10-Q

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

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

For the quarterly period ended June 30, 2019

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

For the transition period from

Commission file number

001-32195

GENWORTH FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Delaware		80-0873306
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

6620 West Broad Street Richmond, Virginia		23230
(Address of principal executive offices)		(Zip Code)

(

804

)

281-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, par value $.001 per share	GNW	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

☐

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

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

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

☐

☒

As of July 25, 2019,

503,465,078

shares of Class A Common Stock, par value $0.001 per share, were outstanding.

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except per share amounts)


	June 30,			December 31,
	2019			2018
	(Unaudited)
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value	$	63,774		$	59,661
Equity securities, at fair value		644			655
Commercial mortgage loans ($56 and $62 are restricted as of June 30, 2019 and December 31, 2018, respectively, related to a securitization entity)		7,019			6,749
Policy loans		2,076			1,861
Other invested assets		1,535			1,188

Total investments		75,048			70,114
Cash, cash equivalents and restricted cash		1,938			2,177
Accrued investment income		626			675
Deferred acquisition costs		2,105			3,263
Intangible assets and goodwill		244			347
Reinsurance recoverable		17,211			17,278
Other assets		564			474
Deferred tax asset		383			736
Separate account assets		6,187			5,859

Total assets	$	104,306		$	100,923
Liabilities and equity
Liabilities:
Future policy benefits	$	39,583		$	37,940
Policyholder account balances		22,673			22,968
Liability for policy and contract claims		10,677			10,379
Unearned premiums		3,488			3,546
Other liabilities		1,723			1,682
Non-recourse funding obligations		311			311
Long-term borrowings		4,044			4,025
Deferred tax liability		28			24
Separate account liabilities		6,187			5,859

Total liabilities		88,714			86,734

Commitments and contingencies
Equity:
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 592 million and 589 million shares issued as of June 30, 2019 and December 31, 2018, respectively; 504 million and 501 million shares outstanding as of June 30, 2019 and December 31, 2018, respectively		1			1
Additional paid-in capital		11,983			11,987

Accumulated other comprehensive income (loss):
Net unrealized investment gains (losses):
Net unrealized gains (losses) on securities not other-than-temporarily impaired		1,294			585
Net unrealized gains (losses) on other-than-temporarily impaired securities		11			10

Net unrealized investment gains (losses)		1,305			595

Derivatives qualifying as hedges		1,983			1,781
Foreign currency translation and other adjustments		(275	)		(332	)

Total accumulated other comprehensive income (loss)		3,013			2,044
Retained earnings		1,460			1,118
Treasury stock, at cost (88 million shares as of June 30, 2019 and December 31, 2018)		(2,700	)		(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity		13,757			12,450
Noncontrolling interests		1,835			1,739

Total equity		15,592			14,189

Total liabilities and equity	$	104,306		$	100,923

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in millions, except per share amounts)

(Unaudited)


	Three months ended						Six months ended
	June 30,						June 30,
	2019			2018			2019		2018
Revenues:
Premiums	$	1,126		$	1,136		$	2,240	$	2,276
Net investment income		852			828			1,681		1,632
Net investment gains (losses)		(45	)		(14	)		29		(45	)
Policy fees and other income		223			209			410		411

Total revenues		2,156			2,159			4,360		4,274

Benefits and expenses:
Benefits and other changes in policy reserves		1,270			1,205			2,571		2,516
Interest credited		146			152			293		308
Acquisition and operating expenses, net of deferrals		247			253			498		493
Amortization of deferred acquisition costs and intangibles		95			112			186		216
Interest expense		73			77			145		153

Total benefits and expenses		1,831			1,799			3,693		3,686

Income before income taxes		325			360			667		588
Provision for income taxes		107			111			219		174

Net income		218			249			448		414
Less: net income attributable to noncontrolling interests		50			59			106		112

Net income available to Genworth Financial, Inc.’s common stockholders	$	168		$	190		$	342	$	302
Net income available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.33		$	0.38		$	0.68	$	0.60
Diluted	$	0.33		$	0.38		$	0.67	$	0.60
Weighted-average common shares outstanding:
Basic		503.4			500.6			502.3		500.1
Diluted		508.7			502.6			508.7		502.6
Supplemental disclosures:
Total other-than-temporary impairments	$	—		$	—		$	—	$	—
Portion of other-than-temporary impairments included in other comprehensive income (loss)		—			—			—		—

Net other-than-temporary impairments		—			—			—		—
Other investments gains (losses)		(45	)		(14	)		29		(45	)

Total net investment gains (losses)	$	(45	)	$	(14	)	$	29	$	(45	)

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)


	Three months ended					Six months ended
	June 30,					June 30,
	2019		2018			2019		2018
Net income	$	218	$	249		$	448	$	414
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities not other-than-temporarily impaired		376		(185	)		755		(526	)
Net unrealized gains (losses) on other-than-temporarily impaired securities		—		(2	)		1		(2	)
Derivatives qualifying as hedges		133		(64	)		202		(216	)
Foreign currency translation and other adjustments		43		(98	)		97		(185	)

Total other comprehensive income (loss)		552		(349	)		1,055		(929	)

Total comprehensive income (loss)		770		(100	)		1,503		(515	)
Less: comprehensive income attributable to noncontrolling interests		81		10			192		14

Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders	$	689	$	(110	)	$	1,311	$	(529	)

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in millions)

(Unaudited)


	Three months ended June 30, 2019
														Total
														Genworth
						Accumulated								Financial,
			Additional			other					Treasury			Inc.’s
	Common		paid-in			comprehensive			Retained		stock, at			stockholders’			Noncontrolling			Total
	stock		capital			income (loss)			earnings		cost			equity			interests			equity
Balances as of March 31, 2019	$	1	$	11,989		$	2,492		$	1,292	$	(2,700	)	$	13,074		$	1,808		$	14,882
Repurchase of subsidiary shares		—		—			—			—		—			—			(32	)		(32	)
Comprehensive income:
Net income		—		—			—			168		—			168			50			218
Other comprehensive income, net of taxes		—		—			521			—		—			521			31			552

Total comprehensive income		—													689			81			770
Dividends to noncontrolling interests		—		—			—			—		—			—			(25	)		(25	)
Stock-based compensation expense and exercises and other		—		(6	)		—			—		—			(6	)		3			(3	)

Balances as of June 30, 2019	$	1	$	11,983		$	3,013		$	1,460	$	(2,700	)	$	13,757		$	1,835		$	15,592

	Three months ended June 30, 2018
														Total
														Genworth
						Accumulated								Financial,
			Additional			other					Treasury			Inc.’s
	Common		paid-in			comprehensive			Retained		stock, at			stockholders’			Noncontrolling			Total
	stock		capital			income (loss)			earnings		cost			equity			interests			equity
Balances as of March 31, 2018	$	1	$	11,979		$	2,627		$	1,111	$	(2,700	)	$	13,018		$	1,844		$	14,862
Repurchase of subsidiary shares		—		—			—			—		—			—			(13	)		(13	)
Comprehensive income (loss):
Net income		—		—			—			190		—			190			59			249
Other comprehensive loss, net of taxes		—		—			(300	)		—		—			(300	)		(49	)		(349	)

Total comprehensive income (loss)															(110	)		10			(100	)
Dividends to noncontrolling interests		—		—			—			—		—			—			(14	)		(14	)
Stock-based compensation expense and exercises and other		—		2			—			—		—			2			4			6

Balances as of June 30, 2018	$	1	$	11,981		$	2,327		$	1,301	$	(2,700	)	$	12,910		$	1,831		$	14,741

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY, CONTINUED

(Amounts in millions)

(Unaudited)

	Six months ended June 30, 2019
																Total
																Genworth
							Accumulated									Financial,
				Additional			other						Treasury			Inc.’s
		Common		paid-in			comprehensive			Retained			stock, at			stockholders’			Noncontrolling			Total
		stock		capital			income (loss)			earnings			cost			equity			interests			equity
Balances as of December 31, 2018		$	1	$	11,987		$	2,044		$	1,118		$	(2,700	)	$	12,450		$	1,739		$	14,189
Repurchase of subsidiary shares			—		—			—			—			—			—			(44	)		(44	)
Comprehensive income:
Net income			—		—			—			342			—			342			106			448
Other comprehensive income, net of taxes			—		—			969			—			—			969			86			1,055
Total comprehensive income																	1,311			192			1,503
Dividends to noncontrolling interests			—		—			—			—			—			—			(53	)		(53	)
Stock-based compensation expense and exercises and other			—		(4	)		—			—			—			(4	)		1			(3	)

Balances as of June 30, 2019		$	1	$	11,983		$	3,013		$	1,460		$	(2,700	)	$	13,757		$	1,835		$	15,592

		Six months ended June 30, 2018
																Total
																Genworth
							Accumulated									Financial,
				Additional			other						Treasury			Inc.’s
		Common		paid-in			comprehensive			Retained			stock, at			stockholders’			Noncontrolling			Total
		stock		capital			income (loss)			earnings			cost			equity			interests			equity
Balances as of December 31, 2017		$	1	$	11,977		$	3,027		$	1,113		$	(2,700	)	$	13,418		$	1,910		$	15,328
Cumulative effect of change in accounting, net of taxes			—		—			131			(114	)		—			17			—			17
Repurchase of subsidiary shares			—		—			—			—			—			—			(49	)		(49	)
Comprehensive income (loss):
Net income			—		—			—			302			—			302			112			414
Other comprehensive loss, net of taxes			—		—			(831	)		—			—			(831	)		(98	)		(929	)
Other comprehensive loss, net of taxes			—		—			(831	)		—			—			(831	)		(98	)		(929	)

Total comprehensive income (loss)																	(529	)		14			(515	)
Dividends to noncontrolling interests			—		—			—			—			—			—			(50	)		(50	)
Stock-based compensation expense and exercises and other			—		4			—			—			—			4			6			10

Balances as of June 30, 2018		$	1	$	11,981		$	2,327		$	1,301		$	(2,700	)	$	12,910		$	1,831		$	14,741

