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GNW Genworth Financial

Filed: 4 Nov 21, 4:31pm
0001276520 gnw:PolicyholderAccountBalancesMember us-gaap:FairValueInputsLevel1Member 2021-09-30 0001276520 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
        
    
    
    
to
        
    
    
    
Commission file number
001-32195
 
 
 
LOGO
GENWORTH FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
80-0873306
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
6620 West Broad Street
Richmond, Virginia
 
23230
(Address of principal executive offices)
 
(Zip Code)
(804)
281-6000
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting company 
   Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  ☒
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Trading Symbol
 
Name of each exchange on which registered
Class A Common Stock, par
value $.001 per share
 
GNW
 
New York Stock Exchange
As of October 27, 2021, 507,385,834 shares of Class A Common Stock, par value $0.001 per share, were outstanding.
 
 
 


PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except par value and share amounts)
(Unaudited)
 
   
September 30,
2021
  
December 31,
2020
 
Assets         
Investments:         
Fixed maturity securities
available-for-sale,
at fair value (amortized cost of $53,181 and $53,417 and allowance for credit losses of $0 and $4 as of September 30, 2021 and December 31, 2020, respectively)
  $61,274  $63,495 
Equity securities, at fair value   156   386 
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4 as of September 30, 2021 and December 31, 2020)   6,916   6,774 
Less: Allowance for credit losses   (30  (31
          
Commercial mortgage loans, net   6,886   6,743 
Policy loans   2,067   1,978 
Other invested assets   2,335   2,099 
          
Total investments   72,718   74,701 
Cash, cash equivalents and restricted cash   1,937   2,561 
Accrued investment income   626   655 
Deferred acquisition costs   1,193   1,487 
Intangible assets   147   157 
Reinsurance recoverable   16,722   16,864 
Less: Allowance for credit losses   (51  (45
          
Reinsurance recoverable, net   16,671   16,819 
Other assets   396   404 
Deferred tax asset   209   65 
Separate account assets   5,978   6,081 
Assets related to discontinued operations   0     2,817 
          
Total assets  $99,875  $105,747 
          
Liabilities and equity         
Liabilities:         
Future policy benefits  $41,794  $42,695 
Policyholder account balances   19,607   21,503 
Liability for policy and contract claims   11,743   11,486 
Unearned premiums   685   775 
Other liabilities   1,568   1,614 
Long-term borrowings   2,412   3,403 
Separate account liabilities   5,978   6,081 
Liabilities related to discontinued operations   36   2,370 
          
Total liabilities   83,823   89,927 
          
Commitments and contingencies       
Equity:         
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 596 million and 594 million shares issued as of September 30, 2021 and December 31, 2020, respectively; 508 million and 506 million shares outstanding as of September 30, 2021 and December 31, 2020, respectively   1   1 
Additional
paid-in
capital
   11,850   12,008 
Accumulated other comprehensive income (loss)   3,800   4,425 
Retained earnings   2,325   1,584 
Treasury stock, at cost (88 million shares as of September 30, 2021 and December 31, 2020)   (2,700  (2,700
          
Total Genworth Financial, Inc.’s stockholders’ equity   15,276   15,318 
Noncontrolling interests   776   502 
          
Total equity   16,052   15,820 
          
Total liabilities and equity  $99,875  $105,747 
          
See Notes to Condensed Consolidated Financial Statements
 
3

GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in millions, except per share amounts)
(Unaudited)
 
   
Three months
ended September 30,
   
Nine months
ended September 30,
 
   
    2021    
   
    2020    
   
    2021    
   
    2020    
 
Revenues:                    
Premiums  $944   $963   $2,859   $2,866 
Net investment income   859    820    2,504    2,381 
Net investment gains (losses)   88    351    191    345 
Policy fees and other income   179    184    542    538 
                     
Total revenues   2,070    2,318    6,096    6,130 
                     
Benefits and expenses:                    
Benefits and other changes in policy reserves   1,143    1,273    3,522    4,057 
Interest credited   123    137    381    417 
Acquisition and operating expenses, net of deferrals   290    235    869    682 
Amortization of deferred acquisition costs and intangibles   106    94    269    289 
Interest expense   35    47    129    140 
                     
Total benefits and expenses   1,697    1,786    5,170    5,585 
                     
Income from continuing operations before income taxes   373    532    926    545 
Provision for income taxes   67    130    201    148 
                     
Income from continuing operations   306    402    725    397 
Income (loss) from discontinued operations, net of taxes   12    34    28    (451
                     
Net income (loss)   318    436    753    (54
Less: net income from continuing operations attributable to noncontrolling interests   4    0      4    0   
Less: net income from discontinued operations attributable to noncontrolling interests   0      18    8    35 
                     
Net income (loss) available to Genworth Financial, Inc.’s common stockholders  $314   $418   $741   $(89
                     
Net income (loss) available to Genworth Financial, Inc.’s common stockholders:                    
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders  $302   $402   $721   $397 
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders   12    16    20    (486
                     
Net income (loss) available to Genworth Financial, Inc.’s common stockholders  $314   $418   $741   $(89
                     
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:                    
Basic  $0.59   $0.79   $1.42   $0.78 
                     
Diluted  $0.59   $0.79   $1.40   $0.78 
                     
Net income (loss) available to Genworth Financial, Inc.’s common stockholders per share:                    
Basic  $0.62   $0.83   $1.46   $(0.18
                     
Diluted  $0.61   $0.82   $1.44   $(0.17
                     
Weighted-average common shares outstanding:                    
Basic   507.4    505.6    506.8    505.1 
                     
Diluted   514.2    511.5    514.4    511.2 
                     
See Notes to Condensed Consolidated Financial Statements
 
4

GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
(Unaudited)
 
   
Three months ended
September 30,
  
Nine months ended
September 30,
 
   
    2021    
  
    2020    
  
    2021    
  
    2020    
 
Net income (loss)  $318  $436  $753  $(54
Other comprehensive income (loss), net of taxes:                 
Net unrealized gains (losses) on securities without an allowance for credit losses   7   (98  (373  264 
Net unrealized gains (losses) on securities with an allowance for credit losses   0     (2  6   (10
Derivatives qualifying as hedges   (12  (226  (220  449 
Foreign currency translation and other adjustments   (4  33   134   8 
                  
Total other comprehensive income (loss)   (9  (293  (453  711 
                  
Total comprehensive income   309   143   300   657 
Less: comprehensive income attributable to noncontrolling interests   3   31   158   38 
                  
Total comprehensive income available to Genworth Financial, Inc.’s common stockholders  $306  $112  $142  $619 
                  
See Notes to Condensed Consolidated Financial Statements
 
5

GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in millions)
(Unaudited)
 
  
Three months ended September 30, 2021
 
  
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 June 30, 2021 $1  $12,018  $3,834  $2,011  $(2,700 $15,164  $0    $15,164 
Initial sale of subsidiary shares to noncontrolling interests  0     (171  (26  0     0     (197  773   576 
Comprehensive income (loss):                                
Net income  0     0     0     314   0     314   4   318 
Other comprehensive loss, net of taxes  0     0     (8  0     0     (8  (1  (9
                                 
Total comprehensive income                      306   3   309 
Stock-based compensation expense and exercises and other  0     3   0     0     0     3   0     3 
                                 
Balances as of September 30, 2021 $1  $11,850  $3,800  $2,325  $(2,700 $15,276  $776  $16,052 
                                 
 
  
Three months ended September 30, 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 June 30, 2020 $1  $11,996  $4,447  $899  $(2,700 $14,643  $445  $15,088 
Comprehensive income (loss):                                
Net income  0     0     0     418   0     418   18   436 
Other comprehensive income (loss), net of taxes  0     0     (306  0     0     (306  13   (293
                                 
Total comprehensive income                      112   31   143 
Stock-based compensation expense and exercises and other  0     1   0     0     0     1   0     1 
                                 
Balances as of September 30, 2020 $1  $11,997  $4,141  $1,317  $(2,700 $14,756  $476  $15,232 
                                 
 
6

GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY, CONTINUED
(Amounts in millions)
(Unaudited)
 
  
Nine months ended September 30, 2021
 
  
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, 2020 $1  $12,008  $4,425  $1,584  $(2,700 $15,318  $502  $15,820 
Initial sale of subsidiary shares to noncontrolling interests  0     (171  (26  0     0     (197  773   576 
Sale of business that included noncontrolling interests  0     0     0     0     0     0     (657  (657
Comprehensive income (loss):                                
Net income  0     0     0     741   0     741   12   753 
Other comprehensive income (loss), net of taxes  0     0     (599  0     0     (599  146   (453
                                 
Total comprehensive income                      142   158   300 
Stock-based compensation expense and exercises and other  0     13   0     0     0     13   0     13 
                                 
Balances as of September 30, 2021 $1  $11,850  $3,800  $2,325  $(2,700 $15,276  $776  $16,052 
                                 
 
  
Nine months ended September 30, 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  0     0     0     (55  0     (55  0     (55
Comprehensive income (loss):                                
Net income (loss)  0     0     0     (89  0     (89  35   (54
Other comprehensive income, net of taxes  0     0     708   0     0     708   3   711 
                                 
Total comprehensive income                      619   38   657 
Dividends to noncontrolling interests  0     0     0     0     0     0     (9  (9
Stock-based compensation expense and exercises and other  0     7   0     0     0     7   0     7 
                                 
Balances as of September 30, 2020 $1  $11,997  $4,141  $1,317  $(2,700 $14,756  $476  $15,232 
                                 
See Notes to Condensed Consolidated Financial Statements
 
7

GENWORTH FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
(Unaudited)
 
   
Nine months ended
September 30,
 
   
    2021    
  
    2020    
 
Cash flows from operating activities:         
Net income (loss)  $753  $(54
Less (income) loss from discontinued operations, net of taxes   (28  451 
Adjustments to reconcile net income (loss) to net cash from operating activities:         
Amortization of fixed maturity securities discounts and premiums   (138  (110
Net investment gains   (191  (345
Charges assessed to policyholders   (472  (479
Acquisition costs deferred   (6  0   
Amortization of deferred acquisition costs and intangibles   269   289 
Deferred income taxes   202   144 
Derivative instruments, limited partnerships and other   (252  77 
Stock-based compensation expense   32   22 
Change in certain assets and liabilities:         
Accrued investment income and other assets   (117  (127
Insurance reserves   678   1,034 
Current tax liabilities   (8  4 
Other liabilities, policy and contract claims and other policy-related balances   56   698 
Cash used by operating activities—discontinued operations   (488  (152
          
Net cash from operating activities   290   1,452 
          
Cash flows from (used by) investing activities:         
Proceeds from maturities and repayments of investments:         
Fixed maturity securities   3,253   2,656 
Commercial mortgage loans   601   479 
Other invested assets   176   108 
Proceeds from sales of investments:         
Fixed maturity and equity securities   1,591   2,168 
Purchases and originations of investments:         
Fixed maturity and equity securities   (4,181  (5,858
Commercial mortgage loans   (743  (414
Other invested assets   (447  (318
Short-term investments, net   (24  32 
Policy loans, net   40   27 
Proceeds from sale of business, net of cash transferred   270   0   
Cash used by investing activities—discontinued operations   (67  (159
          
Net cash from (used by) investing activities   469   (1,279
          
Cash flows used by financing activities:         
Deposits to universal life and investment contracts   511   693 
Withdrawals from universal life and investment contracts   (1,582  (1,408
Redemption of
non-recourse
funding obligations
   0     (315
Proceeds from issuance of long-term debt   0     739 
Repayment and repurchase of long-term debt   (1,003  (490
Proceeds from sale of subsidiary shares to noncontrolling interests   529   0   
Other, net   67   31 
Cash from financing activities—discontinued operations   0     16 
          
