GENWORTH FINANCIAL INC, 10-Q filed on 10/30/2019
Quarterly Report
v3.19.3
Cover Page - shares
9 Months Ended
Sep. 30, 2019
Oct. 23, 2019
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Entity Central Index Key 0001276520  
Current Fiscal Year End Date --12-31  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Sep. 30, 2019  
Entity Registrant Name GENWORTH FINANCIAL INC  
Entity File Number 001-32195  
Entity Tax Identification Number 80-0873306  
Entity Incorporation, State or Country Code DE  
Entity Current Reporting Status Yes  
Entity Filer Category Large Accelerated Filer  
Entity Shell Company false  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Address, Address Line One 6620 West Broad Street  
Entity Address, State or Province VA  
Entity Address, City or Town Richmond  
Entity Address, Postal Zip Code 23230  
Entity Interactive Data Current Yes  
City Area Code 804  
Local Phone Number 281-6000  
Trading Symbol GNW  
Security Exchange Name NYSE  
Title of 12(b) Security Class A Common Stock  
Entity Common Stock, Shares Outstanding   503,465,078
v3.19.3
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
Assets    
Fixed maturity securities available-for-sale, at fair value $ 61,233 $ 55,589
Equity securities, at fair value 239 275
Commercial mortgage loans ($53 and $62 are restricted as of September 30, 2019 and December 31, 2018, respectively, related to a securitization entity) 7,033 6,749
Policy loans 2,069 1,861
Other invested assets 1,693 1,072
Total investments 72,267 65,546
Cash, cash equivalents and restricted cash 1,629 [1] 1,974
Accrued investment income 643 645
Deferred acquisition costs 1,881 3,142
Intangible assets and goodwill 210 333
Reinsurance recoverable 17,180 17,278
Other assets 479 395
Deferred tax asset 236 736
Separate account assets 6,005 5,859
Assets held for sale related to discontinued operations 5,123 5,015
Total assets 105,653 100,923
Liabilities and equity    
Future policy benefits 40,489 37,940
Policyholder account balances 22,607 22,968
Liability for policy and contract claims 10,780 10,295
Unearned premiums 1,863 2,013
Other liabilities 1,445 1,529
Non-recourse funding obligations 311 311
Long-term borrowings 3,706 3,707
Separate account liabilities 6,005 5,859
Liabilities held for sale related to discontinued operations 2,302 2,112
Total liabilities 89,508 86,734
Commitments and contingencies
Equity:    
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 592 million and 589 million shares issued as of September 30, 2019 and December 31, 2018, respectively; 504 million and 501 million shares outstanding as of September 30, 2019 and December 31, 2018, respectively 1 1
Additional paid-in capital 11,986 11,987
Net unrealized investment gains (losses):    
Net unrealized gains (losses) on securities not other-than-temporarily impaired 1,664 585
Net unrealized gains (losses) on other-than-temporarily impaired securities 11 10
Net unrealized investment gains (losses) 1,675 595
Derivatives qualifying as hedges 2,259 1,781
Foreign currency translation and other adjustments (312) (332)
Total accumulated other comprehensive income (loss) 3,622 2,044
Retained earnings 1,478 1,118
Treasury stock, at cost (88 million shares as of September 30, 2019 and December 31, 2018) (2,700) (2,700)
Total Genworth Financial, Inc.'s stockholders' equity 14,387 12,450
Noncontrolling interests 1,758 1,739
Total equity 16,145 14,189
Total liabilities and equity $ 105,653 $ 100,923
[1] On October 18, 2019, our U.S. mortgage insurance business paid a $250 million dividend. The cash proceeds from the dividend will be reflected in Genworth Holdings’ (“Issuer”) cash, cash equivalents and restricted cash balance in the fourth quarter of 2019.
v3.19.3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
Restricted commercial mortgage loans related to securitization entities $ 53 $ 62
Class A common stock, par value $ 0.001 $ 0.001
Class A common stock, shares authorized 1,500,000,000 1,500,000,000
Class A common stock, shares issued 592,000,000 589,000,000
Class A common stock, shares outstanding 504,000,000 501,000,000
Treasury stock, shares 88,000,000 88,000,000
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($)
shares in Millions, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Revenues:        
Premiums $ 1,015 $ 995 $ 3,004 $ 3,001
Net investment income 816 780 2,426 2,342
Net investment gains (losses) (2) (16) 27 (31)
Policy fees and other income 191 193 601 604
Total revenues 2,020 1,952 6,058 5,916
Benefits and expenses:        
