Genworth Prepares to Start Mortgage Insurance Unit Offering

Genworth Financial Inc. is about to start selling 18.4% of the shares of a big mortgage insurance subsidiary to the investors, through an initial public offering.

The mortgage insurance subsidiary has changed its name to Enact Holdings Inc., from Genworth Mortgage Holdings Inc. Shares of Enact’s stock will trade on the Nasdaq Global Select Market under the ticker symbol “ACT.”

Genworth is selling 22.6 million shares of Enact’s common stock to public investors through a subsidiary, Genworth Holdings Inc. If the offering goes well, Genworth will also sell 3.4 million shares to the IPO underwriters at the original IPO price, according to deal filings.

The company expects to sell the Enact shares for $20 to $24 apiece and raise a total of $623 million.

Genworth also has arranged to sell another 4 million shares to Bayview Asset Management LLC, an investment manager, through a private sale made at the IPO price.

Forms it needs to start the offering have already been filed, Genworth said. The IPO will begin as soon as the registration statement filed with the SEC becomes effective.

The Reasoning

Genworth is a Richmond, Virginia-based company that has struggled for years because of the effects of low interest rates and inaccurate policyholder behavior assumptions on its long-term care insurance (LTCI) business.

In the short term, Genworth intends to use about half of the IPO proceeds to pay costs related to a legal settlement negotiated with AXA S.A., in connection with payment protection insurance mis-selling losses at two companies AXA acquired from Genworth in 2015.

In the long run, the IPO also could raise cash for Genworth to use for other purposes.

Some analysts are saying that separating Enact from Genworth could help increase awareness of the mortgage insurance firm, improve itscredit ratings, and help Enact send more cash to the parent company.

Enact Details

Enact, which has headquarters in Raleigh, North Carolina. About 57% of its 525 employees work out of Raleigh, according to the deal prospectus.

Here are some of the people on Enact’s list of executive officers and directors:

  • Rohit Gupta, who has been the Genworth Mortgage CEO since 2013, will  be Enact’s CEO.
  • Dominic Addesso, the former CEO of Everest Re Group Ltd., will be the Enact chairperson.
  • Tom McInerney, Genworth Financial’s CEO, will be an Enact director.
  • Westley Thompson, the CEO of M Financial Group, a financial services distributor, will also be a director.

Enact reported $370 million in net income on 2020 on $1.1 billion in revenue, in spite of the effects of the COVID-19 pandemic on the economy. It accounted for about one-eighth of Genworth Financial’s 2020 revenue.

U.S. COVID-19 response efforts seem to have reduced the likely impact of the pandemic on the U.S. mortgage insurance default rate, Enact stated.

“Given that mortgage insurance claims are not paid until after foreclosure proceedings conclude, resumption of payments by borrowers would reduce our actual loss exposure,” Enact said.

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