GENWORTH FINANCIAL INC, 10-Q filed on 5/2/2018
Quarterly Report
v3.8.0.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2018
Apr. 25, 2018
Document Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
Trading Symbol GNW  
Entity Registrant Name GENWORTH FINANCIAL INC  
Entity Central Index Key 0001276520  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   500,624,199
v3.8.0.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2018
Dec. 31, 2017
Assets    
Fixed maturity securities available-for-sale, at fair value $ 61,080 $ 62,525
Equity securities, at fair value 799 820
Commercial mortgage loans 6,336 6,341
Restricted commercial mortgage loans related to securitization entities 99 107
Policy loans 1,789 1,786
Other invested assets 1,674 1,813
Total investments 71,777 73,392
Cash, cash equivalents and restricted cash 2,843 2,875
Accrued investment income 698 644
Deferred acquisition costs 2,699 2,329
Intangible assets and goodwill 339 301
Reinsurance recoverable 17,482 17,569
Other assets 431 453
Deferred tax asset 602 504
Separate account assets 6,902 7,230
Total assets 103,773 105,297
Liabilities and equity    
Future policy benefits 37,946 38,472
Policyholder account balances 23,751 24,195
Liability for policy and contract claims 9,651 9,594
Unearned premiums 3,797 3,967
Other liabilities 1,841 1,910
Borrowings related to securitization entities 32 40
Non-recourse funding obligations 310 310
Long-term borrowings 4,654 4,224
Deferred tax liability 27 27
Separate account liabilities 6,902 7,230
Total liabilities 88,911 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 March 31, 2018 and December 31, 2017, respectively; 501 million and 499 million shares outstanding as of March 31, 2018 and December 31, 2017, respectively 1 1
Additional paid-incapital 11,979 11,977
Net unrealized investment gains (losses):    
Net unrealized gains (losses) on securities not other-than-temporarily impaired 905 1,075
Net unrealized gains (losses) on other-than-temporarily impaired securities 12 10
Net unrealized investment gains (losses) 917 1,085
Derivatives qualifying as hedges 1,927 2,065
Foreign currency translation and other adjustments (217) (123)
Total accumulated other comprehensive income (loss) 2,627 3,027
Retained earnings 1,111 1,113
Treasury stock, at cost (88 million shares as of March 31, 2018 and December 31, 2017) (2,700) (2,700)
Total Genworth Financial, Inc.'s stockholders' equity 13,018 13,418
Noncontrolling interests 1,844 1,910
Total equity 14,862 15,328
Total liabilities and equity $ 103,773 $ 105,297
v3.8.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2018
Dec. 31, 2017
Class A common stock, par value $ 0.001 $ 0.001
Class A common stock, shares authorized 1,500,000,000 1,500,000,000
Class A common stock, shares issued 589,000,000 588,000,000
Class A common stock, shares outstanding 501,000,000 499,000,000
Treasury stock, shares 88,000,000 88,000,000
v3.8.0.1
Consolidated Statements of Income - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Revenues:    
Premiums $ 1,140 $ 1,136
Net investment income 804 790
Net investment gains (losses) (31) 34
Policy fees and other income 202 211
Total revenues 2,115 2,171
Benefits and expenses:    
Benefits and other changes in policy reserves 1,311 1,246
Interest credited 156 167
Acquisition and operating expenses, net of deferrals 240 270
Amortization of deferred acquisition costs and intangibles 104 94
Interest expense 76 62
Total benefits and expenses 1,887 1,839
Income from continuing operations before income taxes 228 332
Provision for income taxes 63 116
Income from continuing operations 165 216
Loss from discontinued operations, net of taxes 0 0
Net income 165 216
Less: net income attributable to noncontrolling interests 53 61
Net income available to Genworth Financial, Inc.'s common stockholders $ 112 $ 155
Income from continuing operations available to Genworth Financial, Inc.'s common stockholders per share:    
Basic $ 0.22 $ 0.31
Diluted 0.22 0.31
Net income available to Genworth Financial, Inc.'s common stockholders per share:    
Basic 0.22 0.31
Diluted $ 0.22 $ 0.31
Weighted-average common shares outstanding:    
Basic 499.6 498.6
Diluted 502.7 501.0
Supplemental disclosures:    
Total other-than-temporary impairments $ 0 $ (1)
Portion of other-than-temporary impairments included in other comprehensive income (loss) 0 0
Net other-than-temporary impairments 0 (1)
Other investments gains (losses) (31) 35
Net investment gains (losses) $ (31) $ 34