Benefits and other changes in policy reserves 1,284 1,303 3,817 3,782
Interest credited 146 151 439 459
Acquisition and operating expenses, net of deferrals 247 231 713 694
Amortization of deferred acquisition costs and intangibles 112 72 277 267
Interest expense 59 60 179 195
Total benefits and expenses 1,848 1,817 5,425 5,397
Income from continuing operations before income taxes 172 135 633 519
Provision for income taxes 34 30 169 179
Income from continuing operations 138 105 464 340
Income (loss) from discontinued operations, net of taxes (80) 105 42 284
Net income 58 210 506 624
Less: net income from continuing operations attributable to noncontrolling interests 10 18 45 62
Less: net income from discontinued operations attributable to noncontrolling interests 30 46 101 114
Net income available to Genworth Financial, Inc.'s common stockholders 18 146 360 448
Net income (loss) available to Genworth Financial, Inc.'s common stockholders:        
Income from continuing operations available to Genworth Financial, Inc.'s common stockholders 128 87 419 278
Income (loss) from discontinued operations available to Genworth Financial, Inc.'s common stockholders (110) 59 (59) 170
Net income available to Genworth Financial, Inc.'s common stockholders $ 18 $ 146 $ 360 $ 448
Income from continuing operations available to Genworth Financial, Inc.'s common stockholders per share:        
Basic $ 0.25 $ 0.17 $ 0.83 $ 0.56
Diluted 0.25 0.17 0.82 0.55
Net income available to Genworth Financial, Inc.'s common stockholders per share:        
Basic [1] 0.04 0.29 0.72 0.89
Diluted [1] $ 0.04 $ 0.29 $ 0.71 $ 0.89
Weighted-average common shares outstanding:        
Basic 503.5 500.7 502.7 500.3
Diluted 511.2 503.3 509.5 502.9
Supplemental disclosures:        
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
Other investments gains (losses) (2) (16) 27 (31)
Total net investment gains (losses) $ (2) $ (16) $ 27 $ (31)
[1] May not total due to whole number calculation.
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Net income $ 58 $ 210 $ 506 $ 624
Other comprehensive income (loss), net of taxes:        
Net unrealized gains (losses) on securities not other-than-temporarily impaired 371 (134) 1,126 (660)
Net unrealized gains (losses) on other-than-temporarily impaired securities 0 0 1 (2)
Derivatives qualifying as hedges 276 (146) 478 (362)
Foreign currency translation and other adjustments (64) 20 33 (165)
Total other comprehensive income (loss) 583 (260) 1,638 (1,189)
Total comprehensive income (loss) 641 (50) 2,144 (565)
Less: comprehensive income attributable to noncontrolling interests 14 64 206 78
Total comprehensive income (loss) available to Genworth Financial, Inc.'s common stockholders $ 627 $ (114) $ 1,938 $ (643)
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($)
$ in Millions
Total
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
Balances, beginning at Dec. 31, 2017 $ 15,328 $ 1 $ 11,977 $ 3,027 $ 1,113 $ (2,700) $ 13,418 $ 1,910
Cumulative effect of change in accounting, net of taxes 17     131 (114)   17  
Repurchase of subsidiary shares (89)             (89)
Comprehensive income (loss):                
Net income 624       448   448 176
Other comprehensive income (loss), net of taxes (1,189)     (1,091)     (1,091) (98)
Total comprehensive income (loss) (565)           (643) 78
Dividends to noncontrolling interests (83)             (83)
Stock-based compensation expense and exercises and other 13   6       6 7
Balances, ending at Sep. 30, 2018 14,621 1 11,983 2,067 1,447 (2,700) 12,798 1,823
Balances, beginning at Jun. 30, 2018 14,741 1 11,981 2,327 1,301 (2,700) 12,910 1,831
Repurchase of subsidiary shares (40)             (40)
Comprehensive income (loss):                
Net income 210       146   146 64
Other comprehensive income (loss), net of taxes (260)     (260)     (260)  
Total comprehensive income (loss) (50)           (114) 64
Dividends to noncontrolling interests (33)             (33)
Stock-based compensation expense and exercises and other 3   2       2 1
Balances, ending at Sep. 30, 2018 14,621 1 11,983 2,067 1,447 (2,700) 12,798 1,823
Balances, beginning at Dec. 31, 2018 14,189 1 11,987 2,044 1,118 (2,700) 12,450 1,739
Repurchase of subsidiary shares (44)             (44)
Comprehensive income (loss):                
Net income 506       360   360 146
Other comprehensive income (loss), net of taxes 1,638     1,578     1,578 60
Total comprehensive income (loss) 2,144           1,938 206
Dividends to noncontrolling interests (149)           0 (149)
