RICHMOND, Va., Aug. 1, 2017 /PRNewswire/ --
- Merger Agreement Deadline With China Oceanwide Holdings Group
Co., Ltd. (Oceanwide) Extended To November
30, 2017
- Additional Progress Made On U.S. Life Restructuring Plan With
The Remaining Internal Reinsurance Transactions
Completed Effective July 1,
2017
- U.S. Mortgage Insurance (MI) Second Quarter 2017 Adjusted
Operating Earnings1 Increased 49% Compared To The Second
Quarter Of 2016, Which Includes A Favorable $10 Million Reserve Adjustment In The Current
Quarter
- Strong Loss Ratio And Capital Levels In The Second Quarter For
U.S. MI And Canada MI
- Net Income2 Included $51
Million Of Investment Gains,
Net Of Taxes And Other Adjustments, Related To Fixed Income Tenders
And Derivative Gains
- Holding Company Cash And Liquid Assets Of Approximately
$860 Million
Genworth Financial, Inc. (NYSE: GNW) today reported results for
the quarter ended June 30, 2017. The
company reported net income of $202
million, or $0.40 per diluted
share, in the second quarter of 2017, up 17 percent as compared
with net income of $172 million, or
$0.34 per diluted share, in the
second quarter of 2016. The adjusted operating income for the
second quarter of 2017 was $151
million, or $0.30 per diluted
share, up 23 percent as compared with adjusted operating income of
$123 million, or $0.25 per diluted share, in the second quarter of
2016.
Strategic Update
Genworth and Oceanwide continue to work diligently to satisfy
the closing conditions under their previously announced proposed
transaction and are committed to closing the transaction as soon as
possible.
Since the end of the first quarter, the two companies reported
the following progress toward completing the transaction:
- On July 13, 2017, Genworth and
Oceanwide withdrew and refiled their joint voluntary notice to the
Committee on Foreign Investment in the
United States (CFIUS) for a second time to provide CFIUS
more time to review and discuss the proposed transaction. CFIUS'
acceptance of the refiled joint voluntary notice commenced a new
30-day review period, which may be followed by an additional 45-day
investigation period.
- Effective July 1, 2017, Genworth
completed the remaining internal reinsurance and recapture
transactions required under the Oceanwide merger agreement. We
expect these transactions to create a 15 to 20 point decline in
consolidated risk-based capital (RBC) ratio from a reduction in
covariance benefit.
In addition to clearance by CFIUS, the closing of the proposed
transaction remains subject to the receipt of required regulatory
approvals in the U.S., China, and
other international jurisdictions and other closing conditions.
Genworth and Oceanwide continue to be actively engaged with the
relevant regulators regarding the pending applications.
Because the timing of the regulatory reviews will delay the
completion of the transaction beyond the originally targeted time
frame of the middle of 2017, Genworth and Oceanwide have agreed in
principle to extend the August 31,
2017 deadline set forth in the merger agreement to
November 30, 2017, with the
associated documentation expected to be finalized in the near term.
Genworth and Oceanwide remain committed to satisfying the closing
conditions under the merger agreement as soon as possible and now
anticipate that the transaction will be completed during the fourth
quarter of 2017, subject to receipt of the required regulatory
approvals.
"Genworth strongly believes the pending transaction with
Oceanwide is the best option for our shareholders, policyholders
and other stakeholders," said Tom
McInerney, president and CEO of Genworth. "The transaction
will strengthen Genworth's financial position in the mortgage
insurance and long term care insurance markets. Because of
our leadership role in the long term care insurance industry, the
merger also has implications for our nation's ability to finance
burgeoning long term care costs. As a result of the merger,
Genworth will be in a better position to support the market and
help the government and taxpayers shoulder the burden of long term
care financing."
Added LU Zhiqiang, chairman of Oceanwide: "I remain committed to
satisfying the closing conditions under the merger agreement as
soon as possible. I believe the
merger will strengthen Genworth and its leadership role
in mortgage insurance and the U.S. long term care insurance market,
and allow us to bring best practices from the recognized leader in
long term care insurance to China
as we expand our long term care insurance capabilities and work
together to address a common challenge for our aging
populations."
Meanwhile, Genworth continues to make substantial progress on
its stated strategic goals, including maximizing opportunities in
its mortgage insurance businesses, achieving significant long term
care insurance premium rate increases consistent with its
multi-year plan and restructuring its U.S. life insurance
businesses.
Financial Performance
Consolidated Net
Income &
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Adjusted Operating
Income
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Three months ended
June 30
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(Unaudited)
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2017
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2016
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Per
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Per
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diluted
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diluted
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Total
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(Amounts in
millions, except per share)
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Total
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share
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Total
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share
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%
change
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Net Income available
to Genworth's common
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stockholders
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$
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202
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$
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0.40
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$
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172
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$
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0.34
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17 %
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Adjusted operating
income
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$
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151
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$
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0.30
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$
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123
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$
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0.25
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23 %
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Weighted-average
diluted shares
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501.2
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500.4
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Three months ended
June 30
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(Unaudited)
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2017
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2016
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Book value per
share
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$
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26.08
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$
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30.37
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Book value per share,
excluding
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accumulated other
comprehensive
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income
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$
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19.88
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$
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20.16
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Net income in the second quarter of 2017 benefited from net investment gains, net of
taxes and other adjustments, of $51
million in the quarter. Net income in the second quarter of
2016 benefited from net investment gains, net of taxes and other
adjustments, of $25 million.
Net investment income was $801
million in the quarter, up from $790
million in the prior quarter and $779
million in the prior year. Net investment income continues
to reflect variability in prepayment speed adjustments related to
residential mortgage-backed securities and other variable
investment income. The reported yield and the core
yield1 for the quarter were 4.57 percent and 4.47
percent, respectively.
