Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of wealth management and financial solutions provider Genworth Financial spiked as much as 14% after announcing plans to separate its mortgage insurance business.
So what: The plan revolves around the company's primary insurance subsidiary, Genworth Mortgage Insurance Co., or GMICO, and is meant to reduce risk-to-capital by 12-15 points, decrease the likelihood of it needing any near-term cash, and allow it to continue to underwrite new business. The details include: transferring ownership of its European-owned insurance subsidiaries to GMICO, forming a "NewCo." type company if conditions arise in order to write new business, and implementing a legal entity reorganization ultimately freeing GMICO from being covered by the indenture that covers the company's senior notes.
Now what: This is definitely a step in the right direction for Genworth in terms of cleaning up its operations, but it still has a long way to go. Relative to valuation, at just seven times forward earnings, it could have more room to run, but I'd much prefer to wait until the latest round of earnings to hear what CEO Kevin Schneider has to say about the growth prospects for Genworth and the sector as a whole.
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The article Why Genworth Financial Shares Spiked originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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