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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2018

☐	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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of October 23, 2018, 500,757,037 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 September 30, 2018 (Unaudited) and December 31, 2017		3
	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018 and 2017 (Unaudited)		4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017 (Unaudited)		5
	Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2018 and 2017 (Unaudited)		6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (Unaudited)		7
	Notes to Condensed Consolidated Financial Statements (Unaudited)		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		90

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		174

Item 4.	Controls and Procedures		174

PART II—OTHER INFORMATION			175

Item 1.	Legal Proceedings		175

Item 1A.	Risk Factors		175

Item 6.	Exhibits		175

Signatures			176

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except per share amounts)


	September 30, 2018			December 31, 2017
	(Unaudited)
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value	$	59,404		$	62,525
Equity securities, at fair value		783			820
Commercial mortgage loans		6,568			6,341
Restricted commercial mortgage loans related to securitization entities		87			107
Policy loans		1,859			1,786
Other invested assets		1,354			1,813

Total investments		70,055			73,392
Cash, cash equivalents and restricted cash		2,505			2,875
Accrued investment income		657			644
Deferred acquisition costs		3,336			2,329
Intangible assets and goodwill		355			301
Reinsurance recoverable		17,351			17,569
Other assets		467			453
Deferred tax asset		650			504
Separate account assets		6,745			7,230

Total assets	$	102,121		$	105,297

Liabilities and equity
Liabilities:
Future policy benefits	$	38,018		$	38,472
Policyholder account balances		22,993			24,195
Liability for policy and contract claims		9,844			9,594
Unearned premiums		3,668			3,967
Other liabilities		1,830			1,910
Borrowings related to securitization entities		20			40
Non-recourse funding obligations		310			310
Long-term borrowings		4,051			4,224
Deferred tax liability		21			27
Separate account liabilities		6,745			7,230

Total liabilities		87,500			89,969

Commitments and contingencies
Equity:
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 589 million and 588 million shares issued as of September 30, 2018 and December 31, 2017, respectively; 501 million and 499 million shares outstanding as of September 30, 2018 and December 31, 2017, respectively		1			1
Additional paid-in capital		11,983			11,977

Accumulated other comprehensive income (loss):
Net unrealized investment gains (losses):
Net unrealized gains (losses) on securities not other-than-temporarily impaired		598			1,075
Net unrealized gains (losses) on other-than-temporarily impaired securities		10			10

Net unrealized investment gains (losses)		608			1,085

Derivatives qualifying as hedges		1,717			2,065
Foreign currency translation and other adjustments		(258	)		(123	)

Total accumulated other comprehensive income (loss)		2,067			3,027
Retained earnings		1,447			1,113
Treasury stock, at cost (88 million shares as of September 30, 2018 and December 31, 2017)		(2,700	)		(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity		12,798			13,418
Noncontrolling interests		1,823			1,910

Total equity		14,621			15,328

Total liabilities and equity	$	102,121		$	105,297

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 September 30,					Nine months ended September 30,
	2018		2017			2018			2017
Revenues:
Premiums	$	1,122	$	1,135		$	3,398		$	3,382
Net investment income		815		797			2,447			2,388
Net investment gains (losses)		13		85			(32	)		220
Policy fees and other income		193		198			604			619

Total revenues		2,143		2,215			6,417			6,609

Benefits and expenses:
Benefits and other changes in policy reserves		1,321		1,344			3,837			3,796
Interest credited		151		164			459			494
Acquisition and operating expenses, net of deferrals		243		265			736			775
Amortization of deferred acquisition costs and intangibles		83		83			299			316
Interest expense		72		73			225			209

Total benefits and expenses		1,870		1,929			5,556			5,590

Income from continuing operations before income taxes		273		286			861			1,019
Provision for income taxes		63		102			237			348

Income from continuing operations		210		184			624			671
Loss from discontinued operations, net of taxes		—		(9	)		—			(9	)

Net income		210		175			624			662
Less: net income attributable to noncontrolling interests		64		68			176			198

Net income available to Genworth Financial, Inc.’s common stockholders	$	146	$	107		$	448		$	464

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.29	$	0.23		$	0.89		$	0.95

Diluted	$	0.29	$	0.23		$	0.89		$	0.94

Net income available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.29	$	0.21		$	0.89		$	0.93

Diluted	$	0.29	$	0.21		$	0.89		$	0.93

Weighted-average common shares outstanding:
Basic		500.7		499.1			500.3			498.9

Diluted		503.3		501.6			502.9			501.2

Supplemental disclosures:
Total other-than-temporary impairments	$	—	$	(1	)	$	—		$	(4	)
Portion of other-than-temporary impairments included in other comprehensive income (loss)		—		—			—			—

Net other-than-temporary impairments		—		(1	)		—			(4	)
Other investments gains (losses)		13		86			(32	)		224

Total net investment gains (losses)	$	13	$	85		$	(32	)	$	220

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Net income	$	210		$	175		$	624		$	662

Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities not other-than-temporarily impaired		(134	)		(89	)		(660	)		(173	)
Net unrealized gains (losses) on other-than-temporarily impaired securities		—			—			(2	)		1
Derivatives qualifying as hedges		(146	)		(12	)		(362	)		(33	)
Foreign currency translation and other adjustments		20			81			(165	)		261

Total other comprehensive income (loss)		(260	)		(20	)		(1,189	)		56

Total comprehensive income (loss)		(50	)		155			(565	)		718
Less: comprehensive income attributable to noncontrolling interests		64			108			78			313

Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders	$	(114	)	$	47		$	(643	)	$	405

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, 2017	$	1	$	11,977	$	3,027		$	1,113		$	(2,700	)	$	13,418		$	1,910		$	15,328
Cumulative effect of change in accounting, net of taxes		—		—		131			(114	)		—			17			—			17
Repurchase of subsidiary shares		—		—		—			—			—			—			(89	)		(89	)
Comprehensive income (loss):
Net income		—		—		—			448			—			448			176			624
Other comprehensive loss, net of taxes		—		—		(1,091	)		—			—			(1,091	)		(98	)		(1,189	)

Total comprehensive income (loss)															(643	)		78			(565	)
Dividends to noncontrolling interests		—		—		—			—			—			—			(83	)		(83	)
Stock-based compensation expense and exercises and other		—		6		—			—			—			6			7			13

Balances as of September 30, 2018	$	1	$	11,983	$	2,067		$	1,447		$	(2,700	)	$	12,798		$	1,823		$	14,621


Balances as of December 31, 2016	$	1	$	11,962	$	3,094		$	287		$	(2,700	)	$	12,644		$	1,823		$	14,467
Cumulative effect of change in accounting, net of taxes		—		—		—			9			—			9			—			9
Repurchase of subsidiary shares		—		—		—			—			—			—			(31	)		(31	)
Comprehensive income (loss):
Net income		—		—		—			464			—			464			198			662
Other comprehensive income (loss), net of taxes		—		—		(59	)		—			—			(59	)		115			56