Adjusted operating income (loss) results by business line are
summarized in the table below:
Adjusted Operating
Income (Loss)
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(Amounts in
millions)
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Q2
17
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Q1
17
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Q2
16
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U.S. Mortgage
Insurance
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$
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91
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$
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73
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$
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61
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Canada Mortgage
Insurance
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41
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36
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38
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Australia Mortgage
Insurance
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12
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13
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15
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U.S. Life
Insurance
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39
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53
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55
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Runoff
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11
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14
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6
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Corporate and
Other
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(43)
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(46)
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(52)
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Total Adjusted
Operating Income
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$
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151
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$
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143
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$
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123
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Adjusted operating income (loss) represents income (loss) from
continuing operations excluding net investment gains (losses),
gains (losses) on the sale of businesses, gains (losses) on the
early extinguishment of debt, gains (losses) on insurance block
transactions, restructuring costs and other adjustments, net of
taxes. A reconciliation of net income (loss) to adjusted operating
income (loss) of segments and Corporate and Other activities is
included at the end of this press release.
Unless specifically noted in the discussion of results for the
MI businesses in Canada and
Australia, references to
percentage changes exclude the impact of translating foreign
denominated activity into U.S. dollars (foreign exchange).
Percentage changes, which include the impact of foreign exchange,
are found in a table at the end of this press release.
U.S. Mortgage Insurance
Operating
Metrics
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(Dollar amounts in
millions)
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Q2
17
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Q1
17
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Q2
16
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Adjusted operating
income
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$
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91
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$
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73
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$
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61
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New insurance
written
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Primary
Flow
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$
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9,800
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$
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7,600
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$
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11,400
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Loss ratio
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2%
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17%
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24%
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U.S. MI reported adjusted operating income of $91 million, compared with $73 million in the prior quarter and $61 million in the prior year. The loss
ratio in the current quarter was two percent, down 15 points
sequentially and down 22 points from the prior year. During
the quarter, the company made a favorable reserve adjustment of
$10 million after-tax primarily
associated with lower expected claim rates on existing
delinquencies, which benefited
the loss ratio by eight points.
Flow New Insurance Written (NIW) of $9.8
billion increased 29 percent from the prior quarter from a
seasonally larger purchase originations market, but decreased 14
percent versus the prior year primarily from lower originations and
a decline in market share. U.S. MI's flow insurance in force
increased 12 percent in the second quarter of 2017 versus the
second quarter of 2016 driven primarily by strong NIW and continued
elevated persistency.
Canada Mortgage Insurance
Operating
Metrics
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(Dollar amounts in
millions)
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Q2
17
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Q1
17
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Q2
16
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Adjusted operating
income
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$
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41
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$
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36
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$
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38
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New insurance
written
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Flow
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$
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3,700
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$
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2,300
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$
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4,400
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Bulk
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$
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800
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$
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8,000
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$
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19,700
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Loss ratio
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4%
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16%
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20%
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Canada MI reported adjusted operating income of $41 million versus $36
million in the prior quarter and $38
million in the prior year. The loss ratio in the quarter was
four percent, down 12 points from the prior quarter and down 16
points compared to the prior year from a decrease in new
delinquencies and strong cure activity reflecting the ongoing
housing market strength and underlying economic conditions.
New delinquencies, net of cures, were down in all regions
sequentially and versus the prior year.
Flow NIW was up 65 percent3 sequentially
primarily from a seasonally larger originations market and down 14
percent3 from the prior year primarily from a smaller
market size from regulatory changes introduced in late 2016.
Effective March 17, 2017, Canada MI
increased its flow mortgage insurance premium rates for new insured
mortgages by approximately 20 percent to reflect the updated
regulatory capital framework that came into effect on January 1, 2017. Bulk NIW decreased versus
the prior quarter and prior year as a result of regulatory changes
introduced in 2016.
Australia Mortgage Insurance
Operating
Metrics
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(Dollar amounts in
millions)
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Q2
17
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Q1
17
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Q2
16
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Adjusted operating
income
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$
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12
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$
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13
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$
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15
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New insurance
written
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Flow
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$
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4,100
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$
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4,100
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$
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5,000
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Bulk
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$
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600
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$
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1,000
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$
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800
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Loss ratio
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34%
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35%
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36%
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Australia MI reported adjusted operating income of $12 million versus $13
million in the prior quarter and $15
million in the prior year. The loss ratio in the
quarter was 34%, down one point sequentially and down two points
from the prior year primarily from non-reinsurance recoveries on
paid claims in the current quarter which favorably impacted the
loss ratio by eight points. Without the impact of these
recoveries, the loss ratio would have been higher sequentially from
an increase in new delinquencies, net of cures, in the commodity
dependent regions of Queensland
and Western Australia as well as
higher than the prior year from less favorable delinquency
aging.
Flow NIW was flat sequentially and down 18 percent3
from the prior year primarily from lower market penetration
attributable to a change in customer mix.
U.S. Life Insurance
Operating
Metrics
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(Amounts in
millions)
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Q2
17
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Q1
17
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Q2
16
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Adjusted operating
income (loss)
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Long Term Care
Insurance
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$
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33
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$
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14
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$
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37
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Life
Insurance
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(1)
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16
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31
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Fixed
Annuities
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7
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23
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(13)
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Total U.S. Life
Insurance
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$
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39
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$
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53
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$
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55
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Sales
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Long Term Care
Insurance
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Individual
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$
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2
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$
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2
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$
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4
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Group
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1
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1
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2
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Life
Insurance
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Term Life
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—
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—
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2
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Universal
Life
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—
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1
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1
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Linked
Benefits
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—
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—
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1
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Fixed
Annuities
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1
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2
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9
|
Long Term Care Insurance
Long Term Care Insurance (LTC) reported adjusted operating
income of $33 million, compared with
$14 million in the prior quarter and
$37 million in the prior year.
Compared to the prior quarter, results reflected higher premiums
and higher reserve releases from reduced benefit elections by
in-force policyholders, partially offset by less favorable existing
claims experience. Results in the quarter were favorably impacted
by reserve corrections, net of profits followed by losses reserves,
associated with recorded initial claim dates of $13 million after-tax. Prior quarter results
included an unfavorable accrual for state guaranty fund assessments
of $14 million after-tax relating to
the Penn Treaty plan of liquidation. Results versus the prior year
reflected continued growth of new claims, partially offset by
improved existing claims experience. Prior year results also
included $29 million of after-tax
unfavorable items.
