GENWORTH FINANCIAL INC - Quarter Report: 2023 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

For the quarterly period ended June 30, 2023

OR

                

                

Commission file number 001-32195

 

GENWORTH FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

 

(804) 281-6000

(Registrant’s telephone number, including area code)

 

TABLE OF CONTENTS

		June 30, 2023				December 31, 2022
						(As adjusted)
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value (amortized cost of $49,864 and $50,834, respectively, and allowance for credit losses of $4 and $—, respectively, as of June 30, 2023 and December 31, 2022)		$	46,070			$	46,583
Equity securities, at fair value			378				319
Commercial mortgage loans (net of unamortized balance of loan origination fees and costs of $4 as of June 30, 2023 and December 31, 2022)			6,876				7,032
Less: Allowance for credit losses			(24	)			(22	)
Commercial mortgage loans, net			6,852				7,010
Policy loans			2,270				2,139
Limited partnerships			2,585				2,331
Other invested assets			648				566
Total investments			58,803				58,948
Cash, cash equivalents and restricted cash			2,173				1,799
Accrued investment income			553				643
Deferred acquisition costs			2,096				2,211
Intangible assets			201				203
Reinsurance recoverable			19,113				19,059
Less: Allowance for credit losses			(64	)			(63	)
Reinsurance recoverable, net			19,049				18,996
Other assets			445				488
Deferred tax asset			1,954				1,983
Market risk benefit assets			37				26
Separate account assets			4,533				4,417
Total assets		$	89,844			$	89,714
Liabilities and equity
Liabilities:
Future policy benefits		$	56,443			$	55,407
Policyholder account balances			15,922				16,564
Market risk benefit liabilities			666				748
Liability for policy and contract claims			628				683
Unearned premiums			175				203
Other liabilities			1,607				1,687
Long-term borrowings			1,601				1,611
Separate account liabilities			4,533				4,417
Liabilities related to discontinued operations			2				8
Total liabilities			81,577				81,328
Commitments and contingencies (Note 18)
Equity:
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 603 million and 600 million shares issued as of June 30, 2023 and December 31, 2022, respectively; 467 million and 495 million shares outstanding as of June 30, 2023 and December 31, 2022, respectively			1				1
Additional paid-in capital			11,869				11,869
Accumulated other comprehensive income (loss)			(2,861	)			(2,614	)
Retained earnings			1,398				1,139
Treasury stock, at cost (136 million and 105 million shares as of June 30, 2023 and December 31, 2022, respectively)			(2,947	)			(2,764	)
Total Genworth Financial, Inc.’s stockholders’ equity			7,460				7,631
Noncontrolling interests			807				755
Total equity			8,267				8,386
Total liabilities and equity		$	89,844			$	89,714

		Three months ended June 30,								Six months ended June 30,
		2023				2022				2023				2022
						(As Adjusted)								(As Adjusted)
Revenues:
Premiums		$	902			$	916			$	1,817			$	1,833
Net investment income			785				787				1,572				1,551
Net investment gains (losses)			39				19				28				61
Policy fees and other income			166				165				329				335
Total revenues			1,892				1,887				3,746				3,780
Benefits and expenses:
Benefits and other changes in policy reserves			1,175				768				2,351				1,935
Liability remeasurement (gains) losses			70				24				55				(40	)
Changes in fair value of market risk benefits and associated hedges			(19	)			20				(2	)			(21	)
Interest credited			126				126				252				251
Acquisition and operating expenses, net of deferrals			226				579				466				815
Amortization of deferred acquisition costs and intangibles			64				84				136				172
Interest expense			29				26				58				52
Total benefits and expenses			1,671				1,627				3,316				3,164
Income from continuing operations before income taxes			221				260				430				616
Provision for income taxes			55				62				110				146
Income from continuing operations			166				198				320				470
Income (loss) from discontinued operations, net of taxes			2				(1	)			2				(3	)
Net income			168				197				322				467
Less: net income from continuing operations attributable to noncontrolling interests			31				38				63				68
Less: net income from discontinued operations attributable to noncontrolling interests			—				—				—				—
Net income available to Genworth Financial, Inc.’s common stockholders		$	137			$	159			$	259			$	399
Net income available to Genworth Financial, Inc.’s common stockholders:
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders		$	135			$	160			$	257			$	402
Income (loss) from discontinued operations available to Genworth Financial, Inc.’s common stockholders			2				(1	)			2				(3	)
Net income available to Genworth Financial, Inc.’s common stockholders		$	137			$	159			$	259			$	399
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders per share:
Basic		$	0.28			$	0.32			$	0.53			$	0.79
Diluted		$	0.28			$	0.31			$	0.53			$	0.78
Net income available to Genworth Financial, Inc.’s common stockholders per share:
Basic		$	0.29			$	0.31			$	0.54			$	0.79
Diluted		$	0.29			$	0.31			$	0.53			$	0.77
Weighted-average common shares outstanding:
Basic			473.2				508.9				482.7				508.6
Diluted			478.1				514.1				489.1				515.7

