Genworth Financial's Q2 Results Signal Turning Point for Growth and Valuation Re-Rating

Genworth Financial (GNW) reported its Q2 2025 earnings, delivering a mixed yet encouraging performance that highlights its dual引擎 of Enact Holdings' mortgage insurance resilience and incremental progress in its long-term care (LTC) business. With Enact's capital metrics strengthening and Genworth's share buybacks accelerating, the company appears positioned to re-rate as it navigates regulatory and economic headwinds. As the July 31 earnings call approaches, investors should take note of catalysts that could justify a higher valuation—and a lower risk of further declines.

Enact: Mortgage Insurance as a Stable Cash Generator

Enact, Genworth's mortgage insurance subsidiary, remains the crown jewel of its portfolio. In Q2, Enact reported adjusted operating income of $137 million, flat sequentially but up slightly from $135 million in the same quarter last year. Its PMIERs sufficiency ratio rose to 165%, maintaining a $1.966 billion cushion above regulatory requirements, a key metric for its ability to underwrite new business.

The starkest data point lies in its capital position: Enact's equity climbed to $4.159 billion, up from $3.846 billion in Q1 2024. This growth, driven by disciplined underwriting and reserve releases (including $47 million in Q2 from favorable loan cures), underscores its capacity to return capital to shareholders. Enact's $350 million share repurchase authorization, paired with a dividend hike to $0.21 per share, signals confidence in its financial health.

Despite these positives, Enact faces headwinds. Its primary new insurance written (NIW) fell 7% year-over-year to $9.818 billion, reflecting lower market share and seasonal softness. New delinquencies rose 7% year-over-year to 12,237, though they dropped 11% sequentially as hurricane-related delinquencies abated. Investors should monitor whether NIW stabilizes in the second half of 2025, as rising mortgage rates could dampen demand for high-loan-to-value (LTV) loans—a key segment for mortgage insurers.

Genworth's Capital Allocation: Buybacks and Prudent Risk Management

Genworth's Q1 2025 buybacks totaled $45 million, bringing its year-to-date total to $590 million, with $110 million remaining under its existing authorization. While Enact's new repurchase program targets its own shares, Genworth's ability to return capital hinges on maintaining liquidity. Its holding company cash of $211 million at quarter-end, including $98 million in advance subsidiary payments, suggests sufficient flexibility to fund buybacks while meeting obligations.

The company's focus on capital returns is critical. With shares trading at $6.91 in Q1 (up from an average of $5.73 since the program's start), Genworth's buybacks have been accretive. However, further upside hinges on Enact's ability to sustain its capital generation and Genworth's progress in stabilizing its LTC business.

LTC: Rate Actions and the Path to Self-Sustainability

Genworth's LTC segment, a historical drag on profits, showed marginal improvement in Q2. The adjusted operating loss narrowed to $30 million from $104 million in Q4 2024, though it remained worse than the $3 million profit in Q1 2024. The segment's challenges persist: premiums fell year-over-year due to prior rate actions reducing renewal premiums and policy terminations.

Yet progress on Genworth's LTC1 rate action plan is material. Q2 brought $24 million in gross incremental premium approvals, lifting the program's total NPV to $31.3 billion since 2012. This initiative, which adjusts premiums and reduces benefits for existing policies, is vital to reducing the LTC business's liabilities. However, execution risks remain. Delays in rate approvals or adverse claims trends—such as higher mortality rates—could prolong losses.

Risks to Consider

• Interest Rate Sensitivity: Rising rates could further suppress mortgage demand, crimping Enact's NIW.
• Regulatory Uncertainty: PMIERs requirements may tighten, forcing Enact to retain more capital.
• LTC's Fragile Progress: Without sustained rate actions, the segment's losses could widen.

Investment Thesis: Accumulate Ahead of the Call

Genworth's Q2 results suggest a bifurcated story: Enact is stable but not booming, while LTC's path to profitability remains slow. However, the upcoming July 31 earnings call offers a pivotal moment. If management provides clarity on Enact's NIW trends, LTC's rate action pipeline, and capital return plans, shares could re-rate higher.

Historically, GNW has demonstrated a positive stock performance around earnings calls. Over the past three years, the stock delivered an average return of 2.59% across 12 earnings call events, with a maximum gain of 6.37% recorded on July 10, 2023. This historical pattern supports the thesis that accumulating ahead of these calls can lead to favorable outcomes.

At current levels, GNW trades at a discount to peers, with its P/B ratio well below historical averages. The $350 million Enact buyback and Genworth's $110 million remaining authorization provide tailwinds. While risks are material, the stock's low valuation leaves room for upside if the company delivers positive guidance.

Actionable Takeaway: Accumulate GNW ahead of the July 31 call. A breakout above $7.50 post-earnings could signal a sustained rebound.

In conclusion, Genworth's Q2 results are a stepping stone toward proving its dual engines—Enact's capital strength and LTC's gradual stabilization—can drive sustainable growth. Investors willing to look past near-term headwinds may find value in a company poised for a valuation reset.