Monday, October 26, 2020

No. 395: General Electric and Genworth—A Pair of Updates

Long-term care (LTC) insurance, General Electric Company (GE), and Genworth Financial Inc. (Genworth), which specializes in LTC insurance, have been the subjects of several of my blog posts. Recently both companies disclosed developments that prompt this update.

On January 16, 2018, GE shocked the insurance world when it disclosed it will contribute about $15 billion (spread over seven years) to a reinsurance subsidiary relating to a run-off block of LTC insurance. On January 24, 2018, GE disclosed the existence of an investigation by the Securities and Exchange Commission (SEC). I wrote about these matters in No. 257 (March 12, 2018) and No. 258 (March 19, 2018).

On October 6, 2020, GE filed an 8-K (significant event) report disclosing developments relating to the SEC investigation. Here are two of the three relevant paragraphs in the 8-K (the three paragraphs are in the complimentary package offered at the end of this post):
On September 30, 2020, the SEC staff issued a "Wells notice" advising GE that it is considering recommending to the SEC that it bring a civil injunction action against GE for possible violations of the securities laws. GE has been informed that the issues the SEC staff may recommend that the SEC pursue relate to the historical premium deficiency testing for GE Capital's run-off insurance operations, as well as GE's disclosures relating to such run-off insurance operations. The staff has not made a preliminary decision whether to recommend any action with respect to the other matters under investigation.
The Wells notice is neither a formal allegation nor a finding of wrongdoing. It allows GE the opportunity to provide its perspective and to address the issues raised by the SEC staff before any decision is made by the SEC on whether to authorize the commencement of an enforcement proceeding. GE disagrees with the SEC staff with respect to this recommendation and will provide a response through the Wells notice process. If the SEC were to authorize an action against GE, it could seek an injunction against future violations of provisions of the federal securities laws, the imposition of civil monetary penalties, and other relief within the Commission's authority. The result of the Wells notice and any enforcement action are unknown at this time.
On October 7, 2020, the front page of the print edition of The Wall Street Journal carried a 931-word articled entitled "SEC Readies Civil Action in GE Accounting Inquiry." The reporters were Theo Francis and Ted Mann. Here are the first two sentences of the article:
Federal securities regulators have warned General Electric Co. of a civil-enforcement action over its accounting for a legacy insurance business, adding a fresh hurdle to efforts to turn around the once-mighty manufacturer. The industrial giant said in a securities filing Tuesday that it received the so-called Wells notice on Sept. 30 over the company's accounting for reserves related to an insurance business it has been trying to wind down for years.
On October 21, 2016, Genworth entered into a merger agreement with China Oceanwide. Since then, the parties have entered into "waiver agreements," under which the parties extended the "end date" in the merger agreement. I wrote about these matters in No. 311 (May 2, 2019), by which time the parties had entered into nine waiver agreements.

On October 1, 2020, Genworth filed an 8-K report disclosing that the parties had entered into a sixteenth waiver agreement on September 30. The end date in the latest waiver agreement appears to be November 30, 2020. The 8-K lists the fifteen previous waiver agreements and a detailed description of the latest waiver agreement. (The 8-K is in the complimentary package offered at the end of this post.)

General Observations
I plan to report on further significant developments relating to the SEC investigation of GE. I also plan to report further on the pending Genworth merger agreement with China Oceanwide.

Available Material
I am offering a complimentary 9-page package that consists of GE's 8-K report dated October 6 (3 pages) and Genworth's 8-K report dated October 1 without exhibits (6 pages). Send an email to and ask for the October 2020 package about GE and Genworth.