Genworth(GNW) - 2022 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Genworth Financial, Inc. as of September 30, 2022, and for the three and nine months then ended Condensed Consolidated Balance Sheets Total assets decreased to $85.9 billion from $99.2 billion, primarily due to reduced fair value of fixed maturity securities, leading to a decline in total equity Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $85,939 | $99,171 | | Total Investments | $58,490 | $72,278 | | Total Liabilities | $75,890 | $82,905 | | Long-term borrowings | $1,622 | $1,899 | | Total Equity | $10,049 | $16,266 | | Accumulated other comprehensive income (loss) | $(2,765) | $3,861 | | Retained earnings | $2,924 | $2,490 | Condensed Consolidated Statements of Income Net income available to common stockholders decreased to $104 million in Q3 2022 from $314 million in Q3 2021, driven by lower total revenues and net investment losses Income Statement Summary (in millions, except per share data) | Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,839 | $2,070 | $5,612 | $6,096 | | Net Investment Gains (Losses) | $(69) | $88 | $(33) | $191 | | Income from Continuing Operations | $134 | $306 | $535 | $725 | | Net Income Available to Stockholders | $104 | $314 | $434 | $741 | | Diluted EPS (Net Income) | $0.20 | $0.61 | $0.85 | $1.44 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $645 million for the nine months ended September 30, 2022, while net cash used by financing activities was $(1,107) million Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $645 | $290 | | Net Cash from Investing Activities | $452 | $469 | | Net Cash used by Financing Activities | $(1,107) | $(1,478) | | Net Change in Cash | $(10) | $(719) | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, segment information, investments, and derivatives, highlighting an expected $12.0 billion to $13.0 billion decrease in AOCI due to new long-duration insurance contract accounting guidance - The company operates through three segments: Enact (mortgage insurance), U.S. Life Insurance (long-term care, life, fixed annuities), and Runoff (discontinued products)[27] - A new accounting standard for long-duration insurance contracts, effective January 1, 2023, is expected to have a significant impact. The company estimates a decrease in accumulated other comprehensive income (AOCI) for its long-term care business of approximately $12.0 billion to $13.0 billion as of the transition date (Jan 1, 2021), primarily due to remeasuring liabilities at a lower discount rate[36][37] - The company's Board authorized a $350 million share repurchase program in May 2022. As of September 30, 2022, $34 million had been spent to repurchase 8,980,350 shares[31] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, strategic priorities including debt reduction and Enact's value, and the impact of macroeconomic factors on operations and liquidity Strategic Update Genworth achieved its debt reduction goal, bringing public debt to $900 million, and continued its $350 million share repurchase program while advancing long-term care rate actions - Achieved strategic priority of reducing Genworth Holdings' public debt to approximately $1.0 billion; outstanding debt is now $900 million after redeeming the February 2024 notes[272] - Continued execution of the $350 million share repurchase program, with $34 million in shares repurchased YTD as of September 30, 2022[272] - The long-term care insurance in-force rate action plan has achieved an estimated cumulative economic benefit of $21.0 billion out of a total expected requirement of $28.7 billion[274] Consolidated Results of Operations Consolidated net income and adjusted operating income declined in Q3 2022 and YTD 2022, primarily due to weaker performance in the U.S. Life Insurance segment offsetting strong Enact results Consolidated Financial Results (in millions) | Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income Available to Stockholders | $104 | $314 | $434 | $741 | | Adjusted Operating Income | $159 | $239 | $466 | $601 | Segment Results Enact reported strong adjusted operating income of $156 million, while U.S. Life Insurance declined to $11 million due to long-term care challenges Adjusted Operating Income by Segment (in millions) | Segment | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Enact | $156 | $134 | $458 | $395 | | U.S. Life Insurance | $11 | $93 | $28 | $226 | | Runoff | $9 | $11 | $20 | $38 | | Corporate and Other | $(17) | $1 | $(40) | $(58) | | Total | $159 | $239 | $466 | $601 | - Enact's strong performance was driven by a $63 million net favorable reserve adjustment in Q3 2022, primarily from better-than-expected cures on COVID-19 related delinquencies[305][356] - U.S. Life Insurance results declined due to higher claim severity and frequency in long-term care, a less favorable impact from in-force rate actions, and lower net investment income[306][428] Liquidity and Capital Resources Genworth Holdings maintains $145 million in liquid assets, has no debt maturities until 2034, and expects $150 million from Enact's special dividend to support its share repurchase program - Genworth Holdings held $145 million of unrestricted cash, cash equivalents, and liquid assets as of September 30, 2022[556] - Genworth Holdings has no debt maturities until June 2034 after redeeming its February 2024 notes[556] - Enact Holdings announced a special dividend of $1.12 per share and a $75 million share repurchase program. Genworth expects to receive approximately $150 million from the special dividend[559] Item 3. Quantitative and Qualitative Disclosures About Market Risk A hypothetical 100 basis point interest rate increase would decrease fixed maturity securities' fair value by $3.2 billion, a reduced sensitivity compared to prior year due to existing portfolio value declines - A hypothetical 100 basis point increase in interest rates would cause the fair value of the company's fixed maturity securities to decrease by an estimated $3.2 billion as of September 30, 2022[591] - This sensitivity has decreased from an estimated $4.7 billion decline as of December 31, 2021, primarily because the portfolio's fair value has already decreased due to rising interest rates in 2022[591] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of September 30, 2022, with new internal controls implemented for the upcoming long-duration insurance contracts accounting standard - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2022[592][593] - New internal controls were executed during the quarter related to the implementation of the new accounting guidance for long-duration insurance contracts, which is effective January 1, 2023[594] PART II—OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 12 for details on material pending litigation and regulatory matters, including class action lawsuits related to insurance premium increases - For details on material pending litigation and regulatory matters, the report refers to Note 12 in Part I, Item 1[595] Item 1A. Risk Factors There have been no material changes to the company's risk factors as previously disclosed in its 2021 Annual Report on Form 10-K - There have been no material changes to the company's risk factors as disclosed in the 2021 Annual Report on Form 10-K[596] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Genworth repurchased 5,110,856 shares of common stock in Q3 2022 as part of its $350 million share repurchase program, with $316 million remaining available Issuer Purchases of Common Stock (Q3 2022) | Period | Total Shares Purchased | Average Price Per Share | Approx. Value Remaining ($M) | | :--- | :--- | :--- | :--- | | July 2022 | 4,034,794 | $3.72 | $320 | | August 2022 | 0 | N/A | $320 | | September 2022 | 1,076,062 | $3.95 | $316 | | Total Q3 | 5,110,856 | N/A | $316 | - The share repurchases are part of a $350 million program authorized by the Board of Directors on May 2, 2022[598] Item 6. Exhibits This section lists filed exhibits, including amended bylaws, compensatory plans, CEO/CFO certifications, and XBRL data files - Exhibits filed include amended bylaws, executive compensation plans, and required CEO/CFO certifications[599][600]