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 March 31, 2021

☐	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 ☒ No ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the 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 ☐ No ☒

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

As of April 27, 2021, 506,803,281 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)


	March 31, 2021			December 31, 2020
	(Unaudited)
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value (amortized cost of $53,470 and $53,417 and allowance for credit losses of $3 and $4 as of March 31, 2021 and December 31, 2020, respectively)	$	60,231		$	63,495
Equity securities, at fair value		238			386
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4 as of March 31, 2021 and December 31, 2020)		6,787			6,774
Less: Allowance for credit losses		(32	)		(31	)

Commercial mortgage loans, net		6,755			6,743
Policy loans		1,976			1,978
Other invested assets		1,759			2,099

Total investments		70,959			74,701
Cash, cash equivalents and restricted cash		1,964			2,561
Accrued investment income		704			655
Deferred acquisition costs		1,247			1,487
Intangible assets		155			157
Reinsurance recoverable		16,788			16,864
Less: Allowance for credit losses		(44	)		(45	)

Reinsurance recoverable, net		16,744			16,819
Other assets		439			404
Deferred tax asset		314			65
Separate account assets		6,032			6,081
Assets related to discontinued operations		—			2,817

Total assets	$	98,558		$	105,747

Liabilities and equity
Liabilities:
Future policy benefits	$	40,634		$	42,695
Policyholder account balances		19,999			21,503
Liability for policy and contract claims		11,415			11,486
Unearned premiums		728			775
Other liabilities		1,710			1,614
Long-term borrowings		2,922			3,403
Separate account liabilities		6,032			6,081
Liabilities related to discontinued operations		360			2,370

Total liabilities		83,800			89,927

Commitments and contingencies

Equity:
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 595 million and 594 million shares issued as of March 31, 2021 and December 31, 2020, respectively; 507 million and 506 million shares outstanding as of March 31, 2021 and December 31, 2020, respectively		1			1
Additional paid-in capital		12,011			12,008
Accumulated other comprehensive income (loss)		3,675			4,425
Retained earnings		1,771			1,584
Treasury stock, at cost (88 million shares as of March 31, 2021 and December 31, 2020)		(2,700	)		(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity		14,758			15,318
Noncontrolling interests		—			502

Total equity		14,758			15,820

Total liabilities and equity	$	98,558		$	105,747

See Notes to Condensed Consolidated Financial Statements

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GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in millions, except per share amounts)

(Unaudited)


	Three months ended
	March 31,
	2021		2020
Revenues:
Premiums	$	968	$	946
Net investment income		801		782
Net investment gains (losses)		33		(99	)
Policy fees and other income		183		180

Total revenues		1,985		1,809

Benefits and expenses:
Benefits and other changes in policy reserves		1,218		1,337
Interest credited		131		141
Acquisition and operating expenses, net of deferrals		275		237
Amortization of deferred acquisition costs and intangibles		77		108
Interest expense		51		51

Total benefits and expenses		1,752		1,874

Income (loss) from continuing operations before income taxes		233		(65	)
Provision (benefit) for income taxes		59		(5	)

Income (loss) from continuing operations		174		(60	)
Income (loss) from discontinued operations, net of taxes		21		(12	)

Net income (loss)		195		(72	)
Less: net income from continuing operations attributable to noncontrolling interests		—		—
Less: net income (loss) from discontinued operations attributable to noncontrolling interests		8		(6	)

Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	187	$	(66	)

Net income (loss) available to Genworth Financial, Inc.’s common stockholders:
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	174	$	(60	)
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common common stockholders		13		(6	)

Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	187	$	(66	)

Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.35	$	(0.12	)

Diluted	$	0.34	$	(0.12	)

Net income (loss) available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.37	$	(0.13	)

Diluted	$	0.37	$	(0.13	)

Weighted-average common shares outstanding:
Basic		506.0		504.3

Diluted		513.8		504.3

See Notes to Condensed Consolidated Financial Statements

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GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in millions)

(Unaudited)


	Three months ended March 31, 2021
														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, 2020	$	1	$	12,008	$	4,425		$	1,584		$	(2,700	)	$	15,318		$	502		$	15,820
Sale of business that included noncontrolling interests		—		—		—			—			—			—			(657	)		(657	)
Comprehensive income (loss):
Net income		—		—		—			187			—			187			8			195
Other comprehensive income (loss), net of taxes		—		—		(750	)		—			—			(750	)		147			(603	)

Total comprehensive income (loss)															(563	)		155			(408	)
Stock-based compensation expense and exercises and other		—		3		—			—			—			3			—			3

Balances as of March 31, 2021	$	1	$	12,011	$	3,675		$	1,771		$	(2,700	)	$	14,758		$	—		$	14,758


	Three months ended March 31, 2020
														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, 2019	$	1	$	11,990	$	3,433		$	1,461		$	(2,700	)	$	14,185		$	447		$	14,632
Cumulative effect of change in accounting, net of taxes		—		—		—			(55	)		—			(55	)		—			(55	)
Comprehensive income (loss):
Net loss		—		—		—			(66	)		—			(66	)		(6	)		(72	)
Other comprehensive income (loss),net of taxes		—		—		382			—			—			382			(47	)		335

Total comprehensive income (loss)															316			(53	)		263
Dividends to noncontrolling interests		—		—		—			—			—			—			(9	)		(9	)
Stock-based compensation expense and exercises and other		—		3		—			—			—			3			—			3

Balances as of March 31, 2020	$	1	$	11,993	$	3,815		$	1,340		$	(2,700	)	$	14,449		$	385		$	14,834

See Notes to Condensed Consolidated Financial Statements

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GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Three months ended
	March 31,
	2021			2020
Cash flows from (used by) operating activities:
Net income (loss)	$	195		$	(72	)
Less (income) loss from discontinued operations, net of taxes		(21	)		12
Adjustments to reconcile net income (loss) to net cash from (used by) operating activities:
Amortization of fixed maturity securities discounts and premiums		(32	)		(39	)
Net investment (gains) losses		(33	)		99
Charges assessed to policyholders		(159	)		(158	)
Acquisition costs deferred		(2	)		(1	)
Amortization of deferred acquisition costs and intangibles		77			108
Deferred income taxes		59			(6	)
Derivative instruments, limited partnerships and other		(113	)		387
Stock-based compensation expense		11			10
Change in certain assets and liabilities:
Accrued investment income and other assets		(58	)		(56	)
Insurance reserves		326			328
Current tax liabilities		(4	)		—
Other liabilities, policy and contract claims and other policy-related balances		(319	)		235
Cash used by operating activities—discontinued operations		(174	)		(167	)

Net cash from (used by) operating activities		(247	)		680

Cash flows from (used by) investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		1,031			875
Commercial mortgage loans		129			139
Other invested assets		44			34
Proceeds from sales of investments:
Fixed maturity and equity securities		777			162
Purchases and originations of investments:
Fixed maturity and equity securities		(1,647	)		(1,569	)
Commercial mortgage loans		(142	)		(107	)
Other invested assets		(91	)		(160	)
Short-term investments, net		28			(13	)
Policy loans, net		3			9
Proceeds from sale of business, net of cash transferred		270			—
Cash from (used by) investing activities—discontinued operations		(67	)		79

Net cash from (used by) investing activities		335			(551	)

Cash flows used by financing activities:
Deposits to universal life and investment contracts		176			180
Withdrawals from universal life and investment contracts		(578	)		(493	)
Redemption of non-recourse funding obligations		—			(315	)
Repayment and repurchase of long-term debt		(470	)		(420	)
Other, net		92			100
Cash used by financing activities—discontinued operations		—			(9	)

Net cash used by financing activities		(780	)		(957	)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $(1) and $(29)related to discontinued operations)		—			(30	)

Net change in cash, cash equivalents and restricted cash		(692	)		(858	)
Cash, cash equivalents and restricted cash at beginning of period		2,656			3,341

Cash, cash equivalents and restricted cash at end of period		1,964			2,483
Less cash, cash equivalents and restricted cash of discontinued operations at end of period		—			77

Cash, cash equivalents and restricted cash of continuing operations at end of period	$	1,964		$	2,406

See Notes to Condensed Consolidated Financial Statements

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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.

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 the notes thereto are, unless the context otherwise requires, to Genworth Financial, Inc. on a consolidated basis.

We operate our business through the following three operating segments:

•

U.S. Mortgage Insurance.

We offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans at specified coverage percentages (“primary mortgage insurance”). We also selectively enter into insurance transactions with lenders and investors, under which we insure a portfolio of loans at or after origination (“pool mortgage insurance”).

•

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 products which have not been actively sold since 2011, but we continue to service our existing blocks of business. These products primarily include variable annuity, variable life insurance and corporate-owned life insurance, as well as funding agreements.

In addition to our three 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 international mortgage insurance businesses and discontinued operations.

On March 3, 2021, we completed a sale of our entire ownership interest of approximately 52% in Genworth Mortgage Insurance Australia Limited (“Genworth Australia”) through an underwritten agreement. We sold our approximately 214.3 million shares of Genworth Australia for AUD2.28 per share. Our Australian mortgage insurance business, previously the primary business in the Australia 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 14 for additional information.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 2020 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

Each reporting period, we assess our ability to continue as a going concern for one year from the date the financial statements are issued. As of March 31, 2021, Genworth Holdings has $697 million of unrestricted cash and cash equivalents. Our evaluation of our ability to meet our financial obligations included the following contractual obligations due within one year from the issue date of our unaudited condensed consolidated financial statements included herein, as well as other conditions and events and their relative significance in relation to our ability to meet our obligations:

•

As of March 31, 2021, Genworth Holdings has outstanding $514 million of its 7.625% senior notes that mature in September 2021. We are currently in compliance with the terms of our debt agreements and interest payments on our senior notes are forecasted to be $101 million for the next twelve months. See note 8 for additional details on our long-term borrowings.

•

As part of the settlement agreement reached in July 2020 regarding the case titled

AXA S.A. v. Genworth Financial International Holdings, LLC et al.,

we issued a secured promissory note to AXA S.A. (“AXA”) that is due in 2022. On March 3, 2021, we repaid the first installment payment to AXA and a portion of the second installment payment from cash proceeds received from the Genworth Australia sale. Over the next year, we expect to pay AXA approximately $25 million consisting of interest on the remaining promissory note, assuming we do not make any additional pre-payments, and a one-time payment on an unrelated liability associated with underwriting losses on a product sold by a distributor in our former lifestyle protection insurance business. See note 14 for additional details related to the sale of our former lifestyle protection insurance business and amounts recorded related to discontinued operations.

•

Genworth Holdings received in the first quarter of 2021 intercompany cash tax payments generated primarily from taxable income on investment gains and is expecting additional intercompany cash tax payments in future periods.

•

Until the secured promissory note to AXA is paid, annual dividends above $50

million from our U.S. mortgage insurance subsidiary are subject to mandatory prepayment conditions.

We received net cash proceeds of $370 million from the sale of Genworth Australia in March 2021, of which $247 million was used to prepay a portion of the AXA promissory note, as noted above, including accrued interest. The remaining proceeds, along with Genworth Holdings’ unrestricted cash and cash equivalents, provide

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

sufficient liquidity to meet our financial obligations and maintain business operations for one year from the date the financial statements are issued, based on relevant conditions and events that are known and reasonably estimable, including current cash and management actions in the normal course. Accordingly, we no longer need to determine whether our plans alleviate doubt about our ability to meet our financial commitments and obligations within the next year.

The remaining AXA promissory note, including expected future claims, is estimated to be $343 million and is due in

September 2022. In addition, Genworth Holdings has $400 million of senior notes due in both August 2023

and February 2024. To help address these debt obligations beyond the next year and reduce our overall indebtedness, we are actively taking additional steps toward raising capital by preparing for a planned partial

sale of our U.S. mortgage insurance business, subject to market

conditions, as well as the satisfication of various conditions and approvals.

