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 September 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)

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

☐

☒

ecurities 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

As of October

, 2019, 503,465,078 shares of Class A Common Stock, par value $0.001 per share, were outstandin

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except per share amounts)

(Unaudited)


	September 30, 2019			December 31, 2018
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value	$	61,233		$	55,589
Equity securities, at fair value		239			275
Commercial mortgage loans ($53 and $62 are restricted as of September 30, 2019 and December 31, 2018, respectively, related to a securitization entity)		7,033			6,749
Policy loans		2,069			1,861
Other invested assets		1,693			1,072

Total investments		72,267			65,546
Cash, cash equivalents and restricted cash		1,629			1,974
Accrued investment income		643			645
Deferred acquisition costs		1,881			3,142
Intangible assets and goodwill		210			333
Reinsurance recoverable		17,180			17,278
Other assets		479			395
Deferred tax asset		236			736
Separate account assets		6,005			5,859
Assets held for sale related to discontinued operations		5,123			5,015

Total assets	$	105,653		$	100,923

Liabilities and equity
Liabilities:
Future policy benefits	$	40,489		$	37,940
Policyholder account balances		22,607			22,968
Liability for policy and contract claims		10,780			10,295
Unearned premiums		1,863			2,013
Other liabilities		1,445			1,529
Non-recourse funding obligations		311			311
Long-term borrowings		3,706			3,707
Separate account liabilities		6,005			5,859
Liabilities held for sale related to discontinued operations		2,302			2,112

Total liabilities		89,508			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 September 30, 2019 and December 31, 2018, respectively; 504 million and 501 million shares outstanding as of September 30, 2019 and December 31, 2018, respectively		1			1
Additional paid-in capital		11,986			11,987
Accumulated other comprehensive income (loss):
Net unrealized investment gains (losses):
Net unrealized gains (losses) on securities not other-than-temporarily impaired		1,664			585
Net unrealized gains (losses) on other-than-temporarily impaired securities		11			10
Net unrealized investment gains (losses)		1,675			595
Derivatives qualifying as hedges		2,259			1,781
Foreign currency translation and other adjustments		(312	)		(332	)
Total accumulated other comprehensive income (loss)		3,622			2,044
Retained earnings		1,478			1,118
Treasury stock, at cost (88 million shares as of September 30, 2019 and December 31, 2018)		(2,700	)		(2,700	)
Total Genworth Financial, Inc.’s stockholders’ equity		14,387			12,450
Noncontrolling interests		1,758			1,739
Total equity		16,145			14,189
Total liabilities and equity	$	105,653		$	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 September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Revenues:
Premiums	$	1,015		$	995		$	3,004		$	3,001
Net investment income		816			780			2,426			2,342
Net investment gains (losses)		(2	)		(16	)		27			(31	)
Policy fees and other income		191			193			601			604
Total revenues		2,020			1,952			6,058			5,916
Benefits and expenses:
Benefits and other changes in policy reserves		1,284			1,303			3,817			3,782
Interest credited		146			151			439			459
Acquisition and operating expenses, net of deferrals		247			231			713			694
Amortization of deferred acquisition costs and intangibles		112			72			277			267
Interest expense		59			60			179			195
Total benefits and expenses		1,848			1,817			5,425			5,397
Income from continuing operations before income taxes		172			135			633			519
Provision for income taxes		34			30			169			179
Income from continuing operations		138			105			464			340
Income (loss) from discontinued operations, net of taxes		(80	)		105			42			284
Net income		58			210			506			624
Less: net income from continuing operations attributable to noncontrolling interests		10			18			45			62
Less: net income from discontinued operations attributable to noncontrolling interests		30			46			101			114
Net income available to Genworth Financial, Inc.’s common stockholders	$	18		$	146		$	360		$	448
Net income (loss) available to Genworth Financial, Inc.’s common stockholders:
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	128		$	87		$	419		$	278
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders		(110	)		59			(59	)		170
Net income available to Genworth Financial, Inc.’s common stockholders	$	18		$	146		$	360		$	448
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.25		$	0.17		$	0.83		$	0.56
Diluted	$	0.25		$	0.17		$	0.82		$	0.55
Net income available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.04		$	0.29		$	0.72		$	0.89
Diluted	$	0.04		$	0.29		$	0.71		$	0.89
Weighted-average common shares outstanding:
Basic		503.5			500.7			502.7			500.3
Diluted		511.2			503.3			509.5			502.9
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)		(2	)		(16	)		27			(31	)
Total net investment gains (losses)	$	(2	)	$	(16	)	$	27		$	(31	)

