Quarterly Report (10-q)

Date : 10/31/2018 @ 8:33PM
Source : Edgar (US Regulatory)
Stock : Genworth Financial (GNW)
Quote : 4.61  0.0 (0.00%) @ 1:16PM

Quarterly Report (10-q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to

Commission file number 001-32195

 

 

 

 

LOGO

GENWORTH FINANCIAL, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   80-0873306

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

6620 West Broad Street

Richmond, Virginia

  23230
(Address of Principal Executive Offices)   (Zip Code)

(804) 281-6000

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of October 23, 2018, 500,757,037 shares of Class A Common Stock, par value $0.001 per share, were outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page  

PART I—FINANCIAL INFORMATION

     3  

Item 1.

  Financial Statements      3  
 

Condensed Consolidated Balance Sheets as of September  30, 2018 (Unaudited) and December 31, 2017

     3  
 

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018 and 2017 (Unaudited)

     4  
 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017 (Unaudited)

     5  
 

Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2018 and 2017 (Unaudited)

     6  
 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (Unaudited)

     7  
  Notes to Condensed Consolidated Financial Statements (Unaudited)      8  

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      90  

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      174  

Item 4.

  Controls and Procedures      174  

PART II—OTHER INFORMATION

     175  

Item 1.

  Legal Proceedings      175  

Item 1A.

  Risk Factors      175  

Item 6.

  Exhibits      175  

Signatures

     176  

 

2


Table of Contents

PART I—FINANCIAL INFORMATION

 

Item 1.

Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except per share amounts)

 

     September 30,
2018
    December 31,
2017
 
     (Unaudited)        

Assets

    

Investments:

    

Fixed maturity securities available-for-sale, at fair value

   $ 59,404   $ 62,525

Equity securities, at fair value

     783     820

Commercial mortgage loans

     6,568     6,341

Restricted commercial mortgage loans related to securitization entities

     87     107

Policy loans

     1,859     1,786

Other invested assets

     1,354     1,813
  

 

 

   

 

 

 

Total investments

     70,055     73,392

Cash, cash equivalents and restricted cash

     2,505     2,875

Accrued investment income

     657     644

Deferred acquisition costs

     3,336     2,329

Intangible assets and goodwill

     355     301

Reinsurance recoverable

     17,351     17,569

Other assets

     467     453

Deferred tax asset

     650     504

Separate account assets

     6,745     7,230
  

 

 

   

 

 

 

Total assets

   $ 102,121   $ 105,297
  

 

 

   

 

 

 

Liabilities and equity

    

Liabilities:

    

Future policy benefits

   $ 38,018   $ 38,472

Policyholder account balances

     22,993     24,195

Liability for policy and contract claims

     9,844     9,594

Unearned premiums

     3,668     3,967

Other liabilities

     1,830     1,910

Borrowings related to securitization entities

     20     40

Non-recourse funding obligations

     310     310

Long-term borrowings

     4,051     4,224

Deferred tax liability

     21     27

Separate account liabilities

     6,745     7,230
  

 

 

   

 

 

 

Total liabilities

     87,500     89,969
  

 

 

   

 

 

 

Commitments and contingencies

    

Equity:

    

Class A common stock, $0.001 par value; 1.5 billion shares authorized; 589 million and 588 million shares issued as of September 30, 2018 and December 31, 2017, respectively; 501 million and 499 million shares outstanding as of September 30, 2018 and December 31, 2017, respectively

     1     1

Additional paid-in capital

     11,983     11,977
  

 

 

   

 

 

 

Accumulated other comprehensive income (loss):

    

Net unrealized investment gains (losses):

    

Net unrealized gains (losses) on securities not other-than-temporarily impaired

     598     1,075

Net unrealized gains (losses) on other-than-temporarily impaired securities

     10     10
  

 

 

   

 

 

 

Net unrealized investment gains (losses)

     608     1,085
  

 

 

   

 

 

 

Derivatives qualifying as hedges

     1,717     2,065

Foreign currency translation and other adjustments

     (258     (123
  

 

 

   

 

 

 

Total accumulated other comprehensive income (loss)

     2,067     3,027

Retained earnings

     1,447     1,113

Treasury stock, at cost (88 million shares as of September 30, 2018 and December 31, 2017)

     (2,700     (2,700
  

 

 

   

 

 

 

Total Genworth Financial, Inc.’s stockholders’ equity

     12,798     13,418

Noncontrolling interests

     1,823     1,910
  

 

 

   

 

 

 

Total equity

     14,621     15,328
  

 

 

   

 

 

 

Total liabilities and equity

   $ 102,121   $ 105,297
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

3


Table of Contents

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in millions, except per share amounts)

(Unaudited)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2018      2017     2018     2017  

Revenues:

         

Premiums

   $ 1,122    $ 1,135   $ 3,398   $ 3,382

Net investment income

     815      797     2,447     2,388

Net investment gains (losses)

     13      85     (32     220

Policy fees and other income

     193      198     604     619
  

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     2,143      2,215     6,417     6,609
  

 

 

    

 

 

   

 

 

   

 

 

 

Benefits and expenses:

         

Benefits and other changes in policy reserves

     1,321      1,344     3,837     3,796

Interest credited

     151      164     459     494

Acquisition and operating expenses, net of deferrals

     243      265     736     775

Amortization of deferred acquisition costs and intangibles

     83      83     299     316

Interest expense

     72      73     225     209
  

 

 

    

 

 

   

 

 

   

 

 

 

Total benefits and expenses

     1,870      1,929     5,556     5,590
  

 

 

    

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     273      286     861     1,019

Provision for income taxes

     63      102     237     348
  

 

 

    

 

 

   

 

 

   

 

 

 

Income from continuing operations

     210      184     624     671

Loss from discontinued operations, net of taxes

     —          (9     —         (9
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income

     210      175     624     662

Less: net income attributable to noncontrolling interests

     64      68     176     198
  

 

 

    

 

 

   

 

 

   

 

 

 

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

   $ 146    $ 107   $ 448   $ 464
  

 

 

    

 

 

   

 

 

   

 