The impact of the ongoing coronavirus pandemic (“COVID-19”) is very difficult to predict. Its related outcomes and impact on our business and the capital markets, and our ability to raise capital will depend on economic impacts from social, global and political influences as a result of the pandemic, and the shape of the economic recovery, among other factors and uncertainties. While these risks exist, we believe our current liquidity is sufficient to meet our obligations for one year following the issuance of our unaudited condensed consolidated financial statements.

(2) Accounting Changes

Accounting Pronouncements Recently Adopted

On January 1, 2021, we adopted new accounting guidance related to simplifying the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. We adopted this new accounting guidance using the retrospective method or modified retrospective method for certain changes and prospective method for all other changes, which did not have a significant impact on our consolidated financial statements and disclosures.

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 (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;

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

•

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.

This guidance is effective for us on January 1, 2023 using the modified retrospective method for all topics except for market risk benefits, which is required to be applied using the retrospective method, with early adoption permitted, which we do not intend to elect. Given the nature and extent of the changes to our operations, this guidance is expected to have a significant impact on our consolidated financial statements.

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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
	March 31,
(Amounts in millions, except per share amounts)	2021		2020
Weighted-average shares used in basic earnings per share calculations		506.0		504.3
Potentially dilutive securities:
Stock options, restricted stock units and stock appreciation rights		7.8		—

Weighted-average shares used in diluted earnings (loss) per share calculations (1)		513.8		504.3

Income (loss) from continuing operations:
Income (loss) from continuing operations	$	174	$	(60	)
Less: net income from continuing operations attributable to noncontrolling interests		—		—

Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	174	$	(60	)

Basic per share	$	0.35	$	(0.12	)

Diluted per share	$	0.34	$	(0.12	)

Income (loss) from discontinued operations:
Income (loss) from discontinued operations, net of taxes	$	21	$	(12	)
Less: net income (loss) from discontinued operations attributable to noncontrolling interests		8		(6	)

Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders	$	13	$	(6	)

Basic per share	$	0.02	$	(0.01	)

Diluted per share	$	0.02	$	(0.01	)

Net income (loss):
Income (loss) from continuing operations	$	174	$	(60	)
Income (loss) from discontinued operations, net of taxes		21		(12	)

Net income (loss)		195		(72	)
Less: net income (loss) attributable to noncontrolling interests		8		(6	)

Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	187	$	(66	)

Basic per share	$	0.37	$	(0.13	)

Diluted per share (2)	$	0.37	$	(0.13	)

(1)

Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the three months ended March 31, 2020, we were required to use basic weighted-average common shares outstanding as the inclusion of shares for stock options, restricted stock units and stock appreciation rights of 5.4 million would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the three months ended March 31, 2020, dilutive potential weighted-average common shares outstanding would have been 509.7 million.

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

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(4) Investments

(a) Net Investment Income

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


	Three months ended
	March 31,
(Amounts in millions)	2021			2020
Fixed maturity securities—taxable	$	599		$	611
Fixed maturity securities—non-taxable		2			2
Equity securities		3			2
Commercial mortgage loans		78			85
Policy loans		50			49
Other invested assets		89			47
Cash, cash equivalents, restricted cash and short-term investments		—			10

Gross investment income before expenses and fees		821			806
Expenses and fees		(20	)		(24	)

Net investment income	$	801		$	782

(b) Net Investment Gains (Losses)

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


	Three months ended
	March 31,
(Amounts in millions)	2021			2020
Available-for-sale fixed maturity securities:
Realized gains	$	7		$	2
Realized losses		(3	)		—

Net realized gains (losses) on available-for-sale fixed maturity securities		4			2

Net change in allowance for credit losses on available-for-sale fixed maturity securities		(2	)		—
Write-down of available-for-sale fixed maturity securities (1)		(1	)		—
Net realized gains (losses) on equity securities sold		(5	)		—
Net unrealized gains (losses) on equity securities still held		(8	)		(12	)
Limited partnerships		37			(40	)
Commercial mortgage loans		(1	)		—
Derivative instruments (2)		8			(48	)
Other		1			(1	)

Net investment gains (losses)	$	33		$	(99	)

(1)	Represents write-down of securities deemed uncollectible or that we intend to sell or will be required to sell prior to recovery of the amortized cost basis.

(2)	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)

See Note 2—Summary of Significant Accounting Policies included in the Notes to Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for a discussion of our policy for evaluating and measuring the allowance for credit losses related to our available-for-sale fixed maturity securities. The following table represents the allowance for credit losses aggregated by security type for available-for-sale fixed maturity investments as of and for the three months ended March 31, 2021:


			Increase from		Increase
			securities		(decrease)				Decrease
			without		from securities				due to change
			allowance in		with allowance				in intent or
	Beginning		previous		in previous		Securities		requirement							Ending
(Amounts in millions)	balance		periods		periods		sold		to sell		Write-offs			Recoveries		balance
Fixed maturity securities:
Non-U.S. corporate	$	1	$	—	$	2	$	—	$	—	$	—		$	—	$	3
Commercial mortgage-backed		3		—		—		—		—		(3	)		—		—

Total available-for-sale fixed maturity securities	$	4	$	—	$	2	$	—	$	—	$	(3	)	$	—	$	3

There was no allowance for credit losses related to our available-for-sale fixed maturity securities as of and for the three months ended March 31, 2020.

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


(Amounts in millions)	March 31, 2021			December 31, 2020
Net unrealized gains (losses) on fixed maturity securities without an allowance for credit losses (1)	$	6,769		$	10,159
Net unrealized gains (losses) on fixed maturity securities with an allowance for credit losses (1)		(5	)		(7	)
Adjustments to DAC, present value of future profits, sales inducements, benefit reserves and policyholder contract balances		(4,327	)		(7,302	)
Income taxes, net		(518	)		(611	)

Net unrealized investment gains (losses)		1,919			2,239
Less: net unrealized investment gains (losses) attributable to noncontrolling interests		—			25

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	$	1,919		$	2,214

(1)	Excludes foreign exchange.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The change in net unrealized gains (losses) on available-for-sale investment securities reported in accumulated other comprehensive income (loss) was as follows as of and for the three months ended March 31:


(Amounts in millions)	2021			2020
Beginning balance	$	2,214		$	1,456
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on fixed maturity securities		(3,383	)		(1,712	)
Adjustment to DAC		(174	)		168
Adjustment to present value of future profits		1			(1	)
Adjustment to sales inducements		3			36
Adjustment to benefit reserves and policyholder contract balances		3,145			1,108
Provision for income taxes		92			87

Change in unrealized gains (losses) on investment securities		(316	)		(314	)
Reclassification adjustments to net investment (gains) losses, net of taxes of $1		(4	)		(6	)

Change in net unrealized investment gains (losses)		(320	)		(320	)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		(25	)		(4	)

Ending balance	$	1,919		$	1,140

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.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(d) Fixed Maturity Securities

As of March 31, 2021, the amortized cost or cost, gross unrealized gains (losses), allowance for credit losses and fair value of our fixed maturity securities classified as available-for-sale were as follows:


	Amortized		Gross		Gross			Allowance
	cost or		unrealized		unrealized			for credit			Fair
(Amounts in millions)	cost		gains		losses			losses			value
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	3,323	$	951	$	(1	)	$	—		$	4,273
State and political subdivisions		2,762		384		(11	)		—			3,135
Non-U.S. government		749		84		(13	)		—			820
U.S. corporate:
Utilities		4,242		644		(13	)		—			4,873
Energy		2,551		275		(24	)		—			2,802
Finance and insurance		7,785		879		(45	)		—			8,619
Consumer—non-cyclical		5,173		904		(11	)		—			6,066
Technology and communications		3,254		419		(16	)		—			3,657
Industrial		1,366		159		(4	)		—			1,521
Capital goods		2,476		377		(8	)		—			2,845
Consumer—cyclical		1,740		198		(8	)		—			1,930
Transportation		1,171		200		(1	)		—			1,370
Other		393		32		(1	)		—			424

Total U.S. corporate		30,151		4,087		(131	)		—			34,107

Non-U.S. corporate:
Utilities		895		64		(2	)		—			957
Energy		1,164		167		(4	)		—			1,327
Finance and insurance		2,193		263		(22	)		(3	)		2,431
Consumer—non-cyclical		661		65		(4	)		—			722
Technology and communications		1,062		146		(1	)		—			1,207
Industrial		1,018		118		(2	)		—			1,134
Capital goods		537		48		(3	)		—			582
Consumer—cyclical		356		27		(2	)		—			381
Transportation		459		67		(1	)		—			525
Other		1,054		166		(1	)		—			1,219

Total non-U.S. corporate		9,399		1,131		(42	)		(3	)		10,485

Residential mortgage-backed		1,600		175		(1	)		—			1,774
Commercial mortgage-backed		2,688		121		(15	)		—			2,794
Other asset-backed		2,798		48		(3	)		—			2,843

Total available-for-sale fixed maturity securities	$	53,470	$	6,981	$	(217	)	$	(3	)	$	60,231

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of December 31, 2020, the amortized cost or cost, gross unrealized gains (losses), allowance for credit losses and fair value of our fixed maturity securities classified as available-for-sale were as follows:


	Amortized		Gross		Gross			Allowance
	cost or		unrealized		unrealized			for credit			Fair
(Amounts in millions)	cost		gains		losses			losses			value
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	3,401	$	1,404	$	—		$	—		$	4,805
State and political subdivisions		2,622		544		(1	)		—			3,165
Non-U.S. government		728		130		(4	)		—			854
U.S. corporate:
Utilities		4,226		970		(2	)		—			5,194
Energy		2,532		367		(16	)		—			2,883
Finance and insurance		7,798		1,306		(2	)		—			9,102
Consumer—non-cyclical		5,115		1,323		(1	)		—			6,437
Technology and communications		3,142		619		—			—			3,761
Industrial		1,370		232		—			—			1,602
Capital goods		2,456		535		—			—			2,991
Consumer—cyclical		1,663		284		—			—			1,947
Transportation		1,198		304		(2	)		—			1,500
Other		395		45		—			—			440

Total U.S. corporate		29,895		5,985		(23	)		—			35,857

Non-U.S. corporate:
Utilities		838		84		—			—			922
Energy		1,172		209		(1	)		—			1,380
Finance and insurance		2,130		353		(6	)		(1	)		2,476
Consumer—non-cyclical		662		112		(1	)		—			773
Technology and communications		1,062		229		—			—			1,291
Industrial		969		159		—			—			1,128
Capital goods		510		67		(1	)		—			576
Consumer—cyclical		331		41		(1	)		—			371
Transportation		483		88		(1	)		—			570
Other		1,088		236		—			—			1,324

Total non-U.S. corporate		9,245		1,578		(11	)		(1	)		10,811

Residential mortgage-backed		1,698		211		—			—			1,909
Commercial mortgage-backed		2,759		231		(13	)		(3	)		2,974
Other asset-backed		3,069		55		(4	)		—			3,120

Total available-for-sale fixed maturity securities	$	53,417	$	10,138	$	(56	)	$	(4	)	$	63,495

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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 for which an allowance for credit losses has not been recorded, aggregated by investment type and length of time that individual fixed maturity securities have been in a continuous unrealized loss position, as of March 31, 2021:


	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. government, agencies and government-sponsored enterprises	$	30	$	(1	)		4	$	—	$	—			—	$	30	$	(1	)		4
State and political subdivisions		354		(11	)		68		—		—			—		354		(11	)		68
Non-U.S. government		189		(11	)		25		16		(2	)		1		205		(13	)		26
U.S. corporate		2,845		(119	)		291		122		(12	)		20		2,967		(131	)		311
Non-U.S. corporate		876		(35	)		102		55		(2	)		8		931		(37	)		110
Residential mortgage-backed		33		(1	)		8		—		—			—		33		(1	)		8
Commercial mortgage-backed		385		(10	)		48		79		(5	)		14		464		(15	)		62
Other asset-backed		336		(2	)		50		47		(1	)		11		383		(3	)		61

