~~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, 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, 2019:~~March 31, 2020:


	Less than 12 months							12 months or more							Total							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		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, agenciesand government-sponsored enterprises	$	—	$	—			—	$	51	$	(1	)		9	$	51	$	(1	)		9
State and political subdivisions																						$	106	$	(5	)		18	$	—	$	—			—	$	106	$	(5	)		18
Non-U.S. government		—		—			—		198		(2	)		14		198		(2	)		14		156		(9	)		27		—		—			—		156		(9	)		27
U.S. corporate		372		(15	)		33		1,907		(61	)		256		2,279		(76	)		289		7,358		(685	)		1,157		139		(35	)		16		7,497		(720	)		1,173
Non-U.S. corporate		34		(2	)		5		526		(13	)		82		560		(15	)		87		3,257		(258	)		537		17		(5	)		3		3,274		(263	)		540
Residential mortgage-backed		—		—			—		166		(2	)		39		166		(2	)		39		304		(16	)		59		13		(1	)		6		317		(17	)		65
Commercial mortgage-backed		—		—			—		399		(14	)		53		399		(14	)		53		894		(60	)		152		9		(4	)		3		903		(64	)		155
Other asset-backed		832		(5	)		160		425		(5	)		101		1,257		(10	)		261		2,353		(130	)		455		245		(24	)		64		2,598		(154	)		519

Total for fixed maturity securities inan unrealized loss position	$	1,238	$	(22	)		198	$	3,672	$	(98	)		554	$	4,910	$	(120	)		752	$	14,428	$	(1,163	)		2,405	$	423	$	(69	)		92	$	14,851	$	(1,232	)		2,497

% Below cost:
<20% Below cost	$	1,238	$	(22	)		198	$	3,647	$	(88	)		549	$	4,885	$	(110	)		747	$	13,585	$	(752	)		2,258	$	357	$	(38	)		79	$	13,942	$	(790	)		2,337
20%-50% Below cost		—		—			—		22		(7	)		3		22		(7	)		3		784		(338	)		134		63		(28	)		11		847		(366	)		145
>50% Below cost		—		—			—		3		(3	)		2		3		(3	)		2		59		(73	)		13		3		(3	)		2		62		(76	)		15

Total for fixed maturity securities inan unrealized loss position	$	1,238	$	(22	)		198	$	3,672	$	(98	)		554	$	4,910	$	(120	)		752	$	14,428	$	(1,163	)		2,405	$	423	$	(69	)		92	$	14,851	$	(1,232	)		2,497

Investment grade	$	1,096	$	(11	)		185	$	3,463	$	(83	)		524	$	4,559	$	(94	)		709	$	13,122	$	(927	)		2,171	$	313	$	(42	)		77	$	13,435	$	(969	)		2,248
Below investment grade		142		(11	)		13		209		(15	)		30		351		(26	)		43		1,306		(236	)		234		110		(27	)		15		1,416		(263	)		249

Total for fixed maturity securities inan unrealized loss position	$	1,238	$	(22	)		198	$	3,672	$	(98	)		554	$	4,910	$	(120	)		752	$	14,428	$	(1,163	)		2,405	$	423	$	(69	)		92	$	14,851	$	(1,232	)		2,497

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, 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, 2019:~~March 31, 2020:

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
$
46
$
(4
)
4
$
326
$
(9
)
50
$
372
$
(13
)
54

Energy

60

(2
)
11

143

(8
)
17

203

(10
)
28

Finance and insurance

—

—

—

343

(10
)
46

343

(10
)
46

Consumer—non-cyclical

93

(7
)
12

383

(11
)
49

476

(18
)
61

Technology andcommunications

173

(2
)
6

198

(4
)
22

371

(6
)
28

Industrial

—

—

—

94

(4
)
14

94

(4
)
14

Capital goods

—

—

—

128

(6
)
18

128

(6
)
18

Consumer—cyclical

—

—

—

175

(5
)
24

175

(5
)
24

Transportation

—

—

—

117

(4
)
16

117

(4
)
16

Subtotal, U.S. corporate
securities

372

(15
)
33

1,907

(61
)
256

2,279

(76
)
289

Non-U.S.
corporate:

Utilities

21

(1
)
3

103

(2
)
13

124

(3
)
16

Energy

13

(1
)
2

—

—

—

13

(1
)
2

Finance and insurance

—

—

—

113

(1
)
23

113

(1
)
23

Consumer—non-cyclical

—

—

—

72

(4
)
10

72

(4
)
10

Capital goods

—

—

—

44

(1
)
5

44

(1
)
5

Consumer—cyclical

—

—

—

64

(1
)
10

64

(1
)
10

Transportation

—

—

—

51

(2
)
8

51

(2
)
8

Other

—

—

—

79

(2
)
13

79

(2
)
13

Subtotal,
non-U.S.
corporate
securities

34

(2
)
5

526

(13
)
82

560

(15
)
87

Total for corporate securities in anunrealized loss position
$
406
$
(17
)
38
$
2,433
$
(74
)
338
$
2,839
$
(91
)
376


	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	$	582	$	(22	)		112	$	—	$	—			—	$	582	$	(22	)		112
Energy		1,443		(364	)		240		56		(21	)		9		1,499		(385	)		249
Finance and insurance		1,911		(104	)		259		—		—			—		1,911		(104	)		259
Consumer—non- cyclical		678		(39	)		108		36		(7	)		2		714		(46	)		110
Technology andcommunications		772		(37	)		116		—		—			—		772		(37	)		116
Industrial		473		(31	)		63		—		—			—		473		(31	)		63
Capital goods		489		(25	)		84		12		(3	)		1		501		(28	)		85
Consumer—cyclical		585		(39	)		102		35		(4	)		4		620		(43	)		106
Transportation		420		(23	)		71		—		—			—		420		(23	)		71
Other		5		(1	)		2		—		—			—		5		(1	)		2

Subtotal, U.S. corporate securities		7,358		(685	)		1,157		139		(35	)		16		7,497		(720	)		1,173

Non-U.S. corporate:
Utilities		279		(16	)		37		—		—			—		279		(16	)		37
Energy		591		(102	)		66		—		—			—		591		(102	)		66
Finance and insurance		649		(40	)		117		—		—			—		649		(40	)		117
Consumer—non- cyclical		136		(6	)		50		5		(2	)		1		141		(8	)		51
Technology andcommunications		189		(8	)		48		—		—			—		189		(8	)		48
Industrial		384		(29	)		57		—		—			—		384		(29	)		57
Capital goods		208		(10	)		24		—		—			—		208		(10	)		24
Consumer—cyclical		197		(12	)		43		—		—			—		197		(12	)		43
Transportation		162		(12	)		33		7		(1	)		1		169		(13	)		34
Other		462		(23	)		62		5		(2	)		1		467		(25	)		63

Subtotal, non-U.S. corporate securities		3,257		(258	)		537		17		(5	)		3		3,274		(263	)		540

Total for corporate securities in anunrealized loss position	$	10,615	$	(943	)		1,694	$	156	$	(40	)		19	$	10,771	$	(983	)		1,713

We did not recognize an allowance for credit losses on securities in an unrealized loss position. Based on a qualitative and quantitative review of the issuers of the securities, we believe the decline in fair value is largely

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

due to recent market volatility and is not indicative of credit losses. The issuers continue to make timely principal and interest payments. For all securities in an unrealized loss position, 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.

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Less than 12 months

12 months or more

Total

Gross

Number

Gross

Number

Gross

Number

Fair

unrealized

of

Fair

unrealized

of

Fair

unrealized

of

(Dollar amounts in millions)

value

losses

securities

value

losses

securities

value

losses

securities

Description of Securities

Fixed maturity securities:

U.S. government, agenciesand government-sponsored
enterprises
$
545
$
(8
)
17
$
161
$
(9
)

26
$
706
$
(17
)

43

State and political subdivisions

371

(10
)
63

233

(12
)

57

604

(22
)

120

Non-U.S.
government

261

(7
)
51

508

(17
)

35

769

(24
)

86

U.S. corporate

9,975

(472
)
1,342

2,449

(210
)

365

12,424

(682
)

1,707

Non-U.S.
corporate

4,172

(150
)
614

1,274

(74
)

209

5,446

(224
)

823

Residential mortgage-backed

363

(6
)
57

579

(11
)

96

942

(17
)

153

Commercial mortgage-backed

758

(19
)
115

870

(62
)

130

1,628

(81
)

245

Other asset-backed

1,597

(23
)
326

604

(6
)

137

2,201

(29
)

463

Total for fixed maturity securities in
an unrealized loss position
$
18,042
$
(695
)
2,585
$
6,678
$
(401
)
1,055
$
24,720
$
(1,096
)
3,640

% Below cost:

<20% Below cost
$
18,008
$
(685
)
2,581
$
6,624
$
(383
)
1,045
$
24,632
$
(1,068
)
3,626

20%-50%
Below cost

34

(10
)
4

54

(18
)

10

88

(28
)

14

Total for fixed maturity securities in
an unrealized loss position
$
18,042
$
(695
)
2,585
$
6,678
$
(401
)
1,055
$
24,720
$
(1,096
)
3,640

Investment grade
$
16,726
$
(615
)
2,393
$
6,508
$
(379
)
1,024
$
23,234
$
(994
)

3,417

Below investment grade

1,316

(80
)
192

170

(22
)

31

1,486

(102
)

223

Total for fixed maturity securities in
an unrealized loss position
$
18,042
$
(695
)
2,585
$
6,678
$
(401
)
1,055
$
24,720
$
(1,096
)
3,640


	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:
State and political subdivisions	$	91	$	(2	)		14	$	—	$	—			—	$	91	$	(2	)		14
Non-U.S. government		224		(2	)		20		—		—			—		224		(2	)		20
U.S. corporate		123		(5	)		27		302		(13	)		33		425		(18	)		60
Non-U.S. corporate		79		(1	)		12		62		(4	)		7		141		(5	)		19
Residential mortgage-backed		22		(1	)		10		—		—			—		22		(1	)		10
Commercial mortgage-backed		381		(5	)		51		14		(3	)		3		395		(8	)		54
Other asset-backed		532		(2	)		97		439		(5	)		115		971		(7	)		212

Total for fixed maturity securities in an unrealized loss position	$	1,452	$	(18	)		231	$	817	$	(25	)		158	$	2,269	$	(43	)		389

% Below cost:
<20% Below cost	$	1,452	$	(18	)		231	$	807	$	(20	)		155	$	2,259	$	(38	)		386
20%-50% Below cost		—		—			—		10		(5	)		3		10		(5	)		3

Total for fixed maturity securities in an unrealized loss position	$	1,452	$	(18	)		231	$	817	$	(25	)		158	$	2,269	$	(43	)		389

Investment grade	$	1,408	$	(14	)		223	$	702	$	(15	)		145	$	2,110	$	(29	)		368
Below investment grade		44		(4	)		8		115		(10	)		13		159		(14	)		21

Total for fixed maturity securities in an unrealized loss position	$	1,452	$	(18	)		231	$	817	$	(25	)		158	$	2,269	$	(43	)		389

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Less than 12 months

12 months or more

Total

Gross

Number

Gross

Number

Gross

Number

Fair

unrealized

of

Fair

unrealized

of

Fair

unrealized

of

(Dollar amounts in millions)

value

losses

securities

value

losses

securities

value

losses

securities

Description of Securities

U.S. corporate:

Utilities
$
1,246
$
(61
)
173
$
343
$
(34
)
60
$
1,589
$
(95
)
233

Energy

944

(47
)
135

152

(17
)
23

1,096

(64
)
158

Finance and insurance

2,393

(92
)
326

688

(40
)
95

3,081

(132
)
421

Consumer—non-cyclical

1,826

(101
)
203

389

(36
)
55

2,215

(137
)
258

Technology andcommunications

1,135

(51
)
152

263

(27
)
34

1,398

(78
)
186

Industrial

506

(27
)
63

74

(6
)
13

580

(33
)
76

Capital goods

704

(31
)
103

184

(20
)
27

888

(51
)
130

Consumer—cyclical

738

(35
)
123

162

(13
)
26

900

(48
)
149

Transportation

435

(25
)
60

179

(16
)
31

614

(41
)
91

Other

48

(2
)
4

15

(1
)
1

63

(3
)
5

Subtotal, U.S. corporate
securities

9,975

(472
)
1,342

2,449

(210
)
365

12,424

(682
)
1,707

Non-U.S.
corporate:

Utilities

404

(19
)
58

173

(13
)
24

577

(32
)
82

Energy

439

(15
)
64

136

(8
)
20

575

(23
)
84

Finance and insurance

899

(25
)
151

294

(15
)
52

1,193

(40
)
203

Consumer—non-cyclical

377

(16
)
51

102

(9
)
14

479

(25
)
65

Technology andcommunications

611

(24
)
75

50

(2
)
12

661

(26
)
87

Industrial

275

(11
)
48

72

(6
)
8

347

(17
)
56

Capital goods

226

(7
)
27

69

(3
)
13

295

(10
)
40

Consumer—cyclical

268

(11
)
42

117

(2
)
19

385

(13
)
61

Transportation

232

(7
)
27

67

(8
)
11

299

(15
)
38

Other

441

(15
)
71

194

(8
)
36

635

(23
)
107

Subtotal,
non-U.S.
corporate
securities

4,172

(150
)
614

1,274

(74
)
209

5,446

(224
)
823

Total for corporate securities in anunrealized loss position
$
14,147
$
(622
)
1,956
$
3,723
$
(284
)
574
$
17,870
$
(906
)
2,530


	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:
Energy	$	54	$	(3	)		10	$	80	$	(5	)		10	$	134	$	(8	)		20
Finance and insurance		—		—			—		34		(1	)		4		34		(1	)		4
Consumer—non-cyclical		34		(1	)		9		93		(3	)		9		127		(4	)		18
Technology and communications		—		—			—		18		(1	)		2		18		(1	)		2
Capital goods		35		(1	)		8		—		—			—		35		(1	)		8
Consumer—cyclical		—		—			—		54		(2	)		6		54		(2	)		6
Transportation		—		—			—		23		(1	)		2		23		(1	)		2

Subtotal, U.S. corporate securities		123		(5	)		27		302		(13	)		33		425		(18	)		60

Non-U.S. corporate:
Consumer—non-cyclical		—		—			—		31		(2	)		3		31		(2	)		3
Transportation		—		—			—		25		(1	)		3		25		(1	)		3
Other		79		(1	)		12		6		(1	)		1		85		(2	)		13

Subtotal, non-U.S. corporate securities		79		(1	)		12		62		(4	)		7		141		(5	)		19

Total for corporate securities in anunrealized loss position	$	202	$	(6	)		39	$	364	$	(17	)		40	$	566	$	(23	)		79

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The scheduled maturity distribution of fixed maturity securities as of ~~June 30, 2019~~March 31, 2020 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized
	cost or		Fair
(Amounts in millions)	cost		value		Amortized cost or cost		Fair value
Due one year or less	$	1,957	$	1,973	$	1,415	$	1,421
Due after one year through five years		11,198		11,602		8,835		8,949
Due after five years through ten years		12,300		13,197		12,207		12,642
Due after ten years		23,647		27,548		23,544		27,700

Subtotal		49,102		54,320		46,001		50,712
Residential mortgage-backed		2,511		2,738		2,032		2,273
Commercial mortgage-backed		2,882		2,989		2,876		2,981
Other asset-backed		3,699		3,727		3,227		3,085

Total	$	58,194	$	63,774	$	54,136	$	59,051

As of ~~June 30, 2019,~~March 31, 2020, securities issued by finance and insurance,

consumer—non-cyclical,

utilities and technology and communications

industry groups represented approximately

% 23%,

% 15%, 14% and 11%,

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(Unaudited)

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, 2019,~~March 31, 2020, 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.

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~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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, 2019						December 31, 2018
	Carrying			% of			Carrying			% of			March 31, 2020						December 31, 2019
(Amounts in millions)	value			total			value			total			Carrying value			% of total			Carrying value			% of total
Property type:
Retail	$	2,581			37	%	$	2,463			37	%	$	2,566			37	%	$	2,590			37	%
Industrial		1,699			24			1,659			25			1,646			24			1,670			24
Office		1,656			24			1,548			23			1,641			23			1,632			23
Apartments		525			7			495			7			548			8			541			8
Mixed use		247			4			254			4			279			4			281			4
Other		270			4			281			4			264			4			266			4

Subtotal		6,978			100	%		6,700			100	%		6,944			100	%		6,980			100	%

Unamortized balance of loan origination fees and costs		(4	)					(4	)
Unamortized balance of loan origination fees														—						(4	)
Allowance for credit losses		(11	)					(9	)					(29	)					(13	)

Total	$	6,963					$	6,687					$	6,915					$	6,963


	June 30, 2019						December 31, 2018
	Carrying			% of			Carrying			% of
(Amounts in millions)	value			total			value			total
Geographic region:
South Atlantic	$	1,747			25	%	$	1,709			26	%
Pacific		1,701			24			1,684			25
Middle Atlantic		1,000			14			950			14
Mountain		717			10			667			10
West North Central		490			7			470			7
East North Central		457			7			405			6
West South Central		387			6			364			6
New England		261			4			228			3
East South Central		218			3			223			3

Subtotal		6,978			100	%		6,700			100	%

Unamortized balance of loan origination fees and costs		(4	)					(4	)
Allowance for credit losses		(11	)					(9	)

Total	$	6,963					$	6,687

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(Unaudited)


	March 31, 2020						December 31, 2019
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Geographic region:
South Atlantic	$	1,699			24	%	$	1,715			25	%
Pacific		1,648			24			1,673			24
Middle Atlantic		980			14			992			14
Mountain		763			11			753			11
West North Central		485			7			488			7
East North Central		453			7			455			6
West South Central		451			6			433			6
New England		255			4			257			4
East South Central		210			3			214			3

Subtotal		6,944			100	%		6,980			100	%

Unamortized balance of loan origination fees		—						(4	)
Allowance for credit losses		(29	)					(13	)

Total	$	6,915					$	6,963

The following tables set forth the aging of past due commercial mortgage loans by property type as of the dates indicated:


	June 30, 2019
							Greater than
	31 - 60 days			61 - 90 days			90 days past			Total									March 31, 2020
(Amounts in millions)	past due			past due			due			past due			Current			Total			31 - 60 days past due			61 - 90 days past due			Greater than 90 days past due			Total past due			Current			Total
Property type:
Retail	$	—		$	—		$	—		$	—		$	2,581		$	2,581		$	—		$	—		$	—		$	—		$	2,566		$	2,566
Industrial		—			—			—			—			1,699			1,699			—			—			—			—			1,646			1,646
Office		—			—			—			—			1,656			1,656			—			—			—			—			1,641			1,641
Apartments		—			—			—			—			525			525			—			—			—			—			548			548
Mixed use		—			—			—			—			247			247			—			—			—			—			279			279
Other		—			—			—			—			270			270			—			—			—			—			264			264

Total recorded investment	$	—		$	—		$	—		$	—		$	6,978		$	6,978
% of total commercial mortgage loans		—	%		—	%		—	%		—	%		100	%		100	%


	December 31, 2018
							Greater than
	31 - 60 days			61 - 90 days			90 days past			Total
(Amounts in millions)	past due			past due			due			past due			Current			Total
Property type:
Retail	$	3		$	—		$	—		$	3		$	2,460		$	2,463
Industrial		—			—			—			—			1,659			1,659
Office		—			—			3			3			1,545			1,548
Apartments		—			—			—			—			495			495
Mixed use		—			—			—			—			254			254
Other		—			—			—			—			281			281

Total recorded investment	$	3		$	—		$	3		$	6		$	6,694		$	6,700
Total amortized cost																			$	—		$	—		$	—		$	—		$	6,944		$	6,944

% of total commercial mortgage loans		—	%		—	%		—	%		—	%		100	%		100	%		—	%		—	%		—	%		—	%		100	%		100	%

As of June 30, 2019 and December 31, 2018, we had no commercial mortgage loans that were past due for more than 90 days and still accruing interest. We also did not have any commercial mortgage loans that were past due for less than 90 days on

~~non-accrual~~

~~status as of June 30, 2019 and December 31, 2018.~~

We evaluate the impairment of commercial mortgage loans on an individual loan basis. As of June 30, 2019, none of our commercial mortgage loans were greater than 90 days past due. As of December 31, 2018, our commercial mortgage loans greater than 90 days past due included one impaired loan with a carrying value

of $3 million. This loan was modified and the modification was considered to be a troubled debt restructuring. As part of this troubled debt restructuring, we forgave default interest, penalties and fees, and modified the original contractual interest rate but we did not forgive the outstanding principal amount owed by the borrower.

During the six months ended June 30, 2019 and the year ended December 31, 2018, we also modified or extended one and two commercial mortgage loans, respectively, with a total carrying value of $11 million and $12 million, respectively. All of these modifications or extensions were based on current market interest rates, did not result in any forgiveness of the outstanding principal amount owed by the borrower and were not considered troubled debt restructurings.24

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	December 31, 2019
(Amounts in millions)	31 - 60 days past due			61 - 90 days past due			Greater than 90 days past due			Total past due			Current			Total
Property type:
Retail	$	—		$	—		$	—		$	—		$	2,590		$	2,590
Industrial		—			—			—			—			1,670			1,670
Office		—			—			—			—			1,632			1,632
Apartments		—			—			—			—			541			541
Mixed use		—			—			—			—			281			281
Other		—			—			—			—			266			266

Total recorded investment	$	—		$	—		$	—		$	—		$	6,980		$	6,980

% of total commercial mortgage loans		—	%		—	%		—	%		—	%		100	%		100	%

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 2019 Annual Report on Form

10-K.

As of March 31, 2020 and December 31, 2019, we had 0 commercial mortgage loans on

non-accrual

status.

During the three months ended March 31, 2020 and the year ended December 31, 2019, we did 0t have any modifications or extensions that were considered troubled debt restructurings.

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


	Three months ended				Six months ended
	June 30,				June 30,				Three months ended March 31,
(Amounts in millions)	2019		2018		2019		2018		2020		2019
Allowance for credit losses:
Beginning balance	$	10	$	9	$	9	$	9	$	13	$	9
Charge-offs		—		—		—		—
Cumulative effect of change in accounting										16		—
Provision										—		—
Write-offs										—		—
Recoveries		—		—		—		—		—		1
Provision		1		—		2		—

Ending balance	$	11	$	9	$	11	$	9	$	29	$	10

Ending allowance for individually impaired loans	$	—	$	—	$	—	$	—

Ending allowance for loans not individually impaired that were evaluated collectively for impairment	$	11	$	9	$	11	$	9

Recorded investment:
Ending balance	$	6,978	$	6,492	$	6,978	$	6,492

Ending balance of individually impaired loans	$	—	$	6	$	—	$	6

Ending balance of loans not individually impaired that were evaluated collectively for impairment	$	6,978	$	6,486	$	6,978	$	6,486

~~As of June 30, 2019~~

~~, we had no individually impaired loans. As of~~

December 31, 2018, we had one individually impaired loan within the office property type with a recorded investment and unpaid principal balance of $3 million and as of June 30, 2018, this individually impaired loan had a recorded investment and unpaid principal balance of $6 million.

In evaluating the credit quality of commercial mortgage loans, we assess the performance of the underlying loans using both quantitative and qualitative criteria. Certain risks associated with commercial mortgage loans can be evaluated by reviewing both the

~~loan-to-value~~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

~~loan-to-value~~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

~~loan-to-value~~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 was 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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

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~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following tables set forth the

~~loan-to-value~~debt-to-value

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

June 30, 2019

(Amounts in millions)

0% - 50%

51% - 60%

61% - 75%

76% - 100%

Greater
than 100%

(1)

Total

Property type:

Retail
$
882
$
534
$
1,152
$
13
$
—
$
2,581

Industrial

732

284

674

7

2

1,699

Office

587

378

691

—

—

1,656

Apartments

200

97

223

5

—

525

Mixed use

102

43

102

—

—

247

Other

47

63

160

—

—

270

Total recorded investment
$
2,550
$
1,399
$
3,002
$
25
$
2
$
6,978

% of total

37
%
20
%
43
%
—
%
—
%
100
%

Weighted-average debt service coverage ratio

2.39

1.84

1.57

1.34

0.88

1.92


	March 31, 2020
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100%			Total
Property type:
Retail	$	956		$	587		$	1,023		$	—		$	—		$	2,566
Industrial		787			323			536			—			—			1,646
Office		550			353			738			—			—			1,641
Apartments		220			110			218			—			—			548
Mixed use		103			70			106			—			—			279
Other		55			69			140			—			—			264

Total amortized cost	$	2,671		$	1,512		$	2,761		$	—		$	—		$	6,944

% of total		38	%		22	%		40	%		—	%		—	%		100	%

Weighted-average debt service coverage ratio		2.31			1.82			1.55			—			—			1.90

~~(1)~~

~~Included a loan with a recorded investment of $2 million in good standing, where the borrower continued to make timely payments, with a~~

~~loan-to-value~~

~~of 103%. We evaluated this loan on an individual basis and as it is in good standing, the current recorded investment is expected to be recoverable.~~

December 31, 2018

(Amounts in millions)

0% - 50%

51% - 60%

61% - 75%

76% - 100%

Greater
than 100%

(1)

Total

Property type:

Retail
$
866
$
565
$
1,017
$
15
$
—
$
2,463

Industrial

749

279

615

14

2

1,659

Office

585

373

588

2

—

1,548

Apartments

206

95

189

5

—

495

Mixed use

105

36

113

—

—

254

Other

43

78

160

—

—

281

Total recorded investment
$
2,554
$
1,426
$
2,682
$
36
$
2
$
6,700

% of total

38
%
21
%
40
%
1
%
—
%
100
%

Weighted-average debt service coverage ratio

2.42

2.04

1.59

1.38

0.88

2.00


	December 31, 2019
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100%			Total
Property type:
Retail	$	986		$	579		$	1,025		$	—		$	—		$	2,590
Industrial		808			337			525			—			—			1,670
Office		529			380			723			—			—			1,632
Apartments		211			110			220			—			—			541
Mixed use		104			70			107			—			—			281
Other		56			69			141			—			—			266

Total recorded investment	$	2,694		$	1,545		$	2,741		$	—		$	—		$	6,980

% of total		39	%		22	%		39	%		—	%		—	%		100	%

Weighted-average debt service coverage ratio		2.32			1.81			1.55			—			—			1.90

~~(1)~~

~~Included a loan with a recorded investment of $2 million in good standing, where the borrower continued to make timely payments, with a~~

~~loan-to-value~~

~~of 105%. We evaluated this loan on an individual basis and as it is in good standing, the current recorded investment is expected to be recoverable.~~

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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, 2019																		March 31, 2020
(Amounts in millions)	Less than 1.00			1.00 - 1.25			1.26 - 1.50			1.51 - 2.00			Greater than 2.00			Total			Less than 1.00			1.00 - 1.25			1.26 - 1.50			1.51 - 2.00			Greater than 2.00			Total
Property type:
Retail	$	33		$	147		$	604		$	1,238		$	559		$	2,581		$	65		$	138		$	601		$	1,126		$	636		$	2,566
Industrial		22			68			254			711			644			1,699			24			50			217			655			700			1,646
Office		51			47			213			833			512			1,656			41			113			273			745			469			1,641
Apartments		4			24			107			196			194			525			16			31			130			186			185			548
Mixed use		3			18			52			79			95			247			3			18			37			105			116			279
Other		12			132			52			40			34			270			34			146			19			31			34			264

Total recorded investment	$	125		$	436		$	1,282		$	3,097		$	2,038		$	6,978
Total amortized cost																			$	183		$	496		$	1,277		$	2,848		$	2,140		$	6,944

% of total		2	%		6	%		18	%		45	%		29	%		100	%		3	%		7	%		18	%		41	%		31	%		100	%

Weighted-average loan-to-value		55	%		61	%		64	%		59	%		42	%		55	%
Weighted-average debt-to-value																				58	%		61	%		63	%		58	%		41	%		54	%


	December 31, 2018																		December 31, 2019
(Amounts in millions)	Less than 1.00			1.00 - 1.25			1.26 - 1.50			1.51 - 2.00			Greater than 2.00			Total			Less than 1.00			1.00 - 1.25			1.26 - 1.50			1.51 - 2.00			Greater than 2.00			Total
Property type:
Retail	$	43		$	157		$	448		$	1,234		$	581		$	2,463		$	68		$	141		$	596		$	1,148		$	637		$	2,590
Industrial		22			75			233			653			676			1,659			24			51			221			658			716			1,670
Office		57			56			156			765			514			1,548			44			89			277			751			471			1,632
Apartments		4			24			104			168			195			495			16			32			129			175			189			541
Mixed use		3			19			51			80			101			254			4			16			37			107			117			281
Other		13			134			50			50			34			281			34			147			20			31			34			266

Total recorded investment	$	142		$	465		$	1,042		$	2,950		$	2,101		$	6,700		$	190		$	476		$	1,280		$	2,870		$	2,164		$	6,980

% of total		2	%		7	%		16	%		44	%		31	%		100	%		3	%		7	%		18	%		41	%		31	%		100	%

Weighted-average loan-to-value		57	%		61	%		62	%		59	%		42	%		54	%
Weighted-average debt-to-value																				59	%		61	%		63	%		58	%		41	%		54	%

~~(f) Restricted Commercial Mortgage Loans Related To A Securitization Entity~~27

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~We have a consolidated securitization entity that holds~~

(Unaudited)

The following tables set forth commercial mortgage loans ~~that are recorded~~by year of origination and credit quality indicator as ~~restricted commercial mortgage loans related to a securitization entity. Our primary economic interest in this securitization entity represents the excess interest~~ of ~~the commercial mortgage loans.~~March 31, 2020:


(Amounts in millions)	2020		2019		2018		2017		2016		2015 and prior		Total
Debt-to-value:
0% - 50%	$	4	$	11	$	33	$	104	$	118	$	2,401	$	2,671
51% - 60%		12		29		170		280		149		872		1,512
61% - 75%		91		763		800		351		240		516		2,761
76% - 100%		—		—		—		—		—		—		—
Greater than 100%		—		—		—		—		—		—		—

Total amortized cost	$	107	$	803	$	1,003	$	735	$	507	$	3,789	$	6,944


Debt service coverage ratio:
Less than 1.00	$	—	$	—	$	34	$	3	$	—	$	146	$	183
1.00 - 1.25		24		12		107		74		13		266		496
1.26 - 1.50		16		360		261		97		88		455		1,277
1.51 - 2.00		53		358		507		324		275		1,331		2,848
Greater than 2.00		14		73		94		237		131		1,591		2,140

Total amortized cost	$	107	$	803	$	1,003	$	735	$	507	$	3,789	$	6,944


Write-offs, gross	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Recoveries		—		—		—		—		—		—		—

Write-offs, net	$	—	$	—	$	—	$	—	$	—	$	—	$	—

~~(g)~~(f) Limited Partnerships or Similar Entities

Limited partnerships are accounted for at fair value when our partnership interest is considered minor (generally less than 3% ownership in the limited partnerships) and we exercise no influence over operating and financial policies. If our ownership percentage exceeds that threshold, limited partnerships are accounted for using the equity method of accounting. In applying either method, we use financial information provided by the investee generally on a

one-to-three

month lag. However, we consider whether an adjustment to the estimated fair value is necessary when the measurement date is not aligned with our reporting date.

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~nvestments~~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~~

~~2019~~

March 31, 2020 and December

31,

~~2018~~

, 2019, the total carrying value of these investments was $

~~489~~

$654 million and $

~~394~~

$616 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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(5) 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.

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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


	Derivative assets					Derivative liabilities					Derivative assets					Derivative liabilities
		Fair value					Fair value				Balance sheet classification	Fair value				Balance sheet classification	Fair value
(Amounts in millions)	Balance sheet classification	June 30, 2019		December 31, 2018		Balance sheet classification	June 30, 2019		December 31, 2018		Balance sheet classification	March 31, 2020		December 31, 2019		Balance sheet classification	March 31, 2020		December 31, 2019
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps	Other invested assets	$	144	$	42	Other liabilities	$	10	$	102	Other invested assets	$	1,002	$	197	Other liabilities	$	—	$	10
Foreign currency swaps	Other invested assets		5		6	Other liabilities		1		—	Other invested assets		21		4	Other liabilities		—		—

Total cash flow hedges			149		48			11		102			1,023		201			—		10

Total derivatives designated as hedges			149		48			11		102			1,023		201			—		10

Derivatives not designated as hedges
Interest rate swaps in aforeign currency	Other invested assets		35		74	Other liabilities		—		—
Interest rate caps and floors	Other invested assets		16		7	Other liabilities		—		—
Foreign currency swaps	Other invested assets		1		—	Other liabilities		7		23
Equity index options	Other invested assets		65		39	Other liabilities		—		—	Other invested assets		62		81	Other liabilities		—		—
Financial futures	Other invested assets		—		—	Other liabilities		—		—	Other invested assets		—		—	Other liabilities		—		—
Equity return swaps	Other invested assets		—		—	Other liabilities		—		1
Other foreign currency contracts	Other invested assets		14		10	Other liabilities		25		42	Other invested assets		16		8	Other liabilities		14		1
GMWB embeddedderivatives	Reinsurance recoverable (1)		20		20	Policyholder account balances (2)		325		337	Reinsurance recoverable (1)		47		20	Policyholder account balances (2)		691		323
Fixed index annuity embedded derivatives	Other assets		—		—	Policyholder account balances (3)		438		389	Other assets		—		—	Policyholder account balances (3)		413		452
Indexed universal lifeembedded derivatives	Reinsurance recoverable		—		—	Policyholder account balances (4)		15		12	Reinsurance recoverable		—		—	Policyholder account balances (4)		21		19

Total derivatives not designated as hedges			151		150			810		804			125		109			1,139		795

Total derivatives		$	300	$	198		$	821	$	906		$	1,148	$	310		$	1,139	$	805

(1)	Represents embedded derivatives associated with the reinsured portion of our guaranteed minimum withdrawal benefits (“GMWB”) liabilities.

(2)	Represents the embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.

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

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

Table of Contents

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.

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for GMWB embedded derivatives, fixed index annuity embedded derivatives and indexed universal life embedded derivatives, the change between periods is best illustrated by the number of policies. The following tables represent activity associated with derivative instruments as of the dates indicated:


(Notional in millions)	Measurement		December 31, 201 8		Additions		Maturities/ terminations			June 30, 2019		Measurement		December 31, 2019		Additions		Maturities/ terminations			March 31, 2020
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps		Notional	$	9,924	$	469	$	( 1,338	)	$	9,055		Notional	$	8,968	$	1,158	$	(1,102	)	$	9,024
Foreign currency swaps		Notional		80		52		(22	)		110		Notional		110		—		—			110

Total cash flow hedges				10,004		521		(1,360	)		9,165				9,078		1,158		(1,102	)		9,134

Total derivatives designated as hedges				10,004		521		(1,360	)		9,165				9,078		1,158		(1,102	)		9,134

Derivatives not designated as hedges
Interest rate swaps		Notional		4,674		—		—			4,674		Notional		4,674		—		—			4,674
Interest rate swaps in a foreign currency		Notional		2,565		187		(77	)		2,675
Interest rate caps and floors		Notional		2,624		160		(66	)		2,718
Foreign currency swaps		Notional		453		—		(2	)		451
Equity index options		Notional		2,628		939		(1,035	)		2,532		Notional		2,451		509		(531	)		2,429
Financial futures		Notional		1,415		3,029		(3,217	)		1,227		Notional		1,182		1,651		(1,266	)		1,567
Equity return swaps		Notional		17		2		(2	)		17
Other foreign currency contracts		Notional		1,080		2,925		(2,704	)		1,301		Notional		628		1,819		(1,308	)		1,139

Total derivatives not designated as hedges				15,456		7,242		(7,103	)		15,595				8,935		3,979		(3,105	)		9,809

Total derivatives			$	25,460	$	7,763	$	( 8,463	)	$	24,760			$	18,013	$	5,137	$	(4,207	)	$	18,943


(Number of policies)	Measurement		December 31, 2018		Additions		Maturities/ terminations			June 30, 2019		Measurement		December 31, 2019		Additions		Maturities/ terminations			March 31, 2020
Derivatives not designated as hedges
GMWB embedded derivatives		Policies		27,886		—		(1,139	)		26,747		Policies		25,623		—		(561	)		25,062
Fixed index annuity embedded derivatives		Policies		16,464		—		(410	)		16,054		Policies		15,441		—		(317	)		15,124
Indexed universal life embedded derivatives		Policies		929		—		(21	)		908		Policies		884		—		(18	)		866

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

Table of Contents

GENWORTH FINANCIAL, INC.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following table provides information about the~~

~~pre-tax~~

~~income effects of cash flow hedges for the three months ended June 30, 2019:~~

Gain (loss)
reclassified into

Classification of
gain
(loss)

Gain (loss)

Classification of
gain
(loss)

Gain (loss)

net income

reclassified into

recognized in

recognized in
net

(Amounts in millions)

recognized in OCI

from OCI

net income

net income

income

Interest rate swaps hedging
assets
$
216
$
42

Net investment income
$
—

Net investment gains (losses)

Interest rate swaps hedging
assets

—

(4
)
Net investment gains (losses)

—

Net investment gains (losses)

Interest rate swaps hedging
liabilities

(20
)
—

Interest expense

—

Net investment gains (losses)

Foreign currency swaps

2

(1
)
Net investment income

—

Net investment gains (losses)

Total
$
198
$
37
$
—

~~The following table provides information about the~~

~~pre-tax~~

~~income effects of cash flow hedges for the three months ended June 30, 2018:~~

Gain (loss)
reclassified into

Classification of
gain
(loss)

Gain (loss)

Classification of
gain
(loss)

Gain (loss)

net income

reclassified into

recognized in

recognized in
net

(Amounts in millions)

recognized in OCI

from OCI

net income

net income

income

Interest rate swaps hedging
assets
$
(54
) $
39

Net investment income
$
—

Net investment gains (losses)

Interest rate swaps hedging
liabilities

5

—

Interest expense

—

Net investment gains (losses)

Foreign currency swaps

1

—

Net investment income

—

Net investment gains (losses)

Total
$
(48
) $
39
$
—

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides information about the

pre-tax

income (loss) effects of cash flow hedges for the ~~six~~three months ended ~~June 30, 2019:~~March 31, 2020:


				Gain (loss) reclassified into			Classification of gain (loss)	Gain (loss)		Classification of gain (loss)
	Gain (loss)			net income			reclassified into	recognized in		recognized in
(Amounts in millions)	recognized in OCI			from OCI			net income	net income		net income	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI		Classification of gain (loss) reclassified into net income (loss)		Gain (loss) recognized in net income (loss)		Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	353		$	80		Net investment income	$	—	Net investment gains (losses)	$	1,041		$	43		Net investment income	$	—		Net investment gains (losses)
Interest rate swaps hedging assets		—			2		Net investment gains (losses)		—	Net investment gains (losses)		—			4		Net investment gains (losses)		—		Net investment gains (losses)
Interest rate swaps hedging liabilities		(32	)		—		Interest expense		—	Net investment gains (losses)		(63	)		—		Interest expense		—		Net investment gains (losses)
Foreign currency swaps		(1	)		(1	)	Net investment income		—	Net investment gains (losses)		17			—		Net investment income		—		Net investment gains (losses)
Foreign currency swaps		—			—		Net investment gains (losses)		2	Net investment gains (losses)

Total	$	320		$	81			$	2		$	995		$	47			$	—

The following table provides information about the

pre-tax

income (loss) effects of cash flow hedges for the ~~six~~three months ended ~~June 30, 2018:~~March 31, 2019:

Gain (loss)
reclassified into

Classification of
gain
(loss)

Gain (loss)

Classification of
gain
(loss)

Gain (loss)

net income

reclassified into

recognized in

recognized in

(Amounts in millions)

recognized in OCI

from OCI

net income

net income

net income

Interest rate swaps hedging
assets
$
(227
) $
74

Net investment income
$
—

Net investment gains (losses)

Interest rate swaps hedging
assets

—

5

Net investment gains (losses)

—

Net investment gains (losses)

Interest rate swaps hedging
liabilities

22

—

Interest expense

—

Net investment gains (losses)

Total
$
(205
) $
79
$
—


(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI		Classification of gain (loss) reclassified into net income (loss)		Gain (loss) recognized in net income (loss)		Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	137		$	38		Net investment income	$	—		Net investment gains (losses)
Interest rate swaps hedging assets		—			6		Net investment gains (losses)		—		Net investment gains (losses)
Interest rate swaps hedging liabilities		(12	)		—		Interest expense		—		Net investment gains (losses)
Foreign currency swaps		(3	)		—		Net investment income		—		Net investment gains (losses)
Forward currency swaps		—			—		Net investment gains (losses)		2		Net investment gains (losses)

Total	$	122		$	44			$	2

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Three months ended
June 30,

(Amounts in millions)

2019

2018

Derivatives qualifying as effective accounting hedges as of April 1 $
1,850
$
1,927

Current period increases (decreases) in fair value, net of deferred taxes of $(41) and $9 157 (39 )
Reclassification to net (income), net of deferred taxes of $13 and $14 (24 ) (25 )

Derivatives qualifying as effective accounting hedges as of June 30 $
1,983
$
1,863


	Three months ended March 31,
(Amounts in millions)	2020			2019
Derivatives qualifying as effective accounting hedges as of January 1	$	2,002		$	1,781
Current period increases (decreases) in fair value, net of deferred taxes of $(212) and $(25)		783			97
Reclassification to net (income) loss, net of deferred taxes of $17 and $16		(30	)		(28	)

Derivatives qualifying as effective accounting hedges as of March 31	$	2,755		$	1,850

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Six months ended
June 30,

(Amounts in millions)

2019

2018

Derivatives qualifying as effective accounting hedges as of January 1 $
1,781
$
2,065

Cumulative effect of changes in accounting:
Stranded tax effects —   12
Changes to the hedge accounting model, net of deferred taxes of $— and $(1) —   2

Total cumulative effect of changes in accounting —   14

Current period increases (decreases) in fair value, net of deferred taxes of $(66) and $43 254 (165 )
Reclassification to net (income), net of deferred taxes of $29 and $28 (52 ) (51 )

Derivatives qualifying as effective accounting hedges as of June 30 $
1,983
$
1,863

The total of derivatives designated as cash flow hedges of ~~$1,983~~$2,755 million, net of taxes, recorded in stockholders’ equity as of ~~June 30, 2019~~March 31, 2020 is expected to be reclassified to net income (loss) in the future, concurrently with and primarily offsetting changes in interest expense and interest income on floating rate instruments and interest income on future fixed rate bond purchases. Of this amount, ~~$112~~$120 million, net of taxes, is expected to be reclassified to net income (loss) in the next 12 months. Actual amounts may vary from this amount as a result of market conditions. All forecasted transactions associated with qualifying cash flow hedges are expected to occur by 2057. During the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ we reclassified ~~net gains of~~ $2 million and $5$4 million, respectively, to net income (loss) in connection with forecasted transactions that were no longer considered probable of occurring.

Derivatives Not Designated As Hedges

We also enter into certain

non-qualifying

derivative instruments such as: (i) interest rate swaps and financial futures to mitigate interest rate risk as part of managing regulatory capital positions; (ii) equity index options, equity return swaps, interest rate swaps and financial futures to mitigate the risks associated with liabilities that have guaranteed minimum benefits, fixed index annuities and indexed universal life; (iii) interest rate ~~swaps in a foreign currency and interest rate~~ caps ~~and floors~~ where the hedging relationship does not qualify for hedge accounting; (iv) foreign currency ~~swaps,~~forward contracts to mitigate currency risk associated with

non-functional

currency investments held by certain foreign subsidiaries; and (v) foreign currency options and forward contracts to mitigate currency risk associated with ~~non-functional currency investments held by certain foreign subsidiaries and~~ future dividends or other cash flows from certain foreign subsidiaries to our holding ~~company; and (v) equity index options to mitigate certain macroeconomic risks associated with certain foreign subsidiaries.~~company. Additionally, we provide GMWBs on certain variable annuities that are required to be bifurcated as embedded derivatives. We also offer fixed index annuity and indexed universal life insurance products and have reinsurance agreements with certain features that are required to be bifurcated as embedded derivatives.

Table of Contents

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following ~~tables provide~~table provides the

pre-tax

gain (loss) recognized in net income (loss) for the effects of derivatives not designated as hedges for the periods indicated:


	Three months ended June 30,						Classification of gain (loss) recognized		Three months ended March 31,					Classification of gain (loss) recognized in net income (loss)
(Amounts in millions)	2019			2018			in net income	2020			2019
Interest rate swaps	$	(3	)	$	(2	)	Net investment gains (losses)	$	(10	)	$	(1	)	Net investment gains (losses)
Interest rate swaps in a foreign currency		(6	)		—		Net investment gains (losses)
Interest rate caps and floors		3			—		Net investment gains (losses)
Foreign currency swaps		6			(10	)	Net investment gains (losses)
Equity index options		10			8		Net investment gains (losses)		(13	)		17		Net investment gains (losses)
Financial futures		17			(13	)	Net investment gains (losses)		261			(44	)	Net investment gains (losses)
Equity return swaps		1			1		Net investment gains (losses)
Other foreign currency contracts		(3	)		1		Net investment gains (losses)		(47	)		—		Net investment gains (losses)
GMWB embedded derivatives		(22	)		13		Net investment gains (losses)		(336	)		45		Net investment gains (losses)
Fixed index annuity embedded derivatives		(20	)		(15	)	Net investment gains (losses)		32			(38	)	Net investment gains (losses)
Indexed universal life embedded derivatives		(1	)		2		Net investment gains (losses)		4			1		Net investment gains (losses)

Total derivatives not designated as hedges	$	(18	)	$	(15	)		$	(109	)	$	(20	)

Six months ended
June 30,

Classification of gain (loss) recognized

(Amounts in millions)

2019

2018

in net income
Interest rate swaps
$
(4
) $
(3
)
Net investment gains (losses)
Interest rate swaps in a foreign currency

(29
)
—

Net investment gains (losses)
Interest rate caps and floors

9

—

Net investment gains (losses)
Foreign currency swaps

16

(18
)
Net investment gains (losses)
Equity index options

27

(7
)
Net investment gains (losses)
Financial futures

(27
)
(37
)
Net investment gains (losses)
Equity return swaps

1

(4
)
Net investment gains (losses)
Other foreign currency contracts

6

9

Net investment gains (losses)
GMWB embedded derivatives

23

27

Net investment gains (losses)
Fixed index annuity embedded derivatives

(58
)
(7
)
Net investment gains (losses)
Indexed universal life embedded derivatives

—

7

Net investment gains (losses)

Total derivatives not designated as hedges
$
(36
) $
(33
)

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Derivative Counterparty Credit Risk

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

June 30,
2019

December 31,
2018

(Amounts in millions)

Derivatives
assets
(1)

Derivatives
liabilities
(2)

Net
derivatives

Derivatives
assets
(1)

Derivatives
liabilities
(2)

Net
derivatives

Amounts presented in the balance sheet:

Gross amounts recognized
$
287
$
44
$
243
$
185
$
169
$
16

Gross amounts offset in the balance sheet

—

—

—

—

—

—

Net amounts presented in the balance sheet

287

44

243

185

169

16

Gross amounts not offset in the balance sheet:

Financial instruments
(3)

(35
)
(35
)
—

(66
)

(66
)

—

Collateral received

(77
)
—

(77
)
(84
)

—

(84
)
Collateral pledged

—

(327
)
327

—

(536
)

536

Over collateralization

—

318

(318
)
10

433

(423
)

Net amount
$
175
$
—
$
175
$
45
$
—
$
45


	March 31, 2020									December 31, 2019
(Amounts in millions)	Derivative assets (1)			Derivative liabilities (2)			Net derivatives			Derivative assets (1)			Derivative liabilities (2)			Net derivatives
Amounts presented in the balance sheet:
Gross amounts recognized	$	1,102		$	14		$	1,088		$	291		$	11		$	280
Gross amounts offset in the balance sheet		—			—			—			—			—			—

Net amounts presented in the balance sheet		1,102			14			1,088			291			11			280
Gross amounts not offset in the balance sheet:
Financial instruments (3)		—			—			—			(7	)		(7	)		—
Collateral received		(1,016	)		—			(1,016	)		(179	)		—			(179	)
Collateral pledged		—			(451	)		451			—			(405	)		405
Over collateralization		42			437			(395	)		18			401			(383	)

Net amount	$	128		$	—		$	128		$	123		$	—		$	123

(1)	Included ~~$7 million and $6~~$1 million of accruals on derivatives classified as other assets ~~and does not include amounts related to embedded derivatives~~ as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, respectively.~~

~~(2)~~

~~Included $1 million of accruals on derivatives included in other liabilities as of June 30,~~ 2019 and does not include amounts related to embedded derivatives as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

(2)	Does not include amounts related to embedded derivatives as of March 31, 2020 and December 31, 2019.

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

~~(6) Fair Value of Financial Instruments~~

Assets and liabilities that are reflected in the accompanying unaudited condensed consolidated financial statements at fair value are not included in the following disclosure of fair value. Such items include cash, cash equivalents and restricted cash, short-term investments, investment securities, separate accounts, securities held as collateral and derivative instruments. Apart from certain of our borrowings and certain marketable securities, few of the instruments are actively traded and their fair values must often be determined using models. The fair value estimates are made at a specific point in time, based upon available market information and judgments

Table of Contents

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

about the financial instruments, including estimates of the timing and amount of expected future cash flows and the credit standing of counterparties. Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets.

~~The following represents our estimated fair value of financial assets and liabilities that are not required to be carried at fair value as of the dates indicated:~~

June 30, 2019

Notional

Carrying

Fair value

(Amounts in millions)

amount

amount

Total

Level
1

Level
2

Level
3

Assets:

Commercial mortgage loans

(1
) $
6,963
$
7,241
$
—
$
—
$
7,241

Restricted commercial mortgage loans

( 1
)
56

61

—

—

61

Other invested assets:

Bank loan investments

( 1
)
337

336

—

—

336

Liabilities:

Long-term borrowings

( 1
)
4,044

3,622

—

3,480

142

Non-recourse
funding obligations

( 1
)
311

215

—

—

215

Investment contracts

( 1
)
12,364

13,194

—

—

13,194

Other firm commitments:

Commitments to fund limited partnerships

903

—

—

—

—

—

Commitments to fund bank loan investments

52

—

—

—

—

—

Ordinary course of business lending
commitments

188

—

—

—

—

—

December 31, 2018

Notional

Carrying

Fair value

(Amounts in millions)

amount

amount

Total

Level
1

Level
2

Level
3

Assets:

Commercial mortgage loans

(1) $
6,687
$
6,737
$
—
$
—
$
6,737

Restricted commercial mortgage loans

(1)
62

66

—

—

66

Other invested assets:

Bank loan investments

(1)
248

248

—

—

248

Liabilities:

Long-term borrowings

(1)
4,025

3,577

—

3,434

143

Non-recourse
funding obligations

(1)
311

215

—

—

215

Investment contracts

(1)
13,105

13,052

—

—

13,052

Other firm commitments:

Commitments to fund limited partnerships

539

—

—

—

—

—

Commitments to fund bank loan investments

33

—

—

—

—

—

Ordinary course of business lending
commitments

73

—

—

—

—

—

~~(1)~~

~~These financial instruments do not have notional amounts.~~

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(6) Fair Value of Financial Instruments

Recurring Fair Value Measurements

We have fixed maturity securities, short-term investments, equity securities, limited partnerships, derivatives, embedded derivatives, securities held as collateral, separate account assets and certain other financial instruments, which are carried at fair value. Below is a description of the valuation techniques and inputs used to determine fair value by class of instrument.

~~Limited partnerships~~

Limited partnerships are valued based on comparable market transactions, discounted future cash flows, quoted market prices and/or estimates using the most recent data available for the underlying instrument. We utilize the net asset value (“NAV”) of the underlying fund statements as a practical expedient for fair value.

Fixed maturity, short-term investments and equity securities

The fair value of fixed maturity securities, short-term investments and equity securities are estimated primarily based on information derived from third-party pricing services (“pricing services”), internal models and/or broker quotes, which use a market approach, income approach or a combination of the market and income approach depending on the type of instrument and availability of information. In general, a market approach is utilized if there is readily available and relevant market activity for an individual security. In certain cases where market information is not available for a specific security but is available for similar securities, a security is valued using that market information for similar securities, which is also a market approach. When market information is not available for a specific security or is available but such information is less relevant or reliable, an income approach or a combination of a market and income approach is utilized. For securities with optionality, such as call or prepayment features (including mortgage-backed or asset-backed securities), an income approach may be used. In addition, a combination of the results from market and income approaches may be used to estimate fair value. These valuation techniques may change from period to period, based on the relevance and availability of market data.

We utilize certain third-party data providers when determining fair value. We consider information obtained from pricing services as well as broker quotes in our determination of fair value. Additionally, we utilize internal models to determine the valuation of securities using an income approach where the inputs are based on third-party provided market inputs. While

Further, while we consider the valuations provided by pricing services and broker quotes to be of high quality, management determines the fair value of our investment securities after considering all relevant and available information. We also use various methods to obtain an understanding of the valuation methodologies and procedures used by third-party data providers to ensure sufficient understanding to evaluate the valuation data received, including an understanding of the assumptions and inputs utilized to determine the appropriate fair value. For pricing services, we analyze the prices provided by our primary pricing services to other readily available pricing services and perform a detailed review of the assumptions and inputs from each pricing service to determine the appropriate fair value when pricing differences exceed certain thresholds. We evaluate changes in fair value that are greater than certain

~~pre-defined~~

thresholds each month to further aid in our review of the accuracy of fair value measurements and our understanding of changes in fair value, with more detailed reviews performed by the asset managers responsible for the related asset class associated with the security being reviewed. A pricing committee provides additional oversight and guidance in the evaluation and review of the pricing methodologies used to value our investment portfolio.

In general, we first obtain valuations from ~~pricing services. For certain private fixed maturity securities where we do not obtain valuations from pricing services, we utilize an internal model to determine fair value~~

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~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~since transactions for identical securities are not readily observable and these securities are not typically valued by~~ pricing services. If prices are unavailable from public pricing services, we obtain broker quotes. For all securities, excluding certain private fixed maturity securities, if neither a pricing service nor broker quotes valuation is available, we determine fair value using internal models.

For certain private fixed maturity securities where we do not obtain valuations from pricing services, we ~~obtain~~utilize an understanding of the pricing methodologies and procedures for each type of instrument. Additionally, on a monthly basis we review a sample of securities, examining the pricing service’s assumptions to determine if we agree with the service’s derived price. When available, we also evaluate the prices sampled as compared to other public prices. If a variance greater than a

~~pre-defined~~

threshold is noted, additional review of the price is executed to ensure accuracy. In general, a pricing service does not provide a price for a security if sufficient information is not readily availableinternal model to determine fair value ~~or if such security is~~since transactions for identical securities are not ~~in the specific sector or class covered~~readily observable and these securities are not typically valued by ~~a particular~~ pricing ~~service.~~ services.

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

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

For private fixed maturity securities, we utilize an income approach where we obtain public bond spreads and utilize those in an internal model to determine fair value. Other inputs to the model include rating and weighted-average life, as well as sector which is used to assign the spread. We then add an additional premium,

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

which represents an unobservable input, to the public bond spread to

adjust for the liquidity and other features of our private placements. We utilize the estimated market yield to discount the expected cash flows of the security to determine fair value. We utilize price caps for securities where the estimated market yield results in a valuation that may exceed the amount that would be received in a market transaction. When a security does not have an external rating, we assign the security an internal rating to determine the appropriate public bond spread that should be utilized in the valuation. To evaluate the reasonableness of the internal model, we review a sample of private fixed maturity securities each month. In that review we compare the modeled prices to the prices of similar public securities in conjunction with analysis on current market indicators. If a pricing variance greater than a

~~pre-defined~~

threshold is noted, additional review of the price is executed to ensure accuracy. At the end of each month, all internally modeled prices are compared to the prior month prices with an evaluation of all securities with a month-over-month change greater than a

~~pre-defined~~

~~threshold.~~ While we generally consider the public bond spreads by sector and maturity to be observable inputs, we evaluate the similarities of our private placement with the public bonds, any price caps utilized, liquidity premiums applied, and whether external ratings are available for our private placements to determine whether the spreads utilized would be considered observable inputs. We classify private securities without an external rating or public bond spread as Level 3. In general, ~~increases (decreases)~~a significant increase (decrease) in credit spreads ~~will~~would have resulted in a significant decrease (increase)

the fair value for our fixed maturity ~~securities.~~

For broker quotes, we consider the valuation methodology utilized by the third party and analyze a sample each month to assess reasonableness given then-current market conditions. Additionally, for broker quotes on certain structured securities ~~we validate prices received against other publicly available pricing sources. Broker quotes are typically based on an income approach given the lack~~as of available market data. As the valuation typically includes significant unobservable inputs, we classify the securities where fair value is based on our consideration of broker quotes as Level 3 measurements.March 31, 2020.

For remaining securities priced using internal models, we determine fair value using an income approach. ~~We analyze a sample each month to assess reasonableness given then-current market conditions.~~ We maximize the use of observable inputs but typically utilize significant unobservable inputs to determine fair value. Accordingly, the valuations are typically classified as Level 3.

~~Table~~Our assessment of ~~Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

whether or not there were significant unobservable inputs related to fixed maturity securities was based on our observations obtained through the course of managing our investment portfolio, including interaction with other market participants, observations related to the availability and consistency of pricing and/or rating, and understanding of general market activity such as new issuance and the level of secondary market trading for a class of securities. Additionally, we considered data obtained from third-party pricing sources to determine whether our estimated values incorporate significant unobservable inputs that would result in the valuation being classified as Level 3.

A summary of the inputs used for our fixed maturity

securities

, short-term investments and equity securities based on the level in which instruments are classified is included below. We have combined certain classes of instruments together as the nature of the inputs is similar.

Level 1 measurements

Equity securities.

The primary inputs to the valuation of exchange-traded equity securities include quoted prices for the identical instrument.

~~Short-term investments.~~

Short-term investments primarily include commercial paper and other highly liquid debt instruments. The fair value of short-term investments classified as Level 1 is based on quoted prices for the identical instrument.

Separate account assets.

The fair value of separate account assets is based on the quoted prices of the underlying fund investments and, therefore, represents Level 1 pricing.

Level 2 measurements

Fixed maturity securities

Third-party pricing services:

In estimating the fair value of fixed maturity securities, approximately

% 91% of our portfolio iswas priced using third-party pricing sources as of ~~June 30, 2019.~~March 31, 2020. These pricing services utilize industry-standard valuation techniques that include market-based approaches, income-based approaches, a combination of market-based and income-based approaches or other proprietary, internally generated models as part of the valuation processes. These third-party pricing vendors maximize the use of publicly available data inputs to generate valuations for each asset class. Priority and type of inputs used may change frequently as certain inputs may be more direct drivers of valuation at the time of pricing. Examples of significant inputs incorporated by third-party pricing services may include sector and issuer spreads, seasoning, capital structure, security optionality, collateral data, prepayment assumptions, default assumptions, delinquencies, debt covenants, benchmark yields, trade data, dealer quotes, credit ratings, maturity and weighted-average life. We conduct regular meetings with our third-party pricing services for the purpose of understanding the methodologies, techniques and inputs used by the third-party pricing providers.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

and type of inputs used may change frequently as certain inputs may be more direct drivers of valuation at the time of pricing. Examples of significant inputs incorporated by third-party pricing services may include sector and issuer spreads, seasoning, capital structure, security optionality, collateral data, prepayment assumptions, default assumptions, delinquencies, debt covenants, benchmark yields, trade data, dealer quotes, credit ratings, maturity and weighted-average life. We conduct regular meetings with our third-party pricing services for the purpose of understanding the methodologies, techniques and inputs used by the third-party pricing providers.

The following table presents a summary of the significant inputs used by our third-party pricing services for certain fair value measurements of fixed maturity securities that are classified as Level 2 as of ~~June 30, 2019:~~March 31, 2020:

(Amounts in millions)

Fair value

Primary methodologies

Significant inputs

Fair value

Primary methodologies

Significant inputs

U.S. government, agencies and government-sponsored enterprises

4,987

Price quotes from trading desk, broker feeds

Bid side prices, trade prices, Option Adjusted Spread (“OAS”) to swap curve, Bond Market Association OAS, Treasury Curve, Agency Bullet Curve, maturity to issuer spread

5,771

Price quotes from trading desk, broker feeds

Bid side prices, trade prices, Option Adjusted Spread (“OAS”) to swap curve, Bond Market Association OAS, Treasury Curve, Agency Bullet Curve, maturity to issuer spread

State and political subdivisions

2,575

Multi-dimensional attribute-based modeling systems, third-party pricing vendors

Trade prices, material event notices, Municipal Market Data benchmark yields, broker quotes

2,781

Multi-dimensional attribute-based modeling systems, third-party pricing vendors

Trade prices, material event notices, Municipal Market Data benchmark yields, broker quotes

Non-U.S. government

2,634

Matrix pricing, spread priced to benchmark curves, price quotes from market makers

Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources

Non-U.S.

ernment

1,185

Matrix pricing, spread priced to benchmark curves, price quotes from market makers

Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources

U.S. corporate

28,118

Multi-dimensional attribute-based modeling systems, broker quotes, price quotes from market makers, OAS-based models

Bid side prices to Treasury Curve, Issuer Curve, which includes sector, quality, duration, OAS percentage and change for spread matrix, trade prices, comparative transactions, Trade Reporting and Compliance Engine (“TRACE”) reports

27,844

Multi-dimensional attribute-based modeling systems, broker quotes, price quotes from market makers, OAS-
based models

Non-U.S. corporate

10,417

Multi-dimensional attribute-based modeling systems, OAS-based models, price quotes from market makers

Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources

7,702

Multi-dimensional attribute-based modeling systems, OAS-based models, price quotes from market makers

Benchmark yields, trade prices, broker quotes, comparative transactions, issuer spreads, bid-offer spread, market research publications, third-party pricing sources

Residential mortgage-backed

2,697

OAS-based models,single factor binomial models, internally priced

Prepayment and default assumptions, aggregation of bonds with similar characteristics, including collateral type, vintage, tranche type, weighted-average life, weighted-average loan age, issuer program and delinquency ratio, pay up and pay down factors, TRACE reports

Residential m

rtgage-backed

2,249

OAS-based models, single factor binomial models, internally priced

Commercial mortgage-backed

2,897

Multi-dimensional attribute-based modeling systems, pricing matrix, spread matrix priced to swap curves, Trepp commercial mortgage-backed securities analytics model

Credit risk, interest rate risk, prepayment speeds, new issue data, collateral performance, origination year, tranche type, original credit ratings, weighted-average life, cash flows, spreads derived from broker quotes, bid side prices, spreads to daily updated swaps curves, TRACE reports

2,981

Multi-dimensional attribute-based modeling systems, pricing matrix, spread matrix priced to swap curves, Trepp commercial mortgage-backed securities analytics model

Other asset-backed

3,492

Multi-dimensional attribute-based modeling systems, spread matrix priced to swap curves, price quotes from market makers

Spreads to daily updated swaps curves, spreads derived from trade prices and broker quotes, bid side prices, new issue data, collateral performance, analysis of prepayment speeds, cash flows, collateral loss analytics, historical issue analysis, trade data from market makers, TRACE reports

2,967

Multi-dimensional attribute-based modeling systems, spread matrix priced to swap curves, price quotes from market makers

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Internal models:

A portion of our

non-U.S.

government, U.S. corporate and

non-U.S.

corporate securities are valued using internal models. The fair value of these fixed maturity securities ~~were~~was $15 million, $1,120 million and $568 million, respectively, as of March 31, 2020. Internally modeled securities are primarily private fixed maturity securities where we use market observable inputs such as an interest rate yield curve, published credit spreads for similar securities based on the external ratings of the instrument and related industry sector of the issuer. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps and liquidity premiums are established using inputs from market participants.

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~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

$15 million, $1,056 million and $599 million, respectively, as of June 30, 2019. Internally modeled securities are primarily private fixed maturity securities where we use market observable inputs such as an interest rate yield curve, published credit spreads for similar securities based on the external ratings of the instrument and related industry sector of the issuer. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps and liquidity premiums are established using inputs from market participants.

Equity securities.

The primary inputs to the valuation include quoted prices for identical assets, or similar assets in markets that are not active.

Securities lending collateral

The fair value of securities held as collateral is primarily based on Level 2 inputs from market information for the collateral that is held on our behalf by the custodian. We determine fair value after considering prices obtained by third-party pricing services.

Short-term investments

The fair value of short-term investments classified as Level 2 is determined after considering prices obtained by third-party pricing services.

Level 3 measurements

Fixed maturity securities

Broker quotes:

A portion of our state and political subdivisions,

non-U.S.

government, U.S. corporate,

non-U.S.

corporate, residential mortgage-backed and other asset-backed securities are valued using broker quotes. Broker quotes are obtained from third-party providers that have current market knowledge to provide a reasonable price for securities not routinely priced by third-party pricing services. Brokers utilized for valuation of assets are reviewed annually. The fair value of our Level 3 fixed maturity securities priced by broker quotes was $675 million as of March 31, 2020.

