Genworth Financial Inc. (GNW) announced that it has gained approval for implementation of its U.S. Mortgage Insurance Capital Plan. The plan was previously announced in Jan 2013 to reduce the risk-to-capital ratio of the U.S. mortgage insurance subsidiary and the risk of a default under the indenture governing Genworth's senior notes, and was pending regulatory approval.
As per the plan, the European mortgage insurance subsidiaries’ ownership is transferred to that of Genworth Mortgage Insurance Corporation (:GMICO) effective Jan 31, 2013.
It also executes a legal entity reorganization which engages in the formation of a new parent company under which Genworth will become a wholly owned subsidiary and the existing shares and shareholders of Genworth will come under that of the 'new parent'. Also the U.S. and European subsidiaries will be converted to wholly owned subsidiaries of the new parent which will be listed under the New York stock Exchange under the symbol of GNW.
Additionally under adverse situations the capital plan provides Genworth with the ability to execute a 'New Co.' option which allows it to write profitable business consistently in all 50 states. The plan is expected to reduce the risk-to-capital ratio of GMICO and the U.S. mortgage insurance subsidiaries by approximately 15 and 10 points respectively.
Genworth is well supported by an estimated $950 million cash and liquid securities at the end of first quarter, 2013. Thus, in spite of paying $100 million to GMICO as per the deal, Genworth expects to have a high cash balance and an additional $350 million buffer.
The implementation of the plan is expected to augment the financial flexibility of Genworth and strengthen its capital position thereby enhancing the profitability of the business going forward.
Genworth currently carries a Zacks Rank #4 (Sell). Among others in the industry Lincoln National Corporation (LNC), StanCorp Financial Group Inc. (SFG) and Reinsurance Group of America Inc. (RGA) carry a favorable Zacks Rank #2 (Buy) and are worth noting.
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