Item 1.
|
Financial Statements
|
GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturity securities available-for-sale, at fair value
|
|
$
|
60,597
|
|
|
$
|
60,572
|
|
Equity securities available-for-sale, at fair value
|
|
|
709
|
|
|
|
632
|
|
Commercial mortgage loans
|
|
|
6,107
|
|
|
|
6,111
|
|
Restricted commercial mortgage loans related to securitization entities
|
|
|
122
|
|
|
|
129
|
|
Policy loans
|
|
|
1,761
|
|
|
|
1,742
|
|
Other invested assets
|
|
|
2,272
|
|
|
|
2,071
|
|
Restricted other invested assets related to securitization entities, at fair value
|
|
|
84
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
71,652
|
|
|
|
71,569
|
|
Cash and cash equivalents
|
|
|
3,018
|
|
|
|
2,784
|
|
Accrued investment income
|
|
|
717
|
|
|
|
659
|
|
Deferred acquisition costs
|
|
|
3,207
|
|
|
|
3,571
|
|
Intangible assets and goodwill
|
|
|
381
|
|
|
|
348
|
|
Reinsurance recoverable
|
|
|
17,681
|
|
|
|
17,755
|
|
Other assets
|
|
|
703
|
|
|
|
673
|
|
Separate account assets
|
|
|
7,327
|
|
|
|
7,299
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
104,686
|
|
|
$
|
104,658
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
37,291
|
|
|
$
|
37,063
|
|
Policyholder account balances
|
|
|
25,383
|
|
|
|
25,662
|
|
Liability for policy and contract claims
|
|
|
9,295
|
|
|
|
9,256
|
|
Unearned premiums
|
|
|
3,370
|
|
|
|
3,378
|
|
Other liabilities ($3 and $1 of other liabilities are related to securitization
entities)
|
|
|
2,657
|
|
|
|
2,916
|
|
Borrowings related to securitization entities ($13 and $12 are carried at fair value)
|
|
|
68
|
|
|
|
74
|
|
Non-recourse funding obligations
|
|
|
310
|
|
|
|
310
|
|
Long-term borrowings
|
|
|
4,194
|
|
|
|
4,180
|
|
Deferred tax liability
|
|
|
75
|
|
|
|
53
|
|
Separate account liabilities
|
|
|
7,327
|
|
|
|
7,299
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
89,970
|
|
|
|
90,191
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 587 million shares issued
as of March 31, 2017 and December 31, 2016; 499 million and 498 million shares outstanding as of March 31, 2017 and December 31, 2016, respectively
|
|
|
1
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
11,964
|
|
|
|
11,962
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses):
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on securities not other-than-temporarily impaired
|
|
|
1,233
|
|
|
|
1,253
|
|
Net unrealized gains (losses) on other-than-temporarily impaired securities
|
|
|
10
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses)
|
|
|
1,243
|
|
|
|
1,262
|
|
|
|
|
|
|
|
|
|
|
Derivatives qualifying as hedges
|
|
|
2,036
|
|
|
|
2,085
|
|
Foreign currency translation and other adjustments
|
|
|
(183
|
)
|
|
|
(253
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
|
3,096
|
|
|
|
3,094
|
|
Retained earnings
|
|
|
451
|
|
|
|
287
|
|
Treasury stock, at cost (88 million shares as of March 31, 2017 and December 31, 2016)
|
|
|
(2,700
|
)
|
|
|
(2,700
|
)
|
|
|
|
|
|
|
|
|
|
Total Genworth Financial, Inc.s stockholders equity
|
|
|
12,812
|
|
|
|
12,644
|
|
Noncontrolling interests
|
|
|
1,904
|
|
|
|
1,823
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
14,716
|
|
|
|
14,467
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
104,686
|
|
|
$
|
104,658
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements
3
GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in millions, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,136
|
|
|
$
|
794
|
|
Net investment income
|
|
|
790
|
|
|
|
789
|
|
Net investment gains (losses)
|
|
|
34
|
|
|
|
(19
|
)
|
Policy fees and other income
|
|
|
211
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,171
|
|
|
|
1,785
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
Benefits and other changes in policy reserves
|
|
|
1,246
|
|
|
|
860
|
|
Interest credited
|
|
|
167
|
|
|
|
177
|
|
Acquisition and operating expenses, net of deferrals
|
|
|
270
|
|
|
|
394
|
|
Amortization of deferred acquisition costs and intangibles
|
|
|
94
|
|
|
|
99
|
|
Interest expense
|
|
|
62
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
1,839
|
|
|
|
1,635
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
332
|
|
|
|
150
|
|
Provision for income taxes
|
|
|
116
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
216
|
|
|
|
127
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
216
|
|
|
|
108
|
|
Less: net income attributable to noncontrolling interests
|
|
|
61
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Net income available to Genworth Financial, Inc.s common stockholders
|
|
$
|
155
|
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to Genworth Financial, Inc.s common stockholders
per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.31
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
Net income available to Genworth Financial, Inc.s common stockholders per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.31
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
498.6
|
|
|
|
498.0
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
501.0
|
|
|
|
499.4
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairments
|
|
$
|
(1
|
)
|
|
$
|
(11
|
)
|
Portion of other-than-temporary impairments included in other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other-than-temporary impairments
|
|
|
(1
|
)
|
|
|
(11
|
)
|
Other investments gains (losses)
|
|
|
35
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
Total net investment gains (losses)
|
|
$
|
34
|
|
|
$
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements
4
GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net income
|
|
$
|
216
|
|
|
$
|
108
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on securities not other-than-temporarily impaired
|
|
|
(12
|
)
|
|
|
807
|
|
Net unrealized gains (losses) on other-than-temporarily impaired securities
|
|
|
1
|
|
|
|
(4
|
)
|
Derivatives qualifying as hedges
|
|
|
(49
|
)
|
|
|
257
|
|
Foreign currency translation and other adjustments
|
|
|
119
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
59
|
|
|
|
1,276
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
275
|
|
|
|
1,384
|
|
Less: comprehensive income attributable to noncontrolling interests
|
|
|
118
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
157
|
|
|
$
|
1,228
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements
5
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, 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
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155
|
|
|
|
|
|
|
|
155
|
|
|
|
61
|
|
|
|
216
|
|
Other comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
57
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
|
|
|
|
118
|
|
|
|
275
|
|
Dividends to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
(39
|
)
|
Stock-based compensation expense and exercises and other
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of March 31, 2017
|
|
$
|
1
|
|
|
$
|
11,964
|
|
|
$
|
3,096
|
|
|
$
|
451
|
|
|
$
|
(2,700
|
)
|
|
$
|
12,812
|
|
|
$
|
1,904
|
|
|
$
|
14,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2015
|
|
$
|
1
|
|
|
$
|
11,949
|
|
|
$
|
3,010
|
|
|
$
|
564
|
|
|
$
|
(2,700
|
)
|
|
$
|
12,824
|
|
|
$
|
1,813
|
|
|
$
|
14,637
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
53
|
|
|
|
55
|
|
|
|
108
|
|
Other comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
1,175
|
|
|
|
|
|
|
|
|
|
|
|
1,175
|
|
|
|
101
|
|
|
|
1,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,228
|
|
|
|
156
|
|
|
|
1,384
|
|
Dividends to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
(52
|
)
|
Stock-based compensation expense and exercises and other
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of March 31, 2016
|
|
$
|
1
|
|
|
$
|
11,952
|
|
|
$
|
4,185
|
|
|
$
|
617
|
|
|
$
|
(2,700
|
)
|
|
$
|
14,055
|
|
|
$
|
1,918
|
|
|
$
|
15,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements
6
GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
216
|
|
|
$
|
108
|
|
Less loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
19
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Gain on sale of business
|
|
|
|
|
|
|
(20
|
)
|
Amortization of fixed maturity securities discounts and premiums and limited
partnerships
|
|
|
(33
|
)
|
|
|
(38
|
)
|
Net investment (gains) losses
|
|
|
(34
|
)
|
|
|
19
|
|
Charges assessed to policyholders
|
|
|
(183
|
)
|
|
|
(191
|
)
|
Acquisition costs deferred
|
|
|
(22
|
)
|
|
|
(50
|
)
|
Amortization of deferred acquisition costs and intangibles
|
|
|
94
|
|
|
|
99
|
|
Deferred income taxes
|
|
|
93
|
|
|
|
7
|
|
Trading securities, held-for-sale investments and derivative instruments
|
|
|
365
|
|
|
|
21
|
|
Stock-based compensation expense
|
|
|
10
|
|
|
|
7
|
|
Change in certain assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued investment income and other assets
|
|
|
(79
|
)
|
|
|
(159
|
)
|
Insurance reserves
|
|
|
377
|
|
|
|
36
|
|
Current tax liabilities
|
|
|
(37
|
)
|
|
|
(8
|
)
|
Other liabilities, policy and contract claims and other policy-related balances
|
|
|
(112
|
)
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
655
|
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
Cash flows used by investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from maturities and repayments of investments:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
1,060
|
|
|
|
840
|
|
Commercial mortgage loans
|
|
|
166
|
|
|
|
192
|
|
Restricted commercial mortgage loans related to securitization entities
|
|
|
6
|
|
|
|
6
|
|
Proceeds from sales of investments:
|
|
|
|
|
|
|
|
|
Fixed maturity and equity securities
|
|
|
2,173
|
|
|
|
905
|
|
Purchases and originations of investments:
|
|
|
|
|
|
|
|
|
Fixed maturity and equity securities
|
|
|
(2,710
|
)
|
|
|
(2,042
|
)
|
Commercial mortgage loans
|
|
|
(161
|
)
|
|
|
(200
|
)
|
Other invested assets, net
|
|
|
(676
|
)
|
|
|
34
|
|
Policy loans, net
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(142
|
)
|
|
|
(255
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows used by financing activities:
|
|
|
|
|
|
|
|
|
Deposits to universal life and investment contracts
|
|
|
218
|
|
|
|
571
|
|
Withdrawals from universal life and investment contracts
|
|
|
(467
|
)
|
|
|
(517
|
)
|
Redemption of non-recourse funding obligations
|
|
|
|
|
|
|
(1,620
|
)
|
Repayment and repurchase of long-term debt
|
|
|
|
|
|
|
(326
|
)
|
Repayment of borrowings related to securitization entities
|
|
|
(7
|
)
|
|
|
(10
|
)
|
Dividends paid to noncontrolling interests
|
|
|
(39
|
)
|
|
|
(52
|
)
|
Other, net
|
|
|
(9
|
)
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(304
|
)
|
|
|
(1,941
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
25
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
234
|
|
|
|
(1,909
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
2,784
|
|
|
|
5,993
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
3,018
|
|
|
|
4,084
|
|
Less cash and cash equivalents held for sale at end of period
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operations at end of period
|
|
$
|
3,018
|
|
|
$
|
4,043
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements
7
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 Genworths common stock, which was completed on May 28, 2004. On April 1, 2013, Genworth Holdings completed a holding company
reorganization pursuant to which Genworth Holdings became a direct, 100% owned subsidiary of a new public holding company that it had formed. The new public holding company was incorporated in Delaware on December 5, 2012, in connection with
the reorganization, and was renamed Genworth Financial, Inc. (Genworth Financial) upon the completion of the reorganization.
On October 21, 2016, Genworth Financial entered into an agreement and plan of merger (the Merger Agreement) with Asia Pacific
Global Capital Co., Ltd. (the Parent), a limited liability company incorporated in the Peoples Republic of China, and Asia Pacific Global Capital USA Corporation (Merger Sub), a Delaware corporation and an indirect,
wholly-owned subsidiary of the Parent. Subject to the terms and conditions of the Merger Agreement, including the satisfaction or waiver of certain conditions, Merger Sub would merge with and into Genworth Financial with Genworth Financial surviving
the merger as an indirect, wholly-owned subsidiary of the Parent. The Parent is a newly formed subsidiary of China Oceanwide Holdings Group Co., Ltd. (together with its affiliates, China Oceanwide). China Oceanwide has agreed to acquire
all of our outstanding common stock for a total transaction value of approximately $2.7 billion, or $5.43 per share in cash. At a special meeting held on March 7, 2017, Genworths 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. Genworth and China Oceanwide continue to target closing the transaction in the middle of 2017.
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.
|
8
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 have not been actively sold but we continue to service our existing blocks of business. Our non-strategic products primarily
include our variable annuity, variable life insurance, institutional, corporate-owned life insurance and other accident and health insurance products. Institutional products consist of: funding agreements, funding agreements backing notes and
guaranteed investment contracts.
|
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 2016 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to
the current year presentation.
(2) Accounting Changes
Accounting Pronouncements Recently Adopted
On January 1, 2017, we adopted new accounting guidance related to the accounting for stock compensation. The guidance primarily simplifies
the accounting for employee share-based payment transactions, including a new requirement to record all of the income tax effects at settlement or expiration through the income statement, classifications of awards as either equity or liabilities,
and classification on the statement of cash flows. We adopted this new accounting guidance on a modified retrospective basis and recorded a previously disallowed deferred tax asset of $9 million with a corresponding increase to cumulative
effect of change in accounting within retained earnings at adoption.
On January 1, 2017, we adopted new accounting guidance related
to transition to the equity method of accounting. The guidance eliminates the retrospective application of the equity method of accounting when obtaining significant influence over a previously held investment. The guidance requires that an entity
that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes
qualified for use of the equity method. We did not have any significant impact from this guidance on our consolidated financial statements.
9
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On January 1, 2017, we adopted new accounting guidance related to the assessment of
contingent put and call options in debt instruments. The guidance clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to
their debt hosts. An entity performing the assessment under the amendments in this update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. This guidance is consistent with our previous
accounting practices and, accordingly, did not have any impact on our consolidated financial statements.
On January 1, 2017, we
adopted new accounting guidance related to the effect of derivative contract novations on existing hedge accounting relationships. The guidance clarifies that a change in the counterparty to a derivative instrument that has been designated as the
hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This guidance is consistent with our previous accounting for derivative contract
novations and, accordingly, did not have any impact on our consolidated financial statements.
Accounting Pronouncements Not Yet
Adopted
In March 2017, the Financial Accounting Standards Board (the FASB) issued new guidance shortening the amortization
period for the premium component of callable debt securities purchased 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, with early adoption permitted. We are in process of evaluating the impact the guidance may have on our consolidated financial statements.
In February 2017, the FASB issued new guidance to clarify the accounting for gains and losses from the derecognition of nonfinancial assets
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, and clarifies the accounting for partial sales. The new guidance is currently effective for us on January 1, 2018. We do not expect any significant
impacts from this guidance on our consolidated financial statements.
In January 2017, the FASB issued new 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. The new guidance is currently effective for us on
January 1, 2020, with early adoption permitted for testing dates after January 1, 2017. We do not expect any significant impacts from this new guidance on our consolidated financial statements.
In October 2016, the FASB issued new 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. The guidance is currently effective for us on January 1, 2018. We are still
in process of evaluating the impact the guidance may have on our consolidated financial statements, including any cumulative effect adjustment that will be recorded directly to retained earnings as of the beginning of the period of adoption.
10
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Earnings 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
March 31,
|
|
(Amounts in millions, except per share amounts)
|
|
2017
|
|
|
2016
|
|
Weighted-average shares used in basic earnings per share calculations
|
|
|
498.6
|
|
|
|
498.0
|
|
Potentially dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options, restricted stock units and stock appreciation rights
|
|
|
2.4
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in diluted earnings per share calculations
|
|
|
501.0
|
|
|
|
499.4
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
216
|
|
|
$
|
127
|
|
Less: income from continuing operations attributable to noncontrolling interests
|
|
|
61
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to Genworth Financial, Inc.s common
stockholders
|
|
$
|
155
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
Basic per share
|
|
$
|
0.31
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
Diluted per share
|
|
$
|
0.31
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations:
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
$
|
|
|
|
$
|
(19
|
)
|
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
|
|
$
|
|
|
|
$
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Basic per share
|
|
$
|
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
Diluted per share
|
|
$
|
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
216
|
|
|
$
|
127
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
216
|
|
|
|
108
|
|
Less: net income attributable to noncontrolling interests
|
|
|
61
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Net income available to Genworth Financial, Inc.s common stockholders
|
|
$
|
155
|
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
Basic per share
|
|
$
|
0.31
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Diluted per share
|
|
$
|
0.31
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
11
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
March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Fixed maturity securitiestaxable
|
|
$
|
641
|
|
|
$
|
641
|
|
Fixed maturity securitiesnon-taxable
|
|
|
3
|
|
|
|
3
|
|
Commercial mortgage loans
|
|
|
77
|
|
|
|
81
|
|
Restricted commercial mortgage loans related to securitization entities
|
|
|
2
|
|
|
|
2
|
|
Equity securities
|
|
|
8
|
|
|
|
5
|
|
Other invested assets
|
|
|
32
|
|
|
|
38
|
|
Restricted other invested assets related to securitization entities
|
|
|
|
|
|
|
2
|
|
Policy loans
|
|
|
42
|
|
|
|
35
|
|
Cash, cash equivalents and short-term investments
|
|
|
6
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Gross investment income before expenses and fees
|
|
|
811
|
|
|
|
812
|
|
Expenses and fees
|
|
|
(21
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
790
|
|
|
$
|
789
|
|
|
|
|
|
|
|
|
|
|
(b) Net Investment Gains (Losses)
The following table sets forth net investment gains (losses) for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Realized gains
|
|
$
|
63
|
|
|
$
|
16
|
|
Realized losses
|
|
|
(34
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) on available-for-sale securities
|
|
|
29
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Impairments:
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairments
|
|
|
(1
|
)
|
|
|
(11
|
)
|
Portion of other-than-temporary impairments included in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other-than-temporary impairments
|
|
|
(1
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
|
|
|
|
28
|
|
Commercial mortgage loans
|
|
|
1
|
|
|
|
1
|
|
Net gains (losses) related to securitization entities
|
|
|
2
|
|
|
|
8
|
|
Derivative instruments
(1)
|
|
|
3
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
34
|
|
|
$
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
(1)
|
See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses).
|
12
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We generally intend to hold securities in unrealized loss positions until they recover.
However, from time to time, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, we sell securities in the ordinary course of managing our portfolio to meet diversification, credit
quality, yield and liquidity requirements. If a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we determined that we have the intent to sell the
securities or it is more likely than not that we will be required to sell the securities prior to recovery. The aggregate fair value of securities sold at a loss during the three months ended March 31, 2017 and 2016 was $876 million and $240
million, respectively, which was approximately 96% and 91%, respectively, of book value.
The following represents the activity for credit
losses recognized in net income on debt securities where an other-than-temporary impairment was identified and a portion of other-than-temporary impairments was included in other comprehensive income (OCI) as of and for the three months
ended March 31:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Beginning balance
|
|
$
|
42
|
|
|
$
|
64
|
|
Reductions:
|
|
|
|
|
|
|
|
|
Securities sold, paid down or disposed
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
41
|
|
|
$
|
63
|
|
|
|
|
|
|
|
|
|
|
(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 were as follows as of the dates indicated:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Net unrealized gains (losses) on investment securities:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
$
|
3,983
|
|
|
$
|
3,656
|
|
Equity securities
|
|
|
49
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Subtotal
(1)
|
|
|
4,032
|
|
|
|
3,668
|
|
Adjustments to deferred acquisition costs, present value of future profits, sales inducements and
benefit reserves
|
|
|
(1,994
|
)
|
|
|
(1,611
|
)
|
Income taxes, net
|
|
|
(703
|
)
|
|
|
(711
|
)
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses)
|
|
|
1,335
|
|
|
|
1,346
|
|
Less: net unrealized investment gains (losses) attributable to noncontrolling interests
|
|
|
92
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.
|
|
$
|
1,243
|
|
|
$
|
1,262
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes foreign exchange.
|
13
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 was as follows as of and for the three months ended March 31:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Beginning balance
|
|
$
|
1,262
|
|
|
$
|
1,254
|
|
Unrealized gains (losses) arising during the period:
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on investment securities
|
|
|
392
|
|
|
|
1,596
|
|
Adjustment to deferred acquisition costs
|
|
|
(305
|
)
|
|
|
(142
|
)
|
Adjustment to present value of future profits
|
|
|
(5
|
)
|
|
|
(34
|
)
|
Adjustment to sales inducements
|
|
|
(5
|
)
|
|
|
(19
|
)
|
Adjustment to benefit reserves
|
|
|
(68
|
)
|
|
|
(174
|
)
|
Provision for income taxes
|
|
|
(2
|
)
|
|
|
(436
|
)
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses) on investment securities
|
|
|
7
|
|
|
|
791
|
|
Reclassification adjustments to net investment (gains) losses, net of taxes of $10 and
$(6)
|
|
|
(18
|
)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized investment gains (losses)
|
|
|
(11
|
)
|
|
|
803
|
|
Less: change in net unrealized investment gains (losses) attributable to noncontrolling
interests
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,243
|
|
|
$
|
2,057
|
|
|
|
|
|
|
|
|
|
|
14
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(d) Fixed Maturity and Equity Securities
As of March 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
|
|
$
|
4,837
|
|
|
$
|
681
|
|
|
$
|
|
|
|
$
|
(25
|
)
|
|
$
|
|
|
|
$
|
5,493
|
|
State and political subdivisions
|
|
|
2,565
|
|
|
|
191
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
2,710
|
|
Non-U.S. government
|
|
|
1,722
|
|
|
|
106
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
1,817
|
|
U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
4,215
|
|
|
|
456
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
4,635
|
|
Energy
|
|
|
2,192
|
|
|
|
166
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
2,339
|
|
Finance and insurance
|
|
|
5,882
|
|
|
|
465
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
6,316
|
|
Consumernon-cyclical
|
|
|
4,380
|
|
|
|
441
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
4,793
|
|
Technology and communications
|
|
|
2,520
|
|
|
|
150
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
2,643
|
|
Industrial
|
|
|
1,223
|
|
|
|
86
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
1,300
|
|
Capital goods
|
|
|
2,085
|
|
|
|
236
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
2,309
|
|
Consumercyclical
|
|
|
1,480
|
|
|
|
96
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
1,562
|
|
Transportation
|
|
|
1,105
|
|
|
|
86
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
1,177
|
|
Other
|
|
|
331
|
|
|
|
19
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. corporate
|
|
|
25,413
|
|
|
|
2,201
|
|
|
|
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
27,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
985
|
|
|
|
44
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
1,020
|
|
Energy
|
|
|
1,281
|
|
|
|
122
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
1,395
|
|
Finance and insurance
|
|
|
2,445
|
|
|
|
151
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
2,589
|
|
Consumernon-cyclical
|
|
|
701
|
|
|
|
20
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
712
|
|
Technology and communications
|
|
|
968
|
|
|
|
50
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
1,012
|
|
Industrial
|
|
|
924
|
|
|
|
56
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
976
|
|
Capital goods
|
|
|
563
|
|
|
|
25
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
585
|
|
Consumercyclical
|
|
|
451
|
|
|
|
11
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
461
|
|
Transportation
|
|
|
632
|
|
|
|
67
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
693
|
|
Other
|
|
|
2,600
|
|
|
|
187
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
2,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-U.S. corporate
|
|
|
11,550
|
|
|
|
733
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
12,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
4,139
|
|
|
|
264
|
|
|
|
12
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
4,404
|
|
Commercial mortgage-backed
|
|
|
3,250
|
|
|
|
97
|
|
|
|
4
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
3,302
|
|
Other asset-backed
|
|
|
3,231
|
|
|
|
15
|
|
|
|
1
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
3,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
56,707
|
|
|
|
4,288
|
|
|
|
17
|
|
|
|
(415
|
)
|
|
|
|
|
|
|
60,597
|
|
Equity securities
|
|
|
667
|
|
|
|
55
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
57,374
|
|
|
$
|
4,343
|
|
|
$
|
17
|
|
|
$
|
(428
|
)
|
|
$
|
|
|
|
$
|
61,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of December 31, 2016, 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
|
|
$
|
5,439
|
|
|
$
|
647
|
|
|
$
|
|
|
|
$
|
(50
|
)
|
|
$
|
|
|
|
$
|
6,036
|
|
State and political subdivisions
|
|
|
2,515
|
|
|
|
182
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
2,647
|
|
Non-U.S. government
|
|
|
2,024
|
|
|
|
101
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
2,107
|
|
U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
4,137
|
|
|
|
454
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
4,550
|
|
Energy
|
|
|
2,167
|
|
|
|
157
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
2,300
|
|
Finance and insurance
|
|
|
5,719
|
|
|
|
424
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
6,097
|
|
Consumernon-cyclical
|
|
|
4,335
|
|
|
|
433
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
4,734
|
|
Technology and communications
|
|
|
2,473
|
|
|
|
157
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
2,598
|
|
Industrial
|
|
|
1,161
|
|
|
|
76
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
1,223
|
|
Capital goods
|
|
|
2,043
|
|
|
|
228
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
2,258
|
|
Consumercyclical
|
|
|
1,455
|
|
|
|
92
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
1,530
|
|
Transportation
|
|
|
1,121
|
|
|
|
86
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
1,190
|
|
Other
|
|
|
332
|
|
|
|
17
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. corporate
|
|
|
24,943
|
|
|
|
2,124
|
|
|
|
|
|
|
|
(239
|
)
|
|
|
|
|
|
|
26,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
940
|
|
|
|
40
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
969
|
|
Energy
|
|
|
1,234
|
|
|
|
109
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
1,331
|
|
Finance and insurance
|
|
|
2,413
|
|
|
|
134
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
2,538
|
|
Consumernon-cyclical
|
|
|
711
|
|
|
|
17
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
714
|
|
Technology and communications
|
|
|
953
|
|
|
|
44
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
987
|
|
Industrial
|
|
|
928
|
|
|
|
39
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
958
|
|
Capital goods
|
|
|
518
|
|
|
|
21
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
535
|
|
Consumercyclical
|
|
|
434
|
|
|
|
10
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
442
|
|
Transportation
|
|
|
619
|
|
|
|
65
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
677
|
|
Other
|
|
|
2,967
|
|
|
|
190
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
3,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-U.S. corporate
|
|
|
11,717
|
|
|
|
669
|
|
|
|
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
12,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
4,122
|
|
|
|
259
|
|
|
|
10
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
4,379
|
|
Commercial mortgage-backed
|
|
|
3,084
|
|
|
|
98
|
|
|
|
3
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
3,129
|
|
Other asset-backed
|
|
|
3,170
|
|
|
|
15
|
|
|
|
1
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
3,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
57,014
|
|
|
|
4,095
|
|
|
|
14
|
|
|
|
(551
|
)
|
|
|
|
|
|
|
60,572
|
|
Equity securities
|
|
|
628
|
|
|
|
31
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
57,642
|
|
|
$
|
4,126
|
|
|
$
|
14
|
|
|
$
|
(578
|
)
|
|
$
|
|
|
|
$
|
61,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
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 March 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
|
|
$
|
861
|
|
|
$
|
(25
|
)
|
|
|
41
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
861
|
|
|
$
|
(25
|
)
|
|
|
41
|
|
State and political subdivisions
|
|
|
564
|
|
|
|
(28
|
)
|
|
|
96
|
|
|
|
142
|
|
|
|
(18
|
)
|
|
|
12
|
|
|
|
706
|
|
|
|
(46
|
)
|
|
|
108
|
|
Non-U.S. government
|
|
|
345
|
|
|
|
(11
|
)
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
345
|
|
|
|
(11
|
)
|
|
|
35
|
|
U.S. corporate
|
|
|
4,601
|
|
|
|
(155
|
)
|
|
|
630
|
|
|
|
509
|
|
|
|
(36
|
)
|
|
|
68
|
|
|
|
5,110
|
|
|
|
(191
|
)
|
|
|
698
|
|
Non-U.S. corporate
|
|
|
1,493
|
|
|
|
(41
|
)
|
|
|
221
|
|
|
|
298
|
|
|
|
(18
|
)
|
|
|
41
|
|
|
|
1,791
|
|
|
|
(59
|
)
|
|
|
262
|
|
Residential mortgage-backed
|
|
|
675
|
|
|
|
(10
|
)
|
|
|
104
|
|
|
|
56
|
|
|
|
(1
|
)
|
|
|
31
|
|
|
|
731
|
|
|
|
(11
|
)
|
|
|
135
|
|
Commercial mortgage-backed
|
|
|
1,067
|
|
|
|
(48
|
)
|
|
|
153
|
|
|
|
16
|
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
1,083
|
|
|
|
(49
|
)
|
|
|
160
|
|
Other asset-backed
|
|
|
847
|
|
|
|
(6
|
)
|
|
|
150
|
|
|
|
344
|
|
|
|
(17
|
)
|
|
|
67
|
|
|
|
1,191
|
|
|
|
(23
|
)
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, fixed maturity securities
|
|
|
10,453
|
|
|
|
(324
|
)
|
|
|
1,430
|
|
|
|
1,365
|
|
|
|
(91
|
)
|
|
|
226
|
|
|
|
11,818
|
|
|
|
(415
|
)
|
|
|
1,656
|
|
Equity securities
|
|
|
86
|
|
|
|
(5
|
)
|
|
|
160
|
|
|
|
105
|
|
|
|
(8
|
)
|
|
|
48
|
|
|
|
191
|
|
|
|
(13
|
)
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for securities in an unrealized loss position
|
|
$
|
10,539
|
|
|
$
|
(329
|
)
|
|
|
1,590
|
|
|
$
|
1,470
|
|
|
$
|
(99
|
)
|
|
|
274
|
|
|
$
|
12,009
|
|
|
$
|
(428
|
)
|
|
|
1,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Below costfixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<20% Below cost
|
|
$
|
10,453
|
|
|
$
|
(324
|
)
|
|
|
1,430
|
|
|
$
|
1,325
|
|
|
$
|
(78
|
)
|
|
|
220
|
|
|
$
|
11,778
|
|
|
$
|
(402
|
)
|
|
|
1,650
|
|
20%-50% Below cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
(13
|
)
|
|
|
6
|
|
|
|
40
|
|
|
|
(13
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
10,453
|
|
|
|
(324
|
)
|
|
|
1,430
|
|
|
|
1,365
|
|
|
|
(91
|
)
|
|
|
226
|
|
|
|
11,818
|
|
|
|
(415
|
)
|
|
|
1,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Below costequity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<20% Below cost
|
|
|
83
|
|
|
|
(4
|
)
|
|
|
151
|
|
|
|
105
|
|
|
|
(8
|
)
|
|
|
48
|
|
|
|
188
|
|
|
|
(12
|
)
|
|
|
199
|
|
20%-50% Below cost
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
86
|
|
|
|
(5
|
)
|
|
|
160
|
|
|
|
105
|
|
|
|
(8
|
)
|
|
|
48
|
|
|
|
191
|
|
|
|
(13
|
)
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for securities in an unrealized loss position
|
|
$
|
10,539
|
|
|
$
|
(329
|
)
|
|
|
1,590
|
|
|
$
|
1,470
|
|
|
$
|
(99
|
)
|
|
|
274
|
|
|
$
|
12,009
|
|
|
$
|
(428
|
)
|
|
|
1,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment grade
|
|
$
|
10,163
|
|
|
$
|
(318
|
)
|
|
|
1,390
|
|
|
$
|
1,172
|
|
|
$
|
(79
|
)
|
|
|
216
|
|
|
$
|
11,335
|
|
|
$
|
(397
|
)
|
|
|
1,606
|
|
Below investment grade
|
|
|
376
|
|
|
|
(11
|
)
|
|
|
200
|
|
|
|
298
|
|
|
|
(20
|
)
|
|
|
58
|
|
|
|
674
|
|
|
|
(31
|
)
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for securities in an unrealized loss position
|
|
$
|
10,539
|
|
|
$
|
(329
|
)
|
|
|
1,590
|
|
|
$
|
1,470
|
|
|
$
|
(99
|
)
|
|
|
274
|
|
|
$
|
12,009
|
|
|
$
|
(428
|
)
|
|
|
1,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
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 March 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
|
|
$
|
784
|
|
|
$
|
(35
|
)
|
|
|
118
|
|
|
$
|
21
|
|
|
$
|
(1
|
)
|
|
|
4
|
|
|
$
|
805
|
|
|
$
|
(36
|
)
|
|
|
122
|
|
Energy
|
|
|
253
|
|
|
|
(5
|
)
|
|
|
37
|
|
|
|
204
|
|
|
|
(14
|
)
|
|
|
25
|
|
|
|
457
|
|
|
|
(19
|
)
|
|
|
62
|
|
Finance and insurance
|
|
|
1,140
|
|
|
|
(25
|
)
|
|
|
151
|
|
|
|
99
|
|
|
|
(6
|
)
|
|
|
14
|
|
|
|
1,239
|
|
|
|
(31
|
)
|
|
|
165
|
|
Consumernon-cyclical
|
|
|
825
|
|
|
|
(28
|
)
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
825
|
|
|
|
(28
|
)
|
|
|
105
|
|
Technology and communications
|
|
|
450
|
|
|
|
(19
|
)
|
|
|
62
|
|
|
|
89
|
|
|
|
(8
|
)
|
|
|
13
|
|
|
|
539
|
|
|
|
(27
|
)
|
|
|
75
|
|
Industrial
|
|
|
181
|
|
|
|
(5
|
)
|
|
|
27
|
|
|
|
46
|
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
227
|
|
|
|
(9
|
)
|
|
|
32
|
|
Capital goods
|
|
|
321
|
|
|
|
(11
|
)
|
|
|
48
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
327
|
|
|
|
(12
|
)
|
|
|
49
|
|
Consumercyclical
|
|
|
335
|
|
|
|
(12
|
)
|
|
|
43
|
|
|
|
31
|
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
366
|
|
|
|
(14
|
)
|
|
|
48
|
|
Transportation
|
|
|
295
|
|
|
|
(14
|
)
|
|
|
37
|
|
|
|
13
|
|
|
|
|
|
|
|
1
|
|
|
|
308
|
|
|
|
(14
|
)
|
|
|
38
|
|
Other
|
|
|
17
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, U.S. corporate securities
|
|
|
4,601
|
|
|
|
(155
|
)
|
|
|
630
|
|
|
|
509
|
|
|
|
(36
|
)
|
|
|
68
|
|
|
|
5,110
|
|
|
|
(191
|
)
|
|
|
698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
232
|
|
|
|
(8
|
)
|
|
|
23
|
|
|
|
14
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
246
|
|
|
|
(9
|
)
|
|
|
24
|
|
Energy
|
|
|
84
|
|
|
|
(2
|
)
|
|
|
17
|
|
|
|
83
|
|
|
|
(6
|
)
|
|
|
14
|
|
|
|
167
|
|
|
|
(8
|
)
|
|
|
31
|
|
Finance and insurance
|
|
|
265
|
|
|
|
(5
|
)
|
|
|
44
|
|
|
|
27
|
|
|
|
(2
|
)
|
|
|
7
|
|
|
|
292
|
|
|
|
(7
|
)
|
|
|
51
|
|
Consumernon-cyclical
|
|
|
238
|
|
|
|
(9
|
)
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238
|
|
|
|
(9
|
)
|
|
|
24
|
|
Technology and communications
|
|
|
197
|
|
|
|
(5
|
)
|
|
|
27
|
|
|
|
18
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
215
|
|
|
|
(6
|
)
|
|
|
28
|
|
Industrial
|
|
|
91
|
|
|
|
(2
|
)
|
|
|
12
|
|
|
|
46
|
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
137
|
|
|
|
(4
|
)
|
|
|
18
|
|
Capital goods
|
|
|
66
|
|
|
|
(1
|
)
|
|
|
10
|
|
|
|
28
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
94
|
|
|
|
(3
|
)
|
|
|
12
|
|
Consumercyclical
|
|
|
60
|
|
|
|
(1
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
(1
|
)
|
|
|
14
|
|
Transportation
|
|
|
95
|
|
|
|
(5
|
)
|
|
|
15
|
|
|
|
25
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
120
|
|
|
|
(6
|
)
|
|
|
17
|
|
Other
|
|
|
165
|
|
|
|
(3
|
)
|
|
|
35
|
|
|
|
57
|
|
|
|
(3
|
)
|
|
|
8
|
|
|
|
222
|
|
|
|
(6
|
)
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, non-U.S. corporate securities
|
|
|
1,493
|
|
|
|
(41
|
)
|
|
|
221
|
|
|
|
298
|
|
|
|
(18
|
)
|
|
|
41
|
|
|
|
1,791
|
|
|
|
(59
|
)
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for corporate securities in an unrealized loss position
|
|
$
|
6,094
|
|
|
$
|
(196
|
)
|
|
|
851
|
|
|
$
|
807
|
|
|
$
|
(54
|
)
|
|
|
109
|
|
|
$
|
6,901
|
|
|
$
|
(250
|
)
|
|
|
960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As indicated in the tables above, the majority of the securities in a continuous unrealized loss position for
less than 12 months were investment grade and less than 20% below cost. These unrealized losses were primarily attributable to increased market volatility, mostly concentrated in our corporate securities. For securities that have been in a
continuous unrealized loss position for less than 12 months, the average fair value percentage below cost was approximately 3% as of March 31, 2017.
18
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fixed Maturity Securities In A Continuous Unrealized Loss Position For 12 Months Or More
Of the $78 million of unrealized losses on fixed maturity securities in a continuous unrealized loss for 12 months or more that
were less than 20% below cost, the weighted-average rating was BBB and approximately 77% of the unrealized losses were related to investment grade securities as of March 31, 2017. These unrealized losses were predominantly
attributable to corporate securities including variable rate securities purchased in a higher rate and lower spread environment. The average fair value percentage below cost for these securities was approximately 5% as of March 31, 2017. See
below for additional discussion related to fixed maturity securities that have been in a continuous unrealized loss position for 12 months or more with a fair value that was more than 20% below cost.
The following tables present the concentration of gross unrealized losses and fair values of fixed maturity securities that were more than 20%
below cost and in a continuous unrealized loss position for 12 months or more by asset class as of March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Grade
|
|
|
|
20% to 50%
|
|
|
Greater than 50%
|
|
(Dollar amounts in millions)
|
|
Fair
value
|
|
|
Gross
unrealized
losses
|
|
|
% of total
gross
unrealized
losses
|
|
|
Number of
securities
|
|
|
Fair
value
|
|
|
Gross
unrealized
losses
|
|
|
% of total
gross
unrealized
losses
|
|
|
Number of
securities
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
$
|
9
|
|
|
$
|
(3
|
)
|
|
|
1
|
%
|
|
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
Structured securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other asset-backed
|
|
|
29
|
|
|
|
(9
|
)
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total structured securities
|
|
|
29
|
|
|
|
(9
|
)
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38
|
|
|
$
|
(12
|
)
|
|
|
3
|
%
|
|
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below Investment Grade
|
|
|
|
20% to 50%
|
|
|
Greater than 50%
|
|
(Dollar amounts in millions)
|
|
Fair
value
|
|
|
Gross
unrealized
losses
|
|
|
% of total
gross
unrealized
losses
|
|
|
Number of
securities
|
|
|
Fair
value
|
|
|
Gross
unrealized
losses
|
|
|
% of total
gross
unrealized
losses
|
|
|
Number of
securities
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government
|
|
$
|
2
|
|
|
$
|
(1
|
)
|
|
|
|
%
|
|
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2
|
|
|
$
|
(1
|
)
|
|
|
|
%
|
|
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. See below for further discussion of gross unrealized
losses by asset class.
19
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Structured Securities
Of the $9 million of unrealized losses related to structured securities that have been in an unrealized loss position for 12 months or more and
were more than 20% below cost, none related to other-than-temporarily impaired securities where the unrealized losses represented the portion of the other-than-temporary impairment recognized in OCI. The extent and duration of the unrealized loss
position on our structured securities was primarily due to credit spreads that have widened since acquisition. Additionally, the fair value of certain structured securities has been impacted from high risk premiums being incorporated into the
valuation as a result of the amount of potential losses that may be absorbed by the security in the event of additional deterioration in the U.S. economy.
While we consider the length of time each security had been in an unrealized loss position, the extent of the unrealized loss position and any
significant declines in fair value subsequent to the balance sheet date in our evaluation of impairment for each of these individual securities, the primary factor in our evaluation of impairment is the expected performance for each of these
securities. Our evaluation of expected performance is based on the historical performance of the associated securitization trust as well as the historical performance of the underlying collateral. Our examination of the historical performance of the
securitization trust included consideration of the following factors for each class of securities issued by the trust: (i) the payment history, including failure to make scheduled payments; (ii) current payment status; (iii) current
and historical outstanding balances; (iv) current levels of subordination and losses incurred to date; and (v) characteristics of the underlying collateral. Our examination of the historical performance of the underlying collateral
included: (i) historical default rates, delinquency rates, voluntary and involuntary prepayments and severity of losses, including recent trends in this information; (ii) current payment status; (iii) loan to collateral value ratios,
as applicable; (iv) vintage; and (v) other underlying characteristics such as current financial condition.
We use our
assessment of the historical performance of both the securitization trust and the underlying collateral for each security, along with third-party sources, when available, to develop our best estimate of cash flows expected to be collected. These
estimates reflect projections for future delinquencies, prepayments, defaults and losses for the assets that collateralize the securitization trust and are used to determine the expected cash flows for our security, based on the payment structure of
the trust. Our projection of expected cash flows is primarily based on the expected performance of the underlying assets that collateralize the securitization trust and is not directly impacted by the rating of our security. While we consider the
rating of the security as an indicator of the financial condition of the issuer, this factor does not have a significant impact on our expected cash flows for each security. In limited circumstances, our expected cash flows include expected payments
from reliable financial guarantors where we believe the financial guarantor will have sufficient assets to pay claims under the financial guarantee when the cash flows from the securitization trust are not sufficient to make scheduled payments. We
then discount the expected cash flows using the effective yield of each security to determine the present value of expected cash flows.
Based on this evaluation, the present value of expected cash flows was greater than or equal to the amortized cost for each security.
Accordingly, we determined that the unrealized losses on each of our structured securities represented temporary impairments as of March 31, 2017.
Despite the considerable analysis and rigor employed on our structured securities, it is reasonably possible that the underlying collateral of
these investments may perform worse than current market expectations. Such events may lead to adverse changes in cash flows on our holdings of structured securities and future write-downs within our portfolio of structured securities.
20
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
State and political subdivisions
As indicated above, $3 million of gross unrealized losses were related to a state and political subdivisions fixed maturity security that has
been in a continuous loss position for more than 12 months and was greater than 20% below cost. The unrealized loss for this security was 24% below cost, primarily related to widening of credit spreads since acquisition as a result of higher risk
premiums being attributed to this security from uncertainty related to special revenues supporting this type of obligation as well as certain securities having longer duration that may be viewed as less desirable in the current market place.
Additionally, the fair value of this security class has been negatively impacted as a result of having certain bond insurers associated with the security. In our analysis of impairment for this security, we expect to recover our amortized cost from
the cash flows of the underlying security before any guarantee support. However, the existence of these guarantees may negatively impact the value of the debt security in certain instances. We performed an analysis of this security and the
underlying activities that are expected to support the cash flows and determined we expect to recover our amortized cost.
