UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2020March 31, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-32195
GENWORTH FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware | 80-0873306 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
6620 West Broad Street Richmond, Virginia | 23230 | |
(Address of principal executive offices) | (Zip Code) | |
(804) 281-6000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of each exchange on which registered | ||
Class A Common Stock, par value $.001 per share | GNW | New York Stock Exchange |
As of October 28, 2020, 505,594,794
April 27, 2021, 506,803,281 shares of Class A Common Stock, par value $0.001 per share, were outstanding.
TABLE OF CONTENTS
Page | ||||||||||
Item 1. | ||||||||||
| 3 | ||||||||||
3 | ||||||||||
4 | ||||||||||
5 | ||||||||||
6 | ||||||||||
Item 2. | ||||||||||
Item 3. | ||||||||||
Item 4. | ||||||||||
Item 1. | ||||||||||
Item 1A. | ||||||||||
Item 6. | ||||||||||
| 132 | ||||||||||
2
PART I—FINANCIAL INFORMATION
Item 1. | Financial Statements |
GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except per share amounts)
March 31, 2021 | December 31, 2020 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturity securities available-for-sale, at fair value (amortized cost of $53,470 and $53,417 and allowance for credit losses of $3 and $4 as of March 31, 2021 and December 31, 2020, respectively) | $ | 60,231 | $ | 63,495 | ||||
Equity securities, at fair value | 238 | 386 | ||||||
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4 as of March 31, 2021 and December 31, 2020) | 6,787 | 6,774 | ||||||
Less: Allowance for credit losses | (32 | ) | (31 | ) | ||||
Commercial mortgage loans, net | 6,755 | 6,743 | ||||||
Policy loans | 1,976 | 1,978 | ||||||
Other invested assets | 1,759 | 2,099 | ||||||
Total investments | 70,959 | 74,701 | ||||||
Cash, cash equivalents and restricted cash | 1,964 | 2,561 | ||||||
Accrued investment income | 704 | 655 | ||||||
Deferred acquisition costs | 1,247 | 1,487 | ||||||
Intangible assets | 155 | 157 | ||||||
Reinsurance recoverable | 16,788 | 16,864 | ||||||
Less: Allowance for credit losses | (44 | ) | (45 | ) | ||||
Reinsurance recoverable, net | 16,744 | 16,819 | ||||||
Other assets | 439 | 404 | ||||||
Deferred tax asset | 314 | 65 | ||||||
Separate account assets | 6,032 | 6,081 | ||||||
Assets related to discontinued operations | 0 | 2,817 | ||||||
Total assets | $ | 98,558 | $ | 105,747 | ||||
Liabilities and equity | ||||||||
Liabilities: | ||||||||
Future policy benefits | $ | 40,634 | $ | 42,695 | ||||
Policyholder account balances | 19,999 | 21,503 | ||||||
Liability for policy and contract claims | 11,415 | 11,486 | ||||||
Unearned premiums | 728 | 775 | ||||||
Other liabilities | 1,710 | 1,614 | ||||||
Long-term borrowings | 2,922 | 3,403 | ||||||
Separate account liabilities | 6,032 | 6,081 | ||||||
Liabilities related to discontinued operations | 360 | 2,370 | ||||||
Total liabilities | 83,800 | 89,927 | ||||||
Commitments and contingencies | 0 | 0 | ||||||
Equity: | ||||||||
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 595 million and 594 million shares issued as of March 31, 2021 and December 31, 2020, respectively; 507 million and 506 million shares outstanding as of March 31, 2021 and December 31, 2020, respectively | 1 | 1 | ||||||
Additional paid-in capital | 12,011 | 12,008 | ||||||
Accumulated other comprehensive income (loss) | 3,675 | 4,425 | ||||||
Retained earnings | 1,771 | 1,584 | ||||||
Treasury stock, at cost (88 million shares as of March 31, 2021 and December 31, 2020) | (2,700 | ) | (2,700 | ) | ||||
Total Genworth Financial, Inc.’s stockholders’ equity | 14,758 | 15,318 | ||||||
Noncontrolling interests | 0 | 502 | ||||||
Total equity | 14,758 | 15,820 | ||||||
Total liabilities and equity | $ | 98,558 | $ | 105,747 | ||||
September 30, 2020 | December 31, 2019 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturity securities available-for-sale, at fair value (amortized cost of $55,252 and allowance for credit losses of $5 as of September 30, 2020) | $ | 64,416 | $ | 60,339 | ||||
Equity securities, at fair value | 629 | 239 | ||||||
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4 as of September 30, 2020 and December 31, 2019) | 6,911 | 6,976 | ||||||
Less: Allowance for credit losses | (31 | ) | (13 | ) | ||||
Commercial mortgage loans, net | 6,880 | 6,963 | ||||||
Policy loans | 2,153 | 2,058 | ||||||
Other invested assets | 2,402 | 1,632 | ||||||
Total investments | 76,480 | 71,231 | ||||||
Cash, cash equivalents and restricted cash | 2,780 | 3,341 | ||||||
Accrued investment income | 650 | 654 | ||||||
Deferred acquisition costs | 1,623 | 1,836 | ||||||
Intangible assets and goodwill | 209 | 201 | ||||||
Reinsurance recoverable | 16,832 | 17,103 | ||||||
Less: Allowance for credit losses | (44 | ) | 0 | |||||
Reinsurance recoverable, net | 16,788 | 17,103 | ||||||
Other assets | 445 | 443 | ||||||
Deferred tax asset | 250 | 425 | ||||||
Separate account assets | 5,700 | 6,108 | ||||||
Total assets | $ | 104,925 | $ | 101,342 | ||||
Liabilities and equity | ||||||||
Liabilities: | ||||||||
Future policy benefits | $ | 41,995 | $ | 40,384 | ||||
Policyholder account balances | 22,731 | 22,217 | ||||||
Liability for policy and contract claims | 11,373 | 10,958 | ||||||
Unearned premiums | 1,846 | 1,893 | ||||||
Other liabilities | 1,913 | 1,386 | ||||||
Non-recourse funding obligations | 0 | 311 | ||||||
Long-term borrowings | 3,570 | 3,277 | ||||||
Separate account liabilities | 5,700 | 6,108 | ||||||
Liabilities related to discontinued operations | 565 | 176 | ||||||
Total liabilities | 89,693 | 86,710 | ||||||
Commitments and contingencies | ||||||||
Equity: | ||||||||
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 594 million and 592 million shares issued as of September 30, 2020 and December 31, 2019, respectively; 506 million and 504 million shares outstanding as of September 30, 2020 and December 31, 2019, respectively | 1 | 1 | ||||||
Additional paid-in capital | 11,997 | 11,990 | ||||||
Accumulated other comprehensive income (loss) | 4,141 | 3,433 | ||||||
Retained earnings | 1,317 | 1,461 | ||||||
Treasury stock, at cost (88 million shares as of September 30, 2020 and December 31, 2019) | (2,700 | ) | (2,700 | ) | ||||
Total Genworth Financial, Inc.’s stockholders’ equity | 14,756 | 14,185 | ||||||
Noncontrolling interests | 476 | 447 | ||||||
Total equity | 15,232 | 14,632 | ||||||
Total liabilities and equity | $ | 104,925 | $ | 101,342 | ||||
See Notes to Condensed Consolidated Financial Statements
3
GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in millions, except per share amounts)
(Unaudited)
Three months ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
Revenues: | ||||||||
Premiums | $ | 968 | $ | 946 | ||||
Net investment income | 801 | 782 | ||||||
Net investment gains (losses) | 33 | (99 | ) | |||||
Policy fees and other income | 183 | 180 | ||||||
Total revenues | 1,985 | 1,809 | ||||||
Benefits and expenses: | ||||||||
Benefits and other changes in policy reserves | 1,218 | 1,337 | ||||||
Interest credited | 131 | 141 | ||||||
Acquisition and operating expenses, net of deferrals | 275 | 237 | ||||||
Amortization of deferred acquisition costs and intangibles | 77 | 108 | ||||||
Interest expense | 51 | 51 | ||||||
Total benefits and expenses | 1,752 | 1,874 | ||||||
Income (loss) from continuing operations before income taxes | 233 | (65 | ) | |||||
Provision (benefit) for income taxes | 59 | (5 | ) | |||||
Income (loss) from continuing operations | 174 | (60 | ) | |||||
Income (loss) from discontinued operations, net of taxes | 21 | (12 | ) | |||||
Net income (loss) | 195 | (72 | ) | |||||
Less: net income from continuing operations attributable to noncontrolling interests | 0 | 0 | ||||||
Less: net income (loss) from discontinued operations attributable to noncontrolling interests | 8 | (6 | ) | |||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 187 | $ | (66 | ) | |||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders: | ||||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders | $ | 174 | $ | (60 | ) | |||
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common common stockholders | 13 | (6 | ) | |||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 187 | $ | (66 | ) | |||
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders per share: | ||||||||
Basic | $ | 0.35 | $ | (0.12 | ) | |||
Diluted | $ | 0.34 | $ | (0.12 | ) | |||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders per share: | ||||||||
Basic | $ | 0.37 | $ | (0.13 | ) | |||
Diluted | $ | 0.37 | $ | (0.13 | ) | |||
Weighted-average common shares outstanding: | ||||||||
Basic | 506.0 | 504.3 | ||||||
Diluted | 513.8 | 504.3 | ||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues: | ||||||||||||||||
Premiums | $ | 1,034 | $ | 1,015 | $ | 3,068 | $ | 3,004 | ||||||||
Net investment income | 827 | 816 | 2,406 | 2,426 | ||||||||||||
Net investment gains (losses) | 375 | (2 | ) | 382 | 27 | |||||||||||
Policy fees and other income | 184 | 191 | 539 | 601 | ||||||||||||
Total revenues | 2,420 | 2,020 | 6,395 | 6,058 | ||||||||||||
Benefits and expenses: | ||||||||||||||||
Benefits and other changes in policy reserves | 1,299 | 1,284 | 4,146 | 3,817 | ||||||||||||
Interest credited | 137 | 146 | 417 | 439 | ||||||||||||
Acquisition and operating expenses, net of deferrals | 249 | 247 | 721 | 713 | ||||||||||||
Amortization of deferred acquisition costs and intangibles | 101 | 112 | 310 | 277 | ||||||||||||
Goodwill impairment | 0 | 0 | 5 | 0 | ||||||||||||
Interest expense | 49 | 59 | 145 | 179 | ||||||||||||
Total benefits and expenses | 1,835 | 1,848 | 5,744 | 5,425 | ||||||||||||
Income from continuing operations before income taxes | 585 | 172 | 651 | 633 | ||||||||||||
Provision for income taxes | 150 | 34 | 186 | 169 | ||||||||||||
Income from continuing operations | 435 | 138 | 465 | 464 | ||||||||||||
Income (loss) from discontinued operations, net of taxes | 1 | (80 | ) | (519 | ) | 42 | ||||||||||
Net income (loss) | 436 | 58 | (54 | ) | 506 | |||||||||||
Less: net income from continuing operations attributable to noncontrolling interests | 18 | 10 | 35 | 45 | ||||||||||||
Less: net income from discontinued operations attributable to noncontrolling interests | 0 | 30 | 0 | 101 | ||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 418 | $ | 18 | $ | (89 | ) | $ | 360 | |||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders: | ||||||||||||||||
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders | $ | 417 | $ | 128 | $ | 430 | $ | 419 | ||||||||
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders | 1 | (110 | ) | (519 | ) | (59 | ) | |||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 418 | $ | 18 | $ | (89 | ) | $ | 360 | |||||||
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share: | ||||||||||||||||
Basic | $ | 0.83 | $ | 0.25 | $ | 0.85 | $ | 0.83 | ||||||||
Diluted | $ | 0.82 | $ | 0.25 | $ | 0.84 | $ | 0.82 | ||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders per share: | ||||||||||||||||
Basic | $ | 0.83 | $ | 0.04 | $ | (0.18 | ) | $ | 0.72 | |||||||
Diluted | $ | 0.82 | $ | 0.04 | $ | (0.17 | ) | $ | 0.71 | |||||||
Weighted-average common shares outstanding: | ||||||||||||||||
Basic | 505.6 | 503.5 | 505.1 | 502.7 | ||||||||||||
Diluted | 511.5 | 511.2 | 511.2 | 509.5 | ||||||||||||
See Notes to Condensed Consolidated Financial Statements
4
GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
(Unaudited)
Three months ended | ||||||||||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | March 31, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | |||||||||||||||||||
Net income (loss) | $ | 436 | $ | 58 | $ | (54 | ) | $ | 506 | $ | 195 | $ | (72 | ) | ||||||||||
Other comprehensive income (loss), net of taxes: | ||||||||||||||||||||||||
Net unrealized gains (losses) on securities without an allowance for credit losses | (98 | ) | 0 | 264 | 0 | (322 | ) | (320 | ) | |||||||||||||||
Net unrealized gains (losses) on securities with an allowance for credit losses | (2 | ) | 0 | (10 | ) | 0 | 2 | 0 | ||||||||||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired | 0 | 371 | 0 | 1,126 | ||||||||||||||||||||
Net unrealized gains (losses) on other-than-temporarily impaired securities | 0 | 0 | 0 | 1 | ||||||||||||||||||||
Derivatives qualifying as hedges | (226 | ) | 276 | 449 | 478 | (419 | ) | 753 | ||||||||||||||||
Foreign currency translation and other adjustments | 33 | (64 | ) | 8 | 33 | 136 | (98 | ) | ||||||||||||||||
Total other comprehensive income (loss) | (293 | ) | 583 | 711 | 1,638 | (603 | ) | 335 | ||||||||||||||||
Total comprehensive income | 143 | 641 | 657 | 2,144 | ||||||||||||||||||||
Less: comprehensive income attributable to noncontrolling interests | 31 | 14 | 38 | 206 | ||||||||||||||||||||
Total comprehensive income (loss) | (408 | ) | 263 | |||||||||||||||||||||
Less: comprehensive income (loss) attributable to noncontrolling interests | 155 | (53 | ) | |||||||||||||||||||||
Total comprehensive income available to Genworth Financial, Inc.’s common stockholders | $ | 112 | $ | 627 | $ | 619 | $ | 1,938 | ||||||||||||||||
Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | (563 | ) | $ | 316 | |||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
5
GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in millions)
(Unaudited)
Three months ended September 30, 2020 | ||||||||||||||||||||||||||||||||
Common stock | Additional paid-in capital | Accumulated other comprehensive income (loss) | Retained earnings | Treasury stock, at cost | Total Genworth Financial, Inc.’s stockholders’ equity | Noncontrolling interests | Total equity | |||||||||||||||||||||||||
Balances as of June 30, 2020 | $ | 1 | $ | 11,996 | $ | 4,447 | $ | 899 | $ | (2,700 | ) | $ | 14,643 | $ | 445 | $ | 15,088 | |||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 0 | 418 | 0 | 418 | 18 | 436 | ||||||||||||||||||||||||
Other comprehensive income (loss), net of taxes | 0 | 0 | (306 | ) | 0 | 0 | (306 | ) | 13 | (293 | ) | |||||||||||||||||||||
Total comprehensive income | 112 | 31 | 143 | |||||||||||||||||||||||||||||
Stock-based compensation expense and exercises and other | 0 | 1 | 0 | 0 | 0 | 1 | 0 | 1 | ||||||||||||||||||||||||
Balances as of September 30, 2020 | $ | 1 | $ | 11,997 | $ | 4,141 | $ | 1,317 | $ | (2,700 | ) | $ | 14,756 | $ | 476 | $ | 15,232 | |||||||||||||||
Three months ended September 30, 2019 | ||||||||||||||||||||||||||||||||
Common stock | Additional paid-in capital | Accumulated other comprehensive income (loss) | Retained earnings | Treasury stock, at cost | Total Genworth Financial, Inc.’s stockholders’ equity | Noncontrolling interests | Total equity | |||||||||||||||||||||||||
Balances as of June 30, 2019 | $ | 1 | $ | 11,983 | $ | 3,013 | $ | 1,460 | $ | (2,700 | ) | $ | 13,757 | $ | 1,835 | $ | 15,592 | |||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 0 | 18 | 0 | 18 | 40 | 58 | ||||||||||||||||||||||||
Other comprehensive income (loss), net of taxes | 0 | 0 | 609 | 0 | 0 | 609 | (26 | ) | 583 | |||||||||||||||||||||||
Total comprehensive income | 627 | 14 | 641 | |||||||||||||||||||||||||||||
Dividends to noncontrolling interests | 0 | 0 | 0 | 0 | 0 | 0 | (96 | ) | (96 | ) | ||||||||||||||||||||||
Stock-based compensation expense and exercises and other | 0 | 3 | 0 | 0 | 0 | 3 | 5 | 8 | ||||||||||||||||||||||||
Balances as of September 30, 2019 | $ | 1 | $ | 11,986 | $ | 3,622 | $ | 1,478 | $ | (2,700 | ) | $ | 14,387 | $ | 1,758 | $ | 16,145 | |||||||||||||||
Three months ended March 31, 2021 | ||||||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||
Genworth | ||||||||||||||||||||||||||||||||
Accumulated | Financial, | |||||||||||||||||||||||||||||||
Additional | other | Treasury | Inc.’s | |||||||||||||||||||||||||||||
Common | paid-in | comprehensive | Retained | stock, at | stockholders’ | Noncontrolling | Total | |||||||||||||||||||||||||
stock | capital | income (loss) | earnings | cost | equity | interests | equity | |||||||||||||||||||||||||
Balances as of December 31, 2020 | $ | 1 | $ | 12,008 | $ | 4,425 | $ | 1,584 | $ | (2,700 | ) | $ | 15,318 | $ | 502 | $ | 15,820 | |||||||||||||||
Sale of business that included noncontrolling interests | 0 | 0 | 0 | 0 | 0 | 0 | (657 | ) | (657 | ) | ||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 0 | 187 | 0 | 187 | 8 | 195 | ||||||||||||||||||||||||
Other comprehensive income (loss), net of taxes | 0 | 0 | (750 | ) | 0 | 0 | (750 | ) | 147 | (603 | ) | |||||||||||||||||||||
Total comprehensive income (loss) | (563 | ) | 155 | (408 | ) | |||||||||||||||||||||||||||
Stock-based compensation expense and exercises and other | 0 | 3 | 0 | 0 | 0 | 3 | 0 | 3 | ||||||||||||||||||||||||
Balances as of March 31, 2021 | $ | 1 | $ | 12,011 | $ | 3,675 | $ | 1,771 | $ | (2,700 | ) | $ | 14,758 | $ | 0 | $ | 14,758 | |||||||||||||||
Three months ended March 31, 2020 | ||||||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||
Genworth | ||||||||||||||||||||||||||||||||
Accumulated | Financial, | |||||||||||||||||||||||||||||||
Additional | other | Treasury | Inc.’s | |||||||||||||||||||||||||||||
Common | paid-in | comprehensive | Retained | stock, at | stockholders’ | Noncontrolling | Total | |||||||||||||||||||||||||
stock | capital | income (loss) | earnings | cost | equity | interests | equity | |||||||||||||||||||||||||
Balances as of December 31, 2019 | $ | 1 | $ | 11,990 | $ | 3,433 | $ | 1,461 | $ | (2,700 | ) | $ | 14,185 | $ | 447 | $ | 14,632 | |||||||||||||||
Cumulative effect of change in accounting, net of taxes | 0 | 0 | 0 | (55 | ) | 0 | (55 | ) | 0 | (55 | ) | |||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net loss | 0 | 0 | 0 | (66 | ) | 0 | (66 | ) | (6 | ) | (72 | ) | ||||||||||||||||||||
Other comprehensive income (loss),net of taxes | 0 | 0 | 382 | 0 | 0 | 382 | (47 | ) | 335 | |||||||||||||||||||||||
Total comprehensive income (loss) | 316 | (53 | ) | 263 | ||||||||||||||||||||||||||||
Dividends to noncontrolling interests | 0 | 0 | 0 | 0 | 0 | 0 | (9 | ) | (9 | ) | ||||||||||||||||||||||
Stock-based compensation expense and exercises and other | 0 | 3 | 0 | 0 | 0 | 3 | 0 | 3 | ||||||||||||||||||||||||
Balances as of March 31, 2020 | $ | 1 | $ | 11,993 | $ | 3,815 | $ | 1,340 | $ | (2,700 | ) | $ | 14,449 | $ | 385 | $ | 14,834 | |||||||||||||||
See Notes to Condensed Consolidated Financial Statements
6
GENWORTH FINANCIAL, INC.
Nine months ended September 30, 2020 | ||||||||||||||||||||||||||||||||
Common stock | Additional paid-in capital | Accumulated other comprehensive income (loss) | Retained earnings | Treasury stock, at cost | Total Genworth Financial, Inc.’s stockholders’ equity | Noncontrolling interests | Total equity | |||||||||||||||||||||||||
Balances as of December 31, 2019 | $ | 1 | $ | 11,990 | $ | 3,433 | $ | 1,461 | $ | (2,700 | ) | $ | 14,185 | $ | 447 | $ | 14,632 | |||||||||||||||
Cumulative effect of change in accounting, net of taxes | 0 | 0 | 0 | (55 | ) | 0 | (55 | ) | 0 | (55 | ) | |||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Net income (loss) | 0 | 0 | 0 | (89 | ) | 0 | (89 | ) | 35 | (54 | ) | |||||||||||||||||||||
Other comprehensive income, net of taxes | 0 | 0 | 708 | 0 | 0 | 708 | 3 | 711 | ||||||||||||||||||||||||
Total comprehensive income | 619 | 38 | 657 | |||||||||||||||||||||||||||||
Dividends to noncontrolling interests | 0 | 0 | 0 | 0 | 0 | 0 | (9 | ) | (9 | ) | ||||||||||||||||||||||
Stock-based compensation expense and exercises and other | 0 | 7 | 0 | 0 | 0 | 7 | 0 | 7 | ||||||||||||||||||||||||
Balances as of September 30, 2020 | $ | 1 | $ | 11,997 | $ | 4,141 | $ | 1,317 | $ | (2,700 | ) | $ | 14,756 | $ | 476 | $ | 15,232 | |||||||||||||||
Nine months ended September 30, 2019 | ||||||||||||||||||||||||||||||||
Common stock | Additional paid-in capital | Accumulated other comprehensive income (loss) | Retained earnings | Treasury stock, at cost | Total Genworth Financial, Inc.’s stockholders’ equity | Noncontrolling interests | Total equity | |||||||||||||||||||||||||
Balances as of December 31, 2018 | $ | 1 | $ | 11,987 | $ | 2,044 | $ | 1,118 | $ | (2,700 | ) | $ | 12,450 | $ | 1,739 | $ | 14,189 | |||||||||||||||
Repurchase of subsidiary shares | 0 | 0 | 0 | 0 | 0 | 0 | (44 | ) | (44 | ) | ||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 0 | 360 | 0 | 360 | 146 | 506 | ||||||||||||||||||||||||
Other comprehensive income, net of taxes | 0 | 0 | 1,578 | 0 | 0 | 1,578 | 60 | 1,638 | ||||||||||||||||||||||||
Total comprehensive income | 1,938 | 206 | 2,144 | |||||||||||||||||||||||||||||
Dividends to noncontrolling interests | 0 | 0 | 0 | 0 | 0 | 0 | (149 | ) | (149 | ) | ||||||||||||||||||||||
Stock-based compensation expense and exercises and other | 0 | (1 | ) | 0 | 0 | 0 | (1 | ) | 6 | 5 | ||||||||||||||||||||||
Balances as of September 30, 2019 | $ | 1 | $ | 11,986 | $ | 3,622 | $ | 1,478 | $ | (2,700 | ) | $ | 14,387 | $ | 1,758 | $ | 16,145 | |||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
Nine months ended | Three months ended | |||||||||||||||
2020 | 2019 | March 31, | ||||||||||||||
Cash flows from operating activities: | ||||||||||||||||
2021 | 2020 | |||||||||||||||
Cash flows from (used by) operating activities: | ||||||||||||||||
Net income (loss) | $ | (54 | ) | $ | 506 | $ | 195 | $ | (72 | ) | ||||||
Less (income) loss from discontinued operations, net of taxes | 519 | (42 | ) | (21 | ) | 12 | ||||||||||
Adjustments to reconcile net income (loss) to net cash from operating activities: | ||||||||||||||||
Adjustments to reconcile net income (loss) to net cash from (used by) operating activities: | ||||||||||||||||
Amortization of fixed maturity securities discounts and premiums | (97 | ) | (93 | ) | (32 | ) | (39 | ) | ||||||||
Net investment gains | (382 | ) | (27 | ) | ||||||||||||
Net investment (gains) losses | (33 | ) | 99 | |||||||||||||
Charges assessed to policyholders | (479 | ) | (532 | ) | (159 | ) | (158 | ) | ||||||||
Acquisition costs deferred | (9 | ) | (22 | ) | (2 | ) | (1 | ) | ||||||||
Amortization of deferred acquisition costs and intangibles | 310 | 277 | 77 | 108 | ||||||||||||
Goodwill impairment | 5 | 0 | ||||||||||||||
Deferred income taxes | 166 | 106 | 59 | (6 | ) | |||||||||||
Derivative instruments, limited partnerships and other | 88 | 121 | (113 | ) | 387 | |||||||||||
Stock-based compensation expense | 22 | 17 | 11 | 10 | ||||||||||||
Change in certain assets and liabilities: | ||||||||||||||||
Accrued investment income and other assets | (183 | ) | (327 | ) | (58 | ) | (56 | ) | ||||||||
Insurance reserves | 1,034 | 906 | 326 | 328 | ||||||||||||
Current tax liabilities | 6 | 36 | (4 | ) | 0 | |||||||||||
Other liabilities, policy and contract claims and other policy-related balances | 769 | 348 | (319 | ) | 235 | |||||||||||
Cash from (used by) operating activities—discontinued operations | (263 | ) | 334 | |||||||||||||
Cash used by operating activities—discontinued operations | (174 | ) | (167 | ) | ||||||||||||
Net cash from operating activities | 1,452 | 1,608 | ||||||||||||||
Net cash from (used by) operating activities | (247 | ) | 680 | |||||||||||||
Cash flows used by investing activities: | ||||||||||||||||
Cash flows from (used by) investing activities: | ||||||||||||||||
Proceeds from maturities and repayments of investments: | ||||||||||||||||
Fixed maturity securities | 2,760 | 2,734 | 1,031 | 875 | ||||||||||||
Commercial mortgage loans | 479 | 395 | 129 | 139 | ||||||||||||
Other invested assets | 108 | 106 | 44 | 34 | ||||||||||||
Proceeds from sales of investments: | ||||||||||||||||
Fixed maturity and equity securities | 3,270 | 3,024 | 777 | 162 | ||||||||||||
Purchases and originations of investments: | ||||||||||||||||
Fixed maturity and equity securities | (7,179 | ) | (5,805 | ) | (1,647 | ) | (1,569 | ) | ||||||||
Commercial mortgage loans | (414 | ) | (682 | ) | (142 | ) | (107 | ) | ||||||||
Other invested assets | (318 | ) | (349 | ) | (91 | ) | (160 | ) | ||||||||
Short-term investments, net | (12 | ) | (16 | ) | 28 | (13 | ) | |||||||||
Policy loans, net | 27 | 51 | 3 | 9 | ||||||||||||
Cash used by investing activities—discontinued operations | 0 | (6 | ) | |||||||||||||
Proceeds from sale of business, net of cash transferred | 270 | 0 | ||||||||||||||
Cash from (used by) investing activities—discontinued operations | (67 | ) | 79 | |||||||||||||
Net cash used by investing activities | (1,279 | ) | (548 | ) | ||||||||||||
Net cash from (used by) investing activities | 335 | (551 | ) | |||||||||||||
Cash flows used by financing activities: | ||||||||||||||||
Deposits to universal life and investment contracts | 693 | 637 | 176 | 180 | ||||||||||||
Withdrawals from universal life and investment contracts | (1,408 | ) | (1,699 | ) | (578 | ) | (493 | ) | ||||||||
Redemption of non-recourse funding obligations | (315 | ) | 0 | 0 | (315 | ) | ||||||||||
Proceeds from issuance of long-term debt | 767 | 0 | ||||||||||||||
Repayment and repurchase of long-term debt | (493 | ) | (3 | ) | (470 | ) | (420 | ) | ||||||||
Repurchase of subsidiary shares | 0 | (22 | ) | |||||||||||||
Dividends paid to noncontrolling interests | (9 | ) | (55 | ) | ||||||||||||
Other, net | 31 | (24 | ) | 92 | 100 | |||||||||||
Cash used by financing activities—discontinued operations | 0 | (76 | ) | 0 | (9 | ) | ||||||||||
Net cash used by financing activities | (734 | ) | (1,242 | ) | (780 | ) | (957 | ) | ||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $0 and $8 related to discontinued operations) | 0 | (4 | ) | |||||||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $(1) and $(29)related to discontinued operations) | 0 | (30 | ) | |||||||||||||
Net change in cash, cash equivalents and restricted cash | (561 | ) | (186 | ) | (692 | ) | (858 | ) | ||||||||
Cash, cash equivalents and restricted cash at beginning of period | 3,341 | 2,177 | 2,656 | 3,341 | ||||||||||||
Cash, cash equivalents and restricted cash at end of period | 2,780 | 1,991 | 1,964 | 2,483 | ||||||||||||
Less cash, cash equivalents and restricted cash of discontinued operations at end of period | 0 | 362 | 0 | 77 | ||||||||||||
Cash, cash equivalents and restricted cash of continuing operations at end of period | $ | 2,780 | $ | 1,629 | $ | 1,964 | $ | 2,406 | ||||||||
See Notes to Condensed Consolidated Financial Statements
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Formation of Genworth and Basis of Presentation
Genworth Holdings, Inc. (“Genworth Holdings”) (formerly known as Genworth Financial, Inc.) was incorporated in Delaware in 2003 in preparation for an initial public offering (“IPO”) of Genworth’s common stock, which was completed on May 28, 2004. On April 1, 2013, Genworth Holdings completed a holding company reorganization pursuant to which Genworth Holdings became a direct, 100% owned subsidiary of a new public holding company that it had formed. The new public holding company was incorporated in Delaware on December 5, 2012, in connection with the reorganization, and was renamed Genworth Financial, Inc. (“Genworth Financial”) upon the completion of the reorganization.
The accompanying unaudited condensed financial statements include on a consolidated basis the accounts of Genworth Financial and the affiliate companies in which it holds a majority voting interest or where it is the primary beneficiary of a variable interest entity (“VIE”). All intercompany accounts and transactions have been eliminated in consolidation.
References to “Genworth Financial,” “Genworth,” the “Company,” “we” or “our” in the accompanying unaudited condensed consolidated financial statements and the notes thereto are, unless the context otherwise requires, to Genworth Financial, Inc. on a consolidated basis.
We operate our business through the following four3 operating segments:
U.S. Mortgage Insurance.
U.S. Life Insurance.
Runoff.
The Runoff segment includes the results of products which have not been actively sold since 2011, but we continue to service our existing blocks of business. These products primarily include variable annuity, variable life insurance and corporate-owned life insurance, as well as funding agreements.
In addition to our
three operating business segments, we also have Corporate and Other activities which include debt financing expenses that are incurred at the Genworth Holdings level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other businesses that are managed outside of our operating segments, including certain smaller international mortgage insurance businesses and discontinued operations.
On March 3, 2021, we completed a sale of our entire ownership interest of approximately 52% in Genworth Mortgage Insurance Australia Limited (“Genworth Australia”) through an underwritten agreement. We sold our approximately 214.3 million shares of Genworth Australia for AUD2.28 per share. Our Australian mortgage insurance business, previously the primary business in the Australia Mortgage Insurance segment, is reported as discontinued operations and its financial position, results of operations and cash flows are separately reported for all periods presented. All prior periods reflected herein have been re-presented on this basis. See note 14 for additional information.
8
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Unless otherwise indicated, references to the condensed consolidated balance sheets, the condensed consolidated statements of income, the condensed consolidated statements of cash flows and the notes to the condensed consolidated financial statements, exclude amounts related to discontinued operations.
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Preparing financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. These unaudited condensed consolidated financial statements include all adjustments (including normal recurring adjustments) considered necessary by management to present a fair statement of the financial position, results of operations and cash flows for the periods presented. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. In addition, potential impacts, risks and uncertainties of the coronavirus pandemic (“COVID-19”) may include investment valuations and impairments, commercial mortgage loan restructurings, deferred acquisition cost or intangible assets impairments or the acceleration of amortization, deferred tax asset recoverability and increases to insurance reserves, including higher claims reserves in our mortgage insurance businesses, among other matters. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in our 20192020 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.
Each reporting period, we assess our ability to continue as a going concern for one year from the date the financial statements are issued. As of September 30, 2020,March 31, 2021, Genworth Holdings has $740$697 million of unrestricted cash and cash equivalents. For the quarterly period ended September 30, 2020, ourOur evaluation of our ability to meet our financial obligations included the following contractual obligations due within one year from the issue date of our unaudited condensed consolidated financial statements included herein:herein, as well as other conditions and events and their relative significance in relation to our ability to meet our obligations:
As of March 31, 2021, Genworth Holdings has $338 million of its 7.20% senior notes maturing in February 2021 and $659outstanding $514 million of its 7.625% senior notesmaturingnotes that mature in September 2021, excluding deferred amounts.2021. We are currently in compliance with the terms of our debt agreements and interest payments on our senior notes are forecasted to be $144$101 million for the next twelve months. See note 98 for additional details on our long-term borrowings.
As part of the settlement agreement reached in July 2020 regarding the case titled
AXA S.A. v. Genworth Financial International Holdings, LLC et al.,
Genworth Holdings received in the first quarter of 2021 intercompany cash tax payments generated primarily from taxable income on investment gains and is expecting additional intercompany cash tax payments in future periods.
Until the secured promissory note to AXA is paid, annual dividends above $50
million from our U.S. mortgage insurance subsidiary are subject to mandatory prepayment conditions.
We received net cash proceeds of $370 million from the sale of Genworth Australia in March 2021, of which $247 million was used to prepay a portion of the AXA promissory note, as noted above, including accrued interest. The remaining proceeds, along with Genworth Holdings’ unrestricted cash and cash equivalents, provide
9
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The remaining AXA promissory note, including expected future claims, is estimated to be $343 million and is due inSeptember 2022. In addition, Genworth Holdings has $400 million of senior notes due in both August 2023and February 2024. To help address these debt obligations beyond the uncertainty regarding the completion of the China Oceanwide transaction,next year and reduce our overall indebtedness, we are actively taking additional steps toward raising capital by preparing for a possible public offeringplanned partial
sale of our U.S. mortgage insurance business, subject to market conditions. In addition to a partial sale of our U.S. mortgage insurance business through a public offering, we are also evaluating the possibility of the issuance of convertible, equity-linked securities or another transaction, prior to our senior notes maturing in September 2021. We believe an equity transaction involving our U.S. mortgage insurance business, if needed, is probable of being effectively executed given the value of the U.S. mortgage insurance business, the healthy conditions of the relevant markets, historical investor interest and our successful history of similar transactions, among other factors. Our outsidefinancialadvisors agree with our assessment based on current conditions.
conditions, as well as the satisfication of various conditions and approvals.
The impact of the ongoing coronavirus pandemic (“COVID-19”) is very difficult to predict. Its related outcomes and impact on our business and the capital markets, and our ability to raise capital will depend on the length of the pandemic, economic impacts offrom social, global and political influences as a result of the pandemic, and the shape of the economic recovery, among other
factors and uncertainties. While these risks exist, we believe the execution of our plan will providecurrent liquidity is sufficient funds to meet our obligations for one year following the issuance of our unaudited condensed consolidated financial statements.
(2) Accounting Changes
Accounting Pronouncements Recently Adopted
On January 1, 2020,2021, we adopted new accounting guidance related to disclosure requirementssimplifying the accounting for defined benefit plans as part of the Financial Accounting Standards Board’s (the “FASB”) disclosure framework project.income taxes. The guidance adds, eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and modifies certain disclosure requirementsthe recognition of deferred tax liabilities for defined benefit pension and other postretirement benefit plans.outside basis differences. We adopted this new accounting guidance using the retrospective method or modified retrospective method for certain changes and prospective method for all other changes, which did not have a significant impact on our condensed consolidated financial statements and disclosures.
Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued new accounting guidance related to simplifying the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance is currently effective for us on January 1, 2021 using the retrospective method or modified retrospective method for certain changes and prospective method for all other changes, with early adoption permitted. We do not expect a significant impact from this guidance on our condensed consolidated financial statements and disclosures.
insurance deferred acquisition costs (“DAC”) and liabilities. In accordance with the guidance, the more significant changes include:
assumptions will no longer be locked-in at contract inception and all cash flow assumptions used to estimate the liability for future policy benefits (except the discount rate) will be reviewed at least annually in the same period each year or more frequently if actual experience indicates a change is required. Changes will be recorded in net income (loss) using a retrospective approach with a cumulative catch-up adjustment by recalculating the net premium ratio (which will be capped at 100%) using actual historical and updated future cash flow assumptions;
the discount rate used to determine the liability for future policy benefits will be a current upper-medium grade (low credit risk) fixed-income instrument yield, which is generally interpreted to mean a single-A rated bond rate for the same duration, and is required to be reviewed quarterly, with changes in the discount rate recorded in other comprehensive income (loss);
the provision for adverse deviation and the premium deficiency test will be eliminated;
10
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
market risk benefits associated with deposit-type contracts will be measured at fair value with changes related to instrument-specific credit risk recorded in other comprehensive income (loss) and remaining changes recorded in net income (loss);
the amortization method for DAC will generally be on a straight-line basis over the expected contract term; and
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share are calculated by dividing each income (loss) category presented below by the weighted-average basic and diluted common shares outstanding for the periods indicated:
Three months ended September 30, | Nine months ended September 30, | Three months ended | ||||||||||||||||||||||
March 31, | ||||||||||||||||||||||||
(Amounts in millions, except per share amounts) | 2020 | 20 19 | 2020 | 2019 | 2021 | 2020 | ||||||||||||||||||
Weighted-average shares used in basic earnings per share calculations | 505.6 | 503.5 | 505.1 | 502.7 | 506.0 | 504.3 | ||||||||||||||||||
Potentially dilutive securities: | ||||||||||||||||||||||||
Stock options, restricted stock units and stock appreciation rights | 5.9 | 7.7 | 6.1 | 6.8 | 7.8 | 0 | ||||||||||||||||||
Weighted-average shares used in diluted earnings per share calculations | 511.5 | 511.2 | 511.2 | 509.5 | ||||||||||||||||||||
Weighted-average shares used in diluted earnings (loss) per share calculations (1) | 513.8 | 504.3 | ||||||||||||||||||||||
Income from continuing operations: | ||||||||||||||||||||||||
Income from continuing operations | $ | 435 | $ | 138 | $ | 465 | $ | 464 | ||||||||||||||||
Income (loss) from continuing operations: | ||||||||||||||||||||||||
Income (loss) from continuing operations | $ | 174 | $ | (60 | ) | |||||||||||||||||||
Less: net income from continuing operations attributable to noncontrolling interests | 18 | 10 | 35 | 45 | 0 | 0 | ||||||||||||||||||
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders | $ | 417 | $ | 128 | $ | 430 | $ | 419 | ||||||||||||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders | $ | 174 | $ | (60 | ) | |||||||||||||||||||
Basic per share | $ | 0.83 | $ | 0.25 | $ | 0.85 | $ | 0.83 | $ | 0.35 | $ | (0.12 | ) | |||||||||||
Diluted per share | $ | 0.82 | $ | 0.25 | $ | 0.84 | $ | 0.82 | $ | 0.34 | $ | (0.12 | ) | |||||||||||
Income (loss) from discontinued operations: | ||||||||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | $ | 1 | $ | (80 | ) | $ | (519 | ) | $ | 42 | $ | 21 | $ | (12 | ) | |||||||||
Less: net income from discontinued operations attributable to noncontrolling interests | 0 | 30 | 0 | 101 | ||||||||||||||||||||
Less: net income (loss) from discontinued operations attributable to noncontrolling interests | 8 | (6 | ) | |||||||||||||||||||||
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders | $ | 1 | $ | (110 | ) | $ | (519 | ) | $ | (59 | ) | $ | 13 | $ | (6 | ) | ||||||||
Basic per share | $ | 0 | $ | (0.22 | ) | $ | (1.03 | ) | $ | (0.12 | ) | $ | 0.02 | $ | (0.01 | ) | ||||||||
Diluted per share | $ | 0 | $ | (0.21 | ) | $ | (1.02 | ) | $ | (0.12 | ) | $ | 0.02 | $ | (0.01 | ) | ||||||||
Net income (loss): | ||||||||||||||||||||||||
Income from continuing operations | $ | 435 | $ | 138 | $ | 465 | $ | 464 | ||||||||||||||||
Income (loss) from continuing operations | $ | 174 | $ | (60 | ) | |||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | 1 | (80 | ) | (519 | ) | 42 | 21 | (12 | ) | |||||||||||||||
Net income (loss) | 436 | 58 | (54 | ) | 506 | 195 | (72 | ) | ||||||||||||||||
Less: net income attributable to noncontrolling interests | 18 | 40 | 35 | 146 | ||||||||||||||||||||
Less: net income (loss) attributable to noncontrolling interests | 8 | (6 | ) | |||||||||||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 418 | $ | 18 | $ | (89 | ) | $ | 360 | $ | 187 | $ | (66 | ) | ||||||||||
Basic per share (1) | $ | 0.83 | $ | 0.04 | $ | (0.18 | ) | $ | 0.72 | |||||||||||||||
Basic per share | $ | 0.37 | $ | (0.13 | ) | |||||||||||||||||||
Diluted per share | $ | 0.82 | $ | 0.04 | $ | (0.17 | ) | $ | 0.71 | $ | 0.37 | $ | (0.13 | ) | ||||||||||
| (1) | Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the three months ended March 31, 2020, we were required to use basic weighted-average common shares outstanding as the inclusion of shares for stock options, restricted stock units and stock appreciation rights of 5.4 million would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the three months ended March 31, 2020, dilutive potential weighted-average common shares outstanding would have been 509.7 million. |
| (2) | May not total due to whole number calculation. |
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) Investments
(a) Net Investment Income
Sources of net investment income were as follows for the periods indicated:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Fixed maturity securities—taxable | $ | 632 | $ | 631 | $ | 1,855 | $ | 1,878 | ||||||||
Fixed maturity securities—non-taxable | 2 | 2 | 5 | 6 | ||||||||||||
Equity securities | 3 | 4 | 7 | 13 | ||||||||||||
Commercial mortgage loans | 82 | 87 | 251 | 254 | ||||||||||||
Policy loans | 51 | 47 | 149 | 138 | ||||||||||||
Other invested assets | 79 | 62 | 192 | 180 | ||||||||||||
Cash, cash equivalents, restricted cash and short-term investments | 2 | 8 | 17 | 30 | ||||||||||||
Gross investment income before expenses and fees | 851 | 841 | 2,476 | 2,499 | ||||||||||||
Expenses and fees | (24 | ) | (25 | ) | (70 | ) | (73 | ) | ||||||||
Net investment income | $ | 827 | $ | 816 | $ | 2,406 | $ | 2,426 | ||||||||
Three months ended | ||||||||
March 31, | ||||||||
(Amounts in millions) | 2021 | 2020 | ||||||
Fixed maturity securities—taxable | $ | 599 | $ | 611 | ||||
Fixed maturity securities—non-taxable | 2 | 2 | ||||||
Equity securities | 3 | 2 | ||||||
Commercial mortgage loans | 78 | 85 | ||||||
Policy loans | 50 | 49 | ||||||
Other invested assets | 89 | 47 | ||||||
Cash, cash equivalents, restricted cash and short-term investments | 0 | 10 | ||||||
Gross investment income before expenses and fees | 821 | 806 | ||||||
Expenses and fees | (20 | ) | (24 | ) | ||||
Net investment income | $ | 801 | $ | 782 | ||||
(b) Net Investment Gains (Losses)
The following table sets forth net investment gains (losses) for the periods indicated:
Three months ended | ||||||||||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | March 31, | ||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | ||||||||||||||||||
Available-for-sale fixed maturity securities: | ||||||||||||||||||||||||
Realized gains | $ | 332 | $ | 19 | $ | 465 | $ | 93 | $ | 7 | $ | 2 | ||||||||||||
Realized losses | (2 | ) | (3 | ) | (8 | ) | (30 | ) | (3 | ) | 0 | |||||||||||||
Net realized gains (losses) on available-for-sale fixed maturity securities | 330 | 16 | 457 | 63 | 4 | 2 | ||||||||||||||||||
Impairments: | ||||||||||||||||||||||||
Total other-than-temporary impairments | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Portion of other-than-temporary impairments included in other comprehensive income (loss) | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Net other-than-temporary impairments | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Net change in allowance for credit losses on available-for-sale fixed maturity securities | 2 | 0 | (5 | ) | 0 | (2 | ) | 0 | ||||||||||||||||
Write-down of available-for-sale fixed maturity securities (1) | (4 | ) | 0 | (4 | ) | 0 | (1 | ) | 0 | |||||||||||||||
Net realized gains (losses) on equity securities sold | (3 | ) | 6 | (3 | ) | 9 | (5 | ) | 0 | |||||||||||||||
Net unrealized gains (losses) on equity securities still held | 3 | (4 | ) | (7 | ) | 13 | (8 | ) | (12 | ) | ||||||||||||||
Limited partnerships | 31 | 6 | 28 | 10 | 37 | (40 | ) | |||||||||||||||||
Commercial mortgage loans | (3 | ) | (1 | ) | (2 | ) | (1 | ) | (1 | ) | 0 | |||||||||||||
Derivative instruments (2) | 22 | (29 | ) | (73 | ) | (71 | ) | 8 | (48 | ) | ||||||||||||||
Other | (3 | ) | 4 | (9 | ) | 4 | 1 | (1 | ) | |||||||||||||||
Net investment gains (losses) | $ | 375 | $ | (2 | ) | $ | 382 | $ | 27 | $ | 33 | $ | (99 | ) | ||||||||||
| (1) | Represents write-down of securities deemed uncollectible or that we intend to sell or will be required to sell prior to recovery of the amortized cost basis. |
| (2) | See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses). |
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
See note 2Note 2—Summary of Significant Accounting Policies included in the Notes to Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for a discussion of our policy for evaluating and measuring the allowance for credit losses related to our available-for-sale fixed maturity securities. The following table represents the allowance for credit losses aggregated by security type for available-for-sale fixed maturity investments as of and for the periods indicated:three months ended March 31, 2021:
Increase from | Increase | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
securities | (decrease) | Decrease | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
without | from securities | due to change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
allowance in | with allowance | in intent or | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three months ended September 30, 2020 | Beginning | previous | in previous | Securities | requirement | Ending | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Beginning balance | Increase from securities without allowance in periods | Increase (decrease) from securities with in periods | Securities sold | Decrease due in requirement to sell | Write-offs | Recoveries | Ending balance | balance | periods | periods | sold | to sell | Write-offs | Recoveries | balance | ||||||||||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-U.S. corporate | $ | 4 | $ | 0 | $ | (2 | ) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2 | $ | 1 | $ | 0 | $ | 2 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 3 | |||||||||||||||||||||||||||||||
Commercial mortgage-backed | 3 | 0 | 0 | 0 | 0 | 0 | 0 | 3 | 3 | 0 | 0 | 0 | 0 | (3 | ) | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||
Total available-for-sale fixed maturity securities | $ | 7 | $ | 0 | $ | (2 | ) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 5 | $ | 4 | $ | 0 | $ | 2 | $ | 0 | $ | 0 | $ | (3 | ) | $ | 0 | $ | 3 | ||||||||||||||||||||||||||||||
Nine months ended September 30, 2020 | ||||||||||||||||||||||||||||||||
(Amounts in millions) | Beginning balance | Increase from securities without allowance in previous periods | Increase (decrease) from securities with in periods | Securities sold | Decrease due in requirement to sell | Write-offs | Recoveries | Ending balance | ||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||
Non-U.S. corporate | $ | 0 | $ | 4 | $ | (2 | ) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2 | |||||||||||||||
Commercial mortgage-backed | 0 | 3 | 0 | 0 | 0 | 0 | 0 | 3 | ||||||||||||||||||||||||
Total available-for-sale fixed maturity securities | $ | 0 | $ | 7 | $ | (2 | ) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 5 | |||||||||||||||
(Amounts in millions) | Three months ended September 30, 2019 | Nine months ended September 30, 2019 | ||||||
Beginning balance | $ | 23 | $ | 24 | ||||
Reductions: | ||||||||
Securities sold, paid down or disposed | 0 | (1 | ) | |||||
Ending balance | $ | 23 | $ | 23 | ||||
three months ended March 31, 2020.
(c) Unrealized Investment Gains and Losses
Net unrealized gains and losses on available-for-sale investment securities reflected as a separate component of accumulated other comprehensive income (loss) were as follows as of the dates indicated:
(Amounts in millions) | September 30, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | ||||||||||||
Net unrealized gains (losses) on fixed maturity securities without an allowance for credit losses (1) | $ | 9,218 | $ | 6,676 | $ | 6,769 | $ | 10,159 | ||||||||
Net unrealized gains (losses) on fixed maturity securities with an allowance for credit losses (1) | (12 | ) | 0 | (5 | ) | (7 | ) | |||||||||
Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves | (6,998 | ) | (4,789 | ) | ||||||||||||
Adjustments to DAC, present value of future profits, sales inducements, benefit reserves and policyholder contract balances | (4,327 | ) | (7,302 | ) | ||||||||||||
Income taxes, net | (473 | ) | (406 | ) | (518 | ) | (611 | ) | ||||||||
Net unrealized investment gains (losses) | 1,735 | 1,481 | 1,919 | 2,239 | ||||||||||||
Less: net unrealized investment gains (losses) attributable to noncontrolling interests | 24 | 25 | 0 | 25 | ||||||||||||
Net unrealized investment gains (losses) attributable to Genworth Financial, Inc. | $ | 1,711 | $ | 1,456 | $ | 1,919 | $ | 2,214 | ||||||||
| (1) | Excludes foreign exchange. |
14
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The change in net unrealized gains (losses) on available-for-sale investment securities reported in accumulated other comprehensive income (loss) was as follows as of and for the periods indicated:three months ended March 31:
As of or for the three months ended September 30, | ||||||||
(Amounts in millions) | 2020 | 2019 | ||||||
Beginning balance | $ | 1,811 | $ | 1,305 | ||||
Unrealized gains (losses) arising during the period: | ||||||||
Unrealized gains (losses) on fixed maturity securities | 781 | 1,607 | ||||||
Adjustment to deferred acquisition costs | (9 | ) | (8 | ) | ||||
Adjustment to present value of future profits | 2 | 1 | ||||||
Adjustment to sales inducements | (5 | ) | (4 | ) | ||||
Adjustment to benefit reserves | (566 | ) | (1,108 | ) | ||||
Provision for income taxes | (42 | ) | (104 | ) | ||||
Change in unrealized gains (losses) on investment securities | 161 | 384 | ||||||
Reclassification adjustments to net investment (gains) losses, net of taxes of $70 and $4 | (261 | ) | (13 | ) | ||||
Change in net unrealized investment gains (losses) | (100 | ) | 371 | |||||
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests | 0 | 1 | ||||||
Ending balance | $ | 1,711 | $ | 1,675 | ||||
(Amounts in millions) | 2021 | 2020 | ||||||
Beginning balance | $ | 2,214 | $ | 1,456 | ||||
Unrealized gains (losses) arising during the period: | ||||||||
Unrealized gains (losses) on fixed maturity securities | (3,383 | ) | (1,712 | ) | ||||
Adjustment to DAC | (174 | ) | 168 | |||||
Adjustment to present value of future profits | 1 | (1 | ) | |||||
Adjustment to sales inducements | 3 | 36 | ||||||
Adjustment to benefit reserves and policyholder contract balances | 3,145 | 1,108 | ||||||
Provision for income taxes | 92 | 87 | ||||||
Change in unrealized gains (losses) on investment securities | (316 | ) | (314 | ) | ||||
Reclassification adjustments to net investment (gains) losses, net of taxes of $1 | (4 | ) | (6 | ) | ||||
Change in net unrealized investment gains (losses) | (320 | ) | (320 | ) | ||||
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests | (25 | ) | (4 | ) | ||||
Ending balance | $ | 1,919 | $ | 1,140 | ||||
As of or for the nine months ended September 30, | ||||||||
(Amounts in millions) | 2020 | 2019 | ||||||
Beginning balance | $ | 1,456 | $ | 595 | ||||
Unrealized gains (losses) arising during the period: | ||||||||
Unrealized gains (losses) on fixed maturity securities | 2,980 | 5,563 | ||||||
Adjustment to deferred acquisition costs | 48 | (1,049 | ) | |||||
Adjustment to present value of future profits | 6 | (54 | ) | |||||
Adjustment to sales inducements | (3 | ) | (35 | ) | ||||
Adjustment to benefit reserves | (2,260 | ) | (2,908 | ) | ||||
Provision for income taxes | (162 | ) | (331 | ) | ||||
Change in unrealized gains (losses) on investment securities | 609 | 1,186 | ||||||
Reclassification adjustments to net investment (gains) losses, net of taxes of $95 and $16 | (355 | ) | (59 | ) | ||||
Change in net unrealized investment gains (losses) | 254 | 1,127 | ||||||
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests | (1 | ) | 47 | |||||
Ending balance | $ | 1,711 | $ | 1,675 | ||||
Amounts reclassified out of accumulated other comprehensive income (loss) to net investment gains (losses) include realized gains (losses) on sales of securities, which are determined on a specific identification basis.
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(d) Fixed Maturity Securities
As of September 30, 2020,March 31, 2021, the amortized cost or cost, gross unrealized gains (losses), allowance for credit losses and fair value of our fixed maturity securities classified as available-for-sale were as follows:
Amortized | Gross | Gross | Allowance | |||||||||||||||||||||||||||||||||||||
cost or | unrealized | unrealized | for credit | Fair | ||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Amortized cost or cost | Gross unrealized gains | Gross unrealized losses | Allowance for credit losses | Fair value | cost | gains | losses | losses | value | ||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises | $ | 3,318 | $ | 1,474 | $ | 0 | $ | 0 | $ | 4,792 | $ | 3,323 | $ | 951 | $ | (1 | ) | $ | 0 | $ | 4,273 | |||||||||||||||||||
State and political subdivisions | 2,591 | 525 | (1 | ) | 0 | 3,115 | 2,762 | 384 | (11 | ) | 0 | 3,135 | ||||||||||||||||||||||||||||
Non-U.S. government | 1,276 | 126 | (7 | ) | 0 | 1,395 | 749 | 84 | (13 | ) | 0 | 820 | ||||||||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||
Utilities | 4,294 | 924 | (1 | ) | 0 | 5,217 | 4,242 | 644 | (13 | ) | 0 | 4,873 | ||||||||||||||||||||||||||||
Energy | 2,581 | 238 | (54 | ) | 0 | 2,765 | 2,551 | 275 | (24 | ) | 0 | 2,802 | ||||||||||||||||||||||||||||
Finance and insurance | 7,611 | 1,135 | (11 | ) | 0 | 8,735 | 7,785 | 879 | (45 | ) | 0 | 8,619 | ||||||||||||||||||||||||||||
Consumer—non-cyclical | 5,160 | 1,210 | (2 | ) | 0 | 6,368 | 5,173 | 904 | (11 | ) | 0 | 6,066 | ||||||||||||||||||||||||||||
Technology and communications | 2,993 | 537 | (3 | ) | 0 | 3,527 | 3,254 | 419 | (16 | ) | 0 | 3,657 | ||||||||||||||||||||||||||||
Industrial | 1,363 | 189 | (1 | ) | 0 | 1,551 | 1,366 | 159 | (4 | ) | 0 | 1,521 | ||||||||||||||||||||||||||||
Capital goods | 2,558 | 503 | (4 | ) | 0 | 3,057 | 2,476 | 377 | (8 | ) | 0 | 2,845 | ||||||||||||||||||||||||||||
Consumer—cyclical | 1,794 | 252 | (2 | ) | 0 | 2,044 | 1,740 | 198 | (8 | ) | 0 | 1,930 | ||||||||||||||||||||||||||||
Transportation | 1,325 | 271 | (15 | ) | 0 | 1,581 | 1,171 | 200 | (1 | ) | 0 | 1,370 | ||||||||||||||||||||||||||||
Other | 346 | 43 | 0 | 0 | 389 | 393 | 32 | (1 | ) | 0 | 424 | |||||||||||||||||||||||||||||
Total U.S. corporate | 30,025 | 5,302 | (93 | ) | 0 | 35,234 | 30,151 | 4,087 | (131 | ) | 0 | 34,107 | ||||||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||
Utilities | 860 | 75 | 0 | 0 | 935 | 895 | 64 | (2 | ) | 0 | 957 | |||||||||||||||||||||||||||||
Energy | 1,192 | 163 | (7 | ) | 0 | 1,348 | 1,164 | 167 | (4 | ) | 0 | 1,327 | ||||||||||||||||||||||||||||
Finance and insurance | 2,319 | 312 | (12 | ) | (1 | ) | 2,618 | 2,193 | 263 | (22 | ) | (3 | ) | 2,431 | ||||||||||||||||||||||||||
Consumer—non-cyclical | 712 | 95 | (1 | ) | 0 | 806 | 661 | 65 | (4 | ) | 0 | 722 | ||||||||||||||||||||||||||||
Technology and communications | 1,066 | 190 | 0 | 0 | 1,256 | 1,062 | 146 | (1 | ) | 0 | 1,207 | |||||||||||||||||||||||||||||
Industrial | 935 | 134 | (1 | ) | 0 | 1,068 | 1,018 | 118 | (2 | ) | 0 | 1,134 | ||||||||||||||||||||||||||||
Capital goods | 571 | 61 | (6 | ) | 0 | 626 | 537 | 48 | (3 | ) | 0 | 582 | ||||||||||||||||||||||||||||
Consumer—cyclical | 400 | 38 | (2 | ) | 0 | 436 | 356 | 27 | (2 | ) | 0 | 381 | ||||||||||||||||||||||||||||
Transportation | 571 | 87 | (9 | ) | (1 | ) | 648 | 459 | 67 | (1 | ) | 0 | 525 | |||||||||||||||||||||||||||
Other | 1,562 | 241 | (1 | ) | 0 | 1,802 | 1,054 | 166 | (1 | ) | 0 | 1,219 | ||||||||||||||||||||||||||||
Total non-U.S. corporate | 10,188 | 1,396 | (39 | ) | (2 | ) | 11,543 | 9,399 | 1,131 | (42 | ) | (3 | ) | 10,485 | ||||||||||||||||||||||||||
Residential mortgage-backed | 1,825 | 250 | 0 | 0 | 2,075 | 1,600 | 175 | (1 | ) | 0 | 1,774 | |||||||||||||||||||||||||||||
Commercial mortgage-backed | 2,775 | 228 | (24 | ) | (3 | ) | 2,976 | 2,688 | 121 | (15 | ) | 0 | 2,794 | |||||||||||||||||||||||||||
Other asset-backed | 3,254 | 48 | (16 | ) | 0 | 3,286 | 2,798 | 48 | (3 | ) | 0 | 2,843 | ||||||||||||||||||||||||||||
Total available-for-sale fixed maturity securities | $ | 55,252 | $ | 9,349 | $ | (180 | ) | $ | (5 | ) | $ | 64,416 | $ | 53,470 | $ | 6,981 | $ | (217 | ) | $ | (3 | ) | $ | 60,231 | ||||||||||||||||
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of December 31, 2019,2020, the amortized cost or cost, gross unrealized gains (losses), allowance for credit losses and fair value of our fixed maturity securities classified as available-for-sale were as follows:
Amortized | Gross | Gross | Allowance | |||||||||||||||||||||||||||||||||||||||||
Gross unrealized gains | Gross unrealized losses | cost or | unrealized | unrealized | for credit | Fair | ||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Amortized cost or cost | Not other-than- temporarily impaired | Other- t han-temporarily impaired | Not other-than- temporarily impaired | Other- t han-temporarily impaired | Fair value | cost | gains | losses | losses | value | |||||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises | $ | 4,073 | $ | 952 | $ | 0 | $ | 0 | $ | 0 | $ | 5,025 | $ | 3,401 | $ | 1,404 | $ | 0 | $ | 0 | $ | 4,805 | ||||||||||||||||||||||
State and political subdivisions | 2,394 | 355 | 0 | (2 | ) | 0 | 2,747 | 2,622 | 544 | (1 | ) | 0 | 3,165 | |||||||||||||||||||||||||||||||
Non-U.S. government | 1,235 | 117 | 0 | (2 | ) | 0 | 1,350 | 728 | 130 | (4 | ) | 0 | 854 | |||||||||||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||
Utilities | 4,322 | 675 | 0 | 0 | 0 | 4,997 | 4,226 | 970 | (2 | ) | 0 | 5,194 | ||||||||||||||||||||||||||||||||
Energy | 2,404 | 303 | 0 | (8 | ) | 0 | 2,699 | 2,532 | 367 | (16 | ) | 0 | 2,883 | |||||||||||||||||||||||||||||||
Finance and insurance | 6,977 | 798 | 0 | (1 | ) | 0 | 7,774 | 7,798 | 1,306 | (2 | ) | 0 | 9,102 | |||||||||||||||||||||||||||||||
Consumer—non-cyclical | 4,909 | 796 | 0 | (4 | ) | 0 | 5,701 | 5,115 | 1,323 | (1 | ) | 0 | 6,437 | |||||||||||||||||||||||||||||||
Technology and communications | 2,883 | 363 | 0 | (1 | ) | 0 | 3,245 | 3,142 | 619 | 0 | 0 | 3,761 | ||||||||||||||||||||||||||||||||
Industrial | 1,271 | 125 | 0 | 0 | 0 | 1,396 | 1,370 | 232 | 0 | 0 | 1,602 | |||||||||||||||||||||||||||||||||
Capital goods | 2,345 | 367 | 0 | (1 | ) | 0 | 2,711 | 2,456 | 535 | 0 | 0 | 2,991 | ||||||||||||||||||||||||||||||||
Consumer—cyclical | 1,590 | 172 | 0 | (2 | ) | 0 | 1,760 | 1,663 | 284 | 0 | 0 | 1,947 | ||||||||||||||||||||||||||||||||
Transportation | 1,320 | 187 | 0 | (1 | ) | 0 | 1,506 | 1,198 | 304 | (2 | ) | 0 | 1,500 | |||||||||||||||||||||||||||||||
Other | 292 | 30 | 0 | 0 | 0 | 322 | 395 | 45 | 0 | 0 | 440 | |||||||||||||||||||||||||||||||||
Total U.S. corporate | 28,313 | 3,816 | 0 | (18 | ) | 0 | 32,111 | 29,895 | 5,985 | (23 | ) | 0 | 35,857 | |||||||||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||
Utilities | 779 | 50 | 0 | 0 | 0 | 829 | 838 | 84 | 0 | 0 | 922 | |||||||||||||||||||||||||||||||||
Energy | 1,140 | 179 | 0 | 0 | 0 | 1,319 | 1,172 | 209 | (1 | ) | 0 | 1,380 | ||||||||||||||||||||||||||||||||
Finance and insurance | 2,087 | 232 | 0 | 0 | 0 | 2,319 | 2,130 | 353 | (6 | ) | (1 | ) | 2,476 | |||||||||||||||||||||||||||||||
Consumer—non-cyclical | 631 | 55 | 0 | (2 | ) | �� | 0 | 684 | 662 | 112 | (1 | ) | 0 | 773 | ||||||||||||||||||||||||||||||
Technology and communications | 1,010 | 128 | 0 | 0 | 0 | 1,138 | 1,062 | 229 | 0 | 0 | 1,291 | |||||||||||||||||||||||||||||||||
Industrial | 896 | 92 | 0 | 0 | 0 | 988 | 969 | 159 | 0 | 0 | 1,128 | |||||||||||||||||||||||||||||||||
Capital goods | 565 | 40 | 0 | 0 | 0 | 605 | 510 | 67 | (1 | ) | 0 | 576 | ||||||||||||||||||||||||||||||||
Consumer—cyclical | 373 | 24 | 0 | 0 | 0 | 397 | 331 | 41 | (1 | ) | 0 | 371 | ||||||||||||||||||||||||||||||||
Transportation | 557 | 73 | 0 | (1 | ) | 0 | 629 | 483 | 88 | (1 | ) | 0 | 570 | |||||||||||||||||||||||||||||||
Other | 1,431 | 188 | 0 | (2 | ) | 0 | 1,617 | 1,088 | 236 | 0 | 0 | 1,324 | ||||||||||||||||||||||||||||||||
Total non-U.S. corporate | 9,469 | 1,061 | 0 | (5 | ) | 0 | 10,525 | 9,245 | 1,578 | (11 | ) | (1 | ) | 10,811 | ||||||||||||||||||||||||||||||
Residential mortgage-backed | 2,057 | 199 | 15 | (1 | ) | 0 | 2,270 | 1,698 | 211 | 0 | 0 | 1,909 | ||||||||||||||||||||||||||||||||
Commercial mortgage-backed | 2,897 | 137 | 0 | (8 | ) | 0 | 3,026 | 2,759 | 231 | (13 | ) | (3 | ) | 2,974 | ||||||||||||||||||||||||||||||
Other asset-backed | 3,262 | 30 | 0 | (7 | ) | 0 | 3,285 | 3,069 | 55 | (4 | ) | 0 | 3,120 | |||||||||||||||||||||||||||||||
Total available-for-sale fixed maturity securities | $ | 53,700 | $ | 6,667 | $ | 15 | $ | (43 | ) | $ | 0 | $ | 60,339 | $ | 53,417 | $ | 10,138 | $ | (56 | ) | $ | (4 | ) | $ | 63,495 | |||||||||||||||||||
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the gross unrealized losses and fair values of our fixed maturity securities for which an allowance for credit losses has not been recorded, aggregated by investment type and length of time that individual fixed maturity securities have been in a continuous unrealized loss position, as of September 30, 2020:March 31, 2021:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | Fair | unrealized | Number of | Fair | unrealized | Number of | Fair | unrealized | Number of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollar amounts in millions) | Fair value | Gross unrealized losses | Number securities | Fair value | Gross unrealized losses | Number securities | Fair value | Gross unrealized losses | Number securities | value | losses | securities | value | losses | securities | value | losses | securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Description of Securities | Description of Securities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises | $ | 30 | $ | (1 | ) | 4 | $ | 0 | $ | 0 | 0 | $ | 30 | $ | (1 | ) | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
State and political subdivisions | $ | 66 | $ | (1 | ) | 10 | $ | 0 | $ | 0 | — | $ | 66 | $ | (1 | ) | 10 | 354 | (11 | ) | 68 | 0 | 0 | 0 | 354 | (11 | ) | 68 | ||||||||||||||||||||||||||||||||||||||||||||
Non-U.S. government | 103 | (7 | ) | 16 | 0 | 0 | 0 | 103 | (7 | ) | 16 | 189 | (11 | ) | 25 | 16 | (2 | ) | 1 | 205 | (13 | ) | 26 | |||||||||||||||||||||||||||||||||||||||||||||||||
U.S. corporate | 1,475 | (82 | ) | 228 | 95 | (11 | ) | 10 | 1,570 | (93 | ) | 238 | 2,845 | (119 | ) | 291 | 122 | (12 | ) | 20 | 2,967 | (131 | ) | 311 | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-U.S. corporate | 589 | (27 | ) | 106 | 7 | (1 | ) | 2 | 596 | (28 | ) | 108 | 876 | (35 | ) | 102 | 55 | (2 | ) | 8 | 931 | (37 | ) | 110 | ||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage-backed | 33 | (1 | ) | 8 | 0 | 0 | 0 | 33 | (1 | ) | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial mortgage-backed | 430 | (22 | ) | 68 | 1 | (1 | ) | 1 | 431 | (23 | ) | 69 | 385 | (10 | ) | 48 | 79 | (5 | ) | 14 | 464 | (15 | ) | 62 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other asset-backed | 675 | (10 | ) | 159 | 308 | (6 | ) | 67 | 983 | (16 | ) | 226 | 336 | (2 | ) | 50 | 47 | (1 | ) | 11 | 383 | (3 | ) | 61 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total for fixed maturity securities in an unrealized loss position | $ | 3,338 | $ | (149 | ) | 587 | $ | 411 | $ | (19 | ) | 80 | $ | 3,749 | $ | (168 | ) | 667 | $ | 5,048 | $ | (190 | ) | 596 | $ | 319 | $ | (22 | ) | 54 | $ | 5,367 | $ | (212 | ) | 650 | ||||||||||||||||||||||||||||||||||||
% Below cost: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
<20% Below cost | $ | 3,264 | $ | (122 | ) | 569 | $ | 401 | $ | (16 | ) | 78 | $ | 3,665 | $ | (138 | ) | 647 | $ | 5,041 | $ | (187 | ) | 595 | $ | 317 | $ | (21 | ) | 53 | $ | 5,358 | $ | (208 | ) | 648 | ||||||||||||||||||||||||||||||||||||
20%-50% Below cost | 74 | (27 | ) | 18 | 10 | (3 | ) | 2 | 84 | (30 | ) | 20 | 7 | (3 | ) | 1 | 2 | (1 | ) | 1 | 9 | (4 | ) | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total for fixed maturity securities in an unrealized loss position | $ | 3,338 | $ | (149 | ) | 587 | $ | 411 | $ | (19 | ) | 80 | $ | 3,749 | $ | (168 | ) | 667 | $ | 5,048 | $ | (190 | ) | 596 | $ | 319 | $ | (22 | ) | 54 | $ | 5,367 | $ | (212 | ) | 650 | ||||||||||||||||||||||||||||||||||||
Investment grade | $ | 2,631 | $ | (85 | ) | 472 | $ | 338 | $ | (9 | ) | 70 | $ | 2,969 | $ | (94 | ) | 542 | $ | 4,759 | $ | (179 | ) | 551 | $ | 209 | $ | (8 | ) | 36 | $ | 4,968 | $ | (187 | ) | 587 | ||||||||||||||||||||||||||||||||||||
Below investment grade | 707 | (64 | ) | 115 | 73 | (10 | ) | 10 | 780 | (74 | ) | 125 | 289 | (11 | ) | 45 | 110 | (14 | ) | 18 | 399 | (25 | ) | 63 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total for fixed maturity securities in an unrealized loss position | $ | 3,338 | $ | (149 | ) | 587 | $ | 411 | $ | (19 | ) | 80 | $ | 3,749 | $ | (168 | ) | 667 | $ | 5,048 | $ | (190 | ) | 596 | $ | 319 | $ | (22 | ) | 54 | $ | 5,367 | $ | (212 | ) | 650 | ||||||||||||||||||||||||||||||||||||
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the gross unrealized losses and fair values of our corporate securities for which an allowance for credit losses has not been recorded, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of September 30, 2020:March 31, 2021:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||||||||||
(Dollar amounts in millions) | Fair value | Gross unrealized losses | Number securities | Fair value | Gross unrealized losses | Number securities | Fair value | Gross unrealized losses | Number securities | |||||||||||||||||||||||||||
Description of Securities | ||||||||||||||||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||
Utilities | $ | 24 | $ | (1 | ) | 6 | $ | 0 | $ | 0 | 0 | $ | 24 | $ | (1 | ) | 6 | |||||||||||||||||||
Energy | 557 | (45 | ) | 84 | 52 | (9 | ) | 6 | 609 | (54 | ) | 90 | ||||||||||||||||||||||||
Finance and insurance | 373 | (11 | ) | 42 | 0 | 0 | 0 | 373 | (11 | ) | 42 | |||||||||||||||||||||||||
Consumer—non-cyclical | 93 | (2 | ) | 12 | 0 | 0 | 0 | 93 | (2 | ) | 12 | |||||||||||||||||||||||||
Technology and communications | 100 | (3 | ) | 12 | 0 | 0 | 0 | 100 | (3 | ) | 12 | |||||||||||||||||||||||||
Industrial | 72 | (1 | ) | 6 | 0 | 0 | 0 | 72 | (1 | ) | 6 | |||||||||||||||||||||||||
Capital goods | 33 | (3 | ) | 7 | 14 | (1 | ) | 1 | 47 | (4 | ) | 8 | ||||||||||||||||||||||||
Consumer—cyclical | 86 | (1 | ) | 21 | 29 | (1 | ) | 3 | 115 | (2 | ) | 24 | ||||||||||||||||||||||||
Transportation | 137 | (15 | ) | 38 | 0 | 0 | 0 | 137 | (15 | ) | 38 | |||||||||||||||||||||||||
Subtotal, U.S. corporate securities | 1,475 | (82 | ) | 228 | 95 | (11 | ) | 10 | 1,570 | (93 | ) | 238 | ||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||
Energy | 179 | (7 | ) | 18 | 0 | 0 | 0 | 179 | (7 | ) | 18 | |||||||||||||||||||||||||
Finance and insurance | 196 | (5 | ) | 34 | 0 | 0 | 0 | 196 | (5 | ) | 34 | |||||||||||||||||||||||||
Consumer—non-cyclical | 0 | 0 | 0 | 7 | (1 | ) | 2 | 7 | (1 | ) | 2 | |||||||||||||||||||||||||
Industrial | 29 | (1 | ) | 4 | 0 | 0 | 0 | 29 | (1 | ) | 4 | |||||||||||||||||||||||||
Capital goods | 59 | (6 | ) | 11 | 0 | 0 | 0 | 59 | (6 | ) | 11 | |||||||||||||||||||||||||
Consumer—cyclical | 22 | (2 | ) | 11 | 0 | 0 | 0 | 22 | (2 | ) | 11 | |||||||||||||||||||||||||
Transportation | 59 | (5 | ) | 15 | 0 | 0 | 0 | 59 | (5 | ) | 15 | |||||||||||||||||||||||||
Other | 45 | (1 | ) | 13 | 0 | 0 | 0 | 45 | (1 | ) | 13 | |||||||||||||||||||||||||
Subtotal, non-U.S. corporate securities | 589 | (27 | ) | 106 | 7 | (1 | ) | 2 | 596 | (28 | ) | 108 | ||||||||||||||||||||||||
Total for corporate securities in an unrealized loss position | $ | 2,064 | $ | (109 | ) | 334 | $ | 102 | $ | (12 | ) | 12 | $ | 2,166 | $ | (121 | ) | 346 | ||||||||||||||||||
| �� | Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||||||||||||||
Fair | unrealized | Number of | Fair | unrealized | Number of | Fair | unrealized | Number of | ||||||||||||||||||||||||||||
(Dollar amounts in millions) | value | losses | securities | value | losses | securities | value | losses | securities | |||||||||||||||||||||||||||
Description of Securities | ||||||||||||||||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||
Utilities | $ | 240 | $ | (13 | ) | 34 | $ | 0 | $ | 0 | 0 | $ | 240 | $ | (13 | ) | 34 | |||||||||||||||||||
Energy | 348 | (15 | ) | 45 | 70 | (9 | ) | 12 | 418 | (24 | ) | 57 | ||||||||||||||||||||||||
Finance and insurance | 980 | (45 | ) | 87 | 0 | 0 | 0 | 980 | (45 | ) | 87 | |||||||||||||||||||||||||
Consumer—non-cyclical | 314 | (11 | ) | 28 | — | — | — | 314 | (11 | ) | 28 | |||||||||||||||||||||||||
Technology and communications | 371 | (15 | ) | 39 | 6 | (1 | ) | 1 | 377 | (16 | ) | 40 | ||||||||||||||||||||||||
Industrial | 160 | (4 | ) | 15 | 0 | 0 | 0 | 160 | (4 | ) | 15 | |||||||||||||||||||||||||
Capital goods | 166 | (7 | ) | 16 | 18 | (1 | ) | 2 | 184 | (8 | ) | 18 | ||||||||||||||||||||||||
Consumer—cyclical | 245 | (8 | ) | 24 | 0 | 0 | 0 | 245 | (8 | ) | 24 | |||||||||||||||||||||||||
Transportation | 0 | 0 | 0 | 28 | (1 | ) | 5 | 28 | (1 | ) | 5 | |||||||||||||||||||||||||
Other | 21 | (1 | ) | 3 | 0 | 0 | 0 | 21 | (1 | ) | 3 | |||||||||||||||||||||||||
Subtotal, U.S. corporate securities | 2,845 | (119 | ) | 291 | 122 | (12 | ) | 20 | 2,967 | (131 | ) | 311 | ||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||
Utilities | 45 | (2 | ) | 8 | 0 | 0 | 0 | 45 | (2 | ) | 8 | |||||||||||||||||||||||||
Energy | 101 | (3 | ) | 11 | 49 | (1 | ) | 7 | 150 | (4 | ) | 18 | ||||||||||||||||||||||||
Finance and insurance | 379 | (17 | ) | 39 | 0 | 0 | 0 | 379 | (17 | ) | 39 | |||||||||||||||||||||||||
Consumer—non-cyclical | 80 | (3 | ) | 8 | 6 | (1 | ) | 1 | 86 | (4 | ) | 9 | ||||||||||||||||||||||||
Technology and communications | 25 | (1 | ) | 5 | 0 | 0 | 0 | 25 | (1 | ) | 5 | |||||||||||||||||||||||||
Industrial | 82 | (2 | ) | 8 | 0 | 0 | 0 | 82 | (2 | ) | 8 | |||||||||||||||||||||||||
Capital goods | 53 | (3 | ) | 10 | 0 | 0 | 0 | 53 | (3 | ) | 10 | |||||||||||||||||||||||||
Consumer—cyclical | 30 | (2 | ) | 6 | 0 | 0 | 0 | 30 | (2 | ) | 6 | |||||||||||||||||||||||||
Transportation | 42 | (1 | ) | 2 | 0 | 0 | 0 | 42 | (1 | ) | 2 | |||||||||||||||||||||||||
Other | 39 | (1 | ) | 5 | 0 | 0 | 0 | 39 | (1 | ) | 5 | |||||||||||||||||||||||||
Subtotal, non-U.S. corporate securities | 876 | (35 | ) | 102 | 55 | (2 | ) | 8 | 931 | (37 | ) | 110 | ||||||||||||||||||||||||
Total for corporate securities in an unrealized loss position | $ | 3,721 | $ | (154 | ) | 393 | $ | 177 | $ | (14 | ) | 28 | $ | 3,898 | $ | (168 | ) | 421 | ||||||||||||||||||
We did not recognize an allowance for credit losses on securities in an unrealized loss position included in the tables above. Based on a qualitative and quantitative review of the issuers of the securities, we believe the decline in fair value is largely due to recent market volatility and is not indicative of credit losses. The issuers continue to make timely principal and interest payments. For all securities in an unrealized loss position without
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
an allowance for credit losses, we expect to recover the amortized cost based on our estimate of the amount and timing of cash flows to be collected. We do not intend to sell nor do we expect that we will be required to sell these securities prior to recovering our amortized cost.
