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Genworth Gets Major Regulatory Approvals for China Oceanwide Deal

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Genworth Financial Inc. is now much closer to becoming part of China Oceanwide Holdings Group Co. Ltd.

The Richmond, Virginia-based insurer says it has received approvals for the $2.7 billion China Oceanwide deal from several major regulatory agencies.

Genworth was a major player in the U.S. life and annuity markets. It continues to sell some long-term care insurance (LTCI). It’s still a major issuer of mortgage insurance in the United States, Canada and Australia, and it still has large amounts of life, annuity and LTCI business on its books. GLIC has written more LTCI business than any other U.S. issuer.

The Delaware Department of Insurance, the lead regulator for a major Genworth subsidiary, Genworth Life Insurance Company (GLIC), has given the deal its blessing.

(Related: Investors Like Delaware Hearing on China Oceanwide-Genworth Deal)

Genworth says it also has received approvals from two major U.S. mortgage guarantee agencies, Fannie Mae and Freddie Mac, and from regulators in Australia and New Zealand.

China Oceanwide and Genworth announced the deal in October 2016. They recently pushed the deal completion deadline back to Jan. 31, 2019, from Dec. 1.

The companies still need approvals from other U.S. and non-U.S. agencies, including the New York Department of Financial Services.

Lu Zhiqiang, the chairman of China Oceanwide, said in a statement that his company looks forward to closing the Genworth acquisition transaction as soon as possible.

Genworth and China Oceanwide say they can live with the requirements imposed in connection with the regulatory approvals already received, but Genworth notes in a disclosure statement that one risk is that the companies may face further regulatory approval delays, and that another risk is that other regulators that approve the deal may impose ”materially burdensome or adverse regulatory conditions,,,  that either or both of the parties may be unwilling to accept.”

Genworth has included the warning about burdensome conditions in its standard risk disclosures since it first announced the China Oceanwide deal.

China Oceanwide

China Oceanwide is a privately held, family-owned holding company based in Beijing. It has roots in the real estate development industry but now owns several insurance companies and several other financial services companies.

China Oceanwide has faced challenges of its own in recent years, in part because of Chinese regulators’ tougher scrutiny of real estate and financial services companies, and in part because of some affiliates’ high levels of debt.

Shares of Oceanwide Holdings Co. Ltd., a publicly traded affiliate, were selling for about 10 yuan per share in 2018 and are now selling for less than 5 yuan per share.

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Delaware Details

The Delaware department held a hearing on the China Oceanwide-Genworth deal in November.

Trinidad Navarro, Delaware’s insurance commissioner, said in a statement about his decision to approve the deal that he believes China Oceanwide will bring immediate new value to GLIC’s policyholders.

“I look forward to working with them and with GLIC’s management to assure that the safety of benefits to GLIC’s policyholders is always considered the top priority,” Navarro said in the statement.

Hindenburg Investment Research has argued in three comment emails that the deal would hurt GLIC policyholders, by putting GLIC assets beyond the reach of U.S. regulators, in the hands of a shaky company.

Delaware regulators say in their final order and decision document that they believe Hindenburg’s conclusions should be viewed with skepticism, because Hindenburg could make money on short positions on Genworth shares, and because Hindenburg’s conclusions are inconsistent with the results of Genworth’s own due diligence and the reviews conducted by the Delaware department’s financial advisors.

China Oceanwide has agreed to put $375 million in cash into GLIC, and that should help GLIC’s policyholders, officials say.

In addition, “Genworth and the department have both concluded, and the evidence supports the conclusion, that the financial condition of the applicants is not such as would jeopardize the financial stability of the domestic insurer or prejudice the interest of its policyholders,” Delaware officials write.

Delaware regulators have tried to guard against the possibility that China Oceanwide could misuse GLIC assets by prohibiting GLIC from paying any dividends to its new parent company without the Delaware department’s prior approval, and by ordering China Oceanwide and GLIC to establish teams to help the Delaware department monitor GLIC’s financial health.

Navarro said in his statement that the LTCI business still faces problems.

“I know that no one act will fix all the challenges of long-term care, but I am satisfied that this approval is a step forward, to be followed by many future steps to protect the policyholders,” Navarro said.

The Delaware department “will continue to work with GLIC to search for answers so GLIC can continue to pay all promised benefits,” Navarro said.


A copy of Delaware’s final decision is available here.

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

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