v3.8.0.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Net income $ 165 $ 216
Other comprehensive income (loss), net of taxes:    
Net unrealized gains (losses) on securities not other-than-temporarily impaired (341) (12)
Net unrealized gains (losses) on other-than-temporarily impaired securities 0 1
Derivatives qualifying as hedges (152) (49)
Foreign currency translation and other adjustments (87) 119
Total other comprehensive income (loss) (580) 59
Total comprehensive income (loss) (415) 275
Less: comprehensive income attributable to noncontrolling interests 4 118
Total comprehensive income (loss) available to Genworth Financial, Inc.'s common stockholders $ (419) $ 157
v3.8.0.1
Consolidated Statements of Changes in Equity - USD ($)
$ in Millions
Total
Common stock
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Treasury stock, at cost
Total Genworth Financial, Inc.'s stockholders' equity
Noncontrolling interests
Balances, beginning at Dec. 31, 2016 $ 14,467 $ 1 $ 11,962 $ 3,094 $ 287 $ (2,700) $ 12,644 $ 1,823
Cumulative effect of change in accounting, net of taxes 9       9   9  
Comprehensive income (loss):                
Net income 216       155   155 61
Other comprehensive income (loss) net of taxes 59     2     2 57
Total comprehensive income (loss) 275           157 118
Dividends to noncontrolling interests (39)             (39)
Stock-based compensation expense and exercises and other 4   2       2 2
Balances, ending at Mar. 31, 2017 14,716 1 11,964 3,096 451 (2,700) 12,812 1,904
Balances, beginning at Dec. 31, 2017 15,328 1 11,977 3,027 1,113 (2,700) 13,418 1,910
Cumulative effect of change in accounting, net of taxes 17     131 (114)   17  
Repurchase of subsidiary shares (36)             (36)
Comprehensive income (loss):                
Net income 165       112   112 53
Other comprehensive income (loss) net of taxes (580)     (531)     (531) (49)
Total comprehensive income (loss) (415)           (419) 4
Dividends to noncontrolling interests (36)             (36)
Stock-based compensation expense and exercises and other 4   2       2 2
Balances, ending at Mar. 31, 2018 $ 14,862 $ 1 $ 11,979 $ 2,627 $ 1,111 $ (2,700) $ 13,018 $ 1,844
v3.8.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Cash flows from operating activities:    
Net income $ 165 $ 216
Adjustments to reconcile net income to net cash from operating activities:    
Amortization of fixed maturity securities discounts and premiums and limited partnerships (25) (33)
Net investment (gains) losses 31 (34)
Charges assessed to policyholders (178) (183)
Acquisition costs deferred (18) (22)
Amortization of deferred acquisition costs and intangibles 104 94
Deferred income taxes 26 93
Trading securities, held-for-sale investments and derivative instruments (152) 365
Stock-based compensation expense 7 10
Change in certain assets and liabilities:    
Accrued investment income and other assets (45) (79)
Insurance reserves 377 377
Current tax liabilities (39) (37)
Other liabilities, policy and contract claims and other policy-related balances (144) (112)
Net cash from operating activities 109 655
Cash flows used by investing activities:    
Fixed maturity securities 934 1,060
Commercial mortgage loans 205 166
Restricted commercial mortgage loans related to securitization entities 8 6
Proceeds from sales of investments:    
Fixed maturity and equity securities 792 2,173
Purchases and originations of investments:    
Fixed maturity and equity securities (2,013) (2,710)
Commercial mortgage loans (199) (161)
Other invested assets, net 104 (676)
Policy loans, net 2  
Net cash used by investing activities (167) (142)
Cash flows from (used by) financing activities:    
Deposits to universal life and investment contracts 255 218
Withdrawals from universal life and investment contracts (591) (467)
Proceeds from issuance of long-term debt 441  
Repayment of borrowings related to securitization entities (8) (7)
Repurchase of subsidiary shares (36)  
Dividends paid to noncontrolling interests (36) (39)
Other, net 22 (9)
Net cash from (used by) financing activities 47 (304)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (21) 25
Net change in cash, cash equivalents and restricted cash (32) 234
Cash, cash equivalents and restricted cash at beginning of period 2,875 2,784
Cash, cash equivalents and restricted cash at end of period $ 2,843 $ 3,018
v3.8.0.1
Formation of Genworth and Basis of Presentation
3 Months Ended
Mar. 31, 2018
Formation of Genworth and Basis of Presentation

