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Rating Action:

Moody's downgrades Genworth ratings; remains under review for downgrade

03 Oct 2017

New York, October 03, 2017 -- Moody's Investors Service downgraded the credit ratings of Genworth Holdings, Inc. (Holdings) -- senior unsecured debt to B2 from Ba3, the insurance financial strength (IFS) ratings of Genworth Life Insurance Company (GLIC) and Genworth Life Insurance Company of New York (GLICNY) to B2 from Ba3, and the IFS rating of Genworth Life and Annuity Insurance Company (GLAIC) to Ba1 from Baa2. These actions follow the announcement by Genworth Financial (Unrated, Genworth), the ultimate parent of Genworth Holdings, on October 2, 2017 that it intends to refile its application with the Committee on Foreign Investment in the United States (CFIUS) and evaluate options to address its upcoming debt maturities in the event the transaction with China Oceanwide Holdings Group Co. Ltd. (COH; unrated) is not completed.

The ratings of Genworth's US and Australian mortgage insurance (MI) operations (Ba1 IFS rating, Positive; Baa1 IFS rating, stable, respectively) are not part of this rating action. This is due to the meaningful separation that exits between Genworth's life and mortgage insurance businesses which mitigates the weaken financial flexibility. Please see the complete list of ratings below.

RATINGS RATIONALE

Ratings Rationale - The Holding Company

The ratings downgrade and continued review for downgrade of Holdings and its life insurance subsidiaries is driven by continuing delays in obtaining required regulatory approvals for the planned acquisition of the company by COH which underline the risks to consummation of the transaction. The downgrade also reflects the need to develop alternative arrangements, absent a transaction, to its upcoming debt maturing of approximately $2.1 billion between 2018 and 2021. While Genworth and COH have indicated they remain committed to the transaction, the continued review for downgrade reflects ongoing execution risk associated with the closing of the transaction, as well as the company's financial flexibility challenges. In addition, the repeated withdrawal and refiling of the CFIUS application and the need to secure other regulatory approvals increases the uncertainty of the transaction being further delayed or completed. That said, the Virginia State Corporation Commission's Bureau of Insurance approved the proposed acquisition by COH in September 2017 conditioned upon the completion of the merger and receipt of all other regulatory approvals.

Moody's notes Genworth has meaningful holding company resources, including its stake in its global mortgage insurance operations and net cash and investments of approximately $858 million at June 30, 2017. However, the company's ability to organically build additional liquidity is mitigated by the modest dividend capacity in aggregate from its insurance subsidiaries, relative to its debt load. To address upcoming debt maturities in case the transaction with COH does not close, Genworth is evaluating potential refinancing alternatives, current holding company cash, and/ or potential asset sales. Should the deal close, COH will provide Genworth a cash infusion on or before maturity, to pay down the $600 million of debt maturing in 2018.

.

Ratings Rationale - The Life Insurance Companies

The rating downgrade and the continued review for downgrade of GLIC and its subsidiary GLAIC reflect both the uncertain financial flexibility at Genworth (discussed above), and the continued concern about the tail risk associated with the LTC business in GLIC. While GLAIC has meaningful interest sensitivity associated with its life and annuity business, we believe it has a stronger credit profile than GLIC and should release capital over time, should the de-stacking take place. However, we have left both under review for downgrade to reflect the pressures they face.

Moody's said the review will continue to focus, on the strategic rationale of the acquisition of Genworth by COH, the necessary regulatory approvals, progress related to the de-stacking, in terms of regulatory approvals on the timing and contributions, on definitive debt repayment decisions, and on business and financial profile of the life insurance companies, in terms of earnings, reserve adequacy, and regulatory capitalization.

