A.M. Best has downgraded the Long-Term Issuer Credit
Rating (Long-Term ICR) to “bbb” from “bbb+” and affirmed the
Financial Strength Rating (FSR) of B++ (Good) of Genworth Life
and Annuity Insurance Company (GLAIC) (Richmond, VA).
Concurrently, A.M. Best has downgraded the FSR to B (Fair) from B++
(Good) and the Long-Term ICRs to “bb+” from “bbb” 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 “bb-”
from “bb+” of Genworth Financial, Inc. (Genworth) [NYSE:
GNW] and Genworth Holdings, Inc. (both domiciled in
Delaware), as well as their existing Long-Term Issue Credit Ratings
(Long-Term IR) by two notches. A.M. Best has placed all Credit
Ratings (ratings) under review with negative implications. (Please
see below for a detailed list of the Long-Term IRs.)
The rating actions follow the recent announcement that GLIC and
GLICNY have taken a significant long-term care disabled life claims
reserves adjustment by approximately $400 to $450 million pre-tax
resulting in an after-tax charge to earnings of $260 to $300
million for third-quarter 2016 and the simultaneous announcement
that Genworth and China Oceanwide Holdings Group Co., Ltd. (China
Oceanwide) has entered into a definitive agreement to acquire all
of the outstanding shares of Genworth for a total transaction value
of $2.7 billion, subject to regulatory and shareholder approvals.
The company also announced that it expects to record a non-cash
charge of between $275 and $325 million, primarily related to its
deferred tax assets that are not expected to be utilized before
their expiration.
The rating actions also reflect the continued volatility in
earnings and decline in capital and surplus. Furthermore, the
organization maintains a concentrated business profile concentrated
in long-term care, due to GLAIC no longer marketing life and
annuity products. A.M. Best views long-term care insurance as one
of the least creditworthy products in its product risk continuum.
A.M. Best notes that the execution risk, given other merger &
acquisition deals in the marketplace, also provides headwinds to
the ratings.
The under review with negative implications status for Genworth
and its subsidiaries reflect the uncertainty of the long-term care
margin testing and annual assumption reviews for the life and
annuity products that are expected to occur in the fourth quarter,
in addition to the uncertainty of how Genworth's business profile,
financial flexibility, capitalization structure and overall
transparency will be impacted by the ownership change.
China Oceanwide is a privately held, family-owned international
financial holding group that was founded in 1985 by Lu Zhiqiang.
Headquartered in Beijing, China Oceanwide businesses include
operations in financial services, energy, culture and media and
real estate, with real-estate assets in the United States. The
transaction, which includes China Oceanwide committing an
additional $600 million of cash to address Genworth’s debt maturing
in 2018 and $525 million in cash to its U.S. life insurance
business, is to be funded primarily through cash on hand and is
expected to close during the middle of 2017. The purchase of
Genworth will provide China Oceanwide with a U.S. insurance
license, which is expected to enhance China Oceanwide’s business
diversification. A.M. Best will monitor the integration process,
along with any impact on Genworth’s capitalization, financial
leverage and operating results once the transaction is
finalized.
The ratings will remain under review pending Genworth’s
completion of its annual assumption reviews and discussions with
China Oceanwide’s management team, as the new parent does not
currently have a relationship with A.M. Best.
A positive rating action could occur if the life and annuity
business does not require further reserve strengthening and
operating performance trends improve as well as if there is viable
and measurable improvement in the holding company’s overall
financial flexibility. Negative rating pressure may result if the
following occurs: there is another significant reserve charge taken
within the long-term care or life and annuity operations;
risk-adjusted capital within Genworth’s core subsidiaries fall
below A.M. Best’s expectations; there is a deterioration of holding
company liquidity or flexibility; and Genworth becomes unable to
refinance future debt maturities.
The following Long-Term IRs have been downgraded and placed
under review with negative implications:
Genworth Holdings, Inc. (guaranteed by Genworth
Financial, Inc.)—
— to “bb-” from “bb+” on $600 million 6.515% senior unsecured
notes, due 2018
— to “bb-” from “bb+” on $400 million 7.70% senior unsecured
notes, due 2020
— to “bb-” from “bb+” on $400 million 7.20% senior unsecured
notes, due 2021
— to “bb-” from “bb+” on $750 million 7.625% senior unsecured
notes, due 2021
— to “bb-” from “bb+” on $400 million 4.9% senior unsecured
notes, due 2023
— to “bb-” from “bb+” on $400 million 4.8% senior unsecured
notes, due 2024
— to “bb-” from “bb+” on $300 million 6.50% senior unsecured
notes, due 2034
— to “b” from “bb-” 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 and
placed under review with negative implications:
Genworth Financial Inc.
— to “bb-” from “bb+” on senior unsecured debt
— to “b+” from “bb” on subordinated debt
— to “b” from “bb-” on preferred stock
Genworth Holdings, Inc.
— to “bb-” from “bb+” on senior unsecured debt
— to “b+” from “bb” on subordinated debt
— to “b” from “bb-” 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 rating(s) 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.
A.M. Best is the world’s oldest and most authoritative
insurance rating and information source. For more information,
visit www.ambest.com.
Copyright © 2016 by A.M. Best Rating
Services, Inc. and/or its subsidiaries. ALL RIGHTS
RESERVED.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161025006620/en/
A.M. BestTom Zitelli, +1-908-439-2200, ext.
5412Associate
Directortom.zitelli@ambest.comorKen Johnson,
CFA, CAIA, FRM, +1-908-439-2200, ext. 5056Senior
Directorken.johnson@ambest.comorChristopher
Sharkey, +1-908-439-2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorJim
Peavy, +1-908-439-2200, ext. 5644Director, Public
Relationsjames.peavy@ambest.com
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