GENWORTH FINANCIAL INC, 10-K filed on 2/26/2021
Annual Report
v3.20.4
Cover Page - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2020
Feb. 17, 2021
Jun. 30, 2020
Cover [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Entity Central Index Key 0001276520    
Current Fiscal Year End Date --12-31    
Document Annual Report true    
Document Transition Report false    
Document Period End Date Dec. 31, 2020    
Entity Registrant Name GENWORTH FINANCIAL, INC.    
Entity File Number 001-32195    
Entity Tax Identification Number 80-0873306    
Entity Incorporation, State or Country Code DE    
Entity Current Reporting Status Yes    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Filer Category Large Accelerated Filer    
Entity Shell Company false    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Address, Address Line One 6620 West Broad Street    
Entity Address, State or Province VA    
Entity Address, City or Town Richmond    
Entity Address, Postal Zip Code 23230    
Entity Interactive Data Current Yes    
City Area Code 804    
Local Phone Number 281-6000    
Trading Symbol GNW    
Security Exchange Name NYSE    
Title of 12(b) Security Class A Common Stock, par value $.001 per share    
Entity Common Stock, Shares Outstanding   505,794,485  
Entity Public Float     $ 1.2
ICFR Auditor Attestation Flag true    
v3.20.4
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Dec. 31, 2020
Dec. 31, 2019
Assets    
Fixed maturity securities available-for-sale, at fair value (amortized cost of $55,676 and allowance for credit losses of $4 as of December 31, 2020) $ 65,790 $ 60,339
Equity securities, at fair value 476 239
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4 as of December 31, 2020 and 2019) 6,774 6,976
Less: Allowance for credit losses (31) (13)
Commercial mortgage loans, net 6,743 6,963
Policy loans 1,978 2,058
Other invested assets 2,253 1,632
Total investments 77,240 71,231
Cash, cash equivalents and restricted cash 2,656 3,341
Accrued investment income 671 654
Deferred acquisition costs 1,529 1,836
Intangible assets and goodwill 200 201
Reinsurance recoverable 16,864 17,103
Less: Allowance for credit losses (45) 0
Reinsurance recoverable, net 16,819 17,103
Other assets 444 443
Deferred tax asset 107 425
Separate account assets 6,081 6,108
Total assets 105,747 101,342
Liabilities and equity    
Future policy benefits 42,695 40,384
Policyholder account balances 21,503 22,217
Liability for policy and contract claims 11,817 10,958
Unearned premiums 1,968 1,893
Other liabilities 1,718 1,386
Non-recourse funding obligations 0 311
Long-term borrowings 3,548 3,277
Separate account liabilities 6,081 6,108
Liabilities related to discontinued operations 597 176
Total liabilities 89,927 86,710
Commitments and contingencies
Equity:    
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 594 million and 592 million shares issued as of December 31, 2020 and 2019, respectively; 506 million and 504 million shares outstanding as of December 31, 2020 and 2019, respectively 1 1
Additional paid-in capital 12,008 11,990
Accumulated other comprehensive income (loss) 4,425 3,433
Retained earnings 1,584 1,461
Treasury stock, at cost (88 million shares as of December 31, 2020 and 2019) (2,700) (2,700)
Total Genworth Financial, Inc.'s stockholders' equity 15,318 14,185
Noncontrolling interests 502 447
Total equity 15,820 14,632
Total liabilities and equity $ 105,747 $ 101,342
v3.20.4
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Millions
Dec. 31, 2020
Dec. 31, 2019
Debt securities amortized costs $ 55,676  
Debt securities allowance for credit losses 4  
Unamortized balance of loan origination fees $ 4 $ 4
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 594,000,000 592,000,000
Class A common stock, shares outstanding 506,000,000 504,000,000
Treasury stock, shares 88,000,000 88,000,000
v3.20.4
CONSOLIDATED STATEMENTS OF INCOME - USD ($)
shares in Millions, $ in Millions
3 Months Ended 12 Months Ended
Dec. 31, 2020
Sep. 30, 2020
Jun. 30, 2020
Mar. 31, 2020
Dec. 31, 2019
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Revenues:                      
Premiums                 $ 4,110 $ 4,037 $ 3,994
Net investment income                 3,260 3,220 3,121
Net investment gains (losses)                 558 50 (9)
Policy fees and other income                 730 789 795
Total revenues $ 2,263 [1] $ 2,420 [1] $ 2,138 [1] $ 1,837 [1] $ 2,038 $ 2,020 $ 1,994 $ 2,044 8,658 8,096 7,901
Benefits and expenses:                      
Benefits and other changes in policy reserves                 5,391 5,163 5,606
Interest credited                 549 577 611
Acquisition and operating expenses, net of deferrals                 988 962 943
Amortization of deferred acquisition costs and intangibles                 492 441 348
Goodwill impairment                 5 0 0
Interest expense                 202 239 256
Total benefits and expenses 1,883 [2] 1,835 [2] 1,990 [2] 1,919 [2] 1,957 [3] 1,848 [3] 1,770 [3] 1,807 [3] 7,627 7,382 7,764
Income from continuing operations before income taxes                 1,031 714 137
Provision for income taxes                 270 195 70
Income (loss) from continuing operations 296 [1],[2],[4] 435 [1],[2],[4] 102 [1],[2],[4] (72) [1],[2],[4] 55 [5] 138 [5] 158 [5] 168 [5] 761 519 67
Income (loss) from discontinued operations, net of taxes (30) [6] 1 [6] (520) [6] 0 [6] (31) [7] (80) [7] 60 [7] 62 [7] (549) 11 230
Net income 266 [1],[2],[4],[6] 436 [1],[2],[4],[6] (418) [1],[2],[4],[6] (72) [1],[2],[4],[6] 24 [5],[7] 58 [5],[7] 218 [5],[7] 230 [5],[7] 212 530 297
Less: net income from continuing operations attributable to noncontrolling interests (1) 18 23 (6) 19 10 15 20 34 64 70
Less: net income from discontinued operations attributable to noncontrolling interests 0 0 0 0 22 30 35 36 0 123 108
Net income available to Genworth Financial, Inc.'s common stockholders 267 418 (441) (66) (17) 18 168 174 178 343 119
Net income (loss) available to Genworth Financial, Inc.'s common stockholders:                      
Income (loss) from continuing operations available to Genworth Financial, Inc.'s common stockholders 297 417 79 (66) 36 128 143 148 727 455 (3)
Income (loss) from discontinued operations available to Genworth Financial, Inc.'s common stockholders (30) 1 (520) 0 (53) (110) 25 26 (549) (112) 122
Net income available to Genworth Financial, Inc.'s common stockholders $ 267 $ 418 $ (441) $ (66) $ (17) $ 18 $ 168 $ 174 $ 178 $ 343 $ 119
Income (loss) from continuing operations available to Genworth Financial, Inc.'s common stockholders per share:                      
Basic $ 0.59 $ 0.83 $ 0.16 $ (0.13) $ 0.07 $ 0.25 $ 0.29 $ 0.29 $ 1.44 $ 0.90 $ (0.01)
Diluted 0.58 0.82 0.15 (0.13) 0.07 0.25 0.28 0.29 1.42 0.89 (0.01)
Net income available to Genworth Financial, Inc.'s common stockholders per share:                      
Basic 0.53 0.83 (0.87) (0.13) (0.03) 0.04 0.33 0.35 0.35 0.68 0.24
Diluted $ 0.52 $ 0.82 $ (0.86) $ (0.13) $ (0.03) $ 0.04 $ 0.33 $ 0.34 $ 0.35 $ 0.67 $ 0.24
Weighted-average common shares outstanding:                      
Basic 505.6 505.6 505.4 504.3 503.5 503.5 503.4 501.2 505.2 502.9 500.4
Diluted 512.5 [8] 511.5 [8] 512.5 [8] 504.3 [8] 510.4 511.2 508.7 508.6 511.6 509.7 500.4
[1] In the fourth quarter of 2020, we recorded lower net investment gains as compared to the third quarter of 2020. The higher net investment gains recorded in the third quarter of 2020 related to the sale of available-for-sale fixed maturity securities of $330 million driven primarily from the sale of U.S. government securities due to portfolio rebalancing and asset exposure management as a result of the prolonged low interest rate environment. This decrease to total revenues was partially offset by higher net investment income recorded in the fourth quarter of 2020 largely driven by bond calls and mortgage loan repayments of $40 million and limited partnerships of $38 million.
[2] Given our assumption that COVID-19 has temporarily decreased the number of new claims submitted, our long-term care insurance business strengthened IBNR reserves in the fourth quarter of 2020 by $47 million. Additionally, our long-term care insurance business recorded a $91 million increase to claim reserves reflecting our assumption that COVID-19 accelerated mortality experience on the most vulnerable claimants, leaving the remaining claim population less likely to terminate compared to the pre-pandemic average population. Our U.S. mortgage insurance business recorded an unfavorable reserve adjustment of $37 million primarily due to slowing cure emergence patterns impacting the frequency of claim. Our Australia mortgage insurance business strengthened its loss reserves by $88 million, including its IBNR reserves, due to a refinement in methodology to better align with historical delinquency behavior, as well as to reflect delayed impacts from higher expected delinquencies and the pressured economic conditions caused by COVID-19. Our life insurance business completed its annual review of assumptions in the fourth quarter of 2020. This review resulted in lower total benefits and expenses of $82 million from a net favorable unlocking in our term universal and universal life insurance products largely attributable to a model refinement in our term universal life insurance product related to persistency and grace period timing and lower projected cost of insurance assessments on our universal life insurance products. In addition, we recorded a DAC impairment of $63 million in our universal life insurance products due principally to lower future estimated gross profits.
[3] Our life insurance business completed its annual review of assumptions in the fourth quarter of 2019, which resulted in higher total benefits and expenses of $145 million from an unfavorable unlocking in our universal and term universal life insurance products driven mostly by the lower interest rate environment.
[4] In the fourth quarter of 2020, our long-term care insurance business strengthened its reserves by $109 million after-tax. Our U.S. mortgage insurance and Australia mortgage insurance businesses strengthened their loss reserves by $29 million and $62 million, respectively, after-tax. Our life insurance business recorded a $60 million net favorable unlocking, net of taxes, related to its annual review of assumptions. This favorable unlocking in our life insurance business was partially offset by a DAC impairment of $50 million, net of taxes, as a result of recoverability testing. For all of the aforementioned transactions, see above under superscript (2) for additional details.
[5] In the fourth quarter of 2019, our life insurance business recorded a $107 million unfavorable unlocking, net of taxes, related to its annual review of assumptions in our universal and term universal life insurance products, as described above. This unfavorable unlocking in our life insurance business was partially offset by a favorable update of $11 million, net of taxes, in our U.S. mortgage insurance business in connection with a review of its single premium earnings pattern and from a favorable reserve adjustment of $10 million, net of taxes.
[6] In the fourth quarter of 2020, we recorded a loss from discontinued operations, net of taxes, of $30 million principally attributed to foreign currency remeasurement losses of $26 million, unfavorable tax charges of $17 million and other expenses of $8 million, mostly consisting of interest expense attributable to the promissory note owed to AXA. These losses were partially offset by derivative hedge gains of $21 million associated with foreign currency forward contracts entered into to mitigate our exposure to the installment payments to be made in British Pounds in 2022. See note 23 for additional details on discontinued operations.
[7] In the fourth quarter of 2019, we recorded an after-tax loss of approximately $110 million principally in connection with pending litigation involving our former lifestyle protection insurance business. See note 20 for additional information related to asserted claims regarding the sale of our lifestyle protection insurance business. We completed the sale of Genworth MI Canada Inc. (“Genworth Canada”) on December 12, 2019 and recorded an incremental gain of $43 million in the fourth quarter of 2019 predominantly related to a favorable tax position refinement. In addition, during the fourth quarter of 2019 through the sale closing date of December 12, 2019, we recorded $36 million of income from discontinued operations attributed to Genworth Canada.
[8] Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the three months ended March 31, 2020, we were required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share for the three months ended March 31, 2020, as the inclusion of shares for stock options, RSUs and SARs of 5.4 million would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the three months ended March 31, 2020, dilutive potential weighted-average common shares outstanding would have been 509.7 million.
v3.20.4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Net income $ 212 $ 530 $ 297
Other comprehensive income (loss), net of taxes:      
Net unrealized gains (losses) on securities without an allowance for credit losses 764 0 0
Net unrealized gains (losses) on securities with an allowance for credit losses (6) 0 0
Net unrealized gains (losses) on securities not other-than-temporarily impaired 0 846 (669)
Net unrealized gains (losses) on other-than-temporarily impaired securities 0 2 (2)
Derivatives qualifying as hedges 209 221 (298)
Foreign currency translation and other adjustments 55 487 (301)
Total other comprehensive income (loss) 1,022 1,556 (1,270)
Total comprehensive income (loss) 1,234 2,086 (973)
Less: comprehensive income attributable to noncontrolling interests 64 354 22
Total comprehensive income (loss) available to Genworth Financial, Inc.'s common stockholders $ 1,170 $ 1,732 $ (995)
v3.20.4
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($)
$ in Millions
Total
Cumulative effect of change in accounting, net of taxes
Common stock
Common stock
Cumulative effect of change in accounting, net of taxes
Additional paid-in capital
Additional paid-in capital
Cumulative effect of change in accounting, net of taxes
Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss)
Cumulative effect of change in accounting, net of taxes
Retained earnings
Retained earnings
Cumulative effect of change in accounting, net of taxes
Treasury stock, at cost
Treasury stock, at cost
Cumulative effect of change in accounting, net of taxes
Total Genworth Financial, Inc.'s stockholders' equity
Total Genworth Financial, Inc.'s stockholders' equity
Cumulative effect of change in accounting, net of taxes
Noncontrolling interests
Noncontrolling interests
Cumulative effect of change in accounting, net of taxes
Balances, beginning at Dec. 31, 2017 $ 15,328 $ 17 $ 1 $ 0 $ 11,977 $ 0 $ 3,027 $ 131 $ 1,113 $ (114) $ (2,700) $ 0 $ 13,418 $ 17 $ 1,910 $ 0
Repurchase of subsidiary shares (105)   0   0   0   0   0   0   (105)  
Comprehensive income (loss):                                
Net income 297   0   0   0   119   0   119   178  
Other comprehensive income (loss), net of taxes (1,270)   0   0   (1,114)   0   0   (1,114)   (156)  
Total comprehensive income (loss) (973)                       (995)   22  
Dividends to noncontrolling interests (97)   0   0   0   0   0   0   (97)  
Stock-based compensation expense and exercises and other 19   0   10   0   0   0   10   9  
Balances, ending at Dec. 31, 2018 14,189   1   11,987   2,044   1,118   (2,700)   12,450   1,739  
Repurchase of subsidiary shares (44)   0   0   0   0   0   0   (44)  
Sale of business that included noncontrolling interests (1,417)   0   0   0   0   0   0   (1,417)  
Comprehensive income (loss):                                
Net income 530   0   0   0   343   0   343   187  
Other comprehensive income (loss), net of taxes 1,556   0   0   1,389   0   0   1,389   167  
Total comprehensive income (loss) 2,086                       1,732   354  
Dividends to noncontrolling interests (197)   0   0   0   0   0   0   (197)  
Stock-based compensation expense and exercises and other 15   0   3   0   0   0   3   12  
Balances, ending at Dec. 31, 2019 14,632 $ (55) 1 $ 0 11,990 $ 0 3,433 $ 0 1,461 $ (55) (2,700) $ 0 14,185 $ (55) 447 $ 0
Comprehensive income (loss):                                
Net income 212   0   0   0   178   0   178   34  
Other comprehensive income (loss), net of taxes 1,022   0   0   992   0   0   992   30  
Total comprehensive income (loss) 1,234                       1,170   64  
Dividends to noncontrolling interests (9)   0   0   0   0   0   0      
Stock-based compensation expense and exercises and other 18   0   18   0   0   0   18   0  
Balances, ending at Dec. 31, 2020 $ 15,820   $ 1   $ 12,008   $ 4,425   $ 1,584   $ (2,700)   $ 15,318   $ 502  
v3.20.4
CONSOLIDATED STATEMENTS OF CASH FLOWS
$ in Millions
12 Months Ended
Dec. 31, 2020
USD ($)
Dec. 31, 2019
USD ($)
Dec. 31, 2018
USD ($)
Cash flows from operating activities:      
Net income $ 212 $ 530 $ 297
Less (income) loss from discontinued operations, net of taxes 549 (11) (230)
Adjustments to reconcile net income to net cash from operating activities:      
Amortization of fixed maturity securities discounts and premiums (138) (118) (130)
Net investment (gains) losses (558) (50) 9
Charges assessed to policyholders (646) (699) (697)
Acquisition costs deferred (15) (27) (42)
Amortization of deferred acquisition costs and intangibles 492 441 348
Goodwill impairment 5 0 0
Deferred income taxes 268 139 28
Derivative instruments and limited partnerships (87) (98) (260)
Stock-based compensation expense 40 27 35
Change in certain assets and liabilities:      
Accrued investment income and other assets (142) (358) (166)
Insurance reserves 1,217 1,259 1,555
Current tax liabilities (10) 26 8
Other liabilities, policy and contract claims and other policy-related balances 1,042 609 598
Cash from (used by) operating activities—discontinued operations (269) 409 280
Net cash from operating activities 1,960 2,079 1,633
Cash flows from (used by) investing activities:      
Fixed maturity securities 3,800 3,436 3,312
Commercial mortgage loans 744 597 746
Other invested assets 182 153 83
Proceeds from sales of investments:      
Fixed maturity and equity securities 4,234 3,883 5,488
Purchases and originations of investments:      
Fixed maturity and equity securities (9,386) (6,899) (9,386)
Commercial mortgage loans (547) (813) (1,047)
Other invested assets (449) (476) (360)
Short-term investments, net 79 (66) 538
Policy loans, net 190 62 35
Proceeds from sale of business, net of cash transferred 0 1,398 0
Cash from (used by) investing activities—discontinued operations 0 26 (31)
Net cash from (used by) investing activities (1,153) 1,301 (622)
Cash flows used by financing activities:      
Deposits to universal life and investment contracts 862 824 1,193
Withdrawals from universal life and investment contracts (2,282) (2,319) (2,355)
Redemption and repurchase of non-recourse funding obligations (315) 0 0
Proceeds from issuance of long-term debt 766 0 441
Repayment and repurchase of long-term debt (527) (446) (600)
Repayment of borrowings related to securitization entities 0 0 (40)
Repurchase of subsidiary shares 0 (22) (55)
Dividends paid to noncontrolling interests (9) (87) (40)
Other, net (2) (35) (56)
Cash used by financing activities—discontinued operations 0 (132) (109)
Net cash used by financing activities (1,507) (2,217) (1,621)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $—, $6 and $(25) related to discontinued operations) 15 1 (88)
Net change in cash, cash equivalents and restricted cash (685) 1,164 (698)
Cash, cash equivalents and restricted cash at beginning of period 3,341 2,177 2,875
Cash, cash equivalents and restricted cash at end of period 2,656 3,341 2,177
Less cash, cash equivalents and restricted cash of discontinued operations at end of period 0 0 203
Cash, cash equivalents and restricted cash of continuing operations at end of period $ 2,656 $ 3,341 $ 1,974
v3.20.4
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Cash Flows [Abstract]      
Discontinued operations exchange rate effect $ 0 $ 6 $ (25)
v3.20.4
Nature of Business and Formation of Genworth
12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Business and Formation of Genworth
(1) Nature of Business and Formation of Genworth
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.
The accompanying financial statements include on a consolidated basis the accounts of Genworth Financial and our affiliate companies in which we hold a majority voting interest or power to direct activities of certain variable interest entities (“VIEs”), which we refer to as “Genworth,” “Genworth Financial,” the “Company,” “we,” “us” or “our” unless the context otherwise requires. All intercompany accounts and transactions have been eliminated in consolidation.
We operate our business through the following four operating segments:
 