 

 

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

         

Basic

   $ 0.29    $ 0.23   $ 0.89   $ 0.95
  

 

 

    

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.29    $ 0.23   $ 0.89   $ 0.94
  

 

 

    

 

 

   

 

 

   

 

 

 

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

         

Basic

   $ 0.29    $ 0.21   $ 0.89   $ 0.93
  

 

 

    

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.29    $ 0.21   $ 0.89   $ 0.93
  

 

 

    

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding:

         

Basic

     500.7      499.1     500.3     498.9
  

 

 

    

 

 

   

 

 

   

 

 

 

Diluted

     503.3      501.6     502.9     501.2
  

 

 

    

 

 

   

 

 

   

 

 

 

Supplemental disclosures:

         

Total other-than-temporary impairments

   $ —        $ (1   $ —       $ (4

Portion of other-than-temporary impairments included in other comprehensive income (loss)

     —          —         —         —    
  

 

 

    

 

 

   

 

 

   

 

 

 

Net other-than-temporary impairments

     —          (1     —         (4

Other investments gains (losses)

     13      86     (32     224
  

 

 

    

 

 

   

 

 

   

 

 

 

Total net investment gains (losses)

   $ 13    $ 85   $ (32   $ 220
  

 

 

    

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

4


Table of Contents

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2018     2017     2018     2017  

Net income

   $ 210   $ 175   $ 624   $ 662

Other comprehensive income (loss), net of taxes:

        

Net unrealized gains (losses) on securities not other-than-temporarily impaired

     (134     (89     (660     (173

Net unrealized gains (losses) on other-than-temporarily impaired securities

     —         —         (2     1

Derivatives qualifying as hedges

     (146     (12     (362     (33

Foreign currency translation and other adjustments

     20     81     (165     261
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     (260     (20     (1,189     56
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

     (50     155     (565     718

Less: comprehensive income attributable to noncontrolling interests

     64     108     78     313
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders

   $ (114   $ 47   $ (643   $ 405
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

5


Table of Contents

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in millions)

(Unaudited)

 

    Common
stock
    Additional
paid-in
capital
    Accumulated
other
comprehensive
income (loss)
    Retained
earnings
    Treasury
stock, at
cost
    Total
Genworth
Financial,
Inc.’s
stockholders’
equity
    Noncontrolling
interests
    Total
equity
 

Balances as of December 31, 2017

  $ 1   $ 11,977   $ 3,027   $ 1,113   $ (2,700   $ 13,418   $ 1,910   $ 15,328

Cumulative effect of change in accounting, net of taxes

    —         —         131     (114     —         17     —         17

Repurchase of subsidiary shares

    —         —         —         —         —         —         (89     (89

Comprehensive income (loss):

               

Net income

    —         —         —         448     —         448     176     624

Other comprehensive loss, net of taxes

    —         —         (1,091     —         —         (1,091     (98     (1,189
           

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

              (643     78     (565

Dividends to noncontrolling interests

    —         —         —         —         —         —         (83     (83

Stock-based compensation expense and exercises and other

    —         6     —         —         —         6     7     13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of September 30, 2018

  $ 1   $ 11,983   $ 2,067   $ 1,447   $ (2,700   $ 12,798   $ 1,823   $ 14,621
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of December 31, 2016

  $ 1   $ 11,962   $ 3,094   $ 287   $ (2,700   $ 12,644   $ 1,823   $ 14,467

Cumulative effect of change in accounting, net of taxes

    —         —         —         9     —         9     —         9

Repurchase of subsidiary shares

    —         —         —         —         —         —         (31     (31

Comprehensive income (loss):

               

Net income

    —         —         —         464     —         464     198     662

Other comprehensive income (loss), net of taxes

    —         —         (59     —         —         (59     115     56
           

 

 

   

 

 

   

 

 

 

Total comprehensive income

              405     313     718

Dividends to noncontrolling interests

    —         —         —         —         —         —         (92     (92

Stock-based compensation expense and exercises and other

    —         11     —         —         —         11     5     16
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of September 30, 2017

  $ 1   $ 11,973   $ 3,035   $ 760   $ (2,700   $ 13,069   $ 2,018   $ 15,087
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

6


Table of Contents

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)

 

     Nine months ended
September 30,
 
     2018     2017  

Cash flows from operating activities:

    

Net income

   $ 624   $ 662

Less loss from discontinued operations, net of taxes

     —         9

Adjustments to reconcile net income to net cash from operating activities:

    

Amortization of fixed maturity securities discounts and premiums

     (92     (107

Net investment (gains) losses

     32     (220

Charges assessed to policyholders

     (528     (534

Acquisition costs deferred

     (63     (67

Amortization of deferred acquisition costs and intangibles

     299     316

Deferred income taxes

     115     234

Trading securities, limited partnerships and derivative instruments

     (363     716

Stock-based compensation expense

     25     29

Change in certain assets and liabilities:

    

Accrued investment income and other assets

     (131     (21

Insurance reserves

     1,039     1,202

Current tax liabilities

     (48     (27

Other liabilities, policy and contract claims and other policy-related balances

     64     (260
  

 

 

   

 

 

 

Net cash from operating activities

     973     1,932
  

 

 

   

 

 

 

Cash flows from (used by) investing activities:

    

Proceeds from maturities and repayments of investments:

    

Fixed maturity securities

     2,967     3,396

Commercial mortgage loans

     543     454

Restricted commercial mortgage loans related to securitization entities

     20     18

Proceeds from sales of investments:

    

Fixed maturity and equity securities

     3,325     3,269

Purchases and originations of investments:

    

Fixed maturity and equity securities

     (6,416     (6,709

Commercial mortgage loans

     (769     (608

Other invested assets, net

     364     (521

Policy loans, net

     35     28

Payments for business purchased, net of cash acquired

     —         (5
  

 

 

   

 

 

 

Net cash from (used by) investing activities

     69     (678
  

 

 

   

 

 

 

Cash flows used by financing activities:

    