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,
	2019			2018			2019		2018
Net income	$	58		$	210		$	506	$	624

Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities not other-than-temporarily impaired		371			(134	)		1,126		(660	)
Net unrealized gains (losses) on other-than-temporarily impaired securities		—			—			1		(2	)
Derivatives qualifying as hedges		276			(146	)		478		(362	)
Foreign currency translation and other adjustments		(64	)		20			33		(165	)

Total other comprehensive income (loss)		583			(260	)		1,638		(1,189	)

Total comprehensive income (loss)		641			(50	)		2,144		(565	)
Less: comprehensive income attributable to noncontrolling interests		14			64			206		78

Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders	$	627		$	(114	)	$	1,938	$	(643	)

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in millions)

(Unaudited)


	Three months ended September 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 June 30, 2019	$	1	$	11,983	$	3,013		$	1,460	$	(2,700	)	$	13,757		$	1,835		$	15,592
Comprehensive income (loss) :
Net income		—		—		—			18		—			18			40			58
Other comprehensive income (loss) , net of taxes		—		—		609			—		—			609			(26	)		583
Total comprehensive income														627			14			641
Dividends to noncontrolling interests		—		—		—			—		—			—			(96	)		(96	)
Stock-based compensation expense and exercises and other		—		3		—			—		—			3			5			8

Balances as of September 30, 2019	$	1	$	11,986	$	3,622		$	1,478	$	(2,700	)	$	14,387		$	1,758		$	16,145


	Three months ended September 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 June 30, 2018	$	1	$	11,981	$	2,327		$	1,301	$	(2,700	)	$	12,910		$	1,831		$	14,741
Repurchase of subsidiary shares		—		—		—			—		—			—			(40	)		(40	)
Comprehensive income (loss):
Net income		—		—		—			146		—			146			64			210
Other comprehensive loss, net of taxes		—		—		(260	)		—		—			(260	)		—			(260	)

Total comprehensive income (loss)														(114	)		64			(50	)
Dividends to noncontrolling interests		—		—		—			—		—			—			(33	)		(33	)
Stock-based compensation expense and exercises and other		—		2		—			—		—			2			1			3

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

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY, CONTINUED

(Amounts in millions)

(Unaudited)


	Nine months ended September 30, 2019
															Total
						Accumulated									Genworth
			Additional			other						Treasury			Financial, 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		—		—			—			360			—			360			146			506
Other comprehensive income, net of taxes		—		—			1,578			—			—			1,578			60			1,638

Total comprehensive income																1,938			206			2,144
Dividends to noncontrolling interests		—		—			—			—			—			—			(149	)		(149	)
Stock-based compensation expense and exercises and other		—		(1	)		—			—			—			(1	)		6			5

Balances as of September 30, 2019	$	1	$	11,986		$	3,622		$	1,478		$	(2,700	)	$	14,387		$	1,758		$	16,145


	Nine months ended September 30, 2018
															Total
						Accumulated									Genworth
			Additional			other						Treasury			Financial, 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		—		—			—			—			—			—			(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

