A.M. Best has downgraded the financial strength rating (FSR) to B++ (Good) from A- (Excellent) and the issuer credit ratings (ICR) to “bbb+” from “a-” of Genworth Life and Annuity Insurance Company (GLAIC) (Richmond, VA). Concurrently, A.M. Best has downgraded the FSR to B++ (Good) from A- (Excellent) and the ICR to “bbb” from “a-” of Genworth Life Insurance Company (GLIC) (Wilmington, DE) and Genworth Life Insurance Company of New York (New York, NY). Additionally, A.M. Best has downgraded the ICR to “bb+” from “bbb-” of Genworth Financial, Inc. (Genworth) [NYSE: GNW] and its existing issue ratings by one notch. The outlook for all ratings is negative, except for GLAIC’s FSR outlook, which has been revised to stable from negative. (Please see below for a detailed list of the issue ratings.)

The rating downgrades reflect the uncertainty and material execution risk of obtaining the required regulatory approvals associated with Genworth’s recent strategic announcement during the company’s fourth quarter 2015 earnings presentation on Feb. 5, 2016. A.M. Best notes that, in addition to the announcement, Genworth reported a material reserve charge associated with the company’s universal life business, which drove an operating loss in the U.S. Life Insurance segment on a GAAP basis during the quarter. The company’s year-end 2015 operating results continue to reflect varying degrees of volatility and macroeconomic pressures occurring in many of the company’s business segments, including its mortgage insurance operations.

Genworth’s strategic announcement includes the unstacking and restructure of various life and health insurance entities, subject to regulatory approval, coupled with the suspension of marketing of all traditional life and annuity business. As such, if completely executed, GLIC’s business profile will become even more heavily concentrated in long term care (LTC) business, which A.M. Best views as one of the least creditworthy insurance products in the market presently. While Genworth has achieved some success in attaining rate increases to date, the profitability of the company’s LTC business is heavily dependent on continued rate increases and pricing actions to offset incorrect assumptions associated with legacy blocks of business. Given Genworth’s intent to isolate the liabilities of the LTC operations, A.M. Best believes that the company anticipates additional challenges in the management of this business.

The rating reflects A.M. Best’s belief that GLAIC is no longer considered a core business within the Genworth organization. Additionally, while GLAIC’s risk-adjusted capitalization would likely benefit with the execution of the proposed run-off status, the company may become a material source for holding company debt service in the next few years. A.M. Best is concerned that if substantial dividends were moved out of the entity to the holding company level, it could drive a decline in current capitalization levels.

Genworth continues to maintain an adequate level of financial flexibility with financial leverage of approximately 27% as of Dec. 31, 2015. Holding company cash is currently just over $1 billion, reflecting the recent redemption of the company’s 2016 debt maturity. The next debt maturity, with approximately $600 million outstanding, occurs in 2018. Currently, Genworth’s international mortgage operations have been the sole providers of debt service to the holding company and A.M. Best believes that financial flexibility of the overall organization is likely to become increasingly more limited in the next few years.

The ICR has been downgraded to “bb+” from “bbb-” with the outlook remaining negative for Genworth Holdings, Inc. and Genworth Financial Inc.

The following issue ratings have been downgraded with the outlook remaining negative:

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

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

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

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

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

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

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

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

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

The following indicative ratings on securities available under the universal shelf registration have been downgraded:

Genworth Financial Inc.

— to “bb+” from “bbb-” on senior unsecured debt

— to “bb” from “bb+” on subordinated debt

— to “bb-” from “bb” on preferred stock

Genworth Holdings, Inc.

— to “bb+” from “bbb-” on senior unsecured debt

— to “bb” from “bb+” on subordinated debt

— to “bb-” from “bb” on preferred stock

Genworth Global Funding Trusts—program rating to “bbb+” from “a-”

— to “bbb+” from “a-” 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.

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

Copyright © 2016 by A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

A.M. BestKate SteffanelliSenior Financial Analyst(908) 439-2200, ext. 5063kate.steffanelli@ambest.comorJoseph Zazzera, MBAAssistant Vice President(908) 439-2200, ext. 5797joseph.zazzera@ambest.comorChristopher SharkeyManager, Public Relations(908) 439-2200, ext. 5159christopher.sharkey@ambest.comorJim PeavyAssistant Vice President, Public Relations(908) 439-2200, ext. 5644james.peavy@ambest.com

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