We have elected to early apply new rules issued by the SEC on November 19, 2020 and made effective on February 10, 2021 regarding Item 301 of Regulation S-K.
As permitted under the new SEC rules, we removed “Item 6 - Selected Financial Data” from this annual report filed on Form 10-K.
comparisons between the years ended December 31, 2020 and 2019. Discussions of information related to 2018 and year-to-year
comparisons between 2019 and 2018 are not included in this Form 10-K.
We are dedicated to helping meet the homeownership and long-term care needs of our customers. We are headquartered in Richmond, Virginia. We facilitate homeownership in the United States and internationally by providing mortgage insurance products that allow people to purchase homes with low down payments while protecting lenders against the risk of default. Through our homeownership education and assistance programs, we also help people keep their homes when they experience financial difficulties. We offer long-term care insurance products as well as service traditional life insurance and fixed annuity products. We have the following four operating business segments: U.S. Mortgage Insurance; Australia Mortgage Insurance; U.S. Life Insurance; and Runoff. We also have Corporate and Other activities.
The revenues in our U.S. Mortgage Insurance segment consist primarily of:
Our Australia Mortgage Insurance segment had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $1 million and $51 million in 2020 and 2019, respectively. The decrease was primarily from loss reserve strengthening of $91 million driven by a refinement in methodology and anticipated claims outcomes due to the economic impacts caused by COVID-19,
Our U.S. Life Insurance segment had adjusted operating income available to Genworth Financial, Inc.’s common stockholders of $68 million in 2020 compared to an adjusted operating loss of $55 million in 2019.
Adjusted operating income available to Genworth Financial, Inc.’s common stockholders in our long-term care insurance business increased $180 million primarily from an increase in claim terminations driven mostly by higher mortality as well as favorable development on IBNR claims and higher investment income in 2020. We also increased reserves by $157 million in 2020 to account for changes to incidence and mortality experience driven by COVID-19,
The adjusted operating loss available to Genworth Financial, Inc.’s common stockholders in our life insurance business increased $66 million predominantly attributable to higher reserves in our 10-year
term life insurance block as it entered its post-level premium period and a DAC impairment of $50 million in 2020. The higher loss was partially offset by a favorable unlocking of $60 million in our term universal and universal life insurance products as part of our annual review of assumptions in the fourth quarter of 2020 compared to unfavorable unlocking of $107 million in 2019 (see “-Critical Accounting Estimates” for additional information).
the mitigation steps taken to control its spread or changed consumer behavior. The unemployment rate was elevated at 6.7% in December 2020, compared to the pre-pandemic level of 3.5% in February 2020 but has decreased from a peak of 14.8% in April 2020. Specific to housing finance, the CARES Act requires mortgage servicers to provide up to 180 days of deferred or reduced payments (which can be extended for up to an additional 180 days), commonly referred to as “forbearance,” for borrowers with a federally backed mortgage loan who assert they have experienced a financial hardship related to COVID-19.
backed mortgage loans have extended similar relief to their respective portfolios of loans. The FHFA extended the foreclosure moratorium until March 31, 2021 for mortgages that are purchased by the GSEs.
from higher new insurance written was partially offset by lower persistency in 2020 from low interest rates. Our primary persistency declined to 59% for the year ended December 31, 2020 compared to 76% for the year ended December 31, 2019. In
addition, lower persistency in our U.S. mortgage insurance business has impacted business performance in several other ways including, but not limited to, elevating single premium policy cancellations resulting in higher earned premiums and accelerating the amortization of our existing reinsurance transactions reducing their associated PMIERs capital credit.
On December 4, 2020, the GSEs issued both temporary and permanent amendments to PMIERs, which became effective retroactively on June 30, 2020. For loans that became non-performing
On August 21, 2020, GMHI, our wholly-owned U.S. mortgage insurance subsidiary, issued $750 million of its 6.50% senior notes due in 2025. A dividend of $437 million was paid to Genworth Holdings from the net cash proceeds of the offering with the remaining amount retained by GMHI.
a DAC write-off of AUD$182 million recorded in the first quarter of 2020 in connection with the completion of liability adequacy testing under local Australian Accounting Standards (“AAS”) and from strong new business written in 2020.
As part of our strategy for our long-term care insurance business, we have been implementing, and expect to continue to pursue, significant premium rate increases and associated benefit reductions on older generation blocks of business in order to bring those blocks closer to a break-even point over time and reduce the strain on earnings and capital. We are also requesting premium rate increases and associated benefit reductions on newer blocks of business, as needed, some of which may be significant, to help bring their loss ratios back towards their original pricing. For all of these in-force
rate action filings, we received 144 filing approvals from 37 states in 2020, representing a weighted-average increase of 34% on approximately $1,008 million in annualized in-force
In the fourth quarter of 2020, we completed our annual assumption review for our long-term care insurance business and in aggregate our U.S. GAAP margins remained in the same range as our 2019 margins. For additional information on reserves, see “-Critical Accounting Estimates-Future policy benefits.”
. We conduct a review of our assumptions for our universal and term universal life insurance products annually. In the fourth quarter of 2020, as a result of the review, we recorded a $60 million net favorable adjustment to net income in our term universal and universal life insurance products. The positive impact to earnings was primarily due to a model refinement in our term universal life insurance product related to persistency and grace period timing and lower projected cost of insurance assessments on our universal life insurance products. In the fourth quarter of 2019, as a result of the review, we recorded a $107 million unfavorable adjustment to net income in our universal and term universal life insurance products. For additional information see “-Critical Accounting Estimates-Policyholder account balances.”
With respect to our long-term care insurance block, excluding the acquired block, our future projections indicate we have projected profits in earlier periods followed by projected losses in later periods. As a result of this pattern of projected profits followed by projected losses, we ratably accrue additional future policy benefit reserves over the profitable periods, currently expected to be through 2031, by the amounts
Genworth Holdings paid its 7.20% senior notes with a principal balance of $338 million at maturity on February 16, 2021.
loss of $9 million. The senior notes were fully redeemed with a cash payment of $409 million, comprised of the outstanding principal balance of $397 million, accrued interest of $3 million and a make-whole premium of $9 million.
For additional details related to Genworth Holdings’ liquidity in relation to its contractual obligations, see note 1 in our consolidated financial statements under “Item 8 - Financial Statements and Supplementary Data.”
On December 12, 2019, Genworth Holdings repaid its senior secured term loan facility (“Term Loan”), which was originally closed on March 7, 2018 and was scheduled to mature in March 2023. Prior to the repayment, Genworth Financial International Holdings, LLC (“GFIH”) provided a limited recourse guarantee to the lenders of Genworth Holdings’ outstanding Term Loan, which was secured by GFIH’s ownership interest in Genworth Canada’s outstanding common shares. Due to the sale of the underlying collateral, the Term Loan was required to be repaid upon the sale of Genworth Canada. A cash payment of $445 million was used to fully repay the outstanding principal and accrued interest of the Term Loan.
The effective tax rate for the years ended December 31, 2020 and 2019 was 26.2% and 27.3%, respectively. The decrease in the effective tax rate was primarily attributable to a lower effect from foreign operations and gains on forward starting swaps settled prior to the enactment of the TCJA, which will continue to be tax effected at 35% as they are amortized into net investment income, in relation to higher pre-tax
loss of $121 million related to the sale. See note 23 in our consolidated financial statements under “Item 8 - Financial Statements and Supplementary Data” for additional information.
The accounting estimates (including sensitivities) discussed in this section are those that we consider to be particularly critical to an understanding of our consolidated financial statements because their application places the most significant demands on our ability to judge the effect of inherently uncertain matters on our financial results. The sensitivities included in this section involve matters that are also inherently uncertain and involve the exercise of significant judgment in selecting the factors and amounts used in the sensitivities. Small changes in the amounts used in the sensitivities or the use of different factors could result in materially different outcomes from those reflected in the sensitivities. For all of these accounting estimates, we caution that future events seldom develop as estimated and management’s best estimates often require adjustment. See “Cautionary Note Regarding Forward-looking Statements.”
Insurance reserves differ for long- and short-duration insurance policies. Measurement of reserves for long-duration insurance contracts (such as life insurance, annuity and long-term care insurance products) is based on approved actuarial methods, and includes assumptions about mortality, morbidity, lapses, interest rates and other factors. Short-duration contracts are accounted for based on actuarial estimates of the amount of loss inherent in that period’s claims, including losses incurred for which claims have not been reported. Short-duration contract loss estimates rely on actuarial observations of ultimate loss experience for similar historical events.
In 2020 and 2019, the results of our loss recognition testing on our long-term care insurance block, excluding the acquired block, indicated that our DAC was recoverable and reserves were sufficient, with a margin of approximately $400 million to $800 million as of December 31, 2020 compared to approximately $400 million to $700 million as of December 31, 2019. The margin in 2020 included updates for claim terminations and incidence and benefit utilization, among others. These updates drove changes to our in-force
rate actions would negatively impact our margins and could result in a premium deficiency.
We assume a static discount rate that is in line with our current portfolio yield. Our discount rate assumption for our long-term care insurance block, excluding the acquired block, was 5.34% and 5.39% in 2020 and 2019, respectively. This rate represents our expected investment returns based on the portfolio of assets supporting the net U.S. GAAP liability as of the calculation date and, therefore, excluded the impacts of qualifying hedge gains that are not currently amortizing. In the select sensitivities below, for both our long-term care insurance block excluding our acquired block and our acquired block, the 25 basis point decrease in the discount rate refers to a reduction in our portfolio yields. As of December 31, 2020 and 2019, the liability for future policy benefits associated with our long-term care insurance block, excluding the acquired block, was $26.9 billion and $24.1 billion, respectively.
With respect to our long-term care insurance block, excluding the acquired block, while loss recognition testing supports that in the aggregate our reserves are sufficient, our future projections indicate we have projected
profits in earlier periods followed by projected losses in later periods. As a result of this pattern of projected profits followed by projected losses, we will ratably accrue additional future policy benefit reserves over the profitable periods, currently expected to be through 2031, by the amounts necessary to offset estimated losses during the periods that follow. Such additional reserves are updated each period and calculated based on our estimate of the amount necessary to offset the losses in future periods utilizing expected income and current best estimate assumptions based on actual and anticipated experience, consistent with our loss recognition testing. We adjust the accrual rate prospectively, over the remaining profit periods, without any catch-up
adjustment. During the years ended December 31, 2020 and 2019, we increased our long-term care insurance future policy benefit reserves by $302 million and $213 million, respectively, to accrue for profits followed by losses. As of December 31, 2020, the total amount accrued for profits followed by losses was $625 million. The accrual is recorded quarterly and is impacted by the pattern and present value of expected future losses which are updated annually at the time in which we perform loss recognition testing. During the fourth quarter of 2020, we updated our loss recognition testing assumptions, which included changes from our annual assumption review completed in the fourth quarter of 2020 as well as updates to our future in-force
rate actions. The present value of expected future losses was approximately $2.1 billion and $2.0 billion as of December 31, 2020 and 2019, respectively. As of December 31, 2020, we estimate a factor of approximately 76% of those profits on our long-term care insurance block, excluding the acquired block, will be accrued in the future to offset estimated future losses during later periods. As of December 31, 2019, we estimated a factor of approximately 80% to ratably accrue additional future policy benefits. The decrease in the factor was mostly driven by higher actual profits in 2020 resulting in a larger increase in accrued future policy benefits during 2020, partially offset by the updated profit pattern from our annual review of assumptions completed in the fourth quarter of 2020, as well as updates to our future in-force
In 2014, we had a premium deficiency in our acquired block of long-term care insurance; therefore, our assumptions that were updated in connection with the premium deficiency have remained locked-in.