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,
	2019			2018
Cash flows from operating activities:
Net income	$	506		$	624
Less income from discontinued operations, net of taxes		(42	)		(284	)
Adjustments to reconcile net income to net cash from operating activities:
Amortization of fixed maturity securities discounts and premiums		(93	)		(99	)
Net investment (gains) losses		(27	)		31
Charges assessed to policyholders		(532	)		(528	)
Acquisition costs deferred		(22	)		(32	)
Amortization of deferred acquisition costs and intangibles		277			267
Deferred income taxes		106			119
Derivative instruments and limited partnerships		121			(369	)
Stock-based compensation expense		17			23
Change in certain assets and liabilities:
Accrued investment income and other assets		(327	)		(119	)
Insurance reserves		906			1,039
Current tax liabilities		36			33
Other liabilities, policy and contract claims and other policy-related balances		348			62
Cash from operating activities—discontinued operations		334			206
Net cash from operating activities		1,608			973
Cash flows from (used by) investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		2,734			2,661
Commercial mortgage loans		387			543
Restricted commercial mortgage loans related to a securitization entity		8			20
Proceeds from sales of investments:
Fixed maturity and equity securities		3,024			2,853
Purchases and originations of investments:
Fixed maturity and equity securities		(5,805	)		(5,486	)
Commercial mortgage loans		(682	)		(769	)
Other invested assets, net		(259	)		250
Policy loans, net		51			35
Cash used by investing activities—discontinued operations		(6	)		(38	)
Net cash from (used by) investing activities		(548	)		69
Cash flows used by financing activities:
Deposits to universal life and investment contracts		637			805
Withdrawals from universal life and investment contracts		(1,699	)		(1,806	)
Proceeds from issuance of long-term debt		—			441
Repayment and repurchase of long-term debt		(3	)		(598	)
Repayment of borrowings related to a securitization entity		—			(20	)
Repurchase of subsidiary shares		(22	)		(55	)
Dividends paid to noncontrolling interests		(55	)		(41	)
Other, net		(24	)		2
Cash used by financing activities—discontinued operations		(76	)		(78	)
Net cash used by financing activities		(1,242	)		(1,350	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $8 and $(11) related to discontinued operations)		(4	)		(62	)
Net change in cash, cash equivalents and restricted cash		(186	)		(370	)
Cash, cash equivalents and restricted cash at beginning of period		2,177			2,875
Cash, cash equivalents and restricted cash at end of period		1,991			2,505
Less cash, cash equivalents and restricted cash of discontinued operations at end of period		362			208
Cash, cash equivalents and restricted cash of continuing operations at end of period	$	1,629		$	2,297

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, Inc. on a consolidated basis.

We operate our business through the following four 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.

•

Australia Mortgage Insurance.

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

•

U.S. Life Insurance.

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

•

Runoff.

The Runoff segment includes the results of

non-strategic

products which are no longer actively sold but we continue to service our existing blocks of business. Our

non-strategic

products primarily

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 four 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.

In August 2019, our Board of Directors approved an agreement to sell our Canada mortgage insurance business to Brookfield BBP Canada Holdings Inc (“Brookfield”), an affiliate of Brookfield Business Partners L.P. The details of the sales agreement satisfied the criteria for held-for-sale accounting in the third quarter of 2019, such as the business is available for immediate sale and the sale is anticipated to occur during the next 12 months. In the third quarter of 2019, we recorded an estimated loss to reduce the carrying value of the business to the fair value less cost to sell. Our Canada mortgage insurance business, previously the only business in the Canada Mortgage Insurance segment, is reported as discontinued operations and its financial position, results of operations and cash flows are separately reported for all periods presented. All prior periods reflected herein have been re-presented on this basis. See note 12 for additional information.

Unless otherwise indicated, references to the condensed consolidated balance sheets, the condensed consolidated statements of income, the condensed consolidated statements of cash flows and the notes to the condensed consolidated financial statements, exclude amounts related to 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 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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

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, including amounts related to our Canada mortgage insurance business which were classified as held for sale during the third quarter of 2019. 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,

and did not have a significant impact on our condensed consolidated balance sheet as of September 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 12 locations primarily in the United States 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 11 years and had a weighted-average remaining lease term of 6.6 years as of September 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 6.51% as of September 30, 2019.

Our aggregate annual rental expense for all leases under the previous guidance was approximately $11 million, including amounts related to our Canada mortgage insurance business which were classified as held for sale during the third quarter of 2019. Annual rental expense and future minimum lease payments are not significantly 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

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 (except the discount rate) will be reviewed at least annually in the same period each year or more frequently if actual experience indicates a change is required. Changes 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 related to instrument-specific credit risk recorded in other comprehensive income (loss) and remaining 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.

