Genworth Financial Inc. is in exclusive talks to sell a European unit to France’s Axa SA as Chief Executive Officer Tom McInerney works to fill a capital gap at a business backing U.S. mortgages.
Genworth received an “irrevocable offer” for its lifestyle protection insurance business and the sale price is expected to be about $510 million, the Richmond, Virginia-based insurer said in a statement Wednesday. McInerney’s company said it would take a second-quarter loss of about $310 million on the plan.
U.S. mortgage insurers cover costs when borrowers are unable to meet obligations, and foreclosure fails to recover losses. The industry was hobbled in the financial crisis, and the Federal Housing Finance Agency proposed new capital rules last year to make sure the companies could better withstand another housing slump. Genworth said it will use funds from the sale to help meet the requirements and reduce debt.
The deal with Axa will be an “important step toward simplifying our business portfolio and increasing the financial flexibility and strength of Genworth,” McInerney said in the statement.
The deal is expected to be completed by the end of the year, Genworth said. It values Genworth LPI at 0.65 times book value, the Paris-based company said in a statement on Wednesday. Lifestyle protection provides insurance against the financial impact of major illness, accident or death.
Axa, France’s biggest insurer, is seeking to diversify away from products with guaranteed returns for clients such as pensions, which have become less profitable due to low interest rates in Europe.
“This operation would be another milestone in Axa’s ambition to become a leading global provider of credit and lifestyle protection,” Axa Deputy CEO Denis Duverne said. “It would represent a unique opportunity to obtain a scalable footprint in Europe and capture additional business potential in high growth markets.”
Axa climbed 0.6 percent at 4:12 p.m. in Paris. Genworth slipped 3.8 percent in New York, extending its loss for the year to about 14 percent. McInerney’s company has been burned by higher-than-expected costs from long-term care insurance, which pays policyholders for home health aides or nursing home stays.
Genworth LPI, based in London, reported revenue of 714 million euros ($779 million) last year, ranking it seventh in Europe with a 4 percent market share, Axa said. Axa operates in the industry through Axa Creditor, ranked sixth with 5 percent of the European market and gross written premiums of 895 million euros in 2014, the company said.
Barclays Plc and Sidley Austin LLP are advising Genworth on the sale.
Radian Group Inc., another U.S. mortgage insurer, announced a deal in December to sell its bond guarantor to Assured Guaranty Ltd. for about $810 million to free up capital amid tighter government oversight.