Genworth(GNW) - 2019 Q4 - Annual Report

PART I Business Overview Genworth focuses on improving performance, financial leverage, and flexibility through mortgage and U.S. life insurance, pursuing a China Oceanwide merger - Genworth's strategy focuses on improving business performance, addressing financial leverage, and increasing financial and strategic flexibility, with a particular emphasis on mortgage insurance and stabilizing U.S. life insurance[10] - The proposed merger with China Oceanwide, valued at approximately $2.7 billion ($5.43 per share), includes a $1.5 billion capital contribution to Genworth post-merger, contingent on regulatory re-approvals[11][16] - Genworth sold its stake in Genworth MI Canada Inc. for approximately $1.7 billion on December 12, 2019, to increase financial flexibility and facilitate the China Oceanwide transaction[14] - If the China Oceanwide transaction is not completed, Genworth will continue to explore strategic alternatives and financing options, potentially including additional asset sales (U.S. or Australia mortgage insurance businesses)[19][20] - The U.S. Life Insurance segment's long-term care business is implementing a multi-year in-force rate action plan to achieve premium rate increases and benefit reductions, which are critical for business stabilization[21][61] Strategic Update - Genworth's strategy focuses on improving business performance, addressing financial leverage, and increasing financial and strategic flexibility, with a particular emphasis on mortgage insurance and stabilizing U.S. life insurance[10] China Oceanwide Transaction - Genworth entered a merger agreement with China Oceanwide on October 21, 2016, for approximately $2.7 billion ($5.43 per share in cash)[11] - The merger deadline was extended to March 31, 2020, with ongoing efforts to secure necessary regulatory re-approvals, some of which expired in 2019[12][13][15] - China Oceanwide committed to contribute $1.5 billion to Genworth post-merger to improve financial stability, subject to closing and regulatory approvals[16] - The New York State Department of Financial Services (NYDFS) re-approval is contingent on a capital contribution by Genworth to Genworth Life Insurance Company of New York (GLICNY)[15] Strategic Alternatives - If the China Oceanwide transaction is not completed, Genworth will pursue other strategic alternatives and financing options to address challenges, including potential further downgrades of financial strength ratings and limitations on holding company liquidity[19] - These alternatives may include evaluating options for the U.S. and Australia mortgage insurance businesses, which could negatively impact deferred tax assets[20] Ongoing Priorities - Key priorities include stabilizing U.S. life insurance through a multi-year long-term care insurance in-force rate action plan and reducing debt[21] - Completion of the China Oceanwide transaction is expected to provide financial support, improve credit/ratings, and allow greater focus on long-term care and mortgage insurance businesses[21] U.S. Mortgage Insurance - Genworth provides private mortgage insurance in the U.S. since 1981, enabling low down payment mortgages and protecting lenders against default[22][23] - The business is significantly influenced by Fannie Mae and Freddie Mac (GSEs) requirements, as they purchase the majority of insured flow loans[24][25] - Approximately 99% of primary insurance loans were 'prime' with FICO scores of at least 620 as of December 31, 2019[31] - Competition comes from federal/state agencies (FHA, VA) and five other private mortgage insurers, as well as self-insurance by lenders and capital market solutions[35][36][37][38] Australia Mortgage Insurance - Genworth is a leading provider of mortgage insurance in Australia, holding approximately 52.0% of Genworth Mortgage Insurance Australia Limited (Genworth Australia) shares[39][40] - Main products include primary flow mortgage insurance (LMI) and bulk mortgage insurance, with LMI covering 100% of the unpaid loan balance[41] - The business is concentrated with a small number of key customers; the largest customer represented approximately 57% of gross written premiums in 2019[52] - Competition is primarily from one other private mortgage insurer and lender-affiliated captive companies, with a third authorized competitor entering in 2019[54] U.S. Life Insurance - The segment offers long-term care insurance products and services existing blocks of traditional life insurance and fixed annuity products, with new sales of these products suspended since 2016[56] - In 2019, 116 in-force rate action approvals were received from 29 states for long-term care insurance, representing a weighted-average increase of 41% on $817 million in annualized in-force premiums[61] - The company has suspended long-term care insurance sales in several states due to unsatisfactory rate increases and may pursue litigation against states declining actuarially justified increases[62] Runoff - The Runoff segment includes products not actively sold since 2011, primarily variable annuity, variable life insurance, corporate-owned life insurance, and funding agreements[77] Corporate and Other Activities - This segment includes debt financing expenses, unallocated corporate income/expenses, inter-segment eliminations, and results from smaller international mortgage insurance businesses (e.g., Mexico, former South Korea operations, India joint venture)[78] - The sale of Genworth Canada on December 12, 2019, for approximately $1.7 billion in net cash proceeds, is reported as discontinued operations[79] International Operations International Operations Total Revenues | Year | Total Revenues (Millions USD) | |:-----|:------------------------------| | 2019 | $394 | | 2018 | $431 | | 2017 | Negative (due to premium earnings pattern