Edgar Filing: GENWORTH FINANCIAL INC

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-32195

LOGO

GENWORTH FINANCIAL, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		33-1073076
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

6620 West Broad Street Richmond, Virginia		23230
(Address of Principal Executive Offices)		(Zip Code)

(804) 281-6000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 1, 2012, 491,502,704 shares of Class A Common Stock, par value $0.001 per share, were outstanding.

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION			3

Item 1.	Financial Statements		3
	Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 (Unaudited)		3
	Condensed Consolidated Statements of Income for the three months ended March 31, 2012 and 2011 (Unaudited)		4
	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011 (Unaudited)		5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2012 and 2011 (Unaudited)		6
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (Unaudited)		7
	Notes to Condensed Consolidated Financial Statements (Unaudited)		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		69

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		132

Item 4.	Controls and Procedures		132

PART II—OTHER INFORMATION			133

Item 1.	Legal Proceedings		133

Item 1A.	Risk Factors		134

Item 6.	Exhibits		135

Signatures			136

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except per share amounts)

(Unaudited)


	March 31, 2012			December 31, 2011
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value	$	58,532		$	58,295
Equity securities available-for-sale, at fair value		434			361
Commercial mortgage loans		6,030			6,092
Restricted commercial mortgage loans related to securitization entities		392			411
Policy loans		1,555			1,549
Other invested assets		3,001			4,819
Restricted other invested assets related to securitization entities ($383 and $376 at fair value)		384			377

Total investments		70,328			71,904
Cash and cash equivalents		4,187			4,488
Accrued investment income		759			691
Deferred acquisition costs		5,060			5,193
Intangible assets		573			580
Goodwill		1,256			1,253
Reinsurance recoverable		17,193			16,998
Other assets		981			958
Separate account assets		10,646			10,122

Total assets	$	110,983		$	112,187

Liabilities and stockholders’ equity
Liabilities:
Future policy benefits	$	32,380		$	32,175
Policyholder account balances		26,204			26,345
Liability for policy and contract claims		7,663			7,620
Unearned premiums		4,209			4,223
Other liabilities ($174 and $210 other liabilities related to securitization entities)		5,308			6,308
Borrowings related to securitization entities ($55 and $48 at fair value)		383			396
Non-recourse funding obligations		2,602			3,256
Long-term borrowings		5,095			4,726
Deferred tax liability		610			838
Separate account liabilities		10,646			10,122

Total liabilities		95,100			96,009

Commitments and contingencies

Stockholders’ equity:
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 580 million and 579 million shares issued as of March 31, 2012 and December 31, 2011, respectively; 491 million shares outstanding as of March 31, 2012 and December 31, 2011		1			1
Additional paid-in capital		12,150			12,136

Accumulated other comprehensive income (loss):
Net unrealized investment gains (losses):
Net unrealized gains (losses) on securities not other-than-temporarily impaired		1,438			1,617
Net unrealized gains (losses) on other-than-temporarily impaired securities		(111	)		(132	)

Net unrealized investment gains (losses)		1,327			1,485

Derivatives qualifying as hedges		1,680			2,009
Foreign currency translation and other adjustments		649			553

Total accumulated other comprehensive income (loss)		3,656			4,047
Retained earnings		1,631			1,584
Treasury stock, at cost (88 million shares as of March 31, 2012 and December 31, 2011)		(2,700	)		(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity		14,738			15,068
Noncontrolling interests		1,145			1,110

Total stockholders’ equity		15,883			16,178

Total liabilities and stockholders’ equity	$	110,983		$	112,187

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in millions, except per share amounts)

(Unaudited)


	Three months ended March 31,
	2012			2011
Revenues:
Premiums	$	1,107		$	1,437
Net investment income		832			830
Net investment gains (losses)		35			(28	)
Insurance and investment product fees and other		452			329

Total revenues		2,426			2,568

Benefits and expenses:
Benefits and other changes in policy reserves		1,232			1,413
Interest credited		195			201
Acquisition and operating expenses, net of deferrals		530			563
Amortization of deferred acquisition costs and intangibles		272			151
Interest expense		95			127

Total benefits and expenses		2,324			2,455

Income before income taxes		102			113
Provision for income taxes		22			20

Net income		80			93
Less: net income attributable to noncontrolling interests		33			34

Net income available to Genworth Financial, Inc.’s common stockholders	$	47		$	59

Net income available to Genworth Financial, Inc.’s common stockholders per common share:
Basic	$	0.09		$	0.12

Diluted	$	0.09		$	0.12

Weighted-average common shares outstanding:
Basic		491.2			490.1

Diluted		495.7			494.4

Supplemental disclosures:
Total other-than-temporary impairments	$	(16	)	$	(31	)
Portion of other-than-temporary impairments included in other comprehensive income (loss)		(1	)		(5	)

Net other-than-temporary impairments		(17	)		(36	)
Other investments gains (losses)		52			8

Total net investment gains (losses)	$	35		$	(28	)

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)


	Three months ended March 31,
	2012			2011
Net income	$	80		$	93
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities not other-than-temporarily impaired		(185	)		50
Net unrealized gains (losses) on other-than-temporarily impaired securities		21			7
Derivatives qualifying as hedges		(329	)		(60	)
Foreign currency translation and other adjustments		116			152

Total other comprehensive income (loss)		(377	)		149

Total comprehensive income (loss)		(297	)		242
Less: comprehensive income attributable to noncontrolling interests		47			54

Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders	$	(344	)	$	188

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in millions)

(Unaudited)


	Common stock		Additional paid-in capital		Accumulated other comprehensive income (loss)			Retained earnings		Treasury stock, at cost			Total Genworth Financial, Inc.’s stockholders’ equity			Noncontrolling interests			Total stockholders’ equity
Balances as of December 31, 2011	$	1	$	12,136	$	4,047		$	1,584	$	(2,700	)	$	15,068		$	1,110		$	16,178

Comprehensive income (loss):
Net income		—		—		—			47		—			47			33			80
Net unrealized gains (losses) on securities not other-than-temporarily impaired		—		—		(179	)		—		—			(179	)		(6	)		(185	)
Net unrealized gains (losses) on other-than-temporarily impaired securities		—		—		21			—		—			21			—			21
Derivatives qualifying as hedges		—		—		(329	)		—		—			(329	)		—			(329	)
Foreign currency translation and other adjustments		—		—		96			—		—			96			20			116

Total comprehensive income (loss)														(344	)		47			(297	)
Dividends to noncontrolling interests		—		—		—			—		—			—			(12	)		(12	)
Stock-based compensation expense and exercises and other		—		14		—			—		—			14			—			14