Total comprehensive income															405			313			718
Dividends to noncontrolling interests		—		—		—			—			—			—			(92	)		(92	)
Stock-based compensation expense and exercises and other		—		11		—			—			—			11			5			16

Balances as of September 30, 2017	$	1	$	11,973	$	3,035		$	760		$	(2,700	)	$	13,069		$	2,018		$	15,087

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Nine months ended September 30,
	2018			2017
Cash flows from operating activities:
Net income	$	624		$	662
Less loss from discontinued operations, net of taxes		—			9
Adjustments to reconcile net income to net cash from operating activities:
Amortization of fixed maturity securities discounts and premiums		(92	)		(107	)
Net investment (gains) losses		32			(220	)
Charges assessed to policyholders		(528	)		(534	)
Acquisition costs deferred		(63	)		(67	)
Amortization of deferred acquisition costs and intangibles		299			316
Deferred income taxes		115			234
Trading securities, limited partnerships and derivative instruments		(363	)		716
Stock-based compensation expense		25			29
Change in certain assets and liabilities:
Accrued investment income and other assets		(131	)		(21	)
Insurance reserves		1,039			1,202
Current tax liabilities		(48	)		(27	)
Other liabilities, policy and contract claims and other policy-related balances		64			(260	)

Net cash from operating activities		973			1,932

Cash flows from (used by) investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		2,967			3,396
Commercial mortgage loans		543			454
Restricted commercial mortgage loans related to securitization entities		20			18
Proceeds from sales of investments:
Fixed maturity and equity securities		3,325			3,269
Purchases and originations of investments:
Fixed maturity and equity securities		(6,416	)		(6,709	)
Commercial mortgage loans		(769	)		(608	)
Other invested assets, net		364			(521	)
Policy loans, net		35			28
Payments for business purchased, net of cash acquired		—			(5	)

Net cash from (used by) investing activities		69			(678	)

Cash flows used by financing activities:
Deposits to universal life and investment contracts		805			902
Withdrawals from universal life and investment contracts		(1,806	)		(2,003	)
Proceeds from issuance of long-term debt		441			—
Repayment and repurchase of long-term debt		(598	)		—
Repayment of borrowings related to securitization entities		(20	)		(16	)
Repurchase of subsidiary shares		(89	)		(31	)
Dividends paid to noncontrolling interests		(83	)		(92	)
Other, net		—			(30	)

Net cash used by financing activities		(1,350	)		(1,270	)

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(62	)		68

Net change in cash, cash equivalents and restricted cash		(370	)		52
Cash, cash equivalents and restricted cash at beginning of period		2,875			2,784

Cash, cash equivalents and restricted cash at end of period	$	2,505		$	2,836

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 (“IPO”) of Genworth’s 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.

On October 21, 2016, Genworth Financial entered into an agreement and plan of merger (the “Merger Agreement”) with Asia Pacific Global Capital Co., Ltd. (“Parent”), a limited liability company incorporated in the People’s Republic of China, and a subsidiary of China Oceanwide Holdings Group Co., Ltd. (together with its affiliates, “China Oceanwide”), and Asia Pacific Global Capital USA Corporation (“Merger Sub”), a Delaware corporation and an indirect, wholly-owned subsidiary of Asia Pacific Insurance USA Holdings LLC (“Asia Pacific Insurance”) which is a Delaware limited liability company and owned by China Oceanwide. Subject to the terms and conditions of the Merger Agreement, including the satisfaction or waiver of certain conditions, Merger Sub would merge with and into Genworth Financial with Genworth Financial surviving the merger as an indirect, wholly-owned subsidiary of Asia Pacific Insurance. China Oceanwide has agreed to acquire all of our outstanding common stock for a total transaction value of approximately $2.7 billion, or $5.43 per share in cash. At a special meeting held on March 7, 2017, Genworth Financial’s stockholders voted on and approved a proposal to adopt the Merger Agreement.

The transaction remains subject to closing conditions, including the receipt of required regulatory approvals in the U.S., China, and other international jurisdictions. Both parties are engaging with the relevant regulators regarding the applications and the pending transaction.

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 unaudited 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.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

•

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 but we continue to service our existing blocks of business. 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 and funding agreements backing notes.

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.

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 2017 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(2) Accounting Changes

Accounting Pronouncements Recently Adopted

On January 1, 2018, we early adopted new accounting guidance on the reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”), or “stranded tax effects.” Under current U.S. GAAP, deferred tax assets and liabilities are adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the period that the changes were enacted. This also includes situations in which the related tax effects were originally recognized in other comprehensive income as opposed to income from continuing operations. The following summarizes the components for the cumulative effect adjustment recorded on January 1, 2018 related to the adoption of this new accounting guidance:


	Accumulated other comprehensive income (loss)
(Amounts in millions)	Net unrealized investment gains (losses)			Derivatives qualifying as hedges		Foreign currency translation and other adjustments			Retained earnings			Total stockholders’ equity
Deferred taxes:
Net unrealized gains on investment securities	$	192		$	—	$	—		$	(192	)	$	—
Net unrealized gains on derivatives		—			12		—			(12	)		—
Investment in foreign subsidiaries		(3	)		—		(46	)		49			—
Accrued commission and general expenses		—			—		(1	)		1			—

Cumulative effect of changes in accounting	$	189		$	12	$	(47	)	$	(154	)	$	—

The accounting for the temporary differences related to investment in foreign subsidiaries recorded in accumulated other comprehensive income (loss) at adoption of the TCJA were provisional. Therefore, additional reclassification adjustments may be recorded in fourth quarter of 2018 as tax effects of the TCJA on related temporary differences are finalized. However, no reclassification adjustments were recorded during the second or third quarters of 2018. Other than those effects related to the TCJA, our policy is to release stranded tax effects from accumulated other comprehensive income (loss) using the portfolio approach for items related to investments and derivatives, and upon disposition of a subsidiary for items related to outside basis differences.

On January 1, 2018, we early adopted new accounting guidance related to the hedge accounting model. The new guidance amends the hedge accounting model to enable entities to better portray the economics of their derivative risk management activities in the financial statements and enhance the transparency and understandability of hedge results. In certain situations, the amendments also simplify the application of hedge accounting and removed the requirements to separately measure and report hedge ineffectiveness. We adopted this new accounting using the modified retrospective method and recognized a gain of $2 million in accumulated other comprehensive income with a corresponding decrease to retained earnings at adoption. This gain was the cumulative amount of hedge ineffectiveness related to active hedges that was previously included in earnings.

On January 1, 2018, we adopted new accounting guidance that clarifies when to account for a change to share-based compensation as a modification. The new guidance requires modification accounting only if there are changes to the fair value, vesting conditions or classification as a liability or equity of the share-based compensation. We adopted this new accounting guidance prospectively and therefore, the guidance did not have any impact at adoption.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On January 1, 2018, we adopted new accounting guidance that clarifies the scope and accounting for gains and losses from the derecognition of nonfinancial assets or an in substance nonfinancial asset that is not a business and accounting for partial sales of nonfinancial assets. The new guidance clarifies when transferring ownership interests in a consolidated subsidiary holding nonfinancial assets is within scope. It also states that the reporting entity should identify each distinct nonfinancial asset and derecognize when a counterparty obtains control. We adopted this new accounting guidance using the modified retrospective method, which had no impact on our consolidated financial statements at adoption.

