Genworth Financial Inc., the insurer that has been selling units to rebuild capital, said it will probably not get rid of its entire life and annuity operation.
The insurer may instead seek buyers for blocks of life contracts, Chief Executive Officer Tom McInerney said Wednesday in a conference call discussing results at the Richmond, Virginia-based insurer. Genworth dropped 20 percent to $5.65 at 4:15 p.m. in New York trading, the biggest plunge in the Standard & Poor’s 500 Index. The company has declined about 34 percent this year, after a 45 percent fall in 2014.
The decision to hold the unit complicates McInerney’s goal of reducing debt by $1 billion to $2 billion. The CEO is seeking to expand profits from mortgage insurance and stem losses from long-term care coverage.
“There were lots of positives for doing the deal, including our ability to reduce debt,” McInerney said. “In the end, our view was they were outweighed by potential adverse effects on the ratings, and the loss of earnings and diversification.”
Nigel Dally, an analyst at Morgan Stanley, and Keefe, Bruyette & Woods’s Ryan Krueger pressed the CEO on the call about how he’d meet the debt-reduction goal. The insurer’s credit rating was cut last year to junk by S&P.
McInerney said he’d look to find buyers for blocks of life insurance and said the company is also reviewing its stake in an Australia business. Genworth has previously sold parts of that holding.
Genworth reported a second-quarter net loss of $193 million Tuesday on costs at a European lifestyle protection insurance business that McInerney is planning to sell.
The CEO has acknowledged that some potential customers of life insurance policies may have been discouraged by the credit downgrade. Still, he said that getting rid of that business could put further pressure on the company’s ratings and hurt other subsidiaries.
And he said in an interview that a commitment to the life business may help attract business from people who were previously uncertain whether Genworth would keep the operation.
“When you’re competing against other life and annuity insurers, they use that uncertainty against us,” McInerney said. “Now that we’ve decided to keep the life and annuity business, that aspect, and that part of the drag on sales, will be alleviated.”