Genworth Settles Class-Action Lawsuit for $219 Million, Calls Allegations ‘Without Merit’
March 14, 2016 by Dennis Gorski, managing editor-online, BestWeek: Dennis.Gorski@ambest.com
RICHMOND, Va. – Genworth Financial has agreed to settle claims of alleged securities law violations for $219 million ahead of a scheduled May 9 trial in the U.S. District Court for the Eastern District of Virginia.
The insurer said although the claims “are without merit,” it is “settling the lawsuit to avoid the burden, risk and expense of further litigation,” according to a statement.
The lawsuit named Genworth, current President and Chief Executive Officer Thomas McInerney, and former Chief Financial Officer Martin Klein as defendants. As part of the settlement, all claims made in the lawsuit against the company and the two executives will be dropped, Genworth noted.
The class-action lawsuit was filed about two years ago by co-plaintiffs Alberta Investment Management Corp., a Canadian financial services firm, and Fresno County (California) Employees’ Retirement Association, according to an AIMCo statement. Their filing alleged “Genworth and several executives made false and misleading statements about Genworth’s long-term care insurance business between Oct. 30, 2013 and Nov. 5, 2014,” according to a statement from Bleichmar Fonti & Auld LLP, which represented AIMCo.
“During this period, Genworth assured investors it had conducted a deep and thorough review of the reserves it had set aside to cover long-term care claims, and that the reserves were adequate,” the firm said.
But on Nov. 5, McInerney disclosed a review of claim reserves for Genworth’s long-term care business resulted in an increase of $531 million to claim reserves and a charge to earnings of $345 million after tax (Best’s News Service, Nov. 7, 2014). The net loss also reflected completion of its annual goodwill impairment analysis, which resulted in impairments of $517 million after tax in its U.S. life and long-term care insurance businesses, he said.
The disclosure caused AIMCo and Fresno’s investments to drop substantially, the law firm claimed. “This settlement marks the largest securities class-action recovery ever achieved in that (Eastern District of Virginia) jurisdiction,” the law firm added.
The settlement agreement includes all plaintiffs’ attorneys fees, expenses and settlement costs, and was reached through voluntary mediation, Genworth said. In all, $150 million will be paid by Genworth’s insurance carriers, and $69 million pretax will be paid by the company, according to an email from Genworth spokeswoman Julie Westermann to Best’s News Service. “The $69 million payment will be funded from existing company liquidity,” she said.
Genworth’s payment is expected to be made into an escrow account during the current quarter, Westermann added. Genworth said it expects to incur additional legal fees and accruals of about $10 million pretax in the current quarter.
The case was first filed on Dec. 14, 2014, court documents showed.
Genworth recently announced it was suspending further sales of its life and annuity product sales, to focus on its profitable mortgage insurance and long-term care lines. “We have always been in the top five players (of LTC sales) and we remain in the top five players,” McInerney said in making the announcement. “So we still do believe competitively we can sell long-term care” (Best’s News Service, Feb. 5, 2016).
A.M. Best commented at the time the move, “if completely executed,” means Genworth “will become even more heavily concentrated in long-term care business, which A.M. Best views as one of the least creditworthy insurance products in the market presently.”
Operating units of Genworth Financial have a Best’s Financial Strength Rating of B++ (Good).
In afternoon trading March 14, shares of Genworth (NYSE: GNW) were $2.92, up 4.1% from their previous close.