Internal models:

A portion of our state and political subdivisions, U.S. corporate,

non-U.S.

corporate, residential ~~mortgage-backed, commercial~~ mortgage-backed and other asset-backed securities are valued using internal models. The primary inputs to the valuation of the bond population include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, duration, call provisions, issuer rating, benchmark yields and credit spreads. Certain private fixed maturity securities are valued using an internal model using market observable inputs such as the interest rate yield curve, as well as published credit spreads for similar securities, which includes significant unobservable inputs. Additionally, we may apply certain price caps and liquidity premiums in the valuation of private fixed maturity securities. Price caps are established using inputs from market participants. For structured securities, the primary inputs to the valuation include quoted prices for identical assets, or similar assets in markets that are not active, contractual cash flows, weighted-average coupon, weighted-average maturity, issuer rating, structure of the security, expected prepayment speeds and volumes, collateral type, current and forecasted loss severity, average delinquency rates, vintage of the loans, geographic region, debt service coverage ratios, payment priority with the tranche, benchmark yields and credit spreads. The fair value of our Level 3 fixed maturity securities priced using internal models was $3,806 million as of June 30, 2019.

~~Broker quotes:~~7

~~A portion of our state and political subdivisions, U.S. corporate,~~

~~non-U.S.~~

corporate, residential mortgage-backed, commercial mortgage-backed and other asset-backed securities are valued using broker quotes. Broker quotes are obtained from third-party providers that have current market knowledge to provide a reasonable price for securities not routinely priced by third-party pricing

~~services. Brokers utilized for valuation of assets are reviewed annually. The fair value of our Level 3 fixed maturity securities priced by broker quotes was $481 million as of June 30, 2019.~~

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	December 31, 2019
	Notional amount			Carrying amount		Fair value
(Amounts in millions)	Notional amount			Carrying amount		Total		Level 1		Level 2		Level 3
Assets:
Commercial mortgage loans		(1	)	$	6,963	$	7,239	$	—	$	—	$	7,239
Other invested assets		(1	)		432		432		—		49		383
Liabilities:
Long-term borrowings		(1	)		3,277		3,093		—		2,951		142
Non-recourse funding obligations		(1	)		311		207		—		—		207
Investment contracts		(1	)		11,466		12,086		—		—		12,086
Other firm commitments:
Commitments to fund limited partnerships		976			—		—		—		—		—
Commitments to fund bank loan investments		52			—		—		—		—		—
Ordinary course of business lending commitments		69			—		—		—		—		—

(1)	These financial instruments do not have notional amounts.

(7) Liability for Policy and Contract Claims

The following table sets forth changes in our liability for policy and contract claims as of the dates indicated:


	As of or for the six
	months ended
	June 30,						As of or for the three months ended March 31,
(Amounts in millions)	2019			2018			2020			2019
Beginning balance	$	10,379		$	9,594		$	10,958		$	10,295
Less reinsurance recoverables		(2,379	)		(2,419	)		(2,406	)		(2,379	)

Net beginning balance		8,000			7,175			8,552			7,916

Incurred related to insured events of:
Current year		2,009			1,946			1,028			962
Prior years		(214	)		(244	)		(105	)		(77	)

Total incurred		1,795			1,702			923			885

Paid related to insured events of:
Current year		(410	)		(434	)		(129	)		(162	)
Prior years		(1,287	)		(1,266	)		(728	)		(660	)

Total paid		(1,697	)		(1,700	)		(857	)		(822	)

Interest on liability for policy and contract claims		188			163			102			93
Foreign currency translation		3			(16	)		(29	)		1

Net ending balance		8,289			7,324			8,691			8,073
Add reinsurance recoverables		2,388			2,341			2,441			2,375

Ending balance	$	10,677		$	9,665		$	11,132		$	10,448

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The liability for policy and contract claims represents our current best estimate; however, there may be future adjustments to this estimate and related assumptions. Such adjustments, reflecting any variety of new and adverse trends, could possibly be significant, and result in increases in reserves by an amount that could be material to our results of operations and financial condition and liquidity.

For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, the favorable development of ~~$214~~ $105

million related to insured events of prior years was primarily attributable to our long-term care insurance business largely from favorable development on prior year incurred but not reported claims and favorable ~~claim terminations, including~~experience on pending claims that ~~terminate~~terminated before becoming an active claim.

(8) Reinsurance

The ~~favorable development~~following table sets forth the changes in the allowance for credit losses related to reinsurance recoverables as of or for the ~~six~~three months ended ~~June 30, 2019 was also~~March 31, 2020:


(Amounts in millions)
Allowance for credit losses:
Beginning balance	$	—
Cumulative effect of change in accounting		40
Provision		2
Write-offs		—
Recoveries		—

Ending balance	$	42

As discussed in note 2, our policy for evaluating and measuring the allowance for credit losses related to reinsurance recoverables utilizes the reinsurer’s credit rating, updated quarterly, to assess the credit quality of reinsurance recoverables. The following table sets forth A.M. Best Company, Inc.’s (“A.M. Best”) credit ratings related to our ~~U.S. mortgage insurance business predominantly from~~reinsurance recoverables, gross of the allowance for credit losses, as of March 31, 2020:


(Amounts in millions)	Collateralized		Non-collateralized		Total
Credit rating:
A++	$	—	$	503	$	503
A+		1,296		1,438		2,734
A		20		56		76
A-		—		1		1
B+		—		3		3
Not rated		13,722		83		13,805

Total reinsurance recoverabl e	$	15,038	$	2,084	$	17,122

We have several significant reinsurance transactions (“Reinsurance Transactions”) with Union Fidelity Life Insurance Company (“UFLIC”), an ~~improvement in net cures~~affiliate of our former parent, General Electric Company (“GE”). In the Reinsurance Transactions, we ceded to UFLIC

in-force

blocks of structured settlements issued prior to 2004, substantially all of our

in-force

blocks of variable annuities issued prior to 2004 and ~~aging~~a block of ~~existing delinquencies, including a favorable reserve adjustment of $9 million during the second quarter of 2019.~~

~~For the six months ended June 30, 2018, the favorable development of $244 million related to insured events of prior years was primarily attributable to our~~ long-term care insurance ~~business~~policies that we reinsured in 2000 from ~~favorable claim terminations, including pending claims that terminate before becoming an active claim. The favorable development for~~legal entities now a part of Brighthouse Life Insurance Company. Although we remain directly liable under these contracts and policies as the six months ended June 30, 2018 was also impacted by our mortgage insurance businesses, primarily from an improvement in net cures and aging of existing claims, including a favorable reserve adjustment

~~of $~~

~~million in our U.S. mortgage insurance business during~~ceding insurer, the ~~second quarter of 2018.~~

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Reinsurance Transactions have the effect of transferring the financial results of the reinsured blocks to UFLIC. To secure the payment of its obligations to us under the reinsurance agreements governing the Reinsurance Transactions, UFLIC has established trust accounts to maintain an aggregate amount of assets with a statutory book value at least equal to the statutory general account reserves attributable to the reinsured business less an amount required to be held in certain claims-paying accounts. A trustee administers the trust accounts and we are permitted to withdraw from the trust accounts amounts due to us pursuant to the terms of the reinsurance agreements that are not otherwise paid by UFLIC. In addition, pursuant to a Capital Maintenance Agreement, GE is obligated to maintain sufficient capital in UFLIC to maintain UFLIC’s risk-based capital (“RBC”) at not less than 150% of its company action level, as defined by the National Association of Insurance Commissioners (“NAIC”).

As of March 31, 2020 and December 31, 2019, we had a reinsurance recoverable of $13,718 million and $13,752 million, respectively, with UFLIC. In March 2019, upon UFLIC’s request, A.M. Best withdrew UFLIC’s credit rating. We had no impact from this action as UFLIC has trust accounts and a guarantee from its parent, as discussed above, and is sufficiently collateralized. Accordingly, the reinsurance recoverable with UFLIC is fully collectible and no allowance for credit losses was recorded as of March 31, 2020.

Reinsurance recoverables are considered past due when contractual payments have not been received from the reinsurer by the required payment date. Claims submitted for payment are generally due in less than one year. As of March 31, 2020, we did 0t have any reinsurance recoverables past due, except for Scottish Re US Inc. (“Scottish Re”), a reinsurance company domiciled in Delaware. On March 6, 2019, Scottish Re was ordered into receivership for the purposes of rehabilitation by the Court of Chancery of the State of Delaware. It was contemplated that a plan of rehabilitation for Scottish Re, if feasible, would be filed and approved within 120 days of the Rehabilitation Order. The plan of rehabilitation was scheduled to be provided by March 30, 2020 but given the impact of

COVID-19,

Scottish Re has requested more time and to date, the plan of rehabilitation has not been filed. As of March 31, 2020, amounts past due related to Scottish Re were $11 million, all of which was included in the allowance for credit losses. However, we expect to recover the remaining balance of claims submitted to Scottish Re through rehabilitation and will continue to monitor the plan of rehabilitation and the expected recovery of the claims balance.

~~(8)~~53

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(9) Borrowings

(a) Long-Term Borrowings

The following table sets forth total long-term borrowings as of the dates indicated:


	June 30,			December 31,
(Amounts in millions)	2019			2018			March 31, 2020			December 31, 2019
Genworth Holdings (1)
Floating Rate Senior Secured Term Loan Facility, due 2023	$	444		$	445
7.70% Senior Notes, due 2020		397			397		$	—		$	397
7.20% Senior Notes, due 2021		381			381			378			382
7.625% Senior Notes, due 2021		703			703			691			701
4.90% Senior Notes, due 2023		399			399			399			399
4.80% Senior Notes, due 2024		400			400			400			400
6.50% Senior Notes, due 2034		297			297			297			297
Floating Rate Junior Subordinated Notes, due 2066		598			598			598			598

Subtotal		3,619			3,620			2,763			3,174
Bond consent fees		(29	)		(32	)		(23	)		(25	)
Deferred borrowing charges		(19	)		(21	)		(11	)		(12	)

Total Genworth Holdings		3,571			3,567			2,729			3,137

Canada (2)
5.68% Senior Notes, due 2020		134			202
4.24% Senior Notes, due 2024		201			117

Subtotal		335			319
Deferred borrowing charges		(2	)		(1	)

Total Canada		333			318

Australia (3)
Australia (2)
Floating Rate Junior Subordinated Notes, due 2025		141			141			122			140
Deferred borrowing charges		(1	)		(1	)

Total Australia		140			140			122			140

Total	$	4,044		$	4,025		$	2,851		$	3,277

(1)

We have the option to redeem all or a portion of the senior notes at any time with notice to the noteholders at a price equal to the greater of 100% of principal or the sum of the present value of the remaining scheduled payments of principal and interest discounted at the then-current treasury rate plus an applicable spread.

(2)	~~Senior notes issued by Genworth MI Canada Inc. (“Genworth Canada”), our majority-owned subsidiary.~~

~~(3)~~

Subordinated floating rate notes issued by Genworth Financial Mortgage Insurance Pty Limited, our indirect ~~wholly-owned subsidiary.~~majority-owned

subsidiary, who has the option to redeem the notes at face value beginning on July 3, 2020, subject to the Australian Prudential Regulation Authority’s prior written approval.

~~Genworth Canada~~

On May 22, 2019, Genworth Canada issued at a premium, CAD$100 million fixed rate senior notes with an interest rate of 4.24% that matures in 2024. The offering represents a re-opening of the 4.24% senior notes originally issued in April 2014. The total amount issued and outstanding associated with these senior notes after

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~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~this most recent offering is CAD$263 million. The senior notes are redeemable at the option of~~On January 21, 2020, Genworth ~~Canada, in whole or in part, at any time. In June 2019, Genworth Canada used the proceeds of the offering to~~Holdings early ~~redeem approximately CAD$100~~redeemed $397 million of ~~the 5.68%~~its 7.70% senior notes originally scheduled to mature in June 2020 ~~and incurred an early redemption fee~~for a

pre-tax

loss of ~~CAD$3~~$9 million. AsThe senior notes were fully redeemed with a ~~result~~cash payment of $409 million, comprised of the ~~early redemption~~outstanding principal balance of $397 million, accrued interest of $3 million and a make-whole premium of $9 million.

In March 2020, Genworth ~~Canada’s~~Holdings repurchased $14 million principal amount of its senior notes ~~we incurred~~with 2021 maturity date

for a

pre-tax ~~loss~~

gain of ~~approximately~~ $1 million ~~net~~and paid accrued interest thereon. In April 2020, Genworth Holdings repurchased an additional $36 million principal amount of ~~the portion attributable to noncontrolling interests.~~its senior notes with 2021 maturity date

for a

pre-tax

gain of $2 million.

~~(9)~~54

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(b)

Non-Recourse

Funding Obligations

In January 2020, upon receipt of approval from the Director of Insurance of the State of South Carolina, Rivermont Life Insurance Company I (“Rivermont I”) redeemed all of its $315 million of outstanding

non-recourse

funding obligations due in

2050

. The early redemption resulted in a

pre-tax

loss of $

million from the

write-off

of deferred borrowing costs.

(10) Income Taxes

The reconciliation of the federal statutory tax rate to the effective income tax rate was as follows for the periods indicated:


	Three months ended						Six months ended
	June 30,						June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Statutory U.S. federal income tax rate		21.0	%		21.0	%		21.0	%		21.0	%		21.0	%		21.0	%
Increase (reduction) in rate resulting from:
Swaps terminated prior to the TCJA (1)														(6.7	)		4.6
Effect of foreign operations		5.0			3.4			5.2			3.2			0.8			4.1
U.S. shareholder tax on foreign operations		4.4			—			4.6			—
Swaps terminated prior to the TCJA		2.1			3.9			2.4			3.2
TCJA, impact from change in tax rate		—			5.4			—			3.3
Valuation allowance		—			(2.0	)		—			(1.3	)
Provision to return adjustments		—			(1.6	)		—			(0.7	)
Stock-based compensation														(2.1	)		—
Nondeductible expenses														(1.1	)		—
Other, net		0.4			0.7			(0.4	)		0.9			0.3			(0.6	)

Effective rate		32.9	%		30.8	%		32.8	%		29.6	%		12.2	%		29.1	%

(1)	Tax Cuts and Jobs Act

The ~~increase~~decrease in the effective tax rate for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 was primarily attributable to a tax expense on forward starting swaps settled prior to the enactment of the TCJA, which are tax effected at 35% as they are amortized into net investment income, in relation to a

pre-tax

loss in the current ~~year~~year. The decrease was also attributable to a lower tax expense related to ~~the Global Intangible Low Taxed Income (“GILTI”) provision of the Tax Cuts~~foreign operations and ~~Jobs Act (“TCJA”), which is reported within the line “U.S. shareholder tax on foreign operations”~~higher stock-based compensation in relation to a

pre-tax

loss in the ~~table above. GILTI has an unfavorable impact on our~~ current year effective tax rate due to the utilization of net operating loss carryforwards and projected taxable losses in the U.S. life insurance businesses without any offsetting foreign tax credit carryforwards.

year.

~~(10)~~

(11) Segment Information

We have the following ~~five~~4 operating business segments: U.S. ~~Mortgage Insurance; Canada~~ Mortgage Insurance; Australia Mortgage Insurance; U.S. Life Insurance (which includes our long-term care insurance, life insurance and fixed annuities businesses); and Runoff (which includes the results of

non-strategic

products which have not been actively ~~sold)~~sold since 2011). In addition to our ~~five~~four operating business segments, we also have Corporate and Other activities which include 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 managed outside of our operating segments, including certain smaller international mortgage insurance ~~businesses.~~businesses and discontinued operations.

We tax our international businesses at their local jurisdictional tax rates and our domestic businesses at the U.S. corporate federal income tax rate of 21%. Our segment tax methodology applies the respective jurisdictional or domestic tax rate to the

pre-tax

income (loss) of each segment, which is then adjusted in each segment to

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~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

reflect the tax attributes of items unique to that segment such as foreign withholding taxes and permanent

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

differences between U.S. GAAP and local tax law. The difference between the consolidated provision for income taxes and the sum of the provision for income taxes in each segment is reflected in Corporate and Other activities.

The annually-determined tax rates and adjustments to each segment’s provision for income taxes are estimates which are subject to review and could change from year to year.

We use the same accounting policies and procedures to measure segment income (loss) and assets as our consolidated net income and assets. Our chief operating decision maker evaluates segment performance and allocates resources on the basis of “adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders.” We define adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as income (loss) from continuing operations excluding the

after-tax

effects of income (loss) from continuing operations attributable to noncontrolling interests, net investment gains (losses), goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and infrequent or unusual

non-operating

items. Gains (losses) on insurance block transactions are defined as gains (losses) on the early extinguishment of

non-recourse

funding obligations, early termination fees for other financing restructuring and/or resulting gains (losses) on reinsurance restructuring for certain blocks of business. We exclude net investment gains (losses) and infrequent or unusual

non-operating

estimated future credit losses

, the size and timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) can be subject to our discretion and are influenced by market opportunities, as well as asset-liability matching considerations. Goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions and restructuring costs are also excluded from adjusted operating income (loss) available to

Genworth

Financial, Inc.’s common stockholders because, in our opinion, they are not indicative of overall operating trends. Infrequent or unusual

non-operating

items are also excluded from adjusted operating income (loss) available to

Genworth

Financial, Inc.’s common stockholders if, in our opinion, they are not indicative of overall operating trends.

While some of these items may be significant components of net income (loss) available to Genworth Financial, Inc.’s common stockholders in accordance with U.S. GAAP, we believe that adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, and measures that are derived from or incorporate adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, are appropriate measures that are useful to investors because they identify the income (loss) attributable to the ongoing operations of the business. Management also uses adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as a basis for determining awards and compensation for senior management and to evaluate performance on a basis comparable to that used by analysts. However, the items excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders is not a substitute for net income (loss) available to Genworth Financial, Inc.’s common stockholders determined in accordance with U.S. GAAP. In addition, our definition of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders may differ from the definitions used by other companies.

~~In the first quarter of 2019, we revised how we tax the adjustments~~Adjustments to reconcile net income (loss) available to Genworth Financial, Inc.’s common stockholders to adjusted operating income ~~(loss) available to Genworth Financial, Inc.’s common stockholders to align the~~assume a 21% tax rate ~~used in the reconciliation to each segment’s local jurisdictional tax rate. Beginning in the first quarter of 2019, we used~~for our domestic segments and a 30% tax rate ~~of 27% and 30%~~ for our ~~Canada~~Australia

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~and Australia~~

Mortgage Insurance segments, respectively, to tax effect their adjustments. Our domestic segments remain at a 21% tax rate. In 2018, we assumed a flat 21% tax rate on adjustments for all of our segments to reconcile net income (loss) available to Genworth Financial, Inc.’s common stockholderssegment and ~~adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders. These adjustments~~ are ~~also~~ net of the portion attributable to noncontrolling ~~interests and net~~interests. Net investment gains (losses) are also adjusted for DAC and other intangible amortization and certain benefit reserves.

~~Prior year amounts have not been~~

~~re-presented~~

to reflect this revised presentation; however, the previous methodology would not have resulted in a materially different segment-level adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders.

In ~~the second quarter~~January 2020, we paid a

pre-tax

make-whole expense of ~~2019, we recorded a pre-tax loss~~

~~of $~~

$9 million ~~net of the portion attributable to noncontrolling interests,~~ related to the early redemption of ~~CAD$100 million of~~ Genworth ~~Canada’s~~Holdings’ senior notes originally scheduled to mature in June ~~2020. In~~2020 and Rivermont I, our indirect wholly-owned

special purpose consolidated

captive insurance

sub

sidiary

, early redeemed all of its $

315

million outstanding

non-recourse

funding obligations originally due in

2050

resultin

pre-tax

loss of $

million from the

write-off

of deferred borrowing costs. We also repurchased $

million principal amount of

Genworth

Holdings’ senior notes

with

2021

maturity dates

for a

pre-tax

gain of $

million in the first quarter of ~~2019, we~~

2020

. These transactions were excluded from adjusted operating income as they relate to gains (losses) on the early extinguishment of debt.

We recorded a

pre-tax

expense of $1 million and $4 million in the first quarters of 2020 and 2019, respectively, related to restructuring costs as we continue to evaluate and appropriately size our organizational needs and expenses. There were no infrequent or unusual items excluded from adjusted operating income

during the periods presented.

The following is a summary of revenues for our segments and Corporate and Other activities for the periods indicated:


	Three months ended					Six months ended
	June 30,					June 30,					Three months ended March 31,
(Amounts in millions)	2019			2018		2019			2018		2020		2019
Revenues:
U.S. Mortgage Insurance segment	$	235		$	208	$	458		$	408	$	261	$	223

Canada Mortgage Insurance segment		161			150		320			308

Australia Mortgage Insurance segment		96			136		206			243		27		110

U.S. Life Insurance segment:
Long-term care insurance		1,055			1,035		2,169			2,055		1,006		1,114
Life insurance		382			367		754			746		348		372
Fixed annuities		151			176		310			358		133		159

U.S. Life Insurance segment		1,588			1,578		3,233			3,159		1,487		1,645

Runoff segment		78			80		160			148		7		82

Corporate and Other activities		(2	)		7		(17	)		8		55		(16	)

Total revenues	$	2,156		$	2,159	$	4,360		$	4,274	$	1,837	$	2,044

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present the reconciliation of net income (loss) available to Genworth Financial, Inc.’s common stockholders to adjusted operating income available to Genworth Financial, Inc.’s common stockholders and a summary of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for our segments and Corporate and Other activities for the periods indicated:

Three months ended

Six months ended

June 30,

June 30,

(Amounts in millions)

2019

2018

2019

2018

Net income
$
218
$
249
$
448
$
414

Less: net income attributable to noncontrolling interests

50

59

106

112

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

168

190

342

302

Adjustments to net income available to Genworth Financial, Inc.’s
common stockholders:

Net investment (gains) losses, net
(1)

43

12

(28
)
29

(Gains) losses on early extinguishment of debt, net
(2)

1

—

1

—

Expenses related to restructuring

—

—

4

—

Taxes on adjustments

(8
)
(2
)
6

(6
)

Adjusted operating income available to Genworth Financial, Inc.’s
common stockholders
$
204
$
200
$
325
$
325


	Three months ended March 31,
(Amounts in millions)	2020			2019
Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	(66	)	$	174
Add: net income (loss) from continuing operations attributable to noncontrolling interests		(6	)		20
Add: net income from discontinued operations attributable to noncontrolling interests		—			36

Net income (loss)		(72	)		230
Less: income from discontinued operations, net of taxes		—			62

Income (loss) from continuing operations		(72	)		168
Less: net income (loss) from continuing operations attributable to noncontrolling interests		(6	)		20

Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders		(66	)		148
Adjustments to income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders:
Net investment (gains) losses, net (1)		115			(71	)
Losses on early extinguishment of debt		12			—
Expenses related to restructuring		1			4
Taxes on adjustments		(29	)		14

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	$	33		$	95

(1)

For the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of ~~$(3) million~~$(11) and ~~$(1)~~$(2) million, respectively, and adjusted for net investment gains (losses) attributable to noncontrolling interests of $1$(26) million and $(1) million, respectively. For the six months ended June 30, 2019 and 2018, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(5) million and $(4) million, respectively, and adjusted for net investment gains (losses) attributable to noncontrolling interests of $6 ~~million and $(12)~~ million, respectively.

~~(2)~~

~~For the three and six months ended June 30, 2019, (gains) losses on the early extinguishment of debt were adjusted for the portion attributable to noncontrolling interests of $~~

~~million.~~

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Three months ended

Six months ended

June 30,

June 30,

(Amounts in millions)

2019

2018

2019

2018

Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders:

U.S. Mortgage Insurance segment
$
147
$
137
$
271
$
248

Canada Mortgage Insurance segment

41

46

82

95

Australia Mortgage Insurance segment

13

22

27

41

U.S. Life Insurance segment:

Long-term care insurance

37

22

17

(10
)
Life insurance

10

4

8

3

Fixed annuities

19

31

36

59

U.S. Life Insurance segment

66

57

61

52

Runoff segment

9

13

29

23

Corporate and Other activities

(72
)
(75
)
(145
)
(134
)

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders
$
204
$
200
$
325
$
325


	Three months ended March 31,
(Amounts in millions)	2020			2019
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders:
U.S. Mortgage Insurance segment	$	148		$	124
Australia Mortgage Insurance segment		9			14
U.S. Life Insurance segment:
Long-term care insurance		1			(20	)
Life insurance		(77	)		(2	)
Fixed annuities		6			17

U.S. Life Insurance segment		(70	)		(5	)

Runoff segment		(13	)		20
Corporate and Other activities		(41	)		(58	)

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	$	33		$	95

The following is a summary of total assets for our segments and Corporate and Other activities as of the dates indicated:


(Amounts in millions)	March 31, 2020		December 31, 2019
Assets:
U.S. Mortgage Insurance segment	$	4,542	$	4,504
Australia Mortgage Insurance segment		2,146		2,406
U.S. Life Insurance segment		80,564		81,640
Runoff segment		9,502		9,953
Corporate and Other activities		2,090		2,839

Total assets	$	98,844	$	101,342

(Amounts in millions)

June 30,
2019

December 31,
2018

Assets:

U.S. Mortgage Insurance segment
$
3,977
$
3,583

Canada Mortgage Insurance segment

5,272

5,038

Australia Mortgage Insurance segment

2,524

2,534

U.S. Life Insurance segment

81,002

79,799

Runoff segment

10,018

9,963

Corporate and Other activities

1,513

6

Total assets
$
104,306
$
100,923

~~(11)~~(12) Commitments and Contingencies

(a) Litigation and Regulatory Matters

We face the risk of litigation and regulatory investigations and actions in the ordinary course of operating our businesses, including the risk of class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and others generally applicable to business practices in the industries in which we operate. In our insurance operations, we are, have been, or may become subject to class actions and individual suits alleging, among other things, issues relating to sales or underwriting practices, increases to

in-force

long-term care insurance premiums, payment of contingent or other sales commissions, claims payments and procedures, product design, product disclosure, product administration, additional premium charges for premiums paid on a periodic basis, denial or delay of benefits, charging excessive or impermissible fees on products, recommending unsuitable products to customers, our pricing structures and business practices in our

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~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

mortgage insurance businesses, such as captive reinsurance arrangements with lenders and contract underwriting services, violations of the Real Estate Settlement and Procedures Act of 1974 or related state anti-inducement laws, and mortgage insurance policy rescissions and curtailments, and breaching fiduciary or other duties to

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

customers, including but not limited to breach of customer information. Plaintiffs in class action and other lawsuits against us may seek very large or indeterminate amounts which may remain unknown for substantial periods of time. In our investment-related operations, we are subject to litigation involving commercial disputes with counterparties. We are also subject to litigation arising out of our general business activities such as our contractual and employment relationships, post-closing obligations associated with previous dispositions and securities lawsuits. In addition, we are also subject to various regulatory inquiries, such as information requests, subpoenas, books and record examinations and market conduct and financial examinations from state, federal and international regulators and other authorities. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and results of operations. Moreover, even if we ultimately prevail in the litigation, regulatory action or investigation, we could suffer significant reputational harm, which could have an adverse effect on our business, financial condition or results of operations.

In January 2016, Genworth Financial, its current chief executive officer, its former chief executive officer, its former chief financial officer and current and former members of its board of directors were named in a shareholder derivative suit filed by International Union of Operating Engineers Local No. 478 Pension Fund, Richard L. Salberg and David Pinkoski in the Court of Chancery of the State of Delaware. The case was captioned

Int’l Union of Operating Engineers Local No.

478 Pension Fund, et al v. McInerney, et al.

In February 2016, Genworth Financial, its current chief executive officer, its former chief executive officer, its former chief financial officer and current and former members of its board of directors were named in a second shareholder derivative suit filed by Martin Cohen in the Court of Chancery of the State of Delaware. The case was captioned

Cohen v. McInerney, et al

. On February 23, 2016, the Court of Chancery of the State of Delaware consolidated these derivative suits under the caption

Genworth Financial, Inc. Consolidated Derivative Litigation

. On March 28, 2016, plaintiffs in the consolidated action filed an amended complaint. The amended complaint alleges breaches of fiduciary duties concerning Genworth’s long-term care insurance reserves and concerning Genworth’s Australian mortgage insurance business, including our plans for an IPO of the business and seeks unspecified damages, costs, attorneys’ fees and such equitable relief as the ~~court~~Court may deem proper. The amended consolidated complaint also adds Genworth’s current chief financial officer as a defendant, based on the current chief financial officer’s alleged conduct in her former capacity as Genworth’s controller and principal accounting officer. We moved to dismiss the consolidated action on May 27, 2016. Thereafter, plaintiffs filed a substantially similar second amended complaint which we moved to dismiss on September 16, 2016. The motion is fully briefed and awaiting disposition by the ~~court.~~Court. The action is stayed pending the completion of the proposed China Oceanwide transaction.

In October 2016, Genworth Financial, its current chief executive officer, its former chief executive officer, its current chief financial officer, its former chief financial officer and current and former members of its board of directors were named in a shareholder derivative suit filed by Esther Chopp in the Court of Chancery of the State of Delaware. The case is captioned

Chopp v. McInerney, et al.

The complaint alleges that Genworth’s board of directors wrongfully refused plaintiff’s demand to commence litigation on behalf of Genworth and asserts claims for breaches of fiduciary duties, waste, contribution and indemnification, and unjust enrichment concerning Genworth’s long-term care insurance reserves and concerning Genworth’s Australian mortgage insurance business, including our plans for an IPO of the business, and seeks unspecified damages, costs, attorneys’ fees and such equitable relief as the ~~court~~Court may deem proper. We filed a motion to dismiss on November 14, 2016. The action is stayed pending the completion of the proposed China Oceanwide transaction.

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~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

In December 2017, Genworth Financial International Holdings, LLC (“GFIH”) and Genworth Financial were named as defendants in an action captioned

AXA S.A. v. Genworth Financial International Holdings, LLC et

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

al.,

in the High Court of Justice, Business and Property Courts of England and Wales. In the action, AXA initially sought in excess of £28 million on an indemnity provided for in the 2015 agreement pursuant to which Genworth sold to AXA ~~two~~2 insurance companies, Financial Insurance Company Limited (“FICL”) and Financial Assurance Company Limited (“FACL”), relating to alleged remediation it has paid to customers who purchased payment protection ~~insurance.~~insurance (“PPI”). In February 2018, we served a Particulars of Defence and counterclaim against AXA, and also served other counterclaims against various parties, including Santander Cards UK Limited (“Santander”), alleging that Santander is responsible for any remediation paid to ~~payment protection insurance~~PPI customers. AXA and Santander applied to the ~~court~~Court for orders dismissing or staying the counterclaims. A hearing on those applications was held in October 2018, and the ~~court~~Court dismissed our counterclaims. On November 15, 2018, AXA amended its claim and updated its demand to £237 million. We filed our amended Particulars of Defence and amended counterclaim on December 13, 2018, seeking, among other forms of relief, a declaration that in the event we make any payment to AXA pursuant to the indemnity, we are subrogated to FICL’s and FACL’s rights against Santander with respect to those amounts. On February 25, 2019, AXA amended its claim and updated its demand to £265 million. ~~AXA also alleges that it is incurring losses on an ongoing basis and therefore that further significantly larger sums will be demanded.~~ The ~~court~~Court held a case management conference and hearing on February 26, 2019. Santander, FICL and FACL consented to be joined as parties to the proceedings and consented to allow Genworth to amend its pleadings to include the subrogation declarations to reflect the additional parties. The court scheduled the points of principle hearing on liability and subrogation matters to commence on November 4, 2019 and conclude on November 12, 2019, and scheduled the quantum hearing to commence on March 9, 2020 and conclude on March 12, 2020. On March 29, 2019, AXA, FICL, FACL and Santander filed their respective responses to our amended counterclaim. On June 21, 2019, we filed an application to address certain deficiencies in AXA’s discovery production. On July 18, 2019, we reached an agreement with AXA and Santander regarding our discovery application. The hearing on liability and subrogation matters concluded on November 12, 2019. On December 6, 2019, the Court issued its judgment, ruling in AXA’s favor with respect to its claim against Genworth for 90% of AXA’s payment of PPI

mis-selling

losses. The Court further ruled, among other matters, that Genworth is not entitled to be subrogated to the rights of FICL/FACL against Santander or require AXA to assert reasonable defenses with respect to PPI

mis-selling

claims. In January 2020, we made an interim payment to AXA for approximately $134 million, which was previously accrued in December 2019 in connection with the aforementioned Court ruling. See note 14 for additional details related to the sale of our lifestyle protection insurance business and amounts recorded related to income (loss) from discontinued operations. On January 10, 2020, Genworth applied to the English Court of Appeal (Civil Division) for permission to appeal certain aspects of the December 6, 2019 judgment including, among other matters, the Court’s determination that Genworth is not entitled to be subrogated to the rights of FICL/FACL against Santander or require AXA to assert reasonable defenses with respect to PPI

mis-selling

claims.

On March 16, 2020, the English Court of Appeal (Civil Division) denied permission for Genworth to appeal certain aspects of the December 6, 2019 judgment

The damages hearing has been postponed and is now scheduled to commence on June

2020

. Although AXA’s current amended and updated demand is for £

265

million, AXA also alleges, as previously disclosed, that it is incurring losses on an ongoing basis and therefore that further significantly larger sums will be demanded. To date, AXA has submitted to us invoices claiming aggregate losses of approximately £489 million, of which £100 million was paid in January 2020. In the event AXA amends its claim to demand any such amounts or different amounts, the actual losses to which AXA may be entitled will need to be demonstrated as part of the damages hearing, and any claimed amounts may increase further, including as a result of claimed entitlements to a tax gross up for a total possible additional loss of £

115

million or more. At this time, we are uncertain of the ultimate outcome of the damages hearing, therefore, we are unable to estimate any additional loss, or amounts that may be due or demanded under Court ruling. We intend to continue to vigorously defend this action.

In September 2018, Genworth Life and Annuity Insurance ~~Company~~

ompany (“GLAIC”), our indirect wholly-owned subsidiary, was named as a defendant in a putative class action lawsuit pending in the United States District Court for the Eastern District of Virginia captioned

TVPX ARX INC., as Securities Intermediary for Consolidated Wealth Management, LTD. on behalf of itself and all others similarly situated v. Genworth Life and Annuity

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Insurance Company

. Plaintiff ~~alleged~~alleges unlawful and excessive cost of insurance charges ~~were~~ we

imposed on policyholders. The complaint asserts claims for breach of contract, alleging that Genworth improperly considered

non-mortality

factors when calculating cost of insurance rates and failed to decrease cost of insurance charges in light of improved expectations of future mortality, and seeks unspecified compensatory damages, costs, and equitable relief. On October 29, 2018, we filed a motion to enjoin the case in the Middle District of Georgia, and a motion to dismiss and motion to stay in the Eastern District of Virginia. We moved to enjoin the prosecution of the Eastern District of Virginia action on the basis that it involves claims released in a prior nationwide class action settlement that was approved by the Middle District of Georgia. Plaintiff filed an amended complaint on November 13, 2018. On December 6, 2018, we moved the Middle District of Georgia for leave to file our counterclaim, which alleges that plaintiff breached the covenant not to sue contained in the prior settlement agreement by filing its current action. On March 15, 2019, the Middle District of Georgia granted our motion to enjoin and denied our motion for leave to file our counterclaim. As such, plaintiff is enjoined from pursuing its class action in the Eastern District of Virginia. On March 29, 2019, plaintiff filed a notice of appeal in the Middle District of Georgia, notifying the ~~court~~Court of its appeal to the United States Court of Appeals for the Eleventh Circuit from the order granting our motion to enjoin. On March 29, 2019, we filed our notice of cross-appeal in the Middle District of Georgia, notifying the Court of our cross-appeal to the Eleventh Circuit from the portion of the order denying our motion for leave to file our counterclaim. On April 8, 2019, the Eastern District of Virginia

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~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

dismissed the case without prejudice, with leave for plaintiff to refile an amended complaint only if a final appellate ~~court~~Court decision vacates the injunction and reverses the Middle District of Georgia’s opinion. On May 21, 2019, plaintiff filed its appeal and memorandum in support in the Eleventh Circuit. We filed our response to plaintiff’s appeal memorandum on July 3, 2019. The Eleventh Circuit Court of Appeals heard oral argument on plaintiff’s appeal and our cross-appeal on April 21, 2020. We intend to continue to vigorously defend the dismissal of this action.

In September 2018, Genworth Financial, Genworth Holdings, Genworth North America Corporation, ~~Genworth Financial International Holdings, LLC~~GFIH and Genworth Life Insurance Company (“GLIC”) were named as defendants in a putative class action lawsuit pending in the Court of Chancery of the State of Delaware captioned

Richard F. Burkhart, William E. Kelly, Richard S. Lavery, Thomas R. Pratt, Gerald Green, individually and on behalf of all other persons similarly situated v. Genworth et al

. Plaintiffs allege that GLIC paid dividends to its parent and engaged in certain reinsurance transactions causing it to maintain inadequate capital capable of meeting its obligations to GLIC policyholders and agents. The complaint alleges causes of action for intentional fraudulent transfer and constructive fraudulent transfer, and seeks injunctive relief. We moved to dismiss this action in December 2018. On January 29, 2019, plaintiffs exercised their right to amend their complaint. On March 12, 2019, we moved to dismiss plaintiffs’ amended complaint. On April 26, 2019, plaintiffs filed a memorandum in opposition to our motion to dismiss, which we replied to on June 14, 2019. On August 7, 2019, plaintiffs filed a motion seeking to prevent proceeds that GFIH expected to receive from the then planned sale of its shares in Genworth Canada from being transferred out of GFIH. On September 11, 2019, plaintiffs filed a renewed motion seeking the same relief from their August 7, 2019 motion with an exception that allowed GFIH to transfer $450 million of expected proceeds from the sale of Genworth Canada through a dividend to Genworth Holdings to allow the pay off of a senior secured term loan facility dated March 7, 2018 among Genworth Holdings as the borrower, GFIH as the limited guarantor and the lending parties thereto. Oral ~~argument~~arguments on our motion to dismiss ~~is scheduled for September 9, 2019.~~and plaintiffs’ motion occurred on October 21, 2019, and plaintiffs’ motion was denied. On January 31, 2020, the Court granted in part our motion to dismiss, dismissing claims relating to $395 million in dividends GLIC paid to its parent from 2012 to 2014 (out of the $410 million in total dividends subject to plaintiffs’ claims). The Court denied the balance of the motion to dismiss leaving a claim relating to $15 million in dividends and unquantified claims relating to the 2016 termination of a reinsurance transaction. On March 27, 2020, we filed our answer to plaintiffs’ amended complaint. We intend to continue to vigorously defend this action.

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In January 2019, Genworth Financial and GLIC were named as defendants in a putative class action lawsuit pending in the United States District Court for the Eastern District of Virginia captioned

Jerome Skochin, Susan

Skochin, and Larry Huber, individually and on behalf of all other persons similarly situated v. Genworth

Financial, Inc. and Genworth Life Insurance Company

. Plaintiffs seek to represent long-term care insurance policyholders, alleging that Genworth made misleading and inadequate disclosures regarding premium increases for long-term care insurance policies. The complaint asserts claims for breach of contract, fraud, fraudulent inducement and violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (on behalf of the two named plaintiffs who are Pennsylvania residents), and seeks damages (including statutory treble damages under Pennsylvania law) in excess of

million. On March 12, 2019, we moved to dismiss plaintiffs’ complaint. On March 26, 2019, plaintiffs filed a memorandum in opposition to our motion to dismiss, which we replied to on April 1, 2019. In July 2019, the ~~court~~Court heard oral arguments on our motion to ~~dismiss.We~~dismiss. On August 29, 2019, the Court issued an order granting our motion to dismiss the claim with regard to breach of contract, but denied our motion with regard to fraudulent omission, fraudulent inducement and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection law. On September 20, 2019, plaintiffs filed an amended complaint, dropping Genworth Financial as a defendant and reducing their causes of action from four counts to two: fraudulent inducement by omission and violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (on behalf of the two named plaintiffs who are Pennsylvania residents). The parties engaged in a mediation process and, on October 22, 2019, reached an agreement in principle to settle this matter on a nationwide basis. On November 22, 2019, plaintiffs filed an amended complaint, adding Genworth Life Insurance Company of New York (“GLICNY”) as a defendant and expanding the class to all fifty states and the District of Columbia. On January 15, 2020, the Court preliminarily approved the settlement and set the final approval hearing for July 10, 2020. On March 26, 2020, the parties filed a Joint Motion for Leave to Amend certain aspects of the settlement, which was approved by the Court on March 31, 2020. On April 10, 2020, the Indiana Department of Insurance filed a Motion to Intervene and Motion to Stay, seeking to stay the current schedule for class settlement and delay the date of the final approval hearing in light of disruptions caused by

COVID-19.

On April 14, 2020, the class administrator sent out class notices to potential settlement class members. On April 17, 2020, plaintiffs filed their opposition to the Indiana Department of Insurance’s motion to stay. Based on the Court’s preliminary approval of the settlement, we do not anticipate the

outcome of this matter

to have a material adverse impact on our results of operations or financial position. If the court does not approve the final settlement, we intend to continue to vigorously defend this ~~action~~action.

On April 6, 2020, GLAIC, our indirect wholly-owned subsidiary, was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Eastern District of Virginia,

captioned Brighton Trustees, LLC, on behalf of and as trustee for Diamond LS Trust; and Bank of Utah, solely as securities intermediary for Diamond LS Trust; on behalf of themselves and all others similarly situated v. Genworth Life and Annuity Insurance Company.

Plaintiff seeks to represent life insurance policyholders, alleging that GLAIC subjected policyholders to an unlawful and excessive cost of insurance increase. Plaintiff also alleges that the cost of insurance increase was not applied uniformly to policyholders, and that GLAIC improperly refused to provide reports on illustrative future death benefits and policy values to policyholders. The Complaint asserts claims for breach of contract and injunctive relief, and seeks damages in excess of $5 million, restitution, reinstatement of lapsed and/or surrendered policies, and equitable relief. We intend to vigorously defend this action.

At this time we cannot determine or predict the ultimate outcome of any of the pending legal and regulatory matters specifically identified above or the likelihood of potential future legal and regulatory matters against us. Except as disclosed above, we are not able to provide an estimate or range of reasonably possible losses related to these matters. Therefore, we cannot ensure that the current investigations and proceedings will not have a material adverse effect on our business, financial condition or results of operations. In addition, it is possible that related investigations and proceedings may be commenced in the future, and we could become subject to

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GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

additional unrelated investigations and lawsuits. Increased regulatory scrutiny and any resulting investigations or proceedings could result in new legal precedents and industry-wide regulations or practices that could adversely affect our business, financial condition and results of operations.

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

(b) Commitments

As of ~~June 30, 2019,~~March 31, 2020, we were committed to fund ~~$903~~$1,018 million in limited partnership investments, ~~$98~~$113 million in U.S. commercial mortgage loan investments and ~~$90~~$9 million in private placement investments. As of ~~June 30, 2019,~~March 31, 2020, we were also committed to fund ~~$52~~$29 million of bank loan investments which had not yet been drawn.

~~(12)~~(13) Changes in Accumulated Other Comprehensive Income (Loss)

The following tables show the changes in accumulated other comprehensive income (loss), net of taxes, by component as of and for the periods indicated:


(Amounts in millions)	Net unrealized investment gains (losses) (1)		Derivatives qualifying as hedges (2)			Foreign currency translation and other adjustments			Total			Net unrealized investment gains (losses) (1)			Derivatives qualifying as hedges (2)			Foreign currency translation and other adjustments			Total
Balances as of April 1, 2019	$	943	$	1,850		$	(301	)	$	2,492
Balances as of January 1, 2020												$	1,456		$	2,002		$	(25	)	$	3,433
OCI before reclassifications		375		157			43			575			(314	)		783			(98	)		371
Amounts reclassified from (to) OCI		1		(24	)		—			(23	)		(6	)		(30	)		—			(36	)

Current period OCI		376		133			43			552			(320	)		753			(98	)		335

Balances as of June 30, 2019 before noncontrolling interests		1,319		1,983			(258	)		3,044
Balances as of March 31, 2020 before noncontrolling interests													1,136			2,755			(123	)		3,768

Less: change in OCI attributable to noncontrolling interests		14		—			17			31			(4	)		—			(43	)		(47	)

Balances as of June 30, 2019	$	1,305	$	1,983		$	(275	)	$	3,013
Balances as of March 31, 2020												$	1,140		$	2,755		$	(80	)	$	3,815

(1)	Net of adjustments to DAC, present value of future profits, sales inducements and benefit reserves. See note 4 for additional information.

(2)	See note 5 for additional information.

(Amounts in millions)

Net
unrealized
investment
gains
(losses)
(1)

Derivatives
qualifying as
hedges
(2)

Foreign
currency
translation
and other
adjustments

Total

Balances as of April 1, 2018
$
917
$
1,927
$
(217
) $
2,627

OCI before reclassifications

(193
)

(39
)

(98
)
(330
)
Amounts reclassified from (to) OCI

6

(25
)

—

(19
)

Current period OCI

(187
)

(64
)

(98
)
(349
)

Balances as of June 30, 2018 before noncontrolling interests

730

1,863

(315
)
2,278

Less: change in OCI attributable to noncontrolling interests

(6
)

—

(43
)
(49
)

Balances as of June 30, 2018
$
736
$
1,863
$
(272
) $
2,327


(Amounts in millions)	Net unrealized investment gains (losses) (1)			Derivatives qualifying as hedges (2)			Foreign currency translation and other adjustments			Total
Balances as of January 1, 2019	$	595		$	1,781		$	(332	)	$	2,044
OCI before reclassifications		427			97			54			578
Amounts reclassified from (to) OCI		(47	)		(28	)		—			(75	)

Current period OCI		380			69			54			503

Balances as of March 31, 2019 before noncontrolling interests		975			1,850			(278	)		2,547

Less: change in OCI attributable to noncontrolling interests		32			—			23			55

Balances as of March 31, 2019	$	943		$	1,850		$	(301	)	$	2,492

(1)	Net of adjustments to DAC, present value of future profits, sales inducements and benefit reserves. See note 4 for additional information.

~~(2)~~

~~See note 5 for additional information.~~

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~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

(Amounts in millions)

Net
unrealized
investment
gains
(losses)
(1)

Derivatives
qualifying as
hedges
(2)

Foreign
currency
translation
and other
adjustments

Total

Balances as of January 1, 2019 $
595
$
1,781
$
(332
) $
2,044

OCI before reclassifications
802

254

97

1,153

Amounts reclassified from (to) OCI
(46
)

(52
)

—

(98
)

Current period OCI
756

202

97

1,055

Balances as of June 30, 2019 before noncontrolling interests
1,351

1,983

(235
)
3,099

Less: change in OCI attributable to noncontrolling interests
46

—

40

86

Balances as of June 30, 2019 $
1,305
$
1,983
$
(275
) $
3,013

~~(1)~~

~~Net of adjustments to DAC, present value of future profits, sales inducements and benefit reserves. See note 4 for additional information.~~

(2)	See note 5 for additional information.

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GENWORTH FINANCIAL, INC.

(Amounts in millions)

Net
unrealized
investment
gains
(losses)
(1)

Derivatives
qualifying as
hedges
(2)

Foreign
currency
translation
and other
adjustments

Total

Balances as of January 1, 2018
$
1,085
$
2,065
$
(123
) $
3,027

Cumulative effect of changes in accounting

164

14

(47
)
131

OCI before reclassifications

(541
)

(165
)

(185
)
(891
)
Amounts reclassified from (to) OCI

13

(51
)

—

(38
)

Current period OCI

(528
)

(216
)

(185
)
(929
)

Balances as of June 30, 2018 before noncontrolling interests

721

1,863

(355
)
2,229

Less: change in OCI attributable to noncontrolling interests

(15
)

—

(83
)
(98
)

Balances as of June 30, 2018
$
736
$
1,863
$
(272
) $
2,327

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(1)~~

~~Net of adjustments to DAC, present value of future profits, sales inducements and benefit reserves. See note 4 for additional information.~~

~~(2)~~

~~See note 5 for additional information.~~

The foreign currency translation and other adjustments balance in the charts above included $(2) million, ~~and $(14) million, respectively,~~ net of taxes of $1 million, ~~and $5 million, respectively,~~ related to a net unrecognized postretirement benefit obligation as of ~~June 30, 2019 and 2018.~~March 31, 2019. The balance also included taxes of ~~$(45)~~$23 million and ~~$(46)~~$(45) million, respectively, related to foreign currency translation adjustments as of ~~June 30, 2019~~March 31, 2020 and ~~2018. The balance as of June 30, 2018 included the impact of adopting new accounting guidance related to stranded tax effects.~~

2019.

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following table shows reclassifications in (out) of accumulated other comprehensive income (loss), net of taxes, for the periods presented:


	Amount reclassified from accumulated other comprehensive income (loss)												Affected line item in the consolidated statements of income		Amount reclassified from accumulated other comprehensive income					Affected line item in the consolidated statements of income
	Three months ended June 30,						Six months ended June 30,								Three months ended March 31,
(Amounts in millions)	2019			2018			2019			2018						2020			2019
Net unrealized investment (gains) losses:
Unrealized (gains) losses on investments (1)	$	2		$	8		$	(58	)	$	16		Net investment (gains) losses	$	(7	)	$	(60	)		Net investment (gains) losses
(Provision) benefit for income taxes		(1	)		(2	)		12			(3	)	Provision for income taxes		1			13		Provision for income taxes

Total	$	1		$	6		$	(46	)	$	13			$	(6	)	$	(47	)

Derivatives qualifying as hedges:
Interest rate swaps hedging assets	$	(42	)	$	(39	)	$	(80	)	$	(74	)	Net investment income	$	(43	)	$	(38	)	Net investment income
Interest rate swaps hedging assets		4			—			(2	)		(5	)	Net investment (gains) losses		(4	)		(6	)	Net investment (gains) losses
Foreign currency swaps		1			—			1			—		Net investment income
Benefit for income taxes		13			14			29			28		Provision for income taxes		17			16		Provision for income taxes

Total	$	(24	)	$	(25	)	$	(52	)	$	(51	)		$	(30	)	$	(28	)

(1)	Amounts exclude adjustments to DAC, present value of future profits, sales inducements and benefit reserves.

~~(13) Condensed Consolidating Financial Information~~(14) Discontinued Operations

~~Genworth Financial provides a full and unconditional guarantee to~~

Canada mortgage insurance business

On December 12, 2019, we completed the ~~trustee~~sale of Genworth ~~Holdings’ outstanding senior~~Canada, our former Canada mortgage insurance business and ~~subordinated notes and~~received approximately $1.7

billion in net cash proceeds. Prior to its sale, in the ~~holders~~third quarter of ~~the senior and subordinated notes, on an unsecured unsubordinated and subordinated basis, respectively,~~2019, Genworth Canada was reported as discontinued operations; accordingly, its results of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, each outstanding series of senior notes and outstanding subordinated notes, and the full and punctual payment of all other amounts payable by Genworth Holdings under the senior and subordinated notes indentures in respect of such senior and subordinated notes. Genworth Holdings is a direct, 100% owned subsidiary of Genworth Financial.

The following condensed consolidating financial information of Genworth Financial and its direct and indirect subsidiaries has been prepared pursuant to rules regarding the preparation of consolidating financial information of Regulation

~~S-X.~~

The condensed consolidating financial information presents the condensed consolidating balance sheet information as of June 30, 2019 and December 31, 2018, the condensed consolidating income statement information and the condensed consolidating comprehensive income statement informationoperations were separately reported for the three ~~and six~~ months ended ~~June 30, 2019 and 2018 and the condensed consolidating cash flow statement information for the six months ended June 30, 2019 and 2018.~~March 31, 2019.

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~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The condensed consolidating financial information reflects Genworth Financial (“Parent Guarantor”), Genworth Holdings (“Issuer”) and each of Genworth Financial’s other direct and indirect subsidiaries (the “All Other Subsidiaries”) on a combined basis, none of which guarantee the senior notes or subordinated notes, as well as the eliminations necessary to present Genworth Financial’s financial information on a consolidated basis and total consolidated amounts.

The accompanying condensed consolidating financial information is presented based on the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the subsidiaries’ cumulative results of operations, capital contributions and distributions, and other changes in equity. Elimination entries include consolidating and eliminating entries for investments in subsidiaries and intercompany activity.

~~Table of Contents~~

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~The following table presents the condensed consolidating balance sheet information~~A summary of operating results related to Genworth Canada reported as ~~of June 30, 2019:~~

(Amounts in millions)

Parent
Guarantor

Issuer

All Other
Subsidiaries

Eliminations

Consolidated

Assets

Investments:

Fixed maturity securities
available-for-sale,
at fair value
$
—
$
—
$
63,974
$
(200
) $
63,774

Equity securities, at fair value

—

—

644

—

644

Commercial mortgage loans ($56 are restricted related to a securitization entity)

—

—

7,019

—

7,019

Policy loans

—

—

2,076

—

2,076

Other invested assets

—

49

1,493

(7
)
1,535

Investments in subsidiaries

13,938

12,439

—

(26,377
)
—

Total investments

13,938

12,488

75,206

(26,584
)
75,048

Cash, cash equivalents and restricted cash

—

358

1,580

—

1,938

Accrued investment income

—

—

630

(4
)
626

Deferred acquisition costs

—

—

2,105

—

2,105

Intangible assets and goodwill

—

—

244

—

244

Reinsurance recoverable

—

—

17,211

—

17,211

Other assets

5

55

505

(1
)
564

Intercompany notes receivable

—

273

—

(273
)
—

Deferred tax assets

(35
)
841

(423
)
—

383

Separate account assets

—

—

6,187

—

6,187

Total assets
$
13,908
$
14,015
$
103,245
$
(26,862
) $
104,306

Liabilities and equity

Liabilities:

Future policy benefits
$
—
$
—
$
39,583
$
—
$
39,583

Policyholder account balances

—

—

22,673

—

22,673

Liability for policy and contract claims

—

—

10,677

—

10,677

Unearned premiums

—

—

3,488

—

3,488

Other liabilities

—

47

1,689

(13
)
1,723

Intercompany notes payable

151

200

122

(473
)
—

Non-recourse
funding obligations

—

—

311

—

311

Long-term borrowings

—

3,571

473

—

4,044

Deferred tax liability

—

—

28

—

28

Separate account liabilities

—

—

6,187

—

6,187

Total liabilities

151

3,818

85,231

(486
)
88,714

Equity:

Common stock

1

—

3

(3
)
1

Additional
paid-in
capital

11,983

9,094

18,428

(27,522
)
11,983

Accumulated other comprehensive income (loss)

3,013

2,982

3,051

(6,033
)
3,013

Retained earnings

1,460

(1,879
)
(5,603
)
7,482

1,460

Treasury stock, at cost

(2,700
)
—

—

—

(2,700
)

Total Genworth Financial, Inc.’s stockholders’ equity

13,757

10,197

15,879

(26,076
)
13,757

Noncontrolling interests

—

—

2,135

(300
)
1,835

Total equity

13,757

10,197

18,014

(26,376
)
15,592

Total liabilities and equity
$
13,908
$
14,015
$
103,245
$
(26,862
) $
104,306

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following table presents the condensed consolidating balance sheet information~~discontinued operations were as ~~of December 31, 2018:~~

(Amounts in millions)

Parent
Guarantor

Issuer

All Other
Subsidiaries

Eliminations

Consolidated

Assets

Investments:

Fixed maturity securities
available-for-sale,
at fair value
$
—
$
—
$
59,861
$
(200
) $
59,661

Equity securities, at fair value

—

—

655

—

655

Commercial mortgage loans ($62 are restricted related to a securitization entity)

—

—

6,749

—

6,749

Policy loans

—

—

1,861

—

1,861

Other invested assets

—

86

1,104

(2
)
1,188

Investments in subsidiaries

12,570

11,462

—

(24,032
)
—

Total investments

12,570

11,548

70,230

(24,234
)
70,114

Cash, cash equivalents and restricted cash

—

429

1,748

—

2,177

Accrued investment income

—

—

679

(4
)
675

Deferred acquisition costs

—

—

3,263

—

3,263

Intangible assets and goodwill

—

—

347

—

347

Reinsurance recoverable

—

—

17,278

—

17,278

Other assets

15

62

397

—

474

Intercompany notes receivable

—

180

6

(186
)
—

Deferred tax assets

14

907

(185
)
—

736

Separate account assets

—

—

5,859

—

5,859

Total assets
$
12,599
$
13,126
$
99,622
$
(24,424
) $
100,923

Liabilities and equity

Liabilities:

Future policy benefits
$
—
$
—
$
37,940
$
—
$
37,940

Policyholder account balances

—

—

22,968

—

22,968

Liability for policy and contract claims

—

—

10,379

—

10,379

Unearned premiums

—

—

3,546

—

3,546

Other liabilities

27

97

1,565

(7
)
1,682

Intercompany notes payable

122

207

57

(386
)
—

Non-recourse
funding obligations

—

—

311

—

311

Long-term borrowings

—

3,567

458

—

4,025

Deferred tax liability

—

—

24

—

24

Separate account liabilities

—

—

5,859

—

5,859

Total liabilities

149

3,871

83,107

(393
)
86,734

Equity:

Common stock

1

—

3

(3
)
1

Additional
paid-in
capital

11,987

9,095

18,425

(27,520
)
11,987

Accumulated other comprehensive income (loss)

2,044

2,144

2,060

(4,204
)
2,044

Retained earnings

1,118

(1,984
)
(6,012
)
7,996

1,118

Treasury stock, at cost

(2,700
)
—

—

—

(2,700
)

Total Genworth Financial, Inc.’s stockholders’ equity

12,450

9,255

14,476

(23,731
)
12,450

Noncontrolling interests

—

—

2,039

(300
)
1,739

Total equity

12,450

9,255

16,515

(24,031
)
14,189

Total liabilities and equity
$
12,599
$
13,126
$
99,622
$
(24,424
) $
100,923

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following table presents the condensed consolidating income statement information~~follows for the three months ended ~~June 30,~~March 31, 2019:


	Parent						All Other
(Amounts in millions)	Guarantor			Issuer			Subsidiaries			Eliminations			Consolidated
Revenues:
Premiums	$	—		$	—		$	1,126		$	—		$	1,126		$	126
Net investment income		—			1			854			(3	)		852			35
Net investment gains (losses)		—			(9	)		(36	)		—			(45	)		(1	)
Policy fees and other income		—			2			223			(2	)		223

Total revenues		—			(6	)		2,167			(5	)		2,156			160

Benefits and expenses:
Benefits and other changes in policy reserves		—			—			1,270			—			1,270			19
Interest credited		—			—			146			—			146
Acquisition and operating expenses, net of deferrals		3			—			244			—			247			14
Amortization of deferred acquisition costs and intangibles		—			—			95			—			95			10
Interest expense		1			65			12			(5	)		73
Interest expense (1)																	12

Total benefits and expenses		4			65			1,767			(5	)		1,831			55

Income (loss) before income taxes and equity in income of subsidiaries		(4	)		(71	)		400			—			325
Provision (benefit) for income taxes		23			(14	)		98			—			107
Equity in income of subsidiaries		195			93			—			(288	)		—
Income before income taxes (2)																	105
Provision for income taxes																	43

Net income		168			36			302			(288	)		218
Less: net income attributable to noncontrolling interests		—			—			50			—			50
Income from discontinued operations, net of taxes																	62

Net income available to Genworth Financial, Inc.’s common stockholders	$	168		$	36		$	252		$	(288	)	$	168
Less: net income from discontinued operations attributable to noncontrolling interests																	36

Income from discontinued operations available to Genworth Financial, Inc.’s common stockholders																$	26

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following table presents the condensed consolidating income statement information for the three months ended June 30, 2018:~~

Parent

All Other

(Amounts in millions)

Guarantor

Issuer

Subsidiaries

Eliminations

Consolidated

Revenues:

Premiums
$
—
$
—
$
  1,136
$
—
$
  1,136

Net investment income

—

4

828

(4
)
828

Net investment gains (losses)

—

(8
)
(6
)
—

(14
)
Policy fees and other income

—

1

209

(1
)
209

Total revenues

—

(3
)
2,167

(5
)
2,159

Benefits and expenses:

Benefits and other changes in policy reserves

—

—

1,205

—

1,205

Interest credited

—

—

152

—

152

Acquisition and operating expenses, net of deferrals

7

—

246

—

253

Amortization of deferred acquisition costs and intangibles

—

—

112

—

112

Interest expense

1

70

11

(5
)
77

Total benefits and expenses

8

70

1,726

(5
)
1,799

Income (loss) before income taxes and equity in income of subsidiaries

(8
)
(73
)
441

—

360

Provision (benefit) for income taxes

32

(14
)
93

—

111

Equity in income of subsidiaries

230

151

—

(381
)
—

Net income

190

92

348

(381
)
249

Less: net income attributable to noncontrolling interests

—

—

59

—

59

Net income available to Genworth Financial, Inc.’s common stockholders
$
  190
$
92
$
289
$
(381
) $
190

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following table presents the condensed consolidating income statement information for the six months ended June 30, 2019:~~

Parent

All Other

(Amounts in millions)

Guarantor

Issuer

Subsidiaries

Eliminations

Consolidated

Revenues:

Premiums
$
—
$
—
$
2,240
$
—
$
2,240

Net investment income

(1
)
4

1,685

(7
)
1,681

Net investment gains (losses)

—

(12
)
41

—

29

Policy fees and other income

—

2

411

(3
)
410

Total revenues

(1
)
(6
)
4,377

(10
)
4,360

Benefits and expenses:

Benefits and other changes in policy reserves

—

—

2,571

—

2,571

Interest credited

—

—

293

—

293

Acquisition and operating expenses, net of deferrals

7

(2
)
493

—

498

Amortization of deferred acquisition costs and intangibles

—

—

186

—

186

Interest expense

3

130

22

(10
)
145

Total benefits and expenses

10

128

3,565

(10
)
3,693

Income (loss) before income taxes and equity in income of subsidiaries
(11
)
(134
)
812

—

667

Provision (benefit) for income taxes

44

(26
)
201

—

219

Equity in income of subsidiaries

397

213

—

(610
)
—

Net income

342

105

611

(610
)
448

Less: net income attributable to noncontrolling interests

—

—

106

—

106

Net income available to Genworth Financial, Inc.’s common stockholders
$
342
$
105
$
505
$
(610
) $
342

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following table presents the condensed consolidating income statement information for the six months ended June 30, 2018:~~

Parent

All Other

(Amounts in millions)

Guarantor

Issuer

Subsidiaries

Eliminations

Consolidated

Revenues:

Premiums
$
—
$
—
$

2,276
$
—
$ 2,276
Net investment income

(1
)
7

1,633

(7
)
1,632

Net investment gains (losses)

—

(2
)
(43
)
—

(45
)
Policy fees and other income

—

1

412

(2
)
411

Total revenues

(1
)
6

4,278

(9
)
4,274

Benefits and expenses:

Benefits and other changes in policy reserves

—

—

2,516

—

2,516

Interest credited

—

—

308

—

308

Acquisition and operating expenses, net of deferrals

14

—

479

—

493

Amortization of deferred acquisition costs and intangibles

—

—

216

—

216

Interest expense

1

138

23

(9
)
153

Total benefits and expenses

15

138

3,542

(9
)
3,686

Income (loss) before income taxes and equity in income of subsidiaries
(16
)
(132
)
736

—

588

Provision (benefit) for income taxes

38

(31
)
167

—

174

Equity in income of subsidiaries

356

196

—

(552
)
—

Net income

302

95

569

(552
)
414

Less: net income attributable to noncontrolling interests

—

—

112

—

112

Net income available to Genworth Financial, Inc.’s common stockholders
$
  302
$
95
$
457
$
(552
) $
302

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following table presents the condensed consolidating comprehensive income statement information for the three months ended June 30, 2019:~~

Parent

All Other

(Amounts in millions)

Guarantor

Issuer

Subsidiaries

Eliminations

Consolidated

Net income
$
168
$
36
$
302
$
(288
) $
218

Other comprehensive income (loss), net of taxes:

Net unrealized gains (losses) on securities not other-than-temporarily impaired

362

311

376

(673
)
376

Derivatives qualifying as hedges

133

133

148

(281
)
133

Foreign currency translation and other adjustments

26

17

43

(43
)
43

Total other comprehensive income (loss)
521

461

567

(997
)
552

Total comprehensive income

689

497

869

(1,285
)
770

Less: comprehensive income attributable to noncontrolling interests

—

—

81

—

81

Total comprehensive income available to Genworth Financial, Inc.’s common stockholders
$
689
$
497
$
788
$
(1,285
) $
689

~~The following table presents the condensed consolidating comprehensive income statement information for the three months ended June 30, 2018:~~

Parent

All Other

(Amounts in millions)

Guarantor

Issuer

Subsidiaries

Eliminations

Consolidated

Net income
$
190
$
92
$
348
$
(381
) $
249

Other comprehensive income (loss), net of taxes:

Net unrealized gains (losses) on securities not other-than-temporarily impaired

(179
)
(167
)
(185
)
346

(185
)
Net unrealized gains (losses) on other-than-temporarily impaired securities

(2
)
(1
)
(2
)
3

(2
)
Derivatives qualifying as hedges

(64
)
(64
)
(68
)
132

(64
)
Foreign currency translation and other adjustments

(55
)
(46
)
(97
)
100

(98
)

Total other comprehensive income (loss)

(300
)
(278
)
(352
)
581

(349
)

Total comprehensive loss

(110
)
(186
)
(4
)
200

(100
)
Less: comprehensive income attributable to noncontrolling interests

—

—

10

—

10

Total comprehensive loss available to Genworth Financial, Inc.’s common stockholders
$
(110
) $
(186
) $
(14
) $
200
$
(110
)

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following table presents the condensed consolidating comprehensive income statement information for the six months ended June 30, 2019:~~

Parent

All Other

(Amounts in millions)

Guarantor

Issuer

Subsidiaries

Eliminations

Consolidated

Net income
$
342
$
105
$
611
$
(610
) $
448

Other comprehensive income (loss), net of taxes:

Net unrealized gains (losses) on securities not other-than-
temporarily impaired

709

594

755

(1,303
)
755

Net unrealized gains (losses) on other-than-temporarily
impaired securities

1

1

1

(2
)
1

Derivatives qualifying as hedges

202

202

225

(427
)
202

Foreign currency translation and other adjustments

57

41

96

(97
)
97

Total other comprehensive income (loss)

969

838

1,077

(1,829
)
1,055

Total comprehensive income
1,311

943

1,688

(2,439
)
1,503

Less: comprehensive income attributable to noncontrolling interests

—

—

192

—

192

Total comprehensive income available to Genworth Financial, Inc.’s
common stockholders $
1,311
$
943
$
1,496
$
(2,439
) $
1,311

(1)

Interest on debt assumed by Brookfield and interest on debt that was repaid as a result of the sale of Genworth Canada was allocated and reported in discontinued operations. A senior secured term loan facility (“Term Loan”), owed by Genworth Holdings and secured by GFIH’s ownership interest in Genworth Canada’s outstanding common shares, was repaid in connection with the close of the Genworth Canada sale. Accordingly, interest expense related to the Term Loan of $8 million for the three months ended March 31, 2019 was allocated and reported in discontinued operations.

