Genworth(GNW) - 2021 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis of financial performance, market risks, and internal controls Item 1. Financial Statements The company's financial statements show decreased assets, improved net income, and reduced operating cash flow for the nine months ended September 30, 2021 Condensed Consolidated Balance Sheets Consolidated Balance Sheet Summary (in millions) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $99,875 | $105,747 | | Total Investments | $72,718 | $74,701 | | Assets related to discontinued operations | $— | $2,817 | | Total Liabilities | $83,823 | $89,927 | | Long-term borrowings | $2,412 | $3,403 | | Liabilities related to discontinued operations | $36 | $2,370 | | Total Equity | $16,052 | $15,820 | Condensed Consolidated Statements of Income Consolidated Income Statement Summary (in millions, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $2,070 | $2,318 | $6,096 | $6,130 | | Income from continuing operations | $306 | $402 | $725 | $397 | | Net Income (Loss) | $318 | $436 | $753 | $(54) | | Net Income (Loss) available to common stockholders | $314 | $418 | $741 | $(89) | | Diluted EPS from continuing operations | $0.59 | $0.79 | $1.40 | $0.78 | | Diluted Net EPS | $0.61 | $0.82 | $1.44 | $(0.17) | Condensed Consolidated Statements of Comprehensive Income Consolidated Comprehensive Income Summary (in millions) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $318 | $436 | $753 | $(54) | | Total Other Comprehensive Income (Loss) | $(9) | $(293) | $(453) | $711 | | Total Comprehensive Income | $309 | $143 | $300 | $657 | Condensed Consolidated Statements of Changes in Equity Changes in Total Equity (in millions) | Metric | Nine Months Ended Sep 30, 2021 | | :--- | :--- | | Balance as of Dec 31, 2020 | $15,820 | | Initial sale of subsidiary shares to noncontrolling interests | $576 | | Sale of business that included noncontrolling interests | $(657) | | Net income | $753 | | Other comprehensive loss, net of taxes | $(453) | | Stock-based compensation and other | $13 | | Balance as of Sep 30, 2021 | $16,052 | Condensed Consolidated Statements of Cash Flows Consolidated Cash Flow Summary (in millions) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $290 | $1,452 | | Net cash from (used by) investing activities | $469 | $(1,279) | | Net cash used by financing activities | $(1,478) | $(734) | | Net change in cash, cash equivalents and restricted cash | $(719) | $(561) | | Cash, cash equivalents and restricted cash at end of period | $1,937 | $2,780 | Notes to Condensed Consolidated Financial Statements - The company operates through three segments: Enact (U.S. Mortgage Insurance), U.S. Life Insurance (long-term care, life insurance, fixed annuities), and Runoff (non-strategic products)[25] - The company completed the sale of its ownership in Genworth Mortgage Insurance Australia Limited in March 2021, which is now reported as discontinued operations[27] - Management believes current liquidity is sufficient to meet financial obligations for one year from the financial statement issuance date, citing proceeds from the Genworth Australia sale and the Enact Holdings IPO[31] - New accounting guidance for long-duration insurance contracts, effective January 1, 2023, is expected to have a significant impact on the consolidated financial statements and significantly reduce equity at transition[38] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strategic plans to improve liquidity and financial strength through debt reduction and segment performance, notably in Enact and U.S. Life Insurance Strategic Update and Executive Summary - The company is executing a strategic plan to raise liquidity, address debt maturities, and strengthen its financial position, with key actions including the minority IPO of Enact Holdings and the sale of Genworth Australia[277] - A primary goal is to reduce debt at Genworth Holdings to approximately $1 billion over time, with $1.7 billion of long-term debt as of September 30, 2021, and no maturities until August 2023[278] - Stabilizing the U.S. life insurance business remains a long-term goal, primarily through a multi-year long-term care insurance in-force rate action plan, achieving approximately $16.3 billion in net present value of approved rate increases since 2012[279] Financial Results Summary (in millions) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income available to common stockholders | $314 | $418 | $741 | $(89) | | Adjusted