(1) Formation of Genworth and Basis of Presentation

Genworth Holdings, Inc. (“Genworth Holdings”) (formerly known as Genworth Financial, Inc.) was incorporated in Delaware in 2003 in preparation for an initial public offering (“IPO”) of Genworth’s common stock, which was completed on May 28, 2004. On April 1, 2013, Genworth Holdings completed a holding company reorganization pursuant to which Genworth Holdings became a direct, 100% owned subsidiary of a new public holding company that it had formed. The new public holding company was incorporated in Delaware on December 5, 2012, in connection with the reorganization, and was renamed Genworth Financial, Inc. (“Genworth Financial”) upon the completion of the reorganization.

On October 21, 2016, Genworth Financial entered into an agreement and plan of merger (the “Merger Agreement”) with Asia Pacific Global Capital Co., Ltd. (“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 newly formed 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’s stockholders voted on and approved a proposal to adopt the Merger Agreement.

The transaction remains subject to closing conditions, including the receipt of required regulatory approvals in the U.S., China, and other international jurisdictions. Both parties are engaging with the relevant regulators regarding the applications and the pending transaction.

The accompanying unaudited condensed financial statements include on a consolidated basis the accounts of Genworth Financial and the affiliate companies in which it holds a majority voting interest or where it is the primary beneficiary of a variable interest entity (“VIE”). All intercompany accounts and transactions have been eliminated in consolidation.

References to “Genworth,” the “Company,” “we” or “our” in the accompanying unaudited condensed consolidated financial statements and these notes thereto are, unless the context otherwise requires, to Genworth Financial on a consolidated basis.

We operate our business through the following five operating segments:

 

    U.S. Mortgage Insurance. In the United States, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans (“flow mortgage insurance”). We selectively provide mortgage insurance on a bulk basis (“bulk mortgage insurance”) with essentially all of our bulk writings being prime-based.

 

    Canada Mortgage Insurance. We offer flow mortgage insurance and also provide bulk mortgage insurance that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk in Canada.

 

    Australia Mortgage Insurance. In Australia, we offer flow mortgage insurance and selectively provide bulk mortgage insurance that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk.

 

    U.S. Life Insurance. We offer long-term care insurance products as well as service traditional life insurance and fixed annuity products in the United States.

 

    Runoff. The Runoff segment includes the results of non-strategic products which 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.

v3.8.0.1
Accounting Changes
3 Months Ended
Mar. 31, 2018
Accounting Changes

(2) Accounting Changes

Accounting Pronouncements Recently Adopted

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

 

    Accumulated other comprehensive income              

(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 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. Other than those effects related to the TCJA, our policy is to release stranded tax effects from other comprehensive income using the portfolio approach for items related to investments and derivatives, and upon disposition of a subsidiary for items related to outside basis differences.