21
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, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
1,074
|
|
|
$
|
(50
|
)
|
|
|
37
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
1,074
|
|
|
$
|
(50
|
)
|
|
|
37
|
|
State and political subdivisions
|
|
|
644
|
|
|
|
(32
|
)
|
|
|
109
|
|
|
|
142
|
|
|
|
(18
|
)
|
|
|
12
|
|
|
|
786
|
|
|
|
(50
|
)
|
|
|
121
|
|
Non-U.S. government
|
|
|
497
|
|
|
|
(18
|
)
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
497
|
|
|
|
(18
|
)
|
|
|
51
|
|
U.S. corporate
|
|
|
5,221
|
|
|
|
(190
|
)
|
|
|
711
|
|
|
|
662
|
|
|
|
(49
|
)
|
|
|
94
|
|
|
|
5,883
|
|
|
|
(239
|
)
|
|
|
805
|
|
Non-U.S. corporate
|
|
|
2,257
|
|
|
|
(66
|
)
|
|
|
330
|
|
|
|
408
|
|
|
|
(25
|
)
|
|
|
57
|
|
|
|
2,665
|
|
|
|
(91
|
)
|
|
|
387
|
|
Residential mortgage-backed
|
|
|
725
|
|
|
|
(11
|
)
|
|
|
100
|
|
|
|
58
|
|
|
|
(1
|
)
|
|
|
35
|
|
|
|
783
|
|
|
|
(12
|
)
|
|
|
135
|
|
Commercial mortgage-backed
|
|
|
1,091
|
|
|
|
(55
|
)
|
|
|
168
|
|
|
|
25
|
|
|
|
(1
|
)
|
|
|
9
|
|
|
|
1,116
|
|
|
|
(56
|
)
|
|
|
177
|
|
Other asset-backed
|
|
|
1,069
|
|
|
|
(13
|
)
|
|
|
184
|
|
|
|
328
|
|
|
|
(22
|
)
|
|
|
68
|
|
|
|
1,397
|
|
|
|
(35
|
)
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, fixed maturity securities
|
|
|
12,578
|
|
|
|
(435
|
)
|
|
|
1,690
|
|
|
|
1,623
|
|
|
|
(116
|
)
|
|
|
275
|
|
|
|
14,201
|
|
|
|
(551
|
)
|
|
|
1,965
|
|
Equity securities
|
|
|
119
|
|
|
|
(9
|
)
|
|
|
182
|
|
|
|
114
|
|
|
|
(18
|
)
|
|
|
47
|
|
|
|
233
|
|
|
|
(27
|
)
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for securities in an unrealized loss position
|
|
$
|
12,697
|
|
|
$
|
(444
|
)
|
|
|
1,872
|
|
|
$
|
1,737
|
|
|
$
|
(134
|
)
|
|
|
322
|
|
|
$
|
14,434
|
|
|
$
|
(578
|
)
|
|
|
2,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Below costfixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<20% Below cost
|
|
$
|
12,578
|
|
|
$
|
(435
|
)
|
|
|
1,690
|
|
|
$
|
1,543
|
|
|
$
|
(90
|
)
|
|
|
267
|
|
|
$
|
14,121
|
|
|
$
|
(525
|
)
|
|
|
1,957
|
|
20%-50% Below cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
(26
|
)
|
|
|
8
|
|
|
|
80
|
|
|
|
(26
|
)
|
|
|
8
|
|
>50% Below cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
12,578
|
|
|
|
(435
|
)
|
|
|
1,690
|
|
|
|
1,623
|
|
|
|
(116
|
)
|
|
|
275
|
|
|
|
14,201
|
|
|
|
(551
|
)
|
|
|
1,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Below costequity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<20% Below cost
|
|
|
118
|
|
|
|
(8
|
)
|
|
|
167
|
|
|
|
101
|
|
|
|
(14
|
)
|
|
|
38
|
|
|
|
219
|
|
|
|
(22
|
)
|
|
|
205
|
|
20%-50% Below cost
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
15
|
|
|
|
13
|
|
|
|
(4
|
)
|
|
|
9
|
|
|
|
14
|
|
|
|
(5
|
)
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
119
|
|
|
|
(9
|
)
|
|
|
182
|
|
|
|
114
|
|
|
|
(18
|
)
|
|
|
47
|
|
|
|
233
|
|
|
|
(27
|
)
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for securities in an unrealized loss position
|
|
$
|
12,697
|
|
|
$
|
(444
|
)
|
|
|
1,872
|
|
|
$
|
1,737
|
|
|
$
|
(134
|
)
|
|
|
322
|
|
|
$
|
14,434
|
|
|
$
|
(578
|
)
|
|
|
2,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment grade
|
|
$
|
12,339
|
|
|
$
|
(432
|
)
|
|
|
1,657
|
|
|
$
|
1,354
|
|
|
$
|
(108
|
)
|
|
|
250
|
|
|
$
|
13,693
|
|
|
$
|
(540
|
)
|
|
|
1,907
|
|
Below investment grade
|
|
|
358
|
|
|
|
(12
|
)
|
|
|
215
|
|
|
|
383
|
|
|
|
(26
|
)
|
|
|
72
|
|
|
|
741
|
|
|
|
(38
|
)
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for securities in an unrealized loss position
|
|
$
|
12,697
|
|
|
$
|
(444
|
)
|
|
|
1,872
|
|
|
$
|
1,737
|
|
|
$
|
(134
|
)
|
|
|
322
|
|
|
$
|
14,434
|
|
|
$
|
(578
|
)
|
|
|
2,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
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, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
855
|
|
|
$
|
(39
|
)
|
|
|
130
|
|
|
$
|
21
|
|
|
$
|
(2
|
)
|
|
|
5
|
|
|
$
|
876
|
|
|
$
|
(41
|
)
|
|
|
135
|
|
Energy
|
|
|
190
|
|
|
|
(5
|
)
|
|
|
30
|
|
|
|
276
|
|
|
|
(19
|
)
|
|
|
38
|
|
|
|
466
|
|
|
|
(24
|
)
|
|
|
68
|
|
Finance and insurance
|
|
|
1,438
|
|
|
|
(38
|
)
|
|
|
177
|
|
|
|
113
|
|
|
|
(8
|
)
|
|
|
15
|
|
|
|
1,551
|
|
|
|
(46
|
)
|
|
|
192
|
|
Consumernon-cyclical
|
|
|
921
|
|
|
|
(34
|
)
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
921
|
|
|
|
(34
|
)
|
|
|
117
|
|
Technology and communications
|
|
|
507
|
|
|
|
(22
|
)
|
|
|
70
|
|
|
|
126
|
|
|
|
(10
|
)
|
|
|
17
|
|
|
|
633
|
|
|
|
(32
|
)
|
|
|
87
|
|
Industrial
|
|
|
226
|
|
|
|
(7
|
)
|
|
|
38
|
|
|
|
77
|
|
|
|
(7
|
)
|
|
|
10
|
|
|
|
303
|
|
|
|
(14
|
)
|
|
|
48
|
|
Capital goods
|
|
|
322
|
|
|
|
(12
|
)
|
|
|
50
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
328
|
|
|
|
(13
|
)
|
|
|
51
|
|
Consumercyclical
|
|
|
431
|
|
|
|
(16
|
)
|
|
|
56
|
|
|
|
26
|
|
|
|
(1
|
)
|
|
|
6
|
|
|
|
457
|
|
|
|
(17
|
)
|
|
|
62
|
|
Transportation
|
|
|
302
|
|
|
|
(16
|
)
|
|
|
41
|
|
|
|
17
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
319
|
|
|
|
(17
|
)
|
|
|
43
|
|
Other
|
|
|
29
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, U.S. corporate securities
|
|
|
5,221
|
|
|
|
(190
|
)
|
|
|
711
|
|
|
|
662
|
|
|
|
(49
|
)
|
|
|
94
|
|
|
|
5,883
|
|
|
|
(239
|
)
|
|
|
805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
240
|
|
|
|
(10
|
)
|
|
|
32
|
|
|
|
14
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
254
|
|
|
|
(11
|
)
|
|
|
33
|
|
Energy
|
|
|
105
|
|
|
|
(3
|
)
|
|
|
18
|
|
|
|
91
|
|
|
|
(9
|
)
|
|
|
16
|
|
|
|
196
|
|
|
|
(12
|
)
|
|
|
34
|
|
Finance and insurance
|
|
|
474
|
|
|
|
(8
|
)
|
|
|
79
|
|
|
|
71
|
|
|
|
(1
|
)
|
|
|
16
|
|
|
|
545
|
|
|
|
(9
|
)
|
|
|
95
|
|
Consumernon-cyclical
|
|
|
308
|
|
|
|
(14
|
)
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308
|
|
|
|
(14
|
)
|
|
|
30
|
|
Technology and communications
|
|
|
232
|
|
|
|
(9
|
)
|
|
|
34
|
|
|
|
28
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
260
|
|
|
|
(10
|
)
|
|
|
36
|
|
Industrial
|
|
|
165
|
|
|
|
(5
|
)
|
|
|
21
|
|
|
|
91
|
|
|
|
(4
|
)
|
|
|
10
|
|
|
|
256
|
|
|
|
(9
|
)
|
|
|
31
|
|
Capital goods
|
|
|
104
|
|
|
|
(2
|
)
|
|
|
14
|
|
|
|
28
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
132
|
|
|
|
(4
|
)
|
|
|
16
|
|
Consumercyclical
|
|
|
90
|
|
|
|
(2
|
)
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
(2
|
)
|
|
|
17
|
|
Transportation
|
|
|
106
|
|
|
|
(5
|
)
|
|
|
16
|
|
|
|
25
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
131
|
|
|
|
(7
|
)
|
|
|
18
|
|
Other
|
|
|
433
|
|
|
|
(8
|
)
|
|
|
69
|
|
|
|
60
|
|
|
|
(5
|
)
|
|
|
8
|
|
|
|
493
|
|
|
|
(13
|
)
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, non-U.S. corporate securities
|
|
|
2,257
|
|
|
|
(66
|
)
|
|
|
330
|
|
|
|
408
|
|
|
|
(25
|
)
|
|
|
57
|
|
|
|
2,665
|
|
|
|
(91
|
)
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for corporate securities in an unrealized loss position
|
|
$
|
7,478
|
|
|
$
|
(256
|
)
|
|
|
1,041
|
|
|
$
|
1,070
|
|
|
$
|
(74
|
)
|
|
|
151
|
|
|
$
|
8,548
|
|
|
$
|
(330
|
)
|
|
|
1,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The scheduled maturity distribution of fixed maturity securities as of March 31, 2017 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
|
|
$
|
1,755
|
|
|
$
|
1,776
|
|
Due after one year through five years
|
|
|
10,322
|
|
|
|
10,764
|
|
Due after five years through ten years
|
|
|
11,969
|
|
|
|
12,386
|
|
Due after ten years
|
|
|
22,041
|
|
|
|
24,741
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
46,087
|
|
|
|
49,667
|
|
Residential mortgage-backed
|
|
|
4,139
|
|
|
|
4,404
|
|
Commercial mortgage-backed
|
|
|
3,250
|
|
|
|
3,302
|
|
Other asset-backed
|
|
|
3,231
|
|
|
|
3,224
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,707
|
|
|
$
|
60,597
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017, $10,978 million of our investments (excluding mortgage-backed and asset-backed
securities) were subject to certain call provisions.
As of March 31, 2017, securities issued by finance and insurance, utilities and
consumernon-cyclical industry groups represented approximately 23%, 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 March 31, 2017, 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.
24
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Carrying
value
|
|
|
% of
total
|
|
|
Carrying
value
|
|
|
% of
total
|
|
Property type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
2,181
|
|
|
|
36
|
%
|
|
$
|
2,178
|
|
|
|
36
|
%
|
Industrial
|
|
|
1,531
|
|
|
|
25
|
|
|
|
1,533
|
|
|
|
25
|
|
Office
|
|
|
1,423
|
|
|
|
23
|
|
|
|
1,430
|
|
|
|
23
|
|
Apartments
|
|
|
462
|
|
|
|
8
|
|
|
|
455
|
|
|
|
7
|
|
Mixed use
|
|
|
237
|
|
|
|
4
|
|
|
|
245
|
|
|
|
4
|
|
Other
|
|
|
287
|
|
|
|
4
|
|
|
|
284
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
6,121
|
|
|
|
100
|
%
|
|
|
6,125
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized balance of loan origination fees and costs
|
|
|
(3
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
Allowance for losses
|
|
|
(11
|
)
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,107
|
|
|
|
|
|
|
$
|
6,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Carrying
value
|
|
|
% of
total
|
|
|
Carrying
value
|
|
|
% of
total
|
|
Geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Atlantic
|
|
$
|
1,592
|
|
|
|
26
|
%
|
|
$
|
1,546
|
|
|
|
25
|
%
|
Pacific
|
|
|
1,547
|
|
|
|
25
|
|
|
|
1,567
|
|
|
|
27
|
|
Middle Atlantic
|
|
|
895
|
|
|
|
15
|
|
|
|
915
|
|
|
|
15
|
|
Mountain
|
|
|
543
|
|
|
|
9
|
|
|
|
554
|
|
|
|
9
|
|
West North Central
|
|
|
426
|
|
|
|
7
|
|
|
|
435
|
|
|
|
7
|
|
East North Central
|
|
|
390
|
|
|
|
6
|
|
|
|
388
|
|
|
|
6
|
|
West South Central
|
|
|
319
|
|
|
|
5
|
|
|
|
311
|
|
|
|
5
|
|
East South Central
|
|
|
205
|
|
|
|
4
|
|
|
|
206
|
|
|
|
3
|
|
New England
|
|
|
204
|
|
|
|
3
|
|
|
|
203
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
6,121
|
|
|
|
100
|
%
|
|
|
6,125
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized balance of loan origination fees and costs
|
|
|
(3
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
Allowance for losses
|
|
|
(11
|
)
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,107
|
|
|
|
|
|
|
$
|
6,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 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
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,181
|
|
|
$
|
2,181
|
|
Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,531
|
|
|
|
1,531
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,423
|
|
|
|
1,423
|
|
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
462
|
|
|
|
462
|
|
Mixed use
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237
|
|
|
|
237
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
287
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded investment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,121
|
|
|
$
|
6,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total commercial mortgage loans
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
(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
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,178
|
|
|
$
|
2,178
|
|
Industrial
|
|
|
1
|
|
|
|
|
|
|
|
12
|
|
|
|
13
|
|
|
|
1,520
|
|
|
|
1,533
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,430
|
|
|
|
1,430
|
|
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
455
|
|
|
|
455
|
|
Mixed use
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245
|
|
|
|
245
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
284
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded investment
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
13
|
|
|
$
|
6,112
|
|
|
$
|
6,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total commercial mortgage loans
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017 and December 31, 2016, we had no commercial mortgage loans that were past due
for more than 90 days and still accruing interest. We also did not have any commercial mortgage loans that were past due for less than 90 days on non-accrual status as of March 31, 2017 and December 31, 2016.
We evaluate the impairment of commercial mortgage loans on an individual loan basis. As of March 31, 2017, we have no commercial mortgage
loans past due and have no loans that are individually impaired.
During the three months ended March 31, 2017 and the year ended
December 31, 2016, we modified or extended 2 and 16 commercial mortgage loans, respectively, with a total carrying value of $2 million and $85 million, respectively. All of these modifications or extensions were based on current market interest
rates, did not result in any forgiveness in the outstanding principal amount owed by the borrower, except during the year ended December 31, 2016, one loan with a carrying value of $1 million at the time of modification was considered a
troubled debt restructuring. This loan was sold in the fourth quarter of 2016.
26
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 March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
12
|
|
|
$
|
15
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
Provision
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
11
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
Ending allowance for individually impaired loans
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance for loans not individually impaired that were evaluated collectively for
impairment
|
|
$
|
11
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
Recorded investment:
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,121
|
|
|
$
|
6,196
|
|
|
|
|
|
|
|
|
|
|
Ending balance of individually impaired loans
|
|
$
|
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
Ending balance of loans not individually impaired that were evaluated collectively for
impairment
|
|
$
|
6,121
|
|
|
$
|
6,177
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017, we had no individually impaired commercial mortgage loans. As of March 31,
2016, we had two individually impaired commercial mortgage loans. One loan was included within the office property type with a recorded investment of $5 million, an unpaid principal balance of $6 million and charge-offs of $1 million. The other loan
was included within the industrial property type with a recorded investment of $14 million, an unpaid principal balance of $15 million and charge-offs of $1 million. As of December 31, 2016, we had one individually impaired loan within the
industrial property type with a recorded investment of $12 million, an unpaid principal balance of $15 million and charge-offs of $3 million.
In evaluating the credit quality of commercial mortgage loans, we assess the performance of the underlying loans using both quantitative and
qualitative criteria. Certain risks associated with commercial mortgage loans can be evaluated by reviewing both the loan-to-value and debt service coverage ratio to understand both the probability of the borrower not being able to make the
necessary loan payments as well as the ability to sell the underlying property for an amount that would enable us to recover our unpaid principal balance in the event of default by the borrower. The average loan-to-value ratio is based on our most
recent estimate of the fair value for the underlying property which is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A lower loan-to-value indicates that our loan value is more
likely to be recovered in the event of default by the borrower if the property was sold. The debt service coverage ratio is based on normalized annual income of the property compared to the payments required under the terms of the loan.
Normalization allows for the removal of annual one-time events such as capital expenditures, prepaid or late real estate tax payments or non-recurring third-party fees (such as legal, consulting or contract fees). This ratio is evaluated at least
annually and updated more frequently if necessary to better indicate risk associated with the loan. A higher debt service coverage ratio indicates the borrower is less likely to default on the loan. The debt service coverage ratio should not be used
without considering other factors associated with the borrower, such as
27
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
the borrowers liquidity or access to other resources that may result in our expectation that the borrower will continue to make the future scheduled payments.
The following tables set forth the loan-to-value of commercial mortgage loans by property type as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
(Amounts in millions)
|
|
0% - 50%
|
|
|
51% - 60%
|
|
|
61% - 75%
|
|
|
76% - 100%
|
|
|
Greater than
100%
|
|
|
Total
|
|
Property type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
722
|
|
|
$
|
530
|
|
|
$
|
918
|
|
|
$
|
11
|
|
|
$
|
|
|
|
$
|
2,181
|
|
Industrial
|
|
|
607
|
|
|
|
428
|
|
|
|
494
|
|
|
|
2
|
|
|
|
|
|
|
|
1,531
|
|
Office
|
|
|
429
|
|
|
|
312
|
|
|
|
653
|
|
|
|
29
|
|
|
|
|
|
|
|
1,423
|
|
Apartments
|
|
|
189
|
|
|
|
91
|
|
|
|
177
|
|
|
|
5
|
|
|
|
|
|
|
|
462
|
|
Mixed use
|
|
|
64
|
|
|
|
86
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
237
|
|
Other
|
|
|
62
|
|
|
|
15
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded investment
|
|
$
|
2,073
|
|
|
$
|
1,462
|
|
|
$
|
2,539
|
|
|
$
|
47
|
|
|
$
|
|
|
|
$
|
6,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total
|
|
|
34
|
%
|
|
|
24
|
%
|
|
|
41
|
%
|
|
|
1
|
%
|
|
|
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average debt service coverage ratio
|
|
|
2.21
|
|
|
|
1.88
|
|
|
|
1.61
|
|
|
|
0.89
|
|
|
|
|
|
|
|
1.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
0% - 50%
|
|
|
51% - 60%
|
|
|
61% - 75%
|
|
|
76% - 100%
|
|
|
Greater than
100%
(1)
|
|
|
Total
|
|
Property type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$
|
743
|
|
|
$
|
511
|
|
|
$
|
913
|
|
|
$
|
11
|
|
|
$
|
|
|
|
$
|
2,178
|
|
Industrial
|
|
|
605
|
|
|
|
430
|
|
|
|
484
|
|
|
|
14
|
|
|
|
|
|
|
|
1,533
|
|
Office
|
|
|
431
|
|
|
|
310
|
|
|
|
656
|
|
|
|
26
|
|
|
|
7
|
|
|
|
1,430
|
|
Apartments
|
|
|
188
|
|
|
|
89
|
|
|
|
173
|
|
|
|
5
|
|
|
|
|
|
|
|
455
|
|
Mixed use
|
|
|
67
|
|
|
|
87
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
245
|
|
Other
|
|
|
60
|
|
|
|
30
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded investment
|
|
$
|
2,094
|
|
|
$
|
1,457
|
|
|
$
|
2,511
|
|
|
$
|
56
|
|
|
$
|
7
|
|
|
$
|
6,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total
|
|
|
34
|
%
|
|
|
24
|
%
|
|
|
41
|
%
|
|
|
1
|
%
|
|
|
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average debt service coverage ratio
|
|
|
2.20
|
|
|
|
1.88
|
|
|
|
1.61
|
|
|
|
0.80
|
|
|
|
(0.07
|
)
|
|
|
1.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included a loan with a recorded investment of $7 million in good standing, where the borrower continued to make timely payments, with a loan-to-value of 105%. We evaluated this loan on an individual basis and as it
is in good standing, the current recorded investment is expected to be recoverable.
|
28
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
(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
|
|
$
|
61
|
|
|
$
|
198
|
|
|
$
|
433
|
|
|
$
|
915
|
|
|
$
|
574
|
|
|
$
|
2,181
|
|
Industrial
|
|
|
52
|
|
|
|
109
|
|
|
|
237
|
|
|
|
635
|
|
|
|
498
|
|
|
|
1,531
|
|
Office
|
|
|
84
|
|
|
|
115
|
|
|
|
175
|
|
|
|
610
|
|
|
|
439
|
|
|
|
1,423
|
|
Apartments
|
|
|
19
|
|
|
|
21
|
|
|
|
44
|
|
|
|
226
|
|
|
|
152
|
|
|
|
462
|
|
Mixed use
|
|
|
2
|
|
|
|
6
|
|
|
|
19
|
|
|
|
127
|
|
|
|
83
|
|
|
|
237
|
|
Other
|
|
|
1
|
|
|
|
147
|
|
|
|
54
|
|
|
|
65
|
|
|
|
20
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded investment
|
|
$
|
219
|
|
|
$
|
596
|
|
|
$
|
962
|
|
|
$
|
2,578
|
|
|
$
|
1,766
|
|
|
$
|
6,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total
|
|
|
4
|
%
|
|
|
10
|
%
|
|
|
16
|
%
|
|
|
41
|
%
|
|
|
29
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average loan-to-value
|
|
|
59
|
%
|
|
|
60
|
%
|
|
|
59
|
%
|
|
|
58
|
%
|
|
|
45
|
%
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
(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
|
|
$
|
67
|
|
|
$
|
204
|
|
|
$
|
425
|
|
|
$
|
899
|
|
|
$
|
583
|
|
|
$
|
2,178
|
|
Industrial
|
|
|
71
|
|
|
|
113
|
|
|
|
236
|
|
|
|
599
|
|
|
|
514
|
|
|
|
1,533
|
|
Office
|
|
|
91
|
|
|
|
117
|
|
|
|
172
|
|
|
|
609
|
|
|
|
441
|
|
|
|
1,430
|
|
Apartments
|
|
|
19
|
|
|
|
22
|
|
|
|
44
|
|
|
|
217
|
|
|
|
153
|
|
|
|
455
|
|
Mixed use
|
|
|
2
|
|
|
|
9
|
|
|
|
19
|
|
|
|
128
|
|
|
|
87
|
|
|
|
245
|
|
Other
|
|
|
1
|
|
|
|
148
|
|
|
|
60
|
|
|
|
55
|
|
|
|
20
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded investment
|
|
$
|
251
|
|
|
$
|
613
|
|
|
$
|
956
|
|
|
$
|
2,507
|
|
|
$
|
1,798
|
|
|
$
|
6,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of total
|
|
|
4
|
%
|
|
|
10
|
%
|
|
|
16
|
%
|
|
|
41
|
%
|
|
|
29
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average loan-to-value
|
|
|
61
|
%
|
|
|
60
|
%
|
|
|
59
|
%
|
|
|
58
|
%
|
|
|
45
|
%
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017 and December 31, 2016, we did not have any floating rate commercial mortgage
loans.
(f) Restricted Commercial Mortgage Loans Related To Securitization Entities
We have a consolidated securitization entity that holds commercial mortgage loans that are recorded as restricted commercial mortgage loans
related to securitization entities.
(g) Restricted Other Invested Assets Related To Securitization Entities
We have consolidated securitization entities that hold certain investments that are recorded as restricted other invested assets related to
securitization entities. The consolidated securitization entities hold certain investments as trading securities and whereby the changes in fair value are recorded in current period income. The trading securities comprise asset-backed securities,
including highly rated bonds that are primarily backed by credit card receivables.
29
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(h) Limited Partnerships or Similar Entities
Investments in partnerships or similar entities are generally considered VIEs when the equity group lacks sufficient financial control.
Generally, these investments are limited partner or non-managing member equity investments in a widely held fund that is sponsored and managed by a reputable asset manager. We are not the primary beneficiary of any VIE investment in a limited
partnership or similar entity. As of March 31, 2017 and December 31, 2016, the total carrying value of these investments was $188 million and $178 million, respectively. Our maximum exposure to loss is equal to the outstanding carrying
value and future funding commitments. We have not contributed, and do not plan to contribute, any additional financial or other support outside of what is contractually obligated.
(5) Derivative Instruments
Our business
activities routinely deal with fluctuations in interest rates, equity prices, currency exchange rates and other asset and liability prices. We use derivative instruments to mitigate or reduce certain of these risks. We have established policies for
managing each of these risks, including prohibitions on derivatives market-making and other speculative derivatives activities. These policies require the use of derivative instruments in concert with other techniques to reduce or mitigate these
risks. While we use derivatives to mitigate or reduce risks, certain derivatives do not meet the accounting requirements to be designated as hedging instruments and are denoted as derivatives not designated as hedges in the following
disclosures.
30
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table sets forth our positions in derivative instruments as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
|
Derivative liabilities
|
|
|
|
|
|
Fair value
|
|
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Balance
sheet classification
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
Balance
sheet classification
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Derivatives designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other invested assets
|
|
$
|
227
|
|
|
$
|
237
|
|
|
Other liabilities
|
|
$
|
241
|
|
|
$
|
203
|
|
Foreign currency swaps
|
|
Other invested assets
|
|
|
4
|
|
|
|
4
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flow hedges
|
|
|
|
|
231
|
|
|
|
241
|
|
|
|
|
|
241
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedges
|
|
|
|
|
231
|
|
|
|
241
|
|
|
|
|
|
241
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other invested assets
|
|
|
338
|
|
|
|
359
|
|
|
Other liabilities
|
|
|
132
|
|
|
|
146
|
|
Foreign currency swaps
|
|
Other invested assets
|
|
|
1
|
|
|
|
|
|
|
Other liabilities
|
|
|
3
|
|
|
|
5
|
|
Credit default swaps related to securitization entities
|
|
Restricted other
invested assets
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
1
|
|
|
|
1
|
|
Equity index options
|
|
Other invested assets
|
|
|
77
|
|
|
|
72
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
Financial futures
|
|
Other invested assets
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
Equity return swaps
|
|
Other invested assets
|
|
|
|
|
|
|
1
|
|
|
Other liabilities
|
|
|
5
|
|
|
|
1
|
|
Other foreign currency contracts
|
|
Other invested assets
|
|
|
28
|
|
|
|
35
|
|
|
Other liabilities
|
|
|
26
|
|
|
|
27
|
|
GMWB embedded derivatives
|
|
Reinsurance
recoverable
(1)
|
|
|
15
|
|
|
|
16
|
|
|
Policyholder account balances
(2)
|
|
|
275
|
|
|
|
303
|
|
Fixed index annuity embedded derivatives
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
(3)
|
|
|
361
|
|
|
|
344
|
|
Indexed universal life embedded derivatives
|
|
Reinsurance recoverable
|
|
|
|
|
|
|
|
|
|
Policyholder account balances
(4)
|
|
|
12
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedges
|
|
|
|
|
459
|
|
|
|
483
|
|
|
|
|
|
815
|
|
|
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
690
|
|
|
$
|
724
|
|
|
|
|
$
|
1,056
|
|
|
$
|
1,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents embedded derivatives associated with the reinsured portion of our guaranteed minimum withdrawal benefits (GMWB) liabilities.
|
(2)
|
Represents the embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.
|
(3)
|
Represents the embedded derivatives associated with our fixed index annuity liabilities.
|
(4)
|
Represents the embedded derivatives associated with our indexed universal life liabilities.
|
The fair value of derivative positions presented above was not offset by the respective collateral amounts retained or provided under these
agreements.
The activity associated with derivative instruments can generally be measured by the change in notional value over the
periods presented. However, for GMWB, fixed index annuity embedded derivatives and indexed
31
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
universal life embedded derivatives, the change between periods is best illustrated by the number of policies. The following tables represent activity associated with derivative instruments as of
the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Notional in millions)
|
|
Measurement
|
|
|
December 31,
2016
|
|
|
Additions
|
|
|
Maturities/
terminations
|
|
|
March 31,
2017
|
|
Derivatives designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
Notional
|
|
|
$
|
11,570
|
|
|
$
|
|
|
|
$
|
(71
|
)
|
|
$
|
11,499
|
|
Foreign currency swaps
|
|
|
Notional
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flow hedges
|
|
|
|
|
|
|
11,592
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
11,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedges
|
|
|
|
|
|
|
11,592
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
11,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
Notional
|
|
|
|
4,679
|
|
|
|
|
|
|
|
|
|
|
|
4,679
|
|
Foreign currency swaps
|
|
|
Notional
|
|
|
|
201
|
|
|
|
29
|
|
|
|
|
|
|
|
230
|
|
Credit default swaps
|
|
|
Notional
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
Credit default swaps related to securitization entities
|
|
|
Notional
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
Equity index options
|
|
|
Notional
|
|
|
|
2,396
|
|
|
|
523
|
|
|
|
(443
|
)
|
|
|
2,476
|
|
Financial futures
|
|
|
Notional
|
|
|
|
1,398
|
|
|
|
1,509
|
|
|
|
(1,449
|
)
|
|
|
1,458
|
|
Equity return swaps
|
|
|
Notional
|
|
|
|
165
|
|
|
|
103
|
|
|
|
(150
|
)
|
|
|
118
|
|
Other foreign currency contracts
|
|
|
Notional
|
|
|
|
3,130
|
|
|
|
484
|
|
|
|
(221
|
)
|
|
|
3,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedges
|
|
|
|
|
|
|
12,320
|
|
|
|
2,648
|
|
|
|
(2,263
|
)
|
|
|
12,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
23,912
|
|
|
$
|
2,648
|
|
|
$
|
(2,334
|
)
|
|
$
|
24,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Number of policies)
|
|
Measurement
|
|
|
December 31,
2016
|
|
|
Additions
|
|
|
Maturities/
terminations
|
|
|
March 31,
2017
|
|
Derivatives not designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB embedded derivatives
|
|
|
Policies
|
|
|
|
33,238
|
|
|
|
|
|
|
|
(751
|
)
|
|
|
32,487
|
|
Fixed index annuity embedded derivatives
|
|
|
Policies
|
|
|
|
17,549
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
17,424
|
|
Indexed universal life embedded derivatives
|
|
|
Policies
|
|
|
|
1,074
|
|
|
|
1
|
|
|
|
(22
|
)
|
|
|
1,053
|
|
Cash Flow Hedges
Certain derivative instruments are designated as cash flow hedges. The changes in fair value of these instruments are recorded as a component
of OCI. We designate and account for the following as cash flow hedges when they have met the effectiveness requirements: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments; (ii) various
types of interest rate swaps to convert floating rate liabilities into fixed rate liabilities; (iii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated
investments; (iv) forward starting interest rate swaps to hedge against changes in interest rates associated with future fixed rate bond purchases and/or interest income; (v) forward bond purchase commitments to hedge against the
variability in the anticipated cash flows required to purchase future fixed rate bonds; and (vi) other instruments to hedge the cash flows of various forecasted transactions.
32
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides information about the pre-tax income effects of cash flow hedges
for the three months ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Gain (loss)
recognized
in OCI
|
|
|
Gain (loss)
reclassified into
net income
from OCI
|
|
|
Classification of gain
(loss) reclassified
into
net income
|
|
Gain (loss)
recognized in
net income
(1)
|
|
|
Classification of gain
(loss) recognized in
net
income
|
|
|
|
|
|
|
Interest rate swaps hedging assets
|
|
$
|
(49
|
)
|
|
$
|
30
|
|
|
Net investment income
|
|
$
|
|
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
Interest rate swaps hedging assets
|
|
|
|
|
|
|
1
|
|
|
Net investment gains (losses)
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
Interest rate swaps hedging liabilities
|
|
|
4
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(45
|
)
|
|
$
|
31
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents ineffective portion of cash flow hedges as there were no amounts excluded from the measurement of effectiveness.
|
The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Gain (loss)
recognized
in OCI
|
|
|
Gain (loss)
reclassified into
net income
from OCI
|
|
|
Classification of
gain
(loss) reclassified
into
net income
|
|
Gain (loss)
recognized in
net income
(1)
|
|
|
Classification of gain
(loss) recognized in
net
income
|
Interest rate swaps hedging assets
|
|
$
|
457
|
|
|
$
|
25
|
|
|
Net investment income
|
|
$
|
6
|
|
|
Net investment gains (losses)
|
Interest rate swaps hedging assets
|
|
|
|
|
|
|
1
|
|
|
Net investment gains (losses)
|
|
|
|
|
|
Net investment gains (losses)
|
Interest rate swaps hedging liabilities
|
|
|
(31
|
)
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
Net investment gains (losses)
|
Inflation indexed swaps
|
|
|
(3
|
)
|
|
|
2
|
|
|
Net investment income
|
|
|
|
|
|
Net investment gains (losses)
|
Forward currency swaps
|
|
|
(1
|
)
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
422
|
|
|
$
|
28
|
|
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents ineffective portion of cash flow hedges as there were no amounts excluded from the measurement of effectiveness.
|
33
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides a reconciliation of current period changes, net of applicable
income taxes, for these designated derivatives presented in the separate component of stockholders equity labeled derivatives qualifying as hedges, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Derivatives qualifying as effective accounting hedges as of January 1
|
|
$
|
2,085
|
|
|
$
|
2,045
|
|
Current period increases (decreases) in fair value, net of deferred taxes of $16 and
$(147)
|
|
|
(29
|
)
|
|
|
275
|
|
Reclassification to net (income), net of deferred taxes of $11 and $10
|
|
|
(20
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Derivatives qualifying as effective accounting hedges as of March 31
|
|
$
|
2,036
|
|
|
$
|
2,302
|
|
|
|
|
|
|
|
|
|
|
The total of derivatives designated as cash flow hedges of $2,036 million, net of taxes, recorded in
stockholders equity as of March 31, 2017 is expected to be reclassified to net income in the future, concurrently with and primarily offsetting changes in interest expense and interest income on floating rate instruments and interest
income on future fixed rate bond purchases. Of this amount, $89 million, net of taxes, is expected to be reclassified to net income in the next 12 months. Actual amounts may vary from this amount as a result of market conditions. All forecasted
transactions associated with qualifying cash flow hedges are expected to occur by 2057. During the three months ended March 31, 2017, there was approximately $1 million reclassified to net income in connection with forecasted transactions that
were no longer considered probable of occurring.
Fair Value Hedges
Certain derivative instruments are designated as fair value hedges. The changes in fair value of these instruments are recorded in net income.
In addition, changes in the fair value attributable to the hedged portion of the underlying instrument are reported in net income. We designate and account for the following as fair value hedges when they have met the effectiveness requirements:
(i) interest rate swaps to convert fixed rate liabilities into floating rate liabilities; (ii) cross currency swaps to convert non-U.S. dollar fixed rate liabilities to floating rate U.S. dollar liabilities; and (iii) other
instruments to hedge various fair value exposures of investments.
We did not have any fair value hedges as of March 31, 2017 and
2016.
Derivatives Not Designated As Hedges
We also enter into certain non-qualifying derivative instruments such as: (i) interest rate swaps and financial futures to mitigate
interest rate risk as part of managing regulatory capital positions; (ii) credit default swaps to enhance yield and reproduce characteristics of investments with similar terms and credit risk; (iii) equity index options, equity return
swaps, interest rate swaps and financial futures to mitigate the risks associated with liabilities that have guaranteed minimum benefits, fixed index annuities and indexed universal life; (iv) interest rate swaps where the hedging relationship
does not qualify for hedge accounting; (v) credit default swaps to mitigate loss exposure to certain credit risk; (vi) foreign currency swaps, options and forward contracts to mitigate currency risk associated with non-functional currency
investments held by certain foreign subsidiaries and future dividends or other cash flows from certain foreign subsidiaries to our holding company; and (vii) equity index options to mitigate certain macroeconomic risks associated with certain
foreign subsidiaries. Additionally, we provide GMWBs on certain variable annuities that are required to be bifurcated as embedded
34
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
derivatives. We also offer fixed index annuity and indexed universal life products and have reinsurance agreements with certain features that are required to be bifurcated as embedded
derivatives.
We also have derivatives related to securitization entities where we were required to consolidate the related securitization
entity as a result of our involvement in the structure. The counterparties for these derivatives typically only have recourse to the securitization entity. The interest rate swaps used for these entities are typically used to effectively convert the
interest payments on the assets of the securitization entity to the same basis as the interest rate on the borrowings issued by the securitization entity. Credit default swaps are utilized in certain securitization entities to enhance the yield
payable on the borrowings issued by the securitization entity and also include a settlement feature that allows the securitization entity to provide the par value of assets in the securitization entity for the amount of any losses incurred under the
credit default swap.
The following tables provide the pre-tax gain (loss) recognized in net income for the effects of derivatives not
designated as hedges for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Classification of gain (loss) recognized
in net income
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
Interest rate swaps
|
|
$
|
2
|
|
|
$
|
15
|
|
|
Net investment gains (losses)
|
Interest rate swaps related to securitization entities
|
|
|
|
|
|
|
(5
|
)
|
|
Net investment gains (losses)
|
Credit default swaps
|
|
|
|
|
|
|
(1
|
)
|
|
Net investment gains (losses)
|
Credit default swaps related to securitization entities
|
|
|
2
|
|
|
|
9
|
|
|
Net investment gains (losses)
|
Equity index options
|
|
|
13
|
|
|
|
(3
|
)
|
|
Net investment gains (losses)
|
Financial futures
|
|
|
(17
|
)
|
|
|
7
|
|
|
Net investment gains (losses)
|
Equity return swaps
|
|
|
(8
|
)
|
|
|
2
|
|
|
Net investment gains (losses)
|
Other foreign currency contracts
|
|
|
(5
|
)
|
|
|
(2
|
)
|
|
Net investment gains (losses)
|
Foreign currency swaps
|
|
|
3
|
|
|
|
10
|
|
|
Net investment gains (losses)
|
GMWB embedded derivatives
|
|
|
33
|
|
|
|
(78
|
)
|
|
Net investment gains (losses)
|
Fixed index annuity embedded derivatives
|
|
|
(20
|
)
|
|
|
3
|
|
|
Net investment gains (losses)
|
Indexed universal life embedded derivatives
|
|
|
1
|
|
|
|
2
|
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedges
|
|
$
|
4
|
|
|
$
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Counterparty Credit Risk
Most of our derivative arrangements require the posting of collateral by the counterparty upon meeting certain net exposure thresholds. For
derivatives related to securitization entities, there are no arrangements that require either party to provide collateral and the recourse of the derivative counterparty is typically limited to the assets held by the securitization entity and there
is no recourse to any entity other than the securitization entity.
35
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents additional information about derivative assets and liabilities
subject to an enforceable master netting arrangement as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Derivatives
assets
(1)
|
|
|
Derivatives
liabilities
(2)
|
|
|
Net
derivatives
|
|
|
Derivatives
assets
(1)
|
|
|
Derivatives
liabilities
(2)
|
|
|
Net
derivatives
|
|
Amounts presented in the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross amounts recognized
|
|
$
|
711
|
|
|
$
|
436
|
|
|
$
|
275
|
|
|
$
|
724
|
|
|
$
|
387
|
|
|
$
|
337
|
|
Gross amounts offset in the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts presented in the balance sheet
|
|
|
711
|
|
|
|
436
|
|
|
|
275
|
|
|
|
724
|
|
|
|
387
|
|
|
|
337
|
|
Gross amounts not offset in the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments
(3)
|
|
|
(282
|
)
|
|
|
(282
|
)
|
|
|
|
|
|
|
(172
|
)
|
|
|
(172
|
)
|
|
|
|
|
Collateral received
|
|
|
(348
|
)
|
|
|
|
|
|
|
(348
|
)
|
|
|
(467
|
)
|
|
|
|
|
|
|
(467
|
)
|
Collateral pledged
|
|
|
|
|
|
|
(428
|
)
|
|
|
428
|
|
|
|
|
|
|
|
(557
|
)
|
|
|
557
|
|
Over collateralization
|
|
|
|
|
|
|
274
|
|
|
|
(274
|
)
|
|
|
1
|
|
|
|
344
|
|
|
|
(343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount
|
|
$
|
81
|
|
|
$
|
|
|
|
$
|
81
|
|
|
$
|
86
|
|
|
$
|
2
|
|
|
$
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included $36 million and $16 million of accruals on derivatives classified as other assets and does not include amounts related to embedded derivatives as of March 31, 2017 and December 31, 2016, respectively.
|
(2)
|
Included $29 million and $5 million of accruals on derivatives classified as other liabilities and does not include amounts related to embedded derivatives and derivatives related to securitization entities as of
March 31, 2017 and December 31, 2016, respectively.
|
(3)
|
Amounts represent derivative assets and/or liabilities that are presented gross within the balance sheet but are held with the same counterparty where we have a master netting arrangement. This adjustment results in
presenting the net asset and net liability position for each counterparty.
|
Except for derivatives related to securitization
entities, almost all of our master swap agreements contain credit downgrade provisions that allow either party to assign or terminate derivative transactions if the other partys long-term unsecured debt rating or financial strength rating is
below the limit defined in the applicable agreement. If downgrade provisions had been triggered as a result of downgrades of our counterparties, we could have claimed up to $81 million and $86 million as of March 31, 2017 and December 31,
2016, respectively, or have been required to disburse up to $2 million as of December 31, 2016. There were no amounts that we would have been required to disburse as of March 31, 2017. The chart above excludes embedded derivatives and
derivatives related to securitization entities as those derivatives are not subject to master netting arrangements.
Credit Derivatives
We sell protection under single name credit default swaps and credit default swap index tranches in combination with purchasing
securities to replicate characteristics of similar investments based on the credit quality and term of the credit default swap. Credit default triggers for both indexed reference entities and single name reference entities follow the Credit
Derivatives Physical Settlement Matrix published by the International Swaps and Derivatives Association. Under these terms, credit default triggers are defined as bankruptcy, failure to pay or restructuring, if applicable. Our maximum exposure to
credit loss equals the notional value for credit
36
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
default swaps. In the event of default for credit default swaps, we are typically required to pay the protection holder the full notional value less a recovery rate determined at auction.
In addition to the credit derivatives discussed above, we also have credit derivative instruments related to securitization entities that we
consolidate. These derivatives represent a customized index of reference entities with specified attachment points for certain derivatives. The credit default triggers are similar to those described above. In the event of default, the securitization
entity will provide the counterparty with the par value of assets held in the securitization entity for the amount of incurred loss on the credit default swap. The maximum exposure to loss for the securitization entity is the notional value of the
derivatives. Certain losses on these credit default swaps would be absorbed by the third-party noteholders of the securitization entity and the remaining losses on the credit default swaps would be absorbed by our portion of the notes issued by the
securitization entity.
The following table sets forth our credit default swaps where we sell protection on single name reference entities
and the fair values as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Notional
value
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Notional
value
|
|
|
Assets
|
|
|
Liabilities
|
|
Investment grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matures in less than one year
|
|
$
|
19
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Matures after one year through five years
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total credit default swaps on single name reference entities
|
|
$
|
39
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
39
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth our credit default swaps where we sell protection on credit default swap index
tranches and the fair values as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Notional
value
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Notional
value
|
|
|
Assets
|
|
|
Liabilities
|
|
Customized credit default swap index tranches related to securitization entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion backing third-party borrowings maturing 2017
(1)
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
|
|
Portion backing our interest maturing 2017
(2)
|
|
|
300
|
|
|
|
|
|
|
|
1
|
|
|
|
300
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total customized credit default swap index tranches related to securitization entities
|
|
|
312
|
|
|
|
|
|
|
|
1
|
|
|
|
312
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total credit default swaps on index tranches
|
|
$
|
312
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
312
|
|
|
$
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Original notional value was $39 million.
|
(2)
|
Original notional value was $300 million.
|
37
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(6) Fair Value of Financial Instruments
Assets and liabilities that are reflected in the accompanying unaudited condensed consolidated financial statements at fair value are not
included in the following disclosure of fair value. Such items include cash and cash equivalents, investment securities, separate accounts, securities held as collateral and derivative instruments. Other financial assets and liabilitiesthose
not carried at fair valueare discussed below. Apart from certain of our borrowings and certain marketable securities, few of the instruments discussed below are actively traded and their fair values must often be determined using models. The
fair value estimates are made at a specific point in time, based upon available market information and judgments about the financial instruments, including estimates of the timing and amount of expected future cash flows and the credit standing of
counterparties. Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized
gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets.
The basis on which
we estimate fair value is as follows:
Commercial mortgage loans.
Based on recent transactions and/or discounted future cash flows,
using current market rates. Given the limited availability of data related to transactions for similar instruments, we typically classify these loans as Level 3.
