Best’s News & Research Service - November 06, 2014 03:32 PM (EST)
A.M. Best Comments on the Ratings of Genworth Financial, Inc. Following Its 3Q2014 Earnings Announcement
- November 06, 2014 03:32 PM (EST)
Oldwick //BestWire// - A.M. Best has commented that the financial strength rating of A (Excellent) and the issuer credit ratings (ICR) of "a" of Genworth Life Insurance Company, Genworth Life Insurance Company of New York and Genworth Life and Annuity Insurance Company, the key life/health subsidiaries of Genworth Financial, Inc. (Genworth) [NYSE: GNW], remain unchanged following the company's third quarter 2014 earnings announcement. Additionally, the ICR of "bbb" of Genworth and its existing debt ratings remain unchanged. All companies are headquartered in Richmond, VA. The outlook for all ratings is stable.
A.M. Best acknowledges the material operating loss reported by Genworth in the third quarter of 2014, driven by significant disabled life reserve strengthening within its older blocks of long-term care (LTC) business, goodwill impairments related to its life and LTC businesses and several other material, but less significant, one-time items. Genworth continues to be transparent to regulators and the marketplace regarding its implementation of rate increases across its inforce LTC blocks and the continued need for pricing adjustments that reflect revised assumptions and methodology refinements regarding claims terminations rates and benefit utilization rates. While A.M. Best remains concerned with the potential for additional LTC reserve strengthening, Genworth's domestic life/health insurance companies are currently well-capitalized for their ratings. A.M. Best expects limited dividend activity from the U.S. life/health entities through 2015.
Despite unfavorable third quarter results driven by the LTC claim reserve review and other one-time charges, Genworth maintains solid capitalization across all of its business units -- including its U.S. and international mortgage operations. Holding company liquidity remains sound and continues to be supported by dividends from the non-insurance operations. Genworth maintains excellent financial liquidity with $1.1 billion of holding company cash, financial leverage in the 25% range and its next debt maturity of $300 million not occurring until December 2016. Moreover, A.M. Best notes that Genworth has a strategic plan in place, primarily utilizing reinsurance, to satisfy additional capital requirements for its domestic mortgage insurance business likely to be in effect prior to June 30, 2015.
While Genworth's ratings and related outlooks remain unchanged at this time, factors that could lead to a negative rating action include continued unfavorable earnings trends or a material decline in risk-adjusted capitalization of its U.S. life operations. Another significant LTC reserve strengthening would also place negative pressure on Genworth's ratings.
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.
Key insurance criteria reports utilized:
- Evaluating Non-Insurance Ultimate Parents
- Insurance Holding Company and Debt Ratings
- Rating Members of Insurance Groups
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.