Edgar Filing: GENWORTH FINANCIAL INC

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

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 September 30, 2015

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

For the transition period from to

Commission file number 001-32195

LOGO

GENWORTH FINANCIAL, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		80-0873306
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

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

(804) 281-6000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 October 26, 2015, 497,464,957 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 September 30, 2015 and December 31, 2014 (Unaudited)			3
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2015 and 2014 (Unaudited)			4
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and 2014 (Unaudited)			5
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2015 and 2014 (Unaudited)			6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 (Unaudited)			7
Notes to Condensed Consolidated Financial Statements (Unaudited)			8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		100

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		190

Item 4.	Controls and Procedures		190

PART II—OTHER INFORMATION			191

Item 1.	Legal Proceedings		191

Item 1A.	Risk Factors		191

Item 6.	Exhibits		194

Signatures			195

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except per share amounts)

(Unaudited)


	September 30, 2015			December 31, 2014
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value	$	60,851		$	61,276
Equity securities available-for-sale, at fair value		273			275
Commercial mortgage loans		6,133			6,100
Restricted commercial mortgage loans related to securitization entities		175			201
Policy loans		1,567			1,501
Other invested assets		2,773			2,244
Restricted other invested assets related to securitization entities, at fair value		412			411

Total investments		72,184			72,008
Cash and cash equivalents		3,666			4,716
Accrued investment income		685			664
Deferred acquisition costs		4,437			4,849
Intangible assets		284			250
Goodwill		14			16
Reinsurance recoverable		17,276			17,314
Other assets		577			524
Separate account assets		7,893			9,208
Assets held for sale related to discontinued operations		1,206			1,809

Total assets	$	108,222		$	111,358

Liabilities and stockholders’ equity
Liabilities:
Future policy benefits	$	36,472		$	35,915
Policyholder account balances		26,000			26,032
Liability for policy and contract claims		8,065			7,937
Unearned premiums		3,340			3,547
Other liabilities ($42 and $45 of other liabilities are related to securitization entities)		3,241			3,282
Borrowings related to securitization entities ($80 and $85 are at fair value)		188			219
Non-recourse funding obligations		1,951			1,996
Long-term borrowings		4,601			4,639
Deferred tax liability		201			858
Separate account liabilities		7,893			9,208
Liabilities held for sale related to discontinued operations		854			928

Total liabilities		92,806			94,561

Commitments and contingencies

Stockholders’ equity:
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 586 million and 585 million shares issued as of September 30, 2015 and December 31, 2014, respectively; 497 million shares outstanding as of September 30, 2015 and December 31, 2014		1			1
Additional paid-in capital		11,944			11,997

Accumulated other comprehensive income (loss):
Net unrealized investment gains (losses):
Net unrealized gains (losses) on securities not other-than-temporarily impaired		1,709			2,431
Net unrealized gains (losses) on other-than-temporarily impaired securities		22			22

Net unrealized investment gains (losses)		1,731			2,453

Derivatives qualifying as hedges		2,130			2,070
Foreign currency translation and other adjustments		(383	)		(77	)

Total accumulated other comprehensive income (loss)		3,478			4,446
Retained earnings		856			1,179
Treasury stock, at cost (88 million shares as of September 30, 2015 and December 31, 2014)		(2,700	)		(2,700	)

Total Genworth Financial, Inc.’s stockholders’ equity		13,579			14,923
Noncontrolling interests		1,837			1,874

Total stockholders’ equity		15,416			16,797

Total liabilities and stockholders’ equity	$	108,222		$	111,358

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 September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Revenues:
Premiums	$	1,145		$	1,210		$	3,422		$	3,486
Net investment income		783			778			2,357			2,345
Net investment gains (losses)		(51	)		(27	)		(59	)		(11	)
Insurance and investment product fees and other		223			229			672			680

Total revenues		2,100			2,190			6,392			6,500

Benefits and expenses:
Benefits and other changes in policy reserves		1,290			1,934			3,714			4,282
Interest credited		179			185			540			552
Acquisition and operating expenses, net of deferrals		314			284			876			839
Amortization of deferred acquisition costs and intangibles		563			113			759			325
Goodwill impairment		—			550			—			550
Interest expense		105			104			315			327

Total benefits and expenses		2,451			3,170			6,204			6,875

Income (loss) from continuing operations before income taxes		(351	)		(980	)		188			(375	)
Provision (benefit) for income taxes		(134	)		(187	)		27			(16	)

Income (loss) from continuing operations		(217	)		(793	)		161			(359	)
Income (loss) from discontinued operations, net of taxes		(21	)		6			(334	)		19

Net loss		(238	)		(787	)		(173	)		(340	)
Less: net income attributable to noncontrolling interests		46			57			150			144

Net loss available to Genworth Financial, Inc.’s common stockholders	$	(284	)	$	(844	)	$	(323	)	$	(484	)

Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders per common share:
Basic	$	(0.53	)	$	(1.71	)	$	0.02		$	(1.01	)

Diluted	$	(0.53	)	$	(1.71	)	$	0.02		$	(1.01	)

Net loss available to Genworth Financial, Inc.’s common stockholders per common share:
Basic	$	(0.57	)	$	(1.70	)	$	(0.65	)	$	(0.98	)

Diluted	$	(0.57	)	$	(1.70	)	$	(0.65	)	$	(0.98	)

Weighted-average common shares outstanding:
Basic		497.4			496.6			497.3			496.4

Diluted		497.4			496.6			499.0			496.4

Supplemental disclosures:
Total other-than-temporary impairments	$	(10	)	$	(13	)	$	(13	)	$	(16	)
Portion of other-than-temporary impairments included in other comprehensive income (loss)		1			7			1			7

Net other-than-temporary impairments		(9	)		(6	)		(12	)		(9	)
Other investments gains (losses)		(42	)		(21	)		(47	)		(2	)

Total net investment gains (losses)	$	(51	)	$	(27	)	$	(59	)	$	(11	)

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Net loss	$	(238	)	$	(787	)	$	(173	)	$	(340	)

Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities not other-than-temporarily impaired		87			(68	)		(728	)		1,171
Net unrealized gains (losses) on other-than-temporarily impaired securities		—			1			—			8
Derivatives qualifying as hedges		217			101			60			434
Foreign currency translation and other adjustments		(302	)		(379	)		(619	)		(252	)

Total other comprehensive income (loss)		2			(345	)		(1,287	)		1,361

Total comprehensive income (loss)		(236	)		(1,132	)		(1,460	)		1,021
Less: comprehensive income (loss) attributable to noncontrolling interests		(121	)		(61	)		(145	)		56

Total comprehensive income (loss) available to Genworth Financial, Inc.’s common stockholders	$	(115	)	$	(1,071	)	$	(1,315	)	$	965

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, 2014	$	1	$	11,997		$	4,446		$	1,179		$	(2,700	)	$	14,923		$	1,874		$	16,797

Additional sale of subsidiary shares to noncontrolling interests		—		(65	)		24			—			—			(41	)		267			226
Repurchase of subsidiary shares		—		—			—			—			—			—			(17	)		(17	)
Comprehensive income (loss):
Net income (loss)		—		—			—			(323	)		—			(323	)		150			(173	)
Net unrealized gains (losses) on securities not other-than-temporarily impaired		—		—			(708	)		—			—			(708	)		(20	)		(728	)
Net unrealized gains (losses) on other-than-temporarily impaired securities		—		—			—			—			—			—			—			—
Derivatives qualifying as hedges		—		—			60			—			—			60			—			60
Foreign currency translation and other adjustments		—		—			(344	)		—			—			(344	)		(275	)		(619	)

Total comprehensive income (loss)																(1,315	)		(145	)		(1,460	)
Dividends to noncontrolling interests		—		—			—			—			—			—			(145	)		(145	)
Stock-based compensation expense and exercises and other		—		12			—			—			—			12			3			15