Life Insurance
Life insurance reported an adjusted operating loss of
$1 million, compared with adjusted
operating income of $16 million in
the prior quarter and $31 million in
the prior year. Compared to the prior quarter, results reflected
higher lapses and accelerated amortization of deferred acquisition
costs (DAC) primarily associated with large 15-year and 20-year
term life insurance blocks entering their post-level premium
periods and modestly improved mortality. Results versus the prior
year reflect higher reserve and DAC impacts associated with the
fourth quarter of 2016 assumption review, unfavorable mortality and
higher DAC amortization from lapses partially offset by higher
variable investment income. Results in the quarter included a
negative impact of $14 million
after-tax, which was the net effect of a charge from model
corrections related to updating mortality tables for term
conversion policies that was partially offset by a net favorable
refinement related to reinsurance rates.
Fixed Annuities
Fixed annuities reported adjusted operating income of
$7 million, compared with
$23 million in the prior quarter and
an adjusted operating loss of $13
million in the prior year. Results in the quarter
included a $10 million after-tax
charge from loss recognition testing on the single premium
immediate annuity block related to lower interest rates. Results in
the quarter also reflected unfavorable mortality versus the prior
quarter. Prior year results included $28 million of after-tax unfavorable
items.
Runoff
Runoff reported adjusted operating income of $11 million compared with $14 million in the prior quarter and $6 million in the prior year. Results
varied from the prior quarter due to unfavorable mortality in the
corporate-owned life insurance (COLI) products while benefitting
from favorable equity market performance versus the prior
year.
Corporate And Other
Corporate and Other reported an adjusted operating loss of
$43 million, compared with
$46 million in the prior quarter and
$52 million in the prior year.
Results in the current quarter include favorable tax benefits of
$7 million, the majority of which is
expected to reverse in the second half of 2017 due to the timing of
when tax items are recorded. Prior quarter results reflected
a correction to our GE Tax Matters Agreement liability.
Capital & Liquidity
Genworth maintains the following capital positions in its
operating subsidiaries:
Key Capital &
Liquidity Metrics
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(Dollar amounts in
millions)
|
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Q2
17
|
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Q1
17
|
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Q2
16
|
U.S.
MI
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Consolidated
Risk-To-Capital Ratio4
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13.0:1
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13.6:1
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15.0:1
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Genworth Mortgage
Insurance Corporation Risk-To-Capital
Ratio4
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13.1:1
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13.7:1
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15.1:1
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Private Mortgage
Insurer Eligibility Requirements (PMIERs) Sufficiency
Ratio5
|
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122
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%
|
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|
118
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%
|
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|
115
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%
|
Canada
MI
|
|
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|
|
|
|
|
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|
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|
Minimum Capital Test
(MCT) Ratio4
|
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167
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%
|
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|
162
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%
|
|
|
233
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%
|
Australia
MI
|
|
|
|
|
|
|
|
|
|
|
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|
|
Prescribed Capital
Amount (PCA) Ratio4
|
|
|
181
|
%
|
|
|
171
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%
|
|
|
156
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%
|
U.S. Life Insurance
Companies
|
|
|
|
|
|
|
|
|
|
|
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|
|
Consolidated
Risk-Based Capital (RBC) Ratio4
|
|
|
330
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%
|
|
|
326
|
%
|
|
|
379
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%
|
Holding Company
Cash6 and Liquid Assets7
|
|
$
|
858
|
|
|
$
|
999
|
|
|
$
|
934
|
|
Key Points
- U.S. MI's PMIERs sufficiency ratio increased in the quarter to
122 percent primarily from an increase in operating cash
flows;
- Canada MI's MCT ratio as of June 30,
2017 is estimated to be 167 percent, above both the
regulatory minimum requirement of 150 percent and a target range of
160 to 165 percent;
- Australia MI's capital levels improved sequentially to 181
percent driven primarily by continued portfolio seasoning;
- The holding company ended the quarter with $858 million of cash and liquid assets,
representing a buffer of approximately $460
million in excess of restricted cash and liquid assets and
one and a half times annual debt service; and
- $175 million of holding company
cash is committed to facilitate the separation and isolation of the
LTC business.
About Genworth Financial
Genworth Financial, Inc. (NYSE: GNW) is a Fortune 500 insurance
holding company committed to helping families achieve the dream of
homeownership and address the financial challenges of aging through
its leadership positions in mortgage insurance and long term care
insurance. Headquartered in Richmond, Virginia, Genworth traces its roots
back to 1871 and became a public company in 2004. For more
information, visit genworth.com.
From time to time, Genworth releases important information via
postings on its corporate website. Accordingly, investors and other
interested parties are encouraged to enroll to receive automatic
email alerts and Really Simple Syndication (RSS) feeds regarding
new postings. Enrollment information is found under the "Investors"
section of genworth.com. From time to time, Genworth's
publicly traded subsidiaries, Genworth MI Canada Inc. and Genworth
Mortgage Insurance Australia Limited, separately release financial
and other information about their operations. This information can
be found at http://genworth.ca and
http://www.genworth.com.au.
Financial Supplement Information
This press release, second quarter 2017 financial supplement and
earnings presentation are now posted on the company's website.
Investors are encouraged to review these materials. Due to the
pending sale to Oceanwide, the company does not plan to host an
earnings call.