   
U.S. Mortgage Insurance.
In the United States, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans at specified coverage percentages (“primary mortgage insurance”). We also selectively enter into insurance transactions with lenders and investors, under which we insure a portfolio of loans at or after origination (“pool mortgage insurance”).
 
   
Australia Mortgage Insurance.
In Australia, we offer lender mortgage insurance products which predominantly insure individually underwritten residential mortgage loans (“flow mortgage insurance”) and selectively provide mortgage insurance on a bulk basis (“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 products which have not been actively sold since 2011, but we continue to service our existing blocks of business. These products primarily include variable annuity, variable life insurance and corporate-owned life insurance, as well as funding agreements.
In addition to our four 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. See note 23 for additional information related to discontinued operations.
Each reporting period, we assess our ability to continue as a going concern for one year from the date the financial statements are issued. As of December 31, 2020, Genworth Holdings has $1,032 million of unrestricted cash and cash equivalents.
For the year ended December 31, 2020, our
 evaluation of our ability to meet our obligations included the following contractual
obligations due within one year from the issue date of our audited consolidated financial statements included herein:
 
   
Genworth Holdings had 
$338 million of its 7.20%
senior
notes that matured 
in February 2021 and $659 million of its 7.625% senior
notes that will mature 
in September 2021, excluding deferred
 
amounts. We 
are currently in compliance with the terms of our debt agreements and interest payments on our senior notes are forecasted to be $165 million for the next twelve months. See note 12 for additional details on our long-term borrowings.
 