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Six months ended
	June 30,
	2019			2018
Cash flows from operating activities:
Net income	$	448		$	414
Adjustments to reconcile net income to net cash from operating activities:
Amortization of fixed maturity securities discounts and premiums		(54	)		(62	)
Net investment (gains) losses		(29	)		45
Charges assessed to policyholders		(364	)		(359	)
Acquisition costs deferred		(35	)		(40	)
Amortization of deferred acquisition costs and intangibles		186			216
Deferred income taxes		134			83
Derivative instruments and limited partnerships		22			(195	)
Stock-based compensation expense		12			16
Change in certain assets and liabilities:
Accrued investment income and other assets		(290	)		(89	)
Insurance reserves		609			691
Current tax liabilities		27			(37	)
Other liabilities, policy and contract claims and other policy-related balances		129			(122	)

Net cash from operating activities		795			561

Cash flows used by investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		1,929			1,979
Commercial mortgage loans		285			350
Restricted commercial mortgage loans related to a securitization entity		6			16
Proceeds from sales of investments:
Fixed maturity and equity securities		2,859			1,920
Purchases and originations of investments:
Fixed maturity and equity securities		(4,681	)		(4,082	)
Commercial mortgage loans		(561	)		(489	)
Other invested assets, net		(227	)		93
Policy loans, net		39			15

Net cash used by investing activities		(351	)		(198	)

Cash flows used by financing activities:
Deposits to universal life and investment contracts		444			503
Withdrawals from universal life and investment contracts		(1,096	)		(1,177	)
Proceeds from issuance of long-term debt		77			441
Repayment and repurchase of long-term debt		(78	)		(597	)
Repayment of borrowings related to a securitization entity		—			(12	)
Repurchase of subsidiary shares		(44	)		(49	)
Dividends paid to noncontrolling interests		(53	)		(50	)
Other, net		55			(2	)

Net cash used by financing activities		(695	)		(943	)

Effect of exchange rate changes on cash, cash equivalents and restricted cash		12			(52	)

Net change in cash, cash equivalents and restricted cash		(239	)		(632	)
Cash, cash equivalents and restricted cash at beginning of period		2,177			2,875

Cash, cash equivalents and restricted cash at end of period	$	1,938		$	2,243

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., a limited liability company incorporated in the People’s Republic of China (together with its affiliates, “China Oceanwide”), and Asia Pacific Global Capital USA Corporation (“Merger Sub”), a Delaware corporation and a direct, 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, pursuant to which, subject to the terms and conditions set forth therein, Merger Sub would merge with and into Genworth Financial with Genworth Financial surviving the merger as a direct, 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 closing of the transaction remains subject to other closing conditions and approvals.

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 Financial,”

“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.

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 2018 Annual Report on Form

10-K.

Certain prior year amounts have been reclassified to conform to the current year presentation.

(2) Accounting Changes

Accounting Pronouncements Recently Adopted

On January 1, 2019, we adopted new accounting guidance related to benchmark interest rates used in derivative hedge accounting. The guidance adds an additional permissible U.S. benchmark interest rate, the Secured Overnight Financing Rate, for hedge accounting purposes. We adopted this new accounting guidance using the prospective method, which did not have any impact on our condensed consolidated financial statements and disclosures.

On January 1, 2019, we adopted 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. We adopted this new accounting guidance using the modified retrospective method. This guidance is consistent with our previous accounting practices and, accordingly, had no impact on our condensed consolidated financial statements at adoption.

On January 1, 2019, we adopted new accounting guidance related to 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. We adopted this new accounting guidance using the modified retrospective method, which did not have a significant impact on our condensed consolidated financial statements at adoption.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On January 1, 2019, we adopted new accounting guidance related to the accounting for leases. The new guidance generally requires lessees to recognize both a

right-of-use

asset and a corresponding lease liability on the balance sheet. We adopted this new accounting guidance using the effective date transition method, which permits entities to apply the new lease standard using a modified retrospective transition approach at the date of adoption. As such, historical periods will continue to be measured and presented under the previous guidance while current and future periods will be subject to this new accounting guidance. The package of practical expedients was also elected upon adoption. Upon adoption we recorded a $60 million

right-of-use

asset related to operating leases and a $63 million lease liability. In addition, we

de-recognized

accrued rent expense of $3 million recorded under the previous accounting guidance. The

right-of-use

asset and the lease liability are included in other assets and other liabilities, respectively, but did not have a material impact on our condensed consolidated balance sheet as of June 30, 2019. The initial measurement of our

right-of-use

asset had no significant initial direct costs, prepaid lease payments or lease incentives; therefore, a cumulative-effect adjustment was not recorded to the opening retained earnings balance as a result of the change in accounting principle.

Our leased assets are predominantly classified as operating leases and consist of office space in 15 locations primarily in the United States, Canada and Australia. Lease payments included in the calculation of our lease liability include fixed amounts contained within each rental agreement and variable lease payments that are based upon an index or rate. We have elected to combine lease and

non-lease

components, as permitted under this new accounting guidance, and as a result,

non-lease

components are included in the calculation of our lease liability as opposed to being separated and accounted for as consideration under the new revenue recognition standard. Our remaining lease terms ranged from less than 1 year to 13 years and had a weighted-average remaining lease term of 7.3 years as of June 30, 2019. The implicit rate of our lease agreements was not readily determinable; therefore, we utilized our incremental borrowing rate to discount future lease payments. The weighted-average discount rate was 6.23% as of June 30, 2019.

Our aggregate annual rental expense for all leases under the previous guidance was approximately $11 million. Annual rental expense and future minimum lease payments are not expected to be materially different under this new accounting guidance.

Accounting Pronouncements Not Yet Adopted

In August 2018, the Financial Accounting Standards Board (“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 deferred acquisition costs (“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);

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

•

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.

The FASB plans to propose delaying the effective date to January 1, 2022.

We are in process of evaluating the new guidance and the impact it will have on our condensed 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 condensed consolidated financial statements and disclosures.

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. While we are still evaluating the full impact, at this time we do not expect a significant impact from this guidance on our condensed consolidated financial statements and we are in process of evaluating the impact to our disclosures.

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 recoverables. 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 FASB also issued an amendment to the guidance allowing entities to irrevocably elect the fair value option on an instrument-by-instrument basis for eligible instruments, which we are in the process of evaluating for certain portfolios. The new guidance is currently 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 will be recorded to retained earnings. We have performed a gap analysis, developed a detailed implementation plan, identified model inputs and are in process of establishing policies, systems and controls that will be necessary to implement this new accounting guidance. While we are still in process of evaluating the impact the guidance may have on our condensed consolidated financial statements, the extent of the impact may vary and will depend on, among other things,

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

economic conditions and the composition and credit quality of our investments and reinsurance recoverables as of the date of adoption.

(3) Earnings Per Share

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


	Three months ended				Six months ended
	June 30,				June 30,
(Amounts in millions, except per share amounts)	2019		2018		2019		2018
Weighted-average shares used in basic earnings per share calculations		503.4		500.6		502.3		500.1
Potentially dilutive securities:
Stock options, restricted stock units and stock appreciation rights		5.3		2.0		6.4		2.5

Weighted-average shares used in diluted earnings per share calculations		508.7		502.6		508.7		502.6

Net income:
Net income	$	218	$	249	$	448	$	414
Less: net income attributable to noncontrolling interests		50		59		106		112

Net income available to Genworth Financial, Inc.’s common stockholders	$	168	$	190	$	342	$	302

Basic earnings per share:
Net income	$	0.44	$	0.50	$	0.89	$	0.83
Less: net income attributable to noncontrolling interests		0.10		0.12		0.21		0.22

Net income available to Genworth Financial, Inc.’s common stockholders (1)	$	0.33	$	0.38	$	0.68	$	0.60

Diluted earnings per share:
Net income	$	0.43	$	0.50	$	0.88	$	0.82
Less: net income attributable to noncontrolling interests		0.10		0.12		0.21		0.22

Net income available to Genworth Financial, Inc.’s common stockholders	$	0.33	$	0.38	$	0.67	$	0.60

(1)	May not total due to whole number calculation.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(4) Investments

(a) Net Investment Income

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


	Three months ended June 30,						Six months ended June 30,
(Amounts in millions)	2019			2018			2019			2018
Fixed maturity securities—taxable	$	665		$	651		$	1,308		$	1,286
Fixed maturity securities—non-taxable		2			3			4			6
Equity securities		10			10			19			20
Commercial mortgage loans		84			77			165			159
Restricted commercial mortgage loans related to a securitization entity		1			2			2			4
Policy loans		45			41			91			84
Other invested assets		59			53			118			92
Cash, cash equivalents, restricted cash and short-term investments		11			14			23			26

Gross investment income before expenses and fees		877			851			1,730			1,677
Expenses and fees		(25	)		(23	)		(49	)		(45	)

Net investment income	$	852		$	828		$	1,681		$	1,632

(b) Net Investment Gains (Losses)

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


	Three months ended June 30,						Six months ended June 30,
(Amounts in millions)	2019			2018			2019			2018
Available-for-sale fixed maturity securities:
Realized gains	$	5		$	13		$	86		$	20
Realized losses		(6	)		(21	)		(28	)		(37	)

Net realized gains (losses) on available-for-sale fixed maturity securities		(1	)		(8	)		58			(17	)

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

Net other-than-temporary impairments		—			—			—			—

Net realized gains (losses) on equity securities sold		—			8			3			10
Net unrealized gains (losses) on equity securities still held		(12	)		3			(4	)		(15	)
Limited partnerships		(11	)		(2	)		4			5
Commercial mortgage loans		1			—			—			—
Derivative instruments (1)		(22	)		(15	)		(32	)		(28	)

Net investment gains (losses)	$	(45	)	$	(14	)	$	29		$	(45	)

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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We generally intend to hold securities in unrealized loss positions until they recover. However, from time to time, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, we sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield and liquidity requirements. If a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we determined that we have the intent to sell the securities or it is more likely than not that we will be required to sell the securities prior to recovery. The aggregate fair value of securities sold at a loss during the three months ended June 30, 2019 and 2018 was $423 million and $640 million, respectively, which was approximately 98% and 97%, respectively, of book value. The aggregate fair value of securities sold at a loss during the six months ended June 30, 2019 and 2018 was $1,185 million and $1,259 million, respectively, which was approximately 97% of book value for both periods.

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


	As of or for the three months ended June 30,					As of or for the six months ended June 30,
(Amounts in millions)	2019		2018			2019			2018
Beginning balance	$	23	$	28		$	24		$	32
Reductions:
Securities sold, paid down or disposed		—		(3	)		(1	)		(7	)

Ending balance	$	23	$	25		$	23		$	25

Net unrealized gains and losses on

available-for-sale

investment securities reflected as a separate component of accumulated other comprehensive income (loss) were as follows as of the dates indicated:


(Amounts in millions)	June 30, 2019			December 31, 2018
Net unrealized gains (losses) on fixed maturity securities (1)	$	5,673		$	1,775
Adjustments to deferred acquisition costs, present value of future profits, salesinducements and benefit reserves		(3,879	)		(952	)
Income taxes, net		(405	)		(190	)

Net unrealized investment gains (losses)		1,389			633
Less: net unrealized investment gains (losses) attributable to noncontrolling interests		84			38

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	$	1,305		$	595

(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 June 30,
(Amounts in millions)	2019			2018
Beginning balance	$	943		$	917
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on fixed maturity securities		1,957			(905	)
Adjustment to deferred acquisition costs		(52	)		467
Adjustment to present value of future profits		(2	)		20
Adjustment to sales inducements		(12	)		9
Adjustment to benefit reserves		(1,412	)		162
Provision for income taxes		(104	)		54

Change in unrealized gains (losses) on investment securities		375			(193	)
Reclassification adjustments to net investment (gains) losses, net of taxes of $(1) and $(2)		1			6

Change in net unrealized investment gains (losses)		376			(187	)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		14			(6	)

Ending balance	$	1,305		$	736


	As of or for the six months ended June 30,
(Amounts in millions)	2019			2018
Beginning balance	$	595		$	1,085
Cumulative effect of changes in accounting:
Stranded tax effects		—			189
Recognition and measurement of financial assets and liabilities, net of taxes of $— and $18		—			(25	)

Total cumulative effect of changes in accounting		—			164

Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on fixed maturity securities		3,956			(2,586	)
Adjustment to deferred acquisition costs		(1,041	)		909
Adjustment to present value of future profits		(55	)		56
Adjustment to sales inducements		(31	)		29
Adjustment to benefit reserves		(1,800	)		902
Provision for income taxes		(227	)		149

Change in unrealized gains (losses) on investment securities		802			(541	)
Reclassification adjustments to net investment (gains) losses, net of taxes of $12 and $(3)		(46	)		13

Change in net unrealized investment gains (losses)		756			(528	)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		46			(15	)

Ending balance	$	1,305		$	736

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Amounts reclassified out of accumulated other comprehensive income (loss) to net investment gains (losses) include realized gains (losses) on sales of securities, which are determined on a specific identification basis.

(d) Fixed Maturity Securities

As of June 30, 2019, 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	$	4,151	$	837	$	—	$	(1	)	$	—	$	4,987
State and political subdivisions		2,319		317		—		—			—		2,636
Non-U.S. government		2,496		155		—		(2	)		—		2,649
U.S. corporate:
Utilities		4,327		565		—		(13	)		—		4,879
Energy		2,468		255		—		(10	)		—		2,713
Finance and insurance		6,974		633		—		(10	)		—		7,597
Consumer—non-cyclical		4,954		616		—		(18	)		—		5,552
Technology and communications		2,893		269		—		(6	)		—		3,156
Industrial		1,242		98		—		(4	)		—		1,336
Capital goods		2,323		303		—		(6	)		—		2,620
Consumer—cyclical		1,619		127		—		(5	)		—		1,741
Transportation		1,263		152		—		(4	)		—		1,411
Other		356		40		—		—			—		396

Total U.S. corporate		28,419		3,058		—		(76	)		—		31,401

Non-U.S. corporate:
Utilities		1,114		54		—		(3	)		—		1,165
Energy		1,349		168		—		(1	)		—		1,516
Finance and insurance		2,438		191		—		(1	)		—		2,628
Consumer—non-cyclical		674		40		—		(4	)		—		710
Technology and communications		1,179		94		—		—			—		1,273
Industrial		936		81		—		—			—		1,017
Capital goods		663		33		—		(1	)		—		695
Consumer—cyclical		542		16		—		(1	)		—		557
Transportation		761		82		—		(2	)		—		841
Other		2,061		186		—		(2	)		—		2,245

Total non-U.S. corporate		11,717		945		—		(15	)		—		12,647

Residential mortgage-backed		2,511		215		14		(2	)		—		2,738
Commercial mortgage-backed		2,882		121		—		(14	)		—		2,989
Other asset-backed		3,699		38		—		(10	)		—		3,727

Total available-for-sale fixed maturity securities	$	58,194	$	5,686	$	14	$	(120	)	$	—	$	63,774

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of December 31, 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	$	4,175	$	473	$	—	$	(17	)	$	—	$	4,631
State and political subdivisions		2,406		168		—		(22	)		—		2,552
Non-U.S. government		2,345		72		—		(24	)		—		2,393
U.S. corporate:
Utilities		4,439		331		—		(95	)		—		4,675
Energy		2,382		101		—		(64	)		—		2,419
Finance and insurance		6,705		249		—		(132	)		—		6,822
Consumer—non-cyclical		4,891		294		—		(137	)		—		5,048
Technology and communications		2,823		110		—		(78	)		—		2,855
Industrial		1,230		41		—		(33	)		—		1,238
Capital goods		2,277		165		—		(51	)		—		2,391
Consumer—cyclical		1,592		53		—		(48	)		—		1,597
Transportation		1,283		78		—		(41	)		—		1,320
Other		376		24		—		(3	)		—		397

