Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 30, 2015

OR

 

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

For the transition period from                      to                     

Commission file number 001-32195

 

 

 

LOGO

GENWORTH FINANCIAL, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   80-0873306

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

6620 West Broad Street

Richmond, Virginia

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

(804) 281-6000

(Registrant’s Telephone Number, Including Area Code)

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

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

As of October 26, 2015, 497,464,957 shares of Class A Common Stock, par value $0.001 per share, were outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  

PART I—FINANCIAL INFORMATION

     3   

Item 1.

  Financial Statements      3   

Condensed Consolidated Balance Sheets as of September 30, 2015 and December  31, 2014 (Unaudited)

     3   

Condensed Consolidated Statements of Income for the three and nine months ended September  30, 2015 and 2014 (Unaudited)

     4   

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and 2014 (Unaudited)

     5   

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2015 and 2014 (Unaudited)

     6   

Condensed Consolidated Statements of Cash Flows for the nine months ended September  30, 2015 and 2014 (Unaudited)

     7   

Notes to Condensed Consolidated Financial Statements (Unaudited)

     8   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      100   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      190   

Item 4.

  Controls and Procedures      190   

PART II—OTHER INFORMATION

     191   

Item 1.

  Legal Proceedings      191   

Item 1A.

  Risk Factors      191   

Item 6.

  Exhibits      194   

Signatures

     195   

 

2


Table of Contents

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except per share amounts)

(Unaudited)

 

     September 30,
2015
    December 31,
2014
 

Assets

    

Investments:

    

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

   $ 60,851     $ 61,276  

Equity securities available-for-sale, at fair value

     273       275  

Commercial mortgage loans

     6,133       6,100  

Restricted commercial mortgage loans related to securitization entities

     175       201  

Policy loans

     1,567       1,501  

Other invested assets

     2,773       2,244  

Restricted other invested assets related to securitization entities, at fair value

     412       411  
  

 

 

   

 

 

 

Total investments

     72,184       72,008  

Cash and cash equivalents

     3,666       4,716  

Accrued investment income

     685       664  

Deferred acquisition costs

     4,437       4,849  

Intangible assets

     284       250  

Goodwill

     14       16  

Reinsurance recoverable

     17,276       17,314  

Other assets

     577       524  

Separate account assets

     7,893       9,208  

Assets held for sale related to discontinued operations

     1,206       1,809  
  

 

 

   

 

 

 

Total assets

   $ 108,222     $ 111,358  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Liabilities:

    

Future policy benefits

   $ 36,472     $ 35,915  

Policyholder account balances

     26,000       26,032  

Liability for policy and contract claims

     8,065       7,937  

Unearned premiums

     3,340       3,547  

Other liabilities ($42 and $45 of other liabilities are related to securitization entities)

     3,241       3,282  

Borrowings related to securitization entities ($80 and $85 are at fair value)

     188       219  

Non-recourse funding obligations

     1,951       1,996  

Long-term borrowings

     4,601       4,639  

Deferred tax liability

     201       858  

Separate account liabilities

     7,893       9,208  

Liabilities held for sale related to discontinued operations

     854       928  
  

 

 

   

 

 

 

Total liabilities

     92,806       94,561  
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ equity:

    

Class A common stock, $0.001 par value; 1.5 billion shares authorized; 586 million and 585 million shares issued as of September 30, 2015 and December 31, 2014, respectively; 497 million shares outstanding as of September 30, 2015 and December 31, 2014

     1       1  

Additional paid-in capital

     11,944       11,997  
  

 

 

   

 

 

 

Accumulated other comprehensive income (loss):

    

Net unrealized investment gains (losses):

    

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

     1,709       2,431  

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

     22       22  
  

 

 

   

 

 

 

Net unrealized investment gains (losses)

     1,731       2,453  
  

 

 

   

 

 

 

Derivatives qualifying as hedges

     2,130       2,070  

Foreign currency translation and other adjustments

     (383     (77
  

 

 

   

 

 

 

Total accumulated other comprehensive income (loss)

     3,478       4,446  

Retained earnings

     856       1,179  

Treasury stock, at cost (88 million shares as of September 30, 2015 and December 31, 2014)

     (2,700     (2,700
  

 

 

   

 

 

 

Total Genworth Financial, Inc.’s stockholders’ equity

     13,579       14,923  

Noncontrolling interests

     1,837       1,874  
  

 

 

   

 

 

 

Total stockholders’ equity

     15,416       16,797  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 108,222     $ 111,358  
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

3


Table of Contents

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in millions, except per share amounts)

(Unaudited)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
       2015         2014         2015         2014    

Revenues:

        

Premiums

   $ 1,145     $ 1,210     $ 3,422     $ 3,486  

Net investment income

     783       778       2,357       2,345  

Net investment gains (losses)

     (51     (27     (59     (11

Insurance and investment product fees and other

     223       229       672       680  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     2,100       2,190       6,392       6,500  
  

 

 

   

 

 

   

 

 

   

 

 

 

Benefits and expenses:

        

Benefits and other changes in policy reserves

     1,290       1,934       3,714       4,282  

Interest credited

     179       185       540       552  

Acquisition and operating expenses, net of deferrals

     314       284       876       839  

Amortization of deferred acquisition costs and intangibles

     563       113       759       325  

Goodwill impairment

     —         550       —         550  

Interest expense

     105       104       315       327  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total benefits and expenses

     2,451       3,170       6,204       6,875  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (351     (980     188       (375

Provision (benefit) for income taxes

     (134     (187     27       (16
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (217     (793     161       (359

Income (loss) from discontinued operations, net of taxes

     (21     6       (334     19  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (238     (787     (173     (340

Less: net income attributable to noncontrolling interests

     46       57       150       144  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (284   $ (844   $ (323   $ (484
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

   $ (0.53   $ (1.71   $ 0.02     $ (1.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ (0.53   $ (1.71   $ 0.02     $ (1.01
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic

   $ (0.57   $ (1.70   $ (0.65   $ (0.98
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ (0.57   $ (1.70   $ (0.65   $ (0.98
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding:

        

Basic

     497.4       496.6       497.3       496.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     497.4       496.6       499.0       496.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental disclosures:

        

Total other-than-temporary impairments

   $ (10   $ (13   $ (13   $ (16

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

     1       7       1       7  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net other-than-temporary impairments

     (9     (6     (12     (9

Other investments gains (losses)

     (42     (21     (47     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net investment gains (losses)

   $ (51   $ (27   $ (59   $ (11
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

4


Table of Contents

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
       2015         2014       2015     2014  

Net loss

   $ (238   $ (787   $ (173   $ (340

Other comprehensive income (loss), net of taxes:

        

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

     87       (68     (728     1,171  

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

     —         1       —         8  

Derivatives qualifying as hedges

     217       101       60       434  

Foreign currency translation and other adjustments

     (302     (379     (619     (252
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     2       (345     (1,287     1,361  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

     (236     (1,132     (1,460     1,021  

Less: comprehensive income (loss) attributable to noncontrolling interests

     (121     (61     (145     56  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (115   $ (1,071   $ (1,315   $ 965  
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

5


Table of Contents

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ 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
stockholders’
equity
 

Balances as of December 31, 2014

  $ 1     $ 11,997     $ 4,446     $ 1,179     $ (2,700   $ 14,923     $ 1,874     $ 16,797  
               

 

 

 

Additional sale of subsidiary shares to noncontrolling interests

    —          (65     24       —          —          (41     267       226  

Repurchase of subsidiary shares

    —          —          —          —          —          —         (17     (17

Comprehensive income (loss):

               

Net income (loss)

    —          —          —          (323     —          (323     150       (173

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

    —          —          (708     —          —          (708     (20     (728

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

    —          —          —         —          —          —         —          —    

Derivatives qualifying as hedges

    —          —          60       —          —          60       —          60  

Foreign currency translation and other adjustments

    —          —          (344     —          —          (344     (275     (619
           

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

              (1,315     (145     (1,460

Dividends to noncontrolling interests

    —          —          —          —          —          —          (145     (145

Stock-based compensation expense and exercises and other

    —          12       —          —          —          12       3       15  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of September 30, 2015

  $ 1     $ 11,944     $ 3,478     $ 856     $ (2,700   $ 13,579     $ 1,837     $ 15,416  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of December 31, 2013

  $ 1     $ 12,127     $ 2,542     $ 2,423     $ (2,700   $ 14,393     $ 1,227     $ 15,620  
               

 

 

 

Initial sale of subsidiary shares to noncontrolling interests

    —          (145     (57     —          —          (202     713       511  

Comprehensive income (loss):

               

Net income (loss)

    —          —          —          (484     —          (484     144       (340

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

    —          —          1,155       —          —          1,155       16       1,171  

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

    —          —          8       —          —          8       —         8  

Derivatives qualifying as hedges

    —          —          434       —          —          434       —         434  

Foreign currency translation and other adjustments

    —          —          (148     —          —          (148     (104     (252
           

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

              965       56       1,021  

Dividends to noncontrolling interests

    —          —          —          —          —          —          (46     (46

Stock-based compensation expense and exercises and other

    —          9       —          —          —          9       6       15  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of September 30, 2014

  $ 1     $ 11,991     $ 3,934     $ 1,939     $ (2,700   $ 15,165     $ 1,956     $ 17,121  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

6


Table of Contents

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)

 

     Nine months ended
September 30,
 
         2015           2014      

Cash flows from operating activities:

    

Net loss

   $ (173   $ (340

Less (income) loss from discontinued operations, net of taxes

     334       (19

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

    

Amortization of fixed maturity securities discounts and premiums and limited partnerships

     (80     (97

Net investment losses (gains)

     59       11  

Charges assessed to policyholders

     (586     (580

Acquisition costs deferred

     (226     (282

Amortization of deferred acquisition costs and intangibles

     759       325  

Goodwill impairment

     —         550  

Deferred income taxes

     (117     (186

Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments

     (247     110  

Stock-based compensation expense

     14       19  

Change in certain assets and liabilities:

    

Accrued investment income and other assets

     (133     (175

Insurance reserves

     1,270       1,260  

Current tax liabilities

     (71     (185

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

     352       731  

Cash from operating activities—discontinued operations

     3       (2
  

 

 

   

 

 

 

Net cash from operating activities

     1,158       1,140  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Proceeds from maturities and repayments of investments:

    

Fixed maturity securities

     3,389       3,638  

Commercial mortgage loans

     640       528  

Restricted commercial mortgage loans related to securitization entities

     27       24  

Proceeds from sales of investments:

    

Fixed maturity and equity securities

     1,333       1,651  

Purchases and originations of investments:

    

Fixed maturity and equity securities

     (6,836     (7,202

Commercial mortgage loans

     (678     (709

Other invested assets, net

     (39     104  

Policy loans, net

     23       11  

Cash from investing activities—discontinued operations

     (22     (48
  

 

 

   

 

 

 

Net cash from investing activities

     (2,163     (2,003
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Deposits to universal life and investment contracts

     1,693       2,201  

Withdrawals from universal life and investment contracts

     (1,677     (1,950

Redemption of non-recourse funding obligations

     (45     (28

Proceeds from issuance of long-term debt

     150       144  

Repayment and repurchase of long-term debt

     (120     (621

Repayment of borrowings related to securitization entities

     (26     (24

Proceeds from sale of subsidiary shares to noncontrolling interests

     226       517  

Repurchase of subsidiary shares

     (17     —    

Dividends paid to noncontrolling interests

     (145     (46

Other, net

     (25     (19

Cash from financing activities—discontinued operations

     (33     (25
  

 

 

   

 

 

 

Net cash from financing activities

     (19     149  
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents (includes $(8) and $(3) related to discontinued operations)

     (86     (23
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (1,110     (737

Cash and cash equivalents at beginning of period

     4,918       4,214  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

     3,808       3,477  

Less cash and cash equivalents of discontinued operations at end of period

     142       193  
  

 

 

   

 

 

 

Cash and cash equivalents of continuing operations at end of period

   $ 3,666     $ 3,284  
  

 

 

   

 

 

 

See Notes to Condensed Consolidated Financial Statements

 

7


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Formation of Genworth and Basis of Presentation

Genworth Holdings, Inc. (“Genworth Holdings”) (formerly known as Genworth Financial, Inc.) was incorporated in Delaware in 2003 in preparation for an initial public offering of Genworth 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, under the name Sub XLVI, Inc., and was renamed Genworth Financial, Inc. (“Genworth Financial”) upon the completion of the reorganization.

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 condensed consolidated financial statements and these notes thereto are, unless the context otherwise requires, to Genworth Financial on a consolidated basis.

We have the following operating segments:

 

    International Mortgage Insurance. We are a leading provider of mortgage insurance products and related services in Canada and Australia and also participate in select European and other countries. Our products predominantly insure prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. We also selectively provide mortgage insurance on a structured, or bulk, basis that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk.

 

    U.S. Mortgage Insurance. In the United States, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. We selectively provide mortgage insurance on a bulk basis with essentially all of our bulk writings being prime-based. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk.

 

    U.S. Life Insurance. We offer and manage a variety of insurance and fixed annuity products in the United States. Our primary products include long-term care insurance, life insurance and fixed annuities.

 

    Runoff. The Runoff segment includes the results of non-strategic products which are no longer actively sold. 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 (“FABNs”) and guaranteed investment contracts (“GICs”). We no longer offer retail and group variable annuities but continue to service our existing blocks of business.

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 non-core businesses that are managed outside of our operating segments, including discontinued operations.

 

8


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In June 2015, our Board of Directors approved a transaction to sell our lifestyle protection insurance business, which had previously been designated as a non-core business. As the held-for-sale criteria were satisfied during the second quarter of 2015, we recorded an estimated loss to reduce the carrying value of the business to the fair value less pension settlement costs and closing costs. Our lifestyle protection insurance business, previously the only business in the International Protection segment, has been reported as discontinued operations and its financial position, results of operations and cash flows are separately reported for all periods presented. All prior periods reflected herein have been re-presented on this basis. See note 15 for additional information.

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 2014 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

We have revised our condensed consolidated statement of cash flows previously reported in our Quarterly Report on Form 10-Q for the nine months ended September 30, 2014 to reflect a correction related to the calculation of the change in reinsurance recoverable that impacted the lines “insurance reserves” and “other liabilities, policy and contract claims and other policy-related balances.” As a result, the change in insurance reserves decreased by $514 million and the change in other liabilities, policy and contract claims and other policy-related balances increased by $514 million. The revisions had no impact on net cash flows from operating activities or the total change in cash and cash equivalents within our condensed consolidated statement of cash flows. Additionally, there was no impact on our unaudited condensed consolidated balance sheet or unaudited condensed consolidated statement of income.

