DBRS Confirms Genworth Canada’s Rating and Assigns New Issuer Rating to Parent

DBRS has today confirmed the Financial Strength rating of Genworth Financial Mortgage Insurance Company Canada (Genworth Canada or the Company) at AA with a Stable trend. DBRS has also assigned an Issuer Rating of AA (low) to Genworth MI Canada Inc. (Genworth MI or the Parent), the ultimate holding company of Genworth Canada.

The DBRS methodology for mortgage insurance (MI) companies places a great deal of emphasis on the insurer’s capital adequacy under a worst-case runoff scenario, which is consistent with that used by DBRS in assigning ratings to Canadian residential mortgage-backed securities (RMBS) transactions. Under the MI methodology, DBRS finds that, given the size and parameters of the Company’s MI liabilities, the Company presently has capital that is consistent with at least the assigned AA rating. The inherently stable profitability of the Company is expected to generate sufficient capital to fund organic growth at the current rating while maintaining regulatory capital, even as the Company budgets to pay out close to half of its earnings to its Parent.

The Company has a proven track record of conservative underwriting and effective risk management, which has allowed it to report very modest loss ratios, despite the low point recently experienced in the housing cycle. Moreover, DBRS believes that Canada will avoid the adverse consequences of the extreme housing market deterioration that has been experienced by U.S. MI companies. Specifically, the Canadian residential mortgage market is fundamentally conservative, with more borrower recourse, fewer tax incentives to remain fully leveraged against property values and lower penetration of the more aggressive mortgage products that have hurt the U.S. MI industry. Canada also has a more rational banking industry, a more prudent RMBS market and strict oversight by the Office of the Superintendent of Financial Institutions (OSFI) of both lenders and MI companies

The Issuer Rating on the Parent follows from the application of the DBRS holding company methodology. The structural subordination of the Parent’s financial obligations relative to those of the regulated operating subsidiary suggests that one-notch rating differential is appropriate for a company of this strong credit quality and only a modest level of holding company debt. As a 100% owner of the Company, the Parent has access to all of the Company’s free cash flow, subject to regulatory capital requirements, which are currently not restrictive. The current estimated level of dividends received from the Company provides excellent coverage of the Parent’s debt obligations, which are complemented by the Parent’s intention to hold unencumbered cash at the holding company level, which would also be available to meet debt service payments on a timely basis.

Notes:
The applicable methodologies are Rating Mortgage Insurance Companies in Canada and Rating Parent/Holding Companies and Their Subsidiaries, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.