Genworth May Cut Remaining LTCI Sales and Marketing Operations

Thomas McInerney, president and chief executive officer of Genworth Financial Inc., listens to a question during a Bloomberg Television interview in New York, U.S., on Friday, June 27, 2014.

Genworth Financial Inc. may reduce spending on some long-term care insurance (LTCI) operations due to a decision to de-emphasize efforts to be acquired by China Oceanwide Holdings Group Co. Ltd.

Thomas McInerney, the chief executive officer of the Richmond, Virginia-based company, talked about the company's LTCI operations Tuesday, during a conference call with securities analysts regarding the China Oceanwide deal status with .

McInerney said Genworth intends to cut costs by shedding some capabilities, such as LTCI sales and marketing operations, that it had been keeping to support the China Oceanwide deal. China Oceanwide would have liked to use those operations to start a new, stand-alone LTCI issuer in the United States quickly, he said.

Resources

"We do not takes these actions lightly," McInerney said of the proposed cost reductions. "We know this is a challenging time for our employees."

McInerney said Genworth will give more details about the changes in early February, when the company releases its earnings for the fourth quarter of 2020.

Genworth is descended from a financial services company that was once an affiliate of General Electric. It continues to be a major issuer of mortgage insurance in the United States. It has been a major issuer of life insurance, annuities and long-term care insurance, and it continues to generate some LTCI sales.

McInerney said during the call that Genworth still has 1.1 million LTCI policies in force.

About 50,000 of the insureds are using their benefits, and about 35,000 of those 50,000 claimants are using their benefits to pay for home care, McInerney said.

New Focus

Genworth will focus on supporting the mortgage insurance operations. It says the life and annuity subsidiaries, which are the ones that wrote the LTCI business, will have to operate on a stand-alone basis, and that Genworth has no intention of putting more of its capital into those subsidiaries.

China Oceanwide has agreed to provide some cash that would be used to increase Genworth life and annuity subsidiary capital levels, if the China Oceanwide-Genworth deal closes.

McInerney said that efforts to increase LTCI premiums have been an important part of improving Genworth's finances, and that the company has obtained enough rate increase approvals to generate about $334 million in additional premiums per year on a base of $984 million in annual LTCI premium revenue.

China Oceanwide Deal

China Oceanwide, a real estate developer and financial services company based in Beijing, has been trying to acquire Genworth since October 2016.

Genworth executives said Dec. 10, during a meeting with shareholders, that they hoped the deal could be completed by Dec. 31.

Genworth executives announced Monday that they have given up on trying to close on the deal by a certain date. They still have a deal agreement in effect, but the new agreement has no closing deadline, and the agreement gives either party the right to break up at any time.

McInerney said Genworth waived the right to walk away from the deal without cause, at any time, in the earlier agreements.

Genworth has received comprehensive financial information from China Oceanwide every quarter, and Hony Capital, an investment firm, provided a commitment for $1.8 billion in financing that was set to last until Dec. 31, McInerney said.

The deal ended up foundering partly because Hong Kong's COVID-19 control rules limit business meetings to just two people, meaning that representatives from China Oceanwide, Hony Capital and Genworth had a hard time getting together in the same room at the same time, McInerney said.

Reversal of Fortunes

The recent global surge in COVID-19 claims made Hony Capital executives nervous about how the pandemic might affect Genworth, McInerney said.

He said U.S. officials and the New York Stock Exchange added still more friction.

In November 2020, President Donald Trump signed an executive order that banned U.S. companies from investing in companies with ties to China's military.

The NYSE announced it would comply with the order by delisting three telecommunications companies that had had listings on the exchange for years: China Mobile, China Telecom and China Unicom.

The exchange reversed the delisting decision Monday, then, on Wednesday, reversed the reversal.

China Oceanwide and Hony Capital are private companies, but the executive order and NYSE delistings raised questions in the minds of Hony Capital executives about whether the United States could take similar actions against private Chinese companies, McInerney said.

— Read Genworth Aims to Line Up Backup Financing Options, on ThinkAdvisor.

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