Restricted commercial mortgage loans.
Based on recent transactions and/or discounted future cash flows, using current market rates.
Given the limited availability of data related to transactions for similar instruments, we typically classify these loans as Level 3.
Other invested assets.
Primarily represents short-term investments and limited partnerships accounted for under the cost method. The
fair value of short-term investments typically does not include significant unobservable inputs and approximate our amortized cost basis. As a result, short-term investments are classified as Level 2. Limited partnerships are valued based on
comparable market transactions, discounted future cash flows, quoted market prices and/or estimates using the most recent data available for the underlying instrument. Cost method limited partnerships typically include significant unobservable
inputs as a result of being relatively illiquid with limited market activity for similar instruments and are classified as Level 3.
Long-term borrowings.
We utilize available market data when determining fair value of long-term borrowings issued in the United States
and Canada, which includes data on recent trades for the same or similar financial instruments. Accordingly, these instruments are classified as Level 2 measurements. In cases where market data is not available such as our long-term borrowings in
Australia, we use broker quotes for which we consider the valuation methodology utilized by the third party, but the valuation typically includes significant unobservable inputs. Accordingly, we classify these borrowings where fair value is based on
our consideration of broker quotes as Level 3 measurements.
Non-recourse funding obligations.
We use an internal model to
determine fair value using the current floating rate coupon and expected life/final maturity of the instrument discounted using the floating rate index and current market spread assumption, which is estimated based on recent transactions for these
instruments or similar instruments as well as other market information or broker provided data. Given these instruments are private and very little market activity exists, our current market spread assumption is considered to have significant
unobservable inputs in calculating fair value and, therefore, results in the fair value of these instruments being classified as Level 3.
38
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Borrowings related to securitization entities.
Based on market quotes or comparable
market transactions. Some of these borrowings are publicly traded debt securities and are classified as Level 2. Certain borrowings are not publicly traded and are classified as Level 3.
Investment contracts.
Based on expected future cash flows, discounted at current market rates for annuity contracts or institutional
products. Given the significant unobservable inputs associated with policyholder behavior and current market rate assumptions used to discount the expected future cash flows, we classify these instruments as Level 3 except for certain funding
agreement-backed notes that are traded in the marketplace as a security and are classified as Level 2.
The following represents our
estimated fair value of financial assets and liabilities that are not required to be carried at fair value as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
Notional
amount
|
|
|
Carrying
amount
|
|
|
Fair value
|
|
(Amounts in millions)
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans
|
|
$
|
|
(1)
|
|
$
|
6,107
|
|
|
$
|
6,288
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,288
|
|
Restricted commercial mortgage loans
|
|
|
|
(1)
|
|
|
122
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
Other invested assets
|
|
|
|
(1)
|
|
|
1,137
|
|
|
|
1,153
|
|
|
|
|
|
|
|
1,003
|
|
|
|
150
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
|
|
|
|
(1)
|
|
|
4,194
|
|
|
|
3,684
|
|
|
|
|
|
|
|
3,531
|
|
|
|
153
|
|
Non-recourse funding obligations
|
|
|
|
(1)
|
|
|
310
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
190
|
|
Borrowings related to securitization entities
|
|
|
|
(1)
|
|
|
55
|
|
|
|
58
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
Investment contracts
|
|
|
|
(1)
|
|
|
16,105
|
|
|
|
16,638
|
|
|
|
|
|
|
|
5
|
|
|
|
16,633
|
|
Other firm commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to fund limited partnerships
|
|
$
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary course of business lending commitments
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Notional
amount
|
|
|
Carrying
amount
|
|
|
Fair value
|
|
(Amounts in millions)
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage loans
|
|
$
|
|
(1)
|
|
$
|
6,111
|
|
|
$
|
6,247
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,247
|
|
Restricted commercial mortgage loans
|
|
|
|
(1)
|
|
|
129
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
Other invested assets
|
|
|
|
(1)
|
|
|
459
|
|
|
|
473
|
|
|
|
|
|
|
|
352
|
|
|
|
121
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
|
|
|
|
(1)
|
|
|
4,180
|
|
|
|
3,582
|
|
|
|
|
|
|
|
3,440
|
|
|
|
142
|
|
Non-recourse funding obligations
|
|
|
|
(1)
|
|
|
310
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
Borrowings related to securitization entities
|
|
|
|
(1)
|
|
|
62
|
|
|
|
65
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
Investment contracts
|
|
|
|
(1)
|
|
|
16,437
|
|
|
|
16,993
|
|
|
|
|
|
|
|
5
|
|
|
|
16,988
|
|
Other firm commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to fund limited partnerships
|
|
$
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary course of business lending commitments
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
These financial instruments do not have notional amounts.
|
39
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recurring Fair Value Measurements
We have fixed maturity, equity and trading securities, derivatives, embedded derivatives, securities held as collateral, separate account
assets and certain other financial instruments, which are carried at fair value. Below is a description of the valuation techniques and inputs used to determine fair value by class of instrument.
Fixed maturity, equity and trading securities
The fair value of fixed maturity, equity and trading securities are estimated primarily based on information derived from third-party pricing
services (pricing services), internal models and/or third-party broker provided prices (broker quotes), which use a market approach, income approach or a combination of the market and income approach depending on the type of
instrument and availability of information. In general, a market approach is utilized if there is readily available and relevant market activity for an individual security. In certain cases where market information is not available for a specific
security but is available for similar securities, a security is valued using that market information for similar securities, which is also a market approach. When market information is not available for a specific security or is available but such
information is less relevant or reliable, an income approach or a combination of a market and income approach is utilized. For securities with optionality, such as call or prepayment features (including mortgage-backed or asset-backed securities),
an income approach may be used. In addition, a combination of the results from market and income approaches may be used to estimate fair value. These valuation techniques may change from period to period, based on the relevance and availability of
market data.
We utilize certain third-party data providers when determining fair value. We consider information obtained from pricing
services as well as broker quotes in our determination of fair value. Additionally, we utilize internal models to determine the valuation of securities using an income approach where the inputs are based on third-party provided market inputs. While
we consider the valuations provided by pricing services and broker quotes to be of high quality, management determines the fair value of our investment securities after considering all relevant and available information. We also use various methods
to obtain an understanding of the valuation methodologies and procedures used by third-party data providers to ensure sufficient understanding to evaluate the valuation data received, including an understanding of the assumptions and inputs utilized
to determine the appropriate fair value. For pricing services, we analyze the prices provided by our primary pricing services to other readily available pricing services and perform a detailed review of the assumptions and inputs from each pricing
service to determine the appropriate fair value when pricing differences exceed certain thresholds. We evaluate changes in fair value that are greater than certain pre-defined thresholds each month to further aid in our review of the accuracy of
fair value measurements and our understanding of changes in fair value, with more detailed reviews performed by the asset managers responsible for the related asset class associated with the security being reviewed. A pricing committee provides
additional oversight and guidance in the evaluation and review of the pricing methodologies used to value our investment portfolio.
In
general, we first obtain valuations from pricing services. If a price is not supplied by a pricing service, we will typically seek a broker quote for public or private fixed maturity securities. In certain instances, we utilize price caps for broker
quoted securities where the estimated market yield results in a valuation that may exceed the amount that we believe would be received in a market transaction. For certain private fixed maturity securities where we do not obtain valuations from
pricing services, we utilize an internal model to determine fair value since transactions for identical securities are not readily observable and these securities are not typically valued by pricing services. For all securities, excluding certain
private fixed maturity securities, if neither a pricing service nor broker quotes valuation is available, we determine fair value using internal models.
40
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For pricing services, we obtain an understanding of the pricing methodologies and procedures
for each type of instrument. Additionally, on a monthly basis we review a sample of securities, examining the pricing services assumptions to determine if we agree with the services derived price. When available, we also evaluate the
prices sampled as compared to other public prices. If a variance greater than a pre-defined threshold is noted, additional review of the price is executed to ensure accuracy. In general, a pricing service does not provide a price for a security if
sufficient information is not readily available to determine fair value or if such security is not in the specific sector or class covered by a particular pricing service. Given our understanding of the pricing methodologies and procedures of
pricing services, the securities valued by pricing services are typically classified as Level 2 unless we determine the valuation process for a security or group of securities utilizes significant unobservable inputs, which would result in the
valuation being classified as Level 3.
For private fixed maturity securities, we utilize an income approach where we obtain public bond
spreads and utilize those in an internal model to determine fair value. Other inputs to the model include rating and weighted-average life, as well as sector which is used to assign the spread. We then add an additional premium, which represents an
unobservable input, to the public bond spread to adjust for the liquidity and other features of our private placements. We utilize the estimated market yield to discount the expected cash flows of the security to determine fair value. We utilize
price caps for securities where the estimated market yield results in a valuation that may exceed the amount that would be received in a market transaction and value all private fixed maturity securities at par that have less than 12 months to
maturity. When a security does not have an external rating, we assign the security an internal rating to determine the appropriate public bond spread that should be utilized in the valuation. To evaluate the reasonableness of the internal model, we
review a sample of private fixed maturity securities each month. In that review we compare the modeled prices to the prices of similar public securities in conjunction with analysis on current market indicators. If a pricing variance greater than a
pre-defined threshold is noted, additional review of the price is executed to ensure accuracy. At the end of each month, all internally modeled prices are compared to the prior month prices with an evaluation of all securities with a
month-over-month change greater than a pre-defined threshold. While we generally consider the public bond spreads by sector and maturity to be observable inputs, we evaluate the similarities of our private placement with the public bonds, any price
caps utilized, liquidity premiums applied, and whether external ratings are available for our private placements to determine whether the spreads utilized would be considered observable inputs. We classify private securities without an external
rating and public bond spread as Level 3. In general, increases (decreases) in credit spreads will decrease (increase) the fair value for our fixed maturity securities.
For broker quotes, we consider the valuation methodology utilized by the third party and analyze a sample each month to assess reasonableness
given then-current market conditions. Additionally, for broker quotes on certain structured securities, we validate prices received against other publicly available pricing sources. Broker quotes are typically based on an income approach given the
lack of available market data. As the valuation typically includes significant unobservable inputs, we classify the securities where fair value is based on our consideration of broker quotes as Level 3 measurements.
For remaining securities priced using internal models, we determine fair value using an income approach. We analyze a sample each month to
assess reasonableness given then-current market conditions. We maximize the use of observable inputs but typically utilize significant unobservable inputs to determine fair value. Accordingly, the valuations are typically classified as Level 3.
A summary of the inputs used for our fixed maturity, equity and trading securities based on the level in which instruments are classified is
included below. We have combined certain classes of instruments together as the nature of the inputs is similar.
41
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Level 1 measurements
Equity securities.
The primary inputs to the valuation of exchange-traded equity securities include quoted prices for the identical
instrument.
Separate account assets
The fair value of separate account assets is based on the quoted prices of the underlying fund investments and, therefore, represents Level 1
pricing.
Level 2 measurements
Fixed maturity securities
|
|
|
Third-party pricing services:
In estimating the fair value of fixed maturity securities, approximately 91% of our portfolio is priced using third-party pricing sources. These pricing services utilize
industry-standard valuation techniques that include market-based approaches, income-based approaches, a combination of market-based and income-based approaches or other proprietary, internally generated models as part of the valuation processes.
These third-party pricing vendors maximize the use of publicly available data inputs to generate valuations for each asset class. Priority and type of inputs used may change frequently as certain inputs may be more direct drivers of valuation at the
time of pricing. Examples of significant inputs incorporated by third-party pricing services may include sector and issuer spreads, seasoning, capital structure, security optionality, collateral data, prepayment assumptions, default assumptions,
delinquencies, debt covenants, benchmark yields, trade data, dealer quotes, credit ratings, maturity and weighted-average life. We conduct regular meetings with our third-party pricing services for the purpose of understanding the methodologies,
techniques and inputs used by the third-party pricing providers.
|
42
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents a summary of the significant inputs used by our third-party
pricing services for certain fair value measurements of fixed maturity securities that are classified as Level 2 as of March 31, 2017:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Fair value
|
|
|
Primary methodologies
|
|
Significant inputs
|
U.S. government, agencies and government-sponsored enterprises
|
|
$
|
5,492
|
|
|
Price quotes from trading desk, broker feeds
|
|
Bid side prices, trade prices, Option Adjusted Spread ("OAS") to swap curve, Bond Market Association OAS, Treasury Curve, Agency Bullet Curve, maturity to issuer spread
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
$
|
2,666
|
|
|
Multi-dimensional attribute-based modeling systems, third-party pricing vendors
|
|
Trade prices, material event notices, Municipal Market Data benchmark yields, broker quotes
|
|
|
|
|
|
|
|
|
|
Non-U.S. government
|
|
$
|
1,801
|
|
|
Matrix pricing, spread priced to benchmark curves, price quotes from market makers
|
|
Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources
|
|
|
|
|
|
|
|
|
|
U.S. corporate
|
|
$
|
24,253
|
|
|
Multi-dimensional attribute-based modeling systems, broker quotes, price quotes from market makers, internal models, OAS-based models
|
|
Bid side prices to Treasury Curve, Issuer Curve, which includes sector, quality, duration, OAS percentage and change for spread matrix, trade prices, comparative transactions, Trade Reporting and Compliance Engine ("TRACE")
reports
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate
|
|
$
|
10,371
|
|
|
Multi-dimensional attribute-based modeling systems, OAS-based models, price quotes from market makers
|
|
Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
$
|
4,358
|
|
|
OAS-based models, To Be Announced pricing models, single factor binomial models, internally priced
|
|
Prepayment and default assumptions, aggregation of bonds with similar characteristics, including collateral type, vintage, tranche type, weighted-average life, weighted-average loan age, issuer program and delinquency ratio, pay up
and pay down factors, TRACE reports
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed
|
|
$
|
3,243
|
|
|
Multi-dimensional attribute-based modeling systems, pricing matrix, spread matrix priced to swap curves, Trepp commercial mortgage-backed securities analytics model
|
|
Credit risk, interest rate risk, prepayment speeds, new issue data, collateral performance, origination year, tranche type, original credit ratings, weighted-average life, cash flows, spreads derived from broker quotes, bid side
prices, spreads to daily updated swaps curves, TRACE reports
|
|
|
|
|
|
|
|
|
|
Other asset-backed
|
|
$
|
3,049
|
|
|
Multi-dimensional attribute-based modeling systems, spread matrix priced to swap curves, price quotes from market makers, internal models
|
|
Spreads to daily updated swaps curves, spreads derived from trade prices and broker quotes, bid side prices, new issue data, collateral performance, analysis of prepayment speeds, cash flows, collateral loss analytics, historical
issue analysis, trade data from market makers, TRACE reports
|
|
|
|
|
|
|
|
|
|
43
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
Internal models:
A portion of our state and political subdivisions, non-U.S. government, U.S. corporate and non-U.S. corporate securities are valued using internal models. The fair value of these fixed maturity
securities were $7 million, $16 million, $729 million and $352 million, respectively, as of March 31, 2017. Internally modeled securities are primarily private fixed maturity securities where we use market observable inputs such as an interest
rate yield curve, published credit spreads for similar securities based on the external ratings of the instrument and related industry sector of the issuer. Additionally, we may apply certain price caps and liquidity premiums in the valuation of
private fixed maturity securities. Price caps and liquidity premiums are established using inputs from market participants.
|
Equity securities.
The primary inputs to the valuation include quoted prices for identical assets, or similar assets in markets that
are not active.
Securities lending collateral
The fair value of securities held as collateral is primarily based on Level 2 inputs from market information for the collateral that is held on
our behalf by the custodian. We determine fair value after considering prices obtained by third-party pricing services.
Level 3 measurements
Fixed maturity securities
|
|
|
Internal models:
A portion of our U.S. government, agencies and government-sponsored enterprises, U.S. corporate, non-U.S. corporate, residential mortgage-backed and other asset-backed securities are valued using
internal models. The primary inputs to the valuation of the bond population include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, duration, call provisions, issuer rating, benchmark
yields and credit spreads. Certain private fixed maturity securities are valued using an internal model using market observable inputs such as interest rate yield curve, as well as published credit spreads for similar securities where there are no
external ratings of the instrument and include a significant unobservable input. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps are established using inputs from
market participants. For structured securities, the primary inputs to the valuation include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, weighted-average coupon, weighted-average
maturity, issuer rating, structure of the security, expected prepayment speeds and volumes, collateral type, current and forecasted loss severity, average delinquency rates, vintage of the loans, geographic region, debt service coverage ratios,
payment priority with the tranche, benchmark yields and credit spreads. The fair value of our Level 3 fixed maturity securities priced using internal models was $3,561 million as of March 31, 2017.
|
|
|
|
Broker quotes:
A portion of our state and political subdivisions, U.S. corporate, non-U.S. corporate, residential mortgage-backed, commercial mortgage-backed and other asset-backed securities are valued using
broker quotes. Broker quotes are obtained from third-party providers that have current market knowledge to provide a reasonable price for securities not routinely priced by third-party pricing services. Brokers utilized for valuation of assets are
reviewed annually. The fair value of our Level 3 fixed maturity securities priced by broker quotes was $699 million as of March 31, 2017.
|
44
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Equity securities.
The primary inputs to the valuation include broker quotes where the
underlying inputs are unobservable and for internal models, structure of the security and issuer rating.
Restricted other invested
assets related to securitization entities
We have trading securities related to securitization entities that are classified as
restricted other invested assets and are carried at fair value. The trading securities represent asset-backed securities. The valuation for trading securities is determined using a market approach and/or an income approach depending on the
availability of information. For certain highly rated asset-backed securities, there is observable market information for transactions of the same or similar instruments, which is provided to us by a third-party pricing service and is classified as
Level 2. For certain securities that are not actively traded, we determine fair value after considering third-party broker provided prices or discounted expected cash flows using current yields for similar securities and classify these valuations as
Level 3.
GMWB embedded derivatives
We are required to bifurcate an embedded derivative for certain features associated with annuity products and related reinsurance agreements
where we provide a GMWB to the policyholder and are required to record the GMWB embedded derivative at fair value. The valuation of our GMWB embedded derivative is based on an income approach that incorporates inputs such as forward interest rates,
equity index volatility, equity index and fund correlation, and policyholder assumptions such as utilization, lapse and mortality. In addition to these inputs, we also consider risk and expense margins when determining the projected cash flows that
would be determined by another market participant. While the risk and expense margins are considered in determining fair value, these inputs do not have a significant impact on the valuation. We determine fair value using an internal model based on
the various inputs noted above. The resulting fair value measurement from the model is reviewed by the product actuarial, risk and finance professionals each reporting period with changes in fair value also being compared to changes in derivatives
and other instruments used to mitigate changes in fair value from certain market risks, such as equity index volatility and interest rates.
For GMWB liabilities, non-performance risk is integrated into the discount rate. Our discount rate used to determine fair value of our GMWB
liabilities includes market credit spreads above U.S. Treasury rates to reflect an adjustment for the non-performance risk of the GMWB liabilities. As of March 31, 2017 and December 31, 2016, the impact of non-performance risk resulted in
a lower fair value of our GMWB liabilities of $68 million and $73 million, respectively.
To determine the appropriate discount rate to
reflect the non-performance risk of the GMWB liabilities, we evaluate the non-performance risk in our liabilities based on a hypothetical exit market transaction as there is no exit market for these types of liabilities. A hypothetical exit market
can be viewed as a hypothetical transfer of the liability to another similarly rated insurance company which would closely resemble a reinsurance transaction. Another hypothetical exit market transaction can be viewed as a hypothetical transaction
from the perspective of the GMWB policyholder. In determining the appropriate discount rate to incorporate non-performance risk of the GMWB liabilities, we also considered the impacts of state guarantees embedded in the related insurance product as
a form of inseparable third-party guarantee. We believe that a hypothetical exit market participant would use a similar discount rate as described above to value the liabilities.
For equity index volatility, we determine the projected equity market volatility using both historical volatility and projected equity market
volatility with more significance being placed on projected near-term
45
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
volatility and recent historical data. Given the different attributes and market characteristics of GMWB liabilities compared to equity index options in the derivative market, the equity index
volatility assumption for GMWB liabilities may be different from the volatility assumption for equity index options, especially for the longer dated points on the curve.
Equity index and fund correlations are determined based on historical price observations for the fund and equity index.
For policyholder assumptions, we use our expected lapse, mortality and utilization assumptions and update these assumptions for our actual
experience, as necessary. For our lapse assumption, we adjust our base lapse assumption by policy based on a combination of the policyholders current account value and GMWB benefit.
We classify the GMWB valuation as Level 3 based on having significant unobservable inputs, with equity index volatility and non-performance
risk being considered the more significant unobservable inputs. As equity index volatility increases, the fair value of the GMWB liabilities will increase. Any increase in non-performance risk would increase the discount rate and would decrease the
fair value of the GMWB liability. Additionally, we consider lapse and utilization assumptions to be significant unobservable inputs. An increase in our lapse assumption would decrease the fair value of the GMWB liability, whereas an increase in our
utilization rate would increase the fair value.
Fixed index annuity embedded derivatives
We have fixed indexed annuity products where interest is credited to the policyholders account balance based on equity index changes.
This feature is required to be bifurcated as an embedded derivative and recorded at fair value. Fair value is determined using an income approach where the present value of the excess cash flows above the guaranteed cash flows is
used to determine the value attributed to the equity index feature. The inputs used in determining the fair value include policyholder behavior (lapses and withdrawals), near-term equity index volatility, expected future interest credited,
forward interest rates and an adjustment to the discount rate to incorporate non-performance risk and risk margins. As a result of our assumptions for policyholder behavior and expected future interest credited being considered significant
unobservable inputs, we classify these instruments as Level 3. As lapses and withdrawals increase, the value of our embedded derivative liability will decrease. As expected future interest credited decreases, the value of our embedded derivative
liability will decrease.
Indexed universal life embedded derivatives
We have indexed universal life products where interest is credited to the policyholders account balance based on equity index changes.
This feature is required to be bifurcated as an embedded derivative and recorded at fair value. Fair value is determined using an income approach where the present value of the excess cash flows above the guaranteed cash flows is used to determine
the value attributed to the equity index feature. The inputs used in determining the fair value include policyholder behavior (lapses and withdrawals), near-term equity index volatility, expected future interest credited, forward interest rates and
an adjustment to the discount rate to incorporate non-performance risk and risk margins. As a result of our assumptions for policyholder behavior and expected future interest credited being considered significant unobservable inputs, we classify
these instruments as Level 3. As lapses and withdrawals increase, the value of our embedded derivative liability will decrease. As expected future interest credited decreases, the value of our embedded derivative liability will decrease.
46
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Borrowings related to securitization entities
We record certain borrowings related to securitization entities at fair value. The fair value of these borrowings is determined using either a
market approach or income approach, depending on the instrument and availability of market information. Given the unique characteristics of the securitization entities that issued these borrowings as well as the lack of comparable instruments, we
determine fair value considering the valuation of the underlying assets held by the securitization entities and any derivatives, as well as any unique characteristics of the borrowings that may impact the valuation. After considering all relevant
inputs, we determine fair value of the borrowings using the net valuation of the underlying assets and derivatives that are backing the borrowings. Accordingly, these instruments are classified as Level 3. Increases in the valuation of the
underlying assets or decreases in the derivative liabilities will result in an increase in the fair value of these borrowings.
Derivatives
We consider counterparty collateral arrangements and rights of set-off when evaluating our net credit risk exposure to our
derivative counterparties. Accordingly, we are permitted to include consideration of these arrangements when determining whether any incremental adjustment should be made for both the counterpartys and our non-performance risk in measuring
fair value for our derivative instruments. As a result of these counterparty arrangements, we determined that any adjustment for credit risk would not be material and we have not recorded any incremental adjustment for our non-performance risk or
the non-performance risk of the derivative counterparty for our derivative assets or liabilities. We determine fair value for our derivatives using an income approach with internal models based on relevant market inputs for each derivative
instrument. We also compare the fair value determined using our internal model to the valuations provided by our derivative counterparties with any significant differences or changes in valuation being evaluated further by our derivatives
professionals that are familiar with the instrument and market inputs used in the valuation.
Interest rate swaps.
The valuation of
interest rate swaps is determined using an income approach. The primary input into the valuation represents the forward interest rate swap curve, which is generally considered an observable input, and results in the derivative being classified as
Level 2. For certain interest rate swaps, the inputs into the valuation also include the total returns of certain bonds that would primarily be considered an observable input and result in the derivative being classified as Level 2. For certain
other swaps, there are features that provide an option to the counterparty to terminate the swap at specified dates. The interest rate volatility input used to value these options would be considered a significant unobservable input and results in
the fair value measurement of the derivative being classified as Level 3. These options to terminate the swap by the counterparty are based on forward interest rate swap curves and volatility. As interest rate volatility increases, our valuation of
the derivative changes unfavorably.
Interest rate swaps related to securitization entities.
The valuation of interest rate swaps
related to securitization entities is determined using an income approach. The primary input into the valuation represents the forward interest rate swap curve, which is generally considered an observable input, and results in the derivative being
classified as Level 2.
Inflation indexed swaps.
The valuation of inflation indexed swaps is determined using an income approach.
The primary inputs into the valuation represent the forward interest rate swap curve, the current consumer price index and the forward consumer price index curve, which are generally considered observable inputs, and results in the derivative being
classified as Level 2.
47
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Foreign currency swaps.
The valuation of foreign currency swaps is determined using an
income approach. The primary inputs into the valuation represent the forward interest rate swap curve and foreign currency exchange rates, both of which are considered an observable input, and results in the derivative being classified as Level 2.
Credit default swaps.
We have both single name credit default swaps and index tranche credit default swaps. For single name credit
default swaps, we utilize an income approach to determine fair value based on using current market information for the credit spreads of the reference entity, which is considered observable inputs based on the reference entities of our derivatives
and results in these derivatives being classified as Level 2. For index tranche credit default swaps, we utilize an income approach that utilizes current market information related to credit spreads and expected defaults and losses associated with
the reference entities that comprise the respective index associated with each derivative. There are significant unobservable inputs associated with the timing and amount of losses from the reference entities as well as the timing or amount of
losses, if any, that will be absorbed by our tranche. Accordingly, the index tranche credit default swaps are classified as Level 3. As credit spreads widen for the underlying issuers comprising the index, the change in our valuation of these credit
default swaps will be unfavorable.
Credit default swaps related to securitization entities.
Credit default swaps related to
securitization entities represent customized index tranche credit default swaps and are valued using a similar methodology as described above for index tranche credit default swaps. We determine fair value of these credit default swaps after
considering both the valuation methodology described above as well as the valuation provided by the derivative counterparty. In addition to the valuation methodology and inputs described for index tranche credit default swaps, these customized
credit default swaps contain a feature that permits the securitization entity to provide the par value of underlying assets in the securitization entity to settle any losses under the credit default swap. The valuation of this settlement feature is
dependent upon the valuation of the underlying assets and the timing and amount of any expected loss on the credit default swap, which is considered a significant unobservable input. Accordingly, these customized index tranche credit default swaps
related to securitization entities are classified as Level 3. As credit spreads widen for the underlying issuers comprising the customized index, the change in our valuation of these credit default swaps will be unfavorable.
Equity index options.
We have equity index options associated with various equity indices. The valuation of equity index options is
determined using an income approach. The primary inputs into the valuation represent forward interest rate volatility and time value component associated with the optionality in the derivative, which are considered significant unobservable inputs in
most instances. The equity index volatility surface is determined based on market information that is not readily observable and is developed based upon inputs received from several third-party sources. Accordingly, these options are classified as
Level 3. As equity index volatility increases, our valuation of these options changes favorably.
Financial futures.
The fair value
of financial futures is based on the closing exchange prices. Accordingly, these financial futures are classified as Level 1. The period end valuation is zero as a result of settling the margins on these contracts on a daily basis.
Equity return swaps.
The valuation of equity return swaps is determined using an income approach. The primary inputs into the valuation
represent the forward interest rate swap curve and underlying equity index values, which are generally considered observable inputs, and results in the derivative being classified as Level 2.
48
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Forward bond purchase commitments.
The valuation of forward bond purchase commitments
is determined using an income approach. The primary input into the valuation represents the current bond prices and interest rates, which are generally considered an observable input, and results in the derivative being classified as Level 2.
Other foreign currency contracts.
We have certain foreign currency options classified as other foreign currency contracts. The
valuation of foreign currency options is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve, foreign currency exchange rates, forward interest rate, foreign currency exchange
rate volatility, foreign equity index volatility and time value component associated with the optionality in the derivative. As a result of the significant unobservable inputs associated with the forward interest rate, foreign currency exchange rate
volatility and foreign equity index volatility inputs, the derivative is classified as Level 3. As foreign currency exchange rate volatility and foreign equity index volatility increases, the change in our valuation of these options will be
favorable for purchase options and unfavorable for options sold. We also have foreign currency forward contracts where the valuation is determined using an income approach. The primary inputs into the valuation represent the forward foreign currency
exchange rates, which are generally considered observable inputs and results in the derivative being classified as Level 2.
49
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables set forth our assets by class of instrument that are measured at fair
value on a recurring basis as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
(Amounts in millions)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government, agencies and government-sponsored enterprises
|
|
$
|
5,493
|
|
|
$
|
|
|
|
$
|
5,492
|
|
|
$
|
1
|
|
State and political subdivisions
|
|
|
2,710
|
|
|
|
|
|
|
|
2,673
|
|
|
|
37
|
|
Non-U.S. government
|
|
|
1,817
|
|
|
|
|
|
|
|
1,817
|
|
|
|
|
|
U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
4,635
|
|
|
|
|
|
|
|
4,057
|
|
|
|
578
|
|
Energy
|
|
|
2,339
|
|
|
|
|
|
|
|
2,177
|
|
|
|
162
|
|
Finance and insurance
|
|
|
6,316
|
|
|
|
|
|
|
|
5,498
|
|
|
|
818
|
|
Consumernon-cyclical
|
|
|
4,793
|
|
|
|
|
|
|
|
4,671
|
|
|
|
122
|
|
Technology and communications
|
|
|
2,643
|
|
|
|
|
|
|
|
2,584
|
|
|
|
59
|
|
Industrial
|
|
|
1,300
|
|
|
|
|
|
|
|
1,253
|
|
|
|
47
|
|
Capital goods
|
|
|
2,309
|
|
|
|
|
|
|
|
2,156
|
|
|
|
153
|
|
Consumercyclical
|
|
|
1,562
|
|
|
|
|
|
|
|
1,299
|
|
|
|
263
|
|
Transportation
|
|
|
1,177
|
|
|
|
|
|
|
|
1,080
|
|
|
|
97
|
|
Other
|
|
|
349
|
|
|
|
|
|
|
|
207
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. corporate
|
|
|
27,423
|
|
|
|
|
|
|
|
24,982
|
|
|
|
2,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
1,020
|
|
|
|
|
|
|
|
634
|
|
|
|
386
|
|
Energy
|
|
|
1,395
|
|
|
|
|
|
|
|
1,189
|
|
|
|
206
|
|
Finance and insurance
|
|
|
2,589
|
|
|
|
|
|
|
|
2,421
|
|
|
|
168
|
|
Consumernon-cyclical
|
|
|
712
|
|
|
|
|
|
|
|
583
|
|
|
|
129
|
|
Technology and communications
|
|
|
1,012
|
|
|
|
|
|
|
|
964
|
|
|
|
48
|
|
Industrial
|
|
|
976
|
|
|
|
|
|
|
|
866
|
|
|
|
110
|
|
Capital goods
|
|
|
585
|
|
|
|
|
|
|
|
415
|
|
|
|
170
|
|
Consumercyclical
|
|
|
461
|
|
|
|
|
|
|
|
394
|
|
|
|
67
|
|
Transportation
|
|
|
693
|
|
|
|
|
|
|
|
500
|
|
|
|
193
|
|
Other
|
|
|
2,781
|
|
|
|
|
|
|
|
2,757
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-U.S. corporate
|
|
|
12,224
|
|
|
|
|
|
|
|
10,723
|
|
|
|
1,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
4,404
|
|
|
|
|
|
|
|
4,358
|
|
|
|
46
|
|
Commercial mortgage-backed
|
|
|
3,302
|
|
|
|
|
|
|
|
3,243
|
|
|
|
59
|
|
Other asset-backed
|
|
|
3,224
|
|
|
|
|
|
|
|
3,049
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
60,597
|
|
|
|
|
|
|
|
56,337
|
|
|
|
4,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
709
|
|
|
|
614
|
|
|
|
48
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
71
|
|
|
|
|
|
|
|
71
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
565
|
|
|
|
|
|
|
|
565
|
|
|
|
|
|
Foreign currency swaps
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
Equity index options
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
Other foreign currency contracts
|
|
|
28
|
|
|
|
|
|
|
|
27
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
675
|
|
|
|
|
|
|
|
597
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending collateral
|
|
|
281
|
|
|
|
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other invested assets
|
|
|
1,027
|
|
|
|
|
|
|
|
949
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted other invested assets related to securitization entities
|
|
|
84
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
Reinsurance recoverable
(1)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Separate account assets
|
|
|
7,327
|
|
|
|
7,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
69,759
|
|
|
$
|
7,941
|
|
|
$
|
57,418
|
|
|
$
|
4,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.
|
50
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government, agencies and government-sponsored enterprises
|
|
$
|
6,036
|
|
|
$
|
|
|
|
$
|
6,034
|
|
|
$
|
2
|
|
State and political subdivisions
|
|
|
2,647
|
|
|
|
|
|
|
|
2,610
|
|
|
|
37
|
|
Non-U.S. government
|
|
|
2,107
|
|
|
|
|
|
|
|
2,107
|
|
|
|
|
|
U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
4,550
|
|
|
|
|
|
|
|
3,974
|
|
|
|
576
|
|
Energy
|
|
|
2,300
|
|
|
|
|
|
|
|
2,090
|
|
|
|
210
|
|
Finance and insurance
|
|
|
6,097
|
|
|
|
|
|
|
|
5,311
|
|
|
|
786
|
|
Consumernon-cyclical
|
|
|
4,734
|
|
|
|
|
|
|
|
4,613
|
|
|
|
121
|
|
Technology and communications
|
|
|
2,598
|
|
|
|
|
|
|
|
2,544
|
|
|
|
54
|
|
Industrial
|
|
|
1,223
|
|
|
|
|
|
|
|
1,175
|
|
|
|
48
|
|
Capital goods
|
|
|
2,258
|
|
|
|
|
|
|
|
2,106
|
|
|
|
152
|
|
Consumercyclical
|
|
|
1,530
|
|
|
|
|
|
|
|
1,272
|
|
|
|
258
|
|
Transportation
|
|
|
1,190
|
|
|
|
|
|
|
|
1,051
|
|
|
|
139
|
|
Other
|
|
|
348
|
|
|
|
|
|
|
|
205
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. corporate
|
|
|
26,828
|
|
|
|
|
|
|
|
24,341
|
|
|
|
2,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
969
|
|
|
|
|
|
|
|
583
|
|
|
|
386
|
|
Energy
|
|
|
1,331
|
|
|
|
|
|
|
|
1,125
|
|
|
|
206
|
|
Finance and insurance
|
|
|
2,538
|
|
|
|
|
|
|
|
2,356
|
|
|
|
182
|
|
Consumernon-cyclical
|
|
|
714
|
|
|
|
|
|
|
|
575
|
|
|
|
139
|
|
Technology and communications
|
|
|
987
|
|
|
|
|
|
|
|
920
|
|
|
|
67
|
|
Industrial
|
|
|
958
|
|
|
|
|
|
|
|
849
|
|
|
|
109
|
|
Capital goods
|
|
|
535
|
|
|
|
|
|
|
|
366
|
|
|
|
169
|
|
Consumercyclical
|
|
|
442
|
|
|
|
|
|
|
|
373
|
|
|
|
69
|
|
Transportation
|
|
|
677
|
|
|
|
|
|
|
|
496
|
|
|
|
181
|
|
Other
|
|
|
3,144
|
|
|
|
|
|
|
|
3,119
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-U.S. corporate
|
|
|
12,295
|
|
|
|
|
|
|
|
10,762
|
|
|
|
1,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
4,379
|
|
|
|
|
|
|
|
4,336
|
|
|
|
43
|
|
Commercial mortgage-backed
|
|
|
3,129
|
|
|
|
|
|
|
|
3,075
|
|
|
|
54
|
|
Other asset-backed
|
|
|
3,151
|
|
|
|
|
|
|
|
3,006
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
60,572
|
|
|
|
|
|
|
|
56,271
|
|
|
|
4,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
632
|
|
|
|
551
|
|
|
|
34
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
259
|
|
|
|
|
|
|
|
259
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
596
|
|
|
|
|
|
|
|
596
|
|
|
|
|
|
Foreign currency swaps
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Equity index options
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
72
|
|
Equity return swaps
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Other foreign currency contracts
|
|
|
35
|
|
|
|
|
|
|
|
32
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
708
|
|
|
|
|
|
|
|
633
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending collateral
|
|
|
534
|
|
|
|
|
|
|
|
534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other invested assets
|
|
|
1,501
|
|
|
|
|
|
|
|
1,426
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted other invested assets related to securitization entities
|
|
|
312
|
|
|
|
|
|
|
|
181
|
|
|
|
131
|
|
Reinsurance recoverable
(1)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Separate account assets
|
|
|
7,299
|
|
|
|
7,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
70,332
|
|
|
$
|
7,850
|
|
|
$
|
57,912
|
|
|
$
|
4,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.
|
51
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We review the fair value hierarchy classifications each reporting period. Changes in the
observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers between levels at the beginning fair value for the reporting period in which the
changes occur. Given the types of assets classified as Level 1, which primarily represents mutual fund investments, we typically do not have any transfers between Level 1 and Level 2 measurement categories and did not have any such transfers during
any period presented.
Our assessment of whether or not there were significant unobservable inputs related to fixed maturity securities
was based on our observations obtained through the course of managing our investment portfolio, including interaction with other market participants, observations related to the availability and consistency of pricing and/or rating, and
understanding of general market activity such as new issuance and the level of secondary market trading for a class of securities. Additionally, we considered data obtained from third-party pricing sources to determine whether our estimated values
incorporate significant unobservable inputs that would result in the valuation being classified as Level 3.
52
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables present additional information about assets measured at fair value on a
recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
as of
January 1,
2017
|
|
|
Total realized and
unrealized gains
(losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
as of
March 31,
2017
|
|
|
Total gains
(losses)
included
in net
income
attributable
to assets
still held
|
|
(Amounts in millions)
|
|
|
Included in
net
income
|
|
|
Included
in OCI
|
|
|
Purchases
|
|
|
Sales
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Transfer
into
Level 3
(1)
|
|
|
Transfer
out of
Level 3
(1)
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government, agencies and government-sponsored enterprises
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
State and political subdivisions
|
|
|
37
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
1
|
|
U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
576
|
|
|
|
|
|
|
|
7
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
578
|
|
|
|
|
|
Energy
|
|
|
210
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
(16
|
)
|
|
|
162
|
|
|
|
(1
|
)
|
Finance and insurance
|
|
|
786
|
|
|
|
4
|
|
|
|
12
|
|
|
|
29
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
818
|
|
|
|
4
|
|
Consumernon-cyclical
|
|
|
121
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
|
|
Technology and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
communications
|
|
|
54
|
|
|
|
1
|
|
|
|
1
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
59
|
|
|
|
1
|
|
Industrial
|
|
|
48
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
Capital goods
|
|
|
152
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153
|
|
|
|
|
|
Consumercyclical
|
|
|
258
|
|
|
|
|
|
|
|
5
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
263
|
|
|
|
|
|
Transportation
|
|
|
139
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(42
|
)
|
|
|
97
|
|
|
|
|
|
Other
|
|
|
143
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. corporate
|
|
|
2,487
|
|
|
|
5
|
|
|
|
30
|
|
|
|
55
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
(82
|
)
|
|
|
2,441
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
386
|
|
|
|
|
|
|
|
2
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
386
|
|
|
|
|
|
Energy
|
|
|
206
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
206
|
|
|
|
|
|
Finance and insurance
|
|
|
182
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
168
|
|
|
|
1
|
|
Consumernon-cyclical
|
|
|
139
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
129
|
|
|
|
|
|
Technology and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
communications
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
Industrial
|
|
|
109
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
Capital goods
|
|
|
169
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
|
|
|
|
Consumercyclical
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
Transportation
|
|
|
181
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
193
|
|
|
|
|
|
Other
|
|
|
25
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-U.S. corporate
|
|
|
1,533
|
|
|
|
2
|
|
|
|
12
|
|
|
|
30
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(53
|
)
|
|
|
10
|
|
|
|
(32
|
)
|
|
|
1,501
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
Commercial mortgage-backed
|
|
|
54
|
|
|
|
|
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
Other asset-backed
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
(27
|
)
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
4,301
|
|
|
|
8
|
|
|
|
45
|
|
|
|
144
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
(91
|
)
|
|
|
15
|
|
|
|
(141
|
)
|
|
|
4,260
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity index options
|
|
|
72
|
|
|
|
13
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
12
|
|
Other foreign currency contracts
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
75
|
|
|
|
11
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other invested assets
|
|
|
75
|
|
|
|
11
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted other invested assets related to securitization entities
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance recoverable
(2)
|
|
|
16
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 3 assets
|
|
$
|
4,570
|
|
|
$
|
17
|
|
|
$
|
45
|
|
|
$
|
156
|
|
|
$
|
(152
|
)
|
|
$
|
1
|
|
|
$
|
(111
|
)
|
|
$
|
15
|
|
|
$
|
(141
|
)
|
|
$
|
4,400
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such
as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities.
|
(2)
|
Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.
|
53
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance as
of
January 1,
2016
|
|
|
Total realized and
unrealized gains
(losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
into
Level 3
(1)
|
|
|
Transfer
out
of
Level 3
(1)
|
|
|
Ending
balance
as of
March 31,
2016
|
|
|
Total gains
(losses)
included in
net income
attributable
to assets
still held
|
|
(Amounts in millions)
|
|
|
Included in
net
income
|
|
|
Included
in OCI
|
|
|
Purchases
|
|
|
Sales
|
|
|
Issuances
|
|
|
Settlements
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government, agencies and government-sponsored enterprises
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
State and political subdivisions
|
|
|
35
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
1
|
|
U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
449
|
|
|
|
1
|
|
|
|
5
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
49
|
|
|
|
(27
|
)
|
|
|
482
|
|
|
|
|
|
Energy
|
|
|
253
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
(28
|
)
|
|
|
230
|
|
|
|
|
|
Finance and insurance
|
|
|
715
|
|
|
|
10
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
(18
|
)
|
|
|
697
|
|
|
|
10
|
|
Consumernon-cyclical
|
|
|
109
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
|
|
Technology and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
communications
|
|
|
35
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
1
|
|
Industrial
|
|
|
61
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
Capital goods
|
|
|
180
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
154
|
|
|
|
|
|
Consumercyclical
|
|
|
239
|
|
|
|
4
|
|
|
|
4
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
210
|
|
|
|
|
|
Transportation
|
|
|
106
|
|
|
|
|
|
|
|
4
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
123
|
|
|
|
|
|
Other
|
|
|
182
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. corporate
|
|
|
2,329
|
|
|
|
16
|
|
|
|
30
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
56
|
|
|
|
(104
|
)
|
|
|
2,289
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
287
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
316
|
|
|
|
|
|
Energy
|
|
|
252
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(26
|
)
|
|
|
226
|
|
|
|
|
|
Finance and insurance
|
|
|
191
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191
|
|
|
|
1
|
|
Consumernon-cyclical
|
|
|
169
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
163
|
|
|
|
|
|
Technology and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
communications
|
|
|
62
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
Industrial
|
|
|
84
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
Capital goods
|
|
|
213
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
214
|
|
|
|
|
|
Consumercyclical
|
|
|
71
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
Transportation
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144
|
|
|
|
|
|
Other
|
|
|
72
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-U.S. corporate
|
|
|
1,545
|
|
|
|
1
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
35
|
|
|
|
(26
|
)
|
|
|
1,551
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
116
|
|
|
|
|
|
|
|
2
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(33
|
)
|
|
|
121
|
|
|
|
|
|
Commercial mortgage-backed
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
Other asset-backed
|
|
|
1,142
|
|
|
|
1
|
|
|
|
(16
|
)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
35
|
|
|
|
|
|
|
|
1,168
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
5,180
|
|
|
|
19
|
|
|
|
50
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
(121
|
)
|
|
|
126
|
|
|
|
(163
|
)
|
|
|
5,181
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Equity index options
|
|
|
30
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
3
|
|
Other foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contracts
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
34
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other invested assets
|
|
|
34
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted other invested assets related to securitization entities
|
|
|
232
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
9
|
|
Reinsurance recoverable
(2)
|
|
|
17
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 3 assets
|
|
$
|
5,501
|
|
|
$
|
28
|
|
|
$
|
50
|
|
|
$
|
109
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
(125
|
)
|
|
$
|
126
|
|
|
$
|
(163
|
)
|
|
$
|
5,527
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such
as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities.
|
(2)
|
Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.
|
54
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the gains and losses included in net income from assets measured
at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value and the related income statement line item in which these gains and losses were presented for the three months ended
March 31:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Total realized and unrealized gains (losses) included in net income:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
9
|
|
|
$
|
20
|
|
Net investment gains (losses)
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) included in net income attributable to assets still held:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
7
|
|
|
$
|
15
|
|
Net investment gains (losses)
|
|
|
6
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
The amount presented for unrealized gains (losses) included in net income for available-for-sale securities
represents impairments and accretion on certain fixed maturity securities.
