Has Genworth Financial (GNW) discovered a solution to the tricky long-term care business?
On Monday, the Virginia-based insurance company announced the launch of the IncomeAssurance Immediate Need Annuity. The product is designed to help less-healthy seniors (70 or older) receive a guaranteed income stream which can be used for healthcare needs, but also for general needs.
The announcement comes a few weeks after the company released fourth-quarter losses of $0.59 a share and announced plans to suspend sales of its life insurance and fixed annuity products -- and isolate its long-term care (LTC) business.
Genworth's stock has fallen nearly 75% over the last year, and currently trades around $2 a share. Its credit rating was downgraded to BBB+ from A- earlier this month by A.M. Best, which cited concerns that Genworth was becoming concentrated in LTC, a segment the ratings agency called "the least creditworthy insurance products on the market." Similarly, Standard & Poor's Ratings Services recently downgraded the company two notches to BB from BBB-, citing the company's newly announced focus on "mortgage insurance and long-term care -- two businesses that have exhibited significant volatility historically," according to the ratings agency.
In an interview with Real Money, Genworth made it clear that its new annuity product is not a long-term-care replacement. That said, aspects of the design of the product could compete in that space.
The broader long-term-care industry has suffered in recent years as insurers found that the initial assumptions used when designing policies and premiums did not meet real life needs. Put simply, people are living longer and accessing more care for a longer period of time.
"LTC is a long-duration product, and movements in any number of assumptions can significantly impact performance over time," CFO Kelly Groh said in Genworth's earnings call earlier this month.
Despite headwinds in the LTC industry -- and the exit of other players -- Genworth remains committed to the business.
"We have always been in the top five, we remain in the top five. So we still do believe competitively we can sell long-term care," CEO Thomas McInerney said earlier this month.
Genworth believes that its newly announced annuity product could fill some of the needs in the market and that it may have fewer of the risks.
There is "no silver bullet in LTC funding," Debapriya Mitra, a senior vice president and product lease IncomeAssurance said in an interview with Real Money. Mitra later added that the design of the product allows it to be more "nimble" in future pricing.
Because the new product addresses customers who have an immediate need for income, some of the underwriting risk is mitigated. (Of course, these clients could see their health and financial conditions worsen, but the assessment was made when they were already in need versus when they were healthier and estimating their need.)
The product is a single-payment annuity, implying there will be no need for the insurers to raise rates on existing customers. Rate increases -- some of which were higher than 30% -- have hampered the broader long-term care industry.
"Experience emerges quickly, you're able to incorporate that experience into future pricing," Mitra noted.
While the new product could help Genworth with some of the risks in its product lines, analysts are still skeptical of the company's prospects, amid legacy issues such as its debt burden and its continuing long-term care business.
"Considerable uncertainty remains with respect to its plans to separate and isolate its long-term care unit. Long-term care reserve adequacy is dependent on securing large premium increases from regulators, which may be more difficult than management expects," Nigel Dally of Morgan Stanley wrote in a note Monday, in which the bank lowered its price target on Genworth to $2 from $4.
