Genworth Posts $760 Million Loss on Long-Term Care CostsZachary Tracer
Genworth Financial Inc. posted a second-straight loss as Chief Executive Officer Tom McInerney works to turn around the company’s long-term care insurance business.
The net loss of $760 million, or $1.53 a share, was fueled by costs to set aside more funds to cover claims on long-term care policies, the Richmond, Virginia-based insurer said Tuesday in a statement. The results included a charge of $478 million tied to LTC policies acquired before 1996.
McInerney, 58, is seeking to regain investor confidence after a stock plunge of 45 percent left Genworth as the worst-performing financial company in the Standard & Poor’s 500 Index last year. Losses at the long-term care unit, pressured by low interest rates and higher claims costs, have negated gains at Genworth’s businesses selling life insurance and guaranteeing mortgages.
“I am disappointed by the continued challenges in our older LTC blocks and how it is overshadowing otherwise strong performance,” McInerney said in the statement. “We have taken steps on many fronts to deal with these challenges in order to strengthen and rebuild.”
Genworth gained 3.3 percent to $8.07 at 6:09 p.m. in New York, reversing an earlier slump. The firm had declined 8.1 percent this year in regular trading.
“The charges, in my view, are not so large as to really scare the market at this stage, yet they are large enough to suggest that heavy lifting and true recognition of the economics is at hand,” David Havens at Imperial Capital said in a note to investors.
Since taking over at the start of 2013, McInerney has raised premiums on long-term care policies sold in prior years and reduced benefits and tightened underwriting for new customers. In the third quarter, Genworth had to set aside $531 million in reserves for future long-term care costs, fueling a record net loss of $844 million.
Genworth said today that it wrote off the remaining goodwill at its life insurance and long-term care business, recording costs of $274 million. The company said a review of margins at its long-term care business is “substantially complete” and that it still needs to file documents with regulators.
McInerney is also embarking on another round of job cuts that is expected to help save the company more than $100 million over the next two years. The firm said it’s already cut some “key leadership positions” without providing specifics. Genworth in June 2013 said it would eliminate 400 jobs to save about $80 million to $90 million a year.
The charge announced in November was related to long-term care policies where clients were already drawing benefits, while today’s announcement is focused on the group who aren’t yet using their coverage.
The firm said that in the fourth quarter it added $39 million to reserves as measured by state insurance rules at its New York unit. The company plans to add another $156 million over the next four years.
Genworth said that assumptions about future premium increases on long-term care policyholders helped cushion a decline in margins on some groups of policies.
Investors’ concerns over the long-term care business have dogged McInerney since he started at Genworth. In December 2013, he reassured shareholders that reserves for the coverage were adequate, before being forced to backtrack half a year later.
In November, Genworth told investors it would announce preliminary results of its latest long-term care study in December, before delaying them until today.
“Management credibility has become an issue following several false starts at stabilizing long-term care,” Colin Devine, an analyst at Jefferies, said in a Jan. 29 research note. “For 2015, regaining investor support for management will be a key priority.”
The company posted a net loss of $1.24 billion in 2014, compared with profit of $560 million a year earlier. Book value, a measure of assets minus liabilities, fell to $30.04 a share on Dec. 31 from $30.54 three months earlier.
Genworth is the largest seller of long-term care coverage, which helps pay for home-health aides and nursing home stays. Larger life insurers such as MetLife Inc. and Prudential Financial Inc. have stopped offering the policies.
S&P cut Genworth’s credit rating to junk level in November. The downgrade, a day after Genworth posted third-quarter results, could hurt sales of some products, the insurer said at the time.
The mortgage-guaranty business has been a bright spot for Genworth amid a home-price rebound in the U.S. The company also backs loans in Canada and Australia through publicly traded businesses in which it owns majority stakes.
Genworth recorded a tax charge of $174 million at the Australia business. The accounting indicates that it may sell additional shares of the unit, said Al Orendorff, a spokesman for the company.