Operating Income available to common stockholders | $239 | $125 | $601 | $122 | Segment Analysis: Enact - As of September 30, 2021, the Enact segment's PMIERs sufficiency ratio was 181%, with $2,287 million in available assets above the required amount[286] Enact Segment Adjusted Operating Income (in millions) | Period | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Adjusted Operating Income | $134 | $141 | $395 | $286 | Enact Segment Key Metrics (in billions) | Metric | Sep 30, 2021 | Sep 30, 2020 | | :--- | :--- | :--- | | Primary insurance in-force | $222.5 | $203.1 | | Total risk in-force | $56.0 | $51.5 | Segment Analysis: U.S. Life Insurance - The U.S. Life Insurance business is impacted by a pattern of projected profits followed by projected losses in its long-term care insurance block, with $1,120 million accrued as of September 30, 2021[289] - The company received approvals for approximately $323 million of incremental annual premiums from its long-term care insurance in-force rate action plan during the first nine months of 2021[289] U.S. Life Insurance Segment Adjusted Operating Income (Loss) (in millions) | Business Line | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Long-term care insurance | $133 | $59 | $326 | $108 | | Life insurance | $(68) | $(69) | $(171) | $(227) | | Fixed annuities | $28 | $24 | $71 | $58 | | Total U.S. Life Insurance | $93 | $14 | $226 | $(61) | Segment Analysis: Runoff Runoff Segment Adjusted Operating Income (in millions) | Period | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Adjusted Operating Income | $11 | $19 | $38 | $30 | - The decrease in Q3 2021 adjusted operating income was predominantly due to higher mortality in corporate-owned life insurance products and unfavorable equity market performance[489] Segment Analysis: Corporate and Other Activities Corporate and Other Adjusted Operating Income (Loss) (in millions) | Period | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Adjusted Operating Income (Loss) | $1 | $(49) | $(58) | $(133) | - The improvement in Q3 2021 was primarily related to lower interest expense and a tax benefit of $21 million from a reduction in uncertain tax positions[508] Investments and Derivative Instruments - As of September 30, 2021, the fixed maturity securities portfolio was 95% investment grade and comprised 82% of total invested assets and cash[522] Net Investment Income (in millions) | Period | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Investment Income | $859 | $820 | $2,504 | $2,381 | Net Investment Gains (Losses) (in millions) | Period | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Investment Gains (Losses) | $88 | $351 | $191 | $345 | Liquidity and Capital Resources - Genworth Holdings had $635 million of unrestricted cash, cash equivalents, and liquid assets as of September 30, 2021[576] - In 2021, Genworth Holdings redeemed its 7.625% senior notes due September 2021 and its 7.20% senior notes due February 2021[575] - The Board of Directors has suspended stockholder dividends and stock repurchases indefinitely[565] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its market risks, including interest rate, foreign currency, and equity price risks, since December 31, 2020 - There were no material changes in the company's market risks since December 31, 2020[603] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[604] - There were no changes in internal control over financial reporting during the third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, internal controls[605] PART II—OTHER INFORMATION This section covers legal proceedings, risk factors, and exhibits filed with the report Legal Proceedings This section refers to Note 11 in the financial statements for details on material pending litigation and regulatory matters - For a description of material pending litigation and regulatory matters, refer to Note 11 in the unaudited condensed consolidated financial statements[606] Risk Factors The company reports no material changes to the risk factors previously disclosed in its 2020 Annual Report on Form 10-K as of September 30, 2021 - There have been no material changes to the risk factors set forth in the company's 2020 Annual Report on Form 10-K as of September 30, 2021[607] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - The exhibits filed with this report include certifications from the CEO (Thomas J. McInerney) and CFO (Daniel J. Sheehan IV), as well as XBRL data files[608][609]