Net cash used by financing activities   (1,478  (734
          
Effect of exchange rate changes on cash, cash equivalents and restricted cash (includes $(1) and $4 related to discontinued operations)   0     0   
          
Net change in cash, cash equivalents and restricted cash   (719  (561
Cash, cash equivalents and restricted cash at beginning of period   2,656   3,341 
          
Cash, cash equivalents and restricted cash at end of period   1,937   2,780 
Less cash, cash equivalents and restricted cash of discontinued operations at end of period   0     40 
          
Cash, cash equivalents and restricted cash of continuing operations at end of period  $1,937  $2,740 
          
See Notes to Condensed Consolidated Financial Statements
 
8

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Formation of Genworth and Basis of Presentation
Genworth Holdings, Inc. (“Genworth Holdings”) (formerly known as Genworth Financial, Inc.) was incorporated in Delaware in 2003 in preparation for an initial public offering (“IPO”) of Genworth’s common stock, which was completed on May 28, 2004. On April 1, 2013, Genworth Holdings completed a holding company reorganization pursuant to which Genworth Holdings became a direct, 100% owned subsidiary of a new public holding company that it had formed. The new public holding company was incorporated in Delaware on December 5, 2012, in connection with the reorganization, and was renamed Genworth Financial, Inc. upon the completion of the reorganization.
The accompanying unaudited condensed financial statements include on a consolidated basis the accounts of Genworth Financial and the affiliate companies in which it holds a majority voting interest or where it is the primary
 
beneficiary of a variable interest entity (“VIE”). All intercompany accounts and transactions have been eliminated in consolidation.
Unless the context otherwise requires, references to “Genworth Financial,” “Genworth,” the “Company,” “we” or “our” in the accompanying unaudited condensed consolidated financial statements and the notes thereto are to Genworth Financial, Inc. on a consolidated basis.
We operate our business through the following 3 operating segments:
 
  
Enact (formerly known as U.S. Mortgage Insurance).
We offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans at specified coverage percentages (“primary mortgage insurance”). We also selectively enter into insurance transactions with lenders and investors, under which we insure a portfolio of loans at or after origination (“pool mortgage insurance”).
 
  
U.S. Life Insurance.
We offer long-term care insurance products as well as service traditional life insurance and fixed annuity products in the United States.
 
  
Runoff.
The Runoff segment includes the results of products which have not been actively sold since 2011, but we continue to service our existing blocks of business. These products primarily include variable annuity, variable life insurance and corporate-owned life insurance, as well as funding agreements.
In addition to our three 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 international mortgage insurance businesses and discontinued operations.
On March 3, 2021, we completed a sale of our entire ownership interest of approximately 52% in Genworth Mortgage Insurance Australia Limited (“Genworth Australia”) through an underwriting agreement. We sold our approximately 214.3 million shares of Genworth Australia for AUD2.28 per share. Our Australian mortgage insurance business, previously the primary business in the Australia Mortgage Insurance segment, is reported as discontinued operations and its financial position, results of operations and cash flows are separately reported for all periods presented. All prior periods reflected herein have been
re-presented
on this basis. See note 14 for additional information.
 
9

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Unless otherwise indicated, references to the condensed consolidated balance sheets, the condensed consolidated statements of income, the condensed consolidated statements of cash flows and the notes to the condensed consolidated financial statements, exclude amounts related to discontinued operations.
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Preparing financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. These unaudited condensed consolidated financial statements include all adjustments (including normal recurring adjustments) considered necessary by management to present a fair statement of the financial position, results of operations and cash flows for the periods presented. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2020 Annual Report on Form
10-K.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Each reporting period, we assess our ability to continue as a going concern for one year from the date the financial statements are issued. As of September 30, 2021, Genworth Holdings has $635
 million of unrestricted cash, cash equivalents and liquid assets. Our evaluation of our ability to meet our financial obligations included the following contractual obligations due within one year from the issue date of our unaudited condensed consolidated financial statements included herein, as well as other conditions and events and their relative significance in relation to our ability to meet our
obligations:
 
  In July 2021, Genworth Holdings early redeemed its 7.625% senior notes with a cash payment of approximately $532 million, comprised of the outstanding principal balance, accrued interest and a make-whole premium. We have no additional debt maturities until August 2023. Interest payments on our senior notes are forecasted to be approximately $77 million for the next twelve months. See note 8 for additional details on our long-term borrowings.
 
  
As part of the settlement agreement reached in July 2020 regarding the case titled
AXA S.A. v. Genworth Financial International Holdings, LLC et al.,
we issued a secured promissory note to AXA S.A. (“AXA”) that was due in September 2022. On September 21, 2021, we repaid the remaining outstanding balance of the promissory note. Over the next year, we expect to pay AXA approximately $36 million primarily consisting of estimated future claims that are still being processed by AXA. See note 14 for additional details related to the sale of our former lifestyle protection insurance business and amounts recorded related to discontinued operations.
 
  Genworth Holdings received intercompany cash tax payments from its subsidiaries during the nine months ended September 30, 2021 generated from taxable income. Additional intercompany cash tax payments are expected in future periods.
We received net cash proceeds of $370 million and $529 million from the sale of Genworth Australia in March 2021 and the minority IPO of Enact Holdings, Inc. (“Enact Holdings”) in September 2021, respectively. See note 13 for additional details related to the minority IPO of Enact Holdings. We believe Genworth Holdings’ current unrestricted cash, cash equivalents and liquid assets provide sufficient liquidity to meet our financial obligations and maintain business operations for one year from the date the financial statements are issued, based on relevant conditions and events that are known and reasonably estimable, including current cash and management actions in the normal course. Accordingly, we no longer need to determine whether our plans alleviate doubt about our ability to meet our financial commitments and obligations within the next year.
10

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The impact of the ongoing coronavirus pandemic
(“COVID-19”)
is very difficult to predict. Its related outcomes and impact on our business and the capital markets, and our ability to raise capital will depend on economic impacts from social, global and political influences as a result of the pandemic, and the shape of the economic recovery, among other factors and uncertainties. While these risks exist, we believe our current liquidity is sufficient to meet our obligations for one year following the issuance of our unaudited condensed consolidated financial statements.
(2) Accounting Changes
Accounting Pronouncements Recently Adopted
On January 1, 2021, we adopted new accounting guidance related to simplifying the
 
accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. We adopted this new accounting guidance using the retrospective method or modified retrospective method for certain changes and prospective method for all other changes, which did not have a significant impact on our consolidated financial statements and disclosures.
Accounting Pronouncements Not Yet Adopted
In August 2018, the Financial Accounting Standards Board (the “FASB”) issued new accounting guidance that significantly changes the recognition and measurement of long-duration insurance contracts and expands disclosure requirements, which impacts our life insurance deferred acquisition costs (“DAC”) and liabilities. In accordance with the guidance, the more significant changes include:
 
  
assumptions will no longer be
locked-in
at contract inception and all cash flow assumptions used to estimate the liability for future policy benefits (except the discount rate) will be reviewed at least annually in the same period each year or more frequently if actual experience indicates a change is required. Changes will be recorded in net income (loss) using a retrospective approach with a cumulative
catch-up
adjustment by recalculating the net premium ratio (which will be capped at 100%) using actual historical and updated future cash flow assumptions;
 
  
the discount rate used to determine the liability for future policy benefits will be a current upper-medium grade (low credit risk) fixed-income instrument yield, which is generally interpreted to mean a
single-A
rated bond rate for the same duration, and is required to be reviewed quarterly, with changes in the discount rate recorded in other comprehensive income (loss);
 
  the provision for adverse deviation and the premium deficiency test will be eliminated;
 
  market risk benefits associated with deposit-type contracts will be measured at fair value with changes related to instrument-specific credit risk recorded in other comprehensive income (loss) and remaining changes recorded in net income (loss);
 
  the amortization method for DAC will generally be on a straight-line basis over the expected contract term; and
 
  disclosures will be greatly expanded to include significant assumptions and product liability rollforwards.
This guidance is effective for us on January 1, 2023 using the modified retrospective method (with transition adjustments as of January 1, 2021) for all topics except for market risk benefits, which is required to be applied using the retrospective method, with early adoption permitted, which we do not intend to elect. We are
 
11

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
currently in the process of obtaining necessary data, modifying systems, identifying and developing key inputs and establishing policies, systems and internal controls necessary to implement this new accounting guidance. Given the nature and extent of the changes, this guidance is expected to have a significant impact on our consolidated financial statements and significantly reduce our equity at transition.
(3) 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
September 30,
   
Nine months ended
September 30,
 
(Amounts in millions, except per share amounts)
  
    2021    
   
    2020    
   
    2021    
   
    2020    
 
Weighted-average shares used in basic earnings per share calculations   507.4    505.6    506.8    505.1 
Potentially dilutive securities:                    
Stock options, restricted stock units and stock appreciation rights   6.8    5.9    7.6    6.1 
                     
Weighted-average shares used in diluted earnings per share calculations   514.2    511.5    514.4    511.2 
                     
Income from continuing operations:                    
Income from continuing operations  $306   $402   $725   $397 
Less: net income from continuing operations attributable to noncontrolling interests   4    0      4    0   
                     
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders  $302   $402   $721   $397 
                     
Basic per share  $0.59   $0.79   $1.42   $0.78 
                     
Diluted per share  $0.59   $0.79   $1.40   $0.78 
                     
Income (loss) from discontinued operations:                    
Income (loss) from discontinued operations, net of taxes  $12   $34   $28   $(451
Less: net income from discontinued operations attributable to noncontrolling interests   0      18    8    35 
                     
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders  $12   $16   $20   $(486
                     
Basic per share  $0.02   $0.03   $0.04   $(0.96
                     
Diluted per share  $0.02   $0.03   $0.04   $(0.95
                     
Net income (loss):                    
Income from continuing operations  $306   $402   $725   $397 
Income (loss) from discontinued operations, net of taxes   12    34    28    (451
                     
Net income (loss)   318    436    753    (54
Less: net income attributable to noncontrolling interests   4    18    12    35 
                     
Net income (loss) available to Genworth Financial, Inc.’s common stockholders  $314   $418   $741   $(89
                     
Basic per share
(1)
  $0.62   $0.83   $1.46   $(0.18
                     
Diluted per share  $0.61   $0.82   $1.44   $(0.17
                     
 
(1)May not total due to whole number calculation.
 
12

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
(4) Investments
(a) Net Investment Income
Sources of net investment income were as follows for the periods
 
indicated:
 
   
Three months ended
September 30,
  
Nine months ended
September 30,
 
(Amounts in millions)
  
    2021    
  
    2020    
  
    2021    
  
    2020    
 
Fixed maturity securities—taxable  $614  $625  $1,821  $1,830 
Fixed maturity
securities—non-taxable
   2   2   5   5 
Equity securities   2   3   7   7 
Commercial mortgage loans   93   82   274   251 
Policy loans   47   51   137   149 
Other invested assets   122   79   323   192 
Cash, cash equivalents, restricted cash and short-term investments   1   1   1   15 
                  
Gross investment income before expenses and fees   881   843   2,568   2,449 
Expenses and fees   (22  (23  (64  (68
                  
Net investment income  $859  $820  $2,504  $2,381 
                  
(b) Net Investment Gains (Losses)
The following table sets forth net investment gains (losses) for the periods indicated:
 
   
Three months ended
September 30,
  
Nine months ended
September 30,
 
(Amounts in millions)
  
    2021    
  
    2020    
  
    2021    
  
    2020    
 
Available-for-sale
fixed maturity securities:
                 
Realized gains  $11  $320  $23  $425 
Realized losses   0     (1  (7  (6
                  
Net realized gains (losses) on
available-for-sale
fixed maturity securities
   11   319   16   419 
                  
Net change in allowance for credit losses on
available-for-sale
fixed maturity securities
   0     2   (6  (5
Write-down of
available-for-sale
fixed maturity securities
(1)
   0     (4  (1  (4
Net realized gains (losses) on equity securities sold   0     (3  (7  (3
Net unrealized gains (losses) on equity securities still held   (1  3   (3  (4
Limited partnerships   75   31   177   28 
Commercial mortgage loans   3   (3  1   (2
Derivative instruments
(2)
   (3  9   9   (75
Other   3   (3  5   (9
                  
Net investment gains (losses)  $88  $351  $191  $345 
                  
 
(1)Represents write-down of securities deemed uncollectible or that we intend to sell or will be required to sell prior to recovery of the amortized cost basis.
(2)See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses).
 
