GENWORTH FINANCIAL INC, 10-Q filed on 10/31/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
Oct. 23, 2018
Document Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Trading Symbol GNW  
Entity Registrant Name GENWORTH FINANCIAL INC  
Entity Central Index Key 0001276520  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   500,757,037
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Sep. 30, 2018
Dec. 31, 2017
Assets    
Fixed maturity securities available-for-sale, at fair value $ 59,404 $ 62,525
Equity securities, at fair value 783 820
Commercial mortgage loans 6,568 6,341
Restricted commercial mortgage loans related to securitization entities 87 107
Policy loans 1,859 1,786
Other invested assets 1,354 1,813
Total investments 70,055 73,392
Cash, cash equivalents and restricted cash 2,505 2,875
Accrued investment income 657 644
Deferred acquisition costs 3,336 2,329
Intangible assets and goodwill 355 301
Reinsurance recoverable 17,351 17,569
Other assets 467 453
Deferred tax asset 650 504
Separate account assets 6,745 7,230
Total assets 102,121 105,297
Liabilities and equity    
Future policy benefits 38,018 38,472
Policyholder account balances 22,993 24,195
Liability for policy and contract claims 9,844 9,594
Unearned premiums 3,668 3,967
Other liabilities 1,830 1,910
Borrowings related to securitization entities 20 40
Non-recourse funding obligations 310 310
Long-term borrowings 4,051 4,224
Deferred tax liability 21 27
Separate account liabilities 6,745 7,230
Total liabilities 87,500 89,969
Commitments and contingencies
Equity:    
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 589 million and 588 million shares issued as of September 30, 2018 and December 31, 2017, respectively; 501 million and 499 million shares outstanding as of September 30, 2018 and December 31, 2017, respectively 1 1
Additional paid-incapital 11,983 11,977
Net unrealized investment gains (losses):    
Net unrealized gains (losses) on securities not other-than-temporarily impaired 598 1,075
Net unrealized gains (losses) on other-than-temporarily impaired securities 10 10
Net unrealized investment gains (losses) 608 1,085
Derivatives qualifying as hedges 1,717 2,065
Foreign currency translation and other adjustments (258) (123)
Total accumulated other comprehensive income (loss) 2,067 3,027
Retained earnings 1,447 1,113
Treasury stock, at cost (88 million shares as of September 30, 2018 and December 31, 2017) (2,700) (2,700)
Total Genworth Financial, Inc.'s stockholders' equity 12,798 13,418
Noncontrolling interests 1,823 1,910
Total equity 14,621 15,328
Total liabilities and equity $ 102,121 $ 105,297
v3.10.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2018
Dec. 31, 2017
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 589,000,000 588,000,000
Class A common stock, shares outstanding 501,000,000 499,000,000
Treasury stock, shares 88,000,000 88,000,000
v3.10.0.1
Condensed Consolidated Statements of Income - USD ($)
shares in Millions, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Revenues:        
Premiums $ 1,122 $ 1,135 $ 3,398 $ 3,382
Net investment income 815 797 2,447 2,388
Net investment gains (losses) 13 85 (32) 220
Total revenues 2,143 2,215 6,417 6,609
Benefits and expenses:        
Benefits and other changes in policy reserves 1,321 1,344 3,837 3,796
Interest credited 151 164 459 494
Acquisition and operating expenses, net of deferrals 243 265 736 775
Amortization of deferred acquisition costs and intangibles 83 83 299 316
Interest expense 72 73 225 209
Total benefits and expenses 1,870 1,929 5,556 5,590
Income from continuing operations before income taxes 273 286 861 1,019
Provision for income taxes 63 102 237 348
Income from continuing operations 210 184 624 671
Loss from discontinued operations, net of taxes 0 (9) 0 (9)
Net income 210 175 624 662
Less: net income attributable to noncontrolling interests 64 68 176 198
Net income available to Genworth Financial, Inc.'s common stockholders $ 146 $ 107 $ 448 $ 464
Income from continuing operations available to Genworth Financial, Inc.'s common stockholders per share:        
Basic $ 0.29 $ 0.23 $ 0.89 $ 0.95
Diluted 0.29 0.23 0.89 0.94
Net income available to Genworth Financial, Inc.'s common stockholders per share:        
Basic 0.29 0.21 0.89 0.93
Diluted $ 0.29 $ 0.21 $ 0.89 $ 0.93
Weighted-average common shares outstanding:        
Basic 500.7 499.1 500.3 498.9
Diluted 503.3 501.6 502.9 501.2
Supplemental disclosures:        
Total other-than-temporary impairments $ 0 $ (1) $ 0 $ (4)
Portion of other-than-temporary impairments included in other comprehensive income (loss) 0 0 0 0
Net other-than-temporary impairments 0 (1) 0 (4)
Other investments gains (losses) 13 86 (32) 224
Net investment gains (losses) 13 85 (32) 220
Policy fees and other income        
Revenues:        
