The Genworth Scare: What to do When Your Life Insurance Company Suspends Sales

Genworth just announced that as of March 7, it will suspend the sale of its traditional life and fixed annuity products. Here is the reason why, as explained in its PR notice:

Genworth has decided to direct its efforts exclusively on the market opportunity that provides the most potential for profitable growth and takes the greatest advantage of our expertise, long term care insurance experience, and competitive strength: providing solutions that address the financial challenges of aging.

Basically, it wants to concentrate on the sale of long-term care insurance. Of course, there is always more to the story. Here is background material from ALIRT Insurance Research:

Genworth Financial Inc. (GNW) released its fourth quarter 2015 GAAP financial results on Thursday, February 4, 2016. The key items from the news release are as follows:  GNW incurred a GAAP net after-tax loss of $292 million, and a net after-tax operating loss of $82 million, in the fourth quarter 2015.  The principal drivers of the 4th quarter GAAP loss were higher universal life insurance reserves (which led to individual life operating losses), as well as losses related to the sale of the group’s lifestyle protection insurance business and the pending sale of its European mortgage insurance business.  These losses were partially offset by earnings from mortgage insurance (U.S., Canadian, and Australian), fixed annuities, and long-term care insurance.

Okay. So they were losing money in the life insurance marketplace, and had some losses in other areas as well. Fair enough. Every business needs to regroup and focus on its strengths to remain profitable.

But what does this all mean for you and me? Even though a reorganization may be business as usual in the corporate world, it’s disconcerting to have a company close its doors. We would all much rather see it bounce back and turn things around. Turning a product line from a money-loser into a money- maker would be heroic. And a sign of a commitment to the life insurance business.

Now, I am no expert in corporate finance. As best as I can, I tried to see how the moving and shaking that take place on the macro-level affect the bottom line for myself, my clients, and my future clients. Here is what I have so far:

No need to abandon ship.

As a broker, I am still confident I’ll get paid any and all commissions due me. That is an important consideration. If the sales force of a company felt they wouldn’t get paid, they would abandon ship. The ship would then sink very quickly. (I recall that in the early 1990s, many brokers and agents abandoned Mutual Benefit when it started having trouble. It’s demise was greatly accelerated.)

Business as usual.

I am also confident that both brokers and policyholders will receive customer service as usual. Premium payments processing, beneficiary changes, policy status, and in-force reporting should all run smoothly. Guaranteed benefits should be OK. Even in the worst of times, the widows and orphans still get paid. Cash values still get guaranteed. When Mutual Benefit went under, other companies stepped in to pick up their obligations. This Genworth situation does not appear to be nearly as drastic. So there is no reason for people with policies that guarantee the death benefit and cash value to be concerned, at this point.

A question about non-guaranteed values.

However, I think concerns could legitimately be raised about the non-guaranteed values in the life insurance contracts. Will the dividends in whole life insurance be reduced? Will the scheduled interest rates in universal life be lowered? How high will the premiums be increased when the guarantee periods of term policies expire? I think it is perfectly reasonable for people who may be facing problems in these areas to shop out their coverage now. Better to head off any complications at the pass.

Feeling comfortable with your carrier.

To tell you the truth, I couldn’t blame somebody who was concerned only about guarantees for shopping out their policy as well. Even though there is no reason to believe anything will change, it is still okay to feel a little insecure. I certainly wouldn’t advise someone to switch to another company that charged them more, or gave them less benefit for their dollar – that would be too extreme. But a lateral change just to feel more comfortable with the carrier would be appropriate, in my opinion.

I was with Equitable a 1991 when they came across very hard times, and had to demutualize. But that move was to reestablish their position in the life insurance marketplace. They needed it to get stronger. That does not seem to be the case here with Genworth.

As time goes on, I intend to learn more about the impact of major carriers suspending sales, and how to anticipate trouble coming. But until I get that crystal ball, we will use our brains and follow our guts.

Please feel free to comment, or to contact me directly with a specific question.

If you need a quote now, or a second opinion on a quote you have received, the best thing to do is to call me toll-free at (866) 633-1818. Or email me at skobrin@stevenkobrin.com.

I also encourage you to download my free Life Insurance Guide – see the above tab. Many people have found it to be extremely educational.

 

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