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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 March 31, 2016

¨	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 April 21, 2016, 498,470,047 shares of Class A Common Stock, par value $0.001 per share, were outstanding.

TABLE OF CONTENTS


	Page
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements		3
Condensed Consolidated Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015		3
Condensed Consolidated Statements of Income for the three months ended March 31, 2016 and 2015 (Unaudited)		4
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015 (Unaudited)		5
Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2016 and 2015 (Unaudited)		6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (Unaudited)		7
Notes to Condensed Consolidated Financial Statements (Unaudited)		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		84

Item 3. Quantitative and Qualitative Disclosures About Market Risk		143

Item 4. Controls and Procedures		144

PART II—OTHER INFORMATION

Item 1. Legal Proceedings		145

Item 1A. Risk Factors		145

Item 6. Exhibits		145

Signatures		146

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except per share amounts)


	March 31, 2016			December 31, 2015
	(Unaudited)
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value	$	60,290		$	58,197
Equity securities available-for-sale, at fair value		431			310
Commercial mortgage loans		6,179			6,170
Restricted commercial mortgage loans related to securitization entities		155			161
Policy loans		1,565			1,568
Other invested assets		2,923			2,309
Restricted other invested assets related to securitization entities, at fair value		422			413

Total investments		71,965			69,128
Cash and cash equivalents		4,043			5,965
Accrued investment income		720			653
Deferred acquisition costs		4,235			4,398
Intangible assets and goodwill		291			357
Reinsurance recoverable		17,587			17,245
Other assets		577			520
Deferred tax asset		—			155
Separate account assets		7,624			7,883
Assets held for sale		131			127

Total assets	$	107,173		$	106,431

Liabilities and equity
Liabilities:
Future policy benefits	$	36,776		$	36,475
Policyholder account balances		26,354			26,209
Liability for policy and contract claims		8,177			8,095
Unearned premiums		3,378			3,308
Other liabilities ($42 and $46 of other liabilities are related to securitization entities)		3,596			3,004
Borrowings related to securitization entities ($85 and $81 are at fair value)		173			179
Non-recourse funding obligations		310			1,920
Long-term borrowings		4,232			4,570
Deferred tax liability		449			24
Separate account liabilities		7,624			7,883
Liabilities held for sale		131			127

Total liabilities		91,200			91,794

Commitments and contingencies
Equity:
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 587 million and 586 million shares issued as of March 31, 2016 and December 31, 2015, respectively; 498 million shares outstanding as of March 31, 2016 and December 31, 2015		1			1
Additional paid-in capital		11,952			11,949

Accumulated other comprehensive income (loss):
Net unrealized investment gains (losses):
Net unrealized gains (losses) on securities not other-than-temporarily impaired		2,043			1,236
Net unrealized gains (losses) on other-than-temporarily impaired securities		14			18

Net unrealized investment gains (losses)		2,057			1,254

Derivatives qualifying as hedges		2,302			2,045
Foreign currency translation and other adjustments		(174	)		(289	)

Total accumulated other comprehensive income (loss)		4,185			3,010
Retained earnings		617			564
Treasury stock, at cost (88 million shares as of March 31, 2016 and December 31, 2015)		(2,700	)		(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity		14,055			12,824
Noncontrolling interests		1,918			1,813

Total equity		15,973			14,637

Total liabilities and equity	$	107,173		$	106,431

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 March 31,
	2016			2015
Revenues:
Premiums	$	794		$	1,143
Net investment income		789			781
Net investment gains (losses)		(19	)		(16	)
Policy fees and other income		221			227

Total revenues		1,785			2,135

Benefits and expenses:
Benefits and other changes in policy reserves		860			1,192
Interest credited		177			180
Acquisition and operating expenses, net of deferrals		394			267
Amortization of deferred acquisition costs and intangibles		99			95
Interest expense		105			107

Total benefits and expenses		1,635			1,841

Income before income taxes		150			294
Provision for income taxes		23			91

Income from continuing operations		127			203
Income (loss) from discontinued operations, net of taxes		(19	)		1

Net income		108			204
Less: net income attributable to noncontrolling interests		55			50

Net income available to Genworth Financial, Inc.’s common stockholders	$	53		$	154

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per common share:
Basic	$	0.14		$	0.31

Diluted	$	0.14		$	0.31

Net income available to Genworth Financial, Inc.’s common stockholders per common share:
Basic	$	0.11		$	0.31

Diluted	$	0.11		$	0.31

Weighted-average common shares outstanding:
Basic		498.0			497.0

Diluted		499.4			498.9

Supplemental disclosures:
Total other-than-temporary impairments	$	(11	)	$	(3	)
Portion of other-than-temporary impairments included in other comprehensive income (loss)		—			—

Net other-than-temporary impairments		(11	)		(3	)
Other investments gains (losses)		(8	)		(13	)

Total net investment gains (losses)	$	(19	)	$	(16	)

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)


	Three months ended March 31,
	2016			2015
Net income	$	108		$	204
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities not other-than-temporarily impaired		807			323
Net unrealized gains (losses) on other-than-temporarily impaired securities		(4	)		2
Derivatives qualifying as hedges		257			177
Foreign currency translation and other adjustments		216			(370	)

Total other comprehensive income (loss)		1,276			132

Total comprehensive income (loss)		1,384			336
Less: comprehensive income attributable to noncontrolling interests		156			(64	)

Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders	$	1,228		$	400

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in millions)

(Unaudited)


	Common stock		Additional paid-in capital		Accumulated other comprehensive income (loss)		Retained earnings		Treasury stock, at cost			Total Genworth Financial, Inc.’s stockholders’ equity		Noncontrolling interests			Total equity
Balances as of December 31, 2015	$	1	$	11,949	$	3,010	$	564	$	(2,700	)	$	12,824	$	1,813		$	14,637

Comprehensive income (loss):
Net income		—		—		—		53		—			53		55			108
Other comprehensive income (loss), net of taxes		—		—		1,175		—		—			1,175		101			1,276

Total comprehensive income (loss)													1,228		156			1,384
Dividends to noncontrolling interests		—		—		—		—		—			—		(52	)		(52	)
Stock-based compensation expense and exercises and other		—		3		—		—		—			3		1			4

Balances as of March 31, 2016	$	1	$	11,952	$	4,185	$	617	$	(2,700	)	$	14,055	$	1,918		$	15,973