Revenue from contract with customer including assessed tax $ 193 $ 198 $ 604 $ 619
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Net income $ 210 $ 175 $ 624 $ 662
Other comprehensive income (loss), net of taxes:        
Net unrealized gains (losses) on securities not other-than-temporarily impaired (134) (89) (660) (173)
Net unrealized gains (losses) on other-than-temporarily impaired securities 0 0 (2) 1
Derivatives qualifying as hedges (146) (12) (362) (33)
Foreign currency translation and other adjustments 20 81 (165) 261
Total other comprehensive income (loss) (260) (20) (1,189) 56
Total comprehensive income (loss) (50) 155 (565) 718
Less: comprehensive income attributable to noncontrolling interests 64 108 78 313
Total comprehensive income (loss) available to Genworth Financial, Inc.'s common stockholders $ (114) $ 47 $ (643) $ 405
v3.10.0.1
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, 2016 $ 14,467 $ 1 $ 11,962 $ 3,094 $ 287 $ (2,700) $ 12,644 $ 1,823
Cumulative effect of change in accounting, net of taxes 9       9   9  
Repurchase of subsidiary shares (31)             (31)
Comprehensive income (loss):                
Net income 662       464   464 198
Other comprehensive income (loss), net of taxes 56     (59)     (59) 115
Total comprehensive income (loss) 718           405 313
Dividends to noncontrolling interests (92)             (92)
Stock-based compensation expense and exercises and other 16   11       11 5
Balances, ending at Sep. 30, 2017 15,087 1 11,973 3,035 760 (2,700) 13,069 2,018
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
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Cash flows from operating activities:    
Net income $ 624 $ 662
Less loss from discontinued operations, net of taxes 0 9
Adjustments to reconcile net income to net cash from operating activities:    
Amortization of fixed maturity securities discounts and premiums (92) (107)
Net investment (gains) losses 32 (220)
Charges assessed to policyholders (528) (534)
Acquisition costs deferred (63) (67)
Amortization of deferred acquisition costs and intangibles 299 316
Deferred income taxes 115 234
Trading securities, limited partnerships and derivative instruments (363) 716
Stock-based compensation expense 25 29
Change in certain assets and liabilities:    
Accrued investment income and other assets (131) (21)
Insurance reserves 1,039 1,202
Current tax liabilities (48) (27)
Other liabilities, policy and contract claims and other policy-related balances 64 (260)
Net cash from operating activities 973 1,932
Cash flows from (used by) investing activities:    
Fixed maturity securities 2,967 3,396
Commercial mortgage loans 543 454
Restricted commercial mortgage loans related to securitization entities 20 18
Proceeds from sales of investments:    
Fixed maturity and equity securities 3,325 3,269
Purchases and originations of investments:    
Fixed maturity and equity securities (6,416) (6,709)
Commercial mortgage loans (769) (608)
Other invested assets, net 364 (521)
Policy loans, net 35 28
Payments for business purchased, net of cash acquired 0 (5)
Net cash from (used by) investing activities 69 (678)
Cash flows used by financing activities:    
Deposits to universal life and investment contracts 805 902
Withdrawals from universal life and investment contracts (1,806) (2,003)
Proceeds from issuance of long-term debt 441 0
Repayment and repurchase of long-term debt (598) 0
Repayment of borrowings related to securitization entities (20) (16)
Repurchase of subsidiary shares (89) (31)
Dividends paid to noncontrolling interests (83) (92)
Other, net 0 (30)
Net cash used by financing activities (1,350) (1,270)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (62) 68
Net change in cash, cash equivalents and restricted cash (370) 52
Cash, cash equivalents and restricted cash at beginning of period 2,875 2,784
Cash, cash equivalents and restricted cash at end of period $ 2,505 $ 2,836
v3.10.0.1
Formation of Genworth and Basis of Presentation
9 Months Ended
Sep. 30, 2018
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. (together with its affiliates, “China Oceanwide”), and Asia Pacific Global Capital USA Corporation (“Merger Sub”), a Delaware corporation and an indirect, 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. Subject to the terms and conditions of the Merger Agreement, including the satisfaction or waiver of certain conditions, Merger Sub would merge with and into Genworth Financial with Genworth Financial surviving the merger as an indirect, 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 transaction remains subject to closing conditions, including the receipt of required regulatory approvals in the U.S., China, and other international jurisdictions. Both parties are engaging with the relevant regulators regarding the applications and the pending transaction.

