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Rating Action:

CORRECTION TO TEXT OF MAY 20 RELEASE: MOODY'S ASSIGNS RATINGS TO GENWORTH FINANCIAL, INC. TO CORRECT SHAREHOLDER EQUITY FIGURE

21 May 2004
CORRECTION TO TEXT OF MAY 20 RELEASE: MOODY'S ASSIGNS RATINGS TO GENWORTH FINANCIAL, INC. TO CORRECT SHAREHOLDER EQUITY FIGURE

New York, May 21, 2004 -- Substitute $10.3 billion for $103 billion in second-to-last paragraph, "Genworth Financial, Inc., headquartered in Richmond, VA, reported total assets of about $100.2 billion and shareholders' equity of approximately $10.3 billion " Revised release follows.

Moody's Investors Service assigned an A2 rating to Genworth Financial, Inc.'s (Genworth) senior debt related to the company's issuance of Equity Units, and also gave the company a Baa1rating for its preferred stock.

The $600 million offering of Equity Units comprises 24 million equity-security units, with a stated amount of $25 per unit. The equity-security units include equity-like features, and as such, Moody's has accorded "Basket D" hybrid security treatment to these securities.

According to Moody's methodology for assessing hybrid securities, "Basket D" treatment would deem these securities to be 75% equity and 25% debt.

At issuance, each equity-security unit consists of an equity-purchase contract and an ownership interest in a 2.5% senior note, due May 16,

2009. The contract will obligate the holder to purchase Genworth common stock, no later than May 16, 2007. Depending on future events, the equity purchase contract must either (a) be settled with the proceeds from the remarketing of the senior notes or (b) a surrender of either the senior notes or specified US Treasury securities substituted for the senior notes. In the former case, via the issuance of common stock, additional funds will be raised in order to settle the senior notes at maturity. In the latter case, the senior note will be settled for common stock.

The notes will be remarketed prior to May 16, 2007. If there is a successful remarketing of the notes, the proceeds will satisfy the

holder's payment obligations under the equity- purchase obligation. Management plans to use the proceeds of the remarketing to retire

corporate debt. The effect of the transaction will be an incremental $150 million increase in financial leverage for Genworth.

Genworth also plans to issue $100 million of cumulative preferred stock, which is mandatorily redeemable in 2011. Moody's has accorded "Basket A" hybrid security treatment for this preferred stock, which will be regarded as 100% debt and 0% equity.

Moody's said that Genworth's strengths include a strong market position in the company's core life and mortgage- insurance products, as well as multichannel distribution systems, good product breadth, scale advantages, and current-state technology in the life insurance sector. A

strong management team with an impressive track record, robust risk-management policies, and sound investment quality are also

considered positives, according to the rating agency.

In addition, Moody's noted that the mortgage insurance operations benefit from conservative underwriting standards and operating practices, capital strength, conservative risk management, and low loss levels.

Moody's said that these strengths were tempered by factors affecting the life insurance operations including weak statutory earnings history,

products including long term care and institutional spread business that have relatively high risk characteristics, pressure on statutory

earnings and capital, below average capital/assets ratio, and an increasingly competitive market in wealth accumulation and wealth

protection products. In addition, the rating agency cited the following issues as challenges, Genworth's need to service its common stock

dividends and the increased debt at the holding company, separation from the GE parent, and pressures from public shareholders to increase ROE.

Finally, the rating agency cited certain additional challenges, such as Genworth's holding-company-level cash needs to service its common stock dividends and the increased debt, as well as separation from the GE parent, and pressures from new public shareholders to increase ROE.

Moody's pointed out GEMICO's profits and revenue growth continue to be increasingly squeezed by captive reinsurance deals with originators, by 80-10-10 mortgages, and by the GSEs. New product development and a focus on more rapidly anticipating and meeting customer demands are likely to remain characteristics of GEMICO.

Dividend levels are not expected to change under the new holding company, Moody's says, but they will likely remain high. Moreover, the new parent will be more reliant on GEMICO to make dividend payments to meet debt service obligations and shareholder dividends, which could create future capital constraints.

