Reduces GMICO Risk-To-Capital By 12 To 15 Points
Ensures Continued Ability To Write New Business
Removes U.S. MI Subsidiaries From Genworth's Senior Notes Indenture
RICHMOND, Va., Jan. 16, 2013 /PRNewswire/ -- Genworth Financial, Inc. (NYSE: GNW) today announced a comprehensive U.S. Mortgage Insurance capital plan that, when implemented, will reduce Genworth Mortgage Insurance Company's (GMICO), the company's main U.S. mortgage insurance subsidiary, risk-to-capital by 12 to 15 points, decrease the likelihood that the U.S. mortgage insurance subsidiaries will require additional capital for the foreseeable future, ensure the continued ability to write new business and reduce the risk of a default under the indenture governing Genworth's senior notes.
The capital plan consists of several actions, some of which are still subject to regulatory approval: (1) transferring ownership of the European mortgage insurance subsidiaries to GMICO; (2) enabling the future option, under certain adverse conditions, should they occur, to implement a "NewCo" type structure, for the continued writing of new business in all 50 states; and (3) implementing an internal legal entity reorganization which creates a new holding company structure that will remove the U.S. mortgage insurance subsidiaries from the companies covered by the indenture governing Genworth's senior notes. Genworth will also contribute $100 million to GMICO as part of the comprehensive capital plan, anticipated to occur in the second quarter of 2013. The company anticipates the combined risk-to-capital ratio of the U.S. mortgage insurance subsidiaries will be reduced by 8 to 10 points from this plan. Cash and highly liquid securities at the holding company totaled approximately $1.0 billion as of December 31, 2012.
"We are very pleased to announce a comprehensive plan for the U.S. mortgage insurance business which reduces linkages and dependencies with the holding company and increases our financial flexibility while bolstering capital in the business," said Martin P. Klein, chief financial officer. "U.S. mortgage insurance is a key component of our Global Mortgage Insurance Division, and we believe implementation of this plan will increase shareholder value by continuing our ability to write profitable new business while at the same time reducing uncertainties related to our U.S. mortgage insurance subsidiaries."
Key Components Of Capital Plan
Contribution Of European Mortgage Insurance Subsidiaries
Under the capital plan, ownership of the European mortgage insurance subsidiaries will be moved under GMICO. These subsidiaries will provide approximately $200 million in additional statutory capital to GMICO. This transfer has received regulatory approval and the company anticipates completing the transfer during the first quarter of 2013.
Genworth also has obtained requisite GSE (Government Sponsored Enterprise) approvals to implement a "NewCo" type structure which would allow for the continued writing of new business in all 50 states. The future option would be implemented if certain unanticipated adverse conditions were to occur, such as an elevated risk-to-capital level, revocation of the regulatory risk-to-capital waivers, or reduction in market share thresholds. If a new U.S. mortgage insurance company is created pursuant to this option, it will have no legacy obligation to GMICO. At the time of formation, "NewCo" would be subject to GSE eligibility guidelines and capital requirements and would allow access to third party funding sources. As part of this plan, Genworth has agreed to contribute $100 million of cash to GMICO. Genworth also agreed to contribute another $100 million in the event that GMICO were to enter into a deferred payment order with the North Carolina Department of Insurance or if projections indicate that GMICO may not have sufficient resources to pay valid claims. Genworth will also guarantee that, between October 1, 2012 and June 30, 2017, GMICO will receive, in the normal course, $150 million from dividends from currently owned affiliate securities and deferred tax asset utilization. Given these obligations are intended to be funded through normal operations, the guarantee is not expected to have a material impact on Genworth. GMICO received from affiliates an estimated $60 million in dividends and tax benefits during 2012. In the event that the "NewCo" option is implemented, its implementation will require requisite state regulatory approvals, and is contingent upon Genworth and GMICO meeting their respective obligations pursuant to the approvals granted by the GSEs. The company believes the events that would result in the potential "NewCo" implementation are unlikely to occur and expects to continue to write new business out of GMICO for the foreseeable future.
"One of Global Mortgage Insurance's strategic priorities was maintaining the ability to write new profitable business in U.S. Mortgage Insurance while focusing on a return to profitability," said Kevin D. Schneider, president of Genworth's Global Mortgage Insurance Division. "The ability to implement the "NewCo" option, if necessary, benefits Genworth, our investors and customers by providing an additional layer, along with our continued GMICO waivers and use of Genworth Residential Mortgage Assurance Corporation (GRMAC), that will ensure our continued ability to write profitable new business."