The following table presents the gross unrealized losses and fair values of our fixed maturity securities, aggregated by investment type and length of time that individual fixed maturity securities have been in a continuous unrealized loss position, as of December 31, 2019:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | Fair | unrealized | Number of | Fair | unrealized | Number of | Fair | unrealized | Number of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollar amounts in millions) | Fair value | Gross unrealized losses | Number securities | Fair value | Gross unrealized losses | Number securities | Fair value | Gross unrealized losses | Number securities | value | losses | securities | value | losses | securities | value | losses | securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Description of Securities | Description of Securities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
State and political subdivisions | $ | 91 | $ | (2 | ) | 14 | $ | 0 | $ | 0 | 0 | $ | 91 | $ | (2 | ) | 14 | $ | 28 | $ | (1 | ) | 6 | $ | 0 | $ | 0 | 0 | $ | 28 | $ | (1 | ) | 6 | ||||||||||||||||||||||||||||||||||||||
Non-U.S. government | 224 | (2 | ) | 20 | 0 | 0 | 0 | 224 | (2 | ) | 20 | 44 | (4 | ) | 5 | 0 | 0 | 0 | 44 | (4 | ) | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. corporate | 123 | (5 | ) | 27 | 302 | (13 | ) | 33 | 425 | (18 | ) | 60 | 345 | (20 | ) | 59 | 33 | (3 | ) | 4 | 378 | (23 | ) | 63 | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-U.S. corporate | 79 | (1 | ) | 12 | 62 | (4 | ) | 7 | 141 | (5 | ) | 19 | 145 | (4 | ) | 32 | 6 | (1 | ) | 1 | 151 | (5 | ) | 33 | ||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage-backed | 22 | (1 | ) | 10 | 0 | 0 | 0 | 22 | (1 | ) | 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial mortgage-backed | 381 | (5 | ) | 51 | 14 | (3 | ) | 3 | 395 | (8 | ) | 54 | 227 | (11 | ) | 34 | 1 | (1 | ) | 1 | 228 | (12 | ) | 35 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other asset-backed | 532 | (2 | ) | 97 | 439 | (5 | ) | 115 | 971 | (7 | ) | 212 | 238 | (2 | ) | 60 | 207 | (2 | ) | 48 | 445 | (4 | ) | 108 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total for fixed maturity securities in an unrealized loss position | $ | 1,452 | $ | (18 | ) | 231 | $ | 817 | $ | (25 | ) | 158 | $ | 2,269 | $ | (43 | ) | 389 | $ | 1,027 | $ | (42 | ) | 196 | $ | 247 | $ | (7 | ) | 54 | $ | 1,274 | $ | (49 | ) | 250 | ||||||||||||||||||||||||||||||||||||
% Below cost: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
<20% Below cost | $ | 1,452 | $ | (18 | ) | 231 | $ | 807 | $ | (20 | ) | 155 | $ | 2,259 | $ | (38 | ) | 386 | $ | 1,017 | $ | (35 | ) | 194 | $ | 246 | $ | (6 | ) | 53 | $ | 1,263 | $ | (41 | ) | 247 | ||||||||||||||||||||||||||||||||||||
20%-50% Below cost | 0 | 0 | 0 | 10 | (5 | ) | 3 | 10 | (5 | ) | 3 | 10 | (7 | ) | 2 | 1 | (1 | ) | 1 | 11 | (8 | ) | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total for fixed maturity securities in an unrealized loss position | $ | 1,452 | $ | (18 | ) | 231 | $ | 817 | $ | (25 | ) | 158 | $ | 2,269 | $ | (43 | ) | 389 | $ | 1,027 | $ | (42 | ) | 196 | $ | 247 | $ | (7 | ) | 54 | $ | 1,274 | $ | (49 | ) | 250 | ||||||||||||||||||||||||||||||||||||
Investment grade | $ | 1,408 | $ | (14 | ) | 223 | $ | 702 | $ | (15 | ) | 145 | $ | 2,110 | $ | (29 | ) | 368 | $ | 852 | $ | (23 | ) | 163 | $ | 207 | $ | (2 | ) | 48 | $ | 1,059 | $ | (25 | ) | 211 | ||||||||||||||||||||||||||||||||||||
Below investment grade | 44 | (4 | ) | 8 | 115 | (10 | ) | 13 | 159 | (14 | ) | 21 | 175 | (19 | ) | 33 | 40 | (5 | ) | 6 | 215 | (24 | ) | 39 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total for fixed maturity securities in an unrealized loss position | $ | 1,452 | $ | (18 | ) | 231 | $ | 817 | $ | (25 | ) | 158 | $ | 2,269 | $ | (43 | ) | 389 | $ | 1,027 | $ | (42 | ) | 196 | $ | 247 | $ | (7 | ) | 54 | $ | 1,274 | $ | (49 | ) | 250 | ||||||||||||||||||||||||||||||||||||
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of December 31, 2019:2020:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Less than 12 months | 12 months or more | Total | Fair | unrealized | Number of | Fair | unrealized | Number of | Fair | unrealized | Number of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollar amounts in millions) | Fair value | Gross unrealized losses | Number securities | Fair value | Gross unrealized losses | Number securities | Fair value | Gross unrealized losses | Number securities | value | losses | securities | value | losses | securities | value | losses | securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Description of Securities | Description of Securities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Utilities | $ | 49 | $ | (2 | ) | 9 | $ | 0 | $ | 0 | 0 | $ | 49 | $ | (2 | ) | 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Energy | $ | 54 | $ | (3 | ) | 10 | $ | 80 | $ | (5 | ) | 10 | $ | 134 | $ | (8 | ) | 20 | 106 | (13 | ) | 19 | 33 | (3 | ) | 4 | 139 | (16 | ) | 23 | ||||||||||||||||||||||||||||||||||||||||||
Finance and insurance | 0 | 0 | 0 | 34 | (1 | ) | 4 | 34 | (1 | ) | 4 | 128 | (2 | ) | 15 | 0 | 0 | 0 | 128 | (2 | ) | 15 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer—non-cyclical | 34 | (1 | ) | 9 | 93 | (3 | ) | 9 | 127 | (4 | ) | 18 | 16 | (1 | ) | 5 | 0 | 0 | 0 | 16 | (1 | ) | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||
Technology and communications | 0 | 0 | 0 | 18 | (1 | ) | 2 | 18 | (1 | ) | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital goods | 35 | (1 | ) | 8 | 0 | 0 | 0 | 35 | (1 | ) | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer—cyclical | 0 | 0 | 0 | 54 | (2 | ) | 6 | 54 | (2 | ) | 6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transportation | 0 | 0 | 0 | 23 | (1 | ) | 2 | 23 | (1 | ) | 2 | 46 | (2 | ) | 11 | 0 | 0 | 0 | 46 | (2 | ) | 11 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Subtotal, U.S. corporate securities | 123 | (5 | ) | 27 | 302 | (13 | ) | 33 | 425 | (18 | ) | 60 | 345 | (20 | ) | 59 | 33 | (3 | ) | 4 | 378 | (23 | ) | 63 | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Energy | 66 | (1 | ) | 10 | 0 | 0 | 0 | 66 | (1 | ) | 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer—non-cyclical | 0 | 0 | 0 | 31 | (2 | ) | 3 | 31 | (2 | ) | 3 | 0 | 0 | 0 | 6 | (1 | ) | 1 | 6 | (1 | ) | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Capital goods | 31 | (1 | ) | 8 | 0 | 0 | 0 | 31 | (1 | ) | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer—cyclical | 15 | (1 | ) | 6 | 0 | 0 | 0 | 15 | (1 | ) | 6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transportation | 0 | 0 | 0 | 25 | (1 | ) | 3 | 25 | (1 | ) | 3 | 33 | (1 | ) | 8 | 0 | 0 | 0 | 33 | (1 | ) | 8 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 79 | (1 | ) | 12 | 6 | (1 | ) | 1 | 85 | (2 | ) | 13 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subtotal, non-U.S. corporate securities | 79 | (1 | ) | 12 | 62 | (4 | ) | 7 | 141 | (5 | ) | 19 | 145 | (4 | ) | 32 | 6 | (1 | ) | 1 | 151 | (5 | ) | 33 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total for corporate securities in an unrealized loss position | $ | 202 | $ | (6 | ) | 39 | $ | 364 | $ | (17 | ) | 40 | $ | 566 | $ | (23 | ) | 79 | $ | 490 | $ | (24 | ) | 91 | $ | 39 | $ | (4 | ) | 5 | $ | 529 | $ | (28 | ) | 96 | ||||||||||||||||||||||||||||||||||||
The scheduled maturity distribution of fixed maturity securities as of September 30, 2020March 31, 2021 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized | ||||||||||||||||
cost or | Fair | |||||||||||||||
(Amounts in millions) | Amortized cost or cost | Fair value | cost | value | ||||||||||||
Due one year or less | $ | 1,476 | $ | 1,499 | $ | 1,269 | $ | 1,291 | ||||||||
Due after one year through five years | 9,646 | 10,265 | 8,298 | 8,926 | ||||||||||||
Due after five years through ten years | 13,164 | 14,863 | 13,612 | 14,904 | ||||||||||||
Due after ten years | 23,112 | 29,452 | 23,205 | 27,699 | ||||||||||||
Subtotal | 47,398 | 56,079 | 46,384 | 52,820 | ||||||||||||
Residential mortgage-backed | 1,825 | 2,075 | 1,600 | 1,774 | ||||||||||||
Commercial mortgage-backed | 2,775 | 2,976 | 2,688 | 2,794 | ||||||||||||
Other asset-backed | 3,254 | 3,286 | 2,798 | 2,843 | ||||||||||||
Total | $ | 55,252 | $ | 64,416 | $ | 53,470 | $ | 60,231 | ||||||||
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of September 30, 2020,March 31, 2021, securities issued by finance and insurance, consumer—non-cyclical, utilities and technology and communications industry groups represented approximately 24%25%, 15%, 13% and 10%11%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than 10% of our investment portfolio.
As of September 30, 2020,March 31, 2021, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of stockholders’ equity.
(e) Commercial Mortgage Loans
Our mortgage loans are collateralized by commercial properties, including multi-family residential buildings. The carrying value of commercial mortgage loans is stated at original cost net of principal payments, amortization and allowance for credit losses.
We diversify our commercial mortgage loans by both property type and geographic region. The following tables set forth the distribution across property type and geographic region for commercial mortgage loans as of the dates indicated:
September 30, 2020 | December 31, 2019 | |||||||||||||||
(Amounts in millions) | Carrying value | % of total | Carrying value | % of total | ||||||||||||
Property type: | ||||||||||||||||
Retail | $ | 2,481 | 36 | % | $ | 2,590 | 37 | % | ||||||||
Industrial | 1,685 | 24 | 1,670 | 24 | ||||||||||||
Office | 1,625 | 24 | 1,632 | 23 | ||||||||||||
Apartments | 566 | 8 | 541 | 8 | ||||||||||||
Mixed use | 292 | 4 | 281 | 4 | ||||||||||||
Other | 262 | 4 | 266 | 4 | ||||||||||||
Subtotal | 6,911 | 100 | % | 6,980 | 100 | % | ||||||||||
Unamortized balance of loan origination fees | 0 | (4 | ) | |||||||||||||
Allowance for credit losses | (31 | ) | (13 | ) | ||||||||||||
Total | $ | 6,880 | $ | 6,963 | ||||||||||||
March 31, 2021 | December 31, 2020 | |||||||||||||||
Carrying | % of | Carrying | % of | |||||||||||||
(Amounts in millions) | value | total | value | total | ||||||||||||
Property type: | ||||||||||||||||
Retail | $ | 2,541 | 37 | % | $ | 2,442 | 36 | % | ||||||||
Industrial | 1,593 | 24 | 1,638 | 24 | ||||||||||||
Office | 1,539 | 23 | 1,567 | 23 | ||||||||||||
Apartments | 569 | 8 | 529 | 8 | ||||||||||||
Mixed use | 284 | 4 | 286 | 4 | ||||||||||||
Other | 261 | 4 | 312 | 5 | ||||||||||||
Subtotal | 6,787 | 100 | % | 6,774 | 100 | % | ||||||||||
Allowance for credit losses | (32 | ) | (31 | ) | ||||||||||||
Total | $ | 6,755 | $ | 6,743 | ||||||||||||
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2020 | December 31, 2019 | |||||||||||||||
(Amounts in millions) | Carrying value | % of total | Carrying value | % of total | ||||||||||||
Geographic region: | ||||||||||||||||
South Atlantic | $ | 1,761 | 25 | % | $ | 1,715 | 25 | % | ||||||||
Pacific | 1,571 | 23 | 1,673 | 24 | ||||||||||||
Middle Atlantic | 993 | 14 | 992 | 14 | ||||||||||||
Mountain | 776 | 11 | 753 | 11 | ||||||||||||
West North Central | 481 | 7 | 488 | 7 | ||||||||||||
East North Central | 451 | 7 | 455 | 6 | ||||||||||||
West South Central | 427 | 6 | 433 | 6 | ||||||||||||
New England | 262 | 4 | 257 | 4 | ||||||||||||
East South Central | 189 | 3 | 214 | 3 | ||||||||||||
Subtotal | 6,911 | 100 | % | 6,980 | 100 | % | ||||||||||
Unamortized balance of loan origination fees | 0 | (4 | ) | |||||||||||||
Allowance for credit losses | (31 | ) | (13 | ) | ||||||||||||
Total | $ | 6,880 | $ | 6,963 | ||||||||||||
March 31, 2021 | December 31, 2020 | |||||||||||||||
Carrying | % of | Carrying | % of | |||||||||||||
(Amounts in millions) | value | total | value | total | ||||||||||||
Geographic region: | ||||||||||||||||
South Atlantic | $ | 1,690 | 25 | % | $ | 1,711 | 25 | % | ||||||||
Pacific | 1,490 | 22 | 1,510 | 22 | ||||||||||||
Middle Atlantic | 1,001 | 15 | 994 | 15 | ||||||||||||
Mountain | 816 | 12 | 781 | 12 | ||||||||||||
West North Central | 463 | 7 | 467 | 7 | ||||||||||||
East North Central | 432 | 6 | 441 | 6 | ||||||||||||
West South Central | 432 | 6 | 423 | 6 | ||||||||||||
New England | 258 | 4 | 260 | 4 | ||||||||||||
East South Central | 205 | 3 | 187 | 3 | ||||||||||||
Subtotal | 6,787 | 100 | % | 6,774 | 100 | % | ||||||||||
Allowance for credit losses | (32 | ) | (31 | ) | ||||||||||||
Total | $ | 6,755 | $ | 6,743 | ||||||||||||
September 30, 2020 | ||||||||||||||||||||||||
(Amounts in millions) | 31 - 60 days past due | 61 - 90 days past due | Greater than 90 days past due | Total past due | Current | Total | ||||||||||||||||||
Property type: | ||||||||||||||||||||||||
Retail | $ | 4 | $ | 0 | $ | 10 | $ | 14 | $ | 2,467 | $ | 2,481 | ||||||||||||
Industrial | 0 | 0 | 0 | 0 | 1,685 | 1,685 | ||||||||||||||||||
Office | 0 | 0 | 0 | 0 | 1,625 | 1,625 | ||||||||||||||||||
Apartments | 0 | 0 | 0 | 0 | 566 | 566 | ||||||||||||||||||
Mixed use | 0 | 0 | 0 | 0 | 292 | 292 | ||||||||||||||||||
Other | 0 | 0 | 0 | 0 | 262 | 262 | ||||||||||||||||||
Total amortized cost | $ | 4 | $ | 0 | $ | 10 | $ | 14 | $ | 6,897 | $ | 6,911 | ||||||||||||
% of total commercial mortgage loans | 0 | % | 0 | % | 0 | % | 0 | % | 100 | % | 100 | % | ||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
(Amounts in millions) | 31 - 60 days past due | 61 - 90 days past due | Greater than 90 days past due | Total past due | Current | Total | ||||||||||||||||||
Property type: | ||||||||||||||||||||||||
Retail | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,590 | $ | 2,590 | ||||||||||||
Industrial | 0 | 0 | 0 | 0 | 1,670 | 1,670 | ||||||||||||||||||
Office | 0 | 0 | 0 | 0 | 1,632 | 1,632 | ||||||||||||||||||
Apartments | 0 | 0 | 0 | 0 | 541 | 541 | ||||||||||||||||||
Mixed use | 0 | 0 | 0 | 0 | 281 | 281 | ||||||||||||||||||
Other | 0 | 0 | 0 | 0 | 266 | 266 | ||||||||||||||||||
Total recorded investment | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 6,980 | $ | 6,980 | ||||||||||||
% of total commercial mortgage loans | 0 | % | 0 | % | 0 | % | 0 | % | 100 | % | 100 | % | ||||||||||||
were current. For a discussion of our policy related to placing commercial mortgage loans on non-accrual status, see Note 2—Summary of Significant Accounting Policies included in the Notes to Consolidated Financial Statements in our 20192020 Annual Report on Form 10-K. As of September 30,March 31, 2021 and December 31, 2020, we had 0 commercial mortgage loans that were past due for more than 90 days and still accruing interest. We also did not have any commercial mortgage loans that were past due for less than 90 days on non-accrual status as of September 30, 2020.
commercial mortgage loans on non-accrual status.
During the ninethree months ended September 30, 2020March 31, 2021 and the year ended December 31, 2019,2020, we did 0t have any modifications or extensions that were considered troubled debt restructurings.
The following table sets forth the allowance for credit losses related to commercial mortgage loans as of or for the periods indicated:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Allowance for credit losses: | ||||||||||||||||
Beginning balance | $ | 28 | $ | 11 | $ | 13 | $ | 9 | ||||||||
Cumulative effect of change in accounting | 0 | 0 | 16 | 0 | ||||||||||||
Provision | 3 | 1 | 2 | 3 | ||||||||||||
Write-offs | 0 | 0 | 0 | 0 | ||||||||||||
Recoveries | 0 | 0 | 0 | 0 | ||||||||||||
Ending balance | $ | 31 | $ | 12 | $ | 31 | $ | 12 | ||||||||
Three months ended | ||||||||
March 31, | ||||||||
(Amounts in millions) | 2021 | 2020 | ||||||
Allowance for credit losses: | ||||||||
Beginning balance | $ | 31 | $ | 13 | ||||
Cumulative effect of change in accounting | 0 | 16 | ||||||
Provision | 1 | 0 | ||||||
Write-offs | 0 | 0 | ||||||
Recoveries | 0 | 0 | ||||||
Ending balance | $ | 32 | $ | 29 | ||||
In evaluating the credit quality of commercial mortgage loans, we assess the performance of the underlying loans using both quantitative and qualitative criteria. Certain risks associated with commercial mortgage loans can be evaluated by reviewing both the debt-to-value and debt service coverage ratio to understand both the probability of the borrower not being able to make the necessary loan payments as well as the ability to sell the underlying property for an amount that would enable us to recover our unpaid principal balance in the event of
23
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
default by the borrower. The average debt-to-value ratio is based on our most recent estimate of the fair value for the underlying property which is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A lower debt-to-value indicates that our loan value is more likely to be recovered in the event of default by the borrower if the property was sold. The debt service coverage ratio is
based on “normalized” annual income of the property compared to the payments required under the terms of the loan. Normalization allows for the removal of annual one-time events such as capital expenditures, prepaid or late real estate tax payments or non-recurring third-party fees (such as legal, consulting or contract fees). This ratio is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A higher debt service coverage ratio indicates the borrower is less likely to default on the loan. The debt service coverage ratio is not used without considering other factors associated with the borrower, such as the borrower’s liquidity or access to other resources that may result in our expectation that the borrower will continue to make the future scheduled payments.
The following tables set forth commercial mortgage loans by year of origination and credit quality indicator as of September 30, 2020:
2016 and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 and prior | Total | 2021 | 2020 | 2019 | 2018 | 2017 | prior | Total | ||||||||||||||||||||||||||||||||||||||||||
Debt-to-value: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0% - 50% | $ | 9 | $ | 15 | $ | 38 | $ | 108 | $ | 131 | $ | 2,307 | $ | 2,608 | $ | 0 | $ | 59 | $ | 28 | $ | 94 | $ | 153 | $ | 2,279 | $ | 2,613 | ||||||||||||||||||||||||||||
51% - 60% | 29 | 33 | 191 | 289 | 141 | 734 | 1,417 | 6 | 51 | 84 | 334 | 287 | 836 | 1,598 | ||||||||||||||||||||||||||||||||||||||||||
61% - 75% | 373 | 746 | 758 | 330 | 223 | 448 | 2,878 | 136 | 429 | 667 | 532 | 278 | 534 | 2,576 | ||||||||||||||||||||||||||||||||||||||||||
76% - 100% | 0 | 0 | 8 | 0 | 0 | 0 | 8 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Greater than 100% | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Total amortized cost | $ | 411 | $ | 794 | $ | 995 | $ | 727 | $ | 495 | $ | 3,489 | $ | 6,911 | $ | 142 | $ | 539 | $ | 779 | $ | 960 | $ | 718 | $ | 3,649 | $ | 6,787 | ||||||||||||||||||||||||||||
Debt service coverage ratio: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Less than 1.00 | $ | 0 | $ | 0 | $ | 33 | $ | 3 | $ | 0 | $ | 123 | $ | 159 | $ | 0 | $ | 0 | $ | 8 | $ | 27 | $ | 10 | $ | 162 | $ | 207 | ||||||||||||||||||||||||||||
1.00 - 1.25 | 41 | 12 | 106 | 73 | 13 | 252 | 497 | 0 | 53 | 67 | 54 | 42 | 295 | 511 | ||||||||||||||||||||||||||||||||||||||||||
1.26 - 1.50 | 69 | 357 | 260 | 96 | 87 | 405 | 1,274 | 27 | 82 | 242 | 201 | 60 | 397 | 1,009 | ||||||||||||||||||||||||||||||||||||||||||
1.51 - 2.00 | 251 | 356 | 503 | 320 | 266 | 1,214 | 2,910 | 106 | 282 | 293 | 444 | 334 | 1,186 | 2,645 | ||||||||||||||||||||||||||||||||||||||||||
Greater than 2.00 | 50 | 69 | 93 | 235 | 129 | 1,495 | 2,071 | 9 | 122 | 169 | 234 | 272 | 1,609 | 2,415 | ||||||||||||||||||||||||||||||||||||||||||
Total amortized cost | $ | 411 | $ | 794 | $ | 995 | $ | 727 | $ | 495 | $ | 3,489 | $ | 6,911 | $ | 142 | $ | 539 | $ | 779 | $ | 960 | $ | 718 | $ | 3,649 | $ | 6,787 | ||||||||||||||||||||||||||||
Write-offs, gross | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||
Recoveries | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||
Write-offs, net | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables set forth the debt-to-value of commercial mortgage loans by property type as of the dates indicated:
March 31, 2021 | ||||||||||||||||||||||||
Greater | ||||||||||||||||||||||||
(Amounts in millions) | 0% - 50% | 51% - 60% | 61% - 75% | 76% - 100% | than 100% | Total | ||||||||||||||||||
Property type: | ||||||||||||||||||||||||
Retail | $ | 944 | $ | 569 | $ | 1,028 | $ | 0 | $ | 0 | $ | 2,541 | ||||||||||||
Industrial | 754 | 384 | 455 | 0 | 0 | 1,593 | ||||||||||||||||||
Office | 508 | 456 | 575 | 0 | 0 | 1,539 | ||||||||||||||||||
Apartments | 241 | 85 | 243 | 0 | 0 | 569 | ||||||||||||||||||
Mixed use | 105 | 42 | 137 | 0 | 0 | 284 | ||||||||||||||||||
Other | 61 | 62 | 138 | 0 | 0 | 261 | ||||||||||||||||||
Total amortized cost | $ | 2,613 | $ | 1,598 | $ | 2,576 | $ | 0 | $ | 0 | $ | 6,787 | ||||||||||||
% of total | 38 | % | 24 | % | 38 | % | 0 | % | 0 | % | 100 | % | ||||||||||||
Weighted-average debt service coverage ratio | 2.39 | 1.86 | 1.60 | 0 | 0 | 1.96 | ||||||||||||||||||
September 30, 2020 | ||||||||||||||||||||||||
(Amounts in millions) | 0% - 50% | 51% - 60% | 61% - 75% | 76% - 100% | Greater than 100% | Total | ||||||||||||||||||
Property type: | ||||||||||||||||||||||||
Retail | $ | 940 | $ | 557 | $ | 984 | $ | 0 | $ | 0 | $ | 2,481 | ||||||||||||
Industrial | 775 | 310 | 600 | 0 | 0 | 1,685 | ||||||||||||||||||
Office | 513 | 337 | 767 | 8 | 0 | 1,625 | ||||||||||||||||||
Apartments | 220 | 85 | 261 | 0 | 0 | 566 | ||||||||||||||||||
Mixed use | 106 | 63 | 123 | 0 | 0 | 292 | ||||||||||||||||||
Other | 54 | 65 | 143 | 0 | 0 | 262 | ||||||||||||||||||
Total amortized cost | $ | 2,608 | $ | 1,417 | $ | 2,878 | $ | 8 | $ | 0 | $ | 6,911 | ||||||||||||
% of total | 38 | % | 20 | % | 42 | % | 0 | % | 0 | % | 100 | % | ||||||||||||
Weighted-average debt service coverage ratio | 2.31 | 1.81 | 1.57 | 1.42 | 0 | 1.90 | ||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||
Greater | ||||||||||||||||||||||||
(Amounts in millions) | 0% - 50% | 51% - 60% | 61% - 75% | 76% - 100% | than 100% | Total | ||||||||||||||||||
Property type: | ||||||||||||||||||||||||
Retail | $ | 913 | $ | 639 | $ | 859 | $ | 29 | $ | 2 | $ | 2,442 | ||||||||||||
Industrial | 798 | 351 | 456 | 33 | 0 | 1,638 | ||||||||||||||||||
Office | 523 | 431 | 595 | 18 | 0 | 1,567 | ||||||||||||||||||
Apartments | 199 | 86 | 238 | 6 | 0 | 529 | ||||||||||||||||||
Mixed use | 112 | 47 | 127 | 0 | 0 | 286 | ||||||||||||||||||
Other | 100 | 74 | 121 | 17 | 0 | 312 | ||||||||||||||||||
Total amortized cost | $ | 2,645 | $ | 1,628 | $ | 2,396 | $ | 103 | $ | 2 | $ | 6,774 | ||||||||||||
% of total | 39 | % | 24 | % | 35 | % | 2 | % | 0 | % | 100 | % | ||||||||||||
Weighted-average debt service coverage ratio | 2.40 | 1.83 | 1.61 | 1.49 | 0.64 | 1.97 | ||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
(Amounts in millions) | 0% - 50% | 51% - 60% | 61% - 75% | 76% - 100% | Greater than | Total | ||||||||||||||||||
Property type: | ||||||||||||||||||||||||
Retail | $ | 986 | $ | 579 | $ | 1,025 | $ | 0 | $ | 0 | $ | 2,590 | ||||||||||||
Industrial | 808 | 337 | 525 | 0 | 0 | 1,670 | ||||||||||||||||||
Office | 529 | 380 | 723 | 0 | 0 | 1,632 | ||||||||||||||||||
Apartments | 211 | 110 | 220 | 0 | 0 | 541 | ||||||||||||||||||
Mixed use | 104 | 70 | 107 | 0 | 0 | 281 | ||||||||||||||||||
Other | 56 | 69 | 141 | 0 | 0 | 266 | ||||||||||||||||||
Total recorded investment | $ | 2,694 | $ | 1,545 | $ | 2,741 | $ | 0 | $ | 0 | $ | 6,980 | ||||||||||||
% of total | 39 | % | 22 | % | 39 | % | 0 | % | 0 | % | 100 | % | ||||||||||||
Weighted-average debt service coverage ratio | 2.32 | 1.81 | 1.55 | 0 | 0 | 1.90 | ||||||||||||||||||
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables set forth the debt service coverage ratio for fixed rate commercial mortgage loans by property type as of the dates indicated:
September 30, 2020 | ||||||||||||||||||||||||
(Amounts in millions) | Less than 1.00 | 1.00 - 1.25 | 1.26 - 1.50 | 1.51 - 2.00 | Greater than 2.00 | Total | ||||||||||||||||||
Property type: | ||||||||||||||||||||||||
Retail | $ | 61 | $ | 134 | $ | 585 | $ | 1,100 | $ | 601 | $ | 2,481 | ||||||||||||
Industrial | 23 | 66 | 218 | 704 | 674 | 1,685 | ||||||||||||||||||
Office | 28 | 111 | 238 | 770 | 478 | 1,625 | ||||||||||||||||||
Apartments | 11 | 24 | 177 | 182 | 172 | 566 | ||||||||||||||||||
Mixed use | 3 | 18 | 37 | 118 | 116 | 292 | ||||||||||||||||||
Other | 33 | 144 | 19 | 36 | 30 | 262 | ||||||||||||||||||
Total amortized cost | $ | 159 | $ | 497 | $ | 1,274 | $ | 2,910 | $ | 2,071 | $ | 6,911 | ||||||||||||
% of total | 2 | % | 7 | % | 19 | % | 42 | % | 30 | % | 100 | % | ||||||||||||
Weighted-average debt-to-value | 57 | % | 61 | % | 63 | % | 59 | % | 41 | % | 54 | % | ||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
(Amounts in millions) | Less than 1.00 | 1.00 - 1.25 | 1.26 - 1.50 | 1.51 - 2.00 | Greater than 2.00 | Total | ||||||||||||||||||
Property type: | ||||||||||||||||||||||||
Retail | $ | 68 | $ | 141 | $ | 596 | $ | 1,148 | $ | 637 | $ | 2,590 | ||||||||||||
Industrial | 24 | 51 | 221 | 658 | 716 | 1,670 | ||||||||||||||||||
Office | 44 | 89 | 277 | 751 | 471 | 1,632 | ||||||||||||||||||
Apartments | 16 | 32 | 129 | 175 | 189 | 541 | ||||||||||||||||||
Mixed use | 4 | 16 | 37 | 107 | 117 | 281 | ||||||||||||||||||
Other | 34 | 147 | 20 | 31 | 34 | 266 | ||||||||||||||||||
Total recorded investment | $ | 190 | $ | 476 | $ | 1,280 | $ | 2,870 | $ | 2,164 | $ | 6,980 | ||||||||||||
% of total | 3 | % | 7 | % | 18 | % | 41 | % | 31 | % | 100 | % | ||||||||||||
Weighted-average debt-to-value | 59 | % | 61 | % | 63 | % | 58 | % | 41 | % | 54 | % | ||||||||||||
March 31, 2021 | ||||||||||||||||||||||||
Greater | ||||||||||||||||||||||||
(Amounts in millions) | Less than 1.00 | 1.00 - 1.25 | 1.26 - 1.50 | 1.51 - 2.00 | than 2.00 | Total | ||||||||||||||||||
Property type: | ||||||||||||||||||||||||
Retail | $ | 52 | $ | 162 | $ | 500 | $ | 1,063 | $ | 764 | $ | 2,541 | ||||||||||||
Industrial | 21 | 80 | 147 | 582 | 763 | 1,593 | ||||||||||||||||||
Office | 96 | 97 | 171 | 621 | 554 | 1,539 | ||||||||||||||||||
Apartments | 8 | 24 | 125 | 226 | 186 | 569 | ||||||||||||||||||
Mixed use | 5 | 24 | 29 | 129 | 97 | 284 | ||||||||||||||||||
Other | 25 | 124 | 37 | 24 | 51 | 261 | ||||||||||||||||||
Total amortized cost | $ | 207 | $ | 511 | $ | 1,009 | $ | 2,645 | $ | 2,415 | $ | 6,787 | ||||||||||||
% of total | 3 | % | 7 | % | 15 | % | 39 | % | 36 | % | 100 | % | ||||||||||||
Weighted-average debt-to-value | 57 | % | 61 | % | 62 | % | 57 | % | 44 | % | 53 | % | ||||||||||||
December 31, 2020 | ||||||||||||||||||||||||
Greater | ||||||||||||||||||||||||
(Amounts in millions) | Less than 1.00 | 1.00 - 1.25 | 1.26 - 1.50 | 1.51 - 2.00 | than 2.00 | Total | ||||||||||||||||||
Property type: | ||||||||||||||||||||||||
Retail | $ | 55 | $ | 169 | $ | 483 | $ | 969 | $ | 766 | $ | 2,442 | ||||||||||||
Industrial | 21 | 85 | 143 | 616 | 773 | 1,638 | ||||||||||||||||||
Office | 101 | 99 | 170 | 634 | 563 | 1,567 | ||||||||||||||||||
Apartments | 9 | 24 | 126 | 228 | 142 | 529 | ||||||||||||||||||
Mixed use | 5 | 24 | 29 | 115 | 113 | 286 | ||||||||||||||||||
Other | 25 | 125 | 41 | 28 | 93 | 312 | ||||||||||||||||||
Total amortized cost | $ | 216 | $ | 526 | $ | 992 | $ | 2,590 | $ | 2,450 | $ | 6,774 | ||||||||||||
% of total | 3 | % | 8 | % | 15 | % | 38 | % | 36 | % | 100 | % | ||||||||||||
Weighted-average debt-to-value | 57 | % | 62 | % | 62 | % | 57 | % | 44 | % | 53 | % | ||||||||||||
(f) Limited Partnerships or Similar Entities
Limited partnerships are accounted for at fair value when our partnership interest is considered minor (generally less than 3% ownership in the limited partnerships) and we exercise no influence over operating and financial policies. If our ownership percentage exceeds that threshold, limited partnerships are accounted for using the equity method of accounting. In applying either method, we use financial information provided by the investee generally on a one-to-three month lag. However, for limited partnerships measured at fair value, we consider whether an adjustment to the estimated fair value is necessary when the measurement date is not aligned with our reporting date.
Investments in limited partnerships or similar entities are generally considered VIEs when the equity group lacks sufficient financial control. Generally, these investments are limited partner or non-managing member equity investments in a widely held fund that is sponsored and managed by a reputable asset manager. We are not the primary beneficiary of any VIE investment in a limited partnership or similar entity. As of September 30,
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
the primary beneficiary of any VIE investment in a limited partnership or similar entity. As of March 31, 2021 and December 31, 2019,2020, the total carrying value of these investments was $823$1,128 million and $616$1,018 million, respectively. Our maximum exposure to loss is equal to the outstanding carrying value and future funding commitments. We have not contributed, and do not plan to contribute, any additional financial or other support outside of what is contractually obligated.
(5) Derivative Instruments
Our business activities routinely deal with fluctuations in interest rates, equity prices, currency
exchange
rates and other asset and liability prices. We use derivative instruments to mitigate or reduce some of these risks. We have established policies for managing each of these risks, including prohibitions on derivatives market-making and other speculative derivatives activities. These policies require the use of derivative instruments in concert with other techniques to reduce or mitigate these risks. While we use derivatives to mitigate or reduce risks, certain derivatives do not meet the accounting requirements to be designated as hedging instruments and are denoted as “derivatives not designated as hedges” in the following disclosures. For derivatives that meet the accounting requirements to be designated as hedges, the following disclosures for these derivatives are denoted as “derivatives designated as hedges,” which include cash flow hedges.The following table sets forth our positions in derivative instruments as of the dates indicated:
Derivative assets | Derivative liabilities | |||||||||||||||||||||||||||||||||||||||||
Derivative assets | Derivative liabilities | Balance sheet classification | Fair value | Balance sheet classification | Fair value | |||||||||||||||||||||||||||||||||||||
Fair value | Fair value | March 31, 2021 | December 31, 2020 | March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Balance sheet | September 30, 2020 | December 31, 2019 | Balance sheet | September 30, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||||
Derivatives designated as hedges | ||||||||||||||||||||||||||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | Other invested assets | $ | 708 | $ | 197 | Other liabilities | $ | 4 | $ | 10 | Other invested assets | $ | 84 | $ | 468 | Other liabilities | $ | 170 | $ | 23 | ||||||||||||||||||||||
Foreign currency swaps | Other invested assets | 10 | 4 | Other liabilities | 0 | — | Other invested assets | 0 | 1 | Other liabilities | 3 | 2 | ||||||||||||||||||||||||||||||
Total cash flow hedges | 718 | 201 | 4 | 10 | 84 | 469 | 173 | 25 | ||||||||||||||||||||||||||||||||||
Total derivatives designated as hedges | 718 | 201 | 4 | 10 | 84 | 469 | 173 | 25 | ||||||||||||||||||||||||||||||||||
Derivatives not designated as hedges | ||||||||||||||||||||||||||||||||||||||||||
Equity index options | Other invested assets | 67 | 81 | Other liabilities | 0 | — | Other invested assets | 53 | 63 | Other liabilities | 0 | 0 | ||||||||||||||||||||||||||||||
Financial futures | Other invested assets | 0 | — | Other liabilities | 0 | — | Other invested assets | 0 | 0 | Other liabilities | 0 | 0 | ||||||||||||||||||||||||||||||
Other foreign currency contracts | Other invested assets | 19 | 8 | Other liabilities | 5 | 1 | Other invested assets | 27 | 42 | Other liabilities | 0 | 1 | ||||||||||||||||||||||||||||||
GMWB embedded derivatives | Reinsurance recoverable (1) | 35 | 20 | Policyholder account balances (2) | 508 | 323 | Reinsurance recoverable (1) | 18 | 26 | Policyholder account balances (2) | | 272 | 379 | |||||||||||||||||||||||||||||
Fixed index annuity embedded derivatives | Other assets | 0 | — | Policyholder account balances (3) | 432 | 452 | Other assets | 0 | 0 | Policyholder account balances (3) | | 362 | 399 | |||||||||||||||||||||||||||||
Indexed universal life embedded derivatives | Reinsurance recoverable | 0 | 0 | Policyholder account balances (4) | 25 | 19 | Reinsurance recoverable | 0 | 0 | Policyholder account balances (4) | | 23 | 26 | |||||||||||||||||||||||||||||
Total derivatives not designated as hedges | 121 | 109 | 970 | 795 | 98 | 131 | 657 | 805 | ||||||||||||||||||||||||||||||||||
Total derivatives | $ | 839 | $ | 310 | $ | 974 | $ | 805 | $ | 182 | $ | 600 | $ | 830 | $ | 830 | ||||||||||||||||||||||||||
| (1) | Represents embedded derivatives associated with the reinsured portion of our guaranteed minimum withdrawal benefits (“GMWB”) liabilities. |
| (2) | Represents the embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
| (3) | Represents the embedded derivatives associated with our fixed index annuity liabilities. |
| (4) | Represents the embedded derivatives associated with our indexed universal life liabilities. |
27
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The fair value of derivative positions presented above was not offset by the respective collateral amounts received or provided under these agreements.
The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for GMWB embedded derivatives, fixed index annuity embedded derivatives and indexed universal life embedded derivatives, the change between periods is best illustrated by the
number of policies.The following tables represent activity associated with derivative instruments as of the dates indicated:
(Notional in millions) | Measurement | December 31, 2019 | Additions | Maturities/ terminations | September 30, 2020 | |||||||||||||||
Derivatives designated as hedges | ||||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||
Interest rate swaps | Notional | $ | 8,968 | $ | 1,844 | $ | (2,616 | ) | $ | 8,196 | ||||||||||
Foreign currency swaps | Notional | 110 | 0 | 0 | 110 | |||||||||||||||
Total cash flow hedges | 9,078 | 1,844 | (2,616 | ) | 8,306 | |||||||||||||||
Total derivatives designated as hedges | 9,078 | 1,844 | (2,616 | ) | 8,306 | |||||||||||||||
Derivatives not designated as hedges | ||||||||||||||||||||
Interest rate swaps | Notional | 4,674 | 0 | 0 | 4,674 | |||||||||||||||
Equity index options | Notional | 2,451 | 1,527 | (1,849 | ) | 2,129 | ||||||||||||||
Financial futures | Notional | 1,182 | 4,362 | (4,275 | ) | 1,269 | ||||||||||||||
Other foreign currency contracts | Notional | 628 | 5,689 | (4,687 | ) | 1,630 | ||||||||||||||
Total derivatives not designated as hedges | 8,935 | 11,578 | (10,811 | ) | 9,702 | |||||||||||||||
Total derivatives | $ | 18,013 | $ | 13,422 | $ | (13,427 | ) | $ | 18,008 | |||||||||||
December 31, | Maturities/ | March 31, | ||||||||||||||||||||||||||||||||||||||
(Notional in millions) | Measurement | 2020 | Additions | terminations | 2021 | |||||||||||||||||||||||||||||||||||
Derivatives designated as hedges | ||||||||||||||||||||||||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | Notional | $ | 8,178 | $ | 0 | $ | (52 | ) | $ | 8,126 | ||||||||||||||||||||||||||||||
Foreign currency swaps | Notional | 127 | 0 | 0 | 127 | |||||||||||||||||||||||||||||||||||
Total cash flow hedges | 8,305 | 0 | (52 | ) | 8,253 | |||||||||||||||||||||||||||||||||||
Total derivatives designated as hedges | 8,305 | 0 | (52 | ) | 8,253 | |||||||||||||||||||||||||||||||||||
Derivatives not designated as hedges | ||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | Notional | 4,674 | 0 | 0 | 4,674 | |||||||||||||||||||||||||||||||||||
Equity index options | Notional | 2,000 | 352 | (432 | ) | 1,920 | ||||||||||||||||||||||||||||||||||
Financial futures | Notional | 1,104 | 1,008 | (1,114 | ) | 998 | ||||||||||||||||||||||||||||||||||
Other foreign currency contracts | Notional | 1,186 | 12 | (495 | ) | 703 | ||||||||||||||||||||||||||||||||||
Total derivatives not designated as hedges | 8,964 | 1,372 | (2,041 | ) | 8,295 | |||||||||||||||||||||||||||||||||||
Total derivatives | $ | 17,269 | $ | 1,372 | $ | (2,093 | ) | $ | 16,548 | |||||||||||||||||||||||||||||||
December 31, | Maturities/ | March 31, | ||||||||||||||||||||||||||||||||||||||
(Number of policies) | Measurement | December 31, 2019 | Additions | Maturities/ terminations | September 30, 2020 | Measurement | 2020 | Additions | terminations | 2021 | ||||||||||||||||||||||||||||||
Derivatives not designated as hedges | ||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives | Policies | 25,623 | 0 | (1,452 | ) | 24,171 | Policies | 23,713 | 0 | (536 | ) | 23,177 | ||||||||||||||||||||||||||||
Fixed index annuity embedded derivatives | Policies | 15,441 | 0 | (1,511 | ) | 13,930 | Policies | 12,778 | 0 | (1,010 | ) | 11,768 | ||||||||||||||||||||||||||||
Indexed universal life embedded derivatives | Policies | 884 | 0 | (37 | ) | 847 | Policies | 842 | 0 | (8 | ) | 834 | ||||||||||||||||||||||||||||
Cash Flow Hedges
Certain derivative instruments are designated as cash flow hedges. The changes in fair value of these instruments are recorded as a component of OCI.other comprehensive income (loss) (“OCI”). We designate and account for the following as cash flow hedges when they have met the effectiveness requirements: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments; (ii) various types of interest rate swaps to convert floating rate liabilities into fixed rate liabilities; (iii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments; (iv) forward starting interest rate swaps to hedge against changes in interest rates associated with future fixed rate bond purchases and/or interest income; and (v) other instruments to hedge the cash flows of various forecasted transactions.
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the three months ended September 30, 2020:March 31, 2021:
Gain (loss) | ||||||||||||||||||||||||||||||||||||
reclassified into | Classification of gain | Gain (loss) | Classification of gain | |||||||||||||||||||||||||||||||||
Gain (loss) | net income (loss) | (loss) reclassified into | recognized in | (loss) recognized in | ||||||||||||||||||||||||||||||||
(Amounts in millions) | Gain (loss) recognized | Gain (loss) reclassified into net income (loss) from OCI | Classification of (loss) net income (loss) | Gain (loss) recognized in net income (loss) | Classification of (loss) net | recognized in OCI | from OCI | net income (loss) | net income (loss) | net income (loss) | ||||||||||||||||||||||||||
Interest rate swaps hedging assets | $ | (246 | ) | $ | 50 | Net investment income | $ | 0 | Net investment gains (losses) | |||||||||||||||||||||||||||
Interest rate swaps hedging | 0 | 4 | Net investment gains (losses) | 0 | Net investment gains (losses) | $ | (529 | ) | $ | 52 | Net investment income | | $ | 0 | Net investment gains (losses) | | ||||||||||||||||||||
Interest rate swaps hedging liabilities | 10 | 0 | Interest expense | 0 | Net investment gains (losses) | 44 | 0 | Interest expense | 0 | Net investment gains (losses) | | |||||||||||||||||||||||||
Foreign currency swaps | (7 | ) | 0 | Net investment income | 0 | Net investment gains (losses) | (2 | ) | 0 | Net investment income | | 0 | Net investment gains (losses) | | ||||||||||||||||||||||
| �� | ||||||||||||||||||||||||||||||||||||
Total | $ | (243 | ) | $ | 54 | $ | 0 | $ | (487 | ) | $ | 52 | $ | 0 | ||||||||||||||||||||||
The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the three months ended September 30, 2019:March 31, 2020:
Gain (loss) | ||||||||||||||||||||||||||||||||||||
reclassified into | Classification of gain | Gain (loss) | Classification of gain | |||||||||||||||||||||||||||||||||
Gain (loss) | net income (loss) | (loss) reclassified into | recognized in | (loss) recognized in | ||||||||||||||||||||||||||||||||
(Amounts in millions) | Gain (loss) recognized in OCI | Gain (loss) reclassified into net from OCI | Classification of gain (loss) reclassified into net income (loss) | Gain (loss) recognized in net income (loss) | Classification of gain (loss) recognized in net income (loss) | recognized in OCI | from OCI | net income (loss) | net income (loss) | net income (loss) | ||||||||||||||||||||||||||
Interest rate swaps hedging assets | $ | 406 | $ | 41 | Net investment income | $ | 0 | Net investment gains (losses) | $ | 1,041 | $ | 43 | Net investment income | | $ | 0 | Net investment gains (losses) | | ||||||||||||||||||
Interest rate swaps hedging assets | 0 | 4 | Net investment gains (losses) | 0 | Net investment gains (losses) | 0 | 4 | Net investment gains (losses) | | 0 | Net investment gains (losses) | | ||||||||||||||||||||||||
Interest rate swaps hedging liabilities | (23 | ) | 0 | Interest expense | 0 | Net investment gains (losses) | (63 | ) | 0 | Interest expense | 0 | Net investment gains (losses) | | |||||||||||||||||||||||
Foreign currency | 5 | 1 | Net investment income | 0 | Net investment gains (losses) | 17 | 0 | Net investment income | | 0 | Net investment gains (losses) | | ||||||||||||||||||||||||
Total | $ | 388 | $ | 46 | $ | 0 | $ | 995 | $ | 47 | $ | 0 | ||||||||||||||||||||||||
The following table provides a reconciliation of current period changes, net of applicable income taxes, for these designated derivatives presented in the separate component of stockholders’ equity labeled “derivatives qualifying as hedges,” for the periods indicated:
Three months ended | ||||||||
March 31, | ||||||||
(Amounts in millions) | 2021 | 2020 | ||||||
Derivatives qualifying as effective accounting hedges as of January 1 | $ | 2,211 | $ | 2,002 | ||||
Current period increases (decreases) in fair value, net of deferred taxes of $102 and $(212) | (385 | ) | 783 | |||||
Reclassification to net (income) loss, net of deferred taxes of $18 and $17 | (34 | ) | (30 | ) | ||||
Derivatives qualifying as effective accounting hedges as of March 31 | $ | 1,792 | $ | 2,755 | ||||
The total of derivatives designated as cash flow hedges of $1,792 million, net of taxes, recorded in stockholders’ equity as of March 31, 2021 is expected to be reclassified to net income (loss) in the future, concurrently with and primarily offsetting changes in interest expense and interest income on floating rate
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in millions) | Gain (loss) recognized in OCI | Gain (loss) reclassified into net income (loss) from OCI | Classification of gain (loss) reclassified into net income (loss) | Gain (loss) recognized in net income (loss) | Classification of gain (loss) recognized in net income (loss) | |||||||||||||||
Interest rate swaps hedging assets | $ | 738 | $ | 139 | Net investment income | | $ | 0 | Net investment gains (losses) | | ||||||||||
Interest rate swaps hedging assets | 0 | 8 | Net investment gains (losses) | | 0 | Net investment gains (losses) | | |||||||||||||
Interest rate swaps hedging liabilities | (52 | ) | 0 | Interest expense | 0 | Net investment gains (losses) | | |||||||||||||
Foreign currency | 6 | 0 | Net investment income | | 0 | Net investment gains (losses) | | |||||||||||||
Total | $ | 692 | $ | 147 | $ | 0 | ||||||||||||||
(Amounts in millions) | Gain (loss) recognized in OCI | Gain (loss) reclassified into net income (loss) from OCI | Classification of gain (loss) reclassified into net income (loss) | Gain (loss) recognized in net income (loss) | Classification of gain (loss) recognized in net income (loss) | |||||||||||||||
Interest rate swaps hedging assets | $ | 759 | $ | 121 | Net investment income | | $ | 0 | Net investment gains (losses) | | ||||||||||
Interest rate swaps hedging assets | 0 | 6 | Net investment gains (losses) | | 0 | Net investment gains (losses) | | |||||||||||||
Interest rate swaps hedging liabilities | (55 | ) | 0 | Interest expense | 0 | Net investment gains (losses) | | |||||||||||||
Foreign currency | 4 | 0 | Net investment income | | 0 | Net investment gains (losses) | | |||||||||||||
Foreign currency | 0 | 0 | Net investment gains (losses) | | 2 | Net investment gains (losses) | | |||||||||||||
Total | $ | 708 | $ | 127 | $ | 2 | ||||||||||||||
Three months ended September 30, | ||||||||
(Amounts in millions) | 2020 | 2019 | ||||||
Derivatives qualifying as effective accounting hedges as of July 1 | $ | 2,677 | $ | 1,983 | ||||
Current period increases (decreases) in fair value, net of deferred taxes of $52 and $(82) | (191 | ) | 306 | |||||
Reclassification to net (income) loss, net of deferred taxes of $19 and $16 | (35 | ) | (30 | ) | ||||
Derivatives qualifying as effective accounting hedges as of September 30 | $ | 2,451 | $ | 2,259 | ||||
Nine months ended September 30, | ||||||||
(Amounts in millions) | 2020 | 2019 | ||||||
Derivatives qualifying as effective accounting hedges as of January 1 | $ | 2,002 | $ | 1,781 | ||||
Current period increases (decreases) in fair value, net of deferred taxes of $(148) in both periods | 544 | 560 | ||||||
Reclassification to net (income) loss, net of deferred taxes of $52 and $45 | (95 | ) | (82 | ) | ||||
Derivatives qualifying as effective accounting hedges as of September 30 | $ | 2,451 | $ | 2,259 | ||||
Derivatives Not Designated As Hedges
We also enter into certain non-qualifying derivative instruments such as: (i) interest rate swaps and financial futures to mitigate interest rate risk as part of managing regulatory capital positions; (ii) equity index options, equity return swaps, interest rate swaps and financial futures to mitigate the risks associated with liabilities that have guaranteed minimum benefits, fixed index annuities and indexed universal life; (iii) interest rate caps where the hedging relationship does not qualify for hedge accounting; (iv) foreign currency forward contracts to mitigate currency risk associated with non-functional currency investments held by certain foreign subsidiaries; and (v)(iii) foreign currency options and forward contracts to mitigate currency risk associated with future dividends, cash payments to AXA under a promissory note reported as discontinued operations and/or other cash flows from certain foreign subsidiaries to our holding company. Additionally, we provide GMWBs on certain variable annuities that are required to be bifurcated as embedded derivatives. We also offer fixed index annuity and indexed universal life insurance products and have reinsurance agreements with certain features that are required to be bifurcated as embedded derivatives.
The following table provides the pre-tax gain (loss) recognized in net income (loss) for the effects of derivatives not designated as hedges for the periods indicated:
Three months ended September 30, | Classification of gain (loss) recognized in net income (loss) | Three months ended March 31, | Classification of gain (loss) recognized | |||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2021 | 2020 | in net income (loss) | |||||||||||||||
Interest rate swaps | $ | 1 | $ | (2 | ) | Net investment gains (losses) | $ | 4 | $ | (10 | ) | Net investment gains (losses) | ||||||||
Equity index options | 7 | 1 | Net investment gains (losses) | 3 | (13 | ) | Net investment gains (losses) | |||||||||||||
Financial futures | (41 | ) | 35 | Net investment gains (losses) | (110 | ) | 261 | Net investment gains (losses) | ||||||||||||
Other foreign currency contracts | 12 | (10 | ) | Net investment gains (losses) | 0 | 10 | Net investment gains (losses) | |||||||||||||
GMWB embedded derivatives | 54 | (44 | ) | Net investment gains (losses) | 105 | (336 | ) | Net investment gains (losses) | ||||||||||||
Fixed index annuity embedded derivatives | (18 | ) | (14 | ) | Net investment gains (losses) | (4 | ) | 32 | Net investment gains (losses) | |||||||||||
Indexed universal life embedded derivatives | 3 | 1 | Net investment gains (losses) | 10 | 4 | Net investment gains (losses) | ||||||||||||||
Total derivatives not designated as hedges | $ | 18 | $ | (33 | ) | $ | 8 | $ | (52 | ) | ||||||||||
GENWORTH
FINANCIAL, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in millions) | Nine months ended September 30, | Classification of gain (loss) recognized in net income (loss) | ||||||||
2020 | 2019 | |||||||||
Interest rate swaps | $ | (11 | ) | $ | (6 | ) | Net investment gains (losses) | |||
Equity index options | (2 | ) | 28 | Net investment gains (losses) | ||||||
Financial futures | 97 | 8 | Net investment gains (losses) | |||||||
Other foreign currency contracts | 9 | (17 | ) | Net investment gains (losses) | ||||||
GMWB embedded derivatives | (153 | ) | (21 | ) | Net investment gains (losses) | |||||
Fixed index annuity embedded derivatives | (31 | ) | (72 | ) | Net investment gains (losses) | |||||
Indexed universal life embedded derivatives | 10 | 1 | Net investment gains (losses) | |||||||
Total derivatives not designated as hedges | $ | (81 | ) | $ | (79 | ) | ||||
Derivative Counterparty Credit Risk
Most of our derivative arrangements with counterparties require the posting of collateral upon meeting certain net exposure thresholds. The following table presents additional information about derivative assets and liabilities subject to an enforceable master netting arrangement as of the dates indicated:
March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2020 | December 31, 2019 | Derivative | Derivative | Net | Derivative | Derivative | Net | |||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Derivative assets (1) | Derivative liabilities (2) | Net derivatives | Derivative assets (1) | Derivative liabilities (2) | Net derivatives | assets (1) | liabilities (1) | derivatives | assets (1) | liabilities (1) | derivatives | ||||||||||||||||||||||||||||||||||||
Amounts presented in the balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Gross amounts recognized | $ | 804 | $ | 9 | $ | 795 | $ | 291 | $ | 11 | $ | 280 | $ | 164 | $ | 173 | $ | (9 | ) | $ | 574 | $ | 26 | $ | 548 | |||||||||||||||||||||||
Gross amounts offset in the balance sheet | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Net amounts presented in the balance sheet | 804 | 9 | 795 | 291 | 11 | 280 | 164 | 173 | (9 | ) | 574 | 26 | 548 | |||||||||||||||||||||||||||||||||||
Gross amounts not offset in the balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Financial instruments (3) | (5 | ) | (5 | ) | 0 | (7 | ) | (7 | ) | 0 | ||||||||||||||||||||||||||||||||||||||
Financial instruments (2) | (50 | ) | (50 | ) | 0 | (20 | ) | (20 | ) | 0 | ||||||||||||||||||||||||||||||||||||||
Collateral received | (663 | ) | 0 | (663 | ) | (179 | ) | 0 | (179 | ) | (110 | ) | 0 | (110 | ) | (401 | ) | 0 | (401 | ) | ||||||||||||||||||||||||||||
Collateral pledged | 0 | (489 | ) | 489 | 0 | (405 | ) | 405 | 0 | (721 | ) | 721 | 0 | (505 | ) | 505 | ||||||||||||||||||||||||||||||||
Over collateralization | 13 | 485 | (472 | ) | 18 | 401 | (383 | ) | 11 | 598 | (587 | ) | 2 | 499 | (497 | ) | ||||||||||||||||||||||||||||||||
Net amount | $ | 149 | $ | 0 | $ | 149 | $ | 123 | $ | 0 | $ | 123 | $ | 15 | $ | 0 | $ | 15 | $ | 155 | $ | 0 | $ | 155 | ||||||||||||||||||||||||
| �� | ||||||||||||||||||||||||||||||||||||||||||||||||
| (1) |
Does not include amounts related to embedded derivatives as of |
Amounts represent derivative assets and/or liabilities that are presented gross within the balance sheet but are held with the same counterparty where we have a master netting arrangement. This adjustment results in presenting the net asset and net liability position for each |
(6) Fair Value of Financial Instruments
Recurring Fair Value Measurements
We have fixed maturity securities, short-term investments, equity securities, limited partnerships, derivatives, embedded derivatives, securities held as collateral, separate account assets and certain other financial instruments, which are carried at fair value. Below is a description of the valuation techniques and inputs used to determine fair value by class of instrument.
Fixed maturity, short-term investments and equity securities
The fair value of fixed maturity securities, short-term investments and equity securities are estimated primarily based on information derived from third-party pricing services (“pricing services”), internal models and/or broker quotes, which use a market approach, income approach or a combination of the market and income approach depending on the type of instrument and availability of information. In general, a market approach is utilized if there is readily available and relevant market activity for an individual security. In certain cases where market information is not available for a specific security but is available for similar securities, that security is valued using market information for similar securities, which is also a market approach. When market information is not available for a specific security (or similar securities) or is available but such information is
31
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
less relevant or reliable, an income approach or a combination of a market and income approach is utilized. For securities with optionality, such as call or prepayment features (including mortgage-backed or asset-backed securities), an income approach may be used. In addition, a combination of the results from market and income approaches may be used to estimate fair value. These valuation techniques may change from period to period, based on the relevance and availability of market data.
Further, while we consider the valuations provided by pricing services and broker quotes to be of high quality, management determines the fair value of our investment securities after considering all relevant and available information.
In general, we first obtain valuations from pricing services. If prices are unavailable for public securities, we obtain broker quotes. For all securities, excluding certain private fixed maturity securities, if neither a pricing service nor broker quotes valuation is available, we determine fair value using internal models. For certain private fixed maturity securities where we do not obtain valuations from pricing services, we utilize an internal model to determine fair value since transactions for similar securities are not readily observable and these securities are not typically valued by pricing services.
Given our understanding of the pricing methodologies and procedures of pricing services, the securities valued by pricing services are typically classified as Level 2 unless we determine the valuation process for a security or group of securities utilizes significant unobservable inputs, which would result in the valuation being classified as Level 3.
Broker quotes are typically based on an income approach given the lack of available market data. As the valuation typically includes significant unobservable inputs, we classify the securities where fair value is based on our consideration of broker quotes as Level 3 measurements.
For private fixed maturity securities, we utilize an income approach where we obtain public bond spreads and utilize those in an internal model to determine fair value. Other inputs to the model include rating and weighted-average life, as well as sector which is used to assign the spread. We then add an additional premium, which represents an unobservable input, to the public bond spread to adjust for the liquidity and other features of
our private placements. We utilize the estimated market yield to discount the expected cash flows of the security to determine fair value. We utilize price caps for securities where the estimated market yield results in a valuation that may exceed the amount that would be received in a market transaction. When a security does not have an external rating, we assign the security an internal rating to determine the appropriate public bond spread that should be utilized in the valuation. While we generally consider the public bond spreads by sector and maturity to be observable inputs, we evaluate the similarities of our private placement with the public bonds, any price caps utilized, liquidity premiums applied, and whether external ratings are available for our private placements to determine whether the spreads utilized would be considered observable inputs. We classify private securities without an external rating or public bond spread as Level 3. In general, a significant increase (decrease) in credit spreads would have resulted in a significant decrease (increase) in the fair value for our fixed maturity securities as of September 30, 2020.March 31, 2021.
For remaining securities priced using internal models, we determine fair value using an income approach. We maximize the use of observable inputs but typically utilize significant unobservable inputs to determine fair value. Accordingly, the valuations are typically classified as Level 3.
Our assessment of whether or not there were significant unobservable inputs related to fixed maturity securities was based on our observations obtained through the course of managing our investment portfolio,
32
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
including interaction with other market participants, observations related to the availability and consistency of pricing and/or rating, and understanding of general market activity such as new issuance and the level of secondary market trading for a class of securities. Additionally, we considered data obtained from pricing services to determine whether our estimated values incorporate significant unobservable inputs that would result in the valuation being classified as Level 3.
A summary of the inputs used for our fixed maturity securities, short-term investments and equity securities based on the level in which instruments are classified is included below. We have combined certain classes of instruments together as the nature of the inputs is similar.
Level 1 measurements
Equity securities.
Separate account assets.
Level 2 measurements
Fixed maturity securities
Third-party pricing services:
In estimating the fair value of fixed maturity securities, approximately 91%90% of our portfolio was priced using third-party pricing services as of September 30, 2020.March 31, 2021. These pricing services utilize industry-standard valuation techniques that include market-based approaches, income-based approaches, a combination of market-based and income-based approaches or other proprietary, internally generated models as part of the valuation processes. These third-party pricing vendors maximize the use of publicly available data inputs to generate valuations for each asset class. Priority and type of inputs used may change frequently as certain inputs may be more direct drivers of valuation at the time of pricing. Examples of significant inputs incorporated by pricing services may include sector and issuer spreads, seasoning, capital structure, security optionality, collateral data, prepayment assumptions, default assumptions, delinquencies, debt covenants, benchmark yields, trade data, dealer quotes, credit ratings, maturity and weighted-average life. We conduct regular meetings with our pricing services for the purpose of understanding the methodologies, techniques and inputs used by the third-party pricing providers.
