falseDiscounted cash flows0.660.820.180.680.931.371.181.030.70.630.680.630.841.030.70.71.240.990.930.810.70.71.092.182.772.182.772.771.571.501.701.892.772.153.261.312.152.182.772.123.113.112.463.260.833.111.670.661.461.581.592.171.551.571.441.090.851.471.401.621.281.351.411.131.691.931.341.491.622019Q2GENWORTH FINANCIAL INC0001276520--12-31See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses).Represents embedded derivatives associated with the reinsured portion of our guaranteed minimum withdrawal benefits (“GMWB”) liabilities.Represents the embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.Represents the embedded derivatives associated with our fixed index annuity liabilities.Represents the embedded derivatives associated with our indexed universal life liabilities.Included $7 million and $6 million of accruals on derivatives classified as other assets and does not include amounts related to embedded derivatives as of June 30, 2019 and December 31, 2018, respectively.Included $1 million of accruals on derivatives included in other liabilities as of June 30, 2019 and does not include amounts related to embedded derivatives as of June 30, 2019 and December 31, 2018.Amounts represent derivative assets and/or liabilities that are presented gross within the balance sheet but are held with the same counterparty where we have a master netting arrangement. This adjustment results in presenting the net asset and net liability position for each counterparty.These financial instruments do not have notional amounts.Limited partnerships that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.Limited partnerships that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.We have the option to redeem all or a portion of the senior notes at any time with notice to the noteholders at a price equal to the greater of 100% of principal or the sum of the present value of the remaining scheduled payments of principal and interest discounted at the then-current treasury rate plus an applicable spread.Senior notes issued by Genworth MI Canada Inc. (“Genworth Canada”), our majority-owned subsidiary.Subordinated floating rate notes issued by Genworth Financial Mortgage Insurance Pty Limited, our indirect wholly-owned subsidiary.Included a loan with a recorded investment of $2 million in good standing, where the borrower continued to make timely payments, with a loan-to-value of 103%. We evaluated this loan on an individual basis and as it is in good standing, the current recorded investment is expected to be recoverable.Included a loan with a recorded investment of $2 million in good standing, where the borrower continued to make timely payments, with a loan-to-value of 105%. We evaluated this loan on an individual basis and as it is in good standing, the current recorded investment is expected to be recoverable.Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities.Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.For the three months ended June 30, 2019 and 2018, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(3) million and $(1) million, respectively, and adjusted for net investment gains (losses) attributable to noncontrolling interests of $1 million and $(1) million, respectively. For the six months ended June 30, 2019 and 2018, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(5) million and $(4) million, respectively, and adjusted for net investment gains (losses) attributable to noncontrolling interests of $6 million and $(12) million, respectively.Net of adjustments to DAC, present value of future profits, sales inducements and benefit reserves. See note 4 for additional information.See note 5 for additional information.Amounts exclude adjustments to DAC, present value of future profits, sales inducements and benefit reserves.For the three and six months ended June 30, 2019, (gains) losses on the early extinguishment of debt were adjusted for the portion attributable to noncontrolling interests of $1 million.Excludes foreign exchange.
Table of Contents
 
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the quarterly period ended June 30, 2019
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
 
 
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)
 
 
Securities registered pursuant to Section 12(b) of the Act:
         
Title of Each Class
 
Trading
Symbol
 
Name of each exchange
on which registered
Class A Common Stock, par value
$.001 per share
 
GNW
 
New York Stock Exchange
 
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Yes
  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
 S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    
Yes
  
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act. 
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated
 filer
 
 
Smaller reporting company
 
             
 
 
Emerging growth company
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  
    No  
As of July 25, 2019,
503,465,078
shares of Class A Common Stock, par value $0.001 per share, were outstanding.
 
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
Table of Contents
 
TABLE OF CONTENTS
             
 
 
Page
 
   
3
 
             
Item 1.
     
3
 
   
3
 
   
4
 
   
5
 
   
6
 
   
8
 
   
9
 
             
Item 2.
     
85
 
             
Item 3.
     
163
 
             
Item 4.
     
164
 
         
   
164
 
             
Item 1.
     
164
 
             
Item 1A.
     
164
 
             
Item 6.
     