Total U.S. corporate		27,998		1,446		—		(682	)		—		28,762

Non-U.S. corporate:
Utilities		1,056		17		—		(32	)		—		1,041
Energy		1,320		72		—		(23	)		—		1,369
Finance and insurance		2,391		72		—		(40	)		—		2,423
Consumer—non-cyclical		756		8		—		(25	)		—		739
Technology and communications		1,168		23		—		(26	)		—		1,165
Industrial		926		36		—		(17	)		—		945
Capital goods		615		10		—		(10	)		—		615
Consumer—cyclical		532		1		—		(13	)		—		520
Transportation		689		46		—		(15	)		—		720
Other		2,218		105		—		(23	)		—		2,300

Total non-U.S. corporate		11,671		390		—		(224	)		—		11,837

Residential mortgage-backed		2,888		160		13		(17	)		—		3,044
Commercial mortgage-backed		3,054		43		—		(81	)		—		3,016
Other asset-backed		3,444		10		1		(29	)		—		3,426

Total available-for-sale fixed maturity securities	$	57,981	$	2,762	$	14	$	(1,096	)	$	—	$	59,661

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 June 30, 2019:


	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, agenciesand government-sponsored enterprises	$	—	$	—			—	$	51	$	(1	)		9	$	51	$	(1	)		9
Non-U.S. government		—		—			—		198		(2	)		14		198		(2	)		14
U.S. corporate		372		(15	)		33		1,907		(61	)		256		2,279		(76	)		289
Non-U.S. corporate		34		(2	)		5		526		(13	)		82		560		(15	)		87
Residential mortgage-backed		—		—			—		166		(2	)		39		166		(2	)		39
Commercial mortgage-backed		—		—			—		399		(14	)		53		399		(14	)		53
Other asset-backed		832		(5	)		160		425		(5	)		101		1,257		(10	)		261

Total for fixed maturity securities inan unrealized loss position	$	1,238	$	(22	)		198	$	3,672	$	(98	)		554	$	4,910	$	(120	)		752

% Below cost:
<20% Below cost	$	1,238	$	(22	)		198	$	3,647	$	(88	)		549	$	4,885	$	(110	)		747
20%-50% Below cost		—		—			—		22		(7	)		3		22		(7	)		3
>50% Below cost		—		—			—		3		(3	)		2		3		(3	)		2
Total for fixed maturity securities inan unrealized loss position	$	1,238	$	(22	)		198	$	3,672	$	(98	)		554	$	4,910	$	(120	)		752

Investment grade	$	1,096	$	(11	)		185	$	3,463	$	(83	)		524	$	4,559	$	(94	)		709
Below investment grade		142		(11	)		13		209		(15	)		30		351		(26	)		43

Total for fixed maturity securities inan unrealized loss position	$	1,238	$	(22	)		198	$	3,672	$	(98	)		554	$	4,910	$	(120	)		752

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of June 30, 2019:


	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	$	46	$	(4	)		4	$	326	$	(9	)		50	$	372	$	(13	)		54
Energy		60		(2	)		11		143		(8	)		17		203		(10	)		28
Finance and insurance		—		—			—		343		(10	)		46		343		(10	)		46
Consumer—non-cyclical		93		(7	)		12		383		(11	)		49		476		(18	)		61
Technology andcommunications		173		(2	)		6		198		(4	)		22		371		(6	)		28
Industrial		—		—			—		94		(4	)		14		94		(4	)		14
Capital goods		—		—			—		128		(6	)		18		128		(6	)		18
Consumer—cyclical		—		—			—		175		(5	)		24		175		(5	)		24
Transportation		—		—			—		117		(4	)		16		117		(4	)		16

Subtotal, U.S. corporate securities		372		(15	)		33		1,907		(61	)		256		2,279		(76	)		289

Non-U.S. corporate:
Utilities		21		(1	)		3		103		(2	)		13		124		(3	)		16
Energy		13		(1	)		2		—		—			—		13		(1	)		2
Finance and insurance		—		—			—		113		(1	)		23		113		(1	)		23
Consumer—non-cyclical		—		—			—		72		(4	)		10		72		(4	)		10
Capital goods		—		—			—		44		(1	)		5		44		(1	)		5
Consumer—cyclical		—		—			—		64		(1	)		10		64		(1	)		10
Transportation		—		—			—		51		(2	)		8		51		(2	)		8
Other		—		—			—		79		(2	)		13		79		(2	)		13

Subtotal, non-U.S. corporate securities		34		(2	)		5		526		(13	)		82		560		(15	)		87

Total for corporate securities in anunrealized loss position	$	406	$	(17	)		38	$	2,433	$	(74	)		338	$	2,839	$	(91	)		376

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)


	Less than 12 months							12 months or more							Total
			Gross			Number				Gross			Number				Gross			Number
	Fair		unrealized			of		Fair		unrealized			of		Fair		unrealized			of
(Dollar amounts in millions)	value		losses			securities		value		losses			securities		value		losses			securities
Description of Securities
Fixed maturity securities:
U.S. government, agenciesand government-sponsored enterprises	$	545	$	(8	)		17	$	161	$	(9	)		26	$	706	$	(17	)		43
State and political subdivisions		371		(10	)		63		233		(12	)		57		604		(22	)		120
Non-U.S. government		261		(7	)		51		508		(17	)		35		769		(24	)		86
U.S. corporate		9,975		(472	)		1,342		2,449		(210	)		365		12,424		(682	)		1,707
Non-U.S. corporate		4,172		(150	)		614		1,274		(74	)		209		5,446		(224	)		823
Residential mortgage-backed		363		(6	)		57		579		(11	)		96		942		(17	)		153
Commercial mortgage-backed		758		(19	)		115		870		(62	)		130		1,628		(81	)		245
Other asset-backed		1,597		(23	)		326		604		(6	)		137		2,201		(29	)		463