13

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
See Note 2—Summary of Significant Accounting Policies included in the Notes to Consolidated Financial Statements in our 2020 Annual Report on Form
10-K
for a discussion of our policy for evaluating and measuring the allowance for credit losses related to our
available-for-sale
fixed maturity securities. The following table represents the allowance for credit losses aggregated by security type for
available-for-sale
fixed maturity investments as of and for the three months ended September 30, 2021:
 
(Amounts in millions)
 
Beginning
balance
  
Increase from
securities
without
allowance in
previous
periods
  
Increase
(decrease)
from securities
with allowance
in previous
periods
  
Securities
sold
  
Decrease
due to change
in intent or
requirement
to sell
  
Write-offs
  
Recoveries
  
Ending
balance
 
Fixed maturity securities:                                
Non-U.S.
corporate
 $0    $0    $0    $0    $0    $0    $0    $0   
                                 
Total
available-for-sale
fixed
maturity securities
 $0    $0    $0    $0    $0    $0    $0    $0   
                                 
The following table represents the allowance for credit losses aggregated by security type for
available-for-sale
fixed maturity investments as of and for the three months ended September 30, 2020:
 
(Amounts in millions)
 
Beginning
balance
  
Increase from
securities
without
allowance in
previous
periods
  
Increase
(decrease)
from securities
with allowance
in previous
periods
  
Securities
sold
  
Decrease
due to change
in intent or
requirement
to sell
  
Write-offs
  
Recoveries
  
Ending
balance
 
Fixed maturity securities:                                
Non-U.S.
corporate
 $4  $0    $(2 $0    $0    $0    $0    $2 
Commercial mortgage
-
b
acked
  3   0     0     0     0     0     0     3 
                                 
Total
available-for-sale
fixed
maturity securities
 $7  $0    $(2 $0    $0    $0    $0    $5 
                                 
 
14

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table represents the allowance for credit losses
 
aggregated by security type for
available-for-sale
fixed maturity investments as of and for the nine months ended September 30, 2021:
 
(Amounts in millions)
 
Beginning
balance
  
Increase from
securities
without
allowance in
previous
periods
  
Increase
(decrease)
from securities
with allowance
in previous
periods
  
Securities
sold
  
Decrease
due to change
in intent or
requirement
to sell
  
Write-offs
  
Recoveries
  
Ending
balance
 
Fixed maturity securities:                                
Non-U.S.
corporate
 $1  $0    $6  $(7 $0    $0    $0    $0   
Commercial mortgage
-
backed
  3   0     0     0     0     (3  0     0   
                                 
Total
available-for-sale
fixed maturity securities
 $4  $0    $6  $(7 $0    $(3 $0    $0   
                                 
The following table represents the allowance for credit losses aggregated by security type for
available-for-sale
fixed maturity investments as of and for the nine months ended September 30, 2020:
 
(Amounts in millions)
 
Beginning
balance
  
Increase from
securities
without
allowance in
previous
periods
  
Increase
(decrease)
from securities
with allowance
in previous
periods
  
Securities
sold
  
Decrease
due to change
in intent or
requirement
to sell
  
Write-offs
  
Recoveries
  
Ending
balance
 
Fixed maturity securities:                                
Non-U.S.
corporate
 $0    $4  $(2 $0    $0    $0    $0    $2 
Commercial mortgage
-
backed
  0     3   0     0     0     0     0     3 
                                 
Total
available-for-sale
fixed
maturity securities
 $0    $7  $(2 $0    $0    $0    $0    $5 
                                 
 
15

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
(c) Unrealized Investment Gains and Losses
Net unrealized gains and losses on
available-for-sale
investment securities reflected as a separate component of accumulated other comprehensive income (loss) were as follows as of the dates indicated:
 
(Amounts in millions)
  
September 30, 2021
  
December 31, 2020
 
Net unrealized gains (losses) on fixed maturity securities without an allowance for credit
losses
(1)
  $8,093  $10,159 
Net unrealized gains (losses) on fixed maturity securities with an allowance for credit
losses
(1)
   0     (7
Adjustments to DAC, present value of future profits, sales inducements, benefit reserves
and policyholder contract balances
   (5,716  (7,302
Income taxes, net   (505  (611
          
Net unrealized investment gains (losses)   1,872   2,239 
Less: net unrealized investment gains (losses) attributable to noncontrolling interests   25   25 
          
Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.  $1,847  $2,214 
          
 
(1)Excludes foreign exchange.
The change in net unrealized gains (losses) on
available-for-sale
investment securities reported in accumulated other comprehensive income (loss) was as follows as of and for the periods indicated:
 
   
As of or for the

three months ended
September 30,
 
(Amounts in millions)
  
2021
  
2020
 
Beginning balance  $1,865  $1,811 
Unrealized gains (losses) arising during the period:         
Unrealized gains (losses) on fixed maturity securities   (433  781 
Adjustment to deferred acquisition costs   80   (9
Adjustment to present value of future profits   (2  2 
Adjustment to sales inducements   3   (5
Adjustment to benefit reserves   372   (566
Provision for income taxes   (4  (42
          
Change in unrealized gains (losses) on investment securities   16   161 
Reclassification adjustments to net investment (gains) losses, net of taxes of $3 and $70   (9  (261
          
Change in net unrealized investment gains (losses)   7   (100
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests   25   0   
          
Ending balance  $1,847  $1,711 
          
 
16

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
   
As of or for the

nine months ended
September 30,
 
(Amounts in millions)
  
2021
  
2020
 
Beginning balance  $2,214  $1,456 
Unrealized gains (losses) arising during the period:         
Unrealized gains (losses) on fixed maturity securities   (2,042  2,980 
Adjustment to deferred acquisition costs   (52  48 
Adjustment to present value of future profits   0     6 
Adjustment to sales inducements   8   (3
Adjustment to benefit reserves   1,630   (2,260
Provision for income taxes   102   (162
          
Change in unrealized gains (losses) on investment securities   (354  609 
Reclassification adjustments to net investment (gains) losses, net of taxes of $4 and $95   (13  (355
          
Change in net unrealized investment gains (losses)   (367  254 
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests   0     (1
          
Ending balance  $1,847  $1,711 
          
Amounts reclassified out of accumulated other comprehensive income (loss) to
 
net investment gains (losses) include realized gains (losses) on sales of securities, which are determined on a specific identification basis.
 
17

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
(d) Fixed Maturity Securities
As of September 30, 2021, the amortized cost or cost, gross unrealized gains (losses), allowance for credit losses and fair value of our fixed maturity securities classified as
available-for-sale
were as follows:
 
(Amounts in millions)
  
Amortized
cost or
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
  
Allowance
for credit
losses
   
Fair
value
 
Fixed maturity securities:                        
U.S. government, agencies and government-sponsored enterprises  $3,384   $1,117   $(1 $0     $4,500 
State and political subdivisions   2,946    476    (4  0      3,418 
Non-U.S.
government
   760    85    (10  0      835 
U.S. corporate:                        
Utilities   4,313    787    (8  0      5,092 
Energy   2,644    377    (10  0      3,011 
Finance and insurance   7,977    1,065    (18  0      9,024 
Consumer—non-cyclical
   5,176    1,047    (5  0      6,218 
Technology and communications   3,281    488    (12  0      3,757 
Industrial   1,340    179    (1  0      1,518 
Capital goods   2,395    428    (3  0      2,820 
Consumer—cyclical   1,700    213    (5  0      1,908 
Transportation   1,131    241    0     0      1,372 
Other   373    39    0     0      412 
                         
Total U.S. corporate   30,330    4,864    (62  0      35,132 
                         
Non-U.S.
corporate:
                        
Utilities   888    69    (1  0      956 
Energy   1,213    203    0     0      1,416 
Finance and insurance   2,147    293    (7  0      2,433 
Consumer—non-cyclical
   673    84    (2  0      755 
Technology and communications   1,109    172    (1  0      1,280 
Industrial   974    126    (1  0      1,099 
Capital goods   627    66    (1  0      692 
Consumer—cyclical   326    27    (1  0      352 
Transportation   422    68    0     0      490 
Other   1,089    181    (3  0      1,267 
                         
Total
non-U.S.
corporate
   9,468    1,289    (17  0      10,740 
                         
Residential mortgage-backed   1,432    141    (1  0      1,572 
Commercial mortgage-backed   2,496    176    (2  0      2,670 
Other asset-backed   2,365    43    (1  0      2,407 
                         
Total
available-for-sale
fixed maturity securities
  $53,181   $8,191   $(98 $0     $61,274 
                         
 
18

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
As of December 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-sponsored enterprises  $3,401   $1,404   $0    $0    $4,805 
State and political subdivisions   2,622    544    (1  0     3,165 
Non-U.S.
government
   728    130    (4  0     854 
U.S. corporate:                       
Utilities   4,226    970    (2  0     5,194 
Energy   2,532    367    (16  0     2,883 
Finance and insurance   7,798    1,306    (2  0     9,102 
Consumer—non-cyclical
   5,115    1,323    (1  0     6,437 
Technology and communications   3,142    619    0     0     3,761 
Industrial   1,370    232    0     0     1,602 
Capital goods   2,456    535    0     0     2,991 
Consumer—cyclical   1,663    284    0     0     1,947 
Transportation   1,198    304    (2  0     1,500 
Other   395    45    0     0     440 
                        
Total U.S. corporate   29,895    5,985    (23  0     35,857 
                        
Non-U.S.
corporate:
                       
Utilities   838    84    0     0     922 
Energy   1,172    209    (1  0     1,380 
Finance and insurance   2,130    353    (6  (1  2,476 
Consumer—non-cyclical
   662    112    (1  0     773 
Technology and communications   1,062    229    0     0     1,291 
Industrial   969    159    0     0     1,128 
Capital goods   510    67    (1  0     576 
Consumer—cyclical   331    41    (1  0     371 
Transportation   483    88    (1  0     570 
Other   1,088    236    0     0     1,324 
                        
Total
non-U.S.
corporate
   9,245    1,578    (11  (1  10,811 
                        
Residential mortgage-backed   1,698    211    0     0     1,909 
Commercial mortgage-backed   2,759    231    (13  (3  2,974 
Other asset-backed   3,069    55    (4  0     3,120 
                        
Total
available-for-sale
fixed maturity securities
  $53,417   $10,138   $(56 $(4 $63,495 
                        
 
19

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the gross unrealized losses and fair values of our fixed maturity securities for which an allowance for credit losses has not been recorded, aggregated by investment type and length of time that individual fixed maturity securities have been in a continuous unrealized loss position, as of September 30, 2021:
 