Stock-based compensation expense and exercises and other 5   (1)       (1) 6
Balances, ending at Sep. 30, 2019 16,145 1 11,986 3,622 1,478 (2,700) 14,387 1,758
Balances, beginning at Jun. 30, 2019 15,592 1 11,983 3,013 1,460 (2,700) 13,757 1,835
Comprehensive income (loss):                
Net income 58       18   18 40
Other comprehensive income (loss), net of taxes 583     609     609 (26)
Total comprehensive income (loss) 641           627 14
Dividends to noncontrolling interests (96)             (96)
Stock-based compensation expense and exercises and other 8   3       3 5
Balances, ending at Sep. 30, 2019 $ 16,145 $ 1 $ 11,986 $ 3,622 $ 1,478 $ (2,700) $ 14,387 $ 1,758
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Cash flows from operating activities:    
Net income $ 506 $ 624
Less income from discontinued operations, net of taxes (42) (284)
Adjustments to reconcile net income to net cash from operating activities:    
Amortization of fixed maturity securities discounts and premiums (93) (99)
Net investment (gains) losses (27) 31
Charges assessed to policyholders (532) (528)
Acquisition costs deferred (22) (32)
Amortization of deferred acquisition costs and intangibles 277 267
Deferred income taxes 106 119
Derivative instruments and limited partnerships 121 (369)
Stock-based compensation expense 17 23
Change in certain assets and liabilities:    
Accrued investment income and other assets (327) (119)
Insurance reserves 906 1,039
Current tax liabilities 36 33
Other liabilities, policy and contract claims and other policy-related balances 348 62
Cash from operating activities—discontinued operations 334 206
Net cash from operating activities 1,608 973
Cash flows from (used by) investing activities:    
Fixed maturity securities 2,734 2,661
Commercial mortgage loans 387 543
Restricted commercial mortgage loans related to a securitization entity 8 20
Proceeds from sales of investments:    
Fixed maturity and equity securities 3,024 2,853
Purchases and originations of investments:    
Fixed maturity and equity securities (5,805) (5,486)
Commercial mortgage loans (682) (769)
Other invested assets, net (259) 250
Policy loans, net 51 35
Cash used by investing activities—discontinued operations (6) (38)
Net cash from (used by) investing activities (548) 69
Cash flows used by financing activities:    
Deposits to universal life and investment contracts 637 805
Withdrawals from universal life and investment contracts (1,699) (1,806)
Proceeds from issuance of long-term debt   441
Repayment and repurchase of long-term debt (3) (598)
Repayment of borrowings related to a securitization entity   (20)
Repurchase of subsidiary shares (22) (55)
Dividends paid to noncontrolling interests (55) (41)
Other, net (24) 2
Cash used by financing activities—discontinued operations (76) (78)
Net cash used by financing activities (1,242) (1,350)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $8 and $(11) related to discontinued operations) (4) (62)
Net change in cash, cash equivalents and restricted cash (186) (370)
Cash, cash equivalents and restricted cash at beginning of period 2,177 2,875
Cash, cash equivalents and restricted cash at end of period 1,991 2,505
Less cash, cash equivalents and restricted cash of discontinued operations at end of period 362 208
Cash, cash equivalents and restricted cash of continuing operations at end of period $ 1,629 [1] $ 2,297
[1] On October 18, 2019, our U.S. mortgage insurance business paid a $250 million dividend. The cash proceeds from the dividend will be reflected in Genworth Holdings’ (“Issuer”) cash, cash equivalents and restricted cash balance in the fourth quarter of 2019.
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Statement of Cash Flows [Abstract]    
Discontinued operations exchange rate effect $ 8 $ (11)
v3.19.3
Formation of Genworth and Basis of Presentation
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Formation of Genworth and Basis of Presentation
(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.
On October 21, 2016, Genworth Financial 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. 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. The closing of the transaction remains subject to other closing conditions and approvals.
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 these notes thereto are, unless the context otherwise requires, to Genworth Financial, Inc. on a consolidated basis.
We operate our business through the following four operating segments:
 