Use of Non-GAAP Measures
This press release includes the non-GAAP financial measures
entitled "adjusted operating income (loss)" and "adjusted operating
income (loss) per share." Adjusted operating income (loss) per
share is derived from adjusted operating income (loss). The chief
operating decision maker evaluates segment performance and
allocates resources on the basis of adjusted operating income
(loss). The company defines adjusted operating income (loss) as
income (loss) from continuing
operations excluding the after-tax effects of income attributable
to noncontrolling interests, net investment gains (losses),
goodwill impairments, gains (losses) on the sale of businesses,
gains (losses) on the early extinguishment of debt, gains (losses)
on insurance block transactions, restructuring costs and infrequent
or unusual non-operating items. Gains (losses) on insurance block
transactions are defined as gains (losses) on the early
extinguishment of non-recourse funding obligations, early
termination fees for other financing restructuring and/or resulting
gains (losses) on reinsurance restructuring for certain blocks of
business. The company excludes net investment gains (losses) and
infrequent or unusual non-operating items because the company does
not consider them to be related to the operating performance of the
company's segments and Corporate and Other activities. A component
of the company's net investment gains (losses) is the result of
impairments, the size and timing of which can vary significantly
depending on market credit cycles. In addition, the size and timing
of other investment gains (losses) can be subject to the company's
discretion and are influenced by market opportunities, as well as
asset-liability matching considerations. Goodwill impairments,
gains (losses) on the sale of businesses, gains (losses) on the
early extinguishment of debt, gains (losses) on insurance block
transactions and restructuring costs are also excluded from
adjusted operating income (loss) because, in the company's opinion,
they are not indicative of overall operating trends. Infrequent or
unusual non-operating items are also excluded from adjusted
operating income (loss) if, in the company's opinion, they are not
indicative of overall operating trends.
While some of these items may be significant components of net
income (loss) available to Genworth's common stockholders in
accordance with GAAP, the company believes that adjusted operating
income (loss) and measures that are derived from or incorporate
adjusted operating income (loss), including adjusted operating
income (loss) per share on a basic and diluted basis, are
appropriate measures that are useful to investors because they
identify the income (loss) attributable to the ongoing operations
of the business. Management also uses adjusted operating income
(loss) as a basis for determining awards and compensation for
senior management and to evaluate performance on a basis comparable
to that used by analysts. However, the items excluded from adjusted
operating income (loss) have occurred in the past and could, and in
some cases will, recur in the future. Adjusted operating income
(loss) and adjusted operating income (loss) per share on a basic
and diluted basis are not substitutes for net income (loss)
available to Genworth's common stockholders or net income (loss)
available to Genworth's common stockholders per share on a basic
and diluted basis determined in accordance with GAAP. In addition,
the company's definition of adjusted operating income (loss) may
differ from the definitions used by other companies.
Adjustments to reconcile net income (loss) attributable to
Genworth's common stockholders and adjusted operating income (loss)
assume a 35 percent tax rate (unless otherwise indicated) and are
net of the portion attributable to noncontrolling interests. Net
investment gains (losses) are also adjusted for DAC and other
intangible amortization and certain benefit reserves.
In June 2016, the company
completed the sale of its term life insurance new business platform
and recorded a pre-tax gain of $12
million. In May 2016, the
company completed the sale of its mortgage insurance business in
Europe and recorded an additional
pre-tax loss of $2 million. These
transactions were excluded from adjusted operating income (loss)
for the periods presented as they related to a gain (loss) on the
sale of businesses.
In June 2016, the company settled
restricted borrowings of $70 million
related to a securitization entity and recorded a $64 million pre-tax gain related to the early
extinguishment of debt. This transaction was excluded from adjusted
operating income (loss) for the periods presented as it related to
a gain (loss) on the early extinguishment of debt.
In the first quarter of 2017, the company recorded a pre-tax
expense of $1 million related to
restructuring costs as part of an expense reduction plan as the
company evaluates and appropriately sizes its organizational needs
and expenses. In the second quarter of 2016, the company also
recorded a pre-tax expense of $5
million related to restructuring costs.
There were no infrequent or unusual items excluded from adjusted
operating income (loss) during the periods presented.
The tables at the end of this press release provide a
reconciliation of net income available to Genworth's common
stockholders to adjusted operating income for the three months
ended June 30, 2017 and 2016, as well
as for the three months ended March 31,
2017, and reflect adjusted operating income as determined in
accordance with accounting guidance related to segment
reporting.
This press release includes the non-GAAP financial measure
entitled "core yield" as a measure of investment yield. The company
defines core yield as the investment yield adjusted for items that
do not reflect the underlying performance of the investment
portfolio. Management believes that analysis of core yield enhances
understanding of the investment yield of the company. However, core
yield is not a substitute for investment yield determined in
accordance with GAAP. In addition, the company's definition of core
yield may differ from the definitions used by other companies. A
reconciliation of core yield to reported GAAP yield is included in
a table at the end of this press release.
Definition of Selected Operating Performance Measures
The company reports selected operating performance measures
including "sales" and "insurance in force" or "risk in force" which
are commonly used in the insurance industry as measures of
operating performance.
Management regularly monitors and reports sales metrics as a
measure of volume of new and renewal business generated in a
period. Sales refer to: (1) new insurance written for mortgage
insurance; (2) annualized first-year premiums for long term care
and term life insurance products; (3) annualized first-year
deposits plus five percent of excess deposits for universal and
term universal life insurance products; (4) 10 percent of premium
deposits for linked-benefits products; and (5) new and additional
premiums/deposits for fixed annuities. Sales do not include renewal
premiums on policies or contracts written during prior periods. The
company considers new insurance written, annualized first-year
premiums/deposits, premium equivalents and new premiums/deposits to
be a measure of the company's operating performance because they
represent a measure of new sales of insurance policies or contracts
during a specified period, rather than a measure of the company's
revenues or profitability during that period.
Management also regularly monitors and reports a loss ratio for
the company's businesses. For the mortgage insurance businesses,
the loss ratio is the ratio of incurred losses and loss adjustment
expenses to net earned premiums. For the long term care insurance
business, the loss ratio is the ratio of benefits and other changes
in reserves less tabular interest on reserves less loss adjustment
expenses to net earned premiums. The company considers the loss
ratio to be a measure of underwriting performance in these
businesses and helps to enhance the understanding of the operating
performance of the businesses.
An assumed tax rate of 35 percent is utilized in certain
adjustments to adjusted operating income (loss) and in the
explanation of specific variances of operating performance and
investment results.