RATING DRIVERS

Should the deal close, Moody's expects to confirm the ratings of Genworth and its life insurance companies. If the deal closes and the company demonstrates a path to address the 2020/2021 debt maturities, there would be upward pressure on the ratings of Genworth Mortgage Insurance Corporation (GMICO Ba1 IFS rating positive), GLAIC and the holding company. If the deal does not close, Moody's will evaluate the financial performance of the businesses, the company's financial flexibility challenges and progress the company has made in developing alternative arrangements for addressing its upcoming debt maturities.

Rating Drivers -- Holding Company

Capital support to repay the 2018 and all or a portion of the 2020 and 2021 debt maturities at closing could lead to a confirmation or upgrade of Genworth's ratings. Additionally, the following could place upward pressure on the holding company's ratings: 1) successful separation and isolation of the LTC business and improvement of holding company financial flexibility through increased dividend capacity; and 2) Improved credit profile of GLAIC.

Conversely, the following could result in a downgrade of the holding company's ratings: 1) further downgrade of the US life insurance operations; 2) lack of progress in developing alternative arrangements for its upcoming debt maturing between 2018 and 2021; and 3) if the planned acquisition by COH is terminated or further delayed.

Rating Drivers - US life insurance operating subsidiaries

The following factors could result in GLAIC's rating being confirmed, and place upward pressure on the company over time: 1) stability in statutory earnings and return on statutory surplus greater than 6%, and 2) improvement in financial flexibility at the holding company (i.e., reduction in and/or refinancing of 2018 and 2020/2021 debt maturities).

Conversely, factors that could result in a downgrade of GLAIC's rating include: 1) Failure to maintain RBC > 325% of company action level (CAL), 2) return on statutory surplus less than 4%, and 3) if the planned acquisition by COH is terminated or further delayed.

The following could lead to a confirmation of GLIC/GLICNY's ratings, and place upward pressure on the ratings over time: 1) significant LTC rate approvals and/or other actions that help grow margins in the legacy LTC book of business, and 2) improvement in financial flexibility at the holding company (i.e., reduction in and/or refinancing of 2018 and 2020/21 debt maturities).

Factors that could result in a downgrade of GLIC's/GLICNY's ratings include: 1) further deterioration of the margins on LTC reserves, increasing the probability of a material reserve charge in the future, 2) RBC ratio less than 300% CAL, and 3) denial of LTC rate approvals, pressuring reserve adequacy of legacy LTC business.

The following ratings were downgraded and remain on review for downgrade:

Genworth Holdings, Inc.: backed senior unsecured to B2 from Ba3, backed junior subordinate to B3 (hyb) from B1 (hyb), backed provisional senior unsecured shelf to (P) B2 from (P) Ba3, and backed provisional subordinate shelf to (P) B3 from (P) B1;

Genworth Life and Annuity Insurance Company: insurance financial strength to Ba1 from Baa2

Genworth Global Funding Trusts: funding agreement-backed senior secured MTN notes to Ba1 from Baa2;

Genworth Life Insurance Company: insurance financial strength to B2 from Ba3;

Genworth Life Insurance Company of New York: insurance financial strength to B2 from Ba3;

General Repackaging ACES SPC 2007- 7: funding agreement-backed senior secured notes to B2 from Ba3;

The following rating was unaffected by this rating action and remains with a stable outlook:

Genworth Financial Mortgage Insurance Pty Limited: IFS rating at Baa1.

The following rating was unaffected by this rating action and remains with a positive outlook:

Genworth Mortgage Insurance Corporation: Insurance financial strength at Ba1

Genworth Holdings is the intermediate holding company of Genworth Financial, Inc., an insurance and financial services holding company headquartered in Richmond, Virginia. The group reported GAAP net income available to Genworth Financial, Inc.'s common shareholders of $357 million for the six months of 2017 on total assets of $105 billion and shareholders' equity of $15 billion

The principal methodology used in these ratings was Global life Insurers published in April 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 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.

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

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.

Robert Garofalo
VP - Senior 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

Marc R. Pinto, CFA
MD - Financial Institutions
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

No Related Data.
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