(2) Accounting Changes

a) Accounting Pronouncements Recently Adopted

On January 1, 2015, we early adopted new accounting guidance related to measuring the financial assets and financial liabilities of a consolidated collateralized financing entity. The guidance addresses the accounting for the measurement difference between the fair value of financial assets and the fair value of financial liabilities of a collateralized financing entity. The new guidance provides an alternative whereby a reporting entity could measure the financial assets and financial liabilities of the collateralized financing entity in its consolidated financial statements using the more observable of the fair values. There was no impact on our consolidated financial statements.

On January 1, 2015, we adopted new accounting guidance related to the accounting for repurchase-to-maturity transactions and repurchase financings. The new guidance changed the accounting for repurchase-to-maturity transactions and repurchase financing such that they were consistent with secured borrowing accounting. In addition, the guidance required new disclosures for all repurchase agreements and securities

 

9


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

lending transactions which were effective beginning in the second quarter of 2015. We do not have repurchase-to-maturity transactions, but have repurchase agreements and securities lending transactions that are subject to additional disclosures. This new guidance did not have an impact on our consolidated financial statements but did impact our disclosures.

On January 1, 2015, we adopted new accounting guidance related to the accounting for investments in affordable housing projects that qualify for the low-income housing tax credit. The new guidance permits reporting entities to make an accounting policy election to account for investments in qualified affordable housing projects by amortizing the initial cost of the investment in proportion to the tax benefits received and recognize the net investment performance as a component of income tax expense (called the proportional amortization method) if certain conditions are met. The new guidance requires use of the equity method or cost method for investments in qualified affordable housing projects not accounted for using the proportional amortization method. The adoption of this new guidance did not have a material impact on our consolidated financial statements.

On January 1, 2015, we early adopted new accounting guidance related to the accounting for share-based payment awards when the terms of an award provide that a performance target can be achieved after the requisite service period. The guidance requires that such performance targets should not be reflected in estimating the grant-date fair value of an award, and that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. We have a performance stock unit plan where awards for employees who are retirement eligible can vest on a pro-rata basis upon retirement even if retirement occurs before the performance target is achieved. There was no impact on our consolidated financial statements.

b) Accounting Pronouncement Not Yet Adopted

In May 2015, the Financial Accounting Standards Board (the “FASB”) issued new disclosure requirements for short-duration insurance contracts. The new guidance requires additional disclosures on short-duration policy and contract claims liabilities for incurred and paid claims development, unpaid claims and claims frequency. These new disclosures will be effective for us on December 31, 2016 with early adoption permitted and will only impact our mortgage insurance disclosures.

In April 2015, the FASB issued new guidance related to the presentation of debt issuance costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB issued new guidance further clarifying that companies can make the election to present debt issuance costs related to revolving credit facilities as either an asset or as a direct deduction from the carrying amount of that debt liability. The new guidance related to debt issuance costs are both effective for us on January 1, 2016 and are required to be applied on a retrospective basis. We plan to early adopt this new guidance as of December 31, 2015 and expect approximately $45 million presented in other assets to be deducted from debt liabilities in our consolidated financial statements upon adoption.

In February 2015, the FASB issued new accounting guidance related to consolidation. This guidance primarily impacts limited partnerships and similar legal entities, evaluation of fees paid to a decision maker as a variable interest, the effect of fee arrangements and related parties on the primary beneficiary determination and certain investment funds. This guidance is effective for us on January 1, 2016, with early adoption permitted. While we are in the process of determining the impact of this new guidance, we do not believe the impact will be significant to our consolidated financial statements.

 

10


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3) Earnings (Loss) Per Share

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

 

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

(Amounts in millions, except per share amounts)

       2015             2014         2015     2014  

Weighted-average common shares used in basic earnings (loss) per common share calculations

     497.4       496.6       497.3       496.4  

Potentially dilutive securities:

        

Stock options, restricted stock units and stock appreciation rights

     —         —         1.7       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares used in diluted earnings (loss) per common share calculations (1)

     497.4       496.6       499.0       496.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations:

        

Income (loss) from continuing operations

   $ (217   $ (793   $ 161     $ (359

Less: income from continuing operations attributable to noncontrolling interests

     46       57       150       144  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (263   $ (850   $ 11     $ (503
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic per common share

   $ (0.53   $ (1.71   $ 0.02     $ (1.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted per common share

   $ (0.53   $ (1.71   $ 0.02     $ (1.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations:

        

Income (loss) from discontinued operations, net of taxes

   $ (21   $ 6     $ (334   $ 19  

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

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations, net of taxes, available to Genworth Financial, Inc.’s common stockholders

   $ (21   $ 6     $ (334   $ 19  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic per common share

   $ (0.04   $ 0.01     $ (0.67   $ 0.04  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted per common share

   $ (0.04   $ 0.01     $ (0.67   $ 0.04  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss):

        

Income (loss) from continuing operations

   $ (217   $ (793   $ 161     $ (359

Income (loss) from discontinued operations, net of taxes

     (21     6       (334     19  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (238     (787     (173     (340

Less: net income attributable to noncontrolling interests

     46       57       150       144  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (284   $ (844   $ (323   $ (484
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic per common share

   $ (0.57   $ (1.70   $ (0.65   $ (0.98
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted per common share

   $ (0.57   $ (1.70   $ (0.65   $ (0.98
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders and net loss available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2015 and the three and nine months ended September 30, 2014, we were required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share for the three months ended September 30, 2015 and the three and nine months ended September 30, 2014, as the inclusion of shares for stock options, restricted stock units and stock appreciation rights of 1.3 million, 5.4 million and 6.4 million, respectively, would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders and net loss available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2015 and the three and nine months ended September 30, 2014, dilutive potential weighted-average common shares outstanding would have been 498.7 million, 502.0 million and 502.8 million, respectively.

 

11


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(4) Investments

(a) Net Investment Income

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

 

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

(Amounts in millions)

       2015             2014         2015     2014  

Fixed maturity securities—taxable

   $ 647     $ 643     $ 1,924     $ 1,940  

Fixed maturity securities—non-taxable

     3       3       9       9  

Commercial mortgage loans

     84       82       252       246  

Restricted commercial mortgage loans related to securitization entities

     3       3       10       11  

Equity securities

     3       3       11       11  

Other invested assets

     26       27       103       81  

Restricted other invested assets related to securitization entities

     1       1       3       3  

Policy loans

     33       32       101       95  

Cash, cash equivalents and short-term investments

     3       7       10       19  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross investment income before expenses and fees

     803       801       2,423       2,415  

Expenses and fees

     (20     (23     (66     (70
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

   $ 783     $ 778     $ 2,357     $ 2,345  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

12


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(b) Net Investment Gains (Losses)

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

 

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

(Amounts in millions)

     2015         2014         2015         2014    

Available-for-sale securities:

        

Realized gains

   $ 14     $ 17     $ 49     $ 61  

Realized losses

     (18     (5     (36     (42
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (4     12       13       19  
  

 

 

   

 

 

   

 

 

   

 

 

 

Impairments:

        

Total other-than-temporary impairments

     (10     (13     (13     (16

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

     1       7       1       7  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net other-than-temporary impairments

     (9     (6     (12     (9
  

 

 

   

 

 

   

 

 

   

 

 

 

Trading securities

     12       4       2       24  

Commercial mortgage loans

     1       3       5       9  

Net gains (losses) related to securitization entities

     (1     (1     9       14  

Derivative instruments (1)

     (53     (38     (79     (66

Contingent consideration adjustment

     2       (1     2       (1

Other

     1       —         1       (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment gains (losses)

   $ (51   $ (27   $ (59   $ (11
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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

We generally intend to hold securities in unrealized loss positions until they recover. However, from time to time, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, we sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield and liquidity requirements. If a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we determined that we have the intent to sell the securities or it is more likely than not that we will be required to sell the securities prior to recovery. The aggregate fair value of securities sold at a loss during the three months ended September 30, 2015 and 2014 was $186 million and $215 million, respectively, which was approximately 93% and 98%, respectively, of book value. The aggregate fair value of securities sold at a loss during the nine months ended September 30, 2015 and 2014 was $470 million and $721 million, respectively, which was approximately 94% and 95%, respectively, of book value.

 

13


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

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

(Amounts in millions)

     2015         2014         2015         2014    

Beginning balance

   $ 75     $ 95     $ 83     $ 101  

Additions:

        

Other-than-temporary impairments not previously recognized

     —         1       —         2  

Reductions:

        

Securities sold, paid down or disposed

     (9     (7     (17     (14
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 66     $ 89     $ 66     $ 89  
  

 

 

   

 

 

   

 

 

   

 

 

 

(c) Unrealized Investment Gains and Losses

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

 

(Amounts in millions)

   September 30,
2015
    December 31,
2014
 

Net unrealized gains (losses) on investment securities:

    

Fixed maturity securities

   $ 4,213     $ 5,560  

Equity securities

     (17     32  

Other invested assets

     —         (2
  

 

 

   

 

 

 

Subtotal

     4,196       5,590  

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

     (1,386     (1,656

Income taxes, net

     (976     (1,372
  

 

 

   

 

 

 

Net unrealized investment gains (losses)

     1,834       2,562  

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

     103       109  
  

 

 

   

 

 

 

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

   $ 1,731     $ 2,453  
  

 

 

   

 

 

 

 

14


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

     As of or for the
three months ended
September 30,
 

(Amounts in millions)

   2015     2014  

Beginning balance

   $ 1,628     $ 2,128  

Unrealized gains (losses) arising during the period:

    

Unrealized gains (losses) on investment securities

     70       (225

Adjustment to deferred acquisition costs

     32       35  

Adjustment to present value of future profits

     (5     36  

Adjustment to sales inducements

     9       9  

Adjustment to benefit reserves

     23       49  

Provision for income taxes

     (50     33  
  

 

 

   

 

 

 

Change in unrealized gains (losses) on investment securities

     79       (63

Reclassification adjustments to net investment (gains) losses, net of taxes of $(5) and $2

     8       (4
  

 

 

   

 

 

 

Change in net unrealized investment gains (losses)

     87       (67

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

     (16     (6
  

 

 

   

 

 

 

Ending balance

   $ 1,731     $ 2,067  
  

 

 

   

 

 

 

 

     As of or for the
nine months ended
September 30,
 

(Amounts in millions)

   2015     2014  

Beginning balance

   $ 2,453     $ 926  

Unrealized gains (losses) arising during the period:

    

Unrealized gains (losses) on investment securities

     (1,393     2,399  

Adjustment to deferred acquisition costs

     102       (160

Adjustment to present value of future profits

     45       (55

Adjustment to sales inducements

     12       (19

Adjustment to benefit reserves

     111       (339

Provision for income taxes

     396       (640
  

 

 

   

 

 

 

Change in unrealized gains (losses) on investment securities

     (727     1,186  

Reclassification adjustments to net investment (gains) losses, net of taxes of $— and $4

     (1     (7
  

 

 

   

 

 

 

Change in net unrealized investment gains (losses)

     (728     1,179  

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

     (6     38  
  

 

 

   

 

 

 

Ending balance

   $ 1,731     $ 2,067  
  

 

 

   

 

 

 

 

15


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(d) Fixed Maturity and Equity Securities

As of September 30, 2015, 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

  $ 5,065     $ 855     $ —       $ (7   $ —       $ 5,913  

State and political subdivisions

    2,280       195       —         (27     —         2,448  

Non-U.S. government

    1,836       120       —         (4     —         1,952  

U.S. corporate:

           

Utilities

    3,398       420       —         (18     —         3,800  

Energy

    2,664       178       —         (71     —         2,771  

Finance and insurance

    5,422       447       17       (37     —         5,849  

Consumer—non-cyclical

    3,742       423       —         (23     —         4,142  

Technology and communications

    2,292       144       —         (28     —         2,408  

Industrial

    1,254       75       —         (28     —         1,301  

Capital goods

    1,873       215       —         (11     —         2,077  

Consumer—cyclical

    1,732       114       —         (13     —         1,833  

Transportation

    1,012       89       —         (10     —         1,091  

Other

    399       27       —         (3     —         423  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total U.S. corporate

    23,788       2,132       17       (242     —         25,695  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

           

Utilities

    861       42       —         (6     —         897  

Energy

    1,856       105       —          (70     —          1,891  

Finance and insurance

    2,709       173       1       (6     —          2,877  

Consumer—non-cyclical

    740       30       —          (15     —          755  

Technology and communications

    975       43       —          (22     —          996  

Industrial

    1,129       34       —          (67     —          1,096  

Capital goods

    600       25       —          (15     —          610  

Consumer—cyclical

    561       10       —          (5     —          566  

Transportation

    556       59       —          (4     —          611  

Other

    2,706       218       —          (24     —          2,900  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-U.S. corporate

    12,693       739       1       (234     —          13,199  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential mortgage-backed

    4,728       389       11       (10     —          5,118  

Commercial mortgage-backed

    2,464       126       4       (7     —          2,587  

Other asset-backed

    3,953       25       1       (40     —          3,939  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

    56,807       4,581       34       (571     —          60,851  

Equity securities

    300       5       —          (32     —          273  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

  $ 57,107     $ 4,586     $ 34     $ (603   $ —        $ 61,124  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

16


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

As of December 31, 2014, 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

  $ 5,006     $ 995     $ —        $ (1   $ —        $ 6,000  

State and political subdivisions

    2,013       236       —          (27     —          2,222  

Non-U.S. government

    1,778       144       —          (2     —          1,920  

U.S. corporate:

           

Utilities

    3,292       577       —          (5     —          3,864  

Energy

    2,498       265       —          (21     —          2,742  

Finance and insurance

    5,109       537       20       (13     —          5,653  

Consumer—non-cyclical

    3,489       538       —          (8     —          4,019  

Technology and communications

    2,112       217       —          (4     —          2,325  

Industrial

    1,195       100       —          (8     —          1,287  

Capital goods

    1,748       263       —          (5     —          2,006  

Consumer—cyclical

    1,750       158       —          (8     —          1,900  

Transportation

    929       114       —          (4     —          1,039  

Other

    370       31       —          —          —          401  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total U.S. corporate