55
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents a summary of the significant unobservable inputs used for
certain asset fair value measurements that are based on internal models and classified as Level 3 as of March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Valuation technique
|
|
|
Fair value
|
|
|
Unobservable input
|
|
|
Range
|
|
|
Weighted-average
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
Internal models
|
|
|
$
|
561
|
|
|
|
Credit spreads
|
|
|
|
84bps - 388bps
|
|
|
|
140bps
|
|
Energy
|
|
|
Internal models
|
|
|
|
75
|
|
|
|
Credit spreads
|
|
|
|
98bps - 459bps
|
|
|
|
196bps
|
|
Finance and insurance
|
|
|
Internal models
|
|
|
|
761
|
|
|
|
Credit spreads
|
|
|
|
88bps - 440bps
|
|
|
|
213bps
|
|
Consumernon-cyclical
|
|
|
Internal models
|
|
|
|
122
|
|
|
|
Credit spreads
|
|
|
|
100bps - 264bps
|
|
|
|
165bps
|
|
Technology and communications
|
|
|
Internal models
|
|
|
|
58
|
|
|
|
Credit spreads
|
|
|
|
69bps - 374bps
|
|
|
|
275bps
|
|
Industrial
|
|
|
Internal models
|
|
|
|
20
|
|
|
|
Credit spreads
|
|
|
|
103bps - 261bps
|
|
|
|
200bps
|
|
Capital goods
|
|
|
Internal models
|
|
|
|
153
|
|
|
|
Credit spreads
|
|
|
|
66bps - 265bps
|
|
|
|
132bps
|
|
Consumercyclical
|
|
|
Internal models
|
|
|
|
238
|
|
|
|
Credit spreads
|
|
|
|
66bps - 220bps
|
|
|
|
141bps
|
|
Transportation
|
|
|
Internal models
|
|
|
|
89
|
|
|
|
Credit spreads
|
|
|
|
66bps - 254bps
|
|
|
|
157bps
|
|
Other
|
|
|
Internal models
|
|
|
|
127
|
|
|
|
Credit spreads
|
|
|
|
77bps - 144bps
|
|
|
|
89bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. corporate
|
|
|
Internal models
|
|
|
$
|
2,204
|
|
|
|
Credit spreads
|
|
|
|
66bps - 459bps
|
|
|
|
170bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
Internal models
|
|
|
$
|
386
|
|
|
|
Credit spreads
|
|
|
|
87bps - 191bps
|
|
|
|
129bps
|
|
Energy
|
|
|
Internal models
|
|
|
|
133
|
|
|
|
Credit spreads
|
|
|
|
103bps - 172bps
|
|
|
|
134bps
|
|
Finance and insurance
|
|
|
Internal models
|
|
|
|
159
|
|
|
|
Credit spreads
|
|
|
|
84bps - 215bps
|
|
|
|
123bps
|
|
Consumernon-cyclical
|
|
|
Internal models
|
|
|
|
117
|
|
|
|
Credit spreads
|
|
|
|
66bps - 222bps
|
|
|
|
132bps
|
|
Technology and communications
|
|
|
Internal models
|
|
|
|
48
|
|
|
|
Credit spreads
|
|
|
|
161bps - 276bps
|
|
|
|
233bps
|
|
Industrial
|
|
|
Internal models
|
|
|
|
101
|
|
|
|
Credit spreads
|
|
|
|
122bps - 222bps
|
|
|
|
169bps
|
|
Capital goods
|
|
|
Internal models
|
|
|
|
129
|
|
|
|
Credit spreads
|
|
|
|
100bps - 180bps
|
|
|
|
128bps
|
|
Consumercyclical
|
|
|
Internal models
|
|
|
|
67
|
|
|
|
Credit spreads
|
|
|
|
97bps - 153bps
|
|
|
|
122bps
|
|
Transportation
|
|
|
Internal models
|
|
|
|
164
|
|
|
|
Credit spreads
|
|
|
|
91bps - 220bps
|
|
|
|
130bps
|
|
Other
|
|
|
Internal models
|
|
|
|
12
|
|
|
|
Credit spreads
|
|
|
|
101bps - 1,480bps
|
|
|
|
374bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-U.S. corporate
|
|
|
Internal models
|
|
|
$
|
1,316
|
|
|
|
Credit spreads
|
|
|
|
66bps - 1,480bps
|
|
|
|
138bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity index options
|
|
|
Discounted cash
flows
|
|
|
$
|
77
|
|
|
|
Equity index
volatility
|
|
|
|
% - 39%
|
|
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other foreign currency contracts
|
|
|
Discounted cash
flows
|
|
|
$
|
1
|
|
|
|
Foreign exchange
rate volatility
|
|
|
|
9% - 12%
|
|
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain classes of instruments classified as Level 3 are excluded above as a result of not being material or
due to limitations in being able to obtain the underlying inputs used by certain third-party sources, such as broker quotes, used as an input in determining fair value.
56
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables set forth our liabilities by class of instrument that are measured at
fair value on a recurring basis as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
(Amounts in millions)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB embedded derivatives
(1)
|
|
$
|
275
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
275
|
|
Fixed index annuity embedded derivatives
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
|
361
|
|
Indexed universal life embedded derivatives
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total policyholder account balances
|
|
|
648
|
|
|
|
|
|
|
|
|
|
|
|
648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
373
|
|
|
|
|
|
|
|
373
|
|
|
|
|
|
Foreign currency swaps
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Credit default swaps related to securitization entities
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Equity return swaps
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
Other foreign currency contracts
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
408
|
|
|
|
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings related to securitization entities
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,069
|
|
|
$
|
|
|
|
$
|
408
|
|
|
$
|
661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB embedded derivatives
(1)
|
|
$
|
303
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
303
|
|
Fixed index annuity embedded derivatives
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
344
|
|
Indexed universal life embedded derivatives
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total policyholder account balances
|
|
|
658
|
|
|
|
|
|
|
|
|
|
|
|
658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
349
|
|
|
|
|
|
|
|
349
|
|
|
|
|
|
Foreign currency swaps
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
Credit default swaps related to securitization entities
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Equity return swaps
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Other foreign currency contracts
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
383
|
|
|
|
|
|
|
|
383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings related to securitization entities
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,053
|
|
|
$
|
|
|
|
$
|
383
|
|
|
$
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.
|
57
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables present additional information about liabilities measured at fair value
on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Beginning
balance
as of
January 1,
2017
|
|
|
Total realized and
unrealized (gains)
losses
|
|
|
Purchases
|
|
|
Sales
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Transfer
into
Level 3
|
|
|
Transfer
out of
Level 3
|
|
|
Ending
balance
as of
March 31,
2017
|
|
|
Total
(gains)
losses
included
in net
(income)
attributable
to liabilities
still held
|
|
|
|
Included in
net (income)
|
|
|
Included
in OCI
|
|
|
|
|
|
|
|
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB embedded derivatives
(1)
|
|
$
|
303
|
|
|
$
|
(35
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
275
|
|
|
$
|
(31
|
)
|
Fixed index annuity embedded derivatives
|
|
|
344
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
361
|
|
|
|
20
|
|
Indexed universal life embedded derivatives
|
|
|
11
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total policyholder account balances
|
|
|
658
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
648
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings related to securitization entities
|
|
|
12
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 3 liabilities
|
|
$
|
670
|
|
|
$
|
(15
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9
|
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
661
|
|
|
$
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Beginning
balance
as of
January 1,
2016
|
|
|
Total realized and
unrealized (gains)
losses
|
|
|
Purchases
|
|
|
Sales
|
|
|
Issuances
|
|
|
Settlements
|
|
|
Transfer
into
Level 3
|
|
|
Transfer
out of
Level 3
|
|
|
Ending
balance
as of
March 31,
2016
|
|
|
Total
(gains)
losses
included
in net
(income)
attributable
to liabilities
still held
|
|
|
|
Included in
net (income)
|
|
|
Included
in OCI
|
|
|
|
|
|
|
|
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB embedded derivatives
(1)
|
|
$
|
352
|
|
|
$
|
83
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
443
|
|
|
$
|
87
|
|
Fixed index annuity embedded derivatives
|
|
|
342
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
345
|
|
|
|
(3
|
)
|
Indexed universal life embedded derivatives
|
|
|
10
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total policyholder account balances
|
|
|
704
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
800
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps related to securitization entities
|
|
|
14
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
14
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings related to securitization entities
|
|
|
81
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 3 liabilities
|
|
$
|
799
|
|
|
$
|
73
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
23
|
|
|
$
|
(4
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
891
|
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.
|
58
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the gains and losses included in net (income) from liabilities
measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value and the related income statement line item in which these gains and losses were presented for the three
months ended March 31:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Total realized and unrealized (gains) losses included in net (income):
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
|
|
|
$
|
|
|
Net investment (gains) losses
|
|
|
(15
|
)
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(15
|
)
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
Total (gains) losses included in net (income) attributable to liabilities still held:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
|
|
|
$
|
|
|
Net investment (gains) losses
|
|
|
(11
|
)
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(11
|
)
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
|
Purchases, sales, issuances and settlements represent the activity that occurred during the period that
results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases, sales and settlements of fixed maturity, equity and
trading securities and purchases, issuances and settlements of derivative instruments.
Issuances presented for GMWB embedded derivative
liabilities are characterized as the change in fair value associated with the product fees recognized that are attributed to the embedded derivative to equal the expected future benefit costs upon issuance. Issuances for fixed index annuity and
indexed universal life embedded derivative liabilities represent the amount of the premium received that is attributed to the value of the embedded derivative. Settlements of embedded derivatives are characterized as the change in fair value upon
exercising the embedded derivative instrument, effectively representing a settlement of the embedded derivative instrument. We have shown these changes in fair value separately based on the classification of this activity as effectively issuing and
settling the embedded derivative instrument with all remaining changes in the fair value of these embedded derivative instruments being shown separately in the category labeled included in net (income) in the tables presented above.
59
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents a summary of the significant unobservable inputs used for
certain liability fair value measurements that are based on internal models and classified as Level 3 as of March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Valuation technique
|
|
|
Fair value
|
|
|
Unobservable input
|
|
|
Range
|
|
|
Weighted-average
|
|
Policyholder account balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB embedded derivatives
(1)
|
|
|
Stochastic cash flow
model
|
|
|
$
|
275
|
|
|
|
Withdrawal
utilization rate
Lapse rate
Non-performance risk
(credit spreads)
Equity index
volatility
|
|
|
|
39% - 83%
% - 7%
40bps - 85bps
14% - 24%
|
|
|
|
64%
4%
69bps
20%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed index annuity embedded derivatives
|
|
|
Option budget
method
|
|
|
$
|
361
|
|
|
|
Expected future
interest credited
|
|
|
|
% - 3%
|
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indexed universal life embedded derivatives
|
|
|
Option budget
method
|
|
|
$
|
12
|
|
|
|
Expected future
interest credited
|
|
|
|
3% - 9%
|
|
|
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.
|
(7) Liability for Policy and Contract Claims
The following table sets forth changes in our liability for policy and contract claims as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
As of or for the three
months ended
March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Beginning balance
|
|
$
|
9,256
|
|
|
$
|
8,095
|
|
Less reinsurance recoverables
|
|
|
(2,409
|
)
|
|
|
(2,122
|
)
|
|
|
|
|
|
|
|
|
|
Net beginning balance
|
|
|
6,847
|
|
|
|
5,973
|
|
|
|
|
|
|
|
|
|
|
Incurred related to insured events of:
|
|
Current year
|
|
|
937
|
|
|
|
778
|
|
Prior years
|
|
|
(106
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Total incurred
|
|
|
831
|
|
|
|
798
|
|
|
|
|
|
|
|
|
|
|
Paid related to insured events of:
|
|
Current year
|
|
|
(178
|
)
|
|
|
(185
|
)
|
Prior years
|
|
|
(656
|
)
|
|
|
(634
|
)
|
|
|
|
|
|
|
|
|
|
Total paid
|
|
|
(834
|
)
|
|
|
(819
|
)
|
|
|
|
|
|
|
|
|
|
Interest on liability for policy and contract claims
|
|
|
73
|
|
|
|
61
|
|
Foreign currency translation
|
|
|
14
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Net ending balance
|
|
|
6,931
|
|
|
|
6,028
|
|
Add reinsurance recoverables
|
|
|
2,364
|
|
|
|
2,149
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
9,295
|
|
|
$
|
8,177
|
|
|
|
|
|
|
|
|
|
|
60
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The liability for policy and contract claims represents our current best estimate; however,
there may be future adjustments to this estimate and related assumptions. Such adjustments, reflecting any variety of new and adverse trends, could possibly be significant, and result in increases in reserves by an amount that could be material to
our results of operations and financial condition and liquidity.
As of the three months ended March 31, 2017, the favorable
development of $106 million related to insured events of prior years was primarily attributable to favorable claim terminations and benefit utilization in our long-term care insurance business in the current year.
(8) Income Taxes
The reconciliation of
the federal statutory tax rate to the effective income tax rate was as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Pre-tax income
|
|
$
|
332
|
|
|
|
|
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory U.S. federal income tax rate
|
|
$
|
116
|
|
|
|
35.0
|
%
|
|
$
|
53
|
|
|
|
35.0
|
%
|
Increase (reduction) in rate resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income tax, net of federal income tax effect
|
|
|
(2
|
)
|
|
|
(0.9
|
)
|
|
|
1
|
|
|
|
0.8
|
|
Tax favored investments
|
|
|
1
|
|
|
|
0.4
|
|
|
|
(1
|
)
|
|
|
(0.6
|
)
|
Effect of foreign operations
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(4.0
|
)
|
Reversal of valuation allowance
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
(16.5
|
)
|
Stock-based compensation
|
|
|
1
|
|
|
|
0.4
|
|
|
|
3
|
|
|
|
1.7
|
|
Loss on sale of business
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective rate
|
|
$
|
116
|
|
|
|
34.9
|
%
|
|
$
|
23
|
|
|
|
15.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate for the three months ended March 31, 2016 was impacted by the reversal of a
deferred tax valuation allowance related to our mortgage insurance business in Europe due to incremental taxable gains supporting the recognition of these deferred tax assets.
(9) Segment Information
We have the
following five operating business segments: U.S. Mortgage Insurance; Canada Mortgage Insurance; Australia Mortgage Insurance; U.S Life Insurance (which includes our long-term care insurance, life insurance and fixed annuities businesses); and Runoff
(which includes the results of non-strategic products which have not been actively sold). 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.
We allocate our consolidated provision for income taxes to our operating segments. Our
allocation methodology applies a specific tax rate to the pre-tax income (loss) of each segment, which is then adjusted in each segment to reflect the tax attributes of items unique to that segment such as foreign income. The difference
61
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
between the consolidated provision for income taxes and the sum of the provision for income taxes in each segment is reflected in Corporate and Other activities. The annually-determined tax rates
and adjustments to each segments provision for income taxes are estimates which are subject to review and could change from year to year.
We use the same accounting policies and procedures to measure segment income and assets as our consolidated net income and assets. Our chief
operating decision maker evaluates segment performance and allocates resources on the basis of adjusted operating income available to Genworth Financial, Inc.s common stockholders. We define adjusted operating income available to
Genworth Financial, Inc.s common stockholders as income 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. We exclude net
investment gains (losses) and infrequent or unusual non-operating items because we do not consider them to be related to the operating performance of our segments and Corporate and Other activities. A component of our 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 our 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 available to Genworth Financial, Inc.s common stockholders because, in our opinion, they are not indicative of overall operating trends. Infrequent or unusual non-operating items are also
excluded from adjusted operating income available to Genworth Financial, Inc.s common stockholders if, in our opinion, they are not indicative of overall operating trends.
While some of these items may be significant components of net income available to Genworth Financial, Inc.s common stockholders in
accordance with U.S. GAAP, we believe that adjusted operating income available to Genworth Financial, Inc.s common stockholders, and measures that are derived from or incorporate adjusted operating income available to Genworth Financial,
Inc.s common stockholders, are appropriate measures that are useful to investors because they identify the income attributable to the ongoing operations of the business. Management also uses adjusted operating income available to Genworth
Financial, Inc.s common stockholders 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 available to Genworth Financial, Inc.s common stockholders have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income available to Genworth Financial, Inc.s common stockholders is
not a substitute for net income available to Genworth Financial, Inc.s common stockholders determined in accordance with U.S. GAAP. In addition, our definition of adjusted operating income available to Genworth Financial, Inc.s common
stockholders may differ from the definitions used by other companies.
Adjustments to reconcile net income attributable to Genworth
Financial, Inc.s common stockholders and adjusted operating income available to Genworth Financial, Inc.s common stockholders assume a 35% tax rate (unless otherwise indicated) and are net of the portion attributable to noncontrolling
interests. Net investment gains (losses) are also adjusted for deferred acquisition costs (DAC) and other intangible amortization and certain benefit reserves.
62
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In the first quarter of 2017, we recorded a pre-tax expense of $1 million related to
restructuring costs as the company continues to evaluate and appropriately size its organizational needs and expenses.
In the first
quarter of 2016: we recorded a pre-tax loss of $7 million and a tax benefit of $27 million related to the planned sale of our mortgage insurance business in Europe; we paid a pre-tax make-whole expense of $20 million related to the
early redemption of Genworth Holdings 2016 notes; we also repurchased $28 million principal amount of Genworth Holdings notes with various maturity dates for a pre-tax gain of $4 million; we completed a life block transaction
resulting in a pre-tax loss of $9 million in connection with the early extinguishment of non-recourse funding obligations and we recorded a pre-tax expense of $15 million related to restructuring costs as part of an expense reduction plan
as the company evaluates and appropriately sizes its organizational needs and expenses.
There were no infrequent or unusual items
excluded from adjusted operating income during the periods presented other than the following items. We incurred fees during the first quarter of 2016 related to Genworth Holdings bond consent solicitation of $18 million for broker,
advisor and investment banking fees.
The following is a summary of revenues for our segments and Corporate and Other activities for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
U.S. Mortgage Insurance segment
|
|
$
|
187
|
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
|
Canada Mortgage Insurance segment
|
|
|
169
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
Australia Mortgage Insurance segment
|
|
|
122
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
U.S. Life Insurance segment:
|
|
|
|
|
|
|
|
|
Long-term care insurance
|
|
|
994
|
|
|
|
952
|
|
Life insurance
|
|
|
417
|
|
|
|
123
|
|
Fixed annuities
|
|
|
205
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
U.S. Life Insurance segment
|
|
|
1,616
|
|
|
|
1,281
|
|
|
|
|
|
|
|
|
|
|
Runoff segment
|
|
|
87
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other activities
|
|
|
(10
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,171
|
|
|
$
|
1,785
|
|
|
|
|
|
|
|
|
|
|
The increase in total revenues was mostly attributable to our U.S. Life Insurance segment driven mostly by a
life block transaction in our life insurance business in the first quarter of 2016, under which we initially ceded $326 million of certain term life insurance premiums.
The following tables present the reconciliation of net income available to Genworth Financial, Inc.s common stockholders to adjusted
operating income available to Genworth Financial, Inc.s common stockholders for our segments and Corporate and Other activities and a summary of adjusted operating income
63
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
available to Genworth Financial, Inc.s common stockholders for our segments and Corporate and Other activities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Net income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
155
|
|
|
$
|
53
|
|
Add: net income attributable to noncontrolling interests
|
|
|
61
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
216
|
|
|
|
108
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
216
|
|
|
|
127
|
|
Less: income from continuing operations attributable to
|
|
|
|
|
|
|
|
|
noncontrolling interests
|
|
|
61
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to Genworth Financial, Inc.'s common
stockholders
|
|
|
155
|
|
|
|
72
|
|
Adjustments to income from continuing operations available to Genworth Financial, Inc.'s common
stockholders:
|
|
|
|
|
|
|
|
|
Net investment (gains) losses, net
(1)
|
|
|
(20
|
)
|
|
|
19
|
|
(Gains) losses from sale of businesses
|
|
|
|
|
|
|
7
|
|
(Gains) losses on early extinguishment of debt, net
|
|
|
|
|
|
|
16
|
|
Losses from life block transactions
|
|
|
|
|
|
|
9
|
|
Expenses related to restructuring
|
|
|
1
|
|
|
|
15
|
|
Fees associated with bond consent solicitation
|
|
|
|
|
|
|
18
|
|
Taxes on adjustments
|
|
|
7
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
Adjusted operating income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
143
|
|
|
$
|
103
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the three months ended March 31, 2017 and 2016, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $ and $(9) million,
respectively, and adjusted for net investment (gains) losses attributable to noncontrolling interests of $14 million and $9 million, respectively.
|
64
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Adjusted operating income (loss) available to Genworth Financial, Inc.'s common
stockholders:
|
|
|
|
|
|
|
|
|
U.S. Mortgage Insurance segment
|
|
$
|
73
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
Canada Mortgage Insurance segment
|
|
|
36
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
Australia Mortgage Insurance segment
|
|
|
13
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
U.S. Life Insurance segment:
|
|
|
|
|
|
|
|
|
Long-term care insurance
|
|
|
14
|
|
|
|
34
|
|
Life insurance
|
|
|
16
|
|
|
|
31
|
|
Fixed annuities
|
|
|
23
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
U.S. Life Insurance segment
|
|
|
53
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
Runoff segment
|
|
|
14
|
|
|
|
4
|
|
Corporate and Other activities
|
|
|
(46
|
)
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
Adjusted operating income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
143
|
|
|
$
|
103
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of total assets for our segments and Corporate and Other activities as of the dates
indicated:
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Assets:
|
|
|
|
|
|
|
|
|
U.S. Mortgage Insurance segment
|
|
$
|
2,735
|
|
|
$
|
2,674
|
|
Canada Mortgage Insurance segment
|
|
|
4,969
|
|
|
|
4,884
|
|
Australia Mortgage Insurance segment
|
|
|
2,782
|
|
|
|
2,619
|
|
U.S. Life Insurance segment
|
|
|
82,065
|
|
|
|
81,933
|
|
Runoff segment
|
|
|
11,262
|
|
|
|
11,352
|
|
Corporate and Other activities
|
|
|
873
|
|
|
|
1,196
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
104,686
|
|
|
$
|
104,658
|
|
|
|
|
|
|
|
|
|
|
(10) Commitments and Contingencies
(a) Litigation and Regulatory Matters
We face the risk of litigation and regulatory investigations and actions in the ordinary course of operating our businesses, including the risk
of class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and others generally applicable to business practices in the industries in which we operate. In our insurance operations, we are, have been, or may
become subject to class actions and individual suits alleging, among other things, issues relating to sales or underwriting practices, increases to in-force long-term care insurance premiums, payment of contingent or other sales commissions, claims
payments and procedures, product design, product disclosure, product administration, additional premium charges for premiums paid on a periodic basis, denial or delay of benefits, charging excessive or impermissible fees on products, recommending
unsuitable products to customers, our pricing structures and business practices in our
65
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
mortgage insurance businesses, such as captive reinsurance arrangements with lenders and contract underwriting services, violations of the Real Estate Settlement and Procedures Act of 1974 or
related state anti-inducement laws, and mortgage insurance policy rescissions and curtailments, and breaching fiduciary or other duties to customers, including but not limited to breach of customer information. Plaintiffs in class action and other
lawsuits against us may seek very large or indeterminate amounts which may remain unknown for substantial periods of time. In our investment-related operations, we are subject to litigation involving commercial disputes with counterparties. We are
also subject to litigation arising out of our general business activities such as our contractual and employment relationships and securities lawsuits. In addition, we are also subject to various regulatory inquiries, such as information requests,
subpoenas, books and record examinations and market conduct and financial examinations from state, federal and international regulators and other authorities. A substantial legal liability or a significant regulatory action against us could have an
adverse effect on our business, financial condition and results of operations. Moreover, even if we ultimately prevail in the litigation, regulatory action or investigation, we could suffer significant reputational harm, which could have an adverse
effect on our business, financial condition or results of operations.
In April 2014, Genworth Financial, Inc., its former chief executive
officer and its then current chief financial officer were named in a putative class action lawsuit captioned
City of Hialeah Employees Retirement System v. Genworth Financial, Inc.
,
et al.
, in the United States District Court for
the Southern District of New York. Plaintiff alleges securities law violations involving certain disclosures in 2012 concerning Genworths Australian mortgage insurance business, including our plans for an IPO of the business. The lawsuit seeks
unspecified damages, costs and attorneys fees and such equitable/injunctive relief as the court may deem proper. The United States District Court for the Southern District of New York appointed City of Hialeah Employees Retirement System
and New Bedford Contributory Retirement System as lead plaintiffs and designated the caption of the action as
In re Genworth Financial, Inc. Securities Litigation.
On October 3, 2014, the lead plaintiffs filed an amended complaint. On
December 2, 2014, we filed a motion to dismiss plaintiffs amended complaint. On March 25, 2015, the United States District Court for the Southern District of New York denied the motion but entered an order dismissing the amended
complaint with leave to replead. On April 17, 2015, plaintiffs filed a second amended complaint. We filed a motion to dismiss the second amended complaint and on June 16, 2015, the court denied the motion to dismiss. On January 22,
2016, we filed a motion for reconsideration of the courts June 16, 2015 order denying our motion to dismiss which the court denied on March 3, 2016. On January 29, 2016, plaintiffs filed a motion for class certification which we
opposed. On March 7, 2016, the court granted plaintiffs motion for class certification. We have exhausted all coverage under our 2014 executive and organizational liability insurance program applicable to this case; therefore, there is no
insurance coverage for Genworth with respect to any settlement or judgment amount related to this litigation. The parties engaged in settlement discussions. On March 21, 2017 in connection with those discussions, we reached an agreement in
principle to settle the action, subject to the execution of a stipulation and agreement of settlement that provides a full release of all defendants in connection with the allegations made in the lawsuit, and for a settlement payment to the class of
$20 million, inclusive of all plaintiffs attorneys fees and expenses and settlement costs, and subject further to the approval of the court. We believe that the plaintiffs claims are without merit, but we are settling the lawsuit to
avoid the burden, risk and expense of further litigation.
In January 2016, Genworth Financial, Inc., its current chief executive officer,
its former chief executive officer, its former chief financial officer and current and former members of its board of directors were named in a shareholder derivative suit filed by International Union of Operating Engineers Local No. 478
Pension Fund, Richard L. Salberg and David Pinkoski in the Court of Chancery of the State of Delaware. The case was captioned
Intl Union of Operating Engineers Local No. 478 Pension Fund, et al v. McInerney, et al.
In February
2016, Genworth Financial, Inc., its current chief executive officer, its former chief executive officer, its former
66
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
chief financial officer and current and former members of its board of directors were named in a second shareholder derivative suit filed by Martin Cohen in the Court of Chancery of the State of
Delaware. The case was captioned
Cohen v. McInerney, et al
. On February 23, 2016, the Court of Chancery of the State of Delaware consolidated these derivative suits under the caption
Genworth Financial, Inc. Consolidated Derivative
Litigation
. On March 28, 2016, plaintiffs in the consolidated action filed an amended complaint. The amended complaint alleges breaches of fiduciary duties concerning Genworths long-term care insurance reserves and concerning
Genworths Australian mortgage insurance business, including our plans for an IPO of the business and seeks unspecified damages, costs, attorneys fees and such equitable relief as the court may deem proper. The amended consolidated
complaint also adds Genworths current chief financial officer as a defendant, based on the current chief financial officers alleged conduct in her former capacity as Genworths controller and principal accounting officer. We moved
to dismiss the consolidated action on May 27, 2016. Thereafter, plaintiffs filed a substantially similar second amended complaint which we moved to dismiss on September 16, 2016. The motion is fully briefed and awaiting disposition by the
court.
In October 2016, Genworth Financial, Inc., its current chief executive officer, its former chief executive officer, its current
chief financial officer, its former chief financial officer and current and former members of its board of directors were named in a shareholder derivative suit filed by Esther Chopp in the Court of Chancery of the State of Delaware. The case is
captioned
Chopp v. McInerney, et al.
The complaint alleges that Genworths board of directors wrongfully refused plaintiffs demand to commence litigation on behalf of Genworth and asserts claims for breaches of fiduciary duties,
waste, contribution and indemnification, and unjust enrichment concerning Genworths long-term care insurance reserves and concerning Genworths Australian mortgage insurance business, including our plans for an IPO of the business, and
seeks unspecified damages, costs, attorneys fees and such equitable relief as the court may deem proper. We filed a motion to dismiss on November 14, 2016.
In December 2016, Genworth Financial, Inc., its current chief executive officer, its former chief executive officer, two former chief
financial officers, and two of its insurance subsidiaries were named as defendants in a putative class action lawsuit captioned
Leifer, et al v. Genworth Financial, Inc., et al,
in the United States District Court for the Eastern District of
Virginia, Richmond Division. Plaintiffs allege that the defendants financial disclosures and alleged misrepresentations concerning Genworths long-term care insurance reserves caused harm to current and former long-term care insurance
policyholders and seek unspecified damages, declaratory and injunctive relief, attorneys fees, costs and pre-judgment and post-judgment interest. We filed a motion to dismiss on March 27, 2017. Plaintiffs filed an amended complaint on
April 10, 2017. We intend to vigorously defend this action.
In January 2017, two putative stockholder class action lawsuits,
captioned
Rice v. Genworth Financial Incorporated
,
et al
, and
James v. Genworth Financial, Inc. et al,
were filed in the United States District Court for the Eastern District of Virginia, Richmond Division, against Genworth and
its board of directors. A third putative stockholder class action lawsuit captioned
Rosenfeld Family Trust v. Genworth Financial, Inc. et al,
was filed in the United States District Court for the District of Delaware against Genworth and its
board of directors. In February 2017, a fourth putative class action lawsuit captioned
Chopp v. Genworth Financial, Inc
.
et al,
was filed in the United States District Court for the District of Delaware against Genworth and its board
of directors and a fifth putative class action lawsuit captioned
Ratliff v. Genworth Financial, Inc
.
et al,
was filed in the United States District Court for the Eastern District of Virginia, Richmond Division, against Genworth and its
board of directors. The complaints in all five actions allege, among other things, that the preliminary proxy statement filed by Genworth with the SEC on December 21, 2016 contains false and/or materially misleading statements and/or omits
material information. The complaints assert claims under Sections 14(a) and 20(a) of the Securities
67
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Exchange Act of 1934, and seek equitable relief, including declaratory and injunctive relief, and an award of attorneys fees and expenses. On February 2, 2017, the plaintiff in
Rice
filed a motion for a preliminary injunction to enjoin the transaction described in the preliminary proxy. On February 10, 2017, defendants filed an opposition to the preliminary injunction motion in the
Rice
action. Also on
February 10, 2017, the plaintiff in
Rosenfeld Family Trust
filed a motion for a preliminary injunction to enjoin the transaction described in the preliminary proxy. On February 14, 2017, defendants filed a motion to transfer the
Rosenfeld Family Trust
action to the Eastern District of Virginia. On February 15, 2017, defendants filed a motion to transfer the
Chopp
action to the Eastern District of Virginia. On February 21, 2017, the parties to the
Eastern District of Virginia actions (
Rice, James
and
Ratliff
) reached an agreement in principle to resolve the pending preliminary injunction motion in the Eastern District of Virginia through additional disclosure prior to the
March 7, 2017 stockholder vote on the proposed merger transaction. On February 22, 2017, the plaintiffs in the Eastern District of Virginia withdrew their preliminary injunction motion in consideration of the agreed disclosures to be filed
in a Form 8-K by February 24, 2017. Also on February 22, 2017, the court in the District of Delaware suspended briefing on the motion for preliminary injunction in the
Rosenfeld Family Trust
action and entered an order transferring
the
Rosenfeld Family Trust
and
Chopp
actions to the Eastern District of Virginia. On February 23, 2017, the court in the Eastern District of Virginia set the
Rosenfeld Family Trust
preliminary injunction motion for a
hearing on March 1, 2017. On February 26, 2017, defendants filed an opposition to the preliminary injunction motion in the
Rosenfeld Family Trust
action. On February 27, 2017, the parties in the
Rosenfeld Family
Trust
action reached an agreement in principle to resolve the pending preliminary injunction motion in the
Rosenfeld Family Trust
action through additional disclosure prior to the March 7, 2017 stockholder vote on the proposed merger
transaction, and the plaintiff in the
Rosenfeld Family Trust
action withdrew its preliminary injunction motion in consideration of the agreed disclosures as filed in a Form 8-K on February 28, 2017. On March 6, 2017, the court in
the Eastern District of Virginia entered an order setting a schedule for proceedings to appoint a lead plaintiff and lead counsel for the purported class action, and a lead plaintiff in the purported class action is expected to be appointed in May
2017. On March 7, 2017, the court in the Eastern District of Virginia consolidated the
Rice
,
James
,
Ratliff
,
Rosenfeld Family Trust
, and
Chopp
actions.
In April 2017, one of our insurance subsidiaries, Genworth Life and Annuity Insurance Company (GLAIC) was named as a defendant in
a putative class action lawsuit captioned
Avazian, et al v. Genworth Life and Annuity Insurance Company
, et al, in the United States District Court for the Central District of California. Plaintiff alleges breach of contract and breach of the
covenant of good faith and fair dealing based upon GLAICs termination of plaintiffs life insurance policy for nonpayment of premium. Plaintiff alleges that the termination for nonpayment of premium failed to comply with certain notice
requirements of the California Insurance Code and seeks certification as a California class action on behalf of all insureds and beneficiaries of life insurance policies issued or delivered by GLAIC in California before January 1, 2013 who lost
either their coverage or their ability to make a claim because of the termination of their policies by GLAIC for nonpayment of premium, and further seeks unspecified damages, pre-judgment and post-judgment interest, punitive damages, fees, costs and
such other relief as the court deems just and proper. We intend to vigorously defend this action.
At this time, other than as noted
above, we cannot determine or predict the ultimate outcome of any of the pending legal and regulatory matters specifically identified above or the likelihood of potential future legal and regulatory matters against us. Except as disclosed above, we
also are not able to provide an estimate or range of reasonably possible losses related to these matters. Therefore, we cannot ensure that the current investigations and proceedings will not have a material adverse effect on our business, financial
condition or results of operations. In addition, it is possible that related investigations and proceedings may be commenced in the future, and we could become subject to additional unrelated investigations and lawsuits. Increased regulatory
scrutiny and any resulting investigations or proceedings could result in new legal precedents and industry-wide regulations or practices that could adversely affect our business, financial condition and results of operations.
68
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(b) Commitments
As of March 31, 2017, we were committed to fund $241 million in limited partnership investments, $14 million in U.S. commercial mortgage
loan investments and $58 million in private placement investments.
(11) Changes in Accumulated Other Comprehensive Income
The following tables show the changes in accumulated other comprehensive income, net of taxes, by component as of and for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Net
unrealized
investment
gains
(losses)
(1)
|
|
|
Derivatives
qualifying as
hedges
(2)
|
|
|
Foreign
currency
translation
and other
adjustments
|
|
|
Total
|
|
Balances as of January 1, 2017
|
|
$
|
1,262
|
|
|
$
|
2,085
|
|
|
$
|
(253
|
)
|
|
$
|
3,094
|
|
OCI before reclassifications
|
|
|
7
|
|
|
|
(29
|
)
|
|
|
119
|
|
|
|
97
|
|
Amounts reclassified from (to) OCI
|
|
|
(18
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period OCI
|
|
|
(11
|
)
|
|
|
(49
|
)
|
|
|
119
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of March 31, 2017 before noncontrolling interests
|
|
|
1,251
|
|
|
|
2,036
|
|
|
|
(134
|
)
|
|
|
3,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: change in OCI attributable to noncontrolling interests
|
|
|
8
|
|
|
|
|
|
|
|
49
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of March 31, 2017
|
|
$
|
1,243
|
|
|
$
|
2,036
|
|
|
$
|
(183
|
)
|
|
$
|
3,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net of adjustments to DAC, present value of future profits, sales inducements and benefit reserves. See note 4 for additional information.
|
(2)
|
See note 5 for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Net
unrealized
investment
gains
(losses)
(1)
|
|
|
Derivatives
qualifying as
hedges
(2)
|
|
|
Foreign
currency
translation
and other
adjustments
|
|
|
Total
|
|
Balances as of January 1, 2016
|
|
$
|
1,254
|
|
|
$
|
2,045
|
|
|
$
|
(289
|
)
|
|
$
|
3,010
|
|
OCI before reclassifications
|
|
|
791
|
|
|
|
275
|
|
|
|
216
|
|
|
|
1,282
|
|
Amounts reclassified from (to) OCI
|
|
|
12
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period OCI
|
|
|
803
|
|
|
|
257
|
|
|
|
216
|
|
|
|
1,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of March 31, 2016 before noncontrolling interests
|
|
|
2,057
|
|
|
|
2,302
|
|
|
|
(73
|
)
|
|
|
4,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: change in OCI attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of March 31, 2016
|
|
$
|
2,057
|
|
|
$
|
2,302
|
|
|
$
|
(174
|
)
|
|
$
|
4,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net of adjustments to DAC, present value of future profits, sales inducements and benefit reserves. See note 4 for additional information.
|
(2)
|
See note 5 for additional information.
|
The foreign currency translation and other adjustments
balance included $(11) million and $(5) million, respectively, net of taxes of $5 million and $3 million, respectively, related to a net unrecognized postretirement benefit obligation as of March 31, 2017 and 2016. Amount also included taxes of
$31 million and $45 million, respectively, related to foreign currency translation adjustments as of March 31, 2017 and 2016.
69
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table shows reclassifications in (out) of accumulated other comprehensive
income, net of taxes, for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from accumulated
|
|
|
Affected line item in the
consolidated statements
|
|
|
other comprehensive income
|
|
|
|
|
Three months ended March 31,
|
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
of income
|
Net unrealized investment (gains) losses:
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gains) losses on
investments
(1)
|
|
$
|
(28
|
)
|
|
$
|
18
|
|
|
Net investment (gains) losses
|
(Provision) benefit for income taxes
|
|
|
10
|
|
|
|
(6
|
)
|
|
(Provision) benefit for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(18
|
)
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives qualifying as hedges:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps hedging assets
|
|
$
|
(30
|
)
|
|
$
|
(25
|
)
|
|
Net investment income
|
Interest rate swaps hedging assets
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Net investment (gains) losses
|
Inflation indexed swaps
|
|
|
|
|
|
|
(2
|
)
|
|
Net investment income
|
Benefit for income taxes
|
|
|
11
|
|
|
|
10
|
|
|
Benefit for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(20
|
)
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amounts exclude adjustments to DAC, present value of future profits, sales inducements and benefit reserves.
|
(12) Condensed Consolidating Financial Information
Genworth Financial provides a full and unconditional guarantee to the trustee of Genworth Holdings outstanding senior notes and the
holders of the senior notes, on an unsecured unsubordinated basis, of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, each outstanding series of senior notes, and the full and
punctual payment of all other amounts payable by Genworth Holdings under the senior notes indenture in respect of such senior notes. Genworth Financial also provides a full and unconditional guarantee to the trustee of Genworth Holdings
outstanding subordinated notes and the holders of the subordinated notes, on an unsecured subordinated basis, of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, the outstanding
subordinated notes, and the full and punctual payment of all other amounts payable by Genworth Holdings under the subordinated notes indenture in respect of the subordinated notes. Genworth Holdings is a direct, 100% owned subsidiary of Genworth
Financial.
The following condensed consolidating financial information of Genworth Financial and its direct and indirect subsidiaries
have been prepared pursuant to rules regarding the preparation of consolidating financial information of Regulation S-X.
The
condensed consolidating financial information presents the condensed consolidating balance sheet information as of March 31, 2017 and December 31, 2016, the condensed consolidating income statement information, the condensed consolidating
comprehensive income statement information and the condensed consolidating cash flow statement information for the three months ended March 31, 2017 and 2016.
70
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidating financial information reflects Genworth Financial (Parent
Guarantor), Genworth Holdings (Issuer) and each of Genworth Financials other direct and indirect subsidiaries (the All Other Subsidiaries) on a combined basis, none of which guarantee the senior notes or
subordinated notes, as well as the eliminations necessary to present Genworth Financials financial information on a consolidated basis and total consolidated amounts.
The accompanying condensed consolidating financial information is presented based on the equity method of accounting for all periods
presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the subsidiaries cumulative results of operations, capital contributions and distributions, and other changes in equity. Elimination entries
include consolidating and eliminating entries for investments in subsidiaries and intercompany activity.