Balances as of March 31, 2012	$	1	$	12,150	$	3,656		$	1,631	$	(2,700	)	$	14,738		$	1,145		$	15,883

Balances as of December 31, 2010	$	1	$	12,107	$	1,506		$	1,535	$	(2,700	)	$	12,449		$	1,096		$	13,545

Comprehensive income (loss):
Net income		—		—		—			59		—			59			34			93
Net unrealized gains (losses) on securities not other-than-temporarily impaired		—		—		59			—		—			59			(9	)		50
Net unrealized gains (losses) on other-than-temporarily impaired securities		—		—		7			—		—			7			—			7
Derivatives qualifying as hedges		—		—		(60	)		—		—			(60	)		—			(60	)
Foreign currency translation and other adjustments		—		—		123			—		—			123			29			152

Total comprehensive income (loss)														188			54			242
Dividends to noncontrolling interests		—		—		—			—		—			—			(12	)		(12	)
Stock-based compensation expense and exercises and other		—		6		—			—		—			6			—			6

Balances as of March 31, 2011	$	1	$	12,113	$	1,635		$	1,594	$	(2,700	)	$	12,643		$	1,138		$	13,781

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Three months ended March 31,
	2012			2011
Cash flows from operating activities:
Net income	$	80		$	93
Adjustments to reconcile net income to net cash from operating activities:
Amortization of fixed maturity discounts and premiums and limited partnerships		(19	)		(18	)
Net investment losses (gains)		(35	)		28
Charges assessed to policyholders		(187	)		(159	)
Acquisition costs deferred		(154	)		(166	)
Amortization of deferred acquisition costs and intangibles		272			151
Deferred income taxes		26			(47	)
Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments		(45	)		35
Stock-based compensation expense		9			7
Change in certain assets and liabilities:
Accrued investment income and other assets		(112	)		(117	)
Insurance reserves		369			561
Current tax liabilities		(86	)		25
Other liabilities and other policy-related balances		(370	)		(57	)

Net cash from operating activities		(252	)		336

Cash flows from investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		969			1,627
Commercial mortgage loans		142			148
Restricted commercial mortgage loans related to securitization entities		14			22
Proceeds from sales of investments:
Fixed maturity and equity securities		1,717			1,009
Purchases and originations of investments:
Fixed maturity and equity securities		(3,049	)		(2,200	)
Commercial mortgage loans		(81	)		(38	)
Other invested assets, net		436			(59	)
Policy loans, net		(6	)		(9	)
Payments for businesses purchased, net of cash acquired		(18	)		(4	)

Net cash from investing activities		124			496

Cash flows from financing activities:
Deposits to universal life and investment contracts		662			560
Withdrawals from universal life and investment contracts		(600	)		(1,115	)
Redemption and repurchase of non-recourse funding obligations		(563	)		(6	)
Proceeds from the issuance of long-term debt		361			397
Repayment of borrowings related to securitization entities		(19	)		(12	)
Dividends paid to noncontrolling interests		(12	)		(12	)
Other, net		(18	)		(33	)

Net cash from financing activities		(189	)		(221	)
Effect of exchange rate changes on cash and cash equivalents		16			(1	)

Net change in cash and cash equivalents		(301	)		610
Cash and cash equivalents at beginning of period		4,488			3,132

Cash and cash equivalents at end of period	$	4,187		$	3,742

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Formation of Genworth and Basis of Presentation

Genworth Financial, Inc. (“Genworth”) was incorporated in Delaware on October 23, 2003. The accompanying condensed financial statements include on a consolidated basis the accounts of Genworth and our affiliate companies in which we hold a majority voting interest or where we are the primary beneficiary of a variable interest entity, which we refer to as the “Company,” “we,” “us” or “our” unless the context otherwise requires. All intercompany accounts and transactions have been eliminated in consolidation.

We have the following operating segments:

•

U.S. Life Insurance. We offer and manage a variety of insurance and fixed annuity products. Our primary insurance products include life and long-term care insurance.

•

International Protection. We are a leading provider of payment protection coverages (referred to as lifestyle protection) in multiple European countries. Our lifestyle protection insurance products primarily help consumers meet specified payment obligations should they become unable to pay due to accident, illness, involuntary unemployment, disability or death.

•

Wealth Management. We offer and manage a variety of wealth management services, including investments, advisor support and practice management services.

•

International Mortgage Insurance. We are a leading provider of mortgage insurance products and related services in Canada, Australia, Mexico and multiple European countries. Our products predominantly insure prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. On a limited basis, we also provide mortgage insurance on a structured, or bulk, basis that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk.

•

U.S. Mortgage Insurance. In the United States, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. We selectively provide mortgage insurance on a bulk basis with essentially all of our bulk writings prime-based. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk.

•

Runoff. The Runoff segment includes the results of non-strategic products which are no longer actively sold. Our non-strategic products include our variable annuity, variable life insurance, institutional, corporate-owned life insurance and Medicare supplement insurance products. Institutional products consist of funding agreements, funding agreements backing notes (“FABNs”) and guaranteed investment contracts (“GICs”). In January 2011, we discontinued new sales of retail and group variable annuities while continuing to service our existing blocks of business. Effective October 1, 2011, we completed the sale of our Medicare supplement insurance business.

We also have Corporate and Other activities which include debt financing expenses that are incurred at our holding company level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other non-core businesses that are managed outside of our operating segments.

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Preparing financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Actual results could differ from those estimates. These condensed consolidated financial statements include all adjustments considered necessary by management to present a fair statement of the financial position, results of operations and cash flows for the periods presented. The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2011 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

(2) Accounting Changes

On January 1, 2012, we adopted new accounting guidance requiring presentation of the components of net income (loss), the components of other comprehensive income (loss) (“OCI”) and total comprehensive income either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements. We chose to present two separate but consecutive statements and adopted this new guidance retrospectively. The Financial Accounting Standards Board (“FASB”) issued an amendment relating to this new guidance for presentation of the reclassification of items out of accumulated other comprehensive income into net income that removed this requirement until further guidance is issued. The adoption of this new accounting guidance did not have any impact on our consolidated financial results.

On January 1, 2012, we adopted new accounting guidance related to fair value measurements. This new accounting guidance clarified existing fair value measurement requirements and changed certain fair value measurement principles and disclosure requirements. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.

On January 1, 2012, we adopted new accounting guidance related to repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The new guidance removed the requirement to consider a transferor’s ability to fulfill its contractual rights from the criteria used to determine effective control and was effective for us prospectively for any transactions occurring on or after January 1, 2012. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements.