    22,492       2,800       20       (76     —          25,236  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

           

Utilities

    867       48       —          (2     —          913  

Energy

    1,925       163       —          (38     —          2,050  

Finance and insurance

    2,812       203       —          (3     —          3,012  

Consumer—non-cyclical

    780       41       —          (9     —          812  

Technology and communications

    999       71       —          (4     —          1,066  

Industrial

    1,178       65       —          (18     —          1,225  

Capital goods

    605       31       —          (5     —          631  

Consumer—cyclical

    535       14       —          —          —          549  

Transportation

    525       70       —          (1     —          594  

Other

    3,169       257       —          (15     —          3,411  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-U.S. corporate

    13,395       963       —          (95     —          14,263  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Residential mortgage-backed

    4,871       362       13       (17     (1     5,228  

Commercial mortgage-backed

    2,564       143       4       (9     —          2,702  

Other asset-backed

    3,735       23       1       (54     —          3,705  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

    55,854       5,666       38       (281     (1     61,276  

Equity securities

    250       32       —          (7     —          275  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

  $ 56,104     $ 5,698     $ 38     $ (288   $ (1   $ 61,551  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

17


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents the gross unrealized losses and fair values of our investment securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, as of September 30, 2015:

 

    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

  $ 406     $ (7     10     $ —        $ —          —        $ 406     $ (7     10  

State and political subdivisions

    334       (10     54       155       (17     16       489       (27     70  

Non-U.S. government

    148       (4     33       —          —          —          148       (4     33  

U.S. corporate

    4,313       (198     632       429       (44     69       4,742       (242     701  

Non-U.S. corporate

    2,643       (165     371       376       (69     56       3,019       (234     427  

Residential mortgage-backed

    396       (5     37       109       (5     38       505       (10     75  

Commercial mortgage-backed

    320       (6     54       50       (1     14       370       (7     68  

Other asset-backed

    870       (5     165       330       (35     55       1,200       (40     220  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, fixed maturity securities

    9,430       (400     1,356       1,449       (171     248       10,879       (571     1,604  

Equity securities

    182       (32     65       —          —          —          182       (32     65  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 9,612     $ (432     1,421     $ 1,449     $ (171     248     $ 11,061     $ (603     1,669  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—fixed maturity securities:

                 

<20% Below cost

  $ 9,298     $ (340     1,329     $ 1,238     $ (78     219     $ 10,536     $ (418     1,548  

20%-50% Below cost

    127       (50     25       206       (86     27       333       (136     52  

>50% Below cost

    5       (10     2       5       (7     2       10       (17     4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

    9,430       (400     1,356       1,449       (171     248       10,879       (571     1,604  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—equity securities:

                 

<20% Below cost

    106       (9     41       —          —          —          106       (9     41  

20%-50% Below cost

    76       (23     24       —          —          —          76       (23     24  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

    182       (32     65       —          —          —          182       (32     65  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 9,612     $ (432     1,421     $ 1,449     $ (171     248     $ 11,061     $ (603     1,669  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment grade

  $ 8,632     $ (332     1,248     $ 1,194     $ (105     199     $ 9,826     $ (437     1,447  

Below investment grade

    980       (100     173       255       (66     49       1,235       (166     222  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 9,612     $ (432     1,421     $ 1,449     $ (171     248     $ 11,061     $ (603     1,669  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

18


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of September 30, 2015:

 

    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

  $ 329     $ (17     51     $ 12     $ (1     6     $ 341     $ (18     57  

Energy

    808       (58     124       106       (13     15       914       (71     139  

Finance and insurance

    903       (26     125       102       (11     15       1,005       (37     140  

Consumer—non-cyclical

    522       (19     74       56       (4     11       578       (23     85  

Technology and communications

    604       (28     89       —         —          —          604       (28     89  

Industrial

    355       (19     50       42       (9     8       397       (28     58  

Capital goods

    256       (8     42       25       (3     4       281       (11     46  

Consumer—cyclical

    316       (11     48       64       (2     8       380       (13     56  

Transportation

    166       (9     24       22       (1     2       188       (10     26  

Other

    54       (3     5       —          —          —          54       (3     5  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, U.S. corporate securities

    4,313       (198     632       429       (44     69       4,742       (242     701  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

                 

Utilities

    111       (4     17       27       (2     3       138       (6     20  

Energy

    554       (55     68       104       (15     13       658       (70     81  

Finance and insurance

    441       (6     65       30       —          7       471       (6     72  

Consumer—non-cyclical

    214       (12     24       32       (3     3       246       (15     27  

Technology and communications

    255       (10     36       28       (12     6       283       (22     42  

Industrial

    442       (42     62       104       (25     15       546       (67     77  

Capital goods

    137       (10     25       7       (5     3       144       (15     28  

Consumer—cyclical

    170       (5     21       —          —          —          170       (5     21  

Transportation

    105       (4     15       —          —          —          105       (4     15  

Other

    214       (17     38       44       (7     6       258       (24     44  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, non-U.S. corporate securities

    2,643       (165     371       376       (69     56       3,019       (234     427  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for corporate securities in an unrealized loss position

  $ 6,956     $ (363     1,003     $ 805     $ (113     125     $ 7,761     $ (476     1,128  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 the increase in interest rates, 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 5% as of September 30, 2015.

 

19


Table of Contents

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 70% of the unrealized losses were related to investment grade securities as of September 30, 2015. These unrealized losses were predominantly attributable to corporate securities and municipal securities including fixed rate securities purchased in a lower rate environment and variable rate securities purchased in a higher rate and lower spread environment. The average fair value percentage below cost for these securities was approximately 6% as of September 30, 2015. 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 September 30, 2015:

 

    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     $ (4     1     1     $ —        $ —          —       —     

U.S. corporate—industrial

    18       (5     1       2       —          —          —          —     

Non-U.S. corporate:

               

Utilities

    4       (1     —          1       —          —          —          —     

Energy

    22       (6     1       2       —          —          —          —     

Industrial

    24       (7     1       3       —          —          —          —     

Capital goods

    3       (3     1       1       —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-U.S. corporate

    53       (17     3       7       —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Structured securities:

               

Other asset-backed

    67       (25     4       4       —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total structured securities

    67       (25     4       4       —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 147     $ (51     9     14     $ —        $ —          —       —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

    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:

               

U.S. corporate:

               

Energy

  $ 4     $ (1     —       1     $ —        $ —          —       —     

Finance and insurance

    7       (3     1       1       —          —          —          —     

Consumer—non-cyclical

    4       (1     —          1       —          —          —          —     

Industrial

    4       (2     —          1       —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total U.S. corporate

    19       (7     1       4       —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

               

Energy

    4       (1     —          1       1       (2     —          1  

Technology and communications

    7       (7     1       2       4       (5     —          1  

Industrial

    14       (11     2       3       —          —          —          —     

Capital goods

    3       (2     1       1       —          —          —          —     

Other

    4       (1     —          1       —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-U.S. corporate

    32       (22     4       8       5       (7     —          2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Structured securities:

               

Other asset-backed

    8       (6     1       1       —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total structured securities

    8       (6     1       1       —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 59     $ (35     6     13     $ 5     $ (7     —       2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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.

Non-U.S. corporate

As indicated above, $46 million of gross unrealized losses were related to non-U.S. corporate fixed maturity securities that have been in an unrealized loss position for more than 12 months and were more than 20% below cost. Of the total unrealized losses for non-U.S. corporate fixed maturity securities, $18 million, or 39%, related to the industrial sector. Reduced overseas demand for metals, particularly copper and oil, has led to a decline in commodities pricing, adversely impacting the fair value of these securities.

We expect that our investments in non-U.S. corporate securities will continue to perform in accordance with our expectations about the amount and timing of estimated cash flows. Although we do not anticipate such events, it is reasonably possible that issuers of our investments in non-U.S. corporate securities may perform worse than current expectations. Such events may lead us to recognize write-downs within our portfolio of non-U.S. corporate securities in the future.

 

21


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Structured Securities

Of the $31 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 September 30, 2015.

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.

 

22


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents the gross unrealized losses and fair values of our 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, 2014:

 

    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
(1)
    Number of
securities
    Fair
value
    Gross
unrealized
losses
(1)
    Number of
securities
 

Description of Securities

                 

Fixed maturity securities:

                 

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

  $ —        $ —          —        $ 75     $ (1     10     $ 75     $ (1     10  

State and political subdivisions

    9       —          7       267       (27     45       276       (27     52  

Non-U.S. government

    64       (1     15       22       (1     4       86       (2     19  

U.S. corporate

    1,646       (33     233       1,201       (43     174       2,847       (76     407  

Non-U.S. corporate

    1,529       (67     230       504       (28     67       2,033       (95     297  

Residential mortgage-backed

    180       (1     24       249       (17     87       429       (18     111  

Commercial mortgage-backed

    163       —          21       362       (9     49       525       (9     70  

Other asset-backed

    1,551       (12     215       487       (42     55       2,038       (54     270  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, fixed maturity securities

    5,142       (114     745       3,167       (168     491       8,309       (282     1,236  

Equity securities

    30       (3     46       48       (4     6       78       (7     52  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 5,172     $ (117     791     $ 3,215     $ (172     497     $ 8,387     $ (289     1,288  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—fixed maturity securities:

                 

<20% Below cost

  $ 5,105     $ (103     741     $ 3,036     $ (114     470     $ 8,141     $ (217     1,211  

20%-50% Below cost

    37       (11     4       131       (53     15       168       (64     19  

>50% Below cost

    —          —          —          —          (1     6       —          (1     6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

    5,142       (114     745       3,167       (168     491       8,309       (282     1,236  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—equity securities:

                 

<20% Below cost

    26       (2     40       48       (4     6       74       (6     46  

20%-50% Below cost

    4       (1     6       —          —          —          4       (1     6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

    30       (3     46       48       (4     6       78       (7     52  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 5,172     $ (117     791     $ 3,215     $ (172     497     $ 8,387     $ (289     1,288  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment grade

  $ 4,581     $ (75     664     $ 2,918     $ (145     424     $ 7,499     $ (220     1,088  

Below investment grade (2)

    591       (42     127       297       (27     73       888       (69     200  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 5,172     $ (117     791     $ 3,215     $ (172     497     $ 8,387     $ (289     1,288  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Amounts included $1 million of unrealized losses on other-than-temporarily impaired securities.
(2)  Amounts that have been in a continuous unrealized loss position for 12 months or more included $1 million of unrealized losses on other-than-temporarily impaired securities.

 

23


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents the gross unrealized losses and fair values of our 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, 2014:

 

    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

  $ 55     $ —          10     $ 164     $ (5     23     $ 219     $ (5     33  

Energy

    404       (16     56       96       (5     15       500       (21     71  

Finance and insurance

    401       (3     57       257       (10     35       658       (13     92  

Consumer—non-cyclical

    165       (3     21       182       (5     32       347       (8     53  

Technology and communications

    181       (3     27       97       (1     15       278       (4     42  

Industrial

    151       (4     21       80       (4     11       231       (8     32  

Capital goods

    85       —          13       122       (5     18       207       (5     31  

Consumer—cyclical

    132       (2     17       139       (6     18       271       (8     35  

Transportation

    52       (2     9       57       (2     6       109       (4     15  

Other

    20       —          2       7       —          1       27       —          3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, U.S. corporate securities

    1,646       (33     233       1,201       (43     174       2,847       (76     407  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-U.S. corporate:

                 

Utilities

    80       —          14       43       (2     5       123       (2     19  

Energy

    449       (33     60       58       (5     13       507       (38     73  

Finance and insurance

    261       (2     41       29       (1     6       290       (3     47  

Consumer—non-cyclical

    142       (6     13       83       (3     9       225       (9     22  

Technology and communications

    88       (2     18       81       (2     8       169       (4     26  

Industrial

    218       (9     31       116       (9     15       334       (18     46  

Capital goods

    68       (2     10       38       (3     4       106       (5     14  

Consumer—cyclical

    10       —          3       —          —          —          10       —          3  

Transportation

    34       —          7       14       (1     1       48       (1     8  

Other

    179       (13     33       42       (2     6       221       (15     39  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, non-U.S. corporate securities

    1,529       (67     230       504       (28     67       2,033       (95     297  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for corporate securities in an unrealized loss position

  $ 3,175     $ (100     463     $ 1,705     $ (71     241     $ 4,880     $ (171     704  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The scheduled maturity distribution of fixed maturity securities as of September 30, 2015 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

   $ 2,135      $ 2,147  

Due after one year through five years

     10,474        10,950  

Due after five years through ten years

     11,824        12,155  

Due after ten years

     21,229        23,955  
  

 

 

    

 

 

 

Subtotal

     45,662        49,207  

Residential mortgage-backed

     4,728        5,118  

Commercial mortgage-backed

     2,464        2,587  

Other asset-backed

     3,953        3,939  
  

 

 

    

 

 

 

Total

   $ 56,807      $ 60,851  
  

 

 

    

 

 

 

As of September 30, 2015, $7,703 million of our investments (excluding mortgage-backed and asset-backed securities) were subject to certain call provisions.

As of September 30, 2015, securities issued by finance and insurance, consumer—non-cyclical, utilities and energy industry groups represented approximately 22%, 13%, 12% and 12%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than 10% of our investment portfolio. This portfolio is widely diversified among various geographic regions in the United States and internationally, and is not dependent on the economic stability of one particular region.

As of September 30, 2015, 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.

 

25


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

     September 30,
2015
    December 31,
2014
 

(Amounts in millions)

   Carrying
value
     % of
total
    Carrying
value
     % of
total
 

Property type:

          

Retail

   $ 2,259        37   $ 2,150        35

Office

     1,594        26       1,643        27  

Industrial

     1,580        26       1,597        26  

Apartments

     458        7       494        8  

Mixed use/other

     260        4       239        4  
  

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal

     6,151        100     6,123        100
     

 

 

      

 

 

 

Unamortized balance of loan origination fees and costs

     (1        (1   

Allowance for losses

     (17        (22   
  

 

 

      

 

 

    

Total

   $ 6,133        $ 6,100     
  

 

 

      

 

 

    

 

     September 30,
2015
    December 31,
2014
 

(Amounts in millions)

   Carrying
value
     % of
total
    Carrying
value
     % of
total
 

Geographic region:

          

Pacific

   $ 1,594        26   $ 1,636        27

South Atlantic

     1,582        26       1,673        27  

Middle Atlantic

     860        14       826        14  

Mountain

     588        10       536        9  

West North Central

     396        6       382        6  

East North Central

     383        6       397        7  

West South Central

     295        5       268        4  

New England

     279        4       264        4  

East South Central

     174        3       141        2  
  

 

 

    

 

 

   

 

 

    

 

 

 

Subtotal

     6,151        100     6,123        100
     

 

 

      

 

 

 

Unamortized balance of loan origination fees and costs

     (1        (1   

Allowance for losses

     (17        (22   
  

 

 

      

 

 

    

Total

   $ 6,133        $ 6,100     
  

 

 

      

 

 

    

 

26


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

     September 30, 2015  

(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

   $ —        $ —        $ —        $ —        $ 2,259     $ 2,259  

Office

     —          —          5       5       1,589       1,594  

Industrial

     —          —          —          —          1,580       1,580  

Apartments

     —          —          —          —          458       458  

Mixed use/other

     —          —          —          —          260       260  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ —        $ —        $ 5     $ 5     $ 6,146     $ 6,151  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total commercial mortgage loans

     —       —       —       —       100     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     December 31, 2014  

(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

   $ —        $ —        $ —        $ —        $ 2,150     $ 2,150  

Office

     —          —          6       6       1,637       1,643  

Industrial

     —          —          2       2       1,595       1,597  

Apartments

     —          —          —          —          494       494  

Mixed use/other

     —          —          —          —          239       239  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ —        $ —        $ 8     $ 8     $ 6,115     $ 6,123  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total commercial mortgage loans

     —       —       —       —       100     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of September 30, 2015 and December 31, 2014, we had no commercial mortgage loans that were past due for more than 90 days and still accruing interest. We also did not have any commercial mortgage loans that were past due for less than 90 days on non-accrual status as of September 30, 2015 and December 31, 2014.

We evaluate the impairment of commercial mortgage loans on an individual loan basis. As of September 30, 2015, our commercial mortgage loans greater than 90 days past due included a loan with appraised values in excess of the recorded investment and the current recorded investment of the loan was expected to be recoverable.

During the nine months ended September 30, 2015 and the year ended December 31, 2014, we modified or extended 15 and 28 commercial mortgage loans, respectively, with a total carrying value of $93 million and $254 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 and were not considered troubled debt restructurings.

 

27


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

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

(Amounts in millions)

       2015           2014           2015           2014    

Allowance for credit losses:

        

Beginning balance

   $ 18     $ 27     $ 22     $ 33  

Charge-offs

     (1     —          (4     (1

Recoveries

     —          —          —          —     

Provision

     —          (3     (1     (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 17     $ 24     $ 17     $ 24  
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending allowance for individually impaired loans

   $ —        $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 17     $ 24     $ 17     $ 24  
  

 

 

   

 

 

   

 

 

   

 

 

 

Recorded investment:

        

Ending balance

   $ 6,151     $ 6,101     $ 6,151     $ 6,101  
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance of individually impaired loans

   $ 19     $ 17     $ 19     $ 17  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 6,132     $ 6,084     $ 6,132     $ 6,084  
  

 

 

   

 

 

   

 

 

   

 

 

 

As of September 30, 2015, we had an individually impaired commercial mortgage loan 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. As of December 31, 2014, we had an individually impaired commercial mortgage loan included within the industrial property type with a recorded investment of $15 million, an unpaid principal balance of $16 million and charge-offs of $1 million, which were recorded in the first quarter of 2014. As of September 30, 2015, this loan had a recorded investment of $14 million, an unpaid principal balance of $15 million and interest income of $1 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 net operating 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

 

28


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

borrower, such as the borrower’s liquidity or access to other resources that may result in our expectation that the borrower will continue to make the future scheduled payments.

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

 

     September 30, 2015  

(Amounts in millions)

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

Property type:

            

Retail

   $ 702     $ 408     $ 1,069     $ 62     $ 18      $ 2,259  

Office

     437       291       773       73       20        1,594  

Industrial

     436       278       802       62       2        1,580  

Apartments

     180       75       195       8       —          458  

Mixed use/other

     53       31       170       6       —          260  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 1,808     $ 1,083     $ 3,009     $ 211     $ 40      $ 6,151  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total

     29     18     49     3     1     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average debt service coverage ratio

     2.12       1.78       1.63       0.93       0.76        1.77  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Included $5 million of impaired loans and $35 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 120%.

 

     December 31, 2014  

(Amounts in millions)

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

Property type:

            

Retail

   $ 671     $ 419     $ 967     $ 75     $ 18      $ 2,150  

Office

     383       278       782       164       36        1,643  

Industrial

     451       285       778       60       23        1,597  

Apartments

     211       76       199       8       —          494  

Mixed use/other

     45       43       145       6       —          239  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 1,761     $ 1,101     $ 2,871     $ 313     $ 77      $ 6,123  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total

     29     18     47     5     1     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average debt service coverage ratio

     2.27       1.75       1.61       1.02       0.72        1.78  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Included $15 million of impaired loans, $6 million of loans past due and not individually impaired and $56 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 120%.

 

29


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

     September 30, 2015  

(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

   $ 66     $ 236     $ 560     $ 960     $ 437     $ 2,259  

Office

     96       75       279       790       347       1,587  

Industrial

     149       130       221       723       357       1,580  

Apartments

     1       41       80       203       133       458  

Mixed use/other

     6       1       79       136       38       260  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 318     $ 483     $ 1,219     $ 2,812     $ 1,312     $ 6,144  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total

     5     8     20     46     21     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average loan-to-value

     72     62     59     60     46     58
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     December 31, 2014  

(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

   $ 80     $ 253     $ 524     $ 870     $ 423     $ 2,150  

Office

     119       101       247       780       389       1,636  

Industrial

     158       142       246       706       343       1,595  

Apartments

     1       48       88       186       171       494  

Mixed use/other

     6       1       61       135       36       239  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 364     $ 545     $ 1,166     $ 2,677     $ 1,362     $ 6,114  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total

     6     9     19     44     22     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average loan-to-value

     77     64     64     59     45     59
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of September 30, 2015 and December 31, 2014, we had floating rate commercial mortgage loans of $7 million and $9 million, respectively.

(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 (loss). The trading securities comprise asset-backed securities, including residual interest in certain policy loan securitization entities and highly rated bonds that are primarily backed by credit card receivables.

 

30


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(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. For derivatives that meet the accounting requirements to be designated as hedges, the following disclosures for these derivatives are denoted as “derivatives designated as hedges,” which include both cash flow and fair value hedges.

