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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 June 30, 2015

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

For the transition period from to

Commission file number 001-32195

LOGO

GENWORTH FINANCIAL, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		80-0873306
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

6620 West Broad Street Richmond, Virginia		23230
(Address of Principal Executive Offices)		(Zip Code)

(804) 281-6000

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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 July 31, 2015, 497,419,100 shares of Class A Common Stock, par value $0.001 per share, were outstanding.

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION			3

Item 1.	Financial Statements		3
Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 (Unaudited)			3
Condensed Consolidated Statements of Income for the three and six months ended June 30, 2015 and 2014 (Unaudited)			4
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014 (Unaudited)			5
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2015 and 2014 (Unaudited)			6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (Unaudited)			7
Notes to Condensed Consolidated Financial Statements (Unaudited)			8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		89

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		167

Item 4.	Controls and Procedures		168

PART II—OTHER INFORMATION			169

Item 1.	Legal Proceedings		169

Item 1A.	Risk Factors		169

Item 6.	Exhibits		172

Signatures			173

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except per share amounts)

(Unaudited)


	June 30, 2015			December 31, 2014
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value	$	60,568		$	61,276
Equity securities available-for-sale, at fair value		299			275
Commercial mortgage loans		6,175			6,100
Restricted commercial mortgage loans related to securitization entities		181			201
Policy loans		1,584			1,501
Other invested assets		2,191			2,244
Restricted other invested assets related to securitization entities, at fair value		410			411

Total investments		71,408			72,008
Cash and cash equivalents		4,100			4,716
Accrued investment income		615			664
Deferred acquisition costs		4,896			4,849
Intangible assets		286			250
Goodwill		15			16
Reinsurance recoverable		17,297			17,314
Other assets		625			524
Separate account assets		8,702			9,208
Assets held for sale related to discontinued operations		1,220			1,809

Total assets	$	109,164		$	111,358

Liabilities and stockholders’ equity
Liabilities:
Future policy benefits	$	36,298		$	35,915
Policyholder account balances		25,987			26,032
Liability for policy and contract claims		7,990			7,937
Unearned premiums		3,431			3,547
Other liabilities ($34 and $45 of other liabilities are related to securitization entities)		3,136			3,282
Borrowings related to securitization entities ($84 and $85 are at fair value)		199			219
Non-recourse funding obligations		1,967			1,996
Long-term borrowings		4,607			4,639
Deferred tax liability		258			858
Separate account liabilities		8,702			9,208
Liabilities held for sale related to discontinued operations		862			928

Total liabilities		93,437			94,561

Commitments and contingencies

Stockholders’ equity:
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 586 million and 585 million shares issued as of June 30, 2015 and December 31, 2014, respectively; 497 million shares outstanding as of June 30, 2015 and December 31, 2014		1			1
Additional paid-in capital		11,940			11,997

Accumulated other comprehensive income (loss):
Net unrealized investment gains (losses):
Net unrealized gains (losses) on securities not other-than-temporarily impaired		1,606			2,431
Net unrealized gains (losses) on other-than-temporarily impaired securities		22			22

Net unrealized investment gains (losses)		1,628			2,453

Derivatives qualifying as hedges		1,913			2,070
Foreign currency translation and other adjustments		(232	)		(77	)

Total accumulated other comprehensive income (loss)		3,309			4,446
Retained earnings		1,140			1,179
Treasury stock, at cost (88 million shares as of June 30, 2015 and December 31, 2014)		(2,700	)		(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity		13,690			14,923
Noncontrolling interests		2,037			1,874

Total stockholders’ equity		15,727			16,797

Total liabilities and stockholders’ equity	$	109,164		$	111,358

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in millions, except per share amounts)

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
Revenues:
Premiums	$	1,134		$	1,144		$	2,277		$	2,276
Net investment income		793			791			1,574			1,567
Net investment gains (losses)		8			34			(8	)		16
Insurance and investment product fees and other		222			225			449			451

Total revenues		2,157			2,194			4,292			4,310

Benefits and expenses:
Benefits and other changes in policy reserves		1,232			1,200			2,424			2,348
Interest credited		181			184			361			367
Acquisition and operating expenses, net of deferrals		295			282			562			555
Amortization of deferred acquisition costs and intangibles		101			108			196			212
Interest expense		103			112			210			223

Total benefits and expenses		1,912			1,886			3,753			3,705

Income from continuing operations before income taxes		245			308			539			605
Provision for income taxes		70			84			161			171

Income from continuing operations		175			224			378			434
Income (loss) from discontinued operations, net of taxes		(314	)		4			(313	)		13

Net income (loss)		(139	)		228			65			447
Less: net income attributable to noncontrolling interests		54			52			104			87

Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	(193	)	$	176		$	(39	)	$	360

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per common share:
Basic	$	0.24		$	0.35		$	0.55		$	0.70

Diluted	$	0.24		$	0.34		$	0.55		$	0.69

Net income (loss) available to Genworth Financial, Inc.’s common stockholders per common share:
Basic	$	(0.39	)	$	0.35		$	(0.08	)	$	0.73

Diluted	$	(0.39	)	$	0.35		$	(0.08	)	$	0.72

Weighted-average common shares outstanding:
Basic		497.4			496.6			497.2			496.2

Diluted		499.3			503.6			499.1			503.2

Supplemental disclosures:
Total other-than-temporary impairments	$	—		$	(2	)	$	(3	)	$	(3	)
Portion of other-than-temporary impairments included in other comprehensive income (loss)		—			—			—			—

Net other-than-temporary impairments		—			(2	)		(3	)		(3	)
Other investments gains (losses)		8			36			(5	)		19

Total net investment gains (losses)	$	8		$	34		$	(8	)	$	16

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)


	Three months ended June 30,					Six months ended June 30,
	2015			2014		2015			2014
Net income (loss)	$	(139	)	$	228	$	65		$	447

Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities not other-than-temporarily impaired		(1,138	)		533		(815	)		1,239
Net unrealized gains (losses) on other-than-temporarily impaired securities		(2	)		1		—			7
Derivatives qualifying as hedges		(334	)		114		(157	)		333
Foreign currency translation and other adjustments		53			148		(317	)		127

Total other comprehensive income (loss)		(1,421	)		796		(1,289	)		1,706

Total comprehensive income (loss)		(1,560	)		1,024		(1,224	)		2,153
Less: comprehensive income (loss) attributable to noncontrolling interests		40			113		(24	)		117

Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders	$	(1,600	)	$	911	$	(1,200	)	$	2,036

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in millions)

(Unaudited)


	Common stock		Additional paid-in capital			Accumulated other comprehensive income (loss)			Retained earnings			Treasury stock, at cost			Total Genworth Financial, Inc.’s stockholders’ equity			Noncontrolling interests			Total stockholders’ equity
Balances as of December 31, 2014	$	1	$	11,997		$	4,446		$	1,179		$	(2,700	)	$	14,923		$	1,874		$	16,797

Additional sale of subsidiary shares to noncontrolling interests		—		(65	)		24			—			—			(41	)		267			226
Repurchase of subsidiary shares		—		—			—			—			—			—			(17	)		(17	)
Comprehensive income (loss):
Net income (loss)		—		—			—			(39	)		—			(39	)		104			65
Net unrealized gains (losses) on securities not other-than-temporarily impaired		—		—			(811	)		—			—			(811	)		(4	)		(815	)
Net unrealized gains (losses) on other-than-temporarily impaired securities		—		—			—			—			—			—			—			—
Derivatives qualifying as hedges		—		—			(157	)		—			—			(157	)		—			(157	)
Foreign currency translation and other adjustments		—		—			(193	)		—			—			(193	)		(124	)		(317	)