These operating performance measures enable the company to
compare its operating performance across periods without regard to
revenues or profitability related to policies or contracts sold in
prior periods or from investments or other sources.
Cautionary Note Regarding Forward-Looking
Statements
This press release contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements may be identified by words such
as "expects," "intends," "anticipates," "plans," "believes,"
"seeks," "estimates," "will" or words of similar meaning and
include, but are not limited to, statements regarding the outlook
for the company's future business and financial performance.
Forward-looking statements are based on management's current
expectations and assumptions, which are subject to inherent
uncertainties, risks and changes in circumstances that are
difficult to predict. Actual outcomes and results may differ
materially due to global political, economic, business,
competitive, market, regulatory and other factors and risks,
including, but not limited to, the following:
- risks related to the proposed transaction with China
Oceanwide Holdings Group Co., Ltd. (Oceanwide) including: the
company's inability to complete the transaction in a timely manner
or at all; the parties' inability to obtain regulatory approvals,
or the possibility that the parties may delay the transaction or
that materially burdensome or adverse regulatory conditions may be
imposed in connection with any such regulatory approvals; existing
and potential legal proceedings may be instituted against the
company in connection with the announcement of the transaction that
may delay the transaction, make it more costly or ultimately
preclude it; the risk that the proposed transaction disrupts the
company's current plans and operations as a result of the
announcement and consummation of the transaction; certain
restrictions during the pendency of the transaction that may impact
the company's ability to pursue certain business opportunities or
strategic transactions; continued availability of capital and
financing to the company before, or in the absence of, the
consummation of the transaction; further rating agency actions and
downgrades in debt or the company's financial strength ratings;
changes in applicable laws or regulations; the company's ability to
recognize the anticipated benefits of the transaction; the amount
of the costs, fees, expenses and other charges related to the
transaction; the risks related to diverting management's attention
from the company's ongoing business operations; the merger
agreement may be terminated in circumstances that would require the
company to pay Oceanwide a fee; the company's ability to attract,
recruit, retain and motivate current and prospective employees may
be adversely affected; and disruptions and uncertainty relating to
the transaction, whether or not it is completed, may harm the
company's relationships with its employees, customers,
distributors, vendors or other business partners, and may result in
a negative impact on the company's business;
- strategic risks in the event the proposed transaction with
Oceanwide is not consummated including: the company's inability
to successfully execute alternative strategic plans to effectively
address its current business challenges (including with respect to
the restructuring of its U.S. life insurance businesses, debt
obligations, cost savings, ratings and capital); the company's
ability to continue to sell long term care insurance policies, the
company's inability to attract buyers for any businesses or other
assets it may seek to sell, or securities it may seek to issue, in
each case, in a timely manner and on anticipated terms; failure to
obtain any required regulatory, stockholder and/or noteholder
approvals or consents for such alternative strategic plans, or the
company's challenges changing or being more costly or difficult to
successfully address than currently anticipated or the benefits
achieved being less than anticipated; inability to achieve
anticipated cost-savings in a timely manner; or adverse tax or
accounting charges; and inability to increase the capital needed in
the company's businesses in a timely manner and on anticipated
terms, including through improved business performance, reinsurance
or similar transactions, asset sales, securities offerings or
otherwise, in each case as and when required;
- risks relating to estimates, assumptions and valuations
including: inadequate reserves and the need to increase reserves
(including as a result of any changes the company may make to its
assumptions, methodologies or otherwise in connection with periodic
or other reviews); inaccurate models; deviations from the company's
estimates and actuarial assumptions or other reasons in its long
term care insurance, life insurance and/or annuity businesses;
accelerated amortization of deferred acquisition costs (DAC) and
present value of future profits (PVFP) (including as a result of
any changes it may make to its assumptions, methodologies or
otherwise in connection with periodic or other reviews); adverse
impact on the company's financial results as a result of projected
profits followed by projected losses (as is currently the case with
its long term care insurance business); and changes in valuation of
fixed maturity, equity and trading securities;
- risks relating to economic, market and political
conditions including: downturns and volatility in global
economies and equity and credit markets; interest rates and changes
in rates (particularly given the historically low interest rate
environment) have adversely impacted, and may continue to
materially adversely impact, the company's business and
profitability; deterioration in economic conditions or a decline in
home prices that adversely affect the company's loss experience in
mortgage insurance; political and economic instability or changes
in government policies; and fluctuations in foreign currency
exchange rates and international securities markets;
- regulatory and legal risks including: extensive
regulation of the company's businesses and changes in applicable
laws and regulations; litigation and regulatory investigations or
other actions; dependence on dividends and other distributions from
the company's subsidiaries (particularly its international
subsidiaries) and the inability of any subsidiaries to pay
dividends or make other distributions to the company, including as
a result of the performance of its subsidiaries and insurance,
regulatory or corporate law restrictions; adverse change in
regulatory requirements, including risk-based capital; changes in
regulations adversely affecting the company's international
operations; inability to maintain the private mortgage insurer
eligibility requirements (PMIERs); inability of the company's U.S.
