Genworth Eclipsed LTCi Market in 2013

Reserve charge, impairment sinks stock

News analysis from SNL Financial


Genworth Financial Inc. sent shockwaves through the market Nov. 6 after announcing earnings the night before, in which it disclosed a reserve charge and an impairment to goodwill. The stock plummeted during the session, falling 38.5% and wiping out more than $2.5 billion in market cap for the Richmond, Va.-based insurer.

The reserve charge, which totaled $345 million after taxes, was related to Genworth’s long-term care business. The goodwill impairment, which came to $517 million after taxes, was fueled in part by the long-term care operations. But the insurer’s life business played a role in the goodwill impairment as well.

In its second-quarter earnings announcement, Genworth provided some indication that a reserve charge might be coming. The insurer increased reserves by $66 million, after taxes, during the period on account of its long-term care business and said that it was conducting a review. “The company will likely change some of its assumptions, which could increase its long term care insurance claim reserves, and any increase may or may not be material,” the company wrote in the July 29 earnings release. Then again, reserving depends upon a lot of variables and requires human judgment, and can therefore be difficult to predict.

Annual statutory filings from U.S.-based insurers help to provide some insight into their long-term care businesses, as there is a supplemental section of the filings known as the Long-Term Care Experience Reporting Form. SNL compiled data from this section for P&C, life and health filers. For instance, Genworth Financial’s totals reflect data from its Genworth Life Insurance Co., Genworth Life Insurance Co. of New York and Genworth Life & Annuity Insurance Co. units, which file the long-term care form.

Largest amount of net-premiums earned in 2013

Genworth topped the list in terms of reported policy reserves on its long-term care business, when including both individual and group business. This is perhaps to be expected, though, given its position within the market. Genworth had the largest amount of net premiums earned in 2013 and 2012, and as SNL wrote about in a June report, Genworth was by far the largest writer of individual long-term care based on lives in force. As SNL noted in that analysis, there are some caveats to this data; for instance, the information contained in the long-term care form might differ from what is reported in the Accident and Health Policy Experience Exhibit.

The company will likely change some of its assumptions, which could increase its long term care insurance claim reserves, and any increase may or may not be material

Genworth’s policy reserves were about 10% higher year over year in 2013, which was on par with companies such as Manulife Financial Corp. and Unum Group, according to SNL’s analysis. Additionally, Genworth’s loss ratio, which is calculated as incurred claims divided by net premiums earned, was not particularly high in either 2013 or 2012, relative to peers. But as Genworth cautioned in a May 2013 presentation, it can be difficult to compare these forms across peers. Results can vary depending upon whether reserves have been unlocked due to premium rate increases or loss recognition, the company said.

Despite the latest charge, Genworth remains committed to the long-term care business. The company plans to focus on obtaining rate increases and adopting more conservative assumptions in underwriting, as Tom McInerney, Genworth’s president and CEO, said during a Nov. 6 conference call, according to a transcript. In addition, the CEO believes that its new products have strong returns with manageable risks and that there will be a demand for long-term care insurance. “We remain confident that over time the LTC insurance business can become a very good business for Genworth,” said McInerney.

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