The impact on our 2020 long-term care insurance loss recognition testing margin for select sensitivities were as follows:
The margin impacts in the table above are each discrete and do not reflect the impact one factor may have on another. For example, the increases in claim costs do not include any incremental adverse impacts from a potential decrease in the discount rate. Due to the age of our acquired block, it would not benefit significantly
rate actions, and therefore, there is a higher likelihood that adverse changes in our assumptions would result in an additional premium deficiency. The impacts of future adverse changes in our assumptions resulting in another premium deficiency would result in the establishment of additional future policy benefit reserves and would be immediately reflected in net income as a loss if our margin for this block is again reduced below zero. Any favorable variation would result in additional margin and higher income recognized over the remaining duration of the in-force
block but would not have an immediate benefit to net income.
Similar to our long-term care insurance products, we annually perform loss recognition testing for the liability for future policy benefits for our term and whole life insurance products, excluding our acquired block, which is tested separately. The margin of our term and whole life insurance products has fluctuated over the years. As of December 31, 2020 and 2019, we had margin of approximately $300 million to $800 million and $200 million to $600 million, respectively, and a DAC balance of $1.1 billion and $1.2 billion, respectively, on our term and whole life insurance products, excluding the acquired block. If our margin is reduced below zero for our term and whole life insurance products, excluding our acquired block, we would amortize DAC up to the amount of DAC recorded on our balance sheet and if DAC was fully written off, establish additional future policy benefit reserves, either of which would result in a charge to net income.
As of December 31, 2020 and 2019, we had margin of approximately $100 million to $300 million and $100 million to $400 million, respectively, and a PVFP balance of $73 million and $74 million, respectively, on our acquired block of term and whole life insurance products. If our margin is reduced below zero for our acquired block of term and whole life insurance products, we would amortize PVFP up to the amount of PVFP recorded on our balance sheet and if PVFP was fully written off, establish additional future policy benefit reserves, either of which would result in a charge to net income.
The risks we face mostly include adverse variations in mortality and lapse assumptions. Adverse experience in one or all of these risks could result in the DAC associated with our term and whole life insurance products, excluding our acquired block and PVFP associated with our acquired block of term and whole life insurance products to no longer be fully recoverable as well as the required establishment of additional future policy benefit reserves. Any favorable variation would result in additional margin and higher income recognized over the remaining duration of the in-force
block but would not have an immediate benefit to net income. The risks we face include adverse variations in interest rates, credit spreads and mortality. Adverse experience in one or all of these risks would negatively impact our margin for this block. As of December 31, 2020, we estimate that a 10 basis point reduction in asset yields from the December 31, 2020 level or 2% lower mortality, scenarios that we consider to be reasonably possible given historical changes in market conditions and experience on our fixed immediate annuity products, would result in a reduction to margin of approximately $28 million or $21 million, respectively. Currently, these reductions are not sufficient to reduce our margin for this block below zero. However, future adverse variations could reduce our margin below zero which would result in the establishment of additional future policy benefit reserves and reflected as a loss in net income.
loss recorded to net income. The 2019 and 2018 test results were predominantly impacted by emerging mortality experience, lower expected growth in interest rates and a prolonged low interest rate environment.
As of December 31, 2020 and 2019, we had DAC of $245 million and $333 million, respectively, and total policyholder account balances including reserves in excess of the contract value of $9.7 billion and $9.0 billion, respectively, related to our universal and term universal life insurance products. As of December 31, 2020, for
Estimates of mortgage insurance reserves for losses and loss adjustment expenses are based on notices of mortgage loan defaults and estimates of defaults that have been incurred but have not been reported by loan servicers, using assumptions developed based on past experience and our expectation of future development. The estimates are determined using either a factor-based approach, in which assumptions of claim rates for loans in default and the average amount paid for loans that result in a claim are calculated using traditional actuarial techniques, or a case-based approach, in which each individual delinquent loan is reviewed and a best-estimate loss is determined based on the status of the insured loan and an estimation of net sale proceeds from the disposition of the mortgaged property. Assumptions also include provisions for loans within our delinquency inventory that will be rescinded or modified (collectively referred to as “loss mitigation actions”) based on the effects that such loss mitigation actions have had on our historical claim frequency rates, including an estimate for reinstatement of previously rescinded coverage. Each of these inherently judgmental assumptions is established in a respective geography based on historical and expected experience. We have established processes, as well as contractual rights, to ensure we receive timely information from loan servicers to aid us in the establishment of our estimates. In addition, when we have obtained sufficient facts and circumstances through our investigative process, we have the unilateral right under our master policies and at law to rescind coverage on the underlying loan certificate as if coverage never existed. As is common accounting practice in the mortgage insurance industry and in accordance with U.S. GAAP, loss reserves are not established for future claims on insured loans that are not currently in default.
Management reviews the loss reserves quarterly for adequacy, and if indicated, updates the assumptions used for estimating and calculating such reserves based on actual experience and our historical frequency of claim and severity of loss rates that are applied to the current population of delinquencies. Factors considered in establishing loss reserves include claim frequency patterns (reflecting the loss mitigation actions on such claim patterns), the aged category of the delinquency (i.e., age and progression of delinquency to claim), the severity of loss and loan coverage percentage. The establishment of our mortgage insurance loss reserves is subject to inherent uncertainty and requires judgment. The actual amount of the claim payments may vary significantly from the loss reserve estimates. Our estimates could be adversely affected by several factors, including, but not limited to, a deterioration of regional or national economic conditions leading to a reduction in borrowers’ income and thus their ability to make mortgage payments, a drop in housing values that could expose us to greater loss on resale of properties obtained through foreclosure proceedings and an adverse change in the effectiveness of loss mitigation actions that could result in an increase in the frequency of expected claim rates. Our estimates are also affected by the extent of fraud and misrepresentation that we uncover in the loans that we have insured and the coverage upon which we have consequently rescinded or may rescind going forward. Our loss reserving methodology includes estimates of the number of loans in our delinquency inventory that will be rescinded or modified, as well as estimates of the number of loans for which coverage may be reinstated under certain conditions following a rescission action.
business, although these products make up a smaller portion of our product mix in the United States. The majority of our insurance contracts in our U.S. mortgage insurance business have recurring premiums, as discussed below. For single premium insurance contracts, we recognize premiums over the policy life in accordance with the expected pattern of risk emergence. We recognize a portion of the revenue in premiums earned in the current period, while the remaining portion is deferred as unearned premiums, and earned over time in accordance with the expected pattern of risk emergence. If single premium policies are cancelled and the premium is non-refundable,
then the remaining unearned premium related to each cancelled policy is recognized as earned premiums upon notification of the cancellation, if not included in our expected earnings pattern. The expected pattern of risk emergence on which we base premium recognition is inherently judgmental and is based on actuarial analysis of historical and expected experience. In our mortgage insurance business in Australia, we recognize unearned premiums over a period of up to 12 years, most of which are recognized between two and six years from issue date. The recognition of earned premiums for our mortgage insurance businesses involves significant estimates and assumptions as to future loss development and policy cancellations. These assumptions are based on our historical experience and our expectations of future performance, which are highly dependent on assumptions as to long-term macroeconomic conditions including interest rates, home price appreciation and the rate of unemployment. We periodically review our expected pattern of risk emergence and make adjustments based on actual experience and changes in our expectation of future performance with any adjustments reflected in current period net income. Changes in market conditions could cause a decline in mortgage originations, mortgage insurance penetration rates or our market share, all of which could impact new insurance written. For example, a decline in flow new insurance written of $1.0 billion in Australia would result in a reduction in earned premiums of approximately $2 million in the first full year following the decline in flow new insurance written based on current pricing and expected pattern of risk emergence. However, this decline would be partially offset by the recognition of earned premiums from established unearned premium reserves primarily from the last three years of business.
As of December 31, 2020 and 2019, we had $2.0 billion and $1.9 billion, respectively, of unearned premiums, of which $1.2 billion and $1.0 billion, respectively, related to our mortgage insurance business in Australia and $0.3 billion and $0.4 billion, respectively, related to our U.S. mortgage insurance business. For the year ended December 31, 2019, we increased earned premiums and decreased unearned premiums by $14 million related to our single premium earnings pattern review in our U.S. mortgage insurance business. There were no adjustments to earned premiums in our mortgage insurance businesses for the years ended December 31, 2020 and 2018.
basis (i.e., monthly). Changes in market conditions could cause a decline in mortgage originations, mortgage insurance penetration rates and our market share, all of which could impact new insurance written. For example, a decline in primary new insurance written of $1.0 billion would result in a reduction in earned premiums of approximately $4 million in the first full year. Likewise, if primary persistency declined on our existing insurance in-force
The remaining portion of our unearned premiums primarily relates to our long-term care insurance business where the underlying assumptions related to premium recognition are not subject to significant uncertainty.
Accordingly, changes in underlying assumptions we consider reasonably possible for this business would not result in a material impact to premium recognition or our results of operations.
Amortization of DAC for deferred annuity and universal life insurance contracts is based on expected gross profits. Expected gross profits are adjusted quarterly to reflect actual experience to date or for the unlocking of underlying key assumptions including interest rates, policyholder persistency or lapses, insured mortality and expenses. The estimation of expected gross profits is subject to change given the inherent uncertainty as to the underlying key assumptions employed and the long duration of our policy or contract liabilities. Changes in expected gross profits reflecting the unlocking of underlying key assumptions could result in a material increase or decrease in the amortization of DAC depending on the magnitude of the change in underlying assumptions. Significant factors that could result in a material increase or decrease in DAC amortization for these products include material changes in withdrawal or lapse rates, investment spreads or mortality assumptions. For the years ended December 31, 2020, 2019 and 2018, key assumptions were unlocked in our U.S. Life Insurance and Runoff segments to reflect our current expectation of future investment spreads, lapse rates and mortality.
The DAC amortization methodology for our variable products (variable annuities and variable universal life insurance) includes a long-term average appreciation assumption of 7.5% to 8.0%. When actual returns vary from the expected 7.5% to 8.0%, we assume a reversion to the expected return over a three-year period.
The following table sets forth the increase (decrease) in amortization of DAC related to unlocking of underlying key assumptions by segment for the years ended December 31:
In the fourth quarter of 2020, as part of a periodic review of assumptions, our U.S. mortgage insurance business increased DAC amortization by $6 million primarily driven by elevated lapses in 2020. For the years ended December 31, 2019 and 2018, no assumptions were unlocked in our mortgage insurance businesses.
See notes 2 and 6 in our consolidated financial statements under “Item 8 - Financial Statements and Supplementary Data” for additional information related to DAC.
The methodologies, estimates and assumptions used in valuing our fixed maturity securities evolve over time and are subject to different interpretations, all of which can lead to materially different estimates of fair value. Additionally, because the valuation is based on market conditions at a specific point in time, the period-to-period
The following are the primary procedures we performed to address this critical audit matter. With the assistance of actuarial professionals, as appropriate, we evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s loss recognition testing. This included controls over the development of future in-force
We identified the assessment of the estimate of the long-term care claim reserves as a critical audit matter. The evaluation of the CTR and BUR assumptions used in the determination of the morbidity assumption for claim duration and severity required especially subjective auditor judgment and increased extent of effort as small changes in the assumptions could have material impacts on reserves. Additionally, specialized skills were needed to evaluate the Company’s CTR and BUR assumptions used to derive the morbidity assumptions and the impact of those assumptions on the long-term care claim reserves.
