GENWORTH FINANCIAL INC, 10-Q filed on 5/6/2020
Quarterly Report
v3.20.1
Cover Page - shares
3 Months Ended
Mar. 31, 2020
Apr. 27, 2020
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Entity Central Index Key 0001276520  
Current Fiscal Year End Date --12-31  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Mar. 31, 2020  
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, par value $.001 per share  
Entity Common Stock, Shares Outstanding   505,126,098
v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Assets    
Fixed maturity securities available-for-sale, at fair value (amortized cost of $54,136 and allowance for credit losses of $— as of March 31, 2020) $ 59,051 $ 60,339
Equity securities, at fair value 188 239
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4 as of March 31, 2020 and December 31, 2019) 6,944 6,976
Less: Allowance for credit losses (29) (13)
Commercial mortgage loans, net 6,915 6,963
Policy loans 2,052 2,058
Other invested assets 2,465 1,632
Total investments 70,671 71,231
Cash, cash equivalents and restricted cash 2,483 3,341
Accrued investment income 707 654
Deferred acquisition costs 1,898 1,836
Intangible assets and goodwill 263 201
Reinsurance recoverable 17,122 17,103
Less: Allowance for credit losses (42) 0
Reinsurance recoverable, net 17,080 17,103
Other assets 456 443
Deferred tax asset 319 425
Separate account assets 4,967 6,108
Total assets 98,844 101,342
Liabilities and equity    
Future policy benefits 39,339 40,384
Policyholder account balances 22,313 22,217
Liability for policy and contract claims 11,132 10,958
Unearned premiums 1,722 1,893
Other liabilities 1,686 1,562
Non-recourse funding obligations   311
Long-term borrowings [1] 2,851 3,277
Separate account liabilities 4,967 6,108
Total liabilities 84,010 86,710
Commitments and contingencies
Equity:    
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 593 million and 592 million shares issued as of March 31, 2020 and December 31, 2019, respectively; 505 million and 504 million shares outstanding as of March 31, 2020 and December 31, 2019, respectively 1 1
Additional paid-in capital 11,993 11,990
Accumulated other comprehensive income (loss) 3,815 3,433
Retained earnings 1,340 1,461
Treasury stock, at cost (88 million shares as of March 31, 2020 and December 31, 2019) (2,700) (2,700)
Total Genworth Financial, Inc.'s stockholders' equity 14,449 14,185
Noncontrolling interests 385 447
Total equity 14,834 14,632
Total liabilities and equity $ 98,844 $ 101,342
[1] Subordinated floating rate notes issued by Genworth Financial Mortgage Insurance Pty Limited, our indirect majority-owned subsidiary.
v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Restricted commercial mortgage loans related to securitization entities $ 4 $ 4
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 593,000,000 592,000,000
Class A common stock, shares outstanding 505,000,000 504,000,000
Treasury stock, shares 88,000,000 88,000,000
Debt securities amortized costs $ 54,136  
Debt securities allowance for credit losses $ 0  
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenues:    
Premiums $ 1,015 $ 988
Net investment income 793 794
Net investment gains (losses) (152) 75
Policy fees and other income 181 187
Total revenues 1,837 2,044
Benefits and expenses:    
Benefits and other changes in policy reserves 1,361 1,282
Interest credited 141 147
Acquisition and operating expenses, net of deferrals 249 237
Amortization of deferred acquisition costs and intangibles 116 81
Interest expense 52 60
Total benefits and expenses 1,919 1,807
Income (loss) from continuing operations before income taxes (82) 237
Provision (benefit) for income taxes (10) 69
Income (loss) from continuing operations (72) 168
Income from discontinued operations, net of taxes 0 62
Net income (loss) (72) 230
Less: net income (loss) from continuing operations attributable to noncontrolling interests (6) 20
Less: net income from discontinued operations attributable to noncontrolling interests 0 36
Net income (loss) available to Genworth Financial, Inc.'s common stockholders (66) 174
Net income (loss) available to Genworth Financial, Inc.'s common stockholders:    
Income (loss) from continuing operations available to Genworth Financial, Inc.'s common stockholders (66) 148
Income from discontinued operations available to Genworth Financial, Inc.'s common common stockholders 0 26
Net income (loss) available to Genworth Financial, Inc.'s common stockholders $ (66) $ 174
Income (loss) from continuing operations available to Genworth Financial, Inc.'s common stockholders per share:    
Basic $ (0.13) $ 0.29
Diluted (0.13) 0.29
Net income (loss) available to Genworth Financial, Inc.'s common stockholders per share:    
Basic [1] (0.13) 0.35
Diluted $ (0.13) $ 0.34
Weighted-average common shares outstanding:    
Basic 504.3 501.2
Diluted [2] 504.3 508.6
[1] May not total due to whole number calculation.
[2] 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.
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Net income $ (72) $ 230
Other comprehensive income (loss), net of taxes:    
Net unrealized gains (losses) on securities without an allowance for credit losses (320)  
Net unrealized gains (losses) on securities not other-than-temporarily impaired   379
Net unrealized gains (losses) on other-than-temporarily impaired securities 1
Derivatives qualifying as hedges 753 69
