U.S. Markets closed

Genworth and Subsidiaries Get Rating Action From A.M. Best

Zacks Equity Research

The life insurance subsidiaries of Genworth Financial, Inc. GNW witnessed rating downgrades from A.M. Best. The credit rating giant downgraded Genworth Life and Annuity Insurance Company’s (GLAIC) Financial Strength Rating (FSR) to B (Fair) from B+ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb+” from “bbb-”. Additionally, FSR has been downgraded to C++ (Marginal) from B- (Fair) and the Long-Term ICRs to “b” from “bb-” for Genworth Life Insurance Company (GLIC) and Genworth Life Insurance Company of New York (GLICNY). Outlook of these ratings are stable.

The rating downgrade of GLAIC can be attributed to its weak operational results as well as uncertainty revolving future reserve and other write-downs, which weigh on future earnings expectations.  Further, absolute and risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR), has been deteriorating over the past few years, attributable to weak operating performance. GLAIC risk-based capital (RBC) level was 422% at 2018-end, a decline from 427% at 2017-end.

The rating downgrades of GLIC and GLICNY reflect a soft balance sheet and operating performance. The rating agency also noted that its risk-adjusted capitalization deteriorated. However, achieving price increase at a premium rate on in-force long-term care policies is a partial offset.

Nonetheless, A.M. Best has reiterated the Long-Term ICRs of “b” of Genworth Financial and Genworth Holdings along with their Long-Term Issue Credit Ratings (Long-Term IR). Outlook of the ratings is stable. The rating affirmation takes into account the company’s strategic decision to divest Genworth’s 57% stake in Genworth MI Canada to Brookfield Business Partners. The sale proceeds of $1.8 billion are expected to strengthen balance sheet flexibility and liquidity.

Rating affirmations or upgrades from credit rating agencies play an important role in retaining investor confidence as well as maintaining creditworthiness of a stock. Rating downgrades not only hamper business but also increase the cost of future debt issuances.

Shares of Genworth have lost 5% year to date against the industry’s rise of 15%. Improving mortgage business, focus on streamlining and rationalization of the business to ramp up operations and boost financial and strategic flexibilities should help the stock rebound. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.



 

Other Stocks to Consider

Some other top-ranked insurance stocks are Amerisafe AMSF, CNA Financial CNA and Cincinnati Financial CINF.

Amerisafe underwrites workers' compensation insurance in the United States. The company delivered a positive surprise of 16.88% in the last reported quarter. The stock sports a Zacks Rank of 1.

CNA Financial provides commercial property and casualty insurance products, primarily in the United States. The company came up with a positive surprise of 6.93% in the last reported quarter. The stock carries a Zacks Rank of 2.

Cincinnati Financial provides property casualty insurance products in the United States. The company pulled off a positive surprise of 32.81% in the last reported quarter. The stock is a Zacks #2 Ranked stock.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.