Total comprehensive income (loss)																(1,200	)		(24	)		(1,224	)
Dividends to noncontrolling interests		—		—			—			—			—			—			(66	)		(66	)
Stock-based compensation expense and exercises and other		—		8			—			—			—			8			3			11

Balances as of June 30, 2015	$	1	$	11,940		$	3,309		$	1,140		$	(2,700	)	$	13,690		$	2,037		$	15,727

Balances as of December 31, 2013	$	1	$	12,127		$	2,542		$	2,423		$	(2,700	)	$	14,393		$	1,227		$	15,620

Initial sale of subsidiary shares to noncontrolling interests		—		(145	)		(57	)		—			—			(202	)		713			511
Comprehensive income (loss):
Net income		—		—			—			360			—			360			87			447
Net unrealized gains (losses) on securities not other-than-temporarily impaired		—		—			1,217			—			—			1,217			22			1,239
Net unrealized gains (losses) on other-than-temporarily impaired securities		—		—			7			—			—			7			—			7
Derivatives qualifying as hedges		—		—			333			—			—			333			—			333
Foreign currency translation and other adjustments		—		—			119			—			—			119			8			127

Total comprehensive income (loss)																2,036			117			2,153
Dividends to noncontrolling interests		—		—			—			—			—			—			(27	)		(27	)
Stock-based compensation expense and exercises and other		—		4			—			—			—			4			3			7

Balances as of June 30, 2014	$	1	$	11,986		$	4,161		$	2,783		$	(2,700	)	$	16,231		$	2,033		$	18,264

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Six months ended June 30,
	2015			2014
Cash flows from operating activities:
Net income	$	65		$	447
Less (income) loss from discontinued operations, net of taxes		313			(13	)
Adjustments to reconcile net income to net cash from operating activities:
Amortization of fixed maturity securities discounts and premiums and limited partnerships		(49	)		(76	)
Net investment losses (gains)		8			(16	)
Charges assessed to policyholders		(393	)		(376	)
Acquisition costs deferred		(155	)		(183	)
Amortization of deferred acquisition costs and intangibles		196			212
Deferred income taxes		103			42
Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments		(193	)		79
Stock-based compensation expense		8			14
Change in certain assets and liabilities:
Accrued investment income and other assets		(51	)		(65	)
Insurance reserves		866			793
Current tax liabilities		(91	)		(182	)
Other liabilities, policy and contract claims and other policy-related balances		(97	)		(100	)
Cash from operating activities—discontinued operations		(19	)		2

Net cash from operating activities		511			578

Cash flows from investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		2,395			2,479
Commercial mortgage loans		436			262
Restricted commercial mortgage loans related to securitization entities		21			17
Proceeds from sales of investments:
Fixed maturity and equity securities		821			1,180
Purchases and originations of investments:
Fixed maturity and equity securities		(4,397	)		(4,715	)
Commercial mortgage loans		(514	)		(347	)
Other invested assets, net		(39	)		190
Policy loans, net		3			4
Cash from investing activities—discontinued operations		13			(8	)

Net cash from investing activities		(1,261	)		(938	)

Cash flows from financing activities:
Deposits to universal life and investment contracts		1,142			1,548
Withdrawals from universal life and investment contracts		(1,079	)		(1,270	)
Redemption of non-recourse funding obligations		(30	)		(14	)
Proceeds from issuance of long-term debt		—			144
Repayment and repurchase of long-term debt		—			(621	)
Repayment of borrowings related to securitization entities		(19	)		(17	)
Proceeds from sale of subsidiary shares to noncontrolling interests		226			519
Repurchase of subsidiary shares		(17	)		—
Dividends paid to noncontrolling interests		(66	)		(27	)
Other, net		9			(19	)
Cash from financing activities—discontinued operations		(39	)		(13	)

Net cash from financing activities		127			230

Effect of exchange rate changes on cash and cash equivalents (includes $(3) and $2 related to discontinued operations		(41	)		54

Net change in cash and cash equivalents		(664	)		(76	)
Cash and cash equivalents at beginning of period		4,918			4,214

Cash and cash equivalents at end of period		4,254			4,138
Less cash and cash equivalents of discontinued operations at end of period		154			254

Cash and cash equivalents of continuing operations at end of period	$	4,100		$	3,884

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Formation of Genworth and Basis of Presentation

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

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

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

We have the following operating segments:

•

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

•

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

•

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

•

Runoff. The Runoff segment includes the results of non-strategic products which are no longer actively sold. Our non-strategic products primarily include our variable annuity, variable life insurance, institutional, corporate-owned life insurance and other accident and health insurance products. Institutional products consist of funding agreements, funding agreements backing notes (“FABNs”) and guaranteed investment contracts (“GICs”). We no longer offer retail and group variable annuities but continue to service our existing blocks of business.

We also have Corporate and Other activities which include debt financing expenses that are incurred at the Genworth Holdings level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other non-core businesses that are managed outside of our operating segments, including discontinued operations.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In June 2015, our Board of Directors approved a transaction to sell our lifestyle protection insurance business, which had previously been designated as a non-core business. Because the business is available for immediate sale and the sale is anticipated to occur during the next 12 months and certain other criteria were met, the held-for-sale criteria was satisfied during the second quarter of 2015. As a result, we recorded an estimated loss to reduce the carrying value of the business to the fair value less pension settlement costs and closing costs. Our lifestyle protection insurance business, previously the only business in the International Protection segment, has been reported as discontinued operations and its financial position, results of operations and cash flows are separately reported for all periods presented. All prior periods reflected herein have been re-presented on this basis. See note 12 for additional information.

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Preparing financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. These unaudited condensed consolidated financial statements include all adjustments (including normal recurring adjustments) considered necessary by management to present a fair statement of the financial position, results of operations and cash flows for the periods presented. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2014 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

We have revised our condensed consolidated statement of cash flows previously reported in our Quarterly Report on Form 10-Q for the six months ended June 30, 2014 to reflect a correction related to the calculation of the change in reinsurance recoverable that impacted the lines “insurance reserves” and “other liabilities, policy and contract claims and other policy-related balances.” As a result, the change in insurance reserves decreased by $311 million and the change in other liabilities, policy and contract claims and other policy-related balances increased by $311 million. The revisions had no impact on net cash flows from operating activities or the total change in cash and cash equivalents within our condensed consolidated statement of cash flows. Additionally, there was no impact on our unaudited condensed consolidated balance sheet or unaudited condensed consolidated statement of income.

(2) Accounting Changes

a) Accounting Pronouncements Recently Adopted

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

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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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

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

b) Accounting Pronouncement Not Yet Adopted

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

In April 2015, the FASB issued new guidance related to the presentation of debt issuance costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance is effective for us on January 1, 2016, with early adoption permitted, and is required to be applied on a retrospective basis. We are still in the process of evaluating the impact the guidance will have on our consolidated financial statements.

