FMCC Federal Home Loan Mortgage Corporation (QB)

Genworth Financial Inc.'s proposed buyout by a Chinese conglomerate drew skepticism in the market that the deal would get done, even as some state regulators are privately embracing the possible acquisition, according to people familiar with the matter.

Richmond, Va.-based insurer Genworth has struggled under mounting costs of older long-term-care policies, which have generous provisions for paying nursing homes, other facilities and personal aides for older people. Separate to the deal, Genworth on Sunday announced the latest in a series of charges to bolster reserves, with regulators viewing the acquisition as a potential lifeline for the firm.

In addition to agreeing to be acquired for $2.7 billion, Genworth also will receive a cash injection of $1.1 billion as part of the deal.

Executives of Genworth, which also sells mortgage insurance, and its acquirer, China Oceanwide Holdings Group Co., began meeting with insurance regulators several months ago to discuss ways to structure a deal to improve odds of approval, according to Genworth's chief executive and the people familiar with the matter.

Some of those regulators, who would have to contend with a firm failure, should it ever occur, believe the deal would be a good solution for Genworth, according to people familiar with their thinking.

China Oceanwide "has been working very closely with the regulators and providing the kind of financial information they want," Genworth CEO Thomas McInerney said in an interview. "I think we've done a good job in talking with [regulators], understanding their concerns and issues, and we've tried to structure the deal" to address those matters.

There is no certainty the deal will be approved; representatives of some state insurance departments where China Oceanwide must win approval declined to comment Monday. A spokesman for Virginia's regulator confirmed it had been in touch with Genworth, but declined to comment further.

A person familiar with the matter confirmed that China Oceanwide has made efforts to help state regulators understand the firm and its suitability as an acquirer of Genworth, putting its application for control on good footing. Regulators in Delaware, New York, North Carolina and Virginia, as well as in Australia, Canada, China, Mexico and officials at mortgage-finance companies Fannie Mae and Freddie Mac must sign off on the transaction for it to be completed. In addition, the transaction must be reviewed by the Committee on Foreign Investment in the U.S. and similar foreign investment review boards elsewhere.

The regulatory review process is expected to take several months.

Despite the assurances, Genworth's shares fell more than 10% at one point Monday, indicating some investors don't think the deal will be completed. They finished the day's trading down 8.1% at $4.79, below the proposed deal price of $5.43 a share.

Analysts at CreditSights cited "significant concerns that regulators may not authorize the deal." Other analysts provided some skepticism, noting the inability of Anbang Insurance Group Co. to obtain approval for a $1.6 billion acquisition announced in November 2015 for Fidelity & Guaranty Life.

Two people in the regulatory community, who declined to be named, said the deals aren't comparable. They said Anbang hadn't provided detailed financial information sought by New York's Department of Financial Services about Anbang's ownership structure, with a reticence that appears unique to Anbang.

Anbang withdrew its deal application in New York in May, two people said.

Mr. McInerney called the China Oceanwide deal the best option to emerge from Genworth's two-year review of strategies stemming from its woes with long-term-care insurance.

Genworth and other long-term-care insurers have acknowledged underpricing their older policies, with miscalculations on the number of claims to ultimately be filed and many other items. The business also has been hurt by continued ultralow interest rates, as insurers invest premiums paid by customers until claims come due. Losses on the policies have totaled more than $2 billion over the years, according to Genworth.

There is no guarantee under the pact that China Oceanwide would add more capital than announced in the deal if reserves prove short in the future.

In February, S&P Global Ratings downgraded Genworth's life-insurance units to below investment grade, citing reduced profitability and other factors.

Genworth and China Oceanwide began talking nine months ago, Mr. McInerney said, and reached out to regulators in the U.S. and abroad.

Howard Mills, leader of the global insurance regulatory practice at Deloitte LLP and a former New York insurance commissioner, said deal approvals can get a lift if the insurer being acquired has financial woes.

Speaking generally, he said regulators can conclude that "improving the financial strength of a company serves consumers."

Write to Leslie Scism at leslie.scism@wsj.com

(END) Dow Jones Newswires

October 25, 2016 00:45 ET (04:45 GMT)

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