On January 1, 2012, we adopted new accounting guidance related to accounting for costs associated with acquiring or renewing insurance contracts. Acquisition costs include costs that are related directly to the successful acquisition of our insurance policies and investment contracts, which are deferred and amortized over the estimated life of the related insurance policies. These costs include commissions in excess of ultimate renewal commissions and for contracts and policies issued some support costs, such as underwriting, medical inspection and issuance expenses. Deferred acquisition costs (“DAC”) are subsequently amortized to expense over the lives of the underlying contracts, in relation to the anticipated recognition of premiums or gross profits. We adopted this new guidance retrospectively, which reduced retained earnings and stockholders’ equity by $1.3 billion as of January 1, 2011, and reduced net income (loss) by $63 million, $86 million and $12 million for the years ended December 31, 2011, 2010 and 2009, respectively. This new guidance results in lower amortization and fewer deferred costs, specifically related to underwriting, inspection and processing for contracts that are not issued, as well as marketing and customer solicitation.

Effective January 1, 2012, we changed our treatment of the liability for future policy benefits for our level premium term life insurance products when the liability for a policy falls below zero. Previously, the total liability for future policy benefits included negative reserves calculated at an individual policy level. Through

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2010, we issued level premium term life insurance policies whose premiums are contractually determined to be level through a period of time and then increase thereafter. Our previous accounting policy followed the accounting for traditional, long-duration insurance contracts where the reserves are calculated as the present value of expected benefit payments minus the present value of net premiums based on assumptions determined on the policy issuance date including mortality, interest, and lapse rates. This accounting has the effect of causing profits to emerge as a level percentage of premiums, subject to differences in assumed versus actual experience which flow through income as they occur, and for products with an increasing premium stream, such as the level premium term life insurance product, may result in negative reserves for a given policy.

More recent insurance-specific accounting guidance reflects a different accounting philosophy, emphasizing the balance sheet over the income statement, or matching, focus which was the philosophy in place when the traditional, long-duration insurance contract guidance was issued (the accounting model for traditional, long-duration insurance contracts draws upon the principles of matching and conservatism originating in the 1970’s, and does not specifically address negative reserves). More recent accounting models for long-duration contracts specifically prohibit negative reserves, e.g., non-traditional contracts with annuitization benefits and certain participating contracts. These recent accounting models do not impact the reserving for our level premium term life insurance products.

We believe that industry accounting practices for level premium term life insurance product reserving is mixed with some companies “flooring” reserves at zero and others applying our previous accounting policy described above. In 2010, we stopped issuing new level premium term life insurance policies. Thus, as the level premium term policies reach the end of their level premium term periods, the portion of policies with negative reserves in relation to the reserve for all level premium term life insurance products will continue to increase. Our new method of accounting floors the liability for future policy benefits on each level premium term life insurance policy at zero. We believe that flooring reserves at zero is preferable in our circumstances as this alternative accounting policy will not allow negative reserves to accumulate on the balance sheet for this closed block of insurance policies. In implementing this change in accounting, no changes were made to the assumptions that were locked-in at policy inception. We implemented this accounting change retrospectively, which reduced retained earnings and stockholders’ equity by $110 million as of January 1, 2011, and reduced net income (loss) by $10 million, $4 million and $32 million for the years ended December 31, 2011, 2010 and 2009, respectively.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the balance sheet as of December 31, 2011 reflecting the impact of the accounting changes that were retrospectively adopted on January 1, 2012:


(Amounts in millions)	As Originally Reported			Effect of DAC Change			Effect of Reserve Change			As Adjusted
Assets
Total investments	$	71,904		$	—		$	—		$	71,904
Cash and cash equivalents		4,488			—			—			4,488
Accrued investment income		691			—			—			691
Deferred acquisition costs		7,327			(2,134	)		—			5,193
Intangible assets		577			3			—			580
Goodwill		1,253			—			—			1,253
Reinsurance recoverable		16,982			—			16			16,998
Other assets		958			—			—			958
Separate account assets		10,122			—			—			10,122

Total assets	$	114,302		$	(2,131	)	$	16		$	112,187

Liabilities and stockholders’ equity
Liabilities:
Future policy benefits	$	31,971		$	3		$	201		$	32,175
Policyholder account balances		26,345			—			—			26,345
Liability for policy and contract claims		7,620			—			—			7,620
Unearned premiums		4,257			(34	)		—			4,223
Other liabilities		6,308			—			—			6,308
Borrowings related to securitization entities		396			—			—			396
Non-recourse funding obligations		3,256			—			—			3,256
Long-term borrowings		4,726			—			—			4,726
Deferred tax liability		1,636			(733	)		(65	)		838
Separate account liabilities		10,122			—			—			10,122

Total liabilities		96,637			(764	)		136			96,009

Stockholders’ equity:
Class A common stock		1			—			—			1
Additional paid-in capital		12,124			12			—			12,136
Accumulated other comprehensive income (loss):
Net unrealized investment gains (losses):
Net unrealized gains (losses) on securities not other-than-temporarily impaired		1,586			31			—			1,617
Net unrealized gains (losses) on other-than-temporarily impaired securities		(132	)		—			—			(132	)

Net unrealized investment gains (losses)		1,454			31			—			1,485

Derivatives qualifying as hedges		2,009			—			—			2,009
Foreign currency translation and other adjustments		558			(5	)		—			553

Total accumulated other comprehensive income (loss)		4,021			26			—			4,047
Retained earnings		3,095			(1,391	)		(120	)		1,584
Treasury stock, at cost		(2,700	)		—			—			(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity		16,541			(1,353	)		(120	)		15,068
Noncontrolling interests		1,124			(14	)		—			1,110

Total stockholders’ equity		17,665			(1,367	)		(120	)		16,178

Total liabilities and stockholders’ equity	$	114,302		$	(2,131	)	$	16		$	112,187

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the income statement for the three months ended March 31, 2011 reflecting the impact of the accounting changes that were retrospectively adopted on January 1, 2012:


(Amounts in millions)	As Originally Reported			Effect of DAC Change			Effect of Reserve Change			As Adjusted
Revenues:
Premiums	$	1,437		$	—		$	—		$	1,437
Net investment income		830			—			—			830
Net investment gains (losses)		(28	)		—			—			(28	)
Insurance and investment product fees and other		329			—			—			329

Total revenues		2,568			—			—			2,568

Benefits and expenses:
Benefits and other changes in policy reserves		1,409			—			4			1,413
Interest credited		201			—			—			201
Acquisition and operating expenses, net of deferrals		500			63			—			563
Amortization of deferred acquisition costs and intangibles		185			(34	)		—			151
Interest expense		127			—			—			127