 

31


Table of Contents

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

  September 30,
2015
    December 31,
2014
   

Balance

sheet classification

  September 30,
2015
    December 31,
2014
 

Derivatives designated as hedges

           

Cash flow hedges:

           

Interest rate swaps

  Other invested assets   $ 766     $ 639     Other liabilities   $ 41     $ 27  

Inflation indexed swaps

  Other invested assets     2       —        Other liabilities     14       42  

Foreign currency swaps

  Other invested assets     8       6     Other liabilities     —          —     
   

 

 

   

 

 

     

 

 

   

 

 

 

Total cash flow hedges

      776       645         55       69  
   

 

 

   

 

 

     

 

 

   

 

 

 

Total derivatives designated as hedges

      776       645         55       69  
   

 

 

   

 

 

     

 

 

   

 

 

 

Derivatives not designated as hedges

           

Interest rate swaps

  Other invested assets     480       452     Other liabilities     249       177  

Interest rate swaps related to securitization entities

  Restricted other invested assets     —          —        Other liabilities     30       26  

Foreign currency swaps

  Other invested assets     —          —        Other liabilities     22       7  

Credit default swaps

  Other invested assets     1       4     Other liabilities     —          —     

Credit default swaps related to securitization entities

  Restricted other invested assets     —          —        Other liabilities     10       17  

Equity index options

  Other invested assets     15       17     Other liabilities     —          —     

Financial futures

  Other invested assets     —          —        Other liabilities     —          —     

Equity return swaps

  Other invested assets     15       —        Other liabilities     —          1  

Forward bond purchase commitments

  Other invested assets     13       —        Other liabilities     —          —     

Other foreign currency contracts

  Other invested assets     25       14     Other liabilities     34       13  

GMWB embedded derivatives

  Reinsurance recoverable (1)     19       13     Policyholder account balances (2)     390       291  

Fixed index annuity embedded derivatives

  Other assets     —          —        Policyholder account balances (3)     304       276  

Indexed universal life embedded derivatives

  Reinsurance recoverable     —          —        Policyholder account balances (4)     10       7  
   

 

 

   

 

 

     

 

 

   

 

 

 

Total derivatives not designated as hedges

      568       500         1,049       815  
   

 

 

   

 

 

     

 

 

   

 

 

 

Total derivatives

    $ 1,344     $ 1,145       $ 1,104     $ 884  
   

 

 

   

 

 

     

 

 

   

 

 

 

 

(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.

 

32


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 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,
2014
    Additions     Maturities/
terminations
    September 30,
2015
 

Derivatives designated as hedges

         

Cash flow hedges:

         

Interest rate swaps

  Notional   $ 11,961     $ —        $ (43   $ 11,918  

Inflation indexed swaps

  Notional     571       13       (11     573  

Foreign currency swaps

  Notional     35       —          —          35  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total cash flow hedges

      12,567       13       (54     12,526  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total derivatives designated as hedges

      12,567       13       (54     12,526  
   

 

 

   

 

 

   

 

 

   

 

 

 

Derivatives not designated as hedges

         

Interest rate swaps

  Notional     5,074       1,850       (893     6,031  

Interest rate swaps related to securitization entities

  Notional     77       —          (8     69  

Credit default swaps

  Notional     394       —          (250     144  

Credit default swaps related to securitization entities

  Notional     312       —          —          312  

Equity index options

  Notional     994       483       (517     960  

Financial futures

  Notional     1,331       4,251       (4,280     1,302  

Equity return swaps

  Notional     108       286       (263     131  

Foreign currency swaps

  Notional     104       37       —          141  

Forward bond purchase commitments

  Notional     —          1,140       —          1,140  

Other foreign currency contracts

  Notional     425       1,136       (810     751  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total derivatives not designated as hedges

      8,819       9,183       (7,021     10,981  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total derivatives

    $ 21,386     $ 9,196     $ (7,075   $ 23,507  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

(Number of policies)

  Measurement   December 31,
2014
    Additions     Maturities/
terminations
    September 30,
2015
 

Derivatives not designated as hedges

         

GMWB embedded derivatives

  Policies     39,015       —          (2,202     36,813  

Fixed index annuity embedded derivatives

  Policies     13,901       2,950       (275     16,576  

Indexed universal life embedded derivatives

  Policies     421       395       (25     791  

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

 

33


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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.

The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the three months ended September 30, 2015:

 

(Amounts in millions)

  Gain (loss)
recognized in OCI
    Gain (loss)
reclassified into
net income (loss)
from OCI
   

Classification of gain
(loss) reclassified into
net income (loss)

  Gain (loss)
recognized in
net income (loss) 
(1)
   

Classification of

gain (loss)
recognized in net
income (loss)

Interest rate swaps hedging assets

  $ 344     $ 22     Net investment income   $ 4      Net investment gains (losses)

Interest rate swaps hedging liabilities

    (23 )     —        Interest expense     —        Net investment gains (losses)

Inflation indexed swaps

    32       (5   Net investment income     1      Net investment gains (losses)

Forward bond purchase commitments

    —          1     Net investment income     —        Net investment gains (losses)
 

 

 

   

 

 

     

 

 

   

Total

  $ 353     $ 18       $ 5     
 

 

 

   

 

 

     

 

 

   

 

(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 (loss) effects of cash flow hedges for the three months ended September 30, 2014:

 

(Amounts in millions)

  Gain (loss)
recognized in OCI
    Gain (loss)
reclassified into
net income (loss)
from OCI
   

Classification of gain
(loss) reclassified into
net income (loss)

  Gain (loss)
recognized in
net income (loss) 
(1)
   

Classification of

gain (loss)
recognized in net
income (loss)

Interest rate swaps hedging assets

  $ 151     $ 17     Net investment income   $ 2      Net investment gains (losses)

Interest rate swaps hedging liabilities

    (8     —        Interest expense     —        Net investment gains (losses)

Inflation indexed swaps

    20       (3   Net investment income     —        Net investment gains (losses)

Foreign currency swaps

    2       —        Net investment income     —        Net investment gains (losses)

Forward bond purchase commitments

    4       —        Net investment income     —        Net investment gains (losses)
 

 

 

   

 

 

     

 

 

   

Total

  $ 169     $ 14       $ 2     
 

 

 

   

 

 

     

 

 

   

 

(1)  Represents ineffective portion of cash flow hedges as there were no amounts excluded from the measurement of effectiveness.

 

34


Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the nine months ended September 30, 2015:

 

(Amounts in millions)

  Gain (loss)
recognized in OCI
    Gain (loss)
reclassified into
net income (loss)
from OCI
   

Classification of gain
(loss) reclassified into
net income (loss)

  Gain (loss)
recognized in
net income (loss) 
(1)
   

Classification of

gain (loss)
recognized in net
income (loss)

Interest rate swaps hedging assets

  $ 135     $ 61     Net investment income   $ 1      Net investment gains (losses)

Interest rate swaps hedging liabilities

    (14     —        Interest expense     —        Net investment gains (losses)

Inflation indexed
swaps

    29       (2   Net investment income     1      Net investment gains (losses)

Foreign currency
swaps

    2       —        Net investment income     —        Net investment gains (losses)

Forward bond purchase commitments

    —          1     Net investment income     —        Net investment gains (losses)
 

 

 

   

 

 

     

 

 

   

Total

  $ 152     $ 60       $ 2     
 

 

 

   

 

 

     

 

 

   

 

(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 (loss) effects of cash flow hedges for the nine months ended September 30, 2014:

 

(Amounts in millions)

  Gain (loss)
recognized in OCI
    Gain (loss)
reclassified into
net income (loss)
from OCI
   

Classification of gain
(loss) reclassified into
net income (loss)

  Gain (loss)
recognized in
net income (loss) 
(1)
   

Classification of

gain (loss)
recognized in net
income (loss)

Interest rate swaps hedging assets

  $ 723     $ 45     Net investment income   $ 9      Net investment gains (losses)

Interest rate swaps hedging liabilities

    (42     1     Interest expense     —        Net investment gains (losses)

Inflation indexed
swaps

    (10 &nb