Foreign currency translation and other adjustments (98) 54
Total other comprehensive income (loss) 335 503
Total comprehensive income 263 733
Less: comprehensive income (loss) attributable to noncontrolling interests (53) 111
Total comprehensive income available to Genworth Financial, Inc.'s common stockholders $ 316 $ 622
v3.20.1
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, 2018 $ 14,189 $ 1 $ 11,987 $ 2,044 $ 1,118 $ (2,700) $ 12,450 $ 1,739
Repurchase of subsidiary shares (12)             (12)
Comprehensive income (loss):                
Net income (loss) 230       174   174 56
Other comprehensive income (loss), net of taxes 503     448     448 55
Total comprehensive income 733           622 111
Dividends to noncontrolling interests (28)             (28)
Stock-based compensation expense and exercises and other     2       2 (2)
Balances, ending at Mar. 31, 2019 14,882 1 11,989 2,492 1,292 (2,700) 13,074 1,808
Balances, beginning at Dec. 31, 2019 14,632 1 11,990 3,433 1,461 (2,700) 14,185 447
Cumulative effect of change in accounting, net of taxes (55)       (55)   (55)  
Comprehensive income (loss):                
Net income (loss) (72)       (66)   (66) (6)
Other comprehensive income (loss), net of taxes 335     382     382 (47)
Total comprehensive income 263           316 (53)
Dividends to noncontrolling interests (9)             (9)
Stock-based compensation expense and exercises and other 3   3       3  
Balances, ending at Mar. 31, 2020 $ 14,834 $ 1 $ 11,993 $ 3,815 $ 1,340 $ (2,700) $ 14,449 $ 385
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities:    
Net income (loss) $ (72) $ 230
Less income from discontinued operations, net of taxes 0 (62)
Adjustments to reconcile net income (loss) to net cash from operating activities:    
Amortization of fixed maturity securities discounts and premiums (35) (18)
Net investment (gains) losses 152 (75)
Charges assessed to policyholders (158) (165)
Acquisition costs deferred (4) (9)
Amortization of deferred acquisition costs and intangibles 116 81
Deferred income taxes (11) 51
Derivative instruments, limited partnerships and other 347 (32)
Stock-based compensation expense 11 6
Change in certain assets and liabilities:    
Accrued investment income and other assets (107) (242)
Insurance reserves 328 301
Current tax liabilities (5) 9
Other liabilities, policy and contract claims and other policy-related balances 118 27
Cash from operating activities—discontinued operations   32
Net cash from operating activities 680 134
Cash flows from (used by) investing activities:    
Fixed maturity securities 921 871
Commercial mortgage loans 139 130
Other invested assets 34 20
Proceeds from sales of investments:    
Fixed maturity and equity securities 369 1,592
Purchases and originations of investments:    
Fixed maturity and equity securities (1,804) (1,976)
Commercial mortgage loans (107) (370)
Other invested assets (160) (94)
Short-term investments, net 48 98
Policy loans, net 9 12
Cash used by investing activities—discontinued operations   (6)
Net cash from (used by) investing activities (551) 277
Cash flows used by financing activities:    
Deposits to universal life and investment contracts 180 198
Withdrawals from universal life and investment contracts (493) (581)
Redemption of non-recourse funding obligations (315)  
Repayment and repurchase of long-term debt (420)  
Repurchase of subsidiary shares   (12)
Dividends paid to noncontrolling interests (9) (14)
Other, net 100 48
Cash used by financing activities—discontinued operations   (14)
Net cash used by financing activities (957) (375)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $— and $5 related to discontinued operations) (30) 8
Net change in cash, cash equivalents and restricted cash (858) 44
Cash, cash equivalents and restricted cash at beginning of period 3,341 2,177
Cash, cash equivalents and restricted cash at end of period 2,483 2,221
Less cash, cash equivalents and restricted cash of discontinued operations at end of period   201
Cash, cash equivalents and restricted cash of continuing operations at end of period $ 2,483 $ 2,020
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Cash Flows [Abstract]    
Discontinued operations exchange rate effect $ 0 $ 5
v3.20.1
Formation of Genworth and Basis of Presentation
3 Months Ended
Mar. 31, 2020
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.
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 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 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 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.
On December 12, 2019, we completed the sale of Genworth MI Canada Inc. (“Genworth Canada”), our former Canada mortgage insurance business, to an affiliate of Brookfield Business Partners L.P. (“Brookfield”) and received approximately $1.7 
billion in net cash proceeds. Prior to the sale, in the third quarter of 2019, Genworth Canada was reported as discontinued operations and its financial position, results of operations and cash flows were separately reported for all periods presented. All prior periods reflected herein have been
re-presented
on this basis.
See note 14 for additional information related to discontinued operations.
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. 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 2019 Annual Report on Form
 