Assessing the consistency of expected claims experience with actual historical claims experience to evaluate the Company’s updated morbidity assumptions
Developing an estimate of the long-term care claim reserves for a selection of contracts using the Company’s assumptions and comparing the results to the Company’s recorded claim reserves for the selected contracts.
As described in Notes 2 and 10 to the consolidated financial statements, the Company estimates the liabilities for mortgage insurance policies (mortgage insurance reserves) based on notices of mortgage loan defaults and estimates of defaults that have been incurred but have not been reported by loan servicers. The estimates are determined using either a factor-based approach, in which assumptions of claim rates for loans in default and the average amount paid for loans that result in a claim are calculated using actuarial techniques, or a case-based approach, in which each individual delinquent loan is reviewed and a best-estimate loss is determined based on the status of the insured loan and an estimation of net sale proceeds from the disposition of the mortgaged property. The Company’s mortgage insurance reserves were $897 million of a total liability for policy and contract claims of $11,817 million as of December 31, 2020.
We identified the assessment of the valuation of mortgage insurance reserves to be a critical audit matter. The assumptions related to the ultimate amounts and timing of claim payments used to develop reserves were inherently uncertain and involved significant management judgment, which required especially subjective auditor judgment. Additionally, the audit effort to assess the valuation of mortgage insurance reserves required the involvement of professionals with specialized knowledge and experience.
The following are the primary procedures we performed to address the critical audit matter. We evaluated, with the assistance of actuarial professionals, the design and tested the operating effectiveness of certain internal controls related to the valuation of mortgage insurance reserves. This included controls related to the review and approval of the reserve factors used in the estimate for mortgage insurance reserves. We involved actuarial professionals with specialized knowledge and experience, who assisted in:
Assessing the Company’s reserving methodology and assumptions by comparing to accepted actuarial methodologies
Challenging management’s process, methodology, and assumptions applied and the resulting reserve adjustments, considering historical data, external macroeconomic factors, and consistency in application year over year for another portion of the reserves.
The accompanying financial statements include on a consolidated basis the accounts of Genworth Financial and our affiliate companies in which we hold a majority voting interest or power to direct activities of certain variable interest entities (“VIEs”), which we refer to as “Genworth,” “Genworth Financial,” the “Company,” “we,” “us” or “our” unless the context otherwise requires. All intercompany accounts and transactions have been eliminated in consolidation.
We offer long-term care insurance products as well as service traditional life insurance and fixed annuity products in the United States.
in February 2021 and $659 million of its 7.625% senior notes that will mature
are currently in compliance with the terms of our debt agreements and interest payments on our senior notes are forecasted to be $165 million for the next twelve months. See note 12 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 is due in 2022. Under the settlement, certain cash flows to Genworth Holdings, including dividends and capital raises, above defined thresholds must be paid to AXA until the promissory note is fully repaid. In addition, to date in 2021 and over the next year, we expect to pay AXA approximately $53 million consisting of interest on the promissory note, assuming we do not make any pre-payments,
payment on an unrelated liability associated with underwriting losses on a product sold by a distributor in our former lifestyle protection insurance business. See note 20 for additional details on the case. See note 23 for additional details related to the sale of our former lifestyle protection insurance business and amounts recorded related to discontinued operations.
which has disrupted the global economy and financial markets, business operations, and consumer behavior and confidence.
In 2021, until the secured promissory note to AXA is paid, dividends above $50 million from our U.S. mortgage insurance subsidiaries are subject to mandatory prepayment conditions. In addition, the receipt of dividends and sale proceeds above certain thresholds from our Australian mortgage insurance business are also subject to mandatory prepayment conditions.
business, subject to market conditions. In addition to a partial sale of our U.S. mortgage insurance business through a public offering, we are also evaluating the possibility of the issuance of convertible, equity-linked securities or another transaction, prior to our senior notes maturing in September 2021. We believe an equity transaction involving our U.S. mortgage insurance business, or another transaction, if needed, is probable of being effectively executed. Support for our assessment includes the relatively small amount of the shortfall, the value of the U.S. and Australia mortgage insurance businesses, the healthy conditions of the relevant markets, investor interest, views from our financial advisors, and our successful history of similar transactions, among other factors.
The impact of the ongoing coronavirus pandemic 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 the length of the pandemic, economic impacts of social, global and political influences, and the shape of the economic recovery, among other factors and uncertainties. While these risks exist, we believe we have sufficient funds to meet our obligations for one year following the issuance of our consolidated financial statements.
Our consolidated financial statements have been prepared on the basis of U.S. generally accepted accounting principles (“U.S. GAAP”). 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. Certain prior year amounts have been reclassified to conform to the current year presentation. The ultimate impact from COVID-19
For traditional long-duration insurance contracts, we report premiums as earned when due. For short-duration insurance contracts, we report premiums as revenue over the terms of the related insurance policies on a pro-rata
fixed maturity securities is recognized in net investment income, except for hybrid securities where the income or
loss upon call is recognized in net investment gains and losses. Investment gains and losses are calculated on the basis of specific identification on the trade date.
At the time of purchase, we designate our fixed maturity securities as either available-for-sale
or trading and report them in our consolidated balance sheets at fair value. Our portfolio of fixed maturity securities comprises primarily investment grade securities. Changes in the fair value of available-for-sale
Estimating the cash flows expected to be collected is a quantitative and qualitative process that incorporates information received from third-party sources along with internal assumptions and judgments. When developing the estimate of cash flows expected to be collected at the individual security level, we utilize an analytical model that provides for various loss scenarios and consider the industry sector, current levels of subordination, geographic location and other relevant characteristics of the security or underlying assets, as well as reasonable and supportable forecasts. We regularly monitor our investment portfolio to ensure that securities with a credit loss are identified in a timely manner and any losses are recognized in the proper period.
fixed maturity securities from the estimate of allowance for credit losses. Accrued interest is included in accrued investment income in our consolidated balance sheet and had a carrying value of $548 million as of December 31, 2020. We do not measure an allowance for credit losses related to accrued interest as uncollectible accrued interest related to our available-for-sale
We recognized other-than-temporary impairments on debt securities in an unrealized loss position when one of the following circumstances exists:
the present value of cash flows expected to be collected was less than our amortized cost basis,
it was more likely than not that we would be required to sell a security prior to recovery.
To estimate the amount of other-than-temporary impairment attributed to credit losses on debt securities where we did not intend to sell the security and it was not more likely than not that we would be required to sell the security prior to recovery, we determined our best estimate of the present value of the cash flows expected to be collected from a security using the effective yield on the security prior to recording any other-than-temporary impairment. If the present value of the discounted cash flows was lower than the amortized cost of the security, the difference between the present value and amortized cost represented the credit loss associated with the security with the remaining difference between fair value and amortized cost recorded as a non-credit
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 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.
Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market
assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. All assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
The carrying value of commercial mortgage loans is stated at principal amounts outstanding, net of unamortized premium or discount, deferred expenses and allowance for credit losses. Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs, as well as premiums and discounts, are amortized as level yield adjustments over the respective loan terms. Unamortized net fees or costs are recognized upon early repayment of the loans. Loan commitment fees are deferred and amortized on an effective yield basis over the term of the loan. Commercial mortgage loans are considered past due when contractual payments have not been received from the borrower by the required payment date.
status when, in management’s opinion, the collection of principal or interest is not probable, typically when the collection of principal or interest is 90 days
or more past due. In determining whether it is probable that we will be unable to collect all amounts due, we consider current payment status, debt service coverage ratios, occupancy levels and current loan-to-value.
status is not recognized until we believe it is probable that we will collect all future contractual principal and interest. Commercial mortgage loans are written off against the allowance to the extent principal or interest is deemed uncollectible.
Accrued interest related to commercial mortgage loans is included in accrued investment income in our consolidated balance sheet and had a carrying value of $23 million as of December 31, 2020. We do not measure an allowance for credit losses related to accrued interest as uncollectible accrued interest related to our commercial mortgage loans is written off after 90 days and once collectability is determined to be uncertain and not probable. Amounts written off related to accrued interest are recorded as a credit loss expense included in net investment gains (losses).
property-type, occupancy levels, geographic region, and probability weighting of the scenarios generated by the model.
We engage in certain securities lending transactions for the purpose of enhancing the yield on our investment securities portfolio. We maintain effective control over all loaned securities and, therefore, continue to report such securities as fixed maturity securities on the consolidated balance sheets. We are currently
We are required to analyze the impacts from net unrealized investment gains and losses on our available-for-sale
. We amortize the costs of other intangibles over their estimated useful lives unless such lives are deemed indefinite. Amortizable intangible assets are tested for impairment based on undiscounted cash flows, which requires the use of estimates and judgment, and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested at least annually for impairment using a qualitative or quantitative assessment and are written down to fair value as required.
Goodwill is not amortized but is tested for impairment annually or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. The determination of fair value requires the use of estimates and judgment, at the “reporting unit” level. A reporting unit is the operating segment, or a business, one level below that operating segment (the “component” level) if discrete financial information is prepared and regularly reviewed by management at the component level. If the reporting unit’s fair value is below its carrying value, we recognize an impairment in an amount equal to the difference between the carrying value and the fair value of the reporting unit up to the amount of recorded goodwill. In 2020, we recorded a goodwill impairment charge of $5 million related to our
On January 1, 2020, we adopted new accounting guidance related to credit losses on financial instruments. Under this new accounting guidance, we record an allowance for credit losses related to reinsurance recoverables. The allowance for credit losses is evaluated based on historical loss experience adjusted for current events and reasonable and supportable forecasts from both internal and external sources. The allowance is measured by reinsurer, taking into consideration the reinsured product type and collateral type, and is calculated based on an externally reported probability of default corresponding to the reinsurer’s credit rating and the expected duration of the reinsurer’s contractual obligation to reimburse us for ceded claims on the underlying policies. Our estimate of the allowance reflects consideration for collateral securing the reinsurance agreements and expected recoveries of amounts previously charged off and expected to be charged off. We also consider other credit risk factors, including, among other factors, the historical frequency and severity of the associated insurance claims, aging of recoverables and regulatory, legal and economic factors, to determine if an additional incremental allowance for credit losses is required. No reversion adjustments are necessary as the starting point for our allowance for credit losses reflects historical loss experience covering the expected duration of the reinsurer’s contractual obligation to reimburse us. If available facts and circumstances indicate the reinsurance recoverable does not reflect expectations consistent with the collective analysis, the reinsurance recoverable is assessed on a separate basis. Write-offs are deducted from the allowance in the period the reinsurance recoverable is determined to be uncollectible.
derivatives, including embedded derivatives, are reported in net investment gains (losses).
