Genworth Financial Raises A$583 Million in IPO of Australian Insurance Unit
May 15, 2014 by Ernesto Calucag, Hong Kong news editor: Ernesto.Calucag@ambest.com
MELBOURNE, Australia – Genworth Financial Inc. has raised A$583 million (US$547.1 million) in an initial public offering of its Australian insurance business, the biggest in the country so far this year.
The insurance group sold 220 million shares of Genworth Mortgage Insurance Australia Ltd. at A$2.65 each, above the midpoint of a marketed range of A$2.20 to A$2.90 each. The shares represent a 34% stake in the Australian unit and will be listed on the Australian Securities Exchange on May 20.
“The net proceeds of the offering will be used by Genworth Australia to repay certain intercompany funding arrangements with subsidiaries of Genworth Financial and those funds will then be distributed to Genworth,” the group said in a statement.
In particular, Genworth said it plans to use the proceeds to reduce risk and rebalance capital among its three major mortgage insurance platforms in the United States, Canada and Australia. Genworth Financial will continue as the majority shareholder of Genworth Australia.
The group expects to receive gross proceeds of about US$535 million from the offering, based on an assumed exchange rate of US$0.92 per Australian dollar, according to the statement.
The Richmond, Va.-based company announced its IPO plans early last month, saying the move is “a strategic priority for 2014” (Best’s News Service, April 9, 2014). It initiated the move two years ago, when it announced plans for a US$850 million IPO of its mortgage insurance business in Australia, but delayed it after forecasting higher losses in the unit.
Genworth’s Australian unit competes with QBE in the mortgage insurance market in the country. In 2013, Genworth Australia’s new insurance premium written totaled A$34.4 billion for 45% share of the market. This year, the company expects new premiums to slightly go down to A$33.8 billion.
Gross earned premium is forecast to increase by 10% this year, from A$471 million in 2013. The increase is driven by a A$12 million reduction in the contribution from the 2010 and prior book years, and A$57 million increase in the contribution for the 2011 and later book years, Genworth said.
The group’s net income jumped 72% to US$560 million in 2013, in part due to its improved mortgage insurance business in the United States. Genworth also noted its long-term care insurance business is starting to have “a meaningful impact” on financial results.
Its U.S. mortgage insurance business posted net operating income of US$37 million in 2013, compared with a net operating loss of US$138 million in 2012.
Subsidiaries of Genworth Financial Inc. have current Best’s Financial Strength Ratings