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Genworth's Life RBC Ratio Falls Sharply

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Genworth Financial Inc. today said it expects the risk-based capital (RBC) level at its U.S. life insurance business for the fourth quarter of 2018 to be about 190% to 200% of the company action level.

That RBC level would be down from 268% on Sept. 30, 2018, and down from 282% at the end of 2017, according to company figures. The RBC level for the fourth quarter would be about 82 percentage points, or 30%, lower than the year-earlier level.

Genworth, a Richmond, Virginia-based insurance holding company, released the life RBC figures along with its earnings for the fourth quarter.

(Related: Genworth Posts Lower Capital Ratio for New York Unit)

Genworth is reporting a $329 million net loss for the fourth quarter on $2 billion in revenue, compared with $353 million in net income on $1.7 billion in revenue for the fourth quarter of 2017.

Genworth is a major issuer of mortgage insurance in the United States, Australia and Canada, and it has been a major issuer of long-term care insurance (LTCI), annuities and life insurance in the United States.

The company’s U.S. mortgage insurance operation increased its full-year operating income 58% in 2018, to $490 million, mortgage insurance capital levels are strong, and the company is still hoping to get billions of dollars in economic benefits from future LTCI premium increases, Genworth said.

Efforts by China Oceanwide Holdings Group Co. Ltd. to acquire Genworth continue to move forward, the company said.

The company’s latest earnings look worse partly because of a big, one-time boost that occurred in the year-earlier quarter: The Tax Cuts and Jobs Act of 2017 helped Genworth report a $555 million gain from income tax benefits in for the fourth quarter of 2017.

Genworth reported an income tax benefit of just $86 million for the latest quarter.

The LTCI Unit

Genworth’s LTCI unit is reporting a $314 million adjusted operating loss for the latest quarter on $1.1 billion in revenue, compared with $17 million in adjusted operating income on $999 million in revenue for the fourth quarter of 2017.

Results for the latest quarter include a $258 million after-tax addition to LTCI reserves, a $91 million after-tax adjustment to reflect changes in expectations for the future performance of the company’s universal life insurance products, and a $17 million after-tax adjustment to reflect changes in expectations for future performance of the company’s fixed annuities.

Excluding the $258 million after-tax reserve increase, LTC adjusted operating losses would be $56 million.

Genworth has about $101 billion in assets, including about $80 billion backing its life, annuity and LTCI business. The $258 million after-tax reserve addition amounts to about 0.3% of the company’s life unit assets.

Genworth said it increased its LTCI reserves to reflect expectations that policyholders are likely to use their benefits for longer periods at later ages than originally expected, and to reflect an increase in the severity of the LTCI claims filed in the latest quarter.

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If Genworth had not increased the LTCI reserves, it could have reported $13 million in LTCI adjusted operating earnings.

The company received approvals from state insurance regulators to impose LTCI premium increases with a projected value of about $400 million in value per year, and about $2 billion in net present value.

The company is hoping to get approvals for additional LTCI premium increases that could provide about $5.6 billion in additional net present value.

Risk-Based Capital Ratios

A risk-based capital ratio, or RBC ratio, is a figure that state insurance regulators use to get a rough idea of how well an insurer is capitalized.

Genworth reports its RBC levels using the “company action level” figure.

Under the model rules recommended by the National Association of Insurance Commissioners, a life insurer with a  company action level RBC below 100% must file a plan with its insurance commissioner that explains its financial condition and discusses how it proposes to improve its condition.

China Oceanwide has agreed to infuse $175 million in capital into Genworth Life Insurance Company, Genworth’s main U.S. life unit, but beyond that, “Genworth intends to manage the U.S. life entities on a stand-alone basis,” the company said.

“The company continues to work closely with state regulators to demonstrate the broad-based need for actuarially justified rate increases in order to pay future claims,” the company said.

Tom McInerney’s Views

Tom McInerney, Genworth’s president, said in a statement that getting permission from state insurance regulators to continue to increase LTCI premiums is critical to stabilizing Genworth’s U.S. life business.

“I am encouraged by our progress as well as our active engagement with state regulators, who are focused on this important initiative,” McInerney said in the statement.


Links to Genworth’s earnings release and earnings supplement are available here.

CORRECTIONS: An earlier version of this article gave an incorrect comparison of the LTCI reserve addition and the life unit reserve levels. The reserve addition amounts to about 0.4% of life unit reserves. The article also included an inaccurate calculation of the effect of the reserve addition on LTCI unit earnings. If the reserve addition had not taken place, LTCI unit the unit’s adjusted operating loss would have been $56 million.

— Read Genworth Reminds Analysts That GLIC Will Stand Aloneon ThinkAdvisor.

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