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Genworth Rallies as Hedge Fund Highfields Discloses Talks

Genworth Financial Inc., the life insurer and mortgage guarantor, surged in New York as hedge fund Highfields Capital Management LP said it is in talks with management about increasing the value of its stake.

Highfields, led by Jonathon Jacobson, holds more than 25 million shares, or about 5.2 percent, the firm said in a regulatory filing today. Genworth jumped 11 percent to $5.43 at 4:15 p.m. It has declined 17 percent this year.

The talks cover Genworth’s “global mortgage insurance assets, its U.S. mortgage insurance assets and its retirement and protection businesses,” Boston-based Highfields said in the filing. “Such discussions will address risk mitigation strategies, possible sale or spin of assets, and similar matters.”

Genworth is seeking to limit losses tied to home loans and focus on more profitable business segments. The Richmond, Virginia-based insurer’s board is looking for a chief executive officer after the resignation in May of Michael Fraizer.

Genworth trades for less than 20 percent of book value, a measure of assets minus liabilities. That’s the cheapest valuation in the 22-company S&P 500 Insurance Index.

“We continue to work actively with the board on plans to strengthen our capital structure and realign our business portfolio,” acting CEO Martin Klein wrote in a letter to investors yesterday.

Genworth’s Rating

Klein sent the letter after Moody’s Investors Service said it may downgrade Genworth to junk status if its financial position doesn’t improve. Moody’s reduced the financial-strength rating of Genworth’s life-insurance operation to A3, citing the risk of long-term care insurance.

Al Orendorff, a Genworth spokesman, said the insurer is “always interested in speaking with our shareholders” and declined to discuss talks with Highfields.

Jacobson, who applauded Fraizer’s departure, told investors last year that “a savvy management team could create a lot of value.” He was “fatigued by management’s lack of urgency,” Jacobson wrote in a July 22 letter, according to a person who reviewed it.

Jacobson is a former fund manager at Harvard University’s endowment and co-founded Highfields in 1998. The firm manages more than $11 billion, according to its website.

Highfields may also discuss Genworth with other shareholders and existing or potential strategic partners, according to the filing.

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