Delaware Sees Hidden Value in Genworth's Annuity Unit

One of the biggest headaches for executives at Genworth Financial Inc. could turn out to be a blessing for insurance agents, Genworth annuity holders and China Oceanwide Holdings Group Co. Ltd.: Regulators in Delaware think the company’s long-term care insurance (LTCI) unit is more valuable than potential buyers realize.

The battle over the value of the unit, Genworth Life and Annuity Insurance Company (GLAIC), came up today during a conference call Genworth executives held with securities analysts.

China Oceanwide has been trying to acquire Genworth since October 2016. One obstacle has been delays in Genworth’s efforts to separate GLAIC, which is now a subsidiary of another Genworth unit, Genworth Life Insurance Company (GLIC), from GLIC.

Thomas McInerney, Genworth’s president , said Genworth and China Oceanwide believe, based on Genworth’s efforts in 2015 to sell part or all of Genworth, that GLAIC is worth about $700 million.

Delaware regulators’ valuation expert believes, based on cash-flow analysis, that GLAIC might be worth significantly more than $700 million, McInerney said.

“Delaware, I think, is still working on their valuations,” McInerney said.

(Related: Genworth Could Sell Non-U.S. Mortgage Units If Term Loan Efforts Fall Through)

McInerney declined to give analysts many more details about the GLAIC valuation dispute.

“We really can’t comment, because we’re in active negotiations,” McInerney said.

But McInerney said that, because of the valuation dispute, Genworth will likely try to proceed with the China Oceanwide deal without “destacking” GLAIC from GLIC.

If China Oceanwide manages to acquire Genworth under the current terms, and Delaware’s expert turns out to be right about GLAIC, that could mean that GLAIC annuity holders are more secure than observers might expect, and that China Oceanwide could end up with a U.S. insurance operation that’s more secure and more valuable than it had hoped. The expert’s valuation could also mean that the value of the assets backing GLAIC’s ability to make all sorts of payments, including trailing commissions for agents, is greater than the $700 million valuation might suggest.

Genworth and China Oceanwide also have to get approvals for their deal from insurance regulators in New York state, national security regulators in the federal government, and regulators in China and other countries.

McInerney said the New York state review process has been going “reasonably well.”

De-Stacking GLAIC