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents a summary of the significant inputs used by our pricing services for certain fair value measurements of fixed maturity securities that are classified as Level
2as of September
(Amounts in millions) | Fair value | Primary methodologies | Significant inputs | Fair value | Primary methodologies | Significant inputs | ||||||||||
U.S. government, agencies and government-sponsored enterprises | $ | 4,792 | Price quotes from trading desk, broker feeds | Bid side prices, trade prices, Option Adjusted Spread (“OAS”) to swap curve, Bond Market Association OAS, Treasury Curve, Agency Bullet Curve, maturity to issuer spread | $ | 4,273 | Price quotes from trading desk, broker feeds | Bid side prices, trade prices, Option Adjusted Spread (“OAS”) to swap curve, Bond Market Association OAS, Treasury Curve, Agency Bullet Curve, maturity to issuer spread | ||||||||
State and political subdivisions | $ | 3,058 | Multi-dimensional attribute-based modeling systems, third-party pricing vendors | Trade prices, material event notices, Municipal Market Data benchmark yields, broker quotes | $ | 3,067 | Multi-dimensional attribute-based modeling systems, third-party pricing vendors | Trade prices, material event notices, Municipal Market Data benchmark yields, broker quotes | ||||||||
Non-U.S. government | $ | 1,395 | Matrix pricing, spread priced to benchmark curves, price quotes from market makers | Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources | $ | 820 | Matrix pricing, spread priced to benchmark curves, price quotes from market makers | Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources | ||||||||
U.S. corporate | $ | 31,695 | Multi-dimensional attribute-based modeling systems, broker quotes, price quotes from market makers, OAS-based models | Bid side prices to Treasury Curve, Issuer Curve, which includes sector, quality, duration, OAS percentage and change for spread matrix, trade prices, comparative transactions, Trade Reporting and Compliance Engine (“TRACE”) reports | $ | 30,480 | Multi-dimensional attribute-based modeling systems, broker quotes, price quotes from market makers, OAS-based models | Bid side prices to Treasury Curve, Issuer Curve, which includes sector, quality, duration, OAS percentage and change for spread matrix, trade prices, comparative transactions, Trade Reporting and Compliance Engine (“TRACE”) reports | ||||||||
Non-U.S. corporate | $ | 9,220 | Multi-dimensional attribute-based modeling systems, OAS-based models, price quotes from market makers | Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources | $ | 8,160 | Multi-dimensional attribute-based modeling systems, OAS-based models, price quotes from market makers | Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources | ||||||||
Residential mortgage-backed | $ | 2,061 | OAS-based models, single factor binomial models, internally priced | Prepayment and default assumptions, aggregation of bonds with similar characteristics, including collateral type, vintage, tranche type, weighted-average life, weighted-average loan age, issuer program and delinquency ratio, pay up and pay down factors, TRACE reports | $ | 1,761 | OAS-based models, single factor binomial models, internally priced | Prepayment and default assumptions, aggregation of bonds with similar characteristics, including collateral type, vintage, tranche type, weighted-average life, weighted-average loan age, issuer program and delinquency ratio, pay up and pay down factors, TRACE reports | ||||||||
Commercial mortgage-backed | $ | 2,956 | Multi-dimensional attribute-based modeling systems, pricing matrix, spread matrix priced to swap curves, Trepp commercial mortgage-backed securities analytics model | Credit risk, interest rate risk, prepayment speeds, new issue data, collateral performance, origination year, tranche type, original credit ratings, weighted-average life, cash flows, spreads derived from broker quotes, bid side prices, spreads to daily updated swaps curves, TRACE reports | $ | 2,775 | Multi-dimensional attribute-based modeling systems, pricing matrix, spread matrix priced to swap curves, Trepp commercial mortgage-backed securities analytics model | Credit risk, interest rate risk, prepayment speeds, new issue data, collateral performance, origination year, tranche type, original credit ratings, weighted-average life, cash flows, spreads derived from broker quotes, bid side prices, spreads to daily updated swaps curves, TRACE reports | ||||||||
Other asset-backed | $ | 3,125 | Multi-dimensional attribute-based modeling systems, spread matrix priced to swap curves, price quotes from market makers | Spreads to daily updated swap curves, spreads derived from trade prices and broker quotes, bid side prices, new issue data, collateral performance, analysis of prepayment speeds, cash flows, collateral loss analytics, historical issue analysis, trade data from market makers, TRACE reports | $ | 2,747 | Multi-dimensional attribute-based modeling systems, spread matrix priced to swap curves, price quotes from market makers | Spreads to daily updated swap curves, spreads derived from trade prices and broker quotes, bid side prices, new issue data, collateral performance, analysis of prepayment speeds, cash flows, collateral loss analytics, historical issue analysis, trade data from market makers, TRACE reports | ||||||||
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Internal models:
Equity securities.
Securities lending collateral
The fair value of securities held as collateral is primarily based on Level 2 inputs from market information for the collateral that is held on our behalf by the custodian. We determine fair value after considering prices obtained by pricing services.
Short-term investments
The fair value of short-term investments classified as Level 2 is determined after considering prices obtained by pricing services.
Level 3 measurements
Fixed maturity securities
Broker quotes:
Internal models:
A portion of our state and political subdivisions, U.S. corporate, non-U.S. corporate, residential mortgage-backed and other asset-backed securities are valued using internal models. The primary inputs to the valuation of the bond population include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, duration, call provisions, issuer rating, benchmark yields and credit spreads. Certain private fixed maturity securities are valued using an internal model using market observable inputs such as the interest rate yield curve, as well as published credit spreads for similar securities, which includes significant unobservable inputs. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps are established using inputs from market participants. For structured securities, the primary inputs to the valuation include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, weighted-average coupon, weighted-average maturity, issuer rating, structure of the security, expected prepayment speeds and volumes, collateral type, current and forecasted loss severity, average delinquency rates, vintage of the loans, geographic region, debt service coverage ratios, payment priority with the tranche, benchmark yields and credit spreads. The fair value of our Level 3 fixed maturity securities priced using internal models was $3,314$3,242 million as of September 30, 2020.March 31, 2021.
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Equity securities.
Net asset value
Limited partnerships
Limited partnerships are valued based on comparable market transactions, discounted future cash flows, quoted market prices and/or estimates using the most recent data available for the underlying instrument. We utilize the net asset value (“NAV”) from the underlying fund statements as a practical expedient for fair value.
Derivatives
We consider counterparty collateral arrangements and rights of set-off when evaluating our net credit risk exposure to our derivative counterparties. Accordingly, we are permitted to include consideration of these arrangements when determining whether any incremental adjustment should be made for both the counterparty’s and our non-performance risk in measuring fair value for our derivative instruments. As a result of these counterparty arrangements, we determined that any adjustment for credit risk would not be material and we have not recorded any incremental adjustment for our non-performance risk or the non-performance risk of the derivative counterparty for our derivative assets or liabilities.
Interest rate swaps.
Foreign currency swaps.
Equity index options.
Financial futures.
Other foreign currency contracts.
36
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
forward interest rate, foreign currency exchange rate volatility and time value component associated with the optionality in the derivative, which are generally considered observable inputs and results in the derivative being classified as Level 2. We also have foreign currency forward contracts where the valuation is determined using an income approach. The primary inputs into the valuation represent the forward foreign currency exchange rates, which are generally considered observable inputs and results in the derivative being classified as Level 2.
GMWB embedded derivatives
We are required to bifurcate an embedded derivative for certain features associated with annuity products and related reinsurance agreements where we provide a GMWB to the policyholder and are required to record the GMWB embedded derivative at fair value. The valuation of our GMWB embedded derivative is based on an income approach that incorporates inputs such as forward interest rates, equity index volatility, equity index and fund correlation, and policyholder assumptions such as utilization, lapse and mortality. We determine fair value using an internal model based on the various inputs noted above.
Non-performance risk is integrated into the discount rate used to value GMWB liabilities. Our discount rate used to determine fair value of our GMWB liabilities includes market credit spreads above U.S. Treasury rates to reflect an adjustment for the non-performance risk of the GMWB liabilities. As of September 30, 2020March 31, 2021 and December 31, 2019,2020, the impact of non-performance risk resulted in a lower fair value of our GMWB liabilities of $85$50 million and $62$66 million, respectively.
We classify the GMWB valuation as Level 3 based on having significant unobservable inputs, with equity index volatility and non-performance risk being considered the more significant unobservable inputs. As equity index volatility increases, the fair value of the GMWB liabilities will increase. Any increase in non-performance risk would increase the discount rate and would decrease the fair value of the GMWB liability. Additionally, we consider lapse and utilization assumptions to be significant unobservable inputs. An increase in our lapse assumption would decrease the fair value of the GMWB liability, whereas an increase in our utilization rate would increase the fair value. As of September 30, 2020,March 31, 2021, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.
Fixed index annuity embedded derivatives
We have fixed indexed annuity products where interest is credited to the policyholder’s account balance based on equity index changes. This feature is required to be bifurcated as an embedded derivative and recorded at fair value. Fair value is determined using an income approach where the present value of the excess cash flows above the guaranteed cash flows is used to determine the value attributed to the equity index feature. The inputs used in determining the fair value include policyholder behavior (lapses and withdrawals), near-term equity index volatility, expected future interest credited, forward interest rates and an adjustment to the discount rate to incorporate non-performance risk and risk margins. As a result of our assumptions for policyholder behavior and expected future interest credited being considered significant unobservable inputs, we classify these instruments
as Level 3. As lapses and withdrawals increase, the value of our embedded derivative liability will decrease. As expected future interest credited decreases, the value of our embedded derivative liability will decrease. As of September 30, 2020,March 31, 2021, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.
37
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Indexed universal life embedded derivatives
We have indexed universal life insurance products where interest is credited to the policyholder’s account balance based on equity index changes. This feature is required to be bifurcated as an embedded derivative and recorded at fair value. Fair value is determined using an income approach where the present value of the excess cash flows above the guaranteed cash flows is used to determine the value attributed to the equity index feature. The inputs used in determining the fair value include policyholder behavior (lapses and withdrawals), near-term equity index volatility, expected future interest credited, forward interest rates and an adjustment to the discount rate to incorporate non-performance risk and risk margins. As a result of our assumptions for policyholder behavior and expected future interest credited being considered significant unobservable inputs, we classify these instruments as Level 3. As lapses and withdrawals increase, the value of our embedded derivative liability will decrease. As expected future interest credited decreases, the value of our embedded derivative liability will decrease. As of September 30, 2020,March 31, 2021, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables set forth our assets by class of instrument that are measured at fair value on a recurring basis as of the dates indicated:
September 30, 2020 | March 31, 2021 | |||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Total | Level | Level 2 | Level | NAV (1) | Total | Level 1 | Level 2 | Level 3 | NAV (1) | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises | $ | 4,792 | $ | 0 | $ | 4,792 | $ | 0 | $ | 0 | $ | 4,273 | $ | 0 | $ | 4,273 | $ | 0 | $ | 0 | ||||||||||||||||||||
State and political subdivisions | 3,115 | 0 | 3,058 | 57 | 0 | 3,135 | 0 | 3,067 | 68 | 0 | ||||||||||||||||||||||||||||||
Non-U.S. government | 1,395 | 0 | 1,395 | 0 | 0 | 820 | 0 | 820 | 0 | 0 | ||||||||||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||
Utilities | 5,217 | 0 | 4,376 | 841 | 0 | 4,873 | 0 | 4,080 | 793 | 0 | ||||||||||||||||||||||||||||||
Energy | 2,765 | 0 | 2,651 | 114 | 0 | 2,802 | 0 | 2,680 | 122 | 0 | ||||||||||||||||||||||||||||||
Finance and insurance | 8,735 | 0 | 8,204 | 531 | 0 | 8,619 | 0 | 8,022 | 597 | 0 | ||||||||||||||||||||||||||||||
Consumer—non-cyclical | 6,368 | 0 | 6,265 | 103 | 0 | 6,066 | 0 | 5,960 | 106 | 0 | ||||||||||||||||||||||||||||||
Technology and communications | 3,527 | 0 | 3,401 | 126 | 0 | 3,657 | 0 | 3,617 | 40 | 0 | ||||||||||||||||||||||||||||||
Industrial | 1,551 | 0 | 1,511 | 40 | 0 | 1,521 | 0 | 1,501 | 20 | 0 | ||||||||||||||||||||||||||||||
Capital goods | 3,057 | 0 | 2,960 | 97 | 0 | 2,845 | 0 | 2,787 | 58 | 0 | ||||||||||||||||||||||||||||||
Consumer—cyclical | 2,044 | 0 | 1,874 | 170 | 0 | 1,930 | 0 | 1,783 | 147 | 0 | ||||||||||||||||||||||||||||||
Transportation | 1,581 | 0 | 1,527 | 54 | 0 | 1,370 | 0 | 1,303 | 67 | 0 | ||||||||||||||||||||||||||||||
Other | 389 | 0 | 225 | 164 | 0 | 424 | 0 | 224 | 200 | 0 | ||||||||||||||||||||||||||||||
Total U.S. corporate | 35,234 | 0 | 32,994 | 2,240 | 0 | 34,107 | 0 | 31,957 | 2,150 | 0 | ||||||||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||
Utilities | 935 | 0 | 588 | 347 | 0 | 957 | 0 | 582 | 375 | 0 | ||||||||||||||||||||||||||||||
Energy | 1,348 | 0 | 1,111 | 237 | 0 | 1,327 | 0 | 1,084 | 243 | 0 | ||||||||||||||||||||||||||||||
Finance and insurance | 2,618 | 0 | 2,314 | 304 | 0 | 2,431 | 0 | 2,141 | 290 | 0 | ||||||||||||||||||||||||||||||
Consumer—non-cyclical | 806 | 0 | 752 | 54 | 0 | 722 | 0 | 656 | 66 | 0 | ||||||||||||||||||||||||||||||
Technology and communications | 1,256 | 0 | 1,228 | 28 | 0 | 1,207 | 0 | 1,179 | 28 | 0 | ||||||||||||||||||||||||||||||
Industrial | 1,068 | 0 | 975 | 93 | 0 | 1,134 | 0 | 1,041 | 93 | 0 | ||||||||||||||||||||||||||||||
Capital goods | 626 | 0 | 453 | 173 | 0 | 582 | 0 | 407 | 175 | 0 | ||||||||||||||||||||||||||||||
Consumer—cyclical | 436 | 0 | 269 | 167 | 0 | 381 | 0 | 237 | 144 | 0 | ||||||||||||||||||||||||||||||
Transportation | 648 | 0 | 537 | 111 | 0 | 525 | 0 | 443 | 82 | 0 | ||||||||||||||||||||||||||||||
Other | 1,802 | 0 | 1,666 | 136 | 0 | 1,219 | 0 | 1,139 | 80 | 0 | ||||||||||||||||||||||||||||||
Total non-U.S. corporate | 11,543 | 0 | 9,893 | 1,650 | 0 | 10,485 | 0 | 8,909 | 1,576 | 0 | ||||||||||||||||||||||||||||||
Residential mortgage-backed | 2,075 | 0 | 2,061 | 14 | 0 | 1,774 | 0 | 1,761 | 13 | 0 | ||||||||||||||||||||||||||||||
Commercial mortgage-backed | 2,976 | 0 | 2,956 | 20 | 0 | 2,794 | 0 | 2,775 | 19 | 0 | ||||||||||||||||||||||||||||||
Other asset-backed | 3,286 | 0 | 3,125 | 161 | 0 | 2,843 | 0 | 2,747 | 96 | 0 | ||||||||||||||||||||||||||||||
Total fixed maturity securities | 64,416 | 0 | 60,274 | 4,142 | 0 | 60,231 | 0 | 56,309 | 3,922 | 0 | ||||||||||||||||||||||||||||||
Equity securities | 629 | 465 | 112 | 52 | 0 | 238 | 135 | 60 | 43 | 0 | ||||||||||||||||||||||||||||||
Other invested assets: | ||||||||||||||||||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | 708 | 0 | 708 | 0 | 0 | 84 | 0 | 84 | 0 | 0 | ||||||||||||||||||||||||||||||
Foreign currency swaps | 10 | 0 | 10 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Equity index options | 67 | 0 | 0 | 67 | 0 | 53 | 0 | 0 | 53 | 0 | ||||||||||||||||||||||||||||||
Other foreign currency contracts | 19 | 0 | 19 | 0 | 0 | 27 | 0 | 27 | 0 | 0 | ||||||||||||||||||||||||||||||
Total derivative assets | 804 | 0 | 737 | 67 | 0 | 164 | 0 | 111 | 53 | 0 | ||||||||||||||||||||||||||||||
Securities lending collateral | 75 | 0 | 75 | 0 | 0 | 68 | 0 | 68 | 0 | 0 | ||||||||||||||||||||||||||||||
Short-term investments | 251 | 0 | 251 | 0 | 0 | 17 | 0 | 17 | 0 | 0 | ||||||||||||||||||||||||||||||
Limited partnerships | 674 | 0 | 0 | 0 | 674 | 926 | 0 | 0 | 0 | 926 | ||||||||||||||||||||||||||||||
Total other invested assets | 1,804 | 0 | 1,063 | 67 | 674 | 1,175 | 0 | 196 | 53 | 926 | ||||||||||||||||||||||||||||||
Reinsurance recoverable (2) | 35 | 0 | 0 | 35 | 0 | 18 | 0 | 0 | 18 | 0 | ||||||||||||||||||||||||||||||
Separate account assets | 5,700 | 5,700 | 0 | 0 | 0 | 6,032 | 6,032 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Total assets | $ | 72,584 | $ | 6,165 | $ | 61,449 | $ | 4,296 | $ | 674 | $ | 67,694 | $ | 6,167 | $ | 56,565 | $ | 4,036 | $ | 926 | ||||||||||||||||||||
| (1) | Limited partnerships that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. |
| (2) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2019 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Total | Level 1 | Level 2 | Level 3 | NAV (1) | Total | Level 1 | Level 2 | Level 3 | NAV (1) | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises | $ | 5,025 | $ | 0 | $ | 5,025 | $ | 0 | $ | 0 | $ | 4,805 | $ | 0 | $ | 4,805 | $ | 0 | $ | 0 | ||||||||||||||||||||
State and political subdivisions | 2,747 | 0 | 2,645 | 102 | 0 | 3,165 | 0 | 3,099 | 66 | 0 | ||||||||||||||||||||||||||||||
Non-U.S. government | 1,350 | 0 | 1,350 | 0 | 0 | 854 | 0 | 854 | 0 | 0 | ||||||||||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||
Utilities | 4,997 | 0 | 4,132 | 865 | 0 | 5,194 | 0 | 4,352 | 842 | 0 | ||||||||||||||||||||||||||||||
Energy | 2,699 | 0 | 2,570 | 129 | 0 | 2,883 | 0 | 2,755 | 128 | 0 | ||||||||||||||||||||||||||||||
Finance and insurance | 7,774 | 0 | 7,202 | 572 | 0 | 9,102 | 0 | 8,495 | 607 | 0 | ||||||||||||||||||||||||||||||
Consumer—non-cyclical | 5,701 | 0 | 5,607 | 94 | 0 | 6,437 | 0 | 6,328 | 109 | 0 | ||||||||||||||||||||||||||||||
Technology and communications | 3,245 | 0 | 3,195 | 50 | 0 | 3,761 | 0 | 3,714 | 47 | 0 | ||||||||||||||||||||||||||||||
Industrial | 1,396 | 0 | 1,356 | 40 | 0 | 1,602 | 0 | 1,562 | 40 | 0 | ||||||||||||||||||||||||||||||
Capital goods | 2,711 | 0 | 2,609 | 102 | 0 | 2,991 | 0 | 2,931 | 60 | 0 | ||||||||||||||||||||||||||||||
Consumer—cyclical | 1,760 | 0 | 1,587 | 173 | 0 | 1,947 | 0 | 1,797 | 150 | 0 | ||||||||||||||||||||||||||||||
Transportation | 1,506 | 0 | 1,428 | 78 | 0 | 1,500 | 0 | 1,430 | 70 | 0 | ||||||||||||||||||||||||||||||
Other | 322 | 0 | 186 | 136 | 0 | 440 | 0 | 221 | 219 | 0 | ||||||||||||||||||||||||||||||
Total U.S. corporate | 32,111 | 0 | 29,872 | 2,239 | 0 | 35,857 | 0 | 33,585 | 2,272 | 0 | ||||||||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||
Utilities | 829 | 0 | 455 | 374 | 0 | 922 | 0 | 570 | 352 | 0 | ||||||||||||||||||||||||||||||
Energy | 1,319 | 0 | 1,072 | 247 | 0 | 1,380 | 0 | 1,135 | 245 | 0 | ||||||||||||||||||||||||||||||
Finance and insurance | 2,319 | 0 | 2,085 | 234 | 0 | 2,476 | 0 | 2,171 | 305 | 0 | ||||||||||||||||||||||||||||||
Consumer—non-cyclical | 684 | 0 | 625 | 59 | 0 | 773 | 0 | 706 | 67 | 0 | ||||||||||||||||||||||||||||||
Technology and communications | 1,138 | 0 | 1,110 | 28 | 0 | 1,291 | 0 | 1,263 | 28 | 0 | ||||||||||||||||||||||||||||||
Industrial | 988 | 0 | 884 | 104 | 0 | 1,128 | 0 | 1,033 | 95 | 0 | ||||||||||||||||||||||||||||||
Capital goods | 605 | 0 | 444 | 161 | 0 | 576 | 0 | 398 | 178 | 0 | ||||||||||||||||||||||||||||||
Consumer—cyclical | 397 | 0 | 250 | 147 | 0 | 371 | 0 | 225 | 146 | 0 | ||||||||||||||||||||||||||||||
Transportation | 629 | 0 | 438 | 191 | 0 | 570 | 0 | 461 | 109 | 0 | ||||||||||||||||||||||||||||||
Other | 1,617 | 0 | 1,477 | 140 | 0 | 1,324 | 0 | 1,241 | 83 | 0 | ||||||||||||||||||||||||||||||
Total non-U.S. corporate | 10,525 | 0 | 8,840 | 1,685 | 0 | 10,811 | 0 | 9,203 | 1,608 | 0 | ||||||||||||||||||||||||||||||
Residential mortgage-backed | 2,270 | 0 | 2,243 | 27 | 0 | 1,909 | 0 | 1,895 | 14 | 0 | ||||||||||||||||||||||||||||||
Commercial mortgage-backed | 3,026 | 0 | 3,020 | 6 | 0 | 2,974 | 0 | 2,954 | 20 | 0 | ||||||||||||||||||||||||||||||
Other asset-backed | 3,285 | 0 | 3,153 | 132 | 0 | 3,120 | 0 | 3,011 | 109 | 0 | ||||||||||||||||||||||||||||||
Total fixed maturity securities | 60,339 | 0 | 56,148 | 4,191 | 0 | 63,495 | 0 | 59,406 | 4,089 | 0 | ||||||||||||||||||||||||||||||
Equity securities | 239 | 62 | 126 | 51 | 0 | 386 | 276 | 59 | 51 | 0 | ||||||||||||||||||||||||||||||
Other invested assets: | ||||||||||||||||||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | 197 | 0 | 197 | 0 | 0 | 468 | 0 | 468 | 0 | 0 | ||||||||||||||||||||||||||||||
Foreign currency swaps | 4 | 0 | 4 | 0 | 0 | 1 | 0 | 1 | 0 | 0 | ||||||||||||||||||||||||||||||
Equity index options | 81 | 0 | 0 | 81 | 0 | 63 | 0 | 0 | 63 | 0 | ||||||||||||||||||||||||||||||
Other foreign currency contracts | 8 | 0 | 8 | 0 | 0 | 42 | 0 | 42 | 0 | 0 | ||||||||||||||||||||||||||||||
Total derivative assets | 290 | 0 | 209 | 81 | 0 | 574 | 0 | 511 | 63 | 0 | ||||||||||||||||||||||||||||||
Securities lending collateral | 51 | 0 | 51 | 0 | 0 | 67 | 0 | 67 | 0 | 0 | ||||||||||||||||||||||||||||||
Short-term investments | 211 | 0 | 211 | 0 | 0 | 45 | 25 | 20 | 0 | 0 | ||||||||||||||||||||||||||||||
Limited partnerships | 503 | 0 | 0 | 0 | 503 | 835 | 0 | 0 | 0 | 835 | ||||||||||||||||||||||||||||||
Total other invested assets | 1,055 | 0 | 471 | 81 | 503 | 1,521 | 25 | 598 | 63 | 835 | ||||||||||||||||||||||||||||||
Reinsurance recoverable (2) | 20 | 0 | 0 | 20 | 0 | 26 | 0 | 0 | 26 | 0 | ||||||||||||||||||||||||||||||
Separate account assets | 6,108 | 6,108 | 0 | 0 | 0 | 6,081 | 6,081 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Total assets | $ | 67,761 | $ | 6,170 | $ | 56,745 | $ | 4,343 | $ | 503 | $ | 71,509 | $ | 6,382 | $ | 60,063 | $ | 4,229 | $ | 835 | ||||||||||||||||||||
(1) | Limited partnerships that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. |
(2) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables present additional information about assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:
Beginning balance as of January 1, 2021 | Total realized and unrealized gains (losses) | Ending balance as of March 31, 2021 | Total gains (losses) attributable to assets still held | |||||||||||||||||||||||||||||||||||||||||||||
Included in | Transfer | Transfer | Included | |||||||||||||||||||||||||||||||||||||||||||||
net income | Included | into | out of | in net | Included | |||||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | (loss) | in OCI | Purchases | Sales | Issuances | Settlements | Level 3 (1) | Level 3 (1) | income (loss) | in OCI | ||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
State and political subdivisions | $ | 66 | $ | 1 | $ | 1 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 68 | $ | 1 | $ | 1 | ||||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Utilities | 842 | 0 | (30 | ) | 8 | 0 | 0 | (13 | ) | 0 | (14 | ) | 793 | 0 | (29 | ) | ||||||||||||||||||||||||||||||||
Energy | 128 | 0 | (4 | ) | 0 | 0 | 0 | (2 | ) | 0 | 0 | 122 | 0 | (4 | ) | |||||||||||||||||||||||||||||||||
Finance and insurance | 607 | 0 | (22 | ) | 18 | 0 | 0 | (17 | ) | 17 | (6 | ) | 597 | 0 | (22 | ) | ||||||||||||||||||||||||||||||||
Consumer—non-cyclical | 109 | 0 | (3 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 106 | 0 | (3 | ) | ||||||||||||||||||||||||||||||||||
Technology and communications | 47 | 0 | (2 | ) | 12 | 0 | 0 | 0 | 4 | (21 | ) | 40 | 0 | (2 | ) | |||||||||||||||||||||||||||||||||
Industrial | 40 | 0 | 0 | 0 | 0 | 0 | (20 | ) | 0 | 0 | 20 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Capital goods | 60 | 0 | (2 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 58 | 0 | (2 | ) | ||||||||||||||||||||||||||||||||||
Consumer—cyclical | 150 | 0 | (2 | ) | 0 | 0 | 0 | (1 | ) | 0 | 0 | 147 | 0 | (2 | ) | |||||||||||||||||||||||||||||||||
Transportation | 70 | 0 | (1 | ) | 0 | 0 | 0 | (2 | ) | 0 | 0 | 67 | 0 | (1 | ) | |||||||||||||||||||||||||||||||||
Other | 219 | 0 | (2 | ) | 0 | 0 | 0 | (3 | ) | 6 | (20 | ) | 200 | 0 | (1 | ) | ||||||||||||||||||||||||||||||||
Total U.S. corporate | 2,272 | 0 | (68 | ) | 38 | 0 | 0 | (58 | ) | 27 | (61 | ) | 2,150 | 0 | (66 | ) | ||||||||||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Utilities | 352 | 0 | (7 | ) | 30 | 0 | 0 | 0 | 0 | 0 | 375 | 0 | (7 | ) | ||||||||||||||||||||||||||||||||||
Energy | 245 | 0 | (2 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 243 | 0 | (2 | ) | ||||||||||||||||||||||||||||||||||
Finance and insurance | 305 | 1 | (16 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 290 | 1 | (16 | ) | ||||||||||||||||||||||||||||||||||
Consumer—non-cyclical | 67 | 0 | (1 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 66 | 0 | (1 | ) | ||||||||||||||||||||||||||||||||||
Technology and communications | 28 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 28 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Industrial | 95 | 0 | (2 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 93 | 0 | (2 | ) | ||||||||||||||||||||||||||||||||||
Capital goods | 178 | 0 | (3 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 175 | 0 | (3 | ) | ||||||||||||||||||||||||||||||||||
Consumer—cyclical | 146 | 0 | (2 | ) | 16 | 0 | 0 | 0 | 0 | (16 | ) | 144 | 0 | (2 | ) | |||||||||||||||||||||||||||||||||
Transportation | 109 | 0 | (1 | ) | 0 | 0 | 0 | (19 | ) | 0 | (7 | ) | 82 | 0 | (1 | ) | ||||||||||||||||||||||||||||||||
Other | 83 | 0 | (2 | ) | 0 | 0 | 0 | (1 | ) | 0 | 0 | 80 | 0 | (2 | ) | |||||||||||||||||||||||||||||||||
Total non-U.S. corporate | 1,608 | 1 | (36 | ) | 46 | 0 | 0 | (20 | ) | 0 | (23 | ) | 1,576 | 1 | (36 | ) | ||||||||||||||||||||||||||||||||
Residential mortgage-backed | 14 | 0 | (1 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 13 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Commercial mortgage-backed | 20 | 0 | (1 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 19 | 0 | (2 | ) | ||||||||||||||||||||||||||||||||||
Other asset-backed | 109 | 0 | 0 | 3 | 0 | 0 | (4 | ) | 2 | (14 | ) | 96 | 0 | 0 | ||||||||||||||||||||||||||||||||||
Total fixed maturity securities | 4,089 | 2 | (105 | ) | 87 | 0 | 0 | (82 | ) | 29 | (98 | ) | 3,922 | 2 | (103 | ) | ||||||||||||||||||||||||||||||||
Equity securities | 51 | 0 | 0 | 0 | (8 | ) | 0 | 0 | 0 | 0 | 43 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Other invested assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity index options | 63 | 3 | 0 | 5 | 0 | 0 | (18 | ) | 0 | 0 | 53 | 2 | 0 | |||||||||||||||||||||||||||||||||||
Total derivative assets | 63 | 3 | 0 | 5 | 0 | 0 | (18 | ) | 0 | 0 | 53 | 2 | 0 | |||||||||||||||||||||||||||||||||||
Total other invested assets | 63 | 3 | 0 | 5 | 0 | 0 | (18 | ) | 0 | 0 | 53 | 2 | 0 | |||||||||||||||||||||||||||||||||||
Reinsurance recoverable (2) | 26 | (8 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 18 | (8 | ) | 0 | ||||||||||||||||||||||||||||||||||
Total Level 3 assets | $ | 4,229 | $ | (3 | ) | $ | (105 | ) | $ | 92 | $ | (8 | ) | $ | 0 | $ | (100 | ) | $ | 29 | $ | (98 | ) | $ | 4,036 | $ | (4 | ) | $ | (103 | ) | |||||||||||||||||
Beginning balance as of July 1, 2020 | Total realized and unrealized gains (losses) | Ending balance as of September 30, 2020 | Total gains (losses) attributable to assets still held | |||||||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Included in net income (loss) | Included in OCI | Purchases | Sales | Issuances | Settlements | Transfer into Level 3 (1) | Transfer out of Level 3 (1) | Included in net income (loss) | Included in OCI | ||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
State and political subdivisions | $ | 63 | $ | 1 | $ | (7 | ) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 57 | $ | 1 | $ | (6 | ) | ||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Utilities | 936 | 10 | (4 | ) | 15 | 0 | 0 | (52 | ) | 0 | (64 | ) | 841 | 0 | 1 | |||||||||||||||||||||||||||||||||
Energy | 123 | 0 | 0 | 7 | 0 | 0 | (16 | ) | 0 | 0 | 114 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Finance and insurance | 551 | 0 | 2 | 71 | 0 | 0 | (16 | ) | 0 | (77 | ) | 531 | 0 | 2 | ||||||||||||||||||||||||||||||||||
Consumer—non-cyclical | 103 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 103 | 0 | 1 | ||||||||||||||||||||||||||||||||||||
Technology and communications | 66 | 0 | 3 | 57 | 0 | 0 | 0 | 0 | 0 | 126 | 0 | 3 | ||||||||||||||||||||||||||||||||||||
Industrial | 39 | 0 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 40 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Capital goods | 97 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 97 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Consumer— cyclical | 198 | 3 | (1 | ) | 0 | 0 | 0 | (30 | ) | 0 | 0 | 170 | 0 | 1 | ||||||||||||||||||||||||||||||||||
Transportation | 54 | 0 | 1 | 0 | 0 | 0 | (1 | ) | 0 | 0 | 54 | 0 | 1 | |||||||||||||||||||||||||||||||||||
Other | 165 | 0 | 0 | 0 | 0 | 0 | (1 | ) | 0 | 0 | 164 | 0 �� | 0 | |||||||||||||||||||||||||||||||||||
Total U.S. corporate | 2,332 | 13 | 2 | 150 | 0 | 0 | (116 | ) | 0 | (141 | ) | 2,240 | 0 | 9 | ||||||||||||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Utilities | 357 | 0 | 4 | 0 | 0 | 0 | 0 | 6 | (20 | ) | 347 | 0 | 3 | |||||||||||||||||||||||||||||||||||
Energy | 237 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 237 | 0 | 1 | ||||||||||||||||||||||||||||||||||||
Finance and insurance | 311 | 1 | (2 | ) | 0 | 0 | 0 | 0 | 19 | (25 | ) | 304 | 1 | (2 | ) | |||||||||||||||||||||||||||||||||
Consumer—non-cyclical | 54 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 54 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Technology and communications | 28 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 28 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Industrial | 92 | 0 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 93 | 0 | 1 | ||||||||||||||||||||||||||||||||||||
Capital goods | 173 | 0 | 0 | 10 | 0 | 0 | (10 | ) | 0 | 0 | 173 | 0 | (1 | ) | ||||||||||||||||||||||||||||||||||
Consumer—cyclical | 156 | 0 | 4 | 17 | 0 | 0 | 0 | 0 | (10 | ) | 167 | 0 | 4 | |||||||||||||||||||||||||||||||||||
Transportation | 141 | 0 | (2 | ) | 0 | 0 | 0 | 0 | 0 | (28 | ) | 111 | 0 | (3 | ) | |||||||||||||||||||||||||||||||||
Other | 145 | 0 | 3 | 0 | 0 | 0 | (12 | ) | 0 | 0 | 136 | 0 | 3 | |||||||||||||||||||||||||||||||||||
Total non-U.S. corporate | 1,694 | 1 | 8 | 27 | 0 | 0 | (22 | ) | 25 | (83 | ) | 1,650 | 1 | 6 | ||||||||||||||||||||||||||||||||||
Residential mortgage-backed | 24 | 0 | (1 | ) | 0 | 0 | 0 | 0 | 0 | (9 | ) | 14 | 0 | 0 | ||||||||||||||||||||||||||||||||||
Commercial mortgage-backed | 21 | 0 | (1 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 20 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Other asset-backed | 121 | 0 | 1 | 78 | 0 | 0 | (10 | ) | 0 | (29 | ) | 161 | 0 | 1 | ||||||||||||||||||||||||||||||||||
Total fixed maturity securities | 4,255 | 15 | 2 | 255 | 0 | 0 | (148 | ) | 25 | (262 | ) | 4,142 | 2 | 10 | ||||||||||||||||||||||||||||||||||
Equity securities | 53 | 0 | 0 | 0 | (1 | ) | 0 | 0 | 0 | 0 | 52 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Other invested assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity index options | 66 | 7 | 0 | 27 | 0 | 0 | (33 | ) | 0 | 0 | 67 | (1 | ) | 0 | ||||||||||||||||||||||||||||||||||
Total derivative assets | 66 | 7 | 0 | 27 | 0 | 0 | (33 | ) | 0 | 0 | 67 | (1 | ) | 0 | ||||||||||||||||||||||||||||||||||
Total other invested assets | 66 | 7 | 0 | 27 | 0 | 0 | (33 | ) | 0 | 0 | 67 | (1 | ) | 0 | ||||||||||||||||||||||||||||||||||
Reinsurance recoverable (2) | 38 | (3 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 35 | (3 | ) | 0 | ||||||||||||||||||||||||||||||||||
Total Level 3 assets | $ | 4,412 | $ | 19 | $ | 2 | $ | 282 | $ | (1 | ) | $ | 0 | $ | (181 | ) | $ | 25 | $ | (262 | ) | $ | 4,296 | $ | (2 | ) | $ | 10 | ||||||||||||||||||||
| (1) | The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities. |
| (2) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Beginning balance as of January 1, 2020 | Total realized and unrealized gains (losses) | Ending balance as of March 31, 2020 | Total gains (losses) attributable to assets still held | |||||||||||||||||||||||||||||||||||||||||||||
Included in | Transfer | Transfer | Included | |||||||||||||||||||||||||||||||||||||||||||||
net income | Included | into | out of | in net | Included | |||||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | (loss) | in OCI | Purchases | Sales | Issuances | Settlements | Level 3 (1) | Level 3 (1) | income (loss) | in OCI | ||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
State and political subdivisions | $ | 102 | $ | 1 | $ | (19 | ) | $ | 0 | $ | 0 | $ | 0 | $ | (1 | ) | $ | 0 | $ | 0 | $ | 83 | $ | 1 | $ | (19 | ) | |||||||||||||||||||||
Non-U.S. government | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 0 | 1 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Utilities | 865 | 0 | (25 | ) | 0 | 0 | 0 | 0 | 16 | (13 | ) | 843 | 0 | (23 | ) | |||||||||||||||||||||||||||||||||
Energy | 129 | 0 | (15 | ) | 10 | (21 | ) | 0 | (1 | ) | 22 | 0 | 124 | 0 | (14 | ) | ||||||||||||||||||||||||||||||||
Finance and insurance | 572 | 2 | (31 | ) | 0 | 0 | 0 | (12 | ) | 0 | (21 | ) | 510 | 0 | (28 | ) | ||||||||||||||||||||||||||||||||
Consumer—non-cyclical | 94 | 0 | (6 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 88 | 0 | (6 | ) | ||||||||||||||||||||||||||||||||||
Technology and communications | 50 | 0 | (4 | ) | 20 | 0 | 0 | 0 | 0 | (5 | ) | 61 | 0 | (4 | ) | |||||||||||||||||||||||||||||||||
Industrial | 40 | 0 | (3 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 37 | 0 | (2 | ) | ||||||||||||||||||||||||||||||||||
Capital goods | 102 | 0 | (8 | ) | 0 | 0 | 0 | (4 | ) | 0 | 0 | 90 | 0 | (8 | ) | |||||||||||||||||||||||||||||||||
Consumer—cyclical | 173 | 0 | (7 | ) | 0 | 0 | 0 | (2 | ) | 15 | 0 | 179 | 0 | (7 | ) | |||||||||||||||||||||||||||||||||
Transportation | 78 | 0 | (4 | ) | 0 | 0 | 0 | (1 | ) | 0 | (30 | ) | 43 | 0 | (1 | ) | ||||||||||||||||||||||||||||||||
Other | 136 | 0 | (1 | ) | 5 | 0 | 0 | (2 | ) | 0 | 0 | 138 | 0 | (1 | ) | |||||||||||||||||||||||||||||||||
Total U.S. corporate | 2,239 | 2 | (104 | ) | 35 | (21 | ) | 0 | (22 | ) | 53 | (69 | ) | 2,113 | 0 | (94 | ) | |||||||||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Utilities | 374 | 0 | (20 | ) | 11 | 0 | 0 | 0 | 21 | (31 | ) | 355 | 0 | (20 | ) | |||||||||||||||||||||||||||||||||
Energy | 247 | 0 | (30 | ) | 0 | 0 | 0 | 0 | 19 | 0 | 236 | 0 | (30 | ) | ||||||||||||||||||||||||||||||||||
Finance and insurance | 234 | 1 | (41 | ) | 15 | 0 | 0 | 0 | 21 | (7 | ) | 223 | 1 | (40 | ) | |||||||||||||||||||||||||||||||||
Consumer—non-cyclical | 59 | 0 | (3 | ) | 8 | 0 | 0 | 0 | 1 | (7 | ) | 58 | 0 | (3 | ) | |||||||||||||||||||||||||||||||||
Technology and communications | 28 | 0 | (1 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 27 | 0 | (1 | ) | ||||||||||||||||||||||||||||||||||
Industrial | 104 | 0 | (7 | ) | 0 | 0 | 0 | (5 | ) | 0 | 0 | 92 | 0 | (6 | ) | |||||||||||||||||||||||||||||||||
Capital goods | 161 | 1 | (11 | ) | 0 | 0 | 0 | (16 | ) | 0 | 0 | 135 | 0 | (11 | ) | |||||||||||||||||||||||||||||||||
Consumer—cyclical | 147 | 0 | (15 | ) | 4 | 0 | 0 | (4 | ) | 32 | 0 | 164 | 0 | (15 | ) | |||||||||||||||||||||||||||||||||
Transportation | 191 | 0 | (9 | ) | 0 | 0 | 0 | 0 | 0 | (74 | ) | 108 | 0 | (5 | ) | |||||||||||||||||||||||||||||||||
Other | 140 | 0 | (9 | ) | 0 | 0 | 0 | (1 | ) | 1 | 0 | 131 | 0 | (9 | ) | |||||||||||||||||||||||||||||||||
Total non-U.S. corporate | 1,685 | 2 | (146 | ) | 38 | 0 | 0 | (26 | ) | 95 | (119 | ) | 1,529 | 1 | (140 | ) | ||||||||||||||||||||||||||||||||
Residential mortgage-backed | 27 | 0 | (1 | ) | 0 | 0 | 0 | 0 | 1 | (3 | ) | 24 | 0 | (1 | ) | |||||||||||||||||||||||||||||||||
Commercial mortgage-backed | 6 | 0 | 1 | 0 | 0 | 0 | 0 | 0 | (7 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Other asset-backed | 93 | 0 | (4 | ) | 6 | 0 | 0 | (7 | ) | 0 | (1 | ) | 87 | 0 | (5 | ) | ||||||||||||||||||||||||||||||||
Total fixed maturity securities | 4,152 | 5 | (273 | ) | 79 | (21 | ) | 0 | (56 | ) | 150 | (199 | ) | 3,837 | 2 | (259 | ) | |||||||||||||||||||||||||||||||
Equity securities | 51 | 0 | 0 | 0 | (1 | ) | 0 | 0 | 0 | 0 | 50 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Other invested assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity index options | 81 | (13 | ) | 0 | 11 | 0 | 0 | (17 | ) | 0 | 0 | 62 | (3 | ) | 0 | |||||||||||||||||||||||||||||||||
Total derivative assets | 81 | (13 | ) | 0 | 11 | 0 | 0 | (17 | ) | 0 | 0 | 62 | (3 | ) | 0 | |||||||||||||||||||||||||||||||||
Total other invested assets | 81 | (13 | ) | 0 | 11 | 0 | 0 | (17 | ) | 0 | 0 | 62 | (3 | ) | 0 | |||||||||||||||||||||||||||||||||
Reinsurance recoverable (2) | 20 | 26 | 0 | 0 | 0 | 1 | 0 | 0 | 0 | 47 | 26 | 0 | ||||||||||||||||||||||||||||||||||||
Total Level 3 assets | $ | 4,304 | $ | 18 | $ | (273 | ) | $ | 90 | $ | (22 | ) | $ | 1 | $ | (73 | ) | $ | 150 | $ | (199 | ) | $ | 3,996 | $ | 25 | $ | (259 | ) | |||||||||||||||||||
Beginning balance as of July 1, 2019 | Total realized and unrealized gains (losses) | Ending balance as of September 30, 2019 | Total gains (losses) included in net income (loss) attributable to assets still held | |||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Included in net income (loss) | Included in OCI | Purchases | Sales | Issuances | Settlements | Transfer into Level 3 (1) | Transfer out of Level 3 (1) | ||||||||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||
State and political subdivisions | $ | 61 | $ | 0 | $ | 11 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 72 | $ | 1 | ||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||
Utilities | 789 | 1 | 28 | 13 | 0 | 0 | (7 | ) | 0 | 0 | 824 | 0 | ||||||||||||||||||||||||||||||||
Energy | 122 | 0 | 2 | 12 | 0 | 0 | (1 | ) | 0 | 0 | 135 | 0 | ||||||||||||||||||||||||||||||||
Finance and insurance | 607 | 0 | 11 | 0 | 0 | 0 | (26 | ) | 20 | 0 | 612 | 0 | ||||||||||||||||||||||||||||||||
Consumer—non-cyclical | 89 | 0 | 1 | 9 | 0 | 0 | (1 | ) | 0 | 0 | 98 | 0 | ||||||||||||||||||||||||||||||||
Technology and communications | 44 | 0 | 1 | 0 | 0 | 0 | 0 | 5 | 0 | 50 | 0 | |||||||||||||||||||||||||||||||||
Industrial | 40 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 40 | 0 | |||||||||||||||||||||||||||||||||
Capital goods | 98 | 0 | 2 | 0 | 0 | 0 | 0 | 0 | 0 | 100 | 0 | |||||||||||||||||||||||||||||||||
Consumer—cyclical | 185 | 0 | 2 | 0 | 0 | 0 | (2 | ) | 0 | (9 | ) | 176 | 0 | |||||||||||||||||||||||||||||||
Transportation | 54 | 0 | 1 | 3 | 0 | 0 | (1 | ) | 0 | 0 | 57 | 0 | ||||||||||||||||||||||||||||||||
Other | 199 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | (31 | ) | 168 | 0 | ||||||||||||||||||||||||||||||||
Total U.S. corporate | 2,227 | 1 | 48 | 37 | 0 | 0 | (38 | ) | 25 | (40 | ) | 2,260 | 0 | |||||||||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||
Utilities | 417 | 0 | 5 | 0 | 0 | 0 | (25 | ) | 0 | 0 | 397 | 0 | ||||||||||||||||||||||||||||||||
Energy | 241 | 0 | 5 | 31 | 0 | 0 | (12 | ) | 0 | 0 | 265 | 0 | ||||||||||||||||||||||||||||||||
Finance and insurance | 179 | 1 | 4 | 0 | 0 | 0 | (3 | ) | 16 | 0 | 197 | 1 | ||||||||||||||||||||||||||||||||
Consumer—non-cyclical | 68 | 0 | 1 | 0 | 0 | 0 | (5 | ) | 0 | 0 | 64 | 0 | ||||||||||||||||||||||||||||||||
Technology and communications | 27 | 0 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 28 | 0 | |||||||||||||||||||||||||||||||||
Industrial | 64 | 0 | 0 | 13 | 0 | 0 | 0 | 0 | 0 | 77 | 0 | |||||||||||||||||||||||||||||||||
Capital goods | 181 | 0 | 2 | 0 | 0 | 0 | (4 | ) | 0 | 0 | 179 | 0 | ||||||||||||||||||||||||||||||||
Consumer—cyclical | 126 | 0 | 2 | 9 | 0 | 0 | 0 | 0 | 0 | 137 | 0 | |||||||||||||||||||||||||||||||||
Transportation | 199 | 0 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 200 | 0 | |||||||||||||||||||||||||||||||||
Other | 129 | 0 | 3 | 0 | 0 | 0 | (1 | ) | 0 | 0 | 131 | 0 | ||||||||||||||||||||||||||||||||
Total non-U.S. corporate | 1,631 | 1 | 24 | 53 | 0 | 0 | (50 | ) | 16 | 0 | 1,675 | 1 | ||||||||||||||||||||||||||||||||
Residential mortgage-backed | 36 | 0 | 1 | 0 | 0 | 0 | (1 | ) | 0 | (4 | ) | 32 | 0 | |||||||||||||||||||||||||||||||
Commercial mortgage-backed | 92 | 0 | 14 | 0 | 0 | 0 | 0 | 0 | 0 | 106 | 0 | |||||||||||||||||||||||||||||||||
Other asset-backed | 234 | 0 | 0 | 13 | 0 | 0 | (11 | ) | 0 | (106 | ) | 130 | 0 | |||||||||||||||||||||||||||||||
Total fixed maturity securities | 4,281 | 2 | 98 | 103 | 0 | 0 | (100 | ) | 41 | (150 | ) | 4,275 | 2 | |||||||||||||||||||||||||||||||
Equity securities | 56 | 0 | 0 | 0 | (2 | ) | 0 | 0 | 0 | 0 | 54 | 0 | ||||||||||||||||||||||||||||||||
Other invested assets: | ||||||||||||||||||||||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||||||||||||||||||||||
Equity index options | 65 | 1 | 0 | 13 | 0 | 0 | (17 | ) | 0 | 0 | 62 | 0 | ||||||||||||||||||||||||||||||||
Total derivative assets | 65 | 1 | 0 | 13 | 0 | 0 | (17 | ) | 0 | 0 | 62 | 0 | ||||||||||||||||||||||||||||||||
Total other invested assets | 65 | 1 | 0 | 13 | 0 | 0 | (17 | ) | 0 | 0 | 62 | 0 | ||||||||||||||||||||||||||||||||
Reinsurance recoverable (2) | 20 | 5 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 25 | 5 | |||||||||||||||||||||||||||||||||
Total Level 3 assets | $ | 4,422 | $ | 8 | $ | 98 | $ | 116 | $ | (2 | ) | $ | 0 | $ | (117 | ) | $ | 41 | $ | (150 | ) | $ | 4,416 | $ | 7 | |||||||||||||||||||
(1) | The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities. |
(2) | Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities. |
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Beginning balance as of January 1, 2020 | Total realized and unrealized gains (losses) | Ending balance as of September 30, 2020 | Total gains (losses) attributable to assets still held | |||||||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Included in net income (loss) | Included in OCI | Purchases | Sales | Issuances | Settlements | Transfer into Level 3 (1) | Transfer out of Level 3 (1) | Included in net income (loss) | Included in OCI | ||||||||||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
State and political subdivisions | $ | 102 | $ | 2 | $ | (19 | ) | $ | 0 | $ | 0 | $ | 0 | $ | (1 | ) | $ | 0 | $ | (27 | ) | $ | 57 | $ | 2 | $ | (19 | ) | ||||||||||||||||||||
Non-U.S. government | 0 | 0 | 0 | 0 | 0 | 0 | (1 | ) | 1 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Utilities | 865 | 10 | 8 | 47 | 0 | 0 | (54 | ) | 42 | (77 | ) | 841 | 0 | 14 | ||||||||||||||||||||||||||||||||||
Energy | 129 | 1 | (2 | ) | 17 | (21 | ) | 0 | (19 | ) | 22 | (13 | ) | 114 | 0 | (4 | ) | |||||||||||||||||||||||||||||||
Finance and insurance | 572 | 2 | 4 | 92 | 0 | 0 | (40 | ) | 0 | (99 | ) | 531 | 0 | 7 | ||||||||||||||||||||||||||||||||||
Consumer—non-cyclical | 94 | 0 | 2 | 8 | 0 | 0 | (1 | ) | 0 | 0 | 103 | 0 | 3 | |||||||||||||||||||||||||||||||||||
Technology and communications | 50 | 0 | 4 | 77 | 0 | 0 | 0 | 0 | (5 | ) | 126 | 0 | 4 | |||||||||||||||||||||||||||||||||||
Industrial | 40 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 40 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Capital goods | 102 | 0 | (1 | ) | 0 | 0 | 0 | (4 | ) | 0 | 0 | 97 | 0 | (1 | ) | |||||||||||||||||||||||||||||||||
Consumer—cyclical | 173 | 3 | 3 | 0 | 0 | 0 | (33 | ) | 24 | 0 | 170 | 0 | 5 | |||||||||||||||||||||||||||||||||||
Transportation | 78 | 0 | (1 | ) | 0 | 0 | 0 | (3 | ) | 10 | (30 | ) | 54 | 0 | 1 | |||||||||||||||||||||||||||||||||
Other | 136 | 0 | 1 | 5 | 0 | 0 | (5 | ) | 27 | 0 | 164 | 0 | 1 | |||||||||||||||||||||||||||||||||||
Total U.S. corporate | 2,239 | 16 | 18 | 246 | (21 | ) | 0 | (159 | ) | 125 | (224 | ) | 2,240 | 0 | 30 | |||||||||||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||
Utilities | 374 | 0 | 7 | 12 | 0 | 0 | 0 | 27 | (73 | ) | 347 | 0 | 5 | |||||||||||||||||||||||||||||||||||
Energy | 247 | 0 | (8 | ) | 0 | 0 | 0 | (26 | ) | 24 | 0 | 237 | 0 | (7 | ) | |||||||||||||||||||||||||||||||||
Finance and insurance | 234 | 3 | 7 | 15 | 0 | 0 | 0 | 77 | (32 | ) | 304 | 3 | 8 | |||||||||||||||||||||||||||||||||||
Consumer—non-cyclical | 59 | 0 | 2 | 8 | 0 | 0 | 0 | 1 | (16 | ) | 54 | 0 | 1 | |||||||||||||||||||||||||||||||||||
Technology and communications | 28 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 28 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Industrial | 104 | 0 | 2 | 0 | 0 | 0 | (5 | ) | 0 | (8 | ) | 93 | 0 | 2 | ||||||||||||||||||||||||||||||||||
Capital goods | 161 | 1 | (2 | ) | 10 | 0 | 0 | (26 | ) | 29 | 0 | 173 | 0 | (2 | ) | |||||||||||||||||||||||||||||||||
Consumer—cyclical | 147 | 0 | 1 | 21 | 0 | 0 | (7 | ) | 32 | (27 | ) | 167 | 0 | (1 | ) | |||||||||||||||||||||||||||||||||
Transportation | 191 | 0 | 0 | 0 | 0 | 0 | 0 | 22 | (102 | ) | 111 | 0 | 3 | |||||||||||||||||||||||||||||||||||
Other | 140 | 0 | 3 | 5 | 0 | 0 | (13 | ) | 1 | 0 | 136 | 0 | 3 | |||||||||||||||||||||||||||||||||||
Total non-U.S. corporate | 1,685 | 4 | 12 | 71 | 0 | 0 | (77 | ) | 213 | (258 | ) | 1,650 | 3 | 12 | ||||||||||||||||||||||||||||||||||
Residential mortgage-backed | 27 | 0 | (1 | ) | 0 | 0 | 0 | (1 | ) | 4 | (15 | ) | 14 | 0 | 0 | |||||||||||||||||||||||||||||||||
Commercial mortgage-backed | 6 | 0 | 1 | 0 | 0 | 0 | 0 | 20 | (7 | ) | 20 | 0 | 1 | |||||||||||||||||||||||||||||||||||
Other asset-backed | 132 | 0 | (1 | ) | 93 | 0 | 0 | (32 | ) | 0 | (31 | ) | 161 | 0 | (1 | ) | ||||||||||||||||||||||||||||||||
Total fixed maturity securities | 4,191 | 22 | 10 | 410 | (21 | ) | 0 | (271 | ) | 363 | (562 | ) | 4,142 | 5 | 23 | |||||||||||||||||||||||||||||||||
Equity securities | 51 | 0 | 0 | 6 | (5 | ) | 0 | 0 | 0 | 0 | 52 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Other invested assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity index options | 81 | (2 | ) | 0 | 45 | 0 | 0 | (57 | ) | 0 | 0 | 67 | 4 | 0 | ||||||||||||||||||||||||||||||||||
Total derivative assets | 81 | (2 | ) | 0 | 45 | 0 | 0 | (57 | ) | 0 | 0 | 67 | 4 | 0 | ||||||||||||||||||||||||||||||||||
Total other invested assets | 81 | (2 | ) | 0 | 45 | 0 | 0 | (57 | ) | 0 | 0 | 67 | 4 | 0 | ||||||||||||||||||||||||||||||||||
Reinsurance recoverable (2) | 20 | 14 | 0 | 0 | 0 | 1 | 0 | 0 | 0 | 35 | 14 | 0 | ||||||||||||||||||||||||||||||||||||
Total Level 3 assets | $ | 4,343 | $ | 34 | $ | 10 | $ | 461 | $ | (26 | ) | $ | 1 | $ | (328 | ) | $ | 363 | $ | (562 | ) | $ | 4,296 | $ | 23 | $ | 23 | |||||||||||||||||||||
Beginning balance as of January 1, 2019 | Total realized and unrealized gains (losses) | Ending balance as of September 30, 2019 | Total gains (losses) included in net income (loss) attributable to assets still held | |||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Included in net income (loss) | Included in OCI | Purchases | Sales | Issuances | Settlements | Transfer into Level 3 (1) | Transfer out of Level 3 (1) | ||||||||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||||||
State and political subdivisions | $ | 51 | $ | 2 | $ | 19 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 72 | $ | 2 | ||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||
Utilities | 643 | 1 | 70 | 109 | (14 | ) | 0 | (47 | ) | 72 | (10 | ) | 824 | 0 | ||||||||||||||||||||||||||||||
Energy | 121 | 0 | 9 | 17 | 0 | 0 | (12 | ) | 0 | 0 | 135 | 0 | ||||||||||||||||||||||||||||||||
Finance and insurance | 534 | 0 | 49 | 40 | 0 | 0 | (38 | ) | 27 | 0 | 612 | 0 | ||||||||||||||||||||||||||||||||
Consumer—non-cyclical | 73 | 0 | 4 | 23 | 0 | 0 | (11 | ) | 9 | 0 | 98 | 0 | ||||||||||||||||||||||||||||||||
Technology and communications | 50 | 0 | 6 | 0 | 0 | 0 | 0 | 5 | (11 | ) | 50 | 0 | ||||||||||||||||||||||||||||||||
Industrial | 39 | 0 | 1 | 0 | 0 | 0 | 0 | 0 | 0 | 40 | 0 | |||||||||||||||||||||||||||||||||
Capital goods | 92 | 0 | 8 | 0 | 0 | 0 | 0 | 0 | 0 | 100 | 0 | |||||||||||||||||||||||||||||||||
Consumer—cyclical | 211 | 0 | 12 | 0 | (13 | ) | 0 | (16 | ) | 0 | (18 | ) | 176 | 0 | ||||||||||||||||||||||||||||||
Transportation | 57 | 0 | 2 | 7 | 0 | 0 | (9 | ) | 0 | 0 | 57 | 0 | ||||||||||||||||||||||||||||||||
Other | 178 | 0 | 6 | 22 | 0 | 0 | (15 | ) | 8 | (31 | ) | 168 | 0 | |||||||||||||||||||||||||||||||
Total U.S. corporate | 1,998 | 1 | 167 | 218 | (27 | ) | 0 | (148 | ) | 121 | (70 | ) | 2,260 | 0 | ||||||||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||||||
Utilities | 404 | 0 | 28 | 30 | (7 | ) | 0 | (42 | ) | 0 | (16 | ) | 397 | 0 | ||||||||||||||||||||||||||||||
Energy | 217 | 0 | 17 | 47 | 0 | 0 | (16 | ) | 0 | 0 | 265 | 0 | ||||||||||||||||||||||||||||||||
Finance and insurance | 171 | 3 | 22 | 7 | 0 | 0 | (16 | ) | 16 | (6 | ) | 197 | 3 | |||||||||||||||||||||||||||||||
Consumer—non-cyclical | 106 | 2 | 5 | 0 | 0 | 0 | (49 | ) | 0 | 0 | 64 | 0 | ||||||||||||||||||||||||||||||||
Technology and communications | 26 | 0 | 2 | 0 | 0 | 0 | 0 | 0 | 0 | 28 | 0 | |||||||||||||||||||||||||||||||||
Industrial | 61 | 0 | 3 | 13 | 0 | 0 | 0 | 0 | 0 | 77 | 0 | |||||||||||||||||||||||||||||||||
Capital goods | 173 | 0 | 11 | 10 | 0 | 0 | (15 | ) | 0 | 0 | 179 | 0 | ||||||||||||||||||||||||||||||||
Consumer—cyclical | 122 | 0 | 10 | 9 | 0 | 0 | (4 | ) | 0 | 0 | 137 | 0 | ||||||||||||||||||||||||||||||||
Transportation | 171 | 0 | 10 | 19 | 0 | 0 | 0 | 0 | 0 | 200 | 0 | |||||||||||||||||||||||||||||||||
Other | 81 | 0 | 11 | 35 | 0 | 0 | (2 | ) | 6 | 0 | 131 | 0 | ||||||||||||||||||||||||||||||||
Total non-U.S. corporate | 1,532 | 5 | 119 | 170 | (7 | ) | 0 | (144 | ) | 22 | (22 | ) | 1,675 | 3 | ||||||||||||||||||||||||||||||
Residential mortgage-backed | 35 | 0 | 2 | 0 | 0 | 0 | (1 | ) | 0 | (4 | ) | 32 | 0 | |||||||||||||||||||||||||||||||
Commercial mortgage-backed | 95 | 0 | 23 | 2 | 0 | 0 | 0 | 0 | (14 | ) | 106 | 0 | ||||||||||||||||||||||||||||||||
Other asset-backed | 154 | 0 | 2 | 109 | 0 | 0 | (53 | ) | 28 | (110 | ) | 130 | 0 | |||||||||||||||||||||||||||||||
Total fixed maturity securities | 3,865 | 8 | 332 | 499 | (34 | ) | 0 | (346 | ) | 171 | (220 | ) | 4,275 | 5 | ||||||||||||||||||||||||||||||
Equity securities | 58 | 0 | 0 | 2 | (6 | ) | 0 | 0 | 0 | 0 | 54 | 0 | ||||||||||||||||||||||||||||||||
Other invested assets: | ||||||||||||||||||||||||||||||||||||||||||||
Derivative assets: | ||||||||||||||||||||||||||||||||||||||||||||
Equity index options | 39 | 28 | 0 | 34 | 0 | 0 | (39 | ) | 0 | 0 | 62 | (2 | ) | |||||||||||||||||||||||||||||||
Total derivative assets | 39 | 28 | 0 | 34 | 0 | 0 | (39 | ) | 0 | 0 | 62 | (2 | ) | |||||||||||||||||||||||||||||||
Total other invested assets | 39 | 28 | 0 | 34 | 0 | 0 | (39 | ) | 0 | 0 | 62 | (2 | ) | |||||||||||||||||||||||||||||||
Reinsurance recoverable (2) | 20 | 4 | 0 | 0 | 0 | 1 | 0 | 0 | 0 | 25 | 4 | |||||||||||||||||||||||||||||||||
Total Level 3 assets | $ | 3,982 | $ | 40 | $ | 332 | $ | 535 | $ | (40 | ) | $ | 1 | $ | (385 | ) | $ | 171 | $ | (220 | ) | $ | 4,416 | $ | 7 | |||||||||||||||||||
The following table presents the gains and losses included in net income (loss) from assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value and the related income statement line item in which these gains and losses were presented for the periods indicated:three months ended March 31:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Total realized and unrealized gains (losses) included in net income (loss): | ||||||||||||||||
Net investment income | $ | 15 | $ | 2 | $ | 21 | $ | 8 | ||||||||
Net investment gains (losses) | 4 | 6 | 13 | 32 | ||||||||||||
Total | $ | 19 | $ | 8 | $ | 34 | $ | 40 | ||||||||
Total gains (losses) included in net income (loss) attributable to assets still held: | ||||||||||||||||
Net investment income | $ | 2 | $ | 2 | $ | 5 | $ | 5 | ||||||||
Net investment gains (losses) | (4 | ) | 5 | 18 | 2 | |||||||||||
Total | $ | (2 | ) | $ | 7 | $ | 23 | $ | 7 | |||||||
(Amounts in millions) | 2021 | 2020 | ||||||
Total realized and unrealized gains (losses) included in net income (loss): | ||||||||
Net investment income | $ | 2 | $ | 5 | ||||
Net investment gains (losses) | (5 | ) | 13 | |||||
Total | $ | (3 | ) | $ | 18 | |||
Net gains (losses) included in net income (loss) attributable to assets still held: | ||||||||
Net investment income | $ | 2 | $ | 2 | ||||
Net investment gains (losses) | (6 | ) | 23 | |||||
Total | $ | (4 | ) | $ | 25 | |||
The amount presented for realized and unrealized gains (losses) included in net income (loss) for fixed maturity securities primarily represents amortization and accretion of premiums and discounts on certain fixed maturity securities.
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents a summary of the significant unobservable inputs used for certain asset fair value measurements that are based on internal models and classified as Level 3 as of September 30, 2020:March 31, 2021:
(Amounts in millions) | Valuation technique | Fair value | Unobservable input | Range | Weighted-average (1) | |||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||
Utilities | Internal models | $ | 745 | Credit spreads | 65bps - 203bps | 141bps | ||||||||||||||
Energy | Internal models | 6 | Credit spreads | 80bps | Not applicable | |||||||||||||||
Finance and insurance | Internal models | 590 | Credit spreads | 60bps - 207bps | 137bps | |||||||||||||||
Consumer—non-cyclical | Internal models | 106 | Credit spreads | 70bps - 231bps | 140bps | |||||||||||||||
Technology and communications | Internal models | 39 | Credit spreads | 96bps - 162bps | 144bps | |||||||||||||||
Industrial | Internal models | 20 | Credit spreads | 113bps - 218bps | 173bps | |||||||||||||||
Capital goods | Internal models | 58 | Credit spreads | 82bps - 181bps | 135bps | |||||||||||||||
Consumer—cyclical | Internal models | 137 | Credit spreads | 108bps - 175bps | 143bps | |||||||||||||||
Transportation | Internal models | 56 | Credit spreads | 60bps - 153bps | 110bps | |||||||||||||||
Other | Internal models | 179 | Credit spreads | 82bps - 169bps | 106bps | |||||||||||||||
Total U.S. corporate | Internal models | $ | 1,936 | Credit spreads | 60bps - 231bps | 136bps | ||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||
Utilities | Internal models | $ | 375 | Credit spreads | 71bps - 203bps | 126bps | ||||||||||||||
Energy | Internal models | 89 | Credit spreads | 82bps - 171bps | 121bps | |||||||||||||||
Finance and insurance | Internal models | 181 | Credit spreads | 91bps - 138bps | 106bps | |||||||||||||||
Consumer—non-cyclical | Internal models | 64 | Credit spreads | 70bps - 138bps | 111bps | |||||||||||||||
Technology and communications | Internal models | 28 | Credit spreads | 82bps - 153bps | 129bps | |||||||||||||||
Industrial | Internal models | 93 | Credit spreads | 80bps - 172bps | 119bps | |||||||||||||||
Capital goods | Internal models | 147 | Credit spreads | 70bps - 178bps | 123bps | |||||||||||||||
Consumer—cyclical | Internal models | 60 | Credit spreads | 107bps - 171bps | 131bps | |||||||||||||||
Transportation | Internal models | 64 | Credit spreads | 70bps - 171bps | 93bps | |||||||||||||||
Other | Internal models | 80 | Credit spreads | 99bps - 400bps | 140bps | |||||||||||||||
Total non-U.S. corporate | Internal models | $ | 1,181 | Credit spreads | 70bps - 400bps | 120bps | ||||||||||||||
Derivative assets: | ||||||||||||||||||||
Equity index options | Discounted cash flows | | $ | 53 | Equity index volatility | | 6% - 60% | 28% | ||||||||||||
(Amounts in millions) | Valuation technique | Fair value | Unobservable input | Range | Weighted-average (1) | |||||||||||||
Fixed maturity securities: | ||||||||||||||||||
U.S. corporate: | ||||||||||||||||||
Utilities | Internal models | $ | 774 | Credit spreads | 71bps – 368bps | 183bps | ||||||||||||
Energy | Internal models | 7 | Credit spreads | 91bps | Not applicable | |||||||||||||
Finance and insurance | Internal models | 493 | Credit spreads | 66bps – 321bps | 178bps | |||||||||||||
Consumer—non-cyclical | Internal models | 103 | Credit spreads | 78bps – 358bps | 174bps | |||||||||||||
Technology and communications | Internal models | 126 | Credit spreads | 133bps – 358bps | 224bps | |||||||||||||
Industrial | Internal models | 40 | Credit spreads | 156bps – 373bps | 230bps | |||||||||||||
Capital goods | Internal models | 97 | Credit spreads | 102bps – 273bps | 190bps | |||||||||||||
Consumer—cyclical | Internal models | 133 | Credit spreads | 139bps – 276bps | 201bps | |||||||||||||
Transportation | Internal models | 43 | Credit spreads | 67bps – 156bps | 118bps | |||||||||||||
Other | Internal models | 164 | Credit spreads | 93bps – 206bps | 114bps | |||||||||||||
Total U.S. corporate | �� | Internal models | $ | 1,980 | Credit spreads | 66bps – 373bps | 179bps | |||||||||||
Non-U.S. corporate: | ||||||||||||||||||
Utilities | Internal models | $ | 347 | Credit spreads | 89bps – 292bps | 164bps | ||||||||||||
Energy | Internal models | 82 | Credit spreads | 102bps – 241bps | 156bps | |||||||||||||
Finance and insurance | Internal models | 199 | Credit spreads | 86bps – 174bps | 134bps | |||||||||||||
Consumer—non-cyclical | Internal models | 53 | Credit spreads | 97bps – 162bps | 142bps | |||||||||||||
Technology and communications | Internal models | 28 | Credit spreads | 102bps – 238bps | 184bps | |||||||||||||
Industrial | Internal models | 93 | Credit spreads | 91bps – 241bps | 165bps | |||||||||||||
Capital goods | Internal models | 146 | Credit spreads | 97bps – 254bps | 177bps | |||||||||||||
Consumer—cyclical | Internal models | 54 | Credit spreads | 102bps – 241bps | 197bps | |||||||||||||
Transportation | Internal models | 95 | Credit spreads | 78bps – 241bps | 129bps | |||||||||||||
Other | Internal models | 135 | Credit spreads | 110bps – 490bps | 209bps | |||||||||||||
Total non-U.S. corporate | Internal models | $ | 1,232 | Credit spreads | 78bps – 490bps | 163bps | ||||||||||||
Derivative assets: | ||||||||||||||||||
Equity index options | Discounted cash flows | $ | 67 | Equity index volatility | 6% – 41% | 28% | ||||||||||||
(1) | Unobservable inputs weighted by the relative fair value of the associated instrument for fixed maturity securities and by notional for derivative assets. |
Certain classes of instruments classified as Level 3 are excluded above as a result of not being material or due to limitations in being able to obtain the underlying inputs used by certain third-party sources, such as broker quotes, used as an input in determining fair value.
