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Genworth Reminds Analysts That GLIC Will Stand Alone

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Genworth Financial Inc. executives said they are optimistic about being able to complete the sale of the company to China Oceanwide Holdings Group Co. Ltd. by the end of the year — and they took pains to emphasize that the units that have written Genworth’s long-term care insurance (LTCI) and annuities will have to stand on their own.

Tom McInerney, Genworth’s president, told securities analysts that the plan is for Genworth Life and Annuity Insurance Company (GLAIC) and Genworth Life Insurance Company (GLIC) to get $175 million in capital from China Oceanwide once China Oceanwide closes on Genworth, in connection with an agreement calling for China Oceanwide to infuse a total of $1.5 billion into Genworth.

(Related: Delaware Schedules China Oceanwide-Genworth Hearing)

“It is important to note that Genworth could not make this contribution to GLIC without Oceanwide’s $1.5 billion capital investment plan,” McInerney said during a conference call. “The U.S. life businesses will continue to be managed on a stand-alone basis, with the continued need for actuarially justified LTCI premium increases and benefit reductions. Oceanwide and Genworth have no plans to infuse additional capital to the legacy LTCI business beyond the $175 million in capital.”

McInerney said later that state insurance regulators have been helpful with helping Genworth get LTCI premiums to the point needed to make the company’s old LTCI business break even.

“You can’t expect the current shareholders or the new shareholders to continue to invest in the legacy block,” McInerney said.  “I think the valued-added from the deal for regulators, and policyholders’ perspective, is that we’re able to invest $175 million that we wouldn’t have had without the capital contribution from Oceanwide.”

China Oceanwide announced plans to acquire Genworth about two years ago.

Genworth held the conference to go after third-quarter earnings with securities analysts.

Genworth is reporting $210 million in net income for the quarter on $1.1 billion in revenue, compared with $175 million in net income on $1.1 billion in revenue for the third quarter of 2017.

The company’s LTCI unit is reporting a $24 million operating loss on $1 billion in revenue, compared with a $5 million loss on $1 billion in revenue for the year-earlier quarter.

The ratio of adjusted LTCI claims to net earned LTCI premiums increased to 83%, from 78.8%, and use of benefits was worse than expected, according to Kelly Groh, the company’s chief financial officer.

Groh said the company may change the way it reserves for claims and is having an outside actuarial firm review its reserving methodology.

Genworth is still actively writing mortgage insurance. The mortgage insurance units are facing pressure, both from tough competition and from potential customers’ concerns about the Genworth’s finances, executives said.

Executives also talked about the regulatory agencies that still need to sign off on China Oceanwide’s effort to acquire Genworth.

The U.S. Committee on Foreign Investment in the United States (CFIUS), a secretive national agency, approved the deal this summer, and other agencies have been moving forward since Genworth received the approval from CFIUS, McInerney said.

McInerney said Genworth and China Oceanwide still need first-time approvals from:

  • China’s National Development and Reform Commission.
  • China’s State Administration for Foreign Exchange.
  • The China Banking and Insurance Regulatory Commission.
  • The Delaware insurance commissioner.
  • The New York state insurance commissioner.
  • The U.S. federal mortgage insurance agencies.

State insurance regulators in Virginia and North Carolina have already approved the deal. Genworth and China Oceanwide will have to get the deal reapproved by those states, however, because of a change in the deal structure that was made at Delaware’s request.

Originally, Genworth had planned to separate its annuity unit from the LTCI unit. Delaware objected, and Genworth and China Oceanwide redesigned the deal to keep the annuity unit under the control of the LTCI unit.

McInerney said regulators in China continue to be supportive of the deal, because of their interest in bringing knowledge about long-term care insurance to China.

— Read Genworth and China Oceanwide Push Back Deal Deadlineon ThinkAdvisor.

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