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

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

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

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

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

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

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

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

 

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

Accounting Pronouncements Not Yet Adopted

In 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. We are in process of evaluating the impact the guidance may have 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 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.

v3.8.0.1
Earnings Per Share
3 Months Ended
Mar. 31, 2018
Earnings Per Share

(3) Earnings Per Share

Basic and diluted earnings per share are calculated by dividing each income category presented below by the weighted-average basic and diluted common shares outstanding for the periods indicated:

 

     Three months
ended

March 31,
 

(Amounts in millions, except per share amounts)

   2018      2017  

Weighted-average shares used in basic earnings per share calculations

     499.6      498.6

Potentially dilutive securities:

     

Stock options, restricted stock units and stock appreciation rights

     3.1      2.4
  

 

 

    

 

 

 

Weighted-average shares used in diluted earnings per share calculations

     502.7      501.0
  

 

 

    

 

 

 

Income from continuing operations:

     

Income from continuing operations

   $ 165    $ 216

Less: income from continuing operations attributable to noncontrolling interests

     53      61
  

 

 

    

 

 

 

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

   $ 112    $ 155
  

 

 

    

 

 

 

Basic per share

   $ 0.22    $ 0.31
  

 

 

    

 

 

 

Diluted per share

   $ 0.22    $ 0.31
  

 

 

    

 

 

 

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

   $ 165    $ 216
  

 

 

    

 

 

 

Net income

     165      216

Less: net income attributable to noncontrolling interests

     53      61
  

 

 

    

 

 

 

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

   $ 112    $ 155
  

 

 

    

 

 

 

Basic per share

   $ 0.22    $ 0.31
  

 

 

    

 

 

 

Diluted per share

   $ 0.22    $ 0.31
  

 

 

    

 

 

 
v3.8.0.1
Investments
3 Months Ended
Mar. 31, 2018
Investments

(4) Investments

(a) Net Investment Income

Sources of net investment income were as follows for the periods indicated:

 

     Three months
ended
March 31,
 

(Amounts in millions)

   2018     2017  

Fixed maturity securities—taxable

   $ 635   $ 641

Fixed maturity securities—non-taxable

     3     3

Equity securities

     10     8

Commercial mortgage loans

     82     77

Restricted commercial mortgage loans related to securitization entities

     2     2

Policy loans

     43     42

Other invested assets

     39     32

Cash, cash equivalents and short-term investments

     12     6
  

 

 

   

 

 

 

Gross investment income before expenses and fees

     826     811

Expenses and fees

     (22     (21
  

 

 

   

 

 

 

Net investment income

   $ 804   $ 790
  

 

 

   

 

 

 

(b) Net Investment Gains (Losses)

The following table sets forth net investment gains (losses) for the periods indicated:

 

     Three months
ended
March 31,
 

(Amounts in millions)

   2018     2017  

Available-for-sale securities:

    

Realized gains

   $ 7   $ 63

Realized losses

     (16     (34
  

 

 

   

 

 

 

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

     (9     29
  

 

 

   

 

 

 

Impairments:

    

Total other-than-temporary impairments

     —         (1

Portion of other-than-temporary impairments included in other comprehensive income

     —         —    
  

 

 

   

 

 

 

Net other-than-temporary impairments

     —         (1
  

 

 

   

 

 

 

Net realized gains (losses) on equity securities sold

     2     —    

Net unrealized gains (losses) on equity securities still held

     (18     —    

Limited partnerships

     7     —    

Commercial mortgage loans

     —         1

Net gains (losses) related to securitization entities

     —         2

Derivative instruments (1)

     (13     3
  

 

 

   

 

 

 

Net investment gains (losses)

   $ (31   $ 34
  

 

 

   

 

 

 

 

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

 

We generally intend to hold securities in unrealized loss positions until they recover. However, from time to time, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, we sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield and liquidity requirements. If a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we determined that we have the intent to sell the securities or it is more likely than not that we will be required to sell the securities prior to recovery. The aggregate fair value of securities sold at a loss during the three months ended March 31, 2018 and 2017 was $619 million and $876 million, respectively, which was approximately 98% 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 three months ended March 31:

 

(Amounts in millions)

   2018     2017  

Beginning balance

   $ 32   $ 42

Reductions:

    

Securities sold, paid down or disposed

     (4     (1
  

 

 

   

 

 

 

Ending balance

   $ 28   $ 41
  

 

 

   

 

 

 

(c) Unrealized Investment Gains and Losses

Net unrealized gains and losses on available-for-sale investment securities reflected as a separate component of accumulated other comprehensive income (loss) were as follows as of the dates indicated:

