Genworth agrees to pay AXA over $500m in mis-selling settlement

US-based insurance holding company Genworth Financial has reached an agreement with re/insurer AXA to settle the dispute relating to liability for payment protection insurance (PPI) mis-selling losses.

Under the terms of the settlement, Genworth has agreed to pay AXA £100 million (approximately $125 million) by July 23, 2020, in addition to a £100 million interim cash payment Genworth made to AXA in January 2020.

Additionally, Genworth will issue a secured promissory note to AXA to make deferred cash payments totaling approximately £317 million in two installments, the first on June 30, 2022 and the second on September 30, 2022; and to pay a significant portion of all future mis-selling losses incurred by AXA, to be invoiced quarterly by AXA.

Overall, Genworth expects to incur an additional expense of $516 million after-tax as a part of discontinued operations in the second quarter of 2020. This includes the £100 million to be paid by July 23, 2020; the £317 million secured promissory note; an estimate of £107 million for claimed mis-selling losses that are still being processed; and fees and expenses related to the litigation and settlement.

The two companies have agreed to the settlement following the High Court's liability judgment dated December 6, 2019 and prior to the High Court issuing its judgment on damages.

The case involves losses incurred from mis-selling complaints for PPI underwritten by two companies that AXA acquired from Genworth in 2015. The policies were sold from 1970 through 2004. Although Genworth maintains that the policies were mis-sold by a third-party distributor, the court ruled that Genworth was obligated to pay AXA for its losses, per the terms of the sale and purchase agreement.

Tom McInerney, Genworth president and CEO, said: "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."

McInerney added: "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."