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S&P Takes Ratings Actions on Genworth Financial (GNW), Operating Units; Places on CreditWatch Negative

February 9, 2016 11:11 AM EST

Standard & Poor's Ratings Services said today that it lowered its financial strength ratings on Genworth Life Insurance Co. (GLIC), Genworth Life and Annuity Insurance Co. (GLAIC), and Genworth Life Insurance Co. of New York (GLICNY) to 'BB' from 'BBB-'. We have placed the life insurance companies on Creditwatch Developing. We also lowered our counterparty credit and senior unsecured debt ratings on Genworth Financial Inc. and Genworth Holdings Inc. to 'B' from 'BB-'. We placed the holding companies on Creditwatch Negative. We also lowered our rating on guaranteed Genworth Financial Mortgage Insurance Ltd. to 'B' from 'BB-' (this rating is tied to that on Genworth Holdings). Lastly, we have placed Genworth Mortgage Insurance Corp. on Creditwatch Negative.

Our ratings on Genworth's Australia- and Canada–based mortgage insurance units remain unaffected and unchanged.

The lowering of the group credit profile to 'bb' from 'bbb-' and the downgrade of the U.S. life insurance companies reflect the announced suspension of traditional life and annuity sales, our reduced statutory earnings and surplus projections for the U.S. life division, and a prospective business profile that is less diversified and becoming more centered on mortgage insurance and long-term care--two businesses that have exhibited significant volatility historically. The downgrade also reflects our updated view of the organization's enterprise risk management (ERM) to weak from adequate.

The downgrade of the parent and intermediate holding companies is attributable to our lowering the group credit profile, and continued less-than-adequate financial flexibility. Intermediate holding company Genworth Holdings Inc. relies on the divided capacity of its international subsidiaries and holding company cash to fund its debt-servicing requirements of approximately $260 million annually, as well as debt repayment.

We view the credit quality of the Australian and Canadian mortgage insurance entities as relatively insulated at the respective current rating levels given local regulatory oversight, external minority ownership, and restriction on capital fungibility. We have not de-linked the ratings on Genworth's ongoing Australian and Canadian entities from the group credit profile. However, we have allowed greater notching at this time relative to the group credit profile due to our updated assessment around level of insulation from credit deterioration in the U.S. operations. We reasonably expect local regulators in Australia and Canada to act to prevent the subsidiaries from supporting the group to an extent that would impair the subsidiaries' stand-alone creditworthiness. We believe that our current ratings capture the likely minimum capital requirements to be enforced in both Australia and Canada.

We currently view Genworth Mortgage Insurance Corp. as insulated, within a one-notch limit of the group credit profile, from decreasing credit strength across the remainder of the U.S. business platform. The rating reflects the entity's progress in building its earnings profile and capital strength in recent years, adequate ERM, and the parent's economic incentive to preserve the credit profile of the U.S. mortgage insurance business as much as possible.

The CreditWatch Developing on GLIC, GLICNY, and GLAIC reflects the unanticipated suspension of traditional life and annuity sales and management's intent to unstack the organizational structure and isolate GLIC and GLICNY subject to regulatory approval. Depending on further clarification of strategic direction, prospective capitalization of the individual companies, and regulatory approvals, we could affirm the current ratings or raise or lower the ratings on the individual companies by one or more notches. The unstacking process, if approved, may not be achieved until late 2016.

The Creditwatch Negative on Genworth Mortgage Insurance Corp., Genworth Financial Inc., and Genworth Holding Inc. reflects our general uncertainty around the potential for future block asset sales and their financial impact on the holding companies and U.S. mortgage operations.

We expect to refresh our rating and Creditwatch opinions within 90 days, or whenever sufficient information becomes available.



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