10-K.
 
Certain prior year amounts have been reclassified to conform to the current year presentation.
v3.20.1
Accounting Changes
3 Months Ended
Mar. 31, 2020
Disclosue of Accounting Changes [Abstract]  
Accounting Changes
(2) Accounting Changes
Accounting Pronouncements Recently Adopted
On January 1, 2020, we adopted new accounting guidance related to disclosure requirements for defined benefit plans as part of the Financial Accounting Standards Board’s (the “FASB”) disclosure framework project. The guidance adds, eliminates and modifies certain disclosure requirements for defined benefit pension and other postretirement benefit plans. We adopted this new accounting guidance using the retrospective method, which did not have a significant impact on our condensed consolidated financial statements and disclosures.
On January 1, 2020, we adopted new accounting guidance related to fair value disclosure requirements as part of the FASB’s disclosure framework project. The guidance adds, eliminates and modifies certain disclosure requirements for fair value measurements. The guidance includes new disclosure requirements related to changes
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. We adopted this new accounting guidance using the prospective method for disclosures related to changes 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, the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty and the retrospective method for all other disclosures. This accounting guidance did not impact our condensed consolidated financial statements but impacted our fair value disclosures.
In March 2020, the FASB issued new accounting guidance related to reference rate reform, which was effective for us on January 1, 2020. The guidance provides optional guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform, which includes the transition away from the London Interbank Offered Rate (“LIBOR”). This new guidance provides practical expedients for contracts affected by reference rate reform that impact the assessment of derivative hedge effectiveness and contract modifications, to include continuing hedge accounting when certain critical terms of a hedging relationship change and modifying certain effectiveness assessments to exclude certain potential sources of ineffectiveness, and is effective through December 31, 2022. We adopted this guidance prospectively and it did not have a significant impact on our condensed consolidated financial statements or disclosures but may impact our process for assessing the effectiveness of our cash flow hedging relationships, determined on an individual hedge basis, as we implement measures to transition away from LIBOR.
On January 1, 2020,
we adopted new accounting guidance related to accounting for credit losses on financial instruments. The guidance requires entities to recognize an allowance equal to its estimate of lifetime expected credit losses and applies to most financial instruments not measured at fair value, which primarily includes our commercial mortgage loans, bank loan investments and reinsurance recoverables. The new guidance also requires the recognition of an allowance for expected credit losses as a liability in our consolidated balance sheet for
off-balance
credit exposures, including commitments to fund bank loan investments, private placement investments and commercial mortgage loans. The new guidance did not have a significant impact on other assets not measured at fair value. 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 did not elect.
For our commercial mortgage loans, we determine the adequacy of the allowance for credit losses utilizing an analytical model that provides various loss scenarios based on historical experience adjusted for current events, trends, economic conditions and reasonable and supportable forecasts that result in a loss in the loan portfolio over the estimated life of the loans. We revert to historical credit loss experience for periods beyond forecasts that are reasonable and supportable. The allowance for credit losses is measured on a collective basis with consideration for debt service coverage ratio,
debt-to-value,
property-type and geographic location. Key inputs into the analytical model include exposure, weighted-average life, return, historical loss rates and forecast scenarios. Actual amounts realized over time could differ from the amounts estimated for the allowance for credit losses reported in the condensed consolidated financial statements. Commercial mortgage loans are written off against the allowance to the extent principal or interest is deemed uncollectible. Accrued interest related to commercial mortgage loans is included in accrued investment income in our condensed consolidated balance sheet and had a carrying value of $24 
million as of March 31, 2020. We do not measure an allowance for credit losses related to accrued interest as uncollectible accrued interest related to our commercial mortgage loans are written off after 90 days and once collectability is determined to be uncertain and not probable. Amounts written off related to accrued interest are recorded as a credit loss expense included in net investment gains (losses).
We adopted the guidance related to our investments carried at amortized cost using the modified retrospective method and recorded an allowance related to lifetime expected credit losses of $23 million, net of deferred taxes of $6 million, for commercial mortgage loans and bank loan investments, with an offset to cumulative effect of change in accounting within retained earnings. See note 4 for additional disclosures related to commercial mortgage loans. We adopted the guidance related to our
off-balance
sheet credit exposures using the modified retrospective method and recorded an allowance related to lifetime expected credit losses
of $1 million, included in other liabilities in our condensed consolidated balance sheet, with an offset to cumulative effect of change in accounting within retained earnings.
The allowance for credit losses for reinsurance recoverables is evaluated based on historical loss experience adjusted for current events and reasonable and supportable forecasts from both internal and external sources. The allowance is measured by reinsurer, taking into consideration the reinsured product type and collateral type, and is calculated based on an externally reported probability of default corresponding to the reinsurer’s credit rating and the expected duration of the reinsurer’s contractual obligation to reimburse us for ceded claims on the underlying policies. Our estimate of the allowance reflects consideration for collateral securing the reinsurance agreements and expected recoveries of amounts previously charged off and expected to be charged off. We also consider other credit risk factors, including, among other factors, the historical frequency and severity of the associated insurance claims, aging of recoverables and regulatory, legal and economic factors, to determine if an additional incremental allowance for credit losses is required. No reversion adjustments are necessary as the starting point for our allowance for credit losses reflects historical loss experience covering the expected duration of the reinsurer’s contractual obligation to reimburse us. If available facts and circumstances indicate the reinsurance recoverable does not reflect expectations consistent with the collective analysis, the reinsurance recoverable is assessed on a separate basis. Write-offs of reinsurance recoverables are deducted from the allowance in the period the reinsurance recoverable is determined to be uncollectible. We adopted the guidance related to our reinsurance recoverables using the modified retrospective method and recorded an allowance related to lifetime expected credit losses
 
