A.M. Best Downgrades Issuer Credit Ratings of Genworth Financial, Inc. and Its Subsidiaries; Places Credit Ratings Under Review With Negative Implications

OLDWICK, N.J.--(BUSINESS WIRE)--

A.M. Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to "bbb" from "bbb+" and affirmed the Financial Strength Rating (FSR) of B++ (Good) of Genworth Life and Annuity Insurance Company (GLAIC) (Richmond, VA). Concurrently, A.M. Best has downgraded the FSR to B (Fair) from B++ (Good) and the Long-Term ICRs to "bb+" from "bbb" of Genworth Life Insurance Company (GLIC) (Wilmington, DE) and Genworth Life Insurance Company of New York (GLICNY) (New York, NY). Additionally, A.M. Best has downgraded the Long-Term ICRs to "bb-" from "bb+" of Genworth Financial, Inc. (Genworth) GNW and Genworth Holdings, Inc. (both domiciled in Delaware), as well as their existing Long-Term Issue Credit Ratings (Long-Term IR) by two notches. A.M. Best has placed all Credit Ratings (ratings) under review with negative implications. (Please see below for a detailed list of the Long-Term IRs.)

The rating actions follow the recent announcement that GLIC and GLICNY have taken a significant long-term care disabled life claims reserves adjustment by approximately $400 to $450 million pre-tax resulting in an after-tax charge to earnings of $260 to $300 million for third-quarter 2016 and the simultaneous announcement that Genworth and China Oceanwide Holdings Group Co., Ltd. (China Oceanwide) has entered into a definitive agreement to acquire all of the outstanding shares of Genworth for a total transaction value of $2.7 billion, subject to regulatory and shareholder approvals. The company also announced that it expects to record a non-cash charge of between $275 and $325 million, primarily related to its deferred tax assets that are not expected to be utilized before their expiration.

The rating actions also reflect the continued volatility in earnings and decline in capital and surplus. Furthermore, the organization maintains a concentrated business profile concentrated in long-term care, due to GLAIC no longer marketing life and annuity products. A.M. Best views long-term care insurance as one of the least creditworthy products in its product risk continuum. A.M. Best notes that the execution risk, given other merger & acquisition deals in the marketplace, also provides headwinds to the ratings.

The under review with negative implications status for Genworth and its subsidiaries reflect the uncertainty of the long-term care margin testing and annual assumption reviews for the life and annuity products that are expected to occur in the fourth quarter, in addition to the uncertainty of how Genworth's business profile, financial flexibility, capitalization structure and overall transparency will be impacted by the ownership change.

China Oceanwide is a privately held, family-owned international financial holding group that was founded in 1985 by Lu Zhiqiang. Headquartered in Beijing, China Oceanwide businesses include operations in financial services, energy, culture and media and real estate, with real-estate assets in the United States. The transaction, which includes China Oceanwide committing an additional $600 million of cash to address Genworth's debt maturing in 2018 and $525 million in cash to its U.S. life insurance business, is to be funded primarily through cash on hand and is expected to close during the middle of 2017. The purchase of Genworth will provide China Oceanwide with a U.S. insurance license, which is expected to enhance China Oceanwide's business diversification. A.M. Best will monitor the integration process, along with any impact on Genworth's capitalization, financial leverage and operating results once the transaction is finalized.

The ratings will remain under review pending Genworth's completion of its annual assumption reviews and discussions with China Oceanwide's management team, as the new parent does not currently have a relationship with A.M. Best.

A positive rating action could occur if the life and annuity business does not require further reserve strengthening and operating performance trends improve as well as if there is viable and measurable improvement in the holding company's overall financial flexibility. Negative rating pressure may result if the following occurs: there is another significant reserve charge taken within the long-term care or life and annuity operations; risk-adjusted capital within Genworth's core subsidiaries fall below A.M. Best's expectations; there is a deterioration of holding company liquidity or flexibility; and Genworth becomes unable to refinance future debt maturities.

The following Long-Term IRs have been downgraded and placed under review with negative implications:

Genworth Holdings, Inc. (guaranteed by Genworth Financial, Inc.)—

— to "bb-" from "bb+" on $600 million 6.515% senior unsecured notes, due 2018

— to "bb-" from "bb+" on $400 million 7.70% senior unsecured notes, due 2020

— to "bb-" from "bb+" on $400 million 7.20% senior unsecured notes, due 2021

— to "bb-" from "bb+" on $750 million 7.625% senior unsecured notes, due 2021

— to "bb-" from "bb+" on $400 million 4.9% senior unsecured notes, due 2023

— to "bb-" from "bb+" on $400 million 4.8% senior unsecured notes, due 2024

— to "bb-" from "bb+" on $300 million 6.50% senior unsecured notes, due 2034

— to "b" from "bb-" on $600 million fixed/floating rate junior subordinated notes, due 2066

The following indicative Long-Term IRs on securities available under the universal shelf registration have been downgraded and placed under review with negative implications:

Genworth Financial Inc.

— to "bb-" from "bb+" on senior unsecured debt

— to "b+" from "bb" on subordinated debt

— to "b" from "bb-" on preferred stock

Genworth Holdings, Inc.

— to "bb-" from "bb+" on senior unsecured debt

— to "b+" from "bb" on subordinated debt

— to "b" from "bb-" on preferred stock

Genworth Global Funding Trusts—program rating to "bbb" from "bbb+"

— to "bbb" from "bbb+" on all outstanding notes issued under the program

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best's Credit Ratings.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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