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 March 31, 2013
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 333-182093-01
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
(Exact Name of Registrant as Specified in its Charter)
Delaware | 33-1073076 | |
(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
(Registrants 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 March 28, 2013 (the last trading day prior to the completion of the holding company reorganization in which the registrant became a wholly-owned subsidiary of the company now known as Genworth Financial, Inc.), 493,066,840 shares of Genworth Holdings, Inc. Class A Common Stock, par value of $0.001 per share, were outstanding, and as of April 22, 2013, 493,092,184 shares of Genworth Financial, Inc. Class A Common Stock, par value $0.001 per share, were outstanding.
NOTE REGARDING THIS QUARTERLY REPORT
As previously announced, on April 1, 2013, after the end of the quarter to which this quarterly report relates, we completed a holding company reorganization in connection with a comprehensive capital plan for our U.S. mortgage insurance business, which is discussed in further detail in note 11 of the financial statements in Item 1Financial Statements of this Quarterly Report on Form 10-Q. Pursuant to the reorganization, the public holding company historically known as Genworth Financial, Inc. (now renamed Genworth Holdings, Inc. (Genworth Holdings)) became a direct, wholly-owned subsidiary of a new public holding company that we formed and that now has been renamed Genworth Financial, Inc. (New Genworth). In connection with the reorganization, all the stockholders of Genworth Holdings immediately prior to the completion of the reorganization automatically became stockholders of New Genworth, owning the same number of shares of stock in New Genworth that they owned in Genworth Holdings immediately prior to the reorganization.
On April 1, 2013, in connection with the reorganization, Genworth Holdings distributed to New Genworth (as its sole stockholder), through a dividend (the Distribution), the 84.6% membership interest in one of its subsidiaries (Genworth Mortgage Holdings, LLC (GMHL)) that it held directly, and 100% of the shares of another of its subsidiaries (Genworth Mortgage Holdings, Inc. (GMHI)), that held the remaining 15.4% of outstanding membership interests of GMHL. At the time of the Distribution, GMHL and GMHI together owned (directly or indirectly) 100% of the shares or other equity interests of all of the subsidiaries that conducted Genworth Holdings U.S. mortgage insurance business (these subsidiaries also owned the subsidiaries that conducted Genworth Holdings European mortgage insurance business). As part of the comprehensive U.S. mortgage insurance capital plan, on April 1, 2013, immediately prior to the Distribution, Genworth Holdings contributed $100 million to the U.S. mortgage insurance subsidiaries.
On April 1, 2013, in connection with the reorganization (a) New Genworth provided a full and unconditional guarantee to the trustee of Genworth Holdings outstanding senior notes and the holders of the senior notes, on an unsecured unsubordinated basis, of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, each outstanding series of senior notes, and the full and punctual payment of all other amounts payable by Genworth Holdings under the senior notes indenture in respect of such senior notes and (b) New Genworth provided a full and unconditional guarantee to the trustee of Genworth Holdings outstanding subordinated notes and the holders of the subordinated notes, on an unsecured subordinated basis, of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, the outstanding subordinated notes, and the full and punctual payment of all other amounts payable by Genworth Holdings under the subordinated notes indenture in respect of the subordinated notes.
This quarterly report on Form 10-Q for the quarter ended March 31, 2013 is being filed by Genworth Holdings because the holding company reorganization was not completed until after the end of the first quarter of 2013. New Genworth, as the successor issuer to Genworth Holdings, began making filings under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, from and after April 1, 2013, the date of completion of the holding company reorganization, and its first periodic report will be the quarterly report on Form 10-Q for the quarter ended June 30, 2013.
References to Genworth, the Company, we or our in this Quarterly Report on Form 10-Q (including in the financial statements and notes thereto in this report) have the following meanings, unless the context otherwise requires:
| For periods prior to April 1, 2013: Genworth Holdings and its subsidiaries |
| For periods from and after April 1, 2013: New Genworth and its subsidiaries |
2
3
Item 1. | Financial Statements |
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except per share amounts)
(Unaudited)
March 31, 2013 |
December 31, 2012 |
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Assets |
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Investments: |
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Fixed maturity securities available-for-sale, at fair value |
$ | 61,082 | $ | 62,161 | ||||
Equity securities available-for-sale, at fair value |
490 | 518 | ||||||
Commercial mortgage loans |
5,866 | 5,872 | ||||||
Restricted commercial mortgage loans related to securitization entities |
324 | 341 | ||||||
Policy loans |
1,606 | 1,601 | ||||||
Other invested assets |
2,982 | 3,493 | ||||||
Restricted other invested assets related to securitization entities, at fair value |
399 | 393 | ||||||
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|
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Total investments |
72,749 | 74,379 | ||||||
Cash and cash equivalents |
3,797 | 3,632 | ||||||
Accrued investment income |
769 | 715 | ||||||
Deferred acquisition costs |
5,050 | 5,036 | ||||||
Intangible assets |
346 | 366 | ||||||
Goodwill |
868 | 868 | ||||||
Reinsurance recoverable |
17,211 | 17,230 | ||||||
Other assets |
706 | 710 | ||||||
Separate account assets |
10,140 | 9,937 | ||||||
Assets associated with discontinued operations |
439 | 439 | ||||||
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|
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Total assets |
$ | 112,075 | $ | 113,312 | ||||
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Liabilities and stockholders equity |
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Liabilities: |
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Future policy benefits |
$ | 33,601 | $ | 33,505 | ||||
Policyholder account balances |
25,886 | 26,262 | ||||||
Liability for policy and contract claims |
7,343 | 7,509 | ||||||
Unearned premiums |
4,193 | 4,333 | ||||||
Other liabilities ($123 and $133 other liabilities related to securitization entities) |
5,028 | 5,239 | ||||||
Borrowings related to securitization entities ($71 and $62 at fair value) |
329 | 336 | ||||||
Non-recourse funding obligations |
2,062 | 2,066 | ||||||
Long-term borrowings |
4,766 | 4,776 | ||||||
Deferred tax liability |
1,132 | 1,507 | ||||||
Separate account liabilities |
10,140 | 9,937 | ||||||
Liabilities associated with discontinued operations |
86 | 61 | ||||||
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Total liabilities |
94,566 | 95,531 | ||||||
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Commitments and contingencies |
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Stockholders equity: |
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Class A common stock, $0.001 par value; 1.5 billion shares authorized; 581 million and 580 million shares issued as of March 31, 2013 and December 31, 2012, respectively; 493 million and 492 million shares outstanding as of March 31, 2013 and December 31, 2012, respectively |
1 | 1 | ||||||
Additional paid-in capital |
12,131 | 12,127 | ||||||
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Accumulated other comprehensive income (loss): |
||||||||
Net unrealized investment gains (losses): |
||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired |
2,471 | 2,692 | ||||||
Net unrealized gains (losses) on other-than-temporarily impaired securities |
(28 | ) | (54 | ) | ||||
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|
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Net unrealized investment gains (losses) |
2,443 | 2,638 | ||||||
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Derivatives qualifying as hedges |
1,799 | 1,909 | ||||||
Foreign currency translation and other adjustments |
582 | 655 | ||||||
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Total accumulated other comprehensive income (loss) |
4,824 | 5,202 | ||||||
Retained earnings |
1,966 | 1,863 | ||||||
Treasury stock, at cost (88 million shares as of March 31, 2013 and December 31, 2012) |
(2,700 | ) | (2,700 | ) | ||||
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Total Genworths stockholders equity |
16,222 | 16,493 | ||||||
Noncontrolling interests |
1,287 | 1,288 | ||||||
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Total stockholders equity |
17,509 | 17,781 | ||||||
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Total liabilities and stockholders equity |
$ | 112,075 | $ | 113,312 | ||||
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See Notes to Condensed Consolidated Financial Statements
4
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in millions, except per share amounts)
(Unaudited)
Three months ended March 31, |
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2013 | 2012 | |||||||
Revenues: |
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Premiums |
$ | 1,261 | $ | 1,106 | ||||
Net investment income |
814 | 832 | ||||||
Net investment gains (losses) |
(61 | ) | 37 | |||||
Insurance and investment product fees and other |
289 | 340 | ||||||
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Total revenues |
2,303 | 2,315 | ||||||
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Benefits and expenses: |
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Benefits and other changes in policy reserves |
1,201 | 1,232 | ||||||
Interest credited |
184 | 195 | ||||||
Acquisition and operating expenses, net of deferrals |
433 | 440 | ||||||
Amortization of deferred acquisition costs and intangibles |
122 | 271 | ||||||
Interest expense |
126 | 95 | ||||||
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Total benefits and expenses |
2,066 | 2,233 | ||||||
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Income from continuing operations before income taxes |
237 | 82 | ||||||
Provision for income taxes |
76 | 15 | ||||||
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Income from continuing operations |
161 | 67 | ||||||
Income (loss) from discontinued operations, net of taxes |
