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Rating Action:

Moody's reviews Genworth's and its US MI's ratings for downgrade; lowers IFS of US life entities to A3/stable

27 Jun 2012

Note: On November 2, 2012, corrected the EU Endorsement disclosure in the Regulatory Disclosures section. Added the following disclosure as the third paragraph of the Regulatory Disclosures section: Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody’s Investors Service information. Revised release as follows:

$4.3 billion of debt affected

New York, June 27, 2012 -- Moody's Investors Service has placed the debt ratings of Genworth Financial, Inc. ("Genworth"; NYSE: GNW, senior debt at Baa3) and the insurance financial strength (IFS) ratings of its US Mortgage Insurance (MI) operating companies on review for downgrade. In the same rating action, Moody's downgraded the IFS ratings of Genworth's primary life insurance operating subsidiaries to A3 from A2 with a stable outlook. A complete list of affected ratings is given below. Moody's ratings on Genworth Financial Mortgage Insurance Pty Limited (Genworth Australia, IFS at A1) and Genworth Financial Mortgage Indemnity Limited (Genworth Indemnity, IFS at A2) are unaffected by the rating action and remain on review for downgrade.

RATINGS RATIONALE

US Life Operations

Commenting on the downgrade of the IFS rating of the US life operations, Moody's Senior Vice President Scott Robinson said, "Although Genworth Life Insurance Company (primary US life operating company of Genworth) remains well capitalized (NAIC Risk Based Capital (RBC) ratio of 425% as of Q1 2012) and has a leading market position in long term care (LTC) insurance and a strong position in term insurance, we view it as having a weaker credit profile when compared with some of its similarly rated peers." Regarding its business profile, the company's solid brand and broad product suite is somewhat offset by the company's lack of "lower risk" type products and concentrated position in long-term care, which Moody's considers to be a "higher risk" product. Related to its financial profile, the rating agency said the company's profitability, although improving, remains low compared to peers. On a statutory basis, this has hurt the company's level of unassigned surplus, which restricts the amount of ordinary dividends that can be paid to the holding company. The rating agency noted that the company is taking a number of actions to improve its unassigned surplus position.

The A3 IFS rating for the life operations is supported by the company's relatively diversified earnings, competitive positions in income and protection products, and proactive steps management has taken to raise capital and address upcoming debt maturities at the holding company. These strengths are somewhat offset by the holding company's modest financial flexibility, pressure from shareholders to take "shareholder-friendly" actions to improve market / book value, and a lack of lower risk product reserves.

US Mortgage Insurance (GMICO)

Genworth Mortgage Insurance Corporation's (`GMICO'- collectively all rated US MI operating company affiliates) Ba1 insurance financial strength rating has been placed on review for downgrade due to the uncertainty about the strength of its parent (under review for possible downgrade) and about the likelihood of future capital support -- which might be limited in most scenarios -- see section on holding company below. The review will also evaluate GMICO's ability to continue writing new business given the firm's high risk to capital level and the year-end expiration of most regulatory and counterparty waivers. Other issues in consideration are the firm's contemplated structural alternatives.

GMICO's current rating reflects the firm's modest capitalization, continued dependence on regulatory forbearance to write new business and some implicit support from its parent. The rating also takes into consideration the weak credit trends in the US housing market, substantial remaining uncertainty about the role of private mortgage insurers in the post mortgage-reform environment and improved underwriting prospects for GMICO following the exit of two competitors.

Holding Company

Commenting on the review for downgrade of Genworth, Robinson said: "The review will focus on the evaluation of holding company financial flexibility over the near to medium term. We will consider management actions and plans to enhance flexibility, limit the potential downside impact of the lower rated US MI on the rest of the operations, as well as potential parental support."

Genworth's Baa3 senior debt rating is currently 3 notches lower than the A3 IFS ratings of the company's life insurance operating entities, the standard notching practice for insurance groups. Prior to today's rating action, the notching differential between the main life insurance operating entities and the holding company was 4 notches, a reflection of the lower credit profile and downside risks of US MI, including its potential need for additional support.

