Approximately $7.5 billion of debt affected
New York, May 12, 2011 -- Moody's Investors Service has confirmed 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 and the A1 IFS rating of
Genworth Financial Mortgage Insurance Pty Ltd. (Genworth Australia).
In the same action, Moody's lowered the IFS rating of Genworth
Mortgage Insurance Corporation and its supported affiliates (collectively,
"GMICO"), to Ba1 from Baa2. The rating actions conclude a
review for downgrade that was initiated on February 3, 2011.
The outlook on Genworth and all of its affiliates is negative.
Holding Company and Life Operations
According to Scott Robinson, Senior Vice President: "The
confirmation of Genworth Financial and it's life insurance operating
subsidiaries reflects the strong holding company liquidity position ($1.3
billion as of March 31, 2011), the additional financial resources
available ($1.5 billion of its investment in the Canadian
mortgage insurer), and the improvement in the company's ability
to manage through a life company stress scenario. Furthermore,
while there is still continued uncertainty and downside risks with GMICO,
the degree of support required from the rest of the company in a stress
scenario appears to be manageable in the context of capital for Genworth
overall." The rating agency noted that the confirmation of
the holding company's ratings also reflects the expectation that
Genworth will reduce financial leverage (the company has publicly stated
a target of 20% by year-end 2012) and maintain strong liquidity
at the holding company.
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. However, the weak capital
generation of the life entities over the past years has limited their
ability to help support holding company debt. According to Robinson,
"To improve the credit profile of the life insurance subsidiaries,
the company needs to strengthen profitability on its core business lines
such that they generate excess regulatory capital that can help support
holding company needs on a recurring basis." Genworth's Baa3
senior debt rating is 4 notches lower than the A2 IFS ratings of the company's
lead life insurance. 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 the US MI company.
US Mortgage Insurance (GMICO)
Moody's downgraded the ratings of GMICO and the other US mortgage
insurance subsidiaries from Baa2 to Ba1 to reflect higher losses from
Moody's revised loss projections. The deterioration reflects
continued high delinquency rates and reduced captive reinsurance and loss
mitigation benefits. Under Moody's central scenario,
GMICO's loss coverage score is 1.36x, consistent with
the expectation for high Ba-rated credits.
The rating agency anticipates high claims payments in 2011- 2012
such that, absent new capital contribution and substantial new business
flows, GMICO's invested asset base could decline by 50-60%
over the period. Additionally, large operating losses are
likely to further pressure the firm's regulatory risk-to-capital
metric which was at 25.0x at the end of the first quarter of 2011.
Moody's added that continued, although modest, improvements
in portfolio performance trends are positive. GMICO's portfolio
delinquency rate fell from 13.7% at year end 2009 to 11.7%
at end of the first quarter of 2011. The rate of new delinquencies
declined from 4.7% to 3.5% over the same period.
The company continues to write high quality new mortgage insurance business.
Volume could increase as the FHA reduces its share of origination and
regulatory and counterparty forbearance is maintained. However,
weakness in the aggregate mortgage originations is a concern.
The Ba1 rating for GMICO reflects continued meaningful implicit financial
support from the Genworth group as evidenced from recent capital contributions.
The rating agency said the outlook for GMICO is negative because of the
continuing uncertainty and downside risk for significantly higher levels
of delinquencies and losses over the next few years. Such a stress
scenario would put greater capital demands on the other operations and
resources of Genworth, prompting the negative outlook on the other
insurance subsidiaries and holding company.
Non-US Mortgage Insurance
Moody's confirmed the A1 IFS rating of Genworth Australia as its
business continues to perform well, has a leading market share,
and remains profitable. Loss development remains within expectations
following the Reserve Bank of Australia's multiple interest rate
increases to curb inflationary pressures and slow the pace of house price
Genworth Australia relies, in part, on reinsurance credit
from GMICO to meet its regulatory capital requirements. While the
Australian regulator has not reduced the amount of eligible reinsurance
credit provided by the US MI, Genworth Australia has taken proactive
steps to reduce its reliance on the GMICO reinsurance.
Genworth Mortgage Insurance (MI) Canada Inc., in which Genworth
reported a 57.5% ownership stake as of March 31, 2011,
continues to perform within expectations and report solid earnings.
A recent C$160 million share repurchase announcement by Genworth
MI Canada Inc. will provide a proportionate amount of additional
capital resource to Genworth's holding company.
According to Moody's, the following could lead to a change
in outlook to stable from negative: the losses and capital requirements
of the stress case scenario for the U.S. MI operations are
determined to have a modest impact on the group, positive pressure
on the company's lead life companies (see Genworth Life Insurance Group
credit opinion for specific rating drivers), and improved financial
flexibility at the holding company. On the other hand, the
following could result in a downgrade of the holding company's ratings:
a downgrade of the IFS ratings of the company's lead operating mortgage
and/or life companies and/or adjusted financial leverage exceeding 30%
and earnings coverage falling below 2x on a sustained basis.
The following ratings were confirmed with a negative outlook:
Genworth Financial, Inc.— senior unsecured at Baa3,
junior subordinated debt at Ba1(hyb), preferred stock at Ba2(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
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 through 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 (Mexico)—insurance financial
strength rating at Baa3, national scale insurance financial strength
rating at Aa3.mx
Genworth Financial Mortgage Insurance Limited—insurance financial
strength rating at Baa3
Genworth Financial Mortgage Insurance Pty Ltd. (Genworth Australia)—insurance
financial strength rating at A1
The following ratings were downgraded and now have negative outlooks:
Genworth Mortgage Insurance Corporation—insurance financial strength
rating to Ba1 from Baa2
Genworth Residential Mortgage Insurance Corporation of NC—insurance
financial strength rating to Ba1 from Baa2
Genworth Financial, Inc., headquartered in Richmond,
Virginia, reported shareholders' equity excluding AOCI of $12.5
billion as of March 31, 2011.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to pay punctually senior policyholder claims and
obligations. Please see Moody's website at www.moodys.com/insurance
for more information.
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.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
MD - Insurance
Financial Institutions Group
Moody's Investors Service
Senior Vice President
Financial Institutions Group
Moody's Investors Service
Moody's Investors Service
Moody's confirms Genworth (sr debt at Baa3); GMICO downgraded to Ba1 IFS; negative outlooks
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