• The adjusted operating loss available to Genworth Financial, Inc.’s common stockholders in our life insurance business increased $74 million largely from higher lapses primarily associated with our large 20-year term life insurance block issued in 1999 entering its post-level premium period and the continued runoff of our life insurance products. The increase also included a more unfavorable unlocking of $16 million in our universal and term universal life insurance products
• Corporate and Other Activities had an adjusted operating loss available to Genworth Financial, Inc.’s common stockholders of $200 million and $230 million in 2019 and 2018, respectively. The decrease was primarily related to lower operating costs and interest expense in 2019.
The amortization of DAC for mortgage insurance is based on expected gross margins. Expected gross margins, defined as premiums less losses, are set based on assumptions for future persistency and loss development of the business. These assumptions are updated for actual experience to date or as our expectations of future experience are revised based on experience studies. Due to the inherent uncertainties in making assumptions about future events, materially different experience from expected results in persistency or loss development could result in a material increase or decrease to DAC amortization. For the years ended December 31, 2019, 2018 and 2017, assumptions were unlocked in our mortgage insurance businesses to reflect our current expectation of future persistency and loss projections.
Any future adverse changes in our assumptions could result in both the impairment of DAC associated with our long-term care insurance products as well as the establishment of additional future policy benefit reserves. Any favorable changes would result in additional margin in our loss recognition test and would result in higher income over the remaining duration of the in-force block. Our positive margin for our long-term care insurance block, excluding the acquired block, is dependent on our assumptions regarding our ability to successfully implement our in-force
The U.S. and international governments, the U.S. Federal Reserve, other central banks and other legislative and regulatory bodies have taken certain actions in past years to support the economy and capital markets, influence interest rates, influence housing markets and mortgage servicing and provide liquidity to promote economic growth. These include various mortgage restructuring programs implemented or under consideration by the GSEs, lenders, servicers and the U.S. government. Outside of the United States, various governments and central banks have taken actions to stimulate economies, stabilize financial systems and improve market liquidity. These policies and actions have generally been supportive to the worldwide economy, however, a U.S. or global recession or regional or global financial crisis could occur which would materially and adversely affect our business, financial condition and results of operations.
• Our Runoff segment decreased $5 million mainly from lower commissions in our variable annuity products in 2019.
• Our Runoff segment increased $13 million primarily attributable to higher GMDB reserves in our variable annuity products due to unfavorable equity market performance in 2018.
The level of mortgage originations requiring private mortgage insurance, or market penetration, and eventual market size is affected in part by actions taken by the GSEs and the U.S. government, including but not limited to, the FHA and the FHFA, which impact housing or housing finance policy. In the past, these actions have included announced changes, or potential changes, to underwriting standards, FHA pricing, GSE guaranty fees, loan limits and alternative products such as those offered through Freddie Mac’s IMAGIN and Fannie Mae’s EPMI pilot programs introduced in 2018, as well as low down payment programs available through the FHA or GSEs. For more information about the potential future impact, see “Item 1A - Risk Factors-Changes to the role of the GSEs or to the charters or business practices of the GSEs, including actions or decisions to decrease or discontinue the use of mortgage insurance, could adversely affect our financial condition and results of operations or significantly impact our business,” and “-Risk Factors-The amount of mortgage insurance we write could decline significantly if alternatives to private mortgage insurance are used or lower coverage levels of mortgage insurance are selected.”
GMICO’s 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 12.5:1 as of December 31, 2019 and 2018. This risk-to-capital ratio remains below the NCDOI’s maximum risk-to-capital ratio of 25:1. GMICO’s ongoing risk-to-capital ratio will depend principally on the magnitude of future losses incurred by GMICO, the effectiveness of ongoing loss mitigation activities, new business volume and profitability, the amount of policy lapses and the amount of additional capital that is generated or distributed by the business or capital support (if any) that we provide.
Our delinquency management process begins with notification by the loan servicer of a delinquency on an insured loan. “Delinquency” is defined in our master policies as the borrower’s failure to pay when due an amount equal to the scheduled monthly mortgage payment under the terms of the mortgage. Generally, the master policies require an insured to notify us of a delinquency after the borrower has been in default by two or three monthly payments. We generally consider a loan to be delinquent and establish required reserves if the borrower has failed to make a scheduled mortgage payment. Borrowers default for a variety of reasons, including a reduction of income, unemployment, divorce, illness, inability to manage credit and interest rate levels. Borrowers may cure delinquencies by making all of the delinquent loan payments, agreeing to a loan modification, or by selling the property in full satisfaction of all amounts due under the mortgage. In most cases, delinquencies that are not cured result in a claim under our policy. The following table sets forth the number of loans insured, the number of delinquent loans and the delinquency rate for our U.S. mortgage insurance portfolio as of December 31:
Primary mortgage insurance claims paid, including loss adjustment expenses, for the year ended December 31, 2019 were $112 million, compared to $193 million and $285 million for the years ended December 31, 2018 and 2017, respectively. Pool insurance claims paid were $1 million for both the years ended December 31, 2019 and 2018 and $2 million for the year ended December 31, 2017.
Our mortgage insurance business in Australia completed a review of its premium earnings pattern in the fourth quarter of 2019, which resulted in no changes to the earnings pattern adopted in the fourth quarter of 2017.
Our mortgage insurance business in Australia evaluates its capital position in relation to the PCA as determined by APRA and utilizes its Internal Capital Adequacy Assessment Process as the framework to ensure that our Australia group of companies as a whole, and each regulated entity, are independently capitalized to meet regulatory requirements. As of December 31, 2019, our estimated PCA ratio was approximately 191%, representing a decrease from 194% as of December 31, 2018, largely from a lower regulatory capital base as dividends paid and share repurchase activity exceeded profits in 2019. The impact was partially offset by portfolio seasoning and policy cancellations in 2019.
Delinquency rates increased mainly from lower flow loans in-force as a result of policy cancellations in 2019.
Results of our U.S. life insurance businesses depend significantly upon the extent to which our actual future experience is consistent with assumptions and methodologies we have used in calculating our reserves. Many factors can affect the results in our U.S. life insurance businesses. Because these factors are not known in advance, change over time, are difficult to accurately predict and are inherently uncertain, we cannot determine with precision the ultimate amounts we will pay for actual claims or the timing of those payments. We will continue to monitor our experience and assumptions closely and make changes to our assumptions and methodologies, as appropriate, for our U.S. life insurance products. Even small changes in assumptions or small deviations of actual experience from assumptions can have, and in the past have had, material impacts on our DAC amortization, reserve levels, results of operations and financial condition.
The increase was mostly attributable to our life insurance business primarily driven by a $21 million favorable correction related to ceded premiums in our universal life insurance policies in 2019 and a favorable unlocking of $10 million in our universal and term universal life insurance products as part of our annual review of assumptions in the fourth quarter of 2019 compared to an unfavorable unlocking of $7 million in 2018. These increases were partially offset by a decline in our universal and term universal life insurance in-force in 2019.
• Our long-term care insurance business increased $7 million primarily related to higher general expenses and legal costs in 2019.
Amortization of DAC and intangibles increased largely related to our life insurance business associated with higher lapses primarily from our large 20-year term life insurance block issued in 1999 entering its post-level premium period. The increase was also attributable to an unfavorable unlocking of $63 million in our universal and term universal life insurance products as part of our annual review of assumptions in the fourth quarter of 2019 compared to a favorable unlocking of $4 million in 2018 (see “-Critical Accounting Estimates-Deferred acquisition costs” for additional information). The year ended December 31, 2019 also included $17 million of unfavorable model corrections in our universal life insurance products.
For the years ended December 31, 2019, 2018 and 2017, net investment (gains) losses were adjusted for DAC and other intangible amortization and certain benefit reserves of $(4) million, $(6) million and $1 million, respectively.
Account value as of December 31, 2019 decreased compared to December 31, 2018 mainly attributable to scheduled maturities of certain funding agreements in 2019.
For our other instruments and contracts, including investments, debt and reinsurance contracts, there is a wide variety in replacement language ranging from a rate freeze to silence on the matter. With respect to instruments that include a rate replacement, we will comply with the process prescribed by each instrument. For investments that do not contain such a replacement, we will generally endeavor to agree upon a replacement rate with our counterparties well in advance of LIBOR’s transition. In some cases, such as our long-term junior subordinated notes that mature in 2066 and are linked to three-month LIBOR, we may decide not to replace LIBOR which would lock-in the last published rate. We understand that the investment community is inclined to adopt SOFR as a substitute rate. Therefore, the adoption of SOFR will add certainty to the process of replacing LIBOR as the reference rate for many instruments. We do acknowledge the complications in calculating the credit spread necessary to equate SOFR to LIBOR and will monitor the potential risk.
. Total liabilities decreased $24 million from $86,734 million as of December 31, 2018 to $86,710 million as of December 31, 2019.
We engage in certain securities lending transactions for the purpose of enhancing the yield on our investment securities portfolio. We maintain effective control over all loaned securities and, therefore, continue to report such securities as fixed maturity securities on the consolidated balance sheets. We are currently indemnified against counterparty credit risk by the intermediary. See note 12 in our consolidated financial statements under “Item 8 - Financial Statements and Supplementary Data” for additional information related to our securities lending program.
As of December 31, 2018, GLAIC provided security in an aggregate amount of $28 million for the benefit of Rivermont I, that had issued non-recourse funding obligations to collateralize the obligation to make future payments on their behalf under certain tax sharing agreements. The associated letter of credit was terminated in December 2019.
Includes the undiscounted lease payments required under our operating leases obligations. The related operating lease liability is recorded on our consolidated balance sheet net of imputed interest of $24 million. See note 2 to our consolidated financial statements under “Item 8 - Financial Statements and Supplementary Data” for additional information related to operating leases.
