Genworth: 3 things for agents to know

Executives at Genworth Financial Inc. (NYSE:GNW) see continuing to sell long-term care insurance (LTCI) as an important part of efforts to turn the company around.

Tom McInerney, the company’s president, talked on Friday about the value of continuing to sell LTCI with securities analysts during a conference call the company held to go over fourth-quarter earnings.

Genworth announced Thursday that the company as a whole lost $240 million in the fourth quarter on $2.2 billion in revenue. That compares with a net loss of $708 million, on $2.2 billion in revenue for the fourth quarter of 2014.

Genworth executives said Friday that they will try to improve the performance of the company, and build shareholder value, by realigning the U.S. life business, discontinuing the sale of life and annuity products, and marketing LTCI.

For a look at why Genworth is sticking with LTCI, and other matters executives discussed during the conference call, read on.

1. The financial picture

The U.S. LTCI unit generated $19 million in operating income for the quarter on $633 million in premium revenue, up from a net operating loss of $506 million on $607 million in premium revenue for the fourth quarter of 2014.

LTCI sales fell to $10 million in the latest quarter, from $23 million a year.

Genworth notes that sequential sales comparisons may be more meaningful, because the company has shifted to a new, lower-risk product structure. LTCI sales were up from $8 million in the third quarter.

Sales of term life, universal life and linked-benefit products fell to $10 million in the latest quarter, from $12 million in the third quarter and from $23 million in the fourth quarter of 2014.

Company executives now focus heavily during conference calls on the progress of efforts to increase the cost of in-force LTCI policies.

Genworth submitted 56 rate increase filings in the fourth quarter, and those could affect policies that now generate $332 million in premium. The company received approvals for nine filings that will affect policies with now generating $222 million in premium revenue. The approved increase filings will augment the policy rates an average of 25 percent, according to company estimates.

The company has applied for rate increases on a total of about $410 million to $500 million in LTCI business since 2012 and implemented increases on about half of the affected policies. The company expects to file for increases on about $450 million to $600 million in LTCI business from now through 2026.

Genworth, which has about 5,000 employees, has notified Virginia regulators that it may cut 336 jobs in Virginia by April 10.

2. The U.S. life business split

Genworth Life Insurance Company, the Genworth unit that issues LTCI, is a unit of Genworth Financial.

Genworth Life and Annuity Insurance Company (GLAIC), the life and annuity product issuer, is now a “daughter” of the LTCI unit.

Genworth wants the life and annuity unit to be a sister of the LTCI unit, rather than the LTCI unit’s daughter.

3. The company’s LTC planning products strategy

One analyst asked Genworth executives why the company is continuing to sell LTCI, given that it is in such a difficult market, and discontinuing new sales of life and annuity products.

McInerney noted that Genworth faces stiff competition in the life and annuity markets, and that insurance issuer strength rating cuts have hurt the company’s ability to compete in those markets.

“We obviously don’t have the scale that some of the top 20 players have,” McInerney added.

Suspending sales of new life and annuity products will eliminate the need for the GLAIC unit to come up with the cash to pay up-front life and annuity commissions while improving the unit’s statutory earnings, McInerney said.

The LTCI market is much less competitive than the life and annuity markets, “and we remain in the top five players,” McInerney said. “Competitively, we can still sell long-term care.”

Continuing to sell LTCI also improves the tone of conversations with insurance regulators, McInerney said.

“They have clearly given Genworth, and, I think, the other players that have remained, more premium increases than they have given to the players that have discontinued sales,” McInerney said.

In the future, he said, Genworth will continue to sell individual and group LTCI. The company is also launching a new immediate annuity to address the needs of people over 80 who need to pay for long-term care (LTC) services, he said.

“Over time, we expect to develop more products and services that complement these offerings and are geared toward addressing the financial challenges of aging,” he said.