Life and mortgage insurer Genworth Financial disclosed Monday that it had failed to spot a $44 million after-tax calculation error because of a “material weakness” in its accounting controls.
The error was connected to a review of long-term care reserves completed in the third quarter of 2014, the company said in a 10-K regulatory filing, and did not result in a material misstatement in its consolidated financial statements.
“We have concluded a material weakness exists in the controls over the implementation of our long-term care insurance claim reserves assumption and methodology changes because such a misstatement could have occurred,” the filing said. “We are currently working to remediate the material weakness.”
Genworth cautioned, however, that “We cannot be sure when we will successfully remediate the material weakness or whether compensating controls will be effective before then in preventing or detecting material errors. The remediation may require substantial time and resources to successfully implement.”
According to Bloomberg, the disclosure “adds to challenges for Chief Executive Officer Tom McInerney after the company was stripped of its investment-grade credit rating and shares dropped by half in the 12 months through Friday.”
Genworth has posted two straight quarterly losses and an Australia mortgage insurance unit, which it had highlighted as a strong performer, had its outlook cut to negative by Moody’s Investors Service on Feb. 20 after announcing the end of a deal with Westpac Banking Corp.
A day after issuing its last earnings report, Genworth CFO Marty Klein told investors that the company was assessing its accounting to determine whether there were shortcomings and planned to announce the results in the 10-K.
Long-term care coverage helps pay for home-health aides and nursing home stays. Some customers pay premiums for decades before the insurer knows if it will incur claims costs. Accounting for the policies involves periodically reevaluating the percentage of policyholders who submit claims and the cost per person.
Genworth stock was down about 5.5% at $7.33 in trading Monday.