In February 2015, the FASB issued new accounting guidance related to consolidation. This guidance primarily impacts limited partnerships and similar legal entities, evaluation of fees paid to a decision maker as a variable interest, the effect of fee arrangements and related parties on the primary beneficiary determination and certain investment funds. This guidance is effective for us on January 1, 2016, with early adoption permitted. We are in the process of determining the impact on our consolidated financial statements.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3) Earnings (Loss) Per Share

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


	Three months ended June 30,					Six months ended June 30,
(Amounts in millions, except per share amounts)	2015			2014		2015			2014
Weighted-average shares used in basic earnings per common share calculations		497.4			496.6		497.2			496.2
Potentially dilutive securities:
Stock options, restricted stock units and stock appreciation rights		1.9			7.0		1.9			7.0

Weighted-average shares used in diluted earnings per common share calculations		499.3			503.6		499.1			503.2


Income from continuing operations:
Income from continuing operations	$	175		$	224	$	378		$	434
Less: income from continuing operations attributable to noncontrolling interests		54			52		104			87

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	121		$	172	$	274		$	347

Basic per common share	$	0.24		$	0.35	$	0.55		$	0.70

Diluted per common share	$	0.24		$	0.34	$	0.55		$	0.69

Income (loss) from discontinued operations:
Income (loss) from discontinued operations, net of taxes	$	(314	)	$	4	$	(313	)	$	13
Less: income from discontinued operations, net of taxes, attributable to noncontrolling interests		—			—		—			—

Income (loss) from discontinued operations, net of taxes, available to Genworth Financial, Inc.’s common stockholders	$	(314	)	$	4	$	(313	)	$	13

Basic per common share	$	(0.63	)	$	0.01	$	(0.63	)	$	0.03

Diluted per common share	$	(0.63	)	$	0.01	$	(0.63	)	$	0.03

Net income (loss):
Income from continuing operations	$	175		$	224	$	378		$	434
Income (loss) from discontinued operations, net of taxes		(314	)		4		(313	)		13

Net income (loss)		(139	)		228		65			447
Less: net income attributable to noncontrolling interests		54			52		104			87

Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	(193	)	$	176	$	(39	)	$	360

Basic per common share	$	(0.39	)	$	0.35	$	(0.08	)	$	0.73

Diluted per common share	$	(0.39	)	$	0.35	$	(0.08	)	$	0.72

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 June 30,						Six months ended June 30,
(Amounts in millions)	2015			2014			2015			2014
Fixed maturity securities—taxable	$	645		$	658		$	1,277		$	1,297
Fixed maturity securities—non-taxable		3			3			6			6
Commercial mortgage loans		83			81			168			164
Restricted commercial mortgage loans related to securitization entities		3			4			7			8
Equity securities		4			4			8			8
Other invested assets		37			25			77			54
Restricted other invested assets related to securitization entities		1			1			2			2
Policy loans		35			32			68			63
Cash, cash equivalents and short-term investments		4			7			7			12

Gross investment income before expenses and fees		815			815			1,620			1,614
Expenses and fees		(22	)		(24	)		(46	)		(47	)

Net investment income	$	793		$	791		$	1,574		$	1,567

(b) Net Investment Gains (Losses)

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


	Three months ended June 30,						Six months ended June 30,
(Amounts in millions)	2015			2014			2015			2014
Available-for-sale securities:
Realized gains	$	20		$	38		$	35		$	44
Realized losses		(6	)		(14	)		(18	)		(37	)

Net realized gains (losses) on available-for-sale securities		14			24			17			7

Impairments:
Total other-than-temporary impairments		—			(2	)		(3	)		(3	)
Portion of other-than-temporary impairments included in other comprehensive income (loss)		—			—			—			—

Net other-than-temporary impairments		—			(2	)		(3	)		(3	)

Trading securities		(16	)		8			(10	)		20
Commercial mortgage loans		2			3			4			6
Net gains (losses) related to securitization entities		2			9			10			15
Derivative instruments ⁽¹⁾		6			(7	)		(26	)		(28	)
Other		—			(1	)		—			(1	)

Net investment gains (losses)	$	8		$	34		$	(8	)	$	16

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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We generally intend to hold securities in unrealized loss positions until they recover. However, from time to time, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, we sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield and liquidity requirements. If a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we determined that we have the intent to sell the securities or it is more likely than not that we will be required to sell the securities prior to recovery. The aggregate fair value of securities sold at a loss during the three months ended June 30, 2015 and 2014 was $144 million and $241 million, respectively, which was approximately 96% and 94%, respectively, of book value. The aggregate fair value of securities sold at a loss during the six months ended June 30, 2015 and 2014 was $284 million and $506 million, respectively, which was approximately 94% and 93%, respectively, of book value.

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


	As of or for the three months ended June 30,						As of or for the six months ended June 30,
(Amounts in millions)	2015			2014			2015			2014
Beginning balance	$	78		$	99		$	83		$	101
Additions:
Other-than-temporary impairments not previously recognized		—			1			—			1
Reductions:
Securities sold, paid down or disposed		(3	)		(5	)		(8	)		(7	)

Ending balance	$	75		$	95		$	75		$	95

(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)	June 30, 2015			December 31, 2014
Net unrealized gains (losses) on investment securities:
Fixed maturity securities	$	4,102		$	5,560
Equity securities		12			32
Other invested assets		(1	)		(2	)

Subtotal		4,113			5,590
Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves		(1,445	)		(1,656	)
Income taxes, net		(921	)		(1,372	)

Net unrealized investment gains (losses)		1,747			2,562
Less: net unrealized investment gains (losses) attributable to noncontrolling interests		119			109

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	$	1,628		$	2,453

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	As of or for the three months ended June 30,
(Amounts in millions)	2015			2014
Beginning balance	$	2,748		$	1,624
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities		(2,406	)		1,193
Adjustment to deferred acquisition costs		168			(96	)
Adjustment to present value of future profits		70			(39	)
Adjustment to sales inducements		18			(15	)
Adjustment to benefit reserves		411			(200	)
Provision for income taxes		608			(295	)

Change in unrealized gains (losses) on investment securities		(1,131	)		548
Reclassification adjustments to net investment (gains) losses, net of taxes of $5 and $8		(9	)		(14	)

Change in net unrealized investment gains (losses)		(1,140	)		534
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		(20	)		30

Ending balance	$	1,628		$	2,128


	As of or for the six months ended June 30,
(Amounts in millions)	2015			2014
Beginning balance	$	2,453		$	926
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities		(1,463	)		2,624
Adjustment to deferred acquisition costs		70			(195	)
Adjustment to present value of future profits		50			(91	)
Adjustment to sales inducements		3			(28	)
Adjustment to benefit reserves		88			(388	)
Provision for income taxes		446			(673	)

Change in unrealized gains (losses) on investment securities		(806	)		1,249
Reclassification adjustments to net investment (gains) losses, net of taxes of $5 and $2		(9	)		(3	)

Change in net unrealized investment gains (losses)		(815	)		1,246
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		10			44

Ending balance	$	1,628		$	2,128

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(d) Fixed Maturity and Equity Securities

As of June 30, 2015, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:


			Gross unrealized gains				Gross unrealized losses
(Amounts in millions)	Amortized cost or cost		Not other-than- temporarily impaired		Other-than- temporarily impaired		Not other-than- temporarily impaired			Other-than- temporarily impaired			Fair value
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	5,041	$	729	$	—	$	(49	)	$	—		$	5,721
State and political subdivision		2,259		168		—		(38	)		—			2,389
Non-U.S. government		1,841		132		—		(3	)		—			1,970
U.S. corporate:
Utilities		3,359		399		—		(24	)		—			3,734
Energy		2,666		210		—		(26	)		—			2,850
Finance and insurance		5,245		414		19		(42	)		—			5,636
Consumer—non-cyclical		3,623		385		—		(26	)		—			3,982
Technology and communications		2,276		147		—		(23	)		—			2,400
Industrial		1,222		79		—		(19	)		—			1,282
Capital goods		1,843		206		—		(12	)		—			2,037
Consumer—cyclical		1,734		114		—		(14	)		—			1,834
Transportation		940		88		—		(11	)		—			1,017
Other		355		25		—		(1	)		—			379

Total U.S. corporate		23,263		2,067		19		(198	)		—			25,151

Non-U.S. corporate:
Utilities		873		44		—		(4	)		—			913
Energy		1,868		136		—		(30	)		—			1,974
Finance and insurance		2,738		177		1		(6	)		—			2,910
Consumer—non-cyclical		782		32		—		(14	)		—			800
Technology and communications		1,018		49		—		(10	)		—			1,057
Industrial		1,171		49		—		(25	)		—			1,195
Capital goods		629		27		—		(9	)		—			647
Consumer—cyclical		588		15		—		(1	)		—			602
Transportation		561		61		—		(2	)		—			620
Other		2,866		223		—		(10	)		—			3,079

Total non-U.S. corporate		13,094		813		1		(111	)		—			13,797

Residential mortgage-backed		4,759		333		12		(18	)		(1	)		5,085
Commercial mortgage-backed		2,473		118		4		(13	)		—			2,582
Other asset-backed		3,887		24		1		(39	)		—			3,873

Total fixed maturity securities		56,617		4,384		37		(469	)		(1	)		60,568
Equity securities		299		8		—		(8	)		—			299

Total available-for-sale securities	$	56,916	$	4,392	$	37	$	(477	)	$	(1	)	$	60,867

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of December 31, 2014, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:


			Gross unrealized gains				Gross unrealized losses
(Amounts in millions)	Amortized cost or cost		Not other-than- temporarily impaired		Other-than- temporarily impaired		Not other-than- temporarily impaired			Other-than- temporarily impaired			Fair value
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	5,006	$	995	$	—	$	(1	)	$	—		$	6,000
State and political subdivision		2,013		236		—		(27	)		—			2,222
Non-U.S. government		1,778		144		—		(2	)		—			1,920
U.S. corporate:
Utilities		3,292		577		—		(5	)		—			3,864
Energy		2,498		265		—		(21	)		—			2,742
Finance and insurance		5,109		537		20		(13	)		—			5,653
Consumer—non-cyclical		3,489		538		—		(8	)		—			4,019
Technology and communications		2,112		217		—		(4	)		—			2,325
Industrial		1,195		100		—		(8	)		—			1,287
Capital goods		1,748		263		—		(5	)		—			2,006
Consumer—cyclical		1,750		158		—		(8	)		—			1,900
Transportation		929		114		—		(4	)		—			1,039
Other		370		31		—		—			—			401

Total U.S. corporate		22,492		2,800		20		(76	)		—			25,236

Non-U.S. corporate:
Utilities		867		48		—		(2	)		—			913
Energy		1,925		163		—		(38	)		—			2,050
Finance and insurance		2,812		203		—		(3	)		—			3,012
Consumer—non-cyclical		780		41		—		(9	)		—			812
Technology and communications		999		71		—		(4	)		—			1,066
Industrial		1,178		65		—		(18	)		—			1,225
Capital goods		605		31		—		(5	)		—			631
Consumer—cyclical		535		14		—		—			—			549
Transportation		525		70		—		(1	)		—			594
Other		3,169		257		—		(15	)		—			3,411

Total non-U.S. corporate		13,395		963		—		(95	)		—			14,263

Residential mortgage-backed		4,871		362		13		(17	)		(1	)		5,228
Commercial mortgage-backed		2,564		143		4		(9	)		—			2,702
Other asset-backed		3,735		23		1		(54	)		—			3,705

Total fixed maturity securities		55,854		5,666		38		(281	)		(1	)		61,276
Equity securities		250		32		—		(7	)		—			275

Total available-for-sale securities	$	56,104	$	5,698	$	38	$	(288	)	$	(1	)	$	61,551

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 June 30, 2015:


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses ⁽¹⁾			Number of securities		Fair value		Gross unrealized losses ⁽¹⁾			Number of securities
Description of Securities
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	1,026	$	(49	)		29	$	—	$	—			—	$	1,026	$	(49	)		29
State and political subdivision		554		(21	)		103		160		(17	)		—		714		(38	)		103
Non-U.S. government		213		(3	)		31		—		—			17		213		(3	)		48
U.S. corporate		4,497		(170	)		617		443		(28	)		61		4,940		(198	)		678
Non-U.S. corporate		2,181		(87	)		308		260		(24	)		39		2,441		(111	)		347
Residential mortgage-backed		520		(9	)		59		118		(10	)		70		638		(19	)		129
Commercial mortgage-backed		501		(11	)		73		74		(2	)		16		575		(13	)		89
Other asset-backed		846		(3	)		132		388		(36	)		48		1,234		(39	)		180

Subtotal, fixed maturity securities		10,338		(353	)		1,352		1,443		(117	)		251		11,781		(470	)		1,603
Equity securities		176		(7	)		63		21		(1	)		3		197		(8	)		66

Total for securities in an unrealized loss position	$	10,514	$	(360	)		1,415	$	1,464	$	(118	)		254	$	11,978	$	(478	)		1,669

% Below cost—fixed maturity securities:
<20% Below cost	$	10,306	$	(343	)		1,348	$	1,343	$	(75	)		232	$	11,649	$	(418	)		1,580
20%-50% Below cost		32		(10	)		4		100		(41	)		13		132		(51	)		17
>50% Below cost		—		—			—		—		(1	)		6		—		(1	)		6

Total fixed maturity securities		10,338		(353	)		1,352		1,443		(117	)		251		11,781		(470	)		1,603

% Below cost—equity securities:
<20% Below cost		176		(7	)		63		21		(1	)		3		197		(8	)		66

Total equity securities		176		(7	)		63		21		(1	)		3		197		(8	)		66

Total for securities in an unrealized loss position	$	10,514	$	(360	)		1,415	$	1,464	$	(118	)		254	$	11,978	$	(478	)		1,669


Investment grade	$	9,888	$	(326	)		1,294	$	1,267	$	(92	)		196	$	11,155	$	(418	)		1,490
Below investment grade ⁽²⁾		626		(34	)		121		197		(26	)		58		823		(60	)		179

Total for securities in an unrealized loss position	$	10,514	$	(360	)		1,415	$	1,464	$	(118	)		254	$	11,978	$	(478	)		1,669

⁽¹⁾	Amounts included $1 million of unrealized losses on other-than-temporarily impaired securities.

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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities
Description of Securities
U.S. corporate:
Utilities	$	434	$	(23	)		63	$	18	$	(1	)		5	$	452	$	(24	)		68
Energy		646		(20	)		91		73		(6	)		11		719		(26	)		102
Finance and insurance		1,033		(34	)		142		110		(8	)		13		1,143		(42	)		155
Consumer—non-cyclical		590		(23	)		76		82		(3	)		11		672		(26	)		87
Technology and communications		618		(23	)		83		—		—			—		618		(23	)		83
Industrial		298		(15	)		43		48		(4	)		8		346		(19	)		51
Capital goods		306		(10	)		42		26		(2	)		4		332		(12	)		46
Consumer—cyclical		375		(11	)		47		64		(3	)		7		439		(14	)		54
Transportation		159		(10	)		25		22		(1	)		2		181		(11	)		27
Other		38		(1	)		5		—		—			—		38		(1	)		5

Subtotal, U.S. corporate securities		4,497		(170	)		617		443		(28	)		61		4,940		(198	)		678

Non-U.S. corporate:
Utilities		90		(2	)		15		25		(2	)		3		115		(4	)		18
Energy		483		(28	)		62		22		(2	)		6		505		(30	)		68
Finance and insurance		384		(5	)		60		18		(1	)		3		402		(6	)		63
Consumer—non-cyclical		219		(12	)		22		33		(2	)		3		252		(14	)		25
Technology and communications		188		(7	)		27		32		(3	)		5		220		(10	)		32
Industrial		303		(15	)		37		104		(10	)		14		407		(25	)		51
Capital goods		140		(6	)		24		11		(3	)		2		151		(9	)		26
Consumer—cyclical		65		(1	)		10		—		—			—		65		(1	)		10
Transportation		115		(2	)		15		—		—			—		115		(2	)		15
Other		194		(9	)		36		15		(1	)		3		209		(10	)		39

Subtotal, non-U.S. corporate securities		2,181		(87	)		308		260		(24	)		39		2,441		(111	)		347

Total for corporate securities in an unrealized loss position	$	6,678	$	(257	)		925	$	703	$	(52	)		100	$	7,381	$	(309	)		1,025

As indicated in the tables above, the majority of the securities in a continuous unrealized loss position for less than 12 months were investment grade and less than 20% below cost. These unrealized losses were primarily attributable to the increase in interest rates, mostly concentrated in our corporate securities. For securities that have been in a continuous unrealized loss position for less than 12 months, the average fair value percentage below cost was approximately 3% as of June 30, 2015.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Fixed Maturity Securities In A Continuous Unrealized Loss Position For 12 Months Or More

Of the $75 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 78% of the unrealized losses were related to investment grade securities as of June 30, 2015. These unrealized losses were predominantly attributable to corporate securities and municipal securities including fixed rate securities purchased in a lower rate environment and variable rate securities purchased in a higher rate and lower spread environment. The average fair value percentage below cost for these securities was approximately 5% as of June 30, 2015. See below for additional discussion related to fixed maturity securities that have been in a continuous unrealized loss position for 12 months or more with a fair value that was more than 20% below cost.

The following tables present the concentration of gross unrealized losses and fair values of fixed maturity securities that were more than 20% below cost and in a continuous unrealized loss position for 12 months or more by asset class as of June 30, 2015:


	Investment Grade
	20% to 50%										Greater than 50%
(Dollar amounts in millions)	Fair value		Gross unrealized losses			% of total gross unrealized losses			Number of securities		Fair value		Gross unrealized losses		% of total gross unrealized losses			Number of securities
Fixed maturity securities:
State and political subdivision	$	8	$	(4	)		1	%		1	$	—	$	—		—	%		—
Non-U.S. corporate:
Industrial		4		(2	)		1			1		—		—		—			—
Capital goods		7		(2	)		—			1		—		—		—			—

Total non-U.S. corporate		11		(4	)		1			2		—		—		—			—

Structured securities:
Other asset-backed		68		(25	)		5			4		—		—		—			—

Total structured securities		68		(25	)		5			4		—		—		—			—

Total	$	87	$	(33	)		7	%		7	$	—	$	—		—	%		—


	Below Investment Grade
	20% to 50%										Greater than 50%
(Dollar amounts in millions)	Fair value		Gross unrealized losses			% of total gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			% of total gross unrealized losses			Number of securities
Fixed maturity securities:
Non-U.S. corporate—capital goods	$	4	$	(1	)		—	%		1	$	—	$	—			—	%		—
Structured securities:
Residential mortgage-backed		1		(1	)		—			4		—		(1	)		—			6
Other asset-backed		8		(6	)		1			1		—		—			—			—

Total structured securities		9		(7	)		1			5		—		(1	)		—			6

Total	$	13	$	(8	)		1	%		6	$	—	$	(1	)		—	%		6

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Structured Securities

Of the $33 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, $1 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 credit spreads that have widened since acquisition. Additionally, the fair value of certain structured securities has been impacted from high risk premiums being incorporated into the valuation as a result of the amount of potential losses that may be absorbed by the security in the event of additional deterioration in the U.S. economy.

While we consider the length of time each security had been in an unrealized loss position, the extent of the unrealized loss position and any significant declines in fair value subsequent to the balance sheet date in our evaluation of impairment for each of these individual securities, the primary factor in our evaluation of impairment is the expected performance for each of these securities. Our evaluation of expected performance is based on the historical performance of the associated securitization trust as well as the historical performance of the underlying collateral. Our examination of the historical performance of the securitization trust included consideration of the following factors for each class of securities issued by the trust: (i) the payment history, including failure to make scheduled payments; (ii) current payment status; (iii) current and historical outstanding balances; (iv) current levels of subordination and losses incurred to date; and (v) characteristics of the underlying collateral. Our examination of the historical performance of the underlying collateral included: (i) historical default rates, delinquency rates, voluntary and involuntary prepayments and severity of losses, including recent trends in this information; (ii) current payment status; (iii) loan to collateral value ratios, as applicable; (iv) vintage; and (v) other underlying characteristics such as current financial condition.

We use our assessment of the historical performance of both the securitization trust and the underlying collateral for each security, along with third-party sources, when available, to develop our best estimate of cash flows expected to be collected. These estimates reflect projections for future delinquencies, prepayments, defaults and losses for the assets that collateralize the securitization trust and are used to determine the expected cash flows for our security, based on the payment structure of the trust. Our projection of expected cash flows is primarily based on the expected performance of the underlying assets that collateralize the securitization trust and is not directly impacted by the rating of our security. While we consider the rating of the security as an indicator of the financial condition of the issuer, this factor does not have a significant impact on our expected cash flows for each security. In limited circumstances, our expected cash flows include expected payments from reliable financial guarantors where we believe the financial guarantor will have sufficient assets to pay claims under the financial guarantee when the cash flows from the securitization trust are not sufficient to make scheduled payments. We then discount the expected cash flows using the effective yield of each security to determine the present value of expected cash flows.

Based on this evaluation, the present value of expected cash flows was greater than or equal to the amortized cost for each security. Accordingly, we determined that the unrealized losses on each of our structured securities represented temporary impairments as of June 30, 2015.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses ⁽¹⁾			Number of securities		Fair value		Gross unrealized losses ⁽¹⁾			Number of securities
Description of Securities
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	—	$	—			—	$	75	$	(1	)		10	$	75	$	(1	)		10
State and political subdivision		9		—			7		267		(27	)		45		276		(27	)		52
Non-U.S. government		64		(1	)		15		22		(1	)		4		86		(2	)		19
U.S. corporate		1,646		(33	)		233		1,201		(43	)		174		2,847		(76	)		407
Non-U.S. corporate		1,529		(67	)		230		504		(28	)		67		2,033		(95	)		297
Residential mortgage-backed		180		(1	)		24		249		(17	)		87		429		(18	)		111
Commercial mortgage-backed		163		—			21		362		(9	)		49		525		(9	)		70
Other asset-backed		1,551		(12	)		215		487		(42	)		55		2,038		(54	)		270

Subtotal, fixed maturity securities		5,142		(114	)		745		3,167		(168	)		491		8,309		(282	)		1,236
Equity securities		30		(3	)		46		48		(4	)		6		78		(7	)		52

Total for securities in an unrealized loss position	$	5,172	$	(117	)		791	$	3,215	$	(172	)		497	$	8,387	$	(289	)		1,288

% Below cost—fixed maturity securities:
<20% Below cost	$	5,105	$	(103	)		741	$	3,036	$	(114	)		470	$	8,141	$	(217	)		1,211
20%-50% Below cost		37		(11	)		4		131		(53	)		15		168		(64	)		19
>50% Below cost		—		—			—		—		(1	)		6		—		(1	)		6

Total fixed maturity securities		5,142		(114	)		745		3,167		(168	)		491		8,309		(282	)		1,236

% Below cost—equity securities:
<20% Below cost		26		(2	)		40		48		(4	)		6		74		(6	)		46
20%-50% Below cost		4		(1	)		6		—		—			—		4		(1	)		6

Total equity securities		30		(3	)		46		48		(4	)		6		78		(7	)		52

Total for securities in an unrealized loss position	$	5,172	$	(117	)		791	$	3,215	$	(172	)		497	$	8,387	$	(289	)		1,288


Investment grade	$	4,581	$	(75	)		664	$	2,918	$	(145	)		424	$	7,499	$	(220	)		1,088
Below investment grade ⁽²⁾		591		(42	)		127		297		(27	)		73		888		(69	)		200

Total for securities in an unrealized loss position	$	5,172	$	(117	)		791	$	3,215	$	(172	)		497	$	8,387	$	(289	)		1,288

⁽¹⁾	Amounts included $1 million of unrealized losses on other-than-temporarily impaired securities.

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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities
Description of Securities
U.S. corporate:
Utilities	$	55	$	—			10	$	164	$	(5	)		23	$	219	$	(5	)		33
Energy		404		(16	)		56		96		(5	)		15		500		(21	)		71
Finance and insurance		401		(3	)		57		257		(10	)		35		658		(13	)		92
Consumer—non-cyclical		165		(3	)		21		182		(5	)		32		347		(8	)		53
Technology and communications		181		(3	)		27		97		(1	)		15		278		(4	)		42
Industrial		151		(4	)		21		80		(4	)		11		231		(8	)		32
Capital goods		85		—			13		122		(5	)		18		207		(5	)		31
Consumer—cyclical		132		(2	)		17		139		(6	)		18		271		(8	)		35
Transportation		52		(2	)		9		57		(2	)		6		109		(4	)		15
Other		20		—			2		7		—			1		27		—			3

Subtotal, U.S. corporate securities		1,646		(33	)		233		1,201		(43	)		174		2,847		(76	)		407

Non-U.S. corporate:
Utilities		80		—			14		43		(2	)		5		123		(2	)		19
Energy		449		(33	)		60		58		(5	)		13		507		(38	)		73
Finance and insurance		261		(2	)		41		29		(1	)		6		290		(3	)		47
Consumer—non-cyclical		142		(6	)		13		83		(3	)		9		225		(9	)		22
Technology and communications		88		(2	)		18		81		(2	)		8		169		(4	)		26
Industrial		218		(9	)		31		116		(9	)		15		334		(18	)		46
Capital goods		68		(2	)		10		38		(3	)		4		106		(5	)		14
Consumer—cyclical		10		—			3		—		—			—		10		—			3
Transportation		34		—			7		14		(1	)		1		48		(1	)		8
Other		179		(13	)		33		42		(2	)		6		221		(15	)		39

Subtotal, non-U.S. corporate securities		1,529		(67	)		230		504		(28	)		67		2,033		(95	)		297

Total for corporate securities in an unrealized loss position	$	3,175	$	(100	)		463	$	1,705	$	(71	)		241	$	4,880	$	(171	)		704

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The scheduled maturity distribution of fixed maturity securities as of June 30, 2015 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.


(Amounts in millions)	Amortized cost or cost		Fair value
Due one year or less	$	2,050	$	2,069
Due after one year through five years		10,541		11,069
Due after five years through ten years		11,771		12,212
Due after ten years		21,136		23,678

Subtotal		45,498		49,028
Residential mortgage-backed		4,759		5,085
Commercial mortgage-backed		2,473		2,582
Other asset-backed		3,887		3,873

Total	$	56,617	$	60,568

As of June 30, 2015, $7,376 million of our investments (excluding mortgage-backed and asset-backed securities) were subject to certain call provisions.

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

As of June 30, 2015, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of stockholders’ equity.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(e) Commercial Mortgage Loans

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

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:


	June 30, 2015						December 31, 2014
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Property type:
Retail	$	2,154			35	%	$	2,150			35	%
Office		1,726			28			1,643			27
Industrial		1,578			25			1,597			26
Apartments		471			8			494			8
Mixed use/other		265			4			239			4

Subtotal		6,194			100	%		6,123			100	%

Unamortized balance of loan origination fees and costs		(1	)					(1	)
Allowance for losses		(18	)					(22	)

Total	$	6,175					$	6,100


	June 30, 2015						December 31, 2014
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Geographic region:
South Atlantic	$	1,609			26	%	$	1,673			27	%
Pacific		1,608			26			1,636			27
Middle Atlantic		878			14			826			14
Mountain		574			9			536			9
West North Central		403			7			382			6
East North Central		399			6			397			7
West South Central		289			5			268			4
New England		272			4			264			4
East South Central		162			3			141			2

Subtotal		6,194			100	%		6,123			100	%

Unamortized balance of loan origination fees and costs		(1	)					(1	)
Allowance for losses		(18	)					(22	)

Total	$	6,175					$	6,100

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:


	June 30, 2015
(Amounts in millions)	31 - 60 days past due			61 - 90 days past due			Greater than 90 days past due			Total past due			Current			Total
Property type:
Retail	$	1		$	—		$	—		$	1		$	2,153		$	2,154
Office		6			—			3			9			1,717			1,726
Industrial		—			—			—			—			1,578			1,578
Apartments		—			—			—			—			471			471
Mixed use/other		—			—			—			—			265			265

Total recorded investment	$	7		$	—		$	3		$	10		$	6,184		$	6,194

% of total commercial mortgage loans		—	%		—	%		—	%		—	%		100	%		100	%


	December 31, 2014
(Amounts in millions)	31 - 60 days past due			61 - 90 days past due			Greater than 90 days past due			Total past due			Current			Total
Property type:
Retail	$	—		$	—		$	—		$	—		$	2,150		$	2,150
Office		—			—			6			6			1,637			1,643
Industrial		—			—			2			2			1,595			1,597
Apartments		—			—			—			—			494			494
Mixed use/other		—			—			—			—			239			239

Total recorded investment	$	—		$	—		$	8		$	8		$	6,115		$	6,123

% of total commercial mortgage loans		—	%		—	%		—	%		—	%		100	%		100	%

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

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

During the six months ended June 30, 2015 and the year ended December 31, 2014, we modified or extended 7 and 28 commercial mortgage loans, respectively, with a total carrying value of $73 million and $254 million, respectively. All of these modifications or extensions were based on current market interest rates, did not result in any forgiveness in the outstanding principal amount owed by the borrower and were not considered troubled debt restructurings.

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 June 30,						Six months ended June 30,
(Amounts in millions)	2015			2014			2015			2014
Allowance for credit losses:
Beginning balance	$	20		$	30		$	22		$	33
Charge-offs		—			—			(3	)		(1	)
Recoveries		—			—			—			—
Provision		(2	)		(3	)		(1	)		(5	)

Ending balance	$	18		$	27		$	18		$	27

Ending allowance for individually impaired loans	$	—		$	—		$	—		$	—

Ending allowance for loans not individually impaired that were evaluated collectively for impairment	$	18		$	27		$	18		$	27

Recorded investment:
Ending balance	$	6,194		$	6,013		$	6,194		$	6,013

Ending balance of individually impaired loans	$	18		$	17		$	18		$	17

Ending balance of loans not individually impaired that were evaluated collectively for impairment	$	6,176		$	5,996		$	6,176		$	5,996

As of June 30, 2015, we had an individually impaired commercial mortgage loan included within the office property type with a recorded investment of $3 million, an unpaid principal balance of $6 million and charge-offs of $3 million. As of June 30, 2015 and December 31, 2014, we had an individually impaired commercial mortgage loan included within the industrial property type with a recorded investment of $15 million, an unpaid principal balance of $16 million and charge-offs of $1 million, which were recorded in the first quarter of 2014.

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

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:


	June 30, 2015
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100% ⁽¹⁾			Total
Property type:
Retail	$	713		$	415		$	942		$	66		$	18		$	2,154
Office		451			302			848			99			26			1,726
Industrial		402			295			803			76			2			1,578
Apartments		188			78			197			8			—			471
Mixed use/other		55			38			166			6			—			265

Total recorded investment	$	1,809		$	1,128		$	2,956		$	255		$	46		$	6,194

% of total		29	%		18	%		48	%		4	%		1	%		100	%

Weighted-average debt service coverage ratio		2.13			1.77			1.62			0.91			0.79			1.76

⁽¹⁾	Included $46 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 122%.


