Mortgage insurer Genworth Financial has reached an agreement with AXA to settle a dispute that relates to liability for payment protection insurance (PPI) mis-selling losses.
The losses concern mis-selling complaints for PPI underwritten by two companies that AXA acquired from Genworth in 2015, for policies sold from 1970 through 2004.
Although Genworth believes the policies were mis-sold by a third-party distributor, a recent court ruling has obligated Genworth to pay AXA for its losses.
Under the terms of the settlement, Genworth has agreed to pay AXA £100 million by July 23, 2020, in addition to a £100 million cash payment in January 2020 and expensed in the fourth quarter of 2019.
Furthermore, Genworth also has agreed to issue a secured promissory note to AXA, pursuant to which Genworth has agreed to make deferred cash payments totalling £317 million in two instalments, and to pay a significant portion of all future mis-selling losses incurred by AXA.
The note is secured by pledging 19.9% of the outstanding common shares in Genworth Mortgage Insurance Australia Limited and 19.9% of Genworth Mortgage Holdings, Inc., which is the parent company of the US mortgage insurance business.
The note will terminate upon the payment in full of all the obligations by the due dates, and Genworth has agreed to make certain mandatory prepayments in the event that it executes certain debt or equity transactions or receives subsidiary dividends from its mortgage insurance companies.
If AXA recovers amounts from third parties related to the mis-selling losses, Genworth has certain rights to share in those recoveries to recoup payments for the underlying mis-selling losses.
“The settlement removes uncertainty around the amount of the liability arising from the AXA litigation, defers our obligation to make the bulk of the payments to AXA and allows us to move forward with our plans to pursue alternatives to raise capital and meet our near-term liquidity needs, which includes our $1 billion in debt maturing in 2021,” said Tom McInerney, Genworth President and CEO.
“These alternatives include a potential debt offering, as well as the ability to prepare for a 19.9% IPO of our U.S. Mortgage Insurance business, subject to market conditions, should our pending transaction with China Oceanwide not close.”