Internal Legal Entity Reorganization
The proposed legal entity reorganization will involve: (1) the creation of a new holding company (New Parent) over Genworth; (2) Genworth becoming a direct, wholly-owned subsidiary of New Parent; (3) the existing Genworth stock automatically converting into shares of New Parent stock and Genworth stockholders becoming stockholders of New Parent; and (4) the U.S. mortgage insurance subsidiaries, including the European mortgage insurance subsidiaries, becoming wholly-owned subsidiaries of New Parent rather than the old parent, Genworth. Following completion of the reorganization, Genworth, the old parent, will continue to own its existing businesses except the U.S. mortgage insurance subsidiaries and New Parent will own the U.S. mortgage insurance subsidiaries and Genworth, the old parent. In addition, Genworth's outstanding senior and subordinated notes will remain obligations of Genworth, the old parent, and will receive the benefit of a new unconditional guarantee by New Parent of those obligations and thereby will continue to benefit from the value of the U.S. mortgage insurance subsidiaries. In connection with the reorganization, New Parent will be renamed Genworth Financial, Inc., the shares of New Parent common stock to be issued in connection with the reorganization will have the same designations, rights, powers and preferences, qualifications, limitations and restrictions as the current outstanding Genworth common stock. New Parent common stock will be listed on The New York Stock Exchange and trade under the symbol "GNW," and the company expects Genworth stockholders will not recognize any gain or loss for U.S. federal income tax purposes in connection with the reorganization.
No vote or consent of, or other action, by Genworth's stockholders or noteholders is required for the proposed reorganization. The reorganization plans are subject to approval by various regulators and are currently being pursued. The plans have been approved by GMICO's domestic regulator, the North Carolina Department of Insurance. The company anticipates completing the reorganization in the second quarter of 2013.
Following the reorganization, the U.S. mortgage insurance subsidiaries will no longer be subsidiaries of Genworth, the old parent, and therefore an insolvency event relating to the U.S. mortgage insurance subsidiaries will not cause an event of default under the indenture governing Genworth's senior notes. The reorganization is intended to provide a structural solution for such a potential event of default and to reduce the linkages between U.S. mortgage insurance subsidiaries and Genworth, the old parent, and does not reflect a change in the company's strategic position regarding the U.S. mortgage insurance subsidiaries. The U.S. mortgage insurance subsidiaries remain a key component of the company's Global Mortgage Insurance Division and overall corporate strategy. Also, it does not reflect any expectation that the U.S. mortgage insurance subsidiaries will in fact experience any insolvency related event, enter into a deferred payment order or not be in a position to pay all valid claims. Given the trends of new delinquencies, reserves, new insurance written, loss mitigation benefits and mortgage insurance penetration, and assuming no significant deterioration in the U.S. housing market or material global economic downturns, the company continues to believe these trends create the conditions for continued improvement in earnings for the U.S. mortgage insurance business, with a potential return to breakeven or modest profitability during one or two quarters in 2013. The company will provide additional information on this topic during the scheduled conference call noted below.
Conference Call and Supplemental Information
This press release is now posted on the company's website. Additional information regarding the comprehensive U.S. Mortgage Insurance capital plan is also posted on the company's website, http://investor.genworth.com. Investors are encouraged to review all of these materials.
Genworth will conduct a conference call on January 16, 2013 at 9 a.m. (ET) to discuss the comprehensive U.S. Mortgage Insurance capital plan. The conference call will be accessible via telephone and the Internet. The dial-in number for the conference call is 866 393.0571 or 206 453.2872 (outside the U.S.). To participate in the call by webcast, register at http://investor.genworth.com at least 15 minutes prior to the webcast to download and install any necessary software.
Replays of the call will be available through January 30, 2013 at 855 859.2056 or 404 537.3406 (outside the U.S.); the conference ID # for the call is # 89623448. The webcast will also be archived on the company's website.
About Genworth Financial
Genworth Financial, Inc. (NYSE: GNW) is a leading Fortune 500 insurance holding company dedicated to helping people secure their financial lives, families and futures. Genworth has leadership positions in offerings that assist consumers in protecting themselves, investing for the future and planning for retirement -- including life insurance, long term care insurance, financial protection coverages, and independent advisor-based wealth management -- and mortgage insurance that helps consumers achieve home ownership while assisting lenders in managing their risk and capital.
Genworth has approximately 6,300 employees and operates through three divisions: Insurance and Wealth Management, which includes U.S. Life Insurance, Wealth Management and International Protection segments; Global Mortgage Insurance, which includes U.S. and International Mortgage Insurance segments; and the Corporate and Runoff division. Its products and services are offered through financial intermediaries, advisors, independent distributors and sales specialists. Genworth Financial, Inc., which traces its roots back to 1871, became a public company in 2004 and is headquartered in Richmond, Virginia. For more information, visit genworth.com. From time to time, Genworth Financial, Inc. releases important information via postings on its corporate website. Accordingly, investors and other interested parties are encouraged to enroll to receive automatic email alerts and Really Simple Syndication (RSS) feeds regarding new postings. Enrollment information is found under the "Investors" section of genworth.com.
