Genworth Takes Steps to Isolate Mortgage Insurance Business

Genworth Financial Inc said it would take steps to distance itself from its troubled mortgage insurance business, following investor demands to spin off the unit, sending its shares up 11 percent.

Genworth's shareholders -- including hedge fund Highfields Capital Management -- had been asking the company to consider options for the unit, or take other steps to insulate itself from the loss-making business.

Bond rating firm Moody's piled on the pressure in September when it said it would likely downgrade Genworth unless the company could protect itself from continuing losses from its mortgage insurance (MI) unit.

Genworth's new plan, disclosed a month after it named former ING executive Thomas McInerney as chief executive, transfers the ownership of the company's European MI subsidiaries to the U.S. MI unit.

The European units will provide about $200 million in additional statutory capital to the U.S. mortgage business.

Genworth will contribute $100 million to the U.S. unit by the second quarter of 2013.

"Overall this is great, it addresses rating agency concerns, improves risk-to-capital and creates structure for future financial flexibility," said a Genworth shareholder who declined to be named.

Shares of Genworth, which have risen about 37 percent since reporting a third-quarter profit in October, were up 11 percent at $9.06 on Wednesday morning on the New York Stock Exchange.

Under its reorganization plan, the insurer will create a new holding company, which will own Genworth and the U.S. and European MI units.

Genworth, which will remain responsible for its senior and subordinated bonds, also removed the U.S. MI unit from the indentures governing its notes, reducing chances that the unit could start a default on its debt.

The new parent company, will also be called Genworth Financial Inc, and will trade under the existing symbol 'GNW.'