U.S. Mortgage Insurance.
In the United States, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans (“flow mortgage insurance”). We selectively provide mortgage insurance on a bulk basis (“bulk mortgage insurance”) with essentially all of our bulk writings being prime-based.
 
Australia Mortgage Insurance.
In Australia, we offer flow mortgage insurance and selectively provide bulk mortgage insurance that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk.
 
U.S. Life Insurance.
We offer long-term care insurance products as well as service traditional life insurance and fixed annuity products in the United States.
 
Runoff.
The Runoff segment includes the results of
non-strategic
products which are no longer actively sold but we continue to service our existing blocks of business. Our
non-strategic
products primarily
 
 
 
 
include our variable annuity, variable life insurance, institutional, corporate-owned life insurance and other accident and health insurance products. Institutional products consist of funding agreements ​​​​​​​and funding agreements backing notes.
In addition to our four 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.
In August 2019, our Board of Directors approved an agreement to sell our Canada mortgage insurance business to Brookfield BBP Canada Holdings Inc (“Brookfield”), an affiliate of Brookfield Business Partners L.P. The details of the sales agreement satisfied the criteria for held-for-sale accounting in the third quarter of 2019, such as the business is available for immediate sale and the sale is anticipated to occur during the next 12 months. In the third quarter of 2019, we recorded an estimated loss to reduce the carrying value of the business to the fair value less cost to sell. Our Canada mortgage insurance business, previously the only business in the Canada 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 12 for additional information.
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. 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 2018 Annual Report on Form
10-K.
Certain prior year amounts have been reclassified to conform to the current year presentation.
v3.19.3
Accounting Changes
9 Months Ended
Sep. 30, 2019
Disclosue of Accounting Changes [Abstract]  
Accounting Changes
(2) Accounting Changes
Accounting Pronouncements Recently Adopted
On January 1, 2019, we adopted new accounting guidance related to benchmark interest rates used in derivative hedge accounting. The guidance adds an additional permissible U.S. benchmark interest rate, the Secured Overnight Financing Rate, for hedge accounting purposes. We adopted this new accounting guidance using the prospective method, which did not have any impact on our condensed consolidated financial statements and disclosures.
On January 1, 2019, we adopted new accounting guidance related to accounting for nonemployee share-based payments. The guidance aligns the measurement and classification of share-based payments to
nonemployees issued in exchange for goods or services with the guidance for share-based payments to employees, with certain exceptions. We adopted this new accounting guidance using the modified retrospective method. This guidance is consistent with our previous accounting practices and, accordingly, had no impact on our condensed consolidated financial statements at adoption.
On January 1, 2019, we adopted new accounting guidance related to shortening the amortization period of certain callable debt securities held at a premium. The guidance requires the premium to be amortized to the earliest call date. This change does not apply to securities held at a discount. We adopted this new accounting guidance using the modified retrospective method, which did not have a significant impact on our condensed consolidated financial statements at adoption.
On January 1, 2019, we adopted new accounting guidance related to the accounting for leases. The new guidance generally requires lessees to recognize both a
right-of-use
asset and a corresponding lease liability on the balance sheet. We adopted this new accounting guidance using the effective date transition method, which permits entities to apply the new lease standard using a modified retrospective transition approach at the date of adoption. As such, historical periods will continue to be measured and presented under the previous guidance while current and future periods will be subject to this new accounting guidance. The package of practical expedients was also elected upon adoption. Upon adoption we recorded a $60 million
right-of-use
asset related to operating leases and a $63 million lease liability, including amounts related to our Canada mortgage insurance business which were classified as held for sale during the third quarter of 2019. In addition, we
de-recognized
accrued rent expense of $3 million recorded under the previous accounting guidance. The
right-of-use
asset and the lease liability are included in other assets and other liabilities, respectively,
and did not have a significant impact on our condensed consolidated balance sheet as of September 30, 2019. The initial measurement of our right-of-use asset had no significant initial direct costs, prepaid lease payments or lease incentives; therefore, a cumulative-effect adjustment was not recorded to the opening retained earnings balance as a result of the change in accounting principle.
