GENWORTH FINANCIAL INC, 10-Q filed on 5/1/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
Apr. 24, 2019
Document and Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Entity Registrant Name GENWORTH FINANCIAL INC  
Entity Central Index Key 0001276520  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Trading Symbol GNW  
Entity Common Stock, Shares Outstanding   503,314,344
Entity Emerging Growth Company false  
Entity Small Business false  
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Mar. 31, 2019
Dec. 31, 2018
Assets    
Fixed maturity securities available-for-sale, at fair value $ 61,360 $ 59,661
Equity securities, at fair value 635 655
Commercial mortgage loans ($59 and $62 are restricted as of March 31, 2019 and December 31, 2018, respectively, related to a securitization entity) 6,988 6,749
Policy loans 1,994 1,861
Other invested assets 1,208 1,188
Total investments 72,185 70,114
Cash, cash equivalents and restricted cash 2,221 2,177
Accrued investment income 726 675
Deferred acquisition costs 2,219 3,263
Intangible assets and goodwill 265 347
Reinsurance recoverable 17,257 17,278
Other assets 532 474
Deferred tax asset 573 736
Separate account assets 6,210 5,859
Total assets 102,188 100,923
Liabilities and equity    
Future policy benefits 38,369 37,940
Policyholder account balances 22,651 22,968
Liability for policy and contract claims 10,536 10,379
Unearned premiums 3,482 3,546
Other liabilities 1,682 1,682
Non-recourse funding obligations 311 311
Long-term borrowings 4,035 4,025
Deferred tax liability 30 24
Separate account liabilities 6,210 5,859
Total liabilities 87,306 86,734
Commitments and contingencies
Equity:    
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 591 million and 589 million shares issued as of March 31, 2019 and December 31, 2018, respectively; 503 million and 501 million shares outstanding as of March 31, 2019 and December 31, 2018, respectively 1 1
Additional paid-in capital 11,989 11,987
Net unrealized investment gains (losses):    
Net unrealized gains (losses) on securities not other-than-temporarily impaired 932 585
Net unrealized gains (losses) on other-than-temporarily impaired securities 11 10
Net unrealized investment gains (losses) 943 595
Derivatives qualifying as hedges 1,850 1,781
Foreign currency translation and other adjustments (301) (332)
Total accumulated other comprehensive income (loss) 2,492 2,044
Retained earnings 1,292 1,118
Treasury stock, at cost (88 million shares as of March 31, 2019 and December 31, 2018) (2,700) (2,700)
Total Genworth Financial, Inc.'s stockholders' equity 13,074 12,450
Noncontrolling interests 1,808 1,739
Total equity 14,882 14,189
Total liabilities and equity $ 102,188 $ 100,923
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Millions
Mar. 31, 2019
Dec. 31, 2018
Restricted commercial mortgage loans related to securitization entities $ 59 $ 62
Class A common stock, par value $ 0.001 $ 0.001
Class A common stock, shares authorized 1,500,000,000 1,500,000,000
Class A common stock, shares issued 591,000,000 589,000,000
Class A common stock, shares outstanding 503,000,000 501,000,000
Treasury stock, shares 88,000,000 88,000,000
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Revenues:    
Premiums $ 1,114 $ 1,140
Net investment income 829 804
Net investment gains (losses) 74 (31)
Policy fees and other income 187 202
Total revenues 2,204 2,115
Benefits and expenses:    
Benefits and other changes in policy reserves 1,301 1,311
Interest credited 147 156
Acquisition and operating expenses, net of deferrals 251 240
Amortization of deferred acquisition costs and intangibles 91 104
Interest expense 72 76
Total benefits and expenses 1,862 1,887
Income before income taxes 342 228
Provision for income taxes 112 63
Net income 230 165
Less: net income attributable to noncontrolling interests 56 53
Net income available to Genworth Financial, Inc.'s common stockholders $ 174 $ 112
Net income available to Genworth Financial, Inc.'s common stockholders per share:    
Basic $ 0.35 $ 0.22
Diluted $ 0.34 $ 0.22
Weighted-average common shares outstanding:    
Basic 501.2 499.6
Diluted 508.6 502.7
Supplemental disclosures:    
Total other-than-temporary impairments $ 0 $ 0
Portion of other-than-temporary impairments included in other comprehensive income (loss) 0 0
Net other-than-temporary impairments 0 0
Other investments gains (losses) 74 (31)
Total net investment gains (losses) $ 74 $ (31)
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Net income $ 230 $ 165
Other comprehensive income (loss), net of taxes:    
Net unrealized gains (losses) on securities not other-than-temporarily impaired 379 (341)
Net unrealized gains (losses) on other-than-temporarily impaired securities 1  
Derivatives qualifying as hedges 69 (152)
Foreign currency translation and other adjustments 54 (87)
Total other comprehensive income (loss) 503 (580)
Total comprehensive income (loss) 733 (415)
Less: comprehensive income attributable to noncontrolling interests 111 4
Total comprehensive income (loss) available to Genworth Financial, Inc.'s common stockholders $ 622 $ (419)
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($)
$ in Millions
Total
Common stock
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Treasury stock, at cost
Total Genworth Financial, Inc.'s stockholders' equity
Noncontrolling interests
Balances, beginning at Dec. 31, 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
Balances, beginning at Dec. 31, 2018 14,189 1 11,987 2,044 1,118 (2,700) 12,450 1,739