   
As part of the settlement agreement reached in July 2020 regarding the case titled
AXA S.A. v. Genworth Financial International Holdings, LLC et al
., we issued a secured promissory note to AXA S.A. (“AXA”) that is due in 2022. Under the settlement, certain cash flows to Genworth Holdings, including dividends and capital raises, above defined thresholds must be paid to AXA until the promissory note is fully repaid. In addition, to date in 2021 and over the next year, we expect to pay AXA approximately $53 million consisting of interest on the promissory note, assuming we do not make any
pre-payments,
and a
one-time
payment on an unrelated liability associated with underwriting losses on a product sold by a distributor in our former lifestyle protection insurance business. See note 20 for additional details on the case. See note 23 for additional details related to the sale of our former lifestyle protection insurance business and amounts recorded related to discontinued operations.
We also evaluate other conditions and events and their relative significance in relation to our ability to meet our obligations. For example, Genworth Holdings received in the fourth quarter of 2020 intercompany cash tax payments generated primarily from taxable income
on investment gains
and is expecting additional intercompany cash tax payments in future periods. In addition, we are exposed to risks associated with the coronavirus pandemic
(“COVID-19”),
which has disrupted the global economy and financial markets, business operations, and consumer behavior and confidence.
 
   
In 2021, until the secured promissory note to AXA is paid, dividends above $50 million from our U.S. mortgage insurance subsidiaries are subject to mandatory prepayment conditions. In addition, the receipt of dividends and sale proceeds above certain thresholds from our Australian mortgage insurance business are also subject to mandatory prepayment conditions.
 
   
On October 21, 2016, we entered into an agreement with China Oceanwide Holdings Group Co., Ltd. (“China Oceanwide”), under which China Oceanwide 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. As part of the transaction, China Oceanwide and/or its affiliates, additionally committed to contribute an aggregate of $1.5 billion to us over time following consummation of the merger. Due to the uncertainty around the completion and timing of the remaining steps required to close the China Oceanwide transaction, on January 4, 2021, Genworth and China Oceanwide agreed that an extension of the then current December 31, 2020 merger agreement end date would not be sought. The consummation of this transaction is dependent on steps outside of our control; accordingly, the associated post-closing capital contributions from China Oceanwide have not been included in this evaluation.
In connection with repaying our senior notes maturing in September 2021, Genworth Holdings expects to have a cash shortfall of approximately $15 million which raises doubt about our ability to meet our financial obligations within the next year. While conditions and events occurring and expected to occur raise doubt about our ability to meet our financial obligations, management’s plans alleviate this doubt. We believe that our plans, along with existing cash and cash equivalents, will provide Genworth Holdings sufficient liquidity to meet its obligations and maintain business operations for one year from the issue date of the consolidated financial statements.
To address this shortfall and longer-term obligations, as well as build cash buffers, we are actively taking additional steps toward raising capital by preparing for a possible partial public offering of our U.S. mortgage
insurance
business, subject to market conditions. In addition to a partial sale of our U.S. mortgage insurance business through a public offering, we are also evaluating the possibility of the issuance of convertible, equity-linked securities or another transaction, prior to our senior notes maturing in September 2021. We believe an equity transaction involving our U.S. mortgage insurance business, or another transaction, if needed, is probable of being effectively executed. Support for our assessment includes the relatively small amount of the shortfall, the value of the U.S. and Australia mortgage insurance businesses, the healthy conditions of the relevant markets, investor interest, views from our financial advisors, and our successful history of similar transactions, among other factors.
The impact of the ongoing coronavirus pandemic is very difficult to predict. Its related outcomes and impact on our business and the capital markets, and our ability to raise capital will depend on the length of the pandemic, economic impacts of social, global and political influences, and the shape of the economic recovery, among other factors and uncertainties. While these risks exist, we believe we have sufficient funds to meet our obligations for one year following the issuance of our consolidated financial statements.
v3.20.4
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2020
Disclosue of Accounting Changes [Abstract]  
Summary of Significant Accounting Policies
(2) Summary of Significant Accounting Policies
Our consolidated financial statements have been prepared on the basis of U.S. generally accepted accounting principles (“U.S. GAAP”). 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. Certain prior year amounts have been reclassified to conform to the current year presentation. The ultimate impact from
COVID-19
remains unknown, although certain trends, impacts and uncertainties related to
COVID-19
have impacted our financial results under this annual report. Continued risks and uncertainties of
COVID-19
may include declines in investment valuations and impairments, commercial mortgage loan restructurings, deferred acquisition cost or intangible assets impairments or the acceleration of amortization, deferred tax asset recoverability and increases to insurance reserves, including higher claims reserves in our mortgage insurance businesses, among other matters.
a) Premiums
For traditional long-duration insurance contracts, we report premiums as earned when due. For short-duration insurance contracts, we report premiums as revenue over the terms of the related insurance policies on a
pro-rata
basis or in proportion to expected claims.
For single premium mortgage insurance contracts, we report premiums over the estimated policy life in accordance with the expected pattern of risk emergence as further described in our accounting policy for unearned premiums. In addition, we have a practice of refunding the post-delinquent premiums in our U.S. mortgage insurance business to the insured party if the delinquent loan goes to claim. We record a liability for premiums received on the delinquent loans where our practice is to refund post-delinquent premiums
.
Premiums received under annuity contracts without significant mortality risk and premiums received on investment and universal life insurance products are not reported as revenues but rather as deposits and are included in liabilities for policyholder account balances.
b) Net Investment Income and Net Investment Gains and Losses
Investment income is recognized when earned. Income or loss upon call or prepayment of
available-for-sale
fixed maturity securities is recognized in net investment income, except for hybrid securities where the income or
loss upon call is recognized in net investment gains and losses. Investment gains and losses are calculated on the basis of specific identification on the trade date.
Investment income on mortgage-backed and asset-backed securities is initially based upon yield, cash flow and prepayment assumptions at the date of purchase. Subsequent revisions in those assumptions are recorded using the retrospective or prospective method. Under the retrospective method used for mortgage-backed and asset-backed securities of high credit quality (ratings equal to or greater than “AA” or that are backed by a U.S. agency) which cannot be contractually prepaid in such a manner that we would not recover a substantial portion of the initial investment, amortized cost of the security is adjusted to the amount that would have existed had the revised assumptions been in place at the date of purchase. The adjustments to amortized cost are recorded as a charge or credit to net investment income. Under the prospective method, which is used for all other mortgage-backed and asset-backed securities, future cash flows are estimated and interest income is recognized going forward using the new internal rate of return.
c) Policy Fees and Other Income
Policy fees and other income consists primarily of insurance charges assessed on universal and term universal life insurance contracts and fees assessed against customer account values. For universal and term universal life insurance contracts, charges to policyholder accounts for cost of insurance are recognized as revenue when due. Variable product fees are charged to variable annuity contractholders and variable life insurance policyholders based upon the daily net assets of the contractholder’s and policyholder’s account values and are recognized as revenue when charged. Policy surrender fees are recognized as income when the policy is surrendered.
d) Investment Securities
At the time of purchase, we designate our fixed maturity securities as either
available-for-sale
or trading and report them in our consolidated balance sheets at fair value. Our portfolio of fixed maturity securities comprises primarily investment grade securities. Changes in the fair value of
available-for-sale
fixed maturity securities, net of the effect on deferred acquisition costs (“DAC”), present value of future profits (“PVFP”), benefit reserves and deferred income taxes, are reflected as unrealized investment gains or losses in a separate component of accumulated other comprehensive income (loss). Equity securities are recorded at fair value in our consolidated balance sheets and changes in the fair value are reflected in net investment gains (losses). Realized and unrealized gains and losses related to trading securities are reflected in net investment gains (losses).
Allowance for Credit Losses and Impairments on
Available-For-Sale
Fixed Maturity Securities
On January 1, 2020, we adopted new accounting guidance related to credit losses on financial instruments. Under this new accounting guidance, securities in an unrealized loss position are evaluated to determine whether the decline in fair value is related to credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency/agencies and adverse conditions specifically related to the security, among other factors. If a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis and we have either (i) the intent to sell the security, or (ii) it is more likely than not that we will be required to sell the security prior to recovering the amortized cost, we record a reduction to the security’s amortized cost and recognize the loss in net investment gains (losses) for the difference between the security’s
 amortized cost
and estimated fair value. If neither of the two preceding conditions exist, an allowance for credit losses is recorded and a loss is recognized in net investment gains (losses), limited to the amount that the fair value is less than the amortized cost basis. Losses are written off against the allowance when deemed uncollectible or when we intend to sell or expect we will be required to sell a security prior to recovering its amortized cost. When there is an allowance for credit losses, we reassess the credit losses each balance sheet date and subsequent increases or decreases are recorded as an adjustment to the allowance for credit losses, with a corresponding gain or loss recorded in net investment gains (losses).
Estimating the cash flows expected to be collected is a quantitative and qualitative process that incorporates information received from third-party sources along with internal assumptions and judgments. When developing the estimate of cash flows expected to be collected at the individual security level, we utilize an analytical model that provides for various loss scenarios and consider the industry sector, current levels of subordination, geographic location and other relevant characteristics of the security or underlying assets, as well as reasonable and supportable forecasts. We regularly monitor our investment portfolio to ensure that securities with a credit loss are identified in a timely manner and any losses are recognized in the proper period.
We exclude accrued interest related to
available-for-sale
fixed maturity securities from the estimate of allowance for credit losses. Accrued interest is included in accrued investment income in our consolidated balance sheet and had a carrying value of $548 million as of December 31, 2020. We do not measure an allowance for credit losses related to accrued interest as uncollectible accrued interest related to our
available-for-sale
fixed maturity securities is written off after
90 days
and once collectability is determined to be uncertain and not probable. Amounts written off related to accrued interest are recorded as a credit loss expense included in net investment gains (losses).
Prior to the adoption of new accounting guidance related to credit losses on financial instruments on January 1, 2020, we evaluated securities in an unrealized loss position for other-than-temporary impairment as of each balance sheet date. For debt securities, we considered all available information relevant to the collectability of the security, including information about past events, then-current conditions, and reasonable and supportable forecasts, when developing the estimate of cash flows expected to be collected. More specifically for
mortgage-backed
and asset-backed securities, we also utilized performance indicators of the underlying assets including default or delinquency rates, loan to collateral value ratios, third-party credit enhancements, current levels of subordination, vintage and other relevant characteristics of the security or underlying assets to develop our estimate of cash flows. Estimating the cash flows expected to be collected is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral. Where possible, this data was benchmarked against third-party sources.
We recognized other-than-temporary impairments on debt securities in an unrealized loss position when one of the following circumstances exists:
 
   
we did not expect full recovery of our amortized cost basis when due,
 
   
the present value of cash flows expected to be collected was less than our amortized cost basis,
 
