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5 Things Genworth Executives Told Wall Street

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Executives at Genworth Financial Inc. say that the company still needs to come up with $600 million in cash to handle debt obligations coming due in May, but that the company did well in 2017.

Thomas McInerney, who has been the Richmond, Virginia-based insurer’s president since 2013, told securities analysts Wednesday that he believes the company has been moving in the right direction..

“We returned to profitability,” McInerney said. “We generated solid operating results, particularly at our global mortgage insurance platform, and we made significant progress on our multi-year long-term care insurance premium rate action plan.”

McInerney talked about Genworth’s performance, and future, during a conference call the company held to go over earnings for the fourth quarter of 2017, and for the full year.

Genworth has been a major seller of life insurance, annuities, long-term care insurance (LTCI) and mortgage insurance. The company is reporting $265 million in net income for the fourth quarter on $1.7 billion in revenue, compared with a $63 million net loss on $2.2 billion for the fourth quarter of 2016.

(Related: Genworth Faces Deal Resistance in Delaware)

Genworth has posted a link to a recording of the call here.

China Oceanwide Holdings Group Ltd., a Chinese real estate development and financial services company, agreed to acquire Genworth in October 2016. In 2017, because of deal-related concerns, Genworth skipped holding its usual quarterly earnings calls.

For the latest quarter, McInerney said, Genworth held an earnings call because it wanted to address delays in the China Oceanwide deal closing and other important issues.

For five highlights from the conference call, read on.

Wall Street (Photo: Allison Bell/TA)

(Photo: Allison Bell/TA)

1. Many jurisdictions have already approved the China Oceanwide deal.

McInerney said that Genworth will probably use new secured debt to make the debt payments it will have to make in May.

McInerney said Genworth is facing a China Oceanwide deal approval delay in Delaware as well as a delay related to data security concerns at the Committee on Foreign Investment in the United States, a federal national security deal review agency.

But McInerney also listed some of the many regulators that have approved the China Oceanwide deal.

“We have made significant progress across the necessary regulatory approval processes,” McInerney said.

The list of regulators that have blessed the deal includes the insurance regulatory agencies in North Carolina, South Carolina, Vermont and Virginia, McInerney said.

2. Genworth believes its Delaware life unit is worth about $700 million.

McInerney said that Genworth tried hard to sell a major, Delaware-based life insurance unit, Genworth Life and Annuity Insurance Company, in 2015.

Those efforts suggest that GLAIC has a fair market value of $700 million, McInerney said.

Delaware regulators have independent advisors who think GLAIC is worth more than that, based on a cash-flow analysis, McInerney said.

Genworth is working with Delaware officials to resolve the GLAIC valuation matter and can’t tell analysts much about that, McInerney said.

3. Genworth sees its LTCI reserving situation as being different from General Electric Co.’s LTCI reserving situation.

General Electric Co., Genworth’s former corporate parent, recently startled investors by announcing that it will have to add about $15 billion over the next seven years to the reserves for a reinsurance unit’s LTCI reinsurance business.

McInerney said Genworth has no net economic exposure or liability related to the LTCI business reinsured by GE’s Union Fidelity Life Insurance Company business.

McInerney also talked about LTCI unit staffing.

Executives from Unum Group recently distinguished that company’s block of LTCI business from GE’s block by pointing out that Unum has had 10 actuaries working full-time on its LTCI block since 2012.

McInerney said Genworth has a “seasoned expert LTC in-force management team of 35 professionals, under the leadership of Elena Edwards, a 20-plus-year executive of Genworth.”

That team focuses on seeking LTCI premium increases and benefits reductions, McInerney said.

3. Genworth says the GE reserve situation shows why state insurance regulators need to approve LTCI issuers’ requests for rate increases.

Kelly Groh, Genworth’s chief financial officer, said the real lesson investors should learn from the GE announcement is that issuers of older blocks of stand-alone long-term care insurance need help from state insurance regulators with increasing LTCI rates to sustainable levels.

The GE charges “illustrate the severity of the issues facing LTC insurers,” Groh said.

5. LTCI policyholders with limited benefits behave differently than those with lifetime benefits.

Today, LTCI issuers usually sell policies with benefits periods of five or fewer years.

In the 1990s and early 2000s, issuers sold many policies that offered lifetime benefits.

Because of the nature of the product, the issuers, including Genworth, are just now starting to get large amounts of claim data.

Groh said Genworth is finding that LTCI policyholders who have limited benefits periods use their coverage differently than holders of policies with lifetime benefits do.

“Policyholders with lifetime benefits have a higher propensity to claim, given their unlimited benefit pool,” Groh said.

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