April 6, 2021 —
1 . The prolonged merger agreement between China Oceanwide and Genworth Financial is finally over, after Genworth pulled the plug after the market closed April 6. Oceanwide was not able to show Genworth the money, and wants to have the freedom to move forward with a likely partial IPO of its U.S. mortgage insurance business. No time frame was given for such an offering.
Stateside, this could mean Genworth’s long-term care insurance business could deteriorate faster, analysts warned. “Our understanding is that GNW has no intention of supporting GLIC [Genworth Life Insurance Co.] with any future capital contributions, which may mean GLIC will be taken over by regulators over the next few years, if LTC pressure continues,” said Evercore ISI equity analyst Thomas Gallagher in a research note April 7. What happens to Genworth’s enormous legacy LTC block will be of regulatory interest without the anticipated cash infusion from China Oceanwide. Gallagher’s research note focused on the news’ effect on covered company Ameriprise Financial, which has reinsured half of its LTC block to Genworth’s life insurance subsidiarity, which is probably okay for now with a 229% RBC ratio at year-end, he said. A 200% RBC is the threshold for regulatory involvement, generally. The company also has over $1 billion in debt coming due later this year.
The curtain-call on the $5.43 per share deal came as no surprise but it did come more than three months after the 17th and final extensions of the merger agreement, on Dec. 31, 2020. Genworth’s board of directors “has concluded that Oceanwide will be unable to close the proposed transaction within a reasonable time frame and that greater clarity about Genworth’s future is needed now in order for the company to execute its plans to maximize shareholder value. Thus, the board decided to terminate the Oceanwide merger agreement,” stated James Riepe, Genworth’s board chairman in a press release. The LTC insurer left the possibility of working together on the table. “Genworth continues to share Chairman Lu‘s vision of bringing long-term care solutions to the aging population in China.
Both parties believe there are significant, compelling opportunities to address critical societal needs outside of the U.S,” stated said Genworth president and CEO, Tom McInerney. Genworth, over the course of about four and a-half years jumped through scores of hoops to try to close the deal, from getting regulatory approvals in key states, promising to contribute $100 million to New York-domiciled insurance company, Genworth Life Insurance Co. of New York, selling its interest in its Canadian mortgage insurance unit after failing to get a timely regulatory approval there and even having some LTC employees begin to learn Mandarin.
The Richmond, Va.-based company is focused in its revised strategic plan so it has been settling debt and legal matters in the last year or so, including the sale of Genworth’s interest in its Australian mortgage insurance business, its $750 million debt offering at the U.S. mortgage insurance holding company and the negotiation of a settlement with AXA S.A.
On the plus side for the business, Genworth has been steadily getting needed rate increase requests from states and won a recent lawsuit in New Hampshire where its life company challenged amended regulations promulgated by the state’s insurance department retroactively limiting rate increases for LTC insurance policies for over 6,000 New Hampshire residents, according to the opinion summary. Genworth argued against this under the takings clause of the state and federal constitution. The New Hampshire Supreme Court concluded that the regulations invalid and reversed a lower court opinion. The state Supreme Court ruled in February “that New Hampshire’s regulation that places certain caps on long-term care insurance premium rate increases exceeds the Insurance Commissioner’s rulemaking authority and, therefore, is invalid,” noted law firm Faegre Drinker Biddle & Reath LLP on its blog.
“The litigation around this matter remains pending and open, therefore we are unable to comment beyond that.The Department has and will continue to review the ruling to understand its implications and determine if any interim actions are necessary on long term care insurance rates,” a spokeswoman for the New Hampshire department said last month.
It is unclear what will be the fate of Genworth’s North Carolina shell company which was to house new, modern hybrid-type LTC products under the proposed merger with China Oceanwide. The merger proposition spanned three presidencies in its negotiations, numerous delays, hard-won jurisdictional approvals and re-approvals, a dance with HONY Capital on its potential investment in the Chinese conglomerate — and many lawyers.
2. UPDATE April 11, 2021: DUE to new and unforeseen CONFIDENTIAL CoRPORATE LEGAL Strictures, this personnel move will not take place. Both parties are said to be disappointed. Bodnar, WHO WAS SET TO MODERNIZE THE LTC WORLD UNDER GE’S STEWARDSHIP is currently at Oliver Wyman where he will remain at least through mid-April. Ex-Genworth chief actuary, Vince Bodnar, who had continued his career as a partner at Oliver Wyman after departing Genworth about two years ago,
will be joining GE on or around April 19th as its chief claims modernization officer, he says, to help with its LTC portfolio through a new approach to claims reduction among its insurers and retrocessionaires. This modern approach utilizes pre-claims intervention models under development now and gleaned from membership-driven continuing care communities in the U.S.
The veteran actuary will be responsible for developing and implementing these pre-claims intervention programs along with other similar initiatives with LTC blocks GE has reinsurered over the years even as it has run up great liabilities for these benefit-rich policies. It has been more than three years since GE Capital announced that after reserve testing its run-off LTC portfolio, North American Life & Health, would take a GAAP pre-tax charge of $9.5 billion for the fourth quarter of 2017, and make statutory reserve contributions of about $15 billion over seven years.
Bodnar, who will report to Tim Kneeland CEO of NALH in Kansas, will help conduct pilot programs to measure impacts of pre-claims interventions in health, wellness and social behaviors to help policyholders stay healthier and more autonomous for longer, pushing off the need for more expensive facility-care.
Bodnar has said that actuaries are learning that the most effective interventions are not health or medical interventions. Instead, they are related to social, community and family caregiver support. The cost of care for the aging has risen far beyond the amount at which long-ago actuaries first priced older LTC policies, and now the industry must figure out ways to address the mammoth shortfall.
On a recent webinar hosted by Oliver Wyman and insure-tech provider Montoux , Bodnar said the LTC insurance industry has close to $200 billion in reserves for their in-force blocks but that the present value of future benefits is well in excess of that.
“If you can improve outcomes by 10%, that is a $20 billion financial impact,” he said during the webinar. “There is a prize besides saving the entire system money here,” Bodnar said. “Most people do want age in their home, reserve value, contribution to society. We owe into our elderly, our society, age in place as long was we can.” There are regulatory hurdles to overcome, from privacy concerns to discrimination worries to rebating issues. At least one leading insurance commissioner has said that regulators are willing to listen.
3. The National Association of Insurance Commissioners will be hosting its executive-level LongTerm Care Task Force Committee April 9 at its virtual spring national meeting.
Reports from subgroups on the multi-state rate review process, reduced benefit options and LTC financial solvency are expected. The rate review process is central to the granting of future premium hike requests across the nation as it strives to create a more consistent approach for reviewing rate increase filings that make sense on an actuarial basis and do not lead to one state subsidizing another’s artificially lower increases. Consumer advocates are concerned about many of the factors at play, including the potential and incidence for lapses after rate increases and lost asset protection after choosing a reduction in benefits from the original policy. Previously, the NAIC’s Executive Committee and the Internal Administration Subcommittee had also considered hiring an outside legal consultant to help them on policy issues regarding the restructuring LTC policies.