Balances as of September 30, 2015	$	1	$	11,944		$	3,478		$	856		$	(2,700	)	$	13,579		$	1,837		$	15,416

Balances as of December 31, 2013	$	1	$	12,127		$	2,542		$	2,423		$	(2,700	)	$	14,393		$	1,227		$	15,620

Initial sale of subsidiary shares to noncontrolling interests		—		(145	)		(57	)		—			—			(202	)		713			511
Comprehensive income (loss):
Net income (loss)		—		—			—			(484	)		—			(484	)		144			(340	)
Net unrealized gains (losses) on securities not other-than-temporarily impaired		—		—			1,155			—			—			1,155			16			1,171
Net unrealized gains (losses) on other-than-temporarily impaired securities		—		—			8			—			—			8			—			8
Derivatives qualifying as hedges		—		—			434			—			—			434			—			434
Foreign currency translation and other adjustments		—		—			(148	)		—			—			(148	)		(104	)		(252	)

Total comprehensive income (loss)																965			56			1,021
Dividends to noncontrolling interests		—		—			—			—			—			—			(46	)		(46	)
Stock-based compensation expense and exercises and other		—		9			—			—			—			9			6			15

Balances as of September 30, 2014	$	1	$	11,991		$	3,934		$	1,939		$	(2,700	)	$	15,165		$	1,956		$	17,121

See Notes to Condensed Consolidated Financial Statements

GENWORTH FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)


	Nine months ended September 30,
	2015			2014
Cash flows from operating activities:
Net loss	$	(173	)	$	(340	)
Less (income) loss from discontinued operations, net of taxes		334			(19	)
Adjustments to reconcile net loss to net cash from operating activities:
Amortization of fixed maturity securities discounts and premiums and limited partnerships		(80	)		(97	)
Net investment losses (gains)		59			11
Charges assessed to policyholders		(586	)		(580	)
Acquisition costs deferred		(226	)		(282	)
Amortization of deferred acquisition costs and intangibles		759			325
Goodwill impairment		—			550
Deferred income taxes		(117	)		(186	)
Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments		(247	)		110
Stock-based compensation expense		14			19
Change in certain assets and liabilities:
Accrued investment income and other assets		(133	)		(175	)
Insurance reserves		1,270			1,260
Current tax liabilities		(71	)		(185	)
Other liabilities, policy and contract claims and other policy-related balances		352			731
Cash from operating activities—discontinued operations		3			(2	)

Net cash from operating activities		1,158			1,140

Cash flows from investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities		3,389			3,638
Commercial mortgage loans		640			528
Restricted commercial mortgage loans related to securitization entities		27			24
Proceeds from sales of investments:
Fixed maturity and equity securities		1,333			1,651
Purchases and originations of investments:
Fixed maturity and equity securities		(6,836	)		(7,202	)
Commercial mortgage loans		(678	)		(709	)
Other invested assets, net		(39	)		104
Policy loans, net		23			11
Cash from investing activities—discontinued operations		(22	)		(48	)

Net cash from investing activities		(2,163	)		(2,003	)

Cash flows from financing activities:
Deposits to universal life and investment contracts		1,693			2,201
Withdrawals from universal life and investment contracts		(1,677	)		(1,950	)
Redemption of non-recourse funding obligations		(45	)		(28	)
Proceeds from issuance of long-term debt		150			144
Repayment and repurchase of long-term debt		(120	)		(621	)
Repayment of borrowings related to securitization entities		(26	)		(24	)
Proceeds from sale of subsidiary shares to noncontrolling interests		226			517
Repurchase of subsidiary shares		(17	)		—
Dividends paid to noncontrolling interests		(145	)		(46	)
Other, net		(25	)		(19	)
Cash from financing activities—discontinued operations		(33	)		(25	)

Net cash from financing activities		(19	)		149

Effect of exchange rate changes on cash and cash equivalents (includes $(8) and $(3) related to discontinued operations)		(86	)		(23	)

Net change in cash and cash equivalents		(1,110	)		(737	)
Cash and cash equivalents at beginning of period		4,918			4,214

Cash and cash equivalents at end of period		3,808			3,477
Less cash and cash equivalents of discontinued operations at end of period		142			193

Cash and cash equivalents of continuing operations at end of period	$	3,666		$	3,284

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 Holdings, Inc. (“Genworth Holdings”) (formerly known as Genworth Financial, Inc.) was incorporated in Delaware in 2003 in preparation for an initial public offering of Genworth common stock, which was completed on May 28, 2004. On April 1, 2013, Genworth Holdings completed a holding company reorganization pursuant to which Genworth Holdings became a direct, 100% owned subsidiary of a new public holding company that it had formed. The new public holding company was incorporated in Delaware on December 5, 2012, in connection with the reorganization, under the name Sub XLVI, Inc., and was renamed Genworth Financial, Inc. (“Genworth Financial”) upon the completion of the reorganization.

The accompanying unaudited condensed financial statements include on a consolidated basis the accounts of Genworth Financial and the affiliate companies in which it holds a majority voting interest or where it is the primary beneficiary of a variable interest entity (“VIE”). All intercompany accounts and transactions have been eliminated in consolidation.

References to “Genworth,” the “Company,” “we” or “our” in the accompanying condensed consolidated financial statements and these notes thereto are, unless the context otherwise requires, to Genworth Financial on a consolidated basis.

We have the following operating segments:

•

International Mortgage Insurance. We are a leading provider of mortgage insurance products and related services in Canada and Australia and also participate in select European and other countries. Our products predominantly insure prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. We also selectively 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 being prime-based. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk.

•

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

•

Runoff. The Runoff segment includes the results of non-strategic products which are no longer actively sold. Our non-strategic products primarily include our variable annuity, variable life insurance, institutional, corporate-owned life insurance and other accident and health insurance products. Institutional products consist of funding agreements, funding agreements backing notes (“FABNs”) and guaranteed investment contracts (“GICs”). We no longer offer retail and group variable annuities but continue to service our existing blocks of business.

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

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In June 2015, our Board of Directors approved a transaction to sell our lifestyle protection insurance business, which had previously been designated as a non-core business. As the held-for-sale criteria were satisfied during the second quarter of 2015, we recorded an estimated loss to reduce the carrying value of the business to the fair value less pension settlement costs and closing costs. Our lifestyle protection insurance business, previously the only business in the International Protection segment, has been reported as discontinued operations and its financial position, results of operations and cash flows are separately reported for all periods presented. All prior periods reflected herein have been re-presented on this basis. See note 15 for additional information.

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Preparing financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. These unaudited condensed consolidated financial statements include all adjustments (including normal recurring adjustments) considered necessary by management to present a fair statement of the financial position, results of operations and cash flows for the periods presented. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2014 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

We have revised our condensed consolidated statement of cash flows previously reported in our Quarterly Report on Form 10-Q for the nine months ended September 30, 2014 to reflect a correction related to the calculation of the change in reinsurance recoverable that impacted the lines “insurance reserves” and “other liabilities, policy and contract claims and other policy-related balances.” As a result, the change in insurance reserves decreased by $514 million and the change in other liabilities, policy and contract claims and other policy-related balances increased by $514 million. The revisions had no impact on net cash flows from operating activities or the total change in cash and cash equivalents within our condensed consolidated statement of cash flows. Additionally, there was no impact on our unaudited condensed consolidated balance sheet or unaudited condensed consolidated statement of income.

(2) Accounting Changes

a) Accounting Pronouncements Recently Adopted

On January 1, 2015, we early adopted new accounting guidance related to measuring the financial assets and financial liabilities of a consolidated collateralized financing entity. The guidance addresses the accounting for the measurement difference between the fair value of financial assets and the fair value of financial liabilities of a collateralized financing entity. The new guidance provides an alternative whereby a reporting entity could measure the financial assets and financial liabilities of the collateralized financing entity in its consolidated financial statements using the more observable of the fair values. There was no impact on our consolidated financial statements.