Total benefits and expenses		2,422			29			4			2,455

Income before income taxes		146			(29	)		(4	)		113
Provision for income taxes		30			(9	)		(1	)		20

Net income		116			(20	)		(3	)		93
Less: net income attributable to noncontrolling interests		34			—			—			34

Net income available to Genworth Financial, Inc.’s common stockholders	$	82		$	(20	)	$	(3	)	$	59

The following table presents the cash flows from operating activities for the three months ended March 31, 2011 reflecting the impact of the accounting changes that were retrospectively adopted on January 1, 2012:


(Amounts in millions)	As Originally Reported			Effect of DAC Change			Effect of Reserve Change			As Adjusted
Cash flows from operating activities:
Net income	$	116		$	(20	)	$	(3	)	$	93
Adjustments to reconcile net income to net cash from operating activities:
Amortization of fixed maturity discounts and premiums and limited partnerships		(18	)		—			—			(18	)
Net investment losses		28			—			—			28
Charges assessed to policyholders		(159	)		—			—			(159	)
Acquisition costs deferred		(229	)		63			—			(166	)
Amortization of deferred acquisition costs and intangibles		185			(34	)		—			151
Deferred income taxes		(37	)		(9	)		(1	)		(47	)
Net increase in trading securities, held-for-sale investments and derivative instruments		35			—			—			35
Stock-based compensation expense		7			—			—			7
Change in certain assets and liabilities:
Accrued investment income and other assets		(117	)		—			—			(117	)
Insurance reserves		557			—			4			561
Current tax liabilities		25			—			—			25
Other liabilities and policy-related balances		(57	)		—			—			(57	)

Net cash from operating activities	$	336		$	—		$	—		$	336

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the balance sheet as of March 31, 2012 to reflect the impact of the accounting change related to reserves that was adopted on January 1, 2012:


(Amounts in millions)	As Reported Under New Policy			As Computed Under Previous Policy			Effect of Change
Assets
Total investments	$	70,328		$	70,328		$	—
Cash and cash equivalents		4,187			4,187			—
Accrued investment income		759			759			—
Deferred acquisition costs		5,060			5,060			—
Intangible assets		573			573			—
Goodwill		1,256			1,256			—
Reinsurance recoverable		17,193			17,177			16
Other assets		981			981			—
Separate account assets		10,646			10,646			—

Total assets	$	110,983		$	110,967		$	16

Liabilities and stockholders’ equity
Liabilities:
Future policy benefits	$	32,380		$	32,172		$	208
Policyholder account balances		26,204			26,204			—
Liability for policy and contract claims		7,663			7,663			—
Unearned premiums		4,209			4,209			—
Other liabilities		5,308			5,308			—
Borrowings related to securitization entities		383			383			—
Non-recourse funding obligations		2,602			2,602			—
Long-term borrowings		5,095			5,095			—
Deferred tax liability		610			677			(67	)
Separate account liabilities		10,646			10,646			—

Total liabilities		95,100			94,959			141

Stockholders’ equity:
Class A common stock		1			1			—
Additional paid-in capital		12,150			12,150			—
Accumulated other comprehensive income (loss):
Net unrealized investment gains (losses):
Net unrealized gains (losses) on securities not other-than-temporarily impaired		1,438			1,438			—
Net unrealized gains (losses) on other-than-temporarily impaired securities		(111	)		(111	)		—

Net unrealized investment gains (losses)		1,327			1,327			—

Derivatives qualifying as hedges		1,680			1,680			—
Foreign currency translation and other adjustments		649			649			—

Total accumulated other comprehensive income (loss)		3,656			3,656			—
Retained earnings		1,631			1,756			(125	)
Treasury stock, at cost		(2,700	)		(2,700	)		—

Total Genworth Financial, Inc.’s stockholders’ equity		14,738			14,863			(125	)
Noncontrolling interests		1,145			1,145			—

Total stockholders’ equity		15,883			16,008			(125	)

Total liabilities and stockholders’ equity	$	110,983		$	110,967		$	16

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the income statement for the three months ended March 31, 2012 to reflect the impact of the accounting change related to reserves that was adopted on January 1, 2012:


(Amounts in millions)	As Reported Under New Policy		As Computed Under Previous Policy		Effect of Change
Revenues:
Premiums	$	1,107	$	1,107	$	—
Net investment income		832		832		—
Net investment gains (losses)		35		35		—
Insurance and investment product fees and other		452		452		—

Total revenues		2,426		2,426		—

Benefits and expenses:
Benefits and other changes in policy reserves		1,232		1,225		(7	)
Interest credited		195		195		—
Acquisition and operating expenses, net of deferrals		530		530		—
Amortization of deferred acquisition costs and intangibles		272		272		—
Interest expense		95		95		—

Total benefits and expenses		2,324		2,317		(7	)

Income before income taxes		102		109		(7	)
Provision for income taxes		22		24		2

Net income		80		85		(5	)
Less: net income attributable to noncontrolling interests		33		33		—

Net income available to Genworth Financial, Inc.’s common stockholders	$	47	$	52	$	(5	)

The following table presents the net cash flows from operating activities for the three months ended March 31, 2012 to reflect the impact of the accounting change related to reserves that was adopted on January 1, 2012:


(Amounts in millions)	As Reported Under New Policy			As Computed Under Previous Policy			Effect of Change
Cash flows from operating activities:
Net income	$	80		$	85		$	(5	)
Adjustments to reconcile net income to net cash from operating activities:
Amortization of fixed maturity discounts and premiums and limited partnerships		(19	)		(19	)		—
Net investment losses		(35	)		(35	)		—
Charges assessed to policyholders		(187	)		(187	)		—
Acquisition costs deferred		(154	)		(154	)		—
Amortization of deferred acquisition costs and intangibles		272			272			—
Deferred income taxes		26			28			(2	)
Net decrease in trading securities, held-for-sale investments and derivative instruments		(45	)		(45	)		—
Stock-based compensation expense		9			9			—
Change in certain assets and liabilities:
Accrued investment income and other assets		(112	)		(112	)		—
Insurance reserves		369			362			7
Current tax liabilities		(86	)		(86	)		—
Other liabilities and policy-related balances		(370	)		(370	)		—

Net cash from operating activities	$	(252	)	$	(252	)	$	—

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accounting Pronouncements Not Yet Adopted

In December 2011, the FASB issued new accounting guidance for disclosures about offsetting assets and liabilities. The new guidance requires an entity to disclose information about offsetting and related arrangements to enable users to understand the effect of those arrangements on its financial position. These new disclosure requirements will be effective for us on January 1, 2013 and are not expected to have a material impact on our consolidated financial statements.