   
we intended to sell a security or
 
   
it was more likely than not that we would be required to sell a security prior to recovery.
For other-than-temporary impairments recognized during the period, we presented the total
other-than-temporary
impairments, the portion of other-than-temporary impairments included in other
 comprehensi
ve
income (loss) (“OCI”) and the net other-than-temporary impairments as supplemental disclosure presented on the face of our consolidated statements of income.
Total other-than-temporary impairments that emerged in the period were calculated as the difference between the amortized cost and fair value. For other-than-temporarily impaired securities where we did not intend to sell the security and it was not more likely than not that we would be required to sell the security prior to recovery, total other-than-temporary impairments were adjusted by the portion of other-than-temporary impairments recognized in OCI
(“non-credit”).
Net other-than-temporary impairments recorded in net income (loss) represented the credit loss on the other-than-temporarily impaired securities with the offset recognized as an adjustment to the amortized cost to determine the new amortized cost basis of the securities.
For securities that were deemed to be other-than-temporarily impaired and a
non-credit
loss was recorded in OCI, the amount recorded as an unrealized gain (loss) represented the difference between the fair value and the new amortized cost for each period presented. The unrealized gain (loss) on an other-than-temporarily impaired security was recorded as a separate component in OCI until the security was sold or until we recorded an
other-than-temporary
impairment where we intended to sell the security or were required to sell the security prior to recovery.
To estimate the amount of other-than-temporary impairment attributed to credit losses on debt securities where we did not intend to sell the security and it was not more likely than not that we would be required to sell the security prior to recovery, we determined our best estimate of the present value of the cash flows expected to be collected from a security using the effective yield on the security prior to recording any other-than-temporary impairment. If the present value of the discounted cash flows was lower than the amortized cost of the security, the difference between the present value and amortized cost represented the credit loss associated with the security with the remaining difference between fair value and amortized cost recorded as a
non-credit
other-than-temporary
impairment in OCI.
While the other-than-temporary impairment model for debt securities generally included fixed maturity securities, there were certain hybrid securities that are classified as fixed maturity securities where the application of a debt impairment model depended on whether there had been any evidence of deterioration in credit of the issuer, such as a downgrade to below investment grade. Under certain circumstances, evidence of deterioration in credit of the issuer may have resulted in the application of the equity securities impairment model where we recognized an impairment charge in the period in which we determined that the security would not recover to book value within a reasonable period of time. We determined what constituted a reasonable period on a
security-by-security
basis based upon consideration of all the evidence available to us, including the magnitude of an unrealized loss and its duration. In any event, this period did not exceed 15 months. We measured
other-than-temporary
impairments based upon the difference between the amortized cost of a security and its fair value.
e) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We have fixed maturity securities, short-term investments, equity securities, limited partnerships, derivatives, embedded derivatives, securities held as collateral, separate account assets and certain other financial instruments, which are carried at fair value.
Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market
assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. All assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
 
   
Level 1—Quoted prices for identical instruments in active markets.
 
   
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations for which inputs are observable or where those significant value drivers are observable.
 