Total for fixed maturity securities in an unrealized loss position	$	5,048	$	(190	)		596	$	319	$	(22	)		54	$	5,367	$	(212	)		650

% Below cost:
<20% Below cost	$	5,041	$	(187	)		595	$	317	$	(21	)		53	$	5,358	$	(208	)		648
20%-50% Below cost		7		(3	)		1		2		(1	)		1		9		(4	)		2

Total for fixed maturity securities in an unrealized loss position	$	5,048	$	(190	)		596	$	319	$	(22	)		54	$	5,367	$	(212	)		650

Investment grade	$	4,759	$	(179	)		551	$	209	$	(8	)		36	$	4,968	$	(187	)		587
Below investment grade		289		(11	)		45		110		(14	)		18		399		(25	)		63

Total for fixed maturity securities in an unrealized loss position	$	5,048	$	(190	)		596	$	319	$	(22	)		54	$	5,367	$	(212	)		650

Table of Contents

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 for which an allowance for credit losses has not been recorded, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of March 31, 2021:


	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	$	240	$	(13	)		34	$	—	$	—			—	$	240	$	(13	)		34
Energy		348		(15	)		45		70		(9	)		12		418		(24	)		57
Finance and insurance		980		(45	)		87		—		—			—		980		(45	)		87
Consumer—non-cyclical		314		(11	)		28		—		—			—		314		(11	)		28
Technology and communications		371		(15	)		39		6		(1	)		1		377		(16	)		40
Industrial		160		(4	)		15		—		—			—		160		(4	)		15
Capital goods		166		(7	)		16		18		(1	)		2		184		(8	)		18
Consumer—cyclical		245		(8	)		24		—		—			—		245		(8	)		24
Transportation		—		—			—		28		(1	)		5		28		(1	)		5
Other		21		(1	)		3		—		—			—		21		(1	)		3

Subtotal, U.S. corporate securities		2,845		(119	)		291		122		(12	)		20		2,967		(131	)		311

Non-U.S. corporate:
Utilities		45		(2	)		8		—		—			—		45		(2	)		8
Energy		101		(3	)		11		49		(1	)		7		150		(4	)		18
Finance and insurance		379		(17	)		39		—		—			—		379		(17	)		39
Consumer—non-cyclical		80		(3	)		8		6		(1	)		1		86		(4	)		9
Technology and communications		25		(1	)		5		—		—			—		25		(1	)		5
Industrial		82		(2	)		8		—		—			—		82		(2	)		8
Capital goods		53		(3	)		10		—		—			—		53		(3	)		10
Consumer—cyclical		30		(2	)		6		—		—			—		30		(2	)		6
Transportation		42		(1	)		2		—		—			—		42		(1	)		2
Other		39		(1	)		5		—		—			—		39		(1	)		5

Subtotal, non-U.S. corporate securities		876		(35	)		102		55		(2	)		8		931		(37	)		110

Total for corporate securities in an unrealized loss position	$	3,721	$	(154	)		393	$	177	$	(14	)		28	$	3,898	$	(168	)		421

We did not recognize an allowance for credit losses on securities in an unrealized loss position included in the tables above. Based on a qualitative and quantitative review of the issuers of the securities, we believe the decline in fair value is largely due to recent market volatility and is not indicative of credit losses. The issuers continue to make timely principal and interest payments. For all securities in an unrealized loss position without

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

an allowance for credit losses, 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.

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 December 31, 2020:


	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:
State and political subdivisions	$	28	$	(1	)		6	$	—	$	—			—	$	28	$	(1	)		6
Non-U.S. government		44		(4	)		5		—		—			—		44		(4	)		5
U.S. corporate		345		(20	)		59		33		(3	)		4		378		(23	)		63
Non-U.S. corporate		145		(4	)		32		6		(1	)		1		151		(5	)		33
Commercial mortgage-backed		227		(11	)		34		1		(1	)		1		228		(12	)		35
Other asset-backed		238		(2	)		60		207		(2	)		48		445		(4	)		108

Total for fixed maturity securities in an unrealized loss position	$	1,027	$	(42	)		196	$	247	$	(7	)		54	$	1,274	$	(49	)		250

% Below cost:
<20% Below cost	$	1,017	$	(35	)		194	$	246	$	(6	)		53	$	1,263	$	(41	)		247
20%-50% Below cost		10		(7	)		2		1		(1	)		1		11		(8	)		3

Total for fixed maturity securities in an unrealized loss position	$	1,027	$	(42	)		196	$	247	$	(7	)		54	$	1,274	$	(49	)		250

Investment grade	$	852	$	(23	)		163	$	207	$	(2	)		48	$	1,059	$	(25	)		211
Below investment grade		175		(19	)		33		40		(5	)		6		215		(24	)		39

Total for fixed maturity securities in an unrealized loss position	$	1,027	$	(42	)		196	$	247	$	(7	)		54	$	1,274	$	(49	)		250

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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 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 December 31, 2020:


	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	$	49	$	(2	)		9	$	—	$	—			—	$	49	$	(2	)		9
Energy		106		(13	)		19		33		(3	)		4		139		(16	)		23
Finance and insurance		128		(2	)		15		—		—			—		128		(2	)		15
Consumer—non-cyclical		16		(1	)		5		—		—			—		16		(1	)		5
Transportation		46		(2	)		11		—		—			—		46		(2	)		11

Subtotal, U.S. corporate securities		345		(20	)		59		33		(3	)		4		378		(23	)		63

Non-U.S. corporate:
Energy		66		(1	)		10		—		—			—		66		(1	)		10
Consumer—non-cyclical		—		—			—		6		(1	)		1		6		(1	)		1
Capital goods		31		(1	)		8		—		—			—		31		(1	)		8
Consumer—cyclical		15		(1	)		6		—		—			—		15		(1	)		6
Transportation		33		(1	)		8		—		—			—		33		(1	)		8

Subtotal, non-U.S. corporate securities		145		(4	)		32		6		(1	)		1		151		(5	)		33

Total for corporate securities in an unrealized loss position	$	490	$	(24	)		91	$	39	$	(4	)		5	$	529	$	(28	)		96

The scheduled maturity distribution of fixed maturity securities as of March 31, 2021 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	$	1,269	$	1,291
Due after one year through five years		8,298		8,926
Due after five years through ten years		13,612		14,904
Due after ten years		23,205		27,699

Subtotal		46,384		52,820
Residential mortgage-backed		1,600		1,774
Commercial mortgage-backed		2,688		2,794
Other asset-backed		2,798		2,843

Total	$	53,470	$	60,231

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of March 31, 2021, securities issued by finance and insurance, consumer—non-cyclical, utilities and technology and communications industry groups represented approximately 25%, 15%, 13% and 11%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than 10% of our investment portfolio.

As of March 31, 2021, 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.

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


	March 31, 2021						December 31, 2020
	Carrying			% of			Carrying			% of
(Amounts in millions)	value			total			value			total
Property type:
Retail	$	2,541			37	%	$	2,442			36	%
Industrial		1,593			24			1,638			24
Office		1,539			23			1,567			23
Apartments		569			8			529			8
Mixed use		284			4			286			4
Other		261			4			312			5

Subtotal		6,787			100	%		6,774			100	%

Allowance for credit losses		(32	)					(31	)

Total	$	6,755					$	6,743

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	March 31, 2021						December 31, 2020
	Carrying			% of			Carrying			% of
(Amounts in millions)	value			total			value			total
Geographic region:
South Atlantic	$	1,690			25	%	$	1,711			25	%
Pacific		1,490			22			1,510			22
Middle Atlantic		1,001			15			994			15
Mountain		816			12			781			12
West North Central		463			7			467			7
East North Central		432			6			441			6
West South Central		432			6			423			6
New England		258			4			260			4
East South Central		205			3			187			3

Subtotal		6,787			100	%		6,774			100	%

Allowance for credit losses		(32	)					(31	)

Total	$	6,755					$	6,743

As of March 31, 2021 and December 31, 2020, all of our commercial mortgage loans were current. For a discussion of our policy related to placing commercial mortgage loans on non-accrual status, see Note 2—Summary of Significant Accounting Policies included in the Notes to Consolidated Financial Statements in our 2020 Annual Report on Form 10-K. As of March 31, 2021 and December 31, 2020, we had no commercial mortgage loans on non-accrual status.

During the three months ended March 31, 2021 and the year ended December 31, 2020, we did not have any modifications or extensions that were considered troubled debt restructurings.

The following table sets forth the allowance for credit losses related to commercial mortgage loans as of or for the periods indicated:


	Three months ended
	March 31,
(Amounts in millions)	2021		2020
Allowance for credit losses:
Beginning balance	$	31	$	13
Cumulative effect of change in accounting		—		16
Provision		1		—
Write-offs		—		—
Recoveries		—		—

Ending balance	$	32	$	29

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 debt-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

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default by the borrower. The average debt-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 debt-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.

The following tables set forth commercial mortgage loans by year of origination and credit quality indicator as of March 31, 2021:


											2016 and
(Amounts in millions)	2021		2020		2019		2018		2017		prior		Total
Debt-to-value:
0% - 50%	$	—	$	59	$	28	$	94	$	153	$	2,279	$	2,613
51% - 60%		6		51		84		334		287		836		1,598
61% - 75%		136		429		667		532		278		534		2,576
76% - 100%		—		—		—		—		—		—		—
Greater than 100%		—		—		—		—		—		—		—

Total amortized cost	$	142	$	539	$	779	$	960	$	718	$	3,649	$	6,787

Debt service coverage ratio:
Less than 1.00	$	—	$	—	$	8	$	27	$	10	$	162	$	207
1.00 - 1.25		—		53		67		54		42		295		511
1.26 - 1.50		27		82		242		201		60		397		1,009
1.51 - 2.00		106		282		293		444		334		1,186		2,645
Greater than 2.00		9		122		169		234		272		1,609		2,415

Total amortized cost	$	142	$	539	$	779	$	960	$	718	$	3,649	$	6,787

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


	March 31, 2021
													Greater
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			than 100%			Total
Property type:
Retail	$	944		$	569		$	1,028		$	—		$	—		$	2,541
Industrial		754			384			455			—			—			1,593
Office		508			456			575			—			—			1,539
Apartments		241			85			243			—			—			569
Mixed use		105			42			137			—			—			284
Other		61			62			138			—			—			261

Total amortized cost	$	2,613		$	1,598		$	2,576		$	—		$	—		$	6,787

% of total		38	%		24	%		38	%		—	%		—	%		100	%

Weighted-average debt service coverage ratio		2.39			1.86			1.60			—			—			1.96


	December 31, 2020
													Greater
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			than 100%			Total
Property type:
Retail	$	913		$	639		$	859		$	29		$	2		$	2,442
Industrial		798			351			456			33			—			1,638
Office		523			431			595			18			—			1,567
Apartments		199			86			238			6			—			529
Mixed use		112			47			127			—			—			286
Other		100			74			121			17			—			312

Total amortized cost	$	2,645		$	1,628		$	2,396		$	103		$	2		$	6,774

% of total		39	%		24	%		35	%		2	%		—	%		100	%

Weighted-average debt service coverage ratio		2.40			1.83			1.61			1.49			0.64			1.97

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


	March 31, 2021
													Greater
(Amounts in millions)	Less than 1.00			1.00 - 1.25			1.26 - 1.50			1.51 - 2.00			than 2.00			Total
Property type:
Retail	$	52		$	162		$	500		$	1,063		$	764		$	2,541
Industrial		21			80			147			582			763			1,593
Office		96			97			171			621			554			1,539
Apartments		8			24			125			226			186			569
Mixed use		5			24			29			129			97			284
Other		25			124			37			24			51			261

Total amortized cost	$	207		$	511		$	1,009		$	2,645		$	2,415		$	6,787

% of total		3	%		7	%		15	%		39	%		36	%		100	%

Weighted-average debt-to-value		57	%		61	%		62	%		57	%		44	%		53	%


	December 31, 2020
													Greater
(Amounts in millions)	Less than 1.00			1.00 - 1.25			1.26 - 1.50			1.51 - 2.00			than 2.00			Total
Property type:
Retail	$	55		$	169		$	483		$	969		$	766		$	2,442
Industrial		21			85			143			616			773			1,638
Office		101			99			170			634			563			1,567
Apartments		9			24			126			228			142			529
Mixed use		5			24			29			115			113			286
Other		25			125			41			28			93			312

Total amortized cost	$	216		$	526		$	992		$	2,590		$	2,450		$	6,774

% of total		3	%		8	%		15	%		38	%		36	%		100	%

Weighted-average debt-to-value		57	%		62	%		62	%		57	%		44	%		53	%

(f) Limited Partnerships or Similar Entities

Limited partnerships are accounted for at fair value when our partnership interest is considered minor (generally less than 3% ownership in the limited partnerships) and we exercise no influence over operating and financial policies. If our ownership percentage exceeds that threshold, limited partnerships are accounted for using the equity method of accounting. In applying either method, we use financial information provided by the investee generally on a one-to-three month lag. However, for limited partnerships measured at fair value, we consider whether an adjustment to the estimated fair value is necessary when the measurement date is not aligned with our reporting date.

