Genworth Nets $535M From Mortgage Insurer Stock Sale

Genworth Financial raised $535 million this week by selling 19.4% of its mortgage insurance business to outside investors, in spite of turbulence in the stock market.

The initial share price for the business, Enact Holdings, was $19. That was below a range of $20 to $24 that Genworth had predicted in May.

Genworth and Enact

Genworth is a Richmond, Virginia-based company that came to life as the insurance arm of GE Capital. GE Capital turned Genworth into a public company through an initial public offering in 2004. The company was a major issuer of life insurance, annuities and long-term care insurance and still has large blocks of LTCI business on its books.

Low interest rates and other challenges have caused Genworth to suspend sales of life and annuity products and end active marketing of LTCI coverage, but the Enact business is still a major player in the U.S. mortgage insurance market.

Enact had about 500 full-time employees on June 30, with about 56% of those employees working out of the company’s home office in Raleigh, North Carolina, according to a document Enact filed with the SEC earlier this month.

The Offering

Genworth says it sold 15.3 million Enact shares to public investors through the IPO and 14.7 million shares to Bayview Asset Management, a company that focuses on investing in mortgages and mortgage-backed securities.

Arms of Goldman Sachs and J.P. Morgan oversaw the IPO. Goldman Sachs, J.P. Morgan and other underwriters bought about 2 million Enact shares.

Shares of the company’s stock now trade on the Nasdaq Global Select Market under the ticker symbol ACT.

Genworth itself still owns 81.6% of Enact’s shares.

The Future

Tom McInerney, Genworth’s CEO, has repeatedly suggested that the Genworth subsidiary that holds the LTCI business could face solvency concerns if states do not approve the company’s requests for LTCI premium increases.

Many states have approved large Genworth LTCI premium increases.

Recently, for example, New York state regulators have responded by approving requests for 68.3% increases in premiums for Privileged Choice, Classic Select and Privileged Choice Flex LTCI policies sold in that state.

LTCI policyholders have asked why they should bear the brunt of the issuers’ premium increases, saying they bought the policies believing that premiums would be stable and the issuer was in a better position to understand, control and cope with differences between pricing assumptions and actual product performance.

Genworth has said that it will use some of the proceeds from the Enact IPO to make payments linked to a settlement with AXA over the performance of two companies in Europe that AXA acquired from Genworth in 2015.

Genworth has said it intends to use any other IPO proceeds to repay other debts.

The IPO could improve Genworth’s overall financial standing by increasing the overall value of Genworth’s Enact stock. The current share price gives the company a market capitalization level, or total stock value, of about $3.3 billion.

Genworth has suggested that Enact’s stock might do better now that Enact is operating as a stand-alone company and posting its own earnings.

Strong performance of Enact stock could increase the resources Genworth has to nurse the life subsidiary back to health.

Some are saying that rising inflation could force up interest rates. A sustained increase in interest rates could also help Genworth and its LTCI business by improving yields on the bonds supporting the benefits obligations.

(Photo: Michael Nagle/Bloomberg)