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COVID-19 Pushes Up Genworth Life Unit's Capitalization Level

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What You Need to Know

  • Long-term care insurance benefits costs and changes in reserves fell 11%, to $829 million.
  • Claim terminations were still up, and new claims were still down.
  • Increased mortality helped single-premium immediate annuity earnings.

COVID-19 helped make Genworth Financial Inc.’s life, annuity and long-term care insurance (LTCI) business look healthier in the first quarter.

The overall risk-based capital (RBC) ratio at the U.S. Life Insurance Segment increased to 255% of the company action level in the quarter, up from 194% of the company action level a year earlier, Genworth reported Thursday, in its latest earnings report.

An RBC ratio shows state insurance regulators how an insurer’s financial resources compare with the amount of insurance and annuity business on its books. Genworth’s RBC ratio means that the company has about 2.5 times more capital than it needs to avoid having to give regulators a corrective action plan.

The life business RBC ratio improved primarily because the death rate for people collecting LTCI benefits from Genworth increased. That led to an increase in the number of LTCI claim terminations.

“Although it is not the company’s current practice to track cause of death for LTC policyholders and claimants, the elevated terminations impacting the current and prior quarter were likely the result of the COVID-19 pandemic,” the company said.

The Richmond-based company is still an active writer of mortgage insurance. It was once a major player in the U.S. life and annuity markets and one of the creators of the U.S. LTCI market.

The company has suffered over the past 15 years, and suspended most sales of life, annuity and LTCI products, because of the effects of low interest rates on all of those products and of pricing problems on the LTCI products.

The Earnings

Genworth as a whole is reporting $187 million in net income for the first quarter on $2 billion in revenue, compared with a net loss of $66 million on $1.8 billion in revenue for the first quarter of 2020.

The company’s U.S. Life Insurance Segment posted $62 million in adjusted operating income on $1.6 billion in revenue, up from a $70 million operating loss on $1.5 billion in revenue.

Inside the life segment, LTCI unit recorded $95 million in adjusted operating income on $1.1 billion in revenue, up from $1 million in adjusted operating income on $1 billion in revenue.

The life insurance unit, in contrast, lost $63 million.

COVID-19 Details

Here’s how the pandemic affected three types of Genworth products:

Life Insurance: “Mortality was significantly higher compared to the prior quarter and prior year, attributable in part to the COVID-19 pandemic,” Genworth said.

Fixed Annuities: COVID-19 helped increased adjusted operating income to $30 million, from $6 million in the year-earlier quarter. Annuity earnings improved because of “higher mortality in the single-premium immediate annuity product and favorable impacts from improved equity markets and interest rates,” Genworth said.

LTCI: COVID-19 contributed to an increase in earnings partly by discouraging policyholders from using their benefits to pay for nursing home care or home care. Long-term care insurance benefits costs and changes in reserves fell 11%, to $829 million.

The Future

Genworth said one question about LTCI is whether a large number of new claims will appear once the pandemic is over.

The company added $23 million to reserves to protect itself against pent-up demand for long-term care services.

Genworth is also wondering what mortality for the remaining LTCI claimants will look like.

The company is assuming that the remaining claimants are healthier than the ones who have died. It’s adding $53 million to claim reserves to prepare for the possibility that the current claimants may live longer than expected.

The chart shows the number of deaths, by day, that were attributed to the first, second and third U.S. COVID-19 waves. (Image: CDC)