 

(Amounts in millions)

   March 31,
2018
    December 31,
2017
 

Net unrealized gains (losses) on investment securities:

    

Fixed maturity securities

   $ 3,452   $ 5,125

Equity securities

     —         69
  

 

 

   

 

 

 

Subtotal (1)

     3,452     5,194

Adjustments to deferred acquisition costs, present value of future profits, sales

    

inducements and benefit reserves

     (2,207     (3,451

Income taxes, net

     (282     (583
  

 

 

   

 

 

 

Net unrealized investment gains (losses)

     963     1,160

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

     46     75
  

 

 

   

 

 

 

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

   $ 917   $ 1,085
  

 

 

   

 

 

 

 

(1) Excludes foreign exchange.

 

The change in net unrealized gains (losses) on available-for-sale investment securities reported in accumulated other comprehensive income was as follows as of and for the three months ended March 31:

 

(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

     (1,681     392

Adjustment to deferred acquisition costs

     442     (305

Adjustment to present value of future profits

     36     (5

Adjustment to sales inducements

     20     (5

Adjustment to benefit reserves

     740     (68

Provision for income taxes

     95     (2
  

 

 

   

 

 

 

Change in unrealized gains (losses) on investment securities

     (348     7

Reclassification adjustments to net investment (gains) losses, net of taxes of $(1) and $10

     7     (18
  

 

 

   

 

 

 

Change in net unrealized investment gains (losses)

     (341     (11

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

     (9     8
  

 

 

   

 

 

 

Ending balance

   $ 917   $ 1,243
  

 

 

   

 

 

 

 

(d) Fixed Maturity and Equity Securities

As of March 31, 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

  $ 4,735   $ 674   $ —       $ (11   $ —       $ 5,398

State and political subdivisions

    2,692     217     —         (33     —         2,876

Non-U.S. government

    2,239     85     —         (25     —         2,299

U.S. corporate:

           

Utilities

    4,444     472     —         (42     —         4,874

Energy

    2,232     174     —         (23     —         2,383

Finance and insurance

    6,119     395     —         (67     —         6,447

Consumer—non-cyclical

    4,331     385     —         (46     —         4,670

Technology and communications

    2,663     135     —         (35     —         2,763

Industrial

    1,242     76     —         (10     —         1,308

Capital goods

    2,193     216     —         (24     —         2,385

Consumer—cyclical

    1,481     82     —         (21     —         1,542

Transportation

    1,174     99     —         (17     —         1,256

Other

    351     20     —         (1     —         370
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total U.S. corporate

    26,230     2,054     —         (286     —         27,998
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

           

Utilities

    989     28     —         (14     —         1,003

Energy

    1,341     124     —         (11     —         1,454

Finance and insurance

    2,583     128     —         (23     —         2,688

Consumer—non-cyclical

    674     15     —         (11     —         678

Technology and communications

    945     47     —         (8     —         984

Industrial

    946     61     —         (7     —         1,000

Capital goods

    610     21     —         (5     —         626

Consumer—cyclical

    500     4     —         (4     —         500

Transportation

    657     54     —         (7     —         704

Other

    2,485     148     —         (13     —         2,620
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-U.S. corporate

    11,730     630     —         (103     —         12,257
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential mortgage-backed

    3,664     180     14     (22     —         3,836

Commercial mortgage-backed

    3,355     57     —         (70     —         3,342

Other asset-backed

    3,077     10     1     (14     —         3,074
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale fixed maturity securities

  $ 57,722   $ 3,907   $ 15   $ (564   $ —       $ 61,080
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

As of December 31, 2017, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:

 

          Gross unrealized gains     Gross unrealized losses        

(Amounts in millions)

  Amortized
cost or
cost
    Not other-than-
temporarily
impaired
    Other-than-
temporarily
impaired
    Not other-than-
temporarily
impaired
    Other-than-
temporarily
impaired
    Fair
value
 

Fixed maturity securities:

           

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

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

State and political subdivisions

    2,678     270     —         (22     —         2,926

Non-U.S. government

    2,147     106     —         (20     —         2,233

U.S. corporate:

           

Utilities

    4,396     611     —         (9     —         4,998

Energy

    2,239     227     —         (8     —         2,458

Finance and insurance

    5,984     556     —         (12     —         6,528

Consumer—non-cyclical

    4,314     530     —         (13     —         4,831

Technology and communications

    2,665     192     —         (12     —         2,845

Industrial

    1,241     106     —         (1     —         1,346

Capital goods

    2,087     273     —         (5     —         2,355

Consumer—cyclical

    1,493     116     —         (4     —         1,605

Transportation

    1,160     134     —         (3     —         1,291

Other

    355     25     —         (1     —         379
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total U.S. corporate

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

           

Utilities

    979     42     —         (4     —         1,017

Energy

    1,337     158     —         (5     —         1,490

Finance and insurance

    2,567     174     —         (6     —         2,735

Consumer—non-cyclical

    686     30     —         (4     —         712

Technology and communications

    913     71     —         (2     —         982

Industrial

    958     88     —         (2     —         1,044

Capital goods

    614     33     —         (2     —         645

Consumer—cyclical

    532     9     —         (1     —         540

Transportation

    656     68     —         (3     —         721

Other

    2,536     193     —         (4     —         2,725
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-U.S. corporate

    11,778     866     —         (33     —         12,611
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential mortgage-backed

    3,831     223     14     (11     —         4,057

Commercial mortgage-backed

    3,387     94     2     (37     —         3,446

Other asset-backed

    3,056     17     1     (6     —         3,068
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

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

Equity securities

    756     72     —         (8     —         820
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

  $ 278   $ (5     30   $ 105   $ (6 )       9   $ 383   $ (11 )       39

State and political subdivisions

    494     (20     90     191     (13 )       33     685     (33 )       123

Non-U.S. government

    672     (12     54     232     (13 )       21     904     (25 )       75

U.S. corporate

    7,237     (211     986     1,214     (75 )       201     8,451     (286 )       1,187

Non-U.S. corporate

    3,288     (74     457     522     (29 )       79     3,810     (103 )       536

Residential mortgage-backed

    957     (18     129     115     (4 )       43     1,072     (22 )       172

Commercial mortgage-backed

    998     (25     147     584     (45 )       87     1,582     (70 )       234

Other asset-backed

    1,420     (12     261     250     (2 )       55     1,670     (14 )       316
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for fixed maturity securities in an unrealized loss position

  $ 15,344   $ (377     2,154   $ 3,213   $ (187     528   $ 18,557   $ (564     2,682
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost:

                 

<20% Below cost

  $ 15,342   $ (377     2,153   $ 3,195   $ (180     524   $ 18,537   $ (557     2,677

20%-50% Below cost

    2     —         1     18     (7 )       4     20     (7 )       5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for fixed maturity securities in an unrealized loss position

  $ 15,344   $ (377     2,154   $ 3,213   $ (187     528   $ 18,557   $ (564     2,682
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment grade

  $ 14,458   $ (349     2,033   $ 3,054   $ (175     495   $ 17,512   $ (524     2,528

Below investment grade

    886     (28     121     159     (12 )       33     1,045     (40 )       154
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for fixed maturity securities in an unrealized loss position

  $ 15,344   $ (377     2,154   $ 3,213   $ (187     528   $ 18,557   $ (564     2,682
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 March 31, 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

  $ 805   $ (29     124   $ 191   $ (13     32   $ 996   $ (42     156

Energy

    581     (14     85     121     (9     18     702     (23     103

Finance and insurance

    2,090     (57     282     240     (10     40     2,330     (67     322

Consumer—non-cyclical

    1,254     (35     144     168     (11     28     1,422     (46     172

Technology and communications

    774     (20     108     182     (15     29     956     (35     137

Industrial

    295     (7     45     53     (3     8     348     (10     53

Capital goods

    509     (20     70     74     (4     12     583     (24     82

Consumer—cyclical

    544     (15     77     109     (6     19     653     (21     96

Transportation

    363     (13     48     76     (4     15     439     (17     63

Other

    22     (1     3     —         —         —         22     (1     3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, U.S. corporate securities