Repurchase of subsidiary shares (12)             (12)
Comprehensive income (loss):                
Net income 230       174   174 56
Other comprehensive income (loss), net of taxes 503     448     448 55
Total comprehensive income (loss) 733           622 111
Dividends to noncontrolling interests (28)             (28)
Stock-based compensation expense and exercises and other     2       2 (2)
Balances, ending at Mar. 31, 2019 $ 14,882 $ 1 $ 11,989 $ 2,492 $ 1,292 $ (2,700) $ 13,074 $ 1,808
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities:    
Net income $ 230 $ 165
Adjustments to reconcile net income to net cash from operating activities:    
Amortization of fixed maturity securities discounts and premiums (16) (25)
Net investment (gains) losses (74) 31
Charges assessed to policyholders (165) (178)
Acquisition costs deferred (17) (18)
Amortization of deferred acquisition costs and intangibles 91 104
Deferred income taxes 75 26
Derivative instruments and limited partnerships (30) (152)
Stock-based compensation expense 7 7
Change in certain assets and liabilities:    
Accrued investment income and other assets (258) (45)
Insurance reserves 301 377
Current tax liabilities 8 (39)
Other liabilities, policy and contract claims and other policy-related balances (18) (144)
Net cash from operating activities 134 109
Cash flows from (used by) investing activities:    
Fixed maturity securities 902 934
Commercial mortgage loans 127 205
Restricted commercial mortgage loans related to a securitization entity 3 8
Proceeds from sales of investments:    
Fixed maturity and equity securities 1,714 792
Purchases and originations of investments:    
Fixed maturity and equity securities (2,128) (2,013)
Commercial mortgage loans (370) (199)
Other invested assets, net 17 104
Policy loans, net 12 2
Net cash from (used by) investing activities 277 (167)
Cash flows from (used by) financing activities:    
Deposits to universal life and investment contracts 198 255
Withdrawals from universal life and investment contracts (581) (591)
Proceeds from issuance of long-term debt   441
Repayment of borrowings related to a securitization entity   (8)
Repurchase of subsidiary shares (12) (36)
Dividends paid to noncontrolling interests (28) (36)
Other, net 48 22
Net cash from (used by) financing activities (375) 47
Effect of exchange rate changes on cash, cash equivalents and restricted cash 8 (21)
Net change in cash, cash equivalents and restricted cash 44 (32)
Cash, cash equivalents and restricted cash at beginning of period 2,177 2,875
Cash, cash equivalents and restricted cash at end of period $ 2,221 $ 2,843
v3.19.1
Formation of Genworth and Basis of Presentation
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Formation of Genworth and Basis of Presentation
(1) Formation of Genworth and Basis of Presentation
Genworth Holdings, Inc. (“Genworth Holdings”) (formerly known as Genworth Financial, Inc.) was incorporated in Delaware in 2003 in preparation for an initial public offering (“IPO”) of Genworth’s common stock, which was completed on May 28, 2004. On April 1, 2013, Genworth Holdings completed a holding company reorganization pursuant to which Genworth Holdings became a direct, 100% owned subsidiary of a new public holding company that it had formed. The new public holding company was incorporated in Delaware on December 5, 2012, in connection with the reorganization, and was renamed Genworth Financial, Inc. (“Genworth Financial”) upon the completion of the reorganization.
On October 21, 2016, Genworth Financial entered into an agreement and plan of merger (the “Merger Agreement”) with Asia Pacific Global Capital Co., Ltd. (“Parent”), a limited liability company incorporated in the People’s Republic of China and a subsidiary of China Oceanwide Holdings Group Co., Ltd., a limited liability company incorporated in the People’s Republic of China (together with its affiliates, “China Oceanwide”), and Asia Pacific Global Capital USA Corporation (“Merger Sub”), a Delaware corporation and an indirect, wholly-owned subsidiary of Asia Pacific Insurance USA Holdings LLC (“Asia Pacific Insurance”), which is a Delaware limited liability company and owned by China Oceanwide, pursuant to which, subject to the terms and conditions set forth therein, Merger Sub would merge with and into Genworth Financial with Genworth Financial surviving the merger as an indirect, wholly-owned subsidiary of Asia Pacific Insurance. China Oceanwide has agreed to acquire all of our outstanding common stock for a total transaction value of approximately $2.7 billion, or $5.43 per share in cash.
At a special meeting held on March 7, 2017, Genworth Financial’s stockholders voted on and approved a proposal to adopt the Merger Agreement. The closing of the transaction remains subject to other closing conditions and approvals.
The accompanying unaudited condensed financial statements include on a consolidated basis the accounts of Genworth Financial and the affiliate companies in which it holds a majority voting interest or where it is the primary beneficiary of a variable interest entity (“VIE”). All intercompany accounts and transactions have been eliminated in consolidation.
References to “Genworth,” the “Company,” “we” or “our” in the accompanying unaudited condensed consolidated financial statements and these notes thereto are, unless the context otherwise requires, to Genworth Financial on a consolidated basis.
We operate our business through the following five operating segments:
 