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables set forth our liabilities by class of instrument that are measured at fair value on a recurring basis as of the dates indicated:
March 31, 2021 | ||||||||||||||||
(Amounts in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities | ||||||||||||||||
Policyholder account balances: | ||||||||||||||||
GMWB embedded derivatives (1) | $ | 272 | $ | 0 | $ | 0 | $ | 272 | ||||||||
Fixed index annuity embedded derivatives | 362 | 0 | 0 | 362 | ||||||||||||
Indexed universal life embedded derivatives | 23 | 0 | 0 | 23 | ||||||||||||
Total policyholder account balances | 657 | 0 | 0 | 657 | ||||||||||||
Derivative liabilities: | ||||||||||||||||
Interest rate swaps | 170 | 0 | 170 | 0 | ||||||||||||
Foreign currency swaps | 3 | 0 | 3 | 0 | ||||||||||||
Total derivative liabilities | 173 | 0 | 173 | 0 | ||||||||||||
Total liabilities | $ | 830 | $ | 0 | $ | 173 | $ | 657 | ||||||||
September 30, 2020 | ||||||||||||||||
(Amounts in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities | ||||||||||||||||
Policyholder account balances: | ||||||||||||||||
GMWB embedded derivatives (1) | $ | 508 | $ | 0 | $ | 0 | $ | 508 | ||||||||
Fixed index annuity embedded derivatives | 432 | 0 | 0 | 432 | ||||||||||||
Indexed universal life embedded derivatives | 25 | 0 | 0 | 25 | ||||||||||||
Total policyholder account balances | 965 | 0 | 0 | 965 | ||||||||||||
Derivative liabilities: | ||||||||||||||||
Interest rate swaps | 4 | 0 | 4 | 0 | ||||||||||||
Other foreign currency contracts | 5 | 0 | 5 | 0 | ||||||||||||
Total derivative liabilities | 9 | 0 | 9 | 0 | ||||||||||||
Total liabilities | $ | 974 | $ | 0 | $ | 9 | $ | 965 | ||||||||
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
December 31, 2020 | ||||||||||||||||
(Amounts in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities | ||||||||||||||||
Policyholder account balances: | ||||||||||||||||
GMWB embedded derivatives (1) | $ | 379 | $ | 0 | $ | 0 | $ | 379 | ||||||||
Fixed index annuity embedded derivatives | 399 | 0 | 0 | 399 | ||||||||||||
Indexed universal life embedded derivatives | 26 | 0 | 0 | 26 | ||||||||||||
Total policyholder account balances | 804 | 0 | 0 | 804 | ||||||||||||
Derivative liabilities: | ||||||||||||||||
Interest rate swaps | 23 | 0 | 23 | 0 | ||||||||||||
Foreign currency swaps | 2 | 0 | 2 | 0 | ||||||||||||
Other foreign currency contracts | 1 | 0 | 1 | 0 | ||||||||||||
Total derivative liabilities | 26 | 0 | 26 | 0 | ||||||||||||
Total liabilities | $ | 830 | $ | 0 | $ | 26 | $ | 804 | ||||||||
December 31, 2019 | ||||||||||||||||
(Amounts in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities | ||||||||||||||||
Policyholder account balances: | ||||||||||||||||
GMWB embedded derivatives (1) | $ | 323 | $ | 0 | $ | 0 | $ | 323 | ||||||||
Fixed index annuity embedded derivatives | 452 | 0 | 0 | 452 | ||||||||||||
Indexed universal life embedded derivatives | 19 | 0 | 0 | 19 | ||||||||||||
Total policyholder account balances | 794 | 0 | 0 | 794 | ||||||||||||
Derivative liabilities: | ||||||||||||||||
Interest rate swaps | 10 | 0 | 10 | 0 | ||||||||||||
Other foreign currency contracts | 1 | 0 | 1 | 0 | ||||||||||||
Total derivative liabilities | 11 | 0 | 11 | 0 | ||||||||||||
Total liabilities | $ | 805 | $ | 0 | $ | 11 | $ | 794 | ||||||||
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables present additional information about liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:
Beginning balance as of January 1, 2021 | Total realized and | Ending balance as of March 31, 2021 | Total (gains) losses | |||||||||||||||||||||||||||||||||||||||||||||
unrealized (gains) | attributable to | |||||||||||||||||||||||||||||||||||||||||||||||
losses | liabilities still held | |||||||||||||||||||||||||||||||||||||||||||||||
Included in | Transfer | Transfer | Included | |||||||||||||||||||||||||||||||||||||||||||||
net (income) | Included | into | out of | in net | Included | |||||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | loss | in OCI | Purchases | Sales | Issuances | Settlements | Level 3 | Level 3 | (income) loss | in OCI | ||||||||||||||||||||||||||||||||||||||
Policyholder account balances: | ||||||||||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives (1) | $ | 379 | $ | (113 | ) | $ | 0 | $ | 0 | $ | 0 | $ | 6 | $ | 0 | $ | 0 | $ | 0 | $ | 272 | $ | (107 | ) | $ | 0 | ||||||||||||||||||||||
Fixed index annuity embedded derivatives | 399 | 4 | 0 | 0 | 0 | 0 | (41 | ) | 0 | 0 | 362 | 4 | 0 | |||||||||||||||||||||||||||||||||||
Indexed universal life embedded derivatives | 26 | (10 | ) | 0 | 0 | 0 | 7 | 0 | 0 | 0 | 23 | (10 | ) | 0 | ||||||||||||||||||||||||||||||||||
Total policyholder account balances | 804 | (119 | ) | 0 | 0 | 0 | 13 | (41 | ) | 0 | 0 | 657 | (113 | ) | 0 | |||||||||||||||||||||||||||||||||
Total Level 3 liabilities | $ | 804 | $ | (119 | ) | $ | 0 | $ | 0 | $ | 0 | $ | 13 | $ | (41 | ) | $ | 0 | $ | 0 | $ | 657 | $ | (113 | ) | $ | 0 | |||||||||||||||||||||
Beginning balance as of July 1, 2020 | Total realized and unrealized (gains) losses | Ending balance as of September 30, 2020 | Total (gains) losses attributable to liabilities still held | |||||||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Included in net (income) loss | Included in OCI | Purchases | Sales | Issuances | Settlements | Transfer into Level 3 | Transfer out of Level 3 | Included in net (income) loss | Included in OCI | ||||||||||||||||||||||||||||||||||||||
Policyholder account balances: | ||||||||||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives (1) | $ | 559 | $ | (57 | ) | $ | 0 | $ | 0 | $ | 0 | $ | 6 | $ | 0 | $ | 0 | $ | 0 | $ | 508 | $ | (57 | ) | $ | 0 | ||||||||||||||||||||||
Fixed index annuity embedded derivatives | 447 | 18 | 0 | 0 | 0 | 0 | (33 | ) | 0 | 0 | 432 | 18 | 0 | |||||||||||||||||||||||||||||||||||
Indexed universal life embedded derivatives | 23 | (3 | ) | 0 | 0 | 0 | 5 | 0 | 0 | 0 | 25 | (3 | ) | 0 | ||||||||||||||||||||||||||||||||||
Total policyholder account balances | 1,029 | (42 | ) | 0 | 0 | 0 | 11 | (33 | ) | 0 | 0 | 965 | (42 | ) | 0 | |||||||||||||||||||||||||||||||||
Total Level 3 liabilities | $ | 1,029 | $ | (42 | ) | $ | 0 | $ | 0 | $ | 0 | $ | 11 | $ | (33 | ) | $ | 0 | $ | 0 | $ | 965 | $ | (42 | ) | $ | 0 | |||||||||||||||||||||
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
Beginning balance as of January 1, 2020 | Total realized and | Ending balance as of March 31, 2020 | Total (gains) losses | |||||||||||||||||||||||||||||||||||||||||||||
unrealized (gains) | attributable to | |||||||||||||||||||||||||||||||||||||||||||||||
losses | liabilities still held | |||||||||||||||||||||||||||||||||||||||||||||||
Included in | Transfer | Transfer | Included | |||||||||||||||||||||||||||||||||||||||||||||
net (income) | Included | into | out of | in net | Included | |||||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | loss | in OCI | Purchases | Sales | Issuances | Settlements | Level 3 | Level 3 | (income) loss | in OCI | ||||||||||||||||||||||||||||||||||||||
Policyholder account balances: | ||||||||||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives (1) | $ | 323 | $ | 362 | $ | 0 | $ | 0 | $ | 0 | $ | 6 | $ | 0 | $ | 0 | $ | 0 | $ | 691 | $ | 368 | $ | 0 | ||||||||||||||||||||||||
Fixed index annuity embedded derivatives | 452 | (32 | ) | 0 | 0 | 0 | 0 | (7 | ) | 0 | 0 | 413 | (32 | ) | 0 | |||||||||||||||||||||||||||||||||
Indexed universal life embedded derivatives | 19 | (4 | ) | 0 | 0 | 0 | 6 | 0 | 0 | 0 | 21 | (4 | ) | 0 | ||||||||||||||||||||||||||||||||||
Total policyholder account balances | 794 | 326 | 0 | 0 | 0 | 12 | (7 | ) | 0 | 0 | 1,125 | 332 | 0 | |||||||||||||||||||||||||||||||||||
Total Level 3 liabilities | $ | 794 | $ | 326 | $ | 0 | $ | 0 | $ | 0 | $ | 12 | $ | (7 | ) | $ | 0 | $ | 0 | $ | 1,125 | $ | 332 | $ | 0 | |||||||||||||||||||||||
Beginning balance as of July 1, 2019 | Total realized and unrealized (gains) losses | Ending balance as of September 30, 2019 | Total (gains) losses included in net (income) loss attributable to liabilities still held | |||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Included in net (income) loss | Included in OCI | Purchases | Sales | Issuances | Settlements | Transfer into Level 3 | Transfer out of Level 3 | ||||||||||||||||||||||||||||||||||||
Policyholder account balances: | ||||||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives (1) | $ | 325 | $ | 49 | $ | 0 | $ | 0 | $ | 0 | $ | 7 | $ | 0 | $ | 0 | $ | 0 | $ | 381 | $ | 50 | ||||||||||||||||||||||
Fixed index annuity embedded derivatives | 438 | 14 | 0 | 0 | 0 | 0 | (8 | ) | 0 | 0 | 444 | 14 | ||||||||||||||||||||||||||||||||
Indexed universal life embedded derivatives | 15 | (1 | ) | 0 | 0 | 0 | 4 | 0 | 0 | 0 | 18 | (1 | ) | |||||||||||||||||||||||||||||||
Total policyholder account balances | 778 | 62 | 0 | 0 | 0 | 11 | (8 | ) | 0 | 0 | 843 | 63 | ||||||||||||||||||||||||||||||||
Total Level 3 liabilities | $ | 778 | $ | 62 | $ | 0 | $ | 0 | $ | 0 | $ | 11 | $ | (8 | ) | $ | 0 | $ | 0 | $ | 843 | $ | 63 | |||||||||||||||||||||
(1) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. |
Beginning balance as of January 1, 2020 | Total realized and unrealized (gains) losses | Ending balance as of September 30, 2020 | Total (gains) losses attributable to liabilities still held | |||||||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Included in net (income) loss | Included in OCI | Purchases | Sales | Issuances | Settlements | Transfer into Level 3 | Transfer out of Level 3 | Included in net (income) loss | Included in OCI | ||||||||||||||||||||||||||||||||||||||
Policyholder account balances: | ||||||||||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives (1) | $ | 323 | $ | 167 | $ | 0 | $ | 0 | $ | 0 | $ | 18 | $ | 0 | $ | 0 | $ | 0 | $ | 508 | $ | 174 | $ | 0 | ||||||||||||||||||||||||
Fixed index annuity embedded derivatives | 452 | 31 | 0 | 0 | 0 | 0 | (51 | ) | 0 | 0 | 432 | 31 | 0 | |||||||||||||||||||||||||||||||||||
Indexed universal life embedded derivatives | 19 | (10 | ) | 0 | 0 | 0 | 16 | 0 | 0 | 0 | 25 | (10 | ) | 0 | ||||||||||||||||||||||||||||||||||
Total policyholder account balances | 794 | 188 | 0 | 0 | 0 | 34 | (51 | ) | 0 | 0 | 965 | 195 | 0 | |||||||||||||||||||||||||||||||||||
Total Level 3 liabilities | $ | 794 | $ | 188 | $ | 0 | $ | 0 | $ | 0 | $ | 34 | $ | (51 | ) | $ | 0 | $ | 0 | $ | 965 | $ | 195 | $ | 0 | |||||||||||||||||||||||
Beginning balance as of January 1, 2019 | Total realized and unrealized (gains) losses | Ending balance as of September 30, 2019 | Total (gains) losses included in net (income) loss attributable to liabilities still held | |||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Included in net (income) loss | Included in OCI | Purchases | Sales | Issuances | Settlements | Transfer into Level 3 | Transfer out of Level 3 | ||||||||||||||||||||||||||||||||||||
Policyholder account balances: | ||||||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives (1) | $ | 337 | $ | 25 | $ | 0 | $ | 0 | $ | 0 | $ | 19 | $ | 0 | $ | 0 | $ | 0 | $ | 381 | $ | 29 | ||||||||||||||||||||||
Fixed index annuity embedded derivatives | 389 | 72 | 0 | 0 | 0 | 0 | (17 | ) | 0 | 0 | 444 | 72 | ||||||||||||||||||||||||||||||||
Indexed universal life embedded derivatives | 12 | (1 | ) | 0 | 0 | 0 | 7 | 0 | 0 | 0 | 18 | (1 | ) | |||||||||||||||||||||||||||||||
Total policyholder account balances | 738 | 96 | 0 | 0 | 0 | 26 | (17 | ) | 0 | 0 | 843 | 100 | ||||||||||||||||||||||||||||||||
Total Level 3 liabilities | $ | 738 | $ | 96 | $ | 0 | $ | 0 | $ | 0 | $ | 26 | $ | (17 | ) | $ | 0 | $ | 0 | $ | 843 | $ | 100 | |||||||||||||||||||||
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the gains and losses included in net (income) loss from liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value and the related income statement line item in which these gains and losses were presented for the periods indicated:three months ended March 31:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Total realized and unrealized (gains) losses included in net (income) loss: | ||||||||||||||||
Net investment income | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Net investment (gains) losses | (42 | ) | 62 | 188 | 96 | |||||||||||
Total | $ | (42 | ) | $ | 62 | $ | 188 | $ | 96 | |||||||
Total (gains) losses included in net (income) loss attributable to liabilities still held: | ||||||||||||||||
Net investment income | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Net investment (gains) losses | (42 | ) | 63 | 195 | 100 | |||||||||||
Total | $ | (42 | ) | $ | 63 | $ | 195 | $ | 100 | |||||||
(Amounts in millions) | 2021 | 2020 | ||||||
Total realized and unrealized (gains) losses included in net (income) loss: | ||||||||
Net investment income | $ | 0 | $ | 0 | ||||
Net investment (gains) losses | (119 | ) | 326 | |||||
Total | $ | (119 | ) | $ | 326 | |||
Total (gains) losses included in net (income) loss attributable to liabilities still held: | ||||||||
Net investment income | $ | 0 | $ | 0 | ||||
Net investment (gains) losses | (113 | ) | 332 | |||||
Total | $ | (113 | ) | $ | 332 | |||
Purchases, sales, issuances and settlements represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases, sales and settlements of fixed maturity and equity securities and purchases, issuances and settlements of derivative instruments.
Issuances presented for GMWB embedded derivative liabilities are characterized as the change in fair value associated with the product fees recognized that are attributed to the embedded derivative to equal the expected future benefit costs upon issuance. Issuances for fixed index annuity and indexed universal life embedded derivative liabilities represent the amount of the premium received that is attributed to the value of the embedded derivative. Settlements of embedded derivatives are characterized as the change in fair value upon exercising the embedded derivative instrument, effectively representing a settlement of the embedded derivative instrument. We have shown these changes in fair value separately based on the classification of this activity as effectively issuing and settling the embedded derivative instrument with all remaining changes in the fair value of these embedded derivative instruments being shown separately in the category labeled “included in net (income) loss” in the tables presented above.
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents a summary of the significant unobservable inputs used for certain liability fair value measurements that are based on internal models and classified as Level 3 as of September 30, 2020:March 31, 2021:
(Amounts in millions) | Valuation technique | Fair value | Unobservable input | Range | Weighted-average (1) | |||||||||
Policyholder account balances: | ||||||||||||||
| Withdrawal utilization rate | 58% - 89% | 75% | ||||||||||||
| Lapse rate | 2% - 9% | 4% | ||||||||||||
Non-performance risk (credit spreads) | 16bps - 83bps | 65bps | ||||||||||||
GMWB embedded derivatives (2) | Stochastic cash flow model | | $ | 272 | Equity index volatility | 18% - 27% | 22% | |||||||
Fixed index annuity embedded derivatives | Option budget method | | $ | 362 | Expected future interest credited | 0% - 3% | 1% | |||||||
Indexed universal life embedded derivatives | Option budget method | | $ | 23 | Expected future interest credited | 3% - 10% | 5% | |||||||
(Amounts in millions) | Valuation technique | Fair value | Unobservable input | Range | Weighted- average (1) | |||||||||||||
Policyholder account balances: | ||||||||||||||||||
Withdrawal utilization rate | 56% – 88% | 73% | ||||||||||||||||
Lapse rate | 2% – 9% | 4% | ||||||||||||||||
Non-performance risk (credit spreads) | 12bps –83bps | 67bps | ||||||||||||||||
GMWB embedded derivatives (2) | Stochastic cash flow model | $ | 508 | Equity index volatility | 21% – 27% | 23% | ||||||||||||
Fixed index annuity embedded derivatives | Option budget method | $ | 432 | Expected future interest credited | 0 % – 3% | 1% | ||||||||||||
Indexed universal life embedded derivatives | Option budget method | $ | 25 | Expected future interest credited | 3% – 10% | 5% | ||||||||||||
(1) | Unobservable inputs weighted by the policyholder account balances associated with the instrument. |
(2) | Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. The unobservable inputs associated with GMWB embedded derivatives are not interrelated and therefore, a directional change in one input will not affect the other inputs. |
Assets and Liabilities Not Required to Be Carried at Fair Value
Assets and liabilities that are reflected in the accompanying unaudited condensed consolidated financial statements at fair value are not included in the following disclosure of fair value. Such items include cash, cash equivalents and restricted cash, short-term investments, investment securities, separate accounts, securities held as collateral and derivative instruments. Apart from certain of our borrowings and certain marketable securities, few of the instruments are actively traded and their fair values must often be determined using models. The fair value estimates are made at a specific point in time, based upon available market information and judgments about the financial instruments, including estimates of the timing and amount of expected future cash flows and the credit standing of counterparties. Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets.
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following represents our estimated fair value of financial assets and liabilities that are not required to be carried at fair value as of the dates indicated:
March 31, 2021 | ||||||||||||||||||||||||
(Amounts in millions) | Notional amount | Carrying amount | Fair value | |||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Commercial mortgage loans | (1) | $ | 6,755 | $ | 7,168 | $ | 0 | $ | 0 | $ | 7,168 | |||||||||||||
Bank loan investments | (1) | 331 | 339 | 0 | 0 | 339 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Long-term borrowings | (1) | 2,922 | 2,710 | 0 | 2,710 | 0 | ||||||||||||||||||
Investment contracts | (1) | 9,904 | 10,519 | 0 | 0 | 10,519 | ||||||||||||||||||
Other firm commitments: | ||||||||||||||||||||||||
Commitments to fund limited partnerships | 1,192 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Commitments to fund bank loan investments | 27 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Ordinary course of business lending commitments | 128 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
September 30, 2020 | ||||||||||||||||||||||||
Notional amount | Carrying amount | Fair value | ||||||||||||||||||||||
(Amounts in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Commercial mortgage loans | (1) | $ | 6,880 | $ | 7,169 | $ | 0 | $ | 0 | $ | 7,169 | |||||||||||||
Other invested assets | (1) | 410 | 411 | 0 | 23 | 388 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Long-term borrowings | (1) | 3,570 | 3,148 | 0 | 2,979 | 169 | ||||||||||||||||||
Investment contracts | (1) | 10,872 | 12,016 | 0 | 0 | 12,016 | ||||||||||||||||||
Other firm commitments: | ||||||||||||||||||||||||
Commitments to fund limited partnerships | 1,112 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Commitments to fund bank loan investments | 35 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Ordinary course of business lending commitments | 126 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
(1) | These financial instruments do not have notional amounts. |
December 31, 2020 | ||||||||||||||||||||||||
(Amounts in millions) | Notional amount | Carrying amount | Fair value | |||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Commercial mortgage loans | (1) | $ | 6,743 | $ | 7,145 | $ | 0 | $ | 0 | $ | 7,145 | |||||||||||||
Bank loan investments | (1) | 344 | 354 | 0 | 0 | 354 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Long-term borrowings | (1) | 3,403 | 3,090 | 0 | 3,090 | 0 | ||||||||||||||||||
Investment contracts | (1) | 10,276 | 11,353 | 0 | 0 | 11,353 | ||||||||||||||||||
Other firm commitments: | ||||||||||||||||||||||||
Commitments to fund limited partnerships | 1,090 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Commitments to fund bank loan investments | 32 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Ordinary course of business lending commitments | 117 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
Notional amount | Carrying amount | Fair value | ||||||||||||||||||||||
(Amounts in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Commercial mortgage loans | (1) | $ | 6,963 | $ | 7,239 | $ | 0 | $ | 0 | $ | 7,239 | |||||||||||||
Other invested assets | (1) | 432 | 432 | 0 | 49 | 383 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Long-term borrowings | (1) | 3,277 | 3,093 | 0 | 2,951 | 142 | ||||||||||||||||||
Non-recourse funding obligations | (1) | 311 | �� | 207 | 0 | 0 | 207 | |||||||||||||||||
Investment contracts | (1) | 11,466 | 12,086 | 0 | 0 | 12,086 | ||||||||||||||||||
Other firm commitments: | ||||||||||||||||||||||||
Commitments to fund limited partnerships | 976 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Commitments to fund bank loan investments | 52 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Ordinary course of business lending commitments | 69 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
(1) | These financial instruments do not have notional amounts. |
49
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(7) Liability for Policy and Contract Claims
The following table sets forth changes in our liability for policy and contract claims as of the dates indicated:
As of or for the nine months ended September 30, | ||||||||
(Amounts in millions) | 2020 | 2019 | ||||||
Beginning balance | $ | 10,958 | $ | 10,295 | ||||
Less reinsurance recoverables | (2,406 | ) | (2,379 | ) | ||||
Net beginning balance | 8,552 | 7,916 | ||||||
Incurred related to insured events of: | ||||||||
Current year | 3,179 | 2,865 | ||||||
Prior years | (389 | ) | (237 | ) | ||||
Total incurred | 2,790 | 2,628 | ||||||
Paid related to insured events of: | ||||||||
Current year | (708 | ) | (659 | ) | ||||
Prior years | (1,867 | ) | (1,794 | ) | ||||
Total paid | (2,575 | ) | (2,453 | ) | ||||
Interest on liability for policy and contract claims | 308 | 285 | ||||||
Foreign currency translation | 5 | (9 | ) | |||||
Net ending balance | 9,080 | 8,367 | ||||||
Add reinsurance recoverables | 2,293 | 2,413 | ||||||
Ending balance | $ | 11,373 | $ | 10,780 | ||||
As of or for the three | ||||||||
months ended | ||||||||
March 31, | ||||||||
(Amounts in millions) | 2021 | 2020 | ||||||
Beginning balance | $ | 11,486 | $ | 10,750 | ||||
Less reinsurance recoverables | (2,431 | ) | (2,406 | ) | ||||
Net beginning balance | 9,055 | 8,344 | ||||||
Incurred related to insured events of: | ||||||||
Current year | 1,054 | 1,005 | ||||||
Prior years | (229 | ) | (106 | ) | ||||
Total incurred | 825 | 899 | ||||||
Paid related to insured events of: | ||||||||
Current year | (197 | ) | (128 | ) | ||||
Prior years | (725 | ) | (708 | ) | ||||
Total paid | (922 | ) | (836 | ) | ||||
Interest on liability for policy and contract claims | 101 | 102 | ||||||
Foreign currency translation | 0 | (2 | ) | |||||
Net ending balance | 9,059 | 8,507 | ||||||
Add reinsurance recoverables | 2,356 | 2,441 | ||||||
Ending balance | $ | 11,415 | $ | 10,948 | ||||
The liability for policy and contract claims represents our current best estimate; however, there may be future adjustments to this estimate and related assumptions. Such adjustments, reflecting any variety of new and adverse trends, could be significant, and result in increases in reserves by an amount that could be material to our results of operations and financial condition and liquidity. In addition, loss reserves recorded on new delinquencies in our U.S. mortgage insurance business have a high degree of estimation, particularly due to the level of uncertainty regarding whether borrowers in forbearance will ultimately cure or result in a claim payment.
For the ninethree months ended September 30, 2020,March 31, 2021, the favorable development of $389$229 million related to insured events of prior years was primarily attributable to our long-term care insurance business largely from favorable claim terminations mostly attributable to higher mortality, favorable development on prior year incurred but not reported claims and favorable experience on pending claims that terminated before becomingdid not become an active claim. These decreases were partially offset by a strengtheninghigher reserves of incurred but not reported reserves.
COVID-19,
which we believe are temporary.GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(8) Reinsurance
Three months ended September 30, | Nine months ended September 30, | |||||||
(Amounts in millions) | 2020 | 2020 | ||||||
Allowance for credit losses: | ||||||||
Beginning balance | $ | 44 | $ | 0 | ||||
Cumulative effect of change in accounting | 0 | 40 | ||||||
Provision | 0 | 4 | ||||||
Write-offs | 0 | 0 | ||||||
Recoveries | 0 | 0 | ||||||
Ending balance | $ | 44 | $ | 44 | ||||
(Amounts in millions) | Collateralized | Non-collateralized | Total | |||||||||
Credit rating: | ||||||||||||
A++ | $ | 0 | $ | 514 | $ | 514 | ||||||
A+ | 1,380 | 1,366 | 2,746 | |||||||||
A | 20 | 46 | 66 | |||||||||
B+ | 0 | 2 | 2 | |||||||||
Not rated | 13,422 | 82 | 13,504 | |||||||||
Total reinsurance recoverable | $ | 14,822 | $ | 2,010 | $ | 16,832 | ||||||
The following table sets forth total long-term borrowings as of the dates indicated:
March 31, | December 31, | |||||||
(Amounts in millions) | 2021 | 2020 | ||||||
Genworth Holdings (1) | ||||||||
7.20% Senior Notes, due 2021 | $ | 0 | $ | 338 | ||||
7.625% Senior Notes, due 2021 | 514 | 660 | ||||||
4.90% Senior Notes, due 2023 | 400 | 400 | ||||||
4.80% Senior Notes, due 2024 | 400 | 400 | ||||||
6.50% Senior Notes, due 2034 | 297 | 297 | ||||||
Floating Rate Junior Subordinated Notes, due 2066 | 598 | 598 | ||||||
Subtotal | 2,209 | 2,693 | ||||||
Bond consent fees | (17 | ) | (19 | ) | ||||
Deferred borrowing charges | (9 | ) | (9 | ) | ||||
Total Genworth Holdings | 2,183 | 2,665 | ||||||
Genworth Mortgage Holdings, Inc. | ||||||||
6.50% Senior Notes, due 2025 (2) | 750 | 750 | ||||||
Deferred borrowing charges | (11 | ) | (12 | ) | ||||
Total Genworth Mortgage Holdings, Inc. | 739 | 738 | ||||||
Total | $2,922 | $ | 3,403 | |||||
(Amounts in millions) | September 30, 2020 | December 31, 2019 | ||||||
Genworth Holdings (1) | ||||||||
7.70% Senior Notes, due 2020 | $ | 0 | $ | 397 | ||||
7.20% Senior Notes, due 2021 | 338 | 382 | ||||||
7.625% Senior Notes, due 2021 | 661 | 701 | ||||||
4.90% Senior Notes, due 2023 | 399 | 399 | ||||||
4.80% Senior Notes, due 2024 | 400 | 400 | ||||||
6.50% Senior Notes, due 2034 | 297 | 297 | ||||||
Floating Rate Junior Subordinated Notes, due 2066 | 598 | 598 | ||||||
Subtotal | 2,693 | 3,174 | ||||||
Bond consent fees | (20 | ) | (25 | ) | ||||
Deferred borrowing charges | (10 | ) | (12 | ) | ||||
Total Genworth Holdings | 2,663 | 3,137 | ||||||
Genworth Mortgage Holdings, Inc. | ||||||||
6.50% Senior Notes, due 2025 | 750 | 0 | ||||||
Deferred borrowing charges | (12 | ) | 0 | |||||
Total Genworth Mortgage Holdings, Inc. | 738 | 0 | ||||||
Australia (2) | ||||||||
Floating Rate Junior Subordinated Notes, due 2025 | 35 | 140 | ||||||
Floating Rate Junior Subordinated Notes, due 2030 | 136 | 0 | ||||||
Subtotal | 171 | 140 | ||||||
Deferred borrowing charges | (2 | ) | 0 | |||||
Total Australia | 169 | 140 | ||||||
Total | $ | 3,570 | $ | 3,277 | ||||
(1) | We have the option to redeem all or a portion of the senior notes at any time with notice to the noteholders at a price equal to the greater of 100% of principal or the sum of the present value of the remaining scheduled payments of principal and interest discounted at the then-current treasury rate plus an applicable spread. |
(2) |
In March 2021, Genworth Holdings repurchased $146 million principal amount of $397its 7.625% senior notes due in September 2021 for aof $3 million and a make-whole premium of $9 million.thereon.
pre-tax
loss of $4 million and paid accrued interest GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
August 15, 2025. GMHI may redeem the notes, in whole or in part, at any time prior to February 15, 2025 at its option, by paying a make-whole premium, plus accrued and unpaid interest, if any. At any time on or after February 15, 2025, GMHI may redeem the notes, in whole or in part, at its option, at 100% of the principal amount, plus accrued and unpaid interest. The notes contain customary events of default, which subject to certain notice and cure conditions, can result in the acceleration of the principal and accrued interest on the outstanding notes if GMHI breaches the terms of the indenture.
The reconciliation of the federal statutory tax rate to the effective income tax rate was as follows for the periods indicated:
Three months ended March 31, | ||||||||
2021 | 2020 | |||||||
Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | ||||
Increase (reduction) in rate resulting from: | ||||||||
Swaps terminated prior to the TCJA (1) | 4.1 | (8.4 | ) | |||||
Stock-based compensation | 0.2 | (2.7 | ) | |||||
Nondeductible expenses | 0.6 | (1.3 | ) | |||||
Other, net | (0.6 | ) | (0.9 | ) | ||||
Effective rate | 25.3 | % | 7.7 | % | ||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||
Increase (reduction) in rate resulting from: | ||||||||||||||||
Swaps terminated prior to the TCJA | 2.6 | 1.2 | 4.3 | 3.2 | ||||||||||||
Provision to return adjustments | 0.8 | (1.6 | ) | 0.7 | (0.4 | ) | ||||||||||
Effect of foreign operations | 1.1 | (0.8 | ) | 1.8 | 2.5 | |||||||||||
Other, net | 0.1 | 0.1 | 0.8 | 0.3 | ||||||||||||
Effective rate | 25.6 | % | 19.9 | % | 28.6 | % | 26.6 | % | ||||||||
| (1) | Tax Cuts and Jobs Act |
The increase in the effective tax rate for the three and nine months ended September 30, 2020March 31, 2021 was primarily attributable to unfavorable provision to return adjustments in the current year compared to favorable adjustments in the prior year andhigher tax expense on forward starting swaps settled prior to the enactment of the Tax Cuts and Jobs Act (“TCJA”),TCJA, which are tax effected at 35% as they are amortized into net investment income.income, in relation toa higher tax expense relatedstock-based compensation in the prior year in relation to foreign operations for the three months ended September 30, 2020.a
loss.pre-tax
income in the current year. The increase was also attributable to pre-tax
We have the following 43 operating business segments: U.S. Mortgage Insurance; Australia Mortgage Insurance; U.S. Life Insurance (which includes our long-term care insurance, life insurance and fixed annuities businesses); and Runoff (which includes the results offourthree operating business segments, we also have Corporate and Other activities which include debt financing expenses that are incurred at the Genworth Holdings level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other businesses that are managed outside of our operating segments, including certain smaller international mortgage insurance businesses and discontinued operations.
non-strategic
products which have not been actively sold since 2011). In addition to our We tax our international businesses at their local jurisdictional tax rates and our domestic businesses at the U.S. corporate federal income tax rate of 21%. OurEach segment tax methodology applies the respective jurisdictional or domestic tax rate to the pre-tax income (loss) of each segment, which is then adjusted in each segment to reflect the unique tax attributes of items unique to that segment, such as foreign withholding taxes and permanent differences between U.S. GAAP and local tax law. The difference between the consolidated provision for income taxes and the sum of the provision for income taxes in each segment is reflected in Corporate and Other activities.
The annually-determined tax rates and adjustments to each segment’s provision for income taxes are estimates which are subject to review and could change from year to year.
We use the same accounting policies and procedures to measure segment income (loss) and assets as our consolidated net income and assets. Our chief operating decision maker evaluates segment performance and allocates resources on the basis of “adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders.” We define adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as income (loss) from continuing operations excluding thegoodwill impairments, gains
after-tax
effects of income (loss) from continuing operations attributable to noncontrolling interests, net investment gains (losses), 52
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and infrequent or unusualGoodwill impairments, gainsGains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions and restructuring costs are also excluded from adjusted operating income (loss)
non-operating
items. Gains (losses) on insurance block transactions are defined as gains (losses) on the early extinguishment ofnon-recourse
funding obligations, early termination fees for other financing restructuring and/or resulting gains (losses) on reinsurance restructuring for certain blocks of business. We exclude net investment gains (losses) and infrequent or unusualnon-operating
items because we do not consider them to be related to the operating performance of our segments and Corporate and Other activities. A component of our net investment gains (losses) is the result of estimated future credit losses, the size and timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) can be subject to our discretion and are influenced by market opportunities, as well as asset-liability matching considerations. available to Genworth Financial, Inc.’s common stockholders because, in our opinion, they are not indicative of overall operating trends. Infrequent or unusual
non-operating
items are also excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders if, in our opinion, they are not indicative of overall operating trends.While some of these items may be significant components of net income (loss) available to Genworth Financial, Inc.’s common stockholders in accordance with U.S. GAAP, we believe that adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, and measures that are derived from or incorporate adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, are appropriate measures that are useful to investors because they identify the income (loss) attributable to the ongoing operations of the business. Management also uses adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as a basis for determining awards and compensation for senior management and to evaluate performance on a basis comparable to that used by analysts. However, the items excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders is not a substitute for net income (loss) available to Genworth Financial, Inc.’s common stockholders determined in accordance with U.S. GAAP. In addition, our definition of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders may differ from the definitions used by other companies.
Adjustments to reconcile net income (loss) available to Genworth Financial, Inc.’s common stockholders to adjusted operating income (loss) assume a 21% tax rate for our domestic segments and a 30% tax rate for our Australia Mortgage Insurance segment and are net of the portion attributable to noncontrolling interests.rate. Net investment gains (losses) are also adjusted for DAC and other intangible amortization and certain benefit reserves.
pre-tax
gain (loss) of pre-tax
make-whole expense of $9 million related to the early redemption of Genworth Holdings’ senior notes originally scheduled to mature in June 2020 and Rivermont Life Insurance Company I, our indirect wholly-owned special purpose consolidated captive insurance subsidiary, early redeemed all of its $315 million outstandingnon-recourse
funding obligations originally due in 2050 resulting in apre-tax
loss of $4 million from thewrite-off
of deferred borrowing costs. These transactions were excluded from adjusted operating income We recorded a$2$21 million and $4$1 million forin the nine months ended September 30,first quarters of 2021 and 2020, and 2019, respectively, related to restructuring costs as we continue to evaluate and appropriately size our organizational needs and expenses. There were no infrequent or unusual items excluded from adjusted operating income (loss) during the periods presented.
pre-tax
expense of GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a summary of revenues for our segments and Corporate and Other activities for the periods indicated:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Revenues: | ||||||||||||||||
U.S. Mortgage Insurance segment | $ | 284 | $ | 251 | $ | 819 | $ | 709 | ||||||||
Australia Mortgage Insurance segment | 102 | 82 | 265 | 288 | ||||||||||||
U.S. Life Insurance segment: | ||||||||||||||||
Long-term care insurance | 1,466 | 1,110 | 3,672 | 3,279 | ||||||||||||
Life insurance | 333 | 347 | 1,016 | 1,101 | ||||||||||||
Fixed annuities | 138 | 145 | 400 | 455 | ||||||||||||
U.S. Life Insurance segment | 1,937 | 1,602 | 5,088 | 4,835 | ||||||||||||
Runoff segment | 103 | 74 | 200 | 234 | ||||||||||||
Corporate and Other activities | (6 | ) | 11 | 23 | (8 | ) | ||||||||||
Total revenues | $ | 2,420 | $ | 2,020 | $ | 6,395 | $ | 6,058 | ||||||||
Three months ended | ||||||||
March 31, | ||||||||
(Amounts in millions) | 2021 | 2020 | ||||||
Revenues: | ||||||||
U.S. Mortgage Insurance segment | $ | 288 | $ | 261 | ||||
U.S. Life Insurance segment: | ||||||||
Long-term care insurance | 1,140 | 1,006 | ||||||
Life insurance | 348 | 348 | ||||||
Fixed annuities | 132 | 133 | ||||||
U.S. Life Insurance segment | 1,620 | 1,487 | ||||||
Runoff segment | 76 | 7 | ||||||
Corporate and Other activities | 1 | 54 | ||||||
Total revenues | $ | 1,985 | $ | 1,809 | ||||
The following tables present the reconciliation of net income (loss) available to Genworth Financial, Inc.’s common stockholders to adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders and a summary of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for our segments and Corporate and Other activities for the periods indicated:
Three months ended | ||||||||
March 31, | ||||||||
(Amounts in millions) | 2021 | 2020 | ||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 187 | $ | (66 | ) | |||
Add: net income from continuing operations attributable to noncontrolling interests | 0 | 0 | ||||||
Add: net income (loss) from discontinued operations attributable to noncontrolling interests | 8 | (6 | ) | |||||
Net income (loss) | 195 | (72 | ) | |||||
Less: income (loss) from discontinued operations, net of taxes | 21 | (12 | ) | |||||
Income (loss) from continuing operations | 174 | (60 | ) | |||||
Less: net income from continuing operations attributable to noncontrolling interests | 0 | 0 | ||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders | 174 | (60 | ) | |||||
Adjustments to income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders: | ||||||||
Net investment (gains) losses, net (1) | (33 | ) | 88 | |||||
Losses on early extinguishment of debt | 4 | 12 | ||||||
Expenses related to restructuring | 21 | 1 | ||||||
Taxes on adjustments | 2 | (21 | ) | |||||
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders | $ | 168 | $ | 20 | ||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 418 | $ | 18 | $ | (89 | ) | $ | 360 | |||||||
Add: net income from continuing operations attributable to noncontrolling interests | 18 | 10 | 35 | 45 | ||||||||||||
Add: net income from discontinued operations attributable to noncontrolling interests | 0 | 30 | 0 | 101 | ||||||||||||
Net income (loss) | 436 | 58 | (54 | ) | 506 | |||||||||||
Less: income (loss) from discontinued operations, net of taxes | 1 | (80 | ) | (519 | ) | 42 | ||||||||||
Income from continuing operations | 435 | 138 | 465 | 464 | ||||||||||||
Less: net income from continuing operations attributable to noncontrolling interests | 18 | 10 | 35 | 45 | ||||||||||||
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders | 417 | 128 | 430 | 419 | ||||||||||||
Adjustments to income from continuing operations available to Genworth Financial, Inc.’s common stockholders: | ||||||||||||||||
Net investment (gains) losses, net (1) | (362 | ) | (5 | ) | (378 | ) | (33 | ) | ||||||||
Goodwill impairment, net (2) | 0 | 0 | 3 | 0 | ||||||||||||
(Gains) losses on early extinguishment of debt | 0 | 0 | 9 | 0 | ||||||||||||
Expenses related to restructuring | 0 | 0 | 2 | 4 | ||||||||||||
Taxes on adjustments | 77 | 0 | 78 | 6 | ||||||||||||
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders | $ | 132 | $ | 123 | $ | 144 | $ | 396 | ||||||||
(1) | For the three months ended |
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders: | ||||||||||||||||
U.S. Mortgage Insurance segment | $ | 141 | $ | 137 | $ | 286 | $ | 408 | ||||||||
Australia Mortgage Insurance segment | 7 | 12 | 17 | 39 | ||||||||||||
U.S. Life Insurance segment: | ||||||||||||||||
Long-term care insurance | 59 | 21 | 108 | 38 | ||||||||||||
Life insurance | (69 | ) | (25 | ) | (227 | ) | (17 | ) | ||||||||
Fixed annuities | 24 | 3 | 58 | 39 | ||||||||||||
U.S. Life Insurance segment | 14 | (1 | ) | (61 | ) | 60 | ||||||||||
Runoff segment | 19 | 10 | 30 | 39 | ||||||||||||
Corporate and Other activities | (49 | ) | (35 | ) | (128 | ) | (150 | ) | ||||||||
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders | $ | 132 | $ | 123 | $ | 144 | $ | 396 | ||||||||
Three months ended | ||||||||
March 31, | ||||||||
(Amounts in millions) | 2021 | 2020 | ||||||
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders: | ||||||||
U.S. Mortgage Insurance segment | $ | 126 | $ | 148 | ||||
U.S. Life Insurance segment: | ||||||||
Long-term care insurance | 95 | 1 | ||||||
Life insurance | (63 | ) | (77 | ) | ||||
Fixed annuities | 30 | 6 | ||||||
U.S. Life Insurance segment | 62 | (70 | ) | |||||
Runoff segment | 12 | (13 | ) | |||||
Corporate and Other activities | (32 | ) | (45 | ) | ||||
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders | $ | 168 | $ | 20 | ||||
The following is a summary of total assets for our segments and Corporate and Other activities as of the dates indicated:
March 31, | December 31, | |||||||||||||||
(Amounts in millions) | September 30, 2020 | December 31, 2019 | 2021 | 2020 | ||||||||||||
Assets: | ||||||||||||||||
U.S. Mortgage Insurance segment | $ | 5,494 | $ | 4,504 | $ | 5,683 | $ | 5,627 | ||||||||
Australia Mortgage Insurance segment | 2,601 | 2,406 | ||||||||||||||
U.S. Life Insurance segment | 84,208 | 81,640 | 80,352 | 84,671 | ||||||||||||
Runoff segment | 9,901 | 9,953 | 9,521 | 9,735 | ||||||||||||
Corporate and Other activities | 2,721 | 2,839 | 3,002 | 2,897 | ||||||||||||
Segment assets from continuing operations | 98,558 | 102,930 | ||||||||||||||
Assets related to discontinued operations | 0 | 2,817 | ||||||||||||||
Total assets | $ | 104,925 | $ | 101,342 | $ | 98,558 | $ | 105,747 | ||||||||
(a) Litigation and Regulatory Matters
We face the risk of litigation and regulatory investigations and actions in the ordinary course of operating our businesses, including the risk of class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and others generally applicable to business practices in the industries in which we operate. In our insurance operations, we are, have been, or may become subject to class actions and individual suits alleging, among other things, issues relating to sales or underwriting practices, increases tobusinesses,business, such as captive reinsurance arrangements with lenders and contract underwriting services, violations of the Real Estate Settlement and Procedures Act of 1974 or related state anti-inducement
in-force
long-term
care insurance premiums, payment of contingent or other sales commissions, claims payments and procedures, product design, product disclosure, product administration, additional premium charges for premiums paid on a periodic basis, denial or delay of benefits, charging excessive or impermissible fees on products, recommending unsuitable products to customers, our pricing structures and business practices in our mortgage insurance laws, and mortgage insurance policy rescissions and curtailments, and breaching fiduciary or other duties to
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
customers, including but not limited to breach of customer information. Plaintiffs in class action and other lawsuits against us may seek very large or indeterminate amounts which may remain unknown for substantial periods of time. In our investment-related operations, we are subject to litigation involving commercial disputes with counterparties. We are also subject to litigation arising out of our general business activities such as our contractual and employment relationships, post-closing obligations associated with previous dispositions and securities lawsuits. In addition, we are also subject to various regulatory inquiries, such as information requests, subpoenas, books and record examinations and market conduct and financial examinations from state, federal and international regulators and other authorities. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and results of operations. Moreover, even if we ultimately prevail in the litigation, regulatory action or investigation, we could suffer significant reputational harm, which could have an adverse effect on our business, financial condition or results of operations.
In January 2016, Genworth Financial, its current chief executive officer, its former chief executive officer, its then former chief financial officer and current and former members of its board of directors were named in a shareholder derivative suit filed by International Union of Operating Engineers Local No. 478 Pension Fund, Richard L. Salberg and David Pinkoski in the Court of Chancery of the State of Delaware. The case was captioned. In February 2016, Genworth Financial, its current chief executive officer, its former chief executive officer, its then former chief financial officer and current and former members of its board of directors were named in a second shareholder derivative suit filed by Martin Cohen in the Court of Chancery of the State of Delaware. The case was captioned. On February 23, 2016, the Court of Chancery of the State of Delaware consolidated these derivative suits under the caption. On March 28, 2016, plaintiffs in the consolidated action filed an amended complaint. The amended complaint alleges breaches of fiduciary duties concerning Genworth’s long-term care insurance reserves and concerning Genworth’s former Australian mortgage insurance business, including our plans for an IPO of the business and seeks unspecified damages, costs, attorneys’ fees and such equitable relief as the Court may deem proper. The amended consolidated complaint also added Genworth’s then current chief financial officer as a defendant, based on alleged conduct in her former capacity as Genworth’s controller and principal accounting officer. We moved to dismiss the consolidated action on May 27, 2016. Thereafter, plaintiffs filed a substantially similar second amended complaint which we moved to dismiss on September 16, 2016. The motion is fully briefed and awaiting disposition by the Court. The action iswas stayed pending the completionoutcome of the proposed China Oceanwide transaction. On January 14, 2021, the parties submitted a joint letter to the Court requesting that the action remain stayed until April 15, 2021, or until the closing or termination of the merger in the event the merger closed or was terminated prior to April 15, 2021. On April 6, 2021, Genworth Financial terminated the proposed China Oceanwide transaction, thereby lifting the stay. We intend to vigorously defend this action.
Int’l Union of Operating Engineers Local No.
478 Pension Fund, et al v. McInerney, et al.al
Cohen v. McInerney, et al
Genworth Financial, Inc. Consolidated Derivative
Litigation
In October 2016, Genworth Financial, its current chief chie. The complaint alleges that Genworth’s board of directors wrongfully refused plaintiff’s demand to commence litigation on behalf of Genworth and asserts claims for breaches of fiduciary duties, waste, contribution and indemnification, and unjust enrichment concerning Genworth’s long-term care insurance reserves and concerning Genworth’s former Australian mortgage insurance business, including our plans for an IPO of the business, and seeks unspecified damages, costs, attorneys’ fees and such equitable relief as the Court may deem proper. We filed a motion to dismiss on November 14, 2016. The action iswas stayed pending the completionoutcome of the proposed China Oceanwide transaction.
f
executive officer, its former chief executive officer, its then current chief financial officer, its then former chief financial officer and current and former members of its board of directors were named in a shareholder derivative suit filed by Esther Chopp in the Court of Chancery of the State of Delaware. The case is captionedChopp v. McInerney, et al.al
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
transaction. On January 14, 2021, the parties submitted a joint letter to the Court requesting that the action remain stayed until April 15, 2021, or until the closing or termination of the merger in the event the merger closed or was terminated prior to April 15, 2021. On April 6, 2021, Genworth Financial terminated the proposed China Oceanwide transaction, thereby lifting the stay. We intend to vigorously defend this action.
In September 2018, Genworth Life and Annuity Insurance Company (“GLAIC”), our indirect wholly-owned subsidiary, was named as a defendant in a putative class action lawsuit pending in the United States District Court for the Eastern District of Virginia captioned. Plaintiff alleges unlawful and excessive cost of insurance charges were imposed on policyholders. The complaint asserts claims for breach of contract, alleging that Genworth improperly considered
TVPX ARX INC., as Securities Intermediary for Consolidated Wealth Management, LTD. on behalf of itself and all others similarly situated v. Genworth Life and Annuity Insurance Company
non-mortality
factors when calculating cost of insurance rates and failed to decrease cost of insurance charges in light of improved expectations of future mortality, and seeks unspecified compensatory damages, costs, and equitable relief. On October 29, 2018, we filed a motion to enjoin the case in the Middle District of Georgia, and a motion to dismiss and motion to stay in the Eastern District of Virginia. We moved to enjoin the prosecution of the Eastern District of Virginia action on the basis that it involves claims released in a prior nationwide class action settlement (the “McBride settlement”) that was approved by the Middle District of Georgia. Plaintiff filed an amended complaint on November 13, 2018. On December 6, 2018, we moved the Middle District of Georgia for leave to file our counterclaim, which alleges that plaintiff breached the covenant not to sue contained in the prior settlement agreement by filing its current action. On March 15, 2019, the Middle District of Georgia granted our motion to enjoin and denied our motion for leave to file our counterclaim. As such, plaintiff is enjoined from pursuing its class action in the Eastern District of Virginia. On March 29, 2019, plaintiff filed a notice of appeal in the Middle District of Georgia, notifying the Court of its appeal to the United States Court of Appeals for the Eleventh Circuit from the order granting our motion to enjoin. On March 29, 2019, we filed our notice of cross-appeal in the Middle District of Georgia, notifying the Court of our cross-appeal to the Eleventh Circuit from the portion of the order denying our motion for leave to file our counterclaim. On April 8, 2019, the Eastern District of Virginia dismissed the case without prejudice, with leave for plaintiff to refile an amended complaint only if a final appellate Court decision vacates the injunction and reverses the Middle District of Georgia’s opinion. On May 21, 2019, plaintiff filed its appeal and memorandum in support in the Eleventh Circuit. We filed our response to plaintiff’s appeal memorandum on July 3, 2019. The Eleventh Circuit Court of Appeals heard oral argument on plaintiff’s appeal and our cross-appeal on April 21, 2020. On May 26, 2020, the Eleventh Circuit Court of Appeals vacated the Middle District of Georgia’s order enjoining Plaintiff’s class action and remanded the case back to the Middle District of Georgia for further factual development as towhether Genworth has altered how it calculates or charges cost of insurance since the McBride settlement. The Eleventh Circuit Court of Appeals did not reach a decision on Genworth’s counterclaim. We intend to continue to vigorously defend the dismissal of this action.
In September 2018, Genworth Financial, Genworth Holdings, Genworth North America Corporation, GFIHGenworth Financial International Holdings, LLC (“GFIH”) and Genworth Life Insurance Company (“GLIC”) were named as defendants in a putative class action lawsuit pending in the Court of Chancery of the State of Delaware captioned. Plaintiffs allege that GLIC paid dividends to its parent and engaged in certain reinsurance transactions causing it to maintain inadequate capital capable of meeting its obligations to GLIC policyholders and agents. The complaint alleges causes of action for intentional fraudulent transfer and constructive fraudulent transfer, and seeks injunctive relief. We moved to dismiss this action in December 2018. On January 29, 2019, plaintiffs exercised their right to amend their complaint. On March 12, 2019, we moved to dismiss plaintiffs’ amended complaint. On April 26, 2019,
Richard F. Burkhart, William E. Kelly, Richard S. Lavery, Thomas R. Pratt, Gerald Green, individually and on behalf of all other persons similarly situated v. Genworth et al
57
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
plaintiffs filed a memorandum in opposition to our motion to dismiss, which we replied to on June 14, 2019. On August 7, 2019, plaintiffs filed a motion seeking to prevent proceeds that GFIH expected to receive from the then planned sale of its shares in Genworth MI Canada Inc. (“Genworth Canada”) from being transferred out of GFIH. On September 11, 2019, plaintiffs filed a renewed motion seeking the same relief from their August 7, 2019 motion with an exception that allowed GFIH to transfer $450 million of expected proceeds from the sale of Genworth Canada through a dividend to Genworth Holdings to allow the
pay-off
of a senior secured term loan facility (“Term Loan”) dated March 7, 2018 among Genworth Holdings as the borrower, GFIH as the limited guarantor and the lending parties thereto. Oral arguments on our motion to dismiss and plaintiffs’ motion occurred on October 21, 2019, and plaintiffs’ motion was denied. On January 31, 2020, the Court granted in part our motion to dismiss, dismissing claims relating to $395 million in dividends GLIC paid to its parent from 2012 to 2014 (out of the $410 million in total dividends subject to plaintiffs’ claims). The Court denied the balance of the motion to dismiss leaving a claim relating to $15 million in dividends and unquantified claims relating to the 2016 termination of a reinsurance transaction. On March 27, 2020, we filed our answer to plaintiffs’ amended complaint. We intend to continue to vigorously defend this action.On April 6, 2020, GLAIC, our indirect wholly-owned subsidiary, was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Eastern District of Virginia, captionedcaptioned Brighton Trustees, LLC, on behalf of and as trustee for Diamond LS Trust; and Bank of Utah, solely as securities intermediary for Diamond LS Trust; on behalf of themselves and all others similarly situated v. Genworth Life and Annuity Insurance Company.Company. On May 13, 2020, GLAIC was also named as a defendant in a putative class action lawsuit filed in the United States District Court for the Eastern District of Virginia, captioned. On June 26, 2020, plaintiffs filed a consent motion to consolidate the two cases. On June 30, 2020, the United States District Court for the Eastern District of Virginia issued an order consolidating the Brighton Trustees and Daubenmier cases. On July 17, 2020, the Brighton Trustees and Daubenmier plaintiffs filed a consolidated complaint, alleging that GLAIC subjected policyholders to an unlawful and excessive cost of insurance increase. The consolidated complaint asserts claims for breach of contract and injunctive relief, and seeks damages in excess of $5 million. On August 31, 2020, we filed an answer to plaintiffs’ consolidated complaint. The trial is scheduled to commence on April 1, 2022. We intend to continue to vigorously defend this action.
Ronald L. Daubenmier, individually and on behalf of himself and all others similarly situated v. Genworth Life and Annuity Insurance Company
In January 2021, GLIC and Genworth Life Insurance Company of New York were named as defendants in a putative class action lawsuit pending in the United States District Court for the Eastern District of Virginia captioned. Plaintiffs seek to represent long-term care insurance policyholders, alleging that the defendants made misleading and inadequate disclosures regarding premium increases for long-term care insurance policies. The complaint asserts claims for breach of contract, conversion, and declaratory and injunctive relief, and seeks damages in excess of $5
Judy Halcom, Hugh Penson, Harold Cherry, and Richard Landino, individually, and on behalf of all others similarly situated v. Genworth Life Insurance Company and Genworth Life Insurance Company of New York
million. The trial is scheduled to commence on June 1, 2022. We intend to vigorously defend this action.
In January 2021, GLAIC, our indirect wholly-owned subsidiary, was named as a defendant in a putative class action lawsuit pending in the United States District Court for the District of Oregon captioned. Plaintiff seeks to represent life insurance policyholders, alleging that GLAIC impermissibly calculated cost of insurance rates to be higher than that permitted by her policy. The complaint asserts claims for breach of
Patsy H.
McMillan, Individually and On Behalf Of All Others Similarly Situated, v. Genworth Life and Annuity Insurance Company
58
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
contract, conversion, and declaratory and injunctive relief, and seeks damages in excess of $5 million. On April 5, 2021, we filed an answer to the plaintiff’s complaint. We intend to continue to vigorously defend this action.
At this time we cannot determine or predict the ultimate outcome of any of the pending legal and regulatory matters specifically identified above or the likelihood of potential future legal and regulatory matters against us. Except as disclosed above, we are not able to provide an estimate or range of reasonably possible losses related to these matters. Therefore, we cannot ensure that the current investigations and proceedings will not have a material adverse effect on our business, financial condition or results of operations. In addition, it is possible that related investigations and proceedings may be commenced in the future, and we could become subject to additional unrelated investigations and lawsuits. Increased regulatory scrutiny and any resulting investigations or proceedings could result in new legal precedents and industry-wide regulations or practices that could adversely affect our business, financial condition and results of operations.
(b) Commitments
As of September 30, 2020,March 31, 2021, we were committed to fund $1,112$1,192 million in limited partnership investments, $11$63 million in U.S. commercial mortgage loan investments and $115$65 million in private placement investments. As of September 30, 2020,March 31, 2021, we were also committed to fund $35$27 million of bank loan investments which had not yet been drawn. Amounts disclosed are net of an allowance for credit losses, see note 2 for additional information related to credit losses on off-balance sheet credit exposures.
The following tables show the changes in accumulated other comprehensive income (loss), net of taxes, by component as of and for the periods indicated:
Net | Foreign | |||||||||||||||
unrealized | currency | |||||||||||||||
investment | Derivatives | translation | ||||||||||||||
gains | qualifying as | and other | ||||||||||||||
(Amounts in millions) | (losses) (1) | hedges (2) | adjustments | Total | ||||||||||||
Balances as of January 1, 2021 | $ | 2,214 | $ | 2,211 | $ | 0 | $ | 4,425 | ||||||||
OCI before reclassifications | (316 | ) | (385 | ) | 136 | (565 | ) | |||||||||
Amounts reclassified from (to) OCI | (4 | ) | (34 | ) | 0 | (38 | ) | |||||||||
Current period OCI | (320 | ) | (419 | ) | 136 | (603 | ) | |||||||||
Balances as of March 31, 2021 before noncontrolling interests | 1,894 | 1,792 | 136 | 3,822 | ||||||||||||
Less: change in OCI attributable to noncontrolling interests | (25 | ) | 0 | 172 | 147 | |||||||||||
Balances as of March 31, 2021 | $ | 1,919 | $ | 1,792 | $ | (36 | ) | $ | 3,675 | |||||||
(Amounts in millions) | Net unrealized investment gains (losses) (1) | Derivatives qualifying as hedges (2) | Foreign currency translation and other adjustments | Total | ||||||||||||
Balances as of July 1, 2020 | $ | 1,811 | $ | 2,677 | $ | (41 | ) | $ | 4,447 | |||||||
OCI before reclassifications | 161 | (191 | ) | 33 | 3 | |||||||||||
Amounts reclassified from (to) OCI | (261 | ) | (35 | ) | 0 | (296 | ) | |||||||||
Current period OCI | (100 | ) | (226 | ) | 33 | (293 | ) | |||||||||
Balances as of September 30, 2020 before noncontrolling interests | 1,711 | 2,451 | (8 | ) | 4,154 | |||||||||||
Less: change in OCI attributable to noncontrolling interests | 0 | 0 | 13 | 13 | ||||||||||||
Balances as of September 30, 2020 | $ | 1,711 | $ | 2,451 | $ | (21 | ) | $ | 4,141 | |||||||
(1) | Net of adjustments to DAC, present value of future profits, sales inducements and benefit reserves. See note 4 for additional information. |
(2) | See note 5 for additional information. |
59
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in millions) | Net unrealized investment gains (losses) (1) | Derivatives qualifying as hedges (2) | Foreign currency translation and other adjustments | Total | ||||||||||||
Balances as of July 1, 2019 | $ | 1,305 | $ | 1,983 | $ | (275 | ) | $ | 3,013 | |||||||
OCI before reclassifications | 384 | 306 | (64 | ) | 626 | |||||||||||
Amounts reclassified from (to) OCI | (13 | ) | (30 | ) | 0 | (43 | ) | |||||||||
Current period OCI | 371 | 276 | (64 | ) | 583 | |||||||||||
Balances as of September 30, 2019 before noncontrolling interests | 1,676 | 2,259 | (339 | ) | 3,596 | |||||||||||
Less: change in OCI attributable to noncontrolling interests | 1 | 0 | (27 | ) | (26 | ) | ||||||||||
Balances as of September 30, 2019 | $ | 1,675 | $ | 2,259 | $ | (312 | ) | $ | 3,622 | |||||||
Net | Foreign | |||||||||||||||
unrealized | currency | |||||||||||||||
investment | Derivatives | translation | ||||||||||||||
gains | qualifying as | and other | ||||||||||||||
(Amounts in millions) | (losses) (1) | hedges (2) | adjustments | Total | ||||||||||||
Balances as of January 1, 2020 | $ | 1,456 | $ | 2,002 | $ | (25 | ) | $ | 3,433 | |||||||
OCI before reclassifications | (314 | ) | 783 | (98 | ) | 371 | ||||||||||
Amounts reclassified from (to) OCI | (6 | ) | (30 | ) | 0 | (36 | ) | |||||||||
Current period OCI | (320 | ) | 753 | (98 | ) | 335 | ||||||||||
Balances as of March 31, 2020 before noncontrolling interests | 1,136 | 2,755 | (123 | ) | 3,768 | |||||||||||
Less: change in OCI attributable to noncontrolling interests | (4 | ) | 0 | (43 | ) | (47 | ) | |||||||||
Balances as of March 31, 2020 | $ | 1,140 | $ | 2,755 | $ | (80 | ) | $ | 3,815 | |||||||
(1) | Net of adjustments to DAC, present value of future profits, sales inducements and benefit reserves. See note 4 for additional information. |
(2) | See note 5 for additional information. |
(Amounts in millions) | Net unrealized investment gains (losses) (1) | Derivatives qualifying as hedges (2) | Foreign currency translation and other adjustments | Total | ||||||||||||
Balances as of January 1, 2020 | $ | 1,456 | $ | 2,002 | $ | (25 | ) | $ | 3,433 | |||||||
OCI before reclassifications | 609 | 544 | 8 | 1,161 | ||||||||||||
Amounts reclassified from (to) OCI | (355 | ) | (95 | ) | 0 | (450 | ) | |||||||||
Current period OCI | 254 | 449 | 8 | 711 | ||||||||||||
Balances as of September 30, 2020 before noncontrolling interests | 1,710 | 2,451 | (17 | ) | 4,144 | |||||||||||
Less: change in OCI attributable to noncontrolling interests | (1 | ) | 0 | 4 | 3 | |||||||||||
Balances as of September 30, 2020 | $ | 1,711 | $ | 2,451 | $ | (21 | ) | $ | 4,141 | |||||||
(Amounts in millions) | Net unrealized investment gains (losses) (1) | Derivatives qualifying as hedges (2) | Foreign currency translation and other adjustments | Total | ||||||||||||
Balances as of January 1, 2019 | $ | 595 | $ | 1,781 | $ | (332 | ) | $ | 2,044 | |||||||
OCI before reclassifications | 1,186 | 560 | 33 | 1,779 | ||||||||||||
Amounts reclassified from (to) OCI | (59 | ) | (82 | ) | 0 | (141 | ) | |||||||||
Current period OCI | 1,127 | 478 | 33 | 1,638 | ||||||||||||
Balances as of September 30, 2019 before noncontrolling interests | 1,722 | 2,259 | (299 | ) | 3,682 | |||||||||||
Less: change in OCI attributable to noncontrolling interests | 47 | 0 | 13 | 60 | ||||||||||||
Balances as of September 30, 2019 | $ | 1,675 | $ | 2,259 | $ | (312 | ) | $ | 3,622 | |||||||
The foreign currency translation and other adjustments balance in the charts above included $(2)$(15) million, net of taxes of $1$4 million, related to a net unrecognized postretirement benefit obligation as of September 30, 2019.March 31, 2021. The balance also included taxes of $22$(1) million and $(44)$23 million, respectively, related to foreign currency translation adjustments as of September 30, 2020March 31, 2021 and 2019.2020.
The following table shows reclassifications in (out) of accumulated other comprehensive income (loss), net of taxes, for the periods presented:
Amount reclassified from accumulated other comprehensive income | Affected line item in the consolidated statements of income | |||||||||
Three months ended March 31, | ||||||||||
(Amounts in millions) | 2021 | 2020 | ||||||||
Net unrealized investment (gains) losses: | ||||||||||
Unrealized (gains) losses on investments (1) | $ | (5 | ) | $ | (7 | ) | Net investment (gains) losses | |||
Income taxes | 1 | 1 | Provision for income taxes | |||||||
Total | $ | (4 | ) | $ | (6 | ) | ||||
Derivatives qualifying as hedges: | ||||||||||
Interest rate swaps hedging assets | $ | (52 | ) | $ | (43 | ) | Net investment income | |||
Interest rate swaps hedging assets | 0 | (4 | ) | Net investment (gains) losses | ||||||
Income taxes | 18 | 17 | Provision for income taxes | |||||||
Total | $ | (34 | ) | $ | (30 | ) | ||||
Amount reclassified from accumulated other comprehensive income (loss) | Affected line item in the consolidated statements of income | |||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
Net unrealized investment (gains) losses: | ||||||||||||||||||
Unrealized (gains) losses on investments (1) | $ | (331 | ) | $ | (17 | ) | $ | (450 | ) | $ | (75 | ) | Net investment (gains) losses | |||||
Income taxes | 70 | 4 | 95 | 16 | Provision for income taxes | |||||||||||||
Total | $ | (261 | ) | $ | (13 | ) | $ | (355 | ) | $ | (59 | ) | ||||||
Derivatives qualifying as hedges: | ||||||||||||||||||
Interest rate swaps hedging assets | $ | (50 | ) | $ | (41 | ) | $ | (139 | ) | $ | (121 | ) | Net investment income | |||||
Interest rate swaps hedging assets | (4 | ) | (4 | ) | (8 | ) | (6 | ) | Net investment (gains) losses | |||||||||
Foreign currency swaps | 0 | (1 | ) | 0 | 0 | Net investment income | ||||||||||||
Income taxes | 19 | 16 | 52 | 45 | Provision for income taxes | |||||||||||||
Total | $ | (35 | ) | $ | (30 | ) | $ | (95 | ) | $ | (82 | ) | ||||||
(1) | Amounts exclude adjustments to DAC, present value of future profits, sales inducements and benefit reserves. |
(13) Noncontrolling Interests
Prior to the sale of Genworth Australia on March 3, 2021, we held approximately 52% of its common shares on a consolidated basis through subsidiaries and accounted for the portion attributable to noncontrolling interests
60
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
as a component of total equity. Upon sale closing, we deconsolidated Genworth Australia, which included the
de-
recognition
of the carrying value of ownership interest attributable to noncontrolling interests of $500 million from total equity in our consolidated balance sheet as of March 31, 2021.(14) Discontinued Operations
As discussed in note 1, on March 3, 2021, we completed the sale of Genworth Australia through an underwritten agreement and received approximately AUD483 million ($370 million) in net cash proceeds. In the first quarter of 2021, we recognized an
after-tax
loss on sale of $3 million. The following table provides a summary of the loss on sale for the three months ended March 31, 2021 recorded in connection with the disposition of Genworth Australia:(Amounts in millions) | ||||
Net cash proceeds | $ | 370 | ||
Add: carrying value of noncontrolling interests (1) | 657 | |||
Total adjusted consideration (2) | 1,027 | |||
Carrying value of the disposal group before accumulated other comprehensive (income) loss | 1,040 | |||
Add: total accumulated other comprehensive (income) loss of disposal group (3) | 109 | |||
Total adjusted carrying value of the disposal group | 1,149 | |||
Pre-tax loss on sale | (122 | ) | ||
Tax benefit on sale | 119 | |||
After-tax loss on sale | $ | (3 | ) | |
| (1) | In accordance with accounting guidance on the deconsolidation of a subsidiary or group of assets, the carrying amount of any noncontrolling interests in the subsidiary sold (adjusted to reflect amounts in accumulated other comprehensive income (loss) recognized upon final disposition) is added to the total fair value of the consideration received. |
| (2) | Represents the aggregate of the net cash proceeds received upon sale closing plus the adjusted carrying amount of noncontrolling interests in the subsidiary sold. |
| (3) | Consists primarily of $160 million of cumulative losses on foreign currency translation adjustments, partially offset by cumulative unrealized investment gains of $29 million and deferred tax gains of $22 million. |
In addition, we recorded an
after-tax
favorable adjustment of $11 million in the first quarter of 2021 associated with a refinement to our tax matters agreement liability.61
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The assets and liabilities related to Genworth Australia were segregated in our condensed consolidated balance sheet until deconsolidation. The major asset and liability categories of Genworth Australia were as follows for the periods indicated:
(Amounts in millions) | March 31, 2021 | December 31, 2020 | ||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturity securities available-for-sale, | $ | 0 | $ | 2,295 | ||||
Equity securities, at fair value | 0 | 90 | ||||||
Other invested assets | 0 | 154 | ||||||
Total investments | 0 | 2,539 | ||||||
Cash, cash equivalents and restricted cash | 0 | 95 | ||||||
Accrued investment income | 0 | 16 | ||||||
Deferred acquisition costs | 0 | 42 | ||||||
Intangible assets | 0 | 43 | ||||||
Other assets | 0 | 40 | ||||||
Deferred tax asset | 0 | 42 | ||||||
Assets related to discontinued operations | $ | 0 | $ | 2,817 | ||||
Liabilities | ||||||||
Liability for policy and contract claims | $ | 0 | $ | 331 | ||||
Unearned premiums | 0 | 1,193 | ||||||
Other liabilities | 0 | 104 | ||||||
Long-term borrowings | 0 | 145 | ||||||
Liabilities related to discontinued operations | $ | 0 | $ | 1,773 | ||||
Deferred tax assets and liabilities that result in future taxable or deductible amounts to the remaining consolidated group have been reflected in assets or liabilities of continuing operations and not reflected in assets or liabilities related to discontinued operations.