		Three months ended June 30,								Six months ended June 30,
		2023				2022				2023				2022
						(As adjusted)								(As adjusted)
Net income		$	168			$	197			$	322			$	467
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on securities without an allowance for credit losses			(567	)			(3,697	)			358				(7,664	)
Net unrealized gains (losses) on securities with an allowance for credit losses			6				—				—				—
Derivatives qualifying as hedges			(120	)			(344	)			(46	)			(580	)
Change in discount rate used to measure future policy benefits			664				5,280				(561	)			10,751
Change in instrument-specific credit risk of market risk benefits			—				1				1				3
Foreign currency translation and other adjustments			4				(7	)			8				(12	)
Total other comprehensive income (loss)			(13	)			1,233				(240	)			2,498
Total comprehensive income			155				1,430				82				2,965
Less: comprehensive income (loss) attributable to noncontrolling interests			26				10				70				(1	)
Total comprehensive income available to Genworth Financial, Inc.’s common stockholders		$	129			$	1,420			$	12			$	2,966

 

6

		Six months ended June 30, 2023
		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 equity
Balances as of December 31, 2022 (as adjusted)		$	1			$	11,869			$	(2,614	)		$	1,139			$	(2,764	)		$	7,631			$	755			$	8,386
Repurchase of subsidiary shares			—				—				—				—				—				—				(12	)			(12	)
Comprehensive income (loss):
Net income			—				—				—				259				—				259				63				322
Other comprehensive income (loss), net of taxes			—				—				(247	)			—				—				(247	)			7				(240	)
Total comprehensive income																							12				70				82
Treasury stock acquired in connection with share repurchases			—				—				—				—				(183	)			(183	)			—				(183	)
Dividends to noncontrolling interests			—				—				—				—				—				—				(9	)			(9	)
Stock-based compensation expense and exercises and other			—				—				—				—				—				—				3				3
Balances as of June 30, 2023		$	1			$	11,869			$	(2,861	)		$	1,398			$	(2,947	)		$	7,460			$	807			$	8,267

		Six months ended June 30, 2022
		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 equity
Balances as of December 31, 2021 (as adjusted)		$	1			$	11,858			$	(5,855	)		$	225			$	(2,700	)		$	3,529			$	756			$	4,285
Comprehensive income (loss):
Net income			—				—				—				399				—				399				68				467
Other comprehensive income (loss), net of taxes			—				—				2,567				—				—				2,567				(69	)			2,498
Total comprehensive income (loss)																							2,966				(1	)			2,965
Treasury stock acquired in connection with share repurchases			—				—				—				—				(15	)			(15	)			—				(15	)
Dividends to noncontrolling interests			—				—				—				—				—				—				(4	)			(4	)
Stock-based compensation expense and exercises and other			—				1				—				—				—				1				—				1
Balances as of June 30, 2022 (as adjusted)		$	1			$	11,859			$	(3,288	)		$	624			$	(2,715	)		$	6,481			$	751			$	7,232