(2)	The three months ended March 31, 2019 includes pre-tax income from discontinued operations available to Genworth Financial, Inc.’s common stockholders of $56 million.

~~The following table presents~~

Lifestyle protection insurance

On December 1, 2015, we completed the ~~condensed consolidating comprehensive~~sale of our lifestyle protection insurance business. In January 2020, we made an interim payment to AXA for approximately $134 million, which was accrued as a contingent liability as of December 31, 2019. This amount was included in income ~~statement information~~(loss) from discontinued operations for the ~~six months~~year ended ~~June 30, 2018:~~December 31, 2019. See note 12 for additional details related to asserted claims regarding the sale of our lifestyle protection insurance business. We retained liabilities for certain claims, taxes and sales practices that occurred while we owned the lifestyle protection insurance business. We have established our current best estimates for these liabilities where we are able to estimate; however, there may be future adjustments to these estimates, including additional contingent liabilities, which are not currently recorded. If the amounts are recorded, it would result in the establishment of a liability and a loss recognized in income (loss) from discontinued operations.

Parent

All Other

(Amounts in millions)

Guarantor

Issuer

Subsidiaries

Eliminations

Consolidated

Net income
$
302
$
95
$
569
$
(552
) $
414

Other comprehensive income (loss), net of taxes:

Net unrealized gains (losses) on securities not other-than-temporarily impaired

(511
)
(462
)
(526
)
973

(526
)
Net unrealized gains (losses) on other-than-temporarily impaired securities

(2
)
(1
)
(2
)
3

(2
)
Derivatives qualifying as hedges

(216
)
(217
)
(233
)
450

(216
)
Foreign currency translation and other adjustments

(102
)
(82
)
(185
)
184

(185
)

Total other comprehensive income (loss)

(831
)
(762
)
(946
)
1,610

(929
)

Total comprehensive loss

(529
)
(667
)
(377
)
1,058

(515
)
Less: comprehensive income attributable to noncontrolling interests

—

—

14

—

14

Total comprehensive loss available to Genworth Financial, Inc.’s common stockholders
$
(529
) $
(667
) $
(391
) $
1,058
$
(529
)

Table of Contents

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following table presents the condensed consolidating cash flow statement information for the six months ended June 30, 2019:~~

Parent

All Other

(Amounts in millions)

Guarantor

Issuer

Subsidiaries

Eliminations

Consolidated

Cash flows from (used by) operating activities:

Net income
$
342
$
105
$
611
$
(610
) $
448

Adjustments to reconcile net income to net cash from (used by) operating activities:

Equity in income from subsidiaries

(397
)
(213
)
—

610

—

Dividends from subsidiaries

—

105

(105
)
—

—

Amortization of fixed maturity securities discounts and premiums

—

3

(57
)
—

(54
)
Net investment (gains) losses

—

12

(41
)
—

(29
)
Charges assessed to policyholders

—

—

(364
)
—

(364
)
Acquisition costs deferred

—

—

(35
)
—

(35
)
Amortization of deferred acquisition costs and intangibles

—

—

186

—

186

Deferred income taxes

49

74

11

—

134

Derivative instruments and limited partnerships

—

(30
)
52

—

22

Stock-based compensation expense

10

—

2

—

12

Change in certain assets and liabilities:

Accrued investment income and other assets

(1
)
—

(290
)
1

(290
)
Insurance reserves

—

—

609

—

609

Current tax liabilities

(4
)
(40
)
71

—

27

Other liabilities, policy and contract claims and other policy-related balances

(18
)
(3
)
156

(6
)
129

Net cash from (used by) operating activities

(19
)
13

806

(5
)
795

Cash flows used by investing activities:

Proceeds from maturities and repayments of investments:

Fixed maturity securities

—

—

1,929

—

1,929

Commercial mortgage loans

—

—

285

—

285

Restricted commercial mortgage loans related to a securitization entity

—

—

6

—

6

Proceeds from sales of investments:

Fixed maturity and equity securities

—

—

2,859

—

2,859

Purchases and originations of investments:

Fixed maturity and equity securities

—

—

(4,681
)
—

(4,681
)
Commercial mortgage loans

—

—

(561
)
—

(561
)
Other invested assets, net

—

29

(261
)
5

(227
)
Policy loans, net

—

—

39

—

39

Intercompany notes receivable

—

(93
)
6

87

—

Capital contributions to subsidiaries

(3
)
—

3

—

—

Net cash used by investing activities

(3
)
(64
)
(376
)
92

(351
)

Cash flows from (used by) financing activities:

Deposits to universal life and investment contracts

—

—

444

—

444

Withdrawals from universal life and investment contracts

—

—

(1,096
)
—

(1,096
)
Proceeds from the issuance of long-term debt

—


—


77

—


77

Repayment and repurchase of long-term debt

—


(1
)

(77
)

—


(78
)
Repurchase of subsidiary shares

—

—

(44
)
—

(44
)
Dividends paid to noncontrolling interests

—

—

(53
)
—

(53
)
Intercompany notes payable

29

(7
)
65

(87
)
—

Other, net

(7
)
(12
)
74

—

55

Net cash from (used by) financing activities

22

(20
)
(610
)
(87
)
(695
)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

—

—

12

—

12

Net change in cash, cash equivalents and restricted cash

—

(71
)
(168
)
—

(239
)
Cash, cash equivalents and restricted cash at beginning of period

—

429

1,748

—

2,177

Cash, cash equivalents and restricted cash at end of period
$
—
$
358
$
1,580
$
—
$
1,938

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The following table presents the condensed consolidating cash flow statement information for the six months ended June 30, 2018:~~

Parent

All Other

(Amounts in millions)

Guarantor

Issuer

Subsidiaries

Eliminations

Consolidated

Cash flows from (used by) operating activities:

Net income
$
302
$
95
$
569
$
(552
) $
414

Adjustments to reconcile net income to net cash from (used by) operating activities:

Equity in income from subsidiaries

(356
)
(196
)
—

552

—

Dividends from subsidiaries

50

91

(141
)
—

—

Amortization of fixed maturity securities discounts and premiums

—

3

(65
)
—

(62
)
Net investment losses

—

2

43

—

45

Charges assessed to policyholders

—

—

(359
)
—

(359
)
Acquisition costs deferred

—

—

(40
)
—

(40
)
Amortization of deferred acquisition costs and intangibles

—

—

216

—

216

Deferred income taxes

42

(117
)
158

—

83

Derivative instruments and limited partnerships

—

22

(217
)
—

(195
)
Stock-based compensation expense

15

—

1

—

16

Change in certain assets and liabilities:

Accrued investment income and other assets

(1
)
59

(147
)
—

(89
)
Insurance reserves

—

—

691

—

691

Current tax liabilities

(27
)
87

(97
)
—

(37
)
Other liabilities, policy and contract claims and other policy-related balances

(15
)
(50
)
(49
)
(8
)
(122
)

Net cash from (used by) operating activities

10

(4
)
563

(8
)
561

Cash flows used by investing activities:

Proceeds from maturities and repayments of investments:

Fixed maturity securities

—

—

1,979

—

1,979

Commercial mortgage loans

—

—

350

—

350

Restricted commercial mortgage loans related to a securitization entity

—

—

16

—

16

Proceeds from sales of investments:

Fixed maturity and equity securities

—

—

1,920

—

1,920

Purchases and originations of investments:

Fixed maturity and equity securities

—

—

(4,082
)
—

(4,082
)
Commercial mortgage loans

—

—

(489
)
—

(489
)
Other invested assets, net

—

—

85

8

93

Policy loans, net

—

—

15

—

15

Intercompany notes receivable

—

(10
)
58

(48
)
—

Capital contributions to subsidiaries

(1
)
—

1

—

—

Net cash used by investing activities

(1
)
(10
)
(147
)
(40
)
(198
)

Cash flows used by financing activities:

Deposits to universal life and investment contracts

—

—

503

—

503

Withdrawals from universal life and investment contracts

—

—

(1,177
)
—

(1,177
)
Proceeds from the issuance of long-term debt

—

441

—

—

441

Repayment and repurchase of long-term debt

—

(597
)
—

—

(597
)
Repayment of borrowings related to a securitization entity

—

—

(12
)
—

(12
)
Repurchase of subsidiary shares

—

—

(49
)
—

(49
)
Dividends paid to noncontrolling interests

—

—

(50
)
—

(50
)
Intercompany notes payable

(7
)
(59
)
18

48

—

Other, net

(2
)
(19
)
19

—

(2
)

Net cash used by financing activities

(9
)
(234
)
(748
)
48

(943
)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

—

—

(52
)
—

(52
)

Net change in cash, cash equivalents and restricted cash

—

(248
)
(384
)
—

(632
)
Cash, cash equivalents and restricted cash at beginning of period

—

795

2,080

—

2,875

Cash, cash equivalents and restricted cash at end of period
$
—
$
547
$
1,696
$
—
$
2,243

~~Table of Contents~~

~~GENWORTH FINANCIAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Our insurance company subsidiaries are restricted by state and foreign laws and regulations as to the amount of dividends they may pay to their parent without regulatory approval in any year, the purpose of which is to protect affected insurance policyholders and contractholders, not stockholders. Any dividends in excess of limits are deemed “extraordinary” and require approval. Based on statutory results as of December 31, 2018, in accordance with applicable dividend restrictions, our subsidiaries could pay dividends of approximately $500 million to us in 2019 without obtaining regulatory approval, and the remaining net assets are considered restricted. While the $500 million is unrestricted, our insurance subsidiaries may not pay dividends to us in 2019 at this level if they need to retain capital for growth and to meet capital requirements and desired thresholds. As of June 30, 2019, Genworth Financial’s and Genworth Holdings’ subsidiaries had restricted net assets of $13.4 billion and $12.2 billion, respectively.

~~Table of Contents~~

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included herein and with our ~~2018~~2019 Annual Report on Form

10-K.

References to “Genworth Financial,” “Genworth,” the “Company,” “we” or “our” herein are, unless the context otherwise requires, to Genworth Financial, Inc. on a consolidated basis.

Cautionary note regarding forward-looking statements

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “will” or words of similar meaning and include, but are not limited to, statements regarding the outlook for our future business and financial performance. Examples of forward-looking statements include statements we make relating to the ~~transactions~~transaction with China Oceanwide Holdings Group Co., Ltd. (together with its affiliates, “China Oceanwide”), our discussions with regulators in connection therewith and any capital contribution resulting therefrom, as well as ~~any~~ statements we make regarding the potential ~~disposition~~impacts of ~~our interest in Genworth MI Canada Inc.~~ the coronavirus pandemic

(“~~Genworth Canada”~~COVID-19”).

Forward-looking statements are based on management’s current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially from those in the forward-looking statements due to global political, economic, business, competitive, market, regulatory and other factors and risks, including, but not limited to, the following:

risks related to the proposed transaction with China Oceanwide

including: our inability to complete the transaction ~~with China Oceanwide~~ in a timely manner or at ~~all;~~all, which may adversely affect our business and the price of our common stock; the parties’ inability to obtain regulatory approvals, clearances or extensions, or the possibility that such regulatory approvals or clearances may further delay the transaction ~~with China Oceanwide~~ or ~~will~~may not be received prior to ~~November~~June 30, ~~2019~~2020 (and either or both of the parties may not be willing to further waive their end date termination rights beyond ~~November~~June 30, ~~2019)~~2020) or that materially burdensome or adverse regulatory conditions may be imposed or undesirable measures may be required in connection with any such regulatory approvals, clearances or extensions (including those conditions or measures that either or both of the parties may be unwilling to accept or undertake, as applicable) or that with continuing delays, circumstances may arise that make one or more previously obtained regulatory approvals or clearances no longer valid, one or both parties unwilling to proceed with the transaction ~~with China Oceanwide~~ or unable to comply with the conditions to existing regulatory ~~approvals;~~approvals, or one or both of the parties may be unwilling to accept any new condition under a regulatory approval; the risk that the parties will not be able to obtain other regulatory approvals, clearances or extensions, including in connection with a potential alternative funding structure or the current

geo-political

environment, or that one or more regulators may rescind or fail to extend existing approvals, or that the revocation by one regulator of approvals will lead to the revocation of approvals by other regulators; the parties’ inability to obtain any necessary regulatory approvals, clearances or extensions for the post-closing capital plan; the risk that a condition to the closing of the transaction ~~with China Oceanwide~~ may not be satisfied or that a condition to closing that is currently satisfied may not remain satisfied due to the delay in closing the transaction ~~with China Oceanwide; risks relating to any potential disposition of Genworth Canada~~or that are similar to the foregoing, including regulatory, legal or contractual restrictions that may impede Genworth’s ability to consummate a disposition of Genworth Canada, the right of China Oceanwide to reject the terms of any Genworth Canada sale, in which case the parties will ~~each have~~be unable to agree upon a closing date following receipt of all regulatory approvals and clearances; the ~~right to terminate~~risks regarding the ~~China Oceanwide transaction, as well as potential changes in market conditions generally or conditions relating to Genworth Canada’s industry or business that may impede~~ongoing availability of any ~~such sale;~~required financing; the risk that existing and potential legal proceedings may be instituted ~~against us~~ in connection with the transaction ~~with China Oceanwide or the potential sale of Genworth Canada~~ that may delay the transaction, ~~with China Oceanwide,~~ make it more costly or ultimately preclude it; the risk that the proposed ~~transactions disrupt~~transaction disrupts our current plans and operations as a result of the announcement and consummation of the ~~transactions;~~transaction; certain restrictions during the pendency of the ~~transactions~~transaction that may impact our ability to pursue certain business opportunities or strategic transactions; continued availability of capital and financing to us before, or in the absence of, the consummation of the transaction; further rating agency actions and downgrades in our credit or financial strength ratings; changes in applicable laws or regulations; our ability to recognize the anticipated benefits of the transaction; the amount of the costs, fees, expenses

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availability of capital and financing to us before, or in the absence of, the consummation of the transactions; further rating agency actions and downgrades in our debt or financial strength ratings; changes in applicable laws or regulations; our ability to recognize the anticipated benefits of the transactions; the amount of the costs, fees, expenses and other charges related to the ~~transactions, including costs and expenses related to conditions imposed in connection with regulatory approvals or clearances, which may be material;~~transaction; the risks related to diverting management’s attention from our ongoing business operations; ~~the merger agreement may be terminated in circumstances that would require us to pay China Oceanwide a fee;~~ our ability to attract, recruit, retain and motivate current and prospective employees may be adversely affected; and ~~disruptions and uncertainty relating~~potential adverse reactions or changes to ~~the transaction, whether or not it is completed, may harm~~ our business relationships with ~~our~~clients, employees, ~~customers, distributors, vendors~~suppliers or other parties or other business ~~partners, and may result in a negative impact on~~uncertainties resulting from the announcement of the transaction or during the pendency of the transaction, including but not limited to such changes that could affect our ~~business;~~financial performance;

strategic risks in the event the proposed transaction with China Oceanwide is not consummated

including: our inability to successfully execute alternative strategic plans to effectively address our current business challenges (including with respect to stabilizing our U.S. life insurance businesses, debt obligations, cost savings, ratings and capital); the risk that the impacts of or uncertainty created by

COVID-19

delay or hinder alternative transactions or otherwise make alternative plans less attractive; our inability to attract buyers for any businesses or other assets we may seek to sell, or securities we may seek to issue, in each case, in a timely manner and on anticipated terms; failure to obtain any required regulatory, stockholder and/or noteholder approvals or consents for such alternative strategic plans, or our challenges changing or being more costly or difficult to successfully address than currently anticipated or the benefits achieved being less than anticipated; inability to achieve anticipated cost-savings in a timely manner; adverse tax or accounting charges; and our ability to increase the capital needed in our mortgage insurance businesses in a timely manner and on anticipated terms, including through business performance, reinsurance or similar transactions, asset sales, securities offerings or otherwise, in each case as and when required;

risks relating to estimates, assumptions and valuations

including: inadequate reserves and the need to increase reserves (including as a result of any changes we may make in the future to our assumptions, methodologies or otherwise in connection with periodic or other reviews); risks related to the impact of our annual review of assumptions and methodologies ~~relating~~related to our long-term care insurance claim reserves and margin reviews, including risks that additional information obtained in the future or other changes to assumptions or methodologies materially affect ~~our~~ margins; the inability to accurately estimate the impacts of

COVID-19;

inaccurate models; deviations from our estimates and actuarial assumptions or other reasons in our long-term care insurance, life insurance and/or annuity businesses; accelerated amortization of deferred acquisition costs (“DAC”) and present value of future profits (“PVFP”) (including as a result of any future changes we may make to our assumptions, methodologies or otherwise in connection with periodic or other reviews); adverse impact on our financial results as a result of projected profits followed by projected losses (as is currently the case with our long-term care insurance business); adverse impact on our results of operations, including the outcome of our ~~annual review~~reviews of the premium earnings pattern for our mortgage insurance businesses; and changes in valuation of fixed maturity and equity securities;

risks relating to economic, market and political conditions

including: downturns and volatility in global economies and equity and credit ~~markets;~~ markets, including as a result of prolonged unemployment, a sustained low interest rate environment and other displacements caused by

COVID-19;

interest rates and changes in rates have adversely impacted, and may continue to materially adversely impact, our business and profitability; deterioration in economic conditions or a decline in home prices that adversely affect our loss experience in mortgage insurance; political and economic instability or changes in government policies; and fluctuations in foreign currency exchange rates and international securities markets;

regulatory and legal risks

including: extensive regulation of our businesses and changes in applicable laws and regulations (including changes to tax laws and regulations); litigation and regulatory investigations or other actions; dependence on dividends and other distributions from our subsidiaries (particularly our ~~international~~mortgage insurance subsidiaries) and the inability of any subsidiaries to pay dividends or make other distributions to us, including as a result of the performance of our subsidiaries, regulatory restrictions resulting from

COVID-19,

and other insurance, regulatory or corporate law restrictions; ~~adverse change in regulatory requirements, including risk-based capital; changes in regulations adversely affecting our international operations;~~the inability to successfully seek

in-force

rate action increases (including increased

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premiums and associated benefit reductions) in our long-term care insurance business, including as a result of

COVID-19;

adverse change in regulatory requirements, including risk-based capital; changes in regulations adversely affecting our Australian mortgage insurance business; inability to continue to maintain the private mortgage insurer eligibility requirements (“PMIERs”); the impact on capital levels of increased delinquencies caused by

COVID-19;

inability of our U.S. mortgage insurance subsidiaries to meet minimum statutory capital requirements; the influence of Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) and a small number of large mortgage lenders on the U.S. mortgage insurance market and adverse changes to the role or structure of Fannie Mae and Freddie Mac; adverse changes in regulations affecting our mortgage insurance businesses; inability to continue to implement actions to mitigate the impact of statutory reserve requirements; ~~impact of additional regulations pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act;~~ changes in tax laws; and changes in accounting and reporting standards;

liquidity, financial strength ratings, credit and counterparty risks

including: insufficient internal sources to meet liquidity needs and limited or no access to capital (including the ability to obtain further financing under an additional secured term loan or credit facility); the impact on holding company liquidity caused by the inability to receive dividends or other returns of capital from our mortgage insurance businesses as a result of

COVID-19;

continued availability of capital and financing; future adverse rating agency actions, including with respect to rating downgrades or potential downgrades or being put on review for potential downgrade, all of which could have adverse implications for us, including with respect to key business relationships, product offerings, business results of operations, financial condition and capital needs, strategic plans, collateral obligations and availability and terms of hedging, reinsurance and borrowings; defaults by counterparties to reinsurance arrangements or derivative instruments; defaults or other events impacting the value of our fixed maturity securities portfolio; and defaults on our commercial mortgage loans or the mortgage loans underlying our investments in commercial mortgage-backed securities and volatility in performance;

operational risks

including: inability to retain, attract and motivate qualified employees or senior management; ineffective or inadequate risk management in identifying, controlling or mitigating risks; the impact on processes caused by

shelter-in-place

or other governmental restrictions imposed as a result of

COVID-19;

reliance on, and loss of, key customer or distribution relationships; competition, including in our mortgage insurance businesses from government and government-owned and government-sponsored enterprises (“GSEs”) offering mortgage insurance; the design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations; and failure or any compromise of the security of our computer systems, disaster recovery systems and business continuity plans and failures to safeguard, or breaches of, its confidential information;

insurance and product-related risks

including: our inability to increase premiums and ~~associated benefit reductions~~reduce benefits sufficiently, and in a timely manner, on our

in-force

long-term care insurance ~~policies, and charge higher premiums on~~ policies, in each case, as currently anticipated and as may be required from time to time in the future (including as a result of ~~our~~a delay or failure to obtain any necessary regulatory approvals, including as a result of COVID-19, or unwillingness or inability of policyholders to pay increased premiums and/or accept reduced benefits), including to offset any negative impact on our long-term care insurance margins; availability, affordability and adequacy of reinsurance to protect us against losses; inability to realize anticipated benefits of our rescissions, curtailments, loan modifications or other similar programs in our mortgage insurance businesses; premiums for the significant portion of our mortgage insurance risk in-force with high loan-to-value ratios may not be sufficient to compensate us for the greater risks associated with those policies; decreases in the volume of high

loan-to-value

mortgage originations or increases in mortgage insurance cancellations; increases in the use of alternatives to private mortgage insurance and reductions in the level of coverage selected; potential liabilities in connection with our U.S. contract underwriting services; and medical advances, such as genetic research and diagnostic imaging, and related legislation that impact policyholder behavior in ways adverse to us;

other risks

including: impairments of or valuation allowances against our deferred tax assets; the possibility that in certain circumstances we will be obligated to make payments to General Electric Company (“GE”) under the tax matters agreement with GE even if our corresponding tax savings are never realized and payments could be accelerated in the event of certain changes in control; and provisions of our certificate of incorporation and bylawsassets and the ~~tax matters agreement with GE may~~occurrence of natural or

man-made

disasters or a pandemic, such as COVID-19, could materially adversely affect our financial condition and results of operations.

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~~discourage takeover attempts and business combinations that stockholders might consider in their best interests; and~~

~~risks relating to our common stock~~

~~including: the continued suspension of payment of dividends and stock price fluctuations.~~

We provide additional information regarding these risks and uncertainties in the Definitive Proxy Statement, filed with the U.S. Securities and Exchange Commission (“SEC”) on January 25, 2017, and our Annual Report on Form

10-K,

filed with the SEC on February 27, ~~2019.~~2020. See also “Part II — Item 1A — Risk Factors.” Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Accordingly, for the foregoing reasons, we caution you against relying on any forward-looking statements. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required under applicable securities laws.

Strategic Update

We continue to focus on improving business performance, addressing financial leverage and increasing financial and strategic flexibility across the organization. Our strategy includes maximizing our opportunities in our mortgage insurance businesses and stabilizing our U.S. life insurance businesses.

China Oceanwide Transaction

On October 21, 2016, Genworth Financial, Inc. (“Genworth Financial”) entered into an agreement and plan of merger (the “Merger Agreement”) with Asia Pacific Global Capital Co., Ltd. (“Parent”), a limited liability company incorporated in the People’s Republic of China and a subsidiary of China Oceanwide Holdings Group Co., Ltd., a limited liability company incorporated in the People’s Republic of China (together with its affiliates, “China Oceanwide”), and Asia Pacific Global Capital USA Corporation (“Merger Sub”), a Delaware corporation and a direct, wholly-owned subsidiary of Asia Pacific Insurance USA Holdings LLC (“Asia Pacific Insurance”), which is a Delaware limited liability company and owned by China Oceanwide, pursuant to which, subject to the terms and conditions set forth therein, Merger Sub would merge with and into Genworth Financial with Genworth Financial surviving the merger as a direct, wholly-owned subsidiary of Asia Pacific Insurance (the “Merger”). China Oceanwide has agreed to acquire all of our outstanding common stock for a total transaction value of approximately $2.7 billion, or $5.43 per share in cash. At a special meeting held on March 7, 2017, Genworth Financial’s stockholders voted on and approved a proposal to adopt the Merger Agreement.

Genworth Financial and China Oceanwide continue to work towards satisfying the closing conditions of the Merger as soon as possible. In December 2018 and January 2019, we received the remaining approvals from our U.S. domestic insurance regulators. These approvals had multiple conditions, including but not limited to, the Merger being consummated without the purchase of Genworth Life and Annuity Insurance Company (“GLAIC”) from Genworth Life Insurance Company (“GLIC”) by a Genworth intermediate holding company, which had been initially proposed and which we refer to as the “GLAIC unstacking.” Our U.S. domestic regulatory approvals included the approval from the Delaware Department of Insurance (“DDOI”). Genworth Financial and China Oceanwide worked with the DDOI and other regulators to obtain approval of the Merger without the GLAIC unstacking throughout the second half of 2018. As part of the DDOI approval, Genworth Financial and China Oceanwide agreed, following the Merger, Genworth Holdings, Inc. (“Genworth Holdings”) will contribute $175 million to GLIC, which was previously committed by Genworth Financial to be used as partial consideration for the GLAIC unstacking. The $175 million was originally scheduled to be contributed in three equal tranches, with the first contribution completed by the end of March 2019, the second contribution completed by the end of September 2019 and the final contribution completed by the end of January 2020. Due to the delay in closing the Merger, we did not make the March 2019 contribution. We will work with the DDOI on a revised timeline for the first contribution and the remaining amounts due thereafter, depending on the timing of the closing of the Merger. In addition, at or before the closing of the Merger, GLAIC will purchase from GLIC

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an intercompany note with a principal amount of $200 million. This intercompany note was issued by Genworth Holdings to GLIC, with Genworth Holdings obligated to pay the principal amount on the maturity date ofOn March 31, ~~2020. The purchase price will be at fair value, but not less than $200 million. No changes will be made to the existing terms of the intercompany note, other than~~2020, Genworth, ~~Holdings will now pay GLAIC the principal amount of the note at maturity. Likewise, the amount will continue to be eliminated in consolidation.~~

In October 2018, the National Development and Reform Commission (“NDRC”) of the People’s Republic of China accepted China Oceanwide’s filing in connection with the Merger Agreement, which concluded NDRC’s review process and enables China Oceanwide to seek the clearance in China for currency conversion and the transfer of funds once all other regulatory approvals have been received.

In June 2018, the Committee on Foreign Investment in the United States (“CFIUS”) completed its review of the proposed transaction and concluded that there are no unresolved national security concerns with respect to the proposed transaction. The completion of the CFIUS review satisfied one of the conditions to closing the proposed transaction. In connection with the CFIUS review of the proposed transaction, Genworth Financial and China Oceanwide entered into an agreement to implement a data security risk mitigation plan, which includes, among other things, the use of a U.S. third-party service provider and an independent security monitor to protect the personal data of Genworth Financial’s policyholders and customers in the United States.

The closing of the Merger remains subject to other conditions and approvals, including the required regulatory approval in Canada. Despite multiple inquiries regarding status, the parties have not yet received any substantive guidance or timeframe for the Canadian review. In addition, China Oceanwide will need to receive clearance in China for currency conversion and the transfer of funds.

~~On June 30, 2019, Genworth Financial,~~ Parent and Merger Sub entered into ~~an eleventh~~a fourteenth waiver and agreement (“~~Eleventh~~Fourteenth Waiver and Agreement”) pursuant to which ~~(i)~~ Genworth ~~Financial~~ and Parent each agreed to waive ~~until no later than November 30, 2019~~ its right to terminate the Merger Agreement and abandon the Merger to the earliest date of: (i) June 30, 2020, (ii) failure by the Parent to approve final documents provided by Genworth for the sale of Genworth, its subsidiaries or a portion of its assets or (iii) in ~~accordance with~~ the ~~terms of~~event that after March 31, 2020 any governmental entity imposes or requires, any term, condition, obligation, restriction, requirement, limitation, qualification, remedy or other action that applies to the Merger Agreement, that is materially and ~~(ii) China Oceanwide agreed~~adversely different, individually or in the aggregate, from the conditions set forth by the governmental entities with respect to ~~allow Genworth Financial to solicit interest for a potential disposition of Genworth Canada. The parties decided to consider strategic alternatives for Genworth Canada as a result~~the Merger that were in effect on the date of the ~~absence~~Fourteenth Waiver and Agreement.

Under the Fourteenth Waiver and Agreement, if the parties are unable to agree on a closing date following the satisfaction or waiver of ~~any substantive progress in discussions on~~the conditions to closing, each party has the right to terminate the Merger Agreement. If the parties are unable to satisfy the closing conditions by June 30, 2020, and are unable to reach an agreement as to a further extension of the deadline, then either party may terminate the Merger Agreement pursuant to its terms.

On August 12, 2019, with the approval of Genworth’s Board of Directors and China Oceanwide, Genworth, Genworth Financial International Holdings, LLC (“GFIH”) and Genworth Mortgage Insurance Corporation (“GMICO”) entered into a Share Purchase Agreement with an affiliate of Brookfield Business Partners L.P. (“Brookfield”). Under the ~~Merger with Canadian regulators. Consequently,~~Share Purchase Agreement, Genworth, GFIH and GMICO agreed to sell the ~~parties concluded that exploring a potential disposition~~common shares of Genworth ~~Financial’s interest~~MI Canada Inc. (“Genworth Canada”) owned by GFIH and GMICO to Brookfield. GFIH and GMICO are indirect wholly-owned subsidiaries of Genworth. Genworth sold its stake in Genworth Canada ~~is in~~to facilitate the ~~best interests~~closing of the ~~parties. In addition, a potential~~transaction with China Oceanwide. The sale ~~would allow~~of Genworth ~~Financial to reduce its outstanding indebtedness and increase its~~Canada increases

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Genworth’s financial flexibility, whether or not the transaction with China Oceanwide is consummated. The sale closed on December 12, 2019 for an adjusted sale price of approximately $1.7 billion.

On March 24, 2020, the New York State Department of Financial Services (“NYDFS”)

re-approved

the China Oceanwide transaction. In connection with the NYDFS’

re-approval,

Genworth committed, among other items, to contribute $100 million to Genworth Life Insurance Company of New York (“GLICNY”) at the closing of the China Oceanwide transaction. On March 31, 2020, the Virginia State Corporation Commission, Bureau of Insurance, also

re-approved

the China Oceanwide transaction. In addition, as previously disclosed, the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”)

re-approved

the China Oceanwide transaction in January 2020. With the Virginia regulator’s

re-approval

and previously received approvals and

re-approvals,

and subject to the receipt of the confirmation from the Delaware regulator of its existing approval, China Oceanwide has obtained all U.S. regulatory approvals necessary to close the transaction. China Oceanwide is ~~consummated.~~

currently finalizing its funding plan. China Oceanwide has secured a financing commitment for debt funding of up to $1.8 billion through Hony Capital to partially finance the acquisition of Genworth, which was extended to June 30, 2020. After this funding plan is finalized, China Oceanwide will discuss the currency conversion and transfer of funds with China’s State Administration of Foreign Exchange in order to complete the transaction. China Oceanwide will also seek confirmation from the Delaware Department of Insurance that the acquisition of Genworth Life Insurance Company (“GLIC”), Genworth’s indirect wholly-owned Delaware domiciled insurer, may proceed under the existing approval.

~~The Eleventh~~

Genworth and China Oceanwide remain committed to satisfying the closing conditions under the Merger Agreement as soon as possible. However, given the unprecedented market disruptions due to

COVID-19,

China Oceanwide and Genworth extended the Merger Agreement deadline under the Fourteenth Waiver and Agreement ~~extended the tenth waiver and agreement extension deadline of June 30, 2019~~ to ~~allow additional time for the remaining regulatory approval, clearance and extension processes and for~~provide the parties to explore disposition options for Genworth Canada. If Genworth Financial identifies a suitable sale transaction for Genworth Canada, China Oceanwide will have the right to accept or reject the terms of the Genworth Canada sale transaction. If China Oceanwide accepts the terms, the parties will seekwith additional time to close the ~~sale of Genworth Canada as promptly as possible, and~~transaction.

In connection with the Merger, ~~concurrently or promptly thereafter. However, in the event China Oceanwide rejects the Genworth Canada sale transaction, the parties will each have the right to~~

~~accelerate the November 30, 2019 end date and terminate the Merger Agreement at that time.~~

On July 24, 2019, Genworth Holdings announced a solicitation of consents from the holders of its outstanding senior and junior subordinated notes (“July 2019 bond consent”) to create an express authorization for the sale of all or part of our non-U.S. mortgage insurance businesses or assets, including Genworth Canada. No assurance can be given regarding the completion of the July 2019 bond consent.

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China Oceanwide and Genworth have agreed on a capital investment plan under which China Oceanwide and/or its affiliates will contribute an aggregate of $1.5 billion to Genworth over time following consummation of the Merger. This contribution is subject to the closing of the Merger and the receipt of required regulatory ~~approvals.~~approvals and clearances. The $1.5 billion contribution would be used to further improve our financial stability, which could include retiring future debt ~~due in 2020 and 2021~~obligations or enabling future growth opportunities. China Oceanwide has no future obligation and has informed us that it has no current intention, ~~or future obligation~~ to contribute additional capital to support our legacy long-term care insurance ~~business. However, as discussed above,~~business other than agreed in connection with the ~~parties have agreed following~~regulatory approvals for the ~~closing of the Merger, Genworth Holdings would contribute $175 million in aggregate to GLIC over time.~~

~~At this time Genworth Financial and~~ China Oceanwide remain committed to satisfying the closing conditions under the Merger Agreement as soon as possible. However, an additional extension may be required to complete the potential disposition of Genworth Canada, and there is no guarantee such disposition will occur,

or China Oceanwide will consent to the terms of such disposition. If the parties are unable to satisfy the closing conditions by November 30, 2019 and are unable to reach an agreement as to a further extension of the deadline, then either party may terminate the Merger Agreement pursuant to its terms.transaction.

If the China Oceanwide transaction is completed, we will be a standalone subsidiary and our senior management team will continue to lead the business from our current headquarters in Richmond, Virginia. ~~Other than a potential sale of Genworth Canada, we~~We intend to maintain our existing portfolio of businesses. Except for the specific monitoring and reporting required under the ~~CFIUS~~Committee on Foreign Investment in the United States data security risk mitigation plan, our

day-to-day

operations are not expected to change as a result of this transaction.

Strategic Alternatives

If the China Oceanwide transaction is not completed, we will continue to explore strategic alternatives and financing options to address our ongoing challenges. As a result of the ~~recent~~ performance of our long-term care and life insurance businesses, ~~and the charges we recorded in previous periods,~~

as well as the resulting lack of potential dividend capacity from our U.S. life insurance subsidiaries, our financial strength ratings have been downgraded. Absent any alternative commitment of external capital, or other proactive actions to meet our closest debt maturities, we believe there would be: increased pressure on and potential further downgrades of our financial strength ratings, particularly for our mortgage insurance businesses, which could affect our ability to maintain our market share ofin the U.S. mortgage insurance industry, and other limitations on our holding company liquidity and ability to service and/or refinance our holding company debt. These challenges may be exacerbated by

COVID-19.

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If the ~~absence of the transaction with~~ China Oceanwide ~~which we can neither predict nor guarantee,~~transaction cannot be completed, we may need to pursue additional strategic ~~asset sales~~transactions to improve our financial stability and address our future debt maturities, ~~in 2020 and thereafter. We have initiated a process~~including evaluating our alternatives with respect to ~~potentially sell Genworth Canada, and in the absence of the transaction with China Oceanwide, we may pursue other asset sales, including a potential sale of~~our U.S. mortgage insurance business and/or our mortgage insurance business in Australia. We have and would continue to evaluate options to insulate our U.S. mortgage insurance business from additional ratings pressure, including a potential partial sale, in the event the transaction with China Oceanwide cannot be completed. Changes to our financial projections, including changes that anticipate planned ~~asset sales,~~strategic transactions, may negatively impact our ability to realize certain foreign tax credits or other deferred tax assets and have a resulting material adverse effect on our results of operations.

Ongoing Priorities

Stabilizing our U.S. life insurance businesses continues to be one of our long-term goals. We will continue to execute this objective primarily through our multi-year long-term care insurance

in-force

rate action plan. ~~Increased premiums~~Premium rate increases and associated benefit reductions on our legacy long-term care insurance policies are critical to the business. ~~As previously disclosed, we are no longer seeking an unstacking of GLAIC as part of our long-term care insurance strategy.~~ In addition, reducing debt will remain a high priority. We believe that increased financial support and our strengthened financial foundation resulting from the China Oceanwide transaction would provide us with more options to manage our debt maturities and reduce overall indebtedness, which in turn ~~is intended to~~would likely improve our credit and ratings profile over time. Finally, we also believe that the completion

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of the China Oceanwide transaction would allow us to place greater focus on the future of our long-term care and mortgage insurance businesses while continuing to service our existing policyholders.

COVID-19 Summary

COVID-19

has brought unprecedented changes to the global economy. Although we are unsure of the ultimate impact

COVID-19

will have on our businesses, we are actively responding to and planning for further disruption. Below is a summary of certain of the trends, impacts and uncertainties relating to

COVID-19,

which are generally not reflected in the quarterly results under review in this report and which are expected to impact our future results of operations and financial condition. Our discussion and analysis of our quarterly results should be read in conjunction with the following disclosures regarding

COVID-19

and the more detailed disclosures contained elsewhere herein.

Economic Backdrop

COVID-19

has disrupted the global economy and financial markets, business operations, and consumer behavior and confidence. Large scale disruption in the U.S. economy is leaving several industries

non-operational

through state and federal mandated shutdowns in an effort to contain the spread of

COVID-19.

While all states have been impacted, certain geographies have been disproportionately impacted by

COVID-19

During and following the first quarter of 2020, signs have pointed to a global recession as a result of

COVID-19.

Other signs of a potential global recession include negative monthly inflation, historically low retail sales and a dramatic decrease in industrial production.

In response to the economic headwinds and

COVID-19,

the U.S. Federal Reserve reduced interest rates by 150 basis points during the first quarter of 2020. The U.S. Federal Reserve’s interest rate reductions, along with expectations of negative growth drove U.S. Treasury yields down approximately 100 to 150 basis points, with the decline in short-term interest rates outpacing the decline in long-term interest rates.

The global economic slowdown has driven other global central banks and foreign governments to take similar accommodative actions to stabilize capital markets and implement fiscal stimulus to support their respective domestic economies. Credit markets responded to

COVID-19

and the subsequent economic downturn with widening of credit spreads to recessionary levels.

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Stay at home orders and partial economic shutdowns are expected to place strain on earnings and corporate balance sheets for the next two quarters and possibly for the remainder of 2020, which when combined with forced liquidations as a result of liquidity strains, further contributed to the credit spread widening.

A crude oil price war triggered by supply and demand imbalance decreased crude oil prices over 60% in the first quarter of 2020 and contributed to additional credit spread widening and financial pressure to the energy sector.

The U.S. Federal Reserve announced new quantitative easing programs to help support credit markets, including a $2.3 trillion program that includes a $750 billion corporate credit facility to purchase investment grade and certain high yield corporate securities, among other facilities to support the loan, municipal and structured markets.

U.S. Mortgage Insurance

As a result of

COVID-19,

our U.S. mortgage insurance business has already begun to experience declines in investment valuations and declines in persistency rates from prevailing lower interest rates. Additionally, we could experience asset impairments, increases in delinquent loans and paid claims, lower future new insurance written levels, increases to our capital requirements and pressure on our capital sufficiency ratios.

The recently signed Coronavirus Aid, Relief, and Economic Security (“CARES”) Act along with programs announced by the Federal Housing Finance Agency (“FHFA”), Fannie Mae, and Freddie Mac all include provisions to offer forbearance to borrowers facing hardship due to

COVID-19.

In addition, the CARES act, the FHFA, and many local governments announced moratoriums on foreclosures and evictions for 60 days, beginning March 18, 2020.

The result of a large response to forbearance programs and an extended time to remain in forbearance or enter modification means we expect an elevated level of delinquencies reported to us and for those loans to remain in a delinquent status for an extended period. The result will likely decrease our Private Mortgage Insurer Eligibility Requirements (“PMIERs”) required asset levels with which we must comply to remain an eligible insurer for Fannie Mae and Freddie Mac. We and the other U.S. mortgage insurers are currently working closely with the FHFA, Fannie Mae, and Freddie Mac to determine the proper treatment of these COVID-19 delinquencies, which may cure at a higher rate than traditional delinquencies should economic activity quickly return to pre-COVID-19 levels. Severity of loss on loans that do go to claim, however, may be negatively impacted by the extended forbearance timeline, the associated elevated expenses such as accumulated interest and home price depreciation, if any.

We expect our PMIERs sufficiency ratio to decrease as a result of incremental delinquencies directly or indirectly related to

COVID-19.

Given the expectation for a decrease in our PMIERs sufficiency ratio prospectively as a result of new delinquencies stemming from

COVID-19,

we intend to preserve PMIERs available assets and our U.S. mortgage insurance business may not provide dividends in 2020. The amount and timing of dividends will be reevaluated later in 2020 and will depend on the economic recovery from COVID-19.

Australia Mortgage Insurance

COVID-19

is having a significant impact on the Australian economy. To curb the spread of the virus, the Australian government restricted the movement of people within the country by implementing social distancing measures and shutting down all

non-essential

businesses. This has resulted in major disruptions to economic activity across the country.

Many of our lender customers have announced initiatives that allow affected homeowners the option to defer their repayments for a period of up to six months. Homeowners that participate in such lender hardship programs will not be reported as delinquent during this time. In addition, the Australian

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Prudential Regulation Authority (“APRA”) has provided guidance to insurers asking them to limit discretionary capital distributions, including dividends, until the impact of COVID-19 is better understood to ensure that they have sufficient capital capacity to continue essential functions such as underwriting new insurance. Given the uncertainty, we cannot predict the ultimate impact that COVID-19 will have on our mortgage insurance business in Australia.

Given the potential economic impacts of

COVID-19,

our mortgage insurance business in Australia could be subject to a ratings downgrade in the future. If that occurs, the business will work with its customers to demonstrate its credit strength and endeavor to avoid termination of any existing contracts.

As a result of potential impacts on capital levels, we may not receive dividends or other returns of capital from our mortgage insurance business in Australia for the remainder of 2020. The amount and timing of dividends will be reevaluated later in 2020 and will depend on the economic recovery from COVID-19.

U.S. Life Insurance

The most significant impacts in our U.S. life insurance businesses from

COVID-19

are related to the current low interest rate environment and equity market volatility/declines, and may also be impacted by future mortality and morbidity experience.

Our long-term care insurance product reserves could be negatively impacted by the current low interest rate environment, particularly as it relates to loss recognition testing and asset adequacy analysis. In our long-term care insurance products, we would expect some degree of higher mortality during

COVID-19

which would have a favorable impact on claims. We are not expecting

COVID-19

to drive higher claims frequency in our long-term care insurance business and we may observe temporarily reduced claim incidence while

shelter-in-place

and social distancing protocols are in effect.

Our U.S. life insurance companies are dependent on the approval of actuarially justified

in-force

rate actions in our long-term care insurance business, including those rate actions which were previously filed and are currently pending review and approval. We could experience delays in receiving approvals of these

in-force

rate actions during

COVID-19.

The low interest rate environment and declining equity markets have adversely impacted earnings in our fixed annuity products; however, if mortality is higher in future months, it could benefit earnings in these products in future quarters. Conversely, higher mortality rates could lower profitability in our life insurance products.

In our U.S life insurance companies, we will comply with guidance issued by certain insurance regulators, such as mandates that policies cannot be lapsed or cancelled if premiums are not paid or requirements to provide extensions of grace periods during the

COVID-19

outbreak.

Runoff

The low interest rate environment and declining equity markets have materially adversely impacted earnings in our variable annuity products; however, if mortality is higher in future months, it could benefit earnings in these products in future quarters.

While certain states currently have mandates in place that policies cannot be lapsed, we do not expect a significant impact on our Runoff segment. There is no requirement to pay premiums in the majority of our variable annuity contracts and benefits would adjust contractually based on actual premiums paid in these products.

We could see additional losses and declines in statutory risk-based capital driven by increases to the required capital supporting our variable annuity products, as a result of the decline in equity markets and low interest rates.

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Investment Portfolio

We are actively monitoring our investment portfolio, including asset valuations impacted by the spread of

COVID-19

and the resulting economic disruption. Our investment portfolio is primarily comprised of investment grade fixed maturity securities, with approximately 58% rated “A” and above. The carrying value of our investment portfolio as of March 31, 2020 and December 31, 2019 was $70.7 billion and $71.2 billion, respectively, of which 84% and 85%, respectively, was invested in fixed maturity securities.

In March 2020, due in large part to

COVID-19,

we experienced significant credit spread widening, principally in our U.S. and

non-U.S.

corporate bond investments. The credit spread widening resulted in approximately $2.5 billion of unrealized investment losses, partially offset by approximately $0.8 billion of unrealized investment gains in our U.S. government bond investments principally due to the dramatic decrease in interest rates. The net unrealized investment loss of approximately $1.7 billion related to our fixed maturity securities was recorded as a part of accumulated other comprehensive income (loss) as of March 31, 2020 and had no impact on earnings in the first quarter of 2020.

We routinely monitor our investment portfolio for possible ratings downgrades and other signs of distress that could be indicators of impairment. Our monitoring includes identifying assets susceptible to the efforts to contain the spread of

COVID-19,

including close inspection of investments in industries directly impacted, such as travel, energy, leisure, lodging and auto. Our monitoring also includes inspection of other credit risk attributes, such as high leverage, supply chain interruptions and service disruptions/stoppages.

Our investment portfolio is less exposed to equity market volatility; however, we have seen a dramatic decline in the fair value of our equity securities and limited partnership investments which was recognized as a loss of $59 million in the first quarter of 2020.

Income Tax and Accounting

The CARES Act includes numerous measures to assist businesses, including temporary changes to income and

non-income-based

tax laws, permitting employers to delay contributions to defined benefit pension plans until January 1, 2021 and allowing financial institutions to suspend U.S. GAAP guidance related to loan modifications considered to be troubled debt restructurings. We are not included among the entities permitted to suspend U.S. GAAP guidance related to loan modifications considered to be troubled debt restructurings or temporarily defer new accounting guidance on expected credit losses. Accordingly, we adopted the new guidance on January 1, 2020 as discussed further in note 2 in our unaudited condensed consolidated financial statements under “Part 1—Item 1—Financial Statements.”

The most significant changes pertaining to temporary income and

non-income-based

tax laws include:

eliminating the 80% of taxable income limitation, allowing corporate entities to fully utilize net operating loss (“NOL”) carryforwards to offset taxable income in 2018, 2019 or 2020 (the 80% limitation is reinstated for tax years after 2020);

allowing NOLs originating in 2018, 2019 or 2020 to be carried back five years;

increasing the net interest expense deduction limit from 30% to 50% of adjusted taxable income for tax years beginning January 1, 2019 and 2020; and

non-income

tax provision, allowing payments of the employer share of social security payroll taxes that are not Medicare related and would otherwise be due from the date of enactment through December 31, 2020 to be paid in two installments at the end of 2021 and 2022.

We have applied the temporary NOL changes to our current period tax provision reflecting our most likely tax return filing position.

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Operational Readiness and Business Continuity

We are actively taking preventive measures to mitigate the risk of operational disruption, which includes identifying potential impacts on our consumers, employees and vendors. Our business continuity plans allow us to continue operations of critical functions, such as entering client orders, completing customer transactions, paying claims and providing clients access to their accounts and policy values. Our business continuity plans also consider workforce continuity.

In addition, we are in discussions with key suppliers on their business continuity status as it relates to

COVID-19.

Our most critical suppliers are reporting on their actions to keep facilities clean, limit workforce in their facilities, and moving to a remote work from home workforce. For our suppliers who interact with customers, we do have a few that are reporting limitations or the inability to service designated areas due to local and state government shelter in place or restrictions on essential activities. Currently, affected areas are primarily located in India and the Philippines, where the ability to work from home is impacted due to country-wide infrastructure and other limitations. To mitigate this, we are leveraging our business continuity plans to ensure critical activities are still being conducted by leveraging supplier remote work capabilities and redeploying internal resources.

For our customers, we have employed a range of activities to share our continued commitment to serving them through this unprecedented situation, along with any process changes that have resulted from our work-from-home status or other community mandates. These communications include, but are not limited to, email communication, mailing letters and publishing a webpage on

“COVID-19

Preparedness” on genworth.com. We continue to provide customer service to our policyholders during this uncertain time and will work with our policyholders if they contact us with questions or concerns regarding their policies.

We have performed an analysis of our internal control environment and believe the impact of the current remote work environment as a result of

COVID-19

has not to date materially affected our ability to maintain effective controls and procedures.

Liquidity

Genworth Holdings maintains a continuous process for evaluating group-level liquidity, under normal and stressed environments. In light of

COVID-19

emergence, we are currently developing additional stress scenarios to evaluate potential impacts to our businesses and Genworth Holdings. We are modeling various stress scenarios given the potential lack of near-term dividends from our subsidiaries.

Currently, we believe Genworth Holdings has adequate liquidity and options available to address current liquidity needs, if they arise, such as cash on hand, a potential issuance of debt at the holding company of our U.S. mortgage insurance subsidiary, or secured debt at Genworth Holdings. Genworth Holdings’ next debt maturity is February 2021.

We also monitor the cash and highly liquid investment positions in each of our operating subsidiaries to ensure they will have the cash necessary to meet their obligations as they come due. Our businesses have liquidity options available to them, including Federal Home Loan Bank funding agreements and repurchase facilities, selling highly liquid securities and entering into new reinsurance arrangements. Given the options available, we believe Genworth Holdings and its operating subsidiaries will be able to meet the near-term liquidity demands given the current market impacts from

COVID-19.

For additional details on our overall liquidity and future dividend sources, see “—Liquidity and Capital Resources.”

We employ a process to both monitor and assess the impacts of unexpected events on our businesses. While the impact of

COVID-19

is very difficult to predict, the ultimate impact on our business will depend on the length of the pandemic and speed of the economic recovery. We will continue to monitor developments and the potential financial impacts on our business. For additional details on the impact

COVID-19

is having on our

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current results of operations and potential future impacts see “—Business Trends and Conditions” by segment. See also “Item 1A. Risk Factors — COVID-19 could materially adversely affect our financial condition and results of operations.”

Executive Summary of Financial Results

Below is an executive summary of our consolidated financial results for the periods indicated. Amounts below are net of taxes, unless otherwise indicated.

After-tax

amounts assume a tax rate of 21%.

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~June 30, 2018~~March 31, 2019

We had a net loss available to Genworth Financial, Inc.’s common stockholders of $66 million for the three months ended March 31, 2020 compared to net income available to Genworth Financial, Inc.’s common stockholders of ~~$168 million and $190~~$174 million for the three months ended ~~June 30, 2019 and 2018, respectively.~~March 31, 2019. Adjusted operating income available to Genworth Financial, Inc.’s common stockholders was ~~$204~~$33 million and ~~$200~~$95 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

Our U.S. Mortgage Insurance segment had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of ~~$147~~$148 million and ~~$137~~$124 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The increase was primarily attributable to higher ~~insurance in-force~~premiums and an increase in investment income, partially offset by higher operating costs and losses in the current year. The current year also included an $8 million favorable reserve adjustment. Included in the prior year was a $22 million favorable reserve adjustment. These favorable reserve adjustments were mostly associated with lower expected claim rates.

Our Canada Mortgage Insurance segment had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $41 million and $46 million for the three months ended June 30, 2019 and 2018, respectively. The decrease was primarily driven by higher taxes and changes in foreign exchange rates in the current year.

Our Australia Mortgage Insurance segment had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of ~~$13~~$9 million and ~~$22~~$14 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The decrease was ~~predominantly attributable to~~primarily driven by lower earned premiums largely from ~~higher~~portfolio seasoning and lower policy cancellations, in the prior year mostly due to an initiative implemented in the second quarter of 2018 to more promptly identify loans that were discharged or refinanced and from the seasoning of our smaller, more recent in-force books of business. The decrease was partially offset by lower ~~contract fees amortization~~losses primarily from favorable aging of existing delinquencies in the current year.

Our U.S. Life Insurance segment had an adjusted operating loss available to Genworth Financial, Inc.’s common stockholders of $70 million and $5 million for the three months ended March 31, 2020 and 2019, respectively.

Our long-term care insurance business had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of ~~$66~~$1 million ~~and $57 million for~~in the ~~three months ended June 30, 2019 and 2018, respectively. Adjusted~~current year compared to an adjusted operating ~~income~~loss available to Genworth Financial, Inc.’s common stockholders ~~for our long-term care insurance business increased $15~~of $20 million ~~mainly attributable~~in the prior year. The increase to ~~$96~~income in the current year from a loss in the prior year was primarily from $52 million of higher premiums and reduced benefits in the current year from

in-force

rate actions approved and implemented, a slightly favorable impact from benefit utilization rate updates in the current year compared to an unfavorable impact in the prior year and ~~from~~continued favorable development on prior year incurred but not reported claims. ~~The increase was also due to lower utilization of available benefits compared to the prior year.~~ These increases were partially offset by higher ~~severity~~frequency and ~~frequency~~severity of new claims ~~lower claim terminations and an increase in incremental reserves of $39 million recorded in connection with an accrual for profits followed by losses~~ in the current year. ~~Adjusted~~

The adjusted operating ~~income~~loss available to Genworth Financial, Inc.’s common stockholders for our life insurance business increased $6$75 million mainly ~~from a~~

~~reinsurance correction and refinement resulting in a net favorable impact of $17 million in the current year. This increase was partially offset by~~attributable to higher lapses primarily associated with our large

20-year

term life insurance block ~~issued in 1999~~ entering its post-level premium period, higher reserves in our 10-year term universal life insurance block entering its post-level premium period during the premium grace period and ~~the continued runoff of~~from higher mortality in our universal and term life insurance products in the current year compared to the prior year.

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders decreased ~~$12~~$11 million in our fixed annuities business predominantly ~~attributable to lower mortality~~from higher reserves and amortization of DAC in our fixed indexed annuities driven by unfavorable market changes in the current year, ~~compared~~lower mortality in our single premium immediate annuities and a decrease in net spreads due to the ~~prior year and an unfavorable charge~~runoff of $4the block. These decreases were partially offset by $13 million ~~in connection with loss recognition testing in our fixed immediate annuity products.~~of

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unfavorable charges in connection with loss recognition testing in our fixed immediate annuity products in the prior year that did not recur.

Our Runoff segment had an adjusted operating loss available to Genworth Financial, Inc.’s common stockholders of $13 million for the three months ended March 31, 2020 compared to adjusted operating income available to Genworth Financial, Inc.’s common stockholders of ~~$9 million and $13~~$20 million for the three months ended ~~June 30, 2019 and 2018, respectively.~~March 31, 2019. The decrease to a loss in the current year from income in the prior year was predominantly from ~~higher mortality and lower fee income driven mostly by a~~the decline in ~~the average account values in our variable annuity products, partially offset by favorable~~ equity ~~market performance~~markets and interest rates in the current year.

Corporate and Other Activities had an adjusted operating loss available to Genworth Financial, Inc.’s common stockholders of ~~$72~~$41 million and ~~$75~~$58 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The decrease in the loss was principally related to lower interest expense and ~~provisional tax~~

~~expense of $19 million in the prior year that did not recur, partially offset by $11 million of~~ higher ~~taxes in the current year associated with the Global Intangible Low Taxed Income (“GILTI”) provision of the Tax Cuts and Jobs Act (“TCJA”).~~

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

We had net income available to Genworth Financial, Inc.’s common stockholders of $342 million and $302 million for the six months ended June 30, 2019 and 2018, respectively. Adjusted operating income available to Genworth Financial, Inc.’s common stockholders was $325 million for both the six months ended June 30, 2019 and 2018.

Our U.S. Mortgage Insurance segment had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $271 million and $248 million for the six months ended June 30, 2019 and 2018, respectively. The increase was primarily attributable to higher insurance in-force and an increase in investment income partially offset by higher operating costs in the current year. The current year also included an $8 million favorable reserve adjustment. Included in the prior year was a $22 million favorable reserve adjustment. These favorable reserve adjustments were mostly associated with lower expected claim rates.

Our Canada Mortgage Insurance segment had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $82 million and $95 million for the six months ended June 30, 2019 and 2018, respectively. The decrease was primarily driven by lower earned premiums largely from

~~changes in foreign exchange rates in the current year, refinements in premium recognition factors in the prior year that did not recur and from the seasoning of our smaller, more recent~~

~~in-force~~

~~books of business. The decrease was also attributable to higher operating costs in the current year.~~

Our Australia Mortgage Insurance segment had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $27 million and $41 million for the six months ended June 30, 2019 and 2018, respectively. The decrease was predominantly attributable to lower premiums largely from the seasoning of our smaller, more recent in-force books of business and from higher policy cancellations in the prior year. The decrease was partially offset by lower contract fees amortization in the current year.

Our U.S. Life Insurance segment had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $61 million and $52 million for the six months ended June 30, 2019 and 2018, respectively. Our long-term care insurance business had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $17 million for the six months ended June 30, 2019 compared to an adjusted operating loss of $10 million for the six months ended June 30, 2018. The increase to income in the current year from a loss in the prior year was predominantly attributable to $156 million of higher premiums and reduced benefits in the current year from in-force rate actions approved and implemented and from favorable development on prior year incurred but not reported claims. These increases were partially offset by higher severity and frequency of new claims, lower claim terminations and an increase in incremental reserves of $39 million recorded in connection with an accrual for profits followed by losses in the current year. Adjusted operating income available to Genworth Financial, Inc.’s common stockholders for our life insurance business increased $5 million mainly from a

~~reinsurance correction and refinement resulting in a net favorable impact of $17 million in the current year.~~

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~~This increase was partially offset by higher lapses primarily associated with our large~~

~~20-year~~

term life insurance block issued in 1999 entering its post-level premium period and the continued runoff of our term life insurance products in the current year. Adjusted operating income available to Genworth Financial, Inc.’s common stockholders decreased $23 million in our fixed annuities business predominantly attributable to $17 million of unfavorable charges in connection with loss recognition testing in our fixed immediate annuity products and lower investment income, partially offset by lower interest credited in the current year

Our Runoff segment had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $29 million and $23 million for the six months ended June 30, 2019 and 2018, respectively. The increase was predominantly from favorable equity market performance, partially offset by lower fee income driven mostly by a decline in the average account values in our variable annuity products in the current year.

~~Corporate and~~ Other Activities had an adjusted operating loss available to Genworth Financial, Inc.’s common stockholders of $145 million and $134 million for the six months ended June 30, 2019 and 2018, respectively. The increase in the loss was principally related to $23 million of higher taxes in the current year associated with the GILTI provision of the TCJA, partially offset by lower interest expense and operating costs in the current year and provisional tax

~~expense of $19 million in the prior year that did not recur.~~

Significant Developments

The periods under review include, among others, the following significant developments.

U.S. Mortgage Insurance

PMIERs ~~Compliance~~compliance

. Our U.S. mortgage insurance business has been compliant with the ~~original requirements under the private mortgage insurer eligibility requirements (“PMIERs”)~~PMIERs since ~~its~~their introduction into the private mortgage insurance industry in 2015. These requirements set forth operational and financial requirements that mortgage insurers must meet in order to remain eligible to offer private mortgage insurance. On March 31, 2019, revisions to the original PMIERs became effective for our U.S. mortgage insurance business. The ~~major~~ revisions include the elimination of any credit for future premiums that had previously been allowed on insurance policies written in 2008 and earlier. Our U.S. mortgage insurance business had available assets of approximately

~~123%~~ 142% of the required assets under PMIERs as of ~~June 30, 2019.~~March 31, 2020. The PMIERs sufficiency ratio was in excess of ~~$650 million~~$1.1 billion of available assets above the requirements as of ~~June 30, 2019.~~

March 31, 2020.

~~Market Share.~~

New insurance written.

Our U.S. mortgage insurance business continued to grow its insurance

in-force

through higher new insurance written, which increased ~~its estimated market share during~~86% in the ~~second~~first quarter of ~~2019~~2020 compared to the first quarter of 2019. ~~Market~~The increase was primarily due to higher mortgage refinancing originations and our higher estimated market share ~~of our U.S. mortgage insurance business is influenced by~~in the execution of its go to market strategy, including, but not limited to, the ongoing rollout of its proprietary risk-based pricing engine, GenRATE, and its selective participation in forward commitment transactions.

current year.

~~New Insurance Written.~~

Existing Delinquencies.

~~Our U.S. mortgage insurance business continues~~

We are not aware of any reported COVID-19 related delinquencies in the first quarter of 2020. In addition, we have not identified any deterioration in performance trends of our existing delinquencies within the first quarter of 2020 that would require the strengthening of existing reserves on our existing delinquencies. However, based on the surveillance of early forbearance uptake with servicers, we do expect to ~~grow its insurance in-force through higher~~see elevated levels of new ~~insurance written, which increased 39% during~~delinquencies in the ~~three~~coming months ~~ended June 30, 2019 compared to~~given the ~~three months ended June 30, 2018. This increase was primarily~~rise in unemployment and the availability of forbearance options driven by ~~the increase in the estimated market share and a larger private mortgage insurance available market.~~

COVID-19.

~~Canada~~

Australia Mortgage Insurance

Regulatory ~~Capital~~capital.

~~. The Mortgage Insurer Capital Adequacy Test (“MICAT”) guideline was effective for~~

As of March 31, 2020, our ~~Canada~~Australia mortgage insurance business ~~on January 1,~~estimated its Prescribed Capital Amount (“PCA”) ratio was approximately 178%, representing a decrease from 191% as of December 31, 2019. The ~~MICAT guideline did~~decrease was largely from a DAC write-off of AUD$182 million recorded in connection with the completion of liability adequacy testing as part of the first quarter of 2020 results.

Impact from bushfires.

Certain areas of Australia have been impacted by bushfires that occurred in late 2019 and continued into the first quarter of 2020. Although we do not ~~have~~cover property damage and continue to monitor the effect of the bushfires, we do not believe there will be a

significant impact to our Australia mortgage insurance business. We expect our exposure to be limited to any economic downturn that may occur in the regions impacted directly by the bushfires.

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material impact on our regulatory solvency as of June 30, 2019, as the impact of the elimination of the one-time credit score update for 2015 and prior books more than offset the 5% increase in the total asset requirement on existing insurance in-force. In addition, we expect these new requirements to permit our mortgage insurance business in Canada to more closely align its actual capital levels with its targeted operating range and allow for meaningful levels of capital redeployment in addition to regular quarterly dividends. In the second quarter of 2019, Genworth Canada returned additional capital to all shareholders via share repurchases of approximately CAD$68 million and a special dividend of CAD$0.40 per share or approximately CAD$34 million in aggregate. As of June 30, 2019, our MICAT ratio under the framework was approximately 169%, which was above the supervisory target.

U.S. Life Insurance

In-force rate actions in our long-term care insurance business.

As part of our strategy for our long-term care insurance business, we have been implementing, and expect to continue to pursue, significant premium rate increases and associated benefit reductions on older generation blocks of business in order to bring those blocks closer to a break-even point over time and reduce the strain on earnings and capital. We are also requesting premium rate increases and associated benefit reductions on newer blocks of business, as needed, some of which may be significant, to help bring their loss ratios back towards their original pricing. For all of these

in-force

rate action filings, we received 5632 filing approvals from 1615 states ~~during~~in the ~~six months ended June 30, 2019,~~first quarter of 2020, representing a weighted-average increase of ~~49%~~35% on approximately ~~$467~~$130 million in annualized

in-force

premiums, or approximately ~~$228~~$45 million of incremental annual premiums. ~~We also submitted 8 new filings in 4 states during the six months ended June 30, 2019 on approximately $79 million in annualized in-force premiums.~~

Liquidity, Capital Resources and Intercompany Obligations

Redemption of Genworth ~~Canada Debt Refinance.~~

~~On May 22, 2019, Genworth Canada issued at a premium, CAD$100 million fixed rate~~Holdings’ June 2020 senior notes with an interest rate of 4.24% that matures in 2024. The offering represents a re-opening of the 4.24% senior notes originally issued in April 2014. In June 2019, the proceeds of the offering were used to

. On January 21, 2020, Genworth Holdings early ~~redeem approximately CAD$100~~redeemed $397 million of ~~the 5.68%~~its 7.70% senior notes originally scheduled to mature in June ~~2020. As~~2020 for a ~~result~~

pre-tax

loss of $9 million. The senior notes were fully redeemed with a cash payment of $409 million, comprised of the ~~early redemption~~outstanding principal balance of ~~Genworth Canada’s notes, we incurred~~$397 million, accrued interest of $3 million and a ~~pre-tax loss~~make-whole premium of ~~approximately $1 million, net of the portion attributable to noncontrolling interests.~~$9 million.