The majority of our derivative arrangements require the posting of collateral upon meeting certain net exposure thresholds. The amounts recognized for derivative counterparty collateral received by us are recorded in cash, cash equivalents and restricted cash with a corresponding amount recorded in other liabilities to represent our obligation to return the collateral retained by us. We also receive non-cash
collateral that is not recognized in our consolidated balance sheet unless we exercise our right to sell or re-pledge
the underlying asset. As of December 31, 2020 and 2019, the fair value of non-cash
collateral received was $161 million and $112 million, respectively, and the underlying assets were not sold or re-pledged.
percentage of account value or benefit base each year, either for a specified period of time or for life. The guaranteed annuitization benefit generally provides for a guaranteed minimum level of income upon annuitization accompanied by the potential for upside market participation.
mortality (i.e., life expectancy or longevity), insured morbidity (i.e., frequency and severity of claim, including claim termination rates and benefit utilization rates) and expenses, all of which are locked-in
The liability for policyholder account balances represents the contract value that has accrued to the benefit of the policyholder as of the balance sheet date for investment-type and universal and term universal life insurance contracts. We are also required to establish additional benefit reserves for guarantees or product features in addition to the contract value where the additional benefit reserves are calculated by applying a benefit ratio to accumulated contractholder assessments, and then deducting accumulated paid claims. The benefit ratio is equal to the ratio of benefits to assessments, accumulated with interest and considering both past and anticipated future claims experience, which includes assumptions for insured mortality (i.e. life expectancy or longevity), interest rates and policyholder persistency or lapses (i.e., the probability that a policy or contract will remain in-force
The liability for policy and contract claims for our long-term care insurance products represents the present value of the amount needed to provide for the estimated ultimate cost of settling claims relating to insured events that have occurred on or before the end of the respective reporting period. Key assumptions include projected interest rates and investment returns, health care experience (including type of care and cost of care), policyholder persistency or lapses (i.e., the probability that a policy or contract will remain in-force
difficult to accurately predict and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. Small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our reserves, results of operations and financial condition.
Some employees participate in defined benefit pension and postretirement benefit plans. We recognize expense for these plans based upon actuarial valuations performed by external experts. We estimate aggregate benefits by using assumptions for employee turnover, future compensation increases, rates of return on pension plan assets and future health care costs. We recognize an expense for differences between actual experience and estimates over the average future service period of participants. We recognize the overfunded or underfunded status of a defined benefit plan as an asset or liability in our consolidated balance sheets and recognize changes in that funded status in the year in which the changes occur through OCI.
Our companies have elected to file a single U.S. consolidated income tax return (the “life/non-life
We have reinsurance agreements with entities that are considered VIEs. Our involvement with these VIEs represents mortgage insurance claim coverage through excess of loss reinsurance, which includes significant insurance risk and a reasonable possibility of a significant loss but does not result in the unilateral power to direct the activities that most significantly affect the VIEs’ economic performance or result in the obligation to absorb losses or the right to receive benefits. Accordingly, consolidation of the VIEs is not required. The assets of the VIEs are deposited in a reinsurance trust for our benefit that will be the source of reinsurance claim payments. Refer to note 8 for additional information related to our reinsurance agreements with entities that are considered VIEs.
sheet credit exposures, including commitments to fund bank loan investments, private placement investments and commercial mortgage loans. The FASB also issued an amendment to the guidance allowing entities to irrevocably elect the fair value option on an instrument-by-instrument
We adopted the guidance related to our investments carried at amortized cost, reinsurance recoverables and off-balance
sheet credit exposures of $1 million, included in other liabilities in our consolidated balance sheet, with an offset to cumulative effect of change in accounting within retained earnings.
fixed maturity securities for which a previous other-than-temporary impairment was recognized prior to the date of adoption using the prospective method and the modified retrospective method for all other available-for-sale
fixed maturity securities, which did not have any impact upon adoption. The new guidance did not have a significant impact on other assets not measured at fair value.
In March 2020 and January 2021, the FASB issued new accounting guidance related to reference rate reform, which was effective for us on January 1, 2020. The guidance provides temporary guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform, which includes the transition away from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. This new guidance provides optional practical expedients and exceptions for applying generally accepted accounting principles to investments, derivatives or other transactions affected by reference rate reform such as those that impact the assessment of derivative hedge effectiveness and contract modifications, to include continuing hedge accounting when certain critical terms of a hedging relationship change and modifying certain effectiveness assessments to exclude certain potential sources of ineffectiveness. The new guidance was updated to clarify that the optional practical expedients and exceptions can be applied to derivatives that use an interest rate for margining, discounting, or contract price alignment. In addition to the optional practical expedients, the guidance includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. We adopted this guidance prospectively and it did not have a significant impact on our consolidated financial statements or disclosures. However, the amendments in this guidance may be elected over time through December 31, 2022 as reference rate reform activities occur and therefore, this guidance may impact our procedures, including our process for assessing the effectiveness of our cash flow hedging relationships, determined on an individual hedge basis, as we implement measures to transition away from LIBOR.
asset related to operating leases and a $55 million lease liability. In addition, we de-recognized
components are included in the calculation of our lease liability as opposed to being separated and accounted for as consideration under the new revenue recognition standard. Our remaining lease terms ranged from less than 1 year to 18 years and had a weighted-average remaining lease term of 9.4 years as of December 31, 2020. The implicit rate of our lease agreements was not readily determinable; therefore, we utilized our incremental borrowing rate to discount future lease payments. The weighted-average discount rate was 6.6% as of December 31, 2020. For the year ended December 31, 2020, under this new accounting guidance, annual rental expense was $11 million.
On January 1, 2018, we early adopted new accounting guidance on the reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”), or “stranded tax effects.” Under U.S. GAAP, deferred tax assets and liabilities are adjusted for the effect of a change in tax laws or rates with the effect included in income (loss) from continuing operations in the period that the changes were enacted. This also includes situations in which the related tax effects were originally recognized in other comprehensive income (loss) as opposed to income (loss) from continuing operations. The following summarizes the components for the cumulative effect adjustment recorded on January 1, 2018 related
to the adoption of this new accounting guidance, including amounts related to our Canada mortgage insurance business which were classified as held for sale prior to the fourth quarter of 2019:
On January 1, 2018, we early adopted new accounting guidance related to the hedge accounting model. The new guidance amends the hedge accounting model to enable entities to better portray the economics of their derivative risk management activities in the financial statements and enhance the transparency and understandability of hedge results. In certain situations, the amendments also simplify the application of hedge accounting and removed the requirements to separately measure and report hedge ineffectiveness. We adopted this new accounting using the modified retrospective method and recognized a gain of $2 million in accumulated other comprehensive income with a corresponding decrease to retained earnings at adoption. This gain was the cumulative amount of hedge ineffectiveness related to active hedges that was previously included in earnings.
reporting entity should identify each distinct nonfinancial asset and derecognize when a counterparty obtains control. We adopted this new accounting guidance using the modified retrospective method, which had no impact on our consolidated financial statements at adoption.
recognized in net income (loss). The new guidance also clarified that the need for a valuation allowance on a deferred tax asset related to available-for-sale
securities should be evaluated in combination with other deferred tax assets. We adopted this new accounting guidance using the modified retrospective method and reclassified, after adjustments for DAC and other intangible amortization and certain benefit reserves, taxes and noncontrolling interests, $25 million of gains related to equity securities from accumulated other comprehensive income and $17 million of gains related to limited partnerships previously recorded at cost to cumulative effect of change in accounting within retained earnings, including amounts related to our Canada mortgage insurance business which were classified as held for sale prior to the fourth quarter of 2019.
On January 1, 2018, we adopted new accounting guidance related to revenue from contracts with customers. The key principle of the new guidance is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods or services. Insurance contracts are specifically excluded from this new guidance. The FASB has clarified the scope that all of our insurance contracts, including mortgage insurance and investment contracts are excluded from the scope of this new guidance. We adopted this new accounting guidance using the modified retrospective method, which did not have a significant impact on our consolidated financial statements at adoption.
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
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);
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
Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the year ended December 31, 2018, we were required to use basic weighted-average common shares outstanding as the inclusion of shares for stock options, restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) of 3.8 million would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the year ended December 31, 2018, dilutive potential weighted-average common shares outstanding would have been 504.2 million.
Represents write-down of securities we intend to sell or will be required to sell prior to recovery of the amortized cost basis.
investment securities reported in accumulated other comprehensive income (loss) was as follows as of and for the years ended December 31:
As of December 31, 2019, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity securities classified as available-for-sale
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 December 31, 2020
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.
The scheduled maturity distribution of fixed maturity securities as of December 31, 2020 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.
As of December 31, 2020, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of stockholders’ equity.
status, see note 2. As of December 31, 2020 and 2019, we had no commercial mortgage loans on non-accrual
During the years ended December 31, 2020 and 2019, we did not 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 years ended December 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
The following tables set forth commercial mortgage loans by year of origination and credit quality indicator as of December 31, 2020:
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
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 December 31, 2020 and 2019, the total carrying value of these investments was $1,018 million and $616 million, respectively. Our maximum exposure to loss is equal to the outstanding carrying value and future funding commitments. We have not contributed, and do not plan to contribute, any additional financial or other support outside of what is contractually obligated.
Certain derivative instruments are designated as cash flow hedges. The changes in fair value of these instruments are recorded as a component of OCI. We designate and account for the following as cash flow hedges when they have met the effectiveness requirements: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments; (ii) various types of interest rate swaps to convert floating rate liabilities into fixed rate liabilities; (iii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments; (iv) forward starting interest rate swaps to hedge against changes in interest rates associated with future fixed rate bond purchases and/or interest income; and (v) other instruments to hedge the cash flows of various forecasted transactions.
The following table provides information about the pre-tax income effects of cash flow hedges for the year ended December 31, 2019:
The following table provides information about the pre-tax income effects of cash flow hedges for the year ended December 31, 2018:
The total of derivatives designated as cash flow hedges of $2,211 million, net of taxes, recorded in stockholders’ equity as of December 31, 2020 is expected to be reclassified to net income 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, $131 million, net of taxes, is expected to be reclassified to net income 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 years ended December 31, 2020, 2019 and 2018, we reclassified $15 million, $5 million and $9 million, respectively, to net income in connection with forecasted transactions that were no longer considered probable of occurring.
equity return swaps, interest rate swaps and financial futures to mitigate the risks associated with liabilities that have guaranteed minimum benefits, fixed index annuities and indexed universal life; (iii) foreign currency forward contracts to mitigate currency risk associated with non-functional
gain (loss) recognized in net income for the effects of derivatives not designated as hedges for the years ended December 31:
We regularly review DAC to determine if it is recoverable from future income. In 2020, we recorded a DAC impairment of $63 million in our universal life insurance products due principally to lower future estimated gross profits. As of December 31, 2020, all of our other businesses had sufficient future income and therefore the
In the fourth quarter of 2019, as part of our annual review of assumptions, we increased DAC amortization by $58 million in our universal and term universal life insurance products reflecting updated assumptions primarily related to the lower interest rate environment.
Amortization expense related to PVFP, capitalized software and other intangible assets for the years ended December 31, 2020, 2019 and 2018 was $44 million, $64 million and $72 million, respectively. Amortization expense related to deferred sales inducements of $16 million, $15 million and $22 million, respectively, for the years ended December 31, 2020, 2019 and 2018 was included in benefits and other changes in policy reserves.
The following table presents the activity in PVFP as of and for the years ended December 31:
As of December 31, 2020, the maximum amount of individual ordinary life insurance normally retained by us on any one individual life policy was $5 million.