We expect the guidance to be effective for us on January 1, 2022 using the modified retrospective method, with early adoption permitted. Given the nature and extent of the changes to our operations, this guidance is expected to have a significant impact 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. We do not expect a significant impact from this guidance on our condensed consolidated financial statements and 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

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, developed and tested a model and are in process of establishing policies, systems and controls as well as required disclosures that will be necessary to implement this new accounting guidance. The allowance for credit losses for our investments and reinsurance recoverables will incorporate reasonable and supportable forecasts and expected changes to future economic conditions. The allowance for credit losses will increase as a result of the new guidance; however, the extent of the impact may vary and will depend on, among other things, the economic environment, forecasts and the composition and credit quality of our investments and reinsurance recoverables as of the date of adoption.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3) Earnings

(

Loss

)

Per Share

Basic and diluted earnings

(loss)

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


	Three months ended September 30,					Nine months ended September 30,
(Amounts in millions, except per share amounts)	2019			2018		2019			2018
Weighted-average shares used in basic earnings per share calculations		503.5			500.7		502.7			500.3
Potentially dilutive securities:
Stock options, restricted stock units and stock appreciation rights		7.7			2.6		6.8			2.6

Weighted-average shares used in diluted earnings per share calculations		511.2			503.3		509.5			502.9
Income from continuing operations:
Income from continuing operations	$	138		$	105	$	464		$	340
Less: net income from continuing operations attributable to noncontrolling interests		10			18		45			62

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	128		$	87	$	419		$	278
Basic per share	$	0.25		$	0.17	$	0.83		$	0.56
Diluted per share	$	0.25		$	0.17	$	0.82		$	0.55
Income (loss) from discontinued operations:
Income (loss) from discontinued operations, net of taxes	$	(80	)	$	105	$	42		$	284
Less: net income from discontinued operations, net of taxes, attributable to noncontrolling interests		30			46		101			114

Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders	$	(110	)	$	59	$	(59	)	$	170
Basic per share	$	(0.22	)	$	0.12	$	(0.12	)	$	0.34
Diluted per share	$	(0.21	)	$	0.12	$	(0.12	)	$	0.34
Net income:
Income from continuing operations	$	138		$	105	$	464		$	340
Income (loss) from discontinued operations, net of taxes		(80	)		105		42			284

Net income		58			210		506			624
Less: net income attributable to noncontrolling interests		40			64		146			176

Net income available to Genworth Financial, Inc.’s common stockholders	$	18		$	146	$	360		$	448
Basic per share (1)	$	0.04		$	0.29	$	0.72		$	0.89
Diluted per share (1)	$	0.04		$	0.29	$	0.71		$	0.89

(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 September 30,						Nine months ended September 30,
(Amounts in millions)	2019			2018			2019			2018
Fixed maturity securities—taxable	$	631		$	613		$	1,878		$	1,839
Fixed maturity securities—non-taxable		2			3			6			9
Equity securities		4			6			13			16
Commercial mortgage loans		86			81			251			240
Restricted commercial mortgage loans related to a securitization entity		1			1			3			5
Policy loans		47			41			138			125
Other invested assets		62			44			180			136
Cash, cash equivalents, restricted cash and short-term investments		8			12			30			37

Gross investment income before expenses and fees		841			801			2,499			2,407
Expenses and fees		(25	)		(21	)		(73	)		(65	)

Net investment income	$	816		$	780		$	2,426		$	2,342

(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)	2019			2018			2019			2018
Available-for-sale fixed maturity securities:
Realized gains	$	19		$	21		$	93		$	38
Realized losses		(3	)		(30	)		(30	)		(62	)
Net realized gains (losses) on available-for-sale fixed maturity securities		16			(9	)		63			(24	)
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		6			—			9			10
Net unrealized gains (losses) on equity securities still held		(4	)		(2	)		13			(11	)
Limited partnerships		6			3			10			8
Commercial mortgage loans		(1	)		—			(1	)		—
Derivative instruments (1)		(29	)		(8	)		(71	)		(14	)

