Alberta Investment Management Corp. has negotiated a $219-million (U.S.) settlement in a class-action lawsuit filed against Genworth Financial Inc., alleging the insurer lied to investors in 2013 about the state of its long-term-care insurance business.
AIMCo, which bought 1.22 million shares of Genworth in 2013 and 2014, was the lead plaintiff in the lawsuit along with the Fresno County Employees' Retirement Association, which owned 198,000 shares. The investors said Monday they have negotiated an "agreement in principle" to settle the case with the Virginia-based company before the case went to trial on May 9.
"This excellent result, after intense litigation and only two months before trial, demonstrates AIMCo's resolve to vindicate the rights of investors," AIMCo chief executive officer Kevin Uebelein said in a statement Monday.
"As a leader in the investment community, AIMCo is committed to ensuring the integrity of the markets and taking decisive action when warranted."
AIMCo spokesman Dénes Németh said investors have not finalized how the $219-million settlement will be divided. He said a claims administrator must process tens of thousands of shareholder claims to calculate each investor's recovery based on a plan of allocation that has been developed.
Mr. Németh said he could not disclose what AIMCo paid for its shares, but said the pension fund manager no longer owns them.
The investor group alleged that Genworth CEO Tom McInerney and chief financial officer Marty Klein told shareholders repeatedly in late 2013 that management had conducted a four-month "intense, very broad and deep review" of all aspects of Genworth's long-term-care business using data as of Sept. 30, 2013.
The results of the review, reported at an investor conference on Dec. 4, 2013, concluded the company had adequate reserves set aside to fund future benefits payable on the policies it had sold.
A statement of claim filed in the case said investors were watching the long-term-care business closely because many other insurers had already exited the market after it became highly unprofitable. Long-term-care insurance covers costs for home care or nursing home care.
On the day of the investor presentation outlining the review's findings in December, 2013, Genworth shares climbed to $15.25, nearly their highest price in 40 months, the lawsuit said. The following day, Genworth raised $400-million through a debt offering.
However, the statement of claim alleged that the "truth began to emerge" in July, 2014, when Genworth reported "dismal" financial results for the second quarter of 2014, driven by poor performance in its long-term-care business.
The lawsuit alleges Mr. Klein admitted that the company's last in-depth review of its disabled life reserves occurred in mid-2012, not in 2013, and had used data from 2010, rather than current data from 2013.
The company's shares fell 20 per cent after the news was reported. The company also again said it would undertake a review of its long-term-care disabled life reserves.
The results of that review, reported in November, 2014, disclosed that Genworth was under-reserved by $531-million. The news sent Genworth's stock down by 38 per cent on Nov. 6, 2014, which was the largest single-day price decline in its history, wiping out $2.7-billion of the company's market value, the lawsuit said.
The lawsuit alleged management misled investors about Genworth's financial health in 2013 and did not disclose that management knew at the time that the costs of claims for long-term care had dramatically increased.
"Rather than use current data and increase reserves to reflect actual experience, defendants continued to use old data from 2010 and earlier, without disclosing true facts to investors," the lawsuit alleged.
The company's shares, which hit a high of $18.60 in May, 2014, were trading at $2.91 on Monday.
Genworth issued a statement Friday saying the lawsuit's claims "are without merit," but said it has agreed to settle the lawsuit "to avoid the burden, risk and expense of further litigation."
The company said $150-million of the settlement will be paid by its insurers and the remaining $69-million will be paid by the company.
The settlement deal still requires court approval.
Janet McFarland