The companies that grade insurers’ financial strength reacted quickly to news that Genworth Financial Inc. (NYSE:GNW) is increasing long-term care insurance (LTCI) claim reserves and reducing the state value of its life and LTCI businesses.
Standard & Poor’s Ratings Services lowered the long-term counterparty credit and senior unsecured debt ratings it assigns the parent company to BB plus, from BBB minus. The rating agency also lowered its financial strength ratings on Genworth’s Life Insurance Company, Genworth Life and Annuity Insurance Company, and Genworth Life Insurance Company of New York units to BBB plus, from A minus. The outlook on the ratings is negative.
Moody’s Investors Service said it has placed the Baa3 credit rating it has assigned the parent company and the A3 insurance financial strength ratings it has assigned Genworth’s life subsidiaries on review for downgrade.
Fitch Ratings cut its insurance financial strength on the Genworth life subsidiaries to BBB, from A minus.
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Genworth announced Thursday that it is increasing LTCI claim reserves by $531 million; reviewing the state of LTCI “active lives,” or policyholders who have not filed claims; reducing the goodwill — or intangible business value — related to the state value of its LTCI business by $167 million; and reducing the goodwill value related to the stated value of its life business by $350 million.
“These charges were outside Fitch’s prior expectations,” Fitch analysts said in a response to the charges.
Genworth still has a great deal of cash at the holding company level and has no big debt payment obligations coming due until December 2016, but a drop in the company’s stock price may be hindering financial flexibility, the Fitch analysts said.
Fitch believes Genworth’s “exposure to interest sensitive business, particularly fixed annuities and long-term care, will hamper the company’s ability to meaningfully improve earnings in its U.S. life insurance segment,” the analysts said.
Fitch now expects Genworth to take a charge of $500 million to $1 billion in the fourth quarter in connection with the active life review, the analysts said. Genworth has about $15 billion in LTCI active life reserves.
S&P said the negative outlook on the ratings it has assigned Genworth reflects the need for Genworth to rebuild capital strength, the risk of further reserve strengthening, and the challenges involved with turning around the U.S. life insurance business.