review) | - A 2017 premium earnings pattern review in the Australia mortgage insurance business resulted in a $468 million decrease in earned premiums, leading to negative total revenues for international operations that year[81] Risk Management - Genworth employs an enterprise risk management framework covering economic capital, strategic risks, product development, in-force management, credit, market, insurance, housing, operational, model, and information technology risks[82][83][84] - The framework includes risk identification, business strategy alignment, governance, quantification, appetite, and stress testing[84] - Risk management practices are crucial for legacy U.S. life insurance products, supporting in-force rate increases and enhancing claims processes[85] - The company uses hedging programs to mitigate economic risks (equity, interest rate) in variable annuity and long-term care insurance products, and foreign exchange risk from international subsidiaries[90] - Information technology risk management was identified as a separate risk type in 2018, with increased resources dedicated to cybersecurity and data security[105][108] Operations and Technology - Technology-enabled services in mortgage insurance have improved application approval times, reduced errors, and enhanced customer experience, including proprietary decision models for loss mitigation[109] - Operating centers are located in Virginia and North Carolina, with additional professional teams in India and the Philippines providing support for U.S. life insurance and corporate functions[110] Reinsurance - Genworth reinsures portions of its annuity, life, long-term care, and mortgage insurance risks to minimize exposure, limit losses, provide capacity, and meet capital requirements[112] - Reinsurance recoverable balances were $17.1 billion and $17.3 billion as of December 31, 2019 and 2018, respectively[113] U.S. Life Insurance Principal Reinsurers (as of Dec 31, 2019) | Company | Reinsurance recoverable (Millions USD) | |:----------------------------------|:---------------------------------------| | UFLIC | $13,752 | | RGA Reinsurance Company | $1,564 | | General Reinsurance Corporation | $492 | | Riversource Life Insurance Company| $440 | | Munich American Reassurance Company| $332 | - U.S. mortgage insurance business obtained $303 million of fully collateralized excess of loss reinsurance coverage in November 2019, contributing to approximately $870 million of PMIERs capital credit as of December 31, 2019[119][120] - Australia mortgage insurance business had five excess of loss treaties with an aggregate coverage limit of AUD$800 million, provided by approximately 20 reinsurance partners, all rated 'A-' or better[122] Ratings Financial Strength Ratings (as of Feb 18, 2020) | Company | S&P Rating | Moody's Rating | A.M. Best Rating | |:------------------------------------------|:-------------|:-----------------|:-----------------| | Genworth Mortgage Insurance Corporation | BB+ (Marginal)| Baa3 (Adequate) | N/A | | Genworth Financial Mortgage Insurance Pty Limited (Australia)| A (Strong) | N/A | N/A | | Genworth Life Insurance Company | B- (Weak) | B3 (Poor) | C++ (Marginal) | | Genworth Life and Annuity Insurance Company| B- (Weak) | B1 (Poor) | B (Fair) | | Genworth Life Insurance Company of New York| B- (Weak) | B3 (Poor) | C++ (Marginal) | - Genworth Holdings' senior unsecured debt was rated B (Speculative) by S&P and B2 (Speculative) by Moody's as of February 18, 2020[133] - A.M. Best downgraded U.S. life insurance subsidiaries in September 2019 due to negative operating performance and uncertainty in long-term care rate increases[136] - S&P downgraded Genworth Financial Mortgage Insurance Pty Limited (Australia) in July 2019 due to revised criteria, weakened competitive position, and lack of diversification[137] - Moody's upgraded GMICO (U.S. mortgage insurance) in June 2019 due to improving profitability, market position, and healthy capital levels, but downgraded GLAIC due to continuing earnings volatility[138] Investments - The investment department manages assets, establishes policies, and coordinates activities, utilizing both internal and external asset managers[141][142] - Primary investment objective is to meet policyholder obligations and increase stockholder value through a diversified, high-quality portfolio, mainly fixed maturity securities[144] - Key investment risks are credit risk (issuer default) and interest rate risk (market price/cash flow variability)[145] Fixed Maturity Securities by NRSRO Designation (Fair Value % of Total) | NRSRO Designation | 2019 Fair Value % of Total | 2018 Fair Value % of Total | |:------------------|:---------------------------|:---------------------------| | AAA | 19% | 21% | | AA | 10% | 10% | | A | 29% | 29% | | BBB | 39% | 37% | | BB | 3% | 3% | | B | —% | —% | | CCC and lower | —% | —% | | Total | 100% | 100% | - Fixed maturity securities represented 81% and 82% of total cash, cash equivalents, restricted cash, and invested assets as of December 31, 2019 and 2018, respectively[148] Regulation - Genworth's insurance operations are extensively regulated by U.S. state insurance laws and non-U.S. authorities, primarily to protect policyholders, not stockholders[158][160] - U.S. insurers are subject to holding company regulations, including dividend restrictions and prior approval for 'extraordinary' dividends[165][167] - U.S. life insurers must meet NAIC Risk-Based Capital (RBC) standards; consolidated RBC ratio was approximately 213% and 199% as of December 31, 2019 and 2018, respectively[185][188] - U.S. mortgage insurers are subject to state risk-to-capital ratios (not to exceed 25:1) and GSEs' Private Mortgage Insurer Eligibility Requirements (PMIERs)[227][237] - Australia mortgage insurance is regulated by APRA, which sets minimum capital