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Rating Action:

Moody’s confirms Genworth’s ratings after delayed IPO of USMI business

20 May 2021


New York , May 20, 2021 – Moody's Investors Service (Moody's) has confirmed Genworth Mortgage Insurance Corporation's (GMICO) Baa3 insurance financial strength (IFS) rating, and Enact Holdings, Inc.'s (Enact) Ba3 long term issuer rating and senior unsecured debt rating. The outlooks for GMICO and Enact were changed to positive from rating on review for upgrade. In addition, Moody's has confirmed Genworth Holdings, Inc.'s (Genworth Holdings) backed Caa1 senior unsecured debt rating and changed the outlook to developing from rating on review for upgrade. This concludes the review for upgrade commenced on April 22, 2021.

This rating action follows Genworth Financial, Inc.'s (Genworth) announcement on May 13, 2021 to delay the minority IPO of its US mortgage insurance (USMI) business (or transaction) through its intermediate holding company Enact and formerly known as Genworth Mortgage Holdings, Inc. due to volatility in market conditions. Please refer to the complete list of rating actions below.

The IFS ratings of Genworth's life insurance subsidiaries, Genworth Life Insurance Company and Genworth Life Insurance Company of New York (IFS rating Caa1, stable) and Genworth Life and Annuity Insurance Company (IFS rating B3, stable) are unaffected by this rating action.

RATINGS RATIONALE

US Mortgage insurance companies

The rating confirmation reflects Enact's strong position in the USMI sector with an approximate 16%-17% market share, good client diversification, its consistent GSE's PMIER's sufficiency ratio 159% as of March 31, 2021, and consistent profitability that has increased liquidity at the company. The company remains a wholly-owned subsidiary of Genworth Holdings. These strengths are tempered by the commodity-like nature of the MI product and the potential for price competition in the USMI market, and the uncertainties related to mortgage loan credit performance due to the economic disruption created by the coronavirus pandemic.

The change in the outlook to positive from rating on review for upgrade on Enact and its primary insurance subsidiary, GMICO, reflects a healthy level of capital adequacy, and underwriting discipline aimed at improved profitability and market presence, and continued advancement of its current strategy to proactively manage risk to protect future business performance and capitalization. Despite the delay in the anticipated partial IPO of its USMI business, Genworth continues to evaluate its options to monetize a portion of its ownership in the company, subject to market conditions. The anticipated transaction reduces event risk for the USMI business related to Genworth's possible inability to address its upcoming debt maturities and restructure its organization.

Genworth Holdings

The rating confirmation of Genworth Holdings' reflects the holding company's resources, including its stake in its mortgage insurance operations and cash and liquid assets of approximately $757 million at March 31, 2021 relative to its debt load. The change in the outlook to developing from rating on review for upgrade reflects the delay of its anticipated minority IPO of its USMI business. The change in the outlook also reflects the company's challenges to organically build liquidity and a cash buffer to further reduce its debt ladder, and the pressure on financial flexibility from the lack of dividend payments from its insurance companies including Enact which is Genworth's Holdings main source of liquidity as regulators have limited dividend capacity during the current economic environment.

During 2021, we expect Genworth Holdings to have an improved liquidity profile due to the anticipated emergence of incremental cash from its tax sharing arrangement with its subsidiaries, and cash on hand that could provide adequate liquidity and a cash buffer to paydown its September 2021 maturity and service its holding company expenses. However, at this stage, liquidity continues to be tight and long-term financing solutions for its debt ladder remain uncertain following the delayed transaction and anticipated net proceeds to provide liquidity to the company. So in due course either positive or negative rating pressure could emerge. Should anticipated transaction close on the USMI business, Genworth is expected to use the net proceeds to reduce its outstanding debt. Execution of these transactions by Genworth may result in a multiple notch upgrade in Genworth Holdings' ratings.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

US Mortgage insurance companies

The following factors could result in an upgrade of the MI companies' ratings: 1) successful execution of the parital IPO transaction; 2) improvement in Genworth's financial flexibility, including a clear path to managing its debt maturities in 2021 and beyond; 3) Enact maintaining adjusted financial leverage in the 20% range (excluding AOCI), or below, and cash flow coverage greater than 4x; and 4) continued improvement of the USMI's stand-alone credit profile as evidenced by top-tier market share at attractive pricing levels, and continued improvement in earnings.

Given the mortgage insurance companies' ratings have a positive outlook, a downgrade of the ratings is unlikely. However, the following factors could return the outlook to stable: 1) the partial IPO transaction does not close or is further delayed; 2) Genworth does not complete the associated actions to address its high debt leverage and financial flexibility pressures; 3) Enact's adjusted financial leverage remains above 30% (excluding AOCI) and cash flow coverage less than 2x; 4) non-compliance with the PMIERs; or 5) significant deterioration in the USMI's profitability metrics.

Genworth Holdings

Upward pressure on Genworth Holdings' ratings could develop if Genworth: 1) closes the transaction; 2) improves its financial flexibility including a clear path to managing its debt maturities beyond 2021; and 3) improves holding company financial flexibility including increased dividend capacity from its insurance companies

A downgrade of Genworth Holdings' ratings could result from the following factors: 1) lack of progress in developing alternative arrangements for its upcoming debt maturities beyond 2021; 2) if the plans to raise capital from the USMI business are insufficient or unsuccessful; and 3) a deterioration in holding company financial flexibility including decreased dividend capacity from its insurance companies

The following ratings were confirmed :

Genworth Holdings, Inc.: backed senior unsecured at Caa1; backed junior subordinate at Caa2 (hyb);

Genworth Mortgage Insurance Corporation: Insurance financial strength at Baa3;

Enact Holdings, Inc.: long-term issuer rating at Ba3; senior unsecured at Ba3.

Outlook Actions :

Genworth Holdings, Inc. - outlook changed to developing from rating under review

Genworth Mortgage Insurance Corporation - outlook changed to positive from ratings under review

Enact Holdings, Inc. - outlook changed to positive from ratings under review.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Mortgage Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187538 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Genworth Holdings is the intermediate holding company of Genworth, an insurance and financial services holding company headquartered in Richmond, Virginia. Genworth Holdings also acts as a holding company for its respective subsidiaries including its life and mortgage insurance businesses. In addition, Genworth Holdings relies on the financial resources of Genworth including the US mortgage business to meet its obligations. As of March 31, 2021, Genworth reported total assets of $98.6 billion and shareholders' equity of $14.8 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Bob Garofalo
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Scott Robinson, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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