  
Less than 12 months
  
12 months or more
  
Total
 
(Dollar amounts in millions)
 
Fair
value
  
Gross
unrealized
losses
  
Number of
securities
  
Fair
value
  
Gross
unrealized
losses
  
Number of
securities
  
Fair
value
  
Gross
unrealized
losses
  
Number of
securities
 
Description of Securities
                                    
Fixed maturity securities:                                    
U.S. government, agencies and
 
government
-
sponsored enterprises
 $32  $(1  6  $0    $0     0    $32  $(1  6 
State and political subdivisions  281   (4  52   0     0     0     281   (4  52 
Non-U.S.
government
  175   (7  28   16   (3  2   191   (10  30 
U.S. corporate  2,073   (52  212   139   (10  12   2,212   (62  224 
Non-U.S.
corporate
  707   (14  92   19   (3  2   726   (17  94 
Residential mortgage-backed  68   (1  16   0     0     0     68   (1  16 
Commercial mortgage-backed  71   (1  9   32   (1  5   103   (2  14 
Other asset-backed  353   (1  63   0     0     0     353   (1  63 
                                     
Total for fixed maturity securities in an
unrealized loss position
 $3,760  $(81  478  $206  $(17  21  $3,966  $(98  499 
                                     
% Below cost:                                    
<20% Below cost $3,754  $(77  477  $201  $(15  20  $3,955  $(92  497 
20%-50%
Below cost
  6   (4  1   5   (2  1   11   (6  2 
                                     
Total for fixed maturity securities in an
unrealized loss position
 $3,760  $(81  478  $206  $(17  21  $3,966  $(98  499 
                                     
Investment grade $3,546  $(73  445  $161  $(10  15  $3,707  $(83  460 
Below investment grade  214   (8  33   45   (7  6   259   (15  39 
                                     
Total for fixed maturity securities in an
unrealized loss position
 $3,760  $(81  478  $206  $(17  21  $3,966  $(98  499 
                                     
 
20

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the gross unrealized losses and fair values of
 
our corporate securities for which an allowance for credit losses has not been recorded, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of September 30, 2021:
 
  
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 $164  $(8  29  $0    $0     0    $164  $(8  29 
Energy  145   (6  16   23   (4  4   168   (10  20 
Finance and insurance  745   (14  64   79   (4  4   824   (18  68 
Consumer—non-cyclical
  252   (5  26   0     0     0     252   (5  26 
Technology and communications  330   (11  31   19   (1  2   349   (12  33 
Industrial  86   (1  10   0     0     0     86   (1  10 
Capital goods  146   (2  14   18   (1  2   164   (3  16 
Consumer—cyclical  205   (5  22   0     0     0     205   (5  22 
                                     
Subtotal, U.S. corporate securities  2,073   (52  212   139   (10  12   2,212   (62  224 
                                     
Non-U.S.
corporate:
                                    
Utilities  48   (1  7   0     0     0     48   (1  7 
Finance and insurance  346   (7  41   0     0     0     346   (7  41 
Consumer—non-cyclical
  72   (1  12   6   (1  1   78   (2  13 
Technology and communications  41   (1  6   0     0     0     41   (1  6 
Industrial  81   (1  9   0     0     0     81   (1  9 
Capital goods  55   (1  5   0     0     0     55   (1  5 
Consumer—cyclical  22   (1  7   0     0     0     22   (1  7 
Other  42   (1  5   13   (2  1   55   (3  6 
                                     
Subtotal,
non-U.S.
corporate securities
  707   (14  92   19   (3  2   726   (17  94 
                                     
Total for corporate securities in an unrealized
loss position
 $2,780  $(66  304  $158  $(13  14  $2,938  $(79  318 
                                     
We did not recognize an allowance for credit losses on securities in an unrealized loss position included in the tables above. Based on a qualitative and quantitative review of the issuers of the securities, we believe the decline in fair value is largely 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 without an allowance for credit losses, we expect to recover the amortized cost based on our estimate of the amount and timing of cash flows to be collected. We do not intend to sell nor do we expect that we will be required to sell these securities prior to recovering our amortized cost.
 
21

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 December 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
                                    
Fixed maturity securities:                                    
State and political subdivisions $28  $(1  6  $0    $0     0    $28  $(1  6 
Non-U.S.
government
  44   (4  5   0     0     0     44   (4  5 
U.S. corporate  345   (20  59   33   (3  4   378   (23  63 
Non-U.S.
corporate
  145   (4  32   6   (1  1   151   (5  33 
Commercial mortgage-backed  227   (11  34   1   (1  1   228   (12  35 
Other asset-backed  238   (2  60   207   (2  48   445   (4  108 
                                     
Total for fixed maturity securities in an
unrealized loss position
 $1,027  $(42  196  $247  $(7  54  $1,274  $(49  250 
                                     
% Below cost:                                    
<20% Below cost $1,017  $(35  194  $246  $(6  53  $1,263  $(41  247 
20%-50%
Below cost
  10   (7  2   1   (1  1   11   (8  3 
                                     
Total for fixed maturity securities in an
unrealized loss position
 $1,027  $(42  196  $247  $(7  54  $1,274  $(49  250 
                                     
Investment grade $852  $(23  163  $207  $(2  48  $1,059  $(25  211 
Below investment grade  175   (19  33   40   (5  6   215   (24  39 
                                     
Total for fixed maturity securities in an
unrealized loss position
 $1,027  $(42  196  $247  $(7  54  $1,274  $(49  250 
                                     
 
22

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 December 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 $49  $(2  9  $0    $0     0    $49  $(2  9 
Energy  106   (13  19   33   (3  4   139   (16  23 
Finance and insurance  128   (2  15   0     0     0     128   (2  15 
Consumer—non-cyclical
  16   (1  5   0     0     0     16   (1  5 
Transportation  46   (2  11   0     0     0     46   (2  11 
                                     
Subtotal, U.S. corporate securities  345   (20  59   33   (3  4   378   (23  63 
                                     
Non-U.S.
corporate:
                                    
Energy  66   (1  10   0     0     0     66   (1  10 
Consumer—non-cyclical
  0     0     0     6   (1  1   6   (1  1 
Capital goods  31   (1  8   0     0     0     31   (1  8 
Consumer—cyclical  15   (1  6   0     0     0     15   (1  6 
Transportation  33   (1  8   0     0     0     33   (1  8 
                                     
Subtotal,
non-U.S.
corporate securities
  145   (4  32   6   (1  1   151   (5  33 
                                     
Total for corporate securities in an unrealized loss
position
 $490  $(24  91  $39  $(4  5  $529  $(28  96 
                                     
The scheduled maturity distribution of fixed maturity securities as of September 30, 2021 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.
 
(Amounts in millions)
  
Amortized
cost or
cost
   
Fair
value
 
Due one year or less  $1,422   $1,449 
Due after one year through five years   8,386    9,039 
Due after five years through ten years   13,510    14,956 
Due after ten years   23,570    29,181 
           
Subtotal   46,888    54,625 
Residential mortgage-backed   1,432    1,572 
Commercial mortgage-backed   2,496    2,670 
Other asset-backed   2,365    2,407 
           
Total  $53,181   $61,274 
           
 
23

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
As of September 30, 2021, securities issued by finance and insurance,
consumer—non-cyclical,
utilities and technology and communications industry groups represented approximately 25%, 15%, 13% and 11%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than 10% of our investment portfolio.
As of September 30, 2021, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of stockholders’ equity.
(e) Commercial Mortgage Loans
Our mortgage loans are collateralized by commercial properties, including multi-family residential buildings. The carrying value of commercial mortgage loans is stated at original cost net of principal payments, amortization and allowance for credit losses.
We diversify our commercial mortgage loans by both property type and geographic region. The following tables set forth the distribution across property type and geographic region for commercial mortgage loans as of the dates indicated:
 
   
September 30, 2021
  
December 31, 2020
 
(Amounts in millions)
  
Carrying
value
   
% of
total
  
Carrying
value
   
% of
total
 
Property type:                   
Retail  $2,756    40 $2,442    36
Industrial   1,498    22   1,638    24 
Office   1,527    22   1,567    23 
Apartments   587    8   529    8 
Mixed use   296    4   286    4 
Other   252    4   312    5 
                    
Subtotal   6,916    100  6,774    100
                    
Allowance for credit losses   (30       (31     
                    
Total  $6,886       $6,743      
                    
 
24

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
   
September 30, 2021
  
December 31, 2020
 
(Amounts in millions)
  
Carrying
value
   
% of
total
  
Carrying
value
   
% of
total
 
Geographic region:                   
South Atlantic  $1,779    26 $1,711    25
Pacific   1,414    20   1,510    22 
Middle Atlantic   951    14   994    15 
Mountain   903    13   781    12 
West North Central   471    7   467    7 
West South Central   479    7   423    6 
East North Central   464    7   441    6 
New England   255    3   260    4 
East South Central   200    3   187    3 
                    
Subtotal   6,916    100  6,774    100
                    
Allowance for credit losses   (30       (31     
                    
Total  $6,886       $6,743      
                    
As of September 30, 2021 and December 31, 2020, all of our commercial
 
mortgage loans were current. 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 2020 Annual Report on Form
10-K.
As of September 30, 2021 and December 31, 2020, we had 0 commercial mortgage loans on
non-accrual
status.
During the nine months ended September 30, 2021 and the year ended December 31, 2020, we did 0t have any modifications or extensions that were considered troubled debt restructurings.
The following table sets forth the allowance for credit losses related to commercial mortgage loans as of or for the periods indicated:
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
(Amounts in millions)
  
    2021    
   
    2020    
   
    2021    
   
    2020    
 
Allowance for credit losses:                    
Beginning balance  $33   $28   $31   $13 
Cumulative effect of change in accounting   0      0      0      16 
Provision   (3   3    (1   2 
Write-offs   0      0      0      0   
Recoveries   0      0      0      0   
                     
Ending balance  $30   $31   $30   $31 
                     
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
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
 
25

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
default by the borrower. The average
debt-to-value
ratio is based on our most recent estimate of the fair value for the underlying property which is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A lower
debt-to-value
indicates that our loan value is more likely to be recovered in the event of default by the borrower if the property 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 loan. Normalization allows for the removal of annual
one-time
events such as capital expenditures, prepaid or late real estate tax payments or
non-recurring
third-party fees (such as legal, consulting or contract fees). This ratio is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A higher debt service coverage ratio indicates the borrower is less likely to default on the loan. The debt service coverage ratio is not used without considering other factors associated with the borrower, such as the borrower’s liquidity or access to other resources that may result in our expectation that the borrower will continue to make the future scheduled payments.
The following tables set forth commercial mortgage loans by year of origination and credit quality indicator as of September 30, 2021:
 
(Amounts in millions)
  
2021
   
2020
   
2019
   
2018
   
2017
   
2016 and
prior
   
Total
 
Debt-to-value:
                                   
0% - 50%  $28   $72   $53   $165   $188   $2,080   $2,586 
51% - 60%   40    25    168    268    277    756    1,534 
61% - 75%   671    431    528    501    169    496    2,796 
                                    
Total amortized cost  $739   $528   $749   $934   $634   $3,332   $6,916 
                                    
Debt service coverage ratio:                                   
Less than 1.00  $0     $10   $19   $42   $50   $126   $247 
1.00 - 1.25   3    70    74    81    37    327    592 
1.26 - 1.50   120    32    169    165    42    312    840 
1.51 - 2.00   514    222    287    454    265    1,058    2,800 
Greater than 2.00   102    194    200    192    240    1,509    2,437 
                                    