~~International Dividends.~~

~~During the six months ended June 30, 2019, our international subsidiaries paid $105 million~~

Partial Repurchases of ~~dividends to~~Genworth Holdings’ 2021 senior notes

In March 2020, Genworth Holdings ~~which included $53~~repurchased $14 million principal amount of ~~dividends attributable to share repurchases in our Canada~~its senior notes with 2021 maturity dates for a

pre-tax

gain of $1 million and ~~Australia mortgage insurance businesses. See “Item 2—Liquidity and Capital Resources”~~paid accrued interest thereon. In April 2020, Genworth Holdings repurchased an additional $36 million principal amount of its senior notes with 2021 maturity dates for ~~additional details.~~a

pre-tax

gain of $2 million.

~~Genworth Holdings Cash and Targeted Cash Buffer.~~

Redemption of ~~June 30, 2019, Genworth Holdings held $358~~non-recourse funding obligations.

In January 2020, upon receipt of approval from the Director of Insurance of the State of South Carolina, Rivermont Life Insurance Company I (“Rivermont I”), our indirect wholly-owned special purpose consolidated captive insurance subsidiary, redeemed all of its $315 million of ~~cash, cash equivalents and restricted cash and $45~~outstanding

non-recourse

funding obligations due in 2050. The early redemption resulted in a

pre-tax

loss of $4 million from the

write-off

of unrestricted and restricted U.S. government securities. The $403 million combined cash and liquid assets is below our targeted cash buffer of two times expected annual external debt interest payments by approximately $100 million. See “Item 2—Liquidity and Capital Resources” for additional details.deferred borrowing costs.

Intercompany ~~Note Maturity.~~note maturity

. In March 2020, Genworth Holdings ~~currently has an~~repaid a $200 million intercompany note due to GLIC onwith a maturity date of March 31, 2020 with a principal amount of $200 million. In conjunction with the Merger with China Oceanwide and as discussed above, GLAIC will purchase from GLIC this intercompany note at fair value, but not less than $200 million.2020.

Financial Strength Ratings

On July 1, 2019, Standard & Poor’s Financial Services, LLC (“S&P”) revised its ratings criteria for insurance companies. Subsequently, on July 25, 2019, S&P downgraded the financial strength rating of Genworth Financial Mortgage Insurance Pty Limited, our principal Australia mortgage insurance subsidiary,

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from “A+” (Strong) to “A” (Strong). In addition to the change in criteria, the downgrade was based largely on Genworth Financial Mortgage Insurance Pty Limited’s weakened competitive position in the local market and a lack of diversification as a monoline insurer. Likewise, a decrease in revenues and earnings over the past five years raised concerns over the ability to withstand large shocks, in the view of S&P.

On June 19, 2019, Moody’s Investors Service, Inc. (“Moody’s”) upgraded the financial strength rating of Genworth Mortgage Insurance Corporation (“GMICO”), our principal U.S. mortgage insurance subsidiary, from “Ba1” (Questionable) to “Baa3” (Adequate). The upgrade of GMICO was based on its improving profitability, market position and healthy capital levels in relation to the GSEs’ requirements. Moody’s also downgraded the financial strength rating of GLAIC, one of our principal life insurance subsidiaries, from “Ba3” (Questionable) to “B1” (Poor). The downgrade of GLAIC was based on continuing earnings volatility and lower margins.

~~Other than described above, there~~There were no changes ~~in the~~to our solicited financial strength ratings of our insurance subsidiaries subsequent to February 27, ~~2019,~~2020, the date we filed our ~~2018~~2019 Annual Report on Form

10-K.

For a discussion of the financial strength ratings of our insurance subsidiaries, see “Item 1—Financial Strength Ratings” in our ~~2018~~2019 Annual Report on Form

10-K.

On April 18, 2020, we notified Standard & Poor’s Financial Services, LLC (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”) of our decision to discontinue the solicitation of their financial strength ratings of our principal life insurance subsidiaries. On April 24, 2020, Moody’s downgraded all of our principal life insurance subsidiaries, which reflected Moody’s view that our life insurance subsidiaries are likely to suffer near term declines in profitability and capital generation due to COVID-19 and the related economic shock. While we do not provide non-public information to rating agencies issuing unsolicited ratings, we cannot ensure that rating agencies will discontinue their ratings of our company or our insurance subsidiaries on an unsolicited basis going forward.

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Consolidated

General Trends and Conditions

The stability of both the financial markets and global economies in which we operate impacts the sales, revenue growth and profitability trends of our businesses as well as the value of assets and liabilities. The U.S. and international financial markets in which we operate have been significantly impacted by concerns regarding regulatory changes, global trade and modest global growth. During 2018, the global economy improved and most countries in which we conduct business saw improved levels of gross domestic product (“GDP”) growth. This global growth continued into 2019, particularly in the U.S., which experienced better than expected GDP growth in the first half of 2019, driven in part by strong consumer spending. In spite of this better than expected first half of 2019 results, many economic uncertainties remain, including, U.S. and China trade tensions, fluctuating oil and commodity prices, a negative inflation outlook and global growth concerns. Near term inflation remains relatively stable but long-term forecasts indicate signs of volatility, which has resulted in a negative outlook. Historic low interest rates began to rise in 2018 given actions taken by the U.S. Federal Reserve and other central banks, although long-term interest rates remain at low levels and interest rates reversed course from their upward trend and declined during the first half of 2019. The U.S. Federal Reserve did not increase rates during the second quarter of 2019 and signaled that they are weighing a potential interest rate decrease in 2019 and/or 2020. Prior to the second quarter of 2019, the U.S. Federal Reserve projected no

COVID-19,

see “—COVID-19 Summary” for additional rate increases in 2019 and one increase in 2020. The modification in the forecast reflects economic concerns relating to ongoing global trade tensions, slower global growth and a negative inflation outlook. Given this forecast, we expect interest rates will remain low as compared to historical norms. Likewise, we remain uncertain at the pace in which future interest rate increases or decreases will occur and its ultimate impact on our businesses. The U.S. Treasury yield curve steepened in the second quarter of 2019 with short-term interest rates decreasing at a higher rate than long-term interest rate decreases. Portions of the U.S. Treasury yield curve inverted in late May 2019 and continued through the end of the second quarter of 2019, as the yield on the U.S. 10-year Treasury note dipped below the yield on the 3-month Treasury bill. Credit markets also experienced a brief period of volatility in May 2019, with spread widening due to escalating global trade tensions, but subsequently recovered in June 2019 driven mostly by renewed optimism on trade, expectations on accommodative central bank policies and rebounding investor demand for bonds. For a discussion of the risks associated with interest rates, see “Item 1A Risk Factors—Interest rates and changes in rates could materially adversely affect our business and profitability” in our 2018 Annual Report on Form 10-K.details.

Varied levels of economic ~~growth,~~performance, coupled with uncertain economic outlooks, changes in government policy, global trade, regulatory and tax reforms, and other changes in market conditions, ~~influenced, and we believe~~ will

~~Table of Contents~~

continue to influence investment and spending decisions by consumers and businesses as they ~~weigh~~adjust their consumption, debt, capital and risk profiles in response to these ~~conditions.~~ conditions, including as a result of

COVID-19.

These trends change as investor confidence in the markets and the outlook for some consumers and businesses shift. As a result, our sales, revenues and profitability trends of certain insurance and investment products as well as the value of assets and liabilities ~~have been and~~ could be ~~further~~ impacted going forward. In particular, factors such as the length of

COVID-19

and the speed of the economic recovery, government responses to

COVID-19,

government spending, monetary policies (such as further quantitative easing), the volatility and strength of the capital markets, ~~further~~ changes in tax policy and/or in U.S. tax legislation, international trade and the impact of global financial regulation reform will continue to affect economic and business outlooks, level of interest rates, consumer confidence and consumer ~~behaviors~~behavior moving forward.

The U.S. and international governments, the U.S. Federal Reserve, other central banks and other legislative and regulatory bodies have taken certain actions in ~~past years~~ response to

COVID-19

to support the global economy and capital markets, influence interest rates, influence housing markets and mortgage servicing and provide liquidity to promote economic growth. These include various mortgage restructuring programs implemented or under consideration by the GSEs, lenders, servicers and the U.S. government. Outside of the United States, various governments and central banks have taken actions to stimulate economies, stabilize financial systems and improve market liquidity.markets. These policies and actions have ~~generally~~ been supportive to the worldwide economy, however, a U.S. or global recession or regional or global financial crisis could occur which would materially and adversely affect our business, financial condition and results of operations.

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Consolidated Results of Operations

The following is a discussion of our consolidated results of operations. For a discussion of our segment results, see “—Results of Operations and Selected Financial and Operating Performance Measures by Segment.”

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~June 30, 2018~~March 31, 2019

The following table sets forth the consolidated results of operations for the periods indicated:

Three months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

    2019

    2018

2019 vs. 2018

Revenues:





Premiums $
1,126
$
1,136
$
(10
)
(1
)%
Net investment income
852

828

24

3
%

Net investment gains (losses)
(45
)
(14
)
(31
)
NM
(1)

Policy fees and other income
223

209

14

7
%

Total revenues
2,156

2,159

(3
)
—
%

Benefits and expenses:

Benefits and other changes in policy reserves
1,270

1,205

65

5
%

Interest credited
146

152

(6
)
(4
)%
Acquisition and operating expenses, net of deferrals
247

253

(6
)
(2
)%
Amortization of deferred acquisition costs and intangibles
95

112

(17
)
(15
)%
Interest expense
73

77

(4
)
(5
)%

Total benefits and expenses
1,831

1,799

32

2
%

Income before income taxes
325

360

(35
)
(10
)%
Provision for income taxes
107

111

(4
)
(4
)%

Net income
218

249

(31
)
(12
)%
Less: net income attributable to noncontrolling interests
50

59

(9
)
(15
)%

Net income available to Genworth Financial, Inc.’s common stockholders $
168
$
190
$
(22
)
(12
)%


	Three months ended March 31,					Increase (decrease) and percentage change
(Amounts in millions)	2020			2019		2020 vs. 2019
Revenues:
Premiums	$	1,015		$	988	$	27		3	%
Net investment income		793			794		(1	)	—	%
Net investment gains (losses)		(152	)		75		(227	)	NM	(1)
Policy fees and other income		181			187		(6	)	(3	)%

Total revenues		1,837			2,044		(207	)	(10	)%

Benefits and expenses:
Benefits and other changes in policy reserves		1,361			1,282		79		6	%
Interest credited		141			147		(6	)	(4	)%
Acquisition and operating expenses, net of deferrals		249			237		12		5	%
Amortization of deferred acquisition costs and intangibles		116			81		35		43	%
Interest expense		52			60		(8	)	(13	)%

Total benefits and expenses		1,919			1,807		112		6	%

Income (loss) from continuing operations before income taxes		(82	)		237		(319	)	(135	)%
Provision (benefit) for income taxes		(10	)		69		(79	)	(114	)%

Income (loss) from continuing operations		(72	)		168		(240	)	(143	)%
Income from discontinued operations, net of taxes		—			62		(62	)	(100	)%

Net income (loss)		(72	)		230		(302	)	(131	)%
Less: net income (loss) from continuing operations attributable to noncontrolling interests		(6	)		20		(26	)	(130	)%
Less: net income from discontinued operations attributable to noncontrolling interests		—			36		(36	)	(100	)%

Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	(66	)	$	174	$	(240	)	(138	)%

Net income (loss) available to Genworth Financial, Inc.’s common stockholders:
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	(66	)	$	148	$	(214	)	(145	)%
Income from discontinued operations available to Genworth Financial, Inc.’s common stockholders		—			26		(26	)	(100	)%

Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	(66	)	$	174	$	(240	)	(138	)%

(1)	We define “NM” as not meaningful for increases or decreases greater than 200%.

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Premiums.

Premiums are primarily earned on insurance products for mortgage, long-term care, life ~~and accident and health~~ insurance, single premium immediate annuities and structured settlements with life contingencies.

•

Our U.S. Mortgage Insurance segment increased $32 million mainly attributable to higher insurance in-force and an increase in policy cancellations in our single premium mortgage insurance product driven largely by higher mortgage refinancing, partially offset by lower average premium rates in the current year.

Our U.S. Life Insurance segment increased $9 million. Our long-term care insurance business increased $14 million largely from $34 million of increased premiums in the current year from

in-force

rate actions approved and implemented, partially offset by policy terminations and policies entering

paid-up

status in the current year. Our life insurance business decreased $5 million mainly attributable to the continued runoff of our term life insurance products in the current year.

Our Australia Mortgage Insurance segment decreased ~~$26~~$14 million predominantly from ~~higher~~portfolio seasoning and lower policy cancellations in the prior year mostly due to an initiative implemented in the second quarter of 2018 to more promptly identify loans that were discharged or refinanced and from the seasoning of our smaller, more recent in-force books of business.current year. The three months ended ~~June 30, 2019~~March 31, 2020 included a decrease of $7$4 million attributable to changes in foreign exchange rates.

~~Our Canada Mortgage Insurance segment decreased $6 million primarily from changes attributable to foreign exchange rates in the current year.~~

~~Our U.S. Mortgage Insurance segment increased $22 million mainly attributable to higher insurance in-force in the current year.~~

Our U.S. Life Insurance segment increased $1 million. Our long-term care insurance business increased $8 million largely from $24 million of increased premiums in the current year from in-force rate actions approved and implemented, partially offset by policy terminations and policies entering paid-up status in the current year. Our life insurance business decreased $7 million mainly attributable to the continued runoff of our term life insurance products.

Net investment income.

Net investment income represents the income earned on our investments. For discussion of the change in net investment income, see the comparison for this line item under “—Investments and Derivative Instruments.”

Net investment gains (losses).

Net investment gains (losses) consist primarily of realized gains and losses from the sale of or ~~impairment of~~estimated future credit losses on our investments, unrealized and realized gains and losses from our equity and trading securities and derivative instruments. For discussion of the change in net investment gains (losses), see the comparison for this line item under “—Investments and Derivative Instruments.”

Policy fees and other income.

Policy fees and other income consists primarily of fees assessed against policyholder and contractholder account values, surrender charges, cost of insurance assessed on universal and term universal life insurance policies, advisory and administration service fees assessed on investment contractholder account values, broker/dealer commission revenues and other fees.

~~Our~~ The decrease was principally related to our U.S. Life Insurance segment ~~increased $18 million mostly attributable to~~primarily driven by our life insurance business ~~due to a $21 million favorable correction related to ceded premiums on~~

~~universal life insurance policies, partially offset by a favorable model refinement in the prior year that did not recur.~~

~~Our Runoff segment decreased $3 million principally~~ from ~~lower fee income driven mostly by~~ a decline in ~~the average account values in~~ our ~~variable annuity products~~universal and term universal insurance

in-force

and higher ceded reinsurance costs in the current year.

Benefits and other changes in policy reserves.

Benefits and other changes in policy reserves consist primarily of claim costs incurred related to mortgage insurance products and benefits paid and reserve activity related to current claims and future policy benefits on insurance and investment products for long-term care, life ~~and accident and health~~ insurance, structured settlements and single premium immediate annuities with life contingencies.

Our U.S. Life Insurance segment increased ~~$48~~$61 million. Our long-term care insurance business increased ~~$22~~$1 million principally ~~related to~~from the aging of the in-force block (including higher frequency of new claims), higher ~~severity of new claims, lower claim terminations and an increase in~~ incremental reserves of ~~$49~~$39 million recorded in connection with an accrual for profits followed by losses and higher severity of new claims in the current year. These increases were ~~partially~~mostly offset by a higher favorable impact of ~~$100~~$34 million from reduced benefits in the current year related to in-force rate actions approved and implemented, a slightly favorable impact from benefit utilization rate updates in the current year compared to an unfavorable impact in the prior year and favorable development on prior year incurred but not reported claims. Our life insurance business increased $60 million primarily attributable to higher reserves in our 10-year term universal life insurance block entering its post-level premium period during the premium grace period and from higher mortality in our universal and term life insurance products in the current year compared to the prior year. Our fixed annuities business was flat as higher reserves in our fixed indexed annuities driven by unfavorable market changes in the current year and lower mortality in our single premium immediate annuities were offset by $17 million of higher reserves recorded in the prior year related to loss recognition testing in our fixed immediate annuity products that did not recur.

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favorable development on prior year incurred but not reported claims. The current year also included favorable utilization of available benefits. Our life insurance business increased $19 million primarily attributable to a favorable model refinement in the prior year that did not recur and higher mortality in the current year compared to the prior year. Our fixed annuities business increased $7 million largely attributable to $5 million of higher reserves in connection with loss recognition testing in our fixed immediate annuity products primarily as a result of a decrease in interest rates in the current year. The increase was also due to lower mortality in the current year compared to the prior year. These increases were partially offset by lower interest credited in the current year due to block runoff.

Our U.S. Mortgage Insurance segment increased $14 million. Benefits and other changes in policy reserves were zero in the current year but increased compared to the prior year. Lower net benefits from cures and aging

Table of existing delinquencies were offset by a $10 million favorable reserve adjustment and a lower average reserve on new delinquencies in the current year. The prior year also included a $28 million favorable reserve adjustment. These favorable reserve adjustments were mostly associated with lower expected claim rates.Contents

Our Runoff segment increased $6$19 million primarily attributable to higher ~~mortality~~guaranteed minimum death benefit (“GMDB”) reserves in ~~both~~ our variable annuity ~~and corporate-owned life insurance~~ products due to unfavorable equity market performance in the current year.

•

Our U.S. Mortgage Insurance segment increased $3 million largely from lower net benefits from cures and aging of existing delinquencies, partially offset by a decrease in new delinquencies and a lower average reserve on new delinquencies in the current year.

Our Australia Mortgage Insurance segment decreased $3$4 million ~~largely~~primarily from ~~changes in foreign exchange rates in the current year. Excluding the effects~~favorable aging of ~~changes in foreign exchange rates, benefits and other changes in policy reserves were flat as higher reserves on new~~existing delinquencies ~~were offset by higher reserve releases for cures~~ in the current year.

Our Canada Mortgage Insurance segment was flat as lower new delinquencies, net of cures, and modestly higher favorable development in our loss reserves were offset by a higher average reserve per delinquency, primarily attributable to increased losses in Alberta in the current year.

Interest credited.

Interest credited represents interest credited on behalf of policyholder and contractholder general account balances.

~~Our~~ The decrease was principally related to our U.S. Life Insurance segment ~~decreased $10 million. Our life insurance and~~driven by our fixed annuities ~~businesses decreased $2 million and $8 million, respectively, primarily driven by~~business largely due to a decline in average account values ~~and lower crediting rates~~ in the current year.

~~Our Runoff segment increased $4 million largely related to higher interest in our corporate-owned life insurance products in the current year.~~

Acquisition and operating expenses, net of deferrals.

Acquisition and operating expenses, net of deferrals, represent costs and expenses related to the acquisition and ongoing maintenance of insurance and investment contracts, including commissions, policy issuance expenses and other underwriting and general operating costs. These costs and expenses are net of amounts that are capitalized and deferred, which are costs and expenses that are related directly to the successful acquisition of new or renewal insurance policies and investment contracts, such as first-year commissions in excess of ultimate renewal commissions and other policy issuance expenses. ~~The current year included~~

Corporate and Other activities increased $5 million mainly driven by a $2make-whole premium of $9 million ~~early redemption fee in our Canada Mortgage Insurance segment~~ related to the ~~repayment~~early redemption of ~~CAD$100 million of the 5.68%~~Genworth Holdings’ senior notes originally scheduled to mature in June ~~2020.~~2020 and higher employee-related expenses, partially offset by lower operating expenses in the current year.

Our U.S. Mortgage Insurance segment increased $4 million primarily attributable to higher operating costs driven mostly by increased sales in the current year.

Amortization of deferred acquisition costs and intangibles.

Amortization of DAC and intangibles consists primarily of the amortization of acquisition costs that are capitalized, PVFP and capitalized software.

Our U.S. Life Insurance segment ~~decreased $11~~increased $21 million ~~primarily related to~~driven mostly by our life insurance business principally from anhigher lapses primarily associated with our large

20-year

term life insurance block entering its post-level premium period, partially offset by a $10 million unfavorable model ~~refinement~~correction in our universal life insurance products in the prior year that did not ~~recur,~~

~~partially offset by~~recur. Our fixed annuities business increased $5 million largely related to higher ~~lapses primarily associated with our large~~

~~20-year~~

~~term life insurance block issued in 1999 entering its post-level premium period~~DAC amortization reflecting lower net spreads and ~~higher reinsurance rates~~the impact of unfavorable market changes in the current year.

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Our Runoff segment ~~decreased $4~~increased $15 million mainly related to higher DAC amortization in our variable annuity products ~~mainly~~principally from ~~favorable~~unfavorable equity market performance in the current year.

~~Our Australia Mortgage Insurance segment decreased $3 million primarily from lower contract fees amortization and from changes in foreign exchange rates in the current year.~~

Interest expense.

Interest expense represents interest related to our borrowings that are incurred at Genworth Holdings or subsidiaries ~~and our non-recourse funding obligations~~ and interest expense related to the Tax Matters Agreement and certain reinsurance arrangements being accounted for as deposits. Corporate and Other activities decreased $5$7 million largely driven by the early redemption of ~~$597 million of~~ Genworth ~~Holding’s~~Holdings’ senior notes originally scheduled to mature in ~~May 2018.~~June 2020.

Provision (benefit) for income taxes.

The effective tax rate ~~increased~~decreased to ~~32.9%~~12.2% for the three months ended ~~June 30, 2019 from 30.8%~~March 31, 2020 compared to 29.1% for the three months ended ~~June 30, 2018.~~March 31, 2019. The ~~increase~~decrease in the effective tax rate was ~~principally driven by a~~primarily attributable to tax expense on forward starting swaps settled prior to the enactment of the Tax Cuts and Jobs Act (“TCJA”), which are tax effected at 35% as they are amortized into net investment income, in relation to a

pre-tax

loss in the current ~~year~~year. The decrease was also attributable to a lower tax expense related to ~~the GILTI provision of the TCJA. GILTI has an unfavorable impact on our current year effective tax rate due~~foreign operations and higher stock-based compensation in relation to ~~the utilization of net operating~~ a

pre-tax

loss ~~carryforwards and projected taxable losses~~ in the U.S. life insurance businesses without any offsetting foreign tax credit carryforwards. The unfavorable impact on the effective rate is expected to continue for the remainder of 2019 and into 2020 but is subject to change depending on variations in business results and a potential disposition of Genworth Canada.current year.

Net income (loss) attributable to noncontrolling interests

. Net income attributable to noncontrolling interests represents the portion of equity in a subsidiary attributable to third parties.

~~Six Months Ended June 30, 2019 Compared~~ The decrease to ~~Six Months Ended June 30, 2018~~

~~The following table sets forth~~a loss in the ~~consolidated results of operations for~~current year from income in the ~~periods indicated:~~

Six months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

2019

2018

2019 vs. 2018

Revenues:





Premiums $
2,240
$
2,276
$
(36
)
(2
)%
Net investment income
1,681

1,632

49

3
%

Net investment gains (losses)
29

(45
)
74

164
%
Policy fees and other income
410

411

(1
)
—
%

Total revenues
4,360

4,274

86

2
%

Benefits and expenses:

Benefits and other changes in policy reserves
2,571

2,516

55

2
%

Interest credited
293

308

(15
)
(5
)%
Acquisition and operating expenses, net of deferrals
498

493

5

1
%

Amortization of deferred acquisition costs and intangibles
186

216

(30
)
(14
)%
Interest expense
145

153

(8
)
(5
)%

Total benefits and expenses
3,693

3,686

7

—
%

Income before income taxes
667

588

79

13
%
Provision for income taxes
219

174

45

26
%

Net income
448

414

34

8
%

Less: net income attributable to noncontrolling interests
106

112

(6
)
(5
)%

Net income available to Genworth Financial, Inc.’s common stockholders $
342
$
302
$
40

13
%

prior year was predominantly related to higher net investment losses driven largely by derivative losses in the current year.

Table of Contents

~~Premiums~~

Our Australia Mortgage Insurance segment decreased $41 million predominantly from the seasoning of our smaller, more recent in-force books of business and from higher policy cancellations in the prior year. The six months ended June 30, 2019 included a decrease of $15 million attributable to changes in foreign exchange rates.

Our Canada Mortgage Insurance segment decreased $19 million primarily from $13 million of changes attributable to foreign exchange rates in the current year, refinements in premium recognition factors in the prior year that did not recur and from the seasoning of our smaller, more recent in-force books of business.

Our U.S. Life Insurance segment decreased $12 million. Our long-term care insurance business increased $5 million. The increase was largely from $41 million of increased premiums in the current year from in-force rate actions approved and implemented, partially offset by policy terminations and policies entering paid-up status in the current year. Our life insurance business decreased $17 million mainly attributable to the continued runoff of our term life insurance products and higher reinsurance rates in the current year.

~~Our U.S. Mortgage Insurance segment increased $37 million mainly attributable to higher insurance in-force in the current year.~~

~~Net investment income.~~

~~For discussion of the change in net investment income, see the comparison for this line item under “—Investments and Derivative Instruments.”~~

~~Net investment gains (losses).~~

~~For discussion of the change in net investment gains (losses), see the comparison for this line item under “—Investments and Derivative Instruments.”~~

~~Policy fees and other income~~

~~Our Runoff segment decreased $8 million principally from lower fee income driven mostly by a decrease in the average account values in our variable annuity products in the current year.~~

~~Our U.S. Life Insurance segment increased $6 million mostly attributable to our life insurance business primarily driven by a $21 million favorable correction related to ceded premiums on~~

~~universal life insurance policies, partially offset by a favorable model refinement in the prior year that did not recur and a decline in our term universal and universal life insurance~~

~~in-force~~

~~blocks in the current year.~~

~~Benefits and other changes in policy reserves~~

Our U.S. Life Insurance segment increased $46 million. Our long-term care insurance business increased $21 million principally related to the aging of the in-force block (including higher frequency of new claims), higher severity of new claims, lower claim terminations and an increase in incremental reserves of $49 million recorded in connection with an accrual for profits followed by losses in the current year. These increases were partially offset by a higher favorable impact of $161 million from reduced benefits in the current year related to in-force rate actions approved and implemented and from favorable development on prior year incurred but not reported claims. Our life insurance business increased $14 million primarily attributable to a favorable model refinement in the prior year that did not recur. Our fixed annuities business increased $11 million largely attributable to $22 million of higher reserves in connection with loss recognition testing in our fixed immediate annuity products primarily as a result of portfolio management actions and from a decrease in the projected yield curve. This increase was partially offset by lower interest credited in the current year due to block runoff.

Our U.S. Mortgage Insurance segment increased $14 million primarily from a lower favorable reserve adjustment in the current year. We recorded a $10 million favorable reserve adjustment in the current

~~100~~

~~Table of Contents~~

year compared to a $28 million favorable reserve adjustment in the prior year. These adjustments were mostly associated with lower expected claim rates. The increase was also attributable to lower net benefits from cures and aging of existing delinquencies, partially offset by a lower average reserve on new delinquencies in the current year.

Our Canada Mortgage Insurance segment increased $1 million principally from a higher average reserve per delinquency, primarily attributable to increased losses in Alberta, mostly offset by lower new delinquencies, net of cures in the current year.

Our Australia Mortgage Insurance segment decreased $5 million from changes attributable to foreign exchange rates in the current year. Excluding the effects of changes in foreign exchange rates, benefits and other changes in policy reserves were flat as higher reserves on new delinquencies were offset by higher reserve releases for cures in the current year.

Our Runoff segment decreased $1 million primarily attributable to lower guaranteed minimum death benefit (“GMDB”) reserves in our variable annuity products due to favorable equity market performance, mostly offset by higher mortality in both our variable annuity and corporate-owned life insurance products in the current year.

~~Interest credited~~

Our U.S. Life Insurance segment decreased $23 million. The decrease was due to our life insurance and fixed annuities businesses, which decreased $5 million and $18 million, respectively, primarily driven by a decline in average account values and lower crediting rates in the current year.

~~Our Runoff segment increased $8 million largely related to higher interest in our corporate-owned life insurance products in the current year.~~

~~Acquisition and operating expenses, net of deferrals~~

~~Our U.S. Mortgage Insurance segment increased $6 million primarily attributable to higher operating costs driven mostly by increased sales in the current year.~~

~~Our Canada Mortgage Insurance segment increased $5 million mainly from higher operating costs~~

~~and from a $2 million early redemption fee related to the repayment of CAD$100 million of the 5.68% senior notes originally scheduled to mature in June 2020.~~

~~Corporate and Other activities decreased $6 million mainly driven by a decrease in employee related expenses and lower operating costs in the current year.~~

~~Amortization of deferred acquisition costs and intangibles~~

~~Our U.S. Life Insurance segment decreased $16 million driven mostly by our life insurance business principally from an unfavorable model refinement~~

~~in the prior year that did not recur, partially offset by higher lapses primarily associated with our large~~

~~20-year~~

~~term life insurance block issued in 1999 entering its post-level premium period and higher reinsurance rates in the current year.~~

~~Our Runoff segment decreased $9 million largely related to our variable annuity products mainly from favorable equity market performance in the current year.~~

~~Our Australia Mortgage Insurance segment decreased $5 million largely from lower contract fees amortization and from changes in foreign exchange rates in the current year.~~

~~Interest expense.~~

The decrease was largely related to Corporate and Other activities, which decreased $9 million. The decrease was mostly attributable to the redemption of $597 million of Genworth Holdings’ senior notes in May 2018, partially offset by higher interest expense attributable to the term loan that Genworth Holdings closed in March 2018 and from our junior subordinated notes which had a higher floating rate of interest in the current year.

~~101~~

~~Table of Contents~~

~~Provision for income taxes.~~

The effective tax rate increased to 32.8% for the six months ended June 30, 2019 from 29.6% for the six months ended June 30, 2018. The increase in the effective tax rate was primarily attributable to tax expense in the current year related to the GILTI provision of the TCJA. GILTI has an unfavorable impact on our current year effective tax rate due to the utilization of net operating loss carryforwards and projected taxable losses in the U.S. life insurance businesses without any offsetting foreign tax credit carryforwards. The unfavorable impact on the effective rate is expected to continue for the remainder of 2019 and into 2020 but is subject to change depending on variations in business results and a potential disposition of Genworth Canada.

Use of

non-Generally

Accepted Accounting Principles (“GAAP”) measures

Reconciliation of net income (loss) to adjusted operating income available to Genworth Financial, Inc.’s common stockholders

We use

non-GAAP

financial measures entitled “adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders” and “adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders per share.” Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders per share is derived from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders. Our chief operating decision maker evaluates segment performance and allocates resources on the basis of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders. We define adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as income (loss) from continuing operations excluding the

after-tax

non-operating

items. Gains (losses) on insurance block transactions are defined as gains (losses) on the early extinguishment of

non-recourse

non-operating

items because we do not consider them to be related to the operating performance of our segments and Corporate and Other activities. A component of our net investment gains (losses) is the result of ~~impairments,~~estimated future credit losses, the size and timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) can be subject to our discretion and are influenced by market opportunities, as well as asset-liability matching considerations. Goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions and restructuring costs are also excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders because, in our opinion, they are not indicative of overall operating trends. Infrequent or unusual

non-operating

items are also excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders if, in our opinion, they are not indicative of overall operating trends.

While some of these items may be significant components of net income (loss) available to Genworth Financial, Inc.’s common stockholders in accordance with U.S. GAAP, we believe that adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, and measures that are derived from or incorporate adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, including adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders per share on a basic and diluted basis, are appropriate measures that are useful to investors because they identify the income (loss) attributable to the ongoing operations of the business. Management also uses adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders as a basis for determining awards and compensation for senior management and to evaluate performance on a basis comparable to that used by analysts. However, the items excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders have occurred in the past and could, and in some cases will, recur in the future. Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders and adjusted

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operating income (loss) available to Genworth Financial, Inc.’s common stockholders per share on a basic and diluted basis are not substitutes for net income (loss) available to Genworth Financial, Inc.’s common stockholders or net income (loss) available to Genworth Financial, Inc.’s common stockholders per share on a basic and diluted basis determined in accordance with U.S. GAAP. In addition, our definition of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders may differ from the definitions used by other companies.

~~In 2019, we revised how we tax the adjustments~~

Adjustments to reconcile net income (loss) available to Genworth Financial, Inc.’s common stockholders to adjusted operating income (loss) ~~available to Genworth Financial, Inc.’s common stockholders to align the~~assume a 21% tax rate ~~used in the reconciliation to each segment’s local jurisdictional tax rate. Beginning in the first quarter of 2019, we used~~for our domestic segments and a 30% tax rate ~~of 27% and 30%~~ for our ~~Canada and~~ Australia Mortgage Insurance segments, respectively, to tax effect their adjustments. Our domestic segments remain at a 21% tax rate. In 2018, we assumed a flat 21% tax rate on adjustments for all of our segments to reconcile net income (loss) available to Genworth Financial, Inc.’s common stockholderssegment and ~~adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders. These adjustments~~ are ~~also~~ net of the portion attributable to noncontrolling ~~interests and net~~interests. Net investment gains (losses) are also adjusted for DAC and other intangible amortization and certain benefit reserves.

Prior year amounts have not been re-presented to reflect this revised presentation; however, the previous methodology would not have resulted in a materially different segment-level adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders.

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The following table includes a reconciliation of net income (loss) available to Genworth Financial, Inc.’s common stockholders to adjusted operating income available to Genworth Financial, Inc.’s common stockholders for the periods indicated:

Three months ended
June 30,

Six months ended
June 30,

(Amounts in millions)

  2019

  2018

  2019

  2018

Net income $
218
$
249
$
448
$
414

Less: net income attributable to noncontrolling interests
50

59

106

112

Net income available to Genworth Financial, Inc.’s common stockholders
168

190

342

302

Adjustments to net income available to Genworth Financial, Inc.’s
common stockholders:

Net investment (gains) losses, net
(1)

43

12

(28
)
29

(Gains) losses on early extinguishment of debt, net
(2)

1

—

1

—

Expenses related to restructuring
—

—

4

—

Taxes on adjustments
(8
)
(2
)
6

(6
)

Adjusted operating income available to Genworth Financial, Inc.’s
common stockholders
$
204
$
200
$
325
$
325


	Three months ended
	March 31,
(Amounts in millions)	2020			2019
Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	(66	)	$	174
Less: net income (loss) from continuing operations attributable to noncontrolling interests		(6	)		20
Less: net income from discontinued operations attributable to noncontrolling interests		—			36

Net income (loss)		(72	)		230
Less: income from discontinued operations, net of taxes		—			62

Income (loss) from continuing operations		(72	)		168
Less: net income (loss) from continuing operations attributable to noncontrolling interests		(6	)		20

Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders		(66	)		148
Adjustments to income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders:
Net investment (gains) losses, net (1)		115			(71	)
Losses on early extinguishment of debt		12			—
Expenses related to restructuring		1			4
Taxes on adjustments		(29	)		14

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	$	33		$	95

(1)

million, respectively. For the six months ended June 30, 2019 and 2018, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(5) million and $(4) million, respectively, and adjusted for net investment gains (losses) attributable to noncontrolling interests of $6 million, ~~and $(12) million,~~ respectively.

~~(2)~~

~~For the three and six months ended June 30, 2019, (gains) losses on the early extinguishment of debt were adjusted for the portion attributable to noncontrolling interests of $1 million.~~

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In ~~the second quarter~~January 2020, we paid a

pre-tax

make-whole expense of ~~2019, we recorded a pre-tax loss of $1~~$9 million ~~net of the portion attributable to noncontrolling interests,~~ related to the early redemption of ~~CAD$100 million of~~ Genworth ~~Canada’s~~Holdings, Inc.’s senior notes originally scheduled to mature in June ~~2020. In~~2020 and Rivermont I, our indirect wholly-owned special purpose consolidated captive insurance subsidiary, early redeemed all of its $315 million outstanding

non-recourse

funding obligations originally due in 2050 resulting in a

pre-tax

loss of $4 million from the

write-off

of deferred borrowing costs. We also repurchased $14 million principal amount of Genworth Holdings’ senior notes with 2021 maturity dates for a

pre-tax

gain of $1 million in the first quarter of ~~2019, we~~2020. These transactions were excluded from adjusted operating income (loss) for the first quarter of 2020 as they relate to gains (losses) on the early extinguishment of debt.

We recorded a

pre-tax

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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

Six months ended

June 30,

June 30,

(Amounts in millions, except per share amounts)

2019

2018

2019

2018

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

Basic $
0.33
$
0.38
$
0.68
$
0.60

Diluted $
0.33
$
0.38
$
0.67
$
0.60

Adjusted operating income available to Genworth Financial,
Inc.’s common stockholders per share:

Basic $
0.40
$
0.40
$
0.65
$
0.65

Diluted $
0.40
$
0.40
$
0.64
$
0.65

Weighted-average common shares outstanding:

Basic
503.4

500.6

502.3

500.1

Diluted
508.7

502.6

508.7

502.6


	Three months ended
	March 31,
(Amounts in millions, except per share amounts)	2020			2019
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	(0.13	)	$	0.29
			��
Diluted	$	(0.13	)	$	0.29

Net income (loss) available to Genworth Financial, Inc.’s common stockholders per share:
Basic	$	(0.13	)	$	0.35

Diluted	$	(0.13	)	$	0.34

Adjusted operating income available to Genworth Financial, Inc.’scommon stockholders per share:
Basic	$	0.07		$	0.19

Diluted	$	0.07		$	0.19

Weighted-average common shares outstanding:
Basic		504.3			501.2

Diluted (1)		504.3			508.6

(1)

Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the three months ended March 31, 2020, we were required to use basic weighted-average common shares outstanding as the inclusion of shares for stock options, restricted stock units and stock appreciation rights of 5.4 million would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the three months ended March 31, 2020, dilutive potential weighted-average common shares outstanding would have been 509.7 million.

Diluted weighted-average common shares outstanding reflect the effects of potentially dilutive securities including stock options, restricted stock units and other equity-based compensation.

Results of Operations and Selected Financial and Operating Performance Measures by Segment

Our chief operating decision maker evaluates segment performance and allocates resources on the basis of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders. See note 1011 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for ~~a reconciliation of net income available to Genworth Financial, Inc.’s common stockholders to adjusted operating income available to Genworth Financial, Inc.’s common stockholders and~~ a summary of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for our segments and Corporate and Other activities.

pre-tax

income (loss) of each segment, which is then adjusted in each segment to reflect the tax attributes of items unique to that segment such as foreign withholding taxes and permanent differences between U.S. GAAP and local tax law. The difference between the consolidated provision for income taxes and the sum of the provision for income taxes in each segment is reflected in Corporate and Other activities.

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The annually-determined tax rates and adjustments to each segment’s provision for income taxes are estimates which are subject to review and could change from year to year.

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Management’s discussion and analysis by segment contains selected operating performance measures including “sales” and “insurance

in-force”

or “risk

in-force”

which are commonly used in the insurance industry as measures of operating performance.

Management regularly monitors and reports sales metrics as a measure of volume of new ~~and renewal~~ business generated in a period. Sales refer to new insurance written for mortgage insurance products. ~~Sales do not include renewal premiums on policies or contracts written during prior periods.~~ We consider new insurance written to be a measure of our operating performance because it represents a measure of new sales of insurance policies ~~or contracts~~ during a specified period, rather than a measure of our revenues or profitability during that period.

Management regularly monitors and reports insurance

in-force

and risk

in-force.

Insurance

in-force

for our mortgage insurance businesses is a measure of the aggregate original loan balance for outstanding insurance policies as of the respective reporting date. Risk

in-force

for our U.S. mortgage insurance business is based on the coverage percentage applied to the estimated current outstanding loan balance. ~~For risk~~ Risk

in-force

in our Australia mortgage insurance ~~businesses in Canada and Australia, we have~~business is computed using an “effective” risk

in-force

amount, which recognizes that the loss on any particular loan will be reduced by the net proceeds received upon sale of the property. Effective risk

in-force

has been calculated by applying to insurance

in-force

a factor of 35% that represents the highest expected average

per-claim

payment for any one underwriting year over the life of our mortgage insurance ~~businesses~~business in ~~Canada and~~ Australia. ~~In Australia, we~~We also have certain risk share arrangements in Australia where we provide

pro-rata

coverage of certain loans rather than 100% coverage. As a result, for loans with these risk share arrangements, the applicable

pro-rata

coverage amount provided is used when applying the factor. We consider insurance

in-force

and risk

in-force

to be measures of our operating performance because they represent measures of the size of our business at a specific date which will generate revenues and profits in a future period, rather than measures of our revenues or profitability during that period.

Management also regularly monitors and reports a loss ratio for our businesses. For our mortgage insurance businesses, the loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. For our long-term care insurance business, the loss ratio is the ratio of benefits and other changes in reserves less tabular interest on reserves less loss adjustment expenses to net earned premiums. We consider the loss ratio to be a measure of underwriting performance in these businesses and helps to enhance the understanding of the operating performance of our businesses.

These operating performance measures enable us to compare our operating performance across periods without regard to revenues or profitability related to policies or contracts sold in prior periods or from investments or other sources.

U.S. Mortgage Insurance segment

Trends and conditions

Results of our U.S. mortgage insurance business are affected primarily by the following factors: competitor actions; unemployment or underemployment levels; other economic and housing market trends, including interest rates, home prices, the number of first-time homebuyers, and mortgage origination volume mix and practices; the levels and aging of mortgage delinquencies; the effect of seasonal ~~variations;~~variations, including the adverse impact of seasonality that we experience historically in the second half of the year; the inventory of unsold homes; loan modification and other servicing efforts; and litigation, among other items. ~~Our~~

COVID-19

has disrupted the global economy and financial markets, business operations, and consumer behavior and confidence. While all states have been impacted, certain geographies have been disproportionately

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impacted by

COVID-19

either through the spread of the virus or the severity of the mitigation steps taken to control its spread. Unemployment claims have increased to historic levels with approximately 30 million Americans filing for unemployment claims through late April 2020, reducing consumer confidence to its lowest level since the 2008 financial crisis. As a result, our U.S. mortgage insurance business has already begun to experience declines in investment valuations and declines in persistency rates from prevailing lower interest rates. Additionally, we could experience asset impairments, increases in delinquent loans and paid claims, lower future new insurance written levels, increases to our capital requirements and pressure on our capital sufficiency ratios.

While the impact of the developing

COVID-19

pandemic is difficult to predict, the related outcomes and impact on our U.S. mortgage insurance business will depend on the spread and length of the pandemic, regulatory and government actions to support housing and the economy, social distancing and other mitigating actions, and the shape of the economic recovery. We are continuing to monitor

COVID-19

developments, regulatory and government actions, including the impact of the recently passed CARES Act and programs announced by the GSEs, and the potential financial impacts on our business. However, given the specific risks to our business, it is possible the pandemic could have a significant adverse impact on our U.S. mortgage insurance business, including a significant adverse effect on our financial condition and results of operations.

Within the U.S. mortgage insurance business, we have actively taken preventative measures focused on effective social distancing including restricting business travel and implementing a remote work environment (substantially all employees and contractors are working from home). Most of our customers and vendors have taken similar measures with the majority of their workforce. Prior to

COVID-19,

approximately 35% of our U.S. mortgage insurance business employees worked remotely including the majority of resources involved in key business activities such as underwriting and sales. Restrictions on business travel have prevented our sales force from conducting

in-person

customer visits. Through the transition to a remote work environment, we have not experienced any meaningful interruption to our operations and have successfully mitigated the risk of disruptions to our customers, vendors and employees. In addition, we have complied with all applicable directives from local, state and federal agencies.

Specific to housing finance, the CARES Act requires mortgage servicers to provide up to 180 days of deferred or reduced payments (“forbearance”) for borrowers with a federally backed mortgage loan who assert they have experienced a financial hardship related to

COVID-19.

Forbearance may be extended for an additional 180 days up to a year in total or shortened at the request of the borrower. Federally backed mortgages include Federal Housing Administration (“FHA”) and U.S. Department of Veterans Affairs (“VA”) backed loans and those purchased by Fannie Mae and Freddie Mac. The CARES Act also prohibits foreclosures on all federally backed mortgage loans, except for vacant and abandoned properties, for a

60-day

period beginning on March 18, 2020. Since the introduction of the CARES Act, the GSEs as well as most servicers of

non-federally

backed mortgage loans have announced that they will be extending similar relief to their respective portfolios of loans. At the conclusion of the forbearance term, a borrower may either bring their loan current or the loan can be modified through a repayment plan or extension of the mortgage term. In addition, the CARES Act provides that furnishers of credit reporting information, including servicers, should continue to report a loan as current to credit reporting agencies if the loan is subject to a payment accommodation, such as forbearance, so long as the ~~performance~~borrower abides by the terms of the ~~U.S. housing market and the extent of the adverse impact of seasonality that we experience historically in the second half of the year.~~

accommodation. Servicers are working on updating their reporting to private mortgage insurers to include whether a loan is covered by forbearance.

The level of mortgage originations requiring private mortgage insurance (“market ~~penetration~~penetration”) and eventual market size isare affected in part by actions taken by the GSEs and the U.S. government, including but not limited to, the ~~Federal Housing Administration (“FHA”), the Federal Housing Finance Agency,~~FHA and the ~~U.S. Congress,~~FHFA, which impact housing or housing finance policy. In the

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past, these actions have included announced changes, or potential changes, to underwriting standards, including changes to the GSEs’ automated underwriting systems, FHA pricing, GSE guaranty fees, loan limits and alternative products, such as those offered through Freddie Mac’s Integrated Mortgage Insurance (“IMAGIN”) and Fannie Mae’s Enterprise Paid Mortgage Insurance (“EPMI”) pilot programs, as well as low down payment programs available

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through the FHA or GSEs. For more information about the potential future impact, see “Item 1A—Risk Factors—~~Fannie Mae and Freddie Mac exert significant influence over the U.S. mortgage insurance market and changes~~Changes to the role of the GSEs or ~~structure~~to the charters or business practices of ~~Freddie Mac~~the GSEs, including actions or ~~Fannie Mae could have a material adverse impact on our U.S.~~decisions to decrease or discontinue the use of mortgage insurance, could adversely affect our financial condition and results of operations or significantly impact our business,” and “—Risk Factors—The amount of mortgage insurance we write could decline significantly if alternatives to private mortgage insurance are used or lower coverage levels of mortgage insurance are selected” in our ~~2018~~2019 Annual Report on Form

10-K.

~~Estimated~~

COVID-19

did not have a material negative impact on our first quarter of 2020 results. Rather, estimated mortgage origination volume increased during the ~~second~~first quarter of 2020 compared to the first quarter of 2019 ~~compared to the second quarter of 2018~~ primarily due to higher refinance originations driven by lower interest rates. The estimated private mortgage insurance available market increased in the ~~second~~first quarter of 2020 compared to the first quarter of 2019 driven in large part by higher refinance originations, including higher market penetration. Our persistency of mortgage insurance written on prime-based, individually underwritten residential mortgage loans (“flow mortgage insurance”) was 76% during the first quarter of 2020 compared to ~~the second quarter of 2018 mainly due to higher originations. Our flow persistency was 82%~~86% during the ~~second~~first quarter of 2019, ~~compared to 83% during the second quarter of 2018,~~ due in part to lower interest rates. ~~Our U.S.~~

Prospectively, we also expect

COVID-19

to have an impact on the level of mortgage originations, market penetration and the private mortgage insurance ~~estimated~~industry’s market ~~share for the second quarter of 2019 increased compared to~~size. While originations remained elevated through the first quarter of ~~2019. Our market share is influenced~~2020, in part, as a result of prevailing low interest rates, we expect mortgage originations to decline in the second half of 2020 driven by the ~~execution~~impact of ~~our go~~and actions related to

COVID-19.

The impact on mortgage originations may be more severe for geographies that have been disproportionately impacted by

COVID-19.

The residents of at least

forty-two

states and the District of Columbia are under

shelter-in-place

orders as of April 20, 2020. These orders and concerns with

COVID-19

generally have caused a decrease in seller interest in listing their homes, buyer interest in new home purchases, restrictions on realtors’ ability to interact with buyers and sellers and a reduced ability to both visit homes for sale and close on purchase transactions, resulting in approximately 60% of realtors reporting delayed home purchase decisions among potential homebuyers. In the purchase originations market, ~~strategy, including, but not limited~~mortgage applications have decreased by approximately 33% between the end of March 2020 and the second week of April 2020. To help facilitate the home closing process amid

COVID-19,

the GSEs have implemented policies designed to alleviate appraisal and employment verification requirements; however, certain lenders have reacted to the ~~ongoing rollout~~rising uncertainty by tightening their lending standards, through certain credit overlays and higher prices for riskier loan and borrower attributes, which will likely lower origination volume. Some of ~~our proprietary risk-based pricing engine, GenRATE,~~the decrease in mortgage originations may be offset by increased market penetration for mortgage insurance as credit and ~~our selective participation in forward commitment transactions. However, our~~securitization options previously available to lenders prior to the pandemic are now constrained or no longer available such as the private label securitizations market ~~share remains impacted~~and jumbo loan market. We expect the concentration of loans backed by the ~~negative ratings differential relative~~GSEs to ~~our competitors, concerns expressed about Genworth’s financial condition,~~expand and, as a result, drive incremental volume to the ~~proposed transaction with China Oceanwide and pricing competition. For more information on~~private mortgage insurance industry. We expect the ~~potential impacts due to competition, see “Item 1A—Risk Factors—Competitors could negatively affect our ability to maintain or increase our~~net effect of these market ~~share and profitability”~~dynamics will be a smaller private mortgage insurance market size in ~~our 2018 Annual Report on Form 10-K.~~the second half of 2020.

The U.S. private mortgage insurance industry is highly competitive. There are currently six active mortgage insurers, including us. InThe majority of the ~~fourth quarter of 2018,~~new insurance written in our U.S. mortgage insurance business ~~launched~~is priced using our proprietary risk-based pricing engine, GenRATE, which provides lenders with a ~~more~~ granular approach to pricing for borrowers. All active U.S. mortgage insurers ~~have now released~~utilize proprietary risk-based pricing engines. We expect ~~more~~most new insurance written in the market to be priced using opaque pricing that will frequently provide a different price to lenders compared to prevailing rate cards. Given evolving market dynamics, we expect price competition to remain highly competitive. For more information on the potential impacts due to competition, see “Item 1A—Risk Factors—Competitors could negatively affect our ability to maintain or increase our market share and profitability” in our 2019 Annual Report on Form

10-K.

At the same time, we believe mortgage insurers, including us, consider many variables when pricing their new insurance written including the prevailing and future macroeconomic conditions. Given the recent disruption to economic activity, including a spike in first-time unemployment claims filed since

mid-March

2020 caused by

COVID-19,

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and the potential for lower economic activity and elevated unemployment to persist into the future, we expect pricing to increase across new mortgage insurance policies written in the immediate future.

New insurance written increased ~~39% during~~86% in the ~~second~~first quarter of 2020 compared to the first quarter of 2019 ~~compared to the second quarter of 2018~~ primarily due to higher mortgage refinancing originations and our higher estimated market share and a larger private mortgage insurance available market. Our largest customer accounted for a sizable percentage of our total new insurance written during the second quarter of 2019 and we expect this customer to exceed 10% of our total estimated new insurance written for 2019. No customer exceeded 10% of our new insurance written during 2018. Additionally, no customer had earned premiums that accounted for more than 10% of our U.S. mortgage insurance business total revenues in the second quarter of 2019 or the year ended December 31, 2018, and we estimate no customer will exceed 10% for the year ending December 31, 2019.share. The percentage of single premium new insurance written decreased during the ~~second~~first quarter of ~~2019~~2020 compared to the ~~second~~first quarter of ~~2018,~~2019, reflecting our selective participation in this market. Future volumes of these products will vary depending in part on our evaluation of their risk return ~~profile.~~profile and their concentration in the private mortgage insurance available market. We continue to manage the quality of new business through pricing and our underwriting guidelines, which we modify from time to time when circumstances warrant. ~~For more information~~

Net earned premiums increased in the first quarter of 2020 compared to the first quarter of 2019 primarily due to the growth in our

insurance-in-force

portfolio and an increase in premiums earned from single premium policy cancellations driven largely by higher mortgage refinancing, partially offset by lower average premium rates in the current year. As a result of

COVID-19,

certain state insurance regulators have issued orders or provided guidance to insurers requiring or requesting, as the case may be, the provision of grace periods of varying lengths to insureds in the event of

non-payment

of premium. Regulators differ greatly in their approaches but generally focus on the ~~potential impacts due~~avoidance of cancellation of coverage for

non-payment.

We currently comply with all state regulatory requirements and requests. If timely payment is not made, future premiums could decrease and the certificate of insurance could be subject to ~~customer concentration, see “Item 1A—Risk Factors—Our reliance on key customer~~cancellation after 60 days, or ~~distribution relationships could cause us to lose significant sales if one or more of those relationships terminate or are reduced” in our 2018 Annual Report on Form 10-K.~~such longer time as required under applicable law.

Our loss ratio was ~~zero~~8% for both the three months ended ~~June 30, 2019 compared to (8)% for the three months ended June 30, 2018.~~March 31, 2020 and 2019. The loss ratio ~~increased primarily~~was flat as higher losses from lower net benefits from cures and aging of existing delinquencies was offset by a decrease in new delinquencies, a lower ~~favorable~~average reserve ~~adjustment~~on new delinquencies and higher net earned premiums in the current year. We ~~recorded~~are monitoring both the delinquency reporting within the first quarter of 2020 and the uptake of available forbearance options with servicers as an early indicator of future new delinquencies. We are not aware of any reported

COVID-19

related delinquencies in the first quarter of 2020. In addition, we have not identified any deterioration in performance trends of our existing delinquencies within the first quarter of 2020 that would require the strengthening of existing reserves on our existing delinquencies. Consequently, we did not strengthen reserves on existing delinquencies in the first quarter of 2020. Based on the surveillance of early forbearance uptake with servicers, we do expect to see elevated levels of new delinquencies in the coming months given the rise in unemployment and the availability of forbearance options driven by

COVID-19.

The impact on new delinquencies may be more severe for geographies that have been disproportionately impacted by

COVID-19.

In addition, loss mitigation performance across servicers may vary materially based on the impact of

COVID-19

on their respective servicing portfolios. We are actively engaged with the FHFA and the GSEs to mitigate the potential impact of early delinquencies on our PMIERs capital sufficiency and to support loss mitigation efforts such as forbearance and loan modification to mitigate future claims.

While

COVID-19

is unique in that it is a ~~favorable reserve adjustment~~sudden, global economic disruption stemming from a health crisis, we have experience with the financial impacts of ~~$10 million~~sudden, unexpected economic events on our U.S. mortgage insurance business. Prior localized natural disasters, such as hurricanes, have helped inform our view of the severity and ~~$28 million during~~potential duration of the ~~three months ended June 30, 2019~~economic shock caused by the efforts to contain the spread of

COVID-19.

Similar to our hurricane experience, we expect borrowers who have experienced a financial hardship including, but not limited to, the loss of income due to the closing of a business or the loss of a job will take advantage of available forbearance programs. As a result, we expect to see elevated new delinquencies, but as in past natural disasters, those delinquencies may cure at a higher rate than traditional delinquencies should economic activity quickly return to

pre-COVID-19

levels. Severity of loss on loans that do go to claim, however, may be negatively impacted by the extended forbearance timeline, the associated elevated expenses such as accumulated interest and ~~2018, respectively. These adjustments were mostly associated with lower expected claim rates.~~home price depreciation, if any.

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As of ~~June 30, 2019 and~~ March 31, ~~2019,~~2020, GMICO’s

risk-to-capital

ratio under the current regulatory framework as established under North Carolina law and enforced by the North Carolina Department of Insurance (“NCDOI”), GMICO’s

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domestic insurance regulator, was approximately ~~12.1:~~12.4:1, ~~in each period,~~ compared with a

risk-to-capital

ratio of approximately 12.5:1 as of December 31, ~~2018.~~2019. This

risk-to-capital

ratio remains below the NCDOI’s maximum

risk-to-capital

ratio of 25:1. North Carolina’s calculation of

risk-to-capital

excludes the

risk-in-force

for delinquent loans given the established loss reserves against all delinquencies. As a result, we do not expect any immediate, material pressure to GMICO’s

risk-to-capital

ratio in the short term as a result of

COVID-19.

GMICO’s ongoing

risk-to-capital

ratio will depend principally on the magnitude of future losses incurred by GMICO, the effectiveness of ongoing loss mitigation activities, new business volume and profitability, the amount of policy lapses ~~changes in the value of affiliated assets~~ and the amount of additional capital that is generated ~~within~~or distributed by the business or capital support (if any) that we provide.

Under PMIERs, we are subject to operational and financial requirements that mortgage insurers must meet in order to remain eligible. Each approved mortgage insurer is required to provide the GSEs with an annual certification and a quarterly report as to its compliance with PMIERs. ~~The revised PMIERs was effective on~~As of March 31, ~~2019. As of June 30, 2019 and March 31, 2019,~~2020, our U.S. mortgage insurance business had available assets of approximately ~~123%~~142% of the required assets under PMIERs ~~in each period~~ compared to approximately ~~129% under the previous PMIERs requirements~~138% as of December 31, ~~2018.~~2019. The sufficiency ~~ratios~~ratio as of ~~June 30, 2019 and~~ March 31, ~~2019 were~~2020 was in excess of ~~$650 million and $600 million~~$1.1 billion of available assets above the PMIERs requirements, ~~respectively,~~ compared to ~~$750 million of available assets above the previous PMIERs requirements~~$1.0 billion as of December 31, ~~2018. This difference is primarily due~~2019. Pursuant to existing PMIERs requirements and industry application, our first quarter of 2020 PMIERs sufficiency ratio and excess available assets above PMIERs requirements both benefited from the application of a 0.30 multiplier applied to the ~~elimination~~risk-based required asset amount factor for each

non-performing

loan backed by a property located in a FEMA Declared Major Disaster Area that either (1) is subject to a forbearance plan executed in response to a FEMA Declared Major Disaster Area eligible for Individual Assistance, the terms of ~~any~~which are materially consistent with terms of forbearance plans offered by Freddie Mac or Fannie Mae, or (2) has an initial default date occurring up to either (i) 30 days prior to or (ii) 90 days following March 15, 2020. As of April 11, 2020, all fifty states and the District of Columbia have been declared FEMA Major Disaster Areas. The application of the 0.30 multiplier to all eligible delinquencies provided approximately three points and $54 million of benefit to our first quarter of 2020 PMIERs sufficiency ratio and excess available assets, respectively. We remain actively engaged with the FHFA and the GSEs on alternative solutions to mitigate the potential impact of early delinquencies on our PMIERs capital sufficiency. After giving effect to the reduced PMIERs risk-based required asset factors for

non-performing

loans, we expect our PMIERs sufficiency ratio to decrease as a result of incremental delinquencies directly or indirectly related to

COVID-19.

Given the expectation for a decrease in our PMIERs sufficiency ratio prospectively as a result of new delinquencies stemming from

COVID-19,

Effective January 1, 2020, our U.S. mortgage insurance business executed an excess of loss reinsurance transaction with a panel of reinsurers covering a portion of the loss tier on current and expected new insurance written for the 2020 book year. Combined with our other outstanding credit ~~for future premiums in PMIERs that had previously been allowed on~~risk transfer transactions including our insurance ~~policies written in 2008 or earlier. Reinsurance transactions~~linked note, our credit risk transfer program provided an aggregate of approximately ~~$470~~$825 million of PMIERs capital credit as of ~~June 30, 2019.~~March 31, 2020. Our U.S. mortgage insurance business may execute future risk transfer transactions to maintain a prudent level of financial flexibility in excess of the PMIERs capital requirements in response to potential changes in performance and PMIERs requirements over time. We believe that future credit risk transfer transactions may be more difficult to execute, if possible at all, and may have a higher cost in the immediate future following the

COVID-19

pandemic.

~~107~~

Table of Contents

Segment results of operations

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~June 30, 2018~~March 31, 2019

The following table sets forth the results of operations relating to our U.S. Mortgage Insurance segment for the periods indicated:

Three months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

  2019

  2018

2019 vs. 2018

Revenues:





Premiums $
206
$
184
$
22

12
%
Net investment income
28

23

5

22
%
Net investment gains (losses)
—

—

—

—
%
Policy fees and other income
1

1

—

—
%

Total revenues
235

208

27

13
%

Benefits and expenses:

Benefits and other changes in policy reserves
—

(14
)
14

100
%
Acquisition and operating expenses, net of deferrals
44

45

(1
)
(2
)%
Amortization of deferred acquisition costs and intangibles
4

3

1

33
%

Total benefits and expenses
48

34

14

41
%

Income before income taxes
187

174

13

7
%

Provision for income taxes
40

37

3

8
%

Net income
147

137

10

7
%

Adjustments to net income:

Net investment (gains) losses
—

—

—

—
%
Taxes on adjustments
—

—

—

—
%

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders $
147
$
137
$
10

7
%


	Three months ended March 31,				Increase (decrease) and percentage change
(Amounts in millions)	2020		2019		2020 vs. 2019
Revenues:
Premiums	$	226	$	194	$	32	16	%
Net investment income		33		28		5	18	%
Net investment gains (losses)		—		—		—	—	%
Policy fees and other income		2		1		1	100	%

Total revenues		261		223		38	17	%

Benefits and expenses:
Benefits and other changes in policy reserves		19		16		3	19	%
Acquisition and operating expenses, net of deferrals		50		46		4	9	%
Amortization of deferred acquisition costs and intangibles		4		4		—	—	%

Total benefits and expenses		73		66		7	11	%

Income from continuing operations before income taxes		188		157		31	20	%
Provision for income taxes		40		33		7	21	%

Income from continuing operations		148		124		24	19	%
Adjustments to income from continuing operations:
Net investment (gains) losses		—		—		—	—	%
Taxes on adjustments		—		—		—	—	%

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders	$	148	$	124	$	24	19	%

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders increased primarily attributable to higher insurance in-force and an increase in investment income in the current year. The current year also included an $8 million favorable reserve adjustment. Included in the prior year was a $22 million favorable reserve adjustment. These favorable reserve adjustments were mostly associated with lower expected claim rates.

~~Revenues~~

~~Premiums increased mainly attributable to higher insurance in-force in the current year.~~

~~Net investment income increased primarily from higher average invested assets and investment yields in the current year.~~

~~Benefits and expenses~~

Benefits and other changes in policy reserves were zero in the current year but increased compared to the prior year. Lower net benefits from cures and aging of existing delinquencies were offset by a $10 million

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~~Table of Contents~~

favorable reserve adjustment and a lower average reserve on new delinquencies in the current year. The prior year also included a $28 million favorable reserve adjustment. These favorable reserve adjustments were mostly associated with lower expected claim rates.

~~Provision for income taxes.~~

~~The effective tax rate was 21.3% and 21.2% for the three months ended June 30, 2019 and 2018, respectively, consistent with the U.S. corporate federal income tax rate.~~

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

~~The following table sets forth the results of operations relating to our U.S. Mortgage Insurance segment for the periods indicated:~~

Six months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

  2019

  2018

2019 vs. 2018

Revenues:





Premiums $
400
$
363
$
37

10
%
Net investment income
56

44

12

27
%
Net investment gains (losses)
—

—

—

—
%
Policy fees and other income
2

1

1

100
%

Total revenues
458

408

50

12
%

Benefits and expenses:

Benefits and other changes in policy reserves
16

2

14

NM
(1)

Acquisition and operating expenses, net of deferrals
90

84

6

7
%

Amortization of deferred acquisition costs and intangibles
8

7

1

14
%

Total benefits and expenses
114

93

21

23
%

Income before income taxes
344

315

29

9
%

Provision for income taxes
73

67

6

9
%

Net income
271

248

23

9
%

Adjustments to net income:

Net investment (gains) losses
—

—

—

—
%
Taxes on adjustments
—

—

—

—
%

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders $
271
$
248
$
23

9
%

~~(1)~~

~~We define “NM” as not meaningful for increases or decreases greater than 200%.~~

~~Adjusted operating income available to Genworth Financial, Inc.’s common stockholders~~

~~Adjusted operating income available to Genworth Financial, Inc.’s common stockholders increased mainly from higher insurance in-force~~premiums and an increase in investment income, partially offset by higher operating costs and losses in the current year. The current year also included an $8 million favorable reserve adjustment. Included in the prior year was a $22 million favorable reserve adjustment. These favorable reserve adjustments were mostly associated with lower expected claim rates.

Revenues

Premiums increased mainly attributable to higher insurance

in-force

and an increase in policy cancellations in our single premium mortgage insurance product driven largely by higher mortgage refinancing, partially offset by lower average premium rates in the current year.