The following table presents the
condensed consolidating balance sheet information as of March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
All Other
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities available-for-sale, at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
60,797
|
|
|
$
|
(200
|
)
|
|
$
|
60,597
|
|
Equity securities available-for-sale, at fair value
|
|
|
|
|
|
|
|
|
|
|
709
|
|
|
|
|
|
|
|
709
|
|
Commercial mortgage loans
|
|
|
|
|
|
|
|
|
|
|
6,107
|
|
|
|
|
|
|
|
6,107
|
|
Restricted commercial mortgage loans related to securitization entities
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
|
|
|
|
122
|
|
Policy loans
|
|
|
|
|
|
|
|
|
|
|
1,761
|
|
|
|
|
|
|
|
1,761
|
|
Other invested assets
|
|
|
|
|
|
|
152
|
|
|
|
2,121
|
|
|
|
(1
|
)
|
|
|
2,272
|
|
Restricted other invested assets related to securitization entities, at fair value
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
84
|
|
Investments in subsidiaries
|
|
|
12,904
|
|
|
|
12,377
|
|
|
|
|
|
|
|
(25,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
12,904
|
|
|
|
12,529
|
|
|
|
71,701
|
|
|
|
(25,482
|
)
|
|
|
71,652
|
|
Cash and cash equivalents
|
|
|
7
|
|
|
|
849
|
|
|
|
2,162
|
|
|
|
|
|
|
|
3,018
|
|
Accrued investment income
|
|
|
|
|
|
|
|
|
|
|
717
|
|
|
|
|
|
|
|
717
|
|
Deferred acquisition costs
|
|
|
|
|
|
|
|
|
|
|
3,207
|
|
|
|
|
|
|
|
3,207
|
|
Intangible assets and goodwill
|
|
|
|
|
|
|
|
|
|
|
381
|
|
|
|
|
|
|
|
381
|
|
Reinsurance recoverable
|
|
|
|
|
|
|
|
|
|
|
17,681
|
|
|
|
|
|
|
|
17,681
|
|
Other assets
|
|
|
|
|
|
|
136
|
|
|
|
568
|
|
|
|
(1
|
)
|
|
|
703
|
|
Intercompany notes receivable
|
|
|
|
|
|
|
102
|
|
|
|
5
|
|
|
|
(107
|
)
|
|
|
|
|
Separate account assets
|
|
|
|
|
|
|
|
|
|
|
7,327
|
|
|
|
|
|
|
|
7,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
12,911
|
|
|
$
|
13,616
|
|
|
$
|
103,749
|
|
|
$
|
(25,590
|
)
|
|
$
|
104,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
All Other
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,291
|
|
|
$
|
|
|
|
$
|
37,291
|
|
Policyholder account balances
|
|
|
|
|
|
|
|
|
|
|
25,383
|
|
|
|
|
|
|
|
25,383
|
|
Liability for policy and contract claims
|
|
|
|
|
|
|
|
|
|
|
9,295
|
|
|
|
|
|
|
|
9,295
|
|
Unearned premiums
|
|
|
|
|
|
|
|
|
|
|
3,370
|
|
|
|
|
|
|
|
3,370
|
|
Other liabilities
|
|
|
28
|
|
|
|
285
|
|
|
|
2,347
|
|
|
|
(3
|
)
|
|
|
2,657
|
|
Intercompany notes payable
|
|
|
99
|
|
|
|
205
|
|
|
|
3
|
|
|
|
(307
|
)
|
|
|
|
|
Borrowings related to securitization entities
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
68
|
|
Non-recourse funding obligations
|
|
|
|
|
|
|
|
|
|
|
310
|
|
|
|
|
|
|
|
310
|
|
Long-term borrowings
|
|
|
|
|
|
|
3,718
|
|
|
|
476
|
|
|
|
|
|
|
|
4,194
|
|
Deferred tax liability
|
|
|
(28
|
)
|
|
|
(828
|
)
|
|
|
931
|
|
|
|
|
|
|
|
75
|
|
Separate account liabilities
|
|
|
|
|
|
|
|
|
|
|
7,327
|
|
|
|
|
|
|
|
7,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
99
|
|
|
|
3,380
|
|
|
|
86,801
|
|
|
|
(310
|
)
|
|
|
89,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
11,964
|
|
|
|
9,097
|
|
|
|
18,371
|
|
|
|
(27,468
|
)
|
|
|
11,964
|
|
Accumulated other comprehensive income (loss)
|
|
|
3,096
|
|
|
|
3,124
|
|
|
|
3,114
|
|
|
|
(6,238
|
)
|
|
|
3,096
|
|
Retained earnings
|
|
|
451
|
|
|
|
(1,985
|
)
|
|
|
(6,741
|
)
|
|
|
8,726
|
|
|
|
451
|
|
Treasury stock, at cost
|
|
|
(2,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Genworth Financial, Inc.s stockholders equity
|
|
|
12,812
|
|
|
|
10,236
|
|
|
|
14,744
|
|
|
|
(24,980
|
)
|
|
|
12,812
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
2,204
|
|
|
|
(300
|
)
|
|
|
1,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
12,812
|
|
|
|
10,236
|
|
|
|
16,948
|
|
|
|
(25,280
|
)
|
|
|
14,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
12,911
|
|
|
$
|
13,616
|
|
|
$
|
103,749
|
|
|
$
|
(25,590
|
)
|
|
$
|
104,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the condensed consolidating balance sheet information as of
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
All Other
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities available-for-sale, at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
60,772
|
|
|
$
|
(200
|
)
|
|
$
|
60,572
|
|
Equity securities available-for-sale, at fair value
|
|
|
|
|
|
|
|
|
|
|
632
|
|
|
|
|
|
|
|
632
|
|
Commercial mortgage loans
|
|
|
|
|
|
|
|
|
|
|
6,111
|
|
|
|
|
|
|
|
6,111
|
|
Restricted commercial mortgage loans related to securitization entities
|
|
|
|
|
|
|
|
|
|
|
129
|
|
|
|
|
|
|
|
129
|
|
Policy loans
|
|
|
|
|
|
|
|
|
|
|
1,742
|
|
|
|
|
|
|
|
1,742
|
|
Other invested assets
|
|
|
|
|
|
|
105
|
|
|
|
1,966
|
|
|
|
|
|
|
|
2,071
|
|
Restricted other invested assets related to securitization entities, at fair value
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
|
|
|
|
312
|
|
Investments in subsidiaries
|
|
|
12,730
|
|
|
|
12,308
|
|
|
|
|
|
|
|
(25,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
12,730
|
|
|
|
12,413
|
|
|
|
71,664
|
|
|
|
(25,238
|
)
|
|
|
71,569
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
998
|
|
|
|
1,786
|
|
|
|
|
|
|
|
2,784
|
|
Accrued investment income
|
|
|
|
|
|
|
|
|
|
|
663
|
|
|
|
(4
|
)
|
|
|
659
|
|
Deferred acquisition costs
|
|
|
|
|
|
|
|
|
|
|
3,571
|
|
|
|
|
|
|
|
3,571
|
|
Intangible assets and goodwill
|
|
|
|
|
|
|
|
|
|
|
348
|
|
|
|
|
|
|
|
348
|
|
Reinsurance recoverable
|
|
|
|
|
|
|
|
|
|
|
17,755
|
|
|
|
|
|
|
|
17,755
|
|
Other assets
|
|
|
9
|
|
|
|
134
|
|
|
|
530
|
|
|
|
|
|
|
|
673
|
|
Intercompany notes receivable
|
|
|
|
|
|
|
84
|
|
|
|
67
|
|
|
|
(151
|
)
|
|
|
|
|
Deferred tax assets
|
|
|
28
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
Separate account assets
|
|
|
|
|
|
|
|
|
|
|
7,299
|
|
|
|
|
|
|
|
7,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
12,767
|
|
|
$
|
13,629
|
|
|
$
|
103,655
|
|
|
$
|
(25,393
|
)
|
|
$
|
104,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,063
|
|
|
$
|
|
|
|
$
|
37,063
|
|
Policyholder account balances
|
|
|
|
|
|
|
|
|
|
|
25,662
|
|
|
|
|
|
|
|
25,662
|
|
Liability for policy and contract claims
|
|
|
|
|
|
|
|
|
|
|
9,256
|
|
|
|
|
|
|
|
9,256
|
|
Unearned premiums
|
|
|
|
|
|
|
|
|
|
|
3,378
|
|
|
|
|
|
|
|
3,378
|
|
Other liabilities
|
|
|
39
|
|
|
|
301
|
|
|
|
2,581
|
|
|
|
(5
|
)
|
|
|
2,916
|
|
Intercompany notes payable
|
|
|
84
|
|
|
|
267
|
|
|
|
|
|
|
|
(351
|
)
|
|
|
|
|
Borrowings related to securitization entities
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
74
|
|
Non-recourse funding obligations
|
|
|
|
|
|
|
|
|
|
|
310
|
|
|
|
|
|
|
|
310
|
|
Long-term borrowings
|
|
|
|
|
|
|
3,716
|
|
|
|
464
|
|
|
|
|
|
|
|
4,180
|
|
Deferred tax liability
|
|
|
|
|
|
|
(816
|
)
|
|
|
869
|
|
|
|
|
|
|
|
53
|
|
Separate account liabilities
|
|
|
|
|
|
|
|
|
|
|
7,299
|
|
|
|
|
|
|
|
7,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
123
|
|
|
|
3,468
|
|
|
|
86,956
|
|
|
|
(356
|
)
|
|
|
90,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
All Other
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
11,962
|
|
|
|
9,097
|
|
|
|
20,252
|
|
|
|
(29,349
|
)
|
|
|
11,962
|
|
Accumulated other comprehensive income (loss)
|
|
|
3,094
|
|
|
|
3,135
|
|
|
|
3,116
|
|
|
|
(6,251
|
)
|
|
|
3,094
|
|
Retained earnings
|
|
|
287
|
|
|
|
(2,071
|
)
|
|
|
(8,792
|
)
|
|
|
10,863
|
|
|
|
287
|
|
Treasury stock, at cost
|
|
|
(2,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Genworth Financial, Inc.s stockholders equity
|
|
|
12,644
|
|
|
|
10,161
|
|
|
|
14,576
|
|
|
|
(24,737
|
)
|
|
|
12,644
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
2,123
|
|
|
|
(300
|
)
|
|
|
1,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
12,644
|
|
|
|
10,161
|
|
|
|
16,699
|
|
|
|
(25,037
|
)
|
|
|
14,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
12,767
|
|
|
$
|
13,629
|
|
|
$
|
103,655
|
|
|
$
|
(25,393
|
)
|
|
$
|
104,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating income statement information for the three months
ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
All Other
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,136
|
|
|
$
|
|
|
|
$
|
1,136
|
|
Net investment income
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
794
|
|
|
|
(4
|
)
|
|
|
790
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
(3
|
)
|
|
|
37
|
|
|
|
|
|
|
|
34
|
|
Policy fees and other income
|
|
|
|
|
|
|
|
|
|
|
211
|
|
|
|
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
2,178
|
|
|
|
(4
|
)
|
|
|
2,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and other changes in policy reserves
|
|
|
|
|
|
|
|
|
|
|
1,246
|
|
|
|
|
|
|
|
1,246
|
|
Interest credited
|
|
|
|
|
|
|
|
|
|
|
167
|
|
|
|
|
|
|
|
167
|
|
Acquisition and operating expenses, net of deferrals
|
|
|
13
|
|
|
|
|
|
|
|
257
|
|
|
|
|
|
|
|
270
|
|
Amortization of deferred acquisition costs and intangibles
|
|
|
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
94
|
|
Interest expense
|
|
|
|
|
|
|
55
|
|
|
|
11
|
|
|
|
(4
|
)
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
13
|
|
|
|
55
|
|
|
|
1,775
|
|
|
|
(4
|
)
|
|
|
1,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes and equity in income of
subsidiaries
|
|
|
(14
|
)
|
|
|
(57
|
)
|
|
|
403
|
|
|
|
|
|
|
|
332
|
|
Provision (benefit) for income taxes
|
|
|
3
|
|
|
|
(20
|
)
|
|
|
133
|
|
|
|
|
|
|
|
116
|
|
Equity in income of subsidiaries
|
|
|
172
|
|
|
|
123
|
|
|
|
|
|
|
|
(295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
155
|
|
|
|
86
|
|
|
|
270
|
|
|
|
(295
|
)
|
|
|
216
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
155
|
|
|
|
86
|
|
|
|
270
|
|
|
|
(295
|
)
|
|
|
216
|
|
Less: net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to Genworth Financial, Inc.s common stockholders
|
|
$
|
155
|
|
|
$
|
86
|
|
|
$
|
209
|
|
|
$
|
(295
|
)
|
|
$
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the condensed consolidating income statement information for the
three months ended March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
All Other
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
|
|
|
$
|
|
|
|
$
|
794
|
|
|
$
|
|
|
|
$
|
794
|
|
Net investment income
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
795
|
|
|
|
(4
|
)
|
|
|
789
|
|
Net investment gains (losses)
|
|
|
|
|
|
|
(15
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
(19
|
)
|
Policy fees and other income
|
|
|
|
|
|
|
(4
|
)
|
|
|
225
|
|
|
|
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
(1
|
)
|
|
|
(20
|
)
|
|
|
1,810
|
|
|
|
(4
|
)
|
|
|
1,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and other changes in policy reserves
|
|
|
|
|
|
|
|
|
|
|
860
|
|
|
|
|
|
|
|
860
|
|
Interest credited
|
|
|
|
|
|
|
|
|
|
|
177
|
|
|
|
|
|
|
|
177
|
|
Acquisition and operating expenses, net of deferrals
|
|
|
88
|
|
|
|
35
|
|
|
|
271
|
|
|
|
|
|
|
|
394
|
|
Amortization of deferred acquisition costs and intangibles
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
99
|
|
Interest expense
|
|
|
1
|
|
|
|
71
|
|
|
|
37
|
|
|
|
(4
|
)
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
89
|
|
|
|
106
|
|
|
|
1,444
|
|
|
|
(4
|
)
|
|
|
1,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes and equity in income of
subsidiaries
|
|
|
(90
|
)
|
|
|
(126
|
)
|
|
|
366
|
|
|
|
|
|
|
|
150
|
|
Provision (benefit) for income taxes
|
|
|
(24
|
)
|
|
|
(43
|
)
|
|
|
90
|
|
|
|
|
|
|
|
23
|
|
Equity in income of subsidiaries
|
|
|
119
|
|
|
|
106
|
|
|
|
|
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
53
|
|
|
|
23
|
|
|
|
276
|
|
|
|
(225
|
)
|
|
|
127
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
53
|
|
|
|
23
|
|
|
|
257
|
|
|
|
(225
|
)
|
|
|
108
|
|
Less: net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to Genworth Financial, Inc.s common stockholders
|
|
$
|
53
|
|
|
$
|
23
|
|
|
$
|
202
|
|
|
$
|
(225
|
)
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the condensed consolidating comprehensive income statement
information for the three months ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
All Other
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net income
|
|
$
|
155
|
|
|
$
|
86
|
|
|
$
|
270
|
|
|
$
|
(295
|
)
|
|
$
|
216
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on securities not other-than-temporarily impaired
|
|
|
(20
|
)
|
|
|
(31
|
)
|
|
|
(13
|
)
|
|
|
52
|
|
|
|
(12
|
)
|
Net unrealized gains (losses) on other-than-temporarily impaired securities
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
1
|
|
Derivatives qualifying as hedges
|
|
|
(49
|
)
|
|
|
(49
|
)
|
|
|
(52
|
)
|
|
|
101
|
|
|
|
(49
|
)
|
Foreign currency translation and other adjustments
|
|
|
70
|
|
|
|
68
|
|
|
|
119
|
|
|
|
(138
|
)
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
2
|
|
|
|
(11
|
)
|
|
|
55
|
|
|
|
13
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
157
|
|
|
|
75
|
|
|
|
325
|
|
|
|
(282
|
)
|
|
|
275
|
|
Less: comprehensive income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
157
|
|
|
$
|
75
|
|
|
$
|
207
|
|
|
$
|
(282
|
)
|
|
$
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating comprehensive income statement information for the
three months ended March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
All Other
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net income
|
|
$
|
53
|
|
|
$
|
23
|
|
|
$
|
257
|
|
|
$
|
(225
|
)
|
|
$
|
108
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on securities not other-than-temporarily impaired
|
|
|
807
|
|
|
|
789
|
|
|
|
809
|
|
|
|
(1,598
|
)
|
|
|
807
|
|
Net unrealized gains (losses) on other-than-temporarily impaired securities
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
9
|
|
|
|
(4
|
)
|
Derivatives qualifying as hedges
|
|
|
257
|
|
|
|
256
|
|
|
|
275
|
|
|
|
(531
|
)
|
|
|
257
|
|
Foreign currency translation and other adjustments
|
|
|
115
|
|
|
|
86
|
|
|
|
217
|
|
|
|
(202
|
)
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
1,175
|
|
|
|
1,126
|
|
|
|
1,297
|
|
|
|
(2,322
|
)
|
|
|
1,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
1,228
|
|
|
|
1,149
|
|
|
|
1,554
|
|
|
|
(2,547
|
)
|
|
|
1,384
|
|
Less: comprehensive income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
1,228
|
|
|
$
|
1,149
|
|
|
$
|
1,398
|
|
|
$
|
(2,547
|
)
|
|
$
|
1,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the condensed consolidating cash flows statement information for
the three months ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
All Other
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
155
|
|
|
$
|
86
|
|
|
$
|
270
|
|
|
$
|
(295
|
)
|
|
$
|
216
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income from subsidiaries
|
|
|
(172
|
)
|
|
|
(123
|
)
|
|
|
|
|
|
|
295
|
|
|
|
|
|
Dividends from subsidiaries
|
|
|
|
|
|
|
52
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
Amortization of fixed maturity securities discounts and premiums and limited partnerships
|
|
|
|
|
|
|
1
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
(33
|
)
|
Net investment (gains) losses
|
|
|
|
|
|
|
3
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
(34
|
)
|
Charges assessed to policyholders
|
|
|
|
|
|
|
|
|
|
|
(183
|
)
|
|
|
|
|
|
|
(183
|
)
|
Acquisition costs deferred
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
(22
|
)
|
Amortization of deferred acquisition costs and intangibles
|
|
|
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
94
|
|
Deferred income taxes
|
|
|
9
|
|
|
|
(14
|
)
|
|
|
98
|
|
|
|
|
|
|
|
93
|
|
Trading securities, held-for-sale investments and derivative instruments
|
|
|
|
|
|
|
|
|
|
|
365
|
|
|
|
|
|
|
|
365
|
|
Stock-based compensation expense
|
|
|
6
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
10
|
|
Change in certain assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income and other assets
|
|
|
4
|
|
|
|
5
|
|
|
|
(91
|
)
|
|
|
3
|
|
|
|
(79
|
)
|
Insurance reserves
|
|
|
|
|
|
|
|
|
|
|
377
|
|
|
|
|
|
|
|
377
|
|
Current tax liabilities
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
(37
|
)
|
Other liabilities, policy and contract claims and other policy-related balances
|
|
|
(3
|
)
|
|
|
(24
|
)
|
|
|
(83
|
)
|
|
|
(2
|
)
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
(7
|
)
|
|
|
(20
|
)
|
|
|
681
|
|
|
|
1
|
|
|
|
655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used by investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities and repayments of investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
1,060
|
|
|
|
|
|
|
|
1,060
|
|
Commercial mortgage loans
|
|
|
|
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
166
|
|
Restricted commercial mortgage loans related to securitization entities
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
Proceeds from sales of investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity and equity securities
|
|
|
|
|
|
|
|
|
|
|
2,173
|
|
|
|
|
|
|
|
2,173
|
|
Purchases and originations of investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity and equity securities
|
|
|
|
|
|
|
|
|
|
|
(2,710
|
)
|
|
|
|
|
|
|
(2,710
|
)
|
Commercial mortgage loans
|
|
|
|
|
|
|
|
|
|
|
(161
|
)
|
|
|
|
|
|
|
(161
|
)
|
Other invested assets, net
|
|
|
|
|
|
|
(49
|
)
|
|
|
(626
|
)
|
|
|
(1
|
)
|
|
|
(676
|
)
|
Intercompany notes receivable
|
|
|
|
|
|
|
(18
|
)
|
|
|
62
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
|
|
|
|
(67
|
)
|
|
|
(30
|
)
|
|
|
(45
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
All Other
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Cash flows used by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits to universal life and investment contracts
|
|
|
|
|
|
|
|
|
|
|
218
|
|
|
|
|
|
|
|
218
|
|
Withdrawals from universal life and investment contracts
|
|
|
|
|
|
|
|
|
|
|
(467
|
)
|
|
|
|
|
|
|
(467
|
)
|
Repayment of borrowings related to securitization entities
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
Dividends paid to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
(39
|
)
|
Proceeds from intercompany notes payable
|
|
|
15
|
|
|
|
(62
|
)
|
|
|
3
|
|
|
|
44
|
|
|
|
|
|
Other, net
|
|
|
(1
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
14
|
|
|
|
(62
|
)
|
|
|
(300
|
)
|
|
|
44
|
|
|
|
(304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
7
|
|
|
|
(149
|
)
|
|
|
376
|
|
|
|
|
|
|
|
234
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
998
|
|
|
|
1,786
|
|
|
|
|
|
|
|
2,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
7
|
|
|
$
|
849
|
|
|
$
|
2,162
|
|
|
$
|
|
|
|
$
|
3,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the condensed consolidating cash flows statement information for the three months
ended March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
All Other
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
53
|
|
|
$
|
23
|
|
|
$
|
257
|
|
|
$
|
(225
|
)
|
|
$
|
108
|
|
Less loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
19
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income from subsidiaries
|
|
|
(119
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
225
|
|
|
|
|
|
Dividends from subsidiaries
|
|
|
|
|
|
|
73
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
Gain on sale of businesses
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
(20
|
)
|
Amortization of fixed maturity securities discounts and premiums and limited partnerships
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
(38
|
)
|
Net investment gains
|
|
|
|
|
|
|
15
|
|
|
|
4
|
|
|
|
|
|
|
|
19
|
|
Charges assessed to policyholders
|
|
|
|
|
|
|
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
(191
|
)
|
Acquisition costs deferred
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
(50
|
)
|
Amortization of deferred acquisition costs and intangibles
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
99
|
|
Deferred income taxes
|
|
|
(5
|
)
|
|
|
(48
|
)
|
|
|
60
|
|
|
|
|
|
|
|
7
|
|
Trading securities, held-for-sale investments and derivative instruments
|
|
|
|
|
|
|
3
|
|
|
|
18
|
|
|
|
|
|
|
|
21
|
|
Stock-based compensation expense
|
|
|
5
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
7
|
|
78
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
All Other
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Change in certain assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income and other assets
|
|
|
4
|
|
|
|
(45
|
)
|
|
|
(113
|
)
|
|
|
(5
|
)
|
|
|
(159
|
)
|
Insurance reserves
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
36
|
|
Current tax liabilities
|
|
|
(7
|
)
|
|
|
(6
|
)
|
|
|
5
|
|
|
|
|
|
|
|
(8
|
)
|
Other liabilities, policy and contract claims and other policy-related balances
|
|
|
3
|
|
|
|
(65
|
)
|
|
|
469
|
|
|
|
(1
|
)
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
(66
|
)
|
|
|
(156
|
)
|
|
|
484
|
|
|
|
(6
|
)
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used by investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities and repayments of investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
|
150
|
|
|
|
690
|
|
|
|
|
|
|
|
840
|
|
Commercial mortgage loans
|
|
|
|
|
|
|
|
|
|
|
192
|
|
|
|
|
|
|
|
192
|
|
Restricted commercial mortgage loans related to securitization entities
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
Proceeds from sales of investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity and equity securities
|
|
|
|
|
|
|
|
|
|
|
905
|
|
|
|
|
|
|
|
905
|
|
Purchases and originations of investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity and equity securities
|
|
|
|
|
|
|
|
|
|
|
(2,042
|
)
|
|
|
|
|
|
|
(2,042
|
)
|
Commercial mortgage loans
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
(200
|
)
|
Other invested assets, net
|
|
|
|
|
|
|
100
|
|
|
|
(72
|
)
|
|
|
6
|
|
|
|
34
|
|
Policy loans, net
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
Intercompany notes receivable
|
|
|
|
|
|
|
(66
|
)
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
|
|
|
|
184
|
|
|
|
(445
|
)
|
|
|
6
|
|
|
|
(255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits to universal life and investment contracts
|
|
|
|
|
|
|
|
|
|
|
571
|
|
|
|
|
|
|
|
571
|
|
Withdrawals from universal life and investment contracts
|
|
|
|
|
|
|
|
|
|
|
(517
|
)
|
|
|
|
|
|
|
(517
|
)
|
Redemption of non-recourse funding obligations
|
|
|
|
|
|
|
|
|
|
|
(1,620
|
)
|
|
|
|
|
|
|
(1,620
|
)
|
Repayment and repurchase of long-term debt
|
|
|
|
|
|
|
(326
|
)
|
|
|
|
|
|
|
|
|
|
|
(326
|
)
|
Repayment of borrowings related to securitization entities
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
Dividends paid to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
(52
|
)
|
Proceeds from intercompany notes payable
|
|
|
66
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
66
|
|
|
|
(392
|
)
|
|
|
(1,615
|
)
|
|
|
|
|
|
|
(1,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
(364
|
)
|
|
|
(1,545
|
)
|
|
|
|
|
|
|
(1,909
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
1,124
|
|
|
|
4,869
|
|
|
|
|
|
|
|
5,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
|
|
|
|
760
|
|
|
|
3,324
|
|
|
|
|
|
|
|
4,084
|
|
Less cash and cash equivalents held for sale at end of period
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operations at end of period
|
|
$
|
|
|
|
$
|
760
|
|
|
$
|
3,283
|
|
|
$
|
|
|
|
$
|
4,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Our insurance company subsidiaries are restricted by state and foreign laws and regulations
as to the amount of dividends they may pay to their parent without regulatory approval in any year, the purpose of which is to protect affected insurance policyholders and contractholders, not stockholders. Any dividends in excess of limits are
deemed extraordinary and require approval. Based on statutory results as of December 31, 2016, in accordance with applicable dividend restrictions, our subsidiaries could pay dividends of approximately $220 million to us in
2017 without obtaining regulatory approval, and the remaining net assets are considered restricted. While the $220 million is unrestricted, we do not expect our insurance subsidiaries to pay dividends to us in 2017 at this level if they need to
retain capital for growth and to meet capital requirements and desired thresholds. As of March 31, 2017, Genworth Financials and Genworth Holdings subsidiaries had restricted net assets of $12.7 billion and $12.2 billion,
respectively.
80
Three Months Ended March 31, 2017 Compared to Three
Months Ended March 31, 2016
The following table sets forth the consolidated results of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Increase
(decrease) and
percentage
change
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,136
|
|
|
$
|
794
|
|
|
$
|
342
|
|
|
|
43
|
%
|
Net investment income
|
|
|
790
|
|
|
|
789
|
|
|
|
1
|
|
|
|
|
%
|
Net investment gains (losses)
|
|
|
34
|
|
|
|
(19
|
)
|
|
|
53
|
|
|
|
NM
|
(1)
|
Policy fees and other income
|
|
|
211
|
|
|
|
221
|
|
|
|
(10
|
)
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,171
|
|
|
|
1,785
|
|
|
|
386
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and other changes in policy reserves
|
|
|
1,246
|
|
|
|
860
|
|
|
|
386
|
|
|
|
45
|
%
|
Interest credited
|
|
|
167
|
|
|
|
177
|
|
|
|
(10
|
)
|
|
|
(6
|
)%
|
Acquisition and operating expenses, net of deferrals
|
|
|
270
|
|
|
|
394
|
|
|
|
(124
|
)
|
|
|
(31
|
)%
|
Amortization of deferred acquisition costs and intangibles
|
|
|
94
|
|
|
|
99
|
|
|
|
(5
|
)
|
|
|
(5
|
)%
|
Interest expense
|
|
|
62
|
|
|
|
105
|
|
|
|
(43
|
)
|
|
|
(41
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
1,839
|
|
|
|
1,635
|
|
|
|
204
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
332
|
|
|
|
150
|
|
|
|
182
|
|
|
|
121
|
%
|
Provision for income taxes
|
|
|
116
|
|
|
|
23
|
|
|
|
93
|
|
|
|
NM
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
216
|
|
|
|
127
|
|
|
|
89
|
|
|
|
70
|
%
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
(19
|
)
|
|
|
19
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
216
|
|
|
|
108
|
|
|
|
108
|
|
|
|
100
|
%
|
Less: net income attributable to noncontrolling interests
|
|
|
61
|
|
|
|
55
|
|
|
|
6
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
155
|
|
|
$
|
53
|
|
|
$
|
102
|
|
|
|
192
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
We define NM as not meaningful for increases or decreases greater than 200%.
|
Premiums.
Premiums consist primarily of premiums earned on insurance products for mortgage, long-term care, life and accident and
health insurance, single premium immediate annuities and structured settlements with life contingencies.
|
|
|
Our U.S. Life Insurance segment increased $322 million. Our life insurance business increased $309 million mainly attributable to the impact of a reinsurance treaty under which we initially ceded $326 million of certain
term life insurance premiums as part of a life block transaction in the first quarter of 2016, partially offset by the continued runoff of our term life insurance products in the current year. Our long-term care insurance business increased $16
million largely from $25 million of increased premiums in the current year from in-force rate actions approved and implemented, partially offset by policy terminations in the current year. Our fixed annuities business decreased $3 million
principally from suspending sales of our life-contingent products on March 7, 2016.
|
89
|
|
|
Our Canada Mortgage Insurance segment increased $15 million principally from the seasoning of our larger, more recent in-force blocks of business. The three months ended March 31, 2017 included an increase of $6
million attributable to changes in foreign exchange rates.
|
|
|
|
Our U.S. Mortgage Insurance segment increased $9 million mainly attributable to higher average flow mortgage insurance in-force in the current year, partially offset by the reversal of an accrual for premium refunds
related to policy cancellations in the prior year.
|
|
|
|
Corporate and Other activities decreased $4 million largely related to the sale of our European mortgage insurance business in May 2016.
|
Net investment income.
Net investment income represents the income earned on our investments. For discussion of the change in net
investment income, see the comparison for this line item under Investments and Derivative Instruments.
Net
investment gains (losses).
Net investment gains (losses) consist primarily of realized gains and losses from the sale or impairment of our investments, unrealized and realized gains and losses from our trading securities and derivative
instruments. For discussion of the change in net investment gains (losses), see the comparison for this line item under Investments and Derivative Instruments.
Policy fees and other income.
Policy fees and other income consists primarily of fees assessed against policyholder and contractholder
account values, surrender charges, cost of insurance assessed on universal and term universal life insurance policies, advisory and administration service fees assessed on investment contractholder account values, broker/dealer commission revenues
and other fees. Our U.S. Life Insurance segment decreased $7 million mostly attributable to our life insurance business primarily as a result of suspending sales of these products on March 7, 2016 and a decline in our term universal and universal
life insurance in-force blocks in the current year.
Benefits and other changes in policy reserves.
Benefits and other changes in
policy reserves consist primarily of claim costs incurred related to mortgage insurance products and benefits paid and reserve activity related to current claims and future policy benefits on insurance and investment products for long-term care,
life and accident and health insurance, structured settlements and single premium immediate annuities with life contingencies.
|
|
|
Our U.S. Life Insurance segment increased $406 million. Our life insurance business increased $348 million principally related to the impact of a reinsurance treaty under which we initially ceded $331 million of certain
term life insurance reserves as part of a life block transaction in the first quarter of 2016. The increase was also attributable to higher universal and term universal life insurance reserves reflecting our updated assumptions from the fourth
quarter of 2016 and unfavorable mortality in the current year. Our long-term care insurance business increased $59 million principally from aging and growth of the in-force block and higher severity on new claims in the current year. The increase
was also attributable to a $14 million less favorable impact from reduced benefits related to in-force rate actions approved and implemented and incremental reserves of $15 million recorded in connection with an accrual for profits followed by
losses in the current year. Our fixed annuities business decreased $1 million primarily from lower interest credited, lower production of life-contingent products as a result of suspending sales of these products on March 7, 2016 and favorable
mortality in the current year. These decreases were mostly offset by an increase in reserves of $6 million related to loss recognition testing in our fixed immediate annuity products in the current year.
|
|
|
|
Our Australia Mortgage Insurance segment increased $7 million largely attributable to higher new delinquencies, as well as a higher average reserve per delinquency resulting from unfavorable aging of existing
delinquencies primarily in commodity-dependent regions in the current year.
|
90
|
|
|
Our Runoff segment decreased $11 million primarily attributable to a decline in guaranteed minimum death benefit (GMDB) reserves in our variable annuity products due to favorable equity market performance in
the current year.
|
|
|
|
Our U.S. Mortgage Insurance segment decreased $9 million primarily due to favorable aging of existing delinquencies, net of cures in the current year.
|
|
|
|
Our Canada Mortgage Insurance segment decreased $6 million largely from lower new delinquencies, net of cures, partially offset by a higher average reserve per delinquency driven by a shift in regional outstanding
delinquencies towards oil-producing regions with higher average insured amounts.
|
Interest credited.
Interest credited
represents interest credited on behalf of policyholder and contractholder general account balances. Our U.S. Life Insurance segment decreased $12 million primarily related to our fixed annuities business predominantly from lower average account
values and a decrease in crediting rates in the current year.
Acquisition and operating expenses, net of deferrals.
Acquisition and
operating expenses, net of deferrals, represent costs and expenses related to the acquisition and ongoing maintenance of insurance and investment contracts, including commissions, policy issuance expenses and other underwriting and general operating
costs. These costs and expenses are net of amounts that are capitalized and deferred, which are costs and expenses that are related directly to the successful acquisition of new or renewal insurance policies and investment contracts, such as
first-year commissions in excess of ultimate renewal commissions and other policy issuance expenses.
|
|
|
Corporate and Other activities decreased $123 million mainly driven by expenses in the prior year that did not recur. The prior year expenses included $79 million of a litigation settlement and related legal expenses,
$20 million of expenses related to the early redemption of debt, $18 million of bond consent fees and a $7 million loss related to the sale of our European mortgage insurance business.
|
|
|
|
Our U.S. Life Insurance segment decreased $8 million. Our life insurance business decreased $18 million primarily from lower operating expenses attributable to the suspension of sales on March 7, 2016. The decrease
was also attributable to a $5 million restructuring charge and expenses of $5 million associated with the life block transaction in the first quarter of 2016 that did not recur. Our fixed annuities business decreased $7 million largely attributable
to lower operating expenses as a result of the suspension of sales on March 7, 2016 and a $4 million restructuring charge in the prior year that did not recur. Our long-term care insurance business increased $17 million principally from $21
million of guaranty fund assessments in connection with the Penn Treaty liquidation in the current year. This increase was partially offset by a $3 million restructuring charge and a $3 million write-off of a receivable associated with a disputed
reinsurance claim in the prior year that did not recur.
|
|
|
|
Our Australia Mortgage Insurance segment increased $4 million primarily from higher operating expenses related to contract fees in the current year.
|
|
|
|
Our Canada Mortgage Insurance segment increased $3 million mainly driven by higher stock-based compensation expense in the current year.
|
Amortization of deferred acquisition costs and intangibles.
Amortization of deferred acquisition costs and intangibles consists
primarily of the amortization of acquisition costs that are capitalized, PVFP and capitalized software. Our U.S. Life Insurance segment decreased $8 million. Our life insurance business decreased $4 million largely related to our updated assumptions
from the fourth quarter of 2016 and the write-off of $3 million of computer software in connection with a restructuring charge in the prior year that did not recur. Our long-term care insurance business decreased $3 million principally from a
smaller in-force block in the current year as a result of lower sales.
91
Interest expense.
Interest expense represents interest related to our borrowings that are
incurred at Genworth Holdings or subsidiaries and our non-recourse funding obligations and interest expense related to the Tax Matters Agreement and certain reinsurance arrangements being accounted for as deposits.
|
|
|
Our U.S. Life Insurance segment decreased $25 million driven by our life insurance business principally as a result of the life block transaction in the first quarter of 2016 which included the redemption of certain
non-recourse funding obligations and the write-off of $9 million of deferred borrowing costs associated with our non-recourse funding obligations as well as the restructuring of a captive reinsurance entity.
|
|
|
|
Corporate and Other activities decreased $17 million largely driven by lower interest expense.
|
Provision for income taxes.
The effective tax rate increased to 34.9% for the three months ended March 31, 2017 from 15.2% for the
three months ended March 31, 2016. The increase in the effective tax rate was primarily attributable to a release of a valuation allowance on a specific capital loss in the prior year and true ups related to foreign income taxes in the current
year. These increases were partially offset by a decrease in the tax expense related to stock-based compensation and from true ups related to state income taxes in the current year.
Net income attributable to noncontrolling interests
. Net income attributable to noncontrolling interests represents the portion of
equity in a subsidiary attributable to third parties.
Use of non-GAAP measures
Reconciliation of net income to adjusted operating income available to Genworth Financial, Inc.s common stockholders
We use non-GAAP financial measures entitled adjusted operating income available to Genworth Financial, Inc.s common
stockholders and adjusted operating income available to Genworth Financial, Inc.s common stockholders per share. Adjusted operating income available to Genworth Financial, Inc.s common stockholders per share is derived
from adjusted operating income available to Genworth Financial, Inc.s common stockholders. Our chief operating decision maker evaluates segment performance and allocates resources on the basis of adjusted operating income available to Genworth
Financial, Inc.s common stockholders. We define adjusted operating income available to Genworth Financial, Inc.s common stockholders as income 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. We exclude net investment gains (losses) and infrequent or unusual non-operating items because we do not consider them to be related to the operating performance
of our segments and Corporate and Other activities. A component of our 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 our 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 available to Genworth Financial, Inc.s common stockholders because, in our opinion,
they are not indicative of overall operating trends. Infrequent or unusual non-operating items are also excluded from adjusted operating income available to Genworth Financial, Inc.s common stockholders if, in our opinion, they are not
indicative of overall operating trends.
While some of these items may be significant components of net income available to Genworth
Financial, Inc.s common stockholders in accordance with U.S. GAAP, we believe that adjusted operating income available to Genworth Financial, Inc.s common stockholders, and measures that are derived from or incorporate adjusted
92
operating income available to Genworth Financial, Inc.s common stockholders, including adjusted operating income available to Genworth Financial, Inc.s common stockholders 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 available to Genworth
Financial, Inc.s common stockholders 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 available to Genworth Financial, Inc.s common stockholders have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income available to Genworth Financial, Inc.s common stockholders and
adjusted operating income available to Genworth Financial, Inc.s common stockholders per share on a basic and diluted basis are not substitutes for net income available to Genworth Financial, Inc.s common stockholders or net income
available to Genworth Financial, Inc.s common stockholders per share on a basic and diluted basis determined in accordance with U.S. GAAP. In addition, our definition of adjusted operating income available to Genworth Financial, Inc.s
common stockholders may differ from the definitions used by other companies.
Adjustments to reconcile net income available to Genworth
Financial, Inc.s common stockholders and adjusted operating income available to Genworth Financial, Inc.s common stockholders assume a 35% 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.
The
following table includes a reconciliation of net income available to Genworth Financial, Inc.s common stockholders to adjusted operating income available to Genworth Financial, Inc.s common stockholders for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Net income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
155
|
|
|
$
|
53
|
|
Add: net income attributable to noncontrolling interests
|
|
|
61
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
216
|
|
|
|
108
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
216
|
|
|
|
127
|
|
Less: net income attributable to noncontrolling interests
|
|
|
61
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to Genworth Financial, Inc.'s common
stockholders
|
|
|
155
|
|
|
|
72
|
|
Adjustments to income from continuing operations available to Genworth Financial, Inc.'s common
stockholders:
|
|
|
|
|
|
|
|
|
Net investment (gains) losses, net
(1)
|
|
|
(20
|
)
|
|
|
19
|
|
(Gains) losses from sale of businesses
|
|
|
|
|
|
|
7
|
|
(Gains) losses on early extinguishment of debt
|
|
|
|
|
|
|
16
|
|
Losses from life block transactions
|
|
|
|
|
|
|
9
|
|
Expenses related to restructuring
|
|
|
1
|
|
|
|
15
|
|
Fees associated with bond solicitation
|
|
|
|
|
|
|
18
|
|
Taxes on adjustments
|
|
|
7
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
Adjusted operating income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
143
|
|
|
$
|
103
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the three months ended March 31, 2017 and 2016, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $ and $(9) million, respectively, and
adjusted for net investment (gains) losses attributable to noncontrolling interests of $14 million and $9 million, respectively.
|
93
In the first quarter of 2017, we recorded a pre-tax expense of $1 million related to
restructuring costs as the company continues to evaluate and appropriately size its organizational needs and expenses.
In the first
quarter of 2016: we recorded a pre-tax loss of $7 million and a tax benefit of $27 million related to the planned sale of our mortgage insurance business in Europe; we paid a pre-tax make-whole expense of $20 million related to the
early redemption of Genworth Holdings 2016 notes; we also repurchased $28 million principal amount of Genworth Holdings notes with various maturity dates for a pre-tax gain of $4 million; we completed a life block transaction
resulting in a pre-tax loss of $9 million in connection with the early extinguishment of non-recourse funding obligations and we recorded a pre-tax expense of $15 million related to restructuring costs as part of an expense reduction plan
as the company evaluates and appropriately sizes its organizational needs and expenses.
There were no infrequent or unusual items
excluded from adjusted operating income during the periods presented other than the following item. We incurred fees during the first quarter of 2016 related to Genworth Holdings bond consent solicitation of $18 million for broker,
advisor and investment banking fees.
Earnings per share
Basic and diluted earnings per share are calculated by dividing each income category presented below by the weighted-average basic and diluted
common shares outstanding for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
(Amounts in millions, except per share amounts)
|
|
2017
|
|
|
2016
|
|
Income from continuing operations available to Genworth Financial, Inc.s common stockholders
per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.31
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
Net income available to Genworth Financial, Inc.'s common stockholders per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.31
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income available to Genworth Financial, Inc.s common stockholders per
share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.29
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
498.6
|
|
|
|
498.0
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
501.0
|
|
|
|
499.4
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average common shares outstanding reflect the effects of potentially dilutive securities
including stock options, restricted stock units and other equity-based compensation.
94
Results of Operations and Selected Financial and Operating Performance Measures by Segment
Our chief operating decision maker evaluates segment performance and allocates resources on the basis of adjusted operating income available to
Genworth Financial, Inc.s common stockholders. See note 9 in our unaudited condensed consolidated financial statements under Item 1Financial Statements for a reconciliation of net income available to Genworth Financial,
Inc.s common stockholders to adjusted operating income available to Genworth Financial, Inc.s common stockholders of our segments and Corporate and Other activities.
We allocate our consolidated provision for income taxes to our operating segments. Our allocation methodology applies a specific tax rate to
the pre-tax income (loss) of each segment, which is then adjusted in each segment to reflect the tax attributes of items unique to that segment such as foreign income. The difference between the consolidated provision for income taxes and the sum of
the provision for income taxes in each segment is reflected in Corporate and Other activities. The annually-determined tax rates and adjustments to each segments provision for income taxes are estimates which are subject to review and could
change from year to year. The effective tax rates disclosed herein are calculated using whole dollars. As a result, the percentages shown may differ from an effective tax rate calculated using rounded numbers.
Managements discussion and analysis by segment contains 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 5% of excess deposits for universal and term
universal life insurance products; (4) 10% 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. We consider new insurance written, annualized first-year premiums/deposits, premium equivalents and new premiums/deposits to be a measure of our operating performance because they represent a measure of new sales of insurance policies
or contracts during a specified period, rather than a measure of our revenues or profitability during that period.
Management regularly
monitors and reports insurance in-force and risk in-force. Insurance in-force for our mortgage insurance businesses is a measure of the aggregate original loan balance for outstanding insurance policies as of the respective reporting date. Risk
in-force for our U.S. mortgage insurance business is based on the coverage percentage applied to the estimated current outstanding loan balance. For risk in-force in our mortgage insurance businesses in Canada and Australia, we have computed an
effective risk in-force amount, which recognizes that the loss on any particular loan will be reduced by the net proceeds received upon sale of the property. Effective risk in-force has been calculated by applying to insurance in-force a
factor of 35% that represents the highest expected average per-claim payment for any one underwriting year over the life of our mortgage insurance businesses in Canada and Australia. In Australia, we have certain risk share arrangements where we
provide pro-rata coverage of certain loans rather than 100% coverage. As a result, for loans with these risk share arrangements, the applicable pro-rata coverage amount provided is used when applying the factor. We consider insurance in-force and
risk in-force to be measures of our operating performance because they represent measures of the size of our business at a specific date which will generate revenues and profits in a future period, rather than measures of our revenues or
profitability during that period.
Management also regularly monitors and reports a loss ratio for our businesses. For our mortgage
insurance businesses, the loss ratio is the ratio of incurred losses and loss adjustment expenses to net earned premiums. For our 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. We consider the loss ratio to be a measure of underwriting performance in these businesses and help to enhance the understanding of the operating performance of our
businesses.
95
An assumed tax rate of 35% is utilized in certain adjustments to adjusted operating income
available to Genworth Financial, Inc.s common stockholders and in the explanation of specific variances of operating performance.
These operating performance measures enable us to compare our 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.
U.S. Mortgage Insurance segment
Trends and conditions
Results of
our U.S. mortgage insurance business are affected primarily by the following factors: competitor actions; unemployment or underemployment levels; other economic and housing market trends, including interest rates, home prices, and mortgage
origination volume mix and practices; the levels and aging of mortgage delinquencies; the effect of seasonal variations; the inventory of unsold homes; loan modification and other servicing efforts; and any future litigation, among other items. Our
results are subject to the performance of the U.S. housing market and the extent of the adverse impact of seasonality that we experience historically in the second half of the year.
The level of private mortgage insurance market penetration and eventual market size is affected in part by actions taken by the GSEs and the
U.S. government, including the Federal Housing Administration (FHA), the Federal Housing Finance Agency, and the U.S. Congress, which impact housing or housing finance policy. In the past, these actions have included announced changes,
or potential changes, to underwriting standards, FHA pricing, GSE guaranty fees and loan limits as well as low-down-payment programs available through the FHA or GSEs.
Mortgage origination volume decreased during the first quarter of 2017 compared to the first quarter of 2016, primarily due to declines in
refinance mortgage originations. The decline in refinance mortgage originations was driven by increases in interest rates. Our flow persistency was 83% during the first quarter of 2017 compared to 82% in the first quarter of 2016, in part due to the
increase in interest rates. Our U.S. mortgage insurance estimated market share for first quarter of 2017 decreased compared to the fourth quarter of 2016 and the first quarter of 2016. This decrease in market share was primarily due to the reduction
in the concentration of our single premium lender paid business as we continue to selectively participate in that market and to a lesser extent, competitor pricing, the negative ratings differential relative to our competitors and concerns expressed
about Genworths financial condition. The decline was partially offset by business gains from the addition of new customers as well as growth within our existing customer base driven, in part, by competitive pricing and differentiated service
levels.
