Fitch Affirms General Electric Mortgage Insurance Corporation Following IPO Announcement.
NEW YORK--(BUSINESS WIRE)--Nov. 18, 2003
Fitch Ratings has affirmed the 'AA' insurer financial strength (IFS) rating of General Electric Mortgage Insurance Corporation (GEMICO). The Rating Outlook is Stable.
This action follows today's announcement by General Electric (GE) that it plans to pursue an initial public offering (IPO) of a new company - Genworth Financial, Inc. Genworth Financial, Inc. is planned to assume a portion of GE Financial Assurance Holdings, Inc.'s (GEFA) current debt obligations and to serve as the holding company for GEMICO, GE's principal US life insurance operations, and GE's international mortgage insurance operations.
Concurrent with this announcement, Fitch has affirmed the 'AA' IFS ratings of GEMICO's international subsidiaries-the UK-based GE Mortgage Insurance Limited and two Australian companies, GE Mortgage Insurance Pty Ltd. and GE Capital Mortgage Insurance Corporation (Australia) Pty Lt. Additionally, Fitch has downgraded the senior debt rating of GEFA from 'A+' to 'A' and placed it, along with the 'AA' IFS ratings of GEFA's U.S. life insurance companies, on Rating Watch Negative.
Fitch's affirmation of GEMICO reflects that its rating had already been based on a standalone assessment and assumed no support or benefit from its ownership by GE. Additionally, the rating considered that the subsidiary's current levels of excess capital, above that required to meet Fitch's 'AA' stress test, would be ultimately upstreamed to its parent. The new organization structure and business plan do not change these rating assumptions. Additionally, the rating reflects that GEMICO will enjoy somewhat lower, but still acceptable financial flexibility after the IPO.
Currently, GEMICO maintains significant excess capital at Fitch's 'AA' stress scenario despite sizable parental dividends paid throughout 2003. Fitch's expectations are that parental dividends in 2004 will be significant and that parental dividend demands beyond that will be moderate.
Fitch's very strong rating reflects GEMICO's high-quality balance sheet, strong market position, competitive expense structure and above average loss performance. The latter is reflective of management's disciplined underwriting approach, which is supported by both GEMICO's recent decision to be the second industry participant to formally limit cession rates on deep-cede captive arrangements and its moderate volumes of bulk and nonprime quality loans. The rating also reflects an expectation that, over the longer-term, capital will be managed to a level consistent with Fitch's 'AA' standards.
Partially offsetting these factors is the impact of severe competition from within and outside of the industry and an expectation of declining profitability over the near to intermediate-term due to weak temporal diversification and stagnant employment and home price appreciation rates in certain areas - all industry-wide issues.
Raleigh-based GEMICO reported statutory assets and capital of $3.2 billion and $2.8 billion, respectively, at September 30, 2003.
Entity/Type Action/ Rating/Outlook
General Electric Mortgage Insurance Corp./Affirm 'AA'/Stable Insurer Financial Strength Rating.