GENWORTH FINANCIAL INC, 10-Q filed on 7/31/2019
Quarterly Report
v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Jul. 25, 2019
Document and Entity Information [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Amendment Flag false  
Document Period End Date Jun. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Entity Registrant Name GENWORTH FINANCIAL INC  
Entity Central Index Key 0001276520  
Entity File Number 001-32195  
Entity Tax Identification Number 80-0873306  
Entity Incorporation, State or Country Code DE  
Current Fiscal Year End Date --12-31  
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
v3.19.2
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Jun. 30, 2019
Dec. 31, 2018
Assets    
Fixed maturity securities available-for-sale, at fair value $ 63,774 $ 59,661
Equity securities, at fair value 644 655
Commercial mortgage loans ($56 and $62 are restricted as of June 30, 2019 and December 31, 2018, respectively, related to a securitization entity) 7,019 6,749
Policy loans 2,076 1,861
Other invested assets 1,535 1,188
Total investments 75,048 70,114
Cash, cash equivalents and restricted cash 1,938 2,177
Accrued investment income 626 675
Deferred acquisition costs 2,105 3,263
Intangible assets and goodwill 244 347
Reinsurance recoverable 17,211 17,278
Other assets 564 474
Deferred tax asset 383 736
Separate account assets 6,187 5,859
Total assets 104,306 100,923
Liabilities and equity    
Future policy benefits 39,583 37,940
Policyholder account balances 22,673 22,968
Liability for policy and contract claims 10,677 10,379
Unearned premiums 3,488 3,546
Other liabilities 1,723 1,682
Non-recourse funding obligations 311 311
Long-term borrowings 4,044 4,025
Deferred tax liability 28 24
Separate account liabilities 6,187 5,859
Total liabilities 88,714 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 June 30, 2019 and December 31, 2018, respectively; 504 million and 501 million shares outstanding as of June 30, 2019 and December 31, 2018, respectively 1 1
Additional paid-in capital 11,983 11,987
Net unrealized investment gains (losses):    
Net unrealized gains (losses) on securities not other-than-temporarily impaired 1,294 585
Net unrealized gains (losses) on other-than-temporarily impaired securities 11 10
Net unrealized investment gains (losses) 1,305 595
Derivatives qualifying as hedges 1,983 1,781
Foreign currency translation and other adjustments (275) (332)
Total accumulated other comprehensive income (loss) 3,013 2,044
Retained earnings 1,460 1,118
Treasury stock, at cost (88 million shares as of June 30, 2019 and December 31, 2018) (2,700) (2,700)
Total Genworth Financial, Inc.'s stockholders' equity 13,757 12,450
Noncontrolling interests 1,835 1,739
Total equity 15,592 14,189
Total liabilities and equity $ 104,306 $ 100,923
v3.19.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Millions
Jun. 30, 2019
Dec. 31, 2018
Restricted commercial mortgage loans related to securitization entities $ 56 $ 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
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($)
shares in Millions, $ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Revenues:        
Premiums $ 1,126 $ 1,136 $ 2,240 $ 2,276
Net investment income 852 828 1,681 1,632
Net investment gains (losses) (45) (14) 29 (45)
Policy fees and other income 223 209 410 411
Total revenues 2,156 2,159 4,360 4,274
Benefits and expenses:        
Benefits and other changes in policy reserves 1,270 1,205 2,571 2,516
Interest credited 146 152 293 308
Acquisition and operating expenses, net of deferrals 247 253 498 493
Amortization of deferred acquisition costs and intangibles 95 112 186 216
Interest expense 73 77 145 153
Total benefits and expenses 1,831 1,799 3,693 3,686
Income (loss) before income taxes and equity in income of subsidiaries 325 360 667 588
Provision for income taxes 107 111 219 174
Net income 218 249 448 414
Less: net income attributable to noncontrolling interests 50 59 106 112
Net income available to Genworth Financial, Inc.'s common stockholders $ 168 $ 190 $ 342 $ 302
Net income available to Genworth Financial, Inc.'s common stockholders per share:        
Basic $ 0.33 $ 0.38 $ 0.68 $ 0.60
Diluted $ 0.33 $ 0.38 $ 0.67 $ 0.60
Weighted-average common shares outstanding:        
Basic 503.4 500.6 502.3 500.1
Diluted 508.7 502.6 508.7 502.6
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) (45) (14) 29 (45)
Total net investment gains (losses) $ (45) $ (14) $ 29 $ (45)
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Net income $ 218 $ 249 $ 448 $ 414
Other comprehensive income (loss), net of taxes:        
Net unrealized gains (losses) on securities not other-than-temporarily impaired 376 (185) 755 (526)
Net unrealized gains (losses) on other-than-temporarily impaired securities   (2) 1 (2)
Derivatives qualifying as hedges 133 (64) 202 (216)
Foreign currency translation and other adjustments 43 (98) 97 (185)
Total other comprehensive income (loss) 552 (349) 1,055 (929)
Total comprehensive income (loss) 770 (100) 1,503 (515)
Less: comprehensive income attributable to noncontrolling interests 81 10 192 14
Total comprehensive income (loss) available to Genworth Financial, Inc.'s common stockholders $ 689 $ (110) $ 1,311 $ (529)
v3.19.2
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 (49)             (49)
Comprehensive income (loss):                
Net income 414       302   302 112
Other comprehensive income (loss), net of taxes (929)     (831)     (831) (98)
Total comprehensive income (loss) (515)           (529) 14
Dividends to noncontrolling interests (50)             (50)
Stock-based compensation expense and exercises and other 10   4       4 6
Balances, ending at Jun. 30, 2018 14,741 1 11,981 2,327 1,301 (2,700) 12,910 1,831
Balances, beginning at Mar. 31, 2018 14,862 1 11,979 2,627 1,111 (2,700) 13,018 1,844
Repurchase of subsidiary shares (13)             (13)
Comprehensive income (loss):                
Net income 249       190   190 59
Other comprehensive income (loss), net of taxes (349)     (300)     (300) (49)
Total comprehensive income (loss) (100)           (110) 10
Dividends to noncontrolling interests (14)             (14)
Stock-based compensation expense and exercises and other 6   2       2 4
Balances, ending at Jun. 30, 2018 14,741 1 11,981 2,327 1,301 (2,700) 12,910 1,831
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 448       342   342 106
Other comprehensive income (loss), net of taxes 1,055     969     969 86
Total comprehensive income (loss) 1,503           1,311 192
Dividends to noncontrolling interests (53)             (53)
Stock-based compensation expense and exercises and other (3)   (4)       (4) 1
Balances, ending at Jun. 30, 2019 15,592 1 11,983 3,013 1,460 (2,700) 13,757 1,835
Balances, beginning at Mar. 31, 2019 14,882 1 11,989 2,492 1,292 (2,700) 13,074 1,808
Repurchase of subsidiary shares (32)             (32)
Comprehensive income (loss):                
Net income 218       168   168 50
Other comprehensive income (loss), net of taxes 552     521     521 31
Total comprehensive income (loss) 770           689 81
Dividends to noncontrolling interests (25)             (25)
Stock-based compensation expense and exercises and other (3)   (6)       (6) 3
Balances, ending at Jun. 30, 2019 $ 15,592 $ 1 $ 11,983 $ 3,013 $ 1,460 $ (2,700) $ 13,757 $ 1,835
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Cash flows from operating activities:    
Net income $ 448 $ 414
Adjustments to reconcile net income to net cash from operating activities:    
Amortization of fixed maturity securities discounts and premiums (54) (62)
Net investment (gains) losses (29) 45
Charges assessed to policyholders (364) (359)
Acquisition costs deferred (35) (40)
Amortization of deferred acquisition costs and intangibles 186 216
Deferred income taxes 134 83
Derivative instruments and limited partnerships 22 (195)
Stock-based compensation expense 12 16
Change in certain assets and liabilities:    
Accrued investment income and other assets (290) (89)
Insurance reserves 609 691
Current tax liabilities 27 (37)
Other liabilities, policy and contract claims and other policy-related balances 129 (122)
Net cash from operating activities 795 561
Cash flows used by investing activities:    
Fixed maturity securities 1,929 1,979
Commercial mortgage loans 285 350
Restricted commercial mortgage loans related to a securitization entity 6 16
Proceeds from sales of investments:    
Fixed maturity and equity securities 2,859 1,920
Purchases and originations of investments:    
Fixed maturity and equity securities (4,681) (4,082)
Commercial mortgage loans (561) (489)
Other invested assets, net (227) 93
Policy loans, net 39 15
Net cash used by investing activities (351) (198)
Cash flows used by financing activities:    
Deposits to universal life and investment contracts 444 503
Withdrawals from universal life and investment contracts (1,096) (1,177)
Proceeds from issuance of long-term debt 77 441
Repayment and repurchase of long-term debt (78) (597)
Repayment of borrowings related to a securitization entity   (12)
Repurchase of subsidiary shares (44) (49)
Dividends paid to noncontrolling interests (53) (50)
Other, net 55 (2)
Net cash used by financing activities (695) (943)
Effect of exchange rate changes on cash, cash equivalents and restricted cash 12 (52)
Net change in cash, cash equivalents and restricted cash (239) (632)
Cash, cash equivalents and restricted cash at beginning of period 2,177 2,875
Cash, cash equivalents and restricted cash at end of period $ 1,938 $ 2,243
v3.19.2
Formation of Genworth and Basis of Presentation
6 Months Ended
Jun. 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 on a consolidated basis.
We operate our business through the following five 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Canada Mortgage Insurance.
We offer flow mortgage insurance and also provide bulk mortgage insurance that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk in Canada.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 five 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.
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.
v3.19.2
Accounting Changes
6 Months Ended
Jun. 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. 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, but did not have a material impact on our condensed consolidated balance sheet as of June 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 15 locations primarily in the United States, Canada 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 13 years and had a weighted-average remaining lease term of 7.3 years as of June 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 6.23% as of June 30, 2019.
Our aggregate annual rental expense for all leases under the previous guidance was approximately $11 million. Annual rental expense and future minimum lease payments are not expected to be materially different under this new accounting guidance.
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 will be reviewed at least annually in the same period each year or more frequently if actual experience indicates a change is required;
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  changes in cash flow assumptions (except the discount rate) 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 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The guidance is currently effective for us on January 1, 2021 using the modified retrospective method, with early adoption permitted.
The FASB plans to propose delaying the effective date to January 1, 2022.
 We are in process of evaluating the new guidance and the impact it will have 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. While we are still evaluating the full impact, at this time we do not expect a significant impact from this guidance on our condensed consolidated financial statements and we are in process of evaluating the impact to our 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 and are in process of establishing policies, systems and controls that will be necessary to implement this new accounting guidance. While we are still in process of evaluating the impact the guidance may have on our condensed consolidated financial statements, the extent of the impact may vary and will depend on, among other things,
economic conditions and the composition and credit quality of our investments and reinsurance recoverables as of the date of adoption.
v3.19.2
Earnings Per Share
6 Months Ended
Jun. 30, 2019
Earnings Per Share
(3) Earnings Per Share
Basic and diluted earnings per share are calculated by dividing each income category presented below by the weighted-average basic and diluted common shares outstanding for the periods indicated:
                                 
 
Three months ended
   
Six months ended
 
 
June 30,
   
June 30,
 
(Amounts in millions, except per share amounts)
 
    2019    
   
    2018    
   
    2019    
   
    2018    
 
Weighted-average shares used in basic earnings per share calculations
   
503.4
     
500.6
     
502.3
     
500.1
 
Potentially dilutive securities:
   
     
     
     
 
Stock options, restricted stock units and stock appreciation rights
   
5.3
     
2.0
     
6.4
     
2.5
 
                                 
Weighted-average shares used in diluted earnings per share calculations
   
508.7
     
502.6
     
508.7
     
502.6
 
                                 
Net income:
   
     
     
     
 
Net income
  $
218
    $
249
    $
448
    $
414
 
Less: net income attributable to noncontrolling interests
   
50
     
59
     
106
     
112
 
 
                               
Net income available to Genworth Financial, Inc.’s common stockholders
  $
168
    $
190
    $
342
    $
302
 
                                 
Basic earnings per share:
   
     
     
     
 
Net income
  $
0.44
    $
0.50
    $
0.89
    $
0.83
 
Less: net income attributable to noncontrolling interests
   
0.10
     
0.12
     
0.21
     
0.22
 
 
                               
Net income available to Genworth Financial, Inc.’s common stockholders
(1)
  $
0.33
    $
0.38
    $
0.68
    $
0.60
 
                                 
Diluted earnings per share:
   
     
     
     
 
Net income
  $
0.43
    $
0.50
    $
0.88
    $
0.82
 
Less: net income attributable to noncontrolling interests
   
0.10
     
0.12
     
0.21
     
0.22
 
 
                               
Net income available to Genworth Financial, Inc.’s common stockholders
  $
0.33
    $
0.38
    $
0.67
    $
0.60
 
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
May not total due to whole number calculation.
 
 
 
 
 
 
 
 
 
 
 
 
v3.19.2
Investments
6 Months Ended
Jun. 30, 2019
Investments
(a) Net Investment Income
Sources of net investment income were as follows for the periods indicated:
                                 
 
Three months ended
June 30,
   
Six months ended
June 30,
 
(Amounts in millions)
 
2019
   
2018
   
2019
   
2018
 
Fixed maturity securities—taxable
 
$
665
   
$
651
   
$
1,308
   
$
1,286
 
Fixed maturity
securities—non-taxable
   
2
     
3
     
4
     
6
 
Equity securities
   
10
     
10
     
19
     
20
 
Commercial mortgage loans
   
84
     
77
     
165
     
159
 
Restricted commercial mortgage loans related to a securitization entity
   
1
     
2
     
2
     
4
 
Policy loans
   
45
     
41
     
91
     
84
 
Other invested assets
   
59
     
53
     
118
     
92
 
Cash, cash equivalents, restricted cash and short-term investments
   
11
     
14
     
23
     
26
 
                                 
Gross investment income before expenses and fees
   
877
     
851
     
1,730
     
1,677
 
Expenses and fees
   
(25
)    
(23
)    
(49
)    
(45
)
                                 
Net investment income
  $
852
    $
  828
    $
1,681
    $
  1,632
 
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(b) Net Investment Gains (Losses)
The following table sets forth net investment gains (losses) for the periods indicated:
                                 
 
Three months ended
June 30,
   
Six months ended
June 30,
 
(Amounts in millions)
 
2019
   
2018
   
2019
   
2018
 
Available-for-sale 
fixed maturity securities:
   
     
     
     
 
Realized gains
  $
5
    $
  
13
    $
86
    $
  
20
 
Realized losses
   
(6
)    
(21
)    
(28
)    
(37
)
                                 
Net realized gains (losses) on
available-for-sale 
fixed maturity securities
   
(1
)    
(8
)    
58
     
(17
)
                                 
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
   
  
     
8
     
3
     
10
 
Net unrealized gains (losses) on equity securities still held
   
(12
)    
3
     
(4
)    
(15
)
Limited partnerships
   
(11
)    
(2
)    
4
     
5
 
Commercial mortgage loans
 
 
1
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
Derivative instruments 
(1)
   
(22
)    
(15
)    
(32
)    
(28
)
                                 
Net investment gains (losses)
  $
(45
)   $
(14
)   $
29
    $
(45
)
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 June 30, 2019 and 2018 was $423 million and $640 million, respectively, which was approximately 98% and 97%, respectively, of book value. The aggregate fair value of securities sold at a loss during the six months ended June 30, 2019 and 2018 was $1,185 million and $1,259 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
June 30,
   
As of or for the
six months ended
June 30,
 
(Amounts in millions)
 
2019
   
2018
   
2019
   
2018
 
Beginning balance
 
$
23
   
$
28
   
$
  
24
   
$
 
32
 
Reductions:
   
     
     
     
 
Securities sold, paid down or disposed
   
—  
     
(3
)
   
(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)
 
June 30, 
2019
   
December 31, 
2018
 
Net unrealized gains (losses) on fixed maturity securities 
(1)
 
$
5,673
   
$
1,775
 
Adjustments to deferred acquisition costs, present value of future profits, salesinducements and benefit reserves
   
 (3,879
)    
(952
)
Income taxes, net
   
(405
)    
(190
)
                 
Net unrealized investment gains (losses)
   
1,389
     
633
 
Less: net unrealized investment gains (losses) attributable to noncontrolling interests
   
84
     
38
 
                 
Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.
 
