Standard & Poor's Research Update: GE Mortgage Insurance Ltd. 'AA' Ratings Affirmed; Outlook Stable.

NEW YORK -- Credit Rating:AA/Stable/--

On Nov. 10, 2004, Standard & Poor's Ratings Services affirmed its 'AA' counterparty credit and financial strength ratings on U.K.-based GE Mortgage Insurance Ltd. (GEMI). The outlook remains stable.

The ratings reflect GEMI's strategic importance to both its management parent, General Electric Mortgage Insurance Corp. (GEMICO; AA/Stable/--), and its ultimate legal parent, Genworth Financial Inc. (GNW; A/Stable/A-1). The ratings also reflect GEMI's strong earnings to date, very strong capitalization, and developing management team dedicated to conservative risk management. These positive factors are partly offset by GEMI's marginal competitive position in Europe and expected worsening operating performance. GEMI is a wholly owned subsidiary of GNW through its U.K. holding company, GEFA UK Holdings Ltd., and writes European (primarily U.K.) mortgage insurance business with a presence in nine European countries.

Outlook

Standard & Poor's views GEMI's reinsurance agreement with GEMICO as a vital rating support factor, buffering potential technical shocks during GEMI's expansion. Standard & Poor's believes that GEMI will remain strategically important to Genworth's global mortgage insurance operations, and continued ongoing parental support will be crucial in maintaining the rating at the current level.

Major Rating Factors

--Strong operating performance. GEMI continues to demonstrate very strong earnings and an attractive loss ratio. These positive traits could be affected by the inherent volatility and harsher conditions expected in the U.K. property market in the short to medium term.

--Strong stand-alone and very strong overall capitalization. GEMI's stand-alone capital adequacy ratio, based on Standard & Poor's risk-based capital model, was strong at year-end 2003. GEMI's capital adequacy ratio is expected to remain strong over the medium to long term as fresh capital is injected as needed. Capitalization is considered very strong when considering its stand-alone capital level, its strategic importance to GEMICO and GNW, and its reinsurance agreement with GEMICO. In addition to the explicit support GEMI receives from GEMICO, it also benefits from GEMICO's underwriting sign-off, use of intellectual property, and financial flexibility.

--Sophisticated approach to risk management. GEMI has a dedicated and prudent risk-management team that uses appropriately sophisticated modeling when analyzing the risk profile of the business.

--Expense burden. GEMI is instrumental in opening up the EU market and incurring further costs by lobbying for capital relief for lenders. However, such heavy investment in infrastructure could facilitate infiltration for potential competitors, and the expenses associated with this marketing strategy are substantial. These risks are partly mitigated by leveraging the existing platform of GNW's payment-protection business in Europe.

--Expected worsening loss ratio. GEMI will be exposed to rising interest rates, escalating U.K. and European household debt, and the likelihood that this could be accompanied by increasing levels of mortgage delinquencies and defaults.

--Modest size base to support projected growth. GEMI has yet to reach the size normally required to operate in this type of business and will continue to depend on support from its parent as it grows in Europe. GEMI does, however, have a growing competitive position and is instrumental in opening Europe's still nascent mortgage insurance market. The company is in a prime position to take advantage of new business opportunities triggered by the weakening phase in the European mortgage cycle.

Ratings List

GE Mortgage Insurance Ltd.
  Counterparty credit rating   AA/Stable/--
  Financial strength rating    AA/Stable

Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search.