Balances as of December 31, 2014	$	1	$	11,997	$	4,446	$	1,179	$	(2,700	)	$	14,923	$	1,874		$	16,797

Comprehensive income (loss):
Net income		—		—		—		154		—			154		50			204
Other comprehensive income (loss), net of taxes		—		—		246		—		—			246		(114	)		132

Total comprehensive income (loss)													400		(64	)		336
Dividends to noncontrolling interests		—		—		—		—		—			—		(54	)		(54	)
Stock-based compensation expense and exercises and other		—		1		—		—		—			1		1			2

Balances as of March 31, 2015	$	1	$	11,998	$	4,692	$	1,333	$	(2,700	)	$	15,324	$	1,757		$	17,081

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Three months ended March 31,
	2016			2015
Cash flows from operating activities:
Net income	$	108		$	204
Less (income) loss from discontinued operations, net of taxes		19			(1	)
Adjustments to reconcile net income to net cash from operating activities:
Gain on sale of subsidiary		(20	)		—
Amortization of fixed maturity securities discounts and premiums and limited partnerships		(38	)		(21	)
Net investment losses (gains)		19			16
Charges assessed to policyholders		(191	)		(196	)
Acquisition costs deferred		(50	)		(86	)
Amortization of deferred acquisition costs and intangibles		99			95
Deferred income taxes		7			25
Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments		21			18
Stock-based compensation expense		7			(3	)
Change in certain assets and liabilities:
Accrued investment income and other assets		(159	)		(25	)
Insurance reserves		36			443
Current tax liabilities		(8	)		(9	)
Other liabilities, policy and contract claims and other policy-related balances		406			202
Cash from operating activities—held for sale		—			(38	)

Net cash from operating activities		256			624

Cash flows from investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		840			1,089
Commercial mortgage loans		192			198
Restricted commercial mortgage loans related to securitization entities		6			13
Proceeds from sales of investments:
Fixed maturity and equity securities		905			418
Purchases and originations of investments:
Fixed maturity and equity securities		(2,042	)		(1,802	)
Commercial mortgage loans		(200	)		(247	)
Other invested assets, net		34			(89	)
Policy loans, net		10			—
Cash from investing activities—held for sale		—			54

Net cash from investing activities		(255	)		(366	)

Cash flows from financing activities:
Deposits to universal life and investment contracts		571			630
Withdrawals from universal life and investment contracts		(517	)		(527	)
Redemption of non-recourse funding obligations		(1,620	)		(13	)
Repayment and repurchase of long-term debt		(326	)		—
Repayment of borrowings related to securitization entities		(10	)		(11	)
Dividends paid to noncontrolling interests		(52	)		(54	)
Other, net		13			37
Cash from financing activities—held for sale		—			(27	)

Net cash from financing activities		(1,941	)		35

Effect of exchange rate changes on cash and cash equivalents (includes $— and $(4) related to businesses held for sale)		31			(53	)

Net change in cash and cash equivalents		(1,909	)		240
Cash and cash equivalents at beginning of period		5,993			4,918

Cash and cash equivalents at end of period		4,084			5,158
Less cash and cash equivalents held for sale at end of period		41			221

Cash and cash equivalents of continuing operations at end of period	$	4,043		$	4,937

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, 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 operate our business through the following five operating segments:

•

U.S. Mortgage Insurance. In the United States, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans (“flow mortgage insurance”). We selectively provide mortgage insurance on a bulk basis (“bulk mortgage insurance”) with essentially all of our bulk writings being prime-based.

•

Canada Mortgage Insurance. We offer flow mortgage insurance and also provide bulk mortgage insurance that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk in Canada.

•

Australia Mortgage Insurance. In Australia, we offer flow mortgage insurance and selectively provide bulk mortgage insurance that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk.

•

U.S. Life Insurance. We offer long-term care insurance products as well as service traditional life insurance and fixed annuity products in the United States.

•

Runoff. The Runoff segment includes the results of non-strategic products which 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 and guaranteed investment contracts. We no longer offer retail and group variable annuities but continue to service our existing blocks of business.

In addition to our five operating business segments, we also have Corporate and Other activities which include debt financing expenses that are incurred at the Genworth Holdings level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other businesses that are managed outside of our operating segments, including certain smaller international mortgage insurance businesses and discontinued operations.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On December 1, 2015, we completed the sale of our lifestyle protection insurance business, which had previously been designated as a non-core business. Prior to its sale, our lifestyle protection insurance business was reported as discontinued operations and its financial position, results of operations and cash flows were separately reported for all periods presented. All prior periods reflected herein have been re-presented on this basis. See note 12 for additional information.

On October 27, 2015, we announced that Genworth Mortgage Insurance Company (“GMICO”), our wholly-owned indirect subsidiary, entered into an agreement to sell our European mortgage insurance business. As the held-for-sale criteria were satisfied during the fourth quarter of 2015, our European mortgage insurance business, included in Corporate and Other activities, has been reported as held for sale and its financial position is 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 2015 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 three months ended March 31, 2015 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 $171 million and the change in other liabilities, policy and contract claims and other policy-related balances increased by $171 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

Accounting Pronouncement Recently Adopted

On January 1, 2016, we adopted new accounting guidance related to consolidation. The new 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. The adoption of this new guidance did not have a material impact on our consolidated financial statements.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accounting Pronouncements Not Yet Adopted

In March 2016, the Financial Accounting Standards Board (the “FASB”) issued new accounting guidance related to the accounting for stock compensation. The guidance primarily simplifies the accounting for employee share-based payment transactions, including a new requirement to record all of the income tax effects at settlement or expiration through the income statement, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for us on January 1, 2017, with early adoption permitted. We are in the process of determining the impact from this guidance on our consolidated financial statements.

In March 2016, the FASB issued new accounting guidance related to transition to the equity method of accounting. The guidance eliminates the retrospective application of the equity method of accounting when obtaining significant influence over a previously held investment. The guidance requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The guidance is effective for us on January 1, 2017, with early adoption permitted. We do not expect any significant impact from this guidance on our consolidated financial statements.

In March 2016, the FASB issued new accounting guidance related to the assessment of contingent put and call options in debt instruments. The guidance clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. The guidance is effective for us on January 1, 2017, with early adoption permitted. We are in the process of determining the impact from this guidance on our consolidated financial statements.

