Genworth Financial Enters Run Off Mode - Others to Follow?

Following up on a previous post discussing how the OTS's TARP cutoff could be the death blow to Genworth Financial, the analysts at Egan Jones have released an analysis that basically confirms that the company is now in run off mode, or will just collect cash from asset unwinds.

4/9/2009: Genworth Financial Inc: EJR lowered B to B- (Neg.) (S&P: BBB) (GNW)

Synopsis: Rejected - OTS's rejection of GNW's application under TARP is a major blow; with the rating cuts, the Company is no longer able to provide value to most obligors and therefore is basically in run-off mode. Operating income for the Dec. quarter declined from a $375M gain in 2007 to a $309M loss in 2008 while interest expense declined from $126M to $123M. The Company's Sept. 10Q, page 81 provides details on some exposure; as of Sept. 2008, 6.9% of its $1.0B insured loans were delinquent which was doubled from the amount for the prior year. Another concern is the $42B Level 2 assets listed on page 17 of the Sept. 10Q; watch for $4B of additional charges. (Shareholders' equity is only $889M compared to debt of $8.1B.)

It is interesting to put the company immediate comparables in perspective (which include MBIA, PMI and Radian), which EJ is not too optimistic about:



It would be an interesting study to compare how all the other insurance companies would fare in a government subsidy-free world and potentially how many AIG-like repeats we would experience if the administration's balance sheet training wheels were removed. The chart below presents the risk perception from a credit standpoint on many of the insurance comparables and where they stand with regard to their conversion to Bank Holding Companies (a prerequisite to obtain "subsidies") as well as how they are positioned regarding the FDIC's TLGP program.

Disclosure: No positions

Comments

[Shorts Are ...:]

LMAO! The statement "Synopsis: Rejected - OTS's rejection of GNW's application under TARP is a major blow" is totally false.

The deadline was January 15th and the OTS missed it, not GNW. The OTS is the one that asked the Treasury for an extension since they are the ones that screwed up at that time (see below).

"William Ruberry, a spokesman for the Office of Thrift Supervision, told American Banker that the agency is still reviewing Genworth's application, and that a request was made to Treasury to extend the Jan. 15 deadline."

www.insurancenetworkin...

Apr 13 06:56 AM

[cannedpawn8:]

I have a Long-Term Care policy with them...should I bail?

Apr 13 01:24 PM

[jimmy46:]

@ have a Long-Term Care policy with them...should I bail?

No, your state has a fund to protect insurance buyers,
if GNW doesn't pay, your state will.

Apr 13 01:37 PM

[cannedpawn8:]

Tks, Jimmy46

Apr 13 03:57 PM

[User 213517:]

Genworth is a solid insurance company... well respected and well run.


On Apr 13 01:24 PM cannedpawn8 wrote:

> I have a Long-Term Care policy with them...should I bail?

Apr 13 07:39 PM

[User 394451:]

For those considering Genworth long term care insurance...there are other strong companies to consider. Most notably, MassMutual which is a mutual company. Sounds old fashioned but they haven't had to try impressing Wall Street all these years.

Apr 13 10:52 PM

[LKofScotland:]

excellent comment on Mass Mutual, not that I have long term care insurance. the idea that the state government will pick up the tab should Genworth go belly-up is no sure thing. we've never seen anything like this before and before exclaiming that the state will meet the insurance industry's obligations it must be remembered that that States are running huge deficits which is unconstiutional. "that will be form 24B, 3964a, 2c paragraph 5 (in triplacate)" comes to mind in how the government will respond to this catastrophe.

Apr 14 12:15 AM

[User 390023:]

While claims against my Genworth long term care policy may be covered by the state funds, what happens to my rights to renewability and classification that I had when I took out the policy eight years ago?

Eli

Apr 14 10:51 PM

[the_Bird:]

Personally, I would at least explore whether I could get coverage elsewhere if I had any kind of insurance policy with GNW - but do NOT let any coverage lapse in the meantime! GNW's LTC business would likely be sold off in the event of the company's failure, although the number of companies with the financial strength to make an acquisitions is pretty limited.

Note too that the state guarantee funds do set limits on how much they will pay out for claims. It's also possible, I believe, that in the event of GNW's failure and a subsequent takeover of these policies by another insurance company, it's entirely possible that the regulators will allow a premium increase as an inducement for the purchase.

If you can - I'd think about moving, but obviously the dynamic changes if the policy has been in force for a while and/or you've had health conditions that make you less insurable. Don't see a downside to exploring a switch, though.

Apr 20 09:05 AM

[Don't worry:]

MassMutual offering LTC since 2000, Genworth since 1974 the largest in terms of policyholders and revenue. I would not be concerned about your LTC policy. If you bought before 2001, you can't touch the price now, even with rate increases GNW filed on those policies. If you bought after 2001, you are almost guaranteed the price, a lot more is known about, claims, lapse rates and underwriting now.

what happens to my rights to renewability and classification that I had when I took out the policy eight years ago?
That will not change, just keep paying your premiums whatever happens. Insurance companies are required to set aside reserves for claims, that can not be touched for any other reason.

Apr 22 07:53 PM

[MIKETRADER:]

DEAD WRONG ON THIS ONE TYLER.... GNW STOCK, PREF, BONDS HAVE SHOT UP SINCE YOU POSTED THIS... MAYBE THEY NEEDED YOU TO DO IT...

Jul 22 02:17 PM

[Freya:]

State Insurance Guarantee Funds, each state has one. Should Genworth go bankrupt, the policies written within each specific State will be covered by that State's funds. No Single state will pick up the tab.

Apr 14 01:31 AM