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,” 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 and 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 2017 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

v3.10.0.1
Accounting Changes
9 Months Ended
Sep. 30, 2018
Accounting Changes

(2) Accounting Changes

Accounting Pronouncements Recently Adopted

On January 1, 2018, we early adopted new accounting guidance on the reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”), or “stranded tax effects.” Under current U.S. GAAP, deferred tax assets and liabilities are adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the period that the changes were enacted. This also includes situations in which the related tax effects were originally recognized in other comprehensive income as opposed to income from continuing operations. The following summarizes the components for the cumulative effect adjustment recorded on January 1, 2018 related to the adoption of this new accounting guidance:

 

     Accumulated other comprehensive income (loss)              

(Amounts in millions)

   Net unrealized
investment
gains (losses)
    Derivatives
qualifying
as hedges
     Foreign currency
translation
and other
adjustments
    Retained
earnings
    Total
stockholders’
equity
 

Deferred taxes:

           

Net unrealized gains on investment securities

   $ 192   $ —        $ —       $ (192   $ —    

Net unrealized gains on derivatives

     —         12      —         (12     —    

Investment in foreign subsidiaries

     (3     —          (46     49       —    

Accrued commission and general expenses

     —         —          (1     1       —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cumulative effect of changes in accounting

   $ 189   $ 12    $ (47   $ (154   $ —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The accounting for the temporary differences related to investment in foreign subsidiaries recorded in accumulated other comprehensive income (loss) at adoption of the TCJA were provisional. Therefore, additional reclassification adjustments may be recorded in fourth quarter of 2018 as tax effects of the TCJA on related temporary differences are finalized. However, no reclassification adjustments were recorded during the second or third quarters of 2018. Other than those effects related to the TCJA, our policy is to release stranded tax effects from accumulated other comprehensive income (loss) using the portfolio approach for items related to investments and derivatives, and upon disposition of a subsidiary for items related to outside basis differences.

On January 1, 2018, we early adopted new accounting guidance related to the hedge accounting model. The new guidance amends the hedge accounting model to enable entities to better portray the economics of their derivative risk management activities in the financial statements and enhance the transparency and understandability of hedge results. In certain situations, the amendments also simplify the application of hedge accounting and removed the requirements to separately measure and report hedge ineffectiveness. We adopted this new accounting using the modified retrospective method and recognized a gain of $2 million in accumulated other comprehensive income with a corresponding decrease to retained earnings at adoption. This gain was the cumulative amount of hedge ineffectiveness related to active hedges that was previously included in earnings.

On January 1, 2018, we adopted new accounting guidance that clarifies when to account for a change to share-based compensation as a modification. The new guidance requires modification accounting only if there are changes to the fair value, vesting conditions or classification as a liability or equity of the share-based compensation. We adopted this new accounting guidance prospectively and therefore, the guidance did not have any impact at adoption.

 

On January 1, 2018, we adopted new accounting guidance that clarifies the scope and accounting for gains and losses from the derecognition of nonfinancial assets or an in substance nonfinancial asset that is not a business and accounting for partial sales of nonfinancial assets. The new guidance clarifies when transferring ownership interests in a consolidated subsidiary holding nonfinancial assets is within scope. It also states that the reporting entity should identify each distinct nonfinancial asset and derecognize when a counterparty obtains control. We adopted this new accounting guidance using the modified retrospective method, which had no impact on our consolidated financial statements at adoption.

On January 1, 2018, we early adopted new accounting guidance simplifying the test for goodwill impairment. The new guidance states goodwill impairment is equal to the difference between the carrying value and fair value of the reporting unit up to the amount of recorded goodwill. We adopted this new accounting guidance prospectively and will apply it to our 2018 goodwill impairment test.

On January 1, 2018, we adopted new accounting guidance related to the classification and presentation of changes in restricted cash. The new guidance requires that changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents be shown in the statements of cash flows and requires additional disclosures related to restricted cash and restricted cash equivalents. We adopted this new accounting guidance retrospectively and modified the line item descriptions on our consolidated balance sheets and statements of cash flows in our consolidated financial statements. The other impacts from this new accounting guidance did not have a significant impact on our consolidated financial statements or disclosures.

On January 1, 2018, we adopted new accounting guidance related to the income tax effects of intra-entity transfers of assets other than inventory. The new guidance states that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. We adopted this new accounting guidance using the modified retrospective method, which did not have any significant impact on our consolidated financial statements or disclosures at adoption.

On January 1, 2018, we adopted new accounting guidance related to the classification of certain cash payments and cash receipts on our statement of cash flows. The guidance reduces diversity in practice related to eight specific cash flow issues. We adopted this new accounting guidance retrospectively. We will reclassify a $20 million make-whole premium that was incurred in the first quarter of 2016 previously included in the operating activities section of the statement of cash flows, within the line item “other liabilities, policy and contract claims and other policy-related balances” to the financing activities section within the line item “repayment and repurchase of long-term debt” in our 2018 annual consolidated financial statements filed on Form 10-K. The reclassification will result in an increase in net cash used by financing activities and an increase in net cash from operating activities. The remaining specific cash flow issues did not have a significant impact on our consolidated financial statements.

On January 1, 2018, we adopted new accounting guidance related to the recognition and measurement of financial assets and financial liabilities. Changes to financial instruments accounting primarily affects equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments with readily determinable fair value, except those accounted for under the equity method of accounting, are measured at fair value with changes in fair value recognized in net income. The new guidance also clarifies that the need for a valuation allowance on a deferred tax asset related to available-for-sale securities should be evaluated in combination with other deferred tax assets. We adopted this new accounting guidance using the modified retrospective method and reclassified, after adjustments for deferred acquisition costs (“DAC”) and other intangible amortization and certain benefit reserves, taxes and noncontrolling interests, $25 million of gains related to equity securities from accumulated other comprehensive income and $17 million of gains related to limited partnerships previously recorded at cost to cumulative effect of change in accounting within retained earnings.