Total amortized cost  $739   $528   $749   $934   $634   $3,332   $6,916 
                                    
 
26

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables set forth the
debt-to-value
of commercial mortgage loans by property
 
type as of the dates indicated:
 
   
September 30, 2021
 
(Amounts in millions)
  
0% - 50%
  
51% - 60%
  
61% - 75%
  
76% - 100%
  
Greater
than 100%
  
Total
 
Property type:                         
Retail  $885  $619  $1,252  $0  $0  $2,756 
Industrial   805   261   432   0   0   1,498 
Office   527   364   636   0   0   1,527 
Apartments   214   97   276   0   0   587 
Mixed use   91   82   123   0   0   296 
Other   64   111   77   0   0   252 
                          
Total amortized cost  $2,586  $1,534  $2,796  $0  $0  $6,916 
                          
% of total   38  22  40  0  0  100
                          
Weighted-average debt service coverage ratio   2.37   1.83   1.59   0   0   1.94 
                          
 
   
December 31, 2020
 
(Amounts in millions)
  
0% - 50%
  
51% - 60%
  
61% - 75%
  
76% - 100%
  
Greater
than 100%
  
Total
 
Property type:                         
Retail  $913  $639  $859  $29  $2  $2,442 
Industrial   798   351   456   33   0   1,638 
Office   523   431   595   18   0   1,567 
Apartments   199   86   238   6   0   529 
Mixed use   112   47   127   0   0   286 
Other   100   74   121   17   0   312 
                          
Total amortized cost  $2,645  $1,628  $2,396  $103  $2  $6,774 
                          
% of total   39  24  35  2  0  100
                          
Weighted-average debt service coverage ratio   2.40   1.83   1.61   1.49   0.64   1.97 
                          
 
27

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:
 
   
September 30, 2021
 
(Amounts in millions)
  
Less than 1.00
  
1.00 - 1.25
  
1.26 - 1.50
  
1.51 - 2.00
  
Greater
than 2.00
  
Total
 
Property type:                         
Retail  $106  $171  $410  $1,314  $755  $2,756 
Industrial   9   66   100   590   733   1,498 
Office   76   110   190   544   607   1,527 
Apartments   17   63   86   207   214   587 
Mixed use   34   32   41   91   98   296 
Other   5   150   13   54   30   252 
                          
Total amortized cost  $247  $592  $840  $2,800  $2,437  $6,916 
                          
% of total   4  9  12  40  35  100
                          
Weighted-average
debt-to-value
   62  61  62  59  43  54
                          
 
   
December 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
 
Property type:                         
Retail  $55  $169  $483  $969  $766  $2,442 
Industrial   21   85   143   616   773   1,638 
Office   101   99   170   634   563   1,567 
Apartments   9   24   126   228   142   529 
Mixed use   5   24   29   115   113   286 
Other   25   125   41   28   93   312 
                          
Total amortized cost  $216  $526  $992  $2,590  $2,450  $6,774 
                          
% of total   3  8  15  38  36  100
                          
Weighted-average
debt-to-value
   57  62  62  57  44  53
                          
(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, for limited partnerships measured at fair value, we consider whether an adjustment to the estimated fair value is necessary when the measurement date is not aligned with our reporting date.
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 September 30,
 
28

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
2021 and December 31, 2020, the total carrying value of these investments was $1,560 million and $1,018 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.
(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.
 
29

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
 
  
Balance sheet
classification
 
Fair value
  
Balance sheet
classification
 
Fair value
 
(Amounts in millions)
 
September 30,
2021
  
December 31,
2020
  
September 30,
2021
  
December 31,
2020
 
Derivatives designated as hedges
                    
Cash flow hedges:                    
Interest rate swaps Other invested assets $298  $468  Other liabilities $44  $23 
Foreign currency swaps Other invested assets  5   1  Other liabilities  0     2 
                     
Total cash flow hedges    303   469     44   25 
                     
Total derivatives designated as hedges    303   469     44   25 
                     
Derivatives not designated as hedges
                    
Equity index options Other invested assets  33   63  Other liabilities  0     0   
Financial futures Other invested assets  0     0    Other liabilities  0     0   
Other foreign currency contracts Other invested assets  2   42  Other liabilities  0     1 
GMWB embedded derivatives Reinsurance recoverable
(1)
  19   26  Policyholder account balances 
(2)
  286   379 
Fixed index annuity embedded derivatives Other assets  0     0    Policyholder account balances 
(3)
  312   399 
Indexed universal life embedded derivatives Reinsurance recoverable  0     0    Policyholder account balances 
(4)
  26   26 
                     
Total derivatives not designated as hedges    54   131     624   805 
                     
Total derivatives   $357  $600    $668  $830 
                     
 
(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.
The fair value of derivative positions presented above was not offset by the respective collateral amounts received or provided under these agreements.
 
30

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,
2020
   
Additions
   
Maturities/
terminations
  
September 30,
2021
 
Derivatives designated as hedges
                        
Cash flow hedges:                        
Interest rate swaps   Notional   $8,178   $0     $(434 $7,744 
Foreign currency swaps   Notional    127    0      0     127 
                         
Total cash flow hedges        8,305    0      (434  7,871 
                         
Total derivatives designated as hedges        8,305    0      (434  7,871 
                         
Derivatives not designated as hedges
                        
Interest rate swaps   Notional    4,674    0      (4,674  0   
Equity index options   Notional    2,000    922    (1,285  1,637 
Financial futures   Notional    1,104    2,918    (3,085  937 
Other foreign currency contracts   Notional    1,186    24    (1,111  99 
                         
Total derivatives not designated as hedges        8,964    3,864    (10,155  2,673 
                         
Total derivatives       $17,269   $3,864   $(10,589 $10,544 
                         
 
(Number of policies)
  
Measurement
   
December 31,
2020
   
Additions
   
Maturities/
terminations
  
September 30,
2021
 
Derivatives not designated as hedges
                        
GMWB embedded derivatives   Policies      23,713    0      (1,409  22,304 
Fixed index annuity embedded derivatives   Policies    12,778    0        (2,660    10,118 
Indexed universal life embedded derivatives   Policies    842    0      (36  806 
Cash Flow Hedges
Certain derivative instruments are
 
designated as cash flow hedges. The changes in fair value of these instruments are recorded as a component of other comprehensive income (loss) (“OCI”). We designate and account for the following as cash flow hedges when they have met the 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.
 
31

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 three months ended September 30, 2021:
 
(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 $27  $58  Net investment income $0    Net investment gains (losses)
Interest rate swaps hedging assets  0     1  Net investment gains (losses)  0    Net investment gains (losses)
Interest rate swaps hedging liabilities  0     (1 Interest expense  0    Net investment gains (losses)
Foreign currency swaps  5   0    Net investment income  0    Net investment gains (losses)
                 
Total $32  $58    $0     
                 
The following table provides information about the
pre-tax
income (loss) effects of cash flow hedges for the three months ended September 30, 2020:
 
(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 $(246 $50  Net investment income $0    Net investment gains (losses)
Interest rate swaps hedging assets  0     4  Net investment gains (losses)  0    Net investment gains (losses)
Interest rate swaps hedging liabilities  10   0    Interest expense  0    Net investment gains (losses)
Foreign currency swaps  (7  0    Net investment income  0    Net investment gains (losses)
                 
Total $(243 $54    $0     
                 
 
32

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 nine months ended September 30, 2021:
 
(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 $(188 $162  Net investment income $0    Net investment gains (losses)
Interest rate swaps hedging assets  0     1  Net investment gains (losses)  0    Net investment gains (losses)
Interest rate swaps hedging
liabilities
  36   (1 Interest expense  0    Net investment gains (losses)
Foreign currency swaps  6   0    Net investment income  0    Net investment gains (losses)
                 
Total $(146 $162    $0     
                 
The following table provides information about the
pre-tax
income (loss) effects of cash flow hedges for the nine months ended September 30, 2020:
 
(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
 $738  $139  Net investment income $0    Net investment gains (losses)
Interest rate swaps hedging
assets
  0     8  Net investment gains (losses)  0    Net investment gains (losses)
Interest rate swaps hedging
liabilities
  (52  0    Interest expense  0    Net investment gains (losses)
Foreign currency swaps  6   0    Net investment income  0    Net investment gains (losses)
                 
Total $692  $147    $0     
                 
 
33

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables provide 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 September 30,
 
(Amounts in millions)
  
    2021    
  
    2020    
 
Derivatives qualifying as effective accounting hedges as of July 1  $2,003  $2,677 
Current period increases (decreases) in fair value, net of deferred taxes of $(7) and $52   25   (191
Reclassification to net (income) loss, net of deferred taxes of $21 and $19   (37  (35
          
Derivatives qualifying as effective accounting hedges as of September 30  $1,991  $2,451 
          
 
   
Nine months ended
September 30,
 
(Amounts in millions)
  
    2021    
  
    2020    
 
Derivatives qualifying as effective accounting hedges as of January 1  $2,211  $2,002 
Current period increases (decreases) in fair value, net of deferred taxes of $31 and $(148)   (115  544 
Reclassification to net (income) loss, net of deferred taxes of $57 and $52   (105  (95
          
Derivatives qualifying as effective accounting hedges as of September 30  $1,991  $2,451 
          
The total of derivatives designated as cash flow hedges of $1,991 million, net of taxes, recorded in stockholders’ equity as of September 30, 2021 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, $140 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 nine months ended September 30, 2021 and 2020, we reclassified $8 million and $7 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; and (iii) foreign currency options and forward contracts to mitigate currency risk associated with future dividends, cash payments to AXA reported as discontinued operations and/or other cash flows from certain foreign subsidiaries to our holding 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.
 
34

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following 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
September 30,
  
Classification of gain (loss)
recognized
in net income (loss)
(Amounts in millions)
  
        2021        
  
        2020        
 
Interest rate swaps  $(1 $1  Net investment gains (losses)
Equity index options   0     7  Net investment gains (losses)
Financial futures   0     (41 Net investment gains (losses)
Other foreign currency contracts   0     (1 Net investment gains (losses)
GMWB embedded derivatives   (4  54  Net investment gains (losses)
Fixed index annuity embedded derivatives   (3  (18 Net investment gains (losses)
Indexed universal life embedded derivatives   4   3  Net investment gains (losses)
            
Total derivatives not designated as hedges  $(4 $5   
            
 
   
Nine months ended
September 30,
  
Classification of gain (loss)
recognized
in net income (loss)
(Amounts in millions)
  
        2021        
  
        2020        
 
Interest rate swaps  $2  $(11 Net investment gains (losses)
Equity index options   9   (2 Net investment gains (losses)
Financial futures   (102  97  Net investment gains (losses)
Other foreign currency contracts   0     7  Net investment gains (losses)
GMWB embedded derivatives   103   (153 Net investment gains (losses)
Fixed index annuity embedded derivatives   (21  (31 Net investment gains (losses)
Indexed universal life embedded derivatives   17   10  Net investment gains (losses)
            
Total derivatives not designated as hedges  $8  $(83  
            
 
35

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Derivative Counterparty Credit Risk
M
ost 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:

  
September 30, 2021
  
December 31, 2020
 
(Amounts in millions)
 
Derivative
assets
(1)
  
Derivative
liabilities 
(1)
  
Net
derivatives
  
Derivative
assets
(1)
  
Derivative
liabilities 
(1)
  
Net
derivatives
 
Amounts presented in the balance sheet:                        
Gross amounts recognized $339  $44  $295  $574  $26  $548 
Gross amounts offset in the balance sheet  0     0     0     0     0     0   
                         
Net amounts presented in the balance sheet  339   44   295   574   26   548 
Gross amounts not offset in the balance sheet:                        
Financial instruments
(2)
  (34  (34  0     (20  (20  0   
Collateral received  (233  0     (233  (401  0     (401
Collateral pledged  0     (550  550   0     (505  505 
Over collateralization  10   540   (530  2   499   (497
                         
Net amount $82  $0    $82  $155  $0    $155 
                         
 
(1)Included $1 million of accruals on derivatives classified as other assets as of September 30, 2021 and does not include amounts related to embedded derivatives as of September 30, 2021 and December 31, 2020.
(2)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
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.
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, that security is valued using market information for similar securities, which is also a market approach. When market information is not available for a specific security (or similar securities) 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
 
36

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
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.
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.
In general, we first obtain valuations from pricing services. If prices are unavailable for public securities, 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 utilize an internal model to determine fair value since transactions for similar securities are not readily observable and these securities are not typically valued by pricing 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, 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. 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, a significant increase (decrease) in credit spreads would have resulted in a significant decrease (increase) in the fair value for our fixed maturity securities as of September 30, 2021.
For remaining securities priced using internal models, we determine fair value using an income approach. 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.
Our assessment of 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 pricing
 
37

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
services 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.
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, 90% of our portfolio was priced using third-party pricing services as of September 30, 2021. 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 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 pricing services for the purpose of understanding the methodologies, techniques and inputs used by the third-party pricing providers.
 
