Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the quarterly period ended June 30, 2018
OR
 
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the transition period from                     to
Commission file number 001-32195

 

GENWORTH FINANCIAL, INC.
(Exact Name of Registrant as Specified in its Charter)

 
			
Delaware	 	80-0873306	
(State or Other Jurisdiction of
Incorporation or Organization)	 	(I.R.S. Employer
Identification Number)	

6620 West Broad Street
Richmond, Virginia	 	23230	
(Address of Principal Executive Offices)	 	(Zip Code)	
(804) 281-6000
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	 	☒	  	Accelerated filer	 	☐	
Non-accelerated filer	 	☐	  	Smaller reporting company	 	☐	
	 		  	Emerging growth company	 	☐	
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of July 24, 2018, 500,679,748 shares of Class A Common Stock, par value $0.001 per share, were outstanding.

 

Table of Contents
 TABLE OF CONTENTS

 	  	Page	 	
PART I—FINANCIAL INFORMATION	  	 	3	 	
		
Item 1. Financial Statements	  	 	3	 	
Condensed Consolidated Balance Sheets as of June  30, 2018 (Unaudited) and December 31, 2017	  	 	3	 	
Condensed Consolidated Statements of Income for the three and six months ended June 30, 2018 and 2017 (Unaudited)	  	 	4	 	
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017 (Unaudited)	  	 	5	 	
Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2018 and 2017 (Unaudited)	  	 	6	 	
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (Unaudited)	  	 	7	 	
Notes to Condensed Consolidated Financial Statements (Unaudited)	  	 	8	 	
		
Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	 	87	 	
		
Item 3. Quantitative and Qualitative Disclosures About Market Risk	  	 	165	 	
		
Item 4. Controls and Procedures	  	 	165	 	
		
PART II—OTHER INFORMATION	  	 	166	 	
		
Item 1. Legal Proceedings	  	 	166	 	
		
Item 1A. Risk Factors	  	 	166	 	
		
Item 6. Exhibits	  	 	167	 	
		
Signatures	  	 	168	 	
 
2

Table of Contents
 PART I—FINANCIAL INFORMATION
 
 Item 1.	Financial Statements	
GENWORTH FINANCIAL, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except per share amounts)

 	 	June 30,
2018	 	 	December 31,
2017	 	
 	 	(Unaudited)	 	 	 	 	
Assets	 				 				
Investments:	 				 				
Fixed maturity securities available-for-sale, at fair value	 	$	60,032		 	$	62,525		
Equity securities, at fair value	 	 	758		 	 	820		
Commercial mortgage loans	 	 	6,480		 	 	6,341		
Restricted commercial mortgage loans related to securitization entities	 	 	90		 	 	107		
Policy loans	 	 	1,872		 	 	1,786		
Other invested assets	 	 	1,650		 	 	1,813		
	 	 	 	 	 	 	 	 	
Total investments	 	 	70,882		 	 	73,392		
Cash, cash equivalents and restricted cash	 	 	2,243		 	 	2,875		
Accrued investment income	 	 	602		 	 	644		
Deferred acquisition costs	 	 	3,086		 	 	2,329		
Intangible assets and goodwill	 	 	354		 	 	301		
Reinsurance recoverable	 	 	17,385		 	 	17,569		
Other assets	 	 	574		 	 	453		
Deferred tax asset	 	 	601		 	 	504		
Separate account assets	 	 	6,750		 	 	7,230		
	 	 	 	 	 	 	 	 	
Total assets	 	$	102,477		 	$	105,297		

Liabilities and equity	 				 				
Liabilities:	 				 				
Future policy benefits	 	$	37,913		 	$	38,472		
Policyholder account balances	 	 	23,366		 	 	24,195		
Liability for policy and contract claims	 	 	9,665		 	 	9,594		
Unearned premiums	 	 	3,669		 	 	3,967		
Other liabilities	 	 	1,965		 	 	1,910		
Borrowings related to securitization entities	 	 	28		 	 	40		
Non-recourse funding obligations	 	 	310		 	 	310		
Long-term borrowings	 	 	4,047		 	 	4,224		
Deferred tax liability	 	 	23		 	 	27		
Separate account liabilities	 	 	6,750		 	 	7,230		
	 	 	 	 	 	 	 	 	
Total liabilities	 	 	87,736		 	 	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 June 30, 2018 and December 31, 2017, respectively; 501 million and 499 million shares outstanding as of June 30, 2018 and December 31, 2017, respectively	 	 	1		 	 	1		
Additional paid-in capital	 	 	11,981		 	 	11,977		

Accumulated other comprehensive income (loss):	 				 				
Net unrealized investment gains (losses):	 				 				
Net unrealized gains (losses) on securities not other-than-temporarily impaired	 	 	726		 	 	1,075		
Net unrealized gains (losses) on other-than-temporarily impaired securities	 	 	10		 	 	10		
	 	 	 	 	 	 	 	 	
Net unrealized investment gains (losses)	 	 	736		 	 	1,085		
	 	 	 	 	 	 	 	 	
Derivatives qualifying as hedges	 	 	1,863		 	 	2,065		
Foreign currency translation and other adjustments	 	 	(272	) 	 	 	(123	) 	
	 	 	 	 	 	 	 	 	
Total accumulated other comprehensive income (loss)	 	 	2,327		 	 	3,027		
Retained earnings	 	 	1,301		 	 	1,113		
Treasury stock, at cost (88 million shares as of June 30, 2018 and December 31, 2017)	 	 	(2,700	) 	 	 	(2,700	) 	
	 	 	 	 	 	 	 	 	
Total Genworth Financial, Inc.’s stockholders’ equity	 	 	12,910		 	 	13,418		
Noncontrolling interests	 	 	1,831		 	 	1,910		
	 	 	 	 	 	 	 	 	
Total equity	 	 	14,741		 	 	15,328		
	 	 	 	 	 	 	 	 	
Total liabilities and equity	 	$	102,477		 	$	105,297		
	 	 	 	 	 	 	 	 	
See Notes to Condensed Consolidated Financial Statements
 
3

Table of Contents
GENWORTH FINANCIAL, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in millions, except per share amounts)
(Unaudited)

 	  	Three months ended
June 30,	 	 	Six months ended
June 30,	 	
 	  	2018	 	 	2017	 	 	2018	 	 	2017	 	
Revenues:	  				 				 				 				
Premiums	  	$	1,136		 	$	1,111		 	$	2,276		 	$	2,247		
Net investment income	  	 	828		 	 	801		 	 	1,632		 	 	1,591		
Net investment gains (losses)	  	 	(14	) 	 	 	101		 	 	(45	) 	 	 	135		
Policy fees and other income	  	 	209		 	 	210		 	 	411		 	 	421		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	  	 	2,159		 	 	2,223		 	 	4,274		 	 	4,394		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Benefits and expenses:	  				 				 				 				
Benefits and other changes in policy reserves	  	 	1,205		 	 	1,206		 	 	2,516		 	 	2,452		
Interest credited	  	 	152		 	 	163		 	 	308		 	 	330		
Acquisition and operating expenses, net of deferrals	  	 	253		 	 	240		 	 	493		 	 	510		
Amortization of deferred acquisition costs and intangibles	  	 	112		 	 	139		 	 	216		 	 	233		
Interest expense	  	 	77		 	 	74		 	 	153		 	 	136		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total benefits and expenses	  	 	1,799		 	 	1,822		 	 	3,686		 	 	3,661		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before income taxes	  	 	360		 	 	401		 	 	588		 	 	733		
Provision for income taxes	  	 	111		 	 	130		 	 	174		 	 	246		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations	  	 	249		 	 	271		 	 	414		 	 	487		
Loss from discontinued operations, net of taxes	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	 	249		 	 	271		 	 	414		 	 	487		
Less: net income attributable to noncontrolling interests	  	 	59		 	 	69		 	 	112		 	 	130		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income available to Genworth Financial, Inc.’s common stockholders	  	$	190		 	$	202		 	$	302		 	$	357		

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:	  				 				 				 				
Basic	  	$	0.38		 	$	0.40		 	$	0.60		 	$	0.72		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted	  	$	0.38		 	$	0.40		 	$	0.60		 	$	0.71		

Net income available to Genworth Financial, Inc.’s common stockholders per share:	  				 				 				 				
Basic	  	$	0.38		 	$	0.40		 	$	0.60		 	$	0.72		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted	  	$	0.38		 	$	0.40		 	$	0.60		 	$	0.71		

Weighted-average common shares outstanding:	  				 				 				 				
Basic	  	 	500.6		 	 	499.0		 	 	500.1		 	 	498.8		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted	  	 	502.6		 	 	501.2		 	 	502.6		 	 	501.1		

Supplemental disclosures:	  				 				 				 				
Total other-than-temporary impairments	  	$	—  	 	 	$	(2	) 	 	$	—  	 	 	$	(3	) 	
Portion of other-than-temporary impairments included in other comprehensive income (loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net other-than-temporary impairments	  	 	—  	 	 	 	(2	) 	 	 	—  	 	 	 	(3	) 	
Other investments gains (losses)	  	 	(14	) 	 	 	103		 	 	(45	) 	 	 	138		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total net investment gains (losses)	  	$	(14	) 	 	$	101		 	$	(45	) 	 	$	135		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See Notes to Condensed Consolidated Financial Statements
 
4

Table of Contents
GENWORTH FINANCIAL, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
(Unaudited)

 	  	Three months ended
June 30,	 	 	Six months ended
June 30,	 	
 	  	2018	 	 	2017	 	 	2018	 	 	2017	 	
Net income	  	$	249		 	$	271		 	$	414		 	$	487		
Other comprehensive income (loss), net of taxes:	  				 				 				 				
Net unrealized gains (losses) on securities not other-than-temporarily impaired	  	 	(185	) 	 	 	(72	) 	 	 	(526	) 	 	 	(84	) 	
Net unrealized gains (losses) on other-than-temporarily impaired securities	  	 	(2	) 	 	 	—  	 	 	 	(2	) 	 	 	1		
Derivatives qualifying as hedges	  	 	(64	) 	 	 	28		 	 	(216	) 	 	 	(21	) 	
Foreign currency translation and other adjustments	  	 	(98	) 	 	 	61		 	 	(185	) 	 	 	180		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other comprehensive income (loss)	  	 	(349	) 	 	 	17		 	 	(929	) 	 	 	76		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income (loss)	  	 	(100	) 	 	 	288		 	 	(515	) 	 	 	563		
Less: comprehensive income attributable to noncontrolling interests	  	 	10		 	 	87		 	 	14		 	 	205		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders	  	$	(110	) 	 	$	201		 	$	(529	) 	 	$	358		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See Notes to Condensed Consolidated Financial Statements
 
5

Table of Contents
GENWORTH FINANCIAL, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in millions)
(Unaudited)

 	 	Common
stock	 	 	Additional
paid-in
capital	 	 	Accumulated
other
comprehensive
income (loss)	 	 	Retained
earnings	 	 	Treasury
stock, at
cost	 	 	Total
Genworth
Financial,
Inc.’s
stockholders’
equity	 	 	Noncontrolling
interests	 	 	Total
equity	 	
Balances as of December 31, 2017	 	$	1		 	$	11,977		 	$	3,027		 	$	1,113		 	$	(2,700	) 	 	$	13,418		 	$	1,910		 	$	15,328		
Cumulative effect of change in accounting, net of taxes	 	 	—  	 	 	 	—  	 	 	 	131		 	 	(114	) 	 	 	—  	 	 	 	17		 	 	—  	 	 	 	17		
Repurchase of subsidiary shares	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(49	) 	 	 	(49	) 	
Comprehensive income (loss):	 				 				 				 				 				 				 				 				
Net income	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	302		 	 	—  	 	 	 	302		 	 	112		 	 	414		
Other comprehensive loss net of taxes	 	 	—  	 	 	 	—  	 	 	 	(831	) 	 	 	—  	 	 	 	—  	 	 	 	(831	) 	 	 	(98	) 	 	 	(929	) 	
Total comprehensive income (loss)	 				 				 				 				 				 	 	(529	) 	 	 	14		 	 	(515	) 	
Dividends to noncontrolling interests	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(50	) 	 	 	(50	) 	
Stock-based compensation expense and exercises and other	 	 	—  	 	 	 	4		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	4		 	 	6		 	 	10		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balances as of June 30, 2018	 	$	1		 	$	11,981		 	$	2,327		 	$	1,301		 	$	(2,700	) 	 	$	12,910		 	$	1,831		 	$	14,741		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balances as of December 31, 2016	 	$	1		 	$	11,962		 	$	3,094		 	$	287		 	$	(2,700	) 	 	$	12,644		 	$	1,823		 	$	14,467		
Cumulative effect of change in accounting, net of taxes	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	9		 	 	—  	 	 	 	9		 	 	—  	 	 	 	9		
Comprehensive income:	 				 				 				 				 				 				 				 				
Net income	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	357		 	 	—  	 	 	 	357		 	 	130		 	 	487		
Other comprehensive income, net of taxes	 	 	—  	 	 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	1		 	 	75		 	 	76		
	 				 				 				 				 				 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 				 				 				 				 				 	 	358		 	 	205		 	 	563		
Dividends to noncontrolling interests	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(52	) 	 	 	(52	) 	
Stock-based compensation expense and exercises and other	 	 	—  	 	 	 	7		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	7		 	 	2		 	 	9		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balances as of June 30, 2017	 	$	1		 	$	11,969		 	$	3,095		 	$	653		 	$	(2,700	) 	 	$	13,018		 	$	1,978		 	$	14,996		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See Notes to Condensed Consolidated Financial Statements
 
6

Table of Contents
GENWORTH FINANCIAL, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)

 	  	Six months ended
June 30,	 	
 	  	2018	 	 	2017	 	
Cash flows from operating activities:	  				 				
Net income	  	$	414		 	$	487		
Adjustments to reconcile net income to net cash from operating activities:	  				 				
Amortization of fixed maturity securities discounts and premiums	  	 	(62	) 	 	 	(76	) 	
Net investment (gains) losses	  	 	45		 	 	(135	) 	
Charges assessed to policyholders	  	 	(359	) 	 	 	(365	) 	
Acquisition costs deferred	  	 	(40	) 	 	 	(44	) 	
Amortization of deferred acquisition costs and intangibles	  	 	216		 	 	233		
Deferred income taxes	  	 	83		 	 	166		
Trading securities, limited partnerships and derivative instruments	  	 	(195	) 	 	 	431		
Stock-based compensation expense	  	 	16		 	 	18		
Change in certain assets and liabilities:	  				 				
Accrued investment income and other assets	  	 	(89	) 	 	 	(23	) 	
Insurance reserves	  	 	691		 	 	806		
Current tax liabilities	  	 	(37	) 	 	 	(32	) 	
Other liabilities, policy and contract claims and other policy-related balances	  	 	(122	) 	 	 	(158	) 	
	  	 	 	 	 	 	 	 	
Net cash from operating activities	  	 	561		 	 	1,308		
	  	 	 	 	 	 	 	 	
Cash flows used by investing activities:	  				 				
Proceeds from maturities and repayments of investments:	  				 				
Fixed maturity securities	  	 	1,979		 	 	2,358		
Commercial mortgage loans	  	 	350		 	 	307		
Restricted commercial mortgage loans related to securitization entities	  	 	16		 	 	11		
Proceeds from sales of investments:	  				 				
Fixed maturity and equity securities	  	 	1,920		 	 	2,587		
Purchases and originations of investments:	  				 				
Fixed maturity and equity securities	  	 	(4,082	) 	 	 	(4,733	) 	
Commercial mortgage loans	  	 	(489	) 	 	 	(431	) 	
Other invested assets, net	  	 	93		 	 	(638	) 	
Policy loans, net	  	 	15		 	 	21		
Payments for business purchased, net of cash acquired	  	 	—  	 	 	 	(5	) 	
	  	 	 	 	 	 	 	 	
Net cash used by investing activities	  	 	(198	) 	 	 	(523	) 	
	  	 	 	 	 	 	 	 	
Cash flows used by financing activities:	  				 				
Deposits to universal life and investment contracts	  	 	503		 	 	429		
Withdrawals from universal life and investment contracts	  	 	(1,177	) 	 	 	(1,091	) 	
Proceeds from issuance of long-term debt	  	 	441		 	 	—  	 	
Repayment and repurchase of long-term debt	  	 	(597	) 	 	 	—  	 	
Repayment of borrowings related to securitization entities	  	 	(12	) 	 	 	(12	) 	
Repurchase of subsidiary shares	  	 	(49	) 	 	 	—  	 	
Dividends paid to noncontrolling interests	  	 	(50	) 	 	 	(52	) 	
Other, net	  	 	(2	) 	 	 	(29	) 	
	  	 	 	 	 	 	 	 	
Net cash used by financing activities	  	 	(943	) 	 	 	(755	) 	
	  	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash, cash equivalents and restricted cash	  	 	(52	) 	 	 	39		
	  	 	 	 	 	 	 	 	
Net change in cash, cash equivalents and restricted cash	  	 	(632	) 	 	 	69		
Cash, cash equivalents and restricted cash at beginning of period	  	 	2,875		 	 	2,784		
	  	 	 	 	 	 	 	 	
Cash, cash equivalents and restricted cash at end of period	  	$	2,243		 	$	2,853		
	  	 	 	 	 	 	 	 	
See Notes to Condensed Consolidated Financial Statements
 
7

Table of Contents
GENWORTH FINANCIAL, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Formation of Genworth and Basis of Presentation
Genworth Holdings, Inc. (“Genworth Holdings”) (formerly known as Genworth Financial, Inc.) was incorporated in Delaware in 2003 in preparation for an initial public offering (“IPO”) of Genworth’s common stock, which was completed on May 28, 2004. On April 1, 2013, Genworth Holdings completed a holding company reorganization pursuant to which Genworth Holdings became a direct, 100% owned subsidiary of a new public holding company that it had formed. The new public holding company was incorporated in Delaware on December 5, 2012, in connection with the reorganization, and was renamed Genworth Financial, Inc. (“Genworth Financial”) upon the completion of the reorganization.
On October 21, 2016, Genworth Financial entered into an agreement and plan of merger (the “Merger Agreement”) with Asia Pacific Global Capital Co., Ltd. (the “Parent”), a limited liability company incorporated in the People’s Republic of China, and Asia Pacific Global Capital USA Corporation (“Merger Sub”), a Delaware corporation and an indirect, wholly-owned subsidiary of the Parent. 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 the Parent. The Parent is a subsidiary of China Oceanwide Holdings Group Co., Ltd. (together with its affiliates, “China Oceanwide”). 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.	
 
8

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 	•	 	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 have not been 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.
(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
 
9

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
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 future periods as tax effects of the TCJA on related temporary differences are finalized. However, no reclassification adjustments were recorded in the second quarter 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.
 
10

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
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
 
11

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
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 June 2018, the FASB issued new 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. While we are still evaluating the full impact, at this time we do not expect any impacts from this new guidance on our consolidated financial statements.
In March 2017, the FASB issued new 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 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 for leases existing at, or entered into after, the beginning of the period adopted in the financial statements, with certain practical expedients available, which we are in the processes of evaluating. 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.
 
12

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
(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
June 30,	 	  	Six months ended
June 30,	 	
(Amounts in millions, except per share amounts) 	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Weighted-average shares used in basic earnings per share calculations	  	 	500.6		  	 	499.0		  	 	500.1		  	 	498.8		
Potentially dilutive securities:	  				  				  				  				
Stock options, restricted stock units and stock appreciation rights	  	 	2.0		  	 	2.2		  	 	2.5		  	 	2.3		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Weighted-average shares used in diluted earnings per share calculations	  	 	502.6		  	 	501.2		  	 	502.6		  	 	501.1		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Income from continuing operations:	  				  				  				  				
Income from continuing operations	  	$	249		  	$	271		  	$	414		  	$	487		
Less: income from continuing operations attributable to noncontrolling interests	  	 	59		  	 	69		  	 	112		  	 	130		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	  	$	190		  	$	202		  	$	302		  	$	357		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Basic per share	  	$	0.38		  	$	0.40		  	$	0.60		  	$	0.72		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Diluted per share	  	$	0.38		  	$	0.40		  	$	0.60		  	$	0.71		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Loss from discontinued operations:	  				  				  				  				
Loss from discontinued operations, net of taxes	  	$	—  	 	  	$	—  	 	  	$	—  	 	  	$	—  	 	
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	  	$	—  	 	  	$	—  	 	  	$	—  	 	  	$	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Basic per share	  	$	—  	 	  	$	—  	 	  	$	—  	 	  	$	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Diluted per share	  	$	—  	 	  	$	—  	 	  	$	—  	 	  	$	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net income:	  				  				  				  				
Income from continuing operations	  	$	249		  	$	271		  	$	414		  	$	487		
Loss from discontinued operations, net of taxes	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net income	  	 	249		  	 	271		  	 	414		  	 	487		
Less: net income attributable to noncontrolling interests	  	 	59		  	 	69		  	 	112		  	 	130		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net income available to Genworth Financial, Inc.’s common stockholders	  	$	190		  	$	202		  	$	302		  	$	357		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Basic per share	  	$	0.38		  	$	0.40		  	$	0.60		  	$	0.72		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Diluted per share	  	$	0.38		  	$	0.40		  	$	0.60		  	$	0.71		

13

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
(4) Investments
(a) Net Investment Income
Sources of net investment income were as follows for the periods indicated:

 	 	Three months ended
June 30,	 	 	Six months ended
June 30,	 	
(Amounts in millions)	 	2018	 	 	2017	 	 	2018	 	 	2017	 	
Fixed maturity securities—taxable	 	$	651		 	$	649		 	$	1,286		 	$	1,290		
Fixed maturity securities—non-taxable	 	 	3		 	 	3		 	 	6		 	 	6		
Equity securities	 	 	10		 	 	9		 	 	20		 	 	17		
Commercial mortgage loans	 	 	77		 	 	76		 	 	159		 	 	153		
Restricted commercial mortgage loans related to securitization entities	 	 	2		 	 	2		 	 	4		 	 	4		
Policy loans	 	 	41		 	 	39		 	 	84		 	 	81		
Other invested assets	 	 	53		 	 	35		 	 	92		 	 	67		
Restricted other invested assets related to securitization entities	 	 	—  	 	 	 	1		 	 	—  	 	 	 	1		
Cash, cash equivalents and short-term investments	 	 	14		 	 	10		 	 	26		 	 	16		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross investment income before expenses and fees	 	 	851		 	 	824		 	 	1,677		 	 	1,635		
Expenses and fees	 	 	(23	) 	 	 	(23	) 	 	 	(45	) 	 	 	(44	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net investment income	 	$	828		 	$	801		 	$	1,632		 	$	1,591		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(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) 	 	2018	 	 	2017	 	 	2018	 	 	2017	 	
Available-for-sale securities:	 				 				 				 				
Realized gains	 	$	13		 	$	74		 	$	20		 	$	137		
Realized losses	 	 	(21	) 	 	 	(11	) 	 	 	(37	) 	 	 	(45	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net realized gains (losses) on available-for-sale securities	 	 	(8	) 	 	 	63		 	 	(17	) 	 	 	92		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Impairments:	 				 				 				 				
Total other-than-temporary impairments	 	 	—  	 	 	 	(2	) 	 	 	—  	 	 	 	(3	) 	
Portion of other-than-temporary impairments included in other comprehensive income (loss)	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net other-than-temporary impairments	 	 	—  	 	 	 	(2	) 	 	 	—  	 	 	 	(3	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net realized gains (losses) on equity securities sold	 	 	8		 	 	—  	 	 	 	10		 	 	—  	 	
Net unrealized gains (losses) on equity securities still held	 	 	3		 	 	—  	 	 	 	(15	) 	 	 	—  	 	
Trading securities	 	 	—  	 	 	 	1		 	 	—  	 	 	 	1		
Limited partnerships	 	 	(2	) 	 	 	—  	 	 	 	5		 	 	—  	 	
Commercial mortgage loans	 	 	—  	 	 	 	1		 	 	—  	 	 	 	2		
Net gains (losses) related to securitization entities	 	 	—  	 	 	 	2		 	 	—  	 	 	 	4		
Derivative instruments (1)	 	 	(15	) 	 	 	36		 	 	(28	) 	 	 	39		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net investment gains (losses)	 	$	(14	) 	 	$	101		 	$	(45	) 	 	$	135		

(1)	See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses).	
 
14

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
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, 2018 and 2017 was $640 million and $228 million, respectively, which was approximately 97% and 95%, respectively, of book value. The aggregate fair value of securities sold at a loss during the six months ended June 30, 2018 and 2017 was $1,259 million and $1,104 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
June 30,	 	  	As of or for the
six months ended
June 30,	 	
(Amounts in millions)	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Beginning balance	  	$	28		  	$	41		  	$	32		  	$	42		
Reductions:	  				  				  				  				
Securities sold, paid down or disposed	  	 	(3	) 	  	 	(3	) 	  	 	(7	) 	  	 	(4	) 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Ending balance	  	$	25		  	$	38		  	$	25		  	$	38		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
(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,
2018	 	 	December 31,
2017	 	
Net unrealized gains (losses) on investment securities:	 				 				
Fixed maturity securities	 	$	2,555		 	$	5,125		
Equity securities	 	 	—  	 	 	 	69		
	 	 	 	 	 	 	 	 	
Subtotal (1)	 	 	2,555		 	 	5,194		
Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves	 	 	(1,549	) 	 	 	(3,451	) 	
Income taxes, net	 	 	(230	) 	 	 	(583	) 	
	 	 	 	 	 	 	 	 	
Net unrealized investment gains (losses)	 	 	776		 	 	1,160		
Less: net unrealized investment gains (losses) attributable to noncontrolling interests	 	 	40		 	 	75		
	 	 	 	 	 	 	 	 	
Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	 	$	736		 	$	1,085		

(1)	Excludes foreign exchange.	
 
15

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The change in net unrealized gains (losses) on available-for-sale investment securities reported in accumulated other comprehensive income (loss) was as follows as of and for the periods indicated:

 	  	As of or for the
three months ended
June 30,	 	
(Amounts in millions)	  	2018	 	  	2017	 	
Beginning balance	  	$	917		  	$	1,243		
Unrealized gains (losses) arising during the period:	  				  				
Unrealized gains (losses) on investment securities	  	 	(905	) 	  	 	995		
Adjustment to deferred acquisition costs	  	 	467		  	 	(741	) 	
Adjustment to present value of future profits	  	 	20		  	 	(28	) 	
Adjustment to sales inducements	  	 	9		  	 	(6	) 	
Adjustment to benefit reserves	  	 	162		  	 	(269	) 	
Provision for income taxes	  	 	54		  	 	17		
	  	 	 	 	  	 	 	 	
Change in unrealized gains (losses) on investment securities	  	 	(193	) 	  	 	(32	) 	
Reclassification adjustments to net investment (gains) losses, net of taxes of $(2) and $21	  	 	6		  	 	(40	) 	
	  	 	 	 	  	 	 	 	
Change in net unrealized investment gains (losses)	  	 	(187	) 	  	 	(72	) 	
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests	  	 	(6	) 	  	 	(9	) 	
	  	 	 	 	  	 	 	 	
Ending balance	  	$	736		  	$	1,180		

									
 	  	As of or for the
six months ended
June 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	  	 	(2,586	) 	  	 	1,387		
Adjustment to deferred acquisition costs	  	 	909		  	 	(1,046	) 	
Adjustment to present value of future profits	  	 	56		  	 	(33	) 	
Adjustment to sales inducements	  	 	29		  	 	(11	) 	
Adjustment to benefit reserves	  	 	902		  	 	(337	) 	
Provision for income taxes	  	 	149		  	 	15		
	  	 	 	 	  	 	 	 	
Change in unrealized gains (losses) on investment securities	  	 	(541	) 	  	 	(25	) 	
Reclassification adjustments to net investment (gains) losses, net of taxes of $(3) and $31	  	 	13		  	 	(58	) 	
	  	 	 	 	  	 	 	 	
Change in net unrealized investment gains (losses)	  	 	(528	) 	  	 	(83	) 	
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests	  	 	(15	) 	  	 	(1	) 	
	  	 	 	 	  	 	 	 	
Ending balance	  	$	736		  	$	1,180		

16

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
(d) Fixed Maturity and Equity Securities
As of June 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		 	$	632		 	$	—  	 	 	$	(12	) 	 	$	—  	 	 	$	5,353			
State and political subdivisions	 	 	2,699		 	 	195		 	 	—  	 	 	 	(39	) 	 	 	—  	 	 	 	2,855			
Non-U.S. government	 	 	2,347		 	 	69		 	 	—  	 	 	 	(36	) 	 	 	—  	 	 	 	2,380			
U.S. corporate:	 				 				 				 				 				 					
Utilities	 	 	4,550		 	 	395		 	 	—  	 	 	 	(66	) 	 	 	—  	 	 	 	4,879			
Energy	 	 	2,160		 	 	139		 	 	—  	 	 	 	(29	) 	 	 	—  	 	 	 	2,270			
Finance and insurance	 	 	6,095		 	 	288		 	 	—  	 	 	 	(108	) 	 	 	—  	 	 	 	6,275			
Consumer—non-cyclical	 	 	4,298		 	 	323		 	 	—  	 	 	 	(80	) 	 	 	—  	 	 	 	4,541			
Technology and communications	 	 	2,709		 	 	133		 	 	—  	 	 	 	(61	) 	 	 	—  	 	 	 	2,781			
Industrial	 	 	1,244		 	 	59		 	 	—  	 	 	 	(20	) 	 	 	—  	 	 	 	1,283			
Capital goods	 	 	2,216		 	 	185		 	 	—  	 	 	 	(40	) 	 	 	—  	 	 	 	2,361			
Consumer—cyclical	 	 	1,538		 	 	66		 	 	—  	 	 	 	(31	) 	 	 	—  	 	 	 	1,573			
Transportation	 	 	1,200		 	 	83		 	 	—  	 	 	 	(31	) 	 	 	—  	 	 	 	1,252			
Other	 	 	337		 	 	18		 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	354			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total U.S. corporate	 	 	26,347		 	 	1,689		 	 	—  	 	 	 	(467	) 	 	 	—  	 	 	 	27,569			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Non-U.S. corporate:	 				 				 				 				 				 					
Utilities	 	 	962		 	 	22		 	 	—  	 	 	 	(22	) 	 	 	—  	 	 	 	962			
Energy	 	 	1,316		 	 	101		 	 	—  	 	 	 	(18	) 	 	 	—  	 	 	 	1,399			
Finance and insurance	 	 	2,471		 	 	102		 	 	—  	 	 	 	(36	) 	 	 	—  	 	 	 	2,537			
Consumer—non-cyclical	 	 	709		 	 	11		 	 	—  	 	 	 	(18	) 	 	 	—  	 	 	 	702			
Technology and communications	 	 	992		 	 	30		 	 	—  	 	 	 	(15	) 	 	 	—  	 	 	 	1,007			
Industrial	 	 	943		 	 	46		 	 	—  	 	 	 	(12	) 	 	 	—  	 	 	 	977			
Capital goods	 	 	603		 	 	15		 	 	—  	 	 	 	(7	) 	 	 	—  	 	 	 	611			
Consumer—cyclical	 	 	527		 	 	2		 	 	—  	 	 	 	(7	) 	 	 	—  	 	 	 	522			
Transportation	 	 	690		 	 	48		 	 	—  	 	 	 	(11	) 	 	 	—  	 	 	 	727			
Other	 	 	2,454		 	 	128		 	 	—  	 	 	 	(24	) 	 	 	—  	 	 	 	2,558			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total non-U.S. corporate	 	 	11,667		 	 	505		 	 	—  	 	 	 	(170	) 	 	 	—  	 	 	 	12,002			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Residential mortgage-backed	 	 	3,426		 	 	156		 	 	13		 	 	(28	) 	 	 	—  	 	 	 	3,567			
Commercial mortgage-backed	 	 	3,387		 	 	46		 	 	—  	 	 	 	(84	) 	 	 	—  	 	 	 	3,349			
Other asset-backed	 	 	2,966		 	 	7		 	 	1		 	 	(17	) 	 	 	—  	 	 	 	2,957			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total available-for-sale fixed maturity securities	 	$	57,572		 	$	3,299		 	$	14		 	$	(853	) 	 	$	—  	 	 	$	60,032			

17

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
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			

18

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the gross unrealized losses and fair values of our fixed maturity securities, aggregated by investment type and length of time that individual fixed maturity securities have been in a continuous unrealized loss position, as of June 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	 	$	314		 	$	(6	) 	 	 	35		 	$	84		 	$	(6	)  	 	 	5		 	$	398		 	$	(12	)  	 	 	40		
State and political subdivisions	 	 	482		 	 	(13	) 	 	 	98		 	 	318		 	 	(26	)  	 	 	41		 	 	800		 	 	(39	)  	 	 	139		
Non-U.S. government	 	 	649		 	 	(18	) 	 	 	85		 	 	418		 	 	(18	)  	 	 	25		 	 	1,067		 	 	(36	)  	 	 	110		
U.S. corporate	 	 	9,473		 	 	(354	) 	 	 	1,322		 	 	1,215		 	 	(113	)  	 	 	167		 	 	10,688		 	 	(467	)  	 	 	1,489		
Non-U.S. corporate	 	 	4,146		 	 	(126	) 	 	 	574		 	 	697		 	 	(44	)  	 	 	96		 	 	4,843		 	 	(170	)  	 	 	670		
Residential mortgage-backed	 	 	866		 	 	(19	) 	 	 	133		 	 	321		 	 	(9	)  	 	 	62		 	 	1,187		 	 	(28	)  	 	 	195		
Commercial mortgage-backed	 	 	1,159		 	 	(29	) 	 	 	168		 	 	590		 	 	(55	)  	 	 	87		 	 	1,749		 	 	(84	)  	 	 	255		
Other asset-backed	 	 	1,654		 	 	(14	) 	 	 	301		 	 	194		 	 	(3	)  	 	 	54		 	 	1,848		 	 	(17	)  	 	 	355		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total for fixed maturity securities in an unrealized loss position	 	$	18,743		 	$	(579	) 	 	 	2,716		 	$	3,837		 	$	(274	)  	 	 	537	 	 	$	22,580		 	$	(853	)  	 	 	3,253		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% Below cost:	 				 				 				 				 				 				 				 				 				
<20% Below cost	 	$	18,743		 	$	(579	) 	 	 	2,714		 	$	3,828		 	$	(270	)  	 	 	533		 	$	22,571		 	$	(849	)  	 	 	3,247		
20%-50% Below cost	 	 	—  	 	 	 	—  	 	 	 	2		 	 	9		 	 	(4	)  	 	 	4		 	 	9		 	 	(4	)  	 	 	6		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total for fixed maturity securities in an unrealized loss position	 	$	18,743		 	$	(579	) 	 	 	2,716		 	$	3,837		 	$	(274	)  	 	 	537		 	$	22,580		 	$	(853	)  	 	 	3,253		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment grade	 	$	17,627		 	$	(535	) 	 	 	2,555		 	$	3,704		 	$	(261	)  	 	 	508		 	$	21,331		 	$	(796	)  	 	 	3,063		
Below investment grade	 	 	1,116		 	 	(44	) 	 	 	161		 	 	133		 	 	(13	)  	 	 	29		 	 	1,249		 	 	(57	)  	 	 	190		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total for fixed maturity securities in an unrealized loss position	 	$	18,743		 	$	(579	) 	 	 	2,716		 	$	3,837		 	$	(274	)  	 	 	537		 	$	22,580		 	$	(853	)  	 	 	3,253		

19

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of June 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	 	$	1,187		 	$	(46	) 	 	 	185		 	$	214		 	$	(20	) 	 	 	35		 	$	1,401		 	$	(66	) 	 	 	220			
Energy	 	 	639		 	 	(19	) 	 	 	102		 	 	119		 	 	(10	) 	 	 	12		 	 	758		 	 	(29	) 	 	 	114			
Finance and insurance	 	 	2,596		 	 	(90	) 	 	 	366		 	 	243		 	 	(18	) 	 	 	32		 	 	2,839		 	 	(108	) 	 	 	398			
Consumer—non-cyclical	 	 	1,579		 	 	(61	) 	 	 	194		 	 	188		 	 	(19	) 	 	 	23		 	 	1,767		 	 	(80	) 	 	 	217			
Technology and communications	 	 	1,111		 	 	(42	) 	 	 	142		 	 	159		 	 	(19	) 	 	 	21		 	 	1,270		 	 	(61	) 	 	 	163			
Industrial	 	 	416		 	 	(15	) 	 	 	61		 	 	55		 	 	(5	) 	 	 	7		 	 	471		 	 	(20	) 	 	 	68			
Capital goods	 	 	717		 	 	(32	) 	 	 	94		 	 	64		 	 	(8	) 	 	 	11		 	 	781		 	 	(40	) 	 	 	105			
Consumer—cyclical	 	 	668		 	 	(24	) 	 	 	107		 	 	86		 	 	(7	) 	 	 	11		 	 	754		 	 	(31	) 	 	 	118			
Transportation	 	 	492		 	 	(24	) 	 	 	67		 	 	73		 	 	(7	) 	 	 	14		 	 	565		 	 	(31	) 	 	 	81			
Other	 	 	68		 	 	(1	) 	 	 	4		 	 	14		 	 	—  	 	 	 	1		 	 	82		 	 	(1	) 	 	 	5			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Subtotal, U.S. corporate securities	 	 	9,473		 	 	(354	) 	 	 	1,322		 	 	1,215		 	 	(113	) 	 	 	167		 	 	10,688		 	 	(467	) 	 	 	1,489			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Non-U.S. corporate:	 				 				 				 				 				 				 				 				 					
Utilities	 	 	359		 	 	(14	) 	 	 	48		 	 	81		 	 	(8	) 	 	 	10		 	 	440		 	 	(22	) 	 	 	58			
Energy	 	 	346		 	 	(12	) 	 	 	48		 	 	98		 	 	(6	) 	 	 	12		 	 	444		 	 	(18	) 	 	 	60			
Finance and insurance	 	 	1,007		 	 	(28	) 	 	 	143		 	 	150		 	 	(8	) 	 	 	25		 	 	1,157		 	 	(36	) 	 	 	168			
Consumer—non-cyclical	 	 	323		 	 	(12	) 	 	 	37		 	 	57		 	 	(6	) 	 	 	5		 	 	380		 	 	(18	) 	 	 	42			
Technology and communications	 	 	466		 	 	(13	) 	 	 	65		 	 	23		 	 	(2	) 	 	 	4		 	 	489		 	 	(15	) 	 	 	69			
Industrial	 	 	280		 	 	(9	) 	 	 	41		 	 	34		 	 	(3	) 	 	 	4		 	 	314		 	 	(12	) 	 	 	45			
Capital goods	 	 	227		 	 	(6	) 	 	 	27		 	 	29		 	 	(1	) 	 	 	4		 	 	256		 	 	(7	) 	 	 	31			
Consumer—cyclical	 	 	283		 	 	(7	) 	 	 	36		 	 	28		 	 	—  	 	 	 	7		 	 	311		 	 	(7	) 	 	 	43			
Transportation	 	 	206		 	 	(6	) 	 	 	24		 	 	64		 	 	(5	) 	 	 	8		 	 	270		 	 	(11	) 	 	 	32			
Other	 	 	649		 	 	(19	) 	 	 	105		 	 	133		 	 	(5	) 	 	 	17		 	 	782		 	 	(24	) 	 	 	122			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Subtotal, non-U.S. corporate securities	 	 	4,146		 	 	(126	) 	 	 	574		 	 	697		 	 	(44	) 	 	 	96		 	 	4,843		 	 	(170	) 	 	 	670			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total for corporate securities in an unrealized loss position	 	$	13,619		 	$	(480	) 	 	 	1,896		 	$	1,912		 	$	(157	) 	 	 	263		 	$	15,531		 	$	(637	) 	 	 	2,159			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
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.
 
20

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
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		

21

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of December 31, 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		

22

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The scheduled maturity distribution of fixed maturity securities as of June 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	  	$	1,692		  	$	1,701		
Due after one year through five years	  	 	11,006		  	 	11,149		
Due after five years through ten years	  	 	12,517		  	 	12,601		
Due after ten years	  	 	22,578		  	 	24,708		
	  	 	 	 	  	 	 	 	
Subtotal	  	 	47,793		  	 	50,159		
Residential mortgage-backed	  	 	3,426		  	 	3,567		
Commercial mortgage-backed	  	 	3,387		  	 	3,349		
Other asset-backed	  	 	2,966		  	 	2,957		
	  	 	 	 	  	 	 	 	
Total	  	$	57,572		  	$	60,032		
	  	 	 	 	  	 	 	 	
As of June 30, 2018, securities issued by finance and insurance, utilities and consumer—non-cyclical industry groups represented approximately 22%, 15% and 13%, 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 June 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:

 	  	June 30, 2018	 	 	December 31, 2017	 	
(Amounts in millions)	  	Carrying
value	 	 	% of
total	 	 	Carrying
value	 	 	% of
total	 	
Property type:	  				 				 				 				
Retail	  	$	2,375		 	 	37	% 	 	$	2,239		 	 	35	% 	
Industrial	  	 	1,644		 	 	25		 	 	1,628		 	 	26		
Office	  	 	1,482		 	 	23		 	 	1,510		 	 	24		
Apartments	  	 	474		 	 	7		 	 	478		 	 	8		
Mixed use	  	 	237		 	 	4		 	 	223		 	 	3		
Other	  	 	280		 	 	4		 	 	275		 	 	4		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Subtotal	  	 	6,492		 	 	100	% 	 	 	6,353		 	 	100	% 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unamortized balance of loan origination fees and costs	  	 	(3	) 	 				 	 	(3	) 	 				
Allowance for losses	  	 	(9	) 	 				 	 	(9	) 	 				
	  	 	 	 	 				 	 	 	 	 				
Total	  	$	6,480		 				 	$	6,341		 				

23

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 	  	June 30, 2018	 	 	December 31, 2017	 	
(Amounts in millions)	  	Carrying
value	 	 	% of
total	 	 	Carrying
value	 	 	% of
total	 	
Geographic region:	  				 				 				 				
South Atlantic	  	$	1,669		 	 	26	% 	 	$	1,625		 	 	26	% 	
Pacific	  	 	1,652		 	 	25		 	 	1,622		 	 	26		
Middle Atlantic	  	 	926		 	 	14		 	 	927		 	 	14		
Mountain	  	 	617		 	 	10		 	 	556		 	 	9		
West North Central	  	 	453		 	 	7		 	 	446		 	 	7		
East North Central	  	 	399		 	 	6		 	 	394		 	 	6		
West South Central	  	 	360		 	 	6		 	 	336		 	 	5		
East South Central	  	 	214		 	 	3		 	 	208		 	 	3		
New England	  	 	202		 	 	3		 	 	239		 	 	4		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Subtotal	  	 	6,492		 	 	100	% 	 	 	6,353		 	 	100	% 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unamortized balance of loan origination fees and costs	  	 	(3	) 	 				 	 	(3	) 	 				
Allowance for losses	  	 	(9	) 	 				 	 	(9	) 	 				
	  	 	 	 	 				 	 	 	 	 				
Total	  	$	6,480		 				 	$	6,341		 				
	  	 	 	 	 				 	 	 	 	 				
The following tables set forth the aging of past due commercial mortgage loans by property type as of the dates indicated:

 	  	June 30, 2018	 	
(Amounts in millions)	  	31 - 60 days
past due	 	 	61 - 90 days
past due	 	 	Greater than
90 days past
due	 	 	Total
past due	 	 	Current	 	 	Total	 	
Property type:	  				 				 				 				 				 				
Retail	  	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	2,375		 	$	2,375		
Industrial	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	1,644		 	 	1,644		
Office	  	 	—  	 	 	 	—  	 	 	 	6		 	 	6		 	 	1,476		 	 	1,482		
Apartments	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	474		 	 	474		
Mixed use	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	237		 	 	237		
Other	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	280		 	 	280		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total recorded investment	  	$	—  	 	 	$	—  	 	 	$	6		 	$	6		 	$	6,486		 	$	6,492		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of total commercial mortgage loans	  	 	—  	% 	 	 	—  	% 	 	 	—  	% 	 	 	—  	% 	 	 	100	% 	 	 	100	% 	

																									
 	  	December 31, 2017	 	
(Amounts in millions)	  	31 - 60 days
past due	 	 	61 - 90 days
past due	 	 	Greater than
90 days past
due	 	 	Total
past due	 	 	Current	 	 	Total	 	
Property type:	  				 				 				 				 				 				
Retail	  	$	5		 	$	—  	 	 	$	—  	 	 	$	5		 	$	2,234		 	$	2,239		
Industrial	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	1,628		 	 	1,628		
Office	  	 	—  	 	 	 	—  	 	 	 	6		 	 	6		 	 	1,504		 	 	1,510		
Apartments	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	478		 	 	478		
Mixed use	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	223		 	 	223		
Other	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	275		 	 	275		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total recorded investment	  	$	5		 	$	—  	 	 	$	6		 	$	11		 	$	6,342		 	$	6,353		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of total commercial mortgage loans	  	 	—  	% 	 	 	—  	% 	 	 	—  	% 	 	 	—  	% 	 	 	100	% 	 	 	100	% 	

24

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
As of June 30, 2018 and December 31, 2017, we had no commercial mortgage loans that were past due for more than 90 days and still accruing interest. We also did not have any commercial mortgage loans that were past due for less than 90 days on non-accrual status as of June 30, 2018 and December 31, 2017.
We evaluate the impairment of commercial mortgage loans on an individual loan basis. As of June 30, 2018, our commercial mortgage loans greater than 90 days past due included an impaired loan. This loan had an appraised value in excess of the recorded investment and the current recorded investment of this loan is expected to be recoverable.
During the six months ended June 30, 2018 and the year ended December 31, 2017, we modified or extended two and ten commercial mortgage loans, respectively, with a total carrying value of $12 million and $27 million, respectively. All of these modifications or extensions were based on current market interest rates and did not result in any forgiveness in the outstanding principal amount owed by the borrower.
The following table sets forth the allowance for credit losses and recorded investment in commercial mortgage loans as of or for the periods indicated:

 	  	Three months ended	 	 	Six months ended	 		
 	  	June 30,	 	 	June 30,	 		
	(Amounts in millions)	  	2018	 	  	2017	 	 	2018	 	  	2017	 	
Allowance for credit losses:	  				  				 				  					
Beginning balance	  	$	9		  	$	11		 	$	9		  	$	12			
Charge-offs	  	 	—  	 	  	 	—  	 	 	 	—  	 	  	 	—  	 		
Recoveries	  	 	—  	 	  	 	—  	 	 	 	—  	 	  	 	—  	 		
Provision	  	 	—  	 	  	 	(1	) 	 	 	—  	 	  	 	(2	) 		
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 		
Ending balance	  	$	9		  	$	10		 	$	9		  	$	10			
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 		
Ending allowance for individually impaired loans	  	$	—  	 	  	$	—  	 	 	$	—  	 	  	$	—  	 		
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 		
Ending allowance for loans not individually impaired that were evaluated collectively for impairment	  	$	9		  	$	10		 	$	9		  	$	10			
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 		
Recorded investment:	  				  				 				  					
Ending balance	  	$	6,492		  	$	6,250		 	$	6,492		  	$	6,250			
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 		
Ending balance of individually impaired loans	  	$	6		  	$	—  	 	 	$	6		  	$	—  	 		
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 		
Ending balance of loans not individually impaired that were evaluated collectively for impairment	  	$	6,486		  	$	6,250		 	$	6,486		  	$	6,250			
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 		
As of June 30, 2018 and December 31, 2017, we had one individually impaired loan within the office property type with a recorded investment and unpaid principal balance of $6 million. As of June 30, 2017, we had no individually impaired commercial mortgage loans.
In evaluating the credit quality of commercial mortgage loans, we assess the performance of the underlying loans using both quantitative and qualitative criteria. Certain risks associated with commercial mortgage loans can be evaluated by reviewing both the loan-to-value and debt service coverage ratio to understand both the probability of the borrower not being able to make the necessary loan payments as well as the ability to sell the underlying property for an amount that would enable us to recover our unpaid principal balance in the event of default by the borrower. The average loan-to-value ratio is based on our most recent estimate of the fair value for the underlying property which is
 
25

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A lower loan-to-value indicates that our loan value is more likely to be recovered in the event of default by the borrower if the property was sold. The debt service coverage ratio is based on “normalized” annual income of the property compared to the payments required under the terms of the loan. Normalization allows for the removal of annual one-time events such as capital expenditures, prepaid or late real estate tax payments or non-recurring third-party fees (such as legal, consulting or contract fees). This ratio is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A higher debt service coverage ratio indicates the borrower is less likely to default on the loan. The debt service coverage ratio should not be used without considering other factors associated with the borrower, such as the borrower’s liquidity or access to other resources that may result in our expectation that the borrower will continue to make the future scheduled payments.
The following tables set forth the loan-to-value of commercial mortgage loans by property type as of the dates indicated:

 	 	June 30, 2018	 		
	(Amounts in millions)	 	0% - 50%	 	 	51% - 60%	 	 	61% - 75%	 	 	76% - 100%	 	 	Greater 
 than 100%	 	 	Total	 	
Property type:	 				 				 				 				 				 					
Retail	 	$	848		 	$	505		 	$	1,022		 	$	—  		 	$	—	   	 	$	2,375			
Industrial	 	 	676		 	 	355		 	 	613		 	 	—  	 	 	 	—	   	 	 	1,644			
Office	 	 	438		 	 	447		 	 	589		 	 	8		 	 	—	   	 	 	1,482			
Apartments	 	 	201		 	 	122		 	 	146		 	 	5		 	 	—	   	 	 	474			
Mixed use	 	 	101		 	 	54		 	 	82		 	 	—  	 	 	 	—	   	 	 	237			
Other	 	 	49		 	 	42		 	 	189		 	 	—  	 	 	 	—	   	 	 	280			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total recorded investment	 	$	2,313		 	$	1,525		 	$	2,641		 	$	13		 	$	—	   	 	$	6,492			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
% of total	 	 	36	% 	 	 	23	% 	 	 	41	% 	 	 	—  	% 	 	 	—  	% 	 	 	100	% 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Weighted-average debt service coverage ratio	 	 	2.30		 	 	1.85		 	 	1.61		 	 	1.07		 	 	—	    	 	 	1.91			

																										
 	 	December 31, 2017	 		
	(Amounts in millions)	 	0% - 50%	 	 	51% - 60%	 	 	61% - 75%	 	 	76% - 100%	 	 	Greater 
 than 100%  (1) 	 	 	Total	 	
Property type:	 				 				 				 				 				 					
Retail	 	$	919		 	$	500		 	$	820		 	$	—  		 	$	—	   	 	$	2,239			
Industrial	 	 	731		 	 	363		 	 	532		 	 	2		 	 	—	   	 	 	1,628			
Office	 	 	575		 	 	386		 	 	534		 	 	13		 	 	2	 	 	 	1,510			
Apartments	 	 	226		 	 	101		 	 	146		 	 	5		 	 	—	   	 	 	478			
Mixed use	 	 	99		 	 	59		 	 	65		 	 	—  	 	 	 	—	   	 	 	223			
Other	 	 	68		 	 	28		 	 	179		 	 	—  	 	 	 	—	   	 	 	275			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total recorded investment	 	$	2,618		 	$	1,437		 	$	2,276		 	$	20		 	$	2	 	 	$	6,353			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
% of total	 	 	41	% 	 	 	23	% 	 	 	36	% 	 	 	—  	% 	 	 	—  	% 	 	 	100	% 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Weighted-average debt service coverage ratio	 	 	2.65		 	 	1.85		 	 	1.62		 	 	0.62		 	 	1.04	 	 	 	2.09			

(1)  	Included a loan with a recorded investment of $2 million in good standing, where the borrower continued to make timely payments, with a loan-to-value of 102%. We evaluated this loan on an individual basis and as it is in good standing, the current recorded investment is expected to be recoverable.	
 
26

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables set forth the debt service coverage ratio for fixed rate commercial mortgage loans by property type as of the dates indicated:

 	  	June 30, 2018	 		
	(Amounts in millions)	  	Less than
1.00	 	 	1.00 - 1.25	 	 	1.26 - 1.50	 	 	1.51 - 2.00	 	 	Greater than
2.00	 	 	Total	 	
Property type:	  				 				 				 				 				 					
Retail	  	$	41		 	$	216		 	$	406		 	$	1,137		 	$	575		 	$	2,375			
Industrial	  	 	19		 	 	66		 	 	208		 	 	751		 	 	600		 	 	1,644			
Office	  	 	34		 	 	70		 	 	178		 	 	678		 	 	522		 	 	1,482			
Apartments	  	 	12		 	 	18		 	 	79		 	 	186		 	 	179		 	 	474			
Mixed use	  	 	5		 	 	4		 	 	38		 	 	86		 	 	104		 	 	237			
Other	  	 	1		 	 	147		 	 	23		 	 	87		 	 	22		 	 	280			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total recorded investment	  	$	112		 	$	521		 	$	932		 	$	2,925		 	$	2,002		 	$	6,492			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
% of total	  	 	2	% 	 	 	8	% 	 	 	14	% 	 	 	45	% 	 	 	31	% 	 	 	100	% 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Weighted-average loan-to-value	  	 	54	% 	 	 	60	% 	 	 	59	% 	 	 	59	% 	 	 	44	% 	 	 	54	% 		

 	  	December 31, 2017	 		
	(Amounts in millions)	  	Less than
1.00	 	 	1.00 - 1.25	 	 	1.26 - 1.50	 	 	1.51 - 2.00	 	 	Greater than
2.00	 	 	Total	 	
Property type:	  				 				 				 				 				 					
Retail	  	$	43		 	$	235		 	$	301		 	$	1,020		 	$	640		 	$	2,239			
Industrial	  	 	23		 	 	61		 	 	174		 	 	700		 	 	670		 	 	1,628			
Office	  	 	51		 	 	61		 	 	157		 	 	569		 	 	672		 	 	1,510			
Apartments	  	 	—	 	 	 	17		 	 	77		 	 	191		 	 	193		 	 	478			
Mixed use	  	 	2		 	 	4		 	 	26		 	 	86		 	 	105		 	 	223			
Other	  	 	1		 	 	149		 	 	14		 	 	71		 	 	40		 	 	275			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total recorded investment	  	$	120		 	$	527		 	$	749		 	$	2,637		 	$	2,320		 	$	6,353			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
% of total	  	 	2	% 	 	 	8	% 	 	 	12	% 	 	 	42	% 	 	 	36	% 	 	 	100	% 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Weighted-average loan-to-value	  	 	55	% 	 	 	60	% 	 	 	58	% 	 	 	58	% 	 	 	42	% 	 	 	52	% 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
As of June 30, 2018 and December 31, 2017, we did not have any floating rate commercial mortgage loans.
(f) Restricted Commercial Mortgage Loans Related To Securitization Entities
We have a consolidated securitization entity that holds commercial mortgage loans that are recorded as restricted commercial mortgage loans related to securitization entities.
(g) Limited Partnerships or Similar Entities
Limited partnerships are accounted for at fair value when our partnership interest is considered minor (generally less than 3% ownership in the limited partnerships) and we exercise no influence over operating and financial policies. If our ownership percentage exceeds that threshold, limited partnerships are accounted for using the equity method of accounting. In applying either method, we use financial information provided by the investee generally on a one-to-three month lag.
Investments in partnerships or similar entities are generally considered VIEs when the equity group lacks sufficient financial control. Generally, these investments are limited partner or non-managing member equity investments in a widely held fund that is sponsored and managed by a reputable asset manager. We are not the primary beneficiary of any VIE investment in a limited partnership or similar entity. As of June 30, 2018 and
 
27

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
December 31, 2017, the total carrying value of these investments was $295 million and $222 million, respectively. Our maximum exposure to loss is equal to the outstanding carrying value and future funding commitments. We have not contributed, and do not plan to contribute, any additional financial or other support outside of what is contractually obligated.
(5) Derivative Instruments
Our business activities routinely deal with fluctuations in interest rates, equity prices, currency exchange rates and other asset and liability prices. We use derivative instruments to mitigate or reduce certain of these risks. We have established policies for managing each of these risks, including prohibitions on derivatives market-making and other speculative derivatives activities. These policies require the use of derivative instruments in concert with other techniques to reduce or mitigate these risks. While we use derivatives to mitigate or reduce risks, certain derivatives do not meet the accounting requirements to be designated as hedging instruments and are denoted as “derivatives not designated as hedges” in the following disclosures. For derivatives that meet the accounting requirements to be designated as hedges, the following disclosures for these derivatives are denoted as “derivatives designated as hedges,” which include both cash flow and fair value hedges.
The following table sets forth our positions in derivative instruments as of the dates indicated:

 	 	Derivative assets	 	 	Derivative liabilities	 		
 	 	 	 	Fair value	 	 	 	 	Fair value	 		
	(Amounts in millions) 	 	Balance sheet
classification 	 	June 30, 
 2018  	 	 	December 31,
2017	 	 	Balance sheet
classification 	 	June 30, 
 2018  	 	 	December 31,
2017	 	
Derivatives designated as hedges 	 		 				 				 		 				 					
Cash flow hedges:	 		 				 				 		 				 					
Interest rate swaps	 	Other invested assets	 	$	49	 	 	$	74		 	Other liabilities	 	$	71	 	 	$	25			
Foreign currency swaps	 	Other invested assets	 	 	2	 	 	 	1		 	Other liabilities	 	 	1	 	 	 	—  	 		
	 		 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 	 		
Total cash flow hedges	 		 	 	51	 	 	 	75		 		 	 	72	 	 	 	25			
	 		 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 	 		
Total derivatives designated as hedges	 		 	 	51	 	 	 	75		 		 	 	72	 	 	 	25			
	 		 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 	 		
Derivatives not designated as hedges 	 		 				 				 		 				 					
Interest rate caps and floors	 	Other invested assets	 	 	1	 	 	 	—  	 	 	Other liabilities	 	 	—  	 	 	 	—  	 		
Foreign currency swaps	 	Other invested assets	 	 	1	 	 	 	11		 	Other liabilities	 	 	8	 	 	 	—  	 		
Equity index options	 	Other invested assets	 	 	70	 	 	 	80		 	Other liabilities	 	 	—  	 	 	 	—  	 		
Financial futures	 	Other invested assets	 	 	—  	 	 	 	—  	 	 	Other liabilities	 	 	—  	 	 	 	—  	 		
Equity return swaps	 	Other invested assets	 	 	1	 	 	 	—  	 	 	Other liabilities	 	 	—  	 	 	 	2			
Other foreign currency contracts	 	Other invested assets	 	 	106	 	 	 	110		 	Other liabilities	 	 	23	 	 	 	20			
GMWB embedded derivatives	 	Reinsurance recoverable (1)	 	 	12	 	 	 	14		 	Policyholder account balances (2)	 	 	235	 	 	 	250			
Fixed index annuity embedded derivatives	 	Other assets	 	 	—  	 	 	 	—  	 	 	Policyholder account balances (3)	 	 	420	 	 	 	419			
Indexed universal life embedded derivatives	 	Reinsurance recoverable	 	 	—  	 	 	 	—  	 	 	Policyholder account balances (4)	 	 	13	 	 	 	14			
	 		 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 	 		
Total derivatives not designated as hedges	 		 	 	191	 	 	 	215		 		 	 	699	 	 	 	705			
	 		 	 	 	 	 	 	 	 	 		 	 	 	 	 	 	 	 		
Total derivatives	 		 	$	242	 	 	$	290		 		 	$	771	 	 	$	730			

(1)  	Represents embedded derivatives associated with the reinsured portion of our guaranteed minimum withdrawal benefits (“GMWB”) liabilities.	
(2)  	Represents the embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.	
(3)  	Represents the embedded derivatives associated with our fixed index annuity liabilities.	
(4)  	Represents the embedded derivatives associated with our indexed universal life liabilities.	
 
28

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The fair value of derivative positions presented above was not offset by the respective collateral amounts received or provided under these agreements.
The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for GMWB, fixed index annuity embedded derivatives and indexed universal life embedded derivatives, the change between periods is best illustrated by the number of policies. The following tables represent activity associated with derivative instruments as of the dates indicated:

	(Notional in millions)	  	Measurement	 	  	December 31,
2017	 	  	Additions	 	  	Maturities/
terminations	 	 	June 30,
2018	 	
Derivatives designated as hedges	  				  				  				  				 					
Cash flow hedges:	  				  				  				  				 					
Interest rate swaps	  	 	Notional	 	  	$	11,155		  	$	1,436		  	$	(1,672	) 	 	$	10,919			
Foreign currency swaps	  	 	Notional	 	  	 	22		  	 	39		  	 	—  	 	 	 	61			
	  				  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 		
Total cash flow hedges	  				  	 	11,177		  	 	1,475		  	 	(1,672	) 	 	 	10,980			
	  				  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 		
Total derivatives designated as hedges	  				  	 	11,177		  	 	1,475		  	 	(1,672	) 	 	 	10,980			
	  				  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 		
Derivatives not designated as hedges	  				  				  				  				 					
Interest rate swaps	  	 	Notional	 	  	 	4,679		  	 	—  	 	  	 	(5	) 	 	 	4,674			
Interest rate caps and floors	  	 	Notional	 	  	 	—  	 	  	 	805		  	 	—  	 	 	 	805			
Foreign currency swaps	  	 	Notional	 	  	 	349		  	 	128		  	 	(23	) 	 	 	454			
Credit default swaps	  	 	Notional	 	  	 	39		  	 	—  	 	  	 	(19	) 	 	 	20			
Equity index options	  	 	Notional	 	  	 	2,420		  	 	1,246		  	 	(927	) 	 	 	2,739			
Financial futures	  	 	Notional	 	  	 	1,283		  	 	2,660		  	 	(2,680	) 	 	 	1,263			
Equity return swaps	  	 	Notional	 	  	 	96		  	 	1		  	 	(78	) 	 	 	19			
Other foreign currency contracts	  	 	Notional	 	  	 	3,264		  	 	398		  	 	(549	) 	 	 	3,113			
	  				  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 		
Total derivatives not designated as hedges	  				  	 	12,130		  	 	5,238		  	 	(4,281	) 	 	 	13,087			
	  				  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 		
Total derivatives	  				  	$	23,307		  	$	6,713		  	$	(5,953	) 	 	$	24,067			

	(Number of policies)	  	Measurement	 	  	December 31,
2017	 	  	Additions	 	  	Maturities/
terminations	 	 	June 30,
2018	 	
Derivatives not designated as hedges	  				  				  				  				 					
GMWB embedded derivatives	  	 	Policies	 	  	 	30,450		  	 	—  	 	  	 	(1,343	) 	 	 	29,107			
Fixed index annuity embedded derivatives	  	 	Policies	 	  	 	17,067		  	 	—  	 	  	 	(255	) 	 	 	16,812			
Indexed universal life embedded derivatives	  	 	Policies	 	  	 	985		  	 	—  	 	  	 	(28	) 	 	 	957			
Cash Flow Hedges
Certain derivative instruments are designated as cash flow hedges. The changes in fair value of these instruments are recorded as a component of OCI. We designate and account for the following as cash flow hedges when they have met the effectiveness requirements: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments; (ii) various types of interest rate swaps to convert floating rate liabilities into fixed rate liabilities; (iii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments; (iv) forward starting interest rate swaps to hedge against changes in interest rates associated with future fixed rate bond purchases and/or interest income; (v) forward bond purchase commitments to hedge against the variability in the anticipated cash flows required to purchase future fixed rate bonds; and (vi) other instruments to hedge the cash flows of various forecasted transactions.
 