We have several significant reinsurance transactions (“Reinsurance Transactions”) with UFLIC, an affiliate of our former parent, General Electric Company (“GE”). In the Reinsurance Transactions, we ceded to UFLIC in-force
blocks of variable annuities issued prior to 2004 and a block of long-term care insurance policies that we reinsured in 2000 from legal entities now a part of Brighthouse Life Insurance Company. Although we remain directly liable under these contracts and policies as the ceding insurer, the Reinsurance Transactions have the effect of transferring the financial results of the reinsured blocks to UFLIC. To secure the payment of its obligations to us under the reinsurance agreements governing the Reinsurance Transactions, UFLIC has established trust accounts to maintain an aggregate amount of assets with a statutory book value at least equal to the statutory general account reserves attributable to the reinsured business less an amount required to be held in certain claims-paying accounts. A trustee administers the trust accounts and we are permitted to withdraw from the trust accounts amounts due to us pursuant to the terms of the reinsurance agreements that are not otherwise paid by UFLIC. In addition, pursuant to a Capital Maintenance Agreement, GE is obligated to maintain sufficient capital in UFLIC to maintain UFLIC’s risk-based capital (“RBC”) at not less than 150% of its company action level, as defined by the National Association of Insurance Commissioners (“NAIC”).
As of December 31, 2020 and 2019, we had a reinsurance recoverable of $13,415 million and $13,752 million, respectively, with UFLIC.
We reinsure a portion of our U.S. mortgage insurance risk in order to obtain credit towards the financial requirements of the government-sponsored enterprise (“GSE”) private mortgage insurer eligibility requirements (“PMIERs”). The transactions are structured as excess of loss coverage where both the attachment and detachment points of the ceded risk tier are within the PMIERs capital requirements at inception. Each reinsurance treaty has a term of 10 years and grants to Genworth a unilateral right to commute prior to the full term, subject to certain performance triggers.
Ltd. (“Triangle Re 2020”) on a portfolio of existing mortgage insurance policies written from January 2020 through August 2020. In connection with entering into the reinsurance agreement with Triangle Re 2020, we concluded that the risk transfer requirements for reinsurance accounting were met as Triangle Re 2020 is assuming significant insurance risk and a reasonable possibility of
to us and our affiliates. The excess of loss reinsurance coverage is fully collateralized by a reinsurance trust account which requires funds received by the trust to be invested in eligible investments in accordance with the reinsurance trust agreement. The collateralized trust serves to cover reinsurance obligations if losses exceed our first loss tier. For the reinsurance coverage, we retain the first layer of aggregate losses up to $
In our mortgage insurance business in Australia, all of the reinsurance treaties are on an excess of loss basis that are designed to attach under stress loss events. As of December 31, 2020, our Australian mortgage insurance business had five excess of loss treaties, all with a one-year base term with options to extend for five to nine
years, with an aggregate coverage limit of AUD$800 million. On January 1, 2021, our mortgage insurance business in Australia renewed its five excess of loss reinsurance treaties with the same base term, extension options and aggregate coverage limit.
Reinsurance recoveries recognized as a reduction of benefits and other changes in policy reserves amounted to $2,649 million, $2,751 million and $2,696 million during 2020, 2019 and 2018, respectively.
The following table sets forth the changes in the allowance for credit losses related to reinsurance recoverables as of or for the year ended December 31, 2020:
As discussed in note 2, our policy for evaluating and measuring the allowance for credit losses related to reinsurance recoverables utilizes the reinsurer’s credit rating, updated quarterly, to assess the credit quality of
reinsurance recoverables. The following table sets forth A.M. Best Company, Inc.’s (“A.M. Best”) credit ratings related to our reinsurance recoverables, gross of the allowance for credit losses, as of December 31, 2020:
Reinsurance recoverables are considered past due when contractual payments have not been received from the reinsurer by the required payment date. Claims submitted for payment are generally due in less than one year. As of December 31, 2020, we did not have any reinsurance recoverables past due, except for Scottish Re US Inc. (“Scottish Re”), a reinsurance company domiciled in Delaware. On March 6, 2019, Scottish Re was ordered into receivership for the purposes of rehabilitation by the Court of Chancery of the State of Delaware. The proposed Plan of Rehabilitation of Scottish Re was filed on June 30, 2020; however, we expect a revised Plan of Rehabilitation to be filed by March 16, 2021 with any objections required to be submitted by April 15, 2021. We do not know what deadlines will be imposed related to the Court of Chancery’s consideration of the proposed plan and no hearing date has been scheduled. As of December 31, 2020, amounts past due related to Scottish Re were $19 million, all of which was included in the allowance for credit losses. We will continue to monitor the plan of rehabilitation and expected recovery of the claims balance.
Select and the Ultimate Tables, the 1941, 1958, 1980 and 2001 Commissioner’s Standard Ordinary Tables, the 1980 Commissioner’s Extended Term table and (IA) Standard Table 1996 (modified).
As of December 31, 2020 and 2019, we accrued future policy benefit reserves of $625 million and $323 million,
respectively, in our consolidated balance sheets for profits followed by losses in our long-term care insurance business. The present value of expected future losses was approximately $2.1 billion and $2.0 billion as of December 31, 2020 and 2019, respectively. As of December 31, 2020, we estimate a factor of approximately 76% of those profits on our long-term care insurance block, excluding the acquired block, will be
The following table sets forth our recorded liabilities for policyholder account balances as of December 31:
Certain of our U.S. life insurance companies are members of the Federal Home Loan Bank (the “FHLB”) system in their respective regions. As of December 31, 2020 and 2019, we held $42 million and $43 million, respectively, of FHLB common stock related to those memberships which was included in equity securities. We have outstanding funding agreements with the FHLBs and had a letter of credit related to one FHLB which was terminated in 2019. The FHLBs have been granted a lien on certain of our invested assets to collateralize our obligations; however, we maintain the ability to substitute these pledged assets for other qualified collateral, and may use, commingle, encumber or dispose of any portion of the collateral as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. Upon any event of default by us, the FHLB’s recovery on the collateral is limited to the amount of our funding agreement liabilities to the FHLB. These funding agreements as of December 31, 2020 and 2019 were collateralized by fixed maturity securities with a fair value of $1,309 million and $608 million, respectively. The amount of funding agreements
2019 which was included in policyholder account balances. Included in the amount of funding agreements outstanding with the FHLBs as of December
2019 are FHLB agreements entered into by our universal life insurance business of $
As of December 31, 2020 and 2019, we accrued future policy benefit reserves of $4.5 billion and $2.6 billion, respectively, with an offsetting amount recorded in other comprehensive income (loss) related to shadow accounting adjustments. The higher amounts accrued for the year ended December 31, 2020 were primarily due to the decline in interest rates increasing unrealized investment gains. The majority of the shadow accounting adjustments as of December 31, 2020 were recorded in our long-term care insurance business, which comprised $3.7 billion out of the total $4.5 billion accrued. In addition, as of December 31, 2020 and 2019, we accrued policyholder account balances of $1.4 billion and $0.7 billion, respectively, in our universal and term universal life insurance products with an offsetting amount recorded in other comprehensive income (loss) related to shadow accounting adjustments. There was no impact to net income (loss) related to our shadow accounting adjustments. See note 2 for further information related to shadow accounting adjustments.
As of December 31, 2020 and 2019, our total liability associated with variable annuity contracts with minimum guarantees was approximately $4,668 million and $4,738 million, respectively. Account value decreased from 2019 principally driven by the continued runoff of these products. The liability, net of reinsurance, for our variable annuity contracts with GMDB and guaranteed annuitization benefits was $128 million and $114 million as of December 31, 2020 and 2019, respectively.
The contracts underlying the lifetime benefits such as GMWB and guaranteed annuitization benefits are considered “in the money” if the contractholder’s benefit base, or the protected value, is greater than the account value. As of December 31, 2020 and 2019, our exposure related to GMWB and guaranteed annuitization benefit contracts that were considered “in the money” was $669 million and $715 million, respectively. For GMWBs and guaranteed annuitization benefits, the only way the contractholder can monetize the excess of the benefit base over the account value of the contract is through lifetime withdrawals or lifetime income payments after annuitization.
Account balances of variable annuity contracts with death or living benefit guarantees were invested in separate account investment options as follows as of December 31:
The following table sets forth our liability for policy and contract claims as of December 31:
The liability for policy and contract claims represents our current best estimate; however, there may be future adjustments to this estimate and related assumptions. Such adjustments, reflecting any variety of new and adverse trends, could be significant, and result in increases in reserves by an amount that could be material to our results of operations and financial condition and liquidity. In addition, loss reserves recorded on new delinquencies in our U.S. mortgage insurance business have a high degree of estimation, particularly due to the level of uncertainty regarding whether borrowers in forbearance will ultimately cure or result in a claim payment.
claim frequency and severity. The liability for policy and contract claims also increased $279 million in our long-term care insurance business in 2020 as discussed further below.
block. Given our assumption that COVID-19 has temporarily decreased the number of new claims submitted, incurred but not reported (“IBNR”) reserves were strengthened
average population. These increases were partially offset by higher claim terminations driven mostly by higher mortality and a $38 million net favorable impact from changes in assumptions and methodologies associated with our annual claim reserve review completed in the fourth quarter of 2020. The favorable impact from our annual claims reserve review primarily related to assumption updates to claim terminations and claim incidence based on our current long-term view of these assumptions. The COVID-19 impacts to our long-term care insurance business are not currently expected to be indicative of future trends or loss performance.
In 2020, the favorable development of $398 million related to insured events of prior years was primarily attributable to favorable claim terminations mostly attributable to higher mortality, favorable development on prior year IBNR claims and favorable experience on pending claims that
did not become an active claim. These decreases were partially offset by unfavorable impacts from changes in assumptions and methodologies associated with our annual claim reserve review completed in the fourth quarter of 2020 and from higher reserves of $101 million to account for changes to incidence and mortality experience driven by COVID-19,
In 2018, the liability for policy and contract claims increased $968 million in our long-term care insurance business largely from new claims as a result of the aging of the in-force
In 2018, the incurred amount of $130 million related to insured events of prior years increased largely as a result of the completion of our annual review of our long-term care insurance claim reserves, as described above, which resulted in recording higher reserves of $231 million, net of reinsurance recoverables of $18 million.
The following table sets forth information about incurred claims, net of reinsurance, as well as cumulative number of reported delinquencies and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts for our U.S. Mortgage Insurance segment as of December 31, 2020. The information about the incurred claims development for the years ended December 31, 2011 to 2019 and the historical reported delinquencies as of December 31, 2019 and prior are presented as supplementary information.
Represents reported and outstanding delinquencies less actual cures as of December 31 for each respective accident year.
The following table sets forth paid claims development, net of reinsurance, for our U.S. Mortgage Insurance segment for the year ended December 31, 2020. The information about paid claims development for the years ended December 31, 2011 to 2019 is presented as supplementary information.
The following table sets forth our average payout of incurred claims by age for our U.S. Mortgage Insurance segment as of December 31, 2020:
The following table sets forth information about incurred claims, net of reinsurance, as well as cumulative number of reported delinquencies and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts for our Australia Mortgage Insurance segment as of December 31, 2020. The information about the incurred claims development for the years ended December 31, 2011 to 2019 and the historical reported delinquencies as of December 31, 2019 and prior are presented as supplementary information.
Amounts translated into U.S. dollars at the average foreign exchange rates for the year ended December 31, 2020
Represents outstanding delinquencies plus paid claims as of December 31, 2020 for each respective accident year.
Amounts translated into U.S. dollars at the average foreign exchange rates for the year ended December 31, 2020.
defined benefit pension plans. The plan assets, projected benefit obligation and accumulated benefit obligation liabilities of these plans were not material to our consolidated financial statements individually or in the aggregate. As of December 31, 2020 and 2019, we recorded a liability related to these plans of $69 million and $58 million, respectively, which we accrued in other liabilities in the consolidated balance sheets. In 2020 and 2019, we recognized a decrease of $8 million and $4 million, respectively, in OCI, excluding amounts related to our Canada mortgage insurance business which was classified as held for sale prior to the fourth quarter of 2019.