levels and monitors governance, with a PCA ratio of 191% as of December 31, 2019[240][243] - The Tax Cuts and Jobs Act (TCJA) of 2017 significantly reduced the U.S. corporate federal income tax rate to 21% and impacted deferred taxes and RBC calculations[208][213] - Cybersecurity regulations, such as New York's financial services regulation and the NAIC's Insurance Data Security Model Law, impose significant burdens to protect consumer data and information systems[266][267] Employees - As of December 31, 2019, Genworth employed approximately 3,100 full-time and part-time employees[272] Directors and Executive Officers Available Information - Genworth's SEC filings (10-K, 10-Q, 8-K) and corporate governance documents are available on its website (www.genworth.com) and the SEC's website (www.sec.gov)[273](index=273&type=chunk)[274] Transfer Agent and Registrar - Computershare Shareowner Services LLC serves as Genworth's Transfer Agent and Registrar[277] Risk Factors Genworth faces significant risks from the uncertain China Oceanwide transaction, actuarial estimates, economic conditions, regulation, and operations - The proposed China Oceanwide transaction may not be completed due to regulatory re-approvals, burdensome conditions, or party unwillingness, which could adversely affect Genworth's stock price, business, and financial condition[278][280][283] - Inaccurate actuarial estimates and assumptions for future policy claims, especially in long-term care insurance, could lead to significant reserve increases and materially adverse impacts on results of operations and financial condition[293][294][296][304][305] - Prolonged low interest rates or rapid increases in rates could negatively impact investment margins, increase policy surrenders, and reduce profitability across various insurance products[330][331][332][336] - Deteriorating economic conditions or declining home prices could increase loss experience in mortgage insurance businesses[340][341] - Extensive regulation, including changes to GSE requirements (PMIERs) or state capital standards, could limit business, increase costs, or restrict new insurance writings[344][363][369] - Adverse rating agency actions have already led to business loss and could further impact sales, distribution relationships, collateral requirements, and capital-raising ability[399][402][403] - Operational risks, including computer system failures, cybersecurity breaches, and reliance on key customer relationships, could damage reputation and adversely affect business effectiveness and financial results[442][443][445][423][424] - Inability to implement sufficient and timely premium rate increases and associated benefit reductions on in-force long-term care insurance policies could adversely affect financial condition and reputation[449][450][452] - The company has significant deferred tax assets, and any impairments or valuation allowances against them could materially adversely affect results of operations and financial condition[475][476] Strategic Risks - The proposed transaction with China Oceanwide may not be completed due to regulatory re-approvals, burdensome conditions, or party unwillingness, leading to adverse effects on stock price, business, and financial condition[278][280][283] - Failure to complete the China Oceanwide transaction would make it harder to execute alternative strategic plans for stabilizing U.S. life insurance, managing debt, and improving ratings/capital[283] - Genworth may be unable to successfully execute strategic plans to address business challenges, including attracting buyers for assets, increasing capital, or obtaining necessary approvals[287] - The company may need to pursue additional strategic asset sales (e.g., U.S. or Australia mortgage insurance) or issue dilutive equity/debt if the China Oceanwide transaction fails[288][290] - Inability to maintain or increase capital in businesses, particularly U.S. mortgage insurance (PMIERs), could lead to reduced business levels or regulatory actions[291][292] Risks Relating to Estimates, Assumptions and Valuations - Inadequate reserves for future policy claims, due to inaccurate estimates and actuarial assumptions (e.g., interest rates, morbidity, mortality, persistency), could require significant reserve increases and materially affect financial results[293][294][296][304][305] - Inaccurate or deficient models used for pricing, reserving, asset valuation, and risk management could have a material adverse impact on business and financial condition[297][298] - For single premium mortgage insurance, changes in assumptions for future loss development and policy cancellations could result in material adjustments to earned premiums and unearned premiums[300][303] - Higher persistency in long-term care insurance or increased lapses in term life insurance could negatively impact profitability and accelerate DAC amortization[308][309][310][312] - Loss recognition testing for long-term care insurance is highly dependent on assumptions for future in-force rate actions; any unexpected reduction in these actions could lead to a premium deficiency[313] - When projected profits are followed by losses (as in long-term care insurance), additional reserves must be accrued over time, which could materially affect results and financial condition[325][326][327] - Valuation of fixed maturity, equity, and trading securities relies on complex methodologies and assumptions, and changes could lead to significant fluctuations in investment valuations[328] Risks Relating to Economic, Market and Political Conditions - Interest rate fluctuations, especially sustained low rates, adversely impact interest rate margins, investment returns, and profitability across life, long-term care, and annuity products[330][331][336] - Declining interest rates can increase mortgage insurance