Genworth Falls Most in S&P 500 as CEO Says More Work to Do

  • CEO McInerney says there's limited ability to simplify now
  • Insurer drops in New York trading, extends year's slump to 45%

Genworth Financial Inc., the insurer battered by losses on long-term care coverage, fell the most in the Standard & Poor’s 500 Index after Chief Executive Officer Tom McInerney said that there are limited options to simplify the company in the short term.

The insurer slumped 10 percent to $4.68 at 4:15 p.m. in New York trading, extending the year’s decline to 45 percent. Genworth reported Thursday a $284 million third-quarter loss as results missed analysts’ estimates, and has faced pressure to sell more assets to free up capital.

“We continue to make some headway on our strategic priorities to rebuild shareholder value, but there is much more work to do,” McInerney said Friday in conference call. “Given ratings pressures and our dependencies among our subsidiaries, our ability to take more substantial steps to simplify our business portfolio is limited in the near term.”

McInerney has been divesting some European units and a block of life policies after the company was burned by losses on long-term care insurance, which pays for home-health aides and nursing-home stays. McInerney suspended an initial plan to divest a life and annuity operation, saying in August that a sale could hurt the Richmond, Virginia-based company’s ratings and earnings diversity.

The CEO said Friday that he expects to use some proceeds from the sale of a European lifestyle-protection unit to pay down debt maturing in 2016. The insurer is still focused on reducing its debt by $1 billion to $2 billion, a goal that could open up a path for the company to split its mortgage insurance units from the life businesses, he said.

‘Not Feasible’

“That’s an option that we’re open to, but it’s not feasible today because our debt load is too high,” McInerney said in a phone interview Friday. “If we reduce the debt by that amount, it opens up the possibility of splitting the company. That becomes a feasible option. I’m not saying we would do that, but it becomes feasible.”

A separation would help maximize shareholder value, according to Mark Palmer, an analyst with BTIG LLC.

While Genworth reported an “earnings miss and may have fallen a bit short of demonstrating stability, its performance was sufficient to keep a split in play,” Palmer said in a note. Genworth had about $4.6 billion of long-term borrowing as of June 30, according to a regulatory filing.

Australia Unit

McInerney said on the conference call that Genworth would probably keep its remaining stake in the Australian mortgage insurance operation after agreeing to sell about 14 percent of the unit in May.

“We don’t think it make sense for us at the current valuation to sell any of our 52 percent position,” McInerney said in the call. “We’ll see how things play out. And if we do get an increase in the share price significantly, we’ll reconsider our ownership position.”

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