Our cost associated with our pension, retiree health and life insurance benefit plans was $18 million, $19 million and $18 million for the years ended December 31, 2020, 2019 and 2018, respectively.
basis. We make matching contributions equal to 100% of the first 4% of pay deferred by an employee and 50% of the next 2% of pay deferred by an employee so that our matching contribution does
variable annuity option offered by certain of our life insurance subsidiaries. The amount of deposits recorded by our life insurance subsidiaries in 2020 and 2019 in relation to this plan option was less than $1 million for each year.
Prior to January 2021, employees also had the option of purchasing a fund which invests primarily in Genworth stock as part of the defined contribution savings plan. We had contracted with Newport Trust Company (“Newport”) to act as an independent fiduciary and investment manager with respect to Genworth stock in the defined contribution savings plan. On January 8, 2021, Newport froze the fund due to uncertainty around the closing of the China Oceanwide transaction and the feasibility of executing other strategic plans. Accordingly, future investments or transfers into the fund are no longer permitted.
Our cost associated with these plans was $13 million, $13 million and $12 million for the years ended December 31, 2020, 2019 and 2018, respectively.
We provide health and welfare benefits to our employees, including health, life, disability, dental and long-term care insurance, among others. Our long-term care insurance is provided through our group long-term care insurance products. The premiums recorded by this business related to these benefits were insignificant during 2020, 2019 and 2018.
loss of $9 million. The senior notes were fully redeemed with a
As of December 31, 2020, Genworth Holdings had outstanding five series of fixed rate senior notes with varying interest rates between 4.80% and 7.625% and maturity dates between 2021 and 2034. The senior notes are Genworth Holdings’ direct, unsecured obligations and rank equally in right of payment with all of its existing and future unsecured and unsubordinated obligations. Genworth Financial provides a full and unconditional guarantee to the trustee of Genworth Holdings’ outstanding senior notes and the holders of the senior notes, on an unsecured unsubordinated basis, of the full and punctual payment of the principal of, premium, if any and interest on, and all other amounts payable under, each outstanding series of senior notes, and the full and punctual payment of all other amounts payable by Genworth Holdings under the senior notes indenture in respect of such senior notes. We have the option to redeem all or a portion of each series of senior notes at any time with notice to the noteholders at a price equal to the greater of 100% of principal or the sum of the present value of the remaining scheduled payments of principal and interest discounted at the then-current treasury rate plus an applicable spread.
Genworth Holdings paid its 7.20% senior notes with a principal balance of $338 million at maturity on February 16, 2021. During the year ended December 31, 2020, Genworth Holdings also repurchased $84 million principal amount of its senior notes with 2021 maturity dates for a pre-tax
not repay, redeem or repurchase all or any part of the 2066 Notes on or before November 15, 2046, unless such repayment, redemption or repurchase is made from the proceeds of the issuance of certain replacement capital securities and pursuant to the other terms and conditions set forth in the Replacement Capital Covenant.
February 15, 2025 at its option, by paying a make-whole premium, plus accrued and unpaid interest, if any. At any time on or after February 15, 2025, GMHI may redeem the notes, in whole or in part, at its option, at 100% of the principal amount, plus accrued and unpaid interest. The notes contain customary events of default, which subject to certain notice and cure conditions, can result in the acceleration of the principal and accrued interest on the outstanding notes if GMHI breaches the terms of the indenture.
On July 3, 2020, Genworth Financial Mortgage Insurance Pty Limited (“GFMIPL”), our majority-owned Australia mortgage insurance subsidiary, issued AUD$147 million floating rate subordinated notes due in July 2030 in exchange for AUD$147 million of its floating rate subordinated notes due in July 2025 and issued an additional AUD$43 million floating rate subordinated notes due in July 2030. These notes will pay interest quarterly at a floating rate equal to the three-month Bank Bill Swap reference rate plus a margin of 5.0% per annum
. GFMIPL has an option to redeem the notes at face value on July 3, 2025 and every interest payment date thereafter up to and excluding the maturity date and for certain tax and regulatory events in each case subject to Australian Prudential Regulation Authority’s (“APRA”) prior written approval. GFMIPL redeemed AUD$5 million of its floating rate subordinated notes due in July 2025 on August 24, 2020 and
funding obligations of $311 million, net of $4 million of deferred borrowing charges, due in 2050 with an interest rate based on one-month
LIBOR that reset every 28 days plus a fixed margin. The weighted-average interest rate on the non-recourse
We are also exposed to credit risk in the event of default of our counterparties or changes in collateral values. This risk is significantly reduced because our program requires over collateralization and collateral exposures are trued up on a daily basis. We manage this risk by using multiple counterparties and ensuring that changes in required collateral are monitored and adjusted daily. We also monitor the creditworthiness, including credit ratings, of our counterparties on a regular basis.
The total provision for income taxes was as follows for the years ended December 31:
The effective tax rate for the year ended December 31, 2020 decreased compared to the year ended December 31, 2019 primarily attributable to a lower effect from foreign operations and gains on forward starting swaps settled prior to the enactment of the TCJA, which will continue to be tax effected at 35% as they are amortized into net investment income, in relation to higher pre-tax income in 2020.
For the year ended December 31, 2019, the decrease in the effective rate compared to the year ended December 31, 2018 was primarily attributable to higher pre-tax
foreign operations. The TCJA rate items in 2018 related to estimates made under Staff Accounting Bulletin 118 which did not recur in 2019.
premium rate increases and associated benefit reductions already obtained in our long-term care insurance business; and (iii) overall domestic losses that we have incurred are allowed to be reclassified as foreign source income which, along with future projections of foreign source income, is sufficient to cover the foreign tax credits being carried forward. After consideration of all available evidence, we have concluded that it is more likely than not that our deferred tax assets, with the exception of certain foreign net operating losses and state deferred tax assets for which a valuation allowance has been established, will be realized. If our actual results do not validate the current projections of pre-tax
income, we may be required to record an additional valuation allowance which could have a material impact on our consolidated financial statements in future periods.
The total amount of unrecognized tax benefits was $62 million as of December 31, 2020, which if recognized would affect the effective tax rate on continuing operations by $44 million. These unrecognized tax benefits included the impact of foreign currency translation from our international operations.
We believe it is reasonably possible that in 2021, due to the potential resolution of certain potential settlements and other administrative and statutory proceedings and limitations, up to approximately $44 million unrecognized tax benefits will be recognized.
Net cash paid for taxes was $12 million, $31 million and $33 million and cash paid for interest was $196 million, $292 million and $309 million for the years ended December 31, 2020, 2019 and 2018, respectively.
During 2020, 2019 and 2018, we issued RSUs with average restriction periods of three years, with a fair value of $3.53, $3.36 and $3.58, respectively, which were measured at the market price of a share of our Class A Common Stock on the grant date.
During 2020, 2019 and 2018, we granted performance stock units (“PSUs”) with a fair value of $3.03, $4.61 and $3.58, respectively. The PSUs were granted at market price as of the approval date by our Board of Directors. PSUs may be earned over a three-year period based upon the achievement of certain performance goals.
The PSUs granted in 2020 have a three-year measurement period starting on January 1, 2020 going through December 31, 2022. The performance metrics are based on adjusted operating income of our U.S. Mortgage Insurance and Australia Mortgage Insurance segments and gross incremental annual premiums in our long-term care insurance business, defined as approved weighted-average premium rate increases multiplied by the annualized in-force
The PSUs granted in 2019 have a three-year measurement period starting on January 1, 2019 going through December 31, 2021. The performance metric is based on consolidated adjusted operating income. The PSUs granted in 2018 have three separate and distinct performance measurement periods starting on January 1 going through December 31 for the years ended December 31, 2018, 2019 and 2020, respectively. The performance metric is based on a range of consolidated annual adjusted operating income.
For all PSU awards granted, the compensation committee of our Board of Directors determines and approves no later than March 15, following the end of the three-year performance period for each applicable performance period, the number of units earned and vested for each distinct performance period.
In 2020, 2019 and 2018, we granted cash awards with a fair value of $1.00. We have time-based cash awards, which vest over three years, with a third of the payout occurring per year as determined by the vesting period, beginning on the first anniversary of the grant date. We also have performance-based cash awards which vest and payout after three years.
Shares for both options outstanding and exercisable have no aggregate intrinsic value.
The following tables summarize the status of our other equity-based awards as of December 31, 2020 and 2019:
The performance adjustment relates to additional awards expected to be earned through the achievement of certain performance metrics.
As of December 31, 2020 and 2019, total unrecognized stock-based compensation expense related to non-vested
In 2020, there were no stock options exercised. In 2019, there was less than $1 million in cash received from stock options exercised. New shares were issued to settle all exercised awards. The actual tax benefit realized for the tax deductions from the exercise of share-based awards was $4 million and $5 million as of December 31, 2020 and 2019, respectively.
Genworth Australia, our indirect subsidiary and a public company, grants stock options and other equity-based awards to its Australian employees. The following table summarizes the status of Genworth Australia’s restricted share rights and long-term incentive plan as of December 31, 2020 and 2019:
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 December 31, 2020.
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 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
y 90% of our portfolio was priced using third-party pricing services as of December 31, 2020. These pricing services utilize industry-standard valuation techniques that include market-based approaches, income-based approaches, a combination of market-based and income-based approaches or other proprietary, internally generated models as part of the valuation processes. These third-party pricing vendors maximize the use of publicly available data inputs to generate valuations for each asset class. Priority and type of inputs used may change frequently as certain inputs may be more direct drivers of valuation at the time of pricing. Examples of significant inputs incorporated by 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
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
Trade prices, material event notices, Municipal Market Data benchmark yields, broker quotes
Matrix pricing, spread priced to benchmark curves, price quotes from market makers
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
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 swap curves, TRACE reports
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.
Brokers utilized for valuation of assets are reviewed annually. The fair value of our Level 3 fixed maturity securities priced by broker quotes was $730 million as of December 31, 2020.
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.
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 zero as a result of settling the margins on these contracts on a daily basis.
risk of the GMWB liabilities. As of December 31, 2020 and 2019, the impact of non-performance
risk resulted in a lower fair value of our GMWB liabilities of $66 million and $62 million, respectively.
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 December 31, 2020, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.
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 December 31, 2020, a significant change in the unobservable inputs discussed above would have resulted in a significantly lower or higher fair value measurement.
The following tables set forth our assets by class of instrument that are measured at fair value on a recurring basis as of December 31:
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.
Unobservable inputs weighted by the relative fair value of the associated instrument
Certain classes of instruments classified as Level 3 are excluded above as a result of not
The following tables set forth our liabilities by class of instrument that are measured at fair value on a recurring basis as of December 31:
Issuances presented for GMWB embedded derivative liabilities are characterized as the change in fair value associated with the product fees recognized that are attributed to the embedded derivative to equal the expected future benefit costs upon issuance. Issuances for fixed index annuity and indexed universal life embedded derivative liabilities represent the amount of the premium received that is attributed to the value of the embedded derivative. Settlements of embedded derivatives are characterized as the change in fair value upon exercising the embedded derivative instrument, effectively representing a settlement of the embedded derivative instrument. We
have shown these changes in fair value separately based on the classification of this activity as effectively issuing and settling the embedded derivative instrument with all remaining changes in the fair value of these embedded derivative instruments being shown separately in the category labeled “included in net (income)” in the tables presented above.
Unobservable inputs weighted by the policyholder account balances associated with the instrument.
Assets and Liabilities Not Required to Be Carried at Fair Value
Our domestic insurance subsidiaries paid dividends during 2020, 2019 and 2018 (none of which were deemed “extraordinary”) of $437 million, $250 million and $60 million, respectively. During 2020, our U.S. mortgage insurance subsidiaries paid $437 million dividends from net proceeds received from GMHI’s issuance of its 2025 Senior Notes. Our Australian mortgage insurance subsidiaries paid dividends of $21 million, $212 million and $129 million during 2020, 2019 and 2018, respectively. The reduced dividends in 2020 were predominantly in response to COVID-19.
In 2020 and 2019, River Lake VII, River Lake VIII and River Lake X each had a permitted accounting practice from the State of Vermont to carry their reserves on a basis similar to U.S. GAAP. In addition, in 2019, River Lake Insurance Company IX (“River Lake IX”) also had a permitted accounting
practice from the State of Vermont to carry its reserves on a basis similar to U.S. GAAP. However, as of December 31, 2019, there were no remaining reserves in River Lake IX as discussed below.
GLICNY was granted a permitted accounting practice from the New York State Department of Financial Services (“NYDFS”) whereby GLICNY is exempt from the requirements of principle-based reserves (“PBR”) as prescribed in the NAIC Valuation Manual under New York Regulation. The permitted practice is limited to term life insurance conversion policies issued in 2020 where existing policyholders exercised their contract options prior to the enactment of PBR requirements.
on our combined U.S. domiciled life insurance subsidiaries’ statutory capital and surplus was zero as of December 31, 2020 and 2019.
If these permitted accounting practices had not been used, no regulatory event would have been triggered.
The tables below include the combined statutory net income and statutory capital and surplus for our U.S. domiciled insurance subsidiaries for the periods indicated:
These reserves are, in turn, secured by excess of loss reinsurance treaties with third parties or, in the case of Rivermont I previously, funded through the issuance of non-recourse
funding obligations to third parties. Additionally, the life insurance subsidiaries’ combined statutory net income (loss) and distributable income (loss) are not affected by the statutory net income (loss) of the captives, except to the extent dividends are received from the captives. The combined statutory capital and surplus of our life insurance subsidiaries does not include the capital and surplus of our captive life reinsurance subsidiaries of $106 million and $447 million as of December 31, 2020 and 2019, respectively.
funding obligations) in Rivermont I was positive and, therefore, GLAIC recorded an investment in Rivermont I as of December 31, 2019. In January 2020, Rivermont I redeemed all of its outstanding non-recourse
rate increases for long-term care insurance to be used in asset adequacy analysis until such increases have been approved. However, the NYDFS has allowed GLICNY to incorporate recently filed in-force
However, we have been monitoring emerging experience with our New York policyholders, which experience has been adverse as compared to our nationwide experience. With the benefit of additional data and
In 2019, after discussions with the NYDFS and through the exercise of professional actuarial judgment, GLICNY incorporated in its 2019 asset adequacy analysis recently filed in-force
rate actions for newer long-term care insurance products to offset emerging adverse experience for those products. As a result, GLICNY’s 2019 asset adequacy analysis would have produced a very modest positive margin at the end of 2019. However, there is an actuarial opinion requirement to address events subsequent to year end through the signing of the actuarial opinion. Given the decrease in the Treasury yield curve rate across all maturities from December 31, 2019 through February 13, 2020, the date that GLICNY’s actuarial opinion was signed, GLICNY’s asset adequacy testing resulted in a deficit of $16 million. GLICNY did not spread the deficit over future years. The incremental $16 million of additional statutory reserves established in 2019, when combined with the $454 million of previously established asset adequacy deficiency reserves as of December 31, 2018, increased the aggregate amount of additional actuarial statutory reserves established by GLICNY for asset adequacy deficits to $470 million as of December 31, 2019.
For regulatory purposes, our U.S. mortgage insurers are required to establish a special statutory contingency reserve. Annual additions to the statutory contingency reserve must equal 50% of net earned premiums, as defined by state insurance laws. These contingency reserves generally are held until the earlier of (i) the time that loss ratios exceed 35% or (ii) 10 years. However, approval by the North Carolina Department of Insurance (“NCDOI”) is required for contingency reserve releases when loss ratios exceed 35%. The statutory contingency reserve for our U.S. mortgage insurers was approximately $2.5 billion and $2.0 billion, respectively, as of December 31, 2020 and 2019 and was included in the table above containing combined statutory capital and surplus balances.
Mortgage insurers are not subject to the NAIC’s RBC requirements but certain states and other regulators impose another form of capital requirement on mortgage insurers requiring maintenance of a risk-to-capital
ratio under the current regulatory framework as established under North Carolina law and enforced by the NCDOI, GMICO’s domestic insurance regulator, was approximately 12.3:1 and 12.5:1, respectively.
0.30 multiplier will be applicable for no longer than three calendar months beginning with the month in which the loan became a non-performing loan due to having missed two monthly payments. Loans subject to a forbearance plan described in (ii) above include those that are either in a repayment plan or loan modification trial period following the forbearance plan unless reported to the approved insurer that the loan is no longer in such forbearance plan, repayment plan, or loan modification trial period. The PMIERs Amendment also imposes temporary capital preservation provisions through June 30, 2021 that require an approved insurer to obtain prior written GSE approval before paying any dividends, pledging or transferring assets to an affiliate or entering into any new, or altering any existing, arrangements under tax sharing and intercompany expense-sharing agreements, even if such insurer has a surplus of available assets. Lastly, the PMIERs Amendment imposes permanent revisions to the risk-based required asset amount factor for non-performing loans for properties located in future Federal Emergency Management Agency (“FEMA”) Declared Major Disaster Areas eligible for individual assistance.
In September 2020, the GSEs imposed certain restrictions (“GSE Restrictions”) with respect to capital on our U.S. mortgage insurance business. These restrictions will remain in effect until the later of six quarters or until the following collective (“GSE Conditions”) are met: a) approval of GMICO’s plan to secure additional capital, if needed, b) GMICO obtains “BBB+”/“Baa1” (or higher) rating from Standard & Poor’s Financial Services, LLC, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. for two consecutive quarters and c) Genworth achieves certain financial metrics. Prior to the satisfaction of the GSE Conditions, the GSE Restrictions require:
We have met all PMIERs reporting requirements as required by the GSEs. As of December 31, 2020 and 2019, our U.S. mortgage insurance business had estimated available assets of $4,588 million and $3,811 million,
provided an estimated aggregate of $936 million of PMIERs capital credit as of December 31, 2020.
claims on policies in-force prior to the sale date and those written approximately 90 days subsequent
We have the following four operating business segments: U.S. Mortgage Insurance; Australia Mortgage Insurance; U.S. Life Insurance (which includes our long-term care insurance, life insurance and fixed annuities businesses); and Runoff (which includes the results of products which have not been actively sold since 2011). In addition to our four operating business segments, we also have Corporate and Other activities which include debt financing expenses that are incurred at the Genworth Holdings level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other businesses that are managed outside of our operating segments, including certain smaller international mortgage insurance businesses and discontinued operations.
effects of income (loss) from continuing operations attributable to noncontrolling interests, net investment gains (losses), goodwill impairments, gains (losses) on the sale of businesses, gains (losses) on the early extinguishment of debt, gains (losses) on insurance block transactions, restructuring costs and infrequent or unusual non-operating
items are also excluded from adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders if, in our opinion, they are not indicative of overall operating trends.
While some of these items may be significant components of net income (loss) available to Genworth Financial, Inc.’s common stockholders in accordance with U.S. GAAP, we believe that adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders, and measures that are derived from or incorporate adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders,
and Rivermont I, our indirect wholly-owned special purpose consolidated captive insurance subsidiary, early redeemed all of its $315
of deferred borrowing costs. These transactions were excluded from adjusted operating income (loss) as they relate to gains (losses) on the early extinguishment of debt.
million, respectively, related to restructuring costs as we continue to evaluate and appropriately size our organizational needs and expenses.
The following tables present the reconciliation of net income available to Genworth Financial, Inc.’s common stockholders to adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders and a summary of adjusted operating income (loss) available to Genworth Financial, Inc.’s common stockholders for our segments and Corporate and Other activities for the years ended December 31:
For the years ended December 31, 2020, 2019 and 2018, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(11) million, $(11) million and $(12) million, respectively, and adjusted for net investment gains (losses) attributable to noncontrolling interests of $31 million, $11 million and $(7) million, respectively.
We conduct our operations in the following geographic regions: (1) United States (2) Australia and (3) Other Countries.
fixed maturity securities of $330 million driven primarily from the sale of U.S. government securities due to portfolio rebalancing and asset exposure management as a result of the prolonged low interest rate environment. This decrease to total revenues was partially offset by higher net investment income recorded in the fourth quarter of 2020 largely driven by bond calls and mortgage loan repayments of $40 million and limited partnerships of $38 million.
Our life insurance business recorded a $60 million net favorable unlocking, net of taxes, related to its annual review of assumptions. This favorable unlocking in our life insurance business was partially offset by a DAC impairment of $50 million, net of taxes, as a result of recoverability testing. For all of the aforementioned transactions, see above under superscript (2)
, we were required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share for the three
, as the inclusion of shares for stock options, RSUs and SARs of 5.4 million would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the three
Our life insurance business completed its annual review of assumptions in the fourth quarter of 2019, which resulted in higher total benefits and expenses of $145 million from an unfavorable unlocking in our universal and term universal life insurance products driven mostly by the lower interest rate environment.
loss of approximately $110 million principally in connection with pending litigation involving our former lifestyle protection insurance business. See note 20 for additional information related to asserted claims regarding the sale of our lifestyle protection insurance business. We completed the sale of Genworth MI Canada Inc. (“Genworth Canada”) on December 12, 2019 and recorded an incremental gain of $43 million in the fourth quarter of 2019 predominantly related to a favorable tax position refinement. In addition, during the fourth quarter of 2019 through the sale closing date of December 12, 2019, we recorded $36 million of income from discontinued operations attributed to Genworth Canada.
Richard L. Salberg and David Pinkoski in the Court of Chancery of the State of Delaware. The case was
. In February 2016, Genworth Financial, its current chief executive officer, its former chief executive officer, its then former chief financial officer and current and former members of its board of directors were named in a second shareholder derivative suit filed by Martin Cohen in the Court of Chancery of the State of Delaware. The case was captioned Cohen v. McInerney, et al
. On March 28, 2016, plaintiffs in the consolidated action filed an amended complaint. The amended complaint alleges breaches of fiduciary duties concerning Genworth’s long-term care insurance reserves and concerning Genworth’s Australian mortgage insurance business, including our plans for an IPO of the business and seeks unspecified damages, costs, attorneys’ fees and such equitable relief as the Court may deem proper. The amended consolidated complaint also added Genworth’s then current chief financial officer as a defendant, based on alleged conduct in her former capacity as Genworth’s controller and principal accounting officer. We moved to dismiss the consolidated action on May 27, 2016. Thereafter, plaintiffs filed a substantially similar second amended complaint which we moved to dismiss on September 16, 2016. The motion is fully briefed and awaiting disposition by the Court. The action was stayed pending the outcome of the proposed China Oceanwide transaction. On January 14, 2021, the parties submitted a joint letter to the Court requesting that the action remain stayed until April 15, 2021, or until the closing or termination of the merger in the event the merger closes or is terminated prior to April 15, 2021.