(20 | ) | 12 | |||||
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Net income |
141 | 79 | ||||||
Less: net income attributable to noncontrolling interests |
38 | 33 | ||||||
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Net income available to Genworths common stockholders |
$ | 103 | $ | 46 | ||||
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Income from continuing operations available to Genworths common stockholders per common share: |
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Basic |
$ | 0.25 | $ | 0.07 | ||||
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Diluted |
$ | 0.25 | $ | 0.07 | ||||
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Net income available to Genworths common stockholders per common share: |
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Basic |
$ | 0.21 | $ | 0.09 | ||||
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Diluted |
$ | 0.21 | $ | 0.09 | ||||
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Weighted-average common shares outstanding: |
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Basic |
492.5 | 491.2 | ||||||
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Diluted |
496.8 | 495.7 | ||||||
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Supplemental disclosures: |
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Total other-than-temporary impairments |
$ | (12 | ) | $ | (16 | ) | ||
Portion of other-than-temporary impairments included in other comprehensive income (loss) |
| (1 | ) | |||||
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Net other-than-temporary impairments |
(12 | ) | (17 | ) | ||||
Other investments gains (losses) |
(49 | ) | 54 | |||||
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Total net investment gains (losses) |
$ | (61 | ) | $ | 37 | |||
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See Notes to Condensed Consolidated Financial Statements
5
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
(Unaudited)
Three months ended March 31, |
||||||||
2013 | 2012 | |||||||
Net income |
$ | 141 | $ | 79 | ||||
Other comprehensive income (loss), net of taxes: |
||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired |
(217 | ) | (185 | ) | ||||
Net unrealized gains (losses) on other-than-temporarily impaired securities |
26 | 21 | ||||||
Derivatives qualifying as hedges |
(110 | ) | (329 | ) | ||||
Foreign currency translation and other adjustments |
(104 | ) | 116 | |||||
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Total other comprehensive income (loss) |
(405 | ) | (377 | ) | ||||
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Total comprehensive income (loss) |
(264 | ) | (298 | ) | ||||
Less: comprehensive income attributable to noncontrolling interests |
11 | 47 | ||||||
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Total comprehensive income (loss) available to Genworths common stockholders |
$ | (275 | ) | $ | (345 | ) | ||
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See Notes to Condensed Consolidated Financial Statements
6
GENWORTH HOLDINGS, INC.
(formerly known as 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 Genworths stockholders equity |
Noncontrolling interests |
Total stockholders equity |
|||||||||||||||||||||||||
Balances as of December 31, 2012 |
$ | 1 | $ | 12,127 | $ | 5,202 | $ | 1,863 | $ | (2,700 | ) | $ | 16,493 | $ | 1,288 | $ | 17,781 | |||||||||||||||
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Comprehensive income (loss): |
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Net income |
| | | 103 | | 103 | 38 | 141 | ||||||||||||||||||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired |
| | (221 | ) | | | (221 | ) | 4 | (217 | ) | |||||||||||||||||||||
Net unrealized gains (losses) on other-than-temporarily impaired securities |
| | 26 | | | 26 | | 26 | ||||||||||||||||||||||||
Derivatives qualifying as hedges |
| | (110 | ) | | | (110 | ) | | (110 | ) | |||||||||||||||||||||
Foreign currency translation and other adjustments |
| | (73 | ) | | | (73 | ) | (31 | ) | (104 | ) | ||||||||||||||||||||
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Total comprehensive income (loss) |
(275 | ) | 11 | (264 | ) | |||||||||||||||||||||||||||
Dividends to noncontrolling interests |
| | | | | | (13 | ) | (13 | ) | ||||||||||||||||||||||
Stock-based compensation expense and exercises and other |
| 4 | | | | 4 | 1 | 5 | ||||||||||||||||||||||||
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Balances as of March 31, 2013 |
$ | 1 | $ | 12,131 | $ | 4,824 | $ | 1,966 | $ | (2,700 | ) | $ | 16,222 | $ | 1,287 | $ | 17,509 | |||||||||||||||
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Balances as of December 31, 2011 |
$ | 1 | $ | 12,136 | $ | 4,047 | $ | 1,538 | $ | (2,700 | ) | $ | 15,022 | $ | 1,110 | $ | 16,132 | |||||||||||||||
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Comprehensive income (loss): |
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Net income |
| | | 46 | | 46 | 33 | 79 | ||||||||||||||||||||||||
Net unrealized gains (losses) on securities not other-than-temporarily impaired |
| | (179 | ) | | | (179 | ) | (6 | ) | (185 | ) | ||||||||||||||||||||
Net unrealized gains (losses) on other-than-temporarily impaired securities |
| | 21 | | | 21 | | 21 | ||||||||||||||||||||||||
Derivatives qualifying as hedges |
| | (329 | ) | | | (329 | ) | | (329 | ) | |||||||||||||||||||||
Foreign currency translation and other adjustments |
| | 96 | | | 96 | 20 | 116 | ||||||||||||||||||||||||
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Total comprehensive income (loss) |
(345 | ) | 47 | (298 | ) | |||||||||||||||||||||||||||
Dividends to noncontrolling interests |
| | | | | | (12 | ) | (12 | ) | ||||||||||||||||||||||
Stock-based compensation expense and exercises and other |
| 14 | | | | 14 | | 14 | ||||||||||||||||||||||||
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Balances as of March 31, 2012 |
$ | 1 | $ | 12,150 | $ | 3,656 | $ | 1,584 | $ | (2,700 | ) | $ | 14,691 | $ | 1,145 | $ | 15,836 | |||||||||||||||
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See Notes to Condensed Consolidated Financial Statements
7
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
Three months ended March 31, |
||||||||
2013 | 2012 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 141 | $ | 79 | ||||
Less (income) loss from discontinued operations, net of taxes |
20 | (12 | ) | |||||
Adjustments to reconcile net income to net cash from operating activities: |
||||||||
Amortization of fixed maturity discounts and premiums and limited partnerships |
(5 | ) | (19 | ) | ||||
Net investment losses (gains) |
61 | (37 | ) | |||||
Charges assessed to policyholders |
(202 | ) | (187 | ) | ||||
Acquisition costs deferred |
(105 | ) | (154 | ) | ||||
Amortization of deferred acquisition costs and intangibles |
122 | 271 | ||||||
Deferred income taxes |
(182 | ) | 21 | |||||
Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments |
(27 | ) | (45 | ) | ||||
Stock-based compensation expense |
9 | 9 | ||||||
Change in certain assets and liabilities: |
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Accrued investment income and other assets |
(42 | ) | (99 | ) | ||||
Insurance reserves |
541 | 369 | ||||||
Current tax liabilities |
202 | (87 | ) | |||||
Other liabilities and other policy-related balances |
(474 | ) | (370 | ) | ||||
Cash from operating activitiesdiscontinued operations |
1 | 9 | ||||||
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Net cash from operating activities |
60 | (252 | ) | |||||
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Cash flows from investing activities: |
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Proceeds from maturities and repayments of investments: |
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Fixed maturity securities |
1,212 | 969 | ||||||
Commercial mortgage loans |
212 | 142 | ||||||
Restricted commercial mortgage loans related to securitization entities |
17 | 14 | ||||||
Proceeds from sales of investments: |
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Fixed maturity and equity securities |
1,310 | 1,717 | ||||||
Purchases and originations of investments: |
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Fixed maturity and equity securities |
(2,069 | ) | (3,049 | ) | ||||
Commercial mortgage loans |
(203 | ) | (81 | ) | ||||
Other invested assets, net |
(26 | ) | 436 | |||||
Policy loans, net |
| (6 | ) | |||||
Cash from investing activitiesdiscontinued operations |
| (18 | ) | |||||
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Net cash from investing activities |
453 | 124 | ||||||
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Cash flows from financing activities: |
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Deposits to universal life and investment contracts |
445 | 662 | ||||||
Withdrawals from universal life and investment contracts |
(678 | ) | (600 | ) | ||||
Redemption and repurchase of non-recourse funding obligations |
(4 | ) | (563 | ) | ||||
Proceeds from the issuance of long-term debt |
| 361 | ||||||
Repayment of borrowings related to securitization entities |
(17 | ) | (19 | ) | ||||
Dividends paid to noncontrolling interests |
(13 | ) | (12 | ) | ||||
Other, net |
(32 | ) | (17 | ) | ||||
Cash from financing activitiesdiscontinued operations |
| (1 | ) | |||||
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Net cash from financing activities |
(299 | ) | (189 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
(48 | ) | 16 | |||||
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Net change in cash and cash equivalents |
166 | (301 | ) | |||||
Cash and cash equivalents at beginning of period |
3,653 | 4,488 | ||||||
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Cash and cash equivalents at end of period |
3,819 | 4,187 | ||||||
Less cash and cash equivalents of discontinued operations at end of period |
22 | 35 | ||||||
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Cash and cash equivalents of continuing operations at end of period |
$ | 3,797 | $ | 4,152 | ||||
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See Notes to Condensed Consolidated Financial Statements
8
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Formation of Genworth and Basis of Presentation
Genworth Holdings, Inc. (formerly known as Genworth Financial, Inc.) was incorporated in Delaware on October 23, 2003. On April 1, 2013, Genworth completed a holding company reorganization as further described in note 11. The accompanying condensed financial statements include on a consolidated basis the accounts of Genworth and our affiliate companies in which we hold a majority voting interest or where we are the primary beneficiary of a variable interest entity. All intercompany accounts and transactions have been eliminated in consolidation.
We have the following operating segments:
| U.S. Life Insurance. We offer and manage a variety of insurance and fixed annuity products. Our primary insurance products include life insurance, long-term care insurance and fixed annuities. |
| 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. On a selective basis, we also 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 prime-based. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk. |
| International Protection. We are a leading provider of payment protection coverages (referred to as lifestyle protection) in multiple European countries and have operations in select other countries. Our lifestyle protection insurance products primarily help consumers meet specified payment obligations should they become unable to pay due to accident, illness, involuntary unemployment, disability or death. |
| 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). In January 2011, we discontinued new sales of retail and group variable annuities while continuing to service our existing blocks of business. |
We also have Corporate and Other activities which include debt financing expenses that are incurred at our holding company level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other businesses that are managed outside of our operating segments. On March 27, 2013, we announced that we had agreed to sell our wealth management business to AqGen Liberty Acquisition, Inc., a subsidiary of AqGen Liberty Holdings LLC, a partnership of Aquiline Capital Partners and Genstar Capital, and the sale is expected to close in the second half of 2013. As a result, this business has been accounted for as discontinued operations and its financial position, results of operations and cash flows are separately reported for all periods presented. Our wealth management business, previously a separate segment, is separately presented as
9
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
discontinued operations and all prior periods reflected herein have been re-presented on this basis. See note 10 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 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 condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2012 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.
We have a practice of refunding the post-delinquent premiums in our U.S. mortgage insurance business to the insured party if the delinquent loan goes to claim. Our historical accounting practice was to account for these premium refunds as a reduction in premiums upon payment. In the first quarter of 2013, we determined that we should have been recording a liability for premiums received on the delinquent loans where our practice was to refund post-delinquent premiums. This error was not material to our consolidated financial condition, results of operations or cash flows as presented in our previously filed annual and quarterly financial statements; however, the adjustment to correct the cumulative effect of this error would have been material if recorded in the first quarter of 2013. We restated our financial statements to correct this error for all periods presented herein. The cumulative decrease to retained earnings was $46 million as of January 1, 2012.
The following table summarizes the impact on our consolidated balance sheet as of December 31, 2012 to reflect the recording of a liability for premiums received on the delinquent loans expected to be refunded upon claim in our U.S. mortgage insurance business:
(Amounts in millions) |
As previously reported (1) |
Premium restatement |
As restated | |||||||||
Liabilities and stockholders equity |
||||||||||||
Liabilities: |
||||||||||||
Other liabilities |
$ | 5,171 | $ | 68 | $ | 5,239 | ||||||
Deferred tax liability |
$ | 1,531 | $ | (24 | ) | $ | 1,507 | |||||
Total liabilities |
$ | 95,487 | $ | 44 | $ | 95,531 | ||||||
Stockholders equity: |
||||||||||||
Retained earnings |
$ | 1,907 | $ | (44 | ) | $ | 1,863 | |||||
Total Genworths stockholders equity |
$ | 16,537 | $ | (44 | ) | $ | 16,493 |
(1) | Previously reported has been adjusted for our wealth management business that is now reported as discontinued operations. See note 10 for additional information on discontinued operations. |
10
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the impact on our consolidated statement of income for the three months ended March 31, 2012 to reflect the recording of a liability for premiums received on the delinquent loans expected to be refunded upon claim in our U.S. mortgage insurance business:
(Amounts in millions) |
As previously reported (1) |
Premium restatement |
As restated | |||||||||
Premiums |
$ | 1,107 | $ | (1) | $ | 1,106 | ||||||
Total revenues |
$ | 2,316 | $ | (1) | $ | 2,315 | ||||||
Income from continuing operations before income taxes |
$ | 83 | $ | (1) | $ | 82 | ||||||
Income from continuing operations |
$ | 68 | $ | (1) | $ | 67 | ||||||
Net income |
$ | 80 | $ | (1) | $ | 79 | ||||||
Net income available to Genworths common stockholders |
$ | 47 | $ | (1) | $ | 46 | ||||||
Net income available to Genworths common stockholders per common share: |
||||||||||||
Basic |
$ | 0.09 | $ | | $ | 0.09 | ||||||
Diluted |
$ | 0.09 | $ | | $ | 0.09 |
(1) | Previously reported has been adjusted for our wealth management business that is now reported as discontinued operations. See note 10 for additional information on discontinued operations. |
Total comprehensive income (loss) for the three months ended March 31, 2012 changed by an amount consistent with net income above.
In our previously reported condensed consolidated statement of cash flows for the three months ended March 31, 2012, net income in cash flows from operating activities has been restated by a decrease of $1 million with an offsetting increase to other liabilities and other policy-related balances in cash flows from operating activities. The restatement had no effect on total cash flows from operating, investing or financing activities in the three months ended March 31, 2012.
(2) Accounting Changes
On January 1, 2013, we adopted new accounting guidance for disclosures about offsetting assets and liabilities. This guidance requires an entity to disclose information about offsetting and related arrangements to enable users to understand the effect of those arrangements on its financial position. The adoption of this accounting guidance impacted our disclosures only and did not impact our consolidated results.
On January 1, 2013, we adopted new accounting guidance related to the presentation of the reclassification of items out of accumulated other comprehensive income into net income. The adoption of this accounting guidance impacted our disclosures only and did not impact our consolidated results.
11
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Earnings Per Share
Basic and diluted earnings per share are calculated by dividing each income category presented below by the weighted-average basic and diluted shares outstanding for the periods indicated:
Three months ended March 31, |
||||||||
(Amounts in millions, except per share amounts) |
2013 | 2012 | ||||||
Weighted-average shares used in basic earnings per common share calculations |
492.5 | 491.2 | ||||||
Potentially dilutive securities: |
||||||||
Stock options, restricted stock units and stock appreciation rights |
4.3 | 4.5 | ||||||
|
|
|
|
|||||
Weighted-average shares used in diluted earnings per common share calculations |
496.8 | 495.7 | ||||||
|
|
|
|
|||||
Income from continuing operations: |
||||||||
Income from continuing operations |
$ | 161 | $ | 67 | ||||
Less: income from continuing operations attributable to noncontrolling interests |
38 | 33 | ||||||
|
|
|
|
|||||
Income from continuing operations available to Genworths common stockholders |
$ | 123 | $ | 34 | ||||
|
|
|
|
|||||
Basic per common share |
$ | 0.25 | $ | 0.07 | ||||
|
|
|
|
|||||
Diluted per common share |
$ | 0.25 | $ | 0.07 | ||||
|
|
|
|
|||||
Income (loss) from discontinued operations: |
||||||||
Income (loss) from discontinued operations, net of taxes |
$ | (20 | ) | $ | 12 | |||
Less: income from discontinued operations, net of taxes, attributable to noncontrolling interests |
| | ||||||
|
|
|
|
|||||
Income (loss) from discontinued operations, net of taxes, available to Genworths common stockholders |
$ | (20 | ) | $ | 12 | |||
|
|
|
|
|||||
Basic per common share |
$ | (0.04 | ) | $ | 0.03 | |||
|
|
|
|
|||||
Diluted per common share |
$ | (0.04 | ) | $ | 0.02 | |||
|
|
|
|
|||||
Net income: |
||||||||
Income from continuing operations |
$ | 161 | $ | 67 | ||||
Income (loss) from discontinued operations, net of taxes |
(20 | ) | 12 | |||||
|
|
|
|
|||||
Net income |
141 | 79 | ||||||
Less: net income attributable to noncontrolling interests |
38 | 33 | ||||||
|
|
|
|
|||||
Net income available to Genworths common stockholders |
$ | 103 | $ | 46 | ||||
|
|
|
|
|||||
Basic per common share |
$ | 0.21 | $ | 0.09 | ||||
|
|
|
|
|||||
Diluted per common share |
$ | 0.21 | $ | 0.09 | ||||
|
|
|
|
12
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) Investments
(a) Net Investment Income
Sources of net investment income were as follows for the periods indicated:
Three months ended March 31, |
||||||||
(Amounts in millions) |
2013 | 2012 | ||||||
Fixed maturity securitiestaxable |
$ | 656 | $ | 660 | ||||
Fixed maturity securitiesnon-taxable |
2 | 4 | ||||||
Commercial mortgage loans |
82 | 84 | ||||||
Restricted commercial mortgage loans related to securitization entities |
7 | 9 | ||||||
Equity securities |
4 | 4 | ||||||
Other invested assets |
48 | 53 | ||||||
Policy loans |
32 | 31 | ||||||
Cash, cash equivalents and short-term investments |
7 | 10 | ||||||
|
|
|
|
|||||
Gross investment income before expenses and fees |
838 | 855 | ||||||
Expenses and fees |
(24 | ) | (23 | ) | ||||
|
|
|
|
|||||
Net investment income |
$ | 814 | $ | 832 | ||||
|
|
|
|
(b) Net Investment Gains (Losses)
The following table sets forth net investment gains (losses) for the periods indicated:
Three months ended March 31, |
||||||||
(Amounts in millions) |
2013 | 2012 | ||||||
Available-for-sale securities: |
||||||||
Realized gains |
$ | 40 | $ | 63 | ||||
Realized losses |
(66 | ) | (46 | ) | ||||
|
|
|
|
|||||
Net realized gains (losses) on available-for-sale securities |
(26 | ) | 17 | |||||
|
|
|
|
|||||
Impairments: |
||||||||
Total other-than-temporary impairments |
(12 | ) | (16 | ) | ||||
Portion of other-than-temporary impairments included in other comprehensive income (loss) |
| (1 | ) | |||||
|
|
|
|
|||||
Net other-than-temporary impairments |
(12 | ) | (17 | ) | ||||
|
|
|
|
|||||
Trading securities |
10 | (25 | ) | |||||
Commercial mortgage loans |
2 | 2 | ||||||
Net gains related to securitization entities |
7 | 34 | ||||||
Derivative instruments (1) |
(42 | ) | 26 | |||||
Contingent consideration adjustment |
1 | | ||||||
Other |
(1 | ) | | |||||
|
|
|
|
|||||
Net investment gains (losses) |
$ | (61 | ) | $ | 37 | |||
|
|
|
|
(1) | See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses). |
13
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We generally intend to hold securities in unrealized loss positions until they recover. However, from time to time, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, we sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield and liquidity requirements. If a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we determined that we have the intent to sell the securities or it is more likely than not that we will be required to sell the securities prior to recovery. The aggregate fair value of securities sold at a loss during the periods ended March 31, 2013 and 2012 was $577 million and $357 million, respectively, which was approximately 90% of book value for both periods.
The following represents the activity for credit losses recognized in net income on debt securities where an other-than-temporary impairment was identified and a portion of other-than-temporary impairments was included in other comprehensive income (loss) (OCI) as of and for the three months ended March 31:
(Amounts in millions) |
2013 | 2012 | ||||||
Beginning balance |
$ | 387 | $ | 646 | ||||
Additions: |
||||||||
Other-than-temporary impairments not previously recognized |
2 | 2 | ||||||
Increases related to other-than-temporary impairments previously recognized |
4 | 13 | ||||||
Reductions: |
||||||||
Securities sold, paid down or disposed |
(142 | ) | (51 | ) | ||||
|
|
|
|
|||||
Ending balance |
$ | 251 | $ | 610 | ||||
|
|
|
|
(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) |
March 31, 2013 | December 31, 2012 | ||||||
Net unrealized gains (losses) on investment securities: |
||||||||
Fixed maturity securities |
$ | 5,684 | $ | 6,086 | ||||
Equity securities |
44 | 34 | ||||||
Other invested assets |
(5 | ) | (8 | ) | ||||
|
|
|
|
|||||
Subtotal |
5,723 | 6,112 | ||||||
Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves |
(1,820 | ) | (1,925 | ) | ||||
Income taxes, net |
(1,364 | ) | (1,457 | ) | ||||
|
|
|
|
|||||
Net unrealized investment gains (losses) |
2,539 | 2,730 | ||||||
Less: net unrealized investment gains (losses) attributable to noncontrolling interests |
96 | 92 | ||||||
|
|
|
|
|||||
Net unrealized investment gains (losses) attributable to Genworth |
$ | 2,443 | $ | 2,638 | ||||
|
|
|
|
14
GENWORTH HOLDINGS, INC.
(formerly known as 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 three months ended March 31:
(Amounts in millions) |
2013 | 2012 | ||||||
Beginning balance |
$ | 2,638 | $ | 1,485 | ||||
Unrealized gains (losses) arising during the period: |
||||||||
Unrealized gains (losses) on investment securities |
(427 | ) | (212 | ) | ||||
Adjustment to deferred acquisition costs |
16 | (47 | ) | |||||
Adjustment to present value of future profits |
1 | 11 | ||||||
Adjustment to sales inducements |
(3 | ) | (10 | ) | ||||
Adjustment to benefit reserves |
91 | 1 | ||||||
Provision for income taxes |
106 | 93 | ||||||
|
|
|
|
|||||
Change in unrealized gains (losses) on investment securities |
(216 | ) | (164 | ) | ||||
Reclassification adjustments to net investment (gains) losses, net of taxes of $(13) and $ |
25 | | ||||||
|
|
|
|
|||||
Change in net unrealized investment gains (losses) |
(191 | ) | (164 | ) | ||||
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests |
4 | (6 | ) | |||||
|
|
|
|
|||||
Ending balance |
$ | 2,443 | $ | 1,327 | ||||
|
|
|
|
(d) Fixed Maturity and Equity Securities
As of March 31, 2013, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:
Gross unrealized gains | Gross unrealized losses | |||||||||||||||||||||||
(Amounts in millions) |
Amortized cost or cost |
Not other-than- temporarily impaired |
Other-than- temporarily impaired |
Not other-than- temporarily impaired |
Other-than- temporarily impaired |
Fair value |
||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 4,510 | $ | 924 | $ | | $ | (53 | ) | $ | | $ | 5,381 | |||||||||||
Tax-exempt |
277 | 14 | | (21 | ) | | 270 | |||||||||||||||||
Governmentnon-U.S. |
2,132 | 215 | | (2 | ) | | 2,345 | |||||||||||||||||
U.S. corporate |
22,954 | 3,073 | 20 | (111 | ) | | 25,936 | |||||||||||||||||
Corporatenon-U.S. |
14,421 | 1,158 | | (39 | ) | | 15,540 | |||||||||||||||||
Residential mortgage-backed |
5,542 | 535 | 10 | (82 | ) | (63 | ) | 5,942 | ||||||||||||||||
Commercial mortgage-backed |
2,948 | 162 | 3 | (46 | ) | (11 | ) | 3,056 | ||||||||||||||||
Other asset-backed |
2,620 | 51 | | (57 | ) | (2 | ) | 2,612 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturity securities |
55,404 | 6,132 | 33 | (411 | ) | (76 | ) | 61,082 | ||||||||||||||||
Equity securities |
446 | 47 | | (3 | ) | | 490 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total available-for-sale securities |
$ | 55,850 | $ | 6,179 | $ | 33 | $ | (414 | ) | $ | (76 | ) | $ | 61,572 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
15
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of December 31, 2012, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:
Gross unrealized gains | Gross unrealized losses | |||||||||||||||||||||||
(Amounts in millions) |
Amortized cost or cost |
Not other-than- temporarily impaired |
Other-than- temporarily impaired |
Not other-than- temporarily impaired |
Other-than- temporarily impaired |
Fair value |
||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 4,484 | $ | 1,025 | $ | | $ | (18 | ) | $ | | $ | 5,491 | |||||||||||
Tax-exempt |
308 | 16 | | (30 | ) | | 294 | |||||||||||||||||
Governmentnon-U.S. |
2,173 | 250 | | (1 | ) | | 2,422 | |||||||||||||||||
U.S. corporate |
22,873 | 3,317 | 19 | (104 | ) | | 26,105 | |||||||||||||||||
Corporatenon-U.S. |
14,577 | 1,262 | | (47 | ) | | 15,792 | |||||||||||||||||
Residential mortgage-backed |
5,744 | 549 | 13 | (124 | ) | (101 | ) | 6,081 | ||||||||||||||||
Commercial mortgage-backed |
3,253 | 178 | 5 | (82 | ) | (21 | ) | 3,333 | ||||||||||||||||
Other asset-backed |
2,660 | 50 | | (65 | ) | (2 | ) | 2,643 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturity securities |
56,072 | 6,647 | 37 | (471 | ) | (124 | ) | 62,161 | ||||||||||||||||
Equity securities |
483 | 41 | | (6 | ) | | 518 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total available-for-sale securities |
$ | 56,555 | $ | 6,688 | $ | 37 | $ | (477 | ) | $ | (124 | ) | $ | 62,679 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
16
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the gross unrealized losses and fair values of our investment securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, as of March 31, 2013:
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 (2) |
Number of securities |
|||||||||||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 766 | $ | (53 | ) | 22 | $ | | $ | | | $ | 766 | $ | (53 | ) | 22 | |||||||||||||||||||
Tax-exempt |
| | | 112 | (21 | ) | 10 | 112 | (21 | ) | 10 | |||||||||||||||||||||||||
Governmentnon-U.S. |
133 | (2 | ) | 18 | | | | 133 | (2 | ) | 18 | |||||||||||||||||||||||||
U.S. corporate |
1,579 | (50 | ) | 211 | 529 | (61 | ) | 47 | 2,108 | (111 | ) | 258 | ||||||||||||||||||||||||
Corporatenon-U.S. |
1,184 | (17 | ) | 138 | 241 | (22 | ) | 20 | 1,425 | (39 | ) | 158 | ||||||||||||||||||||||||
Residential mortgage-backed |
277 | (2 | ) | 42 | 360 | (143 | ) | 227 | 637 | (145 | ) | 269 | ||||||||||||||||||||||||
Commercial mortgage-backed |
172 | (2 | ) | 23 | 533 | (55 | ) | 92 | 705 | (57 | ) | 115 | ||||||||||||||||||||||||
Other asset-backed |
153 | (1 | ) | 31 | 150 | (58 | ) | 16 | 303 | (59 | ) | 47 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Subtotal, fixed maturity |
4,264 | (127 | ) | 485 | 1,925 | (360 | ) | 412 | 6,189 | (487 | ) | 897 | ||||||||||||||||||||||||
Equity securities |
43 | (2 | ) | 47 | 12 | (1 | ) | 6 | 55 | (3 | ) | 53 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 4,307 | $ | (129 | ) | 532 | $ | 1,937 | $ | (361 | ) | 418 | $ | 6,244 | $ | (490 | ) | 950 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
% Below costfixed maturity securities: |
||||||||||||||||||||||||||||||||||||
<20% Below cost |
$ | 4,257 | $ | (125 | ) | 479 | $ | 1,624 | $ | (143 | ) | 267 | $ | 5,881 | $ | (268 | ) | 746 | ||||||||||||||||||
20%-50% Below cost |
7 | (2 | ) | 6 | 272 | (138 | ) | 92 | 279 | (140 | ) | 98 | ||||||||||||||||||||||||
>50% Below cost |
| | | 29 | (79 | ) | 53 | 29 | (79 | ) | 53 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total fixed maturity securities |
4,264 | (127 | ) | 485 | 1,925 | (360 | ) | 412 | 6,189 | (487 | ) | 897 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
% Below costequity securities: |
||||||||||||||||||||||||||||||||||||
<20% Below cost |
43 | (2 | ) | 47 | 12 | (1 | ) | 6 | 55 | (3 | ) | 53 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total equity securities |
43 | (2 | ) | 47 | 12 | (1 | ) | 6 | 55 | (3 | ) | 53 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 4,307 | $ | (129 | ) | 532 | $ | 1,937 | $ | (361 | ) | 418 | $ | 6,244 | $ | (490 | ) | 950 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Investment grade |
$ | 4,070 | $ | (121 | ) | 439 | $ | 1,157 | $ | (162 | ) | 175 | $ | 5,227 | $ | (283 | ) | 614 | ||||||||||||||||||
Below investment grade (3) |
237 | (8 | ) | 93 | 780 | (199 | ) | 243 | 1,017 | (207 | ) | 336 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 4,307 | $ | (129 | ) | 532 | $ | 1,937 | $ | (361 | ) | 418 | $ | 6,244 | $ | (490 | ) | 950 | ||||||||||||||||||
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
(1) | Amounts included $75 million of unrealized losses on other-than-temporarily impaired securities. |
(2) | Amounts included $76 million of unrealized losses on other-than-temporarily impaired securities. |
(3) | Amounts that have been in a continuous loss position for 12 months or more included $74 million of unrealized losses on other-than-temporarily impaired securities. |
As indicated in the table 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 lower credit ratings since acquisition for corporate securities across various industry sectors. For
17
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
securities that have been in a continuous unrealized loss for less than 12 months, the average fair value percentage below cost was approximately 3% as of March 31, 2013.
Fixed Maturity Securities In A Continuous Unrealized Loss Position For 12 Months Or More
Of the $143 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 61% of the unrealized losses were related to investment grade securities as of March 31, 2013. These unrealized losses were attributable to the lower credit ratings for these securities since acquisition, primarily associated with corporate securities in the finance and insurance sector. The average fair value percentage below cost for these securities was approximately 8% as of March 31, 2013. See below for additional discussion related to fixed maturity securities that have been in a continuous 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 loss position for 12 months or more by asset class as of March 31, 2013:
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: |
||||||||||||||||||||||||||||||||
Tax-exempt |
$ | 16 | $ | (6 | ) | 1 | % | 2 | $ | | $ | | | % | | |||||||||||||||||
U.S. corporate |
18 | (5 | ) | 1 | 1 | | | | | |||||||||||||||||||||||
Corporatenon-U.S. |
32 | (15 | ) | 3 | 7 | | | | | |||||||||||||||||||||||
Structured securities: |
||||||||||||||||||||||||||||||||
Residential mortgage-backed |
21 | (12 | ) | 2 | 9 | 2 | (3 | ) | 1 | 6 | ||||||||||||||||||||||
Commercial mortgage-backed |
2 | (1 | ) | | 2 | | (1 | ) | | 1 | ||||||||||||||||||||||
Other asset-backed |
51 | (32 | ) | 7 | 3 | | | | | |||||||||||||||||||||||
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total structured securities |
74 | (45 | ) | 9 | 14 | 2 | (4 | ) | 1 | 7 | ||||||||||||||||||||||
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|
|
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|
|
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|
|
|||||||||||||||||
Total |
$ | 140 | $ | (71 | ) | 14 | % | 24 | $ | 2 | $ | (4 | ) | 1 | % | 7 | ||||||||||||||||
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18
GENWORTH HOLDINGS, INC.
(formerly known as 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 |
$ | 2 | $ | (1 | ) | | % | 3 | $ | | $ | | | % | | |||||||||||||||||
Structured securities: |
||||||||||||||||||||||||||||||||
Residential mortgage-backed |
94 | (44 | ) | 9 | 52 | 18 | (61 | ) | 12 | 41 | ||||||||||||||||||||||
Commercial |
||||||||||||||||||||||||||||||||
mortgage-backed |
22 | (12 | ) | 2 | 12 | 3 | (4 | ) | 1 | 3 | ||||||||||||||||||||||
Other asset-backed |
14 | (10 | ) | 2 | 1 | 6 | (10 | ) | 2 | 2 | ||||||||||||||||||||||
|
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|
|
|
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|
|||||||||||||||||
Total structured securities |
130 | (66 | ) | 13 | 65 | 27 | (75 | ) | 15 | 46 | ||||||||||||||||||||||
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|
|
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|
|
|||||||||||||||||
Total |
$ | 132 | $ | (67 | ) | 13 | % | 68 | $ | 27 | $ | (75 | ) | 15 | % | 46 | ||||||||||||||||
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|
For all securities in an unrealized loss position, we expect to recover the amortized cost based on our estimate of cash flows to be collected. We do not intend to sell and it is not more likely than not that we will be required to sell these securities prior to recovering our amortized cost. See the following for further discussion of gross unrealized losses by asset class.
Corporate Debt Securities
The following tables present the concentration of gross unrealized losses and fair values related to corporate debt fixed maturity securities that were more than 20% below cost and in a continuous loss position for 12 months or more by industry as of March 31, 2013:
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 |
||||||||||||||||||||||||
Industry: |
||||||||||||||||||||||||||||||||
Finance and insurance |
$ | 50 | $ | (20 | ) | 4 | % | 8 | $ | | $ | | | % | | |||||||||||||||||
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|
|
|
|
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|
|
|
|
|||||||||||||||||
Total |
$ | 50 | $ | (20 | ) | 4 | % | 8 | $ | | $ | | | % | | |||||||||||||||||
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|
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 |
||||||||||||||||||||||||
Industry: |
||||||||||||||||||||||||||||||||
Consumer-cyclical |
$ | 2 | $ | (1 | ) | | % | 3 | $ | | $ | | | % | | |||||||||||||||||
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|||||||||||||||||
Total |
$ | 2 | $ | (1 | ) | | % | 3 | $ | | $ | | | % | | |||||||||||||||||
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19
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Of the total unrealized losses of $21 million for corporate fixed maturity securities presented in the preceding tables, $20 million, or 95%, of the unrealized losses related to issuers in the finance and insurance sector that were 29% below cost on average. Given the current market conditions, including current financial industry events and uncertainty around global economic conditions, the fair value of these debt securities has declined due to credit spreads that have widened since acquisition. In our examination of these securities, we considered all available evidence, including the issuers financial condition and current industry events to develop our conclusion on the amount and timing of the cash flows expected to be collected. Based on this evaluation, we determined that the unrealized losses on these debt securities represented temporary impairments as of March 31, 2013. The $20 million of unrealized losses related to the finance and insurance industry related to financial hybrid securities on which a debt impairment model was employed. Most of our hybrid securities retained a credit rating of investment grade. The fair value of these hybrid securities has been impacted by credit spreads that have widened since acquisition and reflect uncertainty surrounding the extent and duration of government involvement, potential capital restructuring of these institutions, and continued but diminishing risk that income payments may be deferred. We continue to receive our contractual payments and expect to fully recover our amortized cost.
We expect that our investments in 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 at least reasonably possible that issuers of our investments in corporate securities will perform worse than current expectations. Such events may lead us to recognize write-downs within our portfolio of corporate securities in the future.
Structured Securities
Of the $190 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, $64 million 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 the ongoing concern and uncertainty about the residential and commercial real estate market and unemployment, resulting in credit spreads that have widened since acquisition. Additionally, the fair value of certain structured securities has been significantly 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. housing market.
While we considered 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.
20
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We used our assessment of the historical performance of both the securitization trust and the underlying collateral for each security, along with third-party sources, when available, to develop our best estimate of cash flows expected to be collected. These estimates reflect projections for future delinquencies, prepayments, defaults and losses for the assets that collateralize the securitization trust and are used to determine the expected cash flows for our security, based on the payment structure of the trust. Our projection of expected cash flows is primarily based on the expected performance of the underlying assets that collateralize the securitization trust and is not directly impacted by the rating of our security. While we consider the rating of the security as an indicator of the financial condition of the issuer, this factor does not have a significant impact on our expected cash flows for each security. In limited circumstances, our expected cash flows include expected payments from reliable financial guarantors where we believe the financial guarantor will have sufficient assets to pay claims under the financial guarantee when the cash flows from the securitization trust are not sufficient to make scheduled payments. We then discount the expected cash flows using the effective yield of each security to determine the present value of expected cash flows.
Based on this evaluation, the present value of expected cash flows was greater than or equal to the amortized cost for each security. Accordingly, we determined that the unrealized losses on each of our structured securities represented temporary impairments as of March 31, 2013.
Despite the considerable analysis and rigor employed on our structured securities, it is at least reasonably possible that the underlying collateral of these investments will 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.
21
GENWORTH HOLDINGS, INC.
(formerly known as 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, 2012:
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 (2) |
Number of securities |
|||||||||||||||||||||||||||
Description of Securities |
||||||||||||||||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||||||||||||||||
U.S. government, agencies and government-sponsored enterprises |
$ | 655 | $ | (18 | ) | 19 | $ | | $ | | | $ | 655 | $ | (18 | ) | 19 | |||||||||||||||||||
Tax-exempt |
| | | 137 | (30 | ) | 13 | 137 | (30 | ) | 13 | |||||||||||||||||||||||||
Governmentnon-U.S. |
103 | (1 | ) | 21 | | | | 103 | (1 | ) | 21 | |||||||||||||||||||||||||
U.S. corporate |
859 | (19 | ) | 154 | 646 | (85 | ) | 65 | 1,505 | (104 | ) | 219 | ||||||||||||||||||||||||
Corporatenon-U.S. |
665 | (9 | ) | 105 | 436 | (38 | ) | 41 | 1,101 | (47 | ) | 146 | ||||||||||||||||||||||||
Residential mortgage-backed |
152 | (1 | ) | 32 | 494 | (224 | ) | 278 | 646 | (225 | ) | 310 | ||||||||||||||||||||||||
Commercial mortgage-backed |
183 | (1 | ) | 20 | 749 | (102 | ) | 130 | 932 | (103 | ) | 150 | ||||||||||||||||||||||||
Other asset-backed |
282 | (1 | ) | 42 | 185 | (66 | ) | 18 | 467 | (67 | ) | 60 | ||||||||||||||||||||||||
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|
|||||||||||||||||||
Subtotal, fixed maturity securities |
2,899 | (50 | ) | 393 | 2,647 | (545 | ) | 545 | 5,546 | (595 | ) | 938 | ||||||||||||||||||||||||
Equity securities |
52 | (4 | ) | 32 | 14 | (2 | ) | 13 | 66 | (6 | ) | 45 | ||||||||||||||||||||||||
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|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 2,951 | $ | (54 | ) | 425 | $ | 2,661 | $ | (547 | ) | 558 | $ | 5,612 | $ | (601 | ) | 983 | ||||||||||||||||||
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|
|||||||||||||||||||
% Below costfixed maturity securities: |
||||||||||||||||||||||||||||||||||||
<20% Below cost |
$ | 2,899 | $ | (50 | ) | 393 | $ | 2,151 | $ | (194 | ) | 337 | $ | 5,050 | $ | (244 | ) | 730 | ||||||||||||||||||
20%-50% Below cost |
| | | 445 | (218 | ) | 128 | 445 | (218 | ) | 128 | |||||||||||||||||||||||||
>50% Below cost |
| | | 51 | (133 | ) | 80 | 51 | (133 | ) | 80 | |||||||||||||||||||||||||
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|||||||||||||||||||
Total fixed maturity securities |
2,899 | (50 | ) | 393 | 2,647 | (545 | ) | 545 | 5,546 | (595 | ) | 938 | ||||||||||||||||||||||||
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|
|||||||||||||||||||
% Below costequity securities: |
||||||||||||||||||||||||||||||||||||
<20% Below cost |
47 | (2 | ) | 29 | 12 | (1 | ) | 11 | 59 | (3 | ) | 40 | ||||||||||||||||||||||||
20%-50% Below cost |
5 | (2 | ) | 3 | 2 | (1 | ) | 2 | 7 | (3 | ) | 5 | ||||||||||||||||||||||||
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|
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|
|||||||||||||||||||
Total equity securities |
52 | (4 | ) | 32 | 14 | (2 | ) | 13 | 66 | (6 | ) | 45 | ||||||||||||||||||||||||
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|
|
|
|
|
|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 2,951 | $ | (54 | ) | 425 | $ | 2,661 | $ | (547 | ) | 558 | $ | 5,612 | $ | (601 | ) | 983 | ||||||||||||||||||
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|
|||||||||||||||||||
Investment grade |
$ | 2,761 | $ | (43 | ) | 356 | $ | 1,616 | $ | (209 | ) | 235 | $ | 4,377 | $ | (252 | ) | 591 | ||||||||||||||||||
Below investment grade (3) |
190 | (11 | ) | 69 | 1,045 | (338 | ) | 323 | 1,235 | (349 | ) | 392 | ||||||||||||||||||||||||
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|
|||||||||||||||||||
Total for securities in an unrealized loss position |
$ | 2,951 | $ | (54 | ) | 425 | $ | 2,661 | $ | (547 | ) | 558 | $ | 5,612 | $ | (601 | ) | 983 | ||||||||||||||||||
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|
(1) | Amounts included $123 million of unrealized losses on other-than-temporarily impaired securities. |
(2) | Amounts included $124 million of unrealized losses on other-than-temporarily impaired securities. |
(3) | Amounts that have been in a continuous loss position for 12 months or more included $119 million of unrealized losses on other-than-temporarily impaired securities. |
22
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The scheduled maturity distribution of fixed maturity securities as of March 31, 2013 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 |
$ | 2,704 | $ | 2,731 | ||||
Due after one year through five years |
10,398 | 10,997 | ||||||
Due after five years through ten years |
11,176 | 12,243 | ||||||
Due after ten years |
20,016 | 23,501 | ||||||
|
|
|
|
|||||
Subtotal |
44,294 | 49,472 | ||||||
Residential mortgage-backed |
5,542 | 5,942 | ||||||
Commercial mortgage-backed |
2,948 | 3,056 | ||||||
Other asset-backed |
2,620 | 2,612 | ||||||
|
|
|
|
|||||
Total |
$ | 55,404 | $ | 61,082 | ||||
|
|
|
|
As of March 31, 2013, $5,278 million of our investments (excluding mortgage-backed and asset-backed securities) were subject to certain call provisions.
As of March 31, 2013, securities issued by utilities and energy, finance and insurance, and consumernon-cyclical industry groups represented approximately 24%, 20% and 12% of our domestic and foreign corporate fixed maturity securities portfolio, respectively. 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 March 31, 2013, 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 prepayments, amortization and allowance for loan losses.
23
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We diversify our commercial mortgage loans by both property type and geographic region. The following tables set forth the distribution across property type and geographic region for commercial mortgage loans as of the dates indicated:
March 31, 2013 | December 31, 2012 | |||||||||||||||
(Amounts in millions) |
Carrying value |
% of total |
Carrying value |
% of total |
||||||||||||
Property type: |
||||||||||||||||
Retail |
$ | 1,953 | 33 | % | $ | 1,895 | 32 | % | ||||||||
Office |
1,595 | 27 | 1,580 | 27 | ||||||||||||
Industrial |
1,584 | 27 | 1,603 | 27 | ||||||||||||
Apartments |
542 | 9 | 552 | 9 | ||||||||||||
Mixed use/other |
230 | 4 | 282 | 5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
5,904 | 100 | % | 5,912 | 100 | % | ||||||||||
|
|
|
|
|||||||||||||
Unamortized balance of loan origination fees and costs |
2 | 2 | ||||||||||||||
Allowance for losses |
(40 | ) | (42 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total |
$ | 5,866 | $ | 5,872 | ||||||||||||
|
|
|
|
March 31, 2013 | December 31, 2012 | |||||||||||||||
(Amounts in millions) |
Carrying value |
% of total |
Carrying value |
% of total |
||||||||||||
Geographic region: |
||||||||||||||||
Pacific |
$ | 1,582 | 27 | % | $ | 1,553 | 26 | % | ||||||||
South Atlantic |
1,549 | 26 | 1,587 | 27 | ||||||||||||
Middle Atlantic |
750 | 13 | 739 | 13 | ||||||||||||
Mountain |
458 | 8 | 463 | 8 | ||||||||||||
East North Central |
451 | 8 | 468 | 8 | ||||||||||||
West North Central |
374 | 6 | 353 | 6 | ||||||||||||
New England |
341 | 6 | 343 | 6 | ||||||||||||
West South Central |
259 | 4 | 265 | 4 | ||||||||||||
East South Central |
140 | 2 | 141 | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
5,904 | 100 | % | 5,912 | 100 | % | ||||||||||
|
|
|
|
|||||||||||||
Unamortized balance of loan origination fees and costs |
2 | 2 | ||||||||||||||
Allowance for losses |
(40 | ) | (42 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total |
$ | 5,866 | $ | 5,872 | ||||||||||||
|
|
|
|
24
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables set forth the aging of past due commercial mortgage loans by property type as of the dates indicated:
March 31, 2013 | ||||||||||||||||||||||||
(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 |
$ | 7 | $ | 5 | $ | | $ | 12 | $ | 1,941 | $ | 1,953 | ||||||||||||
Office |
1 | | | 1 | 1,594 | 1,595 | ||||||||||||||||||
Industrial |
6 | 2 | | 8 | 1,576 | 1,584 | ||||||||||||||||||
Apartments |
| | 4 | 4 | 538 | 542 | ||||||||||||||||||
Mixed use/other |
1 | | | 1 | 229 | 230 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 15 | $ | 7 | $ | 4 | $ | 26 | $ | 5,878 | $ | 5,904 | ||||||||||||
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|
|||||||||||||
% of total commercial mortgage loans |
| % | | % | | % | | % | 100 | % | 100 | % | ||||||||||||
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|
|
|
|
December 31, 2012 | ||||||||||||||||||||||||
(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 |
$ | | $ | 3 | $ | | $ | 3 | $ | 1,892 | $ | 1,895 | ||||||||||||
Office |
2 | | | 2 | 1,578 | 1,580 | ||||||||||||||||||
Industrial |
| | | | 1,603 | 1,603 | ||||||||||||||||||
Apartments |
| | 4 | 4 | 548 | 552 | ||||||||||||||||||
Mixed use/other |
66 | | | 66 | 216 | 282 | ||||||||||||||||||
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|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 68 | $ | 3 | $ | 4 | $ | 75 | $ | 5,837 | $ | 5,912 | ||||||||||||
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|
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% of total commercial mortgage loans |
1 | % | | % | | % | 1 | % | 99 | % | 100 | % | ||||||||||||
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As of March 31, 2013 and December 31, 2012, we had no commercial mortgage loans that were past due for more than 90 days and still accruing interest. We also did not have any commercial mortgage loans that were past due for less than 90 days on non-accrual status as of March 31, 2013 and December 31, 2012.
As of and for the three months ended March 31, 2013 and the year ended December 31, 2012, we modified or extended 12 and 38 commercial mortgage loans, respectively, with a total carrying value of $76 million and $279 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.
25
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table sets forth the allowance for credit losses and recorded investment in commercial mortgage loans as of or for the periods indicated:
Three months ended March 31, |
||||||||
(Amounts in millions) |
2013 | 2012 | ||||||
Allowance for credit losses: |
||||||||
Beginning balance |
$ | 42 | $ | 51 | ||||
Charge-offs |
| (1 | ) | |||||
Recoveries |
| | ||||||
Provision |
(2 | ) | (1 | ) | ||||
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|
|
|||||
Ending balance |
$ | 40 | $ | 49 | ||||
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|
|||||
Ending allowance for individually impaired loans |
$ | | $ | | ||||
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|
|||||
Ending allowance for loans not individually impaired that were evaluated collectively for impairment |
$ | 40 | $ | 49 | ||||
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|
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Recorded investment: |
||||||||
Ending balance |
$ | 5,904 | $ | 6,076 | ||||
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|
|
|||||
Ending balance of individually impaired loans |
$ | | $ | 2 | ||||
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|
|||||
Ending balance of loans not individually impaired that were evaluated collectively for impairment |
$ | 5,904 | $ | 6,074 | ||||
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|
|
As of March 31, 2013 and December 31, 2012, we had no individually impaired commercial mortgage loans.
In evaluating the credit quality of commercial mortgage loans, we assess the performance of the underlying loans using both quantitative and qualitative criteria. Certain risks associated with commercial mortgage loans can be evaluated by reviewing both the loan-to-value and debt service coverage ratio to understand both the probability of the borrower not being able to make the necessary loan payments as well as the ability to sell the underlying property for an amount that would enable us to recover our unpaid principal balance in the event of default by the borrower. The average loan-to-value ratio is based on our most recent estimate of the fair value for the underlying property which is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A lower loan-to-value indicates that our loan value is more likely to be recovered in the event of default by the borrower if the property was sold. The debt service coverage ratio is based on normalized annual 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 borrower, such as the borrowers liquidity or access to other resources that may result in our expectation that the borrower will continue to make the future scheduled payments.
26
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables set forth the loan-to-value of commercial mortgage loans by property type as of the dates indicated:
March 31, 2013 | ||||||||||||||||||||||||
(Amounts in millions) |
0% - 50% | 51% - 60% | 61% - 75% | 76% - 100% | Greater than 100% (1) |
Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | 553 | $ | 277 | $ | 920 | $ | 172 | $ | 31 | $ | 1,953 | ||||||||||||
Office |
318 | 224 | 721 | 295 | 37 | 1,595 | ||||||||||||||||||
Industrial |
451 | 235 | 671 | 188 | 39 | 1,584 | ||||||||||||||||||
Apartments |
165 | 85 | 248 | 29 | 15 | 542 | ||||||||||||||||||
Mixed use/other |
73 | 24 | 112 | 15 | 6 | 230 | ||||||||||||||||||
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|
|
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Total recorded investment |
$ | 1,560 | $ | 845 | $ | 2,672 | $ | 699 | $ | 128 | $ | 5,904 | ||||||||||||
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% of total |
26 | % | 14 | % | 46 | % | 12 | % | 2 | % | 100 | % | ||||||||||||
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|
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Weighted-average debt service coverage ratio |
2.27 | 1.76 | 2.07 | 1.17 | 1.05 | 1.95 | ||||||||||||||||||
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(1) | Included $128 million of loans in good standing, with a total weighted-average loan-to-value of 145%, where borrowers continued to make timely payments. |
December 31, 2012 | ||||||||||||||||||||||||
(Amounts in millions) |
0% - 50% | 51% - 60% | 61% - 75% | 76% - 100% | Greater than 100% (1) |
Total | ||||||||||||||||||
Property type: |
||||||||||||||||||||||||
Retail |
$ | 548 | $ | 280 | $ | 874 | $ | 162 | $ | 31 | $ | 1,895 | ||||||||||||
Office |
323 | 237 | 688 | 288 | 44 | 1,580 | ||||||||||||||||||
Industrial |
462 | 242 | 671 | 188 | 40 | 1,603 | ||||||||||||||||||
Apartments |
167 | 140 | 201 | 29 | 15 | 552 | ||||||||||||||||||
Mixed use/other |
68 | 24 | 103 | 81 | 6 | 282 | ||||||||||||||||||
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|
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Total recorded investment |
$ | 1,568 | $ | 923 | $ | 2,537 | $ | 748 | $ | 136 | $ | 5,912 | ||||||||||||
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% of total |
27 | % | 16 | % | 42 | % | 13 | % | 2 | % | 100 | % | ||||||||||||
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|||||||||||||
Weighted-average debt service coverage ratio |
2.13 | 1.73 | 2.09 | 1.18 | 2.48 | 1.95 | ||||||||||||||||||
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(1) | Included $136 million of loans in good standing, with a total weighted-average loan-to-value of 144%, where borrowers continued to make timely payments. |
27
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables set forth the debt service coverage ratio for fixed rate commercial mortgage loans by property type as of the dates indicated:
March 31, 2013 | ||||||||||||||||||||||||
(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 |
$ | 100 | $ | 290 | $ | 401 | $ | 673 | $ | 385 | $ | 1,849 | ||||||||||||
Office |
147 | 167 | 280 | 625 | 292 | 1,511 | ||||||||||||||||||
Industrial |
172 | 145 | 279 | 649 | 334 | 1,579 | ||||||||||||||||||
Apartments |
8 | 48 | 99 | 242 | 145 | 542 | ||||||||||||||||||
Mixed use/other |
27 | 25 | 52 | 90 | 36 | 230 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 454 | $ | 675 | $ | 1,111 | $ | 2,279 | $ | 1,192 | $ | 5,711 | ||||||||||||
|
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|||||||||||||
% of total |
8 | % | 12 | % | 19 | % | 40 | % | 21 | % | 100 | % | ||||||||||||
|
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|
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|
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|
|
|
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|
|||||||||||||
Weighted-average loan-to-value |
79 | % | 70 | % | 66 | % | 62 | % | 45 | % | 61 | % | ||||||||||||
|
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|
|
|
|
December 31, 2012 | ||||||||||||||||||||||||
(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 |
$ | 87 | $ | 295 | $ | 391 | $ | 634 | $ | 384 | $ | 1,791 | ||||||||||||
Office |
148 | 174 | 312 | 559 | 303 | 1,496 | ||||||||||||||||||
Industrial |
164 | 148 | 311 | 629 | 345 | 1,597 | ||||||||||||||||||
Apartments |
9 | 62 | 90 | 279 | 112 | 552 | ||||||||||||||||||
Mixed use/other |
32 | 21 | 49 | 64 | 50 | 216 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|||||||||||||
Total recorded investment |
$ | 440 | $ | 700 | $ | 1,153 | $ | 2,165 | $ | 1,194 | $ | 5,652 | ||||||||||||
|
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|
|
|
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|
|||||||||||||
% of total |
8 | % | 12 | % | 20 | % | 39 | % | 21 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Weighted-average loan-to-value |
81 | % | 71 | % | 66 | % | 61 | % | 45 | % | 61 | % | ||||||||||||
|
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|
28
GENWORTH HOLDINGS, INC.
(formerly known as Genworth Financial, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables set forth the debt service coverage ratio for floating rate commercial mortgage loans by property type as of the dates indicated:
March 31, 2013 | ||||||||||||||||||||||||
(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 |
$ | | $ | | $ | | $ | 1 | $ | 103 | $ | 104 | ||||||||||||
Office |
| | 8 | | 76 | 84 | ||||||||||||||||||
Industrial |
| | | | 5 | 5 | ||||||||||||||||||
Apartments |
| | | | | | ||||||||||||||||||
Mixed use/other |
| | | | | | ||||||||||||||||||
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