Genworth Goes On $1 Bilion Acquisition Hunt

Global insurance and retirement planning specialist Genworth Financial is targeting $1 billion or more of acquisitions in an effort to beef up areas of its portfolio where it believes it is underweight.

Presenting a strategic update to analysts and shareholders on May 18, Michael Fraizer, chairman and chief executive of Genworth, said the firm’s priority was to use any excess capital to buy small or medium-sized companies that fit with its existing book and help it increase market share quickly.

“Our strategy is to penetrate [the market] early in a smart and agile fashion,” Fraizer told investors at the conference. “Looking at acquisitions, we are focused both on those that add strategic capabilities and reach, as well as on blocks of business. Depending on the availability of attractive transactions, we are targeting a billion dollars plus of potential bolt-on acquisitions in 2006.”

If no suitable targets are available, Genworth will use its excess capital to buy back its own common stock. It has already spent $479 million of the $750 million that shareholders authorised in December buying General Electric’s 18% share in the company.

One analyst, who wished to remain anonymous, says the firm has more than enough capital at its disposal for strategic acquisitions. Genworth ended 2005 with about $1.7 billion in excess capital, and predicts statutory earnings of about $1.1 billion this year. The company has also entered talks with insurance regulators in North Carolina, who believe the company’s mortgage insurance reserves are between $600 million and $800 million more than necessary. It expects to be able to claw back this capital over the next three to four years.

Another analyst adds that Genworth will not struggle to integrate any new units, despite having acquired Brentwood, Tennessee-based Medicare supplement insurer Continental Life Insurance Company on May 1 for $145 million. “Whether or not it has the capacity to integrate different acquisitions is not a concern,” he says.

Genworth has made no secret of its desire to grow its long-term care insurance and income annuities business. It plans to do this by securing a stronger foothold in markets including Japan – the second-largest mortgage market in the world behind the U.S. – and Mexico. It wants operations in at least 30 countries by the end of 2010, six more than it operates in now.

The company is targeting returns on equity of 12% through to 2008.