Other		4			—			4			—
Net investment gains (losses)	$	(2	)	$	(16	)	$	27		$	(31	)

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

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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 September 30, 2019 and 2018 was $107 million and $714 million, respectively, which was approximately 96%

of book value for both periods. The aggregate fair value of securities sold at a loss during the nine months ended September 30, 2019 and 2018 was

$1,112 million and $1,767

million, respectively, which was approximately

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 September 30,				As of or for the nine months ended September 30,
(Amounts in millions)	2019		2018		2019			2018
Beginning balance	$	23	$	25	$	24		$	32
Reductions:
Securities sold, paid down or disposed		—		—		(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)	September 30, 2019			December 31, 2018
Net unrealized gains (losses) on fixed maturity securities (1)	$	7,263		$	1,775
Adjustments to deferred acquisition costs, present value of future profits, salesinducements and benefit reserves		(4,998	)		(952	)
Income taxes, net		(505	)		(190	)

Net unrealized investment gains (losses)		1,760			633
Less: net unrealized investment gains (losses) attributable to noncontrolling interests		85			38

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	$	1,675		$	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 September 30,
(Amounts in millions)	2019			2018
Beginning balance	$	1,305		$	736
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on fixed maturity securities		1,607			(564	)
Adjustment to deferred acquisition costs		(8	)		292
Adjustment to present value of future profits		1			9
Adjustment to sales inducements		(4	)		3
Adjustment to benefit reserves		(1,108	)		65
Provision for income taxes		(104	)		54

Change in unrealized gains (losses) on investment securities		384			(141	)
Reclassification adjustments to net investment (gains) losses, net of taxes of $4 and $(2)		(13	)		7

Change in net unrealized investment gains (losses)		371			(134	)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		1			(6	)

Ending balance	$	1,675		$	608

	As of or for the nine months ended September 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		5,563			(3,150	)
Adjustment to deferred acquisition costs		(1,049	)		1,201
Adjustment to present value of future profits		(54	)		65
Adjustment to sales inducements		(35	)		32
Adjustment to benefit reserves		(2,908	)		967
Provision for income taxes		(331	)		203

Change in unrealized gains (losses) on investment securities		1,186			(682	)
Reclassification adjustments to net investment (gains) losses, net of taxes of $16 and $(5)		(59	)		20

Change in net unrealized investment gains (losses)		1,127			(662	)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		47			(21	)

Ending balance	$	1,675		$	608

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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 September 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
	Amortized		Not other-than-		Other-than-		Not other-than-			Other-than-
	cost or		temporarily		temporarily		temporarily			temporarily		Fair
(Amounts in millions)	cost		impaired		impaired		impaired			impaired		value
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	4,117	$	1,137	$	—	$	—		$	—	$	5,254
State and political subdivisions		2,304		425		—		—			—		2,729
Non-U.S. government		1,229		130		—		—			—		1,359
U.S. corporate:
Utilities		4,327		731		—		(1	)		—		5,057
Energy		2,480		291		—		(13	)		—		2,758
Finance and insurance		7,062		798		—		(5	)		—		7,855
Consumer—non-cyclical		4,949		797		—		(14	)		—		5,732
Technology and communications		2,861		351		—		(1	)		—		3,211
Industrial		1,301		118		—		(1	)		—		1,418
Capital goods		2,348		374		—		(2	)		—		2,720
Consumer—cyclical		1,679		175		—		(4	)		—		1,850
Transportation		1,281		189		—		(1	)		—		1,469
Other		318		36		—		—			—		354

Total U.S. corporate		28,606		3,860		—		(42	)		—		32,424

Non-U.S. corporate:
Utilities		841		55		—		—			—		896
Energy		1,204		186		—		(1	)		—		1,389
Finance and insurance		2,126		222		—		—			—		2,348
Consumer—non-cyclical		647		56		—		(4	)		—		699
Technology and communications		1,007		126		—		—			—		1,133
Industrial		900		94		—		—			—		994
Capital goods		619		41		—		—			—		660
Consumer—cyclical		363		23		—		—			—		386
Transportation		640		89		—		(1	)		—		728
Other		1,249		175		—		(1	)		—		1,423