cancellations due to refinancing, while rising rates can reduce new mortgage originations and increase default rates on adjustable-rate mortgages[333][334] - A deterioration in economic conditions or a decline in home prices increases the likelihood of borrower defaults and losses in mortgage insurance businesses[340][341] - The transition away from LIBOR after 2021 creates uncertainty for LIBOR-based derivative instruments, investments, and debt, potentially impacting valuations and liquidity[338] Regulatory and Legal Risks - Extensive regulation of insurance businesses by U.S. state and international authorities can reduce profitability, limit growth, and subject the company to fines or sanctions for non-compliance[344][346] - Litigation and regulatory investigations, common in the insurance business, can result in significant financial losses, reputational harm, and increased legal expenses[350][351][353] - Adverse changes in regulatory requirements, such as RBC standards for U.S. life insurers or risk-to-capital ratios for mortgage insurers, could lead to further downgrades and regulatory actions[355][356] - Changes to the role or business practices of Fannie Mae and Freddie Mac (GSEs), or their decisions to decrease mortgage insurance use, could significantly impact Genworth's U.S. mortgage insurance business[357][358][360] - Failure to meet PMIERs (Private Mortgage Insurer Eligibility Requirements) could render Genworth ineligible to write new insurance on GSE-acquired loans, materially affecting its U.S. mortgage insurance business[363][364][367] - Changes in accounting and reporting standards (e.g., new guidance for long-duration insurance contracts) could materially affect financial condition, results of operations, and require significant implementation costs[384][385] Liquidity, Financial Strength and Credit Ratings, and Counterparty and Credit Risks - Genworth Holdings has approximately $3.1 billion of outstanding debt maturing between 2020 and 2066, with existing cash resources insufficient to repay all debt, necessitating reliance on other liquidity sources[388][389] - As holding companies, Genworth and Genworth Holdings depend on dividends and payments from subsidiaries, which are regulated and may be restricted, impacting their ability to meet obligations[394][395][396][397] - Adverse rating agency actions have resulted in business loss and could further impact sales, distribution relationships, collateral requirements for derivatives/reinsurance, and capital-raising ability[399][402][403] - Defaults by reinsurance counterparties or derivative counterparties could expose Genworth to risks it sought to mitigate, materially affecting results of operations and financial condition[406][407] - Defaults by issuers or guarantors of fixed maturity securities in the investment portfolio could reduce income and materially affect business and financial condition[410] Operational Risks - Inability to retain, attract, and motivate qualified employees and senior management, especially given financial difficulties and transaction uncertainty, could adversely impact business operations[411][412] - Genworth's risk management programs may not effectively identify, control, or mitigate all risks, as they rely on historical data and assumptions that may not predict future exposures accurately[414][415][416] - Reliance on key customer or distribution relationships means termination or reduction of these relationships could lead to significant sales losses, particularly in Australia where business is highly concentrated[423][424][426] - Deficiencies in disclosure controls and procedures or internal control over financial reporting could result in material errors in financial statements or untimely filings, damaging investor confidence[440][441] - Computer system failures, cybersecurity compromises, or unanticipated problems with disaster recovery could damage reputation, impair business operations, and materially affect financial condition[442][443][445][447] Insurance and Product-Related Risks - Inability to implement sufficient and timely premium rate increases and associated benefit reductions on in-force long-term care insurance policies could adversely affect financial condition, reputation, and future sales[449][450][452][453] - Reinsurance may not be available, affordable, or adequate to protect against losses, potentially increasing risk and affecting the ability to write future business or obtain statutory capital credit[455] - A decrease in high loan-to-value mortgage originations or an increase in mortgage insurance cancellations could lead to a decline in revenue for mortgage insurance businesses[456][457][459] - The amount of mortgage insurance written could decline if alternatives to private mortgage insurance are used or lower coverage levels are selected by lenders/borrowers[461][462][463] - Potential liabilities from U.S. contract underwriting services, where Genworth indemnifies lenders for material errors, could materially affect financial condition if reserves are inadequate[464][466] - Medical advances (e.g., genetic research) and related legislation could adversely affect life insurance, long-term care insurance, and annuity businesses by creating mismatches between assessed risk and product pricing, or increasing payment durations[467][468][469][470] Other Risks - Natural or man-made disasters (e.g., bushfires, pandemics) could disrupt computer systems, increase mortality/morbidity, trigger economic downturns, and adversely affect financial condition and results of operations[472][473][474] - Impairments or valuation allowances against significant deferred tax assets could materially adversely affect results of operations and financial condition, especially if future taxable income is insufficient or an 'ownership change' occurs[475][476] Unresolved