On January 1, 2018, we early adopted new accounting guidance simplifying the test for goodwill impairment. The new guidance states goodwill impairment is equal to the difference between the carrying value and fair value of the reporting unit up to the amount of recorded goodwill. We adopted this new accounting guidance prospectively and will apply it to our 2018 goodwill impairment test.

On January 1, 2018, we adopted new accounting guidance related to the classification and presentation of changes in restricted cash. The new guidance requires that changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents be shown in the statements of cash flows and requires additional disclosures related to restricted cash and restricted cash equivalents. We adopted this new accounting guidance retrospectively and modified the line item descriptions on our consolidated balance sheets and statements of cash flows in our consolidated financial statements. The other impacts from this new accounting guidance did not have a significant impact on our consolidated financial statements or disclosures.

On January 1, 2018, we adopted new accounting guidance related to the income tax effects of intra-entity transfers of assets other than inventory. The new guidance states that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. We adopted this new accounting guidance using the modified retrospective method, which did not have any significant impact on our consolidated financial statements or disclosures at adoption.

On January 1, 2018, we adopted new accounting guidance related to the classification of certain cash payments and cash receipts on our statement of cash flows. The guidance reduces diversity in practice related to eight specific cash flow issues. We adopted this new accounting guidance retrospectively. We will reclassify a $20 million make-whole premium that was incurred in the first quarter of 2016 previously included in the operating activities section of the statement of cash flows, within the line item “other liabilities, policy and contract claims and other policy-related balances” to the financing activities section within the line item “repayment and repurchase of long-term debt” in our 2018 annual consolidated financial statements filed on Form 10-K. The reclassification will result in an increase in net cash used by financing activities and an increase in net cash from operating activities. The remaining specific cash flow issues did not have a significant impact on our consolidated financial statements.

On January 1, 2018, we adopted new accounting guidance related to the recognition and measurement of financial assets and financial liabilities. Changes to financial instruments accounting primarily affects equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments with readily determinable fair value, except those accounted for under the equity method of accounting, are measured at fair value with changes in fair value recognized in net income. The new guidance also clarifies that the need for a valuation allowance on a deferred tax asset related to available-for-sale securities should be evaluated in combination with other deferred tax assets. We adopted this new accounting guidance using the modified retrospective method and reclassified, after adjustments for deferred acquisition costs (“DAC”) and other intangible amortization and certain benefit reserves, taxes and noncontrolling interests, $25 million of gains related to equity securities from accumulated

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

other comprehensive income and $17 million of gains related to limited partnerships previously recorded at cost to cumulative effect of change in accounting within retained earnings.

On January 1, 2018, we adopted new accounting guidance related to revenue from contracts with customers. The key principle of the new guidance is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods or services. Insurance contracts are specifically excluded from this new guidance. The Financial Accounting Standards Board (“the FASB”) has clarified the scope that all of our insurance contracts, including mortgage insurance and investment contracts are excluded from the scope of this new guidance. We adopted this new accounting guidance using the modified retrospective method, which did not have any significant impact on our consolidated financial statements at adoption.

Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued new accounting guidance that significantly changes the recognition and measurement of long-duration insurance contracts and expands disclosure requirements, which impacts our life insurance DAC and liabilities. In accordance with the guidance, the more significant changes include:

•

assumptions will no longer be locked-in at contract inception and all cash flow assumptions used to estimate the liability for future policy benefits will be reviewed at least annually in the same period each year or more frequently if actual experience indicates a change is required;

•

changes in cash flow assumptions (except the discount rate) will be recorded in net income (loss) using a retrospective approach with a cumulative catch-up adjustment by recalculating the net premium ratio (which will be capped at 100%) using actual historical and updated future cash flow assumptions;

•

the discount rate used to determine the liability for future policy benefits will be a current upper-medium grade (low credit risk) fixed-income instrument yield, which is generally interpreted to mean a single-A rated bond rate for the same duration, and is required to be reviewed quarterly, with changes in the discount rate recorded in other comprehensive income (loss);

•

the provision for adverse deviation and the premium deficiency test will be eliminated;

•

market risk benefits associated with deposit-type contracts will be measured at fair value with changes recorded in net income (loss);

•

the amortization method for DAC will generally be on a straight-line basis over the expected contract term; and

•

disclosures will be greatly expanded to include significant assumptions and product liability rollforwards.

The guidance is currently effective for us on January 1, 2021 using the modified retrospective method, with early adoption permitted. We are in process of evaluating the new guidance and the impact it will have on our consolidated financial statements.

In August 2018, the FASB issued new accounting guidance related to disclosure requirements for defined benefit plans as part of its disclosure framework project. The guidance adds, eliminates and modifies certain disclosure requirements for defined benefit pension and other postretirement benefit plans. The guidance is currently effective for us on January 1, 2020 using the retrospective method, with early adoption permitted. We do not expect any significant impact from this guidance on our consolidated financial statements and disclosures.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In August 2018, the FASB issued new accounting guidance related to fair value disclosure requirements as part of its disclosure framework project. The guidance adds, eliminates and modifies certain disclosure requirements for fair value measurements. The guidance includes new disclosure requirements related to the change in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance is currently effective for us on January 1, 2020 using the prospective method for certain disclosures and the retrospective method for all other disclosures. Early adoption of either the entire standard or only the provisions that eliminate or modify the requirements is permitted. We are in process of evaluating the impact the guidance may have on our consolidated financial statements and disclosures.

In June 2018, the FASB issued new accounting guidance related to accounting for nonemployee share-based payments. The guidance aligns the measurement and classification of share-based payments to nonemployees issued in exchange for goods or services with the guidance for share-based payments to employees, with certain exceptions. The guidance is currently effective for us on January 1, 2019 using the modified retrospective method, with early adoption permitted. This guidance is consistent with our previous accounting practices and, accordingly, we do not expect any impact from this guidance on our consolidated financial statements.

In March 2017, the FASB issued new accounting guidance shortening the amortization period of certain callable debt securities held at a premium. The guidance requires the premium to be amortized to the earliest call date. This change does not apply to securities held at a discount. The guidance is currently effective for us on January 1, 2019 using the modified retrospective method, with early adoption permitted. While we are still evaluating the full impact, at this time we do not expect any significant impact from this guidance on our consolidated financial statements.