~~109~~

~~Table of Contents~~

Net investment income increased primarily from higher average invested assets ~~and investment yields~~ in the current year.

Benefits and expenses

Benefits and other changes in policy reserves increased ~~primarily~~largely from a lower favorable reserve adjustment in the current year. We recorded a $10 million favorable reserve adjustment in the current year compared to a $28 million favorable reserve adjustment in the prior year. These adjustments were mostly associated with lower expected claim rates. The increase was also attributable to lower net benefits from cures and aging of existing delinquencies, partially offset by a decrease in new delinquencies and a lower average reserve on new delinquencies in the current year.

Table of Contents

Acquisition and operating expenses, net of deferrals, increased primarily attributable to higher operating costs driven mostly by increased sales in the current year.

Provision for income taxes.

The effective tax rate was 21.3% and 21.2% for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, consistent with the U.S. corporate federal income tax rate.

U.S. Mortgage Insurance selected operating performance measures

The following ~~tables set~~table sets forth selected operating performance measures regarding our U.S. Mortgage Insurance segment as of or for the dates indicated:

As of June 30,

Increase (decrease) and
percentage change

(Amounts in millions)

2019

2018

2019 vs. 2018

Primary insurance in-force
(1)
$
178,500
$
159,500
$
19,000

12
%
Risk in-force $
43,100
$
38,700
$
4,400

11
%


	As of or for the three months ended March 31,				Increase (decrease) and percentage change
(Amounts in millions)	2020		2019		2020 vs. 2019
Primary insurance in-force (1)	$	198,500	$	170,400	$	28,100	16	%
Risk in-force	$	47,900	$	41,300	$	6,600	16	%
New insurance written	$	17,900	$	9,600	$	8,300	86	%
Net premiums written	$	208	$	193	$	15	8	%

(1)

Primary insurance

in-force

represents the aggregate original loan balance for outstanding insurance policies and is used to determine premiums. Original loan balances are presented for policies with level renewal premiums. Amortized loan balances are presented for policies with annual, amortizing renewal premiums.

Three months ended
June 30,

Increase
(decrease) and
percentage
change

Six months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

2019

2018

2019 vs. 2018

2019

2018

2019 vs. 2018

New insurance written $
15,800
$
11,400
$
4,400

39
% $
25,400
$
20,400
$
5,000

25
%
Net premiums written $
204
$
191
$
13

7
% $
397
$
376
$
21

6
%

Primary insurance

in-force

and risk

in-force

Primary insurance

in-force

increased largely ~~from $19.2~~as a result of $28.3 billion in higher ~~mortgage~~flow insurance ~~written on prime-based, individually underwritten residential mortgage loans (“flow insurance”)~~

in-force,

which increased from ~~$158.2~~$169.3 billion as of ~~June 30, 2018~~March 31, 2019 to ~~$177.4~~$197.6 billion as of ~~June 30, 2019~~March 31, 2020 as a result of new insurance written, ~~and stable persistency,~~ partially offset by lapses ~~during~~in the current year. The increase in flow insurance

in-force

was partially offset by a decline of $0.2 billion in mortgage insurance on a bulk basis (“bulk insurance”)

in-force,

which decreased from ~~$1.3 billion as of June 30, 2018 to~~ $1.1 billion as of ~~June 30,~~March 31, 2019 to $0.9 billion as of March 31, 2020 from cancellations and lapses. In addition, risk

in-force

increased primarily as a result of higher flow new insurance ~~in-force.~~written. Flow persistency was ~~84%~~76% and ~~83%~~86% for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

New insurance written

~~For the three and six months ended June 30, 2019, new~~

New insurance written increased primarily due to higher mortgage refinancing originations and our higher estimated market share ~~and a larger private mortgage insurance available market~~ in the current year.

~~110~~

~~Table of Contents~~

Net premiums written

Net premiums written ~~for the three and six months ended June 30, 2019~~ increased primarily from higher average flow insurance

in-force

in the current year.

Loss and expense ratios

The following table sets forth the loss and expense ratios for our U.S. Mortgage Insurance segment for the dates indicated:

Three months ended
June 30,

Increase (decrease)

Six months ended
June 30,

Increase (decrease)

2019

2018

2019 vs. 2018

2019

2018

2019 vs. 2018

Loss ratio
—
%
(8
)%
8
%
4
%
—
%
4
%
Expense ratio (net earned premiums)
24
%
26
%
(2
)%
25
%
25
%
—
%
Expense ratio (net premiums written)
24
%
25
%
(1
)%
25
%
24
%
1
%


	Three months ended March 31,						Increase (decrease)
	2020			2019			2020 vs. 2019
Loss ratio		8	%		8	%		—	%
Expense ratio (net earned premiums)		24	%		25	%		(1	)%
Expense ratio (net premiums written)		26	%		26	%		—	%

Table of Contents

The loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. The expense ratio (net earned premiums) is the ratio of general expenses to net earned premiums. The expense ratio (net premiums written) is the ratio of general expenses to net premiums written. In our business, general expenses consist of acquisition and operating expenses, net of deferrals, and amortization of DAC and intangibles.

The loss ratio for the three and six months ended June 30, 2019 increased primarily from a lower favorable reserve adjustment in the current year. We recorded a $10 million favorable reserve adjustment in the current yearwas flat compared to a $28 million favorable reserve adjustment in the prior year. These adjustments were mostly associated with lower expected claim rates. The current year favorable reserve adjustment of $10 million reduced the loss ratio by five percentage points for the three months ended ~~June 30, 2019. The prior year favorable~~March 31, 2019 as higher losses from lower net benefits from cures and aging of existing delinquencies were offset by a decrease in new delinquencies, a lower average reserve ~~adjustment of $28 million reduced the loss ratio by 15 percentage points~~on new delinquencies and ~~eight percentage points for the three and six months ended June 30, 2018, respectively.~~

~~The expense ratio (net earned premiums) for the three months ended June 30, 2019 decreased mainly driven by~~ higher net earned premiums in the current year.

The expense ratio (net ~~premiums written)~~earned premiums) decreased slightly ~~for the three months ended June 30, 2019 largely due to~~mainly driven by higher net earned premiums, ~~written in the current year and increased slightly for the six months ended June 30, 2019 primarily due to higher operating costs, partially~~mostly offset by higher ~~net premiums written in the current year.~~operating costs.

~~111~~

~~Table of Contents~~

Delinquent loans

The following table sets forth the number of loans insured, the number of delinquent loans and the delinquency rate for our U.S. mortgage insurance portfolio as of the dates indicated:

June 30,
2019

December 31,
2018

June 30,
2018

Primary insurance:

Insured loans in-force
818,358

783,288

762,727

Delinquent loans
15,482

17,159

18,051

Percentage of delinquent loans (delinquency rate)
1.89
%
2.19
%
2.37
%

Flow loans in-force
806,739

770,657

748,497

Flow delinquent loans
15,070

16,670

17,505

Percentage of flow delinquent loans (delinquency rate)
1.87
%
2.16
%
2.34
%

Bulk loans in-force
11,619

12,631

14,230

Bulk delinquent loans
(1)

412

489

546

Percentage of bulk delinquent loans (delinquency rate)
3.55
%
3.87
%
3.84
%

A minus and sub-prime loans in-force
14,180

15,348

16,928

A minus and sub-prime delinquent loans
2,367

2,727

3,058

Percentage of A minus and sub-prime delinquent loans (delinquency rate)
16.69
%
17.77
%
18.06
%

Pool insurance:

Insured loans in-force
4,331

4,535

4,774

Delinquent loans
177

220

204

Percentage of delinquent loans (delinquency rate)
4.09
%
4.85
%
4.27
%


	March 31, 2020			December 31, 2019			March 31, 2019
Primary insurance:
Insured loans in-force		876,912			860,214			792,800
Delinquent loans		15,648			16,607			16,206

Percentage of delinquent loans (delinquency rate)		1.78	%		1.93	%		2.04	%
Flow loans in-force		866,562			849,472			780,733
Flow delinquent loans		15,246			16,209			15,764

Percentage of flow delinquent loans (delinquency rate)		1.76	%		1.91	%		2.02	%
Bulk loans in-force		10,350			10,742			12,067
Bulk delinquent loans (1)		402			398			442

Percentage of bulk delinquent loans (delinquency rate)		3.88	%		3.71	%		3.66	%
A minus and sub-prime loans in-force		12,243			12,792			14,712
A minus and sub-prime delinquent loans		2,077			2,283			2,530
Percentage of A minus and sub-prime delinquent loans (delinquency rate)		16.96	%		17.85	%		17.20	%

Pool insurance:
Insured loans in-force		4,071			4,122			4,470
Delinquent loans		132			167			187
Percentage of delinquent loans (delinquency rate)		3.24	%		4.05	%		4.18	%

(1)

Included loans where we were in a secondary loss position for which no reserve was established due to an existing deductible. Excluding these loans, bulk delinquent loans were ~~347~~345 as of ~~June 30, 2019, 403~~March 31, 2020, 348 as of December 31, ~~2018~~2019 and ~~445~~360 as of ~~June 30, 2018.~~March 31, 2019.

Delinquency ~~and foreclosure levels that developed principally in our 2005 through 2008 book years~~rates have declined as the residential real estate market in the United States ~~stabilized subsequent~~has continued to ~~those book years and strengthened~~strengthen during recent years. ~~In addition, we experienced lower foreclosure starts during 2018, which continued in 2019. However, our 2005 through 2008 book years continue to make up the majority~~

Table of ~~our existing delinquencies as well as new delinquencies, therefore, we may experience variability in our delinquency rates.~~Contents

The following tables set forth flow delinquencies, direct case reserves and risk

in-force

by aged missed payment status in our U.S. mortgage insurance portfolio as of the dates indicated:


	June 30, 2019									March 31, 2020
(Dollar amounts in millions)	Delinquencies		Direct case reserves (1)		Risk in-force		Reserves as % of risk in-force			Delinquencies		Direct case reserves (1)		Risk in-force		Reserves as % of risk in-force
Payments in default:
3 payments or less		7,629	$	26	$	341		8	%		7,572	$	24	$	351		7	%
4 - 11 payments		4,162		75		190		39	%		4,872		82		230		36	%
12 payments or more		3,279		121		167		72	%		2,802		95		142		67	%

Total		15,070	$	222	$	698		32	%		15,246	$	201	$	723		28	%


	December 31, 2019
(Dollar amounts in millions)	Delinquencies		Direct case reserves (1)		Risk in-force		Reserves as % of risk in-force
Payments in default:
3 payments or less		8,524	$	27	$	386		7	%
4 - 11 payments		4,836		78		224		35	%
12 payments or more		2,849		99		145		68	%

Total		16,209	$	204	$	755		27	%

(1)	Direct flow case reserves exclude loss adjustment expenses, incurred but not reported and reinsurance reserves.

~~112~~

~~Table of Contents~~

December 31, 2018

(Dollar amounts in millions)

Delinquencies

Direct case
reserves

(1)

Risk
in-force

Reserves as %
of risk in-force

Payments in default:

3 payments or less
8,360
$
31
$
365

8
%
4 - 11 payments
4,591

88

208

42
%
12 payments or more
3,719

142

188

76
%

Total
16,670
$
261
$
761

34
%

~~(1)~~

~~Direct flow case reserves exclude loss adjustment expenses, incurred but not reported and reinsurance reserves.~~

Primary insurance delinquency rates differ from region to region in the United States at any one time depending upon economic conditions and cyclical growth patterns. The tables below set forth our primary delinquency rates for the various regions of the United States and the 10 largest states by our risk

in-force

as of the dates indicated. Delinquency rates are shown by region based upon the location of the underlying property, rather than the location of the lender.

Percent of primary

Percent of total

Delinquency rate

risk in-force as of
June 30, 2019

reserves as of
June 30, 2019
(1)

June 30,
2019

December 31,
2018

June 30,
2018

By Region:

Southeast
(2)

18
%
21
%
2.18
%
2.63
%
3.15
%
Pacific
(3)

17

10

1.22
%
1.29
%
1.30
%
South Central
(4)

16

11

1.79
%
2.11
%
2.30
%
Northeast
(5)

12

28

2.87
%
3.43
%
3.74
%
North Central
(6)

11

9

1.79
%
1.98
%
1.96
%
Great Lakes
(7)

11

7

1.56
%
1.72
%
1.72
%
Mid-Atlantic
(8)

6

5

1.81
%
2.16
%
2.19
%
New England
(9)

5

6

1.95
%
2.23
%
2.27
%
Plains
(10)

4

3

1.67
%
1.87
%
1.88
%

Total
100
%
100
%
1.89
%
2.19
%
2.37
%


	Percent of primary risk in-force as of March 31, 2020			Percent of total reserves as of March 31, 2020 (1)			Delinquency rate
	Percent of primary risk in-force as of March 31, 2020			Percent of total reserves as of March 31, 2020 (1)			March 31, 2020			December 31, 2019			March 31, 2019
By Region:
Southeast (2)		19	%		20	%		2.00	%		2.15	%		2.39	%
Pacific (3)		18			12			1.29	%		1.36	%		1.29	%
South Central (4)		17			12			1.68	%		1.84	%		1.97	%
Northeast (5)		12			26			2.50	%		2.72	%		3.10	%
North Central (6)		10			10			1.82	%		1.91	%		1.90	%
Great Lakes (7)		10			7			1.53	%		1.69	%		1.62	%
Mid-Atlantic (8)		6			5			1.72	%		1.90	%		2.11	%
New England (9)		5			6			1.80	%		1.92	%		2.05	%
Plains (10)		3			2			1.50	%		1.69	%		1.82	%

Total		100	%		100	%		1.78	%		1.93	%		2.04	%

(1)	Total reserves were ~~$254~~$230 million as of ~~June 30, 2019.~~March 31, 2020.

(2)	Alabama, Arkansas, Florida, Georgia, Mississippi, North Carolina, South Carolina and Tennessee.

(3)	Alaska, California, Hawaii, Nevada, Oregon and Washington.

(4)	Arizona, Colorado, Louisiana, New Mexico, Oklahoma, Texas and Utah.

(5)	New Jersey, New York and Pennsylvania.

(6)	Illinois, Minnesota, Missouri and Wisconsin.

(7)	Indiana, Kentucky, Michigan and Ohio.

(8)	Delaware, Maryland, Virginia, Washington D.C. and West Virginia.

(9)	Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.

(10)	Idaho, Iowa, Kansas, Montana, Nebraska, North Dakota, South Dakota and Wyoming.

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Table of Contents

Percent of primary

Percent of total

Delinquency rate

risk in-force as of
June 30, 2019

reserves as of
June 30, 2019
(1)

June 30,
2019

December 31,
2018

June 30,
2018

By State:

California
10
%
5
%
1.26
%
1.28
%
1.21
%
Texas
7
%
5
%
1.86
%
2.29
%
2.77
%
Florida
6
%
12
%
2.26
%
2.91
%
4.57
%
Illinois
5
%
6
%
2.10
%
2.26
%
2.27
%
New York
5
%
16
%
3.12
%
3.64
%
3.99
%
Washington
5
%
2
%
0.90
%
1.04
%
1.05
%
Michigan
4
%
2
%
1.28
%
1.40
%
1.26
%
Pennsylvania
4
%
4
%
2.24
%
2.79
%
2.80
%
North Carolina
4
%
3
%
1.82
%
2.27
%
2.15
%
Ohio
3
%
3
%
1.69
%
1.97
%
1.98
%


	Percent of primary risk in-force as of March 31, 2020			Percent of total reserves as of March 31, 2020 (1)			Delinquency rate
	Percent of primary risk in-force as of March 31, 2020			Percent of total reserves as of March 31, 2020 (1)			March 31, 2020			December 31, 2019			March 31, 2019
By State:
California		11	%		7	%		1.33	%		1.42	%		1.27	%
Texas		7	%		5	%		1.83	%		2.02	%		2.03	%
Florida		6	%		10	%		1.97	%		2.13	%		2.61	%
New York		5	%		15	%		2.71	%		3.00	%		3.42	%
Illinois		5	%		6	%		2.15	%		2.27	%		2.23	%
Washington		4	%		2	%		1.09	%		1.10	%		1.05	%
Michigan		4	%		2	%		1.32	%		1.44	%		1.30	%
Pennsylvania		4	%		4	%		1.98	%		2.15	%		2.37	%
North Carolina		4	%		2	%		1.65	%		1.79	%		1.96	%
Ohio		3	%		3	%		1.62	%		1.84	%		1.82	%

(1)	Total reserves were ~~$254~~$230 million as of ~~June 30, 2019.~~March 31, 2020.

The following table sets forth the dispersion of our total reserves and primary insurance

in-force

and risk

in-force

by year of policy origination and average annual mortgage interest rate as of ~~June 30, 2019:~~

(Amounts in millions)

Average
rate

Percent of total
reserves
(1)

Primary
insurance
in-force

Percent
of total

Primary
risk
in-force

Percent
of total

Policy Year

2004 and prior
6.10
%
8.4
%
$
1,515

0.9
% $
285

0.7
%
2005 - 2008
5.47
%
58.2

17,576

9.8

4,037

9.4

2009 - 2012
4.29
%
2.2

3,934

2.2

913

2.1

2013
4.11
%
1.8

4,755

2.7

1,162

2.7

2014
4.45
%
4.4

8,277

4.6

2,013

4.7

2015
4.15
%
6.2

16,648

9.3

4,023

9.3

2016
3.89
%
7.5

30,515

17.1

7,348

17.0

2017
4.25
%
7.2

33,245

18.6

8,087

18.8

2018
4.77
%
3.9

36,887

20.7

9,025

20.9

2019
4.75
%
0.2

25,129

14.1

6,191

14.4

Total portfolio
4.53
%
100.0
% $
178,481

100.0
% $
43,084

100.0
%

~~(1)~~

~~Total reserves were $254 million as of June 30, 2019.~~

~~Canada Mortgage Insurance segment~~

As described above in “—Strategic Update,” in connection with the Eleventh Waiver and Agreement, to facilitate the China Oceanwide transaction, the parties concluded that exploring a potential disposition of our mortgage insurance business in Canada, Genworth Canada, is in the best interests of the parties.

~~Trends and conditions~~

Results of our mortgage insurance business in Canada are affected primarily by changes in the regulatory environment, employment levels, consumer borrowing behavior, lender mortgage-related strategies, including lender servicing practices, and other economic and housing market influences, including interest rate trends, home price appreciation or depreciation, mortgage origination volume, levels and aging of mortgage delinquencies and movements in foreign currency exchange rates. During the second quarter of 2019, the Canadian dollar weakened against the U.S. dollar compared to the second quarter of 2018, which negatively impacted the results of our mortgage insurance business in Canada as reported in U.S. dollars. Any future movement in foreign exchange rates could impact future results.

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~~Table of Contents~~

The Canadian GDP is expected to have experienced moderate growth in the second quarter of 2019 compared to the second quarter of 2018, reflecting increases in exports, strong business and residential investment and consumer consumption growth. The overnight interest rate in Canada remained flat at 1.75% in the second quarter of 2019. Canada’s unemployment rate declined to 5.5% at the end of the second quarter of 2019 compared to 5.8% at the end of the first quarter of 2019 driven by strong employment levels.

National home prices increased by 1% in the second quarter of 2019 compared to the second quarter of 2018 largely driven by increases in both Ontario and Quebec, partially offset by declines in British Columbia and Alberta. National home sales in Canada increased in the second quarter of 2019 by approximately 6% compared to the second quarter of 2018 led by strong home sales in Ontario and Quebec, partially offset by decreases in British Columbia.

In our mortgage insurance business in Canada, losses were flat in the second quarter of 2019 compared to the second quarter of 2018 primarily from lower new delinquencies, net of cures and modestly higher favorable development in our loss reserves, offset by a higher average reserve per delinquency, resulting from a higher proportion of outstanding delinquencies in Alberta, which carry a higher average reserve amount. Our loss ratio in Canada was 15% for the second quarter of 2019. We expect our full year 2019 loss ratio to be the same or modestly higher than our full year 2018 loss ratio of 15% as overall macroeconomic conditions are expected to remain stable.

In the second quarter of 2019, flow new insurance written volumes were up in our mortgage insurance business in Canada compared to the second quarter of 2018 primarily from a modestly larger flow mortgage originations market. Excluding the effects of foreign exchange, earned premiums remained flat during the second quarter of 2019 compared to the second quarter of 2018.

Bulk new insurance written levels were higher in the second quarter of 2019 compared to the second quarter of 2018 primarily due to increased customer demand, partially offset by a lower average premium rate. Insurance written from bulk mortgage insurance varies from period to period based on a number of factors, including the amount of bulk mortgages lenders seek to insure, the competitiveness of our pricing and our risk appetite for such mortgage insurance.

We are subject to regulation under the Protection of Residential Mortgage or Hypothecary Insurance Act (Canada) (“PRMHIA”) and the Insurance Companies Act (Canada), under which our mortgage insurance business in Canada is required to meet a minimum MICAT ratio to support its outstanding mortgage insurance in-force per the MICAT guideline released by the Office of the Superintendent of Financial Institutions (“OSFI”) on August 9, 2018. The MICAT guideline was effective January 1, 2019 and replaced the guideline titled “Minimum Capital Test for Federally Regulated Property and Casualty Insurance Companies” and the capital advisory titled “Capital Requirements for Federally Regulated Mortgage Insurers.” The OSFI supervisory MICAT target ratio and the minimum MICAT ratio under PRMHIA are 150%. The primary changes included a 5% increase of the total asset requirement, elimination of the requirement to use updated credit scores for 2015 and prior book years and a transitional arrangement that provides a phase-in period for the increased capital required for insurance risk on outstanding insured mortgages as of DecemberMarch 31, 2018. We expect the benefit from the transitional arrangement to run off in the current year. The MICAT guideline did not have a material impact on our regulatory solvency as reported at June 30, 2019 as the impact of the elimination of the one-time credit score update for 2015 and prior books more than offset the 5% increase in the total asset requirement on existing insurance in-force. In addition, we expect these new requirements to permit our mortgage insurance business in Canada to more closely align its actual capital levels with its targeted operating range and allow for meaningful levels of capital redeployment in addition to regular quarterly dividends. In the second quarter of 2019, Genworth Canada returned additional capital to shareholders via share repurchases of approximately CAD$68 million and a special dividend of CAD$0.40 per share or approximately CAD$34 million in aggregate. As of June 30, 2019, our MICAT ratio under the framework was approximately 169%, which was above the supervisory target.2020:

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On March 1, 2019, OSFI released a revised version of Guideline B-21 Residential Mortgage Insurance Underwriting Practices and Procedures (“B-21 Guideline”). The updates made to the B-21 Guideline are intended to align with Guideline B-20 Residential Mortgage Underwriting Practices and Procedures (“B-20 Guideline”), which sets out OSFI’s expectations for prudent residential mortgage underwriting by federally regulated financial institutions in the areas of income verification, property valuation, and fraud detection and prevention. Although the changes made to the B-21 Guideline are new for federally regulated mortgage insurers, we do not expect those changes to have a material impact given that federally regulated lenders have already been subject to the same rules since January 1, 2018 under the B-20 Guideline.

Canada’s 2019-20 federal budget released on March 19, 2019 includes a new program called the First-Time Home Buyers Incentive (“FTHBI”) intended to help with housing affordability. Under the program, for qualifying borrowers, the Canada Mortgage and Housing Corporation (“CMHC”) will contribute up to 10% of the value of a newly built home or 5% of the value of a resale in exchange for a corresponding equity stake in the home. The FTHBI program is expected to launch in September 2019 and will require borrowers to meet minimum insured mortgage down payment requirements to ensure they are invested in their purchase. The program is capped at CAD$1.25 billion over three years, and the incentive will be further limited to households with a maximum combined income of CAD$120,000, with total borrowing limited to four times the income level. The specific details of this program are still being finalized and details announced to date are subject to change. However, the Department of Finance has publicly stated that our mortgage insurance business in Canada will be eligible to participate in this program when launched. The business is participating in consultations with the Government of Canada and CMHC on this program and believes it is premature to determine the potential impact of this announcement and its ultimate impact on our mortgage insurance business in Canada.

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~~Table of Contents~~

~~Segment results of operations~~

~~Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018~~

~~The following table sets forth the results of operations relating to our Canada Mortgage Insurance segment for the periods indicated:~~

Three months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

    2019

    2018

2019 vs. 2018

Revenues:

Premiums $
125
$
131
$
(6
)
(5
)%
Net investment income
35

34

1

3
%
Net investment gains (losses)
1

(15
)
16

107
%

Total revenues
161

150

11

7
%

Benefits and expenses:

Benefits and other changes in policy reserves
19

19

—

—
%
Acquisition and operating expenses, net of deferrals
22

20

2

10
%
Amortization of deferred acquisition costs and intangibles
11

11

—

—
%
Interest expense
5

4

1

25
%

Total benefits and expenses
57

54

3

6
%

Income before income taxes
104

96

8

8
%
Provision for income taxes
29

24

5

21
%

Net income
75

72

3

4
%
Less: net income attributable to noncontrolling interests
35

32

3

9
%

Net income available to Genworth Financial, Inc.’s common stockholders
40

40

—

—
%
Adjustments to net income available to Genworth Financial, Inc.’s common stockholders:

Net investment (gains) losses, net
(2)

—

8

(8
)
(100
)%
(Gains) losses on early extinguishment of debt, net
(3)

1

—

1

NM
(1)

Taxes on adjustments
—

(2
)
2

100
%

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders $
41
$
46
$
(5
)
(11
)%

~~(1)~~

~~We define “NM” as not meaningful for increases or decreases greater than 200%.~~

~~(2)~~

For the three months ended June 30, 2019 and 2018, net investment (gains) losses were adjusted for the portion of net investment gains (losses) attributable to noncontrolling interests of $1 million and $(7) million, respectively.

~~(3)~~

~~For the three months ended June 30, 2019, (gains) losses on the early extinguishment of debt were adjusted for the portion attributable to noncontrolling interests of $1 million.~~


(Amounts in millions)	Average rate			Percent of total reserves (1)			Primary insurance in-force		Percent of total			Primary risk in-force		Percent of total
Policy Year
2004 and prior		6.14	%		7.2	%	$	1,290		0.6	%	$	242		0.5	%
2005 to 2008		5.47	%		48.2			14,870		7.5			3,400		7.1
2009 to 2013		4.22	%		4.0			6,246		3.1			1,465		3.1
2014		4.46	%		4.0			6,492		3.3			1,561		3.3
2015		4.16	%		5.9			13,408		6.8			3,227		6.7
2016		3.89	%		8.7			25,079		12.6			6,031		12.6
2017		4.25	%		9.6			27,335		13.8			6,616		13.8
2018		4.76	%		9.1			29,005		14.6			7,034		14.7
2019		4.26	%		3.3			56,918		28.7			13,912		29.1
2020		3.82	%		—			17,824		9.0			4,378		9.1

Total portfolio		4.40	%		100.0	%	$	198,467		100.0	%	$	47,866		100.0	%

~~Adjusted operating income available to Genworth Financial, Inc.’s common stockholders~~

~~Adjusted operating income available to Genworth Financial, Inc.’s common stockholders decreased primarily driven by higher taxes and changes in foreign exchange rates in the current year.~~

~~Revenues~~

~~Premiums decreased primarily from $6 million of changes attributable to foreign exchange rates in the current year.~~

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~~Table of Contents~~

We had net investment gains in the current year compared to net investment losses in the prior year. Net investment gains in the current year were primarily driven by net realized gains from the sale of investment securities and derivative gains, mostly offset by a decrease in the fair value of preferred equity securities. Net investment losses in the prior year were primarily driven by derivative losses largely from hedging non-functional currency transactions and from changes in the fair value of equity securities, partially offset by derivative gains on interest rate swaps.

~~Benefits and expenses~~

Benefits and other changes in policy reserves were flat as lower new delinquencies, net of cures, and modestly higher favorable development in our loss reserves were offset by a higher average reserve per delinquency, primarily attributable to increased losses in Alberta in the current year.

Acquisition and operating expenses, net of deferrals, increased mainly driven by a $2 million early redemption fee related to the repayment of CAD$100 million of the 5.68% senior notes originally scheduled to mature in June 2020.

~~Provision for income taxes.~~

The effective tax rate increased to 27.6% for the three months ended June 30, 2019 from 25.5% for the three months ended June 30, 2018. The increase in the effective tax rate was primarily driven by an increase in expenses related to foreign withholding tax, partially offset by higher

~~benefits in the current year from dividends received deduction.~~

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~~Table of Contents~~

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

~~The following table sets forth the results of operations relating to our Canada Mortgage Insurance segment for the periods indicated:~~

Six months ended
June 30,

Increase

(decrease) and

percentage

change

(Amounts in millions)

2019

2018

2019 vs. 2018

Revenues:

Premiums $
251
$
270
$
(19
)
(7
)%
Net investment income
69

68

1

1
%

Net investment gains (losses)
—

(30
)
30

100
%

Total revenues
320

308

12

4
%

Benefits and expenses:

Benefits and other changes in policy reserves
38

37

1

3
%

Acquisition and operating expenses, net of deferrals
42

37

5

14
%
Amortization of deferred acquisition costs and intangibles
21

21

—

—
%
Interest expense
9

9

—

—
%

Total benefits and expenses
110

104

6

6
%

Income before income taxes
210

204

6

3
%

Provision for income taxes
58

54

4

7
%

Net income
152

150

2

1
%

Less: net income attributable to noncontrolling interests
71

68

3

4
%

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

81

82

(1
)
(1
)%
Adjustments to net income available to Genworth Financial, Inc.’s
common stockholders:

Net investment (gains) losses, net
(2)

—

17

(17
)
(100
)%
(Gains) losses on early extinguishment of debt, net
(3)

1

—

1

NM
(1)
Taxes on adjustments
—

(4
)
4

100
%

Adjusted operating income available to Genworth Financial, Inc.’s
common stockholders
$
82
$
95
$
(13
)
(14
)%

(1)	~~We define “NM”~~Total reserves were $230 million as ~~not meaningful for increases or decreases greater than 200%.~~of March 31, 2020.

~~(2)~~

~~For the six months ended June 30, 2018, net investment (gains) losses were adjusted for the portion of net investment gains (losses) attributable to noncontrolling interests of $(13) million.~~

~~(3)~~

~~For the six months ended June 30, 2019, (gains) losses on the early extinguishment of debt were adjusted for the portion attributable to noncontrolling interests of $1 million.~~

~~Adjusted operating income available to Genworth Financial, Inc.’s common stockholders~~

~~Adjusted operating income available to Genworth Financial, Inc.’s common stockholders decreased primarily driven by lower earned premiums largely from~~

~~changes in foreign exchange rates in the current year, refinements in premium recognition factors in the prior year that did not recur and from the seasoning of our smaller, more recent~~

~~in-force~~

~~books of business. The decrease was also attributable to higher operating costs in the current year.~~

~~Revenues~~

Premiums decreased primarily from $13 million of changes attributable to foreign exchange rates in the current year, refinements in premium recognition factors in the prior year that did not recur and from the seasoning of our smaller, more recent in-force books of business.

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~~Table of Contents~~

~~Net investment gains (losses) were zero in the current year as derivative gains from hedging~~

~~non-functional~~

currency transactions and net realized gains from the sale of investment securities were offset by derivative losses on interest rate swaps and losses from changes in the fair value of preferred equity securities. Net investment losses in the prior year were primarily driven by derivative losses largely from hedging

~~non-functional~~

~~currency transactions and from changes in the fair value of equity securities, partially offset by derivative gains on interest rate swaps.~~

~~Benefits and expenses~~

Benefits and other changes in policy reserves increased slightly principally from a higher average reserve per delinquency, primarily attributable to increased losses in Alberta, mostly offset by lower new delinquencies, net of cures in the current year.

Acquisition and operating expenses, net of deferrals, increased mainly from higher operating costs and from a $2 million early redemption fee related to the repayment of CAD$100 million of the 5.68% senior notes originally scheduled to mature in June 2020.

~~Provision for income taxes.~~

The effective tax rate increased to 27.6% for the six months ended June 30, 2019 from 26.5% for the six months ended June 30, 2018. The increase in the effective tax rate was primarily driven by an increase in expenses related to foreign withholding tax, partially offset by higher benefits in the current year from dividends received deduction.

~~Canada Mortgage Insurance selected operating performance measures~~

~~The following tables set forth selected operating performance measures regarding our Canada Mortgage Insurance segment as of or for the dates indicated:~~

As of June 30,

Increase
(decrease) and
percentage change

(Amounts in millions)

2019

2018

2019 vs. 2018

Primary insurance in-force $
395,700
$
380,200
$
15,500

4
%
Risk in-force $
138,500
$
133,100
$
5,400

4
%

Three months ended
June 30,

Increase
(decrease) and
percentage
change

Six months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

    2019

    2018

2019 vs. 2018

2019

2018

  2019 vs. 2018

New insurance written $
5,800
$
4,600
$
1,200

26
% $
8,700
$
8,000
$
700

        9
%
Net premiums written $
145
$
133
$
12

9
% $
224
$
225
$
(1
)
—
%

~~Primary insurance in-force and risk in-force~~

Our mortgage insurance business in Canada currently provides 100% coverage on the majority of the loans we insure in that market. For the purpose of representing our risk in-force, we have computed an “effective” risk in-force amount, which recognizes that the loss on any particular loan will be reduced by the net proceeds received upon sale of the property. Effective risk in-force has been calculated by applying to insurance in-force a factor that represents our highest expected average per-claim payment for any one underwriting year over the life of our business in Canada. For the three and six months ended June 30, 2019 and 2018, this factor was 35%.

Primary insurance in-force and risk in-force increased primarily as a result of new flow and bulk insurance written as well as changes in foreign exchange rates. Insurance in-force and risk in-force included increases of $2.2 billion and $0.8 billion, respectively, attributable to changes in foreign exchange rates.

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~~Table of Contents~~

~~New insurance written~~

New insurance written for the three and six months ended June 30, 2019 increased primarily from higher bulk insurance written largely due to increased customer demand and from higher flow mortgage insurance written, largely attributable to a modestly larger flow mortgage originations market. The three and six months ended June 30, 2019 included decreases of $300 million and $400 million, respectively, attributable to changes in foreign exchange rates.

~~Net premiums written~~

Our mortgage insurance policies in Canada provide for single premiums at the time that loan proceeds are advanced. We initially record the single premiums to unearned premium reserves and recognize the premiums earned over time in accordance with the expected pattern of risk emergence. Our unearned premium reserves were $1.6 billion and $1.5 billion as of June 30, 2019 and December 31, 2018, respectively.

Excluding the effect of changes in foreign exchange rates, net premiums written increased for the three and six months ended June 30, 2019 primarily from higher flow and bulk new insurance written. The three and six months ended June 30, 2019 included decreases of $6 million and $11 million, respectively, attributable to changes in foreign exchange rates.

~~Loss and expense ratios~~

~~The following table sets forth the loss and expense ratios for our Canada Mortgage Insurance segment for the periods indicated:~~

Three months ended
June 30,

Increase (decrease)

Six months ended
June 30,

Increase (decrease)

2019

2018

2019 vs. 2018

2019

2018

2019 vs. 2018

Loss ratio
15
%
15
%
—
%
15
%
14
%
1
%
Expense ratio (net earned premiums)
26
%
23
%
3
%

25
%
21
%
4
%
Expense ratio (net premiums written)
22
%
23
%
(1
)%
28
%
26
%
2
%

The loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. The expense ratio (net earned premiums) is the ratio of general expenses to net earned premiums. The expense ratio (net premiums written) is the ratio of general expenses to net premiums written. In our mortgage insurance business in Canada, general expenses consist of acquisition and operating expenses, net of deferrals, and amortization of DAC and intangibles.

The loss ratio was flat for the three months ended June 30, 2019 as lower new delinquencies, net of cures, and modestly higher favorable development in our loss reserves were offset by a higher average reserve per delinquency. The loss ratio increased slightly for the six months ended June 30, 2019 primarily from a higher average reserve per delinquency, mostly offset by lower new delinquencies, net of cures in the current year.

The expense ratio (net earned premiums) increased for the three months ended June 30, 2019 primarily from higher operating expenses largely from a $2 million early redemption fee related to the repayment of CAD$100 million of the 5.68% senior notes originally scheduled to mature in June 2020. The expense ratio (net earned premiums) increased for the six months ended June 30, 2019 primarily from lower earned premiums and higher operating costs, including the early redemption fee as discussed above.

The expense ratio (net premiums written) decreased slightly for the three months ended June 30, 2019 largely from higher net premiums written in the current year. The expense ratio (net premiums written) increased for the six months ended June 30, 2019 primarily from higher operating expenses, including the early redemption fee, as discussed above, partially offset by higher net premiums written in the current year.

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~~Table of Contents~~

~~Delinquent loans~~

~~The following table sets forth the number of loans insured, the number of delinquent loans and the delinquency rate for our Canada mortgage insurance portfolio as of the dates indicated:~~

June 30, 2019

December 31, 2018

June 30, 2018

Primary insured loans in-force
(1)

2,174,084

2,143,191

2,137,221

Delinquent loans
1,701

1,684

1,742

Percentage of delinquent loans (delinquency rate)
(1)

0.08
%
0.08
%
0.08
%
Flow loans in-force
1,523,128

1,499,304

1,470,826

Flow delinquent loans
1,340

1,310

1,406

Percentage of flow delinquent loans (delinquency rate)
0.09
%
0.09
%
0.10
%
Bulk loans in-force
650,956

643,887

666,395

Bulk delinquent loans
361

374

336

Percentage of bulk delinquent loans (delinquency rate)
0.06
%
0.06
%
0.05
%

~~(1)~~

As part of an ongoing effort to improve the estimate of outstanding insurance exposure, we are receiving updated outstanding loans in-force in Canada from almost all of our customers. As a result, we estimate that the outstanding loans in-force were 901,000 as of June 30, 2019, 910, 000 as of December 31, 2018 and 935,000 as of June 30, 2018. This is based on the extrapolation of the amounts reported by lenders to the entire insured population. The corresponding insured delinquency rate was 0.19% as of June 30, 2019, 0.18% as of December 31, 2018 and 0.19% as of June 30, 2018.

Flow mortgage loans in-force increased from new policies written. The number of delinquent loans of our flow mortgage insurance increased compared to the fourth quarter of 2018 primarily driven by seasonally higher new delinquencies.

Primary insurance delinquency rates differ by the various provinces and territories of Canada at any one time depending upon economic conditions and cyclical growth patterns. The table below sets forth our primary delinquency rates for the various provinces and territories of Canada by our risk in-force as of the dates indicated. Delinquency rates are shown by region based upon the location of the underlying property, rather than the location of the lender.

Percent of primary
risk in-force as of
June 30, 2019

Delinquency rate

June 30,

December 31,

June 30,

2019

2018

2018

By province and territory:

Ontario
47
%
0.03
%
0.03
%
0.03
%
Alberta
17

0.21
%
0.18
%
0.17
%
British Columbia
14

0.04
%
0.04
%
0.04
%
Quebec
13

0.07
%
0.10
%
0.10
%
Saskatchewan
3

0.27
%
0.28
%
0.28
%
Nova Scotia
2

0.13
%
0.13
%
0.15
%
Manitoba
2

0.09
%
0.10
%
0.10
%
New Brunswick
1

0.08
%
0.10
%
0.15
%
All other
1

0.20
%
0.19
%
0.20
%

Total
100
%
0.08
%
0.08
%
0.08
%

Delinquency rates were flat compared to December 31, 2018 and June 30, 2018 reflecting regional housing market improvement primarily driven by stable macroeconomic conditions in most regions, offset by higher losses in Alberta.

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Australia Mortgage Insurance segment

Trends and conditions

Results of our mortgage insurance business in Australia are affected primarily by changes in regulatory environments, employment levels, consumer borrowing behavior, lender mortgage-related strategies, including lender servicing practices, and other economic and housing market influences, including interest rate trends, home price appreciation or depreciation, mortgage origination volume, levels and aging of mortgage delinquencies and movements in foreign currency exchange rates. During the ~~second~~first quarter of ~~2019,~~2020, the Australian dollar weakened against the U.S. dollar compared to the ~~second~~first quarter of ~~2018,~~2019, which negatively impacted the results of our mortgage insurance business in Australia as reported in U.S. dollars. Any future movement in foreign exchange rates could impact future results.

COVID-19

non-essential

businesses. This has resulted in major disruptions to economic

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activity across the country. The Australian ~~GDP is~~Government has taken steps to support jobs, incomes and businesses by providing multiple economic stimulus packages, including wage subsidies, income support to households and cash flow support to businesses. In addition, many of our lender customers have announced initiatives that allow affected homeowners the option to defer their repayments for a period of up to six months. Homeowners that participate in such lender hardship programs will not be reported as delinquent during this time. In response, our mortgage insurance business in Australia expanded its COVID-19 hardship policy to enable lenders to further support borrowers impacted by the pandemic. While the government programs and lender initiatives are expected to lessen the effect of COVID-19 on the loss experience in the business, the ultimate impact will depend on the length of COVID-19 and the speed of the economic recovery. We continue to actively consider the potential economic impacts and work closely with our lender customers to support borrowers who have been impacted by

COVID-19

In addition to

COVID-19,

certain areas of Australia have been impacted by bushfires that occurred in late 2019 and continued into the first quarter of 2020. At this time, we do not believe there will be a significant impact to the business, and we expect our exposure to be limited to any economic downturn that may occur in the impacted regions.

As of the February 2020 release of its Statement on Monetary Policy, the Reserve Bank of Australia (“RBA”) expected the Australian gross domestic product (“GDP”) to have experienced moderate growth in the second quarter of 2019, supported by growth in public demand, sustained expansion of non-mining business investment and an ongoing rise in resource exports. The cash rate was reduced to 1.00% on July 2, 2019, down from 1.25% at the end of the second quarter of 2019 and 1.50% at the end of the first quarter of ~~2019.~~2020, supported by strengthened housing activity and export growth. However, the impact of

COVID-19

is expected to lead to uncertainty and material contractions over the first half of 2020. The ~~June 2019 unemployment rate increased to 5.2% from 5.0% at the end~~future growth of the ~~first quarter~~Australian GDP will depend on the time it takes to bring the virus under control and the government’s economic responses, in addition to how countries around the world progress and support economic activity. As part of ~~2019.~~

Ina comprehensive package to support the ~~second quarter~~Australian economy during this period of ~~2019, Australia home prices continued their year over year downward trend, which began~~uncertainty, the RBA reduced its official cash rate in the first quarter of ~~2018 after~~2020 to 0.25%, down from 0.75% as of the end of 2019. According to RBA’s governor, the cash rate could potentially remain at this level for three years as RBA’s Board will not increase the cash rate target until progress is made toward full employment and it is confident that inflation will remain within a ~~period~~target range of ~~robust~~two to three percent. The March 2020 unemployment rate increased slightly to 5.2% from 5.1% at the end of 2019. However, the unemployment rate is expected to rise sharply in the coming months as a result of the shut-down of major industries across the country.

March 2020 home ~~price appreciation. June 2019 home values~~prices in the combined capital cities of Australia were approximately 8% ~~lower compared to June 2018, with declines experienced across~~higher than the prior year, as housing values in the majority of the capital ~~cities.~~cities continued to rise during the first quarter of 2020. The ~~main drivers were the~~ Sydney and Melbourne housing markets were the main drivers of growth, with annual ~~decreases~~home price increases of ~~approximately 10%~~13% and 9%12%, respectively. Although Australia’s housing values continued to climb during the first quarter of 2020, the second half of March 2020 experienced a decline in growth as social distancing policies took effect and confidence weakened. This reversal in trend could persist as the economic impact of

COVID-19

continues to unfold.

Our mortgage insurance business in Australia completed a review of its premium earnings pattern in the fourth quarter of ~~2018,~~2019, which resulted in no changes to the earnings pattern adopted in the fourth quarter of 2017. The adjustment to our premium earnings pattern in the fourth quarter of 2017 was applied on a retrospective basis under U.S. GAAP, however, under local Australian Accounting Standards (“AAS”) this adjustment was applied on a prospective basis. Due to this divergence in accounting application, the financial results and certain metrics, such as the loss ratio and expense ratios, for our mortgage insurance business in Australia were different between the two accounting standards through the first quarter of 2020. These differences will continue in future periods but will become less significant as time passes.

Given the range of possible future adverse economic scenarios resulting from COVID-19, our mortgage insurance business in Australia assessed the adequacy of its unearned premium liability under local AAS as part of its first quarter of 2020 results. The liability adequacy test under AAS resulted in a deficiency, mostly driven by higher expected future claims. Accordingly, our Australia mortgage insurance business wrote off

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AUD$182 million of its DAC balance as part of its first quarter of 2020 results. There was no deficiency adjustment under U.S. GAAP primarily due to a higher unearned premium reserve and a lower DAC balance. This further contributed to differences in results for our Australia mortgage insurance business under the two accounting standards in the first ~~half~~quarter of ~~2019 and will be different in future periods.~~2020.

Our mortgage insurance business in Australia had lower losses in the ~~second~~first quarter of 2020 compared to the first quarter of 2019 ~~compared to the second quarter~~primarily from favorable aging of 2018 attributable to changes in foreign exchange rates. Excluding foreign exchange, losses were flat as higher reserves on new delinquencies were offset by higher reserve releases for cures in the current year.existing delinquencies. The loss ratio in Australia for the three months ended ~~June 30, 2019~~March 31, 2020 was 34%. ~~We still expect the full year 2019 loss ratio in Australia to be similar to the full year 2018 loss ratio of 30%, as higher delinquencies and lower cures traditionally experienced~~While we did not experience increased claims in the first ~~half of the year are expected to moderate in the second half of 2019.~~

~~In the second~~ quarter of ~~2019,~~2020 due to COVID-19, our mortgage insurance business in Australia ~~experienced an~~anticipates future claims to increase intoward the end of 2020, which could negatively impact losses.

In the first quarter of 2020, new insurance written ~~volumes~~increased compared to the ~~second~~first quarter of ~~2018~~2019 primarily due to higher mortgage origination volume from a ~~higher level of bulk insurance transactions and higher flow volumes from certain~~ key ~~customers~~customer in the current year.

~~Gross~~ We also had higher gross written premiums ~~were higher~~ in the ~~second~~first quarter of ~~2019~~2020 compared to the ~~second~~first quarter of ~~2018~~2019 largely as a result of higher flow ~~and bulk~~new insurance written. Despite the growth trend in the first quarter of 2020, new insurance written ~~from increased customer activity~~volumes could potentially decrease in the ~~current year as housing markets stabilize. Earned~~coming months due to economic impacts from

COVID-19.

Net earned premiums were lower in the ~~second~~first quarter of 2020 compared to the first quarter of 2019 ~~compared to the second quarter of 2018~~ primarily from ~~higher~~portfolio seasoning and lower policy cancellations in the prior year mostly from an initiative implemented in the second quarter of 2018 to more promptly identify loans that were discharged or refinanced and from the seasoning of our smaller, more recent in-force books of business.cancellations.

Our mortgage insurance business in Australia is concentrated in a small number of key customers. In ~~November 2016,~~October 2019, we ~~entered into a new~~renewed our supply and service contract with our largest customer, effective January 1, ~~2017, with~~2020, for a term of three years. In November 2018, we entered into a new contract with our second largest customer, effective

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November 21, 2018, with a term of two years and the option to extend for an additional year at the customer’s discretion. ~~In June 2018, we entered into a new contract with our third largest customer, effective July 1, 2018, with a term of three years.~~ These ~~three~~two customers ~~together~~ represented ~~71%~~56% and 10%, respectively, of our gross written premiums in the first ~~half~~quarter of ~~2019. On July 25, 2019, S&P downgraded the financial strength rating of Genworth Australia’s primary mortgage insurance subsidiary. Although the~~2020. Any termination, reduction or material change in ~~S&P’s rating has no immediate impact~~relationship with one of them could have a material adverse effect on our future results because of our reliance on these key customers for the ~~contractual arrangements between~~ majority of our business. One consideration is that some of our customer contracts contain provisions that allow the customer the option to terminate their contract, on a prospective basis for new business, within a specified period following a ratings downgrade. Given the potential economic impacts of

COVID-19,

our mortgage insurance business in Australia ~~and~~could be subject to a ratings downgrade in the future. If that occurs, the business will work with its customers one key customer contract contains a provision that was triggered as a result of the ratings change, allowing that customer the option to terminate the contract. However, under this provision, our Australia mortgage insurance subsidiary has 30 days to demonstrate its credit strength and ~~ensure that the potential~~endeavor to avoid termination ~~right under this provision is not exercised. For additional details see “—Financial Strength Ratings.”~~of any existing contracts.

Our mortgage insurance business in Australia evaluates its capital position in relation to the ~~Prescribed Capital Amount (“PCA”)~~PCA as determined by ~~the Australian Prudential Regulation Authority (“APRA”)~~APRA and utilizes its Internal Capital Adequacy Assessment Process as the framework to ensure that our Australia group of companies as a whole, and each regulated entity, are independently capitalized to meet regulatory requirements. As of ~~June 30, 2019, the~~March 31, 2020, our estimated PCA ratio was approximately 178%, representing a decrease from 191% as of December 31, 2019 largely from a DAC write-off of AUD$182 million recorded in connection with the completion of liability adequacy testing as part of first quarter of 2020 results. Given the economic uncertainty surrounding COVID-19, APRA has provided guidance to insurers asking them to limit discretionary capital distributions, including dividends, until the impact of COVID-19 is better understood to ensure that they have sufficient capital capacity to continue essential functions such as underwriting new insurance.

In September 2019, the Australian Government released details of the First Home Loan Deposit Scheme (“FHLDS”), which is designed to assist eligible first-time home buyers by providing a government guarantee to participating lenders on eligible loans equal to the difference between the deposit (of at least 5%) and 20% of the purchase price. Borrower income and regional property value caps apply, and the program is intended to support up to 10,000 eligible first-time home buyers each Australian Government fiscal year, which is July 1 through June 30. If the loan comes to an end or the loan principal balance reduces to below 80% of the value of the property at purchase, the government guarantee will terminate. The FHLDS became effective on January 1, 2020. At this time, it is too early to determine what impact, if any, this program will have on our mortgage insurance business in ~~Australia was approximately 208%, representing an increase from 201% as~~Australia.

Table of ~~March 31, 2019, largely resulting from portfolio seasoning and policy cancellations, partially offset by share repurchase activity.~~Contents

Segment results of operations

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~June 30, 2018~~March 31, 2019

The following table sets forth the results of operations relating to our Australia Mortgage Insurance segment for the periods indicated:


	Three months ended June 30,						Increase (decrease) and percentage change					Three months ended March 31,						Increase (decrease) and percentage change
(Amounts in millions)	2019			2018			2019 vs. 2018					2020			2019			2020 vs. 2019
Revenues:
Premiums	$	80		$	106		$	(26	)	(25	)%	$	69		$	83		$	(14	)	(17	)%
Net investment income		15			18			(3	)	(17	)%		10			16			(6	)	(38	)%
Net investment gains (losses)		1			12			(11	)	(92	)%		(53	)		12			(65	)	NM	(1)
Policy fees and other income													1			(1	)		2		200	%

Total revenues		96			136			(40	)	(29	)%		27			110			(83	)	(75	)%

Benefits and expenses:
Benefits and other changes in policy reserves		26			29			(3	)	(10	)%		24			28			(4	)	(14	)%
Acquisition and operating expenses, net of deferrals		17			17			—		—	%		17			17			—		—	%
Amortization of deferred acquisition costs and intangibles		9			12			(3	)	(25	)%		8			9			(1	)	(11	)%
Interest expense		2			2			—		—	%		1			2			(1	)	(50	)%

Total benefits and expenses		54			60			(6	)	(10	)%		50			56			(6	)	(11	)%

Income before income taxes		42			76			(34	)	(45	)%
Provision for income taxes		13			23			(10	)	(43	)%
Income (loss) from continuing operations before income taxes													(23	)		54			(77	)	(143	)%
Provision (benefit) for income taxes													(7	)		16			(23	)	(144	)%

Net income		29			53			(24	)	(45	)%
Less: net income attributable to noncontrolling interests		15			27			(12	)	(44	)%
Income (loss) from continuing operations													(16	)		38			(54	)	(142	)%
Less: net income (loss) from continuing operations attributable to noncontrolling interests													(6	)		20			(26	)	(130	)%

Net income available to Genworth Financial, Inc.’s common stockholders		14			26			(12	)	(46	)%
Adjustments to net income available to Genworth Financial, Inc.’s common stockholders:
Net investment (gains) losses, net (1)		(1	)		(6	)		5		83	%
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders													(10	)		18			(28	)	(156	)%
Adjustments to income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders:
Net investment (gains) losses, net (2)													27			(6	)		33		NM	(1)
Taxes on adjustments		—			2			(2	)	(100	)%		(8	)		2			(10	)	NM	(1)

Adjusted operating income available to Genworth Financial, Inc.’scommon stockholders	$	13		$	22		$	(9	)	(41	)%	$	9		$	14		$	(5	)	(36	)%

(1)	We define “NM” as not meaningful for increases or decreases greater than 200%.

(2)	For the three months ended ~~June 30, 2018,~~March 31, 2020 and 2019, net investment (gains) losses were adjusted for the portion of net investment gains (losses) attributable to noncontrolling interests of $(26) million and $6 ~~million.~~million, respectively.

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Adjusted operating income available to Genworth Financial, Inc.’s common stockholders

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders decreased primarily related to lower premiums largely from higher policy cancellations in the prior year mostly due to an initiative implemented in the second quarter of 2018 to more promptly identify loans that were discharged or refinanced and from the seasoning of our smaller, more recent in-force books of business. The decrease was partially offset by lower contract fees amortization in the current year.

~~Revenues~~

Premiums decreased predominantly from higher policy cancellations in the prior year mostly due to an initiative implemented in the second quarter of 2018 to more promptly identify loans that were discharged or refinanced and from the seasoning of our smaller, more recent in-force books of business. The three months ended June 30, 2019 included a decrease of $7 million attributable to changes in foreign exchange rates.

~~Net investment income decreased largely from changes in foreign exchange rates, lower average invested assets and from lower investment yields in the current year.~~

~~Net investment gains decreased primarily from lower net realized gains from the sale of investment securities and from derivative losses in the current year.~~

~~Benefits and expenses~~

Benefits and other changes in policy reserves decreased largely from changes in foreign exchange rates in the current year. Excluding the effects of changes in foreign exchange rates, benefits and other changes in policy reserves were flat as higher reserves on new delinquencies were offset by higher reserve releases for cures in the current year.

~~Amortization of DAC and intangibles decreased primarily from lower contract fees amortization and from changes in foreign exchange rates in the current year.~~

~~Provision for income taxes.~~

~~The effective tax rate was 30.0% for both the three months ended June 30, 2019 and 2018, consistent with our jurisdictional rate.~~

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~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

~~The following table sets forth the results of operations relating to our Australia Mortgage Insurance segment for the periods indicated:~~

Six months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

    2019

    2018

    2019 vs. 2018

Revenues:

Premiums $
163
$
204
$
(41
)
(20
)%
Net investment income
31

35

(4
)
(11
)%
Net investment gains (losses)
13

3

10

NM
(1)
Policy fees and other income
(1
)
1

(2
)
(200
)%

Total revenues
206

243

(37
)
(15
)%

Benefits and expenses:

Benefits and other changes in policy reserves
54

59

(5
)
(8
)%
Acquisition and operating expenses, net of deferrals
34

34

—

—
%
Amortization of deferred acquisition costs and intangibles
18

23

(5
)
(22
)%
Interest expense
4

4

—

—
%

Total benefits and expenses
110

120

(10
)
(8
)%

Income before income taxes
96

123

(27
)
(22
)%
Provision for income taxes
29

37

(8
)
(22
)%

Net income
67

86

(19
)
(22
)%
Less: net income attributable to noncontrolling interests
35

44

(9
)
(20
)%

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

32

42

(10
)
(24
)%
Adjustments to net income available to GenworthFinancial, Inc.’s common stockholders:

Net investment (gains) losses, net
(2)

(7
)
(2
)
(5
)
NM
(1)

Taxes on adjustments
2

1

1

100
%

Adjusted operating income available to Genworth Financial, Inc.’s common
stockholders
$
27
$
41
$
(14
)
(34
)%

~~(1)~~

~~We define “NM” as not meaningful for increases or decreases greater than 200%.~~

~~(2)~~

For the six months ended June 30, 2019 and 2018, net investment (gains) losses were adjusted for the portion of net investment gains (losses) attributable to noncontrolling interests of $6 million and $1 million, respectively.

~~Adjusted operating income available to Genworth Financial, Inc.’s common stockholders~~

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders decreased primarily driven by lower earned premiums largely from portfolio seasoning and lower policy cancellations, partially offset by lower losses primarily from favorable aging of existing delinquencies in the current year.

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Revenues

Premiums decreased predominantly from portfolio seasoning ~~of our smaller, more recent in-force books of business~~ and ~~from higher~~lower policy cancellations in the ~~prior~~current year. The ~~decrease was partially offset by lower contract fees amortization in the current year.~~

~~Revenues~~

~~Premiums decreased predominantly from the seasoning of our smaller, more recent in-force books of business and from higher policy cancellations in prior year. The six~~three months ended ~~June 30, 2019~~March 31, 2020 included a decrease of ~~$15~~$4 million attributable to changes in foreign exchange rates.

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~~Table of Contents~~

Net investment income decreased ~~primarily~~largely from ~~changes in foreign exchange rates~~lower average invested assets and lower yields in the current year.

Net investment ~~gains increased~~losses in the current year were primarily from derivative losses and net unrealized ~~gains~~losses from ~~changes~~a decrease in the fair value of equity securities, inpartially offset by net realized gains from the ~~current year compared to unrealized losses~~sale of investment securities. Net investment gains in the prior year ~~partially offset by lower~~were largely from net realized gains from the sale of investment securities and derivative gains. The three months ended March 31, 2020 included an increase of $3 million attributable to changes in ~~the current year.~~foreign exchange rates.

Benefits and expenses

Benefits and other changes in policy reserves decreased primarily from ~~$5 million~~favorable aging of ~~changes attributable to foreign exchange rates~~existing delinquencies in the current year. Excluding the effects of changes in foreign exchange rates, benefits and other changes in policy reserves were flat as higher reserves on new delinquencies were offset by higher reserve releases for cures in the current year.

~~Amortization of DAC and intangibles decreased largely from lower contract fees amortization and from changes in foreign exchange rates in the current year.~~

Provision (benefit) for income taxes.

The effective tax rate was 30.0% for both the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ consistent with our jurisdictional rate.

Net income (loss) attributable to noncontrolling interests

. The decrease to a loss in the current year from income in the prior year was predominantly related to higher net investment losses driven largely by derivative losses in the current year.

Australia Mortgage Insurance selected operating performance measures

~~Our~~As of March 31, 2020, our mortgage insurance business in Australia ~~currently has~~had structured insurance transactions with three lenders where it iswas in a secondary loss position. The insurance portfolio metrics associated with these transactions, which include insurance

in-force,

risk

in-force,

new insurance written, loans

in-force

and delinquent loans, are excluded from the following tables. These arrangements represented approximately $143 million and $157 million of risk

in-force

as of ~~June 30, 2019.~~March 31, 2020 and 2019, respectively.

The following ~~tables set~~table sets forth selected operating performance measures regarding our Australia Mortgage Insurance segment as of or for the dates indicated:

As of June 30,

Increase
(decrease) and
percentage change

(Amounts in millions)

2019

2018

2019 vs. 2018

Primary insurance in-force $
215,600
$
229,400
$
(13,800
)
(6
)%
Risk in-force $
75,100
$
79,900
$
(4,800
)
(6
)%


	As of or for the three months ended March 31,				Increase (decrease) and percentage change
(Amounts in millions)	2020		2019		2020 vs. 2019
Primary insurance in-force	$	188,400	$	219,200	$	(30,800	)	(14	)%
Risk in-force	$	65,700	$	76,300	$	(10,600	)	(14	)%
New insurance written	$	4,300	$	3,900	$	400		10	%
Net premiums written	$	62	$	52	$	10		19	%

Three months ended
June 30,

Increase
(decrease) and
percentage
change

Six months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

    2019

    2018

    2019 vs. 2018

    2019

    2018

    2019 vs. 2018

New insurance written $
4,900
$
4,600
$
300

7
% $
8,800
$
8,000
$
800

10
%
Net premiums written $
58
$
56
$
2

4
% $
110
$
116
$
(6
)
(5
)%

~~Primary insurance in-force and risk in-force~~

Our mortgage insurance business in Australia currently provides 100% coverage on the majority of the loans we insure in those markets. For the purpose of representing our risk

in-force,

we have computed an “effective” risk

in-force

amount, which recognizes that the loss on any particular loan will be reduced by the net proceeds received upon sale of the property. Effective risk

in-force

has been calculated by applying to insurance

in-force

a factor of 35% that represents our highest expected average

per-claim

payment for any one underwriting year over the life of our business in Australia. ~~For the three and six months ended June 30, 2019 and 2018, this factor was 35%.~~ We also have certain risk share arrangements where we provide

pro-rata

coverage of certain loans rather than 100% coverage. As a result, for loans with these risk share arrangements, the applicable

pro-rata

coverage amount provided is used when applying the factor.

100

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Primary insurance

in-force

and risk

in-force

Primary insurance

in-force

and risk

in-force

decreased primarily from decreases of $30.1 billion and $10.5 billion, respectively, due to changes in foreign exchange rates ~~and policy cancellations~~ in the current year. ~~Primary insurance in-force and risk in-force included decreases of $11.6 billion and $4.0 billion, respectively, from changes in foreign exchange rates.~~

New insurance written

New insurance written increased ~~for the three and six months ended June 30, 2019 primarily due~~mainly attributable to ~~new bulk insurance written and~~ higher mortgage origination volume from ~~certain~~a key ~~customers~~customer in the current ~~year as housing markets stabilized.~~year. The three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 included ~~decreases~~a decrease of ~~$500~~$200 million ~~and $800 million, respectively,~~ attributable to changes in foreign exchange rates.

Net premiums written

Most of our Australian mortgage insurance policies provide for single premiums at the time that loan proceeds are advanced. We initially record the single premiums to unearned premium reserves and recognize the premiums earned over time in accordance with the expected pattern of risk emergence. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, our unearned premium reserves were $0.9 billion and $1.0 billion, ~~and $1.1 billion,~~ respectively.

~~Excluding the impact of changes in foreign exchange rates, net premiums written increased for the~~ The three ~~and six~~ months ended June 30, 2019 primarily due to higher mortgage origination volume from certain key customers. The increase for the six months ended June 30, 2019 was partially offset by lower net premiums written on structured insurance due to the timingMarch 31, 2020 included a decrease of ~~initial premiums received from a transaction in the prior year. The three and six months ended June 30, 2019 included decreases of $5~~$130 million ~~and $10 million, respectively,~~ attributable to changes in foreign exchange rates.

Net premiums written increased primarily due to higher flow new insurance written from an increase in mortgage origination volume from a key customer in the current year. The three months ended March 31, 2020 included a decrease of $3 million attributable to changes in foreign exchange rates.

Loss and expense ratios

The following table sets forth the loss and expense ratios for our Australia Mortgage Insurance segment for the periods indicated:

Three months ended
June 30,

Increase (decrease)

Six months ended
June 30,

Increase (decrease)

2019

2018

2019 vs. 2018

2019

2018

2019 vs. 2018

Loss ratio
34
%
28
%
6
%
34
%
29
%
5
%
Expense ratio (net earned premiums)
33
%
27
%
6
%
32
%
28
%
4
%
Expense ratio (net premiums written)
44
%
50
%
(6
)%
47
%
48
%
(1
)%


	Three months ended March 31,						Increase (decrease)
	2020			2019			2020 vs. 2019
Loss ratio		34	%		34	%		—	%
Expense ratio (net earned premiums)		36	%		31	%		5	%
Expense ratio (net premiums written)		40	%		50	%		(10	)%

The loss ratio is the ratio of benefits and other changes in policy reserves to net earned premiums. The expense ratio (net earned premiums) is the ratio of general expenses to net earned premiums. The expense ratio (net premiums written) is the ratio of general expenses to net premiums written. In our mortgage insurance business in Australia, general expenses consist of acquisition and operating expenses, net of deferrals, and amortization of DAC and intangibles.

The loss ratio ~~increased for~~was flat as the ~~three~~decrease in premiums from portfolio seasoning and ~~six months ended June 30, 2019~~lower policy cancellations was offset by the decrease in losses primarily from ~~lower earned premiums driven mainly by the seasoning~~favorable aging of ~~our smaller, more recent in-force books of business and higher policy cancellations in the prior year. Losses were flat as higher reserves on new~~existing delinquencies ~~were offset by higher reserve releases for cures~~ in the current year.

The expense ratio (net earned premiums) increased ~~for the three and six months ended June 30, 2019~~ primarily from lower net earned premiums as discussed ~~above, partially offset by lower contract fees amortization in the current year.~~above.

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The expense ratio (net premiums written) decreased ~~for the three and six months ended June 30, 2019~~ primarily from higher net premiums

written ~~as discussed above, and lower contract fees amortization~~primarily due to an increase in mortgage origination volume from a key customer in the current year.

