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Genworth to realign corporate structure

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Genworth Financial Inc. (NYSE:GNW) is trying to insulate its wealth and insurance business from the performance of its mortgage insurance business.

Genworth — a company that was spun off from General Electric in 2004 — is now a parent company, or top-level “holding company” that happens to control a group of U.S. mortgage insurance companies, a group of European mortgage insurance companies, and wealth management and life insurance companies.

Genworth is a major player in the U.S. long-term care insurance (LTCI) market and the life insurance market as well as in the mortgage insurance market.

Genworth now is seeking permission from regulators to form a new parent company, to be named Genworth Financial Inc.

The new Genworth Financial Inc. would control a new, mid-level holding company, Genworth Holdings Inc., Genworth Holdings Inc. would control the wealth and insurance business.

Another division, Genworth Mortgage Insurance Company, would control the U.S. and European mortgage insurance business.

If the U.S. mortgage insurance ran into severe trouble, Genworth could form a new company that would have the ability to continue writing new business in all 50 states, Genworth said.

The restructuring would remove the U.S. mortgage insurance subsidiaries from the list of companies covered by an indenture that governs Genworth’s senior notes, Genworth added.

Genworth plans to contribute $100 million to the mortgage business to beef up its capital levels. When the European mortgage operations go under the Genworth Mortgage Insurance Company umbrella, they will transfer $200 million in capital to Genworth Mortgage Insurance Company, Genworth said.

The company hopes to get the regulatory approvals it needs to complete the deal by June 30.

The changes do not require shareholder or noteholder approval, the company said.

Genworth already has the approvals it needs for the European mortgage insurance companies to transfer the $200 million to Genworth Mortgage Insurance Company, Genworth said.

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Standard & Poor’s Ratings Services said the announcement would have no effect on the ratings it has assigned Genworth.

S&P believes the new corporate structure will eliminate the possibility that severe financial problems at the U.S. mortgage insurance operation, such as insolvency, would lead to a cross-default against Genworth’s senior notes indenture.

“These strategic actions will enhance [Genworth's] financial flexibility and are in-line with our expectations,” S&P said.

Ratings analysts at Moody’s Investors Service said they were completing a review of ratings at the U.S. mortgage insurance unit by cutting the Moody’s insurance financial strength rating on the U.S. mortgage insurance operating companies to Baa2, from Baa1, with a negative outlook. Moody’s started the rating review in June 2012.

Moody’s kept the rating it has assigned Genworth’s senior debt at Baa3.

Moody’s held its insurance financial strength ratings on the U.S. life companies at A3, with a stable outlook.

“Genworth’s outstanding senior  and subordinated notes will remain obligations of the old parent,” Moody’s said in a comment on the rating actions.

“The plan outlined by  Genworth limits the potential downside impact of the lower-rated [U.S. mortgage insurance] on the holding company and the rest of the operations, thereby addressing  the key rating concern that drove the review for downgrade,” Scott Robinson, a senior vice president at Moody’s, said in a statement.

The reorganization should help the U.S. life operations, which have a higher credit rating than the mortgage insurance operations and will no longer be responsible for supporting the mortgage insurance business debt, Moody’s  said.

“Genworth ended the fourth quarter with approximately $1 billion of cash  and highly liquid securities at the holding company,” Moody’s said.

CORRECTION: The nature of the spin-off that created Genworth was described incorrectly in an earlier version of this article. General Electric split Genworth off in 2004.

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