In March 2016, the FASB issued new accounting guidance related to the effect of derivative contract novations on existing hedge accounting relationships. The guidance clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The guidance is effective for us on January 1, 2017, with early adoption permitted. This guidance is consistent with our accounting for derivative contract novations and, accordingly, we do not expect any impact on our consolidated financial statements.

In February 2016, the FASB issued new accounting guidance related to the accounting for leases. The new guidance generally requires lessees to recognize both a right-to-use asset and a corresponding liability on the balance sheet. The guidance is effective for us on January 1, 2019, with early adoption permitted. We are still in the process of evaluating the impact this guidance will have on our consolidated financial statements.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3) Earnings (Loss) Per Share

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


	Three months ended March 31,
(Amounts in millions, except per share amounts)	2016			2015
Weighted-average shares used in basic earnings (loss) per common share calculations		498.0			497.0
Potentially dilutive securities:
Stock options, restricted stock units and stock appreciation rights		1.4			1.9

Weighted-average shares used in diluted earnings (loss) per common share calculations		499.4			498.9


Income from continuing operations:
Income from continuing operations	$	127		$	203
Less: income from continuing operations attributable to noncontrolling interests		55			50

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	72		$	153

Basic per common share	$	0.14		$	0.31

Diluted per common share	$	0.14		$	0.31

Income (loss) from discontinued operations:
Income (loss) from discontinued operations, net of taxes	$	(19	)	$	1
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	$	(19	)	$	1

Basic per common share	$	(0.04	)	$	—

Diluted per common share	$	(0.04	)	$	—

Net income:
Income from continuing operations	$	127		$	203
Income (loss) from discontinued operations, net of taxes		(19	)		1

Net income		108			204
Less: net income attributable to noncontrolling interests		55			50

Net income available to Genworth Financial, Inc.’s common stockholders	$	53		$	154

Basic per common share	$	0.11		$	0.31

Diluted per common share	$	0.11		$	0.31

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)	2016			2015
Fixed maturity securities—taxable	$	641		$	632
Fixed maturity securities—non-taxable		3			3
Commercial mortgage loans		81			85
Restricted commercial mortgage loans related to securitization entities		2			4
Equity securities		5			4
Other invested assets		38			40
Restricted other invested assets related to securitization entities		2			1
Policy loans		35			33
Cash, cash equivalents and short-term investments		5			3

Gross investment income before expenses and fees		812			805
Expenses and fees		(23	)		(24	)

Net investment income	$	789		$	781

(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)	2016			2015
Available-for-sale securities:
Realized gains	$	16		$	15
Realized losses		(23	)		(12	)

Net realized gains (losses) on available-for-sale securities		(7	)		3

Impairments:
Total other-than-temporary impairments		(11	)		(3	)
Portion of other-than-temporary impairments included in other comprehensive income (loss)		—			—

Net other-than-temporary impairments		(11	)		(3	)

Trading securities		28			6
Commercial mortgage loans		1			2
Net gains (losses) related to securitization entities		8			8
Derivative instruments ⁽¹⁾		(38	)		(32	)

Net investment gains (losses)	$	(19	)	$	(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 March 31, 2016 and 2015 was $240 million and $139 million, respectively, which was approximately 91% and 93%, respectively, of book value.

The following represents the activity for credit losses recognized in net income on debt securities where an other-than-temporary impairment was identified and a portion of other-than-temporary impairments was included in other comprehensive income (loss) (“OCI”) as of and for the three months ended March 31:


(Amounts in millions)	2016			2015
Beginning balance	$	64		$	83
Reductions:
Securities sold, paid down or disposed		(1	)		(5	)

Ending balance	$	63		$	78

(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, 2016			December 31, 2015
Net unrealized gains (losses) on investment securities:
Fixed maturity securities	$	4,767		$	3,140
Equity securities		(23	)		(10	)

Subtotal		4,744			3,130
Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves		(1,439	)		(1,070	)
Income taxes, net		(1,153	)		(711	)

Net unrealized investment gains (losses)		2,152			1,349
Less: net unrealized investment gains (losses) attributable to noncontrolling interests		95			95

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	$	2,057		$	1,254

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)	2016			2015
Beginning balance	$	1,254		$	2,453
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities		1,596			943
Adjustment to deferred acquisition costs		(142	)		(98	)
Adjustment to present value of future profits		(34	)		(20	)
Adjustment to sales inducements		(19	)		(15	)
Adjustment to benefit reserves		(174	)		(323	)
Provision for income taxes		(436	)		(162	)

Change in unrealized gains (losses) on investment securities		791			325
Reclassification adjustments to net investment (gains) losses, net of taxes of $(6) and $—		12			—

Change in net unrealized investment gains (losses)		803			325
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		—			30

Ending balance	$	2,057		$	2,748

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(d) Fixed Maturity and Equity Securities

As of March 31, 2016, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:


			Gross unrealized gains				Gross unrealized losses
(Amounts in millions)	Amortized cost or cost		Not other-than- temporarily impaired		Other-than- temporarily impaired		Not other-than- temporarily impaired			Other-than- temporarily impaired			Fair value
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	5,389	$	1,135	$	—	$	—		$	—		$	6,524
State and political subdivisions		2,272		262		—		(17	)		—			2,517
Non-U.S. government		1,944		138		—		(2	)		—			2,080
U.S. corporate:
Utilities		3,752		530		—		(13	)		—			4,269
Energy		2,193		85		—		(114	)		—			2,164
Finance and insurance		5,357		476		10		(28	)		—			5,815
Consumer—non-cyclical		3,838		522		—		(6	)		—			4,354
Technology and communications		2,147		175		—		(22	)		—			2,300
Industrial		1,165		82		—		(22	)		—			1,225
Capital goods		1,801		254		—		(5	)		—			2,050
Consumer—cyclical		1,568		135		—		(11	)		—			1,692
Transportation		1,035		105		—		(8	)		—			1,132
Other		362		29		—		(3	)		—			388

Total U.S. corporate		23,218		2,393		10		(232	)		—			25,389

Non-U.S. corporate:
Utilities		1,038		56		—		(10	)		—			1,084
Energy		1,459		48		—		(70	)		—			1,437
Finance and insurance		2,471		154		—		(6	)		—			2,619
Consumer—non-cyclical		735		36		—		(5	)		—			766
Technology and communications		994		59		—		(14	)		—			1,039
Industrial		1,047		32		—		(45	)		—			1,034
Capital goods		594		31		—		(15	)		—			610
Consumer—cyclical		538		10		—		(4	)		—			544
Transportation		561		62		—		(3	)		—			620
Other		2,669		224		—		(17	)		—			2,876