Deposits to universal life and investment contracts

     805     902

Withdrawals from universal life and investment contracts

     (1,806     (2,003

Proceeds from issuance of long-term debt

     441     —    

Repayment and repurchase of long-term debt

     (598     —    

Repayment of borrowings related to securitization entities

     (20     (16

Repurchase of subsidiary shares

     (89     (31

Dividends paid to noncontrolling interests

     (83     (92

Other, net

     —         (30
  

 

 

   

 

 

 

Net cash used by financing activities

     (1,350     (1,270
  

 

 

   

 

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

     (62     68
  

 

 

   

 

 

 

Net change in cash, cash equivalents and restricted cash

     (370     52

Cash, cash equivalents and restricted cash at beginning of period

     2,875     2,784
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of period

   $ 2,505   $ 2,836
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

7


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Formation of Genworth and Basis of Presentation

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

On October 21, 2016, Genworth Financial entered into an agreement and plan of merger (the “Merger Agreement”) with Asia Pacific Global Capital Co., Ltd. (“Parent”), a limited liability company incorporated in the People’s Republic of China, and a subsidiary of China Oceanwide Holdings Group Co., Ltd. (together with its affiliates, “China Oceanwide”), and Asia Pacific Global Capital USA Corporation (“Merger Sub”), a Delaware corporation and an indirect, wholly-owned subsidiary of Asia Pacific Insurance USA Holdings LLC (“Asia Pacific Insurance”) which is a Delaware limited liability company and owned by China Oceanwide. Subject to the terms and conditions of the Merger Agreement, including the satisfaction or waiver of certain conditions, Merger Sub would merge with and into Genworth Financial with Genworth Financial surviving the merger as an indirect, wholly-owned subsidiary of Asia Pacific Insurance. China Oceanwide has agreed to acquire all of our outstanding common stock for a total transaction value of approximately $2.7 billion, or $5.43 per share in cash. At a special meeting held on March 7, 2017, Genworth Financial’s stockholders voted on and approved a proposal to adopt the Merger Agreement.

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

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

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

We operate our business through the following five operating segments:

 

   

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

 

   

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

 

   

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

 

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Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

   

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

 

   

Runoff. The Runoff segment includes the results of non-strategic products which are no longer actively sold but we continue to service our existing blocks of business. Our non-strategic products primarily include our variable annuity, variable life insurance, institutional, corporate-owned life insurance and other accident and health insurance products. Institutional products consist of funding agreements and funding agreements backing notes.

In addition to our five operating business segments, we also have Corporate and Other activities which include debt financing expenses that are incurred at the Genworth Holdings level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other businesses that are managed outside of our operating segments, including certain smaller international mortgage insurance businesses and discontinued operations.

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Preparing financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. These unaudited condensed consolidated financial statements include all adjustments (including normal recurring adjustments) considered necessary by management to present a fair statement of the financial position, results of operations and cash flows for the periods presented. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2017 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

 

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Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(2) Accounting Changes

Accounting Pronouncements Recently Adopted

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

 

     Accumulated other comprehensive income (loss)              

(Amounts in millions)

   Net unrealized
investment
gains (losses)
    Derivatives
qualifying
as hedges
     Foreign currency
translation
and other
adjustments
    Retained
earnings
    Total
stockholders’
equity
 

Deferred taxes:

           

Net unrealized gains on investment securities

   $ 192   $ —        $ —       $ (192   $ —    

Net unrealized gains on derivatives

     —         12      —         (12     —    

Investment in foreign subsidiaries

     (3     —          (46     49       —    

Accrued commission and general expenses

     —         —          (1     1       —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cumulative effect of changes in accounting

   $ 189   $ 12    $ (47   $ (154   $ —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The accounting for the temporary differences related to investment in foreign subsidiaries recorded in accumulated other comprehensive income (loss) at adoption of the TCJA were provisional. Therefore, additional reclassification adjustments may be recorded in fourth quarter of 2018 as tax effects of the TCJA on related temporary differences are finalized. However, no reclassification adjustments were recorded during the second or third quarters of 2018. Other than those effects related to the TCJA, our policy is to release stranded tax effects from accumulated other comprehensive income (loss) using the portfolio approach for items related to investments and derivatives, and upon disposition of a subsidiary for items related to outside basis differences.

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

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

 

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

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

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

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

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

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

 

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

other comprehensive income and $17 million of gains related to limited partnerships previously recorded at cost to cumulative effect of change in accounting within retained earnings.

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

Accounting Pronouncements Not Yet Adopted

In 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 will be reviewed at least annually in the same period each year or more frequently if actual experience indicates a change is required;

 

   

changes in cash flow assumptions (except the discount rate) will be recorded in net income (loss) using a retrospective approach with a cumulative catch-up adjustment by recalculating the net premium ratio (which will be capped at 100%) using actual historical and updated future cash flow assumptions;

 

   

the discount rate used to determine the liability for future policy benefits will be a current upper-medium grade (low credit risk) fixed-income instrument yield, which is generally interpreted to mean a single-A rated bond rate for the same duration, and is required to be reviewed quarterly, with changes in the discount rate recorded in other comprehensive income (loss);

 

   

the provision for adverse deviation and the premium deficiency test will be eliminated;

 

   

market risk benefits associated with deposit-type contracts will be measured at fair value with changes recorded in net income (loss);

 

   

the amortization method for DAC will generally be on a straight-line basis over the expected contract term; and

 

   

disclosures will be greatly expanded to include significant assumptions and product liability rollforwards.

The guidance is currently effective for us on January 1, 2021 using the modified retrospective method, with early adoption permitted. We are in process of evaluating the new guidance and the impact it will have on our consolidated financial statements.

In August 2018, the FASB issued new accounting guidance related to disclosure requirements for defined benefit plans as part of its disclosure framework project. The guidance adds, eliminates and modifies certain disclosure requirements for defined benefit pension and other postretirement benefit plans. The guidance is currently effective for us on January 1, 2020 using the retrospective method, with early adoption permitted. We do not expect any significant impact from this guidance on our consolidated financial statements and disclosures.