62
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A summary of operating results related to Genworth Australia reported as discontinued operations was as follows for the periods indicated:
Three months ended | ||||||||
March 31, | ||||||||
(Amounts in millions) | 2021 | 2020 | ||||||
Revenues: | ||||||||
Premiums | $ | 51 | $ | 69 | ||||
Net investment income | 4 | 11 | ||||||
Net investment gains (losses) | (5 | ) | (53 | ) | ||||
Policy fees and other income | 0 | 1 | ||||||
Total revenues | 50 | 28 | ||||||
Benefits and expenses: | ||||||||
Benefits and other changes in policy reserves | 11 | 24 | ||||||
Acquisition and operating expenses, net of deferrals | 7 | 12 | ||||||
Amortization of deferred acquisition costs and intangibles | 6 | 8 | ||||||
Interest expense | 1 | 1 | ||||||
Total benefits and expenses | 25 | 45 | ||||||
Income (loss) before income taxes and loss on sale (1) | 25 | (17 | ) | |||||
Provision (benefit) for income taxes | 7 | (5 | ) | |||||
Income (loss) before loss on sale | 18 | (12 | ) | |||||
Loss on sale, net of taxes | (3 | ) | 0 | |||||
Income (loss) from discontinued operations, net of taxes | 15 | (12 | ) | |||||
Less: net income (loss) from discontinued operations attributable to noncontrolling interests | 8 | (6 | ) | |||||
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders | $ | 7 | $ | (6 | ) | |||
| (1) | The three months ended March 31, 2021 and 2020, include pre-tax income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders of $13 million and $(9) million, respectively. |
Lifestyle protection insurance
On December 1, 2015, we completed the sale of our lifestyle protection insurance business to AXA. In 2017, AXA sued us for damages on an indemnity in the 2015 agreement related to alleged remediation it paid to customers who purchased PPI.payment protection insurance (“PPI”). On July 20, 2020, we reached a settlement agreement with AXA forrelated to losses incurred from2004 and paid an initial amount of £100 million ($125 million) to AXA. An after-tax loss of $21 million and $537 million related to the settlement is included in income (loss) from discontinued operations for the three and nine months ended September 30, 2020, respectively. We also recorded other after-tax legal fees and expenses of $1 million and $5 million for the three and nine months ended September 30, 2020, respectively. See note 12 foradditional details related to the case regarding the sale of our lifestyle protection insurance business.
mis-selling
complaints on policies sold from 1970 through 2004. As part of the settlement agreement, we agreed to make payments for certain PPIin in June 2022 and September 2022. Future claims that are still being processed will be added to the September 2022 installment payment.
mis-selling
claims, along with a significant portion of future claims that are still being processed. Under the settlement agreement, we issued a secured promissory note to AXA, in which we agreed to make deferred cash payments in two installmentsGENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the amounts owed to AXA under the settlement agreement, which are reflected as liabilities related to discontinued operations in our unaudited condensed consolidated balance sheet forsheets as of the periodperiods presented:
(Amounts in millions) | September 30, 2020 | British Pounds | U.S. Dollar | |||||||||||||||||||||
British Pounds | U.S. Dollar | |||||||||||||||||||||||
March 31, | December 31, | March 31, | December 31, | |||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||
Installment payments due to AXA: | ||||||||||||||||||||||||
June 2022 | £ | 159 | $ | 206 | ||||||||||||||||||||
June 2022: | ||||||||||||||||||||||||
Beginning balance | £ | 159 | £ | 159 | $ | 217 | $ | 217 | ||||||||||||||||
Prepayments (1) | (159 | ) | 0 | (217 | ) | 0 | ||||||||||||||||||
Ending balance | 0 | 159 | 0 | 217 | ||||||||||||||||||||
September 2022: | ||||||||||||||||||||||||
Beginning balance | 158 | 205 | 187 | 158 | 256 | 217 | ||||||||||||||||||
Prepayments (1) | (17 | ) | 0 | (28 | ) | 0 | ||||||||||||||||||
Amounts billed as future losses | 29 | 38 | 35 | 29 | 47 | 39 | ||||||||||||||||||
Foreign exchange and other | 0 | 0 | 8 | 0 | ||||||||||||||||||||
Ending balance | 187 | 243 | 205 | 187 | 283 | 256 | ||||||||||||||||||
Total amounts due under the promissory note | 346 | 449 | 205 | 346 | 283 | 473 | ||||||||||||||||||
Future claims: | ||||||||||||||||||||||||
Estimated beginning balance | 107 | 138 | 79 | 107 | 108 | 146 | ||||||||||||||||||
Less: Amounts billed to date | (29 | ) | (38 | ) | ||||||||||||||||||||
Change in estimated future claims | 0 | 1 | 0 | 1 | ||||||||||||||||||||
Less: Amounts billed | (35 | ) | (29 | ) | (47 | ) | (39 | ) | ||||||||||||||||
Foreign exchange and other | 0 | 0 | (1 | ) | 0 | |||||||||||||||||||
Estimated future billings | 78 | 100 | 44 | 79 | 60 | 108 | ||||||||||||||||||
Total amounts due to AXA under the settlement agreement | £ | 424 | $ | 549 | ||||||||||||||||||||
Total amounts due to AXA under the settlement agreement (2) | £ | 249 | £ | 425 | $ | 343 | $ | 581 | ||||||||||||||||
| (1) | On March 3, 2021, we completed the sale of Genworth Australia and received net proceeds of approximately AUD483 million ($370 million). The sale of Genworth Australia resulted in a mandatory principal payment of approximately £176 million ($245 million) related to our outstanding secured promissory note issued to AXA, dated as of July 20, 2020, as amended by the parties in connection with the Genworth Australia sale. |
| (2) | Amounts exclude accrued interest on the promissory note and certain other expenses. As of March 31, 2021, due principally to the mandatory payment made in connection with the Genworth Australia sale, including approximately $2 million of accrued interest, we reduced the amount of accrued interest payable on the promissory note resulting in a reduction in the total amount owed to AXA of approximately $4 million. |
Anoperations.operations for the three months ended March 31, 2021 and 2020, respectively. Thewill accrue interest now accrues at a fixed rate of 5.25%2.75% and is due quarterly, with a potential for an interest rate decrease to 2.75% following certain prepayment trigger events. Income (loss) from discontinued operations for the three and nine months ended September 30, 2020 includes after-tax interest expensequarterly.
after-tax
loss of $1 million and $— related to the settlement is included in income (loss) from discontinued after-tax
loss for the three months ended March 31, 2021 is comprised of foreign currency remeasurement losses, mostly offset by derivative hedge gains associated with foreign currency forward contracts entered into to mitigate our exposure to the installment payments made in British Pounds and a reduction in interest expense. In connection with our prepayment of the promissory note, 64
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
To secure our obligation under the amended promissory note, we granted a 19.9% security interest in the outstanding common stock of GMHI and Genworth Mortgage Insurance Australia Limited to AXA. AXA does not have the right to sell or repledge the collateral and is not entitled to any voting rights. The collateral will be released back to us upon full repayment of the promissory note. Accordingly, the collateral arrangement has no impact on our unaudited condensed consolidated financial statements. In the event AXA recovers amounts from third parties related to theSeptember 30, 2020,March 31, 2021, we have not recorded any amounts associated with recoveries from third parties.
mis-selling
losses, including from the distributor responsible for the sale of the policies, we have certain rights to share in those recoveries to recoup payments for the underlyingmis-selling
losses. As of The promissory note is also subject to certain mandatory prepayments upon the occurrence of:
the consummation of certain qualifying debt transactions in which total gross proceeds of at least $750 million are raised; |
transactions involving a change of control of Genworth; and
receipt of dividends and sale proceeds from GMHI above certain threshold amounts.
The promissory note also contains certain negative and affirmative covenants, restrictions imposed on the collateral, representations and warranties and customary events of default.
In addition to the promissory note, we also have an unrelated liability that is owed to AXA associated with underwriting losses on a product sold by a distributor in our former lifestyle protection insurance business. TheAs of March 31, 2021 and December 31, 2020, the balance of the liability as of September 30, 2020 and December 31, 2019 is $16$21 million and $42$16 million, respectively, and is included as liabilities related to discontinued operations in our unaudited condensed consolidated balance sheets. DuringThethird quarter of 2020, based on an updated estimate, we reducedincrease in the liability by $28 of $4
after-tax
impact from the million which was recognizedreflected as an after-tax benefit to earnings of $23 million and is included in income (loss)a loss from discontinued operations for the three months ended September 30, 2020.March 31, 2021.
We have established our current best estimates for future claims that are still being processed under the settlement agreement, as well as for the unrelated liability related to underwriting losses and other expenses; however, there may be future adjustments to these estimates. If amounts are different from our estimates, it could result in an adjustment to our liabilities and an additional amount reflected in income (loss) from discontinued operations.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included herein and with our 20192020 Annual Report on Form
10-K.
References to “Genworth Financial,” “Genworth,” the “Company,” “we” or “our” herein are, unless the context otherwise requires, to Genworth Financial, Inc. on a consolidated basis.Cautionary note regarding forward-looking statements
This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “will” or words of similar meaning and include, but are not limited to, statements regarding the outlook for our future business and financial performance. Examples of forward-looking statements include statements we make relating to the closing of the transaction with China Oceanwide Holdings Group Co., Ltd. (together with its affiliates, “China Oceanwide”), China Oceanwide’s funding plans and transactions we might pursueare pursuing to address our near-term liabilities and financial obligations, which may include raising capital through our mortgage insurance subsidiariesadditional debt financing and/or transactionsa transaction to sell a percentage of our ownership interests in our U.S. mortgage insurance businesses,business, as well as statements we make regarding the potential impacts of the coronavirus pandemic
(“COVID-19”).
Forward-looking statements are based on management’s current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially from those in the forward-looking statements due to global political, economic, business, competitive, market, regulatory and other factors and risks, including, but not limited to, the following:we may be unable to successfully execute strategic risks in the event the proposed transaction with China Oceanwide is not consummatedplans to effectively address our current business challenges
COVID-19
delay or hinder alternative transactions or otherwise make alternative risks related to the termination of the China Oceanwide transaction
66
financial performance; the possibility that we may be unable to pursue potential future opportunities with China Oceanwide to offer insurance products in China; continued availability of capital and financing to us under acceptable terms; further rating agency actions and downgrades in our credit or financial strength ratings; the inability to reduce costs due to the termination of the China Oceanwide transaction, including in connection with any proposed resource alignment; and our ability to attract, recruit, retain and motivate current and prospective employees may be adversely affected due to the termination of the China Oceanwide transaction; |
risks relating to estimates, assumptions and valuations
COVID-19;
inaccurate models; deviations from our estimates and actuarial assumptions or other reasons in our long-term care insurance, life insurance and/or annuity businesses; accelerated amortization of deferred acquisition costs (“DAC”) and present value of future profits (“PVFP”) (including as a result of any future changes we may make to our assumptions, methodologies or otherwise in connection with periodic or other liquidity, financial strength ratings, credit and counterparty risks
COVID-19;
the impact of increased leverage as a result of the AXA settlement and related restrictions; continued availability of capital and financing; future adverse rating agency actions against us or our U.S. mortgage insurance subsidiary, including with respect to rating downgrades or potential downgrades or being put on review for potential downgrade, all of which could have adverse implications, risks relating to economic, market and political conditions
COVID-19;
interest rates and changes in rates have adversely impacted, and may continue to materially adversely impact our business and profitability; deterioration in economic conditions or a decline in home prices that adversely affect our loss experience in our U.S. mortgage insurance business; political and economic instability or changes in government policies; and fluctuations in foreign currency exchange rates and international securities markets;regulatory and legal risks
67
dividends or make other distributions to us, including as a result of the performance of our subsidiaries, heightened regulatory restrictions resulting from COVID-19, and other insurance, regulatory or corporate law restrictions; the inability to successfully seekin-force rate action increases (including increased premiums and associated benefit reductions) in our long-term care insurance business, including as a result ofCOVID-19; adverse change in regulatory requirements, including risk-based capital; inability to continue to maintain the private mortgage insurer eligibility requirements (“PMIERs”); risks on our U.S. mortgage insurance subsidiary’s ability to pay our holding company dividends as a result of the government-sponsored enterprises (“GSEs”) amendments to PMIERs in response toCOVID-19 or other restrictions that the GSEs may place on the ability of our U.S. mortgage insurance subsidiary to pay dividends to our holding company in connection with a planned partial sale; the impact on capital levels of increased delinquencies caused byCOVID-19; inability of our U.S. mortgage insurance subsidiaries to meet minimum statutory capital requirements; the influence of Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) and a small number of large mortgage lenders on the U.S. mortgage insurance market and adverse changes to the role or structure of Fannie Mae and Freddie Mac; adverse changes in regulations affecting our U.S. mortgage insurance business; additional restrictions placed on our U.S. mortgage insurance business by government and government-owned and the GSEs in connection with a new debt financing and/or sale of a percentage of our ownership interests therein; inability to continue to implement actions to mitigate the impact of statutory reserve requirements; changes in tax laws; and changes in accounting and reporting standards; |
operational risks
shelter-in-place
COVID-19;
reliance on, and loss of, key customer or distribution relationships; insurance and product-related risks
in-force
long-term care insurance policies, in each case, as currently anticipated and as may be required from time to time in the future (including as a result of a delay or failure to obtain any necessary regulatory approvals, including as a result ofCOVID-19,
or unwillingness or inability of policyholders to pay increased premiums and/or accept reduced benefits), including to offset any negative impact on our long-term care insurance margins; availability, affordability and adequacy of reinsurance to protect us against losses; decreases in the volume ofother risks
man-made
disasters or a pandemic, COVID-19,
could materially adversely affect our financial condition and results of operations.We provide additional information regarding these risks and uncertainties in the Definitive Proxy Statement, filed with the U.S. Securities and Exchange Commission (“SEC”) on January 25, 2017, and our Annual Report on Form27, 2020. See also “Part II—Item 1A—Risk Factors.”26, 2021. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Accordingly, for the foregoing reasons, we caution you against relying on any forward-looking statements. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required under applicable securities laws.
10-K,
filed with the SEC on February 68
Strategic Update
We continue to focus on improvingexecuting our strategic plan to raise liquidity to address our future debt maturities, other near-term liabilities and financial obligations and create long-term shareholder value. Our plan builds on actions we have taken over the last several years to strengthen our financial position, including the sale of Genworth MI Canada Inc., our former Canada mortgage insurance business, performance, addressingthe completion of a debt offering through our wholly-owned U.S. mortgage insurance subsidiary, Genworth Mortgage Holdings, Inc. (“GMHI”), the settlement agreement reached with AXA and most recently, the sale of Genworth Mortgage Insurance Australia Limited (“Genworth Australia”), our former Australian mortgage insurance business.
We remain focused on preparing for a planned partial sale of our U.S. mortgage insurance business, subject to market conditions, as well as the satisfaction of various conditions and approvals. We also remain open to other potential strategic alternatives to address our future holding company debt maturities and financial leverageobligations. In assessing our strategic options, we are considering, among other factors, the level of, and increasing financial and strategic flexibility across the organization. Our strategy includes maximizing our opportunitiesrestrictions contained in, our mortgage insurance businessesexisting indebtedness, tax considerations, the views of regulators and stabilizingrating agencies, and the performance and prospects of our U.S. life insurance businesses. In addition, we have taken steps, and may take additional actions to align our expense structure with our reduced business activities. Expense reduction initiatives completed to date are anticipated to result in annualized savings of approximately $50 million.
China Oceanwide Transaction
On October 21, 2016, Genworth Financial, Inc. (“Genworth Financial”Genworth”) entered into an agreement and plan of merger (the “Merger Agreement”) with Asia Pacific Global Capital Co., Ltd. (“Parent”), a limited liability company incorporated in the People’s Republic of China and a subsidiary of China Oceanwide, Holdings Group Co., Ltd., a limited liability company incorporated in the People’s Republic of China (together with its affiliates, “China Oceanwide”), and Asia Pacific Global Capital USA Corporation (“Merger Sub”), a Delaware corporation and a direct, wholly-owned subsidiary of Asia Pacific Insurance USA Holdings LLC (“Asia Pacific Insurance”), which is a Delaware limited liability company and owned by China Oceanwide, pursuant to which, subject to the terms and conditions set forth therein, Merger Sub would merge with and into Genworth Financial with Genworth Financial surviving the merger as a direct, wholly-owned subsidiary of Asia Pacific Insurance (the “Merger”). China Oceanwide has agreed to acquire all of our outstanding common stock for a total transaction value of approximately $2.7 billion, or $5.43 per share in cash. At a special meeting held on March 7, 2017, Genworth Financial’s stockholders voted on and approved a proposal to adopt the Merger Agreement.Insurance.
On September 30,January 4, 2021, Genworth announced that an extension of the then current December 31, 2020 Genworth, ParentMerger Agreement end date would not be sought given uncertainty around the completion and timing of the remaining steps required to close the transaction. The Merger Sub entered into a sixteenth waiver and agreement (“Sixteenth Waiver and Agreement”) pursuant to whichAgreement between Genworth and Parent each agreedChina Oceanwide remained in effect at that time, although either party was able to waive its rightterminate the Merger Agreement. On April 6, 2021, Genworth’s Board of Directors determined to terminate the Merger Agreement, and abandon the Merger to the earliest date of: (i) November 30, 2020,
Ongoing Priorities
Stabilizing our U.S. life insurance businesses continues to be one of our long-term goals. We will continue to execute this objective primarily through our multi-year long-term care insuranceIn addition, reducing debt will remain a high priority. We believe that increased financial support and our strengthened financial foundation resulting from the China Oceanwide transaction would provide us with more optionscontinue to manage our debt maturities and reduce overall indebtedness, which in turn would likely improve our credit and ratings profile over time. Finally, we also believe that the completion of the China Oceanwide transaction would allow us to place greater focus on the future of our long-term care and mortgageU.S. life insurance businesses while continuingon a standalone basis. Going forward, the U.S. life insurance businesses will continue to service our existingrely on their consolidated statutory capital, significant claim and future policy benefit reserves, prudent management of its
Our U.S. life insurance business continued to make strong progress on its multi-year rate action plan, receiving approvals of approximately $157 million of incremental annual premiums during the first quarter of 2021. In aggregate, we estimate that we have achieved approximately $15.2 billion, on ain-force
rate action plan. Premium rate increases and associated benefit reductions on our legacy long-term care insurance policies are critical to the business. in-force
blocks and actuarially justifiedin-force
rate actions to satisfy obligations to its policyholders.in-force
increases since 2012. We continue to monitorwork closely with the National Association of Insurance Commissioners (“NAIC”) and perform analysis of our internal control environment and believestate regulators to demonstrate the remote work environment as a result of COVID-19 has not materially affected our abilitybroad-based need for actuarially justified rate increases in order to maintain effective controls and procedures.
Executive Summary of Financial Results
Below is an executive summary of our consolidated financial results for the periods indicated. Amounts below are net of taxes, unless otherwise indicated.
After-tax
amounts assume a tax rate of 21%.Three Months Ended September 30, 2020March 31, 2021 Compared to Three Months Ended September 30, 2019March 31, 2020
We had net income available to Genworth Financial, Inc.’s common stockholders of $418 million and $18$187 million for the three months ended September 30, 2020 and 2019, respectively.March 31, 2021 compared to a net loss of $66 million for the three months ended March 31, 2020. We had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $132$168 million and $123$20 million for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively.
Our U.S. Mortgage Insurance segment had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $141$126 million and $137$148 million for the three months ended September 30,March 31, 2021 and 2020, respectively. The decrease was primarily from higher losses largely from new delinquencies driven primarily by an increase in borrower forbearance as a result ofdelinquencies and lower net benefits from cures and aging of existing delinquencies in the current year. The decrease was also driven by interest expense associated with senior notes issued in August 2020 and 2019, respectively. The increase was primarily fromhigher operating costs in the current year. These decreases were partially offset by higher premiums mainly attributable to higher insurance and higher ceded
COVID-19,
reserve strengthening of $8 million onpre-COVID-19
in-force
and an increase in policy cancellations in our single premium mortgage insurance product, partially offset by higher ceded premiums and lower average premium ratesOur U.S. Life Insurance segment had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $14$62 million in the current year compared to an adjusted operating loss of $1$70 million in the prior year.
COVID-19,
which we believe are temporary.10-year
term universal life insurance block entering its post-level premium period 20-year
term60-day
grace period, 70
Our Runoff segment had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $19 million and $10$12 million for the three months ended September 30, 2020 and 2019, respectively.March 31, 2021 compared to an adjusted operating loss of $13 million for the three months ended March 31, 2020. The increase was predominantly from favorable equity market performance and higher policy loanto income in the current year from a loss in the prior year was predominantly due to favorable equity market and interest rate performance in the current year.
Corporate and Other Activitiesactivities had an adjusted operating loss available to Genworth Financial, Inc.’s common stockholders of $49$32 million and $35$45 million for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively. The increase in the loss was primarily related to lower tax benefits, partially offset by lower interest expense in the current year.
Other Significant Developments
The periods under review include, among others, the following significant developments.
U.S. Mortgage Insurance
Incurred losseslosses.
COVID-19.
We also strengthened reserves by pre-COVID-19
Borrower forbearance.
COVID-19.
Servicer reported forbearance slowed meaningfully beginning in June 2020 and ended the first quarter of 2021 with approximately 4.9% or 45,263 of our active primary policies reported in a forbearance plan, of which approximately 64% were reported as delinquent.PMIERs compliance.
non-performing
due to aCOVID-19
hardship, PMIERs was temporarily amended with respect to eachnon-performing
loan. As of non-performing
loans. The application of the 0.30 multiplier to all eligible delinquencies provided 71
PMIERs required assets compared to $1,046 million benefit as of December 31, 2020. See “Item 2—U.S. Mortgage Insurance segment—Trends and conditions” for additional details. |
Mortgage originations.originations and new insurance written.
U.S. Life Insurance
In-force
rate actions in our long-term care insurance business.in-force
rate action filings, we received in-force
premiums, or approximately in-force
premiums.Profits followed by losses reserve in our long-term care insurance business.
Liquidity and Capital Resources and Intercompany Obligations
Redemption of Genworth Holdings’ June 2020February 2021 senior notes.
Repurchase of Genworth Holdings’ September 2021 senior notes.
pre-tax gain of $4 million and paid accrued interest thereon.
Liquidity and contractual obligations.
Mandatory payment of the AXA promissory note.
72
June 2022 and partially prepaid the September 2022 installment payment. AXA and Genworth amended certain mandatory prepayment provisions of the promissory note permitting Genworth to retain a greater amount of the Genworth Australia sale proceeds. As of March 31, 2021, the remaining amount of the promissory note was $343 million and is due in September 2022. As a result of the mandatory payment, interest on the promissory note was retroactively reduced and now accrues at a rate of 2.75%. See note 14 in our unaudited condensed consolidated financial statements for additional information. |
Dispositions
Sale of our Australian mortgage insurance business.
after-tax
loss on sale of $3 million. See note 14 in our unaudited condensed consolidated financial statements for additional information.Financial Strength Ratings
On SeptemberMay 4, 2020, A.M. Best Company, Inc. (“A.M. Best”) affirmed the financial strength ratings of our principal life insurance subsidiaries, GLIC “C++” (Marginal), Genworth Life and Annuity Insurance Company “B” (Fair) and Genworth Life Insurance Company of New York “C++” (Marginal). A.M. Best also affirmed the credit rating of Genworth Financial and Genworth Holdings and provided a stable outlook.
For a further discussion of the financial strength ratings of our insurance subsidiaries and the credit ratings of our holding companies, see “Item 1—Financial Strength Ratings” in our 2019 Annual Report on Form 10-K and for the risks associated with our financial strength ratings, see “Risk Factors—Strategic Risks” and “Risk Factors—Liquidity, Financial Strength and Credit Ratings, and Counterparty and Credit Risks—Adverse rating agency actions have resulted in a loss of business and adversely affected our results of operations, financial condition and business and future adverse rating actions could have a further and more significant adverse impact on us” in our 20192020 Annual Report on Form 10-K.
Consolidated
General Trends and Conditions
The stability of both the financial markets and global economies in which we operate impacts the sales, revenue growth and profitability trends of our businesses as well as the value of assets and liabilities. The U.S. and international financial markets in which we operate have been significantly impacted by COVID-19, see “—COVID-19 Summary” for additional details.
Varied levels of economic performance, coupled with uncertain economic outlooks, changes in government policy, global trade, regulatory and tax reforms, and other changes in market conditions, will continue to influence investment and spending decisions by consumers and businesses as they adjust their consumption, debt, capital and risk profiles in response to these conditions, including as a result of
COVID-19.
These trends change as investor confidence in the markets and the outlook for some consumers and businesses shift. As a result, our sales, revenues and profitability trends of certain insurance and investment products as well as the value of assets and liabilities could be impacted going forward. In particular, factors such as the length ofCOVID-19
and the speed of the economic recovery, government responses toCOVID-19 (such
(such as government stimulus), government spending, monetary policies (such as further quantitative easing), the volatility and strength of the capital markets, changes in tax policy and/or in U.S. tax legislation, international trade and the impact of global financial regulation reform will continue to affect economic and business outlooks, level of interest rates, consumer confidence and consumer behavior moving forward.The U.S. and international governments, the U.S. Federal Reserve, other central banks and other legislative and regulatory bodies have taken certain actions in response toboth the first and second quarters of 2020 and the world economy was infell into a recession. DuringGross domestic product rebounded sharply in the thirdfirst quarter of 2020, COVID-19 lockdown measures were eased and business activity resumed, which resulted2021 due in gross domestic product (“GDP”) growth. It is too earlypart to determinethe continued rollout of the
COVID-19
to support the global economy and capital markets. These policies and actions have been supportive to the worldwide economy, however, in spite of these supportive policies the U.S. economy contracted in 73
vaccine. However, we are uncertain if GDPthis growth will continue or be as healthy as compared to grow in the fourthfirst quarter of 20202021 given the risk of virusspread. We havespread of the virus. In 2020, we experienced the adverse effects of the recession, which has adversely impactedmostly impacting our businesses, particularly ourU.S. mortgage insurance businessesbusiness, particularly during the second quarter of 2020. WeAlthough the adverse effects fromifin the U.S. or global recession is prolonged orfuture if the economic recovery is slowfurther slowed or delayed.
re-emergence
due to variants, the measured rollout of the vaccine and the potential for further actions to be taken to mitigate the COVID-19
on our businesses are diminishing, as evident in our first quarter of 2021 financial results, we could be further adversely affected Consolidated Results of Operations
The following is a discussion of our consolidated results of operations. For a discussion of our segment results, see “—Results of Operations and Selected Financial and Operating Performance Measures by Segment.”
Three Months Ended September 30, 2020March 31, 2021 Compared to Three Months Ended September 30, 2019March 31, 2020
The following table sets forth the consolidated results of operations for the periods indicated:
Three months ended September 30, | Increase (decrease) and percentage change | Three months ended March 31, | Increase (decrease) and percentage change | |||||||||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | 2021 | 2020 | 2021 vs. 2020 | ||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Premiums | $ | 1,034 | $ | 1,015 | $ | 19 | 2 | % | $ | 968 | $ | 946 | $ | 22 | 2 | % | ||||||||||||||||
Net investment income | 827 | 816 | 11 | 1 | % | 801 | 782 | 19 | 2 | % | ||||||||||||||||||||||
Net investment gains (losses) | 375 | (2 | ) | 377 | NM | (1) | 33 | (99 | ) | 132 | 133 | % | ||||||||||||||||||||
Policy fees and other income | 184 | 191 | (7 | ) | (4 | )% | 183 | 180 | 3 | 2 | % | |||||||||||||||||||||
Total revenues | 2,420 | 2,020 | 400 | 20 | % | 1,985 | 1,809 | 176 | 10 | % | ||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||||
Benefits and other changes in policy reserves | 1,299 | 1,284 | 15 | 1 | % | 1,218 | 1,337 | (119 | ) | (9 | )% | |||||||||||||||||||||
Interest credited | 137 | 146 | (9 | ) | (6 | )% | 131 | 141 | (10 | ) | (7 | )% | ||||||||||||||||||||
Acquisition and operating expenses, net of deferrals | 249 | 247 | 2 | 1 | % | 275 | 237 | 38 | 16 | % | ||||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles | 101 | 112 | (11 | ) | (10 | )% | 77 | 108 | (31 | ) | (29 | )% | ||||||||||||||||||||
Interest expense | 49 | 59 | (10 | ) | (17 | )% | 51 | 51 | — | — | % | |||||||||||||||||||||
Total benefits and expenses | 1,835 | 1,848 | (13 | ) | (1 | )% | 1,752 | 1,874 | (122 | ) | (7 | )% | ||||||||||||||||||||
Income from continuing operations before income taxes | 585 | 172 | 413 | NM | (1) | |||||||||||||||||||||||||||
Provision for income taxes | 150 | 34 | 116 | NM | (1) | |||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 233 | (65 | ) | 298 | NM | (1) | ||||||||||||||||||||||||||
Provision (benefit) for income taxes | 59 | (5 | ) | 64 | NM | (1) | ||||||||||||||||||||||||||
Income from continuing operations | 435 | 138 | 297 | NM | (1) | |||||||||||||||||||||||||||
Income (loss) from continuing operations | 174 | (60 | ) | 234 | NM | (1) | ||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | 1 | (80 | ) | 81 | 101 | % | 21 | (12 | ) | 33 | NM | (1) | ||||||||||||||||||||
Net income | 436 | 58 | 378 | NM | (1) | |||||||||||||||||||||||||||
Net income (loss) | 195 | (72 | ) | 267 | NM | (1) | ||||||||||||||||||||||||||
Less: net income from continuing operations attributable to noncontrolling interests | 18 | 10 | 8 | 80 | % | — | — | — | — | % | ||||||||||||||||||||||
Less: net income from discontinued operations attributable to noncontrolling interests | — | 30 | (30 | ) | (100 | )% | ||||||||||||||||||||||||||
Less: net income (loss) from discontinued operations attributable to noncontrolling interests | 8 | (6 | ) | 14 | NM | (1) | ||||||||||||||||||||||||||
Net income available to Genworth Financial, Inc.’s common stockholders | $ | 418 | $ | 18 | $ | 400 | NM | (1) | ||||||||||||||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 187 | $ | (66 | ) | $ | 253 | NM | (1) | |||||||||||||||||||||||
Net income available to Genworth Financial, Inc.’s common stockholders: | ||||||||||||||||||||||||||||||||
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders | $ | 417 | $ | 128 | $ | 289 | NM | (1) | ||||||||||||||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders: | ||||||||||||||||||||||||||||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders | $ | 174 | $ | (60 | ) | $ | 234 | NM | (1) | |||||||||||||||||||||||
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders | 1 | (110 | ) | 111 | 101 | % | 13 | (6 | ) | 19 | NM | (1) | ||||||||||||||||||||
Net income available to Genworth Financial, Inc.’s common stockholders | $ | 418 | $ | 18 | $ | 400 | NM | (1) | ||||||||||||||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 187 | $ | (66 | ) | $ | 253 | NM | (1) | |||||||||||||||||||||||
| (1) | We define “NM” as not meaningful for increases or decreases greater than 200%. |
Premiums.
Our U.S. Mortgage Insurance segment increased $32$26 million mainly attributable to higher insurance and higher ceded premiums from reinsurance transactions executed in the current year.
in-force
and an increase in policy cancellations in our single premium mortgage insurance product driven largely by higher mortgage refinancing, partially offset by higher ceded premiums and lower average premium ratesOur U.S. Life Insurance segment decreased $6$4 million. Our long-term care insurance business increased $9$4 million largely from $25$23 million of increased premiums in the current year from$15$8 million mainly attributable to the continued runoff of our term and whole life insurance products in the current year.
in-force
rate actions approved and implemented, partially offset by policy terminations and policies enteringpaid-up
status in the current year. Our life insurance business decreased Net investment income.
Net investment gains (losses).
Benefits and other changes in policy reserves.
Our U.S. Life Insurance segment decreased $4$142 million. Our long-term care insurance business decreased $15$99 million primarily due to an increase in claim terminations driven mostly by higher mortality in the current year and from favorable development on incurred but not reported claims. Given the lower new claim counts submitted during COVID-19, incurred but not reported reserves were strengthened by $24 million reflecting our assumption that new claim incidence during this period will ultimately return to normal levels, partially offsetting the favorable development on incurred but not reportedIBNR claims. These decreases were partially offset by aging of the$50$133 million recorded in connection with an accrual for profits followed by losses, aging oflosses. In addition, we increased claim reserves by $67 million reflecting our assumption thatin-force block (including higher frequency of new claims), and higher severitymost vulnerable claimants, leaving the remaining claim population less likely to terminate compared to theinsubmitted, IBNR reserves were also strengthened by $29 million, partially offsetting the current year. The decrease was also partially offset by a $33 million less favorable impact from reduced benefits in the current year related to in-force rate actions approved and implemented.development on IBNR claims. Our life insurance business increased $41decreased $20 million primarily attributable to higher reserves recorded in the prior year on ouryear and from higher reserves in our 10-year term universal life insurance block entering its post-level premium period during the premium grace period.year. Our fixed annuities business decreased $30$23 million principally from $17 million oflower reserves in our fixed indexed annuities driven by favorable equity market and interest rate changes in the current year compared to an unfavorable chargesmarket in the prior year that did not recur related to loss recognition testing and higher mortality in our single premium immediate annuities in the current year.
in-force
block and higher incremental reserves of COVID-19
accelerated our mortality experience on the pre-pandemic
average population. Given our assumption thatCOVID-19
has temporarily decreased the number of new claims 10-year
term universal life insurance block which entered its post-level premium period, partially offset by higher mortality in our universal and term universal life insurance products in the current year compared to the prior Our Runoff segment decreased $12 million primarily attributable to lower guaranteed minimum death benefit (“GMDB”) reserves in our variable annuity products due to favorable equity market and interest rate performance in the current year.
Our AustraliaU.S. Mortgage Insurance segment decreased $2increased $36 million largely from higher new delinquencies driven primarily by an increase in borrower forbearance as a result ofdelinquencies will have a modestly higher claim rate than our prior best estimate given the slower emergence of cures to date and lower net benefits from favorablecures and aging of existing delinquencies and lower new reported delinquencies, net of cures, partially offset by loss reserve strengthening of $24 million reflecting the economic impacts caused by COVID-19, including a provision for incurred but not reported losses on loans in payment deferral programs in the current year.
COVID-19,
reserve strengthening of $10 million primarily due to our expectation thatpre-COVID-19
Interest credited.
Nine months ended September 30, | Increase (decrease) and percentage change | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | |||||||||||||
Revenues: | ||||||||||||||||
Premiums | $ | 3,068 | $ | 3,004 | $ | 64 | 2 | % | ||||||||
Net investment income | 2,406 | 2,426 | (20 | ) | (1 | )% | ||||||||||
Net investment gains (losses) | 382 | 27 | 355 | NM | (1) | |||||||||||
Policy fees and other income | 539 | 601 | (62 | ) | (10 | )% | ||||||||||
Total revenues | 6,395 | 6,058 | 337 | 6 | % | |||||||||||
Benefits and expenses: | ||||||||||||||||
Benefits and other changes in policy reserves | 4,146 | 3,817 | 329 | 9 | % | |||||||||||
Interest credited | 417 | 439 | (22 | ) | (5 | )% | ||||||||||
Acquisition and operating expenses, net of deferrals | 721 | 713 | 8 | 1 | % | |||||||||||
Amortization of deferred acquisition costs and intangibles | 310 | 277 | 33 | 12 | % | |||||||||||
Goodwill impairment | 5 | — | 5 | NM | (1) | |||||||||||
Interest expense | 145 | 179 | (34 | ) | (19 | )% | ||||||||||
Total benefits and expenses | 5,744 | 5,425 | 319 | 6 | % | |||||||||||
Income from continuing operations before income taxes | 651 | 633 | 18 | 3 | % | |||||||||||
Provision for income taxes | 186 | 169 | 17 | 10 | % | |||||||||||
Income from continuing operations | 465 | 464 | 1 | — | % | |||||||||||
Income (loss) from discontinued operations, net of taxes | (519 | ) | 42 | (561 | ) | NM | (1) | |||||||||
Net income (loss) | (54 | ) | 506 | (560 | ) | (111 | )% | |||||||||
Less: net income from continuing operations attributable to noncontrolling interests | 35 | 45 | (10 | ) | (22 | )% | ||||||||||
Less: net income from discontinued operations attributable to noncontrolling interests | — | 101 | (101 | ) | (100 | )% | ||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | (89 | ) | $ | 360 | $ | (449 | ) | (125 | )% | ||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders: | ||||||||||||||||
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders | $ | 430 | $ | 419 | $ | 11 | 3 | % | ||||||||
Loss from discontinued operations available to Genworth Financial, Inc.’s common stockholders | (519 | ) | (59 | ) | (460 | ) | NM | (1) | ||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | (89 | ) | $ | 360 | $ | (449 | ) | (125 | )% | ||||||
Acquisition and operating expenses, net of deferrals.
Our U.S. Life Insurance segment increased $41 million predominantly related to our long-term care insurance business principally related to higher premium taxes, commissions and other expenses of $26 million associated with our
in-force
rate action plan and restructuring costs of $10 million in the current year.Our U.S. Mortgage Insurance segment increased $10$7 million primarily attributable to higher operating costs driven mostly by increased sales in the current year.
Corporate and Other activities decreased $10 million mainly driven by lower operating expenses and a $4 million gain related to a repurchase of Genworth Holdings’ senior notes originally scheduled to mature in 2021, partially offset by a make-whole premium of $9 million in the prior year related to the early redemption of Genworth Holdings’ senior notes originally scheduled to mature in June 2020, andpartially offset by higher employee-related expenses primarily related to restructuring costs of $7 million and a loss of $4 million in the current year.year related to the repurchase of Genworth Holdings’ senior notes due in September 2021.
Amortization of deferred acquisition costs and intangiblesintangibles.
Our U.S. Life Insurance segment increased $35decreased $19 million. Our long-term carelife insurance business decreased $6$3 million principally from prior year lapses in the largehigher persistency on policies that are not on active claim. Our life insurance business increased $44 million principally from higher lapses primarily associated with our large 20-year term life insurance block entering its post-level premium periodlower DAC amortization reflecting the impact of favorable market changes in the current year and higher reinsurance rates.year.
20-year
term life insurance block written in 2000, partially offset by a DAC impairment of $22 million in our universal life insurance products largely due to lower future estimated gross profits. Our fixed annuities business decreased $16 million primarily related to Our Runoff segment increased $4decreased $12 million mainly related to higherlower DAC amortization in our variable annuity products principally from less favorable equity market performance in the current year.
Interest expense.
Our AustraliaU.S. Mortgage Insurance segment recorded a goodwill impairment charge of $5increased $13 million in the current year which represented the full amount of goodwill related to our mortgage insurance businesssenior notes issued by GMHI in Australia.August 2020.
Corporate and Other activities decreased $31$8 million largely driven by the repayment of Genworth Holdings’ senior notes due in February 2021, the repurchase of Genworth Holdings’ senior notes due in September 2021 and the early redemption of Genworth Holdings’ senior notes in the prior year originally scheduled to mature in June 2020 and from our junior subordinated notes which had a lower floating rate of interest in the current year.2020.
Our U.S. Life Insurance segment decreased $8$5 million due to our life insurance business principally related to the early redemption ofpartially offset by the write-off of $4 million in deferred borrowing costs in the currentprior year.
non-recourse
funding obligations Provision (benefit) for income taxes.
pre-tax
pre-tax
loss.77
Use of
non-Generally
Accepted Accounting Principles (“GAAP”) measuresReconciliation of net income (loss) to adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders
We use goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and infrequent or unusualGoodwill impairments, gainsGains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions and restructuring costs are also excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders because, in our opinion, they are not indicative of overall operating trends. Infrequent or unusual
non-GAAP
financial measures entitled “adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders” and “adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders per share.” Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders per share is derived from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders. Our chief operating decision maker evaluates segment performance and allocates resources on the basis of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders. We define adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as income (loss) from continuing operations excluding theafter-tax
effects of income (loss) from continuing operations attributable to noncontrolling interests, net investment gains (losses),non-operating
items. Gains (losses) on insurance block transactions are defined as gains (losses) on the early extinguishment ofnon-recourse
funding obligations, early termination fees for other financing restructuring and/or resulting gains (losses) on reinsurance restructuring for certain blocks of business. We exclude net investment gains (losses) and infrequent or unusualnon-operating
items because we do not consider them to be related to the operating performance of our segments and Corporate and Other activities. A component of our net investment gains (losses) is the result of estimated future credit losses, the size and timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) can be subject to our discretion and are influenced by market opportunities, as well as asset-liability matching considerations. non-operating
items are also excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders if, in our opinion, they are not indicative of overall operating trends.While some of these items may be significant components of net income (loss) available to Genworth Financial, Inc.’s common stockholders in accordance with U.S. GAAP, we believe that adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, and measures that are derived from or incorporate adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, including adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders per
share on a basic and diluted basis, are appropriate measures that are useful to investors because they identify the income (loss) attributable to the ongoing operations of the business. Management also uses adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as a basis for determining awards and compensation for senior management and to evaluate performance on a basis comparable to that used by analysts. However, the items excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders and adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders per share on a basic and diluted basis are not substitutes for net income (loss) available to Genworth Financial, Inc.’s common stockholders or net income (loss) available to Genworth Financial, Inc.’s common stockholders per share on a basic and diluted basis determined in accordance with U.S. GAAP. In addition, our definition of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders may differ from the definitions used by other companies.
Adjustments to reconcile net income (loss) available to Genworth Financial, Inc.’s common stockholders to adjusted operating income (loss) assume a 21% tax rate for our domestic segments and a 30% tax rate for our Australia Mortgage Insurance segment and are net of the portion attributable to noncontrolling interests.rate. Net investment gains (losses) are also adjusted for DAC and other intangible amortization and certain benefit reserves.
The following table includes a reconciliation of net income (loss) available to Genworth Financial, Inc.’s common stockholders to adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for the periods indicated:
Three months ended September 30, | Nine months ended September 30, | Three months ended March 31, | ||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | ||||||||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 418 | $ | 18 | $ | (89 | ) | $ | 360 | $ | 187 | $ | (66 | ) | ||||||||||
Add: net income from continuing operations attributable to noncontrolling interests | 18 | 10 | 35 | 45 | — | — | ||||||||||||||||||
Add: net income from discontinued operations attributable to noncontrolling interests | — | 30 | — | 101 | ||||||||||||||||||||
Add: net income (loss) from discontinued operations attributable to noncontrolling interests | 8 | (6 | ) | |||||||||||||||||||||
Net income (loss) | 436 | 58 | (54 | ) | 506 | 195 | (72 | ) | ||||||||||||||||
Less: income (loss) from discontinued operations, net of taxes | 1 | (80 | ) | (519 | ) | 42 | 21 | (12 | ) | |||||||||||||||
Income from continuing operations | 435 | 138 | 465 | 464 | ||||||||||||||||||||
Income (loss) from continuing operations | 174 | (60 | ) | |||||||||||||||||||||
Less: net income from continuing operations attributable to noncontrolling interests | 18 | 10 | 35 | 45 | — | — | ||||||||||||||||||
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders | 417 | 128 | 430 | 419 | ||||||||||||||||||||
Adjustments to income from continuing operations available to Genworth Financial, Inc.’s common stockholders: | ||||||||||||||||||||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders | 174 | (60 | ) | |||||||||||||||||||||
Adjustments to income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders: | ||||||||||||||||||||||||
Net investment (gains) losses, net (1) | (362 | ) | (5 | ) | (378 | ) | (33 | ) | (33 | ) | 88 | |||||||||||||
Goodwill impairment, net (2) | — | — | 3 | — | ||||||||||||||||||||
(Gains) losses on early extinguishment of debt, net | — | — | 9 | — | ||||||||||||||||||||
(Gains) losses on early extinguishment of debt | 4 | 12 | ||||||||||||||||||||||
Expenses related to restructuring | — | — | 2 | 4 | 21 | 1 | ||||||||||||||||||
Taxes on adjustments | 77 | — | 78 | 6 | 2 | (21 | ) | |||||||||||||||||
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders | $ | 132 | $ | 123 | $ | 144 | $ | 396 | $ | 168 | $ | 20 | ||||||||||||
| (1) | For the three months ended |
pre-tax
gain (loss) of pre-tax
make-whole expense of $9 million related to the early redemption of Genworth Holdings’ senior notes originally scheduled to mature in June 2020 and Rivermont Life Insurance Company I (“Rivermont I”), our indirect wholly-owned special purpose consolidated captive insurance subsidiary, early redeemed all of its $315 million outstandingnon-recourse
funding obligations originally due in 2050 resulting in apre-tax
loss of $4 million from thewrite-off
of deferred borrowing costs. These transactions were excluded from adjusted operating income We recorded a$2$21 million and $4$1 million forin the nine months ended September 30,first quarters of 2021 and 2020, and 2019, respectively, related to restructuring costs as we continue to evaluate and appropriately size our organizational needs and expenses. There were no infrequent or unusual items excluded from adjusted operating income (loss) during the periods presented.
pre-tax
expense of 79
Earnings (loss) per share
Basic and diluted earnings (loss) per share are calculated by dividing each income (loss) category by the weighted-average basic and diluted common shares outstanding for the periods indicated:
Three months ended September 30, | Nine months ended September 30, | Three months ended March 31, | ||||||||||||||||||||||
(Amounts in millions, except per share amounts) | 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | ||||||||||||||||||
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share: | ||||||||||||||||||||||||
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders per share: | ||||||||||||||||||||||||
Basic | $ | 0.83 | $ | 0.25 | $ | 0.85 | $ | 0.83 | $ | 0.35 | $ | (0.12 | ) | |||||||||||
Diluted | $ | 0.82 | $ | 0.25 | $ | 0.84 | $ | 0.82 | $ | 0.34 | $ | (0.12 | ) | |||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders per share: | ||||||||||||||||||||||||
Basic | $ | 0.83 | $ | 0.04 | $ | (0.18 | ) | $ | 0.72 | $ | 0.37 | $ | (0.13 | ) | ||||||||||
Diluted | $ | 0.82 | $ | 0.04 | $ | (0.17 | ) | $ | 0.71 | $ | 0.37 | $ | (0.13 | ) | ||||||||||
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders per share: | ||||||||||||||||||||||||
Basic | $ | 0.26 | $ | 0.25 | $ | 0.29 | $ | 0.79 | $ | 0.33 | $ | 0.04 | ||||||||||||
Diluted | $ | 0.26 | $ | 0.24 | $ | 0.28 | $ | 0.78 | $ | 0.33 | $ | 0.04 | ||||||||||||
Weighted-average common shares outstanding: | ||||||||||||||||||||||||
Basic | 505.6 | 503.5 | 505.1 | 502.7 | 506.0 | 504.3 | ||||||||||||||||||
Diluted | 511.5 | 511.2 | 511.2 | 509.5 | ||||||||||||||||||||
Diluted (1) | 513.8 | 504.3 | ||||||||||||||||||||||
| (1) | Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the three months ended March 31, 2020, we were required to use basic weighted-average common shares outstanding as the inclusion of shares for stock options, restricted stock units and stock appreciation rights of 5.4 million would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the three months ended March 31, 2020, dilutive potential weighted-average common shares outstanding would have been 509.7 million. |
Diluted weighted-average common shares outstanding reflect the effects of potentially dilutive securities including stock options, restricted stock units and other equity-based compensation.
Results of Operations and Selected Financial and Operating Performance Measures by Segment
Our chief operating decision maker evaluates segment performance and allocates resources on the basis of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders. See note 1110 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for a summary of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for our segments and Corporate and Other activities.
We tax our international businesses at their local jurisdictional tax rates and our domestic businesses at the U.S. corporate federal income tax rate of 21%. OurEach segment tax methodology applies the respective jurisdictional or domestic tax rate to the pre-tax income (loss) of each segment, which is then adjusted in each segment to reflect the unique tax attributes of items unique to that segment, such as foreign withholding taxes and permanent differences between U.S. GAAP and local tax law. The difference between the consolidated provision for income taxes and the sum of the provision for income taxes in each segment is reflected in Corporate and Other activities.
The annually-determined tax rates and adjustments to each segment’s provision for income taxes are estimates which are subject to review and could change from year to year.
Management’s discussion and analysis by segment contains selected operating performance measures including “sales” and “insurance
in-force”
or “riskin-force”
which are commonly used in the insurance industry as measures of operating performance.Management regularly monitors and reports sales metrics as a measure of volume of new business generated in a period. Sales refer to new insurance written for mortgage insurance products. We consider new insurance written to be a measure of our operating performance because it represents a measure of new sales of insurance policies or contracts during a specified period, rather than a measure of our revenues or profitability during that period.
Management regularly monitors and reports insurance in-force. Insurance businesses business. Insuranceoriginal loanunpaid principal balance for outstanding insurance policies as of the respective reporting date.date for loans we insure. RiskRisk in-force in our Australia mortgage insurance business is computed using an “effective” risk in-force amount, which recognizes that the loss on any particular loan will be reduced by the net proceeds received upon sale of the property. Effective risk in-force has been calculated by applying to insurance in-force a factor of 35% that represents the highest expected average per-claim payment for any one underwriting year over the life of our mortgage insurance business in Australia. We also have certain risk share arrangements in Australia where we provide pro-rata coverage of certain loans rather than 100% coverage. As a result, for loans with these risk share arrangements, the applicable pro-rata coverage amount provided is used when applying the factor. We consider insurance
in-force
and riskin-force
for our U.S. mortgage insurance in-force
is a measure of the aggregate in-force for our U.S. mortgage insurance business
is based on the coverage percentage applied to the estimated current outstanding loan balance. in-force
and riskin-force
to be measures of our operating performance because they represent measures of the size of our business at a specific date which will generate revenues and profits in a future period, rather than measures of our revenues or profitability during that period.Management also regularly monitors and reports a loss ratio for our businesses. For our U.S. mortgage insurance businesses,business, the loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. For our long-term care insurance business, the loss ratio is the ratio of benefits and other changes in reserves less tabular interest on reserves less loss adjustment expenses to net earned premiums. We consider the loss ratio to be a measure of underwriting performance in these businesses and helps to enhance the understanding of the operating performance of our businesses.
These operating performance measures enable us to compare our operating performance across periods without regard to revenues or profitability related to policies or contracts sold in prior periods or from investments or other sources.
U.S. Mortgage Insurance segment
Trends and conditions
Results of our U.S. mortgage insurance business are affected primarily by the following factors: competitor actions; unemployment or underemployment levels; other economic and housing market trends, including interest rates, home prices, the number of first-time homebuyers, and mortgage origination volume mix and practices; the levels and aging of mortgage delinquencies; the effect of seasonal variations; the inventory of unsold homes; loan modification and other servicing efforts; and litigation, among other items.
The United States economy and consumer confidence improved in the thirdfirst quarter of 20202021 compared to the secondfourth quarter of 2020 as state economies reopened;reopened in varying degrees; however, certain geographies and industries have experienced slower recoveries because of the virus, the mitigation steps taken to control its spread or changed consumer behavior. The unemployment rate was elevated at 6.0% in March 2021 compared to theto 7.9% in September 2020 after reachingfrom a peak of 14.7%14.8% in April 2020. The economy remains weak compared to pre-COVID-19. Even after the continued recovery in the thirdfirst quarter of 2020,2021, the number of unemployed Americans stands at approximately 12.610 million, which is 6.84 million higher than in February 2020. Among the unemployed, those on temporary layoff continued to decrease
pre-pandemic
level of 3.5% in February 2020 but has decreased to 4.62 million from a peak of 18.118 million in April 2020, but the number of permanent job losses increased to 3.8approximately 3 million. In addition, the number of long term unemployed over 26 weeks increased to 2.4approximately 4 million. Specific to housing finance, mortgage origination activity remained robust in the thirdfirst quarter of 20202021 fueled by refinance activity and a strong surge in home sales. Refinance activity remained robust but relatively flat as compared to the secondfourth quarter of 2020. After experiencing a slowdown in sales during the second quarter of 2020, theThe purchase market improved in the third quarter of 2020 withremained strong, but sales of previously owned homes decreased by 3.7% in the first two months of 2021 after reaching a post-2006 peak in the fourth quarter of 2020. Total unsold inventory of single-family homes
81
remains low at a37% compared toour average loan amount on new insurance written. While interest rates rose during the secondfirst quarter of 2021, they remained below levels in the first quarter of 2020 and inventories declined from 4.1 monthsserved as an offset to 3.3 months.rising prices to allow continued affordability for borrowers. The pandemic continued to affect our financial results in the thirdfirst quarter of 20202021 but to a lesser extent than in the secondfourth quarter of 2020 as primarily evidenced by thewe experienced elevated, but declining, servicer reported forbearance and new delinquencies during the thirdfirst quarter of 2020.2021.
1.9-month
supply as of February 2021, which continues to drive home prices higher, increasing The impact of the the currenta potential increase in cases, the possible resurgence of the virus in the future and the shape of economic recovery, all of which are unknown at present.recovery. It is difficult to predict how long borrowers will need to use forbearance to assist them during the pandemic. Given thatthe length of time current forbearance plans may be extended, up to a year, the resolution of a delinquency in a plan, whether it ultimately results in a cure or a claim, is difficult to estimate and may not be known for several quarters, if not longer. We are continuingcontinue to monitoractions, and the potential financial impacts on our business.actions. However, given the specific risks to our U.S. mortgage insurance business, it is possible the pandemic could have a significant adverse impact on our business, including ourfuture results of operations and financial condition.
COVID-19 pandemic
on our future business results is difficult to predict. We have performed and have periodically revised our scenario planning to help us better understand and tailor our actions to help mitigate the potential adverse effects of the pandemic on our financial results. While our current financial results to date fall within the range of our current scenarios, the ultimate outcomes and impact on our U.S. mortgage insurance business will depend on the spread and length of the pandemic. Of similar importance will be the amount, type and duration of government stimulus and its impact on borrowers, regulatory and government actions to support housing and the economy, the speed of the rollout and uptake of the vaccine, spread mitigating actions to curb COVID-19
developments and regulatory and government Specific to housing finance, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act requires mortgage servicers to provide up to 180 days of deferred or reduced payments (forbearance) for borrowers with a federally backed mortgage loan who assert they have experienced a financial hardship related toFederally backed mortgages includeOn February 25, 2021, the Federal Housing AdministrationFinance Agency (“FHA”FHFA”) announced that borrowers with a mortgage backed by the GSEs who are in an activeU.S. Departmenthave reached a cumulative term of Veterans Affairs (“VA”) backed loans12 months of forbearance may be granted an extension of up to three months and those purchased by Fannie Mae and Freddie Mac. The CARES Act also prohibited foreclosures on all federally backed mortgage loans, except for vacant and abandoned properties, forthereafter one or more forbearance plan term extensions of no more than three months each, provided the plan term does not exceed 18 months of total delinquency or a 60-day period that began on Marchcumulative term of 18 2020.months, whichever is shorter. Since the introduction of the CARES Act, the GSEs as well as most servicers ofThe Federal Housing Finance Agency (“FHFA”) extendedOn February 25, 2021, the FHFA announced an extension until June 30, 2021 of the foreclosure moratorium until at least Decemberthat was originally set to expire on March 31, 20202021 for mortgages that are purchased by Fannie Mae and Freddie Mac.the GSEs, which the Consumer Financial Protection Bureau (“CFPB”) may further extend to December 31, 2021, as described in more detail below. At the conclusion of the forbearance term, a borrower may either bring their loan current, defer any missed payments until the end of their loan, or the loan can be modified through a repayment plan or extension of the mortgage term. ManyIn addition, the CARES Act provides that furnishers of credit reporting information, including servicers, have updated and improved their reportingshould continue to private mortgage insurers for whenreport a loan as current to credit reporting agencies if the loan is coveredsubject to a payment accommodation, such as forbearance, so long as the borrower abides by forbearance.the terms of the accommodation. Servicer reported forbearance slowed meaningfully beginning in June 2020 and ended the thirdfirst quarter of 20202021 with approximately 6.7%4.9% or 61,18345,263 of our active primary policies reported in a forbearance plan, of which approximately 63%64% were reported as delinquent, compared to 7.7%, 68,937, and 61%, respectively, in the second quarter of 2020. Forbearance to date has been a leading indicator of future new delinquencies; however, itdelinquent. It is difficult to predict the future level of reported forbearance and how many of the policies in a forbearance plan that remain current on their monthly mortgage payment will go delinquent.
COVID-19.
Forbearance may be extended for an additional 180 days up to a year in total or shortened at the request of the borrower. COVID-19
forbearance plan as of February 28, 2021 and non-federally
backed mortgage loans have extended similar relief to their respective portfolios of loans. On April 1, 2021, in anticipation of the upcoming expiration of the foreclosure moratoriums and forbearances, and borrowers exiting forbearance programs after reaching the maximum number of permitted forborne payments, the CFPB advised mortgage servicers of the risk of a high volume of loans needing loss mitigation. The CFPB further stated that it will be monitoring how servicers engage with borrowers, respond to borrower requests and process applications for loss mitigation. On April 5, 2021, the CFPB promulgated a Notice
82
of Proposed Rulemaking seeking comments on proposed measures to help prevent avoidable foreclosures as the foreclosure protections expire including, among other things, the implementation of alevelproposed effective date of mortgage originations requiring private mortgage insurance (“market penetration”)the rule is August 31, 2021.
pre-foreclosure
review period that would generally prohibit servicers from starting foreclosures on mortgages purchased by the GSEs until after December 31, 2021. The Market penetration and eventual market size are affected in part by actions that impact housing or housing finance policy taken by the GSEs and the U.S. government, including but not limited to, the FHAFederal Housing Administration (“FHA”) and the FHFA. In the past, these actions have included announced changes, or potential changes, to underwriting standards, including changes to the
GSEs’ automated underwriting systems, FHA pricing, GSE guaranty fees, loan limits and alternative products, such as those offered through Freddie Mac’s Integrated Mortgage Insurance (“IMAGIN”) and Fannie Mae’s Enterprise Paid Mortgage Insurance (“EPMI”) pilot programs, as well as low down payment programs available through the FHA or GSEs.products. On May 20,December 17, 2020, the FHFA re-proposedpublished the Enterprise Regulatory Capital Framework (“Enterprise Framework”) for Fannie Mae and Freddie Mac. The comment period expired on August 31, 2020. As proposed, the Enterprise Framework wouldFinal Rule, which includes significantly increasehigher regulatory capital requirements for the GSEs over current requirements. If the Enterprise Framework is finalized in its current form, higherHigher GSE capital requirements could ultimately lead to increased costs to borrowers forof GSE loans, which in turn could shift the market away from the GSEs to the FHA or lender portfolios. Such a shift could result in a smaller market for private mortgage insurance. In conjunction with preparing to release the GSEs from conservatorship, on January 14, 2021, the FHFA and the Treasury Department agreed to amend the Preferred Stock Purchase Agreements (“PSPAs”) between the Treasury Department and each of the GSEs to increase the amount of capital each GSE may retain. In addition, among other things, the PSPAs limit the number of certain mortgages the GSEs may acquire with two or more prescribed risk factors, including certain mortgages with combinedratios above 90%. Because these limits are based on the current market size, we do not expect any material impact to the private mortgage market in the near term. On January 20, 2021, the White House issued a memorandum establishing a plan for managing the federal regulatory process which included, among other things, a request that the heads of executive departments and agencies postpone the effective dates of newly-issued rules for 60 days. On February 23, 2021, the CFPB published a statement in which it announced that it was considering rulemaking to reconsider the “seasoned” approach to the Qualified Mortgage (“QM”) “safe harbor.” As previously disclosed, the regulations also include a temporary category (the “QM Patch”) for mortgages that comply with certain prohibitions and limitations and meet the GSE underwriting and product guidelines. Mortgages that meet certain requirements are deemed to be QMs until the earlier of the time in which the GSEs exit the FHFA conservatorship or the mandatory compliance date of the final amendments to the CFPB’s rule defining what constitutes a QM (“QM Rule”). The CFPB also announced it was reconsidering the QM Rule and would also propose a rule to delay the July 1, 2021 mandatory compliance date of the amended QM Rule. On April 27, 2021, the CFPB promulgated a final rule delaying the mandatory compliance date of the amended QM Rule until October 1, 2022. As provided under the final rule, the prior 43% debt-to-income-based QM Rule definition, the new price-based average prime offer rate (“APOR”) definition and the QM Patch will all remain available to lenders for loan applications received prior to October 1, 2022. However, on April 8, 2021, the GSEs issued notices stating that due to the requirements of the PSPAs they would only acquire loans that meet the new price-based APOR definition set forth under the amended QM Rule for applications received on or after July 1, 2021. Accordingly, even if the CFPB extends the mandatory compliance date of the amended QM Rule, as a practical matter, many lenders will no longer originate 43%QM loans or QM Patch loans for applications received on or after July 1, 2021 if the GSEs continue to maintain this position. For more information on the previously disclosed regulation, see “Item 1—Business—Regulation—U.S. Insurance Regulation” in our 2020 Annual Report on Form20192020 Annual Report on Form
loan-to-value
debt-to-income-based
10-K.
For more information about the potential future impact, see “Item 1A—Risk Factors—Changes to the role of the GSEs or to the charters or business practices of the GSEs, including actions or decisions to decrease or discontinue the use of mortgage insurance, could adversely affect our financial condition and results of operations or significantly impact our business,” and “—Risk Factors—The amount of mortgage insurance we write could decline significantly if alternatives to private mortgage insurance are used or lower coverage levels of mortgage insurance are selected” in our 10-K.
Estimated mortgage origination volume increased during the thirdfirst quarter of 2021 compared to the first quarter of 2020 compared to the third quarter of 2019 primarily asfrom higher refinance origination volumes driven by lower interest rates resulted inand from higher refinance origination volumes.purchase originations. The estimated private mortgage insurance available market increased driven byincrease was mostly
83
attributable to higher refinance originations and higher purchase market penetration.originations. Given the volume to date, we expect mortgage originations to remain strong for the remainderfirst half of 20202021 fueled by sustained low interest rates driving refinances and by continued strength in the purchase originations market.
Our primary persistency declined to 60%56% during the thirdfirst quarter of 20202021 compared to 75%74% during the thirdfirst quarter of 2019.2020. The decrease in persistency was primarily driven by historically low interest rates driving elevated refinancing activity. Lower persistency is impactinghas impacted business performance trends in several ways including, but not limited to, offsetting insurancealong with singleresulting in higher earned premiums, earned and accelerating the amortization of our existing reinsurance transactions reducing their associated PMIERs capital credit in the current year.year and shifting the concentration of our primary insurance
in-force
growth from new insurance written, elevating single premium policy cancellations in-force.
As of March 31, 2021, our primary insurancein-force
has less than 10% concentration in 2014 and prior book years. Our 2005 through 2008 book year concentration is approximately 5%. In contrast, our 2020 book year represents 42% of our primary insurancein-force
concentration while our 2021 book year is 12% as of March 31, 2021.New insurance written of $24.9 billion in the first quarter of 2021 increased 39% compared to the first quarter of 2020 primarily due to higher mortgage purchase and refinancing originations and a larger private mortgage insurance market, partially offset by our lower estimated market share in 2021. The U.S. private mortgage insurance industry is highly competitive. There are currently six active mortgage insurers, including us. The majority of the new insurance written in our U.S. mortgage insurance business is priced using our proprietary risk-based pricing engine, GenRATE, which provides lenders with a granular approach to pricing for borrowers. All active U.S. mortgage insurers utilize proprietary risk-based pricing engines. Given evolving market dynamics, we expect price competition to remain highly competitive. For more information on the potential impacts due to competition, see “Item 1A—Risk Factors—Competitors could negatively affect our ability to maintain or increase our market share and profitability” in our 2019 Annual Report on Form 10-K. At the same time, we believe mortgage insurers, including us, consider many variables when pricing their new insurance written including the prevailing and future macroeconomic conditions. We made pricing adjustments in the third quarter of 2020 taking into account improving market conditions, portfolio performance to date through the pandemic and competitive factors.
Net earned premiums increased in the thirdfirst quarter of 20202021 compared to the thirdfirst quarter of 20192020 primarily from growth in our insurance and higher ceded premiums from reinsurance transactions executed in the current year. As a result ofcontinued to experienceexperienced a significant increase in the number of reported delinquent loans duringin the thirdfirst quarter of 20202021 as compared to recent quarters prior to COVID-19.the first quarter of 2020. During this time and consistent with prior years, servicers continued the practice of remitting premiumpremiums during the early stages of default. As a result, we did not experience an impact to earned premiums during the thirdfirst quarter of 2020.2021. Additionally, we have a business practice of refunding the post-delinquent premiums to the insured party if the delinquent loan goes to claim. We record a liability and a reduction to net earned premiums for the post-delinquent premiums we expect to refund. The post-delinquent premium liability recorded in the thirdfirst quarter of 20202021 associated with the increased number of delinquent loans was not significant to the change in earned premiums duringfor the quarterthree months ended March 31, 2021 as a result of the high concentration of new delinquencies being subject to a servicer reported forbearance plan and the lower estimated ratesrate at which delinquencies go to claim (“roll rates” or “claim rates”) for these loans. The post-default premium liability increased by $2 million in the first quarter of 2021 primarily as a result ofhave issued ordersrequired or provided guidance to insurers requiring or requestingrequested the provision of grace periods of varying lengths to insureds in the event ofdifferdiffered greatly in their approaches but generally focusfocused on the avoidance of cancellation of coverage forrequirements and requests.requirements. If timely payment is not made, future premiums could decrease and the certificate of insurance could be subject to cancellation after 60 days, or such longer time as required under applicable law. During the third quarter of 2020, servicers also continued
in-force
and from an increase in single premium policy cancellations driven largely by higher mortgage refinancing, partially offset by higher ceded premiums and lower average premium ratesCOVID-19,
we COVID-19
delinquencies and the total liability for all delinquencies was $11 million as of March 31, 2021. As a result ofCOVID-19,
certain state insurance regulators non-payment
of premium. Regulators non-payment.
While most of these requirements and requests have lapsed, it is possible that some or all of them could bere-issued
in the event of declarations of new states of emergency that might result from worsening pandemic conditions. We currently comply with all state regulatory Our loss reserves and loss ratio continue to remit premium on non-delinquent loans and therefore we did not experience a significant change to earned premiums.be negatively impacted by
COVID-19.
84
result, we have seen elevated new delinquencies but as in past natural disasters, those delinquencieswhich may ultimately cure at a higher rate than traditional delinquencies should economic activity quickly return tolevels. Severity of loss on loans that do go to claim, however, may be negatively impacted by the extended forbearance timeline, the associated elevated expenses such as accumulated interest, the higher loan amount of the recent new delinquencies and home price depreciation, if any. Unlike a hurricane where the natural disaster occurs at a point in time and the rebuild starts soon after,relied uponleveraged as one consideration, of many considerations in the establishment of an appropriate roll rate estimate for new delinquencies in forbearance plans that have emerged as a result of
pre-COVID-19
COVID-19
is an ongoing health crisis and we do not know when it will end, making it more difficult to determine the effectiveness of forbearance and the resulting roll rates for new delinquencies in forbearance plans. Given this difference, our prior hurricane experience was COVID-19.
Severity of loss on loans that do go to claim, however, may be negatively impacted by the extended forbearance timeline, the associated elevated expenses, the higher loan amount of the recent new delinquencies and the potential for home price depreciation.Our loss ratio for the three months ended September 30, 2020March 31, 2021 was 18%22% as compared to 11%8% for the three months ended September 30, 2019.March 31, 2020. The increase was largely from higher new delinquencies drivenin the first quarter of 2021 primarily byfrom an increase in borrower forbearance as a result of COVID-19, partially offsetfavorable development on incurred but not reported$10 million during the first quarter of 2021 primarily due to our expectation thatdelinquencies will have a modestly higher claim rate than our prior best estimate given the slower emergence of cures to date. In addition, we experienced lower net benefits from cures and aging of existing delinquencies in the current year.first quarter of 2021. New primary delinquencies of 10,053 contributed $44 million of loss expense in the first quarter of 2021 largely determined by applying a roll rate estimate which considers the emergence of cures on forbearance and75%54% of our primary new delinquencies in the thirdfirst quarter of 20202021 were subject to a forbearance plan. New primary delinquencies of 16,664 contributed $61 million of loss expense for the three months ended September 30, 2020 calculated by applying a blended estimated roll rate between the estimate for existing pre-COVID-19 early stage delinquencies and our past hurricane related roll rates, which were materially lower given the effectiveness of forbearance and government assistance programs. This comparesplan as compared to $29 million of loss expense from 8,547 new primary delinquencies for the three months ended September 30, 2019. less than 5% in recent quarters prior to
COVID-19.
We also strengthened reserves by pre-COVID-19
non-forbearance
delinquencies and the ongoing economic impact due to the pandemic. This compares to $27 million of loss expense from 8,114 new primary delinquencies in the first quarter of 2020. Approximately COVID-19.
Prior toCOVID-19,
traditional measures of credit quality, such as Fair Isaac Company (“FICO”) score and whether a loan had a prior delinquency were most predictive of new delinquencies. Because the pandemic has affected a broad portion of the population, attributionanalysis of third quarter of 2020 debt to income,ratios, geographic regions more affected by the virus or with a higher concentration of affected industries, loan size and servicer process differences rose in significance.
COVID-19
new delinquencies revealed that additional factors such as higherdebt-to-income
As of September 30, 2020,March 31, 2021, GMICO’sratio under the current regulatory framework as established under North Carolina law and enforced by the North Carolina Department of Insurance (“NCDOI”), GMICO’s domestic insurance regulator, was approximately 12.3:11.9:1, compared with aratio of 12.2:1 as of June 30, 2020 and 12.5:12.3:1 as of December 31, 2019.2020. GMICO’sratio remains below the NCDOI’s maximumratio of 25:1. North Carolina’s calculation ofexcludes thefor delinquent loans given the established loss reserves against all delinquencies. As a result, we do not expect any immediate, material pressure to GMICO’sratio in the short term as a result ofratio will depend principally on the magnitude of future losses incurred by GMICO, the effectiveness of ongoing loss mitigation activities, new business volume and profitability, the amount of policy lapses and the amount of additional capital that is generated or distributed by the business or capital support (if any) that we provide.provided.
risk-to-capital
risk-to-capital
risk-to-capital
risk-to-capital
risk-to-capital
risk-in-force
risk-to-capital
COVID-19.
GMICO’s ongoingrisk-to-capital
Under PMIERs, we are subject to operational and financial requirements that private mortgage insurers must meet in order to remain eligible to insure loans that are purchased by the GSEs. Each approved mortgage insurer is required to provide the GSEs with an annual certification and a quarterly report evidencing its compliance with PMIERs. On June 29, 2020, the GSEs issued guidance amendingthe “PMIERs Amendment.” In September 2020, the GSEs issued an amended and restated version of the PMIERs in light of COVID-19 (the “PMIERs Amendment”), whichAmendment that became effective retroactively on June 30, 2020 and included both temporary and permanent amendments to PMIERs anda new reporting requirement that became effective on June 30,December 31, 2020. TheOn December 4, 2020, the GSEs issued a revised and restated version of the PMIERs Amendment onthat revised and replaced the version issued in September 11, 2020. With respect to loans that became non-performing due to a COVID-19 hardship,The December 4, 2020 version extended the application of reduced PMIERs was temporarily amended with respectcapital factors to each (i) has an initial missed monthly payment occurring on or after March 1, 2020 and prior to JanuaryApril 1, 2021 and extended the capital preservation period from March 31, 2021 to June 30, 2021.
non-performing
loan that85
The PMIERs Amendment implemented both permanent and temporary revisions to PMIERs. For loans that becameCOVID-19financial hardship related to, above, absent the loan being subject to a forbearance plan described in (ii) above, the 0.30 multiplier will be applicable for no longer than three calendar months beginning with the month in which the loan became aMarch 31,June 30, 2021 that require an approved insurer to obtain prior written GSE approval before paying any dividends, pledging or transferring assets to an affiliate or entering into any new, or altering any existing, arrangements under tax sharing and intercompany expense-sharing agreements, even if such insurer has a surplus of available assets. Lastly,In addition, the PMIERs Amendment imposes permanent revisions to the risk-based required asset amount factor for
non-performing
due to aCOVID-19
hardship, PMIERs was temporarily amended with respect to eachnon-performing
loan that (i) has an initial missed monthly payment occurring on or after March 1, 2020 and prior to April 1, 2021 or (ii) is subject to a forbearance plan granted in response to a COVID-19,
the terms of which are materially consistent with terms of forbearance plans offered by the GSEs. The risk-based required asset amount factor for thenon-performing
loan will be the greater of (a) the applicable risk-based required asset amount factor for a performing loan were it not delinquent, and (b) the product of a 0.30 multiplier and the applicable risk-based required asset amount factor for anon-performing
loan. In the case of (i)non-performing
loan due to having missed two monthly payments. Loans subject to a forbearance plan described in (ii) above include those that are either in a repayment plan or loan modification trial period following the forbearance plan unless reported to the approved insurer that the loan is no longer in such forbearance plan, repayment plan, or loan modification trial period. The PMIERs Amendment also imposes temporary capital preservation provisions through non-performing
loans for properties located in future Federal Emergency Management Agency (“FEMA”) Declared Major Disaster Areas eligible for individual assistance.In September 2020, subsequent to the issuance of GMHI’s senior notes due in 2025, the GSEs imposed certain GSE Restrictions were imposedrestrictions (the “GSE Restrictions”) with respect to capital on our U.S. mortgage insurance business. These restrictionsIn connection with the planned partial sale of our U.S. mortgage insurance business, we expect that the GSEs will recommend revisions to the GSE Restrictions, subject to FHFA approval. There can be no assurance that such approval process will not result in the final terms being changed. The GSE Restrictions will remain in effect until the later of six quarters or until the following collective (“GSE Conditions”) are met: a)(a) approval of GMICO’s plan to secure additional capital, if needed, b)(b) GMICO obtains “BBB+”/“Baa1” (or higher) rating from S&P, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. for two consecutive quarters and c)(c) Genworth achieves certain Genworth financial metrics are achieved.metrics. Prior to the satisfaction of the GSE Conditions, the GSE Restrictions require:
GMICO to maintain 115% of PMIERs minimum required assets through 2021, 120% during 2022 and 125% thereafter;
GMHI to retain $300 million of its holding company cash that can be drawn down exclusively for its debt service or to contribute to GMICO to meet itstheir regulatory capital needs including PMIERs; and
written approval must be received from the GSEs prior to any additional debt issuance by either GMICO or GMHI.
Until the GSE Conditions imposed in connection with the GSE Restrictions are met, GMHI’s liquidity must not fall below 13.5% of its outstanding debt. These GSE Restrictions will remain in effect until the collective GSE Conditions are met.
As of September 30, 2020,March 31, 2021, our U.S. mortgage insurance business had estimated available assets of $4,451$4,769 million against $3,377$3,005 million net required assets under PMIERs compared to available assets of $4,218$4,588 million against $2,943$3,359 million net required assets as of June 30,December 31, 2020. The estimated sufficiency ratio as of September 30, 2020March 31, 2021 was $1,074159% or $1,764 million or 132% above the published PMIERs requirements, compared to $1,275137% or $1,229 million or 143% above the published PMIERs requirements as of June 30,December 31, 2020. PMIERs sufficiency is based on the published requirements applicable to private mortgage insurers and does not give effect to the GSE Restrictions recently imposed on our U.S. mortgage insurance business. The reductionincrease in the published PMIERs sufficiency was driven in part by the completion of an insurance linked notes transaction, which added $495 million of additional PMIERs capital credit as of March 31, 2021, elevated new insurance written in the third quarter of 2020, partially offset by elevated lapseslapse driven by prevailing low interest rates.rates and business
86
cash flows, partially offset by elevated new insurance written. In addition, elevated lapses drovelapse continued to drive an acceleration of the amortization of our existing reinsurance transactions, reducing theirwhich caused a reduction in PMIERs capital credit in the thirdfirst quarter of 2020. These factors were partially offset by growth in business cash flows in the third quarter of 2020. In addition, our2021. Our PMIERs required assets as of September 30,March 31, 2021 and December 31, 2020 benefited from the application of a 0.30 multiplier applied to the risk-based required asset amount factor for certain$1,217$1,012 million of benefit to our September 30, 2020March 31, 2021 PMIERs required assets compared to $1,057$1,046 million benefit as of June 30,December 31, 2020.
These amounts are gross of any incremental reinsurance benefit from the elimination of the 0.30 multiplier.non-performing
loans. The application of the 0.30 multiplier to all eligible delinquencies provided 2021-1
Ltd. on a portfolio of existing mortgage insurance policies written from January 2014 through December 2018 and policies written from October 2019 through December 2019. Triangle Re2021-1
Ltd. financed the reinsurance coverage by issuing mortgage insurance-linked notes in an aggregate amount of $495 million to unaffiliated investors. Credit risk transfer transactions provided an aggregate of approximately $1,285 million of PMIERs capital credit as of March 31, 2021. On April 16, 2021, our U.S. mortgage insurance business obtained approximately $303 million of fully collateralized excess of loss reinsurance coverage from Triangle Re2021-2
Ltd. on a portfolio of existing mortgage insurance policies written from September 2020 through Our U.S. mortgage insurance business paid dividends of $436 million inis currently operating under the third quarter of 2020 generated from the net cash proceeds of GMHI’s 2025 Senior Notes offering. As a result of the uncertainty regarding the impact of COVID-19 and the recently imposed GSEs’ PMIERs Amendment, which includes capital preservation requirements that restrict dividends through June 30, 2021. Thereafter, we will evaluate the regulatory and GSE Restrictions onmacroeconomic environment, including the timing of forbearance resolutions and whether loans subject to forbearance cure or result in a claim, to assess future dividends. Future dividends are subject to capital requirements of our U.S. mortgage insurance business, we intend to preserve PMIERs available assets. Accordingly, we intend to defer the paymentsubsidiaries, capital needs of additional dividends in 2020. The amountour holding companies and timing of future dividends will depend on the economic recovery from COVID-19,market conditions, among other factors.
Segment results of operations
Three Months Ended September 30, 2020March 31, 2021 Compared to Three Months Ended September 30, 2019March 31, 2020
The following table sets forth the results of operations relating to our U.S. Mortgage Insurance segment for the periods indicated:
Three months ended September 30, | Increase (decrease) and percentage change | Three months ended March 31, | Increase (decrease) and percentage change | |||||||||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | 2021 | 2020 | 2021 vs. 2020 | ||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Premiums | $ | 251 | $ | 219 | $ | 32 | 15 | % | $ | 252 | $ | 226 | $ | 26 | 12 | % | ||||||||||||||||
Net investment income | 34 | 31 | 3 | 10 | % | 35 | 33 | 2 | 6 | % | ||||||||||||||||||||||
Net investment gains (losses) | (2 | ) | — | (2 | ) | NM | (1) | (1 | ) | — | (1 | ) | NM | (1) | ||||||||||||||||||
Policy fees and other income | 1 | 1 | — | — | % | 2 | 2 | — | — | % | ||||||||||||||||||||||
Total revenues | 284 | 251 | 33 | 13 | % | 288 | 261 | 27 | 10 | % | ||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||||
Benefits and other changes in policy reserves | 45 | 23 | 22 | 96 | % | 55 | 19 | 36 | 189 | % | ||||||||||||||||||||||
Acquisition and operating expenses, net of deferrals | 54 | 51 | 3 | 6 | % | 57 | 50 | 7 | 14 | % | ||||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles | 3 | 3 | — | — | % | 4 | 4 | — | — | % | ||||||||||||||||||||||
Interest expense | 6 | — | 6 | NM | (1) | 13 | — | 13 | NM | (1) | ||||||||||||||||||||||
Total benefits and expenses | 108 | 77 | 31 | 40 | % | 129 | 73 | 56 | 77 | % | ||||||||||||||||||||||
Income from continuing operations before income taxes | 176 | 174 | 2 | 1 | % | 159 | 188 | (29 | ) | (15 | )% | |||||||||||||||||||||
Provision for income taxes | 37 | 37 | — | — | % | 34 | 40 | (6 | ) | (15 | )% | |||||||||||||||||||||
Income from continuing operations | 139 | 137 | 2 | 1 | % | 125 | 148 | (23 | ) | (16 | )% | |||||||||||||||||||||
Adjustments to income from continuing operations: | ||||||||||||||||||||||||||||||||
Net investment (gains) losses | 2 | — | 2 | NM | (1) | 1 | — | 1 | NM | (1) | ||||||||||||||||||||||
Taxes on adjustments | — | — | — | — | % | — | — | — | — | % | ||||||||||||||||||||||
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders | $ | 141 | $ | 137 | $ | 4 | 3 | % | $ | 126 | $ | 148 | $ | (22 | ) | (15 | )% | |||||||||||||||
| (1) | We define “NM” as not meaningful for increases or decreases greater than 200%. |
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders increaseddecreased primarily from higher premiums mainly attributable to higher insurance in-force and an increase in policy cancellations in our single premium mortgage insurance product, partially offset by lower average premium rates and higher ceded premiums from reinsurance transactions executed in the current year. These increases were partially offset by higher losses largely from new delinquencies driven primarily by an increase in borrower forbearance as a result of COVID-19. The third quarter2020 also includes favorable development$8 million on incurred but not reported delinquencies establishedand lower net benefits from cures and aging of existing delinquencies in the second quarter of 2020.current year. The decrease was also driven by interest expense associated with senior notes issued in August 2020 and higher operating costs in the current year. These decreases were partially offset by higher premiums mainly attributable to higher insurance
COVID-19,
reserve strengthening of pre-COVID-19
in-force
and an increase in policy cancellations in our single premium mortgage insurance product, partially offset by higher ceded premiums and lower average premium rates in the current year.Revenues
Premiums increased mainly attributable to higher insuranceand higher ceded premiums from reinsurance transactions executed in the current year.
in-force
and an increase in policy cancellations in our single premium mortgage insurance product driven largely by higher mortgage refinancing, partially offset by higher ceded premiums and lower average premium rates 88
Net investment income increased primarily from higher average invested assets and higher income from bond calls, partially offset by lower investment yields in the current year.
Net investment losses in the current year were largely related to credit losses on fixed maturity securities.
Benefits and expenses
Benefits and other changes in policy reserves increased largely from higher new delinquencies driven primarily by an increase in borrower forbearance as a result ofdelinquencies will have a modestly higher claim rate than our prior best estimate given the slower emergence of cures to date and lower net benefits from cures and aging of existing delinquencies partially offset by favorable development of $23 million on incurred but not reported delinquencies established in the second quarter of 2020.
current year.COVID-19,
reserve strengthening of $10 million primarily due to our expectation thatpre-COVID-19
Acquisition and operating expenses, net of deferrals, increased primarily attributable to higher operating costs driven mostly by increased sales in the current year.
Interest expense in the current year relates to the senior notes issued by GMHI in August 2020.
Provision for income taxes.
Nine months ended September 30, | Increase (decrease) and percentage change | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | |||||||||||||
Revenues: | ||||||||||||||||
Premiums | $ | 720 | $ | 619 | $ | 101 | 16 | % | ||||||||
Net investment income | 98 | 87 | 11 | 13 | % | |||||||||||
Net investment gains (losses) | (3 | ) | — | (3 | ) | NM | (1) | |||||||||
Policy fees and other income | 4 | 3 | 1 | 33 | % | |||||||||||
Total revenues | 819 | 709 | 110 | 16 | % | |||||||||||
Benefits and expenses: | ||||||||||||||||
Benefits and other changes in policy reserves | 292 | 39 | 253 | NM | (1) | |||||||||||
Acquisition and operating expenses, net of deferrals | 151 | 141 | 10 | 7 | % | |||||||||||
Amortization of deferred acquisition costs and intangibles | 11 | 11 | — | — | % | |||||||||||
Interest expense | 6 | — | 6 | NM | (1) | |||||||||||
Total benefits and expenses | 460 | 191 | 269 | 141 | % | |||||||||||
Income from continuing operations before income taxes | 359 | 518 | (159 | ) | (31 | )% | ||||||||||
Provision for income taxes | 76 | 110 | (34 | ) | (31 | )% | ||||||||||
Income from continuing operations | 283 | 408 | (125 | ) | (31 | )% | ||||||||||
Adjustments to income from continuing operations: | ||||||||||||||||
Net investment (gains) losses | 3 | — | 3 | NM | (1) | |||||||||||
Taxes on adjustments | — | — | — | — | % | |||||||||||
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders | $ | 286 | $ | 408 | $ | (122 | ) | (30 | )% | |||||||
U.S. Mortgage Insurance selected operating performance measures
Primary Mortgage Insurance
Substantially all of our policies are primary mortgage insurance, which provides protection on individual loans at specified coverage percentages. Primary mortgage insurance is placed on individual loans at the time of origination and are typically delivered to us on a loan by loan basis. Primary mortgage insurance can also be delivered to us on an aggregated basis, whereby each mortgage in a given loan portfolio is insured in a single transaction after the point of origination.
Pool Mortgage Insurance
Pool mortgage insurance transactions provide coverage on a finite set of individual loans identified by the pool policy. Pool policies contain coverage percentages and provisions limiting the insurer’s obligation to pay claims until a threshold amount is reached (known as a “deductible”) or capping the insurer’s potential aggregate liability for claims payments (known as a “stop loss”) or a combination of both provisions. Pool mortgage insurance is typically used to provide additional credit enhancement for certain secondary market mortgage transactions.
The following tables settable sets forth selected operating performance measures regarding our U.S. Mortgage Insurance segment as of or for the dates indicated:
As of September 30, | Increase (decrease) and percentage change | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | |||||||||||||
Primary insurance in-force (1) | $ | 212,400 | $ | 185,400 | $ | 27,000 | 15 | % | ||||||||
Risk in-force | $ | 51,500 | $ | 45,100 | $ | 6,400 | 14 | % | ||||||||
As of or for the three months ended March 31, | Increase (decrease) and percentage change | |||||||||||||||
(Amounts in millions) | 2021 | 2020 | 2021 vs. 2020 | |||||||||||||
Primary insurance in-force (1) | $ | 210,200 | $ | 188,000 | $ | 22,200 | 12 | % | ||||||||
Risk in-force: | ||||||||||||||||
Primary | $ | 52,900 | $ | 47,700 | $ | 5,200 | 11 | % | ||||||||
Pool | 100 | 200 | (100 | ) | (50 | )% | ||||||||||
Total risk in-force | $ | 53,000 | $ | 47,900 | $ | 5,100 | 11 | % | ||||||||
New insurance written | $ | 24,900 | $ | 17,900 | $ | 7,000 | 39 | % | ||||||||
Net premiums written | $ | 226 | $ | 208 | $ | 18 | 9 | % | ||||||||
| (1) | Primary insurance in-force represents the aggregate |
Three months ended September 30, | Increase (decrease) and percentage change | Nine months ended September 30, | Increase (decrease) and percentage change | |||||||||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | 2020 | 2019 | 2020 vs. 2019 | ||||||||||||||||||||||||||
New insurance written | $ | 26,600 | $ | 18,900 | $ | 7,700 | 41 | % | $ | 72,900 | $ | 44,300 | $ | 28,600 | 65 | % | ||||||||||||||||
Net premiums written | $ | 240 | $ | 213 | $ | 27 | 13 | % | $ | 665 | $ | 610 | $ | 55 | 9 | % | ||||||||||||||||
Primary insurance
in-force
and riskin-force
Primary insuranceduringin the current year. Primary persistency was 64%56% and 80%74% for the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, respectively. ThisThe decrease in persistency resulted in elevated single premium policy cancellations in the current year. Risk first quarter of 2021. Total risk
in-force
increased largely from new insurance written, partially offset by lapses and cancellations as we experienced lower persistency in-force
increased primarily as a result of higher primary insurancein-force.
New insurance written
Net premiums written
Net premiums written for the three and nine months ended September 30, 2020 increased primarily from higher average primary insurancefrom reinsurance transactions executed in the current year.
in-force,
partially offset by higher ceded premiums Loss and expense ratios
The following table sets forth the loss and expense ratios for our U.S. Mortgage Insurance segment for the dates indicated:
Three months ended September 30, | Increase (decrease) | Nine months ended September 30, | Increase (decrease) | Three months ended March 31, | Increase (decrease) | |||||||||||||||||||||||||||||||
2020 | 2019 | 2020 vs. 2019 | 2020 | 2019 | 2020 vs. 2019 | 2021 | 2020 | 2021 vs. 2020 | ||||||||||||||||||||||||||||
Loss ratio | 18 | % | 11 | % | 7 | % | 41 | % | 6 | % | 35 | % | 22 | % | 8 | % | 14 | % | ||||||||||||||||||
Expense ratio (net earned premiums) | 23 | % | 24 | % | (1 | )% | 23 | % | 24 | % | (1 | )% | 24 | % | 24 | % | — | % | ||||||||||||||||||
Expense ratio (net premiums written) | 24 | % | 25 | % | (1 | )% | 24 | % | 25 | % | (1 | )% | ||||||||||||||||||||||||
The loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. The expense ratio (net earned premiums) is the ratio of general expenses to net earned premiums. The expense ratio (net premiums written) is the ratio of general expenses to net premiums written. In our business, general expenses consist of acquisition and operating expenses, net of deferrals, and amortization of DAC and intangibles.
The loss ratio increased forcompared to the three months ended September 30,March 31, 2020 largely from higher new delinquencies driven primarily by an increase in borrower forbearance as a result ofdelinquencies will have a modestly higher claim rate than our prior best estimate given the slower emergence of cures to date and aging of existing delinquencies, partially offset by favorable development of $23 million on incurred but not reported delinquencies established in the second quarter of 2020. The loss ratio increased for the nine months ended September 30, 2020 largely from $231 million of losses from new delinquencies driven primarily by a significant increase in borrower forbearance as a result of COVID-19 and strengthening of
COVID-19, and lower net benefits from
reserve strengthening of $10 million primarily due to our expectation thatpre-COVID-19
The expense ratio (net earned premiums) forwas flat compared to the three and nine months ended September 30,March 31, 2020 decreased mainly drivenas higher operating costs were offset by higher net earned premiums partially offset by higher operating costs in the current year.
90
U.S. mortgage insurance loan portfolio
The expense ratio (net premiums written) decreased for the three months ended September 30, 2020 largely due to higher net premiums written, partially offset by higher operating costs in the current year.following table sets forth selected financial information regarding our primary U.S. mortgage insurance loan portfolio as of March 31:
(Amounts in millions) | 2021 | 2020 | ||||||
Primary insurance in-force byloan-to-value | ||||||||
95.01% and above | $ | 33,757 | $ | 32,760 | ||||
90.01% to 95.00% | 92,124 | 85,736 | ||||||
80.01% to 90.00% | 84,218 | 69,375 | ||||||
80.00% and below | 88 | 110 | ||||||
Total | $ | 210,187 | $ | 187,981 | ||||
Primary risk in-force byloan-to-value | ||||||||
95.01% and above | $ | 9,151 | $ | 8,482 | ||||
90.01% to 95.00% | 26,637 | 24,703 | ||||||
80.01% to 90.00% | 17,060 | 14,532 | ||||||
80.00% and below | 18 | 23 | ||||||
Total | $ | 52,866 | $ | 47,740 | ||||
Primary insurance in-force by FICO score at origination: | ||||||||
Over 760 | $ | 79,285 | $ | 71,703 | ||||
740-759 | 33,607 | 31,215 | ||||||
720-739 | 30,295 | 27,210 | ||||||
700-719 | 26,309 | 22,484 | ||||||
680-699 | 20,777 | 17,460 | ||||||
660-679 (1) | 10,001 | 8,494 | ||||||
640-659 | 5,981 | 5,377 | ||||||
620-639 | 2,893 | 2,759 | ||||||
<620 | 1,039 | 1,279 | ||||||
Total | $ | 210,187 | $ | 187,981 | ||||
Primary risk in-force by FICO score at origination: | ||||||||
Over 760 | $ | 19,829 | $ | 18,216 | ||||
740-759 | 8,442 | 7,986 | ||||||
720-739 | 7,715 | 6,970 | ||||||
700-719 | 6,678 | 5,688 | ||||||
680-699 | 5,231 | 4,417 | ||||||
660-679 (1) | 2,484 | 2,110 | ||||||
640-659 | 1,485 | 1,322 | ||||||
620-639 | 734 | 701 | ||||||
<620 | 268 | 330 | ||||||
Total | $ | 52,866 | $ | 47,740 | ||||
| (1) | Loans with unknown FICO scores are included in the 660-679 category. |
91
Delinquent loans
The following table sets forth the number of loans insured, the number of delinquent loans and the delinquency rate for our U.S. mortgage insurance portfolio as of the dates indicated:
September 30, 2020 | December 31, 2019 | September 30, 2019 | ||||||||||
Primary insurance: | ||||||||||||
Insured loans in-force | 913,974 | 851,070 | 833,215 | |||||||||
Delinquent loans | 49,692 | 16,392 | 15,758 | |||||||||
Percentage of delinquent loans (delinquency rate) | 5.44 | % | 1.93 | % | 1.89 | % | ||||||
A minus and sub-prime loans in-force | 10,984 | 12,688 | 13,345 | |||||||||
A minus and sub-prime delinquent loans | 2,342 | 2,266 | 2,320 | |||||||||
Percentage of A minus and sub-prime delinquent loans (delinquency rate) | 21.32 | % | 17.86 | % | 17.38 | % | ||||||
Pool insurance: | ||||||||||||
Insured loans in-force | 11,888 | 13,266 | 13,738 | |||||||||
Delinquent loans | 434 | 382 | 415 | |||||||||
Percentage of delinquent loans (delinquency rate) | 3.65 | % | 2.88 | % | 3.02 | % | ||||||
March 31, 2021 | December 31, 2020 | March 31, 2020 | ||||||||||
Primary insurance: | ||||||||||||
Insured loans in-force | 922,186 | 924,624 | 868,111 | |||||||||
Delinquent loans | 41,332 | 44,904 | 15,417 | |||||||||
Percentage of delinquent loans (delinquency rate) | 4.48 | % | 4.86 | % | 1.78 | % | ||||||
Delinquency rates have increased compared to March 31, 2020 primarily as a result of the rise in unemployment and the significant increase in borrower forbearance driven by
COVID-19.
The following tables set forth primary delinquencies, direct primary case reserves and risk
in-force
by aged missed payment status in our U.S. mortgage insurance portfolio as of the dates indicated:March 31, 2021 | ||||||||||||||||
(Dollar amounts in millions) | Delinquencies | Direct case reserves (1) | Risk in-force | Reserves as % of risk in-force | ||||||||||||
Payments in default: | ||||||||||||||||
3 payments or less | 8,296 | $ | 40 | $ | 436 | 9 | % | |||||||||
4 - 11 payments | 21,011 | 227 | 1,232 | 18 | % | |||||||||||
12 payments or more | 12,025 | 297 | 724 | 41 | % | |||||||||||
Total | 41,332 | $ | 564 | $ | 2,392 | 24 | % | |||||||||
September 30, 2020 | December 31, 2020 | |||||||||||||||||||||||||||||||
(Dollar amounts in millions) | Delinquencies | Direct case reserves (1) | Risk in-force | Reserves as % of risk in-force | Delinquencies | Direct case reserves (1) | Risk in-force | Reserves as % of risk in-force | ||||||||||||||||||||||||
Payments in default: | ||||||||||||||||||||||||||||||||
3 payments or less | 13,904 | $ | 49 | $ | 763 | 6 | % | 10,484 | $ | 43 | $ | 549 | 8 | % | ||||||||||||||||||
4—11 payments | 32,366 | 264 | 2,014 | 13 | % | |||||||||||||||||||||||||||
4 - 11 payments | 30,324 | 331 | 1,853 | 18 | % | |||||||||||||||||||||||||||
12 payments or more | 3,422 | 123 | 168 | 73 | % | 4,096 | 143 | 204 | 70 | % | ||||||||||||||||||||||
Total | 49,692 | $ | 436 | $ | 2,945 | 15 | % | 44,904 | $ | 517 | $ | 2,606 | 20 | % | ||||||||||||||||||
| (1) | Direct primary case reserves exclude loss adjustment expenses, |
in-force
December 31, 2019 | ||||||||||||||||
(Dollar amounts in millions) | Delinquencies | Direct case reserves (1) | Risk in-force | Reserves as % of risk in-force | ||||||||||||
Payments in default: | ||||||||||||||||
3 payments or less | 8,618 | $ | 28 | $ | 386 | 7 | % | |||||||||
4—11 payments | 4,876 | 78 | 225 | 35 | % | |||||||||||
12 payments or more | 2,898 | 99 | 146 | 68 | % | |||||||||||
Total | 16,392 | $ | 205 | $ | 757 | 27 | % | |||||||||
as of March 31, 2021 was primarily driven by higher reserves in relation to a decrease in delinquent risk in-force. Delinquent risk in-force decreased mainly from lower total delinquencies as cures outpaced new delinquencies in the first quarter of 2021, while reserves increased primarily from new delinquencies and reserve strengthening in the current year. As of September 30, 2020,March 31, 2021, we have experienced a materialan increase in total missed payments and paymentsloans that are delinquent for 4-1112 months or more due in large part to borrowers entering a forbearance plan over a year ago driven bya year,18 months, therefore, it is possible we could experience elevated delinquencies in this aged category for the remainder of 2020 and the first half of 2021. Resolution of a delinquency in a forbearance plan, whether it ultimately results in a cure or a claim, is difficult to estimate and may not be known for several quarters, if not longer.
COVID-19.
We estimated the loss reserve forCOVID-19
related delinquencies by applying a claim rate estimate which considers the emergence of cures on forbearance andnon-forbearance
delinquencies and the ongoing economic impact due to the pandemic. The large volume of additional forbearance delinquencies moving to 12 or more payments in default combined with lower loss expectations on delinquencies subject to a forbearance plan drove the decrease in reserves as a percentage of riskin-force
in the 12 or more payments in default category as of March 31, 2021. Forbearance plans may be extended up to 92
Primary insurance delinquency rates differ from region to region in the United States at any one time depending upon economic conditions and cyclical growth patterns. The tables below set forth the dispersion of direct primary case reserves and our primary delinquency rates for the various regions of the United States10 largest states and the 10 largest statesMetropolitan Statistical Areas (“MSA”) or Metro Divisions (“MD”) by our primary risk
in-force
as of the dates indicated. Delinquency rates are shown by region based upon the location of the underlying property, rather than the location of the lender.Percent of primary risk in-force as of September 30, 2020 | Percent of total reserves as of September 30, 2020 (1) | Delinquency rate | ||||||||||||||||||
September 30, 2020 | December 31, 2019 | September 30, 2019 | ||||||||||||||||||
By Region: | ||||||||||||||||||||
Southeast (2) | 19 | % | 20 | % | 5.96 | % | 2.14 | % | 2.14 | % | ||||||||||
Pacific (3) | 18 | 18 | 6.86 | % | 1.36 | % | 1.28 | % | ||||||||||||
South Central (4) | 17 | 15 | 5.56 | % | 1.84 | % | 1.77 | % | ||||||||||||
Northeast (5) | 11 | 20 | 6.87 | % | 2.69 | % | 2.76 | % | ||||||||||||
Great Lakes (6) | 10 | 6 | 3.56 | % | 1.71 | % | 1.63 | % | ||||||||||||
North Central (7) | 10 | 9 | 4.79 | % | 1.90 | % | 1.84 | % | ||||||||||||
Mid-Atlantic (8) | 6 | 5 | 5.63 | % | 1.87 | % | 1.89 | % | ||||||||||||
New England (9) | 5 | 5 | 4.66 | % | 1.90 | % | 1.87 | % | ||||||||||||
Plains (10) | 4 | 2 | 3.13 | % | 1.69 | % | 1.66 | % | ||||||||||||
Total | 100 | % | 100 | % | 5.44 | % | 1.93 | % | 1.89 | % | ||||||||||
Percent of primary risk in-force as ofMarch 31, 2021 | Percent of direct case reserves as of March 31, 2021 (1) | Delinquency rate as of | ||||||||||||||||||
March 31, 2021 | December 31, 2020 | March 31, 2020 | ||||||||||||||||||
By State: | ||||||||||||||||||||
California | 12 | % | 11 | % | 5.76 | % | 6.20 | % | 1.32 | % | ||||||||||
Texas | 8 | % | 8 | % | 5.25 | % | 5.82 | % | 1.82 | % | ||||||||||
Florida (2) | 7 | % | 10 | % | 5.97 | % | 6.92 | % | 1.96 | % | ||||||||||
Illinois (2) | 5 | % | 6 | % | 5.07 | % | 5.21 | % | 2.14 | % | ||||||||||
New York (2) | 5 | % | 12 | % | 6.36 | % | 6.92 | % | 2.69 | % | ||||||||||
Michigan | 4 | % | 2 | % | 2.68 | % | 2.93 | % | 1.30 | % | ||||||||||
Arizona | 4 | % | 2 | % | 4.06 | % | 4.54 | % | 1.28 | % | ||||||||||
North Carolina | 3 | % | 2 | % | 3.60 | % | 3.84 | % | 1.65 | % | ||||||||||
Washington | 3 | % | 3 | % | 5.47 | % | 5.37 | % | 1.09 | % | ||||||||||
Pennsylvania (2) | 3 | % | 3 | % | 3.83 | % | 4.11 | % | 1.94 | % | ||||||||||
| (1) |
| (2) |
Percent of primary risk in-force as ofMarch 31, 2021 | Percent of direct case reserves as of March 31, 2021 (1) | Delinquency rate as of | ||||||||||||||||||
March 31, 2021 | December 31, 2020 | March 31, 2020 | ||||||||||||||||||
By MSA or MD: | ||||||||||||||||||||
Chicago-Naperville MD | 3 | % | 4 | % | 6.28 | % | 6.36 | % | 2.34 | % | ||||||||||
Phoenix MSA | 3 | % | 2 | % | 4.12 | % | 4.63 | % | 1.28 | % | ||||||||||
New York MD | 3 | % | 8 | % | 9.56 | % | 10.25 | % | 3.55 | % | ||||||||||
Atlanta MSA | 2 | % | 3 | % | 6.10 | % | 6.68 | % | 2.12 | % | ||||||||||
Washington DC-Arlington MD | 2 | % | 2 | % | 5.84 | % | 6.09 | % | 1.44 | % | ||||||||||
Houston MSA | 2 | % | 3 | % | 6.89 | % | 7.59 | % | 2.34 | % | ||||||||||
Riverside-San Bernardino MSA | 2 | % | 2 | % | 6.53 | % | 7.08 | % | 1.86 | % | ||||||||||
Los Angeles-Long Beach MD | 2 | % | 3 | % | 7.30 | % | 7.57 | % | 1.31 | % | ||||||||||
Dallas MD | 2 | % | 2 | % | 4.59 | % | 5.10 | % | 1.74 | % | ||||||||||
Nassau-Suffolk MD | 2 | % | 4 | % | 10.13 | % | 10.64 | % | 3.25 | % | ||||||||||
Percent of primary risk in-force as of September 30, 2020 | Percent of total reserves as of September 30, 2020 (1) | Delinquency rate | ||||||||||||||||||
September 30, 2020 | December 31, 2019 | September 30, 2019 | ||||||||||||||||||
By State: | ||||||||||||||||||||
California | 11 | % | 11 | % | 7.13 | % | 1.42 | % | 1.27 | % | ||||||||||
Texas | 7 | % | 7 | % | 6.57 | % | 2.02 | % | 1.86 | % | ||||||||||
Florida | 7 | % | 10 | % | 8.04 | % | 2.13 | % | 2.18 | % | ||||||||||
Illinois | 5 | % | 6 | % | 5.90 | % | 2.25 | % | 2.10 | % | ||||||||||
New York | 5 | % | 11 | % | 7.78 | % | 2.98 | % | 3.00 | % | ||||||||||
Michigan | 4 | % | 2 | % | 3.53 | % | 1.43 | % | 1.31 | % | ||||||||||
Washington | 4 | % | 3 | % | 5.60 | % | 1.10 | % | 1.08 | % | ||||||||||
Pennsylvania | 4 | % | 3 | % | 4.52 | % | 2.12 | % | 2.18 | % | ||||||||||
North Carolina | 3 | % | 3 | % | 4.47 | % | 1.79 | % | 1.75 | % | ||||||||||
Arizona | 3 | % | 2 | % | 5.01 | % | 1.46 | % | 1.42 | % | ||||||||||
The following table sets forth the dispersion of our totaldirect primary case reserves and primary insuranceandweighted average annual mortgage interest rate and delinquency rate as of September 30, 2020:
March 31, 2021:in-force
and riskin-force
by year of policy origination, (Amounts in millions) | Average rate | Percent of total reserves (1) | Primary insurance in-force | Percent of total | Primary risk in-force | Percent of total | Weighted average rate (1) | Percent of direct case reserves (2) | Primary insurance in-force | Percent of total | Primary risk in-force | Percent of total | Delinquency rate | |||||||||||||||||||||||||||||||||||||||
Policy Year | Policy Year | |||||||||||||||||||||||||||||||||||||||||||||||||||
2004 and prior | 6.08 | % | 3.7 | % | $ | 870 | 0.4 | % | $ | 212 | 0.4 | % | 6.15 | % | 3 | % | $ | 663 | — | % | $ | 189 | — | % | 16.74 | % | ||||||||||||||||||||||||||
2005 to 2008 | 5.43 | % | 27.8 | 12,940 | 6.1 | 2,932 | 5.7 | 5.53 | % | 26 | 9,837 | 5 | 2,516 | 5 | 13.27 | % | ||||||||||||||||||||||||||||||||||||
2009 to 2012 | 4.20 | % | 1.3 | 1,858 | 0.9 | 404 | 0.8 | |||||||||||||||||||||||||||||||||||||||||||||
2013 | 4.13 | % | 1.3 | 2,567 | 1.2 | 613 | 1.2 | |||||||||||||||||||||||||||||||||||||||||||||
2009 to 2013 | 4.22 | % | 2 | 2,394 | 1 | 651 | 1 | 6.29 | % | |||||||||||||||||||||||||||||||||||||||||||
2014 | 4.45 | % | 3.1 | 4,944 | 2.3 | 1,174 | 2.3 | 4.47 | % | 3 | 3,176 | 1 | 859 | 2 | 6.21 | % | ||||||||||||||||||||||||||||||||||||
2015 | 4.15 | % | 5.3 | 10,336 | 4.9 | 2,465 | 4.8 | 4.16 | % | 5 | 6,729 | 3 | 1,795 | 3 | 5.69 | % | ||||||||||||||||||||||||||||||||||||
2016 | 3.88 | % | 9.2 | 19,715 | 9.3 | 4,727 | 9.2 | 3.88 | % | 9 | 13,214 | 6 | 3,503 | 7 | 5.32 | % | ||||||||||||||||||||||||||||||||||||
2017 | 4.24 | % | 11.4 | 20,541 | 9.7 | 4,938 | 9.6 | 4.25 | % | 11 | 13,817 | 7 | 3,556 | 7 | 6.58 | % | ||||||||||||||||||||||||||||||||||||
2018 | 4.75 | % | 13.4 | 21,282 | 10.0 | 5,119 | 9.9 | 4.77 | % | 13 | 14,618 | 7 | 3,671 | 7 | 7.86 | % | ||||||||||||||||||||||||||||||||||||
2019 | 4.20 | % | 18.2 | 46,638 | 21.9 | 11,346 | 22.1 | 4.21 | % | 19 | 33,429 | 16 | 8,361 | 16 | 5.73 | % | ||||||||||||||||||||||||||||||||||||
2020 | 3.42 | % | 5.3 | 70,745 | 33.3 | 17,463 | 34.0 | 3.27 | % | 9 | 87,599 | 42 | 21,787 | 41 | 1.36 | % | ||||||||||||||||||||||||||||||||||||
2021 | 2.89 | % | — | 24,711 | 12 | 5,978 | 11 | 0.03 | % | |||||||||||||||||||||||||||||||||||||||||||
Total portfolio | 4.06 | % | 100.0 | % | $ | 212,436 | 100.0 | % | $ | 51,393 | 100.0 | % | 3.75 | % | 100 | % | $ | 210,187 | 100 | % | $ | 52,866 | 100 | % | 4.48 | % | ||||||||||||||||||||||||||
| (1) | Average annual mortgage interest rate weighted by insurance |
| (2) | Direct primary case reserves exclude loss adjustments expenses, IBNR and reinsurance reserves. |
in-force.
The size of these policy years at origination combined with the significant decline in COVID-19
Three months ended September 30, | Increase (decrease) and percentage change | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | |||||||||||||
Revenues: | ||||||||||||||||
Premiums | $ | 71 | $ | 77 | $ | (6 | ) | (8) | % | |||||||
Net investment income | 7 | 13 | (6 | ) | (46) | % | ||||||||||
Net investment gains (losses) | 24 | (9 | ) | 33 | NM | (1) | ||||||||||
Policy fees and other income | — | 1 | (1 | ) | (100) | % | ||||||||||
Total revenues | 102 | 82 | 20 | 24 | % | |||||||||||
Benefits and expenses: | ||||||||||||||||
Benefits and other changes in policy reserves | 26 | 28 | (2 | ) | (7) | % | ||||||||||
Acquisition and operating expenses, net of deferrals | 19 | 17 | 2 | 12 | % | |||||||||||
Amortization of deferred acquisition costs and intangibles | 7 | 9 | (2 | ) | (22) | % | ||||||||||
Interest expense | 2 | 2 | — | — | % | |||||||||||
Total benefits and expenses | 54 | 56 | (2 | ) | (4) | % | ||||||||||
Income from continuing operations before income taxes | 48 | 26 | 22 | 85 | % | |||||||||||
Provision for income taxes | 15 | 8 | 7 | 88 | % | |||||||||||
Income from continuing operations | 33 | 18 | 15 | 83 | % | |||||||||||
Less: net income from continuing operations attributable to noncontrolling interests | 18 | 10 | 8 | 80 | % | |||||||||||
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders | 15 | 8 | 7 | 88 | % | |||||||||||
Adjustments to income from continuing operations available to Genworth Financial, Inc.’s common stockholders: | ||||||||||||||||
Net investment (gains) losses, net (2) | (12 | ) | 5 | (17 | ) | NM | (1) | |||||||||
Taxes on adjustments | 4 | (1 | ) | 5 | NM | (1) | ||||||||||
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders | $ | 7 | $ | 12 | $ | (5 | ) | (42) | % | |||||||
Nine months ended September 30, | Increase (decrease) and percentage change | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | |||||||||||||
Revenues: | ||||||||||||||||
Premiums | $ | 202 | $ | 240 | $ | (38 | ) | (16) | % | |||||||
Net investment income | 25 | 44 | (19 | ) | (43) | % | ||||||||||
Net investment gains (losses) | 37 | 4 | 33 | NM | (1) | |||||||||||
Policy fees and other income | 1 | — | 1 | NM | (1) | |||||||||||
Total revenues | 265 | 288 | (23 | ) | (8) | % | ||||||||||
Benefits and expenses: | ||||||||||||||||
Benefits and other changes in policy reserves | 89 | 82 | 7 | 9 | % | |||||||||||
Acquisition and operating expenses, net of deferrals | 54 | 51 | 3 | 6 | % | |||||||||||
Amortization of deferred acquisition costs and intangibles | 21 | 27 | (6 | ) | (22) | % | ||||||||||
Goodwill impairment | 5 | — | 5 | NM | (1) | |||||||||||
Interest expense | 5 | 6 | (1 | ) | (17) | % | ||||||||||
Total benefits and expenses | 174 | 166 | 8 | 5 | % | |||||||||||
Income from continuing operations before income taxes | 91 | 122 | (31 | ) | (25) | % | ||||||||||
Provision for income taxes | 28 | 37 | (9 | ) | (24) | % | ||||||||||
Income from continuing operations | 63 | 85 | (22 | ) | (26) | % | ||||||||||
Less: net income from continuing operations attributable to noncontrolling interests | 35 | 45 | (10 | ) | (22) | % | ||||||||||
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders | 28 | 40 | (12 | ) | (30) | % | ||||||||||
Adjustments to income from continuing operations available to Genworth Financial, Inc.’s common stockholders: | ||||||||||||||||
Net investment (gains) losses, net (2) | (19 | ) | (2 | ) | (17 | ) | NM | (1) | ||||||||
Goodwill impairment (3) | 3 | — | 3 | NM | (1) | |||||||||||
Taxes on adjustments | 5 | 1 | 4 | NM | (1) | |||||||||||
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders | $ | 17 | $ | 39 | $ | (22 | ) | (56) | % | |||||||
As of September 30, | Increase (decrease) and percentage change | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | |||||||||||||
Primary insurance in-force | $ | 215,800 | $ | 206,400 | $ | 9,400 | 5 | % | ||||||||
Risk in-force | $ | 75,200 | $ | 71,900 | $ | 3,300 | 5 | % | ||||||||
Three months ended September 30, | Increase (decrease) and percentage change | Nine months ended September 30, | Increase (decrease) and percentage change | |||||||||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | 2020 | 2019 | 2020 vs. 2019 | ||||||||||||||||||||||||||
New insurance written | $ | 5,600 | $ | 4,600 | $ | 1,000 | 22 | % | $ | 14,400 | $ | 13,400 | $ | 1,000 | 7 | % | ||||||||||||||||
Net premiums written | $ | 91 | $ | 70 | $ | 21 | 30 | % | $ | 223 | $ | 180 | $ | 43 | 24 | % | ||||||||||||||||
Three months ended September 30, | Increase (decrease) | Nine months ended September 30, | Increase (decrease) | |||||||||||||||||||||
2020 | 2019 | 2020 vs. 2019 | 2020 | 2019 | 2020 vs. 2019 | |||||||||||||||||||
Loss ratio | 37 | % | 36 | % | 1 | % | 44 | % | 34 | % | 10 | % | ||||||||||||
Expense ratio (net earned premiums) | 37 | % | 34 | % | 3 | % | 40 | % | 32 | % | 8 | % | ||||||||||||
Expense ratio (net premiums written) | 29 | % | 38 | % | (9 | )% | 36 | % | 43 | % | (7 | )% | ||||||||||||
September 30, 2020 | December 31, 2019 | September 30, 2019 | ||||||||||
Primary insured loans in-force | 1,193,072 | 1,290,216 | 1,293,961 | |||||||||
Delinquent loans | 7,422 | 7,221 | 7,713 | |||||||||
Percentage of delinquent loans (delinquency rate) | 0.62 | % | 0.56 | % | 0.60 | % | ||||||
Flow loans in-force | 1,096,679 | 1,189,019 | 1,192,282 | |||||||||
Flow delinquent loans | 7,171 | 7,003 | 7,469 | |||||||||
Percentage of flow delinquent loans (delinquency rate) | 0.65 | % | 0.59 | % | 0.63 | % | ||||||
Bulk loans in-force | 96,393 | 101,197 | 101,679 | |||||||||
Bulk delinquent loans | 251 | 218 | 244 | |||||||||
Percentage of bulk delinquent loans (delinquency rate) | 0.26 | % | 0.22 | % | 0.24 | % | ||||||
Percent of primary risk in-force as of September 30, 2020 | Delinquency rate | |||||||||||||||
September 30, 2020 | December 31, 2019 | September 30, 2019 | ||||||||||||||
By state and territory: | ||||||||||||||||
New South Wales | 28 | % | 0.50 | % | 0.42 | % | 0.45 | % | ||||||||
Queensland | 23 | 0.77 | % | 0.75 | % | 0.80 | % | |||||||||
Victoria | 23 | 0.49 | % | 0.41 | % | 0.43 | % | |||||||||
Western Australia | 13 | 1.04 | % | 1.00 | % | 1.06 | % | |||||||||
South Australia | 6 | 0.69 | % | 0.65 | % | 0.69 | % | |||||||||
Australian Capital Territory | 3 | 0.25 | % | 0.24 | % | 0.26 | % | |||||||||
Tasmania | 2 | 0.24 | % | 0.29 | % | 0.31 | % | |||||||||
New Zealand | 1 | 0.05 | % | 0.02 | % | 0.02 | % | |||||||||
Northern Territory | 1 | 0.92 | % | 0.71 | % | 0.85 | % | |||||||||
Total | 100 | % | 0.62 | % | 0.56 | % | 0.60 | % | ||||||||
U.S. Life Insurance segment
COVID-19
The most significant impactsimpact in our U.S. life insurance businesses from the current low interest rate environment and continued elevated mortality. Our long-term care insurance products could bewere favorably impacted by higher mortality in the current year. Conversely, higher mortality rates had unfavorable impacts in our life insurance products and we have observed minimal impact fromcurrentcontinued low interest rate environment, particularly as it relatesrelated to loss recognition testing and asset adequacy analysis as well as experiencing further delays in approvals for in-force rate actions. These impacts would be partially offset by higher mortality which is favorable to our long-term care insurance products. Future changes in morbidity experience may also impact our long-term care insurance business. The low interest rate environment as well as volatility in equity markets have adversely impacted earnings in our fixed annuity products with limited offsetting benefit from higher mortality. Conversely, higher mortality rates could lower profitability in our life insurance products.the fourth quarter of 2020.
COVID-19 are
in the first quarter of 2021 was related toCOVID-19
in our fixed annuity products. Our products were also negatively impacted by the In our long-term care insurance products, we have experienced some degree of higher mortality duringactive policy reserves.our operating results. Although it is not our practice to track cause of death for policyholders and claimants, we believe the favorable results of our long-term care insurance business in the first quarter of 2021 and during 2020 were likely impacted bysecond and third quartersimpacts of 2020.the pandemic subside. We have also experienced lower new claims incidence; however, we do not expect this to be permanent but rather a temporary reduction whileand social distancing protocols are in effect. Although new pending claim volumes increased sequentially in the first quarter of 2021, near term incidence may continue to be impacted byhave temporarily discontinued in-personcontinue to utilize virtual assessments to assess eligibility for benefits and are utilizing virtual whilein the interim, have been temporarily discontinued during
COVID-19
which has had a favorable impact on claim reserves and COVID-19,
but we expect the impacts to be temporary. We believeCOVID-19
has accelerated mortality on our most vulnerable claimants, which may reduce mortality rates in future periods as the shelter-in-place
COVID-19.
We in-person
assessments COVID-19,
with anin-person
assessment to follow once94
social distancing protocols are relaxed. For claimants without the technology to perform virtual assessments, we have alternate options for gathering information. Our long-term care insurance benefit utilization will be monitored for impact;impact, although it is too early to tell the magnitude and/or direction of that impact.
Additionally, our U.S. life insurance companies are dependent on the approval of actuarially justified
in-force
rate actions in our long-term care insurance business, including those rate actions which were previouslyfiled and are currently pending review and approval. We have experienced some delays and could experience additional delays in receiving approvals of these rate actions duringdodid not expecthave a significant impact on our financial results in the first quarter of 2021 or during 2020 as a result of these delays.
COVID-19,
although we We continuehave continued to provide customer service to our policyholders during this uncertain time and are available to address questions or concerns regarding their policies. We are continually assessing our operational processes and monitoring potential impacts to morbidity due to
COVID-19.
We have not experienced a significant impact on our premiums in our U.S. life insurance businesses while there have been premium deferrals/grace period mandates in place in certain states. Given our current ratings, our sales volume is low in our long-term care insurance products. In 2016, we suspended sales of our traditional life insurance and fixed annuity products. For traditional life insurance policies, where regular premiums are typically required, and universal life insurance contracts, where premiums are typically flexible but frequently require minimum premiumscontinue to be paid, subject to state mandates for additional grace periods during COVID-19, policies follow normal lapse or nonforfeiture options, if the policyholders decided not to pay their premiums. There is no requirement to pay premiums in our fixed annuity contracts and benefits would adjust contractually based on actual premiums paid in these products.
While the ongoing impact ofFurtherFuture declines in interest rates as well as equity market volatility as a result of20192020 Annual Report on Form
COVID-19
is very difficult to predict, the related outcomes and impact on the U.S. life insurance business will depend on the length and severity of the pandemic and shape of the economic recovery. COVID-19
would increase reserves and capital requirements in our U.S. life insurance business. For sensitivities related to interest rates, lapses and mortality on our U.S. life insurance products, see “Item 7—Management’s Discussion and Analysis—Critical Accounting Estimates” in our 10-K.
We will continue to monitorCOVID-19
impacts and evaluate all of our assumptions that may need updating as a result of longer-term trends related to the pandemic.Trends and conditions
Results of our U.S. life insurance businesses depend significantly upon the extent to which our actual future experience is consistent with assumptions and methodologies we have used in calculating our reserves. Many factors can affect the results of our U.S. life insurance businesses. Because these factors are not known in
advance, change over time, are difficult to accurately predict and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. We will continue to monitor our experience and assumptions closely and make changes to our assumptions and methodologies, as appropriate, for our U.S. life insurance products. Even small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our DAC amortization, reserve levels, results of operations and financial condition.
Our liability for policy and contract claims is reviewed quarterly and we conduct a detailed review of our claim reserve assumptions and methodologies for our long-term care insurance business annually typically during the third or fourth quarter of each year. Our liability for future policy benefits is reviewed at least annually as a part of our loss recognition testing typically performed in the third or fourth quarter of each year. As part of loss recognition testing, we also review the recoverability of DAC and PVFP at least annually. In addition, we perform cash flow testing separately for each of our U.S. life insurance companies on a statutory accounting basis annually. We will complete our annual review of long-term care insurance claim reserve assumptions and complete our loss recognition and cash flow testing as well as assumption reviews in the fourth quarter of 2020. Our review of assumptions, as part of our testing in the fourth quarter of 2020, will include expected claim incidence and terminations, benefit utilization, mortality, persistency, interest rates and in-force rate actions, among other assumptions. We will be specifically reviewing the basic long-term care insurance incurred but not reported reserve calculation, including the assumptions for new claim counts. While this work is ongoing, current trends do not indicate a need to strengthen the claims reserve as assumptions appear to be holding up in the aggregate.
Results of our U.S. life insurance businesses are also impacted by interest rates. Low interest rates put pressure on the profitability and returns of these businesses as higher yielding investments mature and are
95
replaced with lower-yielding investments. We seek to manage the impact of low interest rates through asset-liability management as well as interest rate hedging strategies for a portion of our long-term care insurance product cash flows. Additionally, certain products have implicit and explicit rate guarantees or optionality that are significantly impacted by changes in interest rates. For a further discussion of the impact of interest rates on our U.S. life insurance businesses, see “Item 7A—Quantitative and Qualitative Disclosures About Market Risk” in our 20192020 Annual Report on Form
10-K.
The RBCrisk-based capital (“RBC”) of each of our U.S. life insurance subsidiaries exceeded the level of RBC that would require any of them to take or become subject to any corrective action in their respective domiciliary state as of December 31, 2019.2020. However, the RBC ratio of our U.S. life insurance subsidiaries has been negatively impacted over the past few years as a result of statutory losses driven by the declining performance of the business and increases in our statutory reserves, including results of Actuarial Guideline 38, cash flow testing and assumption reviews particularly in our long-term care insurance business. InHowever, in the first quarter of 2021, the RBC ratio increased from 2020 low interest rates and equity market declines negatively impacted our variable annuity products resulting in material statutory reserve increases. However, in the second and third quartersas a result of 2020, elevated mortalityhigher earnings in our long-term care insurance business mainly driven by claim terminations and equity market recovery impacts onfavorably impacted our statutory capitalfrom favorable interest rates and surplus. Any future statutory losses would decrease the RBC ratio of our U.S. life insurance subsidiaries.equity markets. We continue to face challenges in our principal life insurance subsidiaries, particularly those subsidiaries that rely heavily onfurther decline in the RBC ratios of these subsidiaries given the time lag between the approval ofFurtherFuture declines in the RBC ratio of our life insurance subsidiaries could result in heightened supervision and regulatory action.
in-force
rate actions as well as in our variable annuity products in-force
rate actions as a source of earnings and capital. We may see variability in statutory results and a in-force
rate actions versus when the benefits from thein-force
rate actions (including increased premiums and associated benefit reductions) are fully realized in our financial results. Long-term care insurance
The long-term profitability of our long-term care insurance business depends upon how our actual experience compares with our valuation assumptions, including but not limited to morbidity, mortality and persistency. If any of our assumptions prove to be inaccurate, our reserves may be inadequate, which in the past
has had, and may in the future have, a material adverse effect on our results of operations, financial condition and business. Results of our long-term care insurance business are also influenced by our ability to achieve
in-force
rate actions, improve investment yields and manage expenses and reinsurance, among other factors. Changes in regulations or government programs, including long-term care insurance rate action legislation, regulation and/or practices, could also impact our long-term care insurance business either positively or negatively.Our assumptions are sensitive to slight variability in actual experience and small changes in assumptions could result in decreases in the margin of our long-term care insurance blocks to at/or below zero in future years. To the extent, based on reviews, the margin of our long-term care insurance block, excluding the acquired block, is negative, we would be required to recognize a loss, by amortizing more DAC and/or establishing additional benefit reserves. For our acquired block of long-term care insurance, the impacts of adverse changes in assumptions would also be reflected as a loss if our margin for this block is reduced below zero by establishing additional benefit reserves. A significant decrease in our loss recognition testing margin of our long-term care insurance blocks could have a material adverse effect on our business, results of operations and financial condition.
As a result of the review of our claim reserves completed in prior years, we have been establishing higher claim reserves on new claims, which has negatively impacted earnings and we expect this to continue going forward. Also, average claim reserves for new claims are trending higher over time as the mix of claims continues to evolve, with an increasing number of policies with higher daily benefit amounts and higher inflation factors going on claim. In addition, although new claim counts on our older long-term care insurance blocks of business will continue to decrease as the blocks run off, we are gaining more experience on our larger new blocks of business and expect continued growth in new claims on these blocks as policyholders reach older attained ages with higher likelihood of going on claim.
96
Given the ongoing challenges in our long-term care insurance business, we continue pursuing initiatives to improve the risk and profitability profile of our business including: premium rate increases and associated benefit reductions on our As of September 30, 2020, we have suspended sales in Hawaii, Massachusetts, New Hampshire, Vermont and Montana, and will consider taking similar actions in the future in other states where we are unable to obtain satisfactory rate increases on in-force policies. We will also consider litigation against states that decline actuarially justified rate increases. As of September 30, 2020, we were in litigation with one state that has refused to approve actuarially justified rate increases.
in-force
policies; managing expense levels; executing investment strategies targeting higher returns; and enhancing our financial and actuarial analytical capabilities. Executing on our multi-year long-term care insurancein-force
rate action plan with premium rate increases and associated benefit reductions on our legacy long-term care insurance policies is critical to the business. For an update onin-force
rate actions, refer to “Significant Developments—U.S. Life Insurance.”The approval process for
in-force
rate actions and the amount and timing of the premium rate increases and associated benefit reductions approved vary by state. In certain states, the decision to approve or disapprove a rate increase can take a significant amount of time, and the approved amount may be phased in over time. After approval, insureds are provided with written notice of the increase and increases are generally applied on the insured’s next policy anniversary date. As a result, the benefits of any rate increase are not fully realized until the implementation cycle is complete and are, therefore, expected to be realized over time.Life insurance
Results of our life insurance business are impacted primarily by mortality, persistency, investment yields, expenses, reinsurance and statutory reserve requirements, among other factors. We no longer solicit sales of traditional life insurance products; however, we continue to service our existing retained and reinsured blocks of business.
Mortality levels may deviate each period from historical trends. Overall mortality experience was higher for the three months ended September 30, 2020March 31, 2021 compared to three months ended September 30, 2019,March 31, 2020, attributable in part to
COVID-19.
We have experienced higher mortality than our then-current andpriced-for
assumptions in recent years for our universal life insurance blocks. We have also been experiencing higher mortality related charges resulting from an increase in rates charged by our reinsurance partners reflecting natural block aging and higher mortality compared to expectations.In the fourth quarter of 2020, we will performperformed our annual review of life insurance assumptions and loss recognition test. Our review will focusfocused on assumptions for interest rates, persistency and mortality.mortality, among other assumptions. As part of our review in the fourth quarter of 2019,2020, we recorded $107a $60 million of term universal life insurance products primarily from favorable assumption changesupdates. The favorable updates in our term universal life insurance product were primarily driven by a model refinement related to persistency and grace period timing. Other assumption updates mostly focused on future cost of insurance rates and long-term trends in mortality, persistency and interest rates. We also recorded a $50 millionlower interest rate environment.first quarter of 2021, we recorded an additional $17 million
after-tax charges
benefit in our term universal andafter-tax
charge related to universal life insurance DAC recoverability testing primarily as a result of reflecting these updated assumptions. In the after-tax
charge in our universal life insurance products in connection with DAC recoverability testing.We also updated mortality assumptions for certain universal and term universal life insurance products as well as our term life insurance products in the fourth quarter of 2019.2020. Our mortality experience for older ages and late-duration premium periods and conversion products is emerging. Assumption changes in our term life insurance products focused on mortality improvements during the post-level premium period based on observed trends in emerging experience. This change to the mortality assumption increased the loss recognition testing
97
margin in our term life insurance products. We will continue to regularly review our mortality assumptions as well as all of our other assumptions in light of emerging experience. We may be required to make further adjustments in the future to our assumptions which could impact our universal and term universal life insurance reserves or our loss recognition testing results of our term life insurance products. Any further materially adverse changes to our assumptions, including mortality or interest rates, could have a materially negative impact on our results of operations, financial condition and business.
Compared to 1998 and prior years, we had a significant increase in term life insurance sales between 1999 and 2009, particularly in 1999 and 2000. The blocks of business issued since 2000 vary in size as compared to the large 1999 and 2000 blocks of business. As our largewe expect that trendinto the current year due to continue in the fourth quarter of 2020 and into 2021 albeit to a lesser extent.in our term life insurance products. However, going forward, given our smaller block sizes and reinsurance agreements are in place, we would expect the impact to DAC amortization on policies entering
10-
and15-year
level premium period term life insurance policies written in 1999 and 2000 transitioned to their post-level guaranteed premium rate period, we experienced lower persistency compared to our pricing and valuation assumptions which accelerated DAC amortization in previous years. As our large20-year
level premium period business written in 1999 entered its post-level period, we experienced higher lapses resulting in accelerated DAC amortization in 2019. This trend continued in the first quarter of 2020 for the 1999 block, as it reached the end of its level premium period. Additionally, we have experienced a similar trend with the20-year
level premium period business written in 2000 as it entered its post-level period during 2020 and 60-day
grace period. If lapse experience on future10-,
15-
and20-year
level premium period blocks emerges similar to our large20-year
level premium period business written in 1999 and 2000, we would expect volatility in DAC amortization if persistency is lower than original assumptions, which would reduce profitability in the post-level period to be lower than what we experienced in 2019 and 2020. Additionally, the extension of grace periods or no lapsation mandated by state regulators during COVID-19 has impacted the timing and level of lapses for these blocks of business. We have also taken actions to mitigate potentially unfavorable impacts through the use of reinsurance, particularly for certain term life insurance policies issued between 2001 and 2004.
We began selling term universal life insurance in late 2009, with sales peaking in 2011 prior to discontinuing sales of the product in 2012. We priced these products assuming high lapses upon expiration of the level premium period and we continue to expect those higher lapses. As ourenterentered their post-level premium period in late 2019 and 2020, we recordrecorded higher reserves during the premium grace period and release the reserveswhich were released when the policies lapse. Welapsed. With the model refinement implemented as part of our 2020 assumption updates, we no longer expect further reserve increasesto see this dynamic to the same extent when term universal life insurance blocks enter their post-level period in these blocks through the remainder of 2020 and into 2021 until the number of policies exiting the grace period exceeds the number of policies entering the post-level guaranteed premium rate period. The extension of grace periods and reinstatements mandated by state regulators during COVID-19 have temporarily increased the level of reserves held for these blocks of business.
future.10-year
level premium period term universal life insurance policies written in 2009 and 2010 Fixed annuities
Results of our fixed annuities business are affected primarily by investment performance, interest rate levels, the slope of the interest rate yield curve, net interest spreads, equity market conditions, mortality, persistency and expense and commission levels. We no longer solicit sales of traditional fixed annuity products; however, we continue to service our existing retained and reinsured blocks of business.
We monitor and change crediting rates on fixed annuities on a regular basis to maintain spreads and targeted returns, if applicable. However, if interest rates remain at current levels or decrease, we could see declines in spreads which impact the margins on our products, particularly our single premium immediate annuity products. Due to the premium deficiency that existed in 2016, we continuehave continued to monitor our single premium immediate annuity products more frequently than annually and recorded additional charges to net income during 2019.annually. If investment performance deteriorates or interest rates decrease or remain at the current levels for an extended period of time, we could incur additional charges in the future. The impacts of future adverse changes in our assumptions could result in the establishment of additional future policy benefit reserves and would be immediately reflected as a loss if our margin for this block is again reduced below zero. Any favorable variation would result in additional margin but no immediate benefit to income and would result in higher income recognitionrecognized over the remaining duration of the
in-force block.
block but would not have an immediate benefit to net income.98
For fixed indexed annuities, equity market and interest rate performance and volatility could also result in additional gains or losses, although associated hedging activities are expected to partially mitigate these impacts.
Segment results of operations
Three Months Ended September 30, 2020March 31, 2021 Compared to Three Months Ended September 30, 2019March 31, 2020
The following table sets forth the results of operations relating to our U.S. Life Insurance segment for the periods indicated:
Three months ended September 30, | Increase (decrease) and percentage change | Three months ended March 31, | Increase (decrease) and percentage change | |||||||||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | 2021 | 2020 | 2021 vs. 2020 | ||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Premiums | $ | 711 | $ | 717 | $ | (6 | ) | (1 | )% | $ | 714 | $ | 718 | $ | (4 | ) | (1 | )% | ||||||||||||||
Net investment income | 726 | 722 | 4 | 1 | % | 716 | 695 | 21 | 3 | % | ||||||||||||||||||||||
Net investment gains (losses) | 348 | 11 | 337 | NM | (1) | 42 | (70 | ) | 112 | 160 | % | |||||||||||||||||||||
Policy fees and other income | 152 | 152 | — | — | % | 148 | 144 | 4 | 3 | % | ||||||||||||||||||||||
Total revenues | 1,937 | 1,602 | 335 | 21 | % | 1,620 | 1,487 | 133 | 9 | % | ||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||||
Benefits and other changes in policy reserves | 1,221 | 1,225 | (4 | ) | — | % | 1,155 | 1,297 | (142 | ) | (11 | )% | ||||||||||||||||||||
Interest credited | 95 | 106 | (11 | ) | (10 | )% | 90 | 100 | (10 | ) | (10 | )% | ||||||||||||||||||||
Acquisition and operating expenses, net of deferrals | 158 | 158 | — | — | % | 192 | 151 | 41 | 27 | % | ||||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles | 87 | 89 | (2 | ) | (2 | )% | 68 | 87 | (19 | ) | (22 | )% | ||||||||||||||||||||
Interest expense | — | 4 | (4 | ) | (100 | )% | — | 5 | (5 | ) | (100 | )% | ||||||||||||||||||||
Total benefits and expenses | 1,561 | 1,582 | (21 | ) | (1 | )% | 1,505 | 1,640 | (135 | ) | (8 | )% | ||||||||||||||||||||
Income from continuing operations before income taxes | 376 | 20 | 356 | NM | (1) | |||||||||||||||||||||||||||
Provision for income taxes | 87 | 10 | 77 | NM | (1) | |||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 115 | (153 | ) | 268 | 175 | % | ||||||||||||||||||||||||||
Provision (benefit) for income taxes | 32 | (27 | ) | 59 | NM | (1) | ||||||||||||||||||||||||||
Income from continuing operations | 289 | 10 | 279 | NM | (1) | |||||||||||||||||||||||||||
Adjustments to income from continuing operations: | ||||||||||||||||||||||||||||||||
Income (loss) from continuing operations | 83 | (126 | ) | 209 | 166 | % | ||||||||||||||||||||||||||
Adjustments to income (loss) from continuing operations: | ||||||||||||||||||||||||||||||||
Net investment (gains) losses, net (2) | (348 | ) | (14 | ) | (334 | ) | NM | (1) | (41 | ) | 67 | (108 | ) | (161 | )% | |||||||||||||||||
(Gains) losses on early extinguishment of debt | — | 4 | (4 | ) | (100 | )% | ||||||||||||||||||||||||||
Expenses related to restructuring | 14 | — | 14 | NM | (1) | |||||||||||||||||||||||||||
Taxes on adjustments | 73 | 3 | 70 | NM | (1) | 6 | (15 | ) | 21 | 140 | % | |||||||||||||||||||||
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 14 | $ | (1 | ) | $ | 15 | NM | (1) | $ | 62 | $ | (70 | ) | $ | 132 | 189 | % | ||||||||||||||
| (1) | We define “NM” as not meaningful for increases or decreases greater than 200%. |
| (2) | For the three months ended |
The following table sets forth adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for the businesses included in our U.S. Life Insurance segment for the periods indicated:
Three months ended September 30, | Increase (decrease) and percentage change | Three months ended March 31, | Increase (decrease) and percentage change | |||||||||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | 2021 | 2020 | 2021 vs. 2020 | ||||||||||||||||||||||||||
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders: | ||||||||||||||||||||||||||||||||
Long-term care insurance | $ | 59 | $ | 21 | $ | 38 | 181 | % | $ | 95 | $ | 1 | $ | 94 | NM | (1) | ||||||||||||||||
Life insurance | (69 | ) | (25 | ) | (44 | ) | (176 | )% | (63 | ) | (77 | ) | 14 | 18 | % | |||||||||||||||||
Fixed annuities | 24 | 3 | 21 | NM | (1) | 30 | 6 | 24 | NM | (1) | ||||||||||||||||||||||
Total adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 14 | $ | (1 | ) | $ | 15 | NM | (1) | $ | 62 | $ | (70 | ) | $ | 132 | 189 | % | ||||||||||||||
| (1) | We define “NM” as not meaningful for increases or decreases greater than 200%. |
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders in our long-term care insurance business increased $38$94 million primarily due tofrom an increase in claim terminations driven mostly by higher mortality, as well as favorable development on IBNR claims and higher investment income in the current year. We also increased reserves by $76 million in the current year favorable development on incurred but not reported claimsto account for changes to incidence and higher net investment income. These increases were partially offsetmortality experience driven by higher frequency and severity of new claims in the current year.
COVID-19,
which we believe are temporary.The adjusted operating loss available to Genworth Financial, Inc.’s common stockholders in our life insurance business increased $44decreased $14 million mainly attributable to higher lapses primarily associated withreserves recorded in the prior year on our large 20-year term life insurance block entering its post-level premium period, higher reserves in our duringand from lower lapses primarily associated with our largeandpartially offset by higher mortality in our universal and term universal life insurance products and a DAC impairment of $17 million in our universal life insurance products in the current year compared to the prior year. The prior year included an unfavorable adjustment of $10 million related to higher ceded reinsurance rates.
10-year
term universal life insurance block entering its post-level premium period 20-year
term life insurance block written in the end of 2000 as it entered its post-level premium period following the60-day
grace period, Adjusted operating income available to Genworth Financial, Inc.’s common stockholders in our fixed annuities business increased $21$24 million predominantly from $13 million of unfavorable charges relatedmainly attributable to loss recognition testinglower reserves and DAC amortization in our fixed indexed annuities driven by favorable equity market and interest rate changes in the priorcurrent year that did not recur and higher mortality in our single premium immediate annuity products, partially offset by lower net spreads in the current year.annuities.
Revenues
Premiums
Our long-term care insurance business increased $9$4 million largely from $25$23 million of increased premiums in the current year from
in-force
rate actions approved and implemented, partially offset by policy terminations and policies enteringpaid-up
status in the current year.Our life insurance business decreased $15$8 million mainly attributable to the continued runoff of our term and whole life insurance products in the current year.
Net investment income
Our long-term care insurance business increased $24$46 million largely from an increase in average invested assets. The increase was also attributable to higher income from limited partnerships and U.S. Government Treasury Inflation Protected Securities (“TIPS”)an increase in average invested assets in the current year.
Our life insurance business decreased $5 million principally related to unfavorable prepayment speed adjustments on mortgage-backed securities and lower income from bond calls in the current year.
Our fixed annuities business decreased $18$20 million largely attributable to lower average invested assets in the current year due to block runoff in the current year.runoff.
Net investment gains (losses)
The increase inchange to net investment gains of $27 million in the current year from net investment losses of $55 million in the prior year in our long-term care insurance business was primarilypredominantly related to net gains from the sale of U.S. government securities in the current year due to portfolio rebalancing and asset exposure as a result of the prolonged low interest rate environment. The change was also attributable to higher unrealized gains from changes in the fair value of equity securities in the current year.
Net investment gains in our life insurance business increased $11 million predominantly from higher net derivative gains and unrealized gains from changes in the fair value of equity securities in the current year compared to unrealized losses in the prior year.