38

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents a summary of the significant inputs used by our pricing
 
services for certain fair value measurements of fixed maturity securities that are classified as Level 2 as of September 30, 2021:
 
(Amounts in millions)
 
Fair value
  
Primary methodologies
 
Significant inputs
U.S. government, agencies
and government-sponsored enterprises
 $4,500  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 $3,339  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
 $833  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 $31,272  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
    
Non-U.S.
corporate
 $8,555  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 $1,550  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
    
Commercial mortgage-backed $2,650  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
    
Other asset-backed $2,289  Multi-dimensional attribute-based modeling systems, spread matrix priced to swap curves, price quotes from market makers Spreads to daily updated swap 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
 
39

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
  
Internal models:
A portion of our U.S. corporate and
non-U.S.
corporate securities are valued using internal models. The fair value of these fixed maturity securities was $1,592 million and $1,004 million, respectively, as of September 30, 2021. 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 pricing services.
Short-term investments
The fair value of short-term investments classified as Level 2 is determined after considering prices obtained by pricing services.
Level 3 measurements
Fixed maturity securities
 
  
Broker quotes:
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 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 $249 million as of September 30, 2021.
 
  
Internal models:
A portion of our state and political subdivisions, U.S. corporate,
non-U.S.
corporate, residential 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 $3,441 million as of September 30, 2021.
 
40

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Equity securities.
The primary inputs to the valuation include broker quotes where the underlying inputs are unobservable and for internal models, structure of the security and issuer rating.
Net asset value
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”) from the underlying fund statements as a practical expedient for fair value.
Derivatives
We consider counterparty collateral arrangements and rights of
set-off
when evaluating our net credit risk exposure to our derivative counterparties. Accordingly, we are permitted to include consideration of these arrangements when determining whether any incremental adjustment should be made for both the counterparty’s and our
non-performance
risk in measuring fair value for our derivative instruments. As a result of these counterparty arrangements, we determined that any adjustment for credit risk would not be material and we have not recorded any incremental adjustment for our
non-performance
risk or the
non-performance
risk of the derivative counterparty for our derivative assets or liabilities.
Interest rate swaps.
The valuation of interest rate swaps is determined using an income approach. The primary input into the valuation represents the forward interest rate swap curve, which is generally considered an observable input, and results in the derivative being classified as Level 2. For certain interest rate swaps, the inputs into the valuation also include the total returns of certain bonds that would primarily be considered an observable input and result in the derivative being classified as Level 2.
Foreign currency swaps.
The valuation of foreign currency swaps is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve and foreign currency exchange rates, both of which are considered observable inputs, and results in the derivative being classified as Level 2.
Equity index options.
We have equity index options associated with various equity indices. The valuation of equity index options is determined using an income approach. The primary inputs into the valuation represent forward interest rates, equity index volatility, equity index and time value component associated with the optionality in the derivative. The equity index volatility surface is determined based on market information that is not readily observable and is developed based upon inputs received from several third-party sources. Accordingly, these options are classified as Level 3. As of September 30, 2021, a significant increase (decrease) in the equity index volatility discussed above would have resulted in a significantly higher (lower) fair value measurement.
Financial futures.
The fair value of financial futures is based on the closing exchange prices. Accordingly, these financial futures are classified as Level 1. The period end valuation is 0 as a result of settling the margins on these contracts on a daily basis.
Other foreign currency contracts.
We have certain foreign currency options classified as other foreign currency contracts. The valuation of foreign currency options is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve, foreign currency exchange rates,
 
41

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
forward interest rate, foreign currency exchange rate volatility and time value component associated with the optionality in the derivative, which are generally considered observable inputs and results in the derivative being classified as Level 2. We also have foreign currency forward contracts where the valuation is determined using an income approach. The primary inputs into the valuation represent the forward foreign currency exchange rates, which are generally considered observable inputs and results in the derivative being classified as Level 2.
GMWB embedded derivatives
We are required to bifurcate an embedded derivative for certain features associated with annuity products and related reinsurance agreements where we provide a GMWB to the policyholder and are required to record the GMWB embedded derivative at fair value. The valuation of our GMWB embedded derivative is based on an income approach that incorporates inputs such as forward interest rates, equity index volatility, equity index and fund correlation, and policyholder assumptions such as utilization, lapse and mortality. We determine fair value using an internal model based on the various inputs noted above.
Non-performance
risk is integrated into the discount rate used to value GMWB liabilities. Our discount rate used to determine fair value of our GMWB liabilities includes market credit spreads above U.S. Treasury rates to reflect an adjustment for the
non-performance
risk of the GMWB liabilities. As of September 30, 2021 and December 31, 2020, the impact of
non-performance
risk resulted in a lower fair value of our GMWB liabilities of $51 million and $66 million, respectively.
We classify the GMWB valuation as Level 3 based on having significant unobservable inputs, with equity index volatility and
non-performance
risk being considered the more significant unobservable inputs. As equity index volatility increases, the fair value of the GMWB liabilities will increase. Any increase in
non-performance
risk would increase the discount rate and would decrease the fair value of the GMWB liability. Additionally, we consider lapse and utilization assumptions to be significant unobservable inputs. An increase in our lapse assumption would decrease the fair value of the GMWB liability, whereas an increase in our utilization rate would increase the fair value. As of September 30, 2021, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.
Fixed index annuity embedded derivatives
We have fixed indexed annuity products where interest is credited to the policyholder’s account balance based on equity index changes. This feature is required to be bifurcated as an embedded derivative and recorded at fair value. Fair value is determined using an income approach where the present value of the excess cash flows above the guaranteed cash flows is used to determine the value attributed to the equity index feature. The inputs used in determining the fair value include policyholder behavior (lapses and withdrawals), near-term equity index volatility, expected future interest credited, forward interest rates and an adjustment to the discount rate to incorporate
non-performance
risk and risk margins. As a result of our assumptions for policyholder behavior and expected future interest credited being considered significant unobservable inputs, we classify these instruments as Level 3. As lapses and withdrawals increase, the value of our embedded derivative liability will decrease. As expected future interest credited decreases, the value of our embedded derivative liability will decrease. As of September 30, 2021, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.
 
42

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Indexed universal life embedded derivatives
We have indexed universal life insurance products where interest is credited
 
to the policyholder’s account balance based on equity index changes. This feature is required to be bifurcated as an embedded derivative and recorded at fair value. Fair value is determined using an income approach where the present value of the excess cash flows above the guaranteed cash flows is used to determine the value attributed to the equity index feature. The inputs used in determining the fair value include policyholder behavior (lapses and withdrawals), near-term equity index volatility, expected future interest credited, forward interest rates and an adjustment to the discount rate to incorporate
non-performance
risk and risk margins. As a result of our assumptions for policyholder behavior and expected future interest credited being considered significant unobservable inputs, we classify these instruments as Level 3. As lapses and withdrawals increase, the value of our embedded derivative liability will decrease. As expected future interest credited decreases, the value of our embedded derivative liability will decrease. As of September 30, 2021, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.
 
43

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables set forth our assets by class of instrument that are measured at fair value on a recurring basis as of the dates indicated:
 
   
September 30, 2021
 
(Amounts in millions)
  
Total
   
Level 1
   
Level 2
   
Level 3
   
NAV 
(1)
 
Assets                         
Investments:                         
Fixed maturity securities:                         
U.S. government, agencies and government-sponsored enterprises  $4,500   $0     $4,500   $0     $0   
State and political subdivisions   3,418    0      3,339    79    0   
Non-U.S.
government
   835    0      833    2    0   
U.S. corporate:                         
Utilities   5,092    0      4,212    880    0   
Energy   3,011    0      2,879    132    0   
Finance and insurance   9,024    0      8,347    677    0   
Consumer—non-cyclical
   6,218    0      6,113    105    0   
Technology and communications   3,757    0      3,728    29    0   
Industrial   1,518    0      1,498    20    0   
Capital goods   2,820    0      2,771    49    0   
Consumer—cyclical   1,908    0      1,771    137    0   
Transportation   1,372    0      1,307    65    0   
Other   412    0      238    174    0   
                          
Total U.S. corporate   35,132    0      32,864    2,268    0   
                          
Non-U.S.
corporate:
                         
Utilities   956    0      612    344    0   
Energy   1,416    0      1,270    146    0   
Finance and insurance   2,433    0      2,272    161    0   
Consumer—non-cyclical
   755    0      691    64    0   
Technology and communications   1,280    0      1,252    28    0   
Industrial   1,099    0      1,020    79    0   
Capital goods   692    0      489    203    0   
Consumer—cyclical   352    0      277    75    0   
Transportation   490    0      436    54    0   
Other   1,267    0      1,240    27    0   
                          
Total
non-U.S.
corporate
   10,740    0      9,559    1,181    0   
                          
Residential mortgage-backed   1,572    0      1,550    22    0   
Commercial mortgage-backed   2,670    0      2,650    20    0   
Other asset-backed   2,407    0      2,289    118    0   
                          
Total fixed maturity securities   61,274    0      57,584    3,690    0   
                          
Equity securities   156    58    61    37    0   
                          
Other invested assets:                         
Derivative assets:                         
Interest rate swaps   298    0      298    0      0   
Foreign currency swaps   5    0      5    0      0   
Equity index options   33    0      0      33    0   
Other foreign currency contracts   2    0      2    0      0   
                          
Total derivative assets   338    0      305    33    0   
                          
Short-term investments   69    0      69    0      0   
Limited partnerships   1,263    0      0      0      1,263 
                          
Total other invested assets   1,670    0      374    33    1,263 
                          
Reinsurance recoverable
(2)
   19    0      0      19    0   
Separate account assets   5,978    5,978    0      0      0   
                          
Total assets  $69,097   $6,036   $58,019   $3,779   $1,263 
                          
 
(1)Limited partnerships that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.
(2)Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.
 