29

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended June 30, 2018:

	(Amounts in millions)	  	Gain (loss)
recognized
in OCI	 	  	Gain (loss)
reclassified
into net
income
from OCI	 	  	Classification of
gain (loss)
reclassified into
net income	 	
Interest rate swaps hedging assets	  	$	(54	) 	  	$	39		  	 	Net investment income	 		
Interest rate swaps hedging liabilities	  	 	5		  	 	—  	 	  	 	Interest expense	 		
Foreign currency swaps	  	 	1		  	 	—  	 	  	 	Net investment income	 		
	  	 	 	 	  	 	 	 	  					
Total	  	$	(48	) 	  	$	39		  					
	  	 	 	 	  	 	 	 	  					
The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended June 30, 2017:

	(Amounts in millions)	 	Gain (loss)
recognized
in OCI	 	 	Gain (loss)
reclassified
into net
income
from OCI	 	 	Classification of
gain (loss)
reclassified into
net income	 	Gain (loss) 
 recognized
in net
income   (1) 	 	 	Classification of
gain (loss)
recognized in
net income	
Interest rate swaps hedging assets	 	$	82		 	$	31		 	Net investment income	 	$	—  	 	 	Net investment gains (losses)		
Interest rate swaps hedging assets	 	 	—  	 	 	 	1		 	Net investment gains (losses)	 	 	—  	 	 	Net investment gains (losses)		
Interest rate swaps hedging liabilities	 	 	(6	) 	 	 	—  	 	 	Interest expense	 	 	—  	 	 	Net investment gains (losses)		
Foreign currency swaps	 	 	(1	) 	 	 	—  	 	 	Net investment income	 	 	—  	 	 	Net investment gains (losses)		
	 	 	 	 	 	 	 	 	 		 	 	 	 	 			
Total	 	$	75		 	$	32		 		 	$	—  	 	 			

(1)  	Represents ineffective portion of cash flow hedges as there were no amounts excluded from the measurement of effectiveness.	
The following table provides information about the pre-tax income effects of cash flow hedges for the six months ended June 30, 2018:

	(Amounts in millions)	 	Gain (loss)
recognized
in OCI	 	 	Gain (loss)
reclassified
into net
income
from OCI	 	 	Classification of
gain (loss)
reclassified into
net income	
Interest rate swaps hedging assets	 	$	(227	) 	 	$	74		 	Net investment income		
Interest rate swaps hedging assets	 	 	—  	 	 	 	5		 	Net investment gains (losses)		
Interest rate swaps hedging liabilities	 	 	22		 	 	—  	 	 	Interest expense		
	 	 	 	 	 	 	 	 	 			
Total	 	$	(205	) 	 	$	79		 			

30

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table provides information about the pre-tax income effects of cash flow hedges for the six months ended June 30, 2017:

	(Amounts in millions)	 	Gain (loss)
recognized
in OCI	 	 	Gain (loss)
reclassified
into net
income
from OCI	 	 	Classification of
gain (loss)
reclassified into
net income	 	Gain (loss) 
 recognized
in net
income (1) 	 	 	Classification of
gain (loss)
recognized in
net income	
Interest rate swaps hedging assets	 	$	33		 	$	61		 	Net investment income	 	$	—  	 	 	Net investment gains (losses)		
Interest rate swaps hedging assets	 	 	—  	 	 	 	2		 	Net investment gains (losses)	 	 	—  	 	 	Net investment gains (losses)		
Interest rate swaps hedging liabilities	 	 	(2	) 	 	 	—  	 	 	Interest expense	 	 	—  	 	 	Net investment gains (losses)		
Foreign currency swaps	 	 	(1	) 	 	 	—  	 	 	Net investment income	 	 	—  	 	 	Net investment gains (losses)		
	 	 	 	 	 	 	 	 	 		 	 	 	 	 			
Total	 	$	30		 	$	63		 		 	$	—  	 	 			

(1)  	Represents ineffective portion of cash flow hedges as there were no amounts excluded from the measurement of effectiveness.	
The following tables provide a reconciliation of current period changes, net of applicable income taxes, for these designated derivatives presented in the separate component of stockholders’ equity labeled “derivatives qualifying as hedges,” for the periods indicated:

 	  	Three months ended
June 30,	 		
	(Amounts in millions)	  	2018	 	 	2017	 	
Derivatives qualifying as effective accounting hedges as of April 1	  	$	1,927		 	$	2,036			
Current period increases (decreases) in fair value, net of deferred taxes of $9 and $(27)	  	 	(39	) 	 	 	48			
Reclassification to net (income), net of deferred taxes of $14 and $12	  	 	(25	) 	 	 	(20	) 		
	  	 	 	 	 	 	 	 		
Derivatives qualifying as effective accounting hedges as of June 30	  	$	1,863		 	$	2,064			

 	  	Six months ended
June 30,	 		
	(Amounts in millions)	  	2018	 	 	2017	 	
Derivatives qualifying as effective accounting hedges as of January 1	  	$	2,065		 	$	2,085			
Cumulative effect of changes in accounting:	  				 					
Stranded tax effects	  	 	12		 	 	—  	 		
Changes to the hedge accounting model, net of deferred taxes of $(1) and $—	  	 	2		 	 	—  	 		
	  	 	 	 	 	 	 	 		
Total cumulative effect of changes in accounting	  	 	14		 	 	—  	 		
	  	 	 	 	 	 	 	 		
Current period increases (decreases) in fair value, net of deferred taxes of $43 and $(11)	  	 	(165	) 	 	 	19			
Reclassification to net (income), net of deferred taxes of $28 and $23	  	 	(51	) 	 	 	(40	) 		
	  	 	 	 	 	 	 	 		
Derivatives qualifying as effective accounting hedges as of June 30	  	$	1,863		 	$	2,064			

31

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The total of derivatives designated as cash flow hedges of $1,863 million, net of taxes, recorded in stockholders’ equity as of June 30, 2018 is expected to be reclassified to net income in the future, concurrently with and primarily offsetting changes in interest expense and interest income on floating rate instruments and interest income on future fixed rate bond purchases. Of this amount, $104 million, net of taxes, is expected to be reclassified to net income in the next 12 months. Actual amounts may vary from this amount as a result of market conditions. All forecasted transactions associated with qualifying cash flow hedges are expected to occur by 2057. During the six months ended June 30, 2018, we reclassified $5 million to net income in connection with forecasted transactions that were no longer considered probable of occurring.
Derivatives Not Designated As Hedges
We also enter into certain non-qualifying derivative instruments such as: (i) interest rate swaps and financial futures to mitigate interest rate risk as part of managing regulatory capital positions; (ii) credit default swaps to enhance yield and reproduce characteristics of investments with similar terms and credit risk; (iii) equity index options, equity return swaps, interest rate swaps and financial futures to mitigate the risks associated with liabilities that have guaranteed minimum benefits, fixed index annuities and indexed universal life; (iv) interest rate swaps and interest rate caps and floors where the hedging relationship does not qualify for hedge accounting; (v) credit default swaps to mitigate loss exposure to certain credit risk; (vi) foreign currency swaps, options and forward contracts to mitigate currency risk associated with non-functional currency investments held by certain foreign subsidiaries and future dividends or other cash flows from certain foreign subsidiaries to our holding company; and (vii) equity index options to mitigate certain macroeconomic risks associated with certain foreign subsidiaries. Additionally, we provide GMWBs on certain variable annuities that are required to be bifurcated as embedded derivatives. We also offer fixed index annuity and indexed universal life products and have reinsurance agreements with certain features that are required to be bifurcated as embedded derivatives.
We also had, prior to the fourth quarter of 2017, derivatives related to securitization entities where we were required to consolidate the related securitization entity as a result of our involvement in the structure. The counterparties for these derivatives typically only had recourse to the securitization entity. The interest rate swaps used for these entities were typically used to effectively convert the interest payments on the assets of the securitization entity to the same basis as the interest rate on the borrowings issued by the securitization entity. Credit default swaps were utilized in certain securitization entities to enhance the yield payable on the borrowings issued by the securitization entity and also included a settlement feature that allows the securitization entity to provide the par value of assets in the securitization entity for the amount of any losses incurred under the credit default swap.
 
32

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables provide the pre-tax gain (loss) recognized in net income for the effects of derivatives not designated as hedges for the periods indicated:

 	  	Three months ended
June 30,	 	 	Classification of gain (loss)
recognized in net income		
	(Amounts in millions)	  	2018	 	 	2017			 	
Interest rate swaps	  	$	(2	) 	 	$	(1	) 	 	Net investment gains (losses)		
Credit default swaps related to securitization entities	  	 	—  	 	 	 	2		 	Net investment gains (losses)		
Equity index options	  	 	8		 	 	13		 	Net investment gains (losses)		
Financial futures	  	 	(13	) 	 	 	9		 	Net investment gains (losses)		
Equity return swaps	  	 	1		 	 	(6	) 	 	Net investment gains (losses)		
Other foreign currency contracts	  	 	1		 	 	31		 	Net investment gains (losses)		
Foreign currency swaps	  	 	(10	) 	 	 	2		 	Net investment gains (losses)		
GMWB embedded derivatives	  	 	13		 	 	1		 	Net investment gains (losses)		
Fixed index annuity embedded derivatives	  	 	(15	) 	 	 	(16	) 	 	Net investment gains (losses)		
Indexed universal life embedded derivatives	  	 	2		 	 	2		 	Net investment gains (losses)		
	  	 	 	 	 	 	 	 	 			
Total derivatives not designated as hedges	  	$	(15	) 	 	$	37		 			

												
 	  	Six months ended
June 30,	 	 	Classification of gain (loss)
recognized in net income		
	(Amounts in millions)	  	2018	 	 	2017			 	
Interest rate swaps	  	$	(3	) 	 	$	1		 	Net investment gains (losses)		
Credit default swaps related to securitization entities	  	 	—  	 	 	 	4		 	Net investment gains (losses)		
Equity index options	  	 	(7	) 	 	 	26		 	Net investment gains (losses)		
Financial futures	  	 	(37	) 	 	 	(8	) 	 	Net investment gains (losses)		
Equity return swaps	  	 	(4	) 	 	 	(14	) 	 	Net investment gains (losses)		
Other foreign currency contracts	  	 	9		 	 	26		 	Net investment gains (losses)		
Foreign currency swaps	  	 	(18	) 	 	 	5		 	Net investment gains (losses)		
GMWB embedded derivatives	  	 	27		 	 	34		 	Net investment gains (losses)		
Fixed index annuity embedded derivatives	  	 	(7	) 	 	 	(36	) 	 	Net investment gains (losses)		
Indexed universal life embedded derivatives	  	 	7		 	 	3		 	Net investment gains (losses)		
	  	 	 	 	 	 	 	 	 			
Total derivatives not designated as hedges	  	$	(33	) 	 	$	41		 			
	  	 	 	 	 	 	 	 	 			
Derivative Counterparty Credit Risk
Most of our derivative arrangements with counterparties require the posting of collateral upon meeting certain net exposure thresholds. For derivatives related to securitization entities, there are no arrangements that require either party to provide collateral and the recourse of the derivative counterparty is typically limited to the assets held by the securitization entity and there is no recourse to any entity other than the securitization entity.
 
33

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents additional information about derivative assets and liabilities subject to an enforceable master netting arrangement as of the dates indicated:

 	 	June 30, 2018	 	 	December 31, 2017	 		
	(Amounts in millions) 	 	Derivatives 
 assets (1) 	 	 	Derivatives 
 liabilities (2) 	 	 	Net
derivatives	 	 	Derivatives 
 assets (1) 	 	 	Derivatives 
 liabilities (2) 	 	 	Net
derivatives	 	
Amounts presented in the balance sheet:	 				 				 				 				 				 					
Gross amounts recognized	 	$	234	 	 	$	104	 	 	$	130		 	$	278	 	 	$	47	 	 	$	231			
Gross amounts offset in the balance sheet	 	 	—	    	 	 	—	    	 	 	—  	 	 	 	—	    	 	 	—	    	 	 	—  	 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net amounts presented in the balance sheet	 	 	234	 	 	 	104	 	 	 	130		 	 	278	 	 	 	47	 	 	 	231			
Gross amounts not offset in the balance sheet:	 				 				 				 				 				 					
Financial instruments (3)	 	 	(39	)  	 	 	(39	)  	 	 	—	 	 	 	(23	)  	 	 	(23	)  	 	 	—	 		
Collateral received	 	 	(125	)  	 	 	—	 	 	 	(125	) 	 	 	(170	)  	 	 	—	 	 	 	(170	) 		
Collateral pledged	 	 	—	 	 	 	(427	)  	 	 	427		 	 	—	   	 	 	(288	)  	 	 	288			
Over collateralization	 	 	1	 	 	 	363	 	 	 	(362	) 	 	 	—	    	 	 	264	 	 	 	(264	) 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net amount	 	$	71	 	 	$	1	 	 	$	70		 	$	85	 	 	$	—	 	 	$	85			

(1)  	Included $4 million and $2 million of accruals on derivatives classified as other assets and does not include amounts related to embedded derivatives as of June 30, 2018 and December 31, 2017, respectively.	
(2)  	Included $1 million of accrual on derivatives classified as other liabilities as of June 30, 2018. Does not include amounts related to embedded derivatives and derivatives related to securitization entities as of June 30, 2018 and December 31, 2017.	
(3)	Amounts represent derivative assets and/or liabilities that are presented gross within the balance sheet but are held with the same counterparty where we have a master netting arrangement. This adjustment results in presenting the net asset and net liability position for each counterparty.	
Except for derivatives related to securitization entities, several of our master swap agreements contain credit downgrade provisions that allow either party to assign or terminate derivative transactions if the other party’s long-term unsecured debt rating or financial strength rating is below the limit defined in the applicable agreement. Beginning in 2018, we have renegotiated with many of our counterparties to remove the credit downgrade provisions from the master swap agreements. If the provisions defined in these agreements had been triggered as of June 30, 2018 and December 31, 2017, we could have been allowed to claim $71 million and $85 million, respectively, or have been required to disburse up to $1 million as of June 30, 2018. The chart above excludes embedded derivatives and derivatives related to securitization entities as those derivatives are not subject to master netting arrangements.
We actively responded to the risk in our derivatives portfolio arising from our counterparties’ right to terminate their bilateral over-the-counter derivatives transactions with us following the downgrades of our life insurance subsidiaries by Moody’s Investors Service, Inc. and A.M. Best Company, Inc. in February 2018. As of June 30, 2018, no counterparties exercised their rights to terminate or revise the terms of their transactions with us.
Credit Derivatives
We sell protection under single name credit default swaps in combination with purchasing a security to replicate characteristics of similar investments based on the credit quality and term of the credit default swap. Credit default triggers for single name reference entities follow the Credit Derivatives Physical Settlement Matrix
 
34

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
published by the International Swaps and Derivatives Association. Under these terms, credit default triggers are defined as bankruptcy, failure to pay or restructuring, if applicable. Our maximum exposure to credit loss equals the notional value for credit default swaps. In the event of default for credit default swaps, we are typically required to pay the protection holder the full notional value less a recovery rate determined at auction.
The following table sets forth our credit default swaps where we sell protection on single name reference entities and the fair values as of the dates indicated:

 	  	June 30, 2018	 	  	December 31, 2017	 		
	(Amounts in millions)	  	Notional
value	 	  	Assets	 	  	Liabilities	 	  	Notional
value	 	  	Assets	 	  	Liabilities	 	
Investment grade	  				  				  				  				  				  					
Matures in less than one year	  	$	20		  	$	—  	 	  	$	—  	 	  	$	39		  	$	—  	 	  	$	—  	 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Total credit default swaps on single name reference entities	  	$	20		  	$	—  	 	  	$	—  	 	  	$	39		  	$	—  	 	  	$	—  	 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
(6) Fair Value of Financial Instruments
Assets and liabilities that are reflected in the accompanying unaudited condensed consolidated financial statements at fair value are not included in the following disclosure of fair value. Such items include cash and cash equivalents, short-term investments, investment securities, separate accounts, securities held as collateral and derivative instruments. Apart from certain of our borrowings and certain marketable securities, few of the instruments are actively traded and their fair values must often be determined using models. The fair value estimates are made at a specific point in time, based upon available market information and judgments about the financial instruments, including estimates of the timing and amount of expected future cash flows and the credit standing of counterparties. Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets.
 
35

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following represents our estimated fair value of financial assets and liabilities that are not required to be carried at fair value as of the dates indicated:

 	  	June 30, 2018	 	
 	  	Notional 
amount 	 	 	Carrying
amount	 	  	Fair value	 	
(Amounts in millions) 	  			 			  	Total	 	  	Level 1	 	  	Level 2	 	  	Level 3	 	
Assets:	  				 				  				  				  				  				  				  				
Commercial mortgage loans	  	$		(1)  	 	$	6,480		  	$	6,514		  	$		 	  	 	—  	 	  	$		 	  	 	—  	 	  	$	6,514		
Restricted commercial mortgage loans	  	 	  	(1)  	 	 	90		  	 	96		  				  	 	—  	 	  				  	 	—  	 	  	 	96		
Other invested assets	  	 	  	(1)  	 	 	151		  	 	151		  				  	 	—  	 	  				  	 	—  	 	  	 	151		
Liabilities:	  				 				  				  				  				  				  				  				
Long-term borrowings	  	 	  	(1)  	 	 	4,047		  	 	3,727		  				  	 	—  	 	  				  	 	3,577		  	 	150		
Non-recourse funding obligations	  	 	  	(1)  	 	 	310		  	 	209		  				  	 	—  	 	  				  	 	—  	 	  	 	209		
Borrowings related to securitization entities	  	 	  	(1)  	 	 	28		  	 	28		  				  	 	—  	 	  				  	 	28		  	 	—  	 	
Investment contracts	  	 	  	(1)  	 	 	13,757		  	 	14,007		  				  	 	—  	 	  				  	 	—  	 	  	 	14,007		
Other firm commitments:	  				 				  				  				  				  				  				  				
Commitments to fund limited partnerships	  	 	402	 	 	 	—  	 	  	 	—  	 	  				  	 	—  	 	  				  	 	—  	 	  	 	—  	 	
Commitments to fund bank loan investments	  	 	30	 	 	 	—  	 	  	 	—  	 	  				  	 	—  	 	  				  	 	—  	 	  	 	—  	 	
Ordinary course of business lending commitments	  	 	119	 	 	 	—  	 	  	 	—  	 	  				  	 	—  	 	  				  	 	—  	 	  	 	—  	 	
		
 	  	December 31, 2017	 	
 	  	Notional 
amount 	 	 	Carrying
amount	 	  	Fair value	 	
(Amounts in millions) 	  			 			  	Total	 	  	Level 1	 	  	Level 2	 	  	Level 3	 	
Assets:	  				 				  				  				  				  				  				  				
Commercial mortgage loans	  	$		(1)  	 	$	6,341		  	$	6,573		  	$		 	  	 	—  	 	  	$		 	  	 	—  	 	  	$	6,573		
Restricted commercial mortgage loans	  	 	  	(1)  	 	 	107		  	 	116		  				  	 	—  	 	  				  	 	—  	 	  	 	116		
Other invested assets	  	 	  	(1)  	 	 	277		  	 	299		  				  	 	—  	 	  				  	 	—  	 	  	 	299		
Liabilities:	  				 				  				  				  				  				  				  				
Long-term borrowings	  	 	  	(1)  	 	 	4,224		  	 	3,725		  				  	 	—  	 	  				  	 	3,566		  	 	159		
Non-recourse funding obligations	  	 	  	(1)  	 	 	310		  	 	201		  				  	 	—  	 	  				  	 	—  	 	  	 	201		
Borrowings related to securitization entities	  	 	  	(1)  	 	 	40		  	 	41		  				  	 	—  	 	  				  	 	41		  	 	—  	 	
Investment contracts	  	 	  	(1)  	 	 	14,700		  	 	15,123		  				  	 	—  	 	  				  	 	5		  	 	15,118		
Other firm commitments:	  				 				  				  				  				  				  				  				
Commitments to fund limited partnerships	  	 	317	 	 	 	—  	 	  	 	—  	 	  				  	 	—  	 	  				  	 	—  	 	  	 	—  	 	
Commitments to fund bank loan investments	  	 	18	 	 	 	—  	 	  	 	—  	 	  				  	 	—  	 	  				  	 	—  	 	  	 	—  	 	
Ordinary course of business lending commitments	  	 	168	 	 	 	—  	 	  	 	—  	 	  				  	 	—  	 	  				  	 	—  	 	  	 	—  	 	

(1)  	These financial instruments do not have notional amounts.	
Recurring Fair Value Measurements
We have fixed maturity, short-term investments, equity securities, limited partnerships, derivatives, embedded derivatives, securities held as collateral, separate account assets and certain other financial instruments, which are carried at fair value. Below is a description of the valuation techniques and inputs used to determine fair value by class of instrument.
 
36

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Limited partnerships
Limited partnerships are valued based on comparable market transactions, discounted future cash flows, quoted market prices and/or estimates using the most recent data available for the underlying instrument. We utilize the net asset value (“NAV”) of the underlying fund statements as a practical expedient for fair value.
Fixed maturity, short-term investments and equity securities
The fair value of fixed maturity, short-term investments and equity securities are estimated primarily based on information derived from third-party pricing services (“pricing services”), internal models and/or broker quotes, which use a market approach, income approach or a combination of the market and income approach depending on the type of instrument and availability of information. In general, a market approach is utilized if there is readily available and relevant market activity for an individual security. In certain cases where market information is not available for a specific security but is available for similar securities, a security is valued using that market information for similar securities, which is also a market approach. When market information is not available for a specific security or is available but such information is less relevant or reliable, an income approach or a combination of a market and income approach is utilized. For securities with optionality, such as call or prepayment features (including mortgage-backed or asset-backed securities), an income approach may be used. In addition, a combination of the results from market and income approaches may be used to estimate fair value. These valuation techniques may change from period to period, based on the relevance and availability of market data.
We utilize certain third-party data providers when determining fair value. We consider information obtained from pricing services as well as broker quotes in our determination of fair value. Additionally, we utilize internal models to determine the valuation of securities using an income approach where the inputs are based on third-party provided market inputs. While we consider the valuations provided by pricing services and broker quotes to be of high quality, management determines the fair value of our investment securities after considering all relevant and available information. We also use various methods to obtain an understanding of the valuation methodologies and procedures used by third-party data providers to ensure sufficient understanding to evaluate the valuation data received, including an understanding of the assumptions and inputs utilized to determine the appropriate fair value. For pricing services, we analyze the prices provided by our primary pricing services to other readily available pricing services and perform a detailed review of the assumptions and inputs from each pricing service to determine the appropriate fair value when pricing differences exceed certain thresholds. We evaluate changes in fair value that are greater than certain pre-defined thresholds each month to further aid in our review of the accuracy of fair value measurements and our understanding of changes in fair value, with more detailed reviews performed by the asset managers responsible for the related asset class associated with the security being reviewed. A pricing committee provides additional oversight and guidance in the evaluation and review of the pricing methodologies used to value our investment portfolio.
In general, we first obtain valuations from pricing services. For certain private fixed maturity securities where we do not obtain valuations from pricing services, we utilize an internal model to determine fair value since transactions for identical securities are not readily observable and these securities are not typically valued by pricing services. If prices are unavailable from public pricing services we obtain broker quotes. For all securities, excluding certain private fixed maturity securities, if neither a pricing service nor broker quotes valuation is available, we determine fair value using internal models.
For pricing services, we obtain an understanding of the pricing methodologies and procedures for each type of instrument. Additionally, on a monthly basis we review a sample of securities, examining the pricing service’s
 
37

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
assumptions to determine if we agree with the service’s derived price. When available, we also evaluate the prices sampled as compared to other public prices. If a variance greater than a pre-defined threshold is noted, additional review of the price is executed to ensure accuracy. In general, a pricing service does not provide a price for a security if sufficient information is not readily available to determine fair value or if such security is not in the specific sector or class covered by a particular pricing service. Given our understanding of the pricing methodologies and procedures of pricing services, the securities valued by pricing services are typically classified as Level 2 unless we determine the valuation process for a security or group of securities utilizes significant unobservable inputs, which would result in the valuation being classified as Level 3.
For private fixed maturity securities, we utilize an income approach where we obtain public bond spreads and utilize those in an internal model to determine fair value. Other inputs to the model include rating and weighted-average life, as well as sector which is used to assign the spread. We then add an additional premium, which represents an unobservable input, to the public bond spread to adjust for the liquidity and other features of our private placements. We utilize the estimated market yield to discount the expected cash flows of the security to determine fair value. We utilize price caps for securities where the estimated market yield results in a valuation that may exceed the amount that would be received in a market transaction and value all private fixed maturity securities at par that have less than 12 months to maturity. When a security does not have an external rating, we assign the security an internal rating to determine the appropriate public bond spread that should be utilized in the valuation. To evaluate the reasonableness of the internal model, we review a sample of private fixed maturity securities each month. In that review we compare the modeled prices to the prices of similar public securities in conjunction with analysis on current market indicators. If a pricing variance greater than a pre-defined threshold is noted, additional review of the price is executed to ensure accuracy. At the end of each month, all internally modeled prices are compared to the prior month prices with an evaluation of all securities with a month-over-month change greater than a pre-defined threshold. While we generally consider the public bond spreads by sector and maturity to be observable inputs, we evaluate the similarities of our private placement with the public bonds, any price caps utilized, liquidity premiums applied, and whether external ratings are available for our private placements to determine whether the spreads utilized would be considered observable inputs. We classify private securities without an external rating and public bond spread as Level 3. In general, increases (decreases) in credit spreads will decrease (increase) the fair value for our fixed maturity securities.
For broker quotes, we consider the valuation methodology utilized by the third party and analyze a sample each month to assess reasonableness given then-current market conditions. Additionally, for broker quotes on certain structured securities, we validate prices received against other publicly available pricing sources. Broker quotes are typically based on an income approach given the lack of available market data. As the valuation typically includes significant unobservable inputs, we classify the securities where fair value is based on our consideration of broker quotes as Level 3 measurements.
For remaining securities priced using internal models, we determine fair value using an income approach. We analyze a sample each month to assess reasonableness given then-current market conditions. We maximize the use of observable inputs but typically utilize significant unobservable inputs to determine fair value. Accordingly, the valuations are typically classified as Level 3.
A summary of the inputs used for our fixed maturity, short-term investments and equity securities based on the level in which instruments are classified is included below. We have combined certain classes of instruments together as the nature of the inputs is similar.
 
38

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Level 1 measurements
Equity securities. The primary inputs to the valuation of exchange-traded equity securities include quoted prices for the identical instrument.
Short-term investments. Short-term investments primarily include commercial paper and other highly liquid debt instruments. The fair value of short-term investments classified as Level 1 is based on quoted prices for the identical instrument.
Separate account assets. The fair value of separate account assets is based on the quoted prices of the underlying fund investments and, therefore, represents Level 1 pricing.
Level 2 measurements
Fixed maturity securities
 
 	•	 	Third-party pricing services: In estimating the fair value of fixed maturity securities, approximately 91% of our portfolio is priced using third-party pricing sources. These pricing services utilize industry-standard valuation techniques that include market-based approaches, income-based approaches, a combination of market-based and income-based approaches or other proprietary, internally generated models as part of the valuation processes. These third-party pricing vendors maximize the use of publicly available data inputs to generate valuations for each asset class. Priority and type of inputs used may change frequently as certain inputs may be more direct drivers of valuation at the time of pricing. Examples of significant inputs incorporated by third-party pricing services may include sector and issuer spreads, seasoning, capital structure, security optionality, collateral data, prepayment assumptions, default assumptions, delinquencies, debt covenants, benchmark yields, trade data, dealer quotes, credit ratings, maturity and weighted-average life. We conduct regular meetings with our third-party pricing services for the purpose of understanding the methodologies, techniques and inputs used by the third-party pricing providers.	
 
39

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents a summary of the significant inputs used by our third-party pricing services for certain fair value measurements of fixed maturity securities that are classified as Level 2 as of June 30, 2018:

	(Amounts in millions)	 	Fair value	 	 	Primary methodologies	 	Significant inputs	
U.S. government, agencies and government-sponsored enterprises	 	$	5,353		 	Price quotes from trading desk, broker feeds	 	Bid side prices, trade prices, Option Adjusted Spread (“OAS”) to swap curve, Bond Market Association OAS, Treasury Curve, Agency Bullet Curve, maturity to issuer spread		
State and political subdivisions	 	$	2,803		 	Multi-dimensional attribute-based modeling systems, third-party pricing vendors	 	Trade prices, material event notices, Municipal Market Data benchmark yields, broker quotes		
Non-U.S. government	 	$	2,364		 	Matrix pricing, spread priced to benchmark curves, price quotes from market makers	 	Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources		
U.S. corporate	 	$	24,571		 	Multi-dimensional attribute-based modeling systems, broker quotes, price quotes from market makers, internal models, OAS-based models	 	Bid side prices to Treasury Curve, Issuer Curve, which includes sector, quality, duration, OAS percentage and change for spread matrix, trade prices, comparative transactions, Trade Reporting and Compliance Engine (“TRACE”) reports		
Non-U.S. corporate	 	$	10,049		 	Multi-dimensional attribute-based modeling systems, OAS-based models, price quotes from market makers	 	Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources		
Residential mortgage-backed	 	$	3,533		 	OAS-based models, To Be Announced pricing models, single factor binomial models, internally priced	 	Prepayment and default assumptions, aggregation of bonds with similar characteristics, including collateral type, vintage, tranche type, weighted-average life, weighted-average loan age, issuer program and delinquency ratio, pay up and pay down factors, TRACE reports		
Commercial mortgage-backed	 	$	3,305		 	Multi-dimensional attribute-based modeling systems, pricing matrix, spread matrix priced to swap curves, Trepp commercial mortgage-backed securities analytics model	 	Credit risk, interest rate risk, prepayment speeds, new issue data, collateral performance, origination year, tranche type, original credit ratings, weighted-average life, cash flows, spreads derived from broker quotes, bid side prices, spreads to daily updated swaps curves, TRACE reports		
Other asset-backed	 	$	2,791		 	Multi-dimensional attribute-based modeling systems, spread matrix priced to swap curves, price quotes from market makers, internal models	 	Spreads to daily updated swaps curves, spreads derived from trade prices and broker quotes, bid side prices, new issue data, collateral performance, analysis of prepayment speeds, cash flows, collateral loss analytics, historical issue analysis, trade data from market makers, TRACE reports		
 
40

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 	•	 	Internal models: A portion of our non-U.S. government, U.S. corporate and non-U.S. corporate securities are valued using internal models. The fair value of these fixed maturity securities were $16 million, $1,067 million and $567 million, respectively, as of June 30, 2018. Internally modeled securities are primarily private fixed maturity securities where we use market observable inputs such as an interest rate yield curve, published credit spreads for similar securities based on the external ratings of the instrument and related industry sector of the issuer. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps and liquidity premiums are established using inputs from market participants.	
Equity securities. The primary inputs to the valuation include quoted prices for identical assets, or similar assets in markets that are not active.
Securities lending collateral
The fair value of securities held as collateral is primarily based on Level 2 inputs from market information for the collateral that is held on our behalf by the custodian. We determine fair value after considering prices obtained by third-party pricing services.
Short-term investments
The fair value of short-term investments classified as Level 2 is determined after considering prices obtained by third-party pricing services.
Level 3 measurements
Fixed maturity securities
 
 	•	 	Internal models: A portion of our U.S. corporate, non-U.S. corporate, residential mortgage-backed and other asset-backed securities are valued using internal models. The primary inputs to the valuation of the bond population include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, duration, call provisions, issuer rating, benchmark yields and credit spreads. Certain private fixed maturity securities are valued using an internal model using market observable inputs such as interest rate yield curve, as well as published credit spreads for similar securities where there are no external ratings of the instrument and include a significant unobservable input. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps are established using inputs from market participants. For structured securities, the primary inputs to the valuation include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, weighted-average coupon, weighted-average maturity, issuer rating, structure of the security, expected prepayment speeds and volumes, collateral type, current and forecasted loss severity, average delinquency rates, vintage of the loans, geographic region, debt service coverage ratios, payment priority with the tranche, benchmark yields and credit spreads. The fair value of our Level 3 fixed maturity securities priced using internal models was $3,201 million as of June 30, 2018.	
 
 	•	 	Broker quotes: A portion of our state and political subdivisions, U.S. corporate, non-U.S. corporate, residential mortgage-backed, commercial mortgage-backed and other asset-backed securities are valued using broker quotes. Broker quotes are obtained from third-party providers that have current market knowledge to provide a reasonable price for securities not routinely priced by third-party pricing services. Brokers utilized for valuation of assets are reviewed annually. The fair value of our Level 3 fixed maturity securities priced by broker quotes was $412 million as of June 30, 2018.	
 
41

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Equity securities. The primary inputs to the valuation include broker quotes where the underlying inputs are unobservable and for internal models, structure of the security and issuer rating.
Restricted other invested assets related to securitization entities
We previously held trading securities related to securitization entities that were classified as restricted other invested assets and were carried at fair value. The trading securities represented asset-backed securities. In 2017, these trading securities were sold as we repositioned these assets in connection with the maturity of the associated liabilities. The valuation for trading securities was determined using a market approach and/or an income approach depending on the availability of information. For certain highly rated asset-backed securities, there was observable market information for transactions of the same or similar instruments, which was provided to us by a third-party pricing service and was classified as Level 2. For certain securities that are not actively traded, we determined fair value after considering third-party broker provided prices or discounted expected cash flows using current yields for similar securities and classified these valuations as Level 3.
GMWB embedded derivatives
We are required to bifurcate an embedded derivative for certain features associated with annuity products and related reinsurance agreements where we provide a GMWB to the policyholder and are required to record the GMWB embedded derivative at fair value. The valuation of our GMWB embedded derivative is based on an income approach that incorporates inputs such as forward interest rates, equity index volatility, equity index and fund correlation, and policyholder assumptions such as utilization, lapse and mortality. In addition to these inputs, we also consider risk and expense margins when determining the projected cash flows that would be determined by another market participant. While the risk and expense margins are considered in determining fair value, these inputs do not have a significant impact on the valuation. We determine fair value using an internal model based on the various inputs noted above. The resulting fair value measurement from the model is reviewed by the product actuarial, risk and finance professionals each reporting period with changes in fair value also being compared to changes in derivatives and other instruments used to mitigate changes in fair value from certain market risks, such as equity index volatility and interest rates.
For GMWB liabilities, non-performance risk is integrated into the discount rate. Our discount rate used to determine fair value of our GMWB liabilities includes market credit spreads above U.S. Treasury rates to reflect an adjustment for the non-performance risk of the GMWB liabilities. As of June 30, 2018 and December 31, 2017, the impact of non-performance risk resulted in a lower fair value of our GMWB liabilities of $50 million and $63 million, respectively.
To determine the appropriate discount rate to reflect the non-performance risk of the GMWB liabilities, we evaluate the non-performance risk in our liabilities based on a hypothetical exit market transaction as there is no exit market for these types of liabilities. A hypothetical exit market can be viewed as a hypothetical transfer of the liability to another similarly rated insurance company which would closely resemble a reinsurance transaction. Another hypothetical exit market transaction can be viewed as a hypothetical transaction from the perspective of the GMWB policyholder. In determining the appropriate discount rate to incorporate non-performance risk of the GMWB liabilities, we also considered the impacts of state guarantees embedded in the related insurance product as a form of inseparable third-party guarantee. We believe that a hypothetical exit market participant would use a similar discount rate as described above to value the liabilities.
For equity index volatility, we determine the projected equity market volatility using both historical volatility and projected equity market volatility with more significance being placed on projected near-term
 
42

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
volatility and recent historical data. Given the different attributes and market characteristics of GMWB liabilities compared to equity index options in the derivative market, the equity index volatility assumption for GMWB liabilities may be different from the volatility assumption for equity index options, especially for the longer dated points on the curve.
Equity index and fund correlations are determined based on historical price observations for the fund and equity index.
For policyholder assumptions, we use our expected lapse, mortality and utilization assumptions and update these assumptions for our actual experience, as necessary. For our lapse assumption, we adjust our base lapse assumption by policy based on a combination of the policyholder’s current account value and GMWB benefit.
We classify the GMWB valuation as Level 3 based on having significant unobservable inputs, with equity index volatility and non-performance risk being considered the more significant unobservable inputs. As equity index volatility increases, the fair value of the GMWB liabilities will increase. Any increase in non-performance risk would increase the discount rate and would decrease the fair value of the GMWB liability. Additionally, we consider lapse and utilization assumptions to be significant unobservable inputs. An increase in our lapse assumption would decrease the fair value of the GMWB liability, whereas an increase in our utilization rate would increase the fair value.
Fixed index annuity embedded derivatives
We have fixed indexed annuity products where interest is credited to the policyholder’s account balance based on equity index changes. This feature is required to be bifurcated as an embedded derivative and recorded at fair value. Fair value is determined using an income approach where the present value of the excess cash flows above the guaranteed cash flows is used to determine the value attributed to the equity index feature. The inputs used in determining the fair value include policyholder behavior (lapses and withdrawals), near-term equity index volatility, expected future interest credited, forward interest rates and an adjustment to the discount rate to incorporate non-performance risk and risk margins. As a result of our assumptions for policyholder behavior and expected future interest credited being considered significant unobservable inputs, we classify these instruments as Level 3. As lapses and withdrawals increase, the value of our embedded derivative liability will decrease. As expected future interest credited decreases, the value of our embedded derivative liability will decrease.
Indexed universal life embedded derivatives
We have indexed universal life products where interest is credited to the policyholder’s account balance based on equity index changes. This feature is required to be bifurcated as an embedded derivative and recorded at fair value. Fair value is determined using an income approach where the present value of the excess cash flows above the guaranteed cash flows is used to determine the value attributed to the equity index feature. The inputs used in determining the fair value include policyholder behavior (lapses and withdrawals), near-term equity index volatility, expected future interest credited, forward interest rates and an adjustment to the discount rate to incorporate non-performance risk and risk margins. As a result of our assumptions for policyholder behavior and expected future interest credited being considered significant unobservable inputs, we classify these instruments as Level 3. As lapses and withdrawals increase, the value of our embedded derivative liability will decrease. As expected future interest credited decreases, the value of our embedded derivative liability will decrease.
 
43

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Borrowings related to securitization entities
We record certain borrowings related to securitization entities at fair value. The fair value of these borrowings is determined using either a market approach or income approach, depending on the instrument and availability of market information. Given the unique characteristics of the securitization entities that issued these borrowings as well as the lack of comparable instruments, we determine fair value considering the valuation of the underlying assets held by the securitization entities and any derivatives, as well as any unique characteristics of the borrowings that may impact the valuation. After considering all relevant inputs, we determine fair value of the borrowings using the net valuation of the underlying assets and derivatives that are backing the borrowings. Accordingly, these instruments are classified as Level 3. Increases in the valuation of the underlying assets or decreases in the derivative liabilities will result in an increase in the fair value of these borrowings.
Derivatives
We consider counterparty collateral arrangements and rights of set-off when evaluating our net credit risk exposure to our derivative counterparties. Accordingly, we are permitted to include consideration of these arrangements when determining whether any incremental adjustment should be made for both the counterparty’s and our non-performance risk in measuring fair value for our derivative instruments. As a result of these counterparty arrangements, we determined that any adjustment for credit risk would not be material and we have not recorded any incremental adjustment for our non-performance risk or the non-performance risk of the derivative counterparty for our derivative assets or liabilities. We determine fair value for our derivatives using an income approach with internal models based on relevant market inputs for each derivative instrument. We also compare the fair value determined using our internal model to the valuations provided by our derivative counterparties with any significant differences or changes in valuation being evaluated further by our derivatives professionals that are familiar with the instrument and market inputs used in the valuation.
Interest rate swaps. The valuation of interest rate swaps is determined using an income approach. The primary input into the valuation represents the forward interest rate swap curve, which is generally considered an observable input, and results in the derivative being classified as Level 2. For certain interest rate swaps, the inputs into the valuation also include the total returns of certain bonds that would primarily be considered an observable input and result in the derivative being classified as Level 2.
Interest rate caps and floors. The valuation of interest rate caps and floors is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve, forward interest rate volatility and time value component associated with the optionality in the derivative which are generally considered observable inputs and results in the derivatives being classified as Level 2.
Interest rate swaps related to securitization entities. The valuation of interest rate swaps related to securitization entities was determined using an income approach. The primary input into the valuation represented the forward interest rate swap curve, which was generally considered an observable input, and resulted in the derivative being classified as Level 2.
Inflation indexed swaps. The valuation of inflation indexed swaps was determined using an income approach. The primary inputs into the valuation represented the forward interest rate swap curve, the current consumer price index and the forward consumer price index curve, which were generally considered observable inputs, and resulted in the derivative being classified as Level 2.
Foreign currency swaps. The valuation of foreign currency swaps is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve and foreign currency
 
44

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
exchange rates, both of which are considered an observable input, and results in the derivative being classified as Level 2.
Credit default swaps. We have single name credit default swaps and we previously sold protection under index tranche credit default swaps. For single name credit default swaps, we utilize an income approach to determine fair value based on using current market information for the credit spreads of the reference entity, which is considered observable inputs based on the reference entities of our derivatives and results in these derivatives being classified as Level 2. For index tranche credit default swaps, we utilized an income approach that utilized current market information related to credit spreads and expected defaults and losses associated with the reference entities that comprised the respective index associated with each derivative. There were significant unobservable inputs associated with the timing and amount of losses from the reference entities as well as the timing or amount of losses, if any, that were absorbed by our tranche. Accordingly, the index tranche credit default swaps were classified as Level 3. As credit spreads widened for the underlying issuers comprising the index, the change in our valuation of these credit default swaps were unfavorable.
Credit default swaps related to securitization entities. Credit default swaps related to securitization entities represented customized index tranche credit default swaps and were valued using a similar methodology as described above for index tranche credit default swaps. We determined fair value of these credit default swaps after considering both the valuation methodology described above as well as the valuation provided by the derivative counterparty. In addition to the valuation methodology and inputs described for index tranche credit default swaps, these customized credit default swaps contained a feature that permitted the securitization entity to provide the par value of underlying assets in the securitization entity to settle any losses under the credit default swap. The valuation of this settlement feature was dependent upon the valuation of the underlying assets and the timing and amount of any expected loss on the credit default swap, which was considered a significant unobservable input. Accordingly, these customized index tranche credit default swaps related to securitization entities were classified as Level 3. As credit spreads widened for the underlying issuers comprising the customized index, the change in our valuation of these credit default swaps were unfavorable.
Equity index options. We have equity index options associated with various equity indices. The valuation of equity index options is determined using an income approach. The primary inputs into the valuation represent forward interest rates, equity index volatility, equity index and time value component associated with the optionality in the derivative, which are considered significant unobservable inputs in most instances. The equity index volatility surface is determined based on market information that is not readily observable and is developed based upon inputs received from several third-party sources. Accordingly, these options are classified as Level 3. As equity index volatility increases, our valuation of these options changes favorably.
Financial futures. The fair value of financial futures is based on the closing exchange prices. Accordingly, these financial futures are classified as Level 1. The period end valuation is zero as a result of settling the margins on these contracts on a daily basis.
Equity return swaps. The valuation of equity return swaps is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve and underlying equity index values, which are generally considered observable inputs, and results in the derivative being classified as Level 2.
Forward bond purchase commitments. The valuation of forward bond purchase commitments is determined using an income approach. The primary input into the valuation represents the current bond prices and interest rates, which are generally considered an observable input, and results in the derivative being classified as Level 2.
 
45

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Other foreign currency contracts. We have certain foreign currency options classified as other foreign currency contracts. The valuation of foreign currency options is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve, foreign currency exchange rates, forward interest rate, foreign currency exchange rate volatility, foreign equity index volatility and time value component associated with the optionality in the derivative. As a result of the significant unobservable inputs associated with the forward interest rate, foreign currency exchange rate volatility and foreign equity index volatility inputs, the derivative is classified as Level 3. As foreign currency exchange rate volatility and foreign equity index volatility increases, the change in our valuation of these options will be favorable for purchase options and unfavorable for options sold. We also have foreign currency forward contracts where the valuation is determined using an income approach. The primary inputs into the valuation represent the forward foreign currency exchange rates, which are generally considered observable inputs and results in the derivative being classified as Level 2.
 
46

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables set forth our assets by class of instrument that are measured at fair value on a recurring basis as of the dates indicated:

 	  	June 30, 2018 	 	
(Amounts in millions) 	  	Total	 	  	Level 1	 	  	Level 2	 	  	Level 3	 	  	NAV  (1) 	 	
Assets	  				  				  				  				  				
Investments:	  				  				  				  				  				
Fixed maturity securities:	  				  				  				  				  				
U.S. government, agencies and government-sponsored enterprises	  	$	5,353		  	$	—  	 	  	$	5,353		  	$	—  	 	  	$	—  	 	
State and political subdivisions	  	 	2,855		  	 	—  	 	  	 	2,803		  	 	52		  	 	—  	 	
Non-U.S. government	  	 	2,380		  	 	—  	 	  	 	2,380		  	 	—  	 	  	 	—  	 	
U.S. corporate:	  				  				  				  				  				
Utilities	  	 	4,879		  	 	—  	 	  	 	4,257		  	 	622		  	 	—  	 	
Energy	  	 	2,270		  	 	—  	 	  	 	2,132		  	 	138		  	 	—  	 	
Finance and insurance	  	 	6,275		  	 	—  	 	  	 	5,817		  	 	458		  	 	—  	 	
Consumer—non-cyclical	  	 	4,541		  	 	—  	 	  	 	4,462		  	 	79		  	 	—  	 	
Technology and communications	  	 	2,781		  	 	—  	 	  	 	2,769		  	 	12		  	 	—  	 	
Industrial	  	 	1,283		  	 	—  	 	  	 	1,243		  	 	40		  	 	—  	 	
Capital goods	  	 	2,361		  	 	—  	 	  	 	2,242		  	 	119		  	 	—  	 	
Consumer—cyclical	  	 	1,573		  	 	—  	 	  	 	1,319		  	 	254		  	 	—  	 	
Transportation	  	 	1,252		  	 	—  	 	  	 	1,196		  	 	56		  	 	—  	 	
Other	  	 	354		  	 	—  	 	  	 	201		  	 	153		  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total U.S. corporate	  	 	27,569		  	 	—  	 	  	 	25,638		  	 	1,931		  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Non-U.S. corporate:	  				  				  				  				  				
Utilities	  	 	962		  	 	—  	 	  	 	629		  	 	333		  	 	—  	 	
Energy	  	 	1,399		  	 	—  	 	  	 	1,224		  	 	175		  	 	—  	 	
Finance and insurance	  	 	2,537		  	 	—  	 	  	 	2,387		  	 	150		  	 	—  	 	
Consumer—non-cyclical	  	 	702		  	 	—  	 	  	 	594		  	 	108		  	 	—  	 	
Technology and communications	  	 	1,007		  	 	—  	 	  	 	991		  	 	16		  	 	—  	 	
Industrial	  	 	977		  	 	—  	 	  	 	872		  	 	105		  	 	—  	 	
Capital goods	  	 	611		  	 	—  	 	  	 	445		  	 	166		  	 	—  	 	
Consumer—cyclical	  	 	522		  	 	—  	 	  	 	474		  	 	48		  	 	—  	 	
Transportation	  	 	727		  	 	—  	 	  	 	524		  	 	203		  	 	—  	 	
Other	  	 	2,558		  	 	—  	 	  	 	2,476		  	 	82		  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total non-U.S. corporate	  	 	12,002		  	 	—  	 	  	 	10,616		  	 	1,386		  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Residential mortgage-backed	  	 	3,567		  	 	—  	 	  	 	3,533		  	 	34		  	 	—  	 	
Commercial mortgage-backed	  	 	3,349		  	 	—  	 	  	 	3,305		  	 	44		  	 	—  	 	
Other asset-backed	  	 	2,957		  	 	—  	 	  	 	2,791		  	 	166		  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total fixed maturity securities	  	 	60,032		  	 	—  	 	  	 	56,419		  	 	3,613		  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Equity securities	  	 	758		  	 	643		  	 	69		  	 	46		  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Other invested assets:	  				  				  				  				  				
Derivative assets:	  				  				  				  				  				
Interest rate swaps	  	 	49		  	 	—  	 	  	 	49		  	 	—  	 	  	 	—  	 	
Interest rate caps and floors	  	 	1		  	 	—  	 	  	 	1		  	 	—  	 	  	 	—  	 	
Foreign currency swaps	  	 	3		  	 	—  	 	  	 	3		  	 	—  	 	  	 	—  	 	
Equity index options	  	 	70		  	 	—  	 	  	 	—  	 	  	 	70		  	 	—  	 	
Equity return swaps	  	 	1		  	 	—  	 	  	 	1		  	 	—  	 	  	 	—  	 	
Other foreign currency contracts	  	 	106		  	 	—  	 	  	 	106		  	 	—  	 	  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total derivative assets	  	 	230		  	 	—  	 	  	 	160		  	 	70		  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Securities lending collateral	  	 	211		  	 	—  	 	  	 	211		  	 	—  	 	  	 	—  	 	
Short-term investments	  	 	708		  	 	1		  	 	707		  	 	—  	 	  	 	—  	 	
Limited partnerships	  	 	248		  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	248	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total other invested assets	  	 	1,397		  	 	1		  	 	1,078		  	 	70		  	 	248	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Reinsurance recoverable (2)	  	 	12		  	 	—  	 	  	 	—  	 	  	 	12		  	 	—  	 	
Separate account assets	  	 	6,750		  	 	6,750		  	 	—  	 	  	 	—  	 	  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total assets	  	$	68,949		  	$	7,394		  	$	57,566		  	$	3,741		  	$	248	 	

(1)  	Limited partnerships that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.	
(2)  	Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.	
 
47

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 	  	December 31, 2017	 		
	(Amounts in millions) 	  	Total	 	  	Level 1	 	  	Level 2	 	  	Level 3	 	
Assets	  				  				  				  					
Investments:	  				  				  				  					
Fixed maturity securities:	  				  				  				  					
U.S. government, agencies and government-sponsored enterprises	  	$	5,548		  	$	—  	 	  	$	5,547		  	$	1			
State and political subdivisions	  	 	2,926		  	 	—  	 	  	 	2,889		  	 	37			
Non-U.S. government	  	 	2,233		  	 	—  	 	  	 	2,233		  	 	—  	 		
U.S. corporate:	  				  				  				  					
Utilities	  	 	4,998		  	 	—  	 	  	 	4,424		  	 	574			
Energy	  	 	2,458		  	 	—  	 	  	 	2,311		  	 	147			
Finance and insurance	  	 	6,528		  	 	—  	 	  	 	5,902		  	 	626			
Consumer—non-cyclical	  	 	4,831		  	 	—  	 	  	 	4,750		  	 	81			
Technology and communications	  	 	2,845		  	 	—  	 	  	 	2,772		  	 	73			
Industrial	  	 	1,346		  	 	—  	 	  	 	1,307		  	 	39			
Capital goods	  	 	2,355		  	 	—  	 	  	 	2,234		  	 	121			
Consumer—cyclical	  	 	1,605		  	 	—  	 	  	 	1,343		  	 	262			
Transportation	  	 	1,291		  	 	—  	 	  	 	1,231		  	 	60			
Other	  	 	379		  	 	—  	 	  	 	210		  	 	169			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Total U.S. corporate	  	 	28,636		  	 	—  	 	  	 	26,484		  	 	2,152			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Non-U.S. corporate:	  				  				  				  					
Utilities	  	 	1,017		  	 	—  	 	  	 	674		  	 	343			
Energy	  	 	1,490		  	 	—  	 	  	 	1,314		  	 	176			
Finance and insurance	  	 	2,735		  	 	—  	 	  	 	2,574		  	 	161			
Consumer—non-cyclical	  	 	712		  	 	—  	 	  	 	588		  	 	124			
Technology and communications	  	 	982		  	 	—  	 	  	 	953		  	 	29			
Industrial	  	 	1,044		  	 	—  	 	  	 	928		  	 	116			
Capital goods	  	 	645		  	 	—  	 	  	 	454		  	 	191			
Consumer—cyclical	  	 	540		  	 	—  	 	  	 	486		  	 	54			
Transportation	  	 	721		  	 	—  	 	  	 	551		  	 	170			
Other	  	 	2,725		  	 	—  	 	  	 	2,673		  	 	52			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Total non-U.S. corporate	  	 	12,611		  	 	—  	 	  	 	11,195		  	 	1,416			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Residential mortgage-backed	  	 	4,057		  	 	—  	 	  	 	3,980		  	 	77			
Commercial mortgage-backed	  	 	3,446		  	 	—  	 	  	 	3,416		  	 	30			
Other asset-backed	  	 	3,068		  	 	—  	 	  	 	2,831		  	 	237			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Total fixed maturity securities	  	 	62,525		  	 	—  	 	  	 	58,575		  	 	3,950			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Equity securities	  	 	820		  	 	696		  	 	80		  	 	44			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Other invested assets:	  				  				  				  					
Derivative assets:	  				  				  				  					
Interest rate swaps	  	 	74		  	 	—  	 	  	 	74		  	 	—  	 		
Foreign currency swaps	  	 	12		  	 	—  	 	  	 	12		  	 	—  	 		
Equity index options	  	 	80		  	 	—  	 	  	 	—  	 	  	 	80			
Other foreign currency contracts	  	 	110		  	 	—  	 	  	 	110		  	 	—  	 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Total derivative assets	  	 	276		  	 	—  	 	  	 	196		  	 	80			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Securities lending collateral	  	 	268		  	 	—  	 	  	 	268		  	 	—  	 		
Short-term investments	  	 	902		  	 	107		  	 	795		  	 	—  	 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Total other invested assets	  	 	1,446		  	 	107		  	 	1,259		  	 	80			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Reinsurance recoverable (1)	  	 	14		  	 	—  	 	  	 	—  	 	  	 	14			
Separate account assets	  	 	7,230		  	 	7,230		  	 	—  	 	  	 	—  	 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Total assets	  	$	72,035		  	$	8,033		  	$	59,914		  	$	4,088			

(1)  	Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.	
 
48

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers between levels at the beginning fair value for the reporting period in which the changes occur. Given the types of assets classified as Level 1, which primarily represents mutual fund investments, we typically do not have any transfers between Level 1 and Level 2 measurement categories and did not have any such transfers during any period presented.
Our assessment of whether or not there were significant unobservable inputs related to fixed maturity securities was based on our observations obtained through the course of managing our investment portfolio, including interaction with other market participants, observations related to the availability and consistency of pricing and/or rating, and understanding of general market activity such as new issuance and the level of secondary market trading for a class of securities. Additionally, we considered data obtained from third-party pricing sources to determine whether our estimated values incorporate significant unobservable inputs that would result in the valuation being classified as Level 3.
 
49

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables present additional information about assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:

(Amounts in millions) 	 	Beginning
balance
as of
April 1,
2018	 	 	Total realized and
unrealized gains
(losses)	 	 	Purchases	 	 	Sales	 	 	Issuances	 	 	Settlements	 	 	Transfer 
into 
 Level  3  (1) 	 	 	Transfer
out of 
 Level 3  (1) 	 	 	Ending
balance
as of
June 30,
2018	 	 	Total gains
(losses)
included in
net income
attributable
to assets
still held	 	
	 			 	Included in
net income	 	 	Included
in OCI	 	 			 			 			 			 			 			 			 			
Fixed maturity securities:	 				 				 				 				 				 				 				 				 				 				 				
State and political subdivisions	 	$	53		 	$	—  	 	 	$	(1	) 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	52		 	$	—  	 	
U.S. corporate:	 				 				 				 				 				 				 				 				 				 				 				
Utilities	 	 	553		 	 	(1	) 	 	 	(7	) 	 	 	66		 	 	(12	) 	 	 	—  	 	 	 	(2	) 	 	 	25	 	 	 	—  	 	 	 	622		 	 	—  	 	
Energy	 	 	146		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	(7	)  	 	 	138		 	 	—  	 	
Finance and insurance	 	 	580		 	 	—  	 	 	 	(41	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(74	) 	 	 	—  	 	 	 	(7	)  	 	 	458		 	 	—  	 	
Consumer—non-cyclical	 	 	79		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	79		 	 	—  	 	
Technology and communications	 	 	25		 	 	—  	 	 	 	1		 	 	4		 	 	—  	 	 	 	—  	 	 	 	(18	) 	 	 	—  	 	 	 	—  	 	 	 	12		 	 	—  	 	
Industrial	 	 	39		 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	40		 	 	—  	 	
Capital goods	 	 	103		 	 	—  	 	 	 	(1	) 	 	 	24		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(7	)  	 	 	119		 	 	—  	 	
Consumer—cyclical	 	 	252		 	 	—  	 	 	 	(1	) 	 	 	7		 	 	(3	) 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	254		 	 	—  	 	
Transportation	 	 	57		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	56		 	 	—  	 	
Other	 	 	166		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(10	) 	 	 	—  	 	 	 	(3	) 	 	 	—  	 	 	 	—  	 	 	 	153		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total U.S. corporate	 	 	2,000		 	 	(1	) 	 	 	(48	) 	 	 	101		 	 	(25	) 	 	 	—  	 	 	 	(100	) 	 	 	25	 	 	 	(21	)  	 	 	1,931		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-U.S. corporate:	 				 				 				 				 				 				 				 				 				 				 				
Utilities	 	 	336		 	 	—  	 	 	 	(4	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	15	 	 	 	(14	)  	 	 	333		 	 	—  	 	
Energy	 	 	195		 	 	—  	 	 	 	(2	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(18	) 	 	 	—  	 	 	 	—  	 	 	 	175		 	 	—  	 	
Finance and insurance	 	 	153		 	 	1		 	 	(3	) 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	(1	)  	 	 	150		 	 	1		
Consumer—non-cyclical	 	 	120		 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(11	) 	 	 	—  	 	 	 	—  	 	 	 	108		 	 	—  	 	
Technology and communications	 	 	28		 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(13	) 	 	 	—  	 	 	 	—  	 	 	 	16		 	 	—  	 	
Industrial	 	 	108		 	 	—  	 	 	 	(1	) 	 	 	3		 	 	—  	 	 	 	—  	 	 	 	(5	) 	 	 	—  	 	 	 	—  	 	 	 	105		 	 	—  	 	
Capital goods	 	 	186		 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(21	) 	 	 	—  	 	 	 	—  	 	 	 	166		 	 	1		
Consumer—cyclical	 	 	52		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	(3	) 	 	 	—  	 	 	 	—  	 	 	 	48		 	 	—  	 	
Transportation	 	 	166		 	 	—  	 	 	 	(2	) 	 	 	22		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	17	 	 	 	—  	 	 	 	203		 	 	—  	 	
Other	 	 	83		 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	82		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total non-U.S. corporate	 	 	1,427		 	 	2		 	 	(13	) 	 	 	26		 	 	(1	) 	 	 	—  	 	 	 	(72	) 	 	 	32	 	 	 	(15	)  	 	 	1,386		 	 	2		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Residential mortgage-backed	 	 	34		 	 	—  	 	 	 	1		 	 	17		 	 	—  	 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	(17	)  	 	 	34		 	 	—  	 	
Commercial mortgage-backed	 	 	6		 	 	—  	 	 	 	—  	 	 	 	28		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	13	 	 	 	(3	)  	 	 	44		 	 	—  	 	
Other asset-backed	 	 	172		 	 	—  	 	 	 	(1	) 	 	 	6		 	 	—  	 	 	 	—  	 	 	 	(24	) 	 	 	45	 	 	 	(32	)  	 	 	166		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total fixed maturity securities	 	 	3,692		 	 	1		 	 	(62	) 	 	 	178		 	 	(26	) 	 	 	—  	 	 	 	(197	) 	 	 	115	 	 	 	(88	)  	 	 	3,613		 	 	2		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	45		 	 	—  	 	 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	46		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other invested assets:	 				 				 				 				 				 				 				 				 				 				 				
Derivative assets:	 				 				 				 				 				 				 				 				 				 				 				
Equity index options	 	 	60		 	 	8		 	 	—  	 	 	 	15		 	 	—  	 	 	 	—  	 	 	 	(13	) 	 	 	—  	 	 	 	—  	 	 	 	70		 	 	8		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total derivative assets	 	 	60		 	 	8		 	 	—  	 	 	 	15		 	 	—  	 	 	 	—  	 	 	 	(13	) 	 	 	—  	 	 	 	—  	 	 	 	70		 	 	8		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other invested assets	 	 	60		 	 	8		 	 	—  	 	 	 	15		 	 	—  	 	 	 	—  	 	 	 	(13	) 	 	 	—  	 	 	 	—  	 	 	 	70		 	 	8		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reinsurance recoverable  (2)	 	 	13		 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	12		 	 	(1	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Level 3 assets	 	$	3,810		 	$	8		 	$	(62	) 	 	$	194		 	$	(26	) 	 	$	—  	 	 	$	(210	) 	 	$	115	 	 	$	(88	) 	 	$	3,741		 	$	9		

(1)  	The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities.	
(2)  	Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.	
 
50

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(Amounts in millions) 	 	Beginning
balance
as of
April 1,
2017	 	 	Total realized and
unrealized gains
(losses)	 	 	Purchases	 	 	Sales	 	 	Issuances	 	 	Settlements	 	 	Transfer 
into 
 Level 3  (1) 	 	 	Transfer 
out of 
 Level 3  (1) 	 	 	Ending
balance
as of
June 30,
2017	 	 	Total gains
(losses)
included in
net income
attributable
to assets
still held	 	
	 			 	Included in
net income	 	 	Included
in OCI	 	 			 			 			 			 			 			 			 			
Fixed maturity securities:	 				 				 				 				 				 				 				 				 				 				 				
U.S. government, agencies and government-sponsored enterprises	 	$	1		 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	1		 	$	—  	 	
State and political subdivisions	 	 	37		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	37		 	 	—  	 	
U.S. corporate:	 				 				 				 				 				 				 				 				 				 				 				
Utilities	 	 	578		 	 	—  	 	 	 	13		 	 	30		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	30	 	 	 	(13	)  	 	 	638		 	 	—  	 	
Energy	 	 	162		 	 	—  	 	 	 	4		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(7	) 	 	 	1	 	 	 	—  	 	 	 	160		 	 	—  	 	
Finance and insurance	 	 	818		 	 	4		 	 	39		 	 	24		 	 	(7	) 	 	 	—  	 	 	 	(3	) 	 	 	—  	 	 	 	(14	)  	 	 	861		 	 	4		
Consumer—non-cyclical	 	 	122		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	122		 	 	—  	 	
Technology and communications	 	 	59		 	 	—  	 	 	 	5		 	 	4		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(10	)  	 	 	58		 	 	—  	 	
Industrial	 	 	47		 	 	—  	 	 	 	1		 	 	13		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	61		 	 	—  	 	
Capital goods	 	 	153		 	 	—  	 	 	 	2		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(37	)  	 	 	118		 	 	—  	 	
Consumer—cyclical	 	 	263		 	 	—  	 	 	 	4		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	266		 	 	—  	 	
Transportation	 	 	97		 	 	—  	 	 	 	4		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	100		 	 	1		
Other	 	 	142		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(3	) 	 	 	37	 	 	 	—  	 	 	 	176		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total U.S. corporate	 	 	2,441		 	 	4		 	 	72		 	 	71		 	 	(7	) 	 	 	—  	 	 	 	(15	) 	 	 	68	 	 	 	(74	)  	 	 	2,560		 	 	5		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-U.S. corporate:	 				 				 				 				 				 				 				 				 				 				 				
Utilities	 	 	386		 	 	—  	 	 	 	3		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(30	)  	 	 	359		 	 	—  	 	
Energy	 	 	206		 	 	—  	 	 	 	3		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(32	)  	 	 	177		 	 	—  	 	
Finance and insurance	 	 	168		 	 	1		 	 	4		 	 	4		 	 	—  	 	 	 	—  	 	 	 	(5	) 	 	 	—  	 	 	 	—  	 	 	 	172		 	 	1		
Consumer—non-cyclical	 	 	129		 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	129		 	 	—  	 	
Technology and communications	 	 	48		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	48		 	 	—  	 	
Industrial	 	 	110		 	 	—  	 	 	 	2		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	112		 	 	—  	 	
Capital goods	 	 	170		 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(15	) 	 	 	—  	 	 	 	(7	)  	 	 	149		 	 	—  	 	
Consumer—cyclical	 	 	67		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	67		 	 	—  	 	
Transportation	 	 	193		 	 	—  	 	 	 	1		 	 	6		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	1	 	 	 	(11	)  	 	 	190		 	 	—  	 	
Other	 	 	24		 	 	—  	 	 	 	2		 	 	15		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	41		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total non-U.S. corporate	 	 	1,501		 	 	1		 	 	17		 	 	25		 	 	—  	 	 	 	—  	 	 	 	(20	) 	 	 	1	 	 	 	(81	)  	 	 	1,444		 	 	1		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Residential mortgage-backed	 	 	46		 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	26	 	 	 	—  	 	 	 	73		 	 	—  	 	
Commercial mortgage-backed	 	 	59		 	 	(1	) 	 	 	2		 	 	8		 	 	(9	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(7	)  	 	 	52		 	 	—  	 	
Other asset-backed	 	 	175		 	 	(7	) 	 	 	10		 	 	10		 	 	(35	) 	 	 	—  	 	 	 	(5	) 	 	 	9	 	 	 	(7	)  	 	 	150		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total fixed maturity securities	 	 	4,260		 	 	(3	) 	 	 	102		 	 	114		 	 	(51	) 	 	 	—  	 	 	 	(40	) 	 	 	104	 	 	 	(169	)  	 	 	4,317		 	 	6		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	47		 	 	—  	 	 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	48		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other invested assets:	 				 				 				 				 				 				 				 				 				 				 				
Derivative assets:	 				 				 				 				 				 				 				 				 				 				 				
Equity index options	 	 	77		 	 	13		 	 	—  	 	 	 	9		 	 	—  	 	 	 	—  	 	 	 	(18	) 	 	 	—  	 	 	 	—  	 	 	 	81		 	 	—  	 	
Other foreign currency contracts	 	 	1		 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total derivative assets	 	 	78		 	 	12		 	 	—  	 	 	 	9		 	 	—  	 	 	 	—  	 	 	 	(18	) 	 	 	—  	 	 	 	—  	 	 	 	81		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other invested assets	 	 	78		 	 	12		 	 	—  	 	 	 	9		 	 	—  	 	 	 	—  	 	 	 	(18	) 	 	 	—  	 	 	 	—  	 	 	 	81		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reinsurance recoverable  (2)	 	 	15		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	15		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Level 3 assets	 	$	4,400		 	$	9		 	$	102		 	$	124		 	$	(51	) 	 	$	—  	 	 	$	(58	) 	 	$	104	 	 	$	(169	)  	 	$	4,461		 	$	6		

(1)  	The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities.	
(2)  	Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.	
 
