Along with ratings actions on a number of other subsidiaries of the Genworthgroup, we lowered our financial strength ratings on Genworth FinancialMortgage Insurance Pty Ltd., the active Australian lenders' mortgage insurance(LMI) business, to 'A+' from 'AA-', with the ratings being capped at three
notches above the group credit profile. The outlook is negative. We affirmedour 'A-' rating on Australian LMI run-off subsidiary Genworth FinancialMortgage Indemnity Ltd. with a stable outlook.
The downgrade of the core U.S. life insurance companies to 'BBB+' from 'A-'reflects our less-favorable assessment of the organization's inherent capitaland earnings volatility and overall risk position after third-quarter earningsvolatility.
The rating actions on the active Australian mortgage insurance business isdriven by the developments in the U.S. life insurance operations. The activeAustralian mortgage insurance business currently has a stand-alone creditprofile of 'aa-'. The ratings on this business are capped at three notchesabove the group credit profile under our group ratings methodology, andaccordingly moved in step with the rating action on Genworth Life. TheAustralian mortgage insurance business continues to have a very strong capitaland earnings profile, in our view, though there is potential for further
capital management initiatives in addition to the targeted dividend payoutratio, and we see a greater demand from parent Genworth Financial for dividendpayments. Ratings on Genworth Indemnity (the Australian LMI run-offsubsidiary) are affirmed at its stand-alone credit profile level of 'a-' as an
insulated subsidiary.
The outlook on the active Australian LMI business is negative, in line withthe outlook on the Genworth group's core life insurance companies. The outlookon the Australian run-off LMI business is stable.
The negative outlook on the core life insurance companies, which indicates atleast a one-third chance of a downgrade, reflects the need to rebuild capitalstrength, the risk of further reserve strengthening, and execution risk in theturnaround of the U.S. life insurance division. Moreover, the negative outlookcaptures our ongoing reassessment of management's operational effectivenessand ability to execute strategy, and the importance and effectiveness ofGenworth's enterprise risk management program.