of $
31
 million, net of deferred taxes of $
9
 
million, with an offset to cumulative effect of change in accounting within retained earnings. See note 8 for additional disclosures related to reinsurance recoverables.
The new guidance retains most of the existing impairment guidance for
available-for-sale
fixed maturity securities but amends the presentation of credit losses to reflect an allowance for credit losses as opposed to a write-down of the amortized cost of the investment and permits the reversal of credit losses through net income (loss) when reassessing changes in credit losses each reporting period.
Available-for-sale
fixed maturity securities in an unrealized loss position are evaluated to determine whether the decline in fair value is related to credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency/agencies and adverse conditions specifically related to the security, among other factors. If a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Estimating the cash flows expected to be collected is a quantitative and qualitative process that incorporates information received from third-party sources along with internal assumptions and judgments. When developing the estimate of cash flows expected to be collected, we utilize an analytical model that provides for various loss scenarios and consider the industry sector, current levels of subordination, geographic location and other relevant characteristics of the security or underlying assets, as well as reasonable and supportable forecasts. Losses are written off against the allowance when deemed uncollectible or when we intend to sell or expect we will be required to sell a security prior to recovering our amortized cost. We exclude accrued interest related to
available-for-sale
fixed maturity
securities from the estimate of allowance for credit losses. Accrued interest is included in accrued investment income in our condensed consolidated balance sheet and had a carrying value of $555 million as of March 31, 2020. We do not measure an allowance for credit losses related to accrued interest as uncollectible accrued interest related to our
available-for-
sale fixed maturity securities are written off after 90 days and once collectability is determined to be uncertain and not probable. Amounts written off related to accrued interest are recorded as a credit loss expense included in net investment gains (losses). We adopted the guidance related to our
available-for-sale
fixed maturity securities for which a previous other-than-temporary impairment was recognized prior to the date of adoption using the prospective method and the modified retrospective method for all other
available-for-sale
fixed maturity securities, which did not have any impact upon adoption.
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 are in process of evaluating the impact the guidance may have on our consolidated financial statements and disclosures.
In August 2018, 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.
 
