Genworth Tells SEC of $8.3 Billion in Captive Reserves

Genworth Financial Inc. (GNW) said U.S. and Bermuda-based affiliates assumed about $8.3 billion of reserves from its main units at the end of 2012, as regulators question insurers about transferring risk to subsidiaries.

Genworth, the largest seller of long-term care coverage, disclosed correspondence today with the U.S. Securities and Exchange Commission. The Richmond, Virginia-based company said it would probably face increased costs and the need to curb sales of some products if it were required to stop using reinsurance subsidiaries, known as captives, to build reserves.

The National Association of Insurance Commissioners, a group of state watchdogs, is reviewing regulations tied to captive insurance, and the Treasury Department’s Federal Insurance Office has called for stronger oversight. New York State’s insurance regulator, Benjamin Lawsky, has said some companies use reinsurance transactions with affiliates to make reserves appear larger than they are.

Without using captives for its life business, Genworth would face “increased costs related to alternative financing, such as third-party reinsurance, and potential reductions in or discontinuance of new term or universal life-insurance sales,” the company said in a Nov. 14 letter. “We are currently unable to predict the ultimate outcome of the NAIC review.”

Genworth said most of the $7.3 billion in reserves at its Bermuda-based units stem from the long-term-care business. Today’s filings include queries from the SEC about the reserves and Genworth’s responses.

Offshore Units

Captives are units set up by a firm to cover risk elsewhere in the company. They may be located in offshore locations such as Bermuda and the Cayman Islands, or in the U.S.

Reinsurance Group of America Inc., formerly owned by MetLife Inc., also disclosed correspondence with the SEC today related to its transfers of risk to subsidiaries.

“The company expects to continue its strategy of using captives to enhance its capital efficiency and competitive position,” Chesterfield, Missouri-based RGA said in an Oct. 24 letter to the SEC. The reinsurer said it can’t judge the impact of changes to the strategy because of “unknown variables.”

MetLife, the largest U.S. life insurer, said in May that it would combine an offshore reinsurer with three U.S. life units, after Lawsky began his review.

The “inquiry regarding captives was an important factor in our taking a closer look at our offshore reinsurance subsidiary,” Steve Kandarian, chief executive officer of New York-based MetLife, said May 21 at an investor presentation. “We’re going to take steps to bring these businesses back onshore.”

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.