Thursday, November 10, 2016

No. 187: Genworth Financial, Long-Term Care Insurance, and Clarification of a Comment in No. 185

The purpose of this post is to clarify a comment I made in No. 185, in which I discussed, among other things, regulatory supervision. I discussed the October 23 surprise announcement by Genworth Financial, Inc. that it had entered into a definitive merger agreement. If the agreement is consummated, Genworth would be an indirect, wholly owned subsidiary of China Oceanwide Holdings Group Co., Ltd., a privately held international financial holding company group headquartered in Beijing.

I said Genworth has long been in the long-term care (LTC) insurance business, it is one of the few major companies still in the business, its subsidiaries have suffered significant declines in their financial strength ratings, primarily as a result of their LTC insurance business, and the company is trying to reorganize in order to "isolate" its LTC insurance business. I also said that, because of Genworth's financial problems and its effort to reorganize, one or more of its subsidiaries may be operating under a supervision order, but that I was not aware of the existence of such an order.

When No. 185 was posted on Friday morning, November 4, I forwarded it as a courtesy to a Genworth spokeswoman. She promptly said Genworth is not operating under a supervision order. She also said she is happy to fact check anything I am uncertain about before posting an item on my blog. I explained that I made a decision not to ask Genworth about supervision because I felt that the very act of asking such a question would be unfair. On Monday afternoon, November 7, she said:
Our corporate counsel wanted to make sure you understood the implications of your suggestion that one or more of Genworth's companies are operating under a supervision order. He told me there is virtually no circumstance under which a publicly traded company could keep from disclosing such an order and by suggesting that one or more of our companies are operating under a supervision order that has not been disclosed in our SEC [Securities and Exchange Commission] report is, in essence, suggesting that we are committing securities fraud. Although we know this was not your intent, the statement does establish a cloud of uncertainty that is unwarranted. We respectfully ask that you correct the statement and let your readers know definitively that Genworth is not operating under a supervision order.

The 1999 Incident
In No. 185 I also discussed the 1999 case of General American Life Insurance Company. Also involved in the case were ARM Financial, Inc., which is a publicly traded company, and Integrity Life Insurance Company, an ARM subsidiary that is domiciled in Ohio. I said ARM had disclosed in a public filing with the SEC that Integrity Life was operating under a confidential supervision order issued by the Ohio Department of Insurance. Thus ARM's attorney and Genworth's attorney apparently agree that a public company must disclose in its SEC filings the existence of a supervision order.

Blogger's Note
I finished writing this item on November 8 and planned to schedule it on November 9 for posting early in the morning on November 10. I sent an email on the morning of November 9 to Genworth's spokeswoman asking for a brief company statement about the impact of the election results on the pending merger agreement with China Oceanwide. She responded that afternoon as follows:
We will have no comment on the impact of the election results on the China Oceanwide transaction. Thank you.