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 June 30, 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 August 3, 2023, 463,087,315 shares of Class A Common Stock, par value $0.001 per share, were outstanding.

Table of Contents

TABLE OF CONTENTS


PART I—FINANCIAL INFORMATION		Page
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 (Unaudited)	3
	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2023 and 2022 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2023 and 2022 (Unaudited)	5
	Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 30, 2023 and 2022 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	99
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	159
Item 4.	Controls and Procedures	160

PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	161
Item 1A.	Risk Factors	161
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	161
Item 5.	Other Information	161
Item 6.	Exhibits	162
Signatures		163

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)


	June 30, 2023			December 31, 2022
				(As adjusted)
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value (amortized cost of $49,864 and $50,834, respectively, and allowance for credit losses of $4 and $—, respectively, as of June 30, 2023 and December 31, 2022)	$	46,070		$	46,583
Equity securities, at fair value		378			319
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4 as of June 30, 2023 and December 31, 2022)		6,876			7,032
Less: Allowance for credit losses		(24	)		(22	)

Commercial mortgage loans, net		6,852			7,010
Policy loans		2,270			2,139
Limited partnerships		2,585			2,331
Other invested assets		648			566

Total investments		58,803			58,948
Cash, cash equivalents and restricted cash		2,173			1,799
Accrued investment income		553			643
Deferred acquisition costs		2,096			2,211
Intangible assets		201			203
Reinsurance recoverable		19,113			19,059
Less: Allowance for credit losses		(64	)		(63	)

Reinsurance recoverable, net		19,049			18,996
Other assets		445			488
Deferred tax asset		1,954			1,983
Market risk benefit assets		37			26
Separate account assets		4,533			4,417

Total assets	$	89,844		$	89,714

Liabilities and equity
Liabilities:
Future policy benefits	$	56,443		$	55,407
Policyholder account balances		15,922			16,564
Market risk benefit liabilities		666			748
Liability for policy and contract claims		628			683
Unearned premiums		175			203
Other liabilities		1,607			1,687
Long-term borrowings		1,601			1,611
Separate account liabilities		4,533			4,417
Liabilities related to discontinued operations		2			8

Total liabilities		81,577			81,328

Commitments and contingencies (Note 18)
Equity:
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 603 million and 600 million shares issued as of June 30, 2023 and December 31, 2022, respectively; 467 million and 495 million shares outstanding as of June 30, 2023 and December 31, 2022, respectively		1			1
Additional paid-in capital		11,869			11,869
Accumulated other comprehensive income (loss)		(2,861	)		(2,614	)
Retained earnings		1,398			1,139
Treasury stock, at cost (136 million and 105 million shares as of June 30, 2023 and December 31, 2022, respectively)		(2,947	)		(2,764	)

Total Genworth Financial, Inc.’s stockholders’ equity		7,460			7,631
Noncontrolling interests		807			755

Total equity		8,267			8,386

Total liabilities and equity	$	89,844		$	89,714

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 June 30,						Six months ended June 30,
	2023			2022			2023			2022
				(As Adjusted)						(As Adjusted)
Revenues:
Premiums	$	902		$	916		$	1,817		$	1,833
Net investment income		785			787			1,572			1,551
Net investment gains (losses)		39			19			28			61
Policy fees and other income		166			165			329			335

Total revenues		1,892			1,887			3,746			3,780

Benefits and expenses:
Benefits and other changes in policy reserves		1,175			768			2,351			1,935
Liability remeasurement (gains) losses		70			24			55			(40	)
Changes in fair value of market risk benefits and associated hedges		(19	)		20			(2	)		(21	)
Interest credited		126			126			252			251
Acquisition and operating expenses, net of deferrals		226			579			466			815
Amortization of deferred acquisition costs and intangibles		64			84			136			172
Interest expense		29			26			58			52

Total benefits and expenses		1,671			1,627			3,316			3,164

Income from continuing operations before income taxes		221			260			430			616
Provision for income taxes		55			62			110			146

Income from continuing operations		166			198			320			470
Income (loss) from discontinued operations, net of taxes		2			(1	)		2			(3	)

Net income		168			197			322			467
Less: net income from continuing operations attributable to noncontrolling interests		31			38			63			68
Less: net income from discontinued operations attributable to noncontrolling interests		—			—			—			—

Net income available to Genworth Financial, Inc.’s common stockholders	$	137		$	159		$	259		$	399

Net income available to Genworth Financial, Inc.’s common stockholders:
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	135		$	160		$	257		$	402
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders		2			(1	)		2			(3	)

Net income available to Genworth Financial, Inc.’s common stockholders	$	137		$	159		$	259		$	399

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.28		$	0.32		$	0.53		$	0.79

Diluted	$	0.28		$	0.31		$	0.53		$	0.78

Net income available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	0.29		$	0.31		$	0.54		$	0.79

Diluted	$	0.29		$	0.31		$	0.53		$	0.77

Weighted-average common shares outstanding:
Basic		473.2			508.9			482.7			508.6

Diluted		478.1			514.1			489.1			515.7

See Notes to Condensed Consolidated Financial Statements

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GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022
				(As adjusted)						(As adjusted)
Net income	$	168		$	197		$	322		$	467
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities without an allowance for credit losses		(567	)		(3,697	)		358			(7,664	)
Net unrealized gains (losses) on securities with an allowance for credit losses		6			—			—			—
Derivatives qualifying as hedges		(120	)		(344	)		(46	)		(580	)
Change in discount rate used to measure future policy benefits		664			5,280			(561	)		10,751
Change in instrument-specific credit risk of market risk benefits		—			1			1			3
Foreign currency translation and other adjustments		4			(7	)		8			(12	)