   
Level 3—Instruments for which significant value drivers are unobservable.
Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as actively traded equity securities and actively traded mutual fund investments.
Level 2 includes those financial instruments that are valued using industry-standard pricing methodologies, models or other valuation methodologies. These models are primarily industry-standard models that consider various inputs, such as interest rate, credit spread and foreign exchange rates for the underlying financial instruments. All significant inputs are observable, or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include: certain public and private corporate fixed maturity and equity securities; government or agency securities; certain mortgage-backed and asset-backed securities; securities held as collateral; and certain
non-exchange-traded
derivatives such as interest rate or cross currency swaps.
Level 3 comprises financial instruments whose fair value is estimated based on industry-standard pricing methodologies and internally developed models utilizing significant inputs not based on, nor corroborated by, readily available market information. In certain instances, this category may also utilize
non-binding
broker quotes. This category primarily consists of certain less liquid fixed maturity, equity and trading securities and certain derivative instruments or embedded derivatives where we cannot corroborate the significant valuation inputs with market observable data.
As of each reporting period, all assets and liabilities recorded at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability, such as the relative impact on the fair value as a result of including a particular input. We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. See note 16 for additional information related to fair value measurements.
f) Commercial Mortgage Loans
The carrying value of commercial mortgage loans is stated at principal amounts outstanding, net of unamortized premium or discount, deferred expenses and allowance for credit losses. Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs, as well as premiums and discounts, are amortized as level yield adjustments over the respective loan terms. Unamortized net fees or costs are recognized upon early repayment of the loans. Loan commitment fees are deferred and amortized on an effective yield basis over the term of the loan. Commercial mortgage loans are considered past due when contractual payments have not been received from the borrower by the required payment date.
Loans that are considered uncollectible are carried on
non-accrual
status. Loans are placed on
non-accrual
status when, in management’s opinion, the collection of principal or interest is not probable, typically when the collection of principal or interest is
90 days
or more past due. In determining whether it is probable that we will be unable to collect all amounts due, we consider current payment status, debt service coverage ratios, occupancy levels and current
loan-to-value.
Income on loans on
non-accrual
status is not recognized until we believe it is probable that we will collect all future contractual principal and interest. Commercial mortgage loans are written off against the allowance to the extent principal or interest is deemed uncollectible.
We determine the adequacy of the allowance for credit losses utilizing an analytical model that provides various loss scenarios based on historical experience adjusted for current events, trends, economic conditions and reasonable and supportable forecasts that result in a loss in the loan portfolio over the estimated life of the loans. We revert to historical credit loss experience for periods beyond forecasts that are reasonable and supportable. The allowance for credit losses is measured on a collective basis with consideration for debt service coverage ratio,
debt-to-value,
property-type and geographic location. Key inputs into the analytical model include exposure, weighted-average life, return, historical loss rates and forecast scenarios. Actual amounts realized over time could differ from the amounts estimated for the allowance for credit losses reported in the consolidated financial statements. Additions and reductions to the allowance through periodic provisions or benefits are recorded in net investment gains (losses). See note 4 for additional disclosures related to commercial mortgage loans.
Accrued interest related to commercial mortgage loans is included in accrued investment income in our consolidated balance sheet and had a carrying value of $23 million as of December 31, 2020. We do not measure an allowance for credit losses related to accrued interest as uncollectible accrued interest related to our commercial mortgage loans is written off after 90 days and once collectability is determined to be uncertain and not probable. Amounts written off related to accrued interest are recorded as a credit loss expense included in net investment gains (losses).
Prior to the adoption of new accounting guidance related to credit losses on financial instruments on January 1, 2020, we evaluated the impairment of commercial mortgage loans first on an individual loan basis. “Impaired” loans were defined by U.S. GAAP as loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. For individually impaired loans, we recorded an impairment charge when it was probable that a loss has been incurred. The impairment was recorded as an increase in the allowance for loan losses. If an individual loan was not deemed impaired, then we evaluated the remaining loans collectively to determine whether an impairment should be recorded. The allowance for loan losses for loans that were not considered individually impaired that were evaluated collectively was maintained at a level that we determined was adequate to absorb estimated probable incurred losses in the loan portfolio. Our process to determine the adequacy of the allowance utilized an analytical model based on historical loss experience adjusted for current events, trends and economic conditions that would result in a loss in the loan portfolio over the next 12 months. Key inputs into our evaluation included debt service coverage ratios,
debt-to-value,
property-type, occupancy levels, geographic region, and probability weighting of the scenarios generated by the model.
g) Securities Lending Activity
We engage in certain securities lending transactions for the purpose of enhancing the yield on our investment securities portfolio. We maintain effective control over all loaned securities and, therefore, continue to report such securities as fixed maturity securities on the consolidated balance sheets. We are currently
indemnified against counterparty credit risk by the intermediary. See note 12 for additional information related to our securities lending activity.​​​​​​​
h) Cash, Cash Equivalents and Restricted Cash
Certificates of deposit, money market funds and other highly liquid investments with original maturities of three months or less are considered cash equivalents in the consolidated balance sheets and consolidated statements of cash flows. Items with maturities greater than three months but less than one year at the time of acquisition are generally considered short-term investments.
i) Deferred Acquisition Costs
Acquisition costs include costs that are directly related to the successful acquisition of new or renewal insurance contracts. Acquisition costs are deferred and amortized to the extent they are recoverable from future profits.
Long-Duration Contracts
. Acquisition costs include commissions in excess of ultimate renewal commissions and for contracts issued, certain other costs such as underwriting, medical inspection and issuance expenses. DAC for traditional long-duration insurance contracts, including term life and long-term care insurance, is amortized as a level percentage of premiums based on assumptions, including, investment returns, health care experience (including type of care and cost of care), policyholder persistency or lapses (i.e., the probability that a policy or contract will remain
in-force
from one period to the next), insured life expectancy or longevity, insured morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates) and expenses, established when the contract is issued. Amortization is adjusted each period to reflect actual lapse or termination rates.
Amortization for deferred annuity and universal life insurance contracts is based on expected gross profits. Expected gross profits are adjusted quarterly to reflect actual experience to date or for changes in underlying assumptions relating to future gross profits. Estimates of gross profits for DAC amortization are based on assumptions including interest rates, policyholder persistency or lapses, insured life expectancy or longevity and expenses.
We are required to analyze the impacts from net unrealized investment gains and losses on our
available-for-sale
investment securities backing insurance liabilities, as if those unrealized investment gains and losses were realized. These “shadow accounting” adjustments result in the recognition of unrealized gains and losses on related insurance assets and liabilities in a manner consistent with the recognition of the unrealized gains and losses on
available-for-sale
investment securities within the statement of comprehensive income and changes in equity. Changes to net unrealized investment (gains) losses may increase or decrease the ending DAC balance. Similar to a loss recognition event, when the DAC balance is reduced to zero, additional insurance liabilities are established if necessary. Unlike a loss recognition event, based on changes in net unrealized investment (gains) losses, these shadow adjustments may reverse from period to period.
Therefore, DAC amortized based on expected gross profits is adjusted to reflect the effects that would have been recognized had the unrealized investment (gains) losses been actually realized with a corresponding amount recorded in other comprehensive income (loss). DAC associated with traditional long-duration insurance contracts is not adjusted for unrealized investment (gains) or losses unless a premium deficiency would have resulted upon the (gain) or loss being realized.
Short-Duration Contracts.
Acquisition costs primarily consist of commissions and premium taxes and are amortized ratably over the terms of the underlying policies.
We regularly review our assumptions and test DAC for recoverability at least annually. For deferred annuity and universal life insurance contracts, if the present value of expected future gross profits is less than the unamortized DAC for a line of business, a charge to net income (loss) is recorded for additional DAC amortization. For traditional long-duration and short-duration contracts, if the benefit reserve plus anticipated future premiums and interest income for a line of business are less than the current estimate of future benefits and expenses (including any unamortized DAC), a charge to net income (loss) is recorded for additional DAC amortization or for increased benefit reserves. See note 6 for additional information related to DAC including loss recognition and recoverability.
j) Intangible Assets
Present Value of Future Profits.
In conjunction with the acquisition of a block of insurance policies or investment contracts, a portion of the purchase price is assigned to the right to receive future gross profits arising from existing insurance and investment contracts. This intangible asset, called PVFP, represents the actuarially estimated present value of future cash flows from the acquired policies. PVFP is amortized, net of accreted interest, in a manner similar to the amortization of DAC.
We regularly review our PVFP assumptions and periodically test PVFP for recoverability similar to our treatment of DAC. See note 7 for additional information related to PVFP including recoverability.
Deferred Sales Inducements to Contractholders.
We defer sales inducements to contractholders for features on variable annuities that entitle the contractholder to an incremental amount to be credited to the account value upon making a deposit, and for fixed annuities with crediting rates higher than the contract’s expected ongoing crediting rates for periods after the inducement. Deferred sales inducements to contractholders are reported as a separate intangible asset and amortized in benefits and other changes in policy reserves using the same methodology and assumptions used to amortize DAC.
Other Intangible Assets
. We amortize the costs of other intangibles over their estimated useful lives unless such lives are deemed indefinite. Amortizable intangible assets are tested for impairment based on undiscounted cash flows, which requires the use of estimates and judgment, and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested at least annually for impairment using a qualitative or quantitative assessment and are written down to fair value as required.
k) Goodwill
Goodwill is not amortized but is tested for impairment annually or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. The determination of fair value requires the use of estimates and judgment, at the “reporting unit” level. A reporting unit is the operating segment, or a business, one level below that operating segment (the “component” level) if discrete financial information is prepared and regularly reviewed by management at the component level. If the reporting unit’s fair value is below its carrying value, we recognize an impairment in an amount equal to the difference between the carrying value and the fair value of the reporting unit up to the amount of recorded goodwill. In 2020, we recorded a goodwill impairment charge of $5 million related to our
mortgage insurance business in Australia, which represented the full amount of goodwill of that business. No goodwill impairment charges were recorded in 2019 or 2018. As of December 31, 2020, we had no remaining goodwill recorded in our consolidated balance sheet.​​​​​​​
l) Reinsurance
Premium revenue, benefits and acquisition and operating expenses, net of deferrals, are reported net of the amounts relating to reinsurance ceded to and assumed from other companies. Amounts due from reinsurers for incurred and estimated future claims are reflected in the reinsurance recoverable asset. Amounts received from reinsurers that represent recovery of acquisition costs are netted against DAC so that the net amount is capitalized. The cost of reinsurance is accounted for over the terms of the related treaties using assumptions consistent with those used to account for the underlying reinsured policies. Premium revenue, benefits and acquisition and operating expenses, net of deferrals, for reinsurance contracts that do not qualify for reinsurance accounting are accounted for under the deposit method of accounting.
Allowance for Credit Losses on Reinsurance Recoverables
On January 1, 2020, we adopted new accounting guidance related to credit losses on financial instruments. Under this new accounting guidance, we record an allowance for credit losses related to reinsurance recoverables. The allowance for credit losses is evaluated based on historical loss experience adjusted for current events and reasonable and supportable forecasts from both internal and external sources. The allowance is measured by reinsurer, taking into consideration the reinsured product type and collateral type, and is calculated based on an externally reported probability of default corresponding to the reinsurer’s credit rating and the expected duration of the reinsurer’s contractual obligation to reimburse us for ceded claims on the underlying policies. Our estimate of the allowance reflects consideration for collateral securing the reinsurance agreements and expected recoveries of amounts previously charged off and expected to be charged off. We also consider other credit risk factors, including, among other factors, the historical frequency and severity of the associated insurance claims, aging of recoverables and regulatory, legal and economic factors, to determine if an additional incremental allowance for credit losses is required. No reversion adjustments are necessary as the starting point for our allowance for credit losses reflects historical loss experience covering the expected duration of the reinsurer’s contractual obligation to reimburse us. If available facts and circumstances indicate the reinsurance recoverable does not reflect expectations consistent with the collective analysis, the reinsurance recoverable is assessed on a separate basis. Write-offs are deducted from the allowance in the period the reinsurance recoverable is determined to be uncollectible.
m) Derivatives
Derivative instruments are used to manage risk through one of four principal risk management strategies including: (i) liabilities; (ii) invested assets; (iii) portfolios of assets or liabilities; and (iv) forecasted transactions.
On the date we enter into a derivative contract, management designates the derivative as a hedge of the identified exposure (cash flow or foreign currency). If a derivative does not qualify for hedge accounting, the changes in its fair value and all scheduled periodic settlement receipts and payments are reported in net income (loss).
We formally document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking various hedge transactions. In this documentation, we
specifically identify the asset, liability or forecasted transaction that has been designated as a hedged item, state how the hedging instrument is expected to hedge the risks related to the hedged item, and set forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness. We generally determine hedge effectiveness based on total changes in fair value of the hedged item attributable to the hedged risk and the total changes in fair value of the derivative instrument.
We discontinue hedge accounting prospectively when: (i) it is determined that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item; (ii) the derivative expires or is sold, terminated or exercised; (iii) the derivative is
de-designated
as a hedge instrument; or (iv) it is no longer probable that the forecasted transaction will occur.
For all qualifying and highly effective cash flow hedges, changes in fair value of the derivative instrument are reported as a component of OCI. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative continues to be carried in the consolidated balance sheets at its fair value, and gains and losses that were accumulated in OCI are recognized immediately in net income (loss). When the hedged forecasted transaction is no longer probable, but is reasonably possible, the accumulated gain or loss remains in OCI and is recognized when the transaction affects net income (loss); however, prospective hedge accounting for the transaction is terminated. In all other situations in which hedge accounting is discontinued on a cash flow hedge, amounts previously deferred in OCI are reclassified into net income (loss) when net income (loss) is impacted by the variability of the cash flow of the hedged item.
We may enter into contracts that are not themselves derivative instruments but contain embedded derivatives. For each contract, we assess whether the economic characteristics of the embedded derivative are clearly and closely related to those of the host contract and determine whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument.
If it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and accounted for as a stand-alone derivative. Such embedded derivatives are recorded in the consolidated balance sheets at fair value and are classified consistent with their host contract. Changes in their fair value are recognized in current period net income (loss). If we are unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried in the consolidated balance sheets at fair value, with changes in fair value recognized in current period net income (loss).
Changes in the fair value of
non-qualifying
derivatives, including embedded derivatives, are reported in net investment gains (losses).
The majority of our derivative arrangements require the posting of collateral upon meeting certain net exposure thresholds. The amounts recognized for derivative counterparty collateral received by us are recorded in cash, cash equivalents and restricted cash with a corresponding amount recorded in other liabilities to represent our obligation to return the collateral retained by us. We also receive
non-cash
collateral that is not recognized in our consolidated balance sheet unless we exercise our right to sell or
re-pledge
the underlying asset. As of December 31, 2020 and 2019, the fair value of
non-cash
collateral received was $161 million and $112 million, respectively, and the underlying assets were not sold or
re-pledged.
We pledged $505 million and $405 million of fixed maturity securities as of December 31, 2020 and 2019, respectively. Additionally, as of December 31, 2020 and 2019, we pledged $100 million and $64 million, respectively, of cash as collateral to
derivative counterparties. Fixed maturity securities that we pledge as collateral remain on our consolidated balance sheet within fixed maturity securities
available-for-sale.
Any cash collateral pledged to a derivative counterparty is derecognized with a receivable recorded in other assets for the right to receive our cash collateral back from the counterparty. Daily changes in the fair value of the derivative contract, commonly referred to as variation margin, for derivatives cleared through a Central Clearing Party, such as the Chicago Mercantile Exchange are treated as daily settlements of the derivative contract.​​​​​​​
n) Separate Accounts and Related Insurance Obligations
Separate account assets represent funds for which the investment income and investment gains and losses accrue directly to the contractholders and are reflected in our consolidated balance sheets at fair value, reported as summary total separate account assets with an equivalent summary total reported for liabilities. Amounts assessed against the contractholders for mortality, administrative and other services are included in revenues. Changes in liabilities for minimum guarantees are included in benefits and other changes in policy reserves. Net investment income, net investment gains (losses) and the related liability changes associated with the separate account are offset within the same line item in the consolidated statements of income. There were no gains or losses on transfers of assets from the general account to the separate account.
We offer certain minimum guarantees associated with our variable annuity contracts. Our variable annuity contracts usually contain a basic guaranteed minimum death benefit (“GMDB”) which provides a minimum benefit to be paid upon the annuitant’s death equal to the larger of account value and the return of net deposits. Some variable annuity contracts permit contractholders to purchase through riders, at an additional charge, enhanced death benefits such as the highest contract anniversary value (“ratchets”), accumulated net deposits at a stated rate (“rollups”), or combinations thereof.
Additionally, some of our variable annuity contracts provide the contractholder with living benefits such as a guaranteed minimum withdrawal benefit (“GMWB”) or certain types of guaranteed annuitization benefits. The GMWB allows contractholders to withdraw a
pre-defined
percentage of account value or benefit base each year, either for a specified period of time or for life. The guaranteed annuitization benefit generally provides for a guaranteed minimum level of income upon annuitization accompanied by the potential for upside market participation.
Most of our reserves for additional insurance and annuitization benefits are calculated by applying a benefit ratio to accumulated contractholder assessments, and then deducting accumulated paid claims. The benefit ratio is equal to the ratio of benefits to assessments, accumulated with interest and considering both past and anticipated future experience. The projections utilize stochastic scenarios of separate account returns incorporating reversion to the mean, as well as assumptions for mortality and lapses. Some of our minimum guarantees, mainly GMWBs, are accounted for as embedded derivatives; see notes 5 and 16 for additional information on these embedded derivatives and related fair value measurement disclosures.
o) Insurance Reserves
Future Policy Benefits
The liability for future policy benefits is equal to the present value of expected future benefits and expenses, less the present value of expected future net premiums based on assumptions including projected interest rates and investment returns, health care experience (including type of care and cost of care), policyholder persistency or lapses (i.e., the probability that a policy or contract will remain
in-force
from one period to the next), insured
mortality (i.e., life expectancy or longevity), insured morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates) and expenses, all of which are
locked-in
at the time the policies are issued or acquired. Claim termination rates refer to the expected rates at which claims end. Benefit utilization rates estimate how much of the available policy benefits are expected to be used.
The liability for future policy benefits is evaluated at least annually to determine if a premium deficiency exists. Loss recognition testing is generally performed at the line of business level, with acquired blocks and certain reinsured blocks tested separately. If the liability for future policy benefits plus the current present value of expected future gross premiums are less than the current present value of expected future benefits and expenses (including any unamortized DAC), a charge to net income (loss) is recorded for accelerated DAC amortization and, if necessary, a premium deficiency reserve is established. If a charge is recorded, DAC amortization and the liability for future policy benefits are measured using updated assumptions, which become the new
locked-in
assumptions utilized going forward unless another premium deficiency charge is recorded. Our estimates of future
in-force