(3) Earnings Per Share

Basic and diluted earnings per share are calculated by dividing each income category presented below by the weighted-average basic and diluted shares outstanding for the periods indicated:


	Three months ended March 31,
(Amounts in millions, except per share amounts)	2012		2011
Net income	$	80	$	93
Less: net income attributable to noncontrolling interests		33		34

Net income available to Genworth Financial, Inc.’s common stockholders	$	47	$	59

Basic per common share:
Net income	$	0.16	$	0.19
Less: net income attributable to noncontrolling interests		0.07		0.07

Net income available to Genworth Financial, Inc.’s common stockholders ⁽¹⁾	$	0.09	$	0.12

Diluted per common share:
Net income	$	0.16	$	0.19
Less: net income attributable to noncontrolling interests		0.07		0.07

Net income available to Genworth Financial, Inc.’s common stockholders ⁽¹⁾	$	0.09	$	0.12

Weighted-average shares used in basic earnings per common share calculations		491.2		490.1
Potentially dilutive securities:
Stock options, restricted stock units and stock appreciation rights		4.5		4.3

Weighted-average shares used in diluted earnings per common share calculations		495.7		494.4

⁽¹⁾	May not total due to whole number calculation.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(4) Investments

(a) Net Investment Income

Sources of net investment income were as follows for the periods indicated:


	Three months ended March 31,
(Amounts in millions)	2012			2011
Fixed maturity securities—taxable	$	660		$	670
Fixed maturity securities—non-taxable		4			11
Commercial mortgage loans		84			92
Restricted commercial mortgage loans related to securitization entities		9			10
Equity securities		4			3
Other invested assets		53			34
Policy loans		31			29
Cash, cash equivalents and short-term investments		10			6

Gross investment income before expenses and fees		855			855
Expenses and fees		(23	)		(25	)

Net investment income	$	832		$	830

(b) Net Investment Gains (Losses)

The following table sets forth net investment gains (losses) for the periods indicated:


	Three months ended March 31,
(Amounts in millions)	2012			2011
Available-for-sale securities:
Realized gains	$	63		$	29
Realized losses		(46	)		(31	)

Net realized gains (losses) on available-for-sale securities		17			(2	)

Impairments:
Total other-than-temporary impairments		(16	)		(31	)
Portion of other-than-temporary impairments included in other comprehensive income (loss)		(1	)		(5	)

Net other-than-temporary impairments		(17	)		(36	)

Trading securities		(25	)		11
Commercial mortgage loans		2			(1	)
Net gains (losses) related to securitization entities		34			10
Derivative instruments ⁽¹⁾		26			(10	)
Contingent purchase price valuation change		(2	)		—

Net investment gains (losses)	$	35		$	(28	)

⁽¹⁾	See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses).

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We generally intend to hold securities in unrealized loss positions until they recover. However, from time to time, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, we sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield and liquidity requirements. If a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we determined that we have the intent to sell the securities or it is more likely than not that we will be required to sell the securities prior to recovery. The aggregate fair value of securities sold at a loss during the periods ended March 31, 2012 and 2011 was $357 million and $397 million, respectively, which was approximately 90% and 94%, respectively, of book value.

The following represents the activity for credit losses recognized in net income on debt securities where an other-than-temporary impairment was identified and a portion of other-than-temporary impairments was included in OCI as of and for the three months ended March 31:


(Amounts in millions)	2012			2011
Beginning balance	$	646		$	784
Additions:
Other-than-temporary impairments not previously recognized		2			3
Increases related to other-than-temporary impairments previously recognized		13			31
Reductions:
Securities sold, paid down or disposed		(51	)		(63	)

Ending balance	$	610		$	755

(c) Unrealized Investment Gains and Losses

Net unrealized gains and losses on available-for-sale investment securities reflected as a separate component of accumulated other comprehensive income (loss) were as follows as of the dates indicated:


(Amounts in millions)	March 31, 2012			December 31, 2011
Net unrealized gains (losses) on investment securities:
Fixed maturity securities	$	3,515		$	3,742
Equity securities		14			5
Other invested assets		(24	)		(30	)

Subtotal		3,505			3,717
Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves		(1,348	)		(1,303	)
Income taxes, net		(747	)		(840	)

Net unrealized investment gains (losses)		1,410			1,574
Less: net unrealized investment gains (losses) attributable to noncontrolling interests		83			89

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	$	1,327		$	1,485

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The change in net unrealized gains (losses) on available-for-sale investment securities reported in accumulated other comprehensive income (loss) was as follows as of and for the three months ended March 31:


(Amounts in millions)	2012			2011
Beginning balance	$	1,485		$	(80	)
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities		(212	)		12
Adjustment to deferred acquisition costs		(47	)		(17	)
Adjustment to present value of future profits		11			(1	)
Adjustment to sales inducements		(10	)		(4	)
Adjustment to benefit reserves		1			63
Provision for income taxes		93			(21	)

Change in unrealized gains (losses) on investment securities		(164	)		32
Reclassification adjustments to net investment (gains) losses, net of taxes of $— and $(13)		—			25

Change in net unrealized investment gains (losses)		(164	)		57
Less: change in net unrealized investment (gains) losses attributable to noncontrolling interests		6			9

Ending balance	$	1,327		$	(14	)

(d) Fixed Maturity and Equity Securities

As of March 31, 2012, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:


			Gross unrealized gains				Gross unrealized losses
(Amounts in millions)	Amortized cost or cost		Not other-than- temporarily impaired		Other-than- temporarily impaired		Not other- than- temporarily impaired			Other-than- temporarily impaired			Fair value
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	3,893	$	687	$	—	$	(6	)	$	—		$	4,574
Tax-exempt		379		13		—		(51	)		—			341
Government—non-U.S.		2,103		189		—		(1	)		—			2,291
U.S. corporate		23,121		2,283		17		(213	)		(1	)		25,207
Corporate—non-U.S.		13,760		807		—		(125	)		—			14,442
Residential mortgage-backed		5,807		436		9		(235	)		(165	)		5,852
Commercial mortgage-backed		3,407		137		5		(161	)		(42	)		3,346
Other asset-backed		2,544		25		—		(88	)		(2	)		2,479

Total fixed maturity securities		55,014		4,577		31		(880	)		(210	)		58,532
Equity securities		419		22		—		(7	)		—			434

Total available-for-sale securities	$	55,433	$	4,599	$	31	$	(887	)	$	(210	)	$	58,966

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of December 31, 2011, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:


			Gross unrealized gains				Gross unrealized losses
(Amounts in millions)	Amortized cost or cost		Not other-than- temporarily impaired		Other-than- temporarily impaired		Not other-than- temporarily impaired			Other-than- temporarily impaired			Fair value
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	3,946	$	918	$	—	$	(1	)	$	—		$	4,863
Tax-exempt		564		15		—		(76	)		—			503
Government—non-U.S.		2,017		196		—		(2	)		—			2,211
U.S. corporate		23,024		2,542		18		(325	)		(1	)		25,258
Corporate—non-U.S.		13,156		819		—		(218	)		—			13,757
Residential mortgage- backed		5,695		446		9		(252	)		(203	)		5,695
Commercial mortgage- backed		3,470		157		4		(179	)		(52	)		3,400
Other asset-backed		2,686		18		—		(95	)		(1	)		2,608

Total fixed maturity securities		54,558		5,111		31		(1,148	)		(257	)		58,295
Equity securities		356		19		—		(14	)		—			361

Total available-for-sale securities	$	54,914	$	5,130	$	31	$	(1,162	)	$	(257	)	$	58,656

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the gross unrealized losses and fair values of our investment securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, as of March 31, 2012:


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses ⁽¹⁾			Number of securities		Fair value		Gross unrealized losses ⁽²⁾			Number of securities
Description of Securities
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	247	$	(6	)		19	$	—	$	—			—	$	247	$	(6	)		19
Tax-exempt		—		—			—		152		(51	)		31		152		(51	)		31
Government—non-U.S.		131		(1	)		29		—		—			—		131		(1	)		29
U.S. corporate		1,428		(36	)		170		1,274		(178	)		113		2,702		(214	)		283
Corporate—non-U.S.		1,040		(35	)		132		691		(90	)		59		1,731		(125	)		191
Residential mortgage-backed		261		(3	)		58		716		(397	)		352		977		(400	)		410
Commercial mortgage-backed		277		(18	)		42		857		(185	)		159		1,134		(203	)		201
Other asset-backed		257		(3	)		38		273		(87	)		30		530		(90	)		68

Subtotal, fixed maturity securities		3,641		(102	)		488		3,963		(988	)		744		7,604		(1,090	)		1,232
Equity securities		110		(6	)		52		18		(1	)		17		128		(7	)		69

Total for securities in an unrealized loss position	$	3,751	$	(108	)		540	$	3,981	$	(989	)		761	$	7,732	$	(1,097	)		1,301

% Below cost—fixed maturity securities:
<20% Below cost	$	3,619	$	(87	)		465	$	2,767	$	(255	)		399	$	6,386	$	(342	)		864
20%-50% Below cost		21		(9	)		12		1,084		(474	)		228		1,105		(483	)		240
>50% Below cost		1		(6	)		11		112		(259	)		117		113		(265	)		128

Total fixed maturity securities		3,641		(102	)		488		3,963		(988	)		744		7,604		(1,090	)		1,232

% Below cost—equity securities:
<20% Below cost		93		(2	)		48		18		(1	)		17		111		(3	)		65
20%-50% Below cost		17		(4	)		4		—		—			—		17		(4	)		4

Total equity securities		110		(6	)		52		18		(1	)		17		128		(7	)		69

Total for securities in an unrealized loss position	$	3,751	$	(108	)		540	$	3,981	$	(989	)		761	$	7,732	$	(1,097	)		1,301


Investment grade	$	3,414	$	(84	)		416	$	2,726	$	(407	)		372	$	6,140	$	(491	)		788
Below investment grade ⁽³⁾		337		(24	)		124		1,255		(582	)		389		1,592		(606	)		513

Total for securities in an unrealized loss position	$	3,751	$	(108	)		540	$	3,981	$	(989	)		761	$	7,732	$	(1,097	)		1,301

⁽¹⁾	Amounts included $202 million of unrealized losses on other-than-temporarily impaired securities.

⁽²⁾	Amounts included $210 million of unrealized losses on other-than-temporarily impaired securities.

⁽³⁾	Amounts that have been in a continuous loss position for 12 months or more included $195 million of unrealized losses on other-than-temporarily impaired securities.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As indicated in the table above, the majority of the securities in a continuous unrealized loss position for less than 12 months were investment grade and less than 20% below cost. These unrealized losses were primarily attributable to credit spreads that have widened since acquisition for corporate securities across various industry sectors, including finance and insurance as well as consumer–non-cyclical. For securities that have been in a continuous unrealized loss for less than 12 months, the average fair value percentage below cost was approximately 3% as of March 31, 2012.

Fixed Maturity Securities In A Continuous Unrealized Loss Position For 12 Months Or More

Of the $255 million of unrealized losses on fixed maturity securities in a continuous unrealized loss for 12 months or more that were less than 20% below cost, the weighted-average rating was “BBB” and approximately 75% of the unrealized losses were related to investment grade securities as of March 31, 2012. These unrealized losses were attributable to the widening of credit spreads for these securities since acquisition, primarily associated with corporate securities in the finance and insurance sector as well as mortgage-backed and asset-backed securities. The average fair value percentage below cost for these securities was approximately 8% as of March 31, 2012. See below for additional discussion related to fixed maturity securities that have been in a continuous loss position for 12 months or more with a fair value that was more than 20% below cost.

The following tables present the concentration of gross unrealized losses and fair values of fixed maturity securities that were more than 20% below cost and in a continuous loss position for 12 months or more by asset class as of March 31, 2012:


	Investment Grade
	20% to 50%										Greater than 50%
(Dollar amounts in millions)	Fair value		Gross unrealized losses			% of total gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			% of total gross unrealized losses			Number of securities
Fixed maturity securities:
Tax-exempt	$	118	$	(46	)		4	%		13	$	—	$	—			—	%		—
U.S. corporate		203		(63	)		6			10		—		—			—			—
Corporate—non-U.S.		104		(40	)		3			13		—		—			—			—
Structured securities:
Residential mortgage-backed		35		(17	)		2			16		11		(25	)		2			12
Commercial mortgage-backed		43		(16	)		1			12		1		(1	)		—			1
Other asset-backed		18		(7	)		1			3		—		—			—			—

Total structured securities		96		(40	)		4			31		12		(26	)		2			13

Total	$	521	$	(189	)		17	%		67	$	12	$	(26	)		2	%		13

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Below Investment Grade
	20% to 50%										Greater than 50%
(Dollar amounts in millions)	Fair value		Gross unrealized losses			% of total gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			% of total gross unrealized losses			Number of securities
Fixed maturity securities:
U.S. corporate	$	108	$	(39	)		4	%		12	$	—	$	—			—	%		—
Structured securities:
Residential mortgage-backed		256		(141	)		13			110		71		(183	)		17			87
Commercial mortgage-backed		129		(55	)		5			35		19		(34	)		3			14
Other asset-backed		70		(50	)		4			4		10		(16	)		1			3

Total structured securities		455		(246	)		22			149		100		(233	)		21			104

Total	$	563	$	(285	)		26	%		161	$	100	$	(233	)		21	%		104

For all securities in an unrealized loss position, we expect to recover the amortized cost based on our estimate of cash flows to be collected. We do not intend to sell and it is not more likely than not that we will be required to sell these securities prior to recovering our amortized cost. See below for further discussion of gross unrealized losses by asset class.