 

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In August 2018, the FASB issued new accounting guidance related to fair value disclosure requirements as part of its disclosure framework project. The guidance adds, eliminates and modifies certain disclosure requirements for fair value measurements. The guidance includes new disclosure requirements related to the change in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance is currently effective for us on January 1, 2020 using the prospective method for certain disclosures and the retrospective method for all other disclosures. Early adoption of either the entire standard or only the provisions that eliminate or modify the requirements is permitted. We are in process of evaluating the impact the guidance may have on our consolidated financial statements and disclosures.

In June 2018, the FASB issued 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. The guidance is currently effective for us on January 1, 2019 using the modified retrospective method, with early adoption permitted. This guidance is consistent with our previous accounting practices and, accordingly, we do not expect any impact from this guidance on our consolidated financial statements.

In March 2017, the FASB issued new accounting guidance shortening the amortization period of certain callable debt securities held at a premium. The guidance requires the premium to be amortized to the earliest call date. This change does not apply to securities held at a discount. The guidance is currently effective for us on January 1, 2019 using the modified retrospective method, with early adoption permitted. While we are still evaluating the full impact, at this time we do not expect any significant impact from this guidance on our consolidated financial statements.

In June 2016, the FASB issued new accounting guidance related to accounting for credit losses on financial instruments. The guidance requires that entities recognize an allowance equal to its estimate of lifetime expected credit losses and applies to most debt instruments not measured at fair value, which would primarily include our commercial mortgage loans and reinsurance receivables. The new guidance retains most of the existing impairment guidance for available-for-sale debt securities but amends the presentation of credit losses to be presented as an allowance as opposed to a write-down and permits the reversal of credit losses when reassessing changes in the credit losses each reporting period. The new guidance is effective for us on January 1, 2020, with early adoption permitted beginning January 1, 2019. Upon adoption, the modified retrospective method will be used and a cumulative effect adjustment in retained earnings as of the beginning of the year of adoption will be recorded. We are in process of evaluating the impact the guidance may have on our consolidated financial statements.

In February 2016, the FASB issued new accounting guidance related to the accounting for leases. The new guidance generally requires lessees to recognize both a right-to-use asset and a corresponding liability on the balance sheet. The guidance is effective for us on January 1, 2019, with early adoption permitted. A modified retrospective transition approach is required as of the earliest period presented. Amendments to the guidance also allow an optional transition method practical expedient, which permits entities to apply the new lease standard using the modified retrospective transition approach at the date of adoption. Certain other practical expedients are available, which we are in the process of evaluating. We have identified our significant leases by asset type that will be impacted by the new guidance and begun implementation of a new software platform to facilitate compliance with the new guidance. Upon adoption, we expect to apply the optional transition method and record a right-of-use asset and liability on our balance sheet related to existing operating leases. While we are still evaluating the full impact, at this time we do not expect a significant impact from this guidance on our consolidated financial statements and we are in process of evaluating the impact to our disclosures.

 

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3) Earnings (Loss) Per Share

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

 

     Three months ended
September 30,
     Nine months ended
September 30,
 

(Amounts in millions, except per share amounts)

   2018      2017      2018      2017  

Weighted-average shares used in basic earnings per share calculations

     500.7      499.1      500.3      498.9

Potentially dilutive securities:

           

Stock options, restricted stock units and stock appreciation rights

     2.6      2.5      2.6      2.3
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average shares used in diluted earnings per share calculations

     503.3      501.6      502.9      501.2
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from continuing operations:

           

Income from continuing operations

   $ 210    $ 184    $ 624    $ 671

Less: income from continuing operations attributable to noncontrolling interests

     64      68      176      198
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 146    $ 116    $ 448    $ 473
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic per share

   $ 0.29    $ 0.23    $ 0.89    $ 0.95
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted per share

   $ 0.29    $ 0.23    $ 0.89    $ 0.94
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from discontinued operations:

           

Loss from discontinued operations, net of taxes

   $ —        $ (9    $ —        $ (9

Less: income from discontinued operations, net of taxes, attributable to noncontrolling interests

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from discontinued operations, net of taxes, available to Genworth Financial, Inc.’s common stockholders

   $ —        $ (9    $ —        $ (9
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic per share

   $ —        $ (0.02    $ —        $ (0.02
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted per share

   $ —        $ (0.02    $ —        $ (0.02
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income:

           

Income from continuing operations

   $ 210    $ 184    $ 624    $ 671

Loss from discontinued operations, net of taxes

     —          (9      —          (9
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

     210      175      624      662

Less: net income attributable to noncontrolling interests

     64      68      176      198
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 146    $ 107    $ 448    $ 464
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic per share

   $ 0.29    $ 0.21    $ 0.89    $ 0.93
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted per share

   $ 0.29    $ 0.21    $ 0.89    $ 0.93
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(4) Investments

(a) Net Investment Income

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

 

     Three months ended
September 30,
     Nine months ended
September 30,
 

(Amounts in millions)

   2018      2017      2018      2017  

Fixed maturity securities—taxable

   $ 643    $ 640    $ 1,929    $ 1,930

Fixed maturity securities—non-taxable

     3      3      9      9

Equity securities

     11      9      31      26

Commercial mortgage loans

     81      78      240      231

Restricted commercial mortgage loans related to securitization entities

     1      3      5      7

Policy loans

     41      39      125      120

Other invested assets

     44      39      136      106

Restricted other invested assets related to securitization entities

     —          —          —          1

Cash, cash equivalents and short-term investments

     13      10      39      26
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross investment income before expenses and fees

     837      821      2,514      2,456

Expenses and fees

     (22      (24      (67      (68
  

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income

   $ 815    $ 797    $ 2,447    $ 2,388
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(b) Net Investment Gains (Losses)

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

 

     Three months ended
September 30,
     Nine months ended
September 30,
 

(Amounts in millions)

   2018      2017      2018      2017  

Available-for-sale securities:

           

Realized gains

   $  22    $  40    $  42    $  177

Realized losses

     (30      (10      (67      (55
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     (8      30      (25      122
  

 

 

    

 

 

    

 

 

    

 

 

 

Impairments:

           