New insurance written increased 3% during the first quarter of 2017 compared to first quarter of 2016 due to a larger purchase
originations markets as well as increased mortgage insurance penetration. We continue to manage the quality of new business through our underwriting guidelines, which we modify from time to time when circumstances warrant. In the first quarter of
2017, we experienced an increase in the percentage of 97% loan-to-value new insurance written as the result of GSE changes in underwriting guidelines for purchase transactions. The percentage of single premium new insurance written decreased in the
first quarter of 2017, compared to the first quarter of 2016, reflecting our selective participation in this market as well as a lower refinance originations market. Future volumes of these products will vary depending in part on our evaluation of
their risk return profile.
Our loss ratio was 17% during the first quarter of 2017 compared to 24% for the first quarter of 2016. The
decline in loss ratio was primarily attributable to the decline in new delinquencies and improvements in the net benefit from cures and aging of existing delinquencies. New delinquencies decreased during the first quarter of
96
2017 compared to the first quarter of 2016 due to improvements in unemployment rates and housing values and the declining volume of new delinquencies from our 2005 through 2008 book years.
However, the majority of our new delinquencies in the first quarter of 2017 continued to come from our 2005 through 2008 book years, which were negatively impacted by economic and housing market trends. Foreclosure starts and the number of paid
claims decreased during the first quarter of 2017 as compared to the first quarter of 2016. Additionally, we have seen a reduction in loans that have been subject to a modification or workout. We expect our level of loan modifications to continue to
decline going forward in line with the expected reduction in delinquent loans and the continuing aging of delinquencies.
As of
March 31, 2017, Genworth Mortgage Insurance Corporations (GMICO) risk-to-capital ratio under the current regulatory framework as established under North Carolina law and enforced by the North Carolina Department of Insurance
(NCDOI), GMICOs domestic insurance regulator, was approximately 13.7:1, compared with a risk-to-capital ratio of approximately 14.5:1 as of December 31, 2016. This risk-to-capital ratio remains below the NCDOIs maximum
risk-to-capital ratio of 25:1. GMICOs ongoing risk-to-capital ratio will depend principally on the magnitude of future losses incurred by GMICO, the effectiveness of ongoing loss mitigation activities, new business volume and profitability,
the amount of policy lapses, changes in the value of affiliated assets and the amount of additional capital that is generated within the business or capital support (if any) that we provide.
Effective December 31, 2015, each GSE adopted revised PMIERs, which set forth operational and financial requirements that mortgage
insurers must meet in order to remain eligible. Each approved mortgage insurer is required to provide the GSEs with an annual certification and a quarterly report as to its compliance with PMIERs. As of March 31, 2017, we estimate our U.S.
mortgage insurance business had available assets of approximately 118% of the required assets under PMIERs compared to approximately 115% as of December 31, 2016. As of March 31, 2017 and December 31, 2016, the PMIERs sufficiency
ratios were in excess of $400 million and $350 million, respectively, of available assets above the PMIERs requirements. The increase during the first quarter of 2017 was driven, in part, by a higher valuation and the impact of foreign exchange of
our U.S. mortgage insurance business holdings in Genworth MI Canada, Inc. (Genworth Canada), positive operating cash flows and the reduction in delinquent loans. This increase was partially offset by growth in new insurance
written. The reinsurance transactions covering our 2014 through 2017 book years provided an aggregate of approximately $520 million of PMIERs capital credit as of March 31, 2017. The reinsurance transaction covering our 2009 through 2013 book
years shortened under the contract as a result of the reinsurers limit declining to zero during the first quarter of 2017. The value of Genworth Canada could be impacted going forward by the proposed regulatory changes discussed in more detail
in Canada Mortgage Insurance segmentTrends and conditions.
As of March 31, 2017, loans modified through the
Home Affordable Refinance Program (HARP) accounted for approximately $14.4 billion of insurance in-force, with approximately $13.6 billion of those loans from our 2005 through 2008 book years. The volume of new HARP modifications
continues to decrease as the number of loans that would benefit from a HARP modification decreases. Loans modified through HARP have extended amortization periods and reduced interest rates, which reduce borrowers monthly payments. Over time,
we expect these modified loans to result in extended premium streams and a lower incidence of default. The U.S. government has extended HARP through September 30, 2017. For financial reporting purposes, we report HARP modified loans as a
modification of the coverage on existing insurance in-force rather than new insurance written.
97
Segment results of operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
The following table sets forth the results of operations relating to our U.S. Mortgage Insurance segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Increase
(decrease) and
percentage
change
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
169
|
|
|
$
|
160
|
|
|
$
|
9
|
|
|
|
6
|
%
|
Net investment income
|
|
|
17
|
|
|
|
15
|
|
|
|
2
|
|
|
|
13
|
%
|
Net investment gains (losses)
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
100
|
%
|
Policy fees and other income
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
187
|
|
|
|
175
|
|
|
|
12
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and other changes in policy reserves
|
|
|
29
|
|
|
|
38
|
|
|
|
(9
|
)
|
|
|
(24
|
)%
|
Acquisition and operating expenses, net of deferrals
|
|
|
40
|
|
|
|
39
|
|
|
|
1
|
|
|
|
3
|
%
|
Amortization of deferred acquisition costs and intangibles
|
|
|
4
|
|
|
|
3
|
|
|
|
1
|
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
73
|
|
|
|
80
|
|
|
|
(7
|
)
|
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
114
|
|
|
|
95
|
|
|
|
19
|
|
|
|
20
|
%
|
Provision for income taxes
|
|
|
41
|
|
|
|
34
|
|
|
|
7
|
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
73
|
|
|
|
61
|
|
|
|
12
|
|
|
|
20
|
%
|
Adjustments to income from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (gains) losses
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(100
|
)%
|
Taxes on adjustments
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
73
|
|
|
$
|
61
|
|
|
$
|
12
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income available to Genworth Financial, Inc.s common stockholders
Adjusted operating income available to Genworth Financial, Inc.s common stockholders increased in the current year mainly attributable to
higher premiums and lower losses.
Revenues
Premiums increased mainly attributable to higher average flow mortgage insurance in-force in the current year, partially offset by the reversal
of an accrual for premium refunds related to policy cancellations in the prior year.
Benefits and expenses
Benefits and other changes in policy reserves decreased primarily due to favorable aging of existing delinquencies, net of cures in the current
year.
Provision for income taxes.
The effective tax rate increased slightly to 35.9% for the three months ended March 31,
2017 from 35.8% for the three months ended March 31, 2016.
98
U.S. Mortgage Insurance selected operating performance measures
The following table sets forth selected operating performance measures regarding our U.S. Mortgage Insurance segment as of or for the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the three
months ended
March 31,
|
|
|
Increase
(decrease) and
percentage
change
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Primary insurance in-force
|
|
$
|
139,300
|
|
|
$
|
124,100
|
|
|
$
|
15,200
|
|
|
|
12
|
%
|
Risk in-force
|
|
|
33,700
|
|
|
|
31,600
|
|
|
|
2,100
|
|
|
|
7
|
%
|
New insurance written
|
|
|
7,600
|
|
|
|
7,400
|
|
|
|
200
|
|
|
|
3
|
%
|
Net premiums written
|
|
|
175
|
|
|
|
176
|
|
|
|
(1
|
)
|
|
|
(1
|
)%
|
Primary insurance in-force and risk in-force
Primary insurance in-force increased largely as a result of $15.7 billion in higher flow insurance in-force, which increased from $121.7
billion as of March 31, 2016 to $137.4 billion as of March 31, 2017 as a result of new insurance written during the previous 12 months, net of policy cancellations and lapses. The increase in flow insurance in-force was partially offset by
a decline of $0.5 billion in bulk insurance in-force, which decreased from $2.4 billion as of March 31, 2016 to $1.9 billion as of March 31, 2017 from cancellations and lapses. In addition, risk in-force increased primarily as a result of
flow new insurance written. Flow persistency was 83% and 82% for the three months ended March 31, 2017 and 2016, respectively.
New insurance written
New insurance written increased in the current year primarily driven by a larger purchase originations market, partially offset by a decrease
in our estimated market value. We also had a lower concentration of single premium lender paid business reflecting our decision to selectively participate in the market.
Net premiums written
Net
premiums written decreased marginally attributable to the reversal of an accrual for premium refunds related to policy cancellations in the prior year, partially offset by higher average flow mortgage insurance in-force in the current year.
Loss and expense ratios
The following table sets forth the loss and expense ratios for our U.S. Mortgage Insurance segment for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Increase
(decrease)
|
|
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Loss ratio
|
|
|
17
|
%
|
|
|
24
|
%
|
|
|
(7
|
)%
|
Expense ratio (net earned premiums)
|
|
|
26
|
%
|
|
|
26
|
%
|
|
|
|
%
|
Expense ratio (net premiums written)
|
|
|
25
|
%
|
|
|
24
|
%
|
|
|
1
|
%
|
The loss ratio is the ratio of incurred losses and loss adjustment expenses to net earned premiums. The
expense ratio (net earned premiums) is the ratio of general expenses to net earned premiums. The expense ratio (net premiums written) is the ratio of general expenses to net premiums written. In our business, general expenses consist of acquisition
and operating expenses, net of deferrals, and amortization of deferred acquisition costs and intangibles.
99
The loss ratio decreased primarily from a decline in new delinquencies, improvements in the net
benefit from cures and aging of existing delinquencies and from higher net earned premiums attributable to higher average flow mortgage insurance in-force in the current year, partially offset by the reversal of an accrual for premium refunds
related to policy cancellations in the prior year.
The expense ratio (net premiums written) increased slightly from higher production
costs, mostly offset by higher net premiums in the current year.
Delinquent loans
The following table sets forth the number of loans insured, the number of delinquent loans and the delinquency rate for our U.S. mortgage
insurance portfolio as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
March 31,
2016
|
|
Primary insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured loans in-force
|
|
|
703,214
|
|
|
|
699,841
|
|
|
|
655,300
|
|
Delinquent loans
|
|
|
23,019
|
|
|
|
25,709
|
|
|
|
27,602
|
|
Percentage of delinquent loans (delinquency rate)
|
|
|
3.27
|
%
|
|
|
3.67
|
%
|
|
|
4.21
|
%
|
|
|
|
|
Flow loan in-force
|
|
|
683,532
|
|
|
|
678,168
|
|
|
|
632,010
|
|
Flow delinquent loans
|
|
|
22,036
|
|
|
|
24,631
|
|
|
|
26,491
|
|
Percentage of flow delinquent loans (delinquency rate)
|
|
|
3.22
|
%
|
|
|
3.63
|
%
|
|
|
4.19
|
%
|
|
|
|
|
Bulk loans in-force
|
|
|
19,682
|
|
|
|
21,673
|
|
|
|
23,290
|
|
Bulk delinquent loans
(1)
|
|
|
983
|
|
|
|
1,078
|
|
|
|
1,111
|
|
Percentage of bulk delinquent loans (delinquency rate)
|
|
|
4.99
|
%
|
|
|
4.97
|
%
|
|
|
4.77
|
%
|
|
|
|
|
A minus and sub-prime loans in-force
|
|
|
22,056
|
|
|
|
23,063
|
|
|
|
26,995
|
|
A minus and sub-prime loans delinquent loans
|
|
|
4,572
|
|
|
|
5,252
|
|
|
|
5,546
|
|
Percentage of A minus and sub-prime delinquent loans (delinquency rate)
|
|
|
20.73
|
%
|
|
|
22.77
|
%
|
|
|
20.54
|
%
|
|
|
|
|
Pool insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured loans in-force
|
|
|
5,586
|
|
|
|
5,742
|
|
|
|
6,406
|
|
Delinquent loans
|
|
|
276
|
|
|
|
325
|
|
|
|
369
|
|
Percentage of delinquent loans (delinquency rate)
|
|
|
4.94
|
%
|
|
|
5.66
|
%
|
|
|
5.76
|
%
|
(1)
|
Included loans where we were in a secondary loss position for which no reserve was established due to an existing deductible. Excluding these loans, bulk delinquent loans were 695 as of March 31, 2017, 756 as of
December 31, 2016 and 776 as of March 31, 2016.
|
Delinquency and foreclosure levels that developed principally in
our 2005 through 2008 book years have declined as the United States has continued to experience improvement in its residential real estate market. We also have seen a further decline in new delinquencies and lower foreclosure starts in the first
quarter of 2017 compared to the first quarter of 2016.
100
The following tables set forth flow delinquencies, direct case reserves and risk in-force by aged
missed payment status in our U.S. mortgage insurance portfolio as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
(Dollar amounts in millions)
|
|
Delinquencies
|
|
|
Direct case
reserves
(1)
|
|
|
Risk
in-force
|
|
|
Reserves as %
of risk in-force
|
|
Payments in default:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or less
|
|
|
7,809
|
|
|
$
|
43
|
|
|
$
|
330
|
|
|
|
13
|
%
|
4 - 11 payments
|
|
|
6,164
|
|
|
|
144
|
|
|
|
263
|
|
|
|
55
|
%
|
12 payments or more
|
|
|
8,063
|
|
|
|
343
|
|
|
|
394
|
|
|
|
87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
22,036
|
|
|
$
|
530
|
|
|
$
|
987
|
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Direct flow case reserves exclude loss adjustment expenses, incurred but not reported and reinsurance reserves.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
(Dollar amounts in millions)
|
|
Delinquencies
|
|
|
Direct case
reserves
(1)
|
|
|
Risk
in-force
|
|
|
Reserves as %
of risk in-force
|
|
Payments in default:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or less
|
|
|
9,355
|
|
|
$
|
49
|
|
|
$
|
382
|
|
|
|
13
|
%
|
4 - 11 payments
|
|
|
6,364
|
|
|
|
147
|
|
|
|
268
|
|
|
|
55
|
%
|
12 payments or more
|
|
|
8,912
|
|
|
|
383
|
|
|
|
434
|
|
|
|
88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
24,631
|
|
|
$
|
579
|
|
|
$
|
1,084
|
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Direct flow case reserves exclude loss adjustment expenses, incurred but not reported and reinsurance reserves.
|
Primary insurance delinquency rates differ from region to region in the United States at any one time depending upon economic conditions and
cyclical growth patterns. The tables below set forth our primary delinquency rates for the various regions of the United States and the 10 largest states by our risk in-force as of the dates indicated. Delinquency rates are shown by region based
upon the location of the underlying property, rather than the location of the lender.
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of primary
risk in-force as of
March 31, 2017
|
|
|
Percent of total
reserves as
of
March 31, 2017
(1)
|
|
|
Delinquency rate
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
March 31,
2016
|
|
By Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
(2)
|
|
|
19
|
%
|
|
|
21
|
%
|
|
|
3.82
|
%
|
|
|
4.28
|
%
|
|
|
5.00
|
%
|
South Central
(3)
|
|
|
15
|
|
|
|
9
|
|
|
|
2.85
|
%
|
|
|
3.20
|
%
|
|
|
3.35
|
%
|
Pacific
(4)
|
|
|
14
|
|
|
|
8
|
|
|
|
1.74
|
%
|
|
|
2.02
|
%
|
|
|
2.54
|
%
|
Northeast
(5)
|
|
|
13
|
|
|
|
34
|
|
|
|
6.02
|
%
|
|
|
6.72
|
%
|
|
|
7.92
|
%
|
North Central
(6)
|
|
|
12
|
|
|
|
9
|
|
|
|
2.69
|
%
|
|
|
3.00
|
%
|
|
|
3.30
|
%
|
Great Lakes
(7)
|
|
|
11
|
|
|
|
6
|
|
|
|
2.38
|
%
|
|
|
2.70
|
%
|
|
|
2.95
|
%
|
New England
(8)
|
|
|
6
|
|
|
|
6
|
|
|
|
3.41
|
%
|
|
|
3.62
|
%
|
|
|
4.20
|
%
|
Mid-Atlantic
(9)
|
|
|
6
|
|
|
|
5
|
|
|
|
3.48
|
%
|
|
|
3.80
|
%
|
|
|
4.38
|
%
|
Plains
(10)
|
|
|
4
|
|
|
|
2
|
|
|
|
2.47
|
%
|
|
|
2.94
|
%
|
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
3.27
|
%
|
|
|
3.67
|
%
|
|
|
4.21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Total reserves were $583 million as of March 31, 2017.
|
(2)
|
Alabama, Arkansas, Florida, Georgia, Mississippi, North Carolina, South Carolina and Tennessee.
|
(3)
|
Arizona, Colorado, Louisiana, New Mexico, Oklahoma, Texas and Utah.
|
(4)
|
Alaska, California, Hawaii, Nevada, Oregon and Washington.
|
(5)
|
New Jersey, New York and Pennsylvania.
|
(6)
|
Illinois, Minnesota, Missouri and Wisconsin.
|
(7)
|
Indiana, Kentucky, Michigan and Ohio.
|
(8)
|
Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.
|
(9)
|
Delaware, Maryland, Virginia, Washington D.C. and West Virginia.
|
(10)
|
Idaho, Iowa, Kansas, Montana, Nebraska, North Dakota, South Dakota and Wyoming.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of primary
risk in-force as of
March 31, 2017
|
|
|
Percent of total
reserves as
of
March 31, 2017
(1)
|
|
|
Delinquency rate
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
March 31,
2016
|
|
By State:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
|
|
8
|
%
|
|
|
3
|
%
|
|
|
1.40
|
%
|
|
|
1.56
|
%
|
|
|
1.91
|
%
|
Texas
|
|
|
7
|
%
|
|
|
3
|
%
|
|
|
2.94
|
%
|
|
|
3.33
|
%
|
|
|
3.30
|
%
|
Florida
|
|
|
6
|
%
|
|
|
12
|
%
|
|
|
4.41
|
%
|
|
|
4.89
|
%
|
|
|
6.54
|
%
|
New York
|
|
|
6
|
%
|
|
|
17
|
%
|
|
|
6.26
|
%
|
|
|
6.88
|
%
|
|
|
8.21
|
%
|
Illinois
|
|
|
6
|
%
|
|
|
5
|
%
|
|
|
3.11
|
%
|
|
|
3.45
|
%
|
|
|
3.98
|
%
|
Pennsylvania
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
4.09
|
%
|
|
|
4.70
|
%
|
|
|
5.30
|
%
|
Michigan
|
|
|
4
|
%
|
|
|
1
|
%
|
|
|
1.62
|
%
|
|
|
1.79
|
%
|
|
|
2.08
|
%
|
Washington
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
1.52
|
%
|
|
|
1.79
|
%
|
|
|
2.44
|
%
|
Ohio
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
2.85
|
%
|
|
|
3.30
|
%
|
|
|
3.52
|
%
|
North Carolina
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
3.16
|
%
|
|
|
3.65
|
%
|
|
|
4.24
|
%
|
(1)
|
Total reserves were $583 million as of March 31, 2017.
|
102
The following table sets forth the dispersion of our total reserves and primary insurance
in-force and risk in-force by year of policy origination and average annual mortgage interest rate as of March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Average
rate
|
|
|
Percent of total
reserves
(1)
|
|
|
Primary
insurance
in-force
|
|
|
Percent
of total
|
|
|
Primary
risk
in-force
|
|
|
Percent
of total
|
|
Policy Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and prior
|
|
|
6.02
|
%
|
|
|
10.9
|
%
|
|
$
|
2,764
|
|
|
|
2.0
|
%
|
|
$
|
543
|
|
|
|
1.6
|
%
|
2005
|
|
|
5.62
|
%
|
|
|
10.5
|
|
|
|
2,532
|
|
|
|
1.8
|
|
|
|
611
|
|
|
|
1.8
|
|
2006
|
|
|
5.76
|
%
|
|
|
16.6
|
|
|
|
4,502
|
|
|
|
3.2
|
|
|
|
1,058
|
|
|
|
3.1
|
|
2007
|
|
|
5.68
|
%
|
|
|
34.7
|
|
|
|
11,691
|
|
|
|
8.4
|
|
|
|
2,710
|
|
|
|
8.1
|
|
2008
|
|
|
5.23
|
%
|
|
|
16.0
|
|
|
|
9,716
|
|
|
|
7.0
|
|
|
|
2,270
|
|
|
|
6.8
|
|
2009
|
|
|
4.95
|
%
|
|
|
0.8
|
|
|
|
1,066
|
|
|
|
0.8
|
|
|
|
229
|
|
|
|
0.7
|
|
2010
|
|
|
4.68
|
%
|
|
|
0.7
|
|
|
|
1,432
|
|
|
|
1.0
|
|
|
|
328
|
|
|
|
1.0
|
|
2011
|
|
|
4.53
|
%
|
|
|
0.7
|
|
|
|
2,009
|
|
|
|
1.4
|
|
|
|
478
|
|
|
|
1.4
|
|
2012
|
|
|
3.84
|
%
|
|
|
0.8
|
|
|
|
5,368
|
|
|
|
3.9
|
|
|
|
1,322
|
|
|
|
3.9
|
|
2013
|
|
|
4.04
|
%
|
|
|
1.6
|
|
|
|
9,672
|
|
|
|
6.9
|
|
|
|
2,379
|
|
|
|
7.1
|
|
2014
|
|
|
4.42
|
%
|
|
|
2.8
|
|
|
|
14,287
|
|
|
|
10.3
|
|
|
|
3,499
|
|
|
|
10.4
|
|
2015
|
|
|
4.11
|
%
|
|
|
2.8
|
|
|
|
25,896
|
|
|
|
18.6
|
|
|
|
6,358
|
|
|
|
18.9
|
|
2016
|
|
|
3.86
|
%
|
|
|
1.1
|
|
|
|
40,799
|
|
|
|
29.3
|
|
|
|
9,974
|
|
|
|
29.7
|
|
2017
|
|
|
4.22
|
%
|
|
|
|
|
|
|
7,570
|
|
|
|
5.4
|
|
|
|
1,854
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total portfolio
|
|
|
4.50
|
%
|
|
|
100.0
|
%
|
|
$
|
139,304
|
|
|
|
100.0
|
%
|
|
$
|
33,613
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Total reserves were $583 million as of March 31, 2017.
|
Canada Mortgage Insurance segment
Trends and conditions
Results of
our mortgage insurance business in Canada are affected primarily by changes in the regulatory environment, employment levels, consumer borrowing behavior, lender mortgage-related strategies, including lender servicing practices, and other economic
and housing market influences, including interest rate trends, home price appreciation or depreciation, mortgage origination volume, levels and aging of mortgage delinquencies and movements in foreign currency exchange rates. During the first
quarter of 2017, the Canadian dollar strengthened against the U.S. dollar as compared to both the first and fourth quarters of 2016, which favorably impacted the results of our mortgage insurance business in Canada as reported in U.S. dollars. Any
future movement in foreign exchange rates could impact future results.
We closely monitor economic conditions due to the impact adverse
changes in economic conditions can have on our results. The Canadian gross domestic product is expected to have experienced higher growth in the first quarter of 2017 compared to the fourth quarter of 2016, reflecting a return of investment growth
in the oil and gas sector and strong consumer spending.
The overnight interest rate in Canada remained flat at 0.50% in the first quarter
of 2017. Canadas unemployment rate decreased to 6.7% at the end of the first quarter of 2017 compared to 6.9% at the end of the fourth quarter of 2016 due to job creation outpacing an increase in workforce participation. Home sales in Canada
increased in the first quarter of 2017 by approximately 1% compared to the first quarter of 2016 and 4% compared to the fourth quarter of 2016, largely due to strong sales activity in Ontario, partially offset by a decrease in sales activity in
British Columbia. The national average home price increased in the first quarter of 2017 by approximately 13% compared to the first quarter of 2016 and 2% compared to the fourth quarter of 2016, largely driven by a strong housing market in Ontario,
primarily in the Greater Toronto Area (GTA). In an effort to temper the real estate market, on April 20, 2017, the Ontario Provincial Government released its Fair Housing Plan that contains numerous measures, including a
non-resident speculation tax that targets affordability in the purchase and rental housing markets in the GTA and surrounding areas.
103
Our mortgage insurance business in Canada experienced lower losses in the first quarter of 2017
compared to the first quarter of 2016 primarily due to a decrease in new delinquencies, net of cures, partially offset by a higher average reserve per delinquency due to a shift in regional outstanding delinquencies towards oil-producing regions
that have higher average insured amounts. Our loss ratio in Canada was 16% for the first quarter of 2017. As a result of the loss ratio performance in the first quarter of 2017 and the economic forecast for the balance of the year, we expect our
full year 2017 loss ratio to be consistent to moderately higher than our full year 2016 loss ratio of 22%.
On October 3, 2016, the
Minister of Finance announced changes intended to reinforce the Canadian housing finance system. These changes primarily included more restrictive qualification guidelines on homebuyers seeking mortgage insurance compared to the prior requirements
and new requirements on insured mortgage loans using bulk or other discretionary low loan-to-value mortgage insurance that previously only applied to high loan-to-value insured mortgages. These changes in regulatory requirements will likely cause a
decrease in demand for both flow and bulk new insurance written going forward.
In the first quarter of 2017, flow new insurance written
volumes decreased in our mortgage insurance business in Canada compared to the first quarter of 2016 primarily due to a smaller flow mortgage insurance market size resulting from regulatory changes in the fourth quarter of 2016. However, earned
premiums were higher in the first quarter of 2017 compared to the first quarter of 2016 from seasoning of our larger, more recent blocks of business and price increases in recent years.
Bulk new insurance written levels were higher in the first quarter of 2017 compared to the first quarter of 2016. New insurance written from
bulk mortgage insurance varies from period to period based on a number of factors, including the amount of bulk mortgages lenders seek to insure, the competitiveness of our pricing and our risk appetite for such mortgage insurance. Effective
July 1, 2016, bulk mortgage insurance is only available on mortgages used in the Canada Mortgage and Housing Corporation securitization programs and is prohibited on mortgages used in private securitizations after a phase-in period. In
addition, effective November 30, 2016, additional regulatory changes were implemented that prohibit insuring bulk refinances and most investor mortgages originated by lenders on or after October 17, 2016. While we anticipate a decrease in
bulk insurance volumes for the full year 2017 as a result of these regulatory changes, there was a one-time increase in the first quarter of 2017 primarily due to the closing of several large bulk insurance transactions on applications received in
the fourth quarter of 2016.
We are subject to regulation under the Protection of Residential Mortgage or Hypothecary Insurance Act
(Canada) (PRMHIA). Under PRMHIA and the Insurance Companies Act (Canada), our mortgage insurance business in Canada is required to meet a minimum capital test (MCT) to support its outstanding mortgage insurance in-force. The
MCT ratio is calculated based on a methodology prescribed by the Office of the Superintendent of Financial Institutions (OSFI). On January 1, 2017, the capital advisory titled Capital Requirements for Federally Regulated
Mortgage Insurers became effective. The advisory provides a new standard framework for determining the capital requirements for residential mortgage insurance companies. Under this new regulatory capital framework, the holding target of 220%
was recalibrated to the updated OSFI Supervisory MCT Target and PRMHIA requirement of 150%. As of March 31, 2017, our MCT ratio under the new framework was approximately 162%, which was above the supervisory target.
The new framework included in the advisory released by OSFI in December 2016 is more risk sensitive and incorporates additional risk
attributes, including credit score, remaining amortization and outstanding loan balance. The advisory includes supplementary capital requirements on new business in areas where home prices are high relative to borrower incomes upon origination. As a
result of these higher regulatory capital requirements, our mortgage insurance business in Canada recently announced an increase in premium rates of approximately 20% on flow new business effective March 17, 2017. Similarly, the business has
also increased its premium rates for bulk insurance.
104
Segment results of operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
The following table sets forth the results of operations relating to our Canadian Mortgage Insurance segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Increase
(decrease) and
percentage
change
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
126
|
|
|
$
|
111
|
|
|
$
|
15
|
|
|
|
14
|
%
|
Net investment income
|
|
|
32
|
|
|
|
29
|
|
|
|
3
|
|
|
|
10
|
%
|
Net investment gains (losses)
|
|
|
11
|
|
|
|
20
|
|
|
|
(9
|
)
|
|
|
(45
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
169
|
|
|
|
160
|
|
|
|
9
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and other changes in policy reserves
|
|
|
20
|
|
|
|
26
|
|
|
|
(6
|
)
|
|
|
(23
|
)%
|
Acquisition and operating expenses, net of deferrals
|
|
|
21
|
|
|
|
18
|
|
|
|
3
|
|
|
|
17
|
%
|
Amortization of deferred acquisition costs and intangibles
|
|
|
10
|
|
|
|
9
|
|
|
|
1
|
|
|
|
11
|
%
|
Interest expense
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
55
|
|
|
|
57
|
|
|
|
(2
|
)
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
114
|
|
|
|
103
|
|
|
|
11
|
|
|
|
11
|
%
|
Provision for income taxes
|
|
|
36
|
|
|
|
29
|
|
|
|
7
|
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
78
|
|
|
|
74
|
|
|
|
4
|
|
|
|
5
|
%
|
Less: income from continuing operations attributable to noncontrolling interests
|
|
|
38
|
|
|
|
34
|
|
|
|
4
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to Genworth Financial, Inc.s common
stockholders
|
|
|
40
|
|
|
|
40
|
|
|
|
|
|
|
|
|
%
|
Adjustments to income from continuing operations available to Genworth Financial, Inc.'s common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (gains) losses, net
(1)
|
|
|
(6
|
)
|
|
|
(11
|
)
|
|
|
5
|
|
|
|
45
|
%
|
Taxes on adjustments
|
|
|
2
|
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
(50
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
36
|
|
|
$
|
33
|
|
|
$
|
3
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the three months ended 2017 and 2016, net investment (gains) losses were adjusted for the portion of net investment gains (losses) attributable to noncontrolling
interests of $5 million and $9 million, respectively.
|
Adjusted operating income available to Genworth Financial, Inc.s common
stockholders
Adjusted operating income available to Genworth Financial, Inc.s common stockholders increased mainly driven by
lower losses and higher premiums in the current year, partially offset by a higher effective tax rate.
Revenues
Premiums increased principally from the seasoning of our larger, more recent in-force blocks of business. The three months ended March 31,
2017 included an increase of $6 million attributable to changes in foreign exchange rates.
105
Net investment income increased primarily from an increase of $2 million attributable to changes
in foreign exchange rates.
Net investment gains decreased mainly from lower derivative gains in the current year largely from hedging
non-functional currency transactions.
Benefits and expenses
Benefits and other changes in policy reserves decreased largely from lower new delinquencies, net of cures, partially offset by a higher
average reserve per delinquency driven by a shift in regional outstanding delinquencies towards oil-producing regions with higher average insured amounts.
Acquisition and operating expenses, net of deferrals, increased mainly driven by higher stock-based compensation expense in the current year.
Provision for income taxes.
The effective tax rate increased to 32.0% for three months ended March 31, 2017 from 27.8% for
the three months ended March 31, 2016. The increase in the effective tax rate was primarily attributable to decreased tax benefits from lower taxed foreign income in the current year.
Canada Mortgage Insurance selected operating performance measures
The following table sets forth selected operating performance measures regarding our Canada Mortgage Insurance segment as of or for the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the three
months ended March 31,
|
|
|
Increase
(decrease) and
percentage
change
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Primary insurance in-force
|
|
$
|
358,900
|
|
|
$
|
317,400
|
|
|
$
|
41,500
|
|
|
|
13
|
%
|
Risk in-force
|
|
|
125,600
|
|
|
|
111,100
|
|
|
|
14,500
|
|
|
|
13
|
%
|
New insurance written
|
|
|
10,300
|
|
|
|
5,700
|
|
|
|
4,600
|
|
|
|
81
|
%
|
Net premiums written
|
|
|
96
|
|
|
|
84
|
|
|
|
12
|
|
|
|
14
|
%
|
Primary insurance in-force and risk in-force
Our mortgage insurance business in Canada currently provides 100% coverage on the majority of the loans we insure in that market. For the
purpose of representing our risk in-force, we have computed an effective risk in-force amount, which recognizes that the loss on any particular loan will be reduced by the net proceeds received upon sale of the property. Effective risk
in-force has been calculated by applying to insurance in-force a factor that represents our highest expected average per-claim payment for any one underwriting year over the life of our business in Canada. For the three months ended March 31,
2017 and 2016, this factor was 35%.
Primary insurance in-force and risk in-force increased primarily as a result of flow new insurance
written and bulk mortgage insurance activity. Insurance in-force and risk in-force included decreases of $8.3 billion and $2.9 billion, respectively, attributable to changes in foreign exchange rates during the three months ended March 31,
2017.
New insurance written
New insurance written increased primarily as a result of higher bulk mortgage insurance activity in the current year, partially offset by a
decrease in flow new insurance written. The three months ended March 31, 2017 included an increase of $500 million attributable to changes in foreign exchange rates.
106
Net premiums written
Our mortgage insurance policies in Canada provide for single premiums at the time that loan proceeds are advanced. We initially record the
single premiums to unearned premium reserves and recognize the premiums earned over time in accordance with the expected pattern of risk emergence. As of March 31, 2017, our unearned premium reserves were $1,582 million, compared to $1,527
million as of March 31, 2016.
Net premiums written increased primarily from higher bulk mortgage insurance activity. The three
months ended March 31, 2017 included an increase of $5 million attributable to changes in foreign exchange rates.
Loss and
expense ratios
The following table sets forth the loss and expense ratios for our Canada Mortgage Insurance segment for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Increase (decrease)
|
|
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Loss ratio
|
|
|
16
|
%
|
|
|
24
|
%
|
|
|
(8
|
)%
|
Expense ratio (net earned premiums)
|
|
|
25
|
%
|
|
|
24
|
%
|
|
|
1
|
%
|
Expense ratio (net premiums written)
|
|
|
32
|
%
|
|
|
32
|
%
|
|
|
|
%
|
The loss ratio is the ratio of incurred losses and loss adjustment expenses to net earned premiums. The
expense ratio (net earned premiums) is the ratio of general expenses to net earned premiums. The expense ratio (net premiums written) is the ratio of general expenses to net premiums written. In our mortgage insurance business in Canada, general
expenses consist of acquisition and operating expenses, net of deferrals, and amortization of deferred acquisition costs and intangibles.
The loss ratio decreased primarily from a decrease in the number of new flow delinquencies, net of cures, partially offset by a higher average
reserve per delinquency from higher severity in oil-producing regions.
The expense ratio (net earned premiums) increased primarily
attributable to higher stock-based compensation expense in the current year.
Delinquent loans
The following table sets forth the number of loans insured, the number of delinquent loans and the delinquency rate for our Canada mortgage
insurance portfolio as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
March 31, 2016
|
|
Primary insured loans in-force
|
|
|
2,074,984
|
|
|
|
2,029,400
|
|
|
|
1,860,978
|
|
Delinquent loans
|
|
|
2,082
|
|
|
|
2,070
|
|
|
|
2,034
|
|
Percentage of delinquent loans (delinquency rate)
|
|
|
0.10
|
%
|
|
|
0.10
|
%
|
|
|
0.11
|
%
|
|
|
|
|
Flow loans in-force
|
|
|
1,402,813
|
|
|
|
1,394,067
|
|
|
|
1,341,636
|
|
Flow delinquent loans
|
|
|
1,697
|
|
|
|
1,693
|
|
|
|
1,711
|
|
Percentage of flow delinquent loans (delinquency rate)
|
|
|
0.12
|
%
|
|
|
0.12
|
%
|
|
|
0.13
|
%
|
|
|
|
|
Bulk loans in-force
|
|
|
672,171
|
|
|
|
635,333
|
|
|
|
519,342
|
|
Bulk delinquent loans
|
|
|
385
|
|
|
|
377
|
|
|
|
323
|
|
Percentage of bulk delinquent loans (delinquency rate)
|
|
|
0.06
|
%
|
|
|
0.06
|
%
|
|
|
0.06
|
%
|
107
Flow mortgage loans in-force increased from new policies written and bulk mortgage loans in-force
increased from higher bulk activity. The number of delinquent loans of our flow mortgage insurance decreased compared to the first quarter of 2016 primarily from an improved housing market in oil-producing regions and strong or improving economic
conditions in other regions of Canada.
Primary insurance delinquency rates differ by the various provinces and territories of Canada at
any one time depending upon economic conditions and cyclical growth patterns. The table below sets forth our primary delinquency rates for the various provinces and territories of Canada by our risk in-force as of the dates indicated. Delinquency
rates are shown by region based upon the location of the underlying property, rather than the location of the lender.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of primary
risk in-force as of
March 31, 2017
|
|
|
Delinquency rate
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
March 31,
2016
|
|
By province and territory:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ontario
|
|
|
48
|
%
|
|
|
0.04
|
%
|
|
|
0.04
|
%
|
|
|
0.05
|
%
|
Alberta
|
|
|
16
|
|
|
|
0.21
|
%
|
|
|
0.22
|
%
|
|
|
0.16
|
%
|
British Columbia
|
|
|
15
|
|
|
|
0.06
|
%
|
|
|
0.06
|
%
|
|
|
0.06
|
%
|
Quebec
|
|
|
13
|
|
|
|
0.15
|
%
|
|
|
0.15
|
%
|
|
|
0.20
|
%
|
Saskatchewan
|
|
|
3
|
|
|
|
0.27
|
%
|
|
|
0.28
|
%
|
|
|
0.21
|
%
|
Nova Scotia
|
|
|
2
|
|
|
|
0.21
|
%
|
|
|
0.18
|
%
|
|
|
0.20
|
%
|
Manitoba
|
|
|
2
|
|
|
|
0.09
|
%
|
|
|
0.07
|
%
|
|
|
0.10
|
%
|
New Brunswick
|
|
|
1
|
|
|
|
0.18
|
%
|
|
|
0.19
|
%
|
|
|
0.21
|
%
|
All other
|
|
|
|
|
|
|
0.19
|
%
|
|
|
0.17
|
%
|
|
|
0.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
0.10
|
%
|
|
|
0.10
|
%
|
|
|
0.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency rates were flat as increases in commodity-dependent regions due to economic pressure were offset
by decreases in other provinces.
As a part of enhanced lender reporting, we receive updated outstanding loans in-force in Canada from
almost all of our customers. Based on the data provided by lenders, the delinquency rate as of March 31, 2017 was 0.21%, reflecting a lower number of outstanding loans and related policies in-force compared to our reported policies in-force.
Australia Mortgage Insurance segment
Trends
and conditions
Results of our mortgage insurance business in Australia are affected primarily by changes in regulatory
environments, employment levels, consumer borrowing behavior, lender mortgage-related strategies, including lender servicing practices, and other economic and housing market influences, including interest rate trends, home price appreciation or
depreciation, mortgage origination volume, levels and aging of mortgage delinquencies and movements in foreign currency exchange rates. During the first quarter of 2017, the Australian dollar strengthened against the U.S. dollar as compared to the
first quarter of 2016, which favorably impacted the results of our mortgage insurance business in Australia as reported in U.S. dollars. Any future movement in foreign exchange rates could impact future results.
The Australian gross domestic product is expected to have modest growth in the first quarter of 2017, supported by sustained low interest
rates and rising resource exports. The cash rate remained flat at 1.50% in the first quarter of 2017. The March 2017 unemployment rate increased to 5.9% from 5.8% at the end of the fourth quarter.
108
Home prices in Australia continued to appreciate in the first quarter of 2017, with March 2017
home values approximately 13% higher than a year ago and approximately 4% higher than at the end of 2016. The Sydney and Melbourne housing markets continue to be the major driver with annual home price growth of approximately 19% and 16%,
respectively, during the first quarter of 2017.
Our mortgage insurance business in Australia had higher losses in the first quarter of
2017 compared to the first quarter of 2016 largely due to higher new delinquencies, as well as a higher average reserve per delinquency resulting from aging pressure in commodity-dependent regions, where production activity has been depressed. The
loss ratio in Australia for the three months ended March 31, 2017 was 35%. We expect continued regional loss pressures and lower expected earned premiums to drive our loss ratio higher for the full year 2017 as compared to the full year 2016
loss ratio of 34%.
In the first quarter of 2017, our mortgage insurance business in Australia experienced an increase in new insurance
written volumes compared to the first quarter of 2016. This was due to an increase in bulk business in the quarter, partially offset by lower flow volumes. The decrease in flow volumes is primarily due to tightened customer risk appetite and a
slowdown in high loan-to-value lending as a result of Australian Prudential Regulation Authoritys (APRA) continued focus on lending standards, investment lending and serviceability.
Gross premiums written in the first quarter of 2017 were higher compared to the first quarter of 2016 driven by higher bulk volume, partially
offset by a decrease in flow volume, particularly from a reduction in high loan-to-value mortgage origination volume resulting from regulatory changes restricting loans originated for investment properties and high loan-to-value lending.
The term of the previous supply and service contract with our largest customer in our mortgage insurance business in Australia expired on
December 31, 2016. In November 2016, we entered into a new contract with this customer, effective January 1, 2017 with a term of three years. In 2016, this customer represented 36% of our new insurance written. A contract with our second
largest customer was terminated by the customer effective April 8, 2017.
Our mortgage insurance business in Australia evaluates its
capital position in relation to the Prescribed Capital Amount (PCA) as determined by APRA, utilizing the Internal Capital Adequacy Assessment Process as the framework to ensure that our Australia group of companies as a whole, and each
regulated entity, are independently capitalized to meet regulatory requirements. As of March 31, 2017, the estimated PCA ratio of our mortgage insurance business in Australia was approximately 171%, representing an in increase from the 157% as
of December 31, 2016, largely resulting from portfolio seasoning and higher reinsurance in the first quarter of 2017.
In March 2017,
APRA announced changes to reinforce sound mortgage lending practices, focusing on slowing investor growth and limiting the flow of new interest-only lending. Given the recent nature of this announcement, we have not yet determined whether or to what
extent these developments will impact our Australian mortgage insurance business.
109
Segment results of operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
The following table sets forth the results of operations relating to our Australia Mortgage Insurance segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Increase
(decrease) and
percentage
change
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
81
|
|
|
$
|
81
|
|
|
$
|
|
|
|
|
|
%
|
Net investment income
|
|
|
21
|
|
|
|
24
|
|
|
|
(3
|
)
|
|
|
(13
|
)%
|
Net investment gains (losses)
|
|
|
20
|
|
|
|
|
|
|
|
20
|
|
|
|
NM
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
122
|
|
|
|
105
|
|
|
|
17
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and other changes in policy reserves
|
|
|
28
|
|
|
|
21
|
|
|
|
7
|
|
|
|
33
|
%
|
Acquisition and operating expenses, net of deferrals
|
|
|
23
|
|
|
|
19
|
|
|
|
4
|
|
|
|
21
|
%
|
Amortization of deferred acquisition costs and intangibles
|
|
|
4
|
|
|
|
3
|
|
|
|
1
|
|
|
|
33
|
%
|
Interest expense
|
|
|
2
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
(33
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
57
|
|
|
|
46
|
|
|
|
11
|
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
65
|
|
|
|
59
|
|
|
|
6
|
|
|
|
10
|
%
|
Provision for income taxes
|
|
|
22
|
|
|
|
19
|
|
|
|
3
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
43
|
|
|
|
40
|
|
|
|
3
|
|
|
|
8
|
%
|
Less: income from continuing operations attributable to noncontrolling interests
|
|
|
23
|
|
|
|
21
|
|
|
|
2
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to Genworth Financial, Inc.s common
stockholders
|
|
|
20
|
|
|
|
19
|
|
|
|
1
|
|
|
|
5
|
%
|
Adjustments to income from continuing operations available to Genworth Financial, Inc.'s common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (gains) losses, net
(2)
|
|
|
(11
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
NM
|
(1)
|
Taxes on adjustments
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
NM
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
13
|
|
|
$
|
19
|
|
|
$
|
(6
|
)
|
|
|
(32
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
We define NM as not meaningful for increases or decreases greater than 200%.
|
(2)
|
For the three months ended March 31, 2017, net investment (gains) losses were adjusted for the portion of net investment gains (losses) attributable to
noncontrolling interests of $9 million.
|
Adjusted operating income available to Genworth Financial, Inc.s common stockholders
Adjusted operating income available to Genworth Financial, Inc.s common stockholders decreased primarily driven by higher
losses and higher acquisition and operating expenses, net of deferrals, in the current year.
