A.M. Best Co. reiterated theissuer credit ratings (“ICR”) of ‘bbb’of Genworth Financial Inc. (GNW - Analyst Report) and all of its existing debt ratings.
Concurrently, the credit rating agency reiterated the financial strength rating of ‘A’ (Excellent) and ICR of ‘a’ of Genworth Life Insurance Company, Genworth Life Insurance Company of New York and Genworth Life and Annuity Insurance Company, the primary life/health subsidiaries of Genworth.
The outlook for all ratings is negative.
The rating affirmations came on the back of the company’s consistency in delivering better operational performances as well as growth in its life segment. Better operational performances were backed by the company’s strong market position in long-term care, fixed annuities, life and wealth management besides favorable operating company liquidity and adequate risk-adjusted capital.
The rating agency favors Genworth’s divestments of less capital-intensive products, product hedging, enhancement of investment portfolio’s credit standard and core statutory operating earnings.
However, A. M. Best is of opinion that the announcement to push forward the partial initial publics offering of the Australian mortgage business, sluggish sales in the international lifestyle protection business and continued loss in the U.S. mortgage business could weigh on the performance of life/health operations.
The rating agency noted that there has been a remarkable change in the company portfolio following the divestment of Medicare supplement business and discontinuation of the individual and group variable annuity business. These actions have lowered the company’s diversification of life/health business.
Also, the rating agency expects considerable inforce block of long-term care to continually weigh on the earnings. Further, the U.S. mortgage insurance business continues to incur huge losses, though the magnitude has lowered. All these factors, combined, led to a negative outlook.
Nevertheless, enhanced operating results across all lines of business coupled with better interest coverage and risk-adjusted capital maintained at present levels could trigger outlook upgrade.
On the flip side, the outlook will be subject to downgrade if operating results deteriorate, financial leverage increases, coverage ratios worsen, credit impairments swell and risk-adjusted capital dwindle.
In early May, MetLife Inc. (MET - Analyst Report), which competes with Genworth was affirmed long-term counterparty credit rating at 'A-' by Standard & Poor's Ratings Services. The rating agency also affirmed long-term counterparty credit at 'AA-' and financial strength ratings on its subsidiaries. The outlook was also revised to stable from negative.
Genworth carries a Zacks #3 Rank, implying a short-term Hold rating, with no clear directional pressure in the near term.