51

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables present additional information about assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:

(Amounts in millions) 	 	Beginning
balance
as of
January 1,
2018	 	 	Total realized and
unrealized gains
(losses)	 	 	Purchases	 	 	Sales	 	 	Issuances	 	 	Settlements	 	 	Transfer 
 into 
 Level 3   (1) 	 	 	Transfer
out of 
 Level 3  (1) 	 	 	Ending
balance
as of
June 30,
2018	 	 	Total gains
(losses)
included in
net income
attributable
to assets
still held	 	
	 			 	Included
in net
income	 	 	Included
in OCI	 	 			 			 			 			 			 			 			 			
Fixed maturity securities:	 				 				 				 				 				 				 				 				 				 				 				
U.S. government, agencies and government-sponsored enterprises	 	$	1		 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	(1	) 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	
State and political subdivisions	 	 	37		 	 	1		 	 	(4	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	18	 	 	 	—  	 	 	 	52		 	 	1		
U.S. corporate:	 				 				 				 				 				 				 				 				 				 				 				
Utilities	 	 	574		 	 	(1	) 	 	 	(25	) 	 	 	69		 	 	(12	) 	 	 	—  	 	 	 	(4	) 	 	 	25	 	 	 	(4	)  	 	 	622		 	 	—  	 	
Energy	 	 	147		 	 	—  	 	 	 	(5	) 	 	 	22		 	 	—  	 	 	 	—  	 	 	 	(19	) 	 	 	—  	 	 	 	(7	)  	 	 	138		 	 	—  	 	
Finance and insurance	 	 	626		 	 	1		 	 	(67	) 	 	 	26		 	 	—  	 	 	 	—  	 	 	 	(110	) 	 	 	—  	 	 	 	(18	)  	 	 	458		 	 	1		
Consumer—non-cyclical	 	 	81		 	 	—  	 	 	 	(2	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	79		 	 	—  	 	
Technology and communications	 	 	73		 	 	—  	 	 	 	(5	) 	 	 	4		 	 	—  	 	 	 	—  	 	 	 	(60	) 	 	 	—  	 	 	 	—  	 	 	 	12		 	 	—  	 	
Industrial	 	 	39		 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	40		 	 	—  	 	
Capital goods	 	 	121		 	 	—  	 	 	 	(9	) 	 	 	24		 	 	—  	 	 	 	—  	 	 	 	(10	) 	 	 	—  	 	 	 	(7	)  	 	 	119		 	 	—  	 	
Consumer—cyclical	 	 	262		 	 	—  	 	 	 	(10	) 	 	 	17		 	 	(3	) 	 	 	—  	 	 	 	(12	) 	 	 	—  	 	 	 	—  	 	 	 	254		 	 	—  	 	
Transportation	 	 	60		 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(3	) 	 	 	—  	 	 	 	—  	 	 	 	56		 	 	—  	 	
Other	 	 	169		 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	(10	) 	 	 	—  	 	 	 	(5	) 	 	 	—  	 	 	 	—  	 	 	 	153		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total U.S. corporate	 	 	2,152		 	 	—  	 	 	 	(124	) 	 	 	162		 	 	(25	) 	 	 	—  	 	 	 	(223	) 	 	 	25	 	 	 	(36	)  	 	 	1,931		 	 	1		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-U.S. corporate:	 				 				 				 				 				 				 				 				 				 				 				
Utilities	 	 	343		 	 	—  	 	 	 	(13	) 	 	 	22		 	 	—  	 	 	 	—  	 	 	 	(20	) 	 	 	15	 	 	 	(14	)  	 	 	333		 	 	—  	 	
Energy	 	 	176		 	 	—  	 	 	 	(6	) 	 	 	23		 	 	—  	 	 	 	—  	 	 	 	(18	) 	 	 	—  	 	 	 	—  	 	 	 	175		 	 	—  	 	
Finance and insurance	 	 	161		 	 	2		 	 	(11	) 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	(2	) 	 	 	—  	 	 	 	(1	)  	 	 	150		 	 	2		
Consumer—non-cyclical	 	 	124		 	 	—  	 	 	 	(4	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(12	) 	 	 	—  	 	 	 	—  	 	 	 	108		 	 	—  	 	
Technology and communications	 	 	29		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(13	) 	 	 	—  	 	 	 	—  	 	 	 	16		 	 	—  	 	
Industrial	 	 	116		 	 	—  	 	 	 	(4	) 	 	 	3		 	 	—  	 	 	 	—  	 	 	 	(10	) 	 	 	—  	 	 	 	—  	 	 	 	105		 	 	—  	 	
Capital goods	 	 	191		 	 	1		 	 	(5	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(21	) 	 	 	—  	 	 	 	—  	 	 	 	166		 	 	1		
Consumer—cyclical	 	 	54		 	 	—  	 	 	 	(2	) 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	(3	) 	 	 	—  	 	 	 	—  	 	 	 	48		 	 	—  	 	
Transportation	 	 	170		 	 	—  	 	 	 	(6	) 	 	 	22		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	17	 	 	 	—  	 	 	 	203		 	 	—  	 	
Other	 	 	52		 	 	—  	 	 	 	(3	) 	 	 	33		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	82		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total non-U.S. corporate	 	 	1,416		 	 	3		 	 	(54	) 	 	 	104		 	 	(1	) 	 	 	—  	 	 	 	(99	) 	 	 	32	 	 	 	(15	)  	 	 	1,386		 	 	3		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Residential mortgage-backed	 	 	77		 	 	—  	 	 	 	—  	 	 	 	29		 	 	—  	 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	(71	)  	 	 	34		 	 	—  	 	
Commercial mortgage-backed	 	 	30		 	 	—  	 	 	 	(2	) 	 	 	35		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	13	 	 	 	(32	)  	 	 	44		 	 	—  	 	
Other asset-backed	 	 	237		 	 	—  	 	 	 	(3	) 	 	 	61		 	 	—  	 	 	 	—  	 	 	 	(56	) 	 	 	48	 	 	 	(121	)  	 	 	166		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total fixed maturity securities	 	 	3,950		 	 	4		 	 	(187	) 	 	 	391		 	 	(26	) 	 	 	—  	 	 	 	(380	) 	 	 	136	 	 	 	(275	)  	 	 	3,613		 	 	5		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	44		 	 	—  	 	 	 	—  	 	 	 	5		 	 	(3	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	46		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other invested assets:	 				 				 				 				 				 				 				 				 				 				 				
Derivative assets:	 				 				 				 				 				 				 				 				 				 				 				
Equity index options	 	 	80		 	 	(7	) 	 	 	—  	 	 	 	29		 	 	—  	 	 	 	—  	 	 	 	(32	) 	 	 	—  	 	 	 	—  	 	 	 	70		 	 	(4	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total derivative assets	 	 	80		 	 	(7	) 	 	 	—  	 	 	 	29		 	 	—  	 	 	 	—  	 	 	 	(32	) 	 	 	—  	 	 	 	—  	 	 	 	70		 	 	(4	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other invested assets	 	 	80		 	 	(7	) 	 	 	—  	 	 	 	29		 	 	—  	 	 	 	—  	 	 	 	(32	) 	 	 	—  	 	 	 	—  	 	 	 	70		 	 	(4	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reinsurance recoverable (2)	 	 	14		 	 	(3	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	12		 	 	(3	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Level 3 assets	 	$	4,088		 	$	(6	) 	 	$	(187	) 	 	$	425		 	$	(29	) 	 	$	1		 	$	(412	) 	 	$	136	 	 	$	(275	) 	 	$	3,741		 	$	(2	) 	

(1)  	The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities.	
(2)  	Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.	
 
52

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(Amounts in millions) 	 	Beginning
balance
as of
January 1,
2017	 	 	Total realized and
unrealized gains
(losses)	 	 	Purchases	 	 	Sales	 	 	Issuances	 	 	Settlements	 	 	Transfer 
 into 
 Level 3  (1) 	 	 	Transfer
out of 
 Level 3  (1) 	 	 	Ending
balance
as of
June 30,
2017	 	 	Total gains
(losses)
included in
net income
attributable
to assets
still held	 	
	 			 	Included
in net
income	 	 	Included
in OCI	 	 			 			 			 			 			 			 			 			
Fixed maturity securities:	 				 				 				 				 				 				 				 				 				 				 				
U.S. government, agencies and government-sponsored enterprises	 	$	2		 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	(1	) 	 	$	—  	 	 	$	—  	 	 	$	1		 	$	—  	 	
State and political subdivisions	 	 	37		 	 	1		 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	37		 	 	1		
U.S. corporate:	 				 				 				 				 				 				 				 				 				 				 				
Utilities	 	 	576		 	 	—  	 	 	 	20		 	 	44		 	 	—  	 	 	 	—  	 	 	 	(2	) 	 	 	30	 	 	 	(30	)  	 	 	638		 	 	—  	 	
Energy	 	 	210		 	 	(1	) 	 	 	6		 	 	—  	 	 	 	(10	) 	 	 	—  	 	 	 	(30	) 	 	 	1	 	 	 	(16	)  	 	 	160		 	 	(1	) 	
Finance and insurance	 	 	786		 	 	8		 	 	51		 	 	53		 	 	(17	) 	 	 	—  	 	 	 	(6	) 	 	 	—  	 	 	 	(14	)  	 	 	861		 	 	8		
Consumer—non-cyclical	 	 	121		 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	122		 	 	—  	 	
Technology and communications	 	 	54		 	 	1		 	 	6		 	 	14		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(17	)  	 	 	58		 	 	1		
Industrial	 	 	48		 	 	—  	 	 	 	—  	 	 	 	13		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	61		 	 	—  	 	
Capital goods	 	 	152		 	 	—  	 	 	 	3		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(37	)  	 	 	118		 	 	—  	 	
Consumer—cyclical	 	 	258		 	 	—  	 	 	 	9		 	 	2		 	 	—  	 	 	 	—  	 	 	 	(3	) 	 	 	—  	 	 	 	—  	 	 	 	266		 	 	—  	 	
Transportation	 	 	139		 	 	1		 	 	5		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(3	) 	 	 	—  	 	 	 	(42	)  	 	 	100		 	 	1		
Other	 	 	143		 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(5	) 	 	 	37	 	 	 	—  	 	 	 	176		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total U.S. corporate	 	 	2,487		 	 	9		 	 	102		 	 	126		 	 	(27	) 	 	 	—  	 	 	 	(49	) 	 	 	68	 	 	 	(156	)  	 	 	2,560		 	 	9		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-U.S. corporate:	 				 				 				 				 				 				 				 				 				 				 				
Utilities	 	 	386		 	 	—  	 	 	 	5		 	 	30		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(62	)  	 	 	359		 	 	—  	 	
Energy	 	 	206		 	 	—  	 	 	 	5		 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	(32	)  	 	 	177		 	 	—  	 	
Finance and insurance	 	 	182		 	 	3		 	 	8		 	 	4		 	 	—  	 	 	 	—  	 	 	 	(25	) 	 	 	—  	 	 	 	—  	 	 	 	172		 	 	2		
Consumer—non-cyclical	 	 	139		 	 	—  	 	 	 	2		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(12	) 	 	 	—  	 	 	 	—  	 	 	 	129		 	 	—  	 	
Technology and communications	 	 	67		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(19	) 	 	 	—  	 	 	 	—  	 	 	 	48		 	 	—  	 	
Industrial	 	 	109		 	 	—  	 	 	 	3		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	112		 	 	—  	 	
Capital goods	 	 	169		 	 	—  	 	 	 	2		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(15	) 	 	 	—  	 	 	 	(7	)  	 	 	149		 	 	—  	 	
Consumer—cyclical	 	 	69		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(2	) 	 	 	—  	 	 	 	—  	 	 	 	67		 	 	—  	 	
Transportation	 	 	181		 	 	—  	 	 	 	3		 	 	6		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	11	 	 	 	(11	)  	 	 	190		 	 	—  	 	
Other	 	 	25		 	 	—  	 	 	 	1		 	 	15		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	41		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total non-U.S. corporate	 	 	1,533		 	 	3		 	 	29		 	 	55		 	 	(1	) 	 	 	—  	 	 	 	(73	) 	 	 	11	 	 	 	(113	)  	 	 	1,444		 	 	2		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Residential mortgage-backed	 	 	43		 	 	—  	 	 	 	1		 	 	4		 	 	—  	 	 	 	—  	 	 	 	(1	) 	 	 	26	 	 	 	—  	 	 	 	73		 	 	—  	 	
Commercial mortgage-backed	 	 	54		 	 	(1	) 	 	 	6		 	 	9		 	 	(9	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(7	)  	 	 	52		 	 	—  	 	
Other asset-backed	 	 	145		 	 	(7	) 	 	 	10		 	 	64		 	 	(35	) 	 	 	—  	 	 	 	(7	) 	 	 	14	 	 	 	(34	)  	 	 	150		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total fixed maturity securities	 	 	4,301		 	 	5		 	 	147		 	 	258		 	 	(72	) 	 	 	—  	 	 	 	(131	) 	 	 	119	 	 	 	(310	)  	 	 	4,317		 	 	12		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity securities	 	 	47		 	 	—  	 	 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	48		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other invested assets:	 				 				 				 				 				 				 				 				 				 				 				
Derivative assets:	 				 				 				 				 				 				 				 				 				 				 				
Equity index options	 	 	72		 	 	26		 	 	—  	 	 	 	21		 	 	—  	 	 	 	—  	 	 	 	(38	) 	 	 	—  	 	 	 	—  	 	 	 	81		 	 	—  	 	
Other foreign currency contracts	 	 	3		 	 	(3	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(3	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total derivative assets	 	 	75		 	 	23		 	 	—  	 	 	 	21		 	 	—  	 	 	 	—  	 	 	 	(38	) 	 	 	—  	 	 	 	—  	 	 	 	81		 	 	(3	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other invested assets	 	 	75		 	 	23		 	 	—  	 	 	 	21		 	 	—  	 	 	 	—  	 	 	 	(38	) 	 	 	—  	 	 	 	—  	 	 	 	81		 	 	(3	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Restricted other invested assets related to securitization entities	 	 	131		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(131	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Reinsurance recoverable (2)	 	 	16		 	 	(2	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	15		 	 	(2	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Level 3 assets	 	$	4,570		 	$	26		 	$	147		 	$	280		 	$	(203	) 	 	$	1		 	$	(169	) 	 	$	119	 	 	$	(310	) 	 	$	4,461		 	$	7		

(1)  	The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities.	
(2)  	Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.	
 
53

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the gains and losses included in net income from assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value and the related income statement line item in which these gains and losses were presented for the periods indicated:

 	  	Three months ended
June 30,	 	  	Six months ended
June 30,	 	
(Amounts in millions)	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Total realized and unrealized gains (losses) included in net income:	  				  				  				  				
Net investment income	  	$	2		  	$	5		  	$	5		  	$	14		
Net investment gains (losses)	  	 	6		  	 	4		  	 	(11	) 	  	 	12		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	8		  	$	9		  	$	(6	) 	  	$	26		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total gains (losses) included in net income attributable to assets still held:	  				  				  				  				
Net investment income	  	$	2		  	$	6		  	$	5		  	$	13		
Net investment gains (losses)	  	 	7		  	 	—  	 	  	 	(7	) 	  	 	(6	) 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	9		  	$	6		  	$	(2	) 	  	$	7		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
The amount presented for unrealized gains (losses) included in net income for available-for-sale securities represents impairments and accretion on certain fixed maturity securities.
 
54

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents a summary of the significant unobservable inputs used for certain asset fair value measurements that are based on internal models and classified as Level 3 as of June 30, 2018:

(Amounts in millions) 	 	Valuation technique	 	 	Fair value	 	 	Unobservable input	 	 	Range	 	 	Weighted-average	 	
Fixed maturity securities:	 				 				 				 				 				
U.S. corporate:	 				 				 				 				 				
Utilities	 	 	Internal models	 	 	$	616		 	 	Credit spreads	 	 	 	67bps - 262bps	 	 	 	138bps	 	
Energy	 	 	Internal models	 	 	 	116		 	 	Credit spreads	 	 	 	80bps - 278bps	 	 	 	148bps	 	
Finance and insurance	 	 	Internal models	 	 	 	439		 	 	Credit spreads	 	 	 	83bps - 290bps	 	 	 	157bps	 	
Consumer—non-cyclical	 	 	Internal models	 	 	 	79		 	 	Credit spreads	 	 	 	90bps - 172bps	 	 	 	122bps	 	
Technology and communications	 	 	Internal models	 	 	 	12		 	 	Credit spreads	 	 	 	63bps - 159bps	 	 	 	94bps	 	
Industrial	 	 	Internal models	 	 	 	40		 	 	Credit spreads	 	 	 	109bps - 202bps	 	 	 	150bps	 	
Capital goods	 	 	Internal models	 	 	 	119		 	 	Credit spreads	 	 	 	93bps - 241bps	 	 	 	136bps	 	
Consumer—cyclical	 	 	Internal models	 	 	 	213		 	 	Credit spreads	 	 	 	74bps - 210bps	 	 	 	135bps	 	
Transportation	 	 	Internal models	 	 	 	50		 	 	Credit spreads	 	 	 	59bps - 117bps	 	 	 	87bps	 	
Other	 	 	Internal models	 	 	 	152		 	 	Credit spreads	 	 	 	74bps - 124bps	 	 	 	85bps	 	
	 				 	 	 	 	 				 				 				
Total U.S. corporate	 	 	Internal models	 	 	$	1,836		 	 	Credit spreads	 	 	 	59bps - 290bps	 	 	 	136bps	 	
	 				 	 	 	 	 				 				 				
Non-U.S. corporate:	 				 				 				 				 				
Utilities	 	 	Internal models	 	 	$	333		 	 	Credit spreads	 	 	 	83bps - 179bps	 	 	 	128bps	 	
Energy	 	 	Internal models	 	 	 	134		 	 	Credit spreads	 	 	 	93bps - 254bps	 	 	 	127bps	 	
Finance and insurance	 	 	Internal models	 	 	 	143		 	 	Credit spreads	 	 	 	74bps - 235bps	 	 	 	137bps	 	
Consumer—non-cyclical	 	 	Internal models	 	 	 	108		 	 	Credit spreads	 	 	 	61bps - 202bps	 	 	 	128bps	 	
Technology and communications	 	 	Internal models	 	 	 	15		 	 	Credit spreads	 	 	 	144bps - 164bps	 	 	 	155bps	 	
Industrial	 	 	Internal models	 	 	 	105		 	 	Credit spreads	 	 	 	107bps - 241bps	 	 	 	150bps	 	
Capital goods	 	 	Internal models	 	 	 	166		 	 	Credit spreads	 	 	 	93bps - 248bps	 	 	 	152bps	 	
Consumer—cyclical	 	 	Internal models	 	 	 	44		 	 	Credit spreads	 	 	 	84bps - 172bps	 	 	 	102bps	 	
Transportation	 	 	Internal models	 	 	 	184		 	 	Credit spreads	 	 	 	80bps - 241bps	 	 	 	135bps	 	
Other	 	 	Internal models	 	 	 	82		 	 	Credit spreads	 	 	 	108bps - 248bps	 	 	 	161bps	 	
	 				 	 	 	 	 				 				 				
Total non-U.S. corporate	 	 	Internal models	 	 	$	1,314		 	 	Credit spreads	 	 	 	61bps - 254bps	 	 	 	136bps	 	
	 				 	 	 	 	 				 				 				
Derivative assets:	 				 				 				 				 				
Equity index options	 	 	Discounted
cash flows	 
 	 	$	70		 	 	Equity index
volatility	 
 	 	 	6% - 28%	 	 	 	18%	 	
Certain classes of instruments classified as Level 3 are excluded above as a result of not being material or due to limitations in being able to obtain the underlying inputs used by certain third-party sources, such as broker quotes, used as an input in determining fair value.
 
55

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables set forth our liabilities by class of instrument that are measured at fair value on a recurring basis as of the dates indicated:

 	  	June 30, 2018	 	
(Amounts in millions) 	  	Total	 	  	Level 1	 	  	Level 2	 	  	Level 3	 	
Liabilities	  				  				  				  				
Policyholder account balances:	  				  				  				  				
GMWB embedded derivatives (1)	  	$	235		  	$	—  	 	  	$	—  	 	  	$	235		
Fixed index annuity embedded derivatives	  	 	420		  	 	—  	 	  	 	—  	 	  	 	420		
Indexed universal life embedded derivatives	  	 	13		  	 	—  	 	  	 	—  	 	  	 	13		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total policyholder account balances	  	 	668		  	 	—  	 	  	 	—  	 	  	 	668		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Derivative liabilities:	  				  				  				  				
Interest rate swaps	  	 	71		  	 	—  	 	  	 	71		  	 	—  	 	
Foreign currency swaps	  	 	9		  	 	—  	 	  	 	9		  	 	—  	 	
Other foreign currency contracts	  	 	23		  	 	—  	 	  	 	23		  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total derivative liabilities	  	 	103		  	 	—  	 	  	 	103		  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total liabilities	  	$	771		  	$	—  	 	  	$	103		  	$	668		

(1)  	Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.	

 	  	December 31, 2017	 	
(Amounts in millions) 	  	Total	 	  	Level 1	 	  	Level 2	 	  	Level 3	 	
Liabilities	  				  				  				  				
Policyholder account balances:	  				  				  				  				
GMWB embedded derivatives (1)	  	$	250		  	$	—  	 	  	$	—  	 	  	$	250		
Fixed index annuity embedded derivatives	  	 	419		  	 	—  	 	  	 	—  	 	  	 	419		
Indexed universal life embedded derivatives	  	 	14		  	 	—  	 	  	 	—  	 	  	 	14		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total policyholder account balances	  	 	683		  	 	—  	 	  	 	—  	 	  	 	683		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Derivative liabilities:	  				  				  				  				
Interest rate swaps	  	 	25		  	 	—  	 	  	 	25		  	 	—  	 	
Equity return swaps	  	 	2		  	 	—  	 	  	 	2		  	 	—  	 	
Other foreign currency contracts	  	 	20		  	 	—  	 	  	 	20		  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total derivative liabilities	  	 	47		  	 	—  	 	  	 	47		  	 	—  	 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total liabilities	  	$	730		  	$	—  	 	  	$	47		  	$	683		

(1)  	Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.	
 
56

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables present additional information about liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:

(Amounts in millions) 	 	Beginning
balance
as of
April 1,
2018	 	 	Total realized and
unrealized (gains)
losses	 	 	Purchases	 	 	Sales	 	 	Issuances	 	 	Settlements	 	 	Transfer
into
Level 3	 	 	Transfer
out of
Level 3	 	 	Ending
balance
as of
June 30,
2018	 	 	Total (gains)
losses
included in
net (income)
attributable
to liabilities
still held	 	
	 			 	Included
in net
(income)	 	 	Included
in OCI	 	 			 			 			 			 			 			 			 			
Policyholder account balances:	 				 				 				 				 				 				 				 				 				 				 				
GMWB embedded derivatives  (1)	 	$	242		 	$	(14	) 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	7		 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	235		 	$	(14	) 	
Fixed index annuity embedded derivatives	 	 	408		 	 	15		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(3	) 	 	 	—  	 	 	 	—  	 	 	 	420		 	 	15		
Indexed universal life embedded derivatives	 	 	13		 	 	(2	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	2		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	13		 	 	(2	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total policyholder account balances	 	 	663		 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	9		 	 	(3	) 	 	 	—  	 	 	 	—  	 	 	 	668		 	 	(1	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Level 3 liabilities	 	$	663		 	$	(1	) 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	9		 	$	(3	) 	 	$	—  	 	 	$	—  	 	 	$	668		 	$	(1	) 	

(1)  	Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.	

(Amounts in millions) 	 	Beginning
balance
as of
April 1,
2017	 	 	Total realized and
unrealized (gains)
losses	 	 	Purchases	 	 	Sales	 	 	Issuances	 	 	Settlements	 	 	Transfer
into
Level 3	 	 	Transfer
out of
Level 3	 	 	Ending
balance
as of
June 30,
2017	 	 	Total (gains)
losses
included in
net (income)
attributable
to liabilities
still held	 	
	 			 	Included
in net
(income)	 	 	Included
in OCI	 	 			 			 			 			 			 			 			 			
Policyholder account balances:	 				 				 				 				 				 				 				 				 				 				 				
GMWB embedded derivatives (1)	 	$	275		 	$	(1	) 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	7		 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	281		 	$	(2	) 	
Fixed index annuity embedded derivatives	 	 	361		 	 	16		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	376		 	 	16		
Indexed universal life embedded derivatives	 	 	12		 	 	(2	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	3		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	13		 	 	(2	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total policyholder account balances	 	 	648		 	 	13		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	10		 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	670		 	 	12		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Borrowings related to securitization entities	 	 	13		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	12		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Level 3 liabilities	 	$	661		 	$	13		 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	10		 	$	(2	) 	 	$	—  	 	 	$	—  	 	 	$	682		 	$	12		

(1)  	Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.	
 
57

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables present additional information about liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:

(Amounts in millions) 	 	Beginning
balance
as of
January 1,
2018	 	 	Total realized and
unrealized (gains)
losses	 	 	Purchases	 	 	Sales	 	 	Issuances	 	 	Settlements	 	 	Transfer
into
Level 3	 	 	Transfer
out of
Level 3	 	 	Ending
balance
as of
June 30,
2018	 	 	Total (gains)
losses
included in
net (income)
attributable
to liabilities
still held	 	
	 			 	Included
in net
(income)	 	 	Included
in OCI	 	 			 			 			 			 			 			 			 			
Policyholder account balances:	 				 				 				 				 				 				 				 				 				 				 				
GMWB embedded derivatives (1)	 	$	250		 	$	(30	) 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	15		 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	235		 	$	(26	) 	
Fixed index annuity embedded derivatives	 	 	419		 	 	7		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(6	) 	 	 	—  	 	 	 	—  	 	 	 	420		 	 	7		
Indexed universal life embedded derivatives	 	 	14		 	 	(7	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	6		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	13		 	 	(7	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total policyholder account balances	 	 	683		 	 	(30	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	21		 	 	(6	) 	 	 	—  	 	 	 	—  	 	 	 	668		 	 	(26	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Level 3 liabilities	 	$	683		 	$	(30	) 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	21		 	$	(6	) 	 	$	—  	 	 	$	—  	 	 	$	668		 	$	(26	) 	

(1)  	Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.	

(Amounts in millions) 	 	Beginning
balance
as of
January 1,
2017	 	 	Total realized and
unrealized (gains)
losses	 	 	Purchases	 	 	Sales	 	 	Issuances	 	 	Settlements	 	 	Transfer
into
Level 3	 	 	Transfer
out of
Level 3	 	 	Ending
balance
as of
June 30,
2017	 	 	Total (gains)
losses
included in
net (income)
attributable
to liabilities
still held	 	
	 			 	Included
in net
(income)	 	 	Included
in OCI	 	 			 			 			 			 			 			 			 			
Policyholder account balances:	 				 				 				 				 				 				 				 				 				 				 				
GMWB embedded derivatives (1)	 	$	303		 	$	(36	) 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	14		 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	281		 	$	(33	) 	
Fixed index annuity embedded derivatives	 	 	344		 	 	36		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(4	) 	 	 	—  	 	 	 	—  	 	 	 	376		 	 	36		
Indexed universal life embedded derivatives	 	 	11		 	 	(3	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	5		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	13		 	 	(3	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total policyholder account balances	 	 	658		 	 	(3	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	19		 	 	(4	) 	 	 	—  	 	 	 	—  	 	 	 	670		 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Borrowings related to securitization entities	 	 	12		 	 	1		 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	—  	 	 	 	12		 	 	1		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Level 3 liabilities	 	$	670		 	$	(2	) 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	19		 	$	(5	) 	 	$	—  	 	 	$	—  	 	 	$	682		 	$	1		

(1)  	Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.	
 
58

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the gains and losses included in net (income) from liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value and the related income statement line item in which these gains and losses were presented for the periods indicated:

 	  	Three months ended
June 30,	 	  	Six months ended
June 30,	 	
(Amounts in millions)	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Total realized and unrealized (gains) losses included in net (income):	  				  				  				  				
Net investment income	  	$	—  		  	$	—  		  	$	—  		  	$	—  		
Net investment (gains) losses	  	 	(1	) 	  	 	13		  	 	(30	) 	  	 	(2	) 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	(1	) 	  	$	13		  	$	(30	) 	  	$	(2	) 	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total (gains) losses included in net (income) attributable to liabilities still held:	  				  				  				  				
Net investment income	  	$	—  		  	$	—  		  	$	—  		  	$	—  		
Net investment (gains) losses	  	 	(1	) 	  	 	12		  	 	(26	) 	  	 	1		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	(1	) 	  	$	12		  	$	(26	) 	  	$	1		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Purchases, sales, issuances and settlements represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases, sales and settlements of fixed maturity and equity securities and purchases, issuances and settlements of derivative instruments.
Issuances presented for GMWB embedded derivative liabilities are characterized as the change in fair value associated with the product fees recognized that are attributed to the embedded derivative to equal the expected future benefit costs upon issuance. Issuances for fixed index annuity and indexed universal life embedded derivative liabilities represent the amount of the premium received that is attributed to the value of the embedded derivative. Settlements of embedded derivatives are characterized as the change in fair value upon exercising the embedded derivative instrument, effectively representing a settlement of the embedded derivative instrument. We have shown these changes in fair value separately based on the classification of this activity as effectively issuing and settling the embedded derivative instrument with all remaining changes in the fair value of these embedded derivative instruments being shown separately in the category labeled “included in net (income)” in the tables presented above.
 
59

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents a summary of the significant unobservable inputs used for certain liability fair value measurements that are based on internal models and classified as Level 3 as of June 30, 2018:

(Amounts in millions) 	 	Valuation technique	 	 	Fair value	 	 	Unobservable input	 	Range	 	Weighted-average	
Policyholder account balances:	 				 				 		 		 		
	 				 				 	Withdrawal
utilization rate	 	42% - 86%	 	67%	
	 				 				 	Lapse rate	 	2% - 9%	 	4%	
	 				 				 	Non-performance
risk (credit
spreads)	 	28bps - 83bps	 	69bps	
GMWB embedded derivatives  (1)	 	 
	Stochastic
cash flow
model	 
 
 	 	 	$235		 	Equity index
volatility	 	15% - 24%	 	21%	
Fixed index annuity embedded derivatives	 	 	Option budget
method	 	 	 	$420		 	Expected future
interest credited	 	—% - 3%	 	1%	
Indexed universal life embedded derivatives	 	 	Option budget
method	 
 	 	 	$13		 	Expected future
interest credited	 	3% - 9%	 	6%	

(1)  	Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.	
(7) Liability for Policy and Contract Claims
The following table sets forth changes in our liability for policy and contract claims as of the dates indicated:

 	  	As of or for the
six months ended 
 June 30, 	 	
(Amounts in millions)	  	2018	 	  	2017	 	
Beginning balance	  	$	9,594		  	$	9,256		
Less reinsurance recoverables	  	 	(2,419	) 	  	 	(2,409	) 	
	  	 	 	 	  	 	 	 	
Net beginning balance	  	 	7,175		  	 	6,847		
	  	 	 	 	  	 	 	 	
Incurred related to insured events of:	  				  				
Current year	  	 	1,946		  	 	1,804		
Prior years	  	 	(244	) 	  	 	(244	) 	
	  	 	 	 	  	 	 	 	
Total incurred	  	 	1,702		  	 	1,560		
	  	 	 	 	  	 	 	 	
Paid related to insured events of:	  				  				
Current year	  	 	(434	) 	  	 	(450	) 	
Prior years	  	 	(1,266	) 	  	 	(1,224	) 	
	  	 	 	 	  	 	 	 	
Total paid	  	 	(1,700	) 	  	 	(1,674	) 	
	  	 	 	 	  	 	 	 	
Interest on liability for policy and contract claims	  	 	163		  	 	147		
Foreign currency translation	  	 	(16	) 	  	 	18		
	  	 	 	 	  	 	 	 	
Net ending balance	  	 	7,324		  	 	6,898		
Add reinsurance recoverables	  	 	2,341		  	 	2,341		
	  	 	 	 	  	 	 	 	
Ending balance	  	$	9,665		  	$	9,239		

60

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The liability for policy and contract claims represents our current best estimate; however, there may be future adjustments to this estimate and related assumptions. Such adjustments, reflecting any variety of new and adverse trends, could possibly be significant, and result in increases in reserves by an amount that could be material to our results of operations and financial condition and liquidity.
For the six months ended June 30, 2018 and 2017, the favorable development of $244 million for both years related to insured events of prior years was primarily attributable to favorable claim terminations, including pending claims that terminate before becoming an active claim, in our long-term care insurance business. The favorable development for the six months ended June 30, 2018 and 2017, was also impacted by our mortgage insurance businesses, primarily from an improvement in net cures and aging of existing claims, including a favorable reserve adjustment of $26 million in our U.S. mortgage insurance business during the second quarter of 2018.
 
61

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
(8) Borrowings
(a) Long-Term Borrowings
The following table sets forth total long-term borrowings as of the dates indicated:

(Amounts in millions) 	  	June 30,
2018	 	 	December 31,
2017	 	
Genworth Holdings (1)	  				 				
Floating Rate Senior Secured Term Loan Facility, due 2023	  	$	448		 	$	—  	 	
6.52% Senior Notes, due 2018	  	 	—  	 	 	 	597		
7.70% Senior Notes, due 2020	  	 	397		 	 	397		
7.20% Senior Notes, due 2021	  	 	381		 	 	381		
7.625% Senior Notes, due 2021	  	 	704		 	 	704		
4.90% Senior Notes, due 2023	  	 	399		 	 	399		
4.80% Senior Notes, due 2024	  	 	400		 	 	400		
6.50% Senior Notes, due 2034	  	 	297		 	 	297		
6.15% Fixed-to-Floating Rate Junior Subordinated Notes, due 2066	  	 	598		 	 	598		
	  	 	 	 	 	 	 	 	
Subtotal	  	 	3,624		 	 	3,773		
Bond consent fees	  	 	(30	) 	 	 	(33	) 	
Deferred borrowing charges	  	 	(23	) 	 	 	(16	) 	
	  	 	 	 	 	 	 	 	
Total Genworth Holdings	  	 	3,571		 	 	3,724		
	  	 	 	 	 	 	 	 	
Canada (2)	  				 				
5.68% Senior Notes, due 2020	  	 	209		 	 	219		
4.24% Senior Notes, due 2024	  	 	122		 	 	128		
	  	 	 	 	 	 	 	 	
Subtotal	  	 	331		 	 	347		
Deferred borrowing charges	  	 	(1	) 	 	 	(1	) 	
	  	 	 	 	 	 	 	 	
Total Canada	  	 	330		 	 	346		
	  	 	 	 	 	 	 	 	
Australia (3)	  				 				
Floating Rate Junior Notes, due 2025	  	 	148		 	 	156		
Deferred borrowing charges	  	 	(2	) 	 	 	(2	) 	
	  	 	 	 	 	 	 	 	
Total Australia	  	 	146		 	 	154		
	  	 	 	 	 	 	 	 	
Total	  	$	4,047		 	$	4,224		

(1)  	We have the option to redeem all or a portion of the senior notes at any time with notice to the noteholders at a price equal to the greater of 100% of principal or the sum of the present value of the remaining scheduled payments of principal and interest discounted at the then-current treasury rate plus an applicable spread.	
(2)  	Senior notes issued by Genworth MI Canada Inc. (“Genworth Canada”), our majority-owned subsidiary.	
(3)  	Subordinated floating rate notes issued by Genworth Financial Mortgage Insurance Pty Limited, our indirect wholly-owned subsidiary.	
Genworth Holdings
On May 22, 2018, Genworth Holdings redeemed $597 million of its 6.52% senior notes that were issued in May 2008 and matured in May 2018. A cash payment of $616 million comprised of net proceeds of $441 million from the senior secured term loan facility (“Term Loan”), as described below, and $175 million of existing cash on hand was used to fully redeem the principal and accrued interest balance of the May 2018 senior notes.
 
62

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
On March 7, 2018, Genworth Holdings entered into a $450 million Term Loan, which matures in March 2023 and was issued at a 0.5% discount. Principal payments under the agreement are due quarterly, commencing on June 30, 2018, and are payable in equal amounts of 0.25% per quarter of the original principal amount with the remaining balance due at maturity. At our option, the Term Loan will bear interest at either an adjusted London Interbank Offered Rate (“LIBOR”) no lower than 1.0% plus a margin of 4.5% per annum or an alternate base rate plus a margin of 3.5% per annum. The interest rate on the Term Loan as of June 30, 2018 was 6.5%. We incurred $7 million of borrowing costs that were deferred. The Term Loan is unconditionally guaranteed by Genworth Financial, and Genworth Financial International Holdings, LLC (“GFIH”) has provided a limited recourse guarantee to the lenders of Genworth Holdings’ outstanding Term Loan, which is secured by GFIH’s ownership interest in Genworth Canada’s outstanding common shares. GFIH is our indirect wholly-owned subsidiary and owns approximately 40.5% of the outstanding common stock of Genworth Canada. The Term Loan is subject to other terms and conditions, including but not limited to: voluntary prepayments subject to prepayment penalties, mandatory prepayments in the event of certain asset sales or the incurrence of further indebtedness by Genworth Financial and various financial covenants.
(9) Income Taxes
The reconciliation of the federal statutory tax rate to the effective income tax rate was as follows for the periods indicated:

 	  	Three months ended
June 30,	 	 	Six months ended
June 30,	 	
 	  	2018	 	 	2017	 	 	2018	 	 	2017	 	
Statutory U.S. federal income tax rate	  	 	21.0	% 	 	 	35.0	% 	 	 	21.0	% 	 	 	35.0	% 	
Increase (reduction) in rate resulting from:	  				 				 				 				
TCJA, impact from change in tax rate	  	 	5.4	 	 	 	—  	 	 	 	3.3	 	 	 	—  	 	
Swaps terminated prior to the TCJA	  	 	3.9	 	 	 	—  	 	 	 	3.2	 	 	 	—  	 	
Effect of foreign operations	  	 	3.4	 	 	 	(2.0	) 	 	 	3.2	 	 	 	(1.0	) 	
Valuation allowance	  	 	(2.0	) 	 	 	—  	 	 	 	(1.3	) 	 	 	—  	 	
Provision to return adjustments	  	 	(1.6	) 	 	 	—  	 	 	 	(0.7	) 	 	 	—  	 	
Other, net	  	 	0.7	 	 	 	(0.5	) 	 	 	0.9	 	 	 	(0.4	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Effective rate	  	 	30.8	% 	 	 	32.5	% 	 	 	29.6	% 	 	 	33.6	% 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The decrease in the effective tax rate for the three and six months ended June 30, 2018 was primarily attributable to the enactment of the TCJA, which includes a change in the U.S. corporate federal income tax rate from 35% to 21%. This decrease was partially offset by the effect of foreign operations, which had an overall increase on the effective tax rate as our primary foreign subsidiaries are now in jurisdictions with higher statutory tax rates than the United States. The decrease was also partially offset by tax expense in our long-term care insurance business related to gains on forward starting swaps settled prior to the enactment of the TCJA, which are tax effected at 35% as they are amortized into net investment income and from a provisional tax expense of $19 million in the current year related to a revaluation of deferred tax assets and liabilities on our foreign subsidiaries in light of the TCJA.
As of December 31, 2017, as prescribed by the SEC’s Staff Accounting Bulletin (“SAB”) 118, we recorded provisional estimates of the tax impact of certain changes in tax law under the TCJA. However, for other changes in the tax law where we were unable to record a reasonable estimate, no amounts were recorded.
 
63

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
As of June 30, 2018, we are still in the process of completing the accounting of our provisional estimates and refining our computations as follows:
Deferred tax assets and liabilities
We recorded a provisional tax benefit of $154 million in 2017 related to remeasurement of certain deferred tax assets and liabilities as a result of the newly enacted tax rate. The Internal Revenue Service has indicated that additional guidance will be forthcoming with respect to several technical areas within the TCJA, which could affect the measurement of these balances or potentially give rise to new deferred tax amounts. During the three months ended June 30, 2018, we recorded a provisional tax expense of $19 million related to a revaluation of deferred tax assets and liabilities on our foreign subsidiaries in light of the TCJA. This amount is considered provisional and additional refinements to the calculation may be required.
Foreign tax effects
We recorded a provisional tax expense of $63 million in 2017 related to the one-time transition tax on mandatory deemed repatriation of earnings and profits (“E&P”). We have not yet completed our calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based, in part, on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of our post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. During the six months ended June 30, 2018, there were no changes to the provisional estimates made in 2017 and no additional measurement period adjustment were recorded.
Insurance reserve transition adjustment
We recorded a provisional reclassification in deferred tax assets and liabilities in the amount of $134 million in 2017 related to the transition adjustment required under the TCJA with respect to life insurance policyholder reserves. We continue to refine our insurance reserve calculations and apply the new reserving rules under the TCJA on a product level basis. During the six months ended June 30, 2018, we updated our provisional estimate and identified a measurement period increase to this reclassification of $40 million which has been reflected in our consolidated balance sheet as of June 30, 2018. This measurement period adjustment had no impact on net income, and we will continue to refine this estimate throughout the measurement period.
As of June 30, 2018, we are still in the process of completing the accounting for the following areas for which a reasonable estimate could not be made.
Foreign tax effects
We are still in the process of analyzing the impact of the Global Intangible Low Taxed Income (“GILTI”) and Base Erosion Anti-Abuse Tax (“BEAT”), including accounting policy elections. During the six months ended June 30, 2018, we have included the current tax effects of GILTI and BEAT taxes in current year earnings, but we have not yet made a policy election with respect to the accounting for the potential deferred tax effects of the GILTI tax and no measurement period adjustment has been recorded.
State tax effects
We have not analyzed certain areas of state income taxes, including the treatment of the one-time transition tax. Accordingly, no reasonable estimate can be made, and no measurement period adjustment has been recorded.
 
64

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Further regulatory guidance related to the TCJA is expected to be issued in 2018 which may result in changes to our current estimates. Any revisions to the estimated impacts of the TCJA will be recorded quarterly until the computations are complete which is expected no later than the fourth quarter of 2018.
(10) Segment Information
We have the following five operating business segments: U.S. Mortgage Insurance; Canada Mortgage Insurance; Australia Mortgage Insurance; U.S Life Insurance (which includes our long-term care insurance, life insurance and fixed annuities businesses); and Runoff (which includes the results of non-strategic products which have not been actively sold). 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.
On December 22, 2017, the TCJA was signed into law. The TCJA reduced the U.S. corporate federal income tax rate to 21% effective for taxable years beginning on January 1, 2018 and migrated the worldwide tax system to a territorial international tax system. Therefore, beginning on January 1, 2018 we taxed our international businesses at their local statutory tax rates and our domestic businesses at the new enacted tax rate of 21%. We allocate our consolidated provision for income taxes to our operating segments. Our allocation methodology applies a specific tax rate to the pre-tax income (loss) of each segment, which is then adjusted in each segment to reflect the tax attributes of items unique to that segment such as foreign income. The difference between the consolidated provision for income taxes and the sum of the provision for income taxes in each segment is reflected in Corporate and Other activities.
The annually-determined tax rates and adjustments to each segment’s provision for income taxes are estimates which are subject to review and could change from year to year.
We use the same accounting policies and procedures to measure segment income (loss) and assets as our consolidated net income and assets. Our chief operating decision maker evaluates segment performance and allocates resources on the basis of “adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders.” We define adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as income (loss) from continuing operations excluding the after-tax effects of income attributable to noncontrolling interests, net investment gains (losses), goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and infrequent or unusual non-operating items. Gains (losses) on insurance block transactions are defined as gains (losses) on the early extinguishment of non-recourse funding obligations, early termination fees for other financing restructuring and/or resulting gains (losses) on reinsurance restructuring for certain blocks of business. We exclude net investment gains (losses) and infrequent or unusual non-operating items because we do not consider them to be related to the operating performance of our segments and Corporate and Other activities. A component of our net investment gains (losses) is the result of impairments, the size and timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) can be subject to our discretion and are influenced by market opportunities, as well as asset-liability matching considerations. Goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions and restructuring costs are also excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders because, in our opinion, they are not indicative of overall operating trends.
 
65

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Infrequent or unusual non-operating items are also excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders if, in our opinion, they are not indicative of overall operating trends.
While some of these items may be significant components of net income (loss) available to Genworth Financial, Inc.’s common stockholders in accordance with U.S. GAAP, we believe that adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, and measures that are derived from or incorporate adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, are appropriate measures that are useful to investors because they identify the income (loss) attributable to the ongoing operations of the business. Management also uses adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as a basis for determining awards and compensation for senior management and to evaluate performance on a basis comparable to that used by analysts. However, the items excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders is not a substitute for net income (loss) available to Genworth Financial, Inc.’s common stockholders determined in accordance with U.S. GAAP. In addition, our definition of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders may differ from the definitions used by other companies.
Beginning in the first quarter of 2018, we assumed a tax rate of 21% on certain adjustments to reconcile net income available to Genworth Financial, Inc.’s common stockholders and adjusted operating income available to Genworth Financial, Inc.’s common stockholders (unless otherwise indicated). In the prior year, we assumed a tax rate of 35%, the previous U.S. corporate federal income tax rate prior to the enactment of the TCJA, on certain adjustments to reconcile net income available to Genworth Financial, Inc.’s common stockholders and adjusted operating income available to Genworth Financial, Inc.’s common stockholders. These adjustments are also net of the portion attributable to noncontrolling interests and net investment gains (losses) are adjusted for DAC and other intangible amortization and certain benefit reserves.
We recorded a pre-tax expense of $1 million in the first quarter of 2017 related to restructuring costs as we continued to evaluate and appropriately size our organizational needs and expenses. There were no infrequent or unusual items excluded from adjusted operating income during the periods presented.
 
66

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following is a summary of revenues for our segments and Corporate and Other activities for the periods indicated:

 	  	Three months ended
June 30,	 	  	Six months ended
June 30,	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Revenues:	  				  				  				  					
U.S. Mortgage Insurance segment	  	$	208		  	$	189		  	$	408		  	$	376			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Canada Mortgage Insurance segment	  	 	150		  	 	204		  	 	308		  	 	373			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Australia Mortgage Insurance segment	  	 	136		  	 	97		  	 	243		  	 	219			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
U.S. Life Insurance segment:	  				  				  				  					
Long-term care insurance	  	 	1,035		  	 	1,036		  	 	2,055		  	 	2,030			
Life insurance	  	 	367		  	 	411		  	 	746		  	 	828			
Fixed annuities	  	 	176		  	 	210		  	 	358		  	 	415			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
U.S. Life Insurance segment	  	 	1,578		  	 	1,657		  	 	3,159		  	 	3,273			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Runoff segment	  	 	80		  	 	89		  	 	148		  	 	176			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Corporate and Other activities	  	 	7		  	 	(13	) 	  	 	8		  	 	(23	) 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Total revenues	  	$	2,159		  	$	2,223		  	$	4,274		  	$	4,394			

67

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables present the reconciliation of net income available to Genworth Financial, Inc.’s common stockholders to adjusted operating income available to Genworth Financial, Inc.’s common stockholders and a summary of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for our segments and Corporate and Other activities for the periods indicated:

 	  	Three months ended
June 30,	 	  	Six months ended
June 30,	 		
	(Amounts in millions) 	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Net income available to Genworth Financial, Inc.’s common stockholders	  	$	190		  	$	202		  	$	302		  	$	357			
Add: net income attributable to noncontrolling interests	  	 	59		  	 	69		  	 	112		  	 	130			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Net income	  	 	249		  	 	271		  	 	414		  	 	487			
Loss from discontinued operations, net of taxes	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Income from continuing operations	  	 	249		  	 	271		  	 	414		  	 	487			
Less: income from continuing operations attributable to noncontrolling interests	  	 	59		  	 	69		  	 	112		  	 	130			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	  	 	190		  	 	202		  	 	302		  	 	357			
Adjustments to income from continuing operations available to Genworth Financial, Inc.’s common stockholders:	  				  				  				  					
Net investment (gains) losses, net  (1)	  	 	12		  	 	(79	) 	  	 	29		  	 	(99	) 		
Expenses related to restructuring	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	1			
Taxes on adjustments	  	 	(2	) 	  	 	28		  	 	(6	) 	  	 	35			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	200		  	$	151		  	$	325		  	$	294			

(1)  	For the three months ended June 30, 2018 and 2017, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(1) million and zero, respectively, and adjusted for net investment gains (losses) attributable to noncontrolling interests of $(1) million and $22 million, respectively. For the six months ended June 30, 2018 and 2017, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(4) million and zero, respectively, and adjusted for net investment gains (losses) attributable to noncontrolling interests of $(12) million and $36 million, respectively.	
 
68

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 	  	Three months ended
June 30,	 	  	Six months ended
June 30,	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders:	  				  				  				  					
U.S. Mortgage Insurance segment	  	$	137		  	$	91		  	$	248		  	$	164			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Canada Mortgage Insurance segment	  	 	46		  	 	41		  	 	95		  	 	77			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Australia Mortgage Insurance segment	  	 	22		  	 	12		  	 	41		  	 	25			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
U.S. Life Insurance segment:	  				  				  				  					
Long-term care insurance	  	 	22		  	 	33		  	 	(10	) 	  	 	47			
Life insurance	  	 	4		  	 	(1	) 	  	 	3		  	 	15			
Fixed annuities	  	 	31		  	 	7		  	 	59		  	 	30			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
U.S. Life Insurance segment	  	 	57		  	 	39		  	 	52		  	 	92			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Runoff segment	  	 	13		  	 	11		  	 	23		  	 	25			
Corporate and Other activities	  	 	(75	) 	  	 	(43	) 	  	 	(134	) 	  	 	(89	) 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	200		  	$	151		  	$	325		  	$	294			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
The following is a summary of total assets for our segments and Corporate and Other activities as of the dates indicated:

	(Amounts in millions)	  	June 30,
2018	 	  	December 31,
2017	 	
Assets:	  				  					
U.S. Mortgage Insurance segment	  	$	3,393		  	$	3,273			
Canada Mortgage Insurance segment	  	 	5,255		  	 	5,534			
Australia Mortgage Insurance segment	  	 	2,696		  	 	2,973			
U.S. Life Insurance segment	  	 	79,925		  	 	81,295			
Runoff segment	  	 	10,472		  	 	10,907			
Corporate and Other activities	  	 	736		  	 	1,315			
	  	 	 	 	  	 	 	 		
Total assets	  	$	102,477		  	$	105,297			
	  	 	 	 	  	 	 	 		
(11) Commitments and Contingencies     
(a) Litigation and Regulatory Matters
We face the risk of litigation and regulatory investigations and actions in the ordinary course of operating our businesses, including the risk of class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and others generally applicable to business practices in the industries in which we operate. In our insurance operations, we are, have been, or may become subject to class actions and individual suits alleging, among other things, issues relating to sales or underwriting practices, increases to in-force long-term care insurance premiums, payment of contingent or other sales commissions, claims payments and procedures, product design, product disclosure, product administration, additional premium charges for premiums paid on a periodic basis, denial or delay of benefits, charging excessive or impermissible fees on products, recommending unsuitable products to customers, our pricing structures and business practices in our
 
69

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
mortgage insurance businesses, such as captive reinsurance arrangements with lenders and contract underwriting services, violations of the Real Estate Settlement and Procedures Act of 1974 or related state anti-inducement laws, and mortgage insurance policy rescissions and curtailments, and breaching fiduciary or other duties to customers, including but not limited to breach of customer information. Plaintiffs in class action and other lawsuits against us may seek very large or indeterminate amounts which may remain unknown for substantial periods of time. In our investment-related operations, we are subject to litigation involving commercial disputes with counterparties. We are also subject to litigation arising out of our general business activities such as our contractual and employment relationships, post-closing obligations associated with previous dispositions and securities lawsuits. In addition, we are also subject to various regulatory inquiries, such as information requests, subpoenas, books and record examinations and market conduct and financial examinations from state, federal and international regulators and other authorities. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and results of operations. Moreover, even if we ultimately prevail in the litigation, regulatory action or investigation, we could suffer significant reputational harm, which could have an adverse effect on our business, financial condition or results of operations.
In January 2016, Genworth Financial, Inc., its current chief executive officer, its former chief executive officer, its former chief financial officer and current and former members of its board of directors were named in a shareholder derivative suit filed by International Union of Operating Engineers Local No. 478 Pension Fund, Richard L. Salberg and David Pinkoski in the Court of Chancery of the State of Delaware. The case was captioned Int’l Union of Operating Engineers Local No.  478 Pension Fund, et al v. McInerney, et al. In February 2016, Genworth Financial, Inc., its current chief executive officer, its former chief executive officer, its former chief financial officer and current and former members of its board of directors were named in a second shareholder derivative suit filed by Martin Cohen in the Court of Chancery of the State of Delaware. The case was captioned Cohen v. McInerney, et al . On February 23, 2016, the Court of Chancery of the State of Delaware consolidated these derivative suits under the caption Genworth Financial, Inc. Consolidated Derivative Litigation . On March 28, 2016, plaintiffs in the consolidated action filed an amended complaint. The amended complaint alleges breaches of fiduciary duties concerning Genworth’s long-term care insurance reserves and concerning Genworth’s Australian mortgage insurance business, including our plans for an IPO of the business and seeks unspecified damages, costs, attorneys’ fees and such equitable relief as the court may deem proper. The amended consolidated complaint also adds Genworth’s current chief financial officer as a defendant, based on the current chief financial officer’s alleged conduct in her former capacity as Genworth’s controller and principal accounting officer. We moved to dismiss the consolidated action on May 27, 2016. Thereafter, plaintiffs filed a substantially similar second amended complaint which we moved to dismiss on September 16, 2016. The motion is fully briefed and awaiting disposition by the court. The action is stayed pending the completion of the proposed China Oceanwide transaction.
In October 2016, Genworth Financial, Inc., its current chief executive officer, its former chief executive officer, its current chief financial officer, its former chief financial officer and current and former members of its board of directors were named in a shareholder derivative suit filed by Esther Chopp in the Court of Chancery of the State of Delaware. The case is captioned Chopp v. McInerney, et al. The complaint alleges that Genworth’s board of directors wrongfully refused plaintiff’s demand to commence litigation on behalf of Genworth and asserts claims for breaches of fiduciary duties, waste, contribution and indemnification, and unjust enrichment concerning Genworth’s long-term care insurance reserves and concerning Genworth’s Australian mortgage insurance business, including our plans for an IPO of the business, and seeks unspecified damages, costs, attorneys’ fees and such equitable relief as the court may deem proper. We filed a motion to dismiss on November 14, 2016. The action is stayed pending the completion of the proposed China Oceanwide transaction.
 
70

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
In January 2017, two putative stockholder class action lawsuits, captioned Rice v. Genworth Financial Incorporated , et al , and James v. Genworth Financial, Inc. et al, were filed in the United States District Court for the Eastern District of Virginia, Richmond Division, against Genworth and its board of directors. A third putative stockholder class action lawsuit captioned Rosenfeld Family Trust v. Genworth Financial, Inc. et al, was filed in the United States District Court for the District of Delaware against Genworth and its board of directors. In February 2017, a fourth putative class action lawsuit captioned Chopp v. Genworth Financial, Inc . et al, was filed in the United States District Court for the District of Delaware against Genworth and its board of directors and a fifth putative class action lawsuit captioned Ratliff v. Genworth Financial, Inc . et al, was filed in the United States District Court for the Eastern District of Virginia, Richmond Division, against Genworth and its board of directors. The complaints in all five actions allege, among other things, that the preliminary proxy statement filed by Genworth with the SEC on December 21, 2016 contains false and/or materially misleading statements and/or omits material information. The complaints assert claims under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, and seek equitable relief, including declaratory and injunctive relief, and an award of attorneys’ fees and expenses. On February 2, 2017, the plaintiff in Rice filed a motion for a preliminary injunction to enjoin the transaction described in the preliminary proxy. On February 10, 2017, defendants filed an opposition to the preliminary injunction motion in the Rice action. Also on February 10, 2017, the plaintiff in Rosenfeld Family Trust filed a motion for a preliminary injunction to enjoin the transaction described in the preliminary proxy. On February 14, 2017, defendants filed a motion to transfer the Rosenfeld Family Trust action to the Eastern District of Virginia. On February 15, 2017, defendants filed a motion to transfer the Chopp action to the Eastern District of Virginia. On February 21, 2017, the parties to the Eastern District of Virginia actions ( Rice, James and Ratliff ) reached an agreement in principle to resolve the pending preliminary injunction motion in the Eastern District of Virginia through additional disclosure prior to the March 7, 2017 stockholder vote on the proposed merger transaction. On February 22, 2017, the plaintiffs in the Eastern District of Virginia withdrew their preliminary injunction motion in consideration of the agreed disclosures to be filed in a Form 8-K by February 24, 2017. Also on February 22, 2017, the court in the District of Delaware suspended briefing on the motion for preliminary injunction in the Rosenfeld Family Trust action and entered an order transferring the Rosenfeld Family Trust and Chopp actions to the Eastern District of Virginia. On February 23, 2017, the court in the Eastern District of Virginia set the Rosenfeld Family Trust preliminary injunction motion for a hearing on March 1, 2017. On February 26, 2017, defendants filed an opposition to the preliminary injunction motion in the Rosenfeld Family Trust action. On February 27, 2017, the parties in the Rosenfeld Family Trust action reached an agreement in principle to resolve the pending preliminary injunction motion in the Rosenfeld Family Trust action through additional disclosure prior to the March 7, 2017 stockholder vote on the proposed merger transaction, and the plaintiff in the Rosenfeld Family Trust action withdrew its preliminary injunction motion in consideration of the agreed disclosures as filed in a Form 8-K on February 28, 2017. On March 6, 2017, the court in the Eastern District of Virginia entered an order setting a schedule for proceedings to appoint a lead plaintiff and lead counsel for the purported class action. On March 7, 2017, the court in the Eastern District of Virginia consolidated the Rice , James , Ratliff , Rosenfeld Family Trust , and Chopp actions. On July 5, 2017, the court in the Eastern District of Virginia heard oral argument on the motion to appoint a lead plaintiff and lead counsel. On August 25, 2017, the court in the Eastern District of Virginia entered an order appointing the plaintiffs Alexander Rice and Brian James as lead plaintiffs and their counsel as lead counsel. In November, 2017, the parties reached an agreement in principle to settle the action based upon the previously provided additional disclosures, subject to confirmatory discovery and court approval. On April 4, 2018, the parties entered into a stipulation of settlement. On April 24, 2018, the court in the Eastern District of Virginia entered an order preliminarily approving the settlement and following a July 3, 2018 hearing, granted final approval of the settlement.
In December 2017, Genworth Holdings and Genworth Financial were named as defendants in an action captioned AXA S.A. v. Genworth Financial International Holdings, Inc., et al., in the High Court of Justice,
 
71

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Business and Property Courts of England and Wales. In the action, AXA seeks in excess of £28 million on an indemnity provided for in the 2015 agreement pursuant to which Genworth sold to AXA two insurance companies, Financial Insurance Company Limited and Financial Assurance Company Limited, relating to alleged remediation it has paid to customers who purchased payment protection insurance. AXA also alleges that it is incurring losses on an ongoing basis and therefore that further sums will be demanded. In February 2018, Genworth served a Particulars of Defence and counterclaim against AXA, and also served other counterclaims against various parties, including Santander Cards UK Limited (“Santander”), alleging that Santander is responsible for any remediation paid to payment protection insurance customers. AXA and Santander have applied to the court for orders dismissing or staying the counterclaims. We intend to vigorously defend this action.
At this time, other than as noted above, we cannot determine or predict the ultimate outcome of any of the pending legal and regulatory matters specifically identified above or the likelihood of potential future legal and regulatory matters against us. Except as disclosed above, we also are not able to provide an estimate or range of reasonably possible losses related to these matters. Therefore, we cannot ensure that the current investigations and proceedings will not have a material adverse effect on our business, financial condition or results of operations. In addition, it is possible that related investigations and proceedings may be commenced in the future, and we could become subject to additional unrelated investigations and lawsuits. Increased regulatory scrutiny and any resulting investigations or proceedings could result in new legal precedents and industry-wide regulations or practices that could adversely affect our business, financial condition and results of operations.
(b) Commitments
As of June 30, 2018, we were committed to fund $402 million in limited partnership investments, $90 million in U.S. commercial mortgage loan investments and $29 million in private placement investments. As of June 30, 2018, we were committed to fund $30 million of bank loan investments which had not yet been drawn.
(12) Changes in Accumulated Other Comprehensive Income
The following tables show the changes in accumulated other comprehensive income (loss), net of taxes, by component as of and for the periods indicated:

	(Amounts in millions)	  	Net 
 unrealized 
 investment 
 gains 
 (losses) (1) 	 	  	Derivatives 
 qualifying as 
 hedges   (2) 	 	  	Foreign
currency
translation
and other
adjustments	 	  	Total	 	
Balances as of April 1, 2018	  	$	917	 	  	$	1,927	 	  	$	(217	) 	  	$	2,627			
OCI before reclassifications	  	 	(193	)  	  	 	(39	)  	  	 	(98	) 	  	 	(330	) 		
Amounts reclassified from (to) OCI	  	 	6	 	  	 	(25	)  	  	 	—  	 	  	 	(19	) 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Current period OCI	  	 	(187	)  	  	 	(64	)  	  	 	(98	) 	  	 	(349	) 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Balances as of June 30, 2018 before noncontrolling interests	  	 	730	 	  	 	1,863	 	  	 	(315	) 	  	 	2,278			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Less: change in OCI attributable to noncontrolling interests	  	 	(6	)  	  	 	—  	 	  	 	(43	) 	  	 	(49	) 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Balances as of June 30, 2018	  	$	736	 	  	$	1,863	 	  	$	(272	) 	  	$	2,327			

(1)	Net of adjustments to DAC, present value of future profits, sales inducements and benefit reserves. See note 4 for additional information.	
(2)	See note 5 for additional information.	
 
72

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

	(Amounts in millions)	  	Net 
 unrealized 
 investment 
 gains 
 (losses)   (1) 	 	  	Derivatives 
 qualifying as 
 hedges   (2) 	 	  	Foreign
currency
translation
and other
adjustments	 	  	Total	 	
Balances as of April 1, 2017	  	$	1,243	 	  	$	2,036	 	  	$	(183	) 	  	$	3,096			
OCI before reclassifications	  	 	(32	)  	  	 	48	 	  	 	61		  	 	77			
Amounts reclassified from (to) OCI	  	 	(40	)  	  	 	(20	)  	  	 	—  	 	  	 	(60	) 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Current period OCI	  	 	(72	)  	  	 	28	 	  	 	61		  	 	17			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Balances as of June 30, 2017 before noncontrolling interests	  	 	1,171	 	  	 	2,064	 	  	 	(122	) 	  	 	3,113			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Less: change in OCI attributable to noncontrolling interests	  	 	(9	)  	  	 	—  	 	  	 	27		  	 	18			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Balances as of June 30, 2017	  	$	1,180	 	  	$	2,064	 	  	$	(149	) 	  	$	3,095			

(1)	Net of adjustments to DAC, present value of future profits, sales inducements and benefit reserves. See note 4 for additional information.	
(2)	See note 5 for additional information.	

	(Amounts in millions)	  	Net 
 unrealized 
 investment 
 gains 
 (losses) (1) 	 	  	Derivatives 
 qualifying as 
 hedges   (2) 	 	  	Foreign
currency
translation
and other
adjustments	 	  	Total	 	
Balances as of January 1, 2018	  	$	1,085	 	  	$	2,065	 	  	$	(123	) 	  	$	3,027			
Cumulative effect of changes in accounting	  	 	164	 	  	 	14	 	  	 	(47	) 	  	 	131			
OCI before reclassifications	  	 	(541	)  	  	 	(165	)  	  	 	(185	) 	  	 	(891	) 		
Amounts reclassified from (to) OCI	  	 	13	 	  	 	(51	)  	  	 	—  	 	  	 	(38	) 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Current period OCI	  	 	(528	)  	  	 	(216	)  	  	 	(185	) 	  	 	(929	) 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Balances as of June 30, 2018 before noncontrolling interests	  	 	721	 	  	 	1,863	 	  	 	(355	) 	  	 	2,229			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Less: change in OCI attributable to noncontrolling interests	  	 	(15	)  	  	 	—  	 	  	 	(83	) 	  	 	(98	) 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Balances as of June 30, 2018	  	$	736	 	  	$	1,863	 	  	$	(272	) 	  	$	2,327			

(1)	Net of adjustments to DAC, present value of future profits, sales inducements and benefit reserves. See note 4 for additional information.	
(2)	See note 5 for additional information.	
 
73

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

	(Amounts in millions)	  	Net 
 unrealized 
 investment 
 gains 
 (losses) (1) 	 	 	Derivatives 
 qualifying as 
 hedges  (2) 	 	 	Foreign
currency
translation
and other
adjustments	 	 	Total	 	
Balances as of January 1, 2017	  	$	1,262	 	 	$	2,085	 	 	$	(253	) 	 	$	3,094			
OCI before reclassifications	  	 	(25	)  	 	 	19	 	 	 	180		 	 	174			
Amounts reclassified from (to) OCI	  	 	(58	)  	 	 	(40	)  	 	 	—  	 	 	 	(98	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Current period OCI	  	 	(83	)  	 	 	(21	)  	 	 	180		 	 	76			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Balances as of June 30, 2017 before noncontrolling interests	  	 	1,179	 	 	 	2,064	 	 	 	(73	) 	 	 	3,170			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Less: change in OCI attributable to noncontrolling interests	  	 	(1	)  	 	 	—  	 	 	 	76		 	 	75			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Balances as of June 30, 2017	  	$	1,180	 	 	$	2,064	 	 	$	(149	) 	 	$	3,095			

(1)	Net of adjustments to DAC, present value of future profits, sales inducements and benefit reserves. See note 4 for additional information.	
(2)	See note 5 for additional information.	
The foreign currency translation and other adjustments balance included $(14) million and $(5) million, respectively, net of taxes of $5 million and $1 million, respectively, related to a net unrecognized postretirement benefit obligation as of June 30, 2018 and 2017. The amount also includes taxes of $(46) million and $23 million, respectively, related to foreign currency translation adjustments as of June 30, 2018 and 2017. These balances include the impact of adopting new accounting guidance related to stranded tax effects.
The following table shows reclassifications in (out) of accumulated other comprehensive income (loss), net of taxes, for the periods presented:

 	 	Amount reclassified from accumulated
other comprehensive income (loss)	 	 	Affected line item in the
consolidated statements
of income		
 	 	Three months ended
June 30,	 	 	Six months ended
June 30,	 				
	(Amounts in millions) 	 	2018	 	 	2017	 	 	2018	 	 	2017			 	
Net unrealized investment (gains) losses:	 				 				 				 				 			
Unrealized (gains) losses on investments  (1)	 	$	8		 	$	(61	) 	 	$	16		 	$	(89	) 	 	Net investment (gains) losses		
(Provision) benefit for income taxes	 	 	(2	) 	 	 	21		 	 	(3	) 	 	 	31		 	Provision for income taxes		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			
Total	 	$	6		 	$	(40	) 	 	$	13		 	$	(58	) 	 			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			
Derivatives qualifying as hedges:	 				 				 				 				 			
Interest rate swaps hedging assets	 	$	(39	) 	 	$	(31	) 	 	$	(74	) 	 	$	(61	) 	 	Net investment income		
Interest rate swaps hedging assets	 	 	—  	 	 	 	(1	) 	 	 	(5	) 	 	 	(2	) 	 	Net investment (gains) losses		
Inflation indexed swaps	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	Net investment income		
Benefit for income taxes	 	 	14		 	 	12		 	 	28		 	 	23		 	Provision for income taxes		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			
Total	 	$	(25	) 	 	$	(20	) 	 	$	(51	) 	 	$	(40	) 	 			

(1)	Amounts exclude adjustments to DAC, present value of future profits, sales inducements and benefit reserves.	
 
74

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
(13) Condensed Consolidating Financial Information
Genworth Financial provides a full and unconditional guarantee to the trustee of Genworth Holdings’ outstanding senior and subordinated notes and the holders of the senior and subordinated notes, on an unsecured unsubordinated and subordinated basis, respectively, of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, each outstanding series of senior notes and outstanding subordinated notes, and the full and punctual payment of all other amounts payable by Genworth Holdings under the senior and subordinated notes indentures in respect of such senior and subordinated notes. Genworth Holdings is a direct, 100% owned subsidiary of Genworth Financial.
The following condensed consolidating financial information of Genworth Financial and its direct and indirect subsidiaries has been prepared pursuant to rules regarding the preparation of consolidating financial information of Regulation S-X.
The condensed consolidating financial information presents the condensed consolidating balance sheet information as of June 30, 2018 and December 31, 2017, the condensed consolidating income statement information and the condensed consolidating comprehensive income statement information for the three and six months ended June 30, 2018 and 2017 and the condensed consolidating cash flow statement information for the six months ended June 30, 2018 and 2017.
The condensed consolidating financial information reflects Genworth Financial (“Parent Guarantor”), Genworth Holdings (“Issuer”) and each of Genworth Financial’s other direct and indirect subsidiaries (the “All Other Subsidiaries”) on a combined basis, none of which guarantee the senior notes or subordinated notes, as well as the eliminations necessary to present Genworth Financial’s financial information on a consolidated basis and total consolidated amounts.
The accompanying condensed consolidating financial information is presented based on the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the subsidiaries’ cumulative results of operations, capital contributions and distributions, and other changes in equity. Elimination entries include consolidating and eliminating entries for investments in subsidiaries and intercompany activity.
 