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Table of Contents

Delinquent loans

The following table sets forth the number of loans insured, the number of delinquent loans and the delinquency rate for our Australia mortgage insurance portfolio as of the dates indicated:

June 30, 2019

December 31, 2018

June 30, 2018

Primary insured loans in-force
1,308,811

1,332,906

1,354,614

Delinquent loans
7,891

7,145

7,306

Percentage of delinquent loans (delinquency rate)
0.60
%
0.54
%
0.54
%
Flow loans in-force
1,200,603

1,226,219

1,247,229

Flow delinquent loans
7,642

6,931

7,076

Percentage of flow delinquent loans (delinquency rate)
0.64
%
0.57
%
0.57
%
Bulk loans in-force
108,208

106,687

107,385

Bulk delinquent loans
249

214

230

Percentage of bulk delinquent loans (delinquency rate)
0.23
%
0.20
%
0.21
%


	March 31, 2020			December 31, 2019			March 31, 2019
Primary insured loans in-force		1,284,120			1,290,216			1,323,172
Delinquent loans		7,274			7,221			7,490
Percentage of delinquent loans (delinquency rate)		0.57	%		0.56	%		0.57	%

Flow loans in-force		1,183,889			1,189,019			1,217,050
Flow delinquent loans		7,055			7,003			7,265
Percentage of flow delinquent loans (delinquency rate)		0.60	%		0.59	%		0.60	%

Bulk loans in-force		100,231			101,197			106,122
Bulk delinquent loans		219			218			225
Percentage of bulk delinquent loans (delinquency rate)		0.22	%		0.22	%		0.21	%

Flow loans

in-force

decreased primarily from policy ~~cancellations. Flow delinquent loans increased compared to December~~

~~31, 2018 and June 30, 2018 primarily from higher new delinquencies, net of cures,~~cancellations in the current year.

Primary insurance delinquency rates differ by the various states and territories of Australia at any one time depending upon economic conditions and cyclical growth patterns. The table below sets forth our primary delinquency rates for the states and territories of Australia by our risk

in-force

as of the dates indicated. Delinquency rates are shown by region based upon the location of the underlying property, rather than the location of the lender.

Percent of primary
risk in-force as of
June 30, 2019

Delinquency rate

June 30,
2019

December 31,
2018

June 30,
2018

By state and territory:

New South Wales
27
%
0.45
%
0.38
%
0.37
%
Queensland
23

0.81
%
0.70
%
0.73
%
Victoria
23

0.45
%
0.40
%
0.42
%
Western Australia
13

1.10
%
0.98
%
0.99
%
South Australia
6

0.68
%
0.68
%
0.67
%
Australian Capital Territory
3

0.25
%
0.17
%
0.18
%
Tasmania
2

0.31
%
0.31
%
0.34
%
New Zealand
2

0.02
%
0.05
%
0.06
%
Northern Territory
1

0.83
%
0.68
%
0.61
%

Total
100
%
0.60
%
0.54
%
0.54
%


	Percent of primary risk in-force as of March 31, 2020			Delinquency rate
	Percent of primary risk in-force as of March 31, 2020			March 31, 2020			December 31, 2019			March 31, 2019
By state and territory:
New South Wales		27	%		0.44	%		0.42	%		0.41	%
Queensland		23			0.75	%		0.75	%		0.74	%
Victoria		23			0.42	%		0.41	%		0.42	%
Western Australia		13			1.00	%		1.00	%		1.05	%
South Australia		6			0.67	%		0.65	%		0.69	%
Australian Capital Territory		3			0.25	%		0.24	%		0.19	%
Tasmania		2			0.30	%		0.29	%		0.28	%
New Zealand		2			0.02	%		0.02	%		0.04	%
Northern Territory		1			0.83	%		0.71	%		0.76	%

Total		100	%		0.57	%		0.56	%		0.57	%

Delinquency rates increased in the current year compared to December 31, 2018 and June 30, 2018 mainly from lower flow loans in-force as a result of policy cancellations and from higher new delinquencies, net of cures, in the current year.

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U.S. Life Insurance segment

COVID-19

The most significant impacts in our U.S. life insurance businesses from

COVID-19

are related to the current low interest rate environment and equity market volatility/declines, and may also be impacted by future mortality and morbidity experience. Our long-term care insurance products could be negatively impacted by the current low interest rate environment, particularly as it relates to loss recognition testing and asset adequacy analysis, as well as experiencing delays in approvals for

in-force

rate actions. These impacts would be partially offset by higher mortality which is favorable to our long-term care insurance products. The low interest rate environment and declining equity markets have adversely impacted earnings in our fixed annuity products; however, if mortality is higher in future months, it could benefit earnings in these products in future quarters. Conversely, higher mortality rates could lower profitability in our life insurance products.

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Table of Contents

In our long-term care insurance products, we would expect some degree of higher mortality during

COVID-19

which would have a favorable impact on claims. We are not expecting

COVID-19

to drive higher claims frequency in our long-term care insurance business and we may observe temporarily reduced incidence while

shelter-in-place

and social distancing protocols are in effect. We are temporarily unable to perform our full intake assessment, which requires an

in-person

assessment, but are relying on an abbreviated assessment form and evaluating initial claim eligibility through a virtual assessment technique in the interim, with an

in-person

assessment to follow once social distancing protocols are relaxed. As a result, we may experience temporary delays in adjudicating new claims and disruptions to our normal intake process. Our long-term care insurance benefit utilization will also be affected; although it is too early to tell the magnitude and/or direction of that impact.

Additionally, our U.S. life insurance companies are dependent on the approval of actuarially justified

in-force

COVID-19

although we do not expect a significant impact on our financial results during 2020 as a result of any delays.

We continue to provide customer service and flexibility to our policyholders during this uncertain time and will work with them if they contact us with questions or concerns regarding their policies. For example, we have approved accommodations for certain long-term care insurance policyholders on claim given unique circumstances related to

COVID-19.

We are continually assessing our operational processes and monitoring potential impacts to morbidity due to

COVID-19.

COVID-19

outbreak. We are actively monitoring developments related to

COVID-19

such as state directives that are issued during this time and we will continue to monitor and comply with any new guidance issued by our state insurance regulators. We may seek permitted practices during this time to help our capital position and our ongoing risk-based capital (“RBC”) requirements if

COVID-19

continues for an extended period of time. One permitted practice being considered relates to waiving the requirement to

non-admit

premium receivables over 90 days if we are in a no lapse mandate. We are also contacting our reinsurance counterparties to inform them of the actions we are taking in response to state bulletins on extension of grace periods and prohibition of lapsation as well as showing flexibility to our policyholders who are on claim.

While there are premium deferrals/grace period mandates in certain states currently in place, we do not expect a significant impact on our premiums in our U.S. life insurance businesses. Given our current ratings, our sales volume is low in our long-term care insurance products. In 2016, we suspended sales of our traditional life insurance and fixed annuity products. For traditional life insurance policies, where regular premiums are typically required, and universal life insurance contracts, where premiums are typically flexible but frequently require minimum premiums to be paid, subject to state mandates for additional grace periods during the

COVID-19

pandemic, policies would follow normal lapse or nonforfeiture options if the policyholders decided not to pay their premiums. Therefore, we would not expect to experience a material financial strain in our life insurance products. There is no requirement to pay premiums in our fixed annuity contracts and benefits would adjust contractually based on actual premiums paid in these products.

We actively monitor cash and highly liquid investment positions in each of our U.S. life insurance companies against operating targets that are designed to ensure that we will have the cash necessary to meet our obligations as they come due. The targets are set based on stress scenarios that have the effect of increasing our expected cash outflows and decreasing our expected cash inflows. Liquidity risk is assessed by comparing subsidiary cash to potential cash needs under a stressed liquidity scenario. The stressed scenario reflects potential policyholder surrenders, variability of normal operating cash flow and potential increase in collateral requirements under our cleared derivative program.

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Table of Contents

While the impact of

COVID-19

is very difficult to predict, the related outcomes and impact on the U.S. life insurance business will depend on the length of the pandemic and shape of the economic recovery. Further declines in interest rates and equity markets as a result of

COVID-19

would increase reserves and capital requirements in our U.S. life insurance business. For sensitivities related to interest rates, lapses and mortality on our U.S. life insurance products, see “Item 7—Management’s Discussion and Analysis— Critical Accounting Estimates” in our 2019 Annual Report on Form

10-K.

We will continue to monitor COVID-19 impacts and evaluate all of our assumptions that may need updating as a result of longer-term trends related to the pandemic.

Trends and conditions

Results of our U.S. life insurance businesses depend significantly upon the extent to which our actual future experience is consistent with assumptions and methodologies we have used in calculating our reserves. Many factors can affect the ~~reserves in~~results of our U.S. life insurance businesses. Because these factors are not known in advance, change over time, are difficult to accurately predict and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. We will continue to monitor our experience and assumptions closely and make changes to our assumptions and methodologies, as appropriate, for our U.S. life insurance products. Even small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our DAC amortization, reserve levels, results of operations and financial condition.

Our liability for policy and contract claims is reviewed quarterly and we completed a detailed review of our claim reserve assumptions and methodologies for our long-term care insurance business in the third quarter of 2019. In the fourth quarter of 2019, we performed assumption reviews for U.S. life insurance products, including our long-term care and life insurance products, and completed our loss recognition testing. Our review of assumptions, as part of our testing in the fourth quarter of 2019, included expected claim incidence, benefit utilization, mortality, persistency, interest rates and

in-force

rate actions, among other assumptions. In addition, we performed cash flow testing separately for each of our U.S. life insurance companies on a statutory accounting basis in the fourth quarter of 2019.

Results of our U.S. life insurance businesses are also impacted by interest ~~rates as our products are sensitive to interest rate fluctuations and expose us to the risk that falling interest rates or tightening credit spreads will reduce our interest rate margin.~~rates. Low interest rates ~~also increase reinvestment risk~~put pressure on the profitability and returns of these businesses as higher yielding investments mature and are replaced with lower yielding investments and put pressure on the profitability and returns. During the first half of 2019, long-duration risk free interest rates declined which impacted our reinvestment rates. If this decline continues, it may impact our loss recognition testing and DAC recoverability testing.investments. We seek to manage the impact of low interest rates through asset-liability management as well as interest rate hedging strategies for a portion of our long-term care insurance product cash flows. Additionally, certain products have implicit and explicit rate guarantees or optionality that are significantly impacted by changes in interest rates. For a further discussion of the impact of interest rates on our U.S. life insurance businesses, see “Item 7A—Quantitative and Qualitative Disclosures About Market Risk” in our ~~2018~~2019 Annual Report on Form

10-K.

We perform loss recognition testing to ensure that the current reserves along with the present value of future gross premiums are sufficient to cover the present value of future expected claims and expense, as well as recover the unamortized portion of DAC and, if any, PVFP. If the loss recognition test indicates a deficiency in the ability to pay all future claims and expenses, including the amortization of DAC and PVFP, a loss is recognized in earnings as an impairment of the DAC and/or PVFP balance and, if the loss is greater than the DAC and/or PVFP balance, by an increase in reserves. Our liability for policy and contract claims is reviewed quarterly and we conduct a detailed review of our claim reserve assumptions for our long-term care insurance business annually typically during the third quarter of each year. We completed our annual review of claim reserve assumptions for our long-term care insurance business in the fourth quarter of 2018. See “Long-term care insurance” below for more details. Our liability for future policy benefits is reviewed at least annually as a part of our loss recognition testing typically performed in the third or fourth quarter of each year. As part of loss recognition testing, we also review the recoverability of DAC and PVFP at least annually. In addition, we perform cash flow testing separately for each of our U.S. life insurance companies on a statutory accounting basis annually. In the fourth quarter of 2018, we performed assumption reviews for our universal and term universal life insurance products as well as for our other U.S. life insurance products, including our long-term care insurance products, and completed our loss recognition testing. For our acquired block of long-term care insurance business and our fixed immediate annuity products, we monitor these blocks more frequently than annually given the premium deficiencies that existed in previous periods. We expect to complete our annual review of long-term care insurance claim reserve assumptions in the third quarter of 2019 and we expect to complete our loss recognition and cash flow testing as well as assumption reviews in the fourth quarter of 2019.

Our U.S. Life Insurance segment will continue to migrate to a new valuation and projection platform for certain lines of business, while we upgrade platforms for other lines of business. The migration and upgrades are part of our ongoing efforts to improve the infrastructure and capabilities of our information systems and our routine assessment and refinement of financial, actuarial, investment and risk management capabilities and processes enterprise wide. These efforts will also provide our U.S. Life Insurance segment with improved platforms to support emerging accounting guidance and ongoing changes in capital regulations. Concurrently, actuarial processes and

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~~Table of Contents~~

methodologies will be reviewed, and may result in additional refinements to our models and/or assumptions. Any material changes in balances, margins or income trends that may result from these activities will be disclosed accordingly. We intend to continue developing our modeling capabilities in our various businesses, including for our long-term care insurance projections where we migrated substantially all of our retained long-term care insurance business to this new modeling system in 2016 and 2017. The ~~new modeling system values and forecasts associated liability cash flows and policyholder behavior at a more granular level than our previous system.~~

Our U.S. life insurance subsidiaries are subject to the National Association of Insurance Commissioners’ (“NAIC”) risk-based capital (“RBC”) standards and other minimum statutory capital and surplus requirements. As of December 31, 2018, the RBC of each of our U.S. life insurance subsidiaries exceeded the level of RBC that would require any of them to take or become subject to any corrective action in their respective domiciliary ~~state.~~state as of December 31, 2019. However, the RBC ratio of our U.S. life insurance subsidiaries has ~~declined~~been negatively impacted over the past few years as a result of statutory losses driven by the declining performance of the business and increases in our statutory reserves, including results of Actuarial Guideline 38, cash flow testing and assumption reviews particularly in our long-term care insurance business. In the first quarter of 2020, low interest rates and equity market volatility negatively impacted our variable annuity products resulting in material statutory reserve increases. However, hedge favorability, regulatory changes effective January 1, 2020 and the repayment of the $200 million intercompany note between Genworth Holdings and GLIC favorably impacted the RBC ratio in the first quarter of 2020. Any future statutory losses would decrease the RBC ratio of our U.S. life insurance subsidiaries. We continue to face challenges in our principal life insurance subsidiaries, particularly those subsidiaries that rely heavily on

in-force

rate actions as a source of earnings and capital. We may see variability in statutory results and a further decline in the RBC ratios of these subsidiaries given the time lag between the approval of

in-force

rate actions versus when the benefits from the

in-force

rate actions (including increased

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Table of Contents

premiums and associated benefit reductions) are fully realized in our financial results. Further declines in the RBC ratio of our life insurance subsidiaries could result in heightened supervision and regulatory action.

Long-term care insurance

The long-term profitability of our long-term care insurance business depends upon how our actual experience compares with our valuation assumptions, including but not limited to morbidity, mortality and persistency. If any of our assumptions prove to be inaccurate, our reserves may be inadequate, which in the past has had, and may in the future have, a material adverse effect on our results of operations, financial condition and business. Results of our long-term care insurance business are also influenced ~~primarily~~ by our ability to achieve

in-force

rate actions, ~~morbidity, mortality, persistency,~~improve investment yields and manage expenses ~~changes in regulations~~ and ~~reinsurance.~~reinsurance, among other factors. Changes in regulations or government programs, including long-term care insurance rate action legislation, regulation and/or practices, could also impact our long-term care insurance business either positively or negatively.

Our liability for policy and contract claims is reviewed quarterly and we conduct a detailed review of our claim reserve assumptions for our long-term care insurance business annually. We completed our annual review of claim reserve assumptions and methodologies for our long-term care insurance business in the fourth quarter of 2018 and recorded higher claim reserves of $308 million and reinsurance recoverables of $17 million. Based on this review, we updated several assumptions and methodologies, including benefit utilization rates, claim termination rates and other assumptions. The primary impact related to increasing later duration utilization assumptions for claims with lifetime benefits.

~~Additional changes in assumptions or methodologies in our long-term care insurance claim reserves in the future could also impact our loss recognition and cash flow testing results.~~ Our assumptions are sensitive to slight variability in actual experience and small changes in assumptions could result in decreases in the margin of our long-term care insurance blocks to at/or below zero in future years. To the extent, based on reviews, the margin of our long-term care insurance block, excluding the acquired block, is negative, we would be required to recognize a loss, by amortizing more DAC and/or establishing additional benefit reserves. For our acquired block of long-term care insurance, the impacts of adverse changes in assumptions would also be reflected as a loss if our margin for this block is reduced below zero by establishing additional benefit reserves. A significant decrease in our loss recognition testing margin of our long-term care insurance blocks could have a material adverse effect on our business, results of operations and financial condition.

~~In connection with~~As a result of the ~~updated assumptions and methodologies that increased~~review of our claim reserves ~~on existing claims~~completed in the fourth quarter of 2018 we ~~now establish~~have been establishing higher claim reserves on new claims, which ~~decreased~~has negatively impacted earnings ~~in the first half of 2019~~ and we expect ~~will decrease earnings~~this to continue going ~~forward as higher reserves are recorded.~~forward. Also, average claim reserves for new claims are higher as the mix of claims continues to evolve, with

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~~Table of Contents~~

an increasing number of policies with higher daily benefit amounts and higher inflation factors going on claim. In addition, although new claim counts on our older long-term care insurance blocks of business will continue to decrease as the blocks run off, we are gaining more experience on our larger new blocks of business and expect continued growth in new claims on these blocks as policyholders reach older attained ages with higher likelihood of going on claim.

~~We experience volatility in our loss ratios caused by variances in policy terminations, claim terminations, claim severity and claim counts. Our approved~~

~~in-force~~

~~rate actions may also cause fluctuations in our loss ratios during~~Given the ~~period to the extent that reserves are adjusted to reflect policyholders electing benefit reductions or~~

~~non-forfeiture~~

options. In addition, we periodically review our reserve assumptions and methodologies based upon developing experience, which may result in changes to claim reserves and loss recognition testing results, causing volatility in our operating results and loss ratios. Our loss ratio for the six months ended June 30, 2019 and 2018 was 78% and 79%, respectively.

~~As a result of~~ ongoing challenges in our long-term care insurance business, we continue pursuing initiatives to improve the risk and profitability profile of our business including: premium rate increases and associated benefit reductions on our

in-force

policies; managing expense levels; executing investment strategies targeting higher returns; and enhancing our financial and actuarial analytical capabilities. Executing on our multi-year long-term care insurance

in-force

rate action plan with ~~increased premiums~~premium rate increases and associated benefit reductions on our legacy long-term care insurance policies is critical to the business. For an update on

in-force

rate actions, refer to “Significant Developments—U.S. Life Insurance.” As of ~~June 30, 2019,~~March 31, 2020, we have suspended sales in Hawaii, Massachusetts, New Hampshire, Vermont and Montana, and will consider taking similar actions in the future in other states where we are unable to obtain satisfactory rate increases on

in-force

policies. We will also consider ~~in the future, as we have in the past,~~ litigation against states that decline actuarially justified rate increases. As of March 31, 2020, we were in litigation with one state that has refused to approve actuarially justified rate increases.

The approval process for

in-force

rate ~~increases~~actions and the amount and timing of the premium rate increases and associated benefit reductions approved vary by state. In certain states, the decision to approve or disapprove a rate increase can take a significant amount of time, and the approved amount may be phased in over time. After approval, insureds are provided with written notice of the increase and increases are generally applied on the insured’s next policy anniversary date. As a result, the benefits of any rate increase are not fully realized until the implementation cycle is complete and are, therefore, expected to be realized over time.

~~Our U.S. Life Insurance segment is taxed at 21%, the enacted tax rate under the TCJA. However, gains on forward starting swaps settled prior to the enactment~~

105

Table of the TCJA are tax effected at 35% as they are amortized into net investment income. This will negatively impact our long-term care insurance business given the majority of our forward starting swaps are in this business.Contents

We also manage risk and capital allocated to our long-term care insurance business through utilization of external reinsurance in the form of coinsurance. We executed external reinsurance agreements to reinsure 20% of all sales of our individual long-term care insurance products that have been introduced since early 2013. External new business reinsurance is dependent on a number of factors, including price, availability, risk tolerance and capital levels. Over time, there can be no assurance that affordable, or any, reinsurance will continue to be available. We also have external reinsurance on some older blocks of business which includes a treaty on a yearly renewable term basis on business that was written between 1998 and 2003. This yearly renewable term reinsurance provides coverage for claims on those policies for 15 years after the policy was written. After 15 years, reinsurance coverage ends for policies not on claim, while reinsurance coverage continues for policies on claim until the claim ends. The

15-year

coverage on the policies written in 2003 expired in 2018; therefore, any new claims will not have reinsurance coverage under this treaty. Since 2013, we have seen, and may continue to see, an increase in our benefit costs as policies with reinsurance coverage exhaust their benefits or terminate and policies which are not covered by reinsurance go on claim.

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~~Table of Contents~~

Life insurance

Results of our life insurance business are impacted primarily by mortality, persistency, investment yields, expenses, reinsurance and statutory reserve requirements, among other factors. ~~Effective March 7, 2016, we suspended~~We no longer solicit sales of ~~our~~ traditional life insurance ~~products.~~

~~We review~~products; however, we continue to service our ~~life insurance assumptions in detail at least annually. In the fourth quarter~~existing retained and reinsured blocks of 2018, we performed our annual review of life insurance assumptions and completed our loss recognition testing for our universal and term universal life insurance products. As part of our assumption review in the fourth quarter of 2018, we recorded $91 million of

business.

~~after-tax~~

charges in our universal and term universal life insurance products primarily driven by assumption changes due to lower expected growth in interest rates and emerging mortality experience primarily in our term universal life insurance product.

Mortality levels may deviate each period from historical trends. Overall mortality experience was higher infor the ~~second quarter of 2019~~three months ended March 31, 2020 compared to ~~the first quarter of~~three months ended March 31, 2019 and ~~second quarter of 2018; however, mortality for our universal life insurance blocks was lower in the second quarter of 2019 compared to the second quarter of 2018. We~~we have experienced higher mortality than our ~~then current~~then-current and ~~priced for~~

priced-for

assumptions in recent years for our universal life insurance blocks. We have also been experiencing higher mortality related charges resulting from an increase in rates charged by our reinsurance partners reflecting natural block aging and higher mortality compared to expectations.

In the fourth quarter of 2019, we performed our annual review of life insurance assumptions and completed our loss recognition testing. Our review focused on assumptions for mortality, particularly for our conversion products, persistency and interest rates, among other assumptions. As part of our review in the fourth quarter of 2019, we recorded $107 million of

after-tax

charges in our universal and term universal life insurance products primarily from assumption changes related to the lower interest rate environment.

We also updated mortality assumptions for certain universal and term universal life insurance products as well as our term life insurance products in the fourth quarter of 2019. Our mortality experience for older ages and late-duration premium periods and conversion products is emerging. Assumption changes in our term life insurance products focused on mortality improvements during the post-level premium period based on observed trends in emerging experience. This change to the mortality assumption increased the loss recognition testing margin in our term life insurance products. We will continue to regularly review our mortality assumptions as well as all of our other assumptions in light of emerging ~~experience and~~experience. We may be required to make further adjustments in the future to our assumptions which could impact our universal and term universal life insurance reserves ~~in the future, which could also impact~~or our loss recognition testing ~~results.~~results of our term life insurance products. Any further materially adverse changes to our assumptions, including mortality ~~may~~or interest rates, could have a materially negative impact on our results of operations, financial condition and business.

~~Between 1999~~Compared to 1998 and ~~2009,~~prior years, we had a significant increase in term life insurance sales, between 1999 and 2009, particularly in 1999 and 2000. The blocks of business issued since 2000 vary in size as compared to ~~1998~~the large 1999 and ~~prior years.~~2000 blocks of business. As our large

10-

and

15-year

level premium period term life insurance policies written in 1999 and 2000 transitioned to their ~~post level~~post-level guaranteed premium rate period, we ~~have~~ experienced lower persistency compared to our pricing and valuation ~~assumptions. The blocks~~assumptions which accelerated DAC amortization in previous years. As our large

20-year

level premium period business written in 1999 entered its

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Table of ~~business issued since 2000 vary~~Contents

post-level period, we experienced higher lapses resulting in ~~size as compared to~~accelerated DAC amortization in 2019. This trend continued in the first quarter of 2020 for the 1999 block, as it reached the end of its level premium period. Additionally, we expect similar experience with the

20-year

level premium period business written in 2000 as it enters its post-level period during 2020 and ~~2000 blocks of business. Accordingly, in~~into 2021. In the future, as additional

10-,

15-

and

20-year

level premium period blocks enter their ~~post level~~post-level guaranteed premium rate period, we expect to experience volatility in DAC amortization, premiums and mortality experience, which we expect to reduce profitability in our term life insurance products, in amounts that could be material, if persistency is lower than our original assumptions as itexperience has ~~been~~emerged on ~~our 10-~~earlier blocks. Additionally, the extension of grace periods or no lapsation mandated by state regulators during

COVID-19

may impact the timing and ~~15-year~~ level ~~premium period business written in 1999 and 2000. In the first half~~ of ~~2019 and in 2018 and 2017, we experienced higher~~ lapses ~~and accelerated DAC amortization associated with our large 15-year and 20-year level premium period term life insurance~~for these blocks ~~entering their post level guaranteed premium rate periods. We anticipate this trend will continue for the remainder~~ of 2019 and 2020 with accompanying higher DAC amortization and lower profitability as our large 20-year term life insurance blocks issued in 1999 and 2000 reach the end of their level premium periods. As of June 30, 2019, our term life insurance products had a DAC balance of $1.3 billion.business. We have ~~also~~ taken actions to mitigate potentially unfavorable impacts through the use of reinsurance, particularly for certain term life insurance policies issued between 2001 and 2004.

We began selling term universal life insurance in late 2009, with sales peaking in 2011 prior to discontinuing sales of the product in 2012. We priced these products assuming high lapses upon expiration of the level premium period and we continue to expect those higher lapses. As our

10-year

level premium period term universal life insurance policies written in 2009 and 2010 enter their post-level premium period, we will record higher reserves during the premium grace period and will release the reserves when the policies lapse. We expect further reserve increases in these blocks through 2020 and into 2021 until the number of policies exiting the grace period exceeds the number of policies entering the post-level guaranteed premium rate period. However, any extension of grace periods or reinstatements mandated by state regulators during

COVID-19

may impact the level of reserves held for these blocks of business.

Fixed annuities

Results of our fixed annuities business are affected primarily by investment performance, interest rate levels, the slope of the interest rate yield curve, net interest spreads, equity market conditions, mortality, persistency and expense and commission levels. ~~Effective March 7, 2016, we suspended~~We no longer solicit sales of ~~our~~ traditional fixed annuity ~~products.~~

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products; however, we continue to service our existing retained and reinsured blocks of business.

~~Table of Contents~~

We monitor and change crediting rates on fixed annuities on a regular basis to maintain spreads and targeted returns, if applicable. However, if interest rates remain at current levels or decrease, we could see declines in spreads which impact the margins on our products, particularly our fixed immediate annuity products. Due to the premium deficiency that existed in 2016, we continue to monitor our fixed immediate annuity products more frequently than annually and recorded additional charges to net income during ~~2017, the fourth quarter of 2018 and the first two quarters of~~ 2019. If investment performance deteriorates or interest rates decrease or remain at the current levels ~~or increase at a slower pace than we assumed,~~for an extended period of time, we could incur additional charges in the future. The impacts of future adverse changes in our assumptions could result in the establishment of additional future policy benefit reserves and would be immediately reflected as a loss if our margin for this block is again reduced below zero. Any favorable variation would result in additional margin but no immediate benefit to income and would result in higher income recognition over the remaining duration of the

in-force

block.

For fixed indexed annuities, equity market performance and volatility could also result in additional gains or losses, although associated hedging activities are expected to partially mitigate these impacts.

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Table of Contents

Segment results of operations

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~June 30, 2018~~March 31, 2019

The following table sets forth the results of operations relating to our U.S. Life Insurance segment for the periods indicated:

Three months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

    2019

    2018

2019 vs. 2018

Revenues:

Premiums $
713
$
712
$
1

—
%
Net investment income
724

707

17

2
%

Net investment gains (losses)
(36
)
(10
)
(26
)
NM
(1)

Policy fees and other income
187

169

18

11
%

Total revenues
1,588

1,578

10

1
%

Benefits and expenses:

Benefits and other changes in policy reserves
1,211

1,163

48

4
%

Interest credited
106

116

(10
)
(9
)%
Acquisition and operating expenses, net of deferrals
142

146

(4
)
(3
)%
Amortization of deferred acquisition costs and intangibles
67

78

(11
)
(14
)%
Interest expense
4

4

—

—
%

Total benefits and expenses
1,530

1,507

23

2
%

Income before income taxes
58

71

(13
)
(18
)%
Provision for income taxes
19

21

(2
)
(10
)%

Net income
39

50

(11
)
(22
)%
Adjustments to net income:

Net investment (gains) losses, net
(2)

35

9

26

NM
(1)

Expenses related to restructuring
(1
)
—

(1
)
NM
(1)

Taxes on adjustments
(7
)
(2
)
(5
)
NM
(1)

Adjusted operating income available to Genworth Financial, Inc.’s
common stockholders
$
66
$
57
$
9

16
%


	Three months ended March 31,						Increase (decrease) and percentage change
(Amounts in millions)	2020			2019			2020 vs. 2019
Revenues:
Premiums	$	718		$	709		$	9		1	%
Net investment income		695			701			(6	)	(1	)%
Net investment gains (losses)		(70	)		84			(154	)	(183	)%
Policy fees and other income		144			151			(7	)	(5	)%

Total revenues		1,487			1,645			(158	)	(10	)%

Benefits and expenses:
Benefits and other changes in policy reserves		1,297			1,236			61		5	%
Interest credited		100			106			(6	)	(6	)%
Acquisition and operating expenses, net of deferrals		151			148			3		2	%
Amortization of deferred acquisition costs and intangibles		87			66			21		32	%
Interest expense		5			5			—		—	%

Total benefits and expenses		1,640			1,561			79		5	%

Income (loss) from continuing operations before income taxes		(153	)		84			(237	)	NM	(1)
Provision (benefit) for income taxes		(27	)		24			(51	)	NM	(1)

Income (loss) from continuing operations		(126	)		60			(186	)	NM	(1)
Adjustments to income (loss) from continuing operations:
Net investment (gains) losses, net (2)		67			(86	)		153		178	%
Losses on early extinguishment of debt		4			—			4		NM	(1)
Expenses related to restructuring		—			4			(4	)	(100	)%
Taxes on adjustments		(15	)		17			(32	)	(188	)%

Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders	$	(70	)	$	(5	)	$	(65	)	NM	(1)

(1)	We define “NM” as not meaningful for increases or decreases greater than 200%.

(2)	For the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(1) million in each period.~~

~~134~~

~~Table of Contents~~

The following table sets forth adjusted operating income available to Genworth Financial, Inc.’s common stockholders for the businesses included in our U.S. Life Insurance segment for the periods indicated:

Three months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

2019

2018

2019 vs. 2018

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders:

Long-term care insurance $
37
$
22
$
15

68
%
Life insurance
10

4

6

150
%
Fixed annuities
19

31

(12
)
(39
)%

Total adjusted operating income available to Genworth Financial, Inc.’s common stockholders $
66
$
57
$
9

16
%

~~Adjusted operating income available to Genworth Financial, Inc.’s common stockholders~~

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders for our long-term care insurance business increased $15 million mainly attributable to $96 million of higher premiums and reduced benefits in the current year from

~~in-force~~

rate actions approved and implemented and from favorable development on prior year incurred but not reported claims. The increase was also due to lower utilization of available benefits compared to the prior year. These increases were partially offset by higher severity and frequency of new claims, lower claim terminations and an increase in incremental reserves of $39 million recorded in connection with an accrual for profits followed by losses in the current year.

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders for our life insurance business increased $6 million mainly from a reinsurance correction and refinement resulting in a net favorable impact of $17 million in the current year. This increase was partially offset by higher lapses primarily associated with our large

~~20-year~~

~~term life insurance block issued in 1999 entering its post-level premium period and the continued runoff of our term life insurance products in the current year.~~

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders decreased $12 million in our fixed annuities business predominantly attributable to lower mortality in the current year compared to the prior year and an unfavorable charge of $4 million in connection with loss recognition testing in our fixed immediate annuity products.

~~Revenues~~

~~Premiums~~

Our long-term care insurance business increased $8 million largely from $24 million of increased premiums in the current year from in-force rate actions approved and implemented, partially offset by policy terminations and policies entering paid-up status in the current year.

~~Our life insurance business decreased $7 million mainly attributable to the continued runoff of our term life insurance products.~~

~~Net investment income~~

~~Our long-term care insurance business increased $29 million largely from higher average invested assets in the current year.~~

~~135~~

~~Table of Contents~~

Our life insurance business increased $5 million principally related to higher favorable prepayment speed adjustments on mortgage-backed securities and higher yields and average invested assets in the current year.

~~Our fixed annuities business decreased $17 million largely attributable to lower average invested assets in the current year due to block runoff.~~

~~Net investment gains (losses)~~

Our long-term care insurance business had net investment losses of $15 million in the current year compared to net investment gains of $3 million in the prior year. The change to net investment losses in the current year was mainly driven by derivative losses in the current year compared to gains in the prior year and from current year losses from the sale of investment securities compared to gains in the prior year.

Net investment losses in our fixed annuities business increased $7 million primarily related to higher losses on embedded derivatives associated with our fixed indexed annuity products and higher unrealized losses from changes in the fair value of equity securities, partially offset by higher gains on derivatives in the current year.

~~Policy fees and other income.~~

~~The increase was mostly attributable to our life insurance business due to a $21 million favorable correction related to ceded premiums on~~

~~universal life insurance policies, partially offset by a favorable model refinement in the prior year that did not recur.~~

~~Benefits and expenses~~

~~Benefits and other changes in policy reserves~~

Our long-term care insurance business increased $22 million principally related to the aging of the in-force block (including higher frequency of new claims), higher severity of new claims, lower claim terminations and an increase in incremental reserves of $49 million recorded in connection with an accrual for profits followed by losses in the current year. These increases were partially offset by a higher favorable impact of $100 million from reduced benefits in the current year related to in-force rate actions approved and implemented and from favorable development on prior year incurred but not reported claims. The current year also included favorable utilization of available benefits.

Our life insurance business increased $19 million primarily attributable to a favorable model refinement in the prior year that did not recur and higher mortality in the current year compared to the prior year.

Our fixed annuities business increased $7 million largely attributable to $5 million of higher reserves in connection with loss recognition testing in our fixed immediate annuity products primarily as a result of a decrease in interest rates in the current year. The increase was also due to lower mortality in the current year compared to the prior year. These increases were partially offset by lower interest credited in the current year due to block runoff.

~~Interest credited.~~

The decrease in interest credited was due to our life insurance and fixed annuities businesses, which decreased $2 million and $8 million, respectively, primarily driven by a decline in average account values and lower crediting rates in the current year.

~~Amortization of deferred acquisition costs and intangibles.~~

~~The decrease in amortization of DAC and intangibles was primarily related to our life insurance business principally from an unfavorable model refinement in the prior year that did not~~

~~recur, partially offset by higher lapses primarily associated with our large~~

~~20-year~~

~~term life insurance block issued in 1999 entering its post-level premium period and higher reinsurance rates in the current year.~~

~~136~~

~~Table of Contents~~

~~Provision for income taxes.~~

The effective tax rate was 31.9% and 28.9% for the three months ended June 30, 2019 and 2018, respectively. The increase in the effective tax rate was largely attributable to higher tax expense in our long-term care insurance business related to gains on forward starting swaps settled prior to the enactment of the TCJA in relation to lower pre-tax income in the current year.

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

~~The following table sets forth the results of operations relating to our U.S. Life Insurance segment for the periods indicated:~~

Six months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

2019

2018

2019 vs. 2018

Revenues:

Premiums $
1,422
$
1,434
$
(12
)
(1
)%
Net investment income
1,425

1,395

30

2
%

Net investment gains (losses)
48

(2
)
50

NM
(1)

Policy fees and other income
338

332

6

2
%

Total revenues
3,233

3,159

74

2
%

Benefits and expenses:

Benefits and other changes in policy reserves
2,447

2,401

46

2
%

Interest credited
212

235

(23
)
(10
)%
Acquisition and operating expenses, net of deferrals
290

287

3

1
%

Amortization of deferred acquisition costs and intangibles
133

149

(16
)
(11
)%
Interest expense
9

8

1

13
%

Total benefits and expenses
3,091

3,080

11

—
%

Income before income taxes
142

79

63

80
%
Provision for income taxes
43

27

16

59
%

Net income
99

52

47

90
%
Adjustments to net income:

Net investment (gains) losses, net
(2)

(51
)
—

(51
)
NM
(1)

Expenses related to restructuring
3

—

3

NM
(1)

Taxes on adjustments
10

—

10

NM
(1)

Adjusted operating income available to Genworth Financial,
Inc.’s common stockholders
$
61
$
52
$
9

17
%

~~(1)~~

~~We define “NM” as not meaningful for increases or decreases greater than 200%.~~

~~(2)~~

~~For the six months ended June 30, 2019 and 2018,~~ net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(3) million and $(2) million, respectively.

108

~~137~~

Table of Contents

The following table sets forth adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for the businesses included in our U.S. Life Insurance segment for the periods indicated:

Six months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

2019

2018

2019 vs. 2018

Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders:

Long-term care insurance $
17
$
(10
) $
27

NM
(1)

Life insurance
8

3

5

167
%
Fixed annuities
36

59

(23
)
(39
)%

Total adjusted operating income available to Genworth Financial, Inc.’s common stockholders $
61
$
52
$
9

17
%


	Three months ended March 31,						Increase (decrease) and percentage change
(Amounts in millions)	2020			2019			2020 vs. 2019
Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders:
Long-term care insurance	$	1		$	(20	)	$	21		105	%
Life insurance		(77	)		(2	)		(75	)	NM	(1)
Fixed annuities		6			17			(11	)	(65	)%

Total adjusted operating loss available to Genworth Financial, Inc.’s common stockholders	$	(70	)	$	(5	)	$	(65	)	NM	(1)

(1)	We define “NM” as not meaningful for increases or decreases greater than 200%.

Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders

Our long-term care insurance business had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of ~~$17~~$1 million in the current year compared to an adjusted operating loss available to Genworth Financial, Inc.’s common stockholders of ~~$10~~$20 million in the prior year. The increase to income in the current year from a loss in the prior year was ~~predominantly attributable to $156~~primarily from $52 million of higher premiums and reduced benefits in the current year from

in-force

rate actions approved and implemented, a slightly favorable impact from benefit utilization rate updates in the current year compared to an unfavorable impact in the prior year and ~~from~~continued favorable development on prior year incurred but not reported claims. These increases were partially offset by higher ~~severity~~frequency and ~~frequency~~severity of new claims ~~lower claim terminations and an increase in incremental reserves of $39 million recorded in connection with an accrual for profits followed by losses~~ in the current year.

~~Adjusted~~The adjusted operating ~~income~~loss available to Genworth Financial, Inc.’s common stockholders for our life insurance business increased $5$75 million mainly ~~from a~~

20-year

term life insurance block ~~issued in 1999~~ entering its post-level premium period, higher reserves in our

10-year

term universal life insurance block entering its post-level premium period during the premium grace period and ~~the continued runoff of~~from higher mortality in our universal and term life insurance products in the current year compared to the prior year.

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders decreased ~~$23~~$11 million in our fixed annuities business predominantly ~~attributable~~from higher reserves and DAC amortization in our fixed indexed annuities driven by unfavorable market changes in the current year, lower mortality in our single premium immediate annuities and a decrease in net spreads due to ~~$17~~the runoff of the block. These decreases were partially offset by $13 million of unfavorable charges in connection with loss recognition testing in our fixed immediate annuity products ~~and lower investment income, partially offset by lower interest credited~~ in the ~~current year.~~

prior year that did not recur.

Revenues

Premiums

Our long-term care insurance business increased ~~$5 million. The increase was~~$14 million largely from ~~$41~~$34 million of increased premiums in the current year from

in-force

rate actions approved and implemented, partially offset by policy terminations and policies entering

paid-up

status in the current year.

Our life insurance business decreased ~~$17~~$5 million mainly attributable to the continued runoff of our term life insurance products ~~and higher reinsurance rates~~ in the current year.

109

~~138~~

Table of Contents

Net investment income

Our long-term care insurance business increased ~~$53~~$13 million largely from higher average invested assets, higher income on U.S. government treasury inflation protected securities and ~~higher~~an increase in bond calls, partially offset by lower gains from limited partnerships in the current year.

Our life insurance business ~~increased $14~~decreased $3 million principally related to ~~higher favorable prepayment speed adjustments on mortgage-backed securities and higher yields and average invested assets~~lower gains from limited partnerships in the current year.

Our fixed annuities business decreased ~~$37~~$16 million largely attributable to lower average invested assets in the current year due to block runoff.

Net investment gains (losses)

~~Net investment gains in our~~Our long-term care insurance business ~~increased $56~~had net investment losses of $55 million ~~primarily related~~in the current year compared to net investment gains of $80 million in the prior year. The change to net investment losses in the current year from net investment gains in the prior year was mainly driven by unrealized losses from changes in the fair value of equity securities in the current year compared to unrealized gains in the prior year. The change was also attributable to net gains from the sale of investment securities in the ~~current year compared to net losses in the~~ prior year ~~and from higher unrealized gains from changes in the fair value of equity securities, partially offset by derivative losses in the current year compared to gains in the prior year.~~

that did not recur.

Net investment gains in our life insurance business ~~increased $4~~decreased $9 million primarily related to lower net gains from the sale of investment securities in the current ~~year compared to net losses in the prior year, partially offset by lower gains on embedded derivatives associated with our indexed universal life insurance products.~~

year.

Net investment losses in our fixed annuities business increased $10 million primarily related to ~~higher~~derivative losses in the current year compared to derivative gains in the prior year. The increase was partially offset by gains on embedded derivatives related to our fixed indexed annuity products ~~and an increase in unrealized losses from changes in the fair value of equity securities, partially offset by gains on derivatives~~ in the current year compared to losses in the prior year.

Policy fees and other income.

~~Policy fees and other income increased mostly~~

The decrease was attributable to our life insurance business primarily driven by a ~~$21 million favorable correction related to ceded premiums on~~

~~universal life insurance policies, partially offset by a favorable model refinement in the prior year that did not recur and a~~ decline in our ~~term~~ universal and term universal life insurance

in-force

~~blocks~~and higher ceded reinsurance costs in the current year.

Benefits and expenses

Benefits and other changes in policy reserves

Our long-term care insurance business increased ~~$21~~$1 million principally ~~related to~~from the aging of the

in-force

block (including higher frequency of new claims), higher ~~severity of new claims, lower claim terminations and an increase in~~ incremental reserves of ~~$49~~$39 million recorded in connection with an accrual for profits followed by losses and higher severity of new claims in the current year. These increases were ~~partially~~mostly offset by a higher favorable impact of ~~$161~~$34 million from reduced benefits in the current year related to

in-force

Our life insurance business increased ~~$14~~$60 million primarily attributable to higher reserves in our

10-year

term universal life insurance block entering its post-level premium period during the premium grace period and from higher mortality in our universal and term life insurance products in the current year compared to the prior year.

Our fixed annuities business was flat as higher reserves in our fixed indexed annuities driven by unfavorable market changes in the current year and lower mortality in our single premium immediate annuities were offset by $17 million of higher reserves recorded in the prior year related to loss recognition testing in our fixed immediate annuity products that did not recur.

Interest credited.

The decrease in interest credited was primarily related to our fixed annuities business largely driven by a ~~favorable~~decline in the average account value in the current year.

110

Table of Contents

Amortization of deferred acquisition costs and intangibles

Our life insurance business increased $17 million principally from higher lapses primarily associated with our large

20-year

Our fixed annuities business increased ~~$11~~$5 million largely ~~attributable~~related to ~~$22 million~~higher DAC amortization reflecting lower net spreads and the impact of higher reserves in connection with loss recognition testing in our fixed immediate annuity products primarily as a result of portfolio management actions and from a decrease in the projected yield curve. This increase was partially offset by lower interest credited in the current year due to block runoff.

~~Interest credited~~

. The decrease in interest credited was due to our life insurance and fixed annuities businesses, which decreased $5 million and $18 million, respectively, primarily driven by a decline in average account values and lower crediting ratesunfavorable market changes in the current year.

~~139~~

Interest expense.

~~Table of Contents~~

~~Amortization of deferred acquisition costs and intangibles.~~

~~The decrease in amortization of DAC and intangibles~~Interest expense was ~~primarily related to~~flat as the early redemption of

non-recourse

funding obligations in our life insurance business ~~principally from an unfavorable model refinement in the prior year that did not~~

~~recur, partially~~was offset by ~~higher lapses primarily associated with our large~~the

write-off

~~20-year~~

~~term life insurance block issued~~of $4 million in ~~1999 entering its post-level premium period and higher reinsurance rates in the current year.~~

deferred borrowing costs.

Provision (benefit) for income taxes.

The effective tax rate was ~~29.9%~~17.5% and ~~34.6%~~28.5% for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The decrease in the effective tax rate was largely attributable to ~~higher~~ a

pre-tax

loss in the current year compared to

pre-tax

income in the ~~current~~prior year.

U.S. Life Insurance selected operating performance measures

Long-term care insurance

The following table sets forth selected operating performance measures regarding our individual and group long-term care insurance ~~business~~products for the ~~dates~~periods indicated:

Three months ended
June 30,

Increase
(decrease) and
percentage
change

Six months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

  2019

  2018

2019 vs. 2018

2019

2018

2019 vs. 2018

Net earned premiums:

Individual long-term care insurance $
610
$
604
$
6

1
% $
1,209
$
1,207
$
2

—
%
Group long-term care insurance
30

28

2

7
%
59

56

3

5
%

Total $
640
$
632
$
8

1
% $
1,268
$
1,263
$
5

—
%

Loss ratio
74
%
75
%
(1
)%

78
%
79
%
(1
)%


	Three months ended March 31,						Increase (decrease) and percentage change
(Amounts in millions)	2020			2019			2020 vs. 2019
Net earned premiums:
Individual long-term care insurance	$	611		$	599		$	12		2	%
Group long-term care insurance		31			29			2		7	%

Total	$	642		$	628		$	14		2	%

Loss ratio		78	%		81	%		(3	)%

The loss ratio is the ratio of benefits and other changes in reserves less tabular interest on reserves less loss adjustment expenses to net earned premiums.

Net earned premiums increased ~~for~~in the ~~three and six months ended June 30, 2019~~current year largely from ~~$24~~$34 million ~~and $41 million, respectively,~~ of increased premiums from

in-force

rate actions approved and implemented, partially offset by policy terminations and policies entering

paid-up

status in the current year.

The loss ratio decreased ~~slightly for the three and six months ended June 30, 2019~~ largely related to the ~~increase in~~higher premiums ~~mostly offset by the higher benefits and other changes in reserves as~~ discussed above.

111

~~140~~

Table of Contents

Life insurance

The following ~~tables set~~table sets forth selected operating performance measures regarding our life insurance business as of or for the dates indicated:

Three months
ended June 30,

Increase
(decrease) and
percentage
change

Six months
ended June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

  2019

  2018

2019 vs. 2018

  2019

  2018

2019 vs. 2018

Term and whole life insurance

Net earned premiums $
73
$
80
$
(7
)
(9
)% $
154
$
171
$
(17
)
(10
)%
Term universal life insurance

Net deposits
59

61

(2
)
(3
)%
117

122

(5
)
(4
)%
Universal life insurance

Net deposits
141

126

15

12
%
217

258

(41
)
(16
)%
Total life insurance

Net earned premiums and deposits $
273
$
267
$
6

2
% $
488
$
551
$
(63
)
(11
)%


	As of or for the three months ended March 31,				Increase (decrease) and percentage change
(Amounts in millions)	2020		2019		2020 vs. 2019
Term and whole life insurance
Net earned premiums	$	76	$	81		$ (5	)	(6	)%
Life insurance in-force, net of reinsurance		75,992		95,245		(19,253	)	(20	)%
Life insurance in-force before reinsurance		389,553		427,879		(38,326	)	(9	)%

Term universal life insurance
Net deposits	$	56	$	58	$	(2	)	(3	)%
Life insurance in-force, net of reinsurance		111,945		114,894		(2,949	)	(3	)%
Life insurance in-force before reinsurance		112,710		115,691		(2,981	)	(3	)%

Universal life insurance
Net deposits	$	71	$	76	$	(5	)	(7	)%
Life insurance in-force, net of reinsurance		33,552		34,961		(1,409	)	(4	)%
Life insurance in-force before reinsurance		38,144		39,785		(1,641	)	(4	)%

Total life insurance
Net earned premiums and deposits	$	203	$	215	$	(12	)	(6	)%
Life insurance in-force, net of reinsurance		221,489		245,100		(23,611	)	(10	)%
Life insurance in-force before reinsurance		540,407		583,355		(42,948	)	(7	)%

As of June 30,

Percentage
change

(Amounts in millions)

2019

2018

2019 vs. 2018

Term and whole life insurance

Life insurance in-force, net of reinsurance $
91,386
$
100,475

(9
)%
Life insurance in-force before reinsurance $
419,246
$
447,429

(6
)%
Term universal life insurance

Life insurance in-force, net of reinsurance $
114,214
$
117,141

(2
)%
Life insurance in-force before reinsurance $
114,999
$
117,957

(3
)%
Universal life insurance

Life insurance in-force, net of reinsurance $
34,581
$
36,054

(4
)%
Life insurance in-force before reinsurance $
39,357
$
41,136

(4
)%
Total life insurance

Life insurance in-force, net of reinsurance $
240,181
$
253,670

(5
)%
Life insurance in-force before reinsurance $
573,602
$
606,522

(5
)%

We no longer solicit sales of our traditional life insurance products; however, we continue to service our existing blocks of business.

Term and whole life insurance

Net earned premiums decreased ~~for the three and six months ended June 30, 2019~~ mainly attributable to the continued runoff of our term life insurance products in the current ~~year as well as higher reinsurance rates for the six months ended June 30, 2019.~~year. Life insurance

in-force

also decreased as a result of ~~higher lapses primarily associated with a large 20-year term life insurance block issued in 1999 entering its post-level premium period and~~ the continued runoff of our term life insurance products in the current ~~year.~~year, including higher lapses primarily associated with a large

20-year

~~Universal~~term life insurance

Net deposits increased for the three months ended June 30, 2019 principally from higher renewals in the current year. Net deposits decreased during the six months ended June 30, 2019 primarily attributable to $100 million of funding agreements issued with the Federal Home Loan Bank of Atlanta in the prior year compared to $50 million in the current year and from the continued runoff of our in-force block.

~~141~~

~~Table of Contents~~

block entering its post-level premium period.

Fixed annuities

The following table sets forth selected operating performance measures regarding our fixed annuities business as of or for the dates indicated:

As of or for the three
months ended June 30,

As of or for the six
months ended June 30,

(Amounts in millions)

    2019

    2018

    2019

    2018

Account value, beginning of period $
14,109
$
15,881
$
14,348
$
16,401

Premiums and deposits
16

22

45

44

Surrenders, benefits and product charges
(486
)
(593
)
(1,002
)
(1,129
)

Net flows
(470
)
(571
)
(957
)
(1,085
)
Interest credited and investment performance
119

128

261

234

Effect of accumulated net unrealized investment gains (losses)
117

(66
)
223

(178
)

Account value, end of period $
13,875
$
15,372
$
13,875
$
15,372


	As of or for the three months ended March 31,
(Amounts in millions)	2020			2019
Account value, beginning of period	$	13,023		$	14,348
Deposits		22			29
Surrenders, benefits and product charges		(467	)		(516	)

Net flows		(445	)		(487	)
Interest credited and investment performance		61			142
Effect of accumulated net unrealized investment gains (losses)		(152	)		106

Account value, end of period	$	12,487		$	14,109

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We no longer solicit sales of our traditional fixed annuity products; however, we continue to service our existing block of business.

Account value decreased compared to ~~March~~December 31, 2019 ~~and December 31, 2018~~ as surrenders, ~~and~~ benefits ~~exceeded interest credited~~ and net unrealized investment ~~gains.~~losses exceeded interest credited.

Runoff segment

COVID-19

Similar to our U.S. life insurance businesses, the most significant impacts from

COVID-19

in our Runoff segment are related to the current low interest rate environment and volatile equity market environment. The low interest rate environment and declining equity markets have materially adversely impacted earnings in our variable annuity products; however, if mortality is higher in future months, it could benefit earnings in these products in future quarters.

While certain states currently have mandates in place that policies cannot be lapsed, we do not expect a significant impact on our Runoff segment. Our variable annuity, variable life insurance and corporate-owned life insurance products have not been actively sold since 2011. There is no requirement to pay premiums in the majority of our variable annuity contracts and benefits would adjust contractually based on actual premiums paid in these products.

While the impact of

COVID-19

is very difficult to predict, the related outcomes and impact on our Runoff segment will depend on the length of the pandemic and shape of the economic recovery. We could see additional losses and declines in statutory risk-based capital driven by increases to the required capital supporting our variable annuity products, as a result of the decline in equity markets and low interest rates. For a further discussion of the impact of interest rates, see “Item 7A—Quantitative and Qualitative Disclosures About Market Risk” in our 2019 Annual Report on Form

10-K.

Trends and conditions

Results of our Runoff segment are affected primarily by investment performance, interest rate levels, net interest spreads, equity market conditions, mortality, ~~policyholder loan activity, policyholder~~ surrenders and scheduled maturities. In addition, the results of our Runoff segment can significantly impact our ~~operating performance,~~ regulatory capital requirements, distributable earnings and liquidity. We use hedging strategies as well as liquidity planning and asset-liability management to help mitigate the impacts. In addition, we may consider reinsurance opportunities to further mitigate volatility in results and manage capital in the future.

We discontinued sales of our individual and group variable annuities in 2011; however, we continue to service our existing blocks of variable annuity business and accept additional deposits on existing contracts.

Equity market volatility ~~has~~and interest rate movements have caused fluctuations in the results of our variable annuity products and regulatory capital requirements. In the future, equity and interest rate market performance and volatility could result in additional gains or losses in ~~our variable annuity~~these products although associated hedging activities are expected to partially mitigate these impacts. Volatility in the results of our variable annuity products can result in favorable or unfavorable impacts on earnings and statutory capital. In addition to the use of hedging activities to help mitigate impacts related to equity market volatility and interest rate risks, in the future, we may consider reinsurance opportunities to further mitigate volatility in results and manage capital.

The results of our institutional products are impacted by scheduled maturities of the liabilities, credit and interest income performance on assets, as well as liquidity levels. While we do not actively sell institutional products, we may periodically issue funding agreements for asset-liability matching purposes.

~~Several factors may impact the time period for these products to runoff including the specific policy types, economic conditions and management strategies.~~

113

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Table of Contents

Segment results of operations

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~June 30, 2018~~March 31, 2019

The following table sets forth the results of operations relating to our Runoff segment for the periods indicated:

Three months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

    2019

    2018

2019 vs. 2018

Revenues:

Net investment income $
47
$
43
$
4

9
%

Net investment gains (losses)
(4
)
(1
)
(3
)
NM
(1)

Policy fees and other income
35

38

(3
)
(8
)%

Total revenues
78

80

(2
)
(3
)%

Benefits and expenses:

Benefits and other changes in policy reserves
13

7

6

86
%
Interest credited
40

36

4

11
%
Acquisition and operating expenses, net of deferrals
13

14

(1
)
(7
)%
Amortization of deferred acquisition costs and intangibles
4

8

(4
)
(50
)%

Total benefits and expenses
70

65

5

8
%

Income before income taxes
8

15

(7
)
(47
)%
Provision for income taxes
1

3

(2
)
(67
)%

Net income
7

12

(5
)
(42
)%
Adjustments to net income:

Net investment (gains) losses, net
(2)

2

1

1

100
%
Taxes on adjustments
—

—

—

—
%

Adjusted operating income available to Genworth Financial, Inc.’s
common stockholders
$
9
$
13
$
(4
)
(31
)%


	Three months ended March 31,					Increase (decrease) and percentage change
(Amounts in millions)	2020			2019		2020 vs. 2019
Revenues:
Net investment income	$	49		$	47	$	2		4	%
Net investment gains (losses)		(75	)		—		(75	)	NM	(1)
Policy fees and other income		33			35		(2	)	(6	)%

Total revenues		7			82		(75	)	(91	)%

Benefits and expenses:
Benefits and other changes in policy reserves		20			1		19		NM	(1)
Interest credited		41			41		—		—	%
Acquisition and operating expenses, net of deferrals		13			13		—		—	%
Amortization of deferred acquisition costs and intangibles		17			2		15		NM	(1)

Total benefits and expenses		91			57		34		60	%

Income (loss) from continuing operations before income taxes		(84	)		25		(109	)	NM	(1)
Provision (benefit) for income taxes		(18	)		5		(23	)	NM	(1)

Income (loss) from continuing operations		(66	)		20		(86	)	NM	(1)
Adjustments to income (loss) from continuing operations:
Net investment (gains) losses, net (2)		67			—		67		NM	(1)
Taxes on adjustments		(14	)		—		(14	)	NM	(1)

Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders	$	(13	)	$	20	$	(33	)	(165	)%

(1)	We define “NM” as not meaningful for increases or decreases greater than 200%.

(2)	For the three months ended ~~June 30, 2019,~~March 31, 2020, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of ~~$(2)~~$(8) million.

Adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders

The decrease to an adjusted operating loss available to Genworth Financial, Inc.’s common stockholders in the current year from adjusted operating income available to Genworth Financial, Inc.’s common stockholders

~~Adjusted operating income available to Genworth Financial, Inc.’s common stockholders decreased~~ in the prior year was predominantly from ~~higher mortality and lower fee income driven mostly by a~~the decline in ~~the average account values in our variable annuity products, partially offset by favorable~~ equity ~~market performance~~markets and interest rates in the current year.

Revenues

~~Net investment income increased mainly driven by higher policy loan income in our corporate-owned life insurance products in the current year.~~

Net investment losses ~~increased~~ in the current year ~~primarily due~~were largely related to losses on embedded derivatives associated with our variable annuity products with guaranteed minimum withdrawal benefits (“GMWBs”) ~~compared to gains in the prior year. This increase was~~, partially offset by derivative ~~gains in the current year compared to derivative losses in the prior year.~~

~~143~~

gains.

~~Table of Contents~~

~~Policy fees and other income decreased principally from lower fee income driven mostly by a decline in the average account values in our variable annuity products in the current year.~~

Benefits and expenses

Benefits and other changes in policy reserves increased primarily attributable to higher ~~mortality in both our variable annuity and corporate-owned life insurance products in the current year.~~

~~Interest credited increased largely related to higher interest in our corporate-owned life insurance products in the current year.~~

~~Amortization of DAC and intangibles decreased related to our variable annuity products mainly from favorable equity market performance in the current year.~~

~~Provision for income taxes.~~

The effective tax rate was 15.8% and 18.9% for the three months ended June 30, 2019 and 2018, respectively. The decrease was primarily the result of a higher benefit from tax favored items in relation to lower pre-tax income in the current year.

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

~~The following table sets forth the results of operations relating to our Runoff segment for the periods indicated:~~

Six months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

    2019

    2018

2019 vs. 2018

Revenues:

Net investment income $
94
$
85
$
9

11
%
Net investment gains (losses)
(4
)
(15
)
11

73
%
Policy fees and other income
70

78

(8
)
(10
)%

Total revenues
160

148

12

8
%

Benefits and expenses:

Benefits and other changes in policy reserves
14

15

(1
)
(7
)%
Interest credited
81

73

8

11
%
Acquisition and operating expenses, net of deferrals
26

29

(3
)
(10
)%
Amortization of deferred acquisition costs and intangibles
6

15

(9
)
(60
)%

Total benefits and expenses
127

132

(5
)
(4
)%

Income before income taxes
33

16

17

106
%
Provision for income taxes
6

3

3

100
%

Net income
27

13

14

108
%
Adjustments to net income:

Net investment (gains) losses, net
(1)

2

13

(11
)
(85
)%
Taxes on adjustments
—

(3
)
3

100
%

Adjusted operating income available to Genworth Financial, Inc.’s
common stockholders
$
29
$
23
$
6

26
%

~~(1)~~

~~For the six months ended June 30, 2019 and 2018, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(2) million in each period.~~

~~144~~

~~Table of Contents~~

~~Adjusted operating income available to Genworth Financial, Inc.’s common stockholders~~

Adjusted operating income available to Genworth Financial, Inc.’s common stockholders increased predominantly from favorable equity market performance, partially offset by lower fee income driven mostly by a decline in the average account values in our variable annuity products in the current year.

~~Revenues~~

~~Net investment income increased mainly driven by higher policy loan income in our corporate-owned life insurance products in the current year.~~

Net investment losses decreased principally from lower derivative losses, partially offset by lower gains on embedded derivatives associated with our variable annuity products with GMWBs in the current year.

~~Policy fees and other income decreased principally from lower fee income driven mostly by a decrease in the average account values in our variable annuity products in the current year.~~

~~Benefits and expenses~~

~~Benefits and other changes in policy reserves decreased slightly primarily attributable to lower~~ GMDB reserves in our variable annuity products due to ~~favorable equity market performance, mostly offset by higher mortality in both our variable annuity and corporate-owned life insurance products in the current year.~~

~~Interest credited increased largely related to higher interest in our corporate-owned life insurance products in the current year.~~

~~Amortization of DAC and intangibles decreased related to our variable annuity products mainly from favorable~~unfavorable equity market performance in the current year.

114

Table of Contents

Amortization of deferred acquisition costs and intangibles increased mainly related to higher DAC amortization in our variable annuity products principally from unfavorable equity market performance in the current year.

Provision (benefit) for income ~~taxes.~~taxes

. The effective tax rate ~~increased to 18.4%~~was 22.0% and 19.4% for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~from 16.6% for the six months ended June 30, 2018.~~respectively. The increase was primarily ~~attributable to higher~~ the result of a

pre-tax ~~income, partially offset by a higher benefit from tax favored items~~

loss in the current year compared to

pre-tax

income in the prior year.

Runoff selected operating performance measures

Variable annuity and variable life insurance products

The following table sets forth selected operating performance measures regarding our variable annuity and variable life insurance products as of or for the dates indicated:

As of or for the three
months ended June 30,

As of or for the six
months ended June 30,

(Amounts in millions)

    2019

    2018

    2019

    2018

Account value, beginning of period $
5,113
$
5,619
$
4,918
$
5,884

Deposits
6

5

13

12

Surrenders, benefits and product charges
(158
)
(203
)
(319
)
(411
)

Net flows
(152
)
(198
)
(306
)
(399
)
Interest credited and investment performance
160

48

509

(16
)

Account value, end of period $
5,121
$
5,469
$
5,121
$
5,469


	As of or for the three months ended March 31,
(Amounts in millions)	2020			2019
Account value, beginning of period	$	5,042		$	4,918
Deposits		4			7
Surrenders, benefits and product charges		(166	)		(161	)

Net flows		(162	)		(154	)
Interest credited and investment performance		(359	)		349

Account value, end of period	$	4,521		$	5,113

We no longer solicit sales of our variable annuity or variable life insurance products; however, we continue to service our existing blocks of business and accept additional deposits on existing contracts and policies.

~~145~~

~~Table of Contents~~

Account value ~~increased~~decreased compared to ~~March~~December 31, 2019 ~~and December 31, 2018~~ primarily related to ~~favorable~~unfavorable equity market performance ~~partially offset by~~and surrenders in the current year.

Institutional products

The following table sets forth selected operating performance measures regarding our institutional products as of or for the dates indicated:

As of or for the three
months ended June 30,

As of or for the six
months ended June 30,

(Amounts in millions)

    2019

    2018

    2019

    2018

FABNs
(1)
and Funding Agreements

Account value, beginning of period $
305
$
185
$
381
$
260

Surrenders and benefits
(2
)
(6
)
(80
)
(82
)

Net flows
(2
)
(6
)
(80
)
(82
)
Interest credited
2

1

4

2

Account value, end of period $
305
$
180
$
305
$
180


	As of or for the three months ended March 31,
(Amounts in millions)	2020			2019
Funding Agreements
Account value, beginning of period	$	253		$	381
Surrenders and benefits		(1	)		(78	)

Net flows		(1	)		(78	)
Interest credited		1			2

Account value, end of period	$	253		$	305

~~(1)~~

~~Funding agreements backing notes~~

Account value related to our institutional products decreased compared to ~~December~~March 31, ~~2018~~2019 mainly attributable to scheduled maturities of certain funding agreements in the ~~current year.~~prior year that did not recur.