On January 1, 2015, we adopted new accounting guidance related to the accounting for repurchase-to-maturity transactions and repurchase financings. The new guidance changed the accounting for repurchase-to-maturity transactions and repurchase financing such that they were consistent with secured borrowing accounting. In addition, the guidance required new disclosures for all repurchase agreements and securities

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

lending transactions which were effective beginning in the second quarter of 2015. We do not have repurchase-to-maturity transactions, but have repurchase agreements and securities lending transactions that are subject to additional disclosures. This new guidance did not have an impact on our consolidated financial statements but did impact our disclosures.

On January 1, 2015, we adopted new accounting guidance related to the accounting for investments in affordable housing projects that qualify for the low-income housing tax credit. The new guidance permits reporting entities to make an accounting policy election to account for investments in qualified affordable housing projects by amortizing the initial cost of the investment in proportion to the tax benefits received and recognize the net investment performance as a component of income tax expense (called the proportional amortization method) if certain conditions are met. The new guidance requires use of the equity method or cost method for investments in qualified affordable housing projects not accounted for using the proportional amortization method. The adoption of this new guidance did not have a material impact on our consolidated financial statements.

On January 1, 2015, we early adopted new accounting guidance related to the accounting for share-based payment awards when the terms of an award provide that a performance target can be achieved after the requisite service period. The guidance requires that such performance targets should not be reflected in estimating the grant-date fair value of an award, and that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. We have a performance stock unit plan where awards for employees who are retirement eligible can vest on a pro-rata basis upon retirement even if retirement occurs before the performance target is achieved. There was no impact on our consolidated financial statements.

b) Accounting Pronouncement Not Yet Adopted

In May 2015, the Financial Accounting Standards Board (the “FASB”) issued new disclosure requirements for short-duration insurance contracts. The new guidance requires additional disclosures on short-duration policy and contract claims liabilities for incurred and paid claims development, unpaid claims and claims frequency. These new disclosures will be effective for us on December 31, 2016 with early adoption permitted and will only impact our mortgage insurance disclosures.

In April 2015, the FASB issued new guidance related to the presentation of debt issuance costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB issued new guidance further clarifying that companies can make the election to present debt issuance costs related to revolving credit facilities as either an asset or as a direct deduction from the carrying amount of that debt liability. The new guidance related to debt issuance costs are both effective for us on January 1, 2016 and are required to be applied on a retrospective basis. We plan to early adopt this new guidance as of December 31, 2015 and expect approximately $45 million presented in other assets to be deducted from debt liabilities in our consolidated financial statements upon adoption.

In February 2015, the FASB issued new accounting guidance related to consolidation. This guidance primarily impacts limited partnerships and similar legal entities, evaluation of fees paid to a decision maker as a variable interest, the effect of fee arrangements and related parties on the primary beneficiary determination and certain investment funds. This guidance is effective for us on January 1, 2016, with early adoption permitted. While we are in the process of determining the impact of this new guidance, we do not believe the impact will be significant to our consolidated financial statements.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3) Earnings (Loss) Per Share

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


	Three months ended September 30,						Nine months ended September 30,
(Amounts in millions, except per share amounts)	2015			2014			2015			2014
Weighted-average common shares used in basic earnings (loss) per common share calculations		497.4			496.6			497.3			496.4
Potentially dilutive securities:
Stock options, restricted stock units and stock appreciation rights		—			—			1.7			—

Weighted-average common shares used in diluted earnings (loss) per common share calculations ⁽¹⁾		497.4			496.6			499.0			496.4


Income (loss) from continuing operations:
Income (loss) from continuing operations	$	(217	)	$	(793	)	$	161		$	(359	)
Less: income from continuing operations attributable to noncontrolling interests		46			57			150			144

Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders	$	(263	)	$	(850	)	$	11		$	(503	)

Basic per common share	$	(0.53	)	$	(1.71	)	$	0.02		$	(1.01	)

Diluted per common share	$	(0.53	)	$	(1.71	)	$	0.02		$	(1.01	)

Income (loss) from discontinued operations:
Income (loss) from discontinued operations, net of taxes	$	(21	)	$	6		$	(334	)	$	19
Less: income from discontinued operations, net of taxes, attributable to noncontrolling interests		—			—			—			—

Income (loss) from discontinued operations, net of taxes, available to Genworth Financial, Inc.’s common stockholders	$	(21	)	$	6		$	(334	)	$	19

Basic per common share	$	(0.04	)	$	0.01		$	(0.67	)	$	0.04

Diluted per common share	$	(0.04	)	$	0.01		$	(0.67	)	$	0.04

Net income (loss):
Income (loss) from continuing operations	$	(217	)	$	(793	)	$	161		$	(359	)
Income (loss) from discontinued operations, net of taxes		(21	)		6			(334	)		19

Net loss		(238	)		(787	)		(173	)		(340	)
Less: net income attributable to noncontrolling interests		46			57			150			144

Net loss available to Genworth Financial, Inc.’s common stockholders	$	(284	)	$	(844	)	$	(323	)	$	(484	)

Basic per common share	$	(0.57	)	$	(1.70	)	$	(0.65	)	$	(0.98	)

Diluted per common share	$	(0.57	)	$	(1.70	)	$	(0.65	)	$	(0.98	)

⁽¹⁾

Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders and net loss available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2015 and the three and nine months ended September 30, 2014, we were required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share for the three months ended September 30, 2015 and the three and nine months ended September 30, 2014, as the inclusion of shares for stock options, restricted stock units and stock appreciation rights of 1.3 million, 5.4 million and 6.4 million, respectively, would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders and net loss available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2015 and the three and nine months ended September 30, 2014, dilutive potential weighted-average common shares outstanding would have been 498.7 million, 502.0 million and 502.8 million, respectively.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(4) Investments

(a) Net Investment Income

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


	Three months ended September 30,						Nine months ended September 30,
(Amounts in millions)	2015			2014			2015			2014
Fixed maturity securities—taxable	$	647		$	643		$	1,924		$	1,940
Fixed maturity securities—non-taxable		3			3			9			9
Commercial mortgage loans		84			82			252			246
Restricted commercial mortgage loans related to securitization entities		3			3			10			11
Equity securities		3			3			11			11
Other invested assets		26			27			103			81
Restricted other invested assets related to securitization entities		1			1			3			3
Policy loans		33			32			101			95
Cash, cash equivalents and short-term investments		3			7			10			19

Gross investment income before expenses and fees		803			801			2,423			2,415
Expenses and fees		(20	)		(23	)		(66	)		(70	)

Net investment income	$	783		$	778		$	2,357		$	2,345

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(b) Net Investment Gains (Losses)

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


	Three months ended September 30,						Nine months ended September 30,
(Amounts in millions)	2015			2014			2015			2014
Available-for-sale securities:
Realized gains	$	14		$	17		$	49		$	61
Realized losses		(18	)		(5	)		(36	)		(42	)

Net realized gains (losses) on available-for-sale securities		(4	)		12			13			19

Impairments:
Total other-than-temporary impairments		(10	)		(13	)		(13	)		(16	)
Portion of other-than-temporary impairments included in other comprehensive income (loss)		1			7			1			7

Net other-than-temporary impairments		(9	)		(6	)		(12	)		(9	)

Trading securities		12			4			2			24
Commercial mortgage loans		1			3			5			9
Net gains (losses) related to securitization entities		(1	)		(1	)		9			14
Derivative instruments ⁽¹⁾		(53	)		(38	)		(79	)		(66	)
Contingent consideration adjustment		2			(1	)		2			(1	)
Other		1			—			1			(1	)

Net investment gains (losses)	$	(51	)	$	(27	)	$	(59	)	$	(11	)