Revenues
Premiums, excluding the impacts of foreign exchange rates, declined as lower flow volume and the seasoning of our smaller prior year in-force
blocks of business were partially offset by higher policy cancellations. The three months ended March 31, 2017 included an increase of $4 million attributable to changes in foreign exchange rates.
110
Net investment income decreased primarily from lower average invested assets and lower yields in
the current year.
Net investment gains in the current year were mainly related to net gains from the sale of investment securities due to
the rebalancing of our portfolio.
Benefits and expenses
Benefits and other changes in policy reserves increased largely attributable to higher new delinquencies, as well as a higher average reserve
per delinquency resulting from unfavorable aging of existing delinquencies primarily in commodity-dependent regions in the current year.
Acquisition and operating expenses, net of deferrals, increased primarily from higher operating expenses related to contract fees in the
current year.
Provision for income taxes.
The effective tax rate increased to 33.9% for the three months ended March 31, 2017
from 32.7% for the three months ended March 31, 2016. The increase in the effective tax rate was primarily attributable to decreased tax benefits from lower taxed foreign income in the current year.
Australia Mortgage Insurance selected operating performance measures
The following table sets forth selected operating performance measures regarding our Australia Mortgage Insurance segment as of or for the
dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the three
months ended
March 31,
|
|
|
Increase
(decrease) and
percentage
change
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Primary insurance in-force
|
|
$
|
246,400
|
|
|
$
|
246,800
|
|
|
$
|
(400
|
)
|
|
|
|
%
|
Risk in-force
|
|
|
85,700
|
|
|
|
86,000
|
|
|
|
(300
|
)
|
|
|
|
%
|
New insurance written
|
|
|
5,100
|
|
|
|
4,400
|
|
|
|
700
|
|
|
|
16
|
%
|
Net premiums written
|
|
|
54
|
|
|
|
47
|
|
|
|
7
|
|
|
|
15
|
%
|
Primary insurance in-force and risk in-force
Our mortgage insurance business in Australia currently provides 100% coverage on the majority of the loans we insure in those markets. For the
purpose of representing our risk in-force, we have computed an effective risk in-force amount, which recognizes that the loss on any particular loan will be reduced by the net proceeds received upon sale of the property. Effective risk
in-force has been calculated by applying to insurance in-force a factor that represents our highest expected average per-claim payment for any one underwriting year over the life of our business in Australia. For the three months ended
March 31, 2017 and 2016, this factor was 35%. We also have certain risk share arrangements where we provide pro-rata coverage of certain loans rather than 100% coverage. As a result, for loans with these risk share arrangements, the applicable
pro-rata coverage amount provided is used when applying the factor.
Primary insurance in-force and risk in-force decreased for the first
quarter of 2017 compared to the first quarter of 2016 primarily from changes in foreign exchange rates during the three months ended March 31, 2017.
New insurance written
New insurance written increased mainly attributable to $1.0 billion of bulk mortgage insurance, partially offset by lower flow mortgage
insurance written as a result of regulatory changes. The three months ended March 31, 2017 included an increase of $300 million attributable to changes in foreign exchange rates.
111
Net premiums written
Most of our Australian mortgage insurance policies provide for single premiums at the time that loan proceeds are advanced. We initially record
the single premiums to unearned premium reserves and recognize the premiums earned over time in accordance with the expected pattern of risk emergence. As of March 31, 2017, our unearned premium reserves were $873 million, compared to $976
million as of March 31, 2016.
Net premiums written increased primarily from higher bulk production and lower reinsurance costs in
the current year. The three months ended March 31, 2017 included an increase of $3 million attributable to changes in foreign exchange rates.
Loss and expense ratios
The following table sets forth the loss and expense ratios for our Australia Mortgage Insurance segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Increase (decrease)
|
|
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Loss ratio
|
|
|
35
|
%
|
|
|
26
|
%
|
|
|
9
|
%
|
Expense ratio (net earned premiums)
|
|
|
33
|
%
|
|
|
27
|
%
|
|
|
6
|
%
|
Expense ratio (net premiums written)
|
|
|
49
|
%
|
|
|
47
|
%
|
|
|
2
|
%
|
The loss ratio is the ratio of incurred losses and loss adjustment expenses to net earned premiums. The
expense ratio (net earned premiums) is the ratio of general expenses to net earned premiums. The expense ratio (net premiums written) is the ratio of general expenses to net premiums written. In our mortgage insurance business in Australia, general
expenses consist of acquisition and operating expenses, net of deferrals, and amortization of deferred acquisition costs and intangibles.
The loss ratio increased primarily driven by higher new delinquencies, as well as a higher average reserve per delinquency resulting from
unfavorable aging of existing delinquencies primarily in commodity-dependent regions in the current year.
The expense ratio (net earned
premiums) increased from higher operating expenses related to contract fees in the current year.
The expense ratio (net premiums written)
increased primarily from higher operating expenses related to contract fees, partially offset by an increase in net premiums written in the current year.
Delinquent loans
The
following table sets forth the number of loans insured, the number of delinquent loans and the delinquency rate for our Australia mortgage insurance portfolio as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
March 31,
2016
|
|
Primary insured loans in-force
|
|
|
1,443,836
|
|
|
|
1,464,139
|
|
|
|
1,479,544
|
|
Delinquent loans
|
|
|
6,926
|
|
|
|
6,731
|
|
|
|
5,889
|
|
Percentage of delinquent loans (delinquency rate)
|
|
|
0.48
|
%
|
|
|
0.46
|
%
|
|
|
0.40
|
%
|
|
|
|
|
Flow loans in-force
|
|
|
1,332,468
|
|
|
|
1,354,616
|
|
|
|
1,366,914
|
|
Flow delinquent loans
|
|
|
6,650
|
|
|
|
6,451
|
|
|
|
5,633
|
|
Percentage of flow delinquent loans (delinquency rate)
|
|
|
0.50
|
%
|
|
|
0.48
|
%
|
|
|
0.41
|
%
|
|
|
|
|
Bulk loans in-force
|
|
|
111,368
|
|
|
|
109,523
|
|
|
|
112,630
|
|
Bulk delinquent loans
|
|
|
276
|
|
|
|
280
|
|
|
|
256
|
|
Percentage of bulk delinquent loans (delinquency rate)
|
|
|
0.25
|
%
|
|
|
0.26
|
%
|
|
|
0.23
|
%
|
112
Loans in-force decreased primarily from policy cancellations. Flow delinquent loans increased
from higher new delinquencies primarily as a result of economic pressures in commodity-dependent regions.
Primary insurance delinquency
rates differ by the various states and territories of Australia at any one time depending upon economic conditions and cyclical growth patterns. The table below sets forth our primary delinquency rates for the states and territories of Australia by
our risk in-force as of the dates indicated. Delinquency rates are shown by region based upon the location of the underlying property, rather than the location of the lender.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of primary
risk in-force as of
March 31, 2017
|
|
|
Delinquency rate
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
March 31,
2016
|
|
By state and territory:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New South Wales
|
|
|
28
|
%
|
|
|
0.31
|
%
|
|
|
0.30
|
%
|
|
|
0.29
|
%
|
Queensland
|
|
|
23
|
|
|
|
0.68
|
%
|
|
|
0.66
|
%
|
|
|
0.55
|
%
|
Victoria
|
|
|
23
|
|
|
|
0.38
|
%
|
|
|
0.38
|
%
|
|
|
0.35
|
%
|
Western Australia
|
|
|
12
|
|
|
|
0.78
|
%
|
|
|
0.74
|
%
|
|
|
0.53
|
%
|
South Australia
|
|
|
6
|
|
|
|
0.66
|
%
|
|
|
0.61
|
%
|
|
|
0.52
|
%
|
Australian Capital Territory
|
|
|
3
|
|
|
|
0.19
|
%
|
|
|
0.17
|
%
|
|
|
0.18
|
%
|
Tasmania
|
|
|
2
|
|
|
|
0.36
|
%
|
|
|
0.35
|
%
|
|
|
0.38
|
%
|
New Zealand
|
|
|
2
|
|
|
|
0.07
|
%
|
|
|
0.07
|
%
|
|
|
0.13
|
%
|
Northern Territory
|
|
|
1
|
|
|
|
0.42
|
%
|
|
|
0.36
|
%
|
|
|
0.21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
0.48
|
%
|
|
|
0.46
|
%
|
|
|
0.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency rates increased in the current year compared to December 31, 2016 and March 31, 2016
primarily from higher new delinquencies attributable to economic pressures, partially in commodity-dependent regions.
U.S. Life Insurance segment
Trends and conditions
Results of our U.S. life insurance businesses depend significantly upon the extent to which our actual future experience is consistent with
assumptions and methodologies we have used in calculating our reserves. Many factors can affect the reserves in our U.S. life insurance businesses. Because these factors are not known in advance, change over time, are difficult to accurately predict
and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. We will continue to monitor our experience and assumptions closely and make changes to our
assumptions and methodologies, as appropriate, for our U.S. life insurance products. Even small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our DAC
amortization, reserve levels, results of operations and financial condition.
We perform loss recognition testing to ensure that the
current reserves along with the present value of future gross premiums are sufficient to cover the present value of future expected claims and expense, as well as recover the unamortized portion of DAC and, if any, PVFP. If the loss recognition test
indicates a deficiency in the ability to pay all future claims and expenses, including the amortization of DAC and PVFP, a loss is recognized in earnings as an impairment of the DAC and/or PVFP balance and, if the loss is greater than the DAC and/or
PVFP balance, by an increase in reserves. Our liability for policy and contract claims is reviewed quarterly and we conduct a review of our claim reserve assumptions for our long-term care insurance business annually typically during the third
quarter of each year. Our liability for future policy benefits is reviewed at least annually as a part of our loss recognition testing typically performed in the third or fourth quarter of each year. As part of loss recognition testing, we also
review the recoverability of DAC and PVFP at least annually. In
113
addition, we perform cash flow testing separately for each of our U.S. life insurance companies on a statutory accounting basis annually. We performed our annual review of claim reserve
assumptions for our long-term care insurance business in the third quarter of 2016. In the fourth quarter of 2016, we performed assumption reviews for our universal and term universal life insurance products as well as for our other U.S. life
insurance products, including our long-term care insurance products, and completed our loss recognition testing.
Our U.S. Life Insurance
segment will continue to migrate to a new valuation and projection platform for certain lines of business, while we upgrade platforms for other lines of business. The migration and upgrades are part of our ongoing efforts to improve the
infrastructure and capabilities of our information systems and our routine assessment and refinement of financial, actuarial, investment and risk management capabilities enterprise wide. These efforts will also provide our U.S. Life Insurance
segment with improved platforms to support emerging accounting guidance and ongoing changes in capital regulations. Concurrently, valuation processes and methodologies will be reviewed, and may result in additional refinements to assumptions. Any
material changes in balances, margins or income trends that may result from these activities will be disclosed accordingly. In addition, we intend to continue to enhance our modeling capabilities of our various businesses, including for our
long-term care insurance projections where we migrated to a new modeling system for the majority of our long-term care insurance business in the fourth quarter of 2016. We anticipate migrating the remaining portion of our retained long-term care
insurance business to this new modeling system by the end of 2017. The new modeling system will value and forecast associated liability cash flows and policyholder behavior at a more granular level than our current system.
One of our strategic objectives is to separate, then isolate, through a series of transactions, our long-term care insurance business from our
other U.S. life insurance businesses. Our goal under the plan is to align substantially all of our in-force life insurance and annuity business under GLAIC, our Virginia domiciled life insurance company, and all long-term care insurance business
under GLIC, our Delaware domiciled life insurance company. As part of this objective, effective April 1, 2017, GLAIC assumed risk on a coinsurance basis for certain blocks of term life insurance, universal life insurance and single premium
whole life insurance from GLIC. There will be no impact on our consolidated results of operations and financial condition prepared in accordance with U.S. GAAP as the financial impact of the intercompany reinsurance will be eliminated in
consolidation. We plan to execute additional reinsurance transactions as we continue to align our businesses as described above.
Results
of our U.S. life insurance businesses are also impacted by interest rates. The continued low interest rate environment puts pressure on the profitability and returns of these businesses as higher yielding investments have matured and been replaced
with lower-yielding investments. We seek to manage the impact of low interest rates through asset-liability management as well as interest rate hedging strategies for a portion of our long-term care insurance product cash flows. Additionally,
certain products have implicit and explicit rate guarantees or optionality that are significantly impacted by changes in interest rates. For a further discussion of the impact of interest rates on our U.S. life insurance businesses, see Item
7AQuantitative and Qualitative Disclosures About Market Risk in our 2016 Annual Report on Form 10-K.
Long-term care
insurance
Results of our long-term care insurance business are influenced primarily by sales, morbidity, mortality, persistency,
investment yields, expenses, ability to achieve rate actions, changes in regulations and reinsurance. Sales of our products are impacted by the relative competitiveness of our ratings, product features, pricing and commission levels and the impact
of in-force rate actions on distribution and consumer demand. Changes in regulations or government programs, including long-term care insurance rate action legislation, could impact our long-term care insurance business either positively or
negatively.
Our liability for policy and contract claims is reviewed quarterly and we conduct a detailed review of our claim reserve
assumptions for our long-term care insurance business annually typically during the third quarter of
114
each year. During the third quarter of 2016, we completed our annual review of assumptions and methodologies related to our long-term care insurance claim reserves, which resulted in recording
higher claim reserves of $460 million and reinsurance recoverables of $25 million. We updated several assumptions and methodologies primarily impacting claim termination rates, benefit utilization rates and incurred but not reported
reserves.
In the fourth quarter of 2016, we performed our loss recognition and cash flow testing. We incorporated the assumption and
methodology changes made in the third quarter of 2016 into these tests. These changes had a material negative impact on the margins of our long-term care insurance block, excluding the acquired block. The acquired block has a higher percentage of
indemnity policies and was positively affected by the new claim assumptions. As a part of the process, we considered incremental benefits from expected future rate actions that helped mitigate the impact of these changes. As part of the annual
testing, we also reviewed assumptions for incidence and interest rates, among other assumptions. We will continue to regularly review our methodologies and assumptions in light of emerging experience and may be required to make further adjustments
to our long-term care insurance claim reserves in the future, which could also impact our loss recognition and cash flow testing results. As of December 31, 2016, our loss recognition testing margins for our long-term care insurance business
were positive but have been significantly reduced from the 2015 levels. Any further materially adverse changes to our claim reserves or changes as a result of loss recognition testing may have a materially negative impact on our results of
operations, financial condition and business.
In connection with the updated assumptions and methodologies that increased claim reserves
on existing claims in our 2016 review, we now establish higher claim reserves on new claims, which will decrease earnings in future periods in which the higher reserves are recorded. Additionally, average claim reserves for new claims are higher as
the mix of claims continues to evolve, with an increasing number of policies with higher daily benefit amounts, unlimited benefit pools and higher inflation factors going on claim. Also, we expect growth in new claims as our blocks of business
continue to age. We also expect the remaining quarterly benefits of our in-force rate actions, in aggregate, to be lower in 2017 than the levels we experienced in 2016 as the implementation of certain rate increase approvals were largely completed
in the third quarter of 2016. In addition, premiums will decline as policies terminate from mortality and lapses.
We experience
volatility in our loss ratios caused by variances in policy terminations, claim terminations, claim severity and claim counts. Our approved premium rate actions may also cause fluctuations in our loss ratios during the period when reserves are
adjusted to reflect policyholders taking reduced benefits or non-forfeiture options within their policy coverage. In addition, we periodically review our reserve assumptions and methodologies based upon developing experience, which may result in
changes to claim reserves and loss recognition testing results, causing volatility in our operating results and loss ratios. Our loss ratio for the three months ended March 31, 2017 was 72%, reflecting our updated assumptions and methodologies
from our review in the third quarter of 2016, compared to 68% for the three months ended March 31, 2016. Our loss ratio for the three months ended December 31, 2016 was 79%.
Our long-term care insurance sales decreased 57% during the three months ended March 31, 2017 compared to the three months ended
March 31, 2016. Sales decreased primarily due to our lower ratings. We expect that our sales will continue to be adversely impacted by our current ratings. Future adverse ratings announcements or actions could negatively impact our sales levels
further.
Despite our low sales levels in our long-term care insurance business given our current ratings, we continue to evaluate new
products. For example, we previously launched an enhanced product to improve competitiveness, while meeting our targeted returns, by, among other things, reducing premium rates, benefit levels and adjusting other coverage options. In support of this
product, we are investing in targeted distribution and marketing initiatives to increase long-term care insurance sales. In addition, we are evaluating market trends and sales and investing in the development of products and distribution strategies
that we believe will help expand the long-term care insurance market over time and meet broader consumer needs.
115
We also manage risk and capital allocated to our long-term care insurance business through
utilization of external reinsurance in the form of coinsurance. We executed external reinsurance agreements to reinsure 20% of all sales of our individual long-term care insurance products that have been introduced since early 2013. External new
business reinsurance levels vary and are dependent on a number of factors, including price, availability, risk tolerance and capital levels. Over time, there can be no assurance that affordable, or any, reinsurance will continue to be available. We
also have external reinsurance on some older blocks of business which includes a treaty on a yearly renewable term basis on business that was written between 1998 and 2003. This yearly renewable term reinsurance provides coverage for claims on those
policies for 15 years after the policy was written. After 15 years, reinsurance coverage ends for policies not on claim, while reinsurance coverage continues for policies on claim until the claim ends. Since 2013, we have seen, and may continue to
see, an increase in our benefit costs as policies with reinsurance coverage exhaust their benefits or terminate and policies which are not covered by reinsurance go on claim.
As a result of ongoing challenges in our long-term care insurance business, we continue pursuing initiatives to improve the risk and
profitability profile of our business including: premium rate increases and associated benefit reductions on our in-force policies; product refinements; changes to our current product offerings in certain states; new distribution strategies;
refining underwriting requirements; managing expense levels; actively exploring additional reinsurance strategies; executing investment strategies targeting higher returns; enhancing our financial and actuarial analytical capabilities; and
considering other actions to improve the performance of the overall business. These efforts include a plan for significant future in-force premium rate increases on issued policies. For an update on rate actions, refer to Significant
DevelopmentsU.S. Life Insurance. We have suspended sales in Hawaii, Massachusetts, New Hampshire and Vermont, and will consider taking similar actions in the future, in other states where we are unable to obtain satisfactory rate
increases on in-force policies. We will also consider litigation against states that decline actuarially justified rate increases. We are currently in litigation with one state that has refused to approve actuarially justified rate actions. The
approval process for in-force premium rate increases and the amount and timing of the rate increases approved vary by state. In certain states, the decision to approve or disapprove a rate increase can take several years. Upon approval, insureds are
provided with written notice of the increase and increases are generally applied on the insureds next policy anniversary date. As a result, the benefits of any rate increase are not fully realized until the implementation cycle is complete and
are, therefore, expected to be realized over time.
The Pennsylvania Insurance Commissioner (the Commissioner) previously
placed long-term care insurer Penn Treaty in rehabilitation, an intermediate action before insolvency, and subsequently petitioned a state court to convert the rehabilitation into a liquidation. On November 9, 2016, the state court held a
hearing on the Commissioners petition to convert the rehabilitation into liquidation with no objections. As of December 31, 2016, the liquidation order had not been entered and as a result, we were unable to estimate when or to what
extent Penn Treaty would ultimately be declared insolvent, or the amount of the insolvency and we did not establish an accrual for guaranty fund assessments associated with Penn Treaty as of December 31, 2016. However, on March 1, 2017,
the Pennsylvania Commonwealth Court approved petitions to liquidate Penn Treaty due to financial difficulties that could not be resolved through rehabilitation. In the first quarter of 2017, we received guaranty fund assessments related to Penn
Treaty and recorded an accrual of $21 million.
Life insurance
Results of our life insurance business are impacted primarily by mortality, persistency, investment yields, expenses, reinsurance and statutory
reserve requirements, among other factors. As previously disclosed, we suspended sales of our traditional life insurance products on March 7, 2016.
We review our life assumptions at least annually typically in the third or fourth quarter of each year. As part of our annual review of
assumptions in the fourth quarter of 2016, we reviewed our assumptions, including interest rate assumptions, with the benefit of updated experience and comparisons to industry experience, where appropriate. As part of this review, we implemented an
updated mortality table for our life insurance products.
116
This updated table improved our mortality rates in younger ages but deteriorated mortality rates in older ages. Mortality levels may deviate each period from historical trends. As a result of the
updated assumptions, we recorded $196 million of after-tax charges in our universal and term universal life insurance products in the fourth quarter of 2016 primarily reflecting the mortality experience deterioration in older age populations.
We will continue to regularly review our assumptions in light of emerging experience and may be required to make further adjustments to our universal and term universal life insurance reserves in the future, which could also impact our loss
recognition testing results. Any further materially adverse changes to our reserves or changes as a result of loss recognition testing may have a materially negative impact on our results of operations, financial condition and business. In
connection with the updated assumptions from our 2016 review, we have and continue to expect to record higher DAC amortization and establish higher reserves, which will decrease earnings in future periods.
Between 1999 and 2009, we had a significant increase in term life insurance sales, as compared to 1998 and prior years. As our 15-year term
life insurance policies written in 1999 and 2000 transition to their post-level guaranteed premium rate period, we have experienced lower persistency compared to our pricing and valuation assumptions. The blocks of business issued since 2000 vary in
size as compared to the 1999 and 2000 blocks of business. Accordingly, in the future, as additional 10-, 15- and 20-year level premium period blocks enter their post-level guaranteed premium rate period, we may experience volatility in DAC
amortization, premiums and mortality experience, which may reduce profitability or create losses in our term life insurance products, in amounts that could be material, if persistency is lower than our original assumptions as it has been on our 10-
and 15-year business written in 1999 and 2000. As of March 31, 2017, our term life insurance products had a DAC balance of $1.4 billion. We have also taken actions to mitigate potentially unfavorable impacts through the use of reinsurance,
particularly for certain term life insurance policies issued between 2001 and 2004.
Fixed annuities
Results of our fixed annuities business are affected primarily by investment performance, interest rate levels, the slope of the interest rate
yield curve, net interest spreads, equity market conditions, mortality, persistency, expense and commission levels, and competitor actions. As previously disclosed, we suspended sales of our traditional fixed annuity products on March 7, 2016.
We monitor and change crediting rates on fixed annuities on a regular basis to maintain spreads and targeted returns. However, if
interest rates remain at current levels or decrease further, we could see declines in spreads. For fixed indexed annuities, equity market performance and volatility could result in additional gains or losses, although associated hedging activities
are expected to partially mitigate these impacts.
117
Segment results of operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
The following table sets forth the results of operations relating to our U.S. Life Insurance segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Increase
(decrease) and
percentage
change
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
758
|
|
|
$
|
436
|
|
|
$
|
322
|
|
|
|
74
|
%
|
Net investment income
|
|
|
681
|
|
|
|
684
|
|
|
|
(3
|
)
|
|
|
|
%
|
Net investment gains (losses)
|
|
|
7
|
|
|
|
(16
|
)
|
|
|
23
|
|
|
|
144
|
%
|
Policy fees and other income
|
|
|
170
|
|
|
|
177
|
|
|
|
(7
|
)
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,616
|
|
|
|
1,281
|
|
|
|
335
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and other changes in policy reserves
|
|
|
1,164
|
|
|
|
758
|
|
|
|
406
|
|
|
|
54
|
%
|
Interest credited
|
|
|
132
|
|
|
|
144
|
|
|
|
(12
|
)
|
|
|
(8
|
)%
|
Acquisition and operating expenses, net of deferrals
|
|
|
157
|
|
|
|
165
|
|
|
|
(8
|
)
|
|
|
(5
|
)%
|
Amortization of deferred acquisition costs and intangibles
|
|
|
70
|
|
|
|
78
|
|
|
|
(8
|
)
|
|
|
(10
|
)%
|
Interest expense
|
|
|
3
|
|
|
|
28
|
|
|
|
(25
|
)
|
|
|
(89
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
1,526
|
|
|
|
1,173
|
|
|
|
353
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
90
|
|
|
|
108
|
|
|
|
(18
|
)
|
|
|
(17
|
)%
|
Provision for income taxes
|
|
|
32
|
|
|
|
39
|
|
|
|
(7
|
)
|
|
|
(18
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
58
|
|
|
|
69
|
|
|
|
(11
|
)
|
|
|
(16
|
)%
|
Adjustments to income from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (gains) losses, net
(1)
|
|
|
(8
|
)
|
|
|
11
|
|
|
|
(19
|
)
|
|
|
(173
|
)%
|
(Gains) losses from life block transactions
|
|
|
|
|
|
|
9
|
|
|
|
(9
|
)
|
|
|
(100
|
)%
|
Expenses related to restructuring
|
|
|
|
|
|
|
15
|
|
|
|
(15
|
)
|
|
|
(100
|
)%
|
Taxes on adjustments
|
|
|
3
|
|
|
|
(13
|
)
|
|
|
16
|
|
|
|
123
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
53
|
|
|
$
|
91
|
|
|
$
|
(38
|
)
|
|
|
(42
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the three months ended March 31, 2017 and 2016, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(1) million and $(5) million, respectively.
|
The following table sets forth adjusted operating income available to Genworth Financial, Inc.s common stockholders
for the businesses included in our U.S. Life Insurance segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31,
|
|
|
Increase
(decrease) and
percentage
change
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Adjusted operating income available to Genworth Financial, Inc.s common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term care insurance
|
|
$
|
14
|
|
|
$
|
34
|
|
|
$
|
(20
|
)
|
|
|
(59
|
)%
|
Life insurance
|
|
|
16
|
|
|
|
31
|
|
|
|
(15
|
)
|
|
|
(48
|
)%
|
Fixed annuities
|
|
|
23
|
|
|
|
26
|
|
|
|
(3
|
)
|
|
|
(12
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted operating income available to Genworth Financial, Inc.s common
stockholders
|
|
$
|
53
|
|
|
$
|
91
|
|
|
$
|
(38
|
)
|
|
|
(42
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
Adjusted operating income available to Genworth Financial, Inc.s common stockholders
|
|
|
Our long-term care insurance business decreased $20 million primarily from higher severity on new claims and $14 million of guaranty fund assessments in connection with the Penn Treaty liquidation, partially offset by
favorable claim terminations and benefit utilization. We also had incremental reserves of $10 million recorded in connection with an accrual for profits followed by losses as a result of higher profitability driven by the favorable claim
terminations. There were also higher incremental premiums and reduced benefits of $7 million in the current year from in-force rate actions approved and implemented.
|
|
|
|
Our life insurance business decreased $15 million principally from higher reserves in the current year reflecting the updated assumptions from the fourth quarter of 2016 and unfavorable mortality, partially offset by
lower financing costs. The prior year included a favorable prepayment speed adjustment on structured securities that did not recur.
|
|
|
|
Our fixed annuities business decreased $3 million predominantly from lower investment income and higher reserves related to loss recognition testing, partially offset by favorable mortality and lower operating expenses
in the current year.
|
Revenues
Premiums
|
|
|
Our long-term care insurance business increased $16 million largely from $25 million of increased premiums in the current year from in-force rate actions approved and implemented, partially offset by policy terminations
in the current year.
|
|
|
|
Our life insurance business increased $309 million mainly attributable to the impact of a reinsurance treaty under which we initially ceded $326 million of certain term life insurance premiums as part of a life block
transaction in the first quarter of 2016, partially offset by the continued runoff of our term life insurance products in the current year.
|
|
|
|
Our fixed annuities business decreased $3 million principally from suspending sales of our life-contingent products on March 7, 2016.
|
Net investment income
|
|
|
Our long-term care insurance business increased $27 million largely from higher average invested assets due to growth of our in-force block and $8 million of higher income related to inflation-driven volatility on U.S.
Government Treasury Protected Securities (TIPS) in the current year. These increases were partially offset by lower yields in the current year and a $5 million favorable prepayment speed adjustment on structured securities in the prior
year that did not recur.
|
|
|
|
Our life insurance business decreased $8 million from a favorable prepayment speed adjustment on structured securities in the prior year that did not recur.
|
|
|
|
Our fixed annuities business decreased $22 million largely due to lower average invested assets in the current year.
|
Net investment gains (losses).
Net investment gains in the current year were predominantly related to net gains from the sale of
investment securities in our long-term care insurance business. Net investment losses in the prior year were principally related to net losses from the sale of investment securities, impairments and derivative losses in our fixed annuities business.
Policy fees and other income.
The decrease was mostly attributable to our life insurance business primarily as a result of
suspending sales of these products on March 7, 2016 and a decline in our term universal and universal life insurance in-force blocks in the current year.
119
Benefits and expenses
Benefits and other changes in policy reserves
|
|
|
Our long-term care insurance business increased $59 million mainly from aging and growth of the in-force block and higher severity on new claims in the current year. The increase was also attributable to a $14 million
less favorable impact from reduced benefits related to in-force rate actions approved and implemented and incremental reserves of $15 million recorded in connection with an accrual for profits followed by losses in the current year. These increases
were partially offset by favorable claim terminations and benefit utilization in the current year.
|
|
|
|
Our life insurance business increased $348 million principally related to the impact of a reinsurance treaty under which we initially ceded $331 million of certain term life insurance reserves as part of a life block
transaction in the first quarter of 2016. The increase was also attributable to higher universal and term universal life insurance reserves reflecting our updated assumptions from the fourth quarter of 2016 and unfavorable mortality in the current
year.
|
|
|
|
Our fixed annuities business decreased $1 million primarily from lower interest credited, lower production of life-contingent products as a result of suspending sales of these products on March 7, 2016 and
favorable mortality in the current year. These decreases were mostly offset by an increase in reserves of $6 million related to loss recognition testing in our fixed immediate annuity products in the current year.
|
Interest credited.
Interest credited decreased driven mostly by our fixed annuities business predominantly from lower average account
values and a decrease in crediting rates in the current year.
Acquisition and operating expenses, net of deferrals
|
|
|
Our long-term care insurance business increased $17 million principally from $21 million of guaranty fund assessments in connection with the Penn Treaty liquidation in the current year. This increase was partially
offset by a $3 million restructuring charge and a $3 million write-off of a receivable associated with a disputed reinsurance claim in the prior year that did not recur.
|
|
|
|
Our life insurance business decreased $18 million primarily from lower operating expenses attributable to the suspension of sales on March 7, 2016. The decrease was also attributable to a $5 million restructuring
charge and expenses of $5 million associated with the life block transaction in the first quarter of 2016 that did not recur.
|
|
|
|
Our fixed annuities business decreased $7 million largely attributable to lower operating expenses as a result of the suspension of sales on March 7, 2016 and a $4 million restructuring charge in the prior year
that did not recur.
|
Amortization of deferred acquisition costs and intangibles
|
|
|
Our long-term care insurance business decreased $3 million principally from a smaller in-force block in the current year as a result of lower sales.
|
|
|
|
Our life insurance business decreased $4 million largely related to our updated assumptions from the fourth quarter of 2016 and the write-off of $3 million of computer software in connection with a restructuring charge
in the prior year that did not recur.
|
Interest expense.
Interest expense decreased driven by our life insurance
business principally as a result of the life block transaction in the first quarter of 2016 which included the redemption of certain non-recourse funding obligations and the write-off of $9 million of deferred borrowing costs associated with our
non-recourse funding obligations as well as the restructuring of a captive reinsurance entity.
120
Provision for income taxes.
The effective tax rate was 35.3% for the three months ended
March 31, 2017 and 2016.
Long-term care insurance
The following table sets forth selected operating performance measures regarding our long-term care insurance business as of or for the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended March 31,
|
|
|
Increase
(decrease) and
percentage
change
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Net earned premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual long-term care insurance
|
|
$
|
606
|
|
|
$
|
591
|
|
|
$
|
15
|
|
|
|
3
|
%
|
Group long-term care insurance
|
|
|
28
|
|
|
|
27
|
|
|
|
1
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
634
|
|
|
$
|
618
|
|
|
$
|
16
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized first-year premiums and deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual long-term care insurance
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
(3
|
)
|
|
|
(60
|
)%
|
Group long-term care insurance
|
|
|
1
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(50
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized first-year premiums and deposits
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
(4
|
)
|
|
|
(57
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
72
|
%
|
|
|
68
|
%
|
|
|
4
|
%
|
|
|
|
|
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.
Net earned premiums increased mostly from $25 million of increased premiums in the
current year from in-force rate actions approved and implemented, partially offset by policy terminations in the current year.
Annualized
first-year premiums and deposits decreased principally from lower sales due to our current ratings.
The loss ratio increased largely
related to the increase in benefits and other changes in reserves, partially offset by higher premiums as discussed above.
121
Life insurance
The following table sets forth selected operating performance measures regarding our life insurance business as of or for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Increase (decrease)
and percentage
change
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Term and whole life insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums
|
|
$
|
124
|
|
|
$
|
(185
|
)
|
|
$
|
309
|
|
|
|
167
|
%
|
Sales
|
|
|
|
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
(100
|
)%
|
Life insurance in-force, net of reinsurance
|
|
|
201,217
|
|
|
|
228,958
|
|
|
|
(27,741
|
)
|
|
|
(12
|
)%
|
Life insurance in-force before reinsurance
|
|
|
481,872
|
|
|
|
506,572
|
|
|
|
(24,700
|
)
|
|
|
(5
|
)%
|
Term universal life insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deposits
|
|
$
|
62
|
|
|
$
|
64
|
|
|
$
|
(2
|
)
|
|
|
(3
|
)%
|
Life insurance in-force, net of reinsurance
|
|
|
121,101
|
|
|
|
124,265
|
|
|
|
(3,164
|
)
|
|
|
(3
|
)%
|
Life insurance in-force before reinsurance
|
|
|
121,985
|
|
|
|
125,189
|
|
|
|
(3,204
|
)
|
|
|
(3
|
)%
|
Universal life insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deposits
|
|
$
|
88
|
|
|
$
|
111
|
|
|
$
|
(23
|
)
|
|
|
(21
|
)%
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal life insurance
|
|
|
1
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(50
|
)%
|
Linked-benefits
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
(100
|
)%
|
Life insurance in-force, net of reinsurance
|
|
|
38,323
|
|
|
|
39,888
|
|
|
|
(1,565
|
)
|
|
|
(4
|
)%
|
Life insurance in-force before reinsurance
|
|
|
43,905
|
|
|
|
45,945
|
|
|
|
(2,040
|
)
|
|
|
(4
|
)%
|
Total life insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums and deposits
|
|
$
|
274
|
|
|
$
|
(10
|
)
|
|
$
|
284
|
|
|
|
NM
|
(1)
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term life insurance
|
|
|
|
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
(100
|
)%
|
Universal life insurance
|
|
|
1
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(50
|
)%
|
Linked-benefits
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
(100
|
)%
|
Life insurance in-force, net of reinsurance
|
|
|
360,641
|
|
|
|
393,111
|
|
|
|
(32,470
|
)
|
|
|
(8
|
)%
|
Life insurance in-force before reinsurance
|
|
|
647,762
|
|
|
|
677,706
|
|
|
|
(29,944
|
)
|
|
|
(4
|
)%
|
(1)
|
We define NM as not meaningful for increases or decreases greater than 200%.
|
Term and whole life insurance
Net earned premiums increased primarily related to the impact of a reinsurance treaty whereby we initially ceded $326 million of certain term
life insurance premiums as part of a life block transaction in the first quarter of 2016, partially offset by the continued runoff of our term life insurance products in the current year. Sales of our term life insurance product decreased
predominantly related to the suspension of sales of our traditional life insurance products on March 7, 2016. While we no longer solicit sales of these products, we continue to service our existing block of business.
Term universal life insurance
We no longer solicit sales of term universal life insurance products; however, we continue to service our existing block of business.
Universal life insurance
Net deposits decreased primarily from the suspension of sales of our traditional life insurance products on March 7, 2016. While we no
longer solicit sales of these products, we continue to service our existing block of business.
122
Fixed annuities
The following table sets forth selected operating performance measures regarding our fixed annuities as of or for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
As of or for the three
months ended March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Single Premium Deferred Annuities
|
|
|
|
|
|
|
|
|
Account value, beginning of period
|
|
$
|
11,806
|
|
|
$
|
12,480
|
|
Deposits
|
|
|
2
|
|
|
|
162
|
|
Surrenders, benefits and product charges
|
|
|
(305
|
)
|
|
|
(314
|
)
|
|
|
|
|
|
|
|
|
|
Net flows
|
|
|
(303
|
)
|
|
|
(152
|
)
|
Interest credited and investment performance
|
|
|
82
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Account value, end of period
|
|
$
|
11,585
|
|
|
$
|
12,397
|
|
|
|
|
|
|
|
|
|
|
Single Premium Immediate Annuities
|
|
|
|
|
|
|
|
|
Account value, beginning of period
|
|
$
|
4,853
|
|
|
$
|
5,180
|
|
Premiums and deposits
|
|
|
21
|
|
|
|
26
|
|
Surrenders, benefits and product charges
|
|
|
(175
|
)
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
|
Net flows
|
|
|
(154
|
)
|
|
|
(167
|
)
|
Interest credited
|
|
|
54
|
|
|
|
59
|
|
Effect of accumulated net unrealized investment gains (losses)
|
|
|
28
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
Account value, end of period
|
|
$
|
4,781
|
|
|
$
|
5,163
|
|
|
|
|
|
|
|
|
|
|
Structured Settlements
|
|
|
|
|
|
|
|
|
Account value, net of reinsurance, beginning of period
|
|
$
|
1,061
|
|
|
$
|
1,066
|
|
Surrenders, benefits and product charges
|
|
|
(16
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Net flows
|
|
|
(16
|
)
|
|
|
(15
|
)
|
Interest credited
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Account value, net of reinsurance, end of period
|
|
$
|
1,059
|
|
|
$
|
1,065
|
|
|
|
|
|
|
|
|
|
|
Total premiums from fixed annuities
|
|
$
|
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
Total deposits from fixed annuities
|
|
$
|
23
|
|
|
$
|
185
|
|
|
|
|
|
|
|
|
|
|
Single Premium Deferred Annuities
Account value of our single premium deferred annuities decreased as surrenders and benefits outpaced deposits and interest credited. Deposits
decreased primarily related to the suspension of sales of our traditional fixed annuity products on March 7, 2016. While we no longer solicit sales of these products, we continue to service our existing block of business.
Single Premium Immediate Annuities
Account value of our single premium immediate annuities decreased as benefits exceeded interest credited, net unrealized investment gains and
premiums. Sales decreased predominantly related to the suspension of sales of our traditional fixed annuity products on March 7, 2016. While we no longer solicit sales of these products, we continue to service our existing block of business.
123
Structured Settlements
We no longer solicit sales of structured settlements; however, we continue to service our existing block of business.
Runoff segment
Trends and conditions
Results of our Runoff segment are affected primarily by investment performance, interest rate levels, net interest spreads, equity market
conditions, mortality, policyholder loan activity, policyholder surrenders and scheduled maturities. In addition, the results of our Runoff segment can significantly impact our operating performance, regulatory capital requirements, distributable
earnings and liquidity.
We discontinued sales of our individual and group variable annuities in 2011; however, we continue to service our
existing blocks of variable annuity business and accept additional deposits on existing contracts. Equity market volatility has caused fluctuations in the results of our variable annuity products and regulatory capital requirements. In the future,
equity and interest rate market performance and volatility could result in additional gains or losses in our variable annuity products although associated hedging activities are expected to partially mitigate these impacts. Volatility in the results
of our variable annuity products can result in favorable or unfavorable impacts on earnings and statutory capital. In addition to the use of hedging activities to help mitigate impacts related to equity market volatility and interest rate risks, in
the future, we may consider reinsurance opportunities to further mitigate volatility in results and manage capital.
The results of our
institutional products are impacted by scheduled maturities of the liabilities, credit and interest income performance on assets, as well as liquidity levels. However, we believe our liquidity planning and our asset-liability management will
mitigate this risk. While we do not actively sell institutional products, we may periodically issue funding agreements for asset-liability matching purposes.
Several factors may impact the time period for these products to runoff including the specific policy types, economic conditions and
management strategies.
124
Segment results of operations
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
The following table sets forth the results of operations relating to our Runoff segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Increase
(decrease) and
percentage
change
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
38
|
|
|
$
|
35
|
|
|
$
|
3
|
|
|
|
9
|
%
|
Net investment gains (losses)
|
|
|
8
|
|
|
|
(8
|
)
|
|
|
16
|
|
|
|
200
|
%
|
Policy fees and other income
|
|
|
41
|
|
|
|
42
|
|
|
|
(1
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
87
|
|
|
|
69
|
|
|
|
18
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and other changes in policy reserves
|
|
|
4
|
|
|
|
15
|
|
|
|
(11
|
)
|
|
|
(73
|
)%
|
Interest credited
|
|
|
35
|
|
|
|
33
|
|
|
|
2
|
|
|
|
6
|
%
|
Acquisition and operating expenses, net of deferrals
|
|
|
15
|
|
|
|
16
|
|
|
|
(1
|
)
|
|
|
(6
|
)%
|
Amortization of deferred acquisition costs and intangibles
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
60
|
|
|
|
70
|
|
|
|
(10
|
)
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
27
|
|
|
|
(1
|
)
|
|
|
28
|
|
|
|
NM
|
(1)
|
Provision (benefit) for income taxes
|
|
|
8
|
|
|
|
(2
|
)
|
|
|
10
|
|
|
|
NM
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
19
|
|
|
|
1
|
|
|
|
18
|
|
|
|
NM
|
(1)
|
Adjustments to income from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (gains) losses, net
(2)
|
|
|
(7
|
)
|
|
|
4
|
|
|
|
(11
|
)
|
|
|
NM
|
(1)
|
Taxes on adjustments
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
NM
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
14
|
|
|
$
|
4
|
|
|
$
|
10
|
|
|
|
NM
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
We define NM as not meaningful for increases or decreases greater than 200%.
|
(2)
|
For the three months ended March 31, 2017 and 2016, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $1 million and $(4) million, respectively.
|
Adjusted operating income available to Genworth Financial, Inc.s common stockholders
Adjusted operating income available to Genworth Financial, Inc.s common stockholders increased driven by favorable equity market
performance in the current year.
Revenues
Net investment income increased driven by higher policy loan income in our corporate-owned life insurance products
Net investment gains in the current year were primarily related to gains on embedded derivatives associated with our variable annuity products
with guaranteed minimum withdrawal benefits (GMWBs), partially offset by derivative losses. Net investment losses in the prior year were largely related to losses on embedded derivatives associated with our variable annuity products with
GMWBs, partially offset by derivative gains and changes in hedge positions in the prior year.
125
Benefits and expenses
Benefits and other changes in policy reserves decreased primarily attributable to a decline in GMDB reserves in our variable annuity products
due to favorable equity market performance in the current year.
Provision (benefit) for income taxes
. The effective tax rate
decreased to 30.8% for the three months ended March 31, 2017 from 151.6% for the three months ended March 31, 2016. The decrease in the effective tax rate is primarily attributable to changes in tax favored investment benefits in relation
to pre-tax results in the current year compared to the prior year.
Runoff selected operating performance measures
Variable annuity and variable life insurance products
The following table sets forth selected operating performance measures regarding our variable annuity and variable life insurance products as
of or for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
As of or for the three
months ended
March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Variable AnnuitiesIncome Distribution Series
(1)
|
|
|
|
|
|
|
|
|
Account value, beginning of period
|
|
$
|
4,581
|
|
|
$
|
4,942
|
|
Deposits
|
|
|
4
|
|
|
|
6
|
|
Surrenders, benefits and product charges
|
|
|
(155
|
)
|
|
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
Net flows
|
|
|
(151
|
)
|
|
|
(133
|
)
|
Interest credited and investment performance
|
|
|
130
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
Account value, end of period
|
|
$
|
4,560
|
|
|
$
|
4,888
|
|
|
|
|
|
|
|
|
|
|
Traditional Variable Annuities
|
|
|
|
|
|
|
|
|
Account value, net of reinsurance, beginning of period
|
|
$
|
1,167
|
|
|
$
|
1,241
|
|
Deposits
|
|
|
3
|
|
|
|
1
|
|
Surrenders, benefits and product charges
|
|
|
(60
|
)
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
Net flows
|
|
|
(57
|
)
|
|
|
(52
|
)
|
Interest credited and investment performance
|
|
|
52
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Account value, net of reinsurance, end of period
|
|
$
|
1,162
|
|
|
$
|
1,200
|
|
|
|
|
|
|
|
|
|
|
Variable Life Insurance
|
|
|
|
|
|
|
|
|
Account value, beginning of period
|
|
$
|
283
|
|
|
$
|
291
|
|
Deposits
|
|
|
2
|
|
|
|
2
|
|
Surrenders, benefits and product charges
|
|
|
(9
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
Net flows
|
|
|
(7
|
)
|
|
|
(8
|
)
|
Interest credited and investment performance
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account value, end of period
|
|
$
|
291
|
|
|
$
|
283
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Income Distribution Series products are comprised of our deferred and immediate variable annuity products, including those variable annuity products with rider options that provide guaranteed income benefits,
including GMWBs and certain types of guaranteed annuitization benefits. These products do not include fixed single premium immediate annuities or deferred annuities, which may also serve income distribution needs.
|
126
Variable AnnuitiesIncome Distribution Series
Account value related to our Income Distribution Series products decreased compared to December 31, 2016 primarily related to surrenders
outpacing favorable equity market performance. We no longer solicit sales of our variable annuities; however, we continue to service our existing block of business and accept additional deposits on existing contracts.