On January 1, 2018, we adopted new accounting guidance related to revenue from contracts with customers. The key principle of the new guidance is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods or services. Insurance contracts are specifically excluded from this new guidance. The Financial Accounting Standards Board (“the FASB”) has clarified the scope that all of our insurance contracts, including mortgage insurance and investment contracts are excluded from the scope of this new guidance. We adopted this new accounting guidance using the modified retrospective method, which did not have any significant impact on our consolidated financial statements at adoption.

Accounting Pronouncements Not Yet Adopted

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 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. We are in process of evaluating the new guidance and the impact it will have on our 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 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 are in process of evaluating the impact the guidance may have on our consolidated financial statements and disclosures.

In June 2018, the FASB issued 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. The guidance is currently effective for us on January 1, 2019 using the modified retrospective method, with early adoption permitted. This guidance is consistent with our previous accounting practices and, accordingly, we do not expect any impact from this guidance on our consolidated financial statements.

In March 2017, the FASB issued new accounting guidance 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. The guidance is currently effective for us on January 1, 2019 using the modified retrospective method, with early adoption permitted. While we are still evaluating the full impact, at this time we do not expect any significant impact from this guidance on our consolidated financial statements.

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 receivables. 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 new guidance is 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 in retained earnings as of the beginning of the year of adoption will be recorded. We are in process of evaluating the impact the guidance may have on our consolidated financial statements.

In February 2016, the FASB issued new accounting guidance related to the accounting for leases. The new guidance generally requires lessees to recognize both a right-to-use asset and a corresponding liability on the balance sheet. The guidance is effective for us on January 1, 2019, with early adoption permitted. A modified retrospective transition approach is required as of the earliest period presented. Amendments to the guidance also allow an optional transition method practical expedient, which permits entities to apply the new lease standard using the modified retrospective transition approach at the date of adoption. Certain other practical expedients are available, which we are in the process of evaluating. We have identified our significant leases by asset type that will be impacted by the new guidance and begun implementation of a new software platform to facilitate compliance with the new guidance. Upon adoption, we expect to apply the optional transition method and record a right-of-use asset and liability on our balance sheet related to existing operating leases. While we are still evaluating the full impact, at this time we do not expect a significant impact from this guidance on our consolidated financial statements and we are in process of evaluating the impact to our disclosures.

v3.10.0.1
Earnings (Loss) Per Share
9 Months Ended
Sep. 30, 2018
Earnings (Loss) Per Share

(3) Earnings (Loss) Per Share

Basic and diluted earnings 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)

   2018      2017      2018      2017  

Weighted-average shares used in basic earnings per share calculations

     500.7      499.1      500.3      498.9

Potentially dilutive securities:

           

Stock options, restricted stock units and stock appreciation rights

     2.6      2.5      2.6      2.3
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average shares used in diluted earnings per share calculations

     503.3      501.6      502.9      501.2
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from continuing operations:

           

Income from continuing operations

   $ 210    $ 184    $ 624    $ 671

Less: income from continuing operations attributable to noncontrolling interests

     64      68      176      198
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders

   $ 146    $ 116    $ 448    $ 473
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic per share

   $ 0.29    $ 0.23    $ 0.89    $ 0.95
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted per share

   $ 0.29    $ 0.23    $ 0.89    $ 0.94
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from discontinued operations:

           

Loss from discontinued operations, net of taxes

   $ —        $ (9    $ —        $ (9

Less: income from discontinued operations, net of taxes, attributable to noncontrolling interests

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from discontinued operations, net of taxes, available to Genworth Financial, Inc.’s common stockholders

   $ —        $ (9    $ —        $ (9
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic per share

   $ —        $ (0.02    $ —        $ (0.02
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted per share

   $ —        $ (0.02    $ —        $ (0.02
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income:

           

Income from continuing operations

   $ 210    $ 184    $ 624    $ 671

Loss from discontinued operations, net of taxes

     —          (9      —          (9
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

     210      175      624      662

Less: net income attributable to noncontrolling interests

     64      68      176      198
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income available to Genworth Financial, Inc.’s common stockholders

   $ 146    $ 107    $ 448    $ 464
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic per share

   $ 0.29    $ 0.21    $ 0.89    $ 0.93
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted per share

   $ 0.29    $ 0.21    $ 0.89    $ 0.93
  

 

 

    

 

 

    

 

 

    

 

 

 
v3.10.0.1
Investments
9 Months Ended
Sep. 30, 2018
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)