  
U.S. Mortgage Insurance. 
In the United States, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans (“flow mortgage insurance”). We selectively provide mortgage insurance on a bulk basis (“bulk mortgage insurance”) with essentially all of our bulk writings being prime-based.
 
  
Canada Mortgage Insurance.
 We offer flow mortgage insurance and also provide bulk mortgage insurance that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk in Canada.
 
  
Australia Mortgage Insurance.
 In Australia, we offer flow mortgage insurance and selectively provide bulk mortgage insurance that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk.
 
  
U.S. Life Insurance.
 We offer long-term care insurance products as well as service traditional life insurance and fixed annuity products in the United States.
 
  
Runoff. 
The Runoff segment includes the results of 
non-strategic
 products which are no longer actively sold but we continue to service our existing blocks of business. Our 
non-strategic
 products primarily include our variable annuity, variable life insurance, institutional, corporate-owned life insurance and other accident and health insurance products. Institutional products consist of funding agreements and funding agreements backing notes.
In addition to our five operating business segments, we also have Corporate and Other activities which include debt financing expenses that are incurred at the Genworth Holdings level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other businesses that are managed outside of our operating segments, including certain smaller international mortgage insurance businesses.
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Preparing financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. These unaudited condensed consolidated financial statements include all adjustments (including normal recurring adjustments) considered necessary by management to present a fair statement of the financial position, results of operations and cash flows for the periods presented. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2018 Annual Report on Form 
10-K.
 Certain prior year amounts have been reclassified to conform to the current year presentation.
v3.19.1
Accounting Changes
3 Months Ended
Mar. 31, 2019
Disclosue of Accounting Changes [Abstract]  
Accounting Changes
(2) Accounting Changes
Accounting Pronouncements Recently Adopted
On January 1, 2019, we adopted new accounting guidance related to benchmark interest rates used in derivative hedge accounting. The guidance adds an additional permissible U.S. benchmark interest rate, the Secured Overnight Financing Rate, for hedge accounting purposes. We adopted this new accounting guidance using the prospective method, which did not have any impact on our condensed consolidated financial statements and disclosures.
On January 1, 2019, we adopted new accounting guidance related to accounting for nonemployee share-based payments. The guidance aligns the measurement and classification of share-based payments to nonemployees issued in exchange for goods or services with the guidance for share-based payments to employees, with certain exceptions. We adopted this new accounting guidance using the modified retrospective method. This guidance is consistent with our previous accounting practices and, accordingly, had no impact on our
condensed 
consolidated financial statements at adoption.
On January 1, 2019, we adopted new accounting guidance related to shortening the amortization period of certain callable debt securities held at a premium. The guidance requires the premium to be amortized to the earliest call date. This change does not apply to securities held at a discount. We adopted this new accounting guidance using the modified retrospective method, which had no significant impact on our
condensed 
consolidated financial statements at adoption.
