February 5, 2016 21 comments

Genworth Stops Life, Annuity Sales, May Split

Genworth Financial, a top long-term-care insurance company, is suspending new sales of life insurance products and fixed annuities to help reverse financial losses.

The move will help save the company $50 million in annual expenses, said David O’Leary, president and CEO of Genworth U.S. Life Insurance, in a letter to customers, distributors and partners. The decision is part of a broader reorganization to “increase our financial and strategic flexibility,” he added.

Life, annuity and long-term care in-force clients should see no change in their policies or how those policies are serviced, O’Leary said.

The company has 2.8 million life and annuity policy and contract holders and beneficiaries, he said. A top-five seller of long-term care products, Genworth said it would “separate and isolate” its long-term care block of business.

The past three years have been difficult for the Richmond, Va.-based company as it deals with obligations to millions of long-term care policyholders in a low-interest rate environment.

The latest quarterly earnings reports showed the company’s losses narrowing. Fourth-quarter loss was $292 million compared to a loss of $760 million in the year-ago period, the company reported.

Adjusted for nonrecurring costs and to account for discontinued operations, losses came to 17 cents per share, missing the average of five analysts surveyed by Zacks Investment Research by 4 cents.

Asked by one analyst during Friday’s quarterly earnings call if the company was open to splitting itself up, President and CEO Thomas McInerney said that would be a possibility.

The restructuring of the company’s life insurance business is significant and the company will execute with a sense of urgency, he said. Calling the restructuring “significant,” McInerney said the company was undertaking the move with “a sense of urgency.”

Products No Longer Sold

Effective March 7, Genworth will no longer accept applications for its Asset Builder Index Universal Life II, Foundation Builder Index Universal Life, Colony Term, Total Living Coverage, the company said in a bulletin.

Other products that will no longer be sold include the single-premium deferred annuities Secure Living Independence, Secure Living Liberty, Secure Living Smart Rate, Secure Living Smart Rate Saver, Secure Living Advantage Pro and Secure Living America Plus.

On the fixed index annuity side, the company announced Secure Living Index 5, Secure Living Index 7, Secure Living Index 10 Plus, Secure Living Growth + with Income Choice Rider, Secure Living Protection Plus and Secure Living Growth Advantage with Income Security Rider would no longer be sold.

In addition, the single-premium immediate annuities Secure Living Income Provider and Secure Living Income Provider NY will no longer be sold, the company said.

The changes are effective for all states except Arkansas, South Dakota and Texas, the company said.

Producers’ renewal compensation on in-force business will not be affected by the changes, the company added.

Due to ratings issues, and suspension of sales on the part of distributors, the company’s sale of traditional life and fixed annuity products would simply “not recover,” Genworth executives said.

The company’s U.S. life insurance segment, which include life, fixed annuities and long-term care, reported a fourth-quarter net loss of $135 million. That is much improved from the $482 million loss the segment reported in the year-ago period, the company said.

Higher claim counts and higher severity were partly to blame, the company said.

Legacy LTC Policies Isolated

While the company’s asset sales over the past two years have helped it exceed capital ratios required of regulators, Genworth said it was nevertheless “isolating” its long-term care legacy block of business. That line continues to “pressure ratings across the organization,” the company said.

Discussions with U.S. regulators convinced senior company managers that Genworth has an important role to play in the long-term care business, McInerney said.

Regulators in many states have authorized price increases that the company is asking for on in-force long-term care policies, he explained.

With only about a dozen companies selling long-term care in the U.S., and with Genworth a consistent top-five long-term care player, the company has a much better chance of doing well in the segment, McInerney said.

By contrast, there are thousands of life and annuity carriers in the U.S. and Genworth doesn’t break the top 20 in terms of U.S. individual annuity sales, according to LIMRA data.

The market for long-term care is growing, so it makes sense for Genworth to build on its market-leader position, particularly if private long-term care can help alleviate publically funded long-term care costs borne by Medicaid, executives said.

“Our society is aging and the need for caregiving is increasing, and we believe this market opportunity provides significant potential for profitable growth,” O’Leary said in his letter to customers, distributors and partners.

Under the restructuring plan, the company will operate through five business segments.

The segments include U.S. Mortgage Insurance; Canada Mortgage Insurance; Australia Mortgage Insurance; U.S. Life Insurance (which includes long-term care, life insurance and fixed annuities), and Runoff (which includes products no longer sold).

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].