• Developing an independent estimate and range for the mortgage insurance reserve for a portion of the reserves, using the Company’s underlying historical claims and delinquency data and assessing the year-over-year movements of the Company’s recorded mortgage insurance reserves within the developed independent range; and
• Level 2-Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
We previously had a repurchase program in which we sold an investment security at a specified price and agreed to repurchase that security at another specified price at a later date. Repurchase agreements were treated as collateralized financing transactions and were carried at the amounts at which the securities were subsequently reacquired, including accrued interest, as specified in the respective agreement. The fair value of securities to be repurchased was monitored and collateral levels were adjusted where appropriate to protect the parties against credit exposure. Cash received was invested in fixed maturity securities. See note 12 for additional information related to our repurchase agreements.
intangible asset and amortized in benefits and other changes in policy reserves using the same methodology and assumptions used to amortize DAC.
We did not have any adjustments associated with this review in 2018. In 2017, the review resulted in a decrease in earned premiums of $468 million in our Australia mortgage insurance business.
issued in exchange for goods or services with the guidance for share-based payments to employees, with certain exceptions. We adopted this new accounting guidance using the modified retrospective method. This guidance is consistent with our previous accounting practices and, accordingly, had no impact on our consolidated financial statements at adoption.
components, as permitted under this new accounting guidance, and as a result, non-lease
On January 1, 2018, we early adopted new accounting guidance simplifying the test for goodwill impairment. The new guidance states goodwill impairment is equal to the difference between the carrying value and fair value of the reporting unit up to the amount of recorded goodwill. We adopted this new accounting guidance prospectively and applied it to our 2018 and 2019 goodwill impairment tests. This new accounting guidance simplified the test for goodwill impairment but had no impact on our consolidated financial statements.
2016. The remaining specific cash flow issues did not have a significant impact on our consolidated financial statements.
On January 1, 2018, we adopted new accounting guidance related to the recognition and measurement of financial assets and financial liabilities. Changes to financial instruments accounting primarily affects equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments with readily determinable fair value, except those accounted for under the equity method of accounting, are measured at fair value with changes in fair value 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
recognize an allowance equal to its estimate of lifetime expected credit losses and applies to most debt instruments not measured at fair value, which would primarily include our commercial mortgage loans and reinsurance recoverables. The new guidance retains most of the existing impairment guidance for available-for-sale
currency investments held by certain foreign subsidiaries; and (v) foreign currency options and forward contracts to mitigate currency risk associated with future dividends or other cash flows from certain foreign subsidiaries to our holding company. Additionally, we provide GMWBs on certain variable annuities that are required to be bifurcated as embedded derivatives. We also offer fixed index annuity and indexed universal life insurance products and have reinsurance agreements with certain features that are required to be bifurcated as embedded derivatives.
Amounts represent derivative assets and/or liabilities that are presented gross within the balance sheet but are held with the same counterparty where we have a master netting arrangement. This adjustment results in presenting the net asset and net liability position for each counterparty.
Amortization expense related to PVFP, capitalized software and other intangible assets for the years ended December 31, 2019, 2018 and 2017 was $64 million, $72 million and $91 million, respectively. Amortization expense related to deferred sales inducements of $15 million, $22 million and $22 million, respectively, for the years ended December 31, 2019, 2018 and 2017 was included in benefits and other changes in policy reserves.
We have several significant reinsurance transactions (“Reinsurance Transactions”) with UFLIC. In these transactions, we ceded to UFLIC in-force
rate actions. There may be future adjustments to this estimate reflecting any variety of new and adverse trends that could result in increases to future policy benefit reserves for our profits followed
funding obligations as of December 31, 2019 and 2018 were 3.78% and 4.49%, respectively.
During 2019, 2018 and 2017, we issued RSUs with average restriction periods of three years, with a fair value of $3.36, $3.58 and $4.01, respectively, which were measured at the market price of a share of our Class A Common Stock on the grant date.
The following table summarizes information about stock options outstanding as of
For pricing services, we obtain an understanding of the pricing methodologies and procedures for each type of instrument. Additionally, on a monthly basis we review a sample of securities, examining the pricing service’s assumptions to determine if we agree with the service’s derived price. When available, we also evaluate the prices sampled as compared to other public prices. If a variance greater than a pre-defined
risk in our liabilities based on a hypothetical exit market transaction as there is no exit market for these types of liabilities. A hypothetical exit market can be viewed as a hypothetical transfer of the liability to another similarly rated insurance company which would closely resemble a reinsurance transaction. Another hypothetical exit market transaction can be viewed as a hypothetical transaction from the perspective of the GMWB policyholder. In determining the appropriate discount rate to incorporate non-performance
risk in measuring fair value for our derivative instruments. As a result of these
” The permitted practices of the SPFCs were an essential element of their design and were expressly included in their plans of operation and in the licensing orders issued by their domiciliary state regulators and without those permitted accounting practices, these entities could be subject to regulatory action. Accordingly, we believe that the permitted accounting practices will remain in effect for so long as we maintain the SPFCs. The permitted accounting practices were as follows:
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
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
The assets and liabilities held for sale related to Genworth Canada were segregated in our consolidated balance sheets until deconsolidation, which occurred on December 12, 2019, the sale closing date.
As of December 31, 2019, the amortized cost or cost, fair value and carrying