Moody's has withdrawn and in some cases downgraded the ratings of a number of life insurance-linked securities sponsored by Genworth Financial.

For the deals insured by MBIA Insurance Corporation, Moody's has withdrawn its ratings. The agency says the move was consistent with its policy for rating insured notes when the financial guarantor is downgraded to below investment grade and there is no published underlying rating.

The MBIA insured deals affected are as follows:

River Lake Insurance Company (River Lake I)
US$600m of INC Money Market Securities, Series 2003-1 through 6 at Baa1;
US$200m of INC Term Securities, Series 2005-1 at Baa1;
US$300m of INC Term Securities, Series 2006-1 at Baa1.

River Lake Insurance Company II (River Lake II)
US$300m of INC Money Market Securities 2004-1 through 3 at Baa1;
US$300m of INC Term Securities, Series RLII 2005-1 at Baa1;
US$250m of INC Term Securities, Series RLII 2007-1 at Baa1.

River Lake Insurance Company IV Limited (River Lake IV)
US$500m of Class A Series A-1 Floating Rate Guaranteed Notes at Baa1.
The Baa3 rating on the unwrapped Class B Floating Rate Subordinated Notes remains under review for possible downgrade.

Rivermont Life Insurance Company I
US$315m of INC Money Market Securities, Series RMI 2006-1 through 3 at Baa1.

River Lake I, River Lake II and Rivermont (domiciled in South Carolina), as well as River Lake IV (domiciled in Bermuda) are special purpose reinsurers for the purpose of funding excess reserve requirements associated with distinct blocks of business ceded by Genworth Life and Annuity Insurance Company (GLAIC), which is an operating company of Genworth Financial. The reinsurance agreements between GLAIC and River Lake I, River Lake II and River Lake IV cover defined blocks of level premium term life policies subject to the statutory reserve requirements of Regulation XXX. The reinsurance agreement between GLAIC and Rivermont covers defined blocks of universal life policies subject to the Actuarial Guideline 38 (AXXX).

Meanwhile, Moody's has also downgraded the ratings of US$750m of insured insurance-linked securities issued out of a series of trusts associated with River Lake Insurance Company III, a special purpose reinsurer sponsored by Genworth Financial. The agency says the rating action concludes its review for possible downgrade that was initiated on 29 June 2009. The River Lake III Securities' ratings will be withdrawn for business reasons.

River Lake III is sponsored by and wholly-owned by GLAIC. River Lake III is a special purpose captive reinsurer established for the purpose of financing collateral for the excess statutory reserves associated with distinct blocks of business ceded by GLAIC. The reinsurance agreement between GLAIC and River Lake III covers defined blocks of level premium term life policies subject to the statutory reserve requirements of Regulation XXX.

Moody's says the downgrade is driven by higher funding costs due to Dutch Auction failures and increased expectations of economic losses in the investment portfolio. These factors meaningfully increased the estimates of expected loss and probability of default derived under various scenarios using deterministic and stochastic modelling of the underlying investment assets and insurance cashflows of the term life business reinsured to River Lake III. Notwithstanding weaker than expected investment performance, the agency notes that the performance of the underlying insurance risk has generally been consistent with original expectations.

Further, all of the River Lake III securities are insured under a financial guaranty policy that covers timely interest payment and ultimate principal payment, provided by Financial Guaranty Insurance Company. Moody's ratings on securities that are guaranteed by a financial guarantor are maintained at a level equal to the higher of the rating of the guarantor or - as in this case - the published underlying rating. The Baa3 rating for the term securities and the Ba3 rating for the money market securities reflect this modified 'credit substitution' approach and are equal to the underlying ratings on these securities.

The following ratings were downgraded with a developing outlook and will be withdrawn:

US$250m INC Term Securities, Series RLIII 2006-1 to Baa3 from A2;
US$100m INC Money Market Securities, Series RLIII 2006-1 to Ba3 from A3;
US$100m INC Money Market Securities, Series RLIII 2006-2 to Ba3 from A3;
US$100m INC Money Market Securities, Series RLIII 2006-3 to Ba3 from A3;
US$100m INC Money Market Securities, Series RLIII 2006-4 to Ba3 from A3;
US$100m INC Money Market Securities, Series RLIII 2006-5 to Ba3 from A3.

MP