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Rating Action:

Moody’s upgrades Genworth’s ratings after minority IPO of Enact Holdings, outlook stable

21 September 2021


New York , September 21, 2021 - Moody's Investors Service (Moody's) has upgraded Genworth Mortgage Insurance Corporation (GMICO) insurance financial strength (IFS) rating to Baa2 from Baa3, and Enact Holdings, Inc. (NASDAQ: ACT)(Enact) long term issuer rating and senior unsecured debt rating to Ba2 from Ba3. In addition, Moody's has upgraded Genworth Holdings, Inc. (Genworth Holdings) backed senior unsecured debt rating to B1 from Caa1. The outlook for the ratings is stable.

This rating action follows Genworth Financial, Inc.'s (Genworth) minority IPO of its US mortgage insurance (USMI) business through its intermediate holding company Enact. Genworth sold approximately 18.4% of Enact (all common shares) in its initial public offering (IPO), resulting in net proceeds of around $535 million. Genworth intends to use the net proceeds and existing cash on hand to repay the AXA (senior unsecured A2) liability of $344 million which includes the full paydown of the promissory note and estimate of expected future losses, and partially repay other outstanding debt obligations. AXA will fully release the pledged Enact common stock upon paydown of the promissory note. Please refer to the complete list of rating actions below.

The IFS ratings of Genworth's life insurance subsidiaries, Genworth Life Insurance Company and Genworth Life Insurance Company of New York (IFS rating Caa1, stable) and Genworth Life and Annuity Insurance Company (IFS rating B3, stable) are unaffected by this rating action.

RATINGS RATIONALE

Enact

The rating upgrade reflects Enact's strong position in the USMI sector with an approximate 16%-17% market share, good client diversification, its consistent GSE's PMIER's sufficiency ratio 165% as of June 30, 2021, and consistent profitability that has increased liquidity at the company. Enact remains majority owned and controlled by Genworth with an ownership around 80%. However, the ratings upgrade is also supported by Moody's expectations that as a publicly traded company with third party investors and a stronger balance sheet, the IPO of Enact reduces the event risk for the company related to Genworth's potential inability to address its own debt maturities and restructure its organization. Enact's enhanced governance structure with the expansion of external board members and an independent capital committee are expected to benefit the organization as it transitions as a public company. These strengths are tempered by the commodity-like nature of the mortgage insurance product and the potential for price competition in the USMI market, and the uncertainties related to mortgage loan credit performance due to the economic disruption created by the coronavirus pandemic.

The stable outlook on Enact and its primary insurance subsidiary, GMICO, reflects a healthy level of capital adequacy, comprehensive reinsurance protection on its entire insured portfolio, and a conservative investment portfolio, together with underwriting discipline aimed at improved profitability and market presence. Additionally, Moody's expects Enact to balance shareholder, creditor and policyholder considerations, with respect to product risk, profitability, and financial flexibility ratios consistent with its peers. Enact's leverage ratios are expected to be below 20%.

Genworth Holdings

The rating upgrade reflects the close of a minority IPO of Enact which improves Genworth Holdings' financial flexibility including a clear path to managing its debt maturities beyond 2021 and improves holding company financial flexibility including increased dividend capacity from its insurance companies. The net proceeds will provide liquidity to the company to repay its obligation with AXA and reduce its debt ladder. Genworth Holdings' risk profile significantly improves with the infusion of liquidity and the improved position the company is in relative to near term debt obligations, uncertainty about which had constrained the rating. The company's strengths are offset by the company's challenges to organically build liquidity and a cash buffer, and the pressure on financial flexibility from reduced dividends from Enact during a stressed scenario or economic downturn. Genworth Holdings' ratings reflect the structural subordination of the holding company's liabilities to the liabilities of Enact and the risks associated with the dividend inflows from its insurance companies.

The stable outlook on Genworth Holdings reflects the company's enhanced liquidity following the monetization of a portion of its ownership in Enact and the continued reduction in its outstanding debt. After recently paying down 2021 debt maturities and its expected AXA obligation, the company will significantly reduce its interest expense benefiting its coverage ratio. The stable outlook also reflects the expectation that Genworth Holdings will further increase liquidity with periodic dividends from Enact subject to its board approval and the continued emergence of cash tax payments from its subsidiaries as part of its tax sharing arrangements.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Enact

The following factors could result in an upgrade of the ratings: 1) Continued improvement of Enact's stand-alone credit profile as evidenced by top-tier market share at attractive pricing levels, and continued improvement in earnings; 2) continued maintenance of a comprehensive reinsurance coverage; 3) Enact's adjusted financial leverage (excl. AOCI) in the 15% - 20% range; and 4) sustained PMIERs compliance with the maintenance of a comfortable capital adequacy buffer

The following factors could lead to a downgrade of the rating: 1) decline in shareholders' equity (including share repurchases) by more than 10% over a rolling twelve month period; 2) Enact's adjusted financial leverage (excl. AOCI) remains above 25%; 3) deterioration in Enact's ability to meet its debt service requirements; 4) non-compliance with the PMIERs; or 5) significant deterioration in Enact's profitability metrics.

Genworth Holdings

According to Moody's, the following factors could result in an upgrade of Genworth Holdings' ratings are: 1) an improvement of financial flexibility including increased dividend capacity; 2) further reduction in its debt ladder with financial leverage (excluding U.S. life business equity) that is around the 25% range; and 3) an upgrade of Enact's ratings.

The following factors could lead to a downgrade in the company's rating are: 1) a downgrade of Enact's ratings; 2) a deterioration in financial flexibility including decreased dividend capacity; or 3) a public policy decisions that significantly diminish the role of mortgage insurance in the US housing finance market.

The following ratings have been upgraded:

Genworth Holdings, Inc.:

…backed senior unsecured to B1 from Caa1;

…backed senior unsecured shelf to (P)B1 from (P)Caa1

…backed junior subordinate to B2 (hyb) from Caa2 (hyb)

…backed subordinate shelf to (P)B2 from (P)Caa2

Genworth Mortgage Insurance Corporation:

…insurance financial strength to Baa2 from Baa3.

Enact Holdings, Inc.:

…long-term issuer rating to Ba2 from Ba3;

…senior unsecured to Ba2 from Ba3.

Outlook Actions:

Genworth Holdings, Inc. - outlook changed to stable from developing

Genworth Mortgage Insurance Corporation - outlook changed to stable from positive

Enact Holdings, Inc. - outlook changed to stable from positive

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Mortgage Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187538 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Genworth Holdings is the intermediate holding company of Genworth, an insurance and financial services holding company headquartered in Richmond, Virginia. Genworth Holdings also acts as a holding company for its respective subsidiaries including its life and mortgage insurance businesses. In addition, Genworth Holdings relies on the financial resources of Genworth including Enact to meet its obligations. As of June 30, 2021, Genworth reported total assets of $100.6 billion and shareholders' equity of $15.2 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Bob Garofalo
VP-Sr 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

Scott Robinson, CFA
Associate Managing Director
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

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