Total non-U.S. corporate		12,106		712		—		(189	)		—			12,629

Residential mortgage-backed		4,716		403		9		(6	)		—			5,122
Commercial mortgage-backed		2,588		133		3		(10	)		(1	)		2,713
Other asset-backed		3,381		12		1		(78	)		—			3,316

Total fixed maturity securities		55,614		5,188		23		(534	)		(1	)		60,290
Equity securities		461		12		—		(42	)		—			431

Total available-for-sale securities	$	56,075	$	5,200	$	23	$	(576	)	$	(1	)	$	60,721

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of December 31, 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	$	5,487	$	732	$	—	$	(16	)	$	—	$	6,203
State and political subdivisions		2,287		181		—		(30	)		—		2,438
Non-U.S. government		1,910		110		—		(5	)		—		2,015
U.S. corporate:
Utilities		3,355		364		—		(26	)		—		3,693
Energy		2,560		103		—		(162	)		—		2,501
Finance and insurance		5,268		392		15		(43	)		—		5,632
Consumer—non-cyclical		3,755		371		—		(30	)		—		4,096
Technology and communications		2,108		123		—		(38	)		—		2,193
Industrial		1,164		53		—		(44	)		—		1,173
Capital goods		1,774		188		—		(12	)		—		1,950
Consumer—cyclical		1,602		95		—		(22	)		—		1,675
Transportation		1,023		75		—		(12	)		—		1,086
Other		385		22		—		(5	)		—		402

Total U.S. corporate		22,994		1,786		15		(394	)		—		24,401

Non-U.S. corporate:
Utilities		815		37		—		(9	)		—		843
Energy		1,700		64		—		(78	)		—		1,686
Finance and insurance		2,327		152		2		(8	)		—		2,473
Consumer—non-cyclical		746		24		—		(18	)		—		752
Technology and communications		978		36		—		(26	)		—		988
Industrial		1,063		19		—		(96	)		—		986
Capital goods		602		19		—		(17	)		—		604
Consumer—cyclical		522		8		—		(4	)		—		526
Transportation		559		52		—		(6	)		—		605
Other		2,574		187		—		(25	)		—		2,736

Total non-U.S. corporate		11,886		598		2		(287	)		—		12,199

Residential mortgage-backed		4,777		330		11		(17	)		—		5,101
Commercial mortgage-backed		2,492		84		3		(20	)		—		2,559
Other asset-backed		3,328		11		1		(59	)		—		3,281

Total fixed maturity securities		55,161		3,832		32		(828	)		—		58,197
Equity securities		325		8		—		(23	)		—		310

Total available-for-sale securities	$	55,486	$	3,840	$	32	$	(851	)	$	—	$	58,507

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, 2016:


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses ⁽¹⁾			Number of securities		Fair value		Gross unrealized losses ⁽¹⁾			Number of securities
Description of Securities
Fixed maturity securities:
State and political subdivisions	$	—	$	—			—	$	202	$	(17	)		19	$	202	$	(17	)		19
Non-U.S. government		93		(2	)		17		—		—			—		93		(2	)		17
U.S. corporate		2,610		(141	)		344		1,203		(91	)		167		3,813		(232	)		511
Non-U.S. corporate		1,665		(87	)		209		700		(102	)		102		2,365		(189	)		311
Residential mortgage-backed		349		(2	)		48		104		(4	)		35		453		(6	)		83
Commercial mortgage-backed		331		(8	)		58		113		(3	)		23		444		(11	)		81
Other asset-backed		1,741		(36	)		320		368		(42	)		63		2,109		(78	)		383

Subtotal, fixed maturity securities		6,789		(276	)		996		2,690		(259	)		409		9,479		(535	)		1,405
Equity securities		136		(25	)		170		59		(17	)		29		195		(42	)		199

Total for securities in an unrealized loss position	$	6,925	$	(301	)		1,166	$	2,749	$	(276	)		438	$	9,674	$	(577	)		1,604

% Below cost—fixed maturity securities:
<20% Below cost	$	6,677	$	(229	)		974	$	2,410	$	(127	)		362	$	9,087	$	(356	)		1,336
20%-50% Below cost		110		(44	)		19		272		(120	)		43		382		(164	)		62
>50% Below cost		2		(3	)		3		8		(12	)		4		10		(15	)		7

Total fixed maturity securities		6,789		(276	)		996		2,690		(259	)		409		9,479		(535	)		1,405

% Below cost—equity securities:
<20% Below cost		83		(7	)		152		12		—			6		95		(7	)		158
20%-50% Below cost		53		(18	)		18		47		(17	)		23		100		(35	)		41

Total equity securities		136		(25	)		170		59		(17	)		29		195		(42	)		199

Total for securities in an unrealized loss position	$	6,925	$	(301	)		1,166	$	2,749	$	(276	)		438	$	9,674	$	(577	)		1,604

Investment grade	$	5,974	$	(207	)		892	$	2,362	$	(172	)		357	$	8,336	$	(379	)		1,249
Below investment grade ⁽²⁾		951		(94	)		274		387		(104	)		81		1,338		(198	)		355

Total for securities in an unrealized loss position	$	6,925	$	(301	)		1,166	$	2,749	$	(276	)		438	$	9,674	$	(577	)		1,604

⁽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 March 31, 2016:


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities
Description of Securities
U.S. corporate:
Utilities	$	214	$	(9	)		31	$	101	$	(4	)		16	$	315	$	(13	)		47
Energy		961		(83	)		131		171		(31	)		27		1,132		(114	)		158
Finance and insurance		489		(9	)		55		322		(19	)		41		811		(28	)		96
Consumer—non-cyclical		128		(2	)		16		124		(4	)		20		252		(6	)		36
Technology and communications		268		(13	)		36		133		(9	)		18		401		(22	)		54
Industrial		195		(12	)		24		102		(10	)		17		297		(22	)		41
Capital goods		52		(2	)		11		61		(3	)		8		113		(5	)		19
Consumer—cyclical		173		(7	)		22		102		(4	)		12		275		(11	)		34
Transportation		83		(2	)		15		78		(6	)		7		161		(8	)		22
Other		47		(2	)		3		9		(1	)		1		56		(3	)		4