165
 
         
   
166
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
                 
 
June 30,
   
December 31,
 
 
2019
   
2018
 
 
(Unaudited)
   
 
Assets
   
     
 
Investments:
   
     
 
Fixed maturity securities
available-for-sale,
at fair value
 
$
63,774
 
 
$
59,661
 
Equity securities, at fair value
 
 
644
 
 
 
655
 
Commercial mortgage loans ($56 and $62 are restricted as of June 30, 2019 and December 31, 2018, respectively, related to a securitization entity)
 
 
7,019
 
 
 
6,749
 
Policy loans
 
 
2,076
 
 
 
1,861
 
Other invested assets
 
 
1,535
 
 
 
1,188
 
 
 
 
 
 
 
 
 
 
Total investments
 
 
75,048
 
 
 
70,114
 
Cash, cash equivalents and restricted cash
 
 
1,938
 
 
 
2,177
 
Accrued investment income
 
 
626
 
 
 
675
 
Deferred acquisition costs
 
 
2,105
 
 
 
3,263
 
Intangible assets and goodwill
 
 
244
 
 
 
347
 
Reinsurance recoverable
 
 
17,211
 
 
 
17,278
 
Other assets
 
 
564
 
 
 
474
 
Deferred tax asset
 
 
383
 
 
 
736
 
Separate account assets
 
 
6,187
 
 
 
5,859
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
104,306
 
 
$
100,923
 
Liabilities and equity
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Future policy benefits
 
$
39,583
 
 
$
37,940
 
Policyholder account balances
 
 
22,673
 
 
 
22,968
 
Liability for policy and contract claims
 
 
10,677
 
 
 
10,379
 
Unearned premiums
 
 
3,488
 
 
 
3,546
 
Other liabilities
 
 
1,723
 
 
 
1,682
 
Non-recourse
funding obligations
 
 
311
 
 
 
311
 
Long-term borrowings
 
 
4,044
 
 
 
4,025
 
Deferred tax liability
 
 
28
 
 
 
24
 
Separate account liabilities
 
 
6,187
 
 
 
5,859
 
 
 
 
 
 
 
 
 
 
Total liabilities
 
 
88,714
 
 
 
86,734
 
 
 
 
 
 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
   
Equity:
 
 
 
 
 
 
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 592 million and 589 million shares issued as of June 30, 2019 and December 31, 2018, respectively; 504 million and 501 million shares outstanding as of June 30, 2019 and December 31, 2018, respectively
 
 
1
 
 
 
1
 
Additional
paid-in
capital
 
 
11,983
 
 
 
11,987
 
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss):
 
 
 
 
 
 
Net unrealized investment gains (losses):
 
 
 
 
 
 
Net unrealized gains (losses) on securities not other-than-temporarily impaired
 
 
1,294
 
 
 
585
 
Net unrealized gains (losses) on other-than-temporarily impaired securities
 
 
11
 
 
 
10
 
 
 
 
 
 
 
 
 
 
Net unrealized investment gains (losses)
 
 
1,305
 
 
 
595
 
 
 
 
 
 
 
 
 
 
Derivatives qualifying as hedges
 
 
1,983
 
 
 
1,781
 
Foreign currency translation and other adjustments
 
 
(275
)
 
 
(332
)
 
 
 
 
 
 
 
 
 
Total accumulated other comprehensive income (loss)
 
 
3,013
 
 
 
2,044
 
Retained earnings
 
 
1,460
 
 
 
1,118
 
Treasury stock, at cost (88 million shares as of June 30, 2019 and December 31, 2018)
 
 
(2,700
)
 
 
(2,700
)
 
 
 
 
 
 
 
 
 
Total Genworth Financial, Inc.’s stockholders’ equity
 
 
13,757
 
 
 
12,450
 
Noncontrolling interests
 
 
1,835
 
 
 
1,739
 
 
 
 
 
 
 
 
 
 
Total equity
 
 
15,592
 
 
 
14,189
 
 
 
 
 
 
 
 
 
 
Total liabilities and equity
 
$
104,306
 
 
$
100,923
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
   
Six months ended
 
 
June 30,
   
June 30,
 
 
2019
   
2018
   
2019
   
2018
 
Revenues:
   
     
     
     
 
Premiums
  $
1,126
    $
1,136
    $
2,240
    $
2,276
 
Net investment income
   
852
     
828
     
1,681
     
1,632
 
Net investment gains (losses)
   
(45
)    
(14
)    
29
     
(45
)
Policy fees and other income
   
223
     
209
     
410
     
411
 
                                 
Total revenues
   
2,156
     
2,159
     
4,360
     
4,274
 
                                 
Benefits and expenses:
   
     
     
     
 
Benefits and other changes in policy reserves
   
1,270
     
1,205
     
2,571
     
2,516
 
Interest credited
   
146
     
152
     
293
     
308
 
Acquisition and operating expenses, net of deferrals
   
247
     
253
     
498
     
493
 
Amortization of deferred acquisition costs and intangibles
   
95
     
112
     
186
     
216
 
Interest expense
   
73
     
77
     
145
     
153
 
                                 
Total benefits and expenses
   
1,831
     
1,799
     
3,693
     
3,686
 
                                 
Income before income taxes
   
325
     
360
     
667
     
588
 
Provision for income taxes
   
107
     
111
     
219
     
174
 
                                 
Net income
   
218
     
249
     
448
     
414
 
Less: net income attributable to noncontrolling interests
   
50
     
59
     
106
     
112
 
                                 
Net income available to Genworth Financial, Inc.’s common stockholders
  $
168
    $
190
    $
342
    $
302
 
Net income available to Genworth Financial, Inc.’s common stockholders per share:
   
     
     
     
 
Basic
  $
0.33
    $
0.38
    $
0.68
    $
0.60
 
Diluted
  $
0.33
    $
0.38
    $
0.67
    $
0.60
 
Weighted-average common shares outstanding:
   
     
     
     
 
Basic
   
503.4
     
500.6
     
502.3
     
500.1
 
Diluted
   
508.7
     
502.6
     
508.7
     
502.6
 
Supplemental disclosures:
   
     
     
     
 
Total other-than-temporary impairments
  $
  
    $
  
    $
  
    $
  
 
Portion of other-than-temporary impairments included in other comprehensive income (loss)
   
  
     
  
     
  
     
  
 
                                 
Net other-than-temporary impairments
   
  
     
  
     
  
     
  
 
Other investments gains (losses)
   
(45
)    
(14
)    
29
     
(45
)
                                 
Total net investment gains (losses)
  $
(45
)   $
(14
)   $
29
    $
(45
)
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
 
Table of Contents
 
GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
(Unaudited)
                                 
 
Three months ended
   
Six months ended
 
 
June 30,
   
June 30,
 
 
2019
   
2018
   
2019
   
2018
 
Net income
  $
218
    $
249
    $
448
    $
414
 
Other comprehensive income (loss), net of taxes:
   
     
     
     
 
Net unrealized gains (losses) on securities not other-than-temporarily impaired
   
376
     
(185
)    
755
     
(526
)
Net unrealized gains (losses) on other-than-temporarily impaired securities
   
—  
     
(2
)    
1
     
(2
)
Derivatives qualifying as hedges
   
133
     
(64
)    
202
     
(216
)
Foreign currency translation and other adjustments
   
43
     
(98
)    
97
     
(185
)
                                 
Total other comprehensive income (loss)
   
552
     
(349
)    
1,055
     
(929
)
                                 
Total comprehensive income (loss)
   
770
     
(100
)    
1,503
     
(515
)
Less: comprehensive income attributable to noncontrolling interests
   
81
     
10
     
192
     
14
 
                                 
Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders
  $
689
    $
(110
)   $
1,311
    $   
(529
)
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements
 
5
 
 
Table of Contents
 
GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in millions)
(Unaudited)
                                                                 
 
Three months ended June 30, 2019
 
 
   
   
   
   
   
Total
   
   
 
 
   
   
   
   
   
Genworth
   
   
 
 
   
   
Accumulated
   
   
   
Financial,
   
   
 
 
   
Additional
   
other
   
   
Treasury
   
Inc.’s
   
   
 
 
Common
   
paid-in
   
comprehensive
   
Retained
   
stock, at
   
stockholders’
   
Noncontrolling
   
Total
 
 
stock
   
capital
   
income (loss)
   
earnings
   
cost
   
equity
   
interests
   
equity
 
Balances as of March 31, 2019
  $
1
    $
11,989
    $
2,492
    $
1,292
    $
(2,700
)   $
13,074
    $
1,808
    $
14,882
 
Repurchase of subsidiary shares
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
(32
)    
(32
)
Comprehensive income:
   
     
     
     
     
     
     
     
 
Net income
   
—  
     
—  
     
—  
     
168
     
—  
     
168
     
50
     
218
 
Other comprehensive income, net of taxes
   
—  
     
—  
     
521
     
—  
     
—  
     
521
     
31
     
552
 
                                                                 
Total comprehensive income
   
—  
     
 
     
 
     
 
     
 
     
689
     
81
     
770
 
Dividends to noncontrolling interests
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
(25
)    
(25
)
Stock-based compensation expense and exercises and other
   
—  
     
(6
)    
—  
     
—  
     
—  
     
(6
)    
3
     
(3
)
                                                                 
Balances as of June 30, 2019
  $
 1
    $
  11,983
    $
3,013
    $
1,460
    $
  (2,700
)   $
  13,757
    $
1,835
    $
15,592
 
       
 
Three months ended June 30, 2018
 
 
   
   
   
   
   
Total
   
   
 
 
   
   
   
   
   
Genworth
   
   
 
 
   
   
Accumulated
   
   
   
Financial,
   
   
 
 
   
Additional
   
other
   
   
Treasury
   
Inc.’s
   
   
 
