Moody's downgrades Genworth (senior debt to Baa1)
Approximately $4.2 billion of debt affected
New York, November 10, 2008 -- Moody's Investors Service has downgraded the debt ratings of Genworth
Financial, Inc. ("Genworth"; NYSE: GNW,
senior debt to Baa1 from A2) as well as the insurance financial strength
(IFS) ratings of the company's primary life insurance operating subsidiaries,
to A1 from Aa3. The downgrade concludes the review that was initiated
on September 30, 2008. The outlook on Genworth and its life
insurance subsidiaries is negative. This rating action follows
Genworth's announcement of its 3Q08 results including a loss of
$258 million after net investment losses of $478 million.
Moody's ratings of Genworth's Mortgage Insurance (MI) businesses
(except Genworth Seguros de Credito a la Vivienda S.A. (Mexico))
are not part of this rating action; the rating agency said it will
comment separately on the ratings of the MI entities in the near term.
According to Scott Robinson, Vice President and Senior Credit Officer,
"the downgrade of the life insurance operations and the negative
outlook reflect the continuing adverse impact of the difficult credit
and economic environment on Genworth's earnings, challenges
in managing capital and life insurance related collateral needs to support
the company's growth, and diminished financial flexibility
at the holding company." Earnings capacity and internal capital
generation for the company have been constrained because of significant
credit losses in the company's structured investment portfolio and
financial institutions securities, and to a lesser extent,
weak equity markets.
The rating agency commented that as a result of a recent $500 million
capital contribution made by Genworth, the capital levels of the
life companies were strengthened significantly to a solid 360%
NAIC Risk Based Capital (RBC) ratio at the end of the third quarter;
however, the holding company now has fewer resources to pay off
upcoming debt maturities. Genworth's recent elimination of
its common shareholder dividends will help the operating companies retain
capital and will diminish the cash needs of the holding company going
forward, according to Moody's.
Moody's noted that Genworth announced with its 3Q08 results that
it was evaluating capital flexibility alternatives including the potential
for asset sales, the continuing strategic review of its U.S.
Mortgage Insurance business, and the possibility of raising private
or public equity, or debt capital. The company has approximately
$1.1 billion of debt coming due in mid-2009.
Moody's commented that if the company does not raise adequate funds
from the execution of its capital raising plan, Genworth would likely
draw down on its bank credit lines, which have an undrawn capacity
of $1.8 billion.
The rating agency said that the two notch downgrade of the company's
holding company debt ratings reflects two issues: 1) the weakened
financial profile of Genworth's life insurance operations,
and 2) the reduced diversification of the group's earnings and cash
flows resulting in the widening of the notching between the IFS rating
of the operating subsidiaries and the senior debt rating at the holding
company to three notches--which is typical for US-based
insurance groups--from two notches. The basis for
the previous narrower notching at Genworth's holding company had
been the extent of its overall business diversification arising from the
life insurance, international (including Canadian and Australian
MI and U.K. Payment Protection), and U.S.
MI operations. Moody's expects that the diversification benefits
will be reduced going forward in light of the company's strategic
review and possible asset sales, as well as the currently diminished
dividend capacity of the life operations given their constrained earnings
and investment losses.
According to Moody's, Genworth's A1 IFS rating on its U.S.
life insurance subsidiaries is based on its good business profile,
supported by diversified earnings and a product portfolio with competitive
positions in income and protection products. The company's exposure
to spread compression and certain higher risk life insurance products
such as long-term care is offset to a large extent by its disciplined
risk management. Continuing challenges facing the company include
additional investment losses, funding regulatory reserve requirements
associated with term and universal life products, and managing liquidity
risk in light of its surrenderable institutional investment products and
fixed annuities.
Regarding the future direction of Genworth's ratings, one
or more of the following conditions could lead to a further downgrade:
1) additional credit impairments greater than $500 million over
the next few quarters, 2) financial leverage approaching 35%
and/or earnings coverage less than 7x, 3) consolidated NAIC RBC
less than 300%, or 4) the inability to secure collateral
for insurance policies subject to the reserve requirements under Regulation
XXX / AXXX.
The rating outlook of Genworth could return to stable if one or more of
the following occurs: 1) RBC is maintained above 325%,
2) additional credit impairments are less than $500 million,
3) the resulting capital structure following the MI strategic alternative
review does not place material incremental pressure on the life insurance
companies' resources, and 4) a successful securing of long
term collateral for XXX / AXXX reserves.
On September 30, 2008, Moody's placed on review for possible
downgrade the debt ratings of Genworth Financial, Inc. as
well as the Aa3 IFS ratings of the company's life insurance and mortgage
insurance operating subsidiaries.
The following ratings were downgraded with a negative outlook:
Genworth Financial, Inc.--senior unsecured
debt to Baa1 from A2, junior subordinated debt to Baa2 from A3,
preferred stock to Baa3 from Baa1, provisional senior unsecured
debt shelf to (P)Baa1 from (P)A2, provisional subordinated debt
shelf to (P)Baa2 from (P)A3, and provisional preferred stock shelf
to (P)Baa3 from (P)Baa1;
Genworth Life Insurance Company—insurance financial strength rating
to A1 from Aa3;
Genworth Life Insurance Company of New York—insurance financial
strength rating to A1 from Aa3;
Genworth Life and Annuity Insurance Company -- insurance
financial strength to A1 from Aa3;
Genworth Life Institutional Funding Trusts--funding agreement-backed
senior secured debt rating to A1 from Aa3;
Genworth Global Funding Trusts--funding agreement-backed
senior secured debt rating to A1 from Aa3;
Genworth Global Funding Trusts 2005-A; 2006-A through
E, G; 2007-A through D; 2007-1 through 5;
2008-1 through 49--funding agreement-backed
senior secured debt rating to A1 from Aa3;
General Repackaging ACES SPC 2007-2, General Repackaging
ACES SPC 2007-3, General Repackaging ACES SPC 2007-6,
General Repackaging ACES SPC 2007-7—funding agreement-backed
senior secured debt rating to A1 from Aa3;
Premium Asset Trust - Series 2001-3, Series 2001-8,
Series 2004-10, Series 2005-3, Series 2005-6
through 7—funding agreement-backed senior secured debt rating
to A1 from Aa3.
Genworth Seguros de Credito a la Vivienda S.A. (Mexico)--insurance
financial strength rating to Baa1 from A2 (guaranteed by Genworth Financial,
Inc.)
The following ratings were downgraded with a stable outlook:
Genworth Financial, Inc. -- short-term
debt rating for commercial paper to Prime-2 from Prime-1;
Genworth Seguros de Credito a la Vivienda S.A. (Mexico)—national
scale insurance financial strength rating to Aa1.mx from Aaa.mx
(guaranteed by Genworth Financial, Inc.).
The following ratings were affirmed with a stable outlook:
Genworth Life Insurance Company--short-term insurance
financial strength rating at Prime-1;
Genworth Life and Annuity Insurance Company--short-term
insurance financial strength rating at Prime-1;
Premium Asset Trust Series 2004-10—funding agreement-backed
senior secured debt at Prime-1.
Genworth Financial, Inc., headquartered in Richmond,
Virginia, reported shareholders' equity of $10.5 billion
as of September 30, 2008, down from $13.5 billion
as of December 31, 2007. For the third quarter of 2008,
the company reported a net loss of $258 million, compared
to net income of $339 million in the year-ago period.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to repay punctually senior policyholder claims
and obligations.
For more information, visit our website at www.moodys.com/insurance.
New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Scott Robinson
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
