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Genworth Financial Inc. hopes to be part of China Oceanwide Holdings Group Co. Ltd. of Beijing by June 30, but it intends to shop for other sources of financing, just in case.

Tom McInerney, the chief executive officer of the Richmond, Virginia-based insurer, talked about the company’s contingency planning today, during a conference call the company held to go over its first-quarter earnings with securities analysts.

Genworth was a major issuer of life insurance, annuities and long-term care insurance, and it continues to be a major player in the mortgage insurance markets in the United States and Australia.

Genworth reported a $66 million net loss for the quarter on $1.8 billion in revenue, and economic turmoil has rocked its investment portfolio. The level of risk-based capital at the company’s U.S. life subsidiaries fell to 195% of the company action level March 31. That’s the same as it was a year earlier, but down from 213% Dec. 31, 2019.

Genworth also has $1.1 billion in debt coming due in 2021.

Resources

  • A link to a recording of Genworth’s latest analyst call is available here.
  • An article about how a midsize life insurer sees the economy is available here.

China Oceanwide has been trying to acquire Genworth for about four years.

China Oceanwide is now in the process of closing on a $1.8 billion financing arrangement from Hony Capital, a big, Hong Kong-based private equity firm. Hony is sponsored by Legend Holdings, a big investment management firm, and China Oceanwide has a 17% ownership interest in Legend Holdings, McInerney said during the conference call.

“Oceanwide has informed us that they continue to work to manage funding for the transaction, and the funding plan is progressing well,” McInerney said. “In addition to its discussions with Hony Capital, Oceanwide is also talking to a number of third parties, to ensure the process continues to run smoothly.”

China Oceanwide and Genworth’s latest deal deadline extension gives Genworth the flexibility to seek other strategic options, McInerney said.

“While having the flexibility is important, it is even clearer today that the Oceanwide transaction is the best alternative for our shareholders and all the stakeholders,” McInerney said.

But Kelly Groh, Genworth’s chief financial officer, said the company is looking at other ways to make the 2021 debt payments, in case the China Oceanwide transaction is terminated or delayed.

The company’s U.S. mortgage insurance business could borrow money, or the company could get a secured loan facility, Groh said.

A secured loan facility is the corporate equivalent of a secured credit card.

The debt issuance or the secured loan facility “would provide time for market to recover before a more permanent solution can be found,” Groh said.

COVID-19 Impact

McInerney said Genworth rehearsed for a work-at-home shift by requiring all company employees to work from home March 5 and March 6.

Genworth learned that it was mostly ready to make the shift, but that some employees needed better Internet connections, and help with setting up their home offices, McInerney said.

All U.S. employees have been working from home since March 11, he said.

Groh said that overall mortality for term life and universal life was “significantly unfavorable versus the prior-year quarter and prior-year,” but that Genworth does not have any evidence that the increase in mortality is related to COVID-19.

Just three new death claims, for a total of $300,000 in death benefits, have been identified as COVID-19-related claims, Groh said.

LTCI Rate Increases

McInerney reported that, since 2012, Genworth has requested, and received, permission from state insurance regulators to implement long-term care insurance premium increases with a net present value benefit to Genworth of $12.7 billion.

“We have a little over $7 billion in future premium increases and benefit reductions to go,” he said.

Because of the Penn Treaty insolvency and the Senior Health Insurance Company of Pennsylvania rehabilitation plan, state insurance regulators have been more open to agreeing to significant premium increases, McInerney said.

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