December 19, 2017 / 6:57 PM / in a year

Fitch Downgrades Genworth Life Insurance Co's IFS to 'B+', Outlook Negative

(The following statement was released by the rating agency) CHICAGO, December 19 (Fitch) Fitch Ratings has downgraded the Insurer Financial Strength (IFS) ratings of Genworth Life Insurance Company (GLIC) and Genworth Life Insurance Company of New York (GLICNY) to 'B+' (Weak) from 'BB' (Moderately Weak) and removed them from Rating Watch Evolving. The Rating Outlook is Negative. Fitch has maintained the 'BB' (Moderately Weak) IFS ratings of Genworth Life and Annuity Insurance Company (GLAIC) on Rating Watch Evolving. A full list of rating actions follows at the end of this release. The rating actions follow a second extension of the closing deadline of a proposed acquisition of the insurers' parent, Genworth Financial Inc. (GNW), by China Oceanwide Holdings Group Co. Ltd. The transaction is subject to regulatory approval and was initially expected to close by mid-2017. Regulatory review continues and the close deadline has been extended a second time, to April 2018. Fitch believes the continued delay increases the uncertainty as to whether the proposed transaction will be approved. With less certainty that the merger will be completed, the ratings of GLIC and GLICNY were downgraded to reflect ongoing concerns regarding the adequacy of their recorded LTC reserves, which is highly dependent on assumptions regarding future rate increases. GLAIC's rating remains on Rating Watch pending the completion of the acquisition by China Oceanwide. The Evolving Watch reflects uncertainty as to whether the proposed transaction will be approved. Fitch expects to resolve the Rating Watch status following regulators' approval or disapproval of the transaction. China Oceanwide plans to contribute $600 million to GNW to address the 2018 debt maturity at or before the maturity date and $525 million to Genworth Life. If consummated, Fitch believes that the transaction addresses near-term concerns regarding upcoming debt maturities and potential capital impact tied to further long-term care (LTC) reserve charges. However, underperformance of the LTC business continues to pressure Genworth Life's reserve margins and capital adequacy. KEY RATING DRIVERS Genworth Life's ratings reflect the company's large exposure in the LTC market, which Fitch views as one of the most risky products sold by U.S. life insurers due to above-average underwriting and pricing risk, high reserve and capital requirements and exposure to low interest rates. The company's reported statutory capitalization is strong relative to rating expectations but vulnerable to adverse LTC reserve development. Fitch believes GNW's access to the capital markets for future funding needs and overall financial flexibility is limited. Over the intermediate term, holding company funding needs are highly dependent on existing cash balances, ordinary and special dividends from the mortgage insurance businesses or further asset sales and block transactions. China Oceanwide is a privately held, family owned international financial holding company based in Beijing, China, with operations in financial services, energy, culture, media, and real estate. RATING SENSITIVITIES Key rating sensitivities that could result in a rating downgrade include: -- If Fitch believes there is a decline in financial flexibility as the result of a failure to complete the proposed acquisition, GLAIC's rating could be downgraded. --New information that indicated China Oceanwide's financial or operating profile is not supportive of the current ratings. --Significant additional charges related to long-term care or run-off business in the near to intermediate term. Key rating sensitivities that could result in a rating upgrade or a return to Stable Outlook include: --Successful completion of the proposed acquisition of GNW and capital contribution. --Successful un-stacking of GLAIC from GLIC ownership. If the proposed acquisition successfully closes, the effect of China Oceanwide's ownership on GNW will be an important analytical consideration. If Fitch has insufficient information to evaluate the effect of China Oceanwide's ownership on the rated entities, Fitch may have to withdraw the ratings for lack of information. FULL LIST OF RATING ACTIONS Fitch maintains the following rating on Rating Watch Evolving: Genworth Life and Annuity Insurance Company; --IFS at 'BB'. Fitch downgrades the following ratings with Negative Rating Outlook: Genworth Life Insurance Company; Genworth Life Insurance Company of New York; --IFS to 'B+' from 'BB'. Contact: Primary Analyst Donald F. 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