Investments in limited partnerships or similar entities are generally considered VIEs when the equity group lacks sufficient financial control. Generally, these investments are limited partner or non-managing member equity investments in a widely held fund that is sponsored and managed by a reputable asset manager. We are not

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the primary beneficiary of any VIE investment in a limited partnership or similar entity. As of March 31, 2021 and December 31, 2020, the total carrying value of these investments was $1,128 million and $1,018 million, respectively. Our maximum exposure to loss is equal to the outstanding carrying value and future funding commitments. We have not contributed, and do not plan to contribute, any additional financial or other support outside of what is contractually obligated.

(5) Derivative Instruments

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

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


	Derivative assets					Derivative liabilities
	Balance sheet classification	Fair value				Balance sheet classification		Fair value
		March 31, 2021		December 31, 2020				March 31, 2021		December 31, 2020
(Amounts in millions)		March 31, 2021		December 31, 2020				March 31, 2021		December 31, 2020
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps	Other invested assets	$	84	$	468		Other liabilities	$	170	$	23
Foreign currency swaps	Other invested assets		—		1		Other liabilities		3		2

Total cash flow hedges			84		469				173		25

Total derivatives designated as hedges			84		469				173		25

Derivatives not designated as hedges
Equity index options	Other invested assets		53		63		Other liabilities		—		—
Financial futures	Other invested assets		—		—		Other liabilities		—		—
Other foreign currency contracts	Other invested assets		27		42		Other liabilities		—		1
GMWB embedded derivatives	Reinsurance recoverable (1)		18		26		Policyholder account balances (2)		272		379
Fixed index annuity embedded derivatives	Other assets		—		—		Policyholder account balances (3)		362		399
Indexed universal life embedded derivatives	Reinsurance recoverable		—		—		Policyholder account balances (4)		23		26

Total derivatives not designated as hedges			98		131				657		805

Total derivatives		$	182	$	600			$	830	$	830

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

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

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

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

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

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

The following tables represent activity associated with derivative instruments as of the dates indicated:


			December 31,				Maturities/			March 31,
(Notional in millions)	Measurement		2020		Additions		terminations			2021
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps		Notional	$	8,178	$	—	$	(52	)	$	8,126
Foreign currency swaps		Notional		127		—		—			127

Total cash flow hedges				8,305		—		(52	)		8,253

Total derivatives designated as hedges				8,305		—		(52	)		8,253

Derivatives not designated as hedges
Interest rate swaps		Notional		4,674		—		—			4,674
Equity index options		Notional		2,000		352		(432	)		1,920
Financial futures		Notional		1,104		1,008		(1,114	)		998
Other foreign currency contracts		Notional		1,186		12		(495	)		703

Total derivatives not designated as hedges				8,964		1,372		(2,041	)		8,295

Total derivatives			$	17,269	$	1,372	$	(2,093	)	$	16,548


			December 31,				Maturities/			March 31,
(Number of policies)	Measurement		2020		Additions		terminations			2021
Derivatives not designated as hedges
GMWB embedded derivatives		Policies		23,713		—		(536	)		23,177
Fixed index annuity embedded derivatives		Policies		12,778		—		(1,010	)		11,768
Indexed universal life embedded derivatives		Policies		842		—		(8	)		834

Cash Flow Hedges

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

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The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the three months ended March 31, 2021:


				Gain (loss)
				reclassified into		Classification of gain		Gain (loss)		Classification of gain
	Gain (loss)			net income (loss)		(loss) reclassified into		recognized in		(loss) recognized in
(Amounts in millions)	recognized in OCI			from OCI		net income (loss)		net income (loss)		net income (loss)
Interest rate swaps hedging assets	$	(529	)	$	52		Net investment income	$	—		Net investment gains (losses)
Interest rate swaps hedging liabilities		44			—		Interest expense		—		Net investment gains (losses)
Foreign currency swaps		(2	)		—		Net investment income		—		Net investment gains (losses)

Total	$	(487	)	$	52			$	—

The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the three months ended March 31, 2020:


				Gain (loss)
				reclassified into		Classification of gain		Gain (loss)		Classification of gain
	Gain (loss)			net income (loss)		(loss) reclassified into		recognized in		(loss) recognized in
(Amounts in millions)	recognized in OCI			from OCI		net income (loss)		net income (loss)		net income (loss)
Interest rate swaps hedging assets	$	1,041		$	43		Net investment income	$	—		Net investment gains (losses)
Interest rate swaps hedging assets		—			4		Net investment gains (losses)		—		Net investment gains (losses)
Interest rate swaps hedging liabilities		(63	)		—		Interest expense		—		Net investment gains (losses)
Foreign currency swaps		17			—		Net investment income		—		Net investment gains (losses)

Total	$	995		$	47			$	—

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


	Three months ended
	March 31,
(Amounts in millions)	2021			2020
Derivatives qualifying as effective accounting hedges as of January 1	$	2,211		$	2,002
Current period increases (decreases) in fair value, net of deferred taxes of $102 and $(212)		(385	)		783
Reclassification to net (income) loss, net of deferred taxes of $18 and $17		(34	)		(30	)

Derivatives qualifying as effective accounting hedges as of March 31	$	1,792		$	2,755

The total of derivatives designated as cash flow hedges of $1,792 million, net of taxes, recorded in stockholders’ equity as of March 31, 2021 is expected to be reclassified to net income (loss) in the future, concurrently with and primarily offsetting changes in interest expense and interest income on floating rate

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instruments and interest income on future fixed rate bond purchases. Of this amount, $137 million, net of taxes, is expected to be reclassified to net income (loss) in the next 12 months. Actual amounts may vary from this amount as a result of market conditions. All forecasted transactions associated with qualifying cash flow hedges are expected to occur by 2057. During the three months ended March 31, 2021 and 2020, we reclassified $2 million in both periods to net income (loss) in connection with forecasted transactions that were no longer considered probable of occurring.

Derivatives Not Designated As Hedges

We also enter into certain non-qualifying derivative instruments such as: (i) interest rate swaps and financial futures to mitigate interest rate risk as part of managing regulatory capital positions; (ii) equity index options, equity return swaps, interest rate swaps and financial futures to mitigate the risks associated with liabilities that have guaranteed minimum benefits, fixed index annuities and indexed universal life; and (iii) foreign currency options and forward contracts to mitigate currency risk associated with future dividends, cash payments to AXA under a promissory note reported as discontinued operations and/or other cash flows from certain foreign subsidiaries to our holding company. Additionally, we provide GMWBs on certain variable annuities that are required to be bifurcated as embedded derivatives. We also offer fixed index annuity and indexed universal life insurance products and have reinsurance agreements with certain features that are required to be bifurcated as embedded derivatives.

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


	Three months ended March 31,						Classification of gain (loss) recognized
(Amounts in millions)	2021			2020			in net income (loss)
Interest rate swaps	$	4		$	(10	)	Net investment gains (losses)
Equity index options		3			(13	)	Net investment gains (losses)
Financial futures		(110	)		261		Net investment gains (losses)
Other foreign currency contracts		—			10		Net investment gains (losses)
GMWB embedded derivatives		105			(336	)	Net investment gains (losses)
Fixed index annuity embedded derivatives		(4	)		32		Net investment gains (losses)
Indexed universal life embedded derivatives		10			4		Net investment gains (losses)

Total derivatives not designated as hedges	$	8		$	(52	)

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Derivative Counterparty Credit Risk

Most of our derivative arrangements with counterparties require the posting of collateral upon meeting certain net exposure thresholds. The following table presents additional information about derivative assets and liabilities subject to an enforceable master netting arrangement as of the dates indicated:


	March 31, 2021									December 31, 2020
	Derivative			Derivative			Net			Derivative			Derivative			Net
(Amounts in millions)	assets (1)			liabilities (1)			derivatives			assets (1)			liabilities (1)			derivatives
Amounts presented in the balance sheet:
Gross amounts recognized	$	164		$	173		$	(9	)	$	574		$	26		$	548
Gross amounts offset in the balance sheet		—			—			—			—			—			—

Net amounts presented in the balance sheet		164			173			(9	)		574			26			548
Gross amounts not offset in the balance sheet:
Financial instruments (2)		(50	)		(50	)		—			(20	)		(20	)		—
Collateral received		(110	)		—			(110	)		(401	)		—			(401	)
Collateral pledged		—			(721	)		721			—			(505	)		505
Over collateralization		11			598			(587	)		2			499			(497	)

Net amount	$	15		$	—		$	15		$	155		$	—		$	155

(1)	Does not include amounts related to embedded derivatives as of March 31, 2021 and December 31, 2020.

(2)	Amounts represent derivative assets and/or liabilities that are presented gross within the balance sheet but are held with the same counterparty where we have a master netting arrangement. This adjustment results in presenting the net asset and net liability position for each counterparty.

(6) Fair Value of Financial Instruments

Recurring Fair Value Measurements

We have fixed maturity securities, short-term investments, equity securities, limited partnerships, derivatives, embedded derivatives, securities held as collateral, separate account assets and certain other financial instruments, which are carried at fair value. Below is a description of the valuation techniques and inputs used to determine fair value by class of instrument.

Fixed maturity, short-term investments and equity securities

The fair value of fixed maturity securities, short-term investments and equity securities are estimated primarily based on information derived from third-party pricing services (“pricing services”), internal models and/or broker quotes, which use a market approach, income approach or a combination of the market and income approach depending on the type of instrument and availability of information. In general, a market approach is utilized if there is readily available and relevant market activity for an individual security. In certain cases where market information is not available for a specific security but is available for similar securities, that security is valued using market information for similar securities, which is also a market approach. When market information is not available for a specific security (or similar securities) or is available but such information is

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less relevant or reliable, an income approach or a combination of a market and income approach is utilized. For securities with optionality, such as call or prepayment features (including mortgage-backed or asset-backed securities), an income approach may be used. In addition, a combination of the results from market and income approaches may be used to estimate fair value. These valuation techniques may change from period to period, based on the relevance and availability of market data.

Further, while we consider the valuations provided by pricing services and broker quotes to be of high quality, management determines the fair value of our investment securities after considering all relevant and available information.

In general, we first obtain valuations from pricing services. If prices are unavailable for public securities, we obtain broker quotes. For all securities, excluding certain private fixed maturity securities, if neither a pricing service nor broker quotes valuation is available, we determine fair value using internal models. For certain private fixed maturity securities where we do not obtain valuations from pricing services, we utilize an internal model to determine fair value since transactions for similar securities are not readily observable and these securities are not typically valued by pricing services.