Total non-U.S. corporate		9,596		1,067		—		(7	)		—		10,656

Residential mortgage-backed		2,131		230		14		—			—		2,375
Commercial mortgage-backed		2,866		209		—		(4	)		—		3,071
Other asset-backed		3,333		39		—		(7	)		—		3,365

Total available-for-sale fixed maturity securities	$	54,182	$	7,097	$	14	$	(60	)	$	—	$	61,233

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
	Amortized		Not other-than-		Other-than-		Not other-than-			Other-than-
	cost or		temporarily		temporarily		temporarily			temporarily		Fair
(Amounts in millions)	cost		impaired		impaired		impaired			impaired		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		1,232		44		—		(8	)		—		1,268
U.S. corporate:
Utilities		4,439		331		—		(95	)		—		4,675
Energy		2,375		101		—		(64	)		—		2,412
Finance and insurance		6,691		249		—		(132	)		—		6,808
Consumer—non-cyclical		4,879		294		—		(137	)		—		5,036
Technology and communications		2,809		110		—		(78	)		—		2,841
Industrial		1,213		41		—		(33	)		—		1,221
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		27,934		1,446		—		(682	)		—		28,698

Non-U.S. corporate:
Utilities		838		12		—		(29	)		—		821
Energy		1,170		71		—		(20	)		—		1,221
Finance and insurance		2,071		71		—		(36	)		—		2,106
Consumer—non-cyclical		706		8		—		(24	)		—		690
Technology and communications		1,043		21		—		(24	)		—		1,040
Industrial		896		36		—		(16	)		—		916
Capital goods		571		10		—		(9	)		—		572
Consumer—cyclical		322		1		—		(10	)		—		313
Transportation		580		44		—		(14	)		—		610
Other		1,414		85		—		(18	)		—		1,481

Total non-U.S. corporate		9,611		359		—		(200	)		—		9,770

Residential mortgage-backed		2,460		159		13		(14	)		—		2,618
Commercial mortgage-backed		3,054		43		—		(81	)		—		3,016
Other asset-backed		3,048		10		1		(23	)		—		3,036

Total available-for-sale fixed maturity securities	$	53,920	$	2,702	$	14	$	(1,047	)	$	—	$	55,589

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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, 2019:


	Less than 12 months							12 months or more							Total
			Gross							Gross							Gross
	Fair		unrealized			Number of		Fair		unrealized			Number of		Fair		unrealized			Number of
(Dollar amounts in millions)	value		losses			securities		value		losses			securities		value		losses			securities
Description of Securities
Fixed maturity securities:
U.S. corporate	$	437	$	(9	)		79	$	490	$	(33	)		60	$	927	$	(42	)		139
Non-U.S. corporate		49		(2	)		15		60		(5	)		7		109		(7	)		22
Commercial mortgage-backed		—		—			—		13		(4	)		3		13		(4	)		3
Other asset-backed		767		(3	)		168		288		(4	)		67		1,055		(7	)		235
Total for fixed maturity securities inan unrealized loss position	$	1,253	$	(14	)		262	$	851	$	(46	)		137	$	2,104	$	(60	)		399
% Below cost:
<20% Below cost	$	1,253	$	(14	)		262	$	796	$	(26	)		132	$	2,049	$	(40	)		394
20%-50% Below cost		—		—			—		52		(17	)		4		52		(17	)		4
>50% Below cost		—		—			—		3		(3	)		1		3		(3	)		1
Total for fixed maturity securities inan unrealized loss position	$	1,253	$	(14	)		262	$	851	$	(46	)		137	$	2,104	$	(60	)		399
Investment grade	$	1,172	$	(8	)		251	$	725	$	(24	)		122	$	1,897	$	(32	)		373
Below investment grade		81		(6	)		11		126		(22	)		15		207		(28	)		26
Total for fixed maturity securities inan unrealized loss position	$	1,253	$	(14	)		262	$	851	$	(46	)		137	$	2,104	$	(60	)		399