Total other-than-temporary impairments

     —          (1      —          (4

Portion of other-than-temporary impairments included in other comprehensive income (loss)

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net other-than-temporary impairments

     —          (1      —          (4
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized gains (losses) on equity securities sold

     —          —          10      —    

Net unrealized gains (losses) on equity securities still held

     —          —          (15      —    

Trading securities

     —          —          —          1

Limited partnerships

     3      —          8      —    

Commercial mortgage loans

     —          1      —          3

Net gains (losses) related to securitization entities

     —          1      —          5

Derivative instruments (1)

     18      54      (10      93
  

 

 

    

 

 

    

 

 

    

 

 

 

Net investment gains (losses)

   $  13    $  85    $  (32)      $  220
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

We generally intend to hold securities in unrealized loss positions until they recover. However, from time to time, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, we sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield and liquidity requirements. If a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we determined that we have the intent to sell the securities or it is more likely than not that we will be required to sell the securities prior to recovery. The aggregate fair value of securities sold at a loss during the three months ended September 30, 2018 and 2017 was $725 million and $286 million, respectively, which was approximately 96% and 97%, respectively, of book value. The aggregate fair value of securities sold at a loss during the nine months ended September 30, 2018 and 2017 was $1,984 million and $1,390 million, respectively, which was approximately 97% and 96%, respectively, of book value.

 

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following represents the activity for credit losses recognized in net income on debt securities where an other-than-temporary impairment was identified and a portion of other-than-temporary impairments was included in other comprehensive income (“OCI”) as of and for the periods indicated:

 

     As of or for the
three months ended
September 30,
     As of or for the
nine months ended
September 30,
 

(Amounts in millions)

   2018      2017      2018      2017  

Beginning balance

   $ 25    $ 38    $ 32    $ 42

Reductions:

           

Securities sold, paid down or disposed

     —          (5      (7      (9
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 25    $ 33    $ 25    $ 33
  

 

 

    

 

 

    

 

 

    

 

 

 

(c) Unrealized Investment Gains and Losses

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

 

(Amounts in millions)

   September 30, 2018     December 31, 2017  

Net unrealized gains (losses) on investment securities:

    

Fixed maturity securities

   $ 2,000   $ 5,125

Equity securities

     —         69
  

 

 

   

 

 

 

Subtotal (1)

     2,000     5,194

Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves

     (1,180     (3,451

Income taxes, net

     (178     (583
  

 

 

   

 

 

 

Net unrealized investment gains (losses)

     642     1,160

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

     34     75
  

 

 

   

 

 

 

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

   $ 608   $ 1,085
  

 

 

   

 

 

 

 

(1)

Excludes foreign exchange.

 

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The change in net unrealized gains (losses) on available-for-sale investment securities reported in accumulated other comprehensive income (loss) was as follows as of and for the periods indicated:

 

     As of or for the
three months
ended
September 30,
 

(Amounts in millions)

   2018      2017  

Beginning balance

   $ 736    $ 1,180

Unrealized gains (losses) arising during the period:

     

Unrealized gains (losses) on investment securities

     (564      (10

Adjustment to deferred acquisition costs

     292      (1

Adjustment to present value of future profits

     9      (3

Adjustment to sales inducements

     3      —    

Adjustment to benefit reserves

     65      (92

Provision for income taxes

     54      36
  

 

 

    

 

 

 

Change in unrealized gains (losses) on investment securities

     (141      (70

Reclassification adjustments to net investment (gains) losses, net of taxes of $(2) and $10

     7      (19
  

 

 

    

 

 

 

Change in net unrealized investment gains (losses)

     (134      (89

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

     (6      (17
  

 

 

    

 

 

 

Ending balance

   $ 608    $ 1,108
  

 

 

    

 

 

 

 

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

     As of or for the
nine months ended
September 30,
 

(Amounts in millions)

   2018      2017  

Beginning balance

   $ 1,085    $ 1,262

Cumulative effect of changes in accounting:

     

Stranded tax effects

     189      —    

Recognition and measurement of financial assets and liabilities, net of taxes of $18 and $—

     (25      —    
  

 

 

    

 

 

 

Total cumulative effect of changes in accounting

     164      —    
  

 

 

    

 

 

 

Unrealized gains (losses) arising during the period:

     

Unrealized gains (losses) on investment securities

     (3,150      1,377

Adjustment to deferred acquisition costs

     1,201      (1,047

Adjustment to present value of future profits

     65      (36

Adjustment to sales inducements

     32      (11

Adjustment to benefit reserves

     967      (429

Provision for income taxes

     203      51
  

 

 

    

 

 

 

Change in unrealized gains (losses) on investment securities

     (682      (95

Reclassification adjustments to net investment (gains) losses, net of taxes of $(5) and $41

     20      (77
  

 

 

    

 

 

 

Change in net unrealized investment gains (losses)

     (662      (172

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

     (21      (18
  

 

 

    

 

 

 

Ending balance

   $ 608    $ 1,108
  

 

 

    

 

 

 

 

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(d) Fixed Maturity and Equity Securities

As of September 30, 2018, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity securities classified as available-for-sale were as follows:

 

          Gross unrealized gains     Gross unrealized losses        

(Amounts in millions)

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

Fixed maturity securities:

           

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

  $ 4,733   $ 491   $ —       $ (43   $ —       $ 5,181

State and political subdivisions

    2,686     156     —         (47     —         2,795

Non-U.S. government

    2,265     65     —         (41     —         2,289

U.S. corporate:

           

Utilities

    4,459     341     —         (89     —         4,711

Energy

    2,228     136     —         (28     —         2,336

Finance and insurance

    6,203     264     —         (115     —         6,352

Consumer—non-cyclical

    4,496     298     —         (90     —         4,704

Technology and communications

    2,704     127     —         (56     —         2,775

Industrial

    1,152     52     —         (19     —         1,185

Capital goods

    2,209     167     —         (41     —         2,335

Consumer—cyclical

    1,543     62     —         (32     —         1,573

Transportation

    1,190     81     —         (33     —         1,238

Other

    315     15     —         (1     —         329
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total U.S. corporate