rate actions used in loss recognition testing for our long-term care insurance business include assumptions for significant premium rate increases and associated benefit reductions that have been approved or are anticipated to be approved (including premium rate increases and associated benefit reductions not yet filed). These anticipated future increases are based on our best estimate of the rate increases we expect to obtain, considering, among other factors, our historical experience from prior rate increase approvals and based on our best estimate of expected claim costs.
We are also required to accrue additional future policy benefit reserves when the overall reserve is adequate, but profits are projected in early periods followed by losses projected in later periods. When this pattern of profits followed by losses exists, we ratably accrue this additional profits followed by losses liability over time, increasing reserves in the profitable periods to offset estimated losses expected during the periods that follow. We calculate and adjust the additional reserves using our current best estimate of the amount necessary to offset the losses in future periods, based on the pattern of expected income and current best estimate assumptions consistent with our loss recognition testing. We adjust the accrual rate prospectively, going forward over the remaining profit periods, without any
catch-up
adjustment.
For long-term care insurance products, benefit reductions are treated as partial lapse of coverage with the balance of our future policy benefits and DAC both reduced in proportion to the reduced coverage. For level premium term life insurance products, we floor the liability for future policy benefits on each policy at zero.
Estimates and actuarial assumptions used for establishing the liability for future policy benefits and in loss recognition testing involve the exercise of significant judgment, and changes in assumptions or deviations of actual experience from assumptions can have material impacts on our liability for future policy benefits and net income (loss). Because these assumptions relate to factors that are not known in advance, change over time, are difficult to accurately predict and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. Small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our reserves, results of operations and financial condition. The risk that our claims experience may differ significantly from our pricing and valuation assumptions is particularly significant for our long-term care insurance products. Long-term care insurance policies provide for long-duration coverage and, therefore, our actual claims experience will emerge over many years after pricing and
locked-in
valuation assumptions have been established.
Policyholder Account Balances
The liability for policyholder account balances represents the contract value that has accrued to the benefit of the policyholder as of the balance sheet date for investment-type and universal and term universal life insurance contracts. We are also required to establish additional benefit reserves for guarantees or product features in addition to the contract value where the additional benefit reserves are calculated by applying a benefit ratio to accumulated contractholder assessments, and then deducting accumulated paid claims. The benefit ratio is equal to the ratio of benefits to assessments, accumulated with interest and considering both past and anticipated future claims experience, which includes assumptions for insured mortality (i.e. life expectancy or longevity), interest rates and policyholder persistency or lapses (i.e., the probability that a policy or contract will remain
in-force
from one period to the next), among other assumptions.
Investment-type contracts are broadly defined to include contracts without significant mortality or morbidity risk. Payments received from sales of investment contracts are recognized by providing a liability equal to the current account value of the policyholders’ contracts. Interest rates credited to investment contracts are guaranteed for the initial policy term with renewal rates determined as necessary by management.
p) Liability for Policy and Contract Claims
The liability for policy and contract claims, or claim reserves, represents the amount needed to provide for the estimated ultimate cost of settling claims relating to insured events that have occurred on or before the end of the respective reporting period. The estimated liability includes requirements for future payments of: (a) claims that have been reported to the insurer; (b) claims related to insured events that have occurred but that have not been reported to the insurer as of the date the liability is estimated; and (c) claim adjustment expenses. Claim adjustment expenses include costs incurred in the claim settlement process such as legal fees and costs to record, process and adjust claims.
Our liability for policy and contract claims is reviewed regularly, with changes in our estimates of future claims recorded through net income (loss). Estimates and actuarial assumptions used for establishing the liability for policy and contract claims involve the exercise of significant judgment, and changes in assumptions or deviations of actual experience from assumptions can have material impacts on our liability for policy and contract claims and net income (loss). Because these assumptions relate to factors that are not known in advance, change over time, are difficult to accurately predict and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. Small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our reserves, results of operations and financial condition.
The liability for policy and contract claims for our long-term care insurance products represents the present value of the amount needed to provide for the estimated ultimate cost of settling claims relating to insured events that have occurred on or before the end of the respective reporting period. Key assumptions include projected interest rates and investment returns, health care experience (including type of care and cost of care), policyholder persistency or lapses (i.e., the probability that a policy or contract will remain
in-force
from one period to the next), insured mortality (i.e., life expectancy or longevity), insured morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates) and expenses. Claim termination rates refer to the expected rates at which claims end. Benefit utilization rates estimate how much of the available policy benefits are expected to be used. Both claim termination rates and benefit utilization rates are influenced by, among other things, gender, age at claim, diagnosis, type of care needed, benefit period, and daily benefit amount. Because these assumptions relate to factors that are not known in advance, change over time, are
difficult to accurately predict and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. Small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our reserves, results of operations and financial condition.
The liabilities for our mortgage insurance policies represent our best estimates of the liabilities at the time based on known facts, trends and other external factors, including economic conditions, housing prices and employment rates. For our mortgage insurance policies, reserves for losses and loss adjustment expenses are based on notices of mortgage loan defaults and estimates of defaults that have been incurred but have not been reported by loan servicers. The estimates are determined using either a factor-based approach, in which assumptions of claim rates for loans in default and the average amount paid for loans that result in a claim are calculated using traditional actuarial techniques, or a case-based approach, in which each individual delinquent loan is reviewed and a best-estimate loss is determined based on the status of the insured loan and an estimation of net sale proceeds from the disposition of the mortgaged property. As is common accounting practice in the mortgage insurance industry and in accordance with U.S. GAAP, we begin to provide for the ultimate claim payment relating to a potential claim on a defaulted loan when the status of that loan first goes delinquent. Over time, as the status of the underlying delinquent loans moves toward foreclosure and the likelihood of the associated claim loss increases, the amount of the loss reserves associated with the potential claims may also increase.
Management considers the liability for policy and contract claims provided to be its best estimate to cover the losses that have occurred. Management monitors actual experience, and where circumstances warrant, will revise its assumptions. The methods of determining such estimates and establishing the reserves are reviewed periodically and any adjustments are reflected in operations in the period in which they become known. Future developments may result in losses and loss expenses greater or less than the liability for policy and contract claims provided.
q) Unearned Premiums
For single premium insurance contracts, we recognize premiums over the policy life in accordance with the expected pattern of risk emergence. We recognize a portion of the revenue in premiums earned in the current period, while the remaining portion is deferred as unearned premiums and earned over time in accordance with the expected pattern of risk emergence. If single premium policies are cancelled and the premium is
non-refundable,
then the remaining unearned premium related to each cancelled policy is recognized to earned premiums upon notification of the cancellation. Expected pattern of risk emergence on which we base premium recognition is inherently judgmental and is based on actuarial analysis of historical experience. We periodically review our premium earnings recognition models with any adjustments to the estimates reflected as a cumulative adjustment in current period net income (loss). Our reviews include the consideration of recent and projected loss experience, policy cancellation experience and refinement of actuarial methods. We did not have any adjustments associated with this review in 2020 and 2018. In 2019, the review resulted in an increase in earned premiums of $14 million in our U.S. mortgage insurance business.
r) Stock-Based Compensation
We determine a grant date fair value and recognize the related compensation expense, adjusted for expected forfeitures, through the income statement over the respective vesting period of the awards.
s) Employee Benefit Plans
We provide employees with a defined contribution pension plan and recognize expense throughout the year based on the employee’s age, service and eligible pay. We make an annual contribution to the plan. We also provide employees with defined contribution savings plans. We recognize expense for our contributions to the savings plans at the time employees make contributions to the plans.
Some employees participate in defined benefit pension and postretirement benefit plans. We recognize expense for these plans based upon actuarial valuations performed by external experts. We estimate aggregate benefits by using assumptions for employee turnover, future compensation increases, rates of return on pension plan assets and future health care costs. We recognize an expense for differences between actual experience and estimates over the average future service period of participants. We recognize the overfunded or underfunded status of a defined benefit plan as an asset or liability in our consolidated balance sheets and recognize changes in that funded status in the year in which the changes occur through OCI.
t) Income Taxes
We determine deferred tax assets and/or liabilities by multiplying the differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or settled if there is no change in law. The effect on deferred taxes of a change in tax rates is recognized in net income (loss) in the period that includes the enactment date. Valuation allowances on deferred tax assets are estimated based on our assessment of the realizability of such amounts.
Under U.S. GAAP, we are generally required to record U.S. deferred taxes on the anticipated repatriation of foreign income as the income is recognized for financial reporting purposes. An exception under certain accounting guidance permits us not to record a U.S. deferred tax liability for foreign income that we expect to reinvest in our foreign operations and for which remittance will be postponed indefinitely. If it becomes apparent that we cannot positively assert that some or all undistributed income will be reinvested indefinitely, the related deferred taxes are recorded in that period based on the expected form of repatriation (i.e. distribution, loan or sale). In determining indefinite reinvestment, we regularly evaluate the capital needs of our domestic and foreign operations considering all available information, including operating and capital plans, regulatory capital requirements, parent company financing and cash flow needs, as well as the applicable tax laws to which our domestic and foreign subsidiaries are subject. Our estimates are based on our historical experience and our expectation of future performance. Our judgments and assumptions are subject to change given the inherent uncertainty in predicting future capital needs, which are impacted by such things as regulatory requirements, policyholder behavior, competitor pricing, new product introductions, and specific industry and market conditions.
Similarly, under another exception to the recognition of deferred taxes under U.S. GAAP, we do not record deferred taxes on U.S. domestic subsidiary entities for the excess of the financial statement carrying amount over the tax basis in the stock of the subsidiary (commonly referred to as “outside basis difference”) if we have the ability under the tax law and intent to recover the basis difference in a tax free manner. Deferred taxes would be recognized in the period of a change to our ability or intent.
Our companies have elected to file a single U.S. consolidated income tax return (the
“life/non-life
consolidated return”). All companies domesticated in the United States are included in the
life/non-life
consolidated return as allowed by the tax law and regulations. We have a tax sharing agreement in place and all intercompany balances related to this agreement are settled at least annually.
u) Foreign Currency Translation
The determination of the functional currency is made based on the appropriate economic and management indicators. The assets and liabilities of foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Translation adjustments are included as a separate component of accumulated other comprehensive income (loss). Revenues and expenses of the foreign operations are translated into U.S. dollars at the average rates of exchange during the period of the transaction. Gains and losses from foreign currency transactions are reported in net income (loss) and have not been material in any years presented in our consolidated statements of income.
v) Variable Interest Entities
We are involved in certain entities that are considered VIEs as defined under U.S. GAAP, and, accordingly, we evaluate the VIE to determine whether we are the primary beneficiary and are required to consolidate the assets and liabilities of the entity. The primary beneficiary of a VIE is the enterprise that has the power to direct the activities of a VIE that most significantly impacts the VIE’s economic performance and has the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. The determination of the primary beneficiary for a VIE can be complex and requires management judgment regarding the expected results of the entity and how those results are absorbed by variable interest holders, as well as which party has the power to direct activities that most significantly impact the performance of the VIEs.
Our primary involvement related to VIEs includes securitization transactions, certain investments, reinsurance transactions and certain mortgage insurance policies.
We have a beneficial interest in a VIE where we are the servicer and transferor of certain assets that were sold to the VIE. Our primary economic interest in this VIE represents the excess interest of the commercial mortgage loans. This securitization entity was designed to have significant limitations on the types of assets owned, the types and extent of permitted activities and decision making rights and is comprised of an entity backed by commercial mortgage loans. As a result of our involvement in the entity’s design or having certain decision making ability regarding the assets held by the securitization entity, consolidation of the VIE is required. As of December 31, 2020 and 2019, we had $38 million and $47 million, respectively, of total securitized assets required to be consolidated. The assets held by the securitization entity are restricted and can only be used to fulfill the obligations of the securitization entity. We do not have any additional exposure or guarantees associated with this securitization entity. There was no new asset securitization activity in 2020.
We have reinsurance agreements with entities that are considered VIEs. Our involvement with these VIEs represents mortgage insurance claim coverage through excess of loss reinsurance, which includes significant insurance risk and a reasonable possibility of a significant loss but does not result in the unilateral power to direct the activities that most significantly affect the VIEs’ economic performance or result in the obligation to absorb losses or the right to receive benefits. Accordingly, consolidation of the VIEs is not required. The assets of the VIEs are deposited in a reinsurance trust for our benefit that will be the source of reinsurance claim payments. Refer to note 8 for additional information related to our reinsurance agreements with entities that are considered VIEs.
We hold investments in certain structures that are considered VIEs. Our investments represent beneficial interests that are primarily in the form of structured securities or alternative investments. Our involvement in these structures typically represents a passive investment in the returns generated by the VIE and typically does not result in having significant influence over the economic performance of the VIE.
We also provide mortgage insurance on certain residential mortgage loans originated and securitized by third parties using VIEs to issue mortgage-backed securities. While we provide mortgage insurance on the underlying loans, we do not typically have any ongoing involvement with the VIE other than our mortgage insurance coverage and do not act in a servicing capacity for the underlying loans held by the VIE.​​​​​​​
w) Accounting Changes
Defined Benefit Plan Disclosures
On January 1, 2020, we adopted new accounting guidance related to disclosure requirements for defined benefit plans as part of the Financial Accounting Standards Board’s (the “FASB”) disclosure framework project. The guidance adds, eliminates and modifies certain disclosure requirements for defined benefit pension and other postretirement benefit plans. We adopted this new accounting guidance using the retrospective method, which did not have a significant impact on our consolidated financial statements and disclosures.
Fair Value Disclosures
On January 1, 2020, we adopted new accounting guidance related to fair value disclosure requirements as part of the FASB’s disclosure framework project. The guidance adds, eliminates and modifies certain disclosure requirements for fair value measurements. The guidance includes new disclosure requirements related to changes 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. We adopted this new accounting guidance using the prospective method for disclosures related to changes 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, the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty and the retrospective method for all other disclosures. This accounting guidance did not impact our consolidated financial statements but impacted our fair value disclosures.
Accounting for Credit Losses on Financial Instruments
On January 1, 2020, we adopted new accounting guidance related to accounting for credit losses on financial instruments. The guidance requires entities to recognize an allowance equal to its estimate of lifetime expected credit losses and applies to most financial instruments not measured at fair value, which primarily includes our commercial mortgage loans, bank loan investments and reinsurance recoverables. The new guidance also requires the recognition of an allowance for expected credit losses as a liability in our consolidated balance sheet for
off-balance
sheet credit exposures, including commitments to fund bank loan investments, private placement investments and commercial mortgage loans. The FASB also issued an amendment to the guidance allowing entities to irrevocably elect the fair value option on an
instrument-by-instrument
basis for eligible instruments, which we did not elect.
We adopted the guidance related to our investments carried at amortized cost, reinsurance recoverables and
off-balance
sheet credit exposures using the modified retrospective method. We recorded an allowance related to lifetime expected credit losses of $23 million, net of deferred taxes of $6 million, for commercial mortgage loans and bank loan investments and $31 million, net of deferred taxes of $9 million, for reinsurance recoverables, with an offset to cumulative effect of change in accounting within retained earnings. See notes 4 and 8 for additional disclosures related to lifetime expected credit losses. In addition, we recorded an allowance related to lifetime
expected credit losses for our
off-balance
sheet credit exposures of $1 million, included in other liabilities in our consolidated balance sheet, with an offset to cumulative effect of change in accounting within retained earnings.
We adopted the guidance related to our
available-for-sale
fixed maturity securities for which a previous other-than-temporary impairment was recognized prior to the date of adoption using the prospective method and the modified retrospective method for all other
available-for-sale
fixed maturity securities, which did not have any impact upon adoption. The new guidance did not have a significant impact on other assets not measured at fair value.
Reference Rate Reform
In March 2020 and January 2021, the FASB issued new accounting guidance related to reference rate reform, which was effective for us on January 1, 2020. The guidance provides temporary guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform, which includes the transition away from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. This new guidance provides optional practical expedients and exceptions for applying generally accepted accounting principles to investments, derivatives or other transactions affected by reference rate reform such as those that impact the assessment of derivative hedge effectiveness and contract modifications, to include continuing hedge accounting when certain critical terms of a hedging relationship change and modifying certain effectiveness assessments to exclude certain potential sources of ineffectiveness. The new guidance was updated to clarify that the optional practical expedients and exceptions can be applied to derivatives that use an interest rate for margining, discounting, or contract price alignment. In addition to the optional practical expedients, the guidance includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. We adopted this guidance prospectively and it did not have a significant impact on our consolidated financial statements or disclosures. However, the amendments in this guidance may be elected over time through December 31, 2022 as reference rate reform activities occur and therefore, this guidance may impact our procedures, including our process for assessing the effectiveness of our cash flow hedging relationships, determined on an individual hedge basis, as we implement measures to transition away from LIBOR.
Benchmark Interest Rates Used in Derivative Hedge Accounting
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 consolidated financial statements and disclosures.
Nonemployee Shared-Based Payments
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 consolidated financial statements at adoption.
Amortization Period of Certain Callable Debt Securities Held at a Premium
On January 1, 2019, we adopted new accounting guidance related to shortening the amortization period of certain callable debt securities held at a premium. The guidance requires the premium to be amortized to the earliest call date. This change does not apply to securities held at a discount. We adopted this new accounting guidance using the modified retrospective method, which did not have a significant impact on our consolidated financial statements at adoption.
Accounting for Leases
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 $52 million
right-of-use
asset related to operating leases and a $55 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, and did not have a significant impact on our consolidated balance sheet as of December 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 11 locations primarily in the United States and Australia. Lease payments included in the calculation of our lease liability include fixed amounts contained within each rental agreement and variable lease payments that are based upon an index or rate. We have elected to combine lease and
non-lease
components, as permitted under this new accounting guidance, and as a result,
non-lease
components are included in the calculation of our lease liability as opposed to being separated and accounted for as consideration under the new revenue recognition standard. Our remaining lease terms ranged from less than 1 year to 18 years and had a weighted-average remaining lease term of 9.4 years as of December 31, 2020. 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 6.6% as of December 31, 2020. For the year ended December 31, 2020, under this new accounting guidance, annual rental expense was $11 million.
Stranded Tax Effects
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 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 (loss) 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 (loss) as opposed to income (loss) 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, including amounts related to our Canada mortgage insurance business which were classified as held for sale prior to the fourth quarter of 2019:
 