44

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED
 
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
   
December 31, 2020
 
(Amounts in millions)
  
Total
   
Level 1
   
Level 2
   
Level 3
   
NAV
 (1)
 
Assets                         
Investments:                         
Fixed maturity securities:                         
U.S. government, agencies and government-sponsored enterprises  $4,805   $0     $4,805   $0     $0   
State and political subdivisions   3,165    0      3,099    66    0   
Non-U.S.
government
   854    0      854    0      0   
U.S. corporate:                         
Utilities   5,194    0      4,352    842    0   
Energy   2,883    0      2,755    128    0   
Finance and insurance   9,102    0      8,495    607    0   
Consumer—non-cyclical
   6,437    0      6,328    109    0   
Technology and communications   3,761    0      3,714    47    0   
Industrial   1,602    0      1,562    40    0   
Capital goods   2,991    0      2,931    60    0   
Consumer—cyclical   1,947    0      1,797    150    0   
Transportation   1,500    0      1,430    70    0   
Other   440    0      221    219    0   
                          
Total U.S. corporate   35,857    0      33,585    2,272    0   
                          
Non-U.S.
corporate:
                         
Utilities   922    0      570    352    0   
Energy   1,380    0      1,135    245    0   
Finance and insurance   2,476    0      2,171    305    0   
Consumer—non-cyclical
   773    0      706    67    0   
Technology and communications   1,291    0      1,263    28    0   
Industrial   1,128    0      1,033    95    0   
Capital goods   576    0      398    178    0   
Consumer—cyclical   371    0      225    146    0   
Transportation   570    0      461    109    0   
Other   1,324    0      1,241    83    0   
                          
Total
non-U.S.
corporate
   10,811    0      9,203    1,608    0   
                          
Residential mortgage-backed   1,909    0      1,895    14    0   
Commercial mortgage-backed   2,974    0      2,954    20    0   
Other asset-backed   3,120    0      3,011    109    0   
                          
Total fixed maturity securities   63,495    0      59,406    4,089    0   
                          
Equity securities   386    276    59    51    0   
                          
Other invested assets:                         
Derivative assets:                         
Interest rate swaps   468    0      468    0      0   
Foreign currency swaps   1    0      1    0      0   
Equity index options   63    0      0      63    0   
Other foreign currency contracts   42    0      42    0      0   
                          
Total derivative assets   574    0      511    63    0   
                          
Securities lending collateral   67    0      67    0      0   
Short-term investments   45    25    20    0      0   
Limited partnerships   835    0      0      0      835 
                          
Total other invested assets   1,521    25    598    63    835 
                          
Reinsurance recoverable
(2)
   26    0      0      26    0   
Separate account assets   6,081    6,081    0      0      0   
                          
Total assets  $71,509   $6,382   $60,063   $4,229   $835 
                          
 
(1)Limited partnerships that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.
(2)Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.
 
45

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables present additional information about assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:
 
(Amounts in millions)
 
Beginning
balance

as of
July 1,
2021
  
Total realized and
unrealized gains
(losses)
  
Purchases
  
Sales
  
Issuances
  
Settlements
  
Transfer
into
Level 3 
(1)
  
Transfer
out of
Level 3 
(1)
  
Ending
balance

as of
September 30,
2021
  
Total gains (losses)
attributable to
assets still held
 
 
Included
in net
income
(loss)
  
Included
in OCI
  
Included
in net
income
(loss)
  
Included
in OCI
 
Fixed maturity securities:                                                
State and political subdivisions $75  $1  $3  $0    $0    $0    $0    $0    $0    $79  $1  $3 
Non-U.S.
government
  0     0     0     2   0     0     0     0     0     2   0     0   
U.S. corporate:                                                
Utilities  842   0     (5  46   0     0     (3  0     0     880   0     (5
Energy  77   0     0     50   0     0     (3  8   0     132   0     0   
Finance and insurance  661   0     (5  72   0     0     (20  0     (31  677   0     (4
Consumer—non-cyclical
  109   0     (1  0     0     0     0     0     (3  105   0     0   
Technology and communications  30   0     (1  0     0     0     0     0     0     29   0     (1
Industrial  20   0     0     0     0     0     0     0     0     20   0     0   
Capital goods  59   0     0     0     0     0     (10  0     0     49   0     0   
Consumer—cyclical  139   0     0     0     0     0     (2  0     0     137   0     0   
Transportation  67   0     0     0     0     0     (2  0     0     65   0     0   
Other  198   0     0     0     0     0     (23  0     (1  174   0     0   
                                                 
Total U.S. corporate  2,202   0     (12  168   0     0     (63  8   (35  2,268   0     (10
                                                 
Non-U.S.
corporate:
                                                
Utilities  348   0     (4  0     0     0     0     0     0     344   0     (3
Energy  152   0     (1  0     0     0     (5  0     0     146   0     (1
Finance and insurance  202   1   0     1   0     0     (10  0     (33  161   1   (1
Consumer—non-cyclical
  74   1   (1  0     0     0     (13  3   0     64   0     0   
Technology and communications  28   0     0     0     0     0     0     0     0     28   0     0   
Industrial  94   1   (2  0     0     0     (14  0     0     79   0     0   
Capital goods  181   0     3   19   0     0     0     0     0     203   0     2 
Consumer—cyclical  147   0     0     0     0     0     0     0     (72  75   0     0   
Transportation  83   3   (2  0     0     0     (30  0     0     54   0     (1
Other  53   6   (2  0     0     0     (30  0     0     27   0     0   
                                                 
Total
non-U.S.
corporate
  1,362   12   (9  20   0     0     (102  3   (105  1,181   1   (4
                                                 
Residential mortgage-backed  13   0     0     0     0     0     (1  10   0     22   0     0   
Commercial mortgage-backed  20   0     (1  1   0     0     0     0     0     20   0     0   
Other asset-backed  88   0     0     36   0     0     (6  0     0     118   0     0   
                                                 
Total fixed maturity securities  3,760   13   (19  227   0     0     (172  21   (140  3,690   2   (11
                                                 
Equity securities  38   0     0     0     0     0     (1  0     0     37   0     0   
                                                 
Other invested assets:                                                
Derivative assets:                                                
Equity index options  47   0     0     5   0     0     (19  0     0     33   (1  0   
                                                 
Total derivative assets  47   0     0     5   0     0     (19  0     0     33   (1  0   
                                                 
Total other invested assets  47   0     0     5   0     0     (19  0     0     33   (1  0   
                                                 
Reinsurance recoverable
(2)
  18   1   0     0     0     0     0     0     0     19   1   0   
                                                 
Total Level 3 assets $3,863  $14  $(19 $232  $0    $0    $(192 $21  $(140 $3,779  $2  $(11
                                                 
 
(1)The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities.
(2)Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.
 
46

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED
 
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
(Amounts in millions)
 
Beginning
balance

as of
July 1,
2020
  
Total realized and
unrealized gains
(losses)
  
Purchases
  
Sales
  
Issuances
  
Settlements
  
Transfer
into
Level 3 
(1)
  
Transfer
out of
Level 3 
(1)
  
Ending
balance

as of
September 30,
2020
  
Total gains (losses)
attributable to
assets still held
 
 
Included
in net
income
(loss)
  
Included
in OCI
  
Included
in net
income
(loss)
  
Included
in OCI
 
Fixed maturity securities:                                                
State and political subdivisions $63  $1  $(7 $0    $0    $0    $0    $0    $0    $57  $1  $(6
U.S. corporate:                                                
Utilities  936   10   (4  15   0     0     (52  0     (64  841   0     1 
Energy  123   0     0     7   0     0     (16  0     0     114   0     0   
Finance and insurance  551   0     2   71   0     0     (16  0     (77  531   0     2 
Consumer—non-cyclical
  103   0     0     0     0     0     0     0     0     103   0     1 
Technology and communications  66   0     3   57   0     0     0     0     0     126   0     3 
Industrial  39   0     1   0     0     0     0     0     0     40   0     0   
Capital goods  97   0     0     0     0     0     0     0     0     97   0     0   
Consumer—cyclical  198   3   (1  0     0     0     (30  0     0     170   0     1 
Transportation  54   0     1   0     0     0     (1  0     0     54   0     1 
Other  165   0     0     0     0     0     (1  0     0     164   0     0   
                                                 
Total U.S. corporate  2,332   13   2   150   0     0     (116  0     (141  2,240   0     9 
                                                 
Non-U.S.
corporate:
                                                
Utilities  357   0     4   0     0     0     0     6   (20  347   0     3 
Energy  237   0     0     0     0     0     0     0     0     237   0     1 
Finance and insurance  311   1   (2  0     0     0     0     19   (25  304   1   (2
Consumer—non-cyclical
  54   0     0     0     0     0     0     0     0     54   0     0   
Technology and communications  28   0     0     0     0     0     0     0     0     28   0     0   
Industrial  92   0     1   0     0     0     0     0     0     93   0     1 
Capital goods  173   0     0     10   0     0     (10  0     0     173   0     (1
Consumer—cyclical  156   0     4   17   0     0     0     0     (10  167   0     4 
Transportation  141   0     (2  0     0     0     0     0     (28  111   0     (3
Other  145   0     3   0     0     0     (12  0     0     136   0     3 
                                                 
Total
non-U.S.
corporate
  1,694   1   8   27   0     0     (22  25   (83  1,650   1   6 
                                                 
Residential mortgage-backed  24   0     (1  0     0     0     0     0     (9  14   0     0   
Commercial mortgage-backed  21   0     (1  0     0     0     0     0     0     20   0     0   
Other asset-backed  90   0     1   78   0     0     (4  0     (25  140   0     1 
                                                 
Total fixed maturity securities  4,224   15   2   255   0     0     (142  25   (258  4,121   2   10 
                                                 
Equity securities  53   0     0     0     (1  0     0     0     0     52   0     0   
                                                 
Other invested assets:                                                
Derivative assets:                                                
Equity index options  66   7   0     27   0     0     (33  0     0     67   (1  0   
                                                 
Total derivative assets  66   7   0     27   0     0     (33  0     0     67   (1  0   
                                                 
Total other invested assets  66   7   0     27   0     0     (33  0     0     67   (1  0   
                                                 
Reinsurance recoverable
(2)
  38   (3  0     0     0     0     0     0     0     35   (3  0   
                                                 
Total Level 3 assets $4,381  $19  $2  $282  $(1 $0    $(175 $25  $(258 $4,275  $(2 $10 
                                                 
 
(1)The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities.
(2)Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.
 
