A.M. Best Downgrades Credit Ratings of Genworth Financial, Inc. and Its Affiliates; Maintains Under Review Status

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FEBRUARY 12, 2018 05:17 PM (EST)

A.M. Best Downgrades Credit Ratings of Genworth Financial, Inc. and Its Affiliates; Maintains Under Review Status

CONTACTS:

Bruno Caron
Financial Analyst
+1 908 439 2200, ext. 5144
bruno.caron@ambest.com

Ken Johnson, CFA, CAIA, FRM
Senior Director
+1 908 439 2200, ext. 5056
ken.johnson@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - FEBRUARY 12, 2018 05:17 PM (EST)
A.M. Best has downgraded the Financial Strength Rating (FSR) to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb-” from “bbb” of Genworth Life and Annuity Insurance Company (GLAIC) (Richmond, VA). Concurrently, A.M. Best has downgraded the FSR to B- (Fair) from B (Fair) and the Long-Term ICRs to “bb-” from “bb+” of Genworth Life Insurance Company (GLIC) (Wilmington, DE) and Genworth Life Insurance Company of New York (GLICNY) (New York, NY). Additionally, A.M. Best has downgraded the Long-Term ICRs to “b” from “bb-” of Genworth Financial, Inc. (Genworth) [NYSE: GNW] and Genworth Holdings, Inc. (both domiciled in Delaware), as well as their Long-Term Issue Credit Ratings (Long-Term IR). Lastly, A.M. Best has maintained the under-review status of all Credit Ratings (ratings) and revised the implications to developing from negative. (Please see below for a detailed list of the Long-Term IRs.)

The ratings of GLIC reflect its balance sheet strength, which A.M. Best categorizes as weak, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management. Separately, the ratings of GLAIC reflect its strong balance sheet but marginal operating performance, limited business profile and appropriate risk management.

GLIC’s operations remain focused on the long-term care market (LTC), which A.M. Best has on its product continuum at the high end of risk. A.M. Best continues to view the risk-adjusted capital level as weak, as measured by Best’s Capital Adequacy Ratio (BCAR) for year-end 2016, partially reflecting required LTC capital charges from a revision to the model in October 2017. Separately, the LTC block continues to require periodic reserve strengthening, which further calls into question the overall strength of the reserves. A.M. Best notes the company’s continued successful efforts to garner rate increases across its various LTC blocks, but operating performance remains volatile, and with the limited product profile, prevents significant organic growth, which currently is mainly based on continued price increases. On the other hand, GLAIC’s balance sheet, as measured by BCAR, remains strong and reflective of the company’s decision to halt new sales back in 2016. However, this has continued to give rise to marginal and volatile operating performance with a limited business profile.

From a holding company standpoint, management has been able to formulate adequate financial flexibility, given a limited ability to access the equity markets at this time. Genworth has secured a plan to address the upcoming $600 million of senior debt due in May 2018. In addition, it currently maintains close to $900 million of holding company liquidity. In addition, cash flow from the domestic and international mortgage businesses remains good. A.M. Best also believes there still remains a fair amount of regulatory risk regarding the company’s potential acquisition by China Oceanwide, along with uncertainty over the successful completion of the transaction. Although both parties have worked to tighten up the transaction and have jointly refiled with the Committee on Foreign Investment in the United States, management remains unclear as to the ultimate acceptance by the committee, in addition to other regulatory regimes.

All ratings will remain under review pending the outcome of China Oceanwide’s attempted acquisition of Genworth. However, A.M. Best is revising the implications to developing from negative as management continues to take positive actions at the holding company level in addressing upcoming maturities and accumulating holding company liquidity.

The following Long-Term IRs have been downgraded, with the under-review status maintained and the implications revised to developing from negative:

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

— to “b” from “bb-” on $600 million 6.515% senior unsecured notes, due 2018

— to “b” from “bb-” on $400 million 7.70% senior unsecured notes, due 2020

— to “b” from “bb-” on $400 million 7.20% senior unsecured notes, due 2021

— to “b” from “bb-” on $750 million 7.625% senior unsecured notes, due 2021

— to “b” from “bb-” on $400 million 4.9% senior unsecured notes, due 2023

— to “b” from “bb-” on $400 million 4.8% senior unsecured notes, due 2024

— to “b” from “bb-” on $300 million 6.50% senior unsecured notes, due 2034

— to “ccc+” from “b” on $600 million fixed/floating rate junior subordinated notes, due 2066

The following indicative Long-Term IRs on securities available under the universal shelf registration have been downgraded with the under-review status maintained and the implications revised to developing from negative:

Genworth Financial Inc.—

— to “b” from “bb-” on senior unsecured debt

— to “b-” from “b+” on subordinated debt

— to “ccc+” from “b” on preferred stock

Genworth Holdings, Inc.—

— to “b” from “bb-” on senior unsecured debt

— to “b-” from “b+” on subordinated debt

— to “ccc+” from “b” on preferred stock

Genworth Global Funding Trusts—program rating to “bbb-” from “bbb”

— to “bbb-” from “bbb” on all outstanding notes issued under the program

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

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AMB#

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