Genworth Financial (NYSE:GNW) is a company that again provides an incredible margin of safety. It is an insurer of both mortgages and provides long-term care and life insurance policies. The company trades at a highly compressed valuation, and it is because its long-term care insurance business issued policies at very uneconomical rates for many years, which has created a substantial policy liability for the company. While it is true that this business isn’t great, with clear anchors of value for the other parts of the business including the mortgage insurance business which has gone through a minority IPO (trading also as Enact Holdings (ACT) on the NASDAQ) and the substantial non-operating loss tax assets on the books, we see that on a sum-of-the-parts basis the health and life insurance part of Genworth’s business has been given a negative value. Since investments still cover liabilities for the life and health insurance business, and we know this from being able to deconsolidate the separately trading Enact Holdings from the books, that negative value makes no sense. This is essentially a no-brainer buy.
Sum of the Parts
The Genworth Financial thesis is ultimately a sum-of-the-parts logic that can be easily followed. There are three elements to the business. The mortgage insurance business, which went through a minority IPO meaning Genworth still owns 81% of the shares (and therefore their results are still consolidated into Genworth’s), the tax assets that arise from a tax sharing agreement among the constituent subsidiaries of Genworth’s business and can now be realized thanks to their profitability, and finally the wart on the company’s face which is the life and health insurance business.
Life Insurance Segment
The life insurance segment as a whole isn’t such a problem, the issue is the long-term