Standard & Poor’s Ratings Services said today that it has reduced the credit rating it has assigned to Genworth Financial (NYSE:GNW) one notch, to BBB minus, from BBB.
The company rating agency cut the insurance financial strength rating it has assigned to Genworth Life Insurance Company’s and Genworth’s core U.S. life operations to A minus, from A.
S&P said it changed the parent company’s rating because of concerns about the weakness of the global economy, the challenges facing Genworth’s mortgage insurance operations, and Genworth’s decision to let two 5-year credit facilities expire rather than trying to renew the credit facilities.
“Although we don’t think a full renewal was necessary given a shift in its mix of businesses, the move highlights a straining of its financial flexibility in the capital markets,” S&P said in a comment explaining the change.
“The U.S. life operations are being downgraded one notch because of the business’s sensitivity to interest rates (fixed annuities and long-term care [LTC]), and its underperforming legacy term and LTC blocks that will take time to stabilize and improve,” S&P said. “In addition, financial flexibility continues to be affected by the ongoing stress at the holding company and the expectation for the life operations to support holding company interest expenses.”
The analysts identified strength in the market for interest-sensitive long-term care insurance (LTCI) as being one of the company’s main competitive advantages.
Moves to increase rates on older LTCI policies should help increase premium revenue as regulators approve the rate increases, S&P said.
“Lapsation, morbidity, termination rates, and interest rates have all led to the deterioration of the block, necessitating the large premium increases that [Genworth] recently announced,” S&P said.