On January 1, 2019, we adopted new accounting guidance related to the accounting for leases. The new guidance generally requires lessees to recognize both a right-of-use asset and a corresponding lease liability on the balance sheet. We adopted this new accounting guidance using the effective date transition method, which permits entities to apply the new lease standard using a modified retrospective transition approach at the date of adoption. As such, historical periods will continue to be measured and presented under the previous guidance while current and future periods will be subject to this new accounting guidance. The package of practical expedients was also elected upon adoption. Upon adoption we recorded 
a $60 
million right-of-use asset related to operating leases and a $63 million lease liability. In addition, we de-recognized accrued rent expense of $3 million recorded under the previous accounting guidance. The right-of-use asset and the lease liability are included in other assets and other liabilities, respectively, but do not have a material impact on our condensed consolidated balance sheet as of March 31, 2019. The initial measurement of our right-of-use asset had no significant initial direct costs, prepaid lease payments or lease incentives; therefore, a cumulative-effect adjustment was not recorded to the opening retained earnings balance as a result of the change in accounting principle
.
Our leased assets
are
predominantly
classified as operating leases and consist of office space in 14 locations primarily in the United States, Canada and Australia. Lease payments included in the calculation of our lease liability include fixed amounts contained within each rental agreement and variable lease payments that are based upon an index or rate. We have elected to combine lease and non-lease components, as permitted under this new accounting guidance, as a result, non-lease components are included in the calculation of our lease liability as opposed to being separated and accounted for as consideration under the new revenue recognition standard. Our remaining lease terms range from 1 to 14 years and have a weighted-average remaining lease term of 7.6 years as of March 31, 2019. The implicit rate of our lease agreements was not readily determinable; therefore, we utilized our incremental borrowing rate to discount future lease payments. The weighted-average discount rate was 6.24% as of March 31, 2019.
Our aggregate annual rental expense for all leases under the previous guidance was approximately $11 million. Annual rental expense and future minimum lease payments are not expected to be materially different under this new accounting guidance.
 
Accounting Pronouncements Not Yet Adopted
In August 2018, the
Financial Accounting Standards Board (“the FASB”) issued new accounting guidance that significantly changes the recognition and measurement of long-duration insurance contracts and expands disclosure requirements, which impacts our life insurance deferred acquisition costs (“DAC”) and liabilities. In accordance with the guidance, the more significant changes include:
 
 
 
assumptions will no longer be locked-in at contract inception and all cash flow assumptions used to estimate the liability for future policy benefits will be reviewed at least annually in the same period each year or more frequently if actual experience indicates a change is required;
 
 
 
changes in cash flow assumptions (except the discount rate) will be recorded in net income (loss) using a retrospective approach with a cumulative catch-up adjustment by recalculating the net premium ratio (which will be capped at 100%) using actual historical and updated future cash flow assumptions;
 
 
 
the discount rate used to determine the liability for future policy benefits will be a current upper-medium grade (low credit risk) fixed-income instrument yield, which is generally interpreted to mean a single-A rated bond rate for the same duration, and is required to be reviewed quarterly, with changes in the discount rate recorded in other comprehensive income (loss);
 
 
 
the provision for adverse deviation and the premium deficiency test will be eliminated;
 
 
 
market risk benefits associated with deposit-type contracts will be measured at fair value with changes recorded in net income (loss);
 
 
 
the amortization method for DAC will generally be on a straight-line basis over the expected contract term; and
 
 
 
