10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

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

For the quarterly period ended March 31, 2023

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

For the transition period from

Commission file number

001-32195

GENWORTH FINANCIAL, INC.

(Exact name of registrant as specified in its charter)


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

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

(804)

281-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of

Regulation S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

non-accelerated

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

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

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


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

As of May 1, 2023

477,954,791

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

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)


	March 31, 2023			December 31, 2022
				(As adjusted)

Assets
Investments:
Fixed maturity securities available-for-sale, at fair value (amortized cost of $50,461 and $50,834, respectively, and allowance for credit losses of $15 and $—, respectively, as of March 31, 2023 and December 31, 2022)	$	47,381		$	46,583
Equity securities, at fair value		364			319
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4 as of March 31, 2023 and December 31, 2022)		6,915			7,032
Less: Allowance for credit losses		(24	)		(22	)

Commercial mortgage loans, net		6,891			7,010
Policy loans		2,133			2,139
Limited partnerships		2,456			2,331
Other invested assets		617			566

Total investments		59,842			58,948
Cash, cash equivalents and restricted cash		1,752			1,799
Accrued investment income		700			643
Deferred acquisition costs		2,150			2,211
Intangible assets		203			203
Reinsurance recoverable		19,606			19,059
Less: Allowance for credit losses		(64	)		(63	)

Reinsurance recoverable, net		19,542			18,996
Other assets		478			488
Deferred tax asset		2,004			1,968
Market risk benefit assets		28			26
Separate account assets		4,479			4,417

Total assets	$	91,178		$	89,699

Liabilities and equity
Liabilities:
Future policy benefits	$	57,558		$	55,349
Policyholder account balances		16,202			16,564
Market risk benefit liabilities		761			748
Liability for policy and contract claims		665			683
Unearned premiums		189			203
Other liabilities		1,492			1,675
Long-term borrowings		1,600			1,611
Separate account liabilities		4,479			4,417
Liabilities related to discontinued operations		7			8

Total liabilities		82,953			81,258

Commitments and contingencies

Equity:
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 603 million and 600 million shares issued as of March 31, 2023 and December 31, 2022, respectively; 487 million and 495 million shares outstanding as of March 31, 2023 and December 31, 2022, respectively		1			1
Additional paid-in capital		11,863			11,869
Accumulated other comprehensive income (loss)		(2,858	)		(2,617	)
Retained earnings		1,259			1,197
Treasury stock, at cost (116 million and 105 million shares as of March 31, 2023 and December 31, 2022, respectively)		(2,833	)		(2,764	)

Total Genworth Financial, Inc.’s stockholders’ equity		7,432			7,686
Noncontrolling interests		793			755

Total equity		8,225			8,441

Total liabilities and equity	$	91,178		$	89,699

See Notes to Condensed Consolidated Financial Statements

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GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in millions, except per share

amounts

)

(Unaudited)


	Three months ended March 31,
	2023			2022
				(As adjusted)

Revenues:
Premiums	$	915		$	917
Net investment income		787			764
Net investment gains (losses)		(11	)		42
Policy fees and other income		163			170

Total revenues		1,854			1,893

Benefits and expenses:
Benefits and other changes in policy reserves		1,172			1,165
Liability remeasurement (gains) losses		22			(41	)
Changes in fair value of market risk benefits and associated hedges		17			(41	)
Interest credited		126			125
Acquisition and operating expenses, net of deferrals		283			280
Amortization of deferred acquisition costs and intangibles		72			88
Interest expense		29			26

Total benefits and expenses		1,721			1,602

Income from continuing operations before income taxes		133			291
Provision for income taxes		39			68

Income from continuing operations		94			223
Loss from discontinued operations, net of taxes		—			(2	)

Net income		94			221
Less: net income from continuing operations attributable to noncontrolling interests		32			30
Less: net income from discontinued operations attributable to noncontrolling interests		—			—

Net income available to Genworth Financial, Inc.’s common stockholders	$	62		$	191

Net income available to Genworth Financial, Inc.’s common stockholders:
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	62		$	193
Loss from discontinued operations available to Genworth Financial, Inc.’s common stockholders		—			(2	)

Net income available to Genworth Financial, Inc.’s common stockholders	$	62		$	191

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.13		$	0.38

Diluted	$	0.12		$	0.37

Net income available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.13		$	0.38

Diluted	$	0.12		$	0.37

Weighted-average common shares outstanding:
Basic		492.3			508.3

Diluted		500.1			517.4

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 March 31, 2023
	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, 2022 (as adjusted)	$	1	$	11,869		$	(2,617	)	$	1,197	$	(2,764	)	$	7,686		$	755		$	8,441
Repurchase of subsidiary shares		—		—			—			—		—			—			(4	)		(4	)
Comprehensive income (loss):
Net income		—		—			—			62		—			62			32			94
Other comprehensive income (loss), net of taxes		—		—			(241	)		—		—			(241	)		12			(229	)

Total comprehensive income (loss)															(179	)		44			(135	)
Treasury stock acquired in connection with share repurchases		—		—			—			—		(69	)		(69	)		—			(69	)
Dividends to noncontrolling interests		—		—			—			—		—			—			(4	)		(4	)
Stock-based compensation expense and exercises and other		—		(6	)		—			—		—			(6	)		2			(4	)

Balances as of March 31, 2023	$	1	$	11,863		$	(2,858	)	$	1,259	$	(2,833	)	$	7,432		$	793		$	8,225



	Three months ended March 31, 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 (as adjusted)	$	1	$	11,858		$	(5,881	)	$	199	$	(2,700	)	$	3,477		$	756		$	4,233
Comprehensive income (loss):
Net income		—		—			—			191		—			191			30			221
Other comprehensive income (loss), net of taxes		—		—			1,317			—		—			1,317			(41	)		1,276

Total comprehensive income (loss)															1,508			(11	)		1,497
Stock-based compensation expense and exercises and other		—		(1	)		—			—		—			(1	)		—			(1	)

Balances as of March 31, 2022 (as adjusted)	$	1	$	11,857		$	(4,564	)	$	390	$	(2,700	)	$	4,984		$	745		$	5,729

See Notes to Condensed Consolidated Financial Statements

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GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Three months ended March 31,
	2023			2022
				(As adjusted)

Cash flows from (used by) operating activities:
Net income	$	94		$	221
Less loss from discontinued operations, net of taxes		—			2
Adjustments to reconcile net income to net cash from (used by) operating activities:
Amortization of fixed maturity securities discounts and premiums		(25	)		(34	)
Net investment (gains) losses		11			(42	)
Changes in fair value of market risk benefits and associated hedges		17			(41	)
Charges assessed to policyholders		(144	)		(146	)
Acquisition costs deferred		(2	)		(4	)
Amortization of deferred acquisition costs and intangibles		72			88
Deferred income taxes		37			67
Derivative instruments, limited partnerships and other		(84	)		(105	)
Stock-based compensation expense		15			10
Change in certain assets and liabilities:
Accrued investment income and other assets		(73	)		(45	)
Insurance reserves		273			290
Current tax liabilities		2			—
Other liabilities, policy and contract claims and other policy-related balances		(175	)		(323	)
Cash used by operating activities—discontinued operations		(1	)		(30	)

Net cash from (used by) operating activities		17			(92	)

Cash flows from (used by) investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		613			730
Commercial mortgage loans		154			115
Limited partnerships and other invested assets		31			51
Proceeds from sales of investments:
Fixed maturity and equity securities		441			581
Purchases and originations of investments:
Fixed maturity and equity securities		(685	)		(969	)
Commercial mortgage loans		(37	)		(197	)
Limited partnerships and other invested assets		(164	)		(137	)
Short-term investments, net		1			(50	)
Policy loans, net		10			14

Net cash from investing activities		364			138

Cash flows from (used by) financing activities:
Deposits to universal life and investment contracts		148			159
Withdrawals from universal life and investment contracts		(491	)		(418	)
Repayment and repurchase of long-term debt		(11	)		(82	)
Repurchase of subsidiary shares		(4	)		—
Treasury stock acquired in connection with share repurchases		(68	)		—
Dividends paid to noncontrolling interests		(4	)		—
Other, net		2			15

Net cash used by financing activities		(428	)		(326	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		—			—

Net change in cash, cash equivalents and restricted cash		(47	)		(280	)
Cash, cash equivalents and restricted cash at beginning of period		1,799			1,571

Cash, cash equivalents and restricted cash at end of period		1,752			1,291
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	$	1,752		$	1,291

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 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 public holding company that it had formed. The new public holding company was incorporated in Delaware on December

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 (“VIEs”), 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.

Beginning in the first quarter of 2023, we changed our operating segments to better align with how we manage our business. The changes allow us to sharpen our focus on common aspects of products within each segment and enhance understanding of business performance. All prior period financial information has been

re-presented

to reflect the reorganized segment reporting structure. Under the new reporting structure, 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”).

•

Long-Term Care Insurance

. Through our principal U.S. life insurance subsidiaries, we offer long-term care insurance products in the United States. Long-term care insurance products are intended to protect against the significant and escalating costs of long-term care services provided in the insured’s home or assisted living or nursing facilities.

•

Life and Annuities.

We service a variety of protection and retirement income products through our principal U.S. life insurance subsidiaries that are not actively marketed or sold. These products include traditional life insurance (term, universal and term universal life insurance as well as corporate-owned life insurance and funding agreements), fixed annuities and variable annuities, which include variable life insurance.

In addition to our three operating segments, we also have Corporate and Other which includes 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, such as certain international businesses and discontinued operations. Corporate and Other also includes

start-up

results related to

fee-based

services, care support and advice, clinical assessments and consulting offered by CareScout LLC (“CareScout”) to advance our senior care growth initiatives.

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

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

U.S. Securities and Exchange Commission (“SEC”). Preparing financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. These unaudited condensed consolidated financial statements include all adjustments (including normal recurring adjustments) considered necessary by management to present a fair statement of the financial position, results of operations and cash flows for the periods presented. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2022 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 three months ended March 31, 2023, Genworth Financial repurchased 11,224,848 shares of its common stock at an average price of $6.08 per share for a total cost of $69 million, including excise taxes and other 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 sheets. Genworth Financial also authorized share repurchases through a Rule

10b5-1

trading plan under which 9,121,315 shares of its common stock were repurchased during April 2023 at an average price of $5.48 per share for a total cost of $50 million before excise taxes, leaving approximately $168

million that may yet be purchased under the share repurchase program. Under the program, share repurchases may be made at Genworth’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 share repurchase program will depend on a variety of factors, including Genworth Financial’s stock price and trading volume, and general business and market conditions, among other factors. The authorization has no expiration date and may be modified, suspended or terminated at any time.

(2) Accounting Changes

Accounting Pronouncements Recently Adopted

On January 1, 2023, we adopted new accounting guidance that significantly changed the recognition and measurement of long-duration insurance contracts, commonly known as long-duration targeted improvements (“LDTI”). This new accounting guidance directly impacted deferred acquisition costs (“DAC”), intangible assets and insurance assets and liabilities in our U.S. life insurance companies, and also significantly increased our disclosure requirements. While the new guidance has had a significant impact on existing U.S. GAAP financial statements and disclosures, it does not impact the cash flows or underlying economics of the business, business strategy, statutory net income (loss), risk-based capital of our U.S. life insurance companies, management of capital or our Enact segment and Corporate and Other.

We adopted this new accounting guidance using the modified retrospective transition method for all topics except for market risk benefits (“MRBs”), which was required to be applied using the retrospective transition method. The modified retrospective transition method generally results in applying the guidance to contracts on the basis of existing carrying values as of January 1, 2021 (the “Transition Date”). The new accounting guidance, for all topics, was applied as of the Transition Date with an adjustment to beginning retained earnings and accumulated other comprehensive income (loss). In addition, prior period financial information has been re-presented in accordance with the new accounting standard. As of the Transition Date, we decreased total

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

stockholders’ equity by $13.7 billion

after-tax.

The total decrease to stockholders’ equity included a reduction to retained earnings of $2.2 billion and a reduction in accumulated other comprehensive income (loss) of $11.5 billion. Our long-term care insurance business was the most significantly impacted from the adoption due to the requirement to remeasure the liability for future policy benefits and related reinsurance recoverables at the

single-A

bond rate as of the Transition Date, which at that time was materially lower than the

locked-in

discount rate. Refer to note 3 for further information about the cumulative effect adjustment recorded upon adoption of this new accounting guidance.

As a result of adopting this new accounting guidance, our insurance assets and liabilities have been sensitive to movements in interest rates, which will likely result in continued volatility to our stockholders’ equity. Refer to note 19 for additional detail related to the impact changes in interest rates have had on our accumulated other comprehensive income (loss) resulting from updating the discount rate used to measure the liability for future policy benefits and related reinsurance recoverables.

The key areas of change introduced by the adoption of LDTI and the related effect to our accounting policies are summarized in the table below. Less significant accounting policy changes from adopting LDTI are not included in the table below.


Key Area Impacted	Change to Accounting Policy	Policy Elections and Other Significant Matters
DAC and balances amortized on a basis consistent with DAC, including intangible assets and cost of reinsurance	DAC associated with long-duration insurance contracts is grouped into cohorts consistent with groupings used to estimate the related liability for future policy benefits and is amortized on a constant level basis over the expected contract term, which approximates straight-line. Assumptions used to amortize DAC are consistent with the assumptions used to estimate the liability for future policy benefits. Revised assumptions are recognized prospectively over the remaining term of the related contract. DAC and balances amortized on a basis consistent with DAC are no longer subject to impairment, shadow adjustments or recoverability testing; however, present value of future profits (“PVFP”) is still assessed for recoverability in connection with premium deficiency testing.	The constant level basis we use to amortize DAC by product is as follows: • long-term care insurance—total life count • life insurance—face amount • fixed and variable annuities—policy count We apply the amortization rate at the beginning of the current reporting period, which reflects assumption updates, if applicable, and actual experience through the end of the current reporting period. We have elected to amortize intangible assets associated with investment contracts, such as PVFP, in a manner consistent with DAC. Cost of reinsurance is deferred and amortized in a manner consistent with DAC over the terms of the related reinsurance treaties.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Key Area Impacted	Change to Accounting Policy	Policy Elections and Other Significant Matters
MRBs, which include contracts or contract features that protect the policyholder’s account balance and expose the insurer to other-than-nominal capital market risk, such as guaranteed minimum death benefits (“GMDBs”), guaranteed minimum withdrawal benefits (“GMWBs”) and guaranteed payout annuity floor benefits (“GPAFs”)	MRBs are measured at fair value with changes related to instrument-specific credit risk recorded as a separate component in accumulated other comprehensive income (loss) and remaining changes recorded in net income (loss).	For additional details, see notes 7 and 13.

Liability for future policy benefits—level of aggregation	For the purpose of calculating the net premium ratio used to measure the liability for future policy benefits, long-duration insurance contracts are grouped into annual cohorts on the basis of original contract issue date. For acquired contracts, the acquisition date is considered the original contract issue date. The net premium ratio for long-duration traditional and limited payment contracts is the ratio of expected benefits less the existing carrying value of reserves to gross premiums.	Traditional and limited-payment long-duration insurance contracts are generally grouped into annual calendar-year cohorts based on the contract issue date, product type and company. Limited-payment contracts are grouped into cohorts separately from other traditional products and riders are combined with the associated base policies. Certain products may also be grouped by acquisition date for acquired contracts and reinsurance treaty effective date for reinsurance recoverables.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Key Area Impacted	Change to Accounting Policy	Policy Elections and Other Significant Matters
Liability for future policy benefits—cash flow assumptions	All cash flow assumptions used to estimate the liability for future policy benefits (including health care experience, policyholder persistency or lapses (i.e., the probability that a policy or contract will remain in-force from one period to the next), insured mortality (i.e., life expectancy or longevity) and insured morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates)) are 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 are recorded using a retrospective approach with a cumulative catch-up adjustment by recalculating the net premium ratio (which is capped at 100%) using actual historical and updated future cash flow assumptions. The liability for future policy benefits is recalculated using the revised net premium ratio and locked-in discount rate as of the beginning of the current reporting period and compared to the carrying amount as of the beginning of the current reporting period using the previous net premium ratio and locked-in discount rate, with any difference recorded as a remeasurement gain (loss). Cash flow assumptions no longer reflect a provision for adverse deviation, and the premium deficiency test and shadow adjustments are eliminated.	We calculate a single liability for future policy benefits and therefore, all cash flows, including benefit payments (such as claims in course of settlement and incurred claims) are aggregated. As a result, our U.S. life insurance companies elected to combine their previously disclosed liability for policy and contract claims, excluding amounts related to certain life and annuity products not subject to the new accounting guidance, within the liability for future policy benefits and present the aggregate liability as one line item in our condensed consolidated balance sheets. Cash flow assumptions will be formally reviewed and updated as necessary based on experience studies in the fourth quarter each year. We elected to update the net premium ratio quarterly for actual versus expected experience; therefore, during interim reporting periods we will replace forecasted cash flow assumptions with actual cash flows with any difference recorded in net income (loss). We made an entity-wide election not to update our expense assumptions and therefore, these assumptions remain locked-in at the time of the Transition Date or if issued after the Transition Date, at the time of contract inception.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Key Area Impacted	Change to Accounting Policy	Policy Elections and Other Significant Matters
Liability for future policy benefits—discount rate assumptions	The liability for future policy benefits is measured using two different discount rates, a current discount rate and a locked-in discount rate. The current discount rate is used to remeasure the liability for future policy benefits recorded in the condensed consolidated balance sheets and is a current upper-medium grade fixed-income instrument yield, commonly interpreted to be a single-A rated bond rate, with the same duration as the corresponding liability. The locked-in discount rate is used to determine the amounts recorded to net income (loss) and is held constant for the purpose of calculating the net premium ratio and interest accretion. The difference between the liability measured using the locked-in rate and the liability measured using the current rate is recorded in accumulated other comprehensive income (loss). For policies in-force prior to the Transition Date, the locked-in discount rate is equal to the discount rate in effect immediately before the Transition Date. For contracts issued on or after the Transition Date, the locked-in discount rate is a single-A rated bond rate identified at inception of the contract.	The methodology used to determine the current discount rate assumption maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. The current discount rate assumption is based on a single-A curve published by a market data service. For cash flows projected beyond the observable curve, we use estimation techniques consistent with Level 3 fair value measurements as defined in note 2—Summary of Significant Accounting Policies included in the Notes to Consolidated Financial Statements in our 2022 Annual Report on Form 10-K to interpolate from the last observable rate to an estimated ultimate long-term rate. For contracts issued on or after the Transition Date, the locked-in discount rate for each issue-year cohort is determined as a single discount rate, using the weighted-average monthly single-A fixed-income forward curves over the current calendar year.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Key Area Impacted	Change to Accounting Policy	Policy Elections and Other Significant Matters
Liability for future policy benefits—deferred profit liability	A deferred profit liability is established for limited-payment products at the time of contract issuance for any amount of gross premiums received in excess of net premiums, which is amortized into net income (loss) in proportion to insurance in-force for life insurance products and expected future benefit payments for fixed annuity products. Cash flow assumptions related to the deferred profit liability are consistent with the assumptions used to estimate the related liability for future policy benefits and are updated at the same time. The deferred profit liability is recalculated using updated cash flow assumptions as of the beginning of the current reporting period and compared to the current carrying amount as of the beginning of the current reporting period, with any difference recorded in net income (loss).

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Key Area Impacted	Change to Accounting Policy	Policy Elections and Other Significant Matters
Policyholder account balances—additional insurance liabilities	Additional insurance liabilities are established for guarantees or certain product features not classified as MRBs or embedded derivatives. The calculation of additional insurance liabilities includes investment performance. Therefore, the impacts from net unrealized investment gains and losses on available for-sale investment securities backing additional insurance liabilities are required to be analyzed, as if those unrealized investment gains and losses were realized. These “shadow adjustments” result in the recognition of unrealized gains and losses on additional insurance liabilities in a manner consistent with unrealized gains and losses on available-for-sale investment securities, which are recorded in accumulated other comprehensive income (loss).	Annual premium deficiency testing is still required to be performed for our universal and term universal life insurance products.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the condensed consolidated balance sheet as of December 31, 2022 reflecting the impact of adopting LDTI on January 1, 2023:


				Effect of adopting LDTI
(Amounts in millions)	As originally reported			Eliminate shadow adjustments			Changes in measurement of assets and liabilities			Change in discount rate			Recognize MRBs			As adjusted


Assets
Total investments	$	58,948		$	—		$	—		$	—		$	—		$	58,948
Cash, cash equivalents and restricted cash		1,799			—			—			—			—			1,799
Accrued investment income		643			—			—			—			—			643
Deferred acquisition costs		2,200			(40	)		51			—			—			2,211
Intangible assets		241			(8	)		(30	)		—			—			203
Reinsurance recoverable		16,495			—			1,180			1,470			(86	)		19,059
Less: Allowance for credit losses		(60	)		—			(3	)		—			—			(63	)

Reinsurance recoverable, net		16,435			—			1,177			1,470			(86	)		18,996
Other assets		415			—			(89	)		—			162			488
Deferred tax asset		1,344			(5	)		488			110			31			1,968
Market risk benefit assets		—			—			—			—			26			26
Separate account assets		4,417			—			—			—			—			4,417

Total assets	$	86,442		$	(53	)	$	1,597		$	1,580		$	133		$	89,699

Liabilities and equity
Liabilities:
Future policy benefits	$	38,064		$	(5	)	$	15,303		$	1,987		$	—		$	55,349
Policyholder account balances		17,113			(67	)		20			—			(502	)		16,564
Market risk benefit liabilities		—			—			—			—			748			748
Liability for policy and contract claims		12,234			—			(11,551	)		—			—			683
Unearned premiums		584			—			(381	)		—			—			203
Other liabilities		1,672			—			—			—			3			1,675
Long-term borrowings		1,611			—			—			—			—			1,611
Separate account liabilities		4,417			—			—			—			—			4,417
Liabilities related to discontinued operations		8			—			—			—			—			8

Total liabilities		75,703			(72	)		3,391			1,987			249			81,258

Commitments and contingencies

Equity:
Class A common stock		1			—			—			—			—			1
Additional paid-in capital		11,869			—			—			—			—			11,869
Accumulated other comprehensive income (loss)		(2,220	)		19			—			(407	)		(9	)		(2,617	)
Retained earnings		3,098			—			(1,794	)		—			(107	)		1,197
Treasury stock, at cost		(2,764	)		—			—			—			—			(2,764	)

Total Genworth Financial, Inc.’s stockholders’ equity		9,984			19			(1,794	)		(407	)		(116	)		7,686
Noncontrolling interests		755			—			—			—			—			755

Total equity		10,739			19			(1,794	)		(407	)		(116	)		8,441

Total liabilities and equity	$	86,442		$	(53	)	$	1,597		$	1,580		$	133		$	89,699

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the condensed consolidated statement of income for the three months ended March 31, 2022 reflecting the impact of adopting LDTI on January 1, 2023:


				Effect of adopting LDTI
(Amounts in millions)	As originally reported			Change in amortization			Changes in measurement of insurance liabilities			Remeasurement (gains) losses			Change in MRBs			As adjusted

Revenues:
Premiums	$	931		$	—		$	(14	)	$	—		$	—		$	917
Net investment income		764			—			—			—			—			764
Net investment gains (losses)		28			—			—			—			14			42
Policy fees and other income		169			(5	)		—			—			6			170

Total revenues		1,892			(5	)		(14	)		—			20			1,893

Benefits and expenses:
Benefits and other changes in policy reserves		1,139			(5	)		34			—			(3	)		1,165
Liability remeasurement (gains) losses		—			—			—			(41	)		—			(41	)
Changes in fair value of market risk benefits and associated hedges		—			—			—			—			(41	)		(41	)
Interest credited		125			—			—			—			—			125
Acquisition and operating expenses, net of deferrals		271			—			9			—			—			280
Amortization of deferred acquisition costs and intangibles		92			(4	)		—			—			—			88
Interest expense		26			—			—			—			—			26

Total benefits and expenses		1,653			(9	)		43			(41	)		(44	)		1,602

Income from continuing operations before income taxes		239			4			(57	)		41			64			291
Provision for income taxes		58			1			(13	)		9			13			68

Income from continuing operations		181			3			(44	)		32			51			223
Loss from discontinued operations, net of taxes		(2	)		—			—			—			—			(2	)

Net income		179			3			(44	)		32			51			221
Less: net income from continuing operations attributable to noncontrolling interests		30			—			—			—			—			30
Less: net income from discontinued operations attributable to noncontrolling interests		—			—			—			—			—			—

Net income available to Genworth Financial, Inc.’s common stockholders	$	149		$	3		$	(44	)	$	32		$	51		$	191

Net income (loss) available to Genworth Financial, Inc.’s common stockholders:
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	151		$	3		$	(44	)	$	32		$	51		$	193
Loss from discontinued operations available to Genworth Financial, Inc.’s common stockholders		(2	)		—			—			—			—			(2	)

Net income available to Genworth Financial, Inc.’s common stockholders	$	149		$	3		$	(44	)	$	32		$	51		$	191

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.30														$	0.38

Diluted	$	0.29														$	0.37

Net income available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.29														$	0.38

Diluted	$	0.29														$	0.37

Weighted-average common shares outstanding:
Basic		508.3															508.3

Diluted		517.4															517.4

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the cash flows from (used by) operating activities for the three months ended March 31, 2022 reflecting the impact of adopting LDTI on January 1, 2023:


				Effect of adopting LDTI
(Amounts in millions)	As originally reported			Change in amortization			Changes in measurement of insurance liabilities			Remeasurement (gains) losses			Change in MRBs			As adjusted


Cash flows from (used by) operating activities:
Net income	$	179		$	3		$	(44	)	$	32		$	51		$	221
Less loss from discontinued operations, net of taxes		2			—			—			—			—			2
Adjustments to reconcile net income to net cash used by operating activities:
Amortization of fixed maturity securities discounts and premiums		(34	)		—			—			—			—			(34	)
Net investment (gains) losses		(28	)		—			—			—			(14	)		(42	)
Changes in fair value of market risk benefits and associated hedges		—			—			—			—			(41	)		(41	)
Charges assessed to policyholders		(150	)		—			4			—			—			(146	)
Acquisition costs deferred		(2	)		—			(2	)		—			—			(4	)
Amortization of deferred acquisition costs and intangibles		92			(4	)		—			—			—			88
Deferred income taxes		57			1			(13	)		9			13			67
Derivative instruments, limited partnerships and other		(105	)		—			—			—			—			(105	)
Stock-based compensation expense		10			—			—			—			—			10
Change in certain assets and liabilities:
Accrued investment income and other assets		(43	)		—			(2	)		—			—			(45	)
Insurance reserves		249			—			91			(41	)		(9	)		290
Other liabilities, policy and contract claims and other policy-related balances		(289	)		—			(34	)		—			—			(323	)
Cash used by operating activities—discontinued operations		(30	)		—			—			—			—			(30	)

Net cash used by operating activities	$	(92	)	$	—		$	—		$	—		$	—		$	(92	)

Accounting Pronouncements Not Yet Adopted

In June 2022, the Financial Accounting Standards Board 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)

(3) Long-Duration Insurance Contracts Targeted Improvements

Transition Disclosures

On January 1, 2023, we adopted LDTI using the modified retrospective method for all topics except for MRBs, which was adopted using the retrospective method, as of January 1, 2021 or the Transition Date. When applying the new accounting guidance for MRBs, hindsight was applied where necessary to determine actuarial assumptions for MRBs primarily associated with variable annuities for certain older blocks of business issued before 2003 and certain small runoff blocks of business as observable data was not available. The modified retrospective approach for DAC and balances amortized on a basis consistent with DAC was applied before MRBs were retrospectively measured and, as a result, the historical DAC balances were carried over as of the Transition Date. In addition, we included rollforwards of activity for the year ended December 31, 2021 for DAC, PVFP, the liability for future policy benefits, policyholder account balances, additional insurance liabilities, MRBs and separate account liabilities in notes 8, 9, 10, 11, 12, 13 and 14, respectively, to provide additional information related to comparative post-transition impacts in the year of

adoption only.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the balances of and changes in the condensed consolidated balance sheet on January 1, 2021 from the adoption of LDTI:


				Effect of adopting LDTI
(Amounts in millions)	Balances as of December 31, 2020 (as reported)			Eliminate shadow adjustments			Changes in measurement of assets and liabilities			Change in discount rate			Recognize MRBs			Balances as of January 1, 2021 (as adjusted)
Assets
Total investments	$	74,701		$	—		$	—		$	—		$	—		$	74,701
Cash, cash equivalents and restricted cash		2,561			—			—			—			—			2,561
Accrued investment income		655			—			—			—			—			655
Deferred acquisition costs		1,487			1,322			—			—			—			2,809
Intangible assets		157			114			—			—			—			271
Reinsurance recoverable		16,864			—			1,214			10,149			(92	)		28,135
Less: Allowance for credit losses		(45	)		—			—			—			—			(45	)

Reinsurance recoverable, net		16,819			—			1,214			10,149			(92	)		28,090
Other assets		404			—			(89	)		—			248			563
Deferred tax asset		65			(1,515	)		481			4,629			105			3,765
Market risk benefit assets		—			—			—			—			22			22
Separate account assets		6,081			—			—			—			—			6,081
Assets related to discontinued operations		2,817			—			—			—			—			2,817

Total assets	$	105,747		$	(79	)	$	1,606		$	14,778		$	283		$	122,335

Liabilities and equity
Liabilities:
Future policy benefits	$	42,695		$	(4,456	)	$	14,581		$	31,916		$	—		$	84,736
Policyholder account balances		21,503			(1,229	)		—			—			(641	)		19,633
Market risk benefit liabilities		—			—			—			—			1,310			1,310
Liability for policy and contract claims		11,486			—			(10,725	)		—			—			761
Unearned premiums		775			—			(468	)		—			—			307
Other liabilities		1,614			—			—			—			4			1,618
Long-term borrowings		3,403			—			—			—			—			3,403
Separate account liabilities		6,081			—			—			—			—			6,081
Liabilities related to discontinued operations		2,370			—			—			—			—			2,370

Total liabilities		89,927			(5,685	)		3,388			31,916			673			120,219

Commitments and contingencies

Equity:
Class A common stock		1			—			—			—			—			1
Additional paid-in capital		12,008			—			—			—			—			12,008
Accumulated other comprehensive income (loss)		4,425			5,606			—			(17,138	)		(19	)		(7,126	)
Retained earnings		1,584			—			(1,782	)		—			(371	)		(569	)
Treasury stock, at cost		(2,700	)		—			—			—			—			(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity		15,318			5,606			(1,782	)		(17,138	)		(390	)		1,614
Noncontrolling interests		502			—			—			—			—			502

Total equity		15,820			5,606			(1,782	)		(17,138	)		(390	)		2,116

Total liabilities and equity	$	105,747		$	(79	)	$	1,606		$	14,778		$	283		$	122,335

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the components of the transition adjustments within stockholders’ equity as of January 1, 2021 from the adoption of LDTI:


(Amounts in millions)	Accumulated other comprehensive income (loss)			Retained earnings			Total stockholders’ equity
Deferred acquisition costs	$	1,322		$	—		$	1,322
Intangible assets		114			—			114
Reinsurance recoverable		10,149			1,201			11,350
Other assets		—			156			156
Future policy benefits		(27,460	)		(3,464	)		(30,924	)
Policyholder account balances		1,229			—			1,229
Market risk benefits, net		(24	)		(623	)		(647	)
Other liabilities		—			(4	)		(4	)
Deferred taxes		3,119			581			3,700

Total	$	(11,551	)	$	(2,153	)	$	(13,704	)

The cumulative effect adjustment recorded to accumulated other comprehensive income (loss) for DAC, intangible assets and the liability for policyholder account balances represents the elimination of previously recorded shadow adjustments related to unrealized gains and losses.

The cumulative effect adjustment recorded to accumulated other comprehensive income (loss) for the liability for future policy benefits and reinsurance recoverables relates to the higher discount rate in effect immediately prior to adoption compared to the lower single-A rated bond rate as of the Transition Date, partially offset by the elimination of previously recorded shadow adjustments related to unrealized gains and losses. The cumulative effect adjustment recorded to retained earnings for the liability for future policy benefits and reinsurance recoverables relates to cohorts with net premium ratios capped at

100

and single premium fixed payout annuity products with remeasured liability balances in excess of the carryover reserve. Net premium ratios are capped at 100% when gross premiums plus the existing carrying value of reserves immediately before the Transition Date are insufficient to cover actual or expected policy and contract benefits at the cohort level. A significant number of issue-year cohorts in our long-term care insurance business were capped at 100%. These cohorts are mostly comprised of older blocks, and due to the age of the policies, do not benefit from future in-force rate actions due to limited remaining premium paying periods. Additionally, due to the requirement to group policies by issue-year cohorts, future in-force rate actions related to policies issued in more profitable years cannot subsidize loss generating policies issued in earlier years.

The cumulative effect adjustment recorded to accumulated other comprehensive income (loss) for our net MRB liability relates to the cumulative effect of changes in the instrument-specific credit risk between the contract issue date and January 1, 2021. The difference between the fair value and the carrying amount of MRBs as of January 1, 2021, excluding the amounts recorded in accumulated other comprehensive income (loss), was recorded as a cumulative effect adjustment to retained earnings. Transition adjustments related to the recognition of reinsured MRBs is reflected as other assets and other liabilities.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the balances of and changes in deferred acquisition costs on January 1, 2021 from the adoption of LDTI:


(Amounts in millions)	Long-term care insurance		Life insurance		Fixed annuities		Variable annuities		Total
Balances as of December 31, 2020	$	—	$	1,316	$	3	$	139	$	1,458
Adjustment for removal of related balances in accumulated other comprehensive income (loss)		1,043		185		82		12		1,322

Adjusted balances as of January 1, 2021	$	1,043	$	1,501	$	85	$	151		2,780

Enact segment										29

Total deferred acquisition costs as of January 1, 2021									$	2,809

The following table summarizes the balances of and changes in intangible assets, including present value of future profits and deferred sales inducements, on January 1, 2021 from the adoption of LDTI:


(Amounts in millions)	Life insurance		Fixed annuities		Variable annuities		Total
Balances as of December 31, 2020	$	73	$	7	$	3	$	83
Adjustment for removal of related balance in accumulated other comprehensive income (loss)		81		33		—		114

Adjusted balances as of January 1, 2021	$	154	$	40	$	3	$	197

The following table summarizes the balances of and changes in the liability for future policy benefits on January 1, 2021 from the adoption of LDTI:


(Amounts in millions)	Long-term care insurance			Life insurance			Fixed annuities			Total
Balances as of December 31, 2020	$	28,770		$	2,101		$	11,824		$	42,695
Reclassify liability for policy and contract claims, unearned premiums and due premiums (1)		10,918			189			10			11,117
Change in discount rate assumptions		24,276			361			7,279			31,916
Change in cash flow assumptions (2)		3,246			(2	)		264			3,508
Change in cash flow assumptions, effect of increase (decrease) of the deferred profit liability (2)		(173	)		—			129			(44	)
Adjustment for removal of related balances in accumulated other comprehensive income (loss)		(3,716	)		—			(740	)		(4,456	)

Adjusted balances as of January 1, 2021		63,321			2,649			18,766			84,736
Less: reinsurance recoverable		11,476			834			13,699			26,009

Adjusted balances as of January 1, 2021, net of reinsurance	$	51,845		$	1,815		$	5,067		$	58,727

(1)

Upon adopting LDTI, we elected to combine our previously disclosed liability for policy and contract claims, unearned premiums and due premiums, excluding amounts related to mortgage insurance and certain life and annuity products not subject to the new accounting guidance, within the liability for future policy benefits and present the aggregate liability as one line item in our condensed consolidated balance sheets.

(2)

For limited-payment contracts, if the remeasured liability for future policy benefits under LDTI is (less) greater than the carrying value immediately before the Transition Date, the deferred profit liability is increased (decreased) with a corresponding (decrease) increase to the liability for future policy benefits.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the balances of and changes in the net liability position for MRBs on January 1, 2021 from the adoption of LDTI:


(Amounts in millions)	Fixed index annuities		Variable annuities		Total
Balances as of December 31, 2020	$	71	$	570	$	641
Adjustment for the difference between carrying amount and fair value, except for the difference due to instrument-specific credit risk		39		584		623
Adjustment for the cumulative effect of changes in the instrument-specific credit risk since issuance		5		19		24

Total adjustment for the difference between carrying amount and fair value		44		603		647

Adjusted balances as of January 1, 2021		115		1,173		1,288
Less: reinsurance recoverable		—		244		244

Adjusted balances as of January 1, 2021, net of reinsurance	$	115	$	929	$	1,044

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GENW

ORTH

FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(4) Earnings Per Share

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


	Three months ended March 31,
(Amounts in millions, except per share amounts)	2023		2022
Weighted-average common shares used in basic earnings per share calculations		492.3		508.3
Potentially dilutive securities:
Stock options, restricted stock units and other equity-based awards		7.8		9.1

Weighted-average common shares used in diluted earnings per share calculations		500.1		517.4

Income from continuing operations:
Income from continuing operations	$	94	$	223
Less: net income from continuing operations attributable to noncontrolling interests		32		30

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	62	$	193

Basic per share	$	0.13	$	0.38

Diluted per share	$	0.12	$	0.37

Loss from discontinued operations:
Loss from discontinued operations, net of taxes	$	—	$	(2	)
Less: net income from discontinued operations attributable to noncontrolling interests		—		—

Loss from discontinued operations available to Genworth Financial, Inc.’s common stockholders	$	—	$	(2	)

Basic per share	$	—	$	—

Diluted per share	$	—	$	—

Net income:
Income from continuing operations	$	94	$	223
Loss from discontinued operations, net of taxes		—		(2	)

Net income		94		221
Less: net income attributable to noncontrolling interests		32		30

Net income available to Genworth Financial, Inc.’s common stockholders	$	62	$	191

Basic per share	$	0.13	$	0.38

Diluted per share	$	0.12	$	0.37

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(5) Investments

(a) Net Investment Income

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


	Three months ended March 31,
(Amounts in millions)	2023			2022
Fixed maturity securities—taxable	$	561		$	580
Fixed maturity securities—non-taxable		1			1
Equity securities		2			2
Commercial mortgage loans		76			81
Policy loans		55			50
Limited partnerships		28			7
Other invested assets		68			63
Cash, cash equivalents, restricted cash and short-term investments		18			—

Gross investment income before expenses and fees		809			784
Expenses and fees		(22	)		(20	)

Net investment income	$	787		$	764

(b) Net Investment Gains (Losses)

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


	Three months ended March 31,
(Amounts in millions)	2023			2022


Realized investment gains (losses):
Available-for-sale fixed maturity securities:
Realized gains	$	3		$	10
Realized losses		(19	)		(18	)

Net realized gains (losses) on available-for-sale fixed maturity securities		(16	)		(8	)
Net realized gains (losses) on equity securities sold		—			—
Net realized gains (losses) on limited partnerships		—			—

Total net realized investment gains (losses)		(16	)		(8	)

Net change in allowance for credit losses on available-for-sale fixed maturity securities		(15	)		—
Write-down of available-for-sale fixed maturity securities (1)		—			(2	)
Net unrealized gains (losses) on equity securities still held		11			(6	)
Net unrealized gains (losses) on limited partnerships		—			35
Commercial mortgage loans		(2	)		1
Derivative instruments (2)		12			19
Other		(1	)		3

Net investment gains (losses)	$	(11	)	$	42

(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 6 for additional information on the impact of derivative instruments included in net investment gains (losses).

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

See Note 2—Summary

of Significant Accounting Policies included in the Notes to Consolidated Financial Statements in our 2022 Annual Report on Form 10-K for a discussion of our policy for evaluating and measuring the allowance for credit losses related to our available-for-sale fixed maturity securities.

The following table represents the allowance for credit losses aggregated by security type for available-for-sale fixed maturity investments as of and for the three months ended March 31, 2023:


(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:
U.S. corporate	$	—	$	9	$	—	$	—	$	—	$	—	$	—	$	9
Commercial mortgage-backed		—		6		—		—		—		—		—		6

Total available-for-sale fixed maturity securities	$	—	$	15	$	—	$	—	$	—	$	—	$	—	$	15

There was no allowance for credit losses related to our

available-for-sale

fixed maturity securities as of and for the three months ended March 31, 2022.

Net unrealized gains and losses on

available-for-sale

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


(Amounts in millions)	March 31, 2023			December 31, 2022
Net unrealized gains (losses) on fixed maturity securities without an allowance for credit losses (1)	$	(3,058	)	$	(4,251	)
Net unrealized gains (losses) on fixed maturity securities with an allowance for credit losses (1)		(7	)		—
Adjustments to policyholder contract balances		49			68
Income taxes, net		457			705

Net unrealized investment gains (losses)		(2,559	)		(3,478	)
Less: net unrealized investment gains (losses) attributable to noncontrolling interests		(59	)		(71	)

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	$	(2,500	)	$	(3,407	)

(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 and for the three months ended March 31:


(Amounts in millions)	2023			2022
Beginning balance	$	(3,407	)	$	6,077
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on fixed maturity securities		1,170			(5,130	)
Adjustments to policyholder contract balances		(19	)		83
Provision for income taxes		(245	)		1,074

Change in unrealized gains (losses) on investment securities		906			(3,973	)
Reclassification adjustments to net investment (gains) losses, net of taxes of $(3) and $(2)		13			6

Change in net unrealized investment gains (losses)		919			(3,967	)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		12			(41	)

Ending balance	$	(2,500	)	$	2,151

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

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(d) Fixed Maturity Securities

As of March 31, 2023, 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	$	3,417	$	141	$	(117	)	$	—		$	3,441
State and political subdivisions		2,635		32		(264	)		—			2,403
Non-U.S. government		711		15		(96	)		—			630
U.S. corporate:
Utilities		4,373		91		(375	)		—			4,089
Energy		2,431		46		(178	)		—			2,299
Finance and insurance		8,067		77		(784	)		(6	)		7,354
Consumer—non-cyclical		4,733		132		(306	)		—			4,559
Technology and communications		3,259		60		(281	)		—			3,038
Industrial		1,329		21		(105	)		—			1,245
Capital goods		2,275		62		(142	)		—			2,195
Consumer—cyclical		1,777		25		(128	)		(3	)		1,671
Transportation		1,149		39		(76	)		—			1,112
Other		321		5		(16	)		—			310

Total U.S. corporate		29,714		558		(2,391	)		(9	)		27,872

Non-U.S. corporate:
Utilities		812		—		(66	)		—			746
Energy		1,018		27		(55	)		—			990
Finance and insurance		2,099		39		(179	)		—			1,959
Consumer—non-cyclical		654		4		(69	)		—			589
Technology and communications		995		10		(83	)		—			922
Industrial		898		16		(60	)		—			854
Capital goods		577		7		(47	)		—			537
Consumer—cyclical		242		1		(21	)		—			222
Transportation		393		15		(24	)		—			384
Other		885		22		(51	)		—			856

Total non-U.S. corporate		8,573		141		(655	)		—			8,059

Residential mortgage-backed		1,030		12		(57	)		—			985
Commercial mortgage-backed		2,086		2		(251	)		(6	)		1,831
Other asset-backed		2,295		2		(137	)		—			2,160

Total available-for-sale fixed maturity securities	$	50,461	$	903	$	(3,968	)	$	(15	)	$	47,381

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of December 31, 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	$	3,446	$	86	$	(191	)	$	—	$	3,341
State and political subdivisions		2,726		19		(346	)		—		2,399
Non-U.S. government		731		15		(101	)		—		645
U.S. corporate:
Utilities		4,295		50		(447	)		—		3,898
Energy		2,450		33		(221	)		—		2,262
Finance and insurance		8,005		59		(871	)		—		7,193
Consumer—non-cyclical		4,776		84		(403	)		—		4,457
Technology and communications		3,265		43		(361	)		—		2,947
Industrial		1,312		15		(130	)		—		1,197
Capital goods		2,290		41		(193	)		—		2,138
Consumer—cyclical		1,758		14		(155	)		—		1,617
Transportation		1,165		32		(97	)		—		1,100
Other		325		3		(18	)		—		310

Total U.S. corporate		29,641		374		(2,896	)		—		27,119

Non-U.S. corporate:
Utilities		817		—		(77	)		—		740
Energy		1,009		19		(68	)		—		960
Finance and insurance		2,124		30		(208	)		—		1,946
Consumer—non-cyclical		655		1		(90	)		—		566
Technology and communications		997		4		(107	)		—		894
Industrial		880		8		(70	)		—		818
Capital goods		606		3		(63	)		—		546
Consumer—cyclical		308		—		(32	)		—		276
Transportation		392		12		(29	)		—		375
Other		932		15		(58	)		—		889

Total non-U.S. corporate		8,720		92		(802	)		—		8,010

Residential mortgage-backed		1,059		7		(71	)		—		995
Commercial mortgage-backed		2,183		2		(277	)		—		1,908
Other asset-backed		2,328		1		(163	)		—		2,166

Total available-for-sale fixed maturity securities	$	50,834	$	596	$	(4,847	)	$	—	$	46,583

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 March 31, 2023:


	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	$	1,552	$	(113	)		40	$	75	$	(4	)		17	$	1,627	$	(117	)		57
State and political subdivisions		871		(84	)		137		785		(180	)		150		1,656		(264	)		287
Non-U.S. government		171		(9	)		28		313		(87	)		50		484		(96	)		78
U.S. corporate		12,119		(931	)		1,572		7,343		(1,453	)		959		19,462		(2,384	)		2,531
Non-U.S. corporate		3,435		(184	)		431		2,449		(471	)		344		5,884		(655	)		775
Residential mortgage-backed		307		(17	)		95		231		(40	)		74		538		(57	)		169
Commercial mortgage-backed		854		(78	)		112		907		(173	)		151		1,761		(251	)		263
Other asset-backed		681		(17	)		170		1,346		(120	)		256		2,027		(137	)		426

Total for fixed maturity securities in an unrealized loss position	$	19,990	$	(1,433	)		2,585	$	13,449	$	(2,528	)		2,001	$	33,439	$	(3,961	)		4,586

% Below cost:
<20% Below cost	$	19,567	$	(1,309	)		2,536	$	10,090	$	(1,400	)		1,541	$	29,657	$	(2,709	)		4,077
20%-50% Below cost		423		(124	)		49		3,359		(1,128	)		460		3,782		(1,252	)		509

Total for fixed maturity securities in an unrealized loss position	$	19,990	$	(1,433	)		2,585	$	13,449	$	(2,528	)		2,001	$	33,439	$	(3,961	)		4,586

Investment grade	$	19,377	$	(1,399	)		2,506	$	12,475	$	(2,359	)		1,851	$	31,852	$	(3,758	)		4,357
Below investment grade		613		(34	)		79		974		(169	)		150		1,587		(203	)		229

Total for fixed maturity securities in an unrealized loss position	$	19,990	$	(1,433	)		2,585	$	13,449	$	(2,528	)		2,001	$	33,439	$	(3,961	)		4,586

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the gross unrealized losses and fair values of our corporate securities for which an allowance for credit losses has not been recorded, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of March 31, 2023:


	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	$	1,444	$	(154	)		205	$	946	$	(221	)		141	$	2,390	$	(375	)		346
Energy		966		(62	)		141		637		(116	)		80		1,603		(178	)		221
Finance and insurance		3,538		(288	)		463		2,302		(494	)		286		5,840		(782	)		749
Consumer—non-cyclical		1,978		(154	)		215		827		(152	)		101		2,805		(306	)		316
Technology and communications		1,464		(83	)		186		977		(198	)		137		2,441		(281	)		323
Industrial		585		(43	)		69		317		(62	)		43		902		(105	)		112
Capital goods		850		(64	)		108		503		(78	)		62		1,353		(142	)		170
Consumer—cyclical		681		(36	)		109		525		(87	)		67		1,206		(123	)		176
Transportation		498		(43	)		60		221		(33	)		33		719		(76	)		93
Other		115		(4	)		16		88		(12	)		9		203		(16	)		25

Subtotal, U.S. corporate securities		12,119		(931	)		1,572		7,343		(1,453	)		959		19,462		(2,384	)		2,531

Non-U.S. corporate:
Utilities		438		(20	)		44		251		(46	)		29		689		(66	)		73
Energy		358		(14	)		43		229		(41	)		23		587		(55	)		66
Finance and insurance		810		(39	)		128		732		(140	)		103		1,542		(179	)		231
Consumer—non-cyclical		296		(18	)		31		224		(51	)		31		520		(69	)		62
Technology and communications		521		(40	)		58		204		(43	)		36		725		(83	)		94
Industrial		292		(14	)		43		247		(46	)		32		539		(60	)		75
Capital goods		193		(13	)		22		196		(34	)		30		389		(47	)		52
Consumer—cyclical		103		(6	)		11		93		(15	)		18		196		(21	)		29
Transportation		103		(3	)		13		111		(21	)		19		214		(24	)		32
Other		321		(17	)		38		162		(34	)		23		483		(51	)		61

Subtotal, non-U.S. corporate securities		3,435		(184	)		431		2,449		(471	)		344		5,884		(655	)		775

Total for corporate securities in an unrealized loss position	$	15,554	$	(1,115	)		2,003	$	9,792	$	(1,924	)		1,303	$	25,346	$	(3,039	)		3,306

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 increased 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.

The following table presents the gross unrealized losses and fair values of our fixed maturity securities for which an allowance for credit losses had not been recorded, aggregated by investment type and length of time that individual fixed maturity securities had been in a continuous unrealized loss position, as of December 31, 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	$	1,585	$	(189	)		55	$	17	$	(2	)		6	$	1,602	$	(191	)		61
State and political subdivisions		1,559		(269	)		258		261		(77	)		66		1,820		(346	)		324
Non-U.S. government		351		(54	)		59		152		(47	)		23		503		(101	)		82
U.S. corporate		18,480		(2,344	)		2,452		2,001		(552	)		236		20,481		(2,896	)		2,688
Non-U.S. corporate		5,593		(599	)		732		748		(203	)		111		6,341		(802	)		843
Residential mortgage-backed		569		(51	)		192		65		(20	)		22		634		(71	)		214
Commercial mortgage-backed		1,765		(255	)		265		88		(22	)		16		1,853		(277	)		281
Other asset-backed		1,455		(83	)		347		598		(80	)		101		2,053		(163	)		448

Total for fixed maturity securities in an unrealized loss position	$	31,357	$	(3,844	)		4,360	$	3,930	$	(1,003	)		581	$	35,287	$	(4,847	)		4,941

% Below cost:
<20% Below cost	$	27,596	$	(2,587	)		3,835	$	1,819	$	(291	)		310	$	29,415	$	(2,878	)		4,145
20%-50% Below cost		3,757		(1,251	)		523		2,111		(712	)		271		5,868		(1,963	)		794
>50% Below cost		4		(6	)		2		—		—			—		4		(6	)		2

Total for fixed maturity securities in an unrealized loss position	$	31,357	$	(3,844	)		4,360	$	3,930	$	(1,003	)		581	$	35,287	$	(4,847	)		4,941

Investment grade	$	29,959	$	(3,687	)		4,158	$	3,590	$	(915	)		537	$	33,549	$	(4,602	)		4,695
Below investment grade		1,398		(157	)		202		340		(88	)		44		1,738		(245	)		246

Total for fixed maturity securities in an unrealized loss position	$	31,357	$	(3,844	)		4,360	$	3,930	$	(1,003	)		581	$	35,287	$	(4,847	)		4,941

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 had not been recorded, aggregated by investment type and length of time that individual investment securities had been in a continuous unrealized loss position, based on industry, as of December 31, 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	$	2,447	$	(398	)		345	$	187	$	(49	)		37	$	2,634	$	(447	)		382
Energy		1,538		(187	)		226		144		(34	)		14		1,682		(221	)		240
Finance and insurance		5,250		(668	)		696		706		(203	)		74		5,956		(871	)		770
Consumer—non-cyclical		2,805		(342	)		317		201		(61	)		22		3,006		(403	)		339
Technology and communications		2,259		(273	)		304		271		(88	)		32		2,530		(361	)		336
Industrial		829		(105	)		104		110		(25	)		13		939		(130	)		117
Capital goods		1,332		(153	)		169		148		(40	)		16		1,480		(193	)		185
Consumer—cyclical		1,138		(108	)		173		194		(47	)		22		1,332		(155	)		195
Transportation		746		(93	)		95		21		(4	)		5		767		(97	)		100
Other		136		(17	)		23		19		(1	)		1		155		(18	)		24

Subtotal, U.S. corporate securities		18,480		(2,344	)		2,452		2,001		(552	)		236		20,481		(2,896	)		2,688

Non-U.S. corporate:
Utilities		640		(63	)		66		57		(14	)		9		697		(77	)		75
Energy		604		(61	)		69		40		(7	)		5		644		(68	)		74
Finance and insurance		1,310		(122	)		204		296		(86	)		42		1,606		(208	)		246
Consumer—non-cyclical		491		(74	)		56		54		(16	)		11		545		(90	)		67
Technology and communications		740		(96	)		93		39		(11	)		8		779		(107	)		101
Industrial		480		(45	)		71		105		(25	)		13		585		(70	)		84
Capital goods		394		(46	)		52		62		(17	)		6		456		(63	)		58
Consumer—cyclical		241		(28	)		31		23		(4	)		6		264		(32	)		37
Transportation		180		(21	)		26		29		(8	)		5		209		(29	)		31
Other		513		(43	)		64		43		(15	)		6		556		(58	)		70

Subtotal, non-U.S. corporate securities		5,593		(599	)		732		748		(203	)		111		6,341		(802	)		843

Total for corporate securities in an unrealized loss position	$	24,073	$	(2,943	)		3,184	$	2,749	$	(755	)		347	$	26,822	$	(3,698	)		3,531

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The scheduled maturity distribution of fixed maturity securities as of March 31, 2023 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized
(Amounts in millions)	cost or cost		Fair value
Due one year or less	$	1,337	$	1,328
Due after one year through five years		8,543		8,245
Due after five years through ten years		12,640		11,746
Due after ten years		22,530		21,086

Subtotal		45,050		42,405
Residential mortgage-backed		1,030		985
Commercial mortgage-backed		2,086		1,831
Other asset-backed		2,295		2,160

Total	$	50,461	$	47,381

As of March 31, 2023, securities issued by finance and insurance,

consumer—non-cyclical,

utilities and technology and communications industry groups represented approximately 27%, 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 March 31, 2023, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of stockholders’ equity.

(e) Commercial Mortgage Loans

Our mortgage loans are collateralized by commercial properties, including multi-family residential buildings. The carrying value of commercial mortgage loans is stated at original cost net of principal payments, amortization and allowance for credit losses.

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


	March 31, 2023						December 31, 2022
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Property type:
Retail	$	2,855			42	%	$	2,916			42	%
Office		1,549			22			1,579			22
Industrial		1,449			21			1,456			21
Apartments		549			8			561			8
Mixed use		365			5			371			5
Other		148			2			149			2

Subtotal		6,915			100	%		7,032			100	%

Allowance for credit losses		(24	)					(22	)

Total	$	6,891					$	7,010

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	March 31, 2023						December 31, 2022
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total

Geographic region:
South Atlantic	$	1,788			26	%	$	1,809			26	%
Pacific		1,324			19			1,340			19
Mountain		1,013			15			1,023			15
Middle Atlantic		953			14			988			14
West South Central		572			8			578			8
East North Central		448			6			454			6
West North Central		419			6			438			6
East South Central		216			3			218			3
New England		182			3			184			3

Subtotal		6,915			100	%		7,032			100	%

Allowance for credit losses		(24	)					(22	)

Total	$	6,891					$	7,010

As of March 31, 2023 and December 31, 2022, we had no commercial mortgage loans past due or on

non-accrual

status. 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 2022 Annual Report on Form

10-K.

During the three months ended March 31, 2023 and the year ended December 31, 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.

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


	Three months ended March 31,
(Amounts in millions)	2023		2022
Allowance for credit losses:
Beginning balance	$	22	$	26
Provision		2		(1	)
Write-offs		—		—
Recoveries		—		—

Ending balance	$	24	$	25

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

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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 were sold. The debt service coverage ratio is based on “normalized” annual income of the property compared to the payments required under the terms of the loan. Normalization allows for the removal of annual one-time events such as capital expenditures, prepaid or late real estate tax payments or non-recurring third-party fees (such as legal, consulting or contract fees). This ratio is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A higher debt service coverage ratio indicates the borrower is less likely to default on the loan. The debt service coverage ratio is not used without considering other factors associated with the borrower, such as the borrower’s liquidity or access to other resources that may result in our expectation that the borrower will continue to make the future scheduled payments.

The following tables set

forth

commercial mortgage loans by year of origination and credit quality indicator as of March 31, 2023:


(Amounts in millions)	2023		2022		2021		2020		2019		2018 and prior		Total
Debt-to-value:
0% - 50%	$	—	$	41	$	40	$	98	$	119	$	2,068	$	2,366
51% - 60%		—		57		97		68		147		957		1,326
61% - 75%		37		845		785		324		431		765		3,187
76% - 100%		—		—		—		—		8		28		36
Greater than 100%		—		—		—		—		—		—		—

Total amortized cost	$	37	$	943	$	922	$	490	$	705	$	3,818	$	6,915

Debt service coverage ratio:
Less than 1.00	$	—	$	7	$	9	$	6	$	47	$	184	$	253
1.00 - 1.25		14		17		1		16		19		214		281
1.26 - 1.50		9		288		70		65		162		483		1,077
1.51 - 2.00		14		578		610		204		268		1,390		3,064
Greater than 2.00		—		53		232		199		209		1,547		2,240

Total amortized cost	$	37	$	943	$	922	$	490	$	705	$	3,818	$	6,915

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The following tables set forth the

debt-to-value

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


	March 31, 2023
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100%			Total
Property type:
Retail	$	860		$	692		$	1,275		$	28		$	—		$	2,855
Office		462			252			835			—			—			1,549
Industrial		683			203			563			—			—			1,449
Apartments		180			83			278			8			—			549
Mixed use		94			87			184			—			—			365
Other		87			9			52			—			—			148

Total amortized cost	$	2,366		$	1,326		$	3,187		$	36		$	—		$	6,915

% of total		34	%		19	%		46	%		1	%		—	%		100	%

Weighted-average debt service coverage ratio		2.35			1.93			1.62			1.59			—			1.93


	December 31, 2022
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100%			Total
Property type:
Retail	$	907		$	649		$	1,332		$	28		$	—		$	2,916
Office		445			272			848			14			—			1,579
Industrial		668			243			545			—			—			1,456
Apartments		184			90			279			8			—			561
Mixed use		93			79			199			—			—			371
Other		88			9			52			—			—			149

Total amortized cost	$	2,385		$	1,342		$	3,255		$	50		$	—		$	7,032

% of total		34	%		19	%		46	%		1	%		—	%		100	%

Weighted-average debt service coverage ratio		2.35			1.95			1.63			1.34			—			1.93

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


	March 31, 2023
(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	$	87		$	72		$	526		$	1,368		$	802		$	2,855
Office		67			138			154			659			531			1,549
Industrial		19			44			190			582			614			1,449
Apartments		14			11			149			234			141			549
Mixed use		25			14			49			188			89			365
Other		41			2			9			33			63			148

Total amortized cost	$	253		$	281		$	1,077		$	3,064		$	2,240		$	6,915

% of total		4	%		4	%		16	%		44	%		32	%		100	%

Weighted-average debt-to-value		60	%		62	%		63	%		60	%		44	%		55	%


	December 31, 2022
(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	$	88		$	68		$	560		$	1,380		$	820		$	2,916
Office		81			131			155			666			546			1,579
Industrial		20			44			194			574			624			1,456
Apartments		14			11			150			242			144			561
Mixed use		25			16			50			190			90			371
Other		42			2			9			33			63			149

Total amortized cost	$	270		$	272		$	1,118		$	3,085		$	2,287		$	7,032

% of total		4	%		4	%		16	%		44	%		32	%		100	%

Weighted-average debt-to-value		61	%		62	%		63	%		60	%		44	%		56	%

(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 March 31, 2023 and December 31, 2022, the total carrying value of these investments was $2,335 million and $2,230 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.

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(6) Derivative Instruments

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

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


	Derivative assets						Derivative liabilities
			Fair value						Fair value
(Amounts in millions)	Balance sheet classification		March 31, 2023		December 31, 2022		Balance sheet classification		March 31, 2023		December 31, 2022
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps		Other invested assets	$	42	$	24		Other liabilities	$	389	$	522
Foreign currency swaps		Other invested assets		17		20		Other liabilities		1		—

Total cash flow hedges				59		44				390		522

Total derivatives designated as hedges				59		44				390		522

Derivatives not designated as hedges
Equity index options		Other invested assets		10		6		Other liabilities		—		—
Financial futures		Other invested assets		—		—		Other liabilities		—		—
Fixed index annuity embedded derivatives		Other assets		—		—		Policyholder account balances (1)		184		202
Indexed universal life embedded derivatives		Reinsurance recoverable		—		—		Policyholder account balances (2)		15		15

Total derivatives not designated as hedges				10		6				199		217

Total derivatives			$	69	$	50			$	589	$	739

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

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

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

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The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for 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, 2022		Additions		Maturities/ terminations			March 31, 2023
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps		Notional	$	8,542	$	669	$	(42	)	$	9,169
Foreign currency swaps		Notional		144		—		(13	)		131

Total cash flow hedges				8,686		669		(55	)		9,300

Total derivatives designated as hedges				8,686		669		(55	)		9,300

Derivatives not designated as hedges
Equity index options		Notional		936		194		(277	)		853
Financial futures		Notional		1,403		1,478		(1,445	)		1,436

Total derivatives not designated as hedges				2,339		1,672		(1,722	)		2,289

Total derivatives			$	11,025	$	2,341	$	(1,777	)	$	11,589


(Number of policies)	Measurement		December 31, 2022		Additions		Maturities/ terminations			March 31, 2023
Derivatives not designated as hedges
Fixed index annuity embedded derivatives		Policies		7,315		—		(504	)		6,811
Indexed universal life embedded derivatives		Policies		771		—		(6	)		765

Cash Flow Hedges

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

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The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended March 31, 2023:


(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	$	146		$	54			Net investment income	$	—		Net investment gains (losses)
Interest rate swaps hedging assets		—			5			Net investment gains (losses)		—		Net investment gains (losses)
Interest rate swaps hedging liabilities		—			(1	)		Interest expense		—		Net investment gains (losses)
Interest rate swaps hedging liabilities		—			1			Net investment gains (losses)		—		Net investment gains (losses)
Foreign currency swaps		(1	)		—			Net investment income		—		Net investment gains (losses)
Foreign currency swaps		—			2			Net investment gains (losses)		—		Net investment gains (losses)

Total	$	145		$	61				$	—

The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended March 31, 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	$	(250	)	$	55			Net investment income	$	—		Net investment gains (losses)
Interest rate swaps hedging assets		—			2			Net investment gains (losses)		—		Net investment gains (losses)
Interest rate swaps hedging liabilities		—			(1	)		Interest expense		—		Net investment gains (losses)
Foreign currency swaps		(2	)		1			Net investment income		—		Net investment gains (losses)

Total	$	(252	)	$	57				$	—

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


	Three months ended March 31,
(Amounts in millions)	2023			2022
Derivatives qualifying as effective accounting hedges as of January 1	$	1,200		$	2,025
Current period increases (decreases) in fair value, net of deferred taxes of $(31) and $53		114			(199	)
Reclassification to net (income), net of deferred taxes of $21 and $20		(40	)		(37	)

Derivatives qualifying as effective accounting hedges as of March 31	$	1,274		$	1,789

The total of derivatives designated as cash flow hedges of $1,274 million, net of taxes, recorded in stockholders’ equity as of March 31, 2023 is expected to be reclassified to net income (loss) in the future, concurrently with and primarily offsetting changes in interest expense and interest income on floating rate instruments and interest income on future fixed rate bond purchases. Of this amount, $143 million, net of taxes, is expected to be reclassified to net income (loss) in the next 12 months. Actual amounts may vary from this amount as a result of market conditions. All forecasted transactions associated with qualifying cash flow hedges are expected to occur by 2057. During the three months ended March 31, 2023 and 2022, we reclassified $5 million and $3 million, respectively, to net income in connection with forecasted transactions that were no longer considered probable of occurring.

Derivatives Not Designated As Hedges

We enter into certain

non-qualifying

derivative instruments such as equity index options and financial futures to mitigate the risks associated with liabilities that have guaranteed minimum benefits, fixed index annuities and indexed universal life. Additionally, our fixed index annuity and indexed universal life insurance products with certain features are required to be bifurcated as embedded derivatives.

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


	Three months ended March 31,						Classification of gain (loss) recognized in net income
(Amounts in millions)	2023			2022			Classification of gain (loss) recognized in net income
Equity index options	$	1		$	(6	)		Net investment gains (losses)
Financial futures		(2	)		(47	)		Changes in fair value of market risk benefits and associated hedges
Fixed index annuity embedded derivatives		(2	)		12			Net investment gains (losses)
Indexed universal life embedded derivatives		5			11			Net investment gains (losses)

Total derivatives not designated as hedges	$	2		$	(30	)

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Derivative Counterparty Credit Risk

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


	March 31, 2023									December 31, 2022
(Amounts in millions)	Derivative assets (1)			Derivative liabilities (1)			Net derivatives			Derivative assets (1)			Derivative liabilities (1)			Net derivatives
Amounts presented in the balance sheet:
Gross amounts recognized	$	69		$	390		$	(321	)	$	50		$	522		$	(472	)
Gross amounts offset in the balance sheet		—			—			—			—			—			—

Net amounts presented in the balance sheet		69			390			(321	)		50			522			(472	)
Gross amounts not offset in the balance sheet:
Financial instruments (2)		(33	)		(33	)		—			(25	)		(25	)		—
Collateral received		(26	)		—			(26	)		(21	)		—			(21	)
Collateral pledged		—			(1,023	)		1,023			—			(1,095	)		1,095
Over collateralization		—			666			(666	)		—			598			(598	)

Net amount	$	10		$	—		$	10		$	4		$	—		$	4

(1)	Does not include amounts related to embedded derivatives as of March 31, 2023 and December 31, 2022.

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

(7) 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, MRBs 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 is 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. These valuation techniques may change from period to period, based on the relevance and availability of market data.

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

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

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

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

For private fixed maturity securities, we utilize an income approach where we obtain public bond spreads and utilize those in an internal model to determine fair value. Other inputs to the model include rating and weighted-average life, as well as sector which is used to assign the spread. We then add an additional premium, which represents an unobservable input, to the public bond spread to adjust for the liquidity and other features of our private placements. We utilize the estimated market yield to discount the expected cash flows of the security to determine fair value. We utilize price caps for securities where the estimated market yield results in a valuation that may exceed the amount that would be received in a market transaction. When a security does not have an external rating, we assign the security an internal rating to determine the appropriate public bond spread that should be utilized in the valuation. While we generally consider the public bond spreads by sector and maturity to be observable inputs, we evaluate the similarities of our private placement with the public bonds, any price caps utilized, liquidity premiums applied, and whether external ratings are available for our private placements to determine whether the spreads utilized would be considered observable inputs. We classify private securities without an external rating or public bond spread as Level 3. In general, a significant increase (decrease) in credit spreads would have resulted in a significant decrease (increase) in the fair value for our fixed maturity securities as of March 31, 2023.

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.

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A summary of the inputs used for our financial instruments carried at fair value 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, 89% of our portfolio was priced using third-party pricing services as of March 31, 2023. These pricing services utilize industry-standard valuation techniques that include market-based approaches, income-based approaches, a combination of market-based and income-based approaches or other proprietary, internally generated models as part of the valuation processes. These third-party pricing vendors maximize the use of publicly available data inputs to generate valuations for each asset class. Priority and type of inputs used may change frequently as certain inputs may be more direct drivers of valuation at the time of pricing. Examples of significant inputs incorporated by pricing services may include sector and issuer spreads, seasoning, capital structure, security optionality, collateral data, prepayment assumptions, default assumptions, delinquencies, debt covenants, benchmark yields, trade data, dealer quotes, credit ratings, maturity and weighted-average life. We conduct regular meetings with our pricing services for the purpose of understanding the methodologies, techniques and inputs used by the third-party pricing providers.

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The following table presents a summary of the significant inputs used by our pricing services for certain fair value measurements of fixed maturity securities that are classified as Level 2 as of March 31, 2023:


(Amounts in millions)	Fair value		Primary methodologies	Significant inputs
U.S. government, agencies and government-sponsored enterprises	$	3,441	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	$	2,344	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	$	630	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	$	24,240	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	$	6,419	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	$	977	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	$	1,819	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	$	2,065	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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GENWORTH FINANCIAL, INC.

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 $1,517 million and $813 million, respectively, as of March 31, 2023. 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, 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 $229 million as of March 31, 2023.

•

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 $2,887 million as of March 31, 2023.

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.

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.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

Market risk benefits

MRBs are contracts or contract features that provide protection to the contractholder from other-than-nominal capital market risk while exposing us to other-than-nominal capital market risk. MRBs include certain contract features on fixed and variable annuity products that provide minimum guarantees, in addition to the policyholder account balance, such as GMDBs, GMWBs and GPAFs. MRBs are measured at fair value using an income-based valuation model based on current net amounts at risk, market data, experience and other factors. See note 2 for a discussion of our policy for recording changes in fair value of MRBs.

MRB assets and liabilities for minimum guarantees are valued and presented separately from the related separate account and policyholder account balances.

Fixed index annuities

The valuation of fixed index annuities MRBs, which includes GMWB features, is based on an income approach that incorporates inputs such as policyholder behavior (GMWB withdrawal utilization, lapses and mortality), 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. Our discount rate used to determine fair value of our fixed index annuities MRBs includes market credit spreads above U.S. Treasury rates to reflect an adjustment for the non-performance risk of the fixed index annuities MRBs. We determine fair value using an internal model based on the various inputs noted above. As a result of our assumptions for GMWB withdrawal utilization, expected future interest credited and non-performance risk being considered significant unobservable inputs, we classify these instruments as Level 3. As expected future interest credited decreases or GMWB withdrawal utilization increases, the value of our fixed index annuities MRB liability will increase. Any increase in non-performance risk would increase the discount rate and would decrease the fair value of the liability. As of March 31, 2023, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement. Refer to note 13 for additional details related to the changes in the fair value measurement of fixed index annuities MRBs as of March 31, 2023 and 2022.

Variable annuities

The valuation of our variable annuities MRBs, which includes GMWB, GMDB and GPAF features, is based on an income approach that incorporates inputs such as policyholder behavior (GMWB withdrawal utilization, lapses and mortality), equity index volatility, interest rates, equity index and fund correlation and an adjustment to the discount rate to incorporate non-performance risk and risk margins. Our discount rate used to determine fair value of our variable annuities MRBs includes market credit spreads above U.S. Treasury rates to reflect an adjustment for the non-performance risk of the variable annuities MRBs. We determine fair value using an internal model based on the various inputs noted above. We classify the variable annuities MRBs valuation as Level 3 based on having significant unobservable inputs, with policyholder behavior (GMWB withdrawal utilization and lapses), equity index volatility and non-performance risk being considered the more significant unobservable inputs. As equity index volatility increases, the fair value of the variable annuities MRBs will

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

increase. An increase in our lapse assumption would decrease the fair value of the variable annuities MRBs, whereas an increase in our GMWB withdrawal utilization rate would increase the fair value. Any increase in non-performance risk would increase the discount rate and would decrease the fair value of the liability. As of March 31, 2023, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement. Refer to note 13 for additional details related to the changes in the fair value measurement of variable annuities MRBs as of March 31, 2023 and 2022.

Derivatives

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

Interest rate swaps.

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

Foreign currency swaps.

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

Equity index options.

We have equity index options associated with various equity indices. The valuation of equity index options is determined using an income approach. The primary inputs into the valuation represent forward interest rates, equity index volatility, equity index and time value component associated with the optionality in the derivative. The equity index volatility surface is determined based on market information that is not readily observable and is developed based upon inputs received from several third-party sources. Accordingly, these options are classified as Level 3. As of March 31, 2023, 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 previously had certain foreign currency options classified as other foreign currency contracts. The valuation of foreign currency options was determined using an income approach. The primary inputs into the valuation represented 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 resulted in the derivative being classified as Level 2. We also had foreign currency forward contracts where the valuation

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

was determined using an income approach. The primary inputs into the valuation represented the forward foreign currency exchange rates, which are generally considered observable inputs and resulted in the derivative being classified as Level 2.

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 March 31, 2023, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.

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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:


	March 31, 2023
(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	$	3,441	$	—	$	3,441	$	—	$	—
State and political subdivisions		2,403		—		2,344		59		—
Non-U.S. government		630		—		630		—		—
U.S. corporate:
Utilities		4,089		—		3,230		859		—
Energy		2,299		—		2,184		115		—
Finance and insurance		7,354		—		6,657		697		—
Consumer—non-cyclical		4,559		—		4,490		69		—
Technology and communications		3,038		—		3,026		12		—
Industrial		1,245		—		1,223		22		—
Capital goods		2,195		—


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements		3
	Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 (Unaudited)		3
	Condensed Consolidated Statements of Income for the three months ended March 31, 2023 and 2022 (Unaudited)		4
	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022 (Unaudited)		5
	Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2023 and 2022 (Unaudited)		6
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited)		7
	Notes to Condensed Consolidated Financial Statements (Unaudited)		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		92

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		140

Item 4.	Controls and Procedures		141

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings		142

Item 1A.	Risk Factors		142

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		142

Item 6.	Exhibits		143

Signatures			144