DBRS Limited (DBRS Morningstar) notes that on October 25, 2020, Genworth MI Canada Inc. (Sagen or the Company) announced that Brookfield Business Partners L.P. (Brookfield) has entered into an agreement to purchase all outstanding common shares in the Company for approximately $1.6 billion.
The deal is expected to close in Q1 2021. Brookfield completed its initial acquisition of a 57% stake in the Company in December 2019.
DBRS Morningstar does not expect the transaction to have a ratings impact on Sagen. Current ratings are based on the ability of Sagen to pay policyholders, which DBRS Morningstar does not expect to change a result of the acquisition. Sagen continues to maintain good levels of regulatory capital to protect against a steep increase in claims liabilities. DBRS Morningstar expects the Company's operations to remain largely unchanged, including its underwriting and claims management practices. Other changes, such as in the Company's capital management framework and investment portfolio, may occur in the future but will likely remain within the Company's current risk appetite framework. However, if the Company were to shift and take on more risk without augmenting capital resources, the ratings would likely come under pressure.
In general, DBRS Morningstar views the acquisition by Brookfield positively. In particular, Brookfield is viewed as a more financially stable parent relative to the prior owner, Genworth Financial Inc. (Genworth U.S.), which has struggled under the weight of large insurance liabilities. The recent renaming of the Company to Sagen was in part an attempt to move away from negative associations with Genworth U.S. Brookfield may also be a source of additional capital to accelerate growth opportunities.
Sagen's operating insurance company (Genworth Financial Mortgage Insurance Company Canada) is currently rated AA with a Negative trend. DBRS Morningstar changed the trend to Negative in April 2020 in recognition of the ongoing uncertainty regarding future economic conditions resulting from the Coronavirus Disease (COVID-19) pandemic, including the risk arising from the high levels of unemployment and weak economic conditions. The trend would return to Stable if the company demonstrates its ability to navigate the ongoing economic crisis while maintaining its high levels of regulatory capital.
All figures are in Canadian dollars unless otherwise noted.
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