Genworth Financial Down 37%; Compass Point Downgrades

Genworth Financial Inc (NYSE: GNW) shocked the market with a $531 million addition to its long-term care reserves Thursday and news that a similar review for its active life business won't be complete until after the fourth quarter.

"The market will shoot first and ask questions later," according to Compass Point's Ken Billingsley, who downgraded Genworth to Neutral.

“I owe you an apology," Chief Executive Thomas J. McInerney told investors on a conference call.

The damage could breath life into a proposal in May by activist investor John Paulson that Genworth split its mortgage insurance and life insurance businesses.

Genworth itself was spun out of General Electric's GE Capital in a 2004 public offering that raised $2.8 billion.

McInerney has said he wants to first improve the performance of each business, but Billingsley told Bloomberg last month that if reviews of the insurance lines proved “really bad, you could probably have people say, ‘why don't you split this up.'”

On Thursday, BIllingsley said investors now believe the company may need to raise capital to cover miscalculations in its long-term care segment.

Billingsly believes that's improbable, but "it's likely the company will trade at a discount to book value" in the near term."

BTIG's Mark Palmer said the added reserves and outlook for the current review are "disappointing" but Thursday's sell-off "more than reflects their actual impact."

Palmer maintained a Buy rating on Genworth but cut his target 27 percent to $16 a share.