   2018      2017      2018      2017  

Fixed maturity securities—taxable

   $ 643    $ 640    $ 1,929    $ 1,930

Fixed maturity securities—non-taxable

     3      3      9      9

Equity securities

     11      9      31      26

Commercial mortgage loans

     81      78      240      231

Restricted commercial mortgage loans related to securitization entities

     1      3      5      7

Policy loans

     41      39      125      120

Other invested assets

     44      39      136      106

Restricted other invested assets related to securitization entities

     —          —          —          1

Cash, cash equivalents and short-term investments

     13      10      39      26
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross investment income before expenses and fees

     837      821      2,514      2,456

Expenses and fees

     (22      (24      (67      (68
  

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income

   $ 815    $ 797    $ 2,447    $ 2,388
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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)

   2018      2017      2018      2017  

Available-for-sale securities:

           

Realized gains

   $  22    $  40    $  42    $  177

Realized losses

     (30      (10      (67      (55
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized gains (losses) on available-for-sale securities

     (8      30      (25      122
  

 

 

    

 

 

    

 

 

    

 

 

 

Impairments:

           

Total other-than-temporary impairments

     —          (1      —          (4

Portion of other-than-temporary impairments included in other comprehensive income (loss)

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net other-than-temporary impairments

     —          (1      —          (4
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized gains (losses) on equity securities sold

     —          —          10      —    

Net unrealized gains (losses) on equity securities still held

     —          —          (15      —    

Trading securities

     —          —          —          1

Limited partnerships

     3      —          8      —    

Commercial mortgage loans

     —          1      —          3

Net gains (losses) related to securitization entities

     —          1      —          5

Derivative instruments (1)

     18      54      (10      93
  

 

 

    

 

 

    

 

 

    

 

 

 

Net investment gains (losses)

   $  13    $  85    $  (32)      $  220
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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, 2018 and 2017 was $725 million and $286 million, respectively, which was approximately 96% and 97%, respectively, of book value. The aggregate fair value of securities sold at a loss during the nine months ended September 30, 2018 and 2017 was $1,984 million and $1,390 million, respectively, which was approximately 97% and 96%, respectively, of book value.

 

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)

   2018      2017      2018      2017  

Beginning balance

   $ 25    $ 38    $ 32    $ 42

Reductions:

           

Securities sold, paid down or disposed

     —          (5      (7      (9
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 25    $ 33    $ 25    $ 33
  

 

 

    

 

 

    

 

 

    

 

 

 

(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, 2018     December 31, 2017  

Net unrealized gains (losses) on investment securities:

    

Fixed maturity securities

   $ 2,000   $ 5,125

Equity securities

     —         69
  

 

 

   

 

 

 

Subtotal (1)

     2,000     5,194

Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves

     (1,180     (3,451

Income taxes, net

     (178     (583
  

 

 

   

 

 

 

Net unrealized investment gains (losses)

     642     1,160

Less: net unrealized investment gains (losses) attributable to noncontrolling interests

     34     75
  

 

 

   

 

 

 

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.

   $ 608   $ 1,085
  

 

 

   

 

 

 

 

(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)

   2018      2017  

Beginning balance

   $ 736    $ 1,180

Unrealized gains (losses) arising during the period:

     

Unrealized gains (losses) on investment securities

     (564      (10

Adjustment to deferred acquisition costs

     292      (1

Adjustment to present value of future profits

     9      (3

Adjustment to sales inducements

     3      —    

Adjustment to benefit reserves

     65      (92

Provision for income taxes

     54      36
  

 

 

    

 

 

 

Change in unrealized gains (losses) on investment securities

     (141      (70

Reclassification adjustments to net investment (gains) losses, net of taxes of $(2) and $10

     7      (19
  

 

 

    

 

 

 

Change in net unrealized investment gains (losses)

     (134      (89

Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests

     (6      (17
  

 

 

    

 

 

 

Ending balance

   $ 608    $ 1,108
  

 

 

    

 

 

 

 

     As of or for the
nine months ended
September 30,
 

(Amounts in millions)

   2018      2017  

Beginning balance

   $ 1,085    $ 1,262

Cumulative effect of changes in accounting:

     

Stranded tax effects

     189      —    

Recognition and measurement of financial assets and liabilities, net of taxes of $18 and $—

     (25      —    
  

 

 

    

 

 

 

Total cumulative effect of changes in accounting

     164      —    
  

 

 

    

 

 

 

Unrealized gains (losses) arising during the period:

     

Unrealized gains (losses) on investment securities

     (3,150      1,377

Adjustment to deferred acquisition costs

     1,201      (1,047

Adjustment to present value of future profits

     65      (36

Adjustment to sales inducements

     32      (11

Adjustment to benefit reserves

     967      (429

Provision for income taxes

     203      51
  

 

 

    

 

 

 

Change in unrealized gains (losses) on investment securities

     (682      (95

Reclassification adjustments to net investment (gains) losses, net of taxes of $(5) and $41

     20      (77
  

 

 

    

 

 

 

Change in net unrealized investment gains (losses)

     (662      (172

Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests

     (21      (18
  

 

 

    

 

 

 

Ending balance

   $ 608    $ 1,108
  

 