		Six months ended June 30,
		2023				2022
						(As adjusted)
Cash flows from (used by) operating activities:
Net income		$	322			$	467
Less (income) loss from discontinued operations, net of taxes			(2	)			3
Adjustments to reconcile net income to net cash from operating activities:
Amortization of fixed maturity securities discounts and premiums			(58	)			(84	)
Net investment (gains) losses			(28	)			(61	)
Changes in fair value of market risk benefits and associated hedges			(2	)			(21	)
Charges assessed to policyholders			(291	)			(289	)
Acquisition costs deferred			(4	)			(7	)
Amortization of deferred acquisition costs and intangibles			136				172
Deferred income taxes			107				143
Derivative instruments, limited partnerships and other			(222	)			(163	)
Stock-based compensation expense			25				20
Change in certain assets and liabilities:
Accrued investment income and other assets			(66	)			(71	)
Insurance reserves			525				641
Other liabilities, policy and contract claims and other policy-related balances			(165	)			(382	)
Cash used by operating activities—discontinued operations			(2	)			(31	)
Net cash from operating activities			275				337
Cash flows from (used by) investing activities:
Proceeds from maturities and repayments of investments:
Fixed maturity securities			1,144				1,495
Commercial mortgage loans			269				314
Limited partnerships and other invested assets			67				99
Proceeds from sales of investments:
Fixed maturity and equity securities			1,289				1,302
Purchases and originations of investments:
Fixed maturity and equity securities			(1,443	)			(1,800	)
Commercial mortgage loans			(113	)			(568	)
Limited partnerships and other invested assets			(301	)			(297	)
Short-term investments, net			(7	)			(24	)
Policy loans, net			32				14
Other			(20	)			—
Net cash from investing activities			917				535
Cash flows from (used by) financing activities:
Deposits to universal life and investment contracts			303				314
Withdrawals from universal life and investment contracts			(893	)			(779	)
Repayment and repurchase of long-term debt			(11	)			(130	)
Repurchase of subsidiary shares			(12	)			—
Treasury stock acquired in connection with share repurchases			(181	)			(15	)
Dividends paid to noncontrolling interests			(9	)			(4	)
Other, net			(15	)			(105	)
Net cash used by financing activities			(818	)			(719	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash			—				—
Net change in cash, cash equivalents and restricted cash			374				153
Cash, cash equivalents and restricted cash at beginning of period			1,799				1,571
Cash, cash equivalents and restricted cash at end of period			2,173				1,724
Less cash, cash equivalents and restricted cash of discontinued operations at end of period			—				—
Cash, cash equivalents and restricted cash of continuing operations at end of period		$	2,173			$	1,724

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 its common stock, which was completed on May 28, 2004. On April 1, 2013, Genworth Holdings completed a holding company reorganization pursuant to which Genworth Holdings became a direct, 100% owned subsidiary of a new public holding company that it had formed. The new public holding company was incorporated in Delaware on December 5, 2012, in connection with the reorganization, and was renamed Genworth Financial, 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 its affiliate companies in which it holds a majority voting interest or power to direct activities of certain variable interest entities (“VIEs”), which on a consolidated basis is referred to as “Genworth,” the “Company,” “we,” “us” or “our” unless the context otherwise requires. All intercompany accounts and transactions have been eliminated in consolidation. References to “Genworth Financial” refer solely to Genworth Financial, Inc., and not to any of its consolidated subsidiaries.

Beginning in the first quarter of 2023, we changed our operating segments to better align with how we manage our business. The changes allow us to sharpen our focus on common aspects of products within each segment and enhance understanding of business performance. All prior period financial information has been re-presented to reflect the reorganized segment reporting structure. Under the new reporting structure, we operate our business through the following three operating segments:

 

 

 

In addition to our three operating segments, we also have Corporate and Other, which includes debt financing expenses that are incurred at the Genworth Holdings level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other businesses that are reported outside of our operating segments, such as certain international businesses and discontinued operations. Corporate and Other also includes start-up results related to fee-based services, care support and advice, clinical assessments and consulting offered by CareScout LLC (“CareScout”) to advance our senior care growth initiatives.

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

 

9

 

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 2022 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

On May 2, 2022, Genworth Financial’s Board of Directors authorized a share repurchase program under which Genworth Financial may repurchase up to $350 million of its outstanding Class A common stock. Pursuant to the program, during the six months ended June 30, 2023, Genworth Financial repurchased 31,771,972 shares of its common stock at an average price of $5.67 per share for a total cost of $183 million, including excise taxes and other costs paid in connection with acquiring the shares. The repurchased shares were recorded at cost and presented as treasury stock in a separate caption in equity in our condensed consolidated balance sheets. Genworth Financial also authorized share repurchases through a Rule 10b5-1 trading plan under which 3,703,015 shares of its common stock were repurchased during July 2023 at an average price of $5.40 per share for a total cost of $20 million before excise taxes. On uy3, 2023, Genworth Financial’s Board of Directors authorized an additional $350 million of share repurchases under the program, increasing the remaining authorized amount under program to approximately $436 million. Under the program, share repurchases may be made at Genworth’s discretion from time to time in open market transactions, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. The timing and number of future shares repurchased under the share repurchase program will depend on a variety of factors, including Genworth Financial’s stock price and trading volume, and general business and market conditions, among other factors. The authorization has no expiration date and may be modified, suspended or terminated at any time.