Genworth CEO: Company to Restructure, Suspend Life and Annuity Sales
February 9, 2016 by Dennis Gorski, managing editor-online, BestWeek: Dennis.Gorski@ambest.com
RICHMOND, Va. – Continued losses in two of its core business lines led Genworth to make the “very difficult” decision to suspend their sales and begin a company-wide restructuring, Chief Executive Officer Tom McInerney told investors during a fourth-quarter earnings call.
He said Genworth will suspend sales of its traditional life insurance and fixed annuities products by the end of the first quarter of 2016. But the insurer will keep offering on long-term care and mortgage insurance lines, he added.
“We have always been in the top five players (of LTC sales) and we remain in the top five players,” McInerney pointed out. “So we still do believe competitively we can sell long-term care.”
Its life insurance business posted a fourth-quarter net operating loss of $173 million, compared with income of $1 million, and an $80 million loss versus income of $74 million for the year. Annuity net operating income for the quarter fell to $19 million from $23 million.
Genworth’s life and annuity sales “suffer from three realities,” McInerney said: negative ratings, distributors’ suspensions because of concerns over the products’ viability, and the lack of competitiveness of the products. “On life and annuity, there are 8,000 life companies selling the product, and if you compare Genworth to the top 20 providers, their ratings were much higher,” McInerney said. “We just couldn’t be competitive.”
He said suspending life insurance and annuity sales would save the company $50 million by the second half of this year.
“We are actively pursuing multiple restructuring actions to separate and isolate our LTC business and narrow our commercial focus,” he added. “And we remain open to other actions.”
Genworth’s holding company has set aside $200 million to fund the restructuring actions, which will take from 12 to 18 months to accomplish, McInerney said, and require state regulatory approvals and possibly other parties’ OKs.
Genworth narrowed its fourth-quarter net loss to $240 million from a $708 million loss a year ago. Revenue declined to $2.16 billion from $2.23 billion, with premium dropping to $1.16 billion from $1.21 billion.
Its U.S. mortgage unit reported a rise in net operating income to $41 million from $21 million. The Canada mortgage unit posted $37 million, up from $36 million and the Australia mortgage company had $22 million, down from $33 million.
Long-term care net operating income rose to $19 million this quarter versus a loss of $506 million last year. To bolster long-term care revenues, Genworth is in the midst of rate-hike requests on some blocks of business, according to Kelly Groh, chief financial officer. Groh said the company has received about $6 billion in approvals so far, representing about 80% approval of the requests it’s filed.
To generate capital, Genworth recently sold two portions of its business and will dispose of a third part early this year.
Last month, the company completed the sale of certain blocks of term life insurance to Protective Life Insurance Co., which should generate $100 million to $150 million to Genworth (Best’s News Service, Jan. 18, 2016). The deal includes an expected July tax payment of more than $200 million to the holding company, Genworth said in its earnings statement.
In December, Genworth completed the sale of its lifestyle protection insurance business to Axa with estimated net proceeds of $400 million (Best’s News Service, Dec. 2, 2015). Last month, the company redeemed its senior notes due in 2016 using $321 million of proceeds from this transaction, it said.
And last October, Genworth entered into an agreement to sell its European mortgage insurance business to AmTrust Financial Services. The deal should result in net proceeds of about $55 million to the U.S. mortgage insurance business. The transaction is expected to close shortly (Best’s News Service, Oct. 27, 2015).
Genworth’s operating insurance subsidiaries have a current Best’s Financial Strength Rating of A- (Excellent).
In afternoon trading Feb. 5, shares of Genworth Financial Inc. (NYSE: GNW) were $2.17, down 22.04% from their previous close.
