NY regulators to Genworth: Put more money in your subsidiary if you want Oceanwide deal approval

Feb. 4 –Breaking News

New York regulators will require Genworth Financial to infuse its New York subsidiary with cash before it approves the long-term care insurer’s acquisition by China Oceanwide Holdings Group Co., Ltd.

This is based on recent talks between the regulators and the Virginia-domiciled insurer on a fourth quarter 2019 assumption review for the subsidiary, Genworth Life Insurance Company of New York, according to its earnings release published after market close Tuesday.

Genworth stated in the release that any potential capital contribution would require approval from China Oceanwide under the continuing $2.7 billion merger agreement, first struck at the end of October 2016. The deal has been extended about a dozen times, most recently through March 31, 2020. Shareholders first voted to approve this transaction in March 2017.

Genworth did not appear to immediately commit to this cash infusion to Genworth Life Insurance Company of New York, based on its release, nor specified an amount. It just said it was continuing its discussion with the New York Department of Financial Services.

“We are still actively engaging with NYDFS and will not be commenting on specifics of the discussions,” a company spokeswoman stated.

The insurer did indicate that, Fannie Mae and Freddie Mac gave the okay for the deal with a reapproval of the Chinese conglomerate’s proposed acquisition of its mortgage subsidiary. This was required after the sale of Genworth’s sale of its majority stake in the Genworth MI Canada Inc. to Brookfield Business Partners L.P. last fall.

According to a previous financial regulatory exam report a few years ago of the New York subsidiary, the NYDFS and Genworth reached an agreement to strengthen reserves by $356 million “in a manner acceptable to the Department.”

Genworth agreed to phase this amount in over four years, which would bring it up to 2019, depending on when the strengthening began. Although the report is dated 2016, it appears to have been signed in April 2015 by then-Superintendent Ben Lawsky.

The current superintend, Linda Lacewell, was not in office when the Oceanwide deal was last approved. Regulatory reapprovals were needed because of changed terms, including the sale of the insurer’s stake in the Canadian montage unit.

The DFS learned, it wrote in the May 2016 report , that Genworth was “using assets held in trust for the benefit of MetLife in the asset adequacy analysis covering other lines of business.”

The Empire State regulators also had a problem with reserves for certain universal life insurance with secondary guarantees (ULSG) because it found them based on assumptions that were different from the NY DFS rules, specifically Regulation No. 147. Genworth estimated that the ULSG formulaic reserves would increase by $47 million under Reg. 147, the DFS noted in its old report.

Genworth reported reported adjusted operating income  of $420 million in 2019, compared with an adjusted operating loss of $5 million in 2018.  For the fourth quarter, it posted a net loss of $17 million compared with a net loss of $329 million in the fourth quarter of 2018. 

It reported total net proceeds of $1.8 billion from the sale of its stake in Genworth Canada to Brookfield. Holding company cash and liquid assets stood at $1.5 billion at year-end.

New York DFS did not immediately respond to an inquiry on the capital contribution talks.

The New York subsidiary had $7,664,411,406 in assets and $7,430,590,256 in liabilities at year-end 2018, according to AnnuityAdvantage.com. Updated numbers are expected soon.

The merger review is still pending in Virginia with its bureau of insurance as well, according to a spokesman from the Virginia State Corporation Commission.

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