NU Online News Service, May 21, 2004, 2:26 p.m. EDT – Moody’s Investors Service, New York, says Genworth Financial Inc., Richmond, Va., is a good company that faces pressure on earnings.[@@]
General Electric Company, Fairfield, Conn., wants to spin off Genworth, a unit that sells life insurance, mortgages and other products and services, as a separate company through a public offering later this year.
Moody’s has assigned an A2 rating to a proposed offering of $600 million in “equity units” and a Baa1 rating to a proposed offering of $100 million in preferred stock.
Each equity unit will consist of an equity-purchase contract and an ownership interest in a 2.5% senior note due May 16, 2009. Moody’s plans to treat the 24 million equity units as if they were 75% stock and 25% debt.
The preferred stock is “mandatorily redeemable” in 2011. Moody’s is treating the preferred stock as if it were 100% debt.
The Genworth life and mortgage units have strong management teams, strong market positions, solid risk-management policies, good distribution systems and sound investment quality, Moody’s says.
But the life unit has been reporting soft earnings, and the long term care and institutional spread products have relatively high-risk characteristics, Moody’s says.
The life unit also faces a competitive market, pressure on statutory earnings and capital, and a below-average ratio of capital to assets, Moody’s says.
Moody’s says it is basing its ratings on the assumption that Genworth’s life operations will maintain a consolidated risk-based capital ratio of at least 300%.
Moody’s also is incorporating other factors, including the fact that Genworth has financial leverage, or a ratio of debt to total capital, of less than 25%
If the overall financial leverage ratio climbs above 25% or the life companies’ risk-based capital ratio falls below 300%, that could hurt Genworth’s earnings, Moody’s says.
Moody’s might increase the company’s rating if leverage falls below 20% or the RBC ratio rises above 330%.