Rating Drivers - life insurance group

Moody's commented that the following could lead to an upgrade in the IFS rating for the life insurance entities: 1) Losses and capital requirements of the stress case scenario for the US MI operations are determined to have a modest impact on the group; 2) 2012 US life insurance GAAP operating earnings > $300 million, excluding the impact of life block transactions; 3) US Life Insurance sales growing at industry rate without disproportionate growth in LTC; and 4) Unassigned surplus as of year-end 2012 > $100 million. Conversely, the following could lead to a further downgrade of the IFS rating for the life insurance entities: 1) 2012 US life insurance GAAP operating earnings < $250 million, excluding the impact of life block transactions; 2) Financial leverage in excess of 30% and/or earnings coverage less than 2x on a sustained basis; and 3) Unassigned surplus as of year-end 2012 < $100 million.

Rating Drivers -- US mortgage insurance

The following factors could lead to confirmation of the ratings of the US mortgage insurance subsidiaries: 1) Greater certainty about ability to maintain new business flows over the medium term (12-24 months) 2) Parent's willingness to provide capital support 3) Significant improvement in rate of new delinquencies and/or cures 4) Statutory loss ratio less than 100% and 5) A regulatory framework that improves the market opportunity for private mortgage insurers.

Conversely, the following factors could lead to a downgrade of GMICO: 1) Weakening parental support of the US MI operation 2) Non-renewal of GSE and regulatory agreement/forbearance when they expire 3) Restructuring of operations that would result in reduced new business flows for the flagship, Genworth Mortgage Insurance Corporation 4) Risk to Capital greater than 40x and 5) Statutory loss ratio greater than 200%.

Rating Drivers - holding company

According to Moody's, the following could lead to a confirmation of the holding company's ratings: 1) De-linkage from the US MI operations so that a downside scenario would not impact holding company creditors or determination that a downside scenario would have a modest impact on the group; 2) Capital actions that enhance holding company financial flexibility without hurting long-term earnings power of the company. On the other hand, the following could result in a downgrade of the holding company's ratings: 1) Failure to de-link the US MI from holding company creditors or determination that a downside scenario would have more than a modest impact on the group; 2) Failure to take capital actions that enhance holding company financial flexibility without hurting long-term earnings power of the company.

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. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

The following ratings were placed on review for downgrade:

Genworth Financial, Inc.— senior unsecured debt rating at Baa3, junior subordinated debt rating at Ba1(hyb), senior unsecured shelf rating at (P)Baa3, subordinate shelf rating at (P)Ba1, preferred shelf rating at (P)Ba2, short-term debt rating for commercial paper at P-3;

Genworth Mortgage Insurance Corporation—insurance financial strength rating at Ba1;

Genworth Residential Mortgage Insurance Corporation of NC—insurance financial strength rating at Ba1.

Genworth Seguros de Credito a la Vivienda—insurance financial strength rating at Baa3, national scale insurance financial strength rating at Aa3.mx

The following ratings were downgraded with a stable outlook:

Genworth Life Insurance Company—insurance financial strength rating to A3 from A2, short term insurance financial strength rating to P-2 from P-1;

Genworth Life and Annuity Insurance Company—insurance financial strength rating to A3 from A2, short term insurance financial strength rating to P-2 from P-1;

Genworth Life Insurance Company of New York—insurance financial strength rating to A3 from A2;

Genworth Global Funding Trusts—funding agreement-backed senior secured Medium-Term Note Program to (P)A3 from (P)A2;

Genworth Global Funding Trusts 2006-C; 2006-E; 2007-A; 2007-3 through 4; 2008-1 through 2; 2008-5; 2008-7; 2008-9 through 49 — funding agreement-backed senior secured debt rating to A3 from A2;

Genworth Life Institutional Funding Trust—funding agreement-backed senior secured debt to A3 from A2, senior secured debt to A3 from A2, backed senior secured Medium-Term Note Program to (P)A3 from (P)A2;

General Repackaging ACES SPC, Series 2007-2; Series 2007-3; Series 2007-6; Series 2007-7—funding agreement-backed senior secured debt rating to A3 from A2;

Genworth Financial, Inc., headquartered in Richmond, Virginia, reported total assets of $111 billion and total shareholders' equity of $15.9 billion as of March 31, 2012.

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

Visit Moody's website at www.moodys.com for more information.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody’s affiliates outside the EU are endorsed by Moody’s Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.

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

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody’s Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 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.

Scott Robinson
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's reviews Genworth's and its US MI's ratings for downgrade; lowers IFS of US life entities to A3/stable
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