Staff Comments Genworth Financial, Inc. has no unresolved comments from the staff of the SEC as of the filing date - The company has no unresolved comments from the SEC staff[478] Properties Genworth owns its Richmond headquarters and a Lynchburg facility, leasing additional office space in the U.S. and internationally - Genworth owns its Richmond, Virginia headquarters (450,000 sq ft) and a Lynchburg, Virginia facility (210,000 sq ft)[479] - The company leases 100,000 sq ft in Lynchburg, 200,000 sq ft across 6 other U.S. locations, and 75,000 sq ft in 6 international locations[479] Legal Proceedings Information regarding material pending litigation and regulatory matters affecting Genworth is detailed in Note 21 of the consolidated financial statements - Material pending litigation and regulatory matters are described in Note 21 of the consolidated financial statements[480] Mine Safety Disclosures This item is not applicable to Genworth Financial, Inc. - Mine Safety Disclosures are not applicable[480] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Genworth's Class A Common Stock is listed on the NYSE, with common stock dividends suspended indefinitely since 2008 to enhance liquidity and capital - Genworth's Class A Common Stock is listed on the New York Stock Exchange (NYSE) under the symbol 'GNW'[1] - As of February 19, 2020, there were 286 holders of record for Class A Common Stock[483] Comparison of Cumulative Five Year Total Return (Indexed to $100) | Index | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |:---------------------------|:-------|:--------|:--------|:--------|:--------|:--------| | Genworth Financial, Inc. | $100.00| $43.88 | $44.82 | $36.59 | $54.82 | $51.76 | | S&P 500® | $100.00| $101.38 | $113.51 | $138.29 | $132.23 | $173.86 | | S&P 500 Insurance Index | $100.00| $102.33 | $120.32 | $139.80 | $124.13 | $160.60 | | S&P MidCap 400 Index | $100.00| $97.82 | $118.11 | $137.30 | $122.08 | $154.07 | | S&P MidCap 400 Insurance Index| $100.00| $110.75 | $139.69 | $164.46 | $161.55 | $205.32 | - Dividends on common stock were suspended indefinitely in November 2008 to enhance liquidity and capital[486] - Future dividend payments depend on operating subsidiary dividends, financial condition, capital requirements, legal/regulatory constraints, debt obligations, and credit/financial strength ratings[486][488] Selected Financial Data This section summarizes Genworth's five-year consolidated financial data, highlighting fluctuating net income, stable revenues, and segment performance Consolidated Statements of Income Information (Millions USD) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | |:--------------------------------------------------------------------|:---------|:---------|:---------|:---------|:---------| | Revenues: | | | | | | | Premiums | $4,037 | $3,994 | $3,485 | $3,679 | $4,113 | | Net investment income | 3,220 | 3,121 | 3,066 | 3,031 | 3,005 | | Net investment gains (losses) | 50 | (9) | 137 | 35 | (43) | | Policy fees and other income | 789 | 795 | 825 | 977 | 906 | | Total revenues | 8,096| 7,901| 7,513| 7,722| 7,981| | Benefits and expenses: | | | | | | | Benefits and operating expenses | 7,143 | 7,508 | 7,120 | 7,510 | 7,964 | | Interest expense | 239 | 256 | 266 | 319 | 401 | | Total benefits and expenses | 7,382| 7,764| 7,386| 7,829| 8,365| | Income (loss) from continuing operations before income taxes | 714 | 137 | 127 | (107) | (384) | | Provision (benefit) for income taxes | 195 | 70 | (406) | 202 | (96) | | Income (loss) from continuing operations | 519 | 67 | 533 | (309) | (288) | | Income (loss) from discontinued operations, net of taxes | 11 | 230 | 394 | 242 | (125) | | Net income (loss) | 530 | 297 | 927 | (67) | (413)| | Net income (loss) available to Genworth Financial, Inc.'s common stockholders| $343 | $119 | $817 | $(277) | $(615) | Net Income (Loss) Per Share (USD) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | |:--------------------------------------------------------------------|:-------|:-------|:-------|:-------|:-------| | Income (loss) from continuing operations available to Genworth Financial, Inc.'s common stockholders per share:|\n| Basic | $0.90 | $(0.01)| $1.23 | $(0.77)| $(0.75)|\n| Diluted | $0.89 | $(0.01)| $1.22 | $(0.77)| $(0.75)|\n| Net income (loss) available to Genworth Financial, Inc.'s common stockholders per share:|\n| Basic | $0.68 | $0.24 | $1.64 | $(0.56)| $(1.24)|\n| Diluted | $0.67 | $0.24 | $1.63 | $(0.56)| $(1.24)|\n| Weighted-average common shares outstanding (Millions): |\n| Basic | 502.9 | 500.4 | 499.0 | 498.3 | 497.4 |\n| Diluted | 509.7 | 500.4 | 501.4 | 498.3 | 497.4 | Selected Segment Information (Income (Loss) from Continuing Operations, Millions USD) | Segment | 2019 | 2018 | 2017 | 2016 | 2015 | |:----------------------------|:-------|:--------|:-------|:--------|:--------| | U.S. Mortgage Insurance | $569 | $490 | $311 | $249 | $179 | | Australia Mortgage Insurance| 59 | 70 | (79) | 65 | 103 | | U.S. Life Insurance | 13 | (348) | 112 | (146) | (253) | | Runoff | 39 | 13 | 61 | 25 | (5) | | Corporate and Other | (225) | (228) | 208 | (577) | (396) | | Total | $455| $(3)| $613| $(384)| $(372)| Consolidated Balance Sheet Information (Millions USD) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | |:--------------------------------------|:------------|:------------|:------------|:------------|:------------| | Total investments | $71,231 | $65,546 | $68,353 | $67,000 | $65,135 | | Total assets | $101,342 | $100,923 | $105,297 | $104,658 | $106,431 | | Policyholder liabilities | $75,452 | $73,216 | $74,441 | $73,652 | $72,540 | | Long-term borrowings | 3,277 | 3,707 | 3,878 | 3,858 | 4,257 | | Total liabilities | $86,710 | $86,734 | $89,969 | $90,191 | $91,794 | | Total equity | $14,632 | $14,189 | $15,328 | $14,467 | $14,637 | Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Genworth's financial condition and results, focusing on key trends, significant developments, and critical accounting estimates - Net income available to Genworth Financial, Inc.'s common stockholders was $343 million in 2019, up from $119 million in 2018[508] - U.S. Mortgage Insurance adjusted operating income increased to $568 million in 2019 from $490 million in 2018, driven by higher insurance in-force and investment income[508] - U.S. Life Insurance's long-term care business returned to adjusted operating income of $57 million in 2019, compared to a $348 million loss in 2018, primarily due to in-force rate actions[508] - Genworth completed the sale of Genworth Canada on December 12, 2019, receiving approximately $1.7 billion in net cash proceeds, and recorded an after-tax loss of $121 million related to the sale[524] - Genworth Holdings repaid its $445 million Term Loan in December 2019 and early redeemed $397 million of senior notes in January 2020, using proceeds from the Genworth Canada sale[521][522][874] - The company expects to pay a $200 million intercompany note due to GLIC on March 31, 2020[522] - The effective tax rate decreased to 27.3% in 2019 from 50.8% in 2018, mainly due to higher pre-tax income[523] Overview - Genworth's business segments include U.S. Mortgage Insurance, Australia Mortgage Insurance, U.S. Life Insurance (long-term care, life, fixed annuities), and Runoff[498] - Revenues primarily consist of net premiums earned, net investment income/gains, and policy fees/other income across segments[500][501] - Expenses include policyholder benefits, interest credited, acquisition/operating expenses, DAC amortization, interest expense, and income taxes[502] - The Tax Cuts and Jobs Act (TCJA) of 2017 reduced the U.S. corporate federal income tax rate to 21% and shifted to a territorial international tax system, impacting segment tax allocations[504] Executive Summary of Financial Results Adjusted Operating Income (Loss) Available to Common Stockholders (Millions USD) | Segment | 2019 | 2018 | |:----------------------------|:-------|:--------| | U.S. Mortgage Insurance | $568 | $490 | | Australia Mortgage Insurance| $51 | $76 | | U.S. Life Insurance | $(55) | $(376) | | Runoff | $56 | $35 | | Corporate and Other Activities| $(200) | $(230) | | Total | $420| $(5)| - U.S. Mortgage Insurance income increased due to higher in-force and investment income, partially offset by higher losses and operating costs[508] - Australia Mortgage Insurance income decreased due to lower earned premiums from portfolio seasoning and policy cancellations[508] - U.S. Life Insurance loss decreased significantly, primarily driven by long-term care in-force rate actions and favorable benefit utilization updates[508] - Runoff segment income increased due to favorable equity market performance[510] - Corporate and Other Activities loss decreased due to lower operating costs and interest expense[510] Significant Developments - U.S. mortgage insurance business remained compliant with PMIERs, with available assets at approximately 138% of required assets as of December 31, 2019[515] - U.S. mortgage insurance new insurance written increased 56% in 2019, driven by a larger market and increased market share[516] - Australia mortgage insurance PCA ratio decreased to 191% in 2019 from 194% in 2018, mainly due to dividends and share repurchases exceeding earnings[517] - Long-term care insurance in-force rate actions in 2019 resulted in 116 approvals from 29 states, representing a 41% weighted-average increase on $817 million in annualized premiums[518] - Genworth Holdings repaid its $445 million Term Loan in December 2019 and early redeemed $397 million of senior notes in January 2020[521][522] - The sale of Genworth Canada was completed on December 12, 2019, yielding approximately $1.7 billion in net cash proceeds[524] - An after-tax loss of approximately $110 million was recorded in 2019 related to pending litigation from the 2015 sale of the lifestyle protection insurance business[524] Business trends and conditions - Business performance is influenced by financial market stability, global economic conditions, regulatory changes, and tax reforms[525] Critical Accounting Estimates - Valuation of fixed maturity securities relies on industry-standard pricing methodologies, internal models, and broker quotes, with less liquid securities requiring greater estimation[527][528] Fixed Maturity Securities Valuation Sources (Millions USD) | Source | 2019 Total | 2019 Level 2 | 2019 Level 3 | 2018 Total | 2018 Level 2 | 2018 Level 3 | |:------------------|:-----------|:-------------|:-------------|:-----------|:-------------|:-------------| | Pricing services | $54,400 | $54,400 | $— | $50,101 | $50,101 | $— | | Broker quotes | $288 | $— | $288 | $378 | $— | $378 | | Internal models | $5,651 | $1,748 | $3,903 | $5,110 | $1,623 | $3,487 | | Total | $60,339| $56,148 | $4,191 | $55,589| $51,724 | $3,865 | - Other-than-temporary impairments on fixed maturity securities are recognized based on expected cash flows, intent to sell, or likelihood of required sale prior to recovery[531][973] - Deferred acquisition costs (DAC) are capitalized and amortized over the estimated life of insurance/investment contracts, with amortization adjusted for actual experience or assumption changes[534][535][536] - Shadow accounting adjustments related to unrealized investment gains/losses on available-for-sale securities significantly impacted DAC balances, reducing it by $1.4 billion in 2019[546][547] - Present value of future profits (PVFP) is an intangible asset from acquired blocks of business, amortized similarly to DAC, and tested for recoverability annually[549][550] - Insurance liabilities and reserves are based on actuarial assumptions (e.g., interest