    7,237     (211     986     1,214     (75     201     8,451     (286     1,187
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

                 

Utilities

    335     (9     45     64     (5     5     399     (14     50

Energy

    333     (8     43     57     (3     11     390     (11     54

Finance and insurance

    845     (18     116     116     (5     17     961     (23     133

Consumer—non-cyclical

    252     (7     25     53     (4     7     305     (11     32

Technology and

                 

communications

    280     (7     45     26     (1     7     306     (8     52

Industrial

    176     (4     26     40     (3     6     216     (7     32

Capital goods

    156     (3     20     46     (2     4     202     (5     24

Consumer—cyclical

    226     (4     37     —         —         —         226     (4     37

Transportation

    149     (4     19     40     (3     6     189     (7     25

Other

    536     (10     81     80     (3     16     616     (13     97
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, non-U.S. corporate securities

    3,288     (74     457     522     (29     79     3,810     (103     536
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for corporate securities in an unrealized loss position

  $ 10,525   $ (285     1,443   $ 1,736   $ (104     280   $ 12,261   $ (389     1,723
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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

 

    Less than 12 months     12 months or more     Total  

(Dollar amounts in millions)

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

Description of Securities

                 
Fixed maturity securities:                  

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

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

State and political subdivisions

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

Non-U.S. government

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

U.S. corporate

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

Non-U.S. corporate

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

Residential mortgage-backed

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

Commercial mortgage-backed

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

Other asset-backed

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, fixed maturity securities

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

Equity securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—fixed maturity securities:

                 

<20% Below cost

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

20%-50% Below cost

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
% Below cost—equity securities:                  

<20% Below cost

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total for securities in an unrealized loss position     $6,090     $(65)       1,039     $3,661     $(143)       587     $9,751     $(208)       1,626
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Investment grade   $ 5,867   $ (55     898   $ 3,488   $ (135     528   $ 9,355   $ (190     1,426
Below investment grade     223     (10     141     173     (8 )       59     396     (18 )       200
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total for securities in an unrealized loss position     $6,090     $(65)       1,039     $3,661     $(143)       587     $9,751     $(208)       1,626
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

    Less than 12 months     12 months or more     Total  

(Dollar amounts in millions)

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

U.S. corporate:

                 

Utilities

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

Energy

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

Finance and insurance

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

Consumer—non-cyclical

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

Technology and

                 

communications

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

Industrial

    —         —         —         62     (1     9     62     (1     9

Capital goods

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

Consumer—cyclical

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

Transportation

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

Other

    12     (1     2     —         —         —         12     (1     2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, U.S. corporate securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

                 

Utilities

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

Energy

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

Finance and insurance

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

Consumer—non-cyclical

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

Technology and

                 

communications

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

Industrial

    52     —         9     38     (2     5     90     (2     14

Capital goods

    54     —         11     46     (2     3     100     (2     14

Consumer—cyclical

    131     (1     21     —         —         —         131     (1     21

Transportation

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

Other

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, non-U.S. corporate securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for corporate securities in an unrealized loss position

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The scheduled maturity distribution of fixed maturity securities as of March 31, 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

   $ 1,666    $ 1,677

Due after one year through five years

     10,943      11,146

Due after five years through ten years

     12,618      12,876

Due after ten years

     22,399      25,129
  

 

 

    

 

 

 

Subtotal

     47,626      50,828

Residential mortgage-backed

     3,664      3,836

Commercial mortgage-backed

     3,355      3,342

Other asset-backed

     3,077      3,074
  

 

 

    

 

 

 

Total

   $ 57,722    $ 61,080
  

 

 

    

 

 

 

As of March 31, 2018, securities issued by finance and insurance, utilities and consumer—non-cyclical industry groups represented approximately 23%, 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 March 31, 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:

 

     March 31, 2018     December 31, 2017  

(Amounts in millions)

   Carrying
value
    % of
total
    Carrying
value
    % of
total
 

Property type:

        