Total for fixed maturity securities in an unrealized loss position	$	18,042	$	(695	)		2,585	$	6,678	$	(401	)		1,055	$	24,720	$	(1,096	)		3,640

% Below cost:
<20% Below cost	$	18,008	$	(685	)		2,581	$	6,624	$	(383	)		1,045	$	24,632	$	(1,068	)		3,626
20%-50% Below cost		34		(10	)		4		54		(18	)		10		88		(28	)		14

Total for fixed maturity securities in an unrealized loss position	$	18,042	$	(695	)		2,585	$	6,678	$	(401	)		1,055	$	24,720	$	(1,096	)		3,640

Investment grade	$	16,726	$	(615	)		2,393	$	6,508	$	(379	)		1,024	$	23,234	$	(994	)		3,417
Below investment grade		1,316		(80	)		192		170		(22	)		31		1,486		(102	)		223

Total for fixed maturity securities in an unrealized loss position	$	18,042	$	(695	)		2,585	$	6,678	$	(401	)		1,055	$	24,720	$	(1,096	)		3,640

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Less than 12 months							12 months or more							Total
			Gross			Number				Gross			Number				Gross			Number
	Fair		unrealized			of		Fair		unrealized			of		Fair		unrealized			of
(Dollar amounts in millions)	value		losses			securities		value		losses			securities		value		losses			securities
Description of Securities
U.S. corporate:
Utilities	$	1,246	$	(61	)		173	$	343	$	(34	)		60	$	1,589	$	(95	)		233
Energy		944		(47	)		135		152		(17	)		23		1,096		(64	)		158
Finance and insurance		2,393		(92	)		326		688		(40	)		95		3,081		(132	)		421
Consumer—non-cyclical		1,826		(101	)		203		389		(36	)		55		2,215		(137	)		258
Technology andcommunications		1,135		(51	)		152		263		(27	)		34		1,398		(78	)		186
Industrial		506		(27	)		63		74		(6	)		13		580		(33	)		76
Capital goods		704		(31	)		103		184		(20	)		27		888		(51	)		130
Consumer—cyclical		738		(35	)		123		162		(13	)		26		900		(48	)		149
Transportation		435		(25	)		60		179		(16	)		31		614		(41	)		91
Other		48		(2	)		4		15		(1	)		1		63		(3	)		5

Subtotal, U.S. corporate securities		9,975		(472	)		1,342		2,449		(210	)		365		12,424		(682	)		1,707

Non-U.S. corporate:
Utilities		404		(19	)		58		173		(13	)		24		577		(32	)		82
Energy		439		(15	)		64		136		(8	)		20		575		(23	)		84
Finance and insurance		899		(25	)		151		294		(15	)		52		1,193		(40	)		203
Consumer—non-cyclical		377		(16	)		51		102		(9	)		14		479		(25	)		65
Technology andcommunications		611		(24	)		75		50		(2	)		12		661		(26	)		87
Industrial		275		(11	)		48		72		(6	)		8		347		(17	)		56
Capital goods		226		(7	)		27		69		(3	)		13		295		(10	)		40
Consumer—cyclical		268		(11	)		42		117		(2	)		19		385		(13	)		61
Transportation		232		(7	)		27		67		(8	)		11		299		(15	)		38
Other		441		(15	)		71		194		(8	)		36		635		(23	)		107

Subtotal, non-U.S. corporate securities		4,172		(150	)		614		1,274		(74	)		209		5,446		(224	)		823

Total for corporate securities in anunrealized loss position	$	14,147	$	(622	)		1,956	$	3,723	$	(284	)		574	$	17,870	$	(906	)		2,530

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The scheduled maturity distribution of fixed maturity securities as of June 30, 2019 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.


	Amortized
	cost or		Fair
(Amounts in millions)	cost		value
Due one year or less	$	1,957	$	1,973
Due after one year through five years		11,198		11,602
Due after five years through ten years		12,300		13,197
Due after ten years		23,647		27,548

Subtotal		49,102		54,320
Residential mortgage-backed		2,511		2,738
Commercial mortgage-backed		2,882		2,989
Other asset-backed		3,699		3,727
Total	$	58,194	$	63,774

As of June 30, 2019, securities issued by finance and insurance,

consumer—non-cyclical,

utilities and technology and communications

industry groups represented approximately

%, 14% and

%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than

% of our investment portfolio.