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

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 three months ended September 30, 2015 and 2014 was $186 million and $215 million, respectively, which was approximately 93% and 98%, respectively, of book value. The aggregate fair value of securities sold at a loss during the nine months ended September 30, 2015 and 2014 was $470 million and $721 million, respectively, which was approximately 94% and 95%, respectively, of book value.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following represents the activity for credit losses recognized in net income (loss) on debt securities where an other-than-temporary impairment was identified and a portion of other-than-temporary impairments was included in other comprehensive income (loss) (“OCI”) as of and for the periods indicated:


	As of or for the three months ended September 30,						As of or for the nine months ended September 30,
(Amounts in millions)	2015			2014			2015			2014
Beginning balance	$	75		$	95		$	83		$	101
Additions:
Other-than-temporary impairments not previously recognized		—			1			—			2
Reductions:
Securities sold, paid down or disposed		(9	)		(7	)		(17	)		(14	)

Ending balance	$	66		$	89		$	66		$	89

(c) Unrealized Investment Gains and Losses

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


(Amounts in millions)	September 30, 2015			December 31, 2014
Net unrealized gains (losses) on investment securities:
Fixed maturity securities	$	4,213		$	5,560
Equity securities		(17	)		32
Other invested assets		—			(2	)

Subtotal		4,196			5,590
Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves		(1,386	)		(1,656	)
Income taxes, net		(976	)		(1,372	)

Net unrealized investment gains (losses)		1,834			2,562
Less: net unrealized investment gains (losses) attributable to noncontrolling interests		103			109

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	$	1,731		$	2,453

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 periods indicated:


	As of or for the three months ended September 30,
(Amounts in millions)	2015			2014
Beginning balance	$	1,628		$	2,128
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities		70			(225	)
Adjustment to deferred acquisition costs		32			35
Adjustment to present value of future profits		(5	)		36
Adjustment to sales inducements		9			9
Adjustment to benefit reserves		23			49
Provision for income taxes		(50	)		33

Change in unrealized gains (losses) on investment securities		79			(63	)
Reclassification adjustments to net investment (gains) losses, net of taxes of $(5) and $2		8			(4	)

Change in net unrealized investment gains (losses)		87			(67	)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		(16	)		(6	)

Ending balance	$	1,731		$	2,067


	As of or for the nine months ended September 30,
(Amounts in millions)	2015			2014
Beginning balance	$	2,453		$	926
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities		(1,393	)		2,399
Adjustment to deferred acquisition costs		102			(160	)
Adjustment to present value of future profits		45			(55	)
Adjustment to sales inducements		12			(19	)
Adjustment to benefit reserves		111			(339	)
Provision for income taxes		396			(640	)

Change in unrealized gains (losses) on investment securities		(727	)		1,186
Reclassification adjustments to net investment (gains) losses, net of taxes of $— and $4		(1	)		(7	)

Change in net unrealized investment gains (losses)		(728	)		1,179
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests		(6	)		38

Ending balance	$	1,731		$	2,067

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(d) Fixed Maturity and Equity Securities

As of September 30, 2015, 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	$	5,065	$	855	$	—	$	(7	)	$	—	$	5,913
State and political subdivisions		2,280		195		—		(27	)		—		2,448
Non-U.S. government		1,836		120		—		(4	)		—		1,952
U.S. corporate:
Utilities		3,398		420		—		(18	)		—		3,800
Energy		2,664		178		—		(71	)		—		2,771
Finance and insurance		5,422		447		17		(37	)		—		5,849
Consumer—non-cyclical		3,742		423		—		(23	)		—		4,142
Technology and communications		2,292		144		—		(28	)		—		2,408
Industrial		1,254		75		—		(28	)		—		1,301
Capital goods		1,873		215		—		(11	)		—		2,077
Consumer—cyclical		1,732		114		—		(13	)		—		1,833
Transportation		1,012		89		—		(10	)		—		1,091
Other		399		27		—		(3	)		—		423

Total U.S. corporate		23,788		2,132		17		(242	)		—		25,695

Non-U.S. corporate:
Utilities		861		42		—		(6	)		—		897
Energy		1,856		105		—		(70	)		—		1,891
Finance and insurance		2,709		173		1		(6	)		—		2,877
Consumer—non-cyclical		740		30		—		(15	)		—		755
Technology and communications		975		43		—		(22	)		—		996
Industrial		1,129		34		—		(67	)		—		1,096
Capital goods		600		25		—		(15	)		—		610
Consumer—cyclical		561		10		—		(5	)		—		566
Transportation		556		59		—		(4	)		—		611
Other		2,706		218		—		(24	)		—		2,900

Total non-U.S. corporate		12,693		739		1		(234	)		—		13,199

Residential mortgage-backed		4,728		389		11		(10	)		—		5,118
Commercial mortgage-backed		2,464		126		4		(7	)		—		2,587
Other asset-backed		3,953		25		1		(40	)		—		3,939

Total fixed maturity securities		56,807		4,581		34		(571	)		—		60,851
Equity securities		300		5		—		(32	)		—		273

Total available-for-sale securities	$	57,107	$	4,586	$	34	$	(603	)	$	—	$	61,124

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of December 31, 2014, 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	$	5,006	$	995	$	—	$	(1	)	$	—		$	6,000
State and political subdivisions		2,013		236		—		(27	)		—			2,222
Non-U.S. government		1,778		144		—		(2	)		—			1,920
U.S. corporate:
Utilities		3,292		577		—		(5	)		—			3,864
Energy		2,498		265		—		(21	)		—			2,742
Finance and insurance		5,109		537		20		(13	)		—			5,653
Consumer—non-cyclical		3,489		538		—		(8	)		—			4,019
Technology and communications		2,112		217		—		(4	)		—			2,325
Industrial		1,195		100		—		(8	)		—			1,287
Capital goods		1,748		263		—		(5	)		—			2,006
Consumer—cyclical		1,750		158		—		(8	)		—			1,900
Transportation		929		114		—		(4	)		—			1,039
Other		370		31		—		—			—			401

Total U.S. corporate		22,492		2,800		20		(76	)		—			25,236

Non-U.S. corporate:
Utilities		867		48		—		(2	)		—			913
Energy		1,925		163		—		(38	)		—			2,050
Finance and insurance		2,812		203		—		(3	)		—			3,012
Consumer—non-cyclical		780		41		—		(9	)		—			812
Technology and communications		999		71		—		(4	)		—			1,066
Industrial		1,178		65		—		(18	)		—			1,225
Capital goods		605		31		—		(5	)		—			631
Consumer—cyclical		535		14		—		—			—			549
Transportation		525		70		—		(1	)		—			594
Other		3,169		257		—		(15	)		—			3,411

Total non-U.S. corporate		13,395		963		—		(95	)		—			14,263

Residential mortgage-backed		4,871		362		13		(17	)		(1	)		5,228
Commercial mortgage-backed		2,564		143		4		(9	)		—			2,702
Other asset-backed		3,735		23		1		(54	)		—			3,705

Total fixed maturity securities		55,854		5,666		38		(281	)		(1	)		61,276
Equity securities		250		32		—		(7	)		—			275

Total available-for-sale securities	$	56,104	$	5,698	$	38	$	(288	)	$	(1	)	$	61,551

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 September 30, 2015:


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities
Description of Securities
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	406	$	(7	)		10	$	—	$	—			—	$	406	$	(7	)		10
State and political subdivisions		334		(10	)		54		155		(17	)		16		489		(27	)		70
Non-U.S. government		148		(4	)		33		—		—			—		148		(4	)		33
U.S. corporate		4,313		(198	)		632		429		(44	)		69		4,742		(242	)		701
Non-U.S. corporate		2,643		(165	)		371		376		(69	)		56		3,019		(234	)		427
Residential mortgage-backed		396		(5	)		37		109		(5	)		38		505		(10	)		75
Commercial mortgage-backed		320		(6	)		54		50		(1	)		14		370		(7	)		68
Other asset-backed		870		(5	)		165		330		(35	)		55		1,200		(40	)		220