disclosures will be greatly expanded to include significant assumptions and product liability rollforwards.
The guidance is currently effective for us on January 1, 2021 using the modified retrospective method, with early adoption permitted. We are in process of evaluating the new guidance and the impact it will have on our
condensed 
consolidated financial statements.
In August 2018, the FASB issued new accounting guidance related to disclosure requirements for defined benefit plans as part of its disclosure framework project. The guidance adds, eliminates and modifies certain disclosure requirements for defined benefit pension and other postretirement benefit plans. The guidance is currently effective for us on January 1, 2020 using the retrospective method, with early adoption permitted. We do not expect any significant impact from this guidance on our
condensed 
consolidated financial statements and disclosures.
In August 2018, the FASB issued new accounting guidance related to fair value disclosure requirements as part of its disclosure framework project. The guidance adds, eliminates and modifies certain disclosure requirements for fair value measurements. The guidance includes new disclosure requirements related to the change in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance is currently effective for us on January 1, 2020 using the prospective method for certain disclosures and the retrospective method for all other disclosures. Early adoption of either the entire standard or only the provisions that eliminate or modify the requirements is permitted. We are in process of evaluating the impact the guidance may have on our 
condensed
consolidated financial statements and disclosures.
In June 2016, the FASB issued new accounting guidance related to accounting for credit losses on financial instruments. The guidance requires that entities recognize an allowance equal to its estimate of lifetime expected credit losses and applies to most debt instruments not measured at fair value, which would primarily include our commercial mortgage loans and reinsurance 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
condensed 
consolidated financial statements.
v3.19.1
Earnings Per Share
3 Months Ended
Mar. 31, 2019
Earnings Per Share
(3) Earnings Per Share
Basic and diluted earnings per share are calculated by dividing each income category presented below by the weighted-average basic and diluted common shares outstanding for the periods indicated:
 
  
Three months ended
 
  
March 31,
 
(Amounts in millions, except per share amounts)
 
2019
  
2018
 
Weighted-average shares used in basic earnings per share calculations
  501.2   499.6 
Potentially dilutive securities:
        
Stock options, restricted stock units and stock appreciation rights
  7.4   3.1 
  
 
 
  
 
 
 
Weighted-average shares used in diluted earnings per share calculations
  508.6   502.7 
  
 
 
  
 
 
 
Net income:
        
Net income
 $230  $165 
Less: net income attributable to noncontrolling interests
  56   53 
  
 
 
  
 
 
 
Net income available to Genworth Financial, Inc.’s common stockholders
 $174  $112 
  
 
 
  
 
 
 
Basic earnings per share:
        
Net income
 $0.46  $0.33 
Less: net income attributable to noncontrolling interests
  0.11   0.11 
  
 
 
  
 
 
 
Net income available to Genworth Financial, Inc.’s common stockholders
 $0.35  $0.22 
  
 
 
  
 
 
 
Diluted earnings per share:
        
Net income
 $0.45  $0.33 
Less: net income attributable to noncontrolling interests
  0.11   0.10 
  
 
 
  
 
 
 
Net income available to Genworth Financial, Inc.’s common stockholders
(1)
 $0.34  $0.22 
  
 
 
  
 
 
 
 
(1)
May not total due to whole number calculation.
v3.19.1
Investments
3 Months Ended
Mar. 31, 2019
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)
 
2019
  
2018
 
Fixed maturity securities—taxable
 $643  $635 
Fixed maturity securities—non-taxable
  2   3 
Equity securities
  9   10 
Commercial mortgage loans
  81   82 
Restricted commercial mortgage loans related to a securitization entity
  1   2 
Policy loans
  46   43 
Other invested assets
  59   39 
Cash, cash equivalents, restricted cash and short-term investments
  12   12 
  
 
 
  
 
 
 
Gross investment income before expenses and fees
  853   826 
Expenses and fees
  (24  (22
  
 
 
  
 
 
 
Net investment income
 $829  $804 
  
 
 
  
 
 
 
(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)
 
2019
  
2018
 
Available-for-sale securities:
        
Realized gains
 $81  $7 
Realized losses
  (22  (16
  
 
 
  
 
 
 
Net realized gains (losses) on available-for-sale securities
  59   (9
  
 
 
  
 
 
 
Impairments:
        
Total other-than-temporary impairments
  —     —   
Portion of other-than-temporary impairments included in other comprehensive income
  —     —   
  
 
 
  
 
 
 
Net realized gains (losses) on equity securities sold
  3   2 
Net unrealized gains (losses) on equity securities still held
  8   (18
Limited partnerships
  15   7 
Commercial mortgage loans
  (1  —   
Derivative instruments
 (1)
  (10  (13
  
 
 
  
 
 
 
Net investment gains (losses)
 $74  $(31
  
 
 
  
 
 
 
 
(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, 2019 and 2018 was $763 million and $619 million, respectively, which was approximately 97% and 98%, 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)
 
2019
  
2018
 
Beginning balance
 $24  $32 
Reductions:
        