 

    

 

 

 

 

(d) Fixed Maturity and Equity Securities

As of September 30, 2018, 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

  $ 4,733   $ 491   $ —       $ (43   $ —       $ 5,181

State and political subdivisions

    2,686     156     —         (47     —         2,795

Non-U.S. government

    2,265     65     —         (41     —         2,289

U.S. corporate:

           

Utilities

    4,459     341     —         (89     —         4,711

Energy

    2,228     136     —         (28     —         2,336

Finance and insurance

    6,203     264     —         (115     —         6,352

Consumer—non-cyclical

    4,496     298     —         (90     —         4,704

Technology and communications

    2,704     127     —         (56     —         2,775

Industrial

    1,152     52     —         (19     —         1,185

Capital goods

    2,209     167     —         (41     —         2,335

Consumer—cyclical

    1,543     62     —         (32     —         1,573

Transportation

    1,190     81     —         (33     —         1,238

Other

    315     15     —         (1     —         329
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total U.S. corporate

    26,499     1,543     —         (504     —         27,538
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

           

Utilities

    1,028     18     —         (26     —         1,020

Energy

    1,299     98     —         (18     —         1,379

Finance and insurance

    2,483     91     —         (37     —         2,537

Consumer—non-cyclical

    730     9     —         (18     —         721

Technology and communications

    1,085     28     —         (16     —         1,097

Industrial

    904     40     —         (11     —         933

Capital goods

    603     13     —         (9     —         607

Consumer—cyclical

    543     2     —         (11     —         534

Transportation

    690     43     —         (13     —         720

Other

    2,542     108     —         (25     —         2,625
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-U.S. corporate

    11,907     450     —         (184     —         12,173
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential mortgage-backed

    3,125     123     13     (39     —         3,222

Commercial mortgage-backed

    3,217     38     —         (99     —         3,156

Other asset-backed

    3,066     4     1     (21     —         3,050
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale fixed maturity securities

  $ 57,498   $ 2,870   $ 14   $ (978   $ —       $ 59,404
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

As of December 31, 2017, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity 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

  $ 4,681   $ 870   $ —       $ (3   $ —       $ 5,548

State and political subdivisions

    2,678     270     —         (22     —         2,926

Non-U.S. government

    2,147     106     —         (20     —         2,233

U.S. corporate:

           

Utilities

    4,396     611     —         (9     —         4,998

Energy

    2,239     227     —         (8     —         2,458

Finance and insurance

    5,984     556     —         (12     —         6,528

Consumer—non-cyclical

    4,314     530     —         (13     —         4,831

Technology and communications

    2,665     192     —         (12     —         2,845

Industrial

    1,241     106     —         (1     —         1,346

Capital goods

    2,087     273     —         (5     —         2,355

Consumer—cyclical

    1,493     116     —         (4     —         1,605

Transportation

    1,160     134     —         (3     —         1,291

Other

    355     25     —         (1     —         379
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total U.S. corporate

    25,934     2,770     —         (68     —         28,636
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

           

Utilities

    979     42     —         (4     —         1,017

Energy

    1,337     158     —         (5     —         1,490

Finance and insurance

    2,567     174     —         (6     —         2,735

Consumer—non-cyclical

    686     30     —         (4     —         712

Technology and communications

    913     71     —         (2     —         982

Industrial

    958     88     —         (2     —         1,044

Capital goods

    614     33     —         (2     —         645

Consumer—cyclical

    532     9     —         (1     —         540

Transportation

    656     68     —         (3     —         721

Other

    2,536     193     —         (4     —         2,725
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-U.S. corporate

    11,778     866     —         (33     —         12,611
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential mortgage-backed

    3,831     223     14     (11     —         4,057

Commercial mortgage-backed

    3,387     94     2     (37     —         3,446

Other asset-backed

    3,056     17     1     (6     —         3,068
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

    57,492     5,216     17     (200     —         62,525

Equity securities

    756     72     —         (8     —         820
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

  $ 58,248   $ 5,288   $ 17   $ (208   $ —       $ 63,345
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents the gross unrealized losses and fair values of our fixed maturity securities, aggregated by investment type and length of time that individual fixed maturity securities have been in a continuous unrealized loss position, as of September 30, 2018:

 

    Less than 12 months     12 months or more     Total  

(Dollar amounts in millions)

  Fair
value
    Gross
unrealized
losses
    Number of
securities
    Fair
value
    Gross
unrealized
losses
    Number of
securities
    Fair
value
    Gross
unrealized
losses
    Number of
securities
 

Description of Securities

                 

Fixed maturity securities:

                 

U.S. government, agencies and government-sponsored enterprises

  $ 911   $ (32     52   $ 113   $ (11 )       12   $ 1,024   $ (43 )       64

State and political subdivisions

    618     (22     125     344     (25 )       52     962     (47 )       177

Non-U.S. government

    754     (16     76     465     (25 )       28     1,219     (41 )       104

U.S. corporate

    9,901     (354     1,345     1,702     (150 )       236     11,603     (504 )       1,581

