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, 2022

☐	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 ☐

☒

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

, 2022, 496,365,640 shares of Class A Common Stock, par value $0.001 per sha

re, were outstanding.

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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


	September 30,			December 31,
	2022			2021
	(Unaudited)
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value (amortized cost of $51,248 and $52,611, respectively, and allowance for credit losses of $— as of September 30, 2022 and December 31, 2021)	$	46,215		$	60,480
Equity securities, at fair value		274			198
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4 as of September 30, 2022 and December 31, 2021)		7,086			6,856
Less: Allowance for credit losses		(23	)		(26	)

Commercial mortgage loans, net		7,063			6,830
Policy loans		2,153			2,050
Limited partnerships		2,195			1,900
Other invested assets		590			820

Total investments		58,490			72,278
Cash, cash equivalents and restricted cash		1,561			1,571
Accrued investment income		616			647
Deferred acquisition costs		2,247			1,146
Intangible assets		237			143
Reinsurance recoverable		16,619			16,868
Less: Allowance for credit losses		(61	)		(55	)

Reinsurance recoverable, net		16,558			16,813
Other assets		399			388
Deferred tax asset		1,533			119
Separate account assets		4,298			6,066

Total assets	$	85,939		$	99,171

Liabilities and equity
Liabilities:
Future policy benefits	$	38,095		$	41,528
Policyholder account balances		17,589			19,354
Liability for policy and contract claims		12,004			11,841
Unearned premiums		597			672
Other liabilities		1,679			1,511
Long-term borrowings		1,622			1,899
Separate account liabilities		4,298			6,066
Liabilities related to discontinued operations		6			34

Total liabilities		75,890			82,905

Commitments and contingencies

Equity:
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 600 million and 596 million shares issued as of September 30, 2022 and December 31, 2021, respectively; 503 million and 508 million shares outstanding as of September 30, 2022 and December 31, 2021, respectively		1			1
Additional paid-in capital		11,865			11,858
Accumulated other comprehensive income (loss)		(2,765	)		3,861
Retained earnings		2,924			2,490
Treasury stock, at cost (97 million and 88 million shares as of September 30, 2022 and December 31, 2021, respectively)		(2,734	)		(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity		9,291			15,510
Noncontrolling interests		758			756

Total equity		10,049			16,266

Total liabilities and equity	$	85,939		$	99,171

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					Nine months ended
	September 30,					September 30,
	2022			2021		2022			2021
Revenues:
Premiums	$	934		$	944	$	2,792		$	2,859
Net investment income		808			859		2,359			2,504
Net investment gains (losses)		(69	)		88		(33	)		191
Policy fees and other income		166			179		494			542

Total revenues		1,839			2,070		5,612			6,096

Benefits and expenses:
Benefits and other changes in policy reserves		1,180			1,143		3,083			3,522
Interest credited		128			123		378			381
Acquisition and operating expenses, net of deferrals		240			290		1,100			869
Amortization of deferred acquisition costs and intangibles		79			106		255			269
Interest expense		26			35		78			129

Total benefits and expenses		1,653			1,697		4,894			5,170

Income from continuing operations before income taxes		186			373		718			926
Provision for income taxes		52			67		183			201

Income from continuing operations		134			306		535			725
Income from discontinued operations, net of taxes		5			12		2			28

Net income		139			318		537			753
Less: net income from continuing operations attributable to noncontrolling interests		35			4		103			4
Less: net income from discontinued operations attributable to noncontrolling interests		—			—		—			8

Net income available to Genworth Financial, Inc.’s common stockholders	$	104		$	314	$	434		$	741

Net income available to Genworth Financial, Inc.’s common stockholders:
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	99		$	302	$	432		$	721
Income from discontinued operations available to Genworth Financial, Inc.’s common stockholders		5			12		2			20

Net income available to Genworth Financial, Inc.’s common stockholders	$	104		$	314	$	434		$	741

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.20		$	0.59	$	0.85		$	1.42

Diluted	$	0.19		$	0.59	$	0.84		$	1.40

Net income available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.21		$	0.62	$	0.86		$	1.46

Diluted	$	0.20		$	0.61	$	0.85		$	1.44

Weighted-average common shares outstanding:
Basic		504.0			507.4		507.1			506.8

Diluted		509.4			514.2		513.7			514.4

See Notes to Condensed Consolidated Financial Statements

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GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in millions)

(Unaudited)


	Three months ended September 30, 2022
	Common stock		Additional paid-in capital		Accumulated other comprehensive income (loss)			Retained earnings		Treasury stock, at cost			Total Genworth Financial, I nc.’s stockholders’ equity			Noncontrolling interests			Total equity

Balances as of June 30, 2022	$	1	$	11,859	$	(145	)	$	2,820	$	(2,715	)	$	11,820		$	751		$	12,571
Comprehensive income (loss):
Net income		—		—		—			104		—			104			35			139
Other comprehensive loss, net of taxes		—		—		(2,620	)		—		—			(2,620	)		(25	)		(2,645	)

Total comprehensive income (loss)														(2,516	)		10			(2,506	)
Treasury stock acquired in connection with share repurchases		—		—		—			—		(19	)		(19	)		—			(19	)
Dividends to noncontrolling interests		—		—		—			—		—			—			(4	)		(4	)
Stock-based compensation expense and exercises and other		—		6		—			—		—			6			1			7

Balances as of September 30, 2022	$	1	$	11,865	$	(2,765	)	$	2,924	$	(2,734	)	$	9,291		$	758		$	10,049


	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

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GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY, CONTINUED

(Amounts in millions)

(Unaudited)


	Nine months ended September 30, 2022
	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, 2021	$	1	$	11,858	$	3,861		$	2,490	$	(2,700	)	$	15,510		$	756		$	16,266
Comprehensive income (loss):
Net income		—		—		—			434		—			434			103			537
Other comprehensive loss, net of taxes		—		—		(6,626	)		—		—			(6,626	)		(94	)		(6,720	)

Total comprehensive income (loss)														(6,192	)		9			(6,183	)
Treasury stock acquired in connection with share repurchases		—		—		—			—		(34	)		(34	)		—			(34	)
Dividends to noncontrolling interests		—		—		—			—		—			—			(8	)		(8	)
Stock-based compensation expense and exercises and other		—		7		—			—		—			7			1			8

Balances as of September 30, 2022	$	1	$	11,865	$	(2,765	)	$	2,924	$	(2,734	)	$	9,291		$	758		$	10,049


	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

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,
	2022			2021
Cash flows from (used by) operating activities:
Net income	$	537		$	753
Less income from discontinued operations, net of taxes		(2	)		(28	)
Adjustments to reconcile net income to net cash from operating activities:
Amortization of fixed maturity securities discounts and premiums		(127	)		(138	)
Net investment (gains) losses		33			(191	)
Charges assessed to policyholders		(444	)		(472	)
Acquisition costs deferred		—			(6	)
Amortization of deferred acquisition costs and intangibles		255			269
Deferred income taxes		183			202
Derivative instruments, limited partnerships and other		(250	)		(252	)
Stock-based compensation expense		29			32
Change in certain assets and liabilities:
Accrued investment income and other assets		(104	)		(117	)
Insurance reserves		717			678
Current tax liabilities		(4	)		(8	)
Other liabilities, policy and contract claims and other policy-related balances		(147	)		56
Cash used by operating activities—discontinued operations		(31	)		(488	)

Net cash from operating activities		645			290

Cash flows from (used by) investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		2,154			3,253
Commercial mortgage loans		514			601
Limited partnerships and other invested assets		146			176
Proceeds from sales of investments:
Fixed maturity and equity securities		2,061			1,591
Purchases and originations of investments:
Fixed maturity and equity securities		(3,222	)		(4,181	)
Commercial mortgage loans		(765	)		(743	)
Limited partnerships and other invested assets		(491	)		(447	)
Short-term investments, net		24			(24	)
Policy loans, net		31			40
Proceeds from sale of business, net of cash transferred		—			270
Cash used by investing activities—discontinued operations		—			(67	)

Net cash from investing activities		452			469

Cash flows from (used by) financing activities:
Deposits to universal life and investment contracts		466			511
Withdrawals from universal life and investment contracts		(1,190	)		(1,582	)
Repayment and repurchase of long-term debt		(284	)		(1,003	)
Proceeds from sale of subsidiary shares to noncontrolling interests		—			529
Treasury stock acquired in connection with share repurchases		(34	)		—
Dividends paid to noncontrolling interests		(8	)		—
Other, net		(57	)		67

Net cash used by financing activities		(1,107	)		(1,478	)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $— and $(1) related to discontinued operations for the nine months ended September 30, 2022 and 2021, respectively)		—			—

Net change in cash, cash equivalents and restricted cash		(10	)		(719	)
Cash, cash equivalents and restricted cash at beginning of period		1,571			2,656

Cash, cash equivalents and restricted cash at end of period		1,561			1,937
Less cash, cash equivalents and restricted cash of discontinued operations at end of period		—			—

Cash, cash equivalents and restricted cash of continuing operations at end of period	$	1,561		$	1,937

See Notes to Condensed Consolidated Financial Statements

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Formation of Genworth and Basis of Presentation

Genworth Holdings, Inc. (“Genworth Holdings”) (formerly known as Genworth Financial, Inc.) was incorporated in Delaware in 2003 in preparation for an initial public offering (“IPO”) of its 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 p

ublic holding company that it had formed. The new public holding company was incorporated in Delaware on December 5, 2012, in connection with the reorganization, and was renamed Genworth Financial, Inc. (“Genworth Financial”) upon the completion of the reorganization.

The accompanying unaudited condensed financial statements include on a consolidated basis the accounts of Genworth Financial and its affiliate companies in which it holds a majority voting interest or power to direct activities of certain variable interest entities (“VIE”), which on a consolidated basis is referred to as “Genworth,” the “Company,” “we,” “us” or “our” unless the context otherwise requires. All intercompany accounts and transactions have been eliminated in consolidation. References to “Genworth Financial” refer solely to Genworth Financial, Inc., and not to any of its consolidated subsidiaries.

We operate our business through the following three operating segments:

•

Enact.

Our Enact segment predominantly includes Enact Holdings, Inc., (“Enact Holdings”) and its mortgage insurance subsidiaries. Through Enact Holdings, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans at specified coverage percentages (“primary mortgage insurance”). Enact Holdings also selectively enters into insurance transactions with lenders and investors, under which it insures a portfolio of loans at or after origination (“pool mortgage insurance”).

•

U.S. Life Insurance.

Through our principal U.S. life insurance subsidiaries, 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 reported outside of our operating segments, including certain international mortgage insurance businesses and discontinued operations.

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Preparing financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. These unaudited condensed consolidated financial statements include all adjustments (including normal recurring adjustments) considered necessary by management to present a fair statement of the financial position, results of operations and cash flows for the periods presented. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The unaudited condensed consolidated

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2021 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

On May 2, 2022, Genworth Financial’s Board of Directors authorized a share repurchase program under which Genworth Financial may repurchase up to $350 million of its outstanding Class A common stock. Pursuant to the program, during the nine months ended September 30, 2022, Genworth Financial repurchased 8,980,350 shares of its common stock at an average price of $3.81 per share for a total cash outlay of $34 million, including costs paid in connection with acquiring the shares. The repurchased shares were recorded at cost and presented as treasury stock in a separate caption in equity in our condensed consolidated balance sheet. Genworth Financial also authorized share repurchases through a Rule

10b5-1

trading plan under which 6,274,166 shares of its common stock were repurchased

October 2022 at an average price of $4.00 per share for a total cash outlay of $25 million, leaving approximately $291 million that may yet be purchased under the share repurchase program. Under the program, share repurchases may be made at the Company’s discretion from time to time in open market transactions, privately negotiated transactions, or other means, including through Rule

10b5-1

trading plans. The timing and number of future shares repurchased under the program will depend on a variety of factors, including stock price, trading volume, and general business and market conditions. The authorization has no expiration date and may be modified, suspended or terminated at any time.

(2) Accounting Changes

Accounting Pronouncements Recently Adopted

On April 1, 2022, we elected to early adopt new accounting guidance related to troubled debt restructurings and the vintage disclosures included within the accounting guidance for credit losses on financial instruments. The guidance eliminates the recognition and measurement requirements for troubled debt restructurings and requires creditors to instead apply existing guidance related to loan refinancing and restructuring to determine whether a modification results in a new loan or a continuation of an existing loan. The guidance also expands disclosures for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty and requires the presentation of gross write-offs by year of origination. We were permitted to early adopt this new accounting guidance as we adopted the accounting guidance related to credit losses on financial instruments on January 1, 2020. In accordance with the new accounting guidance, we adopted this guidance prospectively as of January 1, 2022, which did not have any impact at adoption.

Accounting Pronouncements Not Yet Adopted

In June 2022, the Financial Accounting Standards Board (the “FASB”) issued new accounting guidance related to the fair value measurement of equity securities subject to contractual sale restrictions. The guidance clarifies existing fair value guidance on measuring the fair value of an equity security subject to contractual sale restrictions and adds new disclosures related to these securities. This guidance is currently effective for us on January 1, 2024 using the prospective method, with early adoption permitted, which we do not intend to elect. We do not expect a significant impact from this guidance on our condensed consolidated financial statements and disclosures.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In August 2018, the FASB issued new accounting guidance that significantly changes the recognition and measurement of long-duration insurance contracts and expands disclosure requirements, which impacts deferred acquisition costs (“DAC”) and insurance liabilities in our U.S. life insurance companies. In accordance with the guidance, the more significant changes include:

•

cash flow assumptions used to estimate the liability for future policy benefits and related reinsurance recoverables will be reviewed at least annually in the same period each year or more frequently if actual experience indicates a change is required. Changes in cash flow assumptions 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 assumption for the discount rate used to determine the liability for future policy benefits and related reinsurance recoverables will be a current upper-medium grade (low credit risk) fixed-income instrument yield, commonly interpreted to be a single-A rated bond rate, with the same duration as the corresponding liability, and is updated quarterly, with changes in the discount rate recorded in other comprehensive income (loss);

•

traditional and limited payment long-duration insurance contracts will be grouped, at a minimum, into annual cohorts by contract issue date for the purpose of measuring the liability for future policy benefits;

•

the provision for adverse deviation, the premium deficiency test and shadow accounting for traditional long-duration insurance contracts 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 of DAC will generally be on a straight-line basis over the expected contract term; and

•

disclosures will be greatly expanded in accordance with the new accounting guidance.

This guidance is effective for us on January 1, 2023 using the modified retrospective method or retrospective method for all topics except for market risk benefits, which is required to be applied using the retrospective method as of January 1, 2021 (“Transition Date”), with early adoption permitted. We do not intend to early adopt this guidance and have elected to apply the modified retrospective transition method for all permitted topics, with impacts of adoption applied as of the Transition Date. When we adopt this guidance on January 1, 2023, beginning retained earnings and accumulated other comprehensive income (loss) will be adjusted, starting with the Transition Date through years ended 2021 and 2022, and comparable prior periods will be re-presented in accordance with the new standard.

We expect the most significant impact at the Transition Date will be a decrease in the accumulated other comprehensive income (loss) of our long-term care insurance business due to the requirement to remeasure the liability for future policy benefits and related reinsurance recoverables using a single-A rated bond rate as of the Transition Date, which was materially lower than our current locked-in discount rate, partially offset by the elimination of shadow adjustments. We currently estimate a decrease in the accumulated other comprehensive income (loss) of our long-term care insurance business of approximately

$12.0

billion to

$13.0

billion as of the Transition Date, net of taxes and a favorable after-tax impact related to the elimination of shadow adjustments of

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

approximately $4.0 billion.

Upon adoption of this new accounting guidance, our insurance liabilities will be sensitive to movements in interest rates, which will likely result in volatility to our equity. For example, if we applied September 30, 2022 interest rates on the Transition Date of January 1, 2021, and held all other factors constant, the change in accumulated other comprehensive income (loss) of our long-term care insurance business would have been positive, more than reversing the estimated decrease

of approximately $12.0 billion to $13.0 billion at the Transition Date.

Our implementation efforts continue to progress and corporate governance has been established to support the implementation of this new standard. We remain focused on obtaining necessary data, modifying systems, identifying and developing key inputs and assumptions and establishing policies, systems and internal controls necessary to implement this new accounting guidance, which we will continue to enhance and refine until implementation. Our current estimate for the transition impact on accumulated other comprehensive income (loss) related to our long-term care insurance business is subject to change as we continue to refine aspects of our implementation and these changes may be material. In addition, our implementation efforts are not complete; we have not yet determined the full impact the other components of this new accounting guidance will have on our condensed consolidated financial statements, including our life insurance and annuity products, retained earnings and total equity.

While the new guidance will have a significant impact on existing U.S. GAAP financial statements and disclosures, it will not impact the underlying economics of the business, statutory net income or risk-based capital. As we progress through our implementation, we will continue to assess the full impact to our condensed consolidated financial statements both as of the Transition Date and in subsequent periods.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3) Earnings Per Share

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


	Three months ended September 30,				Nine months ended September 30,
(Amounts in millions, except per share amounts)	2022		2021		2022		2021

Weighted-average shares used in basic earnings per share calculations		504.0		507.4		507.1		506.8
Potentially dilutive securities:
Stock options, restricted stock units and other equity-based awards		5.4		6.8		6.6		7.6

Weighted-average shares used in diluted earnings per share calculations		509.4		514.2		513.7		514.4

Income from continuing operations:
Income from continuing operations	$	134	$	306	$	535	$	725
Less: net income from continuing operations attributable to noncontrolling interests		35		4		103		4

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	99	$	302	$	432	$	721

Basic per share	$	0.20	$	0.59	$	0.85	$	1.42

Diluted per share	$	0.19	$	0.59	$	0.84	$	1.40

Income from discontinued operations:
Income from discontinued operations, net of taxes	$	5	$	12	$	2	$	28
Less: net income from discontinued operations attributable to noncontrolling interests		—		—		—		8

Income from discontinued operations available to Genworth Financial, Inc.’s common stockholders	$	5	$	12	$	2	$	20

Basic per share	$	0.01	$	0.02	$	—	$	0.04

Diluted per share	$	0.01	$	0.02	$	—	$	0.04

Net income:
Income from continuing operations	$	134	$	306	$	535	$	725
Income from discontinued operations, net of taxes		5		12		2		28

Net income		139		318		537		753
Less: net income attributable to noncontrolling interests		35		4		103		12

Net income available to Genworth Financial, Inc.’s common stockholders	$	104	$	314	$	434	$	741

Basic per share (1)	$	0.21	$	0.62	$	0.86	$	1.46

Diluted per share (1)	$	0.20	$	0.61	$	0.85	$	1.44

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

Table of Contents

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)	2022			2021			2022			2021
Fixed maturity securities—taxable	$	576		$	614		$	1,734		$	1,821
Fixed maturity securities—non-taxable		2			2			4			5
Equity securities		3			2			7			7
Commercial mortgage loans		81			93			240			274
Policy loans		55			47			156			137
Limited partnerships		38			59			77			144
Other invested assets		67			63			196			179
Cash, cash equivalents, restricted cash and short-term investments		7			1			8			1

Gross investment income before expenses and fees		829			881			2,422			2,568
Expenses and fees		(21	)		(22	)		(63	)		(64	)

Net investment income	$	808		$	859		$	2,359		$	2,504

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(b) Net Investment Gains (Losses)

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


	Three months ended						Nine months ended
	September 30,						September 30,
(Amounts in millions)	2022			2021			2022			2021
Realized investment gains (losses):
Available-for-sale fixed maturity securities:
Realized gains	$	11		$	11		$	26		$	23
Realized losses		(38	)		—			(65	)		(7	)

Net realized gains (losses) on available-for-sale fixed maturity securities		(27	)		11			(39	)		16
Net realized gains (losses) on equity securities sold		—			—			—			(7	)
Net realized gains (losses) on limited partnerships		—			—			—			3

Total net realized investment gains (losses)		(27	)		11			(39	)		12

Net change in allowance for credit losses on available-for-sale fixed maturity securities		—			—			—			(6	)
Write-down of available-for-sale fixed maturity securities (1)		—			—			(2	)		(1	)
Net unrealized gains (losses) on equity securities still held		(13	)		(1	)		(46	)		(3	)
Net unrealized gains (losses) on limited partnerships		(24	)		75			35			174
Commercial mortgage loans		—			3			3			1
Derivative instruments (2)		(5	)		(3	)		8			9
Other		—			3			8			5

Net investment gains (losses)	$	(69	)	$	88		$	(33	)	$	191

(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 2021 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. There was no allowance for credit losses related to our

available-for-sale

fixed maturity securities as of and for the three and nine months ended September 30, 2022 and the three months ended September 30, 2021. The following table represents the allowance for credit losses aggregated by security type for

available-for-sale

fixed maturity securities 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	)	$	—	$	—

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, 2022			December 31, 2021
Net unrealized gains (losses) on fixed maturity securities without an allowance for credit losses (1)	$	(5,033	)	$	7,869
Net unrealized gains (losses) on fixed maturity securities with an allowance for credit losses (1)		—			—
Adjustments to DAC, present value of future profits, sales inducements, benefit reserves and policyholder contract balances		44			(5,487	)
Income taxes, net		871			(507	)

Net unrealized investment gains (losses)		(4,118	)		1,875
Less: net unrealized investment gains (losses) attributable to noncontrolling interests		(79	)		15

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	$	(4,039	)	$	1,860

(1)	Excludes foreign exchange.

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	As of or for the three months ended September 30,
(Amounts in millions)	2022			2021
Beginning balance	$	(1,554	)	$	1,865
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on fixed maturity securities		(3,098	)		(433	)
Adjustment to deferred acquisition costs		9			80
Adjustment to present value of future profits		—			(2	)
Adjustment to sales inducements		2			3
Adjustment to benefit reserves and policyholder contract balances		50			372
Provision for income taxes		506			(4	)

Change in unrealized gains (losses) on investment securities		(2,531	)		16
Reclassification adjustments to net investment (gains) losses, net of taxes of $(5) and $3		21			(9	)

Change in net unrealized investment gains (losses)		(2,510	)		7
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		(25	)		25

Ending balance	$	(4,039	)	$	1,847



	As of or for the nine months ended September 30,
(Amounts in millions)	2022			2021
Beginning balance	$	1,860		$	2,214
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on fixed maturity securities		(12,941	)		(2,042	)
Adjustment to deferred acquisition costs		1,328			(52	)
Adjustment to present value of future profits		81			—
Adjustment to sales inducements		26			8
Adjustment to benefit reserves and policyholder contract balances		4,096			1,630
Provision for income taxes		1,386			102

Change in unrealized gains (losses) on investment securities		(6,024	)		(354	)
Reclassification adjustments to net investment (gains) losses, net of taxes of $(8) and $4		31			(13	)

Change in net unrealized investment gains (losses)		(5,993	)		(367	)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		(94	)		—

Ending balance	$	(4,039	)	$	1,847

The net unrealized losses on fixed maturity securities recognized during the three and nine months ended September 30, 2022 were largely due to increasing interest rates and widening credit spreads. Amounts

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

(d) Fixed Maturity Securities

As of September 30, 2022, 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	$	3,430	$	104	$	(227	)	$	—	$	3,307
State and political subdivisions		2,855		20		(343	)		—		2,532
Non-U.S. government		741		11		(130	)		—		622
U.S. corporate:
Utilities		4,268		31		(496	)		—		3,803
Energy		2,445		23		(262	)		—		2,206
Finance and insurance		7,971		45		(957	)		—		7,059
Consumer—non-cyclical		4,803		60		(498	)		—		4,365
Technology and communications		3,276		29		(432	)		—		2,873
Industrial		1,312		10		(161	)		—		1,161
Capital goods		2,332		33		(234	)		—		2,131
Consumer—cyclical		1,769		9		(194	)		—		1,584
Transportation		1,139		26		(115	)		—		1,050
Other		347		3		(20	)		—		330

Total U.S. corporate		29,662		269		(3,369	)		—		26,562

Non-U.S. corporate:
Utilities		812		—		(91	)		—		721
Energy		1,061		12		(90	)		—		983
Finance and insurance		2,164		34		(240	)		—		1,958
Consumer—non-cyclical		658		1		(102	)		—		557
Technology and communications		1,007		—		(133	)		—		874
Industrial		878		5		(92	)		—		791
Capital goods		606		2		(76	)		—		532
Consumer—cyclical		317		—		(42	)		—		275
Transportation		392		10		(32	)		—		370
Other		946		16		(76	)		—		886

Total non-U.S. corporate		8,841		80		(974	)		—		7,947

Residential mortgage-backed		1,129		9		(69	)		—		1,069
Commercial mortgage-backed		2,231		2		(244	)		—		1,989
Other asset-backed		2,359		—		(172	)		—		2,187

Total available-for-sale fixed maturity securities	$	51,248	$	495	$	(5,528	)	$	—	$	46,215

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of December 31, 2021, the amortized cost or cost, gross unrealized gains (losses), allowance for credit losses and fair value of our fixed maturity securities classified as

available-for-sale

were as follows:


(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	$	3,368	$	1,184	$	—		$	—	$	4,552
State and political subdivisions		2,982		474		(6	)		—		3,450
Non-U.S. government		762		86		(13	)		—		835
U.S. corporate:
Utilities		4,330		783		(9	)		—		5,104
Energy		2,581		363		(10	)		—		2,934
Finance and insurance		8,003		1,012		(24	)		—		8,991
Consumer—non-cyclical		5,138		1,029		(8	)		—		6,159
Technology and communications		3,345		476		(13	)		—		3,808
Industrial		1,322		175		(3	)		—		1,494
Capital goods		2,334		415		(4	)		—		2,745
Consumer—cyclical		1,703		203		(7	)		—		1,899
Transportation		1,122		249		—			—		1,371
Other		379		41		(1	)		—		419

Total U.S. corporate		30,257		4,746		(79	)		—		34,924

Non-U.S. corporate:
Utilities		867		63		(2	)		—		928
Energy		1,194		190		(1	)		—		1,383
Finance and insurance		2,171		270		(9	)		—		2,432
Consumer—non-cyclical		664		81		(2	)		—		743
Technology and communications		1,085		166		(1	)		—		1,250
Industrial		933		117		(3	)		—		1,047
Capital goods		640		66		(1	)		—		705
Consumer—cyclical		316		27		(2	)		—		341
Transportation		422		68		(1	)		—		489
Other		1,052		169		(4	)		—		1,217

Total non-U.S. corporate		9,344		1,217		(26	)		—		10,535

Residential mortgage-backed		1,325		116		(1	)		—		1,440
Commercial mortgage-backed		2,435		152		(3	)		—		2,584
Other asset-backed		2,138		29		(7	)		—		2,160

Total available-for-sale fixed maturity securities	$	52,611	$	8,004	$	(135	)	$	—	$	60,480

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, 2022:


	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	$	1,525	$	(225	)		55	$	12	$	(2	)		6	$	1,537	$	(227	)		61
State and political subdivisions		1,706		(305	)		287		133		(38	)		42		1,839		(343	)		329
Non-U.S. government		370		(80	)		63		125		(50	)		22		495		(130	)		85
U.S. corporate		19,668		(2,904	)		2,636		1,415		(465	)		168		21,083		(3,369	)		2,804
Non-U.S. corporate		6,011		(791	)		795		542		(183	)		84		6,553		(974	)		879
Residential mortgage-backed		616		(63	)		186		22		(6	)		9		638		(69	)		195
Commercial mortgage-backed		1,859		(235	)		276		59		(9	)		9		1,918		(244	)		285
Other asset-backed		1,921		(142	)		412		224		(30	)		47		2,145		(172	)		459

Total for fixed maturity securities in an unrealized loss position	$	33,676	$	(4,745	)		4,710	$	2,532	$	(783	)		387	$	36,208	$	(5,528	)		5,097

% Below cost:
<20% Below cost	$	28,220	$	(2,896	)		3,957	$	738	$	(121	)		152	$	28,958	$	(3,017	)		4,109
20%-50% Below cost		5,456		(1,849	)		753		1,794		(662	)		235		7,250		(2,511	)		988

Total for fixed maturity securities in an unrealized loss position	$	33,676	$	(4,745	)		4,710	$	2,532	$	(783	)		387	$	36,208	$	(5,528	)		5,097

Investment grade	$	32,131	$	(4,509	)		4,480	$	2,343	$	(721	)		361	$	34,474	$	(5,230	)		4,841
Below investment grade		1,545		(236	)		230		189		(62	)		26		1,734		(298	)		256

Total for fixed maturity securities in an unrealized loss position	$	33,676	$	(4,745	)		4,710	$	2,532	$	(783	)		387	$	36,208	$	(5,528	)		5,097

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, 2022:


	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	$	2,797	$	(456	)		388	$	119	$	(40	)		27	$	2,916	$	(496	)		415
Energy		1,662		(236	)		241		91		(26	)		10		1,753		(262	)		251
Finance and insurance		5,478		(795	)		731		502		(162	)		53		5,980		(957	)		784
Consumer—non-cyclical		2,846		(436	)		334		178		(62	)		19		3,024		(498	)		353
Technology and communications		2,336		(352	)		324		214		(80	)		25		2,550		(432	)		349
Industrial		892		(143	)		116		60		(18	)		5		952		(161	)		121
Capital goods		1,447		(196	)		187		114		(38	)		11		1,561		(234	)		198
Consumer—cyclical		1,249		(157	)		186		128		(37	)		15		1,377		(194	)		201
Transportation		776		(113	)		103		9		(2	)		3		785		(115	)		106
Other		185		(20	)		26		—		—			—		185		(20	)		26
Subtotal, U.S. corporate securities		19,668		(2,904	)		2,636		1,415		(465	)		168		21,083		(3,369	)		2,804

Non-U.S. corporate:
Utilities		649		(79	)		70		37		(12	)		6		686		(91	)		76
Energy		711		(86	)		76		12		(4	)		1		723		(90	)		77
Finance and insurance		1,390		(156	)		222		247		(84	)		37		1,637		(240	)		259
Consumer—non-cyclical		482		(85	)		56		48		(17	)		10		530		(102	)		66
Technology and communications		831		(125	)		106		24		(8	)		4		855		(133	)		110
Industrial		547		(73	)		78		58		(19	)		7		605		(92	)		85
Capital goods		432		(63	)		56		39		(13	)		4		471		(76	)		60
Consumer—cyclical		249		(35	)		34		26		(7	)		7		275		(42	)		41
Transportation		190		(27	)		29		16		(5	)		3		206		(32	)		32
Other		530		(62	)		68		35		(14	)		5		565		(76	)		73

Subtotal, non-U.S. corporate securities		6,011		(791	)		795		542		(183	)		84		6,553		(974	)		879

Total for corporate securities in an unrealized loss position	$	25,679	$	(3,695	)		3,431	$	1,957	$	(648	)		252	$	27,636	$	(4,343	)		3,683

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 was largely due to increasing interest rates and widening credit spreads and was 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)


	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	$	339	$	(6	)		67	$	—	$	—			—	$	339	$	(6	)		67
Non-U.S. government		173		(9	)		28		19		(4	)		1		192		(13	)		29
U.S. corporate		2,593		(64	)		266		196		(15	)		22		2,789		(79	)		288
Non-U.S. corporate		912		(21	)		124		62		(5	)		8		974		(26	)		132
Residential mortgage-backed		97		(1	)		22		—		—			—		97		(1	)		22
Commercial mortgage-backed		113		(2	)		17		31		(1	)		4		144		(3	)		21
Other asset-backed		764		(7	)		111		—		—			—		764		(7	)		111

Total for fixed maturity securities in an unrealized loss position	$	4,991	$	(110	)		635	$	308	$	(25	)		35	$	5,299	$	(135	)		670

% Below cost:
<20% Below cost	$	4,991	$	(110	)		635	$	297	$	(20	)		33	$	5,288	$	(130	)		668
20%-50% Below cost		—		—			—		11		(5	)		2		11		(5	)		2

Total for fixed maturity securities in an unrealized loss position	$	4,991	$	(110	)		635	$	308	$	(25	)		35	$	5,299	$	(135	)		670

Investment grade	$	4,644	$	(101	)		587	$	241	$	(12	)		25	$	4,885	$	(113	)		612
Below investment grade		347		(9	)		48		67		(13	)		10		414		(22	)		58

Total for fixed maturity securities in an unrealized loss position	$	4,991	$	(110	)		635	$	308	$	(25	)		35	$	5,299	$	(135	)		670

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities

Description of Securities
U.S. corporate:
Utilities	$	211	$	(7	)		32	$	29	$	(2	)		7	$	240	$	(9	)		39
Energy		166		(3	)		18		25		(7	)		4		191		(10	)		22
Finance and insurance		960		(22	)		89		62		(2	)		3		1,022		(24	)		92
Consumer—non-cyclical		296		(7	)		30		14		(1	)		2		310		(8	)		32
Technology and communications		378		(12	)		37		29		(1	)		2		407		(13	)		39
Industrial		143		(3	)		18		—		—			—		143		(3	)		18
Capital goods		171		(3	)		16		18		(1	)		2		189		(4	)		18
Consumer—cyclical		268		(7	)		26		—		—			—		268		(7	)		26
Other		—		—			—		19		(1	)		2		19		(1	)		2

Subtotal, U.S. corporate securities		2,593		(64	)		266		196		(15	)		22		2,789		(79	)		288

Non-U.S. corporate:
Utilities		69		(2	)		9		—		—			—		69		(2	)		9
Energy		64		(1	)		10		—		—			—		64		(1	)		10
Finance and insurance		366		(8	)		43		18		(1	)		2		384		(9	)		45
Consumer—non-cyclical		67		(1	)		12		6		(1	)		1		73		(2	)		13
Technology and communications		48		(1	)		8		—		—			—		48		(1	)		8
Industrial		122		(3	)		14		—		—			—		122		(3	)		14
Capital goods		78		(1	)		8		—		—			—		78		(1	)		8
Consumer—cyclical		22		(1	)		8		15		(1	)		3		37		(2	)		11
Transportation		37		(1	)		7		—		—			—		37		(1	)		7
Other		39		(2	)		5		23		(2	)		2		62		(4	)		7

Subtotal, non-U.S. corporate securities		912		(21	)		124		62		(5	)		8		974		(26	)		132

Total for corporate securities in an unrealized loss position	$	3,505	$	(85	)		390	$	258	$	(20	)		30	$	3,763	$	(105	)		420

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The scheduled maturity distribution of fixed maturity securities as of September 30, 2022 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	$	1,132	$	1,128
Due after one year through five years		8,221		7,856
Due after five years through ten years		13,227		11,751
Due after ten years		22,949		20,235

Subtotal		45,529		40,970
Residential mortgage-backed		1,129		1,069
Commercial mortgage-backed		2,231		1,989
Other asset-backed		2,359		2,187

Total	$	51,248	$	46,215

As of September 30, 2022, securities issued by finance and insurance,

consumer—non-cyclical,

utilities and technology and communications industry groups represented approximately 26%, 14%, 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, 2022, 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, 2022						December 31, 2021
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Property type:
Retail	$	2,865			40	%	$	2,774			40	%
Office		1,606			23			1,526			22
Industrial		1,504			21			1,420			21
Apartments		573			8			585			9
Mixed use		351			5			330			5
Other		187			3			221			3

Subtotal		7,086			100	%		6,856			100	%

Allowance for credit losses		(23	)					(26	)

Total	$	7,063					$	6,830

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	September 30, 2022						December 31, 2021
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Geographic region:
South Atlantic	$	1,843			26	%	$	1,770			26	%
Pacific		1,347			19			1,360			20
Mountain		1,010			14			892			13
Middle Atlantic		988			14			964			14
West South Central		575			8			483			7
East North Central		459			7			465			7
West North Central		446			6			461			7
East South Central		221			3			224			3
New England		197			3			237			3

Subtotal		7,086			100	%		6,856			100	%

Allowance for credit losses		(23	)					(26	)

Total	$	7,063					$	6,830

As of September 30, 2022, we had no commercial mortgage loans past due or on

non-accrual

status. As of December 31, 2021, we had one commercial mortgage loan with an amortized cost of $22 million that was 31 to 60 days past due in the office property type. We wrote off $8 million of this commercial mortgage loan during the year ended December 31, 2021 and it was placed on

non-accrual

status as of December 31, 2021. The carrying value of this commercial mortgage loan was written down to the fair value of its collateral and this loan did not have an allowance for credit losses as of December 31, 2021. 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 2021 Annual Report on Form

10-K.

During the nine months ended September 30, 2022, we did not have any loan modifications or extensions associated with borrowers experiencing financial difficulty that resulted in the consideration of whether to establish a new loan or to continue accounting for the modification or extension under the existing loan. During the year ended December 31, 2021, prior to the adoption of new accounting guidance related to troubled debt restructurings, we did not have any modifications or extensions that were considered troubled debt restructurings.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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)	2022		2021			2022			2021

Allowance for credit losses:
Beginning balance	$	23	$	33		$	26		$	31
Provision		—		(3	)		(4	)		(1	)
Write-offs		—		—			—			—
Recoveries		—		—			1			—

Ending balance	$	23	$	30		$	23		$	30

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 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.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables set forth commercial mortgage loans by year of origination and credit quality indicator as of September 30, 2022:


(Amounts in millions)	2022		2021		2020		2019		2018		2017 and prior		Total
Debt-to-value:
0% - 50%	$	15	$	41	$	99	$	107	$	187	$	2,028	$	2,477
51% - 60%		50		61		77		138		247		790		1,363
61% - 75%		695		830		336		463		385		487		3,196
76% - 100%		—		—		—		8		28		14		50
Greater than 100%		—		—		—		—		—		—		—

Total amortized cost	$	760	$	932	$	512	$	716	$	847	$	3,319	$	7,086

Debt service coverage ratio:
Less than 1.00	$	7	$	9	$	6	$	39	$	59	$	145	$	265
1.00 - 1.25		17		1		16		27		95		177		333
1.26 - 1.50		188		70		66		165		141		417		1,047
1.51 - 2.00		496		618		209		274		350		1,120		3,067
Greater than 2.00		52		234		215		211		202		1,460		2,374

Total amortized cost	$	760	$	932	$	512	$	716	$	847	$	3,319	$	7,086

The following tables set forth the

debt-to-value

of commercial mortgage loans by property type as of the dates indicated:


	September 30, 2022
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100%			Total
Property type:
Retail	$	935		$	614		$	1,288		$	28		$	—		$	2,865
Office		443			278			871			14			—			1,606
Industrial		709			269			526			—			—			1,504
Apartments		186			98			281			8			—			573
Mixed use		95			80			176			—			—			351
Other		109			24			54			—			—			187

Total amortized cost	$	2,477		$	1,363		$	3,196		$	50		$	—		$	7,086

% of total		35	%		19	%		45	%		1	%		—	%		100	%

Weighted-average debt service coverage ratio		2.35			1.98			1.63			1.35			—			1.95

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	December 31, 2021
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100%			Total

Property type:
Retail	$	853		$	611		$	1,310		$	—		$	—		$	2,774
Office		505			395			604			—			22			1,526
Industrial		745			240			435			—			—			1,420
Apartments		200			102			283			—			—			585
Mixed use		120			70			140			—			—			330
Other		57			121			43			—			—			221

Total amortized cost	$	2,480		$	1,539		$	2,815		$	—		$	22		$	6,856

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

Weighted-average debt service coverage ratio		2.36			1.83			1.61			—			0.68			1.93

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	December 31, 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	$	102		$	166		$	405		$	1,375		$	726		$	2,774
Office		67			109			167			593			590			1,526
Industrial		9			64			82			599			666			1,420
Apartments		17			62			84			225			197			585
Mixed use		24			32			40			118			116			330
Other		4			126			13			48			30			221

Total amortized cost	$	223		$	559		$	791		$	2,958		$	2,325		$	6,856

% of total		3	%		8	%		12	%		43	%		34	%		100	%

Weighted-average debt-to-value		68	%		61	%		61	%		60	%		43	%		55	%

(f) Limited Partnerships or Similar Entities

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, 2022 and December 31, 2021, the total carrying value of these investments was $2,100 million and $1,829 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.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	Derivative assets						Derivative liabilities
			Fair value					Fair value
(Amounts in millions)	Balance sheet classification		September 30, 2022		December 31, 2021		Balance sheet classification	September 30, 2022		December 31, 2021
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps		Other invested assets	$	25	$	364	Other liabilities	$	460	$	26
Foreign currency swaps		Other invested assets		32		6	Other liabilities		—		—

Total cash flow hedges				57		370			460		26

Total derivatives designated as hedges				57		370			460		26

Derivatives not designated as hedges
Equity index options		Other invested assets		38		42	Other liabilities		—		—
Financial futures		Other invested assets		—		—	Other liabilities		—		—
Other foreign currency contracts		Other invested assets		—		2	Other liabilities		—		—
GMWB embedded derivatives		Reinsurance recoverable (1)		18		19	Policyholder account balances (2)		259		271
Fixed index annuity embedded derivatives		Other assets		—		—	Policyholder account balances ( 3 )		219		294
Indexed universal life embedded derivatives		Reinsurance recoverable		—		—	Policyholder account balances (4)		15		25

Total derivatives not designated as hedges				56		63			493		590

Total derivatives			$	113	$	433		$	953	$	616

(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.

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, 2021		Additions		Maturities/ terminations			September 30, 2022



Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps		Notional	$	7,653	$	782	$	(140	)	$	8,295
Foreign currency swaps		Notional		127		17		—			144

Total cash flow hedges				7,780		799		(140	)		8,439

Total derivatives designated as hedges				7,780		799		(140	)		8,439

Derivatives not designated as hedges
Equity index options		Notional		1,446		707		(957	)		1,196
Financial futures		Notional		946		2,899		(2,938	)		907
Other foreign currency contracts		Notional		83		—		(83	)		—

Total derivatives not designated as hedges				2,475		3,606		(3,978	)		2,103

Total derivatives			$	10,255	$	4,405	$	(4,118	)	$	10,542


(Number of policies)	Measurement		December 31, 2021		Additions		Maturities/ terminations			September 30, 2022
Derivatives not designated as hedges


GMWB embedded derivatives		Policies		21,804		—		(1,427	)		20,377
Fixed index annuity embedded derivatives		Policies		9,344		—		(1,567	)		7,777
Indexed universal life embedded derivatives		Policies		806		—		(24	)		782

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.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended September 30, 2022:


(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income from OCI		Classification of gain (loss) reclassified into net income	Gain (loss) recognized in net income		Classification of gain (loss) recognized in net income

Interest rate swaps hedging assets	$	(125	)	$	55	Net investment income	$	—	Net investment gains (losses)
Interest rate swaps hedging assets		—			3	Net investment gains (losses)		—	Net investment gains (losses)
Foreign currency swaps		15			—	Net investment income		—	Net investment gains (losses)

Total	$	(110	)	$	58		$	—

The following table provides information about the pre-tax income 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 from OCI			Classification of gain (loss) reclassified into net income	Gain (loss) recognized in net income		Classification of gain (loss) recognized in net income

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			$	—

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Nine months ended September 30,
(Amounts in millions)	2022			2021
Derivatives qualifying as effective accounting hedges as of January 1	$	2,025		$	2,211
Current period increases (decreases) in fair value, net of deferred taxes of $149 and $31		(604	)		(115	)
Reclassification to net (income), net of deferred taxes of $60 and $57		(111	)		(105	)
Derivatives qualifying as effective accounting hedges as of September 30	$	1,310		$	1,991

The total of derivatives designated as cash flow hedges of $1,310 million, net of taxes, recorded in stockholders’ equity as of September 30, 2022 is expected to be reclassified to net income 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, $144 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, 2022 and 2021, we reclassified $7 million and $8 million, respectively, to net income 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, 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 dividends, cash payments to AXA S.A. 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.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(6) Fair Value of Financial Instruments

Recurring Fair Value Measurements

We have fixed maturity securities, equity securities, limited partnerships, derivatives, short-term investments, embedded derivatives, 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 securities, equity securities and short-term investments

The fair value of fixed maturity securities, equity securities and short-term investments 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 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,

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2022.

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 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, equity securities and short-term investments 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, 88% of our portfolio was priced using third-party pricing services as of September 30, 2022. 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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

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, 2022:


(Amounts in millions)	Fair value		Primary methodologies	Significant inputs
U.S. government, agencies and government-sponsored enterprises	$	3,307	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	$	2,476	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	$	620	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	$	23,111	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	$	6,225	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	$	1,044	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	$	1,977	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	$	2,077	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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

•

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 $1,405 million and $848 million, respectively, as of September 30, 2022. 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.

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,

non-U.S.

government, 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 $287 million as of September 30, 2022.

•

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 $2,838 million as of September 30, 2022.

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.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Limited partnerships.

The fair value of limited partnerships classified as Level 3 is determined based on third-party valuation sources that utilize unobservable inputs, such as a reference to public market or private transactions, valuations for comparable companies or assets, discounted cash flows and/or recent transactions.

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.

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, 2022, 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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

primary inputs into the valuation represent the forward interest rate swap curve, foreign currency exchange rates, 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, 2022 and December 31, 2021, the impact of

non-performance

risk resulted in a lower fair value of our GMWB liabilities of $37 million and $49 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, 2022, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.

Fixed index annuity and indexed universal life embedded derivatives

We have fixed index annuity and indexed universal life insurance products where interest is credited to the policyholder’s account balance based on equity index changes. This feature is required to be bifurcated as an embedded derivative and recorded at fair value. Fair value is determined using an income approach where the present value of the excess cash flows above the guaranteed cash flows is used to determine the value attributed to the equity index feature. The inputs used in determining the fair value include policyholder behavior (lapses and withdrawals), near-term equity index volatility, expected future interest credited, forward interest rates and an adjustment to the discount rate to incorporate non-performance risk and risk margins. As a result of our assumptions for expected future interest credited being considered significant unobservable inputs, we classify these instruments as Level 3. As expected future interest credited decreases, the value of our embedded derivative liability will decrease. As of September 30, 2022, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2022
(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	$	3,307	$	—	$	3,307	$	—	$	—
State and political subdivisions		2,532		—		2,476		56		—
Non-U.S. government		622		—		620		2		—
U.S. corporate:
Utilities		3,803		—		3,035		768		—
Energy		2,206		—		2,091		115		—
Finance and insurance		7,059		—		6,430		629		—
Consumer—non-cyclical		4,365		—		4,283		82		—
Technology and communications		2,873		—		2,849		24		—
Industrial		1,161		—		1,129		32		—
Capital goods		2,131		—		2,094		37		—
Consumer—cyclical		1,584		—		1,471		113		—
Transportation		1,050		—		997		53		—
Other		330		—		137		193		—

Total U.S. corporate		26,562		—		24,516		2,046		—

Non-U.S. corporate:
Utilities		721		—		446		275		—
Energy		983		—		861		122		—
Finance and insurance		1,958		—		1,835		123		—
Consumer—non-cyclical		557		—		483		74		—
Technology and communications		874		—		849		25		—
Industrial		791		—		745		46		—
Capital goods		532		—		440		92		—
Consumer—cyclical		275		—		200		75		—
Transportation		370		—		349		21		—
Other		886		—		865		21		—

Total non-U.S. corporate		7,947		—		7,073		874		—

Residential mortgage-backed		1,069		—		1,044		25		—
Commercial mortgage-backed		1,989		—		1,977		12		—
Other asset-backed		2,187		—		2,077		110		—

Total fixed maturity securities		46,215		—		43,090		3,125		—

Equity securities		274		189		50		35		—
Limited partnerships		1,707		—		—		24		1,683
Other invested assets:
Derivative assets:
Interest rate swaps		25		—		25		—		—
Foreign currency swaps		32		—		32		—		—
Equity index options		38		—		—		38		—

Total derivative assets		95		—		57		38		—

Short-term investments		2		—		2		—		—

Total other invested assets		97		—		59		38		—

Reinsurance recoverable (2)		18		—		—		18		—
Separate account assets		4,298		4,298		—		—		—

Total assets	$	52,609	$	4,487	$	43,199	$	3,240	$	1,683

(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.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	December 31, 2021
(Amounts in millions)	Total		Level 1		Level 2		Level 3		NAV (1)

Assets
Investments:
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	4,552	$	—	$	4,552	$	—	$	—
State and political subdivisions		3,450		—		3,368		82		—
Non-U.S. government		835		—		833		2		—
U.S. corporate:
Utilities		5,104		—		4,154		950		—
Energy		2,934		—		2,858		76		—
Finance and insurance		8,991		—		8,306		685		—
Consumer—non-cyclical		6,159		—		6,055		104		—
Technology and communications		3,808		—		3,779		29		—
Industrial		1,494		—		1,457		37		—
Capital goods		2,745		—		2,700		45		—
Consumer—cyclical		1,899		—		1,762		137		—
Transportation		1,371		—		1,307		64		—
Other		419		—		165		254		—

Total U.S. corporate		34,924		—		32,543		2,381		—

Non-U.S. corporate:
Utilities		928		—		583		345		—
Energy		1,383		—		1,238		145		—
Finance and insurance		2,432		—		2,272		160		—
Consumer—non-cyclical		743		—		680		63		—
Technology and communications		1,250		—		1,222		28		—
Industrial		1,047		—		954		93		—
Capital goods		705		—		532		173		—
Consumer—cyclical		341		—		265		76		—
Transportation		489		—		436		53		—
Other		1,217		—		1,191		26		—

Total non-U.S. corporate		10,535		—		9,373		1,162		—

Residential mortgage-backed		1,440		—		1,413		27		—
Commercial mortgage-backed		2,584		—		2,568		16		—
Other asset-backed		2,160		—		2,022		138		—

Total fixed maturity securities		60,480		—		56,672		3,808		—

Equity securities		198		101		60		37		—
Limited partnerships		1,462		—		—		26		1,436
Other invested assets:
Derivative assets:
Interest rate swaps		364		—		364		—		—
Foreign currency swaps		6		—		6		—		—
Equity index options		42		—		—		42		—
Other foreign currency contracts		2		—		2		—		—

Total derivative assets		414		—		372		42		—

Short-term investments		26		—		26		—		—

Total other invested assets		440		—		398		42		—

Reinsurance recoverable (2)		19		—		—		19		—
Separate account assets		6,066		6,066		—		—		—

Total assets	$	68,665	$	6,167	$	57,130	$	3,932	$	1,436

(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.


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements		3
	Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021		3
	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021 (Unaudited)		4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021 (Unaudited)		5
	Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2022 and 2021 (Unaudited)		6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (Unaudited)		8
	Notes to Condensed Consolidated Financial Statements (Unaudited)		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		70

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		147

Item 4.	Controls and Procedures		147

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings		148

Item 1A.	Risk Factors		148

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		148

Item 6.	Exhibits		149

Signatures			150


	Three months ended September 30,						Nine months ended September 30,						Classification of gain (loss) recognized in net income
(Amounts in millions)	2022			2021			2022			2021			Classification of gain (loss) recognized in net income
Interest rate swaps	$	—		$	(1	)	$	—		$	2		Net investment gains (losses)
Equity index options		5			—			(2	)		9		Net investment gains (losses)
Financial futures		(34	)		—			(64	)		(102	)	Net investment gains (losses)
GMWB embedded derivatives		22			(4	)		28			103		Net investment gains (losses)
Fixed index annuity embedded derivatives		(5	)		(3	)		18			(21	)	Net investment gains (losses)
Indexed universal life embedded derivatives		4			4			23			17		Net investment gains (losses)

Total derivatives not designated as hedges	$	(8	)	$	(4	)	$	3		$	8


	Beginning balance as of July 1 2022,		Total realized and unrealized gains (losses)																			Ending balance as of September 30, 2022		Total gains (losses) attributable to assets still held
(Amounts in millions)	Beginning balance as of July 1 2022,		Included in net income		Included in OCI			Purchases		Sales			Issuances		Settlements			Transfer into Level 3 (1)		Transfer out of Level 3 (1)		Ending balance as of September 30, 2022		Included in net income		Included in OCI

Fixed maturity securities:
State and political subdivisions	$	63	$	—	$	(7	)	$	—	$	—		$	—	$	—		$	—	$	—	$	56	$	—	$	(8	)
Non-U.S. government		3		—		—			—		(1	)		—		—			—		—		2		—		—
U.S. corporate:
Utilities		810		—		(59	)		23		—			—		(6	)		—		—		768		—		(58	)
Energy		122		—		(6	)		—		—			—		(1	)		—		—		115		—		(6	)
Finance and insurance		654		—		(32	)		16		—			—		(9	)		—		—		629		—		(