(Amounts in millions)
 
Accumulated other comprehensive
income (loss)
   
Retained
earnings
   
Total
stockholders’
equity
 
 
Net
unrealized
investment
gains (losses)
   
Derivatives
qualifying
as hedges
   
Foreign currency
translation
and other
adjustments
 
Deferred taxes:
                                       
Net unrealized gains on investment securities
  $ 192     $ —       $ —       $ (192   $ —    
Net unrealized gains on derivatives
    —         12       —         (12     —    
Investment in foreign subsidiaries
    (3     —         (46     49       —    
Accrued commission and general expenses
    —         —         (1     1       —    
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Cumulative effect of changes in accounting
  $ 189     $ 12     $ (47   $ (154   $ —    
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
The accounting for the temporary differences related to investment in foreign subsidiaries recorded in accumulated other comprehensive income (loss) at adoption of the TCJA were provisional. Other than those effects related to the TCJA, our policy is to release stranded tax effects from accumulated other comprehensive income (loss) using the portfolio approach for items related to investments and derivatives, and upon disposition of a subsidiary for items related to outside basis differences.
Amendments to the Hedge Accounting Model
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.
Accounting for Share-Based Compensation as a Modification
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.
Derecognition of Nonfinancial Assets
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.
Simplifying the Test for Goodwill Impairment
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 applied it to our 2018 and 2019 goodwill impairment tests. This new accounting guidance simplified the test for goodwill impairment but had no impact on our consolidated financial statements.
Classification and Presentation of Changes in Restricted Cash
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.
Income Tax Effects of Intra-Entity Transfers of Assets Other Than Inventory
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 a significant impact on our consolidated financial statements or disclosures at adoption.
Classification of Certain Cash Payments and Receipts
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 and reclassified a $20 million make-whole premium, which resulted in an increase in net cash used by financing activities and an increase in net cash from operating activities in our statement of cash flows for the year ended December 31, 2016. The remaining specific cash flow issues did not have a significant impact on our consolidated financial statements.
Recognition and Measurement of Financial Assets and Liabilities
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 (loss). The new guidance also clarified 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 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, including amounts related to our Canada mortgage insurance business which were classified as held for sale prior to the fourth quarter of 2019.
Revenue Recognition
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 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 a significant impact on our consolidated financial statements at adoption.
x) Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued new accounting guidance related to simplifying the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. We adopted this new accounting guidance on January 1, 2021 using the retrospective method or modified retrospective method for certain changes and prospective method for all other changes, which did not have a significant impact on our consolidated financial statements and disclosures.
In August 2018, the FASB issued new accounting guidance that significantly changes the recognition and measurement of long-duration insurance contracts and expands disclosure requirements, which impacts our life insurance DAC and liabilities. In accordance with the guidance, the more significant changes include:
 