Non-U.S. corporate

    4,353     (125     592     869     (59 )       131     5,222     (184 )       723

Residential mortgage-backed

    884     (21     135     441     (18 )       81     1,325     (39 )       216

Commercial mortgage-backed

    1,078     (30     164     706     (69 )       105     1,784     (99 )       269

Other asset-backed

    1,669     (15     300     381     (6 )       83     2,050     (21 )       383
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for fixed maturity securities in an unrealized loss position

  $ 20,168   $ (615     2,789   $ 5,021   $ (363     728   $ 25,189   $ (978     3,517
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost:

                 

<20% Below cost

  $ 20,163   $ (614     2,787   $ 5,007   $ (357     723   $ 25,170   $ (971     3,510

20%-50% Below cost

    5     (1     2     14     (6 )       5     19     (7 )       7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for fixed maturity securities in an unrealized loss position

  $ 20,168   $ (615     2,789   $ 5,021   $ (363     728   $ 25,189   $ (978     3,517
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment grade

  $ 19,212   $ (581     2,653   $ 4,882   $ (350     697   $ 24,094   $ (931     3,350

Below investment grade

    956     (34     136     139     (13 )       31     1,095     (47 )       167
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for fixed maturity securities in an unrealized loss position

  $ 20,168   $ (615     2,789   $ 5,021   $ (363     728   $ 25,189   $ (978     3,517
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of September 30, 2018:

 

    Less than 12 months     12 months or more     Total  

(Dollar amounts in millions)

  Fair
value
    Gross
unrealized
losses
    Number of
securities
    Fair
value
    Gross
unrealized
losses
    Number of
securities
    Fair
value
    Gross
unrealized
losses
    Number of
securities
 

Description of Securities

                 

U.S. corporate:

                 

Utilities

  $ 1,321   $ (59     191   $ 281   $ (30     50   $ 1,602   $ (89     241

Energy

    633     (19     94     130     (9     16     763     (28     110

Finance and insurance

    2,720     (89     378     408     (26     51     3,128     (115     429

Consumer—non-cyclical

    1,687     (65     198     261     (25     34     1,948     (90     232

Technology and communications

    1,065     (34     142     222     (22     28     1,287     (56     170

Industrial

    457     (15     58     46     (4     7     503     (19     65

Capital goods

    749     (28     102     114     (13     19     863     (41     121

Consumer—cyclical

    715     (23     109     110     (9     14     825     (32     123

Transportation

    486     (21     69     116     (12     16     602     (33     85

Other

    68     (1     4     14     —         1     82     (1     5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, U.S. corporate securities

    9,901     (354     1,345     1,702     (150     236     11,603     (504     1,581
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

                 

Utilities

    413     (14     56     135     (12     16     548     (26     72

Energy

    381     (12     53     108     (6     13     489     (18     66

Finance and insurance

    1,046     (27     148     181     (10     31     1,227     (37     179

Consumer—non-cyclical

    330     (12     34     83     (6     11     413     (18     45

Technology and communications

    523     (13     68     35     (3     7     558     (16     75

Industrial

    249     (7     41     37     (4     4     286     (11     45

Capital goods

    227     (7     26     34     (2     7     261     (9     33

Consumer—cyclical

    361     (10     46     36     (1     9     397     (11     55

Transportation

    228     (6     27     70     (7     10     298     (13     37

Other

    595     (17     93     150     (8     23     745     (25     116
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, non-U.S. corporate securities

    4,353     (125     592     869     (59     131     5,222     (184     723
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for corporate securities in an unrealized loss position

  $ 14,254   $ (479     1,937   $ 2,571   $ (209     367   $ 16,825   $ (688     2,304
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For all securities in an unrealized loss position, we expect to recover the amortized cost based on our estimate of the amount and timing of cash flows to be collected. We do not intend to sell nor do we expect that we will be required to sell these securities prior to recovering our amortized cost.

 

The following table presents the gross unrealized losses and fair values of our investment securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, as of December 31, 2017:

 

    Less than 12 months     12 months or more     Total  

(Dollar amounts in millions)

  Fair
value
    Gross
unrealized
losses
    Number of
securities
    Fair
value
    Gross
unrealized
losses
    Number of
securities
    Fair
value
    Gross
unrealized
losses
    Number of
securities
 

Description of Securities

                 

Fixed maturity securities:

                 

U.S. government, agencies and government-sponsored enterprises

  $ 78   $ (1     21   $ 94   $ (2 )       7   $ 172   $ (3 )       28

State and political subdivisions

    125     (1     35     327     (21 )       42     452     (22 )       77

Non-U.S. government

    583     (7     26     239     (13 )       20     822     (20 )       46

U.S. corporate

    1,871     (26     296     1,347     (42 )       190     3,218     (68 )       486