75

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the condensed consolidating balance sheet information as of June 30, 2018:

	(Amounts in millions)	 	Parent
Guarantor	 	 	Issuer	 	 	All Other
Subsidiaries	 	 	Eliminations	 	 	Consolidated	 	
Assets	 				 				 				 				 					
Investments:	 				 				 				 				 					
Fixed maturity securities available-for-sale, at fair value	 	$	—  	 	 	$	—  	 	 	$	60,232		 	$	(200	) 	 	$	60,032			
Equity securities, at fair value	 	 	—  	 	 	 	—  	 	 	 	758		 	 	—  	 	 	 	758			
Commercial mortgage loans	 	 	—  	 	 	 	—  	 	 	 	6,480		 	 	—  	 	 	 	6,480			
Restricted commercial mortgage loans related to securitization entities	 	 	—  	 	 	 	—  	 	 	 	90		 	 	—  	 	 	 	90			
Policy loans	 	 	—  	 	 	 	—  	 	 	 	1,872		 	 	—  	 	 	 	1,872			
Other invested assets	 	 	—  	 	 	 	78		 	 	1,584		 	 	(12	) 	 	 	1,650			
Investments in subsidiaries	 	 	13,052		 	 	12,180		 	 	—  	 	 	 	(25,232	) 	 	 	—  	 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total investments	 	 	13,052		 	 	12,258		 	 	71,016		 	 	(25,444	) 	 	 	70,882			
Cash, cash equivalents and restricted cash	 	 	—  	 	 	 	547		 	 	1,696		 	 	—  	 	 	 	2,243			
Accrued investment income	 	 	—  	 	 	 	—  	 	 	 	606		 	 	(4	) 	 	 	602			
Deferred acquisition costs	 	 	—  	 	 	 	—  	 	 	 	3,086		 	 	—  	 	 	 	3,086			
Intangible assets and goodwill	 	 	—  	 	 	 	—  	 	 	 	354		 	 	—  	 	 	 	354			
Reinsurance recoverable	 	 	—  	 	 	 	—  	 	 	 	17,385		 	 	—  	 	 	 	17,385			
Other assets	 	 	5		 	 	50		 	 	519		 	 	—  	 	 	 	574			
Intercompany notes receivable	 	 	—  	 	 	 	165		 	 	1		 	 	(166	) 	 	 	—  	 		
Deferred tax assets	 	 	(15	) 	 	 	918		 	 	(302	) 	 	 	—  	 	 	 	601			
Separate account assets	 	 	—  	 	 	 	—  	 	 	 	6,750		 	 	—  	 	 	 	6,750			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total assets	 	$	13,042		 	$	13,938		 	$	101,111		 	$	(25,614	) 	 	$	102,477			

Liabilities and equity	 				 				 				 				 					
Liabilities:	 				 				 				 				 					
Future policy benefits	 	$	—  	 	 	$	—  	 	 	$	37,913		 	$	—  	 	 	$	37,913			
Policyholder account balances	 	 	—  	 	 	 	—  	 	 	 	23,366		 	 	—  	 	 	 	23,366			
Liability for policy and contract claims	 	 	—  	 	 	 	—  	 	 	 	9,665		 	 	—  	 	 	 	9,665			
Unearned premiums	 	 	—  	 	 	 	—  	 	 	 	3,669		 	 	—  	 	 	 	3,669			
Other liabilities	 	 	7		 	 	167		 	 	1,808		 	 	(17	) 	 	 	1,965			
Intercompany notes payable	 	 	125		 	 	200		 	 	41		 	 	(366	) 	 	 	—  	 		
Borrowings related to securitization entities	 	 	—  	 	 	 	—  	 	 	 	28		 	 	—  	 	 	 	28			
Non-recourse funding obligations	 	 	—  	 	 	 	—  	 	 	 	310		 	 	—  	 	 	 	310			
Long-term borrowings	 	 	—  	 	 	 	3,571		 	 	476		 	 	—  	 	 	 	4,047			
Deferred tax liability	 	 	—  	 	 	 	—  	 	 	 	23		 	 	—  	 	 	 	23			
Separate account liabilities	 	 	—  	 	 	 	—  	 	 	 	6,750		 	 	—  	 	 	 	6,750			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total liabilities	 	 	132		 	 	3,938		 	 	84,049		 	 	(383	) 	 	 	87,736			

Equity:	 				 				 				 				 					
Common stock	 	 	1		 	 	—  	 	 	 	3		 	 	(3	) 	 	 	1			
Additional paid-in capital	 	 	11,981		 	 	9,095		 	 	18,420		 	 	(27,515	) 	 	 	11,981			
Accumulated other comprehensive income (loss)	 	 	2,327		 	 	2,414		 	 	2,338		 	 	(4,752	) 	 	 	2,327			
Retained earnings	 	 	1,301		 	 	(1,509	) 	 	 	(5,830	) 	 	 	7,339		 	 	1,301			
Treasury stock, at cost	 	 	(2,700	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(2,700	) 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total Genworth Financial, Inc.’s stockholders’ equity	 	 	12,910		 	 	10,000		 	 	14,931		 	 	(24,931	) 	 	 	12,910			
Noncontrolling interests	 	 	—  	 	 	 	—  	 	 	 	2,131		 	 	(300	) 	 	 	1,831			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total equity	 	 	12,910		 	 	10,000		 	 	17,062		 	 	(25,231	) 	 	 	14,741			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total liabilities and equity	 	$	13,042		 	$	13,938		 	$	101,111		 	$	(25,614	) 	 	$	102,477			

76

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the condensed consolidating balance sheet information as of December 31, 2017:

	(Amounts in millions)	 	Parent
Guarantor	 	 	Issuer	 	 	All Other
Subsidiaries	 	 	Eliminations	 	 	Consolidated	 	
Assets	 				 				 				 				 					
Investments:	 				 				 				 				 					
Fixed maturity securities available-for-sale, at fair value	 	$	—  	 	 	$	—  	 	 	$	62,725		 	$	(200	) 	 	$	62,525			
Equity securities, at fair value	 	 	—  	 	 	 	—  	 	 	 	820		 	 	—  	 	 	 	820			
Commercial mortgage loans	 	 	—  	 	 	 	—  	 	 	 	6,341		 	 	—  	 	 	 	6,341			
Restricted commercial mortgage loans related to securitization entities	 	 	—  	 	 	 	—  	 	 	 	107		 	 	—  	 	 	 	107			
Policy loans	 	 	—  	 	 	 	—  	 	 	 	1,786		 	 	—  	 	 	 	1,786			
Other invested assets	 	 	—  	 	 	 	75		 	 	1,742		 	 	(4	) 	 	 	1,813			
Investments in subsidiaries	 	 	13,561		 	 	12,867		 	 	—  	 	 	 	(26,428	) 	 	 	—  	 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total investments	 	 	13,561		 	 	12,942		 	 	73,521		 	 	(26,632	) 	 	 	73,392			
Cash, cash equivalents and restricted cash	 	 	—  	 	 	 	795		 	 	2,080		 	 	—  	 	 	 	2,875			
Accrued investment income	 	 	—  	 	 	 	—  	 	 	 	647		 	 	(3	) 	 	 	644			
Deferred acquisition costs	 	 	—  	 	 	 	—  	 	 	 	2,329		 	 	—  	 	 	 	2,329			
Intangible assets and goodwill	 	 	—  	 	 	 	—  	 	 	 	301		 	 	—  	 	 	 	301			
Reinsurance recoverable	 	 	—  	 	 	 	—  	 	 	 	17,569		 	 	—  	 	 	 	17,569			
Other assets	 	 	3		 	 	54		 	 	397		 	 	(1	) 	 	 	453			
Intercompany notes receivable	 	 	—  	 	 	 	155		 	 	59		 	 	(214	) 	 	 	—  	 		
Deferred tax assets	 	 	27		 	 	—  	 	 	 	477		 	 	—  	 	 	 	504			
Separate account assets	 	 	—  	 	 	 	—  	 	 	 	7,230		 	 	—  	 	 	 	7,230			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total assets	 	$	13,591		 	$	13,946		 	$	104,610		 	$	(26,850	) 	 	$	105,297			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Liabilities and equity	 				 				 				 				 					
Liabilities:	 				 				 				 				 					
Future policy benefits	 	$	—  	 	 	$	—  	 	 	$	38,472		 	$	—  	 	 	$	38,472			
Policyholder account balances	 	 	—  	 	 	 	—  	 	 	 	24,195		 	 	—  	 	 	 	24,195			
Liability for policy and contract claims	 	 	—  	 	 	 	—  	 	 	 	9,594		 	 	—  	 	 	 	9,594			
Unearned premiums	 	 	—  	 	 	 	—  	 	 	 	3,967		 	 	—  	 	 	 	3,967			
Other liabilities	 	 	41		 	 	119		 	 	1,759		 	 	(9	) 	 	 	1,910			
Intercompany notes payable	 	 	132		 	 	259		 	 	23		 	 	(414	) 	 	 	—  	 		
Borrowings related to securitization entities	 	 	—  	 	 	 	—  	 	 	 	40		 	 	—  	 	 	 	40			
Non-recourse funding obligations	 	 	—  	 	 	 	—  	 	 	 	310		 	 	—  	 	 	 	310			
Long-term borrowings	 	 	—  	 	 	 	3,724		 	 	500		 	 	—  	 	 	 	4,224			
Deferred tax liability	 	 	—  	 	 	 	(807	) 	 	 	834		 	 	—  	 	 	 	27			
Separate account liabilities	 	 	—  	 	 	 	—  	 	 	 	7,230		 	 	—  	 	 	 	7,230			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total liabilities	 	 	173		 	 	3,295		 	 	86,924		 	 	(423	) 	 	 	89,969			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Equity:	 				 				 				 				 					
Common stock	 	 	1		 	 	—  	 	 	 	3		 	 	(3	) 	 	 	1			
Additional paid-in capital	 	 	11,977		 	 	9,096		 	 	18,420		 	 	(27,516	) 	 	 	11,977			
Accumulated other comprehensive income (loss)	 	 	3,027		 	 	3,037		 	 	3,051		 	 	(6,088	) 	 	 	3,027			
Retained earnings	 	 	1,113		 	 	(1,482	) 	 	 	(5,998	) 	 	 	7,480		 	 	1,113			
Treasury stock, at cost	 	 	(2,700	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(2,700	) 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total Genworth Financial, Inc.’s stockholders’ equity	 	 	13,418		 	 	10,651		 	 	15,476		 	 	(26,127	) 	 	 	13,418			
Noncontrolling interests	 	 	—  	 	 	 	—  	 	 	 	2,210		 	 	(300	) 	 	 	1,910			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total equity	 	 	13,418		 	 	10,651		 	 	17,686		 	 	(26,427	) 	 	 	15,328			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total liabilities and equity	 	$	13,591		 	$	13,946		 	$	104,610		 	$	(26,850	) 	 	$	105,297			

77

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the condensed consolidating income statement information for the three months ended June 30, 2018:

	(Amounts in millions)	  	Parent
Guarantor	 	 	Issuer	 	 	All Other
Subsidiaries	 	 	Eliminations	 	 	Consolidated	 	
Revenues:	  				 				 				 				 					
Premiums	  	$	—  	 	 	$	—  	 	 	$	1,136		 	$	—  	 	 	$	1,136			
Net investment income	  	 	—  	 	 	 	4		 	 	828		 	 	(4	) 	 	 	828			
Net investment gains (losses)	  	 	—  	 	 	 	(8	) 	 	 	(6	) 	 	 	—  	 	 	 	(14	) 		
Policy fees and other income	  	 	—  	 	 	 	1		 	 	209		 	 	(1	) 	 	 	209			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total revenues	  	 	—  	 	 	 	(3	) 	 	 	2,167		 	 	(5	) 	 	 	2,159			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Benefits and expenses:	  				 				 				 				 					
Benefits and other changes in policy reserves	  	 	—  	 	 	 	—  	 	 	 	1,205		 	 	—  	 	 	 	1,205			
Interest credited	  	 	—  	 	 	 	—  	 	 	 	152		 	 	—  	 	 	 	152			
Acquisition and operating expenses, net of deferrals	  	 	7		 	 	—  	 	 	 	246		 	 	—  	 	 	 	253			
Amortization of deferred acquisition costs and intangibles	  	 	—  	 	 	 	—  	 	 	 	112		 	 	—  	 	 	 	112			
Interest expense	  	 	1		 	 	70		 	 	11		 	 	(5	) 	 	 	77			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total benefits and expenses	  	 	8		 	 	70		 	 	1,726		 	 	(5	) 	 	 	1,799			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Income (loss) from continuing operations before income taxes and equity in income of subsidiaries	  	 	(8	) 	 	 	(73	) 	 	 	441		 	 	—  	 	 	 	360			
Provision (benefit) for income taxes	  	 	32		 	 	(14	) 	 	 	93		 	 	—  	 	 	 	111			
Equity in income of subsidiaries	  	 	230		 	 	151		 	 	—  	 	 	 	(381	) 	 	 	—  	 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Income from continuing operations	  	 	190		 	 	92		 	 	348		 	 	(381	) 	 	 	249			
Loss from discontinued operations, net of taxes	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net income	  	 	190		 	 	92		 	 	348		 	 	(381	) 	 	 	249			
Less: net income attributable to noncontrolling interests	  	 	—  	 	 	 	—  	 	 	 	59		 	 	—  	 	 	 	59			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net income available to Genworth Financial, Inc.’s common stockholders	  	$	190		 	$	92		 	$	289		 	$	(381	) 	 	$	190			

78

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the condensed consolidating income statement information for the three months ended June 30, 2017:

	(Amounts in millions)	  	Parent
Guarantor	 	 	Issuer	 	 	All Other
Subsidiaries	 	  	Eliminations	 	 	Consolidated	 	
Revenues:	  				 				 				  				 					
Premiums	  	$	—  	 	 	$	—  	 	 	$	1,111		  	$	—  	 	 	$	1,111			
Net investment income	  	 	(1	) 	 	 	2		 	 	803		  	 	(3	) 	 	 	801			
Net investment gains (losses)	  	 	—  	 	 	 	(5	) 	 	 	106		  	 	—  	 	 	 	101			
Policy fees and other income	  	 	—  	 	 	 	(1	) 	 	 	211		  	 	—  	 	 	 	210			
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Total revenues	  	 	(1	) 	 	 	(4	) 	 	 	2,231		  	 	(3	) 	 	 	2,223			
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Benefits and expenses:	  				 				 				  				 					
Benefits and other changes in policy reserves	  	 	—  	 	 	 	—  	 	 	 	1,206		  	 	—  	 	 	 	1,206			
Interest credited	  	 	—  	 	 	 	—  	 	 	 	163		  	 	—  	 	 	 	163			
Acquisition and operating expenses, net of deferrals	  	 	15		 	 	—  	 	 	 	225		  	 	—  	 	 	 	240			
Amortization of deferred acquisition costs and intangibles	  	 	—  	 	 	 	—  	 	 	 	139		  	 	—  	 	 	 	139			
Interest expense	  	 	—  	 	 	 	66		 	 	11		  	 	(3	) 	 	 	74			
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Total benefits and expenses	  	 	15		 	 	66		 	 	1,744		  	 	(3	) 	 	 	1,822			
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Income (loss) from continuing operations before income taxes and equity in income of subsidiaries	  	 	(16	) 	 	 	(70	) 	 	 	487		  	 	—  	 	 	 	401			
Provision (benefit) for income taxes	  	 	(7	) 	 	 	(24	) 	 	 	161		  	 	—  	 	 	 	130			
Equity in income of subsidiaries	  	 	211		 	 	145		 	 	—  	 	  	 	(356	) 	 	 	—  	 		
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Income from continuing operations	  	 	202		 	 	99		 	 	326		  	 	(356	) 	 	 	271			
Loss from discontinued operations, net of taxes	  	 	—  	 	 	 	—  	 	 	 	—  	 	  	 	—  	 	 	 	—  	 		
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Net income	  	 	202		 	 	99		 	 	326		  	 	(356	) 	 	 	271			
Less: net income attributable to noncontrolling interests	  	 	—  	 	 	 	—  	 	 	 	69		  	 	—  	 	 	 	69			
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Net income available to Genworth Financial, Inc.’s common stockholders	  	$	202		 	$	99		 	$	257		  	$	(356	) 	 	$	202			

79

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the condensed consolidating income statement information for the six months ended June 30, 2018:

	(Amounts in millions)	  	Parent
Guarantor	 	 	Issuer	 	 	All Other
Subsidiaries	 	 	Eliminations	 	 	Consolidated	 	
Revenues:	  				 				 				 				 					
Premiums	  	$	—  	 	 	$	—  	 	 	$	2,276		 	$	—  	 	 	$	2,276			
Net investment income	  	 	(1	) 	 	 	7		 	 	1,633		 	 	(7	) 	 	 	1,632			
Net investment gains (losses)	  	 	—  	 	 	 	(2	) 	 	 	(43	) 	 	 	—  	 	 	 	(45	) 		
Policy fees and other income	  	 	—  	 	 	 	1		 	 	412		 	 	(2	) 	 	 	411			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total revenues	  	 	(1	) 	 	 	6		 	 	4,278		 	 	(9	) 	 	 	4,274			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Benefits and expenses:	  				 				 				 				 					
Benefits and other changes in policy reserves	  	 	—  	 	 	 	—  	 	 	 	2,516		 	 	—  	 	 	 	2,516			
Interest credited	  	 	—  	 	 	 	—  	 	 	 	308		 	 	—  	 	 	 	308			
Acquisition and operating expenses, net of deferrals	  	 	14		 	 	—  	 	 	 	479		 	 	—  	 	 	 	493			
Amortization of deferred acquisition costs and intangibles	  	 	—  	 	 	 	—  	 	 	 	216		 	 	—  	 	 	 	216			
Interest expense	  	 	1		 	 	138		 	 	23		 	 	(9	) 	 	 	153			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total benefits and expenses	  	 	15		 	 	138		 	 	3,542		 	 	(9	) 	 	 	3,686			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Income (loss) from continuing operations before income taxes and equity in income of subsidiaries	  	 	(16	) 	 	 	(132	) 	 	 	736		 	 	—  	 	 	 	588			
Provision (benefit) for income taxes	  	 	38		 	 	(31	) 	 	 	167		 	 	—  	 	 	 	174			
Equity in income of subsidiaries	  	 	356		 	 	196		 	 	—  	 	 	 	(552	) 	 	 	—  	 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Income from continuing operations	  	 	302		 	 	95		 	 	569		 	 	(552	) 	 	 	414			
Loss from discontinued operations, net of taxes	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net income	  	 	302		 	 	95		 	 	569		 	 	(552	) 	 	 	414			
Less: net income attributable to noncontrolling interests	  	 	—  	 	 	 	—  	 	 	 	112		 	 	—  	 	 	 	112			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net income available to Genworth Financial, Inc.’s common stockholders	  	$	302		 	$	95		 	$	457		 	$	(552	) 	 	$	302			

80

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the condensed consolidating income statement information for the six months ended June 30, 2017:

	(Amounts in millions)	  	Parent
Guarantor	 	 	Issuer	 	 	All Other
Subsidiaries	 	  	Eliminations	 	 	Consolidated	 	
Revenues:	  				 				 				  				 					
Premiums	  	$	—  	 	 	$	—  	 	 	$	2,247		  	$	—  	 	 	$	2,247			
Net investment income	  	 	(2	) 	 	 	3		 	 	1,597		  	 	(7	) 	 	 	1,591			
Net investment gains (losses)	  	 	—  	 	 	 	(8	) 	 	 	143		  	 	—  	 	 	 	135			
Policy fees and other income	  	 	—  	 	 	 	(1	) 	 	 	422		  	 	—  	 	 	 	421			
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Total revenues	  	 	(2	) 	 	 	(6	) 	 	 	4,409		  	 	(7	) 	 	 	4,394			
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Benefits and expenses:	  				 				 				  				 					
Benefits and other changes in policy reserves	  	 	—  	 	 	 	—  	 	 	 	2,452		  	 	—  	 	 	 	2,452			
Interest credited	  	 	—  	 	 	 	—  	 	 	 	330		  	 	—  	 	 	 	330			
Acquisition and operating expenses, net of deferrals	  	 	28		 	 	—  	 	 	 	482		  	 	—  	 	 	 	510			
Amortization of deferred acquisition costs and intangibles	  	 	—  	 	 	 	—  	 	 	 	233		  	 	—  	 	 	 	233			
Interest expense	  	 	—  	 	 	 	121		 	 	22		  	 	(7	) 	 	 	136			
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Total benefits and expenses	  	 	28		 	 	121		 	 	3,519		  	 	(7	) 	 	 	3,661			
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Income (loss) from continuing operations before income taxes and equity in income of subsidiaries	  	 	(30	) 	 	 	(127	) 	 	 	890		  	 	—  	 	 	 	733			
Provision (benefit) for income taxes	  	 	(4	) 	 	 	(44	) 	 	 	294		  	 	—  	 	 	 	246			
Equity in income of subsidiaries	  	 	383		 	 	268		 	 	—  	 	  	 	(651	) 	 	 	—  	 		
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Income from continuing operations	  	 	357		 	 	185		 	 	596		  	 	(651	) 	 	 	487			
Loss from discontinued operations, net of taxes	  	 	—  	 	 	 	—  	 	 	 	—  	 	  	 	—  	 	 	 	—  	 		
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Net income	  	 	357		 	 	185		 	 	596		  	 	(651	) 	 	 	487			
Less: net income attributable to noncontrolling interests	  	 	—  	 	 	 	—  	 	 	 	130		  	 	—  	 	 	 	130			
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 		
Net income available to Genworth Financial, Inc.’s common stockholders	  	$	357		 	$	185		 	$	466		  	$	(651	) 	 	$	357			

81

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the condensed consolidating comprehensive income statement information for the three months ended June 30, 2018:

	(Amounts in millions)	  	Parent
Guarantor	 	 	Issuer	 	 	All Other
Subsidiaries	 	 	Eliminations	 	 	Consolidated	 	
Net income	  	$	190		 	$	92		 	$	348		 	$	(381	) 	 	$	249			
Other comprehensive income (loss), net of taxes:	  				 				 				 				 					
Net unrealized gains (losses) on securities not other-than-temporarily impaired	  	 	(179	) 	 	 	(167	) 	 	 	(185	) 	 	 	346		 	 	(185	) 		
Net unrealized gains (losses) on other-than-temporarily impaired securities	  	 	(2	) 	 	 	(1	) 	 	 	(2	) 	 	 	3		 	 	(2	) 		
Derivatives qualifying as hedges	  	 	(64	) 	 	 	(64	) 	 	 	(68	) 	 	 	132		 	 	(64	) 		
Foreign currency translation and other adjustments	  	 	(55	) 	 	 	(46	) 	 	 	(97	) 	 	 	100		 	 	(98	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total other comprehensive income (loss)	  	 	(300	) 	 	 	(278	) 	 	 	(352	) 	 	 	581		 	 	(349	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total comprehensive loss	  	 	(110	) 	 	 	(186	) 	 	 	(4	) 	 	 	200		 	 	(100	) 		
Less: comprehensive income attributable to noncontrolling interests	  	 	—  	 	 	 	—  	 	 	 	10		 	 	—  	 	 	 	10			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total comprehensive loss available to Genworth Financial, Inc.’s common stockholders	  	$	(110	) 	 	$	(186	) 	 	$	(14	) 	 	$	200		 	$	(110	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
The following table presents the condensed consolidating comprehensive income statement information for the three months ended June 30, 2017:

	(Amounts in millions)	  	Parent
Guarantor	 	 	Issuer	 	 	All Other
Subsidiaries	 	 	Eliminations	 	 	Consolidated	 	
Net income	  	$	202		 	$	99		 	$	326		 	$	(356	) 	 	$	271			
Other comprehensive income (loss), net of taxes:	  				 				 				 				 					
Net unrealized gains (losses) on securities not other-than-temporarily impaired	  	 	(63	) 	 	 	(70	) 	 	 	(71	) 	 	 	132		 	 	(72	) 		
Derivatives qualifying as hedges	  	 	28		 	 	28		 	 	32		 	 	(60	) 	 	 	28			
Foreign currency translation and other adjustments	  	 	34		 	 	29		 	 	61		 	 	(63	) 	 	 	61			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total other comprehensive income (loss)	  	 	(1	) 	 	 	(13	) 	 	 	22		 	 	9		 	 	17			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total comprehensive income	  	 	201		 	 	86		 	 	348		 	 	(347	) 	 	 	288			
Less: comprehensive income attributable to noncontrolling interests	  	 	—  	 	 	 	—  	 	 	 	87		 	 	—  	 	 	 	87			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total comprehensive income available to Genworth Financial, Inc.’s common stockholders	  	$	201		 	$	86		 	$	261		 	$	(347	) 	 	$	201			

82

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the condensed consolidating comprehensive income statement information for the six months ended June 30, 2018:

	(Amounts in millions)	  	Parent
Guarantor	 	 	Issuer	 	 	All Other
Subsidiaries	 	 	Eliminations	 	 	Consolidated	 	
Net income	  	$	302		 	$	95		 	$	569		 	$	(552	) 	 	$	414			
Other comprehensive income (loss), net of taxes:	  				 				 				 				 					
Net unrealized gains (losses) on securities not other-than-temporarily impaired	  	 	(511	) 	 	 	(462	) 	 	 	(526	) 	 	 	973		 	 	(526	) 		
Net unrealized gains (losses) on other-than-temporarily impaired securities	  	 	(2	) 	 	 	(1	) 	 	 	(2	) 	 	 	3		 	 	(2	) 		
Derivatives qualifying as hedges	  	 	(216	) 	 	 	(217	) 	 	 	(233	) 	 	 	450		 	 	(216	) 		
Foreign currency translation and other adjustments	  	 	(102	) 	 	 	(82	) 	 	 	(185	) 	 	 	184		 	 	(185	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total other comprehensive income (loss)	  	 	(831	) 	 	 	(762	) 	 	 	(946	) 	 	 	1,610		 	 	(929	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total comprehensive loss	  	 	(529	) 	 	 	(667	) 	 	 	(377	) 	 	 	1,058		 	 	(515	) 		
Less: comprehensive income attributable to noncontrolling interests	  	 	—  	 	 	 	—  	 	 	 	14		 	 	—  	 	 	 	14			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total comprehensive loss available to Genworth Financial, Inc.’s common stockholders	  	$	(529	) 	 	$	(667	) 	 	$	(391	) 	 	$	1,058		 	$	(529	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
The following table presents the condensed consolidating comprehensive income statement information for the six months ended June 30, 2017:

	(Amounts in millions)	  	Parent
Guarantor	 	 	Issuer	 	 	All Other
Subsidiaries	 	 	Eliminations	 	 	Consolidated	 	
Net income	  	$	357		 	$	185		 	$	596		 	$	(651	) 	 	$	487			
Other comprehensive income (loss), net of taxes:	  				 				 				 				 					
Net unrealized gains (losses) on securities not other-than-temporarily impaired	  	 	(83	) 	 	 	(101	) 	 	 	(84	) 	 	 	184		 	 	(84	) 		
Net unrealized gains (losses) on other-than-temporarily impaired securities	  	 	1		 	 	1		 	 	1		 	 	(2	) 	 	 	1			
Derivatives qualifying as hedges	  	 	(21	) 	 	 	(21	) 	 	 	(20	) 	 	 	41		 	 	(21	) 		
Foreign currency translation and other adjustments	  	 	104		 	 	97		 	 	180		 	 	(201	) 	 	 	180			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total other comprehensive income (loss)	  	 	1		 	 	(24	) 	 	 	77		 	 	22		 	 	76			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total comprehensive income	  	 	358		 	 	161		 	 	673		 	 	(629	) 	 	 	563			
Less: comprehensive income attributable to noncontrolling interests	  	 	—  	 	 	 	—  	 	 	 	205		 	 	—  	 	 	 	205			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total comprehensive income available to Genworth Financial, Inc.’s common stockholders	  	$	358		 	$	161		 	$	468		 	$	(629	) 	 	$	358			

83

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the condensed consolidating cash flow statement information for the six months ended June 30, 2018:

	(Amounts in millions)	 	Parent
Guarantor	 	 	Issuer	 	 	All Other
Subsidiaries	 	 	Eliminations	 	 	Consolidated	 	
Cash flows from (used by) operating activities:	 				 				 				 				 					
Net income	 	$	302		 	$	95		 	$	569		 	$	(552	) 	 	$	414			
Adjustments to reconcile net income to net cash from (used by) operating activities:	 				 				 				 				 					
Equity in income from subsidiaries	 	 	(356	) 	 	 	(196	) 	 	 	—  	 	 	 	552		 	 	—  	 		
Dividends from subsidiaries	 	 	50		 	 	91		 	 	(141	) 	 	 	—  	 	 	 	—  	 		
Amortization of fixed maturity securities discounts and premiums	 	 	—  	 	 	 	3		 	 	(65	) 	 	 	—  	 	 	 	(62	) 		
Net investment losses	 	 	—  	 	 	 	2		 	 	43		 	 	—  	 	 	 	45			
Charges assessed to policyholders	 	 	—  	 	 	 	—  	 	 	 	(359	) 	 	 	—  	 	 	 	(359	) 		
Acquisition costs deferred	 	 	—  	 	 	 	—  	 	 	 	(40	) 	 	 	—  	 	 	 	(40	) 		
Amortization of deferred acquisition costs and intangibles	 	 	—  	 	 	 	—  	 	 	 	216		 	 	—  	 	 	 	216			
Deferred income taxes	 	 	42		 	 	(117	) 	 	 	158		 	 	—  	 	 	 	83			
Trading securities, limited partnerships and derivative instruments	 	 	—  	 	 	 	22		 	 	(217	) 	 	 	—  	 	 	 	(195	) 		
Stock-based compensation expense	 	 	15		 	 	—  	 	 	 	1		 	 	—  	 	 	 	16			
Change in certain assets and liabilities:	 				 				 				 				 					
Accrued investment income and other assets	 	 	(1	) 	 	 	59		 	 	(147	) 	 	 	—  	 	 	 	(89	) 		
Insurance reserves	 	 	—  	 	 	 	—  	 	 	 	691		 	 	—  	 	 	 	691			
Current tax liabilities	 	 	(27	) 	 	 	87		 	 	(97	) 	 	 	—  	 	 	 	(37	) 		
Other liabilities, policy and contract claims and other policy-related balances	 	 	(15	) 	 	 	(50	) 	 	 	(49	) 	 	 	(8	) 	 	 	(122	) 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net cash from (used by) operating activities	 	 	10		 	 	(4	) 	 	 	563		 	 	(8	) 	 	 	561			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Cash flows used by investing activities:	 				 				 				 				 					
Proceeds from maturities and repayments of investments:	 				 				 				 				 					
Fixed maturity securities	 	 	—  	 	 	 	—  	 	 	 	1,979		 	 	—  	 	 	 	1,979			
Commercial mortgage loans	 	 	—  	 	 	 	—  	 	 	 	350		 	 	—  	 	 	 	350			
Restricted commercial mortgage loans related to securitization entities	 	 	—  	 	 	 	—  	 	 	 	16		 	 	—  	 	 	 	16			
Proceeds from sales of investments:	 				 				 				 				 					
Fixed maturity and equity securities	 	 	—  	 	 	 	—  	 	 	 	1,920		 	 	—  	 	 	 	1,920			
Purchases and originations of investments:	 				 				 				 				 					
Fixed maturity and equity securities	 	 	—  	 	 	 	—  	 	 	 	(4,082	) 	 	 	—  	 	 	 	(4,082	) 		
Commercial mortgage loans	 	 	—  	 	 	 	—  	 	 	 	(489	) 	 	 	—  	 	 	 	(489	) 		
Other invested assets, net	 	 	—  	 	 	 	—  	 	 	 	85		 	 	8		 	 	93			
Policy loans, net	 	 	—  	 	 	 	—  	 	 	 	15		 	 	—  	 	 	 	15			
Intercompany notes receivable	 	 	—  	 	 	 	(10	) 	 	 	58		 	 	(48	) 	 	 	—  	 		
Capital contributions to subsidiaries	 	 	(1	) 	 	 	—  	 	 	 	1		 	 	—  	 	 	 	—  	 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net cash used by investing activities	 	 	(1	) 	 	 	(10	) 	 	 	(147	) 	 	 	(40	) 	 	 	(198	) 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Cash flows used by financing activities:	 				 				 				 				 					
Deposits to universal life and investment contracts	 	 	—  	 	 	 	—  	 	 	 	503		 	 	—  	 	 	 	503			
Withdrawals from universal life and investment contracts	 	 	—  	 	 	 	—  	 	 	 	(1,177	) 	 	 	—  	 	 	 	(1,177	) 		
Proceeds from the issuance of long-term debt	 	 	—  	 	 	 	441		 	 	—  	 	 	 	—  	 	 	 	441			
Repayment and repurchase of long-term debt	 	 	—  	 	 	 	(597	) 	 	 	—  	 	 	 	—  	 	 	 	(597	) 		
Repayment of borrowings related to securitization entities	 	 	—  	 	 	 	—  	 	 	 	(12	) 	 	 	—  	 	 	 	(12	) 		
Repurchase of subsidiary shares	 	 	—  	 	 	 	—  	 	 	 	(49	) 	 	 	—  	 	 	 	(49	) 		
Dividends paid to noncontrolling interests	 	 	—  	 	 	 	—  	 	 	 	(50	) 	 	 	—  	 	 	 	(50	) 		
Intercompany notes payable	 	 	(7	) 	 	 	(59	) 	 	 	18		 	 	48		 	 	—  	 		
Other, net	 	 	(2	) 	 	 	(19	) 	 	 	19		 	 	—  	 	 	 	(2	) 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net cash used by financing activities	 	 	(9	) 	 	 	(234	) 	 	 	(748	) 	 	 	48		 	 	(943	) 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Effect of exchange rate changes on cash, cash equivalents and restricted cash	 	 	—  	 	 	 	—  	 	 	 	(52	) 	 	 	—  	 	 	 	(52	) 		
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net change in cash, cash equivalents and restricted cash	 	 	—  	 	 	 	(248	) 	 	 	(384	) 	 	 	—  	 	 	 	(632	) 		
Cash, cash equivalents and restricted cash at beginning of period	 	 	—  	 	 	 	795		 	 	2,080		 	 	—  	 	 	 	2,875			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Cash, cash equivalents and restricted cash at end of period	 	$	—  	 	 	$	547		 	$	1,696		 	$	—  	 	 	$	2,243			

84

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the condensed consolidating cash flow statement information for the six months ended June 30, 2017:

	(Amounts in millions)	  	Parent
Guarantor	 	 	Issuer	 	 	All Other
Subsidiaries	 	 	Eliminations	 	 	Consolidated	 	
Cash flows from (used by) operating activities:	  				 				 				 				 					
Net income	  	$	357		 	$	185		 	$	596		 	$	(651	) 	 	$	487			
Adjustments to reconcile net income to net cash from (used by) operating activities:	  				 				 				 				 					
Equity in income from subsidiaries	  	 	(383	) 	 	 	(268	) 	 	 	—  	 	 	 	651		 	 	—  	 		
Dividends from subsidiaries	  	 	—  	 	 	 	64		 	 	(64	) 	 	 	—  	 	 	 	—  	 		
Amortization of fixed maturity securities discounts and premiums	  	 	—  	 	 	 	3		 	 	(79	) 	 	 	—  	 	 	 	(76	) 		
Net investment (gains) losses	  	 	—  	 	 	 	8		 	 	(143	) 	 	 	—  	 	 	 	(135	) 		
Charges assessed to policyholders	  	 	—  	 	 	 	—  	 	 	 	(365	) 	 	 	—  	 	 	 	(365	) 		
Acquisition costs deferred	  	 	—  	 	 	 	—  	 	 	 	(44	) 	 	 	—  	 	 	 	(44	) 		
Amortization of deferred acquisition costs and intangibles	  	 	—  	 	 	 	—  	 	 	 	233		 	 	—  	 	 	 	233			
Deferred income taxes	  	 	6		 	 	(14	) 	 	 	174		 	 	—  	 	 	 	166			
Trading securities, limited partnerships and derivative instruments	  	 	—  	 	 	 	1		 	 	430		 	 	—  	 	 	 	431			
Stock-based compensation expense	  	 	14		 	 	—  	 	 	 	4		 	 	—  	 	 	 	18			
Change in certain assets and liabilities:	  				 				 				 				 					
Accrued investment income and other assets	  	 	(6	) 	 	 	(30	) 	 	 	12		 	 	1		 	 	(23	) 		
Insurance reserves	  	 	—  	 	 	 	—  	 	 	 	806		 	 	—  	 	 	 	806			
Current tax liabilities	  	 	(4	) 	 	 	(88	) 	 	 	60		 	 	—  	 	 	 	(32	) 		
Other liabilities, policy and contract claims and other policy-related balances	  	 	(9	) 	 	 	64		 	 	(210	) 	 	 	(3	) 	 	 	(158	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net cash from (used by) operating activities	  	 	(25	) 	 	 	(75	) 	 	 	1,410		 	 	(2	) 	 	 	1,308			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Cash flows used by investing activities:	  				 				 				 				 					
Proceeds from maturities and repayments of investments:	  				 				 				 				 					
Fixed maturity securities	  	 	—  	 	 	 	—  	 	 	 	2,358		 	 	—  	 	 	 	2,358			
Commercial mortgage loans	  	 	—  	 	 	 	—  	 	 	 	307		 	 	—  	 	 	 	307			
Restricted commercial mortgage loans related to securitization entities	  	 	—  	 	 	 	—  	 	 	 	11		 	 	—  	 	 	 	11			
Proceeds from sales of investments:	  				 				 				 				 					
Fixed maturity and equity securities	  	 	—  	 	 	 	—  	 	 	 	2,587		 	 	—  	 	 	 	2,587			
Purchases and originations of investments:	  				 				 				 				 					
Fixed maturity and equity securities	  	 	—  	 	 	 	(46	) 	 	 	(4,687	) 	 	 	—  	 	 	 	(4,733	) 		
Commercial mortgage loans	  	 	—  	 	 	 	—  	 	 	 	(431	) 	 	 	—  	 	 	 	(431	) 		
Other invested assets, net	  	 	—  	 	 	 	—  	 	 	 	(640	) 	 	 	2		 	 	(638	) 		
Policy loans, net	  	 	—  	 	 	 	—  	 	 	 	21		 	 	—  	 	 	 	21			
Intercompany notes receivable	  	 	—  	 	 	 	(51	) 	 	 	47		 	 	4		 	 	—  	 		
Capital contributions to subsidiaries	  	 	(7	) 	 	 	—  	 	 	 	7		 	 	—  	 	 	 	—  	 		
Payments for business purchased, net of cash acquired	  	 	(7	) 	 	 	—  	 	 	 	2		 	 	—  	 	 	 	(5	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net cash used by investing activities	  	 	(14	) 	 	 	(97	) 	 	 	(418	) 	 	 	6		 	 	(523	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Cash flows from (used by) financing activities:	  				 				 				 				 					
Deposits to universal life and investment contracts	  	 	—  	 	 	 	—  	 	 	 	429		 	 	—  	 	 	 	429			
Withdrawals from universal life and investment contracts	  	 	—  	 	 	 	—  	 	 	 	(1,091	) 	 	 	—  	 	 	 	(1,091	) 		
Repayment of borrowings related to securitization entities	  	 	—  	 	 	 	—  	 	 	 	(12	) 	 	 	—  	 	 	 	(12	) 		
Dividends paid to noncontrolling interests	  	 	—  	 	 	 	—  	 	 	 	(52	) 	 	 	—  	 	 	 	(52	) 		
Intercompany notes payable	  	 	40		 	 	(47	) 	 	 	11		 	 	(4	) 	 	 	—  	 		
Other, net	  	 	(1	) 	 	 	(21	) 	 	 	(7	) 	 	 	—  	 	 	 	(29	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net cash from (used by) financing activities	  	 	39		 	 	(68	) 	 	 	(722	) 	 	 	(4	) 	 	 	(755	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Effect of exchange rate changes on cash, cash equivalents and restricted cash	  	 	—  	 	 	 	—  	 	 	 	39		 	 	—  	 	 	 	39			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net change in cash, cash equivalents and restricted cash	  	 	—  	 	 	 	(240	) 	 	 	309		 	 	—  	 	 	 	69			
Cash, cash equivalents and restricted cash at beginning of period	  	 	—  	 	 	 	998		 	 	1,786		 	 	—  	 	 	 	2,784			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Cash, cash equivalents and restricted cash at end of period	  	$	—  	 	 	$	758		 	$	2,095		 	$	—  	 	 	$	2,853			

85

Table of Contents
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Our insurance company subsidiaries are restricted by state and foreign laws and regulations as to the amount of dividends they may pay to their parent without regulatory approval in any year, the purpose of which is to protect affected insurance policyholders and contractholders, not stockholders. Any dividends in excess of limits are deemed “extraordinary” and require approval. Based on statutory results as of December 31, 2017, in accordance with applicable dividend restrictions, our subsidiaries could pay dividends of approximately $500 million to us in 2018 without obtaining regulatory approval, and the remaining net assets are considered restricted. While the $500 million is unrestricted, our insurance subsidiaries may not pay dividends to us in 2018 at this level if they need to retain capital for growth and to meet capital requirements and desired thresholds. As of June 30, 2018, Genworth Financial’s and Genworth Holdings’ subsidiaries had restricted net assets of $12.6 billion and $11.9 billion, respectively.
 
86

Table of Contents

 Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included herein and with our 2017 Annual Report on Form 10-K. References to “Genworth,” the “Company,” “we” or “our” herein are, unless the context otherwise requires, to Genworth Financial, Inc. on a consolidated basis.
Cautionary note regarding forward-looking statements
This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “will” or words of similar meaning and include, but are not limited to, statements regarding the outlook for our future business and financial performance. Examples of forward-looking statements include statements we make relating to the transaction with China Oceanwide Holdings Group Co., Ltd. (“China Oceanwide”) and our discussions with regulators in connection therewith. Forward-looking statements are based on management’s current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially from those in the forward-looking statements due to global political, economic, business, competitive, market, regulatory and other factors and risks, including, but not limited to, the following:
 
 	•	 	risks related to the proposed transaction with China Oceanwide including: our inability to complete the transaction in a timely manner or at all; the parties’ inability to obtain regulatory approvals, or the possibility that such regulatory approvals may further delay the transaction or will not be received prior to August 15, 2018 (and either or both of the parties may not be willing to further waive their end date termination rights beyond August 15, 2018) or that materially burdensome or adverse regulatory conditions may be imposed or undesirable measures may be required in connection with any such regulatory approvals (including those conditions or measures that either or both of the parties may be unwilling to accept or undertake, as applicable); the risk that the parties will not be able to obtain other regulatory approvals, including in connection with the parties’ intent to seek approval of the China Oceanwide transaction with no unstacking or in connection with the current geo-political environment; the parties’ inability to agree on a new capital plan; the risk that a closing condition of the transaction may not be satisfied; existing and potential legal proceedings may be instituted against us in connection with the transaction that may delay the transaction, make it more costly or ultimately preclude it; the risk that the proposed transaction disrupts our current plans and operations as a result of the announcement and consummation of the transaction; certain restrictions during the pendency of the transaction that may impact our ability to pursue certain business opportunities or strategic transactions; continued availability of capital and financing to us before, or in the absence of, the consummation of the transaction; further rating agency actions and downgrades in our debt or financial strength ratings; changes in applicable laws or regulations; our ability to recognize the anticipated benefits of the transaction; the amount of the costs, fees, expenses and other charges related to the transaction; the risks related to diverting management’s attention from our ongoing business operations; the merger agreement may be terminated in circumstances that would require us to pay China Oceanwide a fee; our ability to attract, recruit, retain and motivate current and prospective employees may be adversely affected; and disruptions and uncertainty relating to the transaction, whether or not it is completed, may harm our relationships with our employees, customers, distributors, vendors or other business partners, and may result in a negative impact on our business;	
 
 	•	 	strategic risks in the event the proposed transaction with China Oceanwide is not consummated including: our inability to successfully execute alternative strategic plans to effectively address our current business challenges (including with respect to our U.S. life insurance businesses, debt obligations, cost savings, ratings and capital); our ability to continue to sell long-term care insurance policies; our inability to attract buyers for any businesses or other assets we may seek to sell, or securities we may seek to issue, in each case, in a timely manner and on anticipated terms; failure to obtain any required regulatory, stockholder and/or noteholder approvals or consents for such alternative strategic plans, or our challenges changing or being more costly or difficult to successfully address than	
 
87

Table of Contents

 	currently anticipated or the benefits achieved being less than anticipated; inability to achieve anticipated cost-savings in a timely manner; and adverse tax or accounting charges; and our ability to increase the capital needed in our businesses in a timely manner and on anticipated terms, including through improved business performance, reinsurance or similar transactions, asset sales, securities offerings or otherwise, in each case as and when required;	
 
 	•	 	risks relating to estimates, assumptions and valuations including: inadequate reserves and the need to increase reserves (including as a result of any changes we may make to our assumptions, methodologies or otherwise in connection with periodic or other reviews, including the long-term care insurance claim reserves review we plan to undertake in the third or fourth quarter that will include a review of assumptions, which will consider the pressures resulting from claims utilization developments of policyholders); inaccurate models; deviations from our estimates and actuarial assumptions or other reasons in our long-term care insurance, life insurance and/or annuity businesses; accelerated amortization of deferred acquisition costs (“DAC”) and present value of future profits (“PVFP”) (including as a result of any changes we may make to our assumptions, methodologies or otherwise in connection with periodic or other reviews); adverse impact on our financial results as a result of projected profits followed by projected losses (as is currently the case with our long-term care insurance business); adverse impact on our results of operations and changes in valuation of fixed maturity and equity securities;	
 
 	•	 	risks relating to economic, market and political conditions including: downturns and volatility in global economies and equity and credit markets; interest rates and changes in rates (particularly given the historically low interest rate environment) have adversely impacted, and may continue to materially adversely impact, our business and profitability; deterioration in economic conditions or a decline in home prices that adversely affect our loss experience in mortgage insurance; political and economic instability or changes in government policies; and fluctuations in foreign currency exchange rates and international securities markets;	
 
 	•	 	regulatory and legal risks including: extensive regulation of our businesses and changes in applicable laws and regulations (including changes to tax laws and regulations); litigation and regulatory investigations or other actions; dependence on dividends and other distributions from our subsidiaries (particularly our international subsidiaries) and the inability of any subsidiaries to pay dividends or make other distributions to us, including as a result of the performance of our subsidiaries and insurance, regulatory or corporate law restrictions; adverse change in regulatory requirements, including risk-based capital; changes in regulations adversely affecting our international operations; inability to continue to maintain the private mortgage insurer eligibility requirements (“PMIERs”); inability of our U.S. mortgage insurance subsidiaries to meet minimum statutory capital requirements and hazardous financial condition standards; the influence of Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) and a small number of large mortgage lenders on the U.S. mortgage insurance market and adverse changes to the role or structure of Fannie Mae and Freddie Mac; adverse changes in regulations affecting our mortgage insurance businesses; inability to continue to implement actions to mitigate the impact of statutory reserve requirements; impact of additional regulations pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act; changes in tax laws; and changes in accounting and reporting standards;	
 
 	•	 	liquidity, financial strength ratings, credit and counterparty risks including: insufficient internal sources to meet liquidity needs and limited or no access to capital (including the ability to obtain further financing under an additional secured term loan or credit facility); future adverse rating agency actions, including with respect to rating downgrades or potential downgrades or being put on review for potential downgrade, all of which could have adverse implications for us, including with respect to key business relationships, product offerings, business results of operations, financial condition and capital needs, strategic plans, collateral obligations and availability and terms of hedging, reinsurance and borrowings; defaults by counterparties to reinsurance arrangements or derivative instruments; defaults or other events impacting the value of our fixed maturity securities portfolio; and defaults on	
 
88

Table of Contents

 	our commercial mortgage loans or the mortgage loans underlying our investments in commercial mortgage-backed securities and volatility in performance;	
 
 	•	 	operational risks including: inability to retain, attract and motivate qualified employees or senior management; ineffective or inadequate risk management in identifying, controlling or mitigating risks; reliance on, and loss of, key customer or distribution relationships; competition, including in our mortgage insurance businesses from government and government-owned and government-sponsored enterprises (“GSEs”) offering mortgage insurance; the design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations; and failure or any compromise of the security of our computer systems, disaster recovery systems and business continuity plans and failures to safeguard, or breaches of, our confidential information;	
 
 	•	 	insurance and product-related risks including: our inability to increase sufficiently, and in a timely manner, premiums on in-force long-term care insurance policies and/or reduce in-force benefits, and charge higher premiums on new policies, in each case, as currently anticipated and as may be required from time to time in the future (including as a result of our failure to obtain any necessary regulatory approvals or unwillingness or inability of policyholders to pay increased premiums), including to offset any impact on our margins; failure to sufficiently increase new sales for our long-term care insurance products; availability, affordability and adequacy of reinsurance to protect us against losses; our inability to realize anticipated benefits of our rescissions, curtailments, loan modifications or other similar programs in our mortgage insurance businesses; premiums for the significant portion of our mortgage insurance risk in-force with high loan-to-value ratios may not be sufficient to compensate us for the greater risks associated with those policies; decreases in the volume of high loan-to-value mortgage originations or increases in mortgage insurance cancellations; increases in the use of alternatives to private mortgage insurance and reductions in the level of coverage selected; potential liabilities in connection with our U.S. contract underwriting services; and medical advances, such as genetic research and diagnostic imaging, and related legislation that impact policyholder behavior in ways adverse to us;	
 
 	•	 	other risks including: occurrence of natural or man-made disasters or a pandemic; impairments of or valuation allowances against our deferred tax assets; the possibility that in certain circumstances we will be obligated to make payments to General Electric Company (“GE”) under the tax matters agreement with GE even if our corresponding tax savings are never realized and payments could be accelerated in the event of certain changes in control; and provisions of our certificate of incorporation and bylaws and the tax matters agreement with GE may discourage takeover attempts and business combinations that stockholders might consider in their best interests; and	
 
 	•	 	risks relating to our common stock including: the continued suspension of payment of dividends; and stock price fluctuations.	
We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
Overview
Our business
We are dedicated to helping meet the homeownership and long-term care needs of our customers. We have the following five operating business 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.	
 
89

Table of Contents

 	•	 	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 (“FABNs”).	
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, Inc. (“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.
Strategic Update
We continue to focus on improving business performance, addressing financial leverage and increasing financial and strategic flexibility across the organization. Our strategy includes maximizing our opportunities in our mortgage insurance businesses and stabilizing our U.S. life insurance businesses.
China Oceanwide Transaction
On October 21, 2016, Genworth Financial entered into an agreement and plan of merger (the “Merger Agreement”) with Asia Pacific Global Capital Co., Ltd. (the “Parent”), a limited liability company incorporated in the People’s Republic of China, and Asia Pacific Global Capital USA Corporation (“Merger Sub”), a Delaware corporation and an indirect, wholly-owned subsidiary of the Parent. 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 the Parent (the “Merger”). The Parent is a subsidiary of China Oceanwide. 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.
Genworth Financial and China Oceanwide continue to work towards satisfying the closing conditions of the Merger as soon as possible. In June 2018, the Committee on Foreign Investment in the United States (“CFIUS”) completed its review of the proposed transaction and concluded that there are no unresolved national security concerns with respect to the proposed transaction. The completion of the CFIUS review satisfied one of the conditions to closing the proposed transaction. In connection with the CFIUS review of the proposed transaction, Genworth Financial and China Oceanwide entered into an agreement to implement a data security risk mitigation plan, which includes, among other things, the use of a U.S. third-party service provider to protect the personal data of Genworth Financial’s policyholders and customers in the United States.
The parties have also had ongoing discussions with the Delaware Department of Insurance (“DDOI”) on its review of the transaction, including the purchase by a Genworth holding company of Genworth Life and Annuity Insurance Company (“GLAIC”) from Genworth Life Insurance Company (“GLIC”), which we refer to as “unstacking.” As part of the transaction, China Oceanwide originally committed in the Merger Agreement to contribute $525 million of cash for the purpose of facilitating the GLAIC unstacking. This contribution combined with $175 million of cash previously committed by Genworth Holdings was intended to enable the Genworth
 
90

Table of Contents
holding company to purchase GLAIC from GLIC for a purchase price of $700 million and complete the GLAIC unstacking. After extensive discussions with the DDOI on different methodologies for establishing the fair market value for GLAIC, the parties and the DDOI have been unable to agree on the fair market value of GLAIC. As a result, Genworth Financial and China Oceanwide are working with the DDOI and other regulators to seek approval of the Merger without the GLAIC unstacking. Without the unstacking, China Oceanwide will not make the originally contemplated $525 million contribution.
The closing of the Merger remains subject to the receipt of required regulatory approvals in the U.S., China, and other international jurisdictions and other closing conditions. Genworth Financial and China Oceanwide also continue to be actively engaged with the other relevant regulators regarding the pending applications.
On June 28, 2018, Genworth Financial, the Parent and Merger Sub entered into a fifth waiver and agreement (“Fifth Waiver and Agreement”) pursuant to which Genworth Financial and the Parent each agreed to waive until August 15, 2018 its right to terminate the Merger Agreement and abandon the Merger in accordance with the terms of the Merger Agreement. The Fifth Waiver and Agreement extended the previous waiver and agreement extension deadline of July 1, 2018, and allows additional time for regulatory reviews of the transaction, although we expect the regulatory review process will extend beyond this date. If we are unable to reach an agreement as to a further extension of the deadline or are unable to satisfy the closing conditions by the applicable deadline, then either party may terminate the Merger Agreement. Genworth Financial and China Oceanwide remain committed to satisfying the closing conditions under the Merger Agreement as soon as possible.
China Oceanwide originally committed in the Merger Agreement to contribute $600 million of cash to Genworth, subject to the consummation of the Merger, to address our senior unsecured notes due in May 2018 (the “May 2018 senior notes”), on or before their maturity. Due to the delays in the completion of the transaction, Genworth completed the $450 million senior secured term loan facility (“Term Loan”), as discussed below. Instead of the $600 million contribution from China Oceanwide, the proceeds of the Term Loan, together with $175 million of cash on hand, were used to retire the May 2018 senior notes. China Oceanwide therefore did not make the originally contemplated $600 million contribution for the May 2018 senior notes and the $525 million contribution for the GLAIC unstacking, China Oceanwide and Genworth are developing a new capital investment plan whereby China Oceanwide would contribute an aggregate of $1.5 billion to Genworth over time following the closing of the proposed transaction. The $1.5 billion contribution would be used to further improve our financial stability, which could include retiring debt due in 2020 and 2021 or enabling future growth opportunities.
If the China Oceanwide transaction is completed, we will be a standalone subsidiary of China Oceanwide and our senior management team will continue to lead the business from our current headquarters in Richmond, Virginia. Likewise, we intend to maintain our existing portfolio of businesses, including our mortgage insurance businesses in Australia and Canada. Our day-to-day operations are not expected to change as a result of this transaction.
Restructuring of U.S. Life Insurance Businesses
One of our strategic objectives was to separate, then isolate, through a series of internal transactions, our long-term care insurance business from our other U.S. life insurance businesses. We continued to pursue this plan in connection with the China Oceanwide transaction, with some differences from our previously announced restructuring plan. Our goal under the plan had been to align substantially all of our non-New York in-force life insurance and annuity business under GLAIC, our Virginia domiciled life insurance company, and substantially all of our non-New York long-term care insurance business under GLIC, our Delaware domiciled life insurance company.
Because of the recent decision by Genworth Financial and China Oceanwide not to pursue the GLAIC unstacking at this time in connection with the Merger, it is now contemplated that for the foreseeable future we
 
91

Table of Contents
will not separate and isolate our long-term care insurance business from our other U.S. life insurance businesses. However, we will continue to work to stabilize our long-term care insurance business primarily through our multi-year long-term care insurance rate action plan. Increasing premiums and/or implementing benefit modifications on our legacy long-term care insurance policies are critical to support the policy claims of the business. China Oceanwide has no future obligation and has expressed its intention not to contribute additional capital to support our legacy long-term care insurance business.
Term Loan
Due to the delay in the closing of the China Oceanwide transaction, we entered into the Term Loan with an aggregate principal amount of $450 million that was closed in March 2018. Proceeds of $441 million from the Term Loan were used together with $175 million of cash on hand to retire the principal and accrued interest of the May 2018 senior notes. In February 2018, Genworth Financial and China Oceanwide agreed to release $210 million of funds that were previously held in escrow for payment, among other things, of a termination fee to be paid to Genworth Financial under specified circumstances if China Oceanwide failed to fulfill certain obligations under the Merger Agreement. Genworth Financial and China Oceanwide also entered into a commitment agreement under which an affiliate of China Oceanwide agreed to commit funding for the Term Loan, subject to certain terms and conditions. This affiliate funded $60 million towards the Term Loan and was the lead investor in the transaction. The Term Loan includes a limited recourse guarantee secured by the publicly listed shares of Genworth MI Canada Inc. (“Genworth Canada”), held by Genworth Financial International Holdings, LLC (“GFIH”), an indirect wholly-owned subsidiary of Genworth Financial.
Strategic Alternatives
If the China Oceanwide transaction is not completed, we will continue to explore strategic alternatives and financing options to address our ongoing challenges. As a result of the recent performance of our long-term care and life insurance businesses and the charges we recorded in the third quarter of 2016 and fourth quarters of 2016 and 2017, absent any alternative commitment of external capital, we believe there would be: considerable doubt as to the feasibility and timing of achieving an unstacking of any portion of GLAIC in the foreseeable future; increased pressure on and potential further downgrades of our financial strength ratings, particularly for our mortgage insurance businesses, which could affect our ability to maintain our market share of the U.S. mortgage insurance industry; limitations on our ability to continue to write new long-term care insurance policies; and other limitations on our holding company liquidity and ability to service and/or refinance our holding company debt.
In the absence of the transaction with China Oceanwide, which we can neither predict nor guarantee, we may need to pursue strategic asset sales to address our debt maturities, including potential sales of our mortgage insurance businesses in Canada and/or Australia. We are also evaluating options to insulate our U.S. mortgage insurance business from additional ratings pressure, including a potential partial sale, in the event the transaction with China Oceanwide cannot be completed. Asset sales or changes to our financial projections, including changes that anticipate planned asset sales, may negatively impact our ability to realize certain foreign tax credits or other deferred tax assets and have a resulting material adverse effect on our results of operation.
Ongoing Priorities
As noted above, stabilizing our U.S. life insurance businesses continues to be one of our long-term goals. We will continue to execute against this objective primarily through our multi-year long-term care insurance rate action plan. Increasing premiums and/or implementing benefit modifications on our legacy long-term care insurance policies are critical to support the policy claims of the business. In addition, reducing debt will remain a high priority. We believe that increased financial support and our strengthened financial foundation resulting from the China Oceanwide transaction would provide us with more options to manage our debt maturities and reduce overall indebtedness, which in turn is intended to improve our credit and ratings profile over time. Finally,
 
92

Table of Contents
we also believe that the completion of the China Oceanwide transaction would allow us to place greater focus on the future of our long-term care and mortgage insurance businesses while continuing to service our existing policyholders.
Executive Summary of Financial Results
Below is an executive summary of our consolidated financial results for the periods indicated. Amounts below are net of taxes, unless otherwise indicated. Beginning in the first quarter of 2018, after-tax amounts assumed a tax rate of 21% compared to 35% in the prior year.
Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
 
 	•	 	We had net income available to Genworth Financial, Inc.’s common stockholders of $190 million and $202 million during the three months ended June 30, 2018 and 2017, respectively.	
 
 	•	 	Our U.S. Mortgage Insurance segment had net income available to Genworth Financial, Inc.’s common stockholders of $137 million during the three months ended June 30, 2018 compared to $91 million during the three months ended June 30, 2017. The increase was predominantly related to a $22 million favorable reserve adjustment in the current year mostly driven by lower expected claim rates. The increase was also driven by lower taxes and higher premiums principally related to an increase in insurance in-force, partially offset by lower average rates on our mortgage insurance in-force in the current year. The prior year also included a $10 million favorable reserve adjustment.	
 
 	•	 	Our Canada Mortgage Insurance and Australia Mortgage Insurance segments had net income available to Genworth Financial, Inc.’s common stockholders of $40 million and $26 million, respectively, during the three months ended June 30, 2018. For the three months ended June 30, 2017, our Canada Mortgage Insurance and Australia Mortgage Insurance segments had net income available to Genworth financial, Inc.’s common stockholders of $58 million and $13 million, respectively. Lower taxes favorably impacted the earnings of both segments. However, in our Canada Mortgage Insurance segment, we also experienced higher losses in the second quarter of 2018. In our Australia Mortgage Insurance segment we recorded higher premiums and earnings principally from an increase in policy cancellations resulting from an initiative implemented in the second quarter of 2018 to more promptly identify loans that have been discharged or refinanced using newly available data. In addition, updated premium recognition factors from the review of our premium earnings pattern in the fourth quarter of 2017 drove higher premiums and earnings in our Australia Mortgage Insurance segment in the current year.	
 
 	•	 	Our U.S. Life Insurance segment had $50 million and $76 million of net income available to Genworth Financial, Inc.’s common stockholders for the three months ended June 30, 2018 and 2017, respectively. Higher reserves of $10 million in the prior year related to loss recognition testing that did not recur, favorable mortality, and lower interest credited and taxes in the current year increased earnings by $11 million in our fixed annuities business. Our long-term care insurance business continues to experience higher severity and frequency on new claims and higher utilization of available benefits which reduced earnings compared to the prior year. Our life insurance business experienced net favorable mortality for the three months ended June 30, 2018 and recorded lower tax expense. These increases were partially offset by higher ceded reinsurance in the current year resulting in $2 million of net income available to Genworth financial, Inc.’s common stockholders for the three months ended June 30, 2018, which was flat to prior year.	
Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017
 
 	•	 	We had net income available to Genworth Financial, Inc.’s common stockholders of $302 million and $357 million during the six months ended June 30, 2018 and 2017, respectively. The current year net income available to Genworth Financial, Inc.’s common stockholders was largely attributable to our U.S. Mortgage Insurance segment, which represented $248 million of the total amount.	
 
 	•	 	The loss ratio in our U.S. Mortgage Insurance segment was zero and 9% for the six months ended June 30, 2018 and 2017, respectively. The current year loss ratio was primarily driven by	
 
93

Table of Contents

 	improvements in net benefit from cures and aging of existing delinquencies and from higher net earned premiums attributable to higher insurance in-force in the current year. The decrease in the current year was also attributable to a pre-tax favorable reserve adjustment of $28 million mostly associated with lower expected claim rates. The current year reserve adjustment reduced the loss ratio by eight percentage points for the six months ended June 30, 2018.	
 
 	•	 	The loss ratio in our Canada Mortgage Insurance and Australia Mortgage Insurance segments were 14% and 29%, respectively, for the six months ended June 30, 2018. For the six months ended June 30, 2017, the loss ratio in our Canada Mortgage Insurance and Australia Mortgage Insurance segments were 10% and 34%, respectively. The loss ratio in our Canada Mortgage Insurance segment was driven mostly by lower favorable development in our loss reserves and higher new delinquencies, net of cures, as overall favorable regional macroeconomic conditions began to normalize in 2018 after experiencing considerable strength in 2017. The loss ratio in our Australia Mortgage Insurance segment was impacted predominantly from an increase in earned premiums driven mostly by updated premium recognition factors from the review of our premium earnings pattern in the fourth quarter of 2017 and from higher policy cancellations, partially offset by higher losses in the current year.	
 
 	•	 	Our effective tax rate decreased to 29.6% for the six months ended June 30, 2018 from 33.6% for the six months ended June 30, 2017. The decrease in the effective tax rate was primarily attributable to the enactment of the Tax Cuts and Jobs Act (“TCJA”), which includes a change in the U.S. corporate federal income tax rate from 35% to 21%. This decrease was partially offset by the effect of foreign operations, which had an overall increase on the effective tax rate as our primary foreign subsidiaries are now in jurisdictions with higher statutory tax rates than the United States. The decrease was also partially offset by tax expense of $11 million in our long-term care insurance business related to gains on forward starting swaps settled prior to the enactment of the TCJA, which are tax effected at 35% as they are amortized into net investment income and from a provisional tax expense of $19 million in the current year related to a revaluation of deferred tax assets and liabilities on our foreign subsidiaries in light of the TCJA.	
Significant Developments
The periods under review include, among others, the following significant developments.
U.S. Mortgage Insurance
 
 	•	 	PMIERs compliance . Our U.S. mortgage insurance business is compliant with the PMIERs capital requirements, with a prudent buffer. We estimate our U.S. mortgage insurance business had available assets of approximately 129% of the required assets under PMIERs as of June 30, 2018 compared to approximately 121% as of December 31, 2017. As of June 30, 2018 and December 31, 2017, the PMIERs sufficiency ratios were in excess of $700 million and $550 million, respectively, of available assets above the PMIERs requirements. The increase in the current year was driven, in part, by positive operating cash flows and a reduction in delinquent loans.	
 
 	•	 	PMIERs 2.0 . The GSEs shared with us a new draft summary and timeline of proposed revisions to PMIERs, referred to as PMIERs 2.0. We do not anticipate any new PMIERs financial requirements becoming effective before the first quarter of 2019. If PMIERs 2.0 is adopted in the form we have reviewed with an effective date of March 31, 2019, we estimate our U.S. mortgage insurance business would continue to have an excess of available assets relative to required assets under the revised standard, however, this amount would be significantly lower than under the existing PMIERs.	
 
 	•	 	Adjusted operating income. Adjusted operating income was $248 million for the six months ended June 30, 2018, an increase of $84 million compared to the six months ended June 30, 2017, driven mostly by higher premiums resulting from an increase in mortgage insurance in-force and lower taxes and losses in the current year. The increase was also attributable to a $22 million favorable reserve adjustment in the current year primarily from lower expected claim rates. The prior year also included a $10 million favorable reserve adjustment.	
 
94

Table of Contents

 	•	 	Dividends paid. Our U.S. mortgage insurance business paid $50 million of dividends in the second quarter of 2018. We expect this will be the only dividend paid by our U.S. mortgage insurance business in 2018, however, the evaluation of future dividend plans is subject to current market conditions, among other factors, which are subject to change.	
U.S. Life Insurance
 
 	•	 	Rate actions in our long-term care insurance business. As part of our strategy for our long-term care insurance business, we have been implementing, and expect to continue to pursue, significant premium rate increases and/or reduced benefits on older generation blocks of business in order to bring those blocks closer to a break-even point over time and reduce the strain on earnings and capital. We are also requesting premium rate increases and/or reduced benefits on newer blocks of business, as needed, some of which may be significant, to help bring their loss ratios back towards their original pricing. For all of these rate action filings, we received 46 filing approvals from 18 states during the six months ended June 30, 2018, representing a weighted-average increase of 49% on approximately $232 million in annualized in-force premiums. We also submitted 17 new filings in 7 states during the six months ended June 30, 2018 on approximately $77 million in annualized in-force premiums.	
Liquidity and Capital Resources
 
 	•	 	Redemption of Genworth Holdings’ May 2018 senior notes. On May 22, 2018, Genworth Holdings redeemed $597 million of its 6.52% senior notes that were issued in May 2008 and matured in May 2018. A cash payment of $616 million comprising net proceeds of $441 million from the Term Loan and $175 million of existing cash on hand was used to fully redeem the principal and accrued interest balance of the May 2018 senior notes.	
 
 	•	 	Secured Term Loan. On March 7, 2018, Genworth Holdings entered into a $450 million Term Loan, which matures in March 2023 and was issued at a 0.5% discount. Principal payments under the agreement are due quarterly, commencing on June 30, 2018, and are payable in equal amounts of 0.25% per quarter of the original principal amount with the remaining balance due at maturity. At our option, the Term Loan will bear interest at either an adjusted London Interbank Offered Rate (“LIBOR”) no lower than 1.0% plus a margin of 4.5% per annum or an alternate base rate plus a margin of 3.5% per annum. At June 30, 2018, the interest rate on the Term Loan was 6.5%. The Term Loan is unconditionally guaranteed by Genworth Financial, and GFIH has provided a limited recourse guarantee to the lenders of Genworth Holdings’ outstanding Term Loan, which is secured by GFIH’s ownership interest in Genworth Canada’s outstanding common shares. GFIH is our indirect wholly-owned subsidiary and owns approximately 40.5% of the outstanding common stock of Genworth Canada. The Term Loan is subject to other terms and conditions, including but not limited to: voluntary prepayments subject to prepayment penalties, mandatory prepayments in the event of certain asset sales or the incurrence of further indebtedness by Genworth Financial and various financial covenants.	
Financial Strength Ratings
On July 25, 2018, A.M. Best Company, Inc. (“A.M. Best”) affirmed the financial strength ratings of our principal life insurance subsidiaries and the credit rating of Genworth Financial and Genworth Holdings. Likewise, A.M. Best removed the under review with developing implications status on all existing Genworth ratings and assigned a stable outlook. These actions were taken by A.M. Best primarily from the outcome of the CFIUS review and our ability to address our May 2018 senior notes. For a further discussion of the financial strength ratings of our insurance subsidiaries, see “Item 1—Financial Strength Ratings” in our 2017 Annual Report on Form 10-K.
Consolidated
General Trends and Conditions
The stability of both the financial markets and global economies in which we operate impacts the sales, revenue growth and profitability trends of our businesses as well as value of assets and liabilities. The U.S. and
 
95

Table of Contents
international financial markets we operate in have been impacted by concerns regarding regulatory changes, modest global growth and the rate and strength of recovery. Our mortgage insurance businesses in the U.S. and Canada have realized benefits in their financial results from improvements in the general macroeconomic environment. However, our other businesses continue to operate in a volatile economic environment characterized by low interest rates, modest global growth and fluctuating oil and commodity prices. Certain of these trends have begun to ease in 2018, particularly low interest rates, which have started to rise given actions taken at the U.S. Federal Reserve and economic forecasts that other central banks will consider taking similar actions to raise interest rates in 2018. Although the U.S. Federal Reserve increased its benchmark lending rate 25 basis points in June 2018, long-term interest rates remained at low levels. The U.S. Federal Reserve also revised its forecast for two additional rate increases, which would result in four rate increases in 2018. The median economist forecasts indicate three additional 25 basis point increases in 2019 and one in 2020. Given this robust forecast, we expect interest rates will continue to rise throughout 2018 but we remain uncertain at the pace in which this increase will occur and its ultimate impact on our businesses. In terms of economic projections from the U.S. Federal Reserve, during the second quarter of 2018, the unemployment rate outlook was revised lower while near-term growth and inflation projections were revised up. The U.S. Treasury yield curve continued to flatten in the second quarter of 2018 with short-term interest rates rising supported by the U.S. Federal Reserve increases, while long-term interest rates increased marginally due to ongoing speculation around tariffs and tensions associated with potential trade wars. Credit markets experienced modest spread widening primarily driven by periodic supply and demand imbalances rather than concerns about fundamental credit or macroeconomic issues. Though widely anticipated, the TCJA was not a catalyst for widespread debt reduction and a corresponding reduction in bond supply. Although the TCJA did result in cash-rich multinational companies exiting the debt issuance market, lower supply from such companies was more than offset by debt-financed merger and acquisition-related issuances in investment grade markets. Furthermore, fixed income issuance was slightly lower as compared to 2017. For a discussion of the risks associated with interest rates, see “Item 1A Risk Factors—Interest rates and changes in rates could materially adversely affect our business and profitability” in our 2017 Annual Report on Form 10-K.
Varied levels of economic growth, coupled with uncertain economic outlooks, changes in government policy, regulatory and tax reforms, and other changes in market conditions, influenced, and we believe will continue to influence, investment and spending decisions by consumers and businesses as they adjust their consumption, debt, capital and risk profiles in response to these conditions. These trends change as investor confidence in the markets and the outlook for some consumers and businesses shift. As a result, our sales, revenues and profitability trends of certain insurance and investment products as well as the value of assets and liabilities have been and could be further impacted going forward. In particular, factors such as government spending, monetary policies, the volatility and strength of the capital markets, further changes in tax policy and/or in U.S. tax legislation under the TCJA, international trade and the impact of global financial regulation reform will continue to affect economic and business outlooks, level of interest rates and consumer behaviors moving forward.
The U.S. and international governments, the U.S. Federal Reserve, other central banks and other legislative and regulatory bodies have taken certain actions in past years to support the economy and capital markets, influence interest rates, influence housing markets and mortgage servicing and provide liquidity to promote economic growth. These include various mortgage restructuring programs implemented or under consideration by the GSEs, lenders, servicers and the U.S. government. Outside of the United States, various governments and central banks have taken actions to stimulate economies, stabilize financial systems and improve market liquidity. For example, in Canada, actions in certain regions have been taken to stabilize rising home prices to mitigate the potential for inflation on real estate values. This has had a negative impact on sales and has slowed home price appreciation in those regions. However, in aggregate, these actions had a positive effect in the short term, on the economies of these countries and their markets; however, there can be no assurance as to the future impact these types of actions may have on the economic and financial markets, including levels of interest rates and volatility. A U.S. or global recession or regional or global financial crisis could materially and adversely affect our business, financial condition and results of operations.
 
96

Table of Contents
Consolidated Results of Operations
The following is a discussion of our consolidated results of operations. For a discussion of our segment results, see “—Results of Operations and Selected Financial and Operating Performance Measures by Segment.”
Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
The following table sets forth the consolidated results of operations for the periods indicated:

 	  	Three months
ended June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	2018	 	 	2017	 	  	2018 vs. 2017	 	
Revenues:	  				 				  				 					
Premiums	  	$	1,136		 	$	1,111		  	$	25		 	 	2	%  		
Net investment income	  	 	828		 	 	801		  	 	27		 	 	3	%  		
Net investment gains (losses)	  	 	(14	) 	 	 	101		  	 	(115	) 	 	 	(114	)% 		
Policy fees and other income	  	 	209		 	 	210		  	 	(1	) 	 	 	—  	% 		
	  	 	 	 	 	 	 	 	  	 	 	 	 					
Total revenues	  	 	2,159		 	 	2,223		  	 	(64	) 	 	 	(3	)% 		
	  	 	 	 	 	 	 	 	  	 	 	 	 					
Benefits and expenses:	  				 				  				 					
Benefits and other changes in policy reserves	  	 	1,205		 	 	1,206		  	 	(1	) 	 	 	—  	% 		
Interest credited	  	 	152		 	 	163		  	 	(11	) 	 	 	(7	)% 		
Acquisition and operating expenses, net of deferrals	  	 	253		 	 	240		  	 	13		 	 	5	%  		
Amortization of deferred acquisition costs and intangibles	  	 	112		 	 	139		  	 	(27	) 	 	 	(19	)% 		
Interest expense	  	 	77		 	 	74		  	 	3		 	 	4	%  		
	  	 	 	 	 	 	 	 	  	 	 	 	 					
Total benefits and expenses	  	 	1,799		 	 	1,822		  	 	(23	) 	 	 	(1	)% 		
	  	 	 	 	 	 	 	 	  	 	 	 	 					
Income from continuing operations before income taxes	  	 	360		 	 	401		  	 	(41	) 	 	 	(10	)% 		
Provision for income taxes	  	 	111		 	 	130		  	 	(19	) 	 	 	(15	)% 		
	  	 	 	 	 	 	 	 	  	 	 	 	 					
Income from continuing operations	  	 	249		 	 	271		  	 	(22	) 	 	 	(8	)% 		
Loss from discontinued operations, net of taxes	  	 	—  	 	 	 	—  	 	  	 	—  	 	 	 	—  	% 		
	  	 	 	 	 	 	 	 	  	 	 	 	 					
Net income	  	 	249		 	 	271		  	 	(22	) 	 	 	(8	)% 		
Less: net income attributable to noncontrolling interests	  	 	59		 	 	69		  	 	(10	) 	 	 	(14	)% 		
	  	 	 	 	 	 	 	 	  	 	 	 	 					
Net income available to Genworth Financial, Inc.’s common stockholders	  	$	190		 	$	202		  	$	(12	) 	 	 	(6	)% 		
	  	 	 	 	 	 	 	 	  	 	 	 	 					
Premiums. Premiums consist primarily of premiums earned on insurance products for mortgage, long-term care, life and accident and health insurance, single premium immediate annuities and structured settlements with life contingencies.
 
 	•	 	Our Australia Mortgage Insurance segment increased $28 million largely due to higher policy cancellations resulting from an initiative implemented in the second quarter of 2018 to more promptly identify loans that have been discharged or refinanced using newly available data and from updated premium recognition factors from the review of our premium earnings pattern in the fourth quarter of 2017, which resulted in higher earned premiums in the current year on our existing insurance in-force.	
 
 	•	 	Our U.S. Mortgage Insurance segment increased $14 million mainly attributable to higher insurance in-force, partially offset by lower average rates on our mortgage insurance in-force in the current year.	
 
 	•	 	Our Canada Mortgage Insurance segment increased $5 million primarily from changes in foreign exchange rates, partially offset by updated premium recognition factors from the review of our premium earnings pattern in the current year. The three months ended June 30, 2018 included an increase of $6 million attributable to changes in foreign exchange rates.	
 
97

Table of Contents

 	•	 	Our U.S. Life Insurance segment decreased $24 million. Our long-term care insurance business increased $9 million largely from $16 million of increased premiums in the current year from in-force rate actions approved and implemented, partially offset by policy terminations in the current year. Our life insurance business decreased $33 million mainly attributable to higher ceded premiums in the current year from new reinsurance treaties effective in December 2017 and the continued runoff of our term life insurance products in the current year.	
Net investment income. Net investment income represents the income earned on our investments. For discussion of the change in net investment income, see the comparison for this line item under “—Investments and Derivative Instruments.”
Net investment gains (losses). Net investment gains (losses) consist primarily of realized gains and losses from the sale or impairment of our investments, unrealized and realized gains and losses from our equity and trading securities and derivative instruments. For discussion of the change in net investment gains (losses), see the comparison for this line item under “—Investments and Derivative Instruments.”
Benefits and other changes in policy reserves. Benefits and other changes in policy reserves consist primarily of claim costs incurred related to mortgage insurance products and benefits paid and reserve activity related to current claims and future policy benefits on insurance and investment products for long-term care, life and accident and health insurance, structured settlements and single premium immediate annuities with life contingencies.
 
 	•	 	Our U.S. Mortgage Insurance segment decreased $17 million primarily attributable to a $28 million favorable reserve adjustment in the current year mostly driven by lower expected claim rates. The decrease was also driven by lower new delinquencies in the current year. The prior year also included a $15 million favorable reserve adjustment.	
 
 	•	 	Our Runoff segment decreased $2 million primarily attributable to unfavorable mortality in our corporate-owned life insurance in the prior year that did not recur, partially offset by an increase in guaranteed minimum death benefit (“GMDB”) reserves in our variable annuity products due to less favorable equity market performance in the current year.	
 
 	•	 	Our Canada Mortgage Insurance segment increased $15 million largely from less favorable development in our loss reserves and higher new delinquencies, net of cures, partially offset by a lower average reserve per delinquency in the current year.	
 
 	•	 	Our Australia Mortgage Insurance segment increased $2 million largely attributable to $6 million of favorable non-reinsurance recoveries on paid claims in the prior year that did not recur and aging of existing delinquencies, partially offset by lower new delinquencies, net of cures, in the current year.	
 
 	•	 	Our U.S. Life Insurance segment was flat compared to prior year. Our long-term care insurance business increased $53 million mainly from aging and growth of the in-force block, higher severity and frequency of new claims, higher utilization of available benefits and a less favorable impact of $12 million from reduced benefits in the current year related to in-force rate actions approved and implemented. Our life insurance business decreased $23 million primarily attributable to higher ceded benefits in the current year from new reinsurance treaties effective in December 2017. The decrease was also as a result of favorable mortality in our term life insurance products, partially offset by unfavorable mortality in our universal and term universal life insurance products in the current year. Our fixed annuities business decreased $30 million largely attributable to higher reserves of $16 million related to loss recognition testing in our fixed immediate annuity products in the prior year that did not recur and from favorable mortality in the current year.	
Interest credited. Interest credited represents interest credited on behalf of policyholder and contractholder general account balances. Our U.S. Life Insurance segment decreased $13 million primarily related to our fixed annuities business predominantly from a decline in average account values and lower crediting rates in the current year.
 
98

Table of Contents
Acquisition and operating expenses, net of deferrals. Acquisition and operating expenses, net of deferrals, represent costs and expenses related to the acquisition and ongoing maintenance of insurance and investment contracts, including commissions, policy issuance expenses and other underwriting and general operating costs. These costs and expenses are net of amounts that are capitalized and deferred, which are costs and expenses that are related directly to the successful acquisition of new or renewal insurance policies and investment contracts, such as first-year commissions in excess of ultimate renewal commissions and other policy issuance expenses.
 
 	•	 	Our Australia Mortgage Insurance segment increased $8 million from a reclass of contract fees amortization expense to amortization of DAC and intangibles in the prior year that did not recur.	
 
 	•	 	Our Canada Mortgage Insurance segment increased $4 million mainly driven by higher stock-based compensation expense in the current year.	
 
 	•	 	Our U.S. Mortgage Insurance segment increased $4 million primarily from higher compensation expenses and professional fees in the current year.	
 
 	•	 	Corporate and Other activities decreased $3 million mainly driven by lower consulting fees and lower net expenses after allocations in the current year. These decreases were partially offset by a reversal of a legal settlement accrual in the prior year that did not recur.	
Amortization of deferred acquisition costs and intangibles. Amortization of DAC and intangibles consists primarily of the amortization of acquisition costs that are capitalized, PVFP and capitalized software.
 
 	•	 	Our U.S. Life Insurance segment decreased $23 million driven mostly by our life insurance business largely related to a $41 million unfavorable term conversion mortality assumption correction in the prior year that did not recur and lower lapses in the current year. These decreases were partially offset by an $11 million favorable refinement related to reinsurance rates in the prior year that did not recur.	
 
 	•	 	Our Australia Mortgage Insurance segment decreased $5 million primarily as a result of an $8 million prior year reclass of contract fees amortization expense from acquisition and operating expenses, net of deferrals, as discussed above. The decrease was partially offset by higher contract fees amortization in the current year.	
Interest expense. Interest expense represents interest related to our borrowings that are incurred at Genworth Holdings or subsidiaries and our non-recourse funding obligations and interest expense related to the Tax Matters Agreement and certain reinsurance arrangements being accounted for as deposits. Corporate and Other activities increased $4 million largely driven by the Term Loan entered into by Genworth Holdings in March 2018 and from our junior subordinated notes which had a higher floating rate of interest in the current year, partially offset by lower interest expense associated with the redemption of $597 million of Genworth Holdings’ senior notes in May 2018.
Provision for income taxes. The effective tax rate decreased to 30.8% for the three months ended June 30, 2018 from 32.5% for the three months ended June 30, 2017. The decrease in the effective tax rate for the three months ended June 30, 2018 was primarily attributable to the enactment of the TCJA, which included a change in the U.S. corporate federal income tax rate from 35% to 21%. This decrease was partially offset by the effect of foreign operations, which had an overall increase on the effective tax rate as our primary foreign subsidiaries are now in jurisdictions with higher statutory tax rates than the United States. The decrease was also partially offset by tax expense of $6 million in our long-term care insurance business related to gains on forward starting swaps settled prior to the enactment of the TCJA, which are tax effected at 35% as they are amortized into net investment income and from a provisional tax expense of $19 million in the current year related to a revaluation of deferred tax assets and liabilities on our foreign subsidiaries in light of the TCJA.
Net income attributable to noncontrolling interests . Net income attributable to noncontrolling interests represents the portion of equity in a subsidiary attributable to third parties.
 
99

Table of Contents
Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017
The following table sets forth the consolidated results of operations for the periods indicated:

 	  	Six months ended
June 30,	 	  	Increase
(decrease) and
percentage
change 	 	
(Amounts in millions)	  	2018	 	 	2017	 	  	2018 vs. 2017 	 	
Revenues:	  				 				  				 				
Premiums	  	$	2,276		 	$	2,247		  	$	29		 	 	1	%  	
Net investment income	  	 	1,632		 	 	1,591		  	 	41		 	 	3	%  	
Net investment gains (losses)	  	 	(45	) 	 	 	135		  	 	(180	) 	 	 	(133	)%  	
Policy fees and other income	  	 	411		 	 	421		  	 	(10	) 	 	 	(2	)%  	
	  	 	 	 	 	 	 	 	  	 	 	 	 				
Total revenues	  	 	4,274		 	 	4,394		  	 	(120	) 	 	 	(3	)%  	
	  	 	 	 	 	 	 	 	  	 	 	 	 				
Benefits and expenses:	  				 				  				 				
Benefits and other changes in policy reserves	  	 	2,516		 	 	2,452		  	 	64		 	 	3	%  	
Interest credited	  	 	308		 	 	330		  	 	(22	) 	 	 	(7	)%  	
Acquisition and operating expenses, net of deferrals	  	 	493		 	 	510		  	 	(17	) 	 	 	(3	)%  	
Amortization of deferred acquisition costs and intangibles	  	 	216		 	 	233		  	 	(17	) 	 	 	(7	)%  	
Interest expense	  	 	153		 	 	136		  	 	17		 	 	13	%  	
	  	 	 	 	 	 	 	 	  	 	 	 	 				
Total benefits and expenses	  	 	3,686		 	 	3,661		  	 	25		 	 	1	%  	
	  	 	 	 	 	 	 	 	  	 	 	 	 				
Income from continuing operations before income taxes	  	 	588		 	 	733		  	 	(145	) 	 	 	(20	)%  	
Provision for income taxes	  	 	174		 	 	246		  	 	(72	) 	 	 	(29	)%  	
	  	 	 	 	 	 	 	 	  	 	 	 	 				
Income from continuing operations	  	 	414		 	 	487		  	 	(73	) 	 	 	(15	)%  	
Loss from discontinued operations, net of taxes	  	 	—  	 	 	 	—  	 	  	 	—  	 	 	 	—  	%  	
	  	 	 	 	 	 	 	 	  	 	 	 	 				
Net income	  	 	414		 	 	487		  	 	(73	) 	 	 	(15	)%  	
Less: net income attributable to noncontrolling interests	  	 	112		 	 	130		  	 	(18	) 	 	 	(14	)%  	
	  	 	 	 	 	 	 	 	  	 	 	 	 				
Net income available to Genworth Financial, Inc.’s common stockholders	  	$	302		 	$	357		  	$	(55	) 	 	 	(15	)%  	
	  	 	 	 	 	 	 	 	  	 	 	 	 				
Premiums
 
 	•	 	Our Australia Mortgage Insurance segment increased $45 million largely due to updated premium recognition factors from the review of our premium earnings pattern in the fourth quarter of 2017, which resulted in higher earned premiums in the current year on our existing insurance in-force and from higher policy cancellations resulting from an initiative implemented in the second quarter of 2018 to more promptly identify loans that have been discharged or refinanced using newly available data. The increase was also attributable to a new structured insurance transaction completed in the first quarter of 2018. The six months ended June 30, 2018 included an increase of $6 million attributable to changes in foreign exchange rates.	
 
 	•	 	Our U.S. Mortgage Insurance segment increased $24 million mainly attributable to higher insurance in-force, partially offset by lower average rates on our mortgage insurance in-force in the current year.	
 
 	•	 	Our Canada Mortgage Insurance segment increased $18 million primarily from changes in foreign exchange rates, from the seasoning of our larger, more recent in-force blocks of business and from updated premium recognition factors from the review of our premium earnings pattern in the current year. The six months ended June 30, 2018 included an increase of $13 million attributable to changes in foreign exchange rates.	
 
 	•	 	Our U.S. Life Insurance segment decreased $60 million. Our long-term care insurance business increased $6 million largely from $35 million of increased premiums in the current year from in-force	
 
100

Table of Contents

 	rate actions approved and implemented, partially offset by policy terminations in the current year. Our life insurance business decreased $66 million mainly attributable to higher ceded premiums in the current year from new reinsurance treaties effective in December 2017 and the continued runoff of our term life insurance products in the current year.	
Net investment income. For discussion of the change in net investment income, see the comparison for this line item under “—Investments and Derivative Instruments.”
Net investment gains (losses). For discussion of the change in net investment gains (losses), see the comparison for this line item under “—Investments and Derivative Instruments.”
Policy fees and other income. Our U.S. Life Insurance segment decreased $8 million mostly attributable to our life insurance business primarily from a decline in our term universal and universal life insurance in-force blocks in the current year.
Benefits and other changes in policy reserves
 
 	•	 	Our U.S. Life Insurance segment increased $74 million. Our long-term care insurance business increased $146 million principally from aging and growth of the in-force block, higher utilization of available benefits, higher severity and frequency of new claims and a less favorable impact of $20 million from reduced benefits in the current year related to in-force rate actions approved and implemented. Our life insurance business decreased $37 million primarily attributable to higher ceded benefits in the current year from new reinsurance treaties effective in December 2017. The decrease was also the result of favorable mortality in our term life insurance products, partially offset by unfavorable mortality in our universal and term universal life insurance products and less favorable reserve releases in our term life insurance products in the current year. Our fixed annuities business decreased $35 million largely attributable to higher reserves of $22 million related to loss recognition testing in our fixed immediate annuity products in the prior year that did not recur and from favorable mortality in the current year.	
 
 	•	 	Our Canada Mortgage Insurance segment increased $13 million largely from less favorable development in our loss reserves and higher new delinquencies, net of cures, partially offset by a lower average reserve per delinquency in the current year.	
 
 	•	 	Our Australia Mortgage Insurance segment increased $4 million largely attributable to $6 million of favorable non-reinsurance recoveries on paid claims in the prior year that did not recur and aging of existing delinquencies, partially offset by lower new delinquencies, net of cures, in the current year.	
 
 	•	 	Our U.S. Mortgage Insurance segment decreased $30 million primarily from a $28 million favorable reserve adjustment in the current year mostly driven by lower expected claim rates. The decrease was also attributable to favorable net cures and aging of existing delinquencies and lower new delinquencies in the current year. The prior year also included a $15 million favorable reserve adjustment.	
Interest credited. Our U.S. Life Insurance segment decreased $26 million primarily related to our fixed annuities business predominantly from a decline in average account values and lower crediting rates in the current year.
Acquisition and operating expenses, net of deferrals
 
 	•	 	Our U.S. Life Insurance segment decreased $14 million mostly driven by our long-term care insurance business predominantly from $21 million of guaranty fund assessments in connection with the Penn Treaty Network America Insurance Company and American Network Insurance Company (“Penn Treaty”) liquidation in the prior year that did not recur, partially offset by higher premium taxes in the current year.	
 
101

Table of Contents

 	•	 	Corporate and Other activities decreased $6 million mainly driven by lower consulting fees and lower net expenses after allocations in the current year. These decreases were partially offset by a reversal of a legal settlement accrual in the prior year that did not recur.	
 
 	•	 	Our U.S. Mortgage Insurance segment increased $3 million primarily from higher compensation expenses and professional fees in the current year.	
Amortization of deferred acquisition costs and intangibles . Our U.S. Life Insurance segment decreased $22 million driven mostly by our life insurance business largely related to a $41 million unfavorable term conversion mortality assumption correction in the prior year that did not recur and lower lapses in the current year. These decreases were partially offset by an $11 million favorable refinement related to reinsurance rates in the prior year that did not recur.
Interest expense. Corporate and Other activities increased $16 million largely driven by a favorable correction of $11 million related to our Tax Matters Agreement liability in the prior year that did not recur, higher interest expense related to the Term Loan entered into by Genworth Holdings in March 2018 and from our junior subordinated notes which had a higher floating rate of interest in the current year. These increases were partially offset by lower interest expense associated with the redemption of $597 million of Genworth Holdings’ senior notes in May 2018.
Provision for income taxes. The effective tax rate decreased to 29.6% for the six months ended June 30, 2018 from 33.6% for the six months ended June 30, 2017. The decrease in the effective tax rate for the six months ended June 30, 2018 was primarily attributable to the enactment of the TCJA, which included a change in the U.S. corporate federal income tax rate from 35% to 21%. This decrease was partially offset by the effect of foreign operations, which had an overall increase on the effective tax rate as our primary foreign subsidiaries are now in jurisdictions with higher statutory tax rates than the United States. The decrease was also partially offset by tax expense of $11 million in our long-term care insurance business related to gains on forward starting swaps settled prior to the enactment of the TCJA, which are tax effected at 35% as they are amortized into net investment income and from a provisional tax expense of $19 million in the current year related to a revaluation of deferred tax assets and liabilities on our foreign subsidiaries in light of the TCJA.
Use of non-Generally Accepted Accounting Principles (“GAAP”) measures
Reconciliation of net income to adjusted operating income available to Genworth Financial, Inc.’s common stockholders
We use non-GAAP financial measures entitled “adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders” and “adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders per share.” Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders per share is derived from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders. Our chief operating decision maker evaluates segment performance and allocates resources on the basis of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders. We define adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as income (loss) from continuing operations excluding the after-tax effects of income attributable to noncontrolling interests, net investment gains (losses), goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and infrequent or unusual non-operating items. Gains (losses) on insurance block transactions are defined as gains (losses) on the early extinguishment of non-recourse funding obligations, early termination fees for other financing restructuring and/or resulting gains (losses) on reinsurance restructuring for certain blocks of business. We exclude net investment gains (losses) and infrequent or unusual non-operating items because we do not consider them to be related to the operating performance of our segments and Corporate and Other activities. A component of our net investment gains (losses) is the result of impairments, the size and timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) can be subject to our discretion and are influenced by market opportunities, as
 
102

Table of Contents
well as asset-liability matching considerations. Goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions and restructuring costs are also excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders because, in our opinion, they are not indicative of overall operating trends. Infrequent or unusual non-operating items are also excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders if, in our opinion, they are not indicative of overall operating trends.
While some of these items may be significant components of net income (loss) available to Genworth Financial, Inc.’s common stockholders in accordance with U.S. GAAP, we believe that adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, and measures that are derived from or incorporate adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, including adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders per share on a basic and diluted basis, are appropriate measures that are useful to investors because they identify the income (loss) attributable to the ongoing operations of the business. Management also uses adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as a basis for determining awards and compensation for senior management and to evaluate performance on a basis comparable to that used by analysts. However, the items excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders and adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders per share on a basic and diluted basis are not substitutes for net income (loss) available to Genworth Financial, Inc.’s common stockholders or net income (loss) available to Genworth Financial, Inc.’s common stockholders per share on a basic and diluted basis determined in accordance with U.S. GAAP. In addition, our definition of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders may differ from the definitions used by other companies.
On December 22, 2017, the TCJA was signed into law. The TCJA reduced the U.S. corporate federal income tax rate to 21% effective for taxable years beginning on January 1, 2018. Therefore, beginning in the first quarter of 2018, we assumed a tax rate of 21% on certain adjustments to reconcile net income available to Genworth Financial, Inc.’s common stockholders and adjusted operating income available to Genworth Financial, Inc.’s common stockholders and in the explanation of specific variances of operating performance (unless otherwise indicated). In the prior year, we assumed a tax rate of 35%, the previous U.S. corporate federal income tax rate prior to the enactment of the TCJA, on certain adjustments to reconcile net income available to Genworth Financial, Inc.’s common stockholders and adjusted operating income available to Genworth Financial, Inc.’s common stockholders and in the explanation of specific variances of operating performance. These adjustments are also net of the portion attributable to noncontrolling interests and net investment gains (losses) are adjusted for DAC and other intangible amortization and certain benefit reserves.
 
103

Table of Contents
The following table includes a reconciliation of net income available to Genworth Financial, Inc.’s common stockholders to adjusted operating income available to Genworth Financial, Inc.’s common stockholders for the periods indicated:

 	  	Three months ended
June 30,	 	 	Six months ended
June 30,	 		
	(Amounts in millions) 	  	2018	 	 	2017	 	 	2018	 	 	2017	 	
Net income available to Genworth Financial, Inc.’s common stockholders	  	$	190		 	$	202		 	$	302		 	$	357			
Add: net income attributable to noncontrolling interests	  	 	59		 	 	69		 	 	112		 	 	130			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net income	  	 	249		 	 	271		 	 	414		 	 	487			
Loss from discontinued operations, net of taxes	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Income from continuing operations	  	 	249		 	 	271		 	 	414		 	 	487			
Less: income from continuing operations attributable to noncontrolling interests	  	 	59		 	 	69		 	 	112		 	 	130			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	  	 	190		 	 	202		 	 	302		 	 	357			
Adjustments to income from continuing operations available to Genworth Financial, Inc.’s common stockholders:	  				 				 				 					
Net investment (gains) losses, net (1)	  	 	12		 	 	(79	) 	 	 	29		 	 	(99	) 		
Expenses related to restructuring	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	1			
Taxes on adjustments	  	 	(2	) 	 	 	28		 	 	(6	) 	 	 	35			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	200		 	$	151		 	$	325		 	$	294			

(1)  	For the three months ended June 30, 2018 and 2017, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(1) million and zero, respectively, and adjusted for net investment gains (losses) attributable to noncontrolling interests of $(1) million and $22 million, respectively. For the six months ended June 30, 2018 and 2017, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(4) million and zero, respectively, and adjusted for net investment gains (losses) attributable to noncontrolling interests of $(12) million and $36 million, respectively.	
We recorded a pre-tax expense of $1 million in the first quarter of 2017 related to restructuring costs as the company continued to evaluate and appropriately size its organizational needs and expenses. There were no infrequent or unusual items excluded from adjusted operating income during the periods presented.
 
104

Table of Contents
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
June 30,	 	  	Six months ended
June 30,	 		
	(Amounts in millions, except per share amounts) 	  	    2018    	 	  	    2017    	 	  	    2018    	 	  	    2017    	 	
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:	  				  				  				  					
Basic	  	$	0.38		  	$	0.40		  	$	0.60		  	$	0.72			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Diluted	  	$	0.38		  	$	0.40		  	$	0.60		  	$	0.71			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Net income available to Genworth Financial, Inc.’s common stockholders per share:	  				  				  				  					
Basic	  	$	0.38		  	$	0.40		  	$	0.60		  	$	0.72			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Diluted	  	$	0.38		  	$	0.40		  	$	0.60		  	$	0.71			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders per share:	  				  				  				  					
Basic	  	$	0.40		  	$	0.30		  	$	0.65		  	$	0.59			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Diluted	  	$	0.40		  	$	0.30		  	$	0.65		  	$	0.59			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Weighted-average common shares outstanding:	  				  				  				  					
Basic	  	 	500.6		  	 	499.0		  	 	500.1		  	 	498.8			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Diluted	  	 	502.6		  	 	501.2		  	 	502.6		  	 	501.1			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Diluted weighted-average common shares outstanding reflect the effects of potentially dilutive securities including stock options, restricted stock units and other equity-based compensation.
Results of Operations and Selected Financial and Operating Performance Measures by Segment
Our chief operating decision maker evaluates segment performance and allocates resources on the basis of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders. See note 10 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for a reconciliation of net income available to Genworth Financial, Inc.’s common stockholders to adjusted operating income available to Genworth Financial, Inc.’s common stockholders and a summary of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for our segments and Corporate and Other activities.
On December 22, 2017, the TCJA was signed into law. The TCJA reduced the U.S. corporate federal income tax rate to 21% effective for taxable years beginning on January 1, 2018 and migrated the worldwide tax system to a territorial international tax system. Therefore, beginning on January 1, 2018 we taxed our international businesses at their local statutory tax rates and our domestic businesses at the new enacted tax rate of 21%. We allocate our consolidated provision for income taxes to our operating segments. Our allocation methodology applies a specific tax rate to the pre-tax income (loss) of each segment, which is then adjusted in each segment to reflect the tax attributes of items unique to that segment such as foreign income. The difference between the consolidated provision for income taxes and the sum of the provision for income taxes in each segment is reflected in Corporate and Other activities.
The annually-determined tax rates and adjustments to each segment’s provision for income taxes are estimates which are subject to review and could change from year to year.
 
105

Table of Contents
Management’s discussion and analysis by segment contains selected operating performance measures including “sales” and “insurance in-force” or “risk in-force” which are commonly used in the insurance industry as measures of operating performance.
Management regularly monitors and reports sales metrics as a measure of volume of new and renewal business generated in a period. Sales refer to: new insurance written for mortgage insurance and annualized first-year premiums for long-term care insurance products. Sales do not include renewal premiums on policies or contracts written during prior periods. We consider new insurance written and annualized first-year premiums to be a measure of our operating performance because they represent a measure of new sales of insurance policies or contracts during a specified period, rather than a measure of our revenues or profitability during that period.
Management regularly monitors and reports insurance in-force and risk in-force. Insurance in-force for our mortgage insurance businesses is a measure of the aggregate original loan balance for outstanding insurance policies as of the respective reporting date. Risk in-force for our U.S. mortgage insurance business is based on the coverage percentage applied to the estimated current outstanding loan balance. For risk in-force in our mortgage insurance businesses in Canada and Australia, we have computed an “effective” risk in-force amount, which recognizes that the loss on any particular loan will be reduced by the net proceeds received upon sale of the property. Effective risk in-force has been calculated by applying to insurance in-force a factor of 35% that represents the highest expected average per-claim payment for any one underwriting year over the life of our mortgage insurance businesses in Canada and Australia. In Australia, we have certain risk share arrangements where we provide pro-rata coverage of certain loans rather than 100% coverage. As a result, for loans with these risk share arrangements, the applicable pro-rata coverage amount provided is used when applying the factor. We consider insurance in-force and risk in-force to be measures of our operating performance because they represent measures of the size of our business at a specific date which will generate revenues and profits in a future period, rather than measures of our revenues or profitability during that period.
Management also regularly monitors and reports a loss ratio for our businesses. For our mortgage insurance businesses, the loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. For our long-term care insurance business, the loss ratio is the ratio of benefits and other changes in reserves less tabular interest on reserves less loss adjustment expenses to net earned premiums. We consider the loss ratio to be a measure of underwriting performance in these businesses and help to enhance the understanding of the operating performance of our businesses.
These operating performance measures enable us to compare our operating performance across periods without regard to revenues or profitability related to policies or contracts sold in prior periods or from investments or other sources.
U.S. Mortgage Insurance segment
Trends and conditions
Results of our U.S. mortgage insurance business are affected primarily by the following factors: competitor actions; unemployment or underemployment levels; other economic and housing market trends, including interest rates, home prices, the number of first-time homebuyers, and mortgage origination volume mix and practices; the levels and aging of mortgage delinquencies; the effect of seasonal variations; the inventory of unsold homes; loan modification and other servicing efforts; and litigation, among other items. Our results are subject to the performance of the U.S. housing market and the extent of the adverse impact of seasonality that we experience historically in the second half of the year.
The level of private mortgage insurance market penetration and eventual market size is affected in part by actions taken by the GSEs and the U.S. government, including the Federal Housing Administration (“FHA”), the Federal Housing Finance Agency, and the U.S. Congress, which impact housing or housing finance policy. In the
 
106

Table of Contents
past, these actions have included announced changes, or potential changes, to underwriting standards, FHA pricing, GSE guaranty fees and loan limits as well as low-down-payment programs available through the FHA or GSEs. In the first quarter of 2018, Freddie Mac introduced to certain lenders a pilot program, Integrated Mortgage Insurance, commonly referred to as “IMAGIN,” as an alternative to private mortgage insurance, which transfers default risk on high loan-to-value mortgages to a panel of reinsurers approved by Freddie Mac. In July 2018, Fannie Mae introduced a similar pilot program, Enterprise Paid Mortgage Insurance (“EPMI”). As currently designed and implemented, we believe these pilot programs are targeted towards approximately 2% of the total aggregate private mortgage insurance available market in 2018 and compete with lender paid private mortgage insurance, which represented approximately 8% of our new insurance written in the second quarter of 2018. For more information about the potential future impact, see Item 1A—Risk Factors—“Fannie Mae and Freddie Mac exert significant influence over the U.S. mortgage insurance market and changes to the role or structure of Freddie Mac or Fannie Mae could have a material adverse impact on our U.S. mortgage insurance business”; and “The amount of mortgage insurance we write could decline significantly if alternatives to private mortgage insurance are used or lower coverage levels of mortgage insurance are selected” in our 2017 Annual Report on Form 10-K.
Mortgage origination volume increased during the second quarter of 2018 compared to the second quarter of 2017, primarily due to an increase in purchase originations, partially offset by a decline in refinance mortgage originations. The decline in refinance mortgage originations was driven by increases in interest rates. Our flow persistency was 83% during the second quarter of 2018 compared to 82% in the second quarter of 2017, due in part to the increase in interest rates. Our U.S. mortgage insurance estimated market share for the second quarter of 2018 decreased modestly compared to the first quarter of 2018 and increased modestly compared to the second quarter of 2017. Our market share continues to be pressured by the negative ratings differential relative to our competitors, concerns expressed about Genworth’s financial condition and the proposed transaction with China Oceanwide. In addition, the recent increase in customer concentration that we have experienced with our top ten lenders could lead to incremental volatility in future market share. For more information on the potential impacts due to competition and increased customer concentration, see Item 1A—Risk Factors—“Competitors could negatively affect our ability to maintain or increase our market share and profitability”; and “Our reliance on key customer or distribution relationships could cause us to lose significant sales if one or more of those relationships terminate or are reduced” in our 2017 Annual Report on Form 10-K.
During the second quarter, in reaction to price changes in the marketplace, we introduced new pricing for our national borrower-paid monthly and borrower-paid single premium rate plans. Our new pricing included two new rate adjustors, co-borrower and debt-to-income, which more closely align price to the performance of the loans that we insure. We believe our new rate plans reduce the weighted average price by approximately 10% for borrower-paid monthly and by approximately 12% for borrower-paid singles rate plans while maintaining aggregate pricing returns in the mid-teens.
New insurance written increased 16% during the second quarter of 2018 compared to the second quarter of 2017 primarily due to a larger purchase originations market. In the second quarter of 2018, we experienced an increase in the percentage of 97% loan-to-value new insurance written as well as the percentage of loans with debt-to-income ratios greater than 45% compared to the second quarter of 2017, as the result of GSE changes in underwriting guidelines for purchase transactions. The percentage of single premium new insurance written decreased in the second quarter of 2018 compared to the second quarter of 2017, reflecting our selective participation in this market. Future volumes of these products will vary depending in part on our evaluation of their risk return profile. We continue to manage the quality of new business through our underwriting guidelines, which we modify from time to time when circumstances warrant. At the end of the first quarter of 2018, we implemented a guideline limit on loans with debt-to-income ratios greater than 45% with Fair Isaac Company (“FICO”) scores less than 700, which led to a reduction in the concentration of this business in our new insurance written in the second quarter of 2018.
Our loss ratio was (8)% for the three months ended June 30, 2018 compared to 2% for the three months ended June 30, 2017. The loss ratio decreased primarily from improvements in the net benefit from cures and
 
107

Table of Contents
aging of existing delinquencies and from higher net earned premiums attributable to higher insurance in-force in the current year. The decrease was also attributable to a favorable reserve adjustment of $28 million mostly associated with lower expected claim rates. This adjustment reduced our loss ratio by 15 percentage points for the three months ended June 30, 2018. The prior year also included a $15 million favorable reserve adjustment, which reduced our loss ratio by eight percentage points for the three months ended June 30, 2017. The new delinquencies reported in the fourth quarter of 2017 in the areas impacted by hurricanes Harvey and Irma continued to perform consistent with our prior expected claim frequency for these delinquencies. As a result, there were no incremental incurred losses from these delinquencies in the first half of 2018. Foreclosure starts decreased in the second quarter of 2018 as compared to the second quarter of 2017. Additionally, we have seen a reduction in loans that have been subject to a modification or workout. We expect our level of loan modifications to continue to decline going forward in line with the expected reduction in delinquent loans and the continuing aging of delinquencies.
In the second quarter of 2018, our U.S. mortgage insurance business paid a $50 million dividend to a Genworth holding company. We expect this will be the only dividend paid by our U.S. mortgage insurance business in 2018, however, the evaluation of future dividend plans is subject to current market conditions, among other factors, which are subject to change.
As of June 30, 2018, Genworth Mortgage Insurance Corporation’s (“GMICO”) risk-to-capital ratio under the current regulatory framework as established under North Carolina law and enforced by the North Carolina Department of Insurance (“NCDOI”), GMICO’s domestic insurance regulator, was approximately 12.8:1, compared with a risk-to-capital ratio of approximately 12.7:1 as of March 31, 2018 and approximately 12.9:1 as of December 31, 2017. This risk-to-capital ratio remains below the NCDOI’s maximum risk-to-capital ratio of 25:1. GMICO’s ongoing risk-to-capital ratio will depend principally on the magnitude of future losses incurred by GMICO, the effectiveness of ongoing loss mitigation activities, new business volume and profitability, the amount of policy lapses, changes in the value of affiliated assets and the amount of additional capital that is generated within the business or capital support (if any) that we provide.
Effective December 31, 2015, each GSE adopted revised PMIERs, which set forth operational and financial requirements that mortgage insurers must meet in order to remain eligible. Each approved mortgage insurer is required to provide the GSEs with an annual certification and a quarterly report as to its compliance with PMIERs. As of June 30, 2018, we estimate our U.S. mortgage insurance business had available assets of approximately 129% of the required assets under PMIERs compared to approximately 124% as of March 31, 2018 and 121% as of December 31, 2017. As of June 30, 2018, March 31, 2018 and December 31, 2017, the PMIERs sufficiency ratios were in excess of $700 million, $600 million and $550 million, respectively, of available assets above the PMIERs requirements. The increase in the second quarter of 2018 was driven, in part, by positive operating cash flows and the reduction in delinquent loans. The new delinquencies reported in the fourth quarter of 2017 in the areas impacted by hurricanes Harvey and Irma continue to cure in line with our original loss expectations. This cure performance has reduced the negative impact to the PMIERs sufficiency ratio from four points to two points in the second quarter of 2018. The increase in the PMIERs sufficiency ratio was partially offset by the $50 million dividend paid by our U.S. mortgage insurance business in the second quarter of 2018. The reinsurance transactions covering our 2014 through 2017 book years provided an aggregate of approximately $585 million of PMIERs capital credit as of June 30, 2018. The GSEs have recently shared a new draft summary and timeline of proposed revisions to PMIERs, referred to as “PMIERs 2.0”. We do not anticipate any new PMIERs financial requirements becoming effective before the first quarter of 2019. If PMIERs 2.0 is adopted in the form we have reviewed with an effective date of March 31, 2019, we estimate our U.S. mortgage insurance business would continue to have an excess of available assets relative to required assets under the revised standard, however, this amount would be significantly lower than under existing PMIERs. Non-disclosure agreements are in place with both GSEs and we cannot comment on specific provisions within PMIERs 2.0 at this time.
As of June 30, 2018, loans modified through the Home Affordable Refinance Program (“HARP”) accounted for approximately $11.5 billion of insurance in-force, with approximately $10.9 billion of those loans from our
 
108

Table of Contents
2005 through 2008 book years. The volume of new HARP modifications continues to decrease as the number of loans that would benefit from a HARP modification decreases. Loans modified through HARP have extended amortization periods and reduced interest rates, which reduce borrower’s monthly payments. Over time, we expect these modified loans to result in extended premium streams and a lower incidence of default. On August 17, 2017, the U.S. government extended HARP through December 31, 2018. For financial reporting purposes, we report HARP modified loans as a modification of the coverage on existing insurance in-force rather than new insurance written.
Segment results of operations
Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
The following table sets forth the results of operations relating to our U.S. Mortgage Insurance segment for the periods indicated:

 	  	Three months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	    2018    	 	  	    2017    	 	  	    2018 vs. 2017    	 	
Revenues:	  				  				  				  					
Premiums	  	$	184		  	$	170		  	$	14		  	 	8	%  		
Net investment income	  	 	23		  	 	18		  	 	5		  	 	28	% 		
Net investment gains (losses)	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	% 		
Policy fees and other income	  	 	1		  	 	1		  	 	—  	 	  	 	—  	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total revenues	  	 	208		  	 	189		  	 	19		  	 	10	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Benefits and expenses:	  				  				  				  					
Benefits and other changes in policy reserves	  	 	(14	) 	  	 	3		  	 	(17	) 	  	 	NM 	(1)   		
Acquisition and operating expenses, net of deferrals	  	 	45		  	 	41		  	 	4		  	 	10	% 		
Amortization of deferred acquisition costs and intangibles	  	 	3		  	 	3		  	 	—  	 	  	 	—  	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total benefits and expenses	  	 	34		  	 	47		  	 	(13	) 	  	 	(28	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations before income taxes	  	 	174		  	 	142		  	 	32		  	 	23	% 		
Provision for income taxes	  	 	37		  	 	51		  	 	(14	) 	  	 	(27	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations	  	 	137		  	 	91		  	 	46		  	 	51	% 		
Adjustments to income from continuing operations:	  				  				  				  					
Net investment (gains) losses	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	% 		
Taxes on adjustments	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	137		  	$	91		  	$	46		  	 	51	%  		

(1)	We define “NM” as not meaningful for increases or decreases greater than 200%.	
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders increased mainly attributable to a $22 million favorable reserve adjustment in the current year mostly driven by lower expected claim rates. The increase was also driven by lower taxes and higher premiums principally related to an increase in insurance in-force, partially offset by lower average rates on our mortgage insurance in-force in the current year. The prior year also included a $10 million favorable reserve adjustment.
 
109

Table of Contents
Revenues
Premiums increased mainly attributable to higher insurance in-force, partially offset by lower average rates on our mortgage insurance in-force in the current year.
Net investment income increased primarily from higher average invested assets in the current year.
Benefits and expenses
Benefits and other changes in policy reserves decreased primarily attributable to a $28 million favorable reserve adjustment mostly driven by lower expected claim rates in the current year. The decrease was also driven by lower new delinquencies in the current year. The prior year also included a $15 million favorable reserve adjustment.
Acquisition and operating expenses, net of deferrals, increased primarily from higher compensation expenses and professional fees in the current year.
Provision for income taxes. The effective tax rate decreased to 21.3% for the three months ended June 30, 2018 from 36.0% for the three months ended June 30, 2017. The decrease in the effective tax rate was primarily attributable to a reduction in the U.S. corporate federal income tax rate from 35% to 21%.
Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017
The following table sets forth the results of operations relating to our U.S. Mortgage Insurance segment for the periods indicated:

 	  	Six months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Revenues:	  				  				  				  					
Premiums	  	$	363		  	$	339		  	$	24		  	 	7	% 		
Net investment income	  	 	44		  	 	35		  	 	9		  	 	26	% 		
Net investment gains (losses)	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—	% 		
Policy fees and other income	  	 	1		  	 	2		  	 	(1	) 	  	 	(50	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total revenues	  	 	408		  	 	376		  	 	32		  	 	9	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Benefits and expenses:	  				  				  				  					
Benefits and other changes in policy reserves	  	 	2		  	 	32		  	 	(30	) 	  	 	(94	)% 		
Acquisition and operating expenses, net of deferrals	  	 	84		  	 	81		  	 	3		  	 	4	% 		
Amortization of deferred acquisition costs and intangibles	  	 	7		  	 	7		  	 	—  	 	  	 	—	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total benefits and expenses	  	 	93		  	 	120		  	 	(27	) 	  	 	(23	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations before income taxes	  	 	315		  	 	256		  	 	59		  	 	23	% 		
Provision for income taxes	  	 	67		  	 	92		  	 	(25	) 	  	 	(27	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations	  	 	248		  	 	164		  	 	84		  	 	51	% 		
Adjustments to income from continuing operations:	  				  				  				  					
Net investment (gains) losses	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—	% 		
Taxes on adjustments	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	248		  	$	164		  	$	84		  	 	51	% 		

110

Table of Contents
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders increased mainly from higher premiums resulting from an increase in mortgage insurance in-force and lower taxes and losses in the current year. The increase was also attributable to a $22 million favorable reserve adjustment in the current year mostly driven by lower expected claim rates. The prior year also included a $10 million favorable reserve adjustment.
Revenues
Premiums increased mainly attributable to higher insurance in-force, partially offset by lower average rates on our mortgage insurance in-force in the current year.
Net investment income increased primarily from higher average invested assets in the current year.
Benefits and expenses
Benefits and other changes in policy reserves decreased primarily from a $28 million favorable reserve adjustment in the current year mostly driven by lower expected claim rates. The decrease was also attributable to favorable net cures and aging of existing delinquencies and lower new delinquencies in the current year. The prior year also included a $15 million favorable reserve adjustment.
Acquisition and operating expenses, net of deferrals, increased primarily from higher compensation expenses and professional fees in the current year.
Provision for income taxes. The effective tax rate decreased to 21.2% for the six months ended June 30, 2018 from 35.9% for the six months ended June 30, 2017. The decrease in the effective tax rate was primarily attributable to a reduction in the U.S. corporate federal income tax rate from 35% to 21%.
U.S. Mortgage Insurance selected operating performance measures
The following tables set forth selected operating performance measures regarding our U.S. Mortgage Insurance segment as of or for the dates indicated:

 	  	As of June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions) 	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Primary insurance in-force (1)	  	$	159,500		  	$	143,000		  	$	16,500		  	 	12	% 		
Risk in-force	  	$	38,700		  	$	34,600		  	$	4,100		  	 	12	% 		

(1)  	Primary insurance in-force represents the aggregate original loan balance for outstanding insurance policies and is used to determine premiums. Original loan balances are presented for policies with level renewal premiums. Amortized loan balances are presented for policies with annual, amortizing renewal premiums.	

 	  	Three months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 	 	Six months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	 	2018	 	  	2017	 	  	2018 vs. 2017	 	
New insurance written	  	$	11,400		  	$	9,800		  	$	1,600		  	 	16	% 	 	$	20,400		  	$	17,400		  	$	3,000		  	 	17	% 		
Net premiums written	  	$	191		  	$	186		  	$	5		  	 	3	% 	 	$	376		  	$	361		  	$	15		  	 	4	% 		
 
111

Table of Contents
Primary insurance in-force and risk in-force
Primary insurance in-force increased largely from $17.0 billion in higher flow insurance in-force, which increased from $141.2 billion as of June 30, 2017 to $158.2 billion as of June 30, 2018 as a result of new insurance written, partially offset by lapses during the current year. The increase in flow insurance in-force was partially offset by a decline of $0.5 billion in bulk insurance in-force, which decreased from $1.8 billion as of June 30, 2017 to $1.3 billion as of June 30, 2018 from cancellations and lapses. In addition, risk in-force increased primarily as a result of higher flow insurance in-force. Flow persistency was 83% for the six months ended June 30, 2018 and 2017.
New insurance written
For the three and six months ended June 30, 2018, new insurance written increased primarily driven by a larger purchase originations market in the current year.
Net premiums written
Net premiums written for the three and six months ended June 30, 2018 increased primarily from higher insurance in-force, partially offset by lower average rates on our mortgage insurance in-force in the current year.
Loss and expense ratios
The following table sets forth the loss and expense ratios for our U.S. Mortgage Insurance segment for the dates indicated:

 	  	Three months ended
June 30,	 	 	Increase (decrease)	 	 	Six months ended
June 30,	 	 	Increase (decrease)	 	
 	  	2018	 	 	2017	 	 	2018 vs. 2017	 	 	2018	 	 	2017	 	 	2018 vs. 2017	 	
Loss ratio	  	 	(8	)% 	 	 	2	% 	 	 	(10	)% 	 	 	—	% 	 	 	9	% 	 	 	(9	)% 	
Expense ratio (net earned premiums)	  	 	26	% 	 	 	26	% 	 	 	—  	% 	 	 	25	% 	 	 	26	% 	 	 	(1	)% 	
Expense ratio (net premiums written)	  	 	25	% 	 	 	24	% 	 	 	1	% 	 	 	24	% 	 	 	24	% 	 	 	—  	% 	
The loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. The expense ratio (net earned premiums) is the ratio of general expenses to net earned premiums. The expense ratio (net premiums written) is the ratio of general expenses to net premiums written. In our business, general expenses consist of acquisition and operating expenses, net of deferrals, and amortization of DAC and intangibles.
The loss ratio for the three and six months ended June 30, 2018 decreased primarily from improvements in net benefit from cures and aging of existing delinquencies and from higher net earned premiums attributable to higher insurance in-force in the current year. The decrease in the current year was also attributable to a favorable reserve adjustment of $28 million mostly associated with lower expected claim rates. The current year reserve adjustment reduced the loss ratio by 15 percentage points and 8 percentage points for the three and six months ended June 30, 2018, respectively. The prior year also included a $15 million favorable reserve adjustment.
The expense ratio (net earned premiums) for the six months ended June 30, 2018 decreased slightly driven primarily by higher net earned premiums in the current year.
The expense ratio (net premiums written) for the three months ended June 30, 2018 increased slightly driven predominantly by higher operating expenses, partially offset by higher net premiums written in the current year.
 
112

Table of Contents
Delinquent loans
The following table sets forth the number of loans insured, the number of delinquent loans and the delinquency rate for our U.S. mortgage insurance portfolio as of the dates indicated:

 	  	June 30,
2018	 	 	December 31,
2017	 	 	June 30,
2017	 	
Primary insurance:	  				 				 				
Insured loans in-force	  	 	762,727		 	 	742,094		 	 	714,254		
Delinquent loans	  	 	18,051		 	 	23,188		 	 	20,677		
Percentage of delinquent loans (delinquency rate)	  	 	2.37	% 	 	 	3.12	% 	 	 	2.89	% 	
				
Flow loan in-force	  	 	748,497		 	 	725,748		 	 	695,383		
Flow delinquent loans	  	 	17,505		 	 	22,483		 	 	19,733		
Percentage of flow delinquent loans (delinquency rate)	  	 	2.34	% 	 	 	3.10	% 	 	 	2.84	% 	
				
Bulk loans in-force	  	 	14,230		 	 	16,346		 	 	18,871		
Bulk delinquent loans (1)	  	 	546		 	 	705		 	 	944		
Percentage of bulk delinquent loans (delinquency rate)	  	 	3.84	% 	 	 	4.31	% 	 	 	5.00	% 	
				
A minus and sub-prime loans in-force	  	 	16,928		 	 	18,912		 	 	20,797		
A minus and sub-prime delinquent loans	  	 	3,058		 	 	4,054		 	 	4,148		
Percentage of A minus and sub-prime delinquent loans (delinquency rate)	  	 	18.06	% 	 	 	21.44	% 	 	 	19.95	% 	
				
Pool insurance:	  				 				 				
Insured loans in-force	  	 	4,774		 	 	5,039		 	 	5,406		
Delinquent loans	  	 	204		 	 	249		 	 	276		
Percentage of delinquent loans (delinquency rate)	  	 	4.27	% 	 	 	4.94	% 	 	 	5.11	% 	

(1)  	Included loans where we were in a secondary loss position for which no reserve was established due to an existing deductible. Excluding these loans, bulk delinquent loans were 445 as of June 30, 2018, 614 as of December 31, 2017 and 653 as of June 30, 2017.	
Delinquency and foreclosure levels that developed principally in our 2005 through 2008 book years have declined as the residential real estate market in the United States stabilized and improved during the current and prior year, and we also had lower foreclosure starts in the current year.
The following tables set forth flow delinquencies, direct case reserves and risk in-force by aged missed payment status in our U.S. mortgage insurance portfolio as of the dates indicated:

 	  	June 30, 2018	 		
	(Dollar amounts in millions)	  	Delinquencies	 	  	Direct case 
 reserves (1) 	 	  	Risk
in-force	 	  	Reserves as % of
risk in-force	 	
Payments in default:	  				  				  				  					
3 payments or less	  	 	7,318		  	$	29	 	  	$	318		  	 	9	% 		
4 - 11 payments	  	 	5,556		  	 	104	 	  	 	260		  	 	40	% 		
12 payments or more	  	 	4,631		  	 	181	 	  	 	232		  	 	78	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total	  	 	17,505		  	$	314	 	  	$	810		  	 	39	% 		

(1)  	Direct flow case reserves exclude loss adjustment expenses, incurred but not reported and reinsurance reserves.	
 
113

Table of Contents

 	  	December 31, 2017	 		
	(Dollar amounts in millions)	  	Delinquencies	 	  	Direct case 
 reserves (1) 	 	  	Risk
in-force	 	  	Reserves as % of
risk in-force	 	
Payments in default:	  				  				  				  					
3 payments or less	  	 	10,594		  	$	46	 	  	$	474		  	 	10	% 		
4 - 11 payments	  	 	6,178		  	 	125	 	  	 	279		  	 	45	% 		
12 payments or more	  	 	5,711		  	 	237	 	  	 	281		  	 	84	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total	  	 	22,483		  	$	408	 	  	$	1,034		  	 	39	% 		

(1)  	Direct flow case reserves exclude loss adjustment expenses, incurred but not reported and reinsurance reserves.	
Primary insurance delinquency rates differ from region to region in the United States at any one time depending upon economic conditions and cyclical growth patterns. The tables below set forth our primary delinquency rates for the various regions of the United States and the 10 largest states by our risk in-force as of the dates indicated. Delinquency rates are shown by region based upon the location of the underlying property, rather than the location of the lender.

 	  	Percent of primary
risk in-force as of
June 30, 2018	 	 	Percent of total 
 reserves as of 
 June 30, 2018  (1) 	 	 	Delinquency rate	 	
 							 	June 30,
2018	 	 	December 31,
2017	 	 	June 30,
2017	 	
By Region:	  				 				 				 				 				
Southeast (2)	  	 	18	% 	 	 	23	% 	 	 	3.15	% 	 	 	4.60	% 	 	 	3.42	% 	
South Central (3)	  	 	16		 	 	11	 	 	 	2.30	% 	 	 	3.30	% 	 	 	2.57	% 	
Pacific (4)	  	 	16		 	 	8	 	 	 	1.30	% 	 	 	1.56	% 	 	 	1.54	% 	
Northeast (5)	  	 	12		 	 	30	 	 	 	3.74	% 	 	 	4.67	% 	 	 	5.20	% 	
North Central (6)	  	 	11		 	 	9	 	 	 	1.96	% 	 	 	2.34	% 	 	 	2.37	% 	
Great Lakes (7)	  	 	11		 	 	6	 	 	 	1.72	% 	 	 	2.09	% 	 	 	2.11	% 	
Mid-Atlantic (8)	  	 	6		 	 	5	 	 	 	2.19	% 	 	 	2.79	% 	 	 	3.07	% 	
New England (9)	  	 	6		 	 	6	 	 	 	2.27	% 	 	 	2.75	% 	 	 	2.98	% 	
Plains (10)	  	 	4		 	 	2	 	 	 	1.88	% 	 	 	2.36	% 	 	 	2.39	% 	
	  	 	 	 	 	 	 	 	 				 				 				
Total	  	 	100	% 	 	 	100	% 	 	 	2.37	% 	 	 	3.12	% 	 	 	2.89	% 	

(1)  	Total reserves were $352 million as of June 30, 2018.	
(2)  	Alabama, Arkansas, Florida, Georgia, Mississippi, North Carolina, South Carolina and Tennessee.	
(3)  	Arizona, Colorado, Louisiana, New Mexico, Oklahoma, Texas and Utah.	
(4)  	Alaska, California, Hawaii, Nevada, Oregon and Washington.	
(5)  	New Jersey, New York and Pennsylvania.	
(6)  	Illinois, Minnesota, Missouri and Wisconsin.	
(7)  	Indiana, Kentucky, Michigan and Ohio.	
(8)  	Delaware, Maryland, Virginia, Washington D.C. and West Virginia.	
(9)  	Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.	
(10)  	Idaho, Iowa, Kansas, Montana, Nebraska, North Dakota, South Dakota and Wyoming.	
 
114

Table of Contents

 	  	Percent of primary
risk in-force as of
June 30, 2018	 	 	Percent of total
reserves as of
June 30, 2018  (1) 	 	 	Delinquency rate	 	
 							 	June 30,
2018	 	 	December 31,
2017	 	 	June 30,
2017	 	
By State:	  				 				 				 				 				
California	  	 	9	% 	 	 	4	% 	 	 	1.21	% 	 	 	1.45	% 	 	 	1.29	% 	
Texas	  	 	7	% 	 	 	5	% 	 	 	2.77	% 	 	 	4.41	% 	 	 	2.71	% 	
Florida	  	 	6	% 	 	 	13	% 	 	 	4.57	% 	 	 	7.99	% 	 	 	3.76	% 	
Illinois	  	 	6	% 	 	 	6	% 	 	 	2.27	% 	 	 	2.70	% 	 	 	2.71	% 	
New York	  	 	5	% 	 	 	16	% 	 	 	3.99	% 	 	 	4.77	% 	 	 	5.36	% 	
Washington	  	 	5	% 	 	 	2	% 	 	 	1.05	% 	 	 	1.19	% 	 	 	1.27	% 	
Michigan	  	 	4	% 	 	 	1	% 	 	 	1.26	% 	 	 	1.51	% 	 	 	1.46	% 	
Pennsylvania	  	 	4	% 	 	 	4	% 	 	 	2.80	% 	 	 	3.50	% 	 	 	3.66	% 	
Ohio	  	 	4	% 	 	 	2	% 	 	 	1.98	% 	 	 	2.43	% 	 	 	2.58	% 	
North Carolina	  	 	3	% 	 	 	2	% 	 	 	2.15	% 	 	 	2.67	% 	 	 	2.91	% 	

(1)  	Total reserves were $352 million as of June 30, 2018.	
The following table sets forth the dispersion of our total reserves and primary insurance in-force and risk in-force by year of policy origination and average annual mortgage interest rate as of June 30, 2018:

	(Amounts in millions)	  	Average
rate	 	 	Percent of total 
 reserves (1) 	 	 	Primary
insurance
in-force	 	  	Percent
of total	 	 	Primary
risk
in-force	 	  	Percent
of total	 	
Policy Year	  				 				 				  				 				  					
2004 and prior	  	 	6.02	% 	 	 	9.7	%  	 	$	1,900		  	 	1.2	% 	 	$	361		  	 	0.9	% 		
2005	  	 	5.57	% 	 	 	8.6	 	 	 	1,784		  	 	1.1		 	 	422		  	 	1.1			
2006	  	 	5.71	% 	 	 	14.0	 	 	 	3,383		  	 	2.1		 	 	791		  	 	2.0			
2007	  	 	5.64	% 	 	 	30.3	 	 	 	8,870		  	 	5.5		 	 	2,060		  	 	5.3			
2008	  	 	5.16	% 	 	 	15.0	 	 	 	7,355		  	 	4.6		 	 	1,693		  	 	4.4			
2009	  	 	4.91	% 	 	 	0.5	 	 	 	644		  	 	0.4		 	 	136		  	 	0.4			
2010	  	 	4.64	% 	 	 	0.6	 	 	 	755		  	 	0.5		 	 	175		  	 	0.5			
2011	  	 	4.54	% 	 	 	0.6	 	 	 	1,284		  	 	0.8		 	 	300		  	 	0.8			
2012	  	 	3.85	% 	 	 	0.9	 	 	 	3,468		  	 	2.2		 	 	838		  	 	2.2			
2013	  	 	4.07	% 	 	 	1.8	 	 	 	6,587		  	 	4.1		 	 	1,626		  	 	4.2			
2014	  	 	4.44	% 	 	 	3.9	 	 	 	10,472		  	 	6.6		 	 	2,548		  	 	6.6			
2015	  	 	4.13	% 	 	 	5.5	 	 	 	20,401		  	 	12.8		 	 	4,972		  	 	12.9			
2016	  	 	3.87	% 	 	 	5.6	 	 	 	35,993		  	 	22.6		 	 	8,704		  	 	22.5			
2017	  	 	4.24	% 	 	 	2.9	 	 	 	36,477		  	 	22.9		 	 	8,974		  	 	23.2			
2018	  	 	4.59	% 	 	 	0.1	 	 	 	20,165		  	 	12.6		 	 	5,028		  	 	13.0			
	  				 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 		
Total portfolio	  	 	4.44	% 	 	 	100.0	% 	 	$	159,538		  	 	100.0	% 	 	$	38,628		  	 	100.0	% 		

(1)  	Total reserves were $352 million as of June 30, 2018.	
Canada Mortgage Insurance segment
Trends and conditions
Results of our mortgage insurance business in Canada are affected primarily by changes in the regulatory environment, employment levels, consumer borrowing behavior, lender mortgage-related strategies, including lender servicing practices, and other economic and housing market influences, including interest rate trends, home price appreciation or depreciation, mortgage origination volume, levels and aging of mortgage delinquencies and movements in foreign currency exchange rates. During the second quarter of 2018, the Canadian dollar strengthened against the U.S. dollar compared to the second quarter of 2017, which favorably impacted the results of our mortgage insurance business in Canada as reported in U.S. dollars. However, the Canadian dollar weakened against the U.S. dollar compared to the first quarter of 2018, which unfavorably impacted our results. Any future movement in foreign exchange rates could impact future results.
 
115

Table of Contents
The Canadian gross domestic product is expected to have experienced an increase in growth in the second quarter of 2018 compared to the first quarter of 2018, reflecting expansion in business investments and exports. The overnight interest rate in Canada increased to 1.50% in July 2018, up from 1.25% at the end of the first quarter of 2018 and 0.50% at the end of the second quarter of 2017. Canada’s unemployment rate increased slightly to 6.0% at the end of the second quarter of 2018 compared to 5.8% at the end of the first quarter of 2018 as an increase in workforce participation outpaced job creation.
National home prices increased in the second quarter of 2018 by approximately 3% compared to the second quarter of 2017 largely driven by the strong housing market in British Columbia, partially offset by home price declines in Toronto. The increase was approximately 2% compared to the first quarter of 2018 due to a rebound of home prices in Toronto and continued strength in British Columbia. Home sales in Canada decreased in the second quarter of 2018 by approximately 14% compared to the second quarter of 2017 and 3% compared to the first quarter of 2018. This was largely due to a slowdown in sales in both British Columbia and Ontario, particularly in the Greater Toronto Area (“GTA”). The slowdown in these areas was primarily driven by regulatory and housing policy changes, including the October 2017 release of Guideline B-20 Residential Mortgage Underwriting Practices and Procedures (the “B-20 Guideline”), as discussed below. The GTA sales decline was most pronounced following the release of the Ontario Provincial Government’s Fair Housing Plan in April 2017, which was designed to temper the real estate market in the GTA and surrounding areas. On February 20, 2018, the British Columbia Government released a plan to address housing affordability in the province. Among other measures, the plan included an increase and expansion of the existing foreign buyers’ tax and the introduction of a speculation tax applicable to both foreign and domestic buyers.
Our mortgage insurance business in Canada experienced higher losses in the second quarter of 2018 compared to the second quarter of 2017 primarily from less favorable development in our loss reserves and higher new delinquencies, net of cures, partially offset by a lower average reserve per delinquency. Our loss ratio in Canada was 15% for the second quarter of 2018 and 13% for the first quarter of 2018, resulting in a loss ratio of 14% for the first half of 2018. As a result of our loss ratio performance in the first half of 2018 and the economic forecast for the balance of the year, we expect our full year 2018 loss ratio to be higher than our full year 2017 loss ratio of 10%.
In the second quarter of 2018, flow new insurance written volumes remained flat in our mortgage insurance business in Canada compared to the second quarter of 2017 primarily resulting from a smaller originations market due to regulatory changes, offset by changes in foreign exchange rates and higher estimated market share. Earned premiums were higher as a result of changes in foreign exchange rates, partially offset by updated premium recognition factors from the review of our premium earnings pattern in the current year.
Bulk new insurance written levels were slightly higher in the second quarter of 2018 compared to the second quarter of 2017 primarily attributable to changes in foreign exchange rates, partially offset by lower demand as a result of regulatory changes that took effect in 2016 and a substantial increase in bulk insurance premium rates on mortgage applications received after December 31, 2016 in response to higher regulatory capital requirements. New insurance written from bulk mortgage insurance varies from period to period based on a number of factors, including the amount of bulk mortgages lenders seek to insure, the competitiveness of our pricing and our risk appetite for such mortgage insurance.
We are subject to regulation under the Protection of Residential Mortgage or Hypothecary Insurance Act (Canada) (“PRMHIA”) and the Insurance Companies Act (Canada), under which our mortgage insurance business in Canada is required to meet a minimum capital test (“MCT”) to support its outstanding mortgage insurance in-force. The MCT ratio is calculated based on a methodology prescribed by the Office of the Superintendent of Financial Institutions (“OSFI”). On January 1, 2017, the capital advisory titled “Capital Requirements for Federally Regulated Mortgage Insurers” became effective. The advisory provides a standard framework for determining the capital requirements for residential mortgage insurance companies. Under this regulatory capital framework, the OSFI Supervisory MCT Target and PRMHIA requirement are both 150%. As of June 30, 2018, our MCT ratio under the framework was approximately 170%, which was above the supervisory target.
Compared to the prior capital framework, this framework is more risk sensitive and incorporates additional risk attributes, including credit score, remaining amortization and outstanding loan balance. The advisory
 
116

Table of Contents
includes supplementary capital requirements on new business in areas where home prices are high relative to borrower incomes upon origination. As a result of these higher regulatory capital requirements, our mortgage insurance business in Canada implemented an increase in premium rates of approximately 20% on flow new business effective March 17, 2017. Similarly, the business also increased its premium rates for bulk insurance. OSFI continues its review of the current capital framework and is expected to make refinements to take effect on January 1, 2019. It is still too early to determine the impact of any changes to the framework.
On October 17, 2017, OSFI released the final version of the B-20 Guideline, which applies to all federally-regulated financial institutions that are engaged in residential mortgage underwriting and/or the acquisition of residential mortgage loan assets in Canada. The guideline was effective January 1, 2018, and requires enhanced underwriting practices for all uninsured mortgages, including the application of a qualifying stress test. The B-20 Guideline does not directly impact the regulatory requirements for our mortgage insurance business in Canada, as it is governed by OSFI’s Guideline B-21 Residential Mortgage Insurance Underwriting Practices and Procedures. Although it is still too early to determine the impact this guideline will have on the Canadian mortgage and housing market, we believe that the B-20 Guideline will modestly reduce the high loan-to-value market size in Canada in 2018 even though qualifying insured mortgages have been subject to a mortgage rate stress test since November 30, 2016.
Segment results of operations
Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
The following table sets forth the results of operations relating to our Canada Mortgage Insurance segment for the periods indicated:

 	  	Three months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Revenues:	  				  				  				  					
Premiums	  	$	131		  	$	126		  	$	5		  	 	4	%  		
Net investment income	  	 	34		  	 	31		  	 	3		  	 	10	% 		
Net investment gains (losses)	  	 	(15	) 	  	 	47		  	 	(62	) 	  	 	(132	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total revenues	  	 	150		  	 	204		  	 	(54	) 	  	 	(26	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Benefits and expenses:	  				  				  				  					
Benefits and other changes in policy reserves	  	 	19		  	 	4		  	 	15		  	 	NM	(1)   		
Acquisition and operating expenses, net of deferrals	  	 	20		  	 	16		  	 	4		  	 	25	% 		
Amortization of deferred acquisition costs and intangibles	  	 	11		  	 	11		  	 	—  	 	  	 	—  	% 		
Interest expense	  	 	4		  	 	5		  	 	(1	) 	  	 	(20	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total benefits and expenses	  	 	54		  	 	36		  	 	18		  	 	50	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations before income taxes	  	 	96		  	 	168		  	 	(72	) 	  	 	(43	)% 		
Provision for income taxes	  	 	24		  	 	56		  	 	(32	) 	  	 	(57	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations	  	 	72		  	 	112		  	 	(40	) 	  	 	(36	)% 		
Less: income from continuing operations attributable to noncontrolling interests	  	 	32		  	 	54		  	 	(22	) 	  	 	(41	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	  	 	40		  	 	58		  	 	(18	) 	  	 	(31	)% 		
Adjustments to income from continuing operations available to Genworth Financial, Inc.’s common stockholders:	  				  				  				  					
Net investment (gains) losses, net (2)	  	 	8		  	 	(27	) 	  	 	35		  	 	130	% 		
Taxes on adjustments	  	 	(2	) 	  	 	10		  	 	(12	) 	  	 	(120	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	46		  	$	41		  	$	5		  	 	12	% 		

(1)	We define “NM” as not meaningful for increases or decreases greater than 200%.	
(2)	For the three months ended June 30, 2018 and 2017, net investment (gains) losses were adjusted for the portion of net investment gains (losses) attributable to noncontrolling interests of $(7) million and $20 million, respectively.	
 
117

Table of Contents
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders increased primarily from lower income taxes, partially offset by higher losses in the current year.
Revenues
Premiums increased primarily from changes in foreign exchange rates, partially offset by updated premium recognition factors from the review of our premium earnings pattern in the current year. The three months ended June 30, 2018 included an increase of $6 million attributable to changes in foreign exchange rates.
Net investment income increased largely from changes in foreign exchange rates in the current year.
We had net investment losses in the current year compared to gains in the prior year. Net investment losses in the current year were primarily attributable to derivative losses largely from hedging non-functional currency transactions and from changes in the fair value of equity securities, partially offset by derivative gains on interest rate swaps. Net investment gains in the prior year were predominantly from derivative gains on interest rate swaps and foreign exchange gains on the sale of non-functional currency investment securities.
Benefits and expenses
Benefits and other changes in policy reserves increased largely from less favorable development in our loss reserves and higher new delinquencies, net of cures, partially offset by a lower average reserve per delinquency in the current year.
Acquisition and operating expenses, net of deferrals, increased mainly driven by higher stock-based compensation expense in the current year.
Provision for income taxes. The effective tax rate decreased to 25.5% for the three months ended June 30, 2018 from 33.0% for the three months ended June 30, 2017. The decrease in the effective tax rate was primarily attributable to the change from a worldwide tax system to a territorial system under the TCJA. As a result, we are now generally taxed at our jurisdictional rate of 27%.
 
118

Table of Contents
Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017
The following table sets forth the results of operations relating to our Canada Mortgage Insurance segment for the periods indicated:

 	  	Six months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Revenues:	  				  				  				  					
Premiums	  	$	270		  	$	252		  	$	18		  	 	7	% 		
Net investment income	  	 	68		  	 	63		  	 	5		  	 	8	% 		
Net investment gains (losses)	  	 	(30	) 	  	 	58		  	 	(88	) 	  	 	(152	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total revenues	  	 	308		  	 	373		  	 	(65	) 	  	 	(17	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Benefits and expenses:	  				  				  				  					
Benefits and other changes in policy reserves	  	 	37		  	 	24		  	 	13		  	 	54	% 		
Acquisition and operating expenses, net of deferrals	  	 	37		  	 	37		  	 	—  	 	  	 	—  	% 		
Amortization of deferred acquisition costs and intangibles	  	 	21		  	 	21		  	 	—  	 	  	 	—  	% 		
Interest expense	  	 	9		  	 	9		  	 	—  	 	  	 	—  	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total benefits and expenses	  	 	104		  	 	91		  	 	13		  	 	14	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations before income taxes	  	 	204		  	 	282		  	 	(78	) 	  	 	(28	)% 		
Provision for income taxes	  	 	54		  	 	92		  	 	(38	) 	  	 	(41	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations	  	 	150		  	 	190		  	 	(40	) 	  	 	(21	)% 		
Less: income from continuing operations attributable to noncontrolling interests	  	 	68		  	 	92		  	 	(24	) 	  	 	(26	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	  	 	82		  	 	98		  	 	(16	) 	  	 	(16	)% 		
Adjustments to income from continuing operations available to Genworth Financial, Inc.’s common stockholders:	  				  				  				  					
Net investment (gains) losses, net (1)	  	 	17		  	 	(33	) 	  	 	50		  	 	152	% 		
Taxes on adjustments	  	 	(4	) 	  	 	12		  	 	(16	) 	  	 	(133	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	95		  	$	77		  	$	18		  	 	23	% 		

(1)	For the six months ended June 30, 2018 and 2017, net investment (gains) losses were adjusted for the portion of net investment gains (losses) attributable to noncontrolling interests of $(13) million and $25 million, respectively.	
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders increased mainly driven by higher premiums and lower income taxes, partially offset by higher losses in the current year.
Revenues
Premiums increased primarily from changes in foreign exchange rates, from the seasoning of our larger, more recent in-force blocks of business and from updated premium recognition factors from the review of our premium earnings pattern in the current year. The six months ended June 30, 2018 included an increase of $13 million attributable to changes in foreign exchange rates.
Net investment income increased largely from changes in foreign exchange rates in the current year.
 
119

Table of Contents
We had net investment losses in the current year compared to gains in the prior year. Net investment losses in the current year were primarily attributable to derivative losses largely from hedging non-functional currency transactions and from changes in the fair value of equity securities, partially offset by derivative gains on interest rate swaps. Net investment gains in the prior year were predominantly from derivative gains on interest rate swaps and foreign exchange gains on the sale of non-functional currency investment securities.
Benefits and expenses
Benefits and other changes in policy reserves increased largely from less favorable development in our loss reserves and higher new delinquencies, net of cures, partially offset by a lower average reserve per delinquency in the current year.
Provision for income taxes. The effective tax rate decreased to 26.5% for the six months ended June 30, 2018 from 32.6% for the six months ended June 30, 2017. The decrease in the effective tax rate was primarily attributable to the change from a worldwide tax system to a territorial system under the TCJA. As a result, we are now generally taxed at our jurisdictional rate of 27%.
Canada Mortgage Insurance selected operating performance measures
The following tables set forth selected operating performance measures regarding our Canada Mortgage Insurance segment as of or for the dates indicated:

 	  	As of June 30,	 	  	Increase
(decrease) and
percentage change	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Primary insurance in-force	  	$	380,200		  	$	371,500		  	$	8,700		    	 	2	% 		
Risk in-force	  	$	133,100		  	$	130,000		  	$	3,100		    	 	2	% 		

 	  	Three months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 	 	Six months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	 	2018	 	  	2017	 	  	2018 vs. 2017	 	
New insurance written	  	$	4,600		  	$	4,500		  	$	100		    	 	2	% 	 	$	8,000		  	$	14,800		  	$	(6,800	) 	 	 	(46	)% 		
Net premiums written	  	$	133		  	$	126		  	$	7		    	 	6	% 	 	$	225		  	$	222		  	$	3		 	 	1	% 		
Primary insurance in-force and risk in-force
Our mortgage insurance business in Canada currently provides 100% coverage on the majority of the loans we insure in that market. For the purpose of representing our risk in-force, we have computed an “effective” risk in-force amount, which recognizes that the loss on any particular loan will be reduced by the net proceeds received upon sale of the property. Effective risk in-force has been calculated by applying to insurance in-force a factor that represents our highest expected average per-claim payment for any one underwriting year over the life of our business in Canada. For the three and six months ended June 30, 2018 and 2017, this factor was 35%.
Primary insurance in-force and risk in-force increased primarily as a result of flow new insurance written. Insurance in-force and risk in-force included decreases of $5.6 billion and $1.9 billion, respectively, attributable to changes in foreign exchange rates.
New insurance written
Excluding the impacts of changes in foreign exchange rates, new insurance written decreased for the three months ended June 30, 2018 primarily as a result of lower flow mortgage insurance written primarily from a
 
120

Table of Contents
smaller market size, due in part to the impact of regulatory changes and higher interest rates, partially offset by our higher estimated market share. New insurance written decreased for the six months ended June 30, 2018 predominantly from a decrease of $7.0 billion in bulk mortgage insurance written in the current year. The first quarter of 2017 included an increase in bulk insurance volumes primarily due to the closing of several large bulk insurance transactions on applications received in the fourth quarter of 2016 ahead of regulatory changes. New insurance written for the three and six months ended June 30, 2018 included increases of $300 million and $400 million, respectively, attributable to changes in foreign exchange rates.
Net premiums written
Our mortgage insurance policies in Canada provide for single premiums at the time that loan proceeds are advanced. We initially record the single premiums to unearned premium reserves and recognize the premiums earned over time in accordance with the expected pattern of risk emergence. Our unearned premium reserves were $1.6 billion as of June 30, 2018 and June 30, 2017.
Net premiums written increased for the three months ended June 30, 2018 primarily from an increase of $6 million attributable to changes in foreign exchange rates and from an increase in flow premium rates. Net premiums written, excluding the effects of changes in foreign exchange rates, decreased for the six months ended June 30, 2018 primarily from lower bulk mortgage insurance written due to regulatory changes, partially offset by an increase in flow premium rates. The six months ended June 30, 2018 included an increase of $11 million attributable to changes in foreign exchange rates.
Loss and expense ratios
The following table sets forth the loss and expense ratios for our Canada Mortgage Insurance segment for the periods indicated:

 	 	Three months ended
June 30,	 	 	Increase (decrease)	 	 	Six months ended
June 30,	 	 	Increase (decrease)	 	
 	 	2018	 	 	2017	 	 	2018 vs. 2017	 	 	2018	 	 	2017	 	 	2018 vs. 2017	 	
Loss ratio	 	 	15	% 	 	 	4	% 	 	 	11	% 	 	 	14	% 	 	 	10	% 	 	 	4	% 	
Expense ratio (net earned premiums)	 	 	23	% 	 	 	21	% 	 	 	2	% 	 	 	21	% 	 	 	23	% 	 	 	(2	)% 	
Expense ratio (net premiums written)	 	 	23	% 	 	 	21	% 	 	 	2	% 	 	 	26	% 	 	 	26	% 	 	 	—  	% 	
The loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. The expense ratio (net earned premiums) is the ratio of general expenses to net earned premiums. The expense ratio (net premiums written) is the ratio of general expenses to net premiums written. In our mortgage insurance business in Canada, general expenses consist of acquisition and operating expenses, net of deferrals, and amortization of DAC and intangibles.
The loss ratio increased for the three and six months ended June 30, 2018 primarily from lower favorable development in our loss reserves and higher new delinquencies, net of cures, as overall favorable regional macroeconomic conditions began to normalize in 2018 after experiencing considerable strength in 2017. These increases were partially offset by a lower average reserve per delinquency in the current year. The increase in the loss ratio for the six months ended June 30, 2018 was also partially offset by higher earned premiums largely from the seasoning of our larger, more recent in-force blocks of business and from a favorable adjustment of $3 million relating to updated premium recognition factors from the review of our premium earnings pattern in the current year.
The expense ratio (net earned premiums) increased for the three months ended June 30, 2018 primarily from higher stock-based compensation expense in the current year and decreased for the six months ended June 30, 2018 mainly from higher earned premiums in the current year.
 
121

Table of Contents
The expense ratio (net premiums written) increased for the three months ended June 30, 2018 largely from higher stock-based compensation expense, partially offset by higher net premiums written in the current year.
Delinquent loans
The following table sets forth the number of loans insured, the number of delinquent loans and the delinquency rate for our Canada mortgage insurance portfolio as of the dates indicated:

 	  	June 30, 2018	 	 	December 31, 2017	 	 	June 30, 2017	 	
Primary insured loans in-force	  	 	2,137,221		 	 	2,110,324		 	 	2,082,586		
Delinquent loans	  	 	1,742		 	 	1,718		 	 	1,809		
Percentage of delinquent loans (delinquency rate)	  	 	0.08	% 	 	 	0.08	% 	 	 	0.09	% 	
Flow loans in-force	  	 	1,470,826		 	 	1,447,794		 	 	1,418,076		
Flow delinquent loans	  	 	1,406		 	 	1,369		 	 	1,476		
Percentage of flow delinquent loans (delinquency rate)	  	 	0.10	% 	 	 	0.09	% 	 	 	0.10	% 	
Bulk loans in-force	  	 	666,395		 	 	662,530		 	 	664,510		
Bulk delinquent loans	  	 	336		 	 	349		 	 	333		
Percentage of bulk delinquent loans (delinquency rate)	  	 	0.05	% 	 	 	0.05	% 	 	 	0.05	% 	
Flow mortgage loans in-force increased from new policies written. The number of delinquent loans of our flow mortgage insurance increased compared to December 31, 2017 as overall favorable regional macroeconomic conditions began to normalize in 2018 after experiencing considerable strength in 2017.
Primary insurance delinquency rates differ by the various provinces and territories of Canada at any one time depending upon economic conditions and cyclical growth patterns. The table below sets forth our primary delinquency rates for the various provinces and territories of Canada by our risk in-force as of the dates indicated. Delinquency rates are shown by region based upon the location of the underlying property, rather than the location of the lender.

 	  	Percent of primary
risk in-force as of
June 30, 2018	 	 	Delinquency rate	 	
 				 	June 30,
2018	 	 	December 31,
2017	 	 	June 30,
2017	 	
By province and territory:	  				 				 				 				
Ontario	  	 	47	% 	 	 	0.03	% 	 	 	0.03	% 	 	 	0.03	% 	
Alberta	  	 	16		 	 	0.17	% 	 	 	0.17	% 	 	 	0.19	% 	
British Columbia	  	 	14		 	 	0.04	% 	 	 	0.05	% 	 	 	0.06	% 	
Quebec	  	 	13		 	 	0.10	% 	 	 	0.11	% 	 	 	0.13	% 	
Saskatchewan	  	 	3		 	 	0.28	% 	 	 	0.28	% 	 	 	0.26	% 	
Nova Scotia	  	 	2		 	 	0.15	% 	 	 	0.16	% 	 	 	0.17	% 	
Manitoba	  	 	2		 	 	0.10	% 	 	 	0.08	% 	 	 	0.08	% 	
New Brunswick	  	 	1		 	 	0.15	% 	 	 	0.16	% 	 	 	0.12	% 	
All other	  	 	2		 	 	0.20	% 	 	 	0.17	% 	 	 	0.16	% 	
	  	 	 	 	 				 				 				
Total	  	 	100	% 	 	 	0.08	% 	 	 	0.08	% 	 	 	0.09	% 	
	  	 	 	 	 				 				 				
Delinquency rates decreased slightly compared to June 30, 2017 reflecting regional housing market improvement, primarily in Quebec and Alberta, driven mostly by continued favorable macroeconomic conditions that began in 2017, mostly offset by normalizing macroeconomic conditions within other regions.
 
122

Table of Contents
As a part of enhanced lender reporting, we receive updated outstanding loans in-force in Canada from almost all of our customers. Based on the data provided by lenders, the delinquency rate as of June 30, 2018 was 0.19%, reflecting a lower number of outstanding loans and related policies in-force compared to our reported policies in-force.
Australia Mortgage Insurance segment
Trends and conditions
Results of our mortgage insurance business in Australia are affected primarily by changes in regulatory environments, employment levels, consumer borrowing behavior, lender mortgage-related strategies, including lender servicing practices, and other economic and housing market influences, including interest rate trends, home price appreciation or depreciation, mortgage origination volume, levels and aging of mortgage delinquencies and movements in foreign currency exchange rates. During the second quarter of 2018, the Australian dollar strengthened against the U.S. dollar as compared to the second quarter of 2017, which favorably impacted the results of our mortgage insurance business in Australia as reported in U.S. dollars. However, the Australian dollar weakened against the U.S. dollar compared to the first quarter of 2018, which unfavorably impacted our results. Any future movement in foreign exchange rates could impact future results.
The Australian gross domestic product is expected to have experienced moderate growth in the second quarter of 2018, supported by sustained low interest rates, business investment and consumption growth. The cash rate remained flat at 1.50% in the second quarter of 2018. The June 2018 unemployment rate decreased slightly to 5.4% from 5.6% at the end of the first quarter of 2018.
Home prices in Australia continued to decline in the second quarter of 2018, following consistent growth throughout most of 2017. June 2018 home values were approximately 2% lower than a year ago, with the main driver being the Sydney housing market at approximately 5% lower annual home price growth as of the end of the second quarter of 2018.
Our mortgage insurance business in Australia completed a review of its premium earnings pattern in the fourth quarter of 2017. The review indicated an observed and expected continuation of a longer duration between policy inception and first loss event. This was primarily attributable to the economic downturn in mining regions, which comprised a large proportion of incurred losses in 2017, and a prolonged low interest rate environment resulting in robust housing markets in other parts of the country. The review resulted in a refinement of premium recognition factors and a cumulative adjustment that was applied retrospectively as of October 1, 2017. As a result of these changes, earned premiums and amortization of DAC are expected to increase over the next several years on our existing insurance in-force as compared to 2017, but normalize thereafter as the premiums will be earned over a longer period of time. The application of the new premium earnings pattern only impacts the timing of our premium recognition, as the amount of total earned premiums recognized over the lifetime of the policies is unchanged. As discussed above, the adjustment to our premium earnings pattern was applied on a retrospective basis under U.S. GAAP. However, under local Australian Accounting Standards this adjustment was applied on a prospective basis. Due to this divergence in accounting application, the financial results and certain metrics, such as the loss ratio and expense ratios, for our mortgage insurance business in Australia were materially different between the two accounting standards in 2017 and in the first and second quarters of 2018 and will be materially different in future periods.
Our mortgage insurance business in Australia had higher losses in the second quarter of 2018 compared to the second quarter of 2017 primarily due to favorable non-reinsurance recoveries on paid claims in the prior year and aging of existing delinquencies, partially offset by lower new delinquencies, net of cures, in the current year. The loss ratio in Australia for the three months ended June 30, 2018 was 28%. The 2017 full year loss ratio was (79)%, due primarily to the review of our premium earnings pattern. This adjustment reduced the loss ratio by 112% for the full year 2017. We expect higher earned premiums to drive the total year loss ratio lower in 2018 than it would have been in 2017 without the adjustment from the review of our premium earnings pattern.
 
123

Table of Contents
In the second quarter of 2018, our mortgage insurance business in Australia experienced a decrease in new insurance written volumes compared to the second quarter of 2017 primarily due to lower market penetration from a change in customer mix, customers’ lower market share and the Australian Prudential Regulation Authority’s (“APRA”) continued focus on lending standards, investment lending and serviceability. The decrease was partially offset by an increase in bulk transactions in the current year.
Gross premiums written in the second quarter of 2018 were flat compared to the second quarter of 2017 primarily driven by new structured insurance transactions and bulk deals completed in the current year, offset by a decrease in primary flow volumes, mostly resulting from regulatory measures to slow the growth in investment lending and limit the flow of new interest-only lending. Earned premiums in the second quarter of 2018 were higher compared to the second quarter of 2017 largely due to higher policy cancellations and updated premium recognition factors from the review of our premium earnings pattern in the fourth quarter of 2017. Policy cancellations were higher due to an initiative implemented in the second quarter of 2018 to more promptly identify loans that have been discharged or refinanced using newly available data.
In November 2016, we entered into a new contract with our largest customer, effective January 1, 2017, with a term of three years. In the first half of 2018, this customer represented 46% of our new insurance written, excluding structured insurance transactions where we are in a secondary loss position. The contract with our current second largest customer was extended through November 2018 under similar terms as the previous contract. This customer represented 17% of our new insurance written in the first half of 2018. The contract with our former second largest customer was terminated by the customer effective April 8, 2017.
Our mortgage insurance business in Australia evaluates its capital position in relation to the Prescribed Capital Amount (“PCA”) as determined by APRA, utilizing the Internal Capital Adequacy Assessment Process as the framework to ensure that our Australia group of companies as a whole, and each regulated entity, are independently capitalized to meet regulatory requirements. As of June 30, 2018, the estimated PCA ratio of our mortgage insurance business in Australia was approximately 190%, representing an increase from 184% as of March 31, 2018, largely resulting from portfolio seasoning and cancellations, partially offset by reduced reinsurance credit and share repurchase activity.
 
124

Table of Contents
Segment results of operations
Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
The following table sets forth the results of operations relating to our Australia Mortgage Insurance segment for the periods indicated:

 	  	Three months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Revenues:	  				  				  				  					
Premiums	  	$	106		  	$	78		  	$	28		  	 	36	% 		
Net investment income	  	 	18		  	 	17		  	 	1		  	 	6	%  		
Net investment gains (losses)	  	 	12		  	 	2		  	 	10		  	 	NM	 (1)   		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total revenues	  	 	136		  	 	97		  	 	39		  	 	40	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Benefits and expenses:	  				  				  				  					
Benefits and other changes in policy reserves	  	 	29		  	 	27		  	 	2		  	 	7	%  		
Acquisition and operating expenses, net of deferrals	  	 	17		  	 	9		  	 	8		  	 	89	% 		
Amortization of deferred acquisition costs and intangibles	  	 	12		  	 	17		  	 	(5	) 	  	 	(29	)% 		
Interest expense	  	 	2		  	 	2		  	 	—  	 	  	 	—  	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total benefits and expenses	  	 	60		  	 	55		  	 	5		  	 	9	%  		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations before income taxes	  	 	76		  	 	42		  	 	34		  	 	81	% 		
Provision for income taxes	  	 	23		  	 	14		  	 	9		  	 	64	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations	  	 	53		  	 	28		  	 	25		  	 	89	% 		
Less: income from continuing operations attributable to noncontrolling interests	  	 	27		  	 	15		  	 	12		  	 	80	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	  	 	26		  	 	13		  	 	13		  	 	100	% 		
Adjustments to income from continuing operations available to Genworth Financial, Inc.’s common stockholders:	  				  				  				  					
Net investment (gains) losses, net (2)	  	 	(6	) 	  	 	—  	 	  	 	(6	) 	  	 	NM	 (1)   		
Taxes on adjustments	  	 	2		  	 	(1	) 	  	 	3		  	 	NM	 (1)   		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	22		  	$	12		  	$	10		  	 	83	% 		

(1)	We define “NM” as not meaningful for increases or decreases greater than 200%.	
(2)	For the three months ended June 30, 2018 and 2017, net investment (gains) losses were adjusted for the portion of net investment gains (losses) attributable to noncontrolling interests of $6 million and $2 million, respectively.	
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders increased primarily driven by higher premiums largely related to higher policy cancellations and from updated premium recognition factors from the review of our premium earnings pattern in the fourth quarter of 2017, which resulted in higher earned premiums on our existing insurance in-force in the current year. The increase was also attributable to lower income taxes in the current year.
 
125

Table of Contents
Revenues
Premiums increased largely due to higher policy cancellations resulting from an initiative implemented in the second quarter of 2018 to more promptly identify loans that have been discharged or refinanced using newly available data and from updated premium recognition factors from the review of our premium earnings pattern in the fourth quarter of 2017, which resulted in higher earned premiums in the current year on our existing insurance in-force.
Net investment gains increased principally from higher net gains from the sale of investment securities, changes in the fair value of equity securities and from impairments in the prior year that did not recur.
Benefits and expenses
Benefits and other changes in policy reserves increased largely attributable to $6 million of favorable non-reinsurance recoveries on paid claims in the prior year that did not recur and aging of existing delinquencies, partially offset by lower new delinquencies, net of cures, in the current year.
Acquisition and operating expenses, net of deferrals, increased primarily from an $8 million reclass of contract fees amortization expense to amortization of DAC and intangibles in the prior year that did not recur.
Amortization of DAC and intangibles decreased principally as a result of an $8 million prior year reclass of contract fees amortization expense from acquisition and operating expenses, net of deferrals, as discussed above. The decrease was partially offset by higher contract fees amortization in the current year.
Provision for income taxes. The effective tax rate decreased to 30.0% for the three months ended June 30, 2018 from 33.2% for the three months ended June 30, 2017. The decrease in the effective tax rate was primarily attributable to the change from a worldwide tax system to a territorial system under the TCJA. As a result, we are now generally taxed at our jurisdictional rate of 30%.
 
126

Table of Contents
Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017
The following table sets forth the results of operations relating to our Australia Mortgage Insurance segment for the periods indicated:

 	  	Six months ended
June 30,	 	  	Increase
(decrease) and
percentage
change 	 	
(Amounts in millions) 	  	2018	 	    	2017	 	  	2018 vs. 2017	 	
Revenues:	  				    				  				  				
Premiums	  	$	204		    	$	159		  	$	45		  	 	28	% 	
Net investment income	  	 	35		    	 	38		  	 	(3	) 	  	 	(8	)% 	
Net investment gains (losses)	  	 	3		    	 	22		  	 	(19	) 	  	 	(86	)% 	
Policy fees and other income	  	 	1		    	 	—  	 	  	 	1		  	 	NM	 (1)  	
	  	 	 	 	    	 	 	 	  	 	 	 	  				
Total revenues	  	 	243		    	 	219		  	 	24		  	 	11	% 	
	  	 	 	 	    	 	 	 	  	 	 	 	  				
Benefits and expenses:	  				    				  				  				
Benefits and other changes in policy reserves	  	 	59		    	 	55		  	 	4		  	 	7	%  	
Acquisition and operating expenses, net of deferrals	  	 	34		    	 	32		  	 	2		  	 	6	%  	
Amortization of deferred acquisition costs and intangibles	  	 	23		    	 	21		  	 	2		  	 	10	% 	
Interest expense	  	 	4		    	 	4		  	 	—  	 	  	 	—  	% 	
	  	 	 	 	    	 	 	 	  	 	 	 	  				
Total benefits and expenses	  	 	120		    	 	112		  	 	8		  	 	7	%  	
	  	 	 	 	    	 	 	 	  	 	 	 	  				
Income from continuing operations before income taxes	  	 	123		    	 	107		  	 	16		  	 	15	% 	
Provision for income taxes	  	 	37		    	 	36		  	 	1		  	 	3	%  	
	  	 	 	 	    	 	 	 	  	 	 	 	  				
Income from continuing operations	  	 	86		    	 	71		  	 	15		  	 	21	% 	
Less: income from continuing operations attributable to noncontrolling interests	  	 	44		    	 	38		  	 	6		  	 	16	% 	
	  	 	 	 	    	 	 	 	  	 	 	 	  				
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	  	 	42		    	 	33		  	 	9		  	 	27	% 	
Adjustments to income from continuing operations available to Genworth Financial, Inc.’s common stockholders:	  				    				  				  				
Net investment (gains) losses, net (2)	  	 	(2	) 	    	 	(11	) 	  	 	9		  	 	82	% 	
Taxes on adjustments	  	 	1		    	 	3		  	 	(2	) 	  	 	(67	)% 	
	  	 	 	 	    	 	 	 	  	 	 	 	  				
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	41		    	$	25		  	$	16		  	 	64	% 	

(1)	We define “NM” as not meaningful for increases or decreases greater than 200%.	
(2)	For the six months ended June 30, 2018 and 2017, net investment (gains) losses were adjusted for the portion of net investment gains (losses) attributable to noncontrolling interests of $1 million and $11 million, respectively.	
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders increased primarily driven by updated premium recognition factors from the review of our premium earnings pattern in the fourth quarter of 2017, which resulted in higher earned premiums on our existing insurance in-force in the current year and from higher premiums largely related to higher policy cancellations. The increase was also attributable to lower income taxes in the current year.
Revenues
Premiums increased largely due to updated premium recognition factors from the review of our premium earnings pattern in the fourth quarter of 2017, which resulted in higher earned premiums in the current year on our existing insurance in-force and from higher policy cancellations resulting from an initiative implemented in the second quarter of 2018 to more promptly identify loans that have been discharged or refinanced using newly available data. The increase was also attributable to a new structured insurance transaction completed in the first quarter of 2018. The six months ended June 30, 2018 included an increase of $6 million attributable to changes in foreign exchange rates.
 
127

Table of Contents
Net investment income decreased primarily from lower yields in the current year.
Net investment gains decreased primarily from lower net gains from the sale of investment securities and from changes in the fair value of equity securities, partially offset by derivatives losses and impairments in the prior year that did not recur.
Benefits and expenses
Benefits and other changes in policy reserves increased largely attributable to $6 million of favorable non-reinsurance recoveries on paid claims in the prior year that did not recur and aging of existing delinquencies, partially offset by lower new delinquencies, net of cures, in the current year.
Amortization of DAC and intangibles increased largely from higher contract fees amortization in the current year.
Provision for income taxes. The effective tax rate decreased to 30.0% for the six months ended June 30, 2018 from 33.6% for the six months ended June 30, 2017. The decrease in the effective tax rate was primarily attributable to the change from a worldwide tax system to a territorial system under the TCJA. As a result, we are now generally taxed at our jurisdictional rate of 30%.
Australia Mortgage Insurance selected operating performance measures
Our mortgage insurance business in Australia currently has structured insurance transactions with two lenders where it is in a secondary loss position. The insurance portfolio metrics associated with these transactions, which include insurance in-force, risk in-force, new insurance written, loans in-force and delinquent loans, are excluded from the following tables. These arrangements represented approximately $159 million of risk in-force of our mortgage insurance business as of June 30, 2018.
The following tables set forth selected operating performance measures regarding our Australia Mortgage Insurance segment as of or for the dates indicated:

 	  	As of June 30,	 	  	Increase
(decrease) and
percentage
change	 	
(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Primary insurance in-force	  	$	229,400		  	$	247,700		  	$	(18,300	) 	  	 	(7	)% 	
Risk in-force	  	$	79,900		  	$	86,200		  	$	(6,300	) 	  	 	(7	)% 	

 	  	Three months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 	 	Six months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 	
(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	 	2018	 	  	2017	 	  	2018 vs. 2017	 	
New insurance written	  	$	4,600		  	$	4,700		  	$	(100	) 	  	 	(2	)% 	 	$	8,000		  	$	9,800		  	$	(1,800	) 	 	 	(18	)% 	
Net premiums written	  	$	56		  	$	58		  	$	(2	) 	  	 	(3	)% 	 	$	116		  	$	112		  	$	4		 	 	4	% 	
Primary insurance in-force and risk in-force
Our mortgage insurance business in Australia currently provides 100% coverage on the majority of the loans we insure in those markets. For the purpose of representing our risk in-force, we have computed an “effective” risk in-force amount, which recognizes that the loss on any particular loan will be reduced by the net proceeds received upon sale of the property. Effective risk in-force has been calculated by applying to insurance in-force a factor that represents our highest expected average per-claim payment for any one underwriting year over the life of our business in Australia. For the three and six months ended June 30, 2018 and 2017, this factor was 35%. We also have certain risk share arrangements where we provide pro-rata coverage of certain loans rather than 100% coverage. As a result, for loans with these risk share arrangements, the applicable pro-rata coverage amount provided is used when applying the factor.
 
128

Table of Contents
Primary insurance in-force and risk in-force decreased primarily due to portfolio seasoning and lower production volumes over the past year. Primary insurance in-force and risk in-force included decreases of $8.9 billion and $3.1 billion, respectively, from changes in foreign exchange rates.
New insurance written
New insurance written decreased for the three and six months ended June 30, 2018 mainly attributable to lower market penetration from a change in customer mix, customers’ lower market share and continued regulatory changes focused on lending standards, investment lending and serviceability. The six months ended June 30, 2018 included an increase of $200 million attributable to changes in foreign exchange rates.
Net premiums written
Most of our Australian mortgage insurance policies provide for single premiums at the time that loan proceeds are advanced. We initially record the single premiums to unearned premium reserves and recognize the premiums earned over time in accordance with the expected pattern of risk emergence. As of June 30, 2018, our unearned premium reserves were $1.1 billion, compared to $856 million as of June 30, 2017. The increase in unearned premiums was primarily related to a review of our premium earnings pattern in the fourth quarter of 2017, which resulted in higher unearned premiums of $468 million. The change in unearned premium reserves included a decrease of $45 million attributable to changes in foreign exchange rates.
Net premiums written decreased for the three months ended June 30, 2018 primarily from lower market penetration from a change in customer mix. Net premiums written increased for the six months ended June 30, 2018 from a new structured insurance transaction completed in the first quarter of 2018, partially offset by lower market penetration from a change in customer mix.
Loss and expense ratios
The following table sets forth the loss and expense ratios for our Australia Mortgage Insurance segment for the periods indicated:

 	  	Three months ended
June 30, 	 	 	Increase
(decrease)	 	 	Six months ended
June 30,	 	 	Increase
(decrease)	 	
 	  	2018 	 	 	2017 	 	 	2018 vs. 2017	 	 	2018	 	 	2017	 	 	2018 vs. 2017	 	
Loss ratio	  	 	28	% 	 	 	34	% 	 	 	(6	)% 	 	 	29	% 	 	 	34	% 	 	 	(5	)% 	
Expense ratio (net earned premiums)	  	 	27	% 	 	 	34	% 	 	 	(7	)% 	 	 	28	% 	 	 	34	% 	 	 	(6	)% 	
Expense ratio (net premiums written)	  	 	50	% 	 	 	46	% 	 	 	4	% 	 	 	48	% 	 	 	48	% 	 	 	—  	% 	
The loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. The expense ratio (net earned premiums) is the ratio of general expenses to net earned premiums. The expense ratio (net premiums written) is the ratio of general expenses to net premiums written. In our mortgage insurance business in Australia, general expenses consist of acquisition and operating expenses, net of deferrals, and amortization of DAC and intangibles.
The loss ratio decreased for the three and six months ended June 30, 2018 primarily from higher earned premiums from updated premium recognition factors from the review of our premium earnings pattern in the fourth quarter of 2017 and from higher policy cancellations, partially offset by higher losses in the current year. The increase in losses was largely attributable to $6 million of favorable non-reinsurance recoveries on paid claims in the prior year that did not recur and aging of existing delinquencies, partially offset by lower new delinquencies, net of cures, in the current year.
The expense ratio (net earned premiums) decreased for the three and six months ended June 30, 2018 primarily from higher net earned premiums as discussed above, partially offset by higher contract fees amortization in the current year.
The expense ratio (net premiums written) increased for the three months ended June 30, 2018 primarily from lower net premiums written as discussed above and higher contract fees amortization in the current year. The expense ratio (net premiums written) remained flat for the six months ended June 30, 2018 as higher net premiums written were offset by higher contract fees amortization in the current year.
 
129

Table of Contents
Delinquent loans
The following table sets forth the number of loans insured, the number of delinquent loans and the delinquency rate for our Australia mortgage insurance portfolio as of the dates indicated:

 	  	June 30, 2018	 	 	December 31, 2017	 	 	June 30, 2017	 	
Primary insured loans in-force	  	 	1,354,614		 	 	1,416,525		 	 	1,438,100		
Delinquent loans	  	 	7,306		 	 	6,696		 	 	7,285		
Percentage of delinquent loans (delinquency rate)	  	 	0.54	% 	 	 	0.47	% 	 	 	0.51	% 	
Flow loans in-force	  	 	1,247,229		 	 	1,303,928		 	 	1,325,477		
Flow delinquent loans	  	 	7,076		 	 	6,476		 	 	7,007		
Percentage of flow delinquent loans (delinquency rate)	  	 	0.57	% 	 	 	0.50	% 	 	 	0.53	% 	
Bulk loans in-force	  	 	107,385		 	 	112,597		 	 	112,623		
Bulk delinquent loans	  	 	230		 	 	220		 	 	278		
Percentage of bulk delinquent loans (delinquency rate)	  	 	0.21	% 	 	 	0.20	% 	 	 	0.25	% 	
Flow loans in-force decreased primarily from policy cancellations. Flow delinquent loans increased primarily from lower cures in the current year.
Primary insurance delinquency rates differ by the various states and territories of Australia at any one time depending upon economic conditions and cyclical growth patterns. The table below sets forth our primary delinquency rates for the states and territories of Australia by our risk in-force as of the dates indicated. Delinquency rates are shown by region based upon the location of the underlying property, rather than the location of the lender.

 	  	Percent of primary
risk in-force as of
June 30, 2018	 	 	Delinquency rate	 	
 				 	June 30,
2018	 	 	December 31,
2017	 	 	June 30,
2017	 	
By state and territory:	  				 				 				 				
New South Wales	  	 	28	% 	 	 	0.37	% 	 	 	0.31	% 	 	 	0.32	% 	
Queensland	  	 	23		 	 	0.73	% 	 	 	0.67	% 	 	 	0.72	% 	
Victoria	  	 	23		 	 	0.42	% 	 	 	0.37	% 	 	 	0.41	% 	
Western Australia	  	 	12		 	 	0.99	% 	 	 	0.83	% 	 	 	0.86	% 	
South Australia	  	 	6		 	 	0.67	% 	 	 	0.60	% 	 	 	0.65	% 	
Australian Capital Territory	  	 	3		 	 	0.18	% 	 	 	0.14	% 	 	 	0.20	% 	
Tasmania	  	 	2		 	 	0.34	% 	 	 	0.32	% 	 	 	0.37	% 	
New Zealand	  	 	2		 	 	0.06	% 	 	 	0.04	% 	 	 	0.08	% 	
Northern Territory	  	 	1		 	 	0.61	% 	 	 	0.48	% 	 	 	0.44	% 	
	  	 	 	 	 				 				 				
Total	  	 	100	% 	 	 	0.54	% 	 	 	0.47	% 	 	 	0.51	% 	
	  	 	 	 	 				 				 				
Delinquency rates increased in the current year compared to December 31, 2017 and June 30, 2017 mainly from decreased flow loans in-force as a result of higher policy cancellations and lower cure rates in the current year.
 
130

Table of Contents
U.S. Life Insurance segment
Trends and conditions
Results of our U.S. life insurance businesses depend significantly upon the extent to which our actual future experience is consistent with assumptions and methodologies we have used in calculating our reserves. Many factors can affect the reserves in our U.S. life insurance businesses. Because these factors are not known in advance, change over time, are difficult to accurately predict and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. We will continue to monitor our experience and assumptions closely and make changes to our assumptions and methodologies, as appropriate, for our U.S. life insurance products. Even small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our DAC amortization, reserve levels, results of operations and financial condition.
We perform loss recognition testing to ensure that the current reserves along with the present value of future gross premiums are sufficient to cover the present value of future expected claims and expense, as well as recover the unamortized portion of DAC and, if any, PVFP. If the loss recognition test indicates a deficiency in the ability to pay all future claims and expenses, including the amortization of DAC and PVFP, a loss is recognized in earnings as an impairment of the DAC and/or PVFP balance and, if the loss is greater than the DAC and/or PVFP balance, by an increase in reserves. Our liability for policy and contract claims is reviewed quarterly and we conduct a review of our claim reserve assumptions for our long-term care insurance business annually typically during the third quarter of each year. We plan to perform our annual review of claim reserve assumptions for our long-term care insurance business in the third or fourth quarter of 2018. See “Long-term care insurance” below for more details. Our liability for future policy benefits is reviewed at least annually as a part of our loss recognition testing typically performed in the third or fourth quarter of each year. As part of loss recognition testing, we also review the recoverability of DAC and PVFP at least annually. In addition, we perform cash flow testing separately for each of our U.S. life insurance companies on a statutory accounting basis annually. In the fourth quarter of 2018, we will perform assumption reviews for our universal and term universal life insurance products as well as for our other U.S. life insurance products, including our long-term care insurance products, and complete our loss recognition testing. For our acquired block of long-term care insurance business and our fixed immediate annuity products, we monitor these blocks more frequently than annually given the premium deficiencies that existed in previous periods. In addition, given the low margin of our term and whole life insurance products, excluding our acquired block, as of December 31, 2017, we monitor this block more frequently than annually.
Our U.S. Life Insurance segment will continue to migrate to a new valuation and projection platform for certain lines of business, while we upgrade platforms for other lines of business. The migration and upgrades are part of our ongoing efforts to improve the infrastructure and capabilities of our information systems and our routine assessment and refinement of financial, actuarial, investment and risk management capabilities and processes enterprise wide. These efforts will also provide our U.S. Life Insurance segment with improved platforms to support emerging accounting guidance and ongoing changes in capital regulations. Concurrently, actuarial processes and methodologies will be reviewed, and may result in additional refinements to our models and/or assumptions. Any material changes in balances, margins or income trends that may result from these activities will be disclosed accordingly. We intend to continue developing our modeling capabilities in our various businesses, including for our long-term care insurance projections where we migrated substantially all of our retained long-term care insurance business to this new modeling system in 2016 and 2017. The new modeling system values and forecasts associated liability cash flows and policyholder behavior at a more granular level than our previous system.
Results of our U.S. life insurance businesses are also impacted by interest rates. The continued low interest rate environment puts pressure on the profitability and returns of these businesses as higher yielding investments have matured and been replaced with lower-yielding investments. We seek to manage the impact of low interest rates through asset-liability management as well as interest rate hedging strategies for a portion of our long-term care insurance product cash flows. Additionally, certain products have implicit and explicit rate guarantees or
 
131

Table of Contents
optionality that are significantly impacted by changes in interest rates. For a further discussion of the impact of interest rates on our U.S. life insurance businesses, see “Item 7A—Quantitative and Qualitative Disclosures About Market Risk” in our 2017 Annual Report on Form 10-K.
As previously disclosed, the TCJA effective in December 2017 had an immediate impact on the capital of our life insurance subsidiaries through a reduction in the statutory admitted deferred tax assets and an impact to certain cash flow scenario testing included in the risk-based capital (“RBC”) calculation of those subsidiaries in 2017. On June 28, 2018, the National Association of Insurance Commissioners (“NAIC”) Capital Adequacy Task Force adopted proposed changes to the RBC calculation effective for the year ending December 31, 2018 as a result of tax reform which will negatively impact the RBC ratio for our life insurance subsidiaries. Any future revisions to the factors used for calculating the RBC ratio of insurance companies could increase the RBC amount and result in a further reduction in our life insurance subsidiaries’ RBC ratios. Additionally, any future increases in our statutory reserves, including as a result of Actuarial Guideline 38 or cash flow testing results, could decrease the RBC ratio of our life insurance subsidiaries. Further declines in the RBC ratio of our life insurance subsidiaries could adversely affect their financial strength ratings.
Long-term care insurance
Results of our long-term care insurance business are influenced primarily by our ability to achieve in-force rate actions, morbidity, mortality, persistency, investment yields, expenses, sales, changes in regulations and reinsurance. Sales of our products are impacted by the relative competitiveness of our ratings, product features, pricing and commission levels and the impact of in-force rate actions on distribution and consumer demand. Changes in regulations or government programs, including long-term care insurance rate action legislation, could impact our long-term care insurance business either positively or negatively.
Our liability for policy and contract claims is reviewed quarterly and we conduct a detailed review of our claim reserve assumptions for our long-term care insurance business annually typically during the third quarter of each year. We plan to perform our annual review of claim reserve assumptions for our long-term care insurance business in the third or fourth quarter of 2018. We expect our quarterly long-term care insurance results for the remainder of 2018 to be pressured by less favorable claim termination rates, benefit utilization trends and new claims as the blocks continue to age. The claims utilization developments of policyholders using more of their daily benefits than previously expected will likely impact our claim reserves. However, the work on this assumption, as well as other assumptions, is not yet complete, and we plan to finish this work in the third or fourth quarter. Accordingly, we will not have an estimate of any impact on the claim reserves until the work is finalized. As previously disclosed, during the third quarter of 2017, we reviewed our assumptions and methodologies relating to our claim reserves of our long-term care insurance business but did not make any significant changes to the assumptions or methodologies, other than routine updates to investment returns and benefit utilization rates as we typically do each quarter. The updates in the third quarter of 2017 did not have a significant impact on claim reserve levels.
As previously disclosed, in the fourth quarter of 2017, we performed assumption reviews and completed our loss recognition and cash flow testing. As part of the annual testing, we reviewed assumptions for incidence and interest rates, among other assumptions, and considered incremental benefits from expected future in-force rate actions. As of December 31, 2017, our loss recognition testing margins for our long-term care insurance business, excluding the acquired block, were positive but were reduced from the 2016 levels as a result of higher costs relating primarily to higher expected future incidence of claims, partially offset by the higher modeled benefit of planned future in-force rate actions. We continue to test our acquired block of long-term care insurance separately. In 2017, our loss recognition testing margin for the acquired block was positive and consistent with 2016 levels. In the first half of 2018, seasonally higher claim terminations have been offset by higher benefit payments with unfavorable benefit utilization experience, driven in part by older duration claims with lifetime benefits. We will continue to regularly review our methodologies and assumptions in light of emerging experience and may be required to make adjustments to our long-term care insurance claim reserves in the future, which could also impact our loss recognition and cash flow testing results.
 
132

Table of Contents
Our assumptions are sensitive to slight variability in actual experience and small changes in assumptions could result in decreases in the margin of our long-term care insurance blocks to at/or below zero in future years. To the extent, based on reviews, the margin of our long-term care insurance block, excluding the acquired block, is negative, we would be required to recognize a loss, by amortizing more DAC and/or establishing additional benefit reserves. In the event a loss is recognized, we would increase reserves to offset such losses that would be recognized in later years. For our acquired block of long-term care insurance, the impacts of adverse changes in assumptions would also be reflected as a loss if our margin for this block is reduced below zero by establishing additional benefit reserves. A significant decrease in our loss recognition testing margin of our long-term care insurance blocks could have a material adverse effect on our business, results of operations and financial condition.
In connection with the updated assumptions and methodologies that increased claim reserves on existing claims in our 2016 review, we now establish higher claim reserves on new claims, which decreased earnings in 2017 and the first half of 2018 and we expect will decrease earnings going forward as higher reserves are recorded. Additionally, average claim reserves for new claims are higher as the mix of claims continues to evolve, with an increasing number of policies with higher daily benefit amounts, unlimited benefit pools and higher inflation factors going on claim. Also, we expect growth in new claims as our blocks of business continue to age. In addition, premiums will be negatively impacted as policies terminate from mortality and lapses.
We experience volatility in our loss ratios caused by variances in policy terminations, claim terminations, claim severity and claim counts. Our approved in-force rate actions may also cause fluctuations in our loss ratios during the period when reserves are adjusted to reflect policyholders taking reduced benefits or non-forfeiture options within their policy coverage. In addition, we periodically review our reserve assumptions and methodologies based upon developing experience, which may result in changes to claim reserves and loss recognition testing results, causing volatility in our operating results and loss ratios. Our loss ratio for the six months ended June 30, 2018 and 2017 was 79% and 72%, respectively.
As a result of ongoing challenges in our long-term care insurance business, we continue pursuing initiatives to improve the risk and profitability profile of our business including: premium rate increases and associated benefit reductions on our in-force policies; product refinements; changes to our current product offerings in certain states; new distribution strategies; refining underwriting requirements; managing expense levels; actively exploring additional reinsurance strategies; executing investment strategies targeting higher returns; enhancing our financial and actuarial analytical capabilities; and considering other actions to improve the performance of the overall business. These efforts include a plan for significant future in-force premium rate increases. For an update on rate actions, refer to “—Significant Developments—U.S. Life Insurance.” As of June 30, 2018, we have suspended sales in Hawaii, Massachusetts, New Hampshire, Vermont and Montana, and will consider taking similar actions in the future, in other states where we are unable to obtain satisfactory rate increases on in-force policies and/or unable to obtain approval for new products. We will also consider litigation against states that decline actuarially justified rate increases. As of June 30, 2018, we were in litigation with one state that has refused to approve actuarially justified in-force rate actions. The approval process for in-force premium rate increases and the amount and timing of the rate increases approved vary by state. In certain states, the decision to approve or disapprove a rate increase can take a significant amount of time. After approval, insureds are provided with written notice of the increase and increases are generally applied on the insured’s next policy anniversary date. As a result, the benefits of any rate increase are not fully realized until the implementation cycle is complete and are, therefore, expected to be realized over time.
The TCJA signed into law on December 22, 2017 reduced the U.S. corporate federal income tax rate to 21% effective for taxable years beginning on January 1, 2018. Therefore, beginning on January 1, 2018, our U.S. Life Insurance segment is taxed at the new enacted tax rate of 21%. However, gains on forward starting swaps settled prior to the enactment of the TCJA will continue to be taxed at 35% as they are amortized into net investment income. This will negatively impact our long-term care insurance business given the majority of our forward starting swaps are in this business.
 
133

Table of Contents
We also manage risk and capital allocated to our long-term care insurance business through utilization of external reinsurance in the form of coinsurance. We executed external reinsurance agreements to reinsure 20% of all sales of our individual long-term care insurance products that have been introduced since early 2013. External new business reinsurance is dependent on a number of factors, including price, availability, risk tolerance and capital levels. Over time, there can be no assurance that affordable, or any, reinsurance will continue to be available. We also have external reinsurance on some older blocks of business which includes a treaty on a yearly renewable term basis on business that was written between 1998 and 2003. This yearly renewable term reinsurance provides coverage for claims on those policies for 15 years after the policy was written. After 15 years, reinsurance coverage ends for policies not on claim, while reinsurance coverage continues for policies on claim until the claim ends. The 15-year coverage on the policies written in 2003 will expire in 2018; therefore, any new claims will not have reinsurance coverage under this treaty. Since 2013, we have seen, and may continue to see, an increase in our benefit costs as policies with reinsurance coverage exhaust their benefits or terminate and policies which are not covered by reinsurance go on claim.
Sales of our long-term care insurance business remain low due to our current ratings. Additionally, effective April 1, 2018, we suspended sales of our long-term care insurance products in Florida which could reduce sales levels further.
Despite our low sales levels in our long-term care insurance business and our current ratings, we continue to evaluate new products. For example, we previously launched an enhanced product to improve competitiveness, while meeting our targeted returns, by, among other things, reducing premium rates, benefit levels and adjusting other coverage options. In support of this product, we are investing in targeted distribution and marketing initiatives to increase long-term care insurance sales. In addition, we are evaluating market trends and sales and investing in the development of products and distribution strategies that we believe will help expand the long-term care insurance market over time and meet broader consumer needs.
Life insurance
Results of our life insurance business are impacted primarily by mortality, persistency, investment yields, expenses, reinsurance and statutory reserve requirements, among other factors. Effective March 7, 2016, we suspended sales of our traditional life insurance products.
We review our life insurance assumptions at least annually typically in the third or fourth quarter of each year. In the fourth quarter of 2017, we performed assumption reviews and completed our loss recognition testing for our universal and term universal life insurance products. As part of our assumption review in the fourth quarter of 2017, we recorded $74 million of after-tax charges in our universal and term universal life insurance products primarily driven by assumption changes due to emerging mortality experience as well as adjustments from continued low interest rates. We will continue to regularly review our mortality assumptions as well as all of our other assumptions in light of emerging experience and may be required to make further adjustments to our universal and term universal life insurance reserves in the future, which could also impact our loss recognition testing results. Mortality levels may deviate each period from historical experience. In the first half of 2018, we experienced higher mortality in our universal and term universal life insurance products than our current assumptions used for loss recognition testing. Any further materially adverse changes to our assumptions, including mortality, may have a materially negative impact on our results of operations, financial condition and business. In connection with the updated assumptions from our reviews in prior years, we expect to establish higher reserves, which will decrease earnings in future periods.
Between 1999 and 2009, we had a significant increase in term life insurance sales, as compared to 1998 and prior years. As our 15-year term life insurance policies written in 1999 and 2000 have transitioned to their post guaranteed level premium rate period, we have experienced lower persistency compared to our pricing and valuation assumptions. The blocks of business issued since 2000 vary in size as compared to the 1999 and 2000 blocks of business. Accordingly, in the future, as additional 10-, 15- and 20-year level premium period blocks
 
134

Table of Contents
enter their post guaranteed level premium rate period, we may experience volatility in DAC amortization, premiums and mortality experience, which may reduce profitability or create losses in our term life insurance products, in amounts that could be material, if persistency continues to be lower than our original assumptions as it has been on our 10- and 15-year business written in 1999 and 2000. In 2017 and the first half of 2018, we experienced higher lapses and accelerated DAC amortization associated with our large 15-year and 20-year term life insurance blocks entering their post guaranteed level premium rate periods. We anticipate this trend will continue with accompanying higher DAC amortization and lower profitability as larger blocks reach the end of their level premium periods through 2020, especially for our 2000 block, and will continue as our other blocks reach their post guaranteed level premium rate period. As of June 30, 2018, our term life insurance products had a DAC balance of $1.3 billion. We have also taken actions to mitigate potentially unfavorable impacts through the use of reinsurance, particularly for certain term life insurance policies issued between 2001 and 2004.
Fixed annuities
Results of our fixed annuities business are affected primarily by investment performance, interest rate levels, the slope of the interest rate yield curve, net interest spreads, equity market conditions, mortality, persistency, and expense and commission levels. Effective March 7, 2016, we suspended sales of our traditional fixed annuity products.
We monitor and change crediting rates on fixed annuities on a regular basis to maintain spreads and targeted returns, if applicable. However, if interest rates remain at current levels or decrease further, we could see declines in spreads which impact the margins on our products, particularly our fixed immediate annuity products. Due to the premium deficiency that existed in 2016 and the current low interest rate environment, we continue to monitor our fixed immediate annuity products more frequently than annually and recorded additional charges during 2017. However, for the six months ended June 30, 2018, we have not recorded any additional charges. If interest rates remain at the current levels or increase at a slower pace than we assumed, we could incur additional charges in the future. The impacts of future adverse changes in our assumptions would result in the establishment of additional future policy benefit reserves and would be immediately reflected in net income as a loss if our margin for this block is again reduced below zero. Any favorable variation would result in additional margin but no immediate benefit to income and would result in higher income recognition over the remaining duration of the in-force block.
For fixed indexed annuities, equity market performance and volatility could also result in additional gains or losses, although associated hedging activities are expected to partially mitigate these impacts.
 
135

Table of Contents
Segment results of operations
Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
The following table sets forth the results of operations relating to our U.S. Life Insurance segment for the periods indicated:

 	  	Three months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions) 	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Revenues:	  				  				  				  					
Premiums	  	$	712		  	$	736		  	$	(24	) 	  	 	(3	)% 		
Net investment income	  	 	707		  	 	694		  	 	13		  	 	2	%  		
Net investment gains (losses)	  	 	(10	) 	  	 	57		  	 	(67	) 	  	 	(118	)% 		
Policy fees and other income	  	 	169		  	 	170		  	 	(1	) 	  	 	(1	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total revenues	  	 	1,578		  	 	1,657		  	 	(79	) 	  	 	(5	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Benefits and expenses:	  				  				  				  					
Benefits and other changes in policy reserves	  	 	1,163		  	 	1,163		  	 	—  	 	  	 	—  	% 		
Interest credited	  	 	116		  	 	129		  	 	(13	) 	  	 	(10	)% 		
Acquisition and operating expenses, net of deferrals	  	 	146		  	 	144		  	 	2		  	 	1	%  		
Amortization of deferred acquisition costs and intangibles	  	 	78		  	 	101		  	 	(23	) 	  	 	(23	)% 		
Interest expense	  	 	4		  	 	3		  	 	1		  	 	33	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total benefits and expenses	  	 	1,507		  	 	1,540		  	 	(33	) 	  	 	(2	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations before income taxes	  	 	71		  	 	117		  	 	(46	) 	  	 	(39	)% 		
Provision for income taxes	  	 	21		  	 	41		  	 	(20	) 	  	 	(49	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations	  	 	50		  	 	76		  	 	(26	) 	  	 	(34	)% 		
Adjustments to income from continuing operations:	  				  				  				  					
Net investment (gains) losses, net (1)	  	 	9		  	 	(57	) 	  	 	66		  	 	116	% 		
Taxes on adjustments	  	 	(2	) 	  	 	20		  	 	(22	) 	  	 	(110	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	57		  	$	39		  	$	18		  	 	46	% 		

(1)  	For the three months ended June 30, 2018, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(1) million.	
The following table sets forth adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for the businesses included in our U.S. Life Insurance segment for the periods indicated:

 	  	Three months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders:	  				  				  				  					
Long-term care insurance	  	$	22		  	$	33		  	$	(11	) 	  	 	(33	)% 		
Life insurance	  	 	4		  	 	(1	) 	  	 	5		  	 	NM 	(1)   		
Fixed annuities	  	 	31		  	 	7		  	 	24		  	 	NM 	(1)   		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	57		  	$	39		  	$	18		  	 	46	% 		

(1)  	We define “NM” as not meaningful for increases or decreases greater than 200%.	
 
136

Table of Contents
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders
 
 	•	 	Our long-term care insurance business decreased $11 million predominantly from higher severity and frequency of new claims and $13 million of favorable reserve corrections, net of an adjustment for profits followed by loss reserves, associated with recorded initial claim dates in the prior year that did not recur. These decreases were partially offset by higher earnings from our acquired block of long-term care insurance business and an increase in investment income in the current year.	
 
 	•	 	Our life insurance business had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $4 million in the current year compared to an adjusted operating loss available to Genworth Financial, Inc.’s common stockholders of $1 million in the prior year. The increase to income in the current year from a loss in the prior year was primarily from favorable mortality in our term life insurance products, a $20 million net unfavorable term conversion mortality assumption correction in the prior year that did not recur and lower taxes in the current year. These increases were partially offset by higher ceded reinsurance, unfavorable mortality in our universal and term universal life insurance products and a net $6 million favorable refinement in the prior year that did not recur.	
 
 	•	 	Our fixed annuities business increased $24 million mainly attributable to higher reserves of $10 million related to loss recognition testing in our fixed immediate annuity products in the prior year that did not recur, favorable mortality, and lower interest credited and taxes, partially offset by lower investment income in the current year.	
Revenues
Premiums
 
 	•	 	Our long-term care insurance business increased $9 million largely from $16 million of increased premiums in the current year from in-force rate actions approved and implemented, partially offset by policy terminations in the current year.	
 
 	•	 	Our life insurance business decreased $33 million mainly attributable to higher ceded premiums in the current year from new reinsurance treaties effective in December 2017 and the continued runoff of our term life insurance products in the current year.	
Net investment income
 
 	•	 	Our long-term care insurance business increased $30 million largely from higher average invested assets due to growth of our in-force block in the current year.	
 
 	•	 	Our fixed annuities business decreased $16 million largely attributable to lower average invested assets in the current year.	
Net investment gains (losses)
 
 	•	 	Net investment gains in our long-term care insurance business decreased $41 million primarily related to lower net gains from the sale of investment securities in the current year.	
 
 	•	 	Our life insurance business had net investment losses of $2 million in the current year compared to net investment gains of $5 million in the prior year. The current year net investment losses were mainly driven by losses from the sale of investment securities, partially offset by gains on embedded derivatives associated with our indexed universal life insurance products. The prior year net investment gains related primarily to gains from the sale of investment securities.	
 
 	•	 	Our fixed annuities business had net investment losses of $11 million in the current year compared to gains of $8 million in the prior year. Net investment losses in the current year were related to losses on	
 
137

Table of Contents

 	embedded derivatives associated with our fixed indexed annuity products, partially offset by derivative gains. Net investment gains in the prior year were driven predominantly by derivative gains and gains from the sale of investment securities, partially offset by losses on embedded derivatives associated with our fixed indexed annuity products.	
Benefits and expenses
Benefits and other changes in policy reserves
 
 	•	 	Our long-term care insurance business increased $53 million mainly from aging and growth of the in-force block, higher severity and frequency of new claims, higher utilization of available benefits and a less favorable impact of $12 million from reduced benefits in the current year related to in-force rate actions approved and implemented.	
 
 	•	 	Our life insurance business decreased $23 million primarily attributable to higher ceded benefits in the current year from new reinsurance treaties effective in December 2017. The decrease was also as a result of favorable mortality in our term life insurance products, partially offset by unfavorable mortality in our universal and term universal life insurance products in the current year.	
 
 	•	 	Our fixed annuities business decreased $30 million largely attributable to higher reserves of $16 million related to loss recognition testing in our fixed immediate annuity products in the prior year that did not recur and from favorable mortality in the current year.	
Interest credited. Interest credited decreased mostly driven by our fixed annuities business predominantly from a decline in average account values and lower crediting rates in the current year.
Amortization of deferred acquisition costs and intangibles. Amortization of DAC and intangibles decreased mainly due to our life insurance business largely related to a $41 million unfavorable term conversion mortality assumption correction in the prior year that did not recur and lower lapses in the current year. These decreases were partially offset by an $11 million favorable refinement related to reinsurance rates in the prior year that did not recur.
Provision for income taxes. The effective tax rate was 28.9% and 35.3% for the three months ended June 30, 2018 and 2017, respectively. The decrease in the effective tax rate was primarily attributable to a reduction in the U.S. corporate federal income tax rate from 35% to 21%, partially offset by tax expense of $6 million in our long-term care insurance business related to gains on forward starting swaps settled prior to the enactment of the TCJA, which will continue to be tax effected at 35% as they are amortized into net investment income.
 