The change to net investment gains of $3 million in the current year from net investment losses of $16 million in the prior year in our fixed annuities business was largely the result ofprimarily related to net derivative gains from sale of investment securities in the current year compared to net derivative losses in the prior year.
Benefits and expenses
Benefits and other changes in policy reserves
Our long-term care insurance business decreased $15$99 million primarily due to an increase in claim terminations driven mostly by higher mortality in the current year and from favorable development on incurred but not reported claims. Given the lower new claim counts submitted during COVID-19, incurred but not reported reserves were strengthened by $24 million reflecting our assumption that new claim incidence during this period will ultimately return to normal levels, partially offsetting the favorable development on incurred but not reportedIBNR claims. These decreases were partially offset by aging of the$50$133 million recorded in connection with an accrual for profits followed by losses, aging oflosses. In addition, we increased claim reserves by $67 million reflecting our assumption thatin-force block (including higher frequency of new claims), and higher severitymost vulnerable claimants, leaving the remaining claim population less likely to terminate compared to theinsubmitted, IBNR reserves were also strengthened by $29 million, partially offsetting the current year. The decrease was also partially offset by a $33 million less favorable impact from reduced benefits in the current year related to in-force rate actions approved and implemented.development on IBNR claims.
in-force
block and higher incremental reserves of COVID-19
accelerated our mortality experience on the pre-pandemic
average population. Given our assumption thatCOVID-19
has temporarily decreased the number of new claims Our life insurance business increased $41decreased $20 million primarily attributable to higher reserves recorded in the prior year on ouryear and from higher reserves in our 10-year term universal life insurance block entering its post-level premium period during the premium grace period.year.
10-year
term universal life insurance block which entered its post-level premium period, partially offset by higher mortality in our universal and term universal life insurance products in the current year compared to the prior Our fixed annuities business decreased $30$23 million principally from $17 million oflower reserves in our fixed indexed annuities driven by favorable equity market and interest rate changes in the current year compared to an unfavorable chargesmarket in the prior year that did not recur related to loss recognition testing and higher mortality in our single premium immediate annuity productsannuities in the current year.
Interest credited.
Acquisition and operating expenses, net of deferrals.
in-force
rate action plan and restructuring costs of $10 million in the current year.101
Amortization of deferred acquisition costs and intangibles
Our life insurance business decreased $3 million principally from prior year lapses in the large
20-year
term life insurance block written in 2000, partially offset by a DAC impairment of $22 million in our universal life insurance products largely due to lower future estimated gross profits.Our fixed annuities business decreased $16 million primarily related to lower DAC amortization reflecting the impact of favorable market changes in the current year.
Interest expense.
non-recourse
funding obligations in the Provision (benefit) for income taxes.
pre-tax income in the current year.
Nine months ended September 30, | Increase (decrease) and percentage change | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | |||||||||||||
Revenues: | ||||||||||||||||
Premiums | $ | 2,141 | $ | 2,139 | $ | 2 | — | % | ||||||||
Net investment income | 2,113 | 2,147 | (34 | ) | (2) | % | ||||||||||
Net investment gains (losses) | 396 | 59 | 337 | NM | (1) | |||||||||||
Policy fees and other income | 438 | 490 | (52 | ) | (11) | % | ||||||||||
Total revenues | 5,088 | 4,835 | 253 | 5 | % | |||||||||||
Benefits and expenses: | ||||||||||||||||
Benefits and other changes in policy reserves | 3,731 | 3,672 | 59 | 2 | % | |||||||||||
Interest credited | 292 | 318 | (26 | ) | (8) | % | ||||||||||
Acquisition and operating expenses, net of deferrals | 456 | 448 | 8 | 2 | % | |||||||||||
Amortization of deferred acquisition costs and intangibles | 257 | 222 | 35 | 16 | % | |||||||||||
Interest expense | 5 | 13 | (8 | ) | (62) | % | ||||||||||
Total benefits and expenses | 4,741 | 4,673 | 68 | 1 | % | |||||||||||
Income from continuing operations before income taxes | 347 | 162 | 185 | 114 | % | |||||||||||
Provision for income taxes | 93 | 53 | 40 | 75 | % | |||||||||||
Income from continuing operations | 254 | 109 | 145 | 133 | % | |||||||||||
Adjustments to income from continuing operations: | ||||||||||||||||
Net investment (gains) losses, net (2) | (402 | ) | (65 | ) | (337 | ) | NM | (1) | ||||||||
(Gains) losses on early extinguishment of debt | 4 | — | 4 | NM | (1) | |||||||||||
Expenses related to restructuring | — | 3 | (3 | ) | (100) | % | ||||||||||
Taxes on adjustments | 83 | 13 | 70 | NM | (1) | |||||||||||
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | (61 | ) | $ | 60 | $ | (121 | ) | NM | (1) | ||||||
Nine months ended September 30, | Increase (decrease) and percentage change | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | |||||||||||||
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders: | ||||||||||||||||
Long-term care insurance | $ | 108 | $ | 38 | $ | 70 | 184 | % | ||||||||
Life insurance | (227 | ) | (17 | ) | (210 | ) | NM | (1) | ||||||||
Fixed annuities | 58 | 39 | 19 | 49 | % | |||||||||||
Total adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | (61 | ) | $ | 60 | $ | (121 | ) | NM | (1) | ||||||
U.S. Life Insurance selected operating performance measures
Long-term care insurance
The following table sets forth selected operating performance measures regarding our individual and group long-term care insurance businessproducts for the datesperiods indicated:
Three months ended September 30, | Increase (decrease) and percentage change | Nine months ended September 30, | Increase (decrease) and percentage change | Three months ended March 31, | Increase (decrease) and percentage change | |||||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | 2020 | 2019 | 2020 vs. 2019 | 2021 | 2020 | 2021 vs. 2020 | |||||||||||||||||||||||||||||||||||||||
Net earned premiums: | ||||||||||||||||||||||||||||||||||||||||||||||||
Individual long-term care insurance | $ | 630 | $ | 622 | $ | 8 | 1 | % | $ | 1,859 | $ | 1,831 | $ | 28 | 2 | % | $ | 615 | $ | 611 | $ | 4 | 1 | % | ||||||||||||||||||||||||
Group long-term care insurance | 31 | 30 | 1 | 3 | % | 93 | 89 | 4 | 4 | % | 31 | 31 | — | — | % | |||||||||||||||||||||||||||||||||
Total | $ | 661 | $ | 652 | $ | 9 | 1 | % | $ | 1,952 | $ | 1,920 | $ | 32 | 2 | % | $ | 646 | $ | 642 | $ | 4 | 1 | % | ||||||||||||||||||||||||
Loss ratio | 71 | % | 76 | % | (5 | )% | 73 | % | 77 | % | (4 | )% | 62 | % | 78 | % | (16 | )% | ||||||||||||||||||||||||||||||
The loss ratio is the ratio of benefits and other changes in reserves less tabular interest on reserves less loss adjustment expenses to net earned premiums.
Net earned premiums increased forin the three and nine months ended September 30, 2020current year largely from $25$23 million and $90 million, respectively, of increased premiums from
in-force
rate actions approved and implemented, partially offset by policy terminations and policies enteringpaid-up
status in the current year.The loss ratio decreased for the three and nine months ended September 30, 2020 duelargely related to the increase in premiums and lower benefits and other changes in reserves as discussed above.
Life insurance
The following tables settable sets forth selected operating performance measures regarding our life insurance business as of or for the dates indicated:
Three months ended September 30, | Increase (decrease) and percentage change | Nine months ended September 30, | Increase (decrease) and percentage change | As of or for the three months ended March 31, | Increase (decrease) and percentage change | |||||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | 2020 | 2019 | 2020 vs. 2019 | 2021 | 2020 | 2021 vs. 2020 | |||||||||||||||||||||||||||||||||||||||
Term and whole life insurance | ||||||||||||||||||||||||||||||||||||||||||||||||
Net earned premiums | $ | 50 | $ | 65 | $ | (15 | ) | (23 | )% | $ | 189 | $ | 219 | $ | (30 | ) | (14 | )% | $ | 68 | $ | 76 | $ | (8 | ) | (11 | )% | |||||||||||||||||||||
Life insurance in-force, net of reinsurance | 58,168 | 75,992 | (17,824 | ) | (23 | )% | ||||||||||||||||||||||||||||||||||||||||||
Life insurance in-force before reinsurance | 355,424 | 389,553 | (34,129 | ) | (9 | )% | ||||||||||||||||||||||||||||||||||||||||||
Term universal life insurance | ||||||||||||||||||||||||||||||||||||||||||||||||
Net deposits | $ | 53 | $ | 57 | $ | (4 | ) | (7 | )% | $ | 166 | $ | 174 | $ | (8 | ) | (5 | )% | $ | 53 | $ | 56 | $ | (3 | ) | (5 | )% | |||||||||||||||||||||
Life insurance in-force, net of reinsurance | 105,360 | 111,945 | (6,585 | ) | (6 | )% | ||||||||||||||||||||||||||||||||||||||||||
Life insurance in-force before reinsurance | 106,055 | 112,710 | (6,655 | ) | (6 | )% | ||||||||||||||||||||||||||||||||||||||||||
Universal life insurance | ||||||||||||||||||||||||||||||||||||||||||||||||
Net deposits | $ | 69 | $ | 74 | $ | (5 | ) | (7 | )% | $ | 205 | $ | 291 | $ | (86 | ) | (30 | )% | $ | 69 | $ | 71 | $ | (2 | ) | (3 | )% | |||||||||||||||||||||
Life insurance in-force, net of reinsurance | 32,132 | 33,552 | (1,420 | ) | (4 | )% | ||||||||||||||||||||||||||||||||||||||||||
Life insurance in-force before reinsurance | 36,435 | 38,144 | (1,709 | ) | (4 | )% | ||||||||||||||||||||||||||||||||||||||||||
Total life insurance | ||||||||||||||||||||||||||||||||||||||||||||||||
Net earned premiums and deposits | $ | 172 | $ | 196 | $ | (24 | ) | (12 | )% | $ | 560 | $ | 684 | $ | (124 | ) | (18 | )% | $ | 190 | $ | 203 | $ | (13 | ) | (6 | )% | |||||||||||||||||||||
Life insurance in-force, net of reinsurance | 195,660 | 221,489 | (25,829 | ) | (12 | )% | ||||||||||||||||||||||||||||||||||||||||||
Life insurance in-force before reinsurance | 497,914 | 540,407 | (42,493 | ) | (8 | )% | ||||||||||||||||||||||||||||||||||||||||||
As of September 30, | Percentage change | |||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | |||||||||
Term and whole life insurance | ||||||||||||
Life insurance in-force, net of reinsurance | $ | 63,668 | $ | 86,620 | (26 | )% | ||||||
Life insurance in-force before reinsurance | $ | 369,356 | $ | 409,640 | (10 | )% | ||||||
Term universal life insurance | ||||||||||||
Life insurance in-force, net of reinsurance | $ | 108,911 | $ | 113,454 | (4 | )% | ||||||
Life insurance in-force before reinsurance | $ | 109,665 | $ | 114,228 | (4 | )% | ||||||
Universal life insurance | ||||||||||||
Life insurance in-force, net of reinsurance | $ | 32,848 | $ | 34,230 | (4 | )% | ||||||
Life insurance in-force before reinsurance | $ | 37,307 | $ | 38,956 | (4 | )% | ||||||
Total life insurance | ||||||||||||
Life insurance in-force, net of reinsurance | $ | 205,427 | $ | 234,304 | (12 | )% | ||||||
Life insurance in-force before reinsurance | $ | 516,328 | $ | 562,824 | (8 | )% | ||||||
We no longer solicit sales of our traditional life insurance products; however, we continue to service our existing blocks of business.
Term and whole life insurance
Net earned premiums decreased mainly attributable to the continued runoff of our term life insurance products in the current year.products. Life insurance
in-force
also decreased as a result of the continued runoff of our term life insurance products, including from prior year lapse experience in the large20-year
term life insurance block written in 2000.Universal and Term universal life insurance
Net deposits decreased in the current year including higher lapses primarily associated with a large 20-year term life insurance block entering its post-level premium period.
in-force block.
blocks.Fixed annuities
The following table sets forth selected operating performance measures regarding our fixed annuities business as of or for the dates indicated:
As of or for the three months ended September 30, | As of or for the nine months ended September 30, | As of or for the three months ended March 31, | ||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | ||||||||||||||||||
Account value, beginning of period | $ | 12,256 | $ | 13,875 | $ | 13,023 | $ | 14,348 | $ | 11,815 | $ | 13,023 | ||||||||||||
Premiums and deposits | 23 | 21 | 62 | 66 | ||||||||||||||||||||
Deposits | 17 | 22 | ||||||||||||||||||||||
Surrenders, benefits and product charges | (489 | ) | (567 | ) | (1,331 | ) | (1,569 | ) | (544 | ) | (467 | ) | ||||||||||||
Net flows | (466 | ) | (546 | ) | (1,269 | ) | (1,503 | ) | (527 | ) | (445 | ) | ||||||||||||
Interest credited and investment performance | 104 | 113 | 299 | 374 | 85 | 61 | ||||||||||||||||||
Effect of accumulated net unrealized investment gains (losses) | 75 | 73 | (84 | ) | 296 | (201 | ) | (152 | ) | |||||||||||||||
Account value, end of period | $ | 11,969 | $ | 13,515 | $ | 11,969 | $ | 13,515 | $ | 11,172 | $ | 12,487 | ||||||||||||
We no longer solicit sales of our traditional fixed annuity products; however, we continue to service our existing block of business.
Account value decreased compared to December 31, 2019 as surrenders, benefits and net unrealized investment losses exceeded interest credited. Account value was also lower compared to June 30, 2020 as surrenders and benefits outpacedexceeded favorable market performance and interest credited.
Runoff segment
Trends and conditions
Results of our Runoff segment are affected primarily by investment performance, interest rate levels, net interest spreads, equity market conditions, mortality, surrenders and scheduled maturities. In addition, the results of our Runoff segment can significantly impact our regulatory capital requirements, distributable earnings and liquidity. We use hedging strategies as well as liquidity planning and asset-liability management to help mitigate the impacts. In addition, we may consider reinsurance opportunities to further mitigate volatility in results and manage capital in the future.
Equity market volatility and interest rate movements have caused fluctuations in the results of our variable annuity products and regulatory capital requirements. In the future, equity and interest rate market performance and volatility could result in additional gains or losses in these products although associated hedging activities are expected to partially mitigate these impacts.
104
Segment results of operations
Three Months Ended September 30, 2020March 31, 2021 Compared to Three Months Ended September 30, 2019March 31, 2020
The following table sets forth the results of operations relating to our Runoff segment for the periods indicated:
Three months ended September 30, | Increase (decrease) and percentage change | Three months ended March 31, | Increase (decrease) and percentage change | |||||||||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | 2021 | 2020 | 2021 vs. 2020 | ||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Net investment income | $ | 55 | $ | 48 | $ | 7 | 15 | % | $ | 49 | $ | 49 | $ | — | — | % | ||||||||||||||||
Net investment gains (losses) | 15 | (9 | ) | 24 | NM | (1) | (6 | ) | (75 | ) | 69 | 92 | % | |||||||||||||||||||
Policy fees and other income | 33 | 35 | (2 | ) | (6 | )% | 33 | 33 | — | — | % | |||||||||||||||||||||
Total revenues | 103 | 74 | 29 | 39 | % | 76 | 7 | 69 | NM | (1) | ||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||||
Benefits and other changes in policy reserves | 7 | 8 | (1 | ) | (13 | )% | 8 | 20 | (12 | ) | (60 | )% | ||||||||||||||||||||
Interest credited | 42 | 40 | 2 | 5 | % | 41 | 41 | — | — | % | ||||||||||||||||||||||
Acquisition and operating expenses, net of deferrals | 12 | 13 | (1 | ) | (8 | )% | 13 | 13 | — | — | % | |||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles | 4 | 10 | (6 | ) | (60 | )% | 5 | 17 | (12 | ) | (71 | )% | ||||||||||||||||||||
Total benefits and expenses | 65 | 71 | (6 | ) | (8 | )% | 67 | 91 | (24 | ) | (26 | )% | ||||||||||||||||||||
Income from continuing operations before income taxes | 38 | 3 | 35 | NM | (1) | |||||||||||||||||||||||||||
Provision for income taxes | 8 | — | 8 | NM | (1) | |||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | 9 | (84 | ) | 93 | 111 | % | ||||||||||||||||||||||||||
Provision (benefit) for income taxes | 1 | (18 | ) | 19 | 106 | % | ||||||||||||||||||||||||||
Income from continuing operations | 30 | 3 | 27 | NM | (1) | |||||||||||||||||||||||||||
Adjustments to income from continuing operations: | ||||||||||||||||||||||||||||||||
Income (loss) from continuing operations | 8 | (66 | ) | 74 | 112 | % | ||||||||||||||||||||||||||
Adjustments to income (loss) from continuing operations: | ||||||||||||||||||||||||||||||||
Net investment (gains) losses, net (2) | (14 | ) | 9 | (23 | ) | NM | (1) | 5 | 67 | (62 | ) | (93 | )% | |||||||||||||||||||
Taxes on adjustments | 3 | (2 | ) | 5 | NM | (1) | (1 | ) | (14 | ) | 13 | 93 | % | |||||||||||||||||||
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders | $ | 19 | $ | 10 | $ | 9 | 90 | % | ||||||||||||||||||||||||
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 12 | $ | (13 | ) | $ | 25 | 192 | % | |||||||||||||||||||||||
| (1) | We define “NM” as not meaningful for increases or decreases greater than 200%. |
| (2) | For the three months ended |
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders
Revenues
Net investment income increased mainly driven by higher policy loan income in our corporate-owned life insurance products in the current year.
Benefits and expenses
Benefits and other changes in policy reserves decreased primarily attributable to lower GMDB reserves in our variable annuity products due to favorable equity market and interest rate performance in the current year.
105
Amortization of deferred acquisition costs and intangibles decreased mainly related to lower DAC amortization in our variable annuity products principally due to favorable equity market performance in the current year.
Nine months ended September 30, | Increase (decrease) and percentage change | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | |||||||||||||
Revenues: | ||||||||||||||||
Net investment income | $ | 158 | $ | 142 | $ | 16 | 11 | % | ||||||||
Net investment gains (losses) | (56 | ) | (13 | ) | (43 | ) | NM | (1) | ||||||||
Policy fees and other income | 98 | 105 | (7 | ) | (7 | )% | ||||||||||
Total revenues | 200 | 234 | (34 | ) | (15 | )% | ||||||||||
Benefits and expenses: | ||||||||||||||||
Benefits and other changes in policy reserves | 31 | 22 | 9 | 41 | % | |||||||||||
Interest credited | 125 | 121 | 4 | 3 | % | |||||||||||
Acquisition and operating expenses, net of deferrals | 36 | 39 | (3 | ) | (8 | )% | ||||||||||
Amortization of deferred acquisition costs and intangibles | 20 | 16 | 4 | 25 | % | |||||||||||
Total benefits and expenses | 212 | 198 | 14 | 7 | % | |||||||||||
Income (loss) from continuing operations before income taxes | (12 | ) | 36 | (48 | ) | (133 | )% | |||||||||
Provision (benefit) for income taxes | (4 | ) | 6 | (10 | ) | (167 | )% | |||||||||
Income (loss) from continuing operations | (8 | ) | 30 | (38 | ) | (127 | )% | |||||||||
Adjustments to income (loss) from continuing operations: | ||||||||||||||||
Net investment (gains) losses, net (2) | 48 | 11 | 37 | NM | (1) | |||||||||||
Taxes on adjustments | (10 | ) | (2 | ) | (8 | ) | NM | (1) | ||||||||
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders | $ | 30 | $ | 39 | $ | (9 | ) | (23 | )% | |||||||
Provision (benefit) for income taxes
pre-tax
income in the current year compared to pre-tax
loss in the Runoff selected operating performance measures
Variable annuity and variable life insurance products
The following table sets forth selected operating performance measures regarding our variable annuity and variable life insurance products as of or for the dates indicated:
As of or for the three months ended September 30, | As of or for the nine months ended September 30, | As of or for the three months ended March 31, | ||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | ||||||||||||||||||
Account value, beginning of period | $ | 4,782 | $ | 5,121 | $ | 5,042 | $ | 4,918 | $ | 5,001 | $ | 5,042 | ||||||||||||
Deposits | 4 | 7 | 14 | 20 | 6 | 4 | ||||||||||||||||||
Surrenders, benefits and product charges | (126 | ) | (161 | ) | (414 | ) | (480 | ) | (187 | ) | (166 | ) | ||||||||||||
Net flows | (122 | ) | (154 | ) | (400 | ) | (460 | ) | (181 | ) | (162 | ) | ||||||||||||
Interest credited and investment performance | 185 | 69 | 203 | 578 | 43 | (359 | ) | |||||||||||||||||
Account value, end of period | $ | 4,845 | $ | 5,036 | $ | 4,845 | $ | 5,036 | $ | 4,863 | $ | 4,521 | ||||||||||||
We no longer solicit sales of our variable annuity or variable life insurance products, however, we continue to service our existing blocks of business and accept additional deposits on existing contracts and policies.
Account value increased compared to June 30, 2020 primarily to favorable equity market performance and decreased compared to December 31, 20192020 primarily related to surrenders, partially offset by favorable equity market performance in the current year.
Funding agreements
As of or for the three months ended March 31, | ||||||||
(Amounts in millions) | 2021 | 2020 | ||||||
Funding Agreements | ||||||||
Account value, beginning of period | $ | 300 | $ | 253 | ||||
Surrenders and benefits | — | (1 | ) | |||||
Net flows | — | (1 | ) | |||||
Interest credited | — | 1 | ||||||
Account value, end of period | $ | 300 | $ | 253 | ||||
Account value was unchanged compared to December 31, 2020 but increased compared to March 31, 2020 mainly attributable to higher deposits from issuing funding agreements for asset-lability management and yield enhancement.
106
As of or for the three months ended September 30, | As of or for the nine months ended September 30, | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Funding Agreements | ||||||||||||||||
Account value, beginning of period | $ | 353 | $ | 305 | $ | 253 | $ | 381 | ||||||||
Deposits | — | — | 150 | — | ||||||||||||
Surrenders and benefits | (1 | ) | (2 | ) | (53 | ) | (82 | ) | ||||||||
Net flows | (1 | ) | (2 | ) | 97 | (82 | ) | |||||||||
Interest credited | 1 | 2 | 3 | 6 | ||||||||||||
Account value, end of period | $ | 353 | $ | 305 | $ | 353 | $ | 305 | ||||||||
Corporate and Other Activities
Results of operations
Three Months Ended September 30, 2020March 31, 2021 Compared to Three Months Ended September 30, 2019March 31, 2020
The following table sets forth the results of operations relating to Corporate and Other activities for the periods indicated:
Three months ended September 30, | Increase (decrease) and percentage change | Three months ended March 31, | Increase (decrease) and percentage change | |||||||||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | 2021 | 2020 | 2021 vs. 2020 | ||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Premiums | $ | 1 | $ | 2 | $ | (1 | ) | (50 | )% | $ | 2 | $ | 2 | $ | — | — | % | |||||||||||||||
Net investment income | 5 | 2 | 3 | 150 | % | 1 | 5 | (4 | ) | (80 | )% | |||||||||||||||||||||
Net investment gains (losses) | (10 | ) | 5 | (15 | ) | NM | (1) | (2 | ) | 46 | (48 | ) | (104 | )% | ||||||||||||||||||
Policy fees and other income | (2 | ) | 2 | (4 | ) | (200 | )% | — | 1 | (1 | ) | (100 | )% | |||||||||||||||||||
Total revenues | (6 | ) | 11 | (17 | ) | (155 | )% | 1 | 54 | (53 | ) | (98 | )% | |||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||||
Benefits and other changes in policy reserves | — | 1 | (1 | ) | (100 | )% | ||||||||||||||||||||||||||
Acquisition and operating expenses, net of deferrals | 6 | 8 | (2 | ) | (25 | )% | 13 | 23 | (10 | ) | (43 | )% | ||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles | — | 1 | (1 | ) | (100 | )% | ||||||||||||||||||||||||||
Interest expense | 41 | 53 | (12 | ) | (23 | )% | 38 | 46 | (8 | ) | (17 | )% | ||||||||||||||||||||
Total benefits and expenses | 47 | 62 | (15 | ) | (24 | )% | 51 | 70 | (19 | ) | (27 | )% | ||||||||||||||||||||
Loss from continuing operations before income taxes | (53 | ) | (51 | ) | (2 | ) | (4 | )% | (50 | ) | (16 | ) | (34 | ) | NM | (1) | ||||||||||||||||
Provision (benefit) for income taxes | 3 | (21 | ) | 24 | 114 | % | ||||||||||||||||||||||||||
Benefit for income taxes | (8 | ) | — | (8 | ) | NM | (1) | |||||||||||||||||||||||||
Loss from continuing operations | (56 | ) | (30 | ) | (26 | ) | (87 | )% | (42 | ) | (16 | ) | (26 | ) | (163 | )% | ||||||||||||||||
Adjustments to loss from continuing operations: | ||||||||||||||||||||||||||||||||
Net investment (gains) losses | 10 | (5 | ) | 15 | NM | (1) | 2 | (46 | ) | 48 | 104 | % | ||||||||||||||||||||
(Gains) losses on early extinguishment of debt | 4 | 8 | (4 | ) | (50 | )% | ||||||||||||||||||||||||||
Expenses related to restructuring | 7 | 1 | 6 | NM | (1) | |||||||||||||||||||||||||||
Taxes on adjustments | (3 | ) | — | (3 | ) | NM | (1) | (3 | ) | 8 | (11 | ) | (138 | )% | ||||||||||||||||||
Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders | $ | (49 | ) | $ | (35 | ) | $ | (14 | ) | (40 | )% | $ | (32 | ) | $ | (45 | ) | $ | 13 | 29 | % | |||||||||||
| (1) | We define “NM” as not meaningful for increases or decreases greater than 200%. |
Nine months ended September 30, | Increase (decrease) and percentage change | |||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 vs. 2019 | |||||||||||||
Revenues: | ||||||||||||||||
Premiums | $ | 5 | $ | 6 | $ | (1 | ) | (17 | )% | |||||||
Net investment income | 12 | 6 | 6 | 100 | % | |||||||||||
Net investment gains (losses) | 8 | (23 | ) | 31 | 135 | % | ||||||||||
Policy fees and other income | (2 | ) | 3 | (5 | ) | (167 | )% | |||||||||
Total revenues | 23 | (8 | ) | 31 | NM | (1) | ||||||||||
Benefits and expenses: | ||||||||||||||||
Benefits and other changes in policy reserves | 3 | 2 | 1 | 50 | % | |||||||||||
Acquisition and operating expenses, net of deferrals | 24 | 34 | (10 | ) | (29 | )% | ||||||||||
Amortization of deferred acquisition costs and intangibles | 1 | 1 | — | — | % | |||||||||||
Interest expense | 129 | 160 | (31 | ) | (19 | )% | ||||||||||
Total benefits and expenses | 157 | 197 | (40 | ) | (20 | )% | ||||||||||
Loss from continuing operations before income taxes | (134 | ) | (205 | ) | 71 | 35 | % | |||||||||
Benefit for income taxes | (7 | ) | (37 | ) | 30 | 81 | % | |||||||||
Loss from continuing operations | (127 | ) | (168 | ) | 41 | 24 | % | |||||||||
Adjustments to loss from continuing operations: | ||||||||||||||||
Net investment (gains) losses | (8 | ) | 23 | (31 | ) | (135 | )% | |||||||||
(Gains) losses on early extinguishment of debt | 5 | — | 5 | NM | (1) | |||||||||||
Expenses related to restructuring | 2 | 1 | 1 | 100 | % | |||||||||||
Taxes on adjustments | — | (6 | ) | 6 | 100 | % | ||||||||||
Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders | $ | (128 | ) | $ | (150 | ) | $ | 22 | 15 | % | ||||||
Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders
The adjusted operating loss available to Genworth Financial, Inc.’s common stockholders decreased primarily related to lower operating costs and interest expense and lower operating expenses, partially offset by a lower benefit for income taxes in the current year.
Revenues
Net investment income increaseddecreased primarily from higher limited partnership incomelower yields in the current year.
The change to net investment gainslosses in the current year from net investment lossesgains in the prior year was predominantly related to derivative gainslosses in the current year compared to derivative losses in the prior year.
Benefits and expenses
Acquisition and operating expenses, net of deferrals, decreased mainly driven by lower operating expenses and a make-whole premium of $9 million in the prior year related to the early redemption of Genworth Holdings’
107
senior notes originally scheduled to mature in June 2020, partially offset by higher employee-related expenses primarily related to restructuring costs of $7 million and a loss of $4 million gainin the current year related to the repurchase of Genworth Holdings’ senior notes with 2021 maturity dates, partially offset by a make-whole premium of $9 million related to the early redemption of Genworth Holdings’ senior notes originally scheduled to maturedue in June 2020 and higher employee-related expenses in the current year.
Interest expense decreased largely driven by the repayment of Genworth Holdings’ senior notes due in February 2021, the repurchase of Genworth Holdings’ senior notes due in September 2021 and the early redemption of Genworth Holdings’ senior notes in the prior year originally scheduled to mature in June 2020 and from our junior subordinated notes which had a lower floating rate of interest in the current year.2020.
The benefit for income taxes for the ninethree months ended September 30, 2020March 31, 2021 was primarily driven by a tax benefit related to theexpenses from gainsexpense on forward starting swaps settled prior to the enactment of the TCJA, unfavorable provision to return adjustments, stock-based compensation, nondeductible goodwill and other nondeductible expenses. The benefit for income taxes for the nine months ended September 30, 2019 was primarily from a tax benefit related to the pre-tax loss, partially offset by tax expenses related to the GILTI provision of the TCJA, gains on forward starting swaps settled prior to the enactment of the TCJA, foreign operations and other nondeductible expenses.
TCJA.pre-tax
loss, partially offset by tax Investments and Derivative Instruments
Trends and conditions
During the thirdfirst quarter of 2020,2021, the U.S. Federal Reserve maintained interest rates near zero as the U.S. economy continues to recover from the negative impact ofReserve’s latest forecast indicates thatReserve remains committed to its current monetary policy, with interest rates willforecasted to remain at near zero throughinto 2023, with an inflation rate target above 2%. This forecast is expected to be maintained until the labor market recovers. The U.S. Federal Reserve expanded its accommodative monetary policy by implementingthough futures markets are indicating a new average inflation target framework, which allows for the targeted inflation rate to be higher than 2% on a temporary basis without prompting immediate interest rate increases.potential increase as early as 2022. During the thirdfirst quarter of 2020,2021, a $1.9 trillion fiscal stimulus and2-year, 10-year and 30-year Treasury yields remained consistent withUnited States continued during the secondfirst quarter of 2020 but long-term yields experienced fluctuations during2021 with more than 15% of the quarterUnited States population fully vaccinated and approximately 30% having received at least one dose as expectations for a futureof March 31, 2021. The latest fiscal stimulus package, remained deadlocked in negotiations whichthe continuation of the vaccineshiftsa steepening of the U.S. Treasury yield curve in the steepness of the Treasury curve throughout the thirdfirst quarter of 2020.2021. While the
COVID-19.
The U.S. Federal COVID-19
relief bill was passed, which provides stimulus payments to qualifying Americans, extends unemployment assistance, provides funding for schools and funds vaccine distribution efforts and state and local governments. TheCOVID-19
vaccineroll-out
in the roll-out
and rising expectations for global gross domestic product growth drove two-year
Treasury yield remained generally unchanged, the seven-year through30-year
Treasury yields increased during the first quarter of 2021. The30-year
Treasury yield finished the first quarter of 2021 at 2.41%, the highest level since the end of 2019.The U.S. economy showedcontinued to show signs of recovery fromthirdfirst quarter of 2020, but remained in recessionary conditions with a forecasted contraction for the full year 2020. Monthly2021 as economic indicators improved from the lows of the second quarter of 2020 as evidenced byreflected an improving job market and a decreaselower U.S. unemployment rate. The rise in the unemployment rate, indicative of a partial recovery of jobs lost at the height of the pandemicconsumer and expansionproducer prices also indicated an increase in inflation, with both indices rising back toindustries. Efforts by the U.S. federal government through fiscal stimulus packages helped contribute to this recovery. However, political gridlock and the U.S. presidential election have added uncertainty to the timing of future stimulus measures.sectors.
COVID-19 reflecting GDP growth in
during the pre-COVID
levels, including further expansionary indicators present in both the manufacturing and services Credit markets further recovered in the third quarter of 2020continued their strong performance with credit spreads tightening early in the quarter, supported by strong investor inflows, improved corporate balance sheets and liquidity positions, asset/
COVID-19
vaccine roll-outs and economic As of the virus which may hamper the pace of the global economic recovery. Political gridlock on new fiscal stimulus measures and the upcoming U.S. presidential election have contributed to increased market volatility as concerns over the election results, including the potential for a contested election, and drastic policy shifts under a new administration weigh on the market. Equity markets fluctuated in the third quarter of 2020, with the S&P 500 ending the third quarter of 2020 higher than the second quarter of 2020 but down from its all-time highs set in early September 2020.
COVID-19.
We are working with individual borrowers impacted byCOVID-19
to provide alternative forms of relief for a specified period of time. The modified loan population continues to decrease as modification terms expire and properties stabilize. Most of our borrowers are current on payments and we do not anticipate a significant impact from troubled debt restructurings in As of September 30, 2020,March 31, 2021, our fixed maturity securities portfolio, which was 95% investment grade, comprised 81%83% of our total invested assets and cash.
108
Derivatives
Several of our master swap agreements previously contained credit downgrade provisions that allowed either party to assign or terminate the derivative transaction if the other party’s long-term unsecured credit or financial strength rating was below the limit defined in the applicable agreement. We renegotiated with many of our counterparties to remove the credit downgrade provisions from the master swap agreements entirely or replace them with a provision that allows the counterparty to terminate the derivative transaction if the RBC ratio of the applicable insurance company goes below a certain threshold and as of September 30, 2020, none of our derivatives transactions were subject to credit downgrade provisions.threshold. As of September 30, 2020,March 31, 2021, the RBC ratios of the respective insurance companies were above the thresholds negotiated in the applicable master swap agreements and therefore, no counterparty had rights to take action against us under the RBC threshold provisions.
As of September 30, 2020, $6.2March 31, 2021, $6.0 billion notional of our derivatives portfolio was cleared through the Chicago Mercantile Exchange (“CME”). The customer swap agreements that govern our cleared derivatives contain provisions that enable our clearing agents to request initial margin in excess of CME requirements. As of September 30, 2020,March 31, 2021, we posted initial margin of $132$97 million to our clearing agents, which represented approximately $39$29 million more than was otherwise required by the clearinghouse. Because our clearing agents
serve as guarantors of our obligations to the CME, the customer agreements contain broad termination provisions that are not specifically dependent on ratings. As of September 30, 2020, $11.8March 31, 2021, $10.6 billion notional of our derivatives portfolio was in bilateralderivative transactions pursuant to which we have posted aggregate independent amounts of $440$508 million and are holding collateral from counterparties in the amount of $636$110 million.
over-the-counter (“OTC”)
In July 2017, the United Kingdom Financial Conduct Authority announced its intention to transition away from the London Interbank Offered Rate (“LIBOR”), with its full elimination to occur after 2021. The announcement indicates that LIBOR may not continue to be available on the current basis (or at all) after 2021. The last committed publication date for LIBOR is December 31, 2021. The Alternate Reference Rate Committee, convened by the Board of Governors of the Federal Reserve System and the New York Federal Reserve Bank, has endorsed the Secured Overnight Financing Rate (“SOFR”) as its preferred replacement benchmark for U.S. dollar LIBOR. SOFR is calculated and published by the New York Federal Reserve Bank and reflects the combination of three overnight U.S. Treasury Repo Rates. The rate is different from LIBOR, in that it is a risk-free rate, is backward-looking instead of forward-looking, is a secured rate and currently is available primarily as an overnight rate rather than as a
1-,
3- and
or6-month rates
rate available for LIBOR. Upon the announcement, we formed a working group comprised of finance, investments, derivative, and tax professionals, as well as lawyers (the “Working Group”) to evaluate contracts and perform analysis of our LIBOR-based derivative instrument and investment exposure, as well as debt (including subordinated debt and Federal Home Loan Bank loans), reinsurance agreements and institutional products within the Runoff segment, as a result of the elimination of LIBOR. The Working Group took inventory of all investments with LIBOR exposure and identified nearly 400 instruments.continue to monitor the process of elimination and replacement of LIBOR. Since the initial announcement, we have terminated a portion of our LIBOR-based swaps and entered into alternative rate swaps. In anticipation of the elimination of LIBOR, we plan to continue to convert our remaining LIBOR-based derivatives in a similar manner. In addition, ouras described above, it is too early to determine the ultimate impact the elimination of LIBOR will have on our results of operations or financial condition.
non-recourse
funding obligations with interest rates based onone-month
LIBOR were redeemed in January 2020. We expect to implement additional measures that we believe will ease the transition from LIBOR. Even though we have begun to take these actions, 109
Investment results
The following tables settable sets forth information about our investment income, excluding net investment gains (losses), for each component of our investment portfolio for the periods indicated:
Three months ended September 30, | Increase (decrease) | Three months ended March 31, | Increase (decrease) | |||||||||||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2020 vs. 2019 | 2021 | 2020 | 2021 vs. 2020 | |||||||||||||||||||||||||||||||||||||||||||
(Amounts in millions) | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | ||||||||||||||||||||||||||||||||||||
Fixed maturity securities—taxable | 4.6 | % | $ | 632 | 4.7 | % | $ | 631 | (0.1 | )% | $ | 1 | 4.5 | % | $ | 599 | 4.7 | % | $ | 611 | (0.2 | )% | $ | (12 | ) | |||||||||||||||||||||||
Fixed maturity securities—non-taxable | 6.2 | % | 2 | 6.1 | % | 2 | 0.1 | % | — | 6.3 | % | 2 | 5.2 | % | 2 | 1.1 | % | — | ||||||||||||||||||||||||||||||
Equity securities | 2.9 | % | 3 | 6.4 | % | 4 | (3.5 | )% | (1 | ) | 3.8 | % | 3 | 4.8 | % | 2 | (1.0 | )% | 1 | |||||||||||||||||||||||||||||
Commercial mortgage loans | 4.8 | % | 82 | 5.0 | % | 87 | (0.2 | )% | (5 | ) | 4.6 | % | 78 | 4.9 | % | 85 | (0.3 | )% | (7 | ) | ||||||||||||||||||||||||||||
Policy loans | 9.4 | % | 51 | 9.1 | % | 47 | 0.3 | % | 4 | 10.1 | % | 50 | 9.5 | % | 49 | 0.6 | % | 1 | ||||||||||||||||||||||||||||||
Other invested assets (1) | 26.0 | % | 79 | 27.5 | % | 62 | (1.5 | )% | 17 | 24.4 | % | 89 | 17.8 | % | 47 | 6.6 | % | 42 | ||||||||||||||||||||||||||||||
Cash, cash equivalents, restricted cash and short-term investments | 0.3 | % | 2 | 1.7 | % | 8 | (1.4 | )% | (6 | ) | — | % | — | 1.4 | % | 10 | (1.4 | )% | (10 | ) | ||||||||||||||||||||||||||||
Gross investment income before expenses and fees | 5.0 | % | 851 | 5.1 | % | 841 | (0.1 | )% | 10 | 5.0 | % | 821 | 4.9 | % | 806 | 0.1 | % | 15 | ||||||||||||||||||||||||||||||
Expenses and fees | (0.2 | )% | (24 | ) | (0.2 | )% | (25 | ) | — | % | 1 | (0.2 | )% | (20 | ) | (0.1 | )% | (24 | ) | (0.1 | )% | 4 | ||||||||||||||||||||||||||
Net investment income | 4.8 | % | $ | 827 | 4.9 | % | $ | 816 | (0.1 | )% | $ | 11 | 4.8 | % | $ | 801 | 4.8 | % | $ | 782 | — | % | $ | 19 | ||||||||||||||||||||||||
Average invested assets and cash | $ | 68,665 | $ | 66,230 | $ | 2,435 | $ | 66,233 | $ | 65,269 | $ | 964 | ||||||||||||||||||||||||||||||||||||
Nine months ended September 30, | Increase (decrease) | |||||||||||||||||||||||
2020 | 2019 | 2020 vs. 2019 | ||||||||||||||||||||||
(Amounts in millions) | Yield | Amount | Yield | Amount | Yield | Amount | ||||||||||||||||||
Fixed maturity securities—taxable | 4.6 | % | $ | 1,855 | 4.7 | % | $ | 1,878 | (0.1 | )% | $ | (23 | ) | |||||||||||
Fixed maturity securities—non-taxable | 4.7 | % | 5 | 6.1 | % | 6 | (1.4 | )% | (1 | ) | ||||||||||||||
Equity securities | 3.0 | % | 7 | 6.8 | % | 13 | (3.8 | )% | (6 | ) | ||||||||||||||
Commercial mortgage loans | 4.8 | % | 251 | 4.9 | % | 254 | (0.1 | )% | (3 | ) | ||||||||||||||
Policy loans | 9.4 | % | 149 | 9.2 | % | 138 | 0.2 | % | 11 | |||||||||||||||
Other invested assets (1) | 22.5 | % | 192 | 29.9 | % | 180 | (7.4 | )% | 12 | |||||||||||||||
Cash, cash equivalents, restricted cash and short-term investments | 0.7 | % | 17 | 2.0 | % | 30 | (1.3 | )% | (13 | ) | ||||||||||||||
Gross investment income before expenses and fees | 4.9 | % | 2,476 | 5.1 | % | 2,499 | (0.2 | )% | (23 | ) | ||||||||||||||
Expenses and fees | (0.2 | )% | (70 | ) | (0.2 | )% | (73 | ) | — | % | 3 | |||||||||||||
Net investment income | 4.7 | % | $ | 2,406 | 4.9 | % | $ | 2,426 | (0.2 | )% | $ | (20 | ) | |||||||||||
Average invested assets and cash | $ | 68,000 | $ | 65,951 | $ | 2,049 | ||||||||||||||||||
| (1) | Investment income for other invested assets includes amortization of terminated cash flow hedges, which have no corresponding book value within the yield calculation and includes limited partnership investments, which are primarily equity-based and do not have fixed returns by period. |
Yields are based on net investment income as reported under U.S. GAAP and are consistent with how we measure our investment performance for management purposes. Yields are annualized, for interim periods, and are calculated as net investment income as a percentage of average quarterly asset carrying values except for fixed maturity securities, derivatives and derivative counterparty collateral, which exclude unrealized fair value adjustments and securities lending activity, which is included in other invested assets and is calculated net of the corresponding securities lending liability.
For the three months ended September 30, 2020,March 31, 2021, gross annualized weighted-average investment yields decreased principallyincreased from lower yieldshigher investment income on higher average invested assets. Net investment income included $10$7 million of higher bond calls and prepayments, $9 million of higher limited partnership income and $6 million of higher income related to inflation-driven volatility on TIPS, partially offset by $3 million of lower prepayment speed adjustments on structured securities in the current year compared to $2 million of limited partnership losses from equity-based adjustments in the prior year.
110
The following table sets forth net investment gains (losses) for the periods indicated:
Three months ended September 30, | Nine months ended September 30, | Three months ended March 31, | ||||||||||||||||||||||
(Amounts in millions) | 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | ||||||||||||||||||
Available-for-sale fixed maturity securities: | ||||||||||||||||||||||||
Realized gains | $ | 332 | $ | 19 | $ | 465 | $ | 93 | $ | 7 | $ | 2 | ||||||||||||
Realized losses | (2 | ) | (3 | ) | (8 | ) | (30 | ) | (3 | ) | — | |||||||||||||
Net realized gains (losses) on available-for-sale fixed maturity securities | 330 | 16 | 457 | 63 | 4 | 2 | ||||||||||||||||||
Impairments: | ||||||||||||||||||||||||
Total other-than-temporary impairments | — | — | — | — | ||||||||||||||||||||
Portion of other-than-temporary impairments included in other comprehensive income (loss) | — | — | — | — | ||||||||||||||||||||
Net other-than-temporary impairments | — | — | — | — | ||||||||||||||||||||
Net change in allowance for credit losses on available-for-sale fixed maturity securities | 2 | — | (5 | ) | — | (2 | ) | — | ||||||||||||||||
Write-down of available-for-sale fixed maturity securities | (4 | ) | — | (4 | ) | — | (1 | ) | — | |||||||||||||||
Net realized gains (losses) on equity securities sold | (3 | ) | 6 | (3 | ) | 9 | (5 | ) | — | |||||||||||||||
Net unrealized gains (losses) on equity securities still held | 3 | (4 | ) | (7 | ) | 13 | (8 | ) | (12 | ) | ||||||||||||||
Limited partnerships | 31 | 6 | 28 | 10 | 37 | (40 | ) | |||||||||||||||||
Commercial mortgage loans | (3 | ) | (1 | ) | (2 | ) | (1 | ) | (1 | ) | — | |||||||||||||
Derivative instruments | 22 | (29 | ) | (73 | ) | (71 | ) | 8 | (48 | ) | ||||||||||||||
Other | (3 | ) | 4 | (9 | ) | 4 | 1 | (1 | ) | |||||||||||||||
Net investment gains (losses) | $ | 375 | $ | (2 | ) | $ | 382 | $ | 27 | $ | 33 | $ | (99 | ) | ||||||||||
Three Months Ended September 30, 2020March 31, 2021 Compared to Three Months Ended September 30, 2019March 31, 2020
We had $37 million of net gains on limited partnership investments during the three months ended March 31, 2021 compared to $40 million of net losses during the three months ended March 31, 2020 primarily from net unrealized gains driven by favorable private equity performance in the current year compared to unfavorable private equity performance in the prior year.
We recorded net gains related to the salederivatives of available-for-sale fixed maturity securities of $330$8 million during the three months ended September 30, 2020 drivenMarch 31, 2021 primarily associated with hedging programs that support our indexed universal life insurance and fixed indexed annuity products, partially offset by losses from the sale of U.S. government
We recorded a $4 million write-down of available-for-sale fixed maturity securities during the three months ended September 30, 2020 under the newly adopted current expected credit loss standard associated with the write-down of securities we intend to sell or will be required to sell prior to recovery of the amortized cost basis.
Investment portfolio
The following table sets forth our cash, cash equivalents, restricted cash and invested assets as of the dates indicated:
September 30, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||
(Amounts in millions) | Carrying value | % of total | Carrying value | % of total | Carrying value | % of total | Carrying value | % of total | ||||||||||||||||||||||||
Fixed maturity securities, available-for-sale: | ||||||||||||||||||||||||||||||||
Public | $ | 44,840 | 56 | % | $ | 42,162 | 57 | % | $ | 42,029 | 58 | % | $ | 44,776 | 58 | % | ||||||||||||||||
Private | 19,576 | 25 | 18,177 | 24 | 18,202 | 25 | 18,719 | 24 | ||||||||||||||||||||||||
Equity securities | 629 | 1 | 239 | — | 238 | — | 386 | — | ||||||||||||||||||||||||
Commercial mortgage loans, net | 6,880 | 8 | 6,963 | 9 | 6,755 | 9 | 6,743 | 9 | ||||||||||||||||||||||||
Policy loans | 2,153 | 3 | 2,058 | 3 | 1,976 | 3 | 1,978 | 3 | ||||||||||||||||||||||||
Other invested assets | 2,402 | 3 | 1,632 | 2 | 1,759 | 2 | 2,099 | �� | 3 | |||||||||||||||||||||||
Cash, cash equivalents and restricted cash | 2,780 | 4 | 3,341 | 5 | 1,964 | 3 | 2,561 | 3 | ||||||||||||||||||||||||
Total cash, cash equivalents, restricted cash and invested assets | $ | 79,260 | 100 | % | $ | 74,572 | 100 | % | $ | 72,923 | 100 | % | $ | 77,262 | 100 | % | ||||||||||||||||
For a discussion of the change in cash, cash equivalents, restricted cash and invested assets, see the comparison for this line item under “—Consolidated Balance Sheets.” See note 4 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for additional information related to our investment portfolio.
We hold fixed maturity and equity securities, derivatives, embedded derivatives, securities held as collateral and certain other financial instruments, which are carried at fair value. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. As of September 30, 2020,March 31, 2021, approximately 6%7% of our investment holdings recorded at fair value was based on significant inputs that were not market observable and were classified as Level 3 measurements. See note 6 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for additional information related to fair value.
Fixed maturity securities
As of March 31, 2021, the amortized cost or cost, gross unrealized gains (losses), allowance for credit losses and fair value of our fixed maturity securities classified aswere as follows:
available-for-sale
(Amounts in millions) | Amortized cost or cost | Gross unrealized gains | Gross unrealized losses | Allowance for credit losses | Fair value | |||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises | $ | 3,323 | $ | 951 | $ | (1 | ) | $ | — | $ | 4,273 | |||||||||
State and political subdivisions | 2,762 | 384 | (11 | ) | — | 3,135 | ||||||||||||||
Non-U.S. government | 749 | 84 | (13 | ) | — | 820 | ||||||||||||||
U.S. corporate: | ||||||||||||||||||||
Utilities | 4,242 | 644 | (13 | ) | — | 4,873 | ||||||||||||||
Energy | 2,551 | 275 | (24 | ) | — | 2,802 | ||||||||||||||
Finance and insurance | 7,785 | 879 | (45 | ) | — | 8,619 | ||||||||||||||
Consumer—non-cyclical | 5,173 | 904 | (11 | ) | — | 6,066 | ||||||||||||||
Technology and communications | 3,254 | 419 | (16 | ) | — | 3,657 | ||||||||||||||
Industrial | 1,366 | 159 | (4 | ) | — | 1,521 | ||||||||||||||
Capital goods | 2,476 | 377 | (8 | ) | — | 2,845 | ||||||||||||||
Consumer—cyclical | 1,740 | 198 | (8 | ) | — | 1,930 | ||||||||||||||
Transportation | 1,171 | 200 | (1 | ) | — | 1,370 | ||||||||||||||
Other | 393 | 32 | (1 | ) | — | 424 | ||||||||||||||
Total U.S. corporate | 30,151 | 4,087 | (131 | ) | — | 34,107 | ||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||
Utilities | 895 | 64 | (2 | ) | — | 957 | ||||||||||||||
Energy | 1,164 | 167 | (4 | ) | — | 1,327 | ||||||||||||||
Finance and insurance | 2,193 | 263 | (22 | ) | (3 | ) | 2,431 | |||||||||||||
Consumer—non-cyclical | 661 | 65 | (4 | ) | — | 722 | ||||||||||||||
Technology and communications | 1,062 | 146 | (1 | ) | — | 1,207 | ||||||||||||||
Industrial | 1,018 | 118 | (2 | ) | — | 1,134 | ||||||||||||||
Capital goods | 537 | 48 | (3 | ) | — | 582 | ||||||||||||||
Consumer—cyclical | 356 | 27 | (2 | ) | — | 381 | ||||||||||||||
Transportation | 459 | 67 | (1 | ) | — | 525 | ||||||||||||||
Other | 1,054 | 166 | (1 | ) | — | 1,219 | ||||||||||||||
Total non-U.S. corporate | 9,399 | 1,131 | (42 | ) | (3 | ) | 10,485 | |||||||||||||
Residential mortgage-backed (1) | 1,600 | 175 | (1 | ) | — | 1,774 | ||||||||||||||
Commercial mortgage-backed | 2,688 | 121 | (15 | ) | — | 2,794 | ||||||||||||||
Other asset-backed | 2,798 | 48 | (3 | ) | — | 2,843 | ||||||||||||||
Total available-for-sale | $ | 53,470 | $ | 6,981 | $ | (217 | ) | $ | (3 | ) | $ | 60,231 | ||||||||
| (1) | Fair value included $7 million collateralized by Alt-A residential mortgage loans. |
113
As of September 30,December 31, 2020, the amortized cost or cost, gross unrealized gains (losses), allowance for credit losses and fair value of our fixed maturity securities classified aswere as follows:
available-for-sale
(Amounts in millions) | Amortized cost or cost | Gross unrealized gains | Gross unrealized losses | Allowance for credit losses | Fair value | Amortized cost or cost | Gross unrealized gains | Gross unrealized losses | Allowance for credit losses | Fair value | ||||||||||||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises | $ | 3,318 | $ | 1,474 | $ | — | $ | — | $ | 4,792 | $ | 3,401 | $ | 1,404 | $ | — | $ | — | $ | 4,805 | ||||||||||||||||||||
State and political subdivisions | 2,591 | 525 | (1 | ) | — | 3,115 | 2,622 | 544 | (1 | ) | — | 3,165 | ||||||||||||||||||||||||||||
Non-U.S. government | 1,276 | 126 | (7 | ) | — | 1,395 | 728 | 130 | (4 | ) | — | 854 | ||||||||||||||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||
Utilities | 4,294 | 924 | (1 | ) | — | 5,217 | 4,226 | 970 | (2 | ) | — | 5,194 | ||||||||||||||||||||||||||||
Energy | 2,581 | 238 | (54 | ) | — | 2,765 | 2,532 | 367 | (16 | ) | — | 2,883 | ||||||||||||||||||||||||||||
Finance and insurance | 7,611 | 1,135 | (11 | ) | — | 8,735 | 7,798 | 1,306 | (2 | ) | — | 9,102 | ||||||||||||||||||||||||||||
Consumer—non-cyclical | 5,160 | 1,210 | (2 | ) | — | 6,368 | 5,115 | 1,323 | (1 | ) | — | 6,437 | ||||||||||||||||||||||||||||
Technology and communications | 2,993 | 537 | (3 | ) | — | 3,527 | 3,142 | 619 | — | — | 3,761 | |||||||||||||||||||||||||||||
Industrial | 1,363 | 189 | (1 | ) | — | 1,551 | 1,370 | 232 | — | — | 1,602 | |||||||||||||||||||||||||||||
Capital goods | 2,558 | 503 | (4 | ) | — | 3,057 | 2,456 | 535 | — | — | 2,991 | |||||||||||||||||||||||||||||
Consumer—cyclical | 1,794 | 252 | (2 | ) | — | 2,044 | 1,663 | 284 | — | — | 1,947 | |||||||||||||||||||||||||||||
Transportation | 1,325 | 271 | (15 | ) | — | 1,581 | 1,198 | 304 | (2 | ) | — | 1,500 | ||||||||||||||||||||||||||||
Other | 346 | 43 | — | — | 389 | 395 | 45 | — | — | 440 | ||||||||||||||||||||||||||||||
Total U.S. corporate | 30,025 | 5,302 | (93 | ) | — | 35,234 | 29,895 | 5,985 | (23 | ) | — | 35,857 | ||||||||||||||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||||||||||||||||||
Utilities | 860 | 75 | — | — | 935 | 838 | 84 | — | — | 922 | ||||||||||||||||||||||||||||||
Energy | 1,192 | 163 | (7 | ) | — | 1,348 | 1,172 | 209 | (1 | ) | — | 1,380 | ||||||||||||||||||||||||||||
Finance and insurance | 2,319 | 312 | (12 | ) | (1 | ) | 2,618 | 2,130 | 353 | (6 | ) | (1 | ) | 2,476 | ||||||||||||||||||||||||||
Consumer—non-cyclical | 712 | 95 | (1 | ) | — | 806 | 662 | 112 | (1 | ) | — | 773 | ||||||||||||||||||||||||||||
Technology and communications | 1,066 | 190 | — | — | 1,256 | 1,062 | 229 | — | — | 1,291 | ||||||||||||||||||||||||||||||
Industrial | 935 | 134 | (1 | ) | — | 1,068 | 969 | 159 | — | — | 1,128 | |||||||||||||||||||||||||||||
Capital goods | 571 | 61 | (6 | ) | — | 626 | 510 | 67 | (1 | ) | — | 576 | ||||||||||||||||||||||||||||
Consumer—cyclical | 400 | 38 | (2 | ) | — | 436 | 331 | 41 | (1 | ) | — | 371 | ||||||||||||||||||||||||||||
Transportation | 571 | 87 | (9 | ) | (1 | ) | 648 | 483 | 88 | (1 | ) | — | 570 | |||||||||||||||||||||||||||
Other | 1,562 | 241 | (1 | ) | — | 1,802 | 1,088 | 236 | — | — | 1,324 | |||||||||||||||||||||||||||||
Total non-U.S. corporate | 10,188 | 1,396 | (39 | ) | (2 | ) | 11,543 | 9,245 | 1,578 | (11 | ) | (1 | ) | 10,811 | ||||||||||||||||||||||||||
Residential mortgage-backed (1) | 1,825 | 250 | — | — | 2,075 | 1,698 | 211 | — | — | 1,909 | ||||||||||||||||||||||||||||||
Commercial mortgage-backed | 2,775 | 228 | (24 | ) | (3 | ) | 2,976 | 2,759 | 231 | (13 | ) | (3 | ) | 2,974 | ||||||||||||||||||||||||||
Other asset-backed | 3,254 | 48 | (16 | ) | — | 3,286 | 3,069 | 55 | (4 | ) | — | 3,120 | ||||||||||||||||||||||||||||
Total available-for-sale fixed maturity securities | $ | 55,252 | $ | 9,349 | $ | (180 | ) | $ | (5 | ) | $ | 64,416 | $ | 53,417 | $ | 10,138 | $ | (56 | ) | $ | (4 | ) | $ | 63,495 | ||||||||||||||||
| (1) | Fair value included $8 million collateralized by Alt-A residential mortgage loans. |
Gross unrealized gains | Gross unrealized losses | |||||||||||||||||||||||
(Amounts in millions) | Amortized cost or cost | Not other- than- temporarily impaired | Other-than- temporarily impaired | Not other- than- temporarily impaired | Other-than- temporarily impaired | Fair value | ||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises | $ | 4,073 | $ | 952 | $ | — | $ | — | $ | — | $ | 5,025 | ||||||||||||
State and political subdivisions | 2,394 | 355 | — | (2 | ) | — | 2,747 | |||||||||||||||||
Non-U.S. government | 1,235 | 117 | — | (2 | ) | — | 1,350 | |||||||||||||||||
U.S. corporate: | ||||||||||||||||||||||||
Utilities | 4,322 | 675 | — | — | — | 4,997 | ||||||||||||||||||
Energy | 2,404 | 303 | — | (8 | ) | — | 2,699 | |||||||||||||||||
Finance and insurance | 6,977 | 798 | — | (1 | ) | — | 7,774 | |||||||||||||||||
Consumer—non-cyclical | 4,909 | 796 | — | (4 | ) | — | 5,701 | |||||||||||||||||
Technology and communications | 2,883 | 363 | — | (1 | ) | — | 3,245 | |||||||||||||||||
Industrial | 1,271 | 125 | — | — | — | 1,396 | ||||||||||||||||||
Capital goods | 2,345 | 367 | — | (1 | ) | — | 2,711 | |||||||||||||||||
Consumer—cyclical | 1,590 | 172 | — | (2 | ) | — | 1,760 | |||||||||||||||||
Transportation | 1,320 | 187 | — | (1 | ) | — | 1,506 | |||||||||||||||||
Other | 292 | 30 | — | — | — | 322 | ||||||||||||||||||
Total U.S. corporate | 28,313 | 3,816 | — | (18 | ) | — | 32,111 | |||||||||||||||||
Non-U.S. corporate: | ||||||||||||||||||||||||
Utilities | 779 | 50 | — | — | — | 829 | ||||||||||||||||||
Energy | 1,140 | 179 | — | — | — | 1,319 | ||||||||||||||||||
Finance and insurance | 2,087 | 232 | — | — | — | 2,319 | ||||||||||||||||||
Consumer—non-cyclical | 631 | 55 | — | (2 | ) | — | 684 | |||||||||||||||||
Technology and communications | 1,010 | 128 | — | — | — | 1,138 | ||||||||||||||||||
Industrial | 896 | 92 | — | — | — | 988 | ||||||||||||||||||
Capital goods | 565 | 40 | — | — | — | 605 | ||||||||||||||||||
Consumer—cyclical | 373 | 24 | — | — | — | 397 | ||||||||||||||||||
Transportation | 557 | 73 | — | (1 | ) | — | 629 | |||||||||||||||||
Other | 1,431 | 188 | — | (2 | ) | — | 1,617 | |||||||||||||||||
Total non-U.S. corporate | 9,469 | 1,061 | — | (5 | ) | — | 10,525 | |||||||||||||||||
| �� | ||||||||||||||||||||||||
Residential mortgage-backed (1) | 2,057 | 199 | 15 | (1 | ) | — | 2,270 | |||||||||||||||||
Commercial mortgage-backed | 2,897 | 137 | — | (8 | ) | — | 3,026 | |||||||||||||||||
Other asset-backed | 3,262 | 30 | — | (7 | ) | — | 3,285 | |||||||||||||||||
Total available-for-sale fixed maturity securities | $ | 53,700 | $ | 6,667 | $ | 15 | $ | (43 | ) | $ | — | $ | 60,339 | |||||||||||
Fixed maturity securities increased $4.1decreased $3.3 billion compared to December 31, 20192020 principally from an increasea decrease in net unrealized gains related to a decreasean increase in interest rates as well as purchases exceeding sales, maturities and repayments in the current year.
Other invested assets
The following table sets forth the carrying values of our other invested assets as of the dates indicated:
September 30, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||
(Amounts in millions) | Carrying value | % of total | Carrying value | % of total | Carrying value | % of total | Carrying value | % of total | ||||||||||||||||||||||||
Limited partnerships | $ | 844 | 36 | % | $ | 634 | 39 | % | $ | 1,160 | 66 | % | $ | 1,049 | 50 | % | ||||||||||||||||
Bank loan investments | 331 | 19 | 344 | 16 | ||||||||||||||||||||||||||||
Derivatives | 804 | 33 | 290 | 18 | 164 | 9 | 574 | 28 | ||||||||||||||||||||||||
Bank loan investments | 387 | 16 | 383 | 23 | ||||||||||||||||||||||||||||
Securities lending collateral | 68 | 4 | 67 | 3 | ||||||||||||||||||||||||||||
Short-term investments | 274 | 11 | 260 | 16 | 17 | 1 | 45 | 2 | ||||||||||||||||||||||||
Securities lending collateral | 75 | 3 | 51 | 3 | ||||||||||||||||||||||||||||
Other investments | 18 | 1 | 14 | 1 | 19 | 1 | 20 | 1 | ||||||||||||||||||||||||
Total other invested assets | $ | 2,402 | 100 | % | $ | 1,632 | 100 | % | $ | 1,759 | 100 | % | $ | 2,099 | 100 | % | ||||||||||||||||
Derivatives increaseddecreased largely from a decreasean increase in interest rates in the current year. Limited partnerships increased primarily from additional capital investments and net unrealized gains, partially offset by return of capital in the current year.
Derivatives
The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for GMWB embedded derivatives, fixed index annuity embedded derivatives and indexed universal life embedded derivatives, the change between periods is best illustrated by the number of policies. The following tables represent activity associated with derivative instruments as of the dates indicated:
(Notional in millions) | Measurement | December 31, 2019 | Additions | Maturities/ terminations | September 30, 2020 | Measurement | December 31, 2020 | Additions | Maturities/ terminations | March 31, 2021 | ||||||||||||||||||||||||||||||
Derivatives designated as hedges | ||||||||||||||||||||||||||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | Notional | $ | 8,968 | $ | 1,844 | $ | (2,616 | ) | $ | 8,196 | Notional | $ | 8,178 | $ | — | $ | (52 | ) | $ | 8,126 | ||||||||||||||||||||
Foreign currency swaps | Notional | 110 | — | — | 110 | Notional | 127 | — | — | 127 | ||||||||||||||||||||||||||||||
Total cash flow hedges | 9,078 | 1,844 | (2,616 | ) | 8,306 | 8,305 | — | (52 | ) | 8,253 | ||||||||||||||||||||||||||||||
Total derivatives designated as hedges | 9,078 | 1,844 | (2,616 | ) | 8,306 | 8,305 | — | (52 | ) | 8,253 | ||||||||||||||||||||||||||||||
Derivatives not designated as hedges | ||||||||||||||||||||||||||||||||||||||||
Interest rate swaps | Notional | 4,674 | — | — | 4,674 | Notional | 4,674 | — | — | 4,674 | ||||||||||||||||||||||||||||||
Equity index options | Notional | 2,451 | 1,527 | (1,849 | ) | 2,129 | Notional | 2,000 | 352 | (432 | ) | 1,920 | ||||||||||||||||||||||||||||
Financial futures | Notional | 1,182 | 4,362 | (4,275 | ) | 1,269 | Notional | 1,104 | 1,008 | (1,114 | ) | 998 | ||||||||||||||||||||||||||||
Other foreign currency contracts | Notional | 628 | 5,689 | (4,687 | ) | 1,630 | Notional | 1,186 | 12 | (495 | ) | 703 | ||||||||||||||||||||||||||||
Total derivatives not designated as hedges | 8,935 | 11,578 | (10,811 | ) | 9,702 | 8,964 | 1,372 | (2,041 | ) | 8,295 | ||||||||||||||||||||||||||||||
Total derivatives | $ | 18,013 | $ | 13,422 | $ | (13,427 | ) | $ | 18,008 | $ | 17,269 | $ | 1,372 | $ | (2,093 | ) | $ | 16,548 | ||||||||||||||||||||||
(Number of policies) | Measurement | December 31, 2019 | Additions | Maturities/ terminations | September 30, 2020 | |||||||||||||||||||||||||||||||||||
Derivatives not designated as hedges | ||||||||||||||||||||||||||||||||||||||||
GMWB embedded derivatives | Policies | 25,623 | — | (1,452 | ) | 24,171 | ||||||||||||||||||||||||||||||||||
Fixed index annuity embedded derivatives | Policies | 15,441 | — | (1,511 | ) | 13,930 | ||||||||||||||||||||||||||||||||||
Indexed universal life embedded derivatives | Policies | 884 | — | (37 | ) | 847 | ||||||||||||||||||||||||||||||||||
(Number of policies) | Measurement | December 31, 2020 | Additions | Maturities/ terminations | March 31, 2021 | |||||||||||||||
Derivatives not designated as hedges | ||||||||||||||||||||
GMWB embedded derivatives | Policies | 23,713 | — | (536 | ) | 23,177 | ||||||||||||||
Fixed index annuity embedded derivatives | Policies | 12,778 | — | (1,010 | ) | 11,768 | ||||||||||||||
Indexed universal life embedded derivatives | Policies | 842 | — | (8 | ) | 834 | ||||||||||||||
The decrease in the notional value of derivatives was primarily attributable to terminations of interest rate swaps that support our long-term care insurance business and terminations of equity index options that support our fixed indexed annuity products, mostly offset by an increasea decrease in foreign currency derivatives entered into to hedge payments to AXA under the promissory note denominated in a foreign currency.
115
currency, a decrease in financial futures that primarily support our runoff variable annuity products and terminations of equity index options that support our fixed indexed annuity products.
The number of policies related to our embedded derivatives decreased as these products are no longer being offered and continue to runoff.
Consolidated Balance Sheets
Total assets
Cash, cash equivalents, restricted cash and invested assets increased $4,688decreased $4,339 million primarily from increasesdecreases of $4,077$3,264 million, $770$597 million and $390$340 million in fixed maturity securities, cash, cash equivalents, restricted cash and other invested assets, and equity securities, respectively. The increasedecrease in fixed maturity securities was predominantly related to higher unrealized gains mostly associated with a decrease in unrealized gains due to an increase in interest rates and from net purchases in the current year. The increasedecrease in cash, cash equivalents and restricted cash was largely related to the redemption of $338 million of Genworth Holdings’ senior notes that matured in February 2021, payments made to AXA of $247 million under the promissory note and the repurchase of $146 million principal amount of senior notes in the current year that are due in September 2021. These decreases to cash were partially offset by net proceeds of approximately $370 million received from the sale of Genworth Australia and from net sales of investment securities in the current year. The decrease in other invested assets was principally from higherlower derivative assets driven mostly by lowervaluations due to an increase in interest rates, andpartially offset by additional capital investments in limited partnerships in the current year. These increases were partially offset by a decrease in cash, cash equivalents and restricted cash of $561 million, largely related to the early redemption of Genworth Holdings’ senior notes originally scheduled to mature in June 2020, the early repayment of Rivermont I’s non-recourse funding obligations originally due in 2050, net purchases of fixed maturity securities and payments of $263 million to AXA in the current year. These decreases to cash were partially offset by proceeds received from debt offerings in GMHI and our Australia mortgage insurance business during the third quarter of 2020.
DAC decreased $213$240 million principally attributable to shadow accounting adjustments associated with a decrease in unrealized gains in the current year. The shadow accounting adjustments decreased DAC by approximately $174 million, mostly in our term universal life insurance product, with an offsetting amount recorded in other comprehensive income (loss). The decrease was also attributable to higher amortization largely driven by an increase in lapses mostly attributable toin our large 20-year term life insurance block entering its post-level premium periodblocks and amortization outpacing deferrals reflecting the low sales in our long-term care insurance business in the current year.
Deferred tax asset decreased $175increased $249 million largely due to a decrease in unrealized gains on derivatives and investments and from a deferred tax asset of $89 million recorded on the loss on sale of Genworth Australia, partially offset by the utilization of net operating losses and foreign tax credits and from higher unrealized gains on derivatives and investments, partially offset by a deferred tax asset recorded in connection with the AXA settlement agreement.current year.
Total liabilities
Future policy benefits increased $1,611decreased $2,061 million primarily driven by shadow accounting adjustments associated with a decrease in unrealized gains in the recognition of higher unrealized gains.current year. The shadow accounting adjustments increaseddecreased future policy benefits by approximately $1,313$2,194 million, mostly in our long-term care insurance business, with an offsetting amount recorded in other comprehensive income (loss). The increasedecrease was also attributable to reduced benefits of $154 million in the current year related to$247$174 million recorded in connection with an accrual for profits followed by losses in the current year. These increases were partially offset by our fixed annuities business principally from net outflows driven by surrenders and benefits in the current year.
in-force
actions approved and implemented in our long-term care insurance business, net outflows driven by surrenders and benefits in our single premium immediate annuity products and from the runoff of our term life insurance products, including from higher lapses in the current year. These decreases were partially offset by aging of our long-term care insurancein-force
block and higher incremental reserves of Policyholder account balances increased $514decreased $1,504 million largely attributable to shadow accounting adjustments in connectionassociated with the recognition of highera decrease in unrealized gains in the current year. The shadow accounting adjustments decreased policyholder account balances by approximately $950 million, mostly in our universal life insurance products, and from the low interest rate environment impacting GMDB reserveswith an offsetting amount recorded in our variable annuity products, partially offset byother comprehensive income (loss). The decrease was also related to surrenders and benefits in our fixed annuities businesssingle premium deferred annuity products in the current year.