Tax-Exempt Securities

As indicated in the table above, $46 million of gross unrealized losses were related to tax-exempt securities that have been in a continuous unrealized loss position for more than 12 months and were more than 20% below cost. The unrealized losses for tax-exempt securities represent municipal bonds that were diversified by state as well as municipality or political subdivision within those states. Of these tax-exempt securities, the average unrealized loss was approximately $4 million which represented an average of 28% below cost. The unrealized losses primarily related to widening of credit spreads on these securities since acquisition as a result of higher risk premiums being attributed to these securities from uncertainty in many political subdivisions related to special revenues supporting these obligations as well as certain securities having longer duration that may be viewed as less desirable in the current market place. Additionally, the fair value of certain of these securities has been negatively impacted as a result of having certain bond insurers associated with the security. In our analysis of impairment for these securities, we expect to recover our amortized cost from the cash flows of the underlying securities before any guarantee support. However, the existence of these guarantees may negatively impact the value of the debt security in certain instances. We performed an analysis of these securities and the underlying activities that are expected to support the cash flows and determined we expect to recover our amortized cost.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Corporate Debt Securities

The following tables present the concentration of gross unrealized losses and fair values related to corporate debt fixed maturity securities that were more than 20% below cost and in a continuous loss position for 12 months or more by industry as of March 31, 2012:


	Investment Grade
	20% to 50%										Greater than 50%
(Dollar amounts in millions)	Fair value		Gross unrealized losses			% of total gross unrealized losses			Number of securities		Fair value		Gross unrealized losses		% of total gross unrealized losses			Number of securities
Industry:
Finance and insurance	$	262	$	(90	)		8	%		20	$	—	$	—		—	%		—
Consumer—non-cyclical		31		(9	)		1			1		—		—		—			—
Capital goods		10		(3	)		—			1		—		—		—			—
Technology and communications		4		(1	)		—			1		—		—		—			—

Total	$	307	$	(103	)		9	%		23	$	—	$	—		—	%		—


	Below Investment Grade
	20% to 50%										Greater than 50%
(Dollar amounts in millions)	Fair value		Gross unrealized losses			% of total gross unrealized losses			Number of securities		Fair value		Gross unrealized losses		% of total gross unrealized losses			Number of securities
Industry:
Finance and insurance	$	62	$	(24	)		2	%		3	$	—	$	—		—	%		—
Consumer—non-cyclical		12		(6	)		1			1		—		—		—			—
Consumer-cyclical		2		(1	)		—			6		—		—		—			—
Capital goods		29		(7	)		1			1		—		—		—			—
Transportation		3		(1	)		—			1		—		—		—			—

Total	$	108	$	(39	)		4	%		12	$	—	$	—		—	%		—

Of the total unrealized losses of $142 million for corporate fixed maturity securities presented in the preceding tables, $114 million, or 80%, of the unrealized losses related to issuers in the finance and insurance sector that were 26% below cost on average. Given the current market conditions, including current financial industry events and uncertainty around global economic conditions, the fair value of these debt securities has declined due to credit spreads that have widened since acquisition. In our examination of these securities, we considered all available evidence, including the issuers’ financial condition and current industry events to develop our conclusion on the amount and timing of the cash flows expected to be collected. Based on this evaluation, we determined that the unrealized losses on these debt securities represented temporary impairments as of March 31, 2012. Of the $114 million of unrealized losses related to the finance and insurance industry, $92 million related to financial hybrid securities on which a debt impairment model was employed. Most of our hybrid securities retained a credit rating of investment grade. The fair value of these hybrid securities has been impacted by credit spreads that have widened since acquisition and reflect uncertainty surrounding the extent and duration of government involvement, potential capital restructuring of these institutions, and continued but diminishing risk that income payments may be deferred. We continue to receive our contractual payments and expect to fully recover our amortized cost.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We expect that our investments in corporate securities will continue to perform in accordance with our expectations about the amount and timing of estimated cash flows. Although we do not anticipate such events, it is at least reasonably possible that issuers of our investments in corporate securities will perform worse than current expectations. Such events may lead us to recognize write-downs within our portfolio of corporate securities in the future.

Structured Securities

Of the $545 million of unrealized losses related to structured securities that have been in an unrealized loss position for 12 months or more and were more than 20% below cost, $174 million related to other-than-temporarily impaired securities where the unrealized losses represented the portion of the other-than-temporary impairment recognized in OCI. The extent and duration of the unrealized loss position on our structured securities is due to the ongoing concern and uncertainty about the residential and commercial real estate market and unemployment, resulting in credit spreads that have widened since acquisition. Additionally, the fair value of certain structured securities has been significantly impacted from high risk premiums being incorporated into the valuation as a result of the amount of potential losses that may be absorbed by the security in the event of additional deterioration in the U.S. housing market.

While we considered the length of time each security had been in an unrealized loss position, the extent of the unrealized loss position and any significant declines in fair value subsequent to the balance sheet date in our evaluation of impairment for each of these individual securities, the primary factor in our evaluation of impairment is the expected performance for each of these securities. Our evaluation of expected performance is based on the historical performance of the associated securitization trust as well as the historical performance of the underlying collateral. Our examination of the historical performance of the securitization trust included consideration of the following factors for each class of securities issued by the trust: i) the payment history, including failure to make scheduled payments; ii) current payment status; iii) current and historical outstanding balances; iv) current levels of subordination and losses incurred to date; and v) characteristics of the underlying collateral. Our examination of the historical performance of the underlying collateral included: i) historical default rates, delinquency rates, voluntary and involuntary prepayments and severity of losses, including recent trends in this information; ii) current payment status; iii) loan to collateral value ratios, as applicable; iv) vintage; and v) other underlying characteristics such as current financial condition.

We used our assessment of the historical performance of both the securitization trust and the underlying collateral for each security, along with third-party sources, when available, to develop our best estimate of cash flows expected to be collected. These estimates reflect projections for future delinquencies, prepayments, defaults and losses for the assets that collateralize the securitization trust and are used to determine the expected cash flows for our security, based on the payment structure of the trust. Our projection of expected cash flows is primarily based on the expected performance of the underlying assets that collateralize the securitization trust and is not directly impacted by the rating of our security. While we consider the rating of the security as an indicator of the financial condition of the issuer, this factor does not have a significant impact on our expected cash flows for each security. In limited circumstances, our expected cash flows include expected payments from reliable financial guarantors where we believe the financial guarantor will have sufficient assets to pay claims under the financial guarantee when the cash flows from the securitization trust are not sufficient to make scheduled payments. We then discount the expected cash flows using the effective yield of each security to determine the present value of expected cash flows.

Based on this evaluation, the present value of expected cash flows was greater than or equal to the amortized cost for each security. Accordingly, we determined that the unrealized losses on each of our structured securities represented temporary impairments as of March 31, 2012.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Despite the considerable analysis and rigor employed on our structured securities, it is at least reasonably possible that the underlying collateral of these investments will perform worse than current market expectations. Such events may lead to adverse changes in cash flows on our holdings of structured securities and future write-downs within our portfolio of structured securities.


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses ⁽¹⁾			Number of securities		Fair value		Gross unrealized losses ⁽²⁾			Number of securities
Description of Securities
U.S. government, agencies and government-sponsored enterprises	$	160	$	(1	)		2	$	—	$	—			—	$	160	$	(1	)		2
Tax-exempt		—		—			—		230		(76	)		72		230		(76	)		72
Government—non-U.S.		90		(1	)		25		8		(1	)		8		98		(2	)		33
U.S. corporate		1,721		(68	)		175		1,416		(258	)		136		3,137		(326	)		311
Corporate—non-U.S.		1,475		(86	)		188		705		(132	)		75		2,180		(218	)		263
Residential mortgage-backed		276		(5	)		68		727		(450	)		359		1,003		(455	)		427
Commercial mortgage-backed		282		(36	)		49		831		(195	)		159		1,113		(231	)		208
Other asset-backed		623		(3	)		83		309		(93	)		35		932		(96	)		118

Subtotal, fixed maturity securities		4,627		(200	)		590		4,226		(1,205	)		844		8,853		(1,405	)		1,434
Equity securities		92		(11	)		39		25		(3	)		13		117		(14	)		52

Total for securities in an unrealized loss position	$	4,719	$	(211	)		629	$	4,251	$	(1,208	)		857	$	8,970	$	(1,419	)		1,486

% Below cost—fixed maturity securities:
<20% Below cost	$	4,545	$	(156	)		548	$	2,758	$	(252	)		435	$	7,303	$	(408	)		983
20%-50% Below cost		78		(30	)		27		1,335		(653	)		283		1,413		(683	)		310
>50% Below cost		4		(14	)		15		133		(300	)		126		137		(314	)		141

Total fixed maturity securities		4,627		(200	)		590		4,226		(1,205	)		844		8,853		(1,405	)		1,434

% Below cost—equity securities:
<20% Below cost		80		(6	)		36		21		(1	)		12		101		(7	)		48
20%-50% Below cost		12		(5	)		3		4		(2	)		1		16		(7	)		4

Total equity securities		92		(11	)		39		25		(3	)		13		117		(14	)		52

Total for securities in an unrealized loss position	$	4,719	$	(211	)		629	$	4,251	$	(1,208	)		857	$	8,970	$	(1,419	)		1,486


Investment grade	$	4,292	$	(165	)		502	$	3,066	$	(577	)		479	$	7,358	$	(742	)		981
Below investment grade ⁽³⁾		427		(46	)		127		1,185		(631	)		378		1,612		(677	)		505

Total for securities in an unrealized loss position	$	4,719	$	(211	)		629	$	4,251	$	(1,208	)		857	$	8,970	$	(1,419	)		1,486

⁽¹⁾	Amounts included $248 million of unrealized losses on other-than-temporarily impaired securities.

⁽²⁾	Amounts included $257 million of unrealized losses on other-than-temporarily impaired securities.

⁽³⁾	Amounts that have been in a continuous loss position for 12 months or more included $235 million of unrealized losses on other-than-temporarily impaired securities.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The scheduled maturity distribution of fixed maturity securities as of March 31, 2012 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.


(Amounts in millions)	Amortized cost or cost		Fair value
Due one year or less	$	2,925	$	2,958
Due after one year through five years		10,803		11,183
Due after five years through ten years		10,305		11,066
Due after ten years		19,223		21,648

Subtotal		43,256		46,855
Residential mortgage-backed		5,807		5,852
Commercial mortgage-backed		3,407		3,346
Other asset-backed		2,544		2,479

Total	$	55,014	$	58,532

As of March 31, 2012, $4,416 million of our investments (excluding mortgage-backed and asset-backed securities) were subject to certain call provisions.

As of March 31, 2012, securities issued by utilities and energy, finance and insurance, and consumer—non-cyclical industry groups represented approximately 23%, 21% and 12% of our domestic and foreign corporate fixed maturity securities portfolio, respectively. No other industry group comprised more than 10% of our investment portfolio. This portfolio is widely diversified among various geographic regions in the United States and internationally, and is not dependent on the economic stability of one particular region.

As of March 31, 2012, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of stockholders’ equity.

(e) Commercial Mortgage Loans

Our mortgage loans are collateralized by commercial properties, including multi-family residential buildings. The carrying value of commercial mortgage loans is stated at original cost net of prepayments, amortization and allowance for loan losses.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We diversify our commercial mortgage loans by both property type and geographic region. The following tables set forth the distribution across property type and geographic region for commercial mortgage loans as of the dates indicated:


	March 31, 2012						December 31, 2011
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Property type:
Retail	$	1,907			31	%	$	1,898			31	%
Industrial		1,688			28			1,707			28
Office		1,553			26			1,590			26
Apartments		626			10			641			10
Mixed use/other		302			5			304			5

Subtotal		6,076			100	%		6,140			100	%

Unamortized balance of loan origination fees and costs		3						3
Allowance for losses		(49	)					(51	)

Total	$	6,030					$	6,092


	March 31, 2012					December 31, 2011
(Amounts in millions)	Carrying value		% of total			Carrying value		% of total
Geographic region:
South Atlantic	$	1,629		27	%	$	1,631		27

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Accelerated filer

Non-accelerated filer

Smaller reporting company