138

Table of Contents
Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017
The following table sets forth the results of operations relating to our U.S. Life Insurance segment for the periods indicated:

 	  	Six months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions) 	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Revenues:	  				  				  				  					
Premiums	  	$	1,434		  	$	1,494		  	$	(60	) 	  	 	(4	)% 		
Net investment income	  	 	1,395		  	 	1,375		  	 	20		  	 	1	%  		
Net investment gains (losses)	  	 	(2	) 	  	 	64		  	 	(66	) 	  	 	(103	)% 		
Policy fees and other income	  	 	332		  	 	340		  	 	(8	) 	  	 	(2	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total revenues	  	 	3,159		  	 	3,273		  	 	(114	) 	  	 	(3	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Benefits and expenses:	  				  				  				  					
Benefits and other changes in policy reserves	  	 	2,401		  	 	2,327		  	 	74		  	 	3	%  		
Interest credited	  	 	235		  	 	261		  	 	(26	) 	  	 	(10	)% 		
Acquisition and operating expenses, net of deferrals	  	 	287		  	 	301		  	 	(14	) 	  	 	(5	)% 		
Amortization of deferred acquisition costs and intangibles	  	 	149		  	 	171		  	 	(22	) 	  	 	(13	)% 		
Interest expense	  	 	8		  	 	6		  	 	2		  	 	33	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total benefits and expenses	  	 	3,080		  	 	3,066		  	 	14		  	 	—  	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations before income taxes	  	 	79		  	 	207		  	 	(128	) 	  	 	(62	)% 		
Provision for income taxes	  	 	27		  	 	73		  	 	(46	) 	  	 	(63	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations	  	 	52		  	 	134		  	 	(82	) 	  	 	(61	)% 		
Adjustments to income from continuing operations:	  				  				  				  					
Net investment (gains) losses, net (1)	  	 	—  	 	  	 	(65	) 	  	 	65		  	 	100	% 		
Taxes on adjustments	  	 	—  	 	  	 	23		  	 	(23	) 	  	 	(100	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	52		  	$	92		  	$	(40	) 	  	 	(43	)% 		

(1)  	For the six months ended June 30, 2018 and 2017, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(2) million and $(1) million, respectively.	
The following table sets forth adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for the businesses included in our U.S. Life Insurance segment for the periods indicated:

 	  	Six months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders:	  				  				  				  					
Long-term care insurance	  	$	(10	) 	  	$	47		  	$	(57	) 	  	 	(121	)% 		
Life insurance	  	 	3		  	 	15		  	 	(12	) 	  	 	(80	)% 		
Fixed annuities	  	 	59		  	 	30		  	 	29		  	 	97	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	52		  	$	92		  	$	(40	) 	  	 	(43	)% 		

139

Table of Contents
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders
 
 	•	 	Our long-term care insurance business had an adjusted operating loss available to Genworth Financial, Inc.’s common stockholders of $10 million in the current year compared to adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $47 million in the prior year. The decrease to a loss in the current year from income in the prior year was predominantly attributable to higher utilization of available benefits and higher severity and frequency of new claims in the current year. These decreases were partially offset by higher investment income in the current year.	
 
 	•	 	Our life insurance business decreased $12 million primarily from higher ceded reinsurance, unfavorable mortality in our universal and term universal life insurance products, less favorable reserve releases and a net $6 million favorable refinement in the prior year that did not recur. These decreases were partially offset by favorable mortality in our term life insurance products, a $20 million net unfavorable term conversion mortality assumption correction in the prior year that did not recur and lower taxes in the current year.	
 
 	•	 	Our fixed annuities business increased $29 million mainly attributable to higher reserves of $14 million related to loss recognition testing in our fixed immediate annuity products in the prior year that did not recur, favorable mortality, and lower interest credited and taxes, partially offset by lower investment income in the current year.	
Revenues
Premiums
 
 	•	 	Our long-term care insurance business increased $6 million largely from $35 million of increased premiums in the current year from in-force rate actions approved and implemented, partially offset by policy terminations in the current year.	
 
 	•	 	Our life insurance business decreased $66 million mainly attributable to higher ceded premiums in the current year from new reinsurance treaties effective in December 2017 and the continued runoff of our term life insurance products in the current year.	
Net investment income
 
 	•	 	Our long-term care insurance business increased $56 million largely from higher average invested assets due to growth of our in-force block in the current year.	
 
 	•	 	Our fixed annuities business decreased $34 million largely due to lower average invested assets in the current year.	
Net investment gains (losses)
 
 	•	 	Net investment gains in our long-term care insurance business decreased $38 million primarily related to net losses from the sale of investment securities in the current year compared to net gains in the prior year, partially offset by higher derivative gains in the current year.	
 
 	•	 	Net investment gains in our life insurance business decreased $5 million largely from net losses from the sale of investment securities in the current year compared to net gains in the prior year, partially offset by higher gains on embedded derivatives associated with our indexed universal life insurance products in the current year.	
 
 	•	 	Our fixed annuities business had net investment losses of $14 million in the current year compared to net investment gains of $9 million in the prior year. The current year net investment losses were principally from losses on embedded derivatives associated with our fixed indexed annuity products and from losses from the sale of investment securities. The prior year net investment gains were predominantly from derivative gains and gains from sale of investment securities, partially offset by losses on embedded derivatives associated with our fixed indexed annuity products.	
 
140

Table of Contents
Policy fees and other income. The decrease was mostly attributable to our life insurance business primarily driven by a decline in our term universal and universal life insurance in-force blocks in the current year.
Benefits and expenses
Benefits and other changes in policy reserves
 
 	•	 	Our long-term care insurance business increased $146 million principally from aging and growth of the in-force block, higher utilization of available benefits, higher severity and frequency of new claims and a less favorable impact of $20 million from reduced benefits in the current year related to in-force rate actions approved and implemented.	
 
 	•	 	Our life insurance business decreased $37 million primarily attributable to higher ceded benefits in the current year from new reinsurance treaties effective in December 2017. The decrease was also the result of favorable mortality in our term life insurance products, partially offset by unfavorable mortality in our universal and term universal life insurance products and less favorable reserve releases in our term life insurance products in the current year.	
 
 	•	 	Our fixed annuities business decreased $35 million largely attributable to higher reserves of $22 million related to loss recognition testing in our fixed immediate annuity products in the prior year that did not recur and from favorable mortality in the current year.	
Interest credited. Interest credited decreased mostly driven by our fixed annuities business predominantly from a decline in average account values and lower crediting rates in the current year.
Acquisition and operating expenses, net of deferrals. The decrease was mostly driven by $21 million of guaranty fund assessments in our long-term care insurance business in connection with the Penn Treaty liquidation in the prior year that did not recur, partially offset by higher premium taxes in the current year.
Amortization of deferred acquisition costs and intangibles. Amortization of DAC and intangibles decreased mainly due to our life insurance business largely related to a $41 million unfavorable term conversion mortality assumption correction in the prior year that did not recur and lower lapses in the current year. These decreases were partially offset by an $11 million favorable refinement related to reinsurance rates in the prior year that did not recur.
Provision for income taxes. The effective tax rate was 34.6% and 35.3% for the six months ended June 30, 2018 and 2017, respectively. The decrease in the effective tax rate was primarily attributable to the reduction in the U.S. corporate federal income tax rate from 35% to 21%, mostly offset by tax expense of $11 million in our long-term care insurance business related to gains on forward starting swaps settled prior to the enactment of the TCJA, which will continue to be tax effected at 35% as they are amortized into net investment income.
U.S. Life Insurance selected operating performance measures
Long-term care insurance
The following table sets forth selected operating performance measures regarding our long-term care insurance business as of or for the dates indicated:

 	  	Three months ended
June 30,	 	 	Increase
(decrease) and
percentage
change	 	 	Six months ended
June 30,	 	 	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	2018	 	 	2017	 	 	2018 vs. 2017	 	 	2018	 	 	2017	 	 	2018 vs. 2017	 	
Net earned premiums:	  				 				 				 				 				 				 				  					
Individual long-term care insurance	  	$	604	 	 	$	596	 	 	$	8	 	 	 	1	% 	 	$	1,207	 	 	$	1,202	 	 	$	5	 	  	 	—  	% 		
Group long-term care insurance	  	 	28	 	 	 	27	 	 	 	1	 	 	 	4	% 	 	 	56	 	 	 	55	 	 	 	1	 	  	 	2	% 		
	  	 	 	 	 	 	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 	 	 	 	  					
Total	  	$	632	 	 	$	623	 	 	$	9	 	 	 	1	% 	 	$	1,263	 	 	$	1,257	 	 	$	6	 	  	 	—  	% 		
	  	 	 	 	 	 	 	 	 	 	 	 	 				 	 	 	 	 	 	 	 	 	 	 	 	  					
Loss ratio	  	 	75	% 	 	 	71	% 	 	 	4	% 	 				 	 	79	% 	 	 	72	% 	 	 	7	% 	  					
 
141

Table of Contents
The loss ratio is the ratio of benefits and other changes in reserves less tabular interest on reserves less loss adjustment expenses to net earned premiums.
Net earned premiums increased for the three and six months ended June 30, 2018 largely from $16 million and $35 million, respectively, of increased premiums from in-force rate actions approved and implemented, partially offset by policy terminations in the current year.
The loss ratio increased for the three and six months ended June 30, 2018 largely related to the increase in benefits and other changes in reserves, partially offset by higher premiums as discussed above.
Life insurance
The following tables set forth selected operating performance measures regarding our life insurance business as of or for the dates indicated:

 	  	Three months
ended June 30,	 	  	Increase
(decrease) and
percentage
change	 	 	Six months
ended June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	 	2018	 	  	2017	 	  	2018 vs. 2017	 	
Term and whole life insurance	  				  				  				  				 				  				  				  					
Net earned premiums	  	$	80		  	$	113		  	$	(33	) 	  	 	(29	)% 	 	$	171		  	$	237		  	$	(66	) 	  	 	(28	)% 		
Term universal life insurance	  				  				  				  				 				  				  				  					
Net deposits	  	$	61		  	$	63		  	$	(2	) 	  	 	(3	)% 	 	$	122		  	$	125		  	$	(3	) 	  	 	(2	)% 		
Universal life insurance	  				  				  				  				 				  				  				  					
Net deposits	  	$	126		  	$	81		  	$	45		  	 	56	% 	 	$	258		  	$	169		  	$	89		  	 	53	% 		
Total life insurance	  				  				  				  				 				  				  				  					
Net earned premiums and deposits	  	$	267		  	$	257		  	$	10		  	 	4	% 	 	$	551		  	$	531		  	$	20		  	 	4	% 		

 	  	As of June 30,	 	  	Percentage 
 change 	 		
	(Amounts in millions) 	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Term and whole life insurance	  				  				  					
Life insurance in-force, net of reinsurance	  	$	100,475		  	$	199,028		  	 	(50	)% 		
Life insurance in-force before reinsurance	  	$	447,429		  	$	474,899		  	 	(6	)% 		
Term universal life insurance 	  				  				  					
Life insurance in-force, net of reinsurance	  	$	117,141		  	$	120,264		  	 	(3	)% 		
Life insurance in-force before reinsurance	  	$	117,957		  	$	121,132		  	 	(3	)% 		
Universal life insurance	  				  				  					
Life insurance in-force, net of reinsurance	  	$	36,054		  	$	37,842		  	 	(5	)% 		
Life insurance in-force before reinsurance	  	$	41,136		  	$	43,328		  	 	(5	)% 		
Total life insurance 	  				  				  					
Life insurance in-force, net of reinsurance	  	$	253,670		  	$	357,134		  	 	(29	)% 		
Life insurance in-force before reinsurance	  	$	606,522		  	$	639,359		  	 	(5	)% 		
We no longer solicit sales of our traditional life insurance products; however, we continue to service our existing blocks of business.
Term and whole life insurance
Net earned premiums and life insurance in-force, net of reinsurance, decreased mainly attributable to higher ceded premiums in the current year from new reinsurance treaties that were effective in December 2017 and from the continued runoff of our term life insurance products in the current year.
 
142

Table of Contents
Universal life insurance
Net deposits increased during the three and six months ended June 30, 2018 primarily attributable to $50 million and $100 million, respectively, of new funding agreements with the Federal Home Loan Bank of Atlanta, partially offset by the runoff of the block and lower sales in the current year.
Fixed annuities
The following table sets forth selected operating performance measures regarding our fixed annuities business as of or for the dates indicated:

 	  	As of or for
the three months
ended June 30,	 	  	As of or for
the six months
ended June 30,	 		
	(Amounts in millions) 	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Account value, beginning of period	  	$	15,881		  	$	17,425		  	$	16,401		  	$	17,720			
Premiums and deposits	  	 	22		  	 	21		  	 	44		  	 	44			
Surrenders, benefits and product charges	  	 	(593	) 	  	 	(509	) 	  	 	(1,129	) 	  	 	(1,005	) 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Net flows	  	 	(571	) 	  	 	(488	) 	  	 	(1,085	) 	  	 	(961	) 		
Interest credited and investment performance	  	 	128		  	 	144		  	 	234		  	 	294			
Effect of accumulated net unrealized investment gains (losses)	  	 	(66	) 	  	 	47		  	 	(178	) 	  	 	75			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Account value, end of period	  	$	15,372		  	$	17,128		  	$	15,372		  	$	17,128			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
We no longer solicit sales of our traditional fixed annuity products; however, we continue to service our existing block of business.
Account value decreased compared to March 31, 2018 and December 31, 2017 principally from surrenders and benefits exceeding interest credited and deposits. The decrease was also attributable to a decline in net unrealized gains driven by an increase in interest rates in the current year.
Runoff segment
Trends and conditions
Results of our Runoff segment are affected primarily by investment performance, interest rate levels, net interest spreads, equity market conditions, mortality, policyholder loan activity, policyholder surrenders and scheduled maturities. In addition, the results of our Runoff segment can significantly impact our operating performance, regulatory capital requirements, distributable earnings and liquidity.
We discontinued sales of our individual and group variable annuities in 2011; however, we continue to service our existing blocks of variable annuity business and accept additional deposits on existing contracts. Equity market volatility has caused fluctuations in the results of our variable annuity products and regulatory capital requirements. In the future, equity and interest rate market performance and volatility could result in additional gains or losses in our variable annuity products although associated hedging activities are expected to partially mitigate these impacts. Volatility in the results of our variable annuity products can result in favorable or unfavorable impacts on earnings and statutory capital. In addition to the use of hedging activities to help mitigate impacts related to equity market volatility and interest rate risks, in the future, we may consider reinsurance opportunities to further mitigate volatility in results and manage capital.
The results of our institutional products are impacted by scheduled maturities of the liabilities, credit and interest income performance on assets, as well as liquidity levels. However, we believe our liquidity planning and our asset-liability management will mitigate this risk. While we do not actively sell institutional products, we may periodically issue funding agreements for asset-liability matching purposes.
 
143

Table of Contents
Several factors may impact the time period for these products to runoff including the specific policy types, economic conditions and management strategies.
Segment results of operations
Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
The following table sets forth the results of operations relating to our Runoff segment for the periods indicated:

 	  	Three months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions) 	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Revenues:	  				  				  				  					
Net investment income	  	$	43		  	$	41		  	$	2		  	 	5	%  		
Net investment gains (losses)	  	 	(1	) 	  	 	7		  	 	(8	) 	  	 	(114	)% 		
Policy fees and other income	  	 	38		  	 	41		  	 	(3	) 	  	 	(7	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total revenues	  	 	80		  	 	89		  	 	(9	) 	  	 	(10	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Benefits and expenses:	  				  				  				  					
Benefits and other changes in policy reserves	  	 	7		  	 	9		  	 	(2	) 	  	 	(22	)% 		
Interest credited	  	 	36		  	 	34		  	 	2		  	 	6	%  		
Acquisition and operating expenses, net of deferrals	  	 	14		  	 	16		  	 	(2	) 	  	 	(13	)% 		
Amortization of deferred acquisition costs and intangibles	  	 	8		  	 	7		  	 	1		  	 	14	% 		
Interest expense	  	 	—  	 	  	 	1		  	 	(1	) 	  	 	(100	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total benefits and expenses	  	 	65		  	 	67		  	 	(2	) 	  	 	(3	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations before income taxes	  	 	15		  	 	22		  	 	(7	) 	  	 	(32	)% 		
Provision for income taxes	  	 	3		  	 	7		  	 	(4	) 	  	 	(57	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations	  	 	12		  	 	15		  	 	(3	) 	  	 	(20	)% 		
Adjustments to income from continuing operations:	  				  				  				  					
Net investment (gains) losses, net	  	 	1		  	 	(7	) 	  	 	8		  	 	114	% 		
Taxes on adjustments	  	 	—  	 	  	 	3		  	 	(3	) 	  	 	(100	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	13		  	$	11		  	$	2		  	 	18	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders increased predominantly from lower taxes and unfavorable mortality in our corporate-owned life insurance in the prior year that did not recur, partially offset by an increase in GMDB reserves in our variable annuity products due to less favorable equity market performance in the current year.
Revenues
Net investment income increased mainly driven by higher policy loan income in our corporate-owned life insurance products in the current year.
Net investment losses in the current year were primarily from derivative losses, mostly offset by gains on embedded derivatives associated with our variable annuity products with guaranteed minimum withdrawal benefits (“GMWBs”). Net investment gains in the prior year were principally related to derivative gains.
 
144

Table of Contents
Policy fees and other income decreased principally from lower fee income driven mostly by a decline in the average account values in our variable annuity products in the current year.
Benefits and expenses
Benefits and other changes in policy reserves decreased primarily attributable to unfavorable mortality in our corporate-owned life insurance in the prior year that did not recur, partially offset by an increase in GMDB reserves in our variable annuity products due to less favorable equity market performance in the current year.
Interest credited increased largely related to higher cash values in our corporate-owned life insurance products in the current year.
Acquisition and operating expenses, net of deferrals, decreased mainly from lower commissions in our variable annuity products in the current year.
Provision for income taxes. The effective tax rate decreased to 18.9% for the three months ended June 30, 2018 from 29.7% for the three months ended June 30, 2017. The decrease in the effective tax rate was primarily attributable to a reduction in the U.S. corporate federal income tax rate from 35% to 21%, partially offset by lower tax favored items in the current year.
Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017
The following table sets forth the results of operations relating to our Runoff segment for the periods indicated:

 	  	Six months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions) 	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Revenues:	  				  				  				  					
Net investment income	  	$	85		  	$	79		  	$	6		  	 	8	%  		
Net investment gains (losses)	  	 	(15	) 	  	 	15		  	 	(30	) 	  	 	(200	)% 		
Policy fees and other income	  	 	78		  	 	82		  	 	(4	) 	  	 	(5	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total revenues	  	 	148		  	 	176		  	 	(28	) 	  	 	(16	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Benefits and expenses:	  				  				  				  					
Benefits and other changes in policy reserves	  	 	15		  	 	13		  	 	2		  	 	15	% 		
Interest credited	  	 	73		  	 	69		  	 	4		  	 	6	%  		
Acquisition and operating expenses, net of deferrals	  	 	29		  	 	31		  	 	(2	) 	  	 	(6	)% 		
Amortization of deferred acquisition costs and intangibles	  	 	15		  	 	13		  	 	2		  	 	15	% 		
Interest expense	  	 	—  	 	  	 	1		  	 	(1	) 	  	 	(100	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total benefits and expenses	  	 	132		  	 	127		  	 	5		  	 	4	%  		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations before income taxes	  	 	16		  	 	49		  	 	(33	) 	  	 	(67	)% 		
Provision for income taxes	  	 	3		  	 	15		  	 	(12	) 	  	 	(80	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Income from continuing operations	  	 	13		  	 	34		  	 	(21	) 	  	 	(62	)% 		
Adjustments to income from continuing operations:	  				  				  				  					
Net investment (gains) losses, net  (1)	  	 	13		  	 	(14	) 	  	 	27		  	 	193	% 		
Taxes on adjustments	  	 	(3	) 	  	 	5		  	 	(8	) 	  	 	(160	)% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	  	$	23		  	$	25		  	$	(2	) 	  	 	(8	)% 		

(1)	For the six months ended June 30, 2018 and 2017, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(2) million and $1 million, respectively.	
 
145

Table of Contents
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders decreased driven principally by less favorable equity market performance and higher interest credited, partially offset by lower taxes and higher investment income in the current year.
Revenues
Net investment income increased mainly driven by higher policy loan income in our corporate-owned life insurance products in the current year.
Net investment losses in the current year were largely related to derivative losses, partially offset by gains on embedded derivatives associated with our variable annuity products with GMWBs. Net investment gains in the prior year were primarily related to gains on embedded derivatives associated with our variable annuity products with GMWBs, partially offset by derivative losses.
Policy fees and other income decreased principally from lower fee income driven mostly by a decrease in the average account values in our variable annuity products in the current year.
Benefits and expenses
Interest credited increased largely related to higher cash values in our corporate-owned life insurance products in the current year.
Provision for income taxes. The effective tax rate decreased to 16.6% for the six months ended June 30, 2018 from 30.3% for the six months ended June 30, 2017. The decrease in the effective tax rate was primarily attributable to a reduction in the U.S. corporate federal income tax rate from 35% to 21%, partially offset by lower tax favored items in the current year.
Runoff selected operating performance measures
Variable annuity and variable life insurance products
The following table sets forth selected operating performance measures regarding our variable annuity and variable life insurance products as of or for the dates indicated:

 	  	As of or for
the three months
ended June 30,	 	  	As of or for
the six months
ended June 30,	 		
	(Amounts in millions) 	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
Account value, beginning of period	  	$	5,619		  	$	6,013		  	$	5,884		  	$	6,031			
Deposits	  	 	5		  	 	7		  	 	12		  	 	16			
Surrenders, benefits and product charges	  	 	(203	) 	  	 	(196	) 	  	 	(411	) 	  	 	(420	) 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Net flows	  	 	(198	) 	  	 	(189	) 	  	 	(399	) 	  	 	(404	) 		
Interest credited and investment performance	  	 	48		  	 	146		  	 	(16	) 	  	 	343			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Account value, end of period	  	$	5,469		  	$	5,970		  	$	5,469		  	$	5,970			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
We no longer solicit sales of our variable annuity or variable life insurance products; however, we continue to service our existing blocks of business and accept additional deposits on existing contracts and policies.
Variable Annuities and Variable Life Insurance
Account value decreased compared to March 31, 2018 and December 31, 2017 primarily related to surrenders outpacing deposits and interest credited.
 
146

Table of Contents
Institutional products
The following table sets forth selected operating performance measures regarding our institutional products as of or for the dates indicated:

 	  	As of or for
the three months
ended June 30,	 	  	As of or for
the six months
ended June 30,	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018	 	  	2017	 	
FABNs and Funding Agreements	  				  				  				  					
Account value, beginning of period	  	$	185		  	$	560		  	$	260		  	$	560			
Surrenders and benefits	  	 	(6	) 	  	 	(102	) 	  	 	(82	) 	  	 	(104	) 		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Net flows	  	 	(6	) 	  	 	(102	) 	  	 	(82	) 	  	 	(104	) 		
Interest credited	  	 	1		  	 	2		  	 	2		  	 	4			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Account value, end of period	  	$	180		  	$	460		  	$	180		  	$	460			
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 		
Account value related to our institutional products decreased compared to March 31, 2018 and December 31, 2017 mainly attributable to scheduled maturities of certain funding agreements.
Corporate and Other Activities
Results of operations
Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
The following table sets forth the results of operations relating to Corporate and Other activities for the periods indicated:

 	  	Three months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Revenues:	  				  				  				  					
Premiums	  	$	3		  	$	1		  	$	2		  	 	200	% 		
Net investment income	  	 	3		  	 	—  	 	  	 	3		  	 	NM	 (1)   		
Net investment gains (losses)	  	 	—  	 	  	 	(12	) 	  	 	12		  	 	100	% 		
Policy fees and other income	  	 	1		  	 	(2	) 	  	 	3		  	 	150	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total revenues	  	 	7		  	 	(13	) 	  	 	20		  	 	154	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Benefits and expenses:	  				  				  				  					
Benefits and other changes in policy reserves	  	 	1		  	 	—  	 	  	 	1		  	 	NM	 (1)   		
Acquisition and operating expenses, net of deferrals	  	 	11		  	 	14		  	 	(3	) 	  	 	(21	)% 		
Interest expense	  	 	67		  	 	63		  	 	4		  	 	6	%  		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total benefits and expenses	  	 	79		  	 	77		  	 	2		  	 	3	%  		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Loss from continuing operations before income taxes	  	 	(72	) 	  	 	(90	) 	  	 	18		  	 	20	% 		
Provision (benefit) for income taxes	  	 	3		  	 	(39	) 	  	 	42		  	 	108	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Loss from continuing operations	  	 	(75	) 	  	 	(51	) 	  	 	(24	) 	  	 	(47	)% 		
Adjustments to loss from continuing operations:	  				  				  				  					
Net investment (gains) losses	  	 	—  	 	  	 	12		  	 	(12	) 	  	 	(100	)% 		
Taxes on adjustments	  	 	—  	 	  	 	(4	) 	  	 	4		  	 	100	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders	  	$	(75	) 	  	$	(43	) 	  	$	(32	) 	  	 	(74	)% 		

(1)  	We define “NM” as not meaningful for increases or decreases greater than 200%.	
 
147

Table of Contents
Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders
The adjusted operating loss available to Genworth Financial, Inc.’s common stockholders increased primarily related to tax expense in the current year compared to a tax benefit in the prior year.
Revenues
The increase in net investment income was mainly from higher yields in the current year.
Net investment losses in the prior year were primarily related to net losses from the sale of investment securities and derivative losses.
Policy fees and other income increased primarily from net gains on remeasurement of non-functional currency transactions attributable to changes in foreign exchange rates in the current year compared with net losses in the prior year.
Benefits and expenses
Acquisition and operating expenses, net of deferrals, decreased mainly driven by lower consulting fees and lower net expenses after allocations in the current year. These decreases were partially offset by a reversal of a legal settlement accrual in the prior year that did not recur.
Interest expense increased largely driven by the Term Loan entered into by Genworth Holdings in March 2018 and from our junior subordinated notes which had a higher floating rate of interest in the current year. These increases were partially offset by lower interest expense associated with the redemption of $597 million of Genworth Holdings’ senior notes in May 2018.
The effective tax rate decreased to (4.8)% for the three months ended June 30, 2018 from 42.3% for the three months ended June 30, 2017. The decrease in the effective tax rate was primarily attributable to changes resulting from the implementation of the TCJA, which included a U.S. federal tax rate change from 35% to 21%. The decrease was also attributable to the effect of foreign operations, which included a provisional tax expense of $19 million in the current year related to a revaluation of deferred tax assets and liabilities on our foreign subsidiaries in light of the TCJA.
 
148

Table of Contents
Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017
The following table sets forth the results of operations relating to Corporate and Other activities for the periods indicated:

 	  	Six months ended
June 30,	 	  	Increase
(decrease) and
percentage
change	 		
	(Amounts in millions)	  	2018	 	  	2017	 	  	2018 vs. 2017	 	
Revenues:	  				  				  				  					
Premiums	  	$	5		  	$	3		  	$	2		  	 	67	% 		
Net investment income	  	 	5		  	 	1		  	 	4		  	 	NM	 (1)   		
Net investment gains (losses)	  	 	(1	) 	  	 	(24	) 	  	 	23		  	 	96	% 		
Policy fees and other income	  	 	(1	) 	  	 	(3	) 	  	 	2		  	 	67	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total revenues	  	 	8		  	 	(23	) 	  	 	31		  	 	135	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Benefits and expenses:	  				  				  				  					
Benefits and other changes in policy reserves	  	 	2		  	 	1		  	 	1		  	 	100	% 		
Acquisition and operating expenses, net of deferrals	  	 	22		  	 	28		  	 	(6	) 	  	 	(21	)% 		
Amortization of deferred acquisition costs and intangibles	  	 	1		  	 	—  	 	  	 	1		  	 	NM	 (1)   		
Interest expense	  	 	132		  	 	116		  	 	16		  	 	14	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Total benefits and expenses	  	 	157		  	 	145		  	 	12		  	 	8	%  		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Loss from continuing operations before income taxes	  	 	(149	) 	  	 	(168	) 	  	 	19		  	 	11	% 		
Benefit for income taxes	  	 	(14	) 	  	 	(62	) 	  	 	48		  	 	77	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Loss from continuing operations	  	 	(135	) 	  	 	(106	) 	  	 	(29	) 	  	 	(27	)% 		
Adjustments to loss from continuing operations:	  				  				  				  					
Net investment (gains) losses	  	 	1		  	 	24		  	 	(23	) 	  	 	(96	)% 		
Expenses related to restructuring	  	 	—  	 	  	 	1		  	 	(1	) 	  	 	(100	)% 		
Taxes on adjustments	  	 	—  	 	  	 	(8	) 	  	 	8		  	 	100	% 		
	  	 	 	 	  	 	 	 	  	 	 	 	  					
Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders	  	$	(134	) 	  	$	(89	) 	  	$	(45	) 	  	 	(51	)% 		

(1)  	We define “NM” as not meaningful for increases or decreases greater than 200%.	
Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders
The adjusted operating loss available to Genworth Financial, Inc.’s common stockholders increased primarily related to lower tax benefits and higher interest expense in the current year.
Revenues
Net investment income increased mainly driven by higher yields in the current year.
The decrease in net investment losses was primarily from derivative gains in the current year compared to derivative losses in the prior year, as well as lower net losses from the sale of investment securities in the current year.
Benefits and expenses
Acquisition and operating expenses, net of deferrals, decreased mainly driven by lower consulting fees and lower net expenses after allocations in the current year. These decreases were partially offset by a reversal of a legal settlement accrual in the prior year that did not recur.
 
149

Table of Contents
Interest expense increased largely driven by a favorable correction of $11 million related to our Tax Matters Agreement liability in the prior year that did not recur, higher interest expense related to the Term Loan entered into by Genworth Holdings in March 2018 and from our junior subordinated notes which had a higher floating rate of interest in the current year. These increases were partially offset by lower interest expense associated with the redemption of $597 million of Genworth Holdings’ senior notes in May 2018.
The effective tax rate decreased to 9.2% for the six months ended June 30, 2018 from 36.6% for the six months ended June 30, 2017. The decrease in the effective tax rate was primarily attributable to changes resulting from the implementation of the TCJA, which included a U.S. federal tax rate change from 35% to 21%. The decrease was also attributable to the effect of foreign operations, which included a provisional tax expense of $19 million in the current year related to a revaluation of deferred tax assets and liabilities on our foreign subsidiaries in light of the TCJA.
Investments and Derivative Instruments
Trends and conditions
Investments—credit and investment markets
The U.S. Federal Reserve increased its benchmark lending rate 25 basis points in June 2018 and revised its forecast for two additional rate increases, which would result in four rate increases in 2018. The median economist forecasts indicate three additional 25 basis point increases in 2019 and one in 2020. In terms of economic projections from the U.S. Federal Reserve, during the second quarter of 2018, the unemployment rate outlook was revised lower while near-term growth and inflation projections were revised up. The U.S. Treasury yield curve continued to flatten in the second quarter of 2018 with short-term interest rates rising supported by the U.S. Federal Reserve increases, while long-term interest rates increased marginally due to ongoing speculation around tariffs and tensions associated with potential trade wars. Credit markets experienced modest spread widening primarily driven by periodic supply and demand imbalances rather than concerns about fundamental credit or macroeconomic issues. Though widely anticipated, the TCJA was not a catalyst for widespread debt reduction and a corresponding reduction in bond supply. Although the TCJA did result in cash-rich multinational companies exiting the debt issuance market, lower supply from such companies was more than offset by debt-financed merger and acquisition-related issuances in investment grade markets. Furthermore, fixed income issuance was slightly lower as compared to 2017.
As of June 30, 2018, our fixed maturities securities portfolio, which was 96% investment grade, comprised 85% of our total investment portfolio. Our $3.7 billion energy portfolio was predominantly investment grade and our metals and mining sector holdings were less than 1% of our total investment portfolio as of June 30, 2018. We believe our energy portfolio is well-diversified and would expect manageable capital impact on our U.S. life insurance subsidiaries.
Derivatives
We actively responded to the risk in our derivatives portfolio arising from our counterparties’ right to terminate their bilateral over-the-counter (“OTC”) derivatives transactions with us following the downgrades of our life insurance subsidiaries by Moody’s Investors Service, Inc. and A.M. Best in February 2018. These actions included, beginning in 2018, the removal of the credit downgrade provisions from the master swap agreements with many of our counterparties. As of June 30, 2018, no counterparties exercised their rights to terminate or revise the terms of their transactions with us.
As of June 30, 2018, $12.2 billion notional of our derivatives portfolio was cleared through the Chicago Mercantile Exchange (“CME”). The customer swap agreements that govern our cleared derivatives contain provisions that enable our clearing agents to request initial margin in excess of CME requirements. As of June 30, 2018, we posted initial margin of $253 million to our clearing agents, which represented approximately $76 million more than was otherwise required by the clearinghouse. Because our clearing agents serve as guarantors of our
 
150

Table of Contents
obligations to the CME, the customer agreements contain broad termination provisions that are not specifically dependent on ratings. As of June 30, 2018, $8 billion notional of our derivatives portfolio was in bilateral OTC derivative transactions pursuant to which we have posted aggregate independent amounts of $334 million and are holding collateral from counterparties in the amount of $144 million. We have no bilateral OTC derivatives where the counterparty has the right to terminate its transactions with us based on our current ratings.
Investment results
The following tables set forth information about our investment income, excluding net investment gains (losses), for each component of our investment portfolio for the periods indicated:

 	 	Three months ended June 30,	 	 	Increase (decrease)	 		
 	 	2018	 	 	2017	 	 	2018 vs. 2017	 		
	(Amounts in millions) 	 	Yield	 	 	Amount	 	 	Yield	 	 	Amount	 	 	Yield	 	 	Amount	 	
Fixed maturity securities—taxable	 	 	4.5	% 	 	$	651		 	 	4.6	% 	 	$	649		 	 	(0.1	)% 	 	$	2			
Fixed maturity securities—non-taxable	 	 	3.8	% 	 	 	3		 	 	3.7	% 	 	 	3		 	 	0.1	% 	 	 	—  	 		
Equity securities	 	 	5.1	% 	 	 	10		 	 	5.3	% 	 	 	9		 	 	(0.2	)% 	 	 	1			
Commercial mortgage loans	 	 	4.8	% 	 	 	77		 	 	4.9	% 	 	 	76		 	 	(0.1	)% 	 	 	1			
Restricted commercial mortgage loans related to securitization entities	 	 	8.4	% 	 	 	2		 	 	6.7	% 	 	 	2		 	 	1.7	% 	 	 	—  	 		
Policy loans	 	 	9.0	% 	 	 	41		 	 	8.7	% 	 	 	39		 	 	0.3	% 	 	 	2			
Other invested assets (1)	 	 	49.3	% 	 	 	53		 	 	55.6	% 	 	 	35		 	 	(6.3	)% 	 	 	18			
Restricted other invested assets related to securitization entities	 	 	—  	% 	 	 	—  	 	 	 	4.8	% 	 	 	1		 	 	(4.8	)% 	 	 	(1	) 		
Cash, cash equivalents, restricted cash and short-term investments	 	 	1.7	% 	 	 	14		 	 	1.0	% 	 	 	10		 	 	0.7	% 	 	 	4			
	 				 	 	 	 	 				 	 	 	 	 				 	 	 	 		
Gross investment income before expenses and fees	 	 	4.8	% 	 	 	851		 	 	4.7	% 	 	 	824		 	 	0.1	% 	 	 	27			
Expenses and fees	 	 	(0.1	)% 	 	 	(23	) 	 	 	(0.1	)% 	 	 	(23	) 	 	 	—  	% 	 	 	—  	 		
	 				 	 	 	 	 				 	 	 	 	 				 	 	 	 		
Net investment income	 	 	4.7	% 	 	$	828		 	 	4.6	% 	 	$	801		 	 	0.1	% 	 	$	27			
	 				 	 	 	 	 				 	 	 	 	 				 	 	 	 		
Average invested assets and cash	 				 	$	70,466		 				 	$	69,982		 				 	$	484			

																										
 	  	Six months ended June 30,	 	 	Increase (decrease)	 		
 	  	2018	 	 	2017	 	 	2018 vs. 2017	 		
	(Amounts in millions) 	  	Yield	 	 	Amount	 	 	Yield	 	 	Amount	 	 	Yield	 	 	Amount	 	
Fixed maturity securities—taxable	  	 	4.5	% 	 	$	1,286		 	 	4.6	% 	 	$	1,290		 	 	(0.1	)% 	 	$	(4	) 		
Fixed maturity securities—non-taxable	  	 	3.8	% 	 	 	6		 	 	3.7	% 	 	 	6		 	 	0.1	% 	 	 	—  	 		
Equity securities	  	 	5.2	% 	 	 	20		 	 	5.1	% 	 	 	17		 	 	0.1	% 	 	 	3			
Commercial mortgage loans	  	 	5.0	% 	 	 	159		 	 	5.0	% 	 	 	153		 	 	—  	% 	 	 	6			
Restricted commercial mortgage loans related to securitization entities	  	 	8.1	% 	 	 	4		 	 	6.5	% 	 	 	4		 	 	1.6	% 	 	 	—  	 		
Policy loans	  	 	9.3	% 	 	 	84		 	 	9.1	% 	 	 	81		 	 	0.2	% 	 	 	3			
Other invested assets (1)	  	 	44.0	% 	 	 	92		 	 	42.3	% 	 	 	67		 	 	1.7	% 	 	 	25			
Restricted other invested assets related to securitization entities	  	 	—  	% 	 	 	—  	 	 	 	1.3	% 	 	 	1		 	 	(1.3	)% 	 	 	(1	) 		
Cash, cash equivalents, restricted cash and short-term investments	  	 	1.5	% 	 	 	26		 	 	0.9	% 	 	 	16		 	 	0.6	% 	 	 	10			
	  				 	 	 	 	 				 	 	 	 	 				 	 	 	 		
Gross investment income before expenses and fees	  	 	4.8	% 	 	 	1,677		 	 	4.7	% 	 	 	1,635		 	 	0.1	% 	 	 	42			
Expenses and fees	  	 	(0.2	)% 	 	 	(45	) 	 	 	(0.1	)% 	 	 	(44	) 	 	 	(0.1	)% 	 	 	(1	) 		
	  				 	 	 	 	 				 	 	 	 	 				 	 	 	 		
Net investment income	  	 	4.6	% 	 	$	1,632		 	 	4.6	% 	 	$	1,591		 	 	—  	% 	 	$	41			
	  				 	 	 	 	 				 	 	 	 	 				 	 	 	 		
Average invested assets and cash	  				 	$	70,529		 				 	$	69,828		 				 	$	701			

(1)  	Investment income for other invested assets includes amortization of terminated cash flow hedges, which have no corresponding book value within the yield calculation.	
 
151

Table of Contents
Yields are based on net investment income as reported under U.S. GAAP and are consistent with how we measure our investment performance for management purposes. Yields are annualized, for interim periods, and are calculated as net investment income as a percentage of average quarterly asset carrying values except for fixed maturity and equity securities, derivatives and derivative counterparty collateral, which exclude unrealized fair value adjustments and securities lending activity, which is included in other invested assets and is calculated net of the corresponding securities lending liability.
For the three months ended June 30, 2018, annualized weighted-average investment yields increased primarily attributable to higher investment income on higher average invested assets. Net investment income included $6 million of higher limited partnership income, $3 million higher income related to inflation-driven volatility on U.S. Government Treasury Inflation Protected Securities (“TIPS”) and $4 million of higher unfavorable prepayment speed adjustments on structured securities as compared to the prior year. The three months ended June 30, 2018 included an increase of $1 million attributable to changes in foreign exchange rates.
For the six months ended June 30, 2018, annualized weighted-average investment yields were unchanged. Net investment income included $7 million of higher limited partnership income and $6 million of higher unfavorable prepayment speed adjustments on structured securities as compared to the prior year. The six months ended June 30, 2018 included an increase of $4 million attributable to changes in foreign exchange rates.
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)	  	2018	 	 	2017	 	 	2018	 	 	2017	 	
Available-for-sale securities:	  				 				 				 					
Realized gains	  	$	13		 	$	74		 	$	20		 	$	137			
Realized losses	  	 	(21	) 	 	 	(11	) 	 	 	(37	) 	 	 	(45	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net realized gains (losses) on available-for-sale securities	  	 	(8	) 	 	 	63		 	 	(17	) 	 	 	92			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Impairments:	  				 				 				 					
Total other-than-temporary impairments	  	 	—  	 	 	 	(2	) 	 	 	—  	 	 	 	(3	) 		
Portion of other-than-temporary impairments included in other comprehensive income (loss)	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net other-than-temporary impairments	  	 	—  	 	 	 	(2	) 	 	 	—  	 	 	 	(3	) 		
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net realized gains (losses) on equity securities sold	  	 	8		 	 	—  	 	 	 	10		 	 	—  	 		
Net unrealized gains (losses) on equity securities still held	  	 	3		 	 	—  	 	 	 	(15	) 	 	 	—  	 		
Trading securities	  	 	—  	 	 	 	1		 	 	—  	 	 	 	1			
Limited partnerships	  	 	(2	) 	 	 	—  	 	 	 	5		 	 	—  	 		
Commercial mortgage loans	  	 	—  	 	 	 	1		 	 	—  	 	 	 	2			
Net gains (losses) related to securitization entities	  	 	—  	 	 	 	2		 	 	—  	 	 	 	4			
Derivative instruments	  	 	(15	) 	 	 	36		 	 	(28	) 	 	 	39			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Net investment gains (losses)	  	$	(14	) 	 	$	101		 	$	(45	) 	 	$	135			
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
 
 	•	 	Net investment losses related to derivatives of $15 million during the three months ended June 30, 2018 were primarily associated with various hedging programs that support our Canada Mortgage Insurance segment and derivatives that support our fixed indexed annuity products. These losses were partially offset by gains from derivatives used to hedge foreign currency risk associated with expected dividend payments from certain foreign subsidiaries.	
Net investment gains related to derivatives of $36 million during the three months ended June 30, 2017 were primarily associated with various hedging programs that support our Canada Mortgage Insurance segment
 
152

Table of Contents
and hedging programs for our runoff variable annuity products. These gains were partially offset by losses related to hedging programs for our fixed indexed annuity products and derivatives used to hedge foreign currency risk associated with expected dividend payments from certain foreign subsidiaries.
 
 	•	 	We recorded net realized losses of $8 million related to the sale of available-for-sale securities during the three months ended June 30, 2018 compared to $63 million of net realized gains during the three months ended June 30, 2017. We also recorded $3 million of net unrealized gains on equity securities and $2 million of losses on limited partnerships primarily from unrealized losses included in net income during the three months ended June 30, 2018 from adopting new accounting guidance related to the recognition and measurement of financial assets and financial liabilities on January 1, 2018.	
Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017
 
 	•	 	Net investment losses related to derivatives of $28 million during the six months ended June 30, 2018 were primarily associated with various hedging programs that support our Canada Mortgage Insurance segment and derivatives that support our runoff variable annuity products. We also had losses associated with hedging programs for our fixed indexed annuity products. These losses were partially offset by gains from derivatives used to hedge foreign currency risk associated with expected dividend payments from certain foreign subsidiaries.	
Net investment gains related to derivatives of $39 million during the six months ended June 30, 2017 were primarily associated with various hedging programs that support our Canada Mortgage Insurance segment and hedging programs for our runoff variable annuity products. These gains were partially offset by losses related to derivatives used to hedge foreign currency risk associated with expected dividend payments from certain foreign subsidiaries and losses from hedging programs for our fixed indexed annuity products.
 
 	•	 	We recorded net realized losses of $17 million related to the sale of available-for-sale securities during the six months ended June 30, 2018 compared to $92 million of net realized gains during the six months ended June 30, 2017. We also recorded $15 million of net unrealized losses on equity securities and $5 million of gains on limited partnerships primarily from unrealized gains included in net income during the six months ended June 30, 2018 from adopting new accounting guidance related to the recognition and measurement of financial assets and financial liabilities on January 1, 2018.	
Investment portfolio
The following table sets forth our cash, cash equivalents, restricted cash and invested assets as of the dates indicated:

 	  	June 30, 2018	 	 	December 31, 2017	 		
	(Amounts in millions)	  	Carrying value	 	  	% of total	 	 	Carrying value	 	  	% of total	 	
Fixed maturity securities, available-for-sale:	  				  				 				  					
Public	  	$	43,175		  	 	59	% 	 	$	45,665		  	 	61	% 		
Private	  	 	16,857		  	 	23		 	 	16,860		  	 	22			
Equity securities	  	 	758		  	 	1		 	 	820		  	 	1			
Commercial mortgage loans	  	 	6,480		  	 	9		 	 	6,341		  	 	8			
Restricted commercial mortgage loans related to securitization entities	  	 	90		  	 	—  	 	 	 	107		  	 	—  	 		
Policy loans	  	 	1,872		  	 	3		 	 	1,786		  	 	2			
Other invested assets	  	 	1,650		  	 	2		 	 	1,813		  	 	2			
Cash, cash equivalents and restricted cash	  	 	2,243		  	 	3		 	 	2,875		  	 	4			
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 		
Total cash, cash equivalents, restricted cash and invested assets	  	$	73,125		  	 	100	% 	 	$	76,267		  	 	100	% 		

153

Table of Contents
For a discussion of the change in cash, cash equivalents, restricted cash and invested assets, see the comparison for this line item under “—Consolidated Balance Sheets.” See note 4 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for additional information related to our investment portfolio.
We hold fixed maturity and equity securities, derivatives, embedded derivatives, securities held as collateral and certain other financial instruments, which are carried at fair value. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. As of June 30, 2018, approximately 6% of our investment holdings recorded at fair value were based on significant inputs that were not market observable and were classified as Level 3 measurements. See note 6 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for additional information related to fair value.
Fixed maturity and equity securities
As of June 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		 	$	632		 	$	—  	 	 	$	(12	) 	 	$	—  	 	 	$	5,353			
State and political subdivisions	 	 	2,699		 	 	195		 	 	—  	 	 	 	(39	) 	 	 	—  	 	 	 	2,855			
Non-U.S. government (1)	 	 	2,347		 	 	69		 	 	—  	 	 	 	(36	) 	 	 	—  	 	 	 	2,380			
U.S. corporate:	 				 				 				 				 				 					
Utilities	 	 	4,550		 	 	395		 	 	—  	 	 	 	(66	) 	 	 	—  	 	 	 	4,879			
Energy	 	 	2,160		 	 	139		 	 	—  	 	 	 	(29	) 	 	 	—  	 	 	 	2,270			
Finance and insurance	 	 	6,095		 	 	288		 	 	—  	 	 	 	(108	) 	 	 	—  	 	 	 	6,275			
Consumer—non-cyclical	 	 	4,298		 	 	323		 	 	—  	 	 	 	(80	) 	 	 	—  	 	 	 	4,541			
Technology and communications	 	 	2,709		 	 	133		 	 	—  	 	 	 	(61	) 	 	 	—  	 	 	 	2,781			
Industrial	 	 	1,244		 	 	59		 	 	—  	 	 	 	(20	) 	 	 	—  	 	 	 	1,283			
Capital goods	 	 	2,216		 	 	185		 	 	—  	 	 	 	(40	) 	 	 	—  	 	 	 	2,361			
Consumer—cyclical	 	 	1,538		 	 	66		 	 	—  	 	 	 	(31	) 	 	 	—  	 	 	 	1,573			
Transportation	 	 	1,200		 	 	83		 	 	—  	 	 	 	(31	) 	 	 	—  	 	 	 	1,252			
Other	 	 	337		 	 	18		 	 	—  	 	 	 	(1	) 	 	 	—  	 	 	 	354			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total U.S. corporate (1)	 	 	26,347		 	 	1,689		 	 	—  	 	 	 	(467	) 	 	 	—  	 	 	 	27,569			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Non-U.S. corporate:	 				 				 				 				 				 					
Utilities	 	 	962		 	 	22		 	 	—  	 	 	 	(22	) 	 	 	—  	 	 	 	962			
Energy	 	 	1,316		 	 	101		 	 	—  	 	 	 	(18	) 	 	 	—  	 	 	 	1,399			
Finance and insurance	 	 	2,471		 	 	102		 	 	—  	 	 	 	(36	) 	 	 	—  	 	 	 	2,537			
Consumer—non-cyclical	 	 	709		 	 	11		 	 	—  	 	 	 	(18	) 	 	 	—  	 	 	 	702			
Technology and communications	 	 	992		 	 	30		 	 	—  	 	 	 	(15	) 	 	 	—  	 	 	 	1,007			
Industrial	 	 	943		 	 	46		 	 	—  	 	 	 	(12	) 	 	 	—  	 	 	 	977			
Capital goods	 	 	603		 	 	15		 	 	—  	 	 	 	(7	) 	 	 	—  	 	 	 	611			
Consumer—cyclical	 	 	527		 	 	2		 	 	—  	 	 	 	(7	) 	 	 	—  	 	 	 	522			
Transportation	 	 	690		 	 	48		 	 	—  	 	 	 	(11	) 	 	 	—  	 	 	 	727			
Other	 	 	2,454		 	 	128		 	 	—  	 	 	 	(24	) 	 	 	—  	 	 	 	2,558			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total non-U.S. corporate (1)	 	 	11,667		 	 	505		 	 	—  	 	 	 	(170	) 	 	 	—  	 	 	 	12,002			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Residential mortgage-backed (2)	 	 	3,426		 	 	156		 	 	13		 	 	(28	) 	 	 	—  	 	 	 	3,567			
Commercial mortgage-backed	 	 	3,387		 	 	46		 	 	—  	 	 	 	(84	) 	 	 	—  	 	 	 	3,349			
Other asset-backed (2)	 	 	2,966		 	 	7		 	 	1		 	 	(17	) 	 	 	—  	 	 	 	2,957			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total available-for-sale fixed maturity securities	 	$	57,572		 	$	3,299		 	$	14		 	$	(853	) 	 	$	—  	 	 	$	60,032			

(1)	Fair value included European periphery exposure of $514 million in Ireland, $250 million in Spain, $115 million in Italy and $37 million in Portugal.	
(2)	Fair value included $21 million collateralized by Alt-A residential mortgage loans and $23 million collateralized by sub-prime residential mortgage loans.	
 
154

Table of Contents
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 (1)	 	 	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 (1)	 	 	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 (1)	 	 	11,778		 	 	866		 	 	—  	 	 	 	(33	) 	 	 	—  	 	 	 	12,611			
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Residential mortgage-backed (2)	 	 	3,831		 	 	223		 	 	14		 	 	(11	) 	 	 	—  	 	 	 	4,057			
Commercial mortgage-backed	 	 	3,387		 	 	94		 	 	2		 	 	(37	) 	 	 	—  	 	 	 	3,446			
Other asset-backed (2)	 	 	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			

(1)	Fair value included European periphery exposure of $503 million in Ireland, $266 million in Spain, $132 million in Italy and $38 million in Portugal.	
(2)	Fair value included $36 million collateralized by Alt-A residential mortgage loans and $24 million collateralized by sub-prime residential mortgage loans.	
 
155

Table of Contents
Fixed maturity securities decreased $2.5 billion compared to December 31, 2017 principally from lower net unrealized gains attributable to an increase in interest rates in the current year.
Our exposure in peripheral European countries consists of fixed maturity securities in Portugal, Ireland, Italy and Spain. Investments in these countries are primarily made to diversify our U.S. corporate fixed maturity securities with European bonds denominated in U.S. dollars. During the six months ended June 30, 2018, our exposure to the peripheral European countries decreased by $23 million to $916 million with unrealized gains of $24 million. Our exposure as of June 30, 2018 was diversified with direct exposure to local economies of $187 million, indirect exposure through debt issued by subsidiaries outside of the European periphery of $146 million and exposure to multinational companies where the majority of revenues come from outside of the country of domicile of $583 million.
Commercial mortgage loans
The following tables set forth additional information regarding our commercial mortgage loans as of the dates indicated:

 	  	June 30, 2018	 		
	(Dollar amounts in millions)	  	Total recorded
investment	 	  	Number of
loans	 	  	Loan-to-value  (1) 	 	 	Delinquent
principal balance	 	  	Number of
delinquent
loans	 	
Loan Year	  				  				  				 				  					
2006 and prior	  	$	1,084		  	 	436		  	 	38	% 	 	$	6		  	 	1			
2007	  	 	277		  	 	75		  	 	48	% 	 	 	—  	 	  	 	—  	 		
2008	  	 	113		  	 	21		  	 	49	% 	 	 	—  	 	  	 	—  	 		
2009	  	 	—  	 	  	 	—  	 	  	 	—  	% 	 	 	—  	 	  	 	—  	 		
2010	  	 	55		  	 	12		  	 	41	% 	 	 	—  	 	  	 	—  	 		
2011	  	 	201		  	 	47		  	 	44	% 	 	 	—  	 	  	 	—  	 		
2012	  	 	532		  	 	84		  	 	47	% 	 	 	—  	 	  	 	—  	 		
2013	  	 	683		  	 	126		  	 	50	% 	 	 	—  	 	  	 	—  	 		
2014	  	 	794		  	 	135		  	 	56	% 	 	 	—  	 	  	 	—  	 		
2015	  	 	890		  	 	140		  	 	61	% 	 	 	—  	 	  	 	—  	 		
2016	  	 	587		  	 	98		  	 	64	% 	 	 	—  	 	  	 	—  	 		
2017	  	 	789		  	 	146		  	 	68	% 	 	 	—  	 	  	 	—  	 		
2018	  	 	487		  	 	83		  	 	67	% 	 	 	—  	 	  	 	—  	 		
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 		
Total	  	$	6,492		  	 	1,403		  	 	54	% 	 	$	6		  	 	1			

(1)  	Represents weighted-average loan-to-value as of June 30, 2018.	
 
156

Table of Contents

 	  	December 31, 2017	 		
	(Dollar amounts in millions)	  	Total recorded
investment	 	  	Number of
loans	 	  	Loan-to-value   (1)	 	 	Delinquent
principal
balance	 	  	Number of
delinquent
loans	 	
Loan Year	  				  				  				 				  					
2006 and prior	  	$	1,226		  	 	480		  	 	38	% 	 	$	6		  	 	1			
2007	  	 	289		  	 	76		  	 	49	% 	 	 	5		  	 	1			
2008	  	 	125		  	 	23		  	 	50	% 	 	 	—  	 	  	 	—  	 		
2009	  	 	—  	 	  	 	—  	 	  	 	—  	% 	 	 	—  	 	  	 	—  	 		
2010	  	 	76		  	 	15		  	 	42	% 	 	 	—  	 	  	 	—  	 		
2011	  	 	206		  	 	47		  	 	43	% 	 	 	—  	 	  	 	—  	 		
2012	  	 	559		  	 	85		  	 	45	% 	 	 	—  	 	  	 	—  	 		
2013	  	 	737		  	 	132		  	 	48	% 	 	 	—  	 	  	 	—  	 		
2014	  	 	835		  	 	139		  	 	54	% 	 	 	—  	 	  	 	—  	 		
2015	  	 	904		  	 	141		  	 	61	% 	 	 	—  	 	  	 	—  	 		
2016	  	 	599		  	 	99		  	 	60	% 	 	 	—  	 	  	 	—  	 		
2017	  	 	797		  	 	146		  	 	68	% 	 	 	—  	 	  	 	—  	 		
	  	 	 	 	  	 	 	 	  				 	 	 	 	  	 	 	 		
Total	  	$	6,353		  	 	1,383		  	 	52	% 	 	$	11		  	 	2			

(1)  	Represents weighted-average loan-to-value as of December 31, 2017.	
Other invested assets
The following table sets forth the carrying values of our other invested assets as of the dates indicated:

 	  	June 30, 2018	 	 	December 31, 2017	 		
	(Amounts in millions)	  	Carrying value	 	  	% of total	 	 	Carrying value	 	  	% of total	 	
Short-term investments	  	$	708		  	 	43	% 	 	$	902		  	 	50	% 		
Limited partnerships	  	 	335		  	 	20		 	 	258		  	 	14			
Derivatives	  	 	230		  	 	14		 	 	276		  	 	15			
Securities lending collateral	  	 	211		  	 	13		 	 	268		  	 	15			
Bank loan investments	  	 	151		  	 	9		 	 	91		  	 	5			
Other investments	  	 	15		  	 	1		 	 	18		  	 	1			
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 		
Total other invested assets	  	$	1,650		  	 	100	% 	 	$	1,813		  	 	100	% 		
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 		
Short-term investments decreased principally due to net sales in our Australia Mortgage Insurance segment, partially offset by net purchases in our Canada Mortgage Insurance segment in the current year. Limited partnerships increased from additional capital investments and from net unrealized gains, partially offset by return of capital on our investments in the current year.
 
157

Table of Contents
Derivatives
The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for GMWB and fixed index annuity embedded derivatives, the change between periods is best illustrated by the number of policies. The following tables represent activity associated with derivative instruments as of the dates indicated:

	(Notional in millions)	  	Measurement	 	  	December 31,
2017	 	  	Additions	 	  	Maturities/
terminations	 	 	June 30,
2018	 	
Derivatives designated as hedges	  				  				  				  				 					
Cash flow hedges:	  				  				  				  				 					
Interest rate swaps	  	 	Notional	 	  	$	11,155		  	$	1,436		  	$	(1,672	) 	 	$	10,919			
Foreign currency swaps	  	 	Notional	 	  	 	22		  	 	39		  	 	—  	 	 	 	61			
	  				  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 		
Total cash flow hedges	  				  	 	11,177		  	 	1,475		  	 	(1,672	) 	 	 	10,980			
	  				  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 		
Total derivatives designated as hedges	  				  	 	11,177		  	 	1,475		  	 	(1,672	) 	 	 	10,980			
	  				  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 		
Derivatives not designated as hedges	  				  				  				  				 					
Interest rate swaps	  	 	Notional	 	  	 	4,679		  	 	—  	 	  	 	(5	) 	 	 	4,674			
Interest rate caps and floors	  	 	Notional	 	  	 	—  	 	  	 	805		  	 	—  	 	 	 	805			
Foreign currency swaps	  	 	Notional	 	  	 	349		  	 	128		  	 	(23	) 	 	 	454			
Credit default swaps	  	 	Notional	 	  	 	39		  	 	—  	 	  	 	(19	) 	 	 	20			
Equity index options	  	 	Notional	 	  	 	2,420		  	 	1,246		  	 	(927	) 	 	 	2,739			
Financial futures	  	 	Notional	 	  	 	1,283		  	 	2,660		  	 	(2,680	) 	 	 	1,263			
Equity return swaps	  	 	Notional	 	  	 	96		  	 	1		  	 	(78	) 	 	 	19			
Other foreign currency contracts	  	 	Notional	 	  	 	3,264		  	 	398		  	 	(549	) 	 	 	3,113			
	  				  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 		
Total derivatives not designated as hedges	  				  	 	12,130		  	 	5,238		  	 	(4,281	) 	 	 	13,087			
	  				  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 		
Total derivatives	  				  	$	23,307		  	$	6,713		  	$	(5,953	) 	 	$	24,067			

	(Number of policies)	  	Measurement	 	  	December 31,
2017	 	  	Additions	 	  	Maturities/
terminations	 	 	June 30,
2018	 	
Derivatives not designated as hedges	  				  				  				  				 					
GMWB embedded derivatives	  	 	Policies	 	  	 	30,450		  	 	—  	 	  	 	(1,343	) 	 	 	29,107			
Fixed index annuity embedded derivatives	  	 	Policies	 	  	 	17,067		  	 	—  	 	  	 	(255	) 	 	 	16,812			
Indexed universal life embedded derivatives	  	 	Policies	 	  	 	985		  	 	—  	 	  	 	(28	) 	 	 	957			
The increase in the notional value of derivatives was primarily attributable to an increase in interest rate caps and floors related to our hedging strategy to mitigate interest rate risk associated with our regulatory capital position.
The number of policies related to our GMWB embedded derivatives decreased as variable annuity products are no longer being offered.
Consolidated Balance Sheets
Total assets . Total assets decreased $2,820 million from $105,297 million as of December 31, 2017 to $102,477 million as of June 30, 2018.
 
 	•	 	Cash, cash equivalents, restricted cash and invested assets decreased $3,142 million primarily from a decrease of $2,493 million in fixed maturity securities, a decrease of cash, cash equivalents and restricted cash of $632 million and a decrease of $163 million in other invested assets. The decrease in fixed maturity securities was predominantly related to a decline in market values as a result of an increase in interest rates in the current year. Cash, cash equivalents and restricted cash decreased	
 
158

Table of Contents

 	primarily from the redemption of Genworth Holdings’ May 2018 senior notes, net withdrawals from our investment contracts and investing cash outflows principally from purchases of fixed maturity and equity securities outpacing maturities and sales, partially offset by net proceeds from Genworth Holdings’ Term Loan. The decrease in other invested assets was primarily related to net sales of short-term investments, mostly in our Canada and Australia mortgage insurance businesses.	
 
 	•	 	DAC increased $757 million predominantly related to our U.S. Life Insurance segment. We are required to analyze the impacts from net unrealized investment gains and losses on our available-for-sale investment securities backing insurance liabilities, as if those unrealized investment gains and losses were realized. As of June 30, 2018, due primarily to the increase in interest rates decreasing unrealized investments gains, we increased the DAC balance of our U.S. Life Insurance segment by $896 million with an offsetting amount recorded in other comprehensive income (loss). The increase was partially offset by amortization, net of interest and deferrals, in our U.S. Life Insurance segment in the current year.	
 
 	•	 	Reinsurance recoverable decreased $184 million mainly attributable to the runoff of our structured settlement products ceded to Union Fidelity Life Insurance Company, an affiliate of our former parent, GE.	
 
 	•	 	Separate account assets decreased $480 million primarily due to cash outflows from surrenders and benefits as the business continues to run off.	
Total liabilities . Total liabilities decreased $2,233 million from $89,969 million as of December 31, 2017 to $87,736 million as of June 30, 2018.
 
 	•	 	Future policy benefits decreased $559 million primarily driven by a decrease in our U.S Life Insurance segment. As discussed above, the increase in interest rates decreased our unrealized investments gains. As a result, we decreased future policy benefits by $846 million, mostly in our long-term care insurance business, with an offsetting amount recorded in other comprehensive income (loss), referred to as “shadow accounting” adjustments. This decrease was partially offset by aging and growth of our long-term care insurance in-force block in the current year.	
 
 	•	 	Policyholder account balances decreased $829 million largely as a result of surrenders and benefits in our fixed annuities business in the current year.	
 
 	•	 	Unearned premiums decreased $298 million largely from changes in foreign currency from the strengthening of the U.S. dollar compared to the currencies in Canada and Australia. In our international mortgage insurance businesses, the decrease was also driven by earned premiums outpacing written premiums due mostly to lower new insurance written in the current year.	
 
 	•	 	Long-term borrowings decreased $177 million principally from the redemption of $597 million of senior notes that matured in May 2018, partially offset by the $450 million Term Loan Genworth Holdings closed in March 2018.	
Total equity . Total equity decreased $587 million from $15,328 million as of December 31, 2017 to $14,741 million as of June 30, 2018.
 
 	•	 	We reported net income available to Genworth Financial, Inc.’s common stockholders of $302 million during the six months ended June 30, 2018. On January 1, 2018, we adopted new accounting guidance on a modified retrospective basis and recorded $114 million to cumulative effect of change in accounting within retained earnings. See note 2 in our unaudited condensed consolidated financial statements for additional information.	
 
 	•	 	Foreign currency translation and other adjustments decreased $149 million principally from the strengthening of the U.S. dollar compared to the currencies in Canada and Australia in the current year.	
 
 	•	 	Noncontrolling interests decreased $79 million predominantly related to foreign currency translation adjustments of $83 million, dividends to noncontrolling interests of $50 million, the repurchase of	
 
159

Table of Contents

 	shares of $49 million and net unrealized investments losses, partially offset by net income attributable to noncontrolling interests of $112 million in the current year.	
 
 	•	 	Net unrealized gains (losses) decreased $349 million primarily from an increase in interest rates in the current year.	
 
 	•	 	Derivatives qualifying as hedges decreased $202 million largely from an increase in interest rates in the current year.	
Liquidity and Capital Resources
Liquidity and capital resources represent our overall financial strength and our ability to generate cash flows from our businesses, borrow funds at competitive rates and raise new capital to meet our operating and growth needs.
Genworth and subsidiaries
The following table sets forth our unaudited condensed consolidated cash flows for the six months ended June 30:

	(Amounts in millions)	  	2018	 	 	2017	 	
Net cash from operating activities	  	$	561		 	$	1,308			
Net cash used by investing activities	  	 	(198	) 	 	 	(523	) 		
Net cash used by financing activities	  	 	(943	) 	 	 	(755	) 		
	  	 	 	 	 	 	 	 		
Net increase (decrease) in cash before foreign exchange effect	  	$	(580	) 	 	$	30			
	  	 	 	 	 	 	 	 		
Our principal sources of cash include sales of our products and services, income from our investment portfolio and proceeds from sales of investments. As an insurance business, we typically generate positive cash flows from operating activities, as premiums collected from our insurance products and income received from our investments exceed policy acquisition costs, benefits paid, redemptions and operating expenses. Our cash flows from operating activities are affected by the timing of premiums, fees and investment income received and benefits and expenses paid. Positive cash flows from operating activities are then invested to support the obligations of our insurance and investment products and required capital supporting these products. In analyzing our cash flow, we focus on the change in the amount of cash available and used in investing activities. Changes in cash from financing activities primarily relate to the issuance of, and redemptions and benefit payments on, universal life insurance and investment contracts; the issuance and acquisition of debt and equity securities; the issuance and repayment or repurchase of borrowings and non-recourse funding obligations; and other capital transactions.
We had lower cash inflows from operating activities during the current year mainly attributable to net sales of trading securities in the prior year that did not recur and higher cash outflows in the current year as a result of the change in collateral related to derivative positions.
We had lower cash outflows from investing activities primarily driven by net sales of short-term investments in the current year compared to net purchases in the prior year, largely driven by the decision to manage the interest rate risk and reposition our portfolios, particularly in our Australian mortgage insurance business. This was partially offset by net purchases of fixed maturity securities in the current year compared to net proceeds in the prior year.
We had cash outflows from financing activities during the current year primarily from the redemption of $597 million of Genworth Holdings’ May 2018 senior notes and from net withdrawals from our investment contracts, partially offset by $441 million net proceeds from the Term Loan closed in March 2018. We had cash outflows in the prior year primarily driven by net withdrawals from our investment contracts.
 