    26,499     1,543     —         (504     —         27,538
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

           

Utilities

    1,028     18     —         (26     —         1,020

Energy

    1,299     98     —         (18     —         1,379

Finance and insurance

    2,483     91     —         (37     —         2,537

Consumer—non-cyclical

    730     9     —         (18     —         721

Technology and communications

    1,085     28     —         (16     —         1,097

Industrial

    904     40     —         (11     —         933

Capital goods

    603     13     —         (9     —         607

Consumer—cyclical

    543     2     —         (11     —         534

Transportation

    690     43     —         (13     —         720

Other

    2,542     108     —         (25     —         2,625
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-U.S. corporate

    11,907     450     —         (184     —         12,173
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential mortgage-backed

    3,125     123     13     (39     —         3,222

Commercial mortgage-backed

    3,217     38     —         (99     —         3,156

Other asset-backed

    3,066     4     1     (21     —         3,050
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale fixed maturity securities

  $ 57,498   $ 2,870   $ 14   $ (978   $ —       $ 59,404
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

          Gross unrealized gains     Gross unrealized losses        

(Amounts in millions)

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

Fixed maturity securities:

           

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

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

State and political subdivisions

    2,678     270     —         (22     —         2,926

Non-U.S. government

    2,147     106     —         (20     —         2,233

U.S. corporate:

           

Utilities

    4,396     611     —         (9     —         4,998

Energy

    2,239     227     —         (8     —         2,458

Finance and insurance

    5,984     556     —         (12     —         6,528

Consumer—non-cyclical

    4,314     530     —         (13     —         4,831

Technology and communications

    2,665     192     —         (12     —         2,845

Industrial

    1,241     106     —         (1     —         1,346

Capital goods

    2,087     273     —         (5     —         2,355

Consumer—cyclical

    1,493     116     —         (4     —         1,605

Transportation

    1,160     134     —         (3     —         1,291

Other

    355     25     —         (1     —         379
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total U.S. corporate

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

           

Utilities

    979     42     —         (4     —         1,017

Energy

    1,337     158     —         (5     —         1,490

Finance and insurance

    2,567     174     —         (6     —         2,735

Consumer—non-cyclical

    686     30     —         (4     —         712

Technology and communications

    913     71     —         (2     —         982

Industrial

    958     88     —         (2     —         1,044

Capital goods

    614     33     —         (2     —         645

Consumer—cyclical

    532     9     —         (1     —         540

Transportation

    656     68     —         (3     —         721

Other

    2,536     193     —         (4     —         2,725
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-U.S. corporate

    11,778     866     —         (33     —         12,611
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential mortgage-backed

    3,831     223     14     (11     —         4,057

Commercial mortgage-backed

    3,387     94     2     (37     —         3,446

Other asset-backed

    3,056     17     1     (6     —         3,068
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

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

Equity securities

    756     72     —         (8     —         820
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents the gross unrealized losses and fair values of our fixed maturity securities, aggregated by investment type and length of time that individual fixed maturity securities have been in a continuous unrealized loss position, as of September 30, 2018:

 

    Less than 12 months     12 months or more     Total  

(Dollar amounts in millions)

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

Description of Securities

                 

Fixed maturity securities:

                 

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

  $ 911   $ (32     52   $ 113   $ (11 )       12   $ 1,024   $ (43 )       64

State and political subdivisions

    618     (22     125     344     (25 )       52     962     (47 )       177

Non-U.S. government

    754     (16     76     465     (25 )       28     1,219     (41 )       104

U.S. corporate

    9,901     (354     1,345     1,702     (150 )       236     11,603     (504 )       1,581

Non-U.S. corporate

    4,353     (125     592     869     (59 )       131     5,222     (184 )       723

Residential mortgage-backed

    884     (21     135     441     (18 )       81     1,325     (39 )       216

Commercial mortgage-backed

    1,078     (30     164     706     (69 )       105     1,784     (99 )       269

Other asset-backed

    1,669     (15     300     381     (6 )       83     2,050     (21 )       383
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for fixed maturity securities in an unrealized loss position

  $ 20,168   $ (615     2,789   $ 5,021   $ (363     728   $ 25,189   $ (978     3,517
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost:

                 

<20% Below cost

  $ 20,163   $ (614     2,787   $ 5,007   $ (357     723   $ 25,170   $ (971     3,510

20%-50% Below cost

    5     (1     2     14     (6 )       5     19     (7 )       7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for fixed maturity securities in an unrealized loss position

  $ 20,168   $ (615     2,789   $ 5,021   $ (363     728   $ 25,189   $ (978     3,517
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment grade

  $ 19,212   $ (581     2,653   $ 4,882   $ (350     697   $ 24,094   $ (931     3,350

Below investment grade

    956     (34     136     139     (13 )       31     1,095     (47 )       167
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for fixed maturity securities in an unrealized loss position

  $ 20,168   $ (615     2,789   $ 5,021   $ (363     728   $ 25,189   $ (978     3,517
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of September 30, 2018:

 

    Less than 12 months     12 months or more     Total  

(Dollar amounts in millions)

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

Description of Securities

                 

U.S. corporate:

                 

Utilities

  $ 1,321   $ (59     191   $ 281   $ (30     50   $ 1,602   $ (89     241

Energy

    633     (19     94     130     (9     16     763     (28     110

Finance and insurance

    2,720     (89     378     408     (26     51     3,128     (115     429

Consumer—non-cyclical

    1,687     (65     198     261     (25     34     1,948     (90     232

Technology and communications

    1,065     (34     142     222     (22     28     1,287     (56     170

Industrial

    457     (15     58     46     (4     7     503     (19     65

Capital goods

    749     (28     102     114     (13     19     863     (41     121

Consumer—cyclical

    715     (23     109     110     (9     14     825     (32     123

Transportation

    486     (21     69     116     (12     16     602     (33     85

Other

    68     (1     4     14     —         1     82     (1     5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, U.S. corporate securities

    9,901     (354     1,345     1,702     (150     236     11,603     (504     1,581
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