mortgage insurance subsidiaries to meet minimum statutory capital
requirements and hazardous financial condition standards; the
influence of Federal National Mortgage Association (Fannie Mae),
Federal Home Loan Mortgage Corporation (Freddie Mac) and a small
number of large mortgage lenders on the U.S. mortgage insurance
market and adverse changes to the role or structure of Fannie Mae
and Freddie Mac; adverse changes in regulations affecting the
company's mortgage insurance businesses; inability to continue to
implement actions to mitigate the impact of statutory reserve
requirements; impact of additional regulations pursuant to the
Dodd-Frank Wall Street Reform and Consumer Protection Act; and
changes in accounting and reporting standards;
- liquidity, financial strength ratings, credit and
counterparty risks including: insufficient internal sources to
meet liquidity needs and limited or no access to capital (including
the company's ability to obtain financing under a credit facility);
future adverse rating agency actions, including with respect to
rating downgrades or potential downgrades or being put on review
for potential downgrade, all of which could have adverse
implications for the company, including with respect to key
business relationships, product offerings, business results of
operations, financial condition and capital needs, strategic plans,
collateral obligations and availability and terms of hedging,
reinsurance and borrowings; defaults by counterparties to
reinsurance arrangements or derivative instruments; defaults or
other events impacting the value of the company's fixed maturity
securities portfolio; and defaults on the company's commercial
mortgage loans or the mortgage loans underlying its investments in
commercial mortgage-backed securities and volatility in
performance;
- operational risks including: inability to retain,
attract and motivate qualified employees or senior management;
ineffective or inadequate risk management in identifying,
controlling or mitigating risks; reliance on, and loss of, key
customer or distribution relationships; availability, affordability
and adequacy of reinsurance to protect the company against losses;
competition; competition in the company's mortgage insurance
businesses from government and government-owned and
government-sponsored enterprises (GSEs) offering mortgage
insurance; the design and effectiveness of our disclosure controls
and procedures and internal control over financial reporting may
not prevent all errors, misstatements or misrepresentations; and
failure or any compromise of the security of the company's computer
systems, disaster recovery systems and business continuity plans
and failures to safeguard, or breaches of, its confidential
information;
- insurance and product-related risks including: the
company's inability to increase sufficiently, and in a timely
manner, premiums on in force long term care insurance policies
and/or reduce in force benefits, and charge higher premiums on new
policies, in each case, as currently anticipated and as may be
required from time to time in the future (including as a result of
the company's failure to obtain any necessary regulatory approvals
or unwillingness or inability of policyholders to pay increased
premiums); the company's inability to reflect future premium
increases and other management actions in its margin calculation as
anticipated; failure to sufficiently increase new sales for the
company's long term care insurance products; inability to realize
anticipated benefits of the company's rescissions, curtailments,
loan modifications or other similar programs in its mortgage
insurance businesses; premiums for the significant portion of the
company's mortgage insurance risk in force with high loan-to-value
ratios may not be sufficient to compensate the company for the
greater risks associated with those policies; decreases in the
volume of high loan-to-value mortgage originations or increases in
mortgage insurance cancellations; increases in the use of
alternatives to private mortgage insurance and reductions in the
level of coverage selected; potential liabilities in connection
with the company's U.S. contract underwriting services; and medical
advances, such as genetic research and diagnostic imaging, and
related legislation that impact policyholder behavior in ways
adverse to the company;
- other risks including: occurrence of natural or man-made
disasters or a pandemic; impairments of or valuation allowances
against the company's deferred tax assets; the possibility that in
certain circumstances the company will be obligated to make
payments to General Electric Company (GE) under the tax matters
agreement with GE even if its corresponding tax savings are never
realized and payments could be accelerated in the event of certain
changes in control; and provisions of the company's certificate of
incorporation and bylaws and the tax matters agreement with GE may
discourage takeover attempts and business combinations that
stockholders might consider in their best interests; and
- risks relating to the company's common stock including: the continued suspension of
payment of dividends; and stock price fluctuations.
The company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future developments or otherwise.
Condensed
Consolidated Statements of Income
|
(Amounts in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
|
|
|
|
|
June
30,
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Revenues:
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,111
|
|
$
|
1,127
|
|
Net investment
income
|
|
|
801
|
|
|
779
|
|
Net investment gains
(losses)
|
|
|
101
|
|
|
30
|
|
Policy fees and other
income
|
|
|
210
|
|
|
300
|
|
|
Total
revenues
|
|
|
2,223
|
|
|
2,236
|
|
Benefits and
expenses:
|
|