Total other comprehensive income (loss)		(13	)		1,233			(240	)		2,498

Total comprehensive income		155			1,430			82			2,965
Less: comprehensive income (loss) attributable to noncontrolling interests		26			10			70			(1	)

Total comprehensive income available to Genworth Financial, Inc.’s common stockholders	$	129		$	1,420		$	12		$	2,966

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 June 30, 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 March 31, 2023	$	1	$	11,863	$	(2,853	)	$	1,261	$	(2,833	)	$	7,439		$	793		$	8,232
Repurchase of subsidiary shares		—		—		—			—		—			—			(8	)		(8	)
Comprehensive income (loss):
Net income		—		—		—			137		—			137			31			168
Other comprehensive loss, net of taxes		—		—		(8	)		—		—			(8	)		(5	)		(13	)

Total comprehensive income														129			26			155
Treasury stock acquired in connection with share repurchases		—		—		—			—		(114	)		(114	)		—			(114	)
Dividends to noncontrolling interests		—		—		—			—		—			—			(5	)		(5	)
Stock-based compensation expense and exercises and other		—		6		—			—		—			6			1			7

Balances as of June 30, 2023	$	1	$	11,869	$	(2,861	)	$	1,398	$	(2,947	)	$	7,460		$	807		$	8,267


	Three months ended June 30, 2022
	Common stock		Additional paid-in capital		Accumulated other comprehensive income (loss)			Retained earnings		Treasury stock, at cost			Total Genworth Financial, Inc.’s stockholders’ equity			Noncontrolling interests			Total equity
Balances as of March 31, 2022 (as adjusted)	$	1	$	11,857	$	(4,549	)	$	465	$	(2,700	)	$	5,074		$	745		$	5,819
Comprehensive income (loss):
Net income		—		—		—			159		—			159			38			197
Other comprehensive income (loss), net of taxes		—		—		1,261			—		—			1,261			(28	)		1,233

Total comprehensive income														1,420			10			1,430
Treasury stock acquired in connection with share repurchases		—		—		—			—		(15	)		(15	)		—			(15	)
Dividends to noncontrolling interests		—		—		—			—		—			—			(4	)		(4	)
Stock-based compensation expense and exercises and other		—		2		—			—		—			2			—			2

Balances as of June 30, 2022 (as adjusted)	$	1	$	11,859	$	(3,288	)	$	624	$	(2,715	)	$	6,481		$	751		$	7,232

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GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY, CONTINUED

(Amounts in millions)

(Unaudited)


	Six months ended June 30, 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	$	(2,614	)	$	1,139	$	(2,764	)	$	7,631		$	755		$	8,386
Repurchase of subsidiary shares		—		—		—			—		—			—			(12	)		(12	)
Comprehensive income (loss):
Net income		—		—		—			259		—			259			63			322
Other comprehensive income (loss), net of taxes		—		—		(247	)		—		—			(247	)		7			(240	)

Total comprehensive income														12			70			82
Treasury stock acquired in connection with share repurchases		—		—		—			—		(183	)		(183	)		—			(183	)
Dividends to noncontrolling interests		—		—		—			—		—			—			(9	)		(9	)
Stock-based compensation expense and exercises and other		—		—		—			—		—			—			3			3

Balances as of June 30, 2023	$	1	$	11,869	$	(2,861	)	$	1,398	$	(2,947	)	$	7,460		$	807		$	8,267


	Six months ended June 30, 2022
	Common stock		Additional paid-in capital		Accumulated other comprehensive income (loss)			Retained earnings		Treasury stock, at cost			Total Genworth Financial, Inc.’s stockholders’ equity			Noncontrolling interests			Total equity
Balances as of December 31, 2021 (as adjusted)	$	1	$	11,858	$	(5,855	)	$	225	$	(2,700	)	$	3,529		$	756		$	4,285
Comprehensive income (loss):
Net income		—		—		—			399		—			399			68			467
Other comprehensive income (loss), net of taxes		—		—		2,567			—		—			2,567			(69	)		2,498

Total comprehensive income (loss)														2,966			(1	)		2,965
Treasury stock acquired in connection with share repurchases		—		—		—			—		(15	)		(15	)		—			(15	)
Dividends to noncontrolling interests		—		—		—			—		—			—			(4	)		(4	)
Stock-based compensation expense and exercises and other		—		1		—			—		—			1			—			1

Balances as of June 30, 2022 (as adjusted)	$	1	$	11,859	$	(3,288	)	$	624	$	(2,715	)	$	6,481		$	751		$	7,232

See Notes to Condensed Consolidated Financial Statements

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GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Six months ended June 30,
	2023			2022
				(As adjusted)
Cash flows from (used by) operating activities:
Net income	$	322		$	467
Less (income) loss from discontinued operations, net of taxes		(2	)		3
Adjustments to reconcile net income to net cash from operating activities:
Amortization of fixed maturity securities discounts and premiums		(58	)		(84	)
Net investment (gains) losses		(28	)		(61	)
Changes in fair value of market risk benefits and associated hedges		(2	)		(21	)
Charges assessed to policyholders		(291	)		(289	)
Acquisition costs deferred		(4	)		(7	)
Amortization of deferred acquisition costs and intangibles		136			172
Deferred income taxes		107			143
Derivative instruments, limited partnerships and other		(222	)		(163	)
Stock-based compensation expense		25			20
Change in certain assets and liabilities:
Accrued investment income and other assets		(66	)		(71	)
Insurance reserves		525			641
Other liabilities, policy and contract claims and other policy-related balances		(165	)		(382	)
Cash used by operating activities—discontinued operations		(2	)		(31	)

