10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

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

For the quarterly period ended September 30, 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 October 27, 2021, 507,385,834 shares of Class A Common Stock, par value $0.001 per share, were outstanding.

Table of Contents

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION			3

Item 1.	Financial Statements		3
	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (Unaudited)		3
	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020 (Unaudited)		4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (Unaudited)		5
	Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2021 and 2020 (Unaudited)		6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (Unaudited)		8
	Notes to Condensed Consolidated Financial Statements (Unaudited)		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		77

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		155

Item 4.	Controls and Procedures		155

PART II—OTHER INFORMATION			156

Item 1.	Legal Proceedings		156

Item 1A.	Risk Factors		156

Item 6.	Exhibits		157

Signatures			158

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except par value and share amounts)

(Unaudited)

	September 30, 2021			December 31, 2020
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value (amortized cost of $53,181 and $53,417 and allowance for credit losses of $— and $4 as of September 30, 2021 and December 31, 2020, respectively)	$	61,274		$	63,495
Equity securities, at fair value		156			386
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4 as of September 30, 2021 and December 31, 2020)		6,916			6,774
Less: Allowance for credit losses		(30	)		(31	)

Commercial mortgage loans, net		6,886			6,743
Policy loans		2,067			1,978
Other invested assets		2,335			2,099

Total investments		72,718			74,701
Cash, cash equivalents and restricted cash		1,937			2,561
Accrued investment income		626			655
Deferred acquisition costs		1,193			1,487
Intangible assets		147			157
Reinsurance recoverable		16,722			16,864
Less: Allowance for credit losses		(51	)		(45	)

Reinsurance recoverable, net		16,671			16,819
Other assets		396			404
Deferred tax asset		209			65
Separate account assets		5,978			6,081
Assets related to discontinued operations		—			2,817

Total assets	$	99,875		$	105,747

Liabilities and equity
Liabilities:
Future policy benefits	$	41,794		$	42,695
Policyholder account balances		19,607			21,503
Liability for policy and contract claims		11,743			11,486
Unearned premiums		685			775
Other liabilities		1,568			1,614
Long-term borrowings		2,412			3,403
Separate account liabilities		5,978			6,081
Liabilities related to discontinued operations		36			2,370

Total liabilities		83,823			89,927

Commitments and contingencies
Equity:
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 596 million and 594 million shares issued as of September 30, 2021 and December 31, 2020, respectively; 508 million and 506 million shares outstanding as of September 30, 2021 and December 31, 2020, respectively		1			1
Additional paid-in capital		11,850			12,008
Accumulated other comprehensive income (loss)		3,800			4,425
Retained earnings		2,325			1,584
Treasury stock, at cost (88 million shares as of September 30, 2021 and December 31, 2020)		(2,700	)		(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity		15,276			15,318
Noncontrolling interests		776			502

Total equity		16,052			15,820

Total liabilities and equity	$	99,875		$	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 September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Revenues:
Premiums	$	944	$	963	$	2,859	$	2,866
Net investment income		859		820		2,504		2,381
Net investment gains (losses)		88		351		191		345
Policy fees and other income		179		184		542		538

Total revenues		2,070		2,318		6,096		6,130

Benefits and expenses:
Benefits and other changes in policy reserves		1,143		1,273		3,522		4,057
Interest credited		123		137		381		417
Acquisition and operating expenses, net of deferrals		290		235		869		682
Amortization of deferred acquisition costs and intangibles		106		94		269		289
Interest expense		35		47		129		140

Total benefits and expenses		1,697		1,786		5,170		5,585

Income from continuing operations before income taxes		373		532		926		545
Provision for income taxes		67		130		201		148

Income from continuing operations		306		402		725		397
Income (loss) from discontinued operations, net of taxes		12		34		28		(451	)

Net income (loss)		318		436		753		(54	)
Less: net income from continuing operations attributable to noncontrolling interests		4		—		4		—
Less: net income from discontinued operations attributable to noncontrolling interests		—		18		8		35

Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	314	$	418	$	741	$	(89	)

Net income (loss) available to Genworth Financial, Inc.’s common stockholders:
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	302	$	402	$	721	$	397
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders		12		16		20		(486	)

Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	314	$	418	$	741	$	(89	)

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.59	$	0.79	$	1.42	$	0.78

Diluted	$	0.59	$	0.79	$	1.40	$	0.78

Net income (loss) available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.62	$	0.83	$	1.46	$	(0.18	)

Diluted	$	0.61	$	0.82	$	1.44	$	(0.17	)

Weighted-average common shares outstanding:
Basic		507.4		505.6		506.8		505.1

Diluted		514.2		511.5		514.4		511.2

See Notes to Condensed Consolidated Financial Statements

Table of Contents

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in millions)

(Unaudited)

	Three months ended September 30, 2021
	Common stock		Additional paid-in capital			Accumulated other comprehensive income (loss)			Retained earnings		Treasury stock, at cost			Total Genworth Financial, Inc.’s stockholders’ equity			Noncontrolling interests			Total equity
Balances as of June 30, 2021	$	1	$	12,018		$	3,834		$	2,011	$	(2,700	)	$	15,164		$	—		$	15,164
Initial sale of subsidiary shares to noncontrolling interests		—		(171	)		(26	)		—		—			(197	)		773			576
Comprehensive income (loss):
Net income		—		—			—			314		—			314			4			318
Other comprehensive loss, net of taxes		—		—			(8	)		—		—			(8	)		(1	)		(9	)

Total comprehensive income															306			3			309
Stock-based compensation expense and exercises and other		—		3			—			—		—			3			—			3

Balances as of September 30, 2021	$	1	$	11,850		$	3,800		$	2,325	$	(2,700	)	$	15,276		$	776		$	16,052


	Three months ended September 30, 2020
	Common stock		Additional paid-in capital		Accumulated other comprehensive income (loss)			Retained earnings		Treasury stock, at cost			Total Genworth Financial, Inc.’s stockholders’ equity			Noncontrolling interests		Total equity
Balances as of June 30, 2020	$	1	$	11,996	$	4,447		$	899	$	(2,700	)	$	14,643		$	445	$	15,088
Comprehensive income (loss):
Net income		—		—		—			418		—			418			18		436
Other comprehensive income (loss), net of taxes		—		—		(306	)		—		—			(306	)		13		(293	)

Total comprehensive income														112			31		143
Stock-based compensation expense and exercises and other		—		1		—			—		—			1			—		1

Balances as of September 30, 2020	$	1	$	11,997	$	4,141		$	1,317	$	(2,700	)	$	14,756		$	476	$	15,232

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GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY, CONTINUED

(Amounts in millions)

(Unaudited)

	Nine months ended September 30, 2021
	Common stock		Additional paid-in capital			Accumulated other comprehensive income (loss)			Retained earnings		Treasury stock, at cost			Total Genworth Financial, Inc.’s stockholders’ equity			Noncontrolling interests			Total equity
Balances as of December 31, 2020	$	1	$	12,008		$	4,425		$	1,584	$	(2,700	)	$	15,318		$	502		$	15,820
Initial sale of subsidiary shares to noncontrolling interests		—		(171	)		(26	)		—		—			(197	)		773			576
Sale of business that included noncontrolling interests		—		—			—			—		—			—			(657	)		(657	)
Comprehensive income (loss):
Net income		—		—			—			741		—			741			12			753
Other comprehensive income (loss), net of taxes		—		—			(599	)		—		—			(599	)		146			(453	)

Total comprehensive income															142			158			300
Stock-based compensation expense and exercises and other		—		13			—			—		—			13			—			13

Balances as of September 30, 2021	$	1	$	11,850		$	3,800		$	2,325	$	(2,700	)	$	15,276		$	776		$	16,052


	Nine months ended September 30, 2020
	Common stock		Additional paid-in capital		Accumulated other comprehensive income (loss)		Retained earnings			Treasury stock, at cost			Total Genworth Financial, Inc.’s stockholders’ equity			Noncontrolling interests			Total equity
Balances as of December 31, 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 income (loss)		—		—		—		(89	)		—			(89	)		35			(54	)
Other comprehensive income, net of taxes		—		—		708		—			—			708			3			711

Total comprehensive income														619			38			657
Dividends to noncontrolling interests		—		—		—		—			—			—			(9	)		(9	)
Stock-based compensation expense and exercises and other		—		7		—		—			—			7			—			7

Balances as of September 30, 2020	$	1	$	11,997	$	4,141	$	1,317		$	(2,700	)	$	14,756		$	476		$	15,232

See Notes to Condensed Consolidated Financial Statements

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GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)

	Nine months ended September 30,
	2021			2020
Cash flows from operating activities:
Net income (loss)	$	753		$	(54	)
Less (income) loss from discontinued operations, net of taxes		(28	)		451
Adjustments to reconcile net income (loss) to net cash from operating activities:
Amortization of fixed maturity securities discounts and premiums		(138	)		(110	)
Net investment gains		(191	)		(345	)
Charges assessed to policyholders		(472	)		(479	)
Acquisition costs deferred		(6	)		—
Amortization of deferred acquisition costs and intangibles		269			289
Deferred income taxes		202			144
Derivative instruments, limited partnerships and other		(252	)		77
Stock-based compensation expense		32			22
Change in certain assets and liabilities:
Accrued investment income and other assets		(117	)		(127	)
Insurance reserves		678			1,034
Current tax liabilities		(8	)		4
Other liabilities, policy and contract claims and other policy-related balances		56			698
Cash used by operating activities—discontinued operations		(488	)		(152	)

Net cash from operating activities		290			1,452

Cash flows from (used by) investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		3,253			2,656
Commercial mortgage loans		601			479
Other invested assets		176			108
Proceeds from sales of investments:
Fixed maturity and equity securities		1,591			2,168
Purchases and originations of investments:
Fixed maturity and equity securities		(4,181	)		(5,858	)
Commercial mortgage loans		(743	)		(414	)
Other invested assets		(447	)		(318	)
Short-term investments, net		(24	)		32
Policy loans, net		40			27
Proceeds from sale of business, net of cash transferred		270			—
Cash used by investing activities—discontinued operations		(67	)		(159	)

Net cash from (used by) investing activities		469			(1,279	)

Cash flows used by financing activities:
Deposits to universal life and investment contracts		511			693
Withdrawals from universal life and investment contracts		(1,582	)		(1,408	)
Redemption of non-recourse funding obligations		—			(315	)
Proceeds from issuance of long-term debt		—			739
Repayment and repurchase of long-term debt		(1,003	)		(490	)
Proceeds from sale of subsidiary shares to noncontrolling interests		529			—
Other, net		67			31
Cash from financing activities—discontinued operations		—			16

Net cash used by financing activities		(1,478	)		(734	)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $(1) and $4 related to discontinued operations)		—			—

Net change in cash, cash equivalents and restricted cash		(719	)		(561	)
Cash, cash equivalents and restricted cash at beginning of period		2,656			3,341

Cash, cash equivalents and restricted cash at end of period		1,937			2,780
Less cash, cash equivalents and restricted cash of discontinued operations at end of period		—			40

Cash, cash equivalents and restricted cash of continuing operations at end of period	$	1,937		$	2,740

See Notes to Condensed Consolidated Financial Statements

Table of Contents

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. 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.

Unless the context otherwise requires, references to “Genworth Financial,” “Genworth,” the “Company,” “we” or “our” in the accompanying unaudited condensed consolidated financial statements and the notes thereto are to Genworth Financial, Inc. on a consolidated basis.

We operate our business through the following three operating segments:

•

Enact (formerly known as 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 underwriting 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 September 30, 2021, Genworth Holdings has $635

million of unrestricted cash, cash equivalents and liquid assets. 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:

•

In July 2021, Genworth Holdings early redeemed its 7.625% senior notes with a cash payment of approximately $532 million, comprised of the outstanding principal balance, accrued interest and a make-whole premium. We have no additional debt maturities until August 2023. Interest payments on our senior notes are forecasted to be approximately $77 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 was due in September 2022. On September 21, 2021, we repaid the remaining outstanding balance of the promissory note. Over the next year, we expect to pay AXA approximately $36 million primarily consisting of estimated future claims that are still being processed by AXA. 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 intercompany cash tax payments from its subsidiaries during the nine months ended September 30, 2021 generated from taxable income. Additional intercompany cash tax payments are expected in future periods.

We received net cash proceeds of $370 million and $529 million from the sale of Genworth Australia in March 2021 and the minority IPO of Enact Holdings, Inc. (“Enact Holdings”) in September 2021, respectively. See note 13 for additional details related to the minority IPO of Enact Holdings. We believe Genworth Holdings’ current unrestricted cash, cash equivalents and liquid assets provide 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.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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;

•

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 (with transition adjustments as of January 1, 2021) 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. We are

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

currently in the process of obtaining necessary data, modifying systems, identifying and developing key inputs and establishing policies, systems and internal controls necessary to implement this new accounting guidance. Given the nature and extent of the changes, this guidance is expected to have a significant impact on our consolidated financial statements and significantly reduce our equity at transition.

(3) Earnings (Loss) Per Share

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

	Three months ended September 30,				Nine months ended September 30,
(Amounts in millions, except per share amounts)	2021		2020		2021		2020
Weighted-average shares used in basic earnings per share calculations		507.4		505.6		506.8		505.1
Potentially dilutive securities:
Stock options, restricted stock units and stock appreciation rights		6.8		5.9		7.6		6.1

Weighted-average shares used in diluted earnings per share calculations		514.2		511.5		514.4		511.2

Income from continuing operations:
Income from continuing operations	$	306	$	402	$	725	$	397
Less: net income from continuing operations attributable to noncontrolling interests		4		—		4		—

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	302	$	402	$	721	$	397

Basic per share	$	0.59	$	0.79	$	1.42	$	0.78

Diluted per share	$	0.59	$	0.79	$	1.40	$	0.78

Income (loss) from discontinued operations:
Income (loss) from discontinued operations, net of taxes	$	12	$	34	$	28	$	(451	)
Less: net income from discontinued operations attributable to noncontrolling interests		—		18		8		35

Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders	$	12	$	16	$	20	$	(486	)

Basic per share	$	0.02	$	0.03	$	0.04	$	(0.96	)

Diluted per share	$	0.02	$	0.03	$	0.04	$	(0.95	)

Net income (loss):
Income from continuing operations	$	306	$	402	$	725	$	397
Income (loss) from discontinued operations, net of taxes		12		34		28		(451	)

Net income (loss)		318		436		753		(54	)
Less: net income attributable to noncontrolling interests		4		18		12		35

Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	314	$	418	$	741	$	(89	)

Basic per share (1)	$	0.62	$	0.83	$	1.46	$	(0.18	)

Diluted per share	$	0.61	$	0.82	$	1.44	$	(0.17	)

(1)	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 September 30,						Nine months ended September 30,
(Amounts in millions)	2021			2020			2021			2020
Fixed maturity securities—taxable	$	614		$	625		$	1,821		$	1,830
Fixed maturity securities—non-taxable		2			2			5			5
Equity securities		2			3			7			7
Commercial mortgage loans		93			82			274			251
Policy loans		47			51			137			149
Other invested assets		122			79			323			192
Cash, cash equivalents, restricted cash and short-term investments		1			1			1			15

Gross investment income before expenses and fees		881			843			2,568			2,449
Expenses and fees		(22	)		(23	)		(64	)		(68	)

Net investment income	$	859		$	820		$	2,504		$	2,381

(b) Net Investment Gains (Losses)

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

	Three months ended September 30,						Nine months ended September 30,
(Amounts in millions)	2021			2020			2021			2020
Available-for-sale fixed maturity securities:
Realized gains	$	11		$	320		$	23		$	425
Realized losses		—			(1	)		(7	)		(6	)

Net realized gains (losses) on available-for-sale fixed maturity securities		11			319			16			419

Net change in allowance for credit losses on available-for-sale fixed maturity securities		—			2			(6	)		(5	)
Write-down of available-for-sale fixed maturity securities (1)		—			(4	)		(1	)		(4	)
Net realized gains (losses) on equity securities sold		—			(3	)		(7	)		(3	)
Net unrealized gains (losses) on equity securities still held		(1	)		3			(3	)		(4	)
Limited partnerships		75			31			177			28
Commercial mortgage loans		3			(3	)		1			(2	)
Derivative instruments (2)		(3	)		9			9			(75	)
Other		3			(3	)		5			(9	)

Net investment gains (losses)	$	88		$	351		$	191		$	345

(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).

Table of Contents

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 September 30, 2021:

(Amounts in millions)

Beginning
balance

Increase from
securities
without
allowance in
previous
periods

Increase
(decrease)
from securities
with allowance
in previous
periods

Securities
sold

Decrease
due to change
in intent or
requirement
to sell

Write-offs

Recoveries

Ending
balance

Fixed maturity securities:

Non-U.S.

corporate

—

Total

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 September 30, 2020:

(Amounts in millions)	Beginning balance		Increase from securities without allowance in previous periods		Increase (decrease) from securities with allowance in previous periods			Securities sold		Decrease due to change in intent or requirement to sell		Write-offs		Recoveries		Ending balance
Fixed maturity securities:
Non-U.S. corporate	$	4	$	—	$	(2	)	$	—	$	—	$	—	$	—	$	2
Commercial mortgage - b acked		3		—		—			—		—		—		—		3

Total available-for-sale fixed maturity securities	$	7	$	—	$	(2	)	$	—	$	—	$	—	$	—	$	5

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 nine months ended September 30, 2021:

(Amounts in millions)	Beginning balance		Increase from securities without allowance in previous periods		Increase (decrease) from securities with allowance in previous periods		Securities sold			Decrease due to change in intent or requirement to sell		Write-offs			Recoveries		Ending balance
Fixed maturity securities:
Non-U.S. corporate	$	1	$	—	$	6	$	(7	)	$	—	$	—		$	—	$	—
Commercial mortgage - backed		3		—		—		—			—		(3	)		—		—

Total available-for-sale fixed maturity securities	$	4	$	—	$	6	$	(7	)	$	—	$	(3	)	$	—	$	—

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 nine months ended September 30, 2020:

(Amounts in millions)	Beginning balance		Increase from securities without allowance in previous periods		Increase (decrease) from securities with allowance in previous periods			Securities sold		Decrease due to change in intent or requirement to sell		Write-offs		Recoveries		Ending balance
Fixed maturity securities:
Non-U.S. corporate	$	—	$	4	$	(2	)	$	—	$	—	$	—	$	—	$	2
Commercial mortgage - backed		—		3		—			—		—		—		—		3

Total available-for-sale fixed maturity securities	$	—	$	7	$	(2	)	$	—	$	—	$	—	$	—	$	5

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Net unrealized gains and losses on

available-for-sale

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

(Amounts in millions)	September 30, 2021			December 31, 2020
Net unrealized gains (losses) on fixed maturity securities without an allowance for credit losses (1)	$	8,093		$	10,159
Net unrealized gains (losses) on fixed maturity securities with an allowance for credit losses (1)		—			(7	)
Adjustments to DAC, present value of future profits, sales inducements, benefit reserves and policyholder contract balances		(5,716	)		(7,302	)
Income taxes, net		(505	)		(611	)

Net unrealized investment gains (losses)		1,872			2,239
Less: net unrealized investment gains (losses) attributable to noncontrolling interests		25			25

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	$	1,847		$	2,214

(1)	Excludes foreign exchange.

The change in net unrealized gains (losses) on

available-for-sale

investment securities reported in accumulated other comprehensive income (loss) was as follows as of and for the periods indicated:

	As of or for the three months ended September 30,
(Amounts in millions)	2021			2020
Beginning balance	$	1,865		$	1,811
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on fixed maturity securities		(433	)		781
Adjustment to deferred acquisition costs		80			(9	)
Adjustment to present value of future profits		(2	)		2
Adjustment to sales inducements		3			(5	)
Adjustment to benefit reserves		372			(566	)
Provision for income taxes		(4	)		(42	)

Change in unrealized gains (losses) on investment securities		16			161
Reclassification adjustments to net investment (gains) losses, net of taxes of $3 and $70		(9	)		(261	)

Change in net unrealized investment gains (losses)		7			(100	)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		25			—

Ending balance	$	1,847		$	1,711

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	As of or for the nine months ended September 30,
(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		(2,042	)		2,980
Adjustment to deferred acquisition costs		(52	)		48
Adjustment to present value of future profits		—			6
Adjustment to sales inducements		8			(3	)
Adjustment to benefit reserves		1,630			(2,260	)
Provision for income taxes		102			(162	)

Change in unrealized gains (losses) on investment securities		(354	)		609
Reclassification adjustments to net investment (gains) losses, net of taxes of $4 and $95		(13	)		(355	)

Change in net unrealized investment gains (losses)		(367	)		254
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		—			(1	)

Ending balance	$	1,847		$	1,711

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.

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(d) Fixed Maturity Securities

As of September 30, 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:

(Amounts in millions)	Amortized cost or cost		Gross unrealized gains		Gross unrealized losses			Allowance for credit losses		Fair value
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	3,384	$	1,117	$	(1	)	$	—	$	4,500
State and political subdivisions		2,946		476		(4	)		—		3,418
Non-U.S. government		760		85		(10	)		—		835
U.S. corporate:
Utilities		4,313		787		(8	)		—		5,092
Energy		2,644		377		(10	)		—		3,011
Finance and insurance		7,977		1,065		(18	)		—		9,024
Consumer—non-cyclical		5,176		1,047		(5	)		—		6,218
Technology and communications		3,281		488		(12	)		—		3,757
Industrial		1,340		179		(1	)		—		1,518
Capital goods		2,395		428		(3	)		—		2,820
Consumer—cyclical		1,700		213		(5	)		—		1,908
Transportation		1,131		241		—			—		1,372
Other		373		39		—			—		412

Total U.S. corporate		30,330		4,864		(62	)		—		35,132

Non-U.S. corporate:
Utilities		888		69		(1	)		—		956
Energy		1,213		203		—			—		1,416
Finance and insurance		2,147		293		(7	)		—		2,433
Consumer—non-cyclical		673		84		(2	)		—		755
Technology and communications		1,109		172		(1	)		—		1,280
Industrial		974		126		(1	)		—		1,099
Capital goods		627		66		(1	)		—		692
Consumer—cyclical		326		27		(1	)		—		352
Transportation		422		68		—			—		490
Other		1,089		181		(3	)		—		1,267

Total non-U.S. corporate		9,468		1,289		(17	)		—		10,740

Residential mortgage-backed		1,432		141		(1	)		—		1,572
Commercial mortgage-backed		2,496		176		(2	)		—		2,670
Other asset-backed		2,365		43		(1	)		—		2,407

Total available-for-sale fixed maturity securities	$	53,181	$	8,191	$	(98	)	$	—	$	61,274

Table of Contents

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:

(Amounts in millions)	Amortized cost or cost		Gross unrealized gains		Gross unrealized losses			Allowance for credit losses			Fair 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

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 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 September 30, 2021:

	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities
Description of Securities
Fixed maturity securities:
U.S. government, agencies and government - sponsored enterprises	$	32	$	(1	)		6	$	—	$	—			—	$	32	$	(1	)		6
State and political subdivisions		281		(4	)		52		—		—			—		281		(4	)		52
Non-U.S. government		175		(7	)		28		16		(3	)		2		191		(10	)		30
U.S. corporate		2,073		(52	)		212		139		(10	)		12		2,212		(62	)		224
Non-U.S. corporate		707		(14	)		92		19		(3	)		2		726		(17	)		94
Residential mortgage-backed		68		(1	)		16		—		—			—		68		(1	)		16
Commercial mortgage-backed		71		(1	)		9		32		(1	)		5		103		(2	)		14
Other asset-backed		353		(1	)		63		—		—			—		353		(1	)		63

Total for fixed maturity securities in an unrealized loss position	$	3,760	$	(81	)		478	$	206	$	(17	)		21	$	3,966	$	(98	)		499

% Below cost:
<20% Below cost	$	3,754	$	(77	)		477	$	201	$	(15	)		20	$	3,955	$	(92	)		497
20%-50% Below cost		6		(4	)		1		5		(2	)		1		11		(6	)		2

Total for fixed maturity securities in an unrealized loss position	$	3,760	$	(81	)		478	$	206	$	(17	)		21	$	3,966	$	(98	)		499

Investment grade	$	3,546	$	(73	)		445	$	161	$	(10	)		15	$	3,707	$	(83	)		460
Below investment grade		214		(8	)		33		45		(7	)		6		259		(15	)		39

Total for fixed maturity securities in an unrealized loss position	$	3,760	$	(81	)		478	$	206	$	(17	)		21	$	3,966	$	(98	)		499

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 September 30, 2021:

	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities
Description of Securities
U.S. corporate:
Utilities	$	164	$	(8	)		29	$	—	$	—			—	$	164	$	(8	)		29
Energy		145		(6	)		16		23		(4	)		4		168		(10	)		20
Finance and insurance		745		(14	)		64		79		(4	)		4		824		(18	)		68
Consumer—non-cyclical		252		(5	)		26		—		—			—		252		(5	)		26
Technology and communications		330		(11	)		31		19		(1	)		2		349		(12	)		33
Industrial		86		(1	)		10		—		—			—		86		(1	)		10
Capital goods		146		(2	)		14		18		(1	)		2		164		(3	)		16
Consumer—cyclical		205		(5	)		22		—		—			—		205		(5	)		22

Subtotal, U.S. corporate securities		2,073		(52	)		212		139		(10	)		12		2,212		(62	)		224

Non-U.S. corporate:
Utilities		48		(1	)		7		—		—			—		48		(1	)		7
Finance and insurance		346		(7	)		41		—		—			—		346		(7	)		41
Consumer—non-cyclical		72		(1	)		12		6		(1	)		1		78		(2	)		13
Technology and communications		41		(1	)		6		—		—			—		41		(1	)		6
Industrial		81		(1	)		9		—		—			—		81		(1	)		9
Capital goods		55		(1	)		5		—		—			—		55		(1	)		5
Consumer—cyclical		22		(1	)		7		—		—			—		22		(1	)		7
Other		42		(1	)		5		13		(2	)		1		55		(3	)		6

Subtotal, non-U.S. corporate securities		707		(14	)		92		19		(3	)		2		726		(17	)		94

Total for corporate securities in an unrealized loss position	$	2,780	$	(66	)		304	$	158	$	(13	)		14	$	2,938	$	(79	)		318

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 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.

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 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
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities
Description of Securities
Fixed maturity securities:
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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(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
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities
Description of Securities
U.S. corporate:
Utilities	$	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 September 30, 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.

(Amounts in millions)	Amortized cost or cost		Fair value
Due one year or less	$	1,422	$	1,449
Due after one year through five years		8,386		9,039
Due after five years through ten years		13,510		14,956
Due after ten years		23,570		29,181

Subtotal		46,888		54,625
Residential mortgage-backed		1,432		1,572
Commercial mortgage-backed		2,496		2,670
Other asset-backed		2,365		2,407

Total	$	53,181	$	61,274

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(Unaudited)

As of September 30, 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 September 30, 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:

	September 30, 2021						December 31, 2020
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Property type:
Retail	$	2,756			40	%	$	2,442			36	%
Industrial		1,498			22			1,638			24
Office		1,527			22			1,567			23
Apartments		587			8			529			8
Mixed use		296			4			286			4
Other		252			4			312			5

Subtotal		6,916			100	%		6,774			100	%

Allowance for credit losses		(30	)					(31	)

Total	$	6,886					$	6,743

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(Unaudited)

	September 30, 2021						December 31, 2020
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Geographic region:
South Atlantic	$	1,779			26	%	$	1,711			25	%
Pacific		1,414			20			1,510			22
Middle Atlantic		951			14			994			15
Mountain		903			13			781			12
West North Central		471			7			467			7
West South Central		479			7			423			6
East North Central		464			7			441			6
New England		255			3			260			4
East South Central		200			3			187			3

Subtotal		6,916			100	%		6,774			100	%

Allowance for credit losses		(30	)					(31	)

Total	$	6,886					$	6,743

As of September 30, 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 September 30, 2021 and December 31, 2020, we had no commercial mortgage loans on

non-accrual

status.

During the nine months ended September 30, 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 September 30,					Nine months ended September 30,
(Amounts in millions)	2021			2020		2021			2020
Allowance for credit losses:
Beginning balance	$	33		$	28	$	31		$	13
Cumulative effect of change in accounting		—			—		—			16
Provision		(3	)		3		(1	)		2
Write-offs		—			—		—			—
Recoveries		—			—		—			—

Ending balance	$	30		$	31	$	30		$	31

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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(Unaudited)

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 September 30, 2021:

(Amounts in millions)	2021		2020		2019		2018		2017		2016 and prior		Total
Debt-to-value:
0% - 50%	$	28	$	72	$	53	$	165	$	188	$	2,080	$	2,586
51% - 60%		40		25		168		268		277		756		1,534
61% - 75%		671		431		528		501		169		496		2,796

Total amortized cost	$	739	$	528	$	749	$	934	$	634	$	3,332	$	6,916

Debt service coverage ratio:
Less than 1.00	$	—	$	10	$	19	$	42	$	50	$	126	$	247
1.00 - 1.25		3		70		74		81		37		327		592
1.26 - 1.50		120		32		169		165		42		312		840
1.51 - 2.00		514		222		287		454		265		1,058		2,800
Greater than 2.00		102		194		200		192		240		1,509		2,437

Total amortized cost	$	739	$	528	$	749	$	934	$	634	$	3,332	$	6,916

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables set forth the

debt-to-value

of commercial mortgage loans by property

type as of the dates indicated:

	September 30, 2021
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100%			Total
Property type:
Retail	$	885		$	619		$	1,252		$	—		$	—		$	2,756
Industrial		805			261			432			—			—			1,498
Office		527			364			636			—			—			1,527
Apartments		214			97			276			—			—			587
Mixed use		91			82			123			—			—			296
Other		64			111			77			—			—			252

Total amortized cost	$	2,586		$	1,534		$	2,796		$	—		$	—		$	6,916

% of total		38	%		22	%		40	%		—	%		—	%		100	%

Weighted-average debt service coverage ratio		2.37			1.83			1.59			—			—			1.94

	December 31, 2020
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater 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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(Unaudited)

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

	September 30, 2021
(Amounts in millions)	Less than 1.00			1.00 - 1.25			1.26 - 1.50			1.51 - 2.00			Greater than 2.00			Total
Property type:
Retail	$	106		$	171		$	410		$	1,314		$	755		$	2,756
Industrial		9			66			100			590			733			1,498
Office		76			110			190			544			607			1,527
Apartments		17			63			86			207			214			587
Mixed use		34			32			41			91			98			296
Other		5			150			13			54			30			252

Total amortized cost	$	247		$	592		$	840		$	2,800		$	2,437		$	6,916

% of total		4	%		9	%		12	%		40	%		35	%		100	%

Weighted-average debt-to-value		62	%		61	%		62	%		59	%		43	%		54	%

	December 31, 2020
(Amounts in millions)	Less than 1.00			1.00 - 1.25			1.26 - 1.50			1.51 - 2.00			Greater than 2.00			Total
Property type:
Retail	$	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 the primary beneficiary of any VIE investment in a limited partnership or similar entity. As of September 30,

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2021 and December 31, 2020, the total carrying value of these investments was $1,560 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

	Derivative assets					Derivative liabilities
	Balance sheet classification	Fair value				Balance sheet classification	Fair value
(Amounts in millions)	Balance sheet classification	September 30, 2021		December 31, 2020		Balance sheet classification	September 30, 2021		December 31, 2020
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps	Other invested assets	$	298	$	468	Other liabilities	$	44	$	23
Foreign currency swaps	Other invested assets		5		1	Other liabilities		—		2

Total cash flow hedges			303		469			44		25

Total derivatives designated as hedges			303		469			44		25

Derivatives not designated as hedges
Equity index options	Other invested assets		33		63	Other liabilities		—		—
Financial futures	Other invested assets		—		—	Other liabilities		—		—
Other foreign currency contracts	Other invested assets		2		42	Other liabilities		—		1
GMWB embedded derivatives	Reinsurance recoverable (1)		19		26	Policyholder account balances (2)		286		379
Fixed index annuity embedded derivatives	Other assets		—		—	Policyholder account balances (3)		312		399
Indexed universal life embedded derivatives	Reinsurance recoverable		—		—	Policyholder account balances (4)		26		26

Total derivatives not designated as hedges			54		131			624		805

Total derivatives		$	357	$	600		$	668	$	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.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for GMWB 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:

(Notional in millions)	Measurement		December 31, 2020		Additions		Maturities/ terminations			September 30, 2021
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps		Notional	$	8,178	$	—	$	(434	)	$	7,744
Foreign currency swaps		Notional		127		—		—			127

Total cash flow hedges				8,305		—		(434	)		7,871

Total derivatives designated as hedges				8,305		—		(434	)		7,871

Derivatives not designated as hedges
Interest rate swaps		Notional		4,674		—		(4,674	)		—
Equity index options		Notional		2,000		922		(1,285	)		1,637
Financial futures		Notional		1,104		2,918		(3,085	)		937
Other foreign currency contracts		Notional		1,186		24		(1,111	)		99

Total derivatives not designated as hedges				8,964		3,864		(10,155	)		2,673

Total derivatives			$	17,269	$	3,864	$	(10,589	)	$	10,544

(Number of policies)	Measurement		December 31, 2020		Additions		Maturities/ terminations			September 30, 2021
Derivatives not designated as hedges
GMWB embedded derivatives		Policies		23,713		—		(1,409	)		22,304
Fixed index annuity embedded derivatives		Policies		12,778		—		(2,660	)		10,118
Indexed universal life embedded derivatives		Policies		842		—		(36	)		806

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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(Unaudited)

The following table provides information about the

pre-tax

income (loss) effects of cash flow hedges for the three months ended September 30, 2021:

(Amounts in millions)	Gain (loss) recognized in OCI		Gain (loss) reclassified into net income (loss) from OCI			Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss)		Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	27	$	58		Net investment income	$	—	Net investment gains (losses)
Interest rate swaps hedging assets		—		1		Net investment gains (losses)		—	Net investment gains (losses)
Interest rate swaps hedging liabilities		—		(1	)	Interest expense		—	Net investment gains (losses)
Foreign currency swaps		5		—		Net investment income		—	Net investment gains (losses)

Total	$	32	$	58			$	—

The following table provides information about the

pre-tax

income (loss) effects of cash flow hedges for the three months ended September 30, 2020:

(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI		Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss)		Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	(246	)	$	50	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		10			—	Interest expense		—	Net investment gains (losses)
Foreign currency swaps		(7	)		—	Net investment income		—	Net investment gains (losses)

Total	$	(243	)	$	54		$	—

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides information about the

pre-tax

income (loss) effects of cash flow hedges

for the nine months ended September 30, 2021:

(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI			Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss)		Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	(188	)	$	162		Net investment income	$	—	Net investment gains (losses)
Interest rate swaps hedging assets		—			1		Net investment gains (losses)		—	Net investment gains (losses)
Interest rate swaps hedging liabilities		36			(1	)	Interest expense		—	Net investment gains (losses)
Foreign currency swaps		6			—		Net investment income		—	Net investment gains (losses)

Total	$	(146	)	$	162			$	—

The following table provides information about the

pre-tax

income (loss) effects of cash flow hedges for the nine months ended September 30, 2020:

(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI		Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss)		Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	738		$	139	Net investment income	$	—	Net investment gains (losses)
Interest rate swaps hedging assets		—			8	Net investment gains (losses)		—	Net investment gains (losses)
Interest rate swaps hedging liabilities		(52	)		—	Interest expense		—	Net investment gains (losses)
Foreign currency swaps		6			—	Net investment income		—	Net investment gains (losses)

Total	$	692		$	147		$	—

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(Unaudited)

The following tables provide 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 September 30,
(Amounts in millions)	2021			2020
Derivatives qualifying as effective accounting hedges as of July 1	$	2,003		$	2,677
Current period increases (decreases) in fair value, net of deferred taxes of $(7) and $52		25			(191	)
Reclassification to net (income) loss, net of deferred taxes of $21 and $19		(37	)		(35	)

Derivatives qualifying as effective accounting hedges as of September 30	$	1,991		$	2,451


	Nine months ended September 30,
(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 $31 and $(148)		(115	)		544
Reclassification to net (income) loss, net of deferred taxes of $57 and $52		(105	)		(95	)

Derivatives qualifying as effective accounting hedges as of September 30	$	1,991		$	2,451

The total of derivatives designated as cash flow hedges of $1,991 million, net of taxes, recorded in stockholders’ equity as of September 30, 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 instruments and interest income on future fixed rate bond purchases. Of this amount, $140 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 nine months ended September 30, 2021 and 2020, we reclassified $8 million and $7 million, respectively, 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 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.

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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 September 30,						Classification of gain (loss) recognized in net income (loss)
(Amounts in millions)	2021			2020
Interest rate swaps	$	(1	)	$	1		Net investment gains (losses)
Equity index options		—			7		Net investment gains (losses)
Financial futures		—			(41	)	Net investment gains (losses)
Other foreign currency contracts		—			(1	)	Net investment gains (losses)
GMWB embedded derivatives		(4	)		54		Net investment gains (losses)
Fixed index annuity embedded derivatives		(3	)		(18	)	Net investment gains (losses)
Indexed universal life embedded derivatives		4			3		Net investment gains (losses)

Total derivatives not designated as hedges	$	(4	)	$	5


	Nine months ended September 30,						Classification of gain (loss) recognized in net income (loss)
(Amounts in millions)	2021			2020
Interest rate swaps	$	2		$	(11	)	Net investment gains (losses)
Equity index options		9			(2	)	Net investment gains (losses)
Financial futures		(102	)		97		Net investment gains (losses)
Other foreign currency contracts		—			7		Net investment gains (losses)
GMWB embedded derivatives		103			(153	)	Net investment gains (losses)
Fixed index annuity embedded derivatives		(21	)		(31	)	Net investment gains (losses)
Indexed universal life embedded derivatives		17			10		Net investment gains (losses)

Total derivatives not designated as hedges	$	8		$	(83	)

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Derivative Counterparty Credit Risk

ost 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:


	September 30, 2021									December 31, 2020
(Amounts in millions)	Derivative assets (1)			Derivative liabilities (1)			Net derivatives			Derivative assets (1)			Derivative liabilities (1)			Net derivatives
Amounts presented in the balance sheet:
Gross amounts recognized	$	339		$	44		$	295		$	574		$	26		$	548
Gross amounts offset in the balance sheet		—			—			—			—			—			—

Net amounts presented in the balance sheet		339			44			295			574			26			548
Gross amounts not offset in the balance sheet:
Financial instruments (2)		(34	)		(34	)		—			(20	)		(20	)		—
Collateral received		(233	)		—			(233	)		(401	)		—			(401	)
Collateral pledged		—			(550	)		550			—			(505	)		505
Over collateralization		10			540			(530	)		2			499			(497	)

Net amount	$	82		$	—		$	82		$	155		$	—		$	155

(1)	Included $1 million of accruals on derivatives classified as other assets as of September 30, 2021 and does not include amounts related to embedded derivatives as of September 30, 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 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

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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 September 30, 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, 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

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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 September 30, 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 September 30, 2021:


(Amounts in millions)	Fair value		Primary methodologies	Significant inputs
U.S. government, agencies and government-sponsored enterprises	$	4,500	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	$	3,339	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	$	833	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	$	31,272	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	$	8,555	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	$	1,550	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	$	2,650	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	$	2,289	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 $1,592 million and $1,004 million, respectively, as of September 30, 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 $249 million as of September 30, 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 $3,441 million as of September 30, 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 September 30, 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 September 30, 2021 and December 31, 2020, the impact of

non-performance

risk resulted in a lower fair value of our GMWB liabilities of $51 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 September 30, 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 September 30, 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

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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:

	September 30, 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	$	4,500	$	—	$	4,500	$	—	$	—
State and political subdivisions		3,418		—		3,339		79		—
Non-U.S. government		835		—		833		2		—
U.S. corporate:
Utilities		5,092		—		4,212		880		—
Energy		3,011		—		2,879		132		—
Finance and insurance		9,024		—		8,347		677		—
Consumer—non-cyclical		6,218		—		6,113		105		—
Technology and communications		3,757		—		3,728		29		—
Industrial		1,518		—		1,498		20		—
Capital goods		2,820		—		2,771		49		—
Consumer—cyclical		1,908		—		1,771		137		—
Transportation		1,372		—		1,307		65		—
Other		412		—		238		174		—

Total U.S. corporate		35,132		—		32,864		2,268		—

Non-U.S. corporate:
Utilities		956		—		612		344		—
Energy		1,416		—		1,270		146		—
Finance and insurance		2,433		—		2,272		161		—
Consumer—non-cyclical		755		—		691		64		—
Technology and communications		1,280		—		1,252		28		—
Industrial		1,099		—		1,020		79		—
Capital goods		692		—		489		203		—
Consumer—cyclical		352		—		277		75		—
Transportation		490		—		436		54		—
Other		1,267		—		1,240		27		—

Total non-U.S. corporate		10,740		—		9,559		1,181		—

Residential mortgage-backed		1,572		—		1,550		22		—
Commercial mortgage-backed		2,670		—		2,650		20		—
Other asset-backed		2,407		—		2,289		118		—

Total fixed maturity securities		61,274		—		57,584		3,690		—

Equity securities		156		58		61		37		—

Other invested assets:
Derivative assets:
Interest rate swaps		298		—		298		—		—
Foreign currency swaps		5		—		5		—		—
Equity index options		33		—		—		33		—
Other foreign currency contracts		2		—		2		—		—

Total derivative assets		338		—		305		33		—

Short-term investments		69		—		69		—		—
Limited partnerships		1,263		—		—		—		1,263

Total other invested assets		1,670		—		374		33		1,263

Reinsurance recoverable (2)		19		—		—		19		—
Separate account assets		5,978		5,978		—		—		—

Total assets	$	69,097	$	6,036	$	58,019	$	3,779	$	1,263

(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.

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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:

(Amounts in millions)	Beginning balance as of July 1, 2021		Total realized and unrealized gains (losses)					Purchases		Sales		Issuances		Settlements			Transfer into Level 3 (1)		Transfer out of Level 3 (1)			Ending balance as of September 30, 2021		Total gains (losses) attributable to assets still held
(Amounts in millions)	Beginning balance as of July 1, 2021		Included in net income (loss)		Included in OCI			Purchases		Sales		Issuances		Settlements			Transfer into Level 3 (1)		Transfer out of Level 3 (1)			Ending balance as of September 30, 2021		Included in net income (loss)			Included in OCI
Fixed maturity securities:
State and political subdivisions	$	75	$	1	$	3		$	—	$	—	$	—	$	—		$	—	$	—		$	79	$	1		$	3
Non-U.S. government		—		—		—			2		—		—		—			—		—			2		—			—
U.S. corporate:
Utilities		842		—		(5	)		46		—		—		(3	)		—		—			880		—			(5	)
Energy		77		—		—			50		—		—		(3	)		8		—			132		—			—
Finance and insurance		661		—		(5	)		72		—		—		(20	)		—		(31	)		677		—			(4	)
Consumer—non-cyclical		109		—		(1	)		—		—		—		—			—		(3	)		105		—			—
Technology and communications		30		—		(1	)		—		—		—		—			—		—			29		—			(1	)
Industrial		20		—		—			—		—		—		—			—		—			20		—			—
Capital goods		59		—		—			—		—		—		(10	)		—		—			49		—			—
Consumer—cyclical		139		—		—			—		—		—		(2	)		—		—			137		—			—
Transportation		67		—		—			—		—		—		(2	)		—		—			65		—			—
Other		198		—		—			—		—		—		(23	)		—		(1	)		174		—			—

Total U.S. corporate		2,202		—		(12	)		168		—		—		(63	)		8		(35	)		2,268		—			(10	)

Non-U.S. corporate:
Utilities		348		—		(4	)		—		—		—		—			—		—			344		—			(3	)
Energy		152		—		(1	)		—		—		—		(5	)		—		—			146		—			(1	)
Finance and insurance		202		1		—			1		—		—		(10	)		—		(33	)		161		1			(1	)
Consumer—non-cyclical		74		1		(1	)		—		—		—		(13	)		3		—			64		—			—
Technology and communications		28		—		—			—		—		—		—			—		—			28		—			—
Industrial		94		1		(2	)		—		—		—		(14	)		—		—			79		—			—
Capital goods		181		—		3			19		—		—		—			—		—			203		—			2
Consumer—cyclical		147		—		—			—		—		—		—			—		(72	)		75		—			—
Transportation		83		3		(2	)		—		—		—		(30	)		—		—			54		—			(1	)
Other		53		6		(2	)		—		—		—		(30	)		—		—			27		—			—

Total non-U.S. corporate		1,362		12		(9	)		20		—		—		(102	)		3		(105	)		1,181		1			(4	)

Residential mortgage-backed		13		—		—			—		—		—		(1	)		10		—			22		—			—
Commercial mortgage-backed		20		—		(1	)		1		—		—		—			—		—			20		—			—
Other asset-backed		88		—		—			36		—		—		(6	)		—		—			118		—			—

Total fixed maturity securities		3,760		13		(19	)		227		—		—		(172	)		21		(140	)		3,690		2			(11	)

Equity securities		38		—		—			—		—		—		(1	)		—		—			37		—			—

Other invested assets:
Derivative assets:
Equity index options		47		—		—			5		—		—		(19	)		—		—			33		(1	)		—

Total derivative assets		47		—		—			5		—		—		(19	)		—		—			33		(1	)		—

Total other invested assets		47		—		—			5		—		—		(19	)		—		—			33		(1	)		—

Reinsurance recoverable (2)		18		1		—			—		—		—		—			—		—			19		1			—

Total Level 3 assets	$	3,863	$	14	$	(19	)	$	232	$	—	$	—	$	(192	)	$	21	$	(140	)	$	3,779	$	2		$	(11	)

(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.

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in millions)	Beginning balance as of July 1, 2020		Total realized and unrealized gains (losses)						Purchases		Sales			Issuances		Settlements			Transfer into Level 3 (1)		Transfer out of Level 3 (1)			Ending balance as of September 30, 2020		Total gains (losses) attributable to assets still held
(Amounts in millions)	Beginning balance as of July 1, 2020		Included in net income (loss)			Included in OCI			Purchases		Sales			Issuances		Settlements			Transfer into Level 3 (1)		Transfer out of Level 3 (1)			Ending balance as of September 30, 2020		Included in net income (loss)			Included in OCI
Fixed maturity securities:
State and political subdivisions	$	63	$	1		$	(7	)	$	—	$	—		$	—	$	—		$	—	$	—		$	57	$	1		$	(6	)
U.S. corporate:
Utilities		936		10			(4	)		15		—			—		(52	)		—		(64	)		841		—			1
Energy		123		—			—			7		—			—		(16	)		—		—			114		—			—
Finance and insurance		551		—			2			71		—			—		(16	)		—		(77	)		531		—			2
Consumer—non-cyclical		103		—			—			—		—			—		—			—		—			103		—			1
Technology and communications		66		—			3			57		—			—		—			—		—			126		—			3
Industrial		39		—			1			—		—			—		—			—		—			40		—			—
Capital goods		97		—			—			—		—			—		—			—		—			97		—			—
Consumer—cyclical		198		3			(1	)		—		—			—		(30	)		—		—			170		—			1
Transportation		54		—			1			—		—			—		(1	)		—		—			54		—			1
Other		165		—			—			—		—			—		(1	)		—		—			164		—			—

Total U.S. corporate		2,332		13			2			150		—			—		(116	)		—		(141	)		2,240		—			9

Non-U.S. corporate:
Utilities		357		—			4			—		—			—		—			6		(20	)		347		—			3
Energy		237		—			—			—		—			—		—			—		—			237		—			1
Finance and insurance		311		1			(2	)		—		—			—		—			19		(25	)		304		1			(2	)
Consumer—non-cyclical		54		—			—			—		—			—		—			—		—			54		—			—
Technology and communications		28		—			—			—		—			—		—			—		—			28		—			—
Industrial		92		—			1			—		—			—		—			—		—			93		—			1
Capital goods		173		—			—			10		—			—		(10	)		—		—			173		—			(1	)
Consumer—cyclical		156		—			4			17		—			—		—			—		(10	)		167		—			4
Transportation		141		—			(2	)		—		—			—		—			—		(28	)		111		—			(3	)
Other		145		—			3			—		—			—		(12	)		—		—			136		—			3

Total non-U.S. corporate		1,694		1			8			27		—			—		(22	)		25		(83	)		1,650		1			6

Residential mortgage-backed		24		—			(1	)		—		—			—		—			—		(9	)		14		—			—
Commercial mortgage-backed		21		—			(1	)		—		—			—		—			—		—			20		—			—
Other asset-backed		90		—			1			78		—			—		(4	)		—		(25	)		140		—			1

Total fixed maturity securities		4,224		15			2			255		—			—		(142	)		25		(258	)		4,121		2			10

Equity securities		53		—			—			—		(1	)		—		—			—		—			52		—			—

Other invested assets:
Derivative assets:
Equity index options		66		7			—			27		—			—		(33	)		—		—			67		(1	)		—

Total derivative assets		66		7			—			27		—			—		(33	)		—		—			67		(1	)		—

Total other invested assets		66		7			—			27		—			—		(33	)		—		—			67		(1	)		—

Reinsurance recoverable (2)		38		(3	)		—			—		—			—		—			—		—			35		(3	)		—

Total Level 3 assets	$	4,381	$	19		$	2		$	282	$	(1	)	$	—	$	(175	)	$	25	$	(258	)	$	4,275	$	(2	)	$	10

(1)

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

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in millions)	Beginning balance as of January 1, 2021		Total realized and unrealized gains (losses)						Purchases		Sales			Issuances		Settlements			Transfer into Level 3 (1)		Transfer out of Level 3 (1)			Ending balance as of September 30, 2021		Total gains (losses) attributable to assets still held
(Amounts in millions)	Beginning balance as of January 1, 2021		Included in net income (loss)			Included in OCI			Purchases		Sales			Issuances		Settlements			Transfer into Level 3 (1)		Transfer out of Level 3 (1)			Ending balance as of September 30, 2021		Included in net income (loss)			Included in OCI
Fixed maturity securities:
State and political subdivisions	$	66	$	3		$	10		$	—	$	—		$	—	$	—		$	—	$	—		$	79	$	3		$	10
Non-U.S. government		—		—			—			2		—			—		—			—		—			2		—			—
U.S. corporate:
Utilities		842		—			(12	)		62		—			—		(17	)		18		(13	)		880		—			(11	)
Energy		128		—			4			50		—			—		(6	)		8		(52	)		132		—			—
Finance and insurance		607		—			(10	)		145		—			—		(45	)		17		(37	)		677		—			(9	)
Consumer—non-cyclical		109		—			(2	)		—		—			—		(2	)		3		(3	)		105		—			(2	)
Technology and communications		47		—			(1	)		12		—			—		—			4		(33	)		29		—			(2	)
Industrial		40		—			—			—		—			—		(20	)		—		—			20		—			—
Capital goods		60		—			(1	)		—		—			—		(10	)		—		—			49		—			(1	)
Consumer—cyclical		150		—			(1	)		—		—			—		(4	)		—		(8	)		137		—			(1	)
Transportation		70		—			—			—		—			—		(5	)		—		—			65		—			—
Other		219		—			(2	)		—		—			—		(29	)		6		(20	)		174		—			—

Total U.S. corporate		2,272		—			(25	)		269		—			—		(138	)		56		(166	)		2,268		—			(26	)

Non-U.S. corporate:
Utilities		352		—			(6	)		30		—			—		(8	)		—		(24	)		344		—			(6	)
Energy		245		—			7			—		—			—		(27	)		—		(79	)		146		—			3
Finance and insurance		305		2			1			1		(2	)		—		(62	)		—		(84	)		161		3			(12	)
Consumer—non-cyclical		67		1			(2	)		8		—			—		(13	)		3		—			64		—			(1	)
Technology and communications		28		—			—			—		—			—		—			—		—			28		—			—
Industrial		95		1			(3	)		—		—			—		(14	)		—		—			79		—			(1	)
Capital goods		178		—			1			24		—			—		—			—		—			203		—			1
Consumer—cyclical		146		—			—			16		—			—		—			—		(87	)		75		—			—
Transportation		109		3			(2	)		—		—			—		(49	)		—		(7	)		54		—			—
Other		83		6			(3	)		—		—			—		(44	)		—		(15	)		27		—			(1	)

Total non-U.S. corporate		1,608		13			(7	)		79		(2	)		—		(217	)		3		(296	)		1,181		3			(17	)

Residential mortgage-backed		14		—			—			—		—			—		(2	)		10		—			22		—			—
Commercial mortgage-backed		20		—			(1	)		1		—			—		—			—		—			20		—			(1	)
Other asset-backed		109		—			1			39		—			—		(15	)		2		(18	)		118		—			1

Total fixed maturity securities		4,089		16			(22	)		390		(2	)		—		(372	)		71		(480	)		3,690		6			(33	)

Equity securities		51		—			—			—		(8	)		—		(6	)		—		—			37		—			—

Other invested assets:
Derivative assets:
Equity index options		63		9			—			15		—			—		(54	)		—		—			33		3			—

Total derivative assets		63		9			—			15		—			—		(54	)		—		—			33		3			—

Total other invested assets		63		9			—			15		—			—		(54	)		—		—			33		3			—

Reinsurance recoverable (2)		26		(8	)		—			—		—			1		—			—		—			19		(8	)		—

Total Level 3 assets	$	4,229	$	17		$	(22	)	$	405	$	(10	)	$	1	$	(432	)	$	71	$	(480	)	$	3,779	$	1		$	(33	)

(1)

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

Table of Contents

(Amounts in millions)	Beginning balance as of January 1, 2020		Total realized and unrealized gains (losses)					Purchases		Sales			Issuances		Settlements			Transfer into Level 3 (1)		Transfer out of Level 3 (1)			Ending balance as of September 30, 2020		Total gains (losses) attributable to assets still held
(Amounts in millions)	Beginning balance as of January 1, 2020		Included in net income (loss)		Included in OCI			Purchases		Sales			Issuances		Settlements			Transfer into Level 3 (1)		Transfer out of Level 3 (1)			Ending balance as of September 30, 2020		Included in net income (loss)		Included in OCI
Fixed maturity securities:
State and political subdivisions	$	102	$	2	$	(19	)	$	—	$	—		$	—	$	(1	)	$	—	$	(27	)	$	57	$	2	$	(19	)
Non-U.S. government		—		—		—			—		—			—		(1	)		1		—			—		—		—
U.S. corporate:
Utilities		865		10		8			47		—			—		(54	)		42		(77	)		841		—		14
Energy		129		1		(2	)		17		(21	)		—		(19	)		22		(13	)		114		—		(4	)
Finance and insurance		572		2		4			92		—			—		(40	)		—		(99	)		531		—		7
Consumer—non-cyclical		94