(Bloomberg) -- Genworth Financial Inc. slashed Chief Executive Officer Tom McInerney’s compensation by 78 percent after higher-than-expected costs from long-term care insurance fueled a record $1.2 billion annual loss and a stock plunge.
His pay for 2014 dropped to $2.7 million from $12 million in 2013, his first year on the job, the Richmond, Virginia-based insurer said Thursday in a regulatory filing. The CEO received no bonus or options, compared with a $3 million incentive and $7.1 million in options a year earlier, when the stock doubled.
Genworth stock fell 45 percent last year. Analysts at Jefferies Group LLC, Macquarie Group Ltd. and BTIG LLC have all said that Genworth’s credibility has been eroded by management’s shifting view about insurance liabilities.
“Our overall financial performance in 2014 was significantly below expectations,” the firm said in the filing. “We ended the year without meeting our targeted results for our three top financial metrics: net operating income, operating return on equity and generation of dividends to the holding company from our operating businesses.”
McInerney told investors in late 2013 that Genworth had adequate reserves for long-term care coverage. Then the company said in July that it was examining whether it had set aside enough funds to cover policies sold in prior years. That review led to a record third-quarter loss and a subsequent evaluation helped wipe out fourth-quarter profit. The company said March 2 that there was a material weakness in its accounting.
“Genworth’s long-term care business is likely to exhibit volatility going forward due to the limited credibility of claims data,” ratings firm A.M. Best said Feb. 13 as it downgraded Genworth’s credit grade.
Long-term care insurance helps pay for nursing-home stays and health aides. MetLife Inc., Prudential Financial Inc. and Unum Group are among rivals that retreated from the coverage after being burned by higher-than-expected claims costs and low returns on bonds that can be held for decades to back obligations.
--With assistance from Zachary Tracer in New York.