Given our understanding of the pricing methodologies and procedures of pricing services, the securities valued by pricing services are typically classified as Level 2 unless we determine the valuation process for a security or group of securities utilizes significant unobservable inputs, which would result in the valuation being classified as Level 3.

Broker quotes are typically based on an income approach given the lack of available market data. As the valuation typically includes significant unobservable inputs, we classify the securities where fair value is based on our consideration of broker quotes as Level 3 measurements.

For private fixed maturity securities, we utilize an income approach where we obtain public bond spreads and utilize those in an internal model to determine fair value. Other inputs to the model include rating and weighted-average life, as well as sector which is used to assign the spread. We then add an additional premium, which represents an unobservable input, to the public bond spread to adjust for the liquidity and other features of our private placements. We utilize the estimated market yield to discount the expected cash flows of the security to determine fair value. We utilize price caps for securities where the estimated market yield results in a valuation that may exceed the amount that would be received in a market transaction. When a security does not have an external rating, we assign the security an internal rating to determine the appropriate public bond spread that should be utilized in the valuation. While we generally consider the public bond spreads by sector and maturity to be observable inputs, we evaluate the similarities of our private placement with the public bonds, any price caps utilized, liquidity premiums applied, and whether external ratings are available for our private placements to determine whether the spreads utilized would be considered observable inputs. We classify private securities without an external rating or public bond spread as Level 3. In general, a significant increase (decrease) in credit spreads would have resulted in a significant decrease (increase) in the fair value for our fixed maturity securities as of March 31, 2021.

For remaining securities priced using internal models, we determine fair value using an income approach. We maximize the use of observable inputs but typically utilize significant unobservable inputs to determine fair value. Accordingly, the valuations are typically classified as Level 3.

Our assessment of whether or not there were significant unobservable inputs related to fixed maturity securities was based on our observations obtained through the course of managing our investment portfolio,

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including interaction with other market participants, observations related to the availability and consistency of pricing and/or rating, and understanding of general market activity such as new issuance and the level of secondary market trading for a class of securities. Additionally, we considered data obtained from pricing services to determine whether our estimated values incorporate significant unobservable inputs that would result in the valuation being classified as Level 3.

A summary of the inputs used for our fixed maturity securities, short-term investments and equity securities based on the level in which instruments are classified is included below. We have combined certain classes of instruments together as the nature of the inputs is similar.

Level 1 measurements

Equity securities.

The primary inputs to the valuation of exchange-traded equity securities include quoted prices for the identical instrument.

Separate account assets.

The fair value of separate account assets is based on the quoted prices of the underlying fund investments and, therefore, represents Level 1 pricing.

Level 2 measurements

Fixed maturity securities

•

Third-party pricing services:

In estimating the fair value of fixed maturity securities, 90% of our portfolio was priced using third-party pricing services as of March 31, 2021. These pricing services utilize industry-standard valuation techniques that include market-based approaches, income-based approaches, a combination of market-based and income-based approaches or other proprietary, internally generated models as part of the valuation processes. These third-party pricing vendors maximize the use of publicly available data inputs to generate valuations for each asset class. Priority and type of inputs used may change frequently as certain inputs may be more direct drivers of valuation at the time of pricing. Examples of significant inputs incorporated by pricing services may include sector and issuer spreads, seasoning, capital structure, security optionality, collateral data, prepayment assumptions, default assumptions, delinquencies, debt covenants, benchmark yields, trade data, dealer quotes, credit ratings, maturity and weighted-average life. We conduct regular meetings with our pricing services for the purpose of understanding the methodologies, techniques and inputs used by the third-party pricing providers.

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The following table presents a summary of the significant inputs used by our pricing services for certain fair value measurements of fixed maturity securities that are classified as Level 2 as of March 31, 2021:


(Amounts in millions)	Fair value		Primary methodologies	Significant inputs
U.S. government, agencies and government-sponsored enterprises	$	4,273	Price quotes from trading desk, broker feeds	Bid side prices, trade prices, Option Adjusted Spread (“OAS”) to swap curve, Bond Market Association OAS, Treasury Curve, Agency Bullet Curve, maturity to issuer spread

State and political subdivisions	$	3,067	Multi-dimensional attribute-based modeling systems, third-party pricing vendors	Trade prices, material event notices, Municipal Market Data benchmark yields, broker quotes

Non-U.S. government	$	820	Matrix pricing, spread priced to benchmark curves, price quotes from market makers	Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources

U.S. corporate	$	30,480	Multi-dimensional attribute-based modeling systems, broker quotes, price quotes from market makers, OAS-based models	Bid side prices to Treasury Curve, Issuer Curve, which includes sector, quality, duration, OAS percentage and change for spread matrix, trade prices, comparative transactions, Trade Reporting and Compliance Engine (“TRACE”) reports

Non-U.S. corporate	$	8,160	Multi-dimensional attribute-based modeling systems, OAS-based models, price quotes from market makers	Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources

Residential mortgage-backed	$	1,761	OAS-based models, single factor binomial models, internally priced	Prepayment and default assumptions, aggregation of bonds with similar characteristics, including collateral type, vintage, tranche type, weighted-average life, weighted-average loan age, issuer program and delinquency ratio, pay up and pay down factors, TRACE reports

Commercial mortgage-backed	$	2,775	Multi-dimensional attribute-based modeling systems, pricing matrix, spread matrix priced to swap curves, Trepp commercial mortgage-backed securities analytics model	Credit risk, interest rate risk, prepayment speeds, new issue data, collateral performance, origination year, tranche type, original credit ratings, weighted-average life, cash flows, spreads derived from broker quotes, bid side prices, spreads to daily updated swaps curves, TRACE reports

Other asset-backed	$	2,747	Multi-dimensional attribute-based modeling systems, spread matrix priced to swap curves, price quotes from market makers	Spreads to daily updated swap curves, spreads derived from trade prices and broker quotes, bid side prices, new issue data, collateral performance, analysis of prepayment speeds, cash flows, collateral loss analytics, historical issue analysis, trade data from market makers, TRACE reports

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•

Internal models:

A portion of our U.S. corporate and non-U.S. corporate securities are valued using internal models. The fair value of these fixed maturity securities was $1,477 million and $749 million, respectively, as of March 31, 2021. Internally modeled securities are primarily private fixed maturity securities where we use market observable inputs such as an interest rate yield curve, published credit spreads for similar securities based on the external ratings of the instrument and related industry sector of the issuer. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps and liquidity premiums are established using inputs from market participants.

Equity securities.

The primary inputs to the valuation include quoted prices for identical assets, or similar assets in markets that are not active.

Securities lending collateral

The fair value of securities held as collateral is primarily based on Level 2 inputs from market information for the collateral that is held on our behalf by the custodian. We determine fair value after considering prices obtained by pricing services.

Short-term investments

The fair value of short-term investments classified as Level 2 is determined after considering prices obtained by pricing services.

Level 3 measurements

Fixed maturity securities

•

Broker quotes:

A portion of our state and political subdivisions, U.S. corporate, non-U.S. corporate, residential mortgage-backed, commercial mortgage-backed and other asset-backed securities are valued using broker quotes. Broker quotes are obtained from third-party providers that have current market knowledge to provide a reasonable price for securities not routinely priced by pricing services. Brokers utilized for valuation of assets are reviewed annually. The fair value of our Level 3 fixed maturity securities priced by broker quotes was $680 million as of March 31, 2021.

•

Internal models:

A portion of our state and political subdivisions, U.S. corporate, non-U.S. corporate, residential mortgage-backed and other asset-backed securities are valued using internal models. The primary inputs to the valuation of the bond population include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, duration, call provisions, issuer rating, benchmark yields and credit spreads. Certain private fixed maturity securities are valued using an internal model using market observable inputs such as the interest rate yield curve, as well as published credit spreads for similar securities, which includes significant unobservable inputs. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps are established using inputs from market participants. For structured securities, the primary inputs to the valuation include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, weighted-average coupon, weighted-average maturity, issuer rating, structure of the security, expected prepayment speeds and volumes, collateral type, current and forecasted loss severity, average delinquency rates, vintage of the loans, geographic region, debt service coverage ratios, payment priority with the tranche, benchmark yields and credit spreads. The fair value of our Level 3 fixed maturity securities priced using internal models was $3,242 million as of March 31, 2021.

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Equity securities.

The primary inputs to the valuation include broker quotes where the underlying inputs are unobservable and for internal models, structure of the security and issuer rating.

Net asset value

Limited partnerships

Limited partnerships are valued based on comparable market transactions, discounted future cash flows, quoted market prices and/or estimates using the most recent data available for the underlying instrument. We utilize the net asset value (“NAV”) from the underlying fund statements as a practical expedient for fair value.

Derivatives

We consider counterparty collateral arrangements and rights of set-off when evaluating our net credit risk exposure to our derivative counterparties. Accordingly, we are permitted to include consideration of these arrangements when determining whether any incremental adjustment should be made for both the counterparty’s and our non-performance risk in measuring fair value for our derivative instruments. As a result of these counterparty arrangements, we determined that any adjustment for credit risk would not be material and we have not recorded any incremental adjustment for our non-performance risk or the non-performance risk of the derivative counterparty for our derivative assets or liabilities.

Interest rate swaps.

The valuation of interest rate swaps is determined using an income approach. The primary input into the valuation represents the forward interest rate swap curve, which is generally considered an observable input, and results in the derivative being classified as Level 2. For certain interest rate swaps, the inputs into the valuation also include the total returns of certain bonds that would primarily be considered an observable input and result in the derivative being classified as Level 2.

Foreign currency swaps.

The valuation of foreign currency swaps is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve and foreign currency exchange rates, both of which are considered observable inputs, and results in the derivative being classified as Level 2.

Equity index options.

We have equity index options associated with various equity indices. The valuation of equity index options is determined using an income approach. The primary inputs into the valuation represent forward interest rates, equity index volatility, equity index and time value component associated with the optionality in the derivative. The equity index volatility surface is determined based on market information that is not readily observable and is developed based upon inputs received from several third-party sources. Accordingly, these options are classified as Level 3. As of March 31, 2021, a significant increase (decrease) in the equity index volatility discussed above would have resulted in a significantly higher (lower) fair value measurement.

Financial futures.

The fair value of financial futures is based on the closing exchange prices. Accordingly, these financial futures are classified as Level 1. The period end valuation is zero as a result of settling the margins on these contracts on a daily basis.

Other foreign currency contracts.

We have certain foreign currency options classified as other foreign currency contracts. The valuation of foreign currency options is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve, foreign currency exchange rates,

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forward interest rate, foreign currency exchange rate volatility and time value component associated with the optionality in the derivative, which are generally considered observable inputs and results in the derivative being classified as Level 2. We also have foreign currency forward contracts where the valuation is determined using an income approach. The primary inputs into the valuation represent the forward foreign currency exchange rates, which are generally considered observable inputs and results in the derivative being classified as Level 2.

GMWB embedded derivatives

We are required to bifurcate an embedded derivative for certain features associated with annuity products and related reinsurance agreements where we provide a GMWB to the policyholder and are required to record the GMWB embedded derivative at fair value. The valuation of our GMWB embedded derivative is based on an income approach that incorporates inputs such as forward interest rates, equity index volatility, equity index and fund correlation, and policyholder assumptions such as utilization, lapse and mortality. We determine fair value using an internal model based on the various inputs noted above.

Non-performance risk is integrated into the discount rate used to value GMWB liabilities. Our discount rate used to determine fair value of our GMWB liabilities includes market credit spreads above U.S. Treasury rates to reflect an adjustment for the non-performance risk of the GMWB liabilities. As of March 31, 2021 and December 31, 2020, the impact of non-performance risk resulted in a lower fair value of our GMWB liabilities of $50 million and $66 million, respectively.

We classify the GMWB valuation as Level 3 based on having significant unobservable inputs, with equity index volatility and non-performance risk being considered the more significant unobservable inputs. As equity index volatility increases, the fair value of the GMWB liabilities will increase. Any increase in non-performance risk would increase the discount rate and would decrease the fair value of the GMWB liability. Additionally, we consider lapse and utilization assumptions to be significant unobservable inputs. An increase in our lapse assumption would decrease the fair value of the GMWB liability, whereas an increase in our utilization rate would increase the fair value. As of March 31, 2021, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.

Fixed index annuity embedded derivatives

We have fixed indexed annuity products where interest is credited to the policyholder’s account balance based on equity index changes. This feature is required to be bifurcated as an embedded derivative and recorded at fair value. Fair value is determined using an income approach where the present value of the excess cash flows above the guaranteed cash flows is used to determine the value attributed to the equity index feature. The inputs used in determining the fair value include policyholder behavior (lapses and withdrawals), near-term equity index volatility, expected future interest credited, forward interest rates and an adjustment to the discount rate to incorporate non-performance risk and risk margins. As a result of our assumptions for policyholder behavior and expected future interest credited being considered significant unobservable inputs, we classify these instruments as Level 3. As lapses and withdrawals increase, the value of our embedded derivative liability will decrease. As expected future interest credited decreases, the value of our embedded derivative liability will decrease. As of March 31, 2021, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.

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Indexed universal life embedded derivatives

We have indexed universal life insurance products where interest is credited to the policyholder’s account balance based on equity index changes. This feature is required to be bifurcated as an embedded derivative and recorded at fair value. Fair value is determined using an income approach where the present value of the excess cash flows above the guaranteed cash flows is used to determine the value attributed to the equity index feature. The inputs used in determining the fair value include policyholder behavior (lapses and withdrawals), near-term equity index volatility, expected future interest credited, forward interest rates and an adjustment to the discount rate to incorporate non-performance risk and risk margins. As a result of our assumptions for policyholder behavior and expected future interest credited being considered significant unobservable inputs, we classify these instruments as Level 3. As lapses and withdrawals increase, the value of our embedded derivative liability will decrease. As expected future interest credited decreases, the value of our embedded derivative liability will decrease. As of March 31, 2021, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.

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The following tables set forth our assets by class of instrument that are measured at fair value on a recurring basis as of the dates indicated:


	March 31, 2021
(Amounts in millions)	Total		Level 1		Level 2		Level 3		NAV (1)
Assets
Investments:
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	4,273	$	—	$	4,273	$	—	$	—
State and political subdivisions		3,135		—		3,067		68		—
Non-U.S. government		820		—		820		—		—
U.S. corporate:
Utilities		4,873		—		4,080		793		—
Energy		2,802		—		2,680		122		—
Finance and insurance		8,619		—		8,022		597		—
Consumer—non-cyclical		6,066		—		5,960		106		—
Technology and communications		3,657		—		3,617		40		—
Industrial		1,521		—		1,501		20		—
Capital goods		2,845		—		2,787		58		—
Consumer—cyclical		1,930		—		1,783		147		—
Transportation		1,370		—		1,303		67		—
Other		424		—		224		200		—

Total U.S. corporate		34,107		—		31,957		2,150		—

Non-U.S. corporate:
Utilities		957		—		582		375		—
Energy		1,327		—		1,084		243		—
Finance and insurance		2,431		—		2,141		290		—
Consumer—non-cyclical		722		—		656		66		—
Technology and communications		1,207		—		1,179		28		—
Industrial		1,134		—		1,041		93		—
Capital goods		582		—		407		175		—
Consumer—cyclical		381		—		237		144		—
Transportation		525		—		443		82		—
Other		1,219		—		1,139		80		—

Total non-U.S. corporate		10,485		—		8,909		1,576		—

Residential mortgage-backed		1,774		—		1,761		13		—
Commercial mortgage-backed		2,794		—		2,775		19		—
Other asset-backed		2,843		—		2,747		96		—

Total fixed maturity securities		60,231		—		56,309		3,922		—

Equity securities		238		135		60		43		—

Other invested assets:
Derivative assets:
Interest rate swaps		84		—		84		—		—
Equity index options		53		—		—		53		—
Other foreign currency contracts		27		—		27		—		—

Total derivative assets		164		—		111		53		—

Securities lending collateral		68		—		68		—		—
Short-term investments		17		—		17		—		—
Limited partnerships		926		—		—		—		926

Total other invested assets		1,175		—		196		53		926

Reinsurance recoverable (2)		18		—		—		18		—
Separate account assets		6,032		6,032		—		—		—

Total assets	$	67,694	$	6,167	$	56,565	$	4,036	$	926

(1)	Limited partnerships that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.

(2)	Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.

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	December 31, 2020
(Amounts in millions)	Total		Level 1		Level 2		Level 3		NAV (1)
Assets
Investments:
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	4,805	$	—	$	4,805	$	—	$	—
State and political subdivisions		3,165		—		3,099		66		—
Non-U.S. government		854		—		854		—		—
U.S. corporate:
Utilities		5,194		—		4,352		842		—
Energy		2,883		—		2,755		128		—
Finance and insurance		9,102		—		8,495		607		—
Consumer—non-cyclical		6,437		—		6,328		109		—
Technology and communications		3,761		—		3,714		47		—
Industrial		1,602		—		1,562		40		—
Capital goods		2,991		—		2,931		60		—
Consumer—cyclical		1,947		—		1,797		150		—
Transportation		1,500		—		1,430		70		—
Other		440		—		221		219		—

Total U.S. corporate		35,857		—		33,585		2,272		—

Non-U.S. corporate:
Utilities		922		—		570		352		—
Energy		1,380		—		1,135		245		—
Finance and insurance		2,476		—		2,171		305		—
Consumer—non-cyclical		773		—		706		67		—
Technology and communications		1,291		—		1,263		28		—
Industrial		1,128		—		1,033		95		—
Capital goods		576		—		398		178		—
Consumer—cyclical		371		—		225		146		—
Transportation		570		—		461		109		—
Other		1,324		—		1,241		83		—

Total non-U.S. corporate		10,811		—		9,203		1,608		—

Residential mortgage-backed		1,909		—		1,895		14		—
Commercial mortgage-backed		2,974		—		2,954		20		—
Other asset-backed		3,120		—		3,011		109		—

Total fixed maturity securities		63,495		—		59,406		4,089		—

Equity securities		386		276		59		51		—

Other invested assets:
Derivative assets:
Interest rate swaps		468		—		468		—		—
Foreign currency swaps		1		—		1		—		—
Equity index options		63		—		—		63		—
Other foreign currency contracts		42		—		42		—		—

Total derivative assets		574		—		511		63		—

Securities lending collateral		67		—		67		—		—
Short-term investments		45		25		20		—		—
Limited partnerships		835		—		—		—		835

Total other invested assets		1,521		25		598		63		835

Reinsurance recoverable (2)		26		—		—		26		—
Separate account assets		6,081		6,081		—		—		—

Total assets	$	71,509	$	6,382	$	60,063	$	4,229	$	835

(1)	Limited partnerships that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.

(2)	Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.

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The following tables present additional information about assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:


	Beginning balance as of January 1, 2021		Total realized and unrealized gains (losses)																					Ending balance as of March 31, 2021		Total gains (losses) attributable to assets still held
			Included in																Transfer		Transfer					Included
			net income			Included													into		out of					in net			Included
(Amounts in millions)			(loss)			in OCI			Purchases		Sales			Issuances		Settlements			Level 3 (1)		Level 3 (1)					income (loss)			in OCI
Fixed maturity securities:
State and political subdivisions	$	66	$	1		$	1		$	—	$	—		$	—	$	—		$	—	$	—		$	68	$	1		$	1
U.S. corporate:
Utilities		842		—			(30	)		8		—			—		(13	)		—		(14	)		793		—			(29	)
Energy		128		—			(4	)		—		—			—		(2	)		—		—			122		—			(4	)
Finance and insurance		607		—			(22	)		18		—			—		(17	)		17		(6	)		597		—			(22	)
Consumer—non-cyclical		109		—			(3	)		—		—			—		—			—		—			106		—			(3	)
Technology and communications		47		—			(2	)		12		—			—		—			4		(21	)		40		—			(2	)
Industrial		40		—			—			—		—			—		(20	)		—		—			20		—			—
Capital goods		60		—			(2	)		—		—			—		—			—		—			58		—			(2	)
Consumer—cyclical		150		—			(2	)		—		—			—		(1	)		—		—			147		—			(2	)
Transportation		70		—			(1	)		—		—			—		(2	)		—		—			67		—			(1	)
Other		219		—			(2	)		—		—			—		(3	)		6		(20	)		200		—			(1	)

Total U.S. corporate		2,272		—			(68	)		38		—			—		(58	)		27		(61	)		2,150		—			(66	)

Non-U.S. corporate:
Utilities		352		—			(7	)		30		—			—		—			—		—			375		—			(7	)
Energy		245		—			(2	)		—		—			—		—			—		—			243		—			(2	)
Finance and insurance		305		1			(16	)		—		—			—		—			—		—			290		1			(16	)
Consumer—non-cyclical		67		—			(1	)		—		—			—		—			—		—			66		—			(1	)
Technology and communications		28		—			—			—		—			—		—			—		—			28		—			—
Industrial		95		—			(2	)		—		—			—		—			—		—			93		—			(2	)
Capital goods		178		—			(3	)		—		—			—		—			—		—			175		—			(3	)
Consumer—cyclical		146		—			(2	)		16		—			—		—			—		(16	)		144		—			(2	)
Transportation		109		—			(1	)		—		—			—		(19	)		—		(7	)		82		—			(1	)
Other		83		—			(2	)		—		—			—		(1	)		—		—			80		—			(2	)

Total non-U.S. corporate		1,608		1			(36	)		46		—			—		(20	)		—		(23	)		1,576		1			(36	)

Residential mortgage-backed		14		—			(1	)		—		—			—		—			—		—			13		—			—
Commercial mortgage-backed		20		—			(1	)		—		—			—		—			—		—			19		—			(2	)
Other asset-backed		109		—			—			3		—			—		(4	)		2		(14	)		96		—			—

Total fixed maturity securities		4,089		2			(105	)		87		—			—		(82	)		29		(98	)		3,922		2			(103	)

Equity securities		51		—			—			—		(8	)		—		—			—		—			43		—			—

Other invested assets:
Derivative assets:
Equity index options		63		3			—			5		—			—		(18	)		—		—			53		2			—

Total derivative assets		63		3			—			5		—			—		(18	)		—		—			53		2			—

Total other invested assets		63		3			—			5		—			—		(18	)		—		—			53		2			—

Reinsurance recoverable (2)		26		(8	)		—			—		—			—		—			—		—			18		(8	)		—

Total Level 3 assets	$	4,229	$	(3	)	$	(105	)	$	92	$	(8	)	$	—	$	(100	)	$	29	$	(98	)	$	4,036	$	(4	)	$	(103	)

(1)

The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities.

(2)	Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.

