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Rating Action on Genworth

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A.M. Best Co. allotted issuer credit ratings (ICR) of ‘bbb’ to Genworth Financial, Inc. (GNW - Free Report) , the newly formed holding company with a stable outlook.

Concurrently, the rating agency reiterated the ICR of ‘a’ and financial strength rating (FSR) of A on the primary life/health subsidiaries of Genworth - Genworth Life Insurance Company, Genworth Life Insurance Company of New York and Genworth Life and Annuity Insurance Company. Moreover, A.M. Best upgraded the outlook to stable from negative.

Concurrently, A.M. Best upgraded the outlook to stable from negative and affirmed the ICR of ‘bbb’ of Genworth Holdings, Inc. (GHI) (formerly Genworth Financial Inc., but now a direct subsidiary of Genworth). The rating agency upgraded the outlook to stable from negative and affirmed the existing debt ratings of GHI.

The rating action as well as the upgrade in outlook came on the back of the diversified portfolio, sustained solid operational results, better financial flexibility, strong investment portfolio and sturdy risk-adjusted capitalization. Apart from implementing pricing actions on both its in-force blocks and newly underwritten business, Genworth is maintaining its focus on improving the statutory capital position, de-risking its products and investment portfolio.

However, considerable long-term care business, exposure to interest-sensitive liabilities and stiff competition in core life and fixed annuity product dwarf the positives. Moreover, weak results from the domestic mortgage insurance business continue to weigh on the consolidated earnings of the company.

The rating agency noted that Genworth’s core life products face stiff competition. It expects pricing actions implemented in 2012 to continue restricting premium growth in 2013 as well. However, higher margin products should offset the effect and help the company deliver improved earnings. Genworth is also working toward improving its investment portfolio.

Nevertheless, the ratings might be subject to downgrade if operating performance deteriorates, risk-adjusted capital erodes, leverage increases considerably or liquidity at holding company falls.

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence on the stock as well as maintaining creditworthiness in the market. We believe that Genworth’s strong score with the credit rating agencies will help it write more business going forward.

Genworth presently carries a Zacks Rank #3 (Hold). Life insurers Protective Life Corporation – Zacks Rank #1 (Strong Buy), StanCorp Financial Group Inc. – Zacks Rank #1 (Strong Buy) and China Life Insurance Co. Ltd. (LFC - Free Report) – Zacks Rank #2 (Buy), among others are worth considering.

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