rates, morbidity, mortality, persistency) that are inherently uncertain; small changes can materially impact reserves and financial results[552][553] - Long-term care insurance loss recognition testing margin was positive in 2019, but dependent on assumptions for future in-force rate actions, with a 10% reduction in benefit impacting the margin by $(760) million[561][562][564] - The company accrues additional future policy benefit reserves for 'profits followed by losses' in long-term care insurance, increasing by $213 million in 2019, with the present value of expected future losses at approximately $2.0 billion[566][567] - Policyholder account balances for universal and term universal life insurance increased by $72 million in 2019 due to lower interest rates, with a 100 basis point reduction in rates potentially causing a $60 million loss[582][584] Liability for Policy and Contract Claims (Millions USD) | Business | 2019 | 2018 | |:----------------------------------|:------------|:------------| | Long-term care insurance | $10,239 | $9,516 | | Life insurance | 248 | 243 | | U.S. mortgage insurance | 233 | 296 | | Australia mortgage insurance | 208 | 196 | | Fixed annuities | 13 | 23 | | Runoff | 9 | 14 | | Other mortgage insurance | 8 | 7 | | Total | $10,958 | $10,295 | - Mortgage insurance loss reserves are based on delinquency notices and estimates, with a 3% change in average frequency reserve factor impacting gross reserves by approximately $19 million for U.S. mortgage insurance[592][594][595] - Unearned premiums for single premium mortgage insurance are recognized over policy life based on expected risk emergence; a $1.0 billion decline in new insurance written in Australia would reduce earned premiums by $2 million in the first year[596] - Deferred tax assets are valued based on future taxable income projections; a $425 million net deferred tax asset exists, with realization dependent on sufficient future taxable income[602][603][604][605] - Contingent liabilities, including legal and income tax contingencies, are estimated based on probability of outcomes; a $143 million loss was recognized in 2019 related to litigation from the lifestyle protection insurance business sale[607][609] Consolidated - Global economic conditions, trade tensions, and central bank monetary policies (e.g., U.S. Federal Reserve interest rate cuts) significantly influence Genworth's sales, revenue, profitability, and asset/liability values[611][612] Consolidated Statements of Income (Millions USD) | Metric | 2019 | 2018 | 2017 | |:--------------------------------------------------------------------|:---------|:---------|:---------| | Premiums | $4,037 | $3,994 | $3,485 | | Net investment income | 3,220 | 3,121 | 3,066 | | Net investment gains (losses) | 50 | (9) | 137 | | Policy fees and other income | 789 | 795 | 825 | | Total revenues | 8,096| 7,901| 7,513| | Benefits and other changes in policy reserves | 5,163 | 5,606 | 5,125 | | Interest credited | 577 | 611 | 646 | | Acquisition and operating expenses, net of deferrals | 962 | 943 | 957 | | Amortization of deferred acquisition costs and intangibles | 441 | 348 | 392 | | Interest expense | 239 | 256 | 266 | | Total benefits and expenses | 7,382| 7,764| 7,386| | Income from continuing operations before income taxes | 714 | 137 | 127 | | Provision (benefit) for income taxes | 195 | 70 | (406) | | Income from continuing operations | 519 | 67 | 533 | | Income from discontinued operations, net of taxes | 11 | 230 | 394 | | Net income | 530 | 297 | 927 | | Net income available to Genworth Financial, Inc.'s common stockholders| $343 | $119 | $817 | - Premiums increased in 2019 due to U.S. Mortgage Insurance growth and long-term care rate actions, but decreased in Australia Mortgage Insurance due to portfolio seasoning[619] - Benefits and other changes in policy reserves decreased in 2019, primarily due to favorable impacts from long-term care in-force rate actions and benefit utilization updates[621] - Amortization of deferred acquisition costs and intangibles increased in 2019, mainly due to higher lapses in life insurance and unfavorable unlocking in universal/term universal life products[628] - The effective tax rate was 27.3% in 2019, down from 50.8% in 2018, primarily due to higher pre-tax income[630] - Adjusted operating income (loss) available to common stockholders is a non-GAAP measure used by management to evaluate segment performance, excluding items like net investment gains/losses and restructuring costs[643][644] Earnings (Loss) Per Share (USD) | Metric | 2019 | 2018 | 2017 | |:--------------------------------------------------------------------|:-------|:-------|:-------| | Income (loss) from continuing operations available to Genworth Financial, Inc.'s common stockholders per share:|\n| Basic | $0.90 | $(0.01)| $1.23 |\n| Diluted | $0.89 | $(0.01)| $1.22 |\n| Net income available to Genworth Financial, Inc.'s common stockholders per share:|\n| Basic | $0.68 | $0.24 | $1.64 |\n| Diluted | $0.67 | $0.24 | $1.63 |\n| Adjusted operating income (loss) available to Genworth Financial, Inc.'s common stockholders per share:|\n| Basic | $0.84 | $(0.01)| $1.06 |\n| Diluted | $0.82 | $(0.01)| $1.06 | Results of Operations and Selected Financial and Operating Performance Measures by Segment - U.S. Mortgage Insurance adjusted operating income increased by 16% to $568 million in 2019, driven by higher insurance in-force and investment income, despite higher operating costs and losses[674] - U.S. Mortgage Insurance new insurance written increased 56% in 2019, and the loss ratio was 6% (up from 5% in 2018), influenced by lower net benefits from cures and less favorable reserve adjustments[665][666][680][681] - Australia Mortgage Insurance adjusted operating income decreased by 33% to $51 million in 2019, primarily due to lower earned premiums from portfolio seasoning and policy cancellations[711] - Australia Mortgage Insurance new insurance written increased 13% in 2019, driven by higher mortgage origination volume and bulk insurance activity, but the loss ratio increased to 33% (from 30% in 2018)[705][706][722][727] - U.S. Life Insurance long-term care business saw a significant turnaround, moving from a $348 million adjusted operating loss in 2018 to a $57 million income in 2019, largely due to in-force rate actions[763] - U.S. Life Insurance life business adjusted operating loss increased by $74 million in 2019, mainly due to higher lapses in 20-year term life insurance and unfavorable unlocking in universal/term universal life products[763] - Runoff segment adjusted operating income increased by 60% to $56 million in 2019, predominantly from favorable equity market performance[783] - Corporate and Other Activities adjusted operating loss decreased by 13% to $200 million in 2019, driven by lower operating costs and interest expense[796] Investments and Derivative Instruments - Global economic conditions, trade tensions, and central bank policies (e.g., U.S. Federal Reserve interest rate cuts) influenced investment markets, leading to lower government bond yields in 2019[800] - Genworth's investment portfolio maintained approximately $2.7 billion in UK exposure (4% of total invested assets) as of December 31, 2019, primarily in U.S. dollar-denominated fixed-income investments[803] - The company renegotiated master swap agreements in 2018-2019 to remove credit downgrade provisions, replacing them with RBC ratio thresholds, and successfully completed these negotiations by December 31, 2019[805] - Genworth is actively preparing for the elimination of LIBOR after 2021, evaluating its LIBOR-based derivative and investment exposure, and expects minimal impact from the transition to SOFR[807][809][811] Net Investment Income by Source (Millions USD) | Source | 2019 | 2018 | 2017 | |:--------------------------------------------------------------------|:-------|:-------|:-------| | Fixed maturity securities—taxable | $2,494 | $2,456 | $2,458 | | Fixed maturity securities—non-taxable | 8 | 11 | 12 | | Equity securities | 16 | 20 | 19 | | Commercial mortgage loans | 344 | 320 | 306 | | Policy loans | 180 | 169 | 153 | | Other invested assets | 234 | 181 | 157 | | Cash, cash equivalents, restricted cash and short-term investments | 39 | 48 | 35 | | Gross investment income before expenses and fees | 3,319 | 3,212 | 3,150 | | Expenses and fees | (99) | (91) | (84) | | Net investment income | $3,220| $3,121| $3,066| | Average invested assets and cash | N/A | $65,527| $65,384| - Net investment income increased in 2019 due to higher average invested assets and investment yields, including higher limited partnership income and bond call/prepayment income[815] Net Investment Gains (Losses) (Millions USD) | Category | 2019 | 2018 | 2017 | |:----------------------------------------------------------------------|:-------|:-------|:-------| | Net realized gains (losses) on available-for-sale securities | $68 | $25 | $141 | | Net other-than-temporary impairments | (1) | — | (6) | | Net realized gains (losses) on equity securities sold | 9 | 11 | — | | Net unrealized gains (losses) on equity securities still held | 14 | (34) | — | | Limited partnerships | 29 | 11 | — | | Commercial mortgage loans | (2) | — | 3 | | Derivative instruments | (72) | (22) | (9) | | Other | 5 | — | — | | Net investment gains (losses) | $50| $(9)| $137| - Net investment gains in 2019 were driven by higher net gains from fixed maturity securities sales and unrealized gains on equity securities, partially offset by derivative losses[817] Cash, Cash Equivalents, Restricted Cash and Invested Assets (Millions USD) | Asset Category | 2019 Carrying Value | 2019 % of Total | 2018 Carrying Value | 2018 % of Total | |:------------------------------------------------------------------|:--------------------|:----------------|:--------------------|:----------------| | Fixed maturity securities, available-for-sale | $60,339 | 81% | $55,589 | 82% | | Equity securities | 239 | —% | 275 | —% | | Commercial mortgage loans | 6,963 | 9% | 6,749 | 10% | | Policy loans | 2,058 | 3% | 1,861 | 3% | | Other invested assets | 1,632 | 2% | 1,072 | 2% | | Cash, cash equivalents and restricted cash | 3,341 | 5% | 1,974 | 3% | | Total | $74,572 | 100% | $67,520 | 100% | - Fixed maturity securities increased by $4.8 billion in 2019, primarily due to higher net unrealized gains from decreasing interest rates[826] - The notional value of derivatives decreased in 2019, mainly due to terminations of interest rate swaps for repositioning LIBOR-based derivatives and hedging strategies, and the repayment of Genworth Holdings' Term Loan[834] Consolidated Balance Sheets Consolidated Balance Sheets (Millions USD) | Asset/Liability Category | Dec 31, 2019 | Dec 31, 2018 | |:------------------------------------------------------------------|:-------------|:-------------| | Assets: | | | | Total investments | $71,231 | $65,546 | | Cash, cash equivalents and restricted cash | 3,341 | 1,974 | | Deferred acquisition costs | 1,836 | 3,142 | | Reinsurance recoverable | 17,103 | 17,278 | | Deferred tax asset | 425 | 736 | | Separate account assets | 6,108 | 5,859 | | Assets held for sale related to discontinued operations | — | 5,015 | | Total assets | $101,342 | $100,923 | | Liabilities: | | | | Future policy benefits | $40,384 | $37,940 | | Policyholder account balances | 22,217 | 22,968 | | Liability for policy and contract claims | 10,958 | 10,295 | | Unearned premiums | 1,893 | 2,013 | | Long-term borrowings | 3,277 | 3,707 | | Separate account liabilities | 6,108 | 5,859 | | Liabilities held for sale related to discontinued operations | — | 2,112 | | Total liabilities | $86,710 | $86,734 | | Equity: