AM Best Revises Issuer Credit Rating Outlook to Negative for Genworth Life and Annuity Insurance Company; Affirms Credit Ratings of Genworth Financial, Inc. and Its U.S. Life Subsidiaries

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AM Best has revised the outlook for Genworth Financial, Inc. (GNW) to negative from stable, affirming a Financial Strength Rating (FSR) of B (Fair) and a Long-Term Issuer Credit Rating (ICR) of 'bb+' (Fair) for Genworth Life and Annuity Insurance Company (GLAIC). The revision comes due to declining risk-adjusted capitalization and significant losses, including a $182 million statutory loss attributed to reserve changes and increased mortality amid the COVID-19 pandemic. GLAIC's risk-based capital (RBC) was calculated at 424% at the end of 2020. Other ratings for Genworth's subsidiaries reflect similar weaknesses.

Positive

• Management's strategy has resulted in successful premium rate increases on long-term care policies.
• RBC levels for GLIC improved to 229%, up from 213% in the prior year.

Negative

• The outlook for the Long-Term ICR was revised to negative due to pressures on risk-adjusted capitalization.
• GLAIC experienced a $182 million statutory loss in 2020.
• Risk-based capital levels for GLICNY deteriorated from 291% in 2019 to 200% in 2020.

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term ICR of “bb+” (Fair) of Genworth Life and Annuity Insurance Company (GLAIC) (Richmond, VA). The outlook of the FSR is stable. Concurrently, AM Best has affirmed the FSR of C++ (Marginal) and the Long-Term ICRs of “b” (Marginal) of Genworth Life Insurance Company (GLIC) (Wilmington, DE) and Genworth Life Insurance Company of New York (GLICNY) (New York, NY). Additionally, AM Best has affirmed the Long-Term ICRs of “b” (Marginal) 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). The outlook of these Credit Ratings (ratings) is stable.

The ratings of GLAIC reflect its balance sheet strength, which AM Best assesses as adequate, as well as its weak operating performance, limited business profile and appropriate enterprise risk management (ERM).

The ratings of GLAIC also reflect its adequate balance sheet strength, including the level and quality of capital, and the quality of its asset portfolio. The revision of the Long-Term ICR outlook to negative reflects pressure on the company’s risk-adjusted capitalization in recent years, as well as increased losses over this period. Absolute and risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR), decreased in 2020, mainly driven by revised interest rate assumptions within the universal life with secondary guarantee block. Results for 2020 were negative with a $182 million statutory loss driven by changes in reserves in the universal life with secondary guarantee block as well as higher mortality due to the COVID-19 pandemic. GLAIC calculated its risk-based capital (RBC) level at 424% at the end of 2020; it has been in the 400% - 450% range for the past four years.

The ratings of GLIC and GLICNY reflect the group’s balance sheet strength, which AM Best categorizes as weak, as well as its weak operating performance, limited business profile and appropriate ERM.

The ratings of GLIC and GLICNY reflect AM Best’s view of their balance sheet strength and operating performance. Risk-adjusted capitalization, as measured by BCAR and other capital metrics, is low, in line with 2019. A strong offsetting factor is management’s focused strategy of garnering actuarially supported premium rate increases on in-force, long-term care policies. Management identified the need for these increases several years ago, took corrective action and has achieved meaningful results. GNW has demonstrated success at achieving premium rate increases in the past. The impact and timing of the approval and receipt of those rate increases remain uncertain. GLIC calculated its RBC level at 229% at the end of 2020, an increase from the prior-year RBC score of 213%, while GLICNY’s RBC deteriorated to 200% from 291% in 2019.

The rating affirmations of the two holding companies, Genworth and Genworth Holdings, Inc., as well as their associated debt, reflect the ongoing challenges the operating companies face, their debt obligations and secured promissory note to settle a recent dispute. Genworth has shown financial flexibility navigating through those complications, including the sale of Genworth’s stake in Genworth MI Canada, Inc. in 2019 and a potential 19.9% initial public offering of Enact, the U.S. mortgage insurance business. More recently, the company sold its interest in Genworth Mortgage Insurance Australia Limited for total proceeds of $370 million. This has alleviated pressure on a September 2021 maturity that was retired in early July, as well as AXA liabilities. Earlier this year, the company announced the termination of the merger agreement with China Oceanwide Holdings Group Co. Ltd.

The following Long-Term IRs have been affirmed with a stable outlook:

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

— “b” (Marginal) on $750 million 7.625% senior unsecured notes, due 2021

— “b” (Marginal) on $400 million 4.9% senior unsecured notes, due 2023

— “b” (Marginal) on $400 million 4.8% senior unsecured notes, due 2024

— “b” (Marginal) on $300 million 6.50% senior unsecured notes, due 2034

— “ccc+” (Weak) 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 affirmed with a stable outlook:

Genworth Financial, Inc.—

—“b” (Marginal) on senior unsecured debt

—“b-” (Marginal) on subordinated debt

—“ccc+” (Weak) on preferred stock

Genworth Holdings, Inc.—

— “b” (Marginal) on senior unsecured debt

— “b-” (Marginal) on subordinated debt

— “ccc+” (Weak) on preferred stock

This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2021 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Bruno Caron

Associate Director

+1 908 439 2200, ext. 5144

bruno.caron@ambest.com

Michael Porcelli

Director

+1 908 439 2200, ext. 5548

michael.porcelli@ambest.com

Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

Jim Peavy

Director, Communications

+1 908 439 2200, ext. 5644

james.peavy@ambest.com

Source: AM Best

FAQ

What is the current rating outlook for Genworth Financial (GNW)?

AM Best has revised the outlook for Genworth Financial (GNW) to negative from stable.

What is the Financial Strength Rating (FSR) for Genworth Life and Annuity Insurance Company?

The Financial Strength Rating (FSR) for Genworth Life and Annuity Insurance Company (GLAIC) is B (Fair).

How much was the statutory loss for Genworth Life and Annuity Insurance Company in 2020?

Genworth Life and Annuity Insurance Company reported a statutory loss of $182 million in 2020.

What is Genworth Financial's risk-based capital (RBC) level?

Genworth Life and Annuity Insurance Company calculated its risk-based capital (RBC) level at 424% at the end of 2020.

How did Genworth Life Insurance Company (GLIC) perform in terms of RBC in 2020?

Genworth Life Insurance Company (GLIC) improved its RBC level to 229%, up from 213% the previous year.