160

Table of Contents
In the United States and Canada, we engage in certain securities lending transactions for the purpose of enhancing the yield on our investment securities portfolio. We maintain effective control over all loaned securities and, therefore, continue to report such securities as fixed maturity securities on the consolidated balance sheets. We are currently indemnified against counterparty credit risk by the intermediary.
We previously had a repurchase program in which we sold an investment security at a specified price and agreed to repurchase that security at another specified price at a later date. In the first half of 2017 we repaid $42 million related to these repurchase agreements.
Genworth—holding company
Genworth Financial and Genworth Holdings each act as a holding company for their respective subsidiaries and do not have any significant operations of their own. Dividends from their respective subsidiaries, payments to them under tax sharing and expense reimbursement arrangements with their subsidiaries and proceeds from borrowings or securities issuances are their principal sources of cash to meet their obligations. Insurance laws and regulations regulate the payment of dividends and other distributions to Genworth Financial and Genworth Holdings by their insurance subsidiaries. We expect dividends paid by the insurance subsidiaries will vary depending on strategic objectives, regulatory requirements and business performance.
The primary uses of funds at Genworth Financial and Genworth Holdings include payment of holding company general operating expenses (including taxes), payment of principal, interest and other expenses on current and any future borrowings, payments under current and any future guarantees (including guarantees of certain subsidiary obligations), payment of amounts owed to GE under the Tax Matters Agreement, payments to subsidiaries (and, in the case of Genworth Holdings, to Genworth Financial) under tax sharing agreements, contributions to subsidiaries, repurchases of debt securities and, in the case of Genworth Holdings, loans, dividends or other distributions to Genworth Financial. In deploying future capital, important current priorities include focusing on our operating businesses so they remain appropriately capitalized, and accelerating progress on reducing overall indebtedness of Genworth Holdings. We may from time to time seek to repurchase or redeem outstanding notes for cash (with cash on hand, proceeds from the issuance of new debt and/or the proceeds from asset or stock sales) in open market purchases, tender offers, privately negotiated transactions or otherwise. We currently seek to address our indebtedness over time through repurchases, redemptions and/or repayments at maturity.
Our Board of Directors has suspended the payment of stockholder dividends on our Genworth Financial common stock indefinitely. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will be dependent on many factors including the receipt of dividends from our operating subsidiaries, our financial condition and operating results, the capital requirements of our subsidiaries, legal requirements, regulatory constraints, our credit and financial strength ratings and such other factors as the Board of Directors deems relevant. In addition, our Board of Directors has suspended repurchases of our Genworth Financial common stock under our stock repurchase program indefinitely. The resumption of our stock repurchase program will be at the discretion of our Board of Directors.
Genworth Holdings had $547 million and $795 million of cash, cash equivalents and restricted cash as of June 30, 2018 and December 31, 2017, respectively, which included approximately $16 million and $4 million of restricted cash, respectively. Genworth Holdings also held $75 million in U.S. government securities as of June 30, 2018 and December 31, 2017, which included approximately $36 million and $41 million, respectively, of restricted assets.
During the six months ended June 30, 2018 and 2017, Genworth Holdings received common stock dividends from our international subsidiaries of $91 million and $64 million, respectively. Our U.S. mortgage insurance business also paid a $50 million dividend during the second quarter of 2018. We expect this will be the only dividend paid by our U.S. mortgage insurance business in 2018, however, the evaluation of future dividend plans is subject to current market conditions, among other factors, which are subject to change.
 
161

Table of Contents
Regulated insurance subsidiaries
The liquidity requirements of our regulated insurance subsidiaries principally relate to the liabilities associated with their various insurance and investment products, operating costs and expenses, the payment of dividends to us, contributions to their subsidiaries, payment of principal and interest on their outstanding debt obligations and income taxes. Liabilities arising from insurance and investment products include the payment of benefits, as well as cash payments in connection with policy surrenders and withdrawals, policy loans and obligations to redeem funding agreements.
Our insurance subsidiaries have used cash flows from operations and investment activities to fund their liquidity requirements. Our insurance subsidiaries’ principal cash inflows from operating activities are derived from premiums, annuity deposits and insurance and investment product fees and other income, including commissions, cost of insurance, mortality, expense and surrender charges, contract underwriting fees, investment management fees and dividends and distributions from their subsidiaries. The principal cash inflows from investment activities result from repayments of principal, investment income and, as necessary, sales of invested assets.
Our insurance subsidiaries maintain investment strategies intended to provide adequate funds to pay benefits without forced sales of investments. Products having liabilities with longer durations, such as certain life insurance and long-term care insurance policies, are matched with investments having similar duration such as long-term fixed maturity securities and commercial mortgage loans. Shorter-term liabilities are matched with fixed maturity securities that have short- and medium-term fixed maturities. In addition, our insurance subsidiaries hold highly liquid, high quality short-term investment securities and other liquid investment grade fixed maturity securities to fund anticipated operating expenses, surrenders and withdrawals. As of June 30, 2018, our total cash, cash equivalents, restricted cash and invested assets were $73.1 billion. Our investments in privately placed fixed maturity securities, commercial mortgage loans, policy loans, limited partnership investments and select mortgage-backed and asset-backed securities are relatively illiquid. These asset classes represented approximately 35% of the carrying value of our total cash, cash equivalents, restricted cash and invested assets as of June 30, 2018.
As of June 30, 2018, our U.S. mortgage insurance business was compliant with the PMIERs capital requirements, with a prudent buffer. The reinsurance transaction covering our 2014 through 2017 book years provided an aggregate of approximately $585 million of PMIERs capital credit as of June 30, 2018. Our U.S. mortgage insurance business may execute future capital transactions to maintain a prudent level of financial flexibility in excess of the PMIERs capital requirements given the dynamic nature of asset valuations and requirement changes over time, including additional reinsurance transactions and contributions of holding company cash.
In May 2018, Genworth Mortgage Insurance Australia Limited (“Genworth Australia”) announced its intention to commence an on-market share buy-back program for shares up to a maximum aggregate amount of AUD$100 million. The total number of shares to be purchased by Genworth Australia under the program will depend on business and market conditions, the prevailing share price, market volumes and other considerations. Pursuant to the program, Genworth Australia repurchased approximately 14 million of its shares for AUD$35 million. As the majority shareholder, we participated in on-market sales transactions during the buy-back period to maintain our ownership position of approximately 52.0% and received $14 million in cash. Of the $14 million of cash proceeds received, $7 million was paid as a dividend to Genworth Holdings in the second quarter of 2018 and we expect the remainder to be paid to Genworth Holdings as a dividend in the third quarter of 2018.
Genworth Australia began a previous share buy-back program in 2017 and completed it in February 2018, repurchasing approximately 19 million shares for AUD$49 million in the first quarter of 2018. As the majority shareholder, we participated in on-market sales transactions during the buy-back period to maintain our ownership position of approximately 52.0% and received $20 million in cash, which was paid to Genworth Holdings as dividends.
 
162

Table of Contents
In May 2018, Genworth Canada announced acceptance by the Toronto Stock Exchange of its Notice of Intention to Make a Normal Course Issuer Bid (“NCIB”). Pursuant to the NCIB, Genworth Canada may, if considered advisable, purchase from time to time through May 6, 2019, up to an aggregate of approximately 4.5 million of its issued and outstanding common shares. If Genworth Canada decides to repurchase shares through the NCIB, we intend to participate in the NCIB in order to maintain our overall ownership at its current level.
In March 2018, Genworth Canada repurchased approximately 1.2 million shares for CAD$50 million through a previous NCIB. As the majority shareholder, we participated in the NCIB in order to maintain our ownership position of approximately 57.0% and received $22 million in cash. Of the $22 million of cash proceeds received, $16 million was paid as a dividend to Genworth Holdings and $6 million was retained by GMICO.
Capital resources and financing activities
On May 22, 2018, Genworth Holdings redeemed $597 million of its 6.52% senior notes that were issued in May 2008 and matured in May 2018. A cash payment of $616 million comprising net proceeds of $441 million from the Term Loan, as described below, and $175 million of existing cash on hand was used to fully redeem the principal and accrued interest balance of the May 2018 senior notes.
On March 7, 2018, Genworth Holdings entered into a $450 million Term Loan, which matures in March 2023 and was issued at a 0.5% discount. Principal payments under the agreement are due quarterly, commencing on June 30, 2018, and are payable in equal amounts of 0.25% per quarter of the original principal amount with the remaining balance due at maturity. At our option, the Term Loan will bear interest at either an adjusted LIBOR rate no lower than 1.0% plus a margin of 4.5% per annum or an alternate base rate plus a margin of 3.5% per annum. The interest rate on the Term Loan as of June 30, 2018 was 6.5%. We incurred $7 million of borrowing costs that were deferred. The Term Loan is unconditionally guaranteed by Genworth Financial, and GFIH has provided a limited recourse guarantee to the lenders of Genworth Holdings’ outstanding Term Loan, which is secured by GFIH’s ownership interest in Genworth Canada’s outstanding common shares. GFIH is our indirect wholly-owned subsidiary and owns approximately 40.5% of the outstanding common stock of Genworth Canada. The Term Loan is subject to other terms and conditions, including but not limited to: voluntary prepayments subject to prepayment penalties, mandatory prepayments in the event of certain asset sales or the incurrence of further indebtedness by Genworth Financial and various financial covenants.
We believe existing cash held at Genworth Holdings combined with dividends from operating subsidiaries, payments under tax sharing and expense reimbursement arrangements with subsidiaries, proceeds from borrowings or securities issuances and, if necessary, sales of assets, as described below, will provide us with sufficient capital flexibility and liquidity to meet our projected future operating and financing requirements. We actively monitor our liquidity position, liquidity generation options and the credit markets given changing market conditions. Due to the delay in the closing of the China Oceanwide transaction, the proceeds of the Term Loan, as described above, were used, together with cash on hand, to retire our May 2018 senior notes. During the first quarter of 2018, given the proceeds from the Term Loan were dedicated to pay the May 2018 senior notes and we have no additional debt maturities due until 2020, we reduced our cash buffer modestly to two times expected annual debt interest payments. We previously managed liquidity at Genworth Holdings to maintain a minimum balance of one and one-half times expected annual debt interest payments plus an additional $350 million. We will continue to evaluate our target level of liquidity as circumstances warrant and may move above or below the target for a period of time given future actions and due to the timing of cash inflows and outflows. Additionally, we will continue to evaluate market influences on the valuation of our senior debt, and may consider additional opportunities to repurchase our debt over time. We cannot predict with any certainty the impact to us from any future disruptions in the credit markets or the recent or any further downgrades by one or more of the rating agencies of the financial strength ratings of our insurance company subsidiaries and/or the credit ratings of our holding companies. In the absence of the transaction with China Oceanwide, we may need to pursue asset sales
 
163

Table of Contents
to address our debt maturities, including potential sales of our mortgage insurance businesses in Canada and Australia. We are also evaluating options to insulate our U.S. mortgage insurance business from additional ratings pressure, including a potential partial sale, in the event the transaction with China Oceanwide cannot be completed. The availability of additional funding will depend on a variety of factors such as market conditions, regulatory considerations, the general availability of credit, the overall availability of credit to the financial services industry, the level of activity and availability of reinsurance, our credit ratings and credit capacity and the performance of and outlook for our business. For a discussion of certain risks associated with our liquidity, see Item 1A—Risk Factors—“Our internal sources of liquidity may be insufficient to meet our needs and our access to capital may be limited or unavailable. Under such conditions, we may seek additional capital but may be unable to obtain it” in our 2017 Annual Report on Form 10-K.
Contractual obligations and commercial commitments
Except as disclosed above, there have been no material additions or changes to our contractual obligations and commercial commitments as set forth in our 2017 Annual Report on Form 10-K filed on February 28, 2018.
Securitization Entities
There were no off-balance sheet securitization transactions during the six months ended June 30, 2018 or 2017.
New Accounting Standards
For a discussion of recently adopted accounting standards, see note 2 in our consolidated financial statements under “Item 1—Financial Statements.”
 
164

Table of Contents

 Item 3.	Quantitative and Qualitative Disclosures About Market Risk	
Market risk is the risk of the loss of fair value resulting from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and equity prices. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying financial instruments are traded. Except as disclosed below, there were no other material changes in our market risks since December 31, 2017.
The U.S. Federal Reserve increased its benchmark lending rate 25 basis points in June 2018 and revised its forecast for two additional rate increases, which would result in four rate increases in 2018. The median economist forecasts indicate three additional 25 basis point increases in 2019 and one in 2020. Given this robust forecast, we expect interest rates will continue to rise throughout 2018 but we remain uncertain at the pace in which this increase will occur and its ultimate impact on our businesses. In terms of economic projections from the U.S. Federal Reserve, during the second quarter of 2018, the unemployment rate outlook was revised lower while near-term growth and inflation projections were revised up. The U.S. Treasury yield curve continued to flatten in the second quarter of 2018 with short-term interest rates rising supported by the U.S. Federal Reserve increases, while long-term interest rates increased marginally due to ongoing speculation around tariffs and tensions associated with potential trade wars. Credit markets experienced modest spread widening primarily driven by periodic supply and demand imbalances rather than concerns about fundamental credit or macroeconomic issues. Though widely anticipated, the TCJA was not a catalyst for widespread debt reduction and a corresponding reduction in bond supply. Although the TCJA did result in cash-rich multinational companies exiting the debt issuance market, lower supply from such companies was more than offset by debt-financed merger and acquisition-related issuances in investment grade markets. Furthermore, fixed income issuance was slightly lower as compared to 2017. See “—Business trends and conditions” and “—Investments and Derivative Instruments” in “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of recent market conditions.
We are exposed to foreign currency exchange risks associated with fluctuations in foreign currency exchange rates against the U.S. dollar resulting from our international operations and non-U.S.-denominated securities. Our primary international operations are located in Canada and Australia. The assets and liabilities of our international operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date, while revenues and expenses of our international operations are translated into U.S. dollars at the average rates of exchange during the period of the transaction. In general, the weakening of the U.S. dollar results in higher levels of reported assets, liabilities, revenues and net income. As of June 30, 2018, the U.S. dollar strengthened against the currencies in Canada and Australia compared to the balance sheet rate as of December 31, 2017 and June 30, 2017. In the second quarter of 2018, the U.S. dollar weakened against the currencies in Canada and Australia compared to the average rate in the second quarter of 2017. See “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion on the impact of changes in foreign currency exchange rates.
 
 Item 4.	Controls and Procedures	
Evaluation of Disclosure Controls and Procedures
As of June 30, 2018, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2018.
Changes in Internal Control Over Financial Reporting During the Quarter Ended June 30, 2018
During the three months ended June 30, 2018, there have not been any changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
165

Table of Contents
 PART II—OTHER INFORMATION
 
 Item 1.	Legal Proceedings	
See note 11 in our unaudited condensed consolidated financial statements under “Part 1—Item 1—Financial Statements” for a description of material pending litigation and regulatory matters affecting us.
 
 Item 1A.	Risk Factors	
The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our 2017 Annual Report on Form 10-K, which together describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. There have been no material changes to the risk factors set forth in the above-referenced filing as of June 30, 2018.
 
166

Table of Contents

 Item 6.	Exhibits	

	Number	  		Description	
			
    2.1	  	Fifth Waiver and Agreement, dated as of June  28, 2018, by and among Genworth Financial, Inc., Asia Pacific Global Capital Co., Ltd., and Asia Pacific Global Capital USA Corporation (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on June 28, 2018)		
			
  10.1§	  	Form of 2018-2020 Performance Stock Unit Award Agreement under the 2012 Genworth Financial, Inc. Omnibus Incentive Plan (filed herewith)		
			
  10.2§	  	Form of 2018-2020 Performance Cash Award Agreement under the 2012 Genworth Financial, Inc. Omnibus Incentive Plan (filed herewith)		
			
  10.3§	  	Form of Cash Retention Award Agreement under the 2012 Genworth Financial, Inc. Omnibus Incentive Plan (filed herewith)		
			
  12	  	Statement of Ratio of Income to Fixed Charges (filed herewith)		
			
  31.1	  	Certification of Thomas J. McInerney (filed herewith)		
			
  31.2	  	Certification of Kelly L. Groh (filed herewith)		
			
  32.1	  	Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code— Thomas J. McInerney (filed herewith)		
			
  32.2	  	Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code— Kelly L. Groh (filed herewith)		
			
101.INS	  	XBRL Instance Document		
			
101.SCH	  	XBRL Taxonomy Extension Schema Document		
			
101.CAL	  	XBRL Taxonomy Extension Calculation Linkbase Document		
			
101.LAB	  	XBRL Taxonomy Extension Label Linkbase Document		
			
101.PRE	  	XBRL Taxonomy Extension Presentation Linkbase Document		
			
101.DEF	  	XBRL Taxonomy Extension Definition Linkbase Document		

§	Management contract or compensatory plan or arrangement.	
 
167

Table of Contents
 SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	 		 	GENWORTH FINANCIAL, INC.
(Registrant)	
				
Date: August 1, 2018	 		 	By:	 	/s/ Matthew D. Farney	
	 		 		 	Matthew D. Farney	
	 		 		 	Vice President and Controller
(Principal Accounting Officer)	
 
168

Exhibit 10.1
2012 Genworth Financial, Inc. Omnibus Incentive Plan
2018-2020 Performance Stock Unit Award Agreement

Dear [Participant Name]:
You have been selected to receive a Performance Stock Unit Award (“ Award ”) under the 2012 Genworth Financial, Inc. Omnibus Incentive Plan (the “ Plan ”), on the terms and conditions set forth below. This Award Agreement and the Plan together govern your rights under this Award and set forth all of the conditions and limitations affecting such rights. Unless the context otherwise requires, capitalized terms used in this Award Agreement shall have the meanings ascribed to them in the Plan. If there is any inconsistency between the terms of this Award Agreement and the terms of the Plan, the Plan’s terms shall supersede and replace the conflicting terms of this Award Agreement.
 
1.	Grant of Performance Stock Units. You are hereby granted performance stock units (“ Units ”), representing the right to earn, on a one-for-one basis, Shares of Genworth Financial, Inc. together with its affiliates (the “ Company ”) Class A common stock (“ Shares ”), all in accordance with the terms of this Award Agreement, the Plan, and any rules and procedures adopted by the Management Development and Compensation Committee of the Genworth Financial, Inc. Board of Directors (the “ Committee ”). The Units represent the right to earn from 0% to 200% of the Target Award, based on (i) your continued future employment, and (ii) the Company’s level of achievement of the Performance Goals during the Performance Period, in accordance with the terms of this Award Agreement.	
 
 	a.	Grant Date . The Grant Date of your Units is [            ], 2018.	
 
 	b.	Target Award . The Target Award of Shares subject to this Award is [    ].	
 
 	c.	Performance Goals. The Performance Goals are described on Exhibit A.	
 
 	d.	Performance Period . The Performance Period is the three-year period beginning January 1, 2018 and ending December 31, 2020, with three discrete and independent Performance Measurement Periods running sequentially from January 1 through December 31 of each calendar year within the performance period.	
 
2.	Agreement to Participate . You have been provided with this Award Agreement, and you have the opportunity to accept this Award Agreement, by accessing and following the procedures set forth on the stock plan administrator’s website. The Plan is available for your reference on the stock plan administrator’s website. You may also request a copy of the Plan at any time by contacting Human Resources at the address or telephone number set forth below in Section 11(a). By agreeing to participate, you acknowledge that you have reviewed the Plan and this Award Agreement, and you fully understand all of your rights under the Plan and this Award Agreement, the Company’s remedies if you violate the terms of this Award Agreement, and all of the terms and conditions which may limit your eligibility to retain and receive the Units and/or Shares issued pursuant to the Plan and this Award Agreement.	
If you do not wish to accept the Units and participate in the Plan and be subject to the provisions of the Plan and this Award Agreement, please contact the Human Resources Department, Genworth Financial, Inc., 6620 W. Broad Street, Richmond, VA 23230, or at (804) 281-6000, within thirty (30) days of receipt of this Award Agreement. If you do not respond within thirty (30) days of receipt of this Award Agreement, the Award Agreement is deemed accepted. If you choose to participate in the Plan, you agree to abide by all of the governing terms and provisions of the Plan and this Award Agreement
 
3.	Earning and Vesting of Units . The Units shall not provide you with any rights or interests therein until the Units have been earned and vested. Not later than March 15 following the end of the Performance Period (the “ Vesting Date ”), the Committee shall determine and certify the level of achievement of the	

 	Performance Goals, and determine the number of Units earned and vested (“ Confirmed Units ”). Any Units that fail to vest in accordance with the terms of this Award Agreement will be forfeited and reconveyed to the Company without further consideration or any act or action by you.	
 
4.	Conversion to Shares . The Confirmed Units shall automatically convert to Shares on the Vesting Date (the “ Conversion Date ”). These Shares will be registered on the books of the Company in your name as of the Conversion Date.	
If for any reason the Committee is unable to certify the level of achievement of the Performance Goals by March 15 following the end of the Performance Period, then the Vesting Date shall be March 15 following the end of the Performance Period, but the determination of the number of Confirmed Units and the Conversion Date shall be delayed, in the discretion of the Committee, for such period as may be required for the Committee to certify the level of achievement of the Performance Goals, but in no event shall the Conversion Date extend beyond December 31, 2021.
 
5.	Treatment of Units Upon Termination of Employment . Subject to Section 6 below, the Units shall be immediately and automatically cancelled upon termination of your service with the Company prior to the Vesting Date, for any reason other than your death, Total Disability or Retirement on or after the first anniversary of the grant date. If your service with the Company terminates prior to the Vesting Date as a result of your death, Total Disability or Retirement on or after the first anniversary of the grant date, then the Award shall fully vest as of your termination date, and you (or your estate, in the event of your death) shall receive a pro rata payout on the regular Conversion Date, determined by multiplying the Confirmed Shares that otherwise would have paid out based on actual performance for the entire Performance Period, multiplied by a fraction, the numerator of which is the number of full months elapsed from January 1, 2018 until the date of your termination, and the denominator of which is 36.	
For purposes of this Award Agreement, the following terms shall have the following meanings:
“ Retirement ” shall mean your voluntary resignation on or after you have attained age sixty (60) and accumulated five (5) or more years of combined and continuous service with the Company.
“ Total Disability ” shall mean a permanent disability that would make you eligible for benefits under the long-term disability program maintained by the Company or any of its Affiliates (without regard to any time period during which the disabling condition must exist) or in the absence of any such program, such meaning as the Committee shall determine.
 
6.	Change of Control . In the event of a Change of Control of the Company (as defined in the Plan), the Units shall be treated as set forth in this Section 6.	
 
 	a.	Qualifying Change of Control and Awards are Not Assumed . Upon the occurrence of a Qualifying Change of Control (as defined below) on or after the first anniversary of the Grant Date in which the Successor Entity fails to Assume and Maintain this Award of Units, the Units shall immediately vest as of the effective date of such Qualifying Change of Control; shall be deemed earned based on actual pro rata performance as of the date of such Qualifying Change of Control, to the extent such performance can be reasonably established in the sole discretion of the Committee, or otherwise based on an assumed achievement of all relevant performance goals at “target” levels, if actual pro rata performance cannot be reasonably established in the sole discretion of the Committee; shall be distributed or paid to you within thirty (30) days following the date of the Qualifying Change of Control pro rata based on the portion of the performance period elapsed on the date of the Qualifying Change of Control in cash, Shares (based on the value of the Shares as of the effective date of the Change of Control), other securities, or any combination, as determined by the Committee; and shall thereafter terminate, provided that the circumstances giving rise to such Qualifying Change of Control meet the definition of a “change in control event” under Code Section 409A.	
 
2

 	b.	Employment Termination without Cause or for Good Reason within 12 Months of a Qualifying Change of Control . If a Qualifying Change of Control occurs and the Successor Entity Assumes and Maintains this Award of Units, and if your service with the Successor Entity and its Affiliates is terminated on or after the first anniversary of the Grant Date by the Successor Entity or one of its Affiliates without Cause (other than such termination resulting from your death or Disability) or by you for Good Reason (as such terms are defined below) within twelve (12) months following the effective date of such Qualifying Change of Control, then the Units shall immediately vest as of the date of termination of your service with the Successor Entity and its Affiliates; shall be deemed earned based on actual pro rata performance as of the date of termination of your service with the Company, to the extent such performance can be reasonably established in the sole discretion of the Committee, or otherwise based on an assumed achievement of all relevant performance goals at “target” levels, if actual pro rata performance cannot be reasonably established in the sole discretion of the Committee; shall be distributed or paid to you within thirty (30) days following the date of termination of your service with the Successor Entity and its Affiliates pro rata based on the portion of the performance period elapsed as of the termination of your service with the Successor Entity and its Affiliates; and shall thereafter terminate.	
 
 	c.	Employment Termination without Cause or for Good Reason within 12 Months of a Non-Qualifying Change of Control . If a Non-Qualifying Change of Control (as defined below) occurs and if your service with the Company is terminated on or after the first anniversary of the Grant Date by the Company or one of its Affiliates without Cause (other than such termination resulting from your death or Disability) or by you for Good Reason within twelve (12) months following the effective date of the Non-Qualifying Change of Control, then the Units shall immediately vest as of the date of termination of your service with the Company; shall be deemed earned based on actual pro rata performance as of the date of termination of your service with the Company, to the extent such performance can be reasonably established in the sole discretion of the Committee, or otherwise based on an assumed achievement of all relevant performance goals at “target” levels, if actual pro rata performance cannot be reasonably established in the sole discretion of the Committee; shall be distributed or paid to you within thirty (30) days following the date of termination of your service with the Company pro rata based on the portion of the performance period elapsed on the date of the Change of Control; and shall thereafter terminate.	
 
 	d.	Defined Terms . For purposes of this Award Agreement:	
 
 	(i)	“ Business Unit Sale ” shall mean the Company’s sale or disposition of all or any portion of a business unit.	
 
 	(ii)	“ Cause ” shall mean (i) your willful and continued failure to substantially perform your duties with the Company (other than any such failure resulting from your Disability); (ii) your commission, conviction or pleading guilty or nolo contendere (or any similar plea or admission) to any felony or any act of fraud, misappropriation or embezzlement; (iii) your willful engagement in conduct (other than conduct covered under clause (i) above) which, in the good faith judgment of the Committee, is injurious to the Company and/or its Affiliates, monetarily or otherwise; or (iv) your material violation or breach of any Company or Affiliate policy, or any noncompetition, confidentiality, or other restrictive covenant with respect to the Company or any of its Affiliates, that applies to you; provided , however , that for purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on your part shall be deemed “willful” unless done, or omitted to be done, by you not in good faith and without reasonable belief that the act, or failure to act, was in the best interests of the Company and/or its Affiliates.	
 
 	(iii)	“ Good Reason ” shall mean any material reduction in the aggregate value of your compensation (including base salary and bonus), or a substantial reduction in the aggregate value of benefits provided to you; provided, however, that Company-initiated across-the-board reductions in compensation or benefits affecting substantially all employees shall alone not be considered Good Reason.	
 
3

 	(iv)	“ Non-Qualifying Change of Control ” shall mean a Change of Control of the Company (as defined in the Plan) that results from a Business Unit Sale, provided that following such Change of Control (i) the Company remains in existence as a publicly-traded company (separate and apart from any Successor Entity resulting from the Change of Control, and regardless of whether the Company continues to use the name “Genworth Financial, Inc.” or a different name), (ii) your employment with the Company is not terminated by the Company or one of its Affiliates without Cause in connection with the Change in Control, and (iii) the Units subject to this Award Agreement remain outstanding.	
 
 	(v)	“ Qualifying Change of Control ” shall mean a Change of Control of the Company (as defined in the Plan) that is not a Non-Qualifying Change of Control.	
 
7.	Payment of Taxes. The Company or any of its Affiliates employing you has the authority and the right to deduct or withhold, or require you to remit to the employer, an amount sufficient to satisfy federal, state, and local taxes (including your FICA obligation), domestic or foreign, required by law to be withheld with respect to any taxable event arising as a result of the vesting or payment of this Award. With respect to such withholding, the employer may satisfy the tax withholding requirement by withholding Shares having a Fair Market Value as of the date that the amount of tax to be withheld is to be determined as nearly equal as possible to the total minimum statutory tax required to be withheld (or such greater amount up to the maximum individual statutory rate in the applicable jurisdiction as may be permitted under then-current accounting principles to qualify for equity classification), all in accordance with such procedures as the Committee establishes. The obligations of the Company under this Award Agreement will be conditional on such payment or arrangements, and the Company, and, where applicable, its Affiliates will, to the extent permitted by law, have the right to deduct in cash or Shares any such taxes from any payment of any kind otherwise due to you.	
 
8.	Nontransferability . This Award may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated (“ Transfer ”), other than by will or by the laws of descent and distribution, except as provided in the Plan. If any prohibited Transfer, whether voluntary or involuntary, of the Award is attempted to be made, or if any attachment, execution, garnishment, or lien shall be attempted to be issued against or placed upon this Award, your right to receive any payment pursuant to the terms of this Award shall be immediately and automatically be forfeited, and this Award Agreement shall be null and void.	
 
9.	Administration . This Award Agreement and your rights hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Award Agreement, all of which shall be binding upon you. The Committee’s interpretation of the Plan and this Award Agreement, and all decisions and determinations by the Committee with respect to the Plan and this Award Agreement, shall be final, binding, and conclusive on all parties.	
 
10.	Limitation of Rights . The Units do not confer to you or your beneficiary, executors or administrators any rights of a stockholder of the Company unless and until Shares are in fact issued to such person in connection with the Units. This Award Agreement shall not confer upon you any right to continuation of employment by the Company or any of its Affiliates, nor shall this Award Agreement interfere in any way with the Company’s or any of its Affiliate’s right to terminate your employment at any time.	
 
11.	Plan; Prospectus and Related Documents; Electronic Delivery .	
 
 	a.	A copy of the Plan will be furnished upon written or oral request made to the Human Resources Department, Genworth Financial, Inc., 6620 W. Broad Street, Richmond, VA 23230, or telephone (804) 281-6000.	
 
 	b.	As required by applicable securities laws, the Company is delivering to you a prospectus in connection with this Award, which delivery is being made electronically. A paper copy of the prospectus may also be obtained without charge by contacting the Human Resources Department at the address or telephone number listed above. By accepting this Award Agreement, you shall be deemed to have consented to receive the prospectus electronically.	
 
4

 	c.	The Company will deliver to you electronically a copy of the Company’s Annual Report to Stockholders for each fiscal year, as well as copies of all other reports, proxy statements and other communications distributed to the Company’s stockholders. You will be provided notice regarding the availability of each of these documents, and such documents may be accessed by going to the Company’s website at www.genworth.com and clicking on “Investors” and then “SEC Filings & Financial Reports” (or, if the Company changes its web site, by accessing such other web site address(es) containing investor information to which the Company may direct you in the future) and will be deemed delivered to you upon posting or filing by the Company. Upon written or oral request, paper copies of these documents (other than certain exhibits) may also be obtained by contacting the Company’s Human Resources Department at the address or telephone number listed above or by contacting the Investor Relations Department, Genworth Financial, Inc., 6620 W. Broad Street, Richmond, VA 23230, or telephone (804) 281-6000.	
 
 	d.	By accepting this Award, you agree and consent, to the fullest extent permitted by law, in lieu of receiving documents in paper format to accept electronic delivery of any documents that the Company may be required to deliver in connection with this Award and any other Awards granted to you under the Plan. Electronic delivery of a document may be via a Company e-mail or by reference to a location on a Company intranet or internet site to which you have access.	
 
12.	Amendment, Modification, Suspension, and Termination . Subject to the terms of the Plan, this Award Agreement may be modified or amended by the Committee; provided that no such amendment shall materially and adversely affect your rights hereunder without your consent. Notwithstanding the foregoing, you hereby expressly agree to any amendment to the Plan and this Award Agreement to the extent necessary to comply with applicable law or changes to applicable law (including, but not limited to, Code Section 409A) and related regulations or other guidance and federal securities laws.	
 
13.	Entire Agreement; Plan Controls . This Award Agreement, the Plan, and the rules and procedures adopted by the Committee contain all of the provisions applicable to the Award and no other statements, documents or practices may modify, waive or alter such provisions unless expressly set forth in writing, signed by an authorized officer of the Company and delivered to you. In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Award Agreement, the provisions of the Plan shall be controlling and determinative.	
 
14.	Compensation Recoupment Policy. This Award shall be subject to any compensation recoupment policy of the Company that is applicable by its terms to you and to Awards of this type.	
 
15.	Successors . This Award Agreement shall be binding upon any successor of the Company, in accordance with the terms of this Award Agreement and the Plan.	
PLEASE REFER ANY QUESTIONS YOU MAY HAVE REGARDING YOUR PERFORMANCE STOCK UNIT AWARD TO THE EXECUTIVE VICE PRESIDENT OF HUMAN RESOURCES.
 
5

Exhibit A
2018-2020 Performance Stock Unit Award Defined Terms
Consolidated Genworth U.S. GAAP Adjusted Operating Income = income (loss) from continuing operations excluding the after-tax effects of income attributable to noncontrolling interests, net investment gains (losses), goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and infrequent or unusual non-operating items. Gains (losses) on insurance block transactions are defined as gains (losses) on the early extinguishment of non-recourse funding obligations, early termination fees for other financing restructuring and/or resulting gains (losses) on reinsurance restructuring for certain blocks of business.
Consolidated Genworth U.S. GAAP Adjusted Operating Income will be measured excluding impacts from in-force reserve changes from future period assumption changes (e.g. mortality, interest rate, expense, lapse, morbidity), methodology changes (e.g. changes that would arise from a system conversion), changes in foreign exchange rates, tax changes based on updated regulations, guidance, assessments, or refinements related to technical areas of the Tax Cuts and Jobs Act, and litigation related to the proposed merger with China Oceanwide (legal fees and settlement costs), and any strategic deal-related expenses (e.g. 3 rd party legal, actuarial or reinsurance support for negotiating or implementing a transaction).
2018-2020 Performance Stock Unit Award Goals

($ in Millions)	  	 	 	Consolidated Genworth U.S. GAAP Adjusted Operating
Income (1)	 	
Performance
Measurement Period	  	Weight
(% of
Target)	 	Threshold
(50% Payout)	 	  	Target
(100% Payout)	 	  	Maximum
(200% Payout)	 	
January 1, 2018 – December 31, 2018	  	34%	 	$	[            	] 	  	$	[            	] 	  	$	[            	] 	
January 1, 2019 – December 31, 2019	  	33%	 	$	[            	] 	  	$	[            	] 	  	$	[            	] 	
January 1, 2020 – December 31, 2020	  	33%	 	$	[            	] 	  	$	[            	] 	  	$	[            	] 	
 
(1)	Excludes impacts from proposed merger with Asia Pacific Global Capital Co., Ltd. (“the Parent”), a subsidiary of China Oceanwide Holdings Group Co., Ltd (together with its affiliates, “China Oceanwide”), related to Purchase-GAAP. It is expected that all threshold, target and maximum performance goals for each Performance Measurement Period will be adjusted (up or down, as appropriate) at the time the Company closes its proposed merger with the Parent in order to account for the impact of Purchase-GAAP accounting adjustments on the performance goals.	
 
 	•	 	Performance under each Performance Measurement Period is independently weighted, with the results for each Performance Measurement Period are multiplied by the applicable weightings and then added together.	
 
 	•	 	Payout for performance between points is interpolated on a straight-line basis.	
 
 	•	 	No payout shall be earned for performance below threshold level for a given Performance Measurement Period.	
 
 	•	 	In evaluating performance, the committee shall exclude the impact, if any, on reported financial results of any of the following events that occur during the performance period: a) acquisitions and divestitures, b) shareholder dividends or common stock repurchases and c) changes in accounting principles or other laws or provisions.	
 
 	•	 	Notwithstanding the level of achievement of the above Performance Goals, the Committee may exercise negative discretion to pay out a lesser amount, or no amount at all, under the Performance Stock Unit Award, based on such considerations as the Committee deems appropriate.	

Special Rules for Pending Merger with China Oceanwide
The Company is party to an Agreement and Plan of Merger agreement with China Oceanwide Holdings Group Co., Ltd. dated October 21, 2016 (the “Merger Agreement”). The corporate merger contemplated by the Merger Agreement (the “Merger”) is currently expected to be completed during 2018, although this is not guaranteed (if and when completed, the “Closing”). The following provisions are contingent upon the Closing of the Merger.
(1)  Conversion to Cash Award . Pursuant to the terms of the Merger Agreement, upon the Closing, the Units will convert into units the value of which is based on the merger consideration to be received for the Stock in the Merger, which is a cash amount equal to $5.43 per share. Thus, after the Closing your Unit will represent the right to receive the number or Units earned (depending upon the achievement of the applicable performance goals) multiplied by $5.43, and subject to the other terms and conditions of this Agreement and the Plan.
(2) Adjustment of Award . Pursuant to Section 4.4 of the Plan, the Committee may in its sole discretion make such adjustments to the Award to reflect the Merger or otherwise prevent dilution or enlargement of rights or benefits thereunder, as it deems appropriate. The Committee expects that it will make adjustments to the Award to reflect the expected impact of the Merger, which may include, without limitation, adjustments to the performance goals set forth on this Exhibit A for each of the performance measurement periods hereunder, adjustments deemed necessary or appropriate to properly reflect the conversion to purchase GAAP accounting and any other changes in accounting rules or tax laws, and adjustments related to any reorganization or restructuring plans programs. Any such adjustment will be communicated to you in writing, shall be binding on all persons and shall not constitute an amendment of this Award.
(3) Qualifying Change of Control . For purposes of this Agreement and the Plan, the Committee has determined that the Closing of the Merger pursuant to its current terms would be a Change of Control that constitutes a “Qualifying Change of Control” pursuant to which a “Successor Entity” will “Assume and Maintain” this Award of Units. Thus, the provisions of Section 6(b) of this Agreement, which provides special rules for the vesting of the Units upon certain terminations of employment within 12 months following a Change of Control, will apply following the Closing.
ACCEPTANCE DATE:
 
7

Exhibit 10.2
2012 Genworth Financial, Inc. Omnibus Incentive Plan
2018-2020 Performance Cash Award Agreement

Dear [Participant Name]:
You have been selected to receive a Performance Cash award (“ Award ”) under the 2012 Genworth Financial, Inc. Omnibus Incentive Plan (the “ Plan ”), on the terms and conditions set forth below. This Award Agreement and the Plan together govern your rights under this Award and set forth all of the conditions and limitations affecting such rights. Unless the context otherwise requires, capitalized terms used in this Award Agreement shall have the meanings ascribed to them in the Plan. If there is any inconsistency between the terms of this Award Agreement and the terms of the Plan, the Plan’s terms shall supersede and replace the conflicting terms of this Award Agreement.
 
1.	Grant of Performance Cash Award. You are hereby granted an Award, representing the right to earn a performance-based cash bonus, all in accordance with the terms of this Award Agreement, the Plan, and any rules and procedures adopted by the Committee. The Award represents the right to earn from 0% to 200% of the Target Award, based on (i) your continued future employment, and (ii) Genworth Financial, Inc. together with its Affiliates, (the “ Company ”) level of achievement of the Performance Goals during the Performance Period, in accordance with the terms of this Award Agreement.	
 
 	a.	Grant Date . The Grant Date of your Award is [            ], 2018.	
 
 	b.	Target Award . The Target Award is $[            ].	
 
 	c.	Performance Goals. The Performance Goals are described on Exhibit A.	
 
 	d.	Performance Period . The Performance Period is the three-year period beginning January 1, 2018 and ending December 31, 2020, with three discrete and independent Performance Measurement Periods running sequentially from January 1 through December 31 of each calendar year within the performance period.	
 
2.	Agreement to Participate . You have been provided with this Award Agreement, and you have the opportunity to accept this Award Agreement, by accessing and following the procedures set forth on the stock plan administrator’s website. The Plan is available for your reference on the stock plan administrator’s website. You may also request a copy of the Plan at any time by contacting Human Resources at the address or telephone number set forth below in Section 11(a). By agreeing to participate, you acknowledge that you have reviewed the Plan and this Award Agreement, and you fully understand all of your rights under the Plan and this Award Agreement, the Company’s remedies if you violate the terms of this Award Agreement, and all of the terms and conditions which may limit your eligibility to retain and receive any cash payment pursuant to the Plan and this Award Agreement.	
If you do not wish to accept the Award and participate in the Plan and be subject to the provisions of the Plan and this Award Agreement, please contact the Human Resources Department, Genworth Financial, Inc., 6620 W. Broad Street, Richmond, VA 23230, or at (804) 281-6000, within thirty (30) days of receipt of this Award Agreement. If you do not respond within thirty (30) days of receipt of this Award Agreement, the Award Agreement is deemed accepted. If you choose to participate in the Plan, you agree to abide by all of the governing terms and provisions of the Plan and this Award Agreement
 
3.	Earning and Vesting of Award . The Award shall not provide you with any rights or interests therein until the Award has been earned and vested. Not later than March 15 following the end of the Performance Period (the “ Vesting Date ”), the Committee shall determine and certify the level of achievement of the Performance Goals, and determine the percentage of the Target Award (from 0% to	

 	200%) earned and vested (the “ Earned Amount ”). Any portion of the Target Award that fails to vest in accordance with the terms of this Award Agreement will be forfeited without further consideration or any act or action by you.	
 
4.	Payment of Award . The Earned Amount shall be paid to you on the Vesting Date (the “ Payment Date ”). If for any reason the Committee is unable to certify the level of achievement of the Performance Goals by March 15 following the end of the Performance Period, then the Vesting Date shall be March 15 following the end of the Performance Period, but the determination of the Earned Amount and the Payment Date shall be delayed, in the discretion of the Committee, for such period as may be required for the Committee to certify the level of achievement of the Performance Goals, but in no event shall the Payment Date extend beyond December 31, 2021.	
 
5.	Treatment of Award Upon Termination of Employment . Subject to Section 6 below, the Award shall be immediately and automatically cancelled upon termination of your service with the Company and its Affiliates prior to the Vesting Date, for any reason other than your death, Total Disability or Retirement on or after the first anniversary of the grant date. If your service with the Company and its Affiliates terminates prior to the Vesting Date as a result of your death, Total Disability or Retirement on or after the first anniversary of the grant date, then the Award shall fully vest as of your termination date, and you (or your estate, in the event of your death) shall receive a pro rata payout on the regular Payment Date, determined by multiplying the Earned Amount that otherwise would have paid out based on actual performance for the entire Performance Period, multiplied by a fraction, the numerator of which is the number of full months elapsed from January 1, 2017 until the date of your termination, and the denominator of which is 36.	
For purposes of this Award Agreement, the following terms shall have the following meanings:
“ Retirement ” shall mean your voluntary resignation on or after you have attained age sixty (60) and accumulated five (5) or more years of combined and continuous service with the Company.
“ Total Disability ” shall mean a permanent disability that would make you eligible for benefits under the long-term disability program maintained by the Company (without regard to any time period during which the disabling condition must exist) or in the absence of any such program, such meaning as the Committee shall determine.
 
6.	Change of Control . In the event of a Change of Control of the Company (as defined in the Plan), the Award shall be treated as set forth in this Section 6.	
 
 	a.	Qualifying Change of Control and Awards are Not Assumed . Upon the occurrence of a Qualifying Change of Control (as defined below) on or after the first anniversary of the Grant Date in which the Successor Entity fails to Assume and Maintain this Award, the Award shall immediately vest as of the effective date of such Qualifying Change of Control; shall be deemed earned based on actual pro rata performance as of the date of such Qualifying Change of Control, to the extent such performance can be reasonably established in the sole discretion of the Committee, or otherwise based on an assumed achievement of all relevant performance goals at “target” levels, if actual pro rata performance cannot be reasonably established in the sole discretion of the Committee; shall be paid to you within thirty (30) days following the date of the Qualifying Change of Control pro rata based on the portion of the performance period elapsed on the date of the Qualifying Change of Control; and shall thereafter terminate, provided that the circumstances giving rise to such Qualifying Change of Control meet the definition of a “change in control event” under Code Section 409A.	
 
 	b.	Employment Termination without Cause or for Good Reason within 12 Months of a Qualifying Change of Control . If a Qualifying Change of Control occurs and the Successor Entity Assumes and Maintains this Award, and if your service with the Successor Entity and its Affiliates is terminated on or after the first anniversary of the Grant Date by the Successor Entity or one of its Affiliates without Cause (other than such termination resulting from your death or Disability) or by you for Good Reason (as such terms are defined below) within twelve (12) months following the effective date of such Qualifying Change of Control, then the Award shall	
 
2

 	immediately vest as of the date of termination of your service with the Successor Entity and its Affiliates; shall be deemed earned based on actual pro rata performance as of the date of termination of your service with the Company and its Affiliates, to the extent such performance can be reasonably established in the sole discretion of the Committee, or otherwise based on an assumed achievement of all relevant performance goals at “target” levels, if actual pro rata performance cannot be reasonably established in the sole discretion of the Committee; shall be paid to you within thirty (30) days following the date of termination of your service with the Successor Entity and its Affiliates pro rata based on the portion of the performance period elapsed as of the termination of your service with the Successor Entity and its Affiliates; and shall thereafter terminate.	
 
 	c.	Employment Termination without Cause or for Good Reason within 12 Months of a Non-Qualifying Change of Control . If a Non-Qualifying Change of Control (as defined below) occurs and if your service with the Company and its Affiliates is terminated on or after the first anniversary of the Grant Date by the Company without Cause (other than such termination resulting from your death or Disability) or by you for Good Reason within twelve (12) months following the effective date of the Non-Qualifying Change of Control, then the Award shall immediately vest as of the date of termination of your service with the Company and its Affiliates; shall be deemed earned based on actual pro rata performance as of the date of termination of your service with the Company and its Affiliates, to the extent such performance can be reasonably established in the sole discretion of the Committee, or otherwise based on an assumed achievement of all relevant performance goals at “target” levels, if actual pro rata performance cannot be reasonably established in the sole discretion of the Committee; shall be paid to you within thirty (30) days following the date of termination of your service with the Company and its Affiliates pro rata based on the portion of the performance period elapsed on the date of the Change of Control; and shall thereafter terminate.	
 
 	d.	Defined Terms . For purposes of this Award Agreement:	
 
 	(i)	“ Business Unit Sale ” shall mean the Company’s sale or disposition of all or any portion of a business unit.	
 
 	(ii)	“ Cause ” shall mean (i) your willful and continued failure to substantially perform your duties with the Company and its Affiliates (other than any such failure resulting from your Disability); (ii) your commission, conviction or pleading guilty or nolo contendere (or any similar plea or admission) to any felony or any act of fraud, misappropriation or embezzlement; (iii) your willful engagement in conduct (other than conduct covered under clause (i) above) which, in the good faith judgment of the Committee, is injurious to the Company and/or its Affiliates, monetarily or otherwise; or (iv) your material violation or breach of any Company or Affiliate policy, or any noncompetition, confidentiality, or other restrictive covenant with respect to the Company, that applies to you; provided , however , that for purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on your part shall be deemed “willful” unless done, or omitted to be done, by you not in good faith and without reasonable belief that the act, or failure to act, was in the best interests of the Company and/or its Affiliates.	
 
 	(iii)	“ Good Reason ” shall mean any material reduction in the aggregate value of your compensation (including base salary and bonus), or a substantial reduction in the aggregate value of benefits provided to you; provided, however, that Company-initiated across-the-board reductions in compensation or benefits affecting substantially all employees shall alone not be considered Good Reason.	
 
 	(iv)	“ Non-Qualifying Change of Control ” shall mean a Change of Control of the Company (as defined in the Plan) that results from a Business Unit Sale, provided that following such Change of Control (i) the Company remains in existence as a publicly-traded company (separate and apart from any Successor Entity resulting from the Change of Control, and regardless of whether the Company continues to use the name “Genworth Financial, Inc.”	
 
3

 	or a different name), (ii) your employment with the Company is not terminated by the Company without Cause in connection with the Change in Control, and (iii) the Award subject to this Award Agreement remain outstanding.	
 
 	(v)	“ Qualifying Change of Control ” shall mean a Change of Control of the Company (as defined in the Plan) that is not a Non-Qualifying Change of Control.	
 
7.	Payment of Taxes. The Company employing you has the authority and the right to deduct or withhold, or require you to remit to the employer, an amount sufficient to satisfy federal, state, and local taxes (including your FICA obligation), domestic or foriegn required by law to be withheld with respect to any taxable event arising as a result of the vesting or payment of this Award. The obligations of the Company under this Award Agreement will be conditional on such payment or arrangements, and the Company, and, where applicable, its Affiliates will, to the extent permitted by law, have the right to deduct in cash or Shares any such taxes from any payment of any kind otherwise due to you.	
 
8.	Nontransferability . This Award may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated (“ Transfer ”), other than by will or by the laws of descent and distribution, except as provided in the Plan. If any prohibited Transfer, whether voluntary or involuntary, of the Award is attempted to be made, or if any attachment, execution, garnishment, or lien shall be attempted to be issued against or placed upon this Award, your right to receive any payment pursuant to the terms of this Award shall be immediately and automatically be forfeited, and this Award Agreement shall be null and void.	
 
9.	Administration . This Award Agreement and your rights hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Award Agreement, all of which shall be binding upon you. The Committee’s interpretation of the Plan and this Award Agreement, and all decisions and determinations by the Committee with respect to the Plan and this Award Agreement, shall be final, binding, and conclusive on all parties.	
 
10.	Limitation of Rights . The Award does not confer to you or your beneficiary, executors or administrators any rights of a stockholder of the Company. This Award Agreement shall not confer upon you any right to continuation of employment by the Company, nor shall this Award Agreement interfere in any way with the Company’s or any of its Affiliate’s right to terminate your employment at any time.	
 
11.	Amendment, Modification, Suspension, and Termination . Subject to the terms of the Plan, this Award Agreement may be modified or amended by the Committee; provided that no such amendment shall materially and adversely affect your rights hereunder without your consent. Notwithstanding the foregoing, you hereby expressly agree to any amendment to the Plan and this Award Agreement to the extent necessary to comply with applicable law or changes to applicable law (including, but not limited to, Code Section 409A) and related regulations or other guidance and federal securities laws.	
 
12.	Applicable Law . The validity, construction, interpretation, and enforceability of this Award Agreement shall be determined and governed by the laws of the State of Delaware without giving effect to the principles of conflicts of law. For purposes of litigating any dispute that arises under this grant or the Award Agreement, the parties hereby submit to and consent to the jurisdiction of the State of Virginia, and agree that such litigation shall be conducted in the courts of Richmond, Virginia or the federal courts for the United States for the Eastern District of Virginia, where this Award is made and/or to be performed.	
 
13.	Entire Agreement; Plan Controls . This Award Agreement, the Plan, and the rules and procedures adopted by the Committee contain all of the provisions applicable to the Award and no other statements, documents or practices may modify, waive or alter such provisions unless expressly set forth in writing, signed by an authorized officer of the Company and delivered to you. In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Award Agreement, the provisions of the Plan shall be controlling and determinative.	
 
4

14.	Compensation Recoupment Policy. This Award shall be subject to any compensation recoupment policy of the Company that is applicable by its terms to you and to Awards of this type.	
 
15.	Successors . This Award Agreement shall be binding upon any successor of the Company, in accordance with the terms of this Award Agreement and the Plan.	
PLEASE REFER ANY QUESTIONS YOU MAY HAVE REGARDING YOUR PERFORMANCE CASH AWARD TO THE EXECUTIVE VICE PRESIDENT OF HUMAN RESOURCES.
Acceptance Date:
 
5

Exhibit A
2018-2020 Performance Cash Award Defined Terms
Consolidated Genworth U.S. GAAP Adjusted Operating Income = income (loss) from continuing operations excluding the after-tax effects of income attributable to noncontrolling interests, net investment gains (losses), goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and infrequent or unusual non-operating items. Gains (losses) on insurance block transactions are defined as gains (losses) on the early extinguishment of non-recourse funding obligations, early termination fees for other financing restructuring and/or resulting gains (losses) on reinsurance restructuring for certain blocks of business.
Consolidated Genworth U.S. GAAP Adjusted Operating Income will be measured excluding impacts from in-force reserve changes from future period assumption changes (e.g. mortality, interest rate, expense, lapse, morbidity), methodology changes (e.g. changes that would arise from a system conversion), changes in foreign exchange rates, tax changes based on updated regulations, guidance, assessments, or refinements related to technical areas of the Tax Cuts and Jobs Act, and litigation related to the proposed merger with China Oceanwide (legal fees and settlement costs), and any strategic deal-related expenses (e.g. 3 rd party legal, actuarial or reinsurance support for negotiating or implementing a transaction).
2018-2020 Performance Cash Award Goals

($ in Millions)	  	 	 	Consolidated Genworth U.S. GAAP Adjusted Operating
Income (1)	 	
Performance
Measurement Period	  	Weight
(% of
Target)	 	Threshold
(50% Payout)	 	  	Target
(100% Payout)	 	  	Maximum
(200% Payout)	 	
January 1, 2018 – December 31, 2018	  	34%	 	$	[            	] 	  	$	[            	] 	  	$	[            	] 	
January 1, 2019 – December 31, 2019	  	33%	 	$	[            	] 	  	$	[            	] 	  	$	[            	] 	
January 1, 2020 – December 31, 2020	  	33%	 	$	[            	] 	  	$	[            	] 	  	$	[            	] 	
 
(1)	Excludes impacts from proposed merger with Asia Pacific Global Capital Co., Ltd. (“the Parent”), a subsidiary of China Oceanwide Holdings Group Co., Ltd (together with its affiliates, “China Oceanwide”), related to Purchase-GAAP. It is expected that all threshold, target and maximum performance goals for each Performance Measurement Period will be adjusted (up or down, as appropriate) at the time the Company closes its proposed merger with the Parent in order to account for the impact of Purchase-GAAP accounting adjustments on the performance goals.	
 
 	•	 	Performance under each Performance Measurement Period is independently weighted, with the results for each Performance Measurement Period are multiplied by the applicable weightings and then added together.	
 
 	•	 	Payout for performance between points is interpolated on a straight-line basis.	
 
 	•	 	No payout shall be earned for performance below threshold level for a given Performance Measurement Period.	
 
 	•	 	In evaluating performance, the committee shall exclude the impact, if any, on reported financial results of any of the following events that occur during the performance period: a) acquisitions and divestitures, b) shareholder dividends or common stock repurchases and c) changes in accounting principles or other laws or provisions.	
 
 	•	 	Notwithstanding the level of achievement of the above Performance Goals, the Committee may exercise negative discretion to pay out a lesser amount, or no amount at all, under the Performance Cash Award, based on such considerations as the Committee deems appropriate.	

Special Rules for Pending Merger with China Oceanwide
The Company is party to an Agreement and Plan of Merger agreement with China Oceanwide Holdings Group Co., Ltd. dated October 21, 2016 (the “Merger Agreement”). The corporate merger contemplated by the Merger Agreement (the “Merger”) is currently expected to be completed during 2018, although this is not guaranteed (if and when completed, the “Closing”). The following provisions are contingent upon the Closing of the Merger.
(1) Adjustment of Award . Pursuant to Section 4.4 of the Plan, the Committee may in its sole discretion make such adjustments to the Award to reflect the Merger or otherwise prevent dilution or enlargement of rights or benefits thereunder, as it deems appropriate. The Committee expects that it will make adjustments to the Award to reflect the expected impact of the Merger, which may include, without limitation, adjustments to the performance goals set forth on this Exhibit A for each of the performance measurement periods hereunder, adjustments deemed necessary or appropriate to properly reflect the conversion to purchase GAAP accounting and any other changes in accounting rules or tax laws, and adjustments related to any reorganization or restructuring plans programs. Any such adjustment will be communicated to you in writing, shall be binding on all persons and shall not constitute an amendment of this Award.
(2) Qualifying Change of Control. For purposes of this Agreement and the Plan, the Committee has determined that the Closing of the Merger pursuant to its current terms would be a Change of Control that constitutes a “Qualifying Change of Control” pursuant to which a “Successor Entity” will “Assume and Maintain” this Award of Units. Thus, the provisions of Section 6(b) of this Agreement, which provides special rules for the vesting of the Units upon certain terminations of employment within 12 months following a Change of Control, will apply following the Closing.
 
7

Exhibit 10.3
2012 Genworth Financial, Inc. Omnibus Incentive Plan
Cash Retention Award Agreement

Dear [Participant Name]:
This Award Agreement and the 2012 Genworth Financial, Inc. Omnibus Incentive Plan (the “ Plan ”) together govern your rights under this Cash-Based Award (the “ Award ”) and set forth all of the conditions and limitations affecting such rights. Unless the context otherwise requires, capitalized terms used in this Award Agreement shall have the meanings ascribed to them in the Plan. If there is any inconsistency between the terms of this Award Agreement and the terms of the Plan, the Plan’s terms shall supersede and replace the conflicting terms of this Award Agreement.
 
1.	Grant . You are hereby granted an Award under the Plan, effective as of [            ], 2018 (the “ Grant Date ”). The Award entitles you to receive from Genworth Financial, Inc (together with its affiliates) (the “ Company ”) an aggregate amount in cash equal to $[            ], payable in three equal annual installments, all in accordance with the terms and conditions of this Award Agreement, the Plan, and any rules and procedures adopted by the Management Development and Compensation Committee of the Genworth Financial, Inc. Board of Directors (the “ Committee” ).	
 
2.	Vesting and Payment Dates : The Award shall not provide you with any rights or interests therein until the Award vests. Unless vesting is accelerated as provided in Section 3 herein or otherwise in the discretion of the Committee as permitted under the Plan, one-third of the Award will vest on each of the first, second and third anniversaries of March 15, 2018 (each, a “ Vesting Date ”), and the vested portion will be paid within 30 days of the Vesting Date, provided you have continued in the service of the Company through such Vesting Date.	
 
3.	Treatment of Award Upon Termination of Employment and Other Events . If your service with the Company terminates for any reason other than as set forth below, and you and the Company have not entered into a written agreement explicitly providing otherwise in accordance with rules and procedures adopted by the Committee, then the Award shall immediately expire upon such termination.	
 
 	a.	Employment Termination Due to Death . If your service with the Company and its Affiliates terminates as a result of your death, then the Award shall immediately vest and become payable on the regularly scheduled Vesting Date.	
 
 	b.	Termination for Total Disability . If you remain employed by the Company through the (1) year anniversary of the Grant Date and thereafter your service with the Company terminates as a result of your Disability, then the Award shall immediately vest and become payable on the regularly scheduled Vesting Date. For purposes of this Award Agreement, “ Disability ” shall mean a permanent disability that would make you eligible for benefits under the long-term disability program maintained by the Company (without regard to any time period during which the disabling condition must exist) or in the absence of any such program, such meaning as the Committee shall determine.	
 
4.	Restrictive Covenants . As a condition to receiving payment of the Award, you agree to the following:	
 
 	a.	Non-Disparagement . Subject to any obligations you may have under applicable law, you will not make or cause to be made any statements that disparage, are inimical to, or damage the reputation of the Company or any of its Affiliates, agents, officers, directors or employees. Nothing in this section shall limit a Participant’s ability to provide truthful testimony or information in response to a subpoena, court order, or investigation by a government agency.	

 	b.	Non-Solicitation of Customers or Clients . Unless waived in writing by the most senior Human Resources officer of the Company (or his or her successor), you will not, during and for a period of 12 months following the cessation of your employment with the Company and its Affiliates, directly or indirectly, solicit or contact any of the customers or clients of the Company with whom the you had material contact during your employment, regardless of the location of such customers or clients, for the purpose of engaging in, providing, marketing, or selling any services or products that are competitive with the services and products being offered by the Company.	
 
 	c.	Non-Solicitation of Company Employees . Unless waived in writing by the most senior Human Resources officer of the Company (or his or her successor), you will not, during and for a period of 12 months following the cessation of your employment with the Company and its Affiliates, directly or indirectly, solicit or encourage any director, agent or employee of the Company to terminate his or her employment or other engagement with the Company.	
 
5.	Tax Withholding . The Company shall have the power and the right to deduct or withhold, or require you or your beneficiary to remit to the Company, an amount in cash sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Award Agreement.	
 
6.	Nontransferability . This Award may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated (“ Transfer ”), other than by will or by the laws of descent and distribution, except as provided in the Plan. If any prohibited Transfer, whether voluntary or involuntary, of this Award is attempted to be made, or if any attachment, execution, garnishment, or lien shall be attempted to be issued against or placed upon the Award, your right to the Award shall be immediately forfeited to the Company, and this Award Agreement shall be null and void.	
 
7.	Administration . This Award Agreement and your rights hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Award Agreement, all of which shall be binding upon you, the Participant.	
 
8.	Continuation of Employment . This Award Agreement shall not confer upon you any right to continuation of employment by the Company or any of its Affiliates, nor shall this Award Agreement interfere in any way with the Company’s or any of its Affiliate’s right to terminate your employment at any time.	
 
9.	Amendment, Modification, Suspension, and Termination . The Board of Directors shall have the right at any time in its sole discretion, subject to certain restrictions, to alter, amend, modify, suspend, or terminate the Plan in whole or in part, and the Committee shall have the right at any time in its sole discretion to alter, amend, modify, suspend or terminate the terms and conditions of any Award; provided , however , that no such action shall adversely affect in any material way your Award without your written consent.	
 
10.	Entire Agreement . This Award Agreement, the Plan, and the rules and procedures adopted by the Committee contain all of the provisions applicable to this Award and no other statements, documents or practices may modify, waive or alter such provisions unless expressly set forth in writing, signed by an authorized officer of the Company and delivered to you.	
 
11.	Compensation Recoupment Policy . Notwithstanding Section 10 above, this Award shall be subject to any compensation recoupment policy of the Company that is applicable by its terms to you and to Awards of this type.	
 
2

12.	Agreement to Participate .	
You have been provided with this Award Agreement, and you have the opportunity to accept this Award Agreement, by accessing and following the procedures set forth on the stock plan administrator’s website. The Plan is available for your reference on the stock plan administrator’s website. You may also request a copy of the Plan at any time by contacting Human Resources at the address or telephone number set forth below in Section 11(a). By agreeing to participate, you acknowledge that you have reviewed the Plan and this Award Agreement, and you fully understand all of your rights under the Plan and this Award Agreement, the Company’s remedies if you violate the terms of this Award Agreement, and all of the terms and conditions which may limit your eligibility to retain and receive the Units and/or Shares issued pursuant to the Plan and this Award Agreement.
If you do not wish to accept the Units and participate in the Plan and be subject to the provisions of the Plan and this Award Agreement, please contact the Human Resources Department, Genworth Financial, Inc., 6620 W. Broad Street, Richmond, VA 23230, or at (804) 281-6000, within thirty (30) days of receipt of this Award Agreement. If you do not respond within thirty (30) days of receipt of this Award Agreement, the Award Agreement is deemed accepted. If you choose to participate in the Plan, you agree to abide by all of the governing terms and provisions of the Plan and this Award Agreement
 
13.	Assistance in Proceedings, Etc . You agree that you will, without additional compensation, during and after your employment with the Company, upon reasonable notice, furnish such information and reasonable and proper assistance to the Company as may reasonably be required by the Company in connection with any legal or quasi-legal proceeding, including any external or internal investigation, involving the Company or any of its Affiliates.	
 
14.	Cooperation . Following termination of your employment with the Company for any reason, you agree that you will reasonably cooperate with the Company, as reasonably requested by the Company, to effect a transition of your responsibilities and to ensure that the Company is aware of all matters being handled by you.	
 
15.	Resolve . Any disagreement between you and the Company concerning anything covered by this Award Agreement or concerning the Award will be settled by final and binding arbitration pursuant to the Company’s Resolve program. The Conditions of Employment document previously executed by you and the Resolve Guidelines are incorporated herein by reference as if set forth in full in this Award Agreement.	
Please refer any questions you may have regarding this Award to the Executive Vice President – Human Resources.
ACCEPTANCE DATE:
 
3

Exhibit 12
Genworth Financial, Inc.
Statement of Ratio of Income to Fixed Charges
(Dollar amounts in millions)

 	  	Six months
ended	 	  	Years ended December 31,	 	
 	  	June 30, 2018	 	  	2017	 	  	2016	 	  	2015	 	 	2014	 	 	2013	 	
Income (loss) from continuing operations before income taxes and accounting changes	  	$	588		  	$	729		  	$	320		  	$	(15	) 	 	$	(1,299	) 	 	$	993		
Less: income attributable to noncontrolling interests before income taxes	  	 	153		  	 	144		  	 	289		  	 	259		 	 	262		 	 	210		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from continuing operations before income taxes and accounting changes and excluding income attributable to noncontrolling interests	  	$	435		  	$	585		  	$	31		  	$	(274	) 	 	$	(1,561	) 	 	$	783		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Fixed charges included in income (loss) from continuing operations:	  				  				  				  				 				 				
Interest expense	  	$	147		  	$	272		  	$	324		  	$	407		 	$	418		 	$	440		
Interest portion of rental expense	  	 	3		  	 	6		  	 	6		  	 	6		 	 	8		 	 	8		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Subtotal	  	 	150		  	 	278		  	 	330		  	 	413		 	 	426		 	 	448		
Interest credited to investment contractholders	  	 	308		  	 	646		  	 	696		  	 	720		 	 	737		 	 	738		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Total fixed charges from continuing operations	  	$	458		  	$	924		  	$	1,026		  	$	1,133		 	$	1,163		 	$	1,186		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from continuing operations available for fixed charges (including interest credited to investment contractholders)	  	$	893		  	$	1,509		  	$	1,057		  	$	859		 	$	(398	) 	 	$	1,969		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Ratio of income (loss) from continuing operations available for fixed charges to fixed charges from continuing operations (including interest credited to investment contractholders)	  	 	1.95		  	 	1.63		  	 	1.03		  	 	0.76		 	 	(0.34	) 	 	 	1.66		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from continuing operations available for fixed charges (excluding interest credited to investment contractholders)	  	$	585		  	$	863		  	$	361		  	$	139		 	$	(1,135	) 	 	$	1,231		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Ratio of income (loss) from continuing operations available for fixed charges to fixed charges from continuing operations (excluding interest credited to investment contractholders)	  	 	3.90		  	 	3.10		  	 	1.09		  	 	0.34		 	 	(2.66	) 	 	 	2.75		
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
For the years ended December 31, 2015 and 2014, our deficiency in income necessary to cover fixed charges was $274 million and $1,561 million, respectively.

Exhibit 31.1
CERTIFICATIONS
I, Thomas J. McInerney, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Genworth Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: August 1, 2018

/s/ Thomas J. McInerney	
Thomas J. McInerney
President and Chief Executive Officer
(Principal Executive Officer)	

Exhibit 31.2
CERTIFICATIONS
I, Kelly L. Groh, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Genworth Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: August 1, 2018

/s/ Kelly L. Groh	
Kelly L. Groh
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)	

Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
I, Thomas J. McInerney, as President and Chief Executive Officer of Genworth Financial, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:
 
 	(1)	the accompanying Quarterly Report on Form 10-Q of the Company for the six months ended June 30, 2018 (the “Report”), filed with the U.S. Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
 
 	(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
Dated: August 1, 2018

/s/ Thomas J. McInerney	
Thomas J. McInerney
President and Chief Executive Officer
(Principal Executive Officer)	

Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
I, Kelly L. Groh, as Executive Vice President and Chief Financial Officer of Genworth Financial, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:
 
 	(1)	the accompanying Quarterly Report on Form 10-Q of the Company for the six months ended June 30, 2018 (the “Report”), filed with the U.S. Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
 
 	(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
Dated: August 1, 2018

/s/ Kelly L. Groh	
Kelly L. Groh
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)