Moody's emphasized that three major factors have been incorporated into Genworth's current ratings: financial leverage of less than 25% (debt to total capital); statutory coverage of interest expense of at least 2.4 times; and statutory coverage of interest expense and the holding

company's common stock dividends of at least 1.4 times.

In addition, Moody's said that it expected Genworth's life insurance operations to maintain consolidated NAIC RBC of at least 300%.

Risk-to-capital levels at the GEMICO US mortgage insurance company should be less than 14 to one, according to the rating agency. Moody's also believes that GEMICO's current business strategy and its favorable risk profile will not change materially. Moreover, the rating agency indicated that it expected (a) that no capital would be up-streamed from the Australian mortgage insurers, (b) that their reinsurance arrangements will be maintained in their current forms, and (c) that explicit financial support from the U.S operations (GEMICO) to the European company (GEMI), through financial reinsurance, would remain unchanged.

In conclusion, Moody's noted that financial leverage of more than 25% and coverage ratios below those incorporated in its ratings expectations could put downward pressure on the rating. What could also have negative ratings implications would be a consolidated NAIC RBC for the life companies of less than 300%, dividends beyond projected levels at the US mortgage insurance company, a significant change in the mix of GEMICO's new business written, or entry into riskier products. Moody's added that the credit ratings of Genworth and the insurance financial strength ratings of its life and mortgage insurance companies will influence and affect one another-e.g. financial weakness in one operation could have negative rating implications for the other operation and for the holding company.

Moody's said, on the other hand, that financial leverage of less than 20% for Genworth, coupled with statutory coverage for interest expense and with total holding company expenses (including common stock dividends) of more that 3 times and 2 times, respectively, would be considered to be potential drivers of a ratings upgrade. The rating agency also commented that consolidated NAIC RBC for the life companies of more than 330%, improvement in GEMICO US' risk-to-capital levels of less than 10 to one, combined with a lower risk profile for GEMICO's new business written, could also put positive upward pressure on the rating.

The following ratings have been assigned with a stable outlook:

Genworth Financial, Inc. - Senior debt of A2 related to the Equity Units, preferred stock of Baa1.

The following ratings have been affirmed with a stable outlook:

General Electric Financial Assurance Holdings, Inc. - Senior unsecured debt (Yen) -of A2.

General Electric Capital Assurance Company (GECA) - Insurance financial strength of Aa3 and short-term insurance financial strength rating of Prime-1.

Federal Home Life Insurance Company (FHL) - Insurance financial strength of Aa3.

GE Life and Annuity Assurance Company (GELAAC) - Insurance financial strength of Aa3 and short-term insurance financial strength rating of Prime-1.

GE Capital Life Assurance Company of NY (GECLANY) - Insurance financial strength of Aa3.

First Colony Life Insurance Company (FCL) - Insurance financial strength of Aa3.

American Mayflower Life Insurance Company of NY (AML) - Insurance financial strength of Aa3.

Premium Asset Trust - Series 2001-2, Series 2001-3, Series 2001-6, Series 2001-8, Series 2002-1, Series 2002-4, Series 2002-6, Series 2002-11, Series 2003-4; Series 2003-8; Series 2003-9; Series 2004-2, Series 2004-3 (Medium-Term Notes Backed by funding agreements issued by GECA) -- Senior secured debt at Aa3.

Premium Asset Trust -- Series 2000-7, Series 2000-9, (Medium-Term Notes Backed by funding agreements issued by GELAAC) -- Senior secured debt of Aa3.

General Electric Mortgage Insurance Corporation -- Insurance financial strength rating at Aa2.

GE Mortgage Insurance Limited -- Insurance financial strength rating at Aa2.

GE Mortgage Insurance Company Pty Ltd -- Insurance financial strength rating at Aa2.

Genworth Financial, Inc., headquartered in Richmond, VA, reported total assets of about $100.2 billion and shareholders' equity of approximately $10.3 billion (excluding other comprehensive income) as of March 31, 2004 on a pro forma basis.

Moody's Insurance Financial Strength Ratings are opinions of the ability of insurance companies to repay punctually their senior policyholder claims and obligations. For more information, visit our website at moodys.com/insurance.

New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Jersey City
Ann G. Perry
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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