$
1,305
   
$
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
June 30,
 
(Amounts in millions)
 
2019
   
2018
 
Beginning balance
 
$
  943
   
$
917
 
Unrealized gains (losses) arising during the period:
   
     
 
Unrealized gains (losses) on fixed maturity securities
   
1,957
     
(905
)
Adjustment to deferred acquisition costs
   
(52
)    
467
 
Adjustment to present value of future profits
   
(2
)    
20
 
Adjustment to sales inducements
   
(12
)    
9
 
Adjustment to benefit reserves
   
(1,412
)    
162
 
Provision for income taxes
   
(104
)    
54
 
                 
Change in unrealized gains (losses) on investment securities
   
375
     
(193
)
Reclassification adjustments to net investment (gains) losses, net of taxes of $(1) and $(2)
   
1
     
6
 
                 
Change in net unrealized investment gains (losses)
   
376
     
(187
)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests
   
14
     
(6
)
                 
Ending balance
 
$
1,305
   
$
736
 
                 
       
 
As of or for the
six months ended
June 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
   
3,956
     
(2,586
)
Adjustment to deferred acquisition costs
   
(1,041
)    
909
 
Adjustment to present value of future profits
   
(55
)    
56
 
Adjustment to sales inducements
   
(31
)    
29
 
Adjustment to benefit reserves
   
(1,800
)    
902
 
Provision for income taxes
   
(227
)    
149
 
                 
Change in unrealized gains (losses) on investment securities
   
802
     
(541
)
Reclassification adjustments to net investment (gains) losses, net of taxes of $12 and $(3)
   
(46
)    
13
 
                 
Change in net unrealized investment gains (losses)
   
756
     
(528
)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests
   
46
     
(15
)
                 
Ending balance
 
$
1,305
   
$
736
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 June 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
   
   
(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
  $
4,151
    $
837
    $
—  
    $
(1
)   $
—  
    $
4,987
 
State and political subdivisions
   
2,319
     
317
     
—  
     
—  
     
—  
     
2,636
 
Non-U.S.
government
   
2,496
     
155
     
—  
     
(2
)    
—  
     
2,649
 
U.S. corporate:
   
     
     
     
     
     
 
Utilities
   
4,327
     
565
     
—  
     
(13
)    
—  
     
4,879
 
Energy
   
2,468
     
255
     
—  
     
(10
)    
—  
     
2,713
 
Finance and insurance
   
6,974
     
633
     
—  
     
(10
)    
—  
     
7,597
 
Consumer—non-cyclical
   
4,954
     
616
     
—  
     
(18
)    
—  
     
5,552
 
Technology and communications
   
2,893
     
269
     
—  
     
(6
)    
—  
     
3,156
 
Industrial
   
1,242
     
98
     
—  
     
(4
)    
—  
     
1,336
 
Capital goods
   
2,323
     
303
     
—  
     
(6
)    
—  
     
2,620
 
Consumer—cyclical
   
1,619
     
127
     
—  
     
(5
)    
—  
     
1,741
 
Transportation
   
1,263
     
152
     
—  
     
(4
)    
—  
     
1,411
 
Other
   
356
     
40
     
—  
     
—  
     
—  
     
396
 
                                                 
Total U.S. corporate
   
28,419
     
3,058
     
—  
     
(76
)    
—  
     
31,401
 
                                                 
Non-U.S.
corporate:
   
     
     
     
     
     
 
Utilities
   
1,114
     
54
     
—  
     
(3
)    
—  
     
1,165
 
Energy
   
1,349
     
168
     
—  
     
(1
)    
—  
     
1,516
 
Finance and insurance
   
2,438
     
191
     
—  
     
(1
)    
—  
     
2,628
 
Consumer—non-cyclical
   
674
     
40