Subtotal, fixed maturity securities		9,430		(400	)		1,356		1,449		(171	)		248		10,879		(571	)		1,604
Equity securities		182		(32	)		65		—		—			—		182		(32	)		65

Total for securities in an unrealized loss position	$	9,612	$	(432	)		1,421	$	1,449	$	(171	)		248	$	11,061	$	(603	)		1,669

% Below cost—fixed maturity securities:
<20% Below cost	$	9,298	$	(340	)		1,329	$	1,238	$	(78	)		219	$	10,536	$	(418	)		1,548
20%-50% Below cost		127		(50	)		25		206		(86	)		27		333		(136	)		52
>50% Below cost		5		(10	)		2		5		(7	)		2		10		(17	)		4

Total fixed maturity securities		9,430		(400	)		1,356		1,449		(171	)		248		10,879		(571	)		1,604

% Below cost—equity securities:
<20% Below cost		106		(9	)		41		—		—			—		106		(9	)		41
20%-50% Below cost		76		(23	)		24		—		—			—		76		(23	)		24

Total equity securities		182		(32	)		65		—		—			—		182		(32	)		65

Total for securities in an unrealized loss position	$	9,612	$	(432	)		1,421	$	1,449	$	(171	)		248	$	11,061	$	(603	)		1,669


Investment grade	$	8,632	$	(332	)		1,248	$	1,194	$	(105	)		199	$	9,826	$	(437	)		1,447
Below investment grade		980		(100	)		173		255		(66	)		49		1,235		(166	)		222

Total for securities in an unrealized loss position	$	9,612	$	(432	)		1,421	$	1,449	$	(171	)		248	$	11,061	$	(603	)		1,669

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of September 30, 2015:


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities
Description of Securities
U.S. corporate:
Utilities	$	329	$	(17	)		51	$	12	$	(1	)		6	$	341	$	(18	)		57
Energy		808		(58	)		124		106		(13	)		15		914		(71	)		139
Finance and insurance		903		(26	)		125		102		(11	)		15		1,005		(37	)		140
Consumer—non-cyclical		522		(19	)		74		56		(4	)		11		578		(23	)		85
Technology and communications		604		(28	)		89		—		—			—		604		(28	)		89
Industrial		355		(19	)		50		42		(9	)		8		397		(28	)		58
Capital goods		256		(8	)		42		25		(3	)		4		281		(11	)		46
Consumer—cyclical		316		(11	)		48		64		(2	)		8		380		(13	)		56
Transportation		166		(9	)		24		22		(1	)		2		188		(10	)		26
Other		54		(3	)		5		—		—			—		54		(3	)		5

Subtotal, U.S. corporate securities		4,313		(198	)		632		429		(44	)		69		4,742		(242	)		701

Non-U.S. corporate:
Utilities		111		(4	)		17		27		(2	)		3		138		(6	)		20
Energy		554		(55	)		68		104		(15	)		13		658		(70	)		81
Finance and insurance		441		(6	)		65		30		—			7		471		(6	)		72
Consumer—non-cyclical		214		(12	)		24		32		(3	)		3		246		(15	)		27
Technology and communications		255		(10	)		36		28		(12	)		6		283		(22	)		42
Industrial		442		(42	)		62		104		(25	)		15		546		(67	)		77
Capital goods		137		(10	)		25		7		(5	)		3		144		(15	)		28
Consumer—cyclical		170		(5	)		21		—		—			—		170		(5	)		21
Transportation		105		(4	)		15		—		—			—		105		(4	)		15
Other		214		(17	)		38		44		(7	)		6		258		(24	)		44

Subtotal, non-U.S. corporate securities		2,643		(165	)		371		376		(69	)		56		3,019		(234	)		427

Total for corporate securities in an unrealized loss position	$	6,956	$	(363	)		1,003	$	805	$	(113	)		125	$	7,761	$	(476	)		1,128

As indicated in the tables 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 the increase in interest rates, mostly concentrated in our corporate securities. For securities that have been in a continuous unrealized loss position for less than 12 months, the average fair value percentage below cost was approximately 5% as of September 30, 2015.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Of the $78 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 70% of the unrealized losses were related to investment grade securities as of September 30, 2015. These unrealized losses were predominantly attributable to corporate securities and municipal securities including fixed rate securities purchased in a lower rate environment and variable rate securities purchased in a higher rate and lower spread environment. The average fair value percentage below cost for these securities was approximately 6% as of September 30, 2015. See below for additional discussion related to fixed maturity securities that have been in a continuous unrealized 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 unrealized loss position for 12 months or more by asset class as of September 30, 2015:


	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:
State and political subdivisions	$	9	$	(4	)		1	%		1	$	—	$	—		—	%		—
U.S. corporate—industrial		18		(5	)		1			2		—		—		—			—
Non-U.S. corporate:
Utilities		4		(1	)		—			1		—		—		—			—
Energy		22		(6	)		1			2		—		—		—			—
Industrial		24		(7	)		1			3		—		—		—			—
Capital goods		3		(3	)		1			1		—		—		—			—

Total non-U.S. corporate		53		(17	)		3			7		—		—		—			—

Structured securities:
Other asset-backed		67		(25	)		4			4		—		—		—			—

Total structured securities		67		(25	)		4			4		—		—		—			—

Total	$	147	$	(51	)		9	%		14	$	—	$	—		—	%		—

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:
Energy	$	4	$	(1	)		—	%		1	$	—	$	—			—	%		—
Finance and insurance		7		(3	)		1			1		—		—			—			—
Consumer—non-cyclical		4		(1	)		—			1		—		—			—			—
Industrial		4		(2	)		—			1		—		—			—			—

Total U.S. corporate		19		(7	)		1			4		—		—			—			—

Non-U.S. corporate:
Energy		4		(1	)		—			1		1		(2	)		—			1
Technology and communications		7		(7	)		1			2		4		(5	)		—			1
Industrial		14		(11	)		2			3		—		—			—			—
Capital goods		3		(2	)		1			1		—		—			—			—
Other		4		(1	)		—			1		—		—			—			—

Total non-U.S. corporate		32		(22	)		4			8		5		(7	)		—			2

Structured securities:
Other asset-backed		8		(6	)		1			1		—		—			—			—

Total structured securities		8		(6	)		1			1		—		—			—			—

Total	$	59	$	(35	)		6	%		13	$	5	$	(7	)		—	%		2

For all securities in an unrealized loss position, we expect to recover the amortized cost based on our estimate of the amount and timing of cash flows to be collected. We do not intend to sell nor do we expect that we will be required to sell these securities prior to recovering our amortized cost. See below for further discussion of gross unrealized losses by asset class.

Non-U.S. corporate

As indicated above, $46 million of gross unrealized losses were related to non-U.S. corporate fixed maturity securities that have been in an unrealized loss position for more than 12 months and were more than 20% below cost. Of the total unrealized losses for non-U.S. corporate fixed maturity securities, $18 million, or 39%, related to the industrial sector. Reduced overseas demand for metals, particularly copper and oil, has led to a decline in commodities pricing, adversely impacting the fair value of these securities.

We expect that our investments in non-U.S. 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 reasonably possible that issuers of our investments in non-U.S. corporate securities may perform worse than current expectations. Such events may lead us to recognize write-downs within our portfolio of non-U.S. corporate securities in the future.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Structured Securities

Of the $31 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, none 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 was primarily due to credit spreads that have widened since acquisition. Additionally, the fair value of certain structured securities has been 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. economy.

While we consider 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 use 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 September 30, 2015.

Despite the considerable analysis and rigor employed on our structured securities, it is reasonably possible that the underlying collateral of these investments may 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.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	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 ⁽¹⁾			Number of securities
Description of Securities
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	—	$	—			—	$	75	$	(1	)		10	$	75	$	(1	)		10
State and political subdivisions		9		—			7		267		(27	)		45		276		(27	)		52
Non-U.S. government		64		(1	)		15		22		(1	)		4		86		(2	)		19
U.S. corporate		1,646		(33	)		233		1,201		(43	)		174		2,847		(76	)		407
Non-U.S. corporate		1,529		(67	)		230		504		(28	)		67		2,033		(95	)		297
Residential mortgage-backed		180		(1	)		24		249		(17	)		87		429		(18	)		111
Commercial mortgage-backed		163		—			21		362		(9	)		49		525		(9	)		70
Other asset-backed		1,551		(12	)		215		487		(42	)		55		2,038		(54	)		270

Subtotal, fixed maturity securities		5,142		(114	)		745		3,167		(168	)		491		8,309		(282	)		1,236
Equity securities		30		(3	)		46		48		(4	)		6		78		(7	)		52

Total for securities in an unrealized loss position	$	5,172	$	(117	)		791	$	3,215	$	(172	)		497	$	8,387	$	(289	)		1,288

% Below cost—fixed maturity securities:
<20% Below cost	$	5,105	$	(103	)		741	$	3,036	$	(114	)		470	$	8,141	$	(217	)		1,211
20%-50% Below cost		37		(11	)		4		131		(53	)		15		168		(64	)		19
>50% Below cost		—		—			—		—		(1	)		6		—		(1	)		6

Total fixed maturity securities		5,142		(114	)		745		3,167		(168	)		491		8,309		(282	)		1,236

% Below cost—equity securities:
<20% Below cost		26		(2	)		40		48		(4	)		6		74		(6	)		46
20%-50% Below cost		4		(1	)		6		—		—			—		4		(1	)		6

Total equity securities		30		(3	)		46		48		(4	)		6		78		(7	)		52

Total for securities in an unrealized loss position	$	5,172	$	(117	)		791	$	3,215	$	(172	)		497	$	8,387	$	(289	)		1,288


Investment grade	$	4,581	$	(75	)		664	$	2,918	$	(145	)		424	$	7,499	$	(220	)		1,088
Below investment grade ⁽²⁾		591		(42	)		127		297		(27	)		73		888		(69	)		200

Total for securities in an unrealized loss position	$	5,172	$	(117	)		791	$	3,215	$	(172	)		497	$	8,387	$	(289	)		1,288

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

⁽²⁾	Amounts that have been in a continuous unrealized loss position for 12 months or more included $1 million of unrealized losses on other-than-temporarily impaired securities.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Less than 12 months							12 months or more							Total
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities		Fair value		Gross unrealized losses			Number of securities
Description of Securities
U.S. corporate:
Utilities	$	55	$	—			10	$	164	$	(5	)		23	$	219	$	(5	)		33
Energy		404		(16	)		56		96		(5	)		15		500		(21	)		71
Finance and insurance		401		(3	)		57		257		(10	)		35		658		(13	)		92
Consumer—non-cyclical		165		(3	)		21		182		(5	)		32		347		(8	)		53
Technology and communications		181		(3	)		27		97		(1	)		15		278		(4	)		42
Industrial		151		(4	)		21		80		(4	)		11		231		(8	)		32
Capital goods		85		—			13		122		(5	)		18		207		(5	)		31
Consumer—cyclical		132		(2	)		17		139		(6	)		18		271		(8	)		35
Transportation		52		(2	)		9		57		(2	)		6		109		(4	)		15
Other		20		—			2		7		—			1		27		—			3

Subtotal, U.S. corporate securities		1,646		(33	)		233		1,201		(43	)		174		2,847		(76	)		407

Non-U.S. corporate:
Utilities		80		—			14		43		(2	)		5		123		(2	)		19
Energy		449		(33	)		60		58		(5	)		13		507		(38	)		73
Finance and insurance		261		(2	)		41		29		(1	)		6		290		(3	)		47
Consumer—non-cyclical		142		(6	)		13		83		(3	)		9		225		(9	)		22
Technology and communications		88		(2	)		18		81		(2	)		8		169		(4	)		26
Industrial		218		(9	)		31		116		(9	)		15		334		(18	)		46
Capital goods		68		(2	)		10		38		(3	)		4		106		(5	)		14
Consumer—cyclical		10		—			3		—		—			—		10		—			3
Transportation		34		—			7		14		(1	)		1		48		(1	)		8
Other		179		(13	)		33		42		(2	)		6		221		(15	)		39

Subtotal, non-U.S. corporate securities		1,529		(67	)		230		504		(28	)		67		2,033		(95	)		297

Total for corporate securities in an unrealized loss position	$	3,175	$	(100	)		463	$	1,705	$	(71	)		241	$	4,880	$	(171	)		704

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The scheduled maturity distribution of fixed maturity securities as of September 30, 2015 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	$	2,135	$	2,147
Due after one year through five years		10,474		10,950
Due after five years through ten years		11,824		12,155
Due after ten years		21,229		23,955

Subtotal		45,662		49,207
Residential mortgage-backed		4,728		5,118
Commercial mortgage-backed		2,464		2,587
Other asset-backed		3,953		3,939

Total	$	56,807	$	60,851

As of September 30, 2015, $7,703 million of our investments (excluding mortgage-backed and asset-backed securities) were subject to certain call provisions.

As of September 30, 2015, securities issued by finance and insurance, consumer—non-cyclical, utilities and energy industry groups represented approximately 22%, 13%, 12% and 12%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. 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 September 30, 2015, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of stockholders’ equity.

(e) Commercial Mortgage Loans

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


	September 30, 2015						December 31, 2014
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Property type:
Retail	$	2,259			37	%	$	2,150			35	%
Office		1,594			26			1,643			27
Industrial		1,580			26			1,597			26
Apartments		458			7			494			8
Mixed use/other		260			4			239			4

Subtotal		6,151			100	%		6,123			100	%

Unamortized balance of loan origination fees and costs		(1	)					(1	)
Allowance for losses		(17	)					(22	)

Total	$	6,133					$	6,100


	September 30, 2015						December 31, 2014
(Amounts in millions)	Carrying value			% of total			Carrying value			% of total
Geographic region:
Pacific	$	1,594			26	%	$	1,636			27	%
South Atlantic		1,582			26			1,673			27
Middle Atlantic		860			14			826			14
Mountain		588			10			536			9
West North Central		396			6			382			6
East North Central		383			6			397			7
West South Central		295			5			268			4
New England		279			4			264			4
East South Central		174			3			141			2

Subtotal		6,151			100	%		6,123			100	%

Unamortized balance of loan origination fees and costs		(1	)					(1	)
Allowance for losses		(17	)					(22	)

Total	$	6,133					$	6,100

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables set forth the aging of past due commercial mortgage loans by property type as of the dates indicated:


	September 30, 2015
(Amounts in millions)	31 - 60 days past due			61 - 90 days past due			Greater than 90 days past due			Total past due			Current			Total
Property type:
Retail	$	—		$	—		$	—		$	—		$	2,259		$	2,259
Office		—			—			5			5			1,589			1,594
Industrial		—			—			—			—			1,580			1,580
Apartments		—			—			—			—			458			458
Mixed use/other		—			—			—			—			260			260

Total recorded investment	$	—		$	—		$	5		$	5		$	6,146		$	6,151

% of total commercial mortgage loans		—	%		—	%		—	%		—	%		100	%		100	%


	December 31, 2014
(Amounts in millions)	31 - 60 days past due			61 - 90 days past due			Greater than 90 days past due			Total past due			Current			Total
Property type:
Retail	$	—		$	—		$	—		$	—		$	2,150		$	2,150
Office		—			—			6			6			1,637			1,643
Industrial		—			—			2			2			1,595			1,597
Apartments		—			—			—			—			494			494
Mixed use/other		—			—			—			—			239			239

Total recorded investment	$	—		$	—		$	8		$	8		$	6,115		$	6,123

% of total commercial mortgage loans		—	%		—	%		—	%		—	%		100	%		100	%

As of September 30, 2015 and December 31, 2014, we had no commercial mortgage loans that were past due for more than 90 days and still accruing interest. We also did not have any commercial mortgage loans that were past due for less than 90 days on non-accrual status as of September 30, 2015 and December 31, 2014.