Traditional Variable Annuities
In our traditional variable annuities, the decrease in account values compared to December 31, 2016 was primarily the result of surrenders
outpacing favorable equity market performance. We no longer solicit sales of our variable annuities; however, we continue to service our existing block of business and accept additional deposits on existing contracts.
Variable Life Insurance
We no longer solicit sales of variable life insurance; however, we continue to service our existing block of business.
Institutional products
The
following table sets forth selected operating performance measures regarding our institutional products as of or for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
As of or for the three
months ended March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
GICs, FABNs and Funding Agreements
|
|
|
|
|
|
|
|
|
Account value, beginning of period
|
|
$
|
560
|
|
|
$
|
410
|
|
Deposits
|
|
|
|
|
|
|
150
|
|
Surrenders and benefits
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Net flows
|
|
|
(2
|
)
|
|
|
149
|
|
Interest credited
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Account value, end of period
|
|
$
|
560
|
|
|
$
|
561
|
|
|
|
|
|
|
|
|
|
|
Account value related to our institutional products remained unchanged compared to December 31, 2016.
Deposits in the prior year related to funding agreements for asset-liability management and yield enhancement.
127
Corporate and Other Activities
Results of operations
Three Months Ended
March 31, 2017 Compared to Three Months Ended March 31, 2016
The following table sets forth the results of operations
relating to Corporate and Other activities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
Increase
(decrease) and
percentage
change
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
2
|
|
|
$
|
6
|
|
|
$
|
(4
|
)
|
|
|
(67
|
)%
|
Net investment income
|
|
|
1
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(50
|
)%
|
Net investment gains (losses)
|
|
|
(12
|
)
|
|
|
(14
|
)
|
|
|
2
|
|
|
|
14
|
%
|
Policy fees and other income
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
(200
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
(10
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and other changes in policy reserves
|
|
|
1
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(50
|
)%
|
Acquisition and operating expenses, net of deferrals
|
|
|
14
|
|
|
|
137
|
|
|
|
(123
|
)
|
|
|
(90
|
)%
|
Interest expense
|
|
|
53
|
|
|
|
70
|
|
|
|
(17
|
)
|
|
|
(24
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
68
|
|
|
|
209
|
|
|
|
(141
|
)
|
|
|
(67
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(78
|
)
|
|
|
(214
|
)
|
|
|
136
|
|
|
|
64
|
%
|
Benefit for income taxes
|
|
|
(23
|
)
|
|
|
(96
|
)
|
|
|
73
|
|
|
|
76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(55
|
)
|
|
|
(118
|
)
|
|
|
63
|
|
|
|
53
|
%
|
Adjustments to loss from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (gains) losses
|
|
|
12
|
|
|
|
14
|
|
|
|
(2
|
)
|
|
|
(14
|
)%
|
(Gains) losses on sale of businesses
|
|
|
|
|
|
|
7
|
|
|
|
(7
|
)
|
|
|
(100
|
)%
|
(Gains) losses on early extinguishment of debt
|
|
|
|
|
|
|
16
|
|
|
|
(16
|
)
|
|
|
(100
|
)%
|
Expenses related to restructuring
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
NM
|
(1)
|
Fees associated with bond consent solicitation
|
|
|
|
|
|
|
18
|
|
|
|
(18
|
)
|
|
|
(100
|
)%
|
Taxes on adjustments
|
|
|
(4
|
)
|
|
|
(42
|
)
|
|
|
38
|
|
|
|
90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating loss available to Genworth Financial, Inc.'s common stockholders
|
|
$
|
(46
|
)
|
|
$
|
(105
|
)
|
|
$
|
59
|
|
|
|
56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating loss available to Genworth Financial, Inc.s common stockholders
The adjusted operating loss available to Genworth Financial, Inc.s common stockholders decreased primarily related to lower operating
expenses and interest expense in the current year.
Revenues
Premiums decreased largely related to the sale of our European mortgage insurance business in May 2016.
The decrease in net investment losses was primarily related to lower derivative losses, partially offset by net losses from the sale of
investment securities in the current year compared to net gains in the prior year.
128
Benefits and expenses
Acquisition and operating expenses, net of deferrals, decreased mainly driven by expenses in the prior year that did not recur. The prior year
expenses included $79 million of a litigation settlement and related legal expenses, $20 million of expenses related to the early redemption of debt, $18 million of bond consent fees and a $7 million loss related to the sale of our European mortgage
insurance business.
Interest expense decreased largely driven by lower interest expense associated with a favorable correction of $11
million related to our Tax Matters Agreement liability and a contractual change in our junior subordinated notes related to an interest rate change from fixed to floating rates.
The decrease in the benefit for income taxes was primarily related to a release of a valuation allowance on a specific capital loss in the
prior year and true ups related to foreign income taxes in the current year. These decreases were partially offset by an increase in the benefit for income taxes related to stock-based compensation in the current year and from true ups related to
state income taxes in the current year.
Investments and Derivative Instruments
Trends and conditions
Investmentscredit and investment markets
The U.S. Federal Reserve raised its benchmark lending rate during the first quarter of 2017 and market expectations remain for two additional
rate increases during 2017. As a result of the Federal Reserves action, U.S. Treasury yields rose initially during the first part of the first quarter of 2017, but lost much of the increase later in the quarter as the timing of anticipated
pro-growth stimulus policies has become more uncertain and heightened geo-political risks have served to moderate the growth outlook. However, data has generally been supportive of improved growth prospects, with business and consumer
confidence at multi-year highs, supporting both U.S. equity and bond credit spread rallies during the current quarter. U.S. Fixed Income markets saw record issuance, but that was absorbed well by investors. Global equity markets generally rose
as well, although some markets were more muted, and global bond markets closed relatively unchanged from the December 31, 2016 year-end levels.
As of March 31, 2017, our fixed maturities securities portfolio, which was 96% investment grade, comprised 81% of our total investment
portfolio. Our $3.7 billion energy portfolio was predominantly investment grade and our metals and mining sector holdings were less than 1% of our total investment portfolio as of March 31, 2017. We believe our energy portfolio is
well-diversified and would expect manageable capital impact on our U.S. life insurance subsidiaries.
Derivatives
We actively responded to the risk to our derivatives portfolio arising from our counterparties right to terminate their bilateral
over-the-counter (OTC) derivatives transactions with us following the downgrades of our life insurance subsidiaries in March 2017, September 2016 and October 2016. We notified our counterparties of the downgrades to determine
whether they would exercise their rights to terminate the transactions, agree to maintain the transactions with us under revised terms or permit us to move the transactions to clearing through the Chicago Mercantile Exchange (CME).
Although some counterparties have indicated that they reserve their rights to take action against us, none have and we continue to discuss the downgrades with them.
As of March 31, 2017, $14.4 billion notional of our derivatives portfolio was cleared through the CME. The customer swap agreements that
govern our cleared derivatives contain provisions that enable our clearing agents to request initial margin in excess of CME requirements. As of March 31, 2017, we posted initial margin of $315 million to our clearing agents, which represented
approximately $77 million more than was otherwise required by the clearinghouse. Because our clearing agents serve as guarantors of our obligations to the CME, the
129
customer agreements contain broad termination provisions that are not specifically dependent on ratings. As of March 31, 2017, $6.3 billion notional of our derivatives portfolio was in
bilateral OTC derivative transactions pursuant to which we have posted aggregate independent amounts of $275 million and are holding collateral from counterparties in the amount of $78 million. We have notional of $271 million in bilateral OTC
derivatives where the counterparty has the right to terminate its transactions with us based on our current ratings. Given our current ratings, our ability to enter into new derivatives transactions will be more limited.
Investment results
The following table sets forth information about our investment income, excluding net investment gains (losses), for each component of our
investment portfolio for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
Increase
(decrease)
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
|
2017 vs. 2016
|
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
|
Yield
|
|
|
Amount
|
|
Fixed maturity securitiestaxable
|
|
|
4.5
|
%
|
|
$
|
641
|
|
|
|
4.7
|
%
|
|
$
|
641
|
|
|
|
(0.2
|
)%
|
|
$
|
|
|
Fixed maturity securitiesnon-taxable
|
|
|
3.7
|
%
|
|
|
3
|
|
|
|
3.6
|
%
|
|
|
3
|
|
|
|
0.1
|
%
|
|
|
|
|
Commercial mortgage loans
|
|
|
5.0
|
%
|
|
|
77
|
|
|
|
5.2
|
%
|
|
|
81
|
|
|
|
(0.2
|
)%
|
|
|
(4
|
)
|
Restricted commercial mortgage loans related to securitization entities
|
|
|
6.4
|
%
|
|
|
2
|
|
|
|
5.1
|
%
|
|
|
2
|
|
|
|
1.3
|
%
|
|
|
|
|
Equity securities
|
|
|
4.9
|
%
|
|
|
8
|
|
|
|
5.1
|
%
|
|
|
5
|
|
|
|
(0.2
|
)%
|
|
|
3
|
|
Other invested assets
|
|
|
35.2
|
%
|
|
|
32
|
|
|
|
24.6
|
%
|
|
|
38
|
|
|
|
10.6
|
%
|
|
|
(6
|
)
|
Restricted other invested assets related to securitization entities
|
|
|
|
%
|
|
|
|
|
|
|
2.0
|
%
|
|
|
2
|
|
|
|
(2.0
|
)%
|
|
|
(2
|
)
|
Policy loans
|
|
|
9.6
|
%
|
|
|
42
|
|
|
|
8.9
|
%
|
|
|
35
|
|
|
|
0.7
|
%
|
|
|
7
|
|
Cash, cash equivalents and short-term investments
|
|
|
0.7
|
%
|
|
|
6
|
|
|
|
0.4
|
%
|
|
|
5
|
|
|
|
0.3
|
%
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross investment income before expenses and fees
|
|
|
4.7
|
%
|
|
|
811
|
|
|
|
4.6
|
%
|
|
|
812
|
|
|
|
0.1
|
%
|
|
|
(1
|
)
|
Expenses and fees
|
|
|
(0.2
|
)%
|
|
|
(21
|
)
|
|
|
(0.1
|
)%
|
|
|
(23
|
)
|
|
|
(0.1
|
)%
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
4.5
|
%
|
|
$
|
790
|
|
|
|
4.5
|
%
|
|
$
|
789
|
|
|
|
|
%
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average invested assets and cash
|
|
|
|
|
|
$
|
69,635
|
|
|
|
|
|
|
$
|
69,851
|
|
|
|
|
|
|
$
|
(216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yields are based on net investment income as reported under U.S. GAAP and are consistent with how we measure
our investment performance for management purposes. Yields are annualized, for interim periods, and are calculated as net investment income as a percentage of average quarterly asset carrying values except for fixed maturity and equity securities,
derivatives and derivative counterparty collateral, which exclude unrealized fair value adjustments, and securities lending activity, which is included in other invested assets and is calculated net of the corresponding securities lending liability.
For the three months ended March 31, 2017, annualized weighted-average investment yields remained unchanged as higher reinvestment
yields were offset by lower average invested assets. Net investment income included $16 million of lower favorable prepayment speed adjustments on structured securities and $5 million of lower gains related to limited partnerships, partially offset
by $8 million of higher income related to inflation-driven volatility on TIPS in the current year. The three months ended March 31, 2017 included an increase of $3 million attributable to changes in foreign exchange rates.
130
The following table sets forth net investment gains (losses) for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
(Amounts in millions)
|
|
2017
|
|
|
2016
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Realized gains
|
|
$
|
63
|
|
|
$
|
16
|
|
Realized losses
|
|
|
(34
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) on available-for-sale securities
|
|
|
29
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Impairments:
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairments
|
|
|
(1
|
)
|
|
|
(11
|
)
|
Portion of other-than-temporary impairments recognized in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other-than-temporary impairments
|
|
|
(1
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
|
|
|
|
28
|
|
Commercial mortgage loans
|
|
|
1
|
|
|
|
1
|
|
Net gains (losses) related to securitization entities
|
|
|
2
|
|
|
|
8
|
|
Derivative instruments
(1)
|
|
|
3
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
34
|
|
|
$
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
(1)
|
See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses).
|
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
|
|
|
We recorded $10 million of lower net other-than-temporary impairments during the three months ended March 31, 2017. Impairments of $8 million and $3 million recorded during the three months ended March 31,
2016, related to corporate securities and limited partnerships, respectively.
|
|
|
|
Net investment gains related to derivatives of $3 million during the three months ended March 31, 2017 were primarily associated with various hedging programs that support our Canada Mortgage Insurance segment and
hedging programs for our runoff variable annuity products. These gains were partially offset by losses related to derivatives used to hedge foreign currency risk associated with expected dividend payments from certain foreign subsidiaries.
|
Net investment losses related to derivatives of $38 million during the three months ended March 31, 2016 were primarily
associated with hedging programs for our runoff variable annuity products, including decreases in the values of instruments used to protect statutory surplus from equity market fluctuation. We also had losses associated with derivatives used to
hedge foreign currency risk associated with expected dividend payments from certain foreign subsidiaries and with hedging programs for our fixed indexed annuity products. These losses were partially offset by gains in derivatives used to hedge
foreign currency risk associated with assets held and gains related to hedge ineffectiveness from our cash flow hedge programs for our long-term care insurance business.
|
|
|
We recorded net gains of $29 million related to the sale of available-for-sale securities during the three months ended March 31, 2017 compared to net losses of $7 million during the three months ended
March 31, 2016. We recorded $28 million of lower net gains related to trading securities in the current year principally from a decline in our trading portfolio in the current year. We recorded $6 million of lower net gains related to
securitization entities in the current year primarily due to lower gains on trading securities and derivatives.
|
131
Investment portfolio
The following table sets forth our cash, cash equivalents and invested assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Carrying value
|
|
|
% of total
|
|
|
Carrying value
|
|
|
% of total
|
|
Fixed maturity securities, available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
|
|
$
|
44,759
|
|
|
|
60
|
%
|
|
$
|
45,131
|
|
|
|
61
|
%
|
Private
|
|
|
15,838
|
|
|
|
21
|
|
|
|
15,441
|
|
|
|
21
|
|
Equity securities, available-for-sale
|
|
|
709
|
|
|
|
1
|
|
|
|
632
|
|
|
|
1
|
|
Commercial mortgage loans
|
|
|
6,107
|
|
|
|
8
|
|
|
|
6,111
|
|
|
|
8
|
|
Restricted commercial mortgage loans related to securitization entities
|
|
|
122
|
|
|
|
|
|
|
|
129
|
|
|
|
|
|
Policy loans
|
|
|
1,761
|
|
|
|
3
|
|
|
|
1,742
|
|
|
|
2
|
|
Other invested assets
|
|
|
2,272
|
|
|
|
3
|
|
|
|
2,071
|
|
|
|
3
|
|
Restricted other invested assets related to securitization entities
|
|
|
84
|
|
|
|
|
|
|
|
312
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
3,018
|
|
|
|
4
|
|
|
|
2,784
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and invested assets
|
|
$
|
74,670
|
|
|
|
100
|
%
|
|
$
|
74,353
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a discussion of the change in cash, cash equivalents and invested assets, see the comparison for this line
item under Consolidated Balance Sheets. See note 4 in our unaudited condensed consolidated financial statements under Item 1Financial Statements for additional information related to our investment portfolio.
We hold fixed maturity, equity and trading securities, derivatives, embedded derivatives, securities held as collateral and certain other
financial instruments, which are carried at fair value. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. As of March 31, 2017, approximately 7% of our
investment holdings recorded at fair value was based on significant inputs that were not market observable and were classified as Level 3 measurements. See note 6 in our unaudited condensed consolidated financial statements under Item
1Financial Statements for additional information related to fair value.
132
Fixed maturity and equity securities
As of March 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
|
|
$
|
4,837
|
|
|
$
|
681
|
|
|
$
|
|
|
|
$
|
(25
|
)
|
|
$
|
|
|
|
$
|
5,493
|
|
State and political subdivisions
|
|
|
2,565
|
|
|
|
191
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
2,710
|
|
Non-U.S. government
(1)
|
|
|
1,722
|
|
|
|
106
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
1,817
|
|
U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
4,215
|
|
|
|
456
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
4,635
|
|
Energy
|
|
|
2,192
|
|
|
|
166
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
2,339
|
|
Finance and insurance
|
|
|
5,882
|
|
|
|
465
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
6,316
|
|
Consumernon-cyclical
|
|
|
4,380
|
|
|
|
441
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
4,793
|
|
Technology and communications
|
|
|
2,520
|
|
|
|
150
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
2,643
|
|
Industrial
|
|
|
1,223
|
|
|
|
86
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
1,300
|
|
Capital goods
|
|
|
2,085
|
|
|
|
236
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
2,309
|
|
Consumercyclical
|
|
|
1,480
|
|
|
|
96
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
1,562
|
|
Transportation
|
|
|
1,105
|
|
|
|
86
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
1,177
|
|
Other
|
|
|
331
|
|
|
|
19
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. corporate
(1)
|
|
|
25,413
|
|
|
|
2,201
|
|
|
|
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
27,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
985
|
|
|
|
44
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
1,020
|
|
Energy
|
|
|
1,281
|
|
|
|
122
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
1,395
|
|
Finance and insurance
|
|
|
2,445
|
|
|
|
151
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
2,589
|
|
Consumernon-cyclical
|
|
|
701
|
|
|
|
20
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
712
|
|
Technology and communications
|
|
|
968
|
|
|
|
50
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
1,012
|
|
Industrial
|
|
|
924
|
|
|
|
56
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
976
|
|
Capital goods
|
|
|
563
|
|
|
|
25
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
585
|
|
Consumercyclical
|
|
|
451
|
|
|
|
11
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
461
|
|
Transportation
|
|
|
632
|
|
|
|
67
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
693
|
|
Other
|
|
|
2,600
|
|
|
|
187
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
2,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-U.S. corporate
(1)
|
|
|
11,550
|
|
|
|
733
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
12,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
(2)
|
|
|
4,139
|
|
|
|
264
|
|
|
|
12
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
4,404
|
|
Commercial mortgage-backed
|
|
|
3,250
|
|
|
|
97
|
|
|
|
4
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
3,302
|
|
Other asset-backed
(2)
|
|
|
3,231
|
|
|
|
15
|
|
|
|
1
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
3,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
56,707
|
|
|
|
4,288
|
|
|
|
17
|
|
|
|
(415
|
)
|
|
|
|
|
|
|
60,597
|
|
Equity securities
|
|
|
667
|
|
|
|
55
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
57,374
|
|
|
$
|
4,343
|
|
|
$
|
17
|
|
|
$
|
(428
|
)
|
|
$
|
|
|
|
$
|
61,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Fair value included European periphery exposure of $459 million in Ireland, $251 million in Spain, $97 million in Italy and $16 million in Portugal.
|
(2)
|
Fair value included $41 million collateralized by Alt-A residential mortgage loans and $27 million collateralized by sub-prime residential mortgage loans.
|
133
As of December 31, 2016, 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
|
|
$
|
5,439
|
|
|
$
|
647
|
|
|
$
|
|
|
|
$
|
(50
|
)
|
|
$
|
|
|
|
$
|
6,036
|
|
State and political subdivisions
|
|
|
2,515
|
|
|
|
182
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
2,647
|
|
Non-U.S. government
(1)
|
|
|
2,024
|
|
|
|
101
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
2,107
|
|
U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
4,137
|
|
|
|
454
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
4,550
|
|
Energy
|
|
|
2,167
|
|
|
|
157
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
2,300
|
|
Finance and insurance
|
|
|
5,719
|
|
|
|
424
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
6,097
|
|
Consumernon-cyclical
|
|
|
4,335
|
|
|
|
433
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
4,734
|
|
Technology and communications
|
|
|
2,473
|
|
|
|
157
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
2,598
|
|
Industrial
|
|
|
1,161
|
|
|
|
76
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
1,223
|
|
Capital goods
|
|
|
2,043
|
|
|
|
228
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
2,258
|
|
Consumercyclical
|
|
|
1,455
|
|
|
|
92
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
1,530
|
|
Transportation
|
|
|
1,121
|
|
|
|
86
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
1,190
|
|
Other
|
|
|
332
|
|
|
|
17
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. corporate
(1)
|
|
|
24,943
|
|
|
|
2,124
|
|
|
|
|
|
|
|
(239
|
)
|
|
|
|
|
|
|
26,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
940
|
|
|
|
40
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
969
|
|
Energy
|
|
|
1,234
|
|
|
|
109
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
1,331
|
|
Finance and insurance
|
|
|
2,413
|
|
|
|
134
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
2,538
|
|
Consumernon-cyclical
|
|
|
711
|
|
|
|
17
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
714
|
|
Technology and communications
|
|
|
953
|
|
|
|
44
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
987
|
|
Industrial
|
|
|
928
|
|
|
|
39
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
958
|
|
Capital goods
|
|
|
518
|
|
|
|
21
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
535
|
|
Consumercyclical
|
|
|
434
|
|
|
|
10
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
442
|
|
Transportation
|
|
|
619
|
|
|
|
65
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
677
|
|
Other
|
|
|
2,967
|
|
|
|
190
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
3,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-U.S. corporate
(1)
|
|
|
11,717
|
|
|
|
669
|
|
|
|
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
12,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
(2)
|
|
|
4,122
|
|
|
|
259
|
|
|
|
10
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
4,379
|
|
Commercial mortgage-backed
|
|
|
3,084
|
|
|
|
98
|
|
|
|
3
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
3,129
|
|
Other asset-backed
(2)
|
|
|
3,170
|
|
|
|
15
|
|
|
|
1
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
3,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
57,014
|
|
|
|
4,095
|
|
|
|
14
|
|
|
|
(551
|
)
|
|
|
|
|
|
|
60,572
|
|
Equity securities
|
|
|
628
|
|
|
|
31
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
57,642
|
|
|
$
|
4,126
|
|
|
$
|
14
|
|
|
$
|
(578
|
)
|
|
$
|
|
|
|
$
|
61,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Fair value included European periphery exposure of $447 million in Ireland, $231 million in Spain, $95 million in Italy and $16 million in Portugal.
|
(2)
|
Fair value included $43 million collateralized by Alt-A residential mortgage loans and $26 million collateralized by sub-prime residential mortgage loans.
|
134
Fixed maturity securities increased $25 million principally from higher net unrealized gains
attributable to the changes in interest rates as well as changes in foreign exchange rates from the weakening of the U.S. dollar in the current year. These increases were offset by sales and maturities exceeding purchases in the current year.
Our exposure in peripheral European countries consists of fixed maturity securities in Portugal, Ireland, Italy and Spain. Investments in
these countries are primarily made to diversify our U.S. corporate fixed maturity securities with European bonds denominated in U.S. dollars. During the three months ended March 31, 2017, our exposure to the peripheral European countries
increased by $34 million to $823 million with unrealized gains of $51 million. Our exposure as of March 31, 2017 was diversified with direct exposure to local economies of $169 million, indirect exposure through debt issued by subsidiaries
outside of the European periphery of $134 million and exposure to multinational companies where the majority of revenues come from outside of the country of domicile of $520 million.
Commercial mortgage loans
The following tables set forth additional information regarding our commercial mortgage loans as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
(Dollar amounts in millions)
|
|
Total recorded
investment
|
|
|
Number of
loans
|
|
|
Loan-to-value
(1)
|
|
|
Delinquent
principal balance
|
|
|
Number of
delinquent
loans
|
|
Loan Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and prior
|
|
$
|
494
|
|
|
|
288
|
|
|
|
31
|
%
|
|
$
|
|
|
|
|
|
|
2005
|
|
|
460
|
|
|
|
134
|
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
2006
|
|
|
410
|
|
|
|
103
|
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
2007
|
|
|
395
|
|
|
|
108
|
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
2008
|
|
|
134
|
|
|
|
25
|
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
2010
|
|
|
88
|
|
|
|
17
|
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
2011
|
|
|
212
|
|
|
|
47
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
2012
|
|
|
575
|
|
|
|
86
|
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
2013
|
|
|
768
|
|
|
|
134
|
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
2014
|
|
|
884
|
|
|
|
146
|
|
|
|
60
|
%
|
|
|
|
|
|
|
|
|
2015
|
|
|
927
|
|
|
|
143
|
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
2016
|
|
|
613
|
|
|
|
100
|
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
2017
|
|
|
161
|
|
|
|
29
|
|
|
|
70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,121
|
|
|
|
1,360
|
|
|
|
55
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents weighted-average loan-to-value as of March 31, 2017.
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
(Dollar amounts in millions)
|
|
Total recorded
investment
|
|
|
Number of
loans
|
|
|
Loan-to-value
(1)
|
|
|
Delinquent
principal balance
|
|
|
Number of
delinquent
loans
|
|
Loan Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and prior
|
|
$
|
521
|
|
|
|
304
|
|
|
|
31
|
%
|
|
$
|
|
|
|
|
|
|
2005
|
|
|
469
|
|
|
|
135
|
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
2006
|
|
|
434
|
|
|
|
105
|
|
|
|
52
|
%
|
|
|
15
|
|
|
|
1
|
|
2007
|
|
|
452
|
|
|
|
126
|
|
|
|
54
|
%
|
|
|
1
|
|
|
|
1
|
|
2008
|
|
|
135
|
|
|
|
25
|
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
2010
|
|
|
89
|
|
|
|
17
|
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
2011
|
|
|
215
|
|
|
|
47
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
2012
|
|
|
588
|
|
|
|
88
|
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
2013
|
|
|
781
|
|
|
|
136
|
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
2014
|
|
|
892
|
|
|
|
147
|
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
2015
|
|
|
932
|
|
|
|
143
|
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
2016
|
|
|
617
|
|
|
|
100
|
|
|
|
69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,125
|
|
|
|
1,373
|
|
|
|
55
|
%
|
|
$
|
16
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents weighted-average loan-to-value as of December 31, 2016.
|
Other invested
assets
The following table sets forth the carrying values of our other invested assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
(Amounts in millions)
|
|
Carrying value
|
|
|
% of total
|
|
|
Carrying value
|
|
|
% of total
|
|
Short-term investments
|
|
$
|
1,003
|
|
|
|
44
|
%
|
|
$
|
352
|
|
|
|
17
|
%
|
Derivatives
|
|
|
675
|
|
|
|
30
|
|
|
|
708
|
|
|
|
34
|
|
Securities lending collateral
|
|
|
281
|
|
|
|
12
|
|
|
|
534
|
|
|
|
25
|
|
Limited partnerships
|
|
|
224
|
|
|
|
10
|
|
|
|
199
|
|
|
|
10
|
|
Trading securities
|
|
|
71
|
|
|
|
3
|
|
|
|
259
|
|
|
|
13
|
|
Other investments
|
|
|
18
|
|
|
|
1
|
|
|
|
19
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other invested assets
|
|
$
|
2,272
|
|
|
|
100
|
%
|
|
$
|
2,071
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments increased principally from higher net purchases in our Australia Mortgage Insurance
segment in the current year. Securities lending collateral decreased driven by market demand. Our investments in trading securities decreased from higher net sales.
Derivatives
The activity
associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for GMWB and fixed index annuity embedded derivatives, the
136
change between periods is best illustrated by the number of policies. The following tables represent activity associated with derivative instruments as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Notional in millions)
|
|
Measurement
|
|
|
December 31,
2016
|
|
|
Additions
|
|
|
Maturities/
terminations
|
|
|
March 31,
2017
|
|
Derivatives designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
Notional
|
|
|
$
|
11,570
|
|
|
$
|
|
|
|
$
|
(71
|
)
|
|
$
|
11,499
|
|
Foreign currency swaps
|
|
|
Notional
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flow hedges
|
|
|
|
|
|
|
11,592
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
11,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedges
|
|
|
|
|
|
|
11,592
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
11,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
Notional
|
|
|
|
4,679
|
|
|
|
|
|
|
|
|
|
|
|
4,679
|
|
Foreign currency swaps
|
|
|
Notional
|
|
|
|
201
|
|
|
|
29
|
|
|
|
|
|
|
|
230
|
|
Credit default swaps
|
|
|
Notional
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
Credit default swaps related to securitization entities
|
|
|
Notional
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
Equity index options
|
|
|
Notional
|
|
|
|
2,396
|
|
|
|
523
|
|
|
|
(443
|
)
|
|
|
2,476
|
|
Financial futures
|
|
|
Notional
|
|
|
|
1,398
|
|
|
|
1,509
|
|
|
|
(1,449
|
)
|
|
|
1,458
|
|
Equity return swaps
|
|
|
Notional
|
|
|
|
165
|
|
|
|
103
|
|
|
|
(150
|
)
|
|
|
118
|
|
Other foreign currency contracts
|
|
|
Notional
|
|
|
|
3,130
|
|
|
|
484
|
|
|
|
(221
|
)
|
|
|
3,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedges
|
|
|
|
|
|
|
12,320
|
|
|
|
2,648
|
|
|
|
(2,263
|
)
|
|
|
12,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
23,912
|
|
|
$
|
2,648
|
|
|
$
|
(2,334
|
)
|
|
$
|
24,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Number of policies)
|
|
Measurement
|
|
|
December 31,
2016
|
|
|
Additions
|
|
|
Maturities/
terminations
|
|
|
March 31,
2017
|
|
Derivatives not designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMWB embedded derivatives
|
|
|
Policies
|
|
|
|
33,238
|
|
|
|
|
|
|
|
(751
|
)
|
|
|
32,487
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|
Fixed index annuity embedded derivatives
|
|
|
Policies
|
|
|
|
17,549
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
17,424
|
|
Indexed universal life embedded derivatives
|
|
|
Policies
|
|
|
|
1,074
|
|
|
|
1
|
|
|
|
(22
|
)
|
|
|
1,053
|
|
The $314 million increase in the notional value of derivatives was attributable to increase in our
non-qualified foreign currency interest rate swaps related to a non-qualified derivative strategy to mitigate interest rate risk associated with our regulatory capital position.
The number of policies related to our GMWB embedded derivatives decreased as variable annuity products are no longer being offered.
Consolidated Balance Sheets
Total
assets
. Total assets increased $28 million from $104,658 million as of December 31, 2016 to $104,686 million as of March 31, 2017.
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|
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Cash and cash equivalents and invested assets increased $317 million primarily from an increase of $234 million
in cash and cash equivalents and an increase of $201 million in other invested assets, partially offset by a decrease of $228 million in restricted other invested assets related to securitization entities. The increase in cash and cash equivalents
was predominantly related to higher proceeds from maturities of fixed maturity securities. The increase in cash and cash equivalents was also attributable to higher net proceeds from sales and maturities of trading securities, partially offset by
purchases of fixed maturity securities outpacing proceeds from sales. The increase in other invested assets was
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137
|
principally driven by higher short-term investments, partially offset by lower securities lending collateral. The decrease in restricted other invested assets related to securitization entities
was primarily related to proceeds from sales and maturities, as we reposition these assets in connection with the maturity of the associated liabilities.
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|
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Deferred acquisition costs decreased $364 million primarily related to higher net unrealized investment gains principally related to lower interest rates and lower deferrals driven mostly by lower production in our U.S.
Life Insurance segment in the current year.
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|
|
|
Reinsurance recoverable decreased $74 million mainly attributable to the runoff of our structured settlement products ceded to Union Fidelity Life Insurance Company, an affiliate of our former parent, GE.
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Total liabilities
. Total liabilities decreased $221 million from $90,191 million as of December 31, 2016 to
$89,970 million as of March 31, 2017.
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|
|
Future policy benefits increased $228 million primarily driven by an increase in our long-term care insurance business largely from the aging and growth of the in-force block in the current year.
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|
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Policyholder account balances decreased $279 million largely as a result of surrenders in our fixed annuities business in the current year.
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|
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Other liabilities decreased $259 million largely driven by lower securities lending liabilities and derivative counterparty collateral as a result of changes in the interest rate environment in the current year. These
decreases were partially offset by an increase in amounts due to broker mostly related to unsettled trade activity in the current year.
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Total equity
. Total equity increased $249 million from $14,467 million as of December 31, 2016 to $14,716 million as of
March 31, 2017.
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|
|
We reported a net income available to Genworth Financial, Inc.s common stockholders of $155 million during the three months ended March 31, 2017.
|
|
|
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Noncontrolling interests increased $81 million predominantly related to net income attributable to noncontrolling interest of $61 million and foreign currency translation adjustments of $49 million, partially offset by
dividends to noncontrolling interests of $39 million in the current year.
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Liquidity and Capital Resources
Liquidity and capital resources represent our overall financial strength and our ability to generate cash flows from our businesses, borrow
funds at competitive rates and raise new capital to meet our operating and growth needs.
Genworth and subsidiaries
The following table sets forth our unaudited condensed consolidated cash flows for the three months ended March 31:
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|
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|
|
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(Amounts in millions)
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|
2017
|
|
|
2016
|
|
Net cash from operating activities
|
|
$
|
655
|
|
|
$
|
256
|
|
Net cash used by investing activities
|
|
|
(142
|
)
|
|
|
(255
|
)
|
Net cash used by financing activities
|
|
|
(304
|
)
|
|
|
(1,941
|
)
|
|
|
|
|
|
|
|
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Net increase (decrease) in cash before foreign exchange effect
|
|
$
|
209
|
|
|
$
|
(1,940
|
)
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|
|
|
|
|
|
|
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Our principal sources of cash include sales of our products and services, income from our
investment portfolio and proceeds from sales of investments. As an insurance business, we typically generate positive cash flows from operating activities, as premiums collected from our insurance products and income received from our investments
exceed policy acquisition costs, benefits paid, redemptions and operating expenses. Our cash flows from operating activities are affected by the timing of premiums, fees and investment income received and benefits and expenses paid. Positive cash
flows from operating activities are then invested to support the obligations of our insurance and investment products and required capital supporting these products. In analyzing our cash flow, we focus on the change in the amount of cash available
and used in investing activities. Changes in cash from financing activities primarily relate to the issuance of, and redemptions and benefit payments on, universal life insurance and investment contracts; the issuance and acquisition of debt and
equity securities; the issuance and repayment or repurchase of borrowings and non-recourse funding obligations; and other capital transactions.
We had higher cash inflows from operating activities during the current year mainly attributable to higher net sales of trading securities in
the current year as compared to the prior year as well as amounts paid in the prior year related to a reinsurance agreement in our life insurance business. These amounts were partially offset by cash outflows in the current year compared to cash
inflows in the prior year as a result of the change in collateral related to derivative positions.
Net cash outflows from investing
activities were slightly lower. Both the proceeds from the sales of securities and purchases of securities were higher than the prior year driven primarily by the decision to manage the interest rate risk and reposition our portfolios, particularly
in our Australian mortgage insurance business.
We had lower cash outflows from financing activities during the current year primarily
from prior year transactions that did not recur consisting of the redemption of $1,620 million of non-recourse funding obligations and the repayment and repurchase of $326 million of Genworth Holdings senior notes.
In the United States and Canada, we engage in certain securities lending transactions for the purpose of enhancing the yield on our investment
securities portfolio. We maintain effective control over all loaned securities and, therefore, continue to report such securities as fixed maturity securities on the consolidated balance sheets. We are currently indemnified against counterparty
credit risk by the intermediary.
We also have a repurchase program in which we sell an investment security at a specified price and agree
to repurchase that security at another specified price at a later date.
Genworth holding company
Genworth Financial and Genworth Holdings each acts as a holding company for their respective subsidiaries and do not have any significant
operations of their own. Dividends from their respective subsidiaries, payments to them under tax sharing and expense reimbursement arrangements with their subsidiaries and proceeds from borrowings or securities issuances are their principal sources
of cash to meet their obligations. Insurance laws and regulations regulate the payment of dividends and other distributions to Genworth Financial and Genworth Holdings by their insurance subsidiaries. We expect dividends paid by the insurance
subsidiaries will vary depending on strategic objectives, regulatory requirements and business performance.
The primary uses of funds at
Genworth Financial and Genworth Holdings include payment of holding company general operating expenses (including taxes), payment of principal, interest and other expenses on current and any future borrowings, payments under current and any future
guarantees (including guarantees of certain subsidiary obligations), payment of amounts owed to GE under the Tax Matters Agreement, payments to subsidiaries (and, in the case of Genworth Holdings, to Genworth Financial) under tax sharing agreements,
contributions to subsidiaries, repurchases of debt securities and, in the case of Genworth Holdings, loans, dividends or other distributions to Genworth Financial. In deploying future capital, important current priorities
139
include focusing on our operating businesses so they remain appropriately capitalized, and accelerating progress on reducing overall indebtedness of Genworth Holdings. We may from time to time
seek to repurchase or redeem outstanding notes for cash (with cash on hand, proceeds from the issuance of new debt and/or the proceeds from asset or stock sales) in open market purchases, tender offers, privately negotiated transactions or
otherwise. We currently seek to reduce our indebtedness over time through repurchases, redemptions and/or repayments at maturity.
Our
Board of Directors has suspended the payment of stockholder dividends on our Genworth Financial common stock indefinitely. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of
Directors and will be dependent on many factors including the receipt of dividends from our operating subsidiaries, our financial condition and operating results, the capital requirements of our subsidiaries, legal requirements, regulatory
constraints, our credit and financial strength ratings and such other factors as the Board of Directors deems relevant. In addition, our Board of Directors has suspended repurchases of our Genworth Financial common stock under our stock repurchase
program indefinitely. The resumption of our stock repurchase program will be at the discretion of our Board of Directors.
Genworth
Holdings had $849 million and $998 million of cash and cash equivalents, which included approximately $74 million and $85 million of restricted assets, comprised primarily of cash and cash equivalents, as of March 31, 2017 and December 31,
2016, respectively. Genworth Holdings also held $150 million and $100 million in U.S. government securities as of March 31, 2017 and December 31, 2016, respectively.
During the three months ended March 31, 2017 and 2016, we received common stock dividends from our international subsidiaries of $52
million and $73 million, respectively.
Regulated insurance subsidiaries
The liquidity requirements of our regulated insurance subsidiaries principally relate to the liabilities associated with their various
insurance and investment products, operating costs and expenses, the payment of dividends to us, contributions to their subsidiaries, payment of principal and interest on their outstanding debt obligations and income taxes. Liabilities arising from
insurance and investment products include the payment of benefits, as well as cash payments in connection with policy surrenders and withdrawals, policy loans and obligations to redeem funding agreements.
Our insurance subsidiaries have used cash flows from operations and investment activities to fund their liquidity requirements. Our insurance
subsidiaries principal cash inflows from operating activities are derived from premiums, annuity deposits and insurance and investment product fees and other income, including commissions, cost of insurance, mortality, expense and surrender
charges, contract underwriting fees, investment management fees and dividends and distributions from their subsidiaries. The principal cash inflows from investment activities result from repayments of principal, investment income and, as necessary,
sales of invested assets.
Our insurance subsidiaries maintain investment strategies intended to provide adequate funds to pay benefits
without forced sales of investments. Products having liabilities with longer durations, such as certain life insurance and long-term care insurance policies, are matched with investments having similar duration such as long-term fixed maturity
securities and commercial mortgage loans. Shorter-term liabilities are matched with fixed maturity securities that have short- and medium-term fixed maturities. In addition, our insurance subsidiaries hold highly liquid, high quality short-term
investment securities and other liquid investment grade fixed maturity securities to fund anticipated operating expenses, surrenders and withdrawals. As of March 31, 2017, our total cash, cash equivalents and invested assets were $74.7 billion.
Our investments in privately placed fixed maturity securities, commercial mortgage loans, policy loans, limited partnership investments and select mortgage-backed and asset-backed securities are relatively illiquid. These asset classes represented
approximately 32% of the carrying value of our total cash, cash equivalents and invested assets as of March 31, 2017.
140
Effective December 31, 2015, each GSE adopted revised PMIERs, which set forth operational
and financial requirements that mortgage insurers must meet in order to remain eligible. Each approved mortgage insurer is required to provide the GSEs with an annual certification and a quarterly report as to its compliance with PMIERs. The
reinsurance transactions covering our 2014 through 2017 book years provided an aggregate of approximately $520 million of PMIERs capital credit as of March 31, 2017. The reinsurance transaction covering our 2009 through 2013 book years commuted
per the contract as a result of the reinsurers limit declining to zero during the first quarter of 2017. Our U.S. mortgage insurance business may execute future capital transactions to maintain a prudent level of financial flexibility in
excess of the PMIERs capital requirements given the dynamic nature of asset and requirement valuations over time, including additional reinsurance transactions and contributions of holding company cash.
In May 2017, Genworth Canada announced acceptance by the Toronto Stock Exchange of its Notice of Intention to Make a Normal Course Issuer Bid
(NCIB). Pursuant to the NCIB, Genworth Canada may, if considered advisable, purchase from time to time over the next 12 months, up to an aggregate of approximately 4.6 million of its issued and outstanding common shares. If Genworth
Canada decides to repurchase shares through the NCIB, we intend to participate in the NCIB in order to maintain our overall ownership at its current level.
Capital resources and financing activities
We believe existing cash held at Genworth Holdings combined with dividends from operating subsidiaries, payments under tax sharing and expense
reimbursement arrangements with subsidiaries, proceeds from borrowings or securities issuances and, if necessary, sales of assets, as described below, will provide us with sufficient capital flexibility and liquidity to meet our projected future
operating and financing requirements. We actively monitor our liquidity position, liquidity generation options and the credit markets given changing market conditions. We target liquidity at Genworth Holdings to maintain a minimum balance of one and
one-half times expected annual debt interest payments plus an additional $350 million. As of March 31, 2017, Genworth Holdings was above this target due in part to intercompany tax payments of approximately $300 million received from its
subsidiaries in 2016. We will continue to evaluate our target level of liquidity as circumstances warrant and may move above or below the target for a period of time given future actions and due to the timing of cash inflows and outflows.
Additionally, we will continue to evaluate market influences on the valuation of our senior debt, and may consider additional opportunities to repurchase our debt over time. We cannot predict with any certainty the impact to us from any future
disruptions in the credit markets or the recent or any further downgrades by one or more of the rating agencies of the financial strength ratings of our insurance company subsidiaries and/or the credit ratings of our holding companies. In the
absence of the China Oceanwide transaction or in the event we are unable to refinance our debt maturities, we may be required to pursue asset sales, including potential sales of our mortgage insurance businesses in Canada and Australia and/or a
partial sale of our U.S. mortgage insurance business to service our holding company debt. The availability of additional funding will depend on a variety of factors such as market conditions, regulatory considerations, the general availability of
credit, the overall availability of credit to the financial services industry, the level of activity and availability of reinsurance, our credit ratings and credit capacity and the performance of and outlook for our business. For a discussion of
certain risks associated with our liquidity, see Item 1ARisk FactorsOur internal sources of liquidity may be insufficient to meet our needs and our access to capital may be limited or unavailable. Under such conditions, we may seek
additional capital but may be unable to obtain it in our 2016 Annual Report on Form 10-K.
Contractual obligations and commercial
commitments
Except as disclosed above, there have been no material additions or changes to our contractual obligations and commercial
commitments as set forth in our 2016 Annual Report on Form 10-K filed on February 27, 2017.
Securitization Entities
There were no off-balance sheet securitization transactions during the three months ended March 31, 2017 or 2016.
141
New Accounting Standards
For a discussion of recently adopted accounting standards, see note 2 in our consolidated financial statements under Item
1Financial Statements.