(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.
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“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.”