 
Common
   
paid-in
   
comprehensive
   
Retained
   
stock, at
   
stockholders’
   
Noncontrolling
   
Total
 
 
stock
   
capital
   
income (loss)
   
earnings
   
cost
   
equity
   
interests
   
equity
 
Balances as of March 31, 2018
  $
1
    $
11,979
    $
2,627
    $
1,111
    $
(2,700
)   $
13,018
    $
1,844
    $
14,862
 
Repurchase of subsidiary shares
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
(13
)    
(13
)
Comprehensive income (loss):
   
     
     
     
     
     
     
     
 
Net income
   
—  
     
—  
     
—  
     
190
     
—  
     
190
     
59
     
249
 
Other comprehensive loss, net of taxes
   
—  
     
—  
     
(300
)    
—  
     
—  
     
(300
)    
(49
)    
(349
)
                                                                 
Total comprehensive income (loss)
   
     
     
     
     
     
(110
)    
10
     
(100
)
Dividends to noncontrolling interests
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
(14
)    
(14
)
Stock-based compensation expense and exercises and other
   
—  
     
2
     
—  
     
—  
     
—  
     
2
     
4
     
6
 
                                                                 
Balances as of June 30, 2018
  $
1
    $
11,981
    $
2,327
    $
1,301
    $
(2,700
)   $
12,910
    $
1,831
    $
14,741
 
                                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
 
 
Table of Contents
GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY, CONTINUED
(Amounts in millions)
(Unaudited)
 
 
Six months ended June 30, 2019
 
 
   
   
   
   
   
Total
   
   
 
 
   
   
   
   
   
Genworth
   
   
 
 
   
   
Accumulated
   
   
   
Financial,
   
   
 
 
   
Additional
   
other
   
   
Treasury
   
Inc.’s
   
   
 
 
Common
   
paid-in
   
comprehensive
   
Retained
   
stock, at
   
stockholders’
   
Noncontrolling
   
Total
 
 
stock
   
capital
   
income (loss)
   
earnings
   
cost
   
equity
   
interests
   
equity
 
Balances as of December 31, 2018
  $
1
    $
11,987
    $
2,044
    $
1,118
    $
(2,700
)   $
12,450
    $
1,739
    $
14,189
 
Repurchase of subsidiary shares
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
(44
)    
(44
)
Comprehensive income:
   
     
     
     
     
     
     
     
 
Net income
   
—  
     
—  
     
—  
     
342
     
—  
     
342
     
106
     
448
 
Other comprehensive income, net of taxes
   
—  
     
—  
     
969
     
—  
     
—  
     
969
     
86
     
1,055
 
Total comprehensive income
   
 
     
 
     
 
     
 
     
 
     
1,311
     
192
     
1,503
 
Dividends to noncontrolling interests
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
(53
)    
(53
)
Stock-based compensation expense and exercises and other
   
—  
     
(4
)    
—  
     
—  
     
—  
     
(4
)    
1
     
(3
)
                                                                 
Balances as of June 30, 2019
  $
1
    $
11,983
    $
3,013
    $
1,460
    $
(2,700
)   $
13,757
    $
1,835
    $
15,592
 
       
 
Six months ended June 30, 2018
 
 
   
   
   
   
   
Total
   
   
 
 
   
   
   
   
   
Genworth
   
   
 
 
   
   
Accumulated
   
   
   
Financial,
   
   
 
 
   
Additional
   
other
   
   
Treasury
   
Inc.’s
   
   
 
 
Common
   
paid-in
   
comprehensive
   
Retained
   
stock, at
   
stockholders’
   
Noncontrolling
   
Total
 
 
stock
   
capital
   
income (loss)
   
earnings
   
cost
   
equity
   
interests
   
equity
 
Balances as of December 31, 2017
  $
1
    $
11,977
    $
3,027
    $
1,113
    $
(2,700
)   $
13,418
    $
1,910
    $
15,328
 
Cumulative effect of change in accounting, net of taxes
   
—  
     
—  
     
131
     
(114
)    
—  
     
17
     
—  
     
17
 
Repurchase of subsidiary shares
   
—  
     
—  
     
—  
     
—  
     
—  
     
—  
     
(49
)    
(49
)
Comprehensive income (loss):
   
     
     
     
     
     
     
     
 
Net income
   
—  
     
—  
     
—  
     
302
     
—  
     
302
     
112
     
414
 
Other comprehensive loss, net of taxes
   
—  
     
—  
     
(831
)    
—  
     
—  
     
(831
)    
(98
)    
(929
)
 
                                                                 
Total comprehensive income (loss)
   
     
     
     
     
     
(529
)    
14
     
(515
)
Dividends to noncontrolling interests
   
—  
     
—