(Bloomberg) — Genworth Financial Inc. tumbled in early trading as the company’s chief executive officer predicted a tougher path ahead after the insurer posted a record loss.
The stock fell 19 percent to $11.45 at 8:18 a.m. in New York. Genworth yesterday posted a loss of $844 million, driven by costs tied to its long-term care insurance operation. CEO Tom McInerney today apologized for his prior remarks about the business.
“The turnaround in this business will be more difficult and prolonged,” McInerney said yesterday in a statement announcing the results. “Despite this setback, we remain steadfast in our commitment to transform this business.”
The loss was the biggest since the firm was spun off from General Electric Co. in 2004. It was fueled by $531 million in pretax costs to increase long-term care reserves, above the high end of an estimate from JPMorgan Chase & Co. Genworth also reduced goodwill at the long-term care unit by $167 million, citing higher claims and a reduced market size.
“The LTC reserve charge is what really matters this quarter,” Ryan Krueger, an analyst at Keefe, Bruyette & Woods, said in a research note dated yesterday. “Genworth’s review of long-term care claim reserves produced a larger-than-expected charge.”
Genworth is the largest seller of long-term care coverage, and McInerney, 58, has been working to improve results at the operation since becoming CEO at the start of last year. He’s increased prices and tightened underwriting for the policies, which help pay for health aides and stays in nursing homes.
Larger rivals MetLife Inc. and Prudential Financial Inc. have stopped selling long-term care insuranceafter results were hurt by near-record-low bond yields and higher-than-expected claims costs.
Genworth said in July it was reviewing whether it had set aside enough funds to cover costs for policies sold in prior years, amid higher-than-expected claims in the second quarter. Yesterday, Genworth said it’s conducting additional reviews of the long-term care business.
“Genworth’s credibility has already clearly been damaged,” Krueger wrote. The results of the fresh review may “further call into question the real economic value of the LTC block.”
McInerney told investors in December that Genworth had adequate reserves for long-term care coverage. In July, after announcing the review, he said investors had gotten the wrong impression from the earlier remarks and that he was speaking in broad terms last year, without ruling out quarterly volatility.
Today, McInerney said he regretted his remarks.
“I owe you an apology,” McInerney said on a conference call discussing third-quarter results. “In trying to explain the second-quarter LTC claim results relative to comments from the December investor call, I made a misstep when my comments shifted responsibility away from the company and me.”
Genworth also offers life insurance and annuities. Operating earnings from life coverage fell to $13 million from $54 million a year earlier, while annuities generated $26 million, up from $16 million.
The company recorded a goodwill impairment of $350 million in the life-insurance business amid a change in strategy. Genworth is scaling back from term life insurance while working to sell more permanent products.
McInerney said the global mortgage-insurance business was a bright spot for Genworth. The unit, which operates mainly in the U.S., Canada and Australia, posted an operating profit of $85 million, compared with $87 million a year earlier.
Genworth sold a 34 percent stake in its Australian mortgage insurer in a May initial public offering, raising about $545 million. The company divested a minority stake in its Canadian home-loan guarantor in a 2009 IPO.
“We remain encouraged by our global mortgage-insurance division performance, which continues to show strength,” the CEO said.