                 

Utilities

    413     (14     56     135     (12     16     548     (26     72

Energy

    381     (12     53     108     (6     13     489     (18     66

Finance and insurance

    1,046     (27     148     181     (10     31     1,227     (37     179

Consumer—non-cyclical

    330     (12     34     83     (6     11     413     (18     45

Technology and communications

    523     (13     68     35     (3     7     558     (16     75

Industrial

    249     (7     41     37     (4     4     286     (11     45

Capital goods

    227     (7     26     34     (2     7     261     (9     33

Consumer—cyclical

    361     (10     46     36     (1     9     397     (11     55

Transportation

    228     (6     27     70     (7     10     298     (13     37

Other

    595     (17     93     150     (8     23     745     (25     116
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, non-U.S. corporate securities

    4,353     (125     592     869     (59     131     5,222     (184     723
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for corporate securities in an unrealized loss position

  $ 14,254   $ (479     1,937   $ 2,571   $ (209     367   $ 16,825   $ (688     2,304
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

23


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

    Less than 12 months     12 months or more     Total  

(Dollar amounts in millions)

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

Description of Securities

                 

Fixed maturity securities:

                 

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

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

State and political subdivisions

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

Non-U.S. government

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

U.S. corporate

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

Non-U.S. corporate

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

Residential mortgage-
backed

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

Commercial mortgage-backed

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

Other asset-backed

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, fixed maturity securities

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

Equity securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—fixed maturity securities:

                 

<20% Below cost

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

20%-50% Below cost

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—equity securities:

                 

<20% Below cost

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment grade

  $ 5,867   $ (55     898   $ 3,488   $ (135     528   $ 9,355   $ (190     1,426

Below investment grade

    223     (10     141     173     (8 )       59     396     (18 )       200
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

    Less than 12 months     12 months or more     Total  

(Dollar amounts in millions)

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

Description of Securities

                 

U.S. corporate:

                 

Utilities

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

Energy

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

Finance and insurance

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

Consumer—non-cyclical

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

Technology and communications

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

Industrial

    —         —         —         62     (1     9     62     (1     9

Capital goods

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

Consumer—cyclical

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

Transportation

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

Other

    12     (1     2     —         —         —         12     (1     2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, U.S. corporate securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

                 

Utilities

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

Energy

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

Finance and insurance

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

Consumer—non-cyclical

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

Technology and communications

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

Industrial

    52     —         9     38     (2     5     90     (2     14

Capital goods

    54     —         11     46     (2     3     100     (2     14

Consumer—cyclical

    131     (1     21     —         —         —         131     (1     21

Transportation

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

Other

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, non-U.S. corporate securities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for corporate securities in an unrealized loss position

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The scheduled maturity distribution of fixed maturity securities as of September 30, 2018 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.

 

(Amounts in millions)

   Amortized
cost or
cost
     Fair
value
 

Due one year or less

   $ 1,708    $ 1,719

Due after one year through five years

     10,884      10,987

Due after five years through ten years

     12,477      12,531

Due after ten years

     23,021      24,739
  

 

 

    

 

 

 

Subtotal

     48,090      49,976

Residential mortgage-backed

     3,125      3,222

Commercial mortgage-backed

     3,217      3,156

Other asset-backed

     3,066      3,050
  

 

 

    

 

 

 

Total

   $ 57,498    $ 59,404
  

 

 

    

 

 

 

As of September 30, 2018, securities issued by finance and insurance, consumer—non-cyclical and utilities industry groups represented approximately 22%, 14% and 14%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than 10% of our investment portfolio.

As of September 30, 2018, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of stockholders’ equity.

(e) Commercial Mortgage Loans

Our mortgage loans are collateralized by commercial properties, including multi-family residential buildings. The carrying value of commercial mortgage loans is stated at original cost net of principal payments, amortization and allowance for loan losses.

 

26


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

We diversify our commercial mortgage loans by both property type and geographic region. The following tables set forth the distribution across property type and geographic region for commercial mortgage loans as of the dates indicated:

 

     September 30, 2018     December 31, 2017  

(Amounts in millions)

   Carrying
value
     % of
total
    Carrying
value
     % of
total
 

Property type:

          

Retail

   $ 2,412      36   $ 2,239      35

Industrial

     1,629      25     1,628      26

Office

     1,521      23     1,510      24

Apartments

     494      8     478      8

Mixed use

     251      4     223      3

Other

     274      4     275      4
  

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal

     6,581      100     6,353      100
     

 

 

      

 

 

 

Unamortized balance of loan origination fees and costs

     (4        (3   

Allowance for losses

     (9        (9   
  

 

 

      

 

 

    

Total

   $ 6,568      $ 6,341   
  

 

 

      

 

 

    

 

     September 30, 2018     December 31, 2017  

(Amounts in millions)

   Carrying
value
     % of
total
    Carrying
value
     % of
total
 

Geographic region:

          

South Atlantic

   $ 1,699      26   $ 1,625      26

Pacific

     1,633      25     1,622      26

Middle Atlantic

     952      15     927      14

Mountain

     624      10     556      9

West North Central

     471      7     446      7

East North Central

     401      6     394      6

West South Central

     356      5     336      5

East South Central

     228      3     208      3

New England

     217      3     239      4
  

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal

     6,581      100     6,353      100
     

 

 

      

 

 

 

Unamortized balance of loan origination fees and costs

     (4        (3   

Allowance for losses

     (9        (9   
  

 

 

      

 

 

    

Total

   $ 6,568      $ 6,341   
  

 

 

      

 

 

    

 

27


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

     September 30, 2018  

(Amounts in millions)

   31-60 days
past due
    61-90 days
past due
    Greater than
90 days past
due
    Total
past due
    Current     Total  

Property type:

            

Retail

   $ —       $ —       $ —       $ —       $ 2,412   $ 2,412

Industrial

     —         —         —         —         1,629     1,629

Office

     —         —         6     6     1,515     1,521

Apartments

     —         —         —         —         494     494

Mixed use

     —         —         —         —         251     251

Other

     —         —         —         —         274     274
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ —       $ —       $ 6   $ 6   $ 6,575   $ 6,581
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total commercial mortgage loans