As of June 30, 2019, 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 credit 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:


	June 30, 2019						December 31, 2018
	Carrying			% of			Carrying			% of
(Amounts in millions)	value			total			value			total
Property type:
Retail	$	2,581			37	%	$	2,463			37	%
Industrial		1,699			24			1,659			25
Office		1,656			24			1,548			23
Apartments		525			7			495			7
Mixed use		247			4			254			4
Other		270			4			281			4

Subtotal		6,978			100	%		6,700			100	%

Unamortized balance of loan origination fees and costs		(4	)					(4	)
Allowance for credit losses		(11	)					(9	)

Total	$	6,963					$	6,687


	June 30, 2019						December 31, 2018
	Carrying			% of			Carrying			% of
(Amounts in millions)	value			total			value			total
Geographic region:
South Atlantic	$	1,747			25	%	$	1,709			26	%
Pacific		1,701			24			1,684			25
Middle Atlantic		1,000			14			950			14
Mountain		717			10			667			10
West North Central		490			7			470			7
East North Central		457			7			405			6
West South Central		387			6			364			6
New England		261			4			228			3
East South Central		218			3			223			3

Subtotal		6,978			100	%		6,700			100	%

Unamortized balance of loan origination fees and costs		(4	)					(4	)
Allowance for credit losses		(11	)					(9	)

Total	$	6,963					$	6,687

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	June 30, 2019
							Greater than
	31 - 60 days			61 - 90 days			90 days past			Total
(Amounts in millions)	past due			past due			due			past due			Current			Total
Property type:
Retail	$	—		$	—		$	—		$	—		$	2,581		$	2,581
Industrial		—			—			—			—			1,699			1,699
Office		—			—			—			—			1,656			1,656
Apartments		—			—			—			—			525			525
Mixed use		—			—			—			—			247			247
Other		—			—			—			—			270			270

Total recorded investment	$	—		$	—		$	—		$	—		$	6,978		$	6,978
% of total commercial mortgage loans		—	%		—	%		—	%		—	%		100	%		100	%


	December 31, 2018
							Greater than
	31 - 60 days			61 - 90 days			90 days past			Total
(Amounts in millions)	past due			past due			due			past due			Current			Total
Property type:
Retail	$	3		$	—		$	—		$	3		$	2,460		$	2,463
Industrial		—			—			—			—			1,659			1,659
Office		—			—			3			3			1,545			1,548
Apartments		—			—			—			—			495			495
Mixed use		—			—			—			—			254			254
Other		—			—			—			—			281			281

Total recorded investment	$	3		$	—		$	3		$	6		$	6,694		$	6,700

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

As of June 30, 2019 and December 31, 2018, we had no commercial mortgage loans that were past due for more than 90 days and still accruing interest. We also did not have any commercial mortgage loans that were past due for less than 90 days on

non-accrual

status as of June 30, 2019 and December 31, 2018.

We evaluate the impairment of commercial mortgage loans on an individual loan basis. As of June 30, 2019, none of our commercial mortgage loans were greater than 90 days past due. As of December 31, 2018, our commercial mortgage loans greater than 90 days past due included one impaired loan with a carrying value

of $3 million. This loan was modified and the modification was considered to be a troubled debt restructuring. As part of this troubled debt restructuring, we forgave default interest, penalties and fees, and modified the original contractual interest rate but we did not forgive the outstanding principal amount owed by the borrower.

During the six months ended June 30, 2019 and the year ended December 31, 2018, we also modified or extended one and two commercial mortgage loans, respectively, with a total carrying value of $11 million and $12 million, respectively. All of these modifications or extensions were based on current market interest rates, did not result in any forgiveness of the outstanding principal amount owed by the borrower and were not considered troubled debt restructurings.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	Three months ended				Six months ended
	June 30,				June 30,
(Amounts in millions)	2019		2018		2019		2018
Allowance for credit losses:
Beginning balance	$	10	$	9	$	9	$	9
Charge-offs		—		—		—		—
Recoveries		—		—		—		—
Provision		1		—		2		—

Ending balance	$	11	$	9	$	11	$	9

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

Ending allowance for loans not individually impaired that were evaluated collectively for impairment	$	11	$	9	$	11	$	9

Recorded investment:
Ending balance	$	6,978	$	6,492	$	6,978	$	6,492

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

Ending balance of loans not individually impaired that were evaluated collectively for impairment	$	6,978	$	6,486	$	6,978	$	6,486

As of June 30, 2019

, we had no individually impaired loans. As of

December 31, 2018, we had one individually impaired loan within the office property type with a recorded investment and unpaid principal balance of $3 million and as of June 30, 2018, this individually impaired loan had a recorded investment and unpaid principal balance of $6 million.

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.


		Page
PART I—FINANCIAL INFORMATION			3

Item 1.	Financial Statements		3
Condensed Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018			3
Condensed Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018 (Unaudited)			4
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018 (Unaudited)			5
Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2019 and 2018 (Unaudited)			6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (Unaudited)			8
Notes to Condensed Consolidated Financial Statements (Unaudited)			9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		85

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		163

Item 4.	Controls and Procedures		164

PART II—OTHER INFORMATION			164

Item 1.	Legal Proceedings		164

Item 1A.	Risk Factors		164

Item 6.	Exhibits		165

Signatures			166


	June 30, 2019
(Amounts in millions)	0% - 50%		51% - 60%		61% - 75%		76% - 100%		Greater than 100% (1)		Total
Property type:
Retail	$	882	$	534	$	1,152	$	13	$	—	$	2,581
Industrial		732		284		674		7		2		1,699
Office		587		378		691		—		—		1,656
Apartments		200		97