Comparative discussions between 2019 and 2018 can be found in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K
The revenues in our Australia Mortgage Insurance segment consist primarily of:
. Estimated mortgage origination volume increased during 2020 compared to 2019 primarily from low interest rates which resulted in higher refinance origination volumes and to a lesser degree higher purchase originations. In addition, the estimated private mortgage insurance available market increased driven by higher refinance originations and higher purchase market penetration. Given the volume to date, we expect mortgage originations to remain strong into the first quarter of 2021 fueled by sustained low interest rates driving refinances and by continued strength in the purchase originations market. Due to higher mortgage originations and a larger private mortgage insurance market, our new insurance written increased to $99.9 billion in 2020, a 60% increase compared to 2019. Higher new insurance written continues to drive growth in our primary insurance in force.
process, our second largest customer in our Australia mortgage insurance business advised us that they would not renew their contract with us. The contract with this customer expired in November 2020. This customer represented 11% of our gross written premiums for the year ended December 31, 2020. While the termination of the contract with this customer will reduce gross written premiums in 2021, it is expected to modestly impact future financial results of our mortgage insurance business in Australia.
complaints on policies sold from 1970 through 2004. Under the settlement agreement we agreed to make two installment payments to AXA for approximately £317 million in 2022. We further agreed to pay AXA for future claims that are still being processed currently estimated to be approximately £108 million that will be due with the final installment payment in 2022. As of December 31, 2020, the total amount owed to AXA under the settlement agreement is £425 million ($581 million) which is included in liabilities related to discontinued operations in our consolidated balance sheet.
assumptions utilized going forward unless another premium deficiency charge is recorded.
block. The sensitivities in the table below are changes that we consider to be reasonably possible given historical changes in market conditions and our experience with these products.
In considering the potential sensitivity of the factors underlying management’s best estimate of our mortgage insurance reserves for losses, it is possible that even a relatively small change in estimated delinquency-to-claim
. In our mortgage insurance business in Australia, the majority of our insurance contracts are single premium. We also have single premium insurance contracts in our U.S. mortgage insurance
We review DAC for recoverability at least annually. For deferred annuity and universal life insurance contracts, if the present value of expected future gross profits is less than the unamortized DAC for a line of business, a charge to net income is recorded for additional DAC amortization. For traditional long-duration and short-duration contracts, if the benefit reserves plus the current estimate of expected future gross premiums and interest income for a line of business are less than the current estimate of expected future benefits and expenses (including any unamortized DAC), a charge to net income is recorded for additional DAC amortization or for increased benefit reserves. The evaluation of DAC recoverability is subject to inherent uncertainty and requires significant judgment and estimates to determine the present values of future premiums, estimated gross profits and expected benefits and expenses of our businesses. In 2020, in connection with our review of DAC for recoverability, we wrote off $63 million of DAC in our universal life insurance products due principally to lower future estimated gross profits.
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.
$28,770 million. At least annually, the liability for future policy benefit is evaluated to determine if a premium deficiency exists. Loss recognition testing is generally performed at the line of business level. If the liability for future policy benefits plus the current present value of expected future gross premiums is less than the current present value of expected future benefits and expenses (including any unamortized deferred acquisition costs (DAC)), a charge to net income (loss) is recorded for accelerated DAC amortization and, if necessary, a premium deficiency reserve is established. The loss recognition test is based upon expected estimated claims and premium payment patterns, which includes assumptions for future in-force
Analyzing the actual impact of individual key assumption changes to the results of the loss recognition test using the Company’s analysis of the impact of each update to the projected cash flows.
The following are the primary procedures we performed to address this critical audit matter. With the assistance of actuarial professionals, where appropriate, we evaluated the design and tested the operating effectiveness of certain internal controls related to the valuation of the liability for secondary guarantees and amortization of DAC. This included controls related to the development of the mortality and lapse assumptions. We tested the Company’s process to develop the universal and term universal life liability for secondary guarantees and amortization of DAC through the procedures below. We involved actuarial professionals with specialized skills and knowledge, who assisted in:
On October 21, 2016, we entered into an agreement with China Oceanwide Holdings Group Co., Ltd. (“China Oceanwide”), under which China Oceanwide agreed to acquire all of our outstanding common stock for a total transaction value of approximately $2.7 billion, or $5.43 per share in cash. As part of the transaction, China Oceanwide and/or its affiliates, additionally committed to contribute an aggregate of $1.5 billion to us over time following consummation of the merger. Due to the uncertainty around the completion and timing of the remaining steps required to close the China Oceanwide transaction, on January 4, 2021, Genworth and China Oceanwide agreed that an extension of the then current December 31, 2020 merger agreement end date would not be sought. The consummation of this transaction is dependent on steps outside of our control; accordingly, the associated post-closing capital contributions from China Oceanwide have not been included in this evaluation.
basis based upon consideration of all the evidence available to us, including the magnitude of an unrealized loss and its duration. In any event, this period did not exceed 15 months. We measured other-than-temporary
We pledged $505 million and $405 million of fixed maturity securities as of December 31, 2020 and 2019, respectively. Additionally, as of December 31, 2020 and 2019, we pledged $100 million and $64 million, respectively, of cash as collateral to
On January 1, 2019, we adopted new accounting guidance related to accounting for nonemployee share-based
payments. The guidance aligns the measurement and classification of share-based payments to nonemployees 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.
Basic and diluted earnings (loss) per share are calculated by dividing each income (loss) category presented below by the weighted-average basic and diluted common shares outstanding for the years ended December 31:
utilities and technology and communications industry groups represented approximately 25%, 15%, 13% and 11%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than 10% of our investment portfolio.
recovered in the event of default by the borrower if the property was sold. The debt service coverage ratio is based on “normalized” annual income of the property compared to the payments required under the terms of the loan. Normalization allows for the removal of annual one-time
related DAC was recoverable. In 2019 and 2018, we performed loss recognition testing and determined the related DAC was recoverable. See note 9 for additional information related to loss recognition testing.
67% reinsurance coverage for losses above our retained first layer up to $
In March 2019, upon UFLIC’s request, A.M. Best withdrew UFLIC’s credit rating. There was no impact to us from this action as UFLIC has trust accounts and a guarantee from its parent, as discussed above, and is sufficiently collateralized. Accordingly, the reinsurance recoverable with UFLIC is fully collectible and no allowance for credit losses was recorded as of December 31, 2020.
loss recognition testing. The 2020 and 2019 tests did not result in a premium deficiency and therefore our liability for future policy benefits was sufficient. The liability for future policy benefits for our long-term care insurance business represents our current best estimate; however, there may be future adjustments to this estimate and related assumptions. Such adjustments, reflecting any variety of new and adverse trends, could possibly be significant and result in further increases in the related future policy benefit reserves for this business by an amount that could be material to our results of operations and financial condition and liquidity.
by $108 million, partially offsetting the favorable development on IBNR claims
As of December 31, 2020, Genworth Holdings had outstanding floating rate junior notes having an aggregate principal amount of $598 million, with an annual interest rate equal to three-month LIBOR plus 2.0025% payable quarterly, until the notes mature in November 2066 (“2066 Notes”). Subject to certain conditions, Genworth Holdings has the right, on one or more occasions, to defer the payment of interest on the 2066 Notes during any period of up to 10 years without giving rise to an event of default and without permitting acceleration under the terms of the 2066 Notes. Genworth Holdings will not be required to settle deferred interest payments until it has deferred interest for five years or made a payment of current interest. In the event of our bankruptcy, holders will have a limited claim for deferred interest.
See note 23 for information regarding a secured promissory note issued to AXA and reported as discontinued operations, in which we agreed to make deferred cash payments in two installments in June 2022 and September 2022.
income in 2019 resulted in a lower impact to the effective tax rate from gains on forward starting swaps settled prior to the enactment of the TCJA, which are tax effected at 35% as they are amortized into net investment income and from
The above valuation allowances of $412 million and $347 million as of December 31, 2020 and 2019, respectively, related to state deferred tax assets and foreign net operating losses. The state deferred tax assets related primarily to the future deductions associated with the Section 338 elections and non-insurance
basis and subject to a cumulative maximum of $640 million, which is 80% of the projected tax savings associated with the Section 338 deductions. We recorded net interest expense of $3 million, $4 million and $6 million for the years ended December 31, 2020, 2019 and 2018, respectively, reflecting accretion of our liability at the Tax Matters Agreement rate of 5.72%. As of December 31, 2020 and 2019, we have recorded the estimated present value of our remaining fixed obligation to GE of $41 million and $54 million, respectively, as a liability in our consolidated balance sheets. Both our IPO-related
consolidated return as allowed by the tax law and regulations. We have a tax sharing agreement in place and all intercompany balances related to this agreement are settled at least annually. With possible exceptions, we are no longer subject to U.S. federal tax examinations for years through 2016. Potential state and local examinations for those years are generally restricted to results that are based on closed U.S. federal examinations. Our Australia mortgage insurance business is generally no longer subject to examinations by the Australian Tax Office (“ATO”) for years prior to 2015. In September 2019, the ATO completed a Streamlined Assurance Review of Genworth Mortgage Insurance Australia Limited (“Genworth Australia”) for the years 2016 and 2017, where Genworth Australia obtained a high level of assurance that the right Australian income tax outcomes were reported in Genworth Australia’s income tax returns for 2016 and 2017.
Prior to May 2012, we granted share-based awards to employees and directors, including stock options, SARs, RSUs and deferred stock units (“DSUs”) under the 2004 Genworth Financial, Inc. Omnibus Incentive Plan (the “2004 Omnibus Incentive Plan”). In May 2012, the 2012 Genworth Financial, Inc. Omnibus Incentive Plan (the “2012 Omnibus Incentive Plan”) was approved by stockholders. Under the 2012 Omnibus Incentive Plan, we were authorized to grant 16 million equity awards, plus a number of additional shares not to exceed 25 million underlying awards outstanding under the 2004 Omnibus Incentive Plan. In December 2018, the 2018 Genworth Financial, Inc. Omnibus Incentive Plan (the “2018 Omnibus Incentive Plan”) was approved by stockholders. Under the 2018 Omnibus Incentive Plan, we are authorized to grant 25 million equity awards, plus a number of additional shares not to exceed 20 million underlying awards outstanding under the prior Plans. The 2004 Omnibus Incentive Plan together with the 2012 Omnibus Incentive Plan and the 2018 Omnibus Incentive Plan are referred to collectively as the “Omnibus Incentive Plans.”
For the years ended December 31, 2020, 2019 and 2018, we recorded $18 million, $5 million and $7 million, respectively, of expense associated with our PSUs.
The fair value of short-term investments classified as Level 2 is determined after considering prices obtained by pricing services.
being material or due to limitations in being able to obtain the underlying inputs used by certain third-party sources, such as broker quotes, used as an input in determining fair value.
Purchases, sales, issuances and settlements represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases, sales and settlements of fixed maturity and equity securities and purchases, issuances and settlements of derivative instruments.
Assets and liabilities that are reflected in the accompanying consolidated financial statements at fair value are not included in the following disclosure of fair value. Such items include cash, cash equivalents and restricted cash, short-term investments, investment securities, separate accounts, securities held as collateral and derivative instruments. Apart from certain of our borrowings and certain marketable securities, few of the instruments are actively traded and their fair values must often be determined using models. The fair value estimates are made at a specific point in time, based upon available market information and judgments about the financial instruments, including estimates of the timing and amount of expected future cash flows and the credit standing of counterparties. Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets.
During 2020, 2019 and 2018, we established $232 million, $54 million and $120 million, respectively, of additional statutory reserves resulting from updates to our universal and term universal life insurance products with secondary guarantees in our Virginia and Delaware licensed life insurance subsidiaries.
by $47 million. Additionally, our long-term care insurance business recorded a $91 million increase to claim reserves reflecting our assumption that COVID-19
January 4, 2021. Based on the Court’s final approval of the settlement, we do not anticipate the outcome of this matter to have a material adverse impact on our results of operations or financial position.
As of December 31, 2020, the amortized cost or cost, fair value and carrying value of our invested assets were as follows: