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 cyril.tuohy@innfeedback.com.
© Entire contents copyright 2016 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.
The self-perpetuating power of the ratings agencies strikes again.
Step 1: Ratings agency downgrades carrier
Step 2: Distributors respond, “I would never sell a company with this rating!”
Step 3: Sales slump, allowing agencies to say, “See? We predicted this.”
Spot on, Steve!
I don’t think so
Yes insurance is hard enough to sell on good ratings, and prices There was one client I closed. It took me three months just for an appointment.
Agreed. Not that Genworth has ever been a good sign for managment of an insurance company. Remember, Genworth is the result of GE Capital buying out a bunch of insurance companies, then spinning it off. I think Amex was the first, but not sure. I know when Genworth got a hold of Continental Life in Brentwood (an independent company prior to that buyout), things went downhill fast from a “doing business with the company” point of view; thankfully, Aetna purchased the company from Genworth, and things have improved quite a bit. The companies now part of the Genworth family were once solid, VERY SOLID, carriers, only to be messed up by Genworth management style. Life of Virginia and First Colony are examples of once great life companies that have lost their identities and their mojo. I do understand wanting to buy a profitable insurance company, but I don’t understand buying it and then changing everything about how it is managed (if it ain’t broke, don’t fix it); the people running the company obviously knew the magic formula to make it all work — the last thing needed is a bunch of MBA’s who never worked the business to come in and start changing things. To the defense of the rating agencies, multiple-year losses and the the selling off of assets to keep the regulators at bay isn’t the best of circumstances.
Exactly right Sir!
I received a letter from SELECTQUOTE that states they do not offer products less than A- rating and GENWORTH was down graded to B++ .
You are spot on!
Long term care is the culprit. It’s a product filled with risk for both Genworth and the policyholder. No guaranteed rate structure for either Genworth or the policyholder. Poor claims experience historically and rate increases for the clients.
This seems to be an argument aimed more at “long term care” as an insurable risk than at Genworth as a company. Ironically, Genworth is taking the opposite position, and throwing their weight BEHIND long term care as the profitable path forward.
Long term care. Short term care. I’m starting to wonder if some employees of this insurance company really did care. Or even know what the word meant.
What struck me as odd is the notion that life insurance isn’t profitable. Thousands of companies, big and little, that only sell life insurance and annuities, all making a profit. Seems to me that the life insurance division would have been providing a profit base to weather the downturns of the long-term care business. As we all know, when you jack up the rates on a health policy, most of those who cancel are the healthy ones, thus creating a worse pool than before the rate increase, which means another rate increase will be necessary . . . the things that snowballs are made of.
There has been a long and tangled history with this company first known as First Colony. Some years ago they tried to “securitize” through the use of derivatives, the very essence of our business, responsible risk taking. As they say in the fall on Sunday, upon further review, the truly curious will find that to be the symptom, the reaction as well as the culprit.
I first wrote business and formed a general agency selling (FCL) First Colony Life in 1979. They were known for having the smartest people and for consistently-competitive policies at least for years with GNW – bought other companies like FCL – were at the cutting edge of technology, also was quite exciting; now those like myself with ‘blocks of business ‘ and it’s surprisingly archaic!
I am an almost 70 yo policy holder. Just got a notice from Genworth, they are raising our premium $500 per year and expect it to go up again in future. Ours is a good policy with inflation protection yet I’m worried they will go out of business before I get to use it. We have paid in over $25,000 in premiums so far for the last 10 years. We can downsize the policy and pay the same, or get a paid up policy for the premiums paid in or pay the new rate and keep it as is. Any ideas of what to do/
You may not know this, but you have more options than the carrier will often tell you about in your rate increase notice. You can reduce your years of care and/or reduce your daily benefit and/or reduce your inflation protection percentage to adjust your premium. You could also increase your deductible (called the “elimination period” in your LTC policy. Call your agent and ask him or her to get all of the options that would make sense for you to consider. The multi-year low-interest rate environment is the primary factor (insufficient investment return on your premiums to pay expected claims), but also more policyholders are surviving their cancers, heart disease, strokes and diabetes. That means they live to an older age than initially expected, and live long enough to need long-term care-not a funeral. Finally policyholders are keeping their policies, not dropping them, in greater numbers than the lapse rate expected by their actuaries when these policies were first written. It all adds up to rate increases-just like traditional health insurance policies.-Steven Pelly, CLTC, Bay Financial and Insurance Services, Kensington, CA.
Wow, I just became aware of this. I am a 55 year old policy holder and I wouldn’t say I’m scared, but I’m certainly concerned as to whether I will ever be able to use the benefits if I ever ultimately needed them (my original reason for seeking LTC while it was still available in Ohio). Everything you say about policyholders surviving cancers, heart disease, strokes, and diabetes makes all kinds of sense (and I know any number of people who have survived such illnesses).
Dead on! Great advice.
Genworth has recently stopped making my annuity payment. What do I do next?
I am a term life policy holder who received a letter from SelectQuote about Genworth’s downgrade, which included the information that China Oceanwide Holdings was buying Genworth. Any insights as to how that will affect my coverage?
We have a Genworth long term life insurance policy connected to a trust at Wells Fargo. Because of the ratings with Genworth, the bank wants us to change to another policy which would cost aprx. $100,000? The question is, is this change worth $100,000 and is Genworth viable enough with the Chinese purchase to pay out at the time of death?
I have an agent who is selling me a Genworth LTC policy. Now I am wondering if I should run from it.
How does an individual who has had great health and wants to know the path this company in going to take or if this company is evengoing to be able to stay in business. What protections are there for the person who has been paying these premiums for years. what is your agent s no longer there and is retired, who do you talk to and who stands behind this and where can I get info on my policy. Everything I read above is very scary about the peop;e running the business and making the decisions. Will any of this change with the new President in with regards to any of his policy changes with regulations? I just have a phlethora of questions and need both answers and reassurance. Now there is a real dilemma, an insurance co who is to be watching out for you maybe not even being there when neeeded.