RICHMOND, Va.,– Completed Sale Of Genworth’s Majority Interest In Genworth MI Canada Inc. To Brookfield Business Partners L.P. With Approximately $1.8 Billion Total Net Proceeds
Genworth Financial, Inc. (NYSE: GNW) today reported results for the quarter ended December 31, 2019. The company reported 2019 full year net income4 of $343 million, or $0.67 per diluted share, in 2019, compared with net income of $119 million, or $0.245 per diluted share, in 2018. The company reported adjusted operating income6 of $420 million, or $0.82 per diluted share, in 2019, compared with an adjusted operating loss of $5 million, or $0.015 per diluted share, in 2018.
For the fourth quarter of 2019, the company reported a net loss of $17 million, or $0.03 per diluted share, compared with a net loss of $329 million, or $0.665 per diluted share, in the fourth quarter of 2018. The company reported adjusted operating income of $24 million, or $0.05 per diluted share, in the fourth quarter of 2019, compared with an adjusted operating loss of $305 million, or $0.615 per diluted share, in the fourth quarter of 2018. The net loss in the current quarter was comprised of income from continuing operations of $36 million more than offset by a net loss from discontinued operations of $537 million. The loss from discontinued operations included a net after-tax loss of $110 million related to the company’s divestiture of its lifestyle protection insurance business to AXA in 2015, following an adverse court ruling on pending litigation. This charge was partially offset by income from discontinued operations of $57 million in the quarter primarily driven by a favorable tax position refinement to the loss on the sale of Genworth Canada.
Genworth made strong progress with its MYRAP in 2019, receiving approvals for $334 million of incremental annual premium increases during the year, with an estimated NPV of $2.0 billion. In aggregate, the company has now achieved approximately $12.5 billion in NPV from approved rate increases since 2012, with approximately $7.5 billion in additional expected future in force rate actions from its MYRAP included in 2019 loss recognition testing. The company continues to work closely with the National Association of Insurance Commissioners (NAIC) and state regulators to demonstrate the broad-based need for actuarially justified rate increases in order to pay future claims. As previously disclosed, Genworth intends to manage the U.S. life insurance companies on a standalone basis, with no plans to infuse capital in the future other than the capital committed in connection with the completion of the Oceanwide transaction.
“Genworth delivered strong operating performance in 2019, driven by outstanding results in our U.S. mortgage insurance business,” said Tom McInerney, president and CEO of Genworth. “We continued to execute against our strategic priorities, including reducing debt, strengthening our balance sheet and executing our LTC multi-year rate action plan, which is critical to stabilizing our U.S. life insurance business.”
Strategic Update
Genworth and Oceanwide continued to work diligently towards closing their previously announced transaction.
On December 12, 2019, Genworth completed the sale of its stake in Genworth Canada to Brookfield Business Partners L.P. (NYSE: BBU) (TSX: BBU.UN) for a total transaction value of CAD$2.4 billion. As previously disclosed, the net cash proceeds were approximately USD$1.8 billion including the special dividend paid in October 2019 and after adjustments for foreign exchange, fees, and expenses. Genworth Mortgage Insurance Corporation (GMICO), Genworth’s primary U.S. MI insurance subsidiary, received $517 million of the net proceeds from the transaction based on its ownership share of Genworth Canada, increasing its capital levels. In addition, $445 million of the net proceeds were used to retire the company’s term loan issued March 7, 2018 as required under the terms of the loan agreement.
On December 22, 2019, Genworth and Oceanwide entered into a 13th waiver and agreement extending their merger agreement deadline to not later than March 31, 2020. The 13th waiver also provides termination rights for Oceanwide to the extent that regulators subsequently impose materially adverse conditions on the transaction. In addition, the waiver provides that the parties will mutually agree upon a closing date after the receipt of all required regulatory approvals. In the event Genworth and Oceanwide cannot agree on a closing date following receipt of all regulatory approvals, each party has the right to terminate the merger agreement.
In January 2020, Fannie Mae and Freddie Mac reapproved Oceanwide’s proposed acquisition of GMICO, as contemplated under the merger agreement between Genworth and Oceanwide and updated to reflect subsequent developments including the Genworth Canada sale. Their reapprovals include certain conditions and obligations which are subject to confidentiality restrictions. The parties anticipate being able to meet these conditions.
Oceanwide and Genworth received approvals from all necessary U.S. regulators with respect to the Oceanwide Transaction earlier in 2019. The approval of the New York Department of Financial Services (NYDFS) has expired and the parties remain in discussion with the NYDFS in an effort to secure its reapproval. Genworth and the NYDFS have been engaged for several months in discussions regarding the fourth quarter 2019 assumption review for Genworth Life Insurance Company of New York (GLICNY) and the reapproval of the transaction. As part of the discussion process, the NYDFS has recently communicated to Oceanwide and Genworth that the reapproval would be contingent on a capital contribution by Genworth Financial to GLICNY. Oceanwide and Genworth are continuing discussions with the NYDFS in an effort to secure its reapproval, including a potential capital contribution from Genworth that would require Oceanwide’s consent under the merger agreement.
Genworth also remains in discussions with other state regulators regarding their existing approvals of the transaction. In the fall of 2019, the parties provided supplemental information to certain regulators to reflect the Genworth Canada disposition and the passage of time since their prior approval of the Oceanwide Transaction. Regulators have reviewed the supplemental information, and the parties are working with these regulators to provide additional information as part of their review. Following the receipt of all required U.S. regulatory approvals, Oceanwide will also need to receive clearance in China for the currency conversion and transfer of funds.
Genworth and Oceanwide remain committed to the capital investment plan under which Oceanwide and/or its affiliates will contribute an aggregate of $1.5 billion to Genworth over time following the consummation of the merger, subject to the receipt of the required regulatory approvals and clearances.
“We are in discussions with the NYFDS in an effort to secure a reapproval of the Oceanwide transaction, which represents one of the last remaining milestones in closing the transaction,” said Tom McInerney, president and CEO of Genworth Financial. “Genworth and its Board of Directors continue to believe the transaction is the best and most certain outcome for our shareholders. We will continue to work hard to reach a prompt resolution with the NYDFS and satisfy all other closing conditions to complete the transaction as soon as possible. However, if the parties are unable to reach an agreement with the NYDFS that is also acceptable to our other state insurance regulators, Oceanwide and Genworth will need to consider other alternatives to the transaction for each party.”
Lu Zhiqiang, chairman of Oceanwide, added: “Oceanwide remains fully committed to the transaction with Genworth, subject to the receipt of the required regulatory approvals and clearances. We look forward to the successful completion of the transaction.”