Cautionary Note Regarding Forward-Looking Statements
This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as "expects," "intends," "anticipates," "plans," "believes," "seeks," "estimates," "will" or words of similar meaning and include, but are not limited to, statements regarding the outlook for the company's future business and financial performance. Forward-looking statements are based on management's current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to global political, economic, business, competitive, market, regulatory and other factors and risks, including the following:
- Risks related to proposed capital plan (including the reorganization), including failure to complete the implementation of the capital plan in a timely manner or at all for any reason (including failure to obtain required insurance regulator and other approvals or relief); failure to achieve the anticipated benefits of the capital plan; and unanticipated complexities or costs in implementing the capital plan;
- Risks relating to the company's businesses, including downturns and volatility in global economies and equity and credit markets; downgrades or potential downgrades in the company's financial strength or credit ratings; interest rate fluctuations and levels; adverse capital and credit market conditions; the impact of expiration of the company's credit facilities; the valuation of fixed maturity, equity and trading securities; defaults, downgrades or other events impacting the value of the company's fixed maturity securities portfolio; defaults on the company's commercial mortgage loans or the mortgage loans underlying the company's investments in commercial mortgage-backed securities and volatility in performance; goodwill impairments; defaults by counterparties to reinsurance arrangements or derivative instruments; an adverse change in risk based capital and other regulatory requirements; insufficiency of reserves; legal constraints on dividend distributions by the company's subsidiaries; competition; availability, affordability and adequacy of reinsurance; loss of key distribution partners; regulatory restrictions on the company's operations and changes in applicable laws and regulations; legal or regulatory investigations or actions; the failure of or any compromise of the security of the company's computer systems; the occurrence of natural or man-made disasters or a pandemic; the effect of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act; changes in the accounting standards issued by the Financial Accounting Standards Board or other standard-setting bodies; impairments of or valuation allowances against the company's deferred tax assets; changes in expected morbidity and mortality rate; accelerated amortization of deferred acquisition costs and present value of future profits; reputational risks as a result of rate increases on certain in force long term care insurance products; medical advances, such as genetic research and diagnostic imaging, and related legislation; unexpected changes in persistency rates; ability to continue to implement actions to mitigate the impact of statutory reserve requirements; the failure of demand for long term care insurance to increase; political and economic instability or changes in government policies; foreign exchange rate fluctuations; unexpected changes in unemployment rates; unexpected increases in mortgage insurance default rates or severity of defaults; the significant portion of high loan to value insured international mortgage loans which generally result in more and larger claims than lower loan-to-value ratios; competition with government owned and government sponsored enterprises offering mortgage insurance; changes in international regulations reducing demand for mortgage insurance; increases in mortgage insurance default rates; failure to meet, or have waived to the extent needed, the minimum statutory capital requirements and hazardous financial condition standards; uncertain results of continued investigations of insured U.S. mortgage loans; possible rescissions of coverage and the results of objections to the company's rescissions; the extent to which loan modifications and other similar programs may provide benefits to the company; unexpected changes in unemployment and underemployment rates in the United States; further deterioration in economic conditions or a further decline in home prices in the United States; problems associated with foreclosure process defects in the United States that may defer claim payments; changes to the role or structure of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac); competition with government owned and government sponsored enterprises offering U.S. mortgage insurance; changes in regulations that affect the U.S. mortgage insurance business; the influence of Fannie Mae, Freddie Mac and a small number of large mortgage lenders and investors; decreases in the volume of high loan to value mortgage originations or increases in mortgage insurance cancellations in the United States; increases in the use of alternatives to private mortgage insurance in the United States and reductions by lenders in the level of coverage they select; the impact of the use of reinsurance with reinsurance companies affiliated with U.S. mortgage lending customers; legal actions under the Real Estate Settlement Procedures Act of 1974; and potential liabilities in connection with the company's U.S. contract underwriting services;
- Other risks, including the risk that adverse market or other conditions might further delay or impede the planned IPO of the company's mortgage insurance business in Australia; the possibility that in certain circumstances the company will be obligated to make payments to General Electric Company (GE) under the tax matters agreement with GE even if the company's corresponding tax savings are never realized and payments could be accelerated in the event of certain changes in control; and provisions of the company's certificate of incorporation and bylaws and the tax matters agreement with GE may discourage takeover attempts and business combinations that stockholders might consider in their best interests; and
- Risks relating to the company's common stock, including the suspension of dividends and stock price fluctuations.
The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
SOURCE Genworth Financial, Inc.
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