Net cash from operating activities		275			337

Cash flows from (used by) investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		1,144			1,495
Commercial mortgage loans		269			314
Limited partnerships and other invested assets		67			99
Proceeds from sales of investments:
Fixed maturity and equity securities		1,289			1,302
Purchases and originations of investments:
Fixed maturity and equity securities		(1,443	)		(1,800	)
Commercial mortgage loans		(113	)		(568	)
Limited partnerships and other invested assets		(301	)		(297	)
Short-term investments, net		(7	)		(24	)
Policy loans, net		32			14
Other		(20	)		—

Net cash from investing activities		917			535

Cash flows from (used by) financing activities:
Deposits to universal life and investment contracts		303			314
Withdrawals from universal life and investment contracts		(893	)		(779	)
Repayment and repurchase of long-term debt		(11	)		(130	)
Repurchase of subsidiary shares		(12	)		—
Treasury stock acquired in connection with share repurchases		(181	)		(15	)
Dividends paid to noncontrolling interests		(9	)		(4	)
Other, net		(15	)		(105	)

Net cash used by financing activities		(818	)		(719	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		—			—

Net change in cash, cash equivalents and restricted cash		374			153
Cash, cash equivalents and restricted cash at beginning of period		1,799			1,571

Cash, cash equivalents and restricted cash at end of period		2,173			1,724
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	$	2,173		$	1,724

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 5, 2012, in connection with the reorganization, and was renamed Genworth Financial, Inc. (“Genworth Financial”) upon the completion of the reorganization.

The accompanying unaudited condensed financial statements include on a consolidated basis the accounts of Genworth Financial and its affiliate companies in which it holds a majority voting interest or power to direct activities of certain variable interest entities (“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 and non-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 six months ended June 30, 2023, Genworth Financial repurchased 31,771,972 shares of its common stock at an average price of $5.67 per share for a total cost of $183 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 3,703,015 shares of its common stock were repurchased during July 2023 at an average price of $5.40 per share for a total cost of $20 million before excise taxes. On

, 2023, Genworth Financial’s Board of Directors authorized an additional $350 million of share repurchases under the

existing share repurchase

program, increasing the remaining authorized amount under

the

program to approximately $436 million. 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.

Immaterial Correction of Prior Period Financial Statements

In the second quarter of 2023, we corrected the measurement of the liability for future policy benefits for our long-term care insurance products under new accounting guidance for long-duration insurance contracts, commonly known as long-duration targeted improvements (“LDTI”), to include an estimate in our cash flow assumptions for cash payments made to policyholders who elect certain reduced benefit options in connection with legal settlements, referred to herein as settlement payments. The inclusion of an estimate for these settlement payments in the cash flow assumptions used to measure the liability for future policy benefits is consistent with our treatment of benefit reductions related to legal settlements, which are also included in our cash flow assumptions used to measure the liability for future policy benefits under LDTI. Under the revised accounting treatment, actual settlement payments will be reflected in benefits and other changes in policy reserves in our condensed consolidated statements of income. Changes in cash flow assumptions related to the estimate for settlement payments and the impact of actual versus expected experience will be reflected in liability remeasurement (gains) losses in our condensed consolidated statements of income. Estimated fees paid to the class action attorneys are accrued in other liabilities in our condensed consolidated balance sheets in the period the court settlement occurs and are recognized within acquisition and operating expenses, net of deferrals, in our condensed consolidated statements of income.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We have evaluated the effects of the correction on our previously issued financial statements in accordance with accounting guidance issued by the Financial Accounting Standards Board (the “FASB”) related to accounting changes and error corrections and have concluded that the impact of the correction is not material to our condensed consolidated financial statements in any of the prior periods impacted. However, to improve consistency and comparability of the financial statements, we have revised previously reported financial statement line items and related disclosures included herein. Corrections were made to the comparative prior periods presented in our adjusted condensed consolidated financial statements within our March 31, 2023 Form 10-Q and are reflected in the six months ended June 30, 2023 and 2022 results included herein. In addition, comparative prior period amounts in the applicable notes to the condensed consolidated financial statements included herein have been corrected. As LDTI was adopted on January 1, 2023, this correction has no impact to the amounts reported in our previously issued 2022 Annual Report on Form 10-K.

The following table presents the impacted lines of the condensed consolidated balance sheets as of December 31, 2022 and January 1, 2021 (the “Transition Date” for applying LDTI) reflecting the impact of the correction:


	December 31, 2022 (as adjusted)									January 1, 2021 (as adjusted)
(Amounts in millions)	Previously reported			Correction impacts			As corrected			Previously reported			Correction impacts			As corrected
Assets
Deferred tax asset	$	1,968		$	15		$	1,983		$	3,765		$	11		$	3,776
Total assets		89,699			15			89,714			122,335			11			122,346
Liabilities and equity
Liabilities:
Future policy benefits		55,349			58			55,407			84,736			50			84,786
Other liabilities		1,675			12			1,687			1,618			—			1,618
Total liabilities		81,258			70			81,328			120,219			50			120,269
Equity:
Accumulated other comprehensive income (loss)		(2,617	)		3			(2,614	)		(7,126	)		18			(7,108	)
Retained earnings		1,197			(58	)		1,139			(569	)		(57	)		(626	)
Total Genworth Financial, Inc.’s stockholders’ equity		7,686			(55	)		7,631			1,614			(39	)		1,575
Total equity		8,441			(55	)		8,386			2,116			(39	)		2,077
Total liabilities and equity		89,699			15			89,714			122,335			11			122,346