     —       —       —       —       100     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     December 31, 2017  

(Amounts in millions)

   31-60 days
past due
    61-90 days
past due
    Greater than
90 days past
due
    Total
past due
    Current     Total  

Property type:

            

Retail

   $ 5   $ —       $ —       $ 5   $ 2,234   $ 2,239

Industrial

     —         —         —         —         1,628     1,628

Office

     —         —         6     6     1,504     1,510

Apartments

     —         —         —         —         478     478

Mixed use

     —         —         —         —         223     223

Other

     —         —         —         —         275     275
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 5   $ —       $ 6   $ 11   $ 6,342   $ 6,353
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total commercial mortgage loans

     —       —       —       —       100     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of September 30, 2018 and December 31, 2017, we had no commercial mortgage loans that were past due for more than 90 days and still accruing interest. We also did not have any commercial mortgage loans that were past due for less than 90 days on non-accrual status as of September 30, 2018 and December 31, 2017.

We evaluate the impairment of commercial mortgage loans on an individual loan basis. As of September 30, 2018, our commercial mortgage loans greater than 90 days past due included one impaired loan. This loan had an appraised value in excess of the recorded investment and the current recorded investment of this loan is expected to be recoverable.

During the nine months ended September 30, 2018 and the year ended December 31, 2017, we modified or extended two and ten commercial mortgage loans, respectively, with a total carrying value of $12 million and $27 million, respectively. All of these modifications or extensions were based on current market interest rates and did not result in any forgiveness in the outstanding principal amount owed by the borrower.

 

28


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table sets forth the allowance for credit losses and recorded investment in commercial mortgage loans as of or for the periods indicated:

 

     Three months ended
September 30,
     Nine months ended
September 30,
 

(Amounts in millions)

   2018      2017      2018      2017  

Allowance for credit losses:

           

Beginning balance

   $ 9    $ 10    $ 9    $ 12

Charge-offs

     —          —          —          —    

Recoveries

     —          —          —          —    

Provision

     —          —          —          (2
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 9    $ 10    $ 9    $ 10
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending allowance for individually impaired loans

   $ —        $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 9    $ 10    $ 9    $ 10
  

 

 

    

 

 

    

 

 

    

 

 

 

Recorded investment:

           

Ending balance

   $ 6,581    $ 6,281    $ 6,581    $ 6,281
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance of individually impaired loans

   $ 6    $ —        $ 6    $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 6,575    $ 6,281    $ 6,575    $ 6,281
  

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2018 and December 31, 2017, we had one individually impaired loan within the office property type with a recorded investment and unpaid principal balance of $6 million. As of September 30, 2017, we had no individually impaired commercial mortgage loans.

In evaluating the credit quality of commercial mortgage loans, we assess the performance of the underlying loans using both quantitative and qualitative criteria. Certain risks associated with commercial mortgage loans can be evaluated by reviewing both the loan-to-value and debt service coverage ratio to understand both the probability of the borrower not being able to make the necessary loan payments as well as the ability to sell the underlying property for an amount that would enable us to recover our unpaid principal balance in the event of default by the borrower. The average loan-to-value ratio is based on our most recent estimate of the fair value for the underlying property which is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A lower loan-to-value indicates that our loan value is more likely to be recovered in the event of default by the borrower if the property was sold. The debt service coverage ratio is based on “normalized” annual income of the property compared to the payments required under the terms of the loan. Normalization allows for the removal of annual one-time events such as capital expenditures, prepaid or late real estate tax payments or non-recurring third-party fees (such as legal, consulting or contract fees). This ratio is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A higher debt service coverage ratio indicates the borrower is less likely to default on the loan. The debt service coverage ratio is not used without considering other factors associated with the borrower, such as the borrower’s liquidity or access to other resources that may result in our expectation that the borrower will continue to make the future scheduled payments.

 

29


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following tables set forth the loan-to-value of commercial mortgage loans by property type as of the dates indicated:

 

     September 30, 2018  

(Amounts in millions)

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

Property type:

            

Retail

   $ 794   $ 488   $ 1,130   $ —       $ —       $ 2,412

Industrial

     712     302     615     —         —         1,629

Office

     413     449     651     8     —         1,521

Apartments

     200     113     176     5     —         494

Mixed use

     100     54     97     —         —         251

Other

     29     36     209     —         —         274
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 2,248   $ 1,442   $ 2,878   $ 13   $ —       $ 6,581
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total

     34     22     44     —       —       100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average debt service coverage ratio

     2.31     1.87     1.62     1.07     —         1.91
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     December 31, 2017  

(Amounts in millions)

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

Property type:

            

Retail

   $ 919   $ 500   $ 820   $ —       $ —       $ 2,239

Industrial

     731     363     532     2     —         1,628

Office

     575     386     534     13     2       1,510

Apartments

     226     101     146     5     —         478

Mixed use

     99     59     65     —         —         223

Other

     68     28     179     —         —         275
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 2,618   $ 1,437   $ 2,276   $ 20   $ 2     $ 6,353
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total

     41     23     36         —       100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average debt service coverage ratio

     2.65     1.85     1.62     0.62     1.04       2.09
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  

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

 

30


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following tables set forth the debt service coverage ratio for fixed rate commercial mortgage loans by property type as of the dates indicated:

 

     September 30, 2018  

(Amounts in millions)

   Less than
1.00
    1.00-1.25     1.26-1.50     1.51-2.00     Greater
than 2.00
    Total  

Property type:

            

Retail

   $ 40   $ 194   $ 417   $ 1,197   $ 564   $ 2,412

Industrial

     19     60     203     756     591     1,629

Office

     33     69     169     732     518     1,521

Apartments

     12     17     93     189     183     494

Mixed use

     5     4     50     89     103     251

Other

     1     146     32     86     9     274
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 110   $ 490   $ 964   $ 3,049   $ 1,968   $ 6,581
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total

     2     7     15     46     30     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average loan-to-value

     54     59     62     60     45     55