Genworth Financial Stock Up on Plans to Divest Some Operations
May 5, 2015 by Leslie Scism, leslie.scism@wsj.com
Genworth Financial Inc.’s stock rose 11% Wednesday as it revealed plans to sell some or all of its life-insurance and retirement-income annuity operations.
Chief Executive Officer Thomas McInerney told analysts and investors during the insurer’s first-quarter earnings call Wednesday that it is in the “early stages of talking to players who might be interested” in the businesses, which are in parts of insurance where Genworth doesn’t have a leadership position. Annuities provide a lifetime stream of income and tax savings for retirees.
David Havens, a credit analyst with Imperial Capital LLC, said that the life-insurance and annuities businesses have book values of just over $4 billion.
Mr. McInerney also didn’t rule out a move in which the company would go private. “I would say we’re looking at a broad set of options, that’s certainly one of them,” he said.
But the CEO of the Richmond, Va., insurer said he would stick with its “attractive” U.S. and Canadian mortgage-insurance operations as well as Genworth’s beleaguered long-term care insurance business, which pays for some or all of the costs of nursing homes, assisted-living facilities and home health care for people unable to take care of themselves.
“I don’t think it’s viable to sell that given all the problems,” Mr. McInerney said in a separate interview.
Genworth took hefty charges in the third and fourth quarters to bolster claims and other reserves for some long-term-care policies sold as far back as the late 1970s, prompting a steep stock slide. Shares were down by half at one point, as investors feared the company might have to raise more capital to deal with the issues.
Genworth is a longtime market leader in selling long-term-care policies, representing nearly a quarter of sales to individuals in recent years. It has acknowledged underpricing of many older policies, saying it misjudged on important cost factors such as health-care inflation and the amount of interest it would earn by investing the premiums paid by policyholders for many years before they file a claim.
Mr. McInerney in the interview called long-term care a “challenging and complicated business” but said another reason to stick with it is that state insurance regulators tend to be more open-minded on premium increases for older blocks of business because private-market sales take pressure off states’ future Medicaid budgets for the poor. Medicaid is a major payer of nursing-home bills for people without long-term-care policies.