A credit rating note on Genworth Financial (NYSE: GNW) and impact on Genworth MI Canada (TSX: MIC):
Oct 11 - Standard & Poor's Ratings Services said today that its 'AA-' financial strength rating and 'A-' issuer credit rating on Genworth Financial Mortgage Insurance Co. Canada and Genworth MI Canada Inc., respectively (collectively referred to as Genworth Canada), and the stable outlook on these ratings are unaffected by the recent downgrade of their ultimate parent and majority shareholder, Genworth Financial Inc. (GNW) to BBB-/Negative/A-3 from BBB/Negative/A-2. The ratings on the Genworth U.S. life insurance companies were also affected by these actions (for details see "Genworth Financial Inc. Downgraded To 'BBB-'; Outlook Negative", published Oct 11, 2012, on RatingsDirect on the Global Credit Portal). Although Genworth Canada is part of the GNW group, we consider there to be negligible links between the creditworthiness of GNW and Genworth Canada. We consider Genworth Canada to be non-strategically important to GNW. Accordingly, we attribute no support to the stand-alone credit rating on Genworth Canada from GNW. We are cognizant of the influence GNW has on its Canadian operations as a majority shareholder but, in our view, Genworth Canada has some protection against financial deterioration at the group level, aided by prudential supervision by the Office of the Superintendent of Financial Institutions, presence of independent directors on the boards of both the Canadian operating company and publicly listed holding company, and senior management/boards' recognition of the necessity of a financially strong entity in order to operate in the Canadian market, considering that the main competitor and largest player, Canada Mortgage and Housing Corp. (AAA/Stable/A-1+), is a highly rated federal government-owned entity. In the normal course of business, we expect Genworth Canada to return capital including payout of dividends. However, if the level of return of excess capital, in our view, hinders the company's very strong capitalization, the ratings could come under pressure.
The “non-strategic” nature of Genworth’s 57% investment in MIC would make it ripe for some sort of takeover bid if Genworth was going to fetch a reasonable price for MIC.