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(Unaudited)


	Beginning balance as of January 1, 2020		Total realized and unrealized gains (losses)																					Ending balance as of March 31, 2020		Total gains (losses) attributable to assets still held
			Included in																Transfer		Transfer					Included
			net income			Included													into		out of					in net			Included
(Amounts in millions)			(loss)			in OCI			Purchases		Sales			Issuances		Settlements			Level 3 (1)		Level 3 (1)					income (loss)			in OCI
Fixed maturity securities:
State and political subdivisions	$	102	$	1		$	(19	)	$	—	$	—		$	—	$	(1	)	$	—	$	—		$	83	$	1		$	(19	)
Non-U.S. government		—		—			—			—		—			—		—			1		—			1		—			—
U.S. corporate:
Utilities		865		—			(25	)		—		—			—		—			16		(13	)		843		—			(23	)
Energy		129		—			(15	)		10		(21	)		—		(1	)		22		—			124		—			(14	)
Finance and insurance		572		2			(31	)		—		—			—		(12	)		—		(21	)		510		—			(28	)
Consumer—non-cyclical		94		—			(6	)		—		—			—		—			—		—			88		—			(6	)
Technology and communications		50		—			(4	)		20		—			—		—			—		(5	)		61		—			(4	)
Industrial		40		—			(3	)		—		—			—		—			—		—			37		—			(2	)
Capital goods		102		—			(8	)		—		—			—		(4	)		—		—			90		—			(8	)
Consumer—cyclical		173		—			(7	)		—		—			—		(2	)		15		—			179		—			(7	)
Transportation		78		—			(4	)		—		—			—		(1	)		—		(30	)		43		—			(1	)
Other		136		—			(1	)		5		—			—		(2	)		—		—			138		—			(1	)

Total U.S. corporate		2,239		2			(104	)		35		(21	)		—		(22	)		53		(69	)		2,113		—			(94	)

Non-U.S. corporate:
Utilities		374		—			(20	)		11		—			—		—			21		(31	)		355		—			(20	)
Energy		247		—			(30	)		—		—			—		—			19		—			236		—			(30	)
Finance and insurance		234		1			(41	)		15		—			—		—			21		(7	)		223		1			(40	)
Consumer—non-cyclical		59		—			(3	)		8		—			—		—			1		(7	)		58		—			(3	)
Technology and communications		28		—			(1	)		—		—			—		—			—		—			27		—			(1	)
Industrial		104		—			(7	)		—		—			—		(5	)		—		—			92		—			(6	)
Capital goods		161		1			(11	)		—		—			—		(16	)		—		—			135		—			(11	)
Consumer—cyclical		147		—			(15	)		4		—			—		(4	)		32		—			164		—			(15	)
Transportation		191		—			(9	)		—		—			—		—			—		(74	)		108		—			(5	)
Other		140		—			(9	)		—		—			—		(1	)		1		—			131		—			(9	)

Total non-U.S. corporate		1,685		2			(146	)		38		—			—		(26	)		95		(119	)		1,529		1			(140	)

Residential mortgage-backed		27		—			(1	)		—		—			—		—			1		(3	)		24		—			(1	)
Commercial mortgage-backed		6		—			1			—		—			—		—			—		(7	)		—		—			—
Other asset-backed		93		—			(4	)		6		—			—		(7	)		—		(1	)		87		—			(5	)

Total fixed maturity securities		4,152		5			(273	)		79		(21	)		—		(56	)		150		(199	)		3,837		2			(259	)

Equity securities		51		—			—			—		(1	)		—		—			—		—			50		—			—

Other invested assets:
Derivative assets:
Equity index options		81		(13	)		—			11		—			—		(17	)		—		—			62		(3	)		—

Total derivative assets		81		(13	)		—			11		—			—		(17	)		—		—			62		(3	)		—

Total other invested assets		81		(13	)		—			11		—			—		(17	)		—		—			62		(3	)		—

Reinsurance recoverable (2)		20		26			—			—		—			1		—			—		—			47		26			—

Total Level 3 assets	$	4,304	$	18		$	(273	)	$	90	$	(22	)	$	1	$	(73	)	$	150	$	(199	)	$	3,996	$	25		$	(259	)

(1)

(2)	Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the gains and losses included in net income (loss) from assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value and the related income statement line item in which these gains and losses were presented for the three months ended March 31:


(Amounts in millions)	2021			2020
Total realized and unrealized gains (losses) included in net income (loss):
Net investment income	$	2		$	5
Net investment gains (losses)		(5	)		13

Total	$	(3	)	$	18

Net gains (losses) included in net income (loss) attributable to assets still held:
Net investment income	$	2		$	2
Net investment gains (losses)		(6	)		23

Total	$	(4	)	$	25

The amount presented for realized and unrealized gains (losses) included in net income (loss) for fixed maturity securities primarily represents amortization and accretion of premiums and discounts on certain fixed maturity securities.

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents a summary of the significant unobservable inputs used for certain asset fair value measurements that are based on internal models and classified as Level 3 as of March 31, 2021:

(Amounts in millions)

Valuation technique

Fair value

Unobservable input

Range

Weighted-average

(1)

Fixed maturity securities:

U.S. corporate:

Utilities

Internal models

745

Credit spreads

65bps - 203bps

141bps

Energy

Internal models

Credit spreads

80bps

Not applicable

Finance and insurance

Internal models

590

Credit spreads

60bps - 207bps

137bps

Consumer—non-cyclical

Internal models

106

Credit spreads

70bps - 231bps

140bps

Technology and communications

Internal models

Credit spreads

96bps - 162bps

144bps

Industrial

Internal models

Credit spreads

113bps - 218bps

173bps

Capital goods

Internal models

Credit spreads

82bps - 181bps

135bps

Consumer—cyclical

Internal models

137

Credit spreads

108bps - 175bps

143bps

Transportation

Internal models

Credit spreads

60bps - 153bps

110bps

Other

Internal models

179

Credit spreads

82bps - 169bps

106bps

Total U.S. corporate

Internal models

1,936

Credit spreads

60bps - 231bps

136bps

Non-U.S. corporate:

Utilities

Internal models

375

Credit spreads

71bps - 203bps

126bps

Energy

Internal models

Credit spreads

82bps - 171bps

121bps

Finance and insurance

Internal models

181

Credit spreads

91bps - 138bps

106bps

Consumer—non-cyclical

Internal models

Credit spreads

70bps - 138bps

111bps

Technology and communications

Internal models

Credit spreads

82bps - 153bps

129bps

Industrial

Internal models

Credit spreads

80bps - 172bps

119bps

Capital goods

Internal models

147

Credit spreads

70bps - 178bps

123bps

Consumer—cyclical

Internal models

Credit spreads

107bps - 171bps

131bps

Transportation

Internal models

Credit spreads

70bps - 171bps

93bps

Other

Internal models

Credit spreads

99bps - 400bps

140bps

Total non-U.S. corporate

Internal models

1,181

Credit spreads

70bps - 400bps

120bps

Derivative assets:

Equity index options

Discounted
cash flows

Equity index
volatility

6% - 60%

28%

(1)	Unobservable inputs weighted by the relative fair value of the associated instrument for fixed maturity securities and by notional for derivative assets.

Certain classes of instruments classified as Level 3 are excluded above as a result of not being material or due to limitations in being able to obtain the underlying inputs used by certain third-party sources, such as broker quotes, used as an input in determining fair value.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables set forth our liabilities by class of instrument that are measured at fair value on a recurring basis as of the dates indicated:


	March 31, 2021
(Amounts in millions)	Total		Level 1		Level 2		Level 3
Liabilities
Policyholder account balances:
GMWB embedded derivatives (1)	$	272	$	—	$	—	$	272
Fixed index annuity embedded derivatives		362		—		—		362
Indexed universal life embedded derivatives		23		—		—		23

Total policyholder account balances		657		—		—		657

Derivative liabilities:
Interest rate swaps		170		—		170		—
Foreign currency swaps		3		—		3		—

Total derivative liabilities		173		—		173		—

Total liabilities	$	830	$	—	$	173	$	657

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


	December 31, 2020
(Amounts in millions)	Total		Level 1		Level 2		Level 3
Liabilities
Policyholder account balances:
GMWB embedded derivatives (1)	$	379	$	—	$	—	$	379
Fixed index annuity embedded derivatives		399		—		—		399
Indexed universal life embedded derivatives		26		—		—		26

Total policyholder account balances		804		—		—		804

Derivative liabilities:
Interest rate swaps		23		—		23		—
Foreign currency swaps		2		—		2		—
Other foreign currency contracts		1		—		1		—

Total derivative liabilities		26		—		26		—

Total liabilities	$	830	$	—	$	26	$	804

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

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present additional information about liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:


	Beginning balance as of January 1, 2021		Total realized and																		Ending balance as of March 31, 2021		Total (gains) losses
			unrealized (gains)																				attributable to
			losses																				liabilities still held
			Included in														Transfer		Transfer				Included
			net (income)			Included											into		out of				in net			Included
(Amounts in millions)			loss			in OCI		Purchases		Sales		Issuances		Settlements			Level 3		Level 3				(income) loss			in OCI
Policyholder account balances:
GMWB embedded derivatives (1)	$	379	$	(113	)	$	—	$	—	$	—	$	6	$	—		$	—	$	—	$	272	$	(107	)	$	—
Fixed index annuity embedded derivatives		399		4			—		—		—		—		(41	)		—		—		362		4			—
Indexed universal life embedded derivatives		26		(10	)		—		—		—		7		—			—		—		23		(10	)		—

Total policyholder account balances		804		(119	)		—		—		—		13		(41	)		—		—		657		(113	)		—

Total Level 3 liabilities	$	804	$	(119	)	$	—	$	—	$	—	$	13	$	(41	)	$	—	$	—	$	657	$	(113	)	$	—

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


	Beginning balance as of January 1, 2020		Total realized and																		Ending balance as of March 31, 2020		Total (gains) losses
			unrealized (gains)																				attributable to
			losses																				liabilities still held
			Included in														Transfer		Transfer				Included
			net (income)			Included											into		out of				in net			Included
(Amounts in millions)			loss			in OCI		Purchases		Sales		Issuances		Settlements			Level 3		Level 3				(income) loss			in OCI
Policyholder account balances:
GMWB embedded derivatives (1)	$	323	$	362		$	—	$	—	$	—	$	6	$	—		$	—	$	—	$	691	$	368		$	—
Fixed index annuity embedded derivatives		452		(32	)		—		—		—		—		(7	)		—		—		413		(32	)		—
Indexed universal life embedded derivatives		19		(4	)		—		—		—		6		—			—		—		21		(4	)		—

Total policyholder account balances		794		326			—		—		—		12		(7	)		—		—		1,125		332			—

Total Level 3 liabilities	$	794	$	326		$	—	$	—	$	—	$	12	$	(7	)	$	—	$	—	$	1,125	$	332		$	—

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

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the gains and losses included in net (income) loss from liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value and the related income statement line item in which these gains and losses were presented for the three months ended March 31:


(Amounts in millions)	2021			2020
Total realized and unrealized (gains) losses included in net (income) loss:
Net investment income	$	—		$	—
Net investment (gains) losses		(119	)		326

Total	$	(119	)	$	326

Total (gains) losses included in net (income) loss attributable to liabilities still held:
Net investment income	$	—		$	—
Net investment (gains) losses		(113	)		332

Total	$	(113	)	$	332

Purchases, sales, issuances and settlements represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases, sales and settlements of fixed maturity and equity securities and purchases, issuances and settlements of derivative instruments.

Issuances presented for GMWB embedded derivative liabilities are characterized as the change in fair value associated with the product fees recognized that are attributed to the embedded derivative to equal the expected future benefit costs upon issuance. Issuances for fixed index annuity and indexed universal life embedded derivative liabilities represent the amount of the premium received that is attributed to the value of the embedded derivative. Settlements of embedded derivatives are characterized as the change in fair value upon exercising the embedded derivative instrument, effectively representing a settlement of the embedded derivative instrument. We have shown these changes in fair value separately based on the classification of this activity as effectively issuing and settling the embedded derivative instrument with all remaining changes in the fair value of these embedded derivative instruments being shown separately in the category labeled “included in net (income) loss” in the tables presented above.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents a summary of the significant unobservable inputs used for certain liability fair value measurements that are based on internal models and classified as Level 3 as of March 31, 2021:


(Amounts in millions)	Valuation technique		Fair value		Unobservable input	Range	Weighted-average (1)
Policyholder account balances:
					Withdrawal utilization rate	58% - 89%	75%
					Lapse rate	2% - 9%	4%
					Non-performance risk (credit spreads)	16bps - 83bps	65bps
GMWB embedded derivatives (2)		Stochastic cash flow model	$	272	Equity index volatility	18% - 27%	22%
Fixed index annuity embedded derivatives		Option budget method	$	362	Expected future interest credited	—% - 3%	1%
Indexed universal life embedded derivatives		Option budget method	$	23	Expected future interest credited	3% - 10%	5%

(1)	Unobservable inputs weighted by the policyholder account balances associated with the instrument.

(2)	Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance. The unobservable inputs associated with GMWB embedded derivatives are not interrelated and therefore, a directional change in one input will not affect the other inputs.

Assets and Liabilities Not Required to Be Carried at Fair Value

Assets and liabilities that are reflected in the accompanying unaudited condensed consolidated financial statements at fair value are not included in the following disclosure of fair value. Such items include cash, cash equivalents and restricted cash, short-term investments, investment securities, separate accounts, securities held as collateral and derivative instruments. Apart from certain of our borrowings and certain marketable securities, few of the instruments are actively traded and their fair values must often be determined using models. The fair value estimates are made at a specific point in time, based upon available market information and judgments about the financial instruments, including estimates of the timing and amount of expected future cash flows and the credit standing of counterparties. Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following represents our estimated fair value of financial assets and liabilities that are not required to be carried at fair value as of the dates indicated:


	March 31, 2021
(Amounts in millions)	Notional amount			Carrying amount		Fair value
(Amounts in millions)	Notional amount			Carrying amount		Total		Level 1		Level 2		Level 3
Assets:
Commercial mortgage loans			(1)	$	6,755	$	7,168	$	—	$	—	$	7,168
Bank loan investments			(1)		331		339		—		—		339
Liabilities:
Long-term borrowings			(1)		2,922		2,710		—		2,710		—
Investment contracts			(1)		9,904		10,519		—		—		10,519
Other firm commitments:
Commitments to fund limited partnerships		1,192			—		—		—		—		—
Commitments to fund bank loan investments		27			—		—		—		—		—
Ordinary course of business lending commitments		128			—		—		—		—		—

(1)	These financial instruments do not have notional amounts.


	December 31, 2020
(Amounts in millions)	Notional amount			Carrying amount		Fair value
(Amounts in millions)	Notional amount			Carrying amount		Total		Level 1		Level 2		Level 3
Assets:
Commercial mortgage loans			(1)	$	6,743	$	7,145	$	—	$	—	$	7,145
Bank loan investments			(1)		344		354		—		—		354
Liabilities:
Long-term borrowings			(1)		3,403		3,090		—		3,090		—
Investment contracts			(1)		10,276		11,353		—		—		11,353
Other firm commitments:
Commitments to fund limited partnerships		1,090			—		—		—		—		—
Commitments to fund bank loan investments		32			—		—		—		—		—
Ordinary course of business lending commitments		117			—		—		—		—		—

(1)	These financial instruments do not have notional amounts.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(7) Liability for Policy and Contract Claims

The following table sets forth changes in our liability for policy and contract claims as of the dates indicated:


	As of or for the three
	months ended
	March 31,
(Amounts in millions)	2021			2020
Beginning balance	$	11,486		$	10,750
Less reinsurance recoverables		(2,431	)		(2,406	)

Net beginning balance		9,055			8,344

Incurred related to insured events of:
Current year		1,054			1,005
Prior years		(229	)		(106	)

Total incurred		825			899

Paid related to insured events of:
Current year		(197	)		(128	)
Prior years		(725	)		(708	)

Total paid		(922	)		(836	)

Interest on liability for policy and contract claims		101			102
Foreign currency translation		—			(2	)

Net ending balance		9,059			8,507
Add reinsurance recoverables		2,356			2,441

Ending balance	$	11,415		$	10,948

The liability for policy and contract claims represents our current best estimate; however, there may be future adjustments to this estimate and related assumptions. Such adjustments, reflecting any variety of new and adverse trends, could be significant, and result in increases in reserves by an amount that could be material to our results of operations and financial condition and liquidity. In addition, loss reserves recorded on new delinquencies in our U.S. mortgage insurance business have a high degree of estimation, particularly due to the level of uncertainty regarding whether borrowers in forbearance will ultimately cure or result in a claim payment.

For the three months ended March 31, 2021, the favorable development of $229 million related to insured events of prior years was primarily attributable to our long-term care insurance business largely from favorable claim terminations mostly attributable to higher mortality, favorable development on prior year incurred but not reported claims and favorable experience on pending claims that did not become an active claim. These decreases were partially offset by higher reserves of $93 million to account for changes to incidence and mortality experience driven by

COVID-19,

which we believe are temporary.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(8) Borrowings

The following table sets forth total long-term borrowings as of the dates indicated:


	March 31,			December 31,
(Amounts in millions)	2021			2020
Genworth Holdings (1)
7.20% Senior Notes, due 2021	$	—		$	338
7.625% Senior Notes, due 2021		514			660
4.90% Senior Notes, due 2023		400			400
4.80% Senior Notes, due 2024		400			400
6.50% Senior Notes, due 2034		297			297
Floating Rate Junior Subordinated Notes, due 2066		598			598

Subtotal		2,209			2,693
Bond consent fees		(17	)		(19	)
Deferred borrowing charges		(9	)		(9	)

Total Genworth Holdings		2,183			2,665

Genworth Mortgage Holdings, Inc.
6.50% Senior Notes, due 2025 (2)		750			750
Deferred borrowing charges		(11	)		(12	)

Total Genworth Mortgage Holdings, Inc.		739			738

Total		$2,922		$	3,403

(1)

We have the option to redeem all or a portion of the senior notes at any time with notice to the noteholders at a price equal to the greater of 100% of principal or the sum of the present value of the remaining scheduled payments of principal and interest discounted at the then-current treasury rate plus an applicable spread.

(2)	Senior notes issued by Genworth Mortgage Holdings, Inc. (“GMHI”), our wholly-owned U.S. mortgage insurance subsidiary, who has the option to redeem the notes in whole or in part at any time prior to February 15, 2025, by paying a make-whole premium plus accrued and unpaid interest.

Genworth Holdings paid its 7.20% senior notes with a principal balance of $338 million at maturity on February 16, 2021. Genworth Holdings’ 7.20% senior notes were fully redeemed with a cash payment of $350 million, comprised of the outstanding principal balance and accrued interest.

In March 2021, Genworth Holdings repurchased $146 million principal amount of its 7.625% senior notes due in September 2021 for a

pre-tax

loss of $4 million and paid accrued interest thereon.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(9) Income Taxes

The reconciliation of the federal statutory tax rate to the effective income tax rate was as follows for the periods indicated:


	Three months ended March 31,
	2021			2020
Statutory U.S. federal income tax rate		21.0	%		21.0	%
Increase (reduction) in rate resulting from:
Swaps terminated prior to the TCJA (1)		4.1			(8.4	)
Stock-based compensation		0.2			(2.7	)
Nondeductible expenses		0.6			(1.3	)
Other, net		(0.6	)		(0.9	)

Effective rate		25.3	%		7.7	%

(1)	Tax Cuts and Jobs Act

The increase in the effective tax rate for the three months ended March 31, 2021 was primarily attributable to higher tax expense on forward starting swaps settled prior to the enactment of the TCJA, which are tax effected at 35% as they are amortized into net investment income, in relation to

pre-tax

income in the current year. The increase was also attributable to higher stock-based compensation in the prior year in relation to a

pre-tax

loss.

(10) Segment Information

We have the following three operating business segments: U.S. Mortgage Insurance; U.S. Life Insurance (which includes our long-term care insurance, life insurance and fixed annuities businesses); and Runoff (which includes the results of

non-strategic

products which have not been actively sold since 2011). In addition to our three 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 international mortgage insurance businesses and discontinued operations.

We tax our businesses at the U.S. corporate federal income tax rate of 21%. Each segment is then adjusted to reflect the unique tax attributes of that segment, such as permanent differences between U.S. GAAP and tax law. The difference between the consolidated provision for income taxes and the sum of the provision for income taxes in each segment is reflected in Corporate and Other activities.

The annually-determined tax rates and adjustments to each segment’s provision for income taxes are estimates which are subject to review and could change from year to year.

We use the same accounting policies and procedures to measure segment income (loss) and assets as our consolidated net income and assets. Our chief operating decision maker evaluates segment performance and allocates resources on the basis of “adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders.” We define adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as income (loss) from continuing operations excluding the

after-tax

effects of income (loss) from continuing operations attributable to noncontrolling interests, net investment gains (losses), gains

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and infrequent or unusual

non-operating

items. Gains (losses) on insurance block transactions are defined as gains (losses) on the early extinguishment of

non-recourse

funding obligations, early termination fees for other financing restructuring and/or resulting gains (losses) on reinsurance restructuring for certain blocks of business. We exclude net investment gains (losses) and infrequent or unusual

non-operating

items because we do not consider them to be related to the operating performance of our segments and Corporate and Other activities. A component of our net investment gains (losses) is the result of estimated future credit losses, the size and timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) can be subject to our discretion and are influenced by market opportunities, as well as asset-liability matching considerations. Gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions and restructuring costs are also excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders because, in our opinion, they are not indicative of overall operating trends. Infrequent or unusual

non-operating

items are also excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders if, in our opinion, they are not indicative of overall operating trends.

While some of these items may be significant components of net income (loss) available to Genworth Financial, Inc.’s common stockholders in accordance with U.S. GAAP, we believe that adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, and measures that are derived from or incorporate adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, are appropriate measures that are useful to investors because they identify the income (loss) attributable to the ongoing operations of the business. Management also uses adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as a basis for determining awards and compensation for senior management and to evaluate performance on a basis comparable to that used by analysts. However, the items excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders is not a substitute for net income (loss) available to Genworth Financial, Inc.’s common stockholders determined in accordance with U.S. GAAP. In addition, our definition of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders may differ from the definitions used by other companies.

Adjustments to reconcile net income (loss) available to Genworth Financial, Inc.’s common stockholders to adjusted operating income (loss) assume a 21% tax rate. Net investment gains (losses) are also adjusted for DAC and other intangible amortization and certain benefit reserves.

We repurchased $146 million and $14 million principal amount of Genworth Holdings’ senior notes with 2021 maturity dates for a

pre-tax

gain (loss) of $(4) million and $1 million in the first quarters of 2021 and 2020, respectively. In January 2020, we paid a

pre-tax

make-whole expense of $9 million related to the early redemption of Genworth Holdings’ senior notes originally scheduled to mature in June 2020 and Rivermont Life Insurance Company I, our indirect wholly-owned special purpose consolidated captive insurance subsidiary, early redeemed all of its $315 million outstanding

non-recourse

funding obligations originally due in 2050 resulting in a

pre-tax

loss of $4 million from the

write-off

of deferred borrowing costs. These transactions were excluded from adjusted operating income as they relate to gains (losses) on the early extinguishment of debt.

We recorded a

pre-tax

expense of $21 million and $1 million in the first quarters of 2021 and 2020, respectively, related to restructuring costs as we continue to evaluate and appropriately size our organizational needs and expenses. There were no infrequent or unusual items excluded from adjusted operating income during the periods presented.

Table of Contents


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements		3
Condensed Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020			3
Condensed Consolidated Statements of Income for the three months ended March 31, 2021 and 2020 (Unaudited)			4
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020 (Unaudited)			5
Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2021 and 2020 (Unaudited)			6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (Unaudited)			7
Notes to Condensed Consolidated Financial Statements (Unaudited)			8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		66

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		130

Item 4.	Controls and Procedures		130

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings		131

Item 1A.	Risk Factors		131

Item 6.	Exhibits		131

Signatures			132