Tags: Genworth | Loss | Long-Term Care | Costs

Genworth Posts Big Loss as Long-Term Care Costs Balloon

Wednesday, 05 November 2014 06:11 PM

Genworth Financial Inc., the largest U.S. provider of long-term care insurance, posted its first loss since 2011 after the company determined that reserves for the coverage were inadequate. The company's shares tumbled on the news.

The net loss of $844 million, or $1.70 a share, compares with profit of $108 million, or 22 cents, a year earlier, the Richmond, Virginia-based insurer said Wednesday in a statement. The company said it increased reserves by $531 million, cutting profit by $345 million after tax.

Chief Executive Officer Tom McInerney, 58, is counting on price increases and tightened underwriting to improve results from long-term care coverage. The insurer said in July that it was reviewing whether it had set aside enough funds to cover costs for policies sold in prior years, after higher-than-expected claims in the second quarter. That announcement sent the shares down 14 percent in a day.

“Long-term care is a really difficult business because it’s such a long-tailed liability,” Rob Haines, an analyst at CreditSights Inc., said by phone before results were announced. “You have to have really good insights with regards to mortality and the direction of interest rates, and those are very tough things.”

Larger rivals MetLife Inc. and Prudential Financial Inc. have stopped selling long-term care insurance, which helps pay for health aides and stays in nursing homes. The coverage has been pressured by near record low bond yields and higher-than-expected claims costs.

‘Best Option’

“We continue to believe our LTC strategy is the best option for Genworth, but the turnaround in this business will be more difficult and prolonged because of the poor performance of the older generation products,” McInerney said in the statement. “Despite this setback, we remain steadfast in our commitment to transform this business.”

Genworth shares sank on the news, which was reported after regular stock trading ended. Shortly after 6 p.m. in New York, the shares were down 15 percent to $11.93, after rising 1.2 percent during the regular session to close at $14.07. The stock has declined 9.4 percent this year through Wednesday's close, compared with a 9.5 percent advance of the Standard & Poor’s 500 Index.

Results also included a $517 million, non-cash goodwill impairment after an analysis of the prospects of the life and long-term care business. McInerney, who joined last year, is scheduled to hold a 90-minute conference call tomorrow to discuss results and the long-term care business.

The insurer’s results have been bolstered by the mortgage- guaranty business, which covers losses when homeowners default and foreclosures fail to recoup costs. An improving U.S. real- estate market has helped the unit rebound from losses tied to the housing crash. Genworth also sells the coverage in countries including Canada and Australia.

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Genworth Financial Inc., the largest U.S. provider of long-term care insurance, posted its first loss since 2011 after the company determined that reserves for the coverage were inadequate. The company's shares tumbled on the news.
Genworth, Loss, Long-Term Care, Costs
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2014-11-05
Wednesday, 05 November 2014 06:11 PM
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