- Nailed badly this summer over worries about its long-term care unit, Genworth (NYSE:GNW) - whose share price about doubled in 2013 - is offering investors another buying opportunity, writes Jonathan Laing in Barron's. Q2 results this year showed a drop in operating profit from LTC to $6M from $46M a year earlier, and surging claim losses has the company reviewing the adequacy of its reserves.
- The results of the review - and whether the company will need to take a reserve charge - are expected at this quarter's end. A further sting: It was less than a year ago management had done a "deep dive" into LTC reserves and given the "all clear" to analysts.
- Even a massive and unlikely reserve charge of $1B would only cut Genworth's book value per share just a couple of dollars from the current $31.37 (vs. Friday's closing stock price of $13.19), says Laing. The actual charge, he says, is likely to be closer to an easily covered $200M. He expects the gap to book value to begin closing in the coming years.
- The company isn't sitting still in LTC either, says Laing, noting premium increases nearly nationwide and the tightening of policy terms - basically eliminating lifetime benefits in favor of maximum benefit periods of 3-5 years. The big issue, of course, are those legacy policies (sold from 1974-2001) where lapse rates have been 1% or less vs. the 5-5% expected, and investment returns of 5.5% are less than 6.75% expected. Genworth will do good to break even on these, but their number should shrink to 123K over the next decade from 331K today based on mortality statistics.