Nov 16 - Fitch Ratings has affirmed the 'A-' Insurer Financial Strength
(IFS) ratings of Genworth Life Insurance Company, Genworth Life and Annuity
Insurance Company and Genworth Life Insurance Company of New York (collectively,
Genworth Life). Fitch has also affirmed the 'A-' long-term ratings on the
Genworth Global Funding Trusts. The Rating Outlook is Negative.
The rating action reflects Fitch's view that Genworth Life's statutory capital
position remains strong. Also reflected in the rating affirmation is that its
holding company liquidity profile has improved, investment losses have tapered
off and remain within the levels previously forecasted by Fitch. Recent earnings
have also generally been in line with rating expectations.
Genworth Life's statutory capital position has benefited over the past year from
the sale of its Medicare supplement business. Also bolstering its position are
favorable taxes and positive statutory income, and the completion of a life
block transaction that closed in the first quarter of 2012 (1Q'12). Genworth
Life plans to complete a second life transaction in 4Q'12 which is expected to
generate in excess of $100 million of after-tax capital benefits.
Genworth Financial, Inc. (NYSE: GNW) holding company debt that matured
in 2009-2011 has been refinanced and paid. Financing is in place for debt
maturities prior to 2014. GNW holding company liquidity remains strong. GNW
management has indicated its intent to hold a cash buffer of 2x annual debt
service in holding company cash and exceeded its goal at the end of 3Q'12.
The Negative Outlook reflects Fitch's concerns regarding continuing, albeit
lower, U.S. mortgage insurance losses; low reported life insurance statutory
earnings; exposure to the low interest rate environment particularly within its
long-term care and fixed annuity business; and somewhat limited financial
flexibility. Also reflected in the Negative Outlook is uncertainty tied to
execution of its new corporate strategy and search for a CEO.
Fitch believes macroeconomic conditions (home prices and unemployment) are
stabilizing. However, they continue to provide a significant headwind to the
U.S. mortgage insurance business. Additionally, the U.S. mortgage insurance
business continues to depend on regulatory and counterparty forbearance to write
new business. GNW management has indicated that it believes the U.S. mortgage
insurance business has economic value and as such, Fitch believes GNW will
continue to provide reasonable support to this business. The current rating
level can tolerate a moderate amount of additional losses at the U.S. mortgage
insurance business, including additional capital replenishment. The rating's
tolerance for further capital replenishment at the U.S. mortgage insurance
business will depend on the amount and form of that replenishment.
The performance of certain life and long term care (LTC) insurance blocks has
put downward pressure on the statutory earnings of the life companies. Genworth
Life has initiated several rounds of premium rate increases designed to mitigate
losses on older generation policies as well as offset the impact of lower
interest rates and lower than expected lapse rates. Fitch believes these price
increases will improve statutory earnings. However, it will take some time to
receive regulatory approval in all states and for rates to flow through to
Fitch views GNW's financial flexibility as being hindered by the company's low
stock price that trades at a significant discount to book value and high spreads
in the credit default swap market. Additionally, both of GNW's revolving credit
facilities matured in 2012 and neither facility was replaced.
GNW's financial leverage was approximately 27% at Sept. 30, 2012. Fitch's
expectation that leverage will remain below 30% includes an assumption of
further impairments in goodwill. In 3Q'12, the company took an after-tax
goodwill impairment charge of $86 million related to its International
Protection business. The remaining goodwill balance of $1.1 billion is largely
related to its U.S. life insurance and long-term businesses.
Triggers that could result in and Outlook revision to Stable include:
--Improvement in earnings at the U.S. mortgage insurance business;
--Improvement in GAAP earnings-based interest coverage to 5x or better;
--Sustained statutory earnings at Genworth Life of $300 million annually;
--Successful execution of the new corporate strategy.
Triggers that could result in a rating downgrade include:
--An increase in financial leverage above 30%;
--A sustained decline in statutory interest coverage below 3x, especially if
combined with a decline in cash at the holding company below 2x annual holding
company interest expense;
--GAAP earnings-based interest coverage below 3x in 2013;
--A decline in Genworth Life company risk-based capital below 350%;
--A material ($500 million or more) earnings charge from adverse development of
long-term care reserves.
Fitch believes GNW's U.S. mortgage insurance business could be considered a
significant subsidiary of GNW. If a significant subsidiary were to become
subject to an insolvency proceeding, it could trigger an event of default under
GNW's senior debt indenture resulting in an acceleration of the maturity of
GNW's debt. Such an event would trigger a multi-notch downgrade. Fitch however
believes the likelihood of this event taking place to be low.
Fitch has affirmed the following ratings:
Genworth Life Insurance Company;
Genworth Life and Annuity Insurance Company;
Genworth Life Insurance Company of New York;
--IFS at 'A-'.
Genworth Global Funding Trusts;
--Long-term rating at 'A-'.
The Rating Outlook is Negative.
Tana M. Higman
70 West Madison Street
Chicago, IL 60602
Douglas L. Meyer
Keith M. Buckley
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email:
Additional information is available on www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Oct. 18, 2012).
Applicable Criteria and Related Research:
Insurance Rating Methodology - Amended
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
here. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE.
* Form NRSRO
* Endorsement Policy
* Code of Ethics
* Site Index
* Press Room
Copyright © 2012 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries.
Ratings and Research
Products and Services