at 9:55 a.m. in New York Stock Exchange composite trading. The stock quadrupled this year before today after falling 26 percent in 2007 and 89 percent in 2008.

Mortgage insurers, a group led by MGIC Investment Corp. and Radian Group Inc., have lost money in the last two years as falling home prices and the worst unemployment in more than two decades contributed to a rise in homeowner defaults. Genworth raised prices and tightened standards on the borrowers it insured last year, contributing to a sales decline of more than 60 percent to $2 billion in the third quarter.

"We used this period as an opportunity to not only strengthen underwriting practices but try to ensure that bad practices don't come back in the industry," Fraizer said today. Prices have increased "some 35 percent."

Record Foreclosures

Mortgage insurers pay lenders when homeowners default and foreclosures fail to cover costs. Foreclosure filings in the U.S. will reach a record for the second consecutive year in 2009 with 3.9 million notices sent to homeowners in default, RealtyTrac Inc. said last week.

Delinquencies for mortgages insured in 2006 and 2007 are expected to peak in 2010, Genworth said in a presentation on its Web site. Mortgages insured in the second half of 2008 and in 2009 are "expected to be highly profitable."

Until 2007, private mortgage policies had been among the most profitable types of coverage sold by U.S. insurers. From 2004 to 2006, members of the Mortgage Insurance Companies of America reported a profit margin of at least 35 cents for every dollar they collected in premiums. Auto insurers made less than 5 cents on every dollar in 2006, according to A.M. Best Co.

Bailouts for Competitors

Genworth failed to qualify for federal aid through the U.S. government's Troubled Asset Relief Program in April after the insurer's ratings were downgraded by Moody's Investors Service and Standard & Poor's. Competing life insurers Hartford Financial Services Group Inc. and Lincoln National Corp. got U.S. funds from the bailout program.

Genworth shifted investments in the last year to cut risk. Cash and short-term investments increased to 12 percent from 8 percent a year earlier. Mortgage-backed securities and asset- backed securities dropped to 11 percent of the portfolio, compared with 16 percent.

For Related News and Information: Genworth balance sheet graph: GNW US ARD BSBAR Selected global insurance company monitor: INS Bloomberg insurance front page: BINS Top insurance news: TINS