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TMCNet:  A.M. Bests Affirms Rating of Genworth Financial, Inc. and Its Key Life/Health Subsidiaries

[May 09, 2014]

A.M. Bests Affirms Rating of Genworth Financial, Inc. and Its Key Life/Health Subsidiaries

OLDWICK, N.J. --(Business Wire)--

A.M. Best has affirmed the financial strength rating of A (Excellent) and issuer credit ratings (ICR) of "a" of Genworth Life Insurance Company (Wilmington, DE), Genworth Life Insurance Company of New York (New York, NY) and Genworth Life and Annuity Insurance Company (Richmond, VA), the key life/health subsidiaries of Genworth Financial, Inc. (Genworth) (NYSE:GNW). Additionally, A.M. Best has affirmed the ICR of "bbb" of Genworth and its existing debt ratings. The outlook for all ratings is stable. (Please see below for a detailed listing of the debt ratings.)

The ratings of Genworth and its subsidiaries reflect the group's continued improvement in overall profitability, enhanced financial flexibility, strong risk-adjusted capitalization and diversified business mix. Genworth continues to improve its overall risk profile through the de-risking of both its investment and product portfolios, more recently with its focus on pricing actions within its older vintage and newly underwritten long-term care (LTC) blocks. The organization's life insurance segment complements Genworth's domestic and international mortgage insurance business, providing excellent earnings diversification. Holding company liquidity remains very good, and financial flexibility continues to improve as Genworth has been efficient with its capital management, in addition to demonstrating repeated access to the capital markets. A.M. Best believes Genworth's financial leverage and interest expense coverage remain at adequate levels for its current ratings.

Partially offsetting these positive rating factors are Genworth's sizeable exposure to LTC business, significant interest-sensitive reserves as well as the highly competitive environment in its core life and fixed annuity markets. While A.M. Best remains cautious with regard to LTC, Genworth has been successful in securing various levels of approvals for rate increases on its existing blocks of business from most states and continues to be transparent in its management of these legacy policies. Additionally, core earnings from Genworth's life insurance segment have been somewhat lackluster in recent periods with some reported mortality volatility in the first quarter of 2014, consistent with many other life insurance peers. The group's life insurance portfolio continues to evolve, with Genworth shifting to more capital-efficient products and implementing pricing actions within its term life blocks. Moreover, A.M. Best notes the company's material exposure to economically sensitive business through its various life and annuity offerings, and will continue to monitor for significant spread compression due to guaranteed minimum interest rates and the ongoing low interest rate environment.

While Genworth's mortgage insurance businesses provide additional product diversification, both the domestic and international segments have reported volatility in recent years, driven by macroeconomic pressures within certain real estate markets. However, in 2013 and into 2014, the group has reported increasingly favorable results in these segments, tied to recovery in most markets, as well as increasingly stringent underwriting processes. While some seasonality is apparent in select markets, the general trend reflected improved delinquencies relative to prior periods. Genworth recently announced its intent to resume the process of a partial initial public offering (IPO) of its Australian mortgage insurance business. The execution of the IPO is subject to market conditions and valuation considerations, including business performance. Proceeds from the IPO would be available to ensure the operating businesses remain appropriately capitalized and to make progress on the company's medium-term leverage targets. Also, in December 2013, Genworth raised $400 million from a debt issuance for the purpose of prefunding anticipated government-sponsored entity requirements within its domestic mortgage insurance operations, which are expected to be implemented later this year.


Genworth has improved the quality of its investment portfolio over the past few years, while retaining adequate yield in the current low interest rate environment. The company has reported a continued lower level of impairments, and like several of its peers, has opportunistically purchased securities within certain riskier asset classes to bolster yield. In addition to its typical investment grade corporate bonds and structured securities, A.M. Best notes that Genworth continues to take mortgage risk on both sides of its balance sheet, which somewhat increases the risk of this asset class to the company. However, the company has reported minimal impairments related to commercial mortgage loan investments, and overall investment exposure to this asset class is generally consistent with peers. A.M. Best will continue to closely monitor Genworth's overall investment performance for material losses going forward.

Factors that could result in a favorable rating action for Genworth in the medium term include material diversification in its business mix to products A.M. Best believes are more creditworthy including ordinary life, sustained favorable statutory operating results across its various core lines of business, sustained profitable management of non-core/legacy blocks of business and an overall reduction in its interest rate liabilities. Factors which could lead to a negative rating action include a material decline in the operating performance in any of its businesses, a significant and sustained decline in its statutory capital and/or a material increase in impairments from its investment portfolio.

The ICR of "bbb" has been affirmed with a stable outlook for Genworth Holdings, Inc.

The following debt ratings have been affirmed:

Genworth Holdings, Inc. (guaranteed by Genworth Financial, Inc.)-

--"bbb" on $600 million 5.75% senior unsecured notes, due 2014 ($485 million currently outstanding)

--"bbb" on $300 million 8.625% senior unsecured notes, due 2016

--"bbb" on $600 million 6.515% senior unsecured notes, due 2018

--"bbb" on $400 million 7.70% senior unsecured notes, due 2020

--"bbb" on $400 million 7.20% senior unsecured notes, due 2021

--"bbb" on $750 million 7.625% senior unsecured notes, due 2021

--"bbb" on $400 million 4.9% senior unsecured notes, due 2023

--"bbb" on $400 million 4.8% senior unsecured notes, due 2024

--"bbb" on $300 million 6.50% senior unsecured notes, due 2034

--"bb+" on $600 million fixed/floating rate junior subordinated notes, due 2066

Genworth Global Funding Trusts-"a" program rating

--"a" on all outstanding notes issued under the program

Genworth Life Institutional Funding Trust-"a" program rating

The following indicative debt ratings on securities available under universal shelf registration have been affirmed:

Genworth Financial, Inc.-

--"bbb" on senior unsecured debt

--"bbb-"on subordinated debt

--"bb+" on preferred stock

The following indicative debt ratings on securities available under universal shelf registration have been affirmed:

Genworth Holdings, Inc.-

"bbb" on senior unsecured debt

"bbb-"on subordinated debt

"bb+" on preferred stock

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.


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