 
 
 
 
 
 
 
This guidance is 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.
v3.20.1
Earnings (Loss) Per Share
3 Months Ended
Mar. 31, 2020
Earnings (Loss) 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
March 31,
 
(Amounts in millions, except per share amounts)
 
2020
 
 
2019
 
Weighted-average shares used in basic earnings (loss) per share calculations
   
504.3
     
501.2
 
Potentially dilutive securities:
   
     
 
Stock options, restricted stock units and stock appreciation rights
   
     
7.4
 
Weighted-average shares used in diluted earnings (loss) per share calculations
(1)
   
504.3
     
508.6
 
Income (loss) from continuing operations:
   
     
 
Income (loss) from continuing operations
  $
(72
)   $
 
 
 
 
168
 
Less: net income (loss) from continuing operations attributable to noncontrolling interests
   
(6
)    
20
 
Income (loss) from continuing operations available to Genworth Financial, Inc.’s
common
stockholders
  $
(66
)   $
148
 
Basic per share
  $
  (0.13
)   $
  0.29
 
Diluted per share
  $
  (0.13
)   $
  0.29
 
Income from discontinued operations:
   
     
 
Income from discontinued operations, net of taxes
  $
 
 
 
    $
62
 
Less: net income from discontinued operations attributable to noncontrolling interests
   
     
36
 
Income from discontinued operations available to Genworth Financial, Inc.’s common stockholders
  $
    $
26
 
Basic per share
  $
    $
0.05
 
Diluted per share
  $
    $
0.05
 
Net income (loss):
   
     
 
Income (loss) from continuing operations
  $
(72
)   $
168
 
Income from discontinued operations, net of taxes
   
     
62
 
Net income (loss)
   
(72
)    
230
 
Less: net income (loss) attributable to noncontrolling interests
   
(6
)    
56
 
Net income (loss) available to Genworth Financial, Inc.’s common stockholders
  $
(66
)   $
174
 
Basic per share
 (2)
  $
  (0.13
)   $
0.35
 
Diluted per share
  $
  (0.13
)   $
0.34
 
 
 
 
 
 
 
 
 
 
(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.
 
 
 
 
 
 
 
 
v3.20.1
Investments
3 Months Ended
Mar. 31, 2020
Investments
(4) Investments
(a) Net Investment Income
Sources of net investment income were as follows for the periods indicated:
 
Three months ended
March 31,
 
(Amounts in millions)
 
2020
 
 
2019
 
Fixed maturity securities—taxable
  $
     622
    $
     613
 
Fixed maturity
securities—non-taxable
   
2
     
2
 
Equity securities
   
2
     
4
 
Commercial mortgage loans
   
85
     
82
 
Policy loans
   
49
     
46
 
Other invested assets
   
47
     
59
 
Cash, cash equivalents, restricted cash and short-term investments
   
11
     
11
 
                 
Gross investment income before expenses and fees
   
818
     
817
 
Expenses and fees
   
(25
)    
(23
)
                 
Net investment income
  $
793
    $
794
 
                 
(b) Net Investment Gains (Losses)
The following table sets forth net investment gains (losses) for the periods indicated:
 
Three months ended
March 31,
 
(Amounts in millions)
 
2020
 
 
2019
 
Available-for-sale
fixed maturity securities:
   
     
 
Realized gains
  $
         14
    $
         79
 
Realized losses
   
(1
)    
(21
)
                 
Net realized gains (losses) on
available-for-sale
fixed maturity securities
   
13
     
58
 
                 
Impairments:
   
     
 
Total other-than-temporary impairments
   
—  
     
—  
 
Portion of other-than-temporary impairments included in othercomprehensive income
   
—  
     
—  
 
                 
Net other-than-temporary impairments
   
—  
     
—  
 
                 
Net change in allowance for credit losses on
available-for-sale
fixed maturity
securities
   
     
 
Net realized gains (losses) on equity securities sold
   
—  
     
3
 
Net unrealized gains (losses) on equity securities still held
   
(19
)    
12
 
Limited partnerships
   
(40
)    
15
 
Commercial mortgage loans
   
—  
     
(1
)
Derivative instruments
(1)
   
(105
)    
(12
)
Other
   
(1
)    
—  
 
                 
Net investment gains (losses)
  $
(152
)   $
75
 
                 
 
(1)
See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses).
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 three months ended March 31, 2019:
(Amounts in millions)
 
 
Beginning balance
  $
         24
 
Other-than-temporary impairments not previously recognized
   
 
Increases related to other-than-temporary impairments previously recognized
   
 
Reductions:
   
 
Securities sold, paid down or disposed
   
(1
)
         
Ending balance
  $
23
 
         
(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)
 
March 31, 2020
 
 
December 31, 2019
 
Net unrealized gains (losses) on fixed maturity securities without an allowance for credit losses
 
(1)
 
$
4,957
 
 
$
6,676
 
Net unrealized gains (losses) on fixed maturity securities with an allowance for credit losses
(1)
   
—  
     
 
Adjustments to deferred acquisition costs, present value of future profits, sales inducements
and benefit reserves
   
(3,478
)    
(4,789
)
Income taxes, net
   
(318
)    
(406
)
                 
Net unrealized investment gains (losses)
   
1,161
     
1,481
 
Less: net unrealized investment gains (losses) attributable to noncontrolling interests
   
21
     
25
 
                 
Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.
 
$
1,140
 
 
$
1,456
 
                 
 
(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 three months ended March 31:
                 
(Amounts in millions)
 
2020
 
 
2019
 
Beginning balance
 
$
     1,456
 
 
$
         595
 
Unrealized gains (losses) arising during the period:
   
     
 
Unrealized gains (losses) on fixed maturity securities
   
(1,712
)    
1,999
 
Adjustment to deferred acquisition costs
   
168
     
(989
)
Adjustment to present value of future profits
   
(1
)    
(53
)
Adjustment to sales inducements
   
36
     
(19
)
Adjustment to benefit reserves
   
1,108
     
(388
)
Provision for income taxes
   
87
     
(123
)
                 
Change in unrealized gains (losses) on investment securities
   
(314
)    
427
 
Reclassification adjustments to net investment (gains) losses, net of taxes of $1 and $13
   
(6
)    
(47
)
                 
Change in net unrealized investment gains (losses)
   
(320
)    
380
 
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests
   
(4
)    
32
 
                 
Ending balance
 
$
1,140
 
 
$
943
 
                 
 
 
 
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 March 31, 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:
                                         
(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
  $
4,041
    $
1,730
    $
    $
    $
5,771
 
State and political subdivisions
   
2,495
     
374
     
(5
)    
     
2,864
 
Non-U.S.
government
   
1,118
     
92
     
(9
)    
     
1,201
 
U.S. corporate:
   
     
     
     
     
 
Utilities
   
4,333
     
556
     
(22
)    
     
4,867
 
Energy
   
2,426
     
51
     
(385
)    
     
2,092
 
Finance and insurance
   
7,179
     
548
     
(104
)    
     
7,623
 
Consumer—non-cyclical
   
5,006
     
725
     
(46
)    
     
5,685
 
Technology and communications
   
3,000
     
312
     
(37
)    
     
3,275
 
Industrial
   
1,304
     
72
     
(31
)    
     
1,345
 
Capital goods
   
2,420
     
272
     
(28
)    
     
2,664
 
Consumer—cyclical
   
1,628
     
134
     
(43
)    
     
1,719
 
Transportation
   
1,344
     
152
     
(23
)    
     
1,473
 
Other
   
295
     
40
     
(1
)    
     
334
 
                                         
Total U.S. corporate
   
28,935
     
2,862
     
(720
)    
     
31,077
 
                                         
Non-U.S.
corporate:
   
     
     
     
     
 
Utilities
   
757
     
24
     
(16
)    
     
765
 
Energy
   
1,158
     
42
     
(102
)    
     
1,098
 
Finance and insurance
   
2,023
     
128
     
(40
)    
     
2,111
 
Consumer—non-cyclical
   
639
     
43
     
(8
)    
     
674
 
Technology and communications
   
1,021
     
96
     
(8
)    
     
1,109
 
Industrial
   
877
     
63
     
(29
)    
     
911
 
Capital goods
   
546
     
25
     
(10
)    
     
561
 
Consumer—cyclical
   
362
     
12
     
(12
)    
     
362
 
Transportation
   
554
     
62
     
(13
)    
     
603
 
Other
   
1,475
     
155
     
(25
)    
     
1,605
 
                                         
Total
non-U.S.
corporate
   
9,412
     
650
     
(263
)    
     
9,799
 
                                         
Residential mortgage-backed
   
2,032
     
258
     
(17
)    
     
2,273
 
Commercial mortgage-backed
   
2,876
     
169
     
(64
)    
     
2,981
 
Other asset-backed
   
3,227
     
12
     
(154
)    
     
3,085
 
                                         
Total
available-for-sale
fixed maturity securities
  $
54,136
    $
6,147
    $
(1,232
)   $
    $
 
 
59,051
 
                                         
 
 
 
As of December 31, 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
   
 
 
(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
</