We evaluate the impairment of commercial mortgage loans on an individual loan basis. As of September 30, 2015, our commercial mortgage loans greater than 90 days past due included a loan with appraised values in excess of the recorded investment and the current recorded investment of the loan was expected to be recoverable.

During the nine months ended September 30, 2015 and the year ended December 31, 2014, we modified or extended 15 and 28 commercial mortgage loans, respectively, with a total carrying value of $93 million and $254 million, respectively. All of these modifications or extensions were based on current market interest rates, did not result in any forgiveness in the outstanding principal amount owed by the borrower and were not considered troubled debt restructurings.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table sets forth the allowance for credit losses and recorded investment in commercial mortgage loans as of or for the periods indicated:


	Three months ended September 30,						Nine months ended September 30,
(Amounts in millions)	2015			2014			2015			2014
Allowance for credit losses:
Beginning balance	$	18		$	27		$	22		$	33
Charge-offs		(1	)		—			(4	)		(1	)
Recoveries		—			—			—			—
Provision		—			(3	)		(1	)		(8	)

Ending balance	$	17		$	24		$	17		$	24

Ending allowance for individually impaired loans	$	—		$	—		$	—		$	—

Ending allowance for loans not individually impaired that were evaluated collectively for impairment	$	17		$	24		$	17		$	24

Recorded investment:
Ending balance	$	6,151		$	6,101		$	6,151		$	6,101

Ending balance of individually impaired loans	$	19		$	17		$	19		$	17

Ending balance of loans not individually impaired that were evaluated collectively for impairment	$	6,132		$	6,084		$	6,132		$	6,084

As of September 30, 2015, we had an individually impaired commercial mortgage loan included within the office property type with a recorded investment of $5 million, an unpaid principal balance of $6 million and charge-offs of $1 million. As of December 31, 2014, we had an individually impaired commercial mortgage loan included within the industrial property type with a recorded investment of $15 million, an unpaid principal balance of $16 million and charge-offs of $1 million, which were recorded in the first quarter of 2014. As of September 30, 2015, this loan had a recorded investment of $14 million, an unpaid principal balance of $15 million and interest income of $1 million.

In evaluating the credit quality of commercial mortgage loans, we assess the performance of the underlying loans using both quantitative and qualitative criteria. Certain risks associated with commercial mortgage loans can be evaluated by reviewing both the loan-to-value and debt service coverage ratio to understand both the probability of the borrower not being able to make the necessary loan payments as well as the ability to sell the underlying property for an amount that would enable us to recover our unpaid principal balance in the event of default by the borrower. The average loan-to-value ratio is based on our most recent estimate of the fair value for the underlying property which is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A lower loan-to-value indicates that our loan value is more likely to be recovered in the event of default by the borrower if the property was sold. The debt service coverage ratio is based on “normalized” annual net operating income of the property compared to the payments required under the terms of the loan. Normalization allows for the removal of annual one-time events such as capital expenditures, prepaid or late real estate tax payments or non-recurring third-party fees (such as legal, consulting or contract fees). This ratio is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A higher debt service coverage ratio indicates the borrower is less likely to default on the loan. The debt service coverage ratio should not be used without considering other factors associated with the

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

borrower, such as the borrower’s liquidity or access to other resources that may result in our expectation that the borrower will continue to make the future scheduled payments.

The following tables set forth the loan-to-value of commercial mortgage loans by property type as of the dates indicated:


	September 30, 2015
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100% ⁽¹⁾			Total
Property type:
Retail	$	702		$	408		$	1,069		$	62		$	18		$	2,259
Office		437			291			773			73			20			1,594
Industrial		436			278			802			62			2			1,580
Apartments		180			75			195			8			—			458
Mixed use/other		53			31			170			6			—			260

Total recorded investment	$	1,808		$	1,083		$	3,009		$	211		$	40		$	6,151

% of total		29	%		18	%		49	%		3	%		1	%		100	%

Weighted-average debt service coverage ratio		2.12			1.78			1.63			0.93			0.76			1.77

⁽¹⁾	Included $5 million of impaired loans and $35 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 120%.


	December 31, 2014
(Amounts in millions)	0% - 50%			51% - 60%			61% - 75%			76% - 100%			Greater than 100% ⁽¹⁾			Total
Property type:
Retail	$	671		$	419		$	967		$	75		$	18		$	2,150
Office		383			278			782			164			36			1,643
Industrial		451			285			778			60			23			1,597
Apartments		211			76			199			8			—			494
Mixed use/other		45			43			145			6			—			239

Total recorded investment	$	1,761		$	1,101		$	2,871		$	313		$	77		$	6,123

% of total		29	%		18	%		47	%		5	%		1	%		100	%

Weighted-average debt service coverage ratio		2.27			1.75			1.61			1.02			0.72			1.78

⁽¹⁾	Included $15 million of impaired loans, $6 million of loans past due and not individually impaired and $56 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 120%.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables set forth the debt service coverage ratio for fixed rate commercial mortgage loans by property type as of the dates indicated:


	September 30, 2015
(Amounts in millions)	Less than 1.00			1.00 - 1.25			1.26 - 1.50			1.51 - 2.00			Greater than 2.00			Total
Property type:
Retail	$	66		$	236		$	560		$	960		$	437		$	2,259
Office		96			75			279			790			347			1,587
Industrial		149			130			221			723			357			1,580
Apartments		1			41			80			203			133			458
Mixed use/other		6			1			79			136			38			260

Total recorded investment	$	318		$	483		$	1,219		$	2,812		$	1,312		$	6,144

% of total		5	%		8	%		20	%		46	%		21	%		100	%

Weighted-average loan-to-value		72	%		62	%		59	%		60	%		46	%		58	%


	December 31, 2014
(Amounts in millions)	Less than 1.00			1.00 - 1.25			1.26 - 1.50			1.51 - 2.00			Greater than 2.00			Total
Property type:
Retail	$	80		$	253		$	524		$	870		$	423		$	2,150
Office		119			101			247			780			389			1,636
Industrial		158			142			246			706			343			1,595
Apartments		1			48			88			186			171			494
Mixed use/other		6			1			61			135			36			239

Total recorded investment	$	364		$	545		$	1,166		$	2,677		$	1,362		$	6,114

% of total		6	%		9	%		19	%		44	%		22	%		100	%

Weighted-average loan-to-value		77	%		64	%		64	%		59	%		45	%		59	%

As of September 30, 2015 and December 31, 2014, we had floating rate commercial mortgage loans of $7 million and $9 million, respectively.

(f) Restricted Commercial Mortgage Loans Related To Securitization Entities

We have a consolidated securitization entity that holds commercial mortgage loans that are recorded as restricted commercial mortgage loans related to securitization entities.

(g) Restricted Other Invested Assets Related To Securitization Entities

We have consolidated securitization entities that hold certain investments that are recorded as restricted other invested assets related to securitization entities. The consolidated securitization entities hold certain investments as trading securities and whereby the changes in fair value are recorded in current period income (loss). The trading securities comprise asset-backed securities, including residual interest in certain policy loan securitization entities and highly rated bonds that are primarily backed by credit card receivables.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(5) Derivative Instruments

Our business activities routinely deal with fluctuations in interest rates, equity prices, currency exchange rates and other asset and liability prices. We use derivative instruments to mitigate or reduce certain of these risks. We have established policies for managing each of these risks, including prohibitions on derivatives market-making and other speculative derivatives activities. These policies require the use of derivative instruments in concert with other techniques to reduce or mitigate these risks. While we use derivatives to mitigate or reduce risks, certain derivatives do not meet the accounting requirements to be designated as hedging instruments and are denoted as “derivatives not designated as hedges” in the following disclosures. For derivatives that meet the accounting requirements to be designated as hedges, the following disclosures for these derivatives are denoted as “derivatives designated as hedges,” which include both cash flow and fair value hedges.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table sets forth our positions in derivative instruments as of the dates indicated:


	Derivative assets					Derivative liabilities
		Fair value					Fair value
(Amounts in millions)	Balance sheet classification	September 30, 2015		December 31, 2014		Balance sheet classification	September 30, 2015		December 31, 2014
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps	Other invested assets	$	766	$	639	Other liabilities	$	41	$	27
Inflation indexed swaps	Other invested assets		2		—	Other liabilities		14		42
Foreign currency swaps	Other invested assets		8		6	Other liabilities		—		—

Total cash flow hedges			776		645			55		69

Total derivatives designated as hedges			776		645			55		69

Derivatives not designated as hedges
Interest rate swaps	Other invested assets		480		452	Other liabilities		249		177
Interest rate swaps related to securitization entities	Restricted other invested assets		—		—	Other liabilities		30		26
Foreign currency swaps	Other invested assets		—		—	Other liabilities		22		7
Credit default swaps	Other invested assets		1		4	Other liabilities		—		—
Credit default swaps related to securitization entities	Restricted other invested assets		—		—	Other liabilities		10		17
Equity index options	Other invested assets		15		17	Other liabilities		—		—
Financial futures	Other invested assets		—		—	Other liabilities		—		—
Equity return swaps	Other invested assets		15		—	Other liabilities		—		1
Forward bond purchase commitments	Other invested assets		13		—	Other liabilities		—		—
Other foreign currency contracts	Other invested assets		25		14	Other liabilities		34		13
GMWB embedded derivatives	Reinsurance recoverable ⁽¹⁾		19		13	Policyholder account balances ⁽²⁾		390		291
Fixed index annuity embedded derivatives	Other assets		—		—	Policyholder account balances ⁽³⁾		304		276
Indexed universal life embedded derivatives	Reinsurance recoverable		—		—	Policyholder account balances ⁽⁴⁾		10		7

Total derivatives not designated as hedges			568		500			1,049		815

Total derivatives		$	1,344	$	1,145		$	1,104	$	884

⁽¹⁾	Represents embedded derivatives associated with the reinsured portion of our guaranteed minimum withdrawal benefits (“GMWB”) liabilities.

⁽²⁾	Represents the embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.

⁽³⁾	Represents the embedded derivatives associated with our fixed index annuity liabilities.

⁽⁴⁾	Represents the embedded derivatives associated with our indexed universal life liabilities.

The fair value of derivative positions presented above was not offset by the respective collateral amounts retained or provided under these agreements.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for GMWB, fixed index annuity embedded derivatives and indexed universal life embedded derivatives, the change between periods is best illustrated by the number of policies. The following tables represent activity associated with derivative instruments as of the dates indicated:


(Notional in millions)	Measurement	December 31, 2014		Additions		Maturities/ terminations			September 30, 2015
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps	Notional	$	11,961	$	—	$	(43	)	$	11,918
Inflation indexed swaps	Notional		571		13		(11	)		573
Foreign currency swaps	Notional		35		—		—			35

Total cash flow hedges			12,567		13		(54	)		12,526

Total derivatives designated as hedges			12,567		13		(54	)		12,526

Derivatives not designated as hedges
Interest rate swaps	Notional		5,074		1,850		(893	)		6,031
Interest rate swaps related to securitization entities	Notional		77		—		(8	)		69
Credit default swaps	Notional		394		—		(250	)		144
Credit default swaps related to securitization entities	Notional		312		—		—			312
Equity index options	Notional		994		483		(517	)		960
Financial futures	Notional		1,331		4,251		(4,280	)		1,302
Equity return swaps	Notional		108		286		(263	)		131
Foreign currency swaps	Notional		104		37		—			141
Forward bond purchase commitments	Notional		—		1,140		—			1,140
Other foreign currency contracts	Notional		425		1,136		(810	)		751

Total derivatives not designated as hedges			8,819		9,183		(7,021	)		10,981

Total derivatives		$	21,386	$	9,196	$	(7,075	)	$	23,507



(Number of policies)	Measurement	December 31, 2014		Additions		Maturities/ terminations			September 30, 2015
Derivatives not designated as hedges
GMWB embedded derivatives	Policies		39,015		—		(2,202	)		36,813
Fixed index annuity embedded derivatives	Policies		13,901		2,950		(275	)		16,576
Indexed universal life embedded derivatives	Policies		421		395		(25	)		791

Cash Flow Hedges

Certain derivative instruments are designated as cash flow hedges. The changes in fair value of these instruments are recorded as a component of OCI. We designate and account for the following as cash flow hedges when they have met the effectiveness requirements: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments; (ii) various types of interest rate swaps to convert floating rate liabilities into fixed rate liabilities; (iii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

currency cash flow exposure of foreign currency denominated investments; (iv) forward starting interest rate swaps to hedge against changes in interest rates associated with future fixed rate bond purchases and/or interest income; (v) forward bond purchase commitments to hedge against the variability in the anticipated cash flows required to purchase future fixed rate bonds; and (vi) other instruments to hedge the cash flows of various forecasted transactions.

The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the three months ended September 30, 2015:


(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI			Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss)⁽¹⁾		Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	344		$	22		Net investment income	$	4	Net investment gains (losses)
Interest rate swaps hedging liabilities		(23	)		—		Interest expense		—	Net investment gains (losses)
Inflation indexed swaps		32			(5	)	Net investment income		1	Net investment gains (losses)
Forward bond purchase commitments		—			1		Net investment income		—	Net investment gains (losses)

Total	$	353		$	18			$	5

⁽¹⁾	Represents ineffective portion of cash flow hedges as there were no amounts excluded from the measurement of effectiveness.

The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the three months ended September 30, 2014:


(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI			Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss)⁽¹⁾		Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	151		$	17		Net investment income	$	2	Net investment gains (losses)
Interest rate swaps hedging liabilities		(8	)		—		Interest expense		—	Net investment gains (losses)
Inflation indexed swaps		20			(3	)	Net investment income		—	Net investment gains (losses)
Foreign currency swaps		2			—		Net investment income		—	Net investment gains (losses)
Forward bond purchase commitments		4			—		Net investment income		—	Net investment gains (losses)

Total	$	169		$	14			$	2

⁽¹⁾	Represents ineffective portion of cash flow hedges as there were no amounts excluded from the measurement of effectiveness.

GENWORTH FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the nine months ended September 30, 2015:


(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI			Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss)⁽¹⁾		Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	135		$	61		Net investment income	$	1	Net investment gains (losses)
Interest rate swaps hedging liabilities		(14	)		—		Interest expense		—	Net investment gains (losses)
Inflation indexed swaps		29			(2	)	Net investment income		1	Net investment gains (losses)
Foreign currency swaps		2			—		Net investment income		—	Net investment gains (losses)
Forward bond purchase commitments		—			1		Net investment income		—	Net investment gains (losses)

Total	$	152		$	60			$	2

⁽¹⁾	Represents ineffective portion of cash flow hedges as there were no amounts excluded from the measurement of effectiveness.

The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the nine months ended September 30, 2014:


(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI		Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss)⁽¹⁾		Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	723		$	45	Net investment income	$	9	Net investment gains (losses)
Interest rate swaps hedging liabilities		(42	)		1	Interest expense		—	Net investment gains (losses)
Inflation indexed swaps		(10	)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company