Our leased assets are predominantly classified as operating leases and consist of office space in 12 locations primarily in the United States and Australia. Lease payments included in the calculation of our lease liability include fixed amounts contained within each rental agreement and variable lease payments that are based upon an index or rate. We have elected to combine lease and
non-lease
components, as permitted under this new accounting guidance, and as a result,
non-lease
components are included in the calculation of our lease liability as opposed to being separated and accounted for as consideration under the new revenue recognition standard. Our remaining lease terms ranged from less than 1 year to 11 years and had a weighted-average remaining lease term of 6.6 years as of September 30, 2019. The implicit rate of our lease agreements was not readily determinable; therefore, we utilized our incremental borrowing rate to discount future lease payments. The weighted-average discount rate was 6.51% as of September 30, 2019.
Our aggregate annual rental expense for all leases under the previous guidance was approximately $11 million, including amounts related to our Canada mortgage insurance business which were classified as held for sale during the third quarter of 2019. Annual rental expense and future minimum lease payments are not significantly different under this new accounting guidance.
Accounting Pronouncements Not Yet Adopted
In August 2018, the Financial Accounting Standards Board (“the FASB”) issued new accounting guidance that significantly changes the recognition and measurement of long-duration insurance contracts and expands
disclosure requirements, which impacts our life 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;
 
 
 
 
 
 
 
 
 
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
 
 
 
 
 
 
 
 
 
disclosures will be greatly expanded to include significant assumptions and product liability rollforwards.
 
 
 
 
 
 
 
 
We expect the guidance to be effective for us on January 1, 2022 using the modified retrospective method, with early adoption permitted. Given the nature and extent of the changes to our operations, this guidance is expected to have a significant impact on our condensed consolidated financial statements.
In August 2018, the FASB issued new accounting guidance related to disclosure requirements for defined benefit plans as part of its disclosure framework project. The guidance adds, eliminates and modifies certain disclosure requirements for defined benefit pension and other postretirement benefit plans. The guidance is currently effective for us on January 1, 2020 using the retrospective method, with early adoption permitted. We do not expect any significant impact from this guidance on our condensed consolidated financial statements and disclosures.
In August 2018, the FASB issued new accounting guidance related to fair value disclosure requirements as part of its disclosure framework project. The guidance adds, eliminates and modifies certain disclosure requirements for fair value measurements. The guidance includes new disclosure requirements related to the change in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance is currently effective for us on January 1, 2020 using the prospective method for certain disclosures and the retrospective method for all other disclosures. Early adoption of either the entire standard or only the provisions that eliminate or modify the requirements is permitted. We do not expect a significant impact from this guidance on our condensed consolidated financial statements and disclosures.
In June 2016, the FASB issued new accounting guidance related to accounting for credit losses on financial instruments. The guidance requires that entities recognize an allowance equal to its estimate of lifetime expected
credit losses and applies to most debt instruments not measured at fair value, which would primarily include our commercial mortgage loans and reinsurance recoverables. The new guidance retains most of the existing impairment guidance for
available-for-sale
debt securities but amends the presentation of credit losses to be presented as an allowance as opposed to a write-down and permits the reversal of credit losses when reassessing changes in the credit losses each reporting period. The FASB also issued an amendment to the guidance allowing entities to irrevocably elect the fair value option on an
instrument-by-instrument
basis for eligible instruments, which we are in the process of evaluating for certain portfolios. The new guidance is currently effective for us on January 1, 2020, with early adoption permitted beginning January 1, 2019. Upon adoption, the modified retrospective method will be used and a cumulative effect adjustment will be recorded to retained earnings. We have performed a gap analysis, developed a detailed implementation plan, identified model inputs, developed and tested a model and are in process of establishing policies, systems and controls as well as required disclosures that will be necessary to implement this new accounting guidance. The allowance for credit losses for our investments and reinsurance recoverables will incorporate reasonable and supportable forecasts and expected changes to future economic conditions. The allowance for credit losses will increase as a result of the new guidance; however, the extent of the impact may vary and will depend on, among other things, the economic environment, forecasts and the composition and credit quality of our investments and reinsurance recoverables as of the date of adoption.
 