Securities sold, paid down or disposed
  (1  (4
  
 
 
  
 
 
 
Ending balance
 $23  $28 
  
 
 
  
 
 
 
(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, 2019
  
December 31, 2018
 
Net unrealized gains (losses) on fixed maturity securities 
(1)
 $3,714  $1,775 
Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves
  (2,401  (952
Income taxes, net
  (300  (190
  
 
 
  
 
 
 
Net unrealized investment gains (losses)
  1,013   633 
Less: net unrealized investment gains (losses) attributable to noncontrolling interests
  70   38 
  
 
 
  
 
 
 
Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.
 $943  $595 
  
 
 
  
 
 
 
 
(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)
 
2019
  
2018
 
Beginning balance
 $595  $1,085 
Cumulative effect of changes in accounting:
        
Stranded tax effects
  —     189 
Recognition and measurement of financial assets and liabilities, net of taxes of $— and $18
  —     (25
  
 
 
  
 
 
 
Total cumulative effect of changes in accounting
  —     164 
  
 
 
  
 
 
 
Unrealized gains (losses) arising during the period:
        
Unrealized gains (losses) on investment securities
  1,999   (1,681
Adjustment to deferred acquisition costs
  (989  442 
Adjustment to present value of future profits
  (53  36 
Adjustment to sales inducements
  (19  20 
Adjustment to benefit reserves
  (388  740 
Provision for income taxes
  (123  95 
  
 
 
  
 
 
 
Change in unrealized gains (losses) on investment securities
  427   (348
Reclassification adjustments to net investment (gains) losses, net of taxes of $13 and $(1)
  (47  7 
  
 
 
  
 
 
 
Change in net unrealized investment gains (losses)
  380   (341
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests
  32   (9
  
 
 
  
 
 
 
Ending balance
 $943  $917 
  
 
 
  
 
 
 
 
(d) Fixed Maturity Securities
As of March 31, 2019, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity securities classified as available-for-sale were as follows:
 
     
Gross unrealized gains
  
Gross unrealized losses
    
  
Amortized
  
Not other-than-
  
Other-than-
  
Not other-than-
  
Other-than-
    
  
cost or
  
temporarily
  
temporarily
  
temporarily
  
temporarily
  
Fair
 
(Amounts in millions)
 
cost
  
impaired
  
impaired
  
impaired
  
impaired
  
value
 
Fixed maturity securities:
                        
U.S. government, agencies and government-sponsored enterprises
 $4,116  $619  $—    $(4 $—    $4,731 
State and political subdivisions
  2,329   223   —     (6  —     2,546 
Non-U.S. government
  2,403   121   —     (6  —     2,518 
U.S. corporate:
                        
Utilities
  4,296   426   —     (37  —     4,685 
Energy
  2,447   186   —     (15  —     2,618 
Finance and insurance
  6,883   405   —     (37  —     7,251 
Consumer—non-cyclical
  4,905   407   —     (55  —     5,257 
Technology and communications
  2,832   161   —     (19  —     2,974 
Industrial
  1,194   67   —     (12  —     1,249 
Capital goods
  2,283   225   —     (19  —     2,489 
Consumer—cyclical
  1,579   83   —     (16  —     1,646 
Transportation
  1,271   107   —     (16  —     1,362 
Other
  379   33   —     (1  —     411 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total U.S. corporate
  28,069   2,100   —     (227  —     29,942 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Non-U.S. corporate:
                        
Utilities
  1,100   36   —     (9  —     1,127 
Energy
  1,327   124   —     (4  —     1,447 
Finance and insurance
  2,434   129   —     (9  —     2,554 
Consumer—non-cyclical
  699   19   —     (9  —     709 
Technology and communications
  1,151   52   —     (6  —     1,197 
Industrial
  920   56   —     (3  —     973 
Capital goods
  644   21   —     (3  —     662 
Consumer—cyclical
  537   8   —     (4  —     541 
Transportation
  756   65   —     (6  —     815 
Other
  2,127   139   —     (6  —     2,260 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total non-U.S. corporate
  11,695   649   —     (59  —     12,285 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Residential mortgage-backed
  2,762   181   13   (6  —     2,950 
Commercial mortgage-backed
  2,946   64   —     (48  —     2,962 
Other asset-backed
  3,422   18   1   (15  —     3,426 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total available-for-sale fixed maturity securities
 $57,742  $3,975  $14  $(371 $—    $61,360 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
As of December 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
    