	December 31, 2014
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100% ⁽¹⁾			Total
Property type:
Retail	$	671		$	419		$	967		$	75		$	18		$	2,150
Office		383			278			782			164			36			1,643
Industrial		451			285			778			60			23			1,597
Apartments		211			76			199			8			—			494
Mixed use/other		45			43			145			6			—			239

Total recorded investment	$	1,761		$	1,101		$	2,871		$	313		$	77		$	6,123

% of total		29	%		18	%		47	%		5	%		1	%		100	%

Weighted-average debt service coverage ratio		2.27			1.75			1.61			1.02			0.72			1.78

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

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:


	June 30, 2015
(Amounts in millions)	Less than 1.00			1.00 - 1.25			1.26 - 1.50			1.51 - 2.00			Greater than 2.00			Total
Property type:
Retail	$	71		$	237		$	551		$	890		$	405		$	2,154
Office		105			88			299			849			378			1,719
Industrial		155			137			229			704			353			1,578
Apartments		1			44			85			195			146			471
Mixed use/other		6			1			85			137			36			265

Total recorded investment	$	338		$	507		$	1,249		$	2,775		$	1,318		$	6,187

% of total		5	%		8	%		20	%		45	%		22	%		100	%

Weighted-average loan-to-value		73	%		63	%		60	%		60	%		45	%		58	%


	December 31, 2014
(Amounts in millions)	Less than 1.00			1.00 - 1.25			1.26 - 1.50			1.51 - 2.00			Greater than 2.00			Total
Property type:
Retail	$	80		$	253		$	524		$	870		$	423		$	2,150
Office		119			101			247			780			389			1,636
Industrial		158			142			246			706			343			1,595
Apartments		1			48			88			186			171			494
Mixed use/other		6			1			61			135			36			239

Total recorded investment	$	364		$	545		$	1,166		$	2,677		$	1,362		$	6,114

% of total		6	%		9	%		19	%		44	%		22	%		100	%

Weighted-average loan-to-value		77	%		64	%		64	%		59	%		45	%		59	%

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

(f) Restricted Commercial Mortgage Loans Related To Securitization Entities

We have a consolidated securitization entity that holds commercial mortgage loans that are recorded as restricted commercial mortgage loans related to securitization entities.

(g) Restricted Other Invested Assets Related To Securitization Entities

We have consolidated securitization entities that hold certain investments that are recorded as restricted other invested assets related to securitization entities. The consolidated securitization entities hold certain investments as trading securities and whereby the changes in fair value are recorded in current period income (loss). The trading securities comprise asset-backed securities, including residual interest in certain policy loan securitization entities and highly rated bonds that are primarily backed by credit card receivables.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(5) Derivative Instruments

Our business activities routinely deal with fluctuations in interest rates, equity prices, currency exchange rates and other asset and liability prices. We use derivative instruments to mitigate or reduce certain of these risks. We have established policies for managing each of these risks, including prohibitions on derivatives market-making and other speculative derivatives activities. These policies require the use of derivative instruments in concert with other techniques to reduce or mitigate these risks. While we use derivatives to mitigate or reduce risks, certain derivatives do not meet the accounting requirements to be designated as hedging instruments and are denoted as “derivatives not designated as hedges” in the following disclosures. For derivatives that meet the accounting requirements to be designated as hedges, the following disclosures for these derivatives are denoted as “derivatives designated as hedges,” which include both cash flow and fair value hedges.

The following table sets forth our positions in derivative instruments as of the dates indicated:


	Derivative assets					Derivative liabilities
		Fair value					Fair value

(Amounts in millions)	Balance sheet classification	June 30, 2015		December 31, 2014		Balance sheet classification	June 30, 2015		December 31, 2014
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps	Other invested assets	$	423	$	639	Other liabilities	$	20	$	27
Inflation indexed swaps	Other invested assets		—		—	Other liabilities		46		42
Foreign currency swaps	Other invested assets		8		6	Other liabilities		—		—

Total cash flow hedges			431		645			66		69

Total derivatives designated as hedges			431		645			66		69

Derivatives not designated as hedges
Interest rate swaps	Other invested assets		396		452	Other liabilities		141		177
Interest rate swaps related to securitization entities	Restricted other invested assets		—		—	Other liabilities		26		26
Foreign currency swaps	Other invested assets		—		—	Other liabilities		14		7
Credit default swaps	Other invested assets		2		4	Other liabilities		—		—
Credit default swaps related to securitization entities	Restricted other invested assets		—		—	Other liabilities		8		17
Equity index options	Other invested assets		12		17	Other liabilities		—		—
Financial futures	Other invested assets		—		—	Other liabilities		—		—
Equity return swaps	Other invested assets		4		—	Other liabilities		—		1
Other foreign currency contracts	Other invested assets		14		14	Other liabilities		20		13
GMWB embedded derivatives	Reinsurance recoverable⁽¹⁾		10		13	Policyholder account balances⁽²⁾		255		291
Fixed index annuity embedded derivatives	Other assets		—		—	Policyholder account balances⁽³⁾		322		276
Indexed universal life embedded derivatives	Reinsurance recoverable		—		—	Policyholder account balances⁽⁴⁾		9		7

Total derivatives not designated as hedges			438		500			795		815

Total derivatives		$	869	$	1,145		$	861	$	884

⁽¹⁾	Represents embedded derivatives associated with the reinsured portion of our guaranteed minimum withdrawal benefits (“GMWB”) liabilities.

⁽²⁾	Represents the embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.

⁽³⁾	Represents the embedded derivatives associated with our fixed index annuity liabilities.

⁽⁴⁾	Represents the embedded derivatives associated with our indexed universal life liabilities.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The fair value of derivative positions presented above was not offset by the respective collateral amounts retained or provided under these agreements.

The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for GMWB, fixed index annuity embedded derivatives and indexed universal life embedded derivatives, the change between periods is best illustrated by the number of policies. The following tables represent activity associated with derivative instruments as of the dates indicated:


(Notional in millions)	Measurement		December 31, 2014		Additions		Maturities/ terminations			June 30, 2015
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps		Notional	$	11,961	$	—	$	(24	)	$	11,937
Inflation indexed swaps		Notional		571		7		(10	)		568
Foreign currency swaps		Notional		35		—		—			35

Total cash flow hedges				12,567		7		(34	)		12,540

Total derivatives designated as hedges				12,567		7		(34	)		12,540

Derivatives not designated as hedges
Interest rate swaps		Notional		5,074		500		(642	)		4,932
Interest rate swaps related to securitization entities		Notional		77		—		(6	)		71
Credit default swaps		Notional		394		—		(250	)		144
Credit default swaps related to securitization entities		Notional		312		—		—			312
Equity index options		Notional		994		324		(308	)		1,010
Financial futures		Notional		1,331		2,788		(2,876	)		1,243
Equity return swaps		Notional		108		166		(133	)		141
Foreign currency swaps		Notional		104		14		—			118
Other foreign currency contracts		Notional		425		685		(645	)		465

Total derivatives not designated as hedges				8,819		4,477		(4,860	)		8,436

Total derivatives			$	21,386	$	4,484	$	(4,894	)	$	20,976


(Number of policies)	Measurement		December 31, 2014		Additions		Maturities/ terminations			June 30, 2015
Derivatives not designated as hedges
GMWB embedded derivatives		Policies		39,015		—		(1,531	)		37,484
Fixed index annuity embedded derivatives		Policies		13,901		2,066		(199	)		15,768
Indexed universal life embedded derivatives		Policies		421		296		(8	)		709

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Cash Flow Hedges

Certain derivative instruments are designated as cash flow hedges. The changes in fair value of these instruments are recorded as a component of OCI. We designate and account for the following as cash flow hedges when they have met the effectiveness requirements: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments; (ii) various types of interest rate swaps to convert floating rate liabilities into fixed rate liabilities; (iii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments; (iv) forward starting interest rate swaps to hedge against changes in interest rates associated with future fixed rate bond purchases and/or interest income; (v) forward bond purchase commitments to hedge against the variability in the anticipated cash flows required to purchase future fixed rate bonds; and (vi) other instruments to hedge the cash flows of various forecasted transactions.

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


(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI			Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss) ⁽¹⁾			Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	(515	)	$	20		Net investment income	$	(7	)	Net investment gains (losses)
Interest rate swaps hedging liabilities		27			—		Interest expense		—		Net investment gains (losses)
Inflation indexed swaps		(14	)		(6	)	Net investment income		—		Net investment gains (losses)
Foreign currency swaps		(1	)		—		Net investment income		—		Net investment gains (losses)

Total	$	(503	)	$	14			$	(7	)

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

The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the three months ended June 30, 2014:


(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI			Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss) ⁽¹⁾		Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	215		$	13		Net investment income	$	3	Net investment gains (losses)
Interest rate swaps hedging liabilities		(14	)		1		Interest expense		—	Net investment gains (losses)
Inflation indexed swaps		(27	)		(7	)	Net investment income		—	Net investment gains (losses)
Forward bond purchase commitments		10			—		Net investment income		—	Net investment gains (losses)

Total	$	184		$	7			$	3

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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI		Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss)⁽¹⁾			Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	(209	)	$	39	Net investment income	$	(3	)	Net investment gains (losses)
Interest rate swaps hedging liabilities		9			—	Interest expense		—		Net investment gains (losses)
Inflation indexed swaps		(3	)		3	Net investment income		—		Net investment gains (losses)
Foreign currency swaps		2			—	Net investment income		—		Net investment gains (losses)

Total	$	(201	)	$	42		$	(3	)

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

The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the six months ended June 30, 2014:


(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI			Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss) ⁽¹⁾		Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	572		$	28		Net investment income	$	7	Net investment gains (losses)
Interest rate swaps hedging liabilities		(34	)		1		Interest expense		—	Net investment gains (losses)
Inflation indexed swaps		(30	)		(8	)	Net investment income		—	Net investment gains (losses)
Forward bond purchase commitments		28			—		Net investment income		—	Net investment gains (losses)

Total	$	536		$	21			$	7

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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables provide a reconciliation of current period changes, net of applicable income taxes, for these designated derivatives presented in the separate component of stockholders’ equity labeled “derivatives qualifying as hedges,” for the periods indicated:


	Three months ended June 30,
(Amounts in millions)	2015			2014
Derivatives qualifying as effective accounting hedges as of April 1	$	2,247		$	1,538
Current period increases (decreases) in fair value, net of deferred taxes of $178 and $(65)		(325	)		119
Reclassification to net (income) loss, net of deferred taxes of $5 and $2		(9	)		(5	)

Derivatives qualifying as effective accounting hedges as of June 30	$	1,913		$	1,652


	Six months ended June 30,
(Amounts in millions)	2015			2014
Derivatives qualifying as effective accounting hedges as of January 1	$	2,070		$	1,319
Current period increases (decreases) in fair value, net of deferred taxes of $71 and $(189)		(130	)		347
Reclassification to net (income) loss, net of deferred taxes of $15 and $7		(27	)		(14	)

Derivatives qualifying as effective accounting hedges as of June 30	$	1,913		$	1,652

The total of derivatives designated as cash flow hedges of $1,913 million, net of taxes, recorded in stockholders’ equity as of June 30, 2015 is expected to be reclassified to net income (loss) in the future, concurrently with and primarily offsetting changes in interest expense and interest income on floating rate instruments and interest income on future fixed rate bond purchases. Of this amount, $65 million, net of taxes, is expected to be reclassified to net income (loss) in the next 12 months. Actual amounts may vary from this amount as a result of market conditions. All forecasted transactions associated with qualifying cash flow hedges are expected to occur by 2047. There were immaterial amounts reclassified to net income (loss) during the six months ended June 30, 2015 in connection with forecasted transactions that were no longer considered probable of occurring.

Fair Value Hedges

Certain derivative instruments are designated as fair value hedges. The changes in fair value of these instruments are recorded in net income (loss). In addition, changes in the fair value attributable to the hedged portion of the underlying instrument are reported in net income (loss). We designate and account for the following as fair value hedges when they have met the effectiveness requirements: (i) interest rate swaps to convert fixed rate liabilities into floating rate liabilities; (ii) cross currency swaps to convert non-U.S. dollar fixed rate liabilities to floating rate U.S. dollar liabilities; and (iii) other instruments to hedge various fair value exposures of investments.

There were no pre-tax income (loss) effects of fair value hedges and related hedged items for the three and six months ended June 30, 2015 and 2014.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Derivatives Not Designated As Hedges

We also enter into certain non-qualifying derivative instruments such as: (i) interest rate swaps and financial futures to mitigate interest rate risk as part of managing regulatory capital positions; (ii) credit default swaps to enhance yield and reproduce characteristics of investments with similar terms and credit risk; (iii) equity index options, equity return swaps, interest rate swaps and financial futures to mitigate the risks associated with liabilities that have guaranteed minimum benefits, fixed index annuities and indexed universal life; (iv) interest rate swaps where the hedging relationship does not qualify for hedge accounting; (v) credit default swaps to mitigate loss exposure to certain credit risk; (vi) foreign currency swaps, options and forward contracts to mitigate currency risk associated with non-functional currency investments held by certain foreign subsidiaries and future dividends or other cash flows from certain foreign subsidiaries to our holding company; and (vii) equity index options to mitigate certain macroeconomic risks associated with certain foreign subsidiaries. Additionally, we provide GMWBs on certain variable annuities that are required to be bifurcated as embedded derivatives. We also offer fixed index annuity and indexed universal life products and have reinsurance agreements with certain features that are required to be bifurcated as embedded derivatives.

We also have derivatives related to securitization entities where we were required to consolidate the related securitization entity as a result of our involvement in the structure. The counterparties for these derivatives typically only have recourse to the securitization entity. The interest rate swaps used for these entities are typically used to effectively convert the interest payments on the assets of the securitization entity to the same basis as the interest rate on the borrowings issued by the securitization entity. Credit default swaps are utilized in certain securitization entities to enhance the yield payable on the borrowings issued by the securitization entity and also include a settlement feature that allows the securitization entity to provide the par value of assets in the securitization entity for the amount of any losses incurred under the credit default swap.

The following tables provide the pre-tax gain (loss) recognized in net income (loss) for the effects of derivatives not designated as hedges for the periods indicated:


	Three months ended June 30,						Classification of gain (loss) recognized in net income (loss)
(Amounts in millions)	2015			2014
Interest rate swaps	$	(9	)	$	(2	)	Net investment gains (losses)
Interest rate swaps related to securitization entities		3			(3	)	Net investment gains (losses)
Credit default swaps related to securitization entities		3			11		Net investment gains (losses)
Equity index options		(7	)		(11	)	Net investment gains (losses)
Financial futures		(38	)		17		Net investment gains (losses)
Equity return swaps		1			(4	)	Net investment gains (losses)
Other foreign currency contracts		7			(2	)	Net investment gains (losses)
Foreign currency swaps		2			1		Net investment gains (losses)
GMWB embedded derivatives		65			2		Net investment gains (losses)
Fixed index annuity embedded derivatives		(10	)		(11	)	Net investment gains (losses)
Indexed universal life embedded derivatives		2			—		Net investment gains (losses)

Total derivatives not designated as hedges	$	19		$	(2	)

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Six months ended June 30,						Classification of gain (loss) recognized in net income (loss)
(Amounts in millions)	2015			2014
Interest rate swaps	$	(1	)	$	(5	)	Net investment gains (losses)
Interest rate swaps related to securitization entities		—

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company