|
|
|
|
|
|
Benefits and other
changes in policy reserves
|
|
|
1,206
|
|
|
1,193
|
|
Interest
credited
|
|
|
163
|
|
|
173
|
|
Acquisition and
operating expenses, net of deferrals
|
|
|
240
|
|
|
327
|
|
Amortization of
deferred acquisition costs and intangibles
|
|
|
139
|
|
|
112
|
|
Interest
expense
|
|
|
74
|
|
|
80
|
|
|
Total benefits and
expenses
|
|
|
1,822
|
|
|
1,885
|
|
Income from
continuing operations before income taxes
|
|
|
401
|
|
|
351
|
|
Provision for income
taxes
|
|
|
130
|
|
|
110
|
|
Income from
continuing operations
|
|
|
271
|
|
|
241
|
|
Loss from
discontinued operations, net of taxes
|
|
|
—
|
|
|
(21)
|
|
Net
income
|
|
|
271
|
|
|
220
|
|
Less: net income
attributable to noncontrolling interests
|
|
|
69
|
|
|
48
|
|
Net income available
to Genworth Financial, Inc.'s common stockholders
|
|
$
|
202
|
|
$
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations available to Genworth Financial, Inc.'s
|
|
|
|
|
|
|
|
|
common stockholders
per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.40
|
|
$
|
0.39
|
|
|
|
Diluted
|
|
$
|
0.40
|
|
$
|
0.39
|
|
Net income available
to Genworth Financial, Inc.'s common stockholders
|
|
|
|
|
|
|
|
|
per
share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.40
|
|
$
|
0.35
|
|
|
|
Diluted
|
|
$
|
0.40
|
|
$
|
0.34
|
|
Weighted-average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
499.0
|
|
|
498.5
|
|
|
|
Diluted
|
|
|
501.2
|
|
|
500.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net Income to Adjusted Operating Income
|
(Amounts in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
Three
|
|
|
|
|
|
months
ended
|
|
months
ended
|
|
|
|
|
|
June
30,
|
|
March
31,
|
|
|
|
|
|
2017
|
|
2016
|
|
2017
|
Net income available
to Genworth Financial, Inc.'s common stockholders
|
|
$
|
202
|
|
$
|
172
|
|
$
|
155
|
Add: net income
attributable to noncontrolling interests
|
|
|
69
|
|
|
48
|
|
|
61
|
Net income
|
|
|
271
|
|
|
220
|
|
|
216
|
Loss from
discontinued operations, net of taxes
|
|
|
—
|
|
|
(21)
|
|
|
—
|
Income from
continuing operations
|
|
|
271
|
|
|
241
|
|
|
216
|
Less: income from
continuing operations attributable to
|
|
|
|
|
|
|
|
|
|
|
noncontrolling
interests
|
|
|
69
|
|
|
48
|
|
|
61
|
Income from
continuing operations available to Genworth Financial,
Inc.'s
|
|
|
|
|
|
|
|
|
|
|
common
stockholders
|
|
|
202
|
|
|
193
|
|
|
155
|
Adjustments to income
from continuing operations available to Genworth
|
|
|
|
|
|
|
|
|
|
|
Financial, Inc.'s
common stockholders:
|
|
|
|
|
|
|
|
|
|
Net investment
(gains) losses, net8
|
|
|
(79)
|
|
|
(39)
|
|
|
(20)
|
Gains on sale of
businesses
|
|
|
—
|
|
|
(10)
|
|
|
—
|
Gains on early
extinguishment of debt, net
|
|
|
—
|
|
|
(64)
|
|
|
—
|
Expenses related to
restructuring
|
|
|
—
|
|
|
5
|
|
|
1
|
Taxes on
adjustments
|
|
|
28
|
|
|
38
|
|
|
7
|
Adjusted operating
income
|
|
$
|
151
|
|
$
|
123
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating
income (loss):
|
|
|
|
|
|
|
|
|
|
U.S. Mortgage
Insurance segment
|
|
$
|
91
|
|
$
|
61
|
|
$
|
73
|
Canada Mortgage
Insurance segment
|
|
|
41
|
|
|
38
|
|
|
36
|
Australia Mortgage
Insurance segment
|
|
|
12
|
|
|
15
|
|
|
13
|
U.S. Life Insurance
segment:
|
|
|
|
|
|
|
|
|
|
|
Long Term Care
Insurance
|
|
|
33
|
|
|
37
|
|
|
14
|
|
Life
Insurance
|
|
|
(1)
|
|
|
31
|
|
|
16
|
|
Fixed
Annuities
|
|
|
7
|
|
|
(13)
|
|
|
23
|
|
Total U.S. Life
Insurance segment
|
|
|
39
|
|
|
55
|
|
|
53
|
Runoff
segment
|
|
|
11
|
|
|
6
|
|
|
14
|
Corporate and
Other
|
|
|
(43)
|
|
|
(52)
|
|
|
(46)
|
Adjusted operating
income
|
|
$
|
151
|
|
$
|
123
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available
to Genworth Financial, Inc.'s common stockholders
|
|
|
|
|
|
|
|
|
|
|
per
share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.40
|
|
$
|
0.35
|
|
$
|
0.31
|
|
|
Diluted
|
|
$
|
0.40
|
|
$
|
0.34
|
|
$
|
0.31
|
Adjusted operating
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
$
|
0.25
|
|
$
|
0.29
|
|
|
Diluted
|
|
$
|
0.30
|
|
$
|
0.25
|
|
$
|
0.29
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
499.0
|
|
|
498.5
|
|
|
498.6
|
|
|
Diluted
|
|
|
501.2
|
|
|
500.4
|
|
|
501.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets
|
(Amounts in
millions)
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
December
31,
|
|
|
2017
|
|
2016
|
Assets
|
|
|
|
|
|
Cash, cash
equivalents and invested assets
|
|
$
|
76,688
|
|
$
|
75,012
|
|
Deferred acquisition
costs
|
|
|
2,378
|
|
|
3,571
|
|
Intangible assets and
goodwill
|
|
|
334
|
|
|
348
|
|
Reinsurance
recoverable
|
|
|
17,609
|
|
|
17,755
|
|
Deferred tax and
other assets
|
|
|
738
|
|
|
673
|
|
Separate account
assets
|
|
|
7,269
|
|
|
7,299
|
|
|
|
|
Total
assets
|
|
$
|
105,016
|
|
$
|
104,658
|
Liabilities and
equity
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Future policy
benefits
|
|
$
|
37,772
|
|
$
|
37,063
|
|
|
Policyholder account
balances
|
|
|
24,971
|
|
|
25,662
|
|
|
Liability for policy
and contract claims
|
|
|
9,239
|
|
|
9,256
|
|
|
Unearned
premiums
|
|
|
3,400
|
|
|
3,378
|
|
|
Deferred tax and
other liabilities
|
|
|
2,791
|
|
|
2,969
|
|
|
Borrowings related to
securitization entities
|
|
|
63
|
|
|
74
|
|
|
Non-recourse funding
obligations
|
|
|
310
|
|
|
310
|
|
|
Long-term
borrowings
|
|
|
4,205
|
|
|
4,180
|
|
|
Separate account
liabilities
|
|
|
7,269
|
|
|
7,299
|
|
|
|
|
Total
liabilities
|
|
|
90,020
|
|
|
90,191
|
|
Equity:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
1
|
|
|
1
|
|
|
Additional paid-in
capital
|
|
|
11,969
|
|
|
11,962
|
|
|
Accumulated other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Net unrealized
investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
(losses) on securities not other-than-temporarily
impaired
|
|
|
1,170
|
|
|
1,253
|
|
|
|
|
|
Net unrealized gains