 
 
assumptions will no longer be
locked-in
at contract inception and all cash flow assumptions used to estimate the liability for future policy benefits (except the discount rate) will be reviewed at least annually in the same period each year or more frequently if actual experience indicates a change is required. Changes 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 related to instrument-specific credit risk recorded in other comprehensive income (loss) and remaining 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.
This guidance is effective for us on January 1, 2023 using the modified retrospective method, with early adoption permitted, which we do not intend to elect. Given the nature and extent of the changes to our operations, this guidance is expected to have a significant impact on our consolidated financial statements.
v3.20.4
Earnings (Loss) Per Share
12 Months Ended
Dec. 31, 2020
Earnings (Loss) Per Share
(3) Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share are calculated by dividing each income (loss) category presented below by the weighted-average basic and diluted common shares outstanding for the years ended December 31:
 
                         
(Amounts in millions, except per share amounts)
  
2020
    
2019
    
2018
 
Weighted-average common shares used in basic earnings (loss) per share calculations
    
505.2
      
502.9
      
500.4
 
Potentially dilutive securities:
                          
Stock options, restricted stock units and stock appreciation rights
    
6.4
      
6.8
      
  
 
    
 
 
    
 
 
    
 
 
 
Weighted-average common shares used in diluted earnings (loss) per share calculations
(1)
    
511.6
      
509.7
      
500.4
 
    
 
 
    
 
 
    
 
 
 
Income from continuing operations:
                          
Income from continuing operations
   $
761
     $
519
     $
67
 
Less: net income from continuing operations attributable to noncontrolling interests
    
34
      
64
      
70
 
    
 
 
    
 
 
    
 
 
 
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders
   $
727
     $
455
     $
(3
    
 
 
    
 
 
    
 
 
 
Basic per share
   $
1.44
     $
0.90
     $
(0.01
    
 
 
    
 
 
    
 
 
 
Diluted per share
   $
1.42
     $
0.89
     $
(0.01
    
 
 
    
 
 
    
 
 
 
Income (loss) from discontinued operations:
                          
Income (loss) from discontinued operations, net of taxes
   $
(549
   $
11
     $
230
 
Less: net income from discontinued operations attributable to noncontrolling interests
    
  
      
123
      
108
 
    
 
 
    
 
 
    
 
 
 
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders
   $
(549
   $
(112
   $
122
 
    
 
 
    
 
 
    
 
 
 
Basic per share
   $
(1.09
   $
(0.22
   $
0.24
 
    
 
 
    
 
 
    
 
 
 
Diluted per share
   $
(1.07
   $
(0.22
   $
0.24
 
    
 
 
    
 
 
    
 
 
 
Net income (loss):
                          
Income from continuing operations
   $
761
     $
519
     $
67
 
Income (loss) from discontinued operations, net of taxes
    
(549
    
11
      
230
 
    
 
 
    
 
 
    
 
 
 
Net income
    
212
      
530
      
297
 
Less: net income attributable to noncontrolling interests
    
34
      
187
      
178
 
    
 
 
    
 
 
    
 
 
 
Net income available to Genworth Financial, Inc.’s common stockholders
   $
178
     $
343
     $
119
 
    
 
 
    
 
 
    
 
 
 
Basic per share
 (2)
   $
0.35
     $
0.68
     $
0.24
 
    
 
 
    
 
 
    
 
 
 
Diluted per share 
(2)
   $
0.35
     $
0.67
     $
0.24
 
    
 
 
    
 
 
    
 
 
 
 
(1)
Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the year ended December 31, 2018, we were required to use basic weighted-average common shares outstanding as the inclusion of shares for stock options, restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) of 3.8 million would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the year ended December 31, 2018, dilutive potential weighted-average common shares outstanding would have been 504.2 million.
(2)
May not total due to whole number calculation.
v3.20.4
Investments
12 Months Ended
Dec. 31, 2020
Investments
(4) Investments
(a) Net Investment Income
Sources of net investment income were as follows for the years ended December 31:
 
                         
(Amounts in millions)
  
2020
    
2019
    
2018
 
Fixed maturity securities—taxable
   $
2,480
     $
2,494
     $
2,456
 
Fixed maturity
securities—non-taxable
    
6
      
8
      
11
 
Equity securities
    
13
      
16
      
20
 
Commercial mortgage loans
    
345
      
348
      
327
 
Policy loans
    
199
      
180
      
169
 
Other invested assets
    
295
      
234
      
181
 
Cash, cash equivalents, restricted cash and short-term investments
    
17
      
39
      
48
 
    
 
 
    
 
 
    
 
 
 
Gross investment income before expenses and fees
    
3,355
      
3,319
      
3,212
 
Expenses and fees
    
(95
    
(99
    
(91
    
 
 
    
 
 
    
 
 
 
Net investment income
   $
3,260
     $
3,220
     $
3,121
 
    
 
 
    
 
 
    
 
 
 
 
(b) Net Investment Gains (Losses)
The following table sets forth net investment gains (losses) for the years ended December 31:
 
(Amounts in millions)
  
2020
    
2019
    
2018
 
Available-for-sale
fixed maturity securities:
                          
Realized gains
   $ 512      $ 107      $ 162  
Realized losses
     (34      (39      (137
    
 
 
    
 
 
    
 
 
 
Net realized gains (losses) on
available-for-sale
fixed maturity securities
     478        68        25  
    
 
 
    
 
 
    
 
 
 
Impairments:
                          
Total other-than-temporary impairments
     —          (1      —    
Portion of other-than-temporary impairments included in other comprehensive income (loss)
     —          —          —    
    
 
 
    
 
 
    
 
 
 
Net other-than-temporary impairments
     —          (1      —    
    
 
 
    
 
 
    
 
 
 
Net change in allowance for credit losses on
available-for-sale
fixed maturity securities
     (5      —          —    
Write-down of
available-for-sale
fixed maturity securities
(1)
     (4      —          —    
Net realized gains (losses) on equity securities sold
     (1      9        11  
Net unrealized gains (losses) on equity securities still held
     2        14        (34
Limited partnerships
     112        29        11  
Commercial mortgage loans
     (2      (2      —    
Derivative instruments
(2)
     (17      (72      (22
Other
     (5      5        —    
    
 
 
    
 
 
    
 
 
 
Net investment gains (losses)
   $ 558      $ 50      $ (9
    
 
 
    
 
 
    
 
 
 
 
(1)
Represents write-down of securities we intend to sell or will be required to sell prior to recovery of the amortized cost basis.
(2)
See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses).
 
See note 2 for a discussion of our policy for evaluating and measuring the allowance for credit losses related to our
available-for-sale
fixed maturity securities. The following table represents the allowance for credit losses aggregated by security type for
available-for-sale
fixed maturity investments as of and for the year ended December 31, 2020:​​​​​​​
 
(Amounts in millions)
 
Beginning
balance
   
Increase from
securities
without
allowance in
previous
periods
   
Increase
(decrease)
from securities
with allowance
in previous
periods
   
Securities
sold
   
Decrease
due
 
to
 
change
in
 
intent or
requirement
to sell
   
Write-offs
   
Recoveries
   
Ending
balance
 
Fixed maturity securities:
                                                               
Non-U.S. corporate
  $ —       $ 4     $ (2   $ (1   $ —       $ —       $ —       $ 1  
Commercial mortgage
-
backed
    —         3       —         —         —         —         —         3  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total available-for-sale fixed
 
maturity securities
  $ —       $ 7     $ (2   $ (1   $ —       $ —       $ —       $ 4  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
The following represents the activity for credit losses recognized in net income (loss) on debt securities where an other-than-temporary impairment was identified and a portion of other-than-temporary impairments was included in OCI as of and for the years ended December 31:
 
(Amounts in millions)
  
2019
    
2018
 
Beginning balance
   $ 24      $ 32  
Reductions:
                 
Securities sold, paid down or disposed
     (2      (8
    
 
 
    
 
 
 
Ending balance
   $ 22      $ 24  
    
 
 
    
 
 
 
(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 December 31:​​​​​​​
 
(Amounts in millions)
  
2020
    
2019
    
2018
 
Net unrealized gains (losses) on fixed maturity securities without an allowance for credit losses
(1)
   $ 10,159      $ 6,676      $ 1,775  
Net unrealized gains (losses) on fixed maturity securities with an allowance for credit losses
(1)
     (7      —          —    
Adjustments to DAC, PVFP, sales inducements and benefit reserves
     (7,302      (4,789      (952
Income taxes, net
     (611      (406      (190
    
 
 
    
 
 
    
 
 
 
Net unrealized investment gains (losses)
     2,239        1,481        633  
Less: net unrealized investment gains (losses) attributable to noncontrolling interests
     25        25        38  
    
 
 
    
 
 
    
 
 
 
Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.
   $ 2,214      $ 1,456      $ 595  
    
 
 
    
 
 
    
 
 
 
 
(1)
Excludes foreign exchange.
 
The change in net unrealized gains (losses) on
available-for-sale
investment securities reported in accumulated other comprehensive income (loss) was as follows as of and for the years ended December 31:
 
(Amounts in millions)
  
2020
    
2019
    
2018
 
Beginning balance
   $ 1,456      $ 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
     3,950        4,980        (3,327
Adjustment to DAC
(1)
     122        (956      1,182  
Adjustment to PVFP
     (1      (49      69  
Adjustment to sales inducements
     (5      (32      34  
Adjustment to benefit reserves and policyholder contract balances
(2)
     (2,629      (2,800      1,208  
Provision for income taxes
     (305      (233      181  
    
 
 
    
 
 
    
 
 
 
Change in unrealized gains (losses) on investment securities
     1,132        910        (653
Reclassification adjustments to net investment (gains) losses, net of taxes of $100, $17 and $5
     (374      (62      (18
    
 
 
    
 
 
    
 
 
 
Change in net unrealized investment gains (losses)
     758        848        (671
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests
     —          (13      (17
    
 
 
    
 
 
    
 
 
 
Ending balance
   $ 2,214      $ 1,456      $ 595  
    
 
 
    
 
 
    
 
 
 
 
(1)
See note 6 for additional information.
(2)
See note 9 for additional information.
Amounts reclassified out of accumulated other comprehensive income (loss) to net investment gains (losses) include realized gains (losses) on sales of securities, which are determined on a specific identification basis.
 
(d) Fixed Maturity Securities
As of December 31, 2020, the amortized cost or cost, gross unrealized gains (losses), allowance for credit losses and fair value of our fixed maturity securities classified as
available-for-sale
were as follows:
 
(Amounts in millions)
  
Amortized
cost or
cost
    
Gross
unrealized
gains
    
Gross
unrealized
losses
   
Allowance
for credit
losses
   
Fair
value
 
Fixed maturity securities:
                                          
U.S. government, agencies and government-sponsored enterprises
   $ 3,401      $ 1,404      $ —       $ —       $