As of December 31, 2021, accumulated other comprehensive income (loss) increased to $(5,855) million and retained earnings increased to $225 million due the correction.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the impacted lines and per share amounts in the condensed consolidated statements of income reflecting the impact of the correction for the three months ended March 31:


	2023 (as adjusted)								2022 (as adjusted)
(Amounts in millions, except per share amounts)	Previously reported		Correction impacts			As corrected			Previously reported			Correction impacts			As corrected
Benefits and other changes in policy reserves	$	1,172	$	4		$	1,176		$	1,165		$	2		$	1,167
Liability remeasurement (gains) losses		22		(37	)		(15	)		(41	)		(23	)		(64	)
Acquisition and operating expenses, net of deferrals		283		(43	)		240			280			(44	)		236
Total benefits and expenses		1,721		(76	)		1,645			1,602			(65	)		1,537
Income from continuing operations before income taxes		133		76			209			291			65			356
Provision for income taxes		39		16			55			68			16			84
Income from continuing operations		94		60			154			223			49			272
Net income		94		60			154			221			49			270
Net income available to Genworth Financial, Inc.’s common stockholders		62		60			122			191			49			240
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:
Basic		0.13		0.12			0.25			0.38			0.10			0.48
Diluted		0.12		0.12			0.24			0.37			0.10			0.47
Net income available to Genworth Financial, Inc.’s common stockholders per share:
Basic		0.13		0.12			0.25			0.38			0.09			0.47
Diluted		0.12		0.12			0.24			0.37			0.09			0.46

As a result of the correction, adjusted

operating

income available to Genworth Financial, Inc.’s common stockholders for our Long-Term Care Insurance segment for the three months ended March 31, 2023 and 2022 increased to $23 million and $73 million, respectively.

(2) Accounting Changes

Accounting Pronouncements Recently Adopted

On January 1, 2023, we adopted LDTI, which significantly changed the recognition and

measurement

of long-duration insurance contracts. 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 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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

with the new accounting standard. As of the Transition Date, we decreased total 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 below table.


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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(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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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), insured morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates), and benefit reductions associated with our long-term care insurance in-force rate actions and legal settlements as well as payments to policyholders electing reduced benefits in connection with legal settlements) 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.

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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.

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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).

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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


(Amounts in millions)	As originally reported			Effect of adopting LDTI			As adjusted
Assets
Deferred acquisition costs	$	2,200		$	11		$	2,211
Intangible assets		241			(38	)		203
Reinsurance recoverable		16,495			2,564			19,059
Less: Allowance for credit losses		(60	)		(3	)		(63	)

Reinsurance recoverable, net		16,435			2,561			18,996
Other assets		415			73			488
Deferred tax asset		1,344			639			1,983
Market risk benefit assets		—			26			26
Total assets		86,442			3,272			89,714
Liabilities and equity
Liabilities:
Future policy benefits		38,064			17,343			55,407
Policyholder account balances		17,113			(549	)		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			15			1,687
Total liabilities		75,703			5,625			81,328
Equity:
Accumulated other comprehensive income (loss)		(2,220	)		(394	)		(2,614	)
Retained earnings		3,098			(1,959	)		1,139
Total Genworth Financial, Inc.’s stockholders’ equity		9,984			(2,353	)		7,631
Total equity		10,739			(2,353	)		8,386
Total liabilities and equity		86,442			3,272			89,714

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the impacted lines of the condensed consolidated statements of income for the three and six months ended June 30, 2022 reflecting the impact of adopting LDTI on January 1, 2023:


	Three months ended June 30, 2022							Six months ended June 30, 2022
(Amounts in millions, except per share amounts)	As originally reported		Effect of adopting LDTI			As adjusted		As originally reported		Effect of adopting LDTI			As adjusted
Revenues:
Premiums	$	927	$	(11	)	$	916	$	1,858	$	(25	)	$	1,833
Net investment gains (losses)		8		11			19		36		25			61
Policy fees and other income		159		6			165		328		7			335
Total revenues		1,881		6			1,887		3,773		7			3,780
Benefits and expenses:
Benefits and other changes in policy reserves		764		4			768		1,903		32			1,935
Liability remeasurement (gains) losses		—		24			24		—		(40	)		(40	)
Changes in fair value of market risk benefits and associated hedges		—		20			20		—		(21	)		(21	)
Interest credited		125		1			126		250		1			251
Acquisition and operating expenses, net of deferrals		589		(10	)		579		860		(45	)		815
Amortization of deferred acquisition costs and intangibles		84		—			84		176		(4	)		172
Total benefits and expenses		1,588		39			1,627		3,241		(77	)		3,164
Income from continuing operations before income taxes		293		(33	)		260		532		84			616
Provision for income taxes		73		(11	)		62		131		15			146
Income from continuing operations		220		(22	)		198		401		69			470
Net income		219		(22	)		197		398		69			467
Net income available to Genworth Financial, Inc.’s common stockholders		181		(22	)		159		330		69			399
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders		182		(22	)		160		333		69			402
Net income available to Genworth Financial, Inc.’s common stockholders		181		(22	)		159		330		69			399
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:
Basic		0.36		(0.04	)		0.32		0.65		0.14			0.79
Diluted		0.36		(0.05	)		0.31		0.65		0.13			0.78
Net income available to Genworth Financial, Inc.’s common stockholders per share:
Basic		0.36		(0.05	)		0.31		0.65		0.14			0.79
Diluted		0.35		(0.04	)		0.31		0.64		0.13			0.77

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the impacted lines of the condensed consolidated statement of cash flows for the six months ended June 30, 2022 reflecting the impact of adopting LDTI on January 1, 2023:


(Amounts in millions)	As originally reported			Effect of adopting LDTI			As adjusted
Cash flows from (used by) operating activities:
Net income	$	398		$	69		$	467
Adjustments to reconcile net income to net cash from operating activities:
Net investment (gains) losses		(36	)		(25	)		(61	)
Changes in fair value of market risk benefits and associated hedges		—			(21	)		(21	)
Charges assessed to policyholders		(292	)		3			(289	)
Acquisition costs deferred		(1	)		(6	)		(7	)
Amortization of deferred acquisition costs and intangibles		176			(4	)		172
Deferred income taxes		128			15			143
Change in certain assets and liabilities:
Accrued investment income and other assets		(70	)		(1	)		(71	)
Insurance reserves		494			147			641
Other liabilities, policy and contract claims and other policy-related balances		(205	)		(177	)		(382	)
Net cash from operating activities		337			—			337

Accounting Pronouncements Not Yet Adopted

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

(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.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In the year of adoption only, we have 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.

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


	Balances as of December 31, 2020 (as reported)			Effect of adopting LDTI												Balances as of January 1, 2021 (as adjusted)
(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	)		497			4,624			105			3,776
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	)	$	1,622		$	14,773		$	283		$	122,346

Liabilities and equity
Liabilities:
Future policy benefits	$	42,695		$	(4,456	)	$	14,654		$	31,893		$	—		$	84,786
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	)		3,461			31,893			673			120,269

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			—			(17,120	)		(19	)		(7,108	)
Retained earnings		1,584			—			(1,839	)		—			(371	)		(626	)
Treasury stock, at cost		(2,700	)		—			—			—			—			(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity		15,318			5,606			(1,839	)		(17,120	)		(390	)		1,575
Noncontrolling interests		502			—			—			—			—			502

Total equity		15,820			5,606			(1,839	)		(17,120	)		(390	)		2,077

Total liabilities and equity	$	105,747		$	(79	)	$	1,622		$	14,773		$	283		$	122,346

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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		(27,437	)		(3,537	)		(30,974	)
Policyholder account balances		1,229			—			1,229
Market risk benefits, net		(24	)		(623	)		(647	)
Other liabilities		—			(4	)		(4	)
Deferred taxes		3,114			597			3,711

Total	$	(11,533	)	$	(2,210	)	$	(13,743	)

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 are insufficient to cover actual or expected policy and contract benefits at the cohort level, as was the case immediately before the Transition Date for a significant number of issue-year cohorts in our long-term care insurance business. 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 are 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 balances 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		24,253			361			7,279			31,893
Change in cash flow assumptions (2)		3,319			(2	)		264			3,581
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		63,371			2,649			18,766			84,786
Less: reinsurance recoverable		11,476			834			13,699			26,009

Adjusted balances as of January 1, 2021, net of reinsurance	$	51,895		$	1,815		$	5,067		$	58,777

(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 indexed 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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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(4) Earnings (Loss) Per Share

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


	Three months ended June 30,					Six months ended June 30,
(Amounts in millions, except per share amounts)	2023		2022			2023		2022
Weighted-average common shares used in basic earnings (loss) per share calculations		473.2		508.9			482.7		508.6
Potentially dilutive securities:
Stock options, restricted stock units and other equity-based awards		4.9		5.2			6.4		7.1

Weighted-average common shares used in diluted earnings (loss) per share calculations		478.1		514.1			489.1		515.7

Income from continuing operations:
Income from continuing operations	$	166	$	198		$	320	$	470
Less: net income from continuing operations attributable to noncontrolling interests		31		38			63		68

Income from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	135	$	160		$	257	$	402

Basic per share	$	0.28	$	0.32		$	0.53	$	0.79

Diluted per share	$	0.28	$	0.31		$	0.53	$	0.78

Income (loss) from discontinued operations:
Income (loss) from discontinued operations, net of taxes	$	2	$	(1	)	$	2	$	(3	)
Less: net income from discontinued operations attributable to noncontrolling interests		—		—			—		—

Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders	$	2	$	(1	)	$	2	$	(3	)

Basic per share	$	0.01	$	—		$	0.01	$	(0.01	)

Diluted per share	$	0.01	$	—		$	0.01	$	(0.01	)

Net income:
Income from continuing operations	$	166	$	198		$	320	$	470
Income (loss) from discontinued operations, net of taxes		2		(1	)		2		(3	)

Net income		168		197			322		467
Less: net income attributable to noncontrolling interests		31		38			63		68

Net income available to Genworth Financial, Inc.’s common stockholders	$	137	$	159		$	259	$	399

Basic per share (1)	$	0.29	$	0.31		$	0.54	$	0.79

Diluted per share (1)	$	0.29	$	0.31		$	0.53	$	0.77

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

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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 June 30,						Six months ended June 30,
(Amounts in millions)	2023			2022			2023			2022
Fixed maturity securities—taxable	$	567		$	578		$	1,128		$	1,158
Fixed maturity securities—non-taxable		1			1			2			2
Equity securities		3			2			5			4
Commercial mortgage loans		75			78			151			159
Policy loans		54			51			109			101
Limited partnerships		17			32			45			39
Other invested assets		70			66			138			129
Cash, cash equivalents, restricted cash and short-term investments		22			1			40			1

Gross investment income before expenses and fees		809			809			1,618			1,593
Expenses and fees		(24	)		(22	)		(46	)		(42	)

Net investment income	$	785		$	787		$	1,572		$	1,551

(b) Net Investment Gains (Losses)