47

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables present additional information about assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:
 
(Amounts in millions)
 
Beginning
balance

as of
January 1,
2021
  
Total realized and
unrealized gains
(losses)
  
Purchases
  
Sales
  
Issuances
  
Settlements
  
Transfer
into
Level 3 
(1)
  
Transfer
out of
Level 3 
(1)
  
Ending
balance

as of
September 30,
2021
  
Total gains (losses)
attributable to
assets still held
 
 
Included
in net
income
(loss)
  
Included
in OCI
  
Included
in net
income
(loss)
  
Included
in OCI
 
Fixed maturity securities:                                                
State and political subdivisions $66  $3  $10  $0    $0    $0    $0    $0    $0    $79  $3  $10 
Non-U.S.
government
  0     0     0     2   0     0     0     0     0     2   0     0   
U.S. corporate:                                                
Utilities  842   0     (12  62   0     0     (17  18   (13  880   0     (11
Energy  128   0     4   50   0     0     (6  8   (52  132   0     0   
Finance and insurance  607   0     (10  145   0     0     (45  17   (37  677   0     (9
Consumer—non-cyclical
  109   0     (2  0     0     0     (2  3   (3  105   0     (2
Technology and communications  47   0     (1  12   0     0     0     4   (33  29   0     (2
Industrial  40   0     0     0     0     0     (20  0     0     20   0     0   
Capital goods  60   0     (1  0     0     0     (10  0     0     49   0     (1
Consumer—cyclical  150   0     (1  0     0     0     (4  0     (8  137   0     (1
Transportation  70   0     0     0     0     0     (5  0     0     65   0     0   
Other  219   0     (2  0     0     0     (29  6   (20  174   0     0   
                                                 
Total U.S. corporate  2,272   0     (25  269   0     0     (138  56   (166  2,268   0     (26
                                                 
Non-U.S.
corporate:
                                                
Utilities  352   0     (6  30   0     0     (8  0     (24  344   0     (6
Energy  245   0     7   0     0     0     (27  0     (79  146   0     3 
Finance and insurance  305   2   1   1   (2  0     (62  0     (84  161   3   (12
Consumer—non-cyclical
  67   1   (2  8   0     0     (13  3   0     64   0     (1
Technology and communications  28   0     0     0     0     0     0     0     0     28   0     0   
Industrial  95   1   (3  0     0     0     (14  0     0     79   0     (1
Capital goods  178   0     1   24   0     0     0     0     0     203   0     1 
Consumer—cyclical  146   0     0     16   0     0     0     0     (87  75   0     0   
Transportation  109   3   (2  0     0     0     (49  0     (7  54   0     0   
Other  83   6   (3  0     0     0     (44  0     (15  27   0     (1
                                                 
Total
non-U.S.
corporate
  1,608   13   (7  79   (2  0     (217  3   (296  1,181   3   (17
                                                 
Residential mortgage-backed  14   0     0     0     0     0     (2  10   0     22   0     0   
Commercial mortgage-backed  20   0     (1  1   0     0     0     0     0     20   0     (1
Other asset-backed  109   0     1   39   0     0     (15  2   (18  118   0     1 
                                                 
Total fixed maturity securities  4,089   16   (22  390   (2  0     (372  71   (480  3,690   6   (33
                                                 
Equity securities  51   0     0     0     (8  0     (6  0     0     37   0     0   
                                                 
Other invested assets:                                                
Derivative assets:                                                
Equity index options  63   9   0     15   0     0     (54  0     0     33   3   0   
                                                 
Total derivative assets  63   9   0     15   0     0     (54  0     0     33   3   0   
                                                 
Total other invested assets  63   9   0     15   0     0     (54  0     0     33   3   0   
                                                 
Reinsurance recoverable
(2)
  26   (8  0     0     0     1   0     0     0     19   (8  0   
                                                 
Total Level 3 assets $4,229  $17  $(22 $405  $(10 $1  $(432 $71  $(480 $3,779  $1  $(33
                                                 
 
(1)The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities.
(2)Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.
 
48

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(Unaudited)
 
(Amounts in millions)
 
Beginning
balance

as of
January 1,
2020
  
Total realized and
unrealized gains
(losses)
  
Purchases
  
Sales
  
Issuances
  
Settlements
  
Transfer
into
Level 3 
(1)
  
Transfer
out of
Level 3 
(1)
  
Ending
balance

as of
September 30,
2020
  
Total gains (losses)
attributable to
assets still held
 
 
Included
in net
income
(loss)
  
Included
in OCI
  
Included
in net
income
(loss)
  
Included
in OCI
 
Fixed maturity securities:                                                
State and political subdivisions $102  $2  $(19 $0    $0    $0    $(1 $0    $(27 $57  $2  $(19
Non-U.S.
government
  0     0     0     0     0     0     (1  1   0     0     0     0   
U.S. corporate:                                                
Utilities  865   10   8   47   0     0     (54  42   (77  841   0     14 
Energy  129   1   (2  17   (21  0     (19  22   (13  114   0     (4
Finance and insurance  572   2   4   92   0     0     (40  0     (99  531   0     7 
Consumer—non-cyclical
  94   0     2   8   0     0     (1  0     0     103   0     3 
Technology and communications  50   0     4   77   0     0     0     0     (5  126   0     4 
Industrial  40   0     0     0     0     0     0     0     0     40   0     0   
Capital goods  102   0     (1  0     0     0     (4  0     0     97   0     (1
Consumer—cyclical  173   3   3   0     0     0     (33  24   0     170   0     5 
Transportation  78   0     (1  0     0     0     (3  10   (30  54   0     1 
Other  136   0     1   5   0     0     (5  27   0     164   0     1 
                                                 
Total U.S. corporate  2,239   16   18   246   (21  0     (159  125   (224  2,240   0     30 
                                                 
Non-U.S.
corporate:
                                                
Utilities  374   0     7   12   0     0     0     27   (73  347   0     5 
Energy  247   0     (8  0     0     0     (26  24   0     237   0     (7
Finance and insurance  234   3   7   15   0     0     0     77   (32  304   3   8 
Consumer—non-cyclical
  59   0     2   8   0     0     0     1   (16  54   0     1 
Technology and communications  28   0     0     0     0     0     0     0     0     28   0     0   
Industrial  104   0     2   0     0     0     (5  0     (8  93   0     2 
Capital goods  161   1   (2  10   0     0     (26  29   0     173   0     (2
Consumer—cyclical  147   0     1   21   0     0     (7  32   (27  167   0     (1
Transportation  191   0     0     0     0     0     0     22   (102  111   0     3 
Other  140   0     3   5   0     0     (13  1   0     136   0     3 
                                                 
Total
non-U.S.
corporate
  1,685   4   12   71   0     0     (77  213   (258  1,650   3   12 
                                                 
Residential mortgage-backed  27   0     (1  0     0     0     (1  4   (15  14   0     0   
Commercial mortgage-backed  6   0     1   0     0     0     0     20   (7  20   0     1 
Other asset-backed  93   0     (1  86   0     0     (12  0     (26  140   0     (1
                                                 
Total fixed maturity securities  4,152   22   10   403   (21  0     (251  363   (557  4,121   5   23 
                                                 
Equity securities  51   0     0     6   (5  0     0     0     0     52   0     0   
                                                 
Other invested assets:                                                
Derivative assets:                                                
Equity index options  81   (2  0     45   0     0     (57  0     0     67   4   0   
                                                 
Total derivative assets  81   (2  0     45   0     0     (57  0     0     67   4   0   
                                                 
Total other invested assets  81   (2  0     45   0     0     (57  0     0     67   4   0   
                                                 
Reinsurance recoverable
(2)
  20   14   0     0     0     1   0     0     0     35   14   0   
                                                 
Total Level 3 assets $4,304  $34  $10  $454  $(26 $1  $(308 $363  $(557 $4,275  $23  $23 
                                                 
 
(1)The transfers into and out of Level 3 for fixed maturity securities were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value, such as external ratings or credit spreads, as well as changes in the industry sectors assigned to specific securities.
(2)Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.
 
49

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents the gains and losses included in net income (loss) from assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value and the related income statement line item in which these gains and losses were presented for the periods indicated:
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
(Amounts in millions)
  
2021
   
2020
   
2021
   
2020
 
Total realized and unrealized gains (losses) included in net income (loss):                    
Net investment income  $13   $15   $16   $21 
Net investment gains (losses)   1    4    1    13 
                     
Total  $14   $19   $17   $34 
                     
Total gains (losses) included in net income (loss) attributable to assets still held:                    
Net investment income  $2   $2   $6   $5 
Net investment gains (losses)   0      (4   (5   18 
                     
Total  $2   $(2  $1   $23 
                     
The amount presented for realized and unrealized gains (losses) included in net income (loss) for fixed maturity securities primarily represents amortization and accretion of premiums and discounts on certain fixed maturity securities.
 
50

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table presents a summary of the significant unobservable inputs used for certain asset fair value measurements that are based on internal models and classified as Level 3 as of
 
September 30, 2021:
 
(Amounts in millions)
  
Valuation
technique
   
Fair
value
   
Unobservable
input
   
Range
   
Weighted-
average
(1)
 
Fixed maturity securities:                         
U.S. corporate:                         
Utilities   Internal models   $845    Credit spreads    51bps - 198bps    127bps 
Energy   Internal models    117    Credit spreads    57bps - 210bps    148bps 
Finance and insurance   Internal models    670    Credit spreads    44bps - 170bps    119bps 
Consumer—non-cyclical
   Internal models    105    Credit spreads    52bps - 210bps    119bps 
Technology and communications   Internal models    29    Credit spreads    76bps - 162bps    130bps 
Industrial   Internal models    20    Credit spreads    85bps - 175bps    137bps 
Capital goods   Internal models    49    Credit spreads    76bps - 169bps    128bps 
Consumer—cyclical   Internal models    136    Credit spreads    80bps - 162bps    126bps 
Transportation   Internal models    53    Credit spreads    45bps - 134bps    89bps 
Other   Internal models    167    Credit spreads    71bps - 155bps    88bps 
                          
Total U.S. corporate   Internal models   $2,191    Credit spreads    44bps - 210bps    121bps 
                          
Non-U.S.
corporate:
                         
Utilities   Internal models   $344    Credit spreads    63bps - 198bps    110bps 
Energy   Internal models    135    Credit spreads    65bps - 162bps    111bps 
Finance and insurance   Internal models    160    Credit spreads    85bps - 118bps    93bps 
Consumer—non-cyclical
   Internal models    63    Credit spreads    52bps - 125bps    84bps 
Technology and communications   Internal models    28    Credit spreads    65bps - 109bps    91bps 
Industrial   Internal models    79    Credit spreads    57bps - 152bps    96bps 
Capital goods   Internal models    173    Credit spreads    52bps - 193bps    108bps 
Consumer—cyclical   Internal models    60    Credit spreads    84bps - 162bps    114bps 
Transportation   Internal models    53    Credit spreads    52bps - 162bps    78bps 
Other   Internal models    26    Credit spreads    64bps - 297bps    95bps 
                          
Total
non-U.S.
corporate
   Internal models   $1,121    Credit spreads    52bps - 297bps    103bps 
                          
Derivative assets:                         
Equity index options   Discounted
cash flows
 
 
  $33    Equity index
volatility
 
 
   6% - 50%    28% 
 
(1)Unobservable inputs weighted by the relative fair value of the associated instrument for fixed maturity securities and by notional for derivative assets.
Certain classes of instruments classified as Level 3 are excluded above as a result of not being material or due to limitations in being able to obtain the underlying inputs used by certain third-party sources, such as broker quotes, used as an input in determining fair value.
 
51

GENWORTH FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables set forth our liabilities by class of instrument that are measured at fair value on a recurring basis as of the dates indicated:
 
   
September 30, 2021
 
(Amounts in millions)
  
Total
   
Level 1
   
Level 2
   
Level 3
 
Liabilities                    
Policyholder account balances:                    
GMWB embedded derivatives
(1)
  $286   $0     $0     $286 
Fixed index annuity embedded derivatives   312    0      0      312 
Indexed universal life embedded derivatives   26    0      0      26 
                     
Total policyholder account balances   624    0      0      624 
                     
Derivative liabilities:                    
Interest rate swaps   44    0      44    0   
                     
Total derivative liabilities   44    0      44    0   
                     
Total liabilities  $668   $0     $44   $624 
                     
 
(1)Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.
 
   
December 31, 2020
 
(Amounts in millions)
  
Total
   
Level 1
   
Level 2
   
Level 3
 
Liabilities                    
Policyholder account balances:                    
GMWB embedded derivatives
(1)
  $379   $0     $0     $379 
Fixed index annuity embedded derivatives   399    0      0      399 
Indexed universal life embedded derivatives   26    0      0      26 
                     
Total policyholder account balances   804    0      0      804 
                     
Derivative liabilities:                    
Interest rate swaps   23    0      23    0   
Foreign currency swaps   2    0      2    0   
Other foreign currency contracts   1    0      1    0   
                     
Total derivative liabilities   26    0      26    0