(Bloomberg News) Genworth Financial Inc., the life insurer and mortgage guarantor, is being reviewed for a possible downgrade to junk by Moody's Investors Service as the company seeks a new chief executive officer. The cost to protect against losses on the insurer's debt climbed.
Genworth's rating could be lowered from Baa3, the lowest investment-grade level, if it fails "to take capital actions that enhance holding company financial flexibility without hurting long-term earnings power," the ratings firm said today in a statement on the Richmond, Virginia-based insurer.
The 2008 financial crisis and the U.S. housing slump pushed Genworth into aggregate losses of more than $700 million in the four years ended Dec. 31. The insurer had said it would sell part of its Australia mortgage-insurance unit to raise cash, and later delayed the plans.
Genworth is working "on plans to strengthen our capital structure and realign our business portfolio," acting CEO Martin Klein wrote in a letter to shareholders today. "We continue to take steps to improve the performance of our businesses, generate and manage capital, and meet the needs of our policyholders, while working to build value for our shareholders."
Michael Fraizer, who led the company through its spinoff from General Electric Co. in 2005, resigned in May after shares plunged more than 80 percent since the end of 2006 amid U.S. mortgage-insurance losses.
Moody's reduced the financial-strength rating of Genworth's life-insurance operation to A3 from A2, citing "a weaker credit profile" and the concentrated position in long-term care. The U.S. mortgage-guaranty business was also placed on review for a cut.
Contracts protecting Genworth's debt against default for five years increased 1.5 percentage points to 10.6 percent upfront, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. That's in addition to 5 percent a year, meaning it would cost $1.6 million initially and $500,000 annually to protect $10 million of Genworth's debt.