Increased mortality helped the company's LTCI unit.
Genworth Financial paid $10 million in
COVID-19-related life insurance claims in the second quarter.
Kelly Groh, Genworth’s chief financial
officer, talked about the impact of the COVID-19 pandemic on claims today,
during a conference call the company held to go over its latest financial
results with securities analysts.
Genworth may be best known to life,
health and annuity agents as a provider of stand-alone long-term care
insurance (LTCI).
Genworth is not giving details about the
effects of COVID-19 on the performance of the LTCI unit, but it did say an
increase in deaths improved the unit’s performance.
Resources
When a life insurance policyholder dies,
an insurer has to pay death benefits to the beneficiaries.
When an LTCI claimant dies, the death reduces
the LTCI issuer’s obligation to pay LTCI benefits on behalf of the claimant.
At the LTCI unit, an increase in mortality
affected “active claims, pending claims and active policies,” Genworth said in
its earnings announcement.
“Although it is not the company’s practice to
track cause of death for [LTCI] policyholders and claimants, current quarter
[LTCI] results were likely impacted by the COVID-19 pandemic,” the company
said.
Genworth noted that an apparent decrease in
claims might be partly the result of a delay in people filing claims. Because
of uncertainty about how real the reduction in LTCI claims is, Genworth has
added $37 million to reserves for LTCI claims that are “incurred but not
reported,” or IBNR.
Groh said during the conference call that the
second-quarter drop in claims affected older LTCI policies, not newer
policies.
“We do believe that this decrease is
temporary, reflecting delays in reporting of claims due to social distancing
and shelter-in-place protocols and that our incidence experience will
ultimately resemble previous trends,” Groh said.
Stand-alone LTCI is known for being a product
with high persistency rates. The consumers who buy it tend to hold on to the
coverage with an iron grip, even in the face of large premium increased.
“In long-term care, claim and active
policy terminations were significantly higher in the second quarter versus the
prior period and prior year,” Groh said. “Although we do not require death
certificates for [LTCI] and cannot make a direct attribution to official causes
of death, we do believe some degree of incremental terminations were the result
of COVID-19.”
COVID-19 and Life
Insurance
Genworth said in the 10-K annual report
it filed for 2019 that it ended 2019 with about $55 billion in in-force life
insurance coverage on its books, net of reinsurance.
That would mean that Genworth accounts for
about 0.25% of the life insurance in force in the United States.
If Genworth paid about 0.25% of U.S.
COVID-19-related life insurance claims in the second quarter, that would imply
that the U.S. life insurers as a whole might have paid $4 billion in
COVID-19-related benefits.
The Earnings
Genworth is reporting a $441 million net loss
for the latest quarter on $2.1 billion in revenue, compared with $168 million
in net income on $2 billion in revenue for the year-earlier quarter.
The latest results include a charge related to
the settlement of a large lawsuit related to the operations of a property and
casualty unit that was sold years ago.
Income from continuing operations fell to $148
million, from $224 million.
The LTCI unit produced $48 million in adjusted
operating income for the quarter, up from $38 million in adjusted operating
income for the year-earlier quarter.
The life insurance unit is reporting an
adjusted operating loss of $81 million, compared with $10 million in adjusted
operating income for the year-earlier quarter.
Genworth has $554 million in cash and liquid
assets at the parent company level, up from $403 million a year earlier.
The China Oceanwide
Deal
China Oceanwide Holdings Group Co. Ltd. of
Beijing has been trying to acquire Genworth for years. The companies now have
all needed U.S. approvals and reapprovals.
Tom McInerney, Genworth’s chief executive
officer, said that the new hurdle is that, because completing the deal has
taken so long, China Oceanwide has to renew the funding arrangements it lined
up back in 2018.
“Since the original Hony funding commitment
was secured in 2018, the Hony commitment was extended each time Genworth and
Oceanwide had to extend the merger agreement because of regulatory delays,”
McInerney said. “It was only after the COVID-19 pandemic disrupted global
capital and financial markets in February and early March with the Hony Capital
$1.8 billion commitment became an issue.”
China Oceanwide and Genworth are talking about
efforts to nail down funding, and China Oceanwide has agreed to provide hard
funding confirmation by Aug. 31, McInerney said.
McInerney emphasized that the fate of
Genworth’s life insurance operations, including the LTCI unit, may depend on
the success of the China Oceanwide deal, and the operations’ own performance
during a time of low interest rates and high economic uncertainty.
“Going forward, we will continue to manage the
U.S. life insurance businesses on a stand-alone basis, with no plans to infuse
or extract capital other than as committed in connection with completion of the
Oceanwide transaction,” McInerney said.
Genworth’s current focus is on maintaining the
health of its mortgage insurance units, McInerney said. The mortgage
insurance units are still writing large amounts of mortgage insurance,
Genworth executives also said
that getting approvals from state insurance regulators for LTCI premium
increases is critical to the LTCI unit’s performance.
Genworth has not implemented many increases so
far this year, but it expects to implement more increases in the second half of
the year, Groh said.
“These will include newer product series, for
which we have not requested rate increases in the past,” Groh said. “These
filings will include a variety of benefit reduction alternatives, which we have
seen more and more policyholders select. We will continue to monitor
policyholder behavior carefully in light of the potential COVID-19 impact on
our policyholders.”
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