RICHMOND, Va., July 20, 2020 /PRNewswire/ -- Genworth Financial,
Inc. (NYSE: GNW) today announced that Genworth has reached an
agreement with AXA to settle the dispute between them relating to
liability for payment protection insurance (PPI) mis-selling losses
(English High Court claim number CL-2017-000795). Genworth and AXA
agreed to the settlement following the High Court's liability
judgment dated December 6, 2019 and
prior to the High Court issuing its judgment on
damages.
This case involves losses incurred from mis-selling complaints
for PPI underwritten by two companies that AXA acquired from
Genworth in 2015. The policies were sold from 1970 through 2004.
Although Genworth considers that the policies were mis-sold by a
third-party distributor, the court ruled that Genworth was
obligated to pay AXA for its losses, per the terms of the sale and
purchase agreement.
Under the terms of the settlement, Genworth has agreed to pay
AXA £100 million, or approximately $125
million, by July 23, 2020
(which amount is in addition to a £100 million interim cash payment
Genworth made to AXA in January 2020
and expensed in the fourth quarter of 2019). In addition, Genworth
also has agreed to issue a secured promissory note to AXA, pursuant
to which Genworth has agreed to make deferred cash payments
totaling approximately £317 million in two installments: the first
on June 30, 2022 and the second on
September 30, 2022; and to pay a
significant portion of all future mis-selling losses incurred by
AXA, to be invoiced quarterly by AXA.
The note is secured by pledging, as of the date of the note,
19.9 percent of the outstanding common shares in Genworth Mortgage
Insurance Australia Limited and 19.9 percent of the outstanding
common shares in Genworth Mortgage Holdings, Inc. (the parent
company of the U.S. mortgage insurance business). The note
will terminate upon the payment in full of all the obligations by
the due dates. Genworth also has agreed to make certain mandatory
prepayments in the event that it executes certain debt or equity
transactions or receives subsidiary dividends from its mortgage
insurance companies.
Under the terms of the settlement and the sale and purchase
agreement, if AXA recovers amounts from third parties related to
the mis-selling losses, including from the distributor responsible
for the sale of the policies, Genworth has certain rights to share
in those recoveries to recoup payments for the underlying
mis-selling losses.
AXA and Genworth have agreed not to enforce, pending
satisfaction of certain conditions, appeal or set aside the
liability judgment of December 6,
2019 and any judgment in respect of the quantum of AXA's
claim subject to a termination right of AXA if the note and related
security package is determined to be void and/or unenforceable.
Upon satisfaction of those conditions, namely payment of the £100
million (or approximately $125
million) initial installment and the execution by Genworth
and AXA of documents contemplated by the note to perfect the
security, those agreements not to enforce the judgments will become
permanent.
As noted above, Genworth previously paid an interim payment of
£100 million to AXA, which was expensed as a part of discontinued
operations in the fourth quarter of 2019. In connection with this
settlement, Genworth expects to incur an additional expense of
$516 million after-tax as a part of
discontinued operations in the second quarter of 2020. This
charge to discontinued operations is translated to U.S. dollars
using June 30, 2020 foreign currency
exchange rates and includes the £100 million to be paid by
July 23, 2020; the £317 million
secured promissory note; an estimate of £107 million for claimed
mis-selling losses that are still being processed; and fees and
expenses related to the litigation and settlement.
"The settlement removes uncertainty around the amount of the
liability arising from the AXA litigation, defers our obligation to
make the bulk of the payments to AXA and allows us to move forward
with our plans to pursue alternatives to raise capital and meet our
near-term liquidity needs, which includes our $1 billion in debt maturing in 2021," said
Tom McInerney, Genworth president
and CEO. "These alternatives include a potential debt
offering, as well as the ability to prepare for a 19.9% IPO of our
U.S. Mortgage Insurance business, subject to market conditions,
should our pending transaction with China Oceanwide not close."
About Genworth Financial
Genworth Financial, Inc.
(NYSE: GNW) is a Fortune 500 insurance holding company
committed to helping families achieve the dream of homeownership
and address the financial challenges of aging through its
leadership positions in mortgage insurance and long term care
insurance. Headquartered in Richmond, Virginia, Genworth traces its roots
back to 1871 and became a public company in 2004. For more
information, visit genworth.com.
From time to time, Genworth releases important information via
postings on its corporate website. Accordingly, investors and other
interested parties are encouraged to enroll to receive automatic
email alerts and Really Simple Syndication (RSS) feeds regarding
new postings. Enrollment information is found under the "Investors"
section of genworth.com. From time to time, Genworth's
publicly traded subsidiary, Genworth Mortgage Insurance Australia
Limited, separately releases financial and other information about
its operations. This information can be found at
http://www.genworth.com.au.
Cautionary Note Regarding Forward-Looking Statements
This communication includes certain statements that may constitute
"forward-looking statements" within the meaning of the federal
securities laws, including Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements may be
identified by words such as "expects," "intends," "anticipates,"
"plans," "believes," "seeks," "estimates," "will" or words of
similar meaning and include, but are not limited to, statements
regarding issuance by the High Court of its judgment with respect
to the quantum of damages, including the timing of such judgement,
conditions precedent to the full and final release of all claims in
connection with the allegations made in the lawsuit, the ability to
recover any amounts from third parties related to the mis-selling
losses, and incurrence of additional legal fees related to the
litigation. Forward-looking statements are based on management's
current expectations and assumptions, which are subject to inherent
uncertainties, risks and changes in circumstances that are
difficult to predict. Actual outcomes and results may differ
materially from those in the forward-looking statements and factors
that may cause such a difference include, but are not limited to,
risks and uncertainties related to: (i) potential adverse
reactions or changes to the pending transaction with China
Oceanwide, Genworth's business relationships with clients,
employees, suppliers or other parties or other business
uncertainties resulting from the announcement of the settlement,
including but not limited to such changes that could affect
Genworth's financial performance; (ii) further rating agency
actions and downgrades in Genworth's financial strength ratings;
(iii) changes in applicable laws or regulations;
(iv) Genworth's ability to recognize the anticipated benefits
of the settlement; (v) the amount of the costs, fees, expenses
and other charges related to the settlement; (vi) the risks
related to diverting management's attention from Genworth's ongoing
business operations; (vii) the impact of changes in interest
rates and political instability; and (viii) other risks and
uncertainties described in Genworth's Annual Report on
Form 10-K, filed with the SEC on February 27, 2020
and Genworth's Quarterly Report on Form 10-Q, filed with the SEC on
May 6, 2020. Unlisted factors may
present significant additional obstacles to the realization of
forward-looking statements. Consequences of material differences in
results as compared with those anticipated in the forward-looking
statements could include, among other things, business disruption,
operational problems, financial loss, legal liability to third
parties and similar risks, any of which could have a material
adverse effect on Genworth's consolidated financial condition,
results of operations, credit rating or liquidity. Accordingly, we
caution you against relying on any forward-looking statements.
Further, forward-looking statements should not be relied upon as
representing Genworth's views as of any subsequent date, and
Genworth does not undertake any obligation to update
forward-looking statements to reflect events or circumstances after
the date they were made, whether as a result of new information,
future events or otherwise, except as may be required under
applicable securities laws.
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SOURCE Genworth Financial, Inc.