v3.19.3
Earnings (Loss) Per Share
9 Months Ended
Sep. 30, 2019
Earnings Per Share
(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,
 
(Amounts in millions, except per share amounts)
 
2019
   
2018
   
2019
   
2018
 
Weighted-average shares used in basic earnings per share calculations
   
503.5
     
500.7
     
502.7
     
500.3
 
Potentially dilutive securities:
   
     
     
     
 
Stock options, restricted stock units and stock appreciation rights
   
7.7
     
2.6
     
6.8
     
2.6
 
                                 
Weighted-average shares used in diluted earnings per share calculations
   
511.2
     
503.3
     
509.5
     
502.9
 
Income from continuing operations:
   
     
     
     
 
Income from continuing operations
  $
138
   
$
 
105
   
$
 
464
   
$
 
340
 
Less: net income from continuing operations attributable to noncontrolling interests
   
10
     
18
     
45
     
62
 
                                 
Income from continuing operations available to Genworth Financial, Inc.’s common
 
stockholders
  $
128
   
$
87
   
$
419
   
$
278
 
Basic per share
  $
0.25
   
$
0.17
   
$
0.83
   
$
0.56
 
Diluted per share
  $
0.25
   
$
0.17
   
$
0.82
   
$
 
 
0.55
 
Income (loss) from discontinued operations:
   
     
     
     
 
Income (loss) from discontinued operations, net of taxes
  $
(80
)  
$
105
   
$
42
   
$
284
 
Less: net income from discontinued operations, net of taxes, attributable to noncontrolling
 
interests
   
30
     
46
     
101
     
114
 
                                 
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders
  $
(110
)  
$
59
   
$
(59
)  
$
170
 
Basic per share
  $
(0.22
)  
$
0.12
   
$
(0.12
)  
$
0.34
 
Diluted per share
  $
(0.21
)  
$
0.12
   
$
(0.12
)  
$
0.34
 
Net income:
   
     
     
     
 
Income from continuing operations
  $
138
   
$
105
   
$
464
   
$
340
 
Income
(loss)
 
from discontinued operations, net of taxes
   
(80
)    
105
     
42
     
284
 
                                 
Net income
   
58
     
210
     
506
     
624
 
Less: net income attributable to noncontrolling interests
   
40
     
64
     
146
     
176
 
                                 
Net income available to Genworth Financial, Inc.’s common stockholders
  $
18
   
$
146
   
$
360
   
$
448
 
Basic per share 
(1)
  $
0.04
   
$
0.29
   
$
0.72
   
$
0.89
 
Diluted per share 
(1)
  $
0.04
   
$
0.29
   
$
0.71
   
$
0.89
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
May not total due to whole number calculation.
 
