Genworth Financial Inc. (GNW) announced a bold plan to reduce the risk of its U.S. mortgage insurance subsidiary facing a potential default or capital shortfall in the future.
Under the plan, the company would transfer ownership of Genworth's European mortgage insurance subsidiaries to its U.S. Mortgage Insurance Co. The strategy also creates a future option for Genworth to develop a new company to write mortgage insurance in all 50 states if an exigent circumstance were to derail its existing MI operations.
Furthermore, Genworth wants to restructure internally, creating a new holding company in which its U.S. mortgage insurance subsidiaries will not be covered by an indenture governing Genworth's senior notes.
Genworth also plans to contribute $100 million to GMICO.
The initiative, which still lacks regulatory approval, could slash the mortgage insurance unit's risk-to-capital ratio by 12 to 15 points.
"We are very pleased to announce a comprehensive plan for the U.S. mortgage insurance business which reduces linkages and dependencies with the holding company and increases our financial flexibility while bolstering capital in the business," said Martin Klein, chief financial officer.
"U.S. mortgage insurance is a key component of our Global Mortgage Insurance Division, and we believe implementation of this plan will increase shareholder value by continuing our ability to write profitable new business while at the same time reducing uncertainties related to our U.S. mortgage insurance subsidiaries."