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Genworth Financial paid $10 million in COVID-19-related life insurance claims in the second quarter.

Kelly Groh, Genworth’s chief financial officer, talked about the impact of the COVID-19 pandemic on claims today, during a conference call the company held to go over its latest financial results with securities analysts.

Genworth may be best known to life, health and annuity agents as a provider of stand-alone long-term care insurance (LTCI).

Genworth is not giving details about the effects of COVID-19 on the performance of the LTCI unit, but it did say an increase in deaths improved the unit’s performance.

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When a life insurance policyholder dies, an insurer has to pay death benefits to the beneficiaries.

When an LTCI claimant dies, the death reduces the LTCI issuer’s obligation to pay LTCI benefits on behalf of the claimant.

 

At the LTCI unit, an increase in mortality affected “active claims, pending claims and active policies,” Genworth said in its earnings announcement.

“Although it is not the company’s practice to track cause of death for [LTCI] policyholders and claimants, current quarter [LTCI] results were likely impacted by the COVID-19 pandemic,” the company said.

Genworth noted that an apparent decrease in claims might be partly the result of a delay in people filing claims. Because of uncertainty about how real the reduction in LTCI claims is, Genworth has added $37 million to reserves for LTCI claims that are “incurred but not reported,” or IBNR.

Groh said during the conference call that the second-quarter drop in claims affected older LTCI policies, not newer policies.

“We do believe that this decrease is temporary, reflecting delays in reporting of claims due to social distancing and shelter-in-place protocols and that our incidence experience will ultimately resemble previous trends,” Groh said.

 

Stand-alone LTCI is known for being a product with high persistency rates. The consumers who buy it tend to hold on to the coverage with an iron grip, even in the face of large premium increased.

“In long-term care, claim and active policy terminations were significantly higher in the second quarter versus the prior period and prior year,” Groh said. “Although we do not require death certificates for [LTCI] and cannot make a direct attribution to official causes of death, we do believe some degree of incremental terminations were the result of COVID-19.”

COVID-19 and Life Insurance

Genworth said in the 10-K annual report it filed for 2019 that it ended 2019 with about $55 billion in in-force life insurance coverage on its books, net of reinsurance.

That would mean that Genworth accounts for about 0.25% of the life insurance in force in the United States.

If Genworth paid about 0.25% of U.S. COVID-19-related life insurance claims in the second quarter, that would imply that the U.S. life insurers as a whole might have paid $4 billion in COVID-19-related benefits.

(Related: Principal Financial Adjusts COVID-19 Impact Formula)

The Earnings

Genworth is reporting a $441 million net loss for the latest quarter on $2.1 billion in revenue, compared with $168 million in net income on $2 billion in revenue for the year-earlier quarter.

The latest results include a charge related to the settlement of a large lawsuit related to the operations of a property and casualty unit that was sold years ago.

Income from continuing operations fell to $148 million, from $224 million.

The LTCI unit produced $48 million in adjusted operating income for the quarter, up from $38 million in adjusted operating income for the year-earlier quarter.

The life insurance unit is reporting an adjusted operating loss of $81 million, compared with $10 million in adjusted operating income for the year-earlier quarter.

Genworth has $554 million in cash and liquid assets at the parent company level, up from $403 million a year earlier.

The China Oceanwide Deal

China Oceanwide Holdings Group Co. Ltd. of Beijing has been trying to acquire Genworth for years. The companies now have all needed U.S. approvals and reapprovals.

Tom McInerney, Genworth’s chief executive officer, said that the new hurdle is that, because completing the deal has taken so long, China Oceanwide has to renew the funding arrangements it lined up back in 2018.

“Since the original Hony funding commitment was secured in 2018, the Hony commitment was extended each time Genworth and Oceanwide had to extend the merger agreement because of regulatory delays,” McInerney said. “It was only after the COVID-19 pandemic disrupted global capital and financial markets in February and early March with the Hony Capital $1.8 billion commitment became an issue.”

China Oceanwide and Genworth are talking about efforts to nail down funding, and China Oceanwide has agreed to provide hard funding confirmation by Aug. 31, McInerney said.

McInerney emphasized that the fate of Genworth’s life insurance operations, including the LTCI unit, may depend on the success of the China Oceanwide deal, and the operations’ own performance during a time of low interest rates and high economic uncertainty.

“Going forward, we will continue to manage the U.S. life insurance businesses on a stand-alone basis, with no plans to infuse or extract capital other than as committed in connection with completion of the Oceanwide transaction,” McInerney said.

Genworth’s current focus is on maintaining the health of its mortgage insurance units, McInerney said. The mortgage insurance units are still writing large amounts of mortgage insurance,

 

Genworth executives also said that getting approvals from state insurance regulators for LTCI premium increases is critical to the LTCI unit’s performance.

Genworth has not implemented many increases so far this year, but it expects to implement more increases in the second half of the year, Groh said.

“These will include newer product series, for which we have not requested rate increases in the past,” Groh said. “These filings will include a variety of benefit reduction alternatives, which we have seen more and more policyholders select. We will continue to monitor policyholder behavior carefully in light of the potential COVID-19 impact on our policyholders.”

 

 

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