Fitch Ratings reiterated the Insurer Financial Strength (:IFS) at ‘A-’ for Genworth Life Insurance Company, Genworth Life and Annuity Insurance Company and Genworth Life Insurance Company of New York – the principal life insurance subsidiaries of Genworth Financial Inc. (GNW) (also together known as Genworth Life). The rating outlook was upgraded to Stable from Negative.
Concurrently, the rating agency reiterated the 'A-' long-term ratings on the Genworth Global Funding Trusts.
The outlook upgrade came on the back of the U.S. mortgage insurance business returning to profitability, sturdy capital position of Genworth Life's subsidiaries, lowered risks from product and investment portfolio and better financial flexibility at the holding company.
Fitch believes, with the divesture of Medicare supplement business and the completion of two life block transactions, the statutory capital position of Genworth Life has strengthened further.
However, a sustained low interest rate environment, weighing on the performance of long-term care and fixed annuity businesses in particular, and low interest coverage ratio keeps the rating agency concerned. Additionally, increased regulatory supervision related to the industry's use of affiliated captives might weigh on Genworth’s future ability to cede reserves to special-purpose captive reinsurers.
Nevertheless, rate increases on long-term care products will not only help offset losses on older generation policies but also the unfavorable impact from lower interest rates, unfavorable business mix and lower-than-expected lapse rates.
Fitch stated it might consider a rating upgrade over a long term if the U.S. mortgage insurance business continues to deliver profitability, interest coverage moves to 7x or better and statutory earnings at Genworth Life remain at $400 million annually.
The ratings might be downgraded if the financial leverage moves above 30%, statutory interest coverage falls below 3x, interest coverage falls below 4x, risk based capital of Genworth Life falls below 350% and substantial earnings charge from adverse development of long-term care reserves.
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 the company’s strong score with the credit rating agencies will help it write more business going forward.
Genworth carries a Zacks Rank #3 (Hold). Life insurers Protective Life Corporation (PL) and StanCorp Financial Group Inc. (SFG) with a Zacks Rank #1(Strong Buy) and China Life Insurance Co. Ltd. (LFC) with a Zacks Rank #2 (Buy) are worth noting.
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