In June 2016, the FASB issued new accounting guidance related to accounting for credit losses on financial instruments. The guidance requires that entities recognize an allowance equal to its estimate of lifetime expected credit losses and applies to most debt instruments not measured at fair value, which would primarily include our commercial mortgage loans and reinsurance receivables. The new guidance retains most of the existing impairment guidance for available-for-sale debt securities but amends the presentation of credit losses to be presented as an allowance as opposed to a write-down and permits the reversal of credit losses when reassessing changes in the credit losses each reporting period. The new guidance is effective for us on January 1, 2020, with early adoption permitted beginning January 1, 2019. Upon adoption, the modified retrospective method will be used and a cumulative effect adjustment in retained earnings as of the beginning of the year of adoption will be recorded. We are in process of evaluating the impact the guidance may have 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. A modified retrospective transition approach is required as of the earliest period presented. Amendments to the guidance also allow an optional transition method practical expedient, which permits entities to apply the new lease standard using the modified retrospective transition approach at the date of adoption. Certain other practical expedients are available, which we are in the process of evaluating. We have identified our significant leases by asset type that will be impacted by the new guidance and begun implementation of a new software platform to facilitate compliance with the new guidance. Upon adoption, we expect to apply the optional transition method and record a right-of-use asset and liability on our balance sheet related to existing operating leases. While we are still evaluating the full impact, at this time we do not expect a significant impact from this guidance on our consolidated financial statements and we are in process of evaluating the impact to our disclosures.

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 common shares outstanding for the periods indicated:


	Three months ended September 30,					Nine months ended September 30,
(Amounts in millions, except per share amounts)	2018		2017			2018		2017
Weighted-average shares used in basic earnings per share calculations		500.7		499.1			500.3		498.9
Potentially dilutive securities:
Stock options, restricted stock units and stock appreciation rights		2.6		2.5			2.6		2.3

Weighted-average shares used in diluted earnings per share calculations		503.3		501.6			502.9		501.2

Income from continuing operations:
Income from continuing operations	$	210	$	184		$	624	$	671
Less: income from continuing operations attributable to noncontrolling interests		64		68			176		198

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	146	$	116		$	448	$	473

Basic per share	$	0.29	$	0.23		$	0.89	$	0.95

Diluted per share	$	0.29	$	0.23		$	0.89	$	0.94

Loss from discontinued operations:
Loss from discontinued operations, net of taxes	$	—	$	(9	)	$	—	$	(9	)
Less: income from discontinued operations, net of taxes, attributable tononcontrolling interests		—		—			—		—

Loss from discontinued operations, net of taxes, available to Genworth Financial, Inc.’s common stockholders	$	—	$	(9	)	$	—	$	(9	)

Basic per share	$	—	$	(0.02	)	$	—	$	(0.02	)

Diluted per share	$	—	$	(0.02	)	$	—	$	(0.02	)

Net income:
Income from continuing operations	$	210	$	184		$	624	$	671
Loss from discontinued operations, net of taxes		—		(9	)		—		(9	)

Net income		210		175			624		662
Less: net income attributable to noncontrolling interests		64		68			176		198

Net income available to Genworth Financial, Inc.’s common stockholders	$	146	$	107		$	448	$	464

Basic per share	$	0.29	$	0.21		$	0.89	$	0.93

Diluted per share	$	0.29	$	0.21		$	0.89	$	0.93

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(4) Investments

(a) Net Investment Income

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


	Three months ended September 30,						Nine months ended September 30,
(Amounts in millions)	2018			2017			2018			2017
Fixed maturity securities—taxable	$	643		$	640		$	1,929		$	1,930
Fixed maturity securities—non-taxable		3			3			9			9
Equity securities		11			9			31			26
Commercial mortgage loans		81			78			240			231
Restricted commercial mortgage loans related to securitization entities		1			3			5			7
Policy loans		41			39			125			120
Other invested assets		44			39			136			106
Restricted other invested assets related to securitization entities		—			—			—			1
Cash, cash equivalents and short-term investments		13			10			39			26

Gross investment income before expenses and fees		837			821			2,514			2,456
Expenses and fees		(22	)		(24	)		(67	)		(68	)

Net investment income	$	815		$	797		$	2,447		$	2,388

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(b) Net Investment Gains (Losses)

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


	Three months ended September 30,						Nine months ended September 30,
(Amounts in millions)	2018			2017			2018			2017
Available-for-sale securities:
Realized gains	$	22		$	40		$	42		$	177
Realized losses		(30	)		(10	)		(67	)		(55	)

Net realized gains (losses) on available-for-sale securities		(8	)		30			(25	)		122

Impairments:
Total other-than-temporary impairments		—			(1	)		—			(4	)
Portion of other-than-temporary impairments included in other comprehensive income (loss)		—			—			—			—

Net other-than-temporary impairments		—			(1	)		—			(4	)

Net realized gains (losses) on equity securities sold		—			—			10			—
Net unrealized gains (losses) on equity securities still held		—			—			(15	)		—
Trading securities		—			—			—			1
Limited partnerships		3			—			8			—
Commercial mortgage loans		—			1			—			3
Net gains (losses) related to securitization entities		—			1			—			5
Derivative instruments ⁽¹⁾		18			54			(10	)		93

Net investment gains (losses)	$	13		$	85		$	(32)		$	220

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

We generally intend to hold securities in unrealized loss positions until they recover. However, from time to time, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, we sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield and liquidity requirements. If a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we determined that we have the intent to sell the securities or it is more likely than not that we will be required to sell the securities prior to recovery. The aggregate fair value of securities sold at a loss during the three months ended September 30, 2018 and 2017 was $725 million and $286 million, respectively, which was approximately 96% and 97%, respectively, of book value. The aggregate fair value of securities sold at a loss during the nine months ended September 30, 2018 and 2017 was $1,984 million and $1,390 million, respectively, which was approximately 97% and 96%, respectively, of book value.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 (“OCI”) as of and for the periods indicated:


	As of or for the three months ended September 30,					As of or for the nine months ended September 30,
(Amounts in millions)	2018		2017			2018			2017
Beginning balance	$	25	$	38		$	32		$	42
Reductions:
Securities sold, paid down or disposed		—		(5	)		(7	)		(9	)

Ending balance	$	25	$	33		$	25		$	33

(c) Unrealized Investment Gains and Losses

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


(Amounts in millions)	September 30, 2018			December 31, 2017
Net unrealized gains (losses) on investment securities:
Fixed maturity securities	$	2,000		$	5,125
Equity securities		—			69

Subtotal ⁽¹⁾		2,000			5,194
Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves		(1,180	)		(3,451	)
Income taxes, net		(178	)		(583	)

Net unrealized investment gains (losses)		642			1,160
Less: net unrealized investment gains (losses) attributable to noncontrolling interests		34			75

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	$	608		$	1,085

⁽¹⁾	Excludes foreign exchange.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	As of or for the three months ended September 30,
(Amounts in millions)	2018			2017
Beginning balance	$	736		$	1,180
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities		(564	)		(10	)
Adjustment to deferred acquisition costs		292			(1	)
Adjustment to present value of future profits		9			(3	)
Adjustment to sales inducements		3			—
Adjustment to benefit reserves		65			(92	)
Provision for income taxes		54			36

Change in unrealized gains (losses) on investment securities		(141	)		(70	)
Reclassification adjustments to net investment (gains) losses, net of taxes of $(2) and $10		7			(19	)

Change in net unrealized investment gains (losses)		(134	)		(89	)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		(6	)		(17	)

Ending balance	$	608		$	1,108

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	As of or for the nine months ended September 30,
(Amounts in millions)	2018			2017
Beginning balance	$	1,085		$	1,262
Cumulative effect of changes in accounting:
Stranded tax effects		189			—
Recognition and measurement of financial assets and liabilities, net of taxes of $18 and $—		(25	)		—

Total cumulative effect of changes in accounting		164			—

Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities		(3,150	)		1,377
Adjustment to deferred acquisition costs		1,201			(1,047	)
Adjustment to present value of future profits		65			(36	)
Adjustment to sales inducements		32			(11	)
Adjustment to benefit reserves		967			(429	)
Provision for income taxes		203			51

Change in unrealized gains (losses) on investment securities		(682	)		(95	)
Reclassification adjustments to net investment (gains) losses, net of taxes of $(5) and $41		20			(77	)

Change in net unrealized investment gains (losses)		(662	)		(172	)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		(21	)		(18	)

Ending balance	$	608		$	1,108

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(d) Fixed Maturity and Equity Securities

As of September 30, 2018, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity securities classified as available-for-sale were as follows:


			Gross unrealized gains				Gross unrealized losses
(Amounts in millions)	Amortized cost or cost		Not other-than- temporarily impaired		Other-than- temporarily impaired		Not other-than- temporarily impaired			Other-than- temporarily impaired		Fair value
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	4,733	$	491	$	—	$	(43	)	$	—	$	5,181
State and political subdivisions		2,686		156		—		(47	)		—		2,795
Non-U.S. government		2,265		65		—		(41	)		—		2,289
U.S. corporate:
Utilities		4,459		341		—		(89	)		—		4,711
Energy		2,228		136		—		(28	)		—		2,336
Finance and insurance		6,203		264		—		(115	)		—		6,352
Consumer—non-cyclical		4,496		298		—		(90	)		—		4,704
Technology and communications		2,704		127		—		(56	)		—		2,775
Industrial		1,152		52		—		(19	)		—		1,185
Capital goods		2,209		167		—		(41	)		—		2,335
Consumer—cyclical		1,543		62		—		(32	)		—		1,573
Transportation		1,190		81		—		(33	)		—		1,238
Other		315		15		—		(1	)		—		329

Total U.S. corporate		26,499		1,543		—		(504	)		—		27,538

Non-U.S. corporate:
Utilities		1,028		18		—		(26	)		—		1,020
Energy		1,299		98		—		(18	)		—		1,379
Finance and insurance		2,483		91		—		(37	)		—		2,537
Consumer—non-cyclical		730		9		—		(18	)		—		721
Technology and communications		1,085		28		—		(16	)		—		1,097
Industrial		904		40		—		(11	)		—		933
Capital goods		603		13		—		(9	)		—		607
Consumer—cyclical		543		2		—		(11	)		—		534
Transportation		690		43		—		(13	)		—		720
Other		2,542		108		—		(25	)		—		2,625

Total non-U.S. corporate		11,907		450		—		(184	)		—		12,173

Residential mortgage-backed		3,125		123		13		(39	)		—		3,222
Commercial mortgage-backed		3,217		38		—		(99	)		—		3,156
Other asset-backed		3,066		4		1		(21	)		—		3,050

Total available-for-sale fixed maturity securities	$	57,498	$	2,870	$	14	$	(978	)	$	—	$	59,404

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of December 31, 2017, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:


			Gross unrealized gains				Gross unrealized losses
(Amounts in millions)	Amortized cost or cost		Not other-than- temporarily impaired		Other-than- temporarily impaired		Not other-than- temporarily impaired			Other-than- temporarily impaired		Fair value
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	4,681	$	870	$	—	$	(3	)	$	—	$	5,548
State and political subdivisions		2,678		270		—		(22	)		—		2,926
Non-U.S. government		2,147		106		—		(20	)		—		2,233
U.S. corporate:
Utilities		4,396		611		—		(9	)		—		4,998
Energy		2,239		227		—		(8	)		—		2,458
Finance and insurance		5,984		556		—		(12	)		—		6,528
Consumer—non-cyclical		4,314		530		—		(13	)		—		4,831
Technology and communications		2,665		192		—		(12	)		—		2,845
Industrial		1,241		106		—		(1	)		—		1,346
Capital goods		2,087		273		—		(5	)		—		2,355
Consumer—cyclical		1,493		116		—		(4	)		—		1,605
Transportation		1,160		134		—		(3	)		—		1,291
Other		355		25		—		(1	)		—		379

Total U.S. corporate		25,934		2,770		—		(68	)		—		28,636

Non-U.S. corporate:
Utilities		979		42		—		(4	)		—		1,017
Energy		1,337		158		—		(5	)		—		1,490
Finance and insurance		2,567		174		—		(6	)		—		2,735
Consumer—non-cyclical		686		30		—		(4	)		—		712
Technology and communications		913		71		—		(2	)		—		982
Industrial		958		88		—		(2	)		—		1,044
Capital goods		614		33		—		(2	)		—		645
Consumer—cyclical		532		9		—		(1	)		—		540
Transportation		656		68		—		(3	)		—		721
Other		2,536		193		—		(4	)		—		2,725

Total non-U.S. corporate		11,778		866		—		(33	)		—		12,611

Residential mortgage-backed		3,831		223		14		(11	)		—		4,057
Commercial mortgage-backed		3,387		94		2		(37	)		—		3,446
Other asset-backed		3,056		17		1		(6	)		—		3,068

Total fixed maturity securities		57,492		5,216		17		(200	)		—		62,525
Equity securities		756		72		—		(8	)		—		820

Total available-for-sale securities	$	58,248	$	5,288	$	17	$	(208	)	$	—	$	63,345

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the gross unrealized losses and fair values of our fixed maturity securities, aggregated by investment type and length of time that individual fixed maturity securities have been in a continuous unrealized loss position, as of September 30, 2018:


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Grossunrealizedlosses			Number of securities		Fair value		Grossunrealizedlosses			Number of securities
Description of Securities
Fixed maturity securities:
U.S. government, agencies and government-sponsoredenterprises	$	911	$	(32	)		52	$	113	$	(11	)		12	$	1,024	$	(43	)		64
State and political subdivisions		618		(22	)		125		344		(25	)		52		962		(47	)		177
Non-U.S. government		754		(16	)		76		465		(25	)		28		1,219		(41	)		104
U.S. corporate		9,901		(354	)		1,345		1,702		(150	)		236		11,603		(504	)		1,581
Non-U.S. corporate		4,353		(125	)		592		869		(59	)		131		5,222		(184	)		723
Residential mortgage-backed		884		(21	)		135		441		(18	)		81		1,325		(39	)		216
Commercial mortgage-backed		1,078		(30	)		164		706		(69	)		105		1,784		(99	)		269
Other asset-backed		1,669		(15	)		300		381		(6	)		83		2,050		(21	)		383