In October 2016, Genworth Financial, its current chief executive officer, its former chief executive officer, its then current chief financial officer, its then former chief financial officer and current and former members of its board of directors were named in a shareholder derivative suit filed by Esther Chopp in the Court of Chancery of the State of Delaware. The case is captioned Chopp v. McInerney, et al
losses. The Court further ruled, among other matters, that Genworth is not entitled to be subrogated to the rights of FICL/FACL against Santander Cards UK Limited or require AXA to assert reasonable defenses with respect to PPI mis-selling
claims. In January 2020, we made an interim payment to AXA for £100 million ($134 million), which was previously accrued in December 2019 in connection with the aforementioned Court ruling. On June 8, 2020, AXA amended its claim
. Plaintiff alleges unlawful and excessive cost of insurance charges were imposed on policyholders. The complaint asserts claims for breach of contract, alleging that Genworth improperly considered non-mortality
amend their complaint. On March 12, 2019, we moved to dismiss plaintiffs’ amended complaint. On April 26,
2019, plaintiffs filed a memorandum in opposition to our motion to dismiss, which we replied to on June 14, 2019. On August 7, 2019, plaintiffs filed a motion seeking to prevent proceeds that GFIH expected to receive from the then planned sale of its shares in Genworth Canada from being transferred out of GFIH. On September 11, 2019, plaintiffs filed a renewed motion seeking the same relief from their August 7, 2019 motion with an exception that allowed GFIH to transfer $450 million of expected proceeds from the sale of Genworth Canada through a dividend to Genworth Holdings to allow the pay-off
of a senior secured term loan facility (“Term Loan”) dated March 7, 2018 among Genworth Holdings as the borrower, GFIH as the limited guarantor and the lending parties thereto. Oral arguments on our motion to dismiss and plaintiffs’ motion occurred on October 21, 2019, and plaintiffs’ motion was denied. On January 31, 2020, the Court granted in part our motion to dismiss, dismissing claims relating to $395 million in dividends GLIC paid to its parent from 2012 to 2014 (out of the $410 million in total dividends subject to plaintiffs’ claims). The Court denied the balance of the motion to dismiss leaving a claim relating to $15 million in dividends and unquantified claims relating to the 2016 termination of a reinsurance transaction. On March 27, 2020, we filed our answer to plaintiffs’ amended complaint. We intend to continue to vigorously defend this action.
In January 2019, Genworth Financial and GLIC were named as defendants in a putative class action lawsuit pending in the United States District Court for the Eastern District of Virginia captioned Jerome Skochin, Susan Skochin, and Larry Huber, individually and on behalf of all other persons similarly situated v. Genworth
as a defendant and expanding the class to all fifty states and the District of Columbia. On January 15, 2020, the Court preliminarily approved the settlement and set the final approval hearing for July 10, 2020. On March 26, 2020, the parties filed a Joint Motion for Leave to Amend certain aspects of the settlement, which was approved by the Court on March 31, 2020. On April 10, 2020, the Indiana Department of Insurance filed a Motion to Intervene and Motion to Stay, seeking to stay the current schedule for class settlement and delay the date of the final approval hearing in light of disruptions caused by COVID-19.
On April 6, 2020, GLAIC, our indirect wholly-owned subsidiary, was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Eastern District of Virginia, captioned Brighton Trustees, LLC, on behalf of and as trustee for Diamond LS Trust; and Bank of Utah, solely as securities intermediary for Diamond LS Trust; on behalf of themselves and all others similarly situated v. Genworth Life and Annuity Insurance Company
. On May 13, 2020, GLAIC was also named as a defendant in a putative class action lawsuit filed in the United States District Court for the Eastern District of Virginia, captioned Ronald L. Daubenmier, individually and on behalf of himself and all others similarly situated v. Genworth Life and Annuity Insurance Company
. On June 26, 2020, plaintiffs filed a consent motion to consolidate the two cases. On June 30, 2020, the United States District Court for the Eastern District of Virginia issued an order consolidating the Brighton Trustees and Daubenmier cases. On July 17, 2020, the Brighton Trustees and Daubenmier plaintiffs filed a consolidated complaint, alleging that GLAIC subjected policyholders to an unlawful and excessive cost of insurance increase. The consolidated complaint asserts claims for breach of contract and injunctive relief, and seeks damages in excess of $5 million. On August 31, 2020, we filed an answer to plaintiffs’ consolidated complaint. The trial is scheduled to commence on April 1, 2022. We intend to continue to vigorously defend this action.
In January 2021, GLIC and GLICNY were named as defendants in a putative class action lawsuit pending in the United States District Court for the Eastern District of Virginia captioned Judy Halcom, Hugh Penson, Harold Cherry, and Richard Landino, individually, and on behalf of all others similarly situated v. Genworth
. Plaintiffs seek to represent long-term care insurance policyholders, alleging that the defendants made misleading and inadequate disclosures regarding premium increases for long-term care insurance policies. The complaint asserts claims for breach of contract, conversion, and declaratory and injunctive relief, and seeks damages in excess of $5 million. Our responsive pleading is due on March 15, 2021. We intend to vigorously defend this action.
In January 2021, GLAIC, our indirect wholly-owned subsidiary, was named as a defendant in a putative class action lawsuit pending in the United States District Court for the District of Oregon captioned Patsy H. McMillan, Individually and On Behalf Of All Others Similarly Situated, v. Genworth Life and Annuity Insurance Company
. Plaintiff seeks to represent life insurance policyholders, alleging that GLAIC impermissibly calculated cost of insurance rates to be higher than that permitted by her policy. The complaint asserts claims for breach of contract, conversion, and declaratory and injunctive relief, and seeks damages in excess of $5 million. We intend to vigorously defend this action.
Net of adjustments to DAC, PVFP, sales inducements and benefit reserves. See note 4 for additional information.
The foreign currency translation and other adjustments balance in the charts above included $(15) million, $(4) million and $(2) million, respectively, net of taxes of $4 million, $1 million and $1 million, respectively, related to a net unrecognized postretirement benefit obligation as of December 31, 2020, 2019 and 2018. The balance also included taxes of $21 million, $22 and $(45) million, respectively, related to foreign currency translation adjustments as of December 31, 2020, 2019 and 2018. The 2018 balances also include the impact of adopting new accounting guidance related to stranded tax effects.
In May 2014, Genworth Australia, a holding company for our Australian mortgage insurance business, completed an IPO of its ordinary shares and we beneficially owned 66.2% of the ordinary shares of Genworth Australia through subsidiaries. In May 2015, we sold 92.3 million of our shares in Genworth Australia and we beneficially owned approximately 52.0% of the ordinary shares of Genworth Australia through subsidiaries.
program for shares up to a maximum aggregate amount of AUD$100 million. Pursuant to the program, Genworth Australia repurchased approximately 36 million of its shares for AUD$100 million. As the majority shareholder, we participated in on-market
period to maintain our ownership position and received $37 million in cash.
In February 2018, Genworth Australia repurchased approximately 19 million of its shares for AUD$49 million under a previous on-market
Prior to the sale of Genworth Canada on December 12, 2019, we held approximately 57% of its common shares on a consolidated basis through subsidiaries and accounted for the portion attributable to noncontrolling interests as a component of total equity. Upon sale closing, we deconsolidated Genworth Canada, which included removing the carrying value of ownership interest attributable to noncontrolling interests of $1.3 billion from total equity in our consolidated balance sheet as of December 31, 2019.
complaints on policies sold from 1970 through 2004 and paid an initial amount of £100 million ($125 million) to AXA. As part of the settlement agreement, we agreed to make payments for certain PPI
The following table presents the amounts owed to AXA under the settlement agreement, which are reflected as liabilities related to discontinued operations in our consolidated balance sheet for the year ended December 31, 2020:
loss of $572 million related to the settlement is included in income (loss) from discontinued operations for the year ended December 31, 2020. The after-tax
losses, including from the distributor responsible for the sale of the policies, we have certain rights to share in those recoveries to recoup payments for the underlying mis-selling
losses. As of December 31, 2020, we have not recorded any amounts associated with recoveries from third parties.
the consummation of certain qualifying equity issuances or dispositions with respect to GMHI, or any of our subsidiaries, in which total net cash proceeds of at least $475 million are raised;
transactions involving a change of control of Genworth, other than the China Oceanwide transaction; and
In addition to the promissory note, we also have an unrelated liability that is owed to AXA associated with underwriting losses on a product sold by a distributor in our former lifestyle protection insurance business. As of December 31, 2020 and 2019, the balance of the liability is $16 million and $42 million, respectively, and is included as liabilities related to discontinued operations in our consolidated balance sheets. During the third quarter of 2020, based on an updated estimate, we reduced the liability by $28 million which was recognized as an after-tax
On December 12, 2019, we completed the sale of Genworth Canada to Brookfield Business Partners L.P. (“Brookfield”) and received approximately
$1.7 billion in net cash proceeds. In the fourth quarter of 2019 and prior to sale closing, we also received a special dividend of approximately $54 million from Genworth Canada. This special dividend reduced the sales price on a per purchased share basis by CAD$1.45 per common share. During 2019, we recognized an
loss on sale of $121 million principally driven by cumulative losses on foreign currency translation adjustments and deferred tax losses, partially offset by unrealized investment gains. These amounts, which were previously recorded in accumulated other comprehensive income, were recognized as part of the loss on sale.
A summary of operating results for Genworth Canada reported as discontinued operations were as follows for the years ended December 31:
Genworth Holdings (formerly known as Genworth Financial, Inc.) was incorporated in Delaware in 2003 in preparation for an 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 upon the completion of the reorganization.
As of December 31, 2020 and 2019, Genworth Financial had a deferred tax asset of $13 million primarily comprised of share-based compensation. Genworth Financial’s current income tax payable was $3 million and $4 million as of December 31, 2020 and 2019, respectively. Net cash received (paid) for taxes was $-, $21 million and $(16) million for the years ended December 31, 2020, 2019 and 2018, respectively.
In 2020, we forgave an intercompany loan of $129 million due from Genworth Holdings. The extinguishment of the loan between the related parties was treated as a non-cash
On December 1, 2015, we completed the sale of our lifestyle protection insurance business to AXA through our subsidiaries. In 2017, AXA sued GFIH, our wholly-owned indirect subsidiary, and Genworth Holdings for damages on an indemnity in the 2015 agreement related to alleged remediation it paid to customers who purchased PPI. On July 20, 2020, Genworth Holdings reached a settlement agreement related to losses incurred from mis-selling
complaints on policies sold from 1970 through 2004 and agreed to make payments for certain PPI mis-selling
claims, along with a significant portion of future claims that are still being processed. Under the settlement agreement, Genworth Holdings issued a secured promissory note to AXA and agreed to make deferred cash payments in two installments in 2022. The promissory note and associated loss from discontinued operations of
$549 million reflected in Genworth Financial’s consolidated statement of income for the year ended December 31, 2020 relate primarily to Genworth Holdings as it was the entity named as the primary defendant in the lawsuit and the obligor in the settlement agreement. Accordingly, the associated amounts reported as discontinued operations are included within equity in income of subsidiaries in the parent company statement of income for the year ended December 31, 2020. Income from discontinued operations presented in the parent company statement of income for the year ended December 31, 2020 relates to tax adjustments incurred by Genworth Financial related to previously disposed businesses.