115

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Table of Contents

Corporate and Other Activities

Results of operations

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~June 30, 2018~~March 31, 2019

The following table sets forth the results of operations relating to Corporate and Other activities for the periods indicated:

Three months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

  2019

  2018

2019 vs. 2018

Revenues:

Premiums $
2
$
3
$
(1
)
(33
)%
Net investment income
3

3

—

—
%
Net investment gains (losses)
(7
)
—

(7
)
NM
(1)

Policy fees and other income
—

1

(1
)
(100
)%

Total revenues
(2
)
7

(9
)
(129
)%

Benefits and expenses:

Benefits and other changes in policy reserves
1

1

—

—
%
Acquisition and operating expenses, net of deferrals
9

11

(2
)
(18
)%
Interest expense
62

67

(5
)
(7
)%

Total benefits and expenses
72

79

(7
)
(9
)%

Loss before income taxes
(74
)
(72
)
(2
)
(3
)%
Provision for income taxes
5

3

2

67
%

Net loss
(79
)
(75
)
(4
)
(5
)%
Adjustments to net loss:

Net investment (gains) losses
7

—

7

NM
(1)

Expenses related to restructuring
1

—

1

NM
(1)

Taxes on adjustments
(1
)
—

(1
)
NM
(1)

Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders $
(72
) $
(75
) $
3

4
%


	Three months ended March 31,						Increase (decrease) and percentage change
(Amounts in millions)	2020			2019			2020 vs. 2019
Revenues:
Premiums	$	2		$	2		$	—		—	%
Net investment income		6			2			4		200	%
Net investment gains (losses)		46			(21	)		67		NM	(1)
Policy fees and other income		1			1			—		—	%

Total revenues		55			(16	)		71		NM	(1)

Benefits and expenses:
Benefits and other changes in policy reserves		1			1			—		—	%
Acquisition and operating expenses, net of deferrals		18			13			5		38	%
Interest expense		46			53			(7	)	(13	)%

Total benefits and expenses		65			67			(2	)	(3	)%

Loss from continuing operations before income taxes		(10	)		(83	)		73		88	%
Provision (benefit) for income taxes		2			(9	)		11		122	%

Loss from continuing operations		(12	)		(74	)		62		84	%
Adjustments to loss from continuing operations:
Net investment (gains) losses		(46	)		21			(67	)	NM	(1)
Losses on early extinguishment of debt		8			—			8		NM	(1)
Expenses related to restructuring		1			—			1		NM	(1)
Taxes on adjustments		8			(5	)		13		NM	(1)

Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders	$	(41	)	$	(58	)	$	17		29	%

(1)	We define “NM” as not meaningful for increases or decreases greater than 200%.

Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders

The adjusted operating loss available to Genworth Financial, Inc.’s common stockholders decreased primarily related to lower interest expense and ~~provisional tax~~higher investment income in the current year.

~~expense of $19 million~~

Revenues

Net investment income increased primarily from higher average invested assets in the current year.

The change to net investment gains in the current year from net investment losses in the prior year ~~that did not recur, partially offset by $11 million of higher taxes~~was predominantly related to derivative gains in the current year ~~associated with the GILTI provision of the TCJA.~~

~~Revenues~~

~~Net investment~~compared to derivative losses in the ~~current year were predominantly related to derivative losses.~~prior year.

Benefits and expenses

Acquisition and operating expenses, net of deferrals, increased mainly driven by a make-whole premium of $9 million related to the early redemption of Genworth Holdings’ senior notes originally scheduled to mature in June 2020 and higher employee-related expenses, partially offset by lower operating expenses in the current year.

116

Table of Contents

Interest expense decreased largely driven by the early redemption ~~of $597 million of Genworth Holding’s senior notes in May 2018.~~

The increase in the provision for income taxes was principally driven by a current year tax expense related to the GILTI provision of the TCJA. GILTI has an unfavorable impact on our current year tax provision due to

~~147~~

~~Table of Contents~~

the utilization of net operating loss carryforwards and projected taxable losses in the U.S. life insurance businesses without any offsetting foreign tax credit carryforwards. The higher taxes associated with GILTI are expected to continue for the remainder of 2019 and into 2020 but are subject to change depending on variations in business results and the potential disposition of Genworth Canada. The increase was also attributable to tax benefits from foreign tax credits

and discrete tax adjustments in the prior year that did not recur and higher taxes from unrealized gains on equity securities in the current year. These increases were partially offset by provisional tax expense of $19 million in the prior year related to a revaluation of deferred tax assets and liabilities on our foreign subsidiaries that did not recur.

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

~~The following table sets forth the results of operations relating to Corporate and Other activities for the periods indicated:~~

Six months ended
June 30,

Increase
(decrease) and
percentage
change

(Amounts in millions)

  2019

  2018

2019 vs. 2018

Revenues:

Premiums $
4
$
5
$
(1
)
(20
)%
Net investment income
6

5

1

20
%
Net investment gains (losses)
(28
)
(1
)
(27
)
NM
(1)

Policy fees and other income
1

(1
)
2

200
%

Total revenues
(17
)
8

(25
)
NM
(1)

Benefits and expenses:

Benefits and other changes in policy reserves
2

2

—

—
%
Acquisition and operating expenses, net of deferrals
16

22

(6
)
(27
)%
Amortization of deferred acquisition costs and intangibles
—

1

(1
)
(100
)%
Interest expense
123

132

(9
)
(7
)%

Total benefits and expenses
141

157

(16
)
(10
)%

Loss before income taxes
(158
)
(149
)
(9
)
(6
)%
Provision (benefit) for income taxes
10

(14
)
24

171
%

Net loss
(168
)
(135
)
(33
)
(24
)%
Adjustments to net loss:

Net investment (gains) losses
28

1

27

NM
(1)

Expenses related to restructuring
1

—

1

NM
(1)

Taxes on adjustments
(6
)
—

(6
)
NM
(1)

Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders $
(145
) $
(134
) $
(11
)
(8
)%

~~(1)~~

~~We define “NM” as not meaningful for increases or decreases greater than 200%.~~

~~Adjusted operating loss available to Genworth Financial, Inc.’s common stockholders~~

The adjusted operating loss available to Genworth Financial, Inc.’s common stockholders increased primarily related to $23 million of higher taxes in the current year associated with the GILTI provision of the TCJA, partially offset by lower interest expense and operating costs in the current year and provisional tax

~~expense of $19 million in the prior year that did not recur.~~

~~Revenues~~

~~Net investment losses increased predominantly from higher derivative losses in the current year.~~

~~148~~

~~Table of Contents~~

~~Benefits and expenses~~

~~Acquisition and operating expenses, net of deferrals, decreased mainly driven by a decrease in employee related expenses and lower operating costs in the current year.~~

~~Interest expense decreased largely driven by the redemption of $597 million~~ of Genworth Holdings’ senior notes originally scheduled to mature in ~~May 2018,~~June 2020.

The provision for income taxes for the three months ended March 31, 2020 primarily related to discrete and

non-deductible

expenses, partially offset by ~~higher interest expense attributable to the term loan that Genworth Holdings closed in March 2018 and from our junior subordinated notes which had~~ a ~~higher floating rate of interest in the current year.~~

~~We had a current year~~ tax ~~expense compared to a prior year tax benefit. The current year tax expense was principally~~benefit related to the ~~GILTI~~

pre-tax

loss. The benefit for income taxes for the three months ended March 31, 2019 was principally from the tax benefit related to the

pre-tax

loss, partially offset by tax expenses related to the Global Intangible Low Taxed Income provision of the ~~TCJA. GILTI has an unfavorable impact~~TCJA and gains on ~~our current year tax provision due~~forward starting swaps settled prior to the ~~utilization~~enactment of ~~net operating loss carryforwards and projected taxable losses in~~ the U.S. life insurance businesses without any offsetting foreign tax credit carryforwards. The higher taxes associated with GILTI are expected to continue for the remainder of 2019 and into 2020 but are subject to change depending on variations in business results and the potential disposition of Genworth Canada. The prior year tax benefit was mostly attributable to foreign tax credits, partially offset by provisional tax

~~expense of $19 million related to a revaluation of deferred tax assets and liabilities on our foreign subsidiaries.~~

TCJA.

Investments and Derivative Instruments

Trends and conditions

Investments—credit and investment markets

~~Ongoing global trade tensions, slower global growth and a negative inflation outlook drove~~During the

first quarter of 2020, the U.S. Federal Reserve decreased interest rates 150 basis points in response to ~~continue to shift its interest rate policy in~~ the ~~second quarter~~negative economic impact of ~~2019.~~

COVID-19.

The accommodative economic policies from the U.S. Federal Reserve ~~is weighing a potential interest rate cut~~and negative growth expectations drove U.S. Treasury yields down approximately 100 to 150 basis points, setting new record lows, with the decline in 2019 and/or 2020 and has maintained its current projection of no rate increases in 2019. The U.S. Federal Reserve’s latest projection is a change from its March 2019 projection of one rate increase in 2020. The U.S. Federal Reserve’s projected interest rate revision coupled with more accommodative monetary polices from other

~~non-U.S.~~

~~central banks drove both domestic and foreign government bond yields lower in the second quarter of 2019, with~~ short-term interest ~~rate declines~~rates outpacing ~~decreases~~the decline in long-term interest rates. ~~Portions~~The

10-year

Treasury yield fell to a low of 54 basis points during the first quarter of 2020, over 80 basis points lower than the previous historic low set in July 2016, before finishing the first quarter of 2020 at 70 basis points.

Preliminary economic data related to

COVID-19

indicate an upcoming recession, with record U.S. initial unemployment claims of approximately 30 million through late April 2020, negative monthly inflation and historically low retail sales and industrial production. In response to the escalating risks from

COVID-19

and in an effort to stimulate the U.S. economy, the CARES Act was signed into law during the first quarter of 2020, which provided approximately $2.0 trillion of relief to individuals, businesses and government agencies, including government assistance and income tax benefits to businesses and enhanced unemployment and health benefits to individuals. The global economic slowdown has driven other global central banks and foreign governments to take similar accommodative actions to stabilize capital markets and implement fiscal stimulus to support their respective domestic economies.

Credit markets responded to

COVID-19

and the subsequent economic downturn with widening of credit spreads to recessionary levels. Stay at home orders and partial economic shutdowns are expected to place strain on earnings and corporate balance sheets for the next two quarters and possibly for the remainder of 2020, which when combined with forced liquidations as a result of liquidity strains, further contributed to the credit spread widening. A crude oil price war triggered by supply and demand imbalance decreased crude oil prices over 60% in the current year and contributed to additional credit spread widening and pressure to the energy sector. On March 23, 2020, the U.S. Federal Reserve announced new quantitative easing programs to help support credit markets, including a $2.3 trillion program that includes a $750 billion corporate credit facility to purchase investment grade and certain high yield corporate securities, amongst other facilities to support the loan, municipal and structured markets. This support from the U.S. Federal Reserve helped reverse some of the ~~U.S. Treasury yield curve inverted~~initial credit spread widening resulting from

COVID-19,

with credit spreads continuing to tighten during April 2020 but remaining near recessionary levels.

During the first quarter of 2020, we did not have any modifications or extensions of commercial mortgage loans that were considered troubled debt restructurings. As a result of

COVID-19

, we expect the number of modifications or extensions related to our commercial mortgage loans to increase during the remainder of 2020. We are working with individual borrowers impacted by

COVID-19

to provide alternative forms of relief for a specified period of time. Most of our borrowers are current on payments and we do not anticipate a significant impact from troubled debt restructurings in ~~late May 2019~~2020.

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The United Kingdom completed its exit from the European Union (“Brexit”) on January 31, 2020. In accordance with the current withdrawal agreement, the legal exit is followed by a transition period that ends on December 31, 2020, during which the United Kingdom continues to remain within the European Union’s single market and ~~continued through~~customs union. During the ~~end~~transition period, the United Kingdom is expected to negotiate and finalize a trade agreement with the European Union which will lay out the terms of the ~~second quarter of 2019, as~~future trading relation between the ~~yield on the U.S.~~

~~10-year~~

~~Treasury note dipped below the yield on the~~

~~3-month~~

Treasury bill. Credit markets also saw a brief period of volatility in May 2019, with spread widening due to escalating U.S. and China trade tensions and a short-lived tariff threat with Mexico, but subsequently recovered in June 2019 driven mostly by renewed optimism on trade, expectations of accommodative central bank policies and rebounding investor demand for bonds.

two parties. The nature, timing and implications of ~~the United Kingdom’s proposed withdrawal from the European Union (“Brexit”)~~these trade negotiations remain uncertain. On April 10, 2019, the European Union Council approved a negotiation extension with a deadline of October 31, 2019. During the second quarter of 2019, the then-current United Kingdom Prime Minister announced she was stepping down and subsequent to the second quarter of 2019, a new Prime Minister was elected to assume the position. While the Brexit extension removes the near-term risks of the United Kingdom leaving the European Union with neither a trade agreement nor a transition period in place, it still leaves many open items and uncertainties, particularly given the election of a new Prime Minster and an unknown Brexit strategy.

Our investment portfolio maintained approximately ~~$2.7~~$2.6 billion of United Kingdom exposure, or approximately 4% of total ~~invested assets~~fixed maturity securities as of ~~June 30, 2019.~~March 31, 2020. These assets were primarily U.S. dollar-denominated fixed-income investments and we held no direct United Kingdom sovereign exposure. While the ultimate range of Brexit outcomes could lead to potential credit devaluation or rating agency downgrades of our United Kingdom related ~~exposures,~~investments, at this time, we do not believe there is a material risk of investment impairments arising from the various Brexit scenarios.

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As of ~~June 30, 2019,~~March 31, 2020, our fixed maturity securities portfolio, which was ~~97%~~96% investment grade, comprised ~~85%~~81% of our total ~~investment portfolio.~~invested assets and cash.

Derivatives

Several of our master swap agreements previously contained credit downgrade provisions that allowed either party to assign or terminate the derivative ~~transactions~~transaction if the other party’s long-term unsecured ~~debt rating~~credit or financial strength rating was below the limit defined in the applicable agreement. ~~Beginning in 2018, we~~We renegotiated with many of our counterparties to remove the credit downgrade provisions from the master swap agreements entirely or replace

them with a provision that allows the counterparty to terminate the derivative ~~transactions~~transaction if the RBC ratio of the applicable insurance company goes below a certain ~~threshold. During 2019, we successfully completed these negotiations, therefore,~~threshold and as of March 31, 2020, none of our insurance company master swap agreements have credit downgrade ~~provisions as of June 30, 2019.~~provisions. As of ~~June 30, 2019,~~March 31, 2020, the RBC ratios of the respective insurance companies were above the thresholds negotiated in the applicable master swap agreements and therefore, no counterparty had rights to take action against us under the RBC threshold provisions.

As of ~~June 30, 2019, $9.7~~March 31, 2020, $8.0 billion notional of our derivatives portfolio was cleared through the Chicago Mercantile Exchange (“CME”). The customer swap agreements that govern our cleared derivatives contain provisions that enable our clearing agents to request initial margin in excess of CME requirements. As of ~~June 30, 2019,~~March 31, 2020, we posted initial margin of ~~$217~~$319 million to our clearing agents, which represented approximately ~~$65~~$94 million more than was otherwise required by the clearinghouse. Because our clearing agents serve as guarantors of our obligations to the CME, the customer agreements contain broad termination provisions that are not specifically dependent on ratings. As of ~~June 30, 2019, $15.0~~March 31, 2020, $10.9 billion notional of our derivatives portfolio was in bilateral

over-the-counter

(“OTC”) derivative transactions pursuant to which we have posted aggregate independent amounts of ~~$294~~$448 million and are holding collateral from counterparties in the amount of ~~$87~~$1,018 million.

In July 2017, the United Kingdom Financial Conduct Authority announced its intention to transition away from the LIBOR, with its full elimination to occur after 2021. The announcement indicates that LIBOR may not continue to be available on the current basis (or at all) after 2021. The last committed publication date for LIBOR is December 31, 2021. The Alternate Reference Rate Committee, convened by the Board of Governors of the Federal Reserve System and the New York Federal Reserve Bank, has endorsed the Secured Overnight Financing Rate (“SOFR”) as its preferred replacement benchmark for U.S. dollar LIBOR. SOFR is calculated and published by the New York Federal Reserve Bank and reflects the combination of three overnight U.S. Treasury Repo Rates. The rate is different from LIBOR, in that it is a risk-free rate, is backward-looking instead of forward-looking, is a secured rate and currently is available primarily as an overnight rate rather than as

1-,

and

6-month

rates available for LIBOR. Upon the announcement, we formed a working group comprised of finance, investments, derivative, and tax professionals, as well as lawyers (the “Working Group”) to evaluate contracts

118

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Table of Contents

and perform analysis of our LIBOR-based derivative instrument and investment exposure, as well as debt (including subordinated debt and Federal Home Loan Bank loans), reinsurance agreements and institutional products within the Runoff segment, as a result of the elimination of LIBOR. The Working Group took inventory of all investments with LIBOR exposure and identified nearly 400 instruments.

We employ derivatives primarily for the purpose of hedging interest rate risk. The more closely a rate hedging instrument aligns with Treasury rate movements, the more effective it is. As a result, to the extent changes in SOFR in relation to Treasury movements were to differ meaningfully from those of LIBOR, a SOFR-based hedge could be relatively less effective. We currently track both LIBOR and SOFR changes and analyze each in comparison to Treasury rate movements. We have discovered that the difference between the two comparisons is de minimis. Therefore, we do not believe a move to SOFR will have a material impact on our derivatives portfolio. Although we expect a minimal impact from this conversion, we remain actively engaged with the broader financial services community on the topic of SOFR, including conversations with peers, derivatives clearinghouses, bilateral dealers and external legal counsel. With regard to derivatives, we expect the process for implementing SOFR as a replacement rate to be relatively seamless. The International Swap and Derivatives Association (“ISDA”) has developed a contractual supplement to derivatives trading documentation that includes triggers and fallbacks for determining the replacement for a benchmark rate. The supplement may be agreed to between counterparties or through an ISDA protocol. In addition, ISDA has drafted an amendment to the 2006 Interbank Offered Rate definitions and a related protocol for legacy transactions.

For our other instruments and contracts, including investments, debt and reinsurance contracts, there is a wide variety in replacement language ranging from a rate freeze to silence on the matter. With respect to instruments that include a rate replacement, we will comply with the process prescribed by each instrument. For investments that do not contain such a replacement, we will generally endeavor to agree upon a replacement rate with our counterparties well in advance of LIBOR’s transition. In some cases, such as our long-term junior subordinated notes that mature in 2066 and are linked to three-month LIBOR, we may decide not to replace LIBOR which would

lock-in

the last published rate. We understand that the investment community is inclined to adopt SOFR as a substitute rate. Therefore, the adoption of SOFR will add certainty to the process of replacing LIBOR as the reference rate for many instruments. We do acknowledge the complications in calculating the credit spread necessary to equate SOFR to LIBOR and will monitor the potential risk.

We are at different stages of assessing operational readiness for LIBOR cessation related to our various instruments. These stages range from derivatives, where we are fully operationally ready, to other products and instruments, as well as tax impacts, where we have just begun our assessment process. Our Working Group will continue to monitor the process of elimination and replacement of LIBOR. Since the initial announcement, we have terminated a portion of our LIBOR-based swaps and entered into alternative rate swaps. In anticipation of the elimination of LIBOR, we plan to continue to convert our remaining LIBOR-based derivatives in a similar manner. In addition, our

non-recourse

funding obligations with interest rates based on

one-month

LIBOR were redeemed in January 2020. We expect to implement additional measures that we believe will ease the transition from LIBOR. Even though we have begun to take these actions, as described above, it is too early to determine the ultimate impact the elimination of LIBOR will have on our results of operations or financial condition.

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Table of Contents

Investment results

The following ~~tables set~~table sets forth information about our investment income, excluding net investment gains (losses), for each component of our investment portfolio for the periods indicated:

Three months ended June 30,

  Increase (decrease)

2019

2018

2019 vs. 2018

(Amounts in millions)

Yield

Amount

Yield

Amount

Yield

Amount

Fixed maturity securities—taxable
4.6
% $
665

4.5
% $
651

0.1
% $
14

Fixed maturity securities—non-taxable
6.1
%
2

3.8
%
3

2.3
%
(1
)
Equity securities
6.3
%
10

5.1
%
10

1.2
%
—

Commercial mortgage loans
4.8
%
84

4.8
%
77

—
%
7

Restricted commercial mortgage loans related to
a securitization entity

7.0
%
1

8.4
%
2

(1.4
)%
(1
)
Policy loans
8.8
%
45

9.0
%
41

(0.2
)%
4

Other invested assets
(1)

28.7
%
59

49.3
%
53

(20.6
)%
6

Cash, cash equivalents, restricted cash and
short-term investments

1.9
%
11

1.7
%
14

0.2
%
(3
)

Gross investment income before expenses and fees
5.0
%
877

4.8
%
851

0.2
%
26

Expenses and fees
(0.2
)%
(25
)
(0.1
)%
(23
)
(0.1
)%
(2
)

Net investment income
4.8
% $
852

4.7
% $
828

0.1
% $
24

Average invested assets and cash
$
70,752

$
70,466

$
286

Six months ended June 30,

Increase (decrease)

2019

2018

2019 vs. 2018

(Amounts in millions)

Yield

Amount

Yield

Amount

Yield

Amount

Fixed maturity securities—taxable
4.5
% $
1,308

4.5
% $
1,286

—
% $
22

Fixed maturity securities—non-taxable
6.1
%
4

3.8
%
6

2.3
%
(2
)
Equity securities
5.9
%
19

5.2
%
20

0.7
%
(1
)
Commercial mortgage loans
4.8
%
165

5.0
%
159

(0.2
)%
6

Restricted commercial mortgage loans related to
a securitization entity

6.8
%
2

8.1
%
4

(1.3
)%
(2
)
Policy loans
9.2
%
91

9.3
%
84

(0.1
)%
7

Other invested assets
(1)

31.1
%
118

44.0
%
92

(12.9
)%
26

Cash, cash equivalents, restricted cash and
short-term investments

2.0
%
23

1.5
%
26

0.5
%
(3
)

Gross investment income before expenses and fees
4.9
%
1,730

4.8
%
1,677

0.1
%
53

Expenses and fees
(0.1
)%
(49
)
(0.2
)%
(45
)
0.1
%
(4
)

Net investment income
4.8
% $
1,681

4.6
% $
1,632

0.2
% $
49

Average invested assets and cash
$
70,598

$
70,529

$
69


	Three months ended March 31,												Increase (decrease)
	2020						2019						2020 vs. 2019
(Amounts in millions)	Yield			Amount			Yield			Amount			Yield			Amount
Fixed maturity securities—taxable		4.6	%	$	622			4.6	%	$	613			—	%	$	9
Fixed maturity securities—non-taxable		5.2	%		2			6.1	%		2			(0.9	)%		—
Equity securities		3.8	%		2			6.1	%		4			(2.3	)%		(2	)
Commercial mortgage loans		4.9	%		85			4.8	%		82			0.1	%		3
Policy loans		9.5	%		49			9.5	%		46			—	%		3
Other invested assets (1)		17.7	%		47			33.5	%		59			(15.8	)%		(12	)
Cash, cash equivalents, restricted cash and short-term investments		1.4	%		11			2.1	%		11			(0.7	)%		—

Gross investment income before expenses and fees		4.9	%		818			5.0	%		817			(0.1	)%		1
Expenses and fees		(0.2	)%		(25	)		(0.2	)%		(23	)		—	%		(2	)

Net investment income		4.7	%	$	793			4.8	%	$	794			(0.1	)%	$	(1	)

Average invested assets and cash				$	67,334					$	65,678					$	1,656

(1)	Investment income for other invested assets includes amortization of terminated cash flow hedges, which have no corresponding book value within the yield calculation and includes limited partnership investments, which are primarily equity-based and do not have fixed returns by period.

Yields are based on net investment income as reported under U.S. GAAP and are consistent with how we measure our investment performance for management purposes. Yields are annualized, for interim periods, and

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are calculated as net investment income as a percentage of average quarterly asset carrying values except for fixed maturity securities, derivatives and derivative counterparty collateral, which exclude unrealized fair value adjustments and securities lending activity, which is included in other invested assets and is calculated net of the corresponding securities lending liability.

For the three months ended ~~June 30, 2019,~~March 31, 2020, annualized weighted-average investment yields ~~increased principally from higher~~decreased primarily driven by lower investment income on higher average invested assets. Net investment income included $5$17 million of lower limited partnership income, mostly offset by $10 million of higher prepayment speed adjustments on ~~mortgage-backed~~structured securities and $4$6 million of higher income related to inflation-driven volatility on U.S. Government Treasury Inflation Protected ~~Securities (“TIPS”). The three months ended June 30, 2019 included a decrease~~Securities.

120

Table of ~~$3 million attributable to changes in foreign exchange rates.~~Contents

For the six months ended June 30, 2019, annualized weighted-average investment yields increased primarily driven by higher investment income on higher average invested assets. Net investment income included $14 million of higher limited partnership income and $10 million of higher prepayment speed adjustments on mortgage-backed securities, partially offset by $4 million lower income related to inflation-driven volatility on TIPS. The six months ended June 30, 2019 included a decrease of $6 million attributable to changes in foreign exchange rates.

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)

  2019

  2018

  2019

  2018

Available-for-sale fixed maturity securities:

Realized gains $
5
$
13
$
86
$
20

Realized losses
(6
)
(21
)
(28
)
(37
)

Net realized gains (losses) on available-for-sale fixed maturity securities
(1
)
(8
)
58

(17
)

Impairments:

Total other-than-temporary impairments
—

—

—

—

Portion of other-than-temporary impairments included in other comprehensive income (loss)
—

—

—

—

Net other-than-temporary impairments
—

—

—

—

Net realized gains (losses) on equity securities sold
—

8

3

10

Net unrealized gains (losses) on equity securities still held
(12
)
3

(4
)
(15
)
Limited partnerships
(11
)
(2
)
4

5

Commercial mortgage loans
1

—

—

—

Derivative instruments
(22
)
(15
)
(32
)
(28
)

Net investment gains (losses) $
(45
) $
(14
) $
29
$
(45
)


	Three months ended March 31,
(Amounts in millions)	2020			2019
Available-for-sale fixed maturity securities:
Realized gains	$	14		$	79
Realized losses		(1	)		(21	)

Net realized gains (losses) on available-for-sale fixed maturity securities		13			58

Impairments:
Total other-than-temporary impairments		—			—
Portion of other-than-temporary impairments recognized in other comprehensive income		—			—

Net other-than-temporary impairments		—			—

Net change in allowance for credit losses on available-for-sale fixed maturity securities		—			—
Net realized gains (losses) on equity securities sold		—			3
Net unrealized gains (losses) on equity securities still held		(19	)		12
Limited partnerships		(40	)		15
Commercial mortgage loans		—			(1	)
Derivative instruments		(105	)		(12	)
Other		(1	)		—

Net investment gains (losses)	$	(152	)	$	75

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~June 30, 2018~~March 31, 2019

We recorded net ~~unrealized losses on equity~~gains related to the sale of fixed maturity securities of $13 million during the three months ended ~~June 30, 2019 largely related to our Canada Mortgage Insurance segment principally from losses on preferred equity securities whose values are influenced~~March 31, 2020 primarily driven by Canadian bond yields, which saw a decrease in the second quarter of 2019. The three months ended June 30, 2019 also included mark to market adjustments resulting in higher net losses of $9 million on limited partnerships compared to the three months ended June 30, 2018. The three months ended June 30, 2018 included net unrealized gains from changes in the fair value of equity securities driven principally by favorable equity market performance.

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~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

portfolio rebalancing and asset exposure management. We recorded net realized gains of $58 million during the ~~six~~three months ended ~~June 30,~~March 31, 2019 primarily ~~from the sale of U.S. government, agencies and government-sponsored enterprises securities and~~related to cash tenders from merger and acquisition ~~activity~~activity.

The change to net unrealized losses on equity securities and limited partnership investments during the three months ended March 31, 2020 from net unrealized gains during the three months ended March 31, 2019 was primarily from unfavorable equity market performance in the current year compared to ~~$17~~favorable equity market performance in the prior year.

We recorded net losses related to derivatives of $105 million ~~of net realized losses~~ during the ~~six~~three months ended ~~June 30, 2018.~~

March 31, 2020 primarily associated with hedging programs that support our runoff variable annuity products and losses from our foreign currency hedging programs that support our Australia Mortgage Insurance segment due to the decline in the Australian dollar, partially offset by gains from hedging programs used to protect statutory surplus from equity market fluctuations.

We recorded net losses related to derivatives of $12 million during the three months ended March 31, 2019 primarily associated with losses related to hedging programs for our runoff variable annuity products and fixed indexed annuity products, partially offset by gains from hedging programs that support our long-term care insurance products and losses from derivatives used to hedge foreign currency risk associated with expected dividend payments from our Australia mortgage insurance business.

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Table of Contents

Investment portfolio

The following table sets forth our cash, cash equivalents, restricted cash and invested assets as of the dates indicated:

June 30, 2019

December 31, 2018

(Amounts in millions)

  Carrying value

% of total

  Carrying value

% of total

Fixed maturity securities, available-for-sale:

Public $
44,013

57
% $
41,857

58
%
Private
19,761

26

17,804

25

Equity securities
644

1

655

1

Commercial mortgage loans
6,963

9

6,687

8

Restricted commercial mortgage loans related to a securitization entity
56

—

62

—

Policy loans
2,076

3

1,861

3

Other invested assets
1,535

2

1,188

2

Cash, cash equivalents and restricted cash
1,938

2

2,177

3

Total cash, cash equivalents, restricted cash and invested assets $
76,986

100
% $
72,291

100
%


	March 31, 2020					December 31, 2019
(Amounts in millions)	Carrying value		% of total			Carrying value		% of total
Fixed maturity securities, available-for-sale:
Public	$	41,864		57	%	$	42,162		57	%
Private		17,187		24			18,177		24
Equity securities		188		—			239		—
Commercial mortgage loans, net		6,915		10			6,963		9
Policy loans		2,052		3			2,058		3
Other invested assets		2,465		3			1,632		2
Cash, cash equivalents and restricted cash		2,483		3			3,341		5

Total cash, cash equivalents, restricted cash and invested assets	$	73,154		100	%	$	74,572		100	%

For a discussion of the change in cash, cash equivalents, restricted cash and invested assets, see the comparison for this line item under “—Consolidated Balance Sheets.” See note 4 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for additional information related to our investment portfolio.

We hold fixed maturity and equity securities, derivatives, embedded derivatives, securities held as collateral and certain other financial instruments, which are carried at fair value. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. As of ~~June 30, 2019,~~March 31, 2020, approximately 7% of our investment holdings recorded at fair value ~~were~~was based on significant inputs that were not market observable and were classified as Level 3 measurements. See note 6 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for additional information related to fair value.

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Fixed maturity securities

As of ~~June 30,~~March 31, 2020, 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-sponsoredenterprises	$	4,041	$	1,730	$	—		$	—	$	5,771
State and political subdivisions		2,495		374		(5	)		—		2,864
Non-U.S. government		1,118		92		(9	)		—		1,201
U.S. corporate:
Utilities		4,333		556		(22	)		—		4,867
Energy		2,426		51		(385	)		—		2,092
Finance and insurance		7,179		548		(104	)		—		7,623
Consumer—non-cyclical		5,006		725		(46	)		—		5,685
Technology and communications		3,000		312		(37	)		—		3,275
Industrial		1,304		72		(31	)		—		1,345
Capital goods		2,420		272		(28	)		—		2,664
Consumer—cyclical		1,628		134		(43	)		—		1,719
Transportation		1,344		152		(23	)		—		1,473
Other		295		40		(1	)		—		334

Total U.S. corporate		28,935		2,862		(720	)		—		31,077

Non-U.S. corporate:
Utilities		757		24		(16	)		—		765
Energy		1,158		42		(102	)		—		1,098
Finance and insurance	��	2,023		128		(40	)		—		2,111
Consumer—non-cyclical		639		43		(8	)		—		674
Technology and communications		1,021		96		(8	)		—		1,109
Industrial		877		63		(29	)		—		911
Capital goods		546		25		(10	)		—		561
Consumer—cyclical		362		12		(12	)		—		362
Transportation		554		62		(13	)		—		603
Other		1,475		155		(25	)		—		1,605

Total non-U.S. corporate		9,412		650		(263	)		—		9,799

Residential mortgage-backed (1)		2,032		258		(17	)		—		2,273
Commercial mortgage-backed		2,876		169		(64	)		—		2,981
Other asset-backed		3,227		12		(154	)		—		3,085

Total available-for-sale fixed maturity securities	$	54,136	$	6,147	$	(1,232	)	$	—	$	59,051

(1)	Fair value included $8 million collateralized by Alt-A residential mortgage loans and $19 million collateralized by sub-prime residential mortgage loans.

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Table of Contents

As of December 31, 2019, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity securities classified as

available-for-sale

were as follows:

Gross unrealized gains

Gross unrealized losses

(Amounts in millions)

Amortized
cost or
cost

Not other-than-
temporarily
impaired

Other-than-
temporarily
impaired

Not other-than-
temporarily
impaired

Other-than-
temporarily
impaired

Fair
value

Fixed maturity securities:

U.S. government, agencies and
government-sponsoredenterprises
$
4,151
$
837
$
—
$
(1
) $
—
$
4,987

State and political subdivisions
2,319

317

—

—

—

2,636

Non-U.S. government
2,496

155

—

(2
)
—

2,649

U.S. corporate:

Utilities
4,327

565

—

(13
)
—

4,879

Energy
2,468

255

—

(10
)
—

2,713

Finance and insurance
6,974

633

—

(10
)
—

7,597

Consumer—non-cyclical
4,954

616

—

(18
)
—

5,552

Technology and communications
2,893

269

—

(6
)
—

3,156

Industrial
1,242

98

—

(4
)
—

1,336

Capital goods
2,323

303

—

(6
)
—

2,620

Consumer—cyclical
1,619

127

—

(5
)
—

1,741

Transportation
1,263

152

—

(4
)
—

1,411

Other
356

40

—

—

—

396

Total U.S. corporate
28,419

3,058

—

(76
)
—

31,401

Non-U.S. corporate:

Utilities
1,114

54

—

(3
)
—

1,165

Energy
1,349

168

—

(1
)
—

1,516

Finance and insurance
2,438

191

—

(1
)
—

2,628

Consumer—non-cyclical
674

40

—

(4
)
—

710

Technology and communications
1,179

94

—

—

—

1,273

Industrial
936

81

—

—

—

1,017

Capital goods
663

33

—

(1
)
—

695

Consumer—cyclical
542

16

—

(1
)
—

557

Transportation
761

82

—

(2
)
—

841

Other
2,061

186

—

(2
)
—

2,245

Total non-U.S. corporate
11,717

945

—

(15
)
—

12,647

Residential mortgage-backed
(1)

2,511

215

14

(2
)
—

2,738

Commercial mortgage-backed
2,882

121

—

(14
)
—

2,989

Other asset-backed
3,699

38

—

(10
)
—

3,727

Total available-for-sale fixed
maturity securities
$
58,194
$
5,686
$
14
$
(120
) $
—
$
63,774


	Gross unrealized gains						Gross unrealized losses
(Amounts in millions)	Amortized cost or cost		Not other-than- temporarily impaired		Other-than- temporarily impaired		Not other-than- temporarily impaired			Other-than- temporarily impaired		Fair value
Fixed maturity securities:
U.S. government, agencies andgovernment-sponsored enterprises	$	4,073	$	952	$	—	$	—		$	—	$	5,025
State and political subdivisions		2,394		355		—		(2	)		—		2,747
Non-U.S. government		1,235		117		—		(2	)		—		1,350
U.S. corporate:
Utilities		4,322		675		—		—			—		4,997
Energy		2,404		303		—		(8	)		—		2,699
Finance and insurance		6,977		798		—		(1	)		—		7,774
Consumer—non-cyclical		4,909		796		—		(4	)		—		5,701
Technology and communications		2,883		363		—		(1	)		—		3,245
Industrial		1,271		125		—		—			—		1,396
Capital goods		2,345		367		—		(1	)		—		2,711
Consumer—cyclical		1,590		172		—		(2	)		—		1,760
Transportation		1,320		187		—		(1	)		—		1,506
Other		292		30		—		—			—		322

Total U.S. corporate		28,313		3,816		—		(18	)		—		32,111

Non-U.S. corporate:
Utilities		779		50		—		—			—		829
Energy		1,140		179		—		—			—		1,319
Finance and insurance		2,087		232		—		—			—		2,319
Consumer—non-cyclical		631		55		—		(2	)		—		684
Technology and communications		1,010		128		—		—			—		1,138
Industrial		896		92		—		—			—		988
Capital goods		565		40		—		—			—		605
Consumer—cyclical		373		24		—		—			—		397
Transportation		557		73		—		(1	)		—		629
Other		1,431		188		—		(2	)		—		1,617

Total non-U.S. corporate		9,469		1,061		—		(5	)		—		10,525

Residential mortgage-backed (1)		2,057		199		15		(1	)		—		2,270
Commercial mortgage-backed		2,897		137		—		(8	)		—		3,026
Other asset-backed		3,262		30		—		(7	)		—		3,285

Total available-for-sale fixed maturity securities	$	53,700	$	6,667	$	15	$	(43	)	$	—	$	60,339

(1)	Fair value included ~~$12~~$9 million collateralized by Alt-A residential mortgage loans and ~~$22~~$24 million collateralized by sub-prime residential mortgage loans.

124

~~154~~

Table of Contents

~~As of December 31, 2018, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity securities classified as available-for-sale were as follows:~~

Gross unrealized gains

Gross unrealized losses

(Amounts in millions)

Amortized
cost or
cost

Not other-than-
temporarily
impaired

Other-than-
temporarily
impaired

Not other-than-
temporarily
impaired

Other-than-
temporarily
impaired

Fair
value

Fixed maturity securities:

U.S. government, agencies andgovernment-sponsoredenterprises $
4,175
$
473
$
—
$
(17
) $
—
$
4,631

State and political subdivisions
2,406

168

—

(22
)
—

2,552

Non-U.S. government
2,345

72

—

(24
)
—

2,393

U.S. corporate:

Utilities
4,439

331

—

(95
)
—

4,675

Energy
2,382

101

—

(64
)
—

2,419

Finance and insurance
6,705

249

—

(132
)
—

6,822

Consumer—non-cyclical
4,891

294

—

(137
)
—

5,048

Technology and communications
2,823

110

—

(78
)
—

2,855

Industrial
1,230

41

—

(33
)
—

1,238

Capital goods
2,277

165

—

(51
)
—

2,391

Consumer—cyclical
1,592

53

—

(48
)
—

1,597

Transportation
1,283

78

—

(41
)
—

1,320

Other
376

24

—

(3
)
—

397

Total U.S. corporate
27,998

1,446

—

(682
)
—

28,762

Non-U.S. corporate:

Utilities
1,056

17

—

(32
)
—

1,041

Energy
1,320

72

—

(23
)
—

1,369

Finance and insurance
2,391

72

—

(40
)
—

2,423

Consumer—non-cyclical
756

8

—

(25
)
—

739

Technology and communications
1,168

23

—

(26
)
—

1,165

Industrial
926

36

—

(17
)
—

945

Capital goods
615

10

—

(10
)
—

615

Consumer—cyclical
532

1

—

(13
)
—

520

Transportation
689

46

—

(15
)
—

720

Other
2,218

105

—

(23
)
—

2,300

Total non-U.S. corporate
11,671

390

—

(224
)
—

11,837

Residential mortgage-backed
(1)

2,888

160

13

(17
)
—

3,044

Commercial mortgage-backed
3,054

43

—

(81
)
—

3,016

Other asset-backed
3,444

10

1

(29
)
—

3,426

Total available-for-sale fixed
maturity securities
$
57,981
$
2,762
$
14
$
(1,096
) $
—
$
59,661

~~(1)~~

~~Fair value included $19 million collateralized by Alt-A residential mortgage loans and $22 million collateralized by sub-prime residential mortgage loans.~~

Fixed maturity securities ~~increased by $4.1~~decreased $1.3 billion compared to December 31, ~~2018~~2019 principally from ~~higher~~a decrease in net unrealized gains ~~attributable to~~primarily from credit spread widening on our corporate and structured securities, partially offset by an increase in net unrealized gains on U.S. government, agencies and government-sponsored enterprises securities from a decrease in interest rates in the current year.

~~155~~

~~Table~~ The decrease in fixed maturity securities was also partially offset by purchases exceeding sales, maturities and repayments during the first quarter of ~~Contents~~2020.

Commercial mortgage loans

The following tables set forth additional information regarding our commercial mortgage loans as of the dates indicated:

June 30, 2019

(Dollar amounts in millions)

Total recorded
investment

Number of
loans

Loan-to-value
(1)

Delinquent
principal balance

Number of
delinquent
loans

Loan Year

2008 and prior $
1,186

419

38
% $
—

—

2009
—

—

—
%
—

—

2010
48

10

37
%
—

—

2011
183

45

40
%
—

—

2012
445

79

44
%
—

—

2013
621

118

48
%
—

—

2014
740

130

52
%
—

—

2015
865

139

57
%
—

—

2016
543

95

60
%
—

—

2017
758

142

65
%
—

—

2018
1,030

165

69
%
—

—

2019
559

72

71
%
—

—

Total $
6,978

1,414

55
% $
—

—


	March 31, 2020
(Dollar amounts in millions)	Total amortized cost		Number of loans		Debt-to-value (1)			Delinquent principal balance		Number of delinquent loans
Loan Year
2010 and prior	$	1,138		398		36	%	$	—		—
2011		163		41		37	%		—		—
2012		405		74		41	%		—		—
2013		570		113		46	%		—		—
2014		703		128		50	%		—		—
2015		810		133		55	%		—		—
2016		507		92		58	%		—		—
2017		735		141		60	%		—		—
2018		1,003		164		66	%		—		—
2019		803		111		71	%		—		—
2020		107		18		69	%		—		—

Total	$	6,944		1,413		54	%	$	—		—

(1)	Represents weighted-average ~~loan-to-value~~ debt-to-value as of ~~June 30, 2019.~~March 31, 2020.

December 31, 2018

(Dollar amounts in millions)

Total recorded
investment

Number of
loans

Loan-to-value
(1)

Delinquent
principal balance

Number of
delinquent
loans

Loan Year

2008 and prior $
1,310

459

39
% $
3

1

2009
—

—

—
%
—

—

2010
50

11

37
%
—

—

2011
193

46

41
%
—

—

2012
476

81

45
%
—

—

2013
656

122

48
%
3

1

2014
772

133

53
%
—

—

2015
877

139

58
%
—

—

2016
553

96

61
%
—

—

2017
773

144

66
%
—

—

2018
1,040

165

69
%
—

—

Total $
6,700

1,396

54
% $
6

2


	December 31, 2019
(Dollar amounts in millions)	Total recorded investment		Number of loans		Debt-to-value (1)			Delinquent principal balance		Number of delinquent loans
Loan Year
2010 and prior	$	1,182		419		37	%	$	—		—
2011		168		42		38	%		—		—
2012		415		75		42	%		—		—
2013		579		114		47	%		—		—
2014		720		129		50	%		—		—
2015		833		136		56	%		—		—
2016		517		93		59	%		—		—
2017		740		141		61	%		—		—
2018		1,019		165		66	%		—		—
2019		807		111		71	%		—		—

Total	$	6,980		1,425		54	%	$	—		—

(1)	Represents weighted-average ~~loan-to-value~~ debt-to-value as of December 31, ~~2018.~~2019.

125

~~156~~

Table of Contents

Other invested assets

The following table sets forth the carrying values of our other invested assets as of the dates indicated:

June 30, 2019

December 31, 2018

(Amounts in millions)

Carrying value

% of total

Carrying value

% of total

Limited partnerships $
512

34
% $
409

34
%
Bank loan investments
337

22

248

21

Derivatives
280

18

178

15

Short-term investments
273

18

230

19

Securities lending collateral
113

7

102

9

Other investments
20

1

21

2

Total other invested assets $
1,535

100
% $
1,188

100
%


	March 31, 2020					December 31, 2019
(Amounts in millions)	Carrying value		% of total			Carrying value		% of total
Derivatives	$	1,101		44	%	$	290		18	%
Limited partnerships		671		27			634		39
Bank loan investments		409		17			383		23
Short-term investments		213		9			260		16
Securities lending collateral		58		2			51		3
Other investments		13		1			14		1

Total other invested assets	$	2,465		100	%	$	1,632		100	%

~~Limited partnerships increased primarily from additional capital investments, partially offset by return of capital on our investments in the current year.~~

Derivatives increased largely from a decrease in interest rates in the current year. ~~Bank loan investments~~Limited partnerships increased primarily from ~~funding of~~ additional capital investments, partially offset by ~~principal repayments~~net unrealized losses and return of capital in the current year. Short-term investments ~~increased principally~~decreased due to ~~net purchases~~maturities and unfavorable changes in ~~our Australia and Canada Mortgage Insurance segments in the current year.~~foreign exchange rates.

Derivatives

(Notional in millions)

Measurement

December 31,
2018

Additions

Maturities/
terminations

June 30,
2019

Derivatives designated as hedges

Cash flow hedges:

Interest rate swaps Notional $
9,924
$
469
$
(1,338
) $
9,055

Foreign currency swaps Notional
80

52

(22
)
110

Total cash flow hedges
10,004

521

(1,360
)
9,165

Total derivatives designated as hedges
10,004

521

(1,360
)
9,165

Derivatives not designated as hedges

Interest rate swaps Notional
4,674

—

—

4,674

Interest rate swaps in a foreign currency Notional
2,565

187

(77
)
2,675

Interest rate caps and floors Notional
2,624

160

(66
)
2,718

Foreign currency swaps Notional
453

—

(2
)
451

Equity index options Notional
2,628

939

(1,035
)
2,532

Financial futures Notional
1,415

3,029

(3,217
)
1,227

Equity return swaps Notional
17

2

(2
)
17

Other foreign currency contracts Notional
1,080

2,925

(2,704
)
1,301

Total derivatives not designated as hedges
15,456

7,242

(7,103
)
15,595

Total derivatives $
25,460
$
7,763
$
(8,463
) $
24,760

(Number of policies)

Measurement

December 31,
2018

Additions

Maturities/
terminations

June 30,
2019

Derivatives not designated as hedges

GMWB embedded derivatives Policies
27,886

—

(1,139
)
26,747

Fixed index annuity embedded derivatives Policies
16,464

—

(410
)
16,054

Indexed universal life embedded derivatives Policies
929

—

(21
)
908


(Notional in millions)	Measurement		December 31, 2019		Additions		Maturities/ terminations			March 31, 2020
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps		Notional	$	8,968	$	1,158	$	(1,102	)	$	9,024
Foreign currency swaps		Notional		110		—		—			110

Total cash flow hedges				9,078		1,158		(1,102	)		9,134

Total derivatives designated as hedges				9,078		1,158		(1,102	)		9,134

Derivatives not designated as hedges
Interest rate swaps		Notional		4,674		—		—			4,674
Equity index options		Notional		2,451		509		(531	)		2,429
Financial futures		Notional		1,182		1,651		(1,266	)		1,567
Other foreign currency contracts		Notional		628		1,819		(1,308	)		1,139

Total derivatives not designated as hedges				8,935		3,979		(3,105	)		9,809

Total derivatives			$	18,013	$	5,137	$	(4,207	)	$	18,943


(Number of policies)	Measurement		December 31, 2019		Additions		Maturities/ terminations			March 31, 2020
Derivatives not designated as hedges
GMWB embedded derivatives		Policies		25,623		—		(561	)		25,062
Fixed index annuity embedded derivatives		Policies		15,441		—		(317	)		15,124
Indexed universal life embedded derivatives		Policies		884		—		(18	)		866

126

~~157~~

Table of Contents

The ~~decrease~~increase in the notional value of derivatives was primarily attributable to ~~terminations of interest rate swaps that support our long-term care insurance business, partially offset by~~ an increase in ~~other~~ foreign currency ~~contracts used~~derivatives entered into to hedge ~~foreign currency risk associated with expected dividend payments from foreign subsidiaries and an increase in both interest rate swaps~~a potential adverse legal settlement related to asserted claims denominated in a foreign currency and ~~interest rate caps and floors related~~an increase in financial futures to ~~our hedging strategy to mitigate interest rate risk~~hedge the GMWB liability associated with our ~~regulatory capital position.~~runoff variable annuity products.

The number of policies related to our embedded derivatives decreased as these products are no longer being offered and continue to runoff.

Consolidated Balance Sheets

Total assets

. Total assets ~~increased $3,383~~decreased $2,498 million from ~~$100,923~~$101,342 million as of December 31, ~~2018~~2019 to ~~$104,306~~$98,844 million as of ~~June 30, 2019.~~March 31, 2020.

	•	Cash, cash equivalents, restricted cash and invested assets increased $4,695 million primarily from increases of $4,113 million, $347 million, $276 million and $215 million in fixed maturity securities, other invested assets, commercial mortgage loans and policy loans, respectively. The increase in fixed maturity securities was predominantly related to higher unrealized gains principally from a decrease in interest rates, Cash, cash equivalents, restricted cash and invested assets decreased $1,418 million primarily from decreases of $1,288 million, $858 million, and $51 million in fixed maturity securities, cash, cash equivalents and restricted cash and equity securities, respectively. The decrease in fixed maturity securities was predominantly related to lower unrealized gains principally from credit spread widening, largely in our U.S. and non-U.S. corporate bond investments, partially offset by net sales of fixed maturity securities in the current year. The increase in other invested assets was primarily from higher market values of derivative assets driven mostly by a decrease in interest rates and an increase in limited partnership and bank loan investments in the current year. Commercial mortgage loans increased from higher originations and lower prepayments in the current year. The increase in policy loans was principally driven by new loans offered through our corporate-owned life insurance policies collateralized by the cash surrender value of the policy. These increases were partially offset by a decrease in cash, cash equivalents and restricted cash of $239 million largely from higher net withdrawals on our universal life and investment contracts ~~and higher origination funding of commercial mortgage loans, along with an increase in funding of limited partnership and bank loan investments in the current year.~~

DAC decreased $1,158 million predominantly related to our U.S. Life Insurance segment. We are required to analyze the impacts from net unrealized investment gains and losses on our available-for-sale investment securities backing insurance assets and liabilities, as if those unrealized investment gains and losses were realized. These “shadow accounting” adjustments result in the recognition of unrealized gains and losses on related insurance assets and liabilities in a manner consistent with the recognition of the unrealized gains and losses on available-for-sale investment securities within the statements of comprehensive income and changes in equity. During the six months ended June 30, 2019, due primarily to a decrease in interest rates ~~increasing unrealized investment gains, we decreased the DAC balance of~~favorably impacting our U.S. Life Insurance segment by $1,015 million, resulting in a cumulative decrease of $1,510 million to the DAC balance as of June 30, 2019, with an offsetting amount recorded in other comprehensive income (loss). The decrease was also attributable to amortization,government bond investments and net ~~of interest and deferrals, in our U.S. Life Insurance segment~~purchases in the current year. The decrease in cash, cash equivalents and restricted cash was largely related to the early redemption of Genworth Holdings’ senior notes originally scheduled to mature in June 2020, the early repayment of Rivermont I’s

non-recourse

funding obligations originally due in 2050 and net purchases of fixed maturity securities in the current year. Equity securities decreased principally from unfavorable equity market performance driven in large part by

COVID-19.

These decreases were partially offset by an increase of $833 million in other invested assets primarily from lower interest rates increasing derivative assets in the current year.

Deferred tax asset decreased ~~$353~~$106 million primarily due to higher unrealized gains on derivatives, partially offset by lower unrealized gains on investments ~~and derivatives~~ in the current year.

Separate account assets ~~increased $328~~decreased $1,141 million primarily due to ~~favorable~~unfavorable equity market performance and surrenders in the current year.

Total liabilities

. Total liabilities ~~increased $1,980~~decreased $2,700 million from ~~$86,734~~$86,710 million as of December 31, ~~2018~~2019 to ~~$88,714~~$84,010 million as of ~~June 30, 2019.~~March 31, 2020.

Future policy benefits ~~increased $1,643~~decreased $1,045 million primarily driven by shadow accounting adjustments associated with the recognition of ~~the higher~~lower unrealized gains. The shadow accounting adjustments ~~increased~~decreased future policy benefits by approximately ~~$1,446~~$1,110 million, mostly in our long-term care

~~158~~

~~Table~~ insurance business, with an offsetting amount recorded in other comprehensive income (loss). This decrease was partially offset by aging of ~~Contents~~our long-term care insurance

in-force

~~insurance business, with an offsetting amount recorded in other comprehensive income (loss). The increase was also attributable to aging of our long-term care insurance in-force~~ block and an increase in incremental reserves of $41 million recorded in connection with an accrual for profits followed by losses in the current year.

Policyholder account balances ~~decreased $295~~increased $96 million largely ~~as a result of~~attributable to our variable annuity business from unfavorable equity market performance, partially offset by surrenders and benefits in our fixed annuities business ~~and from scheduled maturities of certain funding agreements in our institutional products~~ in the current year. These decreases were partially offset by an increase associated with shadow accounting adjustments in connection with the recognition of the higher unrealized gains mostly in our universal life insurance products in the current year.

Liability for policy and contract claims increased ~~$298~~$174 million due principally to our long-term care insurance business primarily ~~from~~attributable to new claims, which includes higher new claims frequency as a result of the aging of the

in-force

block, ~~(including higher frequency of new claims) and~~as well as higher severity, ~~of new claims,~~ partially offset by favorable development on prior year incurred but not reported claims ~~and favorable claim terminations in the current year. These increases were partially offset by lower delinquencies in our U.S. mortgage insurance business~~ in the current year.

Unearned premiums decreased $171 million principally related to our Australia mortgage insurance business due primarily to changes in foreign exchange rates, as the U.S. dollar strengthened against the

127

Table of Contents

Australian dollar as compared to the December 31, 2019 balance sheet rate. The decrease was also attributable to earned premiums outpacing written premiums in our U.S. mortgage insurance business and from policy terminations and policies entering

paid-up

status in our long-term care insurance business.

Non-recourse

funding obligations decreased $311 million due to the early redemption of Rivermont I’s outstanding

non-recourse

funding obligations originally due in 2050.

Long-term borrowings decreased $426 million mainly attributable to the early redemption of Genworth Holdings’ 7.70% senior notes originally scheduled to mature in June 2020. In addition, Genworth Holdings repurchased $14 million principal amount of its senior notes with 2021 maturity dates in March 2020.

Total equity

. Total equity increased ~~$1,403~~$202 million from ~~$14,189~~$14,632 million as of December 31, ~~2018~~2019 to ~~$15,592~~$14,834 million as of ~~June 30, 2019.~~March 31, 2020.

We reported a net ~~income~~loss available to Genworth Financial, Inc.’s common stockholders of ~~$342~~$66 million for the ~~six~~three months ended ~~June 30, 2019.~~

March 31, 2020. We also adopted new accounting guidance on January 1, 2020 related to estimating expected credit losses that was applied on a modified retrospective basis, resulting in a $55 million decrease to retained earnings in the current year.

~~Net unrealized gains and derivatives~~Derivatives qualifying as hedges increased ~~$710~~$753 million ~~and $202 million, respectively,~~ primarily from a decrease in interest rates, partially offset by a decrease in net unrealized gains of $316 million driven largely by credit spread widening, mostly in our U.S. and

non-U.S.

corporate bond investments in the current year.

Noncontrolling interests increased $96 million predominantly related to total comprehensive income attributable to noncontrolling interests of $192 million, partially offset by dividends to noncontrolling interests of $53 million and the repurchase of shares of $44 million in the current year.

Liquidity and Capital Resources

Liquidity and capital resources represent our overall financial strength and our ability to generate cash flows from our businesses, borrow funds at competitive rates and raise new capital to meet our operating and growth needs.

Genworth and subsidiaries

The following table sets forth our unaudited condensed consolidated cash flows for the ~~six~~three months ended ~~June 30:~~March 31:

(Amounts in millions)

2019

2018

Net cash from operating activities $
795
$
561

Net cash used by investing activities
(351
)
(198
)
Net cash used by financing activities
(695
)
(943
)

Net decrease in cash before foreign exchange effect $
(251
) $
(580
)


(Amounts in millions)	2020			2019
Net cash from operating activities	$	680		$	134
Net cash from (used by) investing activities		(551	)		277
Net cash used by financing activities		(957	)		(375	)

Net increase (decrease) in cash before foreign exchange effect	$	(828	)	$	36

Our principal sources of cash include sales of our products and services, income from our investment portfolio and proceeds from sales of investments. As an insurance business, we typically generate positive cash flows from operating activities, as premiums collected from our insurance products and income received from our investments typically exceed policy acquisition costs, benefits paid, redemptions and operating expenses. Our cash flows from operating activities are affected by the timing of premiums, fees and investment income received and benefits and expenses paid. Positive cash flows from operating activities are then invested to support the obligations of our insurance and investment products and required capital supporting these products. In analyzing

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our cash flow, we focus on the change in the amount of cash available and used in investing activities. Changes in cash from financing activities primarily relate to the issuance of, and redemptions and benefit payments on, universal life insurance and investment contracts; deposits from Federal Home Loan ~~Banks (“FHLBs”);~~Banks; the issuance and acquisition of debt and equity securities; the issuance and repayment or repurchase of borrowings and

non-recourse

funding obligations; and other capital transactions.

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We had higher cash inflows from operating activities in the current year mainly attributable to posting lower collateral with counterparties related to our derivative ~~counterparties~~positions and a lower ~~tax payments, partially offset by new~~amount of policy loans issued in our corporate-owned life insurance product, partially offset by a $134 million interim litigation payment to AXA in the current year.

We had ~~cash higher~~ cash outflows from investing activities in the current year ~~mainly~~primarily driven by net purchases of ~~short-term~~fixed maturity securities and capital calls related to limited partnership investments, ~~in the current year compared to~~partially offset by net sales of short-term investments. We had cash inflows from investing activities in the prior ~~year. We also had higher commercial mortgage loan originations which outpaced repayments in the current year. These outflows were partially offset~~year mainly driven by net sales of fixed maturity and equity securities, ~~in the current year compared to net purchases in the prior year.~~partially offset by commercial mortgage loan originations outpacing repayments.

We had ~~lower~~higher cash outflows from financing activities in the current year principally ~~driven by~~from the early redemption of ~~$597~~$397 million of Genworth Holdings’ senior notes originally scheduled to mature in ~~May 2018~~June 2020, the early repayment of $315 million of Rivermont I’s

non-recourse

funding obligations originally due in 2050 and the repurchase of $14 million principal amount of Genworth Holdings’ senior notes with 2021 maturity dates, partially offset by lower net withdrawals from our investment ~~contracts in the current year, partially offset by $441 million of net proceeds in the prior year from the term loan closed in March 2018.~~contracts.

~~In the United States and Canada, we~~

We engage in certain securities lending transactions for the purpose of enhancing the yield on our investment securities portfolio. We maintain effective control over all loaned securities and, therefore, continue to report such securities as fixed maturity securities on the consolidated balance sheets. We are currently indemnified against counterparty credit risk by the intermediary.

Genworth—holding company

Genworth Financial and Genworth Holdings each act as a holding company for their respective subsidiaries and do not have any significant operations of their own. Dividends from their respective subsidiaries, payments to them under tax sharing and expense reimbursement arrangements with their subsidiaries and proceeds from borrowings or securities issuances are their principal sources of cash to meet their obligations. Insurance laws and regulations regulate the payment of dividends and other distributions to Genworth Financial and Genworth Holdings by their insurance subsidiaries. We expect dividends paid by the insurance subsidiaries will vary depending on strategic objectives, capital levels, regulatory requirements and business ~~performance.~~performance, including the expected adverse impacts from

COVID-19.

The primary uses of funds at Genworth Financial and Genworth Holdings include payment of holding company general operating expenses (including ~~taxes)~~taxes and litigation expenses related to discontinued operations), payment of principal, interest and other expenses on current and any future borrowings, payments under current and any future guarantees (including guarantees of certain subsidiary obligations), payment of amounts owed to GE under the Tax Matters Agreement, payments to subsidiaries (and, in the case of Genworth Holdings, to Genworth Financial) under tax sharing agreements, contributions to subsidiaries, repurchases of debt securities and, in the case of Genworth Holdings, loans, dividends or other distributions to Genworth Financial. In deploying future capital, important current priorities include focusing on our mortgage insurance businesses so they remain appropriately capitalized and accelerating progress on reducing overall indebtedness of Genworth Holdings. We may from time to time seek to repurchase or redeem outstanding notes for cash (with cash on hand, proceeds from the issuance of new debt and/or the proceeds from asset or stock sales) in open market purchases, tender offers, privately negotiated transactions or otherwise. We currently seek to address our indebtedness over time through repurchases, redemptions and/or repayments at maturity.

Our Board of Directors has suspended the payment of stockholder dividends on our Genworth Financial common stock indefinitely. The declaration and payment of future dividends to holders of our common stock

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will be at the discretion of our Board of Directors and will be dependent on many factors including the receipt of dividends from our operating subsidiaries, our financial condition and operating results, the capital requirements of our subsidiaries, legal requirements, regulatory constraints, our debt obligations, our credit and financial strength ratings and such other factors as the Board of Directors deems relevant. In addition, our Board of

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Directors has suspended repurchases of our Genworth Financial common stock under our stock repurchase program indefinitely. The resumption of our stock repurchase program will be at the discretion of our Board of Directors.

Genworth Holdings had ~~$358~~$525 million and ~~$429~~$1,461 million of cash, cash equivalents and restricted cash as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, respectively, which included approximately $7 million and $16 million of restricted cash, respectively.~~2019. Genworth Holdings also held ~~$45~~$50 million and ~~$75~~$70 million in U.S. government securities as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, which included approximately ~~$42~~$50 million and $48 million, respectively, of restricted ~~assets~~assets. The decrease in each period. The $403 million of cash and liquid assets as of June 30, 2019 is below our targeted cash buffer of two times expected annual external debt interest payments, as described below. In addition, Genworth Holdings ~~has an~~cash, cash equivalents and restricted cash was principally driven by the repayment of long-term debt and intercompany ~~note with~~notes and a ~~principal amount of $200~~$134 million ~~due~~interim litigation payment to AXA. For additional details on the decrease in cash, cash equivalents and restricted cash, see below under “—Capital resources and financing activities.”

During the three months ended March 31, ~~2020.~~2020 and 2019, Genworth Holdings received cash dividends from its international subsidiaries of $11 million and $47 million, respectively.

~~During~~

Due to the ~~six months ended June 30, 2019 and 2018,~~macroeconomic uncertainty resulting from COVID-19, we ~~received common stock~~may not receive further dividends from our ~~international subsidiaries~~mortgage insurance businesses in 2020. Future dividends and the timing of ~~$105 million~~their distribution will be reevaluated later in 2020 and ~~$91 million, respectively. Dividends in~~will depend on the first quarter of 2019 included proceeds of $14 million that we received through our participation in Normal Course Issuer Bid (“NCIB”) transactions completed by Genworth Canada during the fourth quarter of 2018.economic recovery from COVID-19.

Regulated insurance subsidiaries

The liquidity requirements of our regulated insurance subsidiaries principally relate to the liabilities associated with their various insurance and investment products, operating costs and expenses, the payment of dividends to us, contributions to their subsidiaries, payment of principal and interest on their outstanding debt obligations and income taxes. Liabilities arising from insurance and investment products include the payment of benefits, as well as cash payments in connection with policy surrenders and withdrawals, policy loans and obligations to redeem funding agreements.

Our insurance subsidiaries have used cash flows from operations and investment activities to fund their liquidity requirements. Our insurance subsidiaries’ principal cash inflows from operating activities are derived from premiums, annuity deposits and insurance and investment product fees and other income, including commissions, cost of insurance, mortality, expense and surrender charges, contract underwriting fees, investment management fees and dividends and distributions from their subsidiaries. The principal cash inflows from investment activities result from repayments of principal, investment income and, as necessary, sales of invested assets.

Our insurance subsidiaries maintain investment strategies intended to provide adequate funds to pay benefits without forced sales of investments. Products having liabilities with longer durations, such as certain life insurance and long-term care insurance policies, are matched with investments having similar duration such as long-term fixed maturity securities and commercial mortgage loans. Shorter-term liabilities are matched with fixed maturity securities that have short- and medium-term fixed maturities. In addition, our insurance subsidiaries hold highly liquid, high quality short-term investment securities and other liquid investment grade fixed maturity securities to fund anticipated operating expenses, surrenders and withdrawals. As of ~~June 30, 2019,~~March 31, 2020, our total cash, cash equivalents, restricted cash and invested assets were ~~$77.0~~$73.2 billion. Our investments in privately placed fixed maturity securities, commercial mortgage loans, policy loans, limited partnership investments and select mortgage-backed and asset-backed securities are relatively illiquid. These asset classes represented approximately ~~38%~~37% of the carrying value of our total cash, cash equivalents, restricted cash and invested assets as of ~~June 30, 2019.~~

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March 31, 2020.

~~Table of Contents~~

As of ~~June 30, 2019,~~March 31, 2020, our U.S. mortgage insurance business was compliant with the PMIERs capital requirements, with a prudent buffer. ~~Reinsurance~~Credit risk transfer transactions provided an aggregate of approximately ~~$470~~

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$825 million of PMIERs capital credit as of ~~June 30, 2019.~~March 31, 2020. Our U.S. mortgage insurance business may execute future capital transactions to maintain a prudent level of financial flexibility in excess of the PMIERs capital requirements given the dynamic nature of asset valuations and requirement changes over time, including additional reinsurance and other credit risk transfer transactions.

We are evaluating options for a potential dividend from our U.S. mortgage insurance business in the second half of 2019. However, we have not made a final decision and will need to consider progress on the transaction with China Oceanwide and capital requirements of our U.S. mortgage insurance subsidiaries, in addition to other factors, which are subject to change.

In April 2019, Genworth Canada announced acceptance by the Toronto Stock Exchange (“TSX”) of its Notice of Intention to Make an NCIB. Pursuant to the NCIB, Genworth Canada may, if considered advisable, purchase from time to time through May 6, 2020, up to an aggregate of approximately 4.4 million of its issued and outstanding common shares. In the second quarter of 2019, Genworth Canada repurchased approximately 1.7 million of its shares for CAD$68 million through the NCIB. We participated in the NCIB in order to maintain our ownership position of approximately 56.9% and received $28 million in cash, $20 million of which was paid to Genworth Holdings as a dividend and $8 million of which was retained by GMICO.

