‘Over and done with:’ China Oceanwide withdraws Genworth application from Virginia SCC

April 23, 2021 — China Oceanwide Holdings Group Co. Ltd. asked for its application to acquire Genworth Financial Inc. to be withdrawn in a letter to Virginia regulators, formally ending an almost five year attempt to purchase the long-term care insurer.

The acquisition was publicly proposed in October 2016, although Genworth had been courting would-be buyers privately in the months before it made its choice to go with the Beijing-based conglomerate, offering $5.43 per share or $2.7 billion.

In the end, after numerous state federal regulatory approvals and re-approvals were won in the U.S., and even after Genworth sold its majority stake in its mortgage insurance subsidiary in Canada to remove any hurdles there, China Oceanwide could not raise the funds needed to finance the deal, and Genworth elected to terminate the merger April 6.

China Oceanwide’s letter to the Virginia State Corporation Commission through its lawyers was short and curt. It noted that the application had been approved by the SCC’s Bureau of Insurance on Jan. 11, 2019, and re-approved on March 31, 2020.

“We are submitting this letter to inform the Bureau that pursuant to the notice of termination, dated April 6, 2021, provided on behalf of Genworth to China Oceanwide, Genworth has exercised its right to terminate the Merger Agreement and abandon the Proposed Acquisition pursuant to Section 8.2(a) of the Merger Agreement, with such termination effective as of April 6, 2021. In light of the foregoing, China Oceanwide respectfully requests that the Application be withdrawn from the Commission and the Bureau,” the filing on Bland & Sorkin letterhead said.

Thus ends the saga, although Genworth is planning on moving forward with an IPO of its mortgage insurance subsidiary, which it announced earlier this week.

 Although no state regulators have commented despite inquiries and Genworth is in a quiet period before earnings and generally cannot comment, one equity analyst wrote after Genworth terminated the merger that it could face solvency issues in the future without the cash infusion of about $525 million to be given to Genworth’s. life insurance businesses. 

“Our understanding is that GNW has no intention of supporting GLIC with any future capital contributions, which may mean GLIC will be taken over by regulators over the next few years, if LTC pressure continues,” warned Evercore ISI analyst Thomas Gallagher in a research note April 7. The note regarded Ameriprise Financial, Inc., which had reinsured half of its LTC block, about $2.7 billion, Genworth’s subsidiary, Genworth Life Insurance Co. or GLIC.

The analyst was gaming out what would happen in a dire solvency event to Ameriprise’s reinsurance contract with Genworth, as it has reinsured half of its LTC block to GLIC, which it noted had year-end RBC ratio of 229% “and so it is probably okay for now, but worth watching if the RBC dips below 200%, a level at which regulatory oversight and surveillance would increase,” the analyst wrote.

The life businesses must rely on their consolidated statutory capital of about $2.3 billion as of the end of the third quarter 2020, stated Tom McInerney, Genworth’s CEO, on a conference call in February to discuss year-end earnings. He touted though, the fact the company secured, on a cumulative net present value basis about $14.5 billion of approved LTC premium rate increases since 2012. “As we’ve discussed in the past, we have no plans to infuse additional capital into, or extract capital from, our U.S. Life Insurance businesses,” McInerney stated.

Gallagher wrote that Ameriprise’s total potential total economic exposure to LTC is $5.4 billion.

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