 
 
 
 
 
 
 
 
 
 
 
 
v3.19.3
Investments
9 Months Ended
Sep. 30, 2019
Investments
(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)
 
2019
   
2018
   
2019
   
2018
 
Fixed maturity securities—taxable
  $
 
631
    $
 
613
    $
 
 
1,878
    $
 
 
1,839
 
Fixed maturity
securities—non-taxable
   
2
     
3
     
6
     
9
 
Equity securities
   
4
     
6
     
13
     
16
 
Commercial mortgage loans
   
86
     
81
     
251
     
240
 
Restricted commercial mortgage loans related to a securitization entity
   
1
     
1
     
3
     
5
 
Policy loans
   
47
     
41
     
138
     
125
 
Other invested assets
   
62
     
44
     
180
     
136
 
Cash, cash equivalents, restricted cash and short-term investments
   
8
     
12
     
30
     
37
 
                     
 
 
         
Gross investment income before expenses and fees
   
841
     
801
     
2,499
     
2,407
 
Expenses and fees
   
(25
)    
(21
)    
(73
)    
(65
)
                                 
Net investment income
  $
816
    $
780
    $
2,426
    $
2,342
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(b) Net Investment Gains (Losses)
The following table sets forth net investment gains (losses) for the periods indicated:
                               
 
Three months ended
September 30,
 
 
Nine months ended
September 30,
 
(Amounts in millions)
 
 
 
 
2019
 
 
 
   
2018
 
 
2019
 
2018
 
Available-for-sale
fixed maturity securities:
   
     
 
 
 
   
 
Realized gains
  $
19
    $
 
21
 
 
$
93
  $
38
 
Realized losses
   
(3
)    
(30
)
 
 
(30
)  
(62
)
Net realized gains (losses) on
available-for-sale
fixed maturity securities
   
16
     
(9
)
 
 
63
   
(24
)
Impairments:
   
     
 
 
 
   
 
Total other-than-temporary impairments
   
     
 
 
 
   
 
Portion of other-than-temporary impairments included inother comprehensive income
(loss)
   
     
 
 
 
   
 
Net other-than-temporary impairments
   
     
 
 
 
   
 
Net realized gains (losses) on equity securities sold
   
6
     
 
 
 
9
   
10
 
Net unrealized gains (losses) on equity securities still held
   
(4
)    
(2
)
 
 
13
   
(11
)
Limited partnerships
   
6
     
3
 
 
 
10
   
8
 
Commercial mortgage loans
   
(1
)    
 
 
 
(1
)  
 
Derivative instruments 
(1)
   
(29
)    
(8
)
 
 
(71
)  
(14
)
                 
 
 
 
 
       
Other
 
 
4
 
 
 
 
 
 
4
 
 
 
Net investment gains (losses)
  $
(2
)   $
   
(16
)
 
$
 
27
  $
(31
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses)
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
We generally intend to hold securities in unrealized loss positions until they recover. However, from time to time, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, we sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield and liquidity requirements. If a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we determined that we have the intent to sell the securities or it is more likely than not that we will be required to sell the securities prior to recovery. The aggregate fair value of securities sold at a loss during the three months ended September 30, 2019 and 2018 was $107 million and $714 million, respectively, which was approximately 96%
 
of book value for both periods. The aggregate fair value of securities sold at a loss during the nine months ended September 30, 2019 and 2018 was
$1,112 million and $1,767 
million, respectively, which was approximately
 97
%
 
of book value for both periods
.
The following represents the activity for credit losses recognized in net income on debt securities where an other-than-temporary impairment was identified and a portion of other-than-temporary impairments was included in other comprehensive income (“OCI”) as of and for the periods indicated:
 
                                 
 
As of or for the
three months ended
September 30,
   
As of or for
 
the
nine months ended
September 30,
 
(Amounts in millions)
 
2019
   
2018
   
2019
   
2018
 
Beginning balance
  $
23
    $
 
 
 
 
25
    $
24
    $
32
 
Reductions:
   
     
     
     
 
Securities sold, paid down or disposed
   
     
—  
     
(1
)    
(7
)
                                 
Ending balance
  $
 
 
 
 
23
    $
 
 
25
    $
 
 
 
 
 
23
    $
 
 
  
 
 
25
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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,
2019
   
December 31,
2018
 
Net unrealized gains (losses) on fixed maturity
 
securities
(1)
  $
7,263
    $
1,775
 
Adjustments to deferred acquisition costs, present value of
 
future profits, salesinducements and benefit reserves
   
(4,998
)    
(952
)
Income taxes, net
   
(505
)    
(190
)
               
 
Net unrealized investment gains (losses)
   
1,760
     
633
 
Less: net unrealized investment gains (losses) attributable
 
to noncontrolling interests
   
85
     
38
 
               
 
Net unrealized investment gains (losses) attributable to
 
Genworth Financial, Inc.
 
