Fitch Downgrades Genworth Life’s IFS Ratings to ‘BB’; On Rating Watch Evolving

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has downgraded to 'BB' from 'BB+' the Insurer Financial Strength (IFS) ratings of Genworth Life Insurance Company (GLIC), Genworth Life and Annuity Insurance Company (GLAIC) and Genworth Life Insurance Company of New York (collectively, Genworth Life). In addition, the IFS ratings have been placed on Rating Watch Evolving. A full list of rating actions follows at the end of this release.

Today's rating action follows the announcements of additional charges at the life insurance companies, and an agreement that China Oceanwide Holdings Group Co. Ltd. (China Oceanwide) plans to acquire all outstanding shares of Genworth Life's ultimate parent Genworth Financial, Inc. (GNW) for $2.7 billion in cash. The transaction is subject to regulatory approval and expected to close in mid-2017.

GNW announced preliminary 3Q16 GAAP charges, including a $400 to $450 million pre-tax increase to long-term care (LTC) claim reserves and non-cash charges of $275 to $325 million related to the write-off of deferred tax assets.

The downgrade reflects Fitch's concerns regarding the continued underperformance of Genworth Life's LTC business, and ongoing uncertainty regarding the company's ability to gain regulatory approval on proposed premium rate actions.

The Rating Watch Evolving status reflects uncertainty regarding the ability of China Oceanwide to complete the proposed transaction, as well as uncertainties as to its impact on GNW's financial and operating strategies should the transaction close.

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.

Fitch expects to resolve the Rating Watch Evolving status following further review 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. While if consummated, Fitch believes that the transaction addresses near-term concerns regarding upcoming debt maturities and potential capital impact tied to further LTC reserve charges, continued underperformance tied to the LTC business continues to pressure Genworth Life's reserve margins and capital adequacy.

KEY RATING DRIVERS

Genworth Life's ratings continue to reflect 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 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 and/or further asset sales or block transactions.

RATING SENSITIVITIES

Triggers that could result in a rating downgrade include:

--Failure to complete the proposed acquisition of GNW by China Oceanwide, which Fitch believes could further impair GNW's already strained financial flexibility;

--New information that indicated China Oceanwide's financial or operating profile is not supportive of Genworth Life's current ratings.

--Significant additional charges related to long-term care or run-off business in the near to intermediate term.

Triggers that could result in a rating upgrade include:

--Successful completion of the proposed acquisition of GNW and capital contribution by China Oceanwide, together with Fitch gaining comfort that China Oceanwide will be supportive of GNW's credit quality longer-term.

FULL LIST OF RATING ACTIONS

Fitch has downgraded and placed the following ratings on Rating Watch Evolving:

Genworth Life Insurance Company;

Genworth Life and Annuity Insurance Company;

Genworth Life Insurance Company of New York;

--IFS to 'BB' from 'BB+'.

Additional information is available on www.fitchratings.com .

Applicable Criteria

Insurance Rating Methodology (pub. 15 Sep 2016)

https://www.fitchratings.com/site/re/887191

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