Fitch Affirms Genworth Life’s IFS Rating at ‘BB+’; Outlook Negative
The affirmation reflects the significant progress Genworth Financial, Inc. (GNW) has made thus far with its restructuring plan. Favorably, the company executed a bond consent solicitation for the senior and subordinated notes which excludes the operating entities that operate the long-term care (LTC) business from the event of default provisions. GNW also plans to separate, then isolate the long-term care business from the run-off life and annuity business through a series of reinsurance and restructuring transactions that would unstack GLAIC from GLIC.
The Negative Outlook reflects the company's execution risk tied to achieving future LTC rate increases, which are subject to regulatory approval, the potential for future LTC reserve charges, and exposure to continued low interest rates. Fitch also believes the company's financial flexibility and holding company liquidity will be constrained over the next several years, making it difficult for the holding company to fund a large capital contribution to the life companies, if one were required.
KEY RATING DRIVERS
Genworth Life's ratings consider the company's large exposure and market leading position in the LTC market, which Fitch views as one of the most risky products sold by
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 is highly dependent on existing cash balances, ordinary and special dividends from the mortgage insurance businesses and/or further asset sales or block transactions. At
Genworth Life's reported statutory capital position remains strong for the current rating category with a risk-based capital (RBC) estimated at 370%. However the company's reported statutory capital remains exposed to statutory reserve strengthening tied to the LTC business and/or low interest rates. GNW plans to complete the recapture of LTC reserves that are ceded to its
GNW's financial leverage was approximately 27% at
RATING SENSITIVITIES
Triggers that could result in a rating downgrade include:
--Significant charges related to long-term care or run-off business in the near to intermediate term that leads to a decline in Genworth life company risk-based capital below 250%;
--Continued deterioration in the company's franchise value that negatively impacts the performance of the GNW's active and run-off businesses;
--A decline in cash at the holding company below management's target of 1.5x annual holding company interest expense plus a buffer of
Triggers that could result in a change in the Outlook to Stable include:
--Consistent generation of earnings on both an operating and reported basis and no further reserve charges related to LTC or run-off businesses;
--Maintenance of Genworth life company risk-based capital over 350%;
--Successful execution of the restructuring plan.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings:
--IFS at 'BB+'.
The Rating Outlook is Negative.
Additional information is available on www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub.
https://www.fitchratings.com/site/re/887191
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1012402
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1012402
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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