$
1,675
 
 
$
595
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Excludes foreign exchange.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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:
                 
 
As of or for the
three months ended
September 30,
 
(Amounts in millions)
 
2019
   
2018
 
Beginning balance
  $
1,305
    $
736
 
Unrealized gains (losses) arising during the period:
   
     
 
Unrealized gains (losses) on fixed maturity securities
   
1,607
     
(564
)
Adjustment to deferred acquisition costs
   
(8
)    
292
 
Adjustment to present value of future profits
   
1
     
9
 
Adjustment to sales inducements
   
(4
)    
3
 
Adjustment to benefit reserves
   
(1,108
)    
65
 
Provision for income taxes
   
(104
)    
54
 
                 
Change in unrealized gains (losses) on investment securities
   
384
     
(141
)
Reclassification adjustments to net investment (gains) losses, net of taxes of $4 and $(2)
   
(13
)    
7
 
                 
Change in net unrealized investment gains (losses)
   
371
     
(134
)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests
   
1
     
(6
)
                 
Ending balance
  $
 
1,675
    $
 
608
 
                 
       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the
 
 
 
 
 
nine months ended
 
 
 
 
 

September 30,
 
(Amounts in millions)
 
2019
   
 
 
 
 
 
2018
 
Beginning balance
 
                                      
$
595
    $
1,085
 
Cumulative effect of changes in accounting:
   
     
 
Stranded tax effects
   
     
189
 
Recognition and measurement of financial assets and liabilities, net of taxes of $— and $18
 
 
 
 
 
(25
)
Total cumulative effect of changes in accounting
   
     
164
 
                 
Unrealized gains (losses) arising during the period:
   
     
 
Unrealized gains (losses) on fixed maturity securities
   
5,563
     
(3,150
)
Adjustment to deferred acquisition costs
   
(1,049
)    
1,201
 
Adjustment to present value of future profits
   
(54
)    
65
 
Adjustment to sales inducements
   
(35
)    
32
 
Adjustment to benefit reserves
   
(2,908
)    
967
 
Provision for income taxes
   
(331
)    
203
 
                 
Change in unrealized gains (losses) on investment securities
   
1,186
     
(682
)
Reclassification adjustments to net investment (gains) losses, net of taxes of $16 and $(5)
   
(59
)    
20
 
                 
Change in net unrealized investment gains (losses)
   
1,127
     
(662
)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests
   
47
     
(21
)
                 
Ending balance
 
$
1,675
 
 
$
608
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
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.
(d) Fixed Maturity Securities
As of September 30, 2019, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity securities classified as
available-for-sale
were as follows:
                                                 
 
   
Gross unrealized gains
   
Gross unrealized losses
   
 
 
Amortized
   
Not
 other-than-
   
Other-than-
   
Not
 other-than-
   
Other-than-
   
 
 
cost or
   
temporarily
   
temporarily
   
temporarily
   
temporarily
   
Fair
 
(Amounts in millions)
 
cost
   
impaired
   
impaired
   
impaired
   
impaired
   
value
 
Fixed maturity securities:
   
     
     
     
     
     
 
U.S. government, agencies and government-sponsored enterprises
  $
4,117
    $
1,137
    $
    $
    $
    $
5,254
 
State and political subdivisions
   
2,304
     
425
     
     
     
     
2,729
 
Non-U.S.
government
   
1,229
     
130
     
     
     
     
1,359
 
U.S. corporate:
   
     
     
     
     
     
 
Utilities
   
4,327
     
731