(losses) on other-than-temporarily impaired securities
|
|
|
10
|
|
|
9
|
|
|
|
|
Net unrealized
investment gains (losses)
|
|
|
1,180
|
|
|
1,262
|
|
|
|
|
Derivatives
qualifying as hedges
|
|
|
2,064
|
|
|
2,085
|
|
|
|
|
Foreign currency
translation and other adjustments
|
|
|
(149)
|
|
|
(253)
|
|
|
Total accumulated
other comprehensive income (loss)
|
|
|
3,095
|
|
|
3,094
|
|
|
Retained
earnings
|
|
|
653
|
|
|
287
|
|
|
Treasury stock, at
cost
|
|
|
(2,700)
|
|
|
(2,700)
|
|
|
|
|
Total Genworth
Financial, Inc.'s stockholders' equity
|
|
|
13,018
|
|
|
12,644
|
|
|
Noncontrolling
interests
|
|
|
1,978
|
|
|
1,823
|
|
|
|
|
Total
equity
|
|
|
14,996
|
|
|
14,467
|
|
|
|
|
Total liabilities and
equity
|
|
$
|
105,016
|
|
$
|
104,658
|
|
|
|
|
|
|
|
Impact of Foreign
Exchange on Flow New Insurance Written9
Three months ended
June 30, 2017
|
|
|
Percentages
|
|
|
Percentages
|
|
|
|
Including
Foreign
|
|
|
Excluding
Foreign
|
|
|
|
Exchange
|
|
|
Exchange10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada Mortgage
Insurance (MI):
|
|
|
|
|
|
|
Flow new insurance
written
|
|
(16)
|
%
|
|
(14)
|
%
|
Flow new insurance
written (2Q17 vs. 1Q17)
|
|
61
|
%
|
|
65
|
%
|
|
|
|
|
|
|
|
Australia
MI:
|
|
|
|
|
|
|
Flow new insurance
written
|
|
(18)
|
%
|
|
(18)
|
%
|
Flow new insurance
written (2Q17 vs. 1Q17)
|
|
―
|
%
|
|
―
|
%
|
|
|
|
|
|
|
|
Reconciliation of
Core Yield to Reported Yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
months
ended
|
|
|
|
|
|
|
June
30,
|
|
(Assets - amounts
in billions)
|
|
2017
|
|
Reported Total
Invested Assets and Cash
|
|
$
|
76.1
|
|
|
Subtract:
|
|
|
|
|
|
|
|
|
Securities
lending
|
|
|
0.2
|
|
|
|
Unrealized gains
(losses)
|
|
|
5.6
|
|
|
Adjusted end of
period invested assets
|
|
$
|
70.3
|
|
|
|
|
|
|
|
|
|
|
|
Average Invested
Assets Used in Reported Yield Calculation
|
|
$
|
70.1
|
|
|
Subtract:
|
|
|
|
|
|
|
|
|
Restricted commercial
mortgage loans and other invested assets related to
|
|
|
|
|
|
|
|
securitization
entities11
|
|
|
0.1
|
|
|
Average Invested
Assets Used in Core Yield Calculation
|
|
$
|
70.0
|
|
|
|
|
|
|
|
|
|
|
|
(Income - amounts
in
millions)
|
|
|
|
|
|
Reported Net
Investment Income
|
|
$
|
801
|
|
|
Subtract:
|
|
|
|
|
|
|
|
|
Bond calls and
commercial mortgage loan prepayments
|
|
|
8
|
|
|
|
Other non-core
items12
|
|
|
8
|
|
|
|
Restricted commercial
mortgage loans and other invested assets related to
|
|
|
|
|
|
|
|
securitization
entities11
|
|
|
2
|
|
|
Core Net Investment
Income
|
|
$
|
783
|
|
|
|
|
|
|
|
|
|
|
|
Reported
Yield
|
|
|
4.57
|
%
|
|
Core Yield
|
|
|
4.47
|
%
|
|
1 This is a financial measure that is not calculated
based on U.S. Generally Accepted Accounting Principles
(Non-GAAP). See the Use of Non-GAAP Measures section of this
press release for additional information.
2 Unless otherwise stated, all references in this press
release to net income (loss), net income (loss) per share, adjusted
operating income (loss), adjusted operating income (loss) per share
and book value per share should be read as net income (loss)
available to Genworth's common stockholders, net income (loss)
available to Genworth's common stockholders per diluted share,
adjusted operating income (loss) available to Genworth's common
stockholders, adjusted operating income (loss) available to
Genworth's common stockholders per diluted share and book value
available to Genworth's common stockholders per share,
respectively.
3 Percent change excludes the impact of foreign
exchange.
4 Company estimate for the second quarter of 2017, due
to timing of the filing of statutory statements; The MCT Ratio for
Canada MI in the second and first quarters of 2017 reflects the new
regulatory framework effective January
1, 2017. The Consolidated RBC Ratio for the U.S. Life
Insurance companies in the second quarter of 2016 is restated to
reflect the merger of Brookfield Life Annuity Insurance Company
with and into Genworth Life Insurance Company as if the merger
occurred January 1, 2015.
5 Calculated as available assets divided by required
assets as defined within PMIERs. As of June
30, 2017, March 31, 2017, and
June 30, 2016, the PMIERs sufficiency
ratios were in excess of approximately $500
million, $400 million and
$350 million, respectively, of
available assets above the PMIERs requirements. Company estimate
for the second quarter of 2017.
6 Holding company cash and liquid assets comprises
assets held in Genworth Holdings, Inc. (the issuer of outstanding
public debt) which is a wholly-owned subsidiary of Genworth
Financial, Inc.
7 Comprises cash and cash equivalents of $758 million, $849
million and $834 million,
respectively, and U.S. government bonds of $100 million, $150
million and $100 million,
respectively, as of June 30, 2017,
March 31, 2017 and June 30, 2016.
8 For the three months ended June
30, 2017 and 2016 and the three months ended March 31, 2017, net investment gains (losses)
were adjusted for DAC and other intangible amortization and certain
benefit reserves of zero, $(6)
million and zero respectively, and adjusted for net
investment gains (losses) attributable to noncontrolling interests
of $22 million, $(3) million, and $14
million, respectively.
9 All percentages are comparing the second quarter of
2017 to the second quarter of 2016 unless otherwise stated.
10 The impact of foreign exchange was calculated using
the comparable prior period exchange rates.
11 Represents the incremental assets and investment
income related to restricted commercial mortgage loans and other
invested assets.
12 Includes cost basis adjustments on structured
securities and various other immaterial items.
View original
content:http://www.prnewswire.com/news-releases/genworth-financial-announces-second-quarter-2017-results-300497843.html
SOURCE Genworth Financial, Inc.