Retail

   $ 2,276     36    $ 2,239     35 

Industrial

     1,601     25     1,628     26

Office

     1,480     23     1,510     24

Apartments

     483     8     478     8

Mixed use

     226     4     223     3

Other

     282     4     275     4
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

     6,348     100      6,353     100 
    

 

 

     

 

 

 

Unamortized balance of loan origination fees and costs

     (3       (3  

Allowance for losses

     (9       (9  
  

 

 

     

 

 

   

Total

   $ 6,336     $ 6,341  
  

 

 

     

 

 

   

 

     March 31, 2018     December 31, 2017  

(Amounts in millions)

   Carrying
value
    % of
total
    Carrying
value
    % of
total
 

Geographic region:

        

South Atlantic

   $ 1,653     26    $ 1,625     26 

Pacific

     1,627     26     1,622     26

Middle Atlantic

     907     15     927     14

Mountain

     576     9     556     9

West North Central

     444     7     446     7

East North Central

     387     6     394     6

West South Central

     342     5     336     5

East South Central

     212     3     208     3

New England

     200     3     239     4
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

     6,348     100      6,353     100 
    

 

 

     

 

 

 

Unamortized balance of loan origination fees and costs

     (3       (3  

Allowance for losses

     (9       (9  
  

 

 

     

 

 

   

Total

   $ 6,336     $ 6,341  
  

 

 

     

 

 

   

 

The following tables set forth the aging of past due commercial mortgage loans by property type as of the dates indicated:

 

     March 31, 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

   $ —       $ —       $ —       $ —       $ 2,276   $ 2,276

Industrial

     —         —         —         —         1,601     1,601

Office

     7     —         6     13     1,467     1,480

Apartments

     —         —         —         —         483     483

Mixed use

     —         —         —         —         226     226

Other

     —         —         —         —         282     282
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 7   $ —       $ 6   $ 13   $ 6,335   $ 6,348
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% 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
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of March 31, 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 March 31, 2018 and December 31, 2017.

We evaluate the impairment of commercial mortgage loans on an individual loan basis. As of March 31, 2018, our commercial mortgage loans greater than 90 days past due included loans with appraised values in excess of the recorded investment and the current recorded investment of these loans was expected to be recoverable.

During the three months ended March 31, 2018 and the year ended December 31, 2017, we modified or extended one and ten commercial mortgage loans, respectively, with a total carrying value of $5 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
March 31,
 

(Amounts in millions)

   2018      2017  

Allowance for credit losses:

     

Beginning balance

   $ 9    $ 12

Charge-offs

     —          —    

Recoveries

     —          —    

Provision

     —          (1
  

 

 

    

 

 

 

Ending balance

   $ 9    $ 11
  

 

 

    

 

 

 

Ending allowance for individually impaired loans

   $ —        $ —    
  

 

 

    

 

 

 

Ending allowance for loans not individually impaired that were evaluated collectively for impairment

   $ 9    $ 11
  

 

 

    

 

 

 

Recorded investment:

     

Ending balance

   $ 6,348    $ 6,121
  

 

 

    

 

 

 

Ending balance of individually impaired loans

   $ —        $ —    
  

 

 

    

 

 

 

Ending balance of loans not individually impaired that were evaluated collectively for impairment

   $ 6,348    $ 6,121
  

 

 

    

 

 

 

As of March 31, 2018 and 2017, we had no individually impaired commercial mortgage loans. As of 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.

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 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:

 

     March 31, 2018  

(Amounts in millions)

   0% - 50%     51% - 60%     61% - 75%     76% - 100%     Greater
than 100% (1)
    Total  

Property type:

            

Retail

   $ 851   $ 496   $ 929   $ —       $ —       $ 2,276

Industrial

     681     355     565     —         —         1,601

Office

     443     462     560     13     2       1,480

Apartments

     205     125     148     5     —         483

Mixed use

     101     55     70     —         —         226

Other

     50     43     189     —         —         282
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 2,331   $ 1,536   $ 2,461   $ 18   $ 2     $ 6,348
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total

     37     24     39     —       —       100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average debt service coverage ratio

     2.41       2.17       1.74     0.58     1.04       2.08
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.

 

     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     —