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


	Three months ended June 30,						Six months ended June 30,
(Amounts in millions)	2023			2022			2023			2022
Realized investment gains (losses):
Available-for-sale fixed maturity securities:
Realized gains	$	18		$	5		$	21		$	15
Realized losses		(48	)		(9	)		(67	)		(27	)

Net realized gains (losses) on available-for-sale fixed maturity securities		(30	)		(4	)		(46	)		(12	)
Net realized gains (losses) on equity securities sold		(1	)		—			(1	)		—
Net realized gains (losses) on limited partnerships		—			—			—			—

Total net realized investment gains (losses)		(31	)		(4	)		(47	)		(12	)

Net change in allowance for credit losses on available-for-sale fixed maturity securities		11			—			(4	)		—
Write-down of available-for-sale fixed maturity securities (1)		(1	)		—			(1	)		(2	)
Net unrealized gains (losses) on equity securities still held		21			(26	)		32			(32	)
Net unrealized gains (losses) on limited partnerships		40			24			40			59
Commercial mortgage loans		—			2			(2	)		3
Derivative instruments (2)		(1	)		18			11			37
Other		—			5			(1	)		8

Net investment gains (losses)	$	39		$	19		$	28		$	61

(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 securities as of and for the three months ended June 30, 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	$	—	$	—	$	(7	)	$	—	$	(2	)	$	—	$	—
Commercial mortgage-backed		6		—		—		(2	)		—		—			—		4

Total available-for-sale fixed maturity securities	$	15	$	—	$	—	$	(9	)	$	—	$	(2	)	$	—	$	4

The following table represents the allowance for credit losses aggregated by security type for available-for-sale fixed maturity securities as of and for the six months ended June 30, 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	$	—	$	(7	)	$	—	$	(2	)	$	—	$	—
Commercial mortgage-backed		—		6		—		(2	)		—		—			—		4

Total available-for-sale fixed maturity securities	$	—	$	15	$	—	$	(9	)	$	—	$	(2	)	$	—	$	4

There

was no allowance for credit losses related to our available-for-sale fixed maturity securities as of and for the three and six months ended June 30, 2022.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


(Amounts in millions)	June 30, 2023			December 31, 2022
Net unrealized gains (losses) on fixed maturity securities without an allowance for credit losses	$	(3,790	)	$	(4,251	)
Net unrealized gains (losses) on fixed maturity securities with an allowance for credit losses		—			—
Adjustments to policyholder contract balances		62			68
Income taxes, net		608			705

Net unrealized investment gains (losses)		(3,120	)		(3,478	)
Less: net unrealized investment gains (losses) attributable to noncontrolling interests		(64	)		(71	)

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	$	(3,056	)	$	(3,407	)

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


	Three months ended June 30,						Six months ended June 30,
(Amounts in millions)	2023			2022			2023			2022
Beginning balance	$	(2,500	)	$	2,151		$	(3,407	)	$	6,077
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on fixed maturity securities		(755	)		(4,713	)		415			(9,843	)
Adjustments to policyholder contract balances		13			77			(6	)		160
Provision for income taxes		158			935			(87	)		2,009

Change in unrealized gains (losses) on investment securities		(584	)		(3,701	)		322			(7,674	)
Reclassification adjustments to net investment (gains) losses, net of taxes of $(7), $—, $(10) and $(2)		23			4			36			10

Change in net unrealized investment gains (losses)		(561	)		(3,697	)		358			(7,664	)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		(5	)		(28	)		7			(69	)

Ending balance	$	(3,056	)	$	(1,518	)	$	(3,056	)	$	(1,518	)

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 June 30, 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	$	3,459	$	97	$	(167	)	$	—		$	3,389
State and political subdivisions		2,611		21		(289	)		—			2,343
Non-U.S. government		708		15		(98	)		—			625
U.S. corporate:
Utilities		4,339		49		(424	)		—			3,964
Energy		2,414		36		(202	)		—			2,248
Finance and insurance		7,915		54		(843	)		—			7,126
Consumer—non-cyclical		4,663		94		(347	)		—			4,410
Technology and communications		3,196		49		(311	)		—			2,934
Industrial		1,326		15		(117	)		—			1,224
Capital goods		2,225		44		(162	)		—			2,107
Consumer—cyclical		1,737		16		(139	)		—			1,614
Transportation		1,171		33		(87	)		—			1,117
Other		311		4		(16	)		—			299

Total U.S. corporate		29,297		394		(2,648	)		—			27,043

Non-U.S. corporate:
Utilities		813		—		(78	)		—			735
Energy		1,043		21		(62	)		—			1,002
Finance and insurance		2,054		33		(188	)		—			1,899
Consumer—non-cyclical		666		3		(77	)		—			592
Technology and communications		977		7		(93	)		—			891
Industrial		838		9		(65	)		—			782
Capital goods		602		4		(51	)		—			555
Consumer—cyclical		239		1		(23	)		—			217
Transportation		360		12		(26	)		—			346
Other		859		13		(53	)		—			819

Total non-U.S. corporate		8,451		103		(716	)		—			7,838

Residential mortgage-backed		997		4		(67	)		—			934
Commercial mortgage-backed		1,990		1		(297	)		(4	)		1,690
Other asset-backed		2,351		1		(144	)		—			2,208

Total available-for-sale fixed maturity securities	$	49,864	$	636	$	(4,426	)	$	(4	)	$	46,070