Non-U.S. corporate

    1,323     (12     217     548     (21 )       77     1,871     (33 )       294

Residential mortgage-
backed

    707     (7     81     130     (4 )       46     837     (11 )       127

Commercial mortgage-backed

    476     (4     69     646     (33 )       90     1,122     (37 )       159

Other asset-backed

    853     (4     160     230     (2 )       57     1,083     (6 )       217
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, fixed maturity securities

    6,016     (62     905     3,561     (138 )       529     9,577     (200 )       1,434

Equity securities

    74     (3     134     100     (5 )       58     174     (8 )       192
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 6,090   $ (65     1,039   $ 3,661   $ (143     587   $ 9,751   $ (208     1,626
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—fixed maturity securities:

                 

<20% Below cost

  $ 6,016   $ (62     905   $ 3,555   $ (136     526   $ 9,571   $ (198     1,431

20%-50% Below cost

    —         —         —         6     (2 )       3     6     (2 )       3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

    6,016     (62     905     3,561     (138 )       529     9,577     (200 )       1,434
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—equity securities:

                 

<20% Below cost

    74     (3     134     100     (5 )       58     174     (8 )       192
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

    74     (3     134     100     (5 )       58     174     (8 )       192
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 6,090   $ (65     1,039   $ 3,661   $ (143     587   $ 9,751   $ (208     1,626
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment grade

  $ 5,867   $ (55     898   $ 3,488   $ (135     528   $ 9,355   $ (190     1,426

Below investment grade

    223     (10     141     173     (8 )       59     396     (18 )       200
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 6,090   $ (65     1,039   $ 3,661   $ (143     587   $ 9,751   $ (208     1,626
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of December 31, 2017:

 

    Less than 12 months     12 months or more     Total  

(Dollar amounts in millions)

  Fair
value
    Gross
unrealized
losses
    Number of
securities
    Fair
value
    Gross
unrealized
losses
    Number of
securities
    Fair
value
    Gross
unrealized
losses
    Number of
securities
 

Description of Securities

                 

U.S. corporate:

                 

Utilities

  $ 181   $ (2     33   $ 219   $ (7     36   $ 400   $ (9     69

Energy

    106     (1     22     140     (7     15     246     (8     37

Finance and insurance

    626     (6     91     222     (6     30     848     (12     121

Consumer—non-cyclical

    299     (7     46     221     (6     31     520     (13     77

Technology and communications

    217     (4     32     210     (8     29     427     (12     61

Industrial

    —         —         —         62     (1     9     62     (1     9

Capital goods

    176     (2     25     81     (3     14     257     (5     39

Consumer—cyclical

    137     (2     24     95     (2     13     232     (4     37

Transportation

    117     (1     21     97     (2     13     214     (3     34

Other

    12     (1     2     —         —         —         12     (1     2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, U.S. corporate securities

    1,871     (26     296     1,347     (42     190     3,218     (68     486
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

                 

Utilities

    113     (1     23     72     (3     8     185     (4     31

Energy

    118     (2     19     74     (3     12     192     (5     31

Finance and insurance

    347     (3     56     117     (3     19     464     (6     75

Consumer—non-cyclical

    69     (1     11     60     (3     6     129     (4     17

Technology and communications

    107     (1     18     30     (1     6     137     (2     24

Industrial

    52     —         9     38     (2     5     90     (2     14

Capital goods

    54     —         11     46     (2     3     100     (2     14

Consumer—cyclical

    131     (1     21     —         —         —         131     (1     21

Transportation

    47     (1     7     64     (2     8     111     (3     15

Other

    285     (2     42     47     (2     10     332     (4     52
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, non-U.S. corporate securities

    1,323     (12     217     548     (21     77     1,871     (33     294
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for corporate securities in an unrealized loss position

  $ 3,194   $ (38     513   $ 1,895   $ (63     267   $ 5,089   $ (101     780
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The scheduled maturity distribution of fixed maturity securities as of September 30, 2018 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.

 

(Amounts in millions)

   Amortized
cost or
cost
     Fair
value
 

Due one year or less

   $ 1,708    $ 1,719

Due after one year through five years

     10,884      10,987

Due after five years through ten years

     12,477      12,531

Due after ten years

     23,021      24,739
  

 

 

    

 

 

 

Subtotal

     48,090      49,976

Residential mortgage-backed

     3,125      3,222

Commercial mortgage-backed

     3,217      3,156

Other asset-backed

     3,066      3,050
  

 

 

    

 

 

 

Total

   $ 57,498    $ 59,404
  

 

 

    

 

 

 

As of September 30, 2018, securities issued by finance and insurance, consumer—non-cyclical and utilities industry groups represented approximately 22%, 14% and 14%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than 10% of our investment portfolio.

As of September 30, 2018, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of stockholders’ equity.

(e) Commercial Mortgage Loans

Our mortgage loans are collateralized by commercial properties, including multi-family residential buildings. The carrying value of commercial mortgage loans is stated at original cost net of principal payments, amortization and allowance for loan losses.

 

We diversify our commercial mortgage loans by both property type and geographic region. The following tables set forth the distribution across property type and geographic region for commercial mortgage loans as of the dates indicated: