Moody's reviews Genworth ratings for possible downgrade
Approximately $4.2 billion of debt affected
New York, September 30, 2008 -- Moody's Investors Service has placed on review for possible downgrade
the debt ratings of Genworth Financial, Inc. ("Genworth";
NYSE: GNW, senior debt at A2) as well as the Aa3 insurance
financial strength (IFS) ratings of the company's primary life insurance
and mortgage insurance operating subsidiaries and its supported affiliates
in the US and Europe. The rating actions follow an announcement
by the company that it is exploring strategic alternatives related to
its domestic mortgage insurance ("MI") operations.
During its review, Moody's will evaluate the impact of potential
outcomes of the strategic review on both Genworth Mortgage Insurance Corporation
(GMICO) as well as the rest of the company. Moody's ratings of
Genworth's Australian MI companies are not part of this rating action;
Moody's will comment separately on the ratings of those entities in the
near term.
The rating agency said that the review for possible downgrade of GMICO
and supported US and European affiliates reflects the recently announced
strategic review by Genworth of its US mortgage insurance operations,
including but not limited to a possible spin-off. Moody's
commented that GMICO has historically benefited from the ownership by
a large and diversified group, and that its weakened strategic relevance,
and uncertain future profile are negative credit developments, especially
given the current credit environment. Notwithstanding GMICO's
more conservatively underwritten book as compared to many MI peers,
Moody's believes that the exposures remain vulnerable to further
economic deterioration, which could pressure the company's
capital adequacy.
According to Scott Robinson, Vice President and Senior Credit Officer,
"A downgrade of Genworth's mortgage insurance operations or
a spin-off of the operations would, in Moody's opinion,
result in reduced diversification of the group's overall business
profile." He added that "the debt rating is primarily
supported by the resources and cash flows provided by its life insurance
and its mortgage insurance operations. Pressure on the domestic
mortgage insurance operations necessitates that the company rely more
on its other operations to service holding company debt."
The senior debt rating is two notches lower than the Aa3 IFS rating of
the company's lead life insurance companies and two notches from the Aa3
IFS rating on its MI operating companies. Moody's noted that the
notching between the holding company debt rating and the "average" operating
company rating - two notches - is narrower than the typical
three notches for most US-based insurance groups.
The basis for this notching is due to the extent of Genworth's overall
business diversification, reflecting the long-term projected
sources of earnings and cash flows from the life insurance, international
-- including Canada and Australia MI and Payment Protection
-- and domestic mortgage insurance operations to the holding
company to service Genworth's cash needs.
Regarding the review for downgrade related to the life operations,
Robinson noted that "any potential capital shortfall in the MI operations
could cause management to divert capital from the rest of the company,
depending on the strategic alternative that management elects to pursue."
He added that "the review is also the result of continuing pressure
on the company's earnings and capital position." During
the first half of 2008, the statutory capital in Genworth's
lead domestic life insurance company, Genworth Life Insurance Company,
declined by slightly over 20%. While the company has a solid
plan to improve its still strong risk based capital ratio, the company
continues to face a challenging credit environment.
Genworth's Aa3 IFS ratings on its U.S. life insurance subsidiaries
and its A2 senior unsecured debt rating are based on Genworth's good business
profile, supported by diversified earnings and product portfolio
with competitive positions in income and protection products, and
global mortgage insurance. 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 strong financial profile and focus
on risk management.
The rating agency indicated that pre-tax impairments greater than
$750 million, financial leverage greater than thirty percent,
consolidated risk based capital of less than 325% in the life insurance
companies, the inability to secure collateral for insurance policies
subject to regulation XXX / AXXX, or earnings interest coverage
less than eight times would place downward pressure on the ratings.
To the contrary, RBC above 325%, impairments less than
$750 million, a resulting capital structure following the
MI strategic alternative review that does not place material incremental
pressure on the life insurance company's resources, and a
successful securing of long term collateral for XXX / AXXX reserves could
lead to a confirmation of the company's ratings.
On June 30, 2008, Moody's affirmed the debt ratings
of Genworth Financial, Inc (sr. debt at A2, negative
outlook) and affirmed the Aa3 IFS ratings on the company's life insurance
operating subsidiaries.
The following ratings were placed under review for possible downgrade:
Genworth Financial, Inc. -- senior unsecured
debt at A2, jr. subordinated debt at A3, preferred
stock at Baa1; senior unsecured debt shelf at (P)A2, subordinated
debt shelf at (P)A3, and preferred stock shelf at (P)Baa1;
Genworth Financial, Inc. -- short-term
debt of Prime-1 for commercial paper;
Genworth life insurance subsidiaries -- Genworth Life Insurance Company,
Genworth Life Insurance Company of New York, Genworth Life and Annuity
Insurance Company -- insurance financial strength at Aa3;
Funding agreement-backed note issuance program (FANIP) of Genworth
Life Institutional Funding Trust at Aa3;
Secured Note Issuance Program (the Program) of Genworth Global Funding
Trusts at Aa3;
Genworth Global Funding Trusts 2005-A; 2006-A through
E, G; 2007-A through D; 2007-1 through 5;
2008-1 through 49 at 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 at Aa3;
Premium Asset Trust - Series 2001-3, Series 2001-8,
Series 2004-10, Series 2005-3,Series 2005-6
through 7 at Aa3;
Genworth Mortgage Insurance Corporation -- insurance financial
strength at Aa3;
Genworth Residential Mortgage Insurance Corporation of NC --
insurance financial strength at Aa3;
Genworth Financial Assurance Corporation -- insurance financial
strength at Aa3;
Genworth Financial Mortgage Insurance Ltd (UK) -- insurance
financial strength at Aa3;
Genworth Seguros de Credito a la Vivienda S.A. (Mexico)
-- insurance financial strength at A2, national scale
rating at Aaa.mx.
The following ratings were affirmed:
Genworth life insurance subsidiaries -- Genworth Life Insurance Company
and Genworth Life and Annuity Insurance Company -- short term insurance
financial strength rating at P-1;
Premium Asset Trust Series 2004-10, at P-1
Genworth Financial, Inc., headquartered in Richmond,
Virginia, reported shareholders' equity of $12.3 billion
as of June 30, 2008, down from $13.5 billion
as of December 31, 2007. For the first half of 2008,
the company reported net operating income of $456 million,
down from $691 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