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 June 30, 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	$	1,412	$	(106	)		42	$	329	$	(61	)		36	$	1,741	$	(167	)		78
State and political subdivisions		495		(25	)		77		1,252		(264	)		223		1,747		(289	)		300
Non-U.S. government		123		(3	)		22		387		(95	)		60		510		(98	)		82
U.S. corporate		6,257		(285	)		878		13,764		(2,363	)		1,768		20,021		(2,648	)		2,646
Non-U.S. corporate		1,733		(55	)		226		4,353		(661	)		579		6,086		(716	)		805
Residential mortgage-backed		391		(16	)		160		323		(51	)		98		714		(67	)		258
Commercial mortgage-backed		227		(18	)		32		1,430		(279	)		230		1,657		(297	)		262
Other asset-backed		524		(11	)		147		1,550		(133	)		305		2,074		(144	)		452

Total for fixed maturity securities in an unrealized loss position	$	11,162	$	(519	)		1,584	$	23,388	$	(3,907	)		3,299	$	34,550	$	(4,426	)		4,883

% Below cost:
<20% Below cost	$	11,085	$	(494	)		1,576	$	18,715	$	(2,339	)		2,671	$	29,800	$	(2,833	)		4,247
20%-50% Below cost		77		(25	)		8		4,673		(1,568	)		628		4,750		(1,593	)		636

Total for fixed maturity securities in an unrealized loss position	$	11,162	$	(519	)		1,584	$	23,388	$	(3,907	)		3,299	$	34,550	$	(4,426	)		4,883

Investment grade	$	10,912	$	(514	)		1,558	$	22,108	$	(3,713	)		3,100	$	33,020	$	(4,227	)		4,658
Below investment grade		250		(5	)		26		1,280		(194	)		199		1,530		(199	)		225

Total for fixed maturity securities in an unrealized loss position	$	11,162	$	(519	)		1,584	$	23,388	$	(3,907	)		3,299	$	34,550	$	(4,426	)		4,883

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 June 30, 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	$	883	$	(34	)		115	$	1,817	$	(390	)		270	$	2,700	$	(424	)		385
Energy		429		(21	)		77		1,173		(181	)		152		1,602		(202	)		229
Finance and insurance		1,680		(82	)		254		4,290		(761	)		514		5,970		(843	)		768
Consumer—non-cyclical		907		(51	)		118		1,922		(296	)		214		2,829		(347	)		332
Technology and communications		910		(44	)		117		1,489		(267	)		214		2,399		(311	)		331
Industrial		306		(7	)		30		610		(110	)		82		916		(117	)		112
Capital goods		376		(13	)		59		1,003		(149	)		122		1,379		(162	)		181
Consumer—cyclical		403		(15	)		66		873		(124	)		121		1,276		(139	)		187
Transportation		280		(16	)		30		473		(71	)		66		753		(87	)		96
Other		83		(2	)		12		114		(14	)		13		197		(16	)		25

Subtotal, U.S. corporate securities		6,257		(285	)		878		13,764		(2,363	)		1,768		20,021		(2,648	)		2,646

Non-U.S. corporate:
Utilities		233		(8	)		21		498		(70	)		55		731		(78	)		76
Energy		267		(9	)		32		373		(53	)		42		640		(62	)		74
Finance and insurance		376		(12	)		67		1,162		(176	)		167		1,538		(188	)		234
Consumer—non-cyclical		133		(6	)		16		386		(71	)		47		519		(77	)		63
Technology and communications		199		(6	)		25		548		(87	)		73		747		(93	)		98
Industrial		118		(5	)		23		419		(60	)		56		537		(65	)		79
Capital goods		104		(1	)		11		349		(50	)		47		453		(51	)		58
Consumer—cyclical		61		(2	)		4		140		(21	)		25		201		(23	)		29
Transportation		74		(3	)		10		137		(23	)		22		211		(26	)		32
Other		168		(3	)		17		341		(50	)		45		509		(53	)		62

Subtotal, non-U.S. corporate securities		1,733		(55	)		226		4,353		(661	)		579		6,086		(716	)		805

Total for corporate securities in an unrealized loss position	$	7,990	$	(340	)		1,104	$	18,117	$	(3,024	)		2,347	$	26,107	$	(3,364	)		3,451

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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

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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

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The scheduled maturity distribution of fixed maturity securities as of June 30, 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.


(Amounts in millions)	Amortized cost or cost		Fair value
Due one year or less	$	1,389	$	1,375
Due after one year through five years		8,373		8,000
Due after five years through ten years		12,727		11,662
Due after ten years		22,037		20,201

Subtotal		44,526		41,238
Residential mortgage-backed		997		934
Commercial mortgage-backed		1,990		1,690
Other asset-backed		2,351		2,208

Total	$	49,864	$	46,070

As of June 30, 2023, securities issued by finance and insurance, consumer—non-cyclical, utilities and technology and communications industry groups represented approximately 26%, 14%, 14% 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 June 30, 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:


	June 30, 2023						December 31, 2022
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Property type:
Retail	$	2,859			42	%	$	2,916			42	%
Office		1,516			22			1,579			22
Industrial		1,441			21			1,456			21
Apartments		534			8			561			8
Mixed use		379			5			371			5
Other		147			2			149			2

Subtotal		6,876			100	%		7,032			100	%

Allowance for credit losses		(24	)					(22	)

Total	$	6,852					$	7,010

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	June 30, 2023						December 31, 2022
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Geographic region:
South Atlantic	$	1,782			26	%	$	1,809			26	%
Pacific		1,310			19			1,340			19
Mountain		1,006			15			1,023			15
Middle Atlantic		944			14			988			14
West South Central		566			8			578			8
East North Central		453			6			454			6
West North Central		415			6			438			6
East South Central		213			3			218			3
New England		187			3			184			3

Subtotal		6,876			100	%		7,032			100	%

Allowance for credit losses		(24	)					(22	)

