We sat in on a meeting with the Genworth Financial’s Long Term Care Insurance President Buck Stinson yesterday. The meeting gave us confidence in the insurance industry as a whole when he said that Genworth, along with the other major carriers, have re-configured their actuarial assumptions and pricing to accommodate for a low interest rate environment for the next 50 years.
The Federal Reserve’s currently has in place Quantitative Easing or QE to infinity which is the method of artificially keeping interest rates low to try and stimulate the economy for an indefinite future. The insurance companies have responded by assuming a 4% interest rate environment for the next 50 years when pricing current and future products. This tells me that this ultra conservative approach will lead to stable financials for these companies down the road.
If interest rates average more than 4% over the next 50 years, which most financial experts say they will, our opinion is this will lead to a highly profitable industry and thus stability to client’s insurance policies.
On another short term note, Standard & Poor’s Ratings Services today has cut the Genworth Financial credit rating one notch, to BBB minus, from BBB.
The company rating agency cut the insurance financial strength rating it has assigned to Genworth Life Insurance Company’s and Genworth’s core U.S. life operations to A minus, from A.
S&P attributed the rating cut because of:
- concerns about the weakness of the global economy,
- the challenges facing Genworth’s mortgage insurance operations,
- and Genworth’s decision to let two 5-year credit facilities expire rather than trying to renew the credit facilities.
The mortgage insurance industry has been an albatross on the neck of the company but in my opinion after following the companies financials closely over the past four years, is once they shed that bad book of business and focus on core life products they will turn the ship around in a major way. Tightening the ship like we mentioned in the beginning of this blog with the conservative future interest rate assumptions, will bode well for the company long-term we feel.
More on Genworth’s ratings found here: http://www.lifehealthpro.com/2012/10/11/sp-cuts-genworth-life-unit-rating