Subtotal, U.S. corporate securities		2,610		(141	)		344		1,203		(91	)		167		3,813		(232	)		511

Non-U.S. corporate:
Utilities		122		(7	)		18		31		(3	)		4		153		(10	)		22
Energy		420		(38	)		43		129		(32	)		23		549		(70	)		66
Finance and insurance		244		(2	)		37		81		(4	)		11		325		(6	)		48
Consumer—non-cyclical		88		(2	)		8		95		(3	)		9		183		(5	)		17
Technology and communications		160		(5	)		14		45		(9	)		8		205		(14	)		22
Industrial		282		(19	)		42		163		(26	)		23		445		(45	)		65
Capital goods		68		(5	)		10		41		(10	)		7		109		(15	)		17
Consumer—cyclical		94		(4	)		10		—		—			—		94		(4	)		10
Transportation		77		(2	)		11		21		(1	)		3		98		(3	)		14
Other		110		(3	)		16		94		(14	)		14		204		(17	)		30

Subtotal, non-U.S. corporate securities		1,665		(87	)		209		700		(102	)		102		2,365		(189	)		311

Total for corporate securities in an unrealized loss position	$	4,275	$	(228	)		553	$	1,903	$	(193	)		269	$	6,178	$	(421	)		822

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As indicated in the tables above, the majority of the securities in a continuous unrealized loss position for less than 12 months were investment grade and less than 20% below cost. These unrealized losses were primarily attributable to increased market volatility, mostly concentrated in our corporate securities. For securities that have been in a continuous unrealized loss position for less than 12 months, the average fair value percentage below cost was approximately 4% as of March 31, 2016.

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

Of the $127 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 81% of the unrealized losses were related to investment grade securities as of March 31, 2016. These unrealized losses were predominantly attributable to corporate 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 March 31, 2016. 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.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present the concentration of gross unrealized losses and fair values of fixed maturity securities that were more than 20% below cost and in a continuous unrealized loss position for 12 months or more by asset class as of March 31, 2016:


	Investment Grade
	20% to 50%										Greater than 50%
(Dollar amounts in millions)	Fair value		Gross unrealized losses			% of total gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			% of total gross unrealized losses			Number of securities
Fixed maturity securities:
State and political subdivisions	$	9	$	(3	)		1	%		1	$	—	$	—			—	%		—
U.S. corporate:
Energy		15		(7	)		1			2		—		—			—			—
Finance and insurance		10		(5	)		1			1		—		—			—			—

Total U.S. corporate		25		(12	)		2			3		—		—			—			—

Non-U.S. corporate:
Energy		19		(7	)		1			2		—		—			—			—
Industrial		17		(6	)		1			2		—		—			—			—
Other		6		(1	)		—			1		—		—			—			—

Total non-U.S. corporate		42		(14	)		2			5		—		—			—			—

Structured securities:
Other asset-backed		64		(27	)		5			4		—		—			—			—

Total structured securities		64		(27	)		5			4		—		—			—			—

Total	$	140	$	(56	)		10	%		13	$	—	$	—			—	%		—


	Below Investment Grade
	20% to 50%										Greater than 50%
(Dollar amounts in millions)	Fair value		Gross unrealized losses			% of total gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			% of total gross unrealized losses			Number of securities
Fixed maturity securities:
U.S. corporate:
Energy	$	18	$	(7	)		1	%		5	$	—	$	—			—	%		—
Finance and insurance		7		(3	)		1			1		—		—			—			—
Technology and communications		6		(2	)		—			2		—		—			—			—
Industrial		6		(3	)		1			1		—		—			—			—

Total U.S. corporate		37		(15	)		3			9		—		—			—			—

Non-U.S. corporate:
Utilities		3		(2	)		—			1		—		—			—			—
Energy		45		(22	)		4			9		—		—			—			—
Technology and communications		—		—			—			—		3		(6	)		1			2
Industrial		21		(11	)		2			6		—		—			—			—
Capital goods		3		(2	)		—			1		5		(6	)		1			2
Other		15		(5	)		1			3		—		—			—			—

Total non-U.S. corporate		87		(42	)		7			20		8		(12	)		2			4

Structured securities:
Other asset-backed		8		(7	)		1			1		—		—			—			—

Total structured securities		8		(7	)		1			1		—		—			—			—

Total	$	132	$	(64	)		11	%		30	$	8	$	(12	)		2	%		4

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.

Non-U.S. corporate

As indicated above, $68 million of gross unrealized losses were related to non-U.S. corporate fixed maturity securities that have been in an unrealized loss position for more than 12 months and were more than 20% below cost. Of the total unrealized losses for non-U.S. corporate fixed maturity securities, $29 million, or 43%, related to the energy sector and $17 million, or 25%, related to the industrial sector. Reduced overseas demand for oil and metals has led to a decline in commodities pricing, adversely impacting the fair value of these securities.

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

Structured Securities

Of the $34 million of unrealized losses related to structured securities that have been in an unrealized loss position for 12 months or more and were more than 20% below cost, none related to other-than-temporarily impaired securities where the unrealized losses represented the portion of the other-than-temporary impairment recognized in OCI. The extent and duration of the unrealized loss position on our structured securities was primarily due to credit spreads that have widened since acquisition. Additionally, the fair value of certain structured securities has been impacted from high risk premiums being incorporated into the valuation as a result of the amount of potential losses that may be absorbed by the security in the event of additional deterioration in the U.S. economy.

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

We use our assessment of the historical performance of both the securitization trust and the underlying collateral for each security, along with third-party sources, when available, to develop our best estimate of cash flows expected to be collected. These estimates reflect projections for future delinquencies, prepayments, defaults and losses for the assets that collateralize the securitization trust and are used to determine the expected

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2016.

Despite the considerable analysis and rigor employed on our structured securities, it is reasonably possible that the underlying collateral of these investments may perform worse than current market expectations. Such events may lead to adverse changes in cash flows on our holdings of structured securities and future write-downs within our portfolio of structured securities.

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
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	883	$	(16	)		32	$	—	$	—			—	$	883	$	(16	)		32
State and political subdivisions		464		(15	)		81		163		(15	)		17		627		(30	)		98
Non-U.S. government		366		(5	)		49		—		—			—		366		(5	)		49
U.S. corporate		5,836		(332	)		817		466		(62	)		83		6,302		(394	)		900
Non-U.S. corporate		3,016		(170	)		400		486		(117	)		87		3,502		(287	)		487
Residential mortgage-backed		756		(10	)		88		103		(7	)		38		859		(17	)		126
Commercial mortgage-backed		780		(19	)		116		39		(1	)		13		819		(20	)		129
Other asset-backed		1,944		(22	)		349		336		(37	)		55		2,280		(59	)		404

Subtotal, fixed maturity securities		14,045		(589	)		1,932		1,593		(239	)		293		15,638		(828	)		2,225
Equity securities		153		(23	)		64		—		—			—		153		(23	)		64

Total for securities in an unrealized loss position	$	14,198	$	(612	)		1,996	$	1,593	$	(239	)		293	$	15,791	$	(851	)		2,289

% Below cost—fixed maturity securities:
<20% Below cost	$	13,726	$	(472	)		1,877	$	1,259	$	(78	)		238	$	14,985	$	(550	)		2,115
20%-50% Below cost		319		(116	)		54		316		(139	)		50		635		(255	)		104
>50% Below cost		—		(1	)		1		18		(22	)		5		18		(23	)		6

Total fixed maturity securities		14,045		(589	)		1,932		1,593		(239	)		293		15,638		(828	)		2,225

% Below cost—equity securities:
<20% Below cost		133		(18	)		56		—		—			—		133		(18	)		56
20%-50% Below cost		20		(5	)		8		—		—			—		20		(5	)		8

Total equity securities		153		(23	)		64		—		—			—		153		(23	)		64

Total for securities in an unrealized loss position	$	14,198	$	(612	)		1,996	$	1,593	$	(239	)		293	$	15,791	$	(851	)		2,289

Investment grade	$	13,342	$	(524	)		1,834	$	1,245	$	(135	)		225	$	14,587	$	(659	)		2,059
Below investment grade		856		(88	)		162		348		(104	)		68		1,204		(192	)		230

Total for securities in an unrealized loss position	$	14,198	$	(612	)		1,996	$	1,593	$	(239	)		293	$	15,791	$	(851	)		2,289

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	$	485	$	(25	)		74	$	14	$	(1	)		7	$	499	$	(26	)		81
Energy		1,162		(134	)		163		131		(28	)		22		1,293		(162	)		185
Finance and insurance		1,142		(35	)		160		94		(8	)		15		1,236		(43	)		175
Consumer—non-cyclical		836		(26	)		107		51		(4	)		10		887		(30	)		117
Technology and communications		658		(36	)		95		23		(2	)		5		681		(38	)		100
Industrial		476		(33	)		64		44		(11	)		9		520		(44	)		73
Capital goods		293		(10	)		48		26		(2	)		4		319		(12	)		52
Consumer—cyclical		427		(18	)		60		63		(4	)		10		490		(22	)		70
Transportation		273		(10	)		38		20		(2	)		1		293		(12	)		39
Other		84		(5	)		8		—		—			—		84		(5	)		8

Subtotal, U.S. corporate securities		5,836		(332	)		817		466		(62	)		83		6,302		(394	)		900

Non-U.S. corporate:
Utilities		130		(6	)		20		32		(3	)		6		162		(9	)		26
Energy		589		(48	)		71		127		(30	)		20		716		(78	)		91
Finance and insurance		478		(7	)		77		30		(1	)		8		508		(8	)		85
Consumer—non-cyclical		261		(14	)		27		37		(4	)		4		298		(18	)		31
Technology and communications		324		(15	)		37		33		(11	)		9		357		(26	)		46
Industrial		495		(54	)		67		110		(42	)		18		605		(96	)		85
Capital goods		154		(8	)		22		41		(9	)		9		195		(17	)		31
Consumer—cyclical		155		(4	)		20		—		—			—		155		(4	)		20
Transportation		147		(6	)		17		—		—			—		147		(6	)		17
Other		283		(8	)		42		76		(17	)		13		359		(25	)		55

Subtotal, non-U.S. corporate securities		3,016		(170	)		400		486		(117	)		87		3,502		(287	)		487

Total for corporate securities in an unrealized loss position	$	8,852	$	(502	)		1,217	$	952	$	(179	)		170	$	9,804	$	(681	)		1,387

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The scheduled maturity distribution of fixed maturity securities as of March 31, 2016 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.


(Amounts in millions)	Amortized cost or cost		Fair value
Due one year or less	$	1,861	$	1,879
Due after one year through five years		10,268		10,730
Due after five years through ten years		11,505		11,964
Due after ten years		21,295		24,566

Subtotal		44,929		49,139
Residential mortgage-backed		4,716		5,122
Commercial mortgage-backed		2,588		2,713
Other asset-backed		3,381		3,316

Total	$	55,614	$	60,290

As of March 31, 2016, $8,405 million of our investments (excluding mortgage-backed and asset-backed securities) were subject to certain call provisions.

As of March 31, 2016, securities issued by finance and insurance, utilities and consumer—non-cyclical industry groups represented approximately 22%, 14% and 13%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than 10% of our investment portfolio.

As of March 31, 2016, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of stockholders’ equity.

(e) Commercial Mortgage Loans

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

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, 2016						December 31, 2015
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Property type:
Retail	$	2,118			34	%	$	2,116			34	%
Industrial		1,582			25			1,562			25
Office		1,527			25			1,516			24
Apartments		445			7			465			8
Mixed use		233			4			234			4
Other		291			5			294			5

Subtotal		6,196			100	%		6,187			100	%

Unamortized balance of loan origination fees and costs		(2	)					(2	)
Allowance for losses		(15	)					(15	)

Total	$	6,179					$	6,170

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	March 31, 2016						December 31, 2015
	Carrying			% of			Carrying			% of
(Amounts in millions)	value			total			value			total
Geographic region:
Pacific	$	1,589			26	%	$	1,581			26	%
South Atlantic		1,557			25			1,574			25
Middle Atlantic		874			14			890			14
Mountain		571			9			585			10
West North Central		455			8			416			7
East North Central		382			6			386			6
West South Central		304			5			294			5
New England		269			4			268			4
East South Central		195			3			193			3

Subtotal		6,196			100	%		6,187			100	%

Unamortized balance of loan origination fees and costs		(2	)					(2	)
Allowance for losses		(15	)					(15	)

Total	$	6,179					$	6,170

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


	March 31, 2016
(Amounts in millions)	31 - 60 days past due			61- 90 days past due			Greater than 90 days past due			Total past due			Current			Total
Property type:
Retail	$	—		$	—		$	—		$	—		$	2,118		$	2,118
Industrial		14			—			—			14			1,568			1,582
Office		—			—			5			5			1,522			1,527
Apartments		—			—			—			—			445			445
Mixed use		—			—			—			—			233			233
Other		—			—			—			—			291			291

Total recorded investment	$	14		$	—		$	5		$	19		$	6,177		$	6,196

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


	December 31, 2015
(Amounts in millions)	31 - 60 days past due			61 - 90 days past due			Greater than 90 days past due			Total past due			Current			Total
Property type:
Retail	$	—		$	—		$	—		$	—		$	2,116		$	2,116
Industrial		—			—			—			—			1,562			1,562
Office		6			—			5			11			1,505			1,516
Apartments		—			—			—			—			465			465
Mixed use		—			—			—			—			234			234
Other		—			—			—			—			294			294

Total recorded investment	$	6		$	—		$	5		$	11		$	6,176		$	6,187

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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of March 31, 2016 and December 31, 2015, 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, 2016 and December 31, 2015.

We evaluate the impairment of commercial mortgage loans on an individual loan basis. As of March 31, 2016, 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 three months ended March 31, 2016 and the year ended December 31, 2015, we modified or extended 5 and 21 commercial mortgage loans, respectively, with a total carrying value of $43 million and $110 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.

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)	2016		2015
Allowance for credit losses:
Beginning balance	$	15	$	22
Charge-offs		—		(3	)
Recoveries		—		—
Provision		—		1

Ending balance	$	15	$	20

Ending allowance for individually impaired loans	$	—	$	—

Ending allowance for loans not individually impaired that were evaluated collectively for impairment	$	15	$	20

Recorded investment:
Ending balance	$	6,196	$	6,170

Ending balance of individually impaired loans	$	19	$	18

Ending balance of loans not individually impaired that were evaluated collectively for impairment	$	6,177	$	6,152

As of March 31, 2016 and December 31, 2015, we had an individually impaired commercial mortgage loan included within the office property type with a recorded investment of $5 million, an unpaid principal balance of $6 million and charge-offs of $1 million, which were recorded in the third quarter of 2015. As of March 31, 2016 and December 31, 2015, we had an individually impaired commercial mortgage loan included within the industrial property type with a recorded investment of $14 million, an unpaid principal balance of $15 million and charge-offs of $1 million, which were recorded in the first quarter of 2014. As of December 31, 2015, this loan had interest income of $1 million.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

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


	March 31, 2016
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100% ⁽¹⁾			Total
Property type:
Retail	$	765		$	395		$	866		$	83		$	9		$	2,118
Industrial		565			446			502			65			4			1,582
Office		499			301			645			68			14			1,527
Apartments		178			64			193			10			—			445
Mixed use		57			47			125			4			—			233
Other		61			62			168			—			—			291

Total recorded investment	$	2,125		$	1,315		$	2,499		$	230		$	27		$	6,196

% of total		34	%		21	%		40	%		4	%		1	%		100	%

Weighted-average debt service coverage ratio		2.16			1.83			1.56			1.08			0.45			1.80

⁽¹⁾	Included $27 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 119%.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	December 31, 2015
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100% ⁽¹⁾			Total
Property type:
Retail	$	785		$	417		$	800		$	103		$	11		$	2,116
Industrial		515			478			499			65			5			1,562
Office		493			341			580			83			19			1,516
Apartments		196			66			182			21			—			465
Mixed use		56			48			124			3			3			234
Other		54			55			185			—			—			294

Total recorded investment	$	2,099		$	1,405		$	2,370		$	275		$	38		$	6,187

% of total		34	%		23	%		38	%		4	%		1	%		100	%

Weighted-average debt service coverage ratio		2.13			1.82			1.57			1.12			0.55			1.79

⁽¹⁾	Included $38 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 123%.

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, 2016
(Amounts in millions)	Less than 1.00			1.00 - 1.25			1.26 - 1.50			1.51 - 2.00			Greater than 2.00			Total
Property type:
Retail	$	66		$	226		$	435		$	880		$	511		$	2,118
Industrial		85			180			214			697			406			1,582
Office		72			105			195			804			351			1,527
Apartments		4			38			70			201			132			445
Mixed use		3			12			28			134			56			233
Other		—			58			145			59			29			291

Total recorded investment	$	230		$	619		$	1,087		$	2,775		$	1,485		$	6,196

% of total		4	%		10	%		17	%		45	%		24	%		100	%

Weighted-average loan-to-value		74	%		64	%		60	%		57	%		43	%		56	%

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	December 31, 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	$	67		$	221		$	433		$	882		$	513		$	2,116
Industrial		94			181			208			672			407			1,562
Office		85			114			265			699			346			1,509
Apartments		6			41			74			199			145			465
Mixed use		3			11			28			135			57			234
Other		—			58			146			60			30			294

Total recorded investment	$	255		$	626		$	1,154		$	2,647		$	1,498		$	6,180

% of total		4	%		10	%		19	%		43	%		24	%		100	%

Weighted-average loan-to-value		74	%		64	%		58	%		58	%		43	%		56	%

As of March 31, 2016, we did not have any floating rate commercial mortgage loans. As of December 31, 2015, we had floating rate commercial mortgage loans of $7 million.

(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.

(h) Limited Partnerships or Similar Entities

Investments in partnerships or similar entities are generally considered VIEs due to the equity group’s lack of sufficient financial control. Generally, these investments are limited partner or non-managing member equity investments in a widely held fund that is sponsored and managed by a reputable asset manager. We are not the primary beneficiary of any VIE investment in a limited partnership or similar entity. As of March 31, 2016 and December 31, 2015, the total carrying value of these investments was $155 million and $165 million, respectively. Our maximum exposure to loss is equal to the outstanding carrying value and future funding commitments. We have not contributed, and do not plan to contribute, any additional financial or other support outside of what is contractually obligated.

(5) Derivative Instruments

Our business activities routinely deal with fluctuations in interest rates, equity prices, currency exchange rates and other asset and liability prices. We use derivative instruments to mitigate or reduce certain of these risks. We have established policies for managing each of these risks, including prohibitions on derivatives

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	Derivative assets					Derivative liabilities
		Fair value					Fair value

(Amounts in millions)	Balance sheet classification	March 31, 2016		December 31, 2015		Balance sheet classification	March 31, 2016		December 31, 2015
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps	Other invested assets	$	1,087	$	629	Other liabilities	$	68	$	37
Inflation indexed swaps	Other invested assets		—		—	Other liabilities		36		33
Foreign currency swaps	Other invested assets		7		8	Other liabilities		—		—

Total cash flow hedges			1,094		637			104		70

Total derivatives designated as hedges			1,094		637			104		70

Derivatives not designated as hedges
Interest rate swaps	Other invested assets		526		425	Other liabilities		292		183
Interest rate swaps related to securitization entities	Restricted other invested assets		—		—	Other liabilities		35		30
Foreign currency swaps	Other invested assets		—		—	Other liabilities		18		27
Credit default swaps	Other invested assets		1		1	Other liabilities		1		—
Credit default swaps related to securitization entities	Restricted other invested assets		—		—	Other liabilities		6		14
Equity index options	Other invested assets		36		30	Other liabilities		—		—
Financial futures	Other invested assets		—		—	Other liabilities		—		—
Equity return swaps	Other invested assets		2		2	Other liabilities		14		1
Other foreign currency contracts	Other invested assets		7		17	Other liabilities		31		34
GMWB embedded derivatives	Reinsurance recoverable ⁽¹⁾		23		17	Policyholder account balances ⁽²⁾		443		352
Fixed index annuity embedded derivatives	Other assets		—		—	Policyholder account balances ⁽³⁾		345		342
Indexed universal life embedded derivatives	Reinsurance recoverable		—		—	Policyholder account balances ⁽⁴⁾		12		10

Total derivatives not designated as hedges			595		492			1,197		993

Total derivatives		$	1,689	$	1,129		$	1,301	$	1,063

⁽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, 2015		Additions		Maturities/ terminations			March 31, 2016
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps	Notional	$	11,214	$	—	$	(18	)	$	11,196
Inflation indexed swaps	Notional		571		1		(2	)		570
Foreign currency swaps	Notional		35		—		—			35

Total cash flow hedges			11,820		1		(20	)		11,801

Total derivatives designated as hedges			11,820		1		(20	)		11,801

Derivatives not designated as hedges
Interest rate swaps	Notional		4,932		—		(250	)		4,682
Interest rate swaps related to securitization entities	Notional		67		—		(2	)		65
Foreign currency swaps	Notional		162		17		—			179
Credit default swaps	Notional		144		—		—			144
Credit default swaps related to securitization entities	Notional		312		—		—			312
Equity index options	Notional		1,080		722		(270	)		1,532
Financial futures	Notional		1,331		2,361		(2,187	)		1,505
Equity return swaps	Notional		134		50		(38	)		146
Other foreign currency contracts	Notional		1,656		567		(128	)		2,095

Total derivatives not designated as hedges			9,818		3,717		(2,875	)		10,660

Total derivatives		$	21,638	$	3,718	$	(2,895	)	$	22,461


(Number of policies)	Measurement	December 31, 2015		Additions		Maturities/ terminations			March 31, 2016
Derivatives not designated as hedges
GMWB embedded derivatives	Policies		36,146		—		(717	)		35,429
Fixed index annuity embedded derivatives	Policies		17,482		623		(132	)		17,973
Indexed universal life embedded derivatives	Policies		982		131		(12	)		1,101

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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 effects of cash flow hedges for the three months ended March 31, 2016:


(Amounts in millions)	Gain (loss) recognized in OCI		Gain (loss) reclassified into net income from OCI		Classification of gain (loss) reclassified into net income	Gain (loss) recognized in net income⁽¹⁾		Classification of gain (loss) recognized in net income
Interest rate swaps hedging assets	$	457	$	25	Net investment income	$	6	Net investment gains (losses)
Interest rate swaps hedging assets		—		1	Net investment gains (losses)		—	Net investment gains (losses)
Interest rate swaps hedging liabilities		(31)		—	Interest expense		—	Net investment gains (losses)
Inflation indexed swaps		(3)		2	Net investment income		—	Net investment gains (losses)
Foreign currency swaps		(1)		—	Net investment income		—	Net investment gains (losses)

Total	$	422	$	28		$	6

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

The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended March 31, 2015:


(Amounts in millions)	Gain (loss) recognized in OCI		Gain (loss) reclassified into net income from OCI		Classification of gain (loss) reclassified into net income	Gain (loss) recognized in net income⁽¹⁾		Classification of gain (loss) recognized in net income
Interest rate swaps hedging assets	$	306	$	19	Net investment income	$	4	Net investment gains (losses)
Interest rate swaps hedging liabilities		(18)		—	Interest expense		—	Net investment gains (losses)
Inflation indexed swaps		11		9	Net investment income		—	Net investment gains (losses)
Foreign currency swaps		3		—	Net investment income		—	Net investment gains (losses)

Total	$	302	$	28		$	4

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


	Three months ended March 31,
(Amounts in millions)	2016			2015
Derivatives qualifying as effective accounting hedges as of January 1	$	2,045		$	2,070
Current period increases (decreases) in fair value, net of deferred taxes of $(147) and $(107)		275			195
Reclassification to net (income), net of deferred taxes of $10 and $10		(18	)		(18	)

Derivatives qualifying as effective accounting hedges as of March 31	$	2,302		$	2,247

The total of derivatives designated as cash flow hedges of $2,302 million, net of taxes, recorded in stockholders’ equity as of March 31, 2016 is expected to be reclassified to net income in the future, concurrently with and primarily offsetting changes in interest expense and interest income on floating rate instruments and interest income on future fixed rate bond purchases. Of this amount, $72 million, net of taxes, is expected to be reclassified to net income in the next 12 months. Actual amounts may vary from this amount as a result of market conditions. All forecasted transactions associated with qualifying cash flow hedges are expected to occur by 2047. There were immaterial amounts reclassified to net income during the three months ended March 31, 2016 in connection with forecasted transactions that were no longer considered probable of occurring.

Fair Value Hedges

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

There were no pre-tax income effects of fair value hedges and related hedged items for the three months ended March 31, 2016 and 2015.

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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 for the effects of derivatives not designated as hedges for the periods indicated:


	Three months ended March 31,		Classification of gain (loss) recognized
(Amounts in millions)	2016	2015	in net income
Interest rate swaps	$

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company