Genworth Falls as JPMorgan Sees Reserve Hole Outlasting Review

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Genworth Financial Inc. fell in New York trading as JPMorgan Chase Co. cut its price target, citing a reserve shortfall at the insurer.

The stock declined 2.2% to $8.99 at 9:58 a.m. in New York, the biggest drop in the 21-company Standard Poors 500 Insurance Index.

Jimmy Bhullar, an analyst at JPMorgan, lowered his price target for Genworth shares to $11 from $18 today, citing a “cautious” outlook for the insurer’s main businesses such as mortgage guaranties and life coverage. Bhullar said Genworth may record costs of $200 million to $300 million to bolster reserves at its long-term care businesses in the current quarter, and that the company’s ultimate shortfall may be more than $2 billion.

“We feel that Genworth’s reserve hole is significantly larger than the upcoming charge,” Bhullar wrote. “Given the company’s limited disclosure on its in-force block, as well as significant management discretion in setting assumptions for reserve analysis, we consider projecting the charge with precision an exercise in futility.”

Genworth has tumbled about 42% this year as the insurer was forced to set aside more funds to cover claims on long-term care policies, which help pay for nursing home stays and home health aides. The insurer posted a third-quarter loss of $844 million last month amid higher-than-expected claims costs for the business.

Genworth is conducting another review of the business and has said it plans to announce preliminary results this month.

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