Richmond, Va.-based Genworth Financial reported a net loss of $50 million in the second quarter, fueled in part by shrinking life insurance sales as people avoided universal life policies in a tough economy.

The losses in the second quarter were less than half of the $109 million it reported in losses for the same quarter last year.

Net operating income fell in the second quarter, to $9 million, compared with $212 million in the second quarter of 2008, mainly through losses in its mortgage insurance segment.

The financial service firm’s net operating income from retirement and protection services dropped from $150 million last year in the second quarter to $127 million.

The company reported $58 million in net operating income from life insurance, down from $87 million in the same quarter a year ago. Life insurance earnings last year included an $18 million favorable tax examination development, which did not occur this year, the company said.

Long-term care net operating income was up, to $43 million, from $34 million last year in the same quarter. Wealth management net income dropped from $11 million to $7 million.

The company had sales of $49 million in life insurance in the second quarter of this year, far less than the $85 million it reported for the same period last year. The 42% drop primarily reflected a decline in the universal life market.

Genworth officials say the company continued its transition to the “main street” life insurance market characterized by policy face sizes of $1 million and below with an average size of about $250,000 resulting in lower comparable premium levels while achieving a 2% sequential increase in new policies sold.

Long-term care sales also fell from $66 million last year to $44 million this year.

LTC earnings grew $9 million to $43 million, as profit emergence associated with favorable in force performance, new block business growth and lower expenses more than offset normal in force claims seasoning and higher Medicare supplement claims, the company said. Margins improved on the old blocks of business, primarily from the emerging impact of the previously announced in force price increase. Individual LTC sales decreased $19 million primarily from an overall decline in the LTC market size. On a sequential basis, individual LTC sales increased $1 million from higher career channel sales.

The company said its quarterly results included operating income of $127 million from the Retirement and Protection segment and $87 million from the International segment.

It suffered $134 million in operating losses in its U.S. Mortgage Insurance segment, as well as $71 million in losses in its Corporate and Other areas.

Results in the quarter included a $36 million reversal of tax benefits reflected in the first quarter, as required by accounting standards. The impact of foreign exchange on net operating income in the second quarter of 2009 was an unfavorable $22 million.

Michael D. Frazier

Impairments declined on a year over year and sequential quarter basis to $99 million from $359 million and $388 million, respectively. Net unrealized investment losses also declined on a sequential basis to $3 billion, from $4.1 billion in the first quarter.

“Genworth made substantial progress improving both operating results and balance sheet strength,” said Michael D. Fraizer, chairman and CEO of the financial services company. “We achieved sound profitability in the Retirement and Protection and International segments, improved investment performance, enhanced capital flexibility from the IPO of Genworth MI Canada and retired all maturing long term debt until 2011.”

Genworth has more than $100 billion in assets, employs about 6,000 people with a presence in more than 25 countries, and provides investment, protection and retirement services to more than 15 million customers.