Genworth Agrees to Sell Control Over Australian Mortgage Insurer

Genworth Financial Inc. is preparing to hand off mortgage insurance operations in Australia that the company has owned since 1997.

The Richmond, Virginia-based company said Sunday that two subsidiaries have agreed to sell their 52% stake in Genworth Mortgage Insurance Australia Ltd. to institutional investors through an underwritten sale.

The names of the buyers were not disclosed.

The deal involves about 214.3 million shares of Genworth Australia. The price will be the equivalent of about $1.77 in U.S. dollars, giving the transaction a total value of about $379 million.

Genworth (GNW) said it expects to pay $247 million of the proceeds to an arm of AXA S.A., in connection with a July 2020 settlement related to two companies AXA acquired from Genworth in 2015. Genworth expects to keep about $123 million in proceeds.

The Genworth subsidiaries and the buyer will settle the sale March 3 Genworth said.

The History

Genworth has its roots in the insurance operations of General Electric Co.

It was once one of the biggest issuers of life insurance, annuities and long-term care insurance in the United States, and it was a major issuer of mortgage insurance in the United States and other countries.

GE Capital, a GE subsidiary, acquired the Housing Loans Insurance Corp., Australia’s government-owned mortgage insurer, from the Australian government in 1997. GE Capital paid Australia’s federal government $8 million in Australian dollars (US$3.2 million) in cash for the unit, along with a promise to inject the equivalent of about $40 million in U.S dollars in capital.

GE turned Genworth into a separate company in 2004.

Genworth ended up having serious problems with its long-term care insurance (LTCI) business, including pricing assumptions and the effects of low interest rates on the investment portfolios supporting the LTCI business. Since then it has stopped selling new life insurance policies and annuities, and it’s selling a minimal level of LTCI.

Mortgage Insurance Operations

Genworth continues to issue a significant amount of mortgage insurance in the United States.

The firm has been raising cash by selling some of its operations. In 2015, for example, the company sold a 14% stake in Genworth Australia for the equivalent of about $2.46 per share, in U.S. dollars.

In December 2019, Genworth completed selling control over its mortgage insurance business in Canada, Genworth MI Canada Inc., for about $1.8 billion to an arm of Brookfield Asset Management Inc.

Genworth is now preparing for the potential sale of a stake in its U.S. mortgage insurance to investors through an initial public offering of common stock.

Whether Genworth carries out the IPO will be “subject to market conditions as well as the satisfaction of various conditions and approvals,” Genworth says.

Life, Annuity and LTCI Operations

Genworth did not talk about the possible effects of the Genworth Australia deal on the U.S. life, annuity and LTCI business.

The company has repeatedly emphasized that it does not intend to inject additional cash into those operations, and that they must use their own earnings to finance their operations.

Genworth reported Friday, in an annual report filed with securities regulators, that the company’s U.S. risk-based capital ratio, or financial resources summary indicator, increased to 229% of the company action level, from 213% of the company action level a year earlier.

European Compliance Association

European Compliance Association

-