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Related Issuers
General Repackaging ACES SPC 2007-2
General Repackaging ACES SPC 2007-3
General Repackaging ACES SPC 2007-7
General Repackaging ACES SPC, Series 2007-2
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Genworth Global Funding Trust 2007-3
Genworth Global Funding Trust 2007-4
Genworth Global Funding Trust 2008-1
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Genworth Holdings, Inc.
Genworth Life and Annuity Insurance Company
Genworth Life Insurance Company
Genworth Life Insurance Company of New York
Rating Action:

Moody's reviews Genworth's ratings (Ba3 senior), following de-stacking delay

03 Aug 2016

Approximately $4 billion of debt affected

New York, August 03, 2016 -- Moody's Investors Service has placed the Ba3 senior unsecured debt rating of Genworth Holdings, Inc. (Genworth) on review for possible downgrade. The Ba1 insurance financial strength (IFS) ratings of the company's long-term care (LTC) subsidiaries, Genworth Life Insurance Company and Genworth Life Insurance Company of New York (GLIC and GLICNY, collectively, GLIC), and the Baa2 IFS rating of its life and annuity company, Genworth Life and Annuity Insurance Company (GLAIC), were also placed on review for possible downgrade, as were other affiliated ratings (see ratings list, below). The rating action follows Genworth's announcement on 3 August 2016 that its original February restructuring plan, including the full de-stacking of GLAIC by the long term care company and ultimate contribution to Genworth Holding, Inc. in 2017, will now likely take place in stages over time, subject to improvement of the financials at GLIC and regulatory approvals.

The ratings of Genworth's US and Australian mortgage insurance (MI) operations (Ba1 IFS rating, stable; A3 IFS rating, negative, respectively) are not part of this rating action.

RATINGS RATIONALE

The Holding Company

Genworth's review for downgrade reflects the holding company's diminished liquidity and financial flexibility. The partial de-stacking, which was not anticipated by Moody's, will diminish Genworth's ability to repay $2.1 billion of debt maturing between 2018 and 2021 (specifically, $600 million in 2018 and $1.5 billion in 2020-2021). GLAIC's statutory dividend capacity will remain partially restricted by its continuing ownership by the LTC company.

The rating agency added that pressure on Genworth to resolve the debt issue is building, given the passage of time. However, the company's successful Q1'16 bond consent solicitation, which resulted in the revision of certain covenants, is a favorable development for bondholders, protecting them from certain stress scenarios at the LTC company. In addition, cash at the holding company remained solid at the end of 2Q16, at $934 million.

The Life Insurance Companies

The review for downgrade of GLIC and GLAIC reflects both the diminished financial flexibility at the Genworth holding company, and weaker-than-expected 2Q16 earnings. While factors depressing life insurance earnings were largely one-time items, statutory losses continued in 2Q16, lowering the group's regulatory capitalization, as measured by the NAIC Risk-Based Capital ratio (RBC). Specifically, the group's RBC ratio declined to an estimated 370% (company action level) in 2Q16 from an estimated 391% at 1Q16 (although 2Q16 RBC at GLAIC was 560% and unassigned surplus was $100 million). Furthermore, we remained concerned about the impact of low interest rates on the company's LTC and life insurance blocks. On the positive side, LTC rate increases continue to track with Genworth's 2015 LTC margin analysis.

Moody's said the review will focus on: (1) greater clarity on, and progress related to, the de-stacking (e.g., the regulatorily-approved distribution schedule of GLIC's ownership interest in GLAIC to Genworth Financial; (2) definitive debt repayment decisions, and (3) the business and financial profile of the life insurance companies, in terms of earnings, reserve adequacy, and capitalization.

Moody's would not expect the ratings of Genworth or the life insurance companies to decline more than one notch as a result of the review.

Rating Drivers -- Holding Company

The following could result a confirmation of the holding company's ratings: 1) improving credit profile of Genworth's life insurance subsidiaries along with strong performance in MI; and 2) successful separation and isolation of the LTC business and improvement of holding company financial flexibility (i.e., reduction in and/or refinancing of 2018 and 2020/2021 debt maturities).

Conversely, the following could result in a downgrade of the holding company's ratings: 1) further downgrade of the US life insurance operations; and 2) lack of progress in addressing upcoming debt maturities in 2018 and 2020/2021.

Rating Drivers - US life insurance operating subsidiaries

Moody's stated that the following factors could result in GLAIC's rating being confirmed: 1) stability in statutory earnings and return on statutory surplus greater than 10%, and 2) improvement in financial flexibility at the holding company (i.e., reduction in and/or refinancing of 2018 and 2020/2021 debt maturities).

Moody's stated that the following factors could result in GLIC's/GLICNY's ratings being confirmed: 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 2020/2021 debt maturities).

Conversely, factors that could result in a downgrade of GLAIC's rating include: 1) RBC ratio less than 350% of company action level (CAL), 2) return on statutory surplus less than 5%, and 3) lack of progress in addressing upcoming debt maturities in 2018 and 2020/2021.

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 placed on review for downgrade:

Genworth Holdings, Inc.: backed senior unsecured at Ba3, backed junior subordinate at B1 (hyb), backed provisional senior unsecured shelf at (P)Ba3, backed provisional subordinate shelf at (P)B1;

Genworth Life Insurance Company: insurance financial strength at Ba1;

Genworth Life Insurance Company of New York: insurance financial strength at Ba1;

General Repackaging ACES SPC 2007-2, 3, 7: funding agreement-backed senior secured notes at Ba1;

Genworth Life and Annuity Insurance Company: insurance financial strength at Baa2.

Genworth Global Funding Trusts: funding agreement-backed senior secured MTN notes at Baa2.

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 $172 million for the first three months of 2016 on total assets of $108 billion and shareholders' equity of $17 billion.

The principal methodologies used in rating Genworth Holdings, Inc. were Global Life Insurers published in April 2016, and Mortgage Insurers published in April 2016. The principal methodology used in rating Genworth Life Insurance Company, Genworth Life Insurance Company of New York, General Repackaging ACES SPC 2007-2, General Repackaging ACES SPC 2007-3, General Repackaging ACES SPC 2007-7, Genworth Life and Annuity Insurance Company, and Genworth Global Funding Trusts was Global Life Insurers published in April 2016. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

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.

Scott Robinson
Associate Managing Director
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

Marc R. Pinto, CFA
MD - Managed Investments
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

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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