Note: On November 2, 2012, corrected the EU Endorsement disclosure in the Regulatory Disclosures section. Added the following disclosure as the third paragraph of the Regulatory Disclosures section: Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody’s Investors Service information. Revised release as follows:
$4.3 billion of debt affected
New York, June 27, 2012 -- Moody's Investors Service has placed the debt ratings of Genworth Financial,
Inc. ("Genworth"; NYSE: GNW, senior debt at Baa3)
and the insurance financial strength (IFS) ratings of its US Mortgage
Insurance (MI) operating companies on review for downgrade. In
the same rating action, Moody's downgraded the IFS ratings
of Genworth's primary life insurance operating subsidiaries to A3
from A2 with a stable outlook. A complete list of affected ratings
is given below. Moody's ratings on Genworth Financial Mortgage
Insurance Pty Limited (Genworth Australia, IFS at A1) and Genworth
Financial Mortgage Indemnity Limited (Genworth Indemnity, IFS at
A2) are unaffected by the rating action and remain on review for downgrade.
RATINGS RATIONALE
US Life Operations
Commenting on the downgrade of the IFS rating of the US life operations,
Moody's Senior Vice President Scott Robinson said, "Although
Genworth Life Insurance Company (primary US life operating company of
Genworth) remains well capitalized (NAIC Risk Based Capital (RBC) ratio
of 425% as of Q1 2012) and has a leading market position in long
term care (LTC) insurance and a strong position in term insurance,
we view it as having a weaker credit profile when compared with some of
its similarly rated peers." Regarding its business profile,
the company's solid brand and broad product suite is somewhat offset
by the company's lack of "lower risk" type products and concentrated position
in long-term care, which Moody's considers to be a "higher
risk" product. Related to its financial profile, the rating
agency said the company's profitability, although improving,
remains low compared to peers. On a statutory basis, this
has hurt the company's level of unassigned surplus, which
restricts the amount of ordinary dividends that can be paid to the holding
company. The rating agency noted that the company is taking a number
of actions to improve its unassigned surplus position.
The A3 IFS rating for the life operations is supported by the company's
relatively diversified earnings, competitive positions in income
and protection products, and proactive steps management has taken
to raise capital and address upcoming debt maturities at the holding company.
These strengths are somewhat offset by the holding company's modest
financial flexibility, pressure from shareholders to take "shareholder-friendly"
actions to improve market / book value, and a lack of lower risk
product reserves.
US Mortgage Insurance (GMICO)
Genworth Mortgage Insurance Corporation's (`GMICO'- collectively
all rated US MI operating company affiliates) Ba1 insurance financial
strength rating has been placed on review for downgrade due to the uncertainty
about the strength of its parent (under review for possible downgrade)
and about the likelihood of future capital support -- which might
be limited in most scenarios -- see section on holding company below.
The review will also evaluate GMICO's ability to continue writing
new business given the firm's high risk to capital level and the
year-end expiration of most regulatory and counterparty waivers.
Other issues in consideration are the firm's contemplated structural
alternatives.
GMICO's current rating reflects the firm's modest capitalization,
continued dependence on regulatory forbearance to write new business and
some implicit support from its parent. The rating also takes into
consideration the weak credit trends in the US housing market, substantial
remaining uncertainty about the role of private mortgage insurers in the
post mortgage-reform environment and improved underwriting prospects
for GMICO following the exit of two competitors.
Holding Company
Commenting on the review for downgrade of Genworth, Robinson said:
"The review will focus on the evaluation of holding company financial
flexibility over the near to medium term. We will consider management
actions and plans to enhance flexibility, limit the potential downside
impact of the lower rated US MI on the rest of the operations, as
well as potential parental support."
Genworth's Baa3 senior debt rating is currently 3 notches lower than the
A3 IFS ratings of the company's life insurance operating entities,
the standard notching practice for insurance groups. Prior to today's
rating action, the notching differential between the main life insurance
operating entities and the holding company was 4 notches, a reflection
of the lower credit profile and downside risks of US MI, including
its potential need for additional support.
Rating Drivers - life insurance group
Moody's commented that the following could lead to an upgrade in
the IFS rating for the life insurance entities: 1) Losses and capital
requirements of the stress case scenario for the US MI operations are
determined to have a modest impact on the group; 2) 2012 US life
insurance GAAP operating earnings > $300 million, excluding
the impact of life block transactions; 3) US Life Insurance sales
growing at industry rate without disproportionate growth in LTC;
and 4) Unassigned surplus as of year-end 2012 > $100
million. Conversely, the following could lead to a further
downgrade of the IFS rating for the life insurance entities: 1)
2012 US life insurance GAAP operating earnings < $250 million,
excluding the impact of life block transactions; 2) Financial leverage
in excess of 30% and/or earnings coverage less than 2x on a sustained
basis; and 3) Unassigned surplus as of year-end 2012 <
$100 million.
Rating Drivers -- US mortgage insurance
The following factors could lead to confirmation of the ratings of the
US mortgage insurance subsidiaries: 1) Greater certainty about ability
to maintain new business flows over the medium term (12-24 months)
2) Parent's willingness to provide capital support 3) Significant
improvement in rate of new delinquencies and/or cures 4) Statutory loss
ratio less than 100% and 5) A regulatory framework that improves
the market opportunity for private mortgage insurers.
Conversely, the following factors could lead to a downgrade of GMICO:
1) Weakening parental support of the US MI operation 2) Non-renewal
of GSE and regulatory agreement/forbearance when they expire 3) Restructuring
of operations that would result in reduced new business flows for the
flagship, Genworth Mortgage Insurance Corporation 4) Risk to Capital
greater than 40x and 5) Statutory loss ratio greater than 200%.
Rating Drivers - holding company
According to Moody's, the following could lead to a confirmation
of the holding company's ratings: 1) De-linkage from the
US MI operations so that a downside scenario would not impact holding
company creditors or determination that a downside scenario would have
a modest impact on the group; 2) Capital actions that enhance holding
company financial flexibility without hurting long-term earnings
power of the company. On the other hand, the following could
result in a downgrade of the holding company's ratings: 1) Failure
to de-link the US MI from holding company creditors or determination
that a downside scenario would have more than a modest impact on the group;
2) Failure to take capital actions that enhance holding company financial
flexibility without hurting long-term earnings power of the company.
The principal methodologies used in rating Genworth were "Moody's Global
Rating Methodology for Life Insurers," published in May 2010 and
"Moody's Global Rating Methodology for the Mortgage Insurance Industry"
published in February 2007. Please see the Credit Policy page on
www.moodys.com for a copy of these methodologies.
The following ratings were placed on review for downgrade:
Genworth Financial, Inc.— senior unsecured debt rating
at Baa3, junior subordinated debt rating at Ba1(hyb), senior
unsecured shelf rating at (P)Baa3, subordinate shelf rating at (P)Ba1,
preferred shelf rating at (P)Ba2, short-term debt rating
for commercial paper at P-3;
Genworth Mortgage Insurance Corporation—insurance financial strength
rating at Ba1;
Genworth Residential Mortgage Insurance Corporation of NC—insurance
financial strength rating at Ba1.
Genworth Seguros de Credito a la Vivienda—insurance financial strength
rating at Baa3, national scale insurance financial strength rating
at Aa3.mx
The following ratings were downgraded with a stable outlook:
Genworth Life Insurance Company—insurance financial strength rating
to A3 from A2, short term insurance financial strength rating to
P-2 from P-1;
Genworth Life and Annuity Insurance Company—insurance financial
strength rating to A3 from A2, short term insurance financial strength
rating to P-2 from P-1;
Genworth Life Insurance Company of New York—insurance financial
strength rating to A3 from A2;
Genworth Global Funding Trusts—funding agreement-backed senior
secured Medium-Term Note Program to (P)A3 from (P)A2;
Genworth Global Funding Trusts 2006-C; 2006-E;
2007-A; 2007-3 through 4; 2008-1 through
2; 2008-5; 2008-7; 2008-9 through
49 — funding agreement-backed senior secured debt rating
to A3 from A2;
Genworth Life Institutional Funding Trust—funding agreement-backed
senior secured debt to A3 from A2, senior secured debt to A3 from
A2, backed senior secured Medium-Term Note Program to (P)A3
from (P)A2;
General Repackaging ACES SPC, Series 2007-2; Series
2007-3; Series 2007-6; Series 2007-7—funding
agreement-backed senior secured debt rating to A3 from A2;
Genworth Financial, Inc., headquartered in Richmond,
Virginia, reported total assets of $111 billion and total
shareholders' equity of $15.9 billion as of March 31,
2012.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to pay punctually senior policyholder claims and
obligations.
Visit Moody's website at www.moodys.com for more information.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued by one of Moody’s affiliates outside the EU are endorsed by Moody’s Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody’s Investors Service information.
Moody's considers the quality of information available on the rated entity,
obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not an auditor
and cannot in every instance independently verify or validate information
received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Scott Robinson
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's reviews Genworth's and its US MI's ratings for downgrade; lowers IFS of US life entities to A3/stable
