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A.M. Best Affirms Ratings of Genworth Financial, Inc. and Its Key Life/Health Subsidiaries; Maintains Negative Outlook

Monday, May 7, 2012 4:17 PM


A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and issuer credit ratings (ICR) of “a” of Genworth Life Insurance Company (Wilmington, DE), Genworth Life Insurance Company of New York (New York, NY) and Genworth Life and Annuity Insurance Company (Richmond, VA), the key life/health subsidiaries of Genworth Financial, Inc. (Genworth) [NYSE:GNW]. Additionally, A.M. Best has affirmed the ICR of “bbb” of Genworth and all of its existing debt ratings. The outlook for all ratings is negative. (Please see below for a detailed listing of the debt ratings.)

The ratings acknowledge Genworth’s recent stabilization in consolidated GAAP operating performance in the past two years and growth within its life segment. Genworth continues to benefit from solid market positions in long-term care, fixed annuities, life and wealth management. In addition, Genworth maintains favorable operating company liquidity and adequate risk-adjusted capital. The sale of less capital-intensive products, strategic product hedging, ongoing strengthening of the credit quality in the investment portfolio and its core statutory operating earnings are viewed favorably by A.M. Best.

Financial leverage at the holding company is viewed as manageable, while interest coverage remains below A.M. Best’s guidelines. A.M. Best believes this is mitigated by healthy liquidity maintained at Genworth and the historic dividend capacity of its international operations. While holding company liquidity remains solid, A.M. Best notes that the recently postponed partial initial public offering of the Australian mortgage insurance business, slowing sales in the international lifestyle protection business and ongoing U.S. mortgage losses increases the risk of potential capital calls on the holding company, which could put a strain on the life/health operations.

Genworth’s operating profile has changed markedly in the past year—exiting the individual and group variable annuity business and selling the Medicare supplement business—and therefore its life/health business is now somewhat less diverse. Genworth’s significant inforce block of long-term care creates the potential for continued earnings drag, despite recent price increases. The U.S. mortgage insurance business also has continued to record sizeable losses—albeit lower than the prior year—and remains a key driver of the negative outlook on the group’s ratings.

Factors that could drive a change in Genworth’s outlook to stable include improved operating results across all lines of business, improved interest coverage and maintenance of current risk-adjusted capital levels. Factors that could lead to a downgrading of the ratings include poor operating results, greater use of financial leverage, deterioration in coverage ratios, increased credit impairments and a weakening of risk-adjusted capital.

      The following debt ratings have been affirmed:
 
Genworth Financial, Inc. —
-- AMB-2 on commercial paper
 
Genworth Financial, Inc.—
-- “bbb” on $350 million 5.65% senior unsecured notes, due 2012
-- “bbb” on $600 million 5.75% senior unsecured notes, due 2014
-- “bbb” on $350 million 4.95% senior unsecured notes, due 2015
-- “bbb” on $300 million 8.625% senior unsecured notes, due 2016
-- “bbb” on $600 million 6.515% senior unsecured notes, due 2018
-- “bbb” on $400 million 7.70% senior unsecured notes, due 2020
-- “bbb” on $400 million 7.20% senior unsecured notes, due 2021
-- “bbb” on $750 million 7.625% senior unsecured notes, due 2021
-- “bbb” on $300 million 6.50% senior unsecured notes, due 2034
-- “bb+” on $600 million fixed/floating rate junior subordinated notes, due 2066
 
Genworth Global Funding Trusts—“a” program rating
-- “a” on all outstanding notes issued under the program
 
Genworth Life Institutional Funding Trust—“a” program rating
-- “a” on all outstanding notes issued under the program
 
The following indicative ratings on securities available under shelf registration have been affirmed:
 
Genworth Financial, Inc.—
--“bbb” on senior unsecured debt
--“bbb-”on subordinated debt
--“bb+” on preferred stock

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Life/Health Insurers”; and “Rating Members of Insurance Groups.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

(Source: Business Wire )
(Source: Quotemedia)

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