Liability for policy and contract claims increased $415decreased $71 million mostlylargely related to lower claim severity and higher claim payments in our U.S. mortgagelife insurance business primarily attributable to a significant increase in the number of new delinquencies driven largely by borrower forbearance resulting from COVID-19. In addition, existing reserves were strengthened by $28 million in the current year primarily driven by the deterioration of early cure emergence patterns impacting claim frequency along with a modest increase in claim severity.year. The increasedecrease was also attributable to our long-term care insurance business primarily attributable to new claims, which includeshigher claim terminations, partially offset by higher new claims frequencyand claim severity as a result of the aging of theas well as higher severity,and a $67 million increase to claim reserves, reflecting our assumption thatan increase in claim terminationsour U.S. mortgage insurance business largely due to new delinquencies driven mostlylargely by higher mortality and favorable development on incurred but not reported claims in the current year. Given the lower new claim counts submitted during COVID-19, incurred but not reported reserves were strengthened by $61 million reflecting our assumption that new claim incidence during this period will ultimately return to normal levels, partially offsetting the favorable development on incurred but not reported claims.borrower forbearance resulting from
in-force
block COVID-19
has accelerated mortality experience on the most vulnerable claimants, leaving the remaining claim population less likely to terminate compared to thepre-pandemic
average population. These decreases were partially offset by COVID-19.
Long-term borrowings increased $293decreased $481 million mainly attributable to $750 million of senior notes issued by GMHI and AUD$43 million floating rate subordinated notes issued by our Australia mortgage insurance business, partially offset by the early redemption of Genworth Holdings’ 7.70%7.20% senior notes originally scheduled to maturedue in June 2020February 2021 and the repurchase of $84$146 million principal amount of its senior notes with a September 2021 maturity datesdate in the current year.
Liabilities related to discontinued operations increased $389decreased $2,010 million predominantly from the sale and deconsolidation of Genworth Australia, which also resulted in a mandatory payment of approximately $247 million, including accrued interest, to AXA under the secured promissory note issued in the current year associated with the settlement agreement reached with AXA. See note 14 in our unaudited condensed consolidated financial statements under “Item 1 — Financial Statements” for additional details.year.
Total equity
We reported a net lossincome available to Genworth Financial, Inc.’s common stockholders of $89$187 million for the ninethree months ended September 30, 2020. We also adopted new accounting guidance on January 1, 2020 related to estimating expected credit losses that was applied on a modified retrospective basis, resulting in a $55 million decrease to retained earnings in the current year.March 31, 2021.
Derivatives qualifying as hedges and unrealized gains on investments increased $449decreased $419 million and $255$295 million, respectively, primarily from a decreasean increase in interest rates.rates in the current year.
Noncontrolling interests decreased $502 million related to the deconsolidation of the ownership interest attributable to noncontrolling interests of Genworth Australia recorded in connection with the final disposition in March 2021.
Liquidity and Capital Resources
Liquidity and capital resources represent our overall financial strength and our ability to generate cash flows from our businesses, borrow funds at competitive rates and raise new capital to meet our operating and growth needs.
Genworth and subsidiaries
The following table sets forth our unaudited condensed consolidated cash flows for the ninethree months ended September 30:March 31:
(Amounts in millions) | 2020 | 2019 | 2021 | 2020 | ||||||||||||
Net cash from operating activities | $ | 1,452 | $ | 1,608 | ||||||||||||
Net cash used by investing activities | (1,279 | ) | (548 | ) | ||||||||||||
Net cash from (used by) operating activities | $ | (247 | ) | $ | 680 | |||||||||||
Net cash from (used by) investing activities | 335 | (551 | ) | |||||||||||||
Net cash used by financing activities | (734 | ) | (1,242 | ) | (780 | ) | (957 | ) | ||||||||
Net decrease in cash before foreign exchange effect | $ | (561 | ) | $ | (182 | ) | $ | (692 | ) | $ | (828 | ) | ||||
117
Our principal sources of cash include sales of our products and services, income from our investment portfolio and proceeds from sales of investments. As an insurance business, we typically generate positive cash flows from operating activities, as premiums collected from our insurance products and income received from our investments typically exceed policy acquisition costs, benefits paid, redemptions and operating expenses. Our cash flows from operating activities are affected by the timing of premiums, fees and investment income received and benefits and expenses paid. Positive cash flows from operating activities are then invested to support the obligations of our insurance and investment products and required capital supporting these products. In analyzing our cash flow, we focus on the change in the amount of cash available and used in investing activities. Changes in cash from financing activities primarily relate to the issuance of, and redemptions and benefit payments on, universal life insurance and investment contracts; deposits from Federal Home Loan Banks; the issuance and acquisition of debt and equity securities; the issuance and repayment or repurchase of borrowings and
non-recourse
funding obligations; and other capital transactions.We had lowercash outflows from operating activities in the current year primarily from a $247 million mandatory payment related to our outstanding secured promissory note issued to AXA. We had cash inflows from operating activities in the currentprior year mainly attributable to payments of $263 million to AXA, as discussed below, partially offset by higheran increase in collateral received from counterparties related to our derivative positions and a lower amount of policy loans issuedcash received oncorporate-owned lifelong-term care insurance productbusiness, partially offset by a payment of $134 million to AXA.
in-force
premium rate increases in our We had cash inflows from investing activities in the current year.
year mainly from net proceeds from the sale of Genworth Australia and net sales of fixed maturity securities. We had higher cash outflows from investing activities in the prior year primarily driven by higher net purchases of fixed maturity securities, partially offset by lower commercial mortgage loan originations in the current year.securities.
We had lower cash outflows from financing activities in the current year principally from $739 millionlower repayment and repurchase of net proceeds from GMHI’s issuance of its 2025 Senior Notes, net proceeds of $28 million from the issuance of GFMIPL’s floating rate subordinated notes due in July 2030 and lowerlong-term debt, partially offset by higher net withdrawals from our investment contracts. These decreases were partially offset bycontracts in the current year. Genworth Holdings paid the $338 million principal balance of its 7.20% senior notes due in February 2021 and repurchased $146 million principal amount of its 7.625% senior notes due in September 2021, of which $14 million remained in transit as of March 31, 2021 resulting in a cash outlay of $132 million during the first quarter of 2021. In the prior year, Genworth Holdings early redemption ofredeemed $397 million of Genworth Holdings’its senior notes originally scheduled to mature in June 2020, theRivermont I early redemption ofredeemed its $315 million of Rivermont I’s the repurchase of $84Genworth Holdings repurchased $14 million principal amount of Genworth Holdings’its senior notes with 2021 maturity dates.
non-recourse
funding obligations originally due in 2050 and We engage in certain securities lending transactions for the purpose of enhancing the yield on our investment securities portfolio. We maintain effective control over all loaned securities and, therefore, continue to report such securities as fixed maturity securities on the consolidated balance sheets. We are currently indemnified against counterparty credit risk by the intermediary.
Genworth—holding company
Genworth Financial and Genworth Holdings each act as a holding company for their respective subsidiaries and do not have any significant operations of their own. Dividends from their respective subsidiaries, payments to them under tax sharing and expense reimbursement arrangements with their subsidiaries and proceeds from borrowings or securities issuances are their principal sources of cash to meet their obligations. Insurance laws
and regulations regulate the payment of dividends and other distributions to Genworth Financial and Genworth Holdings by their insurance subsidiaries. We expectDividends received from our insurance subsidiaries is highly dependent on the performance of our U.S. mortgage insurance business and their ability to pay dividends to us as anticipated. Given the performance of our U.S. life insurance businesses, dividends will not be paid by these businesses for the foreseeable future.
Our U.S. mortgage insurance business is currently operating under the PMIERs Amendment, which includes capital preservation requirements that restrict dividends through June 30, 2021. Thereafter, we will
118
evaluate the regulatory and macroeconomic environment, including the timing of forbearance resolutions and whether loans subject to forbearance cure or result in a claim, to assess future dividends. Future dividends are subject to capital requirements of our U.S. mortgage insurance subsidiaries, will vary depending on strategic objectives, capital levels, regulatory requirementsneeds of our holding companies and business performance, including the expected adverse impacts from COVID-19.market conditions, among other factors, which are subject to change.
The primary uses of funds at Genworth Financial and Genworth Holdings include payment of holding company general operating expenses (including taxes), payment of principal, interest and other expenses on current and any future borrowings or other obligations (including payments to AXA under a secured promissory note related toreported as discontinued operations), payments under current and any future guarantees (including guarantees of certain subsidiary obligations), payment of amounts owed to GEGeneral Electric Company (“GE”) under the Tax Matters Agreement, payments to subsidiaries (and, in the case of Genworth Holdings, to Genworth Financial) under tax sharing agreements, contributions to subsidiaries, repurchases of debt securities and, in the case of Genworth Holdings, loans, dividends or other distributions to Genworth Financial. In deploying future capital, important current priorities include focusing on our U.S. mortgage insurance businessesbusiness so they remainit remains appropriately capitalized and accelerating progress on reducing overall indebtedness of Genworth Holdings. We may from time to time seek to repurchase or redeem outstanding notes for cash (with cash on hand, proceeds from the issuance of new debt and/or the proceeds from asset or stock sales) in open market purchases, tender offers, privately negotiated transactions or otherwise. We currently seek to address our indebtedness over time through repurchases, redemptions and/or repayments at maturity.
Our Board of Directors has suspended the payment of stockholder dividends on our Genworth Financial common stock indefinitely. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will be dependent on many factors including the receipt of dividends from our operating subsidiaries, our financial condition and operating results, the capital requirements of our subsidiaries, legal requirements, regulatory constraints, our debt obligations, our credit and financial strength ratings and such other factors as the Board of Directors deems relevant. In addition, our Board of Directors has suspended repurchases of our Genworth Financial common stock under our stock repurchase program indefinitely. The resumption of our stock repurchase program will be at the discretion of our Board of Directors.
Genworth Holdings had $814$757 million and $1,461$1,078 million of cash, cash equivalents and restricted cash as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, which included $74$60 million and $46 million, respectively, of restricted cash equivalents as of September 30, 2020.equivalents. Genworth Holdings also held $70$25 million inof restricted U.S. government securities as of December 31, 2019, which included approximately $48 million of restricted assets.2020. The decrease in Genworth Holdings’ cash, cash equivalents and restricted cash was principally driven by the repayment of long-term debtGenworth Holdings’ 7.20% senior notes due in February 2021 for $350 million, comprised of the outstanding principal balance of $338 million and intercompanyaccrued interest of $12 million and the repurchase of $146 million principal amount of its 7.625% senior notes due in September 2021. In addition, on March 3, 2021, we completed the sale of Genworth Australia and paymentsreceived net proceeds of approximately AUD483 million ($370 million). The sale of Genworth Australia resulted in a mandatory payment of approximately £178 million ($247 million) related to our outstanding secured promissory note issued to AXA, including accrued interest of $263 million, partially offset by a dividend of $436 million received from our U.S. mortgage insurance business in the current year. On July 20, 2020, we reached a settlement agreement with AXA regarding a dispute over payment protection insurance mis-selling claims sold by our former lifestyle protection insurance business that was acquired by AXA in December 2015. In January 2020, we made an interim litigation payment of $134 million and on July 21, 2020 we paid an initial amount under the settlement agreement of £100 million ($125 million), along with accrued interest.$2 million. For additional details on the decrease in cash, cash equivalents and restricted cash, see below under “—Capital resources and financing activities.”
During the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, Genworth Holdings received cash dividends of $370 million and $11 million, respectively, from its international subsidiaries of $11 million and $167 million, respectively. Our U.S. mortgage insurance business paid a $436 million dividendsubsidiaries. Dividends received in the third quarter of 2020 fromcurrent year included net proceeds received from GMHI’s issuancethe sale of Genworth Australia.
On March 1, 2021, Genworth Holdings entered into a guarantee agreement with Genworth Financial International Holdings, LLC (“GFIH”) whereby Genworth Holdings agreed to contribute additional capital to GFIH related to certain of its 2025 Senior Notes. This dividend provides liquidityliabilities, or otherwise satisfy or discharge those liabilities. The liabilities include but are not limited to, address Genworth Holdings’ senior notes due in February 2021.
Regulated insurance subsidiaries
The liquidity requirements of our regulated insurance subsidiaries principally relate to the liabilities associated with their various insurance and investment products, operating costs and expenses, the payment of dividends to us, contributions to their subsidiaries, payment of principal and interest on their outstanding debt obligations and income taxes. Liabilities arising from insurance and investment products include the payment of benefits, as well as cash payments in connection with policy surrenders and withdrawals, policy loans and obligations to redeem funding agreements.
Our insurance subsidiaries have used cash flows from operations and investment activities to fund their liquidity requirements. Our insurance subsidiaries’ principal cash inflows from operating activities are derived from premiums, annuity deposits and insurance and investment product fees and other income, including commissions, cost of insurance, mortality, expense and surrender charges, contract underwriting fees, investment management fees and dividends and distributions from their subsidiaries. The principal cash inflows from investment activities result from repayments of principal, investment income and, as necessary, sales of invested assets.
Our insurance subsidiaries maintain investment strategies intended to provide adequate funds to pay benefits without forced sales of investments. Products having liabilities with longer durations, such as certain life insurance and long-term care insurance policies, are matched with investments having similar duration such as long-term fixed maturity securities and commercial mortgage loans. Shorter-term liabilities are matched with fixed maturity securities that have short- and medium-term fixed maturities. In addition, our insurance subsidiaries hold highly liquid, high quality short-term investment securities and other liquid investment grade fixed maturity securities to fund anticipated operating expenses, surrenders and withdrawals. As of September 30, 2020,March 31, 2021, our total cash, cash equivalents, restricted cash and invested assets were $79.3$72.9 billion. Our investments in privately placed fixed maturity securities, commercial mortgage loans, policy loans, limited partnership investments and select mortgage-backed and asset-backed securities are relatively illiquid. These asset classes represented approximately 37%39% of the carrying value of our total cash, cash equivalents, restricted cash and invested assets as of September 30, 2020.March 31, 2021.
As of September 30, 2020,March 31, 2021, our U.S. mortgage insurance business was compliant with the PMIERs capital requirements. In February 2021, our U.S. mortgage insurance business executed an excess of loss reinsurance transaction with a panel of reinsurers which provides up to $210 million of reinsurance coverage on a portion of current and expected mortgage insurance policies written in 2021. On March 2, 2021, our U.S. mortgage insurance business obtained $495 million of fully collateralized excess of loss reinsurance coverage from Triangle Reestimated aggregate of $777approximately $1,285 million of PMIERs capital credit as of March 31, 2021. On April 16, 2021, our U.S. Mortgage insurance business obtained approximately $303 million of fully collateralized excess of loss reinsurance coverage from Triangle Re30,2020 through December 2020. Our U.S. mortgage insurance business may execute future credit risk transfer transactions to maintain a prudent level of financial flexibility in excess of the PMIERs capital requirements in response to potential changes in performance and PMIERs requirements over time. We believe that future credit risk transfer transactions may be more difficult to execute, if possible at all, and may have a higher cost during and following COVID-19.
2021-1
Ltd. on a portfolio of existing mortgage insurance policies written from January 2014 through December 2018 and on policies written from October 2019 through December 2019. Credit risk transfer transactions provided an 2021-2
Ltd. on a portfolio of existing mortgage insurance policies written from September Capital resources and financing activities
pre-tax
loss of $4 million and As of March 31, 2021, Genworth Holdings has $697 million floating rate subordinatedof unrestricted cash and cash equivalents. Genworth Holdings received net cash proceeds of $370 million from the sale of Genworth Australia in March 2021, of which $247 million was used to prepay a portion of the AXA promissory note, including accrued interest. The remaining proceeds, along with Genworth Holdings’ unrestricted cash and cash equivalents, provide sufficient liquidity to meet our financial obligations and maintain business operations for one year from the date the financial statements are issued, including repayment of the 7.625% senior notes due in July 2030. These notes will pay interest quarterly at a floating rate equal toSeptember 2021, based on relevant conditions and events that are known and reasonably estimable, including current cash and management actions in the three-month bank bill swap reference rate plus a margin of a minimum of 5.0% per annum. GFMIPL has an option to redeem the notes at face value on July 3, 2025 and every interest payment date thereafter up to and excluding the maturity date, and for certain tax and regulatory events (in each case subject to APRA’s prior written approval). Followingnormal course.
Under the settlement of these transactions, GFMIPL had outstanding floating rate subordinated notes of AUD$53 million due in July 2025 and AUD$190 million due in July 2030.
Genworth Holdings has $338 million of its 7.20% senior notes maturing in February 2021 and $659 million of its 7.625% senior notes maturing in September 2021, excluding deferred costs;
The remaining AXA promissory note, including expected future claims, is estimated to be $343 million and is due in September 2022. In addition, Genworth Holdings has $400 million of senior notes due in both August 2023 and February 2024. To help address these debt obligations beyond the next year and reduce our overall indebtedness, we are actively taking additional steps toward raising capital by preparing for a planned partial sale of our U.S. mortgage insurance business, subject to market conditions, as well as the satisfaction of various conditions and approvals.
We actively monitor our liquidity position, liquidity generation options and the credit markets given changing market conditions. Our cash management target is to maintain a cash buffer of two times expected annual external debt interest payments. We may move below or above our targeted cash buffer during any given quarter due to the timing of cash outflows and inflows or from future actions. We continue to evaluate our target level of liquidity as circumstances warrant. Additionally, we will continue to evaluate market influences on the valuation of our senior debt and may consider additional opportunities to repurchase our debt over time. We cannot predict with certainty the impact to us from future disruptions in the credit markets or the recent or any further future downgrades by one or more of the rating agencies of the financial strength ratings of our insurance company subsidiaries and/or the credit ratings of our holding company debt. The availability of additional funding, including an equity transaction through a partial sale of our U.S. mortgage insurance business or the issuance of debt, convertible or equity-linked securities, will depend on a variety of factors such as market conditions, regulatory considerations, the general availability of credit, credit ratings and the performance of and outlook for our U.S. mortgage insurance business.business and the payment of dividends therefrom. For a discussion of certain risks associated with our liquidity, see “Item 1A—Risk Factors—Our internal sources of liquidity may be insufficient to meet our needs and our access to capital may be limited or unavailable. Under such conditions, we may seek additional capital but may be unable to obtain it” and “Litigation and regulatory investigations or other actions are common in the insurance business and may result in financial losses and harm our reputation” in our 20192020 Annual Report on Formpotential equityplanned partial sale transaction constitutesconstitute an offering of securities.
10-K.
These risks may be exacerbated by the economic impact ofCOVID-19.
No references herein to any Contractual obligations and commercial commitments
10-K
filed on February 121
Supplemental Condensed Consolidating Financial Information
Genworth Financial provides a full and unconditional guarantee to the trustee of Genworth Holdings’ outstanding senior and subordinated notes and the holders of the senior and subordinated notes, on an unsecured unsubordinated and subordinated basis, respectively, of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, each outstanding series of senior notes and outstanding subordinated notes, and the full and punctual payment of all other amounts payable by Genworth Holdings under the senior and subordinated notes indentures in respect of such senior and subordinated notes. Genworth Holdings is a direct, 100% owned subsidiary of Genworth Financial.
The following supplemental condensed consolidating financial information of Genworth Financial and its direct and indirect subsidiaries has been prepared pursuant to rules regarding the preparation of consolidating financial information of In the first quarter of 2020, we early applied new rules issued by the SEC by removing comparative prior year condensed consolidating financial information herein and presenting the supplemental condensed consolidating financial information outside the footnotes of our interim unaudited condensed consolidated financial statements. We continue to provide prior year annual period condensed consolidating financial information in accordance with the new amended rules.
Regulation S-X,
as amended by the SEC on March 2, 2020.The supplemental condensed consolidating financial information presents the condensed consolidating balance sheet information as of September 30, 2020March 31, 2021 and December 31, 2019,2020, the condensed consolidating income statement information, the condensed consolidating comprehensive income statement information and the condensed consolidating cash flow statement information for the ninethree months ended September 30, 2020March 31, 2021 and for the year ended December 31, 2019.2020.
The supplemental condensed consolidating financial information reflects Genworth Financial (“Parent Guarantor”), Genworth Holdings (“Issuer”) and each of Genworth Financial’s other direct and indirect subsidiaries (the “All Other Subsidiaries”) on a combined basis, none of which guarantee the senior notes or subordinated notes, as well as the eliminations necessary to present Genworth Financial’s financial information on a consolidated basis and total consolidated amounts.
The accompanying supplemental condensed consolidating financial information is presented based on the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the subsidiaries’ cumulative results of operations, capital contributions and distributions, and other changes in equity. Elimination entries include consolidating and eliminating entries for investments in subsidiaries and intercompany activity.
The following table presents the condensed consolidating balance sheet information as of September 30, 2020:March 31, 2021:
(Amounts in millions) | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities available-for-sale, at fair value (amortized cost of $55,252 and allowance for credit losses of $5) | $ | — | $ | — | $ | 64,416 | $ | — | $ | 64,416 | ||||||||||||||||||||||||||||||
Fixed maturity securities available-for-sale, | $ | — | $ | — | $ | 60,231 | $ | — | $ | 60,231 | ||||||||||||||||||||||||||||||
Equity securities, at fair value | — | — | 629 | — | 629 | — | — | 238 | — | 238 | ||||||||||||||||||||||||||||||
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4) | — | — | 6,911 | — | 6,911 | — | — | 6,787 | — | 6,787 | ||||||||||||||||||||||||||||||
Less: Allowance for credit losses | — | — | (31 | ) | — | (31 | ) | — | — | (32 | ) | — | (32 | ) | ||||||||||||||||||||||||||
Commercial mortgage loans, net | — | — | 6,880 | — | 6,880 | — | — | 6,755 | — | 6,755 | ||||||||||||||||||||||||||||||
Policy loans | — | — | 2,153 | — | 2,153 | — | — | 1,976 | — | 1,976 | ||||||||||||||||||||||||||||||
Other invested assets | — | 16 | 2,386 | — | 2,402 | — | 26 | 1,733 | — | 1,759 | ||||||||||||||||||||||||||||||
Investments in subsidiaries | 14,690 | 15,959 | — | (30,649 | ) | — | 14,783 | 15,672 | — | (30,455 | ) | — | ||||||||||||||||||||||||||||
Total investments | 14,690 | 15,975 | 76,464 | (30,649 | ) | 76,480 | 14,783 | 15,698 | 70,933 | (30,455 | ) | 70,959 | ||||||||||||||||||||||||||||
Cash, cash equivalents and restricted cash | — | 814 | 1,966 | — | 2,780 | — | 757 | 1,207 | — | 1,964 | ||||||||||||||||||||||||||||||
Accrued investment income | — | — | 650 | — | 650 | — | — | 704 | — | 704 | ||||||||||||||||||||||||||||||
Deferred acquisition costs | — | — | 1,623 | — | 1,623 | — | — | 1,247 | — | 1,247 | ||||||||||||||||||||||||||||||
Intangible assets and goodwill | — | — | 209 | — | 209 | |||||||||||||||||||||||||||||||||||
Intangible assets | — | — | 155 | — | 155 | |||||||||||||||||||||||||||||||||||
Reinsurance recoverable | — | — | 16,832 | — | 16,832 | — | — | 16,788 | — | 16,788 | ||||||||||||||||||||||||||||||
Less: Allowance for credit losses | — | — | (44 | ) | — | (44 | ) | — | — | (44 | ) | — | (44 | ) | ||||||||||||||||||||||||||
Reinsurance recoverable, net | — | — | 16,788 | — | 16,788 | — | — | 16,744 | — | 16,744 | ||||||||||||||||||||||||||||||
Other assets | 5 | 326 | 114 | — | 445 | — | 146 | 293 | — | 439 | ||||||||||||||||||||||||||||||
Intercompany notes receivable | 99 | 189 | — | (288 | ) | — | — | 98 | — | (98 | ) | — | ||||||||||||||||||||||||||||
Deferred tax assets | (19 | ) | 779 | (510 | ) | — | 250 | 3 | 713 | (402 | ) | — | 314 | |||||||||||||||||||||||||||
Separate account assets | — | — | 5,700 | — | 5,700 | — | — | 6,032 | — | 6,032 | ||||||||||||||||||||||||||||||
Total assets | $ | 14,775 | $ | 18,083 | $ | 103,004 | $ | (30,937 | ) | $ | 104,925 | $ | 14,786 | $ | 17,412 | $ | 96,913 | $ | (30,553 | ) | $ | 98,558 | ||||||||||||||||||
Liabilities and equity | ||||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Future policy benefits | $ | — | $ | — | $ | 41,995 | $ | — | $ | 41,995 | $ | — | $ | — | $ | 40,634 | $ | — | $ | 40,634 | ||||||||||||||||||||
Policyholder account balances | — | — | 22,731 | — | 22,731 | — | — | 19,999 | — | 19,999 | ||||||||||||||||||||||||||||||
Liability for policy and contract claims | — | — | 11,373 | — | 11,373 | — | — | 11,415 | — | 11,415 | ||||||||||||||||||||||||||||||
Unearned premiums | — | — | 1,846 | — | 1,846 | — | — | 728 | — | 728 | ||||||||||||||||||||||||||||||
Other liabilities | 19 | 92 | 1,802 | — | 1,913 | 5 | 117 | 1,588 | — | 1,710 | ||||||||||||||||||||||||||||||
Intercompany notes payable | — | 99 | 189 | (288 | ) | — | 23 | — | 75 | (98 | ) | — | ||||||||||||||||||||||||||||
Long-term borrowings | — | 2,663 | 907 | — | 3,570 | — | 2,183 | 739 | — | 2,922 | ||||||||||||||||||||||||||||||
Separate account liabilities | — | — | 5,700 | — | 5,700 | — | — | 6,032 | — | 6,032 | ||||||||||||||||||||||||||||||
Liabilities related to discontinued operations | — | 549 | 16 | — | 565 | — | 339 | 21 | — | 360 | ||||||||||||||||||||||||||||||
Total liabilities | 19 | 3,403 | 86,559 | (288 | ) | 89,693 | 28 | 2,639 | 81,231 | (98 | ) | 83,800 | ||||||||||||||||||||||||||||
Equity: | ||||||||||||||||||||||||||||||||||||||||
Common stock | 1 | — | 3 | (3 | ) | 1 | 1 | — | 3 | (3 | ) | 1 | ||||||||||||||||||||||||||||
Additional paid-in capital | 11,997 | 12,761 | 18,432 | (31,193 | ) | 11,997 | 12,011 | 12,890 | 18,561 | (31,451 | ) | 12,011 | ||||||||||||||||||||||||||||
Accumulated other comprehensive income (loss) | 4,141 | 4,141 | 4,226 | (8,367 | ) | 4,141 | 3,675 | 3,675 | 3,717 | (7,392 | ) | 3,675 | ||||||||||||||||||||||||||||
Retained earnings | 1,317 | (2,222 | ) | (6,992 | ) | 9,214 | 1,317 | 1,771 | (1,792 | ) | (6,899 | ) | 8,691 | 1,771 | ||||||||||||||||||||||||||
Treasury stock, at cost | (2,700 | ) | — | — | — | (2,700 | ) | (2,700 | ) | — | — | — | (2,700 | ) | ||||||||||||||||||||||||||
Total Genworth Financial, Inc.’s stockholders’ equity | 14,756 | 14,680 | 15,669 | (30,349 | ) | 14,756 | 14,758 | 14,773 | 15,382 | (30,155 | ) | 14,758 | ||||||||||||||||||||||||||||
Noncontrolling interests | — | — | 776 | (300 | ) | 476 | — | — | 300 | (300 | ) | — | ||||||||||||||||||||||||||||
Total equity | 14,756 | 14,680 | 16,445 | (30,649 | ) | 15,232 | 14,758 | 14,773 | 15,682 | (30,455 | ) | 14,758 | ||||||||||||||||||||||||||||
Total liabilities and equity | $ | 14,775 | $ | 18,083 | $ | 103,004 | $ | (30,937 | ) | $ | 104,925 | $ | 14,786 | $ | 17,412 | $ | 96,913 | $ | (30,553 | ) | $ | 98,558 | ||||||||||||||||||
The following table presents the condensed consolidating balance sheet information as of December 31, 2019:2020:
(Amounts in millions) | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities available-for-sale, at fair value | $ | — | $ | — | $ | 60,539 | $ | (200 | ) | $ | 60,339 | |||||||||||||||||||||||||||||
Fixed maturity securities available-for-sale, | $ | — | $ | — | $ | 63,495 | $ | — | $ | 63,495 | ||||||||||||||||||||||||||||||
Equity securities, at fair value | — | — | 239 | — | 239 | — | — | 386 | — | 386 | ||||||||||||||||||||||||||||||
Commercial mortgage loans ($47 are restricted related to a securitization entity) | — | — | 6,963 | — | 6,963 | |||||||||||||||||||||||||||||||||||
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4) | — | — | 6,774 | — | 6,774 | |||||||||||||||||||||||||||||||||||
Less: Allowance for credit losses | — | — | (31 | ) | — | (31 | ) | |||||||||||||||||||||||||||||||||
Commercial mortgage loans, net | — | — | 6,743 | — | 6,743 | |||||||||||||||||||||||||||||||||||
Policy loans | — | — | 2,058 | — | 2,058 | — | — | 1,978 | — | 1,978 | ||||||||||||||||||||||||||||||
Other invested assets | — | 71 | 1,561 | — | 1,632 | — | 67 | 2,032 | — | 2,099 | ||||||||||||||||||||||||||||||
Investments in subsidiaries | 14,079 | 15,090 | — | (29,169 | ) | — | 15,358 | 16,673 | — | (32,031 | ) | — | ||||||||||||||||||||||||||||
Total investments | 14,079 | 15,161 | 71,360 | (29,369 | ) | 71,231 | 15,358 | 16,740 | 74,634 | (32,031 | ) | 74,701 | ||||||||||||||||||||||||||||
Cash, cash equivalents and restricted cash | — | 1,461 | 1,880 | — | 3,341 | — | 1,078 | 1,483 | — | 2,561 | ||||||||||||||||||||||||||||||
Accrued investment income | — | — | 657 | (3 | ) | 654 | — | — | 655 | — | 655 | |||||||||||||||||||||||||||||
Deferred acquisition costs | — | — | 1,836 | — | 1,836 | — | — | 1,487 | — | 1,487 | ||||||||||||||||||||||||||||||
Intangible assets and goodwill | — | — | 201 | — | 201 | |||||||||||||||||||||||||||||||||||
Intangible assets | — | — | 157 | — | 157 | |||||||||||||||||||||||||||||||||||
Reinsurance recoverable | — | — | 17,103 | — | 17,103 | — | — | 16,864 | — | 16,864 | ||||||||||||||||||||||||||||||
Less: Allowance for credit losses | — | — | (45 | ) | — | (45 | ) | |||||||||||||||||||||||||||||||||
Reinsurance recoverable, net | — | — | 16,819 | — | 16,819 | |||||||||||||||||||||||||||||||||||
Other assets | 4 | 201 | 239 | (1 | ) | 443 | 2 | 146 | 256 | — | 404 | |||||||||||||||||||||||||||||
Intercompany notes receivable | 119 | 132 | — | (251 | ) | — | — | 19 | — | (19 | ) | — | ||||||||||||||||||||||||||||
Deferred tax assets | 13 | 821 | (409 | ) | — | 425 | 13 | 767 | (715 | ) | — | 65 | ||||||||||||||||||||||||||||
Separate account assets | — | — | 6,108 | — | 6,108 | — | — | 6,081 | — | 6,081 | ||||||||||||||||||||||||||||||
Assets related to discontinued operations | — | — | 2,817 | — | 2,817 | |||||||||||||||||||||||||||||||||||
Total assets | $ | 14,215 | $ | 17,776 | $ | 98,975 | $ | (29,624 | ) | $ | 101,342 | $ | 15,373 | $ | 18,750 | $ | 103,674 | $ | (32,050 | ) | $ | 105,747 | ||||||||||||||||||
Liabilities and equity | ||||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Future policy benefits | $ | — | $ | — | $ | 40,384 | $ | — | $ | 40,384 | $ | — | $ | — | $ | 42,695 | $ | — | $ | 42,695 | ||||||||||||||||||||
Policyholder account balances | — | — | 22,217 | — | 22,217 | — | — | 21,503 | — | 21,503 | ||||||||||||||||||||||||||||||
Liability for policy and contract claims | — | — | 10,958 | — | 10,958 | — | — | 11,486 | — | 11,486 | ||||||||||||||||||||||||||||||
Unearned premiums | — | — | 1,893 | — | 1,893 | — | — | 775 | — | 775 | ||||||||||||||||||||||||||||||
Other liabilities | 30 | 118 | 1,243 | (5 | ) | 1,386 | 55 | 156 | 1,403 | — | 1,614 | |||||||||||||||||||||||||||||
Intercompany notes payable | — | 319 | 132 | (451 | ) | — | — | — | 19 | (19 | ) | — | ||||||||||||||||||||||||||||
Non-recourse funding obligations | — | — | 311 | — | 311 | |||||||||||||||||||||||||||||||||||
Long-term borrowings | — | 3,137 | 140 | — | 3,277 | — | 2,665 | 738 | — | 3,403 | ||||||||||||||||||||||||||||||
Separate account liabilities | — | — | 6,108 | — | 6,108 | — | — | 6,081 | — | 6,081 | ||||||||||||||||||||||||||||||
Liabilities related to discontinued operations | — | 134 | 42 | — | 176 | — | 581 | 1,789 | — | 2,370 | ||||||||||||||||||||||||||||||
Total liabilities | 30 | 3,708 | 83,428 | (456 | ) | 86,710 | 55 | 3,402 | 86,489 | (19 | ) | 89,927 | ||||||||||||||||||||||||||||
Equity: | ||||||||||||||||||||||||||||||||||||||||
Common stock | 1 | — | 3 | (3 | ) | 1 | 1 | — | 3 | (3 | ) | 1 | ||||||||||||||||||||||||||||
Additional paid-in capital | 11,990 | 12,761 | 18,431 | (31,192 | ) | 11,990 | 12,008 | 12,890 | 18,562 | (31,452 | ) | 12,008 | ||||||||||||||||||||||||||||
Accumulated other comprehensive income (loss) | 3,433 | 3,433 | 3,474 | (6,907 | ) | 3,433 | 4,425 | 4,426 | 4,499 | (8,925 | ) | 4,425 | ||||||||||||||||||||||||||||
Retained earnings | 1,461 | (2,126 | ) | (7,108 | ) | 9,234 | 1,461 | 1,584 | (1,968 | ) | (6,681 | ) | 8,649 | 1,584 | ||||||||||||||||||||||||||
Treasury stock, at cost | (2,700 | ) | — | — | — | (2,700 | ) | (2,700 | ) | — | — | — | (2,700 | ) | ||||||||||||||||||||||||||
Total Genworth Financial, Inc.’s stockholders’ equity | 14,185 | 14,068 | 14,800 | (28,868 | ) | 14,185 | 15,318 | 15,348 | 16,383 | (31,731 | ) | 15,318 | ||||||||||||||||||||||||||||
Noncontrolling interests | — | — | 747 | (300 | ) | 447 | — | — | 802 | (300 | ) | 502 | ||||||||||||||||||||||||||||
Total equity | 14,185 | 14,068 | 15,547 | (29,168 | ) | 14,632 | 15,318 | 15,348 | 17,185 | (32,031 | ) | 15,820 | ||||||||||||||||||||||||||||
Total liabilities and equity | $ | 14,215 | $ | 17,776 | $ | 98,975 | $ | (29,624 | ) | $ | 101,342 | $ | 15,373 | $ | 18,750 | $ | 103,674 | $ | (32,050 | ) | $ | 105,747 | ||||||||||||||||||
The following table presents the condensed consolidating income statement information for the ninethree months ended September 30, 2020:March 31, 2021:
(Amounts in millions) | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||||
Premiums | $ | — | $ | — | $ | 3,068 | $ | — | $ | 3,068 | $ | — | $ | — | $ | 968 | $ | — | $ | 968 | ||||||||||||||||||||
Net investment income | (2 | ) | 5 | 2,405 | (2 | ) | 2,406 | (1 | ) | — | 802 | — | 801 | |||||||||||||||||||||||||||
Net investment gains (losses) | — | 7 | 375 | — | 382 | — | — | 33 | — | 33 | ||||||||||||||||||||||||||||||
Policy fees and other income | — | 2 | 541 | (4 | ) | 539 | — | (1 | ) | 182 | 2 | 183 | ||||||||||||||||||||||||||||
Total revenues | (2 | ) | 14 | 6,389 | (6 | ) | 6,395 | (1 | ) | (1 | ) | 1,985 | 2 | 1,985 | ||||||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||||||||||||
Benefits and other changes in policy reserves | — | — | 4,146 | — | 4,146 | — | — | 1,218 | — | 1,218 | ||||||||||||||||||||||||||||||
Interest credited | — | — | 417 | — | 417 | — | — | 131 | — | 131 | ||||||||||||||||||||||||||||||
Acquisition and operating expenses, net of deferrals | 17 | 6 | 698 | — | 721 | 6 | 4 | 265 | — | 275 | ||||||||||||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles | — | — | 310 | — | 310 | — | — | 77 | — | 77 | ||||||||||||||||||||||||||||||
Goodwill impairment | — | — | 5 | — | 5 | |||||||||||||||||||||||||||||||||||
Interest expense | — | 133 | 18 | (6 | ) | 145 | — | 37 | 12 | 2 | 51 | |||||||||||||||||||||||||||||
Total benefits and expenses | 17 | 139 | 5,594 | (6 | ) | 5,744 | 6 | 41 | 1,703 | 2 | 1,752 | |||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes and equity in income (loss) of subsidiaries | (19 | ) | (125 | ) | 795 | — | 651 | |||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes and equity in income of subsidiaries | (7 | ) | (42 | ) | 282 | — | 233 | |||||||||||||||||||||||||||||||||
Provision (benefit) for income taxes | 28 | (23 | ) | 181 | — | 186 | 2 | (9 | ) | 66 | — | 59 | ||||||||||||||||||||||||||||
Equity in income (loss) of subsidiaries | (43 | ) | 604 | — | (561 | ) | — | |||||||||||||||||||||||||||||||||
Equity in income of subsidiaries | 196 | 189 | — | (385 | ) | — | ||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations | (90 | ) | 502 | 614 | (561 | ) | 465 | |||||||||||||||||||||||||||||||||
Income from continuing operations | 187 | 156 | 216 | (385 | ) | 174 | ||||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | 1 | (543 | ) | 23 | — | (519 | ) | — | 40 | (19 | ) | — | 21 | |||||||||||||||||||||||||||
Net income (loss) | (89 | ) | (41 | ) | 637 | (561 | ) | (54 | ) | |||||||||||||||||||||||||||||||
Net income | 187 | 196 | 197 | (385 | ) | 195 | ||||||||||||||||||||||||||||||||||
Less: net income from continuing operations attributable to noncontrolling interests | — | — | 35 | — | 35 | — | — | — | — | — | ||||||||||||||||||||||||||||||
Less: net income from discontinued operations attributable to noncontrolling interests | — | — | — | — | — | — | — | 8 | — | 8 | ||||||||||||||||||||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | (89 | ) | $ | (41 | ) | $ | 602 | $ | (561 | ) | $ | (89 | ) | ||||||||||||||||||||||||||
Net income available to Genworth Financial, Inc.’s common stockholders | $ | 187 | $ | 196 | $ | 189 | $ | (385 | ) | $ | 187 | |||||||||||||||||||||||||||||
The following table presents the condensed consolidating income statement information for the year ended December 31, 2019:2020:
(Amounts in millions) | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||||
Premiums | $ | — | $ | — | $ | 4,037 | $ | — | $ | 4,037 | $ | — | $ | — | $ | 3,836 | $ | — | $ | 3,836 | ||||||||||||||||||||
Net investment income | (3 | ) | 10 | 3,228 | (15 | ) | 3,220 | (3 | ) | 5 | 3,228 | (3 | ) | 3,227 | ||||||||||||||||||||||||||
Net investment gains (losses) | — | (5 | ) | 55 | — | 50 | — | 6 | 486 | — | 492 | |||||||||||||||||||||||||||||
Policy fees and other income | — | 2 | 792 | (5 | ) | 789 | — | 3 | 730 | (4 | ) | 729 | ||||||||||||||||||||||||||||
Total revenues | (3 | ) | 7 | 8,112 | (20 | ) | 8,096 | (3 | ) | 14 | 8,280 | (7 | ) | 8,284 | ||||||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||||||||||||
Benefits and other changes in policy reserves | — | — | 5,163 | — | 5,163 | — | — | 5,214 | — | 5,214 | ||||||||||||||||||||||||||||||
Interest credited | — | — | 577 | — | 577 | — | — | 549 | — | 549 | ||||||||||||||||||||||||||||||
Acquisition and operating expenses, net of deferrals | 20 | — | 942 | — | 962 | 31 | 6 | 898 | — | 935 | ||||||||||||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles | — | — | 441 | — | 441 | — | — | 463 | — | 463 | ||||||||||||||||||||||||||||||
Interest expense | 3 | 231 | 25 | (20 | ) | 239 | 1 | 175 | 26 | (7 | ) | 195 | ||||||||||||||||||||||||||||
Total benefits and expenses | 23 | 231 | 7,148 | (20 | ) | 7,382 | 32 | 181 | 7,150 | (7 | ) | 7,356 | ||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes and equity in income of subsidiaries | (26 | ) | (224 | ) | 964 | — | 714 | (35 | ) | (167 | ) | 1,130 | — | 928 | ||||||||||||||||||||||||||
Provision (benefit) for income taxes | (3 | ) | (45 | ) | 243 | — | 195 | (2 | ) | (41 | ) | 273 | — | 230 | ||||||||||||||||||||||||||
Equity in income of subsidiaries | 366 | 177 | — | (543 | ) | — | 210 | 912 | — | (1,122 | ) | — | ||||||||||||||||||||||||||||
Income (loss) from continuing operations | 343 | (2 | ) | 721 | (543 | ) | 519 | |||||||||||||||||||||||||||||||||
Income from continuing operations | 177 | 786 | 857 | (1,122 | ) | 698 | ||||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of taxes | — | (140 | ) | 151 | — | 11 | 1 | (573 | ) | 86 | — | (486 | ) | |||||||||||||||||||||||||||
Net income (loss) | 343 | (142 | ) | 872 | (543 | ) | 530 | |||||||||||||||||||||||||||||||||
Net income | 178 | 213 | 943 | (1,122 | ) | 212 | ||||||||||||||||||||||||||||||||||
Less: net income from continuing operations attributable to noncontrolling interests | — | — | 64 | — | 64 | — | — | — | — | — | ||||||||||||||||||||||||||||||
Less: net income from discontinued operations attributable to noncontrolling interests | — | — | 123 | — | 123 | — | — | 34 | — | 34 | ||||||||||||||||||||||||||||||
Net income (loss) available to Genworth Financial, Inc.’s common stockholders | $ | 343 | $ | (142 | ) | $ | 685 | $ | (543 | ) | $ | 343 | ||||||||||||||||||||||||||||
Net income available to Genworth Financial, Inc.’s common stockholders | $ | 178 | $ | 213 | $ | 909 | $ | (1,122 | ) | $ | 178 | |||||||||||||||||||||||||||||
The following table presents the condensed consolidating comprehensive income statement information for the ninethree months ended September 30, 2020:March 31, 2021:
(Amounts in millions) | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Net income (loss) | $ | (89 | ) | $ | (41 | ) | $ | 637 | $ | (561 | ) | $ | (54 | ) | ||||||||||||||||||||||||||
Net income | $ | 187 | $ | 196 | $ | 197 | $ | (385 | ) | $ | 195 | |||||||||||||||||||||||||||||
Other comprehensive income (loss), net of taxes: | ||||||||||||||||||||||||||||||||||||||||
Net unrealized gains (losses) on securities without an allowance for credit losses | 265 | 265 | 264 | (530 | ) | 264 | (297 | ) | (298 | ) | (323 | ) | 596 | (322 | ) | |||||||||||||||||||||||||
Net unrealized gains (losses) on securities with an allowance for credit losses | (10 | ) | (10 | ) | (10 | ) | 20 | (10 | ) | 2 | 2 | 2 | (4 | ) | 2 | |||||||||||||||||||||||||
Derivatives qualifying as hedges | 449 | 449 | 493 | (942 | ) | 449 | (419 | ) | (419 | ) | (452 | ) | 871 | (419 | ) | |||||||||||||||||||||||||
Foreign currency translation and other adjustments | 4 | 4 | 8 | (8 | ) | 8 | (36 | ) | (36 | ) | 138 | 70 | 136 | |||||||||||||||||||||||||||
Total other comprehensive income (loss) | 708 | 708 | 755 | (1,460 | ) | 711 | (750 | ) | (751 | ) | (635 | ) | 1,533 | (603 | ) | |||||||||||||||||||||||||
Total comprehensive income | 619 | 667 | 1,392 | (2,021 | ) | 657 | ||||||||||||||||||||||||||||||||||
Total comprehensive loss | (563 | ) | (555 | ) | (438 | ) | 1,148 | (408 | ) | |||||||||||||||||||||||||||||||
Less: comprehensive income attributable to noncontrolling interests | — | — | 38 | — | 38 | — | — | 155 | — | 155 | ||||||||||||||||||||||||||||||
Total comprehensive income available to Genworth Financial, Inc.’s common stockholders | $ | 619 | $ | 667 | $ | 1,354 | $ | (2,021 | ) | $ | 619 | |||||||||||||||||||||||||||||
Total comprehensive loss available to Genworth Financial, Inc.’s common stockholders | $ | (563 | ) | $ | (555 | ) | $ | (593 | ) | $ | 1,148 | $ | (563 | ) | ||||||||||||||||||||||||||
The following table presents the condensed consolidating comprehensive income statement information for the year ended December 31, 2019:2020:
(Amounts in millions) | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Net income (loss) | $ | 343 | $ | (142 | ) | $ | 872 | $ | (543 | ) | $ | 530 | ||||||||||||||||||||||||||||
Net income | $ | 178 | $ | 213 | $ | 943 | $ | (1,122 | ) | $ | 212 | |||||||||||||||||||||||||||||
Other comprehensive income (loss), net of taxes: | ||||||||||||||||||||||||||||||||||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired | 859 | 842 | 846 | (1,701 | ) | 846 | ||||||||||||||||||||||||||||||||||
Net unrealized gains (losses) on other-than-temporarily impaired securities | 2 | 2 | 2 | (4 | ) | 2 | ||||||||||||||||||||||||||||||||||
Net unrealized gains (losses) on securities without an allowance for credit losses | 764 | 765 | 765 | (1,530 | ) | 764 | ||||||||||||||||||||||||||||||||||
Net unrealized gains (losses) on securities with an allowance for credit losses | (6 | ) | (6 | ) | (6 | ) | 12 | (6 | ) | |||||||||||||||||||||||||||||||
Derivatives qualifying as hedges | 221 | 221 | 247 | (468 | ) | 221 | 209 | 209 | 241 | (450 | ) | 209 | ||||||||||||||||||||||||||||
Foreign currency translation and other adjustments | 307 | 224 | 486 | (530 | ) | 487 | 25 | 25 | 55 | (50 | ) | 55 | ||||||||||||||||||||||||||||
Total other comprehensive income (loss) | 1,389 | 1,289 | 1,581 | (2,703 | ) | 1,556 | 992 | 993 | 1,055 | (2,018 | ) | 1,022 | ||||||||||||||||||||||||||||
Total comprehensive income | 1,732 | 1,147 | 2,453 | (3,246 | ) | 2,086 | 1,170 | 1,206 | 1,998 | (3,140 | ) | 1,234 | ||||||||||||||||||||||||||||
Less: comprehensive income attributable to noncontrolling interests | — | — | 354 | — | 354 | — | — | 64 | — | 64 | ||||||||||||||||||||||||||||||
Total comprehensive income available to Genworth Financial, Inc.’s common stockholders | $ | 1,732 | $ | 1,147 | $ | 2,099 | $ | (3,246 | ) | $ | 1,732 | $ | 1,170 | $ | 1,206 | $ | 1,934 | $ | (3,140 | ) | $ | 1,170 | ||||||||||||||||||
The following table presents the condensed consolidating cash flow statement information for the ninethree months ended September 30, 2020:March 31, 2021:
(Amounts in millions) | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Cash flows from (used by) operating activities: | ||||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | (89 | ) | $ | (41 | ) | $ | 637 | $ | (561 | ) | $ | (54 | ) | ||||||||||||||||||||||||||
Net income | $ | 187 | $ | 196 | $ | 197 | $ | (385 | ) | $ | 195 | |||||||||||||||||||||||||||||
Less (income) loss from discontinued operations, net of taxes | (1 | ) | 543 | (23 | ) | — | 519 | — | (40 | ) | 19 | — | (21 | ) | ||||||||||||||||||||||||||
Adjustments to reconcile net income (loss) to net cash from (used by) operating activities: | ||||||||||||||||||||||||||||||||||||||||
Equity in income (loss) from subsidiaries | 43 | (604 | ) | — | 561 | — | ||||||||||||||||||||||||||||||||||
Adjustments to reconcile net income to net cash from (used by) operating activities: | ||||||||||||||||||||||||||||||||||||||||
Equity in income from subsidiaries | (196 | ) | (189 | ) | — | 385 | — | |||||||||||||||||||||||||||||||||
Dividends from subsidiaries | — | 447 | (447 | ) | — | — | — | 370 | (370 | ) | — | — | ||||||||||||||||||||||||||||
Amortization of fixed maturity securities discounts and premiums | — | 4 | (101 | ) | — | (97 | ) | — | 1 | (33 | ) | — | (32 | ) | ||||||||||||||||||||||||||
Net investment gains | — | (7 | ) | (375 | ) | — | (382 | ) | ||||||||||||||||||||||||||||||||
Net investment (gains) losses | — | — | (33 | ) | — | (33 | ) | |||||||||||||||||||||||||||||||||
Charges assessed to policyholders | — | — | (479 | ) | — | (479 | ) | — | — | (159 | ) | — | (159 | ) | ||||||||||||||||||||||||||
Acquisition costs deferred | — | — | (9 | ) | — | (9 | ) | — | — | (2 | ) | — | (2 | ) | ||||||||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles | — | — | 310 | — | 310 | — | — | 77 | — | 77 | ||||||||||||||||||||||||||||||
Goodwill impairment | — | — | 5 | — | 5 | |||||||||||||||||||||||||||||||||||
Deferred income taxes | 31 | 196 | (61 | ) | — | 166 | 5 | 70 | (15 | ) | — | 59 | ||||||||||||||||||||||||||||
Derivative instruments, limited partnerships and other | — | (60 | ) | 148 | — | 88 | — | 58 | (171 | ) | — | (113 | ) | |||||||||||||||||||||||||||
Stock-based compensation expense | 22 | — | — | — | 22 | 11 | — | — | — | 11 | ||||||||||||||||||||||||||||||
Change in certain assets and liabilities: | ||||||||||||||||||||||||||||||||||||||||
Accrued investment income and other assets | (1 | ) | (21 | ) | (156 | ) | (5 | ) | (183 | ) | 2 | 9 | (69 | ) | — | (58 | ) | |||||||||||||||||||||||
Insurance reserves | — | — | 1,034 | — | 1,034 | — | — | 326 | — | 326 | ||||||||||||||||||||||||||||||
Current tax liabilities | (3 | ) | (121 | ) | 130 | — | 6 | (6 | ) | 14 | (13 | ) | — | (4 | ) | |||||||||||||||||||||||||
Other liabilities, policy and contract claims and other policy-related balances | (15 | ) | (12 | ) | 791 | 5 | 769 | (24 | ) | (39 | ) | (256 | ) | — | (319 | ) | ||||||||||||||||||||||||
Cash used by operating activities—discontinued operations | — | (263 | ) | — | — | (263 | ) | |||||||||||||||||||||||||||||||||
Cash from (used by) operating activities—discontinued operations | — | (247 | ) | 73 | — | (174 | ) | |||||||||||||||||||||||||||||||||
Net cash from (used by) operating activities | (13 | ) | 61 | 1,404 | — | 1,452 | (21 | ) | 203 | (429 | ) | — | (247 | ) | ||||||||||||||||||||||||||
Cash flows from (used by) investing activities: | ||||||||||||||||||||||||||||||||||||||||
Proceeds from maturities and repayments of investments: | ||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities | — | — | 2,760 | — | 2,760 | — | — | 1,031 | — | 1,031 | ||||||||||||||||||||||||||||||
Commercial mortgage loans | — | — | 479 | — | 479 | — | — | 129 | — | 129 | ||||||||||||||||||||||||||||||
Other invested assets | — | — | 108 | — | 108 | — | — | 44 | — | 44 | ||||||||||||||||||||||||||||||
Proceeds from sales of investments: | ||||||||||||||||||||||||||||||||||||||||
Fixed maturity and equity securities | — | — | 3,270 | — | 3,270 | — | — | 777 | — | 777 | ||||||||||||||||||||||||||||||
Purchases and originations of investments: | ||||||||||||||||||||||||||||||||||||||||
Fixed maturity and equity securities | — | — | (7,179 | ) | — | (7,179 | ) | — | — | (1,647 | ) | — | (1,647 | ) | ||||||||||||||||||||||||||
Commercial mortgage loans | — | — | (414 | ) | — | (414 | ) | — | — | (142 | ) | — | (142 | ) | ||||||||||||||||||||||||||
Other invested assets | — | — | (318 | ) | — | (318 | ) | — | — | (91 | ) | — | (91 | ) | ||||||||||||||||||||||||||
Short-term investments, net | — | 70 | (82 | ) | — | (12 | ) | — | 25 | 3 | — | 28 | ||||||||||||||||||||||||||||
Policy loans, net | — | — | 27 | — | 27 | — | — | 3 | — | 3 | ||||||||||||||||||||||||||||||
Intercompany notes receivable | 20 | (57 | ) | 200 | (163 | ) | — | — | (79 | ) | — | 79 | — | |||||||||||||||||||||||||||
Capital contributions to subsidiaries | (2 | ) | — | 2 | — | — | ||||||||||||||||||||||||||||||||||
Proceeds from sale of business, net of cash transferred | — | — | 270 | — | 270 | |||||||||||||||||||||||||||||||||||
Cash used by investing activities—discontinued operations | — | — | (67 | ) | — | (67 | ) | |||||||||||||||||||||||||||||||||
Net cash from (used by) investing activities | 18 | 13 | (1,147 | ) | (163 | ) | (1,279 | ) | — | (54 | ) | 310 | 79 | 335 | ||||||||||||||||||||||||||
Cash flows used by financing activities: | ||||||||||||||||||||||||||||||||||||||||
Cash flows from (used by) financing activities: | ||||||||||||||||||||||||||||||||||||||||
Deposits to universal life and investment contracts | — | — | 693 | — | 693 | — | — | 176 | — | 176 | ||||||||||||||||||||||||||||||
Withdrawals from universal life and investment contracts | — | — | (1,408 | ) | — | (1,408 | ) | — | — | (578 | ) | — | (578 | ) | ||||||||||||||||||||||||||
Redemption of non-recourse funding obligations | — | — | (315 | ) | — | (315 | ) | |||||||||||||||||||||||||||||||||
Proceeds from the issuance of long-term debt | — | — | 767 | — | 767 | |||||||||||||||||||||||||||||||||||
Repayment and repurchase of long-term debt | — | (490 | ) | (3 | ) | — | (493 | ) | — | (470 | ) | — | — | (470 | ) | |||||||||||||||||||||||||
Dividends paid to noncontrolling interests | — | — | (9 | ) | — | (9 | ) | |||||||||||||||||||||||||||||||||
Intercompany notes payable | — | (220 | ) | 57 | 163 | — | 23 | — | 56 | (79 | ) | — | ||||||||||||||||||||||||||||
Other, net | (5 | ) | (11 | ) | 47 | — | 31 | (2 | ) | — | 94 | — | 92 | |||||||||||||||||||||||||||
Cash used by financing activities—discontinued operations | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Net cash used by financing activities | (5 | ) | (721 | ) | (171 | ) | 163 | (734 | ) | |||||||||||||||||||||||||||||||
Net cash from (used by) financing activities | 21 | (470 | ) | (252 | ) | (79 | ) | (780 | ) | |||||||||||||||||||||||||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $(1) related to discontinued operations) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Net change in cash, cash equivalents and restricted cash | — | (647 | ) | 86 | — | (561 | ) | — | (321 | ) | (371 | ) | — | (692 | ) | |||||||||||||||||||||||||
Cash, cash equivalents and restricted cash at beginning of period | — | 1,461 | 1,880 | — | 3,341 | — | 1,078 | 1,578 | — | 2,656 | ||||||||||||||||||||||||||||||
Cash, cash equivalents and restricted cash at end of period | — | 814 | 1,966 | — | 2,780 | — | 757 | 1,207 | — | 1,964 | ||||||||||||||||||||||||||||||
Less cash, cash equivalents and restricted cash of discontinued operations at end of period | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Cash, cash equivalents and restricted cash of continuing operations at end of period | $ | — | $ | 814 | $ | 1,966 | $ | — | $ | 2,780 | $ | — | $ | 757 | $ | 1,207 | $ | — | $ | 1,964 | ||||||||||||||||||||
The following table presents the condensed consolidating cash flow statement information for the year ended December 31, 2019:2020:
(Amounts in millions) | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | Parent Guarantor | Issuer | All Other Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 343 | $ | (142 | ) | $ | 872 | $ | (543 | ) | $ | 530 | ||||||||||||||||||||||||||||
Net income | $ | 178 | $ | 213 | $ | 943 | $ | (1,122 | ) | $ | 212 | |||||||||||||||||||||||||||||
Less (income) loss from discontinued operations, net of taxes | — | 140 | (151 | ) | — | (11 | ) | (1 | ) | 573 | (86 | ) | — | 486 | ||||||||||||||||||||||||||
Adjustments to reconcile net income (loss) to net cash from operating activities: | ||||||||||||||||||||||||||||||||||||||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||||||||||||||||||||||||||||||||||
Equity in income from subsidiaries | (366 | ) | (177 | ) | — | 543 | — | (210 | ) | (912 | ) | — | 1,122 | — | ||||||||||||||||||||||||||
Dividends from subsidiaries | 250 | 1,352 | (1,602 | ) | — | — | — | 437 | (437 | ) | — | — | ||||||||||||||||||||||||||||
Amortization of fixed maturity securities discounts and premiums | — | 8 | (126 | ) | — | (118 | ) | — | 6 | (163 | ) | — | (157 | ) | ||||||||||||||||||||||||||
Net investment (gains) losses | — | 5 | (55 | ) | — | (50 | ) | — | (6 | ) | (486 | ) | — | (492 | ) | |||||||||||||||||||||||||
Charges assessed to policyholders | — | — | (699 | ) | — | (699 | ) | — | — | (646 | ) | — | (646 | ) | ||||||||||||||||||||||||||
Acquisition costs deferred | — | — | (27 | ) | — | (27 | ) | — | — | (3 | ) | — | (3 | ) | ||||||||||||||||||||||||||
Amortization of deferred acquisition costs and intangibles | — | — | 441 | — | 441 | — | — | 463 | — | 463 | ||||||||||||||||||||||||||||||
Deferred income taxes | 1 | 132 | 6 | — | 139 | (1 | ) | 212 | 17 | — | 228 | |||||||||||||||||||||||||||||
Derivative instruments and limited partnerships | — | (35 | ) | (63 | ) | — | (98 | ) | ||||||||||||||||||||||||||||||||
Derivative instruments, limited partnerships and other | — | (70 | ) | (42 | ) | — | (112 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation expense | 26 | — | 1 | — | 27 | 39 | — | — | — | 39 | ||||||||||||||||||||||||||||||
Change in certain assets and liabilities: | ||||||||||||||||||||||||||||||||||||||||
Accrued investment income and other assets | — | 7 | (365 | ) | — | (358 | ) | 2 | 16 | (105 | ) | (5 | ) | (92 | ) | |||||||||||||||||||||||||
Insurance reserves | — | — | 1,259 | — | 1,259 | — | — | 1,217 | — | 1,217 | ||||||||||||||||||||||||||||||
Current tax liabilities | 16 | (43 | ) | 53 | — | 26 | (1 | ) | 41 | (34 | ) | — | 6 | |||||||||||||||||||||||||||
Other liabilities, policy and contract claims and other policy-related balances | (17 | ) | (44 | ) | 668 | 2 | 609 | 11 | 30 | 784 | 5 | 830 | ||||||||||||||||||||||||||||
Cash from operating activities—discontinued operations | — | 134 | 275 | — | 409 | |||||||||||||||||||||||||||||||||||
Cash from (used by) operating activities—discontinued operations | — | (258 | ) | 239 | — | (19 | ) | |||||||||||||||||||||||||||||||||
Net cash from operating activities | 253 | 1,337 | 487 | 2 | 2,079 | 17 | 282 | 1,661 | — | 1,960 | ||||||||||||||||||||||||||||||
Cash flows from (used by) investing activities: | ||||||||||||||||||||||||||||||||||||||||
Proceeds from maturities and repayments of investments: | ||||||||||||||||||||||||||||||||||||||||
Fixed maturity securities | — | — | 3,436 | — | 3,436 | — | — | 3,637 | — | 3,637 | ||||||||||||||||||||||||||||||
Commercial mortgage loans | — | — | 582 | — | 582 | — | — | 744 | — | 744 | ||||||||||||||||||||||||||||||
Restricted commercial mortgage loans related to a securitization entity | — | — | 15 | — | 15 | |||||||||||||||||||||||||||||||||||
Other invested assets | — | — | 182 | — | 182 | |||||||||||||||||||||||||||||||||||
Proceeds from sales of investments: | ||||||||||||||||||||||||||||||||||||||||
Fixed maturity and equity securities | — | — | 3,883 | — | 3,883 | — | — | 3,040 | — | 3,040 | ||||||||||||||||||||||||||||||
Purchases and originations of investments: | ||||||||||||||||||||||||||||||||||||||||
Fixed maturity and equity securities | — | — | (6,899 | ) | — | (6,899 | ) | — | — | (7,763 | ) | — | (7,763 | ) | ||||||||||||||||||||||||||
Commercial mortgage loans | — | — | (813 | ) | — | (813 | ) | — | — | (547 | ) | — | (547 | ) | ||||||||||||||||||||||||||
Other invested assets, net | — | 5 | (392 | ) | (2 | ) | (389 | ) | ||||||||||||||||||||||||||||||||
Other invested assets | — | — | (449 | ) | — | (449 | ) | |||||||||||||||||||||||||||||||||
Short-term investments, net | — | 45 | (10 | ) | — | 35 | ||||||||||||||||||||||||||||||||||
Policy loans, net | — | — | 62 | — | 62 | — | — | 190 | — | 190 | ||||||||||||||||||||||||||||||
Intercompany notes receivable | (119 | ) | 48 | 6 | 65 | — | (10 | ) | (16 | ) | 200 | (174 | ) | — | ||||||||||||||||||||||||||
Capital contributions to subsidiaries | (5 | ) | — | 5 | — | — | (2 | ) | — | 2 | — | — | ||||||||||||||||||||||||||||
Proceeds from sale of business, net of cash transferred | — | — | 1,398 | — | 1,398 | |||||||||||||||||||||||||||||||||||
Cash from investing activities—discontinued operations | — | — | 26 | — | 26 | |||||||||||||||||||||||||||||||||||
Cash used by investing activities—discontinued operations | — | — | (222 | ) | — | (222 | ) | |||||||||||||||||||||||||||||||||
Net cash from (used by) investing activities | (124 | ) | 53 | 1,309 | 63 | 1,301 | (12 | ) | 29 | (996 | ) | (174 | ) | (1,153 | ) | |||||||||||||||||||||||||
Cash flows used by financing activities: | ||||||||||||||||||||||||||||||||||||||||
Deposits to universal life and investment contracts | — | — | 824 | — | 824 | — | — | 862 | — | 862 | ||||||||||||||||||||||||||||||
Withdrawals from universal life and investment contracts | — | — | (2,319 | ) | — | (2,319 | ) | — | — | (2,282 | ) | — | (2,282 | ) | ||||||||||||||||||||||||||
Redemption of non-recourse funding obligations | — | — | (315 | ) | — | (315 | ) | |||||||||||||||||||||||||||||||||
Proceeds from the issuance of long-term debt | — | — | 738 | — | 738 | |||||||||||||||||||||||||||||||||||
Repayment and repurchase of long-term debt | — | (446 | ) | — | — | (446 | ) | — | (490 | ) | — | — | (490 | ) | ||||||||||||||||||||||||||
Intercompany notes payable | (122 | ) | 112 | 75 | (65 | ) | — | — | (190 | ) | 16 | 174 | — | |||||||||||||||||||||||||||
Repurchase of subsidiary shares | — | — | (22 | ) | — | (22 | ) | |||||||||||||||||||||||||||||||||
Dividends paid to noncontrolling interests | — | — | (87 | ) | — | (87 | ) | |||||||||||||||||||||||||||||||||
Other, net | (7 | ) | (24 | ) | (4 | ) | — | (35 | ) | (5 | ) | (14 | ) | 17 | — | (2 | ) | |||||||||||||||||||||||
Cash used by financing activities—discontinued operations | — | — | (132 | ) | — | (132 | ) | — | — | (18 | ) | — | (18 | ) | ||||||||||||||||||||||||||
Net cash used by financing activities | (129 | ) | (358 | ) | (1,665 | ) | (65 | ) | (2,217 | ) | (5 | ) | (694 | ) | (982 | ) | 174 | (1,507 | ) | |||||||||||||||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $6 related to discontinued operations) | — | — | 1 | — | 1 | |||||||||||||||||||||||||||||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $18 related to discontinued operations) | — | — | 15 | — | 15 | |||||||||||||||||||||||||||||||||||
Net change in cash, cash equivalents and restricted cash | — | 1,032 | 132 | — | 1,164 | — | (383 | ) | (302 | ) | — | (685 | ) | |||||||||||||||||||||||||||
Cash, cash equivalents and restricted cash at beginning of period | — | 429 | 1,748 | — | 2,177 | — | 1,461 | 1,880 | — | 3,341 | ||||||||||||||||||||||||||||||
Cash, cash equivalents and restricted cash at end of period | — | 1,461 | 1,880 | — | 3,341 | — | 1,078 | 1,578 | — | 2,656 | ||||||||||||||||||||||||||||||
Less cash, cash equivalents and restricted cash of discontinued operations at end of period | — | — | — | — | — | — | — | 95 | — | 95 | ||||||||||||||||||||||||||||||
Cash, cash equivalents and restricted cash of continuing operations at end of period | $ | — | $ | 1,461 | $ | 1,880 | $ | — | $ | 3,341 | $ | — | $ | 1,078 | $ | 1,483 | $ | — | $ | 2,561 | ||||||||||||||||||||
Our insurance company subsidiaries are restricted by state and foreign laws and regulations as to the amount of dividends they may pay to their parent without regulatory approval in any year, the purpose of which is to protect affected insurance policyholders and contractholders, not stockholders. Any dividends in excess of limits are deemed “extraordinary” and require approval. Based on statutory results as of December 31, 2019,2020, in accordance with applicable dividend restrictions, our subsidiaries could pay dividends of approximately $300$190 million to us in 2020,2021, and the remaining net assets are considered restricted. While the $300$190 million is considered unrestricted, our insurance subsidiaries will not pay dividends to us in 20202021 at this level as they need to preserve capital for regulatory purposes, including as the result ofregulatory requirements and preserve desired capital thresholds.requirements. As of September 30, 2020,March 31, 2021, Genworth Financial’s and Genworth Holdings’ subsidiaries had restricted net assets of $14.4$14.6 billion and $15.7$15.5 billion, respectively.
COVID-19,
and retain capital for future growth or to meet In September 2020, the GSEs imposed certain GSE Restrictions were imposedrestrictions with respect to capital on our U.S. mortgage insurance business. These restrictions will remain in effect until the later of six quarters or until the following collective GSE Conditions are met: a) approval of GMICO’s plan to secure additional capital, if needed, b) GMICO obtains “BBB+”/“Baa1” (or higher) rating from S&P, Moody’s or Fitch for two consecutive quarters and c) certain Genworth financial metrics are achieved. Prior to the satisfaction of these conditions, the GSE Restrictions require:
Securitization Entities
There were noninethree months ended September 30, 2020March 31, 2021 or 2019.
2020.off-balance
sheet securitization transactions during the New Accounting Standards
For a discussion of recently adopted accounting standards, see note 2 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements.”
Item 3. |
Market risk is the risk of the loss of fair value resulting from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and equity prices. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying financial instruments are traded. Except as disclosed below and in our executive summary under “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—COVID-19 Summary,” thereThere were no other material changes in our market risks since December 31, 2019.2020. See “—Business trends and conditions” and “—Investments and Derivative Instruments” in “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of recent market conditions, including changes in interest rates.
Item 4. |
Evaluation of Disclosure Controls and Procedures
As of September 30, 2020,March 31, 2021, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in RulesSeptember 30, 2020.
March 31, 2021.13a-15(e)
and15d-15(e)
under the Securities Exchange Act of 1934). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of Changes in Internal Control Over Financial Reporting During the Quarter Ended September 30, 2020March 31, 2021
During the three months ended September 30, 2020,March 31, 2021, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
130
PART II—OTHER INFORMATION
Item 1. |
See note 1211 in our unaudited condensed consolidated financial statements under “Part 1—Item 1—Financial Statements” for a description of material pending litigation and regulatory matters affecting us.
Item 1A. | Risk Factors |
The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our 20192020 Annual Report on FormExcept as disclosed below, thereThere have been no material changes to the risk factors set forth in the above-referenced filing as of September 30, 2020.
10-K,
which together describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. Item 6. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GENWORTH FINANCIAL, INC. (Registrant) | ||||||||
Date: | ||||||||
| By: | /s/ Matthew D. Farney | |||||||
Matthew D. Farney Vice President and Controller (Principal Accounting Officer) | ||||||||