Total	$	6,852					$	7,010

As of June 30, 2023, we had one commercial mortgage loan with an amortized cost of $6 million that was more than 90 days past due and on non-accrual status in the mixed use property type. The carrying value of this commercial mortgage loan was lower than the fair value of its collateral and this loan did not have an allowance for credit losses as of June 30, 2023. As of 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 six months ended June 30, 2023 and 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 June 30,					Six months ended June 30,
(Amounts in millions)	2023		2022			2023		2022
Allowance for credit losses:
Beginning balance	$	24	$	25		$	22	$	26
Provision		—		(3	)		2		(4	)
Write-offs		—		—			—		—
Recoveries		—		1			—		1

Ending balance	$	24	$	23		$	24	$	23

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

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

can be evaluated by reviewing both the debt-to-value and debt service coverage ratio to understand both the probability of the borrower not being able to make the necessary loan payments as well as the ability to sell the underlying property for an amount that would enable us to recover our unpaid principal balance in the event of default by the borrower. The average debt-to-value ratio is based on our most recent estimate of the fair value for the underlying property which is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A lower debt-to-value indicates that our loan value is more likely to be recovered in the event of default by the borrower if the property 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 June 30, 2023:


(Amounts in millions)	2023		2022		2021		2020		2019		2018 and prior		Total
Debt-to-value:
0% - 50%	$	2	$	41	$	40	$	98	$	118	$	2,107	$	2,406
51% - 60%		16		57		131		103		148		887		1,342
61% - 75%		94		841		746		285		427		693		3,086
76% - 100%		—		—		—		—		8		34		42
Greater than 100%		—		—		—		—		—		—		—

Total amortized cost	$	112	$	939	$	917	$	486	$	701	$	3,721	$	6,876

Debt service coverage ratio:
Less than 1.00	$	—	$	7	$	10	$	6	$	46	$	177	$	246
1.00 - 1.25		14		17		—		16		19		198		264
1.26 - 1.50		52		287		69		64		162		465		1,099
1.51 - 2.00		44		575		607		202		266		1,373		3,067
Greater than 2.00		2		53		231		198		208		1,508		2,200

Total amortized cost	$	112	$	939	$	917	$	486	$	701	$	3,721	$	6,876

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	June 30, 2023
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100%			Total
Property type:
Retail	$	902		$	690		$	1,239		$	28		$	—		$	2,859
Office		454			274			788			—			—			1,516
Industrial		694			175			572			—			—			1,441
Apartments		177			91			258			8			—			534
Mixed use		93			103			177			6			—			379
Other		86			9			52			—			—			147

Total amortized cost	$	2,406		$	1,342		$	3,086		$	42		$	—		$	6,876

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

Weighted-average debt service coverage ratio		2.34			1.91			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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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	June 30, 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		$	69		$	557		$	1,356		$	790		$	2,859
Office		60			121			153			656			526			1,516
Industrial		21			43			188			589			600			1,441
Apartments		14			16			143			231			130			534
Mixed use		23			13			49			203			91			379
Other		41			2			9			32			63			147

Total amortized cost	$	246		$	264		$	1,099		$	3,067		$	2,200		$	6,876

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

Weighted-average debt-to-value		59	%		61	%		64	%		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 June 30, 2023 and December 31, 2022, the total carrying value of these investments was $2,454 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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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(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
	Balance sheet classification		Fair value				Balance sheet classification		Fair value
(Amounts in millions)	Balance sheet classification		June 30, 2023		December 31, 2022		Balance sheet classification		June 30, 2023		December 31, 2022
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps		Other invested assets	$	30	$	24		Other liabilities	$	472	$	522
Foreign currency swaps		Other invested assets		16		20		Other liabilities		1		—

Total cash flow hedges				46		44				473		522

Total derivatives designated as hedges				46		44				473		522

Derivatives not designated as hedges
Equity index options		Other invested assets		15		6		Other liabilities		—		—
Financial futures (1)		Other invested assets		—		—		Other liabilities		—		—
Forward bond purchase commitments		Other invested assets		—		—		Other liabilities		3		—
Fixed indexed annuity embedded derivatives		Other assets		—		—		Policyholder account balances (2)		180		202
Indexed universal life embedded derivatives		Reinsurance recoverable		—		—		Policyholder account balances (3)		15		15

Total derivatives not designated as hedges				15		6				198		217

Total derivatives			$	61	$	50			$	671	$	739

(1)	The period end valuations of financial futures were zero as a result of settling the margins on these contracts on a daily basis.

(2)	Represents the embedded derivatives associated with our fixed indexed annuity liabilities.

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

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for fixed indexed 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			June 30, 2023
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps		Notional	$	8,542	$	927	$	(115	)	$	9,354
Foreign currency swaps		Notional		144		—		(13	)		131

Total cash flow hedges				8,686		927		(128	)		9,485

Total derivatives designated as hedges				8,686		927		(128	)		9,485

Derivatives not designated as hedges
Equity index options		Notional		936		339		(466	)		809
Financial futures		Notional		1,403		2,889		(2,916	)		1,376
Forward bond purchase commitments		Notional		—		275		—			275

Total derivatives not designated as hedges				2,339		3,503		(3,382	)		2,460

Total derivatives			$	11,025	$	4,430	$	(3,510	)	$	11,945


(Number of policies)	Measurement		December 31, 2022		Additions		Maturities/ terminations			June 30, 2023
Derivatives not designated as hedges
Fixed indexed annuity embedded derivatives		Policies		7,315		—		(848	)		6,467
Indexed universal life embedded derivatives		Policies		771		—		(15	)		756

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 effectiv