~~In February 2019, Genworth Mortgage Insurance Australia Limited (“Genworth Australia”) announced its intention to commence an~~

~~on-market~~

~~share~~

~~buy-back~~

program for shares up to a maximum aggregate amount of AUD$100 million. Pursuant to the program, Genworth Australia repurchased approximately 25 million shares for AUD$64 million. As the majority shareholder, we participated in

~~on-market~~

~~sales transactions during the~~

~~buy-back~~

period to maintain our ownership position of approximately 52.0% and received $23 million in cash, $19 million of which was paid as dividends to Genworth Holdings with the remainder expected to be paid as a dividend to Genworth Holdings in the third quarter of 2019. In lieu of continuing with further share

~~buy-backs~~

under this program, on July 31, 2019, Genworth Australia declared an unfranked special dividend of AUD$0.219 per share payable to shareholders in August 2019, part of which constitutes the remaining AUD$36 million of the buy-back program.

Capital resources and financing activities

~~On July 24, 2019,~~In March 2020, Genworth Holdings ~~announced~~repaid a ~~solicitation~~$200 million intercompany note due to GLIC with a maturity date of ~~consents from the holders~~March 31, 2020.

In March 2020, Genworth Holdings repurchased $14 million principal amount of its outstanding senior and junior subordinated notes to create an express authorization for the sale of all or part of our non-U.S. mortgage insurance businesses or assets, including Genworth Canada. No assurance can be given regarding the completion of the July 2019 bond consent.

~~On May 22, 2019, Genworth Canada issued at a premium, CAD$100 million fixed rate~~ senior notes with 2021 maturity dates for a

pre-tax

gain of $1 million and paid accrued interest thereon. In April 2020, Genworth Holdings repurchased an ~~interest rate~~additional $36 million principal amount of ~~4.24% that matures in 2024. The offering represents a re-opening of the 4.24%~~its senior notes ~~originally issued in April 2014. The total amount issued and outstanding associated~~ with ~~these senior notes after this most recent offering is CAD$263~~2021 maturity dates for a

pre-tax

gain of $2 million. ~~The senior notes are redeemable at the option of~~

On January 21, 2020, Genworth ~~Canada, in whole or in part, at any time. In June 2019, Genworth Canada used the proceeds of the offering to~~Holdings early ~~redeem approximately CAD$100~~redeemed $397 million of ~~the 5.68%~~its 7.70% senior notes originally scheduled to mature in June 2020 for a

pre-tax

loss of $9 million. The senior notes were fully redeemed with a cash payment of $409 million, comprised of the outstanding principal balance of $397 million, accrued interest of $3 million and ~~incurred an~~a make-whole premium of $9 million.

In January 2020, upon receipt of approval from the Director of Insurance of the State of South Carolina, Rivermont I, our indirect wholly-owned special purpose consolidated captive insurance subsidiary, redeemed all of its $315 million of outstanding

non-recourse

funding obligations due in 2050. The early redemption ~~fee~~resulted in a

pre-tax

loss of ~~CAD$3 million.~~$4 million from the

write-off

of deferred borrowing costs.

~~162~~

~~Table~~In January 2020, we made an interim payment to AXA for approximately $134 million, which was accrued as a contingent liability as of ~~Contents~~December 31, 2019. Additional amounts may be due following the damages hearing scheduled for June 2020. To date, AXA has submitted invoices to us claiming aggregate losses of approximately £489 million, of which £100 million ($134 million) was paid in January 2020. AXA is also seeking a tax gross-up on the amount invoiced for an additional £115 million. AXA may also claim and seek additional losses at the damages hearing scheduled for June 2020. See note 12 to our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” for additional details.

We believe existing cash held at Genworth Holdings combined with dividends from operating subsidiaries, payments under tax sharing and expense reimbursement arrangements with subsidiaries, proceeds from borrowings or securities issuances, and if necessary, sales of assets, as described below, will provide us with sufficient capital flexibility and liquidity to meet our projected future operating and financing requirements. We actively monitor our liquidity position, liquidity generation options and the credit markets given changing market conditions. Our cash management target is to maintain a cash buffer of two times expected annual external debt interest payments. ~~During the first quarter of 2019, we were below our targeted cash buffer by approximately $100 million and we remained below our targeted cash buffer by the same amount in the second quarter of 2019.~~ We may move below or above our targeted cash buffer during any given quarter due to the timing of cash outflows and inflows or from future actions. We continue to evaluate our target level of liquidity as circumstances warrant. Additionally, we will continue to evaluate market influences on the valuation of our senior debt and may consider additional opportunities to repurchase our debt over time. We cannot predict with ~~any~~ certainty the impact to us from ~~any~~ future disruptions in the credit markets or the recent or any further future downgrades by one or more of the rating agencies of the financial strength ratings of our insurance company subsidiaries and/or the credit ratings of our holding companies. In connection with the Eleventh Waiver and Agreement, to facilitate the China Oceanwide transaction, the parties concluded that exploring a potential disposition of Genworth Canada is in the best interests of the parties. Another possible benefit of a

~~sale of Genworth Canada would be the opportunity to use the proceeds to satisfy future debt maturities.~~company debt. In the absence of the transaction with China Oceanwide, we may need to pursue ~~other~~financing transactions or potential asset sales to address our debt maturities, ~~in 2020 and thereafter,~~ including a potential ~~sale of~~transaction with respect to our U.S. mortgage insurance business and/or our mortgage insurance business in Australia. ~~We have~~The timing and ~~would continue to evaluate options to insulate our U.S. mortgage insurance business from additional ratings pressure, including a~~feasibility of such potential ~~partial sale, in the event the transaction with China Oceanwide cannot~~transactions may adversely be ~~completed.~~affected by COVID-19. The availability of additional funding will depend on a variety of factors such as market conditions, regulatory considerations, the general availability of credit, the overall availability of credit to the financial services industry, the level of activity and availability of reinsurance, our credit ratings and credit capacity and the performance of and outlook for our business. For a discussion of certain risks associated with

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our liquidity, see “Item 1A—Risk Factors—Our internal sources of liquidity may be insufficient to meet our needs and our access to capital may be limited or unavailable. Under such conditions, we may seek additional capital but may be unable to obtain it” and “Litigation and regulatory investigations or other actions are common in the insurance business and may result in financial losses and harm our reputation” in our ~~2018~~2019 Annual Report on Form

10-K.

In addition, see note 12 to our unaudited condensed consolidated financial statements under “Item 1—Financial Statements” regarding the case captioned “

AXA S.A. v. Genworth Financial International Holdings, LLC et al

.,” for additional details on litigation, including potential further contingent liabilities. These risks may be exacerbated by the economic impact of COVID-19.

~~10-K.~~

Contractual obligations and commercial commitments

~~Other than the Genworth Canada debt issuance and repayment described~~Except as disclosed above, there have been no material additions or changes to our contractual obligations as compared to the amounts disclosed within our ~~2018~~2019 Annual Report on Form

10-K

filed on February 27, ~~2019.~~2020. For additional details related to our commitments, see note 1012 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements.”

Supplemental Condensed Consolidating Financial Information

Genworth Financial provides a full and unconditional guarantee to the trustee of Genworth Holdings’ outstanding senior and subordinated notes and the holders of the senior and subordinated notes, on an unsecured unsubordinated and subordinated basis, respectively, of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, each outstanding series of senior notes and outstanding subordinated notes, and the full and punctual payment of all other amounts payable by Genworth Holdings under the senior and subordinated notes indentures in respect of such senior and subordinated notes. Genworth Holdings is a direct, 100% owned subsidiary of Genworth Financial.

The following supplemental condensed consolidating financial information of Genworth Financial and its direct and indirect subsidiaries has been prepared pursuant to rules regarding the preparation of consolidating financial information of Regulation

S-X,

as amended by the SEC on March 2, 2020. In the first quarter of 2020, we early applied new rules issued by the SEC by removing comparative prior year condensed consolidating financial information herein and presenting the supplemental condensed consolidating financial information outside the footnotes of our interim unaudited condensed consolidated financial statements. We continue to provide prior year annual period condensed consolidating financial information in accordance with the new amended rules.

The supplemental condensed consolidating financial information presents the condensed consolidating balance sheet information as of March 31, 2020 and December 31, 2019, the condensed consolidating income statement information, the condensed consolidating comprehensive income statement information and the condensed consolidating cash flow statement information for the three months ended March 31, 2020 and for the year ended December 31, 2019.

The supplemental condensed consolidating financial information reflects Genworth Financial (“Parent Guarantor”), Genworth Holdings (“Issuer”) and each of Genworth Financial’s other direct and indirect subsidiaries (the “All Other Subsidiaries”) on a combined basis, none of which guarantee the senior notes or subordinated notes, as well as the eliminations necessary to present Genworth Financial’s financial information on a consolidated basis and total consolidated amounts.

The accompanying supplemental condensed consolidating financial information is presented based on the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the subsidiaries’ cumulative results of operations, capital contributions and distributions, and other changes in equity. Elimination entries include consolidating and eliminating entries for investments in subsidiaries and intercompany activity.

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The following table presents the condensed consolidating balance sheet information as of March 31, 2020:


(Amounts in millions)		Parent Guarantor			Issuer			All Other Subsidiaries			Eliminations			Consolidated
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value (amortized cost of $54,136 and allowance for credit losses of $—)		$	—		$	—		$	59,051		$	—		$	59,051
Equity securities, at fair value			—			—			188			—			188
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4)			—			—			6,944			—			6,944
Less: Allowance for credit losses			—			—			(29	)		—			(29	)

Commercial mortgage loans, net			—			—			6,915			—			6,915
Policy loans			—			—			2,052			—			2,052
Other invested assets			—			61			2,404			—			2,465
Investments in subsidiaries			14,352			15,436			—			(29,788	)		—

Total investments			14,352			15,497			70,610			(29,788	)		70,671
Cash, cash equivalents and restricted cash			—			525			1,958			—			2,483
Accrued investment income			—			—			707			—			707
Deferred acquisition costs			—			—			1,898			—			1,898
Intangible assets and goodwill			—			—			263			—			263
Reinsurance recoverable			—			—			17,122			—			17,122
Less: Allowance for credit losses			—			—			(42	)		—			(42	)

Reinsurance recoverable, net			—			—			17,080			—			17,080
Other assets			(2	)		233			225			—			456
Intercompany notes receivable			104			189			—			(293	)		—
Deferred tax assets			7			827			(515	)		—			319
Separate account assets	��		—			—			4,967			—			4,967

Total assets		$	14,461		$	17,271		$	97,193		$	(30,081	)	$	98,844


Liabilities and equity
Liabilities:
Future policy benefits		$	—		$	—		$	39,339		$	—		$	39,339
Policyholder account balances			—			—			22,313			—			22,313
Liability for policy and contract claims			—			—			11,132			—			11,132
Unearned premiums			—			—			1,722			—			1,722
Other liabilities			12			96			1,578			—			1,686
Intercompany notes payable			—			105			188			(293	)		—
Long-term borrowings			—			2,729			122			—			2,851
Separate account liabilities			—			—			4,967			—			4,967

Total liabilities			12			2,930			81,361			(293	)		84,010

Equity:
Common stock			1			—			3			(3	)		1
Additional paid-in capital			11,993			12,761			18,431			(31,192	)		11,993
Accumulated other comprehensive income (loss)			3,815			3,815			3,908			(7,723	)		3,815
Retained earnings			1,340			(2,235	)		(7,195	)		9,430			1,340
Treasury stock, at cost			(2,700	)		—			—			—			(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity			14,449			14,341			15,147			(29,488	)		14,449
Noncontrolling interests			—			—			685			(300	)		385

Total equity			14,449			14,341			15,832			(29,788	)		14,834

Total liabilities and equity		$	14,461		$	17,271		$	97,193		$	(30,081	)	$	98,844

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The following table presents the condensed consolidating balance sheet information as of December 31, 2019:


(Amounts in millions)	Parent Guarantor			Issuer			All Other Subsidiaries			Eliminations			Consolidated
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value	$	—		$	—		$	60,539		$	(200	)	$	60,339
Equity securities, at fair value		—			—			239			—			239
Commercial mortgage loans ($47 are restricted related to a securitization entity)		—			—			6,963			—			6,963
Policy loans		—			—			2,058			—			2,058
Other invested assets		—			71			1,561			—			1,632
Investments in subsidiaries		14,079			15,090			—			(29,169	)		—

Total investments		14,079			15,161			71,360			(29,369	)		71,231
Cash, cash equivalents and restricted cash		—			1,461			1,880			—			3,341
Accrued investment income		—			—			657			(3	)		654
Deferred acquisition costs		—			—			1,836			—			1,836
Intangible assets and goodwill		—			—			201			—			201
Reinsurance recoverable		—			—			17,103			—			17,103
Other assets		4			48			392			(1	)		443
Intercompany notes receivable		119			132			—			(251	)		—
Deferred tax assets		13			821			(409	)		—			425
Separate account assets		—			—			6,108			—			6,108

Total assets	$	14,215		$	17,623		$	99,128		$	(29,624	)	$	101,342


Liabilities and equity
Liabilities:
Future policy benefits	$	—		$	—		$	40,384		$	—		$	40,384
Policyholder account balances		—			—			22,217			—			22,217
Liability for policy and contract claims		—			—			10,958			—			10,958
Unearned premiums		—			—			1,893			—			1,893
Other liabilities		30			99			1,438			(5	)		1,562
Intercompany notes payable		—			319			132			(451	)		—
Non-recourse funding obligations		—			—			311			—			311
Long-term borrowings		—			3,137			140			—			3,277
Separate account liabilities		—			—			6,108			—			6,108

Total liabilities		30			3,555			83,581			(456	)		86,710

Equity:
Common stock		1			—			3			(3	)		1
Additional paid-in capital		11,990			12,761			18,431			(31,192	)		11,990
Accumulated other comprehensive income (loss)		3,433			3,433			3,474			(6,907	)		3,433
Retained earnings		1,461			(2,126	)		(7,108	)		9,234			1,461
Treasury stock, at cost		(2,700	)		—			—			—			(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity		14,185			14,068			14,800			(28,868	)		14,185
Noncontrolling interests		—			—			747			(300	)		447

Total equity		14,185			14,068			15,547			(29,168	)		14,632

Total liabilities and equity	$	14,215		$	17,623		$	99,128		$	(29,624	)	$	101,342

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The following table presents the condensed consolidating income statement information for the three months ended March 31, 2020:


(Amounts in millions)	Parent Guarantor			Issuer			All Other Subsidiaries			Eliminations			Consolidated
Revenues:
Premiums	$	—		$	—		$	1,015		$	—		$	1,015
Net investment income		(1	)		5			792			(3	)		793
Net investment gains (losses)		—			10			(162	)		—			(152	)
Policy fees and other income		—			1			182			(2	)		181

Total revenues		(1	)		16			1,827			(5	)		1,837

Benefits and expenses:
Benefits and other changes in policy reserves		—			—			1,361			—			1,361
Interest credited		—			—			141			—			141
Acquisition and operating expenses, net of deferrals		8			10			231			—			249
Amortization of deferred acquisition costs and intangibles		—			—			116			—			116
Interest expense		—			49			8			(5	)		52

Total benefits and expenses		8			59			1,857			(5	)		1,919

Loss from continuing operations before income taxes and equity in loss of subsidiaries		(9	)		(43	)		(30	)		—			(82	)
Provision (benefit) for income taxes		3			(9	)		(4	)		—			(10	)
Equity in loss of subsidiaries		(54	)		(20	)		—			74			—

Loss from continuing operations		(66	)		(54	)		(26	)		74			(72	)
Income from discontinued operations, net of taxes		—			—			—			—			—

Net loss		(66	)		(54	)		(26	)		74			(72	)
Less: net loss from continuing operations attributable to noncontrolling interests		—			—			(6	)		—			(6	)
Less: net income from discontinued operations attributable to noncontrolling interests		—			—			—			—			—

Net loss available to Genworth Financial, Inc.’s common stockholders	$	(66	)	$	(54	)	$	(20	)	$	74		$	(66	)

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The following table presents the condensed consolidating income statement information for the year ended December 31, 2019:


(Amounts in millions)	Parent Guarantor			Issuer			All Other Subsidiaries		Eliminations			Consolidated
Revenues:
Premiums	$	—		$	—		$	4,037	$	—		$	4,037
Net investment income		(3	)		10			3,228		(15	)		3,220
Net investment gains (losses)		—			(5	)		55		—			50
Policy fees and other income		—			2			792		(5	)		789

Total revenues		(3	)		7			8,112		(20	)		8,096

Benefits and expenses:
Benefits and other changes in policy reserves		—			—			5,163		—			5,163
Interest credited		—			—			577		—			577
Acquisition and operating expenses, net of deferrals		20			—			942		—			962
Amortization of deferred acquisition costs and intangibles		—			—			441		—			441
Interest expense		3			231			25		(20	)		239

Total benefits and expenses		23			231			7,148		(20	)		7,382

Income (loss) from continuing operations before income taxes and equity in income of subsidiaries		(26	)		(224	)		964		—			714
Provision (benefit) for income taxes		(3	)		(45	)		243		—			195
Equity in income of subsidiaries		366			177			—		(543	)		—

Income (loss) from continuing operations		343			(2	)		721		(543	)		519
Income (loss) from discontinued operations, net of taxes		—			(140	)		151		—			11

Net income (loss)		343			(142	)		872		(543	)		530
Less: net income from continuing operations attributable to noncontrolling interests		—			—			64		—			64
Less: net income from discontinued operations attributable to noncontrolling interests		—			—			123		—			123

Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	343		$	(142	)	$	685	$	(543	)	$	343

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The following table presents the condensed consolidating comprehensive income statement information for the three months ended March 31, 2020:

													��
(Amounts in millions)	Parent Guarantor			Issuer			All Other Subsidiaries			Eliminations			Consolidated
Net loss	$	(66	)	$	(54	)	$	(26	)	$	74		$	(72	)
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities without an allowance for credit losses		(316	)		(316	)		(320	)		632			(320	)
Net unrealized gains (losses) on securities with an allowance for credit losses		—			—			—			—			—
Derivatives qualifying as hedges		753			753			803			(1,556	)		753
Foreign currency translation and other adjustments		(55	)		(55	)		(96	)		108			(98	)

Total other comprehensive income (loss)		382			382			387			(816	)		335

Total comprehensive income		316			328			361			(742	)		263
Less: comprehensive loss attributable to noncontrolling interests		—			—			(53	)		—			(53	)

Total comprehensive income available to Genworth Financial, Inc.’s common stockholders	$	316		$	328		$	414		$	(742	)	$	316

The following table presents the condensed consolidating comprehensive income statement information for the year ended December 31, 2019:


(Amounts in millions)	Parent Guarantor		Issuer			All Other Subsidiaries		Eliminations			Consolidated
Net income (loss)	$	343	$	(142	)	$	872	$	(543	)	$	530
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities not other-than-temporarily impaired		859		842			846		(1,701	)		846
Net unrealized gains (losses) on other-than-temporarily impaired securities		2		2			2		(4	)		2
Derivatives qualifying as hedges		221		221			247		(468	)		221
Foreign currency translation and other adjustments		307		224			486		(530	)		487

Total other comprehensive income (loss)		1,389		1,289			1,581		(2,703	)		1,556

Total comprehensive income		1,732		1,147			2,453		(3,246	)		2,086
Less: comprehensive income attributable to noncontrolling interests		—		—			354		—			354

Total comprehensive income available to Genworth Financial, Inc.’s common stockholders	$	1,732	$	1,147		$	2,099	$	(3,246	)	$	1,732

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The following table presents the condensed consolidating cash flow statement information for the three months ended March 31, 2020:


(Amounts in millions)	Parent Guarantor			Issuer			All Other Subsidiaries			Eliminations			Consolidated
Cash flows from (used by) operating activities:
Net loss	$	(66	)	$	(54	)	$	(26	)	$	74		$	(72	)
Adjustments to reconcile net loss to net cash from (used by)operating activities:
Equity in loss from subsidiaries		54			20			—			(74	)		—
Dividends from subsidiaries		—			11			(11	)		—			—
Amortization of fixed maturity securities discounts and premiums		—			2			(37	)		—			(35	)
Net investment (gains) losses		—			(10	)		162			—			152
Charges assessed to policyholders		—			—			(158	)		—			(158	)
Acquisition costs deferred		—			—			(4	)		—			(4	)
Amortization of deferred acquisition costs and intangibles		—			—			116			—			116
Deferred income taxes		6			8			(25	)		—			(11	)
Derivative instruments, limited partnerships and other		—			(63	)		410			—			347
Stock-based compensation expense		10			—			1			—			11
Change in certain assets and liabilities:
Accrued investment income and other assets		7			(16	)		(93	)		(5	)		(107	)
Insurance reserves		—			—			328			—			328
Current tax liabilities		(5	)		(16	)		16			—			(5	)
Other liabilities, policy and contract claims and otherpolicy-related balances		(16	)		(147	)		276			5			118

Net cash from (used by) operating activities		(10	)		(265	)		955			—			680

Cash flows from (used by) investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		—			—			921			—			921
Commercial mortgage loans		—			—			139			—			139
Other invested assets		—			—			34			—			34
Proceeds from sales of investments:
Fixed maturity and equity securities		—			—			369			—			369
Purchases and originations of investments:
Fixed maturity and equity securities		—			—			(1,804	)		—			(1,804	)
Commercial mortgage loans		—			—			(107	)		—			(107	)
Other invested assets		—			—			(160	)		—			(160	)
Short-term investments, net		—			20			28			—			48
Policy loans, net		—			—			9			—			9
Intercompany notes receivable		15			(57	)		200			(158	)		—
Capital contributions to subsidiaries		(1	)		—			1			—			—

Net cash from (used by) investing activities		14			(37	)		(370	)		(158	)		(551	)

Cash flows used by financing activities:
Deposits to universal life and investment contracts		—			—			180			—			180
Withdrawals from universal life and investment contracts		—			—			(493	)		—			(493	)
Redemption of non-recourse funding obligations		—			—			(315	)		—			(315	)
Repayment and repurchase of long-term debt		—			(420	)		—			—			(420	)
Dividends paid to noncontrolling interests		—			—			(9	)		—			(9	)
Intercompany notes payable		—			(214	)		56			158			—
Other, net		(4	)		—			104			—			100

Net cash used by financing activities		(4	)		(634	)		(477	)		158			(957	)

Effect of exchange rate changes on cash, cash equivalents and restricted cash		—			—			(30	)		—			(30	)

Net change in cash, cash equivalents and restricted cash		—			(936	)		78			—			(858	)
Cash, cash equivalents and restricted cash at beginning of period		—			1,461			1,880			—			3,341

Cash, cash equivalents and restricted cash at end of period		—			525			1,958			—			2,483
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	$	—		$	525		$	1,958		$	—		$	2,483

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The following table presents the condensed consolidating cash flow statement information for the year ended December 31, 2019:


(Amounts in millions)	Parent Guarantor			Issuer			All Other Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	343		$	(142	)	$	872		$	(543	)	$	530
Less (income) loss from discontinued operations, net of taxes		—			140			(151	)		—			(11	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Equity in income from subsidiaries		(366	)		(177	)		—			543			—
Dividends from subsidiaries		250			1,352			(1,602	)		—			—
Amortization of fixed maturity securities discounts and premiums		—			8			(126	)		—			(118	)
Net investment (gains) losses		—			5			(55	)		—			(50	)
Charges assessed to policyholders		—			—			(699	)		—			(699	)
Acquisition costs deferred		—			—			(27	)		—			(27	)
Amortization of deferred acquisition costs and intangibles		—			—			441			—			441
Deferred income taxes		1			132			6			—			139
Derivative instruments and limited partnerships		—			(35	)		(63	)		—			(98	)
Stock-based compensation expense		26			—			1			—			27
Change in certain assets and liabilities:
Accrued investment income and other assets		—			7			(365	)		—			(358	)
Insurance reserves		—			—			1,259			—			1,259
Current tax liabilities		16			(43	)		53			—			26
Other liabilities, policy and contract claims and other policy-related balances		(17	)		(44	)		668			2			609
Cash from operating activities—discontinued operations		—			134			275			—			409

Net cash from operating activities		253			1,337			487			2			2,079

Cash flows from (used by) investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		—			—			3,436			—			3,436
Commercial mortgage loans		—			—			582			—			582
Restricted commercial mortgage loans related to a securitization entity		—			—			15			—			15
Proceeds from sales of investments:
Fixed maturity and equity securities		—			—			3,883			—			3,883
Purchases and originations of investments:
Fixed maturity and equity securities		—			—			(6,899	)		—			(6,899	)
Commercial mortgage loans		—			—			(813	)		—			(813	)
Other invested assets, net		—			5			(392	)		(2	)		(389	)
Policy loans, net		—			—			62			—			62
Intercompany notes receivable		(119	)		48			6			65			—
Capital contributions to subsidiaries		(5	)		—			5			—			—
Proceeds from sale of business, net of cash transferred		—			—			1,398			—			1,398
Cash from investing activities—discontinued operations		—			—			26			—			26

Net cash from (used by) investing activities		(124	)		53			1,309			63			1,301

Cash flows used by financing activities:
Deposits to universal life and investment contracts		—			—			824			—			824
Withdrawals from universal life and investment contracts		—			—			(2,319	)		—			(2,319	)
Repayment and repurchase of long-term debt		—			(446	)		—			—			(446	)
Intercompany notes payable		(122	)		112			75			(65	)		—
Repurchase of subsidiary shares		—			—			(22	)		—			(22	)
Dividends paid to noncontrolling interests		—			—			(87	)		—			(87	)
Other, net		(7	)		(24	)		(4	)		—			(35	)
Cash used by financing activities—discontinued operations		—			—			(132	)		—			(132	)

Net cash used by financing activities		(129	)		(358	)		(1,665	)		(65	)		(2,217	)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $6 related to discontinued operations)		—			—			1			—			1

Net change in cash, cash equivalents and restricted cash		—			1,032			132			—			1,164
Cash, cash equivalents and restricted cash at beginning of period		—			429			1,748			—			2,177

Cash, cash equivalents and restricted cash at end of period		—			1,461			1,880			—			3,341
Less cash, cash equivalents and restricted cash of discontinued operations at end of period		—			—			—			—			—

Cash, cash equivalents and restricted cash of continuing operations at end of period	$	—		$	1,461		$	1,880		$	—		$	3,341

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Our insurance company subsidiaries are restricted by state and foreign laws and regulations as to the amount of dividends they may pay to their parent without regulatory approval in any year, the purpose of which is to protect affected insurance policyholders and contractholders, not stockholders. Any dividends in excess of limits are deemed “extraordinary” and require approval. Based on statutory results as of December 31, 2019, in accordance with applicable dividend restrictions, our subsidiaries could pay dividends of approximately $300 million to us in 2020, and the remaining net assets are considered restricted. While the $300 million is considered unrestricted, our insurance subsidiaries most likely will not pay dividends to us in 2020 at this level as they need to retain capital to meet regulatory requirements and preserve desired capital thresholds. As of March 31, 2020, Genworth Financial’s and Genworth Holdings’ subsidiaries had restricted net assets of $14.0 billion and $15.1 billion, respectively.

Securitization Entities

There were no

off-balance

sheet securitization transactions during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 or ~~2018.~~2019.

New Accounting Standards

For a discussion of recently adopted accounting standards, see note 2 in our unaudited condensed consolidated financial statements under “Item 1—Financial Statements.”

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of the loss of fair value resulting from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and equity prices. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying financial instruments are traded. Except as

~~163~~

~~Table~~ disclosed below and in our executive summary under “Item 2— Management’s Discussion and Analysis of ~~Contents~~

~~disclosed below,~~Financial Condition and Results of Operations—COVID-19 Summary,” there were no other material changes in our market risks since December 31, ~~2018.~~2019. See “—Business trends and conditions” and “—Investments and Derivative Instruments” in “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of recent market conditions, including changes in interest rates.

We are exposed to foreign currency exchange risks associated with fluctuations in foreign currency exchange rates against the U.S. dollar resulting from our international operations and

non-U.S.-denominated

securities. Our primary international operations are located in ~~Canada and~~ Australia. The assets and liabilities of our international operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date, while revenues and expenses of our international operations are translated into U.S. dollars at the average rates of exchange during the period of the transaction. In general, the weakening of the U.S. dollar results in higher levels of reported assets, liabilities, revenues and net ~~income.~~income (loss). As of ~~June 30, 2019,~~March 31, 2020 the U.S. dollar strengthened against the Australian dollar ~~and weakened against the Canadian dollar~~ compared to the respective balance sheet ~~rates~~rate as of December 31, ~~2018.~~2019. In the ~~second~~first quarter of ~~2019,~~2020, the U.S. dollar strengthened against the ~~currencies in Canada and Australia~~Australian dollar compared to the respective average ~~rates~~rate in the ~~second~~first quarter of ~~2018.~~2019. See “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion on the impact of changes in foreign currency exchange rates.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of ~~June 30, 2019,~~March 31, 2020, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules

13a-15(e)

and

15d-15(e)

under the Securities Exchange Act of 1934). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~June 30, 2019.~~March 31, 2020.

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Table of Contents

Changes in Internal Control Over Financial Reporting During the Quarter Ended ~~June 30, 2019~~March 31, 2020

~~During~~On January 1, 2020, we adopted new accounting guidance related to accounting for credit losses on financial instruments. The new guidance requirements resulted in us implementing a new analytical model that estimates lifetime credit losses based on model inputs that consider reasonable and supportable forecasts disaggregated by asset class. In addition, as part of our adoption of the ~~three months ended June 30, 2019, there have not been any~~guidance, we implemented new internal controls to address risks associated with applying the new standard, including risks related to judgmental estimates made in determining the allowance for credit losses for our commercial mortgage loans, reinsurance recoverables and bank loan investments, as well as estimating the allowance for credit losses related to

available-for-sale

fixed maturity securities. The new internal controls implemented include the review of the model data for completeness and accuracy, review controls that support the compilation of new disclosure requirements and updates to our accounting policies and procedures.

There were no other changes in our internal control over financial reporting during the three months ended March 31, 2020 that ~~have~~ materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

See note 1112 in our unaudited condensed consolidated financial statements under “Part 1—Item 1—Financial Statements” for a description of material pending litigation and regulatory matters affecting us.

Item 1A.

Risk Factors

The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our ~~2018~~2019 Annual Report on Form

10-K,

which together describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. ~~There~~Except as disclosed below, there have been no material changes to the risk factors set forth in the above-referenced filing as of ~~June 30, 2019.~~March 31, 2020.

COVID-19 could materially adversely affect our financial condition and results of operations.

COVID-19 has brought unprecedented changes to the global economy. Large scale disruption in the U.S. economy is leaving several industries non-operational through state and federal mandated shutdowns in an effort to contain the spread of COVID-19. Unemployment claims have increased to historic levels, reducing consumer confidence to its lowest level since the 2008 financial crisis. The level of uncertainty created by COVID-19 is far-reaching and difficult to estimate. We are unsure of the ultimate impact COVID-19 will have on our business, and conditions, including economic and operational, are evolving rapidly. COVID-19 exposes our business to significant risks, including interest rate declines, significantly higher levels of unemployment, liquidity pressures, credit risk on our investment portfolio, equity market volatility, and operational, information technology and personnel risks. We could experience significant declines in asset valuations and potential material asset impairments, as well as unexpected changes in persistency rates, as policyholders and contractholders who are affected by the pandemic may not be able to meet their contractual obligations, such as premium payments on their insurance policies, deposits to their investment products, or mortgage payments on their loans insured by our mortgage insurance policies. The pandemic has decreased historically low interest rates further and could also significantly increase our mortality and morbidity experience and/or impact our ability to successfully implement in-force rate actions (including increased premiums and associated benefit reductions), all of which could result in higher reserve charges and an adverse impact to our financial results in our U.S. life insurance businesses. Regarding our mortgage insurance businesses, COVID-19 has resulted in significantly higher levels of unemployment, which most likely will increase delinquencies, and could reduce mortgage originations, the

141

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Table of Contents

need for mortgage insurance and have an adverse effect on home prices, all of which would result in a significant adverse impact to our financial condition and results of operations in our mortgage insurance businesses. Losses in our mortgage insurance businesses could lead to lower credit ratings and impaired capital, which could hinder our mortgage insurance businesses from offering their products, preclude them from returning capital to our holding company, and thereby harm our liquidity. COVID-19 could also disrupt medical and financial services and has resulted in us practicing social distancing with our employees through office closures, all of which could disrupt our normal business operations. The level of disruption, the economic downturn, the potential global recession, and the far-reaching effects of COVID-19 could negatively affect our investment portfolio and cause the harms to our business to persist for long periods of time. As a result of the foregoing, any of the risks identified above or other related COVID-19 risks may have a material adverse impact on us, including a material adverse effect on our financial condition and results of operations.

Item 6.

Exhibits


Number		Description

	2.1	~~Eleventh~~Fourteenth Waiver and Agreement, dated as of ~~June 30, 2019,~~March 31, 2020, by and among Genworth Financial, Inc., Asia Pacific Global Capital Co., Ltd., and Asia Pacific Global Capital USA Corporation (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on ~~July 1, 2019)~~March 31, 2020)

	~~10.1§~~	~~2018 Genworth Financial, Inc. Omnibus Incentive Plan (filed herewith)~~

	~~10.2§~~	~~Form of 2019-2021 Performance Stock Unit Award Agreement under the 2018 Genworth Financial, Inc. Omnibus Incentive Plan (filed herewith)~~

	~~10.3§~~	~~Form of Restricted Stock Award Agreement under the 2018 Genworth Financial, Inc. Omnibus Incentive Plan (filed herewith)~~

	~~10.4§~~	~~Form of Cash-Based Award Agreement under the 2018 Genworth Financial, Inc. Omnibus Incentive Plan (filed herewith)~~

	~~10.5§~~	~~Amended and Restated Genworth Financial, Inc. 2014 Change of Control Plan (filed herewith)~~

	~~10.6§~~	~~Amended and Restated Genworth Financial, Inc. 2015 Key Employee Severance Plan (filed herewith)~~

	31.1	Certification of Thomas J. McInerney (filed herewith)

	31.2	Certification of Kelly L. Groh (filed herewith)

	32.1	Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code—Thomas J. McInerney (filed herewith)

	32.2	Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code—Kelly L. Groh (filed herewith)

	101.INS	XBRL Instance Document ~~— the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.~~

	101.SCH	XBRL Taxonomy Extension Schema Document

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

104

~~Management contract or compensatory plan or arrangement.~~

The cover page for the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2020, has been formatted in Inline XBRL

142

~~165~~

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		GENWORTH FINANCIAL, INC. (Registrant)

Date: ~~July 31, 2019~~May 6, 2020

	~~By:~~	~~/s/ Matthew D. Farney~~
		By:	/s/ Matthew D. Farney
			Matthew D. Farney Vice President and Controller (Principal Accounting Officer)

~~166~~

143

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)


~~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~~


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


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements		3
Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019			3
Condensed Consolidated Statements of Income for the three months ended March 31, 2020 and 2019 (Unaudited)			4
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019 (Unaudited)			5
Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2020 and 2019 (Unaudited)			6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (Unaudited)			7
Notes to Condensed Consolidated Financial Statements (Unaudited)			8

Item 1.2.	Management’s Discussion and Analysis of Financial ~~Statements~~Condition and Results of Operations		3 67
~~Condensed Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018~~			3
~~Condensed Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018 (Unaudited)~~			4
~~Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018 (Unaudited)~~			5
~~Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2019 and 2018 (Unaudited)~~			6
~~Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (Unaudited)~~			8
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~			9

Item 2.3.	~~Management’s Discussion~~Quantitative and ~~Analysis of Financial Condition and Results of Operations~~Qualitative Disclosures About Market Risk		85 140

Item 3.4.	~~Quantitative~~Controls and ~~Qualitative Disclosures About Market Risk~~Procedures		~~163~~ 140

PART II—OTHER INFORMATION			141

Item 1.	Legal Proceedings		141

Item 4.1A.	~~Controls and Procedures~~		~~164~~

~~PART II—OTHER INFORMATION~~Risk Factors			~~164~~ 141

Item 1.6.	~~Legal Proceedings~~Exhibits		~~164~~ 142

~~Item 1A.~~	~~Risk Factors~~		~~164~~

~~Item 6.~~	~~Exhibits~~		~~165~~

Signatures			~~166~~ 143


	Three months ended June 30, 2019
														Total
														Genworth
						Accumulated								Financial,
			Additional			other					Treasury			Inc.’s
	Common		paid-in			comprehensive			Retained		stock, at			stockholders’			Noncontrolling			Total
	stock		capital			income (loss)			earnings		cost			equity			interests			equity
Balances as of March 31, 2019	$	1	$	11,989		$	2,492		$	1,292	$	(2,700	)	$	13,074		$	1,808		$	14,882
Repurchase of subsidiary shares		—		—			—			—		—			—			(32	)		(32	)
Comprehensive income:
Net income		—		—			—			168		—			168			50			218
Other comprehensive income, net of taxes		—		—			521			—		—			521			31			552

Total comprehensive income		—													689			81			770
Dividends to noncontrolling interests		—		—			—			—		—			—			(25	)		(25	)
Stock-based compensation expense and exercises and other		—		(6	)		—			—		—			(6	)		3			(3	)

Balances as of June 30, 2019	$	1	$	11,983		$	3,013		$	1,460	$	(2,700	)	$	13,757		$	1,835		$	15,592

	Three months ended June 30, 2018
														Total
														Genworth
						Accumulated								Financial,
			Additional			other					Treasury			Inc.’s
	Common		paid-in			comprehensive			Retained		stock, at			stockholders’			Noncontrolling			Total
	stock		capital			income (loss)			earnings		cost			equity			interests			equity
Balances as of March 31, 2018	$	1	$	11,979		$	2,627		$	1,111	$	(2,700	)	$	13,018		$	1,844		$	14,862
Repurchase of subsidiary shares		—		—			—			—		—			—			(13	)		(13	)
Comprehensive income (loss):
Net income		—		—			—			190		—			190			59			249
Other comprehensive loss, net of taxes		—		—			(300	)		—		—			(300	)		(49	)		(349	)

Total comprehensive income (loss)															(110	)		10			(100	)
Dividends to noncontrolling interests		—		—			—			—		—			—			(14	)		(14	)
Stock-based compensation expense and exercises and other		—		2			—			—		—			2			4			6

Balances as of June 30, 2018	$	1	$	11,981		$	2,327		$	1,301	$	(2,700	)	$	12,910		$	1,831		$	14,741


	Three months ended March 31, 2020
	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, 2019	$	1	$	11,990	$	3,433	$	1,461		$	(2,700)		$	14,185		$	447		$	14,632
Cumulative effect of change in accounting, net of taxes		—		—		—		(55	)		—			(55	)		—			(55	)
Comprehensive income (loss):
Net loss		—		—		—		(66	)		—			(66	)		(6	)		(72	)
Other comprehensive income (loss), net of taxes		—		—		382		—			—			382			(47	)		335

Total comprehensive income (loss)														316			(53	)		263
Dividends to noncontrolling interests		—		—		—		—			—			—			(9	)		(9	)
Stock-based compensation expense and exercises and other		—		3		—		—			—			3			—			3

Balances as of March 31, 2020	$	1	$	11,993	$	3,815	$	1,340		$	(2,700	)	$	14,449		$	385		$	14,834


	Three months ended March 31, 2019
	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, 2018	$	1	$	11,987	$	2,044	$	1,118	$	(2,700	)	$	12,450	$	1,739		$	14,189
Repurchase of subsidiary shares		—		—		—		—		—			—		(12	)		(12	)
Comprehensive income:
Net income		—		—		—		174		—			174		56			230
Other comprehensive income, net of taxes		—		—		448		—		—			448		55			503

Total comprehensive income													622		111			733
Dividends to noncontrolling interests		—		—		—		—		—			—		(28	)		(28	)
Stock-based compensation expense and exercises and other		—		2		—		—		—			2		(2	)		—

Balances as of March 31, 2019	$	1	$	11,989	$	2,492	$	1,292	$	(2,700	)	$	13,074	$	1,808		$	14,882

	Six months ended June 30, 2019
																Total
																Genworth
							Accumulated									Financial,
				Additional			other						Treasury			Inc.’s
		Common		paid-in			comprehensive			Retained			stock, at			stockholders’			Noncontrolling			Total
		stock		capital			income (loss)			earnings			cost			equity			interests			equity
Balances as of December 31, 2018		$	1	$	11,987		$	2,044		$	1,118		$	(2,700	)	$	12,450		$	1,739		$	14,189
Repurchase of subsidiary shares			—		—			—			—			—			—			(44	)		(44	)
Comprehensive income:
Net income			—		—			—			342			—			342			106			448
Other comprehensive income, net of taxes			—		—			969			—			—			969			86			1,055
Total comprehensive income																	1,311			192			1,503
Dividends to noncontrolling interests			—		—			—			—			—			—			(53	)		(53	)
Stock-based compensation expense and exercises and other			—		(4	)		—			—			—			(4	)		1			(3	)

Balances as of June 30, 2019		$	1	$	11,983		$	3,013		$	1,460		$	(2,700	)	$	13,757		$	1,835		$	15,592

		Six months ended June 30, 2018
																Total
																Genworth
							Accumulated									Financial,
				Additional			other						Treasury			Inc.’s
		Common		paid-in			comprehensive			Retained			stock, at			stockholders’			Noncontrolling			Total
		stock		capital			income (loss)			earnings			cost			equity			interests			equity
Balances as of December 31, 2017		$	1	$	11,977		$	3,027		$	1,113		$	(2,700	)	$	13,418		$	1,910		$	15,328
Cumulative effect of change in accounting, net of taxes			—		—			131			(114	)		—			17			—			17
Repurchase of subsidiary shares			—		—			—			—			—			—			(49	)		(49	)
Comprehensive income (loss):
Net income			—		—			—			302			—			302			112			414
Other comprehensive loss, net of taxes			—		—			(831	)		—			—			(831	)		(98	)		(929	)
Other comprehensive loss, net of taxes			—		—			(831	)		—			—			(831	)		(98	)		(929	)

Total comprehensive income (loss)																	(529	)		14			(515	)
Dividends to noncontrolling interests			—		—			—			—			—			—			(50	)		(50	)
Stock-based compensation expense and exercises and other			—		4			—			—			—			4			6			10

Balances as of June 30, 2018		$	1	$	11,981		$	2,327		$	1,301		$	(2,700	)	$	12,910		$	1,831		$	14,741


	Three months ended March 31,
	2020			2019
Cash flows from operating activities:
Net income (loss)	$	(72	)	$	230
Less income from discontinued operations, net of taxes		—			(62	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Amortization of fixed maturity securities discounts and premiums		(35	)		(18	)
Net investment (gains) losses		152			(75	)
Charges assessed to policyholders		(158	)		(165	)
Acquisition costs deferred		(4	)		(9	)
Amortization of deferred acquisition costs and intangibles		116			81
Deferred income taxes		(11	)		51
Derivative instruments, limited partnerships and other		347			(32	)
Stock-based compensation expense		11			6
Change in certain assets and liabilities:
Accrued investment income and other assets		(107	)		(242	)
Insurance reserves		328			301
Current tax liabilities		(5	)		9
Other liabilities, policy and contract claims and other policy-related balances		118			27
Cash from operating activities—discontinued operations		—			32

Net cash from operating activities		680			134

Cash flows from (used by) investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		921			871
Commercial mortgage loans		139			130
Other invested assets		34			20
Proceeds from sales of investments:
Fixed maturity and equity securities		369			1,592
Purchases and originations of investments:
Fixed maturity and equity securities		(1,804	)		(1,976	)
Commercial mortgage loans		(107	)		(370	)
Other invested assets		(160	)		(94	)
Short-term investments, net		48			98
Policy loans, net		9			12
Cash used by investing activities—discontinued operations		—			(6	)

Net cash from (used by) investing activities		(551	)		277

Cash flows used by financing activities:
Deposits to universal life and investment contracts		180			198
Withdrawals from universal life and investment contracts		(493	)		(581	)
Redemption of non-recourse funding obligations		(315	)		—
Repayment and repurchase of long-term debt		(420	)		—
Repurchase of subsidiary shares		—			(12	)
Dividends paid to noncontrolling interests		(9	)		(14	)
Other, net		100			48
Cash used by financing activities—discontinued operations		—			(14	)

Net cash used by financing activities		(957	)		(375	)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $— and $5 related to discontinued operations)		(30	)		8

Net change in cash, cash equivalents and restricted cash		(858	)		44
Cash, cash equivalents and restricted cash at beginning of period		3,341			2,177

Cash, cash equivalents and restricted cash at end of period		2,483			2,221
Less cash, cash equivalents and restricted cash of discontinued operations at end of period		—			201

Cash, cash equivalents and restricted cash of continuing operations at end of period	$	2,483		$	2,020


	Three months ended March 31,
(Amounts in millions, except per share amounts)	2020			2019
Weighted-average shares used in basic earnings (loss) per share calculations		504.3			501.2
Potentially dilutive securities:
Stock options, restricted stock units and stock appreciation rights		—			7.4
Weighted-average shares used in diluted earnings (loss) per share calculations (1)		504.3			508.6
Income (loss) from continuing operations:
Income (loss) from continuing operations	$	(72	)	$	168
Less: net income (loss) from continuing operations attributable to noncontrolling interests		(6	)		20
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	(66	)	$	148
Basic per share	$	(0.13	)	$	0.29
Diluted per share	$	(0.13	)	$	0.29
Income from discontinued operations:
Income from discontinued operations, net of taxes	$	—		$	62
Less: net income from discontinued operations attributable to noncontrolling interests		—			36
Income from discontinued operations available to Genworth Financial, Inc.’s common stockholders	$	—		$	26
Basic per share	$	—		$	0.05
Diluted per share	$	—		$	0.05
Net income (loss):
Income (loss) from continuing operations	$	(72	)	$	168
Income from discontinued operations, net of taxes		—			62
Net income (loss)		(72	)		230
Less: net income (loss) attributable to noncontrolling interests		(6	)		56
Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	(66	)	$	174
Basic per share (2)	$	(0.13	)	$	0.35
Diluted per share	$	(0.13	)	$	0.34


	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
(Amounts in millions)	2019			2018			2019			2018			2020			2019
Fixed maturity securities—taxable	$	665		$	651		$	1,308		$	1,286		$	622		$	613
Fixed maturity securities—non-taxable		2			3			4			6			2			2
Equity securities		10			10			19			20			2			4
Commercial mortgage loans		84			77			165			159			85			82
Restricted commercial mortgage loans related to a securitization entity		1			2			2			4
Policy loans		45			41			91			84			49			46
Other invested assets		59			53			118			92			47			59
Cash, cash equivalents, restricted cash and short-term investments		11			14			23			26			11			11

Gross investment income before expenses and fees		877			851			1,730			1,677			818			817
Expenses and fees		(25	)		(23	)		(49	)		(45	)		(25	)		(23	)

Net investment income	$	852		$	828		$	1,681		$	1,632		$	793		$	794


	As of or for the three months ended June 30,					As of or for the six months ended June 30,
(Amounts in millions)	2019		2018			2019			2018
Beginning balance	$	23	$	28		$	24		$	32		$	24
Other-than-temporary impairments not previously recognized													—
Increases related to other-than-temporary impairments previously recognized													—
Reductions:
Securities sold, paid down or disposed		—		(3	)		(1	)		(7	)		(1	)

Ending balance	$	23	$	25		$	23		$	25		$	23


																								Total gains
			Total realized and																					(losses)
	Beginning		unrealized gains																			Ending		included in
	balance		(losses)																			balance		net income
	as of April 1,		Included in net		Included												Transfer into		Transfer out of			as of June 30,		attributable to assets		Beginning balance as of January 1, 2020		Total realized and unrealized gains (losses)																					Ending balance as of March 31, 2020		Total gains (losses) attributable to assets still held
(Amounts in millions)	2019		income		in OCI		Purchases		Sales			Issuances		Settlements			Level 3 (1)		Level 3 (1)			2019		still held		Beginning balance as of January 1, 2020		Included in net income (loss)			Included in OCI			Purchases		Sales			Issuances		Settlements			Transfer into Level 3 (1)		Transfer out of Level 3 (1)			Ending balance as of March 31, 2020		Included in net income (loss)			Included in OCI
Fixed maturity securities:
State and political subdivisions	$	52	$	1	$	8	$	—	$	—		$	—	$	—		$	—	$	—		$	61	$	—	$	102	$	1		$	(19	)	$	—	$	—		$	—	$	(1	)	$	—	$	—		$	83	$	1		$	(19	)
Non-U.S. government																											—		—			—			—		—			—		—			1		—			1		—			—
U.S. corporate:
Utilities		748		—		20		82		(13	)		—		(38	)		—		(10	)		789		—		865		—			(25	)		—		—			—		—			16		(13	)		843		—			(23	)
Energy		115		—		3		5		—			—		(1	)		—		—			122		—		129		—			(15	)		10		(21	)		—		(1	)		22		—			124		—			(14	)
Finance and insurance		590		—		15		10		—			—		(8	)		—		—			607		—		572		2			(31	)		—		—			—		(12	)		—		(21	)		510		—			(28	)
Consumer— non-cyclical		74		—		1		14		—			—		—			—		—			89		—		94		—			(6	)		—		—			—		—			—		—			88		—			(6	)
Technology and communications		52		—		3		—		—			—		—			—		(11	)		44		—		50		—			(4	)		20		—			—		—			—		(5	)		61		—			(4	)
Industrial		40		—		—		—		—			—		—			—		—			40		—		40		—			(3	)		—		—			—		—			—		—			37		—			(2	)
Capital goods		95		—		3		—		—			—		—			—		—			98		—		102		—			(8	)		—		—			—		(4	)		—		—			90		—			(8	)
Consumer—cyclical		195		—		3		—		—			—		(13	)		—		—			185		—		173		—			(7	)		—		—			—		(2	)		15		—			179		—			(7	)
Transportation		54		—		—		—		—			—		—			—		—			54		—		78		—			(4	)		—		—			—		(1	)		—		(30	)		43		—			(1	)
Other		199		—		3		—		—			—		(3	)		—		—			199		—		136		—			(1	)		5		—			—		(2	)		—		—			138		—			(1	)

Total U.S. corporate		2,162		—		51		111		(13	)		—		(63	)		—		(21	)		2,227		—		2,239		2			(104	)		35		(21	)		—		(22	)		53		(69	)		2,113		—			(94	)

Non-U.S. corporate:
Utilities		435		—		7		—		(7	)		—		(17	)		—		(1	)		417		—		374		—			(20	)		11		—			—		—			21		(31	)		355		—			(20	)
Energy		221		—		5		15		—			—		—			—		—			241		—		247		—			(30	)		—		—			—		—			19		—			236		—			(30	)
Finance and insurance		182		1		7		2		—			—		(13	)		—		—			179		1		234		1			(41	)		15		—			—		—			21		(7	)		223		1			(40	)
Consumer— non-cyclical		67		—		1		—		—			—		—			—		—			68		—		59		—			(3	)		8		—			—		—			1		(7	)		58		—			(3	)
Technology and communications		27		—		—		—		—			—		—			—		—			27		—		28		—			(1	)		—		—			—		—			—		—			27		—			(1	)
Industrial		63		—		1		—		—			—		—			—		—			64		—		104		—			(7	)		—		—			—		(5	)		—		—			92		—			(6	)
Capital goods		173		—		3		5		—			—		—			—		—			181		—		161		1			(11	)		—		—			—		(16	)		—		—			135		—			(11	)
Consumer—cyclical		125		—		2		—		—			—		(1	)		—		—			126		—		147		—			(15	)		4		—			—		(4	)		32		—			164		—			(15	)
Transportation		192		—		3		4		—			—		—			—		—			199		—		191		—			(9	)		—		—			—		—			—		(74	)		108		—			(5	)
Other		90		—		4		35		—			—		—			—		—			129		—		140		—			(9	)		—		—			—		(1	)		1		—			131		—			(9	)

Total non-U.S. corporate		1,575		1		33		61		(7	)		—		(31	)		—		(1	)		1,631		1		1,685		2			(146	)		38		—			—		(26	)		95		(119	)		1,529		1			(140	)

Residential mortgage-backed		35		—		2		5		—			—		(1	)		—		—			41		—		27		—			(1	)		—		—			—		—			1		(3	)		24		—			(1	)
Commercial mortgage-backed		98		—		7		1		—			—		—			—		(14	)		92		—		6		—			1			—		—			—		—			—		(7	)		—		—			—
Other asset-backed		202		—		1		41		—			—		(28	)		27		(8	)		235		—		132		—			(4	)		9		—			—		(17	)		—		(2	)		118		—			(5	)

Total fixed maturity securities		4,124		2		102		219		(20	)		—		(123	)		27		(44	)		4,287		1		4,191		5			(273	)		82		(21	)		—		(66	)		150		(200	)		3,868		2			(259	)

Equity securities		55		—		—		2		(1	)		—		—			—		—			56		—		51		—			—			—		(1	)		—		—			—		—			50		—			—

Other invested assets:
Derivative assets:
Equity index options		60		10		—		9		—			—		(14	)		—		—			65		7		81		(13	)		—			11		—			—		(17	)		—		—			62		(3	)		—

Total derivative assets		60		10		—		9		—			—		(14	)		—		—			65		7		81		(13	)		—			11		—			—		(17	)		—		—			62		(3	)		—

Total other invested assets		60		10		—		9		—			—		(14	)		—		—			65		7		81		(13	)		—			11		—			—		(17	)		—		—			62		(3	)		—

Reinsurance recoverable (2)		18		2		—		—		—			—		—			—		—			20		2		20		26			—			—		—			1		—			—		—			47		26			—

Total Level 3 assets	$	4,257	$	14	$	102	$	230	$	(21	)	$	—	$	(137	)	$	27	$	(44	)	$	4,428	$	10	$	4,343	$	18		$	(273	)	$	93	$	(22	)	$	1	$	(83	)	$	150	$	(200	)	$	4,027	$	25		$	(259	)


	Beginning balance as of January 1, 2019		Total realized and unrealized gains (losses)																				Ending balance as of March 31, 2019		Total gains (losses) included in net income (loss) attributable to assets still held
(Amounts in millions)	Beginning balance as of January 1, 2019		Included in net income (loss)			Included in OCI		Purchases		Sales			Issuances		Settlements			Transfer into Level 3 (1)		Transfer out of Level 3 (1)			Ending balance as of March 31, 2019
Fixed maturity securities:
State and political subdivisions	$	51	$	1		$	—	$	—	$	—		$	—	$	—		$	—		$—		$	52	$	1
U.S. corporate:
Utilities		643		—			22		14		(1	)		—		(2	)		72		—			748		—
Energy		121		—			4		—		—			—		(10	)		—		—			115		—
Finance and insurance		534		—			23		30		—			—		(4	)		7		—			590		—
Consumer— non-cyclical		73		—			2		—		—			—		(10	)		9		—			74		—
Technology and communications		50		—			2		—		—			—		—			—		—			52		—
Industrial		39		—			1		—		—			—		—			—		—			40		—
Capital goods		92		—			3		—		—			—		—			—		—			95		—
Consumer—cyclical		211		—			7		—		(13	)		—		(1	)		—		(9	)		195		—
Transportation		57		—			1		4		—			—		(8	)		—		—			54		—
Other		178		—			3		22		—			—		(12	)		8		—			199		—

Total U.S. corporate		1,998		—			68		70		(14	)		—		(47	)		96		(9	)		2,162		—

Non-U.S. corporate:
Utilities		404		—			16		30		—			—		—			—		(15	)		435		—
Energy		217		—			7		1		—			—		(4	)		—		—			221		—
Finance and insurance		171		1			11		5		—			—		—			—		(6	)		182		1
Consumer— non-cyclical		106		2			3		—		—			—		(44	)		—		—			67		—
Technology and communications		26		—			1		—		—			—		—			—		—			27		—
Industrial		61		—			2		—		—			—		—			—		—			63		—
Capital goods		173		—			6		5		—			—		(11	)		—		—			173		—
Consumer—cyclical		122		—			6		—		—			—		(3	)		—		—			125		—
Transportation		171		—			6		15		—			—		—			—		—			192		—
Other		81		—			4		—		—			—		(1	)		6		—			90		—

Total non-U.S. corporate		1,532		3			62		56		—			—		(63	)		6		(21	)		1,575		1

Residential mortgage- backed		35		—			—		—		—			—		—			—		—			35		—
Commercial mortgage- backed		95		—			2		1		—			—		—			—		—			98		—
Other asset-backed		154		—			1		54		—			—		(13	)		1		—			197		—

Total fixed maturity securities		3,865		4			133		181		(14	)		—		(123	)		103		(30	)		4,119		2

Equity securities		58		—			—		—		(3	)		—		—			—		—			55		—

Other invested assets:
Derivative assets:
Equity index options		39		17			—		12		—			—		(8	)		—		—			60		12

Total derivative assets		39		17			—		12		—			—		(8	)		—		—			60		12

Total other invested assets		39		17			—		12		—			—		(8	)		—		—			60		12

Reinsurance recoverable (2)		20		(3	)		—		—		—			1		—			—		—			18		(3	)

Total Level 3 assets	$	3,982	$	18		$	133	$	193	$	(17	)	$	1	$	(131	)	$	103	$	(30	)	$	4,252	$	11


																						Total (gains)
			Total realized and																			losses
	Beginning		unrealized (gains)																	Ending		included in
	balance		losses																	balance		net (income)
	as of															Transfer		Transfer		as of		attributable
	April 1,		Included in		Included											into		out of		June 30,		to liabilities
(Amounts in millions)	2019		net (income)		in OCI		Purchases		Sales		Issuances		Settlements			Level 3		Level 3		2019		still held
Policyholder account balances:
GMWB embedded derivatives (1)	$	295	$	24	$	—	$	—	$	—	$	6	$	—		$	—	$	—	$	325	$	24
Fixed index annuity embedded derivatives		423		20		—		—		—		—		(5	)		—		—		438		20
Indexed universal life embedded derivatives		13		1		—		—		—		1		—			—		—		15		1

Total policyholder account balances		731		45		—		—		—		7		(5	)		—		—		778		45

Total Level 3 liabilities	$	731	$	45	$	—	$	—	$	—	$	7	$	(5	)	$	—	$	—	$	778	$	45


	Beginning balance as of January 1, 2020		Total realized and unrealized (gains) losses																		Ending balance as of March 31, 2020		Total (gains) losses attributable to liabilities still held
(Amounts in millions)	Beginning balance as of January 1, 2020		Included in net (income) loss			Included in OCI		Purchases		Sales		Issuances		Settlements			Transfer into Level 3		Transfer out of Level 3		Ending balance as of March 31, 2020		Included in net (income) loss			Included in OCI
Policyholder account balances:
GMWB embedded derivatives (1)	$	323	$	362		$	—	$	—	$	—	$	6	$	—		$	—	$	—	$	691	$	368		$	—
Fixed index annuityembedded derivatives		452		(32	)		—		—		—		—		(7	)		—		—		413		(32	)		—
Indexed universal life embedded derivatives		19		(4	)		—		—		—		6		—			—		—		21		(4	)		—

Total policyholder account balances		794		326			—		—		—		12		(7	)		—		—		1,125		332			—

Total Level 3 liabilities	$	794	$	326		$	—	$	—	$	—	$	12	$	(7	)	$	—	$	—	$	1,125	$	332		$	—


(Amounts in millions)	Valuation technique	Fair value		Unobservable input	Range		Weighted-average
Policyholder account balances:
				Withdrawal utilization rate		45 % - 88 %		70	%
				Lapse rate		2 % - 9 %		3	%
				Non-performance risk (credit spreads)		18 bps - 83 bps		66 bps
GMWB embedded derivatives (1)	Stochastic cash flow model	$	325	Equity index volatility		13 % - 23 %		20	%
Fixed index annuity embedded derivatives	Option budget method	$	438	Expected future interest credited		– % - 3 %		1	%
Indexed universal life embedded derivatives	Option budget method	$	15	Expected future interest credited		3 % - 8 %		5	%


	As of June 30,				Increase (decrease) and percentage change
(Amounts in millions)	2019		2018		2019 vs. 2018
Primary insurance in-force (1)	$	178,500	$	159,500	$	19,000	12	%
Risk in-force	$	43,100	$	38,700	$	4,400	11	%


	June 30, 2019			December 31, 2018			June 30, 2018
Primary insurance:
Insured loans in-force		818,358			783,288			762,727
Delinquent loans		15,482			17,159			18,051
Percentage of delinquent loans (delinquency rate)		1.89	%		2.19	%		2.37	%

Flow loans in-force		806,739			770,657			748,497
Flow delinquent loans		15,070			16,670			17,505
Percentage of flow delinquent loans (delinquency rate)		1.87	%		2.16	%		2.34	%

Bulk loans in-force		11,619			12,631			14,230
Bulk delinquent loans (1)		412			489			546
Percentage of bulk delinquent loans (delinquency rate)		3.55	%		3.87	%		3.84	%

A minus and sub-prime loans in-force		14,180			15,348			16,928
A minus and sub-prime delinquent loans		2,367			2,727			3,058
Percentage of A minus and sub-prime delinquent loans (delinquency rate)		16.69	%		17.77	%		18.06	%

Pool insurance:
Insured loans in-force		4,331			4,535			4,774
Delinquent loans		177			220			204
Percentage of delinquent loans (delinquency rate)		4.09	%		4.85	%		4.27	%


	Percent of primary			Percent of total			Delinquency rate
	risk in-force as of June 30, 2019			reserves as of June 30, 2019 (1)			June 30, 2019			December 31, 2018			June 30, 2018
By Region:
Southeast (2)		18	%		21	%		2.18	%		2.63	%		3.15	%
Pacific (3)		17			10			1.22	%		1.29	%		1.30	%
South Central (4)		16			11			1.79	%		2.11	%		2.30	%
Northeast (5)		12			28			2.87	%		3.43	%		3.74	%
North Central (6)		11			9			1.79	%		1.98	%		1.96	%
Great Lakes (7)		11			7			1.56	%		1.72	%		1.72	%
Mid-Atlantic (8)		6			5			1.81	%		2.16	%		2.19	%
New England (9)		5			6			1.95	%		2.23	%		2.27	%
Plains (10)		4			3			1.67	%		1.87	%		1.88	%

Total		100	%		100	%		1.89	%		2.19	%		2.37	%


	As of June 30,				Increase (decrease) and percentage change
(Amounts in millions)	2019		2018		2019 vs. 2018
Primary insurance in-force	$	395,700	$	380,200	$	15,500	4	%
Risk in-force	$	138,500	$	133,100	$	5,400	4	%


	June 30, 2019			December 31, 2018			June 30, 2018
Primary insured loans in-force (1)		2,174,084			2,143,191			2,137,221
Delinquent loans		1,701			1,684			1,742
Percentage of delinquent loans (delinquency rate) (1)		0.08	%		0.08	%		0.08	%
Flow loans in-force		1,523,128			1,499,304			1,470,826
Flow delinquent loans		1,340			1,310			1,406
Percentage of flow delinquent loans (delinquency rate)		0.09	%		0.09	%		0.10	%
Bulk loans in-force		650,956			643,887			666,395
Bulk delinquent loans		361			374			336
Percentage of bulk delinquent loans (delinquency rate)		0.06	%		0.06	%		0.05	%


	Three months ended June 30,				Increase (decrease) and percentage change					Six months ended June 30,				Increase (decrease) and percentage change
(Amounts in millions)	2019		2018		2019 vs. 2018					2019		2018		2019 vs. 2018
Term and whole life insurance
Net earned premiums	$	73	$	80	$	(7	)	(9	)%	$	154	$	171	$	(17	)	(10	)%
Term universal life insurance
Net deposits		59		61		(2	)	(3	)%		117		122		(5	)	(4	)%
Universal life insurance
Net deposits		141		126		15		12	%		217		258		(41	)	(16	)%
Total life insurance

Net earned premiums and deposits	$	273	$	267	$	6		2	%	$	488	$	551	$	(63	)	(11	)%


	As of June 30,				Percentage change
(Amounts in millions)	2019		2018		2019 vs. 2018
Term and whole life insurance
Life insurance in-force, net of reinsurance	$	91,386	$	100,475		(9	)%
Life insurance in-force before reinsurance	$	419,246	$	447,429		(6	)%
Term universal life insurance
Life insurance in-force, net of reinsurance	$	114,214	$	117,141		(2	)%
Life insurance in-force before reinsurance	$	114,999	$	117,957		(3	)%
Universal life insurance
Life insurance in-force, net of reinsurance	$	34,581	$	36,054		(4	)%
Life insurance in-force before reinsurance	$	39,357	$	41,136		(4	)%
Total life insurance
Life insurance in-force, net of reinsurance	$	240,181	$	253,670		(5	)%
Life insurance in-force before reinsurance	$	573,602	$	606,522		(5	)%


	As of or for the three months ended June 30,						As of or for the six months ended June 30,
(Amounts in millions)	2019			2018			2019			2018
Account value, beginning of period	$	14,109		$	15,881		$	14,348		$	16,401
Premiums and deposits		16			22			45			44
Surrenders, benefits and product charges		(486	)		(593	)		(1,002	)		(1,129	)

Net flows		(470	)		(571	)		(957	)		(1,085	)
Interest credited and investment performance		119			128			261			234
Effect of accumulated net unrealized investment gains (losses)		117			(66	)		223			(178	)

Account value, end of period	$	13,875		$	15,372		$	13,875		$	15,372

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