Emerging, Merging and Overdue: What’s coming, what’s expected and what lingers on the calendar

Update April 2, 2020: Genworth stated in a release late Wednesday that the financing arrangement between China Oceanwide and Hony Capital for $1.8 billion in debt funding to help finance the deal with Genworth was successfully extended to June 30, 2020, as anticipated.

Emerging: Analysts are now looking at the risks of a once-improbable scenario–the potential for some state to make property casualty insurers cover business interruption losses in spite of contract language that excludes viruses.

The p/c industry has already estimated catastrophic costs if this were put in place, with a preliminary estimate from the American Property Casualty Insurance Association of losses of $220-$383 billion per month for just small business (100 employees or fewer) interruption. Compare that with the amount of total surplus to pay off losses for all U.S. home, auto, and business insurers–a small slice of the total–of $800 billion, according to numbers from the APCIA.

Some states, such as New York, New Jersey, Ohio and Massachusetts, have introduced legislation that would require retroactive coverage, which would be only one of the many unprecedented actions arising from the Covid-19 pandemic.

Even if state regulators side with insurers and legislation withers, there remains the potential for juries and judges to side with the businesses who have been hurt and but who have dutifully paid their standard premiums to insurer.

This latter scenario is more likely, according to equity insurance analysts from Evercore ISI. There are already lawsuits pending against insurers from the restaurant, casino and hospitality commercial and Native American tribal concerns.

The Evercore analysts, who talked to industry lawyers, believe that about 70% to 80% of commercial property insurance policies have the virus exclusion, and could serve as a final backstop against claims. They wrote in a research note March 31 that the Hartford Financial Services Group Inc. and Travelers Companies Inc. would be the most exposed to retroactive claims but think that The Hartford has already seen its stock suffer for the risk and urged investors to buy on the weakness. Its stock is down to a little over $35 per share from over $53 a month ago.

However, what remains unknown, they say is the special language and wording in some policies that could trigger legitimate claims, they wrote. Only brokers and their clients may have this information now, although states are starting data calls for insurers to gather more information.

Merging and Overdue:

Genworth Financial stock slid 18.02% from over $4 per share to $3.32 March 31 after it announced that, despite winning re-approval from domiciliary state Virginia, the anticipated merger with China Oceanwide Holdings Group Co., Ltd. could be delayed another three months. The parties had previously extended the merger to the end of March. This is the proposed merger’s’ 14th such waiver of the original deadline since announcing the deal in late October 2016.

Genworth, the nation’s largest long term care insurer, cited”significantly higher volatility and substantially reduced liquidity in the global financial markets due to the coronavirus pandemic, which has negatively impacted financing global acquisitions.”

The company did acknowledge that the merger could be consummated earlier, perhaps at the end of May, and expect that existing financing arrangements will stay in place until the new deadline.

Of note, the new waiver allows China Oceanwide to strike the deal if state regulators “subsequently impose materially adverse conditions on the transaction” along with other termination rights.

With key approvals from most regulators, including an agreement with New York for Genworth to contribute $100 million to its New York-domiciled insurance subsidiary at the close of the deal, the arrangement awaits an all-clear signal from the Delaware Insurance Department after the finalization of China Oceanwide’s financing plan, currency conversion and transfer fo funds with China’s foreign exchange administration.

It is unclear what other specific concerns, if any, individual state insurance regulators could have before then.

 

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