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General Electric Company has raised more than $3.5 billion by making good on plans to sell a 30% stake in Genworth Financial Inc. along with $700 million in related Genworth securities.

Now that Genworth is on its own, the performance of the newborn insurance giant will depend on its success at introducing the Genworth brand name and strengthening relationships with distributors and producers, analysts say.

Its probably going to take a couple of years for them to fully establish the new brand, says Cynthia Crosson, a director in the New York office of Fitch Ratings. But, in the long run, she says, I think they have good prospects.

Genworth, which is based in Richmond, Va., is a leader in the term life, long term care insurance and mortgage insurance markets.

Genworth also sells group life and health insurance, annuities, reinsurance, European payment protection insurance and mortgage contract underwriting services.

The company reported $260 million in net income for the first quarter on $3 billion in revenue and $107 billion in assets, up from $254 million in net income on $2.8 billion in revenue for the first quarter of 2003.

Company strengths include solid managers, good risk-management capabilities and decades of experience at managing LTC insurance business, Crosson says.

Another possible plus: Genworth has escaped from the demands of a parent company that expected it to generate a 20% return on equity.

But soft demand for Genworth stock forced Morgan Stanley & Company Inc., New York, and Goldman Sachs Group Inc., New York, the investment banks managing the offering, to cut the actual initial public offering common stock price to $19.50, from the $22 target price that was published in a preliminary prospectus.

The price cut reduced the total maximum take from the sale of preferred stock, equity units and the main batch of common stock to about $3.5 billion, from $3.9 billion.

At press time, the investment banks still were deciding whether to pay General Electric another $424 million for 21.75 million shares of over-allotment stock.

Wall Street greeted the new Genworth common stock with a yawn.

The day after Genworth common shares began trading on the New York Stock Exchange under the symbol GNW, the price of the shares fell slightly before creeping back up to $19.50.

The share price was only about 11 times higher than Genworth’s 2003 earnings, while the price-to-earnings ratio for the typical big, publicly traded life insurer is about 15.

Reasons for the lukewarm reception include everything from the war in Iraq to fears of rising interest rates, securities analysts say.

Although Genworth is a strong, diversified company, maintaining market leadership while operating without General Electric branding and financial support could be tricky, says Kevin Ahern, a credit analyst in the New York office of Standard & Poor’s Ratings Services.

General Electric also hobbled the common stock offering by announcing plans to sell another 30% stake in Genworth in 2005, analysts say.


Reproduced from National Underwriter Edition, May 28, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.