  
Amortized
  
Not other-than-
  
Other-than-
  
Not other-than-
  
Other-than-
    
  
cost or
  
temporarily
  
temporarily
  
temporarily
  
temporarily
  
Fair
 
(Amounts in millions)
 
cost
  
impaired
  
impaired
  
impaired
  
impaired
  
value
 
Fixed maturity securities:
                        
U.S. government, agencies and government-sponsored enterprises
 $4,175  $473  $—    $(17 $—    $4,631 
State and political subdivisions
  2,406   168   —     (22  —     2,552 
Non-U.S. government
  2,345   72   —     (24  —     2,393 
U.S. corporate:
                        
Utilities
  4,439   331   —     (95  —     4,675 
Energy
  2,382   101   —     (64  —     2,419 
Finance and insurance
  6,705   249   —     (132  —     6,822 
Consumer—non-cyclical
  4,891   294   —     (137  —     5,048 
Technology and communications
  2,823   110   —     (78  —     2,855 
Industrial
  1,230   41   —     (33  —     1,238 
Capital goods
  2,277   165   —     (51  —     2,391 
Consumer—cyclical
  1,592   53   —     (48  —     1,597 
Transportation
  1,283   78   —     (41  —     1,320 
Other
  376   24   —     (3  —     397 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total U.S. corporate
  27,998   1,446   —     (682  —     28,762 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Non-U.S. corporate:
                        
Utilities
  1,056   17   —     (32  —     1,041 
Energy
  1,320   72   —     (23  —     1,369 
Finance and insurance
  2,391   72   —     (40  —     2,423 
Consumer—non-cyclical
  756   8   —     (25  —     739 
Technology and communications
  1,168   23   —     (26  —     1,165 
Industrial
  926   36   —     (17  —     945 
Capital goods
  615   10   —     (10  —     615 
Consumer—cyclical
  532   1   —     (13  —     520 
Transportation
  689   46   —     (15  —     720 
Other
  2,218   105   —     (23  —     2,300 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total non-U.S. corporate
  11,671   390   —     (224  —     11,837 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Residential mortgage-backed
  2,888   160   13   (17  —     3,044 
Commercial mortgage-backed
  3,054   43   —     (81  —     3,016 
Other asset-backed
  3,444   10   1   (29  —     3,426 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total available-for-sale fixed maturity securities
 $57,981  $2,762  $14  $(1,096 $—    $59,661 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
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, 2019:
 
  
Less than 12 months
  
12 months or more
  
Total
 
     
Gross
        
Gross
        
Gross
    
  
Fair
  
unrealized
  
Number of
  
Fair
  
unrealized
  
Number of
  
Fair
  
unrealized
  
Number of
 
(Dollar amounts in millions)
 
value
  
losses
  
securities
  
value
  
losses
  
securities
  
value
  
losses
  
securities
 
Description of Securities
                                    
Fixed maturity securities:
                                    
U.S. government, agencies and government-sponsored
 
enterprises
 $—    $—     —    $229  $ (4)
 
 
  31  $229  $ (4)
 
 
  31 
State and political subdivisions
  11   —     3   259   (6)
 
 
  60   270   (6)
 
 
  63 
Non-U.S. government
  62   —     11   331   (6)
 
 
  36   393   (6)
 
 
  47 
U.S. corporate
  1,247   (37  153   5,003   (190)
 
 
  698   6,250   (227)
 
 
  851 
Non-U.S. corporate
  354   (6  57   1,922   (53)
 
 
  296   2,276   (59)
 
 
  353 
Residential mortgage-backed
  46   (1  9   476   (5)
 
 
  85   522   (6)
 
 
  94 
Commercial mortgage-backed
  168   (4  22   933   (44)
 
 
  143   1,101   (48)
 
 
  165 
Other asset-backed
  981   (10  209   707   (5)
 
 
  162   1,688   (15)
 
 
  371 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total for fixed maturity securities in an unrealized loss position
 $2,869  $(58  464  $9,860  $(313  1,511  $12,729  $(371  1,975 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
% Below cost:
                                    
<20% Below cost
 $2,869  $(58  464  $9,839  $(304  1,505  $12,708  $(362  1,969 
20%-50% Below cost
  —     —     —     18   (6)
 
 
  3   18   (6)
 
 
  3 
>50% Below cost