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, 2019:


	Less than 12 months							12 months or more							Total
			Gross							Gross							Gross
	Fair		unrealized			Number of		Fair		unrealized			Number of		Fair		unrealized			Number of
(Dollar amounts in millions)	value		losses			securities		value		losses			securities		value		losses			securities
Description of Securities
U.S. corporate:
Utilities	$	—	$	—			—	$	62	$	(1	)		10	$	62	$	(1	)		10
Energy		82		(5	)		20		84		(8	)		11		166		(13	)		31
Finance and insurance		218		(2	)		35		65		(3	)		7		283		(5	)		42
Consumer—non-cyclical		63		(1	)		16		127		(13	)		13		190		(14	)		29
Technology andcommunications		—		—			—		26		(1	)		4		26		(1	)		4
Industrial		74		(1	)		8		—		—			—		74		(1	)		8
Capital goods		—		—			—		33		(2	)		4		33		(2	)		4
Consumer—cyclical		—		—			—		62		(4	)		8		62		(4	)		8
Transportation		—		—			—		31		(1	)		3		31		(1	)		3

Subtotal, U.S. corporate securities		437		(9	)		79		490		(33	)		60		927		(42	)		139

Non-U.S. corporate:
Energy		17		(1	)		3		—		—			—		17		(1	)		3
Consumer—non-cyclical		32		(1	)		12		30		(3	)		3		62		(4	)		15
Transportation		—		—			—		24		(1	)		3		24		(1	)		3
Other		—		—			—		6		(1	)		1		6		(1	)		1

Subtotal, non-U.S. corporate securities		49		(2	)		15		60		(5	)		7		109		(7	)		22

Total for corporate securities in anunrealized loss position	$	486	$	(11	)		94	$	550	$	(38	)		67	$	1,036	$	(49	)		161

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.

Table of Contents

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		177		(6	)		26		119		(2	)		18		296		(8	)		44
U.S. corporate		9,956		(472	)		1,338		2,440		(210	)		363		12,396		(682	)		1,701
Non-U.S. corporate		3,684		(142	)		502		664		(58	)		96		4,348		(200	)		598
Residential mortgage-backed		334		(6	)		52		303		(8	)		70		637		(14	)		122
Commercial mortgage-backed		758		(19	)		115		870		(62	)		130		1,628		(81	)		245
Other asset-backed		1,252		(17	)		258		604		(6	)		137		1,856		(23	)		395

Total for fixed maturity securities in an unrealized loss position	$	17,077	$	(680	)		2,371	$	5,394	$	(367	)		897	$	22,471	$	(1,047	)		3,268

% Below cost:
<20% Below cost	$	17,043	$	(670	)		2,367	$	5,340	$	(349	)		887	$	22,383	$	(1,019	)		3,254
20%-50% Below cost		34		(10	)		4		54		(18	)		10		88		(28	)		14

Total for fixed maturity securities in an unrealized loss position	$	17,077	$	(680	)		2,371	$	5,394	$	(367	)		897	$	22,471	$	(1,047	)		3,268

Investment grade	$	15,762	$	(601	)		2,180	$	5,224	$	(345	)		866	$	20,986	$	(946	)		3,046
Below investment grade		1,315		(79	)		191		170		(22	)		31		1,485		(101	)		222

Total for fixed maturity securities in an unrealized loss position	$	17,077	$	(680	)		2,371	$	5,394	$	(367	)		897	$	22,471	$	(1,047	)		3,268


		Page
PART I—FINANCIAL INFORMATION			3

Item 1.	Financial Statements		3
Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (Unaudited)			3
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2019 and 2018 (Unaudited)			4
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018 (Unaudited)			5
Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2019 and 2018 (Unaudited)			6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 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		86

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		15 8

Item 4.	Controls and Procedures		15 8

PART II—OTHER INFORMATION			1 60

Item 1.	Legal Proceedings		1 60

Item 1A.	Risk Factors		1 60

Item 6.	Exhibits		1 60

Signatures			16 1