Genworth Eyeing Sale Of Life And Annuity Unit

By Arthur D. Postal
InsuranceNewsNet

WASHINGTON – Genworth Financial is signaling that it is seeking buyers for its life and annuity unit as a means of shoring up its troubled long-term care insurance (LTCi) unit.

According to the latest Sourcebook of the American Association for Long-Term Care Insurance, Genworth is the largest factor in the individual LTCi market, with a 17 percent market share and 2.1 million policyholders. The company is second to CNA in the group LTCi market.

The company did not deny a Bloomberg report that its board and management had hired Goldman Sachs Group to sell Genworth Life and Annuity Insurance Co. (GLAIC). According to LIMRA, GLAIC is the 16th largest seller of fixed annuities in the U.S. market, with sales of $1.8 billion in 2014.

The company will consider selling GLAIC in parts if it cannot find a buyer for the entire unit, Bloomberg reported.

A restructuring to raise capital in Genworth’s LTCi unit has been expected since November. At that time, Genworth announced that its losses on LTCi policies written before 1996 had risen substantially, and that it estimated that it would have to write down reserves from $500 million to $1 billion to cover them.

Genworth then announced in February that, as a result of its review, it was taking a pre-tax GAAP charge of $735 million related to its blocks of LTCi business acquired before 1996. Additionally, the company recorded non-cash charges of $340 million after-tax reflecting the write-off of remaining life insurance and LTCi goodwill, as well as a tax charge related to a change in its permanent reinvestment assertion in Australia mortgage insurance and a tax benefit in connection with the company's plan to sell its lifestyle protection business.

In February, Fitch’s Rating Service reiterated its BBB rating of Genworth, with a negative ratings outlook.

In its February statement, Fitch cited Genworth’s “large exposure and market leading position” in the LTCi market. Fitch said it views LTCi “as one of the most risky products sold by U.S. life insurers due to above-average underwriting and pricing risk, high reserve and capital requirements and risk exposure to low interest rates.”

Fitch added that, “While Genworth has initiated several rounds of premium rate increases and introduced changes to its LTCi product offerings, Fitch believes Genworth remains susceptible to future charges and earnings volatility.”

At the time, Genworth’s management reiterated that “it was committed to the business and it was negotiating higher rates for policies.”

A buy-side securities analyst who asked not to be named said Genworth’s decision to hold onto the LTCi business reflected the fact “that no one wants to buy the LTCi business” in the current low interest rate environment, as well as the likelihood that the cost of paying for the legacy business – business written before 1996 - would likely continue to grow.

The analyst said Genworth needs to raise capital to the holding company in order to maintain ratings. The most likely way to do it was to either reinsure or sell GLAIC. “That is the only realistic way Genworth can increase capital at the holding company level,” the analyst said.

The top five companies in the individual LTCi market are Genworth, John Hancock, Mutual of Omaha, Northwestern LTC and TransAmerica LTC, LIMRA officials said. These carriers constitute 71 percent of the overall individual LTCi market, LIMRA said.

The top five companies in the group LTCi market are CNA, Genworth, John Hancock, MetLife and Prudential, LIMRA said.

In a recent report, Morgan Stanley analysts voiced concern that Genworth’s LTCi business could deteriorate further and absorb additional capital, although that is not likely to be felt this year.

The analysts said that, “After taking considerable charges in both the third quarter and further quarter of 2014,” it is unlikely Genworth will be forced to take additional charges in its LTCi business this year, instead expecting a modest profit of $17 million. “If instead we see continued losses, we expect investors would grow concerned that we could be facing additional charges,” the Morgan Stanley analysts said.

Morgan Stanley said that another issue pressing Genworth is that mortgage guaranty business could be impacted by new government sponsored enterprises eligibility capital rules, called PMIERs, “which are likely to meaningfully reduce the return on equity in Genworth’s domestic mortgage insurance business.

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].