Total for fixed maturity securities in an unrealized loss position	$	20,168	$	(615	)		2,789	$	5,021	$	(363	)		728	$	25,189	$	(978	)		3,517

% Below cost:
<20% Below cost	$	20,163	$	(614	)		2,787	$	5,007	$	(357	)		723	$	25,170	$	(971	)		3,510
20%-50% Below cost		5		(1	)		2		14		(6	)		5		19		(7	)		7

Total for fixed maturity securities in an unrealized loss position	$	20,168	$	(615	)		2,789	$	5,021	$	(363	)		728	$	25,189	$	(978	)		3,517

Investment grade	$	19,212	$	(581	)		2,653	$	4,882	$	(350	)		697	$	24,094	$	(931	)		3,350
Below investment grade		956		(34	)		136		139		(13	)		31		1,095		(47	)		167

Total for fixed maturity securities in an unrealized loss position	$	20,168	$	(615	)		2,789	$	5,021	$	(363	)		728	$	25,189	$	(978	)		3,517

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of September 30, 2018:


	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	$	1,321	$	(59	)		191	$	281	$	(30	)		50	$	1,602	$	(89	)		241
Energy		633		(19	)		94		130		(9	)		16		763		(28	)		110
Finance and insurance		2,720		(89	)		378		408		(26	)		51		3,128		(115	)		429
Consumer—non-cyclical		1,687		(65	)		198		261		(25	)		34		1,948		(90	)		232
Technology and communications		1,065		(34	)		142		222		(22	)		28		1,287		(56	)		170
Industrial		457		(15	)		58		46		(4	)		7		503		(19	)		65
Capital goods		749		(28	)		102		114		(13	)		19		863		(41	)		121
Consumer—cyclical		715		(23	)		109		110		(9	)		14		825		(32	)		123
Transportation		486		(21	)		69		116		(12	)		16		602		(33	)		85
Other		68		(1	)		4		14		—			1		82		(1	)		5

Subtotal, U.S. corporatesecurities		9,901		(354	)		1,345		1,702		(150	)		236		11,603		(504	)		1,581

Non-U.S. corporate:
Utilities		413		(14	)		56		135		(12	)		16		548		(26	)		72
Energy		381		(12	)		53		108		(6	)		13		489		(18	)		66
Finance and insurance		1,046		(27	)		148		181		(10	)		31		1,227		(37	)		179
Consumer—non-cyclical		330		(12	)		34		83		(6	)		11		413		(18	)		45
Technology and communications		523		(13	)		68		35		(3	)		7		558		(16	)		75
Industrial		249		(7	)		41		37		(4	)		4		286		(11	)		45
Capital goods		227		(7	)		26		34		(2	)		7		261		(9	)		33
Consumer—cyclical		361		(10	)		46		36		(1	)		9		397		(11	)		55
Transportation		228		(6	)		27		70		(7	)		10		298		(13	)		37
Other		595		(17	)		93		150		(8	)		23		745		(25	)		116

Subtotal, non-U.S. corporatesecurities		4,353		(125	)		592		869		(59	)		131		5,222		(184	)		723

Total for corporate securities in an unrealized loss position	$	14,254	$	(479	)		1,937	$	2,571	$	(209	)		367	$	16,825	$	(688	)		2,304

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.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the gross unrealized losses and fair values of our investment securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, as of December 31, 2017:


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Grossunrealizedlosses			Number of securities		Fair value		Grossunrealizedlosses			Number of securities
Description of Securities
Fixed maturity securities:
U.S. government, agencies and government-sponsoredenterprises	$	78	$	(1	)		21	$	94	$	(2	)		7	$	172	$	(3	)		28
State and political subdivisions		125		(1	)		35		327		(21	)		42		452		(22	)		77
Non-U.S. government		583		(7	)		26		239		(13	)		20		822		(20	)		46
U.S. corporate		1,871		(26	)		296		1,347		(42	)		190		3,218		(68	)		486
Non-U.S. corporate		1,323		(12	)		217		548		(21	)		77		1,871		(33	)		294
Residential mortgage- backed		707		(7	)		81		130		(4	)		46		837		(11	)		127
Commercial mortgage-backed		476		(4	)		69		646		(33	)		90		1,122		(37	)		159
Other asset-backed		853		(4	)		160		230		(2	)		57		1,083		(6	)		217

Subtotal, fixed maturitysecurities		6,016		(62	)		905		3,561		(138	)		529		9,577		(200	)		1,434
Equity securities		74		(3	)		134		100		(5	)		58		174		(8	)		192

Total for securities in an unrealizedloss position	$	6,090	$	(65	)		1,039	$	3,661	$	(143	)		587	$	9,751	$	(208	)		1,626

% Below cost—fixed maturitysecurities:
<20% Below cost	$	6,016	$	(62	)		905	$	3,555	$	(136	)		526	$	9,571	$	(198	)		1,431
20%-50% Below cost		—		—			—		6		(2	)		3		6		(2	)		3

Total fixed maturity securities		6,016		(62	)		905		3,561		(138	)		529		9,577		(200	)		1,434

% Below cost—equity securities:
<20% Below cost		74		(3	)		134		100		(5	)		58		174		(8	)		192

Total equity securities		74		(3	)		134		100		(5	)		58		174		(8	)		192

Total for securities in an unrealizedloss position	$	6,090	$	(65	)		1,039	$	3,661	$	(143	)		587	$	9,751	$	(208	)		1,626

Investment grade	$	5,867	$	(55	)		898	$	3,488	$	(135	)		528	$	9,355	$	(190	)		1,426
Below investment grade		223		(10	)		141		173		(8	)		59		396		(18	)		200

Total for securities in an unrealizedloss position	$	6,090	$	(65	)		1,039	$	3,661	$	(143	)		587	$	9,751	$	(208	)		1,626

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	$	181	$	(2	)		33	$	219	$	(7	)		36	$	400	$	(9	)		69
Energy		106		(1	)		22		140		(7	)		15		246		(8	)		37
Finance and insurance		626		(6	)		91		222		(6	)		30		848		(12	)		121
Consumer—non-cyclical		299		(7	)		46		221		(6	)		31		520		(13	)		77
Technology and communications		217		(4	)		32		210		(8	)		29		427		(12	)		61
Industrial		—		—			—		62		(1	)		9		62		(1	)		9
Capital goods		176		(2	)		25		81		(3	)		14		257		(5	)		39
Consumer—cyclical		137		(2	)		24		95		(2	)		13		232		(4	)		37
Transportation		117		(1	)		21		97		(2	)		13		214		(3	)		34
Other		12		(1	)		2		—		—			—		12		(1	)		2

Subtotal, U.S. corporatesecurities		1,871		(26	)		296		1,347		(42	)		190		3,218		(68	)		486

Non-U.S. corporate:
Utilities		113		(1	)		23		72		(3	)		8		185		(4	)		31
Energy		118		(2	)		19		74		(3	)		12		192		(5	)		31
Finance and insurance		347		(3	)		56		117		(3	)		19		464		(6	)		75
Consumer—non-cyclical		69		(1	)		11		60		(3	)		6		129		(4	)		17
Technology and communications		107		(1	)		18		30		(1	)		6		137		(2	)		24
Industrial		52		—			9		38		(2	)		5		90		(2	)		14
Capital goods		54		—			11		46		(2	)		3		100		(2	)		14
Consumer—cyclical		131		(1	)		21		—		—			—		131		(1	)		21
Transportation		47		(1	)		7		64		(2	)		8		111		(3	)		15
Other		285		(2	)		42		47		(2	)		10		332		(4	)		52

Subtotal, non-U.S. corporatesecurities		1,323		(12	)		217		548		(21	)		77		1,871		(33	)		294

Total for corporate securities in an unrealized loss position	$	3,194	$	(38	)		513	$	1,895	$	(63	)		267	$	5,089	$	(101	)		780

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The scheduled maturity distribution of fixed maturity securities as of September 30, 2018 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	$	1,708	$	1,719
Due after one year through five years		10,884		10,987
Due after five years through ten years		12,477		12,531
Due after ten years		23,021		24,739

Subtotal		48,090		49,976
Residential mortgage-backed		3,125		3,222
Commercial mortgage-backed		3,217		3,156
Other asset-backed		3,066		3,050

Total	$	57,498	$	59,404

As of September 30, 2018, securities issued by finance and insurance, consumer—non-cyclical and utilities industry groups represented approximately 22%, 14% and 14%, 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 September 30, 2018, 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.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	September 30, 2018						December 31, 2017
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Property type:
Retail	$	2,412			36	%	$	2,239			35	%
Industrial		1,629			25			1,628			26
Office		1,521			23			1,510			24
Apartments		494			8			478			8
Mixed use		251			4			223			3
Other		274			4			275			4

Subtotal		6,581			100	%		6,353			100	%

Unamortized balance of loan origination fees and costs		(4	)					(3	)
Allowance for losses		(9	)					(9	)

Total	$	6,568					$	6,341


	September 30, 2018						December 31, 2017
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Geographic region:
South Atlantic	$	1,699			26	%	$	1,625			26	%
Pacific		1,633			25			1,622			26
Middle Atlantic		952			15			927			14
Mountain		624			10			556			9
West North Central		471			7			446			7
East North Central		401			6			394			6
West South Central		356			5			336			5
East South Central		228			3			208			3
New England		217			3			239			4

Subtotal		6,581			100	%		6,353			100	%

Unamortized balance of loan origination fees and costs		(4	)					(3	)
Allowance for losses		(9	)					(9	)

Total	$	6,568					$	6,341

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	September 30, 2018
(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	$	—		$	—		$	—		$	—		$	2,412		$	2,412
Industrial		—			—			—			—			1,629			1,629
Office		—			—			6			6			1,515			1,521
Apartments		—			—			—			—			494			494
Mixed use		—			—			—			—			251			251
Other		—			—			—			—			274			274

Total recorded investment	$	—		$	—		$	6		$	6		$	6,575		$	6,581

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


	December 31, 2017
(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	$	5		$	—		$	—		$	5		$	2,234		$	2,239
Industrial		—			—			—			—			1,628			1,628
Office		—			—			6			6			1,504			1,510
Apartments		—			—			—			—			478			478
Mixed use		—			—			—			—			223			223
Other		—			—			—			—			275			275

Total recorded investment	$	5		$	—		$	6		$	11		$	6,342		$	6,353

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

As of September 30, 2018 and December 31, 2017, we had no commercial mortgage loans that were past due for more than 90 days and still accruing interest. We also did not have any commercial mortgage loans that were past due for less than 90 days on non-accrual status as of September 30, 2018 and December 31, 2017.

We evaluate the impairment of commercial mortgage loans on an individual loan basis. As of September 30, 2018, our commercial mortgage loans greater than 90 days past due included one impaired loan. This loan had an appraised value in excess of the recorded investment and the current recorded investment of this loan is expected to be recoverable.

During the nine months ended September 30, 2018 and the year ended December 31, 2017, we modified or extended two and ten commercial mortgage loans, respectively, with a total carrying value of $12 million and $27 million, respectively. All of these modifications or extensions were based on current market interest rates and did not result in any forgiveness in the outstanding principal amount owed by the borrower.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	Three months ended September 30,				Nine months ended September 30,
(Amounts in millions)	2018		2017		2018		2017
Allowance for credit losses:
Beginning balance	$	9	$	10	$	9	$	12
Charge-offs		—		—		—		—
Recoveries		—		—		—		—
Provision		—		—		—		(2	)

Ending balance	$	9	$	10	$	9	$	10

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

Ending allowance for loans not individually impaired that were evaluated collectively for impairment	$	9	$	10	$	9	$	10

Recorded investment:
Ending balance	$	6,581	$	6,281	$	6,581	$	6,281

Ending balance of individually impaired loans	$	6	$	—	$	6	$	—

Ending balance of loans not individually impaired that were evaluated collectively for impairment	$	6,575	$	6,281	$	6,575	$	6,281

As of September 30, 2018 and December 31, 2017, we had one individually impaired loan within the office property type with a recorded investment and unpaid principal balance of $6 million. As of September 30, 2017, we had no individually impaired commercial mortgage loans.

In evaluating the credit quality of commercial mortgage loans, we assess the performance of the underlying loans using both quantitative and qualitative criteria. Certain risks associated with commercial mortgage loans can be evaluated by reviewing both the loan-to-value and debt service coverage ratio to understand both the probability of the borrower not being able to make the necessary loan payments as well as the ability to sell the underlying property for an amount that would enable us to recover our unpaid principal balance in the event of default by the borrower. The average loan-to-value ratio is based on our most recent estimate of the fair value for the underlying property which is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A lower loan-to-value indicates that our loan value is more likely to be recovered in the event of default by the borrower if the property was sold. The debt service coverage ratio is based on “normalized” annual 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 is not 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:


	September 30, 2018
(Amounts in millions)	0%-50%			51%-60%			61%-75%			76%-100%			Greaterthan 100%			Total
Property type:
Retail	$	794		$	488		$	1,130		$	—		$	—		$	2,412
Industrial		712			302			615			—			—			1,629
Office		413			449			651			8			—			1,521
Apartments		200			113			176			5			—			494
Mixed use		100			54			97			—			—			251
Other		29			36			209			—			—			274

Total recorded investment	$	2,248		$	1,442		$	2,878		$	13		$	—		$	6,581

% of total		34	%		22	%		44	%		—	%		—	%		100	%

Weighted-average debt service coverage ratio		2.31			1.87			1.62			1.07			—			1.91


	December 31, 2017
(Amounts in millions)	0%-50%			51%-60%			61%-75%			76%-100%			Greaterthan 100% ⁽¹⁾			Total
Property type:
Retail	$	919		$	500		$	820		$	—		$	—		$	2,239
Industrial		731			363			532			2			—			1,628
Office		575			386			534			13			2			1,510
Apartments		226			101			146			5			—			478
Mixed use		99			59			65			—			—			223
Other		68			28			179			—			—			275

Total recorded investment	$	2,618		$	1,437		$	2,276		$	20		$	2		$	6,353

% of total		41	%		23	%		36	%		—	%		—	%		100	%

Weighted-average debt service coverage ratio		2.65			1.85			1.62			0.62			1.04			2.09

⁽¹⁾	Included a loan with a recorded investment of $2 million in good standing, where the borrower continued to make timely payments, with a loan-to-value of 102%. We evaluated this loan on an individual basis and as it is in good standing, the current recorded investment is expected to be recoverable.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	September 30, 2018
(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	$	40		$	194		$	417		$	1,197		$	564		$	2,412
Industrial		19			60			203			756			591			1,629
Office		33			69			169			732			518			1,521
Apartments		12			17			93			189			183			494
Mixed use		5			4			50			89			103			251
Other		1			146			32			86			9			274

Total recorded investment	$	110		$	490		$	964		$	3,049		$	1,968		$	6,581

% of total		2	%		7	%		15	%		46	%		30	%		100	%

Weighted-average loan-to-value		54	%		59	%		62	%		60	%		45	%		55	%


	December 31, 2017
(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	$	43		$	235		$	301		$	1,020		$	640		$	2,239
Industrial		23			61			174			700			670			1,628
Office		51			61			157			569			672			1,510
Apartments		—			17			77			191			193			478
Mixed use		2			4			26			86			105			223
Other		1			149			14			71			40			275

Total recorded investment	$	120		$	527		$	749		$	2,637		$	2,320		$	6,353

% of total		2	%		8	%		12	%		42	%		36	%		100	%

Weighted-average loan-to-value		55	%		60	%		58	%		58	%		42	%		52	%

As of September 30, 2018 and December 31, 2017, we did not have any floating rate commercial mortgage loans.

(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) Limited Partnerships or Similar Entities

Limited partnerships are accounted for at fair value when our partnership interest is considered minor (generally less than 3% ownership in the limited partnerships) and we exercise no influence over operating and financial policies. If our ownership percentage exceeds that threshold, limited partnerships are accounted for using the equity method of accounting. In applying either method, we use financial information provided by the investee generally on a one-to-three month lag.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Investments in partnerships or similar entities are generally considered VIEs when the equity group lacks 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 September 30, 2018 and December 31, 2017, the total carrying value of these investments was $330 million and $222 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 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)	Balancesheet classification		September 30,2018		December 31, 2017		Balancesheet classification	September 30,2018		December 31, 2017
Derivatives designated ashedges
Cash flow hedges:
Interest rate swaps		Other invested assets	$	36	$	74	Other liabilities	$	155	$	25
Foreign currency swaps		Other invested assets		2		1	Other liabilities		—		—

Total cash flow hedges				38		75			155		25

Total derivativesdesignated as hedges				38		75			155		25

Derivatives not designated ashedges
Interest rate swaps in a foreign currency		Other invested assets		116		105	Other liabilities		—		—
Interest rate caps and floors		Other invested assets		3		—	Other liabilities		—		—
Foreign currency swaps		Other invested assets		5		11	Other liabilities		3		—
Equity index options		Other invested assets		79		80	Other liabilities		—		—
Financial futures		Other invested assets		—		—	Other liabilities		—		—
Equity return swaps		Other invested assets		—		—	Other liabilities		1		2
Other foreign currencycontracts		Other invested assets		4		5	Other liabilities		19		20
GMWB embedded derivatives		Reinsurance recoverable ⁽¹⁾		11		14	Policyholder account balances ⁽²⁾		201		250
Fixed index annuity embeddedderivatives		Other assets		—		—	Policyholder account balances ⁽³⁾		446		419
Indexed universal life embedded derivatives		Reinsurance recoverable		—		—	Policyholder account balances ⁽⁴⁾		13		14

Total derivatives notdesignated as hedges				218		215			683		705

Total derivatives			$	256	$	290		$	838	$	730

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

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

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

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

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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


(Notional in millions)	Measurement		December 31, 2017		Additions		Maturities/ terminations			September 30, 2018
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps		Notional	$	11,155	$	1,645	$	(1,978	)	$	10,822
Foreign currency swaps		Notional		22		58		—			80

Total cash flow hedges				11,177		1,703		(1,978	)		10,902

Total derivatives designated as hedges				11,177		1,703		(1,978	)		10,902

Derivatives not designated as hedges
Interest rate swaps		Notional		4,679		—		(5	)		4,674
Interest rate swaps in a foreign currency		Notional		2,793		117		(203	)		2,707
Interest rate caps and floors		Notional		—		2,090		(79	)		2,011
Foreign currency swaps		Notional		349		133		(23	)		459
Credit default swaps		Notional		39		—		(39	)		—
Equity index options		Notional		2,420		1,895		(1,484	)		2,831
Financial futures		Notional		1,283		3,901		(3,964	)		1,220
Equity return swaps		Notional		96		3		(78	)		21
Other foreign currency contracts		Notional		471		516		(502	)		485

Total derivatives not designated as hedges				12,130		8,655		(6,377	)		14,408

Total derivatives			$	23,307	$	10,358	$	(8,355	)	$	25,310


(Number of policies)	Measurement		December 31, 2017		Additions		Maturities/ terminations			September 30, 2018
Derivatives not designated as hedges
GMWB embedded derivatives		Policies		30,450		—		(2,008	)		28,442
Fixed index annuity embedded derivatives		Policies		17,067		—		(390	)		16,677
Indexed universal life embedded derivatives		Policies		985		—		(38	)		947

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.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended September 30, 2018:


(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income from OCI		Classification of gain (loss) reclassified into net income
Interest rate swaps hedging assets	$	(164	)	$	38		Net investment income
Interest rate swaps hedging liabilities		9			—		Interest expense
Foreign currency swaps		1			—		Net investment income

Total	$	(154	)	$	38

The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended September 30, 2017:


(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 innet income⁽¹⁾		Classification of gain (loss) recognized in net income
Interest rate swaps hedging assets	$	17		$	34	Net investment income	$	—	Net investment gains (losses)
Foreign currency swaps		(1	)		—	Net investment income		—	Net investment gains (losses)

Total	$	16		$	34		$	—

⁽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 nine months ended September 30, 2018:


(Amounts in millions)	Gain (loss) recognized in OCI		Gain (loss) reclassified into net income from OCI		Classification of gain (loss) reclassified into net income
Interest rate swaps hedging assets	$	(391)	$	112		Net investment income
Interest rate swaps hedging assets		—		5		Net investment gains (losses)
Interest rate swaps hedging liabilities		31		—		Interest expense
Foreign currency swaps		1		—		Net investment income

Total	$	(359)	$	117

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides information about the pre-tax income effects of cash flow hedges for the nine months ended September 30, 2017:

(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 innet income ⁽¹⁾

Classification of gain (loss)
recognized in net income

Interest rate swaps hedging assets

Net investment income

—

Net investment gains (losses)

Interest rate swaps hedging assets

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company