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Rating Action:

Moody's affirms Genworth's holding company (sr debt at Baa3) and life entities (IFS at A2); outlook remains negative

06 Mar 2012

New York, March 06, 2012 -- Moody's Investors Service has affirmed the debt ratings of Genworth Financial, Inc. ("Genworth"; NYSE: GNW, senior debt at Baa3), as well as the A2 insurance financial strength (IFS) ratings of the company's primary life insurance operating subsidiaries. The outlook on Genworth and all of its affiliates continues to remain negative.

RATINGS RATIONALE

According to Moody's Senior Vice President Scott Robinson, "The affirmation of Genworth's ratings reflects continued solid financial flexibility at the holding company, as evidenced by its moderate financial leverage (21% as of December 31, 2011) and strong holding company liquidity position ($948 million as of December 31, 2011)."

Commenting on the negative outlook on Genworth and its affiliates, Robinson said it reflects the continuing uncertainty and downside risk for significantly higher levels of delinquencies and losses from the US mortgage insurance (MI) operations over the next few years. Such a stress scenario would put greater demands on the financial resources of Genworth, adversely impacting the holding company's excess liquidity and the capital of the other insurance subsidiaries that would be pressured to upstream more cash to the holding company. Somewhat offsetting the risk of this downside and unexpected scenario, Moody's noted that the company would have the option of placing the US MI business in runoff, which would curtail additional capital contributions in the short term to the business in order to write new business, an option Genworth has not currently elected to pursue.

The rating agency added that the life company remains well capitalized and has a leading position in long term care insurance and a strong position in term insurance, along with strong brand awareness. Furthermore, the company has relatively diversified earnings and competitive positions in income and protection products, supported by solid diversification of distribution. Offsetting these strengths, financial flexibility has been pressured by recent performance in the domestic MI business, there is pressure from shareholders to take "shareholder-friendly" actions to improve market / book value, and the life company has few lower risk product reserves; long-term care concentration adds potential earnings and capital risk. Additionally, statutory earnings have been modest over the past several years.

Genworth's Baa3 senior debt rating is 4 notches lower than the A2 IFS ratings of the company's life insurance operating entities. The notching differential between the main life insurance operating entities and the holding company is greater than the standard 3 notches typical for insurance groups, a reflection of the lower credit profile and downside risks of US MI.

Rating Drivers -- holding company

According to Moody's, the following could lead to a change in outlook of the holding company's ratings to stable from negative: 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) Positive ratings pressure on the company's lead life companies (see below); and 3) Return on Capital of 4% or more. On the other hand, the following could result in a downgrade of the holding company's ratings: 1) Downgrade of the financial strength ratings of the company's lead operating mortgage and/or life companies; 2) Adjusted financial leverage exceeding 30% and earnings coverage falling below 2x on a sustained basis.

Rating Drivers -- life insurance group

The following could lead to a change in outlook to stable from negative for the life insurance operating 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. To the contrary, aside from adverse results from the stress analysis, other factors that could lead to a downgrade include: 1) 2012 US life insurance GAAP operating earnings < $300 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.

The principal methodologies used in rating Genworth were "Moody's Global Rating Methodology for Life Insurers," published in May 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The following ratings were affirmed with a negative outlook:

Genworth Financial, Inc.— senior unsecured at Baa3, junior subordinated debt at Ba1(hyb), senior unsecured shelf at (P)Baa3, subordinate shelf at (P)Ba1, preferred shelf at (P)Ba2, short-term debt rating for commercial paper at P-3

Genworth Life Insurance Company—insurance financial strength rating at A2, short term insurance financial strength rating at P-1

Genworth Life and Annuity Insurance Company—insurance financial strength rating at A2, short term insurance financial strength rating at P-1

Genworth Life Insurance Company of New York—insurance financial strength rating at A2

Genworth Global Funding Trusts—funding agreement-backed senior secured Medium-Term Note Program at (P)A2

Genworth Global Funding Trusts 2006-C; 2006-E; 2007-A through C; 2007-3 through 4; 2008-1 through 2; 2008-5; 2008-7; 2008-9 through 49 — funding agreement-backed senior secured debt at A2

Genworth Life Institutional Funding Trust—funding agreement backed senior secured debt at A2, senior secured Medium-Term Note Program at (P)A2

General Repackaging ACES SPC, Series 2007-2; Series 2007-3; Series 2007-6; Series 2007-7—funding agreement-backed senior secured debt at A2

Premium Asset Trust Series 2005-3—funding agreement-backed senior secured debt at A2

Genworth Seguros de Credito a la Vivienda—insurance financial strength rating at Baa3, national scale insurance financial strength rating at Aa3.mx

Genworth Financial, Inc., headquartered in Richmond, Virginia, reported total assets of $114 billion and total shareholders' equity of $17.7 billion as of December 31, 2011.

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

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. 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.

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 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 affirms Genworth's holding company (sr debt at Baa3) and life entities (IFS at A2); outlook remains negative
No Related Data.
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