Genworth boosts Q2 picture with expected $750M windfall from UK lawsuit

Genworth Financial enjoyed fortunate timing with a potential $750 million lawsuit windfall coming just days before it reported second-quarter earnings.

Executives happily answered questions from Wall Street analysts Thursday on the recent United Kingdom High Court verdict in favor of AXA in the legal proceedings against Santander companies.

The $750 million due to Genworth has not been factored into the insurer’s budget, said Tom McInerney, president and CEO.

“Once received, we plan to deploy [funds] in line with our stated capital allocation priorities,” he explained, “investing in growth through CareScout, returning cash to shareholders through our buyback program, and opportunistically paying down debt.”

Genworth, which continues to struggle with mispriced long-term care policies, enjoyed a successful quarter financially. Enact, the insurer’s U.S. mortgage insurance subsidiary, reported an adjusted operating income of $141 million and distributed $94 million in capital returns to Genworth.

The lawsuit involves liabilities associated with the misselling of Payment Protection Insurance policies, Genworth said in a news release. At issue were losses incurred from misselling complaints for PPI underwritten by two companies that AXA acquired from Genworth in 2015. The policies were sold by a company acquired by Santander in 2009.

The judgment finds Santander liable for AXA’s losses resulting from Santander’s misselling. At a July 25 hearing in London, the Judge awarded AXA damages, interest, and costs of approximately £680 million, or $911 million.

Under prior agreements between Genworth and AXA, Genworth is entitled to share in funds that AXA recovers from third parties related to the misselling losses. Barring unforeseen changes, Genworth expects to recover about $750 million, depending on the exchange rate at that time.

In Other News:

New products. Genworth is sticking with the LTC market, McInerney said. He discussed two new products, starting with a CareScout-underwritten individual LTCi offering approved in April by the Interstate Insurance Product Regulation Commission.

The product is approved for sale in 29 states, with filings pending in more states. Genworth would like to add a few more states, McInerney said.

“There's no magic number there before we launch,” he added. “That's a traditional long-term care insurance product that we think is priced conservatively [with] good returns for us. … We will be reviewing the pricing assumptions against reality over time and seeking increases if we need to, although this product is designed where we won't need an increase.”

Genworth is also working on a new hybrid annuity design to come out early next year, McInerney said. All of the new products will be put out by Genworth new insurance subsidiary, CareScout Insurance Co., domiciled in Virginia and seeded with $85 million.

LTC management. Genworth continues to manage its mispriced blocks of LTC policies via MYRAP [Multi-Year Rate Action Plan], explained Jerome T. Upton, executive vice president and chief financial officer. MYRAP includes premium increases, benefit reductions, and legal settlements to stabilize legacy LTC liabilities.

“As part of the MYRAP, we offer a suite of options to help policyholders manage premium increases while maintaining meaningful coverage, and to enable us to reduce our exposure,” Upton explained.

McInerney addressed the recently approved federal budget, which includes deep cuts to Medicaid services. Seniors needing long-term care benefits are likely to be among the hardest hit by the Medicaid cuts, experts say.

The number of 80-year-old baby boomers is expected to double by 2045, McInerney said. The large majority of seniors today prefer in-home care, he added.

“I believe the rising cost of LTC services for baby boomers, particularly the 95% who lack private LTC insurance coverage, and the pressures on families and Medicaid financial resources will make the discounts provided by CareScouts Quality Network even more valuable in the future,” the CEO concluded.

McInerney spoke with InsuranceNewsNet Publisher Paul Feldman about the LTC crisis during a recent video interview.

Quarterly Snapshot:

• Continued progress on the LTC multi-year rate action plan with $41 million of gross incremental premium approvals; approximately $31.6 billion estimated net present value achieved since 2012 from in-force rate actions
• Launched Care Plans, a fee-based service helping consumers evaluate long-term care needs and find caregivers, growing the CareScout product suite
• Delivered 804 matches with providers in the CareScout Quality Network in the quarter with over 90% home care coverage of the aged 65-plus census population in the United States
• Life and annuities reported an adjusted operating loss of $7 million due to unfavorable mortality and lower net spread income from block runoff compared to prior year
• The LTC segment reported an adjusted operating loss of $37 million

Management Perspective:

"We are committed to managing the U.S. life insurance companies as a closed system, leveraging their existing reserves and capital to cover future claims. We will not put capital into the legacy life insurance companies, and given the long tail nature of our LTC insurance policies, with peak claim years still over a decade away, we do not expect capital returns from these companies."

Jerome T. Upton, executive vice president and chief financial officer

By The Numbers:

• Total Revenue : $1.8 billion ($1.8 billion in Q2 2024)
• Net Income: $51 million ($76 million in Q2 2024)
• Earnings Per Share: $0.12 per diluted share ($0.17 in